YouTube Transcript:
Are Trump's Tariffs Working?
Skip watching entire videos - get the full transcript, search for keywords, and copy with one click.
Share:
Video Transcript
Available languages:
View:
Hey everyone, it's Richard. You're
watching the plane bagel. It's been 7
months since Trump first started what
would end up being America's trade war
against most of the world with tariffs
being the market dominating topic of the
year and the slew of trade announcements
bringing America's effective tariff rate
to roughly 17% the highest it's been
since 1935. All under the premise that
the tariffs would benefit the US by
getting foreign countries to pay for
access to US consumers, bringing
manufacturing jobs back to America, and
ultimately spurring economic growth for
the country. Now, tariffs have long been
a tool used by countries to keep foreign
companies out of what are deemed to be
sensitive industries. But the idea that
they could spur economic growth or this
sort of prosperity is a fairly
controversial idea, not really supported
by economic theories or empirical
evidence. So, it's no surprise that we
saw these tariff announcements followed
by market sell-offs and predictions of
surging inflation and a recession by the
end of the year. And yet, that hasn't
happened. Prices so far haven't really
moved as high as was initially feared.
The stock market has returned to pushing
new record highs, and the economy has
actually been posting better than
expected results. All the while, the
White House is claiming to have brought
in trillions of dollars of foreign
investment to the country, supporting
the idea that seemingly against all
odds, the US has managed to hard ball
its way into prosperity, uh, using its
massive consumer base as a bargaining
chip to negotiate many concessions from
foreign countries and get them to pay
tribute to their economy. But depending
on where you look, the figures can paint
a very different picture. Labor, for
example, has continued to disappoint. In
August, we saw the massive 258,000
downward revision to the estimated May
and June hiring numbers with a more
recent estimate actually pointing to a
decrease in non-farm payrolls for the
month of June. So, are Trump's tariffs
actually working? Is Trump making like
Cynthia Aribo and defying gravity? Or is
the US economy actually sputtering here?
Well, with us now being 6 months into
this period of of high tariffs, we now
have some more data to help better
understand what's happened year to date.
And today we'll look into some key areas
and discuss how they've been impacted by
Trump's tariffs and importantly why they
might have been moving against
expectations. But before hopping into
that, it's worth understanding the
opposing view. Why many economists are
against Trump's tariff regime. You see,
like other forms of taxation, tariffs
are considered to be an inefficient
price distortion to the market.
Something that both lowers the quantity
traded and increases prices. And while
they can be important to utilize from a
national security standpoint, when it
comes to free trade, they generally
prevent countries from taking full
advantage of specialization. The idea
that if different countries focus on
different areas and get better at those
things, the group of trading partners as
a whole will mutually benefit from
higher quality goods or lower prices.
Now, a big part of Trump's tariff
campaign is America's large trade
deficit. The fact that the country
imports hundreds of billions of dollars
more than it exports to other countries.
Uh but this isn't inherently a bad thing
for the United States. Yes, there can be
uh consequences to having a large trade
deficit, but it's quite normal for a
wealthy nation to be a net importer of
goods. And for the US specifically, this
deficit has actually helped the US
dollar and financial markets maintain
their global dominance. Since this
exporting of dollars contributes to it
being the most widely used currency
globally, not to mention that being able
to buy a foreign good for less than you
could domestically comes with its own
benefits. And while yes, tariffs may
allow certain domestic industries to
prosper with the protections put in
place uh thereby creating jobs in those
select areas, it's generally the view
that the higher costs passed on to the
consumers and the general job loss from
the distortion isn't generally worth the
protection. In fact, while Trump's
tariffs on steel during his first term
did create thousands of new jobs in that
industry, this benefit was offset by the
impact to manufacturing where higher
input costs led to a relative decline in
employment. And with seeing many
examples historically of countries
hurting their economic output by
imposing tariffs, you can see why many
economists generally advocate for free
trade. But it brings us to the first
main question that's puzzled a lot of
people by now. If tariffs are so bad for
inflation and the like, why aren't
prices rising? After all, tariffs should
directly increase the cost of a good
because they are literally increasing
the cost of buying that thing. So, you
should see prices increase as a result.
Yet, Trump has highlighted that
inflation is virtually non-existent
except for windmills, I guess, stating
that it's foreign countries who are
paying the higher price of these
tariffs, not Americans. Now, both of
those statements are technically
incorrect given that tariffs are paid
for at the importer level and we are
still obviously having inflation. It is
true that the latest inflation figures
have been below expectations with CPI
price levels increasing just 2.9% as of
the most recent release, above the
central bank's target, but still fairly
below the higher rates feared by
economists. Meanwhile, the PPI, which
measures prices charged by producers,
was recently reported to have increased
2.6%. 6% with the level actually dropping.1%
dropping.1%
month overmonth in August. Something
that among other things has prompted
many to argue that tariffs are actually
deflationary not inflationary. And it is
true that foreign companies are
absorbing some of the cost of the
tariffs here because while they don't
pay the cost directly they have been
lowering their prices to compensate for
the higher fee. In fact, Goldman Sachs
estimates that consumers so far have
only borne about 1/5if of the entire
cost of Trump's tariffs with Teimu, for
example, recently reducing the price of
its popular products by an average of
18%. Supporting the idea that Trump has
seemingly pulled off the impossible of
raising record levels of tariff revenue
without pushing up prices meaningfully.
The problem, however, is that it's not
foreign companies absorbing the lion's
share of these levies. According to
Goldman Sachs, foreign exporters have
actually paid less than US consumers,
covering just 14% of these new fees,
while US businesses have covered the
remaining 64%. Meaning effectively that
domestic parties have paid roughly 86%
of the record-breaking tariff revenue
that's been brought in. Now, the reason
US companies have willingly taken the
brunt of these levies is because in
2025, we've seen consumer confidence
drop to its lowest point since the
pandemic. Many companies are concerned
that consumers would rather forego
spending than pay higher prices. And
with the trade situation being so
volatile with new trade deals being
announced and changes made, it appears
companies are trying to avoid alienating
their consumer base and waiting to see
how things ultimately shake out. So that
helps to explain why we haven't seen the
surge of inflation that many expected by
now. Uh but another component here to
consider is the inventory stockpiling.
Uh on the announcement of tariffs, we
actually saw the US increase its trade
deficit to a record high as companies
increased imports trying to get ahead of
the new levy. Something that temporarily
has allowed companies to put off their
price hikes as they haven't yet paid
more for their own inputs. The problem,
however, is that neither of these
mitigation methods are sustainable. Uh
Goldman Sachs estimates that by the
fall, consumers will be covering 67% of
the cost of tariffs as companies
increasingly pass along their price
increases. Now, it's a common
misconception that if you have a tariff
rate of say 50% on steel imports, that
that will increase the price of most
goods directly by 50%, assuming they
have imported uh components. However,
the cost of final products has many
other factors baked into it in addition
to imports, including uh labor involved
with final assembly domestically as well
as retail staff who sell that product.
Uh neither of which would be impacted
directly by a tariff rate. Nonetheless,
many forecasts have pointed to a broad
general price increase of 2 percentage
points above what we're currently
seeing, meaning that we could see
inflation of 4 to 5% across the board
once businesses passed on more of the
tariff costs. So, while the current
inflation situation has been used by
some as evidence that economists have
been wrong, and to be clear, uh they are
wrong a lot, uh you can see that it's
not so much that tariffs aren't
impacting price levels, but more so that
companies are trying to compensate for
it and to hold off hiking their own
prices as long as possible in the face
of a weak consumer base. Now, as for why
some have posited that tariffs are
actually deflationary, that stems from
some monetary schools of economic
thought that argue that all forms of
taxation are deflationary in nature,
given that they pull money out of the
economy and thereby reduce money supply
and liquidity, which is a real factor in
consideration. Taxation does have a
depressing impact on money supply. And
if we experience a recession, it could
very well lead at some point to a
decrease in price levels as economic
contractions tend to be deflationary.
But this real deflationary pressure of
tariffs is often offset by the direct
impact tariffs have on prices, the
disruption it causes to supply chains,
which brings other costs as companies
have to set up new infrastructure and
the economy deals with the dead weight
brought on by taxes. And in this case,
the fact that the US government is
directly offsetting any deflationary
influence from tariffs with the big
beautiful bill, which cuts taxes,
increases government spending, and is
forecasted to increase the government
deficit by $1 trillion over the next
decade, even after accounting for tariff
revenue brought in. And thankfully, we
don't have to theorize about the
relationship between tariffs and
inflation because again, we have
empirical evidence to demonstrate that
while the impact is not always
clear-cut. Historically, tariffs tend to
lead to higher price levels for the
imposing country. The circumstances
where you often see prices fall is when
again the tariffs occur during or cause
a recession. During periods of economic
expansion, inflation is actually
exacerbated by tariffs. And as a side
note, regarding the PPI measure that
many use as evidence of deflation, it
was actually services that saw a
decrease in price and ultimately pulled
the measure down. Goods where tariffs
are actually applying still saw their
prices increase. But then what about the
other angle, the manufacturing jobs? Uh
Trump has long argued that the US has
hollowed out its manufacturing
capabilities by relying on foreign
countries and that tariffs would help
bring these jobs back on shore. Is that
in fact what we're seeing? Well,
no. While we did in fact see the trade
deficit for the United States fall 25%
year-over-year in July, that also
followed a period of record high
imports. So it is somewhat to be
expected. And domestic manufacturing
hasn't really shown meaningful signs of
reigniting. One gauge of manufacturing
activity, the S&P global US
manufacturing PMI did in fact see a
strong rebound in August. Another gauge,
the Institute of Supply Management's
manufacturing index, instead showed that
the US had had its sixth month of
manufacturing activity contraction with
Susan Spence, the chair of the survey
committee, indicating that 69% of
manufacturing GDP was estimated to be in
contraction. We've also seen sluggish
performance from other indicators such
as the real final sales to private
domestic purchasers, which measures
domestic purchases of domestic
production. And while the figure was
better than expected with its recent
release, it's still lower than it was a
year ago despite the current trade
barriers. And as we alluded to, when it
comes to jobs, things haven't looked so
promising with the latest update
pointing to a continued decline at the
aggregate level with unemployment
ticking to its highest point in four
years as the US saw more job seekers
than job openings for the first time
since April 2021. And for manufacturing
jobs specifically, the area that the
tariffs are seemingly targeting, well,
jobs have actually fallen for the fourth
month in a row. Now, of course, it is to
be expected that jobs wouldn't surge
immediately on the announcement of
tariffs. It takes time for companies to
build out their domestic manufacturing
infrastructure and capacity, and so it
could take years before we see a
meaningful impact on manufacturing jobs.
And Trump has argued that with the trade
negotiations and record amounts of
investment coming into the country, jobs
are sure to follow. Apple, Project
Stargate, Nvidia, and a number of other
companies have made their own sizable
domestic investment promises in the
hundreds of billions, while countries
like the United Arab Emirates, Japan,
and the Collective European Union have
seemingly agreed to invest trillions of
dollars into the United States as part
of their trade negotiations. And if we
saw these manufacturers and countries
follow through on those investment
promises, that could very well lead to a
meaningful boost to economic activity in
the United States. After all, America's
total foreign direct investment in 2024
was around $330 billion. So investments
in the trillions of dollars, even if
spread out over Trump's term, would move
the needle quite a bit. The problem is
that it's questionable how much
follow-through we'll actually see with
these deals. While Japan has moved the
closest to cementing its investment
promise with a recently signed
memorandum of understanding outlining
the terms of the arrangement, the Gulf
State investment promises so far
represent verbal commitments that would
be challenging for the economies to
meet. Not to mention, some of these
actually stem from prior agreements
before Trump's term. The European Union
doesn't actually have grounds to enforce
a $600 billion investment from its
member states with it admitting that
this is just what's expected to come
from private companies. And for South
Korea, who promised a $350 billion
investment, we're already seeing
disagreements over the terms of that
investment package. Now, yes, we've seen
domestic companies promising to invest
more in the US. Apple being one of the
key examples of a situation where Trump
has seemingly been successful in
convincing a company to bring
manufacturing into the United States.
But for many of these investment
promises, the largest of which are for
tech or pharmaceutical companies, it's
unclear whether these announcements are
based on tariffs or just the surging
demand for AI infrastructure and drug
development in the United States. The
Taiwanese semiconductor company TSMC,
for example, which made one of the
largest commitments from a foreign
company at $100 billion, actually made
this announcement in March before any
tariffs had been announced on Taiwan or
semiconductors, with in fact a Reuters
review finding that a good chunk of
investments claimed by the Trump
administration were either previously
secured under Biden or just part of
routine spending. And while a lot of
these investment promises do span
multiple years, so far the
infrastructure buildout needed to bring
manufacturing jobs back to the US just
hasn't really kicked off yet. There's
this great chart that was shared with me
that shows that US factory construction
is actually down 7% from last year.
Ironically, thanks in part to companies
finishing up their projects under Biden
era incentive programs like chips or the
inflation reduction act. Now, of course,
this or really any of the other factors
we've talked about might change in the
future. I think hopefully this video has
demonstrated that in the short term, you
do have these distortions that make it
hard to figure out what's actually going
on. Some of the gauges we referenced,
for example, like the opposing
manufacturing indices, rely on executive
surveys and may not be perfectly
accurate. Well, even labor data, as
we've seen, is prone to meaningful
revisions, which was recently
exemplified by the massive nearly 1
million jobs that were cut out of past
estimates for the 12-month period ending
this past March. But the point is to
highlight that while we've heard of
these lofty promises from different
countries, companies, and the like. We
just haven't yet seen followrough with
it. And there hasn't been much evidence
to date that on the net, America's
economy has benefited from tariffs. But
then why is the economy growing so much?
After all, we saw in the second quarter
that US GDP actually grew 3.3%
year-over-year, faster than expected and
higher than its long-term average. Well,
part of this is again the distorting
impact of tariffs. Imports, for example,
contributed to a lower first quarter GDP
print and a higher second quarter print.
But one aspect to consider is that the
US economy does have other strong
factors moving in its favor. For one,
there's the big beautiful bill. Yes. Uh
while a controversial piece of
legislation given that it does increase
the US government's debt load uh which
has caused some turmoil in the US bond
market, it did also come with tax cuts
and other things that could stimulate
the economy. There's also of course the
AI gold rush with UBS estimating that
tech companies will spend $375 billion
on AI infrastructure in 2025 and $500
billion next year. All of which in the
short term translates into more activity
for the US economy regardless of how
these investments ultimately pan out.
But the point is that the economy has
seemingly been performing in spite of
tariffs, not really because of them.
Again, most empirical research points to
a net negative impact on economic
activity and a rise in unemployment when
tariffs are imposed. And most forecasts
are calling for a 1 percentage point
impact to US GDP as a result of Trump's
current tariffs. And yes, the US may be
able to use tariffs to negotiate better
trade deals and that could ultimately
still benefit the US economy. And that's
where the discussion does get a bit more
complicated because you would then have
to factor in what's ultimately agreed
upon. But over the long term, when you
ignore the negotiation aspect of this
and if you look past the distortions in
the short term, it's very likely that
tariffs will dampen overall economic
activity. And while it may benefit some
and the US may still avoid a recession
in spite of these tariffs, it doesn't
mean that the tariffs are a contributor
to economic growth. Now, with all that
being said, hopefully it does go to show
that we don't face a clear picture here.
Uh, despite all the factors we're
looking at, we can't really know for
certain whether things will move one
direction or the other. Whether tariffs
will allow the US to negotiate better
trade deals that ultimately benefit the
economy, if it then leads to say
dropping the tariffs, or if the tariffs
stay in place and hurt the economy
overall. But hopefully it emphasizes the
importance of going beyond just
individual data points to try and
understand what's actually happening
behind the scenes rather than taking
individual uh charts or what have you at
face value. It's important that when you
look at figures like inflation, you dig
a little bit deeper. Thank you guys for
joining me today. If you like this
video, please do make sure to like,
subscribe, all that good stuff. It does
help the channel tremendously. Let me
know your thoughts on the topic as well
as any other topics you'd like me to
cover on the channel. I've been trying
to branch out from just tariff related
stuff, but I wanted to give a quick
update on what we've seen to date. And
of course, if we see a a major update,
I'll cover that as well, but hopefully
we'll be diversifying a little bit.
Anyway, thanks again for joining me and
Click on any text or timestamp to jump to that moment in the video
Share:
Most transcripts ready in under 5 seconds
One-Click Copy125+ LanguagesSearch ContentJump to Timestamps
Paste YouTube URL
Enter any YouTube video link to get the full transcript
Transcript Extraction Form
Most transcripts ready in under 5 seconds
Get Our Chrome Extension
Get transcripts instantly without leaving YouTube. Install our Chrome extension for one-click access to any video's transcript directly on the watch page.
Works with YouTube, Coursera, Udemy and more educational platforms
Get Instant Transcripts: Just Edit the Domain in Your Address Bar!
YouTube
←
→
↻
https://www.youtube.com/watch?v=UF8uR6Z6KLc
YoutubeToText
←
→
↻
https://youtubetotext.net/watch?v=UF8uR6Z6KLc