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Your sense is right that this is the path we're heading where these tariffs will stay.

And in fact, the milted treatment's criticism of government intervention, which is that once you start, it's hard to sunset anything.

I'm Stephanie Flanders, head of Government and Economics at Bloomberg, and this is trump Anomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy and what on earth is going to happen next.

And this week we're zoning in again on trade.

I mean, we've all been through another round of tariff deadlines in the last few days.

There's a bunch of countries around the world feeling could have been worse, Others facing a severe case of tariff sticker shock, for example, who have the misfortune of running a thirty eight billion dollar trade surplus with the US.

The Swiss president's actually in the air to Washington as we record this on Tuesday, the fifth of August, and she's hoping to negotiate down the shocking thirty nine percent tariff rate that is otherwise going to kick in on August seventh.

So all these months of so called trade talks between the US and its trading partners have been messy and not always about trade.

For the negotiators charged with striking a deal with the US, you have to think pride and points at principle were often the first to go.

But what do all these deals and understandings actually add up to, and how is the global economy going to be affected?

What difference has it made to the impact on ordinary US consumers that more than a trillion dollars worth of US imports have been exempted from tariffs, sometimes very openly, often for reasons that are not entirely transparent.

Those are a lot of weighty questions, and I have one of my favorite double acts to answer them, sitting in Washington, DC today, Sean Donnan, senior correspondent on the US and Global economy for Bloomberg Sewan, fantastic to have you back.

Oh it's great to be here.

And again Anna Wong, chief US economist at Bloomberg Economics, who's worked at the FED and served in the Trump White House between twenty nineteen and twenty twenty, once comment at the Council of Economic Advisors.

Hi, Anna, happy to be here.

Of Stefan.

Sean.

Of course, China is a bit of an exception to this, and we'll get on to it.

We have not seen a formal deal there, and the deadline may well be pushed head again.

But stepping back from that big exception, if this was said to be a bit of a shakedown by the US, I mean, it seems to have been quite successful, right.

I mean, by and large, the US hasn't really chickened out, as the claim was often made, but the rest to the world it's sort of carved in.

That's the impression, Is that right?

I think so far, I think that's right, Although I think what we have to keep in mind is that we really haven't seen any final text to any of these agreements.

There's still a lot of big issues to be worked out.

All of these things could fall apart at a moment's noticed or in a single social media post from President Trump.

But essentially what we've seen is President Trump take another step and cementing in these new higher tariffs.

I think one of the things that's fascinating is how he's changed the way we talk about these things.

Coming into this week, people have talked about, Oh, the EU has managed to negotiate a fifteen percent tariff, and that's down from a thirty percent tarifwill actually the tariff is going up from ten percent to fifteen percent on imports from the European.

Union, and of course it was much much lower than that as recently as January of this year.

So look, President Trump is putting a tarffwall around the United States.

It's a tariff wall that added some layers.

It's also got a few doors through it and the exemptions that you mentioned.

But the project is successful, at least if you're judging it on the political side.

And I think this is where we move into a different phase, and that's the economics of this project, and that's where we're just now starting to get the first data that raises some questions over whether or not Trump is going to be able to bring in this golden age that he has promised to the American people and deliver the reindustrialization of America, a new era of American I guess exceptionalism, although of a different kind.

I would say, we're definitely going to get into the impact on the US in a minute.

I guess we'd have to say.

I mean, if Donald Trump is one free trade definitely lost so it just remind us when you're thinking about when you say we've put the wall around the US, just updatus on where tariffs are now relative to for Donald Trump took office, because as you point out, there's been a sort of expectations of management along the way.

We had those announcements in the Rose Garden on April second, which kind of puts some very high numbers, and now the numbers look a bit smaller, but they're still a lot higher than they were a year ago.

Absolutely, or a lot higher than they were six seven months ago.

We came into this year with the average applied ter freight in the United States sitting are out somewhere between two and three percent.

It is now sitting somewhere around fifteen percent, and it's threatening to go higher.

Still.

We still are waiting for sectoral tariffs to be announced on pharmaceuticals, semiconductors, lumber and all the things that are made of lumber that include semiconductors, and so there's a lot more tariffs to come potentially.

To put that in historical context, these are the highest tariff in almost one hundred years.

Nothing like this has happened since nineteen thirty and the smooth Holli terror at the time.

Our economists have working in the sort of trade modeling which strakes from everything and just says, other things being equal, that there's a global impact of this kind of tariff shock of maybe two trillion dollars by the end of twenty twenty seven.

Output that would have happened, trade that would have happened, that's not going to happen.

But Anna, I know in the short run you see some powerful offsetting factors or maybe one in particular that's helping to offset that shock at at least for the short term, and it has really made a difference to the way we perceive the impact.

Yeah, So Stephanie, I would call that the dog that did not bark in this whole forecast that US tariff trade war would plunge the world into slower growth is the dollar.

So in all these economic models, internally, what the model forecast also is that the dollar would appreciate in response to tish And that's because when there's higher to import volume is supposed to decrease.

As import volume decreased, than the demand of US firms for foreign currency falls, and therefore the relative demand supply of dollar would be shifting in favor of appreciation the dollars since there's relatively less outflows.

Instead, the dollar has depreciated by about ten percent year to date, and for one of the biggest targets of this trade wars China, right, and China's remen be actually stayed pretty constant vis are the US, which means that China's currency has actually depreciated against the rest of the world by double digit in the past six months.

For example, it has depreciated against the Europe by ten percent, And so what we're seeing therefore, China's growth is better than expected because whether be it transhipments or trade diversion, it is able to export to other countries more.

The dollar depreciation also loosened global financial conditions.

So what we're seeing is in any ems, you're seeing a lot more capital inflows.

This whole Cell America thing led to a lot of capital outflows in search of new homes and many lended in emerging markets.

And on my trip to Hong Kong earlier, what I saw and what I heard is that the first half of this year had been really good for Hong Kong as an international financial center because of all these deals that are coming from China to the Hong Kong stock market.

It's just like the dollar depreciation has really loosen global financial conditions.

So all of that has basically currently delayed the adjustment that all these models would be expecting to happen as a result of trade war.

That is interesting.

So there was a feeling that the dollar was going to go up, that's what the model said.

And when the dollar's high, it's sucking in investment to the US from the rest of the world, and that's kind of tightening for the rest of the world because the dollars actually fallen because people are moving money out of the US, or at least not putting it in as much.

It's sending liquidity out into the world, and that's making financial conditions easier for everyone else.

They don't have to have interest rates as high to track money if you're an emerging market economy, and it's definitely making things a bit easier for the central banks in that economy.

But you also you had something crucial about China in that discussion, because you were pointing out that because of the way the Chinese currency is fixed to the dollar.

You know, bizarrely, you've had the America become more competitive and China's just become more competitive along with it.

And I know you spent that time in the Council of Economic Advisors and the Trump's first administration.

Did Donald Trump have an understanding that as the dollar goes down, it's actually also helping the Chinese.

Well, first of all, President Trump loves a week dollar.

We were examining his tweets back then, and aside from constantly tweeting about power, the next thing that he really loves talking about is week dollar.

And I think from the perspective of the Trump administration, a week dollar is part of the state craft, which is too onshore manufacturing.

To ensure there's a manufacturing based in the US, you have to have a week dollar.

I do think that the administration actually favors a week dollar.

But they presumably don't favor a more competitive China.

So what's going to be the policy there?

Yes, that is an unintended consequence.

So somebody like Brad Setzer from Council for Foreign Relations have really looked into the intervention practice of China, and he has noted that China has been interviewing through state banks, and so China is actually responding to this trade war in a lot of very smart ways, and its found a way to keep exporting.

And that is something that I don't think the calculus of the administration was able to cover.

If they were able to make other country not retaliate, as you mentioned earlier, are the other countries ky, but they were not able to stop China from keeping their currency from appreciating.

Yes, if you want chapter reverse on that.

My old friend Brad's analysis is always he understands the ins and out of China's balance of payments better than I think anybody on the planet, certainly better than anyone in this core.

But I mean, Sean, you had a couple of big pieces in the last week or so that we're talking through different elements of this, and that's the sort of macro.

I mean, there's a micro to this, which is individual companies scrambling to deal with the tariff rates that very much do affect them or stand to affect them.

And you had picked on the tomato exporters in Mexico as one example, and how they're just trying to grapple with what's happening.

There's the world of the models, and then there's the real world, which is a lot messier and that is full of unintended consequences.

We're talking about the impact of the dollar, and the traditional view is that yes, a week or dollar dollar is good for American manufacturers.

Well, fifty percent of all imports into the United States are inputs that go into products that are manufactured in the United States.

When you have a weeker dollar, they become more expensive and US manufacturing actually becomes less competitive on that front.

And that's the messiness and reality of global supply chains.

And you see that around Mexican tomatoes, which also can be Arizona and tomatoes as well.

So there's a company called Nature Sweet.

It is the essentially the biggest greenhouse tomato grower in North America.

It does a lot of it's growing in Mexico.

It also has a big facility.

It's about thirty football fields of green couses in Arizona in which it's grown.

Think you're growing lots of tomatoes.

These are what they call snacking tomatoes, the kind of cherry tomatoes and great tomatoes, the multicolored things that you put in your salad at home.

What they are caught between is the tariffs and their future plans to grow their production in the United States, all of which are being affected by tariffs and the policy.

So, first of all, President Trump has restored a seventeen percent tariff on tomatoes from Mexico, So that is literally a million dollars a week in additional costs to Nature Suite on its imports from Mexico.

But at the same time, you have all of these other tariffs that are affecting all of these other inputs that they use at their facility in Arizona.

They had a plan to start expanding that facility from thirty football fields to seventy two football fields of greenhouses, a big multimillion dollar investment there, but now they're looking at that investment and they're putting it on hold.

Why because most greenhouse technology comes from the Netherlands or Israel, so you're importing things to build those new greenhouses.

Also, all the inputs, and I did not know this, all the things that you need to grow tomatoes in greenhouses are in fact imported.

So they don't grow these tomatoes and soil.

They grow them in coconut husks.

Where do those coconut husks come from.

They come from Sri Lanka, Guess what, they've got a tariff on them.

Where do they get their fertilizer from, Well, it comes from Chile.

Nowadays, guess what, it's got a tariff on it.

Where do the seeds come from.

The seeds come from Europe and Israel.

Guess what, they've got tariffs on them.

And so all of a sudden, the economics both importing the finished product in these tomatoes has changed, but also the economics of investing in the United States and increasing production in the United States have changed materially.

And as the CEO of Nature Street told me, that's just the world that we live in.

And by the way, his main competitors at this time of year are in Canada.

You know what, they don't have any tariffs on their inputs, and they're going to be more competitive even if you have a tear on Canadian tomatoes coming into the United States, at least until the Canadian winter sets in and they have more trouble growing tomatoes.

And I think we're seeing that replicated in all sorts of different ways.

It's Japanese auto parts makers, it's Chinese manufacturers, it's French wine producers.

There are all of these effects around the world.

A lot of them just unintended consequences, and that's we're really starting to see happen in the real economy, and that's going to start filtering through into the data.

That's fascinating.

I mean, I guess we should thank Donald Trump at the very least for having kind of lifted the hood or forced us to kind of look under the hood of the global economy.

I know you spent your life under the hood of the global economy, sure, but just to get a sense of how complicated and intertwined all of these supply chains are.

And in case anyone's wondering, I am half American, so I can say tomato and tomato.

But Anna, we know that there's been this sort of micro complexities for individual companies, but at the same level, there's been this sort of broader sort of tailwind that people have had from a week a dollar, which has made people feel slightly better than they might otherwise have done.

But let's just quickly turn the lens on the US.

I mean, we discussed recently, I think with Orang cass about why tariffs might not have the sort of significant effect on inflation that some people had talked about, but they're clearly is an effect on the US economy, and it seems like we may have seen some of that in the controversial revisions to the job data last week.

So just talk us through where you think we are in terms of the impact on the US.

Last Friday, we had July payroll data and it came with a shockingly massive downward revisions to June and May's jobs data.

So now the three months moving average of job growth from May to July is only thirty five k as opposed to just before last Friday, everybody thought three month job growth was really at one hundred and fifty thousand.

So that's like an order of actitude of five lower.

So the last Friday's jobs report really flipped the narrative of is the US labor mark holding up Donald trup to flip as well.

Yes, And when you look at the details of these downward revisions, they came from sectors which one would have thought would indeed be affected by this policy shock.

So two months ago we had written a piece about how Liberation Day and all these other policies is going to generate a blood bath in the nonfarm payroll for May and June.

We thought that three sectors affected would be leisure in hospitality, which is affected by the reduced TOURUS coming to the US, part of the Cell America narrative, construction sector from the high ten year yields since the Liberation Day, and of course logistics sector as trade flows comes down.

For the last couple of months it seemed like those three sectors were holding up.

The last Friday's revisions show that in fact they did not.

These three sectors were not holding up.

And then additionally, I think the way to think about these revisions is that they bring questions.

But whether it is those revisions could be revised up again in the next month possible also, But right now these are the earliest science that in fact the trade war is causing a crack in the labor market, and I would characterize them as early and tentatives because there are other issues related to how BLS is, whether they're accurately measuring the payrolls, and it's entirely possible that next month will see and upward revisions to those data.

Recondiss of who has come in to run the Bureau of Labor Statistics Molly Smith, who's been on this show, but others have written quite a lot about the funding issues at the BLS, and also the issue that many other statistical agencies have had with surveys and getting people to respond promptly or at all in a world certainly post COVID.

We're covering a lot of ground here, but I did want to get to potentially one of the reasons another reason why it's hard to read the impact on the US economy of tariffs, and that's the large chunk of imports that's been exempted one way or another.

Sure, you've done a fascinating analysis that we brought out last week that adds up the numbers and finds over a trillion dollars worth of imports one way or another has been exempted by Donald Trump from any kind of tariffs so far.

Though.

We may have even news on one of the sectors in the next few days.

But just talk us through just the sort of headlines of your investigation.

Yeah.

Look, I mean, one of the real differences in at least the language around the tariffs this time versus during Trump's first term is that there has not been way for companies in the United States to kind of plead their case for tariff relief.

What's called an exclusions process.

Right in the first term, when it came to the tariffs that were applied on steel and aluminum and goods from China, companies could go to the government and say, look, I can't get this anywhere else.

This isn't made in the United States.

All you're doing is hurting my business.

I can't find these things outside of China and win an exclusion at least temporarily from the tariffs.

And it was a very transparent process.

We could see the applications and the decisions on the website.

You can still, if you're interested to this day, go to the USTR website and dig up these exclusions.

There were more than fifty thousand applications, by the way, for tariff relief just from the China tariffs in the first term.

This time around, President Trump has said no, we're not going to have any exclusions.

Well, in fact, on Liberation Day April second, when you put out an executive order ordering up these new tariffs on on goods from all over all over the world, there was a thirty seven page annex to the executive order that had more than a thousand tariff codes that were in fact exempted from those tariffs.

The administration will tell you, well, those will eventually be subject to other tariffs, to sectoral tariffs, but at least temporarily you have this exclusion.

That's quite a lucrative exclusion for a lot of companies.

They then followed up on April eleventh, they added in a lot of consumer technology products.

That's when smartphones, for example, became exempted from the tariffs.

So Apple's iPhone production in China faces a lower tariff than lots of other products that are that are coming from China.

That may change in the future depending on how you apply semiconductor the tariffs that President Trump is promising, but it's a major exclusion on a major consumer product, and it's the type of thing that actually the President stayed away from tariffing in the first administration because they wanted to reduce the impact on consumers.

When you add all of this up, this whole universe of excluded products, you get to like something close to one point two trillion dollars, about seven one hundred and fifty billion dollars of that is these Liberation Day tariff exclusions.

And then there's also all these products in North America that are subject to the US Mexico Canada Agreement which used to be known as NAFTA, and President Trump, after initially imposing tariffs on Canada and Mexico, said well, actually, what we're going to do is we're not going to apply that to products that fits the bill on this US and Mexico Canada agreement.

And that's like four hundred billion dollars in trade there that's excluded.

Add it all up, and it's a third of all imports into the United States that are now excluded from tariffs.

And that obviously has a meaningful impact on consumer prices and the effect on consumer prices on the overall economic effect.

And we're going to get more of this to come.

But Sean, I think a lot of people would say, Okay, there's a whole segment of the market which have been exempted, and that may be unfair, you know, if you're making in China and you're facing a big tariff if you're making a certain kind of good, but not if you're making an iPhone.

But at least it applies to all companies in a given sector.

Do you have a sense when you're looking at some of the sort of smaller exemptions, are there cases where it seems to be company by company or where they're sort of implicitly companied by company because of the way the exemption has been designed.

Do most of these still take the form of a whole market segment rather than just a single business person getting a break.

Yes and no, right, I mean it depends what you make.

As a consumer technology product, for example, it depends what you make.

And this is where tariff codes get incredibly specific, and by choosing one tariff code over another, you can really have an impact on different companies.

The great example in technology is game consoles.

Game consoles have not been excluded from tariffs, so your Microsoft or Nintendo, your product becomes significantly more more expensive to import.

And that's kind of key product.

And most people when you hear consumer electronics, you would probably think that those were included in that life exactly exactly.

And then you get into kind of smaller accessories and it gets more complicated.

Yes, there are smartphones or excluded, laptops are excluded and so, but then it gets incredibly finicky into you know, inputs like nylon, certain polymers, things like rubber.

There's you know, one type of graphite that is excluded and one type that isn't excluded.

I mean, imports of cocaine that are done legally are right now under the state of terraffs excluded from new terraffs.

While obviously, and this is the case of American Textile imports of the pillow shells.

The American Textile makes bed pillows and other betting products, but the shells that they import from China and India and Pakistan are subject to severe tarf So you know, no turffs on co can.

Asbestos, by the way, is also excluded, and you have terts.

And what you've created is a very murky system.

Now, and this is what economs will tell you.

The terriffs do is that they create distortions in the market, but they also create this kind of favor system, and they create perceived unfairness as consumers of steel get whacked while producers of steel get protected, right and and so you know, American Textile is an interesting company and that they've taken there.

They've managed to get all the way into the White House, and they've had meetings at the White House and all along the way they say they've been told they're a victim of unintended consequences.

This isn't what was what intended?

You know what was intended.

It's so interesting.

Every topic is a is a is a rabbit hole.

Anna, But I am going to slightly put you on the spot because there's a CNBC interview that Donald Trump has been doing, and I know my colleagues have been avidly watching for news, and one of the things that has come out of it is Donald Trump saying that US tariffs on semiconductor and pharmaceutical imports will be announced within the next week or so quote, and he says, we'll be putting this is I thought was interesting, Anna, will be putting an initially small tariff on pharmaceuticals, but in one year, one and a half years, max, it's going to go to one hundred and fifty percent, and then it's going to go to two hundred and fifty percent because we want pharmaceuticals made in our country.

He said that as say, Tuesday morning, in an interview.

I mean, what's striking to me, Anna, is that one of the criticisms of his policy up till now has been this that if you wanted to actually move production, it seemed like you should have a delayed timetable for tariffs, because how are you going to build all these factories in a month or three months in order to avoid those tariffs?

Very early days obviously, but is there a sign that he's kind of taken on that argument with this approach to pharmaceuticals if this is what we end up seeing.

Yeah, with pharmaceutical if that's what we end up seeing, it's seems like he does.

And we have looked into the quantity of stockpiling for pharmaceuticals, and we estimate that US firms have stockpiled enough for at least a year as of now for pharmaceuticals.

So even without that, the pharmaceutical industry has a year, and now with that they have bought themselves ten years.

Yeah.

Yeah.

There's also some suggestion he's talking about semiconductors and chips, but which is a separate category.

I think that's right, he says, But as Shorten reminds me, the categories can get much much smaller than that.

There's also a key question, which is how these things are applied.

Right, So one of the big exclusions that we've seen creep in to the deal with the European Union, for example, is an exclusion on tariffs for generic drugs.

Now, again, when we see these pharmaceutical sectoral tariffs, will they apply to generic drugs as well?

People in the generic drug industry say, the economics of producing those which are incredibly low margin products in the United States, it's you'd rather just swallow the tariffs.

They're not just there.

So we're going to be looking for those exclusions on the semiconductor side.

All of these sectoral tariffs, they've applied to what they call derivative products as well.

Right, so things that include semiconductors, including that Apple smartphone, which has not been subject to the Liberation Day tariffs, but maybe subject to the semiconductor The question becomes, how do you compute it.

Is it a tariff of twenty five percent on the entire value of the smartphone or is it a twenty five percent tariff on the value of the chips inside the smartphone.

That's a very different proposition, and you can guess which one Apple was pushing for.

I've had conversations here in the UK with people who was struggling when the aluminium tariffs came in with the sort of a similar issue of how a soft drink can is it on the value of the can overall when it's sold, or is it on the value just of the aluminium or aluminum inside the can.

And these are things that all those companies are having to grapple with, and I was really struck.

I mean this is by way of a sort of last word.

There was a relatively senior diplomat came in to just talk off the record in Bloomberg the last couple of days from a pretty major country, and he just said, once it's actually been imposed, the US has never taken away a tariff in the last fifty years.

Once you actually put them in and you start making money or people start making decisions on it, the US has never removed them.

Now, I suspect that may not be technically true, but it sort of feels broad directionally true.

And once we have seen all these tariffs we built that wall that we started off for the program talking about of a fifteen percent or so average tariff freight compared to the extremely low one that a year ago.

Do you think these will get removed by future administrations, these tariffs or are we just moving into a world where every US administration relies on tariffs.

Yes, definitely, I think that your sense is right that this is the path we're heading where these tariffs will stay.

And I think that it's not just tariffs, generally taxes, and in fact, the Milton Treatments criticism of government intervention, which is that once you start, it's hard to sunset anything.

And I think that we are going to eventually see these tariff legislated.

I think America has decided to use tariffs as a means to dig ourselves out of our fiscal hold.

These tariff revenues right now are averaging about thirty billion per month, so that's looking like over three hundred billion per year, and that is exactly what you need to pay for the one that beautiful bill.

Wow.

Well, that seems a poignant place to end.

Donald Trump not taking lessons from Milton Freeman and a wonk.

Sean Donnan, thank you so much.

Great to be here, Thank you.

Thank you for listening to Trumponomics from Bloomberg.

It was hosted by me Stephanie Flanders.

I was joined by Anna Wong and Short Donner.

Trumpnomics is produced by Moses and Dam and Samma Sadi, with help from Amy Keene and special thanks to Rachel Lewis.

Kriskey.

Sound design is by Blake Maples and Sage Bowman is head of Bloomberg podcast.