The Fallout of Trump’s Expansive Tariffs
57:45 Share

Support for KQED Podcasts comes from Star One Credit Union, now offering real-time money movement with instant pay. Make transfers and payments instantly between financial institutions, online or through Star One's mobile app. Star One Credit Union, in your best interest.

With reliable connectivity, enhanced cybersecurity, and advanced fiber solutions, Comcast Business is powering the engine of modern business. Switch today and ask how to get a $500 prepaid card on a qualifying gig speed package. Offer ends 4-21-25. New customers only with a two-year agreement. Other restrictions apply. From KQED.

From Kikudi in San Francisco, I'm Alexis Madrigal. The global economy is convulsing with the announcement of President Trump's tariffs. Nearly $10 trillion has been knocked off the value of stocks since Inauguration Day, a big chunk of it in the last week. So today's show is a sophisticated version of the question that I think we're all asking. What the

What the hell is going on? What are the short run questions? What are the long run effects? We've got different economics thinkers who are going to give us their best shot at some explanations. That's all coming up next, right after this news. Welcome to Forum. I'm Alexis Madrigal. President Trump loves tariffs. He has for as long as he's been in public life. And now he's announced a round of tariffs that are unprecedented in modern times.

And times have changed. American companies developed complex supply chains that stretch across the Pacific and the globe. So it's not too hard to imagine that the global economy as we have known it could do some version of break.

What that would even look like is hard to imagine, but put simply, there are many, many, many things that we don't make in the United States, and it's entirely unclear what companies are going to invest in new factories to make hair clips or little plastic toys or the intermediate parts that go into other things we already assemble here from foreign products. If we can't get those things easily from abroad and no one is making them here, what happens?

That is to say, there is a reason that stocks in American companies and those around the world are plummeting and bouncing only off any sign that the tariffs might not be what President Trump has said they are.

Even for those who want to change the way that global trade works, this is a level of chaos that's nearly unthinkable. So joining us this morning, we have some very different thinkers on these issues. We're joined by Stephanie Flanders, Senior Executive Editor for Economics at Bloomberg and Head of Bloomberg Economics, also host of the podcast Trumponomics. Welcome, Stephanie. Good to be here. We've got Kyle Handley, Professor of Economics and Director of the Center for Commerce and Diplomacy at UC San Diego. Welcome, Kyle.

Thanks for having me. And we've got Lori Wallach, director of the Rethink Trade Program at the American Economic Liberties Project. Welcome, Lori. Good morning. Great to have you. Stephanie, why don't you just get us caught up this morning? You know, last night, Asian markets just tanked, some of them down close to 10%. Just catch us up. What happened this morning?

Well, we had the US markets have had fallen significantly. They had fallen about 4%. Then they came back, as you suggested in your intro, in part because of a sort of rumour that maybe there was going to be a delay on the tariffs. I think our headline currently on Bloomberg is saying swing wildly, which has it about straight. But of course,

We're looking, if we add up the falls of the last few days since those extraordinary tariffs were announced, we are talking about trillions off global stock markets, U.S. stock markets, and formally into beyond correction territory for the U.S. markets. Yeah.

You know, one of the big questions was how other countries would respond to these tariffs. Can you talk to me a little bit about that, Stephanie? About just like what are we seeing from other countries? Does it seem like this is going to lead to cycles of even more and larger tariffs?

I think when it comes to the biggest trading blocks, China and the European Union, it does seem like we are set for a tit-for-tat trade war. We've already had the Chinese actually surprise many and come out with quite broad and significant tariffs on Friday, 34%. The European Union, as often happens, is taking its time, but I think is going to also be counterproductive.

coming up with retaliation. I think a lot of other countries, though, are facing something that certainly economists would identify. The main victim of these policies, at least in the short run, tends to be the country that starts it. So the US is inflicting these tariffs actually on US consumers in the first blush. And so if your biggest trading partner has decided to kind of shoot himself in the foot,

You know, there is a question for other countries, right, are we going to now damage our own economies by putting these additional tariffs, these additional taxes on our own consumers when they buy foreign goods? And I think for countries like the UK, Australia, some others, I think their first instinct isn't to retaliate, but maybe start looking for ways to offset that hit to demand in other ways. Yeah.

Kyle Henley, the way that these tariffs were calculated is under a lot of scrutiny, in part because they're sort of across the board with sort of just one formula. Talk to me about, you know, as an economist, how do you see just the actual execution and calculation of these tariffs?

So I think most economists, including myself, were quite surprised to find out that the formula that they used for this was something as simple as what is the trade deficit and then divide it by U.S. imports.

So that gives them kind of a gap that they're trying to close with tariffs. They had indicated the Trump administration officials for the past few months that they were, you know, going to crunch all the numbers and figure out like exactly, you know, what,

part of the trade deficit is due to currency manipulation, what is due to non-tariff barriers on U.S. firms, and what is due to the fact that some of these countries just have higher tariffs than the U.S. on certain products. And at the end of the day, they punted on all that and came up with this formula. And most economists, including myself, don't even think that they use the correct parameters in computing it. It's completely wrong. What do you mean by that?

They basically used what economists call elasticities, but they're a measure of how sensitive are imports to tariff changes. So if I change a tariff by 10% and the sensitivity or what we call elasticities are four, then you should see a 40% change in imports. And so...

There's two of these parameters in the formula that they used. And the way they set it up, they exactly offset. But the one that they use for how prices pass through to, sorry, how tariffs pass through to import prices, they said that they don't really pass through much at all. And they cited a paper and they cited the wrong parameter from that paper. And in fact, if they had used the correct one, the tariff should be higher.

about cut by basically divide them by four instead of what they did. And the other thing that I think is important to keep in mind here is that if the Trump administration had just decided to use this formula to say, go after Vietnam, which is an important trade partner to the US, but not obviously as large as Canada, Mexico and China.

Then this formula might have had some bite. It could have closed the trade deficit with Vietnam because U.S. firms would have adjusted their supply chains, found other places to source the inputs and imports that they need.

But because they did it to everything and everywhere all at once, we don't even think that this formula basically applies because there's so many things that are going to change at the same time. And that's one of the reasons that we're seeing the chaos that we're seeing right now. Worth noting, too, that one of your specialties is uncertainty, right? Correct. In markets and economics. It's your hour, Kyle. That's...

You're not the first person that's told me that. Yeah. Laurie Wallach, I mean, just looking at your title, Rethink Trade Program, right? What imagines that you have wanted to see changes to the global economy and the way that trade works? So talk to me about how you see these tariffs. Well, what Trump has done is really the master class in how not to use tariffs, right?

And the fallout we're seeing is one part powerful commercial interests, including finance, that don't want to see any change. And so something like a capital strike. And half of it or more is basically incompetence and malfeasance. And the...

You know, there theoretically is a there's a theory to the case of what they're doing. But and there is actually a paper folks should read that the guy who's now the Council of Economic Advisors, an economist named Stephen Mirren, wrote that is the handbook to changing the rules of the global economy. But what Trump has done has no real relationship to what Mirren suggested, which is a combination of, yes, tariffs.

But other policies as well, including trying to deal with the fact that the U.S. dollar is the world reserve currency, is overvalued. I mean, the reality is... But doesn't that provide some benefits to the U.S.? That's the thing I... I mean, it seems like being able to pay your debts in the currency you print is a kind of an advantage, not a disadvantage. Yeah.

Well, people, you know, it used to be called the exorbitant privilege, but I think it's become like the exorbitant burden because it also means that other countries are able to control the value of your currency. And so we have a scenario where trade is so unbalanced now that there are 16 mercantilist countries that have chronic large trade surpluses. And they use, you know, what are typically called beggar thy neighbor trade abuses, one of which is

is they either, by purchasing lots of assets in the currency, bid up treasuries, bid up the value of the dollar. So they are trading. When they send an export, one of these countries is trading in their own currency. When it hits the U.S., it gets a benefit that distorts the actual value of what the good is, as well as enormous subsidies.

as well as these countries suppressing wages or in the case of Germany suppressing their domestic consumption. So we have 16 countries that are exporting and making and exporting an enormous amount of stuff.

The U.S. has by far the largest chronic global deficit. We've had one every year since 1975. It's now ginormous. But we're not the only one. At this point, things are so out of whack. There are 66 countries in the world that have chronic large deficits.

deficits. And it's not just us, but it's Mexico. It is South Africa. It is Brazil. It is Indonesia that are having to put up tariffs against, for instance, the biggest mercantilist, China. And so the idea of using tariffs, if it was not malpractice, would be in part to rebalance some of that. And you would do it in partnership with the other countries that are in the same boat. We're going to come back to

to that with Kyle Handley and Stephanie Flanders after the break. We're talking with Lori Wallach, director of the Rethink Trade Program, American Economic Liberties Project, UC San Diego's Kyle Handley, and Bloomberg Economics' Stephanie Flanders. We want to hear your questions about what's going on. Obviously, as we've been noting, a lot of chaos.

A lot of stuff going on in the markets. You can give us a call. The number is 866-733-6786. Maybe the tariffs have already affected you or your business in some way. You can give us a call, 866-733-6786.

Email your comments or questions about what's going on to [email protected] or you can find us on social media, Blue Sky, Instagram, etc. We are @kqedforum there. I'm Alexis Madrigal. Stay tuned for more right after the break.

Support for KQED Podcasts comes from Star One Credit Union, now offering real-time money movement with instant pay. Make transfers and payments instantly between financial institutions, online or through Star One's mobile app. Star One Credit Union, in your best interest.

Switch today. Xfinity.

Welcome back to Forum. Alexis Madrigal here. Of course, we are talking about President Trump's tariffs and the global economy. Joined by Stephanie Flanders, Senior Executive Editor for Economics at Bloomberg and Head of Bloomberg Economics. We've got Kyle Handley, Professor of Economics and Director of the Center for Commerce and Diplomacy at UC San Diego. And Lori Wallach, Director of the Rethink Trade Program at the American Economic Liberties Project.

Kyle, before the break, we were talking about sort of the structure of global trade and how it was working. Without going too deep into the technical details, do you think that the current system of global trade was sort of a net good for the United States, or did it need this rebalancing that Laurie was talking about?

So I think the current system of net trade or the current system of trade wasn't that good for the United States. I don't think that it needed to be rebalanced. I mean, one way to look at these trade deficits is it's always kind of shocking to talk about the nominal trade deficit and like...

It's almost a trillion dollars. But if you divide the total U.S. trade deficit by GDP, it's been around 3 or 4 percent of GDP for 20 or 30 years. And that actually hasn't changed much. So the trade deficit goes up because the economy gets bigger. And so a lot of economists are not particularly worried about it for that reason.

The other thing that's important to keep in mind here is that it's not caused so much by these differences in precise trade barriers between the U.S. and China or the U.S. and Vietnam. It's caused by the fact that the U.S. simply consumes...

than it has in income. And some of that is just regular folks that go out and finance an automobile. But a lot of it is the fact that the U.S. government is also running a budget deficit, and that has to be financed from somewhere. And so that's why companies

people and financial institutions and central banks in Europe or Asia or elsewhere are buying US assets. And if we put tariffs on different countries and at a whole bunch of different rates, which is what the Trump administration has just done,

We're not going to solve the fact that we still have that imbalance between basically income and expenditure. All we're going to do is move the trade deficits around. So maybe we can close it with Vietnam, but it'll open up somewhere else, probably with a country that doesn't have 46% tariffs, but maybe is down more at the 10% level. So unless the government is going to take drastic actions to close the budget deficit and people in the United States really start saving more,

This trade deficit is not going to go away. Stephanie Flanders, what's your take on this?

Well, I think, you know, we've already at Kyle's identified, you know, one side of the story that's not being emphasised, which is, you know, what the US is getting in return. You know, you're kind of punishing these countries for having, you know, selling Americans just too much good stuff that they want at a good price, which is, you know, as a number of people have said, is somewhat odd. But we're also just, by focusing on goods, we're just missing a big part of the American economic success story of recent decades. You know, one of the things that

for those outside the US, they look at America as being at the forefront of technological developments of the last 20, 30 years of taking advantage of globalisation to make the country as a whole richer. You know, yes, people have been left behind by that and successive administrations have not been focused enough on addressing those inequalities and the areas that have been left behind. But

You know, there are enormous services sector surpluses, you know, financial services, tech services, software, all of these things. The companies, if you think of what they call the Magnificent Seven, you know, all the big tech companies that have fueled the U.S. stock market in recent decades.

half of their revenues are from overseas and they have been part of this economic success which is have seen the US grow more than twice as fast as Europe or the UK and many other countries since the global financial crisis and definitely grown a lot faster since COVID so I think it's just it feels like it's also just a very one-sided I mean Carl's completely right about the overall imbalance between you know what the US produces and what it

and what it buys. But there is this kind of other picture, which is just being completely missed, which is the services side and the underlying success. The US could have been not part of the World Trade Organization. China could have been not part of the global trading system. And the US would still have become a more and more developed country

economy with probably a smaller and smaller number of people working in manufacturing. That is just what happens to every country as it gets richer. And I don't think you could have slowed that down significantly, maybe a little bit at the margin, if you'd rejected all these things that we've seen in the global trading system. But you're certainly not going to reverse it back to, I don't know, some late 19th century idyll, which seems to be what the President's talking about.

What do you think about this, Lori Wallach? I mean, I think that there are some people who do want to increase manufacturing in the United States for maybe political, maybe geopolitical, maybe other reasons. For you, is that a big part of rethinking trade? Well, I first want to just get to the notion if the system was working well. So, no, it's not. For most Americans, it's not. It's

Perhaps the strongest case of that, if we want to do the economics, is this very compelling article that the grandfather of modern trade economics, Paul Samuelson, the Nobel winning professor, wrote in 2004, where he showed mathematically that the upside of trade, which, by the way, is on the import side. So the theory of trade and why it's good is while some people might lose jobs because they're

being displaced for cheaper imports coming in, we all do better because we can get more stuff, the cheaper imports. He mathematically proved as of 2004

that because we were now offshoring jobs of higher wage and higher value, both in the service sector, where lots of architectural and computer and medical diagnostic and other jobs are being offshored, but also high skill manufacturing jobs, we in 2004 hit the mathematical tipping point where the loss in wages outweighed the gains of cheaper stuff.

which makes our current trade imbalance and system a net loss for most Americans. Now, the folks who've taken it the hardest and had the biggest walloping are the 62% of Americans, our fellow Americans who do not have college degrees. Currently, their life expectancy is

which is a separation that has happened in the last 25 years of this hyperglobalization, is down eight years relative to people with college degrees. These are our fellow Americans who cannot, 62% of them, afford an unexpected $500 expense. If you have not spent time in the middle of our country in factory towns, towns that once had middle-class standards of living,

and whose loss of production is not some inevitable economic god with the market controlling everything, but rather, and I really want to speak to, we just heard two folks giving a very compelling version of the economic analysis that got us Donald Trump.

the economic analysis that had the, there's nothing we can do, the economy, the markets, it's just going to happen to people. When in fact, the rest of the world is not actually taking that sitting down. In fact, all these other countries around the world who are

our developing countries who are industrial powerhouses that were emerging are also getting flattened and they're putting up tariffs against the countries that are causing the imbalance, which is to say, instead of looking at us over consuming, oh, we are just not willing to save enough. It's to look at why is it that

that we have so much incredibly low-cost stuff coming in from a handful of countries that are feeling this huge imbalance that has cost the U.S. in the last just 25 years 90,000 factories. Now, if you don't want to be in one of those factories and you're not going to be a person who is making stuff, just keep in mind what it was like during COVID when we suddenly realized we no longer can make just essential stuff. We're not going to make all the stuff.

But there are certain sectors where actually you do want to have some domestic capacity. And very importantly, in the era of climate crises and geopolitical unrest, we need to diversify our import sources.

We can't have it that there are 16 mercantilist countries, China being the largest of the bunch, on which we are so—the whole world, but the United States as well, is so overly reliant. And so the smart use of tariffs, which are put together with other industrial policies, is you target things you really need to make some of domestically, some medicines.

some green energy equipment, solar, et cetera. We need to make some transportation. But of course, we're rolling back exactly those policies that were put in place in the last administration and then putting out these tariffs, right? So, I mean, I know you're not arguing. Here's the thing. We got the highest rate of factory investment in the U.S. in 30 years by combining

tariffs, strategic, not lunatic tariffs, strategic tariffs and the other investment to make the things we need, not just for our resilience, but frankly, for our national security, but also for domestic peace and tranquility. We can't have this two tier system with oligarchs using the trade system to marginalize two thirds of American voters and make them basically miserable and marginalized and having no stakes. And well, we see what happens. They go for someone who's a huckster like Trump.

We have been talking about President Trump's tariffs and the global economy. Laurie Wallach, director of the Rethink Trade Program at the American Economic Liberties Project. Thanks so much for joining us this morning.

We are also still joined by Stephanie Flanders, senior executive editor for economics at Bloomberg and head of Bloomberg economics, and Kyle Hanley, professor of economics and director of the Center for Commerce and Diplomacy at UC San Diego. We're going to get to a bunch of calls and comments. We do have a lot of them coming in. But Kyle, I did want to give you a chance to respond to some of the things that Laurie was saying, particularly around factory work in the United States. Sure.

So I do not think that manufacturing is in the dire straits that Lori or Donald Trump have painted it as being in. It is true that there are not as many manufacturing jobs as there used to be, but manufacturing has been declining as the share of employment

basically for like 50 years. And this is not a U.S. phenomenon. This is happening in the same countries that Lori says are the mercantilists. It's happening in Germany.

It's happening in Korea. It's even happening in China, where there is a reduction in manufacturing employment over the last 10 years or so. And in fact, one of the few countries that has added manufacturing jobs in the last 10 years, bucking the trend even relative to China, is the United States. So the U.S. has added manufacturing jobs in the auto sector,

Since the Great Recession, it has added jobs in pharmaceutical manufacturing, medical device manufacturing, computers and equipment. Basically, a lot of these things that are part of the old economy and the new. And there are certainly sectors like apparel and textiles and tobacco industry.

wood furnishings and wood products that have not done well. But it's not obvious to me at all that we need to do something to protect those sectors when we have other sectors that are high tech

and that are doing, I think, just fine. The other thing to keep in mind is that the U.S. has added over a million manufacturing jobs. Basically, the manufacturing sector, in terms of employment, has grown by over 10% since the end of the Great Recession. At the same time that this manufacturing growth is happening, we have this big trade deficit that everybody's worried about.

So at least over the past decade or so, the correlation just doesn't add up. It's not trade that's killing all these jobs. And if you look at the manufacturing firms that are doing well over the past 15 years, they're all importers and exporters. If you are not an internationalized manufacturing firm, you are shrinking and going out of business. And those are the plants that are closing.

But I don't think it's even correct that there's been 91,000 plant closures. We can talk more about that offline, about whether that stat is accurate. But what's happening is that manufacturing is going up. There are plants that are closing, but what's happening is that the plants that survive are actually getting bigger. They're scaling up, and they're specializing in the sectors where the United States has a comparative advantage, and that's in these high-tech sectors in medical equipment and pharmaceuticals.

And in that sense, the manufacturing sector is doing just fine and has benefited substantially from globalization. Let's bring in a caller here. Let's bring in Gregory in West Hollywood. Welcome.

I'm muting myself. Oh, hey, Greg. Yeah, go ahead. It's fascinating to have this conversation with the overlay. If I can add, Michael Porter, Harvard Business School, wrote about competitive analysis. And the question I have or comment in light of

manufacturing jobs and this global change is if you had a want

and you could affect growth that the Trump administration said is their goal, wouldn't you be focused on developing industries that would provide the jobs and the manufacturing? And wouldn't you focus your monies and time not on tariff or non-tariff-based trade impediments,

In other words, protectionism. Wouldn't you focus on building those industries like Michael Porter suggests at Harvard? And Harvard, we have so many smart people who talk about how to – you have to have vocational schools. You have to have private companies who are willing to take on interns.

and train them in making the glass for the iPhone. And Tim Cook talks about China. He didn't go to China because of cheap labor. That's long gone. He went to China because of the cluster of highly skilled employees. - It's a good point, Gregor. Let's take this to Stephanie. You know, industrial policy in the US really

was kind of verboten, it felt like for quite some time, came back over the last like five years, the idea of like, trying to intentionally develop certain things not just like trusting in the market. Like, how do you feel about those developments, and how they relate to these tariffs? I think this is a good continuation, actually, of what we were discussing earlier. And I would say it's partially a response to Laurie Wallach. I mean, people are not necessarily saying that everything's right with the economy. It's a question about what

How would you try and fix it from here? And I think the lesson of the, you know, the Bidenomics era, they kept some of the tariffs specifically against China, quite targeted tariffs. I think there is a specific China issue which Donald Trump was...

quite early in identifying in some of the unfairness in the way that China and just the sheer volume of impact that China's had on the global economy. But they combined with that a positive agenda about attracting investment, putting money into sectors, particularly in the places that had been somewhat left behind.

And growing the economy that way, and as Kyle was pointing out, it has actually been part of increasing manufacturing jobs. Manufacturing jobs overall fell. If you look at the impact of the first year of Trump tariffs, we found that they reduced manufacturing jobs because the few that were protected by the tariffs were massively offset by all the companies that were paying more for the imports that they needed to do their jobs. So it comes down to do you have...

positive strategy, as the caller is suggesting, for growing economies, attracting things into the economy? Or is your strategy for growth about putting walls around the economy? And I think that is the contrast with this administration. It's about keeping out migrant labour and keeping out foreign goods.

when the evidence suggests that actually, especially given when you do that and you also create a lot of uncertainty, it isn't a recipe for companies coming in and investing in the US because they know that it could all just get reversed in a few years. But if you're actively encouraging countries in and you have a plan for positively growing the country, I think that seems to have been a better route to getting some of the things that Laurie Wallach's talking about.

We've been talking about President Trump's tariffs and kind of the structure of the global economy. Joined by Stephanie Flanders, senior executive editor for economics at Bloomberg and head of Bloomberg Economics. Also host of the podcast, deeply relevant, Trumponomics.

We're also joined by Kyle Handley, a professor of economics and director of the Center for Commerce and Diplomacy at UC San Diego. Earlier, we heard from Lori Wallach, director of the Rethink Trade Program at the American Economic Center.

We're going to get to a bunch more of your calls and your comments. In particular, one thing we're looking at at the top of the next segment is about why President Trump is doing these things. We'll be back with that right after the break. I'm Alexis Madrigal. Stay tuned.

The spirit of innovation is deeply ingrained in America, and Google is helping Americans innovate in ways both big and small. The Department of Defense is working with Google to help secure America's digital defense systems, from establishing cloud-based zero-trust solutions to deploying the latest AI technology. This is a new era of American innovation. Find out more at g.co slash American innovation.

Fast and reliable solutions from Comcast Business can help turn your business into a reliably up and running, cyber securing, performance boosting, storm preparing, reliably connected, modern business. Powering the engine of modern business, powering possibilities. Get started for $49.99 a month for 12 months. Plus, ask how to get a $500 prepaid card on a qualifying gig package. Call today.

Welcome back to 4. I'm Alexis Madrigal here. We're talking about President Trump's tariffs. We've got Stephanie Flanders, Senior Executive Editor for Economics at Bloomberg and head of Bloomberg Economics, and Kyle Handley, Professor of Economics and Director of the Center for Commerce and Diplomacy at UC San Diego.

Let's get to the why here. A couple listener comments on that. Pat writes, "What do you think is the real reason that Trump is doing this? Does he really care about bringing manufacturing back to the US? Does he think that this will help the relatively poor people who support him? Is destroying our economy and/or the world's economy somehow helping with his effort to form an authoritarian government? Is it something else?" Ron writes, "Is Trump's long-term goal to isolate the US from the world?"

Stephanie, this question is complicated by the fact that we've heard many different things from different Trump advisors on sort of what the endgame is, what the goals are. How do you read that? Yeah, I'm kind of regretting that you've come to me on this because, you know, I would hesitate to get inside Donald Trump's head. I'm certainly not sure I'd want to go there, but it's interesting.

I guess what we've learned from Donald Trump is that maybe it pays to just take him seriously what he actually says he wants. And what surprised many in the tariffs that were announced last week was not just that he was targeting the countries that had the biggest surpluses with the US and that would

you know, with the people who the countries that had been sort of, you know, doing giving the U.S. a raw deal. It was everybody. And the levels were set, at least in theory, in order to balance trade with every single country in the world. And I guess we have to take him at face value. He actually thinks that would be a good objective for the U.S., just like if you asked, you know, Texas to have a balanced trade with each individual U.S. state.

You know, it doesn't make a lot of economic sense, but he seems to really think that that deficit with any country is a signal that the US is being ripped off. And I would say in a kind of

broader sense what we are seeing is he is really sees some advantages in wrecking the system in being perceived to be being extreme and we've seen that in different ways in the last few years but I think this is a quite stunning example of it he thinks it is a

sending a signal to his supporters that he knows the system is broken. And well, if it wasn't broken before, it will be when he's finished with it. You know, one of the things that I think, I mean, it's so obvious that we almost sometimes aren't saying it. Patrick writes, you know, the hourly rate for U.S. workers is so much higher than that of developing nations. Will the tariffs be enough to bring back manufacturing? I mean, Kyle Handley, this feels like something that

maybe people don't want to address, which would be that if companies wanted to produce products at the same price for consumers, then American wages would have to come down, right? American manufacturing wages to match these other things. There's no way to have the same price for the consumer goods, but with much higher wages for workers.

MARK MANDEL: Yeah, so I think one way to think about it is if you put these very high tariffs on imports, you're going to increase the price of imports. Some price has to adjust, and as you just mentioned,

It doesn't seem very likely that U.S. wages are going to come down. And so the businesses that might want to continue to sell to Americans, either overseas or by bringing production back to the United States, they're going to have to receive higher prices for the things that they're selling, which means that consumers...

are going to end up kind of ultimately paying, I'll just say the price for these higher tariffs. And so it's not likely that wages are going to go down in the U.S. so that we can actually get this manufacturing back.

But I don't think that that's a very good goal in the first place. And I think what might be the big unintended consequence of this

is that a lot of the manufacturing jobs that have been lost over the past 20 to 30 years were not as a result of international trade. They were lost as a result of automation. Basically, robots and machines and things are building stuff, and we don't need the back-breaking labor to do it anymore. And so one way that

some US firms may reshore production is they will just use more robots. And so they won't necessarily hire more people, but they will bring some production back in what are fully or nearly fully automated factories. So it could be good for companies that make robots and capital equipment.

But we may see very few job gains on top of the other reasons that Stephanie mentioned which are that you've made the inputs that firms are using to build things more expensive This is very obvious in the auto sector, which we're seeing already And those firms are going to struggle to compete both internationally and in the US if everything they buy is more expensive and they're facing retaliation in their export markets and that

All these things kind of put together. I think that's a big reason why we've seen all this chaos in the financial markets. It's like, as I mentioned before, everything is getting hit all at once. And there's a tremendous amount of uncertainty. So what's really going on is everybody's basically pulling back at the same time, putting off hiring, putting off investments, putting off opening up new product lines and new markets because they just don't know what's going to happen next. Yeah.

You know, you're also, you know, it's also right there in the title, right? Commerce and diplomacy. Is there, let's say in an hour, you know, Donald Trump pulls back everything and says, okay, there's just tariffs on China now. Did this already break something? Like, this is something that I've just been asking myself. Like, are we...

You know, like, it's just now that this is a possibility, can we not come back from this? Or will people just happily, you know, jump back into the previous relationship they had with the U.S.? I think we can't come back from it. So the way to look at it is that the United States spent the past, let's say, 75 years since the end of World War II building up the rules-based trading system, which ultimately is the World Trade Organization system.

on top of all the international trade agreements that the US has, like NAFTA, it has trade agreements with Australia, Korea, Colombia, and other countries. And one of the reasons that that rules-based system was valuable is because it provided policy commitments

And those policy commitments were credible because the U.S. was behind them and had not sort of backed down on those before. And that provided the certainty that businesses needed to invest in new product markets for U.S. exports, to invest in the supply chains that they now have that are kind of being torn apart, and also to invest in the research and development areas

for new products because they knew that the world was their market, not just the United States. And so what Donald Trump has done is unilaterally destroy a lot of that credibility.

and destroy what was insurance against protectionism, which I would argue, and I've done some research on this, was incredibly valuable during the financial crisis when the United States, along with some other countries, sort of recommitted to not repeat the previous mistakes of protectionism from the 1930s. And because they did that, U.S. trade with our partners where we have free trade agreements, so that's Mexico, Canada,

Australia and others was much more robust than trade with countries where we didn't have agreements. And it was ultimately a good thing. But what Trump has done, he started this during his first administration, he's continuing it with Trump 2.0, as I mentioned before, is is

basically destroyed that credibility. And I don't think that insurance against protectionism, it's certainly not there. And even if he turns around on Wednesday and says, never mind, we're just going to go after China now, no one will trust us again for quite some time. It took 50 to 70 years to build that up. On that hopeful thought, let's go to Luis in Berkeley. Welcome, Luis.

Hello. Yeah, I was from what I read. I'm just wondering the influence of maybe Trump's belief that progressive income tax is bad and tariffs will be the the primary source for government funding. Yeah.

Yes, Stephanie, back to you on the why. I know you love this question. Just for folks who haven't been paying attention to this, Donald Trump has been saying, you

that progressive income taxation was bad for America. I don't feel like that's the way that I read it in the history books that I was reading, at least. Talk to me a little bit more about that. Yeah, I mean, it goes back to, I talked about maybe hankering after the late 19th century, and he talks a lot about President McKinley as one of his unsung heroes. You know, there does seem to be a strand of this which is about going back to the late 1900s in the U.S.,

where lots of things were happening and certainly when manufacturing was a much bigger share of the US economy, manufacturing and farming, farming being very hit hard by the last few weeks, but manufacturing. But also, if you remember, it was a time when we didn't have the income tax in a significant way. We were relying on tariffs and partly as a consequence,

the US was much more of a bit player in the global economy was, you know, that time, even, you know, the UK would was sort of the superpower in many ways. You had, you know, a very different system, and the US was not getting either the benefits or any of the disadvantages of really underpinning a global system. So

You know, it is true you could to some extent you could go back to depending on tariffs. I guess the very basic sort of arithmetical point that economists will be forced to point out is that you can't have your cake and eat it too, right? You can have lots of income from tariffs, from taxing imports.

But to continue to make a lot of money from that source, you have to continue to have a lot of imports. So if you're then going to also be bringing a lot of production back home, then the tariffs would inevitably, your tariff revenues will go down. So I think there is a sort of...

basic issue that people have had looking at this strategy, you can have a sort of low tariff that you charge everybody as a price of admission for the US, which I think some people were hoping would be the result last week, something more like that sort of 5% level, but for everybody. And you keep that and you make more money from it, but then you're doing other things. Or you could do what they're

doing now which is to really at least try to incentivize companies to come back to the US but then if that's going to be a success you can't be relying on tariffs for a lot of your revenues.

I thought the other arithmetical point you're going to make, too, is just that the scale of income taxes far exceeds the scale of any plausible amount of tariff revenue. Yes, although the way that income taxes are being cut these days is not when you look at the revenues that will be going out the door if you continue with the tax cuts from the previous Trump administration. You know, that is certainly it's been a shrinking share. But yet, of course, realistically, it's still going to be much greater than tariffs.

Kyle Hanley, interesting question here. Gavin Newsom has at least been floating this idea that California could maybe exclude itself from the tariffs. You know, Jennifer writes, any hope for Gavin Newsom's request to exclude California from the tariffs? Like, how would you see that?

I don't think there's much hope that he's going to be able to cut that many special deals. There's one legal issue to it, which is that U.S. states can't go out and make international agreements with other countries. So that's problematic to start with. But I think that...

Some kind of exemption from retaliation for California companies is, I think, what Gavin Newsom is trying to get. But precisely because California is so big and so important even to the world economy, not just the United States, we're one of the states that I think the China or the other countries that are retaliating against these tariffs are going to be reluctant to give a special exception because it's

It's literally part of their leverage. So I'm not sure what Gavin Newsom has to give in return unless the state can come up with some other basically tax incentives and things for

California businesses that might have to pay these tariffs to try and counteract them or offset them in some way. He could offer that in return for not facing retaliation. But for one, that would be potentially incredibly expensive. But logistically, I think it could also be difficult to implement because you could think about

exports from California, when they hit the foreign country, they're going to have to verify that, okay, is this a California good? How do we do that? Do you need to have some subsidiary in California? And can this be kind of gamed? And so I think it's a complicated thing for- It doesn't seem like the right level to solve the problem at, you know? It just feels like, yeah. Let's bring in Richard in Oakland. Welcome, Richard.

Oh, hi. Thank you. I think that one of the ways that we're looking at this wrong is that we're looking at it as if Trump really has an economic theory. Well, I think the real theory is that by imposing tariffs, he can get both the countries that are affected and the companies or industries that are affected to come to him on bended knee. And he's already shown his willingness to do this with Ivanka's trademarks in his first administration and now with the way he's been selling pardons.

Oh shoot, I think we might be losing him, but I think that he made the point we should answer. I mean, this is a, you know, Senator Chris Murphy from Connecticut made this point as well, that this was kind of more of a political scheme, he was arguing, than it was sort of an economic one. Stephanie, do you, like people you're talking to, do they put any stock in that theory?

I think, well, quite a lot of them will be hoping because they'll be on the phone trying to get their own deals. But certainly in the sort of Wall Street world, I think there's been, you know, the phones have been lighting up in Scott Besson's desk, the Treasury Secretary. But, you know, more seriously, I think you have to at least, I think,

To do him justice, Donald Trump has a very long history of questioning trade deals and particularly the very kind of open approach to China going back to the early 90s. And that, I think, predates him having any thought of being president. So I would give him credit for actually having been consistent on this. But I do think it goes with...

This concentration of power in the executive that we've seen in the first few months of the administration. And, you know, if you're thinking about economic policy that you can really control if you're president, well, you can't really control what the central bank does, the Federal Reserve, although he's potentially going to working on that.

But in theory, you can't control where interest rates are directly. And the fiscal policy famously, you know, is very hard for even a president that in theory has his party's control of Congress. It's still quite hard to guarantee what fiscal outcomes are going to

going to come out of Congress. But where you do have a lot of power is on things like immigration and on tariffs. So I think it does go with the idea that the president wants to have as much power, direct capacity to do things, and yes, capacity to be able to do deals with people, whether it's countries or companies. Hmm.

Real quick here, Kyle. We have a few people asking things like, why isn't Congress putting a stop to this now? The question should not be what's going on. It should be when is it going to stop? Do you see a path back to normalcy or something approximating it? Or on what timescale could you see that?

So, I don't know what the path back to normalcy is, but I think it could take a long time. So, as Stephanie was just mentioning,

One of the reasons Trump has done this is because he has executive authority over these tariffs and he wants to make these deals, as the previous caller mentioned. But a great example of this is the Brexit referendum. It basically took the UK four or five years to finally negotiate a trade deal with the EU, basically settling the terms of their divorce. And so we're looking at something that is not easy to do.

And now we're even eight or nine years away from Brexit and the UK is still negotiating trade deals with some of its partners, ones that it lost because it left the EU.

Trump has about four more years where he's going to be president, and I don't see him backing down. And I think that this deal-making process is not going to be easy or quick, and it's going to require a substantial amount of manpower and negotiations. And I think we all know Trump wants to keep those tariffs in place anyway, so he'll drag it out as long as he can. Hmm.

We've been talking about President Trump's tariffs on the global economy with Kyle Hanley, professor of economics and director of the Center for Commerce and Diplomacy at UC San Diego. Thank you so much, Kyle. You're welcome. Thanks for having me on. We are also joined by Stephanie Flander, senior executive editor for economics at Bloomberg and head of Bloomberg Economics. You can listen to her podcast, Trumponomics. Thank you, Stephanie. It was a pleasure.

Earlier, we spoke with Lori Wallach, director of the Rethink Trade Program at the American Economic Liberties Project. I'm Alexis Madrigal. Stay tuned for another hour of Forum Ahead with Leslie McClurg.

Fast and reliable solutions from Comcast Business can help turn your business into a reliably up-and-running business.

cyber securing performance boosting storm preparing reliably connected modern business powering the engine of modern business powering possibilities get started for $49.99 a month for 12 months plus ask how to get a $500 prepaid card on a qualifying gig package call today

This is Tanya Mosley, co-host of Fresh Air. You'll see your favorite actors, directors, and comedians on late-night TV shows or YouTube. But what you get with Fresh Air is a deep dive. Spend some quality time with people like Billie Eilish, Questlove, Ariana Grande, Stephen Colbert, and so many more. We ask questions you won't hear asked anywhere else. Listen to the Fresh Air podcast from NPR and WHYY.