Plain English with Derek Thompson: Episode Summary - "Why America Will Lose Its Trade War With China"

Release Date: April 16, 2025

In this compelling episode of Plain English with Derek Thompson, host Derek Thompson delves into the intricate dynamics of the ongoing trade war between the United States and China. Joined by Jason Miller, a professor of supply chain management at Michigan State University, Thompson unpacks the multifaceted challenges and consequences arising from the escalating tariffs and disrupted supply chains.

1. Reindustrialization and Economic Shifts

Reindustrialization has become a buzzword in economic circles, especially in the context of the US attempting to regain its former manufacturing prowess. Thompson explains that reindustrialization isn't merely about reviving old industries but investing in modern, technologically advanced sectors that align with 21st-century standards.

"Reindustrialization should not just mean turning back the clock and reviving the economy that made us the richest country on the planet in the 1950s. We need to invest in the industrial economy that will make us rich in the 2000 and 50s."
— Derek Thompson [01:40]

However, achieving this shift is far from straightforward. The decline in manufacturing jobs over the past 25 years, coupled with China's ascendancy as the global manufacturing hub, presents significant hurdles. Reindustrialization demands substantial investments in new factories, workforce training, and advanced technologies—elements that require time and clear policy direction.

2. US-China Trade Policies and Tariffs

The trade policies under the Trump administration have been characterized by a "yo-yo" approach, creating uncertainty and instability in international trade relations. Thompson outlines the rapid escalation of tariffs from 10% to 145% on Chinese goods within a short span, illustrating the unpredictable nature of US trade strategy.

"The US is in the opening innings of a full blown trade war with China."
— Derek Thompson [06:56]

Jason Miller adds to this by highlighting the confusion and lack of clarity among businesses trying to navigate these fluctuating policies.

"I haven't spoken to a single trade expert or manufacturing executive who says this yo-yo approach to trade is the best way to reshape the global order."
— Derek Thompson [06:56]

3. Impact on Supply Chains and Business Decisions

The imposition of high tariffs has thrown businesses into a state of paralysis, with uncertainty hindering investment and operational decisions. Miller emphasizes how companies are struggling to determine whether to shift production to alternative countries like Vietnam or wait for potential trade deals that may reduce tariffs.

"When things are uncertain, you naturally hit the pause button."
— Jason Miller [09:05]

This indecision leads to reduced business activity, delayed investments, and potential losses in revenue. The complexity of global supply chains means that even minor disruptions can have cascading effects across multiple industries.

4. Dependency of US on Chinese Manufacturing

A significant portion of American imports originates from China, especially in sectors like electronics, child safety products, and household appliances. Miller provides a detailed breakdown of these dependencies:

"In 2024, 81% of smartphones that we imported came from China."
— Jason Miller [13:04]

The sheer scale of this dependency means that replacing Chinese manufacturing with domestic production is neither feasible nor cost-effective in the short term. The interconnectedness of global supply chains further complicates any attempts to sever ties without substantial economic repercussions.

5. Consequences for Consumers and Small Businesses

The immediate impact of escalating tariffs is felt by American consumers through higher prices and limited product variety. Miller points out that products like electric toasters and child safety seats could see price increases of up to 100%.

"The consumer is going to see less variety and for the goods that are brought in, they're going to face a higher price."
— Jason Miller [16:56]

Small businesses, especially retailers dependent on affordable Chinese imports, face existential threats. The unpredictability of tariffs makes it challenging for these businesses to plan and sustain operations.

"This tariff war will put tens of thousands of small retailers... out of business if this stays in place for six months."
— Jason Miller [40:49]

6. Winners and Losers in the Trade War

Contrary to the narrative that trade wars yield clear winners, both the US and China face significant disadvantages. However, certain sectors and countries might benefit indirectly. Miller identifies Mexico as a potential unintended beneficiary due to its position within the USMCA agreement, which remains intact despite the trade tensions.

"The biggest winner of all of this likely is actually Mexico..."
— Jason Miller [36:58]

Moreover, Thompson argues that China's strategic maneuvers, such as engaging in trade agreements with South Asian nations, may position it advantageously despite the tariffs imposed by the US.

"Probably the biggest winner out of all of this is China..."
— Jason Miller [39:27]

7. The Asymmetric Dependency Dilemma

A critical issue highlighted is the asymmetry in dependency between the US and China. While the US relies heavily on China for a multitude of intermediate goods essential for various industries, China's export portfolio to the US is more diversified, allowing for greater flexibility in sourcing alternative markets.

"For some product categories it does feel like China has potentially more ability to go elsewhere."
— Jason Miller [33:47]

This imbalance means that while the US struggles to find alternatives for essential imports, China can relatively more easily redirect its exports, exacerbating the disadvantages faced by American industries and consumers.

8. Future Outlook and Recommendations

As the trade war continues, the consensus between Thompson and Miller is that nobody truly wins. The economy suffers from increased costs, reduced efficiency, and lost opportunities for growth and innovation. Miller emphasizes the need for a strategic and coherent trade policy that fosters clear guidelines and long-term investments in reindustrialization.

"We need clarity on America's trade policy to invest over time in our new reindustrialized future."
— Derek Thompson [06:56]

Without such clarity, the US risks prolonging economic uncertainty, diminishing its competitive edge, and ultimately losing ground in the global economic landscape.

Notable Quotes

• Derek Thompson [01:40]:
  "Reindustrialization should not just mean turning back the clock and reviving the economy that made us the richest country on the planet in the 1950s. We need to invest in the industrial economy that will make us rich in the 2000 and 50s."

• Jason Miller [09:05]:
  "When things are uncertain, you naturally hit the pause button."

• Jason Miller [16:56]:
  "The consumer is going to see less variety and for the goods that are brought in, they're going to face a higher price."

• Jason Miller [40:49]:
  "This tariff war will put tens of thousands of small retailers... out of business if this stays in place for six months."

• Jason Miller [39:27]:
  "Probably the biggest winner of all of this is China..."

Conclusion

The episode "Why America Will Lose Its Trade War With China" serves as a sobering analysis of the complexities and unintended consequences of protectionist trade policies. Through insightful discussions with expert Jason Miller, Derek Thompson elucidates how the intertwined nature of modern supply chains and the profound economic dependencies between the US and China render trade wars counterproductive. As the US grapples with its reindustrialization goals, a clear, strategic, and coherent approach to trade policy emerges as essential for fostering sustainable economic growth and maintaining global competitiveness.