Today, Explained - Make America Trade Again

Episode Date: May 15, 2019

President Trump's trade war with China just got a lot worse. Can you feel it? Vox's Matthew Yglesias says most Americans won't, but it's still bad for America. Learn more about your ad choices. Visit podcastchoices.com/adchoices

What's your monthly bank account fee? What's your ATM fee? What's your annual percentage yield? At Aspiration, you choose your monthly bank account fee. There are zero ATM fees and you get 2% annual percentage yield. You can download the Aspiration app now to open up an account. You can try and save money while saving the world. Good news. That trade war you keep getting notifications about? Front page of every newspaper in the country right now. A dive on the Dow because of this trade war now. More than a trillion dollars wiped out from global markets yesterday. There's still a pretty good chance you're not even going to come close to feeling it. If you run a farm that sells things to China, you are in really bad shape.

If you rely specifically on some kind of specialized component from China, you're in bad shape. If you're a normal American, you are looking at slightly higher prices for some things, slightly lower prices for some things. In the aggregate, you are probably worse off, but not like a lot worse off. Bad news, there's like a lot worse off. Bad news, there's a whole lot of drama, stock market drama, industrial drama, foreign tension drama, pretty much all of it created by President Donald Trump. And there's really no end in sight.

Matthew Iglesias has been covering Trump's trade war for Vox. Last week was the kind of self-imposed U.S.-Chinese deadline to make some kind of deal to step away from the trade war that had begun last year. They did not make a deal. And so then Trump, to ratchet up pressure, he took 10 percent tariffs that had been in place for months, and he's raising them to 25%. The Chinese retaliated by increasing their own tariffs on our goods. And Trump is now talking about, well, maybe I'll do even more tariffs on the full range of imported Chinese goods. That's sort of what happened. It sent markets down on Friday, sent markets down further on Monday, a little bit of a bounce back on Tuesday, but still down. And we have a very consistent pattern that the stock market does not like these trade tensions.

And so why did the trade talks break down? I mean, it's never entirely clear what happens in these things because the Trump administration is not super duper duper honest. And then China does not have a free press at all. Trump says that they were very close to a deal and then the Chinese walked away at the last minute and called it off. That could be true. There have been some reports that the Chinese took Trump's calls for lower interest rates that we've talked about before on this show as a sign of weakness

and decided they should drive a harder bargain. But it's also just possible, you know, they didn't reach a deal. The United States came into these talks with a very extensive list of demands, and it was always hard to imagine that China would agree to all of them. Easy to imagine that they might agree to some of them, but they didn't agree to enough. What is the president saying about what happened? So the president is excited, according to himself. So our farmers will be very happy. Our manufacturers will be very happy. And our government is very happy because we're taking in tens of billions of dollars. I think

it's working out very well. He said, I love the position we're in in tens of billions of dollars. I think it's working out very well. He said, I love the position we're in. When he was talking to reporters at a press conference with the prime minister of Hungary, he's tweeted a number of times how enthusiastic he is about tariffs. He says tariffs are great, that it's going to be an economic cost on China. Paid for mostly by China, by the way, not by us. A lot of people try and steer it in a different direction. It's really paid, ultimately it's paid for by, largely by China. That will bring in lots of revenue to the American government. And he's going to use that revenue to not just compensate farmers who have lost the Chinese market, but to make them even better off than they were before. So he says it's fantastic. So we're winning.

And I think it's only going to get better. And is his economic team, his advisors taking the same line? No. I mean, one of the interesting things about this is that the rest of the Trump administration has a much more sober view of this. They say they support the policy, but they acknowledge that in reality, a trade conflict is costly. That it means higher prices paid for some American consumers. It means lost markets for some American producers. It means hardship on the Chinese side.

In fact, both sides will pay. Both sides will pay in these things. And of course, it depends. If it's a tariff on goods coming into the country, the Chinese aren't paying. They may suffer consequences, but it's U.S. businesses and U.S. consumers who pay, correct? Yes, to some extent. I don't disagree with that. In fact, I mean, it's the only reason it would work, right? I mean, if you think about it, like, how is this trade war going to go? The way it goes is that it is costly for both countries to be in this mess. But the theory

would be that it is, in some some sense more costly for China. So they will back down and then we will end it. Right. Trump is trying to portray it as if the conflict itself is good. What his team says is that, yes, like the conflict is bad, but it is something that is necessary to get what we want from the Chinese. And it's one of the things the Trump administration says is that the Chinese are in a's one of the things the Trump administration says is that the Chinese are in a more precarious situation than we are, according to their assessment of this, and that we can sort of ride out, you know, a year or two of pain,

and the Chinese cannot. And that's why this is a smart, tough approach that will force the Chinese to make concessions. When Obama was president, they often took the view that because China has an authoritarian political system, that they have the structural advantage in this kind of situation. That for one thing, the Chinese leadership can sort of blow off public opinion. For another thing, they can pull all kinds of levers very easily to sort of help boost the economy.

Whereas in the U.S., right, if Trump comes to Congress and is like, we need to do X, Y, and Z to help contain the fallout from the trade war I started, Democrats in the House are going to be like, well, no, man, like this is your fault. We're not helping you out. So how are things in China? Are Chinese farmers really hurting? Are Chinese manufacturers really hurting? Is the president's bet here coming to pass? There is real concern among Chinese manufacturers that they are going to lose out to the American market.

It should be said the Chinese have typically responded to this kind of thing by reducing the value of their currency to sort of offset the impact of tariffs on their manufacturers. So then that winds up hurting average Chinese people who are not necessarily involved in global trade, but just it makes the real value of the money that they earn less than it otherwise is. So somewhat similar to the United States, there are sort of pockets where you are hurting a lot from this, some pockets where you are benefiting. Like if you were a Chinese soybean farmer, this is maybe good for you. What about everyone else, though? Is a trade war between the U.S. and China good for basically any other country in the world engaged in trade?

Yeah. So people who compete with American agricultural exports should be good winners here. So if China says we're not going to buy American agricultural exports, then South American countries and Australia that also grow that stuff, they're going to win almost right away because the prices move. Is there like a sort of a flip side to that coin where when the U.S. and China go to war, almost everyone loses in some way? I mean, in the aggregate, it's not good for people. I mean, the reason

stock markets globally go down is that the U.S. and China are the world's biggest economies collectively. And when they both do things that everybody knows are going to make both countries a little bit poorer, that's broadly disadvantageous to most companies and most people all around the world. And people inside the Trump administration disagree between the view that like we should wage some kind of all out economic war on China and the view that like we should try to get a couple concrete policy concessions out of China. And Trump's more in the wage all-out economic war on China? Probably, but he's all over the map. And I have had different administration officials tell me different things about this. I don't know that they really know.

You know, if you read Trump's old books, he's a big believer in the value of strategic ambiguity. And I think does not want us to have a clear sense of exactly what it is he thinks about this because it gives him more flexibility in the negotiating process. In a minute, how this trade war began and why it's always been really confusing by design. I'm Sean Ramos from This Is Today Explained. Aspiration is this bank that wants to help you save money while protecting the planet. They do that in a bunch of different ways. They've been featured in Forbes, The New York Times, and Money Magazine. And I had mentioned before on the show that I've never actually read Money Magazine. Some very generous listeners sent me a whole heap of Money Magazines. I'm going to pour through them

all to find out which one mentioned Aspiration as soon as I find a couple of hours to do that. Aspiration offers a 2% annual percentage yield, zero ATM fees anywhere in the world, and the option to choose your own monthly fee even if that fee is zero aspiration commits 10 of their earnings to charities that help other americans and offers extra cash back rewards for shopping at socially conscious businesses check them out download the aspiration app to open up an account you get to put your money where your heart is. So could we rewind a bit and have you tell us exactly how this started again? What President Trump even wants out of this trade war? Right.

So there are two different big things on the U.S.-China trade agenda. past 20 years that since the establishment of permanent normal trade relations with China, a lot of American factories have closed and they have been replaced by manufactured goods from Asia. Many people implicated by that, people in labor unions, people in the Midwest, would like the United States to try to discourage companies from locating production in Asia and encourage them to locate it in the United States instead. Okay, so the president wants more manufacturing happening here. Yeah, and so Trump has often signaled agreement with that, right? That he's going to bring the manufacturing jobs back from China. Sure. He's like publicly shamed Apple, for example. Exactly. A separate set of concerns, and in some ways opposite set of concerns is that the American business community has complained for a long time about their access to the Chinese market. And so some of that is they want China to make it easier to sell American exports there. Right now, if you want to start a factory in China, the Chinese government will probably

make you launch that as a joint venture with a Chinese-owned company. And they're going to make you transfer some of your intellectual property, some of your know-how to the joint venture. And a lot of American companies feel that the Chinese rip off what they learn from their American partners and then launch a competing project, right? So both Boeing and Airbus have established factories to build narrow body jet planes. It's like A320, 737 planes. They have joint ventures with Chinese aerospace companies to do that. And then the Chinese government created a Chinese aerospace company by merging the owners of these joint ventures. And they're going to build their own narrowbody passenger jet. So like the cost of doing business in China is surrendering your

trade secrets. Exactly. But I think it's important to understand that if the Chinese gave way on this stuff, right, that would accelerate outsourcing of jobs to China. Because right now, this is a pretty good reason to not move your factory to China. And so Trump is merging these two concerns together. He's saying, oh, these tariffs are good because they're going to protect American jobs. We're going to bring the factories back home. But he's also saying China's got to stop ripping us off. They've got to make it fair. They've got to change their rules.

But if China does change its rules, that would be good in some ways, right? But it would make it even more likely for companies to locate their production there, not less likely. And it's not super clear like which of these things it is that Trump is genuinely driving after. That just makes this even more confusing, though. Why take this approach and hurt farmers and American industry and Chinese industry and people all over the world who are invested in stock markets if you're not even being clear about what you really want. Part of the appeal of trade war, I think, is that it lets Trump take the side of every single person who has a complaint with China without resolving the fact that some of those

complaints are a little bit in contradiction to each other. If you made a deal, you would probably have to pick like one or the other, right? Like the deal can't simultaneously reduce economic interconnectedness but also make it easier for American companies to do business in China and also protect jobs but also mean that American factories don't worry about getting ripped off, right? Like you can't do all that stuff at once. But as long as you are fighting, you can claim to be trying to help everybody. Has China spoken up on this saying like, listen, we want to meet you in the middle here, but we don't really know where that middle is? They don't like this trade war.

This trade war is definitely bad for China. They want it to go away. They want to keep acquiring foreign technology, and they want to keep exporting manufactured goods to the world. This is their economic development strategy, right? Is they want to increase the sophistication, technological complexity of Chinese exports. So they are willing to make like all kinds of other concessions, right? So it's like if we want like big payoffs to American timber companies, like maybe we'll do that, right? But they don't want to change their domestic

practices. And sometimes it looks like Trump and the Chinese are going to make a deal along these lines. And Trump's going to say, look, I delivered this huge win for farmers or whatever. But then other times it's like, no, we're actually nowhere near achieving this like laundry list of strategic objectives. So the deal's off. And sometimes the tariffs are good in and of themselves. Sometimes the tariffs are a bargaining chip. And you can look at it as like Trump is flailing and not making sense. Or you can look at it as, Trump is this like art of the deal mastermind and he's keeping the Chinese off balance. But like I personally am off balance as a journalist. Like we are all off

balance. So this trade war has been going on for more than a year now. How has it gone over for the president politically? Do people even care? I mean, on the one hand, I think a president always likes to be standing up for America against a foreign adversary, right? Nobody wants to say, oh, hey, I'm a Democrat. I'm going to just like go easier on China and then we won't have this hassle. At the same time, you know, you're always looking at Trump's approval ratings, which are they're not like the worst approval ratings we've ever had. The unemployment rate is low. The stock market is down over the past couple days but not – it's not like a catastrophic crash, right?

So the economy gives Trump a lot of running room, right? But he's never managed to become a like well-liked consensus figure who people think is doing a good job of running the country. And this kind of thing where he's tweeting, his own advisors are saying the stuff he's saying isn't true, stocks are going down, clearly just because of decisions he made. Like, it's not great. When you have your own chief economist on television saying like, yeah, look, this is going to cause pain on both sides. You had Tom Cotton went on CBS News show and he was like,

There will be some sacrifice on the part of Americans, I grant you that. But I also would say that that sacrifice is pretty minimal compared to the sacrifices that our soldiers make overseas, that our fallen heroes who are laid to rest in Arlington make. And that's true. It is not like being killed. But usually you want to say that your policies are helping people, not that the harm isn't so bad. Matthew Iglesias hosts the Weeds podcast from Vox.

On the latest episode, he and two of our colleagues discussed Joe Biden's claim that Trump is an aberration, plus some fresh research on the macroeconomics of bankruptcy. And that's why his show is called The Weeds. This is Today Explained. Thank you to Aspiration for supporting the program today. Aspiration, as I've mentioned before, is a financial partner that has a conscience. They want to help you save money while trying to save the world. And all you have to do is open up your device and download the Aspiration app

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