#835: Tariffied We're in a full-fledged trade war with China. We dig into the list of tariffs on American products. It gets weird...and delicious.
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#835: Tariffied

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#835: Tariffied

#835: Tariffied

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ROBERT SMITH, HOST:

One of the things I love about the phrase trade war is that it sounds so dramatic. It sounds so violent. But at the same time, a trade war is fought using these incredibly boring weapons. It's all percentages and lists and spreadsheets.

CHAD BOWN: I know exactly what you mean (laughter). I am in the Excel spreadsheet trenches, absolutely.

SMITH: This is Chad Bown, a trade economist with the Peterson Institute. And like us here at PLANET MONEY, he's been poring over these lists of products that the United States and China have been slapping new tariffs on. It started with President Trump's very short list - a new set of tariffs on Chinese steel and aluminum.

BOWN: So that ends up hitting about $3 billion worth of Chinese exports of steel and aluminum to the U.S. So China came up with a list of $3 billion worth of imports from the United States to retaliate over. President Trump then the next day said, well, we're going to hit you with $50 billion worth of tariffs on other products. China responded by saying, OK, well, here's our $50 billion product list.

SMITH: And what makes the list and doesn't make the list is a sort of international game. As a trade economist, Chad noticed that China's list of new tariffs were filled with an awful lot of agricultural products.

BOWN: There are a lot of food products on these lists.

SMITH: It makes you hungry, doesn't it?

BOWN: It really does, and this is primarily because a lot of what America sells to China is food.

SMITH: I know, so many nuts and fruits and pork and...

BOWN: There's really something there for everyone regardless of your culinary tastes.

SMITH: Is there any way that you could cook a delicious meal made up of China's retaliation?

BOWN: We could start off with a refreshing smoothie. You know, there's a lot of fruit on the list, things like apples and pineapples.

SMITH: Sure.

BOWN: We could add a little bit of ginseng, you know, maybe some coconut, and we could actually make it with almond milk. So there's not actual dairy products on there, but we could use almond milk as sort of the base.

SMITH: I will note that on this list of tariffs is sparkling wine, so we can have a nice little cocktail hour.

BOWN: We won't go thirsty. So the main dish that you're probably going to build around if you're thinking about meat is a pork product on that list.

SMITH: Sure, sure - lots of Chinese tariffs on American pork.

BOWN: Either ham or pate, maybe dice up some hazelnuts, pistachios and spruce it up that way.

SMITH: Oh, nice.

And although we are just joking here, there is a real effect. All of these American products in this fantasy meal are now subject to a tariff, which means they are 15 to 25 percent more expensive for the Chinese consumer, which means China will buy less, which means we might have a surplus of these products here. And we might just want to get used to smoothies and pork pate.

(SOUNDBITE OF DAN BERKSON AND HARBANS SRIH'S "AINT IT THE TRUTH")

SMITH: Hello, and welcome to PLANET MONEY. I'm Robert Smith. Today on the show - a very special version of "Iron Chef" - or technically scrap aluminum chef because American scrap aluminum just got hit with a 25 percent Chinese tariff. We asked various PLANET MONEY reporters to open up this scrumptious list of retaliation and find some surprising stories inside, and they did. I hope you saved room for durian ice cream.

(SOUNDBITE OF DAN BERKSON AND HARBANS SRIH'S "AINT IT THE TRUTH")

SMITH: As many of you know, I am a father, and one of the rules of being a parent is if you want to punish your child, what you do is you find the thing that they love the most...

STACEY VANEK SMITH, BYLINE: Oh, my God, Robert.

SMITH: ...And you take it away from them.

VANEK SMITH: Oh, my God. This is terrible.

SMITH: No, this is how you punish children. And mostly it's the iPhone.

VANEK SMITH: This is also what Voldemort does (laughter).

SMITH: This is mostly the iPhone, but in the case of retaliatory tariffs, I feel like China took a look at the United States and said, you know, what do they love the most? Or more accurately, what do they love to export the most? And so today, we're going to look at this list of 128 U.S. products targeted by China, the delicious list that we mentioned at the top of the show, and we're going to pick out just a few of these products to talk about. Now, as you're flipping through this, one thing that really stands out is the list of pork products. There is fresh or cold-boned pig forelegs, hindquarters and their meat, fresh or cold pork, frozen whole head and half pork, frozen pork liver. China has slapped a 25 percent extra tariff on those things. So Stacey Vanek Smith...

VANEK SMITH: Yes.

SMITH: ...We sent you into pork world.

VANEK SMITH: I went full bacon.

SMITH: And who did you talk to?

VANEK SMITH: So I talked to this man named Brian Duncan. He's a hog farmer in Illinois. It is his family business. His father also raised pigs.

Is there something about hogs that people don't know that you know from working with them so many years?

BRIAN DUNCAN: If they had opposable thumbs, they'd run the world.

VANEK SMITH: (Laughter).

DUNCAN: They are smart and mischievous.

SMITH: I thought that I knew all the things I had to worry about in life.

VANEK SMITH: (Laughter).

SMITH: But pigs with opposable thumbs is my new nightmare scenario.

VANEK SMITH: I know, and in your nightmares, let's just hope that the pigs are a little nicer to us than we are to them or at least that we are a little bit less delicious. That would help.

SMITH: If you are a pork producer and you all of a sudden wake up one morning and find that one of the main places that you export your product to, China, has slapped this additional tax on it, what do you think?

VANEK SMITH: Well, what Brian told me was that the second he heard all of President Trump's talk about the steel and aluminum industries, he was just glued to the news. He was just waiting for the other shoe to drop.

DUNCAN: We in agriculture know we will be the first targets for retaliation. Take a look at what China hit - fruit, wine and pork. And so I'd say worst fears realized.

SMITH: And why are they always the first to be hit? Is this just him thinking back on trade wars of the past?

VANEK SMITH: It's him thinking back on trade wars of the past. He says agriculture always loses out in a trade war. It's an easy thing for a country to protect.

SMITH: And it creates these sort of emotional victims - the American farmer now suffering because of this trade war, you know?

VANEK SMITH: Yes. And Brian made this point too - and so did a couple other people I talked to - that China knew that if they hit agriculture, they would be hitting Trump where his voters were because a lot of the places hit hardest by these tariffs are places that voted for Trump. So China knew this, and Brian told me that he and all of his friends in agriculture were talking about this, too.

SMITH: Now, immediately, pork prices dropped when this was announced, and what happened with Brian?

VANEK SMITH: Brian said his pigs lost about 10 percent of their value. He estimates he's lost about a million dollars on his operation. Now, he has about 70,000 pigs, which sounds like so...

SMITH: That's a lot of pigs.

VANEK SMITH: ...So many pigs, but according to Brian, that is a very small operation. Seventy thousand pigs is, he said, very, very little.

SMITH: Very modest.

VANEK SMITH: But he really counts on China because China not only buys a lot of pork from the U.S., but it also buys these cuts of pork that U.S. consumers don't buy. They're called variety cuts.

DUNCAN: Ears, tails, hooves, you know, those variety meats and organ meats and offal and things that we don't consume here, China's a very valuable market for. So that actually provides value to a product that maybe was going in the dumpster as far as American consumers were concerned.

SMITH: So this means that we have to actually eat more forelegs and liver.

VANEK SMITH: Well, there will be more around if you want them. I mean, the pork industry, you have to understand, this is a really difficult moment for them because, according to Brian, the industry is really gearing up for this big bump in free trade. You might remember the Trans-Pacific Partnership trade agreement, the TPP.

SMITH: Of course, yeah.

VANEK SMITH: It was this big trade agreement between the U.S. and a bunch of countries mostly in Asia. Trump ended up pulling out of the agreement, but the TPP was going to potentially open up a lot more Asian markets to pork, and the U.S. is one of the biggest pork producers in the world. So all these pork farmers in the U.S. are gearing up for this big pork boom and building new facilities and buying more pigs and all this stuff.

SMITH: A new golden age of bacon.

VANEK SMITH: It was going to be a new golden age of bacon.

DUNCAN: There's been a lot of infrastructure put in. There's new packing plants that have come online. There's been new hog production come online. We're gearing up to meet this international market, and now it appears we might be getting kneecapped.

SMITH: Ew.

VANEK SMITH: Yeah.

SMITH: Do pigs have knees?

VANEK SMITH: I'm almost sure pigs have knees. If they do, by the way - variety cut.

SMITH: Variety cut.

(LAUGHTER)

SMITH: So in all seriousness, like, what does Brian do next?

VANEK SMITH: So what he told me is that he's kind of riding this out right now. I mean, prices have gone down for him. But what everyone's doing now is really looking forward because a quarter of all the pork raised in the U.S. is exported. A lot of it goes to China, but more of it goes to Canada and Mexico. So NAFTA is obviously a really big deal to pork farmers and to farmers all over the country of all kinds. So he says what everyone's talking about now is what is going to happen with NAFTA. That's what he's, like, looking at and trying to prepare for.

(SOUNDBITE OF ZACHERY JOSIAH RICARDO SCIPIO'S "KEEP MOVING")

SMITH: Stacey Vanek Smith.

VANEK SMITH: Robert Smith.

SMITH: So good to have you on the program from our other program, The Indicator. If you want smart takes on economics every single day, Stacey Vanek Smith is your host with the most and The Indicator is your podcast.

VANEK SMITH: Thanks, Robert.

SMITH: My pleasure.

(SOUNDBITE OF ZACHERY JOSIAH RICARDO SCIPIO'S "KEEP MOVING")

SMITH: All right. Back to the list of 128 U.S. products targeted by China. And the amazing thing about this list is there are so many fruits - more fruits than I've ever heard of - beetle (ph) nut fruit. I don't know what that is.

SARAH GONZALEZ, BYLINE: Betel nut fruit.

SMITH: Is it a betel or beetle?

GONZALEZ: I don't know.

SMITH: With me in the studio is our newest reporter, Sarah Gonzalez. Hi, Sarah.

GONZALEZ: Hi, Robert.

SMITH: And you looked into just one of these many, many, many, many, many, many, many fruits that China has increased the tariffs on, and that fruit is...

GONZALEZ: Number 55 on the list, the durian - fresh durian, not frozen durian.

SMITH: So the durian is very popular in Asia - in Southeast Asia particular - where it grows. Just tell me a little bit more about the durian.

GONZALEZ: So the durian is a pretty big fruit. It kind of looks...

SMITH: Size of a baby's head.

GONZALEZ: ...Kind of looks like a pineapple

SMITH: Spikes.

GONZALEZ: It is famous for its smell. It has a very intense smell. And the taste is like - like, whipped cream and caramel with raw onion and diced garlic.

SMITH: So your task was to find a U.S. durian farmer who is going to be affected by these new tariffs, and who'd you find?

GONZALEZ: I found Ian Crown. He owns a farm in Las Vegas, Puerto Rico.

SMITH: OK.

GONZALEZ: Apparently, durian can only grow in areas with really high humidity. And so Hawaii and Puerto Rico are the only two places, as far as the U.S. Department of Agriculture can tell, that grows durian. And Ian loves fresh durian.

IAN CROWN: Oh, my God. The fresh, you know, rocks my world.

GONZALEZ: He's a rare fruit guy. Robert, he actually calls himself a rare fruit nut.

SMITH: I love it. So was Ian worried when he saw that his beloved durian was on this list of Chinese tariffs?

GONZALEZ: He does not care. Even if he wanted to send durian to China, the U.S. doesn't allow him to.

CROWN: No, I'm not allowed to ship durian outside of Puerto Rico.

SMITH: Wait, are these U.S. laws?

GONZALEZ: Yeah, it has to do with pests.

SMITH: Does anyone in the United States send durian to China?

GONZALEZ: So I went to the Department of Agriculture, and I said how much durian does the United States send to China? The Department of Agriculture said ask the Department of Commerce. Then the Department of Commerce was like, no, I think the Department of Agriculture is supposed to know that.

SMITH: OK.

GONZALEZ: And then the Department of Agriculture was like, we are? OK. Hold on. Let me find out. Then, eventually, the Department of Agriculture told me, we have sent very little durian to China - like, really little - like, zero.

SMITH: Zero.

GONZALEZ: Yeah, Ian thought it was pretty funny that he made his way onto the list.

CROWN: Yes, I would say that they should also put on the list that we're not allowed to ship them any unicorns.

GONZALEZ: The United States has not sent a single durian to China in the past five years or mangosteens or rambutans, and these are all fruits that are on the list.

SMITH: Which raises the obvious question. Why would China put a special tariff on U.S. durians if it imports zero U.S. durians?

GONZALEZ: So I spoke to a couple people to try to help me understand this. Apparently, China and countries in general are really good about putting tariffs on things that won't actually hurt them. The idea is basically that when the United States threatens tariffs, a country has to make a threat back. And in order to make that threat credible, they have to come up with a list.

SMITH: So they padded the list?

GONZALEZ: So it could be that they padded the list. The other theory is that they just put every fruit and nut on their list, and durian and mangosteens happen to be on there. They just...

SMITH: They just copied and pasted it into the document (laughter).

GONZALEZ: And it just got caught up.

(SOUNDBITE OF ZACHERY JOSIAH AND RICHARDO SCIPIO SONG, "KEEP MOVING")

GONZALEZ: I do want to mention that the United States has put some things on its list of proposed tariffs that we don't import a whole lot of from China.

SMITH: Just to pad our list, perhaps.

GONZALEZ: For example, non-recording cassette players. I don't know what they do if they don't record. But as you can imagine, we don't import a whole lot of them either.

SMITH: Thank you, Sarah.

GONZALEZ: Thank you, Robert.

(SOUNDBITE OF ZACHERY JOSIAH AND RICHARDO SCIPIO SONG, "KEEP MOVING")

SMITH: Act 3, soy to the the world.

ALEX GOLDMARK, BYLINE: That was good.

SMITH: See what I did there?

GOLDMARK: Yeah, I like it (laughter).

SMITH: The way these tariff lists work - that's Alex Goldmark, by the way - the way these tariff lists work is that you start with the small stuff - in the case of durian, the non-existent stuff. But you want to hold back on the really big tariffs in case the trade war escalates. We've been talking so far about products that have already been hit with new tariffs, but the Chinese have another list - a list of American products that they are threatening to put a tariff on. And on that theoretical list, soybeans. And Alex came in the office the other day, and he said you are not going to believe what is happening with soybeans.

GOLDMARK: Because they don't even have a new tariff on them yet, but just the idea of a new tariff is already changing where soy flows around the world. It's changing global markets already.

SMITH: Soy flows. We had questions, so we called up Mr. Soy himself. The man with a tofu heart, Jim Sutter.

JIM SUTTER: And I am the CEO of the U.S. Soybean Export Council.

SMITH: So Jim says about 30 percent of the American soy crop goes to China. Although, you would not really know it if you were in China because it gets crushed and processed into generic cooking oil - doesn't say USA on there - or feed for livestock.

SUTTER: If you looked real closely, you might be able to kind of detect that it had consumed soybean meal. But that...

SMITH: (Laughter).

SUTTER: ...Might be a bit of a stretch.

GOLDMARK: So to the Chinese, they don't really care if their soybeans come from the U.S. or if it comes from somewhere else. They just want the cheapest stuff.

SMITH: Yeah, because it's not like branded American soybeans. Yeah.

GOLDMARK: No, they're feeding it to livestock. And so if they can save a few pennies, they will buy from our arch soy rival Brazil.

SMITH: So the USA and Brazil are sort of like the Coke and Pepsi of the soybean world.

SUTTER: That's a great analogy. Yep, the Coke and the Pepsi of the soybean world.

SMITH: And the Chinese buyers of soybeans are constantly comparing the U.S. and Brazil - Coke and Pepsi. Who is cheaper? Who is cheaper? And then, Alex, something changes the entire market.

GOLDMARK: Well, late last week, the Chinese government announces that they might - just might put a tariff on U.S. soy. So all of the Chinese buyers are suddenly thinking, wait a minute, a tariff would totally change the math for us.

SUTTER: So these buyers said, wow, I better not buy any U.S. soybeans for fear this may happen. So they all rushed to Brazil.

GOLDMARK: And the price of Brazilian soybeans jumps up. Everyone in China who's buying soybeans - they want this tariff-free Brazilian soybeans.

SMITH: They want to lock it in. Yeah.

GOLDMARK: And in America...

SMITH: Meanwhile...

GOLDMARK: ...They're looking around. And they're like wait a minute.

SMITH: We got too many soybeans. Who's going to buy our soybeans?

GOLDMARK: So the price of American soybeans relative to Brazilian soybeans goes down.

SUTTER: So it was, you know, during the U.S. nighttime - during the daytime in China. Soybean futures on the Chicago Mercantile Exchange dropped by as much as 50 cents a bushel at one point. And, you know, so in rough numbers, they went from $10.40 a bushel to $9.90 a bushel. So, you know, that's a big shift.

SMITH: And remember, Alex, like, nothing has changed in the world. The sheer number of soybeans in Brazil and the United States is exactly the same.

GOLDMARK: And there isn't even a tariff yet. This is just a maybe-in-the-future-we-might-impose-a-tariff kind of comment from China.

SMITH: And here's my favorite part when you told the story. The rest of the world gets involved.

GOLDMARK: Like buyers in Europe - they look around. They see Brazilian prices are going up, but they don't have a dog in this tariff fight. There's not going be a tariff for them on U.S. soy. So they're thinking...

SUTTER: Hey, look at the U.S. soybeans. They're on sale.

GOLDMARK: So Europe starts to make big purchases of U.S. soybeans. And that means, like, ships that would've been going to Brazil to pick up their soybeans are now headed to American ports. And Europe is not the only one.

SUTTER: I notice that Taiwan bought a cargo. Japan has bought some soybeans - Turkey, Egypt.

GOLDMARK: And sure enough, with all the new buyers, the price of American soybeans - it comes back up.

SMITH: And talking to Jim, he is certainly spooked by this whole incident - that words alone could rattle his whole industry. And if soybean tariffs go into effect, it could be devastating for the American farmer. But the interesting thing about this story is tariffs also create all these arbitrary winners and losers. If you're a Chinese manufacturer who needs soybeans, you're going to be paying more for them. But if you're a Brazilian farmer, all of a sudden, you have this unexpected windfall.

GOLDMARK: You're not even in the trade war, but you get to sell your soy for more. And so this is just a reminder that a tariff cannot be a targeted strike. You put a tariff on one product from one country, and it could rearrange the way the entire world market operates.

(SOUNDBITE OF ZACHERY JOSIAH AND RICHARDO SCIPIO SONG, "KEEP MOVING")

SMITH: Never know where the soy sauce is going to flow.

GOLDMARK: (Laughter) It finds its level.

SMITH: Thank you, Alex.

GOLDMARK: Thanks, Robert.

(SOUNDBITE OF SONG, ""KEEP MOVING"")

UNIDENTIFIED SINGER: (Vocalizing).

SMITH: Coming up, there is one thing that China forgot to put a tariff on. Stick around to the end.

(SOUNDBITE OF SONG, "KEEP MOVING")

UNIDENTIFIED SINGER: (Singing) Keep moving on.

(SOUNDBITE OF LEWIS DRANSFIELD SONG, "SOMETHING NEW")

SMITH: If you haven't gotten enough of China's retaliatory tariff list, we'll be putting out links to some of the sources and stories behind this week's show. Follow us at PLANET MONEY on Twitter and Facebook and Instagram for that. If you want to give us a story tip or send us questions, we're planetmoney@npr.org. Today's show is produced by Sally Helm and Alexi Horowitz-Ghazi, with help from our intern Aviva DeKornfeld. Our editor is Bryant Urstadt. Our senior producer is Alex Goldmark. Thanks again to Chad Bown, our economist and menu planner we talked to at the very beginning. He has his own podcast and goes into way more detail on this kind of stuff than we have time for. It's called Trade Talks. I'm Robert Smith. Thanks for listening.

(SOUNDBITE OF LEWIS DRANSFIELD SONG, "SOMETHING NEW")

SMITH: Sarah, I notice something. Huge list of things - there's no peanuts on the list.

GONZALEZ: No peanuts.

SMITH: There's dried coconut. There's Brazillian nuts - shelled Brazilian nuts. There's cashews. There's almonds. There's hazelnuts. There's walnuts, chestnuts, macadamia nuts, red pistachio, green pistachio. So what happened to peanuts? I mean, obviously I know they're legumes. Like, everyone will write in if we say they're nuts. But still, like, peanuts you would think would be on this list.

GONZALEZ: Yeah, I don't know. I called up a peanut farmer - Tim Burch in South Georgia. And he said that even peanut farmers consider peanuts nuts. And they basically think that peanuts were left off by accident. And they were kind of like sh-sh-sh (ph), don't bring attention to this. What if China puts us on the list?

TIM BURCH: Because they'll say, oh, we forgot to include peanuts (laughter). They named every kind of nut I could think of, and I don't know why we were left off.

SMITH: OK. So we'll take a pact here just between you and me. (Whispering) Don't talk about peanuts.

GONZALEZ: OK. Yeah.

SMITH: (Whispering) Didn't happen.

GONZALEZ: Didn't happen.

SMITH: Didn't happen. Just put it at the end.

GONZALEZ: Yeah.

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