596. Miraculous Pencil and Trump Tariffs

[Rachel] Hello, Brittany.

[Brittany] Hi, Rachel.

[Rachel] So today I wanted to talk about tariffs.

I don't know if you've heard tariffs on the news a lot, um, but president Trump has been talking about tariffs a lot. He sings their praises. He says they're like the most wonderful thing ever.

He says they're like the most beautiful thing ever. And I wanted to talk about that for a minute. First of all, what is a tariff?

A tariff is like a tax that is charged when goods come into a country. So for example, if Japan were to sell us, like to import some Toyota cars into the United States, we might charge them a tariff. It's like a little tax on everything that they bring in.

So it's, it's a tax on goods coming into a country that you pay to the country it's coming into. Does that make sense?

[Brittany] Yeah.

If you can give me an example of like a product. So let's say I'm trying to think of something. So I absolutely love avocados. Those aren't as fun of an example.

I was just thinking, but those come from Mexico. A lot of them come from Mexico. Let's pretend that I'm a consumer and I want to buy an avocado, but there are tariffs placed on things coming in from Mexico.

How does that affect me living at home? Can you break that down a little bit?

[Rachel] So let's say for example, that there's no tariff right now, or the tariff is very, very small, maybe just a few percent. I don't know what it actually is right now. Um, but say you go to the grocery store and you see a deal on avocados.

Three for $5. Right. I think I've seen that price range.

I think that's realistic. Yes, they are. And you can never quite get them at the right time.

They want to stay hard as a rock. And then all of a sudden they're ripe for like five seconds. And then they're mush.

I have not figured out the trick to avocados, but anyway, I love them too. And so for example, if there was a tariff place on avocados coming in and Trump is talking about like 25%, that's one fourth.

[Brittany] So in theory, just so we don't have to math. Uh, let's just say for every avocado, let's say there's like a 5 cent tariff. Let's just make up a number or how about we say one or $1.

Let's call it a $1 tariff every time you go to the store and you get avocados. So I am a consumer. I'm going to the store and I'm buying these avocados.

And last week there were three for $5, but the tariff, am I paying the tariff when I buy it at the store or is someone else paying the tariff?

[Rachel] Well, it might be passed along to you. Whoever who pays the tariff directly to the government is whoever is bringing the avocados in, but that makes them more expensive to the grocery stores and everybody on down the line. So the question is, do they absorb that and just take less profit or do they pass it along and raise the prices of the avocado?

So now it's $6 for, uh, for three avocados.

[Brittany] So I want to make sure I understand this real quick. Cause like I get so confused. So if a restaurant wants to buy avocados because they have a lot of stuff on their menu with avocados, they are the ones, if they're purchasing the avocados directly from whoever they're buying them from in Mexico, it's the restaurant that is going to have to pay that, that tariff.

No, it might trickle down to us, but it would be the restaurant, right?

[Rachel] Well, I think if the restaurant is directly importing, yes. Something like that. So anyway, somebody along the chain is paying that tariff and the avocados get more expensive because of that.

If the tariff goes down, the avocados get cheaper. If the tariff goes up, they get more expensive. And Trump is thinking of doing this, uh, to Mexico, to Canada and to China.

He's proposing a 25% tariff to Canadian imports, to Mexican imports and 10% to China, and he actually just talked about, um, equal tariff. So, uh, if a country charges our exports, like American goods, say if they go to France and France charges like a 15% tariff, Trump has asked his team of economists to figure out like what the impact of that is, like all of the taxes that they charge on American goods and charge the same amount on like, say French cheeses and French wines that come into the country, like an equal tariff. So, um, a tariff is what we call a trade barrier.

So it discourages trade because if things are more expensive, you're kind of discouraged from buying them, aren't you? Because they're more, it makes something more expensive. So it's designed, I think there's a few purposes.

Well, number one, it's, it's designed to encourage Americans to buy American things. That's one of the talking points. It's to encourage people to grow avocados in say, California or maybe Texas, you know, and buy American avocados.

So you don't have to pay the tariff on Mexican avocados. So that's one thing, um, certainly keeps American goods a little bit cheaper, makes them a little bit more advantageous, but what if, what if Texans and Californians are not quite as good at growing avocados as Mexicans are? And what if the ground and the, the elements and the, the climate is better in Mexico for a more delicious avocado?

Maybe, um, if we're buying American avocados, maybe they're not as good. Possibly. Um, or maybe, uh, if we can't get a Toyota anymore because it's suddenly become much more expensive, maybe we have to buy American cars and maybe that's not our favorite kind.

[Brittany] So the economy is, is about specialization and everybody has a very specific thing that they're good at and that's what makes the economy so great. That's what, um, you know, the miraculous pencil is about. Everyone specializes in this one thing.

[Rachel] Oh, I'm glad you brought that up because I've got that book right here and it talks about this very thing. This is a great book that explains how nobody knows how to build a pencil. Um, and that is true.

All of the elements that go into making a pencil. It's not just the wood and the rubber for the eraser and the lead for the pencil and the paint and the little metal clasp thing, all of those things have different elements that come into it from all over the world. And it like takes almost the whole entire world economy coming together to make a simple pencil.

And so what if we all put up trade barriers and discourage all of that coming together? That's a big problem. So a lot of people really, really, really don't like tariffs, but I happen to think that what Trump is doing is, is maybe a little bit more complicated and nuanced than that, I think he's using his threat of tariffs as a bargaining chip to get other countries to treat us more fairly.

And that's a whole other discussion, whether, um, you think that that's really what's going on or if he's, uh, just being stupid, that's possible. It's possible for a politician to just be stupid. Um, but, um, I kind of think that it's a bargaining tool.

He did write the art of the deal. Remember, I mean, he's very good at negotiating, no matter what you think of the man. He's a good negotiator.

And when he showed those countries like Mexico and Canada, that he was very serious about this and was like, okay, those tariffs are going into effect Monday. A lot, they kind of went, whoa, whoa, whoa, whoa, whoa. Let's talk about this.

Let's talk about this. And he was like, okay, good. Yeah.

Let's talk about this. I'll give you another month. Um, before we slap the tariffs on your goods and let's sit down and see if we can work something out.

So right now the tariffs are delayed for a little bit as, as of the time of this taping, um, they they've kind of been pushed back so that they will come to the table and negotiate. And there's some things that Trump wants, um, in exchange for not doing the tariffs.

One of them is immigration issues with Mexico. And there's other things with Canada. There's other things with China. He wants to make deals with them that are more fair to Americans.

[Brittany] So that's something I wanted to ask you. So Trump gets made fun of a lot, right? Like people think he's crazy. People think he's a buffoon. But what you just said made me think, is it possible that he's actually doing something that's a little bit strategic, that he's actually being kind of smart, like saying, “Hey, look, I'm going to do this, but I'm not going to do it if you come to the table with me.”

[Rachel] Yeah. I think that's exactly what he's doing. I think that's what's happening. Whether or not it's the best thing for America is kind of up for debate. But I do think it's not as dumb as people think it is. I think there's a method to his madness. I think he's using it as a bargaining chip.

[Brittany] I like that. That's interesting. Okay, so one more question I have. So let's say that I am the president of the United States. I decide that I want to put tariffs on French wine, right? I'm just choosing that. But I also really like French wine and so does everybody else in my country. Are there people in the country, like Congress or just people that can say, “Hey, we don't want that”?

[Rachel] Well, tariffs are one of the things that Congress actually has to approve. So you can't just do it all on your own, but there are some things a president can do without Congress. I don't know all the ins and outs of how it works, but for the most part, he’s going to need their support.

[Brittany] Okay. So basically what we’re saying is that a tariff is like a tax. It's a tax that is added to goods that are coming into the country. And it doesn't look like a tax on our receipt, right? It’s not like we go to the store and see “tariff – $2.”

[Rachel] Right. It’s not visible like that. It’s not like your sales tax or something where you see the amount. It’s built into the cost of the item you’re buying.

[Brittany] And what’s the reason people support tariffs?

[Rachel] People support tariffs because they believe it helps American businesses. If it’s more expensive to buy foreign goods, people will buy more American goods, and that’s supposed to be good for American companies and American jobs. But the downside is that it raises prices for consumers like you and me. We end up paying more for the things we want or need.

[Brittany] Okay, that makes sense. So it kind of comes down to this idea of: Do we want to protect American companies or do we want cheaper prices and more choices?

[Rachel] Exactly. That’s a great summary. And people disagree about which is better. That’s what the debate is really about. But I think understanding what tariffs are and how they work is the first step to forming your own opinion on it.

[Brittany] I love that. Thanks, Rachel.

[Rachel] You're welcome.

[Brittany] Oh my goodness. I think this could probably be a whole other episode because there's so many different ways. We might need to wrap it up here, but yeah, there's a lot of different suggestions. You know, one way that we're seeing right now is just trying to cut the government as much as possible so maybe those taxes go down. But like I said, we could probably do a whole separate episode on here and I know we're running out of time for this one, but yeah, it's an interesting topic. It's a very controversial topic right now.

I want to point out before we go that, you know, you mentioned the Tuttle Twins and the Miraculous Pencil, which is one of my favorites. That one is great because it was inspired by a book by one of my heroes, Leonard Read, who wrote I, Pencil. And so that's a really good book. I think all kids should check out Miraculous Pencil and like parents, if you want to maybe read I, Pencil as your kids are reading Miraculous Pencil, I think that could be a really fun family activity and kind of compare what you learned.

That could be really fun. So just a suggestion out there. Uh, yeah, Rachel, this was a really, really good topic. I think it's a hot issue. I think there's a lot of sides to it. It's nuanced, as we say. So we will leave it there and we'll do another episode maybe on a bunch of different ideas on how to fund this out-of-control government of ours. But we'll leave it there.

Please don't forget to like and subscribe to the podcast and share with friends. And until next time, we will talk to you later.

[Rachel] See you later.