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[00:00:34] Wir werden die Unternehmen zurückbringen. Wir sehen uns heute, als ich überrascht,
[00:00:40] diese empty, olden, beautifulen, steel mille und fabrieren, die sind empty und fallen.
[00:00:47] Einige haben sich in die Hunde zu verabschieden, aber das wird nicht die Verrückung.
[00:00:51] Wir werden die Unternehmen zurückbringen. Wir werden die Unternehmen wiederum reduzieren.
[00:00:54] Wir werden die Unternehmen weiterentwickeln, um die Unternehmen zu machen, in den USA zu machen.
[00:00:59] Wir werden die Unternehmen mit starken Tariften, weil ich glaube,
[00:01:03] die Unternehmen in den USA zu machen.
[00:01:05] Ich glaube, ich glaube, dass Sie sind.
[00:01:06] Ich glaube, dass Sie sind.
[00:01:07] Aber ich kann mich auf Ihre Karriere betrachten.
[00:01:11] Aber ich bin die beste Worte in der Dictionary ist Tarif.
[00:01:15] Und es ist mein Lieblingswort.
[00:01:17] Es braucht ein Publikum-Rollanz firm.
[00:01:22] Aber ich bin die beste Worte in der Dictionary.
[00:01:25] Das ist die Debunking Economics Podcast mit Steve Keen und Phil Dobby.
[00:01:31] Das ist die Worte.
[00:01:33] Das ist die Worte.
[00:01:33] Das ist die Worte.
[00:01:34] In Trump's eyes.
[00:01:36] Shall I compare thee zu a summer's day?
[00:01:39] Aber will es work?
[00:01:40] Trump's tariff plan, oder will es create inflation?
[00:01:42] Oder will es inhibit global trade?
[00:01:44] Oder will es ein stronger dollar actually mean es hurts US exports?
[00:01:47] Wie will es all shake out?
[00:01:49] Has he thought through all of these permutations?
[00:01:52] Well, half of America clearly loves the idea, so it's going to happen.
[00:01:56] What does it mean for the rest of us?
[00:01:58] We'll look at that this week on the Debunking Economics Podcast.
[00:02:06] So Donald Trump wants to impose tariffs on China and the rest of the world, really,
[00:02:10] but specifically China to get businesses to base production within the US,
[00:02:14] rather than outsource overseas where labour is cheaper.
[00:02:18] So Steve, the US imports about 450 billion in goods from China.
[00:02:22] He imposed tariffs of 25% on half of that.
[00:02:26] Now he wants to go 50% on everything.
[00:02:30] I wonder if it's going to work.
[00:02:32] There's only signs that actually people are responding.
[00:02:36] So the CEO of Breville in Australia has said,
[00:02:39] do you know Breville was actually an Australian company?
[00:02:40] I learned that this last week.
[00:02:43] He's known that for quite some years.
[00:02:44] Yeah, well, I mean, so there we are.
[00:02:45] That's great.
[00:02:46] There's Australia, quite a big company.
[00:02:48] Very soon.
[00:02:49] Probably our most successful manufacturing company.
[00:02:52] Yeah, making good stuff and expanding.
[00:02:55] Anyway, the CEO has said that they are already moving
[00:02:58] to their production out of China.
[00:03:00] They're trying to build up their inventory in the United States,
[00:03:04] you know, as much as possible.
[00:03:05] Let's get as much inventory into the country before the tariffs start.
[00:03:09] And then, look, their share price fell 3% on the day that Trump was elected.
[00:03:14] But if they move to the US, then Donald Trump is winning, isn't it?
[00:03:17] His plan is working.
[00:03:19] Yeah, and this is, you know, it's actually, there's been 50 years of American policy
[00:03:24] predicated on free trade being advantageous, which the Chinese exploited very effectively
[00:03:30] to build up their manufacturing capabilities.
[00:03:33] And now, I think it's, except in a few, a handful of industries, China is out-competing America
[00:03:42] across the manufacturing spectrum.
[00:03:44] And this is, you know, in terms of how well the policy has worked, the previous free trade
[00:03:50] policy, the answer is very well for China and not particularly well for America, which
[00:03:54] is the inverse of what you normally expect with policy in the, you know, the economic theory
[00:04:01] said both sides would benefit.
[00:04:03] Well, I think Trump is picking up on the feelings of now we've got to say as the majority of
[00:04:08] Americans, since he won a majority of the popular vote, that this hasn't worked out well
[00:04:12] and we want a reverse direction.
[00:04:14] Yeah, but the price associated with that's the question.
[00:04:17] We'll come to that in a second.
[00:04:18] Let's just finish off with Breville.
[00:04:21] Their CEO said now they're looking at moving to Mexico.
[00:04:23] I guess he thinks that's because Mexico is part of the North America Free Trade Agreement,
[00:04:28] the NAFTA, which would mean that, you know, it would be tariff free into the US.
[00:04:34] But we look at the last Trump administration and in 2019 he said, right, we're going to put
[00:04:40] 5% tariff on Mexico.
[00:04:42] And then each month thereafter, up to a maximum of 25%, we're going to increase it unless Mexico
[00:04:48] takes steps to stop illegal immigration from Mexico into the United States.
[00:04:54] It didn't happen because Mexico said it would try and increase security measures.
[00:04:58] So that was a case of Trump, you know, just doing his whole art of the deal thing.
[00:05:03] But it does show that things like free trade agreements, you know, are not sacrosanct,
[00:05:08] that they can be ripped up at any moment.
[00:05:11] If you move a business into Mexico thinking that you're going to get free trade into the
[00:05:14] US, which could be abolished, that agreement could be abolished after you've spent a fortune
[00:05:20] setting up a factory, it's not safe to draw any conclusions, is it?
[00:05:25] And the only safe one is the one that he's trying to push for, people to move manufacturing
[00:05:29] to America.
[00:05:31] And, you know, on this front, he's, you know, the fact that he's so capricious means that
[00:05:37] you simply can't expect any existing agreements going to be continued with.
[00:05:41] So the only place to, if you want to get into America via voiding tariffs, the only place
[00:05:46] to make this stuff is in the US of A.
[00:05:48] But about, just on Mexico, 80% of their exports go to America.
[00:05:54] So Mexico is hugely dependent on the United States for its own economy.
[00:06:01] If there was a 20% tariff or a 25% tariff, I wonder how much of that would be compensated
[00:06:06] for by the fact that Mexican currency would become so much weaker, whether the peso, I
[00:06:12] mean, curiously, actually, this year, the peso has been climbing.
[00:06:15] It's gone from 16 peso to the dollar to almost 21.
[00:06:19] And the news of the, you know, Trump 2.0 hasn't stopped that climb.
[00:06:23] But I wonder whether, you know, in fact, if you started to see trade diminishing, you'd
[00:06:29] just see the peso massively drop in value.
[00:06:33] And that would negate some of that impact of that tariff.
[00:06:35] Yeah.
[00:06:35] I mean, the currency movements obviously can go in the opposite direction of tariffs.
[00:06:39] So that can make the point.
[00:06:42] I think Trump is still looking at the volume of exports and those volume continued rising.
[00:06:48] They've been continued with the policy.
[00:06:49] So, you know, I don't think, again, I wouldn't respond to this by moving to a country which
[00:06:58] currently has a free trade agreement with America.
[00:07:00] I think if you're going to respond to this, then, you know, the only option is moving your
[00:07:04] production base to America.
[00:07:07] And that's what, and Trump, of course, the other thing he wants to do is encourage American
[00:07:11] companies.
[00:07:11] So it's very nationalist.
[00:07:13] This is the basic point of his administration.
[00:07:15] It's a very nationalist America first administration on everything.
[00:07:20] And obviously, when it comes to trade, he's not going to be happy or his team won't be
[00:07:27] happy if they see the volume of the Mexican exports still rising despite the other measures.
[00:07:32] But what happens if you don't?
[00:07:34] So, I mean, irrespective of whether people move to Mexico or not, I mean, Mexico is currently,
[00:07:38] as I say, 80% of their exports go to the United States.
[00:07:42] If that door gets closed, what happens to the Mexican economy?
[00:07:45] What happens to those Mexican people who all of a sudden can't afford to feed their families?
[00:07:49] What do they do?
[00:07:50] Yeah.
[00:07:50] Yeah.
[00:07:51] And that leads to political turmoil in Mexico, which has had a fair share of that itself anyway.
[00:07:57] Which is their next door neighbor.
[00:07:58] And obviously more and more than then try and make it to the United States.
[00:08:01] Yeah.
[00:08:01] But it depends on how much complexity the country has managed to gain by taking advantage of
[00:08:09] exports to America over time.
[00:08:11] And in that front, China is absolutely the winner because you cut China off from the rest of
[00:08:17] the world to try to do it.
[00:08:18] And it's going to say, okay, we'll just continue developing for our domestic production and
[00:08:23] consumption base.
[00:08:25] Because you have to have been to China before this whole transition occurred to appreciate
[00:08:33] how dramatically the country has been transformed into a manufacturing powerhouse.
[00:08:39] Because in 1981, 82, I was visiting Chinese factories with a group of Australian journalists
[00:08:47] I took there for a conference with Chinese journalists.
[00:08:49] And we were going inside factories making incandescent light bulbs.
[00:08:56] And it was hand assembly.
[00:08:58] It was incredibly primitive stuff.
[00:09:00] And the same for some of its gas, its projects in the countryside.
[00:09:07] Methane from pigs being used to power a local production facility.
[00:09:14] That itself was not a bad thing.
[00:09:16] But the level of technology was just way, way, way behind.
[00:09:20] Yeah.
[00:09:21] Although they are stepping it up.
[00:09:22] You go there now.
[00:09:23] Yeah, stepping it up now.
[00:09:24] You feel like you've gone to a, you know, either when you're at Disneyland or you've moved
[00:09:30] to Star Trek.
[00:09:31] I mean, the quality of manufacturing and the infrastructure in China is just stunning.
[00:09:37] And that's just in a 40, 45, five-year period.
[00:09:39] Yeah.
[00:09:40] But what they are having the problem with, though, is, you know, that move to domestic
[00:09:46] demand.
[00:09:46] They are producing a surplus of goods, always have, still exists today, because they are,
[00:09:53] you know, hell-bent on exports.
[00:09:55] So if they, this transition to domestic consumption is proving very difficult for them.
[00:10:00] I think they'll still manage it.
[00:10:01] I mean, because it's the level of consumption of Chinese people now is, you know, orders of
[00:10:09] magnitude.
[00:10:09] And that is maybe two orders of magnitude improvement, certainly one, over the last 40 years.
[00:10:18] It's dramatic how much more consumption Chinese people are used to compared to what they had
[00:10:25] back in the days of the, you know, the Mao regime.
[00:10:28] So don't underwrite the capacity of Chinese consumers to consume.
[00:10:33] But, well, it's just taking a while.
[00:10:35] That's all.
[00:10:35] And meanwhile, I mean, China's approach, obviously, would be to try and weaken the yuan as much
[00:10:40] as possible.
[00:10:41] Export nations want a lower value, obviously, in their currency to make their exports even
[00:10:46] cheaper.
[00:10:46] So if the dollar strengthens and all other currencies weaken, because that's what's got to happen,
[00:10:52] if the U.S. dollar strengthens, then everyone else has got to be down or, you know, at least,
[00:10:55] you know, the constituent parts of the DXY, depending on how you're measuring the strength
[00:10:59] of the U.S. dollar.
[00:11:01] Then, you know, it becomes cheaper to import in the United States and more expensive to
[00:11:06] export.
[00:11:07] So is that really a win for America?
[00:11:08] Well, I mean, America needs to revive what it used to have in terms of a manufacturing
[00:11:15] capability.
[00:11:16] And, like, whenever I get involved in the discussion of trade, the first thing I turn
[00:11:20] to is the Atlas of Economic Complexity System, which is run by Harvard University and uses
[00:11:26] a set of computer statistical devices to measure how sophisticated a manufacturing system a country
[00:11:34] has.
[00:11:35] Now, America back in 2000, that's not long ago.
[00:11:40] I wish the database went further back on that front.
[00:11:41] But in 2000, America ranked number six in the world.
[00:11:46] It now ranks number 14.
[00:11:48] If you take a look at China over the same time period, China is going to type in its name
[00:11:53] here in the system.
[00:11:55] China was number 39 in 2000.
[00:11:59] It's now number 18.
[00:12:00] So a few more years of the current trend and China will rank as more sophisticated in
[00:12:06] terms of the goods it can produce than America, which is the world's top nation.
[00:12:09] Now, what country do you think holds the number one position?
[00:12:13] Oh, gee, I don't know.
[00:12:14] That's an interesting one.
[00:12:15] Japan?
[00:12:16] Yes, and it's held consistently for the last 21 years.
[00:12:21] So the Economic Complexity Index, number one since 2000 right out of 2021, is still Japan.
[00:12:27] So the idea being that the more industry, and we've talked about this in the past, the more
[00:12:32] industries you've got, the more cost fertilization between those industries.
[00:12:36] Therefore, the opportunity for new initiatives to be developed.
[00:12:40] You get a more innovative culture.
[00:12:41] That's right.
[00:12:42] Yeah.
[00:12:43] And then as China's going, at some point, like in the next three or four years, it'll pass
[00:12:47] America in terms of its capacity to produce complex goods.
[00:12:51] And of course, one of the most important ones there is integrated circuits.
[00:12:54] If the trade embargo that America's put on China already means that China develops its
[00:12:59] own equivalent of AMSL, then the Dutch company that dominates, well, is the only, Frankfurt
[00:13:06] dominates, it's the only company that makes devices that can make the smallest scale of
[00:13:10] microchips.
[00:13:11] If they produce that, then China becomes dramatically self-sufficient here.
[00:13:16] And that's my long-term perspective that with what I expect from climate change and its impact
[00:13:23] upon global economies, the capacity to produce what you need domestically is absolutely critical.
[00:13:28] The days of focusing upon globalization, I think, are over.
[00:13:33] And in that sense, you know, I'm not dismayed by what Trump is trying to do on that front for
[00:13:41] America because given what's coming out, what's going to be each country for itself.
[00:13:46] And the more you can produce of your own needs, the less likely you are to have a collapse
[00:13:50] caused by climate change.
[00:13:51] Well, it has started to happen a little bit, hasn't it?
[00:13:53] As a result of, you know, what we saw with the pandemic and the shock that that produced
[00:13:57] to supply chains.
[00:13:58] I think every company realized the need to shorten those supply chains and more on shoring.
[00:14:04] But just let's just finish off before the break on this on this idea of the currency,
[00:14:07] though, because if America, which, you know, has been a big import, big net importer, all
[00:14:14] of a sudden, I mean, I don't think it'll ever get to the stage where it's it's exporting
[00:14:19] more than it imports.
[00:14:20] But if it gets closer to it, then we are going to see a response in the US dollar, aren't
[00:14:26] we?
[00:14:26] The US dollar is going to rise.
[00:14:28] It's up almost 7% anyway, over the last 12 months.
[00:14:32] That's before Donald Trump's got his feet under the desk.
[00:14:36] And, you know, so maybe it's going to be 10, 15% up.
[00:14:40] And that does sort of negate, you know, we're looking at 20% tariffs around the world.
[00:14:45] That sort of negates the impact of those tariffs.
[00:14:47] So what does he do?
[00:14:48] He says, well, look, I'll put the tariffs up even more than, you know, it's because obviously
[00:14:54] currencies have to level out.
[00:14:56] The only way out of the value currency for America is to see us being a country, the
[00:15:00] global reserve currency.
[00:15:02] This is the main problem.
[00:15:04] The fact that the American dollar, the Bretton Woods, insisted that the American dollar become
[00:15:11] the reserve currency rather than Keynes' idea of a clearinghouse using what he called a bank
[00:15:16] hall, inevitably meant that the American dollar has to be overvalued because every country
[00:15:20] on the planet needs to have American dollars to engage in trade, whether or not they're buying
[00:15:25] American goods.
[00:15:26] And that's necessarily was an advantage for the American financial system and a disadvantage
[00:15:31] for the manufacturing system.
[00:15:34] So the real way...
[00:15:34] One in 10 transactions, I think I read somewhere, one in 10 transactions with the US dollar actually
[00:15:38] involves the United States.
[00:15:39] But do you think the US would relinquish that position?
[00:15:43] Certainly not under Trump.
[00:15:44] I mean, you know, again, the whole...
[00:15:46] But if he's got a rising dollar, if he's hit with a problem that his policies are causing
[00:15:51] the US dollar to get stronger and stronger by the day, and that's negating the effect
[00:15:55] of his tariffs, then he's got a problem, hasn't he?
[00:15:58] Absolutely.
[00:16:00] So what does he do about that?
[00:16:01] Your guess is as good as mine on what Trump will do.
[00:16:03] But yeah, it's...
[00:16:04] Puts tariffs up even more, I guess.
[00:16:06] It's it, most likely.
[00:16:07] I mean, it's inevitable.
[00:16:08] It's a problem which if you...
[00:16:09] There is...
[00:16:10] It's easy for a country that's not the reserve currency to whack up tariffs and not have a
[00:16:15] particularly dramatic effect upon its exchange rate.
[00:16:18] But America does it.
[00:16:19] And, you know, the reserve currency also, which necessarily has to run a trade deficit
[00:16:25] to enable those dollars to turn up in foreign countries for them to be able to re-import back
[00:16:34] in America, they're caught both ways.
[00:16:39] There's no way they can do one without the other moving in a compensating direction.
[00:16:44] But it doesn't help innovation from American point of view.
[00:16:49] It's sort of backward looking to say jobs that have gone overseas for companies that are
[00:16:54] trying to serve our domestic market, we want those jobs to come back.
[00:16:57] The price we're going to pay for that is...
[00:17:00] Well, first of all, those goods are going to be more expensive.
[00:17:02] We'll come to that after the break.
[00:17:03] But the other thing is we're going to have a strong US dollar as a response of that.
[00:17:06] The effect of that is for anybody in the US who's exporting, all of a sudden the cost
[00:17:10] of US goods become more expensive.
[00:17:12] It becomes an expensive place to create goods for the rest of the world.
[00:17:16] So the innovator will say, well, OK, the US is the last place in the world I want to be.
[00:17:22] So, for example, you know, everything that Microsoft or anybody else produces all of a sudden
[00:17:26] goes up 10% just by exchange rate fluctuations.
[00:17:31] There's no...
[00:17:32] It's a dilemma.
[00:17:33] There's no easy way out of it.
[00:17:35] He's going to find out about the hard way.
[00:17:37] Yeah.
[00:17:37] Do you think he's thought about it?
[00:17:38] I don't think he thinks that far.
[00:17:40] No.
[00:17:40] No, I'm sure he hasn't.
[00:17:41] All right.
[00:17:41] OK.
[00:17:41] I wonder if he's thought about inflation as well.
[00:17:43] We'll talk about that because that's the one thing obviously everyone is pointing to.
[00:17:46] This is going to be inflationary.
[00:17:48] And, you know, what's the Reserve Bank going to do about that or the Federal Reserve?
[00:17:51] We'll look at that when we come back.
[00:17:53] It's the Debugging Economics Podcast.
[00:17:55] We are talking about terrific, get it, Trump on the show today.
[00:18:01] Back in a moment.
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[00:19:25] This is the Debunking Economics Podcast
[00:19:27] with Steve Keen and Phil Dobby.
[00:19:33] So Steve, if manufacturing is brought back into the US,
[00:19:37] I mean, I wonder how much it is going to help America
[00:19:40] where the average wage is more than four times what it is in China,
[00:19:46] six times what it is in Mexico.
[00:19:48] So say the average value of a good is 30% of its cost is based on labor.
[00:19:53] So something that costs $100 from China could cost twice that amount in the United States
[00:19:59] if it's produced in the United States.
[00:20:01] So actually, people would still find it cheaper to buy that good from China
[00:20:04] unless the tariff on Chinese goods is 100%, doubling the cost.
[00:20:11] There are also other issues, which are about the level of markups.
[00:20:14] So a large part of the increase in inflation in recent decades has been by firms increasing their markups
[00:20:20] by more than the rate of inflation.
[00:20:22] It's not just wages that cause a higher level of costs.
[00:20:25] So you've got huge profit margins, a part of the cost of them buying goods in America
[00:20:32] as well as the wage levels.
[00:20:34] I don't know what the comparable situation is in China,
[00:20:37] but the odds are that another way that American manufacturing could compete
[00:20:42] is by reducing their markups.
[00:20:44] So it's not totally fixed that with a high wage cost you can't compete.
[00:20:49] And the main thing is it's not high wage, it's low skill.
[00:20:53] I've come back to – I've forgotten the particular executive who was running Apple at the time,
[00:20:58] but his comment about if he wanted to have a meeting of all the machine tool –
[00:21:03] skilled labour for machine tools in America, he'd hold it in his boardroom.
[00:21:07] If you wanted to hold the thing inside, say in China,
[00:21:09] you'd need the world's biggest football stadium.
[00:21:12] So the level of skilled labour and the capacity to mechanise is something that's –
[00:21:18] again, it should be higher in America, but in fact it's higher in China.
[00:21:22] So what this – a large part of the way to –
[00:21:24] So you can't bring those jobs back.
[00:21:25] The people don't exist to do them.
[00:21:27] The skill set doesn't exist to do them.
[00:21:29] Not in America.
[00:21:29] And that's the trouble.
[00:21:30] They haven't – you know, the education is another barrier for any development like this in America.
[00:21:36] And you used to have, you know, apprentice type training,
[00:21:40] which I think the Germans are still relatively good at that.
[00:21:43] They left everything else in their industrial system.
[00:21:45] But the role of an apprenticeship and training on site
[00:21:50] and then development of technology and training of staff to match with it,
[00:21:54] the Chinese seem far in advance of America on that front
[00:21:57] because they're investing in their people rather than trying to exploit them,
[00:22:01] which is the main American activity.
[00:22:02] Yeah.
[00:22:03] Well, therein lies the problem as well then.
[00:22:05] So you could say, well, okay, this is a two-step process.
[00:22:08] We need to bring these jobs back on shore.
[00:22:10] And to do that, we need to skill up so that we can replace the jobs
[00:22:13] that we've outsourced to China and develop those skills nationally.
[00:22:16] Therefore, we need to spend money on education.
[00:22:19] Ah, damn it.
[00:22:20] We've just appointed Elon Musk who's just said he's going to reduce government spending by a third.
[00:22:29] Two things don't add up.
[00:22:30] I think a lot of stuff doesn't add up on what they're going to be attempting to do.
[00:22:34] I mean, knocking $2 trillion, that's 10% of the bloody economy pretty much.
[00:22:40] I know, but don't worry because those people, obviously,
[00:22:43] who were working for the government will now be freed up to work in private enterprise
[00:22:48] and are more curious why they chose the government in the first place.
[00:22:53] Yeah, I know.
[00:22:54] Because from that very low unemployment rate that he's got,
[00:22:57] he's going to get it into negative figures.
[00:23:00] That's after, of course, you got rid of the 2 million people who are going to be deported.
[00:23:04] Yeah, none of it stacks up.
[00:23:06] And none of it stacks up.
[00:23:06] It's going to be fascinating to watch.
[00:23:08] I mean, it's popcorn territory for the rest of the planet.
[00:23:10] So when you talk about the margins, as you were saying,
[00:23:13] so, you know, the idea that really to compensate for the lower labor costs in China,
[00:23:20] you'd have to, you basically could be doubling the cost of every item.
[00:23:24] Okay, this margin, you might not be quite so bad because you get margin squeezed.
[00:23:30] Because as you say, there might have been massive margins that have been happening in the United States.
[00:23:34] But you see, Donald Trump will be a big supporter of that
[00:23:36] because those massive margins have been helping the share price.
[00:23:40] And the share indices are what Donald Trump measures as the success of an economy.
[00:23:46] Nothing else, just how share prices are going.
[00:23:48] So they've been going well because companies have been giving very big profits
[00:23:51] because of those profit margins that you're talking about.
[00:23:53] So I don't know if he's thought that through either.
[00:23:55] Those profit margins could well get squeezed and their share prices fall.
[00:24:01] Yeah.
[00:24:02] It's, I mean, embracing myself what's going to happen on Twitter again,
[00:24:07] because one of the reasons I was active on Twitter was watching,
[00:24:10] what the hell is Trump going to do next in the last term?
[00:24:13] It's going to be that on steroids this time around.
[00:24:16] And of course, accompanied by Musk as well.
[00:24:20] So we're going to see whatever dilemmas they have,
[00:24:23] we're going to be seeing very publicly on Twitter.
[00:24:26] So you've turned, it seems like in the last 20 minutes or so,
[00:24:28] you've turned around a little bit.
[00:24:30] You were at the very beginning, you were very supportive of what he was trying to do.
[00:24:33] Well, no, I'm supportive of the concept,
[00:24:36] because this comes back to the academic obsession with free trade,
[00:24:41] and that's something I've always been a critic of.
[00:24:44] And in that sense, if Trump's going to snub his nose,
[00:24:48] that's an improvement.
[00:24:49] But at the same time, you've got all the dilemmas that he's doing other,
[00:24:53] if he's going to try to promote trade while also expanding government money creation,
[00:24:58] then that would actually be more feasible.
[00:24:59] You'd be creating the money that could enable colleges to be formed
[00:25:02] so he could train people, he could get apprenticeship schemes and so on.
[00:25:06] Because they're going to try to cut back on all that
[00:25:08] and say it's just coming down to the private sector,
[00:25:10] they're going to be hitting the economy.
[00:25:12] If he actually does write an up $2 trillion off with a 10% fall in GDP,
[00:25:17] if they're lucky, that's not the circumstances in which firms invest.
[00:25:22] So a lot of what they're doing is counterproductive.
[00:25:25] But getting away from the obsession with free trade
[00:25:28] is something that I think is necessary.
[00:25:30] And as crazy as Trump is on the fronts,
[00:25:34] he is a sceptic on that.
[00:25:35] And he's got every right to be a sceptic
[00:25:37] because when you take a look at the arguments in favour of free trade,
[00:25:40] it's more theories at the bottom of the garden thinking by conventional economists.
[00:25:45] And that goes right back to Ricardo's original arguments for it.
[00:25:48] But he is going to, obviously,
[00:25:49] he imposes tariffs, he's going to start a trade war.
[00:25:52] So Europe isn't, Europe's not going to say,
[00:25:56] well, OK, we'll take that 20% tariff, but we'll raise you 20%.
[00:25:59] In fact, I would imagine Europe would say,
[00:26:01] well, we're going to charge you 20%.
[00:26:03] By the way, it seems like you're not particularly interested in climate change.
[00:26:07] So you are producing, your export goods are produced
[00:26:10] without any impost on the effects of climate change.
[00:26:14] You are not meeting your contractual obligations
[00:26:19] as a good citizen of the planet on that.
[00:26:21] So we're going to actually increase our tariffs on that as well.
[00:26:26] So there's no doubt there'll be a trade war from all of this.
[00:26:29] But the thing, what worries me is the trade war will be blamed
[00:26:33] for the collapse on economic output.
[00:26:36] But at the same time, the economic output collapse
[00:26:38] is more likely to be caused by crushing government money creation,
[00:26:42] which is what is the major objective that Musk has,
[00:26:45] is now the head of the Department of Government Efficiency,
[00:26:48] otherwise known as DOGE.
[00:26:50] So that's going to trash the economy that way.
[00:26:53] And then what'll be blamed for the trashing of the economy
[00:26:55] is the trade collapse.
[00:26:58] But at the same time, with what's coming with global warming,
[00:27:01] I think the only way that a country is going to have any chance of surviving
[00:27:05] is by being self-sufficient in the absolute essentials
[00:27:11] for human consumption.
[00:27:13] And in that front, it's going to be countries
[00:27:16] which are domestically self-sufficient that matter.
[00:27:19] So if all countries turn towards that as an orientation
[00:27:21] rather than towards free trade and extended supply chains,
[00:27:26] as we saw before COVID,
[00:27:28] as weird as a way is to get to it,
[00:27:30] that's actually more sustainable in the long term
[00:27:32] than relying upon globalisation.
[00:27:34] So maybe a tariff war is a good thing
[00:27:36] if it forces the US and Europe and parts of Asia
[00:27:40] all to become much more insular in their outlook.
[00:27:44] And Britain just needs to rejoin Europe as quick as possible.
[00:27:46] So we're not trying to do everything on a very small...
[00:27:50] Yeah, there's a minimum scale to which you can go.
[00:27:53] But I want to just actually read into the record
[00:27:55] the original Ricardo argument for comparative advantage
[00:27:58] because this is the core, I think,
[00:28:01] of where mainstream economics comes from
[00:28:04] and its fallacies at the same time.
[00:28:06] And this is from page 135 of Ricardo's Principles.
[00:28:11] And he made the comment...
[00:28:13] What he was doing was attacking...
[00:28:16] Ricardo's objective in putting forward
[00:28:18] the theory of comparative advantage
[00:28:20] was to attack the corn laws.
[00:28:22] And the corn laws prevented the importing of wheat fundamentally
[00:28:26] from the European mainland into the UK,
[00:28:29] which meant large profits for English-based wheat producers.
[00:28:37] And Ricardo's argument was that
[00:28:40] that means money goes to landlords
[00:28:42] who are going to waste it on frivolous expenditure.
[00:28:44] Whereas if you cut the...
[00:28:46] If you allow the importation of European grain,
[00:28:49] that will reduce the cost of feeding the workers.
[00:28:53] The workers will still get the same amount of grain
[00:28:55] or just cost the capitalists less to do it.
[00:28:57] They'll pay less to the landlords
[00:28:59] and there'll be more investment.
[00:29:00] So Ricardo's orientation was actually
[00:29:03] to increase domestic investment
[00:29:07] and the focus upon the importance of manufacturing.
[00:29:10] What's wrong with that?
[00:29:11] Well, the thing is, the way he made the case,
[00:29:14] most people have fallen for what I call a shell and pee trick.
[00:29:17] So what he said was that you take the example
[00:29:20] of where Portugal is more efficient than England
[00:29:22] in both wheat production and wine production.
[00:29:25] I think it's cloth production.
[00:29:27] He used cloth production and wine production.
[00:29:29] And so the argument was for the opponents of deregulating
[00:29:34] was that if you deregulate,
[00:29:36] Portugal's better at everything than we are,
[00:29:38] so it'll wipe out domestic manufacturing.
[00:29:40] And what Ricardo said is,
[00:29:42] well, I'm going to assume that Portugal
[00:29:44] is better at both wine than cloth.
[00:29:45] So it takes England 100 men
[00:29:50] to make a certain amount of cloth,
[00:29:53] where it takes Portugal 90.
[00:29:55] And then if you look at England trying to do wine,
[00:29:58] it'd be 120,
[00:30:00] where Portugal can do it with 70.
[00:30:04] Then if the British stopped producing wine,
[00:30:11] because he actually knew they didn't,
[00:30:12] he made a little facetious comment about that
[00:30:14] in the book,
[00:30:15] and they devote all their capital to producing cloth.
[00:30:19] And then Portugal stops producing cloth
[00:30:22] and devotes all its resources to producing wine.
[00:30:25] There'll be an increase in the amount of cloth
[00:30:27] and the amount of wine in aggregate,
[00:30:28] and everybody will benefit.
[00:30:30] And that's the argument for comparative advantage in trade.
[00:30:34] But Ricardo got what he wanted,
[00:30:36] which was to reduce the cost of labor
[00:30:38] and to enable more money to go to capitalists
[00:30:41] and less to go to landlords.
[00:30:42] That's his real objective.
[00:30:43] But people fell for this argument.
[00:30:45] And the problem is that you don't just make those commodities with labor.
[00:30:50] You need machinery as well.
[00:30:52] And what Ricardo did is the classic case
[00:30:55] of confusing monetary capital with physical capital.
[00:30:59] So he talks about why is this going to be advantageous
[00:31:02] to expand trade with Portugal
[00:31:06] versus expanding domestic production.
[00:31:08] And he says, this is a quote,
[00:31:10] the difference in this respect between a single country and many
[00:31:12] is easily accounted for by considering the difficulty
[00:31:15] with which capital moves from one country to another
[00:31:18] to seek a more profitable employment
[00:31:20] and the activity with which it invariably passes
[00:31:22] from one province to another within the same country.
[00:31:25] But that's true if you're moving a sheep dip or a spinning jenny
[00:31:29] from some location in Scotland to another location in England somewhere,
[00:31:34] making a physical capital.
[00:31:36] That's easy.
[00:31:37] It's easy to move the monetary capital.
[00:31:39] It is not easy to turn a spinning jenny into a wine press.
[00:31:44] And this is the physical aspect of capital
[00:31:46] that's ignored by neoclassical theory all the time.
[00:31:49] It's the physical resources you need to produce,
[00:31:52] the physical goods.
[00:31:52] They leave out the impact of capital.
[00:31:56] The only way you're going to get new capital is to invest.
[00:32:00] It's not a case of allocating your existing capital more efficiently,
[00:32:04] which is the whole focus of comparative advantage.
[00:32:07] It's increasing the physical resources you have.
[00:32:10] So this is just a fallacious argument.
[00:32:13] It should never have been taken seriously.
[00:32:15] But the fundamental driver of improving trade positions
[00:32:19] is increasing investment, not relocating existing physical capital
[00:32:23] because you can't move physical capital from cloth manufacturing
[00:32:29] to wine manufacturing or anything.
[00:32:31] And you'd assume that Donald Trump is going to see much greater investment now
[00:32:34] in the United States because...
[00:32:35] That's what he wants, yeah.
[00:32:36] ...he has a market.
[00:32:37] Yeah.
[00:32:37] We've got the market.
[00:32:38] We've got all these people.
[00:32:39] They've all got money.
[00:32:40] They're all going to buy stuff.
[00:32:42] We are going to stop importing stuff.
[00:32:45] Therefore, we need to ramp up our domestic production capability.
[00:32:49] So invest now.
[00:32:52] But, I mean, at what expense?
[00:32:54] I mean, does all the world's money go into the United States
[00:32:56] as part of this experiment,
[00:32:57] which means there's massive underinvestment elsewhere?
[00:33:00] It just means American corporations won't be offshoring anymore.
[00:33:04] And this is why China built itself up.
[00:33:06] I've got to go back to my experience in China 40 years ago.
[00:33:09] We went to the Shenzhen Free Trade Zone
[00:33:11] while they were laying the concrete.
[00:33:13] So it was literally before the thing actually opened up
[00:33:16] and had a meeting with the managers
[00:33:18] who were the most impressive people I met in China.
[00:33:21] And their argument was there's a loophole in the American trade agreement
[00:33:25] that allows an American corporation to export semi-finished goods
[00:33:30] to a third world country,
[00:33:32] have it worked on there and re-import
[00:33:34] without paying a tariff on the extra work.
[00:33:36] So this is a weakness in the tariff system,
[00:33:39] a deliberate weakness to benefit third world countries
[00:33:42] back in the 80s and 90s.
[00:33:44] And the Chinese said, we're going to take advantage of that.
[00:33:46] But to get American corporations to move to the free trade zone
[00:33:52] and we're also going to require them to have a Chinese partner
[00:33:55] and the Chinese partner has to own 50% of the business within seven years.
[00:34:00] Now that gives you an idea of the scale of drop in wage costs
[00:34:04] that was a real motivation for that relocation of production.
[00:34:07] So if all of that's being reversed,
[00:34:08] now obviously the cost of wages has gone up in the United States.
[00:34:11] The issue actually is Mexico, which is wages are very low.
[00:34:15] So the question is, are they going to find that they have to
[00:34:18] just shift production from China to Mexico,
[00:34:21] which is where we get back to where we started with perhaps Breville is right,
[00:34:26] because they are not going to have the workforce in the US.
[00:34:31] And if the response to that is, well, we don't need the workforce
[00:34:35] because we are bringing these companies back
[00:34:37] and because there's not enough labour,
[00:34:39] and because labour is so expensive,
[00:34:41] we're going to have to automate.
[00:34:43] So you're going to have far, you know,
[00:34:45] we're going to have to buy in the machines
[00:34:46] for us to be, strangely, from China actually.
[00:34:49] Interestingly, that was one of the things that was tariff-free
[00:34:53] in Trump's last term was, you know,
[00:34:56] anything that helps us produce domestically.
[00:34:57] We won't put tariffs on that.
[00:34:59] But I wonder whether he will this time around.
[00:35:01] But anyway, those machines come into the United States.
[00:35:05] Those machines are replacing people.
[00:35:07] So actually he's, you know, he's arguing that this is to,
[00:35:09] you know, to get jobs for the Rust Belt.
[00:35:12] But, you know, he got unemployment when he was around last time,
[00:35:15] down to three and a half percent.
[00:35:16] There's not, you know, in theory,
[00:35:18] there's not that many people looking for work.
[00:35:20] If jobs get replaced by machines,
[00:35:24] he's not really helping those people in the Rust Belt, is he?
[00:35:26] Unless he sticks the machines in the Rust Belt, you know,
[00:35:29] and employs the person who turns on in the morning.
[00:35:31] Well, you need some skilled labour to go with those technologies.
[00:35:35] There's also a lot of unskilled labour,
[00:35:37] which can be relatively easily trained.
[00:35:38] I can imagine what Musk is thinking about
[00:35:40] is his army of robots coming into that area.
[00:35:44] But, you know, the overall objective is to rebuild American manufacturing.
[00:35:51] And, you know, having spent some time in America recently,
[00:35:54] it needs it.
[00:35:57] So whether the policies work or not,
[00:35:59] I can understand the emphasis and motivation.
[00:36:03] Yeah.
[00:36:03] And, but of course, it's going to be,
[00:36:06] it'll be done in the usual chaotic sense that Trump brings to anything.
[00:36:10] The days of easy negotiations and slow change to regulations are over.
[00:36:16] And the other side of it is, which we touched on,
[00:36:19] is this lack of understanding about how money is created.
[00:36:23] So if they're scooping money out from the federal government,
[00:36:26] and then they're putting all the responsibility to the state governments,
[00:36:28] who obviously can't create money.
[00:36:30] So, you know, California,
[00:36:34] so the states, California's got a $200 billion budget.
[00:36:37] 70% of that goes on health and human services.
[00:36:41] There's almost $100 billion on education.
[00:36:44] So, and, you know, there,
[00:36:45] 20% of the state's GDP is state government spending.
[00:36:49] So all the, all the important stuff,
[00:36:53] health, education rests with the states.
[00:36:55] Defense rests at the federal level.
[00:36:58] Obviously, he's not going to scoop any jobs
[00:37:01] or any spending out of, out of the military,
[00:37:03] which I think is about a third of all the government spending.
[00:37:08] So, yes, so there's going to be more focus
[00:37:11] on meeting obligations at the state level.
[00:37:14] And obviously the state level can't create money.
[00:37:16] Yeah.
[00:37:17] And they're also going to be probably starved of funds.
[00:37:18] I expect in terms of the administration
[00:37:21] have to put up their state taxes.
[00:37:23] So, yeah.
[00:37:24] And it's, you know,
[00:37:25] as I said,
[00:37:25] it's popcorn territory for the rest of the world
[00:37:27] as these policies are tried out.
[00:37:29] Like at a fundamental level,
[00:37:30] I still think you have to have more domestic production
[00:37:34] because I think globalization is,
[00:37:36] it's already going backwards
[00:37:39] by the fact that it hasn't led to the increase
[00:37:42] in the income levels of the wealthy countries
[00:37:45] that thought they would benefit from globalization.
[00:37:47] This is America's situation in particular
[00:37:50] because a major argument in favor was,
[00:37:52] let's specialize in what we're best at now.
[00:37:54] That'll increase our incomes
[00:37:56] of both the importing and the exporting nations.
[00:37:58] Well, America's been doing pretty badly on that front
[00:38:01] and China's been doing pretty well.
[00:38:04] So, there's,
[00:38:05] that alone is causing,
[00:38:07] even though the people still swallow
[00:38:09] conventional economic theory on this front,
[00:38:11] the level of satisfaction with that,
[00:38:13] the outcome is definitely not what it was supposed to be
[00:38:16] because the outcome has been the opposite,
[00:38:18] you know,
[00:38:18] declining living standards in America relative to China,
[00:38:23] whereas they're both supposed to benefit.
[00:38:25] So, that alone was a problem.
[00:38:27] But with global warming is going to cut off,
[00:38:30] if we think COVID broke supply chains,
[00:38:33] wait until we start to see weather catastrophes
[00:38:35] destroying productive capabilities in some countries,
[00:38:38] and then those countries refusing to export anymore.
[00:38:41] The classic example at the moment is that China,
[00:38:45] is India no longer exports rice,
[00:38:47] except for basmati rice,
[00:38:48] in the response to a couple of climate catastrophes
[00:38:52] with wheat crops in India,
[00:38:54] with rice crops in India.
[00:38:56] So, at some point,
[00:38:57] countries are going to say,
[00:38:58] that's it,
[00:38:59] we're not exporting anymore.
[00:39:00] And then there goes your supply chain,
[00:39:02] unless you produced it domestically.
[00:39:04] Right.
[00:39:04] And I wonder,
[00:39:05] so just on the final point then,
[00:39:06] I wonder whether actually Donald Trump
[00:39:08] is helping us all do that.
[00:39:09] So, by imposing tariffs,
[00:39:11] and then,
[00:39:12] you know,
[00:39:14] tariffs in retaliation,
[00:39:15] will Europe have to become more self-sufficient
[00:39:18] as a result?
[00:39:19] I think that's feasible.
[00:39:21] So, you know,
[00:39:22] as much as it's been done for crazy reasons,
[00:39:25] the actual logic behind the current structure
[00:39:27] is even crazier.
[00:39:28] So, a bit of, you know,
[00:39:29] Trump crazy in the opposite direction
[00:39:31] may be beneficial.
[00:39:32] Yeah.
[00:39:32] Well, hell,
[00:39:33] Europe needs it,
[00:39:34] doesn't it?
[00:39:35] You know,
[00:39:35] it needs a burst of enthusiasm
[00:39:38] and a bit of investment.
[00:39:39] But actually,
[00:39:40] you know,
[00:39:40] if you were looking as to where you put your money,
[00:39:42] if you're an investor,
[00:39:43] and you're thinking,
[00:39:44] well, okay,
[00:39:44] because all money is flowing to the States
[00:39:46] at the moment,
[00:39:46] it's amazing how all of a sudden
[00:39:50] investors,
[00:39:50] because the investment community
[00:39:51] love Trump,
[00:39:52] of course,
[00:39:52] so they're putting money into the US
[00:39:55] because they see this opportunity for growth.
[00:39:58] But actually,
[00:39:58] maybe the smart money
[00:39:59] should equally be going to Europe
[00:40:00] because they will have to invest to retaliate.
[00:40:03] They've got an even bigger constraint,
[00:40:05] and that's the Maastricht Treaty
[00:40:06] and the limitation on government spending.
[00:40:08] So, I think what we're going to say is...
[00:40:10] But Trump's giving himself
[00:40:11] the same disadvantage,
[00:40:12] of course.
[00:40:12] He is.
[00:40:13] He is.
[00:40:13] He has a focus on eliminating
[00:40:15] the capacity of the government
[00:40:16] to create money
[00:40:17] without knowing that's what he's doing,
[00:40:19] without understanding
[00:40:20] that interest payments
[00:40:20] aren't a cost of the government
[00:40:23] for borrowing.
[00:40:24] It's meaning they're creating
[00:40:25] too much money
[00:40:25] for the financial sector.
[00:40:27] So, all this stuff
[00:40:28] is completely missed
[00:40:30] by Musk in particular,
[00:40:33] but also by Trump.
[00:40:35] At least Musk,
[00:40:35] I think,
[00:40:36] has got the intellect
[00:40:36] to understand it,
[00:40:37] but he doesn't.
[00:40:38] He hasn't got it right at the moment.
[00:40:39] So, yeah,
[00:40:40] there's all sorts of
[00:40:41] conflicting elements
[00:40:42] of the current policies
[00:40:44] of the Trump administration.
[00:40:46] And it's going to be
[00:40:47] a lot of fun
[00:40:47] watching them
[00:40:48] roll out over time.
[00:40:50] Well, he hasn't got much time,
[00:40:51] that's the thing.
[00:40:51] But, yeah,
[00:40:51] let's get the popcorn out.
[00:40:52] He's only got four years
[00:40:53] and midterms,
[00:40:54] halfway through that.
[00:40:57] But I guess we've got
[00:40:57] J.D. Vance next
[00:40:58] as the next president,
[00:41:00] unless it is,
[00:41:01] of course,
[00:41:02] you know,
[00:41:03] Elon Musk himself.
[00:41:04] No possibility there
[00:41:05] because he's not
[00:41:05] an American born.
[00:41:06] So, at least that's one
[00:41:08] terror you can leave
[00:41:09] out of your worries, mate.
[00:41:11] Out of the scenarios.
[00:41:12] Well, it can always change that law.
[00:41:14] All right.
[00:41:15] I mean,
[00:41:16] constitutional change.
[00:41:17] That's the next thing,
[00:41:18] isn't it?
[00:41:19] Anyway,
[00:41:20] we'll leave it there.
[00:41:20] As you say,
[00:41:21] we'll get the popcorn out
[00:41:22] and we'll watch with interest.
[00:41:23] But, yeah,
[00:41:24] it seems like
[00:41:24] even if the idea is right,
[00:41:27] there are so many
[00:41:29] impracticalities
[00:41:29] about the education
[00:41:31] that's needed
[00:41:32] to enable
[00:41:33] this structural change.
[00:41:35] and then
[00:41:35] the reaction
[00:41:37] from the rest
[00:41:37] of the world
[00:41:38] and the
[00:41:40] possibility
[00:41:40] that the US dollar
[00:41:41] will just grow
[00:41:42] too strong
[00:41:42] as a result of this
[00:41:43] and that's going to be
[00:41:44] an impediment
[00:41:46] to their growth
[00:41:47] as well.
[00:41:47] lots of people
[00:41:48] are going to be
[00:41:48] having interesting
[00:41:49] spreads on currency
[00:41:50] markets
[00:41:51] coming out of this.
[00:41:52] They will indeed.
[00:41:56] Well,
[00:41:57] we'll catch you
[00:41:57] next time, Steve.
[00:41:58] Okay, mate, bye.
[00:41:59] The Debunking Economics Podcast.
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