Duty regime: America’s consumers will foot the tariff bill

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1:34The Economist

1:41Hello and welcome to The Intelligence from The Economist. I'm your host, Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world.

1:56We pay a visit to US Space Command, which is a cavernous lair inside a volcano. Just kidding, it's an office building. But the kind of dramatic combat it's preparing for is straight out of the movies. And you'll have noticed that young people are never without a ready supply of water, often in an enormous bottle, which is often glammed up and personalized. We look at what's behind this thirst for a liquid asset.

2:32First up, though.

2:42Dozens and dozens of countries just got it in the neck. Overnight, yet another trench of tariffs from the Trump administration came into effect. On the social media site Mr. Trump owns, he posted, and you'll have to imagine the all caps here, it's midnight, billions of dollars in tariffs are now flowing into the United States of America. Which is true, as far as it goes, but the bigger picture is far more complex and troubling. Donald Trump thinks he's winning from all the tariffs that he's imposing on the world, But he started something that America can only lose. Rachna Shanbog is The Economist's Business Affairs Editor.

3:23The long-term costs of these tariffs will only mount and America will pay. So Rachna, here we are once again talking about new trenches of tariffs. What's on the docket for today? We've seen a range of tariffs come into force overnight. A set of them are the so-called reciprocal tariffs, which range from about 10 to 41 percent on a large number of America's trading partners. And the idea behind this is that any country running a trade deficit should be penalized because Donald Trump sees that as stealing from Americans. Another set of tariffs are those that were agreed as a result of these very hurried deals that have been struck between America and some of its trading partners.

4:03So for example, the EU accepted a tariff of 15 % on its goods. So those sorts of tariffs have come in today as well. And then there's this third category, which are more subject to presidential whim, tariffs on countries that are doing things that Donald Trump doesn't like. So for example, partly because Canada said it would recognize Palestine as a state, it faces a tariff rate of 35%. There's a threat now from Donald Trump to impose a tariff of 50 % on India because it buys Russian oil. The India tariff has not come in today. That's something that's going to come in in a few days' time. But we're seeing tariffs being used to achieve a whole range of objectives now.

4:43And what about the case that Donald Trump is making that he is, in fact, winning? He's celebrating the billions of dollars flowing into America and so on. What do you make of that? Yeah, it's a seductive idea. And I think part of the reason why Trump is celebrating exactly as you say is that US Customs is raking in this tariff revenue that it wasn't raking in before. America's effective tariff rate now is 18%, which is about eight times higher than it was last year. Another cause for celebration for the MAGA crowd is that the rest of the world seems to be caving and making all these concessions.

5:19So for example, look at the deals that have been agreed between America and the EU or Japan. They're sort of asymmetric. So America imposes higher tariffs on these trading blocks, but they are opening up their markets to America. They're vowing to do more investments in America. Another reason why you might think that things are going well for Trump is that the financial markets haven't reacted badly this time round. They seem to have taken these tariff increases in their stride. All of that might make you think that Donald Trump has played a blinder here. He's really pulling off this trade policy that he has set out to achieve.

5:55I would argue that's not the right way to think about it. Go on, tell me the right way to think about it. So it's misleading to think that tariffs hurt the exporting country. That's the way that Donald Trump thinks about things. But when he raises the tariff rate, it's his own compatriots that he's hurting. Experience shows that it's the importer who pays the tariff. And we know, for example, analysis from Goldman Sachs suggests that four-fifths of the increase and tariff costs so far have been paid for by American businesses and American consumers. If you look at the earnings releases of companies over the past few weeks, it's clear that many businesses are bearing those tariff costs.

6:35They're taking the hit to their profits and their margins. And that is not a sustainable situation. At some point, they will have to pass on those costs to the consumer. And so as that pain does come ultimately downhill, how are businesses reacting to the new world they're living in? There's still some uncertainty around the detail of some of these trade deals. So businesses won't be thinking about how to reorient their supply chains straight away. It takes a lot of time, it costs a lot of money to build new factories or find new suppliers, so they might still be watching and waiting. There are a group of businesses, there are bound to be businesses that are looking for loopholes and seeking exemptions.

7:13And this is a cost that tariffs impose on the economy as well, which is you just see a big increase in this sort of activity of trying to find ways to minimize tariff bills, which is really just wasteful. And so you're seeing some of that happen as well. Businesses seek exemptions from the customs agency in America, sometimes successfully, sometimes unsuccessfully. But there will be a limit to how much businesses can cope. At some point, they will have to raise their prices. And what about the financial market side of things? So far, you said it's not too bothered by all this. You haven't seen much reaction in the stock market this time.

7:46And that could be for a range of reasons. One is that America's in the middle of this extraordinary artificial intelligence boom. The big tech firms are spending huge amounts of money on this. Expectations of their earnings in the future are going up and that might be masking the weakness in other parts of the economy. So the AI boom is buoying stock markets. Another reason why you might not see much of a reaction in the stock market is that investors might be expecting manufacturers in time to rejig their supply chains to lower their tariff costs. There's this idea that Trump always chickens out when it comes to tariffs.

8:24And if investors expect that to be the case, then they won't react very much to when tariffs are announced. But the unhelpful dynamic here is if investors aren't reacting, then that emboldens Trump to keep going with his tariff agenda, only causing more pain to the economy. So the overall narrative here is that the pain is definitely coming. It just hasn't manifested yet. I think that's right. This isn't about whether America will go into recession next quarter or not. This is about the long-term shape of America's economy. And we're in a world now, Jason, where we've seen some tariff increases today, but you and I are probably going to be talking about this for another three and a half years.

9:05The situation with tariffs is not stable. It's being set by one man. That man is susceptible to flattery. He can be annoyed and that can mean lower tariffs for some people and higher tariffs for others. So that's the world we're in now. This is a world of uncertainty for businesses. It encourages them to lobby. That's basically wasteful. They could be using that time and energy to innovate on new products instead. It's a system that's bad for America's consumers because they have less choice than they once did. There was a time when foreign and domestic producers would have competed to sell to them and the best producer would have been the most successful.

9:43But now it might also be the manufacturer that's best at playing the system. And the other worrying thing is that this system could be quite sticky because tariffs also create winners. There will be manufacturers that benefit from having high tariff walls and will have become uncompetitive on world markets. And they won't want to see tariffs come back down. and you mentioned that tariff revenues are rolling in, that's another reason why tariffs could be stickier than I would like, because politicians become used to having this tariff revenue. And although there are benefits from freer trade, they might be reluctant to let go of that revenue.

10:20This system, now that it's in place, could be a lot stickier than you expect. Well, here's to talking about how all this plays out in the coming months and years, Rajna, for now. Thanks for your time. Thank you, Jason. Thank you.

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12:22Conflicts around the world are now increasingly tied up with events in space, whether that's people monitoring the signatures of Iranian missiles taking off for Israel, or Chinese and Russian satellites sidling up and spying on American ones. More and more countries are showing muscle in orbit. Shishank Joshi is our defense editor. America doesn't want to be left behind, and it is tooling up for this new age of combat and competition in the heavens. I went to the headquarters of U.S. Space Command in Colorado Springs to speak to the person in charge of the whole thing, General Stephen Whiting.

13:03I am a Space Force officer, but in this role, I'm a joint commander. I have Space Force people and capabilities, but I also have Army, Navy, Air Force, and Marine Corps. Now, Shishank, before we get into your conversation with General Whiting, tell me about the Space Command HQ. Is it as grandiose as I'm imagining it? So you might be imagining big control panels, fantastic screens, lights blinking everywhere. Unfortunately, the bit that I've seen is more of a mundane office, with the slight exception of satellites hanging down from the ceiling and pictures of space planes. I first went there six years ago, and they were beginning to think more deeply about the prospect of conflict in space, but they were very cautious about talking about elements of it, like offensive weapons.

13:50When I came back this time, a lot had changed. You had had the establishment of the command itself. You had the establishment of the Space Force as an independent service. And you had a sort of new, more muscular attitude about the question of space warfare as well. And why is that? Why is America feeling or wanting to project more muscularity? A lot of reasons. The American military has always been very, very reliant on space. But that reliance has grown even more. And I was told about how America's strike against Iran with B-2 bombers, for instance, was hugely dependent on space capabilities, everything from navigation to targeting to intelligence.

14:29In addition to that, I think the threat has also changed. If you look at China, that has had an eightfold increase in launch activity in the past 10 years, I was told. And it has eclipsed Russia in terms of the level of space threat that it poses. Russia also has changed. Russia has been developing, according to America, a nuclear weapon that it could put in orbit to take out lots of satellites in low Earth orbit. So that's another big change on the threat side. And General Whiting described to me just how rapid that shift had been. Going back to 2019, only six years ago, but in space organizational years, it seems like it was 50 years ago now.

15:10Now, in the last six years, we've increased the number of man-made objects we can track on orbit by 80 percent. China and Russia have accelerated their space capabilities. And so it's a much more congested area, but it's also much more contested now. You said that on your first visit to Space Command, people were kind of cagey. It doesn't sound like General Whiting is quite so cagey this time around. No, they're much more open about the offensive side of what they do. Part of that is about the political license to talk about it. Donald Trump has authorized something we've talked about, Jason, the Golden Dome missile shield.

15:47It isn't just America, though, right? Other countries are also being much more public about this. Britain, in its latest defense review, talked about the importance of developing what we call counter space capabilities, both on Earth and in orbit. And that's a huge shift. And there's a sense that everyone is becoming a little bit more public about talking about these things. So for instance, I was told that the United States recently performed what they call a rendezvous and proximity operation, an RPO with France. And that's a kind of operation in which one or more satellites closely approach another one, whether that's to inspect it, to spy on it, or even potentially to manipulate it or destroy it.

16:30And they wouldn't tell me exactly who it was against, but I think it was probably Russia. and General Whiting told me that doing this with France, it was a big moment. The real challenge was making sure we had the right IT systems in the right places so that we could share at the level that we needed to. That was the biggest challenge. There's also a lot more of this kind of thing. There's something called Operation Olympic Defender, which sounds very grand. And basically, it's Space Command working with six other countries, some of them part of the Five Eyes Intelligence Pact, Australia, Britain, Canada, New Zealand, but also France and Germany.

17:05And the idea is this is basically to deter hostile acts in space. It's a kind of policing mission. And they have just agreed their first campaign plan. So this is a serious thing. It sounds like it's a serious operation for quite a lot of countries. Do you have a sense for who's ahead in this particular space race now? The general view is that America is still the dominant space actor. They talk about preserving their dominance in space. They have some of the most advanced satellites. But I think that there is a sense that the gap between them and the Chinese has narrowed greatly. And there's also a sense that they need to think harder about some challenges of modern space warfare.

17:47So, for example, one of the biggest risks is fuel. The irony is everything in space is moving. We have traditionally maneuvered our satellites in positional warfare almost. It's like they're individual forts. and then to move them costs gas. And then we have to compute how much of the end of the life is going to be sacrificed as we maneuver because you only have all the fuel that you ever launch with. And if you want to improve that, you only have a few ways of doing it. You can carry more fuel up with you. You can refuel in orbit, which is something that China has done, but it's probably only economical for the most high value satellites.

18:24And you can also do the third way, which is just to have so many satellites to begin with that you basically treat them as expendable. And we're beginning to see American spy satellites and military satellites moving in that direction. I think the last thing is, Jason, you can also make the satellites somewhat more intelligent. You can bring more AI on board. You know, General Whiting said he would love to have satellites that could detect nefarious maneuvers and automatically move out of the way. There's also AI being used on the ground. And I was told of an endearingly named large language model called SpaceBot, which has been trained on the command's meetings and planning data.

19:02And, you know, it can do the work of lots of people over hours in seconds. It's a fascinating innovation. So America may have been experienced in this space for something like 80 years, but clearly it is now thinking afresh about the nuts and bolts of war in space. Shishong, thanks very much for your time. Thanks very much, Jason.

19:40Right, so Caitlin Talbot, our culture correspondent, is here in the studio and she has brought with her what I've got to say is an absolutely enormous vessel. Talk me through it. So this small thing is a Stanley water bottle. It holds 1.2 litres of water. You know, just the average amount that we might need at any given moment. This is a pale blue bottle. It comes with a straw, a large handle. And yes, I think it feels like there might be a third person in the room with us. It's kind of that size. So I'm not the only member of Gen Z to have one of these at their side. For Gen Z, water bottles have become a kind of necessity and also a fashion statement.

20:23Necessity to carry around 1.2 litres of water. No, no. Why? Why does this matter? Why is this more to the point a fashion issue rather than a hydration issue? So I think the reason it's not a hydration issue is because it's just so much water to be carrying around. And I think about it often. I'm in my apartment, which isn't very large, and I have lots of glasses. But why do I feel the need to put it into a reusable water bottle? This is not just an on-the-go thing. You use this at home. I mainly use this at home. Lots of people do carry them around everywhere, but it's just too heavy. So in what way then are they fashion accessories?

20:57So some people take this further than me. They get them accessories. It's like a pet. Do carry on. There's just so many of them now. They come in so many colors. People customize them. People have three or four. They might have one in the office, one at home, one that they take to the gym. And then I think some people match them to their outfits. Do you do that? I do not do that. Yet. Yet. I do not yet have a backpack for my Stanley. It could happen. And, you know, social media has been a big driver of this. People post lots of videos accessorizing their Stanleys. I won't say dressing them up, but it kind of is.

21:40You know, they attach key rings and then they carry it around on their walk. So I got my water bottle because my friend had one. So I think it kind of spreads that way as well. So it's not just a thing for influencers. We're mistaking a very visible trend on social media for a real trend in the world. Oh, it's absolutely a real trend. Yeah, if you talk to any of our kind of Gen Z colleagues, they will have a water bottle somewhere in their life that they are using. And it will be probably very large. So on TikTok, the hashtag water talk has been viewed 2.5 billion times. If you look at the videos under this hashtag, It ranges from dressing them up, as I've mentioned, to water recipes.

22:22These tend to kind of verge not on water at all. You know, you're pouring soda, hydration, sachets, syrups, big ice cubes into Stanley cups to make the water taste nicer. And bam, we have a mermaid lemonade water. Let's make my water of the day. This one's going to slay so hard. At that point, as many fans have commented, it's not really water anymore. So as much as this might not just be an influencer thing, it does sound kind of like it's an influencer marketing thing. Yes. And Stanley's been the biggest brand. They've been very hot on celebrity collaborations. They collaborated with Olivia Rodrigo, a pop star, to create a very purple cup with stars on it.

23:06And recently they collaborated with Lionel Messi to release a line of pale blue cups in a colour sort of similar to the Argentine football shirt. So it sounds as if an entire industry has been made from whole cloth here. These things are flying off the shelves. Water bottle companies like Stanley are lapping it up, as it were. Yes. And these bottles, which are called quenches, are definitely quenching brands' thirst for profits. Oh, nice. The value of sales of portable drinkware in America reached 4 billion in the year ending May 2025, and some 270 million containers were sold in the country, up from 240 million two years ago, which is also still a staggeringly high number.

23:48I mean, we're verging on nearly one bottle for every adult in the entire country here. We really are. But at the same time, just as an aside here, it does seem like in general, out there in the world, generation, independent generation agnostic, people on average seem to feel that they need to carry their own water source in a way that they never used to. Oh, this is my old man shaking fist, right? Was a time you'd have a drink of water before you left the house and you'd go wherever you were going and you knew if you got thirsty on the way, you could maybe pick a bottle of water, but there's probably water where you're going anyway.

24:22Now it's like we're all waiting for the unexpected hiking trip. Honestly, it's this notion that you have to have it on you all the time, I don't think is limited to Gen Z. No, and I think that there has been this idea that water is amazing for your physical health, your mental health, keeping hydrated. Celebrities go around saying they drink gallons a day. And I think that it's definitely in people's minds as something that they need to prioritize. I think often people carry it around, perhaps more than they even drink it. It's just the idea that it's there if you need it. And I suppose it's fascinating to hear it, I don't know, 20, 30 years ago, that wasn't a thing.