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The administration is very nimble and flexible, and Trump himself he has a sense of how hard to push the economy, and he tends to pull back from the brain if things get really bad. At this moment, the hard data are not causing them to want to pull back.
I'm Stephanie Flanders, head of Government and Economics at Bloomberg, and welcome to Trump Economics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy and what on earth is going to happen next. And this week, after a lot of discussions and conversations with people, I wanted to sort of step back and come back to our correspondence and economy to
ask where are we in Donald Trump's trade war. We're taping this on Tuesday, June third, and just this morning, the OECD, the Organization for Economic Cooperation and Development, released a fresh warning that the US president's trade policies have formerly tipped the world economy into a downturn. I thought that gave us an excuse if we needed one, to consider where things stand in Donald Trump's war on the
old fashioned global trading system. What impact it's had on the real economy so far, particularly in the US, and how that court challenged last week to Trump's whole tariff strategy has added another layer of uncertainty. With me is Anna Wong, chief US economist for Bloomberg Economics, who many of you have heard many times before. Before she worked for US, she worked at the Federal Reserve Board, the US Treasury, and the White House Council of Economic Advisors
during Donald Trump's first term. Josh Wingrove also a regular senior reporter for Bloomberg who covers the White House. Josh Anna, always great to have you. I think the last time we had both of you on it was a very good conversation. Looking forward to it, Josh, we will talk about that sort of bombshell International Trade Court ruling last week in a little bit. But taking that to one side, just remind us where we are in the various ceasefire pauses negotiations in this trade war.
Well, as we sit here, we have about a month until the expiration of several deadlines that that court case is going to intersect with. But we also have tariffs in place right We've got tariff's on steel, aluminum, autos, auto parts, coming on several other products that are enacted under different authorities that are not touched by that ruling. In our scene is much more legally durable. Those are not going anywhere. No one really thinks they're going anywhere.
That they're going up.
In some cases, Trump is announced exactly steal and aluminum. The aluminum one in particular, seemed like kind of on a whim, will double this week to fifty percent from twenty five percent. Let's assume for a moment that those court cases are not successful and those tariffs remain in place. Those are that's a battle over AIPA authorities. That's what Trump is used to pain with the broadest brush possible and hit every country with tariffs of at least ten percent.
The deadline of July ninth means those go up from ten if you don't have a deal. So for those about five dozen countries including the EU as a block, including China including others, they would snap back up if there's no deal.
To those rates that were on the big sort of menu board that he had in them.
Or somewhere in between. It's it's murky, and it's I think deliberately murky. But up not ten is the point. So they're threatening, saying, hey, make a deal now, or you're going to have a number higher than ten come July. Of course, the other countries, you know, basically all of them are sending signs of you know, fusion, hesitation. Some are looking at the court ruling and wondering why they would play their best cards right now when it's just so uncertain what authority Trump has.
We had all those claims about how many countries the US would do deals with in that ninety day period sort of went up every time they talked about it, but I think it was like seventy or something, seventy two or something. Anyway, just remind us how many of those have actually been done.
One, we've got one deal with the UK group.
Well, and actually, if you're sitting in the UK now, you would say even that has not actually been sorted out. So Josh has reminded us that this is an unholy mess. And we could definitely spend another twenty minutes talking about the variation. But Anna, obviously a lot of the focus, or a lot of the interest is on how all this activity and the tariffs that are already in place is affecting the real economy. Talk us through the economic impact that we're actually seeing so far.
Yeah, so the trade war version two genuinely started in February, so now we have basically three months worth of price data and activity data to engage its impact. So in these three months, generally what happened is we see deflation or even disinflation. For example, in the April inflation number, Powells prefer inflation gauge is supercore. Actually saw deflation, So
what's going on there? It turns out that the services categories are particularly discretionary services categories like travel, airfares, hotels, car rentals are all going down. So basically the decrease income optimism and general pessimism of economy is directly and immediately translating to lower demand for these goods and as a result overwhelms whatever tariffs passed through in the goods sector in terms of inflation impact. So on net inflation impact has in disinflation.
So disinflation is when you just have a fall in the inflation rate, and deflation is when prices are falling. I mean, the headline from what you're saying is we all expected inflation, but actually so far, because this kind of supply side shock also affects confidence and activity, that effect is actually more visible than the inflation effects.
Sor right correct so far, yes, But.
In terms of expectations, I think we are seeing people expecting inflation to pick up as a result of tariffs. And of course Donald Trump would claim that economics in the real world works differently from people expect and he's kind of proven that by doing things that were supposed to be very costly and have actually done all right. And I'd have to say, listening to you so far, you know, everyone said there was going to be inflation. No,
inflation's gone down. Everyone said that the economy be really hurt. Well, if you look through the kind of ups and downs of the first two quarters, which are very distorted by this import activity, the economy doesn't seem to have been very adversely affect And in fact, everyone predicted the dollar would go up as a result of tariffs, and in fact it's gone down significantly.
So that was very surprising that.
So he's right, the colnivists just don't know anything, and he can reinvent the rules.
And Stephany is too early. It's also too early in the game going back to the import front running, so we have until July where nothing happened. Everything can carry on as usual. However, after this front running is over, the question is will the firms restock at higher prices? And if they do, then ultimately the firms will have to decide should they pass it through or should they just eat those in terms of profit compression. So the firms did not need to have that stark choice right now.
We are not in that period. And this is why you have FED Governor Chris Waller talking about how it's kind of hard to see what is truly what truly how is it impacting inflation until after July.
I just wanted to signal this banana was But also note that like Trump is bragging about this, right they're they're bragging.
Probably it's not Biden's economy anymore.
Right Exactly, they are bragging about low gasoline prices, which by the way, are at a rate where US drilling is heavily disincentivized. There are signs of uncertainty, if not even pullback that Trump is looking at a political positive. So they are celebrating these things even if you look at the trade data and think, well this is kind of like a crash diet, right if I stop eating for a month and might bemidrops. Like, is that is that, like, you know, harbinger of a long term thing or is
that just me making bold choices? So we'll see how this shakes out. But like Trump is and his allies are proud of this. They are boasting about this. He loves the tariff revenue. He believes it is driving domestic investment in factories. And I think that people maybe still haven't really wrap their head around how an evangelist he is on this tariff issue. When the question of like legal flights and are these teriffs going to stay or not?
So everyone you talk to around Donald Trump, he loves tariffs. There's going to be tariffs. If it's not this authority, it'll be another. It's going to be bumpy, but they're going to be there.
Yeah. On the trade thing, it reminds me there was that old learn about I. I've been training my donkey to not need any food, just as I'd trained him to not need any food Adoly died. So we might see that on the trade front. But Anna Josh is mentioning, I guess there's a sort of macro micro thing because macro we're still not seeing some of the impacts that
we might have expected to see. And you've said too early to say, but you know, micro, we also have a lot of stories and we have a lot of reports from companies who are doing their sort of earnings forecasts and things saying this is really affecting our ability to get components, or at least we're having to really think about rethink how we make stuff. I mean, how much are we seeing that in terms of changing the way companies are operating.
Yeah, I think that's the surprising part to me personally. So ISM Manufacturing just release their semi annual survey that asks manufacturing firms what are their plans in the next six months, And interestingly, there are a pretty substantial list of US industries that's reporting they're going to increase the operation capacity in the US. And some of those industries would surprise you because it's for example, it's things like Apparels. I mean, why would one think that US would be
bringing back Apparels. And we also know that Apparels was one of the most hardest hit by these terraffs on China and Vietnam.
So that would be the answer, but you wouldn't necessarily expect the US to do it. But it has been the sector that's been hit particularly.
Hard, exactly exactly, and the metals industries where seeing some increase in employment in the metals industry, which is consistent with what we saw in twenty nineteen and twenty eighteen too.
I mean, just one of my questions for you was, are the administration worried about the economic impacts we're seeing as you've just said, they're actually quite excited so far about some of the positive impacts.
I think that for them it is always sort of two steps forward, one step back. They're excited until they have to have, for instance, a somewhat hasty cease fire with China in Geneva, right like, everything's going great until we have these hastily arranged and deals to claw everything back and take the pressure off the market. So I think that's sort of where they're at. They continue to project sort of a Trumpian confidence, if you will, but constantly the pressures to come back from it are just
going to be there. So I think the question is like with the EU with Japan, with South Korea, with major trading partners on which there really has not been a lot of progress locations of progress. What happens if there's no deal, like how high does Trump go to snap?
At the same time, we had a lot of noise about China's going back on its side of the bargain with this deal, and we had the sort of very rapid fire thing around doubling the steel and anominum tariffs. So how did you read any of that? Insofar as there is an underlying strategy.
On the China thing, I think it is teeing up well. As we sit here, we expect to be or at least the Americans expect to be a call between President and She and President Trump at some point this week. All they've said is this week, a couple of officials have said it publicly. We just don't know when that will be. Those complaints appear to be heavily linked to export controls around critical minerals that the Americans said publicly would be like, you know, flowing freely, and China just
had a different view on that. So, whether it is China renegging or an outcome that is different than the publicly stated desired outcome of the Americans, is that open question. I think on the steel aluminum, I mean, I don't It's difficult not to see it as like a reaction to the court ruling. He almost felt like he wanted to flex his muscle and you know, enact Terris where
he could. And we should note, of course that they renounced at US steel in the context of him celebrating the sale of US steel to Japanese, the Japanese company Nipon Steel, which he's not framing as a sale, but essentially he's flipped his view on it. He used to oppose it, he campaigned against it. Now he's blessing it
with certain you know, strings attached. So he's he's sort of like washing down the reversal with oh, by the way, I'm giving you more tariffs, which for Nipon Steel is probably not bad because now they've got a great foothold in the American industry and they will be terror free for stuff made at US steel.
Anna. You know, Josh has mentioned that at least it may have an impact on other countries that you've now got this legal uncertainty around a lot of the tariffs that we're using. The AIPA legislation. The idea of an emergency that gives the president exceptional power. They push back on that, but how significant do you think that ruling is? Do you think it really sort of casts a question mark over all of these things.
No, So, first of all, they're going through all the appeal options, and I think that the odds for a successful appeal is pretty high given that there is a president with Nixon's case. So in the nineteen seventies, Nixon also invoked the predecessor of IEPA's power, also presidential powers to impose a ten percent tariff, and he was also challenged by the Trade Court, but then he won the appeal because citing that the Trading with Enemy Act grants
the president emergency powers. Odds are decent for him to win an appeal. In second even if he doesn't win, all he needs is to buy some time until he can switch over to these other options such as section three three eight, one, two to two, which allow him to immediately impose fifteen to fifty percent on anything immediately, and then he could use Section two thirty two and three or one, which takes longer, and all those are
already in motion. So basically, I just think that ultimately the equal abround tariff, the endgame terroriff is still about fifteen percent in our baseline.
Josh, is there actually an expectation that this could put an end to at least a chunk of the terriffs.
I think they're not popping champagne yet. I think the most powerful sort of counterforce to Trump's tariffs have been the people that have done it sort of out of the public eye and have fought it in court rather than on the airwaves. So I think the silence is conspicuous. And I agree with Anna about the other powers here.
But if I can offer the sort of contrarian take here, I mean Section one twenty two is capped at fifteen percent for one hundred and fifty days, so lower, much lower than he wants to go with some of these countries. Section three thirty eight, that's the fifty percent power that Anna referenced. It's never been enacted, it's been threatened, been used, So like the legal footing of that is by definition untested.
Section two thirty two. They're already doing several investigations. There are only so many people you can fit in the tiny USTR buildings across from the eo B Friction three oh one, those take a long time as well. There are trade offs to this. There's a reason they used AIPA in the first place, or tried to use it
in the first place. If they do pivot to these other authorities, they all come with sort of caveats that will either limit the height or term, or be unlegally questionable or untested in their own authority, or just simply, you know, pile more straws onto the camel's back at USTR and force all these investigations which, if not done properly, will be legally vulnerable. The whole point of view of two three two is that you've got to dot your eyes and cross your t's and then you get a
pretty iron cloud terraff authority. If they start fast tracking it, they risk not doing that. So there's there's there's clouds on the horizon.
One thing that I thought was just worth mentioning, although that really deserves its own episode, is various clauses in the tax bill which seem to kind of extend the trade war or at least open a new front for Trumpian attax on the global trading and financial system, which is these clauses which would impose sort of punitive or much higher taxes on individuals and companies investing in or holding US assets, but who come from countries that are
considered to have discriminatory or unfair tax regimes, regimes that are unfair to the US. You know, it's just another stick to beat other countries with, using the leverage of other countries' desire to invest in the US in various ways. Anna, There's been a lot of chatter about this, a lot of discussion and analysis on Wall Street. Does this constitute a sort of new front in Donald Trump's trade war? Do you take it seriously?
Read to me that it's very much targeting EU. And we have known for a while that the Trump administration sees EU's non tear of trade barriers as almost as severe as China's barriers. So I think this is in part a way to get at the Digital services tax and the tax on intangibles, because even in the first Trump administration was very much against this, and yet OECD also has been supporting these DST and taxes on intangible and these taxes have been collected for almost like at
least six years now. So I think it will be very hard to negotiate with EU on reducing these DST taxes, which disproportionately affect US tech firms. I mean, there's a reason why many of these tech firms are supporting the Trump administration this time around. So I just think that this is a very specific country targeting bill as opposed to a very broad range taxing on international inflows.
I guess it's a chilling effect. I mean, we've talked in the past about how investors were so overexposed to some extent or sort of disproportionately invested in the US after years and years of the US doing better than other people other countries, that it doesn't take much for them to think, oh, I should tilt in the other direction. It should take some money out or reallocate. If that brings down the dollar, then made the administrations happy about that.
But at some level, it's also going to constitute a decline in investment flows into the US, which he's supposed to you know, he wants to see more investments. Josh, do you think this clause is going to go through and do you think that it could be potentially quite damaging.
All indications are that it will go through, but you know, we're still waiting to see what the final PI looks like once they rebake it in the Senate and send it back to the House. They're still working with pretty skinny margins here, but there's not been a lot about cry about it. The Republican outcry has been focused on
other things. And so yeah, I think that ultimately Congress is going to start trying to hand Trump more tools, which is a change in tune from you in a couple of months ago when Republican senators were objecting implicitly or explicitly to Trump's sort of capturing of teriff authorities
that had historically rested more with Congress. So we'll see, remember the clock sticking in Congress, right, They want to sign this thing on July fourth, Independence Day, of course, so we can go from Liberation Day to Independence Day, which is fined for the tariff deadline. So I think you're going to see rhetorically a lot of continued sort of chest beating from the President and from the Republican administration.
And I guess that's a positive for the President if he actually gets some tools that are not sort of questioned in the court and are legislated. And people have said all along, if you really want to do these things, you need to get Congress to legislate and give you the power explicitly. But is it also a reflection that the administration's not managing to do what it wanted to do with the tools it had. Do you think they feel like they're winning?
So? I think that the administration is very nimble and flexible, and Trump himself be as a sense of how hard to push the economy, and he tends to pull back from the brink if things get really bad, as we could see in April, because the administration, the nec Kevin has it and stuff, doesn't do talk to CEOs of companies in the real economy.
So I think that.
They know that there's danger in there in their moments of diceiness. But right now, at this moment, and I do think it's reasonable to talk in moments because these things change day by day. At this moment, the hard data are not causing them to want pulled back. And this view may change this Friday with the non farm payrolls. If non farm payrolls, for example, shows really steep drop, then you would see Trump pouting a call of presidency immediately.
And personally, I think there has been the whole taco trade. Trump always chickens out. I think Wall Street is too complacent on peak tariff. Having passed, my own interpretation of why there was a Geneva agreement between you Os and China is that the CEOs, Walmart and Target were very convinsing. The fear of empty shelves caused Trump to want to continue this trade for now until August, which is the end of this ninety day pause, to fill the shelf of the US to make sure that we get past
the holiday season. And I think China would easily agree to because when you think about a game theoretic way of having a war, when both sides can agree the stakes are too high, it's very easy to find a low hanging fruit. Okay, we agree, but after this peak shipping season is over, stakes are down again. They could have another tariff for until all the way until next March and then settle down once they're about to get into peak shipping season.
And when you say peak, you mean that's Christmas season. So you need to get all the toys on the shelves.
Yes, because empty shells are politically very unpopular, and so I do not interpret the de escalation so far as a taco trade. I actually would interpret as one of the ebbs and tides of Trump's negotiation style. And what we saw in Geneva is very uncharacteristic of him. It is very uncharacteristic of him to immediately cave so soon.
I think what we saw is that he was pushed to the brink, he pulled back, and then once things settle in a couple of months, I think there's a good chance that we'll see these China tariffs rise that again, increase again.
Josh, it's interesting because you've got Anna's I think will we talked about how the economic impact so far was not necessarily as negative as people are thought, and that has produced a sort of feeling in the administration potentially that at least on the domestic front, things are not going too badly, but internationally, you'd have to say the rest of the world seems to be doing pretty well
so far. I mean, and we talked at the beginning, there's no very few deals done, and that sort of back and forth with the Chinese over whether or not there would even be a call between President she and Donald Trump seems to me kind of symbolic of the fact that China seems to have the upper hand in that particular conversation, and my colleagues in Beijing and Hong Kong are absolutely convinced that she will not want to do a call or be very reluctant to do a
call this week, because that's not the way the Chinese work. They want to have everything nailed down before or they do a call, So the optics of that can't be comfortable for the administration.
Yeah, the Chinese have calculated that they have the luxury of patients here and the Americans are betting that the American market is enough of a carrot on the stick that eventually those strategies will converge. But I agree with that, and right now we're not primed for a long time truce anytime soon. I think we'll see sort of fits and starts on this. And remember we all had a panic about a month ago when Trump exampted a bunch
of consumer electronics from those Chinese tariffs. That's only because he wants to hit them with another tariff, and so in the meantime he could announce his two three to two tariff on iPhones, on computer monitors, on everything. With the semiconductor chip in it that hits China in a different way. So you know, there are multiple fronts on this trade war, where each settles on an e given month,
I think remains unclear. I totally agree that the view of the retailers and the political impact that empty shelves would have on it. And Trump got a lot of blowback for saying like, maybe kids will have two dollars instead of fifteen dollars, and you know, you can have one pencil instead of fifty pencils. It's kind of that he did instick Landing on that one, and he's got blowback on it, so I think he will be sensitive
to that. But I also think that when it comes to appetite among lawmakers, who have of course been very deferential to Trump, to say the least, lawmakers in Washington are keen to reset the relationship with China on both sides of the aisle, Trump has a lot more leash when it comes to a fight with China that he does with the rest of the world. So I think we continue to see China on a separate track from the rest of his trade front.
So I can't help thinking that we will have to take stock of the trade more many more times before we're done. But I feel like we have some interesting takeaways on just where the economy is, even if we do think there's a lot more coming down the track. Josh Waen Grove, Ana Wong, thank you so much, thank you, thank you, thank you for listening to Trumpanomics from Bloomberg. It was hosted by me Stephanie Flanders, and I was joined this week by our chief US economist, Anna Wong
and senior White House reporter Josh Wingrove. Trumpomics is produced by Summer Sadi and Moses and Dam with help from Chris mart Lou and Amy Keene. Special thanks to Rachel Lewis Chrisky. Sound design is by Blake Maples and Brendan Francis. Newnham is our executive producer. To help others find Trumpomics, please rate it and review it wherever you listen.