The Peter Zeihan Podcast Series - Trump Takes on Trade || Peter Zeihan

Episode Date: February 27, 2025

There's plenty of tools at the disposal of the US President and tariffs are one of them. When used appropriately - i.e., to get something else or discourage a certain action - tariffs can be a very effective measure. However, Trump is using them as an end, rather than a means to an end.Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://mailchi.mp/zeihan/trump-takes-on-trade

Hey all, Peter Zion here coming to you from Colorado. We are continuing with our coverage of Trump's first month in office. We've gone through the Middle East and shining the former Soviet Union in Europe. Today we're going to talk about international trade, specifically tariffs. Now, tariffs obviously are something that Trump is quite fond of, and it's pretty clear by this point that he doesn't necessarily see tariffs as a means to an end, but just an end in of themselves, which is not great economic policy unless you are already. do you have your industrial plant set up? And even then, it's wildly inefficient. But let's focus on more of the specifics. I've talked at least briefly about the tariffs on America's closest trading partners. I think it's worth underlining what a couple of these things would do. One of the new ones is Trump says he wants to do an 100% automotive tariff on Canada. Keep in mind that every car manufactured

in the United States includes a substantial percentage of parts that come from Canada and Mexico. most of them over one-third, a lot of them two-thirds. And vice versa. It's a very integrated system. So if you were to put anything more than about a 15 to 20% tariff on auto specifically, you're going to be taxing things as they go back and forth across the border. And you're going to cause a massive headache for American consumers, raising the price of your average vehicle by somewhere between $4,000 and $8,000.

If you do 100% tariff, we just stop making cars. Detroit collapses with... within a week and Texas within a month. So, you know, not my recommendation. But I think a more interesting topic is one that's gotten a little coverage that Trump implemented last week. It's something called reciprocal tariffs. And it sounds on the surface to be pretty fair. The idea is if somebody else has a 15% tariff versus a product that comes from the United States, then you should flip that and have a 15% tariff on anything that you take from them that is in that product category. And at least on the surface against places like China, where tariffs are high and

subsidization is high in order to force American products out of the product mix. It seems like a great idea, right? A couple problems here. Number one, doesn't always line up that way for climactic reasons. So, for example, if Kenya has a tariff on imported coffee, we're going to, what, tariff coffee we bring in from Kenya because, you know, we don't export coffee. So we'd just be charging our people more. That's a pretty minor one. The bigger one, though, is administration. There are literally hundreds of thousands of product categories, and that's before you consider intermediate product trade. And so if you want to do a reciprocal tariff, number one, you need a massive staff, at least an order of magnitude more than what we have at customs enforcement in the FTC,

Federal Trade Commission right now, just to learn all the product categories and all the tariffs for all 200-odd countries in the world. And then you would need at least five times as many of that staff to then enforce these tariffs at the border. Keep in mind that most international trade, even today, is not digitized fully. It might be on the container level, but each container is going to contain somewhere between dozens and thousands of products, and typically not all from the same country. Because as container ships go around the world, they drop things off, they pick things up. If there's space in a container, you can always shove more in there. And by the time it gets to the United States, it's a mess. And then what comes off is not all of it necessarily, some of it gets

shipped back out. And so somebody has to manually enter every single product. So it's not so much that reciprocal tariffs isn't fair or isn't at least intellectually a good idea, but actually putting it into process basically ends trade because it's impossible to administrate with anything approaching the number of people we have in government right now in total, much less if you wanted to do anything else. Now, the fact that Trump has announced this anyway, gets back to the general theme of all of this is that he's built a completely incompetent administration that won't tell him the truth because the truth might not make him look great. But on this specific topic, it's less of a designed incompetence and more a purposeful incompetence by his understaff. Trump's trade representative is a guy

by the name of Jameson Greer, who is a smart dude who basically was raised from a pup by Robert Leithizer. And Leithizer was Trump's first term trade representative. And Leithizer has been in and out of government in at the center of American trade law going back to the 1980s and the Regan administration. So, I mean, this is a guy who knows everything, that is everything about trade. He's not shy about using tariffs, but it's always when there's a specific goal in mind

in order to reshape the relationship. He just doesn't just do terrorists or tariffs. Anyway, Greer learned at Lighthizer's feet. He was his chief of staff during Trump's first term. Definitely knows what's going on. And definitely knows that reciprocal tariffs is a horrible idea unless you're going to do an absolutely massive staff expansion, which is definitely not in the cards.

So one of two things either happen. Number one, he probably took the advice of Lighthizer, because one of the things that Lighthizer learned from his four years working with Trump the first time around is you never contradict Trump. Not in public, not in private. You just nod, you smile, you make him think that you're one of the brainless people, that he has surrounded himself, that do nothing but tell him how wonderful he is. And then, hopefully, he gives you enough room and enough lack of attention

for you to actually go and do your real work. and for Lighthizer, at least in part that worked. He was able to renegotiate NAFTA in a Korean trade deal. He got a new trade deal with Japan. Made a lot of progress on a trade deal with the United Kingdom, but then just ran out of time, and then there were the events of January 6th. So Greer clearly knows that reciprocal tariffs are horrible, just a beyond stupid idea.

But either, one, he kept his mouth shut, nodded, and smiled. Or number two, he told Trump this and advantage to do it in a way that didn't get himself. self-fired already, even odds for probably the first one being the way it whatever went. So we're going to see more things like this. Because the only way that reciprocal tariffs can work is with a staff you can't build. So either we go one or two directions at this time. Number one, reciprocal tariffs are actually implemented, in which case pretty much all international trade stops and the United States falls into a really, really ugly recession

in a short period of time. or there's actually an effort to implement it on a case-by-case basis for specific countries, absolutely wrecking trade relations with that country. That could get interesting based on who you choose to go after. Hopefully it would not be a country like Canada. Oh, my God. But if you did it against India, that could actually set the stage for changing the relationship in any number of ways. But Trump coming to that conclusion would require someone to explain to him how reciprocal tariffs overall are really bad idea.

And I don't think that is going to happen at all.