Early Wednesday morning, the Donald Trump administration’s sweeping tariffs on foreign goods took effect. The highest tariffs — a total of 104% — were placed on China.

Later that morning, the Trump administration had both doubled down on and backed off tariffs.

In a Truth Social post at 10:18 a.m. PDT, Trump announced a 90-day pause on the tariffs on most countries, while increasing duties on China to 125%.

One of Trump’s goals is to eliminate the U.S. trade deficit, especially with
China.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, told “Marketplace” host Kai Ryssdal that trade deficits are not inherently bad because they can result in foreign investment in the United States.

Below is an edited transcript of their conversation.

Kai Ryssdal: So, Chad, first things first, is a trade deficit, an inherently bad thing?

Chad Bown: Nope, it's essentially the United States is buying things. So other countries are willing to sell us stuff, and the match on the other side isn't necessarily that they just want to buy our goods, they may want to invest in companies that are producing things in the United States, or they might want to buy stocks and bonds in the United States. So running a trade deficit, in general, is not a terrible thing for the U.S. economy.

Ryssdal: The subtext of what you said there is important. We take our dollars and we send them overseas, and overseas companies send us their stuff. But then they also take those dollars, and a lot of them come back into this economy.

Bown: That’s exactly right. It's an open loop kind of system. And it's worked pretty well. That doesn't mean it always works and that there aren't some challenges sometimes associated with trade, but I think the ones that President Trump has identified, the trade imbalance, and bilateral trade imbalances in particular, with just specific countries, is probably not the biggest problem for the United States to be worrying about.

Ryssdal: We should be clear here, right? What the president is going after here is bilateral trade imbalances, and thus imbalancing the entire global economy. On the issue of those dollars coming back in and the circular loop thing, what happens as is now happening, when tariff rates go up so quickly, so haphazardly, and barriers to trade are erected, then what happens?

Bown: That’s really what we don't know. So I think it is important to talk a little bit about —

Ryssdal: That’s not very reassuring Chad, I just have to tell you that.

Bown: It really isn’t. We're in uncharted territory here, but part of this is the sheer size of what the Trump administration has done in terms of tariffs. So everybody remembers the first Trump administration and the trade war with China. Well, in that instance, tariffs went from, on the U.S. side, 3% or so to 19%, what seemed like a lot at the time. But over the first two months of this administration, they've gone from 20% to now, overnight, they are now over 100% right? And so, this is just enormous, and we've never seen anything like this before. They cover everything. The last time around, the tariffs that the Trump administration applied went on over a period of 16 to 18 months. This time around, they've gone on in two months. So the speed is also incredibly important. And it's really unclear what is going to happen, what the impact of this is going to be on the macroeconomy, on people like you and me, the things that we buy, as well as the companies out there that are operating in the economy too.

Ryssdal: The president says that what he is going to do is reestablish manufacturing in the United States. Is this going to get us there?

Bown: It's hard to tell. You know, certainly, if he erects barriers that are so high, and he's on the path here, and he says that they're permanent, Americans are going to want to continue to buy stuff. And so, if it's impossible for Americans like me and you to be able to buy things from China, or Mexico, or Europe, or Japan, or anywhere else anymore, then yes, we will make it here. The challenge will be that it will just be a lot more expensive. The second, of course, is there may be a lot more manufacturing activity taking place here in the United States, but we're not really sure if there's going to be a lot of jobs associated with that, right? Companies are looking to cut costs. They might want to do automation, robots, AI, you name it, right? So it's not necessarily a jobs-gainer as well.

Ryssdal: I don't wanna pay $9,000 for an iPhone, Chad.

Bown: I don't think any of us do, but the truth of the matter is, we're a lot closer to $9,000 for an iPhone today than we were a week ago, and certainly that we were before Jan. 20.

Ryssdal: All right, Chad, you let me know when you're ready, and we're gonna bang this out again.

Bown: Yes.

Ryssdal: All right, I frankly don't know how we're gonna put this together for air, but I'm just gonna throw you the question, and then we're gonna figure it out. All right?

Bown: We'll figure it out.

Ryssdal: So this is one of those “this just in“ kind of situations. I'm gonna read you something that the president of the United States posted on his social media account this morning, and then I need your response. It's a long one, I'm gonna read part of it.

“Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately.”

And then he goes on and on and on, and down at the end, he says, “I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately. Thank you for your attention to this matter!” says the president. What do you say to that?

Bown: Wow. Well, I guess there's still some questions as to what he actually means, and we'll wait for the legal details from the lawyers to tell us that. But it could be that the initial 10% tariffs that went on everybody on April 5, those are going to stay on, and that the additional tariffs that went on countries with which the United States has a trade deficit this week, those tariffs wouldn't go on, or they would get rolled back. But with the exception of China, and China gets this special treatment. The tariffs he had already posed were already over 100%. I guess he's going to raise them up 225%, so even further.

Ryssdal: Last thing Chad, and then I'll let you go for real. You're a foreign country trying to do business in the United States, and you see what can be characterized at best as arbitrary and capricious tariff policy. What's your reaction?

Bown: If I'm a government policymaker, it's really hard to strike deals with the United States because you don't know if what the president is offering you today is going to stick tomorrow. And then if you're a foreign company trying to make decision about where you want to invest around the world, boy, the United States looks like a really uncertain market at the moment too.