Duties bound: a Trump-tariff smackdown

0:02The Economist

0:10Hello 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.

0:24Artificial intelligence has a long academic backstory, in which early promises weren't kept, enthusiasm faded, and the field entered what was called the AI winter. Recently, of course, it resurged, but once again, in the business world, disillusionment is spreading. And, as our subscriber-only series The Prince showed, understanding President Xi Jinping's background and beliefs is really hard. The host of that series says a new book, all about Mr. Xi's father, is a startlingly revealing look into his life.

1:01First up, though.

1:07I always say tariffs is the most beautiful word to me in the dictionary. Then I was reprimanded by the fake news. They said, what about love, religion, and God? I said, I agree. Let's put God number one. Let's put religion number two. Love, I don't know. I got to put that number three, I guess, right? And then it's tariff. Imported packages tied up with strings, tariffs are one of Trump's favorite things. It's a revenue source, sure, but we don't have to tell you that the arithmetic doesn't stand up.

1:47More than that, though, Mr. Trump uses them as leverage, a means to secure favorable trade deals. In February, it was the so-called fentanyl tariffs slapped on America's nearest neighbors, ostensibly for doing too little to stop the flow of drugs and migrants. And then, in April... My fellow Americans, this is Liberation Day. I've been waiting for a long time. With Trumpian branding and a game-show-style table of tariffs in hand, the Liberation Day tariffs, on, well, just about every other country America trades with, and a few it doesn't. Like so much else, the question of whether all this was legal ended up in the courts.

2:27And yesterday, the U.S. Court of International Trade ruled that it's not. This ruling is another twist in the trade war. It's a big surprise, a big blow to one of Trump's centerpiece policies. Rachna Shanbhog is the business affairs editor of The Economist. The rest of the world will be cheering, although there's still plenty of uncertainty. Markets are cheering as well in futures trading. The S &P 500 is up about 1.5%. So still lots of uncertainty, but the bold tariff ambitions of Donald Trump seem to be being checked. So just to be clear, because it has been a whirlwind of tariffs in recent months, which tariffs are we talking about at this stage?

3:13You're absolutely right. There's a whole range of tariffs here. Now, this ruling applies to two groups of tariffs. It applies to the Liberation Day tariffs, the so-called reciprocal tariffs that America announced on its trading partners. And the ruling also applies to the so-called fentanyl tariffs, which were applied to China, Canada and Mexico as a punishment for fentanyl coming into America. The one group of tariffs that are not affected by this ruling are the sectoral tariffs, so tariffs that were added to imports of steel and aluminium and imports of cars and car parts. Those are not under threat.

3:52And what is the legal argument? On what basis were those tariffs struck down? So, Jason, there were two cases that were in front of the court. One was brought by a group of small businesses together with the help of a legal advocacy organization. So businesses including a winemaker, a pipe maker, a maker of women's cycling gear. And they argued that the reciprocal tariffs would be hurting their business. And then another case was brought by democratic states alleging that the tariffs were attacks on consumers and infringed on congressional authority. OK, so talk me through what the court decided.

4:26So before we talk about what the court decided, let's remember the basis on which Trump implemented these tariffs. He relied on legislation from the 1970s called the International Economic Emergency Powers Act to argue that there's an economic emergency in America. And this is an act that has roots in legislation that was passed after the First World War. And it gives the president leeway to decide to interfere in international economic transactions if there is a national emergency. Now, Trump declared that both the fentanyl crisis and America's persistent trade deficits were national emergencies.

5:06And the court decided that that's a shaky basis for imposing these tariffs single-handedly? On fentanyl, the court decided that the tariffs being implemented were not sufficient to deal with the emergency at hand. The administration itself had conceded in court that the fentanyl tariffs were this attempt to gain negotiating leverage over trading partners. So the court said that's too indirect. To deal with a problem, you need a more direct link between what you're doing and the problem at hand. So that's why the fentanyl tariffs were deemed to be illegal. And then on reciprocal tariffs, the courts decided that the delegation of power to the president to take such sweeping actions was not constitutional.

5:46So this is something called the major questions doctrine. This argument was also used to strike down Joe Biden's forgiveness of student debts a few years ago and is an argument that the courts have been turning to in recent years. So in a sense, this is a check on how much the president can say, I need to do something this big because we have a big problem. The court is suggesting the president simply doesn't have the power to do things that are that consequential. Yes, Jason, that's right. In its ruling, the court said that the president could not be authorized to do anything as unbounded as these sweeping worldwide reciprocal tariffs because that was inconsistent with the major questions doctrine.

6:24And so what has the White House had to say about these rulings? So within minutes, the White House had filed an appeal and the White House spokesperson said that it was not for unelected judges to decide how a president deals with a national emergency. So this goes to appeal now and is still essentially tied up in the courts. What happens next? That's right. So this goes to appeal now. It could possibly make its way all the way up to the Supreme Court. But there is now this roadblock in Trump's way when he's trying to get other countries to come to the negotiating table to strike trade deals. It does mean that he has less leverage in these conversations.

7:03It's likely that the administration is going to start looking to other legislation to bring some tariffs in. So, for example, there's something called the Section 122, which could allow the president to levy tariffs of 15 % for up to 150 days to address a balance of payments deficit. There's something called the Section 301, by which the administration could investigate trading partners of unfair practices. But all of these restrict the president's ability to impose tariffs compared with what it was that he was trying to do on Liberation Day. So the options that the administration might have are restricted either in time or in terms of the nature of the levy that can be applied.

7:49But the administration might still be looking for other ways to get its tariffs in. But do you think this puts some bounds on all of the uncertainty that has surrounded these tariffs from the start? I think it does. There's still uncertainty out there. But if you look at what's happening with financial markets and if you look at the reaction in the stock markets, that uncertainty or the worst case scenario is not as bad as people thought it was about six weeks ago. The markets have been a source of discipline and that's why Donald Trump introduced that pause on his reciprocal tariffs in the first place.

8:24And now the courts are being a check as well. So who knows what the next twist will be, but I think we're in a better place than we were in early April. Roshna, thanks very much for your time. Thank you, Jason.

8:52Generative AI, that's AI that can create content like text and images and work alongside humans in the office, has been the next big thing for some time now. Henry Trix is our U.S. technology editor. For CEOs hoping to see the benefits of the investments they are making, it's been long enough. Consumers are loving generative AI. Recently, OpenAI said that ChatGPT is being used by 800 million people a week. But beyond that, companies who are trying to harness these powers are not seeing as many benefits. According to the boss of a large San Francisco tech company who I recently spoke to, some of his biggest clients are expressing frustration and disappointment.

9:44And many are now getting cold feet.

9:50And when you say they're getting cold feet, you mean those that kind of went in hard on Gen.AI are now actually retreating from it? Yeah, everyone knows that gen AI is going to be important, is important, but they're experiencing a lot of teething problems. One consultancy, S &P Global Markets, says from a survey that it recently did that the share of companies abandoning these kind of generative AI pilot projects has risen from 17 % a year ago to 42 % now. And when you talk of teething troubles, it's not just companies. I mean, even some of the biggest tech firms in the world are struggling to work with the technology.

10:33Apple has recently postponed the rollout of what we've all been waiting for, an AI-enhanced Siri, because it can't get rid of the bugs. And there's a very salient example of a fintech company called Klarna, which made a big song and dance about how it was going to use generative AI to help it slash customer service jobs. And it did that, but now it finds it went too far and it's rehiring. So what's going on here? Did Gen.ai overpromise or did its users sort of overimagine? imagine? I think it's more the latter. And it puts me in mind of the hype cycle that's created by Gartner, a consultancy. It starts with tremendous excitement, and then it moves up to a peak of inflated expectations.

11:27And then it goes down into the trough of disillusionment, and then eventually it pulls out. And right now, John Lovelock of Gartner says we are sliding towards the trough of disillusionment, and he thinks that we'll pull out by about the end of 2026. On the one hand, you have generative AI evangelists, what we call the hyperscalers, companies like Microsoft, Meta, Google, Amazon, who are pouring billions of dollars into AI infrastructure, such as data centers to power the AI models. And on the other hand, you have CEOs who are hesitant to use the products and services on offer. Bosses are worried about AI hallucinations, that that will cause mistakes that damage their brands, violate privacy.

12:20They're worried about data breaches. It's hard for them to wrangle their data securely into shape to make the most of generative AI. And that's where the mismatch lies. And as for the evangelists, they continue to evangelize because they are true believers or because they need to save face having sunk a bunch of costs into this stuff? I mean, they are believers and they have to be. The one mantra that you hear across Silicon Valley is that if you don't invest now, you'll never be able to catch up when generative AI fully takes off. So that keeps some spending. And this evangelism was in full show at Microsoft and Google's annual developer conferences.

13:06These conferences are like love fests for programmers and IT geeks. And the language is extraordinarily programming heavy. It's always fun to be back at Build, especially in times like this. You know, we're just about getting into these middle innings of another platform shift. And here we are in 2025, building out this open agentic web at scale. Hello, everyone. Good morning. Welcome to Google I.O. We want to get our best models into your hands and our products ASAP. We have announced over a dozen models and research breakthroughs and released over 20 major AI products and features all since the last I.O.

13:53There was a lot of talk of platform shifts, which means putting the cloud at the centre of the AI revolution, and a lot of talk about agentic AI, that is a web that's populated by semi-autonomous agents acting on behalf of their human masters. they're incredibly bullish. They say that AI models are getting better, faster, cheaper, more widely available, which is all great. The trouble is, is that businesses say that there are already more AI capabilities in the latest models than they can possibly handle. And what they really need is good use cases for them so that they can use these models to help them streamline their businesses and justify the cost.

14:41And this reticence, I guess, is a problem because the question hanging over all this is, can the tech giants generate enough money to justify what they're splurging on AI? I mean, can they? Is this not just sort of inherently one of those new tech, time will tell kind of questions? All the hope is on AI agents who will be handling tasks on behalf of human workers, for example, helping manage customer service, payroll, sales, et cetera. And to embed that in companies is highly complicated, not to mention really controversial because of the potential job losses. So what you might see is that the tech giants themselves, the ones who are selling the products, could be the ones who show how to get the most benefit from using them.

15:33Google and Meta are using AI to make their ads work better, even create ads at high speed, at high volume to make them most effective. Microsoft is embedding some AI products into the sort of apps that we all have in the workplace. Amazon is using it in e-commerce. So they, in a sense, may be showing the way so that other businesses start to use it. And that would take us from the trough up to what Gartner calls the slope of enlightenment, those sunny uplands. Henry, always a pleasure. Thanks for your time. Jason, great to talk to you. You can read Henry's piece online or in our app, as well as another piece that's doing very well among readers, Why AI Hasn't Taken Your Job.

16:27It argues that any jobspocalypse is still a long way off.

16:45The Party's Interests Come First by Joseph Trigian is, I would argue, one of the most important books on China's leader, Xi Jinping, to ever come out in the English language. Su Lin Wong is our Asia correspondent and most recently host of Scam Inc., our series on the global swindling economy. But before that, she hosted The Prince, our series all about Xi Jinping's rise to power. So it's actually a biography of his father, Xi Zhongshun. Xi Jinping's father in and of himself is an incredibly important figure in Chinese Communist Party history. But we can also, through his experiences, learn a lot about Xi Jinping.

17:25And so what is it specifically that drew you to this book? What makes this book incredibly unique is Joseph Tarigian has spent years interviewing people all over the world who knew Xi Jinping's father. And I would argue there's few people who influence Xi Jinping as much as his dad. So one anecdote that really struck me in this book was about Xi Jinping as he was rising through the ranks of the Communist Party, going to visit his dad when his dad was already 76 or so, and his dad's teeth weren't so good. So he was chomping on some garlic pork ribs and decided you know what, these are too tough.

18:01He takes them out of his mouth, hands them across the table. Xi Jinping, China's future leader, picks up these half-eaten bits of meat, puts them in his mouth, and swallows dutifully. And there's all kinds of stories in this book where Xi Jinping is used to leftovers. Xi Jinping recalls at one point how he hated to hear his dad come home late at night and run a bath because he knew that his dad would then come and wake Xi Jinping up and make him bathe in this dirty bathwater because his dad was a revolutionary. He grew up very poor and he instilled this mindset of frugality as well as filial piety and obedience in his own son.

18:43And so all of this has inevitably shaped the man that Xi Jinping would become. So what shaped Xi Jinping's father himself? How did he become the guy he became in the party? Xi Jinping's life was marked by immense tragedy. He was born in 1913 into a peasant family and became a young communist activist after seeing the poverty and corruption around him. He lost two of his sisters as famine and cholera swept the country. And after rising through the ranks of the party, he was purged by Mao Zedong in 1962 as China's then leader grew increasingly paranoid. Four years later, Mao launched the Cultural Revolution, which was an incredibly frenzied time of unmitigated horror.

19:31And during this time, Xi Jinping was kidnapped. He was held in solitary confinement. He was beaten and tortured. And around 20 ,000 other people were targeted for having supported him. And at least 200 of those people were ultimately killed. Xi Jinping himself suffered greatly during this time as well. He was persecuted as a teenager. His sister committed suicide. Eventually, Xi Jinping was sent down to the countryside to work in the fields like millions of other young Chinese. And what's really extraordinary, and I think something that's quite difficult for people who didn't grow up in that system to understand, is that throughout this all, despite everything that happened under Mao, both Xi Jinping and his father remained loyal to the Communist Party.

20:22So do explain it to me. Why would they? So Joseph Trigian has a theory, and he thinks the answer might lie actually in a Russian revolutionary novel. In the story, a young man named Rakmi sleeps on a bed of nails to strengthen his will. Xi Jinping himself has said that he was inspired when he read this book. So what I think is important to understand is both Xi Jinping and his father grew up with this belief that suffering makes you stronger and more loyal. But it's not just that Xi Jinping has found meaning in his suffering. He's also a real pragmatist. And he once said that if he'd been born in America, he wouldn't have joined the Communist Party of America.

21:09He would have joined either the Republican Party or the Democratic Party because that was where power was in the context of America. And so that really shows us that actually he cares most about seizing power and holding on to power. And what does the book make of that thirst for power? It has a lot to say about what he makes of power. One thing that really struck me was Xi Jinping clearly sees himself as a man of destiny. He really believes he's an inheritor of the Chinese Communist Party's mission, and he has this obligation to countless generations of Chinese who came before him. He often speaks about his role in protecting Chinese civilization, and one place where this attitude is incredibly obvious is in his policies towards Taiwan.

21:58And in fact, it might be even more personal when it comes to Taiwan, because towards the end of his life, Xi Jinping's father was put in charge of one of the party's most ambitious goals, unification with Taiwan. But he died in 2002 with his dream unfulfilled. And so Xi Jinping, who is dedicated to both his father's legacy, as well as the goals of the Chinese Communist Party, has made it very clear that he wants China to take Taiwan. It's unclear exactly when he might do that, but all signs suggest that he really wants to finish what his father started. Thanks for your time, Sulin. Thanks for having me, Jason.

22:54That's all for this episode of The Intelligence. We'll see you back here tomorrow. Thank you.