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The next wave of Trump tariffs are expected to go into effect on Friday

STEVE INSKEEP, HOST:

So to summarize, the United States has a framework for trade with Europe now, with the details unknown. The U.S. is still talking with China. And the U.S. set a deadline to increase tariffs on many nations August 1, which is coming right up. Commerce Secretary Howard Lutnick was on Fox News Sunday.

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HOWARD LUTNICK: No extensions. No more grace periods. August 1, the tariffs are set. They'll go into place. Customs will start collecting the money, and off we go.

INSKEEP: So what does that mean for the economy and for you? We called Ernie Tedeschi, who is director of economics at the Budget Lab at Yale. He's been tracking the tariffs. He also served as chief economist in the White House Council of Economic Advisers during the Biden administration. Good morning. Welcome to the program.

ERNIE TEDESCHI: Thanks for having me, Steve.

INSKEEP: I guess we should note - the Treasury secretary, Scott Bessent, has in recent weeks attacked your group by name. I guess that means he's paying attention to you. What do you make of it?

TEDESCHI: You know, we welcome any substantive disagreements, and we would love to have a conversation with Secretary Bessent. Look, we are a nonpartisan organization. We want to get this right, and we want to do so with rigorous data and correct economics, which is our mission and what we've been doing so far.

INSKEEP: OK. So let's see if we can get it right here on the tariffs. What do you make of the agreement with the European Union, or at least what is known so far about it?

TEDESCHI: The details are not complete yet. But, look, you know, the Trump administration had threatened the EU with a 30% tariff prior, so bringing it down to 15% is relief against that threat. It is going to raise costs for American consumers and businesses, right? So the economic research that has been done on tariffs - and there's been extensive economic research - and what we've seen so far this year suggests that foreign producers are not absorbing virtually any of the tariffs that have been imposed by the United States so far. So that means it's really up to American businesses and American consumers to bear them, and we see no reason why the EU tariffs will be any different.

INSKEEP: I'm just noting - we talked about a report earlier this summer from Bloomberg, I believe, talking about Japanese carmakers that were absorbing some of the tariffs, just not all of the tariffs. Are you sure that foreign manufacturers are not doing very much at all?

TEDESCHI: So when you look at import prices into the United States, the way that we measure import prices is without tariffs. So you can't look...

INSKEEP: Right.

TEDESCHI: ...At that as a way to see how tariffs are affecting things. But you would expect to see import prices falling overall if foreign producers were absorbing part of the tariffs. They haven't been doing that. If anything, they've been - they rose in May and in June. So, you know, that's, you know, circumstantial evidence. But it's a pretty good signal that foreign producers, on average overall, are not absorbing much, if any of the tariffs so far.

INSKEEP: I want to ask about one of the arguments that's made here. Advocates of tariffs will say, well, if you don't want to pay the tariff, buy American.

TEDESCHI: Right.

INSKEEP: But I'm thinking about 15% tariffs on European products like a European car, for example. When you have a tariff on a European car, doesn't that allow and even encourage American automakers to charge more for their products, too?

TEDESCHI: Right. So it hits domestic products in a number of ways. One is that there's a lot of made-in-the-USA products, particularly automobiles, that use foreign-produced parts. So even if you're buying a, quote-unquote, "American" car, there's a lot of foreign content add-on (ph) in that American car. And that foreign content will be tariffed, if not from the EU, then from China or from Canada or Mexico. So it comes through that way. Second, to your point, Steve, American firms may choose to raise their prices in competitive response to foreign tariffs. And actually, you know, for tariff advocates, that's a feature, not a bug, right?

INSKEEP: Yeah.

TEDESCHI: For them, the whole point of a tariff is to give American firms the room to be able to raise their prices and make more revenue. And the last thing I'll say on autos in particular is that if new autos are tariffed, that puts upward pressure on used car prices because there will be more demand from Americans to find some way around the tariffs. And used - and the used car market is one way of doing that.

INSKEEP: Is there a real risk that an American-made car that has parts from Mexico or Canada is going to end up having more cost by tariffs than a European-made car that is just shipped here?

TEDESCHI: There is a lot of risk. Now, the auto production sort of ecosystem is very complicated, in particular when we look at Canada and Mexico. But, yes, at the end of the day, there is a risk that, quote-unquote, "domestic" cars that are produced in Canada or Mexico might end up being more expensive than European counterparts.

INSKEEP: Ernie Tedeschi is at the Budget Lab at Yale. Thanks for your insights.

TEDESCHI: Thanks for having me.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Steve Inskeep is a host of NPR's Morning Edition, as well as NPR's morning news podcast Up First.