1 00:00:02,480 --> 00:00:07,520 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:16,640 --> 00:00:19,560 Speaker 2: I'm Sevany Flanders, head of Government and Economics at Bloomberg, 3 00:00:19,600 --> 00:00:22,400 Speaker 2: and welcome to Trumpponomics, the podcast that looks at the 4 00:00:22,440 --> 00:00:25,520 Speaker 2: economic world of Donald Trump, how he's already shaped the 5 00:00:25,520 --> 00:00:28,880 Speaker 2: global economy, and what on earth is going to happen next. 6 00:00:29,560 --> 00:00:32,680 Speaker 2: And this week we have something slightly different, a conversation 7 00:00:32,960 --> 00:00:36,800 Speaker 2: with Richard Baldwin about his new book, The Great Trade Hack, 8 00:00:37,200 --> 00:00:40,400 Speaker 2: How Trump's Trade War Fails and the World moves on. 9 00:00:41,280 --> 00:00:43,839 Speaker 2: Richard is a professor of international economics at the IMD 10 00:00:44,000 --> 00:00:47,360 Speaker 2: Business School. Financial Times once called him one of the 11 00:00:47,360 --> 00:00:51,680 Speaker 2: most important thinkers in this era of global disruption, and 12 00:00:51,800 --> 00:00:55,120 Speaker 2: listeners to previous iterations of this podcast might even remember 13 00:00:55,120 --> 00:00:56,840 Speaker 2: that we've talked to him before as one of the 14 00:00:56,840 --> 00:01:00,840 Speaker 2: people who has researched and written most deeply about the 15 00:01:00,960 --> 00:01:05,199 Speaker 2: changing nature of globalization and trade. And his latest book, 16 00:01:05,520 --> 00:01:08,840 Speaker 2: an e book published by the Center for Economic Policy Research, 17 00:01:09,200 --> 00:01:11,840 Speaker 2: as you gather from that title, turns its hand to 18 00:01:11,920 --> 00:01:14,600 Speaker 2: what Donald Trump is doing or not doing to the 19 00:01:14,600 --> 00:01:17,640 Speaker 2: world of international trade and what it means for all 20 00:01:17,680 --> 00:01:23,479 Speaker 2: of us. As an economist. Richards joining the long list 21 00:01:23,480 --> 00:01:28,040 Speaker 2: of economists who believe the protectionism of the Trump administration 22 00:01:28,280 --> 00:01:31,280 Speaker 2: is not going to fulfill its objectives. But I think 23 00:01:31,319 --> 00:01:35,040 Speaker 2: what's distinctive is he also delves into the political economy 24 00:01:35,280 --> 00:01:39,880 Speaker 2: of trumpnomics to explain why it will still continue, and 25 00:01:39,920 --> 00:01:42,039 Speaker 2: then also thinks about how the rest of the world 26 00:01:42,520 --> 00:01:45,039 Speaker 2: will engage or should engage with the US as it's 27 00:01:45,120 --> 00:01:51,760 Speaker 2: part of this grand Trumpnomic experiment, all of which did 28 00:01:51,800 --> 00:01:53,800 Speaker 2: seem like it was worth a conversation, and I should 29 00:01:53,840 --> 00:01:56,760 Speaker 2: say probably full disclosure. The other reason we're doing this 30 00:01:56,800 --> 00:01:59,280 Speaker 2: is so we could record it today Friday, twenty third 31 00:01:59,320 --> 00:02:02,240 Speaker 2: of May, ahead of the holiday weekend in the UK 32 00:02:02,400 --> 00:02:04,440 Speaker 2: and the US, and ahead of me getting off on 33 00:02:04,480 --> 00:02:14,880 Speaker 2: a week's holiday. Richard, thank you very much for joining us. 34 00:02:15,360 --> 00:02:18,200 Speaker 2: It's a great title. What's the Great Trade Hack? 35 00:02:18,680 --> 00:02:22,440 Speaker 1: Thanks for having me, Stephanie. The hack is what Trump 36 00:02:22,520 --> 00:02:26,480 Speaker 1: did on April second. That was an historic moment. It 37 00:02:26,560 --> 00:02:31,880 Speaker 1: wasn't an attempt to revise or reform or negotiate. It 38 00:02:31,919 --> 00:02:34,920 Speaker 1: was an attempt to break through the firewall of the 39 00:02:34,960 --> 00:02:38,840 Speaker 1: world trading system and disrupt the way it runs with 40 00:02:39,520 --> 00:02:43,399 Speaker 1: tariffs that were big, bold and everywhere at once, violating 41 00:02:43,919 --> 00:02:48,639 Speaker 1: most wtwo rules in one fell swoop with everybody, breaking 42 00:02:48,880 --> 00:02:52,560 Speaker 1: every trade agreement the US had ever made with anybody anytime. 43 00:02:52,919 --> 00:02:55,839 Speaker 1: This wasn't your normal trade war. It looked a lot 44 00:02:55,960 --> 00:02:58,800 Speaker 1: more like a war on trade. And that's why I 45 00:02:58,800 --> 00:03:01,720 Speaker 1: think of it as a hack rather than a beginning 46 00:03:01,760 --> 00:03:04,280 Speaker 1: of a war or a reform or an effort. It 47 00:03:04,320 --> 00:03:07,480 Speaker 1: was really one man trying to hack the system. 48 00:03:07,720 --> 00:03:10,359 Speaker 2: What are you trying to get across? Intellectually and as 49 00:03:10,360 --> 00:03:12,840 Speaker 2: an academic, when you talk about a hack, I. 50 00:03:12,760 --> 00:03:17,000 Speaker 1: Think it's important to distinguish this from other things, for instance, 51 00:03:17,120 --> 00:03:20,520 Speaker 1: anything to do with the dispute between US and China. 52 00:03:20,639 --> 00:03:23,400 Speaker 1: And also it's entirely different than what he was doing 53 00:03:23,480 --> 00:03:28,680 Speaker 1: between his inauguration and April second. Those were piecemeal tariffs, 54 00:03:29,160 --> 00:03:32,200 Speaker 1: totally in the line of the kind of thinking that 55 00:03:32,320 --> 00:03:36,040 Speaker 1: many countries get. They're unfair. I'm going to put tariffs on, 56 00:03:36,360 --> 00:03:38,680 Speaker 1: then we're going to negotiate. We'll come to a better deal. 57 00:03:39,000 --> 00:03:42,280 Speaker 1: This thing was completely different. He's trying to change the 58 00:03:42,320 --> 00:03:46,480 Speaker 1: way the world works in terms of fair and reciprocal 59 00:03:46,520 --> 00:03:50,520 Speaker 1: trade in his own mind and reverse the victimhood that 60 00:03:50,640 --> 00:03:54,080 Speaker 1: he believes, and he's at least selling politically that the 61 00:03:54,200 --> 00:03:55,240 Speaker 1: US is facing. 62 00:03:55,760 --> 00:03:58,800 Speaker 2: You talk about the grievance doctrine? What explains this policy? 63 00:03:59,080 --> 00:04:01,680 Speaker 2: We've heard a lot about grievances from him, but briefly, 64 00:04:02,520 --> 00:04:03,640 Speaker 2: what are you thinking about that? 65 00:04:04,440 --> 00:04:07,640 Speaker 1: Well, I think many economists around the world and political 66 00:04:07,680 --> 00:04:11,200 Speaker 1: scientists slapped their heads when they saw this thing. Is like, 67 00:04:11,320 --> 00:04:14,000 Speaker 1: what is he trying to do? And then it goes 68 00:04:14,080 --> 00:04:16,520 Speaker 1: up and it goes down, and there's this and is 69 00:04:16,520 --> 00:04:19,640 Speaker 1: that all? It looks like he's negotiating himself. It looks 70 00:04:19,720 --> 00:04:22,760 Speaker 1: kind of crazy, It looks chaotic. When I was looking 71 00:04:22,839 --> 00:04:26,120 Speaker 1: for some sort of coherence. If you read the introduction 72 00:04:26,640 --> 00:04:30,520 Speaker 1: to the US Trade Agenda Report for twenty twenty five, 73 00:04:30,920 --> 00:04:34,760 Speaker 1: he pretty much lays out this grievance doctrine, which has 74 00:04:34,800 --> 00:04:38,359 Speaker 1: an origin story of America used to play by the 75 00:04:38,480 --> 00:04:42,200 Speaker 1: rules and they got played. They were ripped off by 76 00:04:42,240 --> 00:04:47,479 Speaker 1: globalist elite abroad and globalist traders at home, and it 77 00:04:47,600 --> 00:04:51,440 Speaker 1: was the middle class who paid the price. And what 78 00:04:51,560 --> 00:04:56,200 Speaker 1: Trump was doing on April second was payback. So it's 79 00:04:56,320 --> 00:05:01,120 Speaker 1: like that uncomfortable uncle. You sometimes have a family gathering 80 00:05:01,360 --> 00:05:06,720 Speaker 1: who lashes out and says the most outrageous things, upsets everybody. 81 00:05:07,160 --> 00:05:09,680 Speaker 1: Although there's a few people in the room who said yes, 82 00:05:09,760 --> 00:05:13,560 Speaker 1: those things needed to be said. That's what these tariffs are. 83 00:05:14,040 --> 00:05:18,320 Speaker 1: It is not justified on economic analysis or clear thinking 84 00:05:18,320 --> 00:05:21,960 Speaker 1: about what's going home. I think it's not a million 85 00:05:22,000 --> 00:05:25,919 Speaker 1: miles away from what drove Brexit, that people were angry 86 00:05:25,960 --> 00:05:29,160 Speaker 1: with the way things work and they struck back by 87 00:05:29,240 --> 00:05:33,600 Speaker 1: voting for something that they thought would be very upsetting 88 00:05:33,640 --> 00:05:36,240 Speaker 1: to the globalist delete who they feel have rigged the 89 00:05:36,279 --> 00:05:42,680 Speaker 1: system against them. Trump's tariffs are economically incoherent but emotionally coherent. 90 00:05:43,520 --> 00:05:47,880 Speaker 1: And this grievance doctrine that I have called it is 91 00:05:48,480 --> 00:05:52,000 Speaker 1: a mythic tale that comes with a moral and a mission. 92 00:05:52,640 --> 00:05:56,599 Speaker 1: And you can interpret the nature of the tariffs and 93 00:05:56,760 --> 00:06:00,600 Speaker 1: his treatment of them afterwards in the negotiations with countries 94 00:06:01,200 --> 00:06:07,480 Speaker 1: as following his grievance doctrine. Not any very clear economic analysis. 95 00:06:08,040 --> 00:06:11,520 Speaker 2: But you yourself have written about the structural changes that have 96 00:06:11,600 --> 00:06:14,120 Speaker 2: happened in the global economy and what you call it, 97 00:06:14,160 --> 00:06:17,960 Speaker 2: you know, the twin bombs of globalization and automation that 98 00:06:18,320 --> 00:06:24,279 Speaker 2: have had profound effects for many American workers. So it's 99 00:06:24,279 --> 00:06:26,839 Speaker 2: not as though you don't think there's any there there 100 00:06:27,480 --> 00:06:29,680 Speaker 2: in terms of the grievance. It's just that this is 101 00:06:29,720 --> 00:06:31,359 Speaker 2: not the right solution. Is that right? 102 00:06:31,600 --> 00:06:35,720 Speaker 1: Absolutely? So? America's middle class is a terrible shape. I mean, 103 00:06:35,720 --> 00:06:39,560 Speaker 1: we have opioid deaths like the world's never seen. We 104 00:06:39,600 --> 00:06:44,719 Speaker 1: have a BCD epidemic, we have frequent school shootings, we 105 00:06:44,800 --> 00:06:49,320 Speaker 1: have fallen marriage fall of birth rates. White young men 106 00:06:49,400 --> 00:06:52,680 Speaker 1: are killing themselves in numbers that aren't seen anywhere else. 107 00:06:53,000 --> 00:06:56,520 Speaker 1: There's social pathologies going on in the middle class which 108 00:06:56,520 --> 00:07:00,080 Speaker 1: are just absolutely off the chart. Something must be done. 109 00:07:00,360 --> 00:07:03,480 Speaker 1: But what Trump has decided to do about it tariffs 110 00:07:03,640 --> 00:07:07,599 Speaker 1: is most definitely not that something. In the book, I 111 00:07:07,720 --> 00:07:11,160 Speaker 1: argue that we need a social policy, maybe like Canadian 112 00:07:11,200 --> 00:07:14,840 Speaker 1: social policy, that would actually help the middle class. But 113 00:07:15,040 --> 00:07:18,400 Speaker 1: it is a problem. And this is, as I say 114 00:07:18,400 --> 00:07:21,760 Speaker 1: in the book, it's a place ebo for policy in 115 00:07:21,840 --> 00:07:24,200 Speaker 1: lieu of real medicine that would help them. 116 00:07:24,400 --> 00:07:28,720 Speaker 2: So why is this not the right solution? What can 117 00:07:28,760 --> 00:07:33,000 Speaker 2: he achieve with these policies that would actually support his objectives? 118 00:07:33,160 --> 00:07:33,680 Speaker 2: If anything? 119 00:07:34,120 --> 00:07:37,400 Speaker 1: Well, I think basically nothing. So let me go through. 120 00:07:37,840 --> 00:07:41,840 Speaker 1: For example, if you look at the US Traded Gender document, 121 00:07:42,040 --> 00:07:44,880 Speaker 1: they're essentially listing three things they want to do with 122 00:07:44,960 --> 00:07:48,040 Speaker 1: these tariffs. First thing is to redress the trade balance, 123 00:07:48,680 --> 00:07:52,239 Speaker 1: a second is to reindustrialize America, bring the factories back, 124 00:07:52,480 --> 00:07:55,200 Speaker 1: and the third is to help the middle class. And 125 00:07:55,320 --> 00:07:57,680 Speaker 1: his tariffs will do none of those things. Let me 126 00:07:57,760 --> 00:08:00,400 Speaker 1: take them one at a time. So, first of all, 127 00:08:00,800 --> 00:08:03,960 Speaker 1: it cannot help the middle class. Tariffs are only put 128 00:08:04,000 --> 00:08:08,880 Speaker 1: on goods, and tariffs can protect workers who are in 129 00:08:08,920 --> 00:08:11,840 Speaker 1: goods producing sectors. They don't always, but at least there's 130 00:08:11,880 --> 00:08:14,920 Speaker 1: a possibility that they can protect their jobs and maybe 131 00:08:14,960 --> 00:08:18,080 Speaker 1: keep their wages from falling. But only less than ten 132 00:08:18,120 --> 00:08:21,320 Speaker 1: percent of the middle class works in goods producing sectors, 133 00:08:21,960 --> 00:08:24,960 Speaker 1: and for the other ninety percent who work in service sectors, 134 00:08:25,320 --> 00:08:28,440 Speaker 1: Trump's tariffs are simply raising their cost of living. So 135 00:08:28,520 --> 00:08:30,880 Speaker 1: in fact, rather than helping the middle class, it will 136 00:08:30,880 --> 00:08:33,560 Speaker 1: probably hurt it subtly. It'll show up in terms of 137 00:08:33,920 --> 00:08:38,960 Speaker 1: slower growth, inflation, and undermining the cost of purchasing. Now, 138 00:08:39,040 --> 00:08:41,560 Speaker 1: let me take this second one, which is closing the 139 00:08:41,600 --> 00:08:46,880 Speaker 1: trade deficit. This is a long widely held mistake and 140 00:08:47,440 --> 00:08:52,160 Speaker 1: belief that tariffs can fix the trade deficit. But I 141 00:08:52,160 --> 00:08:55,560 Speaker 1: think I've found why people believe it and why it's 142 00:08:55,679 --> 00:08:58,720 Speaker 1: hard to explain. Now you and I go to the 143 00:08:58,720 --> 00:09:02,199 Speaker 1: shop and we see eat the price of say domestic 144 00:09:02,240 --> 00:09:05,440 Speaker 1: beer and imported beer, and if the price of imported 145 00:09:05,440 --> 00:09:07,880 Speaker 1: beer goes up, we'll tend to buy a little more 146 00:09:07,880 --> 00:09:11,080 Speaker 1: of the domestic beer. So in our everyday lives buying 147 00:09:11,120 --> 00:09:14,600 Speaker 1: fruits and vegetables, meat, fish, beer, we look at the 148 00:09:14,600 --> 00:09:17,520 Speaker 1: prices and we're shaped by things like tariffs. We can 149 00:09:17,559 --> 00:09:20,839 Speaker 1: imagine how that would make us buy less and then 150 00:09:20,920 --> 00:09:24,480 Speaker 1: without thinking about how the whole thing adds up, you go, well, Therefore, 151 00:09:24,520 --> 00:09:26,960 Speaker 1: if you want people to buy fewer foreign goods, you 152 00:09:27,000 --> 00:09:29,640 Speaker 1: put up the price of foreign goods. The trouble is 153 00:09:30,080 --> 00:09:32,760 Speaker 1: when you think at the economy wide level, when you 154 00:09:32,800 --> 00:09:36,600 Speaker 1: think about everybody buying everything at the same time, there's 155 00:09:36,640 --> 00:09:39,120 Speaker 1: a different way to think about the deficit, and that 156 00:09:39,240 --> 00:09:42,000 Speaker 1: is the US has a trade deficit because they spend 157 00:09:42,440 --> 00:09:45,840 Speaker 1: more than they produce. And if Americans spend more than 158 00:09:45,880 --> 00:09:49,600 Speaker 1: they produce, they have to run a trade deficit. There's 159 00:09:49,640 --> 00:09:53,280 Speaker 1: no way the spending can't go anywhere else. So unless 160 00:09:53,440 --> 00:09:56,679 Speaker 1: they either reduce their spending or increase their production, they 161 00:09:56,760 --> 00:10:02,040 Speaker 1: cannot close the deficit. Now, tariffs cannot really affect the 162 00:10:02,120 --> 00:10:06,439 Speaker 1: spending unless it induces a recession, and even then that's temporary. 163 00:10:06,520 --> 00:10:09,120 Speaker 1: And because the US is at full employment, the tariffs 164 00:10:09,120 --> 00:10:12,320 Speaker 1: won't increase the production. If anything, it would mess it up. 165 00:10:12,320 --> 00:10:14,720 Speaker 1: But in any case, primarily will have no effect on 166 00:10:14,960 --> 00:10:18,640 Speaker 1: production and very little effect on spending, So tariffs will 167 00:10:18,640 --> 00:10:21,800 Speaker 1: not close the deficit. Now. The reason it works out 168 00:10:21,880 --> 00:10:26,360 Speaker 1: is because the tariffs change the relative price of imports 169 00:10:26,360 --> 00:10:29,960 Speaker 1: and exports, but the dollar can offset that. So unless 170 00:10:30,000 --> 00:10:33,240 Speaker 1: they fix the economy wide problem, they are not going 171 00:10:33,280 --> 00:10:35,800 Speaker 1: to fix the deficit. Now, let me take the third 172 00:10:35,800 --> 00:10:41,400 Speaker 1: one about reindustrialization. Reindustrialization using tariffs is something people have 173 00:10:41,520 --> 00:10:45,200 Speaker 1: been trying for literally a half century. It doesn't have 174 00:10:45,280 --> 00:10:49,520 Speaker 1: a name. It's called import substitution industrialization. And the idea 175 00:10:50,080 --> 00:10:53,160 Speaker 1: is you protect your local market to encourage local production. 176 00:10:53,840 --> 00:10:57,200 Speaker 1: First of all, that did actually work up until nineteen 177 00:10:57,280 --> 00:11:01,040 Speaker 1: ninety five with the offshoring and outsourcing thing, where global 178 00:11:01,120 --> 00:11:04,600 Speaker 1: value change change the whole proposition. So, for example, the 179 00:11:04,760 --> 00:11:09,800 Speaker 1: US in the eighteen hundreds did industrialize behind high trade barriers, 180 00:11:10,080 --> 00:11:13,120 Speaker 1: this time protecting against British goods. So it's not like 181 00:11:13,200 --> 00:11:15,960 Speaker 1: it's never worked, it just doesn't work anymore. Now the 182 00:11:16,080 --> 00:11:18,920 Speaker 1: problem is that to bring back these factories, the United 183 00:11:18,960 --> 00:11:23,600 Speaker 1: States needs world class infrastructure. It needs a world class 184 00:11:24,280 --> 00:11:27,839 Speaker 1: workforce who are willing to work in factories and able 185 00:11:27,880 --> 00:11:32,160 Speaker 1: to run the sophisticated machines that are now part of manufacturing. 186 00:11:32,840 --> 00:11:38,360 Speaker 1: And it needs investment that's coordinated and long lasting. These 187 00:11:38,360 --> 00:11:41,280 Speaker 1: are ten year plans. You don't just set up a 188 00:11:41,320 --> 00:11:44,480 Speaker 1: bakery shop and call it an industry. This requires a 189 00:11:44,480 --> 00:11:48,920 Speaker 1: whole ecosystem, an industrial base to develop. That can be done, 190 00:11:48,960 --> 00:11:51,960 Speaker 1: but it takes a decade at least, and it would 191 00:11:52,080 --> 00:11:57,560 Speaker 1: involve a bipartisan consensus, lots of subsidies, changes in laws 192 00:11:58,000 --> 00:12:01,400 Speaker 1: to confit private firms that this is for real and 193 00:12:01,440 --> 00:12:05,080 Speaker 1: they should move back. And the tariffs, especially one Trump 194 00:12:05,160 --> 00:12:08,240 Speaker 1: is talking about, are most definitely not doing any of 195 00:12:08,280 --> 00:12:08,839 Speaker 1: those things. 196 00:12:09,440 --> 00:12:11,920 Speaker 2: Imagine the scenario that we're kind of seeing now, which 197 00:12:12,000 --> 00:12:17,320 Speaker 2: is we had April Seconds Liberation Day, crazily high to 198 00:12:17,400 --> 00:12:22,280 Speaker 2: most people's eyes, Tariff rates also kind of randomly generated, 199 00:12:23,000 --> 00:12:27,440 Speaker 2: and a lot of noise about trade deals. And we're 200 00:12:27,480 --> 00:12:29,600 Speaker 2: talking today on a day that Donald Trump seems to 201 00:12:29,600 --> 00:12:32,440 Speaker 2: have talked about potentially a fifty percent across the board 202 00:12:32,520 --> 00:12:36,000 Speaker 2: tariff against the Europeans. He's talked about even higher numbers 203 00:12:36,000 --> 00:12:38,840 Speaker 2: for the China in the past. And yet once we 204 00:12:38,920 --> 00:12:41,600 Speaker 2: see the economic consequences or even begin to see the 205 00:12:41,640 --> 00:12:45,400 Speaker 2: economic consequences. He's tended to step back, and we've had 206 00:12:45,400 --> 00:12:49,160 Speaker 2: these pauses, and I think the assumption that many people 207 00:12:49,200 --> 00:12:51,040 Speaker 2: would now make is, yes, we will end up with 208 00:12:51,160 --> 00:12:54,200 Speaker 2: maybe ten percent tariffs from all goods and a higher 209 00:12:54,200 --> 00:12:56,559 Speaker 2: effective tariff rate between the US and the rest of 210 00:12:56,600 --> 00:12:59,600 Speaker 2: the world. That will definitely reduce trade, maybe quite significantly 211 00:12:59,600 --> 00:13:02,360 Speaker 2: in the case of China. But we're not headed down 212 00:13:02,360 --> 00:13:04,560 Speaker 2: that full path. We're just on a path where there's 213 00:13:04,600 --> 00:13:06,720 Speaker 2: going to be more kind of grit in the wheels 214 00:13:06,720 --> 00:13:11,360 Speaker 2: of global trade. Is that necessarily the end of the world, Richard, 215 00:13:11,360 --> 00:13:13,240 Speaker 2: If you're sort of thinking about it from a sort 216 00:13:13,280 --> 00:13:15,080 Speaker 2: of historical perspective. 217 00:13:15,040 --> 00:13:16,600 Speaker 1: It could just be a bump in the road. I mean, 218 00:13:16,679 --> 00:13:18,120 Speaker 1: let's put it this way. If it was a ten 219 00:13:18,160 --> 00:13:22,520 Speaker 1: percent across the board tariff on everything, the first point 220 00:13:22,679 --> 00:13:24,800 Speaker 1: is that the US dollar would offset part of it. 221 00:13:25,240 --> 00:13:29,079 Speaker 1: What we know from long experience is that very big 222 00:13:29,200 --> 00:13:32,920 Speaker 1: changes in trade policy lead to changes in the exchange rate. 223 00:13:33,160 --> 00:13:35,800 Speaker 2: But what we had talked about was a dollar appreciation exactly. 224 00:13:35,880 --> 00:13:37,880 Speaker 2: And I have this in mind partly because JD. Vance, 225 00:13:37,920 --> 00:13:40,360 Speaker 2: the Vice President, has done an interview for a commentator 226 00:13:40,360 --> 00:13:43,320 Speaker 2: on the New York Times, and he makes this point 227 00:13:43,360 --> 00:13:46,600 Speaker 2: that actually it shows that economists get things wrong, because 228 00:13:46,640 --> 00:13:49,600 Speaker 2: absolutely everyone predicts that if you have a higher tariff, 229 00:13:49,640 --> 00:13:52,120 Speaker 2: you get an appreciating currency. And in fact, one of 230 00:13:52,120 --> 00:13:54,760 Speaker 2: the most striking things that happened that has not really 231 00:13:54,920 --> 00:13:58,800 Speaker 2: changed in direction in the last few months as these 232 00:13:58,840 --> 00:14:01,439 Speaker 2: tariffs have been introduced, is that the dollar has fallen. 233 00:14:01,800 --> 00:14:07,000 Speaker 2: So we don't know that that universal economist view is 234 00:14:07,040 --> 00:14:09,880 Speaker 2: actually going to be born out, not yet anyway, let me. 235 00:14:09,960 --> 00:14:13,679 Speaker 1: Add on a parenthetical statement about whether it's true or not. 236 00:14:14,000 --> 00:14:17,880 Speaker 1: The closest example was when during the nineties, many developing 237 00:14:17,880 --> 00:14:22,320 Speaker 1: countries systematically lower their tariffs from like sixty percent down 238 00:14:22,360 --> 00:14:25,560 Speaker 1: to nine or ten percent, and so that was essentially 239 00:14:25,600 --> 00:14:28,960 Speaker 1: the opposite of what Trump did, and instead of their 240 00:14:29,000 --> 00:14:34,840 Speaker 1: currencies appreciating, they've depreciated. So there's wide experience of massive 241 00:14:34,920 --> 00:14:39,080 Speaker 1: changes in trade policy leading to offsetting long term exchange 242 00:14:39,160 --> 00:14:41,800 Speaker 1: rates on the import side as well from all the 243 00:14:41,800 --> 00:14:45,280 Speaker 1: emerging markets who essentially laterally lower their tariffs in the nineties. 244 00:14:45,840 --> 00:14:47,920 Speaker 2: The dollar's not going up. The one thing is not 245 00:14:48,000 --> 00:14:49,920 Speaker 2: done in the last six months is the dollar's not 246 00:14:49,960 --> 00:14:50,400 Speaker 2: gone up. 247 00:14:50,440 --> 00:14:53,800 Speaker 1: Absolutely so I'm not defensive. I want to explain that. So, 248 00:14:54,360 --> 00:14:58,600 Speaker 1: the exchange rate, like the dollar, is two things. It 249 00:14:58,680 --> 00:15:03,760 Speaker 1: is a finan instrument on which there's enormous amounts trillions 250 00:15:03,760 --> 00:15:07,280 Speaker 1: of dollars of arbitrage every single day. Now that arbitrage 251 00:15:07,320 --> 00:15:11,560 Speaker 1: is primarily driven by interest rate differentials and expectations of 252 00:15:11,640 --> 00:15:14,880 Speaker 1: interest rate differentials. One of the times where the dollar 253 00:15:14,960 --> 00:15:18,240 Speaker 1: depreciates quite reliably is if people think the US is 254 00:15:18,280 --> 00:15:21,120 Speaker 1: going to go into recession, which means the FED is 255 00:15:21,160 --> 00:15:23,840 Speaker 1: going to lower interest rates or not raise them as much, 256 00:15:24,160 --> 00:15:27,040 Speaker 1: and therefore the dollar becomes less attractive. So right now 257 00:15:27,080 --> 00:15:29,200 Speaker 1: people move out of the dollar. So I think what 258 00:15:29,240 --> 00:15:34,040 Speaker 1: we're seeing now is certainly a lot of anticipation of 259 00:15:34,080 --> 00:15:36,520 Speaker 1: a lower path of interest rates for the dollar than 260 00:15:36,600 --> 00:15:39,640 Speaker 1: people would have thought because of the recession that the 261 00:15:39,680 --> 00:15:43,320 Speaker 1: tariffs are going to introduce. The second point is, and 262 00:15:43,360 --> 00:15:47,280 Speaker 1: this is unusual, is that Trump and his administration are 263 00:15:47,320 --> 00:15:51,640 Speaker 1: systematically undermining the value of the dollar as the world's 264 00:15:51,640 --> 00:15:56,000 Speaker 1: reserve currency, threatening all sorts of crazy things. People were wondering, 265 00:15:56,280 --> 00:15:59,560 Speaker 1: is the US actually as reliable as they used to be. 266 00:16:00,080 --> 00:16:03,400 Speaker 1: This level of rule breaking and carelessness for the system 267 00:16:03,720 --> 00:16:06,800 Speaker 1: undermine people's trust. Now. The other thing that's going on 268 00:16:07,320 --> 00:16:10,480 Speaker 1: is we've recently seen just with the House passage, is 269 00:16:10,520 --> 00:16:14,040 Speaker 1: the US has no plan to close their deficit ever, 270 00:16:14,920 --> 00:16:18,200 Speaker 1: and they're running six seven percent deficits every year with 271 00:16:18,320 --> 00:16:21,880 Speaker 1: no plan to change it. And there's no political landing 272 00:16:21,960 --> 00:16:24,280 Speaker 1: path you can see in the United States where they're 273 00:16:24,280 --> 00:16:28,320 Speaker 1: going to reather, raise taxes or cut spending sufficiently for this. Moreover, 274 00:16:28,360 --> 00:16:31,560 Speaker 1: as the interest rates go up on yields, that means 275 00:16:31,640 --> 00:16:34,000 Speaker 1: more and more of the current budget will be to 276 00:16:34,040 --> 00:16:37,400 Speaker 1: pay off the debt. And just recently, with the ten 277 00:16:37,440 --> 00:16:40,400 Speaker 1: year bonds going up, the US is now spending more 278 00:16:40,480 --> 00:16:44,760 Speaker 1: on financing its own debt than it is on its military. 279 00:16:45,160 --> 00:16:47,720 Speaker 1: So this is something that people are starting to you know, 280 00:16:48,280 --> 00:16:51,040 Speaker 1: long ways down the road. What's going to happen is 281 00:16:51,160 --> 00:16:53,760 Speaker 1: not that people will leave the dollar, but they'll require 282 00:16:53,840 --> 00:16:56,520 Speaker 1: higher premium. None of these things have to be dramatic. 283 00:16:56,560 --> 00:17:00,280 Speaker 1: If most big money funds in the world decide I did, 284 00:17:00,320 --> 00:17:03,640 Speaker 1: to put two percentage points less in the US market 285 00:17:03,680 --> 00:17:06,600 Speaker 1: than they had before, that will lead to an outflow, 286 00:17:06,640 --> 00:17:08,959 Speaker 1: which will lead to a depreciation of the dollar. So 287 00:17:09,000 --> 00:17:11,080 Speaker 1: I think what we're seeing is short and medium term 288 00:17:11,160 --> 00:17:15,280 Speaker 1: things overwhelming long term things, And in any case, I 289 00:17:15,280 --> 00:17:19,879 Speaker 1: wouldn't expect the long term things to as submit themselves immediately, because, 290 00:17:19,880 --> 00:17:22,160 Speaker 1: as you pointed out, we don't know where this thing's 291 00:17:22,200 --> 00:17:22,720 Speaker 1: going to land. 292 00:17:23,280 --> 00:17:25,199 Speaker 2: I guess one could still come away with the idea 293 00:17:25,280 --> 00:17:28,119 Speaker 2: that whatever dollar rise you have associated with the tariffs 294 00:17:28,119 --> 00:17:30,119 Speaker 2: could be drowned out by some of these other effects, 295 00:17:30,160 --> 00:17:33,080 Speaker 2: given that there'd been such a move into the US 296 00:17:33,119 --> 00:17:35,680 Speaker 2: assets in the past, and as you pointed out, it 297 00:17:35,680 --> 00:17:38,399 Speaker 2: doesn't take much if people start to just adjust at 298 00:17:38,400 --> 00:17:38,920 Speaker 2: the margin. 299 00:17:39,480 --> 00:17:41,879 Speaker 1: One of my favorite quotes on this is that the 300 00:17:41,960 --> 00:17:44,879 Speaker 1: long run takes longer to come than you would have 301 00:17:44,880 --> 00:17:47,119 Speaker 1: ever thought it would, but when it comes, it comes 302 00:17:47,160 --> 00:17:49,040 Speaker 1: faster than you could ever have expected. 303 00:17:49,280 --> 00:17:52,720 Speaker 2: Yeah, yeah, slowly, And then if people gave bus just 304 00:17:52,720 --> 00:17:57,400 Speaker 2: slowly suddenly yeah. So we don't know, as you say, 305 00:17:57,440 --> 00:17:59,480 Speaker 2: we don't know where that's going to turn out, and 306 00:17:59,680 --> 00:18:03,320 Speaker 2: we say, we don't know that the US will continue 307 00:18:03,320 --> 00:18:06,280 Speaker 2: with the sort of most dramatic version of this war 308 00:18:06,359 --> 00:18:08,679 Speaker 2: on trade, this trade hack that you've suggested. But you 309 00:18:08,720 --> 00:18:12,080 Speaker 2: also have highlighted the kind of underlying political reasons for 310 00:18:12,720 --> 00:18:15,640 Speaker 2: the trade hack, the grievance doctrine, and it doesn't seem 311 00:18:15,680 --> 00:18:18,399 Speaker 2: like that's going to go anywhere. President Trump seems pretty 312 00:18:18,400 --> 00:18:21,400 Speaker 2: committed to that. So I guess one of the questions 313 00:18:21,480 --> 00:18:23,960 Speaker 2: that anyone would have, and that you start to answer 314 00:18:23,960 --> 00:18:26,760 Speaker 2: in your book, is what happens to globalization? What happens 315 00:18:26,760 --> 00:18:30,240 Speaker 2: to the global economy in the meantime while the US 316 00:18:30,359 --> 00:18:32,560 Speaker 2: is engaged in this big experiment. 317 00:18:33,119 --> 00:18:35,320 Speaker 1: Let me take the first point, which I think is 318 00:18:35,400 --> 00:18:38,080 Speaker 1: really important I hope that people will take away from 319 00:18:38,080 --> 00:18:43,200 Speaker 1: my book, is that US protectionism is now permanent. It's 320 00:18:43,240 --> 00:18:46,520 Speaker 1: here to stay. It's not new, and it's not going away. 321 00:18:47,160 --> 00:18:49,959 Speaker 1: So this narrative that the system is rigged against us 322 00:18:50,000 --> 00:18:53,720 Speaker 1: started with the Great Recession, and starting from Obama onward, 323 00:18:54,280 --> 00:18:58,520 Speaker 1: the US political elite blamed globalization. They found that very convenient. 324 00:18:58,920 --> 00:19:02,160 Speaker 1: So Obama a media suspended all the trade agreements that 325 00:19:02,400 --> 00:19:04,760 Speaker 1: Bush Junior had started, and there were lots of them, 326 00:19:05,440 --> 00:19:08,760 Speaker 1: and he became trade hesitant. He was there for eight 327 00:19:08,880 --> 00:19:12,359 Speaker 1: years and that hesitancy kept up. Then, of course Trump 328 00:19:12,400 --> 00:19:16,399 Speaker 1: came and the trade hesitancy turned to trade hostility, and 329 00:19:16,440 --> 00:19:19,960 Speaker 1: then when Biden came, it just turned back to trade hesitancy. 330 00:19:20,480 --> 00:19:23,119 Speaker 1: So really, going back to two thousand and eight, the 331 00:19:23,240 --> 00:19:26,159 Speaker 1: US has not been the leader of the system, so 332 00:19:26,200 --> 00:19:28,919 Speaker 1: it's not new. And the reason was is because the 333 00:19:28,920 --> 00:19:31,520 Speaker 1: suffering of the middle class, if you will, was something 334 00:19:31,560 --> 00:19:34,399 Speaker 1: that was going through they did not want to raise 335 00:19:34,480 --> 00:19:36,800 Speaker 1: taxes or increase the size of the government in order 336 00:19:36,840 --> 00:19:39,800 Speaker 1: to actually address it, and as a consequence, they used 337 00:19:39,840 --> 00:19:44,040 Speaker 1: trade as a scapegoat. So this anti trade element is 338 00:19:44,080 --> 00:19:46,560 Speaker 1: in there and US is now on a kind of 339 00:19:46,920 --> 00:19:52,359 Speaker 1: looping gif of protection. They've got the malaise of the 340 00:19:52,400 --> 00:19:57,360 Speaker 1: middle class suffering, leading to the need for a solution 341 00:19:58,200 --> 00:20:02,720 Speaker 1: where anti globalization becomes out solution at bigger, lower levels. 342 00:20:03,160 --> 00:20:06,200 Speaker 1: Those solutions don't fix the middle class problems, and so 343 00:20:06,240 --> 00:20:10,200 Speaker 1: they have to keep again being protectionist. So Biden, for example, 344 00:20:10,240 --> 00:20:14,240 Speaker 1: had a worker centric trade policy which meant no trade liberalization. 345 00:20:14,680 --> 00:20:16,760 Speaker 1: If Harris had won, she would have kept that up. 346 00:20:16,920 --> 00:20:19,680 Speaker 1: And whoever comes after Trump may be a lot more 347 00:20:19,680 --> 00:20:22,440 Speaker 1: polite and diplomatic, but they certainly aren't going to start 348 00:20:22,520 --> 00:20:24,879 Speaker 1: signing free trade agreements. So I think we have to 349 00:20:24,920 --> 00:20:27,399 Speaker 1: get used to a world where the US has left 350 00:20:27,440 --> 00:20:31,080 Speaker 1: the stage as the leader of the world trading system 351 00:20:31,080 --> 00:20:32,800 Speaker 1: at the very least, and maybe more. 352 00:20:32,680 --> 00:20:36,480 Speaker 2: Broadly, while the US is engaged in this grand experiment, 353 00:20:36,840 --> 00:20:38,840 Speaker 2: or not say a grand experiment. What happens to the 354 00:20:38,840 --> 00:20:42,480 Speaker 2: rest of the world. How do you see the global economy, 355 00:20:42,800 --> 00:20:45,280 Speaker 2: the pattern of global trade panning out. 356 00:20:45,840 --> 00:20:48,680 Speaker 1: So let me start with the worst case scenario, the 357 00:20:49,119 --> 00:20:51,400 Speaker 1: sort of ones that we should be panicked for, even 358 00:20:51,440 --> 00:20:53,960 Speaker 1: though I don't think it's very likely. The last time 359 00:20:54,040 --> 00:20:56,679 Speaker 1: the US was this irresponsible on trade was in the 360 00:20:56,760 --> 00:21:01,120 Speaker 1: nineteen twenty nine Smooth Holly Act, which led to retaliation 361 00:21:01,359 --> 00:21:05,080 Speaker 1: cycles outside the United States. US was actually much less 362 00:21:05,080 --> 00:21:08,280 Speaker 1: important in the world economy back then, but those cycles 363 00:21:08,359 --> 00:21:11,000 Speaker 1: or retaliation led to a collapse in trade, which made 364 00:21:11,040 --> 00:21:13,920 Speaker 1: the Great Depression bad. That's what we have to look for. 365 00:21:14,119 --> 00:21:19,240 Speaker 1: What could trigger retaliation of non US countries against other 366 00:21:19,320 --> 00:21:22,159 Speaker 1: non US countries. It's given that the US is going 367 00:21:22,200 --> 00:21:24,800 Speaker 1: to be more protectionists, and it's given that other countries 368 00:21:24,840 --> 00:21:28,479 Speaker 1: will be more protection against the US. But the US 369 00:21:28,520 --> 00:21:31,919 Speaker 1: only accounts for about fifteen percent of world trade, and 370 00:21:31,960 --> 00:21:34,679 Speaker 1: what really matters is what the other eighty five percent. 371 00:21:34,760 --> 00:21:34,840 Speaker 2: Do. 372 00:21:35,359 --> 00:21:38,000 Speaker 1: In the book, I talk about a few scenarios. The 373 00:21:38,000 --> 00:21:43,679 Speaker 1: one that's most likely is sort of messy multilateralism going forward, 374 00:21:43,840 --> 00:21:47,160 Speaker 1: and that's what we're actually seeing. So there's two elements 375 00:21:47,200 --> 00:21:50,199 Speaker 1: of it, we will see more protectionism. I call it 376 00:21:50,280 --> 00:21:54,439 Speaker 1: cascading protectionism. So this was a recent example. The US 377 00:21:54,480 --> 00:21:57,680 Speaker 1: put up one hundred percent tariffs on Chinese electric vehicles 378 00:21:58,200 --> 00:22:01,239 Speaker 1: and then those diverted some more else. Canada then put 379 00:22:01,320 --> 00:22:03,719 Speaker 1: up one hundred percent tariffs, and then Europe put up 380 00:22:03,720 --> 00:22:07,320 Speaker 1: one hundred percent tariffs, So that's called trade deflection. Now, 381 00:22:07,400 --> 00:22:11,000 Speaker 1: so far, those tariffs have been done on WTWOL compliant basis. 382 00:22:11,359 --> 00:22:14,879 Speaker 1: W two allows people to put up tariffs against import 383 00:22:14,920 --> 00:22:18,639 Speaker 1: sorges like that, but it's disciplined and it's explained, and 384 00:22:18,640 --> 00:22:22,879 Speaker 1: as a consequence, it rarely triggers cycles of retaliation. The 385 00:22:22,960 --> 00:22:25,960 Speaker 1: second is the liberalizing part of it, and in fact, 386 00:22:26,000 --> 00:22:29,920 Speaker 1: even since April second, we have seen, especially I mean 387 00:22:30,000 --> 00:22:34,800 Speaker 1: with the UK, three major trade deals done in part 388 00:22:34,960 --> 00:22:37,320 Speaker 1: because the ex borders who used to sell to the 389 00:22:37,400 --> 00:22:40,520 Speaker 1: US are pushing their governments to get better access to 390 00:22:40,560 --> 00:22:44,160 Speaker 1: other markets. So we're seeing things like the UK India deal, 391 00:22:44,200 --> 00:22:47,960 Speaker 1: which was long long running thing, finally get closed because 392 00:22:47,960 --> 00:22:51,480 Speaker 1: everybody wants to replace the US market. But again those 393 00:22:51,560 --> 00:22:54,560 Speaker 1: are WTWOL compliant, So what we're seeing is more WTWOL 394 00:22:54,600 --> 00:22:59,920 Speaker 1: compliant retaliation, more WTWOL compliant liberalization and we muddle through 395 00:23:00,080 --> 00:23:02,280 Speaker 1: where the whole rest of the world at least pretends 396 00:23:02,720 --> 00:23:05,040 Speaker 1: that they're following the rules, and that I think is 397 00:23:05,119 --> 00:23:08,600 Speaker 1: most likely. The other one, which is a little scarier, 398 00:23:08,840 --> 00:23:11,919 Speaker 1: is that we get these fighting trade blocks. And the 399 00:23:11,960 --> 00:23:15,720 Speaker 1: trigger for that is already out there is China. The 400 00:23:16,040 --> 00:23:22,240 Speaker 1: UK US deal promised indirectly and obliquely to cut China 401 00:23:22,359 --> 00:23:24,840 Speaker 1: out of the supply chains of the goods which are 402 00:23:24,840 --> 00:23:28,480 Speaker 1: going to the US, and China said that's not okay, 403 00:23:28,920 --> 00:23:32,359 Speaker 1: and they threaten retaliation to any country who agreed to 404 00:23:32,440 --> 00:23:35,840 Speaker 1: things that were anti China. So that's the beginning of 405 00:23:35,920 --> 00:23:38,600 Speaker 1: trade blocks fighting, where China says you have to be 406 00:23:38,840 --> 00:23:40,639 Speaker 1: with me or you have to be against me, the 407 00:23:40,720 --> 00:23:42,600 Speaker 1: US says you have to be with me or against me. 408 00:23:43,040 --> 00:23:45,280 Speaker 1: We start the European Union might end up with that. 409 00:23:45,680 --> 00:23:48,800 Speaker 1: So that's the worst that lots of people start violating 410 00:23:49,320 --> 00:23:52,439 Speaker 1: wtwo rules. It's not just the US, and it turns 411 00:23:52,480 --> 00:23:56,959 Speaker 1: into this fragmented world of free trade blocks, US, EU, China, 412 00:23:57,280 --> 00:23:59,640 Speaker 1: and that would be a very bad world. The last one, 413 00:23:59,680 --> 00:24:04,200 Speaker 1: which I think is most hopeful, is reglobalization without America. 414 00:24:05,119 --> 00:24:08,520 Speaker 1: So this is the analogy. So just take countries like 415 00:24:08,600 --> 00:24:12,000 Speaker 1: India and China many decades after World War Two lived 416 00:24:12,040 --> 00:24:15,200 Speaker 1: in splendid isolation. They bought almost nothing from the world, 417 00:24:15,240 --> 00:24:17,640 Speaker 1: they exported almost nothing to the world, and the whole 418 00:24:17,640 --> 00:24:20,600 Speaker 1: rest of the world did just fine without them. Now, 419 00:24:20,600 --> 00:24:23,840 Speaker 1: when these over two billion people opened up, the world 420 00:24:23,880 --> 00:24:26,199 Speaker 1: was a better place for them and for us. But 421 00:24:26,520 --> 00:24:29,800 Speaker 1: the world does not actually need the US market to thrive. 422 00:24:30,640 --> 00:24:34,119 Speaker 1: So if these ideas that we start going back to 423 00:24:34,359 --> 00:24:38,200 Speaker 1: signing big regional trade agreements and liberalizing among the rest 424 00:24:38,240 --> 00:24:40,880 Speaker 1: of the eighty five percent, I can see a future 425 00:24:41,240 --> 00:24:44,879 Speaker 1: where the world moves on from the US protectionism, US 426 00:24:45,119 --> 00:24:49,879 Speaker 1: closes itself off for political reasons. Isolationism, as you well know, 427 00:24:50,040 --> 00:24:53,920 Speaker 1: is a very long tradition in American politics, especially on trade, 428 00:24:54,280 --> 00:24:57,399 Speaker 1: and the rest of the world essentially continues on with 429 00:24:57,480 --> 00:25:00,560 Speaker 1: liberalizations based on mega regional agreements. 430 00:25:01,200 --> 00:25:02,879 Speaker 2: There's so many things there, and we're going to run 431 00:25:02,880 --> 00:25:05,399 Speaker 2: out of time. So I just very briefly, if you 432 00:25:06,200 --> 00:25:10,840 Speaker 2: giving advice to other leaders, some of the countries that 433 00:25:10,840 --> 00:25:13,840 Speaker 2: are trying to negotiate with Donald Trump, but also navigate 434 00:25:13,920 --> 00:25:17,480 Speaker 2: a world with Donald Trump in it doing all the 435 00:25:17,560 --> 00:25:19,600 Speaker 2: things he's doing, You know, what are your kind of 436 00:25:19,600 --> 00:25:24,320 Speaker 2: top tips for people sitting in chancellories and finance ministries thinking, 437 00:25:24,359 --> 00:25:25,479 Speaker 2: how the hell do we deal with this? 438 00:25:27,080 --> 00:25:29,399 Speaker 1: Yeah, so there's two questions. There is one is how 439 00:25:29,400 --> 00:25:32,399 Speaker 1: do you deal bilaterally with the US? And the second 440 00:25:32,480 --> 00:25:34,720 Speaker 1: is what to do to prevent this from becoming another 441 00:25:34,800 --> 00:25:37,560 Speaker 1: nineteen thirties. So let's go with the first advice, so 442 00:25:37,600 --> 00:25:41,520 Speaker 1: that is, negotiate, don't retaliate. There's really only the European 443 00:25:41,600 --> 00:25:44,919 Speaker 1: Union in China who have the might to stand up 444 00:25:44,960 --> 00:25:47,320 Speaker 1: to the arm twister that the United States has become, 445 00:25:48,040 --> 00:25:51,000 Speaker 1: and China in particular, since the US is so dependent 446 00:25:51,080 --> 00:25:55,000 Speaker 1: on Chinese intermediate inputs in their entire manufacturing base. Europe 447 00:25:55,080 --> 00:25:57,280 Speaker 1: less so. But in any case, they're big enough to 448 00:25:57,320 --> 00:26:00,600 Speaker 1: take care of themselves. They're large, closed economy and they 449 00:26:00,600 --> 00:26:03,840 Speaker 1: can deal with loss of sales. The rest of the 450 00:26:03,840 --> 00:26:06,600 Speaker 1: countries can't and shouldn't, and in any case, all they 451 00:26:06,600 --> 00:26:09,520 Speaker 1: would do is make him mad. The second bit of 452 00:26:09,560 --> 00:26:12,800 Speaker 1: that is that what Trump is looking for because of 453 00:26:12,880 --> 00:26:16,679 Speaker 1: the grievance doctrines, it's things that make him look like 454 00:26:16,760 --> 00:26:22,040 Speaker 1: he's winning, like he's redressing the problems with the unfairness 455 00:26:22,040 --> 00:26:25,560 Speaker 1: of the trade system. So what he wants is happy headlines. 456 00:26:26,400 --> 00:26:31,160 Speaker 1: He wants to be saying Trump is winning again on trade, 457 00:26:32,000 --> 00:26:37,160 Speaker 1: moving this rigged system to something that's fairer and more reciprocal. 458 00:26:37,520 --> 00:26:40,119 Speaker 1: And as long as those headlines can be generated, the 459 00:26:40,200 --> 00:26:43,160 Speaker 1: details do not really matter. And if you look at 460 00:26:43,400 --> 00:26:46,680 Speaker 1: any of the agreements, they're not signed because they're really 461 00:26:46,720 --> 00:26:50,560 Speaker 1: just press releases, sometimes joints, sometimes not, and those are 462 00:26:50,600 --> 00:26:53,800 Speaker 1: really just generating happy headlines. And that's really what he needs. 463 00:26:54,200 --> 00:26:56,960 Speaker 1: So don't make him mad, give him happy headlines, and 464 00:26:57,040 --> 00:27:01,760 Speaker 1: definitely don't retaliate. That's advice now to keep things on 465 00:27:01,840 --> 00:27:05,600 Speaker 1: an even keio. We can defend the rules based system 466 00:27:06,080 --> 00:27:09,000 Speaker 1: simply by following the rules. So if the rest of 467 00:27:09,040 --> 00:27:13,480 Speaker 1: the eighty five percent do their tariff, they're more protection, 468 00:27:13,560 --> 00:27:16,240 Speaker 1: they're more liberalization, which they will do because this is 469 00:27:16,320 --> 00:27:18,760 Speaker 1: like through a great big rock in a pond and 470 00:27:18,800 --> 00:27:22,119 Speaker 1: the waves are coming out. They will. As long as 471 00:27:22,160 --> 00:27:25,520 Speaker 1: they do it with a wtwo compliant mechanisms, and there 472 00:27:25,520 --> 00:27:28,159 Speaker 1: are lots of them to do that with, then the 473 00:27:28,200 --> 00:27:31,400 Speaker 1: system would be okay. Things could evolve inside the US 474 00:27:31,440 --> 00:27:33,840 Speaker 1: where they change, but if they don't, then the US 475 00:27:33,920 --> 00:27:35,680 Speaker 1: is more or less shutting us off from the world 476 00:27:35,760 --> 00:27:38,280 Speaker 1: and the rest of the world moves on. So that's 477 00:27:38,320 --> 00:27:42,040 Speaker 1: the main thing, is to defend the rules by following 478 00:27:42,040 --> 00:27:42,720 Speaker 1: the rules. 479 00:27:43,160 --> 00:27:46,600 Speaker 2: How much of this can be undone by another administration 480 00:27:46,840 --> 00:27:48,840 Speaker 2: or is this a case or are there some things 481 00:27:48,840 --> 00:27:51,080 Speaker 2: you would identify that you know, once broken, are just 482 00:27:51,240 --> 00:27:52,680 Speaker 2: never going to be put together again. 483 00:27:53,440 --> 00:27:55,840 Speaker 1: Well, ever is a long time. But I think the 484 00:27:55,960 --> 00:27:59,320 Speaker 1: key phrase that my father always used to tell me 485 00:27:59,359 --> 00:28:02,439 Speaker 1: when I was a young man is trust comes on foot, 486 00:28:02,480 --> 00:28:06,080 Speaker 1: but leaves on horseback. And that's what we've see. Trust 487 00:28:06,119 --> 00:28:09,159 Speaker 1: in America has been eroded in the last six weeks 488 00:28:09,400 --> 00:28:13,639 Speaker 1: in a way that is incredible. And people used to 489 00:28:13,760 --> 00:28:17,840 Speaker 1: view the US universally regarded as the steward of the system. 490 00:28:18,359 --> 00:28:21,880 Speaker 1: Now the US is universally regarded with suspicion. It's not 491 00:28:22,080 --> 00:28:26,119 Speaker 1: just one man. The guy got re elected saying he 492 00:28:26,160 --> 00:28:29,680 Speaker 1: would do all these things, and people still elected him. Moreover, 493 00:28:29,800 --> 00:28:32,640 Speaker 1: I think we're at a situation now where if somebody 494 00:28:33,000 --> 00:28:35,720 Speaker 1: stood up and ran for presidents saying I'm going to 495 00:28:35,840 --> 00:28:38,280 Speaker 1: undo all this stuff, I'm going to take the blame 496 00:28:38,320 --> 00:28:41,000 Speaker 1: on America. We're not going to blame the foreigners anymore. 497 00:28:41,160 --> 00:28:43,880 Speaker 1: That would be political suicide. So they aren't coming back 498 00:28:44,200 --> 00:28:48,160 Speaker 1: so I really think our grandchildren will study this episode 499 00:28:48,600 --> 00:28:51,440 Speaker 1: April second really being very different than what was before 500 00:28:51,840 --> 00:28:55,000 Speaker 1: as the beginning of the post American leadership era. I 501 00:28:55,000 --> 00:28:59,320 Speaker 1: think that the trust of America, especially in economics, has 502 00:28:59,320 --> 00:29:02,920 Speaker 1: been funded mentally undermined. We've seen it on trade enormously. 503 00:29:03,200 --> 00:29:05,920 Speaker 1: It's slipping on the dollar and relying on the US's 504 00:29:06,040 --> 00:29:10,280 Speaker 1: reserve currency. Moreover, and in terms of military and security 505 00:29:11,000 --> 00:29:13,880 Speaker 1: things that this Trump administration has done, for instance in 506 00:29:14,040 --> 00:29:18,480 Speaker 1: Ukraine threatening to withdraw support for reasons that don't really 507 00:29:18,520 --> 00:29:22,280 Speaker 1: seem like long term steady allies. I think the fact 508 00:29:22,320 --> 00:29:27,560 Speaker 1: of the US leadership being dominant is over. Just for example, 509 00:29:27,600 --> 00:29:30,360 Speaker 1: the whole discussion on the Middle East. It didn't work out, 510 00:29:30,400 --> 00:29:33,640 Speaker 1: but that was held in Saudi Arabia, not Camp David. 511 00:29:33,920 --> 00:29:36,280 Speaker 1: And we're in a world now where the US is 512 00:29:36,320 --> 00:29:38,880 Speaker 1: no longer leader. So I think that is not going back. 513 00:29:39,320 --> 00:29:41,760 Speaker 2: I just wonder whether we're being a bit schizophrenic about this, 514 00:29:42,040 --> 00:29:44,800 Speaker 2: because on the one hand, we tend to say, oh, 515 00:29:44,800 --> 00:29:47,959 Speaker 2: many of Donald Trump's critics, and certainly some of what 516 00:29:48,000 --> 00:29:52,239 Speaker 2: you've said today, is this is a fundamental breaking of 517 00:29:52,240 --> 00:29:56,120 Speaker 2: the system. It's very damaging, It undermines America's position. There's 518 00:29:56,120 --> 00:29:58,400 Speaker 2: no going back. This is going to be a fundamental 519 00:29:58,440 --> 00:30:02,040 Speaker 2: shift of regime, we tend to say, or a lot 520 00:30:02,040 --> 00:30:05,400 Speaker 2: of people, some of the same critics will say he 521 00:30:06,040 --> 00:30:11,640 Speaker 2: will bulk under pressure. We've seen pauses once there will 522 00:30:11,640 --> 00:30:14,320 Speaker 2: be real economic harm to these policies, and then as 523 00:30:14,360 --> 00:30:17,560 Speaker 2: a result, he will back down, and we've seen signs 524 00:30:17,560 --> 00:30:21,320 Speaker 2: of him backing down. And April second, yes, if implemented, 525 00:30:21,720 --> 00:30:24,720 Speaker 2: would be enormously catastrophic, but in fact, I mean April 526 00:30:24,720 --> 00:30:27,120 Speaker 2: second was almost immediately put on pause all of those 527 00:30:27,360 --> 00:30:30,800 Speaker 2: crazy tariffs. And in the end this will be a 528 00:30:30,880 --> 00:30:34,640 Speaker 2: much smaller change than people are arguing. You can't argue 529 00:30:34,680 --> 00:30:36,560 Speaker 2: it both ways. That it's going to be sort of 530 00:30:36,600 --> 00:30:38,200 Speaker 2: he's going to give up and it's going to be feeble, 531 00:30:38,200 --> 00:30:40,800 Speaker 2: but it's also going to be studied by our grandchildren 532 00:30:40,840 --> 00:30:42,040 Speaker 2: and our great grandchildren. 533 00:30:42,600 --> 00:30:44,880 Speaker 1: Let me put that in perspective. First of all, you've 534 00:30:44,920 --> 00:30:47,400 Speaker 1: probably heard of this taco trade. They're talking about it 535 00:30:47,400 --> 00:30:50,680 Speaker 1: in finatural markets, which is Trump always chickens out taco, 536 00:30:51,400 --> 00:30:55,000 Speaker 1: And that's the big idea. The key is is Trump 537 00:30:55,120 --> 00:30:59,560 Speaker 1: is not dogmatic. He's pragmatic, and he really believes America 538 00:30:59,600 --> 00:31:02,320 Speaker 1: has been ripped off by the system. Even talked about 539 00:31:02,320 --> 00:31:05,240 Speaker 1: that in nineteen eighties when he was a private businessman. 540 00:31:05,480 --> 00:31:09,320 Speaker 1: So he fundamentally believes that, and he fundamentally he's fixing it. 541 00:31:09,640 --> 00:31:13,000 Speaker 1: But he's very flexible show he believes he's strong by 542 00:31:13,120 --> 00:31:17,120 Speaker 1: threatening and he's wise by showing flexibility. But the whole 543 00:31:17,160 --> 00:31:20,680 Speaker 1: point is that they have completely ripped up respect for 544 00:31:20,720 --> 00:31:24,760 Speaker 1: the rules based multilateralism and turned it into US thinking 545 00:31:24,800 --> 00:31:27,360 Speaker 1: they can do whatever they want on pretty much anything, 546 00:31:27,720 --> 00:31:31,080 Speaker 1: whether it's the dollar, or it's the debts and deficits, 547 00:31:31,160 --> 00:31:34,640 Speaker 1: whether it's on the tariffs. America is no longer acting 548 00:31:34,680 --> 00:31:38,360 Speaker 1: in this enlightened self interest way, and that enlightened self 549 00:31:38,400 --> 00:31:42,120 Speaker 1: interest leadership is what's ended. So it's not so much 550 00:31:42,280 --> 00:31:45,880 Speaker 1: that we're going to tip into the next nineteen thirties. 551 00:31:46,280 --> 00:31:50,080 Speaker 1: It's more like the interagum between when the UK ran 552 00:31:50,120 --> 00:31:53,600 Speaker 1: the world and when the US ran the world packs 553 00:31:53,640 --> 00:31:57,560 Speaker 1: Britannica to Pax Americana. There was a time in between 554 00:31:57,840 --> 00:32:00,320 Speaker 1: where it wasn't clear who was running what, and I 555 00:32:00,360 --> 00:32:02,880 Speaker 1: think that's the kind of era we've shifted into now. 556 00:32:03,240 --> 00:32:05,520 Speaker 1: But also I don't think there's anybody who can take 557 00:32:05,560 --> 00:32:08,840 Speaker 1: the US leadership, not like the UK steps down, US 558 00:32:09,040 --> 00:32:11,680 Speaker 1: was right on the horizon. China can't do it. You 559 00:32:11,840 --> 00:32:14,080 Speaker 1: can't do it because they're not a thing. So I 560 00:32:14,080 --> 00:32:16,640 Speaker 1: think we're kind of moving into a very very different 561 00:32:16,680 --> 00:32:20,680 Speaker 1: era what Ian Bremer calls the g zero world, where 562 00:32:20,720 --> 00:32:23,720 Speaker 1: there's no clear leader on the whole, no clear hedgemon, 563 00:32:24,040 --> 00:32:26,320 Speaker 1: and we just have to muddle through. But in any case, 564 00:32:26,400 --> 00:32:29,280 Speaker 1: it's the beginning of a completely different era, and I 565 00:32:29,320 --> 00:32:32,320 Speaker 1: think that is absolutely true, even if the terif cy 566 00:32:32,480 --> 00:32:35,240 Speaker 1: actually does don't cause a great depression. 567 00:32:36,520 --> 00:32:38,880 Speaker 2: Richard Boulden, that's a great place to end. Thank you 568 00:32:38,880 --> 00:32:54,680 Speaker 2: so much, thanks for listening to Trumpnomics from Bloomberg. It 569 00:32:54,720 --> 00:32:57,200 Speaker 2: was hosted by me Stephanie Flanders, and I was joined 570 00:32:57,200 --> 00:33:01,040 Speaker 2: by Professor Richard Baldwin. Trump Andomics is produced by Samasadi 571 00:33:01,080 --> 00:33:03,520 Speaker 2: and Moses and with help from Chris mart Lou and 572 00:33:03,600 --> 00:33:07,880 Speaker 2: Amy Keen. Sound design is by Blake Maples and Brendan Francis. 573 00:33:08,000 --> 00:33:11,720 Speaker 2: Newnham is our executive producer. Please help other people find 574 00:33:11,760 --> 00:33:14,160 Speaker 2: the show, just rate it very highly and review it 575 00:33:14,200 --> 00:33:15,760 Speaker 2: wherever you listen to your podcasts.