May 28, 2025 • 33 mins
Framed as a tool to protect American workers, rebalance trade and revive the nation’s domestic industry, the tariffs levied by Donald Trump came with a promise of bold results. On this episode of Trumponomics, Richard Baldwin, professor of international economics at IMD Business School, says the trade war is unlikely to accomplish its stated goals and that the world may very well leave America behind.
Imposed unilaterally and outside the guardrails of the World Trade Organization, the president’s tariffs represent a sharp break from decades of US policy. Baldwin, author of The Great Trade Hack: How Trump’s Trade War Fails and Global Trade Moves On, tells host Stephanie Flanders, Bloomberg’s head of Economics and Government, that the levies weren’t about reciprocity or even results. Instead, they are about “grievance.”
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:16):
I'm Sevany Flanders, head of Government and Economics at Bloomberg,
and welcome to Trumpponomics, the podcast that looks at the
economic world of Donald Trump, how he's already shaped the
global economy, and what on earth is going to happen next.
And this week we have something slightly different, a conversation
with Richard Baldwin about his new book, The Great Trade Hack,
(00:37):
How Trump's Trade War Fails and the World moves on.
Richard is a professor of international economics at the IMD
Business School. Financial Times once called him one of the
most important thinkers in this era of global disruption, and
listeners to previous iterations of this podcast might even remember
that we've talked to him before as one of the
people who has researched and written most deeply about the
(01:00):
changing nature of globalization and trade. And his latest book,
an e book published by the Center for Economic Policy Research,
as you gather from that title, turns its hand to
what Donald Trump is doing or not doing to the
world of international trade and what it means for all
of us. As an economist. Richards joining the long list
(01:23):
of economists who believe the protectionism of the Trump administration
is not going to fulfill its objectives. But I think
what's distinctive is he also delves into the political economy
of trumpnomics to explain why it will still continue, and
then also thinks about how the rest of the world
will engage or should engage with the US as it's
(01:45):
part of this grand Trumpnomic experiment, all of which did
seem like it was worth a conversation, and I should
say probably full disclosure. The other reason we're doing this
is so we could record it today Friday, twenty third
of May, ahead of the holiday weekend in the UK
and the US, and ahead of me getting off on
a week's holiday. Richard, thank you very much for joining us.
(02:15):
It's a great title. What's the Great Trade Hack?
Speaker 1 (02:18):
Thanks for having me, Stephanie. The hack is what Trump
did on April second. That was an historic moment. It
wasn't an attempt to revise or reform or negotiate. It
was an attempt to break through the firewall of the
world trading system and disrupt the way it runs with
(02:39):
tariffs that were big, bold and everywhere at once, violating
most wtwo rules in one fell swoop with everybody, breaking
every trade agreement the US had ever made with anybody anytime.
This wasn't your normal trade war. It looked a lot
more like a war on trade. And that's why I
think of it as a hack rather than a beginning
(03:01):
of a war or a reform or an effort. It
was really one man trying to hack the system.
Speaker 2 (03:07):
What are you trying to get across? Intellectually and as
an academic, when you talk about a hack, I.
Speaker 1 (03:12):
Think it's important to distinguish this from other things, for instance,
anything to do with the dispute between US and China.
And also it's entirely different than what he was doing
between his inauguration and April second. Those were piecemeal tariffs,
totally in the line of the kind of thinking that
many countries get. They're unfair. I'm going to put tariffs on,
(03:36):
then we're going to negotiate. We'll come to a better deal.
This thing was completely different. He's trying to change the
way the world works in terms of fair and reciprocal
trade in his own mind and reverse the victimhood that
he believes, and he's at least selling politically that the
US is facing.
Speaker 2 (03:55):
You talk about the grievance doctrine? What explains this policy?
We've heard a lot about grievances from him, but briefly,
what are you thinking about that?
Speaker 1 (04:04):
Well, I think many economists around the world and political
scientists slapped their heads when they saw this thing. Is like,
what is he trying to do? And then it goes
up and it goes down, and there's this and is
that all? It looks like he's negotiating himself. It looks
kind of crazy, It looks chaotic. When I was looking
for some sort of coherence. If you read the introduction
(04:26):
to the US Trade Agenda Report for twenty twenty five,
he pretty much lays out this grievance doctrine, which has
an origin story of America used to play by the
rules and they got played. They were ripped off by
globalist elite abroad and globalist traders at home, and it
(04:47):
was the middle class who paid the price. And what
Trump was doing on April second was payback. So it's
like that uncomfortable uncle. You sometimes have a family gathering
who lashes out and says the most outrageous things, upsets everybody.
Although there's a few people in the room who said yes,
(05:09):
those things needed to be said. That's what these tariffs are.
It is not justified on economic analysis or clear thinking
about what's going home. I think it's not a million
miles away from what drove Brexit, that people were angry
with the way things work and they struck back by
voting for something that they thought would be very upsetting
(05:33):
to the globalist delete who they feel have rigged the
system against them. Trump's tariffs are economically incoherent but emotionally coherent.
And this grievance doctrine that I have called it is
a mythic tale that comes with a moral and a mission.
And you can interpret the nature of the tariffs and
(05:56):
his treatment of them afterwards in the negotiations with countries
as following his grievance doctrine. Not any very clear economic analysis.
Speaker 2 (06:08):
But you yourself have written about the structural changes that have
happened in the global economy and what you call it,
you know, the twin bombs of globalization and automation that
have had profound effects for many American workers. So it's
not as though you don't think there's any there there
in terms of the grievance. It's just that this is
(06:29):
not the right solution. Is that right?
Speaker 1 (06:31):
Absolutely? So? America's middle class is a terrible shape. I mean,
we have opioid deaths like the world's never seen. We
have a BCD epidemic, we have frequent school shootings, we
have fallen marriage fall of birth rates. White young men
are killing themselves in numbers that aren't seen anywhere else.
(06:53):
There's social pathologies going on in the middle class which
are just absolutely off the chart. Something must be done.
But what Trump has decided to do about it tariffs
is most definitely not that something. In the book, I
argue that we need a social policy, maybe like Canadian
social policy, that would actually help the middle class. But
(07:15):
it is a problem. And this is, as I say
in the book, it's a place ebo for policy in
lieu of real medicine that would help them.
Speaker 2 (07:24):
So why is this not the right solution? What can
he achieve with these policies that would actually support his objectives?
If anything?
Speaker 1 (07:34):
Well, I think basically nothing. So let me go through.
For example, if you look at the US Traded Gender document,
they're essentially listing three things they want to do with
these tariffs. First thing is to redress the trade balance,
a second is to reindustrialize America, bring the factories back,
and the third is to help the middle class. And
(07:55):
his tariffs will do none of those things. Let me
take them one at a time. So, first of all,
it cannot help the middle class. Tariffs are only put
on goods, and tariffs can protect workers who are in
goods producing sectors. They don't always, but at least there's
a possibility that they can protect their jobs and maybe
keep their wages from falling. But only less than ten
(08:18):
percent of the middle class works in goods producing sectors,
and for the other ninety percent who work in service sectors,
Trump's tariffs are simply raising their cost of living. So
in fact, rather than helping the middle class, it will
probably hurt it subtly. It'll show up in terms of
slower growth, inflation, and undermining the cost of purchasing. Now,
(08:39):
let me take this second one, which is closing the
trade deficit. This is a long widely held mistake and
belief that tariffs can fix the trade deficit. But I
think I've found why people believe it and why it's
hard to explain. Now you and I go to the
shop and we see eat the price of say domestic
(09:02):
beer and imported beer, and if the price of imported
beer goes up, we'll tend to buy a little more
of the domestic beer. So in our everyday lives buying
fruits and vegetables, meat, fish, beer, we look at the
prices and we're shaped by things like tariffs. We can
imagine how that would make us buy less and then
without thinking about how the whole thing adds up, you go, well, Therefore,
(09:24):
if you want people to buy fewer foreign goods, you
put up the price of foreign goods. The trouble is
when you think at the economy wide level, when you
think about everybody buying everything at the same time, there's
a different way to think about the deficit, and that
is the US has a trade deficit because they spend
more than they produce. And if Americans spend more than
(09:45):
they produce, they have to run a trade deficit. There's
no way the spending can't go anywhere else. So unless
they either reduce their spending or increase their production, they
cannot close the deficit. Now, tariffs cannot really affect the
spending unless it induces a recession, and even then that's temporary.
(10:06):
And because the US is at full employment, the tariffs
won't increase the production. If anything, it would mess it up.
But in any case, primarily will have no effect on
production and very little effect on spending, So tariffs will
not close the deficit. Now. The reason it works out
is because the tariffs change the relative price of imports
and exports, but the dollar can offset that. So unless
(10:30):
they fix the economy wide problem, they are not going
to fix the deficit. Now, let me take the third
one about reindustrialization. Reindustrialization using tariffs is something people have
been trying for literally a half century. It doesn't have
a name. It's called import substitution industrialization. And the idea
(10:50):
is you protect your local market to encourage local production.
First of all, that did actually work up until nineteen
ninety five with the offshoring and outsourcing thing, where global
value change change the whole proposition. So, for example, the
US in the eighteen hundreds did industrialize behind high trade barriers,
this time protecting against British goods. So it's not like
(11:13):
it's never worked, it just doesn't work anymore. Now the
problem is that to bring back these factories, the United
States needs world class infrastructure. It needs a world class
workforce who are willing to work in factories and able
to run the sophisticated machines that are now part of manufacturing.
And it needs investment that's coordinated and long lasting. These
(11:38):
are ten year plans. You don't just set up a
bakery shop and call it an industry. This requires a
whole ecosystem, an industrial base to develop. That can be done,
but it takes a decade at least, and it would
involve a bipartisan consensus, lots of subsidies, changes in laws
to confit private firms that this is for real and
(12:01):
they should move back. And the tariffs, especially one Trump
is talking about, are most definitely not doing any of
those things.
Speaker 2 (12:09):
Imagine the scenario that we're kind of seeing now, which
is we had April Seconds Liberation Day, crazily high to
most people's eyes, Tariff rates also kind of randomly generated,
and a lot of noise about trade deals. And we're
talking today on a day that Donald Trump seems to
(12:29):
have talked about potentially a fifty percent across the board
tariff against the Europeans. He's talked about even higher numbers
for the China in the past. And yet once we
see the economic consequences or even begin to see the
economic consequences. He's tended to step back, and we've had
these pauses, and I think the assumption that many people
would now make is, yes, we will end up with
(12:51):
maybe ten percent tariffs from all goods and a higher
effective tariff rate between the US and the rest of
the world. That will definitely reduce trade, maybe quite significantly
in the case of China. But we're not headed down
that full path. We're just on a path where there's
going to be more kind of grit in the wheels
of global trade. Is that necessarily the end of the world, Richard,
(13:11):
If you're sort of thinking about it from a sort
of historical perspective.
Speaker 1 (13:15):
It could just be a bump in the road. I mean,
let's put it this way. If it was a ten
percent across the board tariff on everything, the first point
is that the US dollar would offset part of it.
What we know from long experience is that very big
changes in trade policy lead to changes in the exchange rate.
Speaker 2 (13:33):
But what we had talked about was a dollar appreciation exactly.
And I have this in mind partly because JD. Vance,
the Vice President, has done an interview for a commentator
on the New York Times, and he makes this point
that actually it shows that economists get things wrong, because
absolutely everyone predicts that if you have a higher tariff,
you get an appreciating currency. And in fact, one of
the most striking things that happened that has not really
(13:54):
changed in direction in the last few months as these
tariffs have been introduced, is that the dollar has fallen.
So we don't know that that universal economist view is
actually going to be born out, not yet anyway, let me.
Speaker 1 (14:09):
Add on a parenthetical statement about whether it's true or not.
The closest example was when during the nineties, many developing
countries systematically lower their tariffs from like sixty percent down
to nine or ten percent, and so that was essentially
the opposite of what Trump did, and instead of their
currencies appreciating, they've depreciated. So there's wide experience of massive
(14:34):
changes in trade policy leading to offsetting long term exchange
rates on the import side as well from all the
emerging markets who essentially laterally lower their tariffs in the nineties.
Speaker 2 (14:45):
The dollar's not going up. The one thing is not
done in the last six months is the dollar's not
gone up.
Speaker 1 (14:50):
Absolutely so I'm not defensive. I want to explain that. So,
the exchange rate, like the dollar, is two things. It
is a finan instrument on which there's enormous amounts trillions
of dollars of arbitrage every single day. Now that arbitrage
is primarily driven by interest rate differentials and expectations of
(15:11):
interest rate differentials. One of the times where the dollar
depreciates quite reliably is if people think the US is
going to go into recession, which means the FED is
going to lower interest rates or not raise them as much,
and therefore the dollar becomes less attractive. So right now
people move out of the dollar. So I think what
we're seeing now is certainly a lot of anticipation of
(15:34):
a lower path of interest rates for the dollar than
people would have thought because of the recession that the
tariffs are going to introduce. The second point is, and
this is unusual, is that Trump and his administration are
systematically undermining the value of the dollar as the world's
reserve currency, threatening all sorts of crazy things. People were wondering,
(15:56):
is the US actually as reliable as they used to be.
This level of rule breaking and carelessness for the system
undermine people's trust. Now. The other thing that's going on
is we've recently seen just with the House passage, is
the US has no plan to close their deficit ever,
and they're running six seven percent deficits every year with
(16:18):
no plan to change it. And there's no political landing
path you can see in the United States where they're
going to reather, raise taxes or cut spending sufficiently for this. Moreover,
as the interest rates go up on yields, that means
more and more of the current budget will be to
pay off the debt. And just recently, with the ten
year bonds going up, the US is now spending more
(16:40):
on financing its own debt than it is on its military.
So this is something that people are starting to you know,
long ways down the road. What's going to happen is
not that people will leave the dollar, but they'll require
higher premium. None of these things have to be dramatic.
If most big money funds in the world decide I did,
to put two percentage points less in the US market
(17:03):
than they had before, that will lead to an outflow,
which will lead to a depreciation of the dollar. So
I think what we're seeing is short and medium term
things overwhelming long term things, And in any case, I
wouldn't expect the long term things to as submit themselves immediately, because,
as you pointed out, we don't know where this thing's
going to land.
Speaker 2 (17:23):
I guess one could still come away with the idea
that whatever dollar rise you have associated with the tariffs
could be drowned out by some of these other effects,
given that there'd been such a move into the US
assets in the past, and as you pointed out, it
doesn't take much if people start to just adjust at
the margin.
Speaker 1 (17:39):
One of my favorite quotes on this is that the
long run takes longer to come than you would have
ever thought it would, but when it comes, it comes
faster than you could ever have expected.
Speaker 2 (17:49):
Yeah, yeah, slowly, And then if people gave bus just
slowly suddenly yeah. So we don't know, as you say,
we don't know where that's going to turn out, and
we say, we don't know that the US will continue
with the sort of most dramatic version of this war
on trade, this trade hack that you've suggested. But you
also have highlighted the kind of underlying political reasons for
(18:12):
the trade hack, the grievance doctrine, and it doesn't seem
like that's going to go anywhere. President Trump seems pretty
committed to that. So I guess one of the questions
that anyone would have, and that you start to answer
in your book, is what happens to globalization? What happens
to the global economy in the meantime while the US
is engaged in this big experiment.
Speaker 1 (18:33):
Let me take the first point, which I think is
really important I hope that people will take away from
my book, is that US protectionism is now permanent. It's
here to stay. It's not new, and it's not going away.
So this narrative that the system is rigged against us
started with the Great Recession, and starting from Obama onward,
(18:54):
the US political elite blamed globalization. They found that very convenient.
So Obama a media suspended all the trade agreements that
Bush Junior had started, and there were lots of them,
and he became trade hesitant. He was there for eight
years and that hesitancy kept up. Then, of course Trump
came and the trade hesitancy turned to trade hostility, and
(19:16):
then when Biden came, it just turned back to trade hesitancy.
So really, going back to two thousand and eight, the
US has not been the leader of the system, so
it's not new. And the reason was is because the
suffering of the middle class, if you will, was something
that was going through they did not want to raise
taxes or increase the size of the government in order
(19:36):
to actually address it, and as a consequence, they used
trade as a scapegoat. So this anti trade element is
in there and US is now on a kind of
looping gif of protection. They've got the malaise of the
middle class suffering, leading to the need for a solution
(19:58):
where anti globalization becomes out solution at bigger, lower levels.
Those solutions don't fix the middle class problems, and so
they have to keep again being protectionist. So Biden, for example,
had a worker centric trade policy which meant no trade liberalization.
If Harris had won, she would have kept that up.
And whoever comes after Trump may be a lot more
(20:19):
polite and diplomatic, but they certainly aren't going to start
signing free trade agreements. So I think we have to
get used to a world where the US has left
the stage as the leader of the world trading system
at the very least, and maybe more.
Speaker 2 (20:32):
Broadly, while the US is engaged in this grand experiment,
or not say a grand experiment. What happens to the
rest of the world. How do you see the global economy,
the pattern of global trade panning out.
Speaker 1 (20:45):
So let me start with the worst case scenario, the
sort of ones that we should be panicked for, even
though I don't think it's very likely. The last time
the US was this irresponsible on trade was in the
nineteen twenty nine Smooth Holly Act, which led to retaliation
cycles outside the United States. US was actually much less
important in the world economy back then, but those cycles
(21:08):
or retaliation led to a collapse in trade, which made
the Great Depression bad. That's what we have to look for.
What could trigger retaliation of non US countries against other
non US countries. It's given that the US is going
to be more protectionists, and it's given that other countries
will be more protection against the US. But the US
(21:28):
only accounts for about fifteen percent of world trade, and
what really matters is what the other eighty five percent.
Speaker 2 (21:34):
Do.
Speaker 1 (21:35):
In the book, I talk about a few scenarios. The
one that's most likely is sort of messy multilateralism going forward,
and that's what we're actually seeing. So there's two elements
of it, we will see more protectionism. I call it
cascading protectionism. So this was a recent example. The US
put up one hundred percent tariffs on Chinese electric vehicles
(21:58):
and then those diverted some more else. Canada then put
up one hundred percent tariffs, and then Europe put up
one hundred percent tariffs, So that's called trade deflection. Now,
so far, those tariffs have been done on WTWOL compliant basis.
W two allows people to put up tariffs against import
sorges like that, but it's disciplined and it's explained, and
(22:18):
as a consequence, it rarely triggers cycles of retaliation. The
second is the liberalizing part of it, and in fact,
even since April second, we have seen, especially I mean
with the UK, three major trade deals done in part
because the ex borders who used to sell to the
US are pushing their governments to get better access to
(22:40):
other markets. So we're seeing things like the UK India deal,
which was long long running thing, finally get closed because
everybody wants to replace the US market. But again those
are WTWOL compliant, So what we're seeing is more WTWOL
compliant retaliation, more WTWOL compliant liberalization and we muddle through
where the whole rest of the world at least pretends
(23:02):
that they're following the rules, and that I think is
most likely. The other one, which is a little scarier,
is that we get these fighting trade blocks. And the
trigger for that is already out there is China. The
UK US deal promised indirectly and obliquely to cut China
out of the supply chains of the goods which are
(23:24):
going to the US, and China said that's not okay,
and they threaten retaliation to any country who agreed to
things that were anti China. So that's the beginning of
trade blocks fighting, where China says you have to be
with me or you have to be against me, the
US says you have to be with me or against me.
We start the European Union might end up with that.
(23:45):
So that's the worst that lots of people start violating
wtwo rules. It's not just the US, and it turns
into this fragmented world of free trade blocks, US, EU, China,
and that would be a very bad world. The last one,
which I think is most hopeful, is reglobalization without America.
So this is the analogy. So just take countries like
(24:08):
India and China many decades after World War Two lived
in splendid isolation. They bought almost nothing from the world,
they exported almost nothing to the world, and the whole
rest of the world did just fine without them. Now,
when these over two billion people opened up, the world
was a better place for them and for us. But
the world does not actually need the US market to thrive.
(24:30):
So if these ideas that we start going back to
signing big regional trade agreements and liberalizing among the rest
of the eighty five percent, I can see a future
where the world moves on from the US protectionism, US
closes itself off for political reasons. Isolationism, as you well know,
is a very long tradition in American politics, especially on trade,
(24:54):
and the rest of the world essentially continues on with
liberalizations based on mega regional agreements.
Speaker 2 (25:01):
There's so many things there, and we're going to run
out of time. So I just very briefly, if you
giving advice to other leaders, some of the countries that
are trying to negotiate with Donald Trump, but also navigate
a world with Donald Trump in it doing all the
things he's doing, You know, what are your kind of
top tips for people sitting in chancellories and finance ministries thinking,
(25:24):
how the hell do we deal with this?
Speaker 1 (25:27):
Yeah, so there's two questions. There is one is how
do you deal bilaterally with the US? And the second
is what to do to prevent this from becoming another
nineteen thirties. So let's go with the first advice, so
that is, negotiate, don't retaliate. There's really only the European
Union in China who have the might to stand up
to the arm twister that the United States has become,
(25:48):
and China in particular, since the US is so dependent
on Chinese intermediate inputs in their entire manufacturing base. Europe
less so. But in any case, they're big enough to
take care of themselves. They're large, closed economy and they
can deal with loss of sales. The rest of the
countries can't and shouldn't, and in any case, all they
would do is make him mad. The second bit of
(26:09):
that is that what Trump is looking for because of
the grievance doctrines, it's things that make him look like
he's winning, like he's redressing the problems with the unfairness
of the trade system. So what he wants is happy headlines.
He wants to be saying Trump is winning again on trade,
(26:32):
moving this rigged system to something that's fairer and more reciprocal.
And as long as those headlines can be generated, the
details do not really matter. And if you look at
any of the agreements, they're not signed because they're really
just press releases, sometimes joints, sometimes not, and those are
really just generating happy headlines. And that's really what he needs.
(26:54):
So don't make him mad, give him happy headlines, and
definitely don't retaliate. That's advice now to keep things on
an even keio. We can defend the rules based system
simply by following the rules. So if the rest of
the eighty five percent do their tariff, they're more protection,
they're more liberalization, which they will do because this is
(27:16):
like through a great big rock in a pond and
the waves are coming out. They will. As long as
they do it with a wtwo compliant mechanisms, and there
are lots of them to do that with, then the
system would be okay. Things could evolve inside the US
where they change, but if they don't, then the US
is more or less shutting us off from the world
and the rest of the world moves on. So that's
(27:38):
the main thing, is to defend the rules by following
the rules.
Speaker 2 (27:43):
How much of this can be undone by another administration
or is this a case or are there some things
you would identify that you know, once broken, are just
never going to be put together again.
Speaker 1 (27:53):
Well, ever is a long time. But I think the
key phrase that my father always used to tell me
when I was a young man is trust comes on foot,
but leaves on horseback. And that's what we've see. Trust
in America has been eroded in the last six weeks
in a way that is incredible. And people used to
(28:13):
view the US universally regarded as the steward of the system.
Now the US is universally regarded with suspicion. It's not
just one man. The guy got re elected saying he
would do all these things, and people still elected him. Moreover,
I think we're at a situation now where if somebody
stood up and ran for presidents saying I'm going to
(28:35):
undo all this stuff, I'm going to take the blame
on America. We're not going to blame the foreigners anymore.
That would be political suicide. So they aren't coming back
so I really think our grandchildren will study this episode
April second really being very different than what was before
as the beginning of the post American leadership era. I
think that the trust of America, especially in economics, has
(28:59):
been funded mentally undermined. We've seen it on trade enormously.
It's slipping on the dollar and relying on the US's
reserve currency. Moreover, and in terms of military and security
things that this Trump administration has done, for instance in
Ukraine threatening to withdraw support for reasons that don't really
seem like long term steady allies. I think the fact
(29:22):
of the US leadership being dominant is over. Just for example,
the whole discussion on the Middle East. It didn't work out,
but that was held in Saudi Arabia, not Camp David.
And we're in a world now where the US is
no longer leader. So I think that is not going back.
Speaker 2 (29:39):
I just wonder whether we're being a bit schizophrenic about this,
because on the one hand, we tend to say, oh,
many of Donald Trump's critics, and certainly some of what
you've said today, is this is a fundamental breaking of
the system. It's very damaging, It undermines America's position. There's
no going back. This is going to be a fundamental
shift of regime, we tend to say, or a lot
(30:02):
of people, some of the same critics will say he
will bulk under pressure. We've seen pauses once there will
be real economic harm to these policies, and then as
a result, he will back down, and we've seen signs
of him backing down. And April second, yes, if implemented,
would be enormously catastrophic, but in fact, I mean April
(30:24):
second was almost immediately put on pause all of those
crazy tariffs. And in the end this will be a
much smaller change than people are arguing. You can't argue
it both ways. That it's going to be sort of
he's going to give up and it's going to be feeble,
but it's also going to be studied by our grandchildren
and our great grandchildren.
Speaker 1 (30:42):
Let me put that in perspective. First of all, you've
probably heard of this taco trade. They're talking about it
in finatural markets, which is Trump always chickens out taco,
And that's the big idea. The key is is Trump
is not dogmatic. He's pragmatic, and he really believes America
has been ripped off by the system. Even talked about
that in nineteen eighties when he was a private businessman.
(31:05):
So he fundamentally believes that, and he fundamentally he's fixing it.
But he's very flexible show he believes he's strong by
threatening and he's wise by showing flexibility. But the whole
point is that they have completely ripped up respect for
the rules based multilateralism and turned it into US thinking
they can do whatever they want on pretty much anything,
(31:27):
whether it's the dollar, or it's the debts and deficits,
whether it's on the tariffs. America is no longer acting
in this enlightened self interest way, and that enlightened self
interest leadership is what's ended. So it's not so much
that we're going to tip into the next nineteen thirties.
It's more like the interagum between when the UK ran
(31:50):
the world and when the US ran the world packs
Britannica to Pax Americana. There was a time in between
where it wasn't clear who was running what, and I
think that's the kind of era we've shifted into now.
But also I don't think there's anybody who can take
the US leadership, not like the UK steps down, US
was right on the horizon. China can't do it. You
(32:11):
can't do it because they're not a thing. So I
think we're kind of moving into a very very different
era what Ian Bremer calls the g zero world, where
there's no clear leader on the whole, no clear hedgemon,
and we just have to muddle through. But in any case,
it's the beginning of a completely different era, and I
think that is absolutely true, even if the terif cy
(32:32):
actually does don't cause a great depression.
Speaker 2 (32:36):
Richard Boulden, that's a great place to end. Thank you
so much, thanks for listening to Trumpnomics from Bloomberg. It
was hosted by me Stephanie Flanders, and I was joined
(32:57):
by Professor Richard Baldwin. Trump Andomics is produced by Samasadi
and Moses and with help from Chris mart Lou and
Amy Keen. Sound design is by Blake Maples and Brendan Francis.
Newnham is our executive producer. Please help other people find
the show, just rate it very highly and review it
wherever you listen to your podcasts.
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:16):
I'm Sevany Flanders, head of Government and Economics at Bloomberg,
and welcome to Trumpponomics, the podcast that looks at the
economic world of Donald Trump, how he's already shaped the
global economy, and what on earth is going to happen next.
And this week we have something slightly different, a conversation
with Richard Baldwin about his new book, The Great Trade Hack,
(00:37):
How Trump's Trade War Fails and the World moves on.
Richard is a professor of international economics at the IMD
Business School. Financial Times once called him one of the
most important thinkers in this era of global disruption, and
listeners to previous iterations of this podcast might even remember
that we've talked to him before as one of the
people who has researched and written most deeply about the
(01:00):
changing nature of globalization and trade. And his latest book,
an e book published by the Center for Economic Policy Research,
as you gather from that title, turns its hand to
what Donald Trump is doing or not doing to the
world of international trade and what it means for all
of us. As an economist. Richards joining the long list
(01:23):
of economists who believe the protectionism of the Trump administration
is not going to fulfill its objectives. But I think
what's distinctive is he also delves into the political economy
of trumpnomics to explain why it will still continue, and
then also thinks about how the rest of the world
will engage or should engage with the US as it's
(01:45):
part of this grand Trumpnomic experiment, all of which did
seem like it was worth a conversation, and I should
say probably full disclosure. The other reason we're doing this
is so we could record it today Friday, twenty third
of May, ahead of the holiday weekend in the UK
and the US, and ahead of me getting off on
a week's holiday. Richard, thank you very much for joining us.
(02:15):
It's a great title. What's the Great Trade Hack?
Speaker 1 (02:18):
Thanks for having me, Stephanie. The hack is what Trump
did on April second. That was an historic moment. It
wasn't an attempt to revise or reform or negotiate. It
was an attempt to break through the firewall of the
world trading system and disrupt the way it runs with
(02:39):
tariffs that were big, bold and everywhere at once, violating
most wtwo rules in one fell swoop with everybody, breaking
every trade agreement the US had ever made with anybody anytime.
This wasn't your normal trade war. It looked a lot
more like a war on trade. And that's why I
think of it as a hack rather than a beginning
(03:01):
of a war or a reform or an effort. It
was really one man trying to hack the system.
Speaker 2 (03:07):
What are you trying to get across? Intellectually and as
an academic, when you talk about a hack, I.
Speaker 1 (03:12):
Think it's important to distinguish this from other things, for instance,
anything to do with the dispute between US and China.
And also it's entirely different than what he was doing
between his inauguration and April second. Those were piecemeal tariffs,
totally in the line of the kind of thinking that
many countries get. They're unfair. I'm going to put tariffs on,
(03:36):
then we're going to negotiate. We'll come to a better deal.
This thing was completely different. He's trying to change the
way the world works in terms of fair and reciprocal
trade in his own mind and reverse the victimhood that
he believes, and he's at least selling politically that the
US is facing.
Speaker 2 (03:55):
You talk about the grievance doctrine? What explains this policy?
We've heard a lot about grievances from him, but briefly,
what are you thinking about that?
Speaker 1 (04:04):
Well, I think many economists around the world and political
scientists slapped their heads when they saw this thing. Is like,
what is he trying to do? And then it goes
up and it goes down, and there's this and is
that all? It looks like he's negotiating himself. It looks
kind of crazy, It looks chaotic. When I was looking
for some sort of coherence. If you read the introduction
(04:26):
to the US Trade Agenda Report for twenty twenty five,
he pretty much lays out this grievance doctrine, which has
an origin story of America used to play by the
rules and they got played. They were ripped off by
globalist elite abroad and globalist traders at home, and it
(04:47):
was the middle class who paid the price. And what
Trump was doing on April second was payback. So it's
like that uncomfortable uncle. You sometimes have a family gathering
who lashes out and says the most outrageous things, upsets everybody.
Although there's a few people in the room who said yes,
(05:09):
those things needed to be said. That's what these tariffs are.
It is not justified on economic analysis or clear thinking
about what's going home. I think it's not a million
miles away from what drove Brexit, that people were angry
with the way things work and they struck back by
voting for something that they thought would be very upsetting
(05:33):
to the globalist delete who they feel have rigged the
system against them. Trump's tariffs are economically incoherent but emotionally coherent.
And this grievance doctrine that I have called it is
a mythic tale that comes with a moral and a mission.
And you can interpret the nature of the tariffs and
(05:56):
his treatment of them afterwards in the negotiations with countries
as following his grievance doctrine. Not any very clear economic analysis.
Speaker 2 (06:08):
But you yourself have written about the structural changes that have
happened in the global economy and what you call it,
you know, the twin bombs of globalization and automation that
have had profound effects for many American workers. So it's
not as though you don't think there's any there there
in terms of the grievance. It's just that this is
(06:29):
not the right solution. Is that right?
Speaker 1 (06:31):
Absolutely? So? America's middle class is a terrible shape. I mean,
we have opioid deaths like the world's never seen. We
have a BCD epidemic, we have frequent school shootings, we
have fallen marriage fall of birth rates. White young men
are killing themselves in numbers that aren't seen anywhere else.
(06:53):
There's social pathologies going on in the middle class which
are just absolutely off the chart. Something must be done.
But what Trump has decided to do about it tariffs
is most definitely not that something. In the book, I
argue that we need a social policy, maybe like Canadian
social policy, that would actually help the middle class. But
(07:15):
it is a problem. And this is, as I say
in the book, it's a place ebo for policy in
lieu of real medicine that would help them.
Speaker 2 (07:24):
So why is this not the right solution? What can
he achieve with these policies that would actually support his objectives?
If anything?
Speaker 1 (07:34):
Well, I think basically nothing. So let me go through.
For example, if you look at the US Traded Gender document,
they're essentially listing three things they want to do with
these tariffs. First thing is to redress the trade balance,
a second is to reindustrialize America, bring the factories back,
and the third is to help the middle class. And
(07:55):
his tariffs will do none of those things. Let me
take them one at a time. So, first of all,
it cannot help the middle class. Tariffs are only put
on goods, and tariffs can protect workers who are in
goods producing sectors. They don't always, but at least there's
a possibility that they can protect their jobs and maybe
keep their wages from falling. But only less than ten
(08:18):
percent of the middle class works in goods producing sectors,
and for the other ninety percent who work in service sectors,
Trump's tariffs are simply raising their cost of living. So
in fact, rather than helping the middle class, it will
probably hurt it subtly. It'll show up in terms of
slower growth, inflation, and undermining the cost of purchasing. Now,
(08:39):
let me take this second one, which is closing the
trade deficit. This is a long widely held mistake and
belief that tariffs can fix the trade deficit. But I
think I've found why people believe it and why it's
hard to explain. Now you and I go to the
shop and we see eat the price of say domestic
(09:02):
beer and imported beer, and if the price of imported
beer goes up, we'll tend to buy a little more
of the domestic beer. So in our everyday lives buying
fruits and vegetables, meat, fish, beer, we look at the
prices and we're shaped by things like tariffs. We can
imagine how that would make us buy less and then
without thinking about how the whole thing adds up, you go, well, Therefore,
(09:24):
if you want people to buy fewer foreign goods, you
put up the price of foreign goods. The trouble is
when you think at the economy wide level, when you
think about everybody buying everything at the same time, there's
a different way to think about the deficit, and that
is the US has a trade deficit because they spend
more than they produce. And if Americans spend more than
(09:45):
they produce, they have to run a trade deficit. There's
no way the spending can't go anywhere else. So unless
they either reduce their spending or increase their production, they
cannot close the deficit. Now, tariffs cannot really affect the
spending unless it induces a recession, and even then that's temporary.
(10:06):
And because the US is at full employment, the tariffs
won't increase the production. If anything, it would mess it up.
But in any case, primarily will have no effect on
production and very little effect on spending, So tariffs will
not close the deficit. Now. The reason it works out
is because the tariffs change the relative price of imports
and exports, but the dollar can offset that. So unless
(10:30):
they fix the economy wide problem, they are not going
to fix the deficit. Now, let me take the third
one about reindustrialization. Reindustrialization using tariffs is something people have
been trying for literally a half century. It doesn't have
a name. It's called import substitution industrialization. And the idea
(10:50):
is you protect your local market to encourage local production.
First of all, that did actually work up until nineteen
ninety five with the offshoring and outsourcing thing, where global
value change change the whole proposition. So, for example, the
US in the eighteen hundreds did industrialize behind high trade barriers,
this time protecting against British goods. So it's not like
(11:13):
it's never worked, it just doesn't work anymore. Now the
problem is that to bring back these factories, the United
States needs world class infrastructure. It needs a world class
workforce who are willing to work in factories and able
to run the sophisticated machines that are now part of manufacturing.
And it needs investment that's coordinated and long lasting. These
(11:38):
are ten year plans. You don't just set up a
bakery shop and call it an industry. This requires a
whole ecosystem, an industrial base to develop. That can be done,
but it takes a decade at least, and it would
involve a bipartisan consensus, lots of subsidies, changes in laws
to confit private firms that this is for real and
(12:01):
they should move back. And the tariffs, especially one Trump
is talking about, are most definitely not doing any of
those things.
Speaker 2 (12:09):
Imagine the scenario that we're kind of seeing now, which
is we had April Seconds Liberation Day, crazily high to
most people's eyes, Tariff rates also kind of randomly generated,
and a lot of noise about trade deals. And we're
talking today on a day that Donald Trump seems to
(12:29):
have talked about potentially a fifty percent across the board
tariff against the Europeans. He's talked about even higher numbers
for the China in the past. And yet once we
see the economic consequences or even begin to see the
economic consequences. He's tended to step back, and we've had
these pauses, and I think the assumption that many people
would now make is, yes, we will end up with
(12:51):
maybe ten percent tariffs from all goods and a higher
effective tariff rate between the US and the rest of
the world. That will definitely reduce trade, maybe quite significantly
in the case of China. But we're not headed down
that full path. We're just on a path where there's
going to be more kind of grit in the wheels
of global trade. Is that necessarily the end of the world, Richard,
(13:11):
If you're sort of thinking about it from a sort
of historical perspective.
Speaker 1 (13:15):
It could just be a bump in the road. I mean,
let's put it this way. If it was a ten
percent across the board tariff on everything, the first point
is that the US dollar would offset part of it.
What we know from long experience is that very big
changes in trade policy lead to changes in the exchange rate.
Speaker 2 (13:33):
But what we had talked about was a dollar appreciation exactly.
And I have this in mind partly because JD. Vance,
the Vice President, has done an interview for a commentator
on the New York Times, and he makes this point
that actually it shows that economists get things wrong, because
absolutely everyone predicts that if you have a higher tariff,
you get an appreciating currency. And in fact, one of
the most striking things that happened that has not really
(13:54):
changed in direction in the last few months as these
tariffs have been introduced, is that the dollar has fallen.
So we don't know that that universal economist view is
actually going to be born out, not yet anyway, let me.
Speaker 1 (14:09):
Add on a parenthetical statement about whether it's true or not.
The closest example was when during the nineties, many developing
countries systematically lower their tariffs from like sixty percent down
to nine or ten percent, and so that was essentially
the opposite of what Trump did, and instead of their
currencies appreciating, they've depreciated. So there's wide experience of massive
(14:34):
changes in trade policy leading to offsetting long term exchange
rates on the import side as well from all the
emerging markets who essentially laterally lower their tariffs in the nineties.
Speaker 2 (14:45):
The dollar's not going up. The one thing is not
done in the last six months is the dollar's not
gone up.
Speaker 1 (14:50):
Absolutely so I'm not defensive. I want to explain that. So,
the exchange rate, like the dollar, is two things. It
is a finan instrument on which there's enormous amounts trillions
of dollars of arbitrage every single day. Now that arbitrage
is primarily driven by interest rate differentials and expectations of
(15:11):
interest rate differentials. One of the times where the dollar
depreciates quite reliably is if people think the US is
going to go into recession, which means the FED is
going to lower interest rates or not raise them as much,
and therefore the dollar becomes less attractive. So right now
people move out of the dollar. So I think what
we're seeing now is certainly a lot of anticipation of
(15:34):
a lower path of interest rates for the dollar than
people would have thought because of the recession that the
tariffs are going to introduce. The second point is, and
this is unusual, is that Trump and his administration are
systematically undermining the value of the dollar as the world's
reserve currency, threatening all sorts of crazy things. People were wondering,
(15:56):
is the US actually as reliable as they used to be.
This level of rule breaking and carelessness for the system
undermine people's trust. Now. The other thing that's going on
is we've recently seen just with the House passage, is
the US has no plan to close their deficit ever,
and they're running six seven percent deficits every year with
(16:18):
no plan to change it. And there's no political landing
path you can see in the United States where they're
going to reather, raise taxes or cut spending sufficiently for this. Moreover,
as the interest rates go up on yields, that means
more and more of the current budget will be to
pay off the debt. And just recently, with the ten
year bonds going up, the US is now spending more
(16:40):
on financing its own debt than it is on its military.
So this is something that people are starting to you know,
long ways down the road. What's going to happen is
not that people will leave the dollar, but they'll require
higher premium. None of these things have to be dramatic.
If most big money funds in the world decide I did,
to put two percentage points less in the US market
(17:03):
than they had before, that will lead to an outflow,
which will lead to a depreciation of the dollar. So
I think what we're seeing is short and medium term
things overwhelming long term things, And in any case, I
wouldn't expect the long term things to as submit themselves immediately, because,
as you pointed out, we don't know where this thing's
going to land.
Speaker 2 (17:23):
I guess one could still come away with the idea
that whatever dollar rise you have associated with the tariffs
could be drowned out by some of these other effects,
given that there'd been such a move into the US
assets in the past, and as you pointed out, it
doesn't take much if people start to just adjust at
the margin.
Speaker 1 (17:39):
One of my favorite quotes on this is that the
long run takes longer to come than you would have
ever thought it would, but when it comes, it comes
faster than you could ever have expected.
Speaker 2 (17:49):
Yeah, yeah, slowly, And then if people gave bus just
slowly suddenly yeah. So we don't know, as you say,
we don't know where that's going to turn out, and
we say, we don't know that the US will continue
with the sort of most dramatic version of this war
on trade, this trade hack that you've suggested. But you
also have highlighted the kind of underlying political reasons for
(18:12):
the trade hack, the grievance doctrine, and it doesn't seem
like that's going to go anywhere. President Trump seems pretty
committed to that. So I guess one of the questions
that anyone would have, and that you start to answer
in your book, is what happens to globalization? What happens
to the global economy in the meantime while the US
is engaged in this big experiment.
Speaker 1 (18:33):
Let me take the first point, which I think is
really important I hope that people will take away from
my book, is that US protectionism is now permanent. It's
here to stay. It's not new, and it's not going away.
So this narrative that the system is rigged against us
started with the Great Recession, and starting from Obama onward,
(18:54):
the US political elite blamed globalization. They found that very convenient.
So Obama a media suspended all the trade agreements that
Bush Junior had started, and there were lots of them,
and he became trade hesitant. He was there for eight
years and that hesitancy kept up. Then, of course Trump
came and the trade hesitancy turned to trade hostility, and
(19:16):
then when Biden came, it just turned back to trade hesitancy.
So really, going back to two thousand and eight, the
US has not been the leader of the system, so
it's not new. And the reason was is because the
suffering of the middle class, if you will, was something
that was going through they did not want to raise
taxes or increase the size of the government in order
(19:36):
to actually address it, and as a consequence, they used
trade as a scapegoat. So this anti trade element is
in there and US is now on a kind of
looping gif of protection. They've got the malaise of the
middle class suffering, leading to the need for a solution
(19:58):
where anti globalization becomes out solution at bigger, lower levels.
Those solutions don't fix the middle class problems, and so
they have to keep again being protectionist. So Biden, for example,
had a worker centric trade policy which meant no trade liberalization.
If Harris had won, she would have kept that up.
And whoever comes after Trump may be a lot more
(20:19):
polite and diplomatic, but they certainly aren't going to start
signing free trade agreements. So I think we have to
get used to a world where the US has left
the stage as the leader of the world trading system
at the very least, and maybe more.
Speaker 2 (20:32):
Broadly, while the US is engaged in this grand experiment,
or not say a grand experiment. What happens to the
rest of the world. How do you see the global economy,
the pattern of global trade panning out.
Speaker 1 (20:45):
So let me start with the worst case scenario, the
sort of ones that we should be panicked for, even
though I don't think it's very likely. The last time
the US was this irresponsible on trade was in the
nineteen twenty nine Smooth Holly Act, which led to retaliation
cycles outside the United States. US was actually much less
important in the world economy back then, but those cycles
(21:08):
or retaliation led to a collapse in trade, which made
the Great Depression bad. That's what we have to look for.
What could trigger retaliation of non US countries against other
non US countries. It's given that the US is going
to be more protectionists, and it's given that other countries
will be more protection against the US. But the US
(21:28):
only accounts for about fifteen percent of world trade, and
what really matters is what the other eighty five percent.
Speaker 2 (21:34):
Do.
Speaker 1 (21:35):
In the book, I talk about a few scenarios. The
one that's most likely is sort of messy multilateralism going forward,
and that's what we're actually seeing. So there's two elements
of it, we will see more protectionism. I call it
cascading protectionism. So this was a recent example. The US
put up one hundred percent tariffs on Chinese electric vehicles
(21:58):
and then those diverted some more else. Canada then put
up one hundred percent tariffs, and then Europe put up
one hundred percent tariffs, So that's called trade deflection. Now,
so far, those tariffs have been done on WTWOL compliant basis.
W two allows people to put up tariffs against import
sorges like that, but it's disciplined and it's explained, and
(22:18):
as a consequence, it rarely triggers cycles of retaliation. The
second is the liberalizing part of it, and in fact,
even since April second, we have seen, especially I mean
with the UK, three major trade deals done in part
because the ex borders who used to sell to the
US are pushing their governments to get better access to
(22:40):
other markets. So we're seeing things like the UK India deal,
which was long long running thing, finally get closed because
everybody wants to replace the US market. But again those
are WTWOL compliant, So what we're seeing is more WTWOL
compliant retaliation, more WTWOL compliant liberalization and we muddle through
where the whole rest of the world at least pretends
(23:02):
that they're following the rules, and that I think is
most likely. The other one, which is a little scarier,
is that we get these fighting trade blocks. And the
trigger for that is already out there is China. The
UK US deal promised indirectly and obliquely to cut China
out of the supply chains of the goods which are
(23:24):
going to the US, and China said that's not okay,
and they threaten retaliation to any country who agreed to
things that were anti China. So that's the beginning of
trade blocks fighting, where China says you have to be
with me or you have to be against me, the
US says you have to be with me or against me.
We start the European Union might end up with that.
(23:45):
So that's the worst that lots of people start violating
wtwo rules. It's not just the US, and it turns
into this fragmented world of free trade blocks, US, EU, China,
and that would be a very bad world. The last one,
which I think is most hopeful, is reglobalization without America.
So this is the analogy. So just take countries like
(24:08):
India and China many decades after World War Two lived
in splendid isolation. They bought almost nothing from the world,
they exported almost nothing to the world, and the whole
rest of the world did just fine without them. Now,
when these over two billion people opened up, the world
was a better place for them and for us. But
the world does not actually need the US market to thrive.
(24:30):
So if these ideas that we start going back to
signing big regional trade agreements and liberalizing among the rest
of the eighty five percent, I can see a future
where the world moves on from the US protectionism, US
closes itself off for political reasons. Isolationism, as you well know,
is a very long tradition in American politics, especially on trade,
(24:54):
and the rest of the world essentially continues on with
liberalizations based on mega regional agreements.
Speaker 2 (25:01):
There's so many things there, and we're going to run
out of time. So I just very briefly, if you
giving advice to other leaders, some of the countries that
are trying to negotiate with Donald Trump, but also navigate
a world with Donald Trump in it doing all the
things he's doing, You know, what are your kind of
top tips for people sitting in chancellories and finance ministries thinking,
(25:24):
how the hell do we deal with this?
Speaker 1 (25:27):
Yeah, so there's two questions. There is one is how
do you deal bilaterally with the US? And the second
is what to do to prevent this from becoming another
nineteen thirties. So let's go with the first advice, so
that is, negotiate, don't retaliate. There's really only the European
Union in China who have the might to stand up
to the arm twister that the United States has become,
(25:48):
and China in particular, since the US is so dependent
on Chinese intermediate inputs in their entire manufacturing base. Europe
less so. But in any case, they're big enough to
take care of themselves. They're large, closed economy and they
can deal with loss of sales. The rest of the
countries can't and shouldn't, and in any case, all they
would do is make him mad. The second bit of
(26:09):
that is that what Trump is looking for because of
the grievance doctrines, it's things that make him look like
he's winning, like he's redressing the problems with the unfairness
of the trade system. So what he wants is happy headlines.
He wants to be saying Trump is winning again on trade,
(26:32):
moving this rigged system to something that's fairer and more reciprocal.
And as long as those headlines can be generated, the
details do not really matter. And if you look at
any of the agreements, they're not signed because they're really
just press releases, sometimes joints, sometimes not, and those are
really just generating happy headlines. And that's really what he needs.
(26:54):
So don't make him mad, give him happy headlines, and
definitely don't retaliate. That's advice now to keep things on
an even keio. We can defend the rules based system
simply by following the rules. So if the rest of
the eighty five percent do their tariff, they're more protection,
they're more liberalization, which they will do because this is
(27:16):
like through a great big rock in a pond and
the waves are coming out. They will. As long as
they do it with a wtwo compliant mechanisms, and there
are lots of them to do that with, then the
system would be okay. Things could evolve inside the US
where they change, but if they don't, then the US
is more or less shutting us off from the world
and the rest of the world moves on. So that's
(27:38):
the main thing, is to defend the rules by following
the rules.
Speaker 2 (27:43):
How much of this can be undone by another administration
or is this a case or are there some things
you would identify that you know, once broken, are just
never going to be put together again.
Speaker 1 (27:53):
Well, ever is a long time. But I think the
key phrase that my father always used to tell me
when I was a young man is trust comes on foot,
but leaves on horseback. And that's what we've see. Trust
in America has been eroded in the last six weeks
in a way that is incredible. And people used to
(28:13):
view the US universally regarded as the steward of the system.
Now the US is universally regarded with suspicion. It's not
just one man. The guy got re elected saying he
would do all these things, and people still elected him. Moreover,
I think we're at a situation now where if somebody
stood up and ran for presidents saying I'm going to
(28:35):
undo all this stuff, I'm going to take the blame
on America. We're not going to blame the foreigners anymore.
That would be political suicide. So they aren't coming back
so I really think our grandchildren will study this episode
April second really being very different than what was before
as the beginning of the post American leadership era. I
think that the trust of America, especially in economics, has
(28:59):
been funded mentally undermined. We've seen it on trade enormously.
It's slipping on the dollar and relying on the US's
reserve currency. Moreover, and in terms of military and security
things that this Trump administration has done, for instance in
Ukraine threatening to withdraw support for reasons that don't really
seem like long term steady allies. I think the fact
(29:22):
of the US leadership being dominant is over. Just for example,
the whole discussion on the Middle East. It didn't work out,
but that was held in Saudi Arabia, not Camp David.
And we're in a world now where the US is
no longer leader. So I think that is not going back.
Speaker 2 (29:39):
I just wonder whether we're being a bit schizophrenic about this,
because on the one hand, we tend to say, oh,
many of Donald Trump's critics, and certainly some of what
you've said today, is this is a fundamental breaking of
the system. It's very damaging, It undermines America's position. There's
no going back. This is going to be a fundamental
shift of regime, we tend to say, or a lot
(30:02):
of people, some of the same critics will say he
will bulk under pressure. We've seen pauses once there will
be real economic harm to these policies, and then as
a result, he will back down, and we've seen signs
of him backing down. And April second, yes, if implemented,
would be enormously catastrophic, but in fact, I mean April
(30:24):
second was almost immediately put on pause all of those
crazy tariffs. And in the end this will be a
much smaller change than people are arguing. You can't argue
it both ways. That it's going to be sort of
he's going to give up and it's going to be feeble,
but it's also going to be studied by our grandchildren
and our great grandchildren.
Speaker 1 (30:42):
Let me put that in perspective. First of all, you've
probably heard of this taco trade. They're talking about it
in finatural markets, which is Trump always chickens out taco,
And that's the big idea. The key is is Trump
is not dogmatic. He's pragmatic, and he really believes America
has been ripped off by the system. Even talked about
that in nineteen eighties when he was a private businessman.
(31:05):
So he fundamentally believes that, and he fundamentally he's fixing it.
But he's very flexible show he believes he's strong by
threatening and he's wise by showing flexibility. But the whole
point is that they have completely ripped up respect for
the rules based multilateralism and turned it into US thinking
they can do whatever they want on pretty much anything,
(31:27):
whether it's the dollar, or it's the debts and deficits,
whether it's on the tariffs. America is no longer acting
in this enlightened self interest way, and that enlightened self
interest leadership is what's ended. So it's not so much
that we're going to tip into the next nineteen thirties.
It's more like the interagum between when the UK ran
(31:50):
the world and when the US ran the world packs
Britannica to Pax Americana. There was a time in between
where it wasn't clear who was running what, and I
think that's the kind of era we've shifted into now.
But also I don't think there's anybody who can take
the US leadership, not like the UK steps down, US
was right on the horizon. China can't do it. You
(32:11):
can't do it because they're not a thing. So I
think we're kind of moving into a very very different
era what Ian Bremer calls the g zero world, where
there's no clear leader on the whole, no clear hedgemon,
and we just have to muddle through. But in any case,
it's the beginning of a completely different era, and I
think that is absolutely true, even if the terif cy
(32:32):
actually does don't cause a great depression.
Speaker 2 (32:36):
Richard Boulden, that's a great place to end. Thank you
so much, thanks for listening to Trumpnomics from Bloomberg. It
was hosted by me Stephanie Flanders, and I was joined
(32:57):
by Professor Richard Baldwin. Trump Andomics is produced by Samasadi
and Moses and with help from Chris mart Lou and
Amy Keen. Sound design is by Blake Maples and Brendan Francis.
Newnham is our executive producer. Please help other people find
the show, just rate it very highly and review it
wherever you listen to your podcasts.
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