# How Trump’s Tariffs Will Transform Global Trade?

An episode of [Patrick Boyle On Finance](https://invisiblenetwork.ai/podcast/1547740313), 7 Apr 2025, 28 min.

Audio: https://traffic.megaphone.fm/APO3749622125.mp3

President Trump’s announcement of reciprocal tariffs on April second were more severe than the market expected. On top of a 10 per cent universal minimum tariff, the new regime includes significantly higher tariffs for most major trading partners and brings US effective tariff rates to levels we have not seen since the early 1900s. How will Trump's Liberation Day Tariffs transform global trade?Patrick's Books:Statistics For The Trading Floor: https://amzn.to/3eerLA0Derivatives For The Trading Floor: https://amzn.to/3cjsyPFCorporate Finance: https://amzn.to/3fn3rvC Ways To Support The Channel:Patreon: https://www.patreon.com/PatrickBoyleOnFinanceBuy Me a Coffee: https://www.buymeacoffee.com/patrickboyleVisit our website: https://www.onfinance.orgFollow Patrick on Twitter Here: https://bsky.app/profile/pboyle.bsky.socialBusiness Inquiries ➡️ sponsors@onfinance.orgFurther Reading:Hidden Forces Podcast: https://hiddenforces.io/podcasts/end-of-the-german-economic-miracle-wolfgang-munchau/Manoj Pradhan & Charles Goodhart - The Great Demographic Reversal: https://amzn.to/42zBaNWMichael Pettis & Matthew Klein - Trade Wars are Class Wars: https://amzn.to/42kiiB4

## Transcript

[0:00] On what was described as Liberation Day this Wednesday,
[0:03] Donald Trump held up a large cardboard sign in the White
[0:07] House Rose Garden with a list of countries along with his
[0:10] estimate of their tariffs against America, which he said
[0:14] included currency manipulation, trade restrictions and other
[0:18] distortions like value added tax.
[0:21] As he revealed his placard, the stock market began its decline
[0:25] to what would soon be the 15th biggest gap down open for the
[0:29] S&P in its history. Joe Weisenthal at Bloomberg
[0:32] described watching the speech as one of the most surreal events
[0:36] in his life, saying that he has seen speeches and press
[0:39] conferences that the market hated before like this, but they
[0:43] had all been given in the middle of a market crisis and the
[0:46] market plunged because the speaker was seen to not be doing
[0:50] enough. He says that this was the first
[0:52] self manufactured event like this that he had seen.
[0:55] And what made it worse, he said, was that the administration knew
[0:59] how much damage they would do, but went ahead with even more
[1:03] aggressive actions than anyone had expected.
[1:06] To be clear from the start, this is not a political video.
[1:10] I've no interest in covering political topics, but this is
[1:13] likely to be the biggest market event of the year.
[1:16] My goal is just to discuss the ideas behind these tariffs and
[1:20] their economic impact. Both sides of the political
[1:23] aisle in the United States had been moving in a protectionist
[1:27] direction in recent years, and Trump's moves are just more
[1:30] extreme than Biden's were. But neither were taking a free
[1:34] markets approach. During the Liberation Day event,
[1:37] Trump announced new reciprocal tariffs on almost all of
[1:41] America's trading partners. He announced that there would be
[1:45] additional tariffs of 34% on China, 27% on I24, percent on
[1:51] Japan and 20% on the EU. All other countries face a
[1:56] tariff of 10%. And these tariffs are on top of
[2:00] other tariffs already announced by the Trump administration on
[2:04] China, Mexico, Canada and the other industry.
[2:07] The total tariff rate on China will now be 65%.
[2:12] If the US applies to 25% Venezuelan oil buyers tariff to
[2:16] China, it goes even higher. If there was one bright spot,
[2:21] Canada and Mexico were spared additional tariffs and the new
[2:25] ones won't be added to industry specific tariffs like the 25%
[2:29] tariff on cars or the promise tariff on semiconductors.
[2:34] America's overall tariff rate will now soar far above its
[2:38] Depression era level to the highest rate seen in over 100
[2:42] years. Tariffs are quite simply taxes
[2:45] on goods imported from other countries which are charged at
[2:49] the port of entry. Despite what some people are
[2:52] saying, foreign countries do not pay these taxes.
[2:55] The companies or individuals bringing the goods into the
[2:59] country pay the tax to the US government.
[3:02] Tariffs have often been used to push a country citizens to buy
[3:06] domestically manufactured goods rather than imported goods.
[3:09] They're sometimes used in developing nations to protect
[3:12] fledgling industries until they grow and can compete with more
[3:16] advanced competitors from more advanced nations.
[3:20] During the event, Trump confirmed his previously
[3:23] announced tariffs on specific goods, including 25% on steel,
[3:28] aluminium and foreign made cars. The Wall Street consensus in the
[3:32] lead up to the event had been that the average tariff rate
[3:36] would rise to between 10 and 20%, with most analysts in the
[3:40] bottom half of that range. The effective rate announced is
[3:44] somewhere between 25% and 30%, so much higher than was expected
[3:50] and and up from an average of around 2% before Trump took
[3:54] office. the US is now one of the highest tariff nations in the
[3:58] world, or at least in the developed world.
[4:01] It's still not clear if Trump plans on maintaining these
[4:04] tariffs or if they're a bargaining tool.
[4:07] If the US stuck with these rates, it would do immense
[4:10] damage to the economy. On Thursday, the S&P 500 fell by
[4:15] almost 5%, with the tech heavy NASDAQ down 6%.
[4:19] Dell fell 19%. Apple fell 9%.
[4:23] Retail stocks were down 11% or more.
[4:26] Apparel makers like Ralph Lauren, Nike and Lululemon were
[4:30] down between 10 and 16%. The banks were down around 10%,
[4:35] too. It wasn't just stocks, either.
[4:38] The dollar fell 2%. Treasury yields had a big drop
[4:42] and oil prices fell too. I'm recording this on Friday
[4:46] morning and the S&P 500 is already down more than 4%.
[4:50] And this is after yesterday's 5% decline.
[4:53] So we can possibly expect more chaos in markets today.
[4:57] The drop in stocks, interest rates, oil, and the dollar
[5:01] reflected lower growth expectations for the United
[5:04] States economy, not the prosperity that Trump was
[5:08] pitching. Let's look at how Trump's tariff
[5:11] formula worked, who was hit hardest by these announcements,
[5:15] what retaliation might look like, the economic effects, and
[5:19] why Trump's hero William McKinley, who oversaw one of the
[5:22] biggest tariff bills in U.S. history, eventually abandoned
[5:26] his own tariff strategy straight after the White House
[5:29] presentation. The journalist James Sarawwicki
[5:33] quickly pointed out that there was something very strange about
[5:36] the supposed tariff rates that foreign countries were charging
[5:39] the United States. the US has a trade agreement with South
[5:43] Korea, he pointed out, so South Korea is not charging a 50%
[5:48] tariff on American goods, nor is Europe charging a 39% tariff.
[5:53] With some quick analysis, he worked out that the
[5:56] administration hadn't done the calculation that they claim to
[5:59] have done. Instead, for every country, they
[6:02] just took the US trade deficit with that country and divided it
[6:06] by the countries exports to the United States.
[6:09] When called out on this, the White House defended itself by
[6:13] publishing what might at first look like a complicated
[6:16] mathematical formula for backing out the tariff rates being
[6:20] charged by other countries. If you dig into the formula,
[6:23] which one commentator described as being woke because it
[6:27] included Greek symbols, you can see that they threw in two Greek
[6:31] symbols but then selected values for them that cancel out.
[6:35] So Sarah Wiki was right, the formula is simply the trade
[6:39] deficit it for the US with a particular country divided by
[6:43] the total imports from that country.
[6:45] There were some other strange things that people quickly
[6:48] noticed, like an unusual list of countries.
[6:51] You'll note that the 4th country on Trump's list is Taiwan, which
[6:56] the US doesn't recognize as a country.
[6:58] In order to keep China happy, the country list, which included
[7:02] tiny islands and overseas territories, LED online
[7:06] commentators to suggest that the White House had possibly used an
[7:10] AI to come up with their trade policy rather than doing any
[7:14] real trade analysis. The whole televised event felt
[7:18] more like a game show than a serious trade policy
[7:20] announcement. And in my opinion, they should
[7:23] have leaned into the game show vibe a bit more by possibly
[7:26] inviting the leaders or at least representatives from the foreign
[7:30] nations being tariffed to attend so that the cameras could zoom
[7:33] in on their faces to catch their expressions as the tariff rates
[7:37] were announced. Doing this would have made
[7:40] better TV, but it also could have prevented the embarrassment
[7:43] of announcing tariffs on places like Herd Island and the
[7:47] McDonald Islands, which are a two week boat ride from
[7:51] Australia and are covered in glaciers and only inhabited by
[7:55] Penguins. The Penguins were hit with a 10%
[7:58] tariff for looting, pillaging, and plundering the United
[8:02] States. When the Penguins that live on
[8:05] these islands turned up for the televised event, it might have
[8:08] given the White House a chance to take them off the list.
[8:12] If I was organizing the event, I would have left them on anyhow
[8:16] based on my long standing belief that Penguins make great TV.
[8:20] If this YouTube channel gets big enough I'll eventually add a
[8:23] Penguin as a Co host. I'm planning on buying a walk in
[8:26] refrigerator to store it in when I'm not recording.
[8:29] I haven't really looked into it, but I presume that's how you
[8:32] keep Penguins. The Penguins got off easy.
[8:35] However, the FT reports that Lesotho, a tiny landlocked
[8:39] African Kingdom with AGDP per capita of under $1000 per year,
[8:44] was hit much harder. Denim manufacturing makes up
[8:48] more than 90% of the manufacturing jobs in Lesotho,
[8:52] and the country had a $235,000,000 trade surplus with
[8:56] the United States, mostly from selling cloth to American brands
[9:00] like Levi's and Wrangler. They were hit with a 50% tariff.
[9:05] The Falkland Islands exported $27 million worth of goods to
[9:10] the United States. Their biggest export is
[9:13] something called the Patagonian toothfish, which is not native
[9:17] to the United States. The Falkland Islands, where less
[9:20] than 4000 people live, only imported goods valued at
[9:24] $329,000, one third of which was a single piece of broadcasting
[9:30] equipment. They were hit with a 41% tariff
[9:34] as punishment for the unrelenting economic warfare
[9:37] that they've been waging against the United States.
[9:40] Fortunately for them, they bought that piece of
[9:43] broadcasting equipment last year or the tariffs would have been
[9:46] even higher. It won't surprise you that the
[9:50] Falkland Islands don't have any tariffs in place on US goods.
[9:54] It's a bit pointless doing that when you have a population of
[9:57] 3700 people and you probably feel lucky to be able to get any
[10:02] goods shipped to you to begin with.
[10:04] Madagascar, an even poorer nation with AGDP per capita of
[10:08] $506.00 per year, doesn't buy much from the United States
[10:13] either. You can only stretch those 506
[10:16] dollars so far, but they have the nerve to export vanilla
[10:20] beans which only grow in tropical countries and need to
[10:23] be hand pollinated and picked to the United States.
[10:28] They were hit with a 47% tariff. So you can expect to see a lot
[10:33] of growth in America's domestic vanilla growing industry and
[10:37] denim weaving industry as those jobs which pay as much as $500
[10:41] per year are brought back on shore.
[10:44] The fact that the calculation used to determine the tariffs is
[10:48] so strange, combined with the odd list of countries where it
[10:51] appears they used the ISO 3166 country codes without checking
[10:56] if each code represented an actual country, and then
[11:00] stripping out Russia, Cuba, and North Korea LED online
[11:04] commentators to suggest that the analysis had been done using
[11:08] ChatGPT. Just to be sure, I asked ChatGPT
[11:13] how to calculate reciprocal tariffs for the US government
[11:16] and it delivered a much more coherent plan than the official
[11:20] one that was announced. So I don't think ChatGPT can be
[11:24] blamed for this. Maybe they used Grok.
[11:27] One positive take away from the announcement was the relatively
[11:30] soft treatment of Canada and Mexico, where a lot of goods
[11:34] that fall under the USMCA agreement were made exempt from
[11:38] the tariffs. This possibly shows that the US
[11:41] learned one of the big lessons of Brexit, which was the
[11:44] importance of trade with a country's nearest neighbors.
[11:48] Countries typically trade most with their neighboring
[11:51] countries, and when you break those supply chains, they're
[11:54] very difficult to replace. Exempting pharmaceuticals,
[11:58] lumber, copper, semiconductors, and critical minerals was wise
[12:02] too, but something may be coming on that front soon.
[12:06] Look, it's easy to make fun of tariffs on Penguins.
[12:09] In fact, I might start an entire second channel to only do that.
[12:13] But we should consider the other side of the argument, which is
[12:17] that while the calculation might seem a bit bizarre and the
[12:20] analysis might look a little bit rushed, the announced trade
[12:23] measures do target China and it's neighboring countries,
[12:27] which are used as transshipping destinations to work around US
[12:31] tariffs on China. At the White House event, before
[12:34] announcing his tariffs, Trump listed his grievances and said
[12:38] that he had believed in tariffs as a remedy for trade imbalances
[12:42] for decades. I covered some of this in a
[12:44] prior video. But while the hyper
[12:46] globalization that began in the 1990s made the world better for
[12:51] most people, blue collar workers in developed countries lost out
[12:55] when manufacturing work moved abroad to countries where labor
[12:59] was cheap. While global inequality fell,
[13:02] inequality within developed countries grew.
[13:05] As my friend Manoj argued in his book, there was a huge labor
[13:09] supply shock, and laborers in developed countries lost out.
[13:13] On top of all of this, free trade economies began to worry
[13:17] that surplus economies like China, Germany, and Japan were
[13:21] engaging in unfair competition by subsidizing their
[13:24] manufacturing sectors, often at the expense of their household
[13:28] sectors. The suppressed wages in these
[13:30] countries meant that workers produced more goods than they
[13:34] could afford to buy and exported the surplus.
[13:37] This had the effect, according to Pettis and Klein, of passing
[13:41] on the costs of these subsidies to deficit at countries like the
[13:44] United States, the UK, India and France.
[13:48] Western economies began to see it as a problem that China had
[13:52] both the highest manufacturing share of GDP and the lowest
[13:56] consumption share of GDP in the world.
[13:58] By agreeing to absorb China's excess production deficit,
[14:02] economies were allowing their most aggressive trade partner to
[14:06] set their trade policies for them.
[14:09] Trump is right too that countries can hide economic
[14:12] interference with non tariff distortions which are hard to
[14:16] spot. They can subsidized exporters by
[14:19] providing cheap energy and low interest rate loans to favorite
[14:23] businesses from state owned energy companies and banks.
[14:27] They can manipulate their currency lower, benefiting
[14:30] exporting businesses at the expense of importing businesses
[14:34] and consumers. They can over invest in
[14:37] infrastructure like railways, roads and ports which helps the
[14:41] business sector at the expense of the household sector too.
[14:45] Repressive labor laws, restrictions on worker mobility,
[14:48] and low penalties for pollution additionally help the
[14:51] manufacturing sector at the expense of the household sector.
[14:56] In China, for example, industrial zoned land is an
[14:59] order of magnitude cheaper than residential land, and this is
[15:03] another transfer from the household sector to the business
[15:06] sector. When all of these policies are
[15:08] combined, there might be huge transfers from households to
[15:12] businesses which act as subsidies while also keeping
[15:16] consumption low so that an entire economy is geared up to
[15:20] export goods without importing anything from the rest of the
[15:23] world. In a closed economy, this would
[15:26] naturally rebalance as businesses would be forced to
[15:30] either raise wages to increase consumption, or they would have
[15:33] to reduce production due to a lack of demand.
[15:36] In a globalized trading system, the surplus production can be
[15:40] exported. Running an economy this way
[15:43] isn't necessarily a winning long term strategy.
[15:46] It can be used to kick start a dead economy, but in the long
[15:49] run a good economy is one that exports goods in order to get
[15:53] foreign exchange so that they can buy foreign goods that they
[15:57] either need or desire. The problem for export driven
[16:01] economies like this is that they usually struggle to rebalance
[16:05] from being export driven to consuming the goods that they
[16:08] produce. From a free market perspective,
[16:11] countries should be happy to import goods from countries who
[16:14] are subsidizing their production.
[16:16] Milton Friedman described export subsidies as a form of foreign
[16:21] philanthropy. Those who argue for fair trade
[16:24] rather than free trade say that persistent subsidized imports
[16:28] can eventually displace domestic production of often
[16:32] strategically important goods. They worry that these subsidies
[16:36] could bankrupt domestic producers, and that this becomes
[16:39] a a big problem for strategically important goods
[16:42] like steel, semiconductors, airplanes and ships.
[16:45] Fair traders will point out how car factories can be retooled to
[16:49] build weapons in time of war, but that you can't do this if
[16:53] neither the factories nor the expertise to run them exist
[16:57] anymore. Trump is arguing that tariffs on
[17:00] America's trading partners are necessary to protect US
[17:03] manufacturing and the American worker at a time when US
[17:07] manufacturing jobs have dropped since their peak in the late
[17:11] 1970s. If you agree, based on that
[17:14] logic, that something needs to be done to rebalance global
[17:18] trade or even just American trade, And despite all of the
[17:21] disagreements, it would appear that both the right and left in
[17:24] American politics do seem to feel this way, with Trump
[17:28] seeming to believe more in tariffs and Biden more in
[17:31] subsidies. It brings us to the question of
[17:34] why the tariffs are being ramped up so aggressively.
[17:37] And additionally, is it necessary to fight with your
[17:40] closest trading partners? Many of who whom are in the same
[17:43] position as you rather than working with them.
[17:47] If the goal was to bring factories back to the United
[17:50] States, most economists argue that a more gradual approach to
[17:54] applying tariffs would work better.
[17:57] Some of the worst hit stocks since the announcement were
[18:00] firms like Apple and Nike. These are very successful
[18:03] American firms who do all of the high value added design and
[18:07] marketing work in the United States and outsource the less
[18:11] profitable manufacturing work. Apple has been trying to
[18:15] diversify their supply chains in recent years to be less reliant
[18:18] on China, but they can't reasonably move all of their
[18:21] factories back to the United States in the next few months.
[18:25] And so the tariffs will just push up the price of their
[18:28] products while giving a cost advantage to the Korean owned
[18:32] Samsung who get hit with a 25% tariff instead of the 65% or
[18:37] higher tariff that Apple will suffer.
[18:40] And that depends on if the 25% Venezuelan oil buyers tariff is
[18:45] also being applied. According to Morgan Stanley,
[18:49] Apple take the biggest hit in terms of tariffs due to their
[18:52] manufacturing exposure to China. James Scott from King's College
[18:57] London argues that a huge problem with Trump's focus on
[19:01] bringing manufacturing back is that manufacturing has changed a
[19:05] lot in recent decades. He says that the model of
[19:08] manufacturing that underpins Trump's approach hasn't existed
[19:12] for the best part of 40 years, and it's not coming back either.
[19:17] The loss of manufacturing jobs is as much about increased
[19:20] automation as it is about offshoring. 100 years ago, most
[19:25] workers were employed as agricultural laborers, but
[19:28] increased farm productivity, driven by mechanization, put an
[19:32] end to that. The same, he argues, has
[19:34] happened in manufacturing, and reversing this trend is no more
[19:38] likely than great swathes of workers returning to working in
[19:42] the fields. Some are arguing that these
[19:45] massive tariffs are simply a negotiation tactic.
[19:49] The Trump supporting hedge fund manager Bill Aikman tweeted
[19:52] yesterday that sometimes the best strategy in a negotiation
[19:56] is convincing the other side that you're crazy.
[20:00] Treasury Secretary Scott Percent told Republican House lawmakers
[20:04] the day before the announcement, hopefully not as an April Fools
[20:08] joke, that the reciprocal tariffs represent a cap of the
[20:12] highest US tariff level that countries will face and could go
[20:15] down if they meet the administrations demands.
[20:19] It's not clear that this is true, as if the plan was to
[20:22] negotiate them down or come up with something that doesn't harm
[20:25] America's largest businesses. The fact that each country is
[20:30] getting a different deal makes it extremely difficult to
[20:33] negotiate one by one with each country in a meaningful way over
[20:38] a few days. I don't see how genuine
[20:41] negotiations could be done at the speed needed to avoid
[20:44] harming America's best businesses.
[20:47] On top of this, due to the wacky calculation which is based
[20:51] entirely on trade surpluses with the United States and nothing
[20:55] else, there's nothing obvious for many of America's trade
[20:58] partners to offer. What the Trump administration is
[21:02] demanding is the country should buy the exact same amount from
[21:06] America as America buys from them.
[21:09] This makes no sense whatsoever. If a business has a relationship
[21:12] with a supplier, that supplier doesn't also need to be a
[21:15] customer of that business. Madagascar is a good example.
[21:20] While Americans consume over 1000 tons of vanilla per year,
[21:24] the impoverished residents of Madagascar have almost no need
[21:28] for US exports. There's not much that they can
[21:31] do to close that trade gap, and they're not taking advantage of
[21:35] Americans by selling them a product that Americans want to
[21:38] buy. Countries like Canada and Mexico
[21:42] may sell more to America than they buy from it, but they run
[21:46] trade deficits with other countries and have mostly
[21:49] balanced trade. The idea that any trade America
[21:52] does is cheating America makes absolutely no sense.
[21:57] The trade negotiations are further muddled by the fact that
[22:01] Trump claims that they're driven by different factors.
[22:04] The earlier tariffs on China, Mexico, and Canada were placed
[22:08] in part he claimed, to stop fentanyl from flowing into the
[22:12] United States. If those countries were able to
[22:14] meet Trump's demands on this front, would he then drop the
[22:18] tariffs? It's possible that he simply
[22:20] sees tariffs as a good way to raise revenue, and if that's the
[22:24] case, he wouldn't want to come to an agreement with those
[22:26] countries as he would need to raise revenue somewhere else.
[22:30] Then in a campaign speech last summer, JD Vance told the
[22:34] audience that a million cheap knock off toasters aren't worth
[22:38] the price of a single American manufacturing job.
[22:42] Well, there's obvious hyperbole in that statement.
[22:45] Vance and Trump do seem to believe that America would be
[22:48] better off if it manufactured more and imported less, and
[22:52] Americans would be better off working in toaster factories
[22:55] than doing whatever job they have now.
[22:57] Now, most Americans don't actually want these factory jobs
[23:01] that JD Vance is so excited about, either.
[23:04] There were 8 million unfilled jobs in the United States as of
[23:08] the last count, according to the Department of Labor, and most
[23:12] Americans would rather buy an affordable imported toaster than
[23:16] have the opportunity to make one. the US economy has been on
[23:21] a run that is the envy of the rest of the world for the last
[23:24] few decades. Almost every other economy in
[23:27] the world stagnated in the wake of the credit crunch, while
[23:30] America led the world in innovation and R&D, not
[23:34] producing toasters. One of the problems with
[23:37] protectionism is that it reduces competition and could damage the
[23:42] US economy if American companies no longer felt the need to
[23:46] innovate. Protectionism is one of the the
[23:49] things blamed for destroying the Argentine economy.
[23:53] While Americans might be jealous of Germany's manufacturing
[23:56] output, they may not want to find themselves in the position
[24:00] of the German worker. Today I'll put a link in the
[24:02] description to a really interesting interview on the
[24:05] Hidden Forces podcast, where Wolfgang Munchao explained how
[24:10] Germany fell behind the United States 25 years ago by focusing
[24:15] on analog rather than digital goods, entirely missing out on
[24:19] the digital revolution. Other problems with these
[24:22] tariffs is that they'll be extremely difficult to manage.
[24:26] According to the Wall Street Journal, 53% of the cars
[24:29] currently sold in the United States are built in the United
[24:33] States, and the other 47% will be hit with a 25% tariff.
[24:38] Unfortunately though, it's not that easy as even the most
[24:42] American of vehicles, like the Ford F-150, are made from
[24:45] thousands of parts that come from over 24 different
[24:49] countries. The individual parts will face
[24:51] the tariffs that have been placed on their countries of
[24:54] origin. For companies to move production
[24:57] to the US would be extremely expensive, and that cost would
[25:01] have to be passed on to consumers too.
[25:03] Checking every product that enters a country will be
[25:07] incredibly resource intensive and could bring trade to a
[25:10] grinding halt. In his press conference, Trump
[25:14] threatened to jail people for 10 years if they try to claim the
[25:18] wrong tariff rate. But it's not always easy to
[25:20] decide on a product's country of origin.
[25:23] Often the raw materials come from 1 country and the goods are
[25:27] assembled in another. William McKinley is Trump's
[25:31] purported inspiration. McKinley called himself a tariff
[25:35] man standing on a tariff platform when he ran for
[25:38] election. But in McKinley second term, he
[25:41] abandoned that platform and eventually spoke out against
[25:45] tariffs. The reason McKinley implemented
[25:48] tariffs was that after the Civil War, America was collecting more
[25:52] tax than the federal government could spend.
[25:54] McKinley wanted to reduce that revenue, but worried that if he
[25:58] cut tariffs he would invite a flood of imports and possibly
[26:02] increase the amount of taxes collected.
[26:04] He instead raised the average duty on imports to almost 50% to
[26:09] reduce the amount of foreign goods being brought in, which he
[26:12] then figured would reduce government revenues, solving his
[26:16] problem. He did like the idea that
[26:19] tariffs would protect American manufacturing, too, which it
[26:23] did. And while the tariff cut
[26:25] government revenues as expected, it was not well received by
[26:29] Americans who suffered high inflation.
[26:31] Mckinley's Republican Party lost its majority in the House during
[26:36] the next election. In his second term, McKinley
[26:39] advocated cutting tariffs as they were no longer needed for
[26:43] revenue or protection. And cutting them, he said, would
[26:46] encourage America's trade partners to reciprocate, opening
[26:50] up global markets for American goods.
[26:53] He never got to implement that plan though, as the day after he
[26:57] gave that speech he was assassinated and Teddy Roosevelt
[27:01] became president. It's very difficult to know how
[27:04] Trump's tariff plan will work out, as we don't really know
[27:07] what the plan even is. If it's a negotiating strategy,
[27:12] it might not be a great one. Since Trump took office and has
[27:15] been announcing and cancelling tariffs, both consumer and
[27:19] business confidence have been in decline.
[27:22] When consumers are worried, they spend less, slowing the economy.
[27:26] And when businesses don't know what to expect next, they take a
[27:29] wait and see approach and don't make any big investments, which
[27:33] can hit growth. A lot depends on how America's
[27:37] trade partners respond. This morning, China announced
[27:40] duties of 34% on all US imports, moving the world closer to a
[27:46] full blown trade war. The FT reports that European
[27:50] leaders are worried that China will divert exports from America
[27:54] to Europe, meaning that they'll have to erect trade barriers too
[27:58] to defend their markets. Thanks for tuning into this
[28:01] week's podcast. Do share it with a friend if you
[28:04] think they'd find it interesting, as that's the best
[28:06] way for podcasts to grow by word of mouth.
[28:09] Have a great week and talk to you again soon.
[28:12] Bye.

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