← POLITICO Tech
POLITICO Tech
Trump’s (latest) tech war with China begins
00:17:22
President Donald Trump may have hit pause on tariffs against Mexico and Canada, but his trade penalties on China are still in place. That includes a 10 percent tariffs on all Chinese imports, including consumer electronics and other tech products. On POLITICO Tech, host Steven Overly talks to Chad Bown, a senior fellow at the Peterson Institute for International Economics, about the implications for tech companies and online retailers in both the U.S. and China.
Loading summary
Transcript30 lines
- [00:00]
Ryan Reynolds
Ryan Reynolds here from Mint Mobile with a message for everyone paying big wireless way too much. Please, for the love of everything good in this world, stop with Mint. You can get premium wireless for just $15 a month. Of course, if you enjoy overpaying. No judgments. But that's weird. Okay, one judgment anyway. Give it a try@mintmobile.com Switch upfront payment.
- [00:22]
Chad Bowen
Of $45 for 3 month plan equivalent to $15 per month required intro rate first 3 months only, then full price plan options available, taxes and fees extra.
- [00:29]
Stephen Overle
See full terms@mintmobile.com foreign hey, welcome to POLITICO Tech. Today's Thursday, February 6th. I'm Stephen Overle. At the time I'm recording this show, President Donald Trump's latest tariffs on China are still in place. But all week trade news has been changing fast. Trump rattled markets earlier this week by slapping tariffs on Mexico, Canada and China. Then a few days later, he postponed the tariffs on Mexico and Canada for one month after they agreed to amp up border security and fight the trafficking of fentanyl. But no deal has been made with China and in fact, Beijing just bit back with trade penalties of its own. In some ways, this all feels reminiscent of the trade war with China during Trump's first term, and few know that better than Chad Bowen. Chad followed those events closely as a senior fellow at the Peterson Institute for International Economics, where he also used to host the popular trade talks podcast. Chad took a year off to join the Biden administration as the chief economist of the State Department, but now he's back at the Peterson Institute just in time for a new trade war to begin. On the show today, we dive into the implications for tech companies and online retailers, both in the US and in China. Here's our conversation. Chad, welcome to Politico Tech.
- [02:09]
Chad Bowen
Thanks for having me.
- [02:11]
Stephen Overle
So I've been trying to have a conversation about trade for the last few days and this story keeps shifting on me. Tariffs are coming, then they're on hold. Maybe they'll be back, maybe not. And been a lot to keep track of.
- [02:23]
Chad Bowen
100% we originally thought dating back to last week and then the executive order that was released by the Trump administration over the weekend that this tariff story might be all about. New US tariffs on Canada and Mexico, 25% massive, not done in the first Trump administration and then their retaliation. Those went away on Monday and with they struck deals or at least temporarily for 30 days. But we're still left with some tariffs that actually went into effect as of, you know, midnight 01 on Tuesday morning. And they're now 10% and it's on everything that we import from China. So it is still a big story.
- [03:03]
Stephen Overle
Which is a lot of stuff.
- [03:04]
Chad Bowen
It's a lot of stuff.
- [03:05]
Stephen Overle
Yeah, a lot of stuff. And let's talk about those because they do remain in place, at least for now. How much does a 10% tariff move the needle in the US China trade relationship?
- [03:16]
Chad Bowen
Well, you know, China's a top three import source for the United States despite the first Trump administration imposing tariffs on, you know, at the time it was almost two thirds of what we were buying from China. Some of those rates were at 25%. These are quote, unquote, only 10%. So it's a slightly lower rate, but now it's hitting everything. And a lot of what we have been buying from China has shifted over that time period. So we're buying much less of the stuff that has the old tariffs on it and we started shifting more toward the things that don't have tariffs on that. And a lot of that is, you know, consumer electronics. So we have a whole set of new things that have never been hit with tariffs by the Trump administration before that are suddenly going to, you know, face 10% tariffs overnight.
- [04:06]
Stephen Overle
Yes. The first time around, tech in some ways got kind of lucky. A lot of tech companies, tech products escaped the tariffs that Trump put on China in his first term. That's not the case now. They are being hit by these new tariffs and China has retaliated. I want to note Beijing has put tariffs on American coal and gas and farm equipment and some other products. But being a tech podcast, it was especially notable to me that they've announced an anti monopoly investigation into Google. Is this just the beginning, especially for US Tech firms?
- [04:39]
Chad Bowen
I do think it probably is. During the first Trump administration, China back and forth, back in the 2018-2020 period, it was really just about tariffs on the Chinese side in terms of their retaliation or their response. Even though on the US Side ultimately it did get into things like export controls. You remember what happened with Huawei and then export controls sort of at the very end on smic, the semiconductor manufacturer. But this time around, yeah, it looks like it's not only tariffs hitting tech products for the first time, but we have seen the tech industry over the last couple of years be caught up more in the US China tensions, but sometimes through different instruments. You know, it's the antitrust probe that you've talked about. It's also some of these export controls as well.
- [05:28]
Stephen Overle
Right.
- [05:28]
Chad Bowen
China also announced that they're going to have an Additional expanded export licensing regime for some of these critical minerals, raw materials, rare earths that are essential for a lot of tech products. They've been doing some of that over the last couple of years already, but they kind of, really, to some extent, haven't laid the hammer and really cut things off. And so there's a question of is this going to be an escalation of what they're doing in that space and through those types of instruments as well.
- [05:57]
Stephen Overle
Right. I think they recognize that tech is a real pressure point for the U.S. right. Obviously, these are big, lucrative companies, but, you know, a company like Google, for instance, you know, bringing an antitrust monopoly investigation against Google isn't a lot of skin off China's back, but certainly puts the company in the US under some pressure, I think. You know, one change that Trump has made as well is closing what's known as the de minimis exemption for China. And it used to be that packages worth less than $800 didn't have to pay customs duties or tariffs. That's no longer the case. How big is the practical impact of that?
- [06:36]
Chad Bowen
It's sizable. Right. And so I think what we had seen in the data since, say, the start of the, you know, the trade war, so back in 2017, these de minimis shipments, they were there, but they really have exploded over the last six or seven years. Some of that is these amazing Chinese companies, Temu Shein, being really innovative in their business model and creating these, you direct from retailer to American consumer networks and kind of cutting out a lot of the middleman to really do things at low cost. But some of this was also arguably in response to the trade war itself, because these shipments that came in under this exception, the de minimis exception, wouldn't be subject to the Section 301 tariffs. Right. And so this is a way to kind of get around those kinds of things. And so what the Trump administration has done has closed off that piece. And so now it's really going to have a, you know, we'll see what the response is. It could affect not only the Temu and Shein business model. Maybe they now become more like an Amazon in terms of how it is that they try to reach consumers working through warehouses and, you know, in the United States and things of that nature as well. But I think it also, this is another way it could potentially affect American consumers. Right. Some of these products, some of the shippers don't know how they're going to respond to this if they're going to just shut this down and not ship, you know, the goods that they had been shipping last week from these Chinese retailers to American consumers. So there might be, you know, in a sense, shortages, products just kind of disappearing that American consumers are used to buying or, and probably as well, higher prices for an American consumer is that now all of a sudden are going to have to pay those tariffs, other kinds of administrative fees and things of that nature too.
- [08:32]
Stephen Overle
Right. I was going to say, you know, the rise of these companies has obviously coincided with a lot of the concerns about inflation and rising costs on consumers. And I think the first reaction to the de minimis change for a lot of folks has been, you know, is this a death sentence for Temu and Wish and she. And because their whole business model really is built around this, it sounds like that could be the case, but they may be able to pivot in some way and find kind of a different way to serve American consumers.
- [09:00]
Chad Bowen
Yeah, I wouldn't be surprised. Right. These are, these are now pretty big companies. They're pretty smart. You know, they were probably anticipating that something like this was not completely off the table in terms of, you know, the United States approach. And even under the Biden administration, right. There was going to be, there were, you know, proposed regulatory changes to the de minimis requirement that they, that these companies were already on notice and having to think about these things. And so there's a lot of smart people that work there. They're probably, you know, thinking about alternative business strategies. Wouldn't be surprised to see them be successful in an adaptation of their business model to become a more like a Amazon in terms of their approach.
- [09:42]
Susan Ettlinger
The PC gave us computing power at home, the Internet connected us and mobile let us do it pretty much anywhere. Now generative AI lets us keep communicate with technology in our own language, using our own senses. But figuring it all out when you're living through it is a totally different story. Welcome to Leading the Shift, a new podcast for Microsoft Azure. I'm your host, Susan Ettlinger. In each episode, leaders will share what they're learning to help you navigate all this change with confidence. Please join us, listen and subscribe wherever you get your podcasts.
- [10:13]
Stephen Overle
American businesses generally have been opposed to Trump's tariffs, and obviously the stock market responded pretty poorly to them when they were announced this time around, closing the de minimis exemption though, seems like the kind of thing that some companies might celebrate. You know, I'm thinking of like Amazon and Walmart and some e commerce companies in the US Is that the case? Is this a win for them?
- [10:38]
Chad Bowen
Yeah, I Think anytime you see a policy change like this, there's going to be some winners and some losers. So we talked about how it's likely that there will be losers in terms of American consumers that are now gonna be having to pay higher prices. Interestingly, there's academic research to, you know, to kind of point out that a lot of those consumers are the least well off in society. Right. They're the ones benefiting the most from access to these kinds of, these kinds of platforms. But certainly there will be American companies that now face less competition from, you know, the Shein and Temu's of the world that are probably gonna benefit from this, you know, at least in the immediate term. Absolutely.
- [11:15]
Stephen Overle
You know, you and I spoke a bunch in the past about the impacts of Trump's first trade war with China, and particularly the phase one trade agreement that he reached with Beijing. We're obviously on the onset of his second administration. But I wonder how different this trade fight looks to you so far in particular as it relates to kind of tech companies, you know, which are such a big part of the US Economy.
- [11:42]
Chad Bowen
The first trade war back in the first Trump administration was really a very slow moving beast. Right? So this was done under U.S. trade law called Section 301. And the investigation started in August of 2017. They did a big report. Tariffs initially didn't go on until, gosh, it was the summer of 2018. And then initially it was only on $50 billion worth of products. China retaliated, then it was expanded and it kind of continue throughout another year and a half, say. And along that way, along that process, sometimes American tech companies did get caught up in those tariffs, or at least it looked like it initially. I remember, I think it was like Fitbits and Apple watches. One of the tariff rounds was going to include their products just the way this technical thing of the harmonized Tariff Schedule is laid out. And so they had to create new categories in the U.S. tariff schedule to basically exempt those products to make sure they weren't going to get hit with, with tariffs. That's the kind of thing that's only going to happen if the tech industry is, you know, really does have the ear of the, of the administration this time around. Not so clear. A lot of their products are likely to get caught up in these tariffs. Now, obviously part of the tech industry is certainly having influence elsewhere within the Trump administration, but certainly when it comes to tariffs, things might be different this time around.
- [13:09]
Stephen Overle
You know, I'm curious, you spent the last year as the chief economist at the State Department under President Joe Biden. How much was the tech economy kind of part of your job? You know, as tech has sort of become a larger share of the global economy, it not only underpins so much of our trade, but so much of our geopolitics. How big of a focus was that for you?
- [13:30]
Chad Bowen
I think it was a really, really big focus for the Biden administration thinking about artificial intelligence. Right. And what the implications of all of these technological developments and innovations and advancements are. Tech is everywhere, in a sense. There was other parts that, you know, we were. We were very much worried about the supply chains and the inputs, again, those critical minerals and raw materials that you need to make all of those really cool tech products too. So it was. Wasn't 24 7, but there were certainly parts of my every day and in every day that I did spend thinking about some aspect of tech supply chain or tech policy. Absolutely right.
- [14:10]
Stephen Overle
No, I mean, that makes so much sense. And I'm curious, you know, tech companies generally like global standards and they like consistency. You know, these are companies that operate all around the world. Their supply chains, like you said, extend all around the world. And we're seeing under the Trump administration a pullback for the US From a lot of global institutions. I wonder, as you sort of look ahead, what effects of that do you think we should watch for as it relates to the tech economy?
- [14:39]
Chad Bowen
I think you do see that, but a lot of that was trending in that direction and not just because of US Actions as well. China bears a fair amount of responsibility and culpability in this space for trying to have a separate tech ecosystem, you know, for its Internet and the restrictions that are placed on American and Western companies, certainly in getting access to the Chinese market. So I don't want to lay the blame here entirely on the United States, but I think it's certainly happening. Right. And so it affects not only the companies and the different regulatory environments that they're going to be facing as they try to get access to different markets. They may find themselves now being caught up in what other countries are doing when it comes to retaliation, as we've seen, China is just this, this first example. But the administration has signaled, you know, as we already saw over this past week, threatening tariffs on Canada and Mexico. What happens if they similarly do that with the European Union? Right. Which has had a much stronger hand in regulating tech companies. Might they choose to try to regulate those tech companies differently? So I think that's something to watch out for, getting those, those kind of global standards out there. Requires working with super boring, but very important global standard setting bodies and engaging with those things actively as well. And we'll have to see if that's something that the Trump administration really takes seriously and puts time and effort and resources toward doing to really further, you know, continue to maintain the American tech industry's, you know, advantage in that area as well. So there's a lot of things in that space that are definitely going to be worth keeping an eye on.
- [16:17]
Stephen Overle
No shortage of news to talk about. Chad, thanks for being here on Politico Tech.
- [16:21]
Chad Bowen
Thanks for having me.
- [16:26]
Stephen Overle
That's all for today's Politico Tech. If you enjoy Politico Tech, please subscribe. And for more tech news, subscribe to our newsletters, Digital Future Daily and Morning Tech. Our managing producer is Annie Reiss. I'm Stephen Overle. See you back here tomorrow.