What Happens If Trump Doesn't Pull Back on His Trade War?

Episode Summary

Executive Summary: The episode examines Trump’s trade war as of June 3, focusing on how tariffs, court challenges, and negotiation deadlines are reshaping global trade. Guests argue the economic impact is still mixed: inflation has not surged yet, some disinflation is visible, but firms are already adjusting operations and uncertainty remains high as legal and policy battles continue.

Main Topics: Status of Trump’s trade war and pending deadlines (Priority: 5/5): Josh Wingrove outlines the current tariff landscape: durable sector-specific tariffs are in place, while the broader IEEPA-based tariff regime faces July deadlines and legal uncertainty. Economic effects so far: disinflation, not inflation (Priority: 5/5): Anna Wong says the first months of trade-war version two show falling or softer prices in discretionary services, offsetting tariff pass-through and producing net disinflation so far. Corporate behavior and supply-chain adjustment (Priority: 4/5): The discussion highlights how manufacturers are changing plans, with some industries increasing U.S. capacity and shifting production in response to tariffs and uncertainty. Legal challenge to tariff authority (Priority: 5/5): The transcript analyzes the court ruling against Trump’s tariff strategy and whether alternative legal authorities could preserve or replace the tariffs. China, negotiations, and geopolitical leverage (Priority: 4/5): The guests discuss the fragile U.S.-China truce, possible leader-level contact, and China’s patient strategy versus U.S. pressure to secure deals before shipping seasons. New tax provisions as a trade-war extension (Priority: 3/5): The conversation considers clauses in the tax bill that could penalize investors from countries with 'unfair' tax regimes, especially the EU, as another tool of economic pressure.

Key Arguments: Tariffs already in force on steel, aluminum, autos, and auto parts are more legally durable than the broader emergency-based tariffs and are unlikely to disappear soon. The main IEEPA-based tariffs would likely rise above 10% after July 9 if no deals are reached, creating pressure on trading partners to negotiate. Economic data so far do not show a tariff-driven inflation spike; instead, weaker discretionary services demand has contributed to disinflation/deflation in some categories. The immediate inflation effect is muted because firms are still front-running imports and have not yet faced the full post-front-running pricing decision. Trump and his allies view tariff revenue and some domestic investment effects as political wins, even amid market and policy uncertainty. Manufacturing firms are already adapting, with some sectors planning to expand U.S. operations in response to the trade war. The court ruling is important but may not end tariffs because alternative statutes, such as Section 122, 232, 301, or a revived Section 338 approach, could be used instead. The administration appears willing to calibrate pressure and pull back if hard data deteriorate, but at present there is no strong economic signal forcing a retreat. China likely has more patience and may be reluctant to do a leader call until details are settled, suggesting it currently has leverage in the relationship. The tax bill’s international tax provisions could become a parallel weapon against countries, especially the EU, by raising the cost of investing in the U.S.

Data Points: Trade war version two start: February - Anna Wong says the latest phase of the trade war began in February, allowing roughly three months of data to assess impacts. Broad tariff deadline: July 9 - Josh Wingrove says tariffs at 10% could snap back higher for roughly five dozen countries if deals are not reached by this date. Countries targeted in broad tariff regime: about five dozen - Refers to countries covered by the IEEPA-based tariff approach, including the EU as a bloc and China. Trade deals completed in the 90-day period: 1 - Only one deal, with the UK group, had been completed at the time of the discussion. Steel tariff increase: 50% - Trump announced the aluminum tariff would double from 25% to 50%; steel and aluminum were discussed as durable sector tariffs. Aluminum tariff prior rate: 25% - Referenced in the announcement that aluminum tariffs would double. Tariff increase on aluminum: 50% from 25% - Josh Wingrove describes the increase as seemingly made 'on a whim' and separate from the court-affected regime. Discretionary services categories: Travel, airfares, hotels, car rentals - Anna Wong cites these as areas where prices are going down due to weaker demand and pessimism. Inflation indicator mentioned: April - Anna Wong references the April inflation number, saying Powell’s preferred super-core gauge showed deflation. Expected equilibrium tariff level: about 15% - Anna Wong says this is Bloomberg Economics’ baseline endgame tariff level. Alternative authority cap: 15% for 150 days - Josh Wingrove notes Section 122 is capped and time-limited. Potential tariff authority range: 15% to 50% - Anna Wong references Section 338 as allowing immediate tariffs in this range. Peak shipping/holiday season concern: Christmas season - Anna Wong argues Trump is sensitive to empty shelves before holiday demand peaks.

Pivotal Quotes: "At this moment, the hard data are not causing them to want to pull back." — Stephanie Flanders: Used to frame the administration’s current stance that weak economic signals have not yet forced a retreat from tariffs. "On net, the inflation impact has been disinflation." — Anna Wong: Summarizes the surprising early macro effect of the tariff shock: prices are softer in key services categories rather than rising sharply. "Trump himself, he has a sense of how hard to push the economy. And he tends to pull back from the brink if things get really bad." — Unnamed analyst quoted at opening: Introduces the idea that Trump may be willing to escalate tariffs but also retreat when economic pain becomes visible.

Implications: Tariff uncertainty is likely to persist through deadlines, appeals, and alternative legal authorities. Consumers may still face price increases later, while firms and investors should expect continued volatility, selective reshoring, and more trade friction with China and the EU.