Speaker 1: Welcome to brain Stuff production of iHeart Radio, Hey brain
Speaker 1: Stuff Lauren Vogel bamb here. In May of twenty nineteen,
Speaker 1: the Trump administration increased tariffs on two hundred billion dollars
Speaker 1: worth of Chinese exports, raising them from ten percent to
Speaker 1: The increase is the latest skirmish in a trade war
Speaker 1: that's been rapidly escalating since eighteen, a trade war in
Speaker 1: which President Trump has attacked what he views as unfair
Speaker 1: Chinese trade practices and demanded that the country by more
Speaker 1: American products to reduce the US China trade deficit, which
Speaker 1: total three hundred and seventy six billion dollars in sev
Speaker 1: The Chinese responded to the latest increase by expressing quote
Speaker 1: deep regret over the development and said they planned to
Speaker 1: take quote necessary countermeasures. These tariffs aren't the first that
Speaker 1: the Trump administration has imposed against China. In July eighteen,
Speaker 1: the administration hit China with ten percent tariffs on two
Speaker 1: hundred billion dollars worth of imports, a penalty that has
Speaker 1: since affected the prices that US consumers pay for scores
Speaker 1: of products ranging from computers to luggage. A Chinese officials
Speaker 1: quickly responded, adding their own tariffs on US products and
Speaker 1: stepping up border inspections of US goods and holding up
Speaker 1: licenses for US companies to do business in China. And
Speaker 1: Trump is also waging trade wars on other fronts. In
Speaker 1: May of twenty eighteen, his administration imposed steel and aluminium
Speaker 1: tariffs on Canada, Mexico, and the European Union. The US's
Speaker 1: neighbor to the north immediately counterpunched, with Canadian Prime Minister
Speaker 1: Justin Trudeau announcing that it would slap retaliatory tariffs on
Speaker 1: U S exports to Canada. A tariff is a border
Speaker 1: tax on the buyer. When the United States levies a
Speaker 1: tariff on products imported from other countries, it is the
Speaker 1: U S importer who pays the tariff, not the foreign exporter. So,
Speaker 1: for example, when the Trump administration orders a tariff on
Speaker 1: Chinese tech products, the U S importer of those tech
Speaker 1: products will pay the increasing cost, not the Chinese. Ultimately,
Speaker 1: these tariffs make it more expensive for Americans to import
Speaker 1: Chinese goods or goods from whichever nation the tariff is
Speaker 1: being imposed on. The money is collected by customs and
Speaker 1: border protect and the proceeds go to the U. S.
Speaker 1: Treasury to become part of the nation's general budget. It's
Speaker 1: hardly the first time that the US and other nations
Speaker 1: have become involved in such a conflict over trade. Trade
Speaker 1: wars can happen for various reasons. It could be that
Speaker 1: one nation decides that it's getting a raw deal because
Speaker 1: another nation provides subsidies to its manufacturers so that they
Speaker 1: can export goods that are priced too low for local
Speaker 1: producers to compete with. Or it could be the nation
Speaker 1: decides that wants to nurture its own industries by hindering
Speaker 1: their foreign competitors with protective tariffs. Centuries ago, trade wars
Speaker 1: often involved actual violence. In the seventeen and early eighteen hundreds,
Speaker 1: for example, China sold a lot of tea and porcelain
Speaker 1: to the British Empire, so much that the British got
Speaker 1: concerned about the outflow of silver to pay for it.
Speaker 1: They decided to fix the trade and balance by getting
Speaker 1: China to import large quantities of opium that the British
Speaker 1: produced in India. When the Chinese government eventually bulked at
Speaker 1: this arrangement, the British sent in their warships and forced
Speaker 1: China to sign an eighteen forty two treaty. The not
Speaker 1: only open China to British trade, but gave the territory
Speaker 1: of Hong Kong to the British. This conflict became known
Speaker 1: as the First Opium War. But even a bloodless trade
Speaker 1: war can caused plenty of suffering. A lot of observers
Speaker 1: are seeing unsettling parallels between Trump's multifront trade warfare and
Speaker 1: the trade war that erupted in the nineteen thirties after
Speaker 1: President Herbert Hoover signed into law the Smoot Holly Act,
Speaker 1: which raised US tariffs by an average of sixteen percent.
Speaker 1: Other countries enacted their own tariffs in response, leading to
Speaker 1: a disastrous global decline in trade. We spoke via email
Speaker 1: with Dartmouth College economics professor Douglas A. Irwin, author of
Speaker 1: the twenty eleven book Peddling Protectionism, smoot Holly, and the
Speaker 1: Great Depression. He said, initially, smoot Holly was not a
Speaker 1: response to the Great Depression. It was passed by the
Speaker 1: House in the spring of nineteen twenty nine, before the
Speaker 1: business cycle peak, at a time when the economy was
Speaker 1: doing well and the unemployment rate was low. However, it
Speaker 1: got held up in the Senate and by that time.
Speaker 1: The stock market had crashed in the fall of nineteen
Speaker 1: twenty nine and the economy was moving into a recession,
Speaker 1: which later became the Depression. The economy continued to get
Speaker 1: worse after the passage of Smoot Holly, and the brutality
Speaker 1: gation against you as exports that occurred because of it
Speaker 1: is thought to have contributed to the severe economic difficulties
Speaker 1: at that time. So there is a cautionary tail here.
Speaker 1: Just because the economy is doing well and close to
Speaker 1: a peak does not mean that things cannot go badly
Speaker 1: if one moves in a protectionist direction. Smote Holly also
Speaker 1: helped stimulate a surge of angry nationalism in other countries.
Speaker 1: Irwin explained it this way. If one country slaps tariffs
Speaker 1: on your goods, the usual response is to take offense
Speaker 1: and retaligate, rather than to turn the other cheek. Both
Speaker 1: in nineteen thirty and today, Canada was very upset with
Speaker 1: US terrorf action and retaliated nationalists gain strength unperceived slights.
Speaker 1: And just think about how China still remembers being humiliated
Speaker 1: by Western powers during the Opium Wars of the nineteenth
Speaker 1: century and its vow to never be so weak again.
Speaker 1: When the Trump administration bullies countries today on trade, it
Speaker 1: naturally leads other countries to stiffen their resolve to resist
Speaker 1: the US. Another big problem with trade wars is that
Speaker 1: there's a lot of collateral damage. As Philip I. Levey,
Speaker 1: a Senior Fellow on the Global Economy for the Chica
Speaker 1: GO Counsel on Global Affairs, recently pointed out on vox,
Speaker 1: poor people tend to suffer disproportionately since basic necessities that
Speaker 1: they already struggle to afford food, shooes, and clothing can
Speaker 1: become more expensive. We also spoke with Levy via email.
Speaker 1: He added that certain sectors of the economy can be
Speaker 1: hit worse than others. Quote, if you are in a
Speaker 1: steel using sector like an auto parts of manufacturer, you
Speaker 1: are more likely to be hurt by the steel tariffs.
Speaker 1: If you're in the construction sector, you're likely hurt by
Speaker 1: tariffs on steel and on Canadian softwood lumber. These are
Speaker 1: hits to income and employment, which are in addition to
Speaker 1: the hits people take as consumers. However, the producers of
Speaker 1: the products that a government is waging war over and
Speaker 1: their investors stand to benefit. Levy said to be fair.
Speaker 1: If you're a shareholder in US steel, you're pretty happy
Speaker 1: you don't have to face as much competition. True for
Speaker 1: workers as well, but much of the job loss has
Speaker 1: been to automation, not trade, so the tariffs don't fix that.
Speaker 1: Though the world economy and global trade are stronger today
Speaker 1: than they were in the early nineteen thirties, Levy argues
Speaker 1: that a trade war today might be even more damaging.
Speaker 1: He said, there's this unusual argument about why this is
Speaker 1: a great time for a trade war. It's a little
Speaker 1: like saying that today is a good day for me
Speaker 1: to slam my hand in the car door since I
Speaker 1: don't have to give a piano performance in the near future.
Speaker 1: While that may be true, it's still not a good
Speaker 1: idea to slam my hand in a car door. He continued,
Speaker 1: Why might now be worse than the nineteen thirties for
Speaker 1: the United States? Back then everyone was doing it and
Speaker 1: we didn't really have global supply chains. Now it is
Speaker 1: not the case that all countries are raising trade barriers
Speaker 1: against everyone else. It's the United States that's carving itself
Speaker 1: out of global supply chains. The rest of the world
Speaker 1: is still striking trade deals, whether it's the European Union
Speaker 1: in Canada, the European Union in Japan, or the Comprehensive
Speaker 1: and Progressive Agreement for a Trans Pacific Partnership. In Levy's opinion,
Speaker 1: Trump's trade war quote will uniquely disadvantage US business. Today's
Speaker 1: episode was written by Patrick J. Tiger and produced by
Speaker 1: Tyler Klain. Brain Stuff is a production of I Heeart
Speaker 1: Radio's How Stuff Works. For more on this and lots
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