Trump’s Tariffs Are Back — And Crazier Than Ever

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1:54Welcome to Prof G Markets. I'm Ed Elson. It is July 22nd. Let's check in on yesterday's market vitals. The major indices climbed as chip stocks rallied. Intel popped nearly 9 % after the company announced it is reducing its headcount. Meanwhile, Brent crude climbed as strikes continued in the Middle East and President Trump dismissed the idea of immediate talks with Iran. The yield on 10-year treasuries rose to its highest level in two months on inflation expectations. On Calci, the odds of a rate hike before 2027 hit 62%. Okay, what else is happening? Just when you thought it was over, tariff chaos is back with a vengeance.

2:37Trump announced that the US would be imposing 50 % tariffs on most Canadian goods next month, claiming that Canada had discriminated against US industries. Prime Minister Mark Carney said that he and Trump would accelerate trade talks before they take effect. Meanwhile, a 25 % tariff on certain imports from Brazil takes effect today, And on Friday, the 10 % tariffs the Trump administration imposed in February are due to expire. U.S. Trade Representative Jameson Greer said, quote, we expect to see some action soon as the administration prepares a new round of replacement tariffs. So lots of tariff news to get into here.

3:20Joining us to discuss this news, we are speaking with Peter Harrell, visiting scholar at the Institute of International Economic law at Georgetown Law School. Peter, welcome back to the show. It's great to see you. Lots has happened here on the tariff front, and it's a subject that we talked a lot about last year, stopped talking about for a while, I guess because other stuff was happening. Now we're back to talking about it. What's happened with tariffs over the past six months?

3:56Peter Harrell:Yeah, well, I think part of why we stopped talking about it was we all hoped that maybe, although Trump would maintain high tariffs, he'd do so in a more orderly and disciplined fashion than he did last year. And as we're seeing this week, that's not really the case. You know, if you go back to February, Trump lost a case at the Supreme Court where the Supreme Court ruled that the legal basis he'd been using for many of his tariffs last year was illegal. And the Trump administration pivoted back in February to kind of a phased set of fallback tariff plans with the idea being first they'd have what's called a Section 122 tariff, which would be in place from late February until Friday morning here in the east coast of the United States.

4:43Peter Harrell:And then they would have something called a 301 tariff that would come into place to kind of replace the 122 Friday morning as well. So they kind of pictured an orderly process. That's not where we are. Although they'd signaled there'd be order, what we in fact have seen is the 122 is going to expire Friday morning. They've not yet finalized the successor tariff, the 301 tariff. Maybe they'll do that today. Maybe they'll do that tomorrow. If you are importing a product into the United States today from Asia or from Europe, you don't know what tariff rate you're going to pay on Friday at this point.

5:22Peter Harrell:So that's kind of chaotic data point number one. Chaotic data point number two is that Trump decided, as you said, Ed, yesterday that he wanted to impose 50 percent tariffs on tens of billions of dollars of U.S. imports from Canada, which is sort of allegedly over Canadian discrimination against the United States using literally a provision of the Smoot-Hawley tariff act that may or may not still be on the books. Obviously, a piece of this is that he's trying to negotiate with Canada over a trade deal and he wants to put pressure on Canada. But that's sort of chaotic piece number two. And then chaotic piece number three, as you say, is we have these tariffs on Brazil, which are kind of around the fact that Trump doesn't like Brazilian tech regulation, and he also doesn't like their online payment platform.

6:08Peter Harrell:And so he's imposing tariffs on them as well. And, you know, probably more to come the way this is going. So just to dial into the Canada tariffs for a moment, I mean, there are all of these different laws and these different sections of the law that he's using to enact these tariffs. You mentioned Section 122, which we had and expires, and then maybe they were going to use 301. The Canada tariff, from my understanding, is using 338. I don't know what that means, but I have a quote from Scott Linceum of the Cato Institute who said that this is the, quote, nuclear option for Trump tariffs. Is that the right way to describe it?

6:47Like what what is different about these tariffs versus the ones we've seen so far?

6:53Peter Harrell:So it's called Section 338 because it was Section 338 of the Tariff Act of 1930, better known as the Smoot-Hawley Tariff Act. So he's literally using the Smoot-Hawley Tariff Act here. This is a provision of law that actually does not appear to have ever been used to impose tariffs before. I mean, since 1930, it has never actually been used. It was used in 1935 and probably in the 1940s to threaten tariffs, but they were never actually imposed. So what Trump is doing here is dusting off this very old statute, which may or may not really be legally valid anymore, because, as Scott said, what Trump wants is a flexible authority.

7:38Peter Harrell:The problem Trump has had with the 122 tariffs and with the 301 tariffs is they all require either investigations or they have like a limit on rates or they have all these constraints on them. What Trump clearly likes, I think, about 338 is that it is a, you know, again, assuming it's still lawful, a very flexible law that, you know, he thinks just lets him say Canada is discriminating against the United States up to 50 percent tariff. So that's what he's reaching for is something that gives him that kind of flexibility that he so enjoys to put tariffs on on short notice at very high rates, you know, sort of at his whim.

8:18Something I don't fully understand here. I mean, the Supreme Court literally said that the tariffs were illegal. That happened back in February. And since then, there have been a multitude of different ways by which Trump has continued to enact tariffs. and he's figured out multiple different loopholes or different sections of the law by which to do that. And here we are, I mean, several months later, it's been over a year since the initial Liberation Day. Tariffs are still in effect and it seems as if he can just keep on doing this, I guess keep on kicking the can down the road of just, oh, I'll use this section, I'll use this section, I'll use this section.

9:01And then I guess the Supreme Court has to play catch up. I mean, couldn't this go on for the next several years? Couldn't this just be the remainder of his presidency, four years of tariffs? I mean, what is stopping him from continuing to do what he's doing?

9:16Peter Harrell:Yes, I think you raise a very important point, Ed, which is that I think we are quite likely to see Trump continue to use lots of different tariff authorities, all of which have been and will be challenged in court. But his idea is to kind of run out the clock and kind of keep them going through throughout his term. And then, you know, somebody else can pick up the pieces afterwards if the courts, you know, much later rule all of these fallback tariffs unlawful as well. I mean, just to unpack that a little bit. So the first statute he used was this thing called IEPA, which actually didn't have the word tariff or duty or anything in it.

9:55Peter Harrell:It was kind of an emergency powers statute. and that's the one that the Supreme Court ruled unlawful back in February. And so now having lost the use of this emergency power statute that didn't have the word tariff or duty, now what he's doing is using different statutes that are definitely tariff statutes. You know, they contain the word tariff, you know, the president may impose tariffs, that kind of thing. but that he is he is using them in a different way and much more aggressively than they've ever been used before. And so now we are seeing law, you know, as he uses these other tariff statutes now, but uses them in these, you know, potentially unlawful ways.

10:36Peter Harrell:What we're seeing is lawsuits come to challenge them. But our court system, you know, any lawsuit is going to take at least a year to go through the courts. And so he's just going to keep trying to play play out the clock now. But this is where I find 338 and what he's doing on Canada kind of dangerous here, because one benefit that we had gotten from the Supreme Court decision in February is that Trump was not really turning tariffs off and on, on and off by whim. So he'd maintained a 10 percent tariff under 122. He is, you know, said that they're going to maintain that under 301. But actually, you hadn't seen a lot of changes in tariffs.

11:19Peter Harrell:You actually didn't see many changes in actual tariff rates between February and this week because these other laws had required some process or had some limits. What he's trying to do with 338 is not only maintain high rates under these other statutes, 301 and 122, but 338 is something that lets him kind of, you know, using his Sharpie, turn the tariffs off and on again and bring that chaos back in addition to the high rates. We've actually had, as we talked about at the beginning, Ed, you know, a couple of months without the chaos, even if the rates remained high. Something I don't understand, and, you know, maybe you can help me with it or maybe not.

12:02We'll see. Why is he doing this? Because as we've seen, as we've seen through the multiple inflation reports that we've gotten over the past several months where the inflation number goes higher. We had three and a half percent, which sure it was lower than 4.2 percent, but the target rate for the Federal Reserve is 2 percent. We were hovering around that number. Then we slapped the tariffs on. We added a full percentage point to inflation. Then we invaded Iran and we blocked up the Strait of Hormuz, added a full percentage point of inflation, possibly higher. Now we're hovering around 4 percent.

12:37And this is the biggest problem for American households right now, which is inflation and its effect on the affordability crisis. And this is what people are so upset with him about. So I cannot, for the life of me, understand why he would, after it was ruled illegal by the Supreme Court, double down, not with 10%, with 50 % on Canada. How do we even justify this?

13:06Peter Harrell:Every independent study, at least I've seen, Ed, suggests that, you know, something like 85 percent to 95 percent of these tariffs are being paid by Americans, either in the form of cost pass through to customers or by companies temporarily eating some of the cost, planning to pass it through, you know, on a go forward basis. So it's not really that the foreigners are paying most of these tariffs. We are definitely paying these tariffs. And as you say, inflation is front of mind. I think it's hard to explain this policy agenda other than the personality of Donald Trump. I think that there is, you know, a substantial amount of support both in his administration and, you know, among some quarters in Washington for, you know, targeted tariffs to protect even fairly aggressively some specific industries.

13:58Peter Harrell:here in the United States. And I think you'd find broad support better or for worse, not saying I like the economics of it, but for, you know, more tariffs to protect the steelmaking industry, which he has done, or more tariffs to protect, you know, maybe the auto industry. Again, I think what he's done has not actually been helpful to those industries, but there is support for that concept. There's very little support for the depth and breadth of tariffs and the kind of rates we're I'm seeing on Canada other than that Donald Trump has loved tariffs personally since the 1980s. And what you are seeing is a presidentially driven objective here that his administration is implementing.

14:39Peter Harrell:And I do think it is coming from him because, you know, one thing we saw after the Supreme Court ruled the tariffs illegal back in February and they started reimposing, they actually reimposed them at lower rates, right? They had been an average rate of about 15 percent before the Supreme Court ruled them illegal. They brought back in 10 percent-ish tariffs. So I think some of his administration kind of gets what you're saying, Ed, and would like to see a bit of a decline in rates. But Trump clearly just wants more tariffs. And I think that is what we're going to see going forward, kind of despite the economic costs.

15:10It seems as though this is kind of the blunt instrument he has found with which he can bludgeon people that he doesn't like, nations that he doesn't like, and in the process, also bludgeon himself, or at least the American people. That seems to be what's happening. I mean, he said, I don't know what Canada's done wrong, but supposedly they have discriminated against the US, and this is his response. I mean, you say you think this will continue. To what extent do you think this will continue? Is this move the first of many tariff moves against individual nations over the next few months. Is this kind of the canary in the coal mine, I guess?

15:51Peter Harrell:Well, I am worried about that. I do think he likes the way he can bludgeon foreign governments. I also think we have to take seriously, Ed, that although every economist, we can sit here, we can read the studies that say the Americans are paying the tariffs. I think Trump may genuinely believe just wrongly that the foreigners pay the tariff. I think we have to kind of take seriously. He may just believe that, although he's completely wrong on it. And he is, you know, as George W. Bush used to say, the decider. So, you know, here we here we are. I worry this is going to be the beginning of future moves.

16:27Peter Harrell:As I as I said, I think, you know, we had seen some efforts after the Supreme Court loss by Jameson Greer as U.S. Trade Representative and some of the other folks in the administration to have a, you know, know, somewhat more disciplined, this again, still kind of high rates, but somewhat more disciplined tariff process that was kind of like, OK, we're just going to have 10 percent on everybody. You might not like 10 percent, but it's kind of manageable. It's not higher than 10 percent. But Trump is clearly interested in getting back into the game of when he's mad at Europe because they won't support his Iran war tariff Europe.

17:04Peter Harrell:He's clearly, you know, mad at Canada because it's not giving him what he wants on USMCA. But more than that, it's not becoming the 51st state. So tariff Canada. And I am worried that this is a harbinger of more chaos to come, although I hope I am wrong on that. All right. Peter Harrell is visiting scholar at the Institute of International Economic Law at Georgetown Law School. Peter, thank you so much for joining us. It's great to be on. Thank you. After the break, the Paramount Warner Brothers deal hits a snag. And for even more markets insights, you can subscribe to my weekly newsletter, Simply Put, at simplyput.profgmedia.com.

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20:06We're back with Profity Markets. Paramount's bid for Warner Brothers just hit a major speed bump. On Monday, a judge paused Paramount's$110 billion takeover of Warner Brothers' discovery. The temporary restraining order was granted at the request of 12 state attorneys general who sued to block the deal on antitrust grounds. They argue it combines too much of the cable and movie business, meaning higher prices and fewer shows. The pause lasts 14 days, but it doesn't end there. On August 3rd, the judge will hear arguments for a longer freeze, one that could last months. And if the deal doesn't close by September 30th, Paramount owes WBD a ticking fee of more than$600 million a quarter.

20:54On the news, both Paramount and Warner Brothers' discovery fell 3%. This development leaves investors asking a very important question. Is this deal ever going to close? To answer that question, we're speaking with Rohan Goswami, business reporter at Semaphore. Rohan, great to see you. Paramount, Warner Brothers, the deal that we've been talking about for months, yet another roadblock. what's happening here? What do you make of it? It's why Costal M &A and Contestal M &A is so fun. Because on one hand, you've got Paramount, which has been quite resistant to the idea that they would be willing to spin off or sell any of these assets.

21:37And it is rapidly facing a reality that it might have to. As you point out, the TRO, the temporary restraining order, is only for 14 days. Now, we could get a second one. It's another 14 days. But that's kind of a moot point. It brings us to this August 3rd showdown around this preliminary injunction. And that's really the whole battle, right? Because it's in that situation and in that hearing, the judge will decide whether the state's case has merit or whether it doesn't. Now, it should be clear here, right, whether or not the judge finds in favor or against Paramount or the states here, right?

22:07We are in for a long slog here. The question now becomes, is Paramount going to decide that it wants to spin off or sell some assets and make an offer to the states? Hey, maybe we'll get rid of a studio. Maybe we'll get rid of CNN. We'll get rid of some of the cable assets. or does it say, as it's intimated publicly and privately, that it's willing to take this fight to the Supreme Court? The Ellisons, of course, have a bottomless pocket, but even they don't want to be paying$600 million, maybe$1.2 billion if this stretches another quarter after this, if they can avoid it. Just looking at the list of IP that they would own, they would own, I mean, if this deal goes through, the Ellisons, Paramount, they would own HBO, CNN, TNT, TBS.

22:46They'll own all this IP like Harry Potter and DC Comics, Game of Thrones. I mean, it's a lot of stuff. And it seems to be that seems to be the problem, really, at least in the lawsuit, that it's too much stuff. I mean, how much merit is there to the antitrust argument in the lawsuit? And would it be enough to say, OK, we'll shed this asset and this asset and we'll we'll take these other ones? You know, if you'd asked me my personal opinion, and this is, again, based on conversations with rival media executives, with antitrust lawyers before the TRO was issued, I would have said not much. This is a political suit.

23:21Bonta has cobbled together an interesting coalition of Democrats that oppose the steal for different reasons, whether it's David Ellison's ideology or they have a general hatred of monopolies and think all murders are bad. This was a complicated group of people that came together to try to stop this lawsuit. Then came the judge's ruling on Monday or on the TRO, and she made an interesting series of points that seem to suggest she's not really buying Paramount's arguments. If you rewind on the clock, you remember that the states made an argument that that Paramount's deal would be anti-competitive in three spots.

23:50So there's general theatrical release. That's all movies. Then there's blockbuster theatrical releases, which was a new category that sort of raised some eyebrows. How do you define a blockbuster? Are those really a thing anymore when like Hollywood can spend two hundred million dollars on a movie and it's a flop? And then cable news, cable TV, I should say. Right. So these three categories are where Warner was the Warner Paramount combination was supposed to be anti-competitive. Didn't really buy that argument. The judge seems to have. And that's all that matters in the short term, right? Paramount, if they get a negative decision here that rules against them, is going to appeal.

24:19They're going to take this to the Supreme Court. I mean, David Ellison is indefatigable here. He is not going to give this up, but it's going to cost them. So then the question really becomes, at what point, to go back to my previous point, at what point does Paramount try to cut their losses? Now, Rob Bonta has privately intimated, publicly denied intimating this, but has privately intimated per puck, that CNN divestiture would be enough potentially to stave off further action. Again, reinforcing this idea that this is really about politics, not antitrust. It is striking. You look at the states that have sued.