Today, Explained - You're tariffing us apart

Episode Date: June 7, 2018

North America isn't getting along anymore. Canada's Prime Minister is having testy phone calls with President Trump about the War of 1812. Mexico has slapped the United States with a $3 billion dollar tax bill. It all comes down to steel. Today, U.S. senators from both aisles announced new attempts to curb the president's tariffs power. Vox’s Matthew Yglesias explains how steel sparked a trade war. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Vanderplug. Ramosfirm? Hey, yeah. Guess what's back this week? I think it's ZipRecruiter. And I think I already know that because I feel like we've been here before. ZipRecruiter.com slash explained.

Yeah. Hasn't this happened before? I feel like it has, yeah. The smartest way to hire, right? The smartest way to hire. The smartest way to hire. The smartest way to hire. It looks like the United States is breaking up with some of its best friends. This week, Mexico hit the U.S. with about $3 billion worth of tariffs on pork, on cheese,

on steel, and a whole bunch of other goods. And just yesterday, CNN broke a story about a testy phone call between President Trump and Justin Trudeau over steel tariffs. Trudeau was all, why are you doing this? Trump was all, you're a national security threat. Trudeau was all, what are you talking about? And Trump apparently was all, Canada burned down the White House in 1812. And the White House burned, burned, burned, and we're the ones that did it. And the Americans ran and cried like a bunch of little babies, wah, wah, wah, in the War of 1812. This is, in earnest, the start of a trade war.

And it all started with steel. And back in March, I asked Matthew Iglesias, why steel? So today, we're going to revisit that episode. You might have heard we're heading for a trade war. Wall Street is worried about a trade war. President Trump says he will slap tariffs on steel and aluminum. Which seems bad. This is leftist economic policy, and we've tried it a whole bunch of times over the last two centuries,

and every time American families have suffered. I love the president. I think he's done a terrific job up to now. This could turn everything the other way. But also, maybe good? The president's hasty announcement of a trade war appears to have been spooking markets. He wrote, When a country USA is losing many billions of dollars on trade, with virtually every country it does business with, trade wars are good and easy to win.

There are a lot of moving parts to this thing. Aluminum's involved. NAFTA's affected. Brazil's going to be mad. If the United States is about to piss off a bunch of its friends, you should know exactly why. Steel. So I asked Matthew Iglesias what's up.

He writes about economic policy at Vox. I really thought I understood how decision making worked in the Trump White House and then it changed. We started with the question a lot of us have been asking lately. What's the deal with steel? It's heavy. It's strong. Some of it is imported from foreign countries and Donald Trump is going to put a 25% tax on that imported steel. The idea is that by taxing foreign steel, we are going to boost the domestic steel industry.

And certainly in the short term, it's going to create a big profit opportunity for domestic steel makers because they could raise their prices up to the new sort of higher rate that foreign steel is going to cost. So in the short term, you're looking at higher prices for people who use steel, bigger profits for American companies that make steel. And then in theory, if the 25% tax stays on for a long time, that greater profitability could lead to an expansion in domestic steel production. So how do we get here? I mean you hear a lot about cheap Chinese steel flooding the market. What's the history here? The American steel industry took

a big hit in the late 1970s and early 1980s when some foreign countries, at the time Japan was a big player, it's gone global since then, upped their quality game in terms of steel production. American steel output fell a lot in that period. And it's been pretty steady for the past generation. So we're not looking at a steady erosion of US domestic steel production. It fell a bunch. It never really came back. But it's been going OK despite these tariffs. And we do import a lot of steel.

The number one source of foreign steel for the United States is Canada, not exactly a distant land. There's a lot of commerce back and forth across that border. They do do a lot of steel there. I feel like we've seen a lot of news back and forth in the past week about these steel tariffs. Could you kind of walk us through the back and forth of it? Sure. So there have been reports for weeks that the White House was having internal arguments about whether or not to do this. And the situation became very chaotic at one point last week when reports came out that tariffs were going to be imposed almost immediately.

And then other reports said, no, no, no, there's not going to be any announcement this week. Then we heard on Thursday, Trump is going to do a meeting with executives from metal companies. So we did the meeting and then he comes out of the meeting and he just announces to the press pool, yeah, we're doing it. It'll be 25 percent for steel. It'll be 10 percent for aluminum. And it'll be for a long period of time. Tariffs are coming. And then he followed that up, not with, you know, a well-crafted executive memo laying out all the details of this, but with a couple of tweets. And then he's been

reiterating on Twitter ever since all weekend that this is happening, that he's ready for a trade war. He thinks we can win a trade war, that Canada and Mexico need to make concessions on NAFTA or they're going to be hit too. He put out a couple of advisers on television over the weekend to defend this policy. Wilbur Ross. This is a can of Campbell's soup. In the can of Campbell's soup, there's about 2.6 cents, 2.6 pennies worth of steel. So if that goes up by 25%, that's about six tenths of one cent on the price of a can of Campbell's soup. Well, I just bought this can today at a 7-Eleven down here, and the price was $1.99. So who in the world is going to be

too bothered by six-tenths of a cent? Here's a can of Coca-Cola. Interestingly, they still have not actually done it. They keep saying that the tariffs are coming. It seems like they are coming, but it has not been officially enacted. That said, the authority to do this sort of resides inside the Commerce Department. And the Commerce Secretary, Wilbur Ross, he has a background actually as an investor in the steel industry. He is a proponent of these tariffs. Steve Mnuchin, the Treasury Secretary, Gary Cohn, the head of the National Economic Council, Secretary of State, they are all said to be opposed. Those are sort of the major heavyweights in most administrations. But Ross, the Commerce Secretary, he's for this.

So is Peter Navarro who heads a special White House office on trade and manufacturing. So it definitely appears that this is going to happen, but it has not literally happened yet. And why are Ross and Navarro on board with so many Republicans standing against it? I mean, it's a little difficult to speculate, but the general view seems to be that the existence of a trade deficit, right? The United States buys more from abroad than foreigners buy from us is really bad. That's what they think. And so anything that pushes back against that, they have some kind of sympathy for. The particulars of why aluminum and steel are being chosen, some of that has to do with the politics. This is a big concern in Pennsylvania and Ohio, which are sort of specifically areas that

matter to partisan politics. There is authority to invoke tariffs for strategic industries to protect national security. That's a power that the president of the United States has. The argument that American national security is threatened by importing steel from Canada is a little, I would say it's questionable. The implication is that we might fight a war with Canada or that if we fought a war with someone else, the Canadians might refuse to sell us steel. Like a real war, not a trade war. Yeah. The larger issue though is that Peter Navarro, he's an economist. He has a PhD. He

was a professor in the University of California. But his views on trade are way outside the mainstream of the profession. And he appears to think anything that makes it harder for Americans to buy goods abroad is going to be good for the American economy because we will buy more that's made at home and that will create jobs. Almost nobody believes a view as simplistic as Navarro's. It almost sounds like a straw man view at times. But this seems to be what he really thinks. And outside of the Americans who might feel this directly because of their employment situations in Pennsylvania or Ohio, how might the average person come to encounter these tariffs if they are approved?

Sure. You know, if these tariffs come in, you should be looking at somewhat higher prices for consumer goods. Like a can of beer? Cans of beer, cars, large appliances. So, you know, if you think about it, right, I mean, if you look at a can of beer, right, now the metal content of that beer is not that big of a deal compared to the cost of actually brewing it,

shipping it, refrigerating, retail markups, things like that. So don't expect to see the price of beer explode or anything, but it should go up a little bit. For construction, though, is where you might see the biggest impact. I mean, if you're not in the market for housing, you won't necessarily notice that. But a lot of construction projects happen on very thin margins. There's very complicated calculations. Big buildings in particular have a lot of steel in them, and it could be very disruptive to that industry. How that matters downstream is going to depend a lot on where you live. But like in Sunbelt cities that are growing fast, that have big construction industries. You know, that should be a big problem.

I think the biggest question, though, for the typical American isn't what happens with the steel and aluminum. It's what happens next. Like a trade war or something? Right. So Europe is going to target some American products. Probably they're going to get cute. They're talking about bourbon because Mitch McConnell's from Kentucky.

They're talking about Harley Davidson's because they're made near Paul Ryan's district. They're talking about blue jeans. Wow. Because they're made near Kevin McCarthy, the House Majority Leader's district. Are they going to tax Bruce Springsteen or something, too? They're going to hit congressional leaders with some Americana-type stuff. And that'll be bad for some people who are impacted. But then the real question is, like, what happens after that, right?

Does Trump say, OK, it is what it is, and we all move on, and we talk about the next crazy thing that happens? Or does he put in a new round? And if he does that, the Europeans will retaliate again, and then we'll retaliate again. So you could see an incredible escalation, and that would be a really big deal. Just ahead on Today Explained... Dun-dun-dun-dun-dun.

Steel. Republicans are mad at President Trump about his steel tariffs, but a bunch of Democrats are totally down. Steel. More with Matthew Iglesias after the break. Steel. Steel. It's heavy. It's strong.

Steel. Oh, I'm trying to conform. Heavy. Strong. Steel. Remember when we posted that job on ZipRecruiter.com slash explained for an intern? Yeah, I do. I also remember us talking about it yesterday

and the day before and the day before that. Basically, since we've had these interns, we've been talking about how we time loop with our ZipRecruiter.com slash explained ads. How did we get here? I don't know. Do you think we'll ever get out? I don't know if I want to. Because this isn't the worst place to be, right? I don't know. Is it free? It starts free, and then eventually you have to pay.

But you get to post that first job at ZipRecruiter.com slash explain for free to try it out. Huh. The smartest way to hire. The highest rated hiring site in America. I'm Sean Ramos from This Is Today Explained. An important takeaway from all this recent steel talk is that steel tariffs aren't new. In fact, the last time a Republican president imposed them was... I decided that...

Just the last Republican president. Imports were severely affecting our industry, an important industry, had a negative impact, and therefore provide temporary relief so that the industry could restructure itself. Did it work out for him politically? Bush put these things forward in part to sort of gain political support in Pennsylvania and Ohio. More narrowly, he was trying to cobble together the votes to pass a trade liberalization measure through Congress. So in that sense, it worked, right? They got the vote in Congress that they needed. They sort of bought some people off with the steel tariffs. Ultimately, though,

Europe imposed some tariffs as a sort of countermeasure. Revenge. Yeah, revenge. And that became a political problem of its own. Bush backed down after less than a year and a half of his tariffs to sort of resolve this. Studies that have been done, you know, they show that the Bush tariffs, they did create jobs in the steel industry, but they say that they cost more jobs than that in industries that use steel. Some aspects of trade policy are, I think, very complicated. This particular thing

is quite straightforward, though. It's nobody, I mean, maybe you're a weirdo and you do, but nobody just like buys steel, right? You buy stuff that is made of steel. And so making steel more expensive, it's good for the people who manufacture steel,

but it's bad for the people who manufacture steel, but it's bad for the people who manufacture stuff that is made out of steel. There are more manufacturing workers employed in industries that use steel than in industries that make steel. So it's a tough sell. It's a tough sell, but it's also sort of a sell that's making these strange bedfellows. Like, a lot of Republicans are angry and some Democrats are down? Yes, exactly. Bob Casey, Senator from Pennsylvania, Sherrod Brown, Senator from Ohio,

Representative Ryan, also from Ohio, from a steel producing region. They've been very, very vocal. They're very for this. Trade politics is easy if you are a member of Congress. I remember I asked one chief of staff on the Hill, you know, what do you think about this? And he said, we're either for steel and against aluminum,

or it's the other way around. I can't quite remember. And I said, like, well, what do you mean? And he was like, we have a factory. They either use steel or they use aluminum. I can't remember which one. So we're against that one. They're not actually making trade policy. You're just taking positions. So you look at your district and you just look at what company headquarters, what factories do I have? If you have a steel mill, you're for steel tariffs. If you have a plant that uses aluminum, you're making cans or something, you're against aluminum tariffs. And it's simple. You count on the president, not just on trade, but on a wide range of issues to be able to take a sort of a broader view than that, right? Because you're

the president of the whole country. So you sit and you say, look, we got a lot of can factories, we got a lot of steel factories. I need to, I understand that everybody wants what's good for them. But I need to, at a minimum, like count everybody up and sort of weigh what's the public interest. Something Trump did earlier that was less controversial was he put tariffs on imported Chinese appliances. Yeah.

I am taking action to impose safeguard tariffs on imported residential washing machines and all solar products. It's going to raise the costs of washing machines to some people, but also be a big help. But so washing machines, other household appliances, they're made of metal, right?

So earlier in the year, he's trying to help American appliance manufacturers. But now he's hurting American appliance manufacturers. So instead of a thing where maybe we all pay a little bit more for our washing machines, but we preserve a domestic industry, now we're all going to pay a little bit more for our washing machines, but we preserve a domestic industry. Now we're all going to pay a little bit more for washing machines for no reason at all. With the left hand, we're helping the domestic appliance manufacturers. With the right hand, we're hurting the domestic appliance manufacturers. In the end, like nobody is helped.

And that's what happens when you don't have a real policy process. You have a president whose instincts incline him to favor tariffs, but whose political party and whose economic team is disinclined to favor tariffs. So he's just doing things and there's not a lot of rhyme or reason to when he's putting these on or what kind of strategy he's advancing. What about President Trump's promise to make America great again? If not the most coherent set of trade policies, is this at least checking off a populist appeal box or something? I mean, I think that's exactly to the point, right? Trump practices very adeptly a kind of symbolic politics, a politics of nostalgia, a politics of true Americaneness. And the image of steel in particular is very important to that. The image of coal is also important to that. The image of rural America is very important to that. And Trump paints a good vista of sort of all these things going together and him promoting a backward-looking, nostalgic, great, we were great in the past, we will be great again in the future by being more like how we were in the past.

Then when you look at it on a policy level, it's much more difficult, right? So Trump has celebrated the opening of some new auto plants in the United States saying it's great. Thanks to me, they're coming here instead of coming to Mexico. But the steel tariffs encourage you to build the car in Mexico, right, where the steel comes in without the tariff, and then you ship the car. So that's backwards, too. There's a tension there. And in general, American agriculture, really rural areas where they're growing corn and soybeans and meat, they've been huge winners from global trade. America is an enormous exporter of agricultural commodities all around the world. And if you have a big disruption to the world trading system, that's going to be a lot of

Trump supporters, you know, rural Midwestern Americans involved in the farm industry, either directly or indirectly, are going to be harmed. So the policy details just do not go together nearly as nicely as the symbolic politics. And so Trump sort of does best when he's heavy on symbolism and low on substance because when you try to put more and more substance into delivering on these promises, you find that they're in a lot of tension with each other. Matthew Glacius is a senior correspondent at Vox. He also hosts the Weeds podcast. I'm Sean Ramoser.

I'm host of the Today Explained podcast. So, does this mean we'll never get to hear from the interns? I don't know. It would be good if we could hear from the interns. Yeah, I mean, they seem really nice. Have you met the interns? I have, yeah. Yesterday and the day before and the day before that. We wouldn't have had them if it weren't for ZipRecruiter.com slash explain. That's true. The smartest way to hire. The smartest way to hire. The smartest way to hire. The smartest way to hire. What if,

what if the interns put us in this time loop? What if, what if the interns put us in this time loop? What if the interns put us in this time loop? One more thing. At the end of the week, you want to make sense of all the political news that's come to pass. Turn to the Political Gab Fest. These guys practically invented the political podcast. The Political Gab Fest dissects everything from the Mueller investigation to all the big decisions coming out of the Supreme Court to the future of public unions and sexual harassment in Congress. The show's three hosts are veteran journalists. You got Emily Bazelon with the New York Times Magazine, David Plotz from Atlas Obscura, and John Dickerson of CBS This Morning and The Atlantic. Subscribe to the Political Gab Fest wherever you get your podcasts and you'll automatically get new episodes every Thursday. Check it out.