0:00

NPR. -R Donald

0:03

Trump wants to have

0:06

more stuff made in America.

0:08

And to do this, I'm

0:10

sure you've heard, Donald Trump wants

0:13

to have more stuff made in

0:15

America. tariffs do this, I'm sure you've

0:17

heard, he's promising more tariffs. I think

0:19

tariffs are the most beautiful word.

0:21

I think they're beautiful. It's going to

0:23

make us rich. rich. Chairs are are

0:25

on imported cars, barbecues, laptops,

0:28

fridges, I mean I anything. anything.

0:30

the idea is to protect

0:32

American companies from overseas competition.

0:35

Trump has also, at times, at demanded

0:37

a weaker dollar, dollar because a weak

0:39

dollar is good for American exporters. It

0:41

It means people overseas can more easily

0:43

afford stuff from the the US. Now on the

0:45

Now on the surface, these make

0:48

sense, right? You got two policies that

0:50

help make things in America. America. Well,

0:52

not really. There one problem

0:54

with this plan. Tariffs

0:56

actually strengthen the dollar. the

0:58

dollar. This is The Indicator

1:00

This is The Indicator from Money. I'm I'm

1:03

Waylon Wong. And I'm Woods. show on

1:05

the tariffs and currencies through

1:07

the story of one

1:09

bag manufacturer from New Jersey.

1:11

And we look at how

1:14

its experience illustrates how Trump's

1:16

goals are contradictory. illustrates how Trump's

1:18

goals are contradictory. Support

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advisor, Spencer and Smith Inc. not

4:04

not like a tote we

4:06

would just a away for, give

4:09

know, for, I don't know, like drive

4:11

or something. pledge drive or us. Canvas or

4:13

death for that what Patrick Henry

4:15

said during the during the Revolutionary War?

4:17

Anyway, back to our back to our trade

4:19

explainer. Kim pays the factory in

4:21

and the factory the factory owners converted it

4:23

to the Chinese currency, in Minby later

4:25

on. will be This will be an

4:27

important link in the chain when

4:30

we talk about how exchange rates

4:32

are affected by tariffs. by Now, this

4:34

was before Trump's first term, before

4:36

the trade war with China. Even

4:38

back then, Kim had to

4:40

pay some tariffs, some but they

4:42

were manageable. She says between She says

4:44

between 20 or of the the value.

4:46

value. really didn't understand fully

4:49

the tariffs. It It was just

4:51

added to the bottom line or

4:53

expense. or expense. Trump came into office in

4:55

2017, in those tariffs went up a lot.

4:57

up a of them have gone up to

4:59

have gone up to 40%. you know, essentially

5:01

double. Now it's a substantial

5:04

cost. cost. The way the tariffs work

5:06

in her case is that the factory

5:08

sends a shipment of bags out

5:10

of southern China. of The China. of bog

5:12

bags makes its way to the its

5:14

Los Angeles or Miami or Baltimore. or

5:16

The logistics company she's hired makes

5:18

a declaration to makes a Border Protection about

5:20

the wholesale value of those bags about

5:22

the provides value of account details. If

5:24

they're worth, say, details. then a

5:26

40 say, tariff means she has to

5:28

pay the government $20 per bag.

5:30

bag. Then, after about 30 days or

5:33

so of the bog bags arriving into the US.

5:35

Customs and Border Protection gets the

5:37

money. the It comes right out

5:39

of your checking account, which is super fun. which

5:41

is super fun. I paid 800

5:43

paid today. today. You paid $800,000 in

5:45

in tariffs today. Wow. I

5:47

don't want to know what the I don't

5:49

want to know what the overdraft fees are goes

5:51

wrong. Oops, I forgot to have to have that in

5:53

the bank account today. today. For reference,

5:55

Spog is a a big company,

5:58

about $100 million a year in revenue.

6:00

But those tariff payments of each shipment

6:02

are already costing Kim real money.

6:04

This is where you can start

6:06

to understand how tariffs strengthen the

6:08

US dollar. When those tariffs increased

6:10

last time, Kim tried to figure

6:12

out how to make that work

6:14

financially. You have to eat some

6:16

as the business. The consumer has

6:18

to pay a little bit more.

6:20

And when American consumers are faced

6:22

with higher prices, they will buy

6:24

fewer bags. That means less of

6:26

those US dollars going to the

6:28

Chinese bag factory and being converted

6:30

to the Chinese renminbi. Less demand

6:32

for renminbi weakens the Chinese currency.

6:34

In comparison, the US dollar gets

6:36

stronger. Basically, less American spending in

6:38

China, less demand for the Chinese

6:40

currency. There's another mechanism here as

6:42

well. Kim says when tariffs are

6:44

raised, she also tries to share

6:47

some of the pain with the

6:49

factory. I mean there's only so

6:51

far you can go. You can't

6:53

go and recoup all of it

6:55

by way of the consumer. So

6:57

there was some times where we

6:59

were able to negotiate with the

7:01

factory as well and say, hey,

7:03

we may not have an option

7:05

but to pull out. You know,

7:07

meanwhile, knowing in the back of

7:09

your head, it's not that easy.

7:11

In our particular case, where there's

7:13

multiple molds, I mean, we own

7:15

hundreds of molds to remold everything

7:17

at a new factory, you know,

7:19

it's just, it's a lengthy and

7:21

expensive process. So Kim was like,

7:23

I'm going to take my molds

7:25

and go. And she's like, Wait

7:27

a minute, I can't do that.

7:29

Yeah, but they didn't need to

7:31

do that. Well, you know, the

7:33

bluff worked. When Kim was able

7:35

to agree on lower prices from

7:37

the factory gate, that again meant

7:39

less US dollars being sent to

7:41

the Chinese factory, which then would

7:43

again mean less demand for renminbi

7:45

and a weaker Chinese currency relative

7:48

to the US. The side effect

7:50

from terrorists is the opposite of

7:52

what Trump wants. A stronger dollar

7:54

is bad for US exports. If

7:56

you're an American selling, say, powdered

7:58

milk into China, that powdered milk

8:00

is going to look more expensive

8:02

from the Chinese. side, so they'll

8:04

buy less of it. This is

8:06

why Trump has railed so much

8:08

against the strong dollar. It makes

8:10

life harder for American farmers and

8:12

manufacturers. So this is the tension.

8:14

The key pillar of Trump's economic

8:16

agenda, tariffs, is likely to strengthen

8:18

the dollar further. And that's actually

8:20

what we saw in the days

8:22

after Trump's election. The dollar strengthened

8:24

significantly, likely in anticipation of new

8:26

tariffs. Now, there are a couple

8:28

of caveats here. There will be

8:30

a ton of new policies and

8:32

circumstances happening all at once over

8:34

the next few years. Some will

8:36

strengthen the dollars, some will weaken

8:38

it, sort of just run through

8:40

is what economists call ceterous paravis.

8:42

It's Latin for other things equal.

8:44

So in an imaginary world with

8:46

everything else frozen, this is what

8:48

would happen. But in the real

8:51

world, currencies are notoriously difficult to

8:53

predict. As for Kim, she's doing

8:55

what she can ahead of any

8:57

new tariffs. Production is maxed out.

8:59

And she's looking at factories in

9:01

other countries like Vietnam, Sri Lanka,

9:03

and Cambodia. We need to diversify

9:05

in general, right? You don't want

9:07

to have all your eggs in

9:09

one basket. You don't want all

9:11

your factories in one bug bag.

9:13

Exactly. Did that, did that, did

9:15

that reverse, the medium reversal work,

9:17

well, how many factors can you

9:19

fit in one of these bog

9:21

bags? Sound pretty roomy. And look,

9:23

this time she may not be

9:25

bluffing. Done, done, done. This episode

9:27

was produced by Kupikats McKim and

9:29

engineered by Jimmy Keely and Casey

9:31

Lee. It's fact-checked by Sarah Juarez.

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Cake and Kaken Cannon edits the

9:35

show and the indicators of production

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