China Retaliates With 34% Tariffs, as a Lawsuit Challenges Trump's Trade Wars
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Liberation Day 3, to use Donald Trump's name for his latest trade wars, begins with a Chinese tariff retaliation, another stock market dive, and a lawsuit challenging one of the president's trade emergencies as exceeding his legal powers. Welcome, I'm Kyle Peterson with The Wall Street Journal. We're joined today by my colleagues on the editorial page, columnists Alicia Finley and Mary Anastasia O'Grady.

A day after Trump imposed what he called reciprocal tariffs on America's trading partners, the pushback has now officially begun. On Friday, China said it would respond, hitting back with a 34% tariff on U.S. imports, as well as a range of non-tariff measures, restrictions on exports of rare earth metals and so forth. The S&P 500, meantime, is down about 5%.

Let's listen to Secretary of State Marco Rubio speaking at NATO headquarters today and suggesting that this is just a little adjustment. The markets are reacting to a dramatic change in the global order in terms of trade. And so what happens is pretty straightforward. If you're a company and you make a bunch of your products in China and all of a sudden shareholders or people that play the stock market realize that it's going to cost a lot more to produce in China, your stock is going to go down.

But ultimately, the markets, as long as they know what the rules are going to be moving forward, and as long as that's set and you can sustain where you're going to be, the markets will adjust. Businesses around the world, including in trade and global trade, they just need to know what the rules are. Once they know what the rules are, they will adjust to those rules.

So I don't think it's fair to say economies are crashing. Markets are crashing because markets are based on the stock value of companies who today are embedded in modes of production that are bad for the United States. President Trump, meantime, on Truth Social, seems to have gotten his caps lock key stuck. He's saying...

China played it all wrong. They panicked. The one thing they cannot afford to do. He also suggested this is a great time to get rich, richer than ever before, unquote. Alicia, what do you make of this response? Is it potentially perhaps bigger than the reaction that

the Trump administration was expecting when it imposed these pretty sizable tariffs. I think you're right about that. I think that the Trump administration underestimated China's willingness to push back. Its economy has been actually flagging because of its real estate bubble, the collapse.

as well as demographic factors and the Chinese Communist Party's crackdown on some businesses, its tech industry and such. So China's economy hasn't been doing all that well. And so maybe they thought that, well, China doesn't want to escalate this because then we could hit back and we'll hurt the media.

even more. I think that that was a wrong assumption. As you mentioned, they're now putting 34% tariffs on U.S. goods, and that will especially hurt U.S. farmers who export a lot of soy and other commodity products into China. But they're also further restricting exports of certain components, as well as you mentioned, rare earth minerals that the U.S. relies on. And note that it has essentially a lock on these and these kinds of

Minerals are needed in a lot of military applications, as well as manufacturing, manufacturing of semiconductors, manufacturing of batteries, magnets and such. And this could effectively, I don't want to say cripple U.S. companies, but if it is extended and maintained, it would make it very difficult for U.S. manufacturing.

So I think China's kind of flaunting its leverage here. I wouldn't be surprised if it also goes around and starts harassing U.S. companies that do business in China, which it has done in the past. It expanded its list of U.S. companies that are on its unreliable entity list, which basically forbid the Chinese government from doing business with them. And it slashed out against these companies in the past, Micron Technology and such, which

Don't be surprised if it starts punishing Tesla, you know, in some kind of passive aggressive ways, not providing certain licenses Tesla wants to conduct or to do their automated driving in China. Tesla has been seeking that. So I think the U.S. businesses are going to be harmed by these tariffs. As we tape this early on Friday afternoon, we're still waiting to find out the extent of

of the retaliation by U.S. trading partners. Mary, our colleague Joe Sternberg has a column up under the headline, Living Well is Europe's Best Revenge for Trump Tariffs, suggesting that the EU's response ought to be to improve its own economic competitiveness. I wonder what you make

of that argument, though it's worth saying that even if some of these countries' trading partners decide not to put tariffs on, as we've seen in the case of what China is now doing, there are other ways that it can respond that would be not helpful to U.S. businesses. I'm actually amused by Marco Rubio's comments that markets will adjust. I think markets are adjusting, and it's not pretty. You know, with these tariffs, you're basically increasing taxes on Americans.

Now, if consumers don't pay them, maybe companies are going to pay them. That will squeeze profit margins. That's going to hit American wealth. The U.S. stock market lost $3 trillion on Thursday. That's a lot of money, and that's not just revenue.

rich people. That's lots of people with retirement accounts and so forth. So this is going to hurt the U.S. no matter how the rest of the world responds. I agree with Joe. We're not discovering the wheel here. Trade policy has been well understood for more than 100 years. And one of the things we know is that

Just because one country puts rocks in their harbor and doesn't allow imports to come in, you shouldn't turn around and put rocks in your harbor. You know, what Donald Trump has done basically is held a gun to the U.S. economy and said to the rest of the world, do what I say or the U.S. economy gets it. And the U.S. economy is getting it. So the best thing for trading partners to do, and I think our colleague Bill McGurn wrote about this a couple of weeks ago, is to

is to open their markets more, to become more flexible, both in terms of internal regulation and more open to the rest of the world. Copying what the U.S. is doing right now is not going to be helpful for any of them. Hang tight. We'll be right back. This message comes from Viking, committed to exploring the world in comfort.

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Welcome back. Notable some of the legal and political pushback that is now also arriving this week against President Trump's tariffs. One of our listeners, Kit, says this. Inane and insane is how I would describe the president's tariff policies. The question I have is whether he has misused his executive power by misconstruing an emergency which does not exist.

in order to raise tariffs. Right. Well, I think one of the reasons this is happening is because Congress has become so passive. The Republicans in particular have become so passive in the face of what Donald Trump is doing. You know, people say they're afraid of being primaried or they're afraid of going against the MAGA Republicans. But until Congress steps up, I think that's a risk that's going to continue. But notable now, Alicia, that one lawsuit has arrived in one of these tariff cases against Republicans.

the emergency, or at least one of the emergencies that the president has declared. What does this lawsuit say? And what do you make of the legal arguments and their chances in the U.S. judiciary? So this is a Florida small business owner who is challenging the

first batch of tariffs under the 1977 sanction law known as, or commonly referred to as, IEPA. And this law gives the president broad powers to do a whole bunch of things if he declares a national emergency. And that is what President Trump did in February. He declared the fentanyl coming across the border and from China a national emergency.

He also declared, for the purposes of Canada and Mexico, the illegal immigration a national emergency and used this as the justification to impose tariffs under this law. Now, this is the same law, by the way, he has invoked to do his latest batch of tariffs across the board.

Now, what this small business owner argues is the law actually doesn't give him any express power to do what he has done. It gives him limited authorities to regulate imports, which would include essentially put embargoes, trade embargoes, export controls, freeze assets. Presidents have all done that in the past. Joe Biden, he didn't use it to impose tariffs on Russia.

He actually used it to ban products from Russia. And then what Congress stated was they actually gave him additional authority to impose tariffs on Russia. This law has never been invoked by a president in the past to impose tariffs. And so he has now used the justification of the fentanyl to impose on China, Canada and Mexico. And he's delayed the tariffs on Mexico and Canada and now has declared the trade deficit to be a national emergency to now do them basically on every single country.

Now, what this Florida small business owner argues is that he's essentially bypassing Congress and usurping its powers over trade. There are many other laws that regulate how or give the president circumscribed authorities to impose tariffs. Section 232, which he has used to impose tariffs on steel, aluminum and now more recently autos to protect national security. And I think even that is a stretch.

But at least there is express authority to do so. He's used Section 301 to, most notably during his first term, to impose tariffs on a variety of Chinese goods on the grounds that China was discriminating against the U.S. And then Section 201, another section to impose them on washing machines and solar cells. Again, there are very limited

limited authorities. You have to go through some kinds of fact-finding, investigations. It takes many months to do this. Instead, he essentially bypassed that entire process. Essentially, as I said, usurped the power of Congress over trade to impose the tariffs on China in terms of the small business owner, but now basically across the board.

An argument, essentially, as I understand it, is the Supreme Court has been laying out in recent years, Alicia, what it calls a major questions doctrine, that big sweeping questions of policy need to be decided by Congress. And this is a case, at least the argument is, that Congress

Trump is taking a law that is set up to deal with discrete specific situations, sanctions and so forth, and driving a truck through it. And do you suppose that the current Supreme Court justices, given their rulings in similar fashion against, for example, President Biden's effort to use a discrete law about waiving student loan debt and stuff for specific people in specific situations and using it in a broad way to just wipe out billions of dollars of loans? I mean, there's some parallels.

in those attempted uses of executive power. I think that's right. And if you look actually at the lawsuit, I mean, they most notably, the plaintiffs, the small business owners, cites the West Virginia v. EPA case from a few years ago in which the Supreme Court really distilled this major questions doctrine and what courts should look for when they're essentially applying it.

And for instance, one of the examples is, well, when a president essentially uses an old law to do new things. And that's very definitely what Trump is doing, just like Biden did, not just in this new loan case, but the vaccine mandate case, evictional moratorium. By the way, Trump actually did that first before Biden extended the evictional moratorium.

But he's essentially continuing Biden's footsteps in unearthing these ancient, or maybe they're not ancient, but very old, decades-old laws to essentially expand his executive power. And I very much could see this case eventually going up to the Supreme Court. The question in the lower courts, at least in my mind, is if they just enjoin it right off the bat as applied to these plaintiffs, or if they actually do a nationwide injunction and enjoin the tariffs across the board.

The other point of pushback, though relatively modest for now, is coming in Congress. On Wednesday, the Senate passed a bipartisan bill aimed at overturning the emergency that is allowing President Trump to put tariffs on Canada. The vote on that was 51 to 48, with four Republicans voting yes.

including Mitch McConnell, Susan Collins, Lisa Murkowski, and Rand Paul. Let's listen to a piece of what Rand Paul argued. I don't care if the president is a Republican or a Democrat. I don't want to live under emergency rule. I don't want to live where my representatives cannot speak for me and have a check and balance on power. One person can make a mistake.

And guess what? Tariffs are a terrible mistake. They don't work. They will lead to higher prices. They are a tax and they have historically been bad for our economy. But even if this were something that was magic and it was going to be a pot of gold at the end of the rainbow, I wouldn't want to live under emergency rule.

Speaking to reporters, Rand Paul also made the argument that tariffs have historically been politically terrible for the Republican Party. He said when McKinley famously put tariffs on in 1890, they lost 50 percent of their seats in the next election. He also cited the famous or infamous Trump.

Smoot-Hawley Tariff Act. He said that after that, we lost the House and the Senate for 60 years, unquote. And Mary, I think that's an interesting argument for Rand Paul to be making to his colleagues, only a handful of whom are, at least for now, standing up to agree.

Yeah, I see him making two points. One is an institutional point that we have a rule of law in this country. Institutions have guardrails. The president is not an imperial president. He can't just wave his arm and do whatever he wants. So that's an important point for Rand Paul. The other question that he's bringing up is who

is going to benefit from these tariffs or be hurt. And I find it interesting that the narrative coming from the MAGA people is that Donald Trump is standing up for the little guy here. And I think history just doesn't bear that out, and neither in economic terms or in political terms. The people who are employees of retail shops and employees of machine shops that use inputs, something like 60% of retail

What we import is used to add value to and create something else. So if those things become more expensive, all those people are going to have challenges keeping their job. And then when the economy slows down, we hit recession, there's going to be a political cost to bear, which is he's referring to what happened with McKinley in the midterms. And I think there's good reason to believe that will be a risk for Republicans. Hang tight. We'll be right back after one more break.

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Welcome back. Alicia, what's your view of where the economy sits right now? We got a jobs report, jobs numbers out of the Labor Department today. And the headline is that it beat expectations. But granted, that was a March jobs report. And Liberation Day, as President Trump calls it, was April 2nd.

Now, here are some of the headlines coming out this week. Stellantis to temporarily lay off 900 U.S. workers as tariffs bite. That is from Reuters and one up at The Wall Street Journal. J.P. Morgan raises recession risk to 60 percent. Alicia, what do you make of those headlines? And are the odds of the end of an economic expansion as high as that, do you think?

Well, I didn't actually take much consolation in the jobs report today, in part because the numbers for January and February were revised down. So they actually only showed about 117,000 job growth in one of the months and 111,000 in another. So the jobs growth was

somewhat anemic at the start of the year. Now, you saw a bit of a bump this month, but if you look at the numbers, a lot of that was, one, you had a return from a strike, so that boosted the jobs growth in food retailers, supermarkets, and such. Then about half the jobs growth, again, was in healthcare, social assistance, and government.

You saw an increase in warehouse and transportation, but that was because actually, ironically, in March, you had a lot of people going out and trying to buy goods. So then there was a lot of essentially businesses trying to import more goods or trying to accelerate purchases. And same thing with consumers. Hence why you saw actually an increase in jobs at auto dealers, too. But you saw basically no growth in manufacturing, pretty type of growth in construction, but

Professional business services, again, not much. And so there's a real risk that there is a slowdown already. As for recession, I think that there is a prediction that the first quarter GDP will be negative. And part of that is to the earlier point that the net exports or imports will probably shave some off of

GDP, even if consumption and consumer spending is positive. Not clear how investments are going to come in, but that's going to be an ongoing issue as these tariffs are raising uncertainty that is slowing business investment. You mentioned the Stellantis layoffs. Well, a lot of automakers are going to be

weary of even investing or they don't know where to invest. And same thing with other manufacturers because they don't know what the tariff climate is going to be like even in a month. You know, Donald Trump wakes up one day, says something, he changes his mind. Nobody knows. And consumers, the other risk is that the wealth effect, which we have talked about in the past on this podcast, is that

A lot of what it's been driving consumer spending is the higher earners who have kind of been bolstered by, I would say, a frothy stock market, but high asset values. And all of a sudden, stocks tank. They're going to probably start pulling back.

And as a result, you're going to see a hit to GDP. And if they start pulling back, you're going to start seeing potentially more job losses in even in businesses, small businesses like mom and pop restaurants, because people aren't eating out as much. And so there's going to be a lot of collateral damage.

The other thing to keep in mind when thinking about this recession risk is just how interconnected the economy is these days with global supply chains and so forth. I know the Trump administration thinks that they're sticking it to the other guy, but Mary, there's an estimate I've seen by Apollo Global Management that 41% of revenues of S&P 500 firms

comes from overseas. And so it is not easy in a modern economy interconnected this way to stick it to the other guy and not end up sticking it to yourself. And there's an old line that economic expansions don't die of old age, that something kills them. Often there are arguments in the political arena about who and what did the killing. But this one, it seems to me, if we get a recession and

And that is the political risk for Trump. If we get a recession, this will not be any game of Clue. Was it Colonel Mustard in the library with the pipe wrench? Mary, it will be Trump in the Rose Garden with the tariffs. Well, you know, when you confront MAGA people about that reality, what you often get is, well, those are the rich people. Those are the corporate people.

Now the little guy is finally going to have their shot. And obviously, we know that's not true, because as you described, the economy is very interconnected. Somebody works in a shop that uses inputs that are imported from Turkey or Europe or Asia, and those things are necessary for that person to keep their job. So I agree, you know, the hip bone's connected to the knee bone, and

This idea that you can just sort of stop it. And one of the things I find really puzzling about those economists who are defending this is even in the best of circumstances, it will take two or three or four years for these factories to be set up in the U.S. to replace these imports that have been coming in all along. I think a lot of investors will look at that and say, well, by then Donald Trump will be gone.

And a lot of the damage will be done. Why should I make that investment when that's not really where I want to put my capital? So another risk to this whole problem is that you just get a lot of paralysis, a lot of people jumping to the sidelines. Rather than liberation, you're going to get hibernation.

and economic agents are just not going to deploy capital. They're going to wait and see when this thing hits bottom, when the reversals start to come. And during that time, a lot of people are going to suffer. Thank you, Mary and Alicia. Thank you all for listening. You can email us your own retaliatory tariffs at pwpodcast at wsj.com. If you like the show, please hit that subscribe button. And we'll be back next week with another edition of Potomac Watch.