The Current - Who will blink first in Trump's trade war with China?

Episode Date: April 11, 2025

Yair Reiner says the escalating trade war could kill his U.S.-based kitchen gadget business, which relies on manufacturing in China. We look at what rapidly climbing tariffs mean for the businesses caught in the crossfire, and ask whether Beijing or the White House will blink first.

When they predict we'll fall, we rise to the challenge. When they say we're not a country, we stand on guard. This land taught us to be brave and caring, to protect our values, to leave no one behind. Canada is on the line, and it's time to vote as though our country depends on it, because like never before, it does. I'm Jonathan Pedneau, co-leader of the Green Party of Canada.

This election, each vote makes a difference. Authorized by the Registeredleader of the Green Party of Canada. This election, each vote makes a difference. Authorized by the registered agent of the Green Party of Canada. This is a CBC podcast. Hello, I'm Matt Galloway and this is The Current Podcast. Well, we'll see what happens with China. We would love to be able to work a deal. They've really taken advantage of our country for a long period of time. They've ripped us off.

How people stood for it, sitting in my position, is not even believable. That's U.S. President Donald Trump this week announcing a 145 percent tariff increase on Chinese imports. It is the steepest yet in what has become a standoff between the world's two largest economies. Beijing's response has been swift, this morning raising its own tariff on US goods to 125% and adding a warning that Washington's trade war will end in failure. In a few minutes, we'll hear from a US small business owner who says these tariffs could wipe out his company, but first we're joined by Jonathan Chang. He's China bureau chief for the Wall Street Journal. He's a Canadian, he's in Shanghai.

Jonathan, hello. Hi, thanks for having me. Thanks for being here. Are we in a full blown trade war, we being the world, but also if you take a look at what's happening between the United States and China, or is this still kind of the opening ceremonies? Well, it may be the opening ceremony,

but it is definitely also a trade war. We're very careful with that language at the Wall Street Journal, but I don't think there's any debate about that anymore. Put this into perspective for us, 145% blanket tariff. What does that mean for the Chinese economy? Well, what it means is that the export-led model that China has really turned to for many years, especially during COVID, is not going to be as robust of an engine as it

used to be. Now, the US is just one economy. It happens to be the world's biggest, but it's just one economy. And China does have other engines of growth. It's not fully reliant on exports, but for the foreseeable future, until we get a resolution of this, if we get a resolution of this, China is effectively not going to be able to export any goods directly into the US. Now, at 145%, I mean, it really doesn't matter at this point whether Donald Trump raises tariffs further because as the Chinese pointed out today, at this level, the numbers are kind of meaningless at this point. But what it does mean is that that channel is basically blocked for now.

Let's talk more about that. And I want to come back to what it means more in China in a moment. But to your point, this morning China countered with a 125% tariff on all US imports. It also says that this will be the last increase and the statement from the Chinese government was that any further tariffs would, in the government's words, be a joke. Tell me a little bit more about that. What kind of strategy is China playing out here as you understand it? Well, I think what they're acknowledging is just simple mathematical reality. When you have 125, 145 percent tariff on something,

it basically means that the cost is going to double. And that means that if you're a manufacturer and you're trying to sell something, eventually you're either going to need consumers to're trying to sell something, eventually, you're either going to need consumers to be willing to pay double for what, or more than double for what, compared to what they had to pay before, or they're going to simply stop buying your stuff. And I think more likely is that they're going to simply stop buying your stuff. So they'll buy it from another country where there aren't tariffs, right? And so they're saying it is a joke for us

to just keep escalating because there's nowhere else to go. And what they're signaling here is actually pretty subtle, but also pretty scary, I think, for the US. So it's just that they're saying, look, we have other ways of making our presence felt, and we can be pretty creative about that. And I think what we're alluding to here is that China has spent the last eight years,

I would argue, Trump won, and then the Biden years, preparing for this moment in a certain sense. I think they had anticipated perhaps that Donald Trump would come back and that he would come back with a vengeance. And if that's what they predicted, then they were pretty accurate. And so they do have a toolbox,

and I think they're hinting that we've got this toolbox and we're not afraid to use it. What are some of the things in that toolbox? Because the Chinese government, you wrote a piece for the journal quoting a Chinese foreign ministry spokesperson who said, if it's war that the US wants, be it a tariff war, a trade war or any other type of war, we are ready to fight till the end. So what does China think it has in its arsenal? China does have a lot of leverage here. The US is the world's number one economy, but China is the world's number two economy. And it has the world's factory floor, basically.

I mean, that's what we call it in journalism talk. But what that means is that they have the ability to make things that a lot of the world can't make. They can make ships, they can make semiconductors, they can make solar panels, they can make electric vehicles. They can really do a lot of advanced manufacturing,

and they're very good at it. If you think about Apple and their manufacturing of iPhones, they are so reliant on China because China has spent decades honing this ability. So mentioning Apple, by the way, is also a good way of showing some of the other points of leverage that China has because of this manufacturing might, which is a lot of US companies are very reliant on China. Apple is the prime example, but another one that hits quite close to home for Donald Trump is Tesla. Of course, Elon Musk is quite close with the president.

He's been a fixture at the White House. It's an unusual role, but there's no question that he's very close to Donald Trump right now. And Tesla's largest factory in the world is in Shanghai, very close to where I am right now, in fact. And China's not spelling out what it might do, but I think they're trying to suggest, listen, we have points of leverage over here too. The U.S. and some of its biggest companies need China.

So if you want to go to war with us, we may have options. Can I just ask you a little bit more about Apple? Apple shares are down something like 20% over the last month. You had Howard Lehtnick, the Commerce Secretary, who said the whole point of, as he understands it, these tariffs is to reshore manufacturing. And his words were to the effect that, you know, the army of people that put in those tiny little screws in your iPhone, that army will be based here

in the United States, he was saying, not in China any further. Given, as you say, China's place as the factory floor, is something like that possible, do you think, in the short term? Well, we've run the numbers, actually. My colleague Joanna Stern, and basically, I'll keep it short, it's possible,

but only if you're willing to pay for an iPhone that might cost you, let's say, $3,000, or if you're willing to accept an iPhone that is actually pretty shoddy in terms of its quality. And even if you were willing to accept that, you would still need to wait several years for all of this supply chain, these factories, and for the skilled labor to come to the US.

I don't even know how you would get the skilled labor to come because many Americans are not going to want to work in a factory and many of them don't have the skills that are needed for this sort of work. So you still do need a lot of real human beings, not robots, at least not yet, on a physical factory floor, putting some of these screws and some of these little precision parts into smartphones. So it's a nice idea to talk about, but in reality, it's pretty impractical, at least

in the near term. What does this mean for China? China buys more than $400 billion worth of goods every year. The Chinese leader Xi Jinping, it has been said, is facing pressure still because of a property market collapse. There is a consumer confidence that has been flagging apparently. What does something like this mean when we've been talking about the United States? What does something like this mean for China? It definitely is something that Xi Jinping would rather not have to deal with. I think

he would have been happy to not have Donald Trump trying to launch a trade war against his country. You're right, China's economy is under a lot of pressure. You're right to mention the property market. You're right to mention consumer confidence. All of those things are true. I think what it comes down to is this, China's economy has boomed for all these decades as they came out of the Cultural Revolution, as they embraced the world and became a part of the world. But a lot of that is running out of steam. That's just gravity. There's no way that they could grow 10% for all time. But as they see the growth flowing, it's starting to reveal a lot of the other

problems that have been built up in the economy, imbalances that have been there that weren't so apparent when the economy was chugging along. So you've got that happening on the one hand, and then you've got Donald Trump, the world's largest economy, the only economy bigger than you, China, coming right at you. So is it going to put some strain on the economy? It definitely will. But some of this tough language that we're hearing from China suggests that they're going to steel themselves for a little bit of pain. And you can start to see a little bit of that messaging, not much yet. But I think you get that sense that Beijing is preparing its people for what could be a period of belt tightening,

but one that would be because we have a moral cause here. We're being bullied by a country and by a president that is seeking to suppress us and we're going to need to buckle down. We're going to need to work harder and we're going to have a cause and a mission to rally around. And I think that's the message that you see beginning to congeal here in China. Do you see the opportunity? I mean, Donald Trump has antagonized all sorts of people,

including close friends and neighbors like Canada. Is there the opportunity or is there a moment where China could make new friends in countries like Canada, for instance, where relations have been very rocky in recent years? It is definitely taking exactly that path right now. And it's starting not necessarily with Canada, they're starting for sure with their own net with their own backyard with their own

neighborhood you see it with the Japan and South Korea on one side where you have ministers getting together and talking about trade you see it with Xi Jinping next week he's gonna be in Cambodia is gonna be in Vietnam is he's gonna be in Malaysia he is talking going to be in Vietnam, he's going to be in Malaysia. He is talking nice with India, which is a neighbor, but a country with which it's had some geopolitical friction in recent years. It's doing the same with Australia. It's starting around its near periphery. It is actually also doing some of the same with Europe as well. So yes, to answer your question, that's exactly what Xi Jinping is doing because there is definitely opportunity that they smell

here to build up their alliances. Alliances is probably too strong a word, but just to generate some goodwill with other trading partners. I'll let you go, but just finally, and I'm not asking you to predict, but who is likely to blink first in this, do you think? I don't know if I can answer that question, but I think one way to address it is to say that China does believe that it's actually pretty well positioned here. I think they think they can take it for longer. They can absorb the pain for longer.

When you saw what Donald Trump did with the 90-day pause, I think one could argue pretty comfortably that that was a response perhaps to the stock market, to the bond market, to what you're seeing happen over there and public pressure that was quickly mounting. China doesn't have that same mechanism. And of course, it has stock markets, it has bond markets, it has all of that, but it has been buying a lot of stocks and a lot of bonds and has been doing everything that it needs to do through state-owned entities to make sure that that mechanism is a little blunter. And then when it comes to public opinion, I don't think I need to go too much into this,

but China is able to suppress some open grumbling and dissatisfaction should there be any. Now, they can't entirely stop it, but they can keep it lower on the boil. So I think China does have ways that it can keep some of these pressures from building. And of course, as I mentioned earlier, I think you will see a message coming from Beijing to the people that will say, we're all in this together. It may not be easy, but we're going to prevail. So I just think that Donald Trump may, but we're going to prevail. So I just think that Donald Trump may think that China is going to buckle. I think it may be

a lot harder than he thinks. Jonathan, thank you very much for this. Thanks for having me. Jonathan Chang is the China bureau chief for the Wall Street Journal. He was in Shanghai. While Washington and Beijing play a global game tit fortat, small businesses are bracing for the worst. I feel like the past 24 hours has just been a complete nightmare. 104% on imports coming from China. 104%. And that means my small business that I put everything into is Kintun.

104% and that strong language comes out. Things are now at about 145%. What does that mean for those small businesses caught in the crossfire? Yair Reiner runs a family owned company in New York. It makes something called the fry wall. This is a kitchen item. It fits inside a frying pan.

Pan, it blocks the splatter from the pan so that it doesn't end up on your stove or on your kitchen wall. Yair, good morning to you. Good morning, Matt. You wrote about this in the New York Times in a really interesting essay. You called these tariffs a sucker punch and a kick in the teeth. When you saw the numbers and the numbers keep going up, what went through your mind? Well, what I thought is there's not going to be a way for my businesses to survive under that regime. When I wrote the article, the tariff stood at 54% for China.

And I think there were roughly 35% in the countries around China where I had a potentially viable path to rebuild my manufacturing supply chain. For companies, any kind of companies, whether it's a small company like mine or a large company, there's a certain business model, a certain profit margin that you have to have to have a healthy business. Usually if your costs go up, you have to increase your prices by the same proportion. So if my costs were to go up suddenly from one day to the next by 54%,

it'd mean that I'd have to raise my prices by 54% to consumers. And there's something called flexibility of demand. If my price goes up by 54%, and my splatter guard goes from being 25 bucks on average to something closer to 40, I'm going to have a huge dramatic decrease in the amount of people who want to buy my product. I think that I no longer really have a business going forward. You said that it turns the frywall into a... It goes from being a little expensive but worth it to are you nuts if it costs that much more?

Exactly. Especially in the context of an economy where presumably a lot of things become more expensive, including non-negotiable goods like food and clothing. My biggest worry beyond the fact that my product was going to get more expensive is that just discretionary budgets would decrease because so many of the things we have to rely on would also be more expensive. Things have changed. As I think many people know in the last couple of days, the tariffs on China have gotten even higher.

The tariffs on the rest of the country and the rest of other countries have come down, which actually gives me some path forward. I can now foresee moving some of my production to another country. I'm very fortunate to have a second supplier in another Asian country that's already set up and ready to go if I need them to. But in the meantime, you have a shipment on the water and another half-finished one in your factory in China, right? What happens with those

items? The truth is I don't know. The container that I have on the water left the day before the current tariffs kicked in. So I don't know if the tariffs apply to them. So I don't know whether I'm paying 20% tariffs or 145% tariffs. If I'm paying 145% tariffs, I think I'm gonna ask my forwarding company if I have to pick up the container because I'm not even able to sell those products. You might just be better off leaving it in the container

and just leaving the container on the boat or on the shore. Exactly, there's just no way for me to be able to profitably sell a product if I have to pay basically triple what I'm used to. The US president and the people around him would say, why not just manufacture your product in the United States instead of China? Is something like that possible? It may be possible, but I think that to run a business, you need two things or to make

dramatic change, you need two things. or to make dramatic change you need two things. You need time and you need stability. Even for a really, really simple product like the frywall, there's complexity involved. The most important raw material is food grade silicone. We don't really make a consumer version of that in the US. Building that plant, I imagine, is going to take probably at least three or four years, especially given how long it takes to build anything, much less a chemical plant in the US. We also don't have the factory equipment you'd need for this type of material, this

type of product. We don't make the mold-making equipment. We don't make the presses. It's been a long time since we've nurtured the kind of expertise you'd need to run any of these types of operations, much less the contract manufacturing capacity that we need. So you're talking about years of investment, years of planning. And presumably, if you're keeping this tariff on every good, you're talking about this kind of investment and planning across innumerable amounts of sectors and products.

So it seems a little bit chaotic and irrational to think that you can do everything all at once. If we want to reshore, it seems to me that we should start with making a list of things that are most important and going from the most important to the least important and giving all the different categories and all the different sectors time to plan and invest. In a context where things are changing from one day to the next, it's impossible to decide where you're going to put your money, where you're going to build the plant. Should I look at a factory in the US? Should I look at a factory in China? Should I look at a factory in Mexico?

Should I look at a factory in Canada? It's just impossible to make any decision. I have to let you go, but just quickly, I mean, as you've said, there are real concerns about the viability of your business and that if these tariffs stay in place, you wonder whether you're going to be able to stay in business.

Briefly, what would you say if you were able to get President Trump on the line? I would just urge him to let us know what the regime of tariffs is gonna be going forward and give us some time to react. Entrepreneurs like me will figure out a way forward. Just let us know the rules of the road and give us a horizon where we can make a decision

and know that decision will still be good in two years time. If that uncertainty continues though, I mean, do you really think you may? Will your business be viable? Will you be able to stay in business? It's a huge question, Marc. Especially because even if I try to move my business right now, all the places that are viable potentially to move to, everyone is scrambling to move there. And we just don't have manufacturing capacity in the rest of the world in the span of a few months to absorb everything that might be leaving China. Your story kind of puts into perspective, I think we talk about the economy and these big picture issues, but this is how it hits people at a very individual level. I appreciate you speaking with us and wish you the best of luck. Thank you very much.

Thank you, Matt. Yair Reiner is the founder of Goanna's Kitchen Lab and the inventor of the fry wall splatter guard. When the predictable fall, we rise to the challenge. When they say we're not a country, we stand on guard. This land taught us to be brave and caring, to protect our values, to leave no one behind. Canada is on the line and it's time to vote as though our country depends on it,

because like never before, it does. I'm Jonathan Pedneau, co-leader of the Green Party of Canada. This election, each vote makes a difference. Authorized by the Registered Agent of the Green Party of Canada. This message comes from Viking, committed to exploring the world in comfort. Journey through the heart of Europe on a Viking longship with thoughtful service, destination-focused dining and cultural enrichment on board and on shore. With a variety of voyages and sailing dates to choose from, now is the time to explore

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