Trump’s Tariff Whiplash

Summary

Summary of "Trump’s Tariff Whiplash" – The Journal Podcast

Episode Title: Trump’s Tariff Whiplash
Release Date: February 3, 2025
Hosts: Kate Linebaugh, Ryan Knutson, Jessica Mendoza
Production: The Wall Street Journal & Gimlet

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1. Introduction: Escalation of the Trade War

On February 3, 2025, "The Journal" delved into the sudden escalation of the trade war initiated by the Trump administration. Host Kate Linebaugh opened the discussion by highlighting President Trump's announcement of significant tariffs imposed on the United States' three largest trading partners: Canada, Mexico, and China.

2. Details of the Tariffs

Gavin Bade provided a breakdown of the new tariffs:

• Canada and Mexico: 25% tariffs on most goods, excluding crude oil and energy products, which faced a 10% tariff ([00:19]).
• China: A flat 10% additional tariff on all imports ([00:33]).

Bade emphasized the unprecedented nature of this action, stating, “dollar for dollar, we're looking at a tariff action that is larger than anything Trump did in his first term,” and noted the rapid implementation, with tariffs set to take effect the very next day ([00:31], [00:57]).

3. Immediate Political Reactions and Potential Trade War

The announcement triggered immediate reactions:

• Canada and Mexico: Both nations prepared to retaliate with similar tariffs. Bade warned of a potential spiral into a full-blown trade war, mentioning, “you can really see how this could spiral into even more of a trade war than we're having already” ([01:27]).
• U.S. Industries: Key sectors, particularly the automotive industry, urgently lobbied for exemptions, citing integrated North American supply chains. However, Trump declined these requests, preferring to impose tariffs broadly ([08:19], [09:08]).

4. Trump’s Rationale Behind the Tariffs

The discussion shifted to understanding President Trump's motivations:

• Illegal Fentanyl Trade: Trump cited the influx of fentanyl and precursor chemicals from China, passing through Canada and Mexico, as a primary reason. The administration aimed to pressure these countries into curbing the illegal drug trade ([05:45]).
• Illegal Migration: Another stated goal was to halt illegal immigration through Mexico. Trump connected tariffs to Mexico's cooperation in border security ([05:45]).
• Trade Disputes: Lingering issues from the United States-Mexico-Canada Agreement (USMCA), signed in 2020, also fueled the tariff imposition. Trump expressed dissatisfaction with continued automotive manufacturing in neighboring countries, desiring a return of production to the U.S. ([05:45], [07:01]).

5. Economic Impact on the U.S. Economy and Consumers

Kate Linebaugh highlighted investor concerns as stock markets reacted negatively to the tariff announcements. Economists, as Bade reported, uniformly predicted higher consumer prices and reduced economic growth due to increased costs of imported goods ([11:32], [11:58]).

Bade elaborated on the immediate effects, noting that sectors like agriculture and automotive would see price hikes within weeks. For instance, winter vegetables from Mexico and various auto parts crossing the U.S.-Canada border multiple times would become more expensive due to the new tariffs ([12:19], [13:12]).

6. Developments: Temporary Tariff Pause After Concessions

Amidst the tariffs, negotiations led to a temporary pause:

• Mexico: President Claudia Sheinbaum agreed to deploy 10,000 National Guard members to combat drug trafficking and prevent the flow of high-powered weapons into Mexico. In return, Trump paused the tariffs for 30 days ([14:15], [14:44]).
• Canada: Prime Minister Justin Trudeau committed to reinforcing border security with new helicopters and technology and appointing a fentanyl czar. This agreement also resulted in a 30-day tariff suspension ([15:36]).

7. Analysis: Trump’s Strategic Use of Tariffs

Gavin Bade provided a deeper analysis of Trump's strategy:

• Punitive Measures: Trump employed tariffs as tools to address non-trade issues like drug trafficking and illegal migration, diverging from traditional economic justifications for tariffs ([16:19]).
• Future Tariffs: He hinted at imposing tariffs on critical sectors such as semiconductors and pharmaceuticals, potentially using tariffs to finance tax cuts—a strategy unprecedented in over a century in the U.S. ([16:19]).
• Global Leverage: Bade warned that Trump's continued use of tariffs as leverage could strain international relations, particularly with China, posing risks to American manufacturing dependent on Chinese-manufactured critical components ([17:27]).

8. Conclusion: The Road Ahead

The episode concluded with Trump planning discussions with Chinese leadership to address the tariffs, indicating that the current 10% tariffs were merely an initial move with “future tariffs [being] very, very substantial” ([18:23]). The temporary pause provided little assurance of long-term stability, as the threat of increased tariffs remained a potent tool in Trump's foreign policy arsenal.

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Notable Quotes:

• Gavin Bade ([03:23]): "Trump wants to use tariffs in the classical sense of building American manufacturing."
• Gavin Bade ([07:31]): “Canada and Mexico have basically said, tell us what you want us to do on this and we will do it.”
• Gavin Bade ([11:58]): “Higher prices and that means lower economic growth for the American economy.”
• Gavin Bade ([15:03]): “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.”

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This episode of "The Journal" provided an in-depth examination of the sudden imposition of tariffs by the Trump administration, exploring the multifaceted implications for international relations, the U.S. economy, and global trade dynamics. By dissecting the motivations, immediate responses, and potential long-term consequences, the hosts and expert guests offered a comprehensive understanding of the complexities surrounding Trump's trade policies.

Transcript

[Kate Linebaugh]

On Saturday, Trump's trade war began. His administration announced major tariffs on the country's three biggest trading partners, Canada, Mexico, and China.

[Gavin Bade]

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.

[Kate Linebaugh]

That's our colleague Gavin Bade, and then.

[Gavin Bade]

A 10% additional tariff on all imports from China, which is our third largest trading partner. 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.

[Kate Linebaugh]

When were these tariffs set to go into effect?

[Gavin Bade]

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

[Kate Linebaugh]

Does this lead to a trade war?

[Gavin Bade]

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. 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 a, even more of a trade war than we're having already.

[Kate Linebaugh]

But before those tariffs could go into effect, a pause was put in place for Mexico and Canada after the two countries made concessions. And Trump is planning to talk to China in the next day. Welcome to the Journal, our show about money, business and power. I'm Kate LINEBAUGH. It's Monday, February 3rd. Coming up on the show, Trump's trade war. Is it on or is it off?

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[Kate Linebaugh]

Trump has said he loves tariffs. I always say tariffs is the most.

[Gavin Bade]

Beautiful word to me in the dictionary.

[Kate Linebaugh]

Why? What does Trump want to use tariffs for?

[Gavin Bade]

Trump wants to use tariffs in the classical sense of building American manufacturing. So, you know, 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.

[Kate Linebaugh]

Can you tell us what are tariffs and how have governments historically used them?

[Gavin Bade]

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

[Kate Linebaugh]

Like a tax.

[Gavin Bade]

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 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.

[Kate Linebaugh]

On the day he was inaugurated, Trump said he'd impose these tariffs on Mexico and Canada. 25% tariffs. Was that a surprise?

[Gavin Bade]

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.

[Kate Linebaugh]

But this round of tariffs isn't rooted in that kind of classical economic thinking you talked about earlier. Tell us about the rationale the Trump administration is using to impose these tariffs.

[Gavin Bade]

So there's a few general motivations here. Generally speaking, Trump has said that, 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. 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 US Mexico Canada agreement that he signed. Right.

[Kate Linebaugh]

That's the new NAFTA.

[Gavin Bade]

The new NAFTA, yes. So Trump signed this in 2020. He said it was the best deal ever and now is, you know, 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, you know, 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.

[Kate Linebaugh]

Trump's tariff plans sent Canadian and Mexican officials into a scramble.

[Gavin Bade]

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 Levitt, 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.

[Caroline Levitt]

The President has also put out specific statements in terms of Canada and Mexico when it comes to what he expects in terms of border security. We have seen a historic level of cooperation, separation from Mexico.

[Kate Linebaugh]

But again, as far as US Industries also started lobbying the Trump administration over the tariffs, asking for delays and even exemption.

[Gavin Bade]

There were a lot of US 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 US 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.

[Kate Linebaugh]

On Saturday, the Trump administration announced that these 25% tariffs on Canadian and Mexican goods and the 10% tariffs on Chinese goods would go into effect tomorrow morning. And after he announced that this was actually going to happen, how did the governments of Canada, Mexico and China react?

[Gavin Bade]

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 much more forceful response.

[Kate Linebaugh]

Here's Canadian Prime Minister Justin Trudeau.

[Gavin Bade]

Canada will be responding to the US trade action with 25% tariffs against 155 billion worth of American goods.

[Kate Linebaugh]

Canada said it would put tariffs on US Imports ranging from fruits and vegetables to appliances, motorcycles and alcohol. Mexican President Claudia Sheinbaum said the country was prepared to respond with tariffs and other measures. And she said yesterday that, quote, problems are not solved by imposing tariffs, but through discussion and dialogue.

[Gavin Bade]

No esco limposicion de los aranseles Comos er resolven los problemas Si no hablando.

[Kate Linebaugh]

Yando como luisimos prestos quiero contar.

[Gavin Bade]

There's a lot of US 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.

[Kate Linebaugh]

How will these tariffs affect the US Economy and consumers? Is after the break.

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[Kate Linebaugh]

This looming trade war has spooked investors who fear it will deal a blow to the US Economy. This morning, stock markets opened sharply lower. Trump said yesterday in a social media post that there will be some pain from the tariffs, but, quote, it will all be worth the price that must be paid. What do economists say will be the impact of these tariffs on the U.S. economy?

[Gavin Bade]

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

[Kate Linebaugh]

Can you like, list through for me some of the products that will be affected?

[Gavin Bade]

Yeah, I mean, just off the top of my head, I mean, I just, I, 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 US And Canada, in a lot of cases before it's processed into whatever, a hamburger or beef jerky or whatever. 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.

[Kate Linebaugh]

How will this trade war affect the U.S. economy and U.S. companies and U.S. consumers?

[Gavin Bade]

It could be really, really drastic these, 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.

[Kate Linebaugh]

How quickly will American consumers be affected?

[Gavin Bade]

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 an uncharted territory here when it comes to this magnitude of tariffs being enacted this quickly. So all I can say is bad and soon.

[Kate Linebaugh]

Oh, hold on. Sorry, I'm just seeing a headline.

[Gavin Bade]

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

[Kate Linebaugh]

Mexican President Claudia Sheinbaum tweeted that she had a good conversation with President Trump. We reached a series of agreements. Deploy 10,000 members of the National Guard to prevent drug trafficking. The US Is committed to working to prevent the trafficking of high powered weapons to Mexico. The teams will begin working today on two fronts, security and trade. And they're pausing the tariffs for one month from now.

[Gavin Bade]

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.

[Kate Linebaugh]

So there's still 30 days. The threat of the tariffs remains.

[Gavin Bade]

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 US 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.

[Kate Linebaugh]

This afternoon, a deal for Canada came through as well after a call between Trump and Trudeau. Canada agreed to reinforce the border with new helicopters and technology, and Trudeau said nearly 10,000 frontline personnel will be working on protecting the border. Canada also said it will appoint a fentanyl czar. Trump agreed to pause the tariffs for 30 days. One of the things you've said is that Trump is using tariffs to handle non trade related issues. What, like in your reporting? What do people say that that reveals about his strategy?

[Gavin Bade]

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 gonna put tariffs on semiconductors, we're gonna 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 raising money for the US 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.

[Kate Linebaugh]

What are you looking for next?

[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, you know, processing critical minerals or many, you know, many products that US Manufacturers need for their, 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, get his negotiation done and back down, Right. At some point, he runs the risk of being the boy who cried tariffs. Foreign.

[Kate Linebaugh]

Trump said that he plans to speak with Chinese leadership about tariffs in the next 24 hours. He said the 10% tariffs that go into effect at midnight tonight were just an opening salvo, adding that future tariffs would be, quote, very, very substantial. That's all for today. Monday, February 3rd. The Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Vipal Manga, Brian Schwartz and Santiago Perez. Thanks for listening. See you tomorrow.