Hmm. Oh, volume. Too loud. There we go. Hello, everyone. I'm Kimberly Adams. Welcome back to Make Me Smart, where none of us is as smart as all of us. I'm sure you recognize that sigh. I'm joined today by Kai Rizdahl. Welcome back, Kai. It is so good to be here. How you been? I've been good. Missed you. But there's a reason that you're here, because not only did we both have like mutual brain explosions on blue skies, we were listening to the State of the Union. But also, obviously, on Friday, the Supreme Court struck down some of President Trump's tariffs, which has been a huge story that the both of us have been covering. Since then, it's been chaos as people have been trying to figure this out. So, of course, we had to bring you back to help make us smart about it and get through it all. So welcome back. Let's get into it. We have been waiting on the SCOTUS ruling for months. A lot of false alarms in terms of prepping the newsroom for it when it didn't drop. What was your reaction when it finally came through? A couple. In no particular order they go like this. Number one, the fractured nature of that opinion reveals why it took so long, right? There was obviously a lot of backing and forthing between the three dissenters and even amidst them and then the concurrences on the majority side. So that was really interesting. What was not interesting in terms of actually being shocking was the result, because I think if you were listening to the oral arguments, as we both were, you kind of had a sense of how this was going to go. So those were my two gut reactions, right? Now I understand why it took so long. And other than that, totally understand this ruling. I was surprised that the president didn't say more about it in the State of the Union. Well, so look, we know that Donald Trump does not like direct face to face confrontations, right? I mean, you know, he enjoys yelling at Ilhan Omar from, you know, 15 rows of seats away. But the justices were right in front of him and it would have taken a measure of in your faceness that I don't think he possessed in that moment, you know. And he vented his spleen that Friday of the ruling. He went to the press room at the White House and said all those things that he said about, you know, them, I mean, being under foreign control and how they ought to be ashamed. You know, all of that A, ridiculous and B, BS stuff. And I think he got it out of the system. So then in the decision itself, the justice's decisions, you said it was fractured. But what about it really jumped out to you? what about it jumped out a couple of things number one i think it's really interesting the chief wrote the opinion um uh so that was i think that's positive right the chief you know whatever you say about roberts himself the chief carries some symbolic authority when speaking for the court in a majority so i think that was good um it was interesting to me not to get into the legalese thing but the whole discussion about the major questions doctrine was uh was you know tangentially interesting and how that's being applied and how interestingly it applies to a Democratic versus a Republican president with this particular court. Kavanaugh, interestingly, raised the issue of refunds and how it's going to be messy. And it is. But you know what? If a statute says something is illegal like the president did, the whole refunds thing doesn't really matter. So the fact is he misused IEPA in an illegal way. Those tariffs cannot stand. And if somebody has taken your money illegally, they have to give it back no matter how messy it is. Now, interestingly, of course, Secretary of the Treasury, Scott Besson and some others have said, well, we're going to just leave that and figure it out later. And that's not the right answer, right? The right answer is we took your money illegally. We're going to try to give it back to you. Now, it will, of course, be messy. There are more than 100 lawsuits filed already by major companies and smaller companies seeking to get those refunds, to lay those claims. The problem, of course, is that the way tariffs work is that those costs get passed through to American businesses. Some of those businesses pass through those costs to consumers. So I had to pay an extra, you know, two bucks for the box of Wheaties that I'm making that up. Wheaties aren't important, but you know what I mean, right? I had to pay an extra two bucks for this product that I bought that was tariffed. The problem is that I'm not going to get that $2 back because the refund will go to the company and the company, I will bet you bottom dollar, will not go to the extent and the trouble of trying to find all the people that paid the extra two bucks for the box of Wheaties. You know, so consumers aren't going to get jacked. So this is really interesting because this came up in our editorial meeting yesterday, this idea of all these costs that companies had to pay because of the tariffs that were not the tariffs themselves. Like you talk to a customs broker all the time, right? That person charges a fee for her services that is probably much higher now that companies had to eat as they're navigating these tariffs. So some of these costs are non-refundable. That money is gone you betcha That money is gone On the other hand from a consumer perspective I ordered a whole bunch of tea from this place that I really really like in Sri Lanka right And then That's a whole separate podcast, but go ahead. Yes, it is. But then a couple of weeks after I get my tea, I get a bill from FedEx for the tariff on my tea. And there's a little form and everything and document. So I could, in a world, say to FedEx, okay, this was illegal. Now I want my money back and here's the paper trail for it, right? So there is a consumer route to getting the money back there, even assuming they would. In a world, yes. Sadly, not in this world. In a world, yes. But those, circling back to your point of companies being unlikely to pass that on, because what companies are probably going to say is the associated costs. are more than enough to be like, we got to keep all this money. All right. So as Trump laid out in that, you know, White House press briefing that you were talking about, in other words, Trump obviously had other tariff options ready to go. He announced the new global tariff after the decision came down 10 percent at first, 15 percent later. Walk us through what's happened, how that works. So let's remember that tariffs going back to Trump's first administration are not new to him. He has primarily used two sections of various laws. Section 232, which is national security tariffs. That is the root cause of the steel and aluminum tariffs, right? He said, us not being able to produce steel and aluminum is a national security threat. Therefore, under Section 232, I'm imposing these tariffs, right? And that process involves the Department of Commerce investigation and involves market analysis. It is also scale limited. Right. You can't say, as he has said, I'm going to put a tariffs of 47 percent on Brazil because I don't like the way they treated Bolsonaro. Right. It's much more tightly restricted. So 232 and then Section 301, which is about illegal market practices, dumping and protecting American markets. So he has used those two in accordance with the law. Right. He's done the investigations, whether they were so or not. Which is why Biden kept them. Right. Right. Biden kept them. And that is a huge, important point to maintain. So those are in accordance with the law. The IEPA tariffs, which is what he did on April the 2nd of last year, his tariff palooza, when he said, I'm going to tariff you because I feel like it. Those are the ones that have been declared illegal to the tune of like 150, 170 billion dollars worth of revenue so far from them. Then in that press conference on that Friday when he had his little hissy fit, he said, I'm going to impose under Section 122 of a 1974 law, I'm going to impose 10 percent global tariffs. Full stop. And then he came out later and said, oh, it's going to be 15 percent. And then actually the paperwork comes in and it's only 10 percent. But whatever the president is, is chaotic and and disorganized in his processes. But here's the challenge with 122. Yeah. 122 is designed to arrange something called, to fix rather, something called a persistent and lasting balance of payments problem. I'm not going to explain that because it's really complicated. But all you have to know is that the United States does not have a balance of payments problem, right? We have a free-floating currency. We have an open economy where foreign direct investment is a real thing. Cash and finances flow in and out of this country all the time. We do have a trade deficit, which is a factor. That's what I was going to ask. Is he going to try to pretend like trade deficit is the same as balance of payments? That's what he actually has said that. He has said that in his order and in what his cabinet officials have said. Trade gap and balance of payments issues are not the same thing. And functionally, because we have a robust free-floating currency, it is the global reserve currency, we have enormous and freely accessible capital markets, we don't have a balance of payments problem. So he will be sued on this. And, you know, courts being courts, they're going to say, no, you're right. There is no balance of payments problem. So this will probably be outlawed as well. Also, and everybody knows this because they've heard the coverage, these 122 tariffs are only able to stick around for 150 days. unless Congress reauthorizes them. So, you know, maybe at 149 days, he takes them off for 20 minutes and then puts them back on and tries to run the clock that way. But they are much more circumscribed and limited than the IEPA tariffs, which were ruled illegal. All right, we're going to take a quick break. We are going to be right back with Marketplace's Kai Rizdahl. All right. We are back for more on tariffs with Kai Rizdahl. Many businesses, including FedEx, the one that I was talking about earlier, have sued the administration for these tariff-free funds. I know we touched on this a bit earlier but like what would that even look like I don know If it did work I don know So look I sure FedEx has kept because it a big responsible robust company and it has resources unlike a whole lot of really small businesses who also got whacked by these tariffs, right? But FedEx, I'm sure, has documentation of all its tariff outlays, all, I mean, everything, right? And all other big, large-scale importers do as well. I legit don't know what's going to happen, right? It is going to be, as was said in the oral arguments on this case, it's going to be messy. But again, if the government has illegally taken your money, they have to give it back to you, messy or not. Well, and I mean, just to go back to my own example with FedEx, they could sue for damages because honestly, when I first got the email about it, I was like, oh, this is probably a scam and I ignored it. And then they sent me like two separate letters with the documentation asking me to pay for the tea that I was already drinking. And I was like, I'm going to pay it, but how many other people are just going to ignore it? Because it's like 10 bucks. Did you really pay? Did you pay? Of course I did. All right. Okay. I did pay. It was like 10 bucks. And I was just like, it's also information for me as a journalist because I was fascinated as to the whole process. And I wanted to see like how easy is it? How hard is it? Like what happens? And like there's a whole paper trail. But like how much money, it probably cost them more than $10 to get someone to stuff those two envelopes with the printed out documentation to try to get me to pay that tariff. That cost them more than $10, I'm sure. And that money's never coming back. It's never coming back. So that's damages attached to the illegal tariffs that they could sue for potentially. I mean, I'm not a lawyer, but I'm guessing. And so I just, the scale of the mess of this is so wide. Yeah. Yeah. But look, the president is chaotic and his government is chaotic And it is having, as we know, real economic impact. All right. So where are we now? Per the Yale Budget Lab, we've got the effective tariff rate right now at 9 percent, which is much lower than it was before the SCOTUS ruling. It was 16 percent then. What are businesses doing now? But wait, you have to remember that the effective tariff rate on January 20th at 9 o'clock in the morning, which is to say before the president came into office in 2025, the effective tariff rate in this economy was 2%. Like 2%. Yeah. So we've already more than quadrupled it, right, to where we are now. And it used to be octupled or whatever the heck that math works out to be. So let's not minimize the impact here. And look, yes, businesses are absorbing a large measure of these tariffs. But as we get into the new year, and actually we're doing a story on this this afternoon, January, February is when a lot of companies rejigger their pricing tables. And it has become clear in a lot of reporting in the Journal and Bloomberg as well, that companies are now like, you know what? We did this for a year. We can't do it anymore. We're going to pass on more of these costs to consumers. And if you think about that for a second, then you start thinking about inflation and the challenges the Federal Reserve has. With the PCE coming in at 3% last time, it's already well above where the Fed wants it. Now, with these costs being passed on to consumers some more, it's going to tick up more probably, which is, of course, going to make the president more irate, which just complicates the setting. for Kevin Warsh if and when he takes over from Jay Powell as chair of the Fed in May. I was talking to a business owner for a story the other day. She makes guitar effects pedals. And she said, we did the supply chain review thing to see if we could find other suppliers domestically or in other countries that weren't as tariffs. And she's like, we have the right suppliers to make the product that we want. And she said before all of this, they didn't even track tariffs as like a line item in their business. Last year, since the Liberation Day tariffs, $80,000. Yeah. $80,000 for a small business. And she expects it to be something closer to $120,000 in the coming year. And she's already raised prices once. She says she's going to have to raise prices again. And she's like, we were already at the higher pricing end of the market. But like this is this is rough and let's businesses. Totally. And let's spin it out for a minute. For a small business, 80 to 120 thousand dollars is maybe hiring another person or two part time people. Right. So it trickles down into the labor market as well. I think. That's a restriction on your growth of your company. Right. Right. So there's lots of layers of this thing. Okay. One of the many, many rationales that the administration had for tariffs in the first place was the idea of shrinking that trade deficit, which is apparently now a balance of payments thing, but whatever. We've got new data from the Bureau of Economic Analysis showing that despite everything, the trade deficit hasn't actually shrunk that much. Why haven't the tariffs worked? And what now? What now? Look, I think and I need to be really clear when I say this. U.S. government economic data and statistics is still reliable and the global gold standard. OK so let not take from what I about to say any any inference that that the data is somehow manipulated The reality of global trade since the 2nd of April of last year is that importers and exporters have been whipsawed by tariffs by trying to fix their supply chains, by trying to get things in this country before the effective tariff rate happens. And so the data has been monumentally screwed up, monumentally. And I think if and when things stabilize now that AIP is out the window and we have some semblance of continuity, the trade data will stick. But I don't know that you can look at the trade data for the last year and say, oh, yeah, this is definitely a solid trend and we can analyze this. I just don't think that's true. I was talking to folks over at the J.P. Morgan Chase Institute, and they have access to this whole other set of data from their private clients, and so they can really see how money is moving. And they put out a report on what mid-sized businesses have been doing and found that mid-sized businesses, I guess they had employees like 50 to 499 employees, revenues like under a billion dollars, something like that. But that their tariff payments have gone up three times, but their international payments have remained about the same, right? So they're paying the same amount to their foreign suppliers. They're just paying more in tariffs. They haven't actually started shifting more of that spending domestically. They have moved that spending around. There's a little bit less spending in China in particular just because they had the worst of the worst of the tariffs. But they're pretty much just shifting it to other countries. So the other rationale, which was floated, that the administration has put out, that, oh, this is going to make these companies spend more on American businesses, that hasn't turned out to be true either. No. That hasn't happened either, for sure. All right. So this tariff decision is not the only big Supreme Court decision we've been waiting on that could have a big impact on the economy. What else are you watching from our highest court in the land? So I'm looking for the Lisa Cook decision, right? Whether or not the president can, on a whim, fire a member of the Board of Governors. Now, we should say this is, you know, there's a whole sequence of cases about whether or not the president can fire heads of independent agencies. The court does seem to have carved out a the Fed and the economy are special bubble. And hopefully, and I should tell you, by the way, that the lawyers I speak to all say that that whole carve out thing is just BS. The legal grounding for that never really made sense. No, the legal grounding for it is basically nonsense. Right. They came out in a footnote last fall and said the Federal Reserve is akin to the Bank of the United States. and has a historical tradition of independence and blah, blah, blah. And that's how they grounded it. And you're like, okay, fine, whatever. Just don't wreck my economy. But they're trying to have it both ways, right? They're trying to say, yes, the president can fire the head of the Federal Trade Commissioner, the Federal Communications Commissioner, whatever. But no, no, no, you can't touch members of the Board of Governors of the Fed. That's the big case. To which the president responded with, well, let me try it anyway. Right. Let me do it anyway, right? And here we are. So, you know, that's the big thing I'm looking for. All right. Well, Kai, it's been really good to have you back on. obviously Kai Risdell, host of Marketplace. Thanks, Kai. Anytime. All right, that is it for us today. We are going to be back tomorrow for Economics on Tap. Our YouTube live stream is going to start at 3.30 Pacific on Kai's side of the country, 6.30 Eastern where I am, and I'm actually in Vermont right now. So I'm going to be meeting up with a reporter from Vermont Public Radio here at a local brewery. Who knows, Kai, maybe even I'll try a local beer. Maybe. No, I'll probably have a cocktail. Of course you will. Which is fine. I totally do. Make Me Smart is produced by Courtney Bergseeker. Today's program was engineered by Charlton Thorpe with mixing by Montana Johnson. Ben Talladeh and Daniel Ramirez composed our theme music. Our interim supervisory senior producer is Stephanie Seek. Nancy Fargali is executive producer of Marketplace Shows. The Marketplace's vice president and general manager is Neil Scarborough. And look how it's not even Tuesday. Only today. Only today. Only today. Yet again, he doesn't listen in the end. I'm saying. I'm just saying. That's all I'm saying. When news first breaks, it's everywhere. In the headlines, on TV, all over social media, in your push notifications. It's like a storm. But the coverage leaves you feeling unsatisfied. Well, that's where we come in. I'm Meghna Chakrabarty, host of On Point We ask the questions that still need answers We analyze the meaning behind the news and why it matters to your life We equip you with the knowledge you need to face the next news storm On Point is clarity when it counts Subscribe today, wherever you get your podcasts
