391. Trump vs. the World: Global Trade War

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1:35Welcome to a Restless Politics live stream with me, Alistair Campbell. With me, Rory Stewart, an unbelievably consequential day, Alistair. I think had over to you just for a little bit of a framing introduction. But this, I mean, we often do these emergency podcasts and there have been some big days that we've done. We've done, you know, Liss Trust's resignation. We've done big stuff with Donald Trump. But I think in terms of actual real world economic impact, we're dealing with something which is on a completely different level. We haven't seen anything like this for decades. Anyway, have you?

2:15Yeah, well, actually, our colleague, Anthony Scaramucci, I think my tweet of the day, it said, Donald Trump is Liss Trust. I guess that was referring to the pretty catastrophic impact of his stuff on the on the markets around the world. But just to start with the scale of this, I mean, you're in Ohio, I'm in Paris and I don't know about where you are, but the front pages here are absolutely rammed with pictures of Trump and stories about Trump in the reaction. And, you know, if we go about to an interview, we did recently with Michael Wolfe, the author who's written four books about Trump. And he said the way to understand Donald Trump is to understand he's never really stopped being a reality TV star.

2:58And this was like, this was heaven for Donald Trump. He had literally every president in the world, every prime minister in the world, every finance minister in the world, every major media organization in the world, every business in the world, hanging on his every word as he went through this bizarre show in the rose garden of the White House, going country by country with these looking like a sort of bookmaker and a race course with his little his cardboard graphite that have been given to him by his commerce secretary. But you talk about making the weather, or I mean, you know, I often say that one of the absolute keys to strategy and driving changes to make the weather, he has made the weather.

3:43And I think you could tell you could tell when he got bored and he was sort of going off the off the script, but it was almost like I felt it was like half economic statement, half rally, supporters from around the country mixed in with the cabinet, the executive order signing that he loves that he almost almost forgot. But it's now just before I don't have you caught up in the newsroom, just before we started this livestream, China has announced 30 % plus tariffs in response. So this is the kind of global trade war that people have been trying to prevent, but he is from his perspective, it's a war of choice.

4:19Yeah. So we'll get on to the economic implications, which are beyond staggering. I mean, I've been talking to Ken Rogoff, who very big Harvard economist, I've been, you know, what's happening back and forth with you, care economists, I've been speaking to my great hero, Demetri Grozubinsky, who wrote this book of why politicians lie about trade, talking to our friend Felix Marson about this. And the answer is that the implications this people aren't even beginning to be able to model. I mean, it's this thing is so much bigger than anybody's really done for almost a hundred years that the macroeconomic models are really struggling.

5:03You know, people will say, and we'll get on to this, you know, people will say Chinese exports to US will drop by 80 % and the Chinese economy will contract by X percent, but there are so many complicated third -four order implications. But let's just stick on the politics for a second, because I think you're absolutely right. That's that's core to it. So there's your point, which is reality TV spectacle. There's the second point, which is that it's about the exercise of power. So we've often said that politicians in the modern world feel a bit powerless, because as you and I know, often when you're in government, you want to do something and somebody says, well, I'm afraid that's not legal or there's a treaty or, you know, you've got a consult with this out the other.

5:48So in the case of tariffs in the past, when Trump tried this last time round, and this is in Wolf's book, Cohen, who says economic advice, says to him, to change this tariff with Canada, takes a hundred and eighty days and requires congressional approval. Trump has found, thanks to these project 2025 people, partly, that he's got an emergency power, which was really designed to be triggered in the case of war, where if the existential security of the United States is threatened, a president can take immediate economic action. And this has been interpreted to mean he can just put tariffs up no longer with a hundred and eighty days, no longer with congressional consultation.

6:28So that's number one. He's got this lovely lever that he can pull whenever he wants. And the second thing is the point that you've made is that it then forces everybody to come groveling to him, because he also has the sole power to change that lever. And there are two sorts of people who he now hopes are going to come groveling to him. Other countries. So he's hoping that some small nation will defy him, in which case, you know, he may well cooperate with goodness knows what Russia to punish the country for defying him. And other countries are going to come running to him immediately. In order to make a deal, you can see Trump's son, for example, Eric Trump tweeted out yesterday, I've seen this movie before, you know, the first person to make a deal will get the best deal.

7:18The last one in line will get a rubbish deal. But as Chris Murphy, the the the Connecticut politician has pointed out, it's also a brilliant way of making American businesses come on Bendet needs to him. So every American CEO in the world will now be queuing up outside his office saying, listen, I'm running an American car company. I'm completely dependent on, you know, this particular critical mineral, which comes in from China. Can you please make an exemption on that? Or this is how my supply chain works in Canada, Mexico. Can you just do a little carve out? And he then has the sort of sunking ability to say, okay, for you, sir, and presumably, along with that extraordinary opportunities for corruption, because one of the one of the the things that happens if you put a president, particularly a president who's very interested in making money, then it's very surrounded by business people in charge of making these decisions.

8:16And this is one of the reasons why people believed in the real markets and free trade and development, because of course, if you go back to very protectionist places, we talked about India, and the last podcast, when India had a very protectionist regime in place, you know, famously the cars in India were not that great. They were 1940s British cars being produced, and they weren't importing. They had this sort of license range where politicians were able to kind of grant little permissions to local businesses to do little things, and it becomes an incredible source corruption. So that's the politics, any more in the politics.

8:49Well, just just the politics, as he has framed it. So he, as you say, he's essentially using mechanisms that are meant to apply for times of national crisis, national emergency, you think of war and so forth. The idea that America is in some kind of economic emergency, unemployment is at a near 50 year low, been around 4%, GDP growth in a world that's not growing very much is at 2 .4%, and they've got inflation back below 3%. But what part of his narrative is to say that the American economy is absolutely screwed, and the reason it's screwed is because we've allowed other countries and used the kind of gerbals type language of rape and pillage and, you know, the scavengers that have been feeding offers and so forth.

9:35But the other thing, there's a very enjoyable tweet from the Larry Summers, who's the Treasury Secretary, says this is to economics, what creationism is to biology, and astrology is to astronomy. And one really important thing, so America's big in services, all of his so -called mathematics on this focused on goods. And what they've done, he, say, he, when he, he had the sort of the cardboard cutout thing that Lucknik took up to him at the podium, and you have this thing, you know, reciprocal tariffs, country, China, blah blah blah blah, European, I see by the way that he called Taiwan a country, very interesting for the China one country policy there.

10:17But he goes down the thing, and what they've actually done is divide their trade deficit with an individual country by the imports, and then he says he's halved it. But there's nobody that, and I view that you were saying there about some of the economists that you've been, you've been talking to your, I had a look at the, the, the Peterson Institute for International Economics, have gathered a lot of economists who just give, give their views. I've just run through what are two, Adam S. Pozen, who's the president of the institute. This will not generate a fraction of the rise in employment. It will reduce you as companies share of global car sales.

10:57Marcus Nolan, this will contribute to slower growth, higher prices, greater unemployment, Kimberley -Clausing, these tariffs like any principal rational, they risk economic disaster fee, will harm American investment, good product production and growth. And so it goes on. But what he has done, and this is the, I guess you've got to say it's a kind of genius, and it is to some extent model, I think, on, on Pugin, because Pugin's operating it in a country that if you like, is more easily turned into the sort of dictatorship he has now. But he's using the same methods. It's industrial scale lying.

11:33It's industrial scale boasting, and it's just, and it's a show. And so I think that where the fight back, so the Chinese they've decided, they're going to just hit straight back with tariffs, they've done that. The European Union has got, they've talked about taking weeks and months to work out a properly thought through strategy, but I think it's going to be tough. The other big story in the French media today is Macron urging French investors not to invest in the United States. There'll be a lot of that going on. Well, let's just go back to that point that you're making about the formula. So there is a story, which has been, you know, I mean, it's not quite that Trump isn't drawing on something.

12:22Right. I mean, what he's done is unbelievably reckless, unbelievably damaging, and simply doesn't make sense on a global scale. But underneath it, on one of the reasons that it gets going, is there has been a longstanding anxiety in the United States about the fact that America runs these persistent trade substances. And this is particularly directed, for example, towards China. And the story is that China has artificially deflated its currency, and it has a whole series of hidden subsidies through state owned enterprises and cheap credit towards its labor force. And this has meant not just that American jobs have flooded to China, because they can't compete, but it's also meant a world in which an enormous amount of money has flowed into the United States, particularly into US Treasury bonds.

13:19And the result is that the American economy is flush and JD Vance gave a big speech on the summit, actually at Ohio State University, JD Vance's alma mater at the moment, saying that what this has meant is for people like him, so he's talking about people in, for example, blue collar, ex blue collar workers in Ohio around where I'm speaking now. What it's meant for them is that all this money flooding into the American economy has made the dollar too strong. And ultimately, this has meant not just that their factories are closing, but that they can't afford their houses. There's too much credit.

13:56The rich are getting richer, and the poor are stuck. So that's the sort of overall story that they're telling. Well, Roy, you just jumped in there. We talked about this when we talked about tariffs a few weeks ago. In the context of a lot of the people around Trump, essentially wanting a devaluation of the dollar, unable to argue for that in a kind of conventional way because the dollar remains the global reserve currency. But the one logic that might be applying here is a sense of creating all this chaos and disorder. And eventually, the dollar does kind of weaken. But that sounds like such a sort of strange long -term strategy.

14:37When we've had this sense of being obsessed about the dollar being strong in the past and also about the impact and the power of the stock market, both of those are being weakened. Exactly. So JD Vance was saying yesterday he doesn't care about the stock market. People at him don't care about the stock market. And in his most insanely optimistic world, somehow there is temporary chaos. The stock market goes up and down. And then eventually in the long term, America emerges into a world which is more balanced, more equal, where the dollars weaken, there's less credit and there's more manufacturing in the US.

15:17The problem is they're not going to get that. And sorry, well, there are two problems. Firstly, the way they've designed it doesn't actually work to do that. And secondly, they're very unlikely to get to the long term because in the short term, the market's, this is the point that my friend Felix makes, is they don't think about long term macroeconomic models. The markets price something today. So while Ken Rogoff and others are trying to work out the five, ten -year macroeconomic pictures, which of course they can't do. People will say this out the other about the Chinese economy, but we don't know because, as you say, just two hours before we came on air, China announced this 34 % reciprocal tariffs and then all your maths goes out the window.

16:03And then people think, well, maybe people are going to relocate to Vietnam. No, you can't relocate to Vietnam because you've been hit with over 40 % tariffs in Vietnam. And then you suddenly think, well, actually, it's not just about Chinese companies in China. It's also about Chinese companies in Vietnam, etc. etc. So the number of things you have to calculate to work out what the effects are unbelievable. Meanwhile, the market's panic. Much more likely in the short term for JD Vance and others is big collapse in the markets, collapse in the dollar. And then pretty quickly, we're likely to find inflation going up, interest rates going up, and the global economy slowing because the scale of it, and I think we existing 20 % add 34 % on top.

16:56That's 54 % tariffs. And many countries are getting up into the 40%. When you get up at that level, unless what you're selling is totally irreplaceable, and that's another problem because a lot of what China is selling, very, very difficult to substitute for. So the prices will pass through. So for example, copper processing, theoretically the idea is that, all this stuff moves the United States. But why is copper processing in China? It's because copper processing is very, very environmentally damaging. It's horrible stuff. It ends to endless slurry environmental devastation. We've outsourced these things to China because we don't want to do it at home.

17:38Many, many of the things that the United States is importing Americans may not want to work in those sectors. Do they want to run garment sweatshops? Do they want to compete with Bangladesh? Making t -shirts? Do they want to work in steel factories? But which sectors of the American economy is he trying to strengthen? Is it really the case that he imagines that America wants to everybody wants to go back on the factory floor and into mines? Well, the state that is most likely to get hit hard, particularly when the European Union decides to act in the way that it probably will, will be the services sector.

18:15And especially I think these tech companies, and they're going to either because Europe has shown it so willing already to take on some of the tech giants. And the service sector is massive for the states. Just on China, or somebody came to university academic, or Yostin Haugler. I don't know if you can see this, but he posted this, can you see that? Yeah, he posted this graphic. And so that is a map where America is blue and China is red. And it is which country and Africa trades more with America blue, China red. That's in 2003. And that is today. And the only two left where America is head of China is Lusoto and Swaziland.

19:00And I think Lusoto is up in the 90s. What he's got against Lusoto. Maybe it's just the fact that they've got lots of diamonds there. I don't know. Well, can I just do just Lusoto for a second because I think it's a really interesting example. You made this point that there's a universal formula. Initially, people were very surprised. They looked at Lusoto and they said, how come Lusoto is being hit so hard with tariffs from the United States? And I had somebody say to me yesterday, it's because Elon Musk wants to launch Starlings from Lusoto. He's South African. He understands the suit. Very well nonsense.

19:35Right. Turns out that you're exactly right. That if you reverse engineer the calculations, it's purely the relationship between the trade surplus of the country, the volume of exports divided by two. And that's how you produce the numbers for every country in the world. Which means that it's nothing to do with actually trying to analyze. Is this currency too much depreciated? Are the words state or denta prices are the unfair practices which are disadvantaged in American companies? It's just universal. And when you get to Lusoto, why has it been hit so hard? Well, the Lusoto is a very poor country, one of the poorest countries in the world.

20:15It imports about seven million from the United States and it exports about 200 million to the United States. But those exports to the United States are primarily things like diamonds, which are not produced in the United States. And it's not importing very much to the United States presumably because it's a relatively low -income country. Now, how does this when pan out? Well, nobody is concentrating on this very much because Lusoto is a tiny part of the global economy. But in a country like Lusoto, most of the revenue for the government doesn't come from income tax and very poor countries. People don't really pay income tax.

20:52Most people don't pay income tax. It comes from taxes on things like diamond exports from those raw materials. If you suddenly take out the exports to the US, which is about 10 % of the Lusoto economy, but a much higher proportion of the government revenue, you suddenly take all the tax revenue that keeps your health service going, keeps your education service going, your services collapse, and of course your service in quite a lot of debt already if you're a poor country in Africa and you kind of forge a debt. Now, normally what would you do? You would go to USAID or DFID for a bailout, except the American aid agency has had all its money cut, differed as had its money cut.

21:32So then you go to the World Bank or the IMF. Unfortunately, World Bank and IMF don't have any money at the moment and they will now be dealing with multiple crises across 60 or 70 developing countries triggered by Trump's new tariffs. So poverty, health outcomes, all the stuff that we've been talking about recently with Atal Kawande on malaria HIV AIDS, but just basic delivery of clinic services will collapse because the last thing remaining for these countries, and you'll remember that one of the great clichés that my Tory colleagues always did is trade not aid. And we heard a little bit of this from the Trump administration.

22:10We're going to cut the handouts and we're going to allow their economies to grow through hard work through open trade. Well, he's just destroyed the trade element now. So it's neither trade nor aid and that means poverty. But the fact that when he was going through country by country and it's worth remembering as well, this is one of, as you say, this is an unbelievably consequential global economic event. I'd love to know how much insider trading was going on because this was this was going to be moving markets in every single part of the world and indeed it did. And you had a lupnik, excuse me, wandering around that cardboard thing.

22:46I mean, there is there in the front again, day two still in the front pages. That cardboard thing. I mean, that presumably was lying around the White House and people could take pictures of it and tell their mates and so forth. But the level of economic illiteracy that you have to have in order to buy into this is frankly stunning. So for example, lupnik who he kept telling it, but Trump keeps telling is a lupnik is unbelievably clever and a brilliant commerce secretary and he's been all over television saying that just because the prices of foreign goods coming in go up, that won't necessarily mean that any prices will go up when they're applied by domestic American producers, but they're in competition.

23:32So if the overseas price is going to go up, the overseas producers have to pay their tariffs and up the price goes, then there's going to become a bigger gap and prices will go up in the domestic market as well. And the other thing, they keep saying that this won't, this way I can tell you in America you've got a siren going by. They obviously won't France, by the way, Europe is very peaceful as you know. But the other point they keep making is that this won't affect every day American goods that people rely on. And somebody who's pointing out to me that coffee, Americans like their coffee, okay.

24:08But apart from a tiny, tiny, tiny bit of coffee that gets made in Hawaii, that's it. Like was where are they going to grow their bananas? They like their bananas, right? Where they're going to grow their bananas? So they're sort of they're trying to persuade people that this is not going to affect the kind of you know, the the Magda people who you know keep what they're as part of the audience saying how Trump's going to save their jobs and save their livelihoods. He's the other thing that I'm noticing on social media is that people are getting obsessed with jokes, you know, he's imposed tariffs on an island composed of penguins.

24:47But we've got to step back and look at global growth and markets, which is what makes this probably the most damaging extreme thing that we've seen in so many decades. So global growth, really important to understand that China is the world's largest manufacturer, the world's largest exporter that a US China trade is enormous. And that China controls 85 % of the world's supply of critical minerals and rare earths, China dominates various industries, you know, for example solar panels, that China is in almost every component in every manufactured item. It's these intermediate, you know, bolt number 36 will be made in China, even if the ultimate product is made in Canada, Mexico or the United States.

25:43And so putting 54 % tariffs on China shifts the whole global economy very, very quickly. And it's not good. Even if we can't quantify exactly how bad it is, it is definitely very, very bad. Second thing, markets. Over the last 10 years, the US markets, US stock market has absolutely dominated the world. And a 70 % now of all international investment goes into the US markets. If you're somebody listening who has an index fund, or AJ Bell or Vanguard, 70 % of your investments, if you've got a global portfolio will be in the United States. So he has just taken a sledgehammer to market confidence in the United States.

26:32And US stocks will start falling. And this will have enormous global ramifications because it's 70 % of the global markets. It's been the safest thing for a decade. It isn't any longer. So then we begin to look at financial crisis, you know, 2008 financial crisis, 1990s financial crisis. And there we have the bigger problem. Because during the 1990s, you had Larry Summers, who you just quoted, right at the heart of the response. 2008, you had people like Hank Paulson as part of the response. In other words, you had an idea that the United States was able to have these very, very smart people, very experienced who were able to form international coalitions, reassure markets, provide credit where credit needed to be produced in order to bail out the world's financial system.

27:21But the US is weaker relatively than it was then. There is not the sense that in Trump's top team, there's that type of quality and most importantly, there isn't the trust. The idea that Trump can now credibly propose himself as leading an international coalition in the way that the US was able to work with Gordon Brown in 2008 is unimaginable. So we'll just have a triple problem. Global markets financial confidence. Yeah. Couple of things direct response to that. So just to give you one of the big, big stories in La Fiehre. This was yesterday, let me see that. Allotone, les européens, le para pas, they've been speaking to European diplomats based at NATO saying they're finally beginning to say, look, let's stop pretending that we can have any sort of really serious durable alliance with this administration.