1 00:00:02,560 --> 00:00:07,080 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,000 --> 00:00:10,560 Speaker 2: Your sense is right that this is the path we're 3 00:00:10,640 --> 00:00:14,040 Speaker 2: heading where these tariffs will stay. And in fact, the 4 00:00:14,080 --> 00:00:18,079 Speaker 2: milted treatment's criticism of government intervention, which is that once 5 00:00:18,120 --> 00:00:20,680 Speaker 2: you start, it's hard to sunset anything. 6 00:00:30,120 --> 00:00:33,040 Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 7 00:00:33,080 --> 00:00:35,559 Speaker 3: and this is trump Anomics, the podcast that looks at 8 00:00:35,600 --> 00:00:39,360 Speaker 3: the economic world of Donald Trump, how he's already shaped 9 00:00:39,400 --> 00:00:42,000 Speaker 3: the global economy and what on earth is going to 10 00:00:42,040 --> 00:00:47,000 Speaker 3: happen next. And this week we're zoning in again on trade. 11 00:00:47,120 --> 00:00:49,519 Speaker 3: I mean, we've all been through another round of tariff 12 00:00:49,560 --> 00:00:52,400 Speaker 3: deadlines in the last few days. There's a bunch of 13 00:00:52,440 --> 00:00:56,640 Speaker 3: countries around the world feeling could have been worse, Others 14 00:00:56,760 --> 00:01:00,840 Speaker 3: facing a severe case of tariff sticker shock, for example, 15 00:01:00,880 --> 00:01:03,320 Speaker 3: who have the misfortune of running a thirty eight billion 16 00:01:03,400 --> 00:01:06,759 Speaker 3: dollar trade surplus with the US. The Swiss president's actually 17 00:01:06,760 --> 00:01:10,000 Speaker 3: in the air to Washington as we record this on Tuesday, 18 00:01:10,000 --> 00:01:13,319 Speaker 3: the fifth of August, and she's hoping to negotiate down 19 00:01:13,440 --> 00:01:17,520 Speaker 3: the shocking thirty nine percent tariff rate that is otherwise 20 00:01:17,560 --> 00:01:20,880 Speaker 3: going to kick in on August seventh. So all these 21 00:01:21,120 --> 00:01:24,520 Speaker 3: months of so called trade talks between the US and 22 00:01:24,600 --> 00:01:28,880 Speaker 3: its trading partners have been messy and not always about trade. 23 00:01:29,720 --> 00:01:32,640 Speaker 3: For the negotiators charged with striking a deal with the US, 24 00:01:32,800 --> 00:01:36,240 Speaker 3: you have to think pride and points at principle were 25 00:01:36,240 --> 00:01:39,000 Speaker 3: often the first to go. But what do all these 26 00:01:39,040 --> 00:01:42,520 Speaker 3: deals and understandings actually add up to, and how is 27 00:01:42,560 --> 00:01:45,840 Speaker 3: the global economy going to be affected? What difference has 28 00:01:45,880 --> 00:01:48,480 Speaker 3: it made to the impact on ordinary US consumers that 29 00:01:48,560 --> 00:01:51,640 Speaker 3: more than a trillion dollars worth of US imports have 30 00:01:51,760 --> 00:01:56,280 Speaker 3: been exempted from tariffs, sometimes very openly, often for reasons 31 00:01:56,320 --> 00:01:59,960 Speaker 3: that are not entirely transparent. Those are a lot of 32 00:02:00,080 --> 00:02:03,040 Speaker 3: weighty questions, and I have one of my favorite double 33 00:02:03,080 --> 00:02:06,960 Speaker 3: acts to answer them, sitting in Washington, DC today, Sean Donnan, 34 00:02:07,320 --> 00:02:11,520 Speaker 3: senior correspondent on the US and Global economy for Bloomberg Sewan, 35 00:02:11,639 --> 00:02:12,760 Speaker 3: fantastic to have you back. 36 00:02:13,040 --> 00:02:14,040 Speaker 1: Oh it's great to be here. 37 00:02:15,360 --> 00:02:19,120 Speaker 3: And again Anna Wong, chief US economist at Bloomberg Economics, 38 00:02:19,120 --> 00:02:21,200 Speaker 3: who's worked at the FED and served in the Trump 39 00:02:21,240 --> 00:02:25,239 Speaker 3: White House between twenty nineteen and twenty twenty, once comment 40 00:02:25,400 --> 00:02:29,000 Speaker 3: at the Council of Economic Advisors. Hi, Anna, happy to 41 00:02:29,040 --> 00:02:29,280 Speaker 3: be here. 42 00:02:29,360 --> 00:02:36,720 Speaker 2: Of Stefan. 43 00:02:36,960 --> 00:02:37,320 Speaker 1: Sean. 44 00:02:37,560 --> 00:02:39,520 Speaker 3: Of course, China is a bit of an exception to this, 45 00:02:39,600 --> 00:02:41,280 Speaker 3: and we'll get on to it. We have not seen 46 00:02:41,280 --> 00:02:43,600 Speaker 3: a formal deal there, and the deadline may well be 47 00:02:43,639 --> 00:02:47,280 Speaker 3: pushed head again. But stepping back from that big exception, 48 00:02:48,080 --> 00:02:49,440 Speaker 3: if this was said to be a bit of a 49 00:02:49,480 --> 00:02:52,480 Speaker 3: shakedown by the US, I mean, it seems to have 50 00:02:52,480 --> 00:02:55,840 Speaker 3: been quite successful, right. I mean, by and large, the 51 00:02:55,960 --> 00:02:59,400 Speaker 3: US hasn't really chickened out, as the claim was often made, 52 00:02:59,400 --> 00:03:01,919 Speaker 3: but the rest to the world it's sort of carved in. 53 00:03:02,200 --> 00:03:03,679 Speaker 3: That's the impression, Is that right? 54 00:03:04,320 --> 00:03:07,359 Speaker 1: I think so far, I think that's right, Although I 55 00:03:07,400 --> 00:03:09,400 Speaker 1: think what we have to keep in mind is that 56 00:03:09,480 --> 00:03:12,400 Speaker 1: we really haven't seen any final text to any of 57 00:03:12,400 --> 00:03:14,560 Speaker 1: these agreements. There's still a lot of big issues to 58 00:03:14,600 --> 00:03:17,280 Speaker 1: be worked out. All of these things could fall apart 59 00:03:17,720 --> 00:03:20,239 Speaker 1: at a moment's noticed or in a single social media 60 00:03:20,280 --> 00:03:23,960 Speaker 1: post from President Trump. But essentially what we've seen is 61 00:03:24,080 --> 00:03:27,880 Speaker 1: President Trump take another step and cementing in these new 62 00:03:27,960 --> 00:03:30,799 Speaker 1: higher tariffs. I think one of the things that's fascinating 63 00:03:30,880 --> 00:03:33,560 Speaker 1: is how he's changed the way we talk about these things. 64 00:03:33,720 --> 00:03:35,800 Speaker 4: Coming into this week, people have talked about, Oh, the 65 00:03:35,840 --> 00:03:39,760 Speaker 4: EU has managed to negotiate a fifteen percent tariff, and 66 00:03:39,800 --> 00:03:43,160 Speaker 4: that's down from a thirty percent tarifwill actually the tariff 67 00:03:43,200 --> 00:03:46,320 Speaker 4: is going up from ten percent to fifteen percent on 68 00:03:47,680 --> 00:03:49,840 Speaker 4: imports from the European. 69 00:03:49,520 --> 00:03:51,480 Speaker 1: Union, and of course it was much much lower than 70 00:03:51,520 --> 00:03:54,680 Speaker 1: that as recently as January of this year. So look, 71 00:03:54,840 --> 00:03:57,840 Speaker 1: President Trump is putting a tarffwall around the United States. 72 00:03:58,240 --> 00:04:01,760 Speaker 1: It's a tariff wall that added some layers. It's also 73 00:04:01,800 --> 00:04:03,880 Speaker 1: got a few doors through it and the exemptions that 74 00:04:03,920 --> 00:04:09,000 Speaker 1: you mentioned. But the project is successful, at least if 75 00:04:09,040 --> 00:04:11,800 Speaker 1: you're judging it on the political side. And I think 76 00:04:11,960 --> 00:04:15,000 Speaker 1: this is where we move into a different phase, and 77 00:04:15,000 --> 00:04:20,440 Speaker 1: that's the economics of this project, and that's where we're 78 00:04:20,640 --> 00:04:24,200 Speaker 1: just now starting to get the first data that raises 79 00:04:24,240 --> 00:04:26,919 Speaker 1: some questions over whether or not Trump is going to 80 00:04:26,960 --> 00:04:30,480 Speaker 1: be able to bring in this golden age that he 81 00:04:30,520 --> 00:04:35,039 Speaker 1: has promised to the American people and deliver the reindustrialization 82 00:04:35,160 --> 00:04:40,760 Speaker 1: of America, a new era of American I guess exceptionalism, 83 00:04:40,800 --> 00:04:41,760 Speaker 1: although of a different kind. 84 00:04:42,440 --> 00:04:44,320 Speaker 3: I would say, we're definitely going to get into the 85 00:04:44,360 --> 00:04:46,520 Speaker 3: impact on the US in a minute. I guess we'd 86 00:04:46,560 --> 00:04:48,280 Speaker 3: have to say. I mean, if Donald Trump is one 87 00:04:48,839 --> 00:04:52,320 Speaker 3: free trade definitely lost so it just remind us when 88 00:04:52,360 --> 00:04:54,520 Speaker 3: you're thinking about when you say we've put the wall 89 00:04:54,560 --> 00:04:58,800 Speaker 3: around the US, just updatus on where tariffs are now 90 00:04:59,040 --> 00:05:02,000 Speaker 3: relative to for Donald Trump took office, because as you 91 00:05:02,080 --> 00:05:04,680 Speaker 3: point out, there's been a sort of expectations of management 92 00:05:04,720 --> 00:05:08,200 Speaker 3: along the way. We had those announcements in the Rose 93 00:05:08,240 --> 00:05:10,680 Speaker 3: Garden on April second, which kind of puts some very 94 00:05:10,720 --> 00:05:13,040 Speaker 3: high numbers, and now the numbers look a bit smaller, 95 00:05:13,080 --> 00:05:15,640 Speaker 3: but they're still a lot higher than they were a 96 00:05:15,720 --> 00:05:16,440 Speaker 3: year ago. 97 00:05:16,480 --> 00:05:18,760 Speaker 1: Absolutely, or a lot higher than they were six seven 98 00:05:18,760 --> 00:05:22,000 Speaker 1: months ago. We came into this year with the average 99 00:05:22,040 --> 00:05:25,000 Speaker 1: applied ter freight in the United States sitting are out 100 00:05:25,040 --> 00:05:28,200 Speaker 1: somewhere between two and three percent. It is now sitting 101 00:05:28,240 --> 00:05:32,920 Speaker 1: somewhere around fifteen percent, and it's threatening to go higher. Still. 102 00:05:33,000 --> 00:05:36,000 Speaker 1: We still are waiting for sectoral tariffs to be announced 103 00:05:36,000 --> 00:05:42,240 Speaker 1: on pharmaceuticals, semiconductors, lumber and all the things that are 104 00:05:42,560 --> 00:05:47,840 Speaker 1: made of lumber that include semiconductors, and so there's a 105 00:05:47,839 --> 00:05:50,200 Speaker 1: lot more tariffs to come potentially. To put that in 106 00:05:50,320 --> 00:05:53,360 Speaker 1: historical context, these are the highest tariff in almost one 107 00:05:53,400 --> 00:05:58,240 Speaker 1: hundred years. Nothing like this has happened since nineteen thirty 108 00:05:58,360 --> 00:06:01,480 Speaker 1: and the smooth Holli terror at the time. 109 00:06:01,760 --> 00:06:05,440 Speaker 3: Our economists have working in the sort of trade modeling 110 00:06:05,520 --> 00:06:09,120 Speaker 3: which strakes from everything and just says, other things being equal, 111 00:06:09,560 --> 00:06:12,880 Speaker 3: that there's a global impact of this kind of tariff 112 00:06:12,960 --> 00:06:16,000 Speaker 3: shock of maybe two trillion dollars by the end of 113 00:06:16,200 --> 00:06:20,040 Speaker 3: twenty twenty seven. Output that would have happened, trade that 114 00:06:20,080 --> 00:06:22,159 Speaker 3: would have happened, that's not going to happen. But Anna, 115 00:06:22,279 --> 00:06:25,799 Speaker 3: I know in the short run you see some powerful 116 00:06:26,120 --> 00:06:29,719 Speaker 3: offsetting factors or maybe one in particular that's helping to 117 00:06:29,800 --> 00:06:33,520 Speaker 3: offset that shock at at least for the short term, 118 00:06:33,560 --> 00:06:34,880 Speaker 3: and it has really made a difference to the way 119 00:06:34,880 --> 00:06:36,040 Speaker 3: we perceive the impact. 120 00:06:36,520 --> 00:06:39,080 Speaker 2: Yeah, So Stephanie, I would call that the dog that 121 00:06:39,200 --> 00:06:43,400 Speaker 2: did not bark in this whole forecast that US tariff 122 00:06:43,760 --> 00:06:47,640 Speaker 2: trade war would plunge the world into slower growth is 123 00:06:47,760 --> 00:06:51,760 Speaker 2: the dollar. So in all these economic models, internally, what 124 00:06:51,800 --> 00:06:55,560 Speaker 2: the model forecast also is that the dollar would appreciate 125 00:06:55,839 --> 00:06:59,800 Speaker 2: in response to tish And that's because when there's higher 126 00:06:59,839 --> 00:07:04,600 Speaker 2: to import volume is supposed to decrease. As import volume decreased, 127 00:07:04,680 --> 00:07:08,839 Speaker 2: than the demand of US firms for foreign currency falls, 128 00:07:09,040 --> 00:07:12,920 Speaker 2: and therefore the relative demand supply of dollar would be 129 00:07:13,080 --> 00:07:17,280 Speaker 2: shifting in favor of appreciation the dollars since there's relatively 130 00:07:17,360 --> 00:07:23,400 Speaker 2: less outflows. Instead, the dollar has depreciated by about ten 131 00:07:23,440 --> 00:07:27,520 Speaker 2: percent year to date, and for one of the biggest 132 00:07:27,520 --> 00:07:31,720 Speaker 2: targets of this trade wars China, right, and China's remen 133 00:07:31,800 --> 00:07:35,120 Speaker 2: be actually stayed pretty constant vis are the US, which 134 00:07:35,200 --> 00:07:39,720 Speaker 2: means that China's currency has actually depreciated against the rest 135 00:07:39,760 --> 00:07:43,119 Speaker 2: of the world by double digit in the past six months. 136 00:07:43,200 --> 00:07:47,520 Speaker 2: For example, it has depreciated against the Europe by ten percent, 137 00:07:48,000 --> 00:07:51,280 Speaker 2: And so what we're seeing therefore, China's growth is better 138 00:07:51,360 --> 00:07:56,000 Speaker 2: than expected because whether be it transhipments or trade diversion, 139 00:07:56,080 --> 00:07:59,440 Speaker 2: it is able to export to other countries more. The 140 00:07:59,560 --> 00:08:04,680 Speaker 2: dollar depreciation also loosened global financial conditions. So what we're 141 00:08:04,720 --> 00:08:08,120 Speaker 2: seeing is in any ems, you're seeing a lot more 142 00:08:08,120 --> 00:08:12,200 Speaker 2: capital inflows. This whole Cell America thing led to a 143 00:08:12,240 --> 00:08:15,600 Speaker 2: lot of capital outflows in search of new homes and 144 00:08:15,640 --> 00:08:19,080 Speaker 2: many lended in emerging markets. And on my trip to 145 00:08:19,160 --> 00:08:22,800 Speaker 2: Hong Kong earlier, what I saw and what I heard 146 00:08:23,440 --> 00:08:25,720 Speaker 2: is that the first half of this year had been 147 00:08:25,880 --> 00:08:30,200 Speaker 2: really good for Hong Kong as an international financial center 148 00:08:30,440 --> 00:08:33,439 Speaker 2: because of all these deals that are coming from China 149 00:08:33,600 --> 00:08:36,400 Speaker 2: to the Hong Kong stock market. It's just like the 150 00:08:37,120 --> 00:08:42,040 Speaker 2: dollar depreciation has really loosen global financial conditions. So all 151 00:08:42,120 --> 00:08:47,160 Speaker 2: of that has basically currently delayed the adjustment that all 152 00:08:47,200 --> 00:08:50,240 Speaker 2: these models would be expecting to happen as a result 153 00:08:50,280 --> 00:08:51,120 Speaker 2: of trade war. 154 00:08:51,760 --> 00:08:53,760 Speaker 3: That is interesting. So there was a feeling that the 155 00:08:53,800 --> 00:08:55,960 Speaker 3: dollar was going to go up, that's what the model said. 156 00:08:56,520 --> 00:08:59,880 Speaker 3: And when the dollar's high, it's sucking in investment to 157 00:09:00,080 --> 00:09:02,160 Speaker 3: the US from the rest of the world, and that's 158 00:09:02,240 --> 00:09:04,760 Speaker 3: kind of tightening for the rest of the world because 159 00:09:04,760 --> 00:09:07,640 Speaker 3: the dollars actually fallen because people are moving money out 160 00:09:07,679 --> 00:09:09,400 Speaker 3: of the US, or at least not putting it in 161 00:09:09,440 --> 00:09:13,319 Speaker 3: as much. It's sending liquidity out into the world, and 162 00:09:13,360 --> 00:09:16,880 Speaker 3: that's making financial conditions easier for everyone else. They don't 163 00:09:16,920 --> 00:09:19,800 Speaker 3: have to have interest rates as high to track money 164 00:09:19,800 --> 00:09:22,360 Speaker 3: if you're an emerging market economy, and it's definitely making 165 00:09:22,440 --> 00:09:25,800 Speaker 3: things a bit easier for the central banks in that economy. 166 00:09:25,800 --> 00:09:28,080 Speaker 3: But you also you had something crucial about China in 167 00:09:28,120 --> 00:09:31,000 Speaker 3: that discussion, because you were pointing out that because of 168 00:09:31,040 --> 00:09:34,080 Speaker 3: the way the Chinese currency is fixed to the dollar. 169 00:09:34,160 --> 00:09:37,560 Speaker 3: You know, bizarrely, you've had the America become more competitive 170 00:09:38,000 --> 00:09:40,800 Speaker 3: and China's just become more competitive along with it. And 171 00:09:40,960 --> 00:09:42,559 Speaker 3: I know you spent that time in the Council of 172 00:09:42,600 --> 00:09:46,120 Speaker 3: Economic Advisors and the Trump's first administration. Did Donald Trump 173 00:09:46,160 --> 00:09:48,400 Speaker 3: have an understanding that as the dollar goes down, it's 174 00:09:48,400 --> 00:09:50,400 Speaker 3: actually also helping the Chinese. 175 00:09:50,760 --> 00:09:53,800 Speaker 2: Well, first of all, President Trump loves a week dollar. 176 00:09:54,200 --> 00:09:57,760 Speaker 2: We were examining his tweets back then, and aside from 177 00:09:57,840 --> 00:10:01,520 Speaker 2: constantly tweeting about power, the next thing that he really 178 00:10:01,559 --> 00:10:04,720 Speaker 2: loves talking about is week dollar. And I think from 179 00:10:04,760 --> 00:10:08,240 Speaker 2: the perspective of the Trump administration, a week dollar is 180 00:10:08,360 --> 00:10:13,640 Speaker 2: part of the state craft, which is too onshore manufacturing. 181 00:10:13,720 --> 00:10:16,400 Speaker 2: To ensure there's a manufacturing based in the US, you 182 00:10:16,480 --> 00:10:18,960 Speaker 2: have to have a week dollar. I do think that 183 00:10:19,160 --> 00:10:21,880 Speaker 2: the administration actually favors a week dollar. 184 00:10:21,840 --> 00:10:25,080 Speaker 3: But they presumably don't favor a more competitive China. So 185 00:10:25,559 --> 00:10:27,280 Speaker 3: what's going to be the policy there? 186 00:10:27,960 --> 00:10:32,559 Speaker 2: Yes, that is an unintended consequence. So somebody like Brad 187 00:10:32,600 --> 00:10:36,959 Speaker 2: Setzer from Council for Foreign Relations have really looked into 188 00:10:37,120 --> 00:10:40,959 Speaker 2: the intervention practice of China, and he has noted that 189 00:10:41,120 --> 00:10:45,320 Speaker 2: China has been interviewing through state banks, and so China 190 00:10:45,400 --> 00:10:48,640 Speaker 2: is actually responding to this trade war in a lot 191 00:10:48,640 --> 00:10:52,600 Speaker 2: of very smart ways, and its found a way to 192 00:10:52,720 --> 00:10:55,839 Speaker 2: keep exporting. And that is something that I don't think 193 00:10:56,440 --> 00:10:59,600 Speaker 2: the calculus of the administration was able to cover. If 194 00:10:59,600 --> 00:11:03,079 Speaker 2: they were able to make other country not retaliate, as 195 00:11:03,120 --> 00:11:06,160 Speaker 2: you mentioned earlier, are the other countries ky, but they 196 00:11:06,200 --> 00:11:09,520 Speaker 2: were not able to stop China from keeping their currency 197 00:11:09,520 --> 00:11:10,360 Speaker 2: from appreciating. 198 00:11:10,600 --> 00:11:12,559 Speaker 3: Yes, if you want chapter reverse on that. My old 199 00:11:12,600 --> 00:11:16,360 Speaker 3: friend Brad's analysis is always he understands the ins and 200 00:11:16,400 --> 00:11:19,240 Speaker 3: out of China's balance of payments better than I think 201 00:11:19,280 --> 00:11:22,120 Speaker 3: anybody on the planet, certainly better than anyone in this core. 202 00:11:22,480 --> 00:11:25,040 Speaker 3: But I mean, Sean, you had a couple of big 203 00:11:25,080 --> 00:11:28,720 Speaker 3: pieces in the last week or so that we're talking 204 00:11:28,760 --> 00:11:32,679 Speaker 3: through different elements of this, and that's the sort of macro. 205 00:11:33,080 --> 00:11:35,360 Speaker 3: I mean, there's a micro to this, which is individual 206 00:11:35,360 --> 00:11:38,320 Speaker 3: companies scrambling to deal with the tariff rates that very 207 00:11:38,400 --> 00:11:41,000 Speaker 3: much do affect them or stand to affect them. And 208 00:11:41,040 --> 00:11:45,600 Speaker 3: you had picked on the tomato exporters in Mexico as 209 00:11:45,640 --> 00:11:48,160 Speaker 3: one example, and how they're just trying to grapple with 210 00:11:48,200 --> 00:11:48,880 Speaker 3: what's happening. 211 00:11:49,280 --> 00:11:51,720 Speaker 1: There's the world of the models, and then there's the 212 00:11:51,760 --> 00:11:53,520 Speaker 1: real world, which is a lot messier and that is 213 00:11:53,559 --> 00:11:56,599 Speaker 1: full of unintended consequences. We're talking about the impact of 214 00:11:56,640 --> 00:11:59,480 Speaker 1: the dollar, and the traditional view is that yes, a 215 00:11:59,520 --> 00:12:02,240 Speaker 1: week or dollar dollar is good for American manufacturers. Well, 216 00:12:02,679 --> 00:12:05,520 Speaker 1: fifty percent of all imports into the United States are 217 00:12:06,200 --> 00:12:09,720 Speaker 1: inputs that go into products that are manufactured in the 218 00:12:09,800 --> 00:12:12,160 Speaker 1: United States. When you have a weeker dollar, they become 219 00:12:12,200 --> 00:12:16,840 Speaker 1: more expensive and US manufacturing actually becomes less competitive on 220 00:12:16,920 --> 00:12:20,360 Speaker 1: that front. And that's the messiness and reality of global 221 00:12:20,360 --> 00:12:25,240 Speaker 1: supply chains. And you see that around Mexican tomatoes, which 222 00:12:25,320 --> 00:12:29,480 Speaker 1: also can be Arizona and tomatoes as well. So there's 223 00:12:29,480 --> 00:12:32,480 Speaker 1: a company called Nature Sweet. It is the essentially the 224 00:12:32,480 --> 00:12:37,000 Speaker 1: biggest greenhouse tomato grower in North America. It does a 225 00:12:37,000 --> 00:12:39,800 Speaker 1: lot of it's growing in Mexico. It also has a 226 00:12:39,800 --> 00:12:43,080 Speaker 1: big facility. It's about thirty football fields of green couses 227 00:12:43,679 --> 00:12:47,240 Speaker 1: in Arizona in which it's grown. Think you're growing lots 228 00:12:47,240 --> 00:12:51,000 Speaker 1: of tomatoes. These are what they call snacking tomatoes, the 229 00:12:51,120 --> 00:12:54,720 Speaker 1: kind of cherry tomatoes and great tomatoes, the multicolored things 230 00:12:54,720 --> 00:12:57,600 Speaker 1: that you put in your salad at home. What they 231 00:12:57,760 --> 00:13:02,720 Speaker 1: are caught between is the tariffs and their future plans 232 00:13:02,760 --> 00:13:06,960 Speaker 1: to grow their production in the United States, all of 233 00:13:07,000 --> 00:13:10,520 Speaker 1: which are being affected by tariffs and the policy. So, 234 00:13:10,600 --> 00:13:13,880 Speaker 1: first of all, President Trump has restored a seventeen percent 235 00:13:14,000 --> 00:13:20,480 Speaker 1: tariff on tomatoes from Mexico, So that is literally a 236 00:13:20,600 --> 00:13:24,800 Speaker 1: million dollars a week in additional costs to Nature Suite 237 00:13:24,880 --> 00:13:27,960 Speaker 1: on its imports from Mexico. But at the same time, 238 00:13:28,000 --> 00:13:30,200 Speaker 1: you have all of these other tariffs that are affecting 239 00:13:30,280 --> 00:13:33,800 Speaker 1: all of these other inputs that they use at their 240 00:13:33,800 --> 00:13:36,920 Speaker 1: facility in Arizona. They had a plan to start expanding 241 00:13:36,960 --> 00:13:41,040 Speaker 1: that facility from thirty football fields to seventy two football 242 00:13:41,080 --> 00:13:46,560 Speaker 1: fields of greenhouses, a big multimillion dollar investment there, but 243 00:13:46,679 --> 00:13:48,640 Speaker 1: now they're looking at that investment and they're putting it 244 00:13:48,679 --> 00:13:53,280 Speaker 1: on hold. Why because most greenhouse technology comes from the 245 00:13:53,280 --> 00:13:57,920 Speaker 1: Netherlands or Israel, so you're importing things to build those 246 00:13:57,960 --> 00:14:01,800 Speaker 1: new greenhouses. Also, all the inputs, and I did not 247 00:14:01,920 --> 00:14:04,680 Speaker 1: know this, all the things that you need to grow 248 00:14:04,920 --> 00:14:09,560 Speaker 1: tomatoes in greenhouses are in fact imported. So they don't 249 00:14:09,559 --> 00:14:12,800 Speaker 1: grow these tomatoes and soil. They grow them in coconut husks. 250 00:14:12,800 --> 00:14:14,960 Speaker 1: Where do those coconut husks come from. They come from 251 00:14:15,000 --> 00:14:17,880 Speaker 1: Sri Lanka, Guess what, they've got a tariff on them. 252 00:14:18,080 --> 00:14:20,280 Speaker 1: Where do they get their fertilizer from, Well, it comes 253 00:14:20,280 --> 00:14:23,640 Speaker 1: from Chile. Nowadays, guess what, it's got a tariff on it. 254 00:14:23,680 --> 00:14:25,840 Speaker 1: Where do the seeds come from. The seeds come from 255 00:14:25,840 --> 00:14:29,440 Speaker 1: Europe and Israel. Guess what, they've got tariffs on them. 256 00:14:29,840 --> 00:14:33,880 Speaker 1: And so all of a sudden, the economics both importing 257 00:14:35,080 --> 00:14:39,160 Speaker 1: the finished product in these tomatoes has changed, but also 258 00:14:39,600 --> 00:14:44,600 Speaker 1: the economics of investing in the United States and increasing 259 00:14:44,600 --> 00:14:48,640 Speaker 1: production in the United States have changed materially. And as 260 00:14:48,840 --> 00:14:50,880 Speaker 1: the CEO of Nature Street told me, that's just the 261 00:14:50,920 --> 00:14:53,720 Speaker 1: world that we live in. And by the way, his 262 00:14:53,880 --> 00:14:56,760 Speaker 1: main competitors at this time of year are in Canada. 263 00:14:57,640 --> 00:14:59,840 Speaker 1: You know what, they don't have any tariffs on their inputs, 264 00:15:00,320 --> 00:15:02,480 Speaker 1: and they're going to be more competitive even if you 265 00:15:02,560 --> 00:15:05,880 Speaker 1: have a tear on Canadian tomatoes coming into the United States, 266 00:15:05,920 --> 00:15:08,920 Speaker 1: at least until the Canadian winter sets in and they 267 00:15:08,920 --> 00:15:11,560 Speaker 1: have more trouble growing tomatoes. And I think we're seeing 268 00:15:11,560 --> 00:15:15,200 Speaker 1: that replicated in all sorts of different ways. It's Japanese 269 00:15:15,200 --> 00:15:21,920 Speaker 1: auto parts makers, it's Chinese manufacturers, it's French wine producers. 270 00:15:22,240 --> 00:15:24,720 Speaker 1: There are all of these effects around the world. A 271 00:15:24,760 --> 00:15:27,840 Speaker 1: lot of them just unintended consequences, and that's we're really 272 00:15:27,880 --> 00:15:30,680 Speaker 1: starting to see happen in the real economy, and that's 273 00:15:30,680 --> 00:15:32,400 Speaker 1: going to start filtering through into the data. 274 00:15:33,120 --> 00:15:35,160 Speaker 3: That's fascinating. I mean, I guess we should thank Donald 275 00:15:35,160 --> 00:15:37,000 Speaker 3: Trump at the very least for having kind of lifted 276 00:15:37,000 --> 00:15:39,280 Speaker 3: the hood or forced us to kind of look under 277 00:15:39,320 --> 00:15:41,960 Speaker 3: the hood of the global economy. I know you spent 278 00:15:42,000 --> 00:15:44,440 Speaker 3: your life under the hood of the global economy, sure, 279 00:15:44,520 --> 00:15:48,400 Speaker 3: but just to get a sense of how complicated and 280 00:15:48,560 --> 00:15:51,600 Speaker 3: intertwined all of these supply chains are. And in case 281 00:15:51,600 --> 00:15:53,920 Speaker 3: anyone's wondering, I am half American, so I can say 282 00:15:53,920 --> 00:15:57,760 Speaker 3: tomato and tomato. But Anna, we know that there's been 283 00:15:57,800 --> 00:16:01,200 Speaker 3: this sort of micro complexities for individual companies, but at 284 00:16:01,240 --> 00:16:04,400 Speaker 3: the same level, there's been this sort of broader sort 285 00:16:04,440 --> 00:16:06,840 Speaker 3: of tailwind that people have had from a week a dollar, 286 00:16:06,960 --> 00:16:09,880 Speaker 3: which has made people feel slightly better than they might 287 00:16:09,920 --> 00:16:12,840 Speaker 3: otherwise have done. But let's just quickly turn the lens 288 00:16:12,920 --> 00:16:15,120 Speaker 3: on the US. I mean, we discussed recently, I think 289 00:16:15,120 --> 00:16:19,760 Speaker 3: with Orang cass about why tariffs might not have the 290 00:16:20,280 --> 00:16:23,280 Speaker 3: sort of significant effect on inflation that some people had 291 00:16:23,280 --> 00:16:26,800 Speaker 3: talked about, but they're clearly is an effect on the 292 00:16:26,880 --> 00:16:29,880 Speaker 3: US economy, and it seems like we may have seen 293 00:16:29,920 --> 00:16:32,800 Speaker 3: some of that in the controversial revisions to the job 294 00:16:32,880 --> 00:16:35,560 Speaker 3: data last week. So just talk us through where you 295 00:16:35,600 --> 00:16:37,840 Speaker 3: think we are in terms of the impact on the US. 296 00:16:38,520 --> 00:16:42,360 Speaker 2: Last Friday, we had July payroll data and it came 297 00:16:42,440 --> 00:16:47,560 Speaker 2: with a shockingly massive downward revisions to June and May's 298 00:16:47,760 --> 00:16:51,240 Speaker 2: jobs data. So now the three months moving average of 299 00:16:51,320 --> 00:16:54,880 Speaker 2: job growth from May to July is only thirty five 300 00:16:55,200 --> 00:16:59,880 Speaker 2: k as opposed to just before last Friday, everybody thought 301 00:17:00,080 --> 00:17:02,720 Speaker 2: three month job growth was really at one hundred and 302 00:17:02,800 --> 00:17:07,000 Speaker 2: fifty thousand. So that's like an order of actitude of 303 00:17:07,080 --> 00:17:11,040 Speaker 2: five lower. So the last Friday's jobs report really flipped 304 00:17:11,080 --> 00:17:14,600 Speaker 2: the narrative of is the US labor mark holding up 305 00:17:14,640 --> 00:17:19,159 Speaker 2: Donald trup to flip as well. Yes, And when you 306 00:17:19,160 --> 00:17:22,320 Speaker 2: look at the details of these downward revisions, they came 307 00:17:22,480 --> 00:17:26,800 Speaker 2: from sectors which one would have thought would indeed be 308 00:17:26,880 --> 00:17:30,159 Speaker 2: affected by this policy shock. So two months ago we 309 00:17:30,240 --> 00:17:34,760 Speaker 2: had written a piece about how Liberation Day and all 310 00:17:34,760 --> 00:17:38,000 Speaker 2: these other policies is going to generate a blood bath 311 00:17:38,119 --> 00:17:41,320 Speaker 2: in the nonfarm payroll for May and June. We thought 312 00:17:41,359 --> 00:17:45,000 Speaker 2: that three sectors affected would be leisure in hospitality, which 313 00:17:45,320 --> 00:17:48,520 Speaker 2: is affected by the reduced TOURUS coming to the US, 314 00:17:48,640 --> 00:17:52,840 Speaker 2: part of the Cell America narrative, construction sector from the 315 00:17:52,920 --> 00:17:56,399 Speaker 2: high ten year yields since the Liberation Day, and of 316 00:17:56,440 --> 00:18:00,680 Speaker 2: course logistics sector as trade flows comes down. For the 317 00:18:00,800 --> 00:18:04,040 Speaker 2: last couple of months it seemed like those three sectors 318 00:18:04,040 --> 00:18:07,040 Speaker 2: were holding up. The last Friday's revisions show that in 319 00:18:07,080 --> 00:18:09,960 Speaker 2: fact they did not. These three sectors were not holding up. 320 00:18:10,320 --> 00:18:13,800 Speaker 2: And then additionally, I think the way to think about 321 00:18:13,920 --> 00:18:18,159 Speaker 2: these revisions is that they bring questions. But whether it 322 00:18:18,280 --> 00:18:22,080 Speaker 2: is those revisions could be revised up again in the 323 00:18:22,119 --> 00:18:26,359 Speaker 2: next month possible also, But right now these are the 324 00:18:26,480 --> 00:18:30,719 Speaker 2: earliest science that in fact the trade war is causing 325 00:18:30,720 --> 00:18:33,840 Speaker 2: a crack in the labor market, and I would characterize 326 00:18:34,000 --> 00:18:37,800 Speaker 2: them as early and tentatives because there are other issues 327 00:18:37,880 --> 00:18:42,760 Speaker 2: related to how BLS is, whether they're accurately measuring the payrolls, 328 00:18:42,800 --> 00:18:46,040 Speaker 2: and it's entirely possible that next month will see and 329 00:18:46,200 --> 00:18:48,399 Speaker 2: upward revisions to those data. 330 00:18:48,480 --> 00:18:51,720 Speaker 3: Recondiss of who has come in to run the Bureau 331 00:18:51,400 --> 00:18:54,880 Speaker 3: of Labor Statistics Molly Smith, who's been on this show, 332 00:18:54,920 --> 00:18:58,800 Speaker 3: but others have written quite a lot about the funding 333 00:18:58,840 --> 00:19:02,040 Speaker 3: issues at the BLS, and also the issue that many 334 00:19:02,080 --> 00:19:05,240 Speaker 3: other statistical agencies have had with surveys and getting people 335 00:19:05,240 --> 00:19:08,879 Speaker 3: to respond promptly or at all in a world certainly 336 00:19:09,320 --> 00:19:11,520 Speaker 3: post COVID. We're covering a lot of ground here, but 337 00:19:11,560 --> 00:19:14,919 Speaker 3: I did want to get to potentially one of the 338 00:19:14,960 --> 00:19:19,840 Speaker 3: reasons another reason why it's hard to read the impact 339 00:19:20,119 --> 00:19:23,199 Speaker 3: on the US economy of tariffs, and that's the large 340 00:19:23,320 --> 00:19:28,080 Speaker 3: chunk of imports that's been exempted one way or another. Sure, 341 00:19:28,280 --> 00:19:31,399 Speaker 3: you've done a fascinating analysis that we brought out last 342 00:19:31,400 --> 00:19:35,200 Speaker 3: week that adds up the numbers and finds over a 343 00:19:35,280 --> 00:19:38,640 Speaker 3: trillion dollars worth of imports one way or another has 344 00:19:38,680 --> 00:19:41,200 Speaker 3: been exempted by Donald Trump from any kind of tariffs 345 00:19:41,240 --> 00:19:41,680 Speaker 3: so far. 346 00:19:42,480 --> 00:19:42,640 Speaker 1: Though. 347 00:19:42,640 --> 00:19:45,280 Speaker 3: We may have even news on one of the sectors 348 00:19:45,280 --> 00:19:47,120 Speaker 3: in the next few days. But just talk us through 349 00:19:47,160 --> 00:19:49,080 Speaker 3: just the sort of headlines of your investigation. 350 00:19:49,680 --> 00:19:52,439 Speaker 1: Yeah. Look, I mean, one of the real differences in 351 00:19:52,680 --> 00:19:56,600 Speaker 1: at least the language around the tariffs this time versus 352 00:19:56,680 --> 00:19:59,280 Speaker 1: during Trump's first term is that there has not been 353 00:20:00,119 --> 00:20:03,159 Speaker 1: way for companies in the United States to kind of 354 00:20:03,160 --> 00:20:06,960 Speaker 1: plead their case for tariff relief. What's called an exclusions process. 355 00:20:07,080 --> 00:20:09,639 Speaker 1: Right in the first term, when it came to the 356 00:20:09,720 --> 00:20:12,240 Speaker 1: tariffs that were applied on steel and aluminum and goods 357 00:20:12,240 --> 00:20:15,160 Speaker 1: from China, companies could go to the government and say, look, 358 00:20:15,240 --> 00:20:17,720 Speaker 1: I can't get this anywhere else. This isn't made in 359 00:20:17,760 --> 00:20:21,639 Speaker 1: the United States. All you're doing is hurting my business. 360 00:20:21,840 --> 00:20:25,479 Speaker 1: I can't find these things outside of China and win 361 00:20:25,560 --> 00:20:28,760 Speaker 1: an exclusion at least temporarily from the tariffs. And it 362 00:20:28,800 --> 00:20:32,359 Speaker 1: was a very transparent process. We could see the applications 363 00:20:32,359 --> 00:20:34,840 Speaker 1: and the decisions on the website. You can still, if 364 00:20:34,840 --> 00:20:37,600 Speaker 1: you're interested to this day, go to the USTR website 365 00:20:37,680 --> 00:20:40,159 Speaker 1: and dig up these exclusions. There were more than fifty 366 00:20:40,280 --> 00:20:45,159 Speaker 1: thousand applications, by the way, for tariff relief just from 367 00:20:45,200 --> 00:20:48,240 Speaker 1: the China tariffs in the first term. This time around, 368 00:20:48,400 --> 00:20:50,520 Speaker 1: President Trump has said no, we're not going to have 369 00:20:50,560 --> 00:20:55,240 Speaker 1: any exclusions. Well, in fact, on Liberation Day April second, 370 00:20:55,280 --> 00:20:58,760 Speaker 1: when you put out an executive order ordering up these 371 00:20:58,840 --> 00:21:01,600 Speaker 1: new tariffs on on goods from all over all over 372 00:21:01,600 --> 00:21:04,719 Speaker 1: the world, there was a thirty seven page annex to 373 00:21:04,800 --> 00:21:07,600 Speaker 1: the executive order that had more than a thousand tariff 374 00:21:07,640 --> 00:21:10,680 Speaker 1: codes that were in fact exempted from those tariffs. The 375 00:21:10,720 --> 00:21:14,040 Speaker 1: administration will tell you, well, those will eventually be subject 376 00:21:14,119 --> 00:21:18,760 Speaker 1: to other tariffs, to sectoral tariffs, but at least temporarily 377 00:21:19,440 --> 00:21:22,280 Speaker 1: you have this exclusion. That's quite a lucrative exclusion for 378 00:21:22,320 --> 00:21:25,440 Speaker 1: a lot of companies. They then followed up on April eleventh, 379 00:21:25,480 --> 00:21:29,000 Speaker 1: they added in a lot of consumer technology products. That's 380 00:21:29,040 --> 00:21:33,240 Speaker 1: when smartphones, for example, became exempted from the tariffs. So 381 00:21:33,440 --> 00:21:38,400 Speaker 1: Apple's iPhone production in China faces a lower tariff than 382 00:21:38,920 --> 00:21:41,920 Speaker 1: lots of other products that are that are coming from China. 383 00:21:42,000 --> 00:21:45,199 Speaker 1: That may change in the future depending on how you 384 00:21:45,240 --> 00:21:50,080 Speaker 1: apply semiconductor the tariffs that President Trump is promising, but 385 00:21:50,280 --> 00:21:52,879 Speaker 1: it's a major exclusion on a major consumer product, and 386 00:21:52,920 --> 00:21:55,160 Speaker 1: it's the type of thing that actually the President stayed 387 00:21:55,200 --> 00:21:58,200 Speaker 1: away from tariffing in the first administration because they wanted 388 00:21:58,240 --> 00:22:02,200 Speaker 1: to reduce the impact on consumers. When you add all 389 00:22:02,240 --> 00:22:04,720 Speaker 1: of this up, this whole universe of excluded products, you 390 00:22:04,760 --> 00:22:07,760 Speaker 1: get to like something close to one point two trillion dollars, 391 00:22:07,800 --> 00:22:10,119 Speaker 1: about seven one hundred and fifty billion dollars of that 392 00:22:10,600 --> 00:22:13,480 Speaker 1: is these Liberation Day tariff exclusions. And then there's also 393 00:22:13,800 --> 00:22:16,840 Speaker 1: all these products in North America that are subject to 394 00:22:16,880 --> 00:22:20,680 Speaker 1: the US Mexico Canada Agreement which used to be known 395 00:22:20,720 --> 00:22:25,000 Speaker 1: as NAFTA, and President Trump, after initially imposing tariffs on 396 00:22:25,280 --> 00:22:28,040 Speaker 1: Canada and Mexico, said well, actually, what we're going to 397 00:22:28,080 --> 00:22:30,320 Speaker 1: do is we're not going to apply that to products 398 00:22:30,640 --> 00:22:34,400 Speaker 1: that fits the bill on this US and Mexico Canada agreement. 399 00:22:34,720 --> 00:22:37,760 Speaker 1: And that's like four hundred billion dollars in trade there 400 00:22:37,920 --> 00:22:40,119 Speaker 1: that's excluded. Add it all up, and it's a third 401 00:22:40,240 --> 00:22:42,960 Speaker 1: of all imports into the United States that are now 402 00:22:43,040 --> 00:22:47,400 Speaker 1: excluded from tariffs. And that obviously has a meaningful impact 403 00:22:47,920 --> 00:22:51,399 Speaker 1: on consumer prices and the effect on consumer prices on 404 00:22:51,440 --> 00:22:53,840 Speaker 1: the overall economic effect. And we're going to get more 405 00:22:53,840 --> 00:22:54,800 Speaker 1: of this to come. 406 00:22:55,480 --> 00:22:57,720 Speaker 3: But Sean, I think a lot of people would say, Okay, 407 00:22:58,640 --> 00:23:01,920 Speaker 3: there's a whole segment of the market which have been exempted, 408 00:23:01,960 --> 00:23:04,160 Speaker 3: and that may be unfair, you know, if you're making 409 00:23:04,200 --> 00:23:06,600 Speaker 3: in China and you're facing a big tariff if you're 410 00:23:06,600 --> 00:23:08,200 Speaker 3: making a certain kind of good, but not if you're 411 00:23:08,240 --> 00:23:11,320 Speaker 3: making an iPhone. But at least it applies to all 412 00:23:11,440 --> 00:23:14,159 Speaker 3: companies in a given sector. Do you have a sense 413 00:23:14,200 --> 00:23:17,119 Speaker 3: when you're looking at some of the sort of smaller exemptions, 414 00:23:17,520 --> 00:23:19,720 Speaker 3: are there cases where it seems to be company by 415 00:23:19,760 --> 00:23:22,840 Speaker 3: company or where they're sort of implicitly companied by company 416 00:23:22,840 --> 00:23:25,399 Speaker 3: because of the way the exemption has been designed. Do 417 00:23:25,520 --> 00:23:27,720 Speaker 3: most of these still take the form of a whole 418 00:23:27,800 --> 00:23:32,680 Speaker 3: market segment rather than just a single business person getting 419 00:23:32,720 --> 00:23:33,199 Speaker 3: a break. 420 00:23:33,920 --> 00:23:36,680 Speaker 1: Yes and no, right, I mean it depends what you make. 421 00:23:36,760 --> 00:23:41,040 Speaker 1: As a consumer technology product, for example, it depends what 422 00:23:41,200 --> 00:23:46,040 Speaker 1: you make. And this is where tariff codes get incredibly specific, 423 00:23:46,560 --> 00:23:50,000 Speaker 1: and by choosing one tariff code over another, you can 424 00:23:50,040 --> 00:23:53,720 Speaker 1: really have an impact on different companies. The great example 425 00:23:53,720 --> 00:23:58,160 Speaker 1: in technology is game consoles. Game consoles have not been 426 00:23:58,200 --> 00:24:03,320 Speaker 1: excluded from tariffs, so your Microsoft or Nintendo, your product 427 00:24:03,400 --> 00:24:06,840 Speaker 1: becomes significantly more more expensive to import. And that's kind 428 00:24:06,840 --> 00:24:07,840 Speaker 1: of key product. 429 00:24:08,160 --> 00:24:10,600 Speaker 3: And most people when you hear consumer electronics, you would 430 00:24:10,600 --> 00:24:13,600 Speaker 3: probably think that those were included in that life exactly exactly. 431 00:24:13,640 --> 00:24:15,960 Speaker 1: And then you get into kind of smaller accessories and 432 00:24:16,000 --> 00:24:19,400 Speaker 1: it gets more complicated. Yes, there are smartphones or excluded, 433 00:24:19,480 --> 00:24:22,680 Speaker 1: laptops are excluded and so, but then it gets incredibly 434 00:24:23,640 --> 00:24:28,719 Speaker 1: finicky into you know, inputs like nylon, certain polymers, things 435 00:24:28,840 --> 00:24:31,879 Speaker 1: like rubber. There's you know, one type of graphite that 436 00:24:32,000 --> 00:24:35,320 Speaker 1: is excluded and one type that isn't excluded. I mean, 437 00:24:35,400 --> 00:24:39,240 Speaker 1: imports of cocaine that are done legally are right now 438 00:24:39,480 --> 00:24:43,880 Speaker 1: under the state of terraffs excluded from new terraffs. While obviously, 439 00:24:43,920 --> 00:24:47,360 Speaker 1: and this is the case of American Textile imports of 440 00:24:47,400 --> 00:24:50,920 Speaker 1: the pillow shells. The American Textile makes bed pillows and 441 00:24:51,280 --> 00:24:55,119 Speaker 1: other betting products, but the shells that they import from 442 00:24:55,200 --> 00:24:58,440 Speaker 1: China and India and Pakistan are subject to severe tarf 443 00:24:58,560 --> 00:25:01,000 Speaker 1: So you know, no turffs on co can. Asbestos, by 444 00:25:01,040 --> 00:25:03,239 Speaker 1: the way, is also excluded, and you have terts. And 445 00:25:03,880 --> 00:25:07,840 Speaker 1: what you've created is a very murky system. Now, and 446 00:25:07,880 --> 00:25:10,399 Speaker 1: this is what economs will tell you. The terriffs do 447 00:25:10,920 --> 00:25:12,760 Speaker 1: is that they create distortions in the market, but they 448 00:25:12,800 --> 00:25:16,320 Speaker 1: also create this kind of favor system, and they create 449 00:25:16,720 --> 00:25:24,199 Speaker 1: perceived unfairness as consumers of steel get whacked while producers 450 00:25:24,200 --> 00:25:28,600 Speaker 1: of steel get protected, right and and so you know, 451 00:25:28,640 --> 00:25:31,440 Speaker 1: American Textile is an interesting company and that they've taken there. 452 00:25:31,520 --> 00:25:33,600 Speaker 1: They've managed to get all the way into the White House, 453 00:25:33,600 --> 00:25:35,880 Speaker 1: and they've had meetings at the White House and all 454 00:25:35,920 --> 00:25:38,720 Speaker 1: along the way they say they've been told they're a 455 00:25:38,800 --> 00:25:42,680 Speaker 1: victim of unintended consequences. This isn't what was what intended? 456 00:25:42,920 --> 00:25:45,240 Speaker 1: You know what was intended. It's so interesting. 457 00:25:45,480 --> 00:25:48,439 Speaker 3: Every topic is a is a is a rabbit hole. Anna, 458 00:25:48,560 --> 00:25:49,919 Speaker 3: But I am going to slightly put you on the 459 00:25:49,920 --> 00:25:52,919 Speaker 3: spot because there's a CNBC interview that Donald Trump has 460 00:25:52,960 --> 00:25:55,520 Speaker 3: been doing, and I know my colleagues have been avidly 461 00:25:55,560 --> 00:25:58,480 Speaker 3: watching for news, and one of the things that has 462 00:25:58,520 --> 00:26:01,520 Speaker 3: come out of it is Donald Trump saying that US 463 00:26:01,600 --> 00:26:05,320 Speaker 3: tariffs on semiconductor and pharmaceutical imports will be announced within 464 00:26:05,400 --> 00:26:08,280 Speaker 3: the next week or so quote, and he says, we'll 465 00:26:08,320 --> 00:26:10,920 Speaker 3: be putting this is I thought was interesting, Anna, will 466 00:26:10,960 --> 00:26:14,119 Speaker 3: be putting an initially small tariff on pharmaceuticals, but in 467 00:26:14,160 --> 00:26:17,080 Speaker 3: one year, one and a half years, max, it's going 468 00:26:17,119 --> 00:26:18,879 Speaker 3: to go to one hundred and fifty percent, and then 469 00:26:18,920 --> 00:26:20,720 Speaker 3: it's going to go to two hundred and fifty percent 470 00:26:20,760 --> 00:26:24,320 Speaker 3: because we want pharmaceuticals made in our country. He said 471 00:26:24,359 --> 00:26:27,439 Speaker 3: that as say, Tuesday morning, in an interview. I mean, 472 00:26:27,480 --> 00:26:29,600 Speaker 3: what's striking to me, Anna, is that one of the 473 00:26:29,640 --> 00:26:34,320 Speaker 3: criticisms of his policy up till now has been this 474 00:26:34,960 --> 00:26:38,119 Speaker 3: that if you wanted to actually move production, it seemed 475 00:26:38,119 --> 00:26:41,359 Speaker 3: like you should have a delayed timetable for tariffs, because 476 00:26:41,440 --> 00:26:43,080 Speaker 3: how are you going to build all these factories in 477 00:26:43,160 --> 00:26:47,760 Speaker 3: a month or three months in order to avoid those tariffs? 478 00:26:48,359 --> 00:26:50,560 Speaker 3: Very early days obviously, but is there a sign that 479 00:26:50,600 --> 00:26:53,600 Speaker 3: he's kind of taken on that argument with this approach 480 00:26:53,600 --> 00:26:56,040 Speaker 3: to pharmaceuticals if this is what we end up seeing. 481 00:26:56,480 --> 00:26:59,680 Speaker 2: Yeah, with pharmaceutical if that's what we end up seeing, 482 00:26:59,760 --> 00:27:02,480 Speaker 2: it's seems like he does. And we have looked into 483 00:27:02,800 --> 00:27:07,400 Speaker 2: the quantity of stockpiling for pharmaceuticals, and we estimate that 484 00:27:07,960 --> 00:27:11,960 Speaker 2: US firms have stockpiled enough for at least a year 485 00:27:12,119 --> 00:27:16,200 Speaker 2: as of now for pharmaceuticals. So even without that, the 486 00:27:16,480 --> 00:27:19,720 Speaker 2: pharmaceutical industry has a year, and now with that they 487 00:27:19,720 --> 00:27:21,000 Speaker 2: have bought themselves ten years. 488 00:27:21,760 --> 00:27:23,240 Speaker 1: Yeah. Yeah. 489 00:27:23,440 --> 00:27:26,760 Speaker 3: There's also some suggestion he's talking about semiconductors and chips, 490 00:27:26,800 --> 00:27:30,200 Speaker 3: but which is a separate category. I think that's right, 491 00:27:30,280 --> 00:27:33,080 Speaker 3: he says, But as Shorten reminds me, the categories can 492 00:27:33,160 --> 00:27:34,640 Speaker 3: get much much smaller than that. 493 00:27:35,119 --> 00:27:37,160 Speaker 1: There's also a key question, which is how these things 494 00:27:37,200 --> 00:27:40,159 Speaker 1: are applied. Right, So one of the big exclusions that 495 00:27:40,200 --> 00:27:43,760 Speaker 1: we've seen creep in to the deal with the European Union, 496 00:27:43,800 --> 00:27:48,160 Speaker 1: for example, is an exclusion on tariffs for generic drugs. Now, again, 497 00:27:48,200 --> 00:27:51,439 Speaker 1: when we see these pharmaceutical sectoral tariffs, will they apply 498 00:27:51,520 --> 00:27:54,760 Speaker 1: to generic drugs as well? People in the generic drug 499 00:27:54,760 --> 00:27:57,840 Speaker 1: industry say, the economics of producing those which are incredibly 500 00:27:57,880 --> 00:28:01,560 Speaker 1: low margin products in the United States, it's you'd rather 501 00:28:01,640 --> 00:28:04,000 Speaker 1: just swallow the tariffs. They're not just there. So we're 502 00:28:04,000 --> 00:28:06,920 Speaker 1: going to be looking for those exclusions on the semiconductor side. 503 00:28:07,200 --> 00:28:09,439 Speaker 1: All of these sectoral tariffs, they've applied to what they 504 00:28:09,480 --> 00:28:14,520 Speaker 1: call derivative products as well. Right, so things that include semiconductors, 505 00:28:14,760 --> 00:28:18,639 Speaker 1: including that Apple smartphone, which has not been subject to 506 00:28:18,640 --> 00:28:23,040 Speaker 1: the Liberation Day tariffs, but maybe subject to the semiconductor 507 00:28:23,400 --> 00:28:26,560 Speaker 1: The question becomes, how do you compute it. Is it 508 00:28:26,680 --> 00:28:30,040 Speaker 1: a tariff of twenty five percent on the entire value 509 00:28:30,080 --> 00:28:33,080 Speaker 1: of the smartphone or is it a twenty five percent 510 00:28:33,160 --> 00:28:37,400 Speaker 1: tariff on the value of the chips inside the smartphone. 511 00:28:37,440 --> 00:28:41,480 Speaker 1: That's a very different proposition, and you can guess which 512 00:28:41,520 --> 00:28:42,600 Speaker 1: one Apple was pushing for. 513 00:28:43,080 --> 00:28:45,840 Speaker 3: I've had conversations here in the UK with people who 514 00:28:45,960 --> 00:28:49,600 Speaker 3: was struggling when the aluminium tariffs came in with the 515 00:28:49,680 --> 00:28:52,520 Speaker 3: sort of a similar issue of how a soft drink 516 00:28:52,560 --> 00:28:55,280 Speaker 3: can is it on the value of the can overall 517 00:28:55,320 --> 00:28:57,200 Speaker 3: when it's sold, or is it on the value just 518 00:28:57,280 --> 00:29:01,760 Speaker 3: of the aluminium or aluminum inside the can. And these 519 00:29:01,800 --> 00:29:03,960 Speaker 3: are things that all those companies are having to grapple with, 520 00:29:04,280 --> 00:29:06,880 Speaker 3: and I was really struck. I mean this is by 521 00:29:06,920 --> 00:29:09,600 Speaker 3: way of a sort of last word. There was a 522 00:29:09,640 --> 00:29:12,560 Speaker 3: relatively senior diplomat came in to just talk off the 523 00:29:12,560 --> 00:29:15,280 Speaker 3: record in Bloomberg the last couple of days from a 524 00:29:15,320 --> 00:29:20,000 Speaker 3: pretty major country, and he just said, once it's actually 525 00:29:20,040 --> 00:29:24,120 Speaker 3: been imposed, the US has never taken away a tariff 526 00:29:24,120 --> 00:29:28,240 Speaker 3: in the last fifty years. Once you actually put them 527 00:29:28,240 --> 00:29:30,680 Speaker 3: in and you start making money or people start making 528 00:29:30,720 --> 00:29:35,000 Speaker 3: decisions on it, the US has never removed them. Now, 529 00:29:35,040 --> 00:29:38,200 Speaker 3: I suspect that may not be technically true, but it 530 00:29:38,280 --> 00:29:42,520 Speaker 3: sort of feels broad directionally true. And once we have 531 00:29:42,720 --> 00:29:44,840 Speaker 3: seen all these tariffs we built that wall that we 532 00:29:44,960 --> 00:29:48,760 Speaker 3: started off for the program talking about of a fifteen 533 00:29:48,840 --> 00:29:52,040 Speaker 3: percent or so average tariff freight compared to the extremely 534 00:29:52,120 --> 00:29:56,320 Speaker 3: low one that a year ago. Do you think these 535 00:29:56,360 --> 00:29:59,719 Speaker 3: will get removed by future administrations, these tariffs or are 536 00:29:59,720 --> 00:30:02,600 Speaker 3: we just moving into a world where every US administration 537 00:30:02,720 --> 00:30:03,959 Speaker 3: relies on tariffs. 538 00:30:04,240 --> 00:30:06,880 Speaker 2: Yes, definitely, I think that your sense is right that 539 00:30:07,120 --> 00:30:10,240 Speaker 2: this is the path we're heading where these tariffs will stay. 540 00:30:10,680 --> 00:30:14,520 Speaker 2: And I think that it's not just tariffs, generally taxes, 541 00:30:15,040 --> 00:30:19,000 Speaker 2: and in fact, the Milton Treatments criticism of government intervention, 542 00:30:19,160 --> 00:30:22,800 Speaker 2: which is that once you start, it's hard to sunset anything. 543 00:30:23,320 --> 00:30:26,040 Speaker 2: And I think that we are going to eventually see 544 00:30:26,080 --> 00:30:30,880 Speaker 2: these tariff legislated. I think America has decided to use 545 00:30:30,960 --> 00:30:33,320 Speaker 2: tariffs as a means to dig ourselves out of our 546 00:30:33,360 --> 00:30:37,640 Speaker 2: fiscal hold. These tariff revenues right now are averaging about 547 00:30:37,680 --> 00:30:42,200 Speaker 2: thirty billion per month, so that's looking like over three 548 00:30:42,280 --> 00:30:45,640 Speaker 2: hundred billion per year, and that is exactly what you 549 00:30:45,720 --> 00:30:47,680 Speaker 2: need to pay for the one that beautiful bill. 550 00:30:48,680 --> 00:30:49,080 Speaker 1: Wow. 551 00:30:49,280 --> 00:30:52,720 Speaker 3: Well, that seems a poignant place to end. Donald Trump 552 00:30:52,880 --> 00:30:56,520 Speaker 3: not taking lessons from Milton Freeman and a wonk. Sean Donnan, 553 00:30:56,640 --> 00:30:57,480 Speaker 3: thank you so much. 554 00:30:57,760 --> 00:31:01,040 Speaker 1: Great to be here, Thank you. 555 00:31:03,960 --> 00:31:06,400 Speaker 3: Thank you for listening to Trumponomics from Bloomberg. It was 556 00:31:06,400 --> 00:31:09,000 Speaker 3: hosted by me Stephanie Flanders. I was joined by Anna 557 00:31:09,040 --> 00:31:12,520 Speaker 3: Wong and Short Donner. Trumpnomics is produced by Moses and 558 00:31:12,640 --> 00:31:15,720 Speaker 3: Dam and Samma Sadi, with help from Amy Keene and 559 00:31:15,840 --> 00:31:19,880 Speaker 3: special thanks to Rachel Lewis. Kriskey. Sound design is by 560 00:31:19,960 --> 00:31:24,000 Speaker 3: Blake Maples and Sage Bowman is head of Bloomberg podcast.