Gavin Bade

I think the big looming question is what happens with China. Trump's going to hit them again with more tariffs. And they hold a lot of cards here. We still have a lot of reliances on them for different critical products, whether it's processing critical minerals or many products that U.S. manufacturers need for their factory processes.

And if you have to pay more tariffs on those, that's going to hurt American manufacturing. So I think how China responds on those American choke points is going to be very interesting. But I will say this, you know, there's only so many times that Trump can threaten tariffs, threaten to put them in place, and then, you know, get his negotiation done and back down, right?

At some point, he runs the risk of being the boy who cried tariff.

So we're talking about 25% on Canada, 25% on Mexico. Those are our two biggest trading partners. With the exception of crude oil and energy products, they'll get a 10% tariff. That's our colleague Gavin Bade. And then a 10 percent additional tariff on all imports from China, which is our third largest trading partner.

Trump wants to use tariffs in the classical sense of building American manufacturing. So he was elected talking a lot about how manufacturing has gone overseas, whether automotive manufacturing or even lower down the value chain. And he's saying, you know, I'm going to put these tariffs back in place so that companies like the automotive companies have to build their factories here.

They have to build their products here.

So a tariff, you can just think of it as a fee that is paid on a product when it comes into this country.

Like a tax, right? It's a tax or a fee that you pay at the port of entry. The theory behind tariffs is you want to make products from other countries more expensive to make the products that you make in your country more competitive. So historically...

almost every industrialized country including the united states has used tariffs to protect what they would call infant industries industries that are just getting started and they want to create growth for them right and so think about you know when any industry the steel industry in the united states was starting for instance you had really high protective tariffs all throughout the 19th century to protect it from competition from overseas markets

It was a surprise in certain ways. He'd always said that he was going to do really intense tariffs on the campaign trail. Then he came in on the first day and he put out a policy memo saying we're going to study all of our trade deals and all of our trade policies. And so for a moment there, we all thought, hey, there's going to be a process here. They're going to do economic studies.

And then only a few hours after he issued that memo, he came out and made that tariff threat.

So there's a few general motivations here. Generally speaking, Trump has said the first and foremost, it's about the illegal fentanyl trade that they say has killed tens of millions of American citizens. That's maybe an inflated measure, but killed a lot of American citizens, right?

They say that this fentanyl and the precursor chemicals are produced in China, shipped over to the United States, and then manufactured in factories in Canada and Mexico and smuggled over the border, right? And so he has said his tool for getting them to stop this is to put tariffs on them until they make it stop. But this is sort of a non-trade issue that he is using trade tools against.

So dollar for dollar, we're looking at a tariff action that is larger than anything Trump did in his first term. And he did it all in one day. I think he did more than even some people inside the White House thought he would.

That's one motivation. The second motivation is what he would call illegal migration through Mexico, mostly from Central and South America, from other nations as well, through Mexico. He has said he wants Mexico to stop that completely. And until they do... He's going to put tariffs on it. So again, a non-trade issue that a trade remedy is being used for.

And then there's a number of lingering trade disputes from this U.S.-Mexico-Canada agreement that he signed, right?

The new NAFTA, yes. So Trump signed this in 2020. He said it was the best deal ever and now is contravening it by putting tariffs into place, right? So he would say, although they made the automotive rules much tougher there, it's still a concern of his that there is still automotive manufacturing in Mexico and Canada. He would rather see that come over the border and be back in the United States.

Canada and Mexico have basically said, tell us what you want us to do on this and we will do it, right? They've set up new fentanyl and migration working groups. And, you know, the administration all throughout last week was pretty publicly optimistic, right? You heard Caroline Leavitt, the press secretary, say, you know, Mexico's making some great progress on migration.

And, you know, we're having good talks with Canada as well.

There were a lot of U.S. industries, especially like the automotive industry, which does a ton of trade with Canada and Mexico, who had been begging him to put an exemptions process into this, basically a process to get a carve out from the tariffs.

They were saying, look, we have continental supply chains that we have put in place because of the trade deal that you negotiated with Canada and Mexico in your first term, the so-called U.S.-Mexico-Canada agreement that replaced NAFTA. We made our supply chain, said the automotive industry, according to that deal that you negotiated and signed.

So at least the cars that we make that are compliant with that deal, please make them exempt from these tariffs. Trump said, no, thanks. I would rather hit all of the automotive consumers with tariffs, all the automotive companies with tariffs.

Tuesday, tomorrow, very, very quickly. So he promulgated them. He made the announcement on Saturday night after, you know, promising and getting everyone whipped up into a frenzy over the past few weeks. There was a lot of frantic lobbying around Washington, you know, Canadian and Mexican officials flying here, meeting with senior U.S.

We have not heard as much from the Chinese government yet. I think they are playing their cards very, very close to the chest. By contrast, Canada and Mexico have had a much more forceful response.

There's a lot of U.S. products that flow south of the border into Mexico as well. So, you know, and I think like thinking about your grocery store list, like a lot of that stuff is going to be impacted by the tariffs Trump put into place on Mexico.

I think a lot of people are still trying to sort through the magnitude, but they pretty uniformly say higher prices. And that means, you know, lower economic growth for the American economy.

Yeah, I mean, just off the top of my head, I mean, I just, I'm thinking about all of the kind of winter vegetables that we get in from Mexico, right? All of the tomatoes, all of the avocados, things like that. I'm thinking about how integrated the meatpacking industry is over the U.S.-Canada border and how many times, like, you know, a cow crosses the border multiple times between the U.S.

and Canada in a lot of cases before it's processed into whatever, a hamburger or beef jerky or whatever, right? Then thinking about automobiles, the average car will cross the U.S.-Canada border eight times right before it is actually a car. And every single time that automobile or that auto part crosses the border, it's going to need to get a tariff paid on it.

officials, trying to convince them otherwise, saying, you know, we'll do anything to get around these tariffs. You know, what do you want?

It could be really, really drastic, these impacts, right? I think the biggest question is how long do these tariffs stay in place? You know, a lot of continental industries, you know, especially like think about the automotive industry. They've been stockpiling cars in anticipation of this. So having, you know, getting cars on the dealership lots just so that they have some inventory.

that's going to last a couple weeks, right? Not more than that. And if these duties stay in place longer than that, we're looking at dramatically higher prices, not just for cars, but like for tomatoes, for meat products, right?

I would say within a couple weeks, right, if not immediately. It depends on the goods. So, you know, I think it's difficult for me to say with certainty how long it's going to take because, as I said, we're really in uncharted territory here when it comes to this magnitude of tariffs being enacted this quickly. So all I can say is bad and soon.

Wow. I am just seeing this for the first time.

And that, dear listeners, is how fast things change in Washington in the second Trump administration. Things can turn on a dime here. You know, this is just, it's just emblematic of how unpredictable these things are.

It certainly seems that way. I mean, Canada and Mexico have said that they are ready to respond. Canada is going to slap tariffs on U.S. shipments, you know, the same day that we do. And Mexico has promised to do the same.

Yes, and I think that that is, I mean, the threat of the tariffs in one form or another is going to remain on almost every nation throughout the world throughout Trump's term, right? Because if he gets mad at you, he's shown that he is willing to risk significant damage to the U.S. economy to make a point. And I think that's what he's doing here, right?

Could they have come to this agreement without, you know, imposing tariffs and spooking the market and sending everyone into a tizzy? Maybe. But that confusion and that panic is a feature of the system for Trump, not a bug.

Well, I think there's a few different ways to look at it here. This is tariffs for punitive measures, right? These are punitive penalizing tariffs, things that are connected not to a trade irritant, but to one of Trump's other bugaboos, right? Migration, fentanyl. So that's one thing where you see these really bellicose tariff threats. But I think we should conceptually separate that from...

other tariffs that Trump has talked about. For instance, last week he said, we're going to put tariffs on semiconductors. We're going to do it on pharmaceuticals. Those are tariffs that are to remedy what are specific trade irritants for Trump.

And then third, there's still going to be, we've heard, you know, we believe, still going to be a broad-based tariff of some sort that is mostly aimed not at rebalancing trade, but but raising money for the U.S. Treasury, raising money so that Trump can do tax cuts and pay for them with tariffs. That is a strategy that we haven't really seen in over 100 years in the United States.

And actually, the Trump administration anticipated this, and they put a provision in these tariff orders that says if Canada, Mexico, and China hit back, then they're going to make the tariffs even higher. So you can really see how this could spiral into even more of a trade war than we're having already.

The president announced goods from every nation we trade with will be subject to import taxes. A 34% tax on imports from China. That's on top of the 20% tariff already imposed. 24% on Japan and 20% on the European Union.

Yeah, I'm Gavin Bade. I'm the trade and economic policy reporter here at The Wall Street Journal based in Washington, D.C.

Not at all. It's been a quiet start to the year for me, quiet start to the Trump administration.

Well, the administration has said it doesn't impact them at all, right? That the trading partners are calling up and still eager to do deals. We've heard Jameson Greer, the trade representative, say that.

That contrasts a little bit with their position in court, their actual court filings. In their petition for the stay, the administration was very clear that they thought that putting these tariffs on hold would undermine their leverage in all of these trade talks. They said really jeopardize everything that they were trying to do. So they're kind of talking out of both sides of their mouth here.

I do think a number of countries will still be eager to do a deal with the US because maybe they will feel that they have a little more leverage in these negotiations now. And I think that they see that they may have a little bit more time as well. All of these court proceedings kind of throw into question the deadline that Trump had set to complete all of these trade negotiations.

That was actually on July 9th. So if you're going to do a deal with the US, you just got a little bit more breathing room and you got a little bit of leverage in these negotiations. Maybe Trump can't drive as hard of a bargain as he would have otherwise.

It's a different law and actually a much more commonly used law, both by the Trump administration in its first term and numerous presidents. This is a really tried and tested law. And so the plan is kind of twofold. The first part would be utilizing what's called Section 122 of the Trade Act.

And this is specifically to address what the law calls balance of payment issues with the other countries. This is kind of like the trade deficit that Trump always... It's the trade imbalance that Trump has been talking about. Yeah, that he always harps on, that he's always hated, right? So the advantage of that is that you can put that in place immediately.

You don't have to do a notice and comment, period. And Trump likes that. He wants to be able to put things in place. Wants to move fast. Wants to move fast.

And so that's where the second part of the plan comes in. The second part is during those 150 days, he would prepare action under a different section of the law. This is Section 301, and this is designed to combat unfair trade practices in other nations.

You need to do a lengthy notice and comment period. You need to have hearings. And the idea is they would tailor these 301 tariffs, as they're called, for each and every major trading partner that he wanted to hit with tariffs.

Exactly. And you have to do a lengthy fact-finding investigation. You've got to notify the other countries. You've got to give industries time to comment. It takes a long time. But they could do that if these emergency tariffs get thrown out in court. That could help them get back to basically the same place where they're at now.

Very much in limbo now, right? I think uncertainty has reigned for months on this tariff front. I just only, I think it only deepened this week, right? You know, if you're a company trying to think about, am I going to invest in the U.S.? Can I get, you know, maybe components that I need from another nation? What is the tariff going to be? That situation is cloudier than ever.

The waters are murkier than ever. And I think that you see foreign governments just kind of scratching their head at us. I think it's just, you know, another day rolling with the punches here. We're just trying to, you know, kind of take it as it comes here. But there's really no end to the drama in sight.

They are quite exposed right now. I mean, the U.S. is the biggest export market for both Mexico and Canada. So this is all battle stations right now. This is a pretty big economic shock to the entire North American economy, the U.S. included.

Meistens nur, dass sie das weiter kämpfen werden, bis die Fentanyl-Toten runterkommen. Ich meine, es ist sehr schwierig zu wissen, was Trump genau will, um diese Tarife zu lösen. Ich habe gerade mit Senator Bill Hagerty hier im Senat gesprochen, einer von Trumps naheliegendsten Allies. If these tariffs go away, do we have any idea what the effect might be?

Du würdest einen großen Rettungsschein sehen. Du würdest einen Bump in den Stockmarkt sehen. Du würdest eine Menge Rettung in den Versorgungszahlen und Märkten sehen, wenn er einen Deal auf diesen Punkt machen konnte. Aber erinnere dich, das ist nur der erste oder zweite Salvo dieser Handelskriege.

Wir haben eine ganze Menge Tarife nächstes Monat auf alles, von Automobilprodukten bis zu pharmazeutischen Produkten. Und dann hat Trump gestern neue Landwirtschafts-Tarife vorgesehen, über die wir noch keine Erkennung gehört haben. Also kommt hier noch viel mehr.

This is only the first or second salvo of this trade war. We have a whole handful of tariffs coming up next month.

Thanks, Alex.

What's remarkable about this case is that it really ties in law, politics, and economics are all here inextricably tied. And what the courts do is going to affect the way the markets and the way that trade policy is seen around the world.

Even when you have lower courts that issue narrower injunctions or injunctions that apply only to the individual parties, if the Supreme Court makes a ruling on what the law requires, then all courts are going to have to follow it. And that's not

In dispute on the tariff thing, certainly we don't know how the Supreme Court would rule, but it is interesting that the Court of International Trade did cite a number of recent Supreme Court decisions that limited the Biden administration's power to do a number of things like involving student debt or COVID relief and so forth.

And similarly, this trade court in New York said that the Trump administration also exceeded its power under these federal statutes. So it is basically some anti-regulatory precedents that came recently from the U.S. Supreme Court are now, for now at least, restricting the Trump administration just like they did the Biden administration before then.

What's remarkable about this case is that it really ties in law, politics, and economics are all here inextricably tied. And what the courts do is going to affect the way the markets and the way that trade policy is seen around the world. So it'll be fascinating to see the interrelations between these different fields of coverage.

Like Trump is dissatisfied with the pace of these negotiations. He and his team certainly don't like to be lectured by EU officials like we saw this week at the G7. And so I think you're seeing a number of things being build up here, there's a lot of ongoing frustrations from the US side.

Not publicly yet, but I think there's going to be a redoubling of an effort to get to a deal here. Treasury Secretary Scott Besson said on Fox this morning, we want to light a fire under the EU. The president is dissatisfied with the pace here. And so far from blowing up the negotiations, I think the two sides are still going to come back to the table.

And maybe this just is the push they need to get some of the more intractable issues solved here.

Tim Cook is probably one of Trump's closest corporate contacts. However, a 25% tariff is going to be felt by consumers of phones in the United States. We're just not going to see another economy or Apple eat that entire tariff. It's going to be significant. But I don't think they can do soup to nuts entire iPhone in the United States for anywhere near the price point.

But it's all about the industrial ecosystem. We simply don't have that here yet. So there's going to be significant challenges to building anywhere near the amount of iPhones that are demanded by U.S. consumers in this country.

You're seeing a number of things build up here. It's hard to know which one is the straw that broke the camel's back, but there's a lot of ongoing frustrations from the U.S. side.

Well, certainly for the EU, they feel out of the blue for them. The European diplomats really felt like they were making progress in these trade talks. Certainly, they did not go to lunch on Friday expecting to see this sort of online missive from the president. But when you ask the administration, the frustrations are kind of multifold here.

We've heard Trump talk often about tariffs and non-trade barriers, about European Union lawsuits against companies like Google, something he brought up in the Oval Office today again. And then I think there are some unstated frustrations as well, especially when it comes to how they want the EU to approach China. And then you just see that this is a little bit of art of the deal stuff, right?

It's all about maximizing Trump's political power over not just people in the United States, not just U.S. politicians, but the global economy as well.

The way to think about Trump's trade strategy here is an extension of his domestic political strategy. What is the one thing that Trump demands from politicians in the United States, from companies in the United States, from the people who work for him? It's loyalty.

We see him in his second term extending that logic to global economics and saying, look, if you want to do business with the U.S., you're going to do it on my terms. I am the alpha. You work for me. And really, he's trying to reshape every U.S. trading relationship at the same time using this strategy. And how is this hardball strategy playing out?

This is really key to his thinking here is that he says we're the largest economy in the world, the largest consumer economy in the world as well, what he calls the big, beautiful store. And he thinks everyone else, which is not false, everyone else does want to sell into the United States. And so as much as anything else, he's using that consumer power in the United States as his leverage.

and saying, if you want to sell into this country, you're going to have to eliminate trade barriers on U.S. goods. You're going to have to maybe spend more on the military. You're going to maybe have to limit your dealings with the Chinese economy. And he's really trying to drive a hard bargain when it comes to this stuff. There are some risks, for instance, in this strategy.

The IMF and World Bank meetings were last week, and we were hearing some whispering among foreign officials that, well, maybe if Trump drives too hard of a bargain here, that they could team up together and try to present a united economic front to Trump and try to dictate the terms of the conversation themselves rather than just receiving them from the United States.

Right now, Trump wants to keep everyone atomized, keep everyone negotiating with him on a bilateral basis rather than a multilateral basis. But don't be fooled. I mean, these countries are talking to each other behind the scenes, even if they won't publicly acknowledge it. Wall Street Journal reporter Gavin Bade. Gavin, good to have you. Thank you so much. Glad to be here.