The real cost of a trade war

Robert Armstrong (0:00)

Listeners, join me and my colleagues for a subscriber webinar about the Trump effects on markets. On April 23rd, from 1 to 2 UK time, go to ft.com/trumpmarkets to register now and send your questions to me, Aidan, Katie, and the rest of our great panel.

Katie Martin (0:26)

Pushkin. So, I got a PR email this morning saying, hey, it's stress awareness month. And PR lady, I just want to tell you, I am aware of my stress.

This has been a pretty stressful month so far. And hey, as we speak, it's only the 10th. Far out. The source of stress for so many of us is that man in the White House. Now, the good news is that the massive global tariffs that he announced last week are now off. They're delayed at least. Phew. The bad news is that the tariffs on China are now absolutely enormous. America, get ready to pay more than twice as much for all of your Chinese imports and good luck. Today on the show, we're asking, how can investors trust the US now? Is this pause in the tariffs really good news? And crucially, is it the weekend yet? Damn it. This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets columnist, and frankly, a shadow of my former self at FT Towers in London. And I'm joined by fellow stress monkey, Robert Armstrong. A little bit hungover, it has to be said, from the Unhedged newsletter in New York. Dude, how are you going?

Robert Armstrong (1:48)

I'm going all right. I did go out and celebrate the end of the so-called reciprocal tariffs, a tiny bit excessively last night. Reciprocally. My head feels a little bit like the world trading system, I would say, this morning. Slightly disordered, unsure where to turn, et cetera, et cetera.

Katie Martin (2:10)

Yeah. Let's start with the bad stuff, shall we?

Robert Armstrong (2:13)

Yes.

Katie Martin (2:14)

How is the US gonna cope with 125% tariffs on China, please?

Robert Armstrong (2:20)

I don't know. The number is very big. To slip into econospeak, we are going to discover exactly what the elasticities are here. In other words, how elastic is the pricing of the Chinese manufacturers and importers of Chinese goods? Will they absorb some of the tariff themselves and leave only part of it to be absorbed by the American buyer?

Katie Martin (2:49)

It is a fascinating natural experiment, I've got to say.

Robert Armstrong (2:53)

It sure is.

Katie Martin (2:54)

There are a lot of small businesses in the States that, you know, pretty much every paper you read at the moment, they simply can't afford to pay twice as much for this stuff.

Robert Armstrong (3:04)

There was a good story in the FT just this morning by my colleagues Oliver and Anna, reported from Staten Island, and they spoke to this woman who runs a comic book and figurine emporium there, you know, little plastic figures of the Hulk and Captain America and comic books. And she was saying, you know, the comic books are mostly printed in Canada, the figurines all come from China, and she is existentially worried about the future of her business.

Katie Martin (3:34)

And that's going to be a really common story.

Robert Armstrong (3:37)

Yes. Here is a story that will also be really common. Let me ask you this. How carefully are they going to, are they going to be able to enforce carefully the many kind of geegas and windmeatittles we buy here in America?

Katie Martin (3:51)

Yeah.

Robert Armstrong (3:52)

That are like 13% from one country, 12% in another.

Katie Martin (3:56)

Yep.

Robert Armstrong (3:57)

60% from China.

Katie Martin (3:58)

But also here's this thing, it's come from Indonesia, but has it really come from Indonesia or has it come from China via Indonesia?

Robert Armstrong (4:05)

Yeah.

Katie Martin (4:05)

And yadda yadda.

Robert Armstrong (4:07)

So it's gonna be, as you put, a very interesting natural experiment, and maybe the systems are in place to do this. I am very interested to see what happens to the price of a little item known as the iPhone, which will be a very visible price to many Americans.

Katie Martin (4:25)

Yep.

Robert Armstrong (4:25)

And if the price of that goes up 80% or something, is there like torches and pitchforks in the streets of Brooklyn, as the iPhone 15 goes up by however many hundreds of dollars?

Katie Martin (4:39)

It will rise as one. The good news for the rest of the world is, so the tariffs that are on the rest of the world, and of course, still, I believe, on the penguins, they're still pretty substantial, and there's like extra 25% tariffs on stuff like cars, and you've also got additional tariffs on steel, and aluminum, and aluminum, take your pick.