Global Domino Effect of Trump’s Tariffs

Episode Transcript
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Speaker 1 (00:00):
So President Trump seems to be upsetting the entire world
economy and really has changed things dramatically on the world
stage Visa viv the United States and tariffs, taxation and
everything else. And today we're going to discover is this

(00:20):
good or bad? Is there good that's coming out of this?
Is this permanent? Is it temporary? What can we expect
in the coming months and years from all of the
Trump economic changes worldwide? And I have with me today
on the Wealth Ability Show one of my very close friends,
Richard Duncan, my favorite economist, and Richard, welcome to the show.

Speaker 2 (00:44):
Hey Tom, thank you, it's great to be back on.
Thank you for inviting me, very good to see you.

Speaker 1 (00:49):
Good to see you too, and thank you for joining
us from Thailand. I know you think you love Asia,
you love Thailand. You've spent a lot of your life
over there, including I think time with the World Bank.
Is that correct?

Speaker 2 (01:04):
That's right. I worked for the World Bank, but at
that time I was living in Washington for a couple
of years working for them there.

Speaker 1 (01:11):
So just give us a little of your background, Richard,
because it's it's pretty impressive. People don't understand quite how
how much you've gone through to get to the place
you are knowledge wise, Okay.

Speaker 2 (01:25):
So I went to Vanderbilt University and after that it
was very lucky and got to travel around the world
as a backpacker for a year. And this was nineteen
eighty three nineteen eighty four, and I saw Asia for
a couple of months at that time, and it was
booming economically even then, and so I realized, you know,
go east, young man. So I went back to the

(01:47):
US and went to business school at Babson for a
couple of years, and then flew out to Hong Kong
and found a job as a securities analyst working for
a Hong Kong Chinese stockbroking company. And I've been in
the finance industry ever since then, since nineteen eighty six,
initially as a securities analyst, then as an economist and
a strategist. I worked on the cell side as well

(02:11):
as later on at the buyside, and eventually I ended
up being the global head of investment strategy for a
very big Dutch fund management company called abn Amro Asset
Management based in London, looking at all the asset classes
globally and along the way, as you mentioned, I worked

(02:32):
for the World Bank for a couple of years, and
I've written four books. The first one was more than
twenty years ago, called The Dollar Crisis, and the most
recent one was about three years ago now called The
Money Revolution, and eleven years ago, almost twelve years ago now,
I started macro Watch. Macro Watch is a video newsletter

(02:56):
that I sell on a subscription basis. Every couple of
excite upload a new video discussing something important happening in
the global economy and how that's likely to impact wealth, stocks, bonds, property, currency, commodities.
So that's that's my story now.

Speaker 1 (03:14):
Thank you. It's obviously very impressive and it's great to
have a real economist on the Wealth A Buildy show,
because I think that macro economics has such a big
impact on our daily lives, really and particularly from an
entrepreneur standpoint, our listeners primarily entrepreneurs and investors. So here's

(03:35):
the kind of first question, and I don't want to
get too deep into it, but I want to set
a baseline for what's going on for the last it
seems like at least the last thirty years, the the
economists of the kind of the generally economists economic thinking
has been what they call Keensian economics, and could you

(03:59):
give us I know I'm asking a lot, Richard, but
can you give us just a thumbnail sketch of what
does Kinsian economics mean versus and then we'll talk about
what's going on today, which seemed to be up having
some upheaval in that theory.

Speaker 2 (04:16):
Okay, Well, so Kaines will argued that in times like
the Great Depression, when he wrote his famous book The
General Theory, that it would be wise for the government
to borrow money and spend it to stimulate the economy,
to pull it out of a recession, out of the depression.
But then when the economy recovered, Kines advocated that the

(04:39):
government should run budget deficits, spend less than its tax revenues,
so that over time the budget would come back into balance.
And so all of the starting in the nineteen sixties,
they politicians in the US and around the world, really
they only adopted half of Kain's policies. We have the

(05:00):
big budget deficits to stimulate the economy on an ongoing basis,
but they never had the budget surpluses to bring the
budget back into balance. So that's really what we've been
operating on for you know, since the sixties. I would
say Eisenhower and Truman were the last ones who tried
to keep things in the budget in balance, and so

(05:22):
we're still on that path today with only half kanesianism,
which makes it a very bad policy. With the passage
of the One Big Beautiful Bill Act, this ensures that
we're going to continue with this very large budget deficits
for the next ten years, providing stimulus for the economy
and making it grow, but at the cost of ever

(05:43):
deeper dead. So we haven't changed course with this new administration.
It's in that respect anyway, we're still in the half
Keynesian economic policy strategy.

Speaker 1 (05:55):
Right, easy to spend money, hard to save it. That's right, yeah,
I mean that's what it comes down to, right. So,
so back in April when Trump announced his tariffs Liberation Day,
so to speak, pretty much every economist in the world

(06:15):
hated Trump. It was it was very much in the
in the terrors are horrible, we're anti tariffs, this is
going to destroy the world. There was there's just a
lot of doom and gloom, and nobody thought he could
pull it off. I mean, at least none of the
economists thought he could pull off, and yet now it
seems like he's pulling it off. So it looks like

(06:37):
he's changing the nature of international trade through the the
EU deal, through the Japanese deal, and and it looks
like all the other countries are in the UK and
there it seems like they're they're falling in line.

Speaker 2 (06:58):
Yes. So, I mean, you have to remember on Liberation Day,
the tariffs that he announced were something like fifty percent,
you know, shortly thereafter there were one hundred and forty
five percent on China or higher, right, So they were
extraordinarily large tariffs, and the stock market started crashing and
the bond market started freaking out. And so a few

(07:20):
days later he backed off all that and just said okay,
ten percent, and then things calmed down and tried to recover,
and in the there was a ninety day pause or
to allow for negotiations, and that was extended until August first.
And so now we are getting some trade deals that
have quite significantly high tariffs, somewhere around fifteen percent on

(07:45):
Japan recently and on the EU, higher on China somewhere
between thirty and fifty percent, and it's varied on other countries.
But yes, these are really quite high tariffs, certainly compared
to what we had before, when they were less than
five percent on average, you know, two three four percent.
Now they're more like eighteen percent average tariffs at this

(08:09):
point that we've imposed on the world. You could say, so,
how do you.

Speaker 1 (08:15):
Think, how do you think that changes the world economic
landscape changes?

Speaker 2 (08:21):
It just almost one hundred and eighty degrees in one
important respect. Now, the big change that's happened, you could say,
in the modern era as defined by my lifetime, is
in nineteen seventy one, the US stopped backing dollars with gold,

(08:41):
and at that soon after that, in the early nineteen eighties,
the United States discovered it could buy things from other
countries and it didn't have to pay with gold anymore.
When it had to pay with gold, there was a limit.
The US couldn't have a big trade deficit. In other words,
because when the dollars were backed by gold, if the

(09:01):
US bought more from other countries than it sold to
other countries, it had to pay for that deficit with
its gold, and gold was money, so if it ran
out of gold, it ran out of money, and the
economy would have collapsed, so trade used to balance right
up until the breakdown of the Brent and Wood system
and a few years beyond that. But in the early
nineteen eighties, the US realized they didn't have to pay

(09:21):
with gold anymore, and they started having these very big
trade deficits with the rest of the world starting in
the early nineteen eighties under President Reagan. Reagan had very
big budget deficits and that stimulated the US economy that
under President Reagan's eight years in office, the US government

(09:42):
debt tripled and that created an enormous amount of stimulus
for the US economy and the United States. With that stimulus,
that meant Americans had more money, they spent more, they
consume more, so the US started importing more and more
and more from other countries. Only our trade deficit went
from zero to very large levels. It kept getting larger

(10:05):
and larger. The highest up until now was two thousand
and six when it was eight hundred billion dollars the
trade deficit, But last year it's grown again to a
new peak of one point two trillion dollars. And all
together since the nineteen eighty our cumulative current account deficit,
which is more or less the same thing, as the

(10:26):
trade deficit has been seventeen trillion dollars, and this has
thrown out seventeen trillion dollars into the global economy that
the global economy wouldn't have received otherwise. So this has
allowed countries. I've lived in Asia most of my adult
life now Hong Kong, Singapore, Bangkok a few times each,
and I've watched this Asian miracle. Asia's been completely transformed

(10:50):
by having this enormous trade surplus with the US. That's
why China went from being a very, very poor country
when I first saw it in nineteen eighty six to
being the the world's second superpower, now nipping at our
hills and really becoming a real grave threat to US
national security because it's growing so rapidly. And so this

(11:12):
has caused the greatest global economic boom in history of
the US buying seventeen trillion dollars of goods from other
countries and paying for it all with credit. It it's
created a big global boom, but it's also created a
big global credit bubble. And this has benefited the surplus countries,
but has also benefited in the United States because when

(11:33):
a country like China, the Chinese manufacturer sells his goods
in the US, he gets paid in dollars. So these
surplus countries they get paid in dollars. So this seventeen
trillion dollars that went abroad, they have these dollars and
they have to invest these dollars in US dollar assets
like government bombs, which pushes which makes it easy for

(11:55):
the government to finance big budget deficits. And when they
buy government when the rest of the world buy government
bonds US government bonds, it pushes up the bond prices
and it pushes down interest rates, and low interest rates
are good for everybody. And they' don't only buy bonds,
they also buy stocks, so that pushes up the stock market.
So this the biggot. The trade defsit is exactly equal

(12:18):
to the capital inflows that come into the United States.
So last year the trade deficit was one point two
trillion dollars, so we had one point two trillion dollars
of capital inflows coming into the United States buying government bond,
pushing up their price, driving down their yield, and pushing
up the stock market. And so that's been very beneficial
to the US in that respect. But also by buying

(12:41):
things from other countries with very low cost labor like
China and now Vietnam and Bangladesh and India. This pushed
down the price of good so it held down the
inflation in the United States, even though the US government
had very big budget deficits, which in the pre Breton
Woods days, during Breton Woods, big budget deficits would have

(13:03):
overstimulated the economy and led to high rates of inflation.
And also the US has gotten away at least in
two thousand and eight, It got away with having enormous
amounts of paper money creation by the FED to pull
US out of the global financial crisis in two thousand
and eight, and there was no inflation after that, despite

(13:25):
the FED creating four trillion dollars in just a few
years and having budget deficits that were a trillion dollars
a year in two thousand and nine, ten eleven, twelve,
there was no inflation because globalization was so disinflationary. It
pushed down the prices and pushed down inflation. So that's

(13:49):
the background setting. That's the world that we've lived in.
This has been the paradigm for forty years. The US
trade deficit has been the driver of global economic growth
of US economic growth.

Speaker 1 (14:01):
And yet you've read it, you've written that you're not
such a big fan of this, even though it has
pushed up. So what's the downside to this?

Speaker 2 (14:15):
The downside to the old system or to the new
system we're moving into.

Speaker 1 (14:18):
The current system that we're in the old system, the
system of continuing increasingly big uh uh deficit, trade deficits
and f and budget deficits.

Speaker 2 (14:30):
Well, there are a number of downsides. For one's turned
China into a great superpower that's now on the verge
of overtaking us technologically economically.

Speaker 1 (14:40):
So we funded their growth.

Speaker 2 (14:42):
We find we find we made them into a very
powerful enemy that now threatens us at a national security
level in a way that most Americans truly don't appreciate it.
So that's a downside. Another downside is that when this
all began, it started hallowing out the American middle class
because all of the US factories moved overseas, and that

(15:05):
left all of those factory related jobs. They were all gone,
and so the standard of living or the for the
middle class really is stagnated now for decades, and that's
led to a lot of resentment among a very large
part of the US population, which has led ultimately to

(15:28):
popularism and growing and to this Trump Revolution, the election
of President Trump, who promised that he would reverse all this.
And so that's another downside bet that it's the middle
class has has been worse off as a result of this,
or at least relatively worse off. So that's a problem.

(15:50):
And also this arrangement has also led to increasing income inequality,
which is in my opinion, also a big problem because
you know, just a handful of I mean saying we're
going to have zillionaires. Elon Musk is worth four hundred
billion dollars depending on what the share price of Tesla

(16:13):
does from one day to the next. But when the
man has four hundred billion dollars, you can basically elect,
you know, you can definitely get fifty one senators elected
on your own. And so that's not democracy. And that's
just one problem with income inequality. So there are a

(16:33):
lot of downside risk. And maybe I'll talk this up
with saying that this has created an enormous global credit
bubble that must have more credit and more credit and
more credit to survive. If the credit stops growing, then
this bubble implodes in like we started to see in

(16:55):
two thousand and eight, when the all in two thousand
and eight. I know it seems like ancient history now,
but all the American when when the Americans couldn't repay
their mortgages, all the banks started to fail. Fanny and
Freddie did fail and had to be taken over. All
the other banks had to be bailed out. Had they
not been bailed out, they would have collapsed as they

(17:16):
did in the nineteenth and nineteen thirty in nineteen thirty three,
and we would have been back in a new great depression.
So this new system, I call it creditism rather than capitalism,
because it depends on credit growth to keep it inflated.
This is a very negative consequence of this arrangement because
now we're so vulnerable. If this thing pops, it will

(17:37):
have truly truly catastrophic consequences for our civilization.

Speaker 1 (17:41):
So, Richard, what could cause it to pop?

Speaker 2 (17:43):
What?

Speaker 1 (17:43):
What could What are the pins that could pop that bubble?

Speaker 2 (17:48):
Very large trade tariffs? Yeah, because that would cause the
US In theory, at least, if these tariffs are successful
in bringing down the trade, which is one of President
Trump's goals, then that means that this credit that has
been coming out of the US trade deficit is going

(18:09):
to get less and less. So as the US trade
deficit becomes smaller, the other countries will earn less money,
so they'll be poor. But they also have fewer dollars
to invest in US government bonds in US stocks, so
that will mean that bomb prices would fall, in interest
ratesabul rise, and if they buy fewer US stocks, that

(18:30):
means the stock market will fall. So to the extent
that this policy is successful in reducing the US current
account deaths that are eliminating it, this would be more
than enough to pop this global four decade long credit
bubble that we've been living in all of our lives.
So yeah, that's a real threat. But most likely these

(18:54):
policies are not going to bring down the trade deafs
that very substantially because after the One Big, Beautiful Bill
Act was passed, the deficits are going to become so
much larger. They're going to provide so much stimulus to
the economy that that Americans are going to have more money,

(19:17):
so they're going to continue consuming, and they're by consuming,
they're going to continue to import. As the trade deficits
probably not going to get very much smaller. But in
the absence of these trade trifs, the trade deafs that
would have become much larger because of the very large

(19:37):
budget deaficists that were now destined to.

Speaker 1 (19:40):
Let's talk about this for a second, because I'm a
little familiar with this one big, beautiful bill, given that
it's primarily a tax bill. And so here's the thing, though,
are Americans really going to have more money than they
have now because most of that deficits, in fact, pretty
much all of them deaf sit in that bill is

(20:02):
a result of continuing policies that have been in place
for the last eight years. It's not they're not new
policies only. The only two significant new policies that are
not tax that would put money in uh, well maybe
three people's pockets are an enhanced child tax credit, which
definitely puts money in their pocket, the no tax on tips,

(20:23):
and the no tax on overtime, and those would put
money in those in pockets. The people who do spend
that money, I mean, they're not they're they're really not savers,
they're spenders because there's a limit on those. But outside
of that, uh, there's really nothing new in this bill.
That wasn't already in twenty seventeen. So how do you
know what makes you think that? And in fact it

(20:47):
actually the deafset cost of this bill is less than
if all we've done is continue the twenty seventeen tax law. Okay,
it's it's actually the death sets down eight hundred million
dollars eight hundred billion dollars excuse me, eight hundred billion
dollars from what it would have been had all they'd
done just extended the twenty seventeen Act. So what is

(21:10):
it that you're seeing that you think, oh, well, this
is going to continue to put pressure. Is it just
the fact that they're not going to it's not going
to restrict them.

Speaker 2 (21:20):
Well, you're right, I agree with what you said. It
doesn't really provide that much additional stimulus. But by ensuring
that the budget deaths it continues to grow. From me,
it's supposed to last year, the budget deafs it was
one point eight trillion dollars. By twenty thirty four is
supposed to be three trillion dollars. Now this is before

(21:44):
tax revenues from tariffs, and those are going to be substantial.
Those could be as much as six hundred billion dollars
a year, so rather than being three trillion dollars, it
could be two point four trillion dollars ten years from now.
Two point four trillion dollars is going to keep growing.
The budget defice is going to keep getting bigger, it
looks like anyway every year, and that's sort of huge

(22:09):
budget deficits on those scales. We've never had budget deficits
this large during peacetime, or at least unless we're in
a very severe recession.

Speaker 1 (22:18):
Except when you think that'll keep that spread going, that
that that bond market going.

Speaker 2 (22:25):
Well, it will keep the economies inflated with a government
pumping and an extra to you know, more than two
trillion dollars a year of additional government stimulus or debt.
Ongoing stimulus is going to continue to support the economy,
and that should continue to support consumption, and that should

(22:45):
continue to support Americans importing from abroad. So I don't
expect the trade deficit to disappear, which is a great
thing from my point of view, because if it did,
the capital into the US but disappear, the entire this
forty year paradigm that we've been living in, where this

(23:06):
US trade deficit has been flooding the world with dollar
liquidity and creating this giant credit bubble. That whole paradigm
would have collapsed into a catastrophic near great depression if
the trade deficit did disappear.

Speaker 1 (23:20):
So what do you what do you see the impact
of the tariff's being on the worldwide economy? Well, clearly
now they settle to that ten to fifteen percent range
except for China.

Speaker 2 (23:34):
Yeah, so things are changing so quickly it's it's difficult
to take it all in. And I'm sure things are
going to continue to keep changing quickly. But when so,
let's talk about the tariff. Let's say a country has
to Let's take the Japan. Japan the tariff rates fifteen percent,

(23:58):
all right, So there are are three possible scenarios in
terms of who's going to pay for this tariff. It's
possible that the Japanese manufacturers will reduce their cost, their
price of their goods that they sell to the United
States by fifteen percent, and in that case, their profit

(24:22):
margins would shrink and they'd probably go bankrupt. But that
scenario they would be paying at all. That's one scenario
they'd be paying the tariff tax in effect, that'd still
be selling their goods in the United States, but they
would be selling that at fifteen percent a lower price
than they sold before, so they would be poor. So

(24:44):
in that scenario, they're the losers. But some of that
may may happen. I've seen estimates saying that currently maybe
twenty maybe the foreigners are eating twenty percent in that way.
But the reality is is that whoever imports the goods
into the United States, whoever brings the goods into the US,

(25:06):
like Apple, If Apple brings the good the telephones in
the United States from China or wherever Apple pays the tariff,
whatever the tariff it is, thirty percent on iPhones, I suppose,
since they're all made in China. And then Apple has
to make the decision does it take a thirty percent

(25:27):
loss on its margins or does it pass the whole
thing on to the consumers and make the phones thirty
percent more expensive. And in the first scenario, Apple would
be the big loser and their profits would fall, their
profit margins would fall, and presumably their stock price would fall.
But if they passed the entire thing onto the they

(25:49):
passed the entire tariff tax onto the consumers. Then the
consumers would pay thirty percent more for their iPhones, and
the consumers would be the losers. So in the end
it's going to be spread out between these three. You know,
the foreigners are going to but you have. But now
I think about the foreigners point of view. If this

(26:11):
was just imposed on one country like China, then then
the United States could buy products from other countries, not
the cheap more cheaply. But these tariffs aren't you could
call them universal, So the Americans cannot produce the things
that they buy. That most of the goods that the

(26:34):
Americans buy are made in factories overseas. That may be
able to change gradually over the next five to ten years,
but next year there aren't factories to make iPhones in
the United States or the other. You know, again, our trade,
our current account justice was one point two trillion dollars.
That's not going to change overnight. So now the foreigners

(26:57):
are sort of all on the same boat. Would any
of them reduce their profit margins because the Americans have
to buy these products from some foreigner. They can't make
them at home, So why should the foreigners cut their profits?
There's nowhere else for the Americans to buy their Christmas

(27:18):
gifts from they have to buy them from overseas for
the next many years anyway. So most of this tariff
tax is going to be borne by Americans, either the
American companies who bring in the imports and pay the
border pay the tax at the border, or the American consumers.

(27:40):
So it looks like inflation is going to pick up
because of these tariffs, and that's going to be interesting
for a number of reasons. But we've started to see,
you know, naturally, if you put a you know, fifteen
fifteen to thirty percent tariff, fifteen to fifty percent tariff

(28:02):
on imported goods, the cost of goods in the US
is going to go up. And so that's that's the
first round effect, that just the tariffs themselves will make
things more expensive. But then you come to a second
round that could potentially just be a one off sort
of hit. But then you come to the second round effect.

(28:22):
If you if you if the United States actually begins
to try to build factories in the United States to
make these goods itself, then that's going to lead to
very low rates of unemployment. The unemployment rate in the
United States is extremely low, already four point one percent.

(28:45):
We have a labor shortage at this point, and on
top of that, we're deporting potentially millions of people over
the next couple of years, so there's going to be
a labor shortage. So the second round effect is if
the American business has begun building their own factories in
the US, this is going to push up wage cost

(29:06):
and push up material cost. Of course, the cost of
steel and the cost of copper and aluminum. There are
fifty percent tariffs on on all of those things at
the moment, and so this is going to be the
second round effect where you get hire leading to a
wage push inflation spiral. So it is very probable that

(29:28):
we're going to see a meaningful increase in inflation. The
inflation rate CPI Consumer Price Index was two point four
percent last month, which or may I should say, which
was fairly close to the fed's two percent target. But
then in June it moved up to two point seven percent.

(29:49):
It's likely to keep moving up into the threes, probably
into the four percent range. At the fed's duty, it's mandate,
its official mandate from Congress to hold down the inflation
rate and also try to maximize employment at the same time.
So if the inflation starts moving up to three four percent,

(30:11):
the Fed's definitely going to increase interest rates rather than
cutting interest rates. By now, the federal funds rate is
around four point three percent, and President Trump very badly
wants the FED to cut that as much as possible
and as soon as possible. But the tariffs are pushing

(30:31):
up inflation, and they're likely to push it significantly higher.
So the Fed is going to be more prone to
hike interest rates during next year than to cut rates.
This is going to lead to a very interesting situation
because President Trump tends to get what President Trump wants
to get, it seems to me, and what he wants

(30:53):
to get is lower interest rates. So the FED Chairman
Jerome Powell term doesn't expire until as FED Chairman doesn't
expire until May next year. The President Trump has been
threatening to fire him, most recently suggesting that he would

(31:16):
be fired for cause for budget overruns on renovating the
FED building in Washington. But so it looks like we're
moving toward a showdown between President Trump and the Fed.
And as I said, President Trump seems to get what

(31:36):
President Trump wants, and there are many ways that he
can get what he wants, So there's a real possibility.
Six months ago I made a macro Watch video called
will Trump in the Fed, and were very much that
won't be enough just to replace Chairman Powell with someone
who will do the president's bidding. Trump will be able

(32:00):
to appoint the next FED chairman, but there are twelve
other FED governors or eleven other FED governors and presidents
who take rotate it and vote on the level of
interest rates, And just because he replaces chairman doesn't mean

(32:21):
he controls the whole FED. So more recently we've heard
Treasury Secretary Bessant begin talking about the need to restructure
the entire Federal Reserve system. So we may see some
really really aggressive moves by the Trump administration that ends
up effectively recreating the FED or removing it all together.

(32:49):
In theory that the Treasury Department could do what the
FED does now, you know, the FED wasn't created until
nineteen thirteen. Before that, the Treasury Department created the money
and did all of the things effectively that the FED does. Now,
we could revert back to a world if really, if

(33:14):
push comes to show where the Treasury Department takes over
as the issuer of money.

Speaker 1 (33:22):
What do you see what? What do you see as
the downside to that? I mean, it seems to me
one of the challenges with the Fed is it's controlled
by the big banks. It's owned by the big banks,
and so, you know, you could you could say that
the big banks really control a lot of the monetary policy.
So is that is that? What do you see as

(33:43):
the downside to the Treasury taking it over?

Speaker 2 (33:46):
Well, you could say that big banks controlled the Congress
as well, without too much exaggeration. The big banks generally
get what they want because they give a lot of
campaign contributions to the people who So the downside to
this is that if you have an inflationary environment to

(34:08):
start with, where tariffs are pushing up prices and big
government budget deficits are stimulating the economy and pushing up prices,
and you have a labor shortage at a time when
the US is reindustrializing, pushing up wages and pushing up prices,
and your cost of steel, aluminum, and copper are fifty

(34:28):
percent more than they were a month ago, then you're
an environment, very quite an inflationary environment to start with.
If you then so even if the even if the
Trump administration completely takes over monetary policy, they could cut
the Federal fund rate, the interest rate that the FED controls.

(34:51):
They could cut that as much as they wanted, and
that would provide a lot of additional stimulus. But that
additional stimulus would create even more inflation. So the real
problem is they can control the short end of the
interest rate curve, but they can't directly control the long end.
They can't control the ten year bond yield. No one's

(35:12):
going to want to own a ten year government bond
that yields four percent if the inflation rate is five percent, right,
So if the inflation rates five percent, the ten year
government bond yield would probably be seven percent or higher.
In that environment, what's the Trump administration going to do.
They're going to have the FED or the Treasury Department,

(35:32):
or whoever's controlling monetary policy on their behalf. They're going
to have that institution to another big round of quantitative easing,
create a lot of money to buy government bonds, to
push up the price of the government bonds and push
down the yield on the ten year government bond. And
in that way they can hold they can push down

(35:52):
the ten year bond yield as well as the short end,
then hold down short term rates. They can hold down
long term rates, and this would create a big, big
economic explosion boom in the US, but it would be
highly inflationary and would among other things, I mean, it
would create a lot of wealth, but it would the

(36:15):
dollar would divide very sharply against other.

Speaker 1 (36:19):
Which is which is which is really just a horrendous
tax on the middle class and the poor. I mean,
that's that's really what ends up being that it's a
very regressive tax, inflation and uh horrendous particularly on people
who are on a fixed income budget like social security recipients,
et cetera. So not not a not a pretty picture.

(36:40):
What do you see What positive could come out of
the of these policies, do you see?

Speaker 2 (36:47):
Well? One thing that I think is very positive about
these policies is really that one of the main goals
of this entire strategy is to stop China's economic growth.
The chairman of the Council of Economic Advisors to President

(37:07):
Trump is a man called Stephen Neran, and he published
a paper back six months ago called A User's Guide
to Restructuring the Global Trading System and this is a
paper everybody should read because it lays out the exact
strategy that we've seen play out. This tariff strategy. It's

(37:32):
a three step plan with two objectives. The three step plan.
Step one, you put very high tariffs on all the
other countries in the world. Step two, you threaten all
the other countries in the world that if they retaliate,
will no longer protect them militarily, so you know, the

(37:54):
EU retaliates will let Russia take over Europe, will no
longer abide by our NATO commitments. The same thing goes
for Japan and South Korea and everybody else. And Step
three then is to essentially have these trade negotiations with
these terrified trading partners and make them agree to these

(38:17):
high tariffs without retaliation, but also to a devaluation of
the dollar, and also importantly, to try to make them
put up very high trade barriers against Chinese goods, just
like the US has very high trade barriers against Chinese goods.

(38:37):
The objective is to build a tariff wall that encloses
China within China in order to stop China's economic growth,
so that China will not become more powerful than US
and take over the world. So that's the objective. Part
of the one part of the objective is to isolate
China and stop its growth, and the other state more

(38:59):
publicly stated part is to reindustrialize the United States. So
I think it would be a good thing to stop
China's economic growing threat to the United States because it's
very serious and if they win the AI race, it
could be done. You know, they'll they'll rule the world
in short order and their neck and act with us.

(39:20):
So it's a very dangerous situation. So that would be good.
You know. It also makes sense for the United States
to be much more industrialized so that we can have
the materials that we need, for instance, ships and steal
the things that are necessary to have if you're going
to get involved in a war one day, which presumably

(39:41):
we will since we've always have in the past, so
we need to have domestic sources of the supplies that
we need. So that would be good. But the danger
is if the danger is that if things go wrong,
and this if they are far global credible, they grad
that if it pops, we could go seriously spiral into

(40:04):
a great depression and everyone would be worse off in
the US and around the world and you know who
you know, that would probably lead to global contract flicks,
just like the Great Depression led to World War Two.

Speaker 1 (40:16):
Yeah.

Speaker 2 (40:18):
Time.

Speaker 1 (40:19):
It's interesting though, if you kind of look over history
and you go you see great industrial powers that have
you know, fallen off, like like England UK, right, they
seem to have. What they've done is they've been they
just pushed their industrialization off shore, and all of a
sudden they don't have the industrialization on shore, and they've

(40:41):
they've lost their they're they're really their their power of
investment and and it's just not happening, which which makes
me want to turn to Trump's idea of a sovereign
fund from an investment standpoint, because this is I mean,
I see this, I mean from the Big Beautiful Bill.
The primary, the biggest provisions the Big Beautiful Bill are

(41:03):
all about stimulating manufacturing and in industry in the US.
That's the the full expensing, the bonus appreciation, the research
and development expensing. Those are really the two really two
biggest stimulus. Most of the really a lot of the
stimulus is business stimulus. A lot of chatter about the
about the tips and so forth, but the bigger stimulus

(41:25):
is the economic stimulus to the businesses. And so if
you look at that and then you go, okay, now Trump,
Scott Japan, he's EU now looking at actually tagging onto
their basically using them for a sovereign fund for the US.
First of all, can you explain it? And second of all,

(41:48):
just let's make this our final segment and talk about
what you think of the idea of sovereign fund.

Speaker 2 (41:55):
Well, can I explain it?

Speaker 1 (41:58):
I'm not.

Speaker 2 (41:58):
I can't explain it because no one can explain it
because the details haven't been released. It seems to be
more of a concept at this stage. These these trade
deals so far are more or less just written on
the back of the envelope. It seems like the details
haven't been worked out because, as you can imagine, the
details are so complex it normally takes y years to

(42:20):
work out comprehensive trade deals with other countries. So I
can't explain it in detail. But in terms of a
sovereign wealth fund, I think that is a fantastic idea.
As we've discussed before, my last book was called The
Money Revolution, How to Finance the Next American Century, And

(42:41):
in fact here it is. It's five hundred pages, and
the whole purpose of this book, which was really hard
to write and took a very long time, is to
how to finance the next American century. How to finance
it is to have a US sovereign wealth fund for

(43:01):
the US government to invest in new industries and new
technologies on an extremely aggressive scale, in all the industries
of the future, starting with AI and quantum computing, and robotics, neuroscience,
genetic engineering, biotech, and all of the industries of the future.
That was the theme of my book. So when just

(43:23):
over just under a year ago, when President Trump said
he was in favor of a US sovereign Wealth Fund,
I thought that was the greatest thing ever, because that
was what I've been advocating for years now, and the
whole entire theme in my book that the US can
afford to do this, the US must afford, must do this,
and pointing out the extraordinary benefits that this sort of

(43:44):
investment on a very large scale, financed by the government
and carried out by the private sector, this will produce
such extraordinary technological breakthroughs and rev up US economic growth
much higher level than we've been an experience in recent years.
Improve US productivity and ultimately lead to extraordinary technological breakthroughs

(44:10):
that will not only shore up US national security and
ensure that we continue to be in control of our
own destiny, which is now at risk, but also break
medical breakthroughs that will cure cure all the diseases, cure cancer,
cure Alzheimer's, extend healthy life expectancy by decades. This is

(44:35):
the sort of things that we could accomplish with a
large enough sovereign wealth fund. So the bigger the sovereign
wealth fund, the better. As long as it's invested in
the cutting edge technologies, the industries of the future. This
is the path forward for the United States. So I'm
really thrilled about these announcements. When I first started talking

(44:57):
about this stuff two decades ago, people would say, well,
that's an interesting idea, but you know that's never going
to happen. And gradually, year by year, we're moving more
and more in that direction. So I do hope that
that is the way forward. I mean, I believe that's
the way forward. I believe that's circumstances demand it either

(45:19):
we do this or because China has been doing it
so aggressively right and successfully, that they are growing. They
invest more in technology, research and development in technology than
we do now, and that's why they have.

Speaker 1 (45:34):
And we've seen this in China, we've seen it in
Saudi Arabia, we've seen it in actually Kazakhstan has actually
done a terrific job reinvesting their oil back into their
infrastructure and their economy. So it's a very interesting idea, Richard.
So much. We could go on for days here, but
it would get really it would get really late there

(45:57):
in Thailand if we did that. So where can we
get more information and really tap into your current thought
process on a regular basis.

Speaker 2 (46:08):
So the best way to do that is to subscribe
to my video newsletter and macro Watch. As I mentioned,
every couple of weeks, I upload a new video discussing
something important, like the things that we've been discussing. Tonight,
the next video is going to be on tariffs and
their impact on capital inflows in the United States, and

(46:31):
the one after that the impact of tariffs and inflation
and the coming battle between the Fed and President Trump
and how all those things are likely to impact wealth
and asset prices. So to find macro Watch is on
my website which is Richard Duncaneconomics dot com. Just to
Google Richard Duncaneconomics dot com and subscribe to macro Watch.

(46:55):
You'll get a new video every couple of weeks. You'll
have immediate access to more than one hundred hours of
macro watch videos in archives going back to twenty thirteen.
And I'd like to offer your listeners a subscription discount,
a fifty percent discount. If they hit the subscribe button,
they'll be prompted to put in a discount coupon code.

(47:18):
If they use the coupon code ability, they will be
able to subscribe at a fifty percent discount. Now I
believe they'll find it really quite affordable. We're not talking
thousands and thousands of dollars. This is really very affordable.
So I hope your listeners will check it out. Riachard
Duncan Economics dot com and subscribe to macro Watch. I
love it.

Speaker 1 (47:37):
Richard. Thank you so much for taking time out of
your very busy schedule, and thanks everyone for paying attention
to While we frequently talk about microeconomic what's going on
in your daily life, the macroeconomic picture has such a
long term and really in many ways immediate effect on
your short term plans for your business that the more

(48:01):
we can get on the macro, I think, the better
off we are. And when we do that, we're always
going to make way more money and pay wayless tax.
We'll see you next time on the Wealthability Show. Thanks
for listening to The Weltability Show. If today's episode gave
you a new perspective, remember this. The tax law is
not your enemy. It's a roadmap, and when you know
how to follow it, you can build real lasting well.

(48:24):
If you're a business owner or investor who's tired of
overpaying taxes, the Wealthability Accelerator is your next step. You'll
have the opportunity to work directly with me for eighty
percent less than my standard rate, and I'll personally guide
you through how to change your facts so that you
can change your tax Go to wealthability dot com, slash

(48:46):
bonus and apply today. Remember it's not just what you make,
it's what you keep.

Speaker 2 (48:57):
This podcast is a presentation of rich Dad Media Network.

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