A New Global Trade Order Takes Shape

Summary

WSJ What’s News: A New Global Trade Order Takes Shape

Episode Release Date: April 3, 2025
Host/Author: The Wall Street Journal

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Introduction

On April 3, 2025, WSJ What’s News delved into the seismic shifts occurring in the global trade landscape following the United States’ recent imposition of sweeping tariffs. Hosted by Luke Vargas and Deborah Ball, the episode provided a comprehensive analysis of President Trump’s protectionist measures, global reactions, and the ensuing impact on industries, particularly the automotive sector.

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US Tariffs Announcement

The episode opened with the announcement of President Trump’s declaration of universal tariffs affecting the entire globe, including significant economic powers like the European Union and China. Deborah Ball contextualized the move:

“Global markets reel after the US Unveils sweeping tariffs, we'll look at how world leaders are reacting as China and the EU promise to hit back.”
— Deborah Ball [00:18]

The tariffs include a 10% baseline on all global imports effective immediately, and heightened “discounted reciprocal tariffs” for nations deemed unfavorable in trade practices. Brad Setzer elaborated on the gravity of the situation:

“President Trump's announcement of universal tariffs on the whole world, including the European Union, is a major blow to the world.”
— Brad Setzer [00:28]

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Mechanics of the Discounted Reciprocal Tariffs

In a detailed discussion, Alex Frangos explained the methodology behind the discounted reciprocal tariffs:

“Basically what the White House has come up with is a formula not based on what the tariffs are imposed by other countries, but taking the goods trade deficit of a country and dividing it by the amount of goods that the US imports from that country and getting a percentage and then chopping that in half...”
— Alex Frangos [02:03]

This approach aims to target countries with substantial trade deficits with the US by imposing tariffs proportional to their trade imbalance.

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Global Reactions and Strategic Responses

The imposition of tariffs has triggered diverse reactions from global leaders. Anthony Albanese, Australian Prime Minister, staunchly opposed the tariffs:

“These tariffs are not unexpected, but let me be clear, they are totally unwarranted.”
— Brad Setzer [05:57]

Conversely, Ursula von der Leyen, President of the European Commission, expressed a nuanced stance:

“...she actually agreed with Trump that there are people taking advantage unfairly of current trade rules. And she said she was willing to try to remake the global trading system, though she didn't think tariffs were the way to do that.”
— Deborah Ball [06:04]

Setzer further highlighted the strategic calculus of policymakers grappling with the new tariff regime:

“There’s a real hard calculus that policymakers, leaders are making in different capitals as to how much leverage they really have to fight back.”
— Brad Setzer [06:51]

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Impact on Global Trade and Supply Chains

The tariff imposition is expected to disrupt existing supply chains, particularly in Southeast Asia. Brad Setzer provided insights into the potential realignments:

“...a pretty significant rewriting and rewiring of supply chains that had been running through Southeast Asia... to areas in particular like Vietnam.”
— Brad Setzer [02:55]

China faces severe tariffs, with rates soaring to approximately 70% on certain goods, exacerbating economic tensions and potentially diverting trade routes to other nations.

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Economic and Market Responses

Alex Frangos discussed the immediate market reactions, noting signs of economic uncertainty:

“The initial reaction is this is bad for the economy. So we're seeing kind of a recession trade. Stock futures are down, oil prices are down, bond yields are down.”
— Alex Frangos [07:56]

Interestingly, the US dollar weakened, indicating broader concerns about the US economy:

“One thing that's surprising is the dollar is also down, which is usually a sign that people are kind of negative on the US Economy.”
— Alex Frangos [07:56]

The market sentiment remains volatile, with expectations of intense negotiations in the coming weeks.

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US Automotive Industry Consequences

A significant portion of the episode focused on the automotive sector, which stands to be heavily impacted by the new tariffs. New import tariffs of 25% on finished automobiles and parts have created a crisis for auto-exporting countries and posed challenges for US consumers.

Luke Vargas outlined the complexities faced by American car manufacturers:

“Detroit isn't just Detroit. So it really will depend on where the car is made... For those making cars in Mexico, for example, they'll face substantial tariffs.”
— Luke Vargas [10:27]

Key points include:

• Increased Costs: Cars manufactured outside the US, especially in Mexico and Canada, will incur significant tariffs, raising production costs.
• Supply Chain Disruptions: Imported parts, even those used for domestic sales or global distribution, now face tariffs, forcing manufacturers like BMW to reconsider production locations.
• Consumer Impact: Elevated prices may lead to reduced demand as consumers hesitate to purchase more expensive vehicles, potentially causing a downturn in sales despite the tariffs' intent to boost domestic manufacturing.

Luke Vargas emphasized the unintended consequences and short-term disruptions:

“There could be a fall off in demand just because consumers are worried that basically the US Market's going to be a little undersupplied...”
— Luke Vargas [12:44]

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Conclusion and Forward Look

The episode concluded with an acknowledgment of the turbulent times ahead as the new tariff policies take hold. Deborah Ball hinted at continued coverage on the evolving trade dynamics and their broader implications.

“We are now beginning to hear from world leaders reacting to all of this... What are you hearing?”
— Deborah Ball [07:43]

As the global economy braces for the repercussions of the US’s protectionist measures, negotiations and strategic adjustments across industries and nations are poised to shape the future of international trade.

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Key Takeaways

• US Protectionism: President Trump’s tariffs represent a significant shift towards protectionist policies, aiming to reduce trade deficits and bolster domestic manufacturing.
• Global Pushback: Major economies like the EU and Australia are preparing to retaliate, while others navigate the complexities of negotiation versus compliance.
• Supply Chain Realignment: Southeast Asia, particularly Vietnam, faces potential upheavals as supply chains might be rerouted, impacting global trade flows.
• Automotive Sector Strain: The US auto industry is grappling with increased costs, disrupted supply chains, and potential declines in consumer demand.
• Economic Uncertainty: Immediate market reactions indicate apprehension, with potential long-term implications for global economic stability.

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Notable Quotes:

• "President Trump's announcement of universal tariffs on the whole world, including the European Union, is a major blow to the world."
  — Brad Setzer [00:28]
• "Chronic trade deficits are no longer merely an economic problem."
  — Alex Frangos [01:13]
• "Reaching for tariffs as your first and last tool will not fix it."
  — Brad Setzer [06:19]
• "The initial reaction is this is bad for the economy."
  — Alex Frangos [07:56]
• "There could be a fall off in demand just because consumers are worried that basically the US Market's going to be a little undersupplied."
  — Luke Vargas [12:44]

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For those seeking an in-depth understanding of the evolving trade scenario and its multifaceted impacts, this episode of WSJ What’s News provides essential insights and expert analyses.

Transcript

[Luke Vargas]

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[Deborah Ball]

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[Luke Vargas]

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[Deborah Ball]

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[Alex Frangos]

And participating McDonald's for a limited time.

[Luke Vargas]

A Minecraft movie only in theaters.

[Deborah Ball]

Global markets reel after the US Unveils sweeping tariffs, we'll look at how world leaders are reacting as China and the EU promise to hit back.

[Brad Setzer]

President Trump's announcement of universal tariffs on the whole world, including the European Union, is a major blow to the world.

[Deborah Ball]

Economy and the auto industry stares down major changes as 25% US tariffs on foreign made cars and parts go into effect. It's Thursday, April 3rd. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of what's News, the top headlines and business stories moving your world.

[Luke Vargas]

The world.

[Deborah Ball]

Is waking up to the new realities of trade after President Trump yesterday unveiled a suite of protectionist measures that he justified by citing his emergency economic authority.

[Alex Frangos]

Chronic trade deficits are no longer merely an economic problem.

[Brad Setzer]

They're a national emergency that threatens our security and our very way of life. It's a very great threat to our country.

[Deborah Ball]

Among the moves that Trump announced were a 10% baseline tariff on all global imports which will go into effect on Saturday. And for countries that the White House considers bad actors on trade, they'll be hit instead with a so called discounted reciprocal tariff. New duties amounting to 24% for Japan, 20% for the EU and above 40% for select countries in south and Southeast Asia. Well, here to put these measures into context, I'm joined by Journal Europe Finance Editor Alex Frangos and Asia Editor Deborah Ball. Alex, let me start with you. Explain these discounted reciprocal tariffs for us. What's the math behind them?

[Alex Frangos]

I'll try, but basically what the White House has come up with is a formula not based on what the tariffs are imposed by other countries, but taking the goods trades deficit of a country and dividing it by the amount of goods that the US Imports from that country and getting a percentage and then chopping that in half and saying this is what our reciprocal tariff will be. The logic that the White House's giving for this is that the trade imbalance contains all of the various tariffs and non tariff barriers that other countries impose that the White House sees as negative.

[Deborah Ball]

For the US With a huge global effect. Deb, you're there in Singapore. I'm curious if you could just weigh in on the significance of this policy pivot. We're Witnessing one that really hits Asian countries particularly hard.

[Brad Setzer]

Yes, the Southeast Asian countries got hit Vietnam very hard. China is all told their tariffs are now up to about 70% of goods going into the US on top of the previous tariffs. So I think we feel that there could be a pretty significant rewriting and rewiring of supply chains that had been running through Southeast Asia. A lot of countries had moved away from China, out of China, and into areas in particular like Vietnam. There was a massive move after the first round of Trump tariffs in his first term. And now Vietnam has huge tariffs. So I think the impact on the Chinese economy will be significant. This is hundreds of billions of dollars worth of exports that are now being tariffed. So we think basically this will be kind of a diversion of a lot of these trade routes into other countries. What's unclear is where they could go, which countries could provide a bit of a safe harbor with lower tariffs as well. So there'd be a lot of very painful conversations going on in boardrooms around the world, as well as among polic policymakers in Asia.

[Deborah Ball]

Lots of big decisions being made around the world, Alex. But back to the U.S. trump saying he wants to bring America back to how its economy functioned before 1913, a date that got a lot of play in that speech in the Rose Garden yesterday, the year when the US really began to undo its longstanding policies of protectionism.

[Alex Frangos]

Yeah, I mean, he sees tariffs as a revenue generator that can make up for income taxes. The question is whether that works in the modern world, because what happens when you impose a tariff is people try to avoid it, and so they don't want to pay the tax, especially if you make the tax very, very high, like they've done with China. It just doesn't make sense to do those trades anymore. And so the question is, will the tariffs raise as much as the White House thinks they will.

[Deborah Ball]

Right. We saw an estimate from Capital Economics yesterday saying that the tariffs will raise a maximum of $835 billion via customs duties. But we do have to consider how they could also trigger a decline in imports, which might offset that.

[Alex Frangos]

Yeah, I mean, I think the number that they actually put on it was a bit lower because they said imports will decline. I mean, you can't have both things at once. The aim of these tariffs is, number one, bring manufacturing back to the U.S. number two, raise revenue from imports. But if you're bringing manufacturing back to the US you're not importing things because you're making it at home. So you kind of can't have Both. The other important point here is that Trump has given a week for the reciprocal tariffs to come into effect. And people are really looking at this as an opportunity to get in there with the Trump administration from all these countries and say, look, we're gonna do a whole bunch of things. We promise, we promise we'll buy a bunch of US Goods, we'll stop shipping things to you that are causing these trade deficits. Please lower our reciprocal tariff. So it's possible that this is the beginning of the negotiation or the beginning of these tariffs, not the end.

[Deborah Ball]

Deb, we are now beginning to hear from world leaders reacting to all of this from the likes of the Australian Prime Minister, Anthony Albanese, who was pledging to fight back for Australia.

[Brad Setzer]

These tariffs are not unexpected, but let me be clear, they are totally unwarranted.

[Deborah Ball]

Notably, the president of the European Commission, Ursula von der Leyen, said she actually agreed with Trump that there are people taking advantage unfairly of current trade rules. And she said she was willing to try to remake the global trading system, though she didn't think tariffs were the way to do that.

[Brad Setzer]

Reaching for tariffs as your first and last tool will not fix it. This is why, from the outset, we have always been ready to negotiate with the United States to remove the remaining barriers to transatlantic trade debit.

[Deborah Ball]

It almost seems like we're hearing in real time the wheels turning for world leaders trying to kind of reason out how much room they have to actually negotiate with the US Here or just kind of submit to a new reality. What are you hearing?

[Brad Setzer]

I think there's a real hard calculus that policymakers, leaders are making in different capitals as to how much leverage they really have to fight back. And they know that this is a very difficult administration to deal with. And so I think certainly in Asia, what we've seen so far, China has said that they're going to hit back. It's interesting, though, that the first tariffs he put on about a month or two ago or so, the Chinese did respond, but they did in a very, very measured way, in a way that showed that they did not want to escalate this. They did not want this to spiral and spiral and get wor. Southeast Asian countries, they're too small. All of them have come out today and said they're not going to retaliate. They're going to try to negotiate something and see what they can do. This is sort of realpolitik when it comes to trade and economics. It's, you know, how much can you really hit back? Is it going to be effective. Are you going to end up in a tit for tat situation that's going to be just damaging for your own country?

[Deborah Ball]

Alex, looking at the market response we're seeing this morning, what does that tell us about where negotiations might be possible with the US or which companies, which supply chains, business models are likely to be affected, maybe irrevocably?

[Alex Frangos]

It's going to take a little while for the market to process all of the information, but the initial reaction is this is bad for the economy. So we're seeing kind of a recession trade. Stock futures are down, oil prices are down, bond yields are down. And one thing that's surprising is the dollar is also down, which is usually a sign that people are kind of negative on the US Economy. So far the reaction is strong. Definitely. This is a big market day. It's not catastrophic which market commentators are interpreting as well. Let's see what this looks like next week because there's going to be a flurry of negotiation and promises and maybe this won't be quite as robust as it looks today, but we'll just have to see.

[Deborah Ball]

Deborah Ball is the Journal's Asia editor and Alex Frangos is our finance editor for Europe. Deb Alex, thank you both so much.

[Brad Setzer]

Thanks very much.

[Alex Frangos]

You're welcome.

[Deborah Ball]

Coming up, new US Tariffs on car imports came into force at midnight. We'll talk to the Council on Foreign Relations, Brad Setzer about what that means for the US Auto industry and Americans looking to buy a car. After the break.

[Alex Frangos]

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Effective today, the US will begin collecting 25% tariffs on imports of finished automobiles and automotive parts, a trade move that's auto exporting countries into crisis mode. And given that almost half of new cars sold in the US Last year were assembled beyond America's borders, according to S and P Global Mobility, US Consumers could be in for a shock as well. Well, here to help put these tariffs into context, I'm joined by Brad Setzer, a senior Fellow at the Council on Foreign Relations, where he's an expert in global trade and capital flows. Brad, it was one thing to discuss these tariffs when they were a mere possibility. Now they are very much a reality. What is that likely foremost with American car manufacturers for Detroit?

[Luke Vargas]

Well, the reality is that Detroit makes cars in the United States using Mexican and Canadian parts. It makes cars in Mexico using both American and Canadian parts, and it makes some cars in Canada. So Detroit isn't just Detroit. So it really will depend on where the car is made. For those making cars in Mexico, for example, they'll face substantial tariffs. And Mexico supplies a little under 3 million cars to the US market. It is the biggest source. Cars, light trucks, biggest source of imports. So there are going to be a substantial increase in the cost structure of North American production, particularly for those companies producing in Mexico or Canada.

[Deborah Ball]

There's some quite substantial potential ramifications of this just within the American auto market. But as we look globally, what are some trends we should be expecting?

[Luke Vargas]

Well, all of these provisions that make it a little easier to avoid paying the 25% tariff. If you're broadly producing using the North American supply chain, those go away real quick. So German cars made in Germany face a 25% tariff. Japanese cars made in Japan face a 25% tariff. Korean cars made in Korea face a 25% tariff. So for a lot of cars, selling to the US Consumer is going to be a lot more expensive. You're going to have this extra 20 to 25% tariff.

[Deborah Ball]

Does the pain go beyond that?

[Luke Vargas]

I mean, of course. I mean, I think there's a couple of interesting dynamics that may not be immediately obvious. One is that a company like BMW imports a lot of parts to the US makes, in BMW's case, sports utility vehicles, SUVs in South Carolina, and then sells those cars into the US Market and into the global market. So the imported parts will face this tariff even if they are being sold back to Europe, back to China and others in Asia. For BMW, BMW, that makes no sense. Over time, BMW, if these tariffs stick, will have to move production of its SUVs out of the United States. Doesn't make sense to add to your costs just to pay the US Tariff for global production.

[Deborah Ball]

An unintended consequence there. If the whole point here, right, is to incentivize the localization of production.

[Luke Vargas]

Yeah, but you're going to make the US Uncompetitive as an export platform because most export platforms use some imported parts. BMW, of course, can try to sell more cars domestically in the US but it faces that hefty parts import. So it's going to be charging a lot more for its cars and a lot of others are going to be charging a lot more for their cars. And I think there's a risk, and this is the short term risk that faced with this increase in price and with uncertainty about whether the tariffs will stick, a lot of consumers may decide not to go into the auto dealer. So there could be a fall off in demand just because consumers are worried that basically the US Market's going to be a little undersupplied, certainly undersupplied with cheap vehicles. And they're worried that they're going to be stuck with a high price. And if they think the tariffs may come off, they may wait. So you could see a fall in total US Sales. And the irony there is that you would see a pullback in total demand that would impact some of the least affected US Production. Plus, even the least affected US Production has some imported parts that are going to be tariffed. So it's going to be quite disruptive in the near term.

[Deborah Ball]

Brad Setzer is a senior fellow at the Council on Foreign Relations and an expert in global trade. Brad, thank you so much for being with us on what's News.

[Luke Vargas]

My pleasure. Thanks for inviting me.

[Deborah Ball]

And that's it for what's News for this Thursday morning. For more of today's non tariff headlines, subscribe to our Minute Brief podcast which we update throughout the day. Today's show was produced by Kate Bullivant and Daniel Bach with supervising producer Sandra Kilhoff. And I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.