The two dolls economy

0:01President Trump was put on the spot last week when a reporter asked whether Americans should expect shortages as a result of his trade war. He gave a classic off-the-cuff answer. You know, somebody said, oh, the shelves are going to be open. Well, maybe the children will have two dolls instead of 30 dolls, you know? Then he had some time to think about it further and decided he's right. I don't think a beautiful baby girl needs, that's 11 years old, needs to have 30 dolls. Here he is on NBC's Meet the Press with Kristen Welker. You say they could have three dolls instead of 30 dolls. Are you saying your Americans No, I'm not saying that.

0:39I'm just saying they don't need to have 30 dolls. They can have three. They don't need to have 250 pencils. They can have five. Wild. Economists say if you look at what's coming into the US on ships from China, shortages are nearly guaranteed. Shortages of what, though, other than dolls and pencils? Answers to come on Today Explained. Weihnachtsschmaus und Silvesterer-Kletz sind gerade vorbei. Da kommt auch schon die nächste Tradition um die Ecke.

1:31This is today explained. My name is Lorianne LaRocco, and I am the global supply chain reporter for CNBC, and I'm also the author of Trade War Containers Don't Lie. All right, so what are the containers telling us right now? The containers are telling us right now that in the coming weeks, we are going to see shelves starting to get a lot thinner. Maybe not bare, but we will definitely see less items on the shelf. When you're looking at the U.S. supply chain and you're looking at what we bring in, it doesn't matter if it's made in America or even assembled in America, which you're going to hear a lot of that in the coming months.

2:14Assembled in America doesn't mean that it's all the components are made in America. And you will have assembled in America products no longer being able to be made because the components come from China. If you look around your apartment or your house or condo, 90 % of everything that is in your home comes on a vessel. And a lot of those products come from China. So furniture, appliances, your laptops, your cell phones. Because remember, it's that supply chain standpoint. It may not be 100 % from China, but the components that make it critical to get them done, they're from China. We see across the industry about a 60 % decline in ocean freight bookings from China to the U.S.

3:08Yeah, there's been a collapse of outbound freight out of China into the United States. It is really dark times for ocean shipping, especially. The next time you want to go buy a flat screen television, I would say probably in the middle of June and then after, they will be more expensive. And the reason why I'm being targeted, if you will, from like the June standpoint, is the fact that the 145 % plus tariff from China has not been deployed until May 27th. May 27th is the day that all items that are coming from China will have that new level of tariff apply to them. The tariffs that have been deployed can easily be digested by the retailer or brand because it's 20 percent.

4:02Yes, it's a lot more, but it's not the 145 that is going to be you cannot absorb that. And that's when you're going to see the high price. I remember in the days before Liberation Day, friends and family members told me they were panic buying stuff. We're going to go and get new tires. We're going to go and get a car. Somebody was buying wine. I can't even remember who. Does it make sense to panic buy anything right now? You know, I would say panic buying is like the worst thing that we can do because that's what happened with the toilet paper. It's happening again. Panic buying amid the pandemic.

4:39Customers walking the aisles multiple times, hoping to get lucky. We made toilet paper in the United States. During the pandemic. I mean, if we can't learn anything from that, please do not go and panic buy. I would say that if you're on a budget, like say you've got kids, right? And you're staring down back to school, do something smart and like go to your favorite retailer, go now, right? And buy their fall clothes on discount. That way, if they do have that growth spurt, you're not going to be really upset, right? If they outgrow it. But if you need to get that laptop for your college student or that flat screen TV, buy it before the middle of June.

5:24But that's not like a panic buy. That's like almost like being like strategic, like in your dollars. Do you think this will be like the pandemic? I don't think it will be because of a couple of things. So back during the pandemic, the U.S. consumer was at a healthier standpoint. We did not have inflation and we were all stuck at home. So, you know, we couldn't go anywhere. So our vacation money went to, you know, going to buy a ping pong table or whatever. Now we've got inflation. People are scared to spend money. And it's this unknown in terms of the trade war is global. And so like you mentioned your friend with wine.

6:04I mean, I can understand with your friend because I'm a huge Italian wine drinker. And so I was just like, well, should I stock up on my favorite Brunello? You know, that I can understand. But it's going to be different in terms of we will have the supply chain crunch. We will have supply chain shortages, but it'll be in select items, but everything will be a lot more expensive. And so I really feel about this transitory inflation because supply chain is like a series of pipes. It's plumbing. Trade has to flow. And so eventually, if and when these trade wars get handled, you're going to have these pause buttons be unpaused.

6:51And then you're going to have all of these orders trying to get on a limited amount of vessels. That is going to increase the price of the product. So if we're paying crazy prices in a month from now, and then the pause button gets unpaused, those prices are going to go even higher. because logistics prices are passed on to the consumer. So heaven knows where we will be going. You're saying that even if President Trump does backpedal, which he's been known to do when things get dire, that doesn't negate the conversation we're having. No, because when it comes to the supply chain, think of a timeline, okay?

7:32During this time between now and early June, this is when the retailers, both small and large, So we're talking about even like the mom and pop retailers, okay, all the way to the Walmarts. This is when they actually start placing their orders for the holidays. Because those items have to be here in the United States by August or September, the absolute latest. And so you've got to tick backwards. It takes anywhere from two to four weeks for those items to arrive from China by the vessel. but then you have to tag on at least two to four weeks to make the product. So this is like now or never. And how can a company make orders, right?

8:19Prepare orders if they don't know, A, if we're going to buy anything, and B, how are we going to pay 145 %? So all of this uncertainty is leading to this decision gridlock, and that's why nothing is being made. So this is more than just getting our cheap product. It's about jobs. It's about moving the truck workers, the warehousing. All of these people, the world of trade is connected on so many different levels. Laurie, over the last 10 days, right up until Monday, the stock market, instead of looking wobbly, has been on an upward tear, making back a lot of the losses that followed Liberation Day.

9:03I would think that the markets would be paralyzed as they await this shock. What do you think is going on? What does the market know that we don't? The market doesn't know anything. The market is literally, no, no. The smart money is banking on optimism. They're banking on the possible promises of trade deals to be made. Last week we had Lutnik on, and he was saying that there was a deal. I have a deal. Done, done, done. And we were like, well, what deal was it? I'm not going to tell you what country. I let the president decide. It's just you and me here and a couple million people hopefully watching.

9:40I let the president decide. He couldn't tell us. And then he proceeded to say, I need to wait for their prime minister and their parliament to give its approval. Well, then it's not a deal. It's rhetoric. And when it comes to the markets and when it comes to the traders, because everything is fear-based and it's that knee-jerk reaction, They're reacting to these possible headlines. They're not looking at the long term. You get to talk to people like Secretary Lutnik, which is very cool. If you were able to give him advice to tell him, look, here's what you and the Trump administration should do now, what would your advice be?

10:16My advice would be like, you got to use a little bit of honey to get where you want to go. It would be great to make things in America. But from everything who I've spoken with, both from a supply chain standpoint, from a company standpoint, there's not enough people in order to do the job. There's not enough educational level of people to do the job. And also, are you going to subsidize the small businesses? Noelle, I have one contact. Their container, they were paying, for one,$40 ,000 in tariff. that same container is now going to be a million dollars. Oh, how the heck are they going to pay that?

10:58They can't. It's not just paying the tariff. It's the intricacies. It's the jobs. Like this person, they assemble in America. So now they're going to have to close up shop. They're going to have to fire their manufacturing staff. Then the trucking company that moved their product, they're going to be out of people. You know, the lunch rooms that, you know, service the people that went out to lunch. They're going to have less people to serve lunch to. There's a whole ecosystem here. And so my advice to the Trump administration would be look at the entire supply chain and how everybody is interconnected, because that's what makes the economy great.

11:41And they fail to see that.

11:51Lori Ann Larocco. She covers the supply chain for CNBC and she wrote, Trade War Containers Don't Lie. Up next, yet another reason you're now paying more for those cheap goods from China. It's De Minimis. Stay turnt.

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15:08This is Today Explained. My name is Liz Young. I'm a reporter at The Wall Street Journal, and I cover supply chain and logistics. Okay, so we're gathered here today to commemorate the policy known as de minimis. What is de minimis? It's a phrase that comes from Latin that essentially means it's of little value. So many countries around the world have these de minimis trade provisions. And in essence, it means it's not worth the government's time to collect tariffs on small goods. You know, it's just not that much money that they're going to get from the process. So in the U.S., the provision dates to 1938.

15:46It was originally aimed at helping Americans bring back little, like, souvenirs and things from traveling abroad. I believe it started at a dollar back then, and it's been increased several times over the years, most recently from$200 in 2016 to$800. I just want to make sure I have this right. The idea is if I'm ordering something from overseas and it costs less than$800, there's no tax on it coming into the country? That's correct. Okay, so I'm assuming that it's used less on souvenirs these days and more on things that I am buying on the Internet, yeah? So over the past decade, we've seen usage of this skyrocket.

16:27I mean, it is absolutely swelled. and that has been driven by Chinese-based or Chinese-founded sellers who are shipping parcels directly to consumers in the U.S. from China. So the most popular of these, of course, being Shein and Timu. Hey guys, here's a summer Shein haul. Oh my gosh, look what just came in. Let's do a huge$1 Tamu haul. Let's do it. They sell fast fashion apparel. They sell little tchotchke type goods of all kinds top is so freaking cute um hello buy this right now okay bro i got these two phone cases because i don't really like my phone case this looking fire though i'm not gonna lie hold up sheena's my new favorite store often coming directly from china to u.s shoppers um and that's that's been something that you know has really pushed up the volume of these packages we went from 400 million of these entering the U.S.

17:24in 2018 to 1.36 billion last year. Shein's revenue last year had grown 19 % over the year before to$38 billion, but that was less than the increases of the previous few years where it had grown 40 % year over year. Timo were looking at something similar. You know, their most recent quarterly report showed that revenue had climbed 24 percent, but that was their slowest pace of growth again since 2022. So we've been seeing them grow at this huge rate.

17:59All right. So President Trump was also seeing them grow at this huge rate, and he decided that the minimus is very it's a big deal. It's a big scam going on. The de minimis rule wasn't working or needed to be changed. What did he do exactly? So in early April, President Trump had decided to end the de minimis exemption for goods made in China. It went into effect just this past Friday, so very recently. And what that does is it cracks down specifically on goods made in China and Hong Kong. So it doesn't matter where things are shipped from. It doesn't matter if they're shipped through another country.

18:37What matters is they were made in China originally, and those goods are now subject to more formal entry procedures than they were before. That means more paperwork, et cetera. They also are subject to that 145 % base tariff that the president has put in place, plus any additional tariffs that they already would have faced before that based on what the item is. So that's based on, you know, is it a sneaker? What type of sneaker? What type of materials is it made out of? All of those kinds of things. Is this specifically targeted at goods coming from China? This is, yes. So this is something where the president says that this is a change that's needed to help stop the flow of fentanyl into the country.

19:22And lawmakers of both parties in recent years have expressed concerns about what is coming into the country through these methods. They've expressed concerns about the cotton, for example, that is incorporated in some of the clothing. They're worried that this, quote, loophole that they call it could help allow for goods made from the Xinjiang region enter the country. How concerned are you that the Chinese companies could take advantage of de minimis to ship goods potentially made with forced labor into the United States? Maybe I'll start briefly, but can say that I share your concern. She and Timu, very popular among American consumers.

20:07How are consumers reacting to the changes? It's still early. So this only took effect Friday. So this, of course, will have a little bit of a delayed effect as packages start to enter the country now. already, Temu and Sheehan have been increasing prices on their websites. Look at a portable air conditioner humidifier fan. It was 21 bucks. Now it's going up to 30. This three pack of men's athletic shorts went from$23 to$56 after retailer Temu added a more than$32 import charge into the shopping cart. So far, American consumers have responded. I mean, I've seen social media posts where people are seeing charges coming in from parcel carriers saying, hey, you have to pay this tax before we can deliver your package.

20:56Consumers are expressing frustration about that. I'm so pissed. My$276 balance is now$743. I am feeling like I want to die and that this is complete torture. I just deleted the app. Just also general frustration about the cost of the tariffs. I mean, these are going to be pretty hefty tariffs that are placed on these goods. Like I said, the 145 percent, that's just the base. So it's something that a lot of consumers are seeing that, OK, this is going to push up prices in one way or another. Sheanne has started charging the girls tariffs and the girls on TikTok are mad about it. Sheanne prepared us, but I wasn't prepared.

21:39But I will also note that some American business owners say this is going to help them better compete. They say that their businesses have really struggled in recent years with this flood of goods from China that's much, much cheaper and has undercut them on price. So they're hopeful that this kind of levels the playing field. That actually makes complete sense because the advantage that Xi 'an and Timu have is it's I mean, it's not quality. We've all seen like the croissant lamp. It is. It's price. Right. So if Americans can no longer buy Sheehan and Timu stuff at rock bottom, rock bottom, rock bottom prices, what happens to those companies?

22:17Are they kind of screwed? They definitely could lose their price advantage now that they face these tariffs. We've seen, like I said, the prices have been going up some 40 to 100 percent over the past few weeks. And some analysts have said customers might switch to Amazon. They might just go back to the old familiar website that they'd been using before. that said there are some important caveats to this Shein and Timu have both made a lot of changes in recent years to the way their supply chains work in anticipation of this exemption going away and what that includes is that Shein for example has manufacturing partners set up in Brazil Turkey and India and they can still ship goods into the US duty-free through de minimis from those countries because this change only applies to China right now Okay, so we're talking about very cheap items, but an enormous volume of them.

23:11For every person who buys a$4 shirt from Shein, the government now will collect taxes on it that it didn't used to. Logistically, how does that work? So this is something that everyone is waiting to see what happens. The president had initially suspended de minimis as an exemption that was available to importers in February. and there was a lot of confusion among retailers, logistics operators, etc. And at that time, the U.S. Postal Service temporarily stopped accepting parcels from China and Hong Kong while they tried to figure out how to handle that volume. So since then, I mean, the president a week later delayed that until a time when the Commerce Department had notified the White House that systems were set up to process the inspections and collect the tariffs.

23:59Now, since then, the White House says the Commerce Department has told them systems are in place. President Trump has been making what you might call an anti-materialist argument to the American people. In some ways, it is a messy argument. You know, be content with your kid having two dolls instead of 30. But it does speak to the fact that Americans can get a lot of stuff and have a lot of stuff and buy a lot of stuff very, very, very cheaply. How do you think about that tension? Much of what we like about being Americans is our ability to buy cheap stuff. And the president is now telling us, I don't think you guys should be able to do that anymore.

24:41I agree. It feels like in my lifetime, there has been this push more and more over the years toward cheaper and cheaper goods, more and more things. And it does seem there's now this tension between that and the ways the changing trade policy could serve to stop that flow of goods. You know, from my perspective, covering the supply chain and logistics industry, particularly in the U.S., companies have built up their supply chains specifically to enable this flow of goods. So I don't know where they think things will land. And that's kind of what they're all grappling with right now. Now, a lot of the companies I cover are grappling with the uncertainty and trying to figure out, well, what changes should we make?

25:25But also what changes should we wait to make until we know where the buck ultimately falls? You know, where where will tariffs be before we make these massive changes that take years often to make?

25:46Liz Young covers supply chain and logistics for The Wall Street Journal. Truly the supply chain girlies time to shine. Miles Bryan produced today's show, Jolie Myers edited, Patrick Boyd and Andrea Kristen's daughter engineered. Laura Bullard is our senior researcher and I'm Noelle King. It's Today Explained.

26:07Thank you.