The day after "Liberation Day"

0:01April 2nd, 2025 will forever be remembered as the day American industry was reborn, the day America's destiny was reclaimed and the day that we began to make America. Wealthy again. It was Liberation Day. April 3rd, the day after, won't be remembered, if we're being honest. Although there was some notable news. The stock market fell freely and precipitously. People panic bought everything from cars to wine to almonds. And those were just the texts that I got. CEOs lost their minds. But honestly, this is just a disaster of idiocy that I can't even tell you beyond proportions. In technicolor. Lower prices.

0:45is. That's the whole reason this is set up the way it is. And America's allies Mos Def got on a call with China. Today on Today Explained, we celebrate our day after Liberation Day.

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2:13The modern age of America begins right now on Today Explained. I'm Noelle King with Abdullah Fayyad. He covers policy at Vox, including trade. And this week, Abdullah wrote a piece about how tariffs are not all bad. Abdullah, in his first term, President Trump utilized tariffs. Then he was elected again, and he's utilized them even more. As of Liberation Day and this big announcement, do you understand what his philosophy on tariffs is? It's really hard to understand what Trump really sees in tariffs altogether. And that's because he really seems to view them as a solution to everything. He's been railing about tariffs for a long time.

2:57And since he came in this time around, you know, he went out swinging for tariffs for all these different reasons. They've treated our farmers badly. Look, our country's been ripped off by everybody. That stops now. They manipulated their currencies, subsidized their exports, stole our intellectual property. Not just a matter of addressing trade deficits or protectionism for our domestic manufacturers of helping industries grow in the United States. He's also talked about tariffs for, you know, curbing immigration and fentanyl. He's talked about tariffs as a means, as a negotiating chip to close in on a TikTok deal with China.

3:37You know, because every point in tariffs is worth more money than TikTok. So, you know, they're kind of all over the place. He wants them to raise a lot of revenue for the United States. And he also seems to want to use them, you know, for the more traditional protectionist policy of helping prop up domestic industries, you know, like certain manufacturing industries, be it steel industry, automakers, the auto industry and things of that nature. So economists will often tell you that tariffs are a tool. And Donald Trump seems to be saying, yes, they are. And they're not, you know, a hammer or a wrench.

4:16They're a Swiss army knife. You can do anything with them. Why is that a problem, if indeed it is? You know, tariffs are a tool, you know, in the industrial policy toolkit. And there are times where they can be useful. But the problem is, is when you over rely on them, you know, the costs are much greater than the benefits. You know, when Trump is implementing tariffs in the way that he is, broad based tariffs on all imports, 10 percent and higher, you know, from countries, be they adversaries or allies. When you're implementing tariffs that way, the costs are going to be higher than the benefits because essentially, you know, tariffs are a consumption tax.

5:00They are indirectly a tax on consumers because companies will eventually raise their prices in order to offset the tax. So consumers do bear the brunt of tariffs. Prices will go up. There will be an inflationary aspect of this policy, which will probably get people upset. This will be the largest tax increase on American consumers in modern times. End of story. A lot of our grain and malts are sourced from overseas, from Germany and the UK, and that will impact a lot of breweries across the board. Yes, it should be pinpointed in specific areas. But typical of this administration, they use a blunderbuss instead of a scalpel.

5:44It could also actually end up limiting trade and causing a shortage of supply, which might also drive prices up.

5:56All right. So you wrote about when tariffs can be used beneficially, narrowly. What are some examples of when tariffs are a good idea? What did economists tell you? You know, they are a tool that ought to be used sometimes. And I think one example of this is part of the reason countries might be interested in levying a tariff on imports is to protect certain industries that serve the national interest. It could also be because out of national security reasons, you want to have some level of control over the supply chain so that in the event of a war or a pandemic, a disruption in the supply chains won't make you have a shortage of a crucial good.

6:38So there are reasons why you want to prop up certain domestic industries. And they can serve you well. One example of this is that, you know, if we import a lot of goods from, say, China, which has bad labor laws and labor protections and very low wages. Those goods are going to be cheaper than goods produced in the United States. Part of the reason why goods that are made in the United States are very expensive is because we have higher labor costs. Now, that puts American companies in a difficult spot because then they have to choose between either having competitive prices or paying their workers well.

7:16So you have to balance that out as a government and think about, you know, what exactly is the problem that we're trying to solve here and how can tariffs be a tool? Should they be a tool that we use here to solve that problem? And in some cases, the answer is yes. Right. So when President Trump made his announcement in the Rose Garden and he said he's going to put tariffs on imported cars and the goal of that is to make sure that Americans buy American cars, That seems like that really narrow focus that economists are telling you is useful if you're going to implement a tariff. So would they approve of the tariffs that Trump has placed on foreign autos?

7:56Well, that's again why Trump, you know, in theory, a lot of what he says might make sense if you don't pay too close attention to what he's doing. You know, if you implement tariffs on foreign cars, domestically manufactured cars will be more appealing for consumers because they might be cheaper. But the reality of this policy is that he's going to slap a 25 percent tariff on foreign cars. And he's also going to slap a tariff on auto parts. So the expectation here is not just that foreign cars are going to get more expensive for American consumers, but domestic cars are going to get more expensive because producing them, manufacturing them is going to cost more.

8:39So the cost of production for American car companies is going to spike even if they are producing their cars here in the United States.

8:50One thing that President Trump and members of his administration say again and again, that sounds very compelling on its face, is that tariffs are going to make America money. In fact, there's a number they've been throwing around,$6 trillion. $6 trillion, and that's going to be much higher by the end of the year. When the administration says these are going to make us much richer, and we can actually put a dollar figure on it. What are they talking about? To be honest, I don't really know. I have no idea because I don't think it's possible for them to raise that much money. You know, tariffs used to generate a lot of federal revenue before we had things like an income tax.

9:32The reality, though, is that tariffs can't replace the income tax, especially in the way that Trump himself is talking about tariffs because he's talking about tariffs as something that he will lift if countries agree to his terms on certain things. You know, like you can't really talk about this as a permanent revenue stream while also talking about it as a negotiating chip for other things. You kind of have to pick a lane and understand why you're implementing them in the first place. All right. So the American economy is made up of many different things. We've got Main Street, Wall Street. We've got the markets.

10:11We've got who is employed. We've got what things cost. Americans deeply worried about inflation for a while now. When you talk to economists, what do they tell you about how all of these new tariffs that Donald Trump announced on Liberation Day, what do they tell you about how they'll affect the American economy? I mean, chances are they will affect the American economy pretty negatively and chances are they will affect people's wallets really negatively. Essentially, you're not necessarily guaranteeing that American prices are going to stay stable. Manufacturing in the United States will become more expensive because you're going to still be importing raw materials that have tariffs on them.

10:54So the cost of production is going to go up also for American companies. So we are going to see prices rise. The question that we don't really know right now is to what degree we're going to see price hikes across the board or in certain industries. But this is likely – if this is a policy that Trump sticks with, which I think is a big if because he has been so back and forth on this for a long time, that could anger a lot of people. It could cause people to fear for their economic stability, their financial stability rather, and whether or not they're going to be OK in a year from now. And that's why one of the economists I was talking with who was talking about how tariffs can sometimes be beneficial and how you can tailor them to be beneficial is he was just saying don't judge the tool by the craftsman that's mishandling it.

11:48So that's kind of what we can expect.

12:01Abdullah Fayyad, his article, What a Better Tariff Policy Could Look Like, is at Vox.com. Coming up, we pivot to Asia.

12:35You're listening to Today Explained. I'm Mike Bird. I'm the Wall Street editor at leading magazine The Economist. We call it a newspaper internally. Just to be clear, I'll get in trouble if I don't say that. We reached Mike Bird in New York. He was based in Asia. where many of the Liberation Day tariffs are aimed for many years. And Mike's first response when he heard the list of tariffs yesterday. They really are very, very steep. So I was looking across a group of them where the tariffs run to between 24 % and 46%, depending on the country. So, yeah, very, very steep, considerably more than I think I was expecting, considerably more than most investors were expecting.

13:17It's really extensive and broad. It's really extensive. of its broad and it's throughout Asia. We've got China, Taiwan, Japan, India, South Korea, Thailand. What are we hearing today from leaders of those countries? Anything notable? There's a big range of reactions. And I think that reflects the difference in both relationships with the U.S. and sort of some different strategies going on. So the Chinese government reaction to note that the tariffs are sort of deeply unreasonable, that it's a sort of attack on the rest of the world basically is probably the least surprising of these. I think it's more interesting to break down the countries that are really much closer diplomatically to the US.

13:59So the cabinet of Taiwan called the Trump terrorists deeply unreasonable and highly regrettable. Korea said that they were studying what was happening. At this moment, our mission is to protect the safety of the people, secure national interests during the trade war, and swiftly devise solutions to pressing national issues through cooperation with the National Assembly. The Japanese trade minister did call the move extremely regrettable. Following this announcement, we have once again conveyed to the U.S. government that the recent measures are extremely regrettable. But a lot of these countries are a little bit more circumspect and a little bit quieter, precisely because they have these very tight security relationships with the U.S.

14:44and they're very, very keen not to upset D.C., basically. So, yeah, there will be a little bit of a reserved reaction from some of them.

14:56Let me ask you about the president's argument on reciprocity. Reciprocal. That means they do it to us and we do it to them. Very simple. Can't get any simpler than that. So when Trump held up his chart, it showed that Vietnam, for example, levies a 90 percent tariff on goods coming from the U.S. South Korea, 50 percent tariff. Donald Trump is saying these countries put tariffs on American goods and I'm going to fix it. Is he right? And if so, why was this going on? So to be clear, we should start by saying there are trade restrictions that other countries put on the U.S. In some cases, they're steeper than the ones going in the other direction.

15:37That from first principles is a reasonable thing for U.S. policymakers to be upset about. But what became very clear in the immediate aftermath of the announcement yesterday is that the figures being used weren't drawn from any meaningful measure of what, for example, the rates that Vietnam tariffs U .S. goods are. There was no relationship with that data. What seems to have happened is there's been a sort of reverse engineering of a figure via the trade deficits and surpluses that individual countries have with the US. Basically, they've taken the trade surplus that Vietnam has with the US. They've divided it by the figure for Vietnamese exports to the US.

16:24It's a sort of Excel spreadsheet job. And it bears almost no relationship to what these countries actually limit US trade with, you know, whether that's tariffs or other various non-tariff barriers. These do exist. The tariffs, as they're going to be implemented, as they've been announced, bear no relationship to that. And it's a very strange measure to have used to decide which countries have been hit hardest. And it's why you have a country like Vietnam, which does export a huge amount of the U.S. and does have a very large trade surplus with the U.S., why you've seen such high tariffs be levied on them, for example.

17:06All right. That's a good clarification. We should be skeptical of what we saw on the chart. Let's talk about China. Trump put tariffs on China in his first administration. Joe Biden then kept some of those tariffs on China. And then Trump comes back into office and he puts more on. Was China ready for what happened yesterday? This is basically the most predictable element of these tariffs, right? It's if you could have possibly thought of anything that Donald Trump was going to do when he came into office that he would almost definitely do, it was raise tariffs on China. So while painful, essentially, I think a lot of Chinese companies have had eight years to be strategizing about this.

17:50While you can never be fully prepared, I'd say that a lot of companies and the Chinese government perhaps were as prepared as they could reasonably be. Certainly a lot more prepared than companies operating in the other countries that were tariffed yesterday have been. You've seen Chinese companies over the years execute a lot of the strategy that has protected them so far. For example, moving lots of production, especially lower value-added production of things like apparel, the final finished touches of making electronic goods into Southeast Asia. Now, obviously, that's not a strategy that works as well as Southeast Asia is being tariffed.

18:33But that was the idea up until yesterday. China is not a U.S. ally, but Donald Trump, as we've said, did put big tariffs on countries that are our allies, Japan, South Korea. Do you think that this move forces them to rethink how they deal with the United States? I think it will change the attitude quite a bit. One thing that the US government has tried to do a lot in the past few years is get cooperation from the Japanese and Korean governments in particular to cooperate on things like export controls of semiconductors to China. That's going to be a lot more difficult to execute if you're putting really, really steep tariffs on them.

19:16I don't think there's as many politicians in Japan or Korea that will wake up today and say, I would really like to cooperate with the U.S. on these restrictions on Chinese trade. It's much more difficult to do that if you're also sort of slapping them in the face with these tariffs. I was reading over the weekend that Japan, South Korea and China met for the first time in about five years to talk about trade among the three of them. The three Asian manufacturing giants agreed to, quote, closely cooperate for a comprehensive and high-level talks to improve free trade in the region. Their discussions came just days before the U.S.

19:55government scheduled announcement of new reciprocal tariffs as the three nations navigate rising protectionist pressures. Do we know what goes on in a meeting like that? I mean, it seems deliberately timed to Trump's announcement. Does a meeting like that make America nervous? I think it probably should if you're taking a really long term view. Not wildly nervous. So there was a Chinese state media announcement after this meeting, which said that China, Japan and Korea had agreed to sort of react jointly to react in concert against any US tariffs, because obviously, you know, they knew they were coming out.

20:32The Japanese and South Korean governments were fairly quick to say that wasn't quite their understanding of the meeting. Interesting. It's the understanding that policymakers in Beijing would like to have. But I would say that this question of closer trilateral cooperation between China, Korea and Japan has been going on for a long time. And it's always been frustrated to some degree by the fact that these are three countries where usually at any given time someone's upset with someone else, whether that's Japan and South Korea. They have a very fractious relationship, whether it's South Korea and China, whether it's Japan and China.

21:09There's usually someone that's upset about something. And it's limited the sort of trilateral cooperation. There's always been discussion of a potential Japan, South Korea, China, free trade area, and it's never really come to fruition. Now, if you wanted to make it come to fruition, what you would want is an external threat that was common to all of those countries. I'm not sure that this will actually come out in the wash. I'm not sure there'll be a trade agreement of that nature. But if I wanted to force one through, these are exactly the circumstances which I'd create to try and do that. If China becomes a more trusted trade partner to American allies than America is right now, what are the long term implications of this for China?

21:54One thing the Chinese government has really struggled with in the past, and for good reason, is that they don't really have a lot of natural allies or friends. Even in Asia, where sort of bellicose decisions around the South China Sea, around China's land borders, you know, difficult negotiating positions have left it. The country without obvious close friends. I think the U.S. seriously damaging its own relationships in the region does make things easier on that front. If you listen to the Chinese Ministry of Foreign Affairs, they will tell you and they have done for decades that the U.S. is a country that bullies smaller countries.

22:35It talks a sort of high and mighty game about all these lofty ideals of freedom and democracy and human rights. But in reality, it's just looking out for itself. Basically, I think these tariffs make that argument a lot easier to make in large parts of Asia. And I think to countries that are US allies, this will be very difficult. And these countries feel like they're being really set upon by decisions made in DC. That is a really natural opening for the Chinese government. And it's a huge opportunity for them. You know, you couldn't have drafted these conditions better if you were a Chinese diplomat.

23:12You know, this is the absolute perfect storm from that perspective. Mike, thank you so much for your time today. Thank you very much.

23:29Mike Byrd, he's the Wall Street editor at leading newspaper The Economist. Devin Schwartz and Gabrielle Burbay produced today's show. Jolie Myers edited. Andrea Christensdottir and Patrick Boyd are our engineers. And Laura Bullard and Amanda Llewellyn kept us honest. I'm Noelle King. It's Today Explained.

24:05Thank you.