Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Your sense is right that this is the path we're
Speaker 2: heading where these tariffs will stay. And in fact, the
Speaker 2: milted treatment's criticism of government intervention, which is that once
Speaker 2: you start, it's hard to sunset anything.
Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
Speaker 3: and this is trump Anomics, the podcast that looks at
Speaker 3: the economic world of Donald Trump, how he's already shaped
Speaker 3: the global economy and what on earth is going to
Speaker 3: happen next. And this week we're zoning in again on trade.
Speaker 3: I mean, we've all been through another round of tariff
Speaker 3: deadlines in the last few days. There's a bunch of
Speaker 3: countries around the world feeling could have been worse, Others
Speaker 3: facing a severe case of tariff sticker shock, for example,
Speaker 3: who have the misfortune of running a thirty eight billion
Speaker 3: dollar trade surplus with the US. The Swiss president's actually
Speaker 3: in the air to Washington as we record this on Tuesday,
Speaker 3: the fifth of August, and she's hoping to negotiate down
Speaker 3: the shocking thirty nine percent tariff rate that is otherwise
Speaker 3: going to kick in on August seventh. So all these
Speaker 3: months of so called trade talks between the US and
Speaker 3: its trading partners have been messy and not always about trade.
Speaker 3: For the negotiators charged with striking a deal with the US,
Speaker 3: you have to think pride and points at principle were
Speaker 3: often the first to go. But what do all these
Speaker 3: deals and understandings actually add up to, and how is
Speaker 3: the global economy going to be affected? What difference has
Speaker 3: it made to the impact on ordinary US consumers that
Speaker 3: more than a trillion dollars worth of US imports have
Speaker 3: been exempted from tariffs, sometimes very openly, often for reasons
Speaker 3: that are not entirely transparent. Those are a lot of
Speaker 3: weighty questions, and I have one of my favorite double
Speaker 3: acts to answer them, sitting in Washington, DC today, Sean Donnan,
Speaker 3: senior correspondent on the US and Global economy for Bloomberg Sewan,
Speaker 3: fantastic to have you back.
Speaker 1: Oh it's great to be here.
Speaker 3: And again Anna Wong, chief US economist at Bloomberg Economics,
Speaker 3: who's worked at the FED and served in the Trump
Speaker 3: White House between twenty nineteen and twenty twenty, once comment
Speaker 3: at the Council of Economic Advisors. Hi, Anna, happy to
Speaker 3: be here.
Speaker 2: Of Stefan.
Speaker 1: Sean.
Speaker 3: Of course, China is a bit of an exception to this,
Speaker 3: and we'll get on to it. We have not seen
Speaker 3: a formal deal there, and the deadline may well be
Speaker 3: pushed head again. But stepping back from that big exception,
Speaker 3: if this was said to be a bit of a
Speaker 3: shakedown by the US, I mean, it seems to have
Speaker 3: been quite successful, right. I mean, by and large, the
Speaker 3: US hasn't really chickened out, as the claim was often made,
Speaker 3: but the rest to the world it's sort of carved in.
Speaker 3: That's the impression, Is that right?
Speaker 1: I think so far, I think that's right, Although I
Speaker 1: think what we have to keep in mind is that
Speaker 1: we really haven't seen any final text to any of
Speaker 1: these agreements. There's still a lot of big issues to
Speaker 1: be worked out. All of these things could fall apart
Speaker 1: at a moment's noticed or in a single social media
Speaker 1: post from President Trump. But essentially what we've seen is
Speaker 1: President Trump take another step and cementing in these new
Speaker 1: higher tariffs. I think one of the things that's fascinating
Speaker 1: is how he's changed the way we talk about these things.
Speaker 4: Coming into this week, people have talked about, Oh, the
Speaker 4: EU has managed to negotiate a fifteen percent tariff, and
Speaker 4: that's down from a thirty percent tarifwill actually the tariff
Speaker 4: is going up from ten percent to fifteen percent on
Speaker 4: imports from the European.
Speaker 1: Union, and of course it was much much lower than
Speaker 1: that as recently as January of this year. So look,
Speaker 1: President Trump is putting a tarffwall around the United States.
Speaker 1: It's a tariff wall that added some layers. It's also
Speaker 1: got a few doors through it and the exemptions that
Speaker 1: you mentioned. But the project is successful, at least if
Speaker 1: you're judging it on the political side. And I think
Speaker 1: this is where we move into a different phase, and
Speaker 1: that's the economics of this project, and that's where we're
Speaker 1: just now starting to get the first data that raises
Speaker 1: some questions over whether or not Trump is going to
Speaker 1: be able to bring in this golden age that he
Speaker 1: has promised to the American people and deliver the reindustrialization
Speaker 1: of America, a new era of American I guess exceptionalism,
Speaker 1: although of a different kind.
Speaker 3: I would say, we're definitely going to get into the
Speaker 3: impact on the US in a minute. I guess we'd
Speaker 3: have to say. I mean, if Donald Trump is one
Speaker 3: free trade definitely lost so it just remind us when
Speaker 3: you're thinking about when you say we've put the wall
Speaker 3: around the US, just updatus on where tariffs are now
Speaker 3: relative to for Donald Trump took office, because as you
Speaker 3: point out, there's been a sort of expectations of management
Speaker 3: along the way. We had those announcements in the Rose
Speaker 3: Garden on April second, which kind of puts some very
Speaker 3: high numbers, and now the numbers look a bit smaller,
Speaker 3: but they're still a lot higher than they were a
Speaker 3: year ago.
Speaker 1: Absolutely, or a lot higher than they were six seven
Speaker 1: months ago. We came into this year with the average
Speaker 1: applied ter freight in the United States sitting are out
Speaker 1: somewhere between two and three percent. It is now sitting
Speaker 1: somewhere around fifteen percent, and it's threatening to go higher. Still.
Speaker 1: We still are waiting for sectoral tariffs to be announced
Speaker 1: on pharmaceuticals, semiconductors, lumber and all the things that are
Speaker 1: made of lumber that include semiconductors, and so there's a
Speaker 1: lot more tariffs to come potentially. To put that in
Speaker 1: historical context, these are the highest tariff in almost one
Speaker 1: hundred years. Nothing like this has happened since nineteen thirty
Speaker 1: and the smooth Holli terror at the time.
Speaker 3: Our economists have working in the sort of trade modeling
Speaker 3: which strakes from everything and just says, other things being equal,
Speaker 3: that there's a global impact of this kind of tariff
Speaker 3: shock of maybe two trillion dollars by the end of
Speaker 3: twenty twenty seven. Output that would have happened, trade that
Speaker 3: would have happened, that's not going to happen. But Anna,
Speaker 3: I know in the short run you see some powerful
Speaker 3: offsetting factors or maybe one in particular that's helping to
Speaker 3: offset that shock at at least for the short term,
Speaker 3: and it has really made a difference to the way
Speaker 3: we perceive the impact.
Speaker 2: Yeah, So Stephanie, I would call that the dog that
Speaker 2: did not bark in this whole forecast that US tariff
Speaker 2: trade war would plunge the world into slower growth is
Speaker 2: the dollar. So in all these economic models, internally, what
Speaker 2: the model forecast also is that the dollar would appreciate
Speaker 2: in response to tish And that's because when there's higher
Speaker 2: to import volume is supposed to decrease. As import volume decreased,
Speaker 2: than the demand of US firms for foreign currency falls,
Speaker 2: and therefore the relative demand supply of dollar would be
Speaker 2: shifting in favor of appreciation the dollars since there's relatively
Speaker 2: less outflows. Instead, the dollar has depreciated by about ten
Speaker 2: percent year to date, and for one of the biggest
Speaker 2: targets of this trade wars China, right, and China's remen
Speaker 2: be actually stayed pretty constant vis are the US, which
Speaker 2: means that China's currency has actually depreciated against the rest
Speaker 2: of the world by double digit in the past six months.
Speaker 2: For example, it has depreciated against the Europe by ten percent,
Speaker 2: And so what we're seeing therefore, China's growth is better
Speaker 2: than expected because whether be it transhipments or trade diversion,
Speaker 2: it is able to export to other countries more. The
Speaker 2: dollar depreciation also loosened global financial conditions. So what we're
Speaker 2: seeing is in any ems, you're seeing a lot more
Speaker 2: capital inflows. This whole Cell America thing led to a
Speaker 2: lot of capital outflows in search of new homes and
Speaker 2: many lended in emerging markets. And on my trip to
Speaker 2: Hong Kong earlier, what I saw and what I heard
Speaker 2: is that the first half of this year had been
Speaker 2: really good for Hong Kong as an international financial center
Speaker 2: because of all these deals that are coming from China
Speaker 2: to the Hong Kong stock market. It's just like the
Speaker 2: dollar depreciation has really loosen global financial conditions. So all
Speaker 2: of that has basically currently delayed the adjustment that all
Speaker 2: these models would be expecting to happen as a result
Speaker 2: of trade war.
Speaker 3: That is interesting. So there was a feeling that the
Speaker 3: dollar was going to go up, that's what the model said.
Speaker 3: And when the dollar's high, it's sucking in investment to
Speaker 3: the US from the rest of the world, and that's
Speaker 3: kind of tightening for the rest of the world because
Speaker 3: the dollars actually fallen because people are moving money out
Speaker 3: of the US, or at least not putting it in
Speaker 3: as much. It's sending liquidity out into the world, and
Speaker 3: that's making financial conditions easier for everyone else. They don't
Speaker 3: have to have interest rates as high to track money
Speaker 3: if you're an emerging market economy, and it's definitely making
Speaker 3: things a bit easier for the central banks in that economy.
Speaker 3: But you also you had something crucial about China in
Speaker 3: that discussion, because you were pointing out that because of
Speaker 3: the way the Chinese currency is fixed to the dollar.
Speaker 3: You know, bizarrely, you've had the America become more competitive
Speaker 3: and China's just become more competitive along with it. And
Speaker 3: I know you spent that time in the Council of
Speaker 3: Economic Advisors and the Trump's first administration. Did Donald Trump
Speaker 3: have an understanding that as the dollar goes down, it's
Speaker 3: actually also helping the Chinese.
Speaker 2: Well, first of all, President Trump loves a week dollar.
Speaker 2: We were examining his tweets back then, and aside from
Speaker 2: constantly tweeting about power, the next thing that he really
Speaker 2: loves talking about is week dollar. And I think from
Speaker 2: the perspective of the Trump administration, a week dollar is
Speaker 2: part of the state craft, which is too onshore manufacturing.
Speaker 2: To ensure there's a manufacturing based in the US, you
Speaker 2: have to have a week dollar. I do think that
Speaker 2: the administration actually favors a week dollar.
Speaker 3: But they presumably don't favor a more competitive China. So
Speaker 3: what's going to be the policy there?
Speaker 2: Yes, that is an unintended consequence. So somebody like Brad
Speaker 2: Setzer from Council for Foreign Relations have really looked into
Speaker 2: the intervention practice of China, and he has noted that
Speaker 2: China has been interviewing through state banks, and so China
Speaker 2: is actually responding to this trade war in a lot
Speaker 2: of very smart ways, and its found a way to
Speaker 2: keep exporting. And that is something that I don't think
Speaker 2: the calculus of the administration was able to cover. If
Speaker 2: they were able to make other country not retaliate, as
Speaker 2: you mentioned earlier, are the other countries ky, but they
Speaker 2: were not able to stop China from keeping their currency
Speaker 2: from appreciating.
Speaker 3: Yes, if you want chapter reverse on that. My old
Speaker 3: friend Brad's analysis is always he understands the ins and
Speaker 3: out of China's balance of payments better than I think
Speaker 3: anybody on the planet, certainly better than anyone in this core.
Speaker 3: But I mean, Sean, you had a couple of big
Speaker 3: pieces in the last week or so that we're talking
Speaker 3: through different elements of this, and that's the sort of macro.
Speaker 3: I mean, there's a micro to this, which is individual
Speaker 3: companies scrambling to deal with the tariff rates that very
Speaker 3: much do affect them or stand to affect them. And
Speaker 3: you had picked on the tomato exporters in Mexico as
Speaker 3: one example, and how they're just trying to grapple with
Speaker 3: what's happening.
Speaker 1: There's the world of the models, and then there's the
Speaker 1: real world, which is a lot messier and that is
Speaker 1: full of unintended consequences. We're talking about the impact of
Speaker 1: the dollar, and the traditional view is that yes, a
Speaker 1: week or dollar dollar is good for American manufacturers. Well,
Speaker 1: fifty percent of all imports into the United States are
Speaker 1: inputs that go into products that are manufactured in the
Speaker 1: United States. When you have a weeker dollar, they become
Speaker 1: more expensive and US manufacturing actually becomes less competitive on
Speaker 1: that front. And that's the messiness and reality of global
Speaker 1: supply chains. And you see that around Mexican tomatoes, which
Speaker 1: also can be Arizona and tomatoes as well. So there's
Speaker 1: a company called Nature Sweet. It is the essentially the
Speaker 1: biggest greenhouse tomato grower in North America. It does a
Speaker 1: lot of it's growing in Mexico. It also has a
Speaker 1: big facility. It's about thirty football fields of green couses
Speaker 1: in Arizona in which it's grown. Think you're growing lots
Speaker 1: of tomatoes. These are what they call snacking tomatoes, the
Speaker 1: kind of cherry tomatoes and great tomatoes, the multicolored things
Speaker 1: that you put in your salad at home. What they
Speaker 1: are caught between is the tariffs and their future plans
Speaker 1: to grow their production in the United States, all of
Speaker 1: which are being affected by tariffs and the policy. So,
Speaker 1: first of all, President Trump has restored a seventeen percent
Speaker 1: tariff on tomatoes from Mexico, So that is literally a
Speaker 1: million dollars a week in additional costs to Nature Suite
Speaker 1: on its imports from Mexico. But at the same time,
Speaker 1: you have all of these other tariffs that are affecting
Speaker 1: all of these other inputs that they use at their
Speaker 1: facility in Arizona. They had a plan to start expanding
Speaker 1: that facility from thirty football fields to seventy two football
Speaker 1: fields of greenhouses, a big multimillion dollar investment there, but
Speaker 1: now they're looking at that investment and they're putting it
Speaker 1: on hold. Why because most greenhouse technology comes from the
Speaker 1: Netherlands or Israel, so you're importing things to build those
Speaker 1: new greenhouses. Also, all the inputs, and I did not
Speaker 1: know this, all the things that you need to grow
Speaker 1: tomatoes in greenhouses are in fact imported. So they don't
Speaker 1: grow these tomatoes and soil. They grow them in coconut husks.
Speaker 1: Where do those coconut husks come from. They come from
Speaker 1: Sri Lanka, Guess what, they've got a tariff on them.
Speaker 1: Where do they get their fertilizer from, Well, it comes
Speaker 1: from Chile. Nowadays, guess what, it's got a tariff on it.
Speaker 1: Where do the seeds come from. The seeds come from
Speaker 1: Europe and Israel. Guess what, they've got tariffs on them.
Speaker 1: And so all of a sudden, the economics both importing
Speaker 1: the finished product in these tomatoes has changed, but also
Speaker 1: the economics of investing in the United States and increasing
Speaker 1: production in the United States have changed materially. And as
Speaker 1: the CEO of Nature Street told me, that's just the
Speaker 1: world that we live in. And by the way, his
Speaker 1: main competitors at this time of year are in Canada.
Speaker 1: You know what, they don't have any tariffs on their inputs,
Speaker 1: and they're going to be more competitive even if you
Speaker 1: have a tear on Canadian tomatoes coming into the United States,
Speaker 1: at least until the Canadian winter sets in and they
Speaker 1: have more trouble growing tomatoes. And I think we're seeing
Speaker 1: that replicated in all sorts of different ways. It's Japanese
Speaker 1: auto parts makers, it's Chinese manufacturers, it's French wine producers.
Speaker 1: There are all of these effects around the world. A
Speaker 1: lot of them just unintended consequences, and that's we're really
Speaker 1: starting to see happen in the real economy, and that's
Speaker 1: going to start filtering through into the data.
Speaker 3: That's fascinating. I mean, I guess we should thank Donald
Speaker 3: Trump at the very least for having kind of lifted
Speaker 3: the hood or forced us to kind of look under
Speaker 3: the hood of the global economy. I know you spent
Speaker 3: your life under the hood of the global economy, sure,
Speaker 3: but just to get a sense of how complicated and
Speaker 3: intertwined all of these supply chains are. And in case
Speaker 3: anyone's wondering, I am half American, so I can say
Speaker 3: tomato and tomato. But Anna, we know that there's been
Speaker 3: this sort of micro complexities for individual companies, but at
Speaker 3: the same level, there's been this sort of broader sort
Speaker 3: of tailwind that people have had from a week a dollar,
Speaker 3: which has made people feel slightly better than they might
Speaker 3: otherwise have done. But let's just quickly turn the lens
Speaker 3: on the US. I mean, we discussed recently, I think
Speaker 3: with Orang cass about why tariffs might not have the
Speaker 3: sort of significant effect on inflation that some people had
Speaker 3: talked about, but they're clearly is an effect on the
Speaker 3: US economy, and it seems like we may have seen
Speaker 3: some of that in the controversial revisions to the job
Speaker 3: data last week. So just talk us through where you
Speaker 3: think we are in terms of the impact on the US.
Speaker 2: Last Friday, we had July payroll data and it came
Speaker 2: with a shockingly massive downward revisions to June and May's
Speaker 2: jobs data. So now the three months moving average of
Speaker 2: job growth from May to July is only thirty five
Speaker 2: k as opposed to just before last Friday, everybody thought
Speaker 2: three month job growth was really at one hundred and
Speaker 2: fifty thousand. So that's like an order of actitude of
Speaker 2: five lower. So the last Friday's jobs report really flipped
Speaker 2: the narrative of is the US labor mark holding up
Speaker 2: Donald trup to flip as well. Yes, And when you
Speaker 2: look at the details of these downward revisions, they came
Speaker 2: from sectors which one would have thought would indeed be
Speaker 2: affected by this policy shock. So two months ago we
Speaker 2: had written a piece about how Liberation Day and all
Speaker 2: these other policies is going to generate a blood bath
Speaker 2: in the nonfarm payroll for May and June. We thought
Speaker 2: that three sectors affected would be leisure in hospitality, which
Speaker 2: is affected by the reduced TOURUS coming to the US,
Speaker 2: part of the Cell America narrative, construction sector from the
Speaker 2: high ten year yields since the Liberation Day, and of
Speaker 2: course logistics sector as trade flows comes down. For the
Speaker 2: last couple of months it seemed like those three sectors
Speaker 2: were holding up. The last Friday's revisions show that in
Speaker 2: fact they did not. These three sectors were not holding up.
Speaker 2: And then additionally, I think the way to think about
Speaker 2: these revisions is that they bring questions. But whether it
Speaker 2: is those revisions could be revised up again in the
Speaker 2: next month possible also, But right now these are the
Speaker 2: earliest science that in fact the trade war is causing
Speaker 2: a crack in the labor market, and I would characterize
Speaker 2: them as early and tentatives because there are other issues
Speaker 2: related to how BLS is, whether they're accurately measuring the payrolls,
Speaker 2: and it's entirely possible that next month will see and
Speaker 2: upward revisions to those data.
Speaker 3: Recondiss of who has come in to run the Bureau
Speaker 3: of Labor Statistics Molly Smith, who's been on this show,
Speaker 3: but others have written quite a lot about the funding
Speaker 3: issues at the BLS, and also the issue that many
Speaker 3: other statistical agencies have had with surveys and getting people
Speaker 3: to respond promptly or at all in a world certainly
Speaker 3: post COVID. We're covering a lot of ground here, but
Speaker 3: I did want to get to potentially one of the
Speaker 3: reasons another reason why it's hard to read the impact
Speaker 3: on the US economy of tariffs, and that's the large
Speaker 3: chunk of imports that's been exempted one way or another. Sure,
Speaker 3: you've done a fascinating analysis that we brought out last
Speaker 3: week that adds up the numbers and finds over a
Speaker 3: trillion dollars worth of imports one way or another has
Speaker 3: been exempted by Donald Trump from any kind of tariffs
Speaker 3: so far.
Speaker 1: Though.
Speaker 3: We may have even news on one of the sectors
Speaker 3: in the next few days. But just talk us through
Speaker 3: just the sort of headlines of your investigation.
Speaker 1: Yeah. Look, I mean, one of the real differences in
Speaker 1: at least the language around the tariffs this time versus
Speaker 1: during Trump's first term is that there has not been
Speaker 1: way for companies in the United States to kind of
Speaker 1: plead their case for tariff relief. What's called an exclusions process.
Speaker 1: Right in the first term, when it came to the
Speaker 1: tariffs that were applied on steel and aluminum and goods
Speaker 1: from China, companies could go to the government and say, look,
Speaker 1: I can't get this anywhere else. This isn't made in
Speaker 1: the United States. All you're doing is hurting my business.
Speaker 1: I can't find these things outside of China and win
Speaker 1: an exclusion at least temporarily from the tariffs. And it
Speaker 1: was a very transparent process. We could see the applications
Speaker 1: and the decisions on the website. You can still, if
Speaker 1: you're interested to this day, go to the USTR website
Speaker 1: and dig up these exclusions. There were more than fifty
Speaker 1: thousand applications, by the way, for tariff relief just from
Speaker 1: the China tariffs in the first term. This time around,
Speaker 1: President Trump has said no, we're not going to have
Speaker 1: any exclusions. Well, in fact, on Liberation Day April second,
Speaker 1: when you put out an executive order ordering up these
Speaker 1: new tariffs on on goods from all over all over
Speaker 1: the world, there was a thirty seven page annex to
Speaker 1: the executive order that had more than a thousand tariff
Speaker 1: codes that were in fact exempted from those tariffs. The
Speaker 1: administration will tell you, well, those will eventually be subject
Speaker 1: to other tariffs, to sectoral tariffs, but at least temporarily
Speaker 1: you have this exclusion. That's quite a lucrative exclusion for
Speaker 1: a lot of companies. They then followed up on April eleventh,
Speaker 1: they added in a lot of consumer technology products. That's
Speaker 1: when smartphones, for example, became exempted from the tariffs. So
Speaker 1: Apple's iPhone production in China faces a lower tariff than
Speaker 1: lots of other products that are that are coming from China.
Speaker 1: That may change in the future depending on how you
Speaker 1: apply semiconductor the tariffs that President Trump is promising, but
Speaker 1: it's a major exclusion on a major consumer product, and
Speaker 1: it's the type of thing that actually the President stayed
Speaker 1: away from tariffing in the first administration because they wanted
Speaker 1: to reduce the impact on consumers. When you add all
Speaker 1: of this up, this whole universe of excluded products, you
Speaker 1: get to like something close to one point two trillion dollars,
Speaker 1: about seven one hundred and fifty billion dollars of that
Speaker 1: is these Liberation Day tariff exclusions. And then there's also
Speaker 1: all these products in North America that are subject to
Speaker 1: the US Mexico Canada Agreement which used to be known
Speaker 1: as NAFTA, and President Trump, after initially imposing tariffs on
Speaker 1: Canada and Mexico, said well, actually, what we're going to
Speaker 1: do is we're not going to apply that to products
Speaker 1: that fits the bill on this US and Mexico Canada agreement.
Speaker 1: And that's like four hundred billion dollars in trade there
Speaker 1: that's excluded. Add it all up, and it's a third
Speaker 1: of all imports into the United States that are now
Speaker 1: excluded from tariffs. And that obviously has a meaningful impact
Speaker 1: on consumer prices and the effect on consumer prices on
Speaker 1: the overall economic effect. And we're going to get more
Speaker 1: of this to come.
Speaker 3: But Sean, I think a lot of people would say, Okay,
Speaker 3: there's a whole segment of the market which have been exempted,
Speaker 3: and that may be unfair, you know, if you're making
Speaker 3: in China and you're facing a big tariff if you're
Speaker 3: making a certain kind of good, but not if you're
Speaker 3: making an iPhone. But at least it applies to all
Speaker 3: companies in a given sector. Do you have a sense
Speaker 3: when you're looking at some of the sort of smaller exemptions,
Speaker 3: are there cases where it seems to be company by
Speaker 3: company or where they're sort of implicitly companied by company
Speaker 3: because of the way the exemption has been designed. Do
Speaker 3: most of these still take the form of a whole
Speaker 3: market segment rather than just a single business person getting
Speaker 3: a break.
Speaker 1: Yes and no, right, I mean it depends what you make.
Speaker 1: As a consumer technology product, for example, it depends what
Speaker 1: you make. And this is where tariff codes get incredibly specific,
Speaker 1: and by choosing one tariff code over another, you can
Speaker 1: really have an impact on different companies. The great example
Speaker 1: in technology is game consoles. Game consoles have not been
Speaker 1: excluded from tariffs, so your Microsoft or Nintendo, your product
Speaker 1: becomes significantly more more expensive to import. And that's kind
Speaker 1: of key product.
Speaker 3: And most people when you hear consumer electronics, you would
Speaker 3: probably think that those were included in that life exactly exactly.
Speaker 1: And then you get into kind of smaller accessories and
Speaker 1: it gets more complicated. Yes, there are smartphones or excluded,
Speaker 1: laptops are excluded and so, but then it gets incredibly
Speaker 1: finicky into you know, inputs like nylon, certain polymers, things
Speaker 1: like rubber. There's you know, one type of graphite that
Speaker 1: is excluded and one type that isn't excluded. I mean,
Speaker 1: imports of cocaine that are done legally are right now
Speaker 1: under the state of terraffs excluded from new terraffs. While obviously,
Speaker 1: and this is the case of American Textile imports of
Speaker 1: the pillow shells. The American Textile makes bed pillows and
Speaker 1: other betting products, but the shells that they import from
Speaker 1: China and India and Pakistan are subject to severe tarf
Speaker 1: So you know, no turffs on co can. Asbestos, by
Speaker 1: the way, is also excluded, and you have terts. And
Speaker 1: what you've created is a very murky system. Now, and
Speaker 1: this is what economs will tell you. The terriffs do
Speaker 1: is that they create distortions in the market, but they
Speaker 1: also create this kind of favor system, and they create
Speaker 1: perceived unfairness as consumers of steel get whacked while producers
Speaker 1: of steel get protected, right and and so you know,
Speaker 1: American Textile is an interesting company and that they've taken there.
Speaker 1: They've managed to get all the way into the White House,
Speaker 1: and they've had meetings at the White House and all
Speaker 1: along the way they say they've been told they're a
Speaker 1: victim of unintended consequences. This isn't what was what intended?
Speaker 1: You know what was intended. It's so interesting.
Speaker 3: Every topic is a is a is a rabbit hole. Anna,
Speaker 3: But I am going to slightly put you on the
Speaker 3: spot because there's a CNBC interview that Donald Trump has
Speaker 3: been doing, and I know my colleagues have been avidly
Speaker 3: watching for news, and one of the things that has
Speaker 3: come out of it is Donald Trump saying that US
Speaker 3: tariffs on semiconductor and pharmaceutical imports will be announced within
Speaker 3: the next week or so quote, and he says, we'll
Speaker 3: be putting this is I thought was interesting, Anna, will
Speaker 3: be putting an initially small tariff on pharmaceuticals, but in
Speaker 3: one year, one and a half years, max, it's going
Speaker 3: to go to one hundred and fifty percent, and then
Speaker 3: it's going to go to two hundred and fifty percent
Speaker 3: because we want pharmaceuticals made in our country. He said
Speaker 3: that as say, Tuesday morning, in an interview. I mean,
Speaker 3: what's striking to me, Anna, is that one of the
Speaker 3: criticisms of his policy up till now has been this
Speaker 3: that if you wanted to actually move production, it seemed
Speaker 3: like you should have a delayed timetable for tariffs, because
Speaker 3: how are you going to build all these factories in
Speaker 3: a month or three months in order to avoid those tariffs?
Speaker 3: Very early days obviously, but is there a sign that
Speaker 3: he's kind of taken on that argument with this approach
Speaker 3: to pharmaceuticals if this is what we end up seeing.
Speaker 2: Yeah, with pharmaceutical if that's what we end up seeing,
Speaker 2: it's seems like he does. And we have looked into
Speaker 2: the quantity of stockpiling for pharmaceuticals, and we estimate that
Speaker 2: US firms have stockpiled enough for at least a year
Speaker 2: as of now for pharmaceuticals. So even without that, the
Speaker 2: pharmaceutical industry has a year, and now with that they
Speaker 2: have bought themselves ten years.
Speaker 1: Yeah. Yeah.
Speaker 3: There's also some suggestion he's talking about semiconductors and chips,
Speaker 3: but which is a separate category. I think that's right,
Speaker 3: he says, But as Shorten reminds me, the categories can
Speaker 3: get much much smaller than that.
Speaker 1: There's also a key question, which is how these things
Speaker 1: are applied. Right, So one of the big exclusions that
Speaker 1: we've seen creep in to the deal with the European Union,
Speaker 1: for example, is an exclusion on tariffs for generic drugs. Now, again,
Speaker 1: when we see these pharmaceutical sectoral tariffs, will they apply
Speaker 1: to generic drugs as well? People in the generic drug
Speaker 1: industry say, the economics of producing those which are incredibly
Speaker 1: low margin products in the United States, it's you'd rather
Speaker 1: just swallow the tariffs. They're not just there. So we're
Speaker 1: going to be looking for those exclusions on the semiconductor side.
Speaker 1: All of these sectoral tariffs, they've applied to what they
Speaker 1: call derivative products as well. Right, so things that include semiconductors,
Speaker 1: including that Apple smartphone, which has not been subject to
Speaker 1: the Liberation Day tariffs, but maybe subject to the semiconductor
Speaker 1: The question becomes, how do you compute it. Is it
Speaker 1: a tariff of twenty five percent on the entire value
Speaker 1: of the smartphone or is it a twenty five percent
Speaker 1: tariff on the value of the chips inside the smartphone.
Speaker 1: That's a very different proposition, and you can guess which
Speaker 1: one Apple was pushing for.
Speaker 3: I've had conversations here in the UK with people who
Speaker 3: was struggling when the aluminium tariffs came in with the
Speaker 3: sort of a similar issue of how a soft drink
Speaker 3: can is it on the value of the can overall
Speaker 3: when it's sold, or is it on the value just
Speaker 3: of the aluminium or aluminum inside the can. And these
Speaker 3: are things that all those companies are having to grapple with,
Speaker 3: and I was really struck. I mean this is by
Speaker 3: way of a sort of last word. There was a
Speaker 3: relatively senior diplomat came in to just talk off the
Speaker 3: record in Bloomberg the last couple of days from a
Speaker 3: pretty major country, and he just said, once it's actually
Speaker 3: been imposed, the US has never taken away a tariff
Speaker 3: in the last fifty years. Once you actually put them
Speaker 3: in and you start making money or people start making
Speaker 3: decisions on it, the US has never removed them. Now,
Speaker 3: I suspect that may not be technically true, but it
Speaker 3: sort of feels broad directionally true. And once we have
Speaker 3: seen all these tariffs we built that wall that we
Speaker 3: started off for the program talking about of a fifteen
Speaker 3: percent or so average tariff freight compared to the extremely
Speaker 3: low one that a year ago. Do you think these
Speaker 3: will get removed by future administrations, these tariffs or are
Speaker 3: we just moving into a world where every US administration
Speaker 3: relies on tariffs.
Speaker 2: Yes, definitely, I think that your sense is right that
Speaker 2: this is the path we're heading where these tariffs will stay.
Speaker 2: And I think that it's not just tariffs, generally taxes,
Speaker 2: and in fact, the Milton Treatments criticism of government intervention,
Speaker 2: which is that once you start, it's hard to sunset anything.
Speaker 2: And I think that we are going to eventually see
Speaker 2: these tariff legislated. I think America has decided to use
Speaker 2: tariffs as a means to dig ourselves out of our
Speaker 2: fiscal hold. These tariff revenues right now are averaging about
Speaker 2: thirty billion per month, so that's looking like over three
Speaker 2: hundred billion per year, and that is exactly what you
Speaker 2: need to pay for the one that beautiful bill.
Speaker 1: Wow.
Speaker 3: Well, that seems a poignant place to end. Donald Trump
Speaker 3: not taking lessons from Milton Freeman and a wonk. Sean Donnan,
Speaker 3: thank you so much.
Speaker 1: Great to be here, Thank you.
Speaker 3: Thank you for listening to Trumponomics from Bloomberg. It was
Speaker 3: hosted by me Stephanie Flanders. I was joined by Anna
Speaker 3: Wong and Short Donner. Trumpnomics is produced by Moses and
Speaker 3: Dam and Samma Sadi, with help from Amy Keene and
Speaker 3: special thanks to Rachel Lewis. Kriskey. Sound design is by
Speaker 3: Blake Maples and Sage Bowman is head of Bloomberg podcast.