It shows America's trade balance since 1960.

Notice how it stays pretty steady for decades, then suddenly, oh, it takes a nosedive.

This red line tells a story about all the things Americans buy and sell from other countries.

Basically everything that crosses the U.S. border.

When the line dips below zero, the U.S. is buying more from other countries than those countries are buying from the U.S.

Above zero, the U.S. is doing more of the selling.

On the line, the U.S. is selling and buying in about the same amount.

So what happened here?

For centuries, even millennia, countries negotiated item by item the rules by which they buy and sell stuff from each other.

The U.S. will look at all the things another country, let's say China, wants to sell to them and say, hey, for this one's steel, we know your government doesn't make your steel mills pay taxes.

And because your government owns the utilities, it also gives them free electricity.

So your steel mills can make steel much cheaper than our steel mills can.

If we let you sell your steel here at the price you want to, it'll kill our steel companies.

Because of that, for this item steel, we require a 25% tariff.

A tariff is simply a fee paid at the border when goods like steel are brought in from outside the country.

They're not uncommon.

The U.S. has tariffs on more than 17,000 items.

And this book, which lists all the tariffs the U.S. has in place, is 3,000 pages long.

And every single country around the world has a similar book.

If Ford buys a million dollars of steel from China, when that steel gets to the port of L.A., the U.S. government tells Ford to pay them $250,000, which they keep as revenue, just like any other tax.

The three best-selling vehicles of 2023 in the U.S. were all trucks, Ford F-150, Dodge Ram, Chevy Silverado.

Each of these trucks was protected from foreign competition by a 25% tariff on light-duty trucks that was put into place all the way back in 1964.

JFK considered it.

LBJ put it into effect.

This tariff didn't just protect U.S. companies producing trucks, but ended up forcing Toyota, Honda, and Nissan to build plants in the U.S. so they could sell trucks into overwhelming American demand for bigger vehicles.

All kicked off because Germany put a big tariff on American chickens.

That's how this happened.

Retaliation for that.

People called the chicken tax, and it's why trucks are 80% of all U.S. auto company sales.

When that happened, the U.S. didn't need to get anybody's approval to put a 25% on trucks.

It could just do it.

But then, in 1995, the World Trade Organization, or WTO, was created.

And then in 2001, China was allowed to join it.

The intention of the WTO was specifically to change that.

The ability for a country to take action on its own, or to charge different tariffs to different countries.

You can think of the WTO as a courtroom with seven judges.

Starting in 1995, if the U.S. didn't like the tariff Germany put on U.S. chickens, they'd have to submit a case for the WTO court to hear.

The court would decide if the tariff made sense, and the countries involved in the dispute would follow the ruling the judges came with.

Imagine how much time it might take to get through one of these cases.

WTO rules state disputes should be resolved in 90 days, but they routinely ended up going on for years, which was a major factor in the death of the U.S. solar industry.

Light, acting like the sun, powers this miniature Ferris wheel.

Invented in the U.S. at Bell Labs in 1961, U.S. solar companies were the dominant players up until the early 2000s.

In 2012, the U.S. and China began a 10-year dispute.

The U.S. said China was selling solar panels well below the price it cost to actually make the solar panels.

If a government gives a company money, that company can sell its product for less than actual cost to make the thing.

If they do this long enough and flood the market with, say, cheap solar panels, they can bankrupt all the other companies who aren't receiving money from their government.

This is called dumping, and it's exactly what China was doing.

U.S. solar companies called them out, and then it took the WTO years to ultimately come to the conclusion that the U.S. solar industry was, in fact, correct.

But as this process took all this time to play out at the WTO, the U.S. solar industry died.

Chinese solar companies using funds from the Chinese government built factories extremely fast and flooded the global market, selling the panels they made well beneath what it actually cost to make them.

U.S. and European companies couldn't compete.

Chinese firms are now eight of the 10 largest solar companies, a complete swap from the 1990s and early 2000s.

Problem after problem like this came against the U.S.

Boeing versus Airbus was another major notorious example.

So by the 2010s, this became something Democrats and Republicans were increasingly in agreement about.

The WTO had stripped the U.S. of the ability to defend its market.

The Bush administration said something about the WTO, but didn't do anything.

The Obama administration said something a little louder.

We've brought trade cases against China at nearly twice the rate.

But then the Trump administration really turned up the heat.

Each WTO judge served four years.

When it's time to appoint a new judge, they need to be confirmed.

To issue any rulings, the court is required to have at least three members, prevent judges from being confirmed or appointed.

And once the court has less than three it cannot function, which is exactly what the Trump administration did.

Systematically blocked judge appointments until the WTO court was down to just two members by 2019.

Now, I just want to point out something to highlight again that this trade in the WTO is a bipartisan issue in U.S. government.

Despite what is talked about in TV and the headlines, the Biden administration, when elected in 2020, could have immediately approved and confirmed judges and unblocked the WTO court, getting it back and running as usual.

But they didn't.

And they haven't.

And in fact, extended most of the tariffs imposed by Trump, who used a little clause in the WTO agreement that allows members to set tariffs without going through the WTO process, if they think a country is conducting trade in a way that threatens their national security.

Trade is this uniquely bipartisan thing.

So we're back to the oldest tool in the trade playbook, the tariff, which are at an all time low still today in the U.S.

This is the average tariff rate in the U.S. since 1860.

I mean, look at this.

It was well over 20 percent for 100 years.

But today is in the low single digits.

Out of 160 countries, the U.S. has the 14th lowest average tariff in the world at 3.4 percent.

The EU is 5.2 percent and China is 7.5 percent.

This is one of the major reasons U.S. citizens keep hearing this statement.

Trade must be fair as long as the competition is fair.

Fair terms of trade, fair trade, fair trade policies.

But China, China is a special case.

And why the U.S. has higher tariffs on China than the rest of the world?

China does not allow U.S. companies to sell to China the way the U.S. allows China to sell to it.

The most egregious and abused role when a company wants to manufacture or sell goods in China is China's policy of technology transfer.

Here at Westinghouse, scientists are developing the world's first atomic power plant.

Westinghouse was the global leader in nuclear power technology. 50 percent of all nuclear power plants around the world were based on Westinghouse blueprints.

In this release of energy, atomic power is born.

In the early 2000s, the company entered the Chinese market.

The plan was to build Westinghouse's cutting edge AP1000 nuclear reactors throughout China in partnership with the country's state owned nuclear company.

As a condition of the arrangement, Chinese regulators required access to thousands of documents and blueprints regarding the design and construction of Westinghouse nuclear plants.

These are the crown jewels of Westinghouse.

Westinghouse granted the access.

As the negotiation was going on, business strategy documents, emails between Westinghouse employees about the negotiations and critical blueprint pieces China wasn't permitted access to have were hacked out of Westinghouse's servers between 2010 and 2011 by the Chinese military.

Just four of Westinghouse's reactors were built in China, and now China builds and sells their own nuclear reactor version to other countries.

This is a story that repeats over and over again.

General Electric, AMD, Micron Technology, DuPont, the list goes on.

Set up shop in China, transfer technology to the Chinese partner, and then watches the Chinese partner takes the technology after a few years and doesn't renew the partnership.

A few years after that, the company who developed the technology has zero sales in China, and the company that was granted access to the technology has all of them.

There are hundreds of cases of this kind of thing.

And if it's not that kind of technology transfer, it's outright theft.

Look at this. 15 years ago, the plans and data on the US military's flagship next generation fighter plane were hacked out of Lockheed Martin's computers.

And now, just last month, the new Chinese fifth generation fighter jet was revealed, looking an awful lot like Lockheed's F-35.

So for years, the US has had low tariffs for Chinese goods coming into the US, which has incentivized companies to move factories to China, where technology transfer is forced, and IP theft is sponsored by the state.

And then the acquired technology is used to build products to sell back to the US and the rest of the world.

The idea of free trade, what has been the driving force of globalization, of moving manufacturing overseas, is that eventually, the trade between countries will balance out.

We'll buy enough from you that you'll have enough money to buy from us.

You'll build what you're good at, and we'll build what we're good at.

This line might bounce around a bit, but should mostly hang around the zero line for every country.

Low tariffs put businesses in this awkward position of potentially having to move manufacturing out of the US.

If a company is making lamps in the US, and a competing company starts making its lamps in Bangladesh, where labor is much cheaper than in the US, the company is building lamps in the US will never be able to compete on price.

This is a classic prisoner's dilemma that is not often talked about.

If all the makers of one product stay in the US, no one has to move.

But if one leaves, they all have to leave.

If a company can't build things at the same price as its competitors, it will most likely go out of business.

Once China joined the WTO, the US was not allowed to raise tariffs on goods coming in from low cost labor countries.

So once one manufacturer moved, a massive wave of manufacturers had to follow to stay competitive. 5 million manufacturing jobs left the US between 2000 and 2010.

That is 4 million households worth of jobs.

So it was directly felt by another 10 to 12 million people.

As for whether tariffs cause inflation, the answer is no.

Tariffs do not equal inflation.

Inflation is when the price of all goods in a country go up.

Tariffs target a subset of goods, the price of that stuff does rise, which is kind of a point.

But because the price of that stuff rises, people have less to spend on other things, making broad inflation actually impossible.

Inflation occurs when the supply of money goes up, cash, like steady checks during the pandemic.

Now, if you are of the belief that every single thing the US consumes comes from China or is imported, there might be some validity to the idea that tariffs cause inflation.

But that's just not the case. 15% of US imports come from China, down from 22% in 2018.

And 67 to 85%, some wonky numbers because there are a few ways this is measured, of the money Americans spend stays in the US.

There are other risks with tariffs, though.

A true stoppage of trade could occur in key goods like pharmaceuticals.

One country might feel like its access to critical things is cut off by another country.

This could start a real hot war with weapons involved.

But the idea that new tariffs could start a trade war is missing the forest from the trees.

The US has been in a trade war since the 2000s and is just now realizing that this line isn't going to shift from natural choices by trading partners.

Because countries, in particular a very aggressive and savvy country like China, know that every powerful country was built behind a wall of tariffs, including the US.

No country has ever become great by consuming.

They do it by producing.