WEBVTT - Here's Why Trade Wars Are Easier To Start Than Finish

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carol and

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<v Speaker 1>this is Here's Why, where we take one news story

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<v Speaker 1>and explain it in just a few minutes with our

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<v Speaker 1>experts here at Bloomberg.

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<v Speaker 2>To me, the most beautiful word in the dictionary is tariff,

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<v Speaker 2>and it's my favorite word.

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<v Speaker 1>It only took Donald Trump two weeks in office to

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<v Speaker 1>impose his first trade tariffs, a levy of ten percent

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<v Speaker 1>on Chinese goods, a trade.

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<v Speaker 3>War it ruts between the world's two biggest economies. After

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<v Speaker 3>the US imposes a ten percent tariff on Chinese imports,

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<v Speaker 3>Beijing response with levees on coal, oil, lng and more.

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<v Speaker 4>It shows that China is not going to back down

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<v Speaker 4>without a fight. Clearly, this is a very highly choreographed move,

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<v Speaker 4>given that China had waited exactly until after that tariff

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<v Speaker 4>kicked in before announcing these series of coordinated measures.

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<v Speaker 1>Donald Trump plans to impose hers on Canada, Mexico, and

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<v Speaker 1>the European Union. That's if leaders can't convince him to

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<v Speaker 1>hold off. Trede Tariffs can be easy to impose, but

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<v Speaker 1>trickier to unwind. So here's why trade wars are easier

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<v Speaker 1>to start than finish our trades are Brendan Murray joins me.

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<v Speaker 1>Now for more. Brendan, First of all, how easy is

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<v Speaker 1>it for Donald Trump to impose trade tariffs?

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<v Speaker 2>Donald Trump has an any US president has a lot

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<v Speaker 2>of authority at their fingertips to impose tariffs. Some of

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<v Speaker 2>those authorities come from investigations that take some time, and

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<v Speaker 2>some of them he can impose within a matter of

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<v Speaker 2>days or a week or two. So he has a

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<v Speaker 2>lot of power in that in that regard at his fingertips,

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<v Speaker 2>and it's only been two and a half weeks and

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<v Speaker 2>we've seen him stretch those to the limits.

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<v Speaker 1>Remind us if we go back to the last time

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<v Speaker 1>that Donald Trump was president as well, he also imposed

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<v Speaker 1>trade tariff's on several trading partners that time around. What's

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<v Speaker 1>happened to those measures since?

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<v Speaker 2>So, Donald Trump in his first term put tariffs on

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<v Speaker 2>about three hundred and seventy billion dollars worth of products

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<v Speaker 2>from China. He also tinkered with some steel tariffs with

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<v Speaker 2>Canada and the European Union. Those steel and aluminum tariffs

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<v Speaker 2>have come off, or there's a ceasefire at least, but

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<v Speaker 2>in large part, those tariffs on Chinese products are still

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<v Speaker 2>in place. He rolled some of them back after they

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<v Speaker 2>signed this Phase one trade deal, but for the most

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<v Speaker 2>part they're still in place and had been through the

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<v Speaker 2>Biden administration as well.

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<v Speaker 1>So they've stuck around those measures. More generally, what has

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<v Speaker 1>past experience taught us about how long trade tariffs tend

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<v Speaker 1>to last for after they've been imposed.

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<v Speaker 2>Well, trade tariffs over the past couple of decades have

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<v Speaker 2>mainly been designed to increase the flow of trade across borders,

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<v Speaker 2>lower tariffs in that in that direction, what we're seeing

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<v Speaker 2>with this new era that Donald Trump is leading is

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<v Speaker 2>tariffs to prevent trade from happening so production happens at home.

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<v Speaker 2>Tariffs are not something you sort of flick on and

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<v Speaker 2>flick off on a whim. So we're seeing a use

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<v Speaker 2>of arf in a way that we haven't seen in

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<v Speaker 2>a long time. And as we're seeing, he's using those

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<v Speaker 2>for a couple of different reasons to punish countries. As

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<v Speaker 2>a negotiating tool, he wants to raise revenue with them,

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<v Speaker 2>so it's a multi purpose tool that we're seeing. Donald

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<v Speaker 2>Trump used tariffs.

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<v Speaker 1>For what has led to tarff's being lifted in the past.

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<v Speaker 1>How does a trade war traditionally come to an end.

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<v Speaker 2>Both sides, or in the case of Canada, Mexico and

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<v Speaker 2>the US, they sit around a table and they work

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<v Speaker 2>out their issues, and there are concessions and there are demands,

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<v Speaker 2>and you meet somewhere in the middle. That's essentially how

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<v Speaker 2>trade wars end. I think that that's what's going to

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<v Speaker 2>happen is Trump wants to sit down with Canada and

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<v Speaker 2>work out a deal. Say hey, look, you know, we

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<v Speaker 2>want some relief from your dairy subsidies and we want

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<v Speaker 2>access to things that we don't have access to right now.

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<v Speaker 2>So I think this is what we're seeing is tariffs

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<v Speaker 2>being used as leverage to get countries to the negotiating table.

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<v Speaker 2>We're going to see it happen to the European Union,

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<v Speaker 2>and it's pretty obvious in the first couple of weeks.

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<v Speaker 2>Tariffs are not just a tool to be used to

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<v Speaker 2>tinker with individual trade relationships, but really to solve the

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<v Speaker 2>geopolitical problems that Trump thinks need to be changed.

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<v Speaker 1>But that USMCA deal with Mexico and Canada under Donald

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<v Speaker 1>Trump's last administration was concluded relatively quickly. You know, if

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<v Speaker 1>we think about the US and the European Union, and however,

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<v Speaker 1>many years have been invested in negotiating trade agreements for them.

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<v Speaker 1>I wonder, is this a very long process that we

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<v Speaker 1>should think about that that tends to lead to a

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<v Speaker 1>trade agreement.

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<v Speaker 2>Well, the USMCA has been characterized as more of a

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<v Speaker 2>rebranding of the NAFTA agreement rather than a wholesale rewriting

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<v Speaker 2>of it. That agreement USMCA is coming up for a

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<v Speaker 2>review in twenty twenty six. So there are a lot

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<v Speaker 2>of observers who say, look, how tough he's being with

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<v Speaker 2>Mexico and Canada. This is just the game that he

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<v Speaker 2>plays before he sits down at the negotiating table. There

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<v Speaker 2>might be some concessions he's going to want in USMCA,

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<v Speaker 2>some tougher rules of origin requirements and things that would

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<v Speaker 2>protect the US part of the auto industry that stretches

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<v Speaker 2>across North America.

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<v Speaker 1>When we do see trade tariffs eased or lifted, how

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<v Speaker 1>quickly can businesses adapt to that? When do trade flows

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<v Speaker 1>pick up again.

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<v Speaker 2>They can adjust pretty quickly. As we saw earlier this week,

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<v Speaker 2>the ten percent tariff went on all Chinese imports into

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<v Speaker 2>the US, and companies will now start factoring that into

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<v Speaker 2>their customs paperwork, and it happens pretty quickly. Most of

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<v Speaker 2>it is, you know, digital, It happens through electronic transmissions.

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<v Speaker 2>So as long as companies think that that ten percent

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<v Speaker 2>is going to be there for a while, then they

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<v Speaker 2>can make decisions. The problem is they don't know if

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<v Speaker 2>that ten percent is going to change to twenty percent

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<v Speaker 2>next month, and thirty percent the month after that, and

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<v Speaker 2>sixty percent in six months. So we're going to see

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<v Speaker 2>a lot of uncertainty, a lot of investments and hiring

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<v Speaker 2>and just basic business activities slow down or maybe even

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<v Speaker 2>be put on hold until there's some clarity. Because if

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<v Speaker 2>you don't know if you can be profitable doing business

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<v Speaker 2>with China or Mexico or Canada, then you don't go forward.

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<v Speaker 2>And a tariff is something that could mean the difference

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<v Speaker 2>between making money and losing money.

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<v Speaker 1>I have a related question as well, to do with

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<v Speaker 1>the World's Trade Organization, the name of which suggests it

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<v Speaker 1>should have perhaps a greater hand in how these things

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<v Speaker 1>are governed. But does the WTO actually have any role

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<v Speaker 1>to play in in position and lifting of trade tariffs.

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<v Speaker 2>So the WTO just turned thirty years old a month ago,

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<v Speaker 2>and the WTO has seen its role in this era

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<v Speaker 2>of protectionism diminish quite a lot. It essentially has a

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<v Speaker 2>couple of different things that it's supposed to be doing.

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<v Speaker 2>It's supposed to settle disputes. If you've got a problem

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<v Speaker 2>with a certain country, you go to the WTO, and

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<v Speaker 2>the WTO will help resolve that issue. The WTO is

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<v Speaker 2>also supposed to be a form for negotiating trade agreements,

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<v Speaker 2>and at the moment there are a few trade agreements

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<v Speaker 2>being signed, but the main ones are being tested as

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<v Speaker 2>we're seeing USMCA being tested with Donald Trump's threats of tariff.

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<v Speaker 2>So the WTO, and they would tell you this internally

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<v Speaker 2>needs to find out where it fits in this new

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<v Speaker 2>environment where the rules based system of trade as they

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<v Speaker 2>call it, still can function. If not, we're in the

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<v Speaker 2>law of the jungle. My country's bigger than yours. You

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<v Speaker 2>need me more than you, and therefore I will dictate

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<v Speaker 2>the terms of our trading relationship.

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<v Speaker 1>Okay, Brandon Murray, our trades are Thank you very much

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<v Speaker 1>for more explanations like this from our team of twenty

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<v Speaker 1>nine hundred journalists and analysts around the world. Search for

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<v Speaker 1>quick take on the Bloomberg website or Bloomberg Business app.

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<v Speaker 1>I'm Stephen Carroll. This is here's why. I'll be back

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<v Speaker 1>next week with more. Thanks for listening.