Trump, Tariffs and Trade: 100 days and counting

Episode Summary

In this episode, Amar discusses with Prof. Alan Winters, University of Sussex and Lorand Bartels, Freshfields LLP, the first hundred days of President Trump’s trade policy, focusing on the significant changes and unpredictability surrounding tariffs. Experts analyse the motivations behind these tariffs, the reactions of various countries, and the implications for the global trading system. The conversation highlights the challenges of negotiating trade agreements in a protectionist environment and the need for countries to de-risk their trade relationships with the US. The conversation delves into the complexities of current trade policies, particularly focusing on the impact of tariffs and protectionism on the US economy and international relations. The speakers discuss the internal and external forces shaping trade decisions, the implications for manufacturing and job markets, and the continuity of protectionist policies across different administrations. They also explore investment strategies in light of tariffs and the intersection of national security with trade relations, concluding with predictions for future trade policies.

Transcript

Amar Breckenridge
Hello, everyone, and welcome to this edition of the Trade Knowledge Matters podcast, our regular podcast on all matters related to trade policy. Now the new US administration led by president Trump has recently competed its hundred days, and the eagle eyed observers amongst you will have spotted that trade policy has been a flashpoint with reverberations across the world. And that was to be expected in part. During his presidential campaign and the lead in to his inauguration, president Trump repeated his great love of tariffs, a position he has held for decades. Now having had a glimpse of this enthusiasm for tariffs in Trump’s term, it remained to be seen how this enthusiasm would then carry through into the term and this time around with far fewer restraints on presidential power.

It’s fair to say that to date, it’s been a short but strange trip. In the latest twist, the president announced 100% tariffs on films made in what he calls foreign lands. Whatever may come to that come of that, I’m sure that many could find choice titles for a film dealing with the current state of US trade policy. At any rate, the plot line has been intriguing. The initial tariff salvos were directed at China and at The US’s closest neighbors, Canada and Mexico.

The administration invoked national security grounds, claiming that the tariffs are directed, amongst other things, at fentanyl smuggling. In any event, 25% on tariffs in Canada, which were announced, were then paused for a month. And then the scope was scaled back to apply to trade that’s not compliant with provisions of The US Mexico Canada trade agreement, which president Trump had negotiated in his term. This did not stop Canada retaliating with its own tariffs on US imports. The most talked about measures, though, have been the misleadingly named reciprocal tariffs the president announced on the April 2.

These involved 10% base rate tariff on all imports, plus a wider range of partner specific tariffs, loosely, and some would say absurdly, calculated off the basis of US bilateral goods trade deficits with its different partners. The partner specific tariffs are currently on hold while these partners negotiate with The US. It is reported that some 75 countries are in the process of trade negotiations with The US in a bid to offer market access and other concessions that may stave off the higher duties. There are also sector specific tariffs in automotive, steel, aluminum, pharmaceuticals, and semiconductors, which all follow or will follow separate processes and, more traditionally protectionist than than the reciprocal tariff process also underway. The US is increasingly aware of its own dependence on imported inputs, And therefore, the USTR has pulled back some tariffs on oil parts and increased exemptions in the areas of electronic goods in a bid to manage effects on consumers and supply chains.

And in the midst of all this, there is a specific case of China, which has engaged The US in a tit for tat tariff war. US tariffs on China are nominally at 145%. The USTR has pointed out that when the reciprocal tariffs, the so called fentanyl tariffs, and retaliatory measures are stacked onto each other, the total increases to a staggering 245%. Chinese tariffs on US goods stand at a 125%. And these eye watering amounts might explain why both parties have agreed to kick start trade talks in Geneva on the May 10.

And while tariffs have taken up a lot of airtime, there are other important announcements related to trade policy that have come into play. These include the scrapping of de minimis exemptions applying to parcels of under $800 which is a blow to ecommerce and also of under $800, which is a blow to ecommerce and consumers, and a steep increase in fees levied on Chinese vessels entering US ports. Now in this flurry of numbers, policy announcements, changes, and pauses might have left you flummoxed. You aren’t the only people in that condition. Financial markets have reacted badly to these announcements with uncertainty as much as actual tariffs flagged by investors as as a key concern.

And a rush to pile up inventories and to ship imports into The US prior to the tariffs taking effect had a material impact on US GDP growth in the first quarter. The the administration’s approach to tariffs has also been primarily through executive orders, and this has placed huge stresses on American institutions and policymaking. A tariff setting in The US usually sits with Congress, not the executive. The president may initiate tariff action under various provisions of the Trade Act and the Trade Expansion Act and also the International Emergency Economic Powers Act, which has emerged as the instrument of choice for the Trump administration. But the scope of these powers were meant to be limited, and the legislation, I imagine, did not envision trade policy by decree, still less trade policy by tweet.

And one of the key issues that the administration has not seemingly worked out yet is what exactly these tariffs are for. They are varyingly seen as means of reducing trade deficits, of raising revenue, of being instruments of industrial policy, of bringing down foreign trade barriers, and as geopolitical bargaining chips. The fact is that there are probably neither necessary nor sufficient answers to any of these objectives. And it is unlikely that that they can be the answer to all of these issues simultaneously. And what is also clear is that the swerves and lurches of tariff policy are as much, if not more, a product of internal bargaining between the factions of the presidential coalition as it is of relations between The US and trade partners, where the president’s propensity for policy by social media thrown in for good measure.

All this means, to return to the film analogy again, that much of the script has yet to be written. So to navigate these matters and to look at them in more detail, I’m pleased to welcome to this podcast, two eminent experts on trade policy. Professor Alan Winters is, the former co director of the Center for Inclusive Trade Policy. He’s an Emeritus Professor of Economics and founding director of the UK Trade Policy Observatory at the University of Sussex. He’s one of The UK’s leading authorities in international trade.

Also joining me is professor Lauren Bartels, and professor Bartels is professor of international law at Cambridge and counsel at Freshfields LLP and a leading authority in international trade law and international law. He’s the general editor of the Cambridge monograph series on trade and international economic law and an editorial board member of the main academic journals on international trade law. Alan, Laurent, welcome to the podcast. It’s a pleasure to have you here. In both your cases, pleasure to have you back.

Let’s begin with an opening question. The words unpredictability, havoc, and chaos are some of the expressions used to describe the hundred days of Trumpian trade policy, and these sentiments seem to be echoed by financial markets. Could you elaborate a bit on why that is? Is there, in fact, a method to all of this, if only from the point of view of bargaining and bargaining psychology? I might start with you, Alan.

Prof. L. Alan Winters

Yes. Thank you, Amar. And thank you for having me. The changes, the on off tariff that you’ve described, that is something that’s a sort of symptom of the unpredictability, but there’s much more behind it, I think, than just that. I mean, we might wanna talk about this a bit further, but I think there are five or six different motivations that are being offered, and they certainly conflict with each other.

Some of them seem largely independent of any tariff policy. So what on earth’s going on? In addition, we don’t really have a handle on Trump’s worldview. We understand he’s transactional. He thinks the world is a a zero sum game.

But beyond that, it’s really quite difficult to understand the way that he thinks works. It’s a very opportunistic way of trying to sort of cream up visible winds as events emerge. So I think in a sense, it is that we just don’t quite understand where all this is, and Trump is deliberately or otherwise on and off. Remember that some of the offs are forced on him. He he abolished de minimis quite a long time ago.

And then, you know, within a day, he had to say, well, no. Sorry. We actually can’t actually do it, so we’ll only come back to it in several weeks’ time. So I think that, essentially, we’re dealing with someone who likes that. Is it strategic?

I don’t like that. I just don’t think there is enough thought that goes into how this is managed to persuade one that it really is thought through. And also, of course, we’re talking about trade. That’s what we know about. But you can’t help noticing this chaos elsewhere, the way he’s picking off institutions, the handling of foreign affairs, the allies with Zelensky.

Zelensky is a dictator, and then he says, oh, did I say that? You know, in a sense, it it characterizes the whole waterfront. So I think we’re dealing with someone who is actually basically chaotic. Basically chaotic.

Amar Breckenridge

Would that be an appreciation you share as well, Lorand?

Lorand Bartels

Well, I agree, but I think that the policy positions that underlie these different tariffs do actually make sense, not economic sense and certainly not legal sense, but they make some sort of sense. And I think it’s worth distinguishing the different tariffs because they have different policies behind them. And, also, if you do that, you can make some predictions as to the durability of the different tariffs. So for instance, probably to take the easiest case, the sectoral tariffs on a metal, so steel, aluminum, which disappointingly for me includes beer cans, car parts, and cars, and, you know, looking forward to sectoral tariffs on pharmaceuticals, copper, lumber, semiconductors, and critical minerals. This is all very explicable in old fashioned terms of protectionism.

The stated aim of these tariffs is to bring manufacturing back home. I don’t think there’s anything mad about that. I’m gonna disagree about that as a policy, but it makes perfect sense. And I would also say it’s probably got bipartisan support. So I don’t think those sorts of tariffs are chaotic.

We might not like them, but I think they make sense, and I think they’re here to stay as well. Then we’ve got the anti China tariffs. It’s probably the next easiest to understand. That has to be seen in the context of a world historical shift of power to China and away from The United States. And those conditions, which go far beyond China subsidizing its industry and over capacities in steel and so on, those basic conditions aren’t going to go away.

So the, geopolitical dimension of this, I think, leads us, to be able to predict that there will be, blocks on trade between China and The US. Now how much? At the moment, it’s pretty much a complete embargo. But even in the cold war, The US and, well, the Western, the the Comic Con block had some trade. So I don’t think and there as you say, there are talks in Geneva this week.

I mean, I don’t think we can should expect a complete blockade. And then Besson said he doesn’t want a complete blockade. So the clearly, what we see now is the high watermark, but I think the overall tensions between the two entered between US and China, and that will play out in trade terms. I think that’s not going away. And that’s connected with the protectionism because in certain industries, there’s an economic security dimensions.

The US wants to create an a critical minerals domestic industry because it doesn’t like relying on a monopolist. And I should say that my point of view, I think one of the problems with the WTO, which everyone shares apart from maybe China, is that it was built on the idea that there would be security through different sources of supply, not that China would be the sole monopolist in a set of important industries. So the system hasn’t worked in that sense. Then you’ve got other tariffs, which are a bit matter, like the fentanyl tariffs. You know, the reciprocal tariffs, well, I think those are the only ones that you can really attribute to Trumpian art of the deal escalate to deescalate type thinking.

The others, I think, are all really a bit different. And even when it comes to these reciprocal tariffs, there is a 10% baseline, which is not gonna go away because they’ve been very clear it’s not gonna go away. Why? Probably a bit of protectionism, but also one theme, one rationale that hasn’t been much spoken about, but is there in their thinking is revenue raising. They genuinely think that you can make money out of tariffs.

And that 10% will give them some money at least. You know, the idea is that you have an external revenue service, which collects money instead of the internal revenue service, and that 10% starts to make, a little bit more sense. So to sum up, I think if you distinguish between the different policy rationales that are there and attach those to the different tariffs, I think it actually does make sense. And the only one which the only two I would tell you are really a bit odd and Trumpian, the fentanyl tariffs and the, you know, very high reciprocal tariffs, which as you say, have no economic foundation. But the others, I think, are probably here to stay.

Prof. L. Alan Winters

Can I add a little bit? I mean, I agree with Lorand’s ordering of how the sort of rationality of these different tariffs. But even the ones that we think are, as it were, explicable have been imposed in weird ways that we’re not used to. We had, for instance, you know, the car tariff, and then we suddenly discovered that cars have parts and that we’ve got big lobbyists and there are important interests that stay hidden for the Trump electorate. And so, well, we’re not gonna do it on cars.

And so it seems to me also the same really applies to the 10%. It may be that all the reciprocal tariffs were a smoke screen smoke screen so that we didn’t notice the 10%. But, you know, you think back to, Nixon. That was a straight up and down. We object to the way that we’re having to support the world, a monetary system, and we’re putting 10% on.

And we expect to have essentially a multilateral solution to that problem. So I think we can understand sort of where these things come from. But even so, the implementation has a degree of chaos that I think we certainly didn’t expect and we haven’t really ever got used to or ever seen before. So let’s pick up on the issue of reciprocal tariffs, which has been a focus of attention and, as Lauren said, might reflect the art of the deal approach that president Trump is taking. So they’re currently the object of negotiations between The US and partners.

To our tech center is unclear, but The US claims over 75 partners or so are negotiating with The US. In addition to the rates themselves, the main problem seems to be that the issue that the duties strike at the heart of WTO rules by creating incentives for each party to cut a deal with The US, knowing it can also get won over partners who cannot or will not enter into negotiations with The US. At the same time, an alternative way of looking at these negotiations between a large array of partners and The US, we’ll be able to call it a sort of a mini train a trade a Mar a Lago round, if you want. And perhaps if that’s done in an orderly way, that could provide some sort of multilateral structure to the outcome of the negotiations. So, I mean, I suppose there are two questions that arise.

I mean, how in practice are countries reacting to these reciprocal tariffs? Is there any scope for parties, I think mainly of countries like The UK, Switzerland, for example, they have an interest in the rules based trading system. Is there any scope for them to salvage anything off the rules based system through these negotiations? And, Laurent, I might start with you. Yeah.

Well, I think everyone, let’s just say, all countries now understand that the the world has changed and that The US are very clearly now. I mean, it’s been there for a while. There’s been but, without the lip service has now withdrawn from the idea of rules based multilateral trade. So how are other countries reacting? A variety of reactions depending on how exposed they are in a security sense and also how big they are.

Most countries, including The UK, are not very big, and so they are going, with a lot of old rope to Washington and trying to get a deal. Others, Canada, see this as a security issue and is retaliating, as you said before, retaliating despite the USMCA carve out, which is pretty significant. In fact, you could say that Trump is the biggest sponsor of a free trade agreement that one’s ever seen by raising the non preferential rate so high. It makes USMCA really quite important. That doesn’t deter Canada, as you said.

So those tariffs are pretty steep and pretty significant for Canada, but Canada is very worried about being the state. Other countries don’t have that concern. China does though. China, not being the 50 state, but being attacked in such a way, has also retaliated. As you say, say, with a 125% tariffs for the moment, we’ll see what happens next.

But, again, that is because China sees the long term game and has been preparing, by the way, for what is happening now for a very long time. So, that has to be seen in a as a special case, the China, US, and Diad. The EU is the only other country which is talking about retaliation. Today, it was announced that in addition to the €21,000,000,000 tariffs, which are prepared in response to the steel and aluminum tariffs, there’s going to be a 100,000,000,000 in response to everything else. Whether that all gets imposed, the date for that is the July 14, which is five days after the end of the ninety day pause for The US.

We don’t know, but my bet would be that it probably will be imposed. Why is the EU doing this? It’s big enough to do it. It believes in the world trading system, and it thinks that retaliation is the way to secure the world trade system. The other thing is that the EU is preparing, although this hasn’t been announced, it’s just been rumors and speeches for deployment of an instrument, which it calls the anti coercion instrument.

Well, actually, it is called the anti coercion instrument, And that is more significant than the tariffs on US goods because that targets services, government procurement, and intellectual property. In principle, all of these, when they are owned by or supplied by The United States or United States entities, I should say. And what those entities are is important. United States companies from The United States, but also United States subsidiaries in the EU, that is to say EU nationals that have to be owned by US companies. That’s scaring a lot of companies, tech companies, particularly in Ireland.

They established their Irish companies, but because of their ownership, they are prime targets. So let’s just see how that one plays out. It’s uncertain. I think the bigger picture is, the question that you asked, which is what’s going to remain of the world trading system? And I think my answer to that would be we can exclude The US except on a very transactional basis.

They are not WTO memes. They’ve stopped paying for the WTO other than in name. They have given up on dispute settlement. They’re really doing their own thing, which is not to say that it’s, an autarky, but it’s just whatever they do doesn’t have any relationship to the multilateral trade system. So what of the rest?

I think all other countries are committed to free trade as much as they were beforehand, which is quite a lot. I mean, there are obviously variations. You see in yesterday’s announcement of UK India FTA that there is a commitment to free trade. I don’t think that would have happened without, the latest shenanigans in Washington. I think we can expect to see more regionalism as well.

So I don’t think, we are in any way in a world in which the multilateral trading system has disappeared. It’s just a world in which The US has disappeared from it. The only outstanding question is what do other countries do about China? And the answer to that is they’ll probably continue to do what they were doing, which is a sort of cautious engagement, derisking when it comes to monopolies, getting annoyed when it comes to subsidization and overcapacity. It’s been like that for a very long time.

So I think what has really shifted is that The US has moved away. Very final point, one can’t see this outside of a security framework. One of the reasons Japan, and there are more than one reason, one of the reasons Japan has been very muted about this whole thing is because it is very tied to The United States in a security sense. So is Australia. So is The UK.

The EU has made a decision very publicly that it is going to try to disengage from The US when it comes to security. Well, Canada is really stuck when it comes to this, this dimension. So I think this is world historical, but the most important impact, I think, for us in terms of trade is it’s The US basically saying no more. But the rest of the world, I think, continues as usual. And is that, something you’d agree with?

I would agree with it, very largely, but I certainly would make one very important addition. I think we certainly do have to just accept The US is given up on rules based anything, really. Whether that is a permanent change of US attitude or in a sense is restricted to this presidency. I’m not quite so sure The US has always resisted sort of external constraints, but has gone along with them, because it believes there’s a systemic benefit, you know, for quite a lot of the last eight decades. So the question really is, what have the other countries in the world, the people who do the other 87% of world trade, sort of got left?

And the answer is they could have a trading system. However, because I think in my mind, there is a really big fly in that ointment that takes a good deal of, I guess, bravery and, sort of foresight to head off. And that’s the following. When I hear that there are 75 countries queuing up to avoid reciprocal tariffs of twenty, thirty, 40%, and that Trump has got no interest in the system at all, I worry that they will come under huge pressure and actually will sort of give into that pressure to do things that are really antithetical towards the world trading system. And in particular, you know, we have a most favored nation approach.

And I’m really very, very worried in case there are, as it were, undue concessions given to The United States. The UK, for instance, has said, yeah. We might reduce the tariff on US cars. They’ve been quite unclear whether that is on an MFN basis or preferentially. If it’s preferentially, it seems to me that’s the sort of behavior that is absolutely nail hammering nails into the coffin of the world trading system.

And remember, this is gonna run for three years or so. Over that time, all sorts of things get set, and they will be very difficult to unwind. And therefore, I really would urge that your other countries should make sure that what they agree with The US is essentially nondiscriminatory. If they sign free trade agreements, these are broadly in line with article 24 of the gap. I’m not a huge fan of that, but it’s, certainly better than nothing.

You know, and even where, the WTO holds, sort of no brief to make sure that they are not favoring The United States, but sort of the explicit expense of a trading power. Let’s pick up a bit on those regional trade agreements and article 24 bilateral negotiations between The US and partner countries. One of the issues for any country negotiating with the current US administration is that there’s no guarantee that the agreement will stick, especially given The US’s obsession with bilateral trade deficits. Also, if we zoom out, and I think this builds on a point that Laurent made, earlier on, if we take a longer view of US trade policy, we see that there’s been a definite, protectionist drift over the last few decades. The Biden administration did not, for example, materially change the wave of Trump tariffs.

In its discussions with partners largely refused to enter into anything related to market access for the most part. If you take that broader perspective in mind and the current challenge of negotiating with The US and also trying to preserve nondiscrimination to an extent, what factors should countries bear in mind in these negotiations, and to what extent can they derisk their trade in relation to The US? I might start with you, Alan, on that. Well, I think, yeah, one thing they can do to derisk taking horizon of four years or more is not to destroy the world trading system so that we emerge in 2029 with a trading system which, you know, may be better than Bruce, but is still there and can be, as it were, a pair. Coming back more into the closer horizon, I don’t think it’s realistic to think that we are gonna decouple totally from The US.

I don’t think that is in anybody’s interest. So what can you do? Well, you can reduce the amount of trade that you do with the amount. That certainly is gonna happen so far as exports are concerned if the The US persists with its tariff policies. But, essentially, you can just try and ensure that you are trading sort of healthily and probably a bit more with other people, and you probably are trading less with The US.

It’s not clear that any agreement or legalities are gonna save you. I just think it’s a a straight up and down matter of commercial interest. It’s possible that we could cooperate more and be explicit in the the way in which the rest of the world economy developed. So that’s gonna be hugely difficult to negotiate. So I see it mainly in terms of sort of self discipline so far as sticking to the WTO conception with other countries, and then individual countries just concluding that they and and firms concluding that they just don’t want to be liable to be taken hostage by president Trump.

Amar Breckenridge

Lorand, anything to add to that?

Lorand Bartels

Yeah. I mean, I agree with that entirely, and I should also say I agree with Alan’s addition to what I was saying before in terms of an MFN baseline. I think that is definitely important, although I’m a bit of an MFN skeptic because I think that MFN has not done negotiations in the WTO a great deal of good. In fact, I think it’s been one of the main sticking points.

That said it it is a principle of the system, and it does more good than it does harm. And it certainly would be a shame if countries gave up on it. As, by the way, did Ukraine, just last week, although I think Ukraine is in a very special situation, and it’s a national security issue, which other countries don’t have. What else can they do? Countries well, nothing.

I mean, I I don’t really see it. They’re doing whatever they can do. Skin I mean, what’s the risk? You know, they’re being hit by tariffs. It’s business decision how to respond to that.

On the ground, I think what countries are doing and choosing between, trying to negotiate down those tariffs. Apparently, The UK has had some success there, maybe with the cars. We don’t know what basis, as Alan said. That’s one thing to do. The other is retaliate.

That’s I mean, I I don’t think they’ve got all that many options. They could, in addition to upholding the multilateral trading system, engage with each other a bit better, sign more, and implement more free trade agreements. The EU is talking about cooperating in some unspecified way with CP TPP. So one could see a subset of WTO members, which is to say all of them except The US, engaging with each other through regional, and free trade agreement, mechanism. I think that’s probably what’s going to happen as we see a world, that divides a little bit into Orwellian, continent blocks much more than it has been, to date.

We’ll come to the, issue of continental blocks in a short while, but just we focus a lot on The US’s dealings externally with partners and vice versa. Tariffs also have their costs, potential cost of living impact. In the longer term, reduced openness reduces growth. It’s also the case that some of the most thriving parts of The US economy, notably the tech sectors, have emerged in a world of integrated, stable trade and trade rules. So given these internal costs of protectionism and the uncertainty that goes with change of the trade regime.

Do you think there’ll be internal forces that might act as a discipline, at least over time, on the administration? Alan, I might start with you. I do think there are some internal forces. I’m not so sure that that includes the tech sectors unless the rest of the world gets muscular with and as it were explicitly pinned responsibility for that on The US hostility to world trade. I mean, they’re mostly interested in flogging services in other countries.

Cost of living is going to be a bit of an issue, but, the sad truth is The US is not a terribly open economy. You know, there are margins between what is paid actually to the exporter and the price that the consumer pays, you know, half something like that on many products. And so the effect on the cost of living is not, in most cases, immediate and really, really noticeable. And so I wouldn’t particularly rely on cost of living per se to reverse the conversation in The US. What I do think will reverse the conversation is the big players on Main Street and possibly Wall Street.

And in fact, my view is that what we’ve seen over the last, sort of several weeks with tariffs coming on and then gradually being exemptions being created like smartphones and so on, actually, this is lobbying. And I think that’s really where we’ve, in the past, found resistance to, protectionism. It is actually the industrial users of inputs that are imported. Now the problem there is, of course, that some of these industrial interests will really like the tariff regime. The car producers will love 25% on finished vehicles and, exemption for parts.

I mean, what, you know, what could be better? But quite a lot of them will gradually see that it’s very difficult to maintain the sort of models that they’re used to and they really believe in. And, again, that is particularly the case if there is retaliation by other big players. So it seems to me, you know, that’s essentially where the resistance, will come from. And, Laurent, do you have anything to add to that?

Look. I obviously don’t I can’t predict as well as Allan McCann what the effect of all of this is going to be on The US economy and on cost of living. But it does seem that even if some manufacturing is brought back, a lot of that won’t look quite the way that it’s being presented by Trump. There’ll be big factories with more robots, which might be a good thing for The US, but it might not be the sort of thing that you can show off on Fox News in in, in the way that this has all been advertised. I’ve just spent three months in The US, and, obviously, people you talk to are a bit concerned, but they’re mainly concerned about, I was in Washington.

So people were concerned about losing their their jobs as a result of Elon Musk more than the, effect of the tariffs and so on on their jobs. But we’ve been through Brexit, and the conservative government took a fair bit of a drubbing in part because of the economic cost and just the sheer hassle of Brexit without too many Brexit benefits. And the power of policies, that Trump is announcing, he ties very much to self. He can maybe say, well, did I say that when it comes to Zelensky being a dictator? But I’m not sure he can say that when it comes to his tariff policy.

So if they don’t deliver the benefits, inflation goes up and the economy goes down, then even if that’s not a direct effect of the tariffs, it could easily be perceived as being an effect of those tariffs, and I think he’ll get it for that. We already saw a bit of a reversal when the stock market well, actually, it wasn’t so much the stock market. It was more the bond market. It started to look a bit iffy, or he had a term for it, didn’t he? I can’t remember what it was, whatever it was.

So, you know, he is sensitive to some degree to the economic effects of what he’s doing. But then again, to come back to my point, I can’t really predict what those effects are gonna be because I’m not an economist. But if there are effects, I think it won’t play out terribly well for him in the midterms. On the other hand, maybe just one final point, I think it’s also important that a lot of what is going on is a continuity of what is now three administrations, and the protectionist vibe isn’t going to go away. It might be done in a particularly blunt way and an exaggerated way at the moment, but Biden didn’t care at all about WTO law any more than Trump did.

He was just as bad. It was just he was a bit politer about it. But on the substance of plenty of policies that completely ignored WTO, and it was well known that nobody in USTR ever said WTO anymore. So I think there’s such continuity there now that it would take quite a striking reversal for US politics to look any different in the future. And at best, we can hope for, a more moderate version of what we’re seeing at the moment.

Yeah. Alan, were you going to intervene on that? No. I I certainly do agree with that. I mean, I think, you know, Biden was more polite and but that’s always desirable.

But I think it is also the case that he didn’t want with the same way to destroy the system. I mean, one of the worries that everybody has about reacting to Trump is he’s he’s proud of breaking the rule. He actually does not want to see these systems survive. And so I think that is qualitatively different. But, you know, as Lauren says, most of us who work in trade have always thought the Democrats were the danger to a liberal trading regime.

It would be it’s it’s whizzed out of right field, I suppose you would say. I think I finally found a point on which I can disagree with Alan, and that is, I don’t think politeness is better. I actually think it’s worse than this could be because I’m an Australian and you’re British. But I have spoken to a delegation in Geneva, which said they actually preferred Trump because at least you knew what you were getting. Whereas with Biden, you’d have all these position papers and they were full full of nothingness, and you never knew well, you knew what they were after, which was the same thing as Trump.

It’s just they wouldn’t say so. So it was very hard to actually react. I was going to say engage because there’s not much engagement. There’s more reaction. And I think that it’s better to know who you are dealing with.

And I think Biden was the same as Trump, politer, not as extreme, but essentially the same, and it was very frustrating. At least now, everybody is no longer in any doubt as to the true situation, the likelihood of any change, and they are finally reacting. There was a great column. I think it was Gideon Rachman, someone in the Feet who said that Trump might not get the Nobel Peace Prize he wants, that he should be a worthy contender for the Charlemagne prize for the person who has done most to promote European unit unity. So, you know, I think there is something to be said for a lack of politeness, a bluntness, and being forced to face reality, which, unfortunately, was not the case with Biden.

Yes. We are of different nationalities. But I I largely agree with you. We you know, it’s it’s usually better to get on with people who say what they mean. I think the point is with Trump, you say you know what you’re getting.

You know what you’re getting for half an afternoon, if you’re lucky. And what you also know is you absolutely are unable to predict. So I think that Trump, with his, sort of cup of tea from Biden. But I’m absolutely with you that the Americans have not had much time for the WTO or, frankly, the world trading system for quite a time. And Biden did sort of glide over all of that and USTR, probably never stuck up for it very much in the Biden administration.

Just building on some of those, issues about unpredictability and so So in the wake of of these US tariff announcements, we’ve seen a spate of announcements by businesses seeking to invest in The US in order to avoid tariffs. And in some cases, for example, in the case of Switzerland, that these announcements have been included as part of the official negotiating approach to The US. Are these announcements actually a sign that the tariffs may be working at least up to a point? And on the other hand, to what extent could the instability that you alluded to, especially Alan, in the trade regime, work against, US objectives in stimulating investment, both domestic and foreign investment, which rely quite heavily on a stable framework of of economic governance. Alan, might that sound for you?

Yes. I mean, I think the truth is that tariffs, do work a bit in that respect. And we economists certainly have long talked about tariff hopping motivations for foreign direct investment. So I think if one had a consistent and moderately predictable and rational tariff policy, it is possible to bring some activities back into The United States. And The US is large enough to be able to do that.

This is a very big, large, attractive market. And, you know, and to some extent, Europe is playing the same game. Europe isn’t thinking that European producers are going to beat the Chinese as electric vehicles. They basically want the Chinese to come into Europe to build their electric vehicles and hope, you know, we get them and some of that rubs off on the Europeans. So large markets can do that.

Anyone much smaller than that, it’s much more difficult to create a barrier, that is credible about large enough to make it worth hopping. But certainly, they do work like that. Are they going to be discouraged? I think they will be discouraged by the capriciousness of it. I think they will also be discouraged by the sort of political chaos that is evident in The US.

After all, again, it’s very difficult to know how The US is gonna settle down after the end of this administration. So I think that the chaos will be a discouraging. It’s also the case that closed closed economy is rather unattractive because many of these firms will want to bring inputs in from outside and, you know, export to some places. So I think it’s far from a slam dunk. But I think anyone who says, look, tariffs can’t possibly have these effects is just deluding themselves.

Alright. Yeah. Look. I agree with all of that. And I just add one dimension maybe, which is that companies are also thinking of trading into The US from other countries.

So this is mainly about China. But let’s see what happens with this reciprocal tariffs, which are unlike the others well, except the fentanyl ones. They vary according to origins. So if what happens is something similar to what we saw in the rose garden speech that, you know, the EU is hit with 20% and The UK only gets 10% and another country, Switzerland was 37%, I think, then one option is not just to invest in The US, but if all you gotta deal with is 10%, which is not really prohibitive, move your production to a lower tariff country. And that, of course, plays out also in the Southeast Asian region where companies have already been moving their production facilities from China to, you know, a plus one like Vietnam, most obviously, or The Philippines.

The work there, at least on the Chinese side, because this is a a global issue. But when it comes to China, because China features so heavily in US discourse, I mean, it’s basically the only country that’s ever mentioned apart from The US itself in in DC and a bit Canada. The quirk there is rules of origin. So at the moment, I have heard people saying, well, you know, it’s not too bad. We’ll just set up a factory in Vietnam or The Philippines.

And it turns out that if you sold a Chinese skips onto a motherboard there, then they they qualify as Vietnamese or Filipino, which is fine today because that’s what The United States rules of origin say, and those nonpreferential rules of origin are not very well disciplined by the WTO. But it might not be true tomorrow where it’s very easy to reclassify and say, well, a motherboard that has Chinese chips is actually a Chinese motherboard. So I think The US has certain ways of addressing this other response to a tariff wall that is of different height. So in addition to what Alan was saying, jumping over the wall into The US is jumping sideways into other countries, which may then be blocked later on by The US by beaming origin to be different from what it is today. Just picking up on that.

And so, you know, you talked, Lauren, about the focus on China. One matter where The US and many other partners might see eye to eye on is precisely on relations with China and particularly when it comes to the interface between trade and national security. And it seems one of the thrusts of US measures is also to try and force partners into shifting value chains away from China. So that’s partly the rules of origin question you mentioned. But also the the China plus one strategy is running into the fact that, at least on paper, the tariffs announced by The US on countries like Vietnam, The Philippines, Cambodia are very high as well, which would seem to be targeting whether by design or serendipitously from The US point of view, the strategy of diversification.

So it was a given that The US China dynamic, the interest that other countries might also have in some sort of China containment from a geopolitical view, what could the medium sized countries like The UK, for example, do in this context, that is fragmented and in a in a state of flux and where there are, if you like, trade offs between economic and non economic trade policy objectives, particularly around national security. I might start with you. Yes. On issues surrounding national security, it seems to me that we perhaps should draw a ring around them and just accept, essentially, I think like the DAT does, that there are some bits of national security that Trump, pun unintended, under trade rules. And so, yeah, we wouldn’t buy weapons from the Chinese, and there may be other things that we wouldn’t.

Then the question of whether the rest of the world will want to, as it were, impose restrictions on China. There will very likely be some restrictions if China diverts sales from The US to other countries. There’ll be the usual dumping safeguard policies. There may well be some further restrictions to overcome very fierce elements of monopoly. But what I really, really hope won’t happen is that Trump or the Americans are seen to be behind a policy of getting other countries to exclude China.

Then I think we are gonna be left with a world trading system of sorts, but without China, without The US. And, you know, then it seems to me that we are much more likely to be slipping into a world where we have fragmentation into blocks that are at internally coherent, but everyone else has to choose sides. So I think, you know, the really important thing for policy relative to China is to be very clear why you are gonna be doing such things and to be clear that these are motives that, you know, are perfectly respectable, the sort of rights for a national government to do, but not to do things because The US has offered to take your reciprocal tariff down from 20 to 12%. That, I think, will be a disaster. Alright.

Yeah. I agree. I mean, almost security, I don’t think that’s controversial, and I think China accepts that. I mean, it has to it’s legal. There is a national security exception if it’s legitimate.

Biden administration called this small garden high fence, and most countries are doing something like that. So I don’t think that’s as as you say, Al, and I agree with you, it’s not a big deal. On the other stuff, I may be a bit more pessimistic because, a, The US has reportedly made moving away from China a condition in its so called negotiations with other countries, and, b, it’s also reported that China has done the same thing to those countries back. In other words, there are countries now who are faced with divorced parents who hate each other’s guts and boycott any mention or fraternization with the other. Now that’s very difficult because the same one who’s been in that situation will know you can’t easily negotiate a zero sum game like that.

So The UK is a little bit in that position, has to hope that The US doesn’t say don’t trade with China. And if China says don’t trade with The US, I mean, what are you gonna do? Australia is also in that position. Economically, it trades a lot with China, but security probably comes And security wise, Australia and The US are obviously much closer. Japan is in a very tricky situation.

I mean, I I don’t know how to answer this because I think it is a bit of a zero sum game, and we just have to see how this plays up. But our model should probably be, you know, when things settle properly multipolar world, something like post 1815 Europe where there are going to be shifting alliances, and this will all just need to be negotiated in, hopefully, a healthier post divorce way. But divorce, there most certainly is. Thank you. We’re nearly at the end of our time.

So I’m just gonna put one final wrap up question to you each and possibly put you on the spot in doing that. So we’ve surveyed the hundred days, which probably based on what we’ve talked about, probably doesn’t pay to look too far ahead. But in the hundred days, what would be some of the things you’ll be keeping an eye out for? I might start with you, Alan. Oh, that puts us on the spot.

Well, I will certainly be looking out for July to July to see where the reciprocal excess of 10% reciprocal tariffs go back on generally, and I suspect they won’t. I think the reactions of the bond market last time are sort of repeatable, but who knows? So that’s certainly one of the big, big things, I think, to look out for. If they don’t go back on, it seems to me that much of the rest, yeah, resembles stuff that we’ve come to see previously and we probably can stick with. I will also be looking avidly at these various trade agreements that The US is signing with the 75 people who’ve been to kiss Trump’s posterior, essentially, to see whether they are grossly discriminatory.

So you can invite me back in three months to see how really seriously depressed I am or whether I’m gonna make it through. Alright. I don’t think we’re going to see any significant agreements, and, certainly, I don’t think they’re gonna be really trade agreements. I mean, Trump likes to sell things like LNG. There might be some agreements to buy LNG.

There will probably be demands of other sorts. A lot of it, I think, is just gonna be old rope. So I don’t see any real change there. What does that mean for the likelihood of reciprocal tariffs going up? I think they will go up.

They won’t probably go up as high as they did, and probably this will be attributed to some successful deal making. Otherwise, the whole thing looks like a failure. But I don’t think Trump’s gonna have much to show for this ninety day pause, period of negotiation and so on. I mean, there’s been nothing to show with the Japanese who went back without a deal. The EU has not come up with anything reportable.

The UK, maybe, we’ll see, but it’s not, you know, a great triumph for Trump for The UK to get rid of a digital services tax that it doesn’t much like anyway, and a bit of tweaking on online safety. I mean, whatever it is, this is you know, it’s all fairly trivial stuff. So I think that there will be a few higher tariffs, and let’s not forget, there are already very high tariffs compared to the situation before. At the moment, we still have tariffs that are on average higher than for decades, and that’s because of the 10% baseline that’s there and the 25%, the tariffs on China and the average tariff is is still pretty high. So I think we are in a new world already, and that also means that the retaliation, I think, is going to from Canada, I don’t know because that’s a special situation.

Canada can’t put up with this for forever. But from China, yeah, I think there’s gonna be some form of barrier. And with the EU, I think there will be retaliation. My bet is that there will be retaliation. So I think that’s the that’s what’s going to happen.

In terms of the policies, I think they are pretty durable for the most part. If we ignore the reciprocal tariffs that’s that fluctuates, that doesn’t mean is its own thing, but the rest of it, I think, is baked in beyond this administration. And by that, I mean, the sectoral protectionist tariffs on a large set of imported products now, and who knows? Maybe that can that can continue. And that is also possible because The US has given up on the international trading system, given up on its binding commitments.

And, you know, if it starts this way, what’s to stop adding a bit more? The only block, I think, as we’ve been discussing is going to be internal economic internal pressure. It’s not going to be external rules and and complaints about the rules or even respect for the rules that are going to constrain The US. So at most, I think, we will probably see a bedding down of what is there now. It’ll probably take slightly more rational, slightly less chaotic form, I think, for the next hundred days.

Well, okay. That’s a big prediction, but that’s my prediction. Less chaos even from the Trump administration. Thank you. That seems to be a good point at which to, conclude this podcast.

So I’d like to thank both Alan and Doran for their thoughts, and thank you to our listeners for joining in. Remember to share, review, and rate our podcast, And I’m sure there’ll be a lot to reflect on in the days to come. I hope, Alan, when we talk again, you won’t be in the state of depression, but you’ll be pleasantly surprised. It’s always good to hope. And on that note, thank you all for joining us.

And until the next next podcast. Thank you. Thank you very much. Thank you.