Putting Economic Pressure on Russia and New Tariff Agreements

Summary

The Trade Guys – Episode Summary

Episode Title: Putting Economic Pressure on Russia and New Tariff Agreements

Date: July 28, 2025
Host: CSIS (Center for Strategic and International Studies)
Guests: Scott Miller, Bill Reinsch, Phil Luck (Director of the Economics Program at CSIS)

Episode Overview

In this episode, “The Trade Guys” dive into the mounting economic pressure the United States is leveraging on Russia via tariffs and sanctions, as well as unpacking several recently announced “reciprocal” tariff agreements between the US and major trading partners. With Phil Luck returning to provide depth on Russia, the team dissects the effectiveness of current and proposed policies, considers global market impacts, and reflects on the new strategies guiding US trade agreements. Expect a candid, in-depth discussion with sharp policy insights, unanswered questions, and a few laughs.

---

Key Discussion Points & Insights

1. US Economic Pressure on Russia

Starts at [01:15]

• New Secondary Tariffs Proposal: Discussion begins with the Senate’s bill proposing 500% tariffs on countries buying Russian oil and other goods, and the President’s ultimatum threatening 100% secondary tariffs if there’s no Ukraine peace agreement in 50 days.
• Phil Luck’s Analysis: Phil underscores the potential global economic chaos these secondary tariffs could create:

  “If this were to go in place... it would either mean we had 500% tariffs on China, India, Brazil and others... or it would take an enormous amount of oil off the global market and it would spike oil prices.” – Phil ([02:30])

• Oil Price Cap – Toothless?: The oil price cap, intended to curb Russian revenue, is being widely flouted using a “shadow fleet” of vessels, with over 95% of Russian oil reportedly selling above the cap. ([04:04])
• How to Strengthen Sanctions: Phil advocates for sanctioning more violating ships and targeting oil refineries buying Russian oil above the cap, suggesting:

  “You separate them from the Western financial system... take them out of SWIFT.” – Phil ([05:43])

• Sanctions: Diminishing Returns? Scott reflects that “diminishing returns set in on all economic actions, including sanctions,” especially for inelastic commodities like oil. ([05:50])
• Effectiveness and Endgame:
  • Scott suggests the conflict’s end is looming and Russia holds more favorable options now. Phil disagrees, arguing sanctions have had real effects (e.g., ballooning Russian private sector debt). ([08:12])

2. US Tariff Agreements with Trading Partners

Starts at [11:05]

• Flurry of Reciprocal Deals: Announcements for deals with Indonesia, the Philippines, Japan (adding to UK and Vietnam) are noted, but Bill quickly points out the lack of detail:

  “The announcements are here, the facts are not... It’s a brilliant political strategy.” – Bill ([11:40])

• Political Spin vs. Legal Details: The White House’s press strategies set the media narrative before details are released, with contrasts between what the US and foreign partners say (especially about what becomes duty-free). For example, Indonesia limits US duty-free goods to those that don't compete with domestic products. ([12:30])
• The ‘Transformation’ Issue: Bill hones in on the ambiguous definition of “transformation” – crucial for rules of origin:

  “Transformation can range from fraud… to legitimate transformation. How they define the term is going to be very important.” – Bill ([13:30])

• Are These Agreements Meaningful? Essentially, these are “framework executive agreements” – not legally enforceable or approved by Congress. Negotiated outcomes are squishy, leaving room for ongoing renegotiation. Partners fear the US will keep “moving the goalposts.” ([15:00])

3. Comparing Policy with Past Approaches

Starts at [16:29]

• Scott’s Perspective: The current administration’s disruptive, bilateral tariff deals are contrasted with the stalled, multilateral efforts of the past. Despite the uncertainty and impact on international businesses, Scott posits that, politically, these are “wins”—especially given strong economic fundamentals (jobs, inflation, markets, capital inflow).
• Retaliation and Decoupling: Phil and Scott debate whether partners have truly retaliated, with the US seemingly on a “decoupling” path with China, especially in critical sectors. ([18:28])

4. Economic Impact of Recent Tariffs

Starts at [19:09]

• Have Tariffs Mattered Yet? Phil argues that, despite the hype, the only tangible outcomes so far are higher tariffs and minimal new market access (slightly more rice to Japan, for instance). Ongoing litigation may affect the durability of these tariffs, especially pending Supreme Court decisions. ([19:09]-[21:33])
• Who Benefits from Tariff Revenue? Scott notes Congress is happy with the increased, tax-like tariff revenue, as it doesn't appear as a direct tax on constituents. ([21:33])

5. Short-term Effects and “Placebo” Politics

Starts at [22:20]

• Why Haven’t Tariffs Caused More Pain? Phil attributes this partly to delays in implementation, stockpiling, and the lagging effect on inflation—though the pain may yet arrive.
• “Placebo Effect” Analogy: Scott recalls Richard Baldwin’s analogy that trade policy can be like a placebo—providing “symptomatic relief” and political benefit even if real economic gains are unclear. ([23:36])
• Who Feels the Pressure? Large US firms can adapt, but small and medium enterprises lack market power to absorb tariffs or shift supply chains. ([25:04])

6. Labor Market & Migration Trends

Starts at [26:04]

• Migration and Labor Shortages: Despite political attention on deportations, net migration has dropped to zero, feeding into rising labor demand and wage gains, particularly in blue-collar sectors. Bill and Scott observe this supports Trump’s campaign narratives.
• Risk of Shortages & Inflation: But higher wages also risk future inflation, especially in sectors like construction. ([27:15])
• Construction, Housing, and Deportations: Phil cites his research linking immigration enforcement to job losses for US-born workers in sectors dependent on migrants, affecting housing and building rates. ([28:43])

7. Looking Ahead: Upcoming Deals and Political Calculus

Starts at [29:15]

• Who Will Be the “Victim” of Tariffs? Bill predicts Trump will need to show toughness by hitting one or two partners particularly hard. The EU may grudgingly settle for a less-bad deal, while South Korea and India remain wildcards.
• Pattern Bargaining: Scott likens the situation to labor negotiations, with countries watching neighbors’ outcomes and angling to avoid losing ground. “This is lap one of the Trump 500.” ([32:25])
• Divide and Conquer in Europe: Phil highlights the danger if Europe’s “anti-coercion instrument” lets member states pursue their own responses, risking US efforts to divide them. ([32:53])

---

Notable Quotes & Memorable Moments

• On Tariff Proposals:

  “It would either mean we had 500% tariffs on China, India, Brazil and others, which would be basically an embargo, or it would take an enormous amount of oil off the global market and it would spike oil prices. So either one of those things would be really quite dramatic.” – Phil ([02:24])

• On Oil Price Cap Enforcement:

  “With the oil price cap... you have a shadow fleet... oil is going out of Russia regardless, all above the oil price cap.” – Phil ([04:04])

• On Defining “Transformation”:

  “Transformation can range from fraud... to legitimate transformation... how they define the term is going to be very important.” – Bill ([13:35])

• On Political Strategy:

  “The announcements are here, the facts are not. And so what we're paying attention to is trying to get the facts. It's a brilliant political strategy.” – Bill ([11:40])

• On Placebo Trade Policy:

  “Richard Baldwin called it the placebo effect… there’s always going to be a political argument that this was great for our industry...” – Scott ([23:36])

• On Economic Effects for SMEs:

  “Small to medium enterprises… don’t have production bases in other countries… and they have less of a constituency here in D.C.” – Phil ([25:04])

• On Search for Tariff “Victims”:

  “I think there needs to be a victim or two. Trump needs to show that he's tough, so somebody's going to get the ax.” – Bill ([29:36])

• Lighter Moment:

  “Here's a great headline, Trump Kicks Puppies. I can see that in the Washington Post.” – Bill ([32:20])

---

Important Timestamps

• [01:15] – Introduction of Russia sanctions topic
• [02:24] – Phil breaks down dramatic global impact of secondary tariffs
• [04:04] – Oil price cap problems and “shadow fleet”
• [11:05] – Shift to reciprocal tariff agreements with international partners
• [13:30] – Discussion on “transformation” and rules of origin
• [18:28] – Decoupling with China and effects of retaliation
• [22:20] – Economic pain from tariffs delayed
• [23:36] – “Placebo effect” in trade politics
• [26:04] – Migration and labor impacts
• [29:15] – Crystal ball: predicting next moves, who gets hit next and why
• [32:25] – “Lap one of the Trump 500”, divide-and-conquer risk in European trade

---

Tone and Style

The episode is direct, conversational, and policy-wonky, often laced with humor and healthy skepticism. The hosts and guest challenge each other while weaving in both anecdotes and data for a nuanced picture of shifting US trade policy. Complexities and uncertainties are acknowledged; listeners get a sense of the real-time messiness of international economic policy.

---

This summary was created for listeners seeking a comprehensive, detailed walkthrough of the episode’s significant discussions, debates, and policy implications, while preserving the original voices of the panel.

Transcript

[A]

I'm Scott.

[B]

I'm Bill.

[C]

And we're the Trade Guys.

[B]

You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm Evan Brown, and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys. Thanks for listening to the Trade Guys. This week we welcome Phil Luck to talk through ways to put more economic pressure on Russia. And we also look at several newly announced tariff frameworks between the US and its partners. All this and more on the Trade Guys. Welcome back to the Trade Guys. I'm here with Bill and Scott, as usual, and we also have a special edition in Phil Luck, director of the economics program and should chair in international business here at csis, who has certainly been on the podcast. I think it's been a couple months since the height of tariff drama. Well, tariff drama is back, and so is Phil, and we needed him for reinforcements today because it has been a busy couple weeks that we need to break down. So we've had a host of tariff agreements. We'll get to those in a little bit. First, I want to talk through a different kind of tariff application, and that's tariffs on Russia as leverage for a resolution in the Ukraine war. As you all know, a bill was moving through the Senate with pretty broad bipartisan support to look at putting 500% tariffs on Russia, and that has now been preempted by an ultimatum from the president promising 100% secondary tariffs on Russian trading partners if there's no agreement in Ukraine in 50 days. So, Phil, there's really no one better to ask than you on this, as someone who's worked on Russia a lot. So how should we be thinking about these possibilities? Is this the right way to go about putting pressure on Russia?

[D]

Yeah. Well, first of all, thanks a lot for having me back. Usually means it's been a bad week in trade policy if I'm here. So, you know, we're keeping that rolling on this sort of secondary tariffs as they're sort of now being deemed, which is the new term. It's an innovative and interesting approach. Right. So the bill that's been going through the Senate has a vote. It turns to impose 500% tariffs on countries that buy Russian oil and other goods. That is certainly a big number and a big headline number. And I think largely this might have been an attempt to put pressure on the Trump administration to do something because we really haven't put any sanctions on Russia since the beginning of this administration, and that's having an impact. So first to say something on that. I mean, look, sanctions and export control rules only really work if you keep applying them. It's a game of whack a mole. In some sense. You keep having to put on that pressure, and if you don't, you're essentially relieving pressure. So we're, I think the Senate is trying to do that in terms of the actual, the policy itself, all of the effort, have some notes on the exact legislation. If this were to go in place and if the president were to declare, you know, Russia in violation of this law and then would be sort of required to put these 500% tariffs on trading partners, that would do one of two things. You would either mean we had 500% tariffs on China, India, Brazil and others, which would be basically an embargo, or it would take an enormous amount of oil off the global market and it would spike oil prices. So either one of those things would be really quite dramatic. It would be really impactful for Russia because, you know, a third of their government revenues comes from oil revenue. The joke that they're, you know, a gas station with nukes is not that far off, but it would be really quite impactful to the global market as well. So good idea, but not the best policy. If you had something that sort of had the ability to threaten these secondary tariffs if countries, say, didn't buy oil below a certain price, which still allowed the oil to flow but reduce rushing revenue, that could be a really impactful way to go about this. That wouldn't have the sort of global ramifications that either trade embargoes or spikes in global prices would.

[C]

Isn't that what you just said, the oil cap proposal that we already have in effect?

[D]

Yes, but it's toothless, right? Because with the oil price cap basically says you can't use Western insurance. Right. And so you have a shadow fleet that's hundreds and hundreds of vessels, and so that oil is going out of Russia regardless, all above the oil price cap, or if it's below the oil price cap, that's just a function of global market prices at this point. Last time I checked, which was a few months ago, it was about 95% of the oil was going in the shadow fleet above the cap price.

[C]

So is there a way to make the cap effective without going to 500% secondary tariffs?

[D]

Well, there's ways to make it more effective, for sure. I mean, so one thing you could do is you could sanction a whole lot more vessels. Right. So what the vitamins did at the very end, I think was January 10th. They sanctioned a bunch of vessels and that really, you know, that was, at least for a short time, impactful. But, you know, more and more vessels come online at this point. There's been a lot of vessels that have been sanctioned by either the EU or the UK or both that have not been sanctioned by the US Government that we know have used. They violated the oil price cap, They've had some connection to Western insurance or other markets. At the same time, they've sold oil above the cap. So, I mean, there's a list with Keith School of Economics and others you could just take off their list 200 vessels that you could sanction tomorrow. And I know those packages essentially have been written by State and Treasury. So if you just did that, that would have a pretty big impact. The other thing you do is do sanctioning of oil refineries who are buying the oil, whether they be in the PRC or in India and other places. There's plenty of targets there too.

[C]

What sanctions would you put on the refineries, though? They're not selling the oil to the United States, are they?

[D]

No, but it's against the oil price cap to just buy Russian oil above the price cap.

[C]

Yeah, but what's the sanction? What do you do to them?

[D]

You separate them from the Western financial system.

[C]

Ah, okay. Yeah, take them out of Swift.

[D]

Yes.

[A]

You know, I think there are two conclusions that the average person who's not a Russia expert would draw from this. The first is diminishing returns set in on all economic actions, including sanctions. And when you have a commodity like oil, where the demand is absolutely inelastic in the short term, it is very difficult. And the diminishing returns come at you really fast. So the effectiveness of this is always been. I've always thought it suspect. Obviously it hasn't really slowed anything down. And you know, of course, there are many, many conflicts within the market there, including the fact that Europe, our NATO allies, supposedly still buy massive hydrocarbons from Russia, either directly or indirectly. So they're paying on both sides of the war right at the moment, sending arms to Ukraine and buying. Buying oil from Russia or oil and gas from Russia, that's one. The second point I would make is this is now we're to the point where the end of the war at least is in sight. The end of conflict is in sight. And Russia has essentially fought a real war. They've taken territory. They have a very long armed line of demarcation that someone described it. I'M not good at maps, but it's like from New Jersey to Tampa, Florida, it's a very long fortified line. Everything to the west of that line is now Russian speaking territory with Russian passports. You know, they've changed the facts on the ground. And so as you see this conflict wind down because of the way Russia has approached the conflict, they have a lot more options at the end. They control a lot more decisions on what to do and what not to do. And the 500% tariff smacks with a little bit of desperation because we've decided not to commit ground troops, we've decided to not do a lot of things and all we're left with is this.

[C]

So why do you see it winding down? I don't see it winding down at all.

[A]

Well, there's not much left to either defend or to take. We're trying to negotiate an end to the conflict.

[C]

Well, he's not making much progress. Neither are they on their own.

[A]

Right.

[C]

And the drone attacks continue. I mean it's an interesting war. In fact, we could spend an episode on the implications for future wars because. Because people are becoming less important. And now it's an unmanned aircraft battle and cheap unmanned aircraft.

[A]

So it'll grind on for quite a while. But I think the end's in sight and Russia has more options on favorable terms for them than NATO does.

[D]

Yeah, not sure I agree with that, honestly. And I would say, listen, I don't think this exact Bill is the right methodology, but I would say that I don't think this is desperation. I mean, I think we still have quite a bit of leverage here and Western sanctions have done a quite a bit of impact. You look at the sort of debt in the private sector right now in the Russian economy it is ballooned massively. They really tried to subsidize the private industry to keep it up. Now you're not going to get a sort of normal crash the way you would in a more market based economy. But to say that our measures are sort of have not been effective I think is sort of a misreading of the data. And the other thing to Bill's point, I mean like look, there's movements of the line and you know, we can get somebody on here actually know what they're talking about someday. But it's a 600 mile long front line and the degree to which this has become sort of warfare is really quite impressive. But I think there's still a lot we can do to sort of put pressure on Russia here.

[C]

The other thing to think about Which I don't know the answer to is how the countries that are the likely victims of this bill, China, India, Brazil, how they'll calculate this. First of all, I think it looks like Trump is taking the same approach to this legislation that I think all presidents take to sanctions legislation, which is that he wants discretion to impose the sanctions or not. He wants it left up to him. He doesn't want Congress to require them. And frankly, there's a lot of good arguments in favor of that. Congress moves slow. One of the problems is if they impose them by statute, then if the situation on the ground changes in however many years you want to say, you can't get rid of them unless Congress acts. Again. The best example of the problem of that was in uganda in the 80s when the Congress voted sanctions on Idi Amin for very good reasons. Amin was deposed, and it took Congress two years to repeal the sanctions. So at the very moment that the next Ugandan government needed support and needed help, we were prohibited from doing that by congressional action. Had the President had discretion, it would have at least created a situation where we could have acted more quickly. So I don't think Trump is particularly wrong in wanting discretion. I think the bill has been revised to give it to him. But then you get the question of the calculation on the other side, which is sort of at what point is a tariff prohibitive anyway? I mean, the Chinese are at 55%, Brazil is maybe at 50%, India, we'll see. But in terms of actual blocking of trade, what's the difference between 55 and 500 at some point? Is it irrelevant? Are we going to continue importing lots of stuff from China at 55%? Maybe. I just don't know. But other countries may calculate this in a slightly different way than we think they're going to calculate it.

[A]

Well, you are right in terms of the need for flexibility in foreign policy. I recall at one time South Sudan had congressional sanctions on it. We were literally sanctioning a peace treaty. So it's like, why are we doing this? And it was just a matter of the slow march of legislation to be able to remove something once it's put in place.

[B]

Well, thanks, guys. Let's turn now to the Trump administration's latest, quote, unquote, reciprocal tariff deals, which have. After long, long periods of waiting. And I know Bill was sitting by the computer waiting for the announcements to come in. We've had Indonesia, the Philippines, Japan to add to a list that included the UK And Vietnam as of a couple weeks ago. There's also A framework that seems to be close to the finish line with the eu. So, Bill, after your long wait, they're finally here, or at least several of them are. What are you paying attention to within this whole flurry of activity and what do you think comes next?

[C]

Well, the announcements are here, the facts are not. And so what we're paying attention to is trying to get the facts. And I think we commented on this before. It's a brilliant political strategy. The President makes an announcement and doesn't release any information except what he says about it, which is in a White House press conference or on Truth Social or X. And that's all the journalists have. So they write what he said and then what happens is a slow dribble of contrary information that comes out. Eventually, maybe there will be a text. In the Indonesian case, there actually was a joint statement that does provide some additional details. But even there, what we discovered in the Indonesian case, a little bit in the UK case, and we'll see in the Japanese case, because that's the most recent. What Trump says and what the other country says are not exactly the same thing. And it really takes a legally detailed text to spell out exactly what all this stuff means. Example, in the case of Indonesia, Trump's statement was all our stuff is going to get in duty free. The Indonesian comment from Mary Pangistu, who used to be the Trade Minister and is now their president's trade advisor, was that, well, it's a little more complicated than that and the duty free status is going to go to products that don't compete with Indonesian products. Well, that's a big difference. If you just talk about things that don't compete with Indonesian products. That's a much smaller universe than everything. So it remains to be seen exactly how that's going to be played out. I think in all of these cases. Well, Indonesia, Philippines and Vietnam in particular, the sleeper issue will be transformation, which has been alluded to specifically in the Vietnam agreement and in the Indonesian agreement, where the strange statement mentions it without answering critical questions like what does the term mean? And that is essential. You know, transformation can range from fraud, you know, just changing the label on a product as it moves from one country to another without doing anything to legitimate transformation. The example being Chinese steel slab being sold to Korea, where it's rolled into sheet strip and wire. That transforms it under international customs rule into a different product that makes it a product of Korea. The joint statement that Indonesia and the United States put out implied, but did not state directly, but implied that the United States might be looking for changes in rule of origin that might make the latter case not a substantial transformation because the steel was melted and poured in China and that therefore that would make it a product of China in the example, not a product of Korea. That would fly in the face of decades old customers practices. But there are a lot of other different products gradations in between the two extremes of fraud and legitimate transformation. So how they define the term is going to be very important because what these agreements are saying in the Vietnam case is if it's trans shipped, it's a 40% tariff, not 20% tariff. In the Indonesian case it's saying that if it's trans shipped, the tariff will be the tariff of the originating country and not the Indonesian 19%. So in the Chinese case it would be 55 at least today. We'll see if that changes after next week when the Chinese and the US Meet in Stockholm. So there's a lot of uncertainty here which goes back to what we've said previously about the UK Agreement, which these are all aspirational. These are we commit in the future to flesh all these things out, to fill up the holes and to talk about the topics that we didn't settle. We talked more about digital trade. The Indonesians committed to some things on digital trade, but didn't say very specifically about what they were going to do. The United States said they made some commitments on labor and worker rights issues. The Indonesians ended up saying, well, you know, it really doesn't require us to do anything that we're not already doing. So there's a lot left to be fleshed out. And as has been pointed out and will be pointed out more and more, these are not legally enforceable congressionally approved agreements. These are framework executive agreements. And one of the new things that's coming up, I had a meeting this morning with some colleagues and a representative from a foreign government who has not yet settled and produced an agreement. And one of the comments a colleague made was, you know, for Trump, this is never over, particularly for the big economies. They'll be coming back for a bigger bite. The United States has refused to promise not to move the goalposts. And the growing fear I think in other countries, and certainly here, is that once these agreements are done, the first thing you're going to see are sectoral tariffs, pharmaceuticals, trucks, aircraft chips, which have variable impact depending on the country. But then you might see the United States coming back, say to the UK for another bite, saying we need you to get rid of the digital services tax since we're insisting on that and everybody else and you got away with keeping yours. You and we need some other concessions. So if I were these other countries I wouldn't be relaxed at the announcement of an agreement.

[A]

Look, I think Bill is spot on. The way we ought to think about this is that this is the first set of moves in what's going to be an ongoing method for foreign economic policy and this is how the President is choosing to address it. It's different. But any policy change has to be compared with what was accomplished by the prior approach which was not much of anything. The Doha Development agenda launched in 2001 was quietly euthanized in 2015. So there's not really multilateral talks. The US did not have substantive tariff negotiation or market access negotiations going on in any of the sort of discussion fora they had around the world. The Larry Summers of course made the famous joke that we give lectures and China builds airports and so it was those kinds of things. But we had a trade agenda was modeled after the rules based trading system but didn't seem to go anywhere. It was kind of stuck in place. So you've got this going on now, it's movement now. Is it disruptive? Yes, it is. Does it make the commercial operations of international companies much more difficult? Yes, it does. But I think the President is going to sell this as a win and is going to keep after it. Bill's point about this is just first round but if you think about it, look, the jobs reports have been strong. Inflation is at a four year low, the equity markets are at an all time high. Capex is flowing into the country through the roof. We won't talk about what that is, the trade deficit, but that's a fact. You know, plenty of capex flowing into the US Tariff revenue is in this fiscal year is now over $100 billion and will set a new high and import prices are thus far flat. In the meantime I think they've avoided disaster by this very sort of deliberate but flexible and meandering process because all the forecasts of economic harm were based on retaliation and nobody's retaliated.

[D]

Yeah, well first of all I would say that the PRC definitely retaliated and put us in a world of hurt for a little while there.

[A]

So I wouldn't because there was a goal stated many years ago of decoupling with China. We're now decoupling with China as our AI guest told us, that's really what he's seeing in the numbers. So you know, look, it looks like we're getting serious about things like critical minerals and strategic sectors that need to be produced in the United States. I think there's enough flexibility to avoid disaster. The President wants to personally be part of this, and this may wind up working. I just, I didn't think I'd say that in April when. When the wheels looked like they were coming off. But I could see how a salesman like Donald J. Trump could sell this.

[D]

I mean, I agree with you. He will sell this. There's no other thing that I'm more sure of than that. But so far, I mean, all we've accomplished is raising tariffs to, you know, the highest level in basically a century. So, and we, into Bill's point, we actually haven't gotten any real concessions. You know, we've gotten no real relaxations in tariff rates. We can sell slightly more rice to Japan than we could before, but we haven't really gotten much. Again, part of this is, you know, to Bill's point and your point as well, that, look, Trump's going to come back. Whatever you put on the table, he's going to put in his pocket and then say, okay, great, now what are you going to give me? I think everybody knows that. And so no one's really giving anything very concrete. They're trying to not get whacked harder. Everyone wants to avoid getting whacked really hard. And so far, a lot of our partners have. We'll see what happens with the EU and others. And South Korea is obviously a very large one that's outstanding. But again, I would say we haven't really gotten anything other than higher prices on goods we import. You know, really, the other thing I would note is, you know, to. To Bill's point, none of this has been gradually mandated, so these couldn't be turned off tomorrow. They can also be turned off. Everything that's being negotiated now, for the most part, except for the 15% tariffs on Japanese autos, everything that's being negotiated could be turned off by the courts tomorrow because of the IEBA ruling is probably. I would be kind of shocked at this point. I would at least have a 50% chance of these Ieva authorities being turned over by either the current courts or the Supreme Court. The fact that they use IPA, a national security justification, to justify a 50% tariff on Brazil because of a domestic legal action, to me, strains credulity that that's in the US national security interest.

[C]

But, you know, that's going to. I've been thinking about that because, in fact, I just got a question from one of our affiliate friends earlier today about this. You know, if I were Trump, if I lose the case in court on ipa, my response would be, well, these tariffs are the product of bilateral agreements, and they're not pursuant to ipa. They're agreements, and therefore they're not covered by the court's decision. Now that they're in place, I think what that then leads to is litigation over whether the President has authority to negotiate trade agreements in the absence of congressionally approved trade promotion authority. And some people in Congress will say, no, he doesn't. That's an Article 1 issue. The President, of course, will say, under Article 2, of course I do. And that goes back to the Supremes and we do this all over again. And meanwhile, the tariffs stay in effect. So I'm not sure they're going away even if he loses.

[A]

Yes. And Congress is really delighted to have this revenue coming in. They're getting it from their constituents. Okay, don't get me wrong, they're getting it because consumers will pay higher prices, but it doesn't look like a tax to them. So I think they're plenty happy with it.

[D]

I've seen no evidence that Congress cares much about a balanced budget. And just to be clear, this is 2% of government revenue.

[A]

They do not like to raise taxes on constituents, put it that way. So this helps them avoid that.

[C]

So let me ask Phil a question about that. The meeting I was in this morning included a number of other professional economists, and they were all puzzling over the fact that the impact has not been as great as they expected in April or March. And then the question, of course was, well, will it be as great as you expected? And if so, when? So, Phil, do you have thoughts about that?

[D]

Yeah, I mean, I've been puzzling on that, too. I mean, the first thing I would say is, yeah, we'd all wish that our models would. We'd reach the equilibrium conditions a little bit faster. I think a few things, I mean, one, I mean, the first thing is like the tariffs that are there that are really substantial. Steel, aluminum, and a few other sectors. Obviously autos, car prices are going up. Toyota just said that they're in increased prices. There's now only two car models in the US that sell for less than $30,000. So cars aren't affordable. The other thing I would say is a lot of these tariffs have not been put in yet. Right. I mean, like, you know, the IA tariffs are on pause. And the other thing, the third thing I would say is some of these tariffs, whether by design or Just by luck, they sort of said they're going to do these things before they go into place, allowing industry to pre position get them into the country faster. That obviously happened before Liberation Day, which probably delayed the increased inflation that's currently happening in copper. I've talked to people in the industry and they've said the warehouses are full, there's nowhere else. If you want to bring copper into this country, there's nowhere else to put it right now because they've already brought it all in. So you're going to see a lot of, even if the tariff, 50% tariffs come in, there's going to be a long time of consumers buying copper that didn't have that tariff imposed on it. So again, would love to be right immediately and maybe I won't be as right as I think I'm going to be, but I do think this is going to have an effect.

[A]

All that says that he's likely to get away with this and be able to spin it positively. Keep in mind, underneath all this, what you have is now, because of the reconciliation bill, you have stability in tax rates. Okay? It's now permanent law. You have a deregulatory agenda going on. Pay attention to gasoline cans. So if you have a lawnmower or something like that, you can now buy a gasoline can that you can actually dispense out of. But there's a lot more deregulation on the way. Energy abundance is part of the strategy and they're doing, I think, a fine job of particularly natural gas. And that's what of course, AI. All that AI investment is really about energy and being able to have reliable, cheap energy to run the server farms. So there's a lot going on here that is not tariffs. And I think it'll all get spun together. Richard Baldwin called it the placebo effect. Brought me back to. I was a life sciences major as an undergrad and one of the amazing things about medical research is, is you have half of the blind test participants on a sugar pill and they get better. You know, they're taking the placebo, but they have symptomatic relief for whatever reason. And there always is a placebo. So I think there's always going to be a political argument that this was great for our industry, it helped jobs, it helped this, helped that. And at the end of the day, if the economy's growing and inflation's under control and the macro issues stay within this broader framework of low taxes, lower regulation, low energy costs, I think it's a winning hand.

[D]

I'll say One thing really quickly and then pass it over to bill is so I totally agree. There's a lot of, you know, there's wind in the sails of the US economy and a lot of has to do with energy. And those investments don't really have an Obviously tariffs make them slightly more expensive, but they don't change the underlying business case for natural gas. So those are going to go ahead anyways. So are all the sorts of technology investments where I'm going to be looking at the economic data to really start to see if there's some signs of damage is on more small to medium enterprises. So your point about the stock market, that's the s and P500, right? That's the big guys. They'll be fine. I'm pretty sure they'll be fine. I was talking to somebody this morning who basically said a version of we've been able to work in challenging jurisdictions in the past and now we're just one of them. Right. That's not true of small to medium enterprises. They don't have production bases in other countries that they can shift to. They export things to other countries for sales or they import from inputs and they have less of a constituency here in D.C. to be frank.

[C]

And they don't have market power to force their suppliers to eat part of the tariff.

[D]

Yeah, exactly.

[C]

The other thing that I learned today that I hadn't thought about, which I guess is a bit of a mystery, is net migration. I mean we read all this time about deporting, but apparently net migration in the United States right now is zero, which is also baffling some people. I mean, in a way that's a reduction because it used to be net positive and was net positive pre Covid 2 million a year and post Covid it peaked like 4 million a year for a couple years and then it's fallen back down last year when enforcement was tightened. But right now it's zero. I think as much because it may be that actually deportations I guess are currently running behind the Obama years. But the larger factor I think is that people have stopped coming here.

[A]

Yeah, I think and I think you're seeing that in the jobs report. The jobs report showed increases for US born workers and decreases in number of jobs for foreign born workers. So that all squares with the migration policy.

[C]

I still think though, long term we've got shortages and in all aspects of the economy, in all levels of the economy, including sort of traditional blue collar sectors which also involve skills, construction being one. You know, it's not just lifting Wood, there's a lot of skill that's required there.

[A]

No, there's going to be big demand and I think wages are going to go up as a result. That is, I think more of the more undisputed predictions is blue collar labor rates are going to go up in this country. And that's good because they've been under amazing pressure for a generation. And so in some ways that's, I think that's a relief and it's a campaign promise. That's what the president said he was going to do.

[C]

It is good. It's also inflationary.

[A]

Yes, well, that hasn't shown up yet. But fortunately we still have Jerome Powell with his hand on the tiller and rates are still high so far.

[C]

At the moment we're recording this, Trump is at the Fed inspecting their renovation project.

[A]

So yeah, I understand he's doing the building tour of the Taj Mahal there on Constitution.

[C]

Yeah, the Taj Mahal is 100 years old and it's falling apart. Stay tuned to see if he's still the chairman tomorrow. My guess is that yes, he'll survive. But you know, who knows.

[D]

To add one thing, totally agree on the, on the labor market point that Bill just made, I think that there's been some discussion that businesses are actually not firing as much as they would otherwise because they're sort of anticipating a tighter labor market going forward which again, you know, who knows exactly how true that is. But you know, again, to Bill's point about the net migration rates, that's not unreasonable. I'd also point to totally agree with Scott that like, yes, this is, you know, both the trade policy and the migration policy, it's going to reduce the supply of low skill workers. It's going to increase demand for less skilled occupations. It'll probably increase wages. But again, to Bill point, that's also going to increase prices.

[B]

Right.

[D]

We're seeing that happen in the housing market right now. I mean, building rates are starting to fall because labor supply issues. You know, my own research I did about, to Bill's point, the deportation programs of the Obama administration in areas where there was more deportations, internal migration, deportations, those communities lost a lot of jobs of native born citizens. And one of the areas where those employment losses were the largest was sectors like construction. You have less workers who are immigrants who can do that work, you're going to have less demand for Americans as well.

[B]

Now, we're going to wrap up in just a second, but I am going to ask you all to take out your crystal balls. We haven't talked about future looking deals. As Phil mentioned, Korea is still on the table. We're working things out with the EU with India. We're a week away now from the President's August 1 deadline. What should we expect over the next week? Maybe, Bill, I'll start with you.

[C]

Well, I thought for a while that thanks to the taco argument that we've discussed in previous podcast, I think there needs to be a victim or two. Trump needs to show that he's tough, so somebody's going to get the ax. Nobody wants to pick one of them, so. And I don't think I will either. The EU seems to be back on track in a way. It's an interesting case of adjusted expectations. If anybody has said in April that it's going to be 15%, there would have been screams of outrage. In Europe, there were screams of outrage at 10%. And now people seem to be falling into the well, this is the best we can do, let's go along with it school of thought. So, you know, it could still blow up because Trump has a remarkable ability to move the goalposts even while the negotiations going on. But the issue there that is interesting will be whether they get exemptions for key industries like aircraft, where I think our aircraft industry would be happy if that happened, and automobiles. I'm not sure what our auto industry would think about that. I think what they're going after is in return for accepting the tariff, they want to see some exceptions to it. So we'll see if that happens. The Koreans are in a tight spot. I think now that the Japanese have reached an agreement, the Koreans are in an even tighter spot. And the politics of not doing it when the Japanese have done it is going to be uncomfortable for the UN Administration. At the same time, what the US Is demanding is very difficult for them. I don't know how that one's going to go. It's going to be very difficult. And go down to the wire. Indians, which Trump has been saying for the last two weeks was imminent, seems to be getting farther away rather than closer, which doesn't really surprise me. The Indians are reluctant to ever agree to anything. And so that doesn't surprise me in the least. And Evan, you didn't mention Brazil, but Brazil is in there. And so far the 50% is a threat. He hasn't actually done that, so we'll see what happens. But that's the odd case where it's a political demand, not an economic demand, and it really is an intrusion on their sovereignty. I can't Imagine that the Brazilians are going to agree to what Trump wants. And plus, it's politically, it's been a gift to Lula. It's united the country behind him. And why would you want to surrender under that situation? Scott, you agree?

[A]

Yeah. You make great points, Bill. And as a trade wonk, I'm still looking at this European agreement. It has structural challenges because Europe negotiates as a customs union, they operate as a customs union, and the president wants to negotiate bilaterally with each member state. So I'm mystified by how they'll conclude it. I'm watching it carefully. I think the remainder of the countries who are going to finalize it. I do agree with Bill that there needs to be a puppy that gets kicked. I don't know which puppy that is, but you got to kick a puppy somewhere. So it's like the old special 301 days. Somebody had to be, you know, you had to get the most stern treatment.

[C]

Here's a great headline, Trump Kicks Puppies. I can see that in the Washington Post. Yes.

[A]

But in any case, I think now that what you have is a situation like in labor negotiations where there's pattern bargaining, you look how your neighbors did and you see if you can not lose ground versus them, that particularly in Southeast Asia and the Pacific, that will be the, I think the driving force that will drive to conclusion. But this is just the beginning. This is lap one of the Trump 500.

[B]

Phil, any guesses on which puppy gets kicked? Or you can kick that can down the road?

[D]

I was going to say. I just wrote that down. Scott Miller, are you going to kick a puppy? No. I totally agree with both Bill and Scott. I mean, there's a few things that I would totally agree. The RK is in a tough spot. They sort of have to get to hopefully get to somewhere that's close to the Japan agreement, especially on the autos, which has been tough. And obviously they're sort of laid out of the starting gates because of their domestic political situation. I would say that's an issue for the EU also. Really fascinating. I'm hoping they can get somewhere or they can know at least string this along to a point where the administration doesn't escalate. If that can happen, I think we can avoid them triggering the anti coercion instrument, which I think is really important. The French want to, or at least they say they want to because they're being French. But if they do that, the anti coercion instrument then basically allows member states to use national authorities to sort of choose their weapon of choice. I think that'd be a really bad idea because once member states do that, I think that opens the door to the US dividing and conquering across member states in a way that, you know, to their credit, they have not done. So they've sort of treated them as a block thus far. I think that's both in my interest and in their interest to keep that going. The last thing I would say is if we end up in a world where, I mean, obviously I prefer, as a trade economist, world where we don't have uniform 15% tariffs on all our trading partners. But that is better than a world in which we have sort of higher or lower tariffs, different partners, because that creates inefficiencies in trade diversion. So there's two things. One, it would be better if we can get more of our trading partners as sort of a level that's maybe higher than desirable, but uniform. I'm also interested in. Now, if you do imagine you had the RK in Japan getting these 15% rates as you start to, like, do the hard work that Bill was talking about of the negotiation with Indonesia and the Philippines, Vietnam, are they going to stay happy at 19% and the other things, or are they going to start saying, well, gee, we need to get down to 15? Now, of course, the administration might say they're going to go up from there, but I'm curious about the dynamics of are we going to get closer to a world where all these rates get closer, or is that not going to be possible?

[B]

Okay, well, we'll be tracking it all and we'll be back next week to see which puppy gets kicked. So thank you guys. Thank you, Phil, for joining us and we'll see you soon.

[C]

Foreign.

[B]

You'Ve been listening to the Trade Guys, a CSIS podcast. For more audio content, visit csis.orgpodcasts thanks for tuning in.