The Tariff Wars Are Here — And They’re Messy

[0] Donald Trump has already changed the way we think about the US economy.

[1] Now he's back in the White House and Bloomberg's Trumponomics podcast is here to help.

[2] I'm Stephanie Flanders, head of government and economics at Bloomberg.

[3] Whatever the big question of the week is, we'll have something interesting to tell you about it in a lively conversation with the reporters and analysts closest to the action.

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[6] Podcasts.

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[8] News.

[9] The tariff wars are on.

[10] The opening shot came Saturday when President Trump announced new 25 % tariffs on imports from Canada and Mexico and an additional 10 % tariff on Chinese goods.

[11] On Sunday, he said tariffs were coming for the European Union, too.

[12] It was the most sweeping act of protectionism taken by a U .S. president in almost a century.

[13] And it reverses three decades of economic integration in North America.

[14] Enda Curran covers the global economy for Bloomberg.

[15] And he says even though Trump has been talking a big game on tariffs for a while, many were surprised by their scale.

[16] This is a sweeping implementation of tariffs, probably coming faster than many people expected.

[17] And of course, the breadth of it covering all the goods that come in from these countries has come as a surprise to many.

[18] Already, Enda says, we're seeing reactions from people in the targeted countries.

[19] We had reports last night of the booing of the US anthem at sports games.

[20] We had news in Ontario of those state -owned alcohol outlets taking U .S. bottles off of their shelves.

[21] And in the U .S., consumers are showing signs of anxiety too.

[22] We had plenty of people last night tweeting warnings from their electricity, their gas supplier, that their costs are going up due to the tariffs.

[23] We had people tweeting images of avocado prices going up in real time because of what's going to happen on the Mexico side.

[24] I mean, there is a potential here.

[25] for this to become personalized and ugly pretty quickly.

[26] But by Monday, it became clear that the tariffs were up for active negotiation.

[27] After Trump spoke with Mexico's president, Claudia Scheinbaum, she agreed to send 10 ,000 Mexican troops to the border to stem the flow of fentanyl.

[28] And Trump said he'd delay tariffs on Mexico for one month.

[29] During a press conference in the Oval Office Monday afternoon, he foreshadowed more talks to come.

[30] And we're going to have a big negotiation with Mexico.

[31] I'll be involved too.

[32] And President Scheinbaum will be involved to see whether or not we can work something out on the tariffs.

[33] China will be speaking to China probably over the next 24 hours.

[34] And just a few hours later, outgoing Canadian Prime Minister Justin Trudeau shared a readout from his own conversation with Trump.

[35] He said Canada would be strengthening its border security and launching a joint fentanyl strike force with the U .S. And he said the U .S. would also be pausing its tariffs on Canada for at least 30 days.

[36] The rapidly unfolding negotiations sent markets topsy -turvy.

[37] After Scheinbaum confirmed that tariffs on Mexico would be paused, the peso turned positive, regaining the ground it had lost since Friday.

[38] While equities in Asia and Europe dropped earlier in the day, the news also helped temper their losses.

[39] And even before Trudeau's announcement, the Canadian dollar pared its decline, based on the expectation that Canada's tariffs would be delayed.

[40] This is The Big Take from Bloomberg News.

[41] I'm Sarah Holder.

[42] Today on the show, a new era in trade under Trump 2 .0.

[43] How will the tariff wars disrupt the global economy?

[44] And how long will they last?

[45] As of Monday evening New York time, the tariffs on China are set to take effect a minute after midnight.

[46] And the tariffs on Canada and Mexico could be coming in a month.

[47] Now that we finally have a sense of what these tariffs actually look like, I asked Bloomberg's Endocurrin how they're expected to reshape the US economy.

[48] I guess there are two angles on it.

[49] Economists say it will drive up prices in the near term and it will cause businesses to have a think about their supply chains and where they're investing.

[50] So near term, potentially higher prices and some disruption to how we buy goods and how those goods are produced.

[51] Longer term, President Trump and proponents of this strategy say it will reshape supply chains.

[52] It will reshape the US manufacturing base.

[53] It will bring back production and manufacturing to the US.

[54] That's the near term pain for longer term gain strategy.

[55] President Trump himself said last night that there will be some pain involved in this process.

[56] That is a big picture take.

[57] There is skepticism around whether that can happen or not, because people will say, look, ultimately, it's not economical.

[58] It's too expensive.

[59] to bring some of this manufacturing back to the US.

[60] It's more efficient for the US to produce, to buy some of these goods from overseas.

[61] So there is a bigger picture that claims this will ultimately strengthen the US manufacturing base and economy.

[62] But Sarah, there's scepticism about how much of that will be achieved too.

[63] Well, say a little bit more about some of those stated goals of these tariffs.

[64] Why does Trump think this short -term pain will be worth it?

[65] What is the aim of this tariff rollout?

[66] There seems to be rolling aims with the tariff rollout at the moment, Sarah.

[67] On the one hand, there is the idea that the US is buying too much stuff from one country.

[68] It should be making more of that produce at home.

[69] So the thinking there is, if you put tariffs on goods coming from the country, then those manufacturers and producers will say, we should just move to the US, set up a base there.

[70] That's point one on the tariffs.

[71] But President Trump has also said tariffs will raise money for the government.

[72] He's talked about the revenue raising aspect of it at a time when the government, of course, is looking to rein in spending, given where the fiscal deficit is.

[73] Again, there's pushback there.

[74] People will say to you, hang on, it's ultimately consumers who will be paying this effectively as a new tax rather than any foreign exporter.

[75] Then the third leg in all of this is President Trump is now attaching tariffs as a kind of a weapon or a tool to control the flow of fentanyl and migrants into the country.

[76] How are tariffs supposed to curb the drug trade?

[77] So the point is the carrot and stick that President Trump is using here.

[78] He's saying, look, if you don't do more to crack down on fentanyl with your security services and the like, then we will use these tariffs to impose pain on your economy.

[79] And that's the carrot and stick.

[80] To be clear, Canada.

[81] makes a point that only a very small portion of the fentanyl that gets into the US comes across their border.

[82] So they've pushed back hard on that side of things.

[83] On Mexico's side, President Sheinbaum has made clear the authorities there are doing everything they can.

[84] We don't yet know what specifics, what specific ask.

[85] President Trump was putting the table or, you know, what threshold might satisfy him that both Mexico and Canada are responding the way he wants to.

[86] But don't forget also that China is part of this story too.

[87] And that's why President Trump has put 10 % tariffs on China.

[88] They are obviously in the fentanyl supply chain.

[89] So watch closely to see how President Trump responds to Beijing on this matter as well.

[90] So it's a negotiating tactic and we'll see how well it actually works.

[91] Certainly is a negotiating tactic, Sarah.

[92] And several of President Trump's own incoming officials have said the threat of tariffs can be used as a negotiating tactic.

[93] There are several economists on Wall Street who think these tariffs will be short -lived.

[94] There will be some negotiation.

[95] There will be a deal made.

[96] These tariffs will come off.

[97] Nonetheless, though, we're in uncharted territory here.

[98] It's very unusual to see the president putting tariffs at 25 % on key trading partners.

[99] And that's where we are.

[100] And it's not clear when they will come back off.

[101] Why levy smaller tariffs on China than on Canada and Mexico, these key trading partners?

[102] What political signal does that send?

[103] China is obviously part.

[104] of the fentanyl story.

[105] So by extension, he's also putting 10 % tariffs on China as a form of carrot and stick approach there too.

[106] Now, the question is why has he gone with tariffs of 10 % on China when on the campaign trail, he spoke about tariffs of as much as maybe 50, 60%.

[107] We don't yet know his inner thinking on that, but we know a couple of things.

[108] The president is looking into the original trade agreement he signed with China.

[109] He wants to make sure that trade agreement has been fulfilled.

[110] And of course, if it hasn't been fulfilled, there will likely be some kind of retaliatory response from the US against Chinese goods.

[111] Trump imposed tariffs during his first term as well.

[112] But how different are these tariffs?

[113] They're quite different.

[114] Those tariffs in the first term were a shock.

[115] Because they were breaking with convention.

[116] It was the US president, leader of the world's big free open economy, imposing tariffs going against the grain of the world trade rulebook on how to do business.

[117] But in truth, those tariffs were somewhat narrow and limited.

[118] So yes, they were disruptive.

[119] Yes, they caused some pain to the businesses involved in that.

[120] chain and uncertainty, but bigger picture, we can now see that they are manageable.

[121] This time around, President Trump is moving much faster and much broader.

[122] Take Mexico and Canada.

[123] He's putting tariffs on goods across the board coming in from Mexico and Canada.

[124] Not just targeting, we'll say, aluminium or steel or autos.

[125] It's everything, including what goes into our shopping basket, alcohol, avocados, squash, clothing, you name it.

[126] That's different.

[127] And again, similar story with China, 10 % across the board.

[128] It's not targeted per se.

[129] It's not specific on components or industrial intermediary bits and pieces of machinery and equipment.

[130] It's on everything that we buy.

[131] I should also say, Sarah, within the deluge of announcements, President Trump is also targeting what's called a de minimis threshold.

[132] There is a threshold at the moment if you buy something and import it from China or anywhere else and it's valued at less than $800.

[133] You don't have to pay the tariffs on that.

[134] And it was a cheaper way to get goods, small items into the country.

[135] Well, as part of his trade crackdown, President Trump was also targeting that.

[136] And it's bound to have an impact in the e -commerce space.

[137] And what you're describing is a broad, immediate, sharp disruption to the U .S. economy.

[138] Given that, how has the market reacted so far?

[139] Markets have been whipsawed by this news.

[140] We saw the initial reaction, the dollar strengthened, other currencies like the Canadian dollar weakened to its weakest in 2003 and stocks sold off.

[141] But when we had the news of a potential agreement with Mexico earlier on Monday, then we saw some relief in the markets and that sell -off in stocks started to stabilise.

[142] But I think these trade talks, these trade negotiations will continue to be a source of volatility for the markets in the weeks and months ahead.

[143] After the break, the industries these tariffs will squeeze first, and how price increases could exacerbate inflation in the US.

[144] Donald Trump has already changed the way we think about the US economy.

[145] Now he's back in the White House, and Bloomberg's Trumponomics podcast is here to help.

[146] I'm Stephanie Flanders, head of government and economics at Bloomberg.

[147] Whatever the big question of the week is...

[148] We'll have something interesting to tell you about it in a lively conversation with the reporters and analysts closest to the action.

[149] Listen to new episodes every Wednesday and follow Trumponomics on Apple Podcasts, Spotify or wherever you listen.

[150] The tariffs Trump announced on Canada, Mexico and China are sweeping and they could have immediate effects on prices.

[151] I asked Bloomberg's Endocurrin, what part of the US economy tariffs will hit first?

[152] I think the first part of the US economy will be the importer or the buyer of these goods.

[153] So whether you're buying parts in the auto chain industry, a car part, whether you're making car parts and you suddenly have to buy whatever unit it is that will have an extra 25 % charge on top of it.

[154] operating within already slim margins and in that industry, well, then there's going to be an impact on, say, the auto manufacturing base.

[155] And there have been warnings from union and industry leaders that this will have a material impact on their productions.

[156] The energy industry, it's a bit unclear at the moment because energy has had something of a carve out when it comes to these tariffs, because President Trump is talking about a 10 % tariff on energy and oil coming from...

[157] Canada.

[158] And that's to ensure there's no kind of flow through to businesses and households here in terms of a spike in energy costs.

[159] And then for households, for US consumers buying their veg, buying their produce, buying their clothing, buying their beverages, whatever it is that they buy that's coming in on that side, mostly from Mexico, it's going to drive up their bills.

[160] I mean, there's an estimate from one bank that it could add around three and a half thousand.

[161] to the average household's family of four outgoing expenses.

[162] And this is on top of the inflation that American households are already experiencing.

[163] That's exactly where the warnings come into this.

[164] There is a view that unlike, say, in President Trump's first term when inflation was well under control, this time around the US is just coming out of a major inflation crisis.

[165] Prices remain above the target that the Federal Reserve sets and where it wants it to be.

[166] So that whole story hasn't gone away completely.

[167] But now there's this concern that you're going to drive up the prices for cars and for food and everything else, and it will add to inflation pressure.

[168] But again, this is where we come back.

[169] President Trump said that it will be pain, but he says this will be worth it for the greater good in terms of how he's envisaging how the American economy and manufacturing sector needs to be reshaped.

[170] Right.

[171] Trump says part of the motivation behind the tariffs is protecting the American manufacturing industry and bringing manufacturing to the U .S., he says, will mean no tariffs on those companies creating or saving American jobs.

[172] Can you explain his rationale here?

[173] How do you expect these tariffs to impact the labor market in the U .S. in the short term?

[174] Near term, it's clearly going to be disruptive.

[175] As we've spoken about, Sarah, a lot of economists will tell you it will drive up prices for both businesses who buy components or input material from overseas and for households.

[176] So then you're going to have pressure on workers and on the inflation front.

[177] Then there is the disruptive side of it.

[178] If you are a business that relies on buying cheaper components or cheaper inputs from Canada or Mexico or China, now you're facing higher costs with slim margins.

[179] Can you as a business person power?

[180] on those costs to your end purchaser if you're a household with somebody who's working in the manufacturing sector you're facing higher bills and potential uncertainty that's the first round effect The bigger picture that President Trump is pushing is that when these tariffs are in place, foreign producers, foreign factories, and indeed American producers overseas will say, we need to relocate back to the US, get behind this tariff wall, build our plants in America, hire local workers, spend and invest, and lead a renaissance of the manufacturing industrial base.

[181] That's the big theory of it.

[182] There's skepticism about how this will play out, but near term, at the very least, we know there will be disruption.

[183] The big question then is how businesses respond longer term.

[184] That's an interesting point, Enda.

[185] American workers are also American consumers, and this will impact them as consumers first, and perhaps quite intensely.

[186] Yeah, the cost of these...

[187] foodstuffs coming in from Mexico.

[188] Just think about it.

[189] If it's going to have a 25 % increase across the board and that gets passed on from the importer to the wholesaler to the household, then that's a material hit on any on the shopping basket over time.

[190] If these tariffs do go into effect, what will that mean for Canada and for Mexico's economies?

[191] So if the tariffs go into effect at 25 % for Mexico and Canada, it would be a big deal because the US is the biggest export market for both Mexico and Canada.

[192] Some economists say the Mexican and Canadian economies could fall into recession, such as their reliance on doing business with the US.

[193] The implementation of these tariffs so far has been pretty chaotic.

[194] Negotiations have been unfolding quickly.

[195] Leaders are promising retaliation.

[196] Even if the U .S. decides not to implement the full tariffs as proposed, what kind of impact has this tariff announcement and rollout already had?

[197] I think on the one hand, obviously the president campaigned on tariffs.

[198] His campaign and his staff are saying, listen, this is what we've promised and this is what we're delivering on.

[199] But for the business community, there's no doubt it is a source of confusion for them.

[200] It does muddle the outlook in terms of where can they locate their supply chains?

[201] Are we going to come under tariffs if we're in Mexico?

[202] If we sell it to Mexico, if we buy from Mexico, sell it to Canada, buy it from Canada, will we come under these new tariffs?

[203] How will it impact our business?

[204] So there are lots of question marks from business people.

[205] And I spoke to quite a few.

[206] this morning, and they are uncertain.

[207] So we're in this space whereby even if near -term temporary agreements are reached, everybody is thinking about a plan B in terms of what they would do in case these tariffs are imposed at some point.

[208] Thank you so much, Enda.

[209] Thank you, Sarah.

[210] This is The Big Take from Bloomberg News.

[211] I'm Sarah Holder.

[212] This episode was produced by David Fox and Jessica Beck.

[213] It was edited by Tracy Samuelson and Greg White.

[214] It was fact -checked by Adriana Tapia and mixed and sound -designed by Alex Sugiora.

[215] Our senior producer is Naomi Shaven.

[216] Our senior editor is Elizabeth Ponso.

[217] Our executive producer is Nicole Beamster -Boer.

[218] Sage Bauman is Bloomberg's head of podcasts.

[219] If you liked this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts.

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