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RUBY:

From Schwartz Media, I’m Ruby Jones. This is 7am.

Today, in the rose garden at the white house, president Trump will unveil his next round of tariffs.

Audio excerpt — Karoline Leavitt:

“The cabinet will be here for the event. It'll be our first rose garden event of this administration.”

RUBY:

He’s calling it “liberation day”.

Audio excerpt — Karoline Leavitt:

“The president will be announcing a tariff plan that will roll back the unfair trade practices that have been ripping off our country for decades.”

RUBY:

The first round of tariffs are already doing damage and there’s more pain to come as the president enacts his radical plan to reshape the entire global financial system.

Today, managing editor of The Saturday Paper Emily Barrett, on the economic blueprint behind Trump’s tariffs and the chaos to come.

It’s Wednesday, April 2.

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RUBY:

So, Emily, welcome back to 7am.

EMILY:

Thanks, Ruby. It's great to be here.

RUBY:

Today is the 2nd of April or, as Donald Trump likes to call it, Liberation Day.

EMILY:

It's a pretty ominous term.

RUBY:

It is. So what does it actually mean?

Audio excerpt — Donald Trump:

“We have Liberation Day, as you know, on April 2nd, because — and I'm not referring to Canada — but many countries have taken advantage of us, the likes of which nobody even thought was possible for many, many decades.”

EMILY:

Liberation Day, as he's called it, is supposedly when he's going to unveil these sweeping tariffs on countries that the administration thinks have an unfair advantage over the US in trade terms.

Audio excerpt — Donald Trump:

“I think most countries will, are agreeing with me. They actually, many of them have actually apologised. They said, look, we have taken advantage. And I don't blame them as much...”

EMILY:

So just after his inauguration, Trump ordered his commerce department, along with the trade representative's office, to compile a massive report on America's trade relationships around the world. And that's supposed to be the basis for setting tariffs country by country and by sectors, based on where the US sees practices that are disadvantaging them. It's been kind of assumed that Trump would focus on countries with trade surpluses. That is, that they sell more to the US than they buy from the US. But in this round, the administration is reportedly also going to be targeting countries that use any measures to protect their own industries. That's measures like regulations that bar US products or subsidies. And he's complained about the sales taxes that almost all countries levy, like our GST. The administration has also complained about our pharmaceutical benefits scheme.

Audio excerpt — Newsreader:

“American medical giants are slamming the Albanese government for its $18 billion PBS medicine scheme. They're blaming the Australian policy for cutting prices and blocking American exporters.”

EMILY:

That's a scheme in which our government agrees prices with US suppliers and pays those prices so it can keep prices low for consumers here. Our local content quotas for Australian broadcasters have also come under scrutiny, apparently, in the US, and as has the news media bargaining code, which is what would get companies like Meta and Google to pay for news. He also said that he's considering levies on things like copper and lumber and meat. That's when Australia started talking to him about the risks of the price of Big Macs. He said that there will be secondary tariffs as well, and this is new, on all countries that buy exports from supposedly unfair players. And that's things like oil and gas from Venezuela and, most recently on Russia, because apparently he's annoyed about Russia's stance on a ceasefire with Ukraine. It's reported by Politico that people within the administration even don't have the full picture of what's going on. But what we do know is that the uncertainty and the threats and the, you know, putting on tariffs and backing off them, that's kept speculation mounting and that fits Trump's sense of drama.

RUBY:

Okay. So, while we're waiting then to hear about the next round of tariffs expected today, can we talk about what has happened so far with the tariffs that have already been enacted on Canada or on Mexico, China, Australia? What has the impact been?

EMILY:

Well, so far, as we've sort of seen a lot already imposed. This started with 25% tariffs for Canada and Mexico, which were then delayed and then stalled and then, after some talks, they're going to be reimposed, apparently. China was also hit with 10% and that was then upped to 20% with the threat that they'll continue to rise. And all these are cumulative, by the way. So some countries will be really racking up the levels of tariffs they're having to pay. And all of this, by the way, is helping to drive up the price of oil. So, what's happened aside from oil prices rising, we've seen stock markets around the world have driven sharply lower and that's including in the US. So the S&P 500 has just marked its worst quarter in three years. US consumer confidence has fallen and long-term inflation expectations have risen pretty sharply. Despite this clear negative reaction, Trump hasn't backed off so far. In his first administration, he loved to equate the gains in stocks with the success of his presidency. So people sort of expected that this time around there would be what's called a Trump put, meaning that if stocks fell, he'd back off to sort of spare everyone further losses. The fact that he's not done this so far is an unwelcome surprise for a lot of people.

RUBY:

Right. So as a result of these initial tariffs, stock markets have dropped, oil prices are up, consumers in the US are very worried. But regardless, Trump is pushing ahead. Why do you think that is, Emily?

EMILY:

All we know is that at this point, as the wheels are starting to fall off, is that the administration and a lot of people around the administration are trying to make this look deliberate and considered.

It's become a bit of a parlour game, actually, for economic experts, you know, to try and apply some kind of rationale to what Trump is doing.

Audio excerpt — Speaker 1:

“First, he wants to use it as a tool to get other countries to do what he wants them to do. Secondly, he thinks of it as a tool to raise lots of revenue.”

Audio excerpt — Speaker 2:

“Yeah, it's as if he wants to cause this period of disruption because he thinks there'll be some promise land on the other side. Now, that may work out or he may be shooting himself in the foot. What we've seen from history is...”

Audio excerpt — Speaker 3:

“This is not a trade war. We are going to reset trade policy on April 2nd. You've got... China's got huge tariffs on us.”

EMILY:

It's kind of like an intellectual exercise that the top flight economists have joined in around the world, but it's also raised some hackles among progressive economists, particularly, who say that this is sane-washing. You know, like green-washing, where companies make a dirty climate practice look clean, this is making a completely bonkers idea look logical or even bold.

RUBY:

And this is where the Mar-a-lago Accord comes in, this plan that goes some way to explaining Trump’s thinking about tariffs. So tell me about that.

EMILY:

It's written by one of Trump's top economic advisors. Let's say it's kind of like Project 2025 for the American budget. It's basically a pitch to reshape international trade and, really, to reshape the entire global financial system that it's based on.

RUBY:

I mean as soon as you say the words “reshape the global financial system”, my conspiratorial hackles go up. So, I mean, is this a real plan, Emily? How seriously should we be taking it?

EMILY:

It's definitely a rationale. It's an offering. I would say that if it is a real plan, it's very scary. I think that it's important to take it seriously but not literally, as so many people say about Trump.

RUBY:

Coming up after the break - what exactly is Trump’s plan to reshape the global financial system?

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RUBY:

Emily, there is a document, a blueprint if you like, that might help explain the thinking behind Donald Trump's trade wars. Tell me more about what it is exactly and why people are paying attention to it right now.

EMILY:

So this is a paper written by Stephen Miran. He was recently appointed the chair of the US Council of Economic Advisers. Those are the president's top economic advisors.

Audio excerpt — Newsreader: Bloomberg:

“Stephen, you are the one of the top economists at the White House right now. Welcome to Bloomberg. You're serving in this role at a tenuous moment for the economy.”

EMILY:

So a week after Trump's election win in November, he published this 40-page paper that was called A User's Guide to Restructuring the Global Trading System.

Audio excerpt — Newsreader: Bloomberg:

“You talk about some unorthodox policies like revaluing US gold stocks, applying a user fee to treasuries and a new global currency accord. Can you tell me how much of this is in the works now?”

Audio excerpt — Stephen Miran:

“Yeah, so I'm glad you brought that up because this paper seems to have taken on a life of its own, against all my intents. Look, I'm pretty clear in that paper that it's a catalogue of available options.”

EMILY:

So, what they think America should be doing is slashing government spending and borrowing, repair the trade deficit by attracting more investment and sell more to the rest of the world. And along with that, rebuild the manufacturing sector. The focus on America's poor finances is entirely reasonable. America's debt, just to sort of put this in perspective, is 123% of its total GDP. Australia's, by comparison, is less than 50%. And this debt pile for the US is growing many times faster than its economy is growing. So debt service costs are the second largest line item in the federal budget. It's borrowing to pay its own debt. And Stephen Miran is aligning with Trump's idea that the US is not getting enough out of world dominance, basically. The main plank of the solution, as they see it, is to weaken the dollar. And that would make US exports more competitive and imports more expensive. So it's supposed to, sort of, head off this flood of cheaper offshore products. The thing is, you can't just weaken the dollar because this is a market that, in daily trade, is worth sort of $7 trillion in transactions each day. So you can't do this alone, you have to have an agreement, a multilateral agreement, with other countries all involved in it. And the US has done this in the past. So in 1985, there was the Plaza Accord. This was with Japan, France, West Germany, and Britain, and it was supposed to reduce the US deficit and pull the country out of recession. So this was a huge deal for the US and it worked. Failing an accord, though, tariffs are supposed to be the stick that is supposed to encourage countries to work with the US. But Miran's blueprint has got other measures. The first one is cutting federal spending, and that's what DOGE is supposed to be all about. The really difficult bit that's also laid out in Miran’s blueprint is lowering borrowing costs for the US. So that's interest rates. It's tied to the massive amount of US debt that we've talked about. His suggestion to cut debt service costs is to force other countries that have bought government debt from the US to switch those out for bonds that essentially don't pay. Instead, they will extend out to own these very long dated bonds that eventually, sort of, in 50 to 100 years, they'll get their money back. And that terrible deal is supposed to be in exchange for military protection, for all of the benefits of having the US answer a call when you're in trouble.

The problem with that is that most US government debt is actually held by American banks and by funds. Like, the vast majority of it. If you do a deal like that, then you're ruining the credit of the US government and those bonds are instantly devalued. And not only that, it would crash the US financial system.

RUBY:

Okay so, they have this plan which is to weaken the American dollar, the idea being that if you do that you'll bring back manufacturing and bring back jobs. But as you've outlined, it could also have these significant consequences for the American financial system. So, Emily, what impact do you think this will have on the American people?

EMILY:

So, we're already starting to see this play out in unfortunate ways for Americans. We've got to ask, really, all of this for what kind of chance of success? Even Stephen Miran in his piece says that it's a pretty narrow path to success, right? The stated aim of bringing back well-paid jobs, it's not going to put the manufacturing sector where it was back in its peak in 1979. You know, that's when the most manufacturing jobs were seen in the US. The thing is that the tariff part of the plan that they've outlined, even if you assume it can be implemented, is no, kind of, quick fix. In the meantime, we've got inflation as a real risk. Most companies that have higher import or production costs because of tariffs will simply pass those costs onto consumers. One thing that Miran points out in his paper is that these tariffs must be applied carefully so that there is no retaliation. Because if you get retaliation, you get a trade war that can go on ad infinitum. But we've already seen retaliation from Europe, from China, from Canada. We've seen those rates on tariffs pushing up higher. Stephen Miran also said that once you get above 20% tariffs, you start to see them becoming counterproductive. That's when you start seeing the economic impacts coming back and biting Americans.

RUBY:

Okay, and you said that the peak of American manufacturing was in 1979, so how much of this plan is really about imagining a more traditional past? What does this document tell you about the type of America that Trump is working towards in the social sense as well as the economic?

EMILY:

If we start off by looking at it in policy terms, this is revenge politics, as Gillian Tett has said at the Financial Times. And that's arguably what drove all of the economic pain that led to the last World War. And in social terms, it's hard really to know what kind of nostalgia Trump has in mind when he's thinking about making America great again. There's a lot about this platform that would take the country back to perhaps his early adult years in the 70s when America was the manufacturing giant. Maybe he's romanticising about those well-paid jobs when men worked and women stayed at home. But I'd suggest that the world that Trump really has in mind, it's imperialist, it's imposing itself on every other country's decision-making. And if we kind of halt that sane-washing cycle for a second, this is the world that allows him to continue performing and to seize the world's attention. He's gathering power to himself and he's capitalising on it, and that's just for him, the US president.

RUBY:

Emily, thank you so much for your time.

EMILY:

Thank you so much, Ruby.

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RUBY:

Also in the news today...

The RBA has left the cash rate unchanged at 4.1%, as expected.

In a statement accompanying the decision yesterday, the board said inflation has fallen substantially since the peak in 2022, as a result of higher interest rates.

The board is now expected to cut rates at the next meeting in May, according to analysts.

And,

Former prime minister Malcolm Turnbull has told politicians to get off their knees and stand up to President Trump.

In an address at the press club yesterday, Mr. Turnbull mimicked the US president and said both Anthony Albanese and Peter Dutton have failed to properly respond to the changed reality of American foreign policy.

He also suggested Australia withdraw a recently announced $3 billion payment to prop up America’s submarine building capability and consider withdrawing American access to Australian naval bases.

I’m Ruby Jones, this is 7am. See you tomorrow.

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