Apr 10, 2025
On March 28, The Capitol Forum’s executive editor Teddy Downey and senior advisor Beth Baltzan discussed the potential impacts of upcoming tariffs on businesses, international trade, and the U.S. dollar’s global standing. The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Good morning, everyone, and welcome to our conference call today with my colleague Beth Baltzan. I’m Teddy Downey, Executive Editor here at The Capitol Forum. And Beth is a Senior Advisor. We’re very pleased to have her here. And she has an incredible background in trade policy, including serving as Counselor for Trade and Investment to U.S. Trade Representative Catherine Tai. And there’s a ton to talk about. So, let’s dive right in, Beth. Thanks so much for doing this today.
BETH BALTZAN: Great to be here.
TEDDY DOWNEY: And actually, before we get started, if you have questions, please put them in the question panel, in the control panel. We’ll get to them after I interview Beth. Or you can email them to editorial@thecapitolforum.com. So much, so much to go over, Beth. One conference call is not going to be nearly enough. But I wanted to get your reaction to these auto tariffs. What do you make of them in light of Trump’s overall priorities?
BETH BALTZAN: So, thanks very much. Let me start by saying there is still a lot of uncertainty about what’s actually happening with the auto tariffs. There seems to be a difference between—and we’ve seen this before—what’s in the actual proclamation and what’s being said otherwise, including by government officials.
So, there’s a 25 percent auto tariff. The real conversation is about the effects on Canada and Mexico as trade agreement partners, the USMCA, which was the upgrade of the NAFTA that the first Trump administration negotiated. So, we should understand that the whole—one of the most important aspects of the original NAFTA was that it produced a North American integrated auto market.
And in the renegotiation, the Trump administration wasn’t actually trying to unwind that. They were trying to intensify it to try to make sure that more of the content was coming from Canada and Mexico and the United States and not from non-parties.
So, that was the undertaking. When I look at the proclamation and the statements that are being made, I don’t understand how what they’re doing is consistent with that approach or even with the approach that they laid out in the fair trade chapter of Project 2025.
The question that people are debating is, are these tariffs going to be applied to a good that qualifies for duty-free treatment under USMCA if the good contains Canadian or Mexican content? And I don’t know how clear that is to people that that is really the opposite of what you’re trying to do with your typical free trade agreement.
So, that’s where there’s a lot of confusion. And I think the auto producers—I’m not an industry expert, I just know enough about it from the trade conversation—I actually have doubts about whether that can work and especially to think that you’re going to reshore so much of the auto parts industry from Canada and Mexico in six days. Those are some of the questions that I have.
TEDDY DOWNEY: One of the stickiest things—and we don’t have to belabor this—but one of the stickiest issues, problems, that comes up to me intellectually is knowing how intertwined the industry is, like you said, and then to tariff and require the tracking of parts as they go from Mexico to U.S. to Canada and back and forth, just the way, the level of that integration. That to me seems like something that is just very hard to completely get rid of in a month, right?
That seems, I don’t want to say totally undoable or unworkable, but that seems like maybe the ripest thing for being amended. Or what’s a fair way to think about some of that type of provision and the likelihood that it might be revised? Or how should we be thinking about something that gets at how intertwined it is and is going to have to basically go away in a month just given the tariff level that they’re talking about.
BETH BALTZAN: This is how I’m seeing it. And again, a lot of people are debating what’s in and not in the proclamation. So, as I read it, it looks to me like the process for what you’re talking about, which is how do we establish a system for putting tariffs on the Mexican and Canadian content of an auto part that will move back and forth across the border multiple times in the course of making a car?
That is a process that they are sending to Secretary Lutnick and, I believe, to consult with Customs and Border Protection. It reminds me of the process they did—if people will remember de minimis, that if you bring in something that’s less than $800, you don’t have a lot of paperwork that you have to file and you don’t have to pay duties on it. The President had wanted to close that loophole. So, does Ranking Member Linda Sanchez in Congress—wanting to close that loophole. And then he said, actually, well, I will ask Secretary Lutnick to establish a process for figuring out how we’re going to do that. I think there’s some questions about whether you will see that process ever come to light.
So, that’s the initial question I have, which is will this process actually be established? Again, I think you would want to do it with NTIA, the Department of Transportation. They don’t seem to be in the proclamation. So, I have a lot of questions about that.
But maybe more importantly, if they figure out a way to do it, typically what happens if you import something and pay duties on it and you re-export it, you can get your duties back that you paid. It’s called drawback. It looks to me like they’re saying, you can’t do that. When we establish this process, you will not be able to get those duties back. So, if a part goes back and forth eight times, are you paying 25 percent eight times?
TEDDY DOWNEY: Yeah, here’s how I think about it. I’m not the smartest person in the world. So, I have to dumb things down for myself. And I look at it and I say, okay, there are a lot of moving parts here. The thing is unclear. The whole proclamation is unclear. We know Trump likes to put out very aggressive things and then negotiate and get deals. What I see is a lot of lack of clarity, particularly around the relationship with U.S., Mexico and Canada. And then this like weird process where you punt a lot of the decision-making to Letnik.
And so, as a result, I could see a world in which they fudge a lot of this with U.S., Canada parts, but also the cars, because there’s lack of clarity around that. We had Canadian officials in the press say, hey, no, maybe we won’t be subject to all these tariffs. I talked to Letnik.
It just strikes me as the people who are really getting whacked in the end here—and I could be wrong about this. This is just kind of a dumb person reading between the lines—that you end up with really Europe getting whacked, China additionally. And then you have this weird, muddled process with Canada and Mexico.
If you’re reading between the lines—and obviously you can’t predict what will end up happening. But just given the weirdness and lack of clarity, particularly around USMCA, the difficulty of pulling off the tariffs the way they’re written, is that a reasonable kind of way to think about how we could end up a week or two or a month from now?
BETH BALTZAN: Yeah, I think there is a logic. The auto tariff that we charge to most trading partners is 2.5 percent. It’s pretty low. And that’s been a problem in USMCA. Because what you want to do, again, if you have an integrated North American market, is incentivize using things that are made somewhere in North America. That’s what you want. If the tariff is only 2.5 percent, then automakers can say, I’ll just pay the 2.5 percent.
So, there is a logic to say, if you want to bolster and strengthen that North American integration, a 25 percent tariff, that’s something that the auto producers are going to pay attention to. That might actually drive more parts production within North America, which again was supposed to be the point of NAFTA and then USMCA. That is not irrational.
And we also want to think about the labor connectivity here because there’s solidarity across labor unions in North America. And that was also something that was part of the renegotiation of USMCA. Democrats were in control of the House, really doing more on the labor solidarity side of the equation.
So, that makes sense. I can actually see the way the market comes out, you do get back to that kind of strategy. Which is, okay, we’re going to try to incentivize more sourcing in North America and cut out the non-Canada, non-Mexico, non-U.S. sourcing. I can see that.
To your point, then yes, the main targets here will be Europe or China or some of these other countries. This is where I would really encourage people also to look at the data. We don’t live in an Econ 101 world, an Introductory Economics world. The assumption seems to be that what your tariff is will automatically raise or lower exports and imports.
We’ve got to look at what is made where and where those things are consumed. So, a lot of cars that are made in the United States are purchased in the United States. A lot of cars, it looks to me, that are made in Europe are actually sold in Europe.
So, let’s make sure we’re looking at the data as we think about what the consequences of a 25 percent tariff will be.
TEDDY DOWNEY: And so, maybe to ask the same thing another way and then we’ll move on from the auto stuff. To the extent that this is going to be a workable solution where it’s not too chaotic and too unclear, is it to create—would it be changes that make a little bit more sense just given that this interconnectedness in North America?
Or I guess to put the question another way, how can this be successful without creating too much disruption in the supply chain, do you think? Because right now, I laid out that hypothetical, but it’s not that way. We’re actually not looking, if you just read the proclamation, that’s not what it’s saying. We’re trying to anticipate the changes that they’ll have to make.
BETH BALTZAN: Yes, yes.
TEDDY DOWNEY: But if you just look at it right now, it seems to be not doing that. So, how would you think about what changes that need to be made?
BETH BALTZAN: If the industry is successful in their conversations, my guess is that you do not differentiate between the parts that are made in the United States, made in China—sorry, made in the United States, made in Mexico and made in Canada. That to me, the whole industry was organized around the premise that those inputs would be created and treated equally.
Now, I’ll just add this. In the first administration, they were concerned about low wage rates in Mexico, that you threatened to offshore to Mexico in order to capture that low wage rate. So, they tried to do something with wage rates to level the playing field. But again, that was premised on sort of raising wages in Mexico as opposed to cutting Mexico out of the supply chain.
TEDDY DOWNEY: One of the things that also came out from Trump is he did this Truth Social message expressing some concern over EU and Canada doing a deal together. What do you think that’s about? Like, why is he concerned about that? Or why is he threatening action there related to that?
BETH BALTZAN: So, the EU and Canada already have a trade deal between themselves. So, it is very logical for them to say, wow. If the United States is going to go after us, we have manufacturing. The EU has a giant internal market, which is the whole debate around the Draghi report. How do we leverage the power of the internal EU market?
So, that is a question of Canada and the EU figuring out how they can cooperate to lift each other up and offset the harm that may follow from the administration’s approach. It strikes me that that is potentially as powerful as it sounds, which may be why you saw the Truth Social post that you did. But if they already have a trade agreement, they’re already looking for pathways to cooperate.
One flag that I would give is to make sure in that EU-Canada trade deal, especially on the auto rules, look at those auto rules and make sure they’re not allowing a ton of content from third parties. Because that will undermine your effort to integrate your economies.
TEDDY DOWNEY: Right, and that’s the China problem, basically, the leakage that you’re getting when the Chinese parts are becoming a big part of that.
BETH BALTZAN: Yes. But also, Teddy, quite honestly, they may now consider it a U.S. problem.
TEDDY DOWNEY: Yeah. Oh, I see. The EU-Canada. Interesting. I hadn’t thought of that.
BETH BALTZAN: Yes, yes.
TEDDY DOWNEY: Now, one other thing that’s going on—and this is kind of your expertise at USTR. I’m curious if this is stuff that you had to think about when you were there. There have been all of these secondary kind of complications in the market as a result of the Trump agenda.
You’re seeing Canada not buy American liquor, even if it ended up being put back on the shelves. They’re saying they don’t want to buy it. There’s a big buy Canada movement. They’re saying they won’t do tourism in the U.S. The U.S. tourism industry is putting out all sorts of reports about a massive potential decline in revenue as a result of Canadians not traveling to the U.S. There are just a lot of ramifications here.
How did those end up playing into trade conversations? Or are they just ancillary to the process? How did USTR—how did the economic decision makers in the government, think about those second, third order sort of derivative effects of their policies?
BETH BALTZAN: We would think carefully about what we were trying to do, recognizing that trying to onshore supply chains that have been offshored is really hard to do. We talked about this on the last call, that for resilience and diversification, which was supposed to be one of the lessons of the pandemic, don’t have everything made in one place. It creates vulnerabilities. You want multiple nodes of production. That’s true even of the United States. So, we would have thought through what we were doing, who we were trying to diversify away from, and then have a policy that focuses on that.
So, one of the lessons from the pandemic was there’s just too much production in China. During the pandemic, we were very short of a lot of things. So, even if you don’t have geopolitical challenges with China, just from a resilience perspective, you want to make sure you’re diversifying away.
If then you are going after Europe and going after Canada and going after Mexico, all at the same time, thinking that just tariffs is going to lead to onshoring, which I don’t think recent history suggests is very likely, you are doing too many different things all at the same time that may not be mutually reinforcing, but may actually be undermining each other.
And people don’t think about this very often.
American tourism, when tourists come here, that’s a services export. So, we are actually hurting the export side when people decide they don’t want to visit the United States.
TEDDY DOWNEY: It is a fascinating dynamic here. We’ll keep watching that. One other thing that you and I and we spend a lot—and Bryce spent a lot—of time thinking about are these non-tariff barriers. There were some announcements that maybe those might not all be in the more lenient reciprocal tariffs that we’re going to see next week. But it’s still a hot issue. It’s still kind of at the center of, hey, is it free trade or is it fair trade?
You point out that in Project 2025, they had a free trade and a fair trade segments of the report that seemed quite at odds with each other, with sort of the laundry list of non-tariff barriers that the Chamber and Big Tech kind of put out every year that they would like to see regulations weakened abroad, being sort of staunchly in the free trade, sort of neoliberal ideology of trade over the past 40 years or so. Or I should say 40 years before the Biden administration or Trump administration, whatever you want to call it. What’s your take on the current situation around NTVs?
BETH BALTZAN: It’s interesting. It strikes me that it’s reflective of exactly the dynamic you were describing, which is the tension in Project 2025. And by the way, the fair trade chapter in Project 2025 was about China. So, that comes back to the last question, what are you trying to do and how are you executing that? And are you at cross purposes with yourself?
The free trade part of it struck me as exactly what you’re saying, which is the neoliberal world is flat, if we all just take down all of our barriers, everything will be okay. We will achieve some kind of efficiency, which is ultimately deregulatory. And that’s the part that people aren’t really distinguishing, which is non-tariff barriers that are a legitimate execution of your sovereign authority.
Some of the examples of things we took out of the report that USTR produces every year, import restrictions on narcotics, import restrictions on explosives. Countries should be able to have rules at the border on bringing in narcotics and explosives. We should not be attacking those as trade barriers.
So, those are some examples of where that process got out of control. When I looked at the memo that was supposed to be driving Tariff Liberation Day, the reciprocal tariff stuff, it looked to me like they were capturing not only unfair trade barriers, are you misusing your food safety laws to keep out American potatoes when they’re perfectly safe? Or are you just going after the regulatory state itself? It looked like both of those categories were going to be included in the tariffs that are coming on reciprocity. Now they seem to have backed down from that.
So, I don’t know what’s driving that. It could be this tension between the free trade and the fair trade. It could be that retaliation is already probably happening to our farmers because of the tariffs. I see our farmers as very vulnerable on the non-tariff barrier side of it. So, maybe that’s part of what’s driving it is the potential hit to some of our sectors.
TEDDY DOWNEY: And when you think ahead, we’re going to get these tariffs next week. One of the things we’ve talked about is saying, hey, your food safety laws are weaker because of your deregulation. That can be either legitimate or just a pretext for retaliation.
Well, I guess first we should talk about what are you expecting from next week? And are those non-tariff barriers that we just talked about—or not even the non-tariff barriers, but the deregulatory agenda in the U.S.—does taking the non-tariff barriers take away potential sort of excuses for retaliation when we see the inevitable retaliation to whatever tariffs come out next week?
BETH BALTZAN: My answer to everything seems to be it’s really hard to predict. So, I apologize. But also, I think possibly the reaction to the auto tariffs may affect what they decide to do on April 2nd. Because it’s not clear to me that they have fully gamed out the consequences of the things they’re doing. Maybe they have. But their willingness to put things out there, see what the reaction is and then pull back suggests they’re kind of comfortable with doing it and making adjustments on the fly.
We’ve seen a number of different messages coming out about what will or won’t happen on April 2nd. Very hard to stay on top of the latest. You have to be reading all the proclamations and the social media and interviews with the press. It’s really, really hard to keep on top of it. I think it was going to be the “Dirty 15.” Maybe it’s going to be fewer than that. They seem to be very motivated by the trade deficit.
Something I’m not sure they’ve also fully thought out is—and I think this is something that you’re alluding to—is if at home we are ourselves deregulating, does that not create openings for other countries, either under our trade agreements or under some of the tools that they have that don’t require a trade agreement, to say, wait a minute, United States. You put wage suppression in your reciprocal tariffs memo. We think you’re engaging in wage suppression. We’re looking at what you’re doing with the National Labor Relations Board and various other actions. And that looks like wage suppression to us.
If you’re Canada and Mexico and some of our more recent free trade agreement partners, that might be actionable under the agreement because we made certain commitments not to roll back laws and regulations in order to attract investment. I see that as a risk on the lumber Section 232 investigation because it was paired with opening up federal lands to logging.
You’ve really got to make sure you’re thinking about the intersection of all the things that you are doing so that you’re not creating exposure for yourself in ways that you did not anticipate.
TEDDY DOWNEY: One of the things that I keep struggling with is if the goal is to deal with China, you would think a quick strategy for figuring that out is, all right. You sort of collaborate with your allies and then you figure out a way to deal with China. But what we’ve seen is going really hard after Canada—and we’ll see, I guess, if that continues with these auto rules or not, but otherwise, pretty tough on Canada and very aggressive to the point where, obviously, Canada has had a visceral reaction. And you then have Europe where they’re going extremely hard after Europe.
How does this affect the ability to actually go after China, deal with China, successfully? And do you see that getting exacerbated next week? Because that’s obviously something that, from everything we’re hearing, Europe is really bracing for this and prepared to act. But I wanted to get your take on that.
BETH BALTZAN: I’ll flag something we tried to do in the Biden administration, which was negotiate with the Europeans a green steel and aluminum deal. And the idea there was we would be advancing decarbonization goals, but also work together to build a common tariff wall. Because we know that the non-market policies and practices coming out of the PRC, especially with respect to steel and aluminum, but also other sectors are really problematic. They depress the global price of steel and aluminum, market-oriented competitors have a really, really tough time dealing with that.
And it’s why you saw the steel and aluminum tariffs applied to countries that are allies. It’s not that we don’t think they’re allies. It’s that you’ve got a depressed global price. And if you’re going to have a higher price in the U.S., you’ve just got to restrict the imports that you’re letting in.
And I think that’s really important when you’re talking about national security because our allies were really upset that they were included. But then you see that the pathway out of that is for allies to cooperate and build a common tariff wall.
That didn’t work for various reasons. I think we ran out of time. There were also some questions, I think, for Europeans about whether they were comfortable building a common tariff wall. We could have done that and then expanded it to other like-minded countries. You could have included a Canada. You could have included perhaps a Japan. That is a way in which you work with your allies in these sensitive sectors to start building out a way of creating a common agenda for addressing a non-market participant who is making it really difficult for your more market-oriented companies to survive.
TEDDY DOWNEY: Another thing we’ve seen sort of in the same vein is, oh, well, these tariffs are really just negotiating leverage to cut a deal. And that makes sense at one level.
However, just the experience with USMCA, which is a Trump agreement basically being torn up and the sort of on-again, off-again tariff threats, sort of the over-the-top sort of very aggressive and sort of ad hoc nature of this tariff strategy doesn’t seem to lend itself to anyone feeling confident that the U.S. will honor a deal. Why would anyone enter a deal if they don’t think it’s worth anything? I mean, am I crazy to be thinking that it’s harder to get a deal when you’re going about the tariff and the negotiations this way? Or am I overthinking it?
BETH BALTZAN: I don’t think you’re overthinking it. It’s why—so you’ve heard me say, I think there’s a rationale for a 25 percent tariff that then helps you with the North American market. So, I’m not one of these people who says you should never do a tariff.
However, the way Canada and Mexico are being addressed in that proclamation and in the overall strategy, especially Canada. You know, Canadian soldiers have died in American wars. If you are treating Canada that way, every other ally says, if you are going to treat Canada that way, it’s going to be worse for me.
And this is where I really encourage people to think not only in the trade lane—which is a mistake a lot of people make. They think trade is just operating on this separate track. You’ve got to think about the annexation threats. You’ve got to think about the detention of Canadians in the United States when they cross the border. You’ve got to think about what we saw about the comments about Europe and being a free loader. This is actually not going to only be about tariffs. If what you’re doing is overall messaging an existential threat to people, they’re going to respond in a way that is completely outside of a very narrow focus on tariffs.
And to your point, on off, if you’ve unleashed chaos, thinking that you can then reverse it by taking the tariffs away, I think that’s very unlikely. People are really, really alarmed in an existential way about the totality of the approach to the global world order, not just trade rules.
TEDDY DOWNEY: Let’s stay on this topic a little bit and talk about the dollar and investment flows. Because we talk about this. What is the dollar strategy? And isn’t it kind of part of being the global reserve currency that your allies hold dollars? They buy dollars. They want to support their allies.
And in terms of investment flow, Canada has a lot of money. You know, the people, the pension funds. They’re saying they’re investing less in U.S. stocks. Germany is weakening their borrowing rule requirements and investing heavily in infrastructure. And capital is flowing there.
I just talked about some of the initial reaction here. How do you think about the dollar? How do you think about investment being affected by the nature of these negotiations that we’ve seen so far and sort of the totality of the posture of the U.S. when it comes to trade, foreign policy, economic agenda?
BETH BALTZAN: This is something I’m really interested in because of the trade connectivity. There are also finance people who know how the plumbing works. I am not such a person.
So, let me give you the trade perspective. This strikes me as an example of the administration wanting multiple different things at the same time that are in conflict with each other. It seems to me they want a stronger dollar and a weaker dollar.
They like the idea that as a reserve currency, we can sanction other countries. That’s one of the things they proposed to do to Colombia. But then everything they’re doing suggests that maybe we don’t want to be a reserve currency because why are people going to want to use the dollar as the reserve currency if they’re concerned about our commitment to our allies, if the dollar is, in fact, a safe place to park?
So, there are views that the dollar is an exorbitant privilege because of the sanctions, because you can run deficits. But there’s also a view that as a reserve currency, you run trade deficits. If that’s true, then it explains why some other countries aren’t so excited to be the reserve currency themselves. But it shows you the complexity of all of these pieces.
Barry Eichengreen is really, really the expert, in my view, on the dollar as the reserve currency. He’s been ringing the alarm bells for a long time that a lot of things are happening that are slowly making us less attractive as a reserve currency.
Nobody else has stepped up in the meantime. But I hope the people who care about the dollar as the reserve currency, who are in the administration, I assume that’s Treasury, are paying close attention to the totality of what’s happening and are very clear-minded that all of these policies pull in the same direction and aren’t conflicting with each other.
TEDDY DOWNEY: One of the overall things that people are keeping in mind when they’re thinking about Trump and his economic agenda and trade is, is he really committed to Main Street over big business? Is this administration really going to deliver for Main Street? Which, as someone who is a citizen here, seems like an extremely noble goal. And I think we’ve been very, very generous to the privileged, elite, wealthy people in this country. A lot of them think they earned it. Maybe some of them did. Maybe they did. But some of them certainly didn’t.
And I’m curious to get your thoughts on what does it take—how is the Trump report card, how is next week going to update the report card on delivering for Main Street? And I think of Main Street as a coalition of the people who’ve been left behind by neoliberalism, let’s call it, the manufacturing industry, workers, small businesses, and success long-term from that would be more business, new business formation, less wealth disparity, better terms for workers, more jobs in the U.S., higher wages. So, we’re a noble goal. Fingers crossed we figure it out in this country at some point. But where do you think Trump is and the Trump administration on that front?
BETH BALTZAN: It is so important that you defined Main Street. Because a lot of people who continue to believe that trade operates like what we learned in introductory economics, ingrained in them is that Main Street is consumers. So, this is the whole “tariffs are taxes” line that didn’t work in 2024 because a lot of voters see themselves as workers.
So, to your point, manufacturing workers, they hear tariffs and they say, oh, here’s somebody who sees what free trade did to my community. They see deaths of despair. This is somebody who wants to fix my problems.
So, it’s a messaging victory. What are we actually going to see shake out? I don’t know. This feels a little bit like move fast and break things and then see what happens and fix things after stuff’s broken.
I don’t know that everything is fixable after it’s broken. When I look at something like the executive order on fentanyl and migration, and I see that paired with a domestic strategy that is not going to help—they’re cutting funding for people who are suffering from addiction.
I saw that just the other day. When you match the domestic agenda to the international talking points, they don’t work. And it starts to look like you just want to use tariffs all the time, thinking you can solve every problem like it is the United States under McKinley in the Gilded Age.
It’s what we were talking about with what they’re doing in the National Labor Relations Board, some of the things that are happening at the Federal Trade Commission, what’s happening at USDA, HHS. All of these things that are happening domestically, I don’t see as helping American workers, if the idea is you can do a bunch of tariffs and solve for the trade deficit, and that’s going to trigger a manufacturing renaissance in the United States. But you’re also deregulating. To me, we’re going back to meatpacking and Upton Sinclair and the Triangle Shirtwaist factory fire. I don’t see how that delivers for actual working people. And in the meantime, if you’re doing tariffs in this scope, they’re not targeted. And so, you do perhaps see tariff increases passed onto consumers. It doesn’t always happen, but sometimes it happens. Then you’ll ask yourself what you accomplished at the end of the execution of this policy.
TEDDY DOWNEY: Yeah, I remember, I think you sent it to me, Julius Krein in the FT laying out what needs to happen in a positive way for Trump to deliver. And it was sort of deliberate, strategic tariffs paired with investments in infrastructure. Is that still possible? Is that still kind of on the table? It strikes me that the investment, they’re undoing the IRA. Musk is adamant on cutting. There’s a huge focus on just maybe tax cuts, but otherwise not spending any more money.
Do you see a path here for the Trump trade administration to sort of get on that Julius Krein path? He has an association of, I think, small businesses. And that was what he said that his members would need to make the long-term investments necessary to sort of bring manufacturing back. What do we need to see to have confidence that that is ultimately where things are headed with the Trump administration?
BETH BALTZAN: There’s going to be a test case, potentially. So, first, what I always find interesting about Julius is that he has a banking and finance background. So, when he’s talking about how you achieve industrial policy in the United States, he’s someone who can get into the details and that I pay attention to because he knows what he’s talking about, in my opinion.
There was a petition and an investigation under the Biden administration with respect to shipbuilding. The remedies portion of that is within the purview of this administration, just based on timing before and after January 20th. The administration has floated that it wants to do fees. And we can game out sort of what that looks like.
To me, it suggests if you really want to reinvigorate the American commercial shipbuilding industry, I think you’re going to need an affirmative industrial policy to match. I think about things like the Inflation Reduction Act, the CHIPS Act, the types of things that the Biden administration was able to get through Congress, that this administration doesn’t seem to like. And maybe there are certain aspects of those plans that you would like to fix. This should be an iterative process.
But if you’re taking those kinds of projects off the table because you only want to do tariffs, then I don’t think you’re going to get to this kind of circumstance that Julius is describing. And that strikes me as a vulnerability in the effort to try to address these issues.
I’m also keeping my eye on, again, going outside of this lane and looking at the totality of the administration’s relationship with Congress, how close the House is, the metastasizing anger about some of the confirmations, about what happened with the cloture vote on the continuing resolution. Are you moving towards a situation where Democrats are not going to feel like they can vote for anything that the administration floats?
And on top of it, you’ve either got Republicans who don’t want to spend money or Republicans in swing districts who are going to be nervous about where Democrats are going and are going to be thinking through very carefully how to hang on to their seats. They just pulled, I believe yesterday, the nomination of Elise Stefanik to be the United Nations Ambassador because that would have opened up a seat in New York that perhaps they’re not sure they can keep at this point.
TEDDY DOWNEY: Before I let you go, I wanted to ask you to put on your legal hat, your strategic hat. And if you’re the Trump administration, you want to have a successful week next week. You want your tariffs to be implemented effectively. What are you nervous about, worried about, you might see in terms of retaliation or lawsuits or other maneuvers by Europe or others in response to the tariffs that are coming out? And just the overall tariff threats that have been put out there.
BETH BALTZAN: We’re dealing with countries and economies that went through the first Trump administration. And they have a very sophisticated understanding of pain points in the United States. I think they’ve been quite clear that their retaliation will be targeted to red states, red districts.
I thought I saw yesterday that the EU is contemplating constraining its market with respect to American Big Tech, which is a big source of revenue and market for what we call American companies, companies headquartered in the United States. So, my understanding is that we’ll be dealing with officials who have a really sophisticated understanding of how to fight back.
I also think, to the extent you’re doing so many different things at once, across so many different dimensions, if you were just doing some tariffs in this narrow way, and you were threatening to escalate if people retaliated, they might say, I’ll accept this. It’s not worth it. When you put everything on the table, including the entire world order, you’re changing their calculus for the pain they will absorb and the conversation within those economies where their people are going to say, wow. If this is an existential threat to us, I will accept higher prices on things. I will wait for the German investments and this unleashing of a domestic plan to create jobs here. When you trigger that kind of emotional response in people, they’re willing to do some things they probably wouldn’t have been willing to do if you had kept it to a pretty tidy little tariff conversation.
TEDDY DOWNEY: That brings up a point—I was trying to have a conversation with my wife last night about trade, and I’d love to get your take on this. Which is to some level, if you’re in a trade war, it’s easier to win that war if you have a lot of public support to go to war against the trade foe, the enemy there. I think probably Trump and the Republicans would have a pretty long leeway, a long road of public support if they were targeting China exclusively. How much political support, how strong or fragile is it, if you’re going after Canada and Europe?
It just doesn’t strike me—it seems like—and then you turn around and you look at Canada who has been—literally one political party has seen its popularity improve dramatically by standing up to Trump. In Europe, the same thing. In Germany. We’re looking at people who are asking their politicians to stand up to Trump. No one’s saying, hey, please go after Canada and Europe.
At some level, there is a little bit of this thing that Vance has done, which I think is true, where some people think that Europe has freeloaded on the U.S. from a national security standpoint. So, I don’t want to belittle that or say that’s not legitimate. But I’m curious to get your take on, if you’re in a trade war, if you’re in trade disputes, how important is it to have strong popular support so you can withstand some pain? I mean, you just made that point. But from a timing and popularity standpoint, how big of an issue is that?
BETH BALTZAN: I look at what Prime Minister Carney said yesterday. He’s a central banker. Generally, central bankers don’t engage in a lot of hyperbole, in my experience. And he said our entire relationship is different now. And when you have someone who presents like Carney does, saying that, to me, it’s a huge deal. What I’m seeing about the way that’s received in Canada is people are getting the message that this is a very serious problem, and that it’s a five alarm fire.
You’re seeing the polling for the conservatives—who were on their way to a landslide just a couple of months ago—apparently, they’re now trailing in the polls. So, Canada is a tangible example of your political support in a place like Canada changing precisely because of the scope of the attacks on Canada. I cannot stress enough, telling Canadians you want to annex them is such a fundamental shift in how they think about us now. There’s that.
The other piece of it, and I haven’t seen this talked about, so I’m glad you asked this question. Domestically, my experience in Congress, during some of the trade debates, reminds me that our southern border has a lot of integration with Mexico, including on autos and auto parts and all sorts of other products. So, it’ll be interesting to see what happens if this auto plan goes forward. What does that do in places like Texas that have very robust trade ties with Mexico? Are you hurting people economically in a way that’s hard to make up for, that also has consequences for your political support at home?
TEDDY DOWNEY: Yeah. I think it’s funny, we’ve talked for an hour and we haven’t really talked about inflation. I think there’s plenty of people talking about that. So, we don’t even need to get into it. It just reminds me that there’s so many aspects of this that are well beyond inflation that no one talks about.
Before I let you go, I’ve got one more question, and that’s China. I’m curious, because I think there’s two views on China. One is they’re in such bad shape and their economy is slowing down and they’re so nervous. And these tariffs are really getting to them and it’s causing a lot of problems in their economy. And then I have this sort of sneaky suspicion that there’s a reason why they haven’t reacted yet, which is they’re just being patient here to see what happens. Which seems to me like a savvy move potentially, but I want to get your take on when are we going to hear from China? When are we going to see them retaliate? What do you think is going on there?
BETH BALTZAN: My guess is that if I had read the fair trade chapter in Project 2025, I would have thought, oh, wow. They’re really coming for me. I would not have anticipated coming for everyone, including Canada and Mexico and Europe. So, I would be saying this is actually a huge relief and takes the pressure off me.
So, I think that’s right. I would be patient. They’re very good at being patient. And I would watch and see what happens with the multiple prongs of attack on countries other than China and what the consequences are for the United States in having done that.
TEDDY DOWNEY: Makes sense to me. Well, Beth, truly fascinating conversation, fascinating time. Look forward to doing this again next month. And to all our listeners, thanks for joining us today. And this concludes the call. Bye, everybody.
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