![[images/The REAL Reason the US Is Betting on Tariffs.webp]] **Creator:** Maxinomics · **Published:** 2025-01-08 · **Length:** 11:10 · [Watch on YouTube](https://www.youtube.com/watch?v=5LJi6iFHqDc) > *For decades, the US maintained some of the world's lowest tariffs and relied on the WTO to settle disputes. But with forced tech transfers, IP theft, and the WTO effectively sidelined, tariffs are reemerging as America's main tool—and that could reshape everything we buy.* (video description) ## 1) Detailed outline ### [0:00] US trade balance decline - Phil opens with a chart of America's trade balance since 1960. It stays fairly steady for decades, then takes a nosedive. - The line tracks everything that crosses the US border. Below zero, the US buys more from other countries than they buy from it; above zero, the US does more of the selling; at zero, buying and selling are about equal. - So what happened? ### [0:30] History of tariffs - For centuries countries negotiated, item by item, the rules for buying and selling from each other. - Phil's steel example: if China's government doesn't make its steel mills pay taxes and gives them free electricity through state-owned utilities, Chinese steel is far cheaper than US steel. Letting it in at any price would kill US steelmakers, so the US puts a 25% tariff on that item. - A tariff is simply a fee paid at the border when goods come in. The US has tariffs on more than 177,000 items, and the book listing them (the Harmonized Tariff Schedule) is 3,000 pages long. Every country has a similar book. - If Ford buys $1 million of steel from China, when it reaches the Port of Los Angeles the US government has Ford pay $250,000, which it keeps as revenue like any other tax. - The three bestselling US vehicles of 2023 were all trucks: the Ford F-150, Dodge Ram, and Chevy Silverado. Each was protected from foreign competition by a 25% tariff on light-duty trucks that dates to 1964; JFK considered it and LBJ put it into effect. - The tariff didn't just protect US truck makers. It pushed Toyota, Honda, and Nissan to build plants in the US to sell trucks into huge American demand for bigger vehicles. - It started as retaliation after Germany put a big tariff on American chickens, which is why people call it the chicken tax. Phil says it's why trucks are 80% of US automakers' sales. - Back then the US didn't need anyone's approval to put a 25% tariff on trucks. It could just do it. ### [2:14] The role of the WTO - The World Trade Organization was created in 1995, and China was allowed to join in 2001. Its whole purpose was to end a country's ability to act on its own or charge different tariffs to different countries. - Think of the WTO as a courtroom with seven judges. Under the WTO, if the US disliked Germany's chicken tariff, it would file a case, the court would decide whether the tariff made sense, and both countries would follow the ruling. - WTO rules say disputes should be resolved in 90 days, but they routinely went on for years. - That delay was a major factor in the death of the US solar industry. The solar cell was invented in the US at Bell Labs (the video shows archival footage of a light-powered miniature Ferris wheel), and US solar companies dominated until the early 2000s. - In 2012 the US and China began a 10-year dispute. The US said China was selling panels well below the cost of making them. A government that funds its companies lets them undercut everyone for long enough to bankrupt unsubsidized rivals; this is called dumping, and Phil says it's exactly what China was doing. - The WTO eventually agreed the US solar industry was right, but by then that industry had died. Chinese firms used government money to build factories very fast and flood the global market below cost. US and European companies couldn't compete, and Chinese firms are now eight of the ten largest solar companies, a complete reversal from the 1990s and early 2000s. - Boeing versus Airbus was another notorious WTO dispute. ### [4:10] Bipartisan tariff policies - By the 2010s, Democrats and Republicans increasingly agreed that the WTO had stripped the US of the ability to defend its market. - The Bush administration said something but did nothing; the Obama administration said it louder (a clip of Obama: "We've brought trade cases against China at nearly twice the rate"); the Trump administration really turned up the heat. - Each WTO appeals judge serves four years, and new judges must be confirmed. The court needs at least three members to rule. The Trump administration systematically blocked appointments until the court was down to two members by 2019, so it can't function. - Phil stresses this is bipartisan, despite the headlines: the Biden administration, elected in 2020, could have confirmed judges and restarted the court but didn't, and it extended most of Trump's tariffs. - Trump used a clause in the WTO agreement that lets members set tariffs outside the WTO process if they believe another country's trade threatens their national security. - So the US is back to the oldest tool in the trade playbook: the tariff. ### [5:28] Tariffs at an all-time low - US tariffs are still near an all-time low. The average US tariff rate since 1860 was well over 20% for about 100 years and is now in the low single digits. - Out of 160 countries, the US has the 14th-lowest average tariff at 3.4%, versus 5.2% for the EU and 7.5% for China. - That's why Americans keep hearing politicians say trade must be "fair" (a montage of "fair terms of trade" and "fair trade policies"). ### [6:03] China and technology theft - China is a special case, and the reason US tariffs on China are higher than on the rest of the world: China doesn't let US companies sell there the way the US lets China sell here. - The most abused rule is China's technology-transfer requirement for companies that want to manufacture or sell in China. - Westinghouse was the global leader in nuclear power technology; about 50% of the world's nuclear plants were based on its blueprints. In the early 2000s it entered China to build its cutting-edge AP1000 reactors in partnership with the state-owned nuclear company. - As a condition, Chinese regulators required access to thousands of documents and blueprints on the design and construction of Westinghouse plants, the company's crown jewels. - During the negotiations, business-strategy documents, internal emails about the talks, and critical blueprint pieces China wasn't allowed to see were hacked from Westinghouse's servers in 2010–2011 by the Chinese military (the subject of a US Justice Department indictment). - Only four Westinghouse reactors were built in China, and China now builds and sells its own reactor design to other countries. - Phil says the story repeats: General Electric, AMD, Micron Technology, DuPont, and others set up in China, transfer technology to a Chinese partner, and watch the partner take it and not renew the partnership. A few years later the original company has zero sales in China and the partner has all of them. There are hundreds of such cases. - When it isn't forced transfer it's outright theft. About 15 years ago, plans and data on the US military's flagship next-generation fighter were hacked from Lockheed Martin's computers, and "just last month" a new Chinese fifth-generation fighter was revealed that looks an awful lot like the F-35. - So low tariffs on Chinese goods encouraged companies to move factories to China, where technology transfer is forced and IP theft is state-sponsored, and the technology is then used to build products sold back to the US and the world. ### [8:25] Globalization and job loss - The idea behind free trade and globalization is that trade eventually balances: we buy enough from you that you can buy from us, and each side builds what it's good at, so the line hovers near zero. - Low tariffs put businesses in an awkward spot. If one lamp maker moves production to Bangladesh, where labor is much cheaper, a lamp maker still building in the US can never compete on price. - Phil calls it a classic prisoner's dilemma that rarely gets discussed: if every maker of a product stays, nobody has to move, but if one leaves, they all have to leave or go out of business. - Once China joined the WTO, the US couldn't raise tariffs on goods from low-cost-labor countries, so once one manufacturer moved, a massive wave followed. - 5 million manufacturing jobs left the US between 2000 and 2010, about 4 million households' worth of jobs, felt directly by another 10 to 12 million people. ### [9:40] Do tariffs cause inflation? - Phil's answer is no. Inflation is when the prices of all goods in a country go up. Tariffs target a subset of goods; those prices rise, which is the point, but people then have less to spend on other things, so broad inflation can't follow from that alone. - Inflation happens when the money supply goes up, such as stimulus checks during the pandemic. - The argument would only hold if nearly everything Americans consume were imported or came from China. In fact 15% of US imports come from China, down from 22% in 2018, and roughly 67% to 85% of what Americans spend stays in the US (the range depends on how it's measured). ### [10:24] The future of trade - Tariffs do carry other risks. A true stoppage of key goods like pharmaceuticals could make a country feel its access to critical things is being cut off, which could start a real hot war. - But saying new tariffs could start a trade war misses the forest for the trees: the US has been in a trade war since the 2000s and is only now realizing the trade-balance line won't fix itself through partners' natural choices. - Aggressive, savvy countries like China know every powerful country, including the US, was built behind a wall of tariffs. "No country has ever become great by consuming. They do it by producing." ## 2) Things mentioned ### Economics, markets, and policy - **US trade balance since 1960:** steady for decades, then a sharp decline into deficit. - **Tariffs:** border fees on imported goods; the US has them on more than 177,000 items. - **US Harmonized Tariff Schedule:** the 3,000-page book of US tariffs, published by the US International Trade Commission. - **25% steel tariff example:** Ford pays $250,000 on $1 million of imported steel. - **The chicken tax:** the 1964 25% tariff on light-duty trucks, enacted under LBJ after European tariffs on US chicken; it pushed Toyota, Honda, and Nissan to build US plants. - **World Trade Organization (WTO):** founded 1995; China joined in 2001; its dispute court has seven judges and needs three to rule. - **WTO appellate paralysis:** the US blocked judge appointments until the court lost its quorum in 2019, and the Biden administration didn't restore it. - **National-security exception:** the WTO clause letting members impose tariffs outside the dispute process. - **Dumping and state subsidies:** selling below cost with government money to bankrupt foreign rivals. - **US–China solar dispute:** began in 2012 and lasted about 10 years. - **Boeing versus Airbus:** a long-running WTO subsidy dispute. - **Average tariff rates:** over 20% in the US for about a century after 1860, now 3.4% (14th-lowest of 160 countries), versus 5.2% for the EU and 7.5% for China. - **"Fair trade" rhetoric:** the recurring political line about fair terms of trade. - **Forced technology transfer:** China's market-access condition for foreign companies. - **State-sponsored IP theft:** the Westinghouse hack and F-35 data breach. - **Free-trade theory:** trade between countries should balance out over time. - **Prisoner's dilemma of offshoring:** once one manufacturer moves to low-cost labor, competitors must follow. - **Manufacturing job losses:** 5 million jobs from 2000 to 2010, affecting about 4 million households and another 10 to 12 million people. - **Tariffs versus inflation:** tariffs raise targeted prices; inflation comes from money-supply growth, like pandemic stimulus checks. - **Import shares:** 15% of US imports come from China (down from 22% in 2018); 67% to 85% of US spending stays domestic. - **Biden tariffs on Chinese goods:** cited in the video's sources. - **Supply-security risk:** a stoppage in goods like pharmaceuticals could escalate to real conflict. ### Companies, organizations, and products - **Ford F-150, Dodge Ram, and Chevy Silverado:** the three bestselling US vehicles of 2023, all protected by the chicken tax. - **Ford Motor Company:** the steel-tariff example. - **Toyota, Honda, and Nissan:** built US truck plants because of the chicken tax. - **Bell Labs:** where the video says solar technology was invented, before US companies led the industry into the early 2000s. - **Chinese solar manufacturers:** now eight of the world's ten largest solar companies. - **Boeing and Airbus:** parties in the WTO subsidy fight. - **Westinghouse Electric:** former global nuclear leader; AP1000 reactor deal in China and the 2010–2011 hack. - **China's state-owned nuclear company:** Westinghouse's partner in China. - **General Electric, AMD, Micron Technology, and DuPont:** examples Phil gives of companies that transferred technology to Chinese partners. - **Lockheed Martin F-35:** whose design data was hacked about 15 years ago. - **New Chinese fifth-generation fighter:** revealed the month before this video and, Phil says, closely resembling the F-35. - **US Justice Department:** its indictment covering the Westinghouse hack is a cited source. ### Places - **Port of Los Angeles:** where the imported steel example lands. - **China, Germany, the EU, and Bangladesh:** the trading partners and low-cost-labor example used. ## 3) Biographies ### Phil Andrews (presenter) Phil Andrews is the producer and on-camera host of Maxinomics ("the guy in the videos and the comments"), a Morning Brew channel that explains economics, business, and geopolitics through stories. Here he argues that tariffs are returning because the WTO stopped working for the US. ### John F. Kennedy (mentioned) The 35th US president (1961–1963). Phil says JFK considered the light-truck tariff that became the chicken tax. ### Lyndon B. Johnson (mentioned) The 36th US president (1963–1969), who put the 25% chicken tax on light trucks into effect in 1964. ### George W. Bush (mentioned) The 43rd US president (2001–2009), in office when China joined the WTO. Phil says his administration voiced concerns about the WTO but didn't act. ### Barack Obama (mentioned, appears in a clip) The 44th US president (2009–2017). Shown saying his administration brought trade cases against China at nearly twice the previous rate. ### Donald Trump (mentioned) The 45th US president (2017–2021) and president-elect when this video was published. His administration blocked WTO appellate judge appointments until the court lost its quorum in 2019 and imposed tariffs under the national-security exception. ### Joe Biden (mentioned) The 46th US president (2021–2025). Phil notes his administration left the WTO appeals court unstaffed and extended most of Trump's tariffs, and the video cites his own tariffs on Chinese goods. ### Production credits Producer Phil Andrews; video editor Sarah Kate Gervasoni; motion graphics by Seth Laupus and Jonatan Wu; director of production services Sam Wolf; thumbnail by Seth Laupus; supervising producer James Atamian; chief content officer Devin Emery.