WEBVTT - Why Tariffs Can’t Fix America's Economic Malaise 0:00:02.480 --> 0:00:07.520 Bloomberg Audio Studios, Podcasts, radio News. 0:00:16.640 --> 0:00:19.560 I'm Sevany Flanders, head of Government and Economics at Bloomberg, 0:00:19.600 --> 0:00:22.400 and welcome to Trumpponomics, the podcast that looks at the 0:00:22.440 --> 0:00:25.520 economic world of Donald Trump, how he's already shaped the 0:00:25.520 --> 0:00:28.880 global economy, and what on earth is going to happen next. 0:00:29.560 --> 0:00:32.680 And this week we have something slightly different, a conversation 0:00:32.960 --> 0:00:36.800 with Richard Baldwin about his new book, The Great Trade Hack, 0:00:37.200 --> 0:00:40.400 How Trump's Trade War Fails and the World moves on. 0:00:41.280 --> 0:00:43.839 Richard is a professor of international economics at the IMD 0:00:44.000 --> 0:00:47.360 Business School. Financial Times once called him one of the 0:00:47.360 --> 0:00:51.680 most important thinkers in this era of global disruption, and 0:00:51.800 --> 0:00:55.120 listeners to previous iterations of this podcast might even remember 0:00:55.120 --> 0:00:56.840 that we've talked to him before as one of the 0:00:56.840 --> 0:01:00.840 people who has researched and written most deeply about the 0:01:00.960 --> 0:01:05.199 changing nature of globalization and trade. And his latest book, 0:01:05.520 --> 0:01:08.840 an e book published by the Center for Economic Policy Research, 0:01:09.200 --> 0:01:11.840 as you gather from that title, turns its hand to 0:01:11.920 --> 0:01:14.600 what Donald Trump is doing or not doing to the 0:01:14.600 --> 0:01:17.640 world of international trade and what it means for all 0:01:17.680 --> 0:01:23.479 of us. As an economist. Richards joining the long list 0:01:23.480 --> 0:01:28.040 of economists who believe the protectionism of the Trump administration 0:01:28.280 --> 0:01:31.280 is not going to fulfill its objectives. But I think 0:01:31.319 --> 0:01:35.040 what's distinctive is he also delves into the political economy 0:01:35.280 --> 0:01:39.880 of trumpnomics to explain why it will still continue, and 0:01:39.920 --> 0:01:42.039 then also thinks about how the rest of the world 0:01:42.520 --> 0:01:45.039 will engage or should engage with the US as it's 0:01:45.120 --> 0:01:51.760 part of this grand Trumpnomic experiment, all of which did 0:01:51.800 --> 0:01:53.800 seem like it was worth a conversation, and I should 0:01:53.840 --> 0:01:56.760 say probably full disclosure. The other reason we're doing this 0:01:56.800 --> 0:01:59.280 is so we could record it today Friday, twenty third 0:01:59.320 --> 0:02:02.240 of May, ahead of the holiday weekend in the UK 0:02:02.400 --> 0:02:04.440 and the US, and ahead of me getting off on 0:02:04.480 --> 0:02:14.880 a week's holiday. Richard, thank you very much for joining us. 0:02:15.360 --> 0:02:18.200 It's a great title. What's the Great Trade Hack? 0:02:18.680 --> 0:02:22.440 Thanks for having me, Stephanie. The hack is what Trump 0:02:22.520 --> 0:02:26.480 did on April second. That was an historic moment. It 0:02:26.560 --> 0:02:31.880 wasn't an attempt to revise or reform or negotiate. It 0:02:31.919 --> 0:02:34.920 was an attempt to break through the firewall of the 0:02:34.960 --> 0:02:38.840 world trading system and disrupt the way it runs with 0:02:39.520 --> 0:02:43.399 tariffs that were big, bold and everywhere at once, violating 0:02:43.919 --> 0:02:48.639 most wtwo rules in one fell swoop with everybody, breaking 0:02:48.880 --> 0:02:52.560 every trade agreement the US had ever made with anybody anytime. 0:02:52.919 --> 0:02:55.839 This wasn't your normal trade war. It looked a lot 0:02:55.960 --> 0:02:58.800 more like a war on trade. And that's why I 0:02:58.800 --> 0:03:01.720 think of it as a hack rather than a beginning 0:03:01.760 --> 0:03:04.280 of a war or a reform or an effort. It 0:03:04.320 --> 0:03:07.480 was really one man trying to hack the system. 0:03:07.720 --> 0:03:10.359 What are you trying to get across? Intellectually and as 0:03:10.360 --> 0:03:12.840 an academic, when you talk about a hack, I. 0:03:12.760 --> 0:03:17.000 Think it's important to distinguish this from other things, for instance, 0:03:17.120 --> 0:03:20.520 anything to do with the dispute between US and China. 0:03:20.639 --> 0:03:23.400 And also it's entirely different than what he was doing 0:03:23.480 --> 0:03:28.680 between his inauguration and April second. Those were piecemeal tariffs, 0:03:29.160 --> 0:03:32.200 totally in the line of the kind of thinking that 0:03:32.320 --> 0:03:36.040 many countries get. They're unfair. I'm going to put tariffs on, 0:03:36.360 --> 0:03:38.680 then we're going to negotiate. We'll come to a better deal. 0:03:39.000 --> 0:03:42.280 This thing was completely different. He's trying to change the 0:03:42.320 --> 0:03:46.480 way the world works in terms of fair and reciprocal 0:03:46.520 --> 0:03:50.520 trade in his own mind and reverse the victimhood that 0:03:50.640 --> 0:03:54.080 he believes, and he's at least selling politically that the 0:03:54.200 --> 0:03:55.240 US is facing. 0:03:55.760 --> 0:03:58.800 You talk about the grievance doctrine? What explains this policy? 0:03:59.080 --> 0:04:01.680 We've heard a lot about grievances from him, but briefly, 0:04:02.520 --> 0:04:03.640 what are you thinking about that? 0:04:04.440 --> 0:04:07.640 Well, I think many economists around the world and political 0:04:07.680 --> 0:04:11.200 scientists slapped their heads when they saw this thing. Is like, 0:04:11.320 --> 0:04:14.000 what is he trying to do? And then it goes 0:04:14.080 --> 0:04:16.520 up and it goes down, and there's this and is 0:04:16.520 --> 0:04:19.640 that all? It looks like he's negotiating himself. It looks 0:04:19.720 --> 0:04:22.760 kind of crazy, It looks chaotic. When I was looking 0:04:22.839 --> 0:04:26.120 for some sort of coherence. If you read the introduction 0:04:26.640 --> 0:04:30.520 to the US Trade Agenda Report for twenty twenty five, 0:04:30.920 --> 0:04:34.760 he pretty much lays out this grievance doctrine, which has 0:04:34.800 --> 0:04:38.359 an origin story of America used to play by the 0:04:38.480 --> 0:04:42.200 rules and they got played. They were ripped off by 0:04:42.240 --> 0:04:47.479 globalist elite abroad and globalist traders at home, and it 0:04:47.600 --> 0:04:51.440 was the middle class who paid the price. And what 0:04:51.560 --> 0:04:56.200 Trump was doing on April second was payback. So it's 0:04:56.320 --> 0:05:01.120 like that uncomfortable uncle. You sometimes have a family gathering 0:05:01.360 --> 0:05:06.720 who lashes out and says the most outrageous things, upsets everybody. 0:05:07.160 --> 0:05:09.680 Although there's a few people in the room who said yes, 0:05:09.760 --> 0:05:13.560 those things needed to be said. That's what these tariffs are. 0:05:14.040 --> 0:05:18.320 It is not justified on economic analysis or clear thinking 0:05:18.320 --> 0:05:21.960 about what's going home. I think it's not a million 0:05:22.000 --> 0:05:25.919 miles away from what drove Brexit, that people were angry 0:05:25.960 --> 0:05:29.160 with the way things work and they struck back by 0:05:29.240 --> 0:05:33.600 voting for something that they thought would be very upsetting 0:05:33.640 --> 0:05:36.240 to the globalist delete who they feel have rigged the 0:05:36.279 --> 0:05:42.680 system against them. Trump's tariffs are economically incoherent but emotionally coherent. 0:05:43.520 --> 0:05:47.880 And this grievance doctrine that I have called it is 0:05:48.480 --> 0:05:52.000 a mythic tale that comes with a moral and a mission. 0:05:52.640 --> 0:05:56.599 And you can interpret the nature of the tariffs and 0:05:56.760 --> 0:06:00.600 his treatment of them afterwards in the negotiations with countries 0:06:01.200 --> 0:06:07.480 as following his grievance doctrine. Not any very clear economic analysis. 0:06:08.040 --> 0:06:11.520 But you yourself have written about the structural changes that have 0:06:11.600 --> 0:06:14.120 happened in the global economy and what you call it, 0:06:14.160 --> 0:06:17.960 you know, the twin bombs of globalization and automation that 0:06:18.320 --> 0:06:24.279 have had profound effects for many American workers. So it's 0:06:24.279 --> 0:06:26.839 not as though you don't think there's any there there 0:06:27.480 --> 0:06:29.680 in terms of the grievance. It's just that this is 0:06:29.720 --> 0:06:31.359 not the right solution. Is that right? 0:06:31.600 --> 0:06:35.720 Absolutely? So? America's middle class is a terrible shape. I mean, 0:06:35.720 --> 0:06:39.560 we have opioid deaths like the world's never seen. We 0:06:39.600 --> 0:06:44.719 have a BCD epidemic, we have frequent school shootings, we 0:06:44.800 --> 0:06:49.320 have fallen marriage fall of birth rates. White young men 0:06:49.400 --> 0:06:52.680 are killing themselves in numbers that aren't seen anywhere else. 0:06:53.000 --> 0:06:56.520 There's social pathologies going on in the middle class which 0:06:56.520 --> 0:07:00.080 are just absolutely off the chart. Something must be done. 0:07:00.360 --> 0:07:03.480 But what Trump has decided to do about it tariffs 0:07:03.640 --> 0:07:07.599 is most definitely not that something. In the book, I 0:07:07.720 --> 0:07:11.160 argue that we need a social policy, maybe like Canadian 0:07:11.200 --> 0:07:14.840 social policy, that would actually help the middle class. But 0:07:15.040 --> 0:07:18.400 it is a problem. And this is, as I say 0:07:18.400 --> 0:07:21.760 in the book, it's a place ebo for policy in 0:07:21.840 --> 0:07:24.200 lieu of real medicine that would help them. 0:07:24.400 --> 0:07:28.720 So why is this not the right solution? What can 0:07:28.760 --> 0:07:33.000 he achieve with these policies that would actually support his objectives? 0:07:33.160 --> 0:07:33.680 If anything? 0:07:34.120 --> 0:07:37.400 Well, I think basically nothing. So let me go through. 0:07:37.840 --> 0:07:41.840 For example, if you look at the US Traded Gender document, 0:07:42.040 --> 0:07:44.880 they're essentially listing three things they want to do with 0:07:44.960 --> 0:07:48.040 these tariffs. First thing is to redress the trade balance, 0:07:48.680 --> 0:07:52.239 a second is to reindustrialize America, bring the factories back, 0:07:52.480 --> 0:07:55.200 and the third is to help the middle class. And 0:07:55.320 --> 0:07:57.680 his tariffs will do none of those things. Let me 0:07:57.760 --> 0:08:00.400 take them one at a time. So, first of all, 0:08:00.800 --> 0:08:03.960 it cannot help the middle class. Tariffs are only put 0:08:04.000 --> 0:08:08.880 on goods, and tariffs can protect workers who are in 0:08:08.920 --> 0:08:11.840 goods producing sectors. They don't always, but at least there's 0:08:11.880 --> 0:08:14.920 a possibility that they can protect their jobs and maybe 0:08:14.960 --> 0:08:18.080 keep their wages from falling. But only less than ten 0:08:18.120 --> 0:08:21.320 percent of the middle class works in goods producing sectors, 0:08:21.960 --> 0:08:24.960 and for the other ninety percent who work in service sectors, 0:08:25.320 --> 0:08:28.440 Trump's tariffs are simply raising their cost of living. So 0:08:28.520 --> 0:08:30.880 in fact, rather than helping the middle class, it will 0:08:30.880 --> 0:08:33.560 probably hurt it subtly. It'll show up in terms of 0:08:33.920 --> 0:08:38.960 slower growth, inflation, and undermining the cost of purchasing. Now, 0:08:39.040 --> 0:08:41.560 let me take this second one, which is closing the 0:08:41.600 --> 0:08:46.880 trade deficit. This is a long widely held mistake and 0:08:47.440 --> 0:08:52.160 belief that tariffs can fix the trade deficit. But I 0:08:52.160 --> 0:08:55.560 think I've found why people believe it and why it's 0:08:55.679 --> 0:08:58.720 hard to explain. Now you and I go to the 0:08:58.720 --> 0:09:02.199 shop and we see eat the price of say domestic 0:09:02.240 --> 0:09:05.440 beer and imported beer, and if the price of imported 0:09:05.440 --> 0:09:07.880 beer goes up, we'll tend to buy a little more 0:09:07.880 --> 0:09:11.080 of the domestic beer. So in our everyday lives buying 0:09:11.120 --> 0:09:14.600 fruits and vegetables, meat, fish, beer, we look at the 0:09:14.600 --> 0:09:17.520 prices and we're shaped by things like tariffs. We can 0:09:17.559 --> 0:09:20.839 imagine how that would make us buy less and then 0:09:20.920 --> 0:09:24.480 without thinking about how the whole thing adds up, you go, well, Therefore, 0:09:24.520 --> 0:09:26.960 if you want people to buy fewer foreign goods, you 0:09:27.000 --> 0:09:29.640 put up the price of foreign goods. The trouble is 0:09:30.080 --> 0:09:32.760 when you think at the economy wide level, when you 0:09:32.800 --> 0:09:36.600 think about everybody buying everything at the same time, there's 0:09:36.640 --> 0:09:39.120 a different way to think about the deficit, and that 0:09:39.240 --> 0:09:42.000 is the US has a trade deficit because they spend 0:09:42.440 --> 0:09:45.840 more than they produce. And if Americans spend more than 0:09:45.880 --> 0:09:49.600 they produce, they have to run a trade deficit. There's 0:09:49.640 --> 0:09:53.280 no way the spending can't go anywhere else. So unless 0:09:53.440 --> 0:09:56.679 they either reduce their spending or increase their production, they 0:09:56.760 --> 0:10:02.040 cannot close the deficit. Now, tariffs cannot really affect the 0:10:02.120 --> 0:10:06.439 spending unless it induces a recession, and even then that's temporary. 0:10:06.520 --> 0:10:09.120 And because the US is at full employment, the tariffs 0:10:09.120 --> 0:10:12.320 won't increase the production. If anything, it would mess it up. 0:10:12.320 --> 0:10:14.720 But in any case, primarily will have no effect on 0:10:14.960 --> 0:10:18.640 production and very little effect on spending, So tariffs will 0:10:18.640 --> 0:10:21.800 not close the deficit. Now. The reason it works out 0:10:21.880 --> 0:10:26.360 is because the tariffs change the relative price of imports 0:10:26.360 --> 0:10:29.960 and exports, but the dollar can offset that. So unless 0:10:30.000 --> 0:10:33.240 they fix the economy wide problem, they are not going 0:10:33.280 --> 0:10:35.800 to fix the deficit. Now, let me take the third 0:10:35.800 --> 0:10:41.400 one about reindustrialization. Reindustrialization using tariffs is something people have 0:10:41.520 --> 0:10:45.200 been trying for literally a half century. It doesn't have 0:10:45.280 --> 0:10:49.520 a name. It's called import substitution industrialization. And the idea 0:10:50.080 --> 0:10:53.160 is you protect your local market to encourage local production. 0:10:53.840 --> 0:10:57.200 First of all, that did actually work up until nineteen 0:10:57.280 --> 0:11:01.040 ninety five with the offshoring and outsourcing thing, where global 0:11:01.120 --> 0:11:04.600 value change change the whole proposition. So, for example, the 0:11:04.760 --> 0:11:09.800 US in the eighteen hundreds did industrialize behind high trade barriers, 0:11:10.080 --> 0:11:13.120 this time protecting against British goods. So it's not like 0:11:13.200 --> 0:11:15.960 it's never worked, it just doesn't work anymore. Now the 0:11:16.080 --> 0:11:18.920 problem is that to bring back these factories, the United 0:11:18.960 --> 0:11:23.600 States needs world class infrastructure. It needs a world class 0:11:24.280 --> 0:11:27.839 workforce who are willing to work in factories and able 0:11:27.880 --> 0:11:32.160 to run the sophisticated machines that are now part of manufacturing. 0:11:32.840 --> 0:11:38.360 And it needs investment that's coordinated and long lasting. These 0:11:38.360 --> 0:11:41.280 are ten year plans. You don't just set up a 0:11:41.320 --> 0:11:44.480 bakery shop and call it an industry. This requires a 0:11:44.480 --> 0:11:48.920 whole ecosystem, an industrial base to develop. That can be done, 0:11:48.960 --> 0:11:51.960 but it takes a decade at least, and it would 0:11:52.080 --> 0:11:57.560 involve a bipartisan consensus, lots of subsidies, changes in laws 0:11:58.000 --> 0:12:01.400 to confit private firms that this is for real and 0:12:01.440 --> 0:12:05.080 they should move back. And the tariffs, especially one Trump 0:12:05.160 --> 0:12:08.240 is talking about, are most definitely not doing any of 0:12:08.280 --> 0:12:08.839 those things. 0:12:09.440 --> 0:12:11.920 Imagine the scenario that we're kind of seeing now, which 0:12:12.000 --> 0:12:17.320 is we had April Seconds Liberation Day, crazily high to 0:12:17.400 --> 0:12:22.280 most people's eyes, Tariff rates also kind of randomly generated, 0:12:23.000 --> 0:12:27.440 and a lot of noise about trade deals. And we're 0:12:27.480 --> 0:12:29.600 talking today on a day that Donald Trump seems to 0:12:29.600 --> 0:12:32.440 have talked about potentially a fifty percent across the board 0:12:32.520 --> 0:12:36.000 tariff against the Europeans. He's talked about even higher numbers 0:12:36.000 --> 0:12:38.840 for the China in the past. And yet once we 0:12:38.920 --> 0:12:41.600 see the economic consequences or even begin to see the 0:12:41.640 --> 0:12:45.400 economic consequences. He's tended to step back, and we've had 0:12:45.400 --> 0:12:49.160 these pauses, and I think the assumption that many people 0:12:49.200 --> 0:12:51.040 would now make is, yes, we will end up with 0:12:51.160 --> 0:12:54.200 maybe ten percent tariffs from all goods and a higher 0:12:54.200 --> 0:12:56.559 effective tariff rate between the US and the rest of 0:12:56.600 --> 0:12:59.600 the world. That will definitely reduce trade, maybe quite significantly 0:12:59.600 --> 0:13:02.360 in the case of China. But we're not headed down 0:13:02.360 --> 0:13:04.560 that full path. We're just on a path where there's 0:13:04.600 --> 0:13:06.720 going to be more kind of grit in the wheels 0:13:06.720 --> 0:13:11.360 of global trade. Is that necessarily the end of the world, Richard, 0:13:11.360 --> 0:13:13.240 If you're sort of thinking about it from a sort 0:13:13.280 --> 0:13:15.080 of historical perspective. 0:13:15.040 --> 0:13:16.600 It could just be a bump in the road. I mean, 0:13:16.679 --> 0:13:18.120 let's put it this way. If it was a ten 0:13:18.160 --> 0:13:22.520 percent across the board tariff on everything, the first point 0:13:22.679 --> 0:13:24.800 is that the US dollar would offset part of it. 0:13:25.240 --> 0:13:29.079 What we know from long experience is that very big 0:13:29.200 --> 0:13:32.920 changes in trade policy lead to changes in the exchange rate. 0:13:33.160 --> 0:13:35.800 But what we had talked about was a dollar appreciation exactly. 0:13:35.880 --> 0:13:37.880 And I have this in mind partly because JD. Vance, 0:13:37.920 --> 0:13:40.360 the Vice President, has done an interview for a commentator 0:13:40.360 --> 0:13:43.320 on the New York Times, and he makes this point 0:13:43.360 --> 0:13:46.600 that actually it shows that economists get things wrong, because 0:13:46.640 --> 0:13:49.600 absolutely everyone predicts that if you have a higher tariff, 0:13:49.640 --> 0:13:52.120 you get an appreciating currency. And in fact, one of 0:13:52.120 --> 0:13:54.760 the most striking things that happened that has not really 0:13:54.920 --> 0:13:58.800 changed in direction in the last few months as these 0:13:58.840 --> 0:14:01.439 tariffs have been introduced, is that the dollar has fallen. 0:14:01.800 --> 0:14:07.000 So we don't know that that universal economist view is 0:14:07.040 --> 0:14:09.880 actually going to be born out, not yet anyway, let me. 0:14:09.960 --> 0:14:13.679 Add on a parenthetical statement about whether it's true or not. 0:14:14.000 --> 0:14:17.880 The closest example was when during the nineties, many developing 0:14:17.880 --> 0:14:22.320 countries systematically lower their tariffs from like sixty percent down 0:14:22.360 --> 0:14:25.560 to nine or ten percent, and so that was essentially 0:14:25.600 --> 0:14:28.960 the opposite of what Trump did, and instead of their 0:14:29.000 --> 0:14:34.840 currencies appreciating, they've depreciated. So there's wide experience of massive 0:14:34.920 --> 0:14:39.080 changes in trade policy leading to offsetting long term exchange 0:14:39.160 --> 0:14:41.800 rates on the import side as well from all the 0:14:41.800 --> 0:14:45.280 emerging markets who essentially laterally lower their tariffs in the nineties. 0:14:45.840 --> 0:14:47.920 The dollar's not going up. The one thing is not 0:14:48.000 --> 0:14:49.920 done in the last six months is the dollar's not 0:14:49.960 --> 0:14:50.400 gone up. 0:14:50.440 --> 0:14:53.800 Absolutely so I'm not defensive. I want to explain that. So, 0:14:54.360 --> 0:14:58.600 the exchange rate, like the dollar, is two things. It 0:14:58.680 --> 0:15:03.760 is a finan instrument on which there's enormous amounts trillions 0:15:03.760 --> 0:15:07.280 of dollars of arbitrage every single day. Now that arbitrage 0:15:07.320 --> 0:15:11.560 is primarily driven by interest rate differentials and expectations of 0:15:11.640 --> 0:15:14.880 interest rate differentials. One of the times where the dollar 0:15:14.960 --> 0:15:18.240 depreciates quite reliably is if people think the US is 0:15:18.280 --> 0:15:21.120 going to go into recession, which means the FED is 0:15:21.160 --> 0:15:23.840 going to lower interest rates or not raise them as much, 0:15:24.160 --> 0:15:27.040 and therefore the dollar becomes less attractive. So right now 0:15:27.080 --> 0:15:29.200 people move out of the dollar. So I think what 0:15:29.240 --> 0:15:34.040 we're seeing now is certainly a lot of anticipation of 0:15:34.080 --> 0:15:36.520 a lower path of interest rates for the dollar than 0:15:36.600 --> 0:15:39.640 people would have thought because of the recession that the 0:15:39.680 --> 0:15:43.320 tariffs are going to introduce. The second point is, and 0:15:43.360 --> 0:15:47.280 this is unusual, is that Trump and his administration are 0:15:47.320 --> 0:15:51.640 systematically undermining the value of the dollar as the world's 0:15:51.640 --> 0:15:56.000 reserve currency, threatening all sorts of crazy things. People were wondering, 0:15:56.280 --> 0:15:59.560 is the US actually as reliable as they used to be. 0:16:00.080 --> 0:16:03.400 This level of rule breaking and carelessness for the system 0:16:03.720 --> 0:16:06.800 undermine people's trust. Now. The other thing that's going on 0:16:07.320 --> 0:16:10.480 is we've recently seen just with the House passage, is 0:16:10.520 --> 0:16:14.040 the US has no plan to close their deficit ever, 0:16:14.920 --> 0:16:18.200 and they're running six seven percent deficits every year with 0:16:18.320 --> 0:16:21.880 no plan to change it. And there's no political landing 0:16:21.960 --> 0:16:24.280 path you can see in the United States where they're 0:16:24.280 --> 0:16:28.320 going to reather, raise taxes or cut spending sufficiently for this. Moreover, 0:16:28.360 --> 0:16:31.560 as the interest rates go up on yields, that means 0:16:31.640 --> 0:16:34.000 more and more of the current budget will be to 0:16:34.040 --> 0:16:37.400 pay off the debt. And just recently, with the ten 0:16:37.440 --> 0:16:40.400 year bonds going up, the US is now spending more 0:16:40.480 --> 0:16:44.760 on financing its own debt than it is on its military. 0:16:45.160 --> 0:16:47.720 So this is something that people are starting to you know, 0:16:48.280 --> 0:16:51.040 long ways down the road. What's going to happen is 0:16:51.160 --> 0:16:53.760 not that people will leave the dollar, but they'll require 0:16:53.840 --> 0:16:56.520 higher premium. None of these things have to be dramatic. 0:16:56.560 --> 0:17:00.280 If most big money funds in the world decide I did, 0:17:00.320 --> 0:17:03.640 to put two percentage points less in the US market 0:17:03.680 --> 0:17:06.600 than they had before, that will lead to an outflow, 0:17:06.640 --> 0:17:08.959 which will lead to a depreciation of the dollar. So 0:17:09.000 --> 0:17:11.080 I think what we're seeing is short and medium term 0:17:11.160 --> 0:17:15.280 things overwhelming long term things, And in any case, I 0:17:15.280 --> 0:17:19.879 wouldn't expect the long term things to as submit themselves immediately, because, 0:17:19.880 --> 0:17:22.160 as you pointed out, we don't know where this thing's 0:17:22.200 --> 0:17:22.720 going to land. 0:17:23.280 --> 0:17:25.199 I guess one could still come away with the idea 0:17:25.280 --> 0:17:28.119 that whatever dollar rise you have associated with the tariffs 0:17:28.119 --> 0:17:30.119 could be drowned out by some of these other effects, 0:17:30.160 --> 0:17:33.080 given that there'd been such a move into the US 0:17:33.119 --> 0:17:35.680 assets in the past, and as you pointed out, it 0:17:35.680 --> 0:17:38.399 doesn't take much if people start to just adjust at 0:17:38.400 --> 0:17:38.920 the margin. 0:17:39.480 --> 0:17:41.879 One of my favorite quotes on this is that the 0:17:41.960 --> 0:17:44.879 long run takes longer to come than you would have 0:17:44.880 --> 0:17:47.119 ever thought it would, but when it comes, it comes 0:17:47.160 --> 0:17:49.040 faster than you could ever have expected. 0:17:49.280 --> 0:17:52.720 Yeah, yeah, slowly, And then if people gave bus just 0:17:52.720 --> 0:17:57.400 slowly suddenly yeah. So we don't know, as you say, 0:17:57.440 --> 0:17:59.480 we don't know where that's going to turn out, and 0:17:59.680 --> 0:18:03.320 we say, we don't know that the US will continue 0:18:03.320 --> 0:18:06.280 with the sort of most dramatic version of this war 0:18:06.359 --> 0:18:08.679 on trade, this trade hack that you've suggested. But you 0:18:08.720 --> 0:18:12.080 also have highlighted the kind of underlying political reasons for 0:18:12.720 --> 0:18:15.640 the trade hack, the grievance doctrine, and it doesn't seem 0:18:15.680 --> 0:18:18.399 like that's going to go anywhere. President Trump seems pretty 0:18:18.400 --> 0:18:21.400 committed to that. So I guess one of the questions 0:18:21.480 --> 0:18:23.960 that anyone would have, and that you start to answer 0:18:23.960 --> 0:18:26.760 in your book, is what happens to globalization? What happens 0:18:26.760 --> 0:18:30.240 to the global economy in the meantime while the US 0:18:30.359 --> 0:18:32.560 is engaged in this big experiment. 0:18:33.119 --> 0:18:35.320 Let me take the first point, which I think is 0:18:35.400 --> 0:18:38.080 really important I hope that people will take away from 0:18:38.080 --> 0:18:43.200 my book, is that US protectionism is now permanent. It's 0:18:43.240 --> 0:18:46.520 here to stay. It's not new, and it's not going away. 0:18:47.160 --> 0:18:49.959 So this narrative that the system is rigged against us 0:18:50.000 --> 0:18:53.720 started with the Great Recession, and starting from Obama onward, 0:18:54.280 --> 0:18:58.520 the US political elite blamed globalization. They found that very convenient. 0:18:58.920 --> 0:19:02.160 So Obama a media suspended all the trade agreements that 0:19:02.400 --> 0:19:04.760 Bush Junior had started, and there were lots of them, 0:19:05.440 --> 0:19:08.760 and he became trade hesitant. He was there for eight 0:19:08.880 --> 0:19:12.359 years and that hesitancy kept up. Then, of course Trump 0:19:12.400 --> 0:19:16.399 came and the trade hesitancy turned to trade hostility, and 0:19:16.440 --> 0:19:19.960 then when Biden came, it just turned back to trade hesitancy. 0:19:20.480 --> 0:19:23.119 So really, going back to two thousand and eight, the 0:19:23.240 --> 0:19:26.159 US has not been the leader of the system, so 0:19:26.200 --> 0:19:28.919 it's not new. And the reason was is because the 0:19:28.920 --> 0:19:31.520 suffering of the middle class, if you will, was something 0:19:31.560 --> 0:19:34.399 that was going through they did not want to raise 0:19:34.480 --> 0:19:36.800 taxes or increase the size of the government in order 0:19:36.840 --> 0:19:39.800 to actually address it, and as a consequence, they used 0:19:39.840 --> 0:19:44.040 trade as a scapegoat. So this anti trade element is 0:19:44.080 --> 0:19:46.560 in there and US is now on a kind of 0:19:46.920 --> 0:19:52.359 looping gif of protection. They've got the malaise of the 0:19:52.400 --> 0:19:57.360 middle class suffering, leading to the need for a solution 0:19:58.200 --> 0:20:02.720 where anti globalization becomes out solution at bigger, lower levels. 0:20:03.160 --> 0:20:06.200 Those solutions don't fix the middle class problems, and so 0:20:06.240 --> 0:20:10.200 they have to keep again being protectionist. So Biden, for example, 0:20:10.240 --> 0:20:14.240 had a worker centric trade policy which meant no trade liberalization. 0:20:14.680 --> 0:20:16.760 If Harris had won, she would have kept that up. 0:20:16.920 --> 0:20:19.680 And whoever comes after Trump may be a lot more 0:20:19.680 --> 0:20:22.440 polite and diplomatic, but they certainly aren't going to start 0:20:22.520 --> 0:20:24.879 signing free trade agreements. So I think we have to 0:20:24.920 --> 0:20:27.399 get used to a world where the US has left 0:20:27.440 --> 0:20:31.080 the stage as the leader of the world trading system 0:20:31.080 --> 0:20:32.800 at the very least, and maybe more. 0:20:32.680 --> 0:20:36.480 Broadly, while the US is engaged in this grand experiment, 0:20:36.840 --> 0:20:38.840 or not say a grand experiment. What happens to the 0:20:38.840 --> 0:20:42.480 rest of the world. How do you see the global economy, 0:20:42.800 --> 0:20:45.280 the pattern of global trade panning out. 0:20:45.840 --> 0:20:48.680 So let me start with the worst case scenario, the 0:20:49.119 --> 0:20:51.400 sort of ones that we should be panicked for, even 0:20:51.440 --> 0:20:53.960 though I don't think it's very likely. The last time 0:20:54.040 --> 0:20:56.679 the US was this irresponsible on trade was in the 0:20:56.760 --> 0:21:01.120 nineteen twenty nine Smooth Holly Act, which led to retaliation 0:21:01.359 --> 0:21:05.080 cycles outside the United States. US was actually much less 0:21:05.080 --> 0:21:08.280 important in the world economy back then, but those cycles 0:21:08.359 --> 0:21:11.000 or retaliation led to a collapse in trade, which made 0:21:11.040 --> 0:21:13.920 the Great Depression bad. That's what we have to look for. 0:21:14.119 --> 0:21:19.240 What could trigger retaliation of non US countries against other 0:21:19.320 --> 0:21:22.159 non US countries. It's given that the US is going 0:21:22.200 --> 0:21:24.800 to be more protectionists, and it's given that other countries 0:21:24.840 --> 0:21:28.479 will be more protection against the US. But the US 0:21:28.520 --> 0:21:31.919 only accounts for about fifteen percent of world trade, and 0:21:31.960 --> 0:21:34.679 what really matters is what the other eighty five percent. 0:21:34.760 --> 0:21:34.840 Do. 0:21:35.359 --> 0:21:38.000 In the book, I talk about a few scenarios. The 0:21:38.000 --> 0:21:43.679 one that's most likely is sort of messy multilateralism going forward, 0:21:43.840 --> 0:21:47.160 and that's what we're actually seeing. So there's two elements 0:21:47.200 --> 0:21:50.199 of it, we will see more protectionism. I call it 0:21:50.280 --> 0:21:54.439 cascading protectionism. So this was a recent example. The US 0:21:54.480 --> 0:21:57.680 put up one hundred percent tariffs on Chinese electric vehicles 0:21:58.200 --> 0:22:01.239 and then those diverted some more else. Canada then put 0:22:01.320 --> 0:22:03.719 up one hundred percent tariffs, and then Europe put up 0:22:03.720 --> 0:22:07.320 one hundred percent tariffs, So that's called trade deflection. Now, 0:22:07.400 --> 0:22:11.000 so far, those tariffs have been done on WTWOL compliant basis. 0:22:11.359 --> 0:22:14.879 W two allows people to put up tariffs against import 0:22:14.920 --> 0:22:18.639 sorges like that, but it's disciplined and it's explained, and 0:22:18.640 --> 0:22:22.879 as a consequence, it rarely triggers cycles of retaliation. The 0:22:22.960 --> 0:22:25.960 second is the liberalizing part of it, and in fact, 0:22:26.000 --> 0:22:29.920 even since April second, we have seen, especially I mean 0:22:30.000 --> 0:22:34.800 with the UK, three major trade deals done in part 0:22:34.960 --> 0:22:37.320 because the ex borders who used to sell to the 0:22:37.400 --> 0:22:40.520 US are pushing their governments to get better access to 0:22:40.560 --> 0:22:44.160 other markets. So we're seeing things like the UK India deal, 0:22:44.200 --> 0:22:47.960 which was long long running thing, finally get closed because 0:22:47.960 --> 0:22:51.480 everybody wants to replace the US market. But again those 0:22:51.560 --> 0:22:54.560 are WTWOL compliant, So what we're seeing is more WTWOL 0:22:54.600 --> 0:22:59.920 compliant retaliation, more WTWOL compliant liberalization and we muddle through 0:23:00.080 --> 0:23:02.280 where the whole rest of the world at least pretends 0:23:02.720 --> 0:23:05.040 that they're following the rules, and that I think is 0:23:05.119 --> 0:23:08.600 most likely. The other one, which is a little scarier, 0:23:08.840 --> 0:23:11.919 is that we get these fighting trade blocks. And the 0:23:11.960 --> 0:23:15.720 trigger for that is already out there is China. The 0:23:16.040 --> 0:23:22.240 UK US deal promised indirectly and obliquely to cut China 0:23:22.359 --> 0:23:24.840