Sir Niall Ferguson decodes Trump, China, and the new world order

0:00How would you characterize this new Trump doctrine? If you just follow the more bombastic things that the administration does, laying claim to Canada, Greenland, the Panama Canal, you think it's American empire. But inside the Oval Office, their real preoccupation is with the weakness of the American position. We've heard it again and again from members of the administration that there's going to be pain. To go full tariff man, to close the southern border, those things will have meaningful costs for American households. And so by the end of the year, even more people than currently will be saying, what do we vote for?

0:38How does that reduce the room for maneuver to execute on the strategy, right? Does it constrain them at all? He can course correct. He likes to open really strongly. That's all in the arts of the deal. See what the other side does. And if it doesn't really go anywhere, he's perfectly capable of declaring victory or claiming a win and retreating. How do you read China at this moment? anybody who bets against Chinese STEM is likely to lose their bet over a 10-year time horizon. The problem is that you're also making a bet on the CCP's ability to manage Chinese economic policy and national security.

1:15I think that the harsh reality is that despite the mood music coming out of Beijing, they still have a problem that is deflationary, that the property sector is very hard for them to fix, and they may say they're going to have a 5 % growth target. I just don't think they're going to do it. The degree to which the Chinese have been misbehaving around Taiwan has increased dramatically. I mean, it could be a real issue. President Trump could at some point be faced with the dilemma. Do you accept a quiet Chinese takeover of Taiwan or do you risk World War III? Now, the discussion today is the$120 trillion question.

1:54US, China and the new world order. And I'm really happy to be speaking to the renowned historian and author, Sir Neil Ferguson. He is the Milbank family senior fellow at the Hoover Institution and one of the world's foremost geopolitical analysts. Neil, it's great to have you here. Very good to be with you. Let's start with perhaps the most fundamental question. How would you characterize this new Trump doctrine? Is it a coherent strategy or is it more a guiding direction which is going to be delivered by a series of reactive measures. Well, I quite deliberately teed myself up with an allusion back to the Nixon administration, because I do think that there's something going on there, which is being missed by most analysts.

2:42If you just follow the more bombastic things that the administration does, laying claim to Canada, laying claim to Greenland, laying claim to the Panama Canal, you think to yourself, it's American empire. This is as shocking as it's been since William McKinley was president. And the administration wants you to think that. And that's part of the reason for trolling everybody on issues like Canada and Greenland and the Panama Canal. But inside the Oval Office, and I think we begin to see this, their real preoccupation is with the weakness of the American position. And there's a belief, I don't think it's right across the administration, but it's certainly in the president's inner circle that they have to reduce commitments in Europe, stop sending money and weapons to Ukraine, reduce commitments in the Middle East, reduce your presence in Syria and Iraq in order to focus on China, because China's the other superpower, and China's a formidable antagonist.

3:40So that does remind me of Nixon. And part of what we see here is what Nixon did in 71, which is shock the allies. He's going to shock the Europeans and you also shock your Asian allies by saying things like, we're going to put tariffs on you and we might do something with the dollar. And you guys have to pay for your own defense. That was all out of Nixon's playbook. And I do think Trump has a debt to Nixon that doesn't get nearly enough recognition. They had a relationship back in the 80s and it was Nixon who encouraged Trump to think of politics. So this is not just something I'm making up. You have an advantage on me in having obviously written books on this subject and you spent the whole day reading old telephone transcripts from Henry Kissinger after he had first gone to China in the 70s.

4:23So, you know, advantage, Neil, at this point. There's another part, though, of the vernacular that comes out, and I agree we should look below the bluster, which is the sense of that America and American lives in the middle and the working classes have been deeply hollowed out by what most of us call the Washington consensus. Is that part of the driving force, Or is this really more of a question of a strategic competition with China? Well, I don't think there's any doubt that the president has thought since the 1980s that you need to do a couple of things to reduce the impact of foreign competition on American livelihoods, and particularly middle class and working class livelihoods.

5:07One of them is he put up tariffs. He's been out of consensus on this issue for close to half a century. and the other is that you force everybody else to take care of their insecurity and you stopped subsidizing it by providing umbrellas to other powers so i think that's right and i think when we're trying to understand what comes up next week when a whole bunch of new tariffs are going to be imposed on american trading partners you have to understand that trump believes that tariffs aren't just a source of revenue that he doesn't think that they will help to re-industrialize america and to reduce the trade deficit, which he regards as a sign of weakness.

5:43And Trump has this very unorthodox economic theory. An enormous trade deficit will somehow subsidize the rest of the world. And if you're paying a significantly bigger share of the NATO budget than, say, the Germans, then you're subsidizing them too. And actually, on the second point, he's right. So that's part of it. But, Azim, I think the really important idea that's at work here is the reverse Nixon theory. that people close to the president occasionally talk about. And that's the idea that by being very nice to President Putin over Ukraine, you are going to peel him away from Xi Jinping and try and drive a wedge between the Russians and the Chinese.

6:24And the reason people say reverse Nixon is that they're thinking of that moment in 71, 72, where Nixon and Kissinger got into touch with Zhou Enlai and Mao Zedong. Nixon went to China in 72. to that was the big moment when suddenly the Soviets woke up and realized that the U.S. was closer to China than they were. And I think the idea here, it helps explain why they appear to be so inexplicably nice to Putin, why they seem to be ready to throw Volodymyr Zelensky and Ukraine under the bus, is they're trying to get into a closer relationship with Russia and peel Putin away from Xi Jinping. That's the most Nixonian thing about this administration strategy.

7:07and I want to just, you know, spoiler alert, I don't think it's going to work. Yeah, I don't think that would work as well, partly because Russia is quite a weak player in some sense. It's weak economically. It's in a way, whatever's happening on the ground in Ukraine, it's rather on the back foot. I mean, it has to go back and rebuild itself and think again about how it should leverage power and exert that power. And it's quite a long journey. But there is the obvious point about Europe. I mean, I found myself agreeing with J.D. Vance, the vice president, in that signal chat. They're a very, very simple analogy.

7:43Now, I live in North London. I have lovely neighbors. We talk a lot. But ultimately, my wife and I are responsible for the security of our home. We don't expect our neighbors to run the CCTV and the burglar alarms and maintain the fences. There is something quite odd about how for 30 years, the Europeans have ignored every warning that's come out of successive American administrations about looking after their own security. What's the psychology behind that? Well, first of all, I'd be really careful about saying you agree with J.D. Vance in Hampstead because your neighbors will be far less friendly towards you if you go around saying that.

8:19This administration is making itself very unpopular very fast in Western Europe, in the UK, in liberal America. So when you're agreeing with J.D. Vance, you need to take... Well, I just agree with that one little point, which is, you know, Europe has just not risen to the challenge over 20 years. And when I was in Davos in January, the mood around Europe was absolutely funereal. You'd run into people in the street and they'd say, the mood around Europe is terrible. It's like being at a wake. And we're just six weeks later and I see European leaders stepping up, giving each other support, taking really proactive steps to rearm, rebuild, re-energize the continent.

8:57And there's a different feeling, courtesy, I think, of the shock, the shock doctrine that has emerged out of Washington, D.C. But the question is whether that sense can be maintained and we can start to address 30 years of underinvestment. But I think the thing that I've struggled with a little bit is what was the internal political motivation for decades not to do that? Didn't it just seem unfair to expect your major ally to shoulder the burden? Well, it actually went back much further than that. Even in the 1960s, Americans, including Kissinger, were complaining about the unevenness of the burden sharing.

9:35And this was a recurrent theme right the way through into the Obama administration. And it was a theme in Trump One, the first series, just as it is now. And to answer your first question, why did this go on for so long? The answer is because every president from Nixon down to Obama did nothing really beyond say, please do more. They didn't actually apply any pressure to the Europeans. And the Europeans realized that they had a peace dividend that was being paid annually from the minute the Soviet Union collapsed. So the defense budgets went down well below 2 % of GDP in the majority of NATO countries.

10:14Now, Trump discovered that if you actually get serious and apply pressure and make it seem like you might withdraw from NATO, you got the Europeans' attention. And I think it's important for us to give Trump and Vance credit where it's due. In the space of two weeks, with the most obvious example being Vance's speech at the Munich Security Council. But the encounter with Zelensky in the Oval Office was equally important. In just two weeks, they completely worked the Europeans up in a way that no president has been able to do since the 1960s. And in that sense, he's making Europe great again. There's no question about that.

10:54And he's addressing this longstanding American grievance. The European defense projects were already going up, a majority above 2%. But what's really interesting here, Azeem, is that the Germans are now seriously going to invest hundreds of billions of euros in defence and infrastructure. And at the same time, at the European Union level, the commission is going to launch some multi-billion dollar fund for European-wide rearmament. So that's a win for Trump, and it's a meaningful win, but it's also a win for Europe. I did an interview for Dietzite last week, and I said, You know, you all hate him, but this is actually really good for you.

11:32And you're going to one day have to acknowledge that Trump did you a solid because the German economy is going to benefit hugely from rearmament. But it took Trump to convince the Germans they had to do it because Trump credibly seems to question the future of NATO and therefore the future of Article 5, the all for one, one for all clause. So this is very transformative of the European scene. And it also illustrates, last point, always bet against the Davos consensus. I was there too. And my perception was the same as yours. European business leaders wandering around saying everything is terrible.

12:08If only we could have Trump, if only we could have Musk. And I said, in that case, I'm short US, long Europe, because the Davos consensus is always wrong. And if you had simply taken my advice back there coming out of Davos and gone long European stocks, short US equities, you'd have done very well. and you'd have been right. Always trust Neil. I would say that from my perspective, seeing the startup community, it's become electrified. It's become electrified in areas of hard technology, defense tech, AI that can be used in that way. There is a deep, deep motivation. And a lot of this was building over the last two or three years anyway, just a sense that Europe can do much more technologically than it has.

12:50I think the interesting thing is that it's also provided a lifeline in a sense for industrial Germany. All of those VW factories that were soon to be empty because all the cars are coming from BYD will turn into Rheinmetall factories at some point and they will produce useful material for that eastern flank. Then I got a little bit confused though in the last couple of weeks and I got confused when these big carrier strike groups which have been the pride of the US military for decades and I speak as an avid fan of Top Gun and Top Gun Maverick both of which I have rewatched in the last month. I'm just curious about why keeping the Red Sea open matters to the United States under the new Trump doctrine.

13:31Oh, it's not hard to figure that out because thanks to the generosity of Mike Waltz, the National Security Advisor, in inviting my friend Jeffrey Goldberg into his chat group, we know. And we know exactly why he and Pete Hegseth, the Defense Secretary, wanted to do those strikes against the Houthis, not particularly because of trade in the Red Sea, because of the need to reestablish deterrence, number one, and to send the Iranians a signal, number two. And so I think this is perfectly reasonable in the sense that the Biden administration was very bad at deterrence. It was really a group of law school educated people advising the president that if anything bad happened, you should de-escalate above all else, de-escalate.

14:17And de-escalation turns out to be the functional opposite of deterrence. If you de-escalate in Afghanistan by handing it to the Taliban, Putin will decide, hey, I can take Ukraine at low cost. And if you try to de-escalate there, then the Iranians will say, hmm, we can do whatever we like in the Middle East. These people aren't serious. So I think the Trump administration, at least some of the more hawkish elements within it, want to re-establish deterrence. And there's nothing like precision missile strikes. This has been true since the 1980s, to remind everybody that when the sheriff is around, you are actually quite vulnerable.

14:52The Iranian point, though, is the more important one. What is coming, I think, this half of the year is that the Iranians are going to say at some point, no, we won't just give up our nuclear weapons program as you, President Trump, want us to. And at that point, the Trump administration will say to the Israelis, okay, go ahead and do what you can do to the Iranian nuclear facilities and will kind of not participate, but kind of will participate to make sure that you get the job done. And is that why we've got all these B2 spirits sitting in Diego Garcia right now? Because those aren't the cheapest planes to move around and keep ready.

15:34Yes. So I think we should assume that the reckoning is impending for Iran. My friend Ron Derma, the minister closest to Prime Minister Netanyahu who's just been in Washington. I think his main message will be, we can't wait indefinitely. We've got to do this while the Iranians don't really have much in the way of an air defense. So I think there's going to be some quite meaningful action there. And then the US is simply going to leave and the troops will leave Syria and Iraq and the Middle East will be far less a preoccupation of this administration than has been true of any administration in the last 50 years.

16:10Right. So there's a sort of a push. And then we see this sort of, I guess it's a kind of a Neo-Monroe style pullback to the most relevant borders, which will be certainly in the Asia-Pacific and to some extent yet to be seen. Well, I think there are three groups within the Trump administration, at least three different theories of this, as is often the case of US administrations are complex things. and there are at least two, if not three, foreign policy theories in any given administration. There's the maximalist position, which is quite well represented in the National Security Council, which is we're up against an axis of authoritarians, China, Russia, Iran, North Korea, and we can't give them an inch anywhere, not in Ukraine, not in the Middle East, not in the Far East.

16:53The middle position is, yeah, that's right, but we can't possibly do all of this at once, we better focus on China. And that would be, I guess, Bridge Colby and others. And then the people who think it's Monroe Doctrine, let's go back to the 19th century and just do our hemisphere and just leave everything else to others. That, Stephen Miller in the White House, I think it's J.G. Vance, the vice president, they are the people who really want to focus on the Western hemisphere. That's why in the now famous chat group on Signal, it's Vance who says, why the hell are we doing this? I don't even think we should be bothered to do this because who cares about the Houthis anyway?

17:35He loses the argument, of course, interestingly. Okay. So I want to ask one more question about the US before we turn to the other superpower, which is, you know, we've got April the 2nd, Tariffs Day, Liberation Day, whatever it's going to be called by the journalists. And the noise is maybe it's going to be 20 % broad tariffs on the EU. I mean, this is obviously going to create a lot of pain for a lot of people. But I'm curious about whether the US economy can weather it. You know, you're going to see prices rise. You've already got consumer and business uncertainty. So reducing spending and investment, you may have another half a million federal employees joining the unemployment lines, spending less as well.

18:15I mean, that's quite significant even for a powerful economy. So can Can the economy, whether that, does that start to temper the ability to execute on the plan? Well, in the last few months, we've gone from the euphoric vibe shift that followed the election to everybody throwing up on Wall Street. And this 180 degree shift seems worthy of some scrutiny. Net negative, for sure, if you do tariffs to the extent that Trump may next week, you could take the average American tariff rate back to where it was in 1937. And I don't know about the 670 people listening to us right now, but I don't think of the 1930s as a particularly great time for the global economy.

19:03So I think that's clearly going to be negative. It's certainly going to impose meaningful costs on American businesses and consumers. It's highly disruptive, particularly if one thinks of the automobile tariffs as they impact the North American supply chains. Very, very seriously costly. And if it's costly for Americans, it's even more costly for their trading partners because the trading partners are by and large more exposed to trade. So this is bad. Hard to see any real upside to this. At the same time, you've mentioned it, the cuts that are happening in the federal government are going to have at least some impacts on the economy.

19:39Unemployed people tend not to spend more money. And then missed something out, which is really important. And that is the closing of the southern border. Why did we not have a recession in 2023? What happened to that? All the economists predicted it. It didn't happen. Well, one reason it didn't happen was 6 % of GDP deficit all the way. And the other reason is that 8 million people were added to the labor supply through illegal immigrants. And that's over. I mean, the southern border is essentially closed. And so the positive labor supply shock has gone, that will be a headwind to growth for sure.

20:15On the other side, deregulation coming for sure. No taxes going back up. The tax cuts from 2017 are going to be extended. So it's not all negative. But I think I'm in agreement with the economists at Goldman and Morgan Stanley. If you do the arithmetic, it's clearly going to be a significant decline in growth this year, possibly recession, though I think that's not the base case. And so by the end of the year, even more people than currently are will be saying, what do we vote for? This is more painful than we had been led to expect. Because of course, if you think back to the first Trump administration, it was actually economically pretty beneficial for the average American household.

20:57That's because Trump didn't go full tariff man. Trump was very much constrained in his first term on every major policy domain. But this time, after four years in the wilderness, the MAGA gang have a plan. And that plan is to go full tariff man and also to close the southern border. And those things will have meaningful costs for American households that they weren't expecting to have to pay when they voted for Trump. Well, we've heard it again and again from members of the administration. Scott Besant has said it and others have said it, that there's going to be pain. And I guess just as a brief thought, how does that reduce the room for maneuver to execute on the strategy, right?

21:40To what extent does displeasure turn into the administration feeling they can't do all the things they want to do? Obviously, the midterms are still a while away. Does it constrain them at all? Or is this something that you think, knowing them, that they'll just push through? Well, I think we've already seen the way in which even a 10 % stock market drawdown sends Scott and Kevin Hassett into the TV studios to reassure markets that actually the tariffs are going to be just a transactional temporary thing. I'm not sure Trump is bothered by 10 % stock market decline. I think 20 % might get his attention.

22:21It did in late 2018. But then he just piled the pressure on the Fed and said it was on Jay Powell to cut rates. So I think this second Trump administration is going to be much harder to blow off course, not least because there are fewer elements inside the administration that are actively hostile to this agenda. And at the moment, the obvious sources of opposition, say Senate Republicans with more mainstream views on trade and national security, they're very quiet, very quiet indeed. They'll get louder if things look like they're going badly wrong economically. And at some point, the dread word midterm will be heard.

22:59And people will start pointing out that if this thing doesn't turn around in time, then Republicans will lose at least one of the chambers of Congress. So American politics is still running in a normal way, despite what you might think if you follow it in the Guardian newspaper or MPO. Absolutely, yeah. It's pretty shocking out here. But yes, as you say, the wheels are still turning. And the Supreme Court has already fired the first shot across Trump's bows. They're going to get some wins, I suspect, in the courts, but they will also be handed some defeats. So the other thing I'd add is that the administration is still taking shape.

23:35The whole process of confirming nominees is so extraordinarily protracted that there are plenty of key jobs that haven't yet been filled. There'll be some turnover. He's Trump. He's going to fire somebody at some point this year. And that, too, will have its consequences. So the one thing you know about Trump from his first presidency is that he can course correct. He likes to open really strongly. That's all in the art of the deal. See what the other side does. And if it doesn't really go anywhere, he's perfectly capable of declaring victory or claiming a win and retreating. I mean, think how the trade talks went with China last time around.

24:15Was that a great big, beautiful deal? No, it wasn't. It was a really bad second rate phase one trade deal, which the Chinese didn't even honor. So I think we should be prepared for trade negotiations after April 2nd, after Liberation Day, i.e. Tariff Mageddon. And in those negotiations, I don't think the major counterparties will give that much ground. And then at some point, the administration will have to declare victory to avoid really severely adverse economic consequences. Wonderful. Right. So that's America. That's the first half of Chimerica. I'll summarize what we just talked about here, which is there is going to be sort of forward momentum to use tariffs as a mechanism to strengthen America's trading position or bargaining position rather than trading position.

25:01we should expect there to be at some point a winding back of some of these global commitments and that the administration probably feels it's willing to take the pain and can take the pain to get to the other side but that other side might involve some sort of consensus reconciliation but we don't quite know when now we also started our discussion you were recounting reading about sort of Kissinger's trip to show and lie about 50 years ago back then the world was completely different. The US was 45, 50 % of the global economy. China was a couple of percentage points. And here we are, America at about 25%, China approaching 19 or 20%.

25:43So we are in a very, very different world. So let's talk a little bit about China. From where I sit, I think China is a little bit understudied and underrepresented in the dialogue. And one of the things I thought would happen a few years ago was that the export controls and the diffusion controls that were as they became around chips and advanced technology probably wouldn't work. They would probably trigger innovation and invention in China. I think we've started to see that happen. You've just come back from Asia. How do you read China at this moment in all of this and what are we not seeing about it?

26:20Well, I think the big takeaways from my trip last week were that the The Chinese are feeling their strength in not only artificial intelligence, DeepSeek was a big win, but it's just part of a success story. And also in electric vehicles, where the only question that I heard asked was, well, who will the other two Chinese companies be that share total global dominance of automobiles with BYD? Let me just say something about BYD, actually, just for the audience. I mean, it's just past$100 billion in revenue. Obviously, the cars are cheaper than Tesla's, but they are selling a lot of vehicles. I've just seen the first BYDs in North London in the last six months.