Crunching the Numbers on President Trump’s Trade War

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1:32Bloomberg Audio Studios. Podcasts. Radio. News. President Trump's trade war is now in its fourth month, and we're approaching a pivotal moment. Friday is the end of the extended pause the president put in place on his reciprocal tariffs, promising a wealth of trade deals and investment in U.S. production on the other side. The big money will start coming in on August 1st. And this week, we'll also get a raft of data that will tell us how the U.S. economy is doing. GDP data, new data on consumer confidence, and a jobs report for the month of July. It's also a very busy week for corporate earnings.

2:13And in the middle of all of that, there's a Federal Reserve meeting, after which reporters will have a chance to ask Fed Chair Jerome Powell for his perspective on how the president's trade war is affecting the U.S. economy. I guess the entirety of this year, the big word has been uncertainty, right? Sean Donnan is a senior economics writer at Bloomberg. That Donald Trump's tariffs were causing this uncertainty in the U.S. and global economy, and that that was going to have two effects. One is a drag on investment by businesses who don't know where to allocate capital. And the second is a drag on hiring.

2:51And we are starting to see that drag on investment show up. Sean says companies all over the world are cutting costs, adjusting supply chains, and rethinking their approach to investments and expansion. We've seen imports first swell into the U.S. and then kind of tail off. We've seen Chinese exports to the United States contract. We've seen a 25 percent drop in exports out of Japan, particularly of cars to the U.S. that have been hit by tariffs. We are seeing Japan and Canada on the verge of possible recessions. All in, Bloomberg Economics estimates the world's GDP will take a$2 trillion hit by the time Trump leaves office in 2028.

3:38So just who is starting to feel that crunch the most?

3:45I'm David Gura, and this is The Big Take from Bloomberg News. Today on the show, from American consumers to winemakers in Europe, we run down the impact so far of President Trump's trade war.

4:00Sean Donnan has been working with other Bloomberg reporters all over the world to understand how President Trump's tariff policy is changing the global economy. Our colleagues in France rang up the biggest organic wine production cooperative in France. It's down in the south of France in the Languedoc kind of region. They literally are sitting on 2.7 million bottles of wine or the equivalent of 2.7 million bottles of wine that they haven't sold. And a big reason for that is that a quarter of all European wine exports head for the United States. And those exports have kind of frozen. Then you go look at Japanese auto parts producers and what we're already starting to see is in regions of Japan, people being laid off at auto parts producers because exports from Japan to the United States are falling.

4:58We're seeing a similar impact in Canada. In Vietnam, we've had all sorts of suppliers who have, you know, were told by the American companies that they service. OK, hang on a second. We've got these tariffs here. Don't send the stuff, please. Dear God, do not send the stuff because we're going to face a huge tariff bill if you do. And now they've kind of backed up and said, OK, now really send the stuff, send it as fast as possible because the tariffs might go up. Sean, when you look at the economic data and you're hunting for signs of tariffs damage, where does it show up? What's telling you the scale and scope of the damage from these tariffs so far?

5:34Look, the biggest thing I'm looking at is in this second quarter and in the third and fourth quarter to come is going to be the business investment figures. What's called fixed investment or non-residential fixed capital investment, right? And you see that is the kind of bet on the future of the U.S. economy. That's domestic and foreign manufacturers and other companies and what they are investing, whether it's warehouses or factories and so on. That is the big promise from the Trump administration is that these tariffs will force producers to come make their stuff here in the United States. Well, to do that, they have to invest in factories.

6:12And that's where we're going to see that. The Atlanta Fed has a what they call GDP Now measure, which takes in all of the data that comes on construction spending and equipment spending and so on. And in the second quarter, it is showing a increase in investment of just 0.1 percent. That's going to be the contribution to overall growth. And that is pretty subdued. That's as slow as it gets without getting into kind of recession territory. So if that comes true in the GDP numbers that we get this week, then that's going to be a big warning sign for the U.S. economy. You're getting at a contrast I want you to draw, and that's between the rhetoric that we hear from President Trump and his economic team about the efficacy of these tariffs, the revenue that they're bringing in, the promise that they're going to reform the economy here in the U.S.

7:08in a good way. and what we're seeing in the economic data. How stark is that contrast? With Donald Trump, there's always been hyperbole, right? A big issue for anyone digesting his economic plans has been kind of listening to the sales pitch and then kind of matching it with reality and what we actually see. And consistently, you know, what we see is kind of over-promising and kind of under-delivering on the economy. And part of that is a kind of ideological battle, right, between Donald Trump, who is a great American protectionist, who believes that if we put this tariff wall up around the United States, that that will fix all sorts of problems from the fentanyl crisis to immigration to factory employment in places that were hit hard by the China shock early this century.

8:01That is his answer. And a lot of his advisors, like Peter Navarro and Jameson Greer, the U.S. trade representative, believe that globalization-free trade has gone too far. The tariff wall has come down too low. We need to raise it again and encourage investment in the United States. The reality is economists say, well, there's a cost to that. And the cost to that is higher prices, not just for consumer goods, but also for all the things we need to make stuff, right? If you put a 50 % tariff on steel, it's not just a tariff on imported steel. It also leads to higher prices for domestic steel because the domestic producers adjust their prices upwards.

8:43That means higher prices for everything from washing machines to cars. And that's an input that you don't see immediately. So it's higher prices, but it's also slower growth as companies adapt to those higher prices, the higher cost of doing business, and start changing the bets that they make. As you say, the president is counting on a surge in investment in the country, companies deciding to build more factories here, do more manufacturing here. Is there evidence that that's happening? You know, we've seen the president throw around some big numbers. He's talked about up to$15 trillion in promised investment just in the initial months of his administration.

9:28So that would be 50 % of U.S. GDP. That seems unlikely to happen in a single year. A lot of these things are promises, right? In the deal that was announced with Japan, one of the things they've talked about is a$500 billion plus investment fund. But we don't know where that investment is going to be. What projects is it going to go to? These things take years to play out. Now, it could be that the tariff wall is so high this time that maybe more of this investment will come. The argument from the Trump administration, there's, you know, it does make sense to a certain extent that this is the world's largest economy.

10:05U.S. consumers are the biggest consumers in the global economy. If you want to access that consumption, then come build here in the United States. But it's going to take years to figure out if that promise has actually come true. The flip side of it, what economists would tell you, is that, well, if you're making producing in the United States more expensive, you're actually reducing incentives for investment there because all of a sudden the U.S. becomes an island on its own. So as the U.S. lives in this new isolation as an island as you said what's happening with other nations other trading partners what's happening in the world beyond the U.S.

10:48What we're starting to see and some of this was actually happening last year during the election is other countries just talking to each other and starting to hatch their own trade deals. So the EU has one that it's been negotiating for years, feels like decades, with a Latin American economic bloc. They're finally getting close to closing that deal. That is an enormous trade agreement. We've seen the Trans-Pacific Partnership, which the U.S. pulled out of in the first Trump administration. We've seen that expand. The United Kingdom, which is not a Pacific country, but it has joined the Trans-Pacific Partnership, which now has a new name.

11:27And that is growing. We need to remember that the United States is the world's largest economy. It's a$30 trillion economy, but that's a$30 trillion economy in$100 trillion plus global economy. It's not the only game in town. And we've already seen with Chinese exports, for example, some signs that they are finding other markets to replace the United States. So, you know, the rest of the world is kind of getting on with its business and trying to find alternatives to the U.S. market. And for a lot of people, that's the scariest prospect. What happens to the global economy if the U.S. continues its protectionist trade policies?

12:08Plus, what this week's economic data will tell us about the health of the labor market? That's after the break.

12:38Thank you.

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14:37Tracking the impact of President Trump's trade war in real time isn't easy. But this week, we're getting a lot of new economic data and updates from some of the largest companies in the world. That'll give us a clearer picture of just how consumers and businesses are responding to the trade war. For a guy like you, Sean, who is on the front lines of this trade war covering what's been going on, how important is this week? We're going to get a real snapshot of the impact of the tariffs on the U.S. economy. And that is going to be the first evidence that we see in the second quarter numbers for GDP.

15:14We'll also see that in the jobs side. Remember that the last jobs numbers we had were stronger than expected at the headline level. But when you kind of went below the surface, you realize the private sector hiring looked pretty soft. So we'll see how the labor market is holding up at the end of the week. But we're also, you know, there's this August 1st deadline that President Trump has wielded. And what we're also going to be seeing is just how far he's willing to go, whether he extends that deadline for India is still out there. We thought that they were going to be one of the first big economies to get a deal with the United States.

15:48We're still waiting for that. And, you know, we're going to see if everything goes to the plans that Trump and his aides have laid out, we're going to see an increase in U.S. tariffs by another step up at the end of the week. And that will then have a further impact into the third quarter going forward. I think one of the things that maybe and maybe this explains why markets have to a lot of economists look complacent about the damage that tariffs are doing. I think one of the reasons is you need to think of the impact of tariffs as a kind of a really bad cold, right? Or it's something that just kind of hangs around, that isn't going away.

16:28You're operating at like 80, 90 percent of your best. It's not a sudden, dramatic shock to the system. It's this kind of chronic impact that just kind of drags on, which means that the U.S. and global economies are just going to grow slightly slower, are just going to be less dynamic than they were beforehand. Can the world adapt to that? Of course, the world will find a way to survive. The U.S. economy will find a way to survive. Companies will find a way to survive. You know, General Motors paid$1.1 billion in tariffs just in the second quarter alone, and it said that for the full year, it expects to pay$4 to$5 billion in tariffs.

17:11Can it keep doing that forever? No, it will find a way to adapt. It will do different things. But in the meantime, it's going to have reduced profitability. It's going to have less capital to invest in new projects. It's probably going to hire fewer people. Sean, I'm glad you bring up the auto sector because there's GM, there's Stellantis, there's Volkswagen. All of them issued kind of similar warnings and said they've paid a ton because of these tariffs. I wonder, are there any other sectors you want to flag where, either in earnings reports or in commentary, you've seen broad trends emerging about how much tariffs are impacting business?

17:46You know, there's more tariffs to come, and we also need to remember that. And, you know, President Trump has promised big tariffs on pharmaceuticals. So the pharmaceutical industry is waiting to see what those tariffs are going to be. The other big one that I try to get my head around every day, just because it's something that is part of all of our lives every day, is semiconductors. President Trump ordered up an investigation into the national security impact of importing semiconductors. And we are going to see, we've got steel, we've got aluminum, we're waiting for the results of a national security investigation on critical minerals.

18:22It's hard to single out sectors, although I have singled out pharmaceuticals in Big Tech, because it's kind of everything in our lives, right? The shirt I'm wearing, I looked up this morning, it was made in China. I didn't realize that. But, you know, that's going to be more expensive next time around, or it's going to come from somewhere else. I don't think it's going to be suddenly made in North Carolina. So it's this kind of chronic price increase that we're going to get used to. And for a long time, the value of free trade and free markets was held up with two examples of economies in history.

18:56And that was in the 1920s, Argentina and the United States were roughly equivalent in size as economies. One chose a path of protection and import substitution. That's Argentina. and in the hundred years since, I think it's fair to say that Argentina has been the less successful economy than the United States. And the other chose a path of opening up and of encouraging other economies to open up. And the U.S. economy became the world's largest economy on the back of that. Now, the question is over the next hundred years, are we going to continue the dynamism of the last century in the United States, or is it going to become a lesser version of itself?

19:40I want to end with market complacency, which you brought up a few minutes ago. We're seeing the stock market at all-time highs. Underneath that, how much anxiety is there among investors about the United States' economic prospects? Are we seeing indications that there is less of an appetite for investment in the U.S. in light of this trade war and as you've laid out what could be coming here in the next few months. I think it's really hard to figure out from equity markets what they are foretelling, partly because of the influence of the big tech companies. But you can see the anxiety in the reaction, for example, to General Motors earnings.

20:16The shares were down after the company came out and said, as a result of tariffs, our profits in the second quarter were 35 % less than they would have been otherwise. So we're going to see that build and we'll see it in individual stocks there. The other kind of corner of financial markets that's been so fascinating has been currency markets, right? And what's happened with the dollar. In the first half of this year, the dollar had its worst performance since 1973. Now, what happened in 1973? That's when you saw the kind of final pull out of the Bretton Woods currency system, which pegged the dollar to gold by Richard Nixon.

20:55And there was a whole repricing of the dollar. And that was the goal at the time. The fact that we've seen that impact in the first half of this year tells me that some parts of the financial market are more worried about tariffs than perhaps equity markets are. Sean, thank you very much. Thank you so much for having me.

21:19This is The Big Take from Bloomberg News. I'm David Gurra. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

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