Heritage Foundation economist E.J. Antoni explains Trump's tariff strategy: Mexico and Canada folded on a threatened 25% tariff because they'd face deep recession while the U.S. only slows modestly. Tariffs on China roughly match government subsidies that give Chinese producers unfair pricing, forcing them to absorb costs instead of passing them to American consumers.
And I'm joined by my guest, E.J. Antoni, an economist for the Heritage Foundation and probably the sharpest-dressing economist out there. E.J., welcome to the Dennis Prager Show.
Carl, it's a very kind introduction. Thank you for having me.
Absolutely. Always love speaking with you. You make things so clear. so clear, and I really appreciate that. I mean, whenever you're breaking down, money and finances and the economy in the ways, that you do, when I can read it and understand it, I understand, man, this guy's got to be brilliant. If I can understand it, this guy's got to be brilliant. Otherwise, I wouldn't understand it, quite frankly. Uh, so I love what you do, by making, economics understandable for people like myself. Okay, so, uh, EJ, um, and by the way, find EJ on X, @realejantony, @realejantony. Okay, so EJ, I want to get your opinion just right off the bat, your thoughts right off. We had tariffs, Trump was at least threatening tariffs on Mexico and Canada, and then voilà, within what, 24 hours, 48 hours maybe max, they both concede and say, hey, we're going to put some troops on the border. And do several other things as well. Give us your initial thoughts on their reactions to Trump's threat of 25% tariffs.
Well, Carl, I think everyone is slowly realizing that it's not Trump who's bluffing in all of these scenarios. It's other world leaders. It's the president of Mexico. It's the governor of Canada, for example. Those are the folks who aren't actually ready to go toe to toe with the president. And the reason for that is because When we start talking about trade wars, you have to realize there are no winners in trade wars, but not everyone loses equally. And so will the United States take a hit if we get into a full-fledged trade war with one of our partners? Of course we will. But it's the difference between hitting a speed bump economically and going into a very bad recession, which is what would happen for a country like Canada or Mexico. And as, again, as these foreign leaders slowly realize that Trump is— he is deadly serious about this. He is willing to see this through, to go toe-to-toe with these nations and to get into that kind of prolonged trade war. Everyone is beginning to bend the knee. They essentially know, Carl, that Trump holds all of the cards here.
I mean, this is, this is so fascinating to me, E.J., because I, I, I mean, as Trump threatens these tariffs, if you will, it just shows you He's exposing these people. I mean, even more so than I realized, given this USAID scandal, all of this money that— I mean, he's exposing the left. He's exposing these foreign dignitaries just by using the threat of tariffs. Let me ask you this. We have 2.5 minutes in this block. If you could stick with me for another segment, I would really appreciate it, EJ. So I'm a free market capitalist, and for the first time I'm looking at tariffs and I'm like, hey, I like the way that Trump is using them. You explained to me before in one of my podcasts how effective Trump was using tariffs when it came to China, CCP China. Can you explain how we benefited from that, how Trump essentially won that trade war the first go-round with China?
Oh, certainly. You know, one of the reasons that— one of the reasons why China is so incredibly competitive in U.S. consumer markets is the fact that they subsidize so much of their industry and at so many levels of production. It's a kind of vertical integration, if you will, where they not only are subsidizing the raw materials, but they're subsidizing the manufacturing, they're subsidizing the final assembly, the marketing, everything. And so it becomes absolutely impossible to compete with Chinese industry in certain areas. And by putting tariffs on those, on those products coming into the U.S., roughly equal to the subsidies, what you are effectively doing is getting rid of that unfair advantage that those Chinese producers have. So Chinese taxpayers, if you will, in communist China are paying money to the, to their government, which is being used to subsidize the industry, but then you're also seeing a tax placed on those products by the US Treasury, again, roughly equal to the subsidy. If the Chinese manufacturer wants to maintain their market share, then they essentially have to eat the cost of that tariff. They can't increase the price on the products that they sell, otherwise American consumers will tend to go elsewhere. We saw this in the steel industry, for example, where people started buying more domestically produced steel. They also started buying more steel from some other countries around the world. Sweden was a very good example. And the result of that, Carl, was that the Chinese steel producers couldn't actually pass much of the cost on. They again had to eat the cost of that tariff. So at the end of the day, it's a bizarre situation, but Chinese taxpayers are paying for a subsidy which effectively is then just being passed to the US Treasury in the form of a tariff payment. So Chinese people in China end up paying some of the tax bill for the American, for the American consumer.
Man, amazing, amazing. That's why we have them on. We'll be back, more with E.J. and Tony, economists at the Heritage Foundation.
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