LEILA FADEL, HOST:
Let's explain those tariff plans. They're designed to limit imports and encourage domestic manufacturing. Starting this weekend, Trump plans to charge a minimum 10% tax on virtually all foreign goods coming into the U.S., with imports from dozens of countries facing much higher levies. Early reaction to the president's move has been mostly negative. The stock market fell sharply with the Dow Jones Industrial Average down around 1,500 points or 3.5%. The European Union has threatened countermeasures, and other U.S. trading partners are expecting to retaliate with tariffs of their own on U.S. exports. Speaking in the White House Rose Garden yesterday, Trump said the tariffs would help spark a rebirth of American industry.
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PRESIDENT DONALD TRUMP: We're going to produce the cars and ships, chips, airplanes, minerals and medicines that we need right here in America. The pharmaceutical companies are going to be - come roaring back. They're coming roaring back. They're all coming back to our country because if they don't, they got a big tax to pay.
FADEL: NPR's chief economics correspondent, Scott Horsley, joins us now to break this down. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Leila.
FADEL: All right. So, you know, President Trump promised high tariffs throughout the campaign. So is anyone actually surprised by this move?
HORSLEY: I think they're surprised by the magnitude.
FADEL: OK.
HORSLEY: For example, we're talking about a 20% tax on goods coming in from the European Union, much higher than the U.S. charges today. In other ways, though, this is not surprising. Despite the United States' wealth and power, Trump has been complaining for decades that this country is being taken advantage of, and he's determined to fight back with tariffs, even as financial markets have been flashing red, saying don't do it. Now, Canada and Mexico - two of our biggest trading partners - are being spared these additional tariffs for now, but Trump is slapping stiff due taxes on imports from economies around the world, even for products we cannot produce in the U.S. like the coffee and banana you might be having for breakfast this morning.
FADEL: Oh, wow. So how did the White House decide who pays what?
HORSLEY: Trump calls these reciprocal tariffs, saying they're simply designed to match the trade barriers that other countries impose on U.S. exports.
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TRUMP: That means they do it to us, and we do it to them. Very simple. Can't get any simpler than that.
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HORSLEY: But the White House later acknowledged it would be too hard to calculate the actual trade barriers from every other country. So they just picked an arbitrary number they thought would be high enough to chip away at each country's trade surplus with the U.S.
FADEL: OK.
HORSLEY: And the result is a huge tariff increase, a 24% tax on imports from Japan, a 34% tax on imports from China in addition to the 20% tariffs that were already in place. Now, other countries might absorb some of that cost, but a big part will be paid by businesses and consumers here in the U.S.
FADEL: So let's talk about that. What's the potential economic effect of that?
HORSLEY: Economists say it will likely mean higher prices and slower growth. Consumers are nervous. So are exporters. Tim Fiore conducts a monthly survey of factory managers for the Institute for Supply Management. He says they're already bracing for retaliation.
TIM FIORE: Here it comes, and we're already seeing that. And we have manufacturers in the U.S. already feeling that experience. So the retaliatory tariffs are going to be really ugly and it's just going to kill demand.
HORSLEY: Domestic manufacturers are supposed to be the beneficiaries of this trade war, but factory orders, output, employment were all down last month in anticipation.
FADEL: And what about international fallout?
HORSLEY: This is an enormous gamble. The U.S. launched a similar worldwide trade war back in the 1930s. It did not end well. The notorious Smoot-Hawley tariffs are widely considered to have worsened the Great Depression, and economists say Trump's new import taxes are even more draconian than those almost a century ago.
FADEL: NPR's Scott Horsley. Thank you, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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