What Happens If Trump Doesn't Pull Back on His Trade War?
27:55 Share

This is an iHeart Podcast. Did you know that 92% of U.S. hiring decision makers expect to face challenges?

Finding qualified candidates this year? The costs of recruiting, advertising, interviewing, and onboarding can add up quickly. But Express Employment Professionals is your hiring solution. Go to expresspros.com today. Express streamlines your hiring process, saving both time and money. Whether you need contract staff or your core team member, visit expresspros.com.

Thrivent can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? Financial services and generosity programs are combined to help you build a financial roadmap for the future while also creating opportunities to give back along the way. Visit Thrivent.com to learn more. Thrivent, where money means more. Bloomberg Audio Studios. Podcasts, radio, news.

The administration is very nimble and flexible. And Trump himself, he has a sense of how hard to push the economy. And he tends to pull back from the brink if things get really bad. At this moment, the hard data are not causing them to want to pull back.

I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. Welcome to Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, and what on earth is going to happen next. And this week, after a lot of discussions and conversations with people, I wanted to sort of step back and come back to our correspondents and economists to ask, where are we in Donald Trump's trade war?

We're taping this on Tuesday, June the 3rd, and just this morning, the OECD, the Organisation for Economic Co-operation and Development, released a new report on the OECD.

released a fresh warning that the US president's trade policies have formally tipped the world economy into a downturn. I thought that gave us an excuse, if we needed one, to consider where things stand in Donald Trump's war on the old-fashioned global trading system, what impact it's had on the real economy so far, particularly in the US, and what it's done to the world.

and how that court challenge last week to Trump's whole tariff strategy has added another layer of uncertainty. With me is Anna Wong, Chief US Economist for Bloomberg Economics, who many of you have heard many times before. Before she worked for us, she worked at the Federal Reserve Board, the US Treasury and the White House Council of Economic Advisers during Donald Trump's first term. And Josh Wingrove, also a regular senior reporter for Bloomberg who covers the White House.

Josh, Anna, always great to have you. I think the last time we had both of you on, it was a very good conversation. Looking forward to it. Josh, we will talk about that sort of bombshell international trade court ruling last week in a little bit. But taking that to one side, just remind us where we are in the various ceasefire pauses, negotiations in this trade war.

Well, as we sit here, we have about a month until the expiration of several deadlines that that court case is going to intersect with. But we also have tariffs in place, right? We've got tariffs on steel, aluminum, autos, auto parts coming on several other products that are enacted under different authorities that are not touched by that ruling and are seen as much more legally durable. Those are

Not going anywhere. No one really thinks they're going anywhere. In fact, they're going up in some cases. Trump has announced exactly steel and aluminum. The aluminum one in particular seemed like kind of on a whim will double this week to 50% from 25%. Let's assume for a moment that those court cases are not successful and those tariffs remain in place. That's a battle over AIPA authorities. That's what Trump has used to paint with the broadest brush possible and hit every country with tariffs of at least 10%.

The deadline of July 9th means those go up from 10 if you don't have a deal. So for those about five dozen countries, including the EU as a bloc, including China, including others, they would snap back up if there's no deal. To those rates that were on the big sort of menu board that he had in the... Or somewhere in between. It's murky and it's, I think, deliberately murky, but up, not 10 is the point. So they're threatening, saying, hey, make a deal now or you're going to have a number higher than 10

come July. Of course, the other countries, you know, basically all of them are sending signs of, you know, confusion, hesitation. Some are looking at the court ruling and wondering why they would play their best cards right now when it's just so uncertain what authority Trump has. We had all those claims about how many countries the U.S. would do deals with in that 90-day period. It sort of went up every time they talked about it, but I think it was like 70 or something, 72 or something. Anyway, just remind us how many of those have actually been done?

We've got one deal with the UK through. Well, and actually, if you're sitting in the UK now, you would say even that has not actually been sorted out. So Josh has reminded us that this is an unholy mess and we could definitely spend another 20 minutes talking about the variations. But Anna, obviously, a lot of the focus or a lot of the interest is on how all this activity and the tariffs that are already in place is affecting the real economy. Talk

Talk us through the economic impact that we're actually seeing so far. Yeah, so the trade war version two genuinely started in February. So now we have basically three months worth of price data and activity data to gauge its impact. So in these three months, generally what happened is we see deflation or even disinflation. For example, in the April inflation number,

Powell's inflation gauge, the super core, actually saw deflation. So what's going on there? It turns out that the services categories are particularly discretionary services categories like travel, airfares, hotels, car rentals are all going down. So basically, the decreased income optimism and

general pessimism of the economy is directly and immediately translating to lower demand for these goods and as a result overwhelms whatever tariffs pass through in the goods sector in terms of inflation impact. So on net, the inflation impact has been disinflation. So disinflation is when you just have a fall in the inflation rate.

and deflation is when prices are falling. I mean, the headline from what you're saying is we all expected inflation, but actually so far, because this kind of supply-side shock also affects confidence and activity, that effect is actually more visible than the inflation effect. Is that right? Correct, so far, yes. But in terms of expectations, I think we are seeing people expecting inflation to pick up as a result of tariffs. And of course, Donald Trump would claim that inflation

economics in the real world works differently from people expect. And he's kind of proven that by doing things that were supposed to be very costly and have actually done all right. And I'd have to say, listening to you, so far, you know, everyone said there was going to be inflation. No, inflation has gone down. Everyone said that the economy would be really hurt. Well, if you look through the kind of ups and downs of the first two quarters, which are very distorted by this import activity,

The economy doesn't seem to have been very adversely affected. And in fact, everyone predicted the dollar would go up as a result of tariffs. And in fact, it's gone down significantly. That was very surprising. That one, nobody has predicted. So he's right that economists just don't know anything and he can reinvent the rules.

And Stephanie, it's too early. It's also too early in the game. Going back to the import front running. So we have until July where nothing happened. Everything can carry on as usual. However, after this front running is over, the question is, will the firms restock at higher prices? And if they do, then...

Ultimately, the firms will have to decide, should they pass it through or should they just eat those in terms of profit compression? So the firms did not need to have that stark choice right now. We are not in that period. And this is why you have Fed Governor Chris Waller talking about how it's kind of hard to see what truly tariffs, how is it impacting inflation until after July. I just wanted to signal this, but also note that Trump is bragging about this.

Right. Suddenly it's not Biden's economy anymore. Right, exactly. They are bragging about low gasoline prices, which, by the way, are at a rate where U.S. drilling is heavily disincentivized. There are signs of uncertainty, if not even pullback, that Trump is looking at a political positive. So they are celebrating these things, even if you look at the trade data and think, well,

This is kind of like a crash diet, right? If I stop eating for a month and my BMI drops, like, is that like a harbinger of a long-term thing or is that just me making bold choices? So we'll see how this shakes out. But like Trump is right and his allies are proud of this. They are boasting about this. He loves the tariff revenue. He believes it is driving domestic investment in factories. And I think that people maybe still haven't really rapped

their head around how much of an evangelist he is on this tariff issue. When the question of like legal fights and are these tariffs going to stay or not? Everyone you talk to around Donald Trump, he loves tariffs. There's going to be tariffs. If it's not this authority, it'll be another. It's going to be bumpy.

But they're going to be there. Yeah, on the trade thing, it reminds me, there was that old line about, I'd been training my donkey to not need any food, and just as I'd trained him to not need any food at all, he died. So we might see that on the trade front. But Anna, Josh is mentioning, I guess there's a sort of macro-micro thing, because macro, we're still not seeing some of the impacts that we might have expected to see. And you've said...

too early to say but you know micro we also have a lot of stories and we have a lot of reports from companies who are doing their sort of earnings forecasts and things saying this is really affecting our ability to get components or at least we're having to really think about rethink how we make stuff i mean how much are we seeing that in terms of it changing the way companies are operating

Yeah, I think that's the surprising part to me personally. So ISM Manufacturing just released their semi-annual survey that asked manufacturing firms what are their plans in the next six months. And interestingly, there are a pretty substantial list of U.S. industries that's reporting they're going to increase the

operation capacity in the U.S. And some of those industries would surprise you because it's, for example, it's things like apparels. I mean, why would one think that U.S. would be bringing back apparels? And we also know that apparels was one of the most hardest hit by these tariffs on China and Vietnam. So that would be the answer, but you wouldn't necessarily expect the U.S. to do it. But it has been a sector that's been hit particularly hard.

Exactly. And the metals industries, we're seeing some increase in employment in the metals industry, which is consistent with what we saw in 2019 and 2018 too.

How can you free your team from time-consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth. It's time to free up your teams and focus on your future. Learn more about the technology, insights, and support available at AmazonBusiness.com.

Switch to Verizon Business and get more from your internet without paying more for your internet. Get LTE Business Internet starting at $39 a month when paired with select business mobile plans. That's unlimited data and with it, unlimited possibilities. Start saving today with Verizon Business, ranked number one in small business internet customer satisfaction by J.D. Power.

Starting price for 25 megabits per second LTE internet plan with smartphone plan savings, plus taxes, fees and economic adjustment charge. Terms apply. For JDPower 2024 award information, visit jdpower.com slash awards. I mean, Josh, one of my questions for you was, are the administration worried about the economic impacts we're seeing? But as you've just said, they're actually quite excited so far about some of the positive impacts. I think that for them, it is always sort of two steps forward, one step back. They're excited until they have to have, for instance, a somewhat hasty ceasefire with China in June.

Geneva, right? Like everything's going great until we have these hastily arranged deals to claw everything back and take the pressure off the markets. So I think that's sort of where they're at. They continue to project sort of a Trumpian confidence, if you will, but constantly the pressures to come back from it are just going to be there. So I think the question is like with the EU, with Japan, with South Korea, with major trading partners on which there really has not been

a lot of progress or indications of progress, what happens if there's no deal? Like how high does Trump go to see who's snap? At the same time, we had a lot of noise about China's going back on its side of the bargain with this deal. And we had the sort of very rapid fire thing around doubling the steel and aluminum tariffs. So how did you read any of that insofar as there is an underlying strategy?

On the China thing, I think it is teeing up. Well, as we sit here, we expect to be, or at least the Americans expect to be a call between President Xi and President Trump at some point this week. All they've said is this week, a couple of officials have said it publicly. We just don't know when that will be. Those complaints appear to be heavily linked to export controls around critical minerals that the Americans said publicly would be like, you know, flowing freely. And China just had a different view.

So whether it is China reneging or an outcome that is different than the publicly stated desired outcome of the Americans is an open question, I think. On the steel and aluminum, I mean, it's difficult not to see it as like a reaction to the court ruling. He almost felt like he wanted to flex his muscle and, you know, enact tariffs where he could. And we should note, of course, that they were announced at U.S. Steel in the context of him celebrating his

the sale of U.S. steel to Japanese, the Japanese company Nippon Steel, which he's not framing as a sale, but essentially he's flipped his view on it. He used to oppose it. He campaigned against it. Now he's blessing it with certain, you know, strings attached. So he's, he's sort of like washing down the, the reversal with, oh, by the way, I'm giving you more tariffs, which for Nippon Steel is probably not bad because now they're, they've got a great foothold in the American industry and they will be tariff free for stuff made at U.S. Steel.

Anna, you know, Josh has mentioned that at least it may have an impact on other countries that you've now got this legal uncertainty around a lot of the tariffs that we're using, the AIPA legislation, the idea of an emergency that gives the president exceptional power. They push back on that. But how significant do you think that ruling is? Do you think it really sort of cast a question mark over all of these things?

No. So first of all, they're going through all the appeal options. And I think that the odds for a successful appeal is pretty high, given that there is a president with Nixon's case. So in the 1970s, Nixon also invoked the predecessor of IEPA's power, also presidential powers, to impose a 10% tariff. And he was also challenged by the trade court. But then he won the appeal because citing that the

Trading with Enemy Act grants the president emergency powers. Odds are decent for him to win an appeal. And second, even if he doesn't win, all he needs is to buy some time until he can switch over to these other options, such as Section 338, Fund 22, which allow him to immediately impose 15 to 50% on

on anything immediately. And then he could use Section 232 and 301, which takes longer, and all those are already in motion. So basically, I just think that ultimately, the equilibrium tariff, the endgame tariff, is still about 15% in our baseline. Josh, is there actually an expectation that this could put an end to at least a chunk of the tariffs?

I think they're not popping champagne yet. I think the most powerful sort of counterforce to Trump's tariffs have been the people that have done it sort of out of the public eye and fought it in court rather than on the airwaves. So I think the silence is conspicuous. And I agree with Anna about the other powers here. But if I can offer the sort of contrarian take here, I mean, Section 122 is capped at 15%.

for 150 days. So lower, much lower than he wants to go with some of these countries. Section 338, that's the 50% power that Anna referenced. It's never been enacted. It's been threatened. It's never been used. So like the legal footing of that is by definition untested. Section 232, they're already doing several investigations. There are only so many people you can fit in the tiny USTR buildings across from the EOB. Section 301, those take a

a long time as well. There are trade-offs to this. There's a reason they used AIPA in the first place or tried to use it in the first place. If they do pivot to these other authorities, they all come with sort of caveats that will either limit the height or term of

or be legally questionable or untested in their own authority, or just simply pile more straws onto the camel's back at USTR and force all these investigations, which if not done properly, will be legally vulnerable. The whole point of 232 is that you've got to dot your I's and cross your T's, and then you get a pretty ironclad tariff authority. If they start fast-tracking it, they risk not doing that. So there's clouds on the horizon.

One thing that I thought was just worth mentioning, although it really deserves its own episode, is various clauses in the tax bill which seem to kind of extend the trade war or at least open a new front for Trumpian attacks on the global market.

trading and financial system, which is these clauses which would impose sort of punitive or much higher taxes on individuals and companies investing in or holding US assets, but who come from countries that are considered to have discriminatory or unfair tax regimes, regimes that are unfair to the US. You know, it's just another stick to beat other countries with.

using the leverage of other countries' desire to invest in the US in various ways. Anna, there's been a lot of chatter about this, a lot of discussion and analysis on Wall Street. Does this constitute a sort of new front in Donald Trump's trade war? Do you take it seriously? It reads to me that it's very much targeting EU. And we have known for a while that the Trump administration is

EU's non-tariff trade barriers as almost as severe as China's barriers. So I think this is in part a way to get at the digital services tax and the tax of intangibles, because even in the first Trump administration was very much against this. And yet, of

OECD also has been supporting these DST and taxes on intangible. And these taxes have been collected for almost like at least six years now. So I think it will be very hard to negotiate with EU on reducing these DST taxes, which disproportionately affect U.S. tech firms. I mean, there's a reason why many of these tech firms are supporting the Trump administration this time around. So I

I just think that this is a very specific country targeting bill as opposed to a very broad range taxing on international inflows.

I guess just the chilling effect. I mean, we've talked in the past about how investors were so overexposed to some extent or sort of disproportionately invested in the U.S. after years and years of the U.S. doing better than other people, other countries, that it doesn't take much for them to think, oh, I should tilt in the other direction. I should take some money out or reallocate.

If that brings down the dollar, then maybe the administration's happy about that. But at some level, it's also going to constitute a decline in investment flows into the U.S., which he's supposed to, you know, he wants to see more investments. Josh, do you think this clause is going to go through? And do you think that it could be potentially quite damaging? All indications are that it will go through. But, you know, we're still waiting to see what the final pie looks like once they rebake it in the Senate and send it back to the House. They're still working with pretty

skinny margins here, but there's not been a lot of outcry about it. The Republican outcry has been focused on other things. And so, yeah, I think that ultimately Congress is going to start trying to hand Trump more tools, which is a change in tune from even a couple of months ago when Republican senators were objecting implicitly or explicitly to Trump's sort of capturing the

of tariff authorities that had historically rested more with Congress. So we'll see. Remember, the clock's ticking in Congress, right? They want to sign this thing on July 4th, Independence Day, of course. So we're going to go from Liberation Day to Independence Day, which is five days before the tariff deadline. So I think you're going to see rhetorically a lot of continued sort of chest beating from the president and from the Republican administration.

Anna, I guess that's a positive for the president if he actually gets some tools that are not sort of questioned in the court and are legislated. And people have said all along, if you really want to do these things, you need to get Congress to legislate and give you the power explicitly. But is it also a reflection that the administration's not managing to do what it wanted to do with the tools it had? Do you think they feel like they're winning?

So I think that the administration is very nimble and flexible. And Trump himself, he has a sense of

how hard to push the economy. And he tends to pull back from the brink if things get really bad, as we could see in April, because the administration, the NEC, Kevin Hassett and Scott Besson do talk to CEOs of companies in the real economy. So I think that they know that there's danger in there and there are moments of diciness. But right now, at this moment,

And I do think it's reasonable to talk in moments because these things change day by day. At this moment, the hard data are not causing them to want to pull back.

And this view may change this Friday with the nonfarm payrolls. If nonfarm payrolls, for example, shows really steep drop, then you would see Trump touting a call of presidency immediately. And personally, I think there has been the whole taco trade trend.

Trump always chickens out. I think Wall Street is too complacent on peak tariff having passed. My own interpretation of why there was a Geneva agreement between the U.S. and China is that the CEOs like Walmart and Target were very convincing. The fear of empty shelves caused Trump to want to

continue this trade for now until August, which is the end of this 90-day pause, to fill the shelf of the U.S., to make sure that we get past the holiday season. And I think China would easily agree, too, because when you think about a

a game theoretic way of having a war when both sides can agree the stakes are too high. It's very easy to find a low hanging fruit. Okay, we agree. But after this peak shipping season is over, stakes are down again. They could have another tariff war all the way until next March and then settle down once they're about to get into peak shipping season. And when you say peak, you mean that's Christmas season. So you need to get all the toys on the shelves. Yes.

Because empty shelves are politically very unpopular. And so I do not interpret the de-escalation so far as a taco trade. I actually would interpret as one of the ebbs and tides of Trump's negotiation style. And what we saw in Geneva is very uncharacteristic of him. It is very uncharacteristic of him to immediately cave so soon. I think what we saw is that

that he was pushed to the brink, he pulled back. And then once things settle in a couple of months, I think there's a good chance that we'll see these China tariffs rise back again, increase again. Josh, it's interesting because you've got Anna's, I think we talked about how the economic impact so far was not necessarily as negative as people had thought. And that has produced a sort of feeling in the administration, potentially, that at least on the domestic front,

things are not going too badly. But internationally, you'd have to say the rest of the world seems to be doing pretty well so far. I mean, we talked at the beginning, there's no very few deals done. And that sort of back and forth with the Chinese over whether or not there would even be a call between President Xi and Donald Trump seems to me kind of symbolic of the fact that China seems to have the upper hand.

In that particular conversation, and my colleagues in Beijing and Hong Kong are absolutely convinced that Xi will not want to do a call or be very reluctant to do a call this week because that's not the way the Chinese work. They want to have everything nailed down before...

they do a call. So the optics of that can't be comfortable for the administration. Yeah, the Chinese have calculated that they have the luxury of patience here. And the Americans are betting that the American market is enough of a carrot on the stick that eventually those strategies will converge.

But I agree with Anna right now. We're not primed for a long-time truce anytime soon. I think we'll see sort of fits and starts on this. And remember, we all had a panic about a month ago when Trump exempted a bunch of consumer electronics from those Chinese tariffs. That's only because he wants to hit them with another tariff. And so in the meantime, he could announce his 232 tariff on iPhones, on computer monitors, on everything with a semiconductor chip in it.

that hits China in a different way. So, you know,

There are multiple fronts on this trade war where each settles on any given month, I think remains unclear. I totally agree that the view of the retailers and the political impact that empty shelves would have on it. And Trump got a lot of blowback for saying like, maybe kids will have $2 instead of $15. And, you know, you can have one pencil instead of 50 pencils or this kind of thing. That he didn't stick landing on that one and he got blowback on it. So I think he will be sensitive to that. But I also think that when it comes to

appetite among lawmakers who have, of course, been very deferential to Trump, to say the least. Lawmakers in Washington are keen to reset the relationship with China on both sides of the aisle. Trump has a lot more leash when it comes to a fight with China than he does with the rest of the world. So I think we continue to see China on a separate track from the rest of his trade front.

So I can't help thinking that we will have to take stock of the trade war many more times before we're done. But I feel like we have some interesting takeaways on just where the economy is, even if we do think there's a lot more coming down the track. Josh Wingrove, Anna Wong, thank you so much. Thank you. Thank you. Thank you.

Thank you for listening to Trumponomics from Bloomberg. It was hosted by me, Stephanie Flanders, and I was joined this week by our chief US economist, Anna Wong, and senior White House reporter, Josh Wingrove. Trumponomics is produced by Samar Saadi and Moses Andam, with help from Chris Martlew and Amy Keene. Special thanks to Rachel Lewis-Kriske.

Sound design is by Blake Maples and Brendan Francis Newnham is our executive producer. To help others find Trumponomics, please rate it and review it wherever you listen.

Thrivent can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? Financial services and generosity programs are combined to help you build a financial roadmap for the future while also creating opportunities to give back along the way. Visit Thrivent.com to learn more. Thrivent.com.

Thrivent, where money means more.

This is an iHeart Podcast.