WEBVTT - The Unintended Consequences of Trump’s Tariff Strategy 0:00:02.560 --> 0:00:07.080 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.000 --> 0:00:10.560 Your sense is right that this is the path we're 0:00:10.640 --> 0:00:14.040 heading where these tariffs will stay. And in fact, the 0:00:14.080 --> 0:00:18.079 milted treatment's criticism of government intervention, which is that once 0:00:18.120 --> 0:00:20.680 you start, it's hard to sunset anything. 0:00:30.120 --> 0:00:33.040 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:33.080 --> 0:00:35.559 and this is trump Anomics, the podcast that looks at 0:00:35.600 --> 0:00:39.360 the economic world of Donald Trump, how he's already shaped 0:00:39.400 --> 0:00:42.000 the global economy and what on earth is going to 0:00:42.040 --> 0:00:47.000 happen next. And this week we're zoning in again on trade. 0:00:47.120 --> 0:00:49.519 I mean, we've all been through another round of tariff 0:00:49.560 --> 0:00:52.400 deadlines in the last few days. There's a bunch of 0:00:52.440 --> 0:00:56.640 countries around the world feeling could have been worse, Others 0:00:56.760 --> 0:01:00.840 facing a severe case of tariff sticker shock, for example, 0:01:00.880 --> 0:01:03.320 who have the misfortune of running a thirty eight billion 0:01:03.400 --> 0:01:06.759 dollar trade surplus with the US. The Swiss president's actually 0:01:06.760 --> 0:01:10.000 in the air to Washington as we record this on Tuesday, 0:01:10.000 --> 0:01:13.319 the fifth of August, and she's hoping to negotiate down 0:01:13.440 --> 0:01:17.520 the shocking thirty nine percent tariff rate that is otherwise 0:01:17.560 --> 0:01:20.880 going to kick in on August seventh. So all these 0:01:21.120 --> 0:01:24.520 months of so called trade talks between the US and 0:01:24.600 --> 0:01:28.880 its trading partners have been messy and not always about trade. 0:01:29.720 --> 0:01:32.640 For the negotiators charged with striking a deal with the US, 0:01:32.800 --> 0:01:36.240 you have to think pride and points at principle were 0:01:36.240 --> 0:01:39.000 often the first to go. But what do all these 0:01:39.040 --> 0:01:42.520 deals and understandings actually add up to, and how is 0:01:42.560 --> 0:01:45.840 the global economy going to be affected? What difference has 0:01:45.880 --> 0:01:48.480 it made to the impact on ordinary US consumers that 0:01:48.560 --> 0:01:51.640 more than a trillion dollars worth of US imports have 0:01:51.760 --> 0:01:56.280 been exempted from tariffs, sometimes very openly, often for reasons 0:01:56.320 --> 0:01:59.960 that are not entirely transparent. Those are a lot of 0:02:00.080 --> 0:02:03.040 weighty questions, and I have one of my favorite double 0:02:03.080 --> 0:02:06.960 acts to answer them, sitting in Washington, DC today, Sean Donnan, 0:02:07.320 --> 0:02:11.520 senior correspondent on the US and Global economy for Bloomberg Sewan, 0:02:11.639 --> 0:02:12.760 fantastic to have you back. 0:02:13.040 --> 0:02:14.040 Oh it's great to be here. 0:02:15.360 --> 0:02:19.120 And again Anna Wong, chief US economist at Bloomberg Economics, 0:02:19.120 --> 0:02:21.200 who's worked at the FED and served in the Trump 0:02:21.240 --> 0:02:25.239 White House between twenty nineteen and twenty twenty, once comment 0:02:25.400 --> 0:02:29.000 at the Council of Economic Advisors. Hi, Anna, happy to 0:02:29.040 --> 0:02:29.280 be here. 0:02:29.360 --> 0:02:36.720 Of Stefan. 0:02:36.960 --> 0:02:37.320 Sean. 0:02:37.560 --> 0:02:39.520 Of course, China is a bit of an exception to this, 0:02:39.600 --> 0:02:41.280 and we'll get on to it. We have not seen 0:02:41.280 --> 0:02:43.600 a formal deal there, and the deadline may well be 0:02:43.639 --> 0:02:47.280 pushed head again. But stepping back from that big exception, 0:02:48.080 --> 0:02:49.440 if this was said to be a bit of a 0:02:49.480 --> 0:02:52.480 shakedown by the US, I mean, it seems to have 0:02:52.480 --> 0:02:55.840 been quite successful, right. I mean, by and large, the 0:02:55.960 --> 0:02:59.400 US hasn't really chickened out, as the claim was often made, 0:02:59.400 --> 0:03:01.919 but the rest to the world it's sort of carved in. 0:03:02.200 --> 0:03:03.679 That's the impression, Is that right? 0:03:04.320 --> 0:03:07.359 I think so far, I think that's right, Although I 0:03:07.400 --> 0:03:09.400 think what we have to keep in mind is that 0:03:09.480 --> 0:03:12.400 we really haven't seen any final text to any of 0:03:12.400 --> 0:03:14.560 these agreements. There's still a lot of big issues to 0:03:14.600 --> 0:03:17.280 be worked out. All of these things could fall apart 0:03:17.720 --> 0:03:20.239 at a moment's noticed or in a single social media 0:03:20.280 --> 0:03:23.960 post from President Trump. But essentially what we've seen is 0:03:24.080 --> 0:03:27.880 President Trump take another step and cementing in these new 0:03:27.960 --> 0:03:30.799 higher tariffs. I think one of the things that's fascinating 0:03:30.880 --> 0:03:33.560 is how he's changed the way we talk about these things. 0:03:33.720 --> 0:03:35.800 Coming into this week, people have talked about, Oh, the 0:03:35.840 --> 0:03:39.760 EU has managed to negotiate a fifteen percent tariff, and 0:03:39.800 --> 0:03:43.160 that's down from a thirty percent tarifwill actually the tariff 0:03:43.200 --> 0:03:46.320 is going up from ten percent to fifteen percent on 0:03:47.680 --> 0:03:49.840 imports from the European. 0:03:49.520 --> 0:03:51.480 Union, and of course it was much much lower than 0:03:51.520 --> 0:03:54.680 that as recently as January of this year. So look, 0:03:54.840 --> 0:03:57.840 President Trump is putting a tarffwall around the United States. 0:03:58.240 --> 0:04:01.760 It's a tariff wall that added some layers. It's also 0:04:01.800 --> 0:04:03.880 got a few doors through it and the exemptions that 0:04:03.920 --> 0:04:09.000 you mentioned. But the project is successful, at least if 0:04:09.040 --> 0:04:11.800 you're judging it on the political side. And I think 0:04:11.960 --> 0:04:15.000 this is where we move into a different phase, and 0:04:15.000 --> 0:04:20.440 that's the economics of this project, and that's where we're 0:04:20.640 --> 0:04:24.200 just now starting to get the first data that raises 0:04:24.240 --> 0:04:26.919 some questions over whether or not Trump is going to 0:04:26.960 --> 0:04:30.480 be able to bring in this golden age that he 0:04:30.520 --> 0:04:35.039 has promised to the American people and deliver the reindustrialization 0:04:35.160 --> 0:04:40.760 of America, a new era of American I guess exceptionalism, 0:04:40.800 --> 0:04:41.760 although of a different kind. 0:04:42.440 --> 0:04:44.320 I would say, we're definitely going to get into the 0:04:44.360 --> 0:04:46.520 impact on the US in a minute. I guess we'd 0:04:46.560 --> 0:04:48.280 have to say. I mean, if Donald Trump is one 0:04:48.839 --> 0:04:52.320 free trade definitely lost so it just remind us when 0:04:52.360 --> 0:04:54.520 you're thinking about when you say we've put the wall 0:04:54.560 --> 0:04:58.800 around the US, just updatus on where tariffs are now 0:04:59.040 --> 0:05:02.000 relative to for Donald Trump took office, because as you 0:05:02.080 --> 0:05:04.680 point out, there's been a sort of expectations of management 0:05:04.720 --> 0:05:08.200 along the way. We had those announcements in the Rose 0:05:08.240 --> 0:05:10.680 Garden on April second, which kind of puts some very 0:05:10.720 --> 0:05:13.040 high numbers, and now the numbers look a bit smaller, 0:05:13.080 --> 0:05:15.640 but they're still a lot higher than they were a 0:05:15.720 --> 0:05:16.440 year ago. 0:05:16.480 --> 0:05:18.760 Absolutely, or a lot higher than they were six seven 0:05:18.760 --> 0:05:22.000 months ago. We came into this year with the average 0:05:22.040 --> 0:05:25.000 applied ter freight in the United States sitting are out 0:05:25.040 --> 0:05:28.200 somewhere between two and three percent. It is now sitting 0:05:28.240 --> 0:05:32.920 somewhere around fifteen percent, and it's threatening to go higher. Still. 0:05:33.000 --> 0:05:36.000 We still are waiting for sectoral tariffs to be announced 0:05:36.000 --> 0:05:42.240 on pharmaceuticals, semiconductors, lumber and all the things that are 0:05:42.560 --> 0:05:47.840 made of lumber that include semiconductors, and so there's a 0:05:47.839 --> 0:05:50.200 lot more tariffs to come potentially. To put that in 0:05:50.320 --> 0:05:53.360 historical context, these are the highest tariff in almost one 0:05:53.400 --> 0:05:58.240 hundred years. Nothing like this has happened since nineteen thirty 0:05:58.360 --> 0:06:01.480 and the smooth Holli terror at the time. 0:06:01.760 --> 0:06:05.440 Our economists have working in the sort of trade modeling 0:06:05.520 --> 0:06:09.120 which strakes from everything and just says, other things being equal, 0:06:09.560 --> 0:06:12.880 that there's a global impact of this kind of tariff 0:06:12.960 --> 0:06:16.000 shock of maybe two trillion dollars by the end of 0:06:16.200 --> 0:06:20.040 twenty twenty seven. Output that would have happened, trade that 0:06:20.080 --> 0:06:22.159 would have happened, that's not going to happen. But Anna, 0:06:22.279 --> 0:06:25.799 I know in the short run you see some powerful 0:06:26.120 --> 0:06:29.719 offsetting factors or maybe one in particular that's helping to 0:06:29.800 --> 0:06:33.520 offset that shock at at least for the short term, 0:06:33.560 --> 0:06:34.880 and it has really made a difference to the way 0:06:34.880 --> 0:06:36.040 we perceive the impact. 0:06:36.520 --> 0:06:39.080 Yeah, So Stephanie, I would call that the dog that 0:06:39.200 --> 0:06:43.400 did not bark in this whole forecast that US tariff 0:06:43.760 --> 0:06:47.640 trade war would plunge the world into slower growth is 0:06:47.760 --> 0:06:51.760 the dollar. So in all these economic models, internally, what 0:06:51.800 --> 0:06:55.560 the model forecast also is that the dollar would appreciate 0:06:55.839 --> 0:06:59.800 in response to tish And that's because when there's higher 0:06:59.839 --> 0:07:04.600 to import volume is supposed to decrease. As import volume decreased, 0:07:04.680 --> 0:07:08.839 than the demand of US firms for foreign currency falls, 0:07:09.040 --> 0:07:12.920 and therefore the relative demand supply of dollar would be 0:07:13.080 --> 0:07:17.280 shifting in favor of appreciation the dollars since there's relatively 0:07:17.360 --> 0:07:23.400 less outflows. Instead, the dollar has depreciated by about ten 0:07:23.440 --> 0:07:27.520 percent year to date, and for one of the biggest 0:07:27.520 --> 0:07:31.720 targets of this trade wars China, right, and China's remen 0:07:31.800 --> 0:07:35.120 be actually stayed pretty constant vis are the US, which 0:07:35.200 --> 0:07:39.720 means that China's currency has actually depreciated against the rest 0:07:39.760 --> 0:07:43.119 of the world by double digit in the past six months. 0:07:43.200 --> 0:07:47.520 For example, it has depreciated against the Europe by ten percent, 0:07:48.000 --> 0:07:51.280 And so what we're seeing therefore, China's growth is better 0:07:51.360 --> 0:07:56.000 than expected because whether be it transhipments or trade diversion, 0:07:56.080 --> 0:07:59.440 it is able to export to other countries more. The 0:07:59.560 --> 0:08:04.680 dollar depreciation also loosened global financial conditions. So what we're 0:08:04.720 --> 0:08:08.120 seeing is in any ems, you're seeing a lot more 0:08:08.120 --> 0:08:12.200 capital inflows. This whole Cell America thing led to a 0:08:12.240 --> 0:08:15.600 lot of capital outflows in search of new homes and 0:08:15.640 --> 0:08:19.080 many lended in emerging markets. And on my trip to 0:08:19.160 --> 0:08:22.800 Hong Kong earlier, what I saw and what I heard 0:08:23.440 --> 0:08:25.720 is that the first half of this year had been 0:08:25.880 --> 0:08:30.200 really good for Hong Kong as an international financial center 0:08:30.440 --> 0:08:33.439 because of all these deals that are coming from China 0:08:33.600 --> 0:08:36.400 to the Hong Kong stock market. It's just like the 0:08:37.120 --> 0:08:42.040 dollar depreciation has really loosen global financial conditions. So all 0:08:42.120 --> 0:08:47.160 of that has basically currently delayed the adjustment that all 0:08:47.200 --> 0:08:50.240 these models would be expecting to happen as a result 0:08:50.280 --> 0:08:51.120 of trade war. 0:08:51.760 --> 0:08:53.760 That is interesting. So there was a feeling that the 0:08:53.800 --> 0:08:55.960 dollar was going to go up, that's what the model said. 0:08:56.520 --> 0:08:59.880 And when the dollar's high, it's sucking in investment to 0:09:00.080 --> 0:09:02.160 the US from the rest of the world, and that's 0:09:02.240 --> 0:09:04.760 kind of tightening for the rest of the world because 0:09:04.760 --> 0:09:07.640 the dollars actually fallen because people are moving money out 0:09:07.679 --> 0:09:09.400 of the US, or at least not putting it in 0:09:09.440 --> 0:09:13.319 as much. It's sending liquidity out into the world, and 0:09:13.360 --> 0:09:16.880 that's making financial conditions easier for everyone else. They don't 0:09:16.920 --> 0:09:19.800 have to have interest rates as high to track money 0:09:19.800 --> 0:09:22.360 if you're an emerging market economy, and it's definitely making 0:09:22.440 --> 0:09:25.800 things a bit easier for the central banks in that economy. 0:09:25.800 --> 0:09:28.080 But you also you had something crucial about China in 0:09:28.120 --> 0:09:31.000 that discussion, because you were pointing out that because of 0:09:31.040 --> 0:09:34.080 the way the Chinese currency is fixed to the dollar. 0:09:34.160 --> 0:09:37.560 You know, bizarrely, you've had the America become more competitive 0:09:38.000 --> 0:09:40.800 and China's just become more competitive along with it. And 0:09:40.960 --> 0:09:42.559 I know you spent that time in the Council of 0:09:42.600 --> 0:09:46.120 Economic Advisors and the Trump's first administration. Did Donald Trump 0:09:46.160 --> 0:09:48.400 have an understanding that as the dollar goes down, it's 0:09:48.400 --> 0:09:50.400 actually also helping the Chinese. 0:09:50.760 --> 0:09:53.800 Well, first of all, President Trump loves a week dollar. 0:09:54.200 --> 0:09:57.760 We were examining his tweets back then, and aside from 0:09:57.840 --> 0:10:01.520 constantly tweeting about power, the next thing that he really 0:10:01.559 --> 0:10:04.720 loves talking about is week dollar. And I think from 0:10:04.760 --> 0:10:08.240 the perspective of the Trump administration, a week dollar is 0:10:08.360 --> 0:10:13.640 part of the state craft, which is too onshore manufacturing. 0:10:13.720 --> 0:10:16.400 To ensure there's a manufacturing based in the US, you 0:10:16.480 --> 0:10:18.960 have to have a week dollar. I do think that 0:10:19.160 --> 0:10:21.880 the administration actually favors a week dollar. 0:10:21.840 --> 0:10:25.080 But they presumably don't favor a more competitive China. So 0:10:25.559 --> 0:10:27.280 what's going to be the policy there? 0:10:27.960 --> 0:10:32.559 Yes, that is an unintended consequence. So somebody like Brad 0:10:32.600 --> 0:10:36.959 Setzer from Council for Foreign Relations have really looked into 0:10:37.120 --> 0:10:40.959 the intervention practice of China, and he has noted that 0:10:41.120 --> 0:10:45.320 China has been interviewing through state banks, and so China 0:10:45.400 --> 0:10:48.640 is actually responding to this trade war in a lot 0:10:48.640 --> 0:10:52.600 of very smart ways, and its found a way to 0:10:52.720 --> 0:10:55.839 keep exporting. And that is something that I don't think 0:10:56.440 --> 0:10:59.600 the calculus of the administration was able to cover. If 0:10:59.600 --> 0:11:03.079 they were able to make other country not retaliate, as 0:11:03.120 --> 0:11:06.160 you mentioned earlier, are the other countries ky, but they 0:11:06.200 --> 0:11:09.520 were not able to stop China from keeping their currency 0:11:09.520 --> 0:11:10.360 from appreciating. 0:11:10.600 --> 0:11:12.559 Yes, if you want chapter reverse on that. My old 0:11:12.600 --> 0:11:16.360 friend Brad's analysis is always he understands the ins and 0:11:16.400 --> 0:11:19.240 out of China's balance of payments better than I think 0:11:19.280 --> 0:11:22.120 anybody on the planet, certainly better than anyone in this core. 0:11:22.480 --> 0:11:25.040 But I mean, Sean, you had a couple of big 0:11:25.080 --> 0:11:28.720 pieces in the last week or so that we're talking 0:11:28.760 --> 0:11:32.679 through different elements of this, and that's the sort of macro. 0:11:33.080 --> 0:11:35.360 I mean, there's a micro to this, which is individual 0:11:35.360 --> 0:11:38.320 companies scrambling to deal with the tariff rates that very 0:11:38.400 --> 0:11:41.000 much do affect them or stand to affect them. And 0:11:41.040 --> 0:11:45.600 you had picked on the tomato exporters in Mexico as 0:11:45.640 --> 0:11:48.160 one example, and how they're just trying to grapple with 0:11:48.200 --> 0:11:48.880 what's happening. 0:11:49.280 --> 0:11:51.720 There's the world of the models, and then there's the 0:11:51.760 --> 0:11:53.520 real world, which is a lot messier and that is 0:11:53.559 --> 0:11:56.599 full of unintended consequences. We're talking about the impact of 0:11:56.640 --> 0:11:59.480 the dollar, and the traditional view is that yes, a 0:11:59.520 --> 0:12:02.240 week or dollar dollar is good for American manufacturers. Well, 0:12:02.679 --> 0:12:05.520 fifty percent of all imports into the United States are 0:12:06.200 --> 0:12:09.720 inputs that go into products that are manufactured in the 0:12:09.800 --> 0:12:12.160 United States. When you have a weeker dollar, they become 0:12:12.200 --> 0:12:16.840 more expensive and US manufacturing actually becomes less competitive on 0:12:16.920 --> 0:12:20.360 that front. And that's the messiness and reality of global 0:12:20.360 --> 0:12:25.240 supply chains. And you see that around Mexican tomatoes, which 0:12:25.320 --> 0:12:29.480 also can be Arizona and tomatoes as well. So there's 0:12:29.480 --> 0:12:32.480 a company called Nature Sweet. It is the essentially the 0:12:32.480 --> 0:12:37.000 biggest greenhouse tomato grower in North America. It does a 0:12:37.000 --> 0:12:39.800 lot of it's growing in Mexico. It also has a 0:12:39.800 --> 0:12:43.080 big facility. It's about thirty football fields of green couses 0:12:43.679 --> 0:12:47.240 in Arizona in which it's grown. Think you're growing lots 0:12:47.240 --> 0:12:51.000 of tomatoes. These are what they call snacking tomatoes, the 0:12:51.120 --> 0:12:54.720 kind of cherry tomatoes and great tomatoes, the multicolored things 0:12:54.720 --> 0:12:57.600 that you put in your salad at home. What they 0:12:57.760 --> 0:13:02.720 are caught between is the tariffs and their future plans 0:13:02.760 --> 0:13:06.960 to grow their production in the United States, all of 0:13:07.000 --> 0:13:10.520 which are being affected by tariffs and the policy. So, 0:13:10.600 --> 0:13:13.880 first of all, President Trump has restored a seventeen percent 0:13:14.000 --> 0:13:20.480 tariff on tomatoes from Mexico, So that is literally a 0:13:20.600 --> 0:13:24.800 million dollars a week in additional costs to Nature Suite 0:13:24.880 --> 0:13:27.960 on its imports from Mexico. But at the same time, 0:13:28.000 --> 0:13:30.200 you have all of these other tariffs that are affecting 0:13:30.280 --> 0:13:33.800 all of these other inputs that they use at their 0:13:33.800 --> 0:13:36.920 facility in Arizona. They had a plan to start expanding 0:13:36.960 --> 0:13:41.040 that facility from thirty football fields to seventy two football 0:13:41.080 --> 0:13:46.560 fields of greenhouses, a big multimillion dollar investment there, but 0:13:46.679 --> 0:13:48.640 now they're looking at that investment and they're putting it 0:13:48.679 --> 0:13:53.280 on hold. Why because most greenhouse technology comes from the 0:13:53.280 --> 0:13:57.920 Netherlands or Israel, so you're importing things to build those 0:13:57.960 --> 0:14:01.800 new greenhouses. Also, all the inputs, and I did not 0:14:01.920 --> 0:14:04.680 know this, all the things that you need to grow 0:14:04.920 --> 0:14:09.560 tomatoes in greenhouses are in fact imported. So they don't 0:14:09.559 --> 0:14:12.800 grow these tomatoes and soil. They grow them in coconut husks. 0:14:12.800 --> 0:14:14.960 Where do those coconut husks come from. They come from 0:14:15.000 --> 0:14:17.880 Sri Lanka, Guess what, they've got a tariff on them. 0:14:18.080 --> 0:14:20.280 Where do they get their fertilizer from, Well, it comes 0:14:20.280 --> 0:14:23.640 from Chile. Nowadays, guess what, it's got a tariff on it. 0:14:23.680 --> 0:14:25.840 Where do the seeds come from. The seeds come from 0:14:25.840 --> 0:14:29.440 Europe and Israel. Guess what, they've got tariffs on them. 0:14:29.840 --> 0:14:33.880 And so all of a sudden, the economics both importing 0:14:35.080 --> 0:14:39.160 the finished product in these tomatoes has changed, but also 0:14:39.600 --> 0:14:44.600 the economics of investing in the United States and increasing 0:14:44.600 --> 0:14:48.640 production in the United States have changed materially. And as 0:14:48.840 --> 0:14:50.880 the CEO of Nature Street told me, that's just the 0:14:50.920 --> 0:14:53.720 world that we live in. And by the way, his 0:14:53.880 --> 0:14:56.760 main competitors at this time of year are in Canada. 0:14:57.640 --> 0:14:59.840 You know what, they don't have any tariffs on their inputs, 0:15:00.320 --> 0:15:02.480 and they're going to be more competitive even if you 0:15:02.560 --> 0:15:05.880 have a tear on Canadian tomatoes coming into the United States, 0:15:05.920 --> 0:15:08.920 at least until the Canadian winter sets in and they 0:15:08.920 --> 0:15:11.560 have more trouble growing tomatoes. And I think we're seeing 0:15:11.560 --> 0:15:15.200 that replicated in all sorts of different ways. It's Japanese 0:15:15.200 --> 0:15:21.920 auto parts makers, it's Chinese manufacturers, it's French wine producers. 0:15:22.240 --> 0:15:24.720 There are all of these effects around the world. A 0:15:24.760 --> 0:15:27.840 lot of them just unintended consequences, and that's we're really 0:15:27.880 --> 0:15:30.680 starting to see happen in the real economy, and that's 0:15:30.680 --> 0:15:32.400 going to start filtering through into the data. 0:15:33.120 --> 0:15:35.160 That's fascinating. I mean, I guess we should thank Donald 0:15:35.160 --> 0:15:37.000 Trump at the very least for having kind of lifted 0:15:37.000 --> 0:15:39.280 the hood or forced us to kind of look under 0:15:39.320 --> 0:15:41.960 the hood of the global economy. I know you spent 0:15:42.000 --> 0:15:44.440 your life under the hood of the global economy, sure, 0:15:44.520 --> 0:15:48.400 but just to get a sense of how complicated and 0:15:48.560 --> 0:15:51.600 intertwined all of these supply chains are. And in case 0:15:51.600 --> 0:15:53.920 anyone's wondering, I am half American, so I can say 0:15:53.920 --> 0:15:57.760 tomato and tomato. But Anna, we know that there's been 0:15:57.800 --> 0:16:01.200 this sort of micro complexities for individual companies, but at 0:16:01.240 --> 0:16:04.400 the same level, there's been this sort of broader sort 0:16:04.440 --> 0:16:06.840 of tailwind that people have had from a week a dollar, 0:16:06.960 --> 0:16:09.880 which has made people feel slightly better than they might 0:16:09.920 --> 0:16:12.840 otherwise have done. But let's just quickly turn the lens 0:16:12.920 --> 0:16:15.120 on the US. I mean, we discussed recently, I think 0:16:15.120 --> 0:16:19.760 with Orang cass about why tariffs might not have the 0:16:20.280 --> 0:16:23.280 sort of significant effect on inflation that some people had 0:16:23.280 --> 0:16:26.800 talked about, but they're clearly is an effect on the 0:16:26.880 --> 0:16:29.880 US economy, and it seems like we may have seen 0:16:29.920 --> 0:16:32.800 some of that in the controversial revisions to the job 0:16:32.880 --> 0:16:35.560 data last week. So just talk us through where you 0:16:35.600 --> 0:16:37.840 think we are in terms of the impact on the US. 0:16:38.520 --> 0:16:42.360 Last Friday, we had July payroll data and it came 0:16:42.440 --> 0:16:47.560 with a shockingly massive downward revisions to June and May's 0:16:47.760 --> 0:16:51.240 jobs data. So now the three months moving average of 0:16:51.320 --> 0:16:54.880 job growth from May to July is only thirty five 0:16:55.200 --> 0:16:59.880 k as opposed to just before last Friday, everybody thought 0:17:00.080 --> 0:17:02.720 three month job growth was really at one hundred and 0:17:02.800 --> 0:17:07.000 fifty thousand. So that's like an order of actitude of 0:17:07.080 --> 0:17:11.040 five lower. So the last Friday's jobs report really flipped 0:17:11.080 --> 0:17:14.600 the narrative of is the US labor mark holding up 0:17:14.640 --> 0:17:19.159 Donald trup to flip as well. Yes, And when you 0:17:19.160 --> 0:17:22.320 look at the details of these downward revisions, they came 0:17:22.480 --> 0:17:26.800 from sectors which one would have thought would indeed be 0:17:26.880 --> 0:17:30.159 affected by this policy shock. So two months ago we 0:17:30.240 --> 0:17:34.760 had written a piece about how Liberation Day and all 0:17:34.760 --> 0:17:38.000 these other policies is going to generate a blood bath 0:17:38.119 --> 0:17:41.320 in the nonfarm payroll for May and June. We thought 0:17:41.359 --> 0:17:45.000 that three sectors affected would be leisure in hospitality, which 0:17:45.320 --> 0:17:48.520 is affected by the reduced TOURUS coming to the US, 0:17:48.640 --> 0:17:52.840 part of the Cell America narrative, construction sector from the 0:17:52.920 --> 0:17:56.399 high ten year yields since the Liberation Day, and of 0:17:56.440 --> 0:18:00.680 course logistics sector as trade flows comes down. For the 0:18:00.800 --> 0:18:04.040 last couple of months it seemed like those three sectors 0:18:04.040 --> 0:18:07.040 were holding up. The last Friday's revisions show that in 0:18:07.080 --> 0:18:09.960 fact they did not. These three sectors were not holding up. 0:18:10.320 --> 0:18:13.800 And then additionally, I think the way to think about 0:18:13.920 --> 0:18:18.159 these revisions is that they bring questions. But whether it 0:18:18.280 --> 0:18:22.080 is those revisions could be revised up again in the 0:18:22.119 --> 0:18:26.359 next month possible also, But right now these are the 0:18:26.480 --> 0:18:30.719 earliest science that in fact the trade war is causing 0:18:30.720 --> 0:18:33.840 a crack in the labor market, and I would characterize 0:18:34.000 --> 0:18:37.800 them as early and tentatives because there are other issues 0:18:37.880 --> 0:18:42.760 related to how BLS is, whether they're accurately measuring the payrolls, 0:18:42.800 --> 0:18:46.040 and it's entirely possible that next month will see and 0:18:46.200 --> 0:18:48.399 upward revisions to those data. 0:18:48.480 --> 0:18:51.720 Recondiss of who has come in to run the Bureau 0:18:51.400 --> 0:18:54.880 of Labor Statistics Molly Smith, who's been on this show, 0:18:54.920 --> 0:18:58.800 but others have written quite a lot about the funding 0:18:58.840 --> 0:19:02.040 issues at the BLS, and also the issue that many 0:19:02.080 --> 0:19:05.240 other statistical agencies have had with surveys and getting people 0:19:05.240 --> 0:19:08.879 to respond promptly or at all in a world certainly 0:19:09.320 --> 0:19:11.520 post COVID. We're covering a lot of ground here, but 0:19:11.560 --> 0:19:14.919 I did want to get to potentially one of the 0:19:14.960 --> 0:19:19.840 reasons another reason why it's hard to read the impact 0:19:20.119 --> 0:19:23.199 on the US economy of tariffs, and that's the large 0:19:23.320 --> 0:19:28.080 chunk of imports that's been exempted one way or another. Sure, 0:19:28.280 --> 0:19:31.399 you've done a fascinating analysis that we brought out last 0:19:31.400 --> 0:19:35.200 week that adds up the numbers and finds over a 0:19:35.280 --> 0:19:38.640 trillion dollars worth of imports one way or another has 0:19:38.680 --> 0:19:41.200 been exempted by Donald Trump from any kind of tariffs 0:19:41.240 --> 0:19:41.680 so far. 0:19:42.480 --> 0:19:42.640 Though. 0:19:42.640 --> 0:19:45.280 We may have even news on one of the sectors 0:19:45.280 --> 0:19:47.120 in the next few days. But just talk us through 0:19:47.160 --> 0:19:49.080 just the sort of headlines of your investigation. 0:19:49.680 --> 0:19:52.439 Yeah. Look, I mean, one of the real differences in 0:19:52.680 --> 0:19:56.600 at least the language around the tariffs this time versus 0:19:56.680 --> 0:19:59.280 during Trump's first term is that there has not been 0:20:00.119 --> 0:20:03.159 way for companies in the United States to kind of 0:20:03.160 --> 0:20:06.960 plead their case for tariff relief. What's called an exclusions process. 0:20:07.080 --> 0:20:09.639 Right in the first term, when it came to the 0:20:09.720 --> 0:20:12.240 tariffs that were applied on steel and aluminum and goods 0:20:12.240 --> 0:20:15.160 from China, companies could go to the government and say, look, 0:20:15.240 --> 0:20:17.720 I can't get this anywhere else. This isn't made in 0:20:17.760 --> 0:20:21.639 the United States. All you're doing is hurting my business. 0:20:21.840 --> 0:20:25.479 I can't find these things outside of China and win 0:20:25.560 --> 0:20:28.760 an exclusion at least temporarily from the tariffs. And it 0:20:28.800 --> 0:20:32.359 was a very transparent process. We could see the applications 0:20:32.359 --> 0:20:34.840 and the decisions on the website. You can still, if 0:20:34.840 --> 0:20:37.600 you're interested to this day, go to the USTR website 0:20:37.680 --> 0:20:40.159 and dig up these exclusions. There were more than fifty 0:20:40.280 --> 0:20:45.159 thousand applications, by the way, for tariff relief just from 0:20:45.200 --> 0:20:48.240 the China tariffs in the first term. This time around, 0:20:48.400 --> 0:20:50.520 President Trump has said no, we're not going to have 0:20:50.560 --> 0:20:55.240 any exclusions. Well, in fact, on Liberation Day April second, 0:20:55.280 --> 0:20:58.760 when you put out an executive order ordering up these 0:20:58.840 --> 0:21:01.600 new tariffs on on goods from all over all over 0:21:01.600 --> 0:21:04.719 the world, there was a thirty seven page annex to 0:21:04.800 --> 0:21:07.600 the executive order that had more than a thousand tariff 0:21:07.640 --> 0:21:10.680 codes that were in fact exempted from those tariffs. The 0:21:10.720 --> 0:21:14.040 administration will tell you, well, those will eventually be subject 0:21:14.119 --> 0:21:18.760 to other tariffs, to sectoral tariffs, but at least temporarily 0:21:19.440 --> 0:21:22.280 you have this exclusion. That's quite a lucrative exclusion for 0:21:22.320 --> 0:21:25.440 a lot of companies. They then followed up on April eleventh, 0:21:25.480 --> 0:21:29.000 they added in a lot of consumer technology products. That's 0:21:29.040 --> 0:21:33.240 when smartphones, for example, became exempted from the tariffs. So 0:21:33.440 --> 0:21:38.400 Apple's iPhone production in China faces a lower tariff than 0:21:38.920 --> 0:21:41.920 lots of other products that are that are coming from China. 0:21:42.000 --> 0:21:45.199 That may change in the future depending on how you 0:21:45.240 --> 0:21:50.080 apply semiconductor the tariffs that President Trump is promising, but 0:21:50.280 --> 0:21:52.879 it's a major exclusion on a major consumer product, and 0:21:52.920 --> 0:21:55.160 it's the type of thing that actually the President stayed 0:21:55.200 --> 0:21:58.200 away from tariffing in the first administration because they wanted 0:21:58.240 --> 0:22:02.200 to reduce the impact on consumers. When you add all 0:22:02.240 --> 0:22:04.720 of this up, this whole universe of excluded products, you 0:22:04.760 --> 0:22:07.760 get to like something close to one point two trillion dollars, 0:22:07.800 --> 0:22:10.119 about seven one hundred and fifty billion dollars of that 0:22:10.600 --> 0:22:13.480 is these Liberation Day tariff exclusions. And then there's also 0:22:13.800 --> 0:22:16.840 all these products in North America that are subject to 0:22:16.880 --> 0:22:20.680 the US Mexico Canada Agreement which used to be known 0:22:20.720 --> 0:22:25.000 as NAFTA, and President Trump, after initially imposing tariffs on 0:22:25.280 --> 0:22:28.040 Canada and Mexico, said well, actually, what we're going to 0:22:28.080 --> 0:22:30.320 do is we're not going to apply that to products 0:22:30.640 --> 0:22:34.400 that fits the bill on this US and Mexico Canada agreement. 0:22:34.720 --> 0:22:37.760 And that's like four hundred billion dollars in trade there 0:22:37.920 --> 0:22:40.119 that's excluded. Add it all up, and it's a third 0:22:40.240 --> 0:22:42.960