This is an audio transcript of the FT News Briefing podcast episode: ‘Swamp Notes — The costs of Trump’s tariffs’
Marc Filippino
US President Donald Trump’s so-called ‘liberation day’ introduced tariffs on imports from pretty much the whole world, and the markets were left to pick up the pieces. Stocks are down, the dollar index is down, but there’s going to be more fallout in response to these tariffs, and it isn’t all going to be from the markets.
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This is Swamp Notes, the weekly podcast from the FT News Briefing, where we talk about all the things happening in US politics. I’m Marc Filippino, and this week we’re asking: are tariffs a tax on America’s reputation? Here with me to discuss is a special guest, Ed Luce. He’s the FT’s US national editor and columnist. He also co-writes our Swamp Notes newsletter. Hi, Ed.
Edward Luce
Good to be with you, Marc.
Marc Filippino
Good to have you. So President Donald Trump finally unleashed the tariffs he’s been talking about for a while. They ranged from a baseline of 10 per cent to more than 50 per cent, depending on which country we’re talking about. Why are economists so baffled by his calculations for these tariffs?
Edward Luce
He announced them as a sort of the measure was based on a combination of a country’s tariff rate, its non-tariff barriers, sort of technical obstacles to trade, and currency manipulation. He said it was a sophisticated mix, and then you arrive at a number for each country and you halve it because this is kind, reciprocal, trade that he described it as. And it turns out that, actually, this wasn’t a complex mix of various trade distortionary barriers. It was simply that he took a country’s trade surplus with the United States, divided it by its exports to the United States and arrived at a number. And that is about as crude as you can get. But it’s also very misleading. So Brazil, which has got really high trade barriers relative to, say, Europe, gets only a 10 per cent tariff. And the European Union gets a 20 per cent one. Why? Well, because Brazil doesn’t have a large surplus with the United States and the European Union does. It does have high tariffs against the United States. So that’s just one example, illustrating that it has nothing to do with what Trump said it had to do with.
Marc Filippino
And in doing so, Trump has applied this kind of us-against-the-world response, right? It’s a very isolationist approach in many ways.
Edward Luce
Yes, I mean, I would describe it as aggressively unilateralist. I mean he tore through any number of trade agreements there. World Trade Organization is a dead letter nowadays. But what was really, really striking about it is there’s no friend or foe here. You know, the idea of something like friend shoring is now complete nonsense because everybody is a foe. It was Trump’s declaration of economic war on the world.
Marc Filippino
There’s the idea that Trump can still negotiate with these countries, and in fact, I think that’s part of what he’s anticipating, is that these countries are gonna come to the negotiating table and offer things in order to get their tariff rate lower. How is Trump going to do that?
Edward Luce
So I think he will get overtures from a number of countries. There’s no doubt about that. And they will come in with concessions, and he will respond by lowering that number. And there will be all kinds of, as I put it, grift opportunities here in terms of the usual Trump merging of his public role with his family business and what Jared Kushner and others — as well as Donald Jr. and Eric are doing. So it’s a sort of the sort of transactional potential in Washington DC has just shot through the roof.
Marc Filippino
The other thing that we’re seeing already is countries that have been affected by these tariffs starting to talk with their allies. You know, we’ve seen pockets of Asia start to discuss how to handle these things. We’ve seen pockets of Europe start to discuss these things. What is the anti-US sentiment globally right now?
Edward Luce
I mean, it’s very, very high, no doubt about it. But I also think in terms of the sort of unintended consequences of what Trump is doing, is he’s pushing everybody closer to China. China is a much bigger trading economy now than the United States, a much bigger manufacturer. But it’s also got a sort of growing consumer demand, not nearly enough consumer demand given its size, but still massive. And so people are gonna move closer to China. Last weekend, in anticipation of Trump’s ‘liberation day’, we saw Japanese, South Korean and Chinese economic officials meeting, a very unusual meeting. But it’s a measure of just how radically Trump has forced everybody to recalculate. Europe’s moving closer to China. Mark Carney, Canada’s new prime minister, is making overtures to China. So, I think what you’re gonna see is a lot of trade diversion. It means less trade with the United States and more integration with the rest of the world. So talk of decoupling with China is kind of moot now. What we’re gonna see is a recoupling between the Europeans and the Chinese and others.
Marc Filippino
So this isn’t an end of globalisation, it’s just a realignment?
Edward Luce
Yes. And it’s a sort of an American opting out of the global system, the system that it built through successive trade rounds, which, you know, has helped propel America to be the largest economy in history. So it is a very eccentric move, if you look at it from that point of view.
Marc Filippino
Ed, does this affect the US’s ability to negotiate on other global matters? For example, the first month and a half of Trump’s presidency has been defined by trying to broker a peace deal in Ukraine. Do these tariffs kind of impact it in any way?
Edward Luce
Yes, I think there is a much larger sort of geopolitical, and I think more enduring geopolitical cost to this, which is . . . given how many deals Trump has ripped up and given the fact this really started with his declarations on Canada and Mexico, which you recall during his first term, he really arm twisted against their will into renegotiating Nafta to become as macro as they call that US-Mexico-Canada deal. And this was Trump’s deal. And Trump is now describing it as a terrible deal. So if you can’t trust the deals he negotiated and proclaimed as victory at the time, then why would you invest resources and diplomatic bandwidth into negotiating other kinds of deals, whether they’re on trade or any number of subjects, arms, et cetera?
Marc Filippino
We’ve spent this conversation talking about the global implications. I wanna switch gears and go and talk about the domestic implications for the US. These tariffs are widely expected to drive up prices and increase inflation, which is the opposite of what Trump promised. How do you see this playing out with Trump’s approval ratings and with the midterms that are, you know, way down the line, but still, you know, not that far away?
Edward Luce
Yeah, this can’t be good in terms of his approval ratings. We’ve seen them drop already. And I’ve no doubt that as these import duties feed into prices, those approval ratings are gonna continue to drop. And we’ve seen some signs, you know, electorally with the special elections in Florida and the Supreme Court of Wisconsin judge election this week that there are early signs of voter backlash. I wouldn’t invest too much in those. They sort of almost happen in the first year of a presidency, whoever is president. But you’re right, 19 months isn’t that long to the midterms, but we’re only 70 days into Trump’s administration, which is a fraction of 19 months. And look at what has happened.
Marc Filippino
It’s felt much longer than that, yeah.
Edward Luce
Yeah. So, you know, I sort of tend to measure time differently now, you know, with the Trump second term, because of just the intensity, breadth and pace of events. And he is sort of more than unusually hard to forecast. And therefore, I’m a little bit sort of hesitant in saying, well, he’s cooked.
Marc Filippino
Ed, do you see any upsides or potential upsides where these tariffs play out well for the US?
Edward Luce
Not for the US, no, and I think it’s gonna hit the countries, you know, that are more trade-dependent like Canada worse than the US. I mean, if he sticks with this 25 per cent on Mexico and Canada, then that’s a recession in both countries. I don’t think there’s necessarily going to be an American recession. It’s looking more and more likely. So in the short-term, trading partners that are more trade-dependent than the United States are gonna get affected worse, but America is still gonna be badly affected.
We’re already losing, I believe now, a point and a half, up to two percentage points of growth this year, which might be all the growth that America was gonna get. But so the argument Trump will make is that this is short-term pain for long-term gain. And I don’t think a situation where the rest of the world is seeking deals with each other, but trying to avoid the United States to bypass it is a world that’s going to serve the American economy.
Marc Filippino
What are you watching next in terms of how these tariffs will play out?
Edward Luce
The retaliation and the deals. So some countries like China have responded in kind with a 34 per cent tariff on American imports. And I think the EU is gonna come out with some pretty tough retaliatory measures. What does Trump do in response? Does this kind, reciprocal definition he has with . . . he’s only imposing half the rate they impose on us, does that imply he’s gonna double it to the level that he says the numbers of each country’s trade barriers?
That implies an escalation that could become sort of pure chaos and then we will really start seeing a market meltdown. Or because Trump’s unpredictable, there might be some deal here or there with the bigger trading partners, and Mexico and Canada are the ones to watch because they weren’t on his list on so-called ‘liberation day’. You know, I’m hesitant to predict. Trump has a capricious nature to him, and he likes to proclaim deals even where there isn’t much substance to them. So I’m hesitant to predict this will get worse, but I think it’s likelier to get worse. Possibly much, much worse than it is to get better, though I don’t rule out the latter.
Marc Filippino
All right, we’re gonna take a quick break and then when we come back, we’re gonna do Out of the Swamp.
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We are back with Out of the Swamp, where we talk about something outside DC politics for a change, which is kind of hard right now, Ed, because it feels like that’s all that there is happening. But, you know, what are you watching?
Edward Luce
So, I mean, a lot of stuff. There is still a world out there, believe it or not, although it seems to have gone dark in our minds. But I was in Germany last week, briefly, in Berlin for two or three days for a conference and spoke to a lot of German senior figures. And I think we’ve missed here in the United States the scale of what Germany has just done in the last couple of weeks, which is tear up its constitutional clause that puts a limit on spending. The so-called debt break, so that they can spend a trillion euros on weapons, on military and on infrastructure. They have essentially ended their whole postwar sort of regime, which is built around monetary caution, and embraced a Keynesian rule book all because of the shock of, you know, JD Vance’s Valentine’s Day speech from Munich, of all places, calling for regime change, essentially, in Europe. So what’s happening in Germany, understandably, has not been headline news in the United States. But I think when history looks back on the sort of two or three big events of 2025, Germany’s turn will be one of them. This is historic.
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Marc Filippino
All right, we are going to leave it there. I want to thank Ed Luce. He’s the FT’s US national editor and columnist. Thanks so much, Ed.
Edward Luce
It’s a pleasure, Marc. Thank you.
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Marc Filippino
This was Swamp Notes, the US politics show from the FT News Briefing. If you wanna sign up for the Swamp notes newsletter, we’ve got a link to that in the show notes. Our show is mixed by Sam Giovinco and produced by Katya Kumkova. Special thanks to Pierre Nicholson. I’m your host, Marc Filippino. Our executive producer is Topher Forhecz and Cheryl Brumley is the FT’s global head of audio. Original music by Hannis Brown. Check back next week for more US political analysis from the Financial Times.