WSJ What’s News - A New Global Trade Order Takes Shape

Episode Date: April 3, 2025

A.M. Edition for April 3. Markets around the world are reeling after yesterday’s unveiling of sweeping new U.S. tariffs. The Journal’s Alex Frangos and Deborah Ball take stock of what’s changing and how America’s trade partners are responding. Plus, the Council on Foreign Relations’ Brad Setser explains the shocks in store for the global auto industry - and consumers - as U.S. duties on foreign-made vehicles and parts kick in. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

To support sustainable food production, BHP is building one of the world's largest hot ash mines in Canada. Essential resources responsibly produced. It's happening now at BHP, a future resources company. Global markets reel after the U.S. unveils sweeping tariffs. We'll look at how world leaders are reacting as China and the EU promise to hit back. President Trump's announcement of universal tariffs

on the whole world, including the European Union, is a major blow to the world economy. And the auto industry stares down major changes as 25% U.S. tariffs on foreign-made cars and parts go into effect. It's Thursday, April 3rd. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today.

The world is waking up to the new realities of trade after President Trump yesterday unveiled a suite of protectionist measures that he justified by citing his emergency economic authority. Chronic trade deficits are no longer merely an economic problem. They're a national emergency that threatens our security and our very way of life. It's a very great threat to our country." Among the moves that Trump announced were a 10 percent baseline tariff on all global imports, which will go into effect on Saturday.

And for countries that the White House considers bad actors on trade, they'll be hit instead with a so-called discounted reciprocal tariff, new duties amounting to 24% for Japan, 20% for the EU, and above 40% for select countries in South and Southeast Asia. Well, here to put these measures into context, I'm joined by Journal Europe Finance Editor Alex Frankos and Asia Editor Deborah Ball. Alex, let me start with you. Explain these discounted reciprocal tariffs for us. What's the math behind them?

I'll try, but basically what the White House has come up with is a formula not based on what the tariffs are imposed by other countries, but taking the goods trades deficit of a country and dividing it by the amount of goods that the U.S. imports from that country and getting a percentage and then chopping that in half and saying this is what our reciprocal tariff will be. The logic that the White House is giving for this is that the trade imbalance contains all of the various tariffs and non-tariff barriers that other countries impose that the White House sees as negative for the US.

With a huge global effect, Deb, you're there in Singapore. I'm curious if you could just weigh in on the significance of this policy pivot we're witnessing, one that really hits Asian countries particularly hard. Yes, the Southeast Asian countries got hit, Vietnam very hard. China has all told their tariffs are now up to about 70% of goods going into the US on top of the previous

tariffs. So I think we feel that there could be a pretty significant rewiring of supply chains that had been running through Southeast Asia. A lot of countries had moved away from China, out of China, and into areas in particular like Vietnam. There was a massive move after the first round of Trump tariffs in his first term, and now Vietnam has huge tariffs. So I think the impact on the Chinese economy will be significant. This is hundreds of billions of dollars worth of exports that are now being tariffed. So we think basically this will be kind of a diversion of a lot of these trade routes

into other countries. What's unclear is where they could go, which countries could provide a bit of a safe harbor with lower tariffs as well. So there'll be a lot of very painful conversations going on in boardrooms around the world as well as among policymakers in Asia. Lots of big decisions being made around the world. Alex, back to the US, Trump saying he wants to bring America back to how its economy functioned before 1913, a date that got a lot of play in that speech in the Rose Garden yesterday, the year when the US really began to undo its longstanding policies of protectionism.

Yeah. I mean, he sees tariffs as a revenue generator that can make up for income taxes. The question is whether that works in the modern world, because what happens when you impose a tariff is people try to avoid it. And so they don't want to pay the tax. And especially if you make the tax very, very high, like they've done with China, it just doesn't make sense to do those trades anymore. And so the question is, will the tariffs raise as much as the White House thinks they will? Right. We saw an estimate from Capital Economics yesterday saying that the tariffs will raise a maximum of $835 billion

via customs duties, but we do have to consider how they could also trigger a decline in imports, which might offset that. Yeah. I mean, I think the number that they actually put on it was a bit lower because they said imports will decline. I mean, you can't have both things at once. The aim of these tariffs is, number one, bring manufacturing back to the US. Number two, raise revenue from imports.

If you're bringing manufacturing back to the US, you're not importing things because you're making it at home. You can't have both. The other important point here is that Trump has given a week for the reciprocal tariffs to come into effect. People are really looking at this as an opportunity to get in there with the Trump administration from all these countries and say, look, we're going to do a whole bunch of things we promise. We promise we'll buy a bunch of US goods.

We'll stop shipping things to you that are causing these trade deficits. Please lower our reciprocal tariff. So it's possible that this is the beginning of the negotiation or the beginning of these tariffs, not the end. Deb, we are now beginning to hear from world leaders reacting to all of this, from the likes of the Australian Prime Minister Anthony Albanese, who was pledging to fight back. For Australia, these tariffs are not unexpected, but let me be clear, they are totally unwarranted. Notably, the president of the European Commission, Ursula von der Leyen, said she actually agreed

with Trump that there are people taking advantage unfairly of current trade rules and she said she was willing to try to remake the global trading system, though she didn't think tariffs were the way to do that. Reaching for tariffs as your first and last tool will not fix it. This is why from the outset we have always been ready to negotiate with the United States to remove the remaining barriers to transatlantic trade. Debit, it almost seems like we're hearing in real time the wheels turning for world leaders trying to kind of reason out how much room they have to actually negotiate with the U.S. here or

just going to submit to a new reality. What are you hearing? I think there's a real hard calculus that policymakers, leaders are making in different capitals as to how much leverage they really have to fight back. And they know that this is a very difficult administration to deal with. And so I think certainly in Asia, what we've seen so far, China has said that they're going to hit back. It's interesting though that the first tariffs we put on about a month or two ago or so,

the Chinese did respond, but they did in a very, very measured way in a way that showed that they did not want to escalate this. They did not want this to spiral and spiral and get worse. The Southeast Asian countries, they're too small. All of them will come out today and so they're not going to retaliate. They're going to try to negotiate something and see what they can do. This is sort of realpolitik when it comes to trade and economics. It's, you know, how much can you really hit back? Is it going to be effective? Are you going to end up in a tit-for-tat situation that's going to be just damaging for

your own country? Alex, looking at the market response we're seeing this morning, what does that tell us about where negotiations might be possible with the US or which companies, which supply chains, business models are likely to be affected maybe irrevocably? It's going to take a little while for the market to process all of the information, but the initial reaction is this is bad for the economy. So we're seeing kind of a recession trade, stock futures are down, oil prices are down, bond yields are down. And one thing that's surprising is the dollar is also down, which is usually a sign that

people are kind of negative on the US economy. So far, the reaction is strong, definitely. It's a big market day. It's not catastrophic, which market commentators are interpreting as, well, let's see what this looks like next week, because there's going to be a flurry of negotiation and promises. And maybe this won't be quite as robust as it looks today, but we'll just have to see. Deborah Ball is the Journal's Asia editor and Alex Frangos is our finance editor for Europe.

Deb, Alex, thank you both so much. Thanks very much. You're welcome. Coming up, new U.S. tariffs on car imports came into force at midnight. We'll talk to the Council on Foreign Relations' Brad Setzer about what that means for the U.S. auto industry and Americans looking to buy a car after the break. Effective today, the US will begin collecting 25% tariffs on imports of finished automobiles and automotive parts, a trade move that's thrust auto exporting countries into crisis

mode and given that almost half of new cars sold in the US last year were assembled beyond automotive parts, a trade move that's thrust auto exporting countries into crisis mode. And given that almost half of new cars sold in the US last year were assembled beyond America's borders, according to S&P Global Mobility, US consumers could be in for a shock as well. Well, here to help put these tariffs into context, I'm joined by Brad Setzer, a senior fellow at the Council on Foreign Relations, where he's an expert in global trade and capital flows. Brad, it was one thing to discuss these tariffs when they were a mere possibility.

Now they are very much a reality. What is that likely to mean, starting foremost with American car manufacturers for Detroit? Brad Kupfer Well, the reality is that Detroit makes cars in the United States using Mexican and Canadian parts. It makes cars in Mexico using both American and Canadian parts, and it makes some cars in Canada. So Detroit isn't just Detroit. So it really will depend on where the car is made.

For those making cars in Mexico, for example, they'll face substantial tariffs. And Mexico supplies little under three million cars to the U.S. market. It is the biggest source. Cars, light trucks, biggest source of imports. So there's going to be a substantial increase in the cost structure of North American production, particularly for those companies producing in Mexico or Canada. There's some quite substantial potential ramifications of this just within the American auto market, but as we look globally, what are some trends we should be expecting?

Well, all of these provisions that make it a little easier to avoid paying the 25% tariff, if you're broadly producing using the North American supply chain, those go away real quick. So, German cars made in Germany face a 25% tariff. Japanese cars made in Japan face a 25% tariff. Korean cars made in Korea face a 25% tariff. So for a lot of cars, selling to the US consumer is going to be a lot more expensive. You're going to have this extra 20 to 25% tariff. Does the pain go beyond that?

I mean, of course. I mean, I think there's a couple of interesting dynamics that may not be immediately obvious. One is that a company like BMW imports a lot of parts to the US, makes in BMW's case sports utility vehicles, SUVs in South Carolina, and then sells those cars into the US market and into the global market. So the imported parts will face this tariff even if they are being sold back to Europe, back to China and others in Asia. For BMW, that makes no sense.

Over time, BMW, if these tariffs stick, will have to move production of its SUVs out of the United States. Doesn't make sense to add to your costs just to pay the US tariff for global production In unintended consequence there if the whole point here right is to incentivize the localization of production Yeah, but you're gonna make the US uncompetitive as an export platform because most export platforms use some imported parts BMW of course can try to sell more cars domestically in the US, but it faces that hefty parts import, so it's going to be charging a lot more for

its cars. And a lot of others are going to be charging a lot more for their cars. And I think there's a risk, and this is the short-term risk, that faced with this increase in price and with uncertainty about whether the tariffs will stick, a lot of consumers may decide not to go into the auto dealer. So there could be a fall off in demand just because consumers are worried that basically the US market is going to be a little undersupplied, certainly undersupplied with cheap vehicles, and they're worried that they're going to be stuck with a high price. And if they think the tariffs may come off, they may wait.

So you could see a fall in total US sales. And the irony there is that you would see a pullback in total demand that would impact some of the least affected US production. Plus even the least affected US production has some imported parts that are going to be tariffed. So it's going to be quite disruptive in the near term. Brad Setzer is a senior fellow at the Council on Foreign Relations and an expert in global trade. Brad, thank you so much for being with us on What's News. My pleasure. Thanks for inviting me.

And that's it for What's News for this Thursday morning. For more of today's non-tariff headlines, subscribe to our Minute Brief podcast, which we update throughout the day. Today's show was produced by Kate Bulevent and Daniel Bach, with supervising producer Sandra Kilhoff and I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.