WEBVTT - Are There Winners and Losers in a Trade War?

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<v Speaker 1>Welcome to brain Stuff production of iHeart Radio, Hey brain

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<v Speaker 1>Stuff Lauren Vogel bamb here. In May of twenty nineteen,

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<v Speaker 1>the Trump administration increased tariffs on two hundred billion dollars

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<v Speaker 1>worth of Chinese exports, raising them from ten percent to

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<v Speaker 1>The increase is the latest skirmish in a trade war

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<v Speaker 1>that's been rapidly escalating since eighteen, a trade war in

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<v Speaker 1>which President Trump has attacked what he views as unfair

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<v Speaker 1>Chinese trade practices and demanded that the country by more

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<v Speaker 1>American products to reduce the US China trade deficit, which

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<v Speaker 1>total three hundred and seventy six billion dollars in sev

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<v Speaker 1>The Chinese responded to the latest increase by expressing quote

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<v Speaker 1>deep regret over the development and said they planned to

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<v Speaker 1>take quote necessary countermeasures. These tariffs aren't the first that

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<v Speaker 1>the Trump administration has imposed against China. In July eighteen,

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<v Speaker 1>the administration hit China with ten percent tariffs on two

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<v Speaker 1>hundred billion dollars worth of imports, a penalty that has

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<v Speaker 1>since affected the prices that US consumers pay for scores

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<v Speaker 1>of products ranging from computers to luggage. A Chinese officials

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<v Speaker 1>quickly responded, adding their own tariffs on US products and

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<v Speaker 1>stepping up border inspections of US goods and holding up

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<v Speaker 1>licenses for US companies to do business in China. And

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<v Speaker 1>Trump is also waging trade wars on other fronts. In

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<v Speaker 1>May of twenty eighteen, his administration imposed steel and aluminium

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<v Speaker 1>tariffs on Canada, Mexico, and the European Union. The US's

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<v Speaker 1>neighbor to the north immediately counterpunched, with Canadian Prime Minister

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<v Speaker 1>Justin Trudeau announcing that it would slap retaliatory tariffs on

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<v Speaker 1>U S exports to Canada. A tariff is a border

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<v Speaker 1>tax on the buyer. When the United States levies a

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<v Speaker 1>tariff on products imported from other countries, it is the

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<v Speaker 1>U S importer who pays the tariff, not the foreign exporter. So,

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<v Speaker 1>for example, when the Trump administration orders a tariff on

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<v Speaker 1>Chinese tech products, the U S importer of those tech

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<v Speaker 1>products will pay the increasing cost, not the Chinese. Ultimately,

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<v Speaker 1>these tariffs make it more expensive for Americans to import

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<v Speaker 1>Chinese goods or goods from whichever nation the tariff is

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<v Speaker 1>being imposed on. The money is collected by customs and

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<v Speaker 1>border protect and the proceeds go to the U. S.

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<v Speaker 1>Treasury to become part of the nation's general budget. It's

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<v Speaker 1>hardly the first time that the US and other nations

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<v Speaker 1>have become involved in such a conflict over trade. Trade

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<v Speaker 1>wars can happen for various reasons. It could be that

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<v Speaker 1>one nation decides that it's getting a raw deal because

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<v Speaker 1>another nation provides subsidies to its manufacturers so that they

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<v Speaker 1>can export goods that are priced too low for local

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<v Speaker 1>producers to compete with. Or it could be the nation

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<v Speaker 1>decides that wants to nurture its own industries by hindering

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<v Speaker 1>their foreign competitors with protective tariffs. Centuries ago, trade wars

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<v Speaker 1>often involved actual violence. In the seventeen and early eighteen hundreds,

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<v Speaker 1>for example, China sold a lot of tea and porcelain

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<v Speaker 1>to the British Empire, so much that the British got

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<v Speaker 1>concerned about the outflow of silver to pay for it.

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<v Speaker 1>They decided to fix the trade and balance by getting

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<v Speaker 1>China to import large quantities of opium that the British

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<v Speaker 1>produced in India. When the Chinese government eventually bulked at

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<v Speaker 1>this arrangement, the British sent in their warships and forced

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<v Speaker 1>China to sign an eighteen forty two treaty. The not

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<v Speaker 1>only open China to British trade, but gave the territory

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<v Speaker 1>of Hong Kong to the British. This conflict became known

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<v Speaker 1>as the First Opium War. But even a bloodless trade

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<v Speaker 1>war can caused plenty of suffering. A lot of observers

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<v Speaker 1>are seeing unsettling parallels between Trump's multifront trade warfare and

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<v Speaker 1>the trade war that erupted in the nineteen thirties after

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<v Speaker 1>President Herbert Hoover signed into law the Smoot Holly Act,

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<v Speaker 1>which raised US tariffs by an average of sixteen percent.

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<v Speaker 1>Other countries enacted their own tariffs in response, leading to

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<v Speaker 1>a disastrous global decline in trade. We spoke via email

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<v Speaker 1>with Dartmouth College economics professor Douglas A. Irwin, author of

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<v Speaker 1>the twenty eleven book Peddling Protectionism, smoot Holly, and the

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<v Speaker 1>Great Depression. He said, initially, smoot Holly was not a

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<v Speaker 1>response to the Great Depression. It was passed by the

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<v Speaker 1>House in the spring of nineteen twenty nine, before the

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<v Speaker 1>business cycle peak, at a time when the economy was

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<v Speaker 1>doing well and the unemployment rate was low. However, it

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<v Speaker 1>got held up in the Senate and by that time.

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<v Speaker 1>The stock market had crashed in the fall of nineteen

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<v Speaker 1>twenty nine and the economy was moving into a recession,

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<v Speaker 1>which later became the Depression. The economy continued to get

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<v Speaker 1>worse after the passage of Smoot Holly, and the brutality

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<v Speaker 1>gation against you as exports that occurred because of it

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<v Speaker 1>is thought to have contributed to the severe economic difficulties

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<v Speaker 1>at that time. So there is a cautionary tail here.

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<v Speaker 1>Just because the economy is doing well and close to

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<v Speaker 1>a peak does not mean that things cannot go badly

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<v Speaker 1>if one moves in a protectionist direction. Smote Holly also

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<v Speaker 1>helped stimulate a surge of angry nationalism in other countries.

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<v Speaker 1>Irwin explained it this way. If one country slaps tariffs

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<v Speaker 1>on your goods, the usual response is to take offense

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<v Speaker 1>and retaligate, rather than to turn the other cheek. Both

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<v Speaker 1>in nineteen thirty and today, Canada was very upset with

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<v Speaker 1>US terrorf action and retaliated nationalists gain strength unperceived slights.

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<v Speaker 1>And just think about how China still remembers being humiliated

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<v Speaker 1>by Western powers during the Opium Wars of the nineteenth

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<v Speaker 1>century and its vow to never be so weak again.

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<v Speaker 1>When the Trump administration bullies countries today on trade, it

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<v Speaker 1>naturally leads other countries to stiffen their resolve to resist

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<v Speaker 1>the US. Another big problem with trade wars is that

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<v Speaker 1>there's a lot of collateral damage. As Philip I. Levey,

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<v Speaker 1>a Senior Fellow on the Global Economy for the Chica

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<v Speaker 1>GO Counsel on Global Affairs, recently pointed out on vox,

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<v Speaker 1>poor people tend to suffer disproportionately since basic necessities that

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<v Speaker 1>they already struggle to afford food, shooes, and clothing can

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<v Speaker 1>become more expensive. We also spoke with Levy via email.

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<v Speaker 1>He added that certain sectors of the economy can be

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<v Speaker 1>hit worse than others. Quote, if you are in a

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<v Speaker 1>steel using sector like an auto parts of manufacturer, you

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<v Speaker 1>are more likely to be hurt by the steel tariffs.

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<v Speaker 1>If you're in the construction sector, you're likely hurt by

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<v Speaker 1>tariffs on steel and on Canadian softwood lumber. These are

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<v Speaker 1>hits to income and employment, which are in addition to

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<v Speaker 1>the hits people take as consumers. However, the producers of

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<v Speaker 1>the products that a government is waging war over and

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<v Speaker 1>their investors stand to benefit. Levy said to be fair.

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<v Speaker 1>If you're a shareholder in US steel, you're pretty happy

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<v Speaker 1>you don't have to face as much competition. True for

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<v Speaker 1>workers as well, but much of the job loss has

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<v Speaker 1>been to automation, not trade, so the tariffs don't fix that.

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<v Speaker 1>Though the world economy and global trade are stronger today

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<v Speaker 1>than they were in the early nineteen thirties, Levy argues

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<v Speaker 1>that a trade war today might be even more damaging.

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<v Speaker 1>He said, there's this unusual argument about why this is

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<v Speaker 1>a great time for a trade war. It's a little

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<v Speaker 1>like saying that today is a good day for me

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<v Speaker 1>to slam my hand in the car door since I

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<v Speaker 1>don't have to give a piano performance in the near future.

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<v Speaker 1>While that may be true, it's still not a good

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<v Speaker 1>idea to slam my hand in a car door. He continued,

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<v Speaker 1>Why might now be worse than the nineteen thirties for

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<v Speaker 1>the United States? Back then everyone was doing it and

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<v Speaker 1>we didn't really have global supply chains. Now it is

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<v Speaker 1>not the case that all countries are raising trade barriers

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<v Speaker 1>against everyone else. It's the United States that's carving itself

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<v Speaker 1>out of global supply chains. The rest of the world

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<v Speaker 1>is still striking trade deals, whether it's the European Union

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<v Speaker 1>in Canada, the European Union in Japan, or the Comprehensive

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<v Speaker 1>and Progressive Agreement for a Trans Pacific Partnership. In Levy's opinion,

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<v Speaker 1>Trump's trade war quote will uniquely disadvantage US business. Today's

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<v Speaker 1>episode was written by Patrick J. Tiger and produced by

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<v Speaker 1>Tyler Klain. Brain Stuff is a production of I Heeart

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<v Speaker 1>Radio's How Stuff Works. For more on this and lots

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<v Speaker 1>of other economical topics, visit our home planet, how stuff

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<v Speaker 1>Works dot com, and for more podcasts. For my heart Radio,

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