Here's Why Trump's Tariff Plan Has Global Consequences
07:00 Share

When you're with Amex Business Platinum, you get five times membership rewards points on flights and prepaid hotels booked on amextravel.com. So going the extra mile for your business is even more rewarding. That's the powerful backing of American Express. Terms apply. Learn more at americanexpress.com. Amex Business. Meta's open source AI models are available to all, not just the few. Because they're open source, small businesses, students, and more can download and build with them at no cost.

Learn more about the benefits at ai.neta.com slash open. Bloomberg Audio Studios. Podcasts. Radio. News. I'm Stephen Carroll and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg. If we know one thing about Donald Trump's foreign policy, he likes to tax trade. The most beautiful word in the dictionary is tariff.

And it's my favorite word. It needs a public relations firm. We're going to have thousands of companies coming into this country. We're going to grow it like it's never grown before. And we're going to protect them when they come in because we're not going to have somebody undercut them. That was what the now president-elect told Bloomberg in October. During his first term, the self-proclaimed tariff man enacted duties on about $380 billion worth of imports.

Now he's promising to go further with a 20% levy on all imported goods and 60% on Chinese products. Trump says the import taxes can help raise revenue as well as reduce US trade deficits and drive manufacturers to make more in America. But they have the potential to completely upend global trade flows. So here's why Trump's tariff plan has global consequences.

Bloomberg's trade czar, Brendan Murray, joins me now for more. Brendan, from a historical point of view, how dramatic would the tariffs that Trump is promising be? Bloomberg Economics crunched these numbers and came up with an estimate that we haven't seen tariffs like this in the U.S. for more than 80 years. So the sheer scale of them, 20% tariffs on all U.S. imports, would be a big shock to the sticker price of everything from cars to toys.

How easily can Donald Trump actually impose these tariffs? So the power to impose tariffs exists in the US Constitution. It's granted to Congress. But over the many years, decades, Congress has essentially delegated a lot of that authority

to the executive branch, to the president. President Trump exercised that authority pretty loudly during his first four-year term. President Biden followed him with maintaining many of those tariffs and adding to some of them. And now Trump being reelected, coming back in, is saying, if you thought that the first term tariffs were interesting, just wait till I get in office again. The first term, it seems like, you know, just kind of a test for what something much bigger that's going to come.

What would this mean in particular for China's economy? Because Donald Trump has particularly singled out China for heavy tariffs. That's right. He said we're going to apply a 60% tariff on everything from China, which Bloomberg Economics has estimated that by 2028, that would reduce the US's imports of Chinese good by about 50%. So an absolutely huge number as the US would look to import from other places. But as Trump has said...

all these other countries, all these alternatives to China are going to have a tariff on them as well, a 20% tariff. So you can see how quickly this can turn into something where prices in an inflationary environment could cause some damage to the economy. What should we be thinking about in terms of

the sectors that could be particularly hard hit by this? Because it's something that, you know, as you say, we're talking about big steps on a global scale. But are there particular sectors that stand to be punished by this? Well, if you listen to Trump's advisers, a big part of these campaign promises are meant to apply leverage on other countries, other economies. The European Union, for example, after China...

The U.S. administration under Donald Trump is going to go after the European Union and say, hey, look, we have some good trading relationships between us, but there's some imbalances that we need to address. So let's talk about cars. Electric vehicles are a big issue right now. China is producing a lot of them, a lot of very good cars by all accounts. And the U.S. has blocked those from coming into the U.S. market. Europe...

just recently imposed tariffs on Chinese-made electric vehicles. So from there, the debate will broaden out to other products, from agricultural goods to industrial machinery, highly engineered manufactured goods. Could the EU, for example, hope to perhaps negotiate with the Trump administration and avoid a trade war, perhaps manage to carve out some exemptions? Is there room for diplomacy in what we've heard from Donald Trump in the past and what he's done in the

Well, this is the central question, really, as we shift from a rules-based trading system, one where low tariffs are the guiding principle. If Donald Trump comes in and says to the European Union, look, we don't think our trading relationship is fair, then we will put 20% tariffs on every European product. That's where the negotiation starts. And, you know, we could see lots of reciprocal action by Europe. You know, you can see how quickly this can cascade into a trade war. Yeah, indeed.

I think we can all sort of imagine how this would have a negative impact on all the firms that export goods to the U.S. But what would we expect this to mean for the U.S. economy? Well, the goal, if you listen to Trump and his advisers, is to bring production back to the U.S. A lot of manufactured items are made elsewhere now. And the goal is to turn the U.S. from a consumption economy

based economy back to a production based economy now that would mean bringing factories that otherwise would go to southeast asia or latin america mexico even so the goal would be bring your production to the us otherwise we're going to put a tariff on whatever you make that

Ultimately is the goal and good jobs would be the dividend that would come from that. But that's a long way down the road to accomplishing that, certainly longer than a four year president. And in the meantime, of course, then there's the inflationary impact of it as well for consumers to deal with.

Yeah, exactly. I mean, tariffs themselves are not inflationary, but they can add inflationary pressure. Now, there's a distinction to be made. And every time the Trump administration talks about their tariffs in their first term, they say, look, they weren't inflationary. We didn't have inflation during Donald Trump's first term. Well, if you look back at some Fed research, you can see signs that businesses were feeling price pressure from those tariffs. They were saying,

We don't have any pricing pressure. We can't raise our prices. But then the pandemic came along and, you know, the demand spike and the supply shock from the pandemic added fuel to what was already the embers of inflation starting to heat up.

What I'm hearing is it's not simple, which I think is a good lesson for us to watch and see what happens next. Brendan Murray, our trade czar here at Bloomberg, thank you very much for joining us and talking us through some of the potential consequences of Donald Trump's tariff plans. And for more explanations like this from our team of 2,700 journalists and analysts around the world, search for Quick Take on the Bloomberg website or the Bloomberg Business app. I'll be back next week with more. Thanks for listening.

In today's data-driven world, you need real data to shape an effective marketing strategy. That's where Ahrefs comes in. Ahrefs is a marketing intelligence platform powered by big data. It shows you exactly what your target audience is searching for and how you measure up to your competitors. Whether you're making day-to-day marketing decisions or defining your long-term digital strategy, Ahrefs delivers real-time insights that help you grow your brand. Head over to Ahrefs.com to get started.

That's A-H-R-E-F-S dot com. This podcast is supported by BetterHelp, offering licensed therapists you can connect with via video, phone, or chat. Here's BetterHelp Head of Clinical Operations Hesu Jo discussing who can benefit from therapy. I think a

A lot of people think that you're supposed to be going to therapy once you're like having panic attacks every day. But before you get to that point, I think once you start even noticing that you feel a little bit off and you can't maintain this harmony that you once had in relationships, that could be a sign that maybe you want to go talk to somebody.

There's always a benefit in talking to someone because we can all benefit from improved insight about ourselves and who we are and how we behave with other people. So if you're human, that's like a good indicator that you could benefit from talking to somebody. Find out if therapy is right for you. Visit BetterHelp.com today. That's BetterHelp.com.