Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg. If we know one thing about Donald Trump's foreign policy, he likes to tax trade.
Most beautiful word in the dictionary is tariff, and it's my favorite word. It needs a public relations firm.
We're going to have thousands of companies coming into this country. We're going to grow it like it's never grown before, and we're going to protect them when they come in because we're not going to have somebody undercut him. That was what the now president elect told Bloomberg in October. During his first term, the self proclaimed tariff man enacted duties on about three hundred and eighty billion dollars worth
of imports. Now he's promising to go further with a twenty percent levy on all imported goods and sixty percent on Chinese products. Trump says the import taxes can help raise revenue as well as reduce US trade deficits and drive manufacturers to make more in America. They have the potential to completely upend global trade. Flows. So here's why Trump's tariff plan has global consequences. Bloomberok's trades are Brendan.
Murray joins me now for more Brendan. From a historical point of view, how dramatic would the tariffs that Trump is promising be.
Bloomberg Economics crunched these numbers and came up with an estimate that we haven't seen tariffs like this in the US for more than eighty years. So the sheer scale of them, twenty percent tariffs on all US imports would be a big shock to the sticker price of everything from cars to toys.
How easily can Donald Trump actually impose these tariffs?
So the power to imposed tariffs exists in the US Constitution. It's granted to Congress, but over the many years decades, Congress has essentially delegated a lot of that authority to the executive branch, to the president. President Trump exercised that authority pretty loudly during his first four year term. President Biden followed him with maintaining many of those tariffs and
adding to some of them. And now Trump, being reelected coming back in is saying, if you thought that the first term tariffs were interesting, just wait till I get in office again. The first term seems like, you know, just kind of a test for what's something much bigger that's going to come.
What would this mean in particular for China's economy because Donald Trump has particularly singled out China for heavy tariffs.
That's right, he said, We're going to apply a sixty percent tariff on everything from China, which Bloomberg Economics has estimated that by twenty twenty eight that would reduce the US's imports of Chinese good by about fifty percent, so an absolutely huge number as the US would look to from other places. But as Trump has said, all these other countries, all these alternatives in China are going to have a tariff on them as well, a twenty percent tariff.
So you can see how quickly this can turn into something where prices and an inflationary environment could cause some damage to the economy.
What should we be thinking about in terms of the sectors that could be particularly hard hit by this, because it's something that you know, as you say, we're talking about big steps on a global scale, But are there particular sectors that stand to be punished by this?
Well, if you listen to Trump's advisors. A big part of these campaign promises are meant to apply leverage on other countries, other economies, the European Union, for example, after China, the US administration under Donald Trump is going to go after the European Union and say, hey, look, we have some good trading relationships between us, but there's some imbalances that we need to address. So let's talk about cars.
Electric vehicles are a big issue right now. China's producing a lot of them, a lot of very good cars by all accounts, and the US has blocked those from coming into to the US market. Europe just recently imposed tariffs on Chinese made electric vehicles. So from there the debate will broaden out to other products, from agricultural goods to industrial machinery, you know, highly engineered manufactured goods.
Could the EU, for example, hope to perhaps negotiate with the Trump administration and avoid a trade war, perhaps manage to carve out some exemptions. Is there room for diplomacy? And what we've heard from Donald Trump in the past and what he's done in the past.
Well, this is the central question really as we shift from a rules based trading system, one where low tariffs are the guiding principle. If Donald Trump comes in and says to the European Union, look, we don't think our trading relationship is fair, then we will put twenty percent tariffs on every European product. That's where the negotiation starts. And you know, we could see lots of reciprocal action by Europe. You know, you can see how quickly this can cascade into a trade war.
Yeah, indeed, I think we can all sort of imagine this would have a negative impact on all the firms that export goods to the US. But what would we expect this to mean for the US economy.
Well, the goal, if you listen to Trump and his advisors, is to bring production back to the US. A lot of manufactured items are made elsewhere now, and the goal is to turn the US from a consumption based economy back to a production based economy. Now, that would mean bringing factories that otherwise would go to Southeast Asia or Latin America, Mexico. Even so, the goal would be bring your production to the US, Otherwise we're going to put
a tariff on whatever you make. That ultimately is the goal, and good jobs would be the dividend that would come from that, but it's a long way down the road to accomplishing that, certainly longer than a four year president.
And in the meantime, of course, then there's the inflationary impact of it as well for consumers to deal with.
Yeah, exactly. I mean, tariffs themselves are not inflationary, but they can add inflationary pressure. Now there's a distinction to be made. And every time the Trump administration talks about their tariffs on their first term, they say, look, they weren't inflationary. We didn't have inflation during Donald Trump's first term. Well, if you look back at at some FED research, you can see signs that businesses were feeling price pressure from
those tariffs. They were saying, we don't have any pricing pressure, we can't raise our prices. But then the pandemic came along, and the demand spike and the supply shock from the pandemic added fuel to what was already the embers of inflation starting to heat up.
What I'm hearing is it's not simple, which I think is a good lesson for us to watch and see what happens next. Brendon Murray, our trades are here at Bloomberg. Thank you very much for joining us and talking us through some of the potential consequences of Donald Trump's tariff plant, and for more explanations like this from our team of twenty seven hundred journalists and analysts around the world. Search for Quick Take on the Bloomberg website or the Bloomberg
Business app. I'll be back next week with more. Thanks for listening.