Is Trump Winning His Trade War?

0:05Today is August 1st, a day that's been looming over trade negotiations for weeks. It's the day that President Trump said was the final, final deadline for countries to strike trade deals with the U.S. So August 1 is just days away. 30 % tariffs beginning August 1. President Trump moments ago says the August 1 deadline stands strong and will not be extended. The August 1 deadline can be boiled down to this. Make a trade deal with the United States or get hit with steep tariffs. The deals all start on August 1. We've taken in, you know, hundreds of billions of dollars. The administration said it would strike 90 deals in 90 days.

0:46That didn't happen. But Trump has cut deals with a number of countries over the past few weeks, with some agreements coming down to the wire. Washington has secured trade deals with both Thailand and Cambodia. President Trump announcing a trade deal with the United States and the UK. Trump is touting his trade agreement with Japan as one of the largest in history. for a trade deal with the European Union. A new deal has been announced with one major trading partner. That is South Korea. As for those countries that didn't make a deal, last night, Trump signed an executive order that set a 15 % baseline tariff for many of those trading partners.

1:24Those tariffs go into effect next week. As of today, Trump has arrived at tariffs on all U.S. trading partners. My colleague Greg Ipp is the Wall Street Journal's chief economics commentator. Some of those were arrived at deals or handshake deals, and some were simply imposed by Trump. And then there's a couple that are somewhere in between, like China, which is kind of in this gray zone where negotiations are ongoing. Greg says that even though there are still a lot of details to be ironed out, Trump has managed to impose the most significant tariffs from the U.S. in about a century. He has raised tariffs more than the Smoot-Hawley Tariff Act did in 1930.

2:04Now, almost every school student can tell you that that Smoot-Hawley tariff act was a bad thing and it's associated with the Great Depression. But one of the reasons it's got such a bad reputation is that it was followed by a trade war. Everybody else raised their tariffs too. That hasn't happened yet. So Trump effectively raised tariffs by more than the Smoot-Hawley tariff act did, but without the trade war so far that followed that. That is a very remarkable achievement. Historians are going to be writing about that one for a long time.

2:32Welcome to The Journal. our show about money, business, and power. I'm Jessica Mendoza. It's Friday, August 1st.

2:45Coming up on the show, Trump's tariff deadline is here. So now what?

3:04President Trump has for a long time believed that the United States has gotten the short end of the stick when it comes to global trade. Here he is on Larry King Live way back in 1987. The fact is that you don't have free trade. We think of it as free trade, but you right now don't have free trade. And I think a lot of people are tired of watching other countries ripping off the United States. He doesn't really buy the idea that most economists accept, which is that trade is win-win, is that when you buy something from another country, you're both benefiting. Your consumers benefit, their producers benefit, and vice versa.

3:37When we sell something to that country, he just doesn't accept that argument. He thinks that when the United States buys something from another country, it is, quote, losing, unquote. And so the very large trade theft that the United States is at, he sees as a sign of profound economic American weakness. And he has long felt that other countries should pay for the privilege of selling to the United States or, for that matter, being defended by the American military. And in his second term, Trump moved on tariffs quickly and aggressively. He imposed heavy tariffs on countries around the world on April 2nd, calling it Liberation Day.

4:12But the stock market tanked in response, and Trump pulled back those tariffs a week later. There was a very negative reaction in the markets. He paused all those and said that he was going to think about it and negotiate deals with these countries and move the deadline for those tariffs back to early July. When early July rolled around, there still were not a lot of deals. So he said, I'm moving the deadline to August 1st. Between early July and today, he's managed to bring about some of those deals. Over the course of the summer, the U.S. struck deals with Indonesia, the Philippines, Vietnam, and the U.K.

4:48U.S. officials have also said that they've secured agreements with Cambodia, Thailand, and Pakistan. Some of the most significant agreements came together just in the past week. And there were three of the U.S.'s biggest trading partners, the European Union, Japan, and South Korea, which all agreed to a 15 percent baseline tariff. When Trump took office in January, the average tariff on the U.S.'s trading partners was 2 percent. The EU, Japan, and South Korea also agreed to each invest hundreds of billions of dollars into the United States in the coming years. And what are these trading partners getting out of these deals?

5:26Nothing. So why would they agree to this? Because it could have been worse. Huh. Like in the case of the European Union, first of all, the United States is a very big market for them, right? They sell a lot of agriculture, a lot of manufactured products, a lot of everything, right? They're the United States' single largest trading partner. And actually, they're a big buyer of American stuff as well. And so an obvious question was, well, since they obviously have some leverage with the United States, why didn't they use it? They talked about retaliating. They drew up a list of things that they were willing to impose tariffs on, and they never did it.

5:56Why didn't they do it? Well, there are two reasons. One is that the European economy has not been very strong for some years now. And so they really aren't well suited to fighting a long drawn out trade war with the United States. Secondly, they don't especially want to pay higher prices for imports from the United States. And then there's a final reason it has nothing to do with economics. Russia invaded Ukraine and that whole period since then, Europe has become much more worried about its security. And right now, Western Europe is in a security alliance with the United States, NATO, right? And through NATO, they've been supporting Ukraine's effort to like hold back the Russians.

6:31Trump, as you know, has been somewhat ambivalent about supporting Ukraine and supporting NATO. And the Europeans had a real fear that if they retaliated and this became a trade war, that Trump would back away from supporting Ukraine and maybe back away from NATO altogether. And that was a risk they could not take. What's been the reaction to this deal in Europe and the EU? It's been very negative. The Europeans hate it. There's a lot of anger at the European Commission for having given up so much. You know, even some of the populists, you know, like Marine Le Pen in France, have said that it was a sellout, it was immoral.

7:04But there's also an awareness that there wasn't much great alternative for them. You know, Trump definitely knows the meaning of leverage. And his initial assessment was absolutely correct. In fact, every country needs the U.S. more than the U.S. individually needs that country. And there's something called the madman theory of diplomacy, which is that if you can convince the other side that you're willing to go much deeper into the conflict than they are, then they're going to not push you on it. And there was a genuine fear or awareness that any country that stood up to Trump would just get an even worse treatment afterwards.

7:47It's like a really high stakes game of chicken. It's exactly that. But once again, this is how Trump's worldview operates. He doesn't see trade as something where you enter into a negotiation and come up with something that both sides win from. For him, it's one side wins and the other side loses. But there is at least one country that has held out, and it's a big one. China. That's after the break.

8:22While President Trump was able to achieve many of his tariff goals by today's deadline, he still faces obstacles. Mexico and Canada, the two countries the U.S. trades with the most, have yet to cut a trade deal. For Mexico, Trump said on social media that he'd agreed to extend the existing 25 % tariffs on some Mexican goods for another 90 days. And with respect to Canada, he's imposed a 35 % tariff, but that only covers goods that are not subject to the U.S.-Mexico.-Canada trade agreement, and that is a minority of trade between the United States and Canada. Canadian Prime Minister Mark Carney said in a statement that he was disappointed by the tariffs, but he will continue to negotiate with the United States.

9:05And then there's China. We've been having massive deficits with China. Biden allowed it to get out of hand. He's$1.1 trillion deficit. It's ridiculous. And it's just an unfair relationship. And we have to make it just fair. Although Trump hit China with tariffs of at least 145 percent earlier this year, he eventually pulled that back. And there have been ongoing negotiations with China for months, with China getting concessions out of the administration. Not only did Trump dial back his tariffs on China, but he actually lifted some of the export controls on key technology to China. He even denied the president of Taiwan the ability to stop over in the United States, handing China a very important diplomatic victory.

9:55How is China able to get those concessions? As it turns out, despite the fact that China's not really an ally of the United States, if anything, it's an adversary, it also happens to be the one country that has both a lot of leverage with the United States and a willingness to use that leverage. What did that leverage consist of? Well, first of all, they buy a lot of stuff from the United States, like farm products. And second of all, they sell a lot of stuff that the United States actually needs, like rare earth metals, which go into things like electronics and renewable energy and batteries and so forth.

10:25Also, China doesn't, obviously, as a military adversary of the United States, doesn't have to worry about losing the U.S. security guarantees, right, the way, say, Europe or South Korea do, right? And so the United States and China more or less arrived at a truce, you know, a pause on tariffs. They don't have what we call a deal. And they had another conversation a few days ago in Stockholm to talk about going further. So Trump has imposed, for example, for now a 30 % tariff on China, which is high, but he's actually imposed tariffs that are almost as high on countries that the United States does not consider adversaries the way it does China.

11:03So China has come out of this perhaps better than you might have expected.

11:09Trade talks between the U.S. and China will continue until the truce is set to expire in mid-August. So it looks like we've arrived at what Trump probably considers to be his endpoint on the vast majority of tariffs, with a little bit of cleanup left to do with respect to Canada, Mexico, and China. Trump's unilateral approach to trade and tariffs bucks decades of precedent. Historically, the United States negotiated trade deals with other countries. They sat down for very long discussions. They went over tariff schedules, thousands and thousands of items line by line. This process would take months, sometimes years, and then the two sides would sign a pact, a treaty, and then often that treaty would be sent to the Senate for ratification.

11:53That is not the model that Trump follows. Trump doesn't negotiate anything. He simply announces a tariff and imposes it. That strategy has raised a big question. Is imposing tariffs by executive order even legal? Already, the administration is facing several lawsuits challenging Trump's basis for implementing these tariffs. So Trump used a law called the International Emergency Economic Powers Act to impose these tariffs. And he used it in order to impose very high tariffs with no timeline, no consultation, and at whatever level he chose. And the plaintiffs in these cases, some of whom are companies that have had to pay the tariffs, argue that that law doesn't give him that permission.

12:36The word tariff is never used in that law. He's invoking an emergency, calling the trade deficit an emergency. See, and they're pointing out, well, the trade deficit's been around for 50 years. What kind of emergency lasts 50 years? Right. One case went to the U.S. Court of International Trade, which agreed with the plaintiffs, saying Trump's use of the act was illegal. Now the case is front of an appeals court, which heard arguments from Trump administration lawyers this week. The case could go all the way to the Supreme Court. I know we're still watching the courts, but other than that, would you say the trade war is over?

13:11I'm not sure the trade war ever began, you know, other than China and a little bit of Canada and nobody fought back. So it's not really a war if only one side is threatening, right? A trade conquest. I don't know. It's like unilateral surrender. Yeah. So I guess it sounds like Trump won to him. On the metric of success that Trump himself uses, which is the U.S. gets to impose higher tariffs than they get to impose on the United States. Yes, the United States won. But once again, that's Trump's definition of success. It is not necessarily the be-all and end-all definition of success. That is a story that has not yet been written.

13:48But while it's still early days, there have been some signs of ripple effects on the economy. We know that prices are starting to rise in some categories. We've also seen probably some impact on the broad economy. We now know that employment in the last two or three months was extremely weak. And that might have reflected the hit to confidence of employers as they dealt with all the uncertainty and turmoil caused by Trump's trade war. Today, U.S. stock indexes dipped following Trump's new tariffs. European and Asian stocks also fell and the dollar sank. Do you think there's a chance that Trump pulls back on even some of these tariffs like he did back in April?

14:30I would say right now, Trump feels he's probably in a good place with all the tariffs and doesn't feel any great pressure to pull back on tariffs. With the three countries that remain, Mexico, Canada and China, there might be some dialing back of existing tariffs. But I think everywhere else, he more or less has what he wants, a 15 percent baseline tariff, a few exceptions here and there, such as for aircraft and higher tariffs coming down the road for specific products such as semiconductors. How big of a shift are these trade deals to the global economy? How would you characterize it? It'll take many years before we know what it really means for the global economy.

15:07The glue that held the global economy together for the past 60 or 70 years was mutual benefit. The idea that negotiation yielded arrangements, rules, agreements where both sides were both invested in the outcome. Now, if we're going into a world where that's not true any longer, and essentially the biggest person gets to set the rules, then it seems likely that there will be less trade. You know, there will be less trust. And how big of a story is this at this moment? Well, on today, August 1st, it's a pretty big story, but this is a very fast news cycle. So there's a couple of things going on right now, right?

15:47So we have the imposition of tariffs, which feels like the end of the beginning, but not the beginning of the end. But we also now know that the job market is starting to show a lot of weakness. So there's something going on in the economy as well that we'll have to be paying attention to. So today we're talking about tariffs, but tomorrow it could be something different.

16:17That's all for today, Friday, August 1st.

16:47verma, Lisa Wang, Catherine Whalen, Tatiana Zamis, and me, Jessica Mendoza. Our engineers are Griffin Tanner, Nathan Singapok, and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Catherine Anderson, Peter Leonard, Billy Libby, Emma Munger, Griffin Tanner, Audio Network, Blue Dot Sessions, and Extreme Music. Fact-checking this week by Jennifer Gorin and Najwa Jamal. Thanks for listening. See you on Monday.