Today, Explained - Tonight. Midnight. Trade war.

Episode Date: July 5, 2018

When the clock strikes twelve tonight, the US government plans to hit Chinese goods with $34 billion in tariffs. China plans to lash back. Vox’s Matthew Yglesias explains who this trade war will hurt the most. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Johnny, the last time we spoke, you were toying with the idea of outfitting your entire family, all four of you, with Quip electric toothbrushes. It's something that I'm willing to invest in. Again, we have kind of a spotty relationship with toothbrushing in our family, meaning we're not the most consistent and we'd like to be. Okay. And for the two weeks that I owned a Quip electric toothbrush before I lost it in Hong Kong, I was on a routine and going through this revolution.

So yeah, I'm willing to invest a little bit in order to get my dental hygiene in order. At getquip.com slash explain. Definitely. Right now, there is a cargo ship racing the clock to cross the Pacific Ocean. It's called Peak Pegasus. And Peak Pegasus is carrying a boatload of soybeans.

It's trying to get them to China. Peak Pegasus is gunning it because tonight, at the stroke of midnight, the trade war begins. Matthew Iglesias, you're right about the economy here at Vox. You'd never know we're about to go to war. Trade war. Trade war. Trade war. Trade war with China is about to start on Friday when a long list of imports from China are going to be subject to new taxes by the United States.

And China is striking back with a similarly long list of American exports to China, which will also be taxed. I think people have heard about all sorts of things being taxed by one side or the other, but what specifically is the U.S. putting tariffs on right now? Well, so this is different from the steel issue. There is a very long list of technology-related Chinese products that we are going to put tariffs on, supposedly because the Chinese are stealing our intellectual property. I have the list in front of me.

It's 28 pages long, but it's everything from parts of nuclear reactors to parts of machinery for making paper pulp to self-propelled machinery with a 360 degree revolving superstructure other than backhoes, shovels, clamshells and drag lines. OK. So the point is, this is not stuff that a normal American person would buy directly. Trump is trying to hurt Chinese manufacturing while not making normal Americans feel the pain.

OK. In an immediate sense. And who comes up with this list and how do they come up with it? The U.S. Trade Representative's Office wrote a list of about 50 billion worth of Chinese exports. Then there was a public comment period. They took $16 billion worth of stuff off the list. So they would hold that in reserve. And then China has its own team, which has developed its own list of American products, which we'll get tariffs to.

Tell me more. China is primarily targeting American agricultural products. This is also a very long list because it's like blueberries, but also apricots, but also strawberries. But the big items on the Chinese list are pork, soybeans, and something called sorghum. Sorghum is a cereal grain, and it's actually the fifth most important cereal crop in the entire world. Which I understand is used as animal feed. And this is going to hurt American farmers. Yes, it's going to hurt farmers.

Pork farmers will be hurt a lot. And the sort of big industrial agriculture operations in the Midwest will be hurt a lot. Fruit and nut farmers in California will be hurt some. So if I'm getting this right, the U.S. is taxing a lot of industrial specialized Chinese tech that won't really hurt Americans. And that's how they were designed, the Chinese are going to be taxing a lot of agricultural products to definitely hurt Americans, right? To hurt farmers. I mean, there's sort of two ways to think about it. Now, Americans will pay the price for taxes on Chinese imports, but the idea is to avoid

it being directly things that you buy, right? You're not going to go to the store and see that nuclear reactors are 15% more expensive unless you're a real weirdo. Whereas the Chinese are doing the opposite. They want to make a direct dramatic impact on politically powerful groups of Americans, right? So there is a ship full of soybeans in the Pacific Ocean right now trying to reach Chinese shores before the tariffs come online.

And they believe that the farm sector has a lot of clout in the US Senate and will be able to prevail upon Trump to back down, whereas Trump is trying to hurt Chinese industry without having an obvious disruption on the American economy. What are the countries saying to each other about this? The United States and China certainly communicate quite a bit. Yeah, so the Chinese public posture is saying they don't want this trade war. They're not going to fire the first shot. China has already made preparations. As long as the United States

issues a so-called tariff list, China will take necessary measures to firmly protect its legitimate interests. They are still hoping that this will somehow all get called off before Friday. The United States is taking a very aggressive posture. They're saying, look, we have a big trade deficit with China. So at the end of the day, if U.S.-China trade spirals all the way downhill, this is going to hurt the Chinese economy more than the American economy. So the Trump administration feels they have the upper hand. And how do the Chinese feel about it and how do Americans feel about it? I mean, especially American farmers who, of course, supported Donald Trump. American farmers are getting quite alarmed by this.

How worried are you? Well, it's a matter of concern when your largest soybean export customer is having negotiations with your government. Rural white working class people were big supporters of Donald Trump. Of course, his desire to have trade conflicts was not a well-kept secret during the campaign. But I think they were taking him seriously rather than literally. I'll tell you what, folks, there's got to be consequences. But it turns out he meant that literally.

And there's a lot of alarm in the American agricultural sector. China, you know, also is bracing for impact. They have been moving to reduce the price of their currency, moving to start purchasing more agricultural products from Brazil and other countries, and sort of try to weather the storm. But Donald Trump still has super high approval ratings amongst his base, right? Is there any sense of if this does get real and nasty and people start to really suffer under it,

is there a sense of who can outlast the other, who can withstand a trade war better? Yeah, I mean, there's different ways of thinking about it, right? The Trump administration's view is there's a big trade deficit, and so China needs exports to the U.S. more than the U.S. needs exports to China. That's one view. Another way of thinking about it is the United States is a democracy whose officials are

accountable to the public and need to respond to short-term problems, whereas the Chinese can sort of ride it out for the longer haul. If Trump has to come to Congress and say, oh, we need a new law to help out all the soybean farmers, well, some people in Congress are going to say like, no, like you created this problem. I'm not going to give you extra money to solve a problem of your own creation, right? Being dictator is probably easier than being president. You know, another way of thinking about it is that the U.S. is focused on, I would say, a sort of unclear set of negotiating objectives. That's advantageous in the sense that Trump can sort of declare victory and go home.

On the other hand, it's hard to win when you're not clear on what it is you're trying to do, right? I mean, what China wants out of this is for Americans to keep buying stuff and for them to keep buying American stuff. It's difficult to know how we are going to feel certain that the Chinese are not doing industrial espionage or whatever else it is we're concerned about. Coming up in a minute, it's hard to predict who might win this trade war, but is the United States already losing? This is Today Explained. Tell us a bit about the family. So you've got, there's four of you. We know you're a chrome man. What about the wife?

What about the two boys? What kind of toothbrushes are you going to go for for them? Yes. People at home might not be familiar with all the options there are. So I'm a kind of a Chrome guy because I'm a little bit of a gear head. And so I like fancy stuff when it comes to like gear. And so I am kind of upgraded to the $40 Chrome instead of the $25 kind of starting toothbrush. My family, my little boys, I have a two and a five-year-old, and then my wife are not as kind of snobby about gear as I am.

So I think I'll probably just get them the standard one, and they'll be very happy with it. Great. You got colors in mind? Whoa, I haven't even thought about colors. They've got lots of different colors at getquip.com. I should start thinking about colors. Also start thinking about free refills because a whole lot of them are going to be coming to your house pretty soon. That's right.

Well, you know, I tell the story that a couple of months ago, we put tariffs on washing machines coming into the country because they were dumping the machines all over the place. And we had lost our manufacturing abilities for washing machines. Now we have plants being built, put a 30% tariff on, and we have plants being built. And nobody's seen that in many, many years. And it's happening at a rapid pace. Trump's making this argument that more tariffs will lead to more manufacturing in America. Is that a reasonable argument to be making? It's probably true in the long run that if we could not import manufactured goods, we would have more Americans making manufactured goods.

I'm not sure that it would be good to have more Americans in manufacturing jobs and everybody paying higher prices for things. I think the bigger issue is that in the short term, it's just it's disruptive. There are people working in all kinds of fields who rely on Chinese imports to do their job. If you are using Chinese-made lathes and Trump is cutting you off from them, it's going to take a while for America to build up that whole supply chain. And what does everyone do in the interim? And in the interim, Harley-Davidson is getting hit by some of these tariffs,

and they're saying they're moving some of their production to Europe. The iconic motorcycle brand said it was making the change to avoid losing up to $100 million a year due to new European Union tariffs. Wouldn't the great irony of this be American manufacturers moving abroad to make stuff? Yeah, I mean, it would be hugely ironic if the upshot of this is for not just motorcycles, but the sort of crown jewels of American manufacturing in airplanes and things like that moving abroad so that they are not subject to these kind of trade tensions. And what's the president's reaction to like Harley Davidson been?

He has criticized them on Twitter, as he tends to. The president's overall view is that the trade deficit is really bad. And because the U.S. has a big trade deficit, if global trade goes to zero, that's like beneficial for us on net. I don't think that that's true. It doesn't make a lot of sense. But it's something he says a lot. And I think he says it because he believes it. I'm not sure if Xi Jinping is criticizing Chinese industry in all of this, but the president is,

right? I mean, he's literally talking smack to Harley Davidson on Twitter and in speeches. Harley Davidson, please build those beautiful motorcycles in the USA, please. Okay. Don't get cute with us. Don't get cute. How does that affect American manufacturing? Are companies feeling threatened to make the decisions that are in the best interest of companies? I think corporate decision makers are a little bit confused. And politically, what you see is dissension in America. Donald Trump is obviously a very controversial figure in American politics. And you see abroad, whether it's China

or democratic countries, Canada, European Union, we see a lot of solidarity in those places. Nobody is saying to Justin Trudeau, oh, you really ought to back down and give Trump what he wants in Canadian politics, right? Whereas in the US, like Trump has a powerful office, but a more tenuous political position. Like some members of his own party are critical of him on trade. Some Democrats maybe quietly favor some of these moves, but nobody in the Democratic Party is going to go out and clap for Donald Trump. And that's because he's the one who's starting all this trouble. But Democrats, Democrats are into trade wars too? Yeah. Before Donald Trump arrived on the scene, the main proponents of this kind of

tough on China trade policy were Midwestern Democrats. You know, guys like Sherrod Brown from Ohio, representatives from Michigan, other places like that. So I think that you would find that labor unions and sort of labor-aligned Democrats in the Rust Belt are probably sympathetic.

And what about the Democratic socialists? Where do they come down on this? How's Bernie feel? This is actually really interesting. Bernie Sanders has been like a longtime critic of free trade and a proponent of changing NAFTA, pulling out of the WTO, things like that. that it is high time to rethink our trade policies so that they begin to work for the middle class of this country and not just the CEOs. Polls tend to show that Bernie Sanders' supporters are actually very open to trade. And you don't see as much of that kind of anti-trade rhetoric coming from the newer

cohort of like social democratic politicians out there and running. So there's a little bit of a tension between Sanders' personal politics and where that movement is going. Looking at this trade war situation now that there's been a couple of volleys back and forth and it's about to be a reality tomorrow, is there an argument in favor of President Trump's policy here? You can make a case for what he's doing legally. I would say the main thing is that he's doing so many different things on trade that it's easy to see an argument for any one of them. But it's hard to see what the overall strategy is here because with each country, he has a unique complaint, right? So the Canadians, they're not buying enough milk.

The Chinese are doing something with their intellectual property. The Germans have taxes on cars. And it's just kind of all over the place, right? So the Canadians, they're not buying enough milk. The Chinese are doing something with their intellectual property. The Germans have taxes on cars. And it's just kind of all over the place, right? If you picked one of these issues, I think you could make a lot of progress on it. But it's hard to take everyone on on all topics simultaneously. But that's exactly what we're doing. Yes. So how big a deal is this first salvo tomorrow we shouldn't exaggerate right trade war sounds really really dramatic um this is a big deal if you are an american pork farmer or work in a handful of other agricultural commodities it's a really big deal for your industry if you don't you're probably not gonna notice right you're gonna wake up Monday, life is the same. The big deal is what

happens next. Do we go from these $34 billion in tariffs, and then we work something out, and it all goes away? And we say, oh, that was a funny thing that happened? Or do we go to the $50 billion, and then the $200 billion? The more rounds you have of retaliation and counter-retaliation, the bigger deal it becomes and the harder it becomes for the administration to shelter ordinary American consumers from the impact. Matthew Iglesias. He's one of the hosts of the Weeds podcast from Vox. I'm Sean Ramos from This Is Today Explained. Irene Noguchi is our executive producer. Bridget McCarthy is our editor.

Noam Hassenfeld and Luke Vanderploeg produce the program. Afim Shapiro engineers it. And the retaliatory Breakmaster Cylinder writes original compositions for us. Today Explained is blessed with two summer interns. They are Catherine Wheeler and Bree Seeley. And we are produced in association with Stitcher and are part of the Vox Media Podcast Network. My name is Will Compernell.

I live in Long Island City, New York. My favorite episode of Today Explained is Cambridge Analytica. And everyone should follow at today underscore explained on Twitter. Okay, before we go, colors. The wife. Izzy? Man, I don't know. I think she's been into neutrals lately. So I could see her going for kind of just a clean, like, neutral, whether there's like a white or gray or something. I think she'd be into that. And the boys, what are their names?

So Henry, who's the five-year-old, has literally adopted red as his color. So if we see something, a red car, he'll go, that car is my color. Perfect. Good thing you live in D.C. where all the sports teams also have endorsed red. Yeah, I think that's a big part of it too. And the two-year-old is in the cliche terrible twos and will probably just hate everything that we give him. I don't think he'll be pleased by any color.

What's his name? His name's Oliver. We're sending our thoughts and prayers to Oliver. Thank you. He needs them.