00:00Joining us now is Douglas Irwin, professor of economics at Dartmouth College. He's the author
00:04of several books on U.S. trade policy, previously served on President Reagan's Council of Economic
00:09Advisors, and at the Federal Reserve. Professor, we're so thrilled to have you on. Nobody knows
00:14this topic better than you. And just looking at the details of this, it's not the White House
00:19punishing countries for using forced labor. It's saying you don't have the rules to prevent goods
00:23from coming in, or maybe even the case of Canada. You have a rule, but you don't have data. So
00:28we're
00:28not sure that you're actually enforcing it. What do you just make of the method that the White
00:32House is using this time with Section 301 to impose tariffs? Well, the White House has made it obvious
00:38that they want to continue the tariff regime, and this is just sort of a way of doing so. It's
00:43sort
00:43of a stopgap measure before we get even more tariffs under another Section 301 investigation
00:49that's coming. But we're just coming off this time-limited 10% across-the-board tariff under
00:55Section 122, and that's because the Liberation Day tariffs were struck down by the Supreme Court.
01:01So these tariffs were expected. They're pretty much flat at 10% or 12.5%. There's a lot of oddities
01:09here. We're treating Angola the same way we do Australia, with a 12.5% tariff. And those countries
01:15differ very much in terms of their dealing with forced labor. So it's a little bit of an excuse just
01:21to keep the tariffs in place until they can get even higher tariffs imposed down the road,
01:26which I think they want to do. Professor, you also say that these
01:29looming tariffs are designed to replace the Liberation Day tariffs that the Supreme Court
01:33shut down. I mean, these measures, though, appear more legally defensible, although, of course,
01:38I mean, court challenges are still inevitable.
01:40Yeah, I think that's right. So Liberation Day, that was struck down by the Supreme Court.
01:45They were replaced by these tariffs under supposedly a balanced payments emergency,
01:50but those are time limited. Those are also challenged in the courts, and the Court of
01:54International Trade struck them down, but they're still under litigation. But the Section 301 tariffs,
01:58I think, are in stronger legal ground. They probably will be challenged in the courts,
02:04but it's not clear that the courts will overturn them. So these tariffs are probably here to stay for
02:09some time.
02:10The net effect of this, though, compared to what we had with the Section 122 tariffs,
02:14there's only a slightly higher overall tariff regime. Douglas, does this suggest to you that
02:19the president's aim of getting back to where we were post-Liberation Day is just unfeasible for this
02:25administration?
02:27No, because these are continuing those previous tariffs that we've had in place since the Supreme
02:32Court decision. But there's a lot more Section 301 cases coming down the pike on the grounds of
02:38excess capacity in other countries. And that's a case where I think it'll target China.
02:44China, maybe the European Union, and a few other countries, and potentially lead to much higher
02:48tariffs than this 10 to 12.5% range we've been talking about. So those are the ones I think
02:53that will really try to bring back the Liberation Day levels that we saw last year.
03:00And, I mean, businesses have spent years adapting to shifting trade rules. I feel like even I myself
03:05am having a hard time keeping up. I wonder if this kind of uncertainty becomes as costly as the
03:11tariffs themselves.
03:13Very much so. You know, once again, since we've had relatively flat tariffs since the Supreme Court
03:18decision, about 10% or so, across the board, affecting all suppliers, firms that were importing
03:23didn't really have to think about where they're making their sourcing decisions. But I think,
03:28once again, it's not these tariffs that have just been imposed today, but the ones that are coming
03:31soon. That's going to vary by country. And that means all sorts of firms are going to rethink their
03:37supply decisions because the tariffs will differ by country and by product. And you have to think
03:42through where you're sourcing things from and makes logistics incredibly complicated.
03:47For these companies, though, let's just take pharmaceuticals as an interesting case study
03:52where the president says that for generics, he's going to be opposing 100% tariff. That comes into
03:56effect two years from now when it's going to be the twilight of this president's presidency. How does a
04:03company even think about something like that? Do they start to adjust or do they assume that this
04:07is not sticky, that it's something that next administrations are able to undo, or that lawsuits
04:14come and something prevents the worst case scenario from happening? Well, you're right to put your finger
04:19on the idea of a tariff uncertainty, because once again, those tariffs would come down the pike.
04:24You don't know whether they're actually going to be implemented. And that's why there's been an
04:28explosion of tariff lobbying, lobbying by firms to press the administration to get some certainty,
04:33to get some exemptions. There have been a lot of exemptions that have been doled out over the
04:37past year and a half or so. And the same will be true with these incoming tariffs. And so it's
04:44just
04:44an incredibly uncertain environment. You don't know whether to source at home or abroad, which countries
04:49abroad might be hit, whether the tariffs will be in effect for a short period of time or a long
04:54period
04:54of time. That's the environment businesses have to navigate these days.
04:58And talk to us about the objectives here, in your view, because these tariffs are really not leading
05:03to the outcome that I think the administration wants. I mean, now it's time with the war in Iran.
05:08It's not popular in the midterms. You also said in your notes, it's not popular in Canada.
05:14Yes. Well, figuring out exactly what the objective has been difficult. So just as they've applied different
05:19types of laws to justify the tariffs, they've had different rationales for the tariffs. So sometimes
05:24it's to raise revenue. And President Trump has talked about all the money pouring into the government
05:29as a result of the tariff revenue. Sometimes it's to strike a better trade deal. But then you have
05:34to question, well, what are the deals and are they actually beneficial to the U.S.? And sometimes it's
05:39to reshore manufacturing and ensure economic security. And the question is, well, is that working?
05:45There's a lot of uncertainty. Firms don't know whether to reshore or not or to source from this
05:50country or not. We haven't seen a manufacturing renaissance yet. The administration keeps promising
05:55it. But whenever we don't see some of the indicators working out well in terms of the
06:02administration view, they can point to something else, such as the revenue or the better deals.
06:07So it's always a changing situation there as well in terms of what they're trying to achieve
06:12with the tariffs. The White House has pointed to an industrial build out, but it is worth noting
06:16that a lot of that is centered around data centers, not anything about bringing manufacturing back home
06:20for these various tariff sectors. Douglas, this is something Isabel pointed out. Polling consistently
06:25shows the majority of voters, somewhere between 60 to 64 percent, do not agree with this president's
06:32method of applying tariffs. And this is ahead of a midterm. I, though, was listening at USTR rep
06:37Jameson Greer speaking to The New York Times, saying there's always 40 percent of voters that
06:42automatically will disagree with everything this president does. Is it is it clear that political
06:46pressure will not assuage or not move rather sway this administration into backing off the most extreme
06:53impulses on tariffs? Well, they're a little bit of a bind because obviously people are very sensitive.
06:59Households are very sensitive to this affordability agenda in the issue. And with the Gulf War,
07:04oil prices going up with tariffs being taxes on imported goods, pushing up the price of imported
07:09goods, that's also raising the cost of living. The administration has also been quite flexible in
07:15sometimes reducing tariffs. So the tariffs on coffee and bananas last year under Liberation Day,
07:21those, because they were politically controversial, households felt the effects of them,
07:25they eliminated those. They just recently relaxed some duties on importing aluminum because there's a
07:32shortage of aluminum in the US and they want to relieve that supply constraint. So I think they're
07:37aware of the fact that tariffs do increase prices and create shortages in certain markets. But the
07:43president also really wants to impose these tariffs. So they're trying to navigate this situation
07:48between doing what the president wants and trying to not play into the opposition that will point to
07:55higher prices and the affordability issue.
07:57It definitely still is a fluid situation. But if there's an action, there's a reaction. And if
08:01countries retaliate, how worried are you about a global trade war?
08:05Well, what's been interesting is the rather muted reaction to other countries to the Liberation Day
08:10tariffs and the subsequent ones. China certainly retaliated. Canada has to a limited extent.
08:17But other countries sort of held their fire. And I think what they realized is that starting a trade war
08:23with the Trump administration isn't really going to work. It's just going to make a bad situation
08:29worse. And therefore, they've decided to hold their fire. So we haven't seen a general outbreak
08:35of a trade war the way we have in the past. Certainly during this first term, there was a lot
08:41more
08:41retaliation to the steel tariffs and the China tariffs, but not so much during this second term.
08:46Well, one of the interesting things is Europe, for example, hasn't retaliated necessarily. I mean,
08:51there have been some fits and starts. But what we have seen is what appears to be an embrace of
08:56China and more closeness between the two countries. There had previously been this fear that if the
09:01U.S. puts a lot of tariffs on China, China floods Europe with its cheap products. Douglas, I wonder
09:06what you make of just the changing landscape of trade relations with countries and China as the U.S.
09:12tries to push not just China away, but everybody.
09:17Yeah, I mean, this is a very interesting issue, both for Europe and the rest of the world. Pew just
09:22recently came out with a poll showing that most people in the rest of the world trust China as a
09:26partner as opposed to the United States. So because we've sort of hit so many countries with tariffs that
09:32other countries view as unfair, and let alone issues relating to NATO and what have you, there's a lot of
09:40concern in the rest of the world about the liability of the trade agreements we've signed in the past and
09:46the U.S. as a trade ally.
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