Ed Conway on the frontline of Trump’s trade war

0:02Sky News, the full story first.

0:09Coming up, after almost a year of Trump's trade war, Ed Conway heads to the heart of US car manufacturing to find out if anyone has benefited from the America First agenda.

0:22Ed Conway:How does a banana trigger a CIA-backed coup? Do AirPods herald the arrival of a new global order? What do LED lights say about the future of humanity? I'm Ed Conway, and in each episode of my new podcast, Stuff Matters, I take an object, crack it open, and reveal the world-shaping forces hidden inside. This is economics told through the things we think we understand. Search Stuff Matters on your podcast app to listen and follow. On a cold day back in February, global trade changed, perhaps forever. It's a big deal. This is the beginning of making America rich again. This is another way of saying we're doing a 25 % tariff on steel and aluminum.

1:09Soon, President Trump's tariffs extended to every corner of the globe and every aspect of industry. So far, everyone in or around the Oval Office would say they've been an unbridled success, at least in public. But whilst we've examined the tariffs effects on our economy an awful lot on the podcast, How is it going down in the States? Is America First a raging success or a fading bumper sticker? And what, eventually, will that mean for the rest of us? Well, after almost a year of Trump's trade war, we sent our economics editor, Ed Conway, to Detroit, Motor City USA to find out. And he's back on The Daily.

1:46OK, Ed, look, from the top, once more with feeling. What exactly are tariffs and what are they for?

1:52Ed Conway:Tariffs are basically a tax. It's a tax when you are importing something from a given country. And in a way, it's kind of the oldest tax, because long before we were all paying income tax, you had countries around the world, including the UK, who imposed tariffs on goods as they kind of went in and left the country. And these days, mostly it's when stuff comes into your country. And Donald Trump has imposed lots of tariffs on all sorts of things. There are tariffs on particular countries. You know, China faces really high tariffs. Same thing for places like India. India recently faced kind of a doubling of its tariffs because of the fact that it was helping to refine Russian oil.

2:29Ed Conway:So you've got that kind of thing. You've got special tariffs on cars and particular types of items like steel. And the point here is for Donald Trump, it's basically you could say it's a few things. First of all, it's about raising money. So as that stuff comes into the country, you get a little percentage. In some cases, quite a big percentage. And that should raise money. Secondly, it's kind of about negotiation. You know, it's a big thing for Donald Trump. Maybe that should have been first. Donald Trump's all about negotiating and he's using tariffs as a point of negotiation. And then the third reason that you might reasonably use tariffs, and he's kind of talked about it before, is trying to encourage people to make stuff domestically rather than make it in another country.

3:07Isn't there perhaps a touch of spite or even pique involved in this, in the sense that Donald Trump seems to be describing an economic world in which, you know, the United States, the world's largest economy, is being bullied into submission by the rest of the world, is being taken advantage of by the rest of the world.

3:22Ed Conway:To be honest with you, I think he's got a point there. The way that the global trading system functions at the moment, you could definitely make the case that it has benefited countries, particularly like China, to some extent like Germany, who've skewed things in favour of exporting stuff. If you think about China, if you're making an electric car, let's say, you're showered with subsidies by the state, even before you're thinking about things like your labour costs being lower. you're kind of not competing on the same level as many other countries like the US or, dare I say, the UK. And that just gives you this inbuilt advantage to be able to make stuff and then spew it out there into the global economy.

4:01Ed Conway:That's meant they've been able to send stuff cheaply to America and to the UK. And on the flip side, we've been able to buy cheap stuff. The kind of Faustian pact there is as part of that. We buy cheap stuff, but we're not making it domestically anymore. So whenever we focused on tariffs, we have tended to focus on the effect that it has had on the other end of the equation, not America. But you've once again been channeling Air Miles Andy, I suppose we could call you Executive Club Ed. You've gotten on a plane and you've headed to the United States. I did it very economically, as you would know, Neil.

4:33Ed Conway:You're getting great value for money out of the economics department. But yes, this is one of the biggest stories out there. It really is. And one of my frustrations is so much of the way that tariffs have been depicted thus far. It's been like Donald Trump in the Rose Garden, or it's been economists saying this is terrible because it's going to be inflationary. It's abstract. It's not there. And I kind of wanted to see what is the thing that's being tariffed. I want to see the process of it being tariffed. I want to understand what are the goods that are going in. Then you can kind of go from there and work out, OK, if this is happening in one place, in one factory or wherever it might be, then what can I extrapolate from this?

5:12Ed Conway:Are the lessons more broadly? Because that's kind of what we're missing a bit at the moment. Because the paradox here to this whole thing is Donald Trump imposed all these tariffs. Economists came out and said, this is going to be terrible because it's going to be massively inflationary. And the great paradox at the moment is inflation in America, actually, it hasn't gone up. The headline rates haven't gone up as much as people expected. And trying to puzzle out, well, why is that? Is it just kind of deferred? Is it going to happen later? Or is there some way in which Donald Trump has actually managed to defy all those economists.

5:43That's why I was absolutely taken by your choice of Detroit, better known, of course, as Motor City, because I thought car parts were exempt from tariffs.

5:52Ed Conway:They are. Within the North American kind of zone, the free trade area of the US, Canada, and Mexico, anything moving within there, as long as it's a kind of car part, is exempt. So it shouldn't count. And the fascinating thing in particular about Detroit is across the river from Detroit is Windsor, Ontario, is Canada. A lot of the parts that go into American cars are made in Canada, and they go across the border and Mexico. And like you say, right now, that doesn't incur a tariff. But here's where things get kind of complex. If you could think of one business, which Donald Trump probably does want to boost and wants to use tariffs to bring back manufacturing to the US and bring more of it back and protect, it's protection, that's what we're talking about, it's cars.

6:37Ed Conway:So this is supposed to benefit the car industry. And so we wanted to explore, okay, do they feel the benefits yet? And how is this kind of stuff impacting? And that's where things got interesting, shall we say. Let's talk about that company that exists on the border that you were focusing on, Lanix Manufacturing. Lanix, am I getting that right? Lanix. And what do they do? So Lanix makes metal parts. They make the striker plates. But basically, before it's got into the car, that has passed across the border at least four times. Four times? Four times. And that, to be honest with you, that's quite small.

7:14Ed Conway:The average part apparently crosses the border six to eight times between America and Canada and America and Canada, America and Canada. And what that's just underlining here is this is one big free trade zone. One of the guys I spoke to, the mayor of Windsor, Ontario, you know, saying it's trying to unscramble the egg. What are the practical consequences of the tariffs on the business, on Lanex manufacturing? So for Lanex, they get a lot of steel that goes into their parts. And now all of a sudden, you don't have to pay tariff on the components, but you do have to pay tariffs on the steel that goes into the components.

7:49Ed Conway:So all of a sudden, you're having to work out what is the tariff rate on this thing? How much of it is steel? How much of it is other value added? And actually, that's quite difficult to do. And the most striking thing I encountered, because a lot of these companies that make stuff that go into cars, they're small businesses. Even though these are the big three automotive makers, they're taking stuff, little nuts and bolts and plastic parts from companies that have maybe 20 employees, maybe fewer. And what happens in each of these companies is all of a sudden, you've got someone somewhere near the top who's faced with this monumental amount of extra paperwork to try and work out what are the tariffs they actually have to pay.

8:32Ed Conway:And for me, the most striking thing is a lot of the time, they still haven't quite worked it out. Can I give you one example? So there's another company called Team One Plastics, and they make plastics, as you can imagine from the name. They're based in the US, so they're in Michigan. In order to make your plastic parts, you need big metal machinery to do it. You melt down your plastic and you kind of squeeze it into this metal mould. They call it a dye. They have to be imported. Right now, there is nowhere in America which makes those dyes, the moulds that go inside. So right now, that stuff has to be imported from elsewhere.

9:04Ed Conway:And it's hard to see how in the next few years, you're going to be able to have a domestic producer of that stuff. It's gone. They were getting some from India. That was out the window because that was tariffs of 50%. They were getting stuff from China, again, out the window because the tariffs are too high. So right now, basically, it's Canada or bust. But obviously, you don't have to pay tariffs on car components, but you do still have to pay tariffs on these other things, these machine tools. And specifically, there's the steel tariffs and there's other tariffs. And here's where things get kind of interesting.

9:37Ed Conway:This company needed to get a new die. They had two people in Canada they're potentially going to get it from. One of them said, OK, here's the die. It's going to be a 25 % tariff. The other one said, we think actually it might even be a 0 % tariff, but we're not sure. And the only way we can find out is to kind of send it across the border. Imagine that process, that headache in that one little company. Now imagine that multiplied millions of times for all the different components you're kind of thinking about that go into every part of manufacturing in the US. And then consider the fact that they're still only just working this out now, because it's only when you need to buy big stuff.

10:16Ed Conway:Then you start to realize, OK, the economists said it was going to be inflationary. They thought it was going to come quickly. It hasn't come yet. That then would kind of leave you to suspect that this inflation is just a big wave that has yet to hit because no one's quite worked out what the full impact is going to be. Why can't they just pick up the phone and ask someone? Because no one really knows. And the CBP, the border agency who's dealing with this, they are way overburdened at the moment, even before you think about things like the fact that the government's been shut down. So everyone is in over their head.

10:49Ed Conway:It is a massive amount of extra paperwork. The thing that people forget about free trade, it was simple because you just didn't pay much of a tariff on something. Whereas now the scale of the tariffs is really significant. So the amount of time and effort and friction that they're causing in just in terms of people, like someone who did not want to get into business to fill in forms, is suddenly having to spend loads of their time filling in forms and working out how on earth am I going to deal with that? And the people that team on plastics, actually, most of the folks that seem pretty kind of behind the objective of getting more manufacturing in the US.

11:25Ed Conway:It's just that they're having to deal with a whole load of extra costs. And right now, you're in this weird place where most of the car manufacturers in the US haven't yet put up the ticket prices for their cars. So we've got all these additional costs that as yet are being borne by the manufacturers. The funny thing is, so as a journalist, okay, obviously, we wanted to talk as much as we could to as many people as possible. Some people were talkative. A lot of people were just nervous and terrified about being quoted on tariffs. The vast majority of people in corporate America, they don't want Donald Trump to notice that they are complaining about tariffs because that's the world right now.

12:05Ed Conway:And so basically, none of the big car makers wants to be the first one to say, look, we're putting up our prices. And also the other thing, Neil, is, and this is kind of interesting, one of the people I was talking to. I said, oh, well, isn't it strange that car prices haven't gone up in America? And they're like, oh, but haven't they? Because if you want to buy a base model of a car with no extras, with no optional extras, and with the base paint job, you know, the one you don't have to pay an extra kind of 800 bucks for, you can't get it. They're not available. If you want to buy a new car right now, the only stuff that's available is the stuff with extras.

12:40Ed Conway:And so you end up paying more and the car companies kind of grind back a little bit of those lost costs. But it doesn't show up in inflation. Isn't that clever? And so all of these little things are happening, but add it all up and it smells very inflationary. OK, so what does this mean for the world more generally then? The UK is really the only country which isn't doing much in the way of extra tariffs at the moment. But everyone else is. That's an inflationary environment. So we've had a lot of prices going up in the last few years. And it's been uncomfortable for everyone. It's been miserable.

13:10Ed Conway:We had a little taste of inflation recently. I mean, that was obviously mostly energy price related down to Ukraine. But what that reminds you of, inflation is an insidious thing, and no one likes it, and it makes everyone annoyed. We've been living through decades when year after year, partly thanks to free trade, things were getting cheaper. If we are now living through the reversal of that, then that is momentous. That is the single biggest economic story that we are going to be talking about for years to come, because it means gradually 2 % inflation is not going to be normal. 4 % might be more normal.

13:43Ed Conway:And that is a big shift from what we've been used to before the energy price shock. Let's judge Donald Trump by his own ambition. Has what he's done led to a renaissance in manufacturing in Detroit? It has not. It's tough out there, actually. It is difficult right now for manufacturing companies in America. The difficulty with the Renaissance idea is if you're building a factory, let's say you want to build a whole big factory to make these dies, so the die cast things, that they don't really make in America anymore. That's many years. Maybe five years is like a super, super optimistic timeline to be able to get a factory up and running, to get the permits, to get the people, everything else.

14:23Ed Conway:Well, that's beyond Donald Trump's time in office. And how can you be sure that five years later, there will still be these tariffs which make it worthwhile to do it? In other words, your entire business case hinges on politics. And that goes for manufacturing. It goes for like aluminium. If you want to do an aluminium smelter, as they say in America. Again, it takes years and years to build these things. And again, they are incumbent on very high tariffs, 25 % tariffs right now. So is there a business case for it? Is your banker going to look and say, yeah, I'll lend you 100 million bucks to do this?

14:55Ed Conway:That's the pragmatic issue right now. So the objective to try to bring back manufacturing, it's not a crazy idea. It's just that even Donald Trump, with all the power that he says he has, it is really difficult because he's only going to be in office for a certain amount of time. And no one can be quite sure what's going to happen after him. To be honest with you, America has been getting more protectionists for quite some time. So you could probably assume that some of this stuff is staying in there. And I think that's why I kind of think this is perhaps the single most important story that we need to think about in the coming years.

15:27Ed Conway:because I don't think most economists have this in their model. Most economists and a lot of politicians just think once Donald Trump's gone, it's back to normal. It's like with Brexit. People thought, OK, once Brexit's dealt with, then it's everything. But no, there's all sorts of things in the political and economic undercurrent that are kind of surfacing at the moment, which derive from the way that we organise the world for the last kind of 40 years, which we're going to take some time to deal with. And one of those is the possible reversal of globalisation. But hasn't your trip to the United States demonstrated that those who said this era of new American protectionism would crash the US economy were miles off course?

16:06I'm wondering if the rationale for what initially seemed absolutely crazy on the part of the president becomes just a little bit clearer.

16:17Ed Conway:I think it's too early. I think it really is too early. And I think that's the one thing I have definitely taken back from this is that there's a tide of costs which have yet to fully surface in the economic data. And when that stuff comes through, it's going to be quite painful because people will start having to actually pay. At the moment, it's stealthy. But when the scale of what we're talking about here, every factory around the US having to pay an extra 25 % for some of the machines they're bringing in from overseas because you can't get them in America. when that stuff gets added up, then that needs to kind of be paid by someone.

16:54Ed Conway:And that will be a lot of money. So I think that it's too early to tell how that goes down. I think a lot of people wonder whether when that inflation inevitably hits, whether Donald Trump then kind of goes softer on the tariffs, but I just don't see how you can put it back in the box. And the tariffs are bringing in a lot of money now. And once you've brought in money and said, look, success, there's money. And you can have some of it, even if a lot of economists would say, well, in fundamental terms, that's not extra money because it's being grabbed, cannibalized from another part of the economy.

17:27Ed Conway:Even so, once you've made that big political kind of win, as Donald Trump will see it, then it becomes hard to put the genie back in the box. Ed Conley, thanks very much. Thank you. For Ed's full report, simply head over to the website, skynews.com. Definitely worth your time. The Daily's back tomorrow.

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18:14Ed Conway:Hire the right pro today. How does a banana trigger a CIA-backed coup? Do AirPods herald the arrival of a new global order? What do LED lights say about the future of humanity? I'm Ed Conway, and in each episode of my new podcast, Stuff Matters, I take an object, crack it open, and reveal the world-shaping forces hidden inside. This is economics told through the things we think we understand. Search Stuff Matters on your podcast app to listen and follow.