Confusion over electronics tariffs injects more uncertainty into economy

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• William Brangham:

  The escalating trade war between the U.S. and China is continuing to inject uncertainty into the world's two largest economies.

  Over the weekend, President Donald Trump and his top trade officials added to the confusion by carving out new exemptions for tariffs on electronic products.

  In the Oval Office today, reporters pressed President Trump on where this tumultuous trade war is heading.

  Donald Trump, President of the United States: Look, I'm a very flexible person. I don't change my mind, but I'm flexible.

• William Brangham:

  The president declined to specify what products might be exempt from future tariffs.

• Donald Trump:

  I don't want to hurt anybody, but the end result is, we're going to get to the position of greatness for our country.

• William Brangham:

  This morning, Wall Street opened on a high note, markets reacting positively to the weekend announcement of exemptions for smartphones, computers and other tech carved out of the Trump administration's sweeping global tariffs.

  But those celebrations may be brief, as U.S. trade policy continues to swing back and forth. On Sunday, the president told reporters on Air Force One that there could be tariffs coming on iPhones.

• Donald Trump:

  Well, that's going to be announced very soon, and we will be discussing it, but we will also talk to companies.

• William Brangham:

  But, yesterday, Commerce Secretary Howard Lutnick was definitive that new tariffs are coming for tech products made with semiconductor chips.

• Howard Lutnick, U.S. Commerce Secretary:

  These are included in the semiconductor tariffs that are coming and the pharmaceuticals are coming. Those two areas are coming in the next month or two. So this is not like a permanent sort of exemption.

• William Brangham:

  All of this after a dramatic week for Wall Street. On April 2, President Trump announced massive tariffs on most of the world.

• Donald Trump:

  My fellow Americans, this is liberation day.

• William Brangham:

  A week later, he walked back most of them, saying he'd begin a 90-day negotiation period.

  But tariffs on Chinese-made goods were not paused. Instead, they were increased to 145 percent. That left some tech companies like Apple in the lurch.

• Lin Jian, Chinese Foreign Ministry Spokesperson (through interpreter):

  The U.S. uses tariffs as a weapon for extreme pressure and self-interest, placing its own interests above those of the international community.

• William Brangham:

  China has remained firm against what it calls bullying from America, adding their own 125 percent tariffs on U.S. goods.

  Today, Beijing also escalated by halting exports of certain rare earth minerals and magnets, critical components for computer chips, cars and many kinds of electric motors and other technologies. Chinese President Xi Jinping has been reaching out to other countries. Today, he kicked off a tour of Southeast Asia in Vietnam, signing a series of agreements.

  In Washington, President Trump said he likes President Xi, but not his meeting with Vietnam.

• Donald Trump:

  I don't blame China. I don't blame Vietnam. I see they're meeting today. Isn't that wonderful? And it's a lovely meeting. They're meeting like trying to figure out, how do we screw the United States of America?

• William Brangham:

  For now, markets appear to be optimistic, as tech companies help to lift Wall Street today. The Dow Jones industrial average finished up by more than 300 points. The Nasdaq notched its own 100-point gain, and the S&P climbed by 0.8 percent.

  So, for more on how this trade war is playing out, we turn again, as we often do, to David Wessel. He's the director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.

  David, always great to have you back on the program.

  Help us understand something. When you look back at the last few weeks of this trade war, imbroglio, however you want to describe it, can you discern a strategy from the administration here?

• David Wessel, Brookings Institution:

  In short, no. It seems to be incoherent. Different voices in the administration say different goals for the tariffs. Are they to raise money to cover the cost of tax cuts? Are they a negotiating tool for the president to get more access to foreign markets for us? Are they national security?

  So I think we do know that the president likes tariffs, and his staff is determined to find ways to justify them. And, secondly, there is a clear attempt to get more manufacturing to return from the U.S., particularly in goods like pharmaceuticals and semiconductors that he considers national security.

• William Brangham:

  I mean, the supporters of the president argue that this may be messy, but that the pain is going to be worth the gain, that this is — as some have put it, that this is watching art of the deal unfold.

  Do you see anything that is unfolding here that could be strengthening America's negotiating hand?

• David Wessel:

  I don't, William.

  I'm afraid that the president has weakened our standing in the world economy. If the goal was to put pressure on China, then the one would think the goal would have — the tactic would have been to get allies like Canada, Mexico and Europe on our side.

  So I think it's very hard. The — Chris Waller, who's the chair of a — member of the Federal Reserve board, said today that it's the biggest shock that the world economy has seen in a long time, and that one problem is both the policy and the effects are uncertain. And that doesn't seem a great recipe for building a strong economy here.

• William Brangham:

  On that shock to the U.S. economy, where is that most being felt right now?

• David Wessel:

  Well, in our country, it's being felt, I think, by businesses and maybe some consumers just pulling back. If you're not sure what the policy of the government is going to be on the goods that you import, or the parts you need to make your product, you're going to be less willing to expand.

  So there's a lot of talk about uncertainty. And I think what that means is, if you're not — if it's not clear what's going to happen, you pull back. If everybody delays, that's how we get a recession. And a lot of forecasters are anticipating a recession.

  One really worrisome sign here is not the stock market, but what's happened to the bond market and the value of the dollar. And, basically, yields on treasury bonds have gone up, the value of the dollar has gone down. And some people are interpreting that as an indication that the world is less confident about the safety of investing in the U.S.

  And that would be a long — if that's true, if that persists, that will have long-lasting effects, and they're not good ones.

• William Brangham:

  You mentioned the concern over a possible recession. Polls certainly show that consumers are concerned about that. Some major Wall Street firms are the same.

  Do you feel that's a legitimate concern? Are we really at risk of that?

• David Wessel:

  Well, at risk, sure. But is it likely? I don't know. It depends. It depends how quickly the president gets his act together.

  And if this is a negotiating tool and we have some deals, maybe they're cosmetic, but allows him to back off, we have a 10 percent across-the-board tariff, but that's all it is, and some strategic tariffs, if things calm down, if it looks like adults are in charge in Washington, that would reduce the risk of recession.

  And some depends on what the Federal Reserve does here. The Federal Reserve is an awkward position. On one hand, tariffs will make prices go up. On the other hand, they could make the economy grow more slowly. And so they have to decide, at what point do they act? So far, it looks like they're sitting on their hands. That's not going to be helpful to avoid a recession.

• William Brangham:

  All right, David Wessel of the Brookings Institution, always so good to hear your counsel. Thank you very much.

• David Wessel:

  You're welcome. I'm sorry I couldn't be more upbeat.

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