--:-- [Theme music fades out]
--:-- Ryan Knutson: Welcome to The Journal. I'm Ryan Knutson.
--:-- Jessica Mendoza: And I'm Jessica Mendoza. It's Monday, February 3rd.
--:-- Ryan Knutson: On Saturday, Trump's trade war began. His administration announced major tariffs on the country's three biggest trading partners, Canada, Mexico and China.
--:-- Jessica Mendoza: So we're talking about 25 percent on Canada, 25 percent on Mexico. Those are our two biggest trading partners, with the exception of crude oil and energy products. They'll get a 10% tariff. That's our colleague Gavin Bade. And then a 10% additional tariff on all imports from China, which is our third largest trading partner.
--:-- Ryan Knutson: So dollar for dollar, we're looking at a tariff action that is larger than anything Trump did in his first term. And he did it all in one day.
--:-- Gavin Bade: I think he did more than even some people inside the White House thought he would.
--:-- Ryan Knutson: When were these tariffs set to go into effect? Tuesday. Tomorrow. Very, very quickly.
--:-- Jessica Mendoza: So he promulgated them. He made the announcement on Saturday night after promising and getting everyone whipped up into a frenzy over the past few weeks.
--:-- Gavin Bade: There was a lot of frantic lobbying around Washington. Canadian and Mexican officials flying here, meeting with senior U.S. officials, trying to convince them otherwise, saying, we'll do anything to get around these tariffs.
--:-- Ryan Knutson: What do you want? Does this lead to a trade war? It certainly seems that way. I mean, Canada and Mexico have said that they are ready to respond.
--:-- Jessica Mendoza: Canada is going to slap tariffs on U.S. shipments, you know, the same day that we do. And Mexico has promised to do the same.
--:-- Gavin Bade: And actually, the Trump administration anticipated this. And they put a provision in these tariff orders that says, if Canada, Mexico, and China hit back, then they're going to make the tariffs even higher.
--:-- Ryan Knutson: So you can really see how this could spiral into even more of a trade war than we're having already.
--:-- Jessica Mendoza: But before those tariffs could go into effect, a pause was put in place for Mexico and Canada after the two countries made concessions.
--:-- Ryan Knutson: And Trump is planning to talk to China in the next day.
--:-- [Theme music fades in briefly before fading out]
--:-- Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson. It's Monday, February 3rd.
--:-- Jessica Mendoza: Coming up on the show, Trump's trade war. Is it on or is it off?
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--:-- Jessica Mendoza: Imagine being 12 years old, already having 30 bone fractures and wondering, why can't I just play like other kids?
--:-- Ryan Knutson: I'm Leanne and I was diagnosed with brittle bone disease. Now I'm running the Bank of America Chicago Marathon for Lurie Children's.
--:-- Jessica Mendoza: So every kid can just be a kid. Join Bank of America in supporting Leanne's cause. Give if you can at bfa.com slash support Leanne.
--:-- Ryan Knutson: What would you like the power to do? Bank of America.
--:-- Jessica Mendoza: References to charitable organizations is not an endorsement by Bank of America Corporation.
--:-- Ryan Knutson: Trump has said he loves tariffs. I always say tariffs is the most beautiful word to me in the dictionary. Why?
--:-- Jessica Mendoza: What does Trump want to use tariffs for? Trump wants to use tariffs in the classical sense of building American manufacturing.
--:-- Ryan Knutson: So, you know, he was elected talking a lot about how manufacturing has gone overseas, whether automotive manufacturing or even lower down the value chain.
--:-- Jessica Mendoza: And he's saying, you know, I'm going to put these tariffs back in place so that companies like the automotive companies have to build their factories here.
--:-- Ryan Knutson: They have to build their products here. Can you tell us what are tariffs and how have governments historically used them?
--:-- Jessica Mendoza: So a tariff, you can just think of it as a fee that is paid on a product when it comes into this country. Like a tax.
--:-- Ryan Knutson: Like a tax, right? It's a tax or a fee that you pay at the port of entry.
--:-- Jessica Mendoza: The theory behind tariffs is you want to make products from other countries more expensive to make the products that you make in your country more competitive.
--:-- Ryan Knutson: So historically almost every industrialized country including the United States has used tariffs to protect what they would call infant industries industries that are just getting started and they want to create growth for them, right?
--:-- Jessica Mendoza: And so think about, you know, when any industry, the steel industry in the United States was starting, for instance, you had really high protective tariffs all throughout the 19th century to protect it from competition from overseas markets.
--:-- Ryan Knutson: On the day he was inaugurated, Trump said he'd impose these tariffs on Mexico and Canada, 25% tariffs. Was that a surprise?
--:-- Jessica Mendoza: It was a surprise in certain ways. He'd always said that he was going to do really intense tariffs on the campaign trail.
--:-- Ryan Knutson: Then he came in on the first day and he put out a policy memo saying we're going to study all of our trade deals and all of our trade policies.
--:-- Jessica Mendoza: And so for a moment there, we all thought, hey, there's going to be a process here. They're going to do economic studies.
--:-- Ryan Knutson: And then only a few hours after he issued that memo, he came out and made that tariff threat.
--:-- Jessica Mendoza: But this round of tariffs isn't rooted in that kind of classical economic thinking you talked about earlier.
--:-- Ryan Knutson: Tell us about the rationale the Trump administration is using to impose these tariffs.
--:-- Jessica Mendoza: So there's a few general motivations here. Generally speaking, Trump has said the first and foremost, it's about the illegal fentanyl trade that they say has killed tens of millions of American citizens.
--:-- Ryan Knutson: That's maybe an inflated measure, but killed a lot of American citizens, right? They say that this fentanyl and the precursor chemicals are produced in China, shipped over to the United States, and then manufactured in factories in Canada and Mexico.
--:-- Jessica Mendoza: And smuggled over the border, right? And so he has said his tool for getting them to stop this is to put tariffs on them until they make it stop.
--:-- Ryan Knutson: But this is sort of a non-trade issue that he is using trade tools against. That's one motivation.
--:-- Jessica Mendoza: The second motivation is what he would call illegal migration through Mexico, mostly from Central and South America, from other nations as well, through Mexico.
--:-- Ryan Knutson: He has said he wants Mexico to stop that completely. And until they do, he's going to put tariffs on it.
--:-- Jessica Mendoza: So again, a non-trade issue that a trade remedy is being used for. And then there's a number of lingering trade disputes from this U.S.-Mexico-Canada agreement that he signed, right?
--:-- Ryan Knutson: That's the new NAFTA. The new NAFTA, yes. So Trump signed this in 2020. He said it was the best deal ever.
--:-- Jessica Mendoza: And now is, you know, contravening it by putting tariffs into place, right? So he would say, although they made the automotive rules much tougher there, it's still a concern of his that there is still automotive manufacturing in Mexico and Canada.
--:-- Ryan Knutson: He would rather see that come over the border and be back in the United States.
--:-- Jessica Mendoza: Trump's tariff plans sent Canadian and Mexican officials into a scramble. Canada and Mexico have basically said, tell us what you want us to do on this and we will do it.
--:-- Ryan Knutson: Right. They've set up new fentanyl and migration working groups.
--:-- Jessica Mendoza: And, you know, the administration all throughout last week was pretty publicly optimistic. Right. You heard Caroline Levitt, the press secretary, say, you know, Mexico is making some great progress on migration.
--:-- Ryan Knutson: And, you know, we're having good talks with Canada as well.
--:-- Jessica Mendoza: The president has also put out specific statements in terms of Canada and Mexico when it comes to what he expects in terms of border security.
--:-- Ryan Knutson: We have seen a historic level of cooperation from Mexico, but again, as far as I'm...
--:-- Jessica Mendoza: U.S. industries also started lobbying the Trump administration over the tariffs, asking for delays and even exemption.
--:-- Ryan Knutson: There were a lot of U.S. industries, especially like the automotive industry, which does a ton of trade with Canada and Mexico, who had been begging him to put an exemptions process into this, basically a process to get a carve-out from the tariffs.
--:-- Jessica Mendoza: They were saying, look, we have continental supply chains. That we have put in place because of the trade deal that you negotiated with Canada and Mexico in your first term, the so-called US-Mexico-Canada agreement that replaced NAFTA.
--:-- Ryan Knutson: We made our supply chain, said the automotive industry, according to that deal that you negotiated and signed.
--:-- Jessica Mendoza: So at least the cars that we make that are compliant with that deal, please make them exempt from these tariffs.
--:-- Ryan Knutson: Trump said, no thanks. I would rather hit all of the automotive consumers with tariffs, all the automotive companies with tariffs.
--:-- Jessica Mendoza: On Saturday, the Trump administration announced that these 25 percent tariffs on Canadian and Mexican goods and the 10 percent tariffs on Chinese goods would go into effect tomorrow morning.
--:-- Ryan Knutson: And after he announced that this was actually going to happen how did the governments of Canada Mexico and China react?
--:-- Jessica Mendoza: We have not heard as much from the Chinese government yet. I think they are playing their cards very, very close to the chest.
--:-- Ryan Knutson: By contrast, Canada and Mexico have had a much more forceful response.
--:-- Jessica Mendoza: Here's Canadian Prime Minister Justin Trudeau. Canada will be responding to the U.S. trade action with 25 percent tariffs against $155 billion worth of American goods.
--:-- Ryan Knutson: Canada said it would put tariffs on U.S. imports ranging from fruits and vegetables to appliances, motorcycles and alcohol.
--:-- Jessica Mendoza: Mexican President Claudia Sheinbaum said the country was prepared to respond with tariffs and other measures.
--:-- Ryan Knutson: And she said yesterday that, quote, Problems are not solved by imposing tariffs, but through discussion and dialogue.
--:-- Jessica Mendoza: There's a lot of U.S. products that flow south of the border into Mexico as well.
--:-- Ryan Knutson: So, you know, and I think like thinking about your grocery store list, like a lot of that stuff is going to be impacted by the tariffs Trump put into place on Mexico.
--:-- Jessica Mendoza: How will these tariffs affect the U.S. economy and consumers is after the break.
--:-- Ryan Knutson: else. Browlington. Deals. Brands. Wow. Tuesday on NBC. Jimmy Fallon and Bozema St. John host the highly anticipated new competition show.
--:-- Jessica Mendoza: I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands.
--:-- Ryan Knutson: This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars.
--:-- Jessica Mendoza: I'm so excited to embark on this adventure with all of you. May the best idea win!
--:-- Ryan Knutson: On Brand with Jimmy Fallon. Series premiere Tuesday on NBC.
--:-- Jessica Mendoza: This looming trade war has spooked investors who fear it will deal a blow to the U.S. economy.
--:-- Ryan Knutson: This morning, stock markets opened sharply lower.
--:-- Jessica Mendoza: Trump said yesterday in a social media post that there will be some pain from the tariffs, but, quote, it will all be worth the price that must be paid.
--:-- Ryan Knutson: What do economists say will be the impact of these tariffs on the U.S. economy?
--:-- Jessica Mendoza: I think a lot of people are still trying to sort through the magnitude, but they pretty uniformly say higher prices, and that means, you know, lower economic growth for the American economy.
--:-- Ryan Knutson: Can you like list through for me some of the products that will be affected?
--:-- Jessica Mendoza: Yeah, I mean, just off the top of my head, I mean, I just I I'm thinking about all of the kind of winter vegetables that we get in from Mexico, right?
--:-- Ryan Knutson: All of the tomatoes, all of the avocados, things like that.
--:-- Jessica Mendoza: I'm thinking about how integrated the meatpacking industry is over the U.S.-Canada border and how many times like, you know, a cow crosses the border multiple times between the U.S. and Canada in a lot of cases before it's processed into whatever, a hamburger or beef jerky or whatever.
--:-- Ryan Knutson: Then thinking about automobiles, the average car will cross the U.S.-Canada border eight times right before it is actually a car.
--:-- Jessica Mendoza: And every single time that automobile or that auto part crosses the border, it's going to need to get a tariff paid on it.
--:-- Ryan Knutson: How will this trade war affect the U.S. economy and U.S. companies and U.S. consumers?
--:-- Jessica Mendoza: It could be really, really drastic, these impacts, right?
--:-- Ryan Knutson: I think the biggest question is how long do these tariffs stay in place?
--:-- Jessica Mendoza: You know, a lot of continental industries, you know, especially like think about the automotive industry. They've been stockpiling cars in anticipation of this.
--:-- Ryan Knutson: So having, you know, getting cars on the dealership lots just so that they have some inventory, that's going to last a couple of weeks. Right. Not more than that.
--:-- Jessica Mendoza: And if these duties stay in place longer than that, we're looking at dramatically higher prices, not just for cars, but like for tomatoes, for meat products. Right.
--:-- Ryan Knutson: How quickly will American consumers be affected?
--:-- Jessica Mendoza: I would say within a couple of weeks. Right. If not immediately. It depends on the goods.
--:-- Ryan Knutson: So, you know, I think it's difficult for me to say with certainty how long it's going to take because as I said we really in uncharted territory here when it comes to this magnitude of tariffs being enacted this quickly
--:-- Jessica Mendoza: So all I can say is bad and soon
--:-- Ryan Knutson: Oh hold on Sorry I just seeing a headline Wow. I am just seeing this for the first time.
--:-- Jessica Mendoza: Mexican President Claudia Scheinbaum tweeted that she had a good conversation with President Trump.
--:-- Ryan Knutson: We reached a series of agreements. Deploy 10,000 members of the National Guard to prevent drug trafficking.
--:-- Jessica Mendoza: The U.S. is committed to working to prevent the trafficking of high-powered weapons to Mexico.
--:-- Ryan Knutson: The teams will begin working today on two fronts, security and trade, and they're pausing the tariffs for one month from now.
--:-- Jessica Mendoza: And that, dear listeners, is how fast things change in Washington in the second Trump administration.
--:-- Ryan Knutson: Things can turn on a dime here. You know, this is just, it's just emblematic of how unpredictable these things are.
--:-- Jessica Mendoza: So there's still 30 days. The threat of the tariffs remains.
--:-- Ryan Knutson: Yes. And I think that that is, I mean, the threat of the tariffs in one form or another is going to remain on almost every nation throughout the world throughout Trump's term, right?
--:-- Jessica Mendoza: Because if he gets mad at you, he's shown that he is willing to risk significant damage to the U.S. economy to make a point.
--:-- Ryan Knutson: And I think that's what he's doing here, right?
--:-- Jessica Mendoza: Could they have come to this agreement without, you know, imposing tariffs and spooking the market and sending everyone into a tizzy?
--:-- Ryan Knutson: Maybe. But that confusion and that panic is a feature of the system for Trump, not a bug.
--:-- Jessica Mendoza: This afternoon, a deal for Canada came through as well.
--:-- Ryan Knutson: After a call between Trump and Trudeau, Canada agreed to reinforce the border with new helicopters and technology.
--:-- Jessica Mendoza: And Trudeau said nearly 10,000 frontline personnel will be working on protecting the border.
--:-- Ryan Knutson: Canada also said it will appoint a fentanyl czar.
--:-- Jessica Mendoza: Trump agreed to pause the tariffs for 30 days.
--:-- Ryan Knutson: One of the things you've said is that Trump is using tariffs to handle non-trade-related issues.
--:-- Jessica Mendoza: What, like in your reporting, what do people say that that reveals about his strategy?
--:-- Ryan Knutson: Well, I think there's a few different ways to look at it here. This is tariffs for punitive measures, right? These are punitive penalizing tariffs, things that are connected not to a trade irritant, but to one of Trump's other bugaboos, right? Migration, fentanyl.
--:-- Jessica Mendoza: So that's one thing where you see these really bellicose tariff threats.
--:-- Ryan Knutson: But I think we should conceptually separate that from other tariffs that Trump has talked about.
--:-- Jessica Mendoza: For instance, last week he said we're going to put tariffs on semiconductors. We're going to do it on pharmaceuticals.
--:-- Ryan Knutson: Those are tariffs that are to remedy what are specific trade irritants for Trump.
--:-- Jessica Mendoza: And then third, there's still going to be, we've heard, we believe, still going to be a broad-based tariff of some sort that is mostly aimed not at rebalancing trade, but raising money for the U.S. Treasury, raising money so that Trump can do tax cuts and pay for them with tariffs.
--:-- Ryan Knutson: That is a strategy that we haven't really seen in over 100 years in the United States.
--:-- Jessica Mendoza: What are you looking for next?
--:-- Ryan Knutson: I think the big looming question is what happens with China.
--:-- Jessica Mendoza: Trump's going to hit them again with more tariffs and they hold a lot of cards here.
--:-- Ryan Knutson: We still have a lot of reliances on them for different critical products, whether it's processing critical minerals or many products that U.S. manufacturers need for their factory processes.
--:-- Jessica Mendoza: And if you have to pay more tariffs on those, that's going to hurt American manufacturing.
--:-- Ryan Knutson: So I think how China responds on those American choke points is going to be very interesting.
--:-- Jessica Mendoza: But I will say this, you know, there's only so many times that Trump can threaten tariffs, threaten to put them in place, and then, you know, get his negotiation done and back down, right?
--:-- Ryan Knutson: At some point, he runs the risk of being the boy who cried tariff.
--:-- Jessica Mendoza: Today, President Trump said that he plans to speak with Chinese leadership about tariffs in the next 24 hours.
--:-- Ryan Knutson: He said the 10% tariffs that go into effect at midnight tonight were just an opening salvo, adding that future tariffs would be, quote, very, very substantial.
--:-- Jessica Mendoza: That's all for today, Monday, February 3rd.
--:-- Ryan Knutson: The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Jessica Mendoza: Additional reporting in this episode by Vapal Manga, Brian Schwartz, and Santiago Perez.
--:-- Ryan Knutson: Thanks for listening. See you tomorrow.
