The 145% tariff already did its damage

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The first ships with the 145% tariffed goods from China had just started pooling into US ports last week when, just a few days later, the US announced that that mind-bendingly high tariff was now gone. Pop. the US and China agreed to temporarily bring the tariff way, way, way back down from 145% on most Chinese imports to 30%. Though the tariff on things like cars and steel and aluminum is higher, about 50%.

and you know the deal came pretty quickly after talks in geneva and it was maybe unexpected or maybe not at all unexpected because the 145 tariff on china and china's retaliatory tariff on the u.s was already threatening a global recession. And in all the tit-for-tat back and forth, some companies got really unlucky, like those whose goods arrived at U.S. ports before the pot.

If a medium-sized company had a million dollars worth of goods imported, they had to pay an extra million and a half dollars on top of that just in the tariff. And had their ships arrived, like... a day later, their bill would be punched to the gut so much less. And even though this unprecedented tariff only lasted a month,

it already inflicted its scars on the economy. Today on the show, what a month of 145% tariffs looked like and felt like for three people in the global economy whose lives were all affected and still will be.

We'll start at the biggest port in the Western Hemisphere. Yes, hi. Nice to meet you. Oh, in a suit at the port on a 93 degree day. This is the uniform. Well, when you run the port. Yeah, that's the uniform. Jean Sirocco runs the port of Los Angeles and 45% of everything that comes into this port is from China. So half. Half of the business. Half of the business. When we met up, the big scary 145% tariff was still in place.

Are you like... stressed are you doing okay how are you feeling i'm doing okay but i am concerned jean and i are at one of the seven terminals at this port where the cargo ships pull in to get unloaded like where those giant cranes lift the big steel shipping containers off the ship and like stack them on the dock that's where we're at at the evergreen marine terminal today there are nine cranes and their booms are all up there's not a ship at the Evergreen facility today.

Are you expecting one today at this terminal? Not today. And no ships earlier today. Oh, there hasn't been any today. There's a huge void. So if there's anything that's emblematic of where we stand right now with international trade it's the fact that there are no container ships at one of our most famous terminals evergreen marine when there is a ship here how long is it here

On average, it takes about four days to get one of these large workhorse vessels unloaded and reloaded with exports before it heads back to Asia. Four days? I thought it was going to be like hours. so not seeing a boat here actually is like a very stark image it's a huge deal that's what i've mentioned

Last year, this port had its second busiest year in its 117 year history. But then last week... was one of its slowest the port was getting 20 fewer ships 32 fewer shipping containers that is the biggest drop-off save march of 2020 as the country went to lockdown during Even more so than the Great Recession back in 2008 and 2009. During the Great Recession, there were like 15% fewer containers. And the drop-off now at LA has been double that.

the port of la normally gets 10 to 12 ships a day but in the month of may it's been getting eight ships a day. And fewer ships mean fewer containers mean fewer jobs. Every four containers that come into the port of Los Angeles create one job.

Four of those big 40-foot-long steel shipping containers, four of them equal one job at the port of LA. And one ship... has about 8 000 of those containers so one fewer ship not carrying goods from china represents 2 000 fewer jobs fewer dock workers truck drivers warehouse workers so gene has been trying to get more cargo coming in or out of this part from anywhere to anywhere like the port workers just need cargo we've been out there hustling

finding where the cargo is. So whether it's cargo that is now being sourced out of Vietnam, Indonesia, Malaysia, Thailand, my job. is to get that cargo here because every four containers create one job. Or at least keep one job. Conversely, let's maintain so we keep those jobs. Now, the new temporary tariff on China is... substantially lower and i did check back in with the port but gene says he still has not seen a big rush on cargo a 30 tariff is still a high high tariff and

He's not sure companies will want to bring in goods that cost 30% more than they used to. 30% tells me that the importers are going to go look for alternative ways to source their product. but let's say demand does come back like in full force and there are signs that it is coming back gene says it can still take a month and a half before this port starts to see some of its ship and container volume return because it's just gonna take a while to line everything back

It'll take the shipping lines a couple of weeks to line the vessels back up at major ports from Qingdao to Shanghai. It'll take another two weeks to steam across LA, and then a couple weeks after that to get all that cargo into the U.S. distribution network. the 145% tariff amounted to basically a trade embargo with China. And even though that's now paused, global trade is just not something you can shut off and then turn back on just like that. Hello and welcome to Planet Money.

We are bringing you Historic moment. of an unfathomably high in Tara. If the tariffs are meant to bring manufacturing back to the U.S., what is the right tariff? Is there this from the perspective of one small U.S. As U.S. trade with China exploded, American manufacturing shriveled, and workers struggled. They saw their communities decline, and then the world changed very rapidly around them. Well, they kind of aged into place.

Data doesn't speak in words, but that's a very dramatic story. In a recent Planet Money bonus episode, we hear from the economists who helped tell that story and changed the way economics thinks about the costs of free trade. To hear it, sign up for NPR+. Just go to plus.npr.org.

Trying to run a small business during a trade war is about the roller coaster that you might expect. You try to get ahead of it to shield your company, but so much of it is out of your control. Take Cara Dyer. She always knew she wanted to create... product a new thing she wanted to design something and sell it to people Cara is a mechanical engineer by training yeah I started my career designing missile guidance systems and missile guidance System. Missile guidance systems. Yes, yes.

for the US military. Kara also used to design cockpit displays for the military but then she went to business school with the goal of creating and selling her very own product with her own patented technology. And the product she designed? Yeah, yeah, it actually is the exact opposite of missiles. Her product comes in this little box with a handle. And then, you know, it's like this little flap.

that you open like a little book immediately yeah you see the little book and then there's All of these. pieces it's like sturdy foam puzzle pieces that kids can build into the fairy tale world that is depicted in the story. They build the three little bears house and it's got three bowls of porridge and three chairs and three little beds. It's like a gingerbread house kind of vibe.

yes and this is like our patented technology so like for the three little pigs the straw house blows down easily like it's not very stable and you can knock it over and the stick house is sort of the same way but the brick house we've designed it so that like it really stands firm.

The Goldilocks playset and the Three Little Pigs playset are hands down the two most popular items at storytime toys.

Cara's company oh so you're sold out we're totally sold out of these right now which is why back in December Cara wanted to put in an order for more of these sold out play sets with the factory that she uses in China that manufactures her product And regardless of whether you think we should or should not import goods from China or whether we should all do with less from China, less pencils, less dolls. Every time Kara imports one toy from China, it creates and supports more jobs in the US.

than in China even. Normally, Cara puts in an order for $100,000 worth of playsets and these 3D puzzles she also makes, but she didn't want to do that in December because she was anticipating that there would be a tariff because President Trump had been saying things like, tariff is the most beautiful word and she was worried what the tariff would be because You have to pay the tariff as a lump sum when the product arrives.

so she put in a smaller order than usual just thirty thousand dollars worth of the goldilocks play sets and the three little pigs just one small container on a ship but it takes about a month and a half for the factory in China to make the products for her. And a lot of companies were doing the same thing that Kara was doing, putting in these early orders, anticipating Tara.

so our order took a little bit longer um than i was hoping like months longer and then on april 2nd the tariffs were announced and quickly escalated to 145%. And... At that point, it was out of our control. A 145% tariff on $30,000 worth of goods. the tariff that I'd have to pay would be $45,000. Extra on top of the $30,000. Yes. I like that you just do the math like that quickly in your head. I know. I've been thinking about that $45,000. Oh, right. Of course.

U.S. Customs and Border Protection had issued some guidance on when goods needed to leave China to avoid that tariff. Yeah, it was on one of their webpages that says it was like an on-the-water exemption. Oh, on-the-water exemption.

the cutoff was april 9th which happened to be the day that cara's inventory left the factory in china and likely arrived at the ningua port in china too so maybe getting in under that on the water exemption deadline does on the water mean on a ship in the water or can it mean like on the dock at the port yeah so that's yeah it's super unclear oh you don't know Yeah, I don't know. Yeah. And even our customs shipping coordinator didn't know.

Oh, I got bad news for her if you're listening. The ship had to depart by April 9th. Ryan Peterson runs a global shipping logistics company. So he knows. The ship had to depart. She's going to have to pay it. Oh. Oh. No, man. That is so frustrating because At that point, we had no control over our shipment. Like it had already like... The wheels are in motion. This exact thing was happening to businesses across VUE.

These are the unlucky people in the trade war. And Cara says the cost here is not just the tariff on the imported toy itself. When there's any tariff, it has a ripple effect. The shipping boxes are going to be more expensive and the labels and everything. There's so much more that that's adding to the cost too. I don't know what we're going to do. You seem really sad. Yeah, it is sad. It is sad. I don't want to lose my business. You know? Well, let me ask you that.

Could you make all of your toys? in the U.S., at a factory in the U.S.? No, no, we couldn't. So, I mean, I've looked into it every year. That would be amazing. Dream scenario. It would be totally a dream scenario.

The whole trade war started when Trump proposed a 54% tariff on China and 54% not 145% was meant to be so big, so bad, so prohibitive that companies would stop importing from China and start manufacturing in the U.S. but there aren't that many manufacturing facilities in the u.s that cara can turn to she says there'd be like a six month wait maybe more and she'd have to order these like huge quantities for them to even put her in their production line but more importantly the u.s

doesn't really have enough of the material that Cara needs. Our products are made from the same materials that yoga mats are made from, which is EVA foam. And China is really the only place where They make it. There are a couple factories in the U.S. that make the foam, but Cara says their capacity is completely taken up by the shoe industry. The foam is apparently also used for the insoles of shoes.

I couldn't buy foam from them even if I wanted to. She's dried. So we would have to import all the materials. And if she imports the foam material from China? she'd still have to pay a tariff on the material, which is almost as much as paying a tariff on the whole finished product. And the foam is kind of like what sets Cara's toys apart. Using this foam is one of our competitive advantages. Like we have these pieces that interlock.

then you can pull them apart without any tools or screws or glue so i even hesitate to think about changing our material and if i was going to change to another material I still think we would have similar problem like we would if we were to change the cardboard well We would probably have to source the cardboard.

from China. China is the biggest producer of cardboard. Or if we were to change to bamboo, same thing. Technically, Kara could open her own manufacturing facility and buy and import the fancy printer from probably Germany and the fancy die cutting machine and laminating machine from probably China, which would also be tariff.

But like, Kara has a toy business, not a business building manufacturing facilities. It's not like she can just... do all this like no big deal and for Kara it is very important to point out that even though she is importing good

Every time she imports one toy from China, she spends way more money on the US side of things. when we import a toy. Say we spend, for example, $4 to have that manufactured in a factory in China. Well then, once it gets back over here to the United States, For that $4, I also spend another $15 to $30 getting the product into the hands of our customers. $15 to $30 on US jobs. Every toy.

Because when you ask a factory in China to make you something, that would have been our design that we sent over there and we worked carefully with them. And I would have already probably worked with artists and... designers and possibly some other engineers and packaging designers here in the US and we would have coordinated quite a lot with the factory in China.

and that's just to get the product made then when her product leaves china it goes on a container and a ship that is often a u.s based company there's the logistics coordinators that help her clear customs on the u.s side the dock workers the truck drivers that drive the container to Kara's warehouse in Buffalo, the people at the warehouse who unload every single Goldilocks box, and then every time an order comes in, they package it up.

ship it to a store or house there's the photographer who takes pictures of the play sets for the website the people who maintain the website the customer service reps the sales reps the store clerks who sell the toys at mom and pop stores and big box stores like these are all You as jobs. Right. There's a whole chain of people for that one product that will be affected if I don't bring that product in.

After the break, once you effectively shut off trade, how long does it take to turn the faucet back on? Also, why high tariffs on China is not all bad news for some people. Itchy! a while. for a cargo ship. cross an entire ocean. Oh, you'd be surprised. They're like as fast as a speedboat. Oh, the world's just a big place. I mean, you're like 18 knots or something. I don't know what knots are, Ryan.

this is ryan peterson again who measures speed in knots because he's in the cargo shipment business his company flexport helps other companies ship cargo all over the world and there are so many logistics involved in the import export business so many rules so many agencies actually just to import like account In fact, in the United States alone there are 43 government agencies that take an interest in imported products of some kind. Name an agency that we wouldn't think of.

Fish and wildlife. Well, for the couch, it's going to be, who does the fumigation certificates? If it's made of wood, you have to show that it's not infected with bugs. In the last three weeks or so, Ryan said ocean carriers have cancelled between 25 and 40% of their ship sailings from China to the US. So there have been all these ships with...

Nowhere to go. Nothing to carry. If you look at a map of the world's ships, a lot of them are sitting idle off the coast of China, sitting there empty, waiting for their next order. because they were supposed to sail to the United States and that sailing got canceled. You could actually see all of these ships on this live tracker online. Tankers, passenger vehicles, tugs. Oh, like tugboats? Tugboats, yeah, you don't need to see those. So just the green ones are the cargo vessels.

All of the cargo vessels that are moving on the ocean and rivers show up as these green arrows indicating the direction that they're headed. If they're idle, they become a green circle on this map. They'll always turn to a circle when they're at the port because they're not moving. But if they're in the ocean and they're a circle, that's odd behavior. They're idling for no reason. And off the coast of China. You see all those circles that aren't moving.

Yeah. Those are all just ships waiting. They've been canceled for their sailing. Oh. So some empty ships idling in the middle of the ocean, but a lot of ships actually already went looking for goods somewhere else. A lot of them actually were repositioned.

to sail to Europe or sail Vietnam to the US. Vietnam may be a big winner in all of this because so many people were avoiding China that Vietnam actually surpassed China in exports for Ryan's company. And it could be good for Vietnam for a while because

Many large companies, at least, have already been using factories in multiple countries. And when there are high tariffs, there's an incentive to shift even more production to those lower tariffed countries. Shipping components from China to another country. Assembling those through a process that's called substantial transformation, which means you transform it to now it's a made in Vietnam product. Perfectly legal.

You may have heard a Planet Money episode about this recently. And then it ships from Vietnam to the U.S. So from a logistics standpoint, you just ship the same thing twice. Once from China to Vietnam and then once from Vietnam. Oh, so that's good for you. Trade might actually go up in all of this. Not like trade.

for the u.s necessarily which is like global global trade moving around and now now that the trump administration has backed off of the 145 tariff and agreed to a 30 tariff for 90 days Well, now Ryan is expecting a ton of demand during those 90 days as businesses rush to ship out goods at the lower tariff rate. After the pause was announced, bookings from China to the U.S. at Ryan's company was 70% higher than their biggest week of the year so far.

Now, Ryan's company says it is... too early to tell how many ships can shift back to china and how quickly because right they were already rerouted and when a ship is sailing to say europe to pick up goods you can't just turn the ship around and send it back to china now that demand is back the ship has to continue to europe pick up the goods sail to let's say the us drop off the goods then

sail to China, get loaded up, sail back to the US, and that can take a month, two months, depending on where in the process the ship might be and where in the ocean. So they are bracing for bottleneck. And Kara, Kara who ordered all those Goldilocks playsets, her ship is luckily still making its way to the port of New York. So she had not yet paid a tarot. And just like that, she no longer has to pay $45,000 extra on her shipment. She'll just have to pay $9,000 extra.

And how are you feeling? Well, I... I have mixed emotions, honestly. She's not quite celebrating. I do feel a little bit like a weight has been lifted. Just a little bit, but I'm also feeling super cautious. she doesn't feel confident that the 90-day pause will even stay in play. You don't? No, no, I don't. It's scary. It's super scary. I feel like something could go wrong at any second.

Right around now, Kara would normally be putting in her big $100,000 order, and a 30% tariff on that will still add an extra 30%. thousand whole dollars but like who knows in the months it takes for the factory to make her order and ship it maybe the tariff will be higher again like this has literally already happened to me And so like it is very risky. It's very uncertain. It's not going to feel okay until there is a real solid trade agreement in place.

Cara says her business would not be able to handle a surprise hire tariff on her big order. Just extra, like out of pocket. Yeah, no, I can't. We are a small business. A $100,000 order is... Not that much, actually. She's already preparing for a bunch of extra surprise costs that will come from the technically good news of a lower tariff. a bunch of new demand for ships from people rushing to place those orders in the next 90 days that could mean that ship

get a lot more expensive. This happened to Cara during COVID. If shipping is crazy because of the supply chain disruption, that could be a surprise cost that comes up.

and yeah ocean freight rates from china to the u.s are likely to triple in the next month according to ryan at the shipping logistics company so carra normally pays ten thousand dollars just in the ocean freight now she'll pay about thirty thousand dollars And with all the extra costs Cara is expecting, she'll have to increase the price of her product.

10 to 15 percent, which is better than before. But U.S. shoppers are really price sensitive. Think about what 4 percent inflation felt like just a few months back. This will be like 10 to 15 percent inflation. Basically, it is not insignificant. Kara is actually going to see if she can get her factory in China to share some of the costs of the current 30% tariff and share some of the risk. What I'm going to propose to our factory is that

We share the tariff, the expense of the tariff, and I think that they can come down a little bit on their price so that we can do that. And then also both share the risk of... the tariff re-emerging. So if it ends up that we have to pay a tariff of 50% or 80% that they agree to pay half of that. And you think they will do that? I don't know. I'm going to propose it to them.

I think it's at least worth asking and I don't think that they have a lot of room. But my other choice is to go out of business or sell all the inventory that I have and then go out. So the 145% tariff already did its damage. It was like throwing a bunch of little missiles all over the global supply. to try to understand what all the disruptions might be and the costs and the bottleneck I think we're going to try to import a Chinese I have an idea. Yeah. I'm wondering if we could just like...

Put a little planet money something onto your next shipment. Yeah. Just so we can kind of like follow along and track the process. We can definitely do this. We could work with our factory to make a little planet money something. But they don't just make like one one-off product.

Well, it's a sample. Oh, we could get a Planet Money doll sample. You obviously pay them. We would pay them. Maybe you could make a plush planet maybe like a squirrel okay yeah be an astronaut yeah and then the ship will give you a tracking lick so you can just Follow it as it stops in multiple places across the world. So stay tuned for our very own imported Tara.

toy of some sort. Today's show was produced by Emma Peasley and edited by Jess Jang. It was engineered by Jimmy Keeley and fact-checked by Willa Rubin. Alex Goldmark is executive producer also if you want to play around on the live cargo ship map it is so cool it is in our show notes just select cargo ships and you should check out our newsletter on why there are so many vacant manufacturing I'm Sarah Gonzalez. This is NPR. Thanks for listening.