Here's Why Trade Wars Are Easier To Start Than Finish
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I'm Stephen Carroll and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg. To me, the most beautiful word in the dictionary is tariff. And it's my favourite word. It only took Donald Trump two weeks in office to impose his first trade tariffs, a levy of 10% on Chinese goods. A trade war erupts between the world's two biggest economies after the US imposes a 10% tariff on Chinese imports.

Beijing responds with levies on coal, oil, LNG and more. It shows that China is not going to back down without a fight. Clearly, this is a very highly choreographed move given that China had waited exactly until after the tariff kicked in before announcing these series of

coordinated measures. Donald Trump plans to impose tariffs on Canada, Mexico and the European Union. That's if leaders can't convince him to hold off. Trade tariffs can be easy to impose but trickier to unwind. So here's why trade wars are easier to start than finish. Our trade czar Brendan Murray joins me now for more. Brendan,

Brendan, first of all, how easy is it for Donald Trump to impose trade tariffs? Donald Trump has, and any U.S. president, has a lot of authority at their fingertips to impose tariffs. Some of those authorities come from investigations that take some time, and some of them he can impose within a matter of days or a week or two. So he has a lot of power in that regard at his fingertips, and it's only been two and a half weeks, and we've seen him stretch those to the limits.

Remind us, if we go back to the last time that Donald Trump was president as well, he also imposed trade tariffs on several trading partners that time around. What's happened to those measures since? So, Donald Trump, in his first term, put tariffs on about $370 billion worth of products worldwide.

from China. He also tinkered with some steel tariffs with Canada and the European Union. Those steel and aluminum tariffs have come off, or there's a ceasefire at least. But in large part, those tariffs on Chinese products are still in place. He rolled some of them back after they signed this phase one trade deal. But for the most part, they're still in place and had been through the Biden administration as well.

So they've stuck around those measures. More generally, what has past experience taught us about how long trade tariffs tend to last for after they've been imposed? Well, trade tariffs over the past couple of decades have mainly been designed to increase the flow of trade across borders, lower tariffs in that direction. What we're seeing with this new era that Donald Trump is leading is tariffs to prevent trade from happening so production happens at home.

Tariffs are not something you sort of flick on and flick off on a whim. So we're seeing a use of tariffs in a way that we haven't seen in a long time. And as we're seeing, he's using those for a couple of different reasons-- to punish countries as a negotiating tool. He wants to raise revenue with them. So it's a multipurpose tool that we're seeing Donald Trump use tariffs for. MARK BLYTH: What has led to tariffs being lifted in the past? How does a trade war traditionally come to an end?

Both sides, or in the case of Canada, Mexico, and the U.S., they sit around a table and they work out their issues. And there are concessions and there are demands and you meet somewhere in the middle. That's essentially how trade wars end. I think that that's what's going to happen is Trump wants to sit down with Canada and work out a deal, say, hey, look,

You know, we want some relief from your dairy subsidies and we want access to things that we don't have access to right now. So I think this is what we're seeing is tariffs being used as leverage to get countries to the negotiating table. We're going to see it happen to the European Union. And it's pretty obvious in the first couple of weeks that tariffs are not just a tool to negotiate.

be used to tinker with individual trade relationships, but really to solve the geopolitical problems that Trump thinks need to be changed. But that USMCA deal with Mexico and Canada under Donald Trump's last administration was concluded relatively quickly. You know, if we think about

the US and the European Union, and however many years have been invested in negotiating trade agreements for them. I wonder, is this a very long process that we should think about that tends to lead to a trade agreement? Well, the USMCA has been characterized as more of a rebranding of the NAFTA agreement rather than a wholesale rewriting of it. That agreement, USMCA, is coming up for a review in 2026.

There are a lot of observers who say, look how tough he's being with Mexico and Canada. This is just the game that he plays before he sits down at the negotiating table. There might be some concessions he's going to want in USMCA, some tougher rules of origin requirements and things that would protect...

the US part of the auto industry that stretches across North America. When we do see trade tariffs eased or lifted, how quickly can businesses adapt to that? When do trade flows pick up again? They can adjust pretty quickly. As we saw earlier this week, the 10% tariff went on

all Chinese imports into the U.S. and companies will now start factoring that into their customs paperwork and it happens pretty quickly. Most of it is digital, it happens through electronic transmissions. So, as long as companies think that that 10% is going to be there for a while, then they can make decisions. The problem is

they don't know if that 10% is going to change to 20% next month and 30% the month after that and 60% in six months. So we're going to see a lot of uncertainty, a lot of investments and hiring and just basic business activities slow down or maybe even be put on hold until there's some clarity. Because if you don't know if you can be profitable doing business with China or Mexico or Canada, then you don't go forward. And a tariff is something that could mean the difference between making money and losing money.

I have a related question as well to do with the World Trade Organization, the name of which suggests it should have perhaps a greater hand in how these things are governed. But does the WTO actually have any role to play in imposition and lifting of trade tariffs? So the WTO just turned 30 years old a month ago.

and the WTO has seen its role in this era of protectionism diminish quite a lot. It essentially has a couple of different things that it's supposed to be doing. It's supposed to settle disputes. If you've got a problem with a certain country, you go to the WTO, and the WTO will help resolve that issue. The WTO is also supposed to be a forum for negotiating trade agreements, and at the moment,

There are a few trade agreements being signed, but the main ones are being tested, as we're seeing USMCA being tested with Donald Trump's threats of tariffs. So the WTO, and they would tell you this internally, needs to find out where it fits in this new environment, where a rules-based system of trade, as they call it, still can function. If not, we're in the law of the jungle. My country is bigger than yours. You need me more than you. And therefore, I will dictate the terms of our trading relationship.

Okay, Brendan Murray, our trades are. Thank you very much. For more explanations like this from our team of 2,900 journalists and analysts around the world, search for Quick Take on the Bloomberg website or Bloomberg Business app. I'm Stephen Carroll. This is Here's Why. I'll be back next week with more. Thanks for listening.

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