Thy neighbours, beggared: Trump’s opening tariffs

0:10Hello and welcome to The Intelligence from The Economist. I'm Rosie Bloor. And I'm Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world.

0:25Concorde was the stuff of legend. Not since its last flight in 2003 has any commercial plane flown so fast. But now, you guessed it, some people want to create a new age of supersonic air travel. And there was a time that a standing ovation was a rare occurrence. Spontaneous, heartfelt, the most a genteel theater-goer could do to signal their satisfaction. These days, well, you just know everyone's going to get up, even if the show was a stinker.

1:01First up, though.

1:08America, Canada, and Mexico are, or maybe were, a striking example of the merits of free trade, an extremely economically integrated neighborhood. But, as promised, President Donald Trump is unraveling that story. NAFTA and its successor, treaty the USMCA, became historical documents when Mr. Trump announced 25 % tariffs on goods from Canada and Mexico. To someone who misunderstands tariffs' effects, it looks like an easy win, but not an entirely pain-free one. Tariffs don't cause inflation, they cause success. They cause big success, so we're going to have great success. There could be some temporary short-term disruption.

1:52The disruption isn't just in the Americas. This first protectionist salvo also piled 10 % tariffs on Chinese imports in addition to existing levies. Who's next? Who knows? To a man with a hammer, everything looks like a nail. Britain? Maybe. The EU? Probably. You want the truthful answer, or shall we give you a political answer? Absolutely. Absolutely. The European Union has treated us so terribly. So buckle up. Trade wars are coming. And trade wars don't have winners. President Donald Trump has launched the biggest attack on free trade in a generation. Henry Kerr is our economics editor. You might think that you've seen tariffs before, but you haven't seen them like this.

2:40It's a really significant disruption to global trade, but also to the North American economy taken as a bloc. We know that tariffs are one of Mr. Trump's favorite economic weapons to wield, but put this in context for us. Well, in Donald Trump's first term, the tariffs came in quite gradually. They ultimately mainly affected China, and they affected about$400 billion worth of Chinese imports. What's happening this time is that they're coming in suddenly. They're covering many more goods. So just from Canada and Mexico alone, it's$900 billion worth. And these are close trading partners who are deeply integrated with America's economy because they are just next door.

3:23So in addition to this ramping up of pressure on China, which you could see as the latest in a long line of US-China disputes, you've got this real escalation within North America that's significant to a degree way beyond anything that was seen in the first Trump term. And there's been tons of news over the weekend. This is very much a developing story. But how have Canada and Mexico responded so far? Well, the important thing to bear in mind is that they have to play an asymmetric game here. They are much more dependent on the American economy than vice versa, simply by virtue of being so much smaller.

3:59Canada will be responding to the US trade action with 25 % tariffs against$155 billion. Prime Minister Justin Trudeau has been quick to react. This will include immediate tariffs on$30 billion worth of goods as of Tuesday. But it is trying to be selective to target goods that are concentrated in Republican states. The idea being that they can exert pressure on the US political system by causing concentrated pain, whereas what they're being hit with is this widespread attack on their economy, if you like. Mexico has also vowed retaliation. It's still to announce fully what it's going to do. China's response really has been the most muted.

4:48And I suppose they've been in a long-running trade battle with the US and what they're facing is only an increment. So they've said they would file a lawsuit with the World Trade Organization. Well, that doesn't really mean anything because the WTO is toothless and Trump certainly isn't going to pay heed to it. And this is certainly the enactment of a campaign promise we heard about. but it's sort of unclear to me how much of this can be sustainably done just with a stroke of Donald Trump's pen. Well, Trump's in a very strong position because Congress decades ago gave the presidency the power to impose tariffs in a national emergency situation under what's called the International Emergency Economic Powers Act.

5:32And so this is why the focus from the administration in its communication has been on the flow of illegal migrants across the southern and northern borders and the flow of fentanyl, the very potent opioid drug, across those borders. The legal justification for what's going on here is those things are a national emergency. And then the president does have the power as a result of that emergency to impose these tariffs. And it's likely to be tested in the courts, but historically the courts have deferred to the White House on matters of national security and national emergencies. So, really, the only thing that could stop President Trump here is if Congress intervened, which is a pretty high bar because it would require a lot of Republicans to turn on the president.

6:17Does that play into the dynamic for what Canada, Mexico, China might do about the current trenches of tariffs then? Well, the really worrying thing, if you're Canada or Mexico, I would say, is that it's not actually entirely clear what they can do to satisfy President Trump in order to get these tariffs removed. because as I say, the legal justification is fentanyl and migrants. Now, especially on the northern border, fentanyl isn't an enormous problem. So for Canada, it's not entirely clear exactly what President Trump is asking for. Of course, there are plenty of things Mexico could do on the southern border to help reduce the flow of migrants.

6:56But President Trump is on the record saying this isn't a negotiating tactic. It's pure economic. And he likes tariffs because he thinks they're good for the American economy. And he says it's a response to the trade deficits America runs with these countries. And that it's an economic policy designed to close those trade deficits and in his mind, re-industrialize the American economy. So there are these dual justifications running. And it's not entirely clear which one actually matters from the point of view of getting these tariffs removed. So there's no clear off ramp at the moment. But about that passion that Mr.

7:32Trump has for tariffs, what's your take on the justifications? Well, the irony is that it is true if they were a pure negotiating tool, they'd be a powerful one because America is extraordinarily economically important to these countries. You know, Canada and Mexico send about three quarters of their exports into the US. There's no doubt that would give the US a lot of leverage. There's a strategic question about whether you want to be using that power to bully your allies and neighbors. But in terms of the pure idea of it as a negotiating tactic. That is coherent. The economic justification, though, makes much less sense because President Trump views the trade deficit with Canada and Mexico as a kind of subsidy.

8:12That's what he's called it. But of course, it doesn't make a lot of sense to say that when you buy a lot of goods from someone, you're subsidizing them. In fact, you're doing business with them. Moreover, it's a slightly strange thing to do to be so focused on trade deficits with individual countries because there's a certain amount of evening out that goes on once you look at the global picture. America does run a big deficit overall, but what governs that is the saving and consumption patterns of Americans themselves, much less than the trading policy of the people with whom American companies are trading.

8:46So I really don't think the economic argument that President Trump makes makes sense. But insofar as this is, from a textbook economics point of view, a bad move, how do you see this playing out? What happens next? Well, what happens next is you're going to get really serious disruption for companies, especially car makers who trade across those borders with Mexico and Canada. There's going to be disruption to the US economy. It's not going to be as big as the disruption to the Canadian and Mexican economies, but tariffs are bad for growth and will cause some additional inflation in the US if they last this year.

9:22But of course, we're going to see the anticipation of all those things in financial markets starting today. We've already seen overnight and we'll see more hit stock markets and bond markets adjusting to the changed inflation outlook as well. And one thing we do know about President Trump is that he pays close attention to the markets and views them as a sort of scorecard on his presidency. So it is possible that the market reaction and further down the line, the economic reaction, constrain him somewhat, even though he said he's prepared to tolerate a little bit of short-term pain in the pursuit of what he sees as long-term gains.

9:55But the important thing to note is that he isn't done here. He's also promising tariffs on the European Union. He said there are going to be other tariffs coming in on specific products. There are countries such as the UK who aren't quite sure what comes next. So the chances that this is a one and done trade policy are quite low. I think we're likely to see more of this. The trade war really is only getting started. Henry, thank you very much for your time. Thank you, Jason.

10:38Between 1976 and 2003, you could fly between London and New York in three and a half hours. Concorde was only affordable to a few, of course. But the plane was more than just an icon of luxury travel. It flew faster than the speed of sound.

10:58Unfortunately, it was also expensive, noisy and inefficient in its use of fuel. And Concorde was only permitted to fly supersonic over the ocean. Its sonic boom broke the sound barrier. The business was dealt a huge blow when a Concorde crashed in July 2000. The first Concorde ever to crash just after takeoff from Paris. 113 people are killed, which included everyone on board. The plane was taken out of service for over a year. By the time it came back, 9-11 had had a severe impact on air travel. The last commercial supersonic flight was from New York to London in October 2003. This flight is scheduled to get off the ground at 7.35 this morning.

11:44VIPs only on this flight. It was an invite-only list. That includes the likes of Christy Brinkley and Rudy Giuliani. But now one company is intent on bringing back supersonic travel. It's called Boom Supersonic, a start-up company based in Denver, Colorado. Jeff Carr is our senior science editor. They hope to make something which would have approximately the same seating capacity as Concorde. They've just flown a demonstrator aircraft to work out some of the aerodynamic characteristics of what they eventually hope to build. There we are. XB-1 is supersonic, faster than the speed of sound. What a wonderful achievement.

12:24And this demonstrator was the first time since Congo was grounded that a civilian aircraft has broken the sound barrier. Sounds quite exciting, but how far actually off making a plane are they? Well, there's still some way to go, as you can quite imagine. There are reasons why this hasn't been done before, partly economic and partly technological. The technology has moved on. In its day, Concorde was a marvellous machine, but it used very thirsty, knock-off military engines. And it was mainly a vanity project by the British and the French, somewhat analogous to the Apollo Project, the American space programme.

13:04It was about demonstrating national technological prowess as much as about making money. This is a money-making project. The technology has moved on and they are designing their own airframe and they're designing their own engines. These are both very hard things to do. They have an ambitious timetable. They hope to get a test version at least of the aircraft in the year by 2029. That would mean having the engines available by 2028. Now the test of this will be they say that they can get a grand testing engine available by the end of the year. If they make that on their timetable, then it would look quite good.

13:42But we have yet to see whether that will happen. Geoff, as you say, the tech was pretty good for Concorde, but it made no economic sense. And that, in the end, was why it was taken out of service. Has the economic situation changed? Well, people have become a lot richer since the 1960s. There's probably a larger number of people around who are prepared to pay for the extra speed. And also, the aircraft itself is designed to be more efficient. It should burn less fuel. The materials are lighter. The body will be mainly carbon fibre. The engine will be disguised from scratch rather than being a repurposed military engine.

14:17And engine technology has moved on a lot since the 1960s. In particular, the fan blades in this sort of engine are made out of single metal crystals, which are hollow and can be cooled from the inside. That's not a new technology, but it's never been applied to commercial supersonic flight. And are there other companies also trying to bring back supersonic flight? There was one called Aerion, which was fairly serious, but they ran out of money in 2021. They wanted to overcome the sonic boom problem. The sonic boom problem is that if you fly faster than the speed of sound, you create a shockwave.

14:52And when the shockwave hits the ground, it's very noisy. So if you design the aircraft carefully, you can minimise the shockwave. And Aerion were designing their aircraft to minimise the shockwave. And for that and various other reasons, it ran into the sands. Boom have not done that. Their aircraft will generate a sonic boom. So it will probably be restricted to just below the speed of sound when it's flying over land, which is still faster than civil aviation goes. But it wouldn't be restricted to flying subsonically when it was over the ocean. So supersonic flight might yet be back? It might yet be back, yes.

15:27Watch what goes on. If you're really interested, see whether the ground test works. It's all in the engine. I think the airframe can be built, I'm sure, with enough goodwill. But designing it from scratch is a fairly hard technological engineering ask. But if they can pull that off, then I think the answer is yes. And did you ever fly on Concorde, Geoff? No, but I have been on one when I was a kid. My father worked for British Airways. I was a manager there, not a pilot. But because I was interested in that sort of techie stuff, he took me several times to the engineering works in Heathrow Airport.

15:57and one time we went, there was a Concorde Inn so I got to go inside it and see and the very, very small inside they were really quite narrow in order to make them aerodynamic and the size of the cabin expanded heating the outside, it expanded the metal and so the whole cabin got wider when it was flying so possibly, if I live long enough and the project succeeds I might be able to fly on a commercial supersonic transport Hope we all will Exciting stuff, thank you so much Geoff Thank you

16:39I've been to the theatre in London three times recently including to see Sigourney Weaver in The Tempest at the Theatre Royal Drury Lane Truth be told, the film star is a passenger in a play that her character, Prospero, should really command yet I was startled to find that at the end the audience rises as one to acclaim her.

17:04Andrew Miller writes Backstory, the Economist's column on culture. We're actually maybe not so startled because each time I went to the theatre there was a knee-jerk standing ovation at the end. And actually these days audiences in London always tend to even when the show is a dud. This trend has been gathering for a few years but has now conclusively swept the West End. So what's responsible for this ovation inflation? Well, if you talk to theatre people, there are lots of possible culprits. TV talent shows, for example, and the idea that audiences are emulating the over-enthusiastic behaviour that they see on TV.

17:47Or there's Broadway, where theatre audiences have routinely stood for ovations for at least a decade or more. or perhaps it's to do with money. Ticket prices have become pretty astronomical in London as in New York and there's a thought that perhaps having laid out so much for their seats audiences are determined to have the time of their lives whether the play is any good or not. But I think that really the turning point at least in London was the pandemic and when audiences returned to the theatre afterwards they behaved in new and raucous ways sometimes including singing and dancing in the aisles, but often standing up at the end of the play out of sheer joy at being back.

18:30And I think that habit has stuck. Andy, it turns out you're not the only person who's noticed this. The column you wrote has resonated with a lot of our subscribers who've been in touch. We'll start with Dan Trevathan. Here in Seattle, an avid theatre town, audiences have been giving routine standing ovations for decades. My wife and I refer to it as the OSO, the obligatory standing ovation. We stand perhaps twice a year when we really mean it. A recent performance at a notable theatre was well received, but the audience didn't stand. I was startled, but pleased that for once the audience agreed with me.

19:08It was refreshing to be able to see the cast take their bows. Jonathan Brown from West Yorkshire here in England also got in touch, and he said the theatre's not the only arena succumbing to this self-inflicted malaise. The wonderful Lord's Cricket Ground is tracking a similar course. Before the pandemic, when a player achieved a score of 50 in a test match in any of the possible five days of play, the famous Lord's hum would be replaced by the sound of people steadying their champagne and putting their hands together for a well-deserved round of applause. Rarely would a 50 be deemed tenacious or outrageous enough to warrant a standing ovation.

19:43Sadly, all has changed and I increasingly find myself surrounded by a forest of people jumping eagerly to their feet. And finally, Stephen Katz from Full Church, Virginia. Your story on how even mediocre theatre gets a standing ovation reminded me of how the encore has become a meaningless ritual at concerts. No longer is there any suspense about whether the band will come back and play a few additional songs as a reward for audience enthusiasm. And I now struggle at the end to provide applause that feels more and more like a chore. Andy, you seem to have hit a bit of a nerve here. Well, I share some of these concerns, Rosie.

20:18There's something coercive about an obligatory standing ovation, and it turns what could be and was once a powerful gesture into something meaningless. And, you know, if we always stand up at the end of a performance, we're really applauding ourselves rather than the actors. At the same time, I do think that when the magic of theatre fails, as for example in The Tempest, word always seeps out and really perhaps in the end a bit of irrational exuberance is a permissible indulgence in our gloomy world. Andy thank you so much that was an outstanding performance and I feel the need to get to my feet.

20:58Thank you Rosie I humbly bow before you.

21:10That's all for this episode of The Intelligence. We'll see you back here tomorrow.

21:31Thank you.