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A Plain English Explanation Of Trade And Tariffs

You’ve probably seen headlines over the past few weeks that include phrases like, “Trade War Underway,” and “Trump Digs In on Tariffs.” But what exactly is a tariff? And how does a trade war affect the American public?

Jim Braude was joined by Dan Primack, Axios’s business editor, to answer all the questions you were too afraid to ask. The following transcript has been edited and condensed for clarity.

Jim Braude: This long-term obsession … it is not without merit, correct?

Dan Primack: It’s not without merit. So, for example with China, there’s lots of talk about IP theft. Basically, U.S. companies are getting their technology stolen. But for Trump, it’s a scoreboard thing. ... Trump views it, so long as we have a trade deficit it’s bad for us, which isn’t necessarily true, but it’s how he views it.

Braude: What exactly did [Trump] do on the tariff front?

Primack: First, he’s trying to renegotiate NAFTA either with both Mexico and Canada or independently. Second, he put big tariffs on steel and aluminum imports for a lot of countries including China, including Mexico, including Canada. And the last thing is, he’s basically started a trade war with China, which is tariffs on [hundreds] of products.

Braude: And how have the whole spectrum of countries responded, and directed at what industries?

Primack: On the steel and aluminum ones we’ve basically gotten reciprocal tariffs on steel and aluminum. For example, the European Union did it, which is why Harley Davidson is moving some of its manufacturing to the E.U. – specifically for the motorcycles that are going to get bought in France and Germany. China’s done the same thing. ... We put a hundred billion on them, they put a hundred billion on us. Trump has threatened to do another $200 billion and we haven’t seen that yet.

Braude: Some of the press I’ve seen has said that China, in particular, was very careful to target industries and geographies that were most critical to the Trump election victory.

Primack: Absolutely. Soybeans, which obviously is hitting at the bread belt; bourbon, which is hitting at Kentucky; lobster, which is hitting at Maine -- it hits us too in Massachusetts, but it hits Maine.

Braude: Have [consumers] seen any direct impact yet?

Primack: Not yet. ... We’ve seen a little bit. There are some increase prices on certain things -- even some automobiles -- but it’s a little bit early, but it will come.

Braude: Assuming it does come, how much more might a car cost in the United States?

Primack:: We could be talking about thousands and thousands of dollars. You’re talking about more money on steel. ... Your car now basically now runs on a computer…a lot of that [technology] is coming from China, it’s coming from Japan.

Braude: Is there any conventional wisdom?

Primack: The conventional wisdom, generally, is that free-trade overall is good. And look, China is doing things that are not good. There some problems, for example, what happens with dairy in Canada, but in general this is a problem. Remember, we are a country that adds debt every day, China is the one who buys most of that debt. China can really hurt the U.S. if it wants to.

Braude: So, what’s the game plan? Is there an end game?

Primack: That’s the real concern. No one can quite see the exit ramp, particularly when you have two leaders who care just as much about looking strong as actually being strong. One of whom doesn’t need to be re-elected, the other who would never consider backing off. Republicans will be an interesting thing though, because a lot of Republicans, at least kind of movement conservative types, hate this stuff. We’ll see how they run for re-election, particularly if it hits in those areas.

Braude: Anything I should have asked and didn’t?

Primack: The one piece of this which will be complicated is North Korea, which is theoretically complicating the trade in China. But no, look. It’s a mess and there is no way out. It’s a reason we don’t get into trade wars.


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