196. Will Low Income Voters Ever Turn On Trump?

0:00We are living in an era of massive risks to our security, whether it's Putin, North Korea or Iran. When you add on to this, this kind of economic warfare, it becomes harder to broker peace. He's not playing four-dimensional chess. He's playing darts with a javelin. All he's doing is just destroying the board and causing danger to everybody around him. None of it makes any sense.

0:38Deine ersten Order-Provisionen bis 500 Euro. FlatEx. Besser richtig handeln. Investieren birgt Verlustrisiken. Bedingungen gelten externe Kostenfallen an.

1:08consequences of Mr. Trump. Now, this is a conscience reference that he's making to a polemic written by, you know, certainly the greatest economist of the 20th century, John Maynard Keynes. It's not a reference to his astonishingly influential economic consequences of the peace, which warned that we were heading for another world war because of the punitive action that the victorious nations in the First World War were taking against Germany. It's a reference to a second polemic that Keynes wrote called the economic consequences of Mr. Churchill. And in that attack on Mr. Churchill, Keynes said that the return to the gold standard in 1925 would have terrible economic consequences.

1:58And he was absolutely right. It led to recession and strikes and all the rest of it. So what Phil Coggan is arguing in his polemic is that we are heading for disaster as a result of Donald Trump's policies, in particular his tariffs. So this is going to be an absolutely gripping conversation in which we unpick the damage that Donald Trump is doing to all our prosperity. Philip, you're somebody who's followed markets forever. Are you surprised since Trump imposed his tariffs that the market shock has been less than one might have expected? Yes, I suppose initially we did have this huge shock where we had a fall in stocks, bonds and the dollar, which was very reminiscent of the LizTrust mini-budget where everything sold off.

2:57And then, of course, a week after he imposed the initial round of tariffs, the president postponed many of them. And then we had talk of the taco trade that Trump always chickens out. I think at the moment we have seen a weakening in the U.S. economy. So in the first half of the year, it grew about 1.2 percent annualized. Last year, it grew 2.8 percent. We had those employment numbers, which will probably come to, which showed a great slowing in the amount of jobs being created. We have the crackdown in immigration, which means a US labor force only grew in recent years because of immigration.

3:28That means the labor force can't grow. We have a services sector purchasing managers index out yesterday, which showed us balance between expansion and contraction and services is usually the faster growing bit. So there are plenty of signs of weakness. And I think now as to the markets, I think on the markets, we need to remember that the US stock market, The top 10 companies are 40 % of the value of the US stock markets, and they are a third of all the profits. And they are investing incredibly heavily in data centers for AI. $375 billion this year. That's up 64%, I think, on the previous year.

4:07So this is a phenomenal boom akin to the telecoms boom in the late 1990s. That's driving their profits. that's creating a lot of hope that we're entering some sort of new era, which I am dubious about, but it's not impossible. And so that's offsetting what Trump is doing. But without that, I think we would be in grave danger of not perhaps a deep recession, but of the economy sputtering to a halt. In terms of the response of other countries, it is quite striking that no major economy, with the exception really of China, has stood up and, you know, seriously criticised the tariff policy. Most of them have essentially tried to negotiate lower rates.

4:57Are you surprised that after decades of free trade, boosting global growth, that no world leader has really prepared to take Trump on? Well, the one that had a chance was the EU. And of course, the EU is divided on it, and they couldn't agree a common position. But most economists would tell you that that's a sensible thing to do. If your neighbor decides to put rocks in his harbor, why put rocks in yours? Do we really want European consumers to pay more for their Cokes or their Teslas or their iPhones? No, we don't. So why should we impose taxes on our own businesses and consumers, which is what Trump has done to his businesses and consumers?

5:38China is a much stronger position. It doesn't have the defensive links with the US that Europe or the UK does. Yes, it is a little embarrassing to see the British bulldog turned into a King Charles Spaniel. But, you know, the UK has got away with a lower tariff rate than the EU. So you could say maybe that was a sensible approach. I think the danger is that this is not the end of the process. We've seen just in recent weeks a 50 % tariff on Brazil because they are prosecuting their former president for trying to overthrow the government. Sensitive subject, obviously, for Mr. Trump. And we've seen the threatened higher tariffs on Canada because they dared to recognize a Palestinian state.

6:23So there's plenty of scope in the next three and a half years for Mr. Trump to take offense at what other countries do and impose other tariffs for political reasons. Is there no argument ever, in your view, for tariffs? I mean, there have been plenty of economists who have made, I would argue, credible arguments that when an economy is developing, you might want to protect your industries in that early fragile phase with tariffs or other means of protection. Plainly, America is not a young, fragile economy in that sense. But presumably, you don't take the view that there are no circumstances in which tariffs make sense.

7:05No, I don't. And of course, both the UK and the US did impose tariffs in their early eras of development. Only after Britain became a dominant economic power that had adopted free trade. And the same for the US. But as you say, this is not the case with the US at the moment. And there are arguments for tariffs in strategic areas. defence, for example, or semiconductors. So one interesting point is that Biden stopped the export of some semiconductors to China because he was worried about the technology spreading to China. Mr. Trump has now dropped those barriers to those exports. Now, you could say, what is the kernel of truth, as Peter Mandelson referred to in Mr.

7:46Trump's policy, and it is that China does not play fair in international trade and does not treat foreign companies equally. So one approach he could have done was to try and unite the rest of the world to try and sort of bully China into line. But of course, he didn't do that. He has put tariffs on pretty much all the world's countries. And India is an interesting example of a counterweight to China, the biggest population in the world, economy growing very fast. And he's just threatened them with extra tariffs, rather than get them on side as a strategic counterweight to China. If I'm honest with you, I don't fully understand his sort of what you might call geopolitical thinking there because you'd probably want India very much as an ally in a political sense.

8:30That said, I think I do have some sympathy with Trump's mooted punitive tariffs on India if it doesn't stop essentially laundering Russian oil? Well, again, if you're saying that the thrust of his strategy is to try and isolate Russia, then that's not been what's happening the last six months, has it? No, it hasn't. But nonetheless, he has recently said that he would punish India for buying Russian oil and arguably selling some of it on at a profit, as it were, not just for its own use. And it seems to me if you want to isolate Russia, and it doesn't seem to me that's completely irrational, aim, I agree, not consistent with everything that Trump has done since becoming president.

9:19Nonetheless, imposing punitive tariffs on those who essentially support the Russian economy isn't necessarily a bad thing. No, but let's see if he follows through in a consistent way, because obviously, if you do try and isolate Russia, you have to do it consistently across the globe. He's threatened tariffs on Russia first after 50 days and then after 10 or 12 days, which that period expires just after this podcast is being recorded, I'm sceptical that he will follow through on those threats because he hasn't followed through on the threats against Russia in the past. I think the trouble with all this is what people call sane washing, trying to create some sort of structured narrative to what Mr.

10:00Trump has been doing. And I don't think you can do that. He's not playing four-dimensional chess. He's playing darts with a javelin. All he's doing is just destroying the board and causing danger to everybody around him. None of it makes any sense. So to give another example of not making sense, in the end of June, he stopped putting sanctions on Syria to try and support the Syrian state's recovery. On July the 31st, he imposed 41 percent tariffs on Syria, the second highest in the world. he has 15 % tariffs on Japanese cars and 50 % tariffs on the aluminium and the steel that US manufacturers need to make their cars and again this is another problem 45 % of what US imports are raw materials and components that go into what the US makes so when you put tariffs on you increase your domestic manufacturers costs manufacturing employment has fallen in the US since he took office and the big auto companies are all reporting hits to their profits from what he's done.

11:00I mean, I'm genuinely not here to make the case for the renewal of mercantilism and Mr. Trump's protectionism. But we do have to look at the economic consequences in some detail. We've seen, for example, the enormous Taiwanese chip manufacturer saying that it will create manufacturing plant in America. Mr. Trump says it's a 500, I think, billion deal. I think they say it's a couple of hundred billion. Either way, it's still a serious amount of money. But you are sceptical that this new manufacturing capacity, some of it very much at the high-tech end, will compensate for effectively the consumer taxes that tariff, and indeed the business taxes that tariffs represent.

11:51Well, it takes years to build these factories. It costs a lot of money. Let's see if they are actually built by the time that Mr. Trump leaves office and possibly some of these tariffs are reversed. That's a trouble. The construction itself will have positive economic. Yes, absolutely. But that would be offset by the impact of all the other things he's doing to slow the US economy. I think we need to remember that the advisor to Trump said, we're changing the focus of economic policy from making it efficient to making it fair and balanced in terms of trade. Now, efficient is code word for economic growth.

12:26And if you make it less efficient, then you're likely to grow your economy less quickly. that means fewer jobs for American workers and, as we've already mentioned, higher prices on some products for them. So, yes, there may be the odd offsetting impact, but the overall effect of his policy is negative. Two weeks ago on this podcast, you were arguing that Britain should have much higher, much stronger trading links with the EU because that would automatically upgrade the forecasts and avoid some of the fiscal squeeze that UK faces. And you're absolutely right then, and it's absolutely right too, to say that putting extra barriers on trade as the US is doing is likely to slow the economy, not just in the US, but in the world.

13:11So let's look at that. There's a dizzying number of different tariff rates that Trump has imposed, But the economists who specialize in this sort of thing say that the average rate is now 17, 18 percent. And that is what's higher than the tariffs the world has faced since the 1930s. And actually, there are some who think these are higher than the so-called American Smoot-Hawley tariffs of that period. Now, that era of protectionism was associated with a global recession that not only caused terrible social consequences, hugely high unemployment, but many would argue was associated with the kind of tensions between countries that took us into the Second World War.

14:12Do you think that because, frankly, largely of what we learned from Keynes and how to use fiscal policy, monetary policy to avoid recessions, this slows the global economy, but it isn't Armageddon in the way that tariffs in the 1930s were? No, I think most economic historians would say that tariffs in the 1930s had an impact, but the main problem was the collapse of the banking system and the failure of the central banks to respond to it in the way that they did after 2008. Because back then, banks were allowed to go bust and banks did not create money at the opportune moment. Right. Back in the 1930s.

14:57I mean, let's be absolutely clear. In Germany, rather too much money was created. Well, that was the 1920s, of course. But no, there were in Germany in the 1930s, the banking collapse contributed to the rise of Hitler. And yes, you do. I mean, after the Second World War. But it followed the hyperinflation. Yes, it did. After the Second World War, the US took the fantastically wise and farsighted decision to change policy. It had martial aid to help the economies in Western Europe. And it started the General Agreement on tariffs and trade to try and lower these. Very much under the influence, again, of Keynes.

15:30Of Keynes, yes, absolutely. Sadly died in 1946. But then we've had pretty much 80 years of lowering barriers. We've had an enormous expansion of global trade, 45-fold in volume since the end of the Second World War, and the bringing in to the global economy of many places like China, India, after the 1990. and this has taken over a billion people out of poverty and this is now being reversed and the US was the leader of that policy and that soft power that the US had is being negated not just by the terrorists but of course by Trump's other policies such as threatening to annex Greenland or the Panama Canal or incorporate Canada or not to follow through on his NATO commitment So I agree with you that I'm not sure that we're heading for a world war, but I agree with you that we are heading for a much less certain era when the US, as I say, the benign power that other countries were happy to follow the lead of.

16:33That's no longer the case. Philip, we're only halfway through this argument, so we're going to take a quick break, but we'll be back in a minute. The striking thing is how long it takes for economic reality, as it were, to translate into changes of political allegiance. There's data out at the moment which shows that the living standards of those on higher incomes in America are growing significantly faster than those on lower incomes. And if you look at the impact of the one big, beautiful now act, massive tax cuts, again, that is likely to widen that inequality. That again, the bulk of the gains will go to those on higher earnings.

17:30And yet, although there's been a bit of a dip in Trump's popularity, most of that seems more retributable to his refusal to publish the Epstein files than the fact that people at the moment are blaming him for the fact that their incomes aren't rising in the way they'd like. Right. Well, I think this is that you've got to the heart of the Trump's appeal, which is that he appeals to people who feel that their living standards have not risen in the last 30 or 40 years. And he blames this on globalization. But the US has is massively less equal than most European economies. The top 10 % of wealthy Americans own 79 % of the wealth in America, that's 16 percentage points higher than the share of any in any other nation in the OECD.

18:20It's also less equal in income than the vast majority of other OECD nations. All those other nations deal with globalization, just like the US. So it's not globalization that's caused that widening. It's not globalization that means that the US has no federally mandated holiday or sick leave or maternity pay, or that the US has weaker unemployment benefits for people than those in Europe. That's all domestic US policy. And so this is, I think it was Dominic Cummings who used to talk about throwing the dead cat on the table to distract from other issues. This is the dead cat. Globalisation, immigration is the dead cat to distract voters from the fact that a long series of policies of largely Republican politicians have made the US a less equal place.

19:11And tackling globalisation is not the answer. But the question, I guess, is at what point, if ever, do voters on lower incomes look past the dead cat and say, actually, this is Mr. Trump who's damaging us? I don't know. The one great problem is that voters on lower incomes don't vote as regularly as voters on higher incomes. And of course, they don't contribute to campaigns in the same way. So you have U.S. senators or whatever who are raising money from the rich all the time. So they're naturally more influenced by the rich. It's interesting that Mamdani in New York is, you know, running for mayor on a policy of much more left wing populist.

19:54And perhaps the next era will be left wing populism rather than right wing populism. And then we'll have other things to worry about in the markets, possibly. It's difficult for left wing populists to do as well because of the way the media is structured, I think. And so it will take probably some big rise in US unemployment or some bad thing happening to the US economy, really bad thing happening to the US economy, which none of us want for those left wing populists to come to power in the US. Possibly in Europe, it will happen in another way. The problem with this kind of economic nationalism that we are seeing is that it progressively undermines the solidarity of nations.

20:38We are living in a time where we are seeing, whether it's Putin, whether it's North Korea or Iran or many aspects of what China wishes in terms of its expansion, probable invasion of Taiwan at some point. We are living in an era of massive risks to our security. When you add on to this, this kind of economic warfare, it becomes harder, I would argue, to broker peace. I think you're quite right. And the worry is, as I say, that the US was the leader. We other nations quite happily bowed to its sort of cultural and financial leadership because it did provide the security and because it seemed to provide an example of a well-functioning democracy.

21:34No longer does it provide that example when you have a president re-elected after he tried to overturn the outcome of a previous election. And the world got by because there were security guarantees from the US to other nations. And you mentioned Taiwan. He's just imposed higher tariffs on Taiwan. Do we really think that the US would defend Taiwan against a Chinese invasion? And as you already mentioned, Taiwan does make the most sophisticated computer chips in the world. So we could easily see a situation where China invades Taiwan and that supply of chips is temporarily disrupted. Yes, there are a lot of things to worry about.

22:15We are safer with kind of boring leaders in charge than we are with ones who are incredibly hyperactive. because, you know, it's a cliche, but businesses, consumers prefer stability and they do not like uncertainty. And one of the reasons I wrote the book is the sheer chaos of policy in the last few months. We've seen tariffs up, we've seen tariffs down, we've seen them suspended, we've seen them imposed on some products and not others and then reimposed. This is no way to run the world's largest economy and nor can other countries rely on Mr. Trump's word. His first deal was with Canada and Mexico in 2017.

22:53Those were the countries he instantly started to penalise for bizarre reasons as soon as he got back into office. And for the next three and a half years, I think we are doomed to face this kind of uncertainty. And all sorts of things, geopolitical as well as economic, may result from that. You're right. Is the rest of the world right, in a way, to be an enabler of Trump? We've just seen the president of Switzerland jet over to Washington to beg them not to introduce, I think it's 39 % tariffs on Switzerland. We've got a British prime minister who goes out of his way to be friendly with Mr. Trump and not to criticise.

23:34We've got the European Union desperately trying to get on the right side of Mr. Trump. The issue seems to me to go broader than tariffs, right? If at no point does any leader stand up and say, this is not the way to run the world, broadly, we are just inexorably going to descend into chaos, the kind of chaos that could lead us into the kind of global conflict we all want to avoid. Yes, I think, though, most leaders are looking for what I call a unicorn, and a unicorn is an unimportant concession to resolve negotiations. So we saw in Japan where this fund that was going to invest in the US was announced, even though the Japanese said they didn't really recognize any of the details.

24:20The EU said it would invest 600 billion euros in the US has no power to make companies do that. And there's no timeline for it. You know, if the UK wants to give the British Open to Turnberry as a way of keeping him happy, then. Of course, you know, these concessions are massively exaggerated by Trump. And as you say, there may be a slightly magical quality to some of them. But even so, the message to the world is Trump has the power and the world has changed. Very few leaders are prepared to stand up and essentially make the case against Trumpy and Kale. Mark Carney did in Canada. Friedrich Mertz did initially when he got elected in Germany.

25:02it's very difficult to get everybody to act together because it's a kind of prisoner's dilemma problem where you think that you might get the best deal if you don't act with everybody else. Which is why we are on a road to sales. Yeah, but other countries can do deals between each other. US is not as important in world trade as it is economically. So the EU could do a deal with Latin America. I think that's being held up by the French at the moment, the Mercosur Agreement. We could make traders free between each other as we can. Which is something I've argued for months and it's not happening fast enough.

25:33Absolutely. You're quite right. And we should do that. And we should bang the drum for freer trade. I think the great difficulty with standing up to Trump is that that causes him to impose extra tariffs on you. And it's most countries have decided that it's not worth the hassle. And maybe that's the tactically right decision. And maybe he'll get distracted. But strategically, I would argue it's not the right decision. Right. But we are what we are. We are, we are. And that is why I wrote the book. The economic consequences of Mr. Trump are not good. They are weighing on the US and the global economy.

26:08And we have not found a way of dealing with him. And that's a problem for the next three and a half years of his rule. And who knows, could be longer. On that note, Philip, as always, very good to see you. And that's it for this edition of The Rest is Money. Goodbye.