Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: We're going to bring the companies back. We're going to
Speaker 2: lower taxes so further for companies that are going to
Speaker 2: make their product in the USA. We're going to protect
Speaker 2: those companies with strong tariffs. Because I'm a believer in tariffs.
Speaker 2: I'm not sure that you are. I don't think you are,
Speaker 2: but I congratulate you in your career. But to me,
Speaker 2: the most beautiful word in the dictionary is tariff, and
Speaker 2: it's my favorite word. It needs a public relations.
Speaker 3: Firm.
Speaker 4: Welcome back to Vhotonomics, where politics and markets collide. This year,
Speaker 4: voters around the world have the ability to move markets, countries,
Speaker 4: and economies like never before, so we created this series
Speaker 4: to help you make sense of it all. I'm Stephanie
Speaker 4: Flanders joining you this week from the Bloomberg New Economy
Speaker 4: Forum in South Pawlin.
Speaker 1: I'm Adrian Waldridge and I'm Algra Stratton. And both Adrian
Speaker 1: and I are in the Less Glamorous London.
Speaker 4: So we started the show with that clip from former
Speaker 4: President Donald Trump's conversation with Bloomberg's editor in chief John
Speaker 4: Mickelthwaite at the Economic Club of Chicago last week. For
Speaker 4: about an hour, John asked Trump about his platform. They
Speaker 4: talked about taxes, immigration, but what they talked most about
Speaker 4: and obviously which made voter nomics excited, was tariff's And
Speaker 4: I guess it's not so surprising when, as you just heard,
Speaker 4: tariff is Trump's favorite word. I guess another surprise, Allegra
Speaker 4: and Adria was not just that, but the fact that
Speaker 4: there was so much support in the audience. This Chicago
Speaker 4: Economic Club members respectable business folk.
Speaker 3: You know.
Speaker 4: Some people have said that they must have packed the
Speaker 4: room the Trump people, and there were quite a lot
Speaker 4: of staffers there. But actually I think the main reason
Speaker 4: my colleagues who were sitting at tables during the event
Speaker 4: waiting for them to come on, said no, absolutely, these
Speaker 4: were These were regular, respected members of the Midwest business
Speaker 4: community who really like tariffs, even though most economists think
Speaker 4: that they're bad for business. So I thought it would
Speaker 4: be exciting for the three of us to get into
Speaker 4: whether we should be so surprised by all this. We're
Speaker 4: going to talk to a very distinguished economist about it,
Speaker 4: Danny Roderick, who's not so surprised, And we're going to
Speaker 4: have a chat with John Mickelthwaite about the event itself
Speaker 4: and what he took away from it. But Adrian, you
Speaker 4: think America's history provides part of the answer to this.
Speaker 5: Yeah, yeah, absolutely. I think America has always been a
Speaker 5: very pro tariff country, and I think a lot of
Speaker 5: British people, British free traders in particular, tend to think
Speaker 5: of America as being like a giant version of Britain
Speaker 5: and a giant free trading nation. And I think from
Speaker 5: the foundation of the country, from Alexander Hamilton's infant industry reports,
Speaker 5: America has relied on tariffs. It's relied on tariffs to
Speaker 5: raise revenue because the federal government wasn't allowed initially to
Speaker 5: raise taxes, and also on tariffs to sort of shape
Speaker 5: industrial policy to catch up with the United Kingdom at
Speaker 5: the time. And in particular, the Republican Party has been
Speaker 5: a very tariff focused party. The industrial Republicans have really
Speaker 5: relish tariffs as a way of keeping out British competition,
Speaker 5: Britain then being the most industrialized country in the world.
Speaker 5: One peculiar, rather unpleasant example of this is that during
Speaker 5: the Civil War, the economists had a great internal debate
Speaker 5: as to whether to support the North or the South.
Speaker 5: The Economists magazine, that is, whether to support the North
Speaker 5: or the South. And on the one hand, of the
Speaker 5: North was on the side of abolishing slavery, but on
Speaker 5: the other side, the South was in favor of free
Speaker 5: trade because they depended on trade in cotton, and the
Speaker 5: Economists rather unfortunately came out with the conclusion that free
Speaker 5: trade was a more important principle than abolishing slavery, so
Speaker 5: they decided for a while at least to endorse the South.
Speaker 5: So you get very counterintuitive things. And it's only really
Speaker 5: after nineteen forty five, when America is by far the
Speaker 5: most powerful country in the world that it embraces free
Speaker 5: trade and free trade because it doesn't really have any competition.
Speaker 5: So there is this muscle memory in the United States,
Speaker 5: particularly in the Midwest and particularly in the business community,
Speaker 5: of tariff's being really rather good American things.
Speaker 1: Can you imagine in the UK that being something that
Speaker 1: had a prime minister I will want to be would
Speaker 1: go out and say I'm going to do an hour's interview.
Speaker 1: A you can't imagine that, or not many of them,
Speaker 1: but then B that they would say this is going
Speaker 1: to be my news line, my news line is going
Speaker 1: to be, you know, tariff's the most beautiful world my
Speaker 1: favorite word. And then secondly, I think it really for
Speaker 1: me round home the United Kingdom and the debate in
Speaker 1: this country obviously understandably focused on the budget net week,
Speaker 1: but that we have not processed what the economics of
Speaker 1: the next American president might mean for the United Kingdom.
Speaker 4: You know, this thing that is quite boring. I mean,
Speaker 4: in general, tarifsts have been considered pretty boring. A bit
Speaker 4: of international trade has been very politically potent. There was
Speaker 4: a fantastic bit of research that David Ortor did, the
Speaker 4: economist who had also did a lot to put all
Speaker 4: of the information about the China shock to manufacturing workers
Speaker 4: on the map, and he's looked at whether or not
Speaker 4: the tariffs and the first Trump administration helped employment in
Speaker 4: those protected sectors, those bits of manufacturing, and in fact,
Speaker 4: it didn't sort of help or hurt in those sexes,
Speaker 4: and it definitely hurt in jobs, as you'd imagine, in
Speaker 4: the industries that found that their costs were much higher
Speaker 4: because these imports were now more expensive, whether it's on
Speaker 4: steel or other things. But even though it hadn't been
Speaker 4: economically successful, like it actually hadn't helped the groups it
Speaker 4: was supposed to help, and it had hurt other groups.
Speaker 4: It had been more politically successful. He'd gone to these
Speaker 4: counties and found that there were there were more tariffs,
Speaker 4: there was less support for Democrats, more support for Republicans.
Speaker 4: So you can see why he's continued down this road.
Speaker 5: One reason why America can afford to be pro tariffs,
Speaker 5: of course, is that it's a gigantic internal market. It's
Speaker 5: a huge America when it was hiding behind these tariffs,
Speaker 5: also had behind it the world's biggest market. And you know,
Speaker 5: Europe was absolutely crisscrossed with tiny countries and all of
Speaker 5: which had barriers to trade in tariffs. America was a
Speaker 5: free trading you know, subcontinent hiding behind barriers. The other
Speaker 5: thing about in the early twentieth century, the Republicans and
Speaker 5: the business community were a pro tariff community, but then
Speaker 5: there were a rising power that wasn't really central to
Speaker 5: the world economy. Now they are central to the world economy.
Speaker 5: So the implications of the world's most important country intertwined
Speaker 5: with the rest of the world institutionally and through commerce
Speaker 5: to tariffs is absolutely massive and massively negative. In a
Speaker 5: way that it wasn't historically.
Speaker 4: Yeah, and we'll get into some of that. We're going
Speaker 4: to talk to the Harvard professor, Danny Rodrick, Professor of
Speaker 4: International Political Economy at Harvard Kennedy School. But first we
Speaker 4: thought we should have a quick chat with the man himself,
Speaker 4: John Michaelthwaite. Let's have a reminder first of some of
Speaker 4: all that tariff talk in his interview.
Speaker 6: You're going to basically stop trade with China. You're talking
Speaker 6: about sixty percent trade on that, sixty perent tariffs on that.
Speaker 6: You're talking, as you said, one hundred two hundred percent
Speaker 6: or things you don't really like. You're also talking about
Speaker 6: twenty ten, twenty percent tariffs on the rest of the world.
Speaker 6: That is going to have a serious effect on the
Speaker 6: overall economy. And yes, you're going to find some people
Speaker 6: who were gained from individual tariffs. The overall effect could
Speaker 6: be massive.
Speaker 2: I agree, it's going to have a massive effect. Positive effect.
Speaker 2: It's going to be a positive Let me just no, no,
Speaker 2: let me get me committed. You are to this, and
Speaker 2: it must be hard for you. You know, spend twenty
Speaker 2: five years talking about tariffs has been negative and then
Speaker 2: have somebody explained to you that you're totally wrong. It
Speaker 2: will have a negative.
Speaker 3: It will have.
Speaker 6: If you don't forty million jobs. There's a lot of
Speaker 6: jobs to rely on. They're all coming back. What about
Speaker 6: consumers people out there, they're going to be the biggest critics. Say,
Speaker 6: your tariffs will end up being like a national sales
Speaker 6: tax because the country, if you have America at the moment,
Speaker 6: has three trillion dollars worth of imputs. You're going to
Speaker 6: add tariffs to every single one of them. That is
Speaker 6: going to push up the costs for all those people
Speaker 6: who want to buy foreign goods. Is just simple mathematics,
Speaker 6: President Trump.
Speaker 2: It's not. Yeah, it is, but that the way you've
Speaker 2: figured that was always very good in mathematics.
Speaker 6: Let me tell you.
Speaker 2: You're saying three trainia those companion dollars and they don't
Speaker 2: have to pay. And the higher the tariff, the more
Speaker 2: likely it is to have them come into.
Speaker 6: The higher the tariff, the more you're going to put
Speaker 6: on the value of that those goods, the higher people
Speaker 6: are going to pay in shops.
Speaker 4: John, thanks so much for joining us on voter nomics.
Speaker 4: You're here with me in South Paulo, where we're both
Speaker 4: interviewing some very exciting people. I have the US Trade
Speaker 4: Representative Catherine tie which I think will be Gates, and
Speaker 4: I think both of those will be quite different from
Speaker 4: your interview with the former President Trump. Now you've said
Speaker 4: you want the interview to stand on its own and
Speaker 4: not do commentary around it, and we're obviously going to
Speaker 4: respect that, but I did want to ask you whether
Speaker 4: you were surprised by the focus on tariffs and sort
Speaker 4: of whether it changed your understanding of how much that
Speaker 4: was going to drive his policy and might continue to
Speaker 4: shape our world if we do see Trump reelected.
Speaker 6: I've left the interview to stand there because I think
Speaker 6: what's important is what he said rather than particularly what
Speaker 6: I think that on the issue of tariff's. I think
Speaker 6: it was a surprise to many people just how clear
Speaker 6: he is about what he wants to do there, and
Speaker 6: I think it makes it quite difficult for people in
Speaker 6: the business community who've sat there saying, well, look, he
Speaker 6: isn't really going to do this, when I think it's
Speaker 6: one of his core beliefs. It's something that goes all
Speaker 6: the way back to his initial opposition to n after
Speaker 6: a long long time ago, when that was very unfashionable
Speaker 6: in the business community. And I think it's something that's
Speaker 6: actually a kind of key part of Donald Trump. And
Speaker 6: I think he feels frustrated that he wasn't able to
Speaker 6: do more in the first in the first term, and
Speaker 6: he's coming back in it. And you look at the
Speaker 6: region where we are, you know, Brazil, Brazil suddenly beginning
Speaker 6: to think about the European Union in a different light.
Speaker 6: You look at what's happening up in Mexico, the idea
Speaker 6: of one thousand percent tariffs landing on particular factories. These
Speaker 6: are things that could change the world fairly dramatically.
Speaker 4: Do you think we're exaggerating the difference between him and
Speaker 4: quite a lot of previous certainly Republican presidents. I mean,
Speaker 4: even in the eighties, you know, there has been often
Speaker 4: been a very transactional approach to trade, and one sided
Speaker 4: deals have been done. Pressure was put on Japan at
Speaker 4: key moments and everything else. I mean, if you were
Speaker 4: just looking at this through an America first lens, could
Speaker 4: an America first lens actually achieved quite a lot for
Speaker 4: the American economy.
Speaker 6: You can argue that it did a bit in the
Speaker 6: first term. Is that it didn't cause as much damage
Speaker 6: as some people thought, but it was just a lot smaller.
Speaker 6: I think it was on three hundred and sixty billion
Speaker 6: dollars worth of goods. Now he's aiming at the whole
Speaker 6: three trillion dollars of imports, which is a much bigger zone,
Speaker 6: I think, compared with previous efforts in this regard. Yes,
Speaker 6: America has always had had something of an industrial policy.
Speaker 6: You can remember the stuff about Japan in the nineteen eighties,
Speaker 6: you can see what they've done on chips more recently,
Speaker 6: and you can just take the basic attitude that there
Speaker 6: isn't a lot of There isn't that much difference between
Speaker 6: what has happened so far because Biden has hung on
Speaker 6: to most of Trunk's tariffs. I think the difference is
Speaker 6: now that he is massively expanding that front. I mean
Speaker 6: that there is a big difference between hitting three hundred
Speaker 6: and sixty billion dollars worth of goods and hitting three trillion.
Speaker 6: I mean that that is much larger. The sort of
Speaker 6: numbers he's implying he's going to do are much bigger.
Speaker 6: And the interesting question will be whether other countries kind
Speaker 6: of cave or whether they unite. Possibly against it.
Speaker 5: John's just said that that tariffs are much deeper in
Speaker 5: the Trump psyche than we perhaps had imagined. It's really
Speaker 5: a core for foundational belief for Trump, and I think
Speaker 5: you could also say that tariffs are much deeper in
Speaker 5: the American psyche than we'd often imagined. If you go
Speaker 5: back to Hamilton and the infant industry's arguments, you know,
Speaker 5: he based his entire text system on tariffs. The federal
Speaker 5: government couldn't tax, so it paid for itself by tariffs.
Speaker 5: You had very high tariffs protecting American industries all the
Speaker 5: way through the nineteenth century. So America's pro tariff country,
Speaker 5: particularly you know, in Chicago and places like that, and
Speaker 5: particularly with the Republican Party. But nevertheless, when you had
Speaker 5: Smooth Hawley coming in in nineteen thirty, which was an
Speaker 5: imposition of new tariffs, a large number of big new
Speaker 5: tariffs on top of already existing tariffs that plunged the
Speaker 5: world economy and the United States into a deeper depression.
Speaker 5: So even if you have a background of tariffs, if
Speaker 5: you exaggerate and increase that predilection, you can you know,
Speaker 5: two enormous damage. He does have a smooth All these
Speaker 5: sort of mindset.
Speaker 6: I mean, it's quite interesting that he is this time.
Speaker 6: You know, he would be taking on many of the
Speaker 6: bedrocks of kind of other people's economies, so German cars,
Speaker 6: that is a very big deal.
Speaker 1: You know.
Speaker 6: He boasted about how he persuaded Macron to kind of
Speaker 6: give in over things, but by mentioning champagne and wine.
Speaker 6: But there's some point where luxury goods. If he goes
Speaker 6: for that again, it's going to be difficult, and I
Speaker 6: think it does. You know, it is the danger you
Speaker 6: mentioned smooth Paulo. The danger of tariffs is that it
Speaker 6: begins to create a narrative, is that there is a
Speaker 6: limit to how much another country can quietly give in.
Speaker 6: I do think in America there are deep antecedents on this.
Speaker 6: As Adrian pointed out, the favorite word which I saw
Speaker 6: Howard Lutnik use on television was, you know, McKinley is
Speaker 6: the is the go to president for a lot of
Speaker 6: the Republican Party at the moment, because it provides a
Speaker 6: reason to say it won't be that bad. This is
Speaker 6: how it's a great strong American tradition, and there is
Speaker 6: you know, there is definitely an advantage in being America
Speaker 6: because the economy is so big, so I think it
Speaker 6: definitely could correct me. I think it's like twenty seven
Speaker 6: percent of the American economy is reliant on trade. I
Speaker 6: think other places it's much much higher because they're small.
Speaker 6: You know, you're Britain, I think you're twice that or
Speaker 6: totally one and a half times that. And the reason
Speaker 6: why is, you know, in Britain is a smaller place
Speaker 6: where you're almost bound to be importing the exporting things.
Speaker 4: Just a bit of Devil's advocate a bit. I mean,
Speaker 4: his view is that America being the biggest still the
Speaker 4: biggest kid on the block in these negotiations. You know,
Speaker 4: we didn't in your interview, didn't explicitly talk about retaliation.
Speaker 4: But of course a lot of the costs that we
Speaker 4: see for the US economy from this from having tariffs
Speaker 4: is the response that other countries would make. You know,
Speaker 4: that it would be harder for US country companies to export.
Speaker 4: So you might be helping some, you might be helping
Speaker 4: some import competing industries, but you would be damaging those exporters.
Speaker 4: I think his implicit line is, well, let them try,
Speaker 4: because we're big enough, we can threaten them with something else,
Speaker 4: we can cut them off swift or whatever it might be.
Speaker 4: You know, he's talking, he thinks everything's on the table,
Speaker 4: you know, short run, that's probably true, I think.
Speaker 6: I think also it's part of a narrative whereby he
Speaker 6: thinks that America has been hoodwinked, has been given everything away.
Speaker 6: Lutlik on the on the television was complaining about the
Speaker 6: Marshall Plan. You know, America is trying to do everything
Speaker 6: for everybody else and it's and again that slightly goes
Speaker 6: against history in the sense of, you know, you look
Speaker 6: at all these things like what happened with Japan, what
Speaker 6: happened with chips. Secondly, quite interestingly, and Faried Sigaria has
Speaker 6: made this point quite entertainingly. If you know, these people
Speaker 6: who think that America has sold itself down the river.
Speaker 6: By virtually every measure, the American economy has grown at
Speaker 6: the expense of the European one. So if the Europeans
Speaker 6: are doing something devious, they're not doing it very well.
Speaker 6: And the worry is that this actually could come back.
Speaker 6: You know, there is a point at which every politician
Speaker 6: cannot keep giving.
Speaker 1: In my reflection, to take two of your points. The
Speaker 1: one you just mentioned there around Trump thinking that you know,
Speaker 1: America's kind of been you know, bailing everyone out or
Speaker 1: whatever is around defense spending, and we've talked about it before,
Speaker 1: talk about it again. But we've got a budget coming
Speaker 1: next week where they may or may not get up
Speaker 1: to two point five percent on defense spending. But the
Speaker 1: question I have and lots of people have, is is
Speaker 1: it going to be enough for a possible second president Trump?
Speaker 1: And then the second point is the effect for Britain,
Speaker 1: an open economy, of being in the middle of what
Speaker 1: could end up being a trade war. We're having this
Speaker 1: debate about a set of fiscal numbers and budget that
Speaker 1: feels slightly like it's not even processed. The content of
Speaker 1: your interview last week, John.
Speaker 6: You could argue that no country in the world is
Speaker 6: kind of more exposed in some ways to trump Ism
Speaker 6: than Britain. In this way, because it is possible, or
Speaker 6: it would be very difficult, it's possible for the European
Speaker 6: Union to kind of unite around the idea that they
Speaker 6: also have a market and maybe they can do deals
Speaker 6: with countries like Brazil and Mercers or Africa. Then they
Speaker 6: can have a big enough, free enough market to get
Speaker 6: quite a lot of the benefits of free trade. In
Speaker 6: the same way as if America cuts itself off from
Speaker 6: the world, it can do fairly well. The one the
Speaker 6: one country Britain is, you know, possibly alongside places like Singapore,
Speaker 6: is very badly based on that because we were part
Speaker 6: of this big market where we could have been really
Speaker 6: quite that might even have worked somewhat in Britain's favor
Speaker 6: if we were still part of the European Union. Now
Speaker 6: it's much much harder.
Speaker 4: Well, the only thing I would say is I think
Speaker 4: the one thing that could protect the UK, which I
Speaker 4: agree is otherwise very vulnerable to a global trade war
Speaker 4: is the fact that Donald Trump does seem to see
Speaker 4: in his transactional approach he judges where the country has
Speaker 4: good trade policies by what the trade balances with the US,
Speaker 4: and we are one of very few countries that actually
Speaker 4: has a has a deficit with the US, so he
Speaker 4: may he may let the u UK off, whereas he's
Speaker 4: definitely you could tell from the interview he's got Europe
Speaker 4: in his sites, because there's there's a big, big surplus
Speaker 4: of a lot more goods coming in from Europe than
Speaker 4: going out to Europe. From the US John Mick, thank
Speaker 4: you very much.
Speaker 6: Thank you.
Speaker 4: Let's talk now to Danny Roderick. Danny is a widely
Speaker 4: respected economist Ford Foundation Professor of International Political Economy at
Speaker 4: the Kennedy School of Government at Harvard, also the author
Speaker 4: of many books on globalization, trade, and related subjects. Danny Roderick,
Speaker 4: thank you so much for joining us. We've just been
Speaker 4: hearing some of the snippets from our edister in chief's
Speaker 4: conversation with Donald Trump last week, which was surprisingly to
Speaker 4: some dominated by talk of tariffs, and it certainly I
Speaker 4: think brought home that interview how much the America First
Speaker 4: approach frames his way of looking at a lot of policy,
Speaker 4: and certainly international policy. And we hear a lot about
Speaker 4: how terrible that is and all the risks and downsides
Speaker 4: from sort of traditional economic standpoint. But I'm interested, given
Speaker 4: your record of being quite open minded and often critical
Speaker 4: of the mainstream approach to globalization and global integration, I
Speaker 4: just wondered where you thought that his approach might be
Speaker 4: getting it right, and whether protectionism more generally, you know,
Speaker 4: maybe has its place in a more balanced view of
Speaker 4: global integration.
Speaker 3: Yeah. Actually I don't think, you know, he's getting it right.
Speaker 3: It's not because I think tariffs are going to be
Speaker 3: tremendously costly. I think it's more because I think a
Speaker 3: strategy that focuses on tariffs is just going to miss
Speaker 3: the bigger picture, and it's just going to be frankier
Speaker 3: distraction from the agenda that does need to be pursued
Speaker 3: to revive of the middle class and create good jobs
Speaker 3: and strengthen the uran's economy. I don't think there's anything
Speaker 3: wrong per se with in a Matria first policy. I
Speaker 3: don't think there's anything wrong per se with economic nationalism.
Speaker 3: In fact, I think all elected governments are elected to
Speaker 3: advance the interests of their nation, the interests of their
Speaker 3: own national economies. When they do it right, actually they
Speaker 3: do a service not only do their own electorate, they
Speaker 3: do service for the world economy as a whole. I think,
Speaker 3: especially for an economy that's systemically as important as the
Speaker 3: United States, there's no creator gift that a US president
Speaker 3: can provide to the rest of the world than by
Speaker 3: generating a strong, thriving, innovative US economy. But I think
Speaker 3: the problem with tariffs is that it's just not the
Speaker 3: way to go about do that. And I can get
Speaker 3: into the details if you want, but I think the
Speaker 3: main point is that tariffs are a distraction.
Speaker 4: Well, I just just to follow up on that, because
Speaker 4: I saw you'd also written a piece about sort of
Speaker 4: being a bit more when you talk about countries moving
Speaker 4: in a more nationalistic direction economically and specifically policies, which
Speaker 4: are you know, we've sort of got used to thinking
Speaker 4: that a level playing field. We must be looking for
Speaker 4: a level playing field at all times, and then when
Speaker 4: countries introduce policies that seem to try and skew the
Speaker 4: playing field or are very supporting their producers over others,
Speaker 4: we've tended to always just condemn that as against free
Speaker 4: trade and against integration. But you suggested we should be
Speaker 4: more nuanced in the way we look at those kind
Speaker 4: of more nationalistic policies.
Speaker 3: I think all successful economic strategies are a mix of
Speaker 3: letting markets and private firms in their thing, and then
Speaker 3: governments giving them a little nudge here and there. Sometimes
Speaker 3: it takes a form of subsidizing them. Occasionally in the
Speaker 3: past is taking the form of trade restrictions. So I
Speaker 3: think we need to be open minded. I think the
Speaker 3: problem with just focusing on town first and foremost is
Speaker 3: that it just doesn't give the necessary note. You basically
Speaker 3: are just telling producers I'm going to allow you to
Speaker 3: raise prices, and generally speaking, if you allow them to
Speaker 3: raise prices, they might produce a little bit more so
Speaker 3: you might get a domestics supply response for those industries
Speaker 3: that will receive the trade protection. But there's nothing in
Speaker 3: tariffs per se that will get them to innovate, to
Speaker 3: create good jobs, to bring online the industries of the
Speaker 3: future and technologies of the future. Tariffs are okay as
Speaker 3: a temporary shield when you have a genuine industrial strategy
Speaker 3: or a genuine economic strategy that is targeting all the
Speaker 3: challenges of our day, whether it's good jobs or climate
Speaker 3: change or addressing the needs of lagging regions. But on
Speaker 3: their own, they're just a very instrument. They're lack essentially
Speaker 3: any power to achieve those ends.
Speaker 5: Danny Cauld ask you a little bit about about history,
Speaker 5: because I think the British in particular, but also the
Speaker 5: economic profession in general, tend to think of America historically
Speaker 5: as being like a big version of Britain, and they
Speaker 5: think if it's as being a free trading nation. But actually,
Speaker 5: surely tariffs have been central to American history, the free
Speaker 5: trading regimes relatively recent, and so if you saw the
Speaker 5: reaction to Trump's talking about tariffs, that hits something quite
Speaker 5: deep in the American psyche, doesn't it.
Speaker 3: I think that's right. I think it is good to
Speaker 3: bring in history. And it's true that America basically caught
Speaker 3: up and surpassed Britain the second half of the nineteenth
Speaker 3: century behind very high levels of tariffs. But if you
Speaker 3: looked at that experience and you thought it was just
Speaker 3: the tariffs that did it, you would really mess everything
Speaker 3: else that was taking place, whether it's the land grand colleges,
Speaker 3: whether it's the investment in public infrastructure, whether it was
Speaker 3: or the other encouragements to domestic industries that was taking place.
Speaker 3: They don't like to be doctrinaire about tariffs, and I
Speaker 3: do think that much of the discussion today about the
Speaker 3: cost of Trump's tarffs really paint a picture that sort
Speaker 3: of it's the worst possible outcome. I mean, I can
Speaker 3: give you a scenario where Trump's tariffs, let's say ten
Speaker 3: percent across the board tariffs on all imports could generate
Speaker 3: a catastrophe. But I sort of think it's unlikely that
Speaker 3: that's what will happen. I think again, what I worry
Speaker 3: about is that that becomes the US strategy.
Speaker 5: But just to repeat a historical point, you could easily
Speaker 5: argue that the Republican Party is essentially historically a protectionist party.
Speaker 5: It was a protectionist party in the late nineteenth century,
Speaker 5: it was a protectionist party in the nineteen twenties. There
Speaker 5: was an aberration with Reagan. But basically Trump is taking
Speaker 5: that party back to its roots, which is why the
Speaker 5: guys in Chicago were cheering him.
Speaker 3: That is true. So the Republicans were, of course the
Speaker 3: party of high tariffs because they were the party of business,
Speaker 3: and business were you know, trying to was trying to
Speaker 3: compete with Britain, which was of course the major economic
Speaker 3: power of the day. But there's another tradition in US
Speaker 3: economic history, which is actually a free trade tradition that
Speaker 3: comes from a somewhat different side. Historically, one of the
Speaker 3: most significant populist traditions was the one that rose to
Speaker 3: the four in the United States in the eighteen nineties
Speaker 3: with the US People's Party.
Speaker 5: Norman It's almost the great socialist presidential candidate. I think
Speaker 5: six times presidential candidate it was a free trader, and
Speaker 5: Cootel Holl of course is a free trade it's much
Speaker 5: more on the left, the free trading tradition and the
Speaker 5: rights much more protectionist.
Speaker 3: I think, you know. So there has been in the
Speaker 3: progressive tradition certainly a kind of a free trade, strong
Speaker 3: free trade stream, and part of it is as the
Speaker 3: US progressive believes that Tariff's high tariffs were actually a
Speaker 3: giveaway to the business. And that's why US progressives, for example,
Speaker 3: didn't like Taris because they thought there was a pro
Speaker 3: business it was a kind of it was a pro
Speaker 3: elite policy.
Speaker 5: So what I'm trying to get at is that Trump
Speaker 5: is not necessarily this great aberration for the Republican party.
Speaker 5: He's actually going back to quite a deep Republican business
Speaker 5: tradition of protectionism.
Speaker 3: Well, yes and no. But again, I think the US
Speaker 3: position in the world economy has changed so much that
Speaker 3: I think it's difficult to draw a very I think
Speaker 3: the reason that the US conservative establishment and the business
Speaker 3: established and became free trader after the Second World War
Speaker 3: was just the sense that the US economy was on
Speaker 3: top of the world, that their interests were going to
Speaker 3: be best served by free trade, So maybe going back
Speaker 3: to that tradition is also party that the US has
Speaker 3: lost ground that is balling behind.
Speaker 4: Denny, you've made a name over the years for pointing
Speaker 4: out the sort of inconvenient truths about international economics and
Speaker 4: highlighting when there were several objectives that we'd like to
Speaker 4: think we can achieve all at the same time, and
Speaker 4: you would say, no, you can only achieve two out
Speaker 4: of three. You talked about trilemmas. There was a very
Speaker 4: famous one more years ago about globalization, which I don't
Speaker 4: want to get into. But more recently you've highlighted that
Speaker 4: if we have countries like the US but also European
Speaker 4: Union it's now imposing tariffs on China other countries concerned
Speaker 4: about restoring the middle class in advanced economies, countries can't
Speaker 4: do that and combat climate change and still provide a
Speaker 4: sort of path to development for places like China but
Speaker 4: also other developing countries. You can't do all three of those,
Speaker 4: you've suggested, you could only do two out of the three.
Speaker 4: I just wondered if you could go into that a
Speaker 4: bit more, and I guess sort of highlight you know,
Speaker 4: if whatever we think about Donald Trump's policies. He's not
Speaker 4: alone in wanting to support and sort of re level
Speaker 4: the playing field in favor of advanced economies and to
Speaker 4: some extent protect the middle class from competition from developing countries.
Speaker 4: That's pretty damaging for the countries that have yet to develop.
Speaker 3: Yeah, I mean, I think there's there's there are two
Speaker 3: paths here. I mean one and the one that I
Speaker 3: worried about when I wrote about this new trilemma is
Speaker 3: that if we go down a path where we basically
Speaker 3: say the only way that we can lift up the
Speaker 3: middle class and address climate issues in the United States
Speaker 3: and Europe is through trade restrictions and through industrial policies
Speaker 3: that significantly discriminate against the rest of the world, then
Speaker 3: we're at the heart of that trilemma because we're going
Speaker 3: to really make it very difficult for the rest of
Speaker 3: the world, especially in low income countries, to access markets
Speaker 3: in the rich countries. And so that's essentially the core
Speaker 3: of the trilemma. The other path is to realize that,
Speaker 3: in fact, if you wanted to add resk climate change
Speaker 3: and restore the middle class, you know, trade restrictions and
Speaker 3: this communitary industrial policies is not really the way you
Speaker 3: would go about it. And so that's why I want
Speaker 3: to stress this is a trilemma that can be overcome
Speaker 3: if we manage to overcome two fetishes that we're having currently.
Speaker 3: One is a manufacturing fetish, the other is a kind
Speaker 3: of an overblown fear of China in the West. I
Speaker 3: think the manufacturing fetish shows up that in the idea
Speaker 3: that to create good jobs and show up the middle
Speaker 3: class you need protectionism. But of course there are very
Speaker 3: few jobs in manufacturing today. Around eight percent of full
Speaker 3: labor force in the United States are in manufacturing, and
Speaker 3: there's no way no amount of protectionism is going to
Speaker 3: make a huge amount of difference to that. So if
Speaker 3: you want to address the middle class, both in the
Speaker 3: United States and Europe, you have to pursue policies that
Speaker 3: are very different from trade policies or industrial policies that
Speaker 3: focus on manufacturing or high tech. And I think on
Speaker 3: climate change, there's no way you're going to address your
Speaker 3: climate change objectives without managing to allow developing countries to
Speaker 3: access the kinds of technologies and renewables and new kinds
Speaker 3: of investments that the US and Europe are trying to
Speaker 3: incentivize to their own industrial policy, so you'll have to
Speaker 3: facilitate that as well. So there is a trilemma on
Speaker 3: the path that we're on. But it's in many ways
Speaker 3: it's kind of a false trialams it's driven by a
Speaker 3: kind of a false consciousness of manufacturing fetishism, an excessive
Speaker 3: concern about China, which sort of is driving is in
Speaker 3: fact a large part of this economic nationalism.
Speaker 4: I can't imagine, given the sort of tone of the conversation,
Speaker 4: what would have happened if our editor in chief had
Speaker 4: accused Donald Trump of having a manufacturing fetish I think
Speaker 4: the conversation could have done a whole different direction. And
Speaker 4: I know you're particularly interested in the climate agenda. I
Speaker 4: wonder what you thought of well.
Speaker 1: I mean, the thing that we discussed in the hey
Speaker 1: was something called the carbon border adjustment mechanisms. So I
Speaker 1: think you can do two of your three, which is essentially,
Speaker 1: if you make the import of goods that have relied
Speaker 1: on that appear to be cheap, that's because you've not
Speaker 1: priced carbon. If you make them more expensive, then you
Speaker 1: can then make more competitive goods that could be made
Speaker 1: within the United Kingdom, and so you create jobs and
Speaker 1: so on. So you can see that two of your
Speaker 1: three have been hit. In that way, you have reduced
Speaker 1: the amount of carbon that's being imported, and you have
Speaker 1: also beefed up the number of jobs that you're making
Speaker 1: within in our case the United Kingdom, but it's relevant
Speaker 1: for lots of different countries. What you're then needing to
Speaker 1: do to be able to try and get anywhere close
Speaker 1: to the third you know, lever or the third leg
Speaker 1: of the trilema or lemma of the trial memor or
Speaker 1: whatever we call it is. You're then having to think
Speaker 1: about how you use either the aid budget or other
Speaker 1: levers to support the international community, as you say, with
Speaker 1: their transition to lower carbon technology. Some of the wealthier
Speaker 1: developing nations will do it without needing the support of
Speaker 1: rich nations because they're getting very rich themselves, but some
Speaker 1: of them will not be able to When you have
Speaker 1: what we have seen occasionally in the United Kingdom, which
Speaker 1: is this kind of worry about the eight budget being
Speaker 1: too generous and so on, that becomes difficult.
Speaker 3: But I think that's a great example of both in
Speaker 3: the trial eva under our current path and the mist opportunity.
Speaker 3: In terms of the alternative path I presented the mist
Speaker 3: opportunity here is that the carbon border adjustment mechanism is
Speaker 3: actually raising revenue for the EU, and the point of
Speaker 3: the adjustment mechanism was not to generate revenue, was to
Speaker 3: actually protect domestic industries. So why not use that revenue
Speaker 3: to rebate them directly to the countries exporting countries that
Speaker 3: will be harmed by these higher border tariffs and essentially
Speaker 3: providing an immediate plank between these revenues and incentivizing them
Speaker 3: through this transfer of the rebates of these revenues that
Speaker 3: you are being countries to incentivize them to engage in
Speaker 3: investments in renewrmal.
Speaker 1: I suppose Professor Roderick, because one of the things that
Speaker 1: particular when we think about it with the United Kingdom
Speaker 1: hat on, and this is true some European countries, is
Speaker 1: that those countries electorates don't feel very rich. We're about
Speaker 1: to have a budget in the UK next week which
Speaker 1: will be fraud and it is not obvious how they
Speaker 1: can raise money in a way that is not painful
Speaker 1: to some part of the electorate. So even though you know,
Speaker 1: compared to developing nations and so on, it's you know,
Speaker 1: in the United Kingdom, population is comfortable it's a fraud
Speaker 1: public debate.
Speaker 3: And clearly in the UK has A has a bigger
Speaker 3: problem here because of I think an artificial sense of
Speaker 3: the pytical constraint. But for certainly the EU is something
Speaker 3: could have done that because the revenues were not a
Speaker 3: big part of the consideration in putting in in phasing
Speaker 3: in the border adjustment mechanism.
Speaker 4: Daniel Rodgers, that was fantastic. I think we could have
Speaker 4: carried on a lot long and gone back into more
Speaker 4: of your analysis over the years of all these things,
Speaker 4: which has often predicted some of these debates, although I
Speaker 4: guess you probably didn't exactly predict Donald Trump, but certainly
Speaker 4: you predicted some of the tensions that produced him. But
Speaker 4: thanks very much, thank you, thank you, thanks for listening
Speaker 4: to this week's vogion Nomics from Bloomberg. This episode was
Speaker 4: hosted by me Stephanie Flanders in South Paulo, with help
Speaker 4: from Adrian Waldridge and alegra Stratton. It was produced by
Speaker 4: some of Sadie, with production support from Isabella Ward and
Speaker 4: sound design by Moses and special thanks to John Mickelthwaite
Speaker 4: and Professor Danny Rodrick. Please subscribe, rate and review highly
Speaker 4: this podcast, wherever you listen to it,