Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carol and
Speaker 1: this is Here's Why, where we take one news story
Speaker 1: and explain it in just a few minutes with our
Speaker 1: experts here at Bloomberg.
Speaker 2: To me, the most beautiful word in the dictionary is tariff,
Speaker 2: and it's my favorite word.
Speaker 1: It only took Donald Trump two weeks in office to
Speaker 1: impose his first trade tariffs, a levy of ten percent
Speaker 1: on Chinese goods, a trade.
Speaker 3: War it ruts between the world's two biggest economies. After
Speaker 3: the US imposes a ten percent tariff on Chinese imports,
Speaker 3: Beijing response with levees on coal, oil, lng and more.
Speaker 4: It shows that China is not going to back down
Speaker 4: without a fight. Clearly, this is a very highly choreographed move,
Speaker 4: given that China had waited exactly until after that tariff
Speaker 4: kicked in before announcing these series of coordinated measures.
Speaker 1: Donald Trump plans to impose hers on Canada, Mexico, and
Speaker 1: the European Union. That's if leaders can't convince him to
Speaker 1: hold off. Trede Tariffs can be easy to impose, but
Speaker 1: trickier to unwind. So here's why trade wars are easier
Speaker 1: to start than finish our trades are Brendan Murray joins me.
Speaker 1: Now for more. Brendan, First of all, how easy is
Speaker 1: it for Donald Trump to impose trade tariffs?
Speaker 2: Donald Trump has an any US president has a lot
Speaker 2: of authority at their fingertips to impose tariffs. Some of
Speaker 2: those authorities come from investigations that take some time, and
Speaker 2: some of them he can impose within a matter of
Speaker 2: days or a week or two. So he has a
Speaker 2: lot of power in that in that regard at his fingertips,
Speaker 2: and it's only been two and a half weeks and
Speaker 2: we've seen him stretch those to the limits.
Speaker 1: Remind us if we go back to the last time
Speaker 1: that Donald Trump was president as well, he also imposed
Speaker 1: trade tariff's on several trading partners that time around. What's
Speaker 1: happened to those measures since?
Speaker 2: So, Donald Trump in his first term put tariffs on
Speaker 2: about three hundred and seventy billion dollars worth of products
Speaker 2: from China. He also tinkered with some steel tariffs with
Speaker 2: Canada and the European Union. Those steel and aluminum tariffs
Speaker 2: have come off, or there's a ceasefire at least, but
Speaker 2: in large part, those tariffs on Chinese products are still
Speaker 2: in place. He rolled some of them back after they
Speaker 2: signed this Phase one trade deal, but for the most
Speaker 2: part they're still in place and had been through the
Speaker 2: Biden administration as well.
Speaker 1: So they've stuck around those measures. More generally, what has
Speaker 1: past experience taught us about how long trade tariffs tend
Speaker 1: to last for after they've been imposed.
Speaker 2: Well, trade tariffs over the past couple of decades have
Speaker 2: mainly been designed to increase the flow of trade across borders,
Speaker 2: lower tariffs in that in that direction, what we're seeing
Speaker 2: with this new era that Donald Trump is leading is
Speaker 2: tariffs to prevent trade from happening so production happens at home.
Speaker 2: Tariffs are not something you sort of flick on and
Speaker 2: flick off on a whim. So we're seeing a use
Speaker 2: of arf in a way that we haven't seen in
Speaker 2: a long time. And as we're seeing, he's using those
Speaker 2: for a couple of different reasons to punish countries. As
Speaker 2: a negotiating tool, he wants to raise revenue with them,
Speaker 2: so it's a multi purpose tool that we're seeing. Donald
Speaker 2: Trump used tariffs.
Speaker 1: For what has led to tarff's being lifted in the past.
Speaker 1: How does a trade war traditionally come to an end.
Speaker 2: Both sides, or in the case of Canada, Mexico and
Speaker 2: the US, they sit around a table and they work
Speaker 2: out their issues, and there are concessions and there are demands,
Speaker 2: and you meet somewhere in the middle. That's essentially how
Speaker 2: trade wars end. I think that that's what's going to
Speaker 2: happen is Trump wants to sit down with Canada and
Speaker 2: work out a deal. Say hey, look, you know, we
Speaker 2: want some relief from your dairy subsidies and we want
Speaker 2: access to things that we don't have access to right now.
Speaker 2: So I think this is what we're seeing is tariffs
Speaker 2: being used as leverage to get countries to the negotiating table.
Speaker 2: We're going to see it happen to the European Union,
Speaker 2: and it's pretty obvious in the first couple of weeks.
Speaker 2: Tariffs are not just a tool to be used to
Speaker 2: tinker with individual trade relationships, but really to solve the
Speaker 2: geopolitical problems that Trump thinks need to be changed.
Speaker 1: But that USMCA deal with Mexico and Canada under Donald
Speaker 1: Trump's last administration was concluded relatively quickly. You know, if
Speaker 1: we think about the US and the European Union, and however,
Speaker 1: many years have been invested in negotiating trade agreements for them.
Speaker 1: I wonder, is this a very long process that we
Speaker 1: should think about that that tends to lead to a
Speaker 1: trade agreement.
Speaker 2: Well, the USMCA has been characterized as more of a
Speaker 2: rebranding of the NAFTA agreement rather than a wholesale rewriting
Speaker 2: of it. That agreement USMCA is coming up for a
Speaker 2: review in twenty twenty six. So there are a lot
Speaker 2: of observers who say, look, how tough he's being with
Speaker 2: Mexico and Canada. This is just the game that he
Speaker 2: plays before he sits down at the negotiating table. There
Speaker 2: might be some concessions he's going to want in USMCA,
Speaker 2: some tougher rules of origin requirements and things that would
Speaker 2: protect the US part of the auto industry that stretches
Speaker 2: across North America.
Speaker 1: When we do see trade tariffs eased or lifted, how
Speaker 1: quickly can businesses adapt to that? When do trade flows
Speaker 1: pick up again.
Speaker 2: They can adjust pretty quickly. As we saw earlier this week,
Speaker 2: the ten percent tariff went on all Chinese imports into
Speaker 2: the US, and companies will now start factoring that into
Speaker 2: their customs paperwork, and it happens pretty quickly. Most of
Speaker 2: it is, you know, digital, It happens through electronic transmissions.
Speaker 2: So as long as companies think that that ten percent
Speaker 2: is going to be there for a while, then they
Speaker 2: can make decisions. The problem is they don't know if
Speaker 2: that ten percent is going to change to twenty percent
Speaker 2: next month, and thirty percent the month after that, and
Speaker 2: sixty percent in six months. So we're going to see
Speaker 2: a lot of uncertainty, a lot of investments and hiring
Speaker 2: and just basic business activities slow down or maybe even
Speaker 2: be put on hold until there's some clarity. Because if
Speaker 2: you don't know if you can be profitable doing business
Speaker 2: with China or Mexico or Canada, then you don't go forward.
Speaker 2: And a tariff is something that could mean the difference
Speaker 2: between making money and losing money.
Speaker 1: I have a related question as well, to do with
Speaker 1: the World's Trade Organization, the name of which suggests it
Speaker 1: should have perhaps a greater hand in how these things
Speaker 1: are governed. But does the WTO actually have any role
Speaker 1: to play in in position and lifting of trade tariffs.
Speaker 2: So the WTO just turned thirty years old a month ago,
Speaker 2: and the WTO has seen its role in this era
Speaker 2: of protectionism diminish quite a lot. It essentially has a
Speaker 2: couple of different things that it's supposed to be doing.
Speaker 2: It's supposed to settle disputes. If you've got a problem
Speaker 2: with a certain country, you go to the WTO, and
Speaker 2: the WTO will help resolve that issue. The WTO is
Speaker 2: also supposed to be a form for negotiating trade agreements,
Speaker 2: and at the moment there are a few trade agreements
Speaker 2: being signed, but the main ones are being tested as
Speaker 2: we're seeing USMCA being tested with Donald Trump's threats of tariff.
Speaker 2: So the WTO, and they would tell you this internally
Speaker 2: needs to find out where it fits in this new
Speaker 2: environment where the rules based system of trade as they
Speaker 2: call it, still can function. If not, we're in the
Speaker 2: law of the jungle. My country's bigger than yours. You
Speaker 2: need me more than you, and therefore I will dictate
Speaker 2: the terms of our trading relationship.
Speaker 1: Okay, Brandon Murray, our trades are Thank you very much
Speaker 1: for more explanations like this from our team of twenty
Speaker 1: nine hundred journalists and analysts around the world. Search for
Speaker 1: quick take on the Bloomberg website or Bloomberg Business app.
Speaker 1: I'm Stephen Carroll. This is here's why. I'll be back
Speaker 1: next week with more. Thanks for listening.