>>> TODAY DONALD TRUMP’S LONG-THREATENED TARIFFS AGAINST
CHINA WENT INTO EFFECT.
WASHINGTON IMPOSED TARIFFS ON
$34 BILLION WORTH OF IMPORTED
CHINESE GOODS.
CHINESE GOODS. BEIJING QUICKLY RETALIATED WITH
$34 BILLION IN TARIFFS ON
IMPORTED U.S. GOODS LIKE
SOYBEANS, PORK, SEAFOOD, CARS,
AND WHISKEY.
AND WHISKEY. CHINA’S COMMERCE MINISTRY
ACCUSED THE TRUMP ADMINISTRATION
OF IGNITING THE BIGGEST TRADE
WAR IN ECONOMIC HISTORY.
IN RESPONSE TO WHAT HE HAS SAID
ARE YEARS OF UNFAIR TRADE
POLICIES, THE PRESIDENT HAD
ALREADY IMPOSED TARIFFS ON
IMPORTS FROM EUROPE, CANADA, AND
MEXICO, WHICH RESPONDED IN KIND,
AS WELL AS JAPAN.
HE’S THREATENING AN ADDITIONAL
$500 BILLION ON TARIFFS ON
CHINESE IMPORTS.
CHINESE IMPORTS. FALLOUT FROM THE GROWING TRADE
WAR IS EXPECTED TO HIT TRUMP’S
BASE THE HARDEST.
THE RETALIATORY PRODUCTS ARE
MOSTLY PRODUCED IN THE STATES
THAT VOTED FOR DONALD TRUMP.
JOINING US NOW IS ONE OF THE ALL
TIME VETERANS IN THE WORLD OF
FINANCIAL JOURNALISM, CNBC
CONTRIBUTOR RON INSANA.
RON, ARE WE IN A TRADE WAR AND
HOW BIG IS IT?
>> WE ARE IN A TRADE WAR.
IT IS NOT THE BIGGEST IN
HISTORY.
HISTORY. YOU WOULD HAVE TO GO BACK TO THE
1930s TO SEE THAT, WHERE WE HAD
INTENSE PROTECTIONISM, THE
SO-CALLED SMOOT/HAWLEY TARIFFS
THAT DEEPENED THE GREAT
DEPRESSION AND LED TO
COMPETITIVE CURRENCY
COMPETITIVE CURRENCY DEVALUATIONS, WHAT THEY CALLED
BEGGAR YOUR NEIGHBOR POLICIES
THAT MADE THINGS MUCH WORSE.
WE’RE AT THE BEGINNING OF A
TRADE WAR.
TRADE WAR. IF THE PRESIDENT WERE TO IMPOSE
THAT $500 BILLION ON CHINESE
GOODS, THAT’S EVERYTHING THAT
CHINA SENDS US, THAT WOULD BE
THE TRADE WAR TO END ALL TRADE
WARS.
WARS. THAT WOULD RATTLE THE ECONOMY.
>> THAT WAS MY QUESTION, LOOK AT
THE STOCK MARKET TODAY, I THINK
IT WENT UP, IT ENDED THE DAY UP.
>> YEP, YEP.
>> WALL STREET NOT YET
RESPONDING LIKE THIS IS A PANIC
SITUATION.
SITUATION. >> CERTAINLY NOT PANIC.
WALL STREET HAS BEEN GOING
SIDEWAYS SINCE JANUARY, SINCE WE
TOPPED OUT.
TOPPED OUT. WE HAVEN’T MADE A NEW ALL-TIME
HIGH IN THE DOW OR THE S&P FOR
QUITE SOME TIME.
THE NASDAQ, BEING STRONG IN
TECHNOLOGY, HAS BEEN DOING WELL.
THE RUSSELL 2000 THAT IS FOCUSED
ON DOMESTIC ECONOMIES HAS GONE
TO A SUCCESS OF NEW HIGHS.
WE SEE THE MARKET
DIFFERENTIATING.
DIFFERENTIATING. INDUSTRIAL STOCKS HAVE TAKEN A
HIT.
HIT. IN A CERTAIN SENSE, PARTS OF THE
MARKET ARE REFLECTING THIS
EMERGING TRADE WAR.
BUT THE OVERALL MARKET HASN’T
REALLY COLLAPSED.
REALLY COLLAPSED. IT HAS IN CHINA, HOWEVER.
CHINESE STOCKS ARE DOWN ABOUT
23% FROM THEIR MOST RECENT HIGH.
>> IS THERE ANYTHING TO THE
THEORY TRUMP TALKS ABOUT BEING
THE NEGOTIATOR, ABOUT LEVERAGE,
ABOUT THE IDEA OF YOU START TO
BEGUN DOWN THIS ROAD, YOU RATTLE
CHINA, AND THEN THEY GET NERVOUS
AND THEN YOU’RE ABLE TO HAVE
SOME LEVERAGE TO RECENTER THE
RELATIONSHIP SOMEHOW?
RELATIONSHIP SOMEHOW? >> THERE MAY BE.
EXCEPT THAT CHINA LIKES TO PLAY
A LONG GAME.
WHEN THEY’RE THINKING ABOUT
CHINA 2025 OR CHINA 2050, WE’RE
THINKING ABOUT USA TOMORROW.
SO TO THE EXTENT THAT YOU HAVE A
LEADER THERE WHO IS LEADER FOR
LIFE, AND YOU HAVE A PRESIDENT
WHO IS A TEMPORARY OCCUPANT OF
THE WHITE HOUSE, THERE ARE
DIFFERENT STRATEGIES AT WORK
HERE.
HERE. THE CHINESE COULD TAKE THE HIT
FOR A LONGER PERIOD OF TIME,
POTENTIALLY, THAN THE UNITED
STATES IF THEY CHOOSE TO DO SO.
RIGHT NOW THEIR ECONOMY IS
FALTERING A BIT SO THEY MAY GET
HIT A LITTLE HARDER.
BUT ALSO GETTING HIT ARE U.S.
COMPANIES THAT REIMPORT PARTS
FROM OTHER PLACES THAT THEY
MANUFACTURE IN CHINA AND BRING
THINGS HOME THAT ARE NOW BEING
HIT WITH TARIFFS.
THERE ARE COMPANIES IN THE
UNITED STATES THAT ARE FEELING
THE EFFECT OF HIGHER PRICES,
HIGHER INPUT COSTS AND
RETALIATORY TARIFFS.
RETALIATORY TARIFFS. SO EVERYBODY HAS SOMETHING TO
LOSE.
LOSE. TRADE WARS ARE NOT WIN/WIN.
THEY’RE NOT EVEN ZERO SUM GAMES.
THEY’RE LOSE/LOSE, GENERALLY
SPEAKING.
SPEAKING. >> THE NEXT STEP, WHEN YOU SAY
IT WOULD ELEVATE IT TO A
SITUATION ON PAR WITH SOMETHING
WE SAW BACK IN THE ’30s IN TERMS
OF THE SCALE OF IT, IS THERE A
SENSE WHEN THE ADMINISTRATION
WOULD MAKE THAT DECISION, IF IT
MAKES THAT DECISION?
>> NO, I DON’T THINK YET.
IT’S MOVING REASONABLY QUICKLY
AS IT IS.
AS IT IS. THE COMMERCE DEPARTMENT
DETERMINED THAT THE U.S. WAS
HARMED ECONOMICALLY TO THE TUNE
OF ABOUT $50 BILLION.
IT’S IMPOSED $34 BILLION WORTH
OF TARIFFS ON CHINESE GOODS.
WHEN YOU START GOING ABOVE THAT
LEVEL OF ECONOMIC HARM, THEN YOU
HAVE TO WONDER HOW HARD CHINA
WILL RETALIATE, HOW HARD THEY’LL
GO, WILL THEY DRIVE DOWN THE
VALUE OF THEIR OWN CURRENCY
WHICH WOULD MAKE THEIR EXPORTS
CHEAP AND HER OFFSET THE IMPACT
OF THE TARIFFS?
THEY’VE ALREADY REDUCED TARIFFS
ON GOODS IMPORTED FROM PLACES
LIKE VIETNAM AND OTHER ASIAN
NATIONS.
NATIONS. THEY’VE STOPPED BUYING U.S.
SOYBEANS.
SOYBEANS. THIS COULD ESCALATE VERY
QUICKLY.
QUICKLY. IT COULD GET OUT OF CONTROL.
IF THAT WERE TO HAPPEN, YOU
COULD SEE A GLOBAL RECESSION,
BECAUSE OUTSIDE OF THE UNITED
STATES, EUROPE IS WEAKENING
ECONOMICALLY.
ECONOMICALLY. CHINA IS, JAPAN IS KIND OF
MORIBUND.
MORIBUND. SO IT COULD GET NASTY QUICKLY.
THE MARKETS ARE FOCUSED MORE ON
SHORT TERM REALITIES.
THE ECONOMY HERE IS GOOD,
PROFITS LOOK DECENT IN THE
SECOND QUARTER.
SECOND QUARTER. WE’LL START HEARING ABOUT THOSE
NEXT WEEK.
NEXT WEEK. BUT IN THE LONGER RUN, WHEN YOU
LOOK OUT, IF THIS THING WERE TO
SPIN OUT OF CONTROL, IT WOULD BE
A SERIOUS, SERIOUS PROBLEM FOR
THE GLOBAL AND THE DOMESTIC
ECONOMIES.
ECONOMIES. >> YOU MENTION THE SMOOT/HAWLEY
TARIFF ACT, GOING WAY BACK.
BUT IS THERE AN EXAMPLE OF A
MODERN PRESIDENT WHO HAS DONE
SOMETHING ON A SMALLER SCALE?
>> SURE, RONALD REAGAN DID THIS
WITH THE JAPANESE.
IF YOU RECALL, 1986 OR SO, WE
WERE LOSING MANUFACTURING JOBS
TO JAPAN AND THERE WAS GREAT
CONSTERNATION IN WASHINGTON.
AT ONE POINT A GROUP OF CONGRESS
MEN SMASHED A TOSHIBA TELEVISION
SET ON THE STEPS OF THE CAPITOL.
WE HAD ARGUMENTS WITH BOTH JAPAN
AND GERMANY DURING THAT PEOPLE.
BUT THEY WERE ULTIMATELY
AMICABLY RESOLVED AND RESULTED
IN A STRENGTHENING OF
ORGANIZATIONS LIKE THE WORLD
TRADE ORGANIZATION.
TRADE ORGANIZATION. WHEREAS THE TRUMP ADMINISTRATION
WANTS TO BREAK AWAY FROM THOSE
MULTILATERAL AGREEMENTS THAT
GOVERN INTERNATIONAL TRADE.
IF THAT ALSO WERE TO HAPPEN, IF
NAFTA WERE TO BREAK DOWN, WE
WERE TO PULL OUT OF THE WTO AS
THE PRESIDENT MAY HAVE SUGGESTED
AT ONE POINT ALONG THE WAY, AT
LEAST ACCORDING TO SOME REPORTS,