WSJ What’s News - Understanding Trump’s Tariff Strategies as ‘Liberation Day’ Approaches

Episode Date: March 30, 2025

On April 2nd, a new slate of reciprocal U.S. tariffs are expected to take effect. President Trump has championed tariffs, saying they are needed in order to make things fair, to reduce the trade deficit and to bring manufacturing jobs back to the United States. But will his strategies work? Mary E. Lovely, of the Peter son Institute for International Economics, discusses the reasons behind and effectiveness of previous strategies on tariffs to explain how Trump's newest plans may pan out. Alex Ossola hosts. Further Reading Why Trump’s Tariff Strategy Is Getting Riskier, According to Economists  How Trump’s Trade War Is Playing Out At Breakneck Speed  Trump Previews Reciprocal Tariff Action Set for April 2  Trump’s Tariffs on Canada, Mexico and China: Here’s Where Things Stand  Trump’s Tariff Onslaught Is Coming Faster Than His Team Can Carry It Out  Learn more about your ad choices. Visit megaphone.fm/adchoices

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This is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. This week, we're talking tariffs. We're just a few days away from April 2nd, or Liberation Day as President Trump has called it, when he plans to lay out a slate of reciprocal tariffs. Today, we're digging into how tariffs have been used in the past and whether they achieved their goals. It's no secret that President Trump loves tariffs. I always say tariffs is the most beautiful word to me in the dictionary. Trump's reasons for imposing tariffs

go beyond pure emotion. He considers them to be fair, arguing that the US needs tariffs to match the duties and trade barriers that other countries impose on American products. The president has said that he wants tariffs in order to reduce the trade deficit, that is, to close the gap between how much the U.S. imports and exports. According to the most recent data available, in January the U.S. reached a new record

for importing more goods than it exports. And he has said that tariffs will boost domestic manufacturing, bringing jobs producing commodities like steel and goods like cell phones back to the U.S. But is that how tariffs have worked in the past? Mary E. Lovely, a senior fellow at nonprofit, nonpartisan think tank, the Peterson Institute for International Economics, joins me now to discuss. Mary, I want to start with this idea of reciprocal tariffs. Trump has said that his tariff plans are responding to those placed on the US by other countries. What are some of the tariffs or other protective measures that already existed even before Trump came into office?

Well, there clearly are tariffs on US exports, but by and large are very low because over the years we have negotiated with other countries for them to lower their tariffs and we to lower ours. Our tariffs are among the lowest in the world, not the lowest in the world, but among the lowest in the world. Although we do have some products that we tax very highly when they're imported. For example, the European Union has a 10% tariff on motor vehicles. The US only charges a 2.5% tariff on imported vehicles.

So there's a difference there. But there's also a difference in truck tariffs, where the U.S. charges a 25% tariff on trucks. So on some things we're higher, on some things are lower. Overall, especially with large trading partners like the European Union, on average, it really depends on how you do the average. We're about a percentage point difference. It's not a huge difference. Some of the barriers to our exports are things that reflect

also differences in regulation. And President Trump talks about this in terms of non-tariff barriers. So for example, Europeans don't want to eat chicken that's been treated with chlorine, and we do. Chicken can be washed in that way in the United States and is considered safer because it kills whatever is on the chicken. So these are barriers that do prevent US exporters from selling those goods into that market.

If we look at the automobile example, right, the automobiles get a 10% tariff in Europe, what is the stated purpose of that tariff? For the Europeans, the stated purpose is to really offset cost differences that they see between their production onshore inside Europe and production elsewhere. The Europeans have already come forward and saying we're happy to lower it on net the Europe is a car exporter And so they have quite a bit of comparative advantage in automobiles now There is another thing which might be important here, which is that automakers have to design to the market So for example Ford we think of Ford is kind of a quintessential

the market. So for example, Ford, we think of Ford as kind of a quintessential American company. But Ford is also in Europe and Ford designs and produces in Europe for Europe because the streets are more narrow. People want smaller, less powerful vehicles. Those vehicles don't find a large market here in the United States. Often we're driving on superhighways. Lyleen Orffin Trump has said he's looking to create fairness in tariffs. What is his goal with reciprocal tariffs? Dr. Sarah Larkin So I think the president is tapping into a word fairness that people automatically respond to. Fairness is a good thing.

But it turns out that fairness is something that needs to be defined. And in this case, he is, I think, really changing the definition of the word reciprocity. Reciprocal and trade negotiations really focused on reciprocal cuts. When you think about it, there's 166 countries in the World Trade Organization, and they don't all have the same domestic constituencies that want to be protected. So for example, in the European Union, it tends to be agricultural interests. US, big agricultural exporter, while we do have high tariffs on certain agricultural products like sugar, we tend to have higher tariffs on very labor-intensive things like

apparel. So, these differences really reflect differences in each country's sensitivities. And so, when we are negotiating, I may want to increase my exports by $5 billion to your market. And you say, OK, but I want to increase my exports by $5 billion to yours. And then we can trade across the different sectors. So there was never any understanding

that the word reciprocal or fair meant that of the thousands of terrorist lines, they would match across all of these countries. You mentioned increasing exports. One of the reasons President Trump has given for imposing tariffs is to reduce the trade deficit. How would that work? There have been uses of tariffs and other instruments regarding US aggregate trade deficit, but they were under very different system, in particular, a different currency system. So what we see here is a world where the US has floating exchange rates.

Many of our partners have floating exchange rates. What I would say 99% of economists will predict, which is that all else equal, the tariff is going to appreciate the dollar. That will decrease our imports, but it will also decrease our exports. The trade deficit is the difference between exports and imports. That might not change at all. So most economists would never suggest that tariffs should be used to solve the problem with the trade deficit. All right, when we come back, we get into another of Trump's reasons for tariffs to increase domestic manufacturing. And Mary tells us what signals she'll be keeping an eye on to see if tariffs are achieving Trump's goals. That's after the break. With the FIZ loyalty program, you get rewarded

just for having a mobile plan. You know, for texting and stuff. And if you're not getting rewards like extra data and dollars off with your mobile plan, you're not with FIZ. Switch today. Conditions apply. Details at fiz.ca. Mary, let's talk about this idea of using tariffs to boost domestic manufacturing, that

tariffs could move manufacturing jobs from abroad back to the US. Have tariffs been used to do this in the past? Yes, you have to go way, way back to the late 1800s, the early part of the 1900s. We have lots and lots of evidence, not just from the United States, but from other countries. Tariffs will protect a given industry. So if you put tariffs, say, on steel, which is a very important sector that we have had protection on for many, many decades, that will, in some sense, protect the price from falling below a certain amount, and it will allow the industry to basically stabilize. Sometimes there'll be some job growth, but usually not that much.

Oftentimes, protection is put on industries or sectors that are no longer really globally competitive. It may be because a competitor like China rises, or it could just be because the country is shifting to higher value activities. I don't think we've really stared hard in the face what it means to re-industrialize America. What are we talking about? I think people imagine, oh, we're going to have semiconductor factories or we're going to have, you know, high-tech auto sector. They're going to pay 50, $60 an hour for most of the goods that are being taxed

right now. The import taxes that president Trump has placed on China, both in his first administration and now 20% more just since his inaugural, those goods are not coming back to the United States. We saw that in the first trade war, clothing manufacturing went to places like Vietnam, snapping together your cell phones went to Vietnam or Mexico or Indonesia, didn't come back to the United States. So kind of broad-based tariffs that President Trump is talking about are being justified as rebuilding America. Americans really need to come back and say, rebuilding America, how and for whom?

Because we have alternatives, we have better jobs that are out there. We really want to be creating jobs for people that have good working conditions and at least a living wage. And many of these activities simply can't do that unless we have such high tariff walls that you and I will never wear another silk blouse in our life. We've walked through a bunch of the reasons that President Trump has given for his tariffs. Do you see any other motivation? One of the things that he has talked about in the past, but hasn't talked about a lot recently, is the need to raise revenue. They're getting ready to pass legislation that will extend the tax cuts that were first enacted in Trump's first administration.

This would be income tax cuts for corporations and for high earning individuals, as well as various other types of income, and replacing that with an import tariff, which is basically a kind of sales tax. And what we know is that this burdens low income families much more than the income tax overall. So while President Trump is focused on what I think of as the sins of our trading partners, they do this to us, they do that to us, behind the scenes is a very large shift

in who's gonna bear the burden of funding government. So you're saying that who will be funding this will essentially shift, right? Yes, it's really a shift in who bears the burden of funding the government because the tax extensions that the Trump administration is getting through Congress with the support of Congressional GOP is going to benefit corporations and higher-income Americans. Meanwhile, tariffs will raise prices. Higher-income people will see this along with middle-class and working people. We'll all see the higher price. But as a share of our income, it's going

to fall more heavily on people who basically spend their entire paycheck. So looking forward, what kind of indicators will you be looking at to see if Trump's tariffs are having the effect that he intends or really just what impact they're having overall? It's going to be very tricky to track this, Alex. So first we'll be looking for things that everybody's looking for, like announcements of new investment,

but also looking for signs that other types of businesses are under stress. On the consumer side, clearly we'll be watching not just the CPI, but individual components of the CPI, because the CPI includes a lot of things that are not imported, like haircuts. We're gonna be looking at things like food prices, prices of clothing and children's toys and home goods

and lumber and home renovation, home building, all of those things. Mary E. Lovely is a senior fellow of the Peterson Institute for International Economics. Mary, thank you for being here. Thank you, Alex. And that's what's news for Sunday, March 30th. Today's show was produced by Charlotte Gartenberg

with supervising producer Michael Kazmitis. We got help from deputy editor Scott Salloway and Chris Zinsley, as well as WSJ's head of news audio, Philana Patterson. I'm Alex Osola. We'll be back on Monday morning with a new show. Thanks for listening.