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[00:00:30] Es ist die Most Beautiful. Und ich will dir was, ich denke wirklich, Reciprocal Tariffs, das sind zwei Worte, Reciprocal, Reciprocal makes Tariffs really fair. Es gibt keine Exemplen, es gibt keine Exemplen, es gibt keine Exemplen, es gibt keine Reciprocal, es gibt keine Reciprocal, es gibt keine Reciprocal. Das ist die Debunking Economics Podcast mit Steve Keen und Phil Dobbie.
[00:01:00] Ja, Reciprocal Tariffs coming to every OECD country near you, given that the United States President seems to think the VAT charged on US imports is a tariff, even though most countries also impose it on their own domestic produce, but it needs reciprocal action. And given that all OECD countries have an indirect tax like that of some sort, that's a lot of tariffs. So will all this work out for Donald Trump or will it all backfire? Or is it just Trump being Trump and he'll back down?
[00:01:28] After all, the only tariffs imposed so far is a 10% tariff on China. That's this week on the Debunking Economics Podcast. So Donald Trump is firing off tariff warnings left, right and centre, for example, to try and stop imports of drugs, which is curious when Mexico and Canada were both going to be hit by the same level of tariff,
[00:01:53] even though Mexico sends way more than Canada and a lot of it originates in China anyway, which got hit with a lesser tariff. And India provides a lot as well, and that wasn't hit at all. But how much of this has logic anyway, aside from obviously trying to reduce drug imports, which is simply a question of, you know, how can we hurt you till you stop? Most of it is actually down to protectionism. But Steve, I mean, hasn't the horse bolted when we start looking at protectionism? Because it's not like the Japan car industry, which you've, you know, frequently mentioned on this podcast,
[00:02:23] protecting itself in the early stages of growth. Because a huge proportion of what we consume now is from overseas. Supply chains have become complex. International trade now, exports and imports combined, has grown 450 times since the 1950s, 45 times since the early 90s. So is he trying to stop something that, you know, is already a train in motion? Yeah, I mean, this is the problem with bringing in tariffs right now,
[00:02:52] because you've got firms which have reorganised their production systems over the last 50 years to be ludicrously globalised. I mean, I think I've seen claims that there are components from over 100 countries in the Apple iPhone. So you've got all these mini components of a product, which is one of the world's biggest selling commodities, which are crisscrossing international borders all the time.
[00:03:18] And in fact, the way that the deindustrialisation of America began and the industrialisation of China was by China exploiting a loophole in the American trade law that allowed a company to import back products which had been reworked in a third world country without paying tariffs, because it's a third world country. So when this all began back in 1981, 82, of course China qualified as third world.
[00:03:47] And therefore, any company that relocated from America to China, specifically at the time the Shenzhen Free Trade Zone, could do work on components there and then ship it back for assembly to the final product in America without paying tariffs and also for getting much, much lower labour costs. For good reason, obviously. I mean, and that's, you know, and that still applies to Dale, although some of those costs have increased. But it's still worth companies obviously operating that way because that's the way they do things.
[00:04:16] And if you change that, then you are going to break those supply chains, which ultimately means they're not going to work as well. Well, that's the, because if you now know, if you no longer have that freedom to move stuff across international borders without paying tariffs, then each transition in that British global supply chain is going to add 10% to the cost of that individual component. That's when he's talking about a 10% tariff. That's what it means.
[00:04:41] Now, there's a little graphic I saw on Twitter some time ago, which talked about a capacitor from China moving through, I think six countries in the process of being manufactured. It would, I think it would, when China, Singapore was brokered off to America where it was bought, then to Mexico where it's reworked, another spot in Mexico, then up to Canada and down to,
[00:05:04] down to where it was assembled into, of all things, seats in cars to make them, you know, electric, electronic seats to move the seats up and down and so on. So if you now are going to put a 10% tariff on each step in that process, then you get effectively not a 10% tariff, but a 70% tariff. So that's going to mean that companies that are considering, that have currently got a structure like that,
[00:05:32] a major thing Trump is trying to do, and this is potentially deliberate, is say stop producing a stock globally, bring it back to America. But it would have been better to stop that in the very first place by not allowing little loopholes like that one the Chinese exploited so successfully back in 81. Right, but I mean, back in 81, which is a while ago, and so things are made the way they are made now. And to bring it back when things are so complex would mean, yes,
[00:06:02] producing lots of factories, producing lots of all of those individual components. I mean, there's a reason why they are, you know, crisscrossing, because it's cheaper or there's local expertise that's been developed. So in either case, the price is going to go up and you're going to have to acquire the expertise that exists overseas. I mean, that's just not going to happen in the space of his presidency, is it? No, it's, I mean, the whole globalization thing basically exploited cheap labor.
[00:06:27] However, the neoclassical economists interpret it as comparative advantage, which is garbage, because, you know, China did not have a comparative advantage in microprocessor production when American firms started locating their capital there in 1981-82 or 82-83. It's when the Chinese free trade zone started operation. There is a bit of comparative advantage in all of this, though, isn't there? In that, I mean, America could do it all if they wanted to, but they don't because it would cost too much.
[00:06:56] Well, no, I mean, it goes beyond that because it's, you know, I mean, you've got to first of all take into account the immense respect and gratitude that American capitalists have towards American workers. In other words, fuck you, okay? Because this is one detail which I got firsthand just by sheer circumstance, crazy life that I've led. I took a group of Australian journalists for a conference in Beijing in 1981-82,
[00:07:22] which was the first conference that a Chinese journalist had ever had with journalists from another country. And it's an interesting story in its own right. But after that, we went on a tour of China. And the whole thing was they were pitching to us the Deng Xiaoping's program for modernizing China. And everything we saw until the very final day, I just thought, this is not going to work. So I'll give one example there.
[00:07:50] We went to a furniture factory in Sichuan. It was actually a commune that was making furniture. And I asked them, you know, they had an incredible increase in output of furniture, and it was all looking marvelous. And this was a show commune, and they're going to spread the idea out across the rest of the province. At one stage, I asked, well, where do you make your sales? How much is in Sichuan and how much is in the rest of China? The answer was 20% in Sichuan and 80% in the rest of China.
[00:08:18] I said, well, how do you sell the other 80%? Quote, unquote, this is a translation, obviously. We send out propagandists. I virtually cracked up at that. Most of us are called marketing people. I think they might be a lot of translation people. More on, it's called propaganda. But 80% of the sales were all made to one factory in Shanghai that had been told by the Communist Party to buy the output of this bloody place. So rather than being able to have the scale of sales,
[00:08:46] they were thinking just for this one factory, only 20% of its sales were actually in any way endogenous. But since then, I mean, China is trying to become more of a free market in many ways. Well, it's much, much more so now. But I'll finish the story because we then got down to Sichuan. We went to the free trade zone. And just to give you, this is a remarkable experience. The free trade zone, they were laying the concrete for the free trade zone when we arrived. The company laying the concrete was Australian company CSR.
[00:09:15] This blonde surfy type guy turned up was the manager. And his wife turned up and she was the absolute Northern Beaches gal. Personality, huge personality, the sort of person who belongs on the beach. We had the most hilarious barbecue with them. So it was a real sort of homecoming before we left China. Then we went to the offices with me. We were managed by the executives in charge of the process, all Chinese, of course.
[00:09:44] And the manager, quite a remarkable experience. First of all, spoke in fluent English. So it was the first time we spoke to anybody in official level who was dramatically fluent in English. Then he said, I'll hand it over to my subordinate, my second in charge to give you the explanation. And that was amazing. Normally, if you're the top dog, you hang around and show off that you're the top dog. He just walked out and let this guy explain the story to us.
[00:10:10] Then he told us about the loophole in the American trade laws they were exploiting. But the next two things are what really blew me away. They required any American company that established operations in this free trade zone to have a Chinese partner. And regardless of what the Chinese partner brought to the table, within five years, the Chinese partner have to own half the business.
[00:10:36] Now, you think, of course, American capitalists, out of the generosity of their own hearts, do that spontaneously. Yeah, well, pigs' ass. They must have been willing to give away half the ownership and obviously also half the profits to a Chinese partner. The advantages in no longer paying American wages have been the state paying Chinese wages and also circumventing all that. But it was huge. So the Americans did it to themselves, in other words. Right. But Americans are still working.
[00:11:06] I mean, that's it. It's not as though they've sort of like shipped off everything overseas and America is left with no money. People are buying this stuff. It's cheaper. So they've got the advantage of a lower price. That's a huge advantage. They haven't got massive unemployment. They're all just doing different jobs now. So in a way, you'd say, well, they've won in that they're not producing this furniture or a whole load of other stuff. They're focusing on stuff which is higher value, which makes the country wealthier.
[00:11:33] So people aren't tired in low-income jobs doing this low-margin stuff. Are you talking about America here or China? Yeah, I'm talking about America. So America wins through all of this, doesn't it? They've got cheaper goods. They've still got people employed. People are just employed in better jobs, which is creating a higher income for them. Have you been smoking anything this morning? I'm just sort of – Well, I don't know.
[00:11:58] I mean, you can't say they're married because America's hived off so much to China that it's created wholesale unemployment. People are still working in America. Well, yeah, they're working in gig economy jobs, two or three jobs to make ends meet. They're working as security guards when they used to have jobs as machinists. The whole composition of American employment has changed. And if you look at what has happened to America –
[00:12:26] Are you sure that's really because of international trade? You think – I would slight a huge amount of that behind because – Even if I've gotten – what's his name? Cook, the current director of Apple, made a comment some years back that if he wanted to have a meeting of all the machine tool experts in America, he could hold it in his boardroom. If he wanted to have the same meeting in China, he'd need a football stadium.
[00:12:49] There really has been a decline in the skill basis and the manufacturing capability of America over the last 40 years. And a huge part of it has been because they've outsourced it. And now China, with that whole idea of having a Chinese partner, that's where Foxconn came from and all the corporation, BVD, et cetera, et cetera. They were bred in that deal that meant American capitalists gave away half the ownership and, of course, the intellectual property as well.
[00:13:19] So it was – Some of the biggest companies in the world – In fact, all the biggest companies in the world are American, though. Okay, they might be outsourcing part of their work to China, as you talk about, through very complex – and other parts of the world through very complex supply chains. But, I mean, the wealth, by and large, clearly is being felt in America because the Magnificent Seven are all American companies. They've all come from nowhere since you were in China.
[00:13:45] It's a great bonus for the American capitalists. It hasn't done America's work at all much good. I think this is a huge part of why Trump gets the votes he does because the people who've been on the receiving end of the deindustrialization, the Rust Belt in America and so on, they're not the capitalists. They're the workers. And this is why you've got this phenomenon, which Reagan was the first one to exploit, and we're going back to the 80s for that, was the – what do they call them?
[00:14:17] The blue shirt with the blue-collar Republicans. Now, that wasn't something that happened back under Roosevelt. That is something which has been created in the last 40 or so years, and it's definitely a huge part of it, has been because of the decision of American capitalists to take advantage of this incredible offer from China, cheap wages in return for half your capital. China has won this contest hands down, and now all these countries have taken advantage of cheap wages everywhere.
[00:14:47] Globalization and outsourcing and so on has been the flavor of the day for the last 20 years. But now when you throw tariffs in that mix, then you completely scramble those whole globalization and supply chains. Yeah. And if you throw tariffs in the mix, I mean, what you're trying to do is drive change in one fell swoop, which obviously is not going to happen because those supply chains exist. You're not going to suddenly bring all of those industries back home. All you're going to do is increase costs.
[00:15:17] Well, you will for a while, but I mean, a major reason why Trump – well, Trump is doing partly the bluff. I mean, you know, it would be great fun playing poker with him. He's a classic bluffer. And already, I mean, the Canadian and the Mexican tariffs have been introduced and removed in the first week, and now they're back in again apparently. But he's just using us as a bargaining tactic to some extent. Well, they're back in for steel. I mean, that's it. He stopped it for fentanyl, the 25% for fentanyl, which was just a threat.
[00:15:46] I mean, there's three different approaches he's taking with tariffs, isn't there? First of all, there was the one that's let's use them as a threat to try and stop something happening that we don't want. So migration or fentanyl or whatever. Nothing to do with trade. It's just we're going to – we're just going to hit you where it hurts till you feel it. And then the other one is, well, okay, you're producing something that, you know, you've got an advantage over. So in other words, you've got a balance of trade surplus on us, and we don't like that very much. So, for example, producing tariffs on steel are an example of that.
[00:16:16] And then the other one, and we can explore all of these, the other one is with him saying, well, okay, now let's just shift the tax so that the tariffs pay. And that means we don't need to charge as much tax locally. Well, and that's one of the crazy bits because, of course – Because it is a tax. Yeah. Well, the thing is tariffs are paid by the importer. Yeah. And, like, that's one reason I find – I don't think Americans necessarily get that. I don't think they do, no.
[00:16:44] I mean, for example, that's why I find it hilarious to say he's putting up tariffs to stop drug dealers. Because we all know that drug dealers go to customs and they then fill out the forms and pay the extra amount on the import. Give me a break. You know, there's some – you're right, there's a match. Well, that wasn't it, though. The whole reason was you do something about this. Yeah, you bring from police on the troops. Yeah, but yeah. And otherwise we're going to hurt you by imposing tax. That was the idea on that. So, yeah.
[00:17:08] I want to get one point in rapidly on this whole idea of relocating production because that's exactly what's caused this industrialization of America and China's grown rapidly on it. But people think – when people say Adam Smith and the invisible hand, let the market work it out, this is – I'm going to read out the actual paragraph in which the invisible hand occurs in the wealth of nations. So, give me – I was going to break my microphone over here a bit.
[00:17:37] I hope I didn't destroy the connection there. Okay. Now, here's the paragraph. Can you still hear me? Yeah, Cam? Yeah, yeah. Okay. You've got it open, have you? You've got the book open on this page. I've got it open on this page. When it should be needed. Yeah. All right. But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual province of its industry or rather is precisely the same thing with exchangeable value. Waffle. But he's basically saying this is the output of the society. And here we go.
[00:18:06] As every individual, therefore, endeavors as much as he can both to employ his capital in the support of domestic industry and so to direct that industry to its render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security. And by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain.
[00:18:36] But he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Now, what he's saying in there, his invisible hand had a bugger all to do with the market. He was saying local capitalists won't move to a foreign country. Well, pigs are. That's what they've done. Yeah, absolutely. To such a point, as I said, the amount of trade has multiplied so much in the last few decades. Yeah.
[00:19:05] And that's got to be something like 10 times the rate of growth of the economy overall. That's the scale of globalization. And that's what Trump… But has it enabled that growth, though? You know, the fact that, you know, you can buy stuff cheaper by using these complex channels, distribution channels and production channels, I mean, hasn't that enabled growth? I mean, if everything was produced domestically at a higher cost, then you would subdue growth.
[00:19:32] And when you take a look at what higher cost does, higher cost actually often inspires more innovation to reduce those costs. But there's one reason we had the Industrial Revolution began in Scotland. When you look at the cost of a spinning jenny, it displaced six workers in Scotland when first introduced. And the wages of the six workers exceeded the cost of the spinning jenny. So it was a good proposition. In France, the cost of the spinning jenny was the cost of 10 or 12 workers.
[00:20:01] So the high wages in Scotland is why we got the innovation there and not in France. So in some ways, chasing cheaper input costs when you're talking specifically about labor can end up meaning you will grow less rapidly, you industrialize less. So, no, we probably would have had a more prosperous society if we hadn't had this level of globalization.
[00:20:24] And the countries themselves should be doing it domestically, trying to promote their own domestic industry in the way that rather than trying to exploit, you know, their own cheap wages to bring production back offshore.
[00:20:38] But China, hats off to the Chinese planners for taking that approach and hats off to Chinese society in general for well and truly doing the Americans in by exploiting the lack of common sentiment in the American culture versus what applies in China. Right. Because they didn't understand the invisible hand. Well, look, when we come back, so we understand the intent, will it work? That's the question. Or is it literally just going to put prices up? We'll see.
[00:21:07] We'll talk about that when we come back on the Debunking Economics podcast. This is the Debunking Economics podcast with Steve Keane and Phil Dobby. So we talked about in the first part, we talked about comparative advantage. And look, I mean, and how, you know, it's an argument that countries are doing, you know, what's best for them in terms of international trade. And America perhaps could do everything itself.
[00:21:36] But it's using this argument of comparative advantage to say, well, look, you know, no, we'll get some stuff done overseas because it's cheaper. I mean, this place is like, and we'll talk about economic complexity in a second because that obviously has quite a bit to do with all of this as well. But Australia is interesting, isn't it? Because here's a country that basically, I mean, there's two industries in Australia. There's digging stuff out of the ground and then they're shipping it overseas. I mean, there's... No, no, no. No, no, no.
[00:22:05] You've looked at one as important industry, inflating house prices. Oh, that's true too. Yeah, and banking. That's the most important industry in Australia. And I'd like all the money. Yeah. I think David O'erlan Jones from Macro Business calls his nickname, his handle as houses and holes. Right. That's what Australia is famous for. Exactly. Right. But I mean, there we are. There's an example of a nation that is producing steel. Well, it doesn't produce steel, actually, does it? Because it just gets the iron.
[00:22:31] It's got all those iron ore reserves, the most in the world. So not, you know, you can't compete with that. So America can't say, well, look, we are going to dig up more iron ore than Australia because it doesn't have it. Yeah. So this comparative advantage argument does apply when you start looking at resources. You can't create or dig up resources that you simply don't have. Well, it's not comparative.
[00:22:55] I mean, comparative advantage is it's the one party trick that economists can do, you know, specialise, shuffle things from one point to another and increase the output level without changing the inputs. That's the only trick in the neoclassical economists bag. But it comes with a whole bag of assumptions, including that one about producers in the expensive wage industry or economy not moving to the cheap wage economy. And it's right there in Smith.
[00:23:25] It goes right back to 1776. 1776, this justified fear, which Smith was trying to get rid of by talking about the invisible hand, that your capitalists will take advantage of cheap wages wherever they can find them. And that's exactly what they've done. Right. But it's OK. So wages is one thing. But resources is the other thing, isn't it? So if Donald. No, resources. You can't you can't mind stuff you haven't got. Yeah. And so if Donald Trump says, well, OK, we're going to put a tariff on steel, then that can only mean higher prices for American businesses, can't it?
[00:23:53] Because they can't because they do need to import it from overseas. They don't have it all themselves. And they can't purchase it all themselves. That is actually partly how America built those industries in the first place, by putting up tariff barriers, making it impossible to import the foreign stuff and therefore making it possible for domestic capitalists to establish a steel industry. And that's where a huge part of the American heavy industry came from. But they were doing it with the enormous scale of the American economy, even back in the 19th century.
[00:24:23] And the pressure was on to be not just to lock imports out from overseas, but to outcompete them and build higher technological bases. So then you could actually take them on on the international market. Japan did the same thing. China is doing it now. So, you know, its comparative advantage is a completely misleading framework for understanding what actually happens in the real world. But if he was there saying, well, OK, look, we're going to put it.
[00:24:50] So, yes, steel obviously is the is the end product versus iron ore, which is the basis for it was the iron ore that you're digging up out of the ground. So if they say, well, OK, we are going to build all the blast furnaces to make steel again, to make America great at making steel again. They're still going to get the iron ore from somewhere. And so if there's countries that say, well, we add value by turning our iron ore into steel. Now you're going to tax us on the on the steel. So we'll just send you iron ore.
[00:25:16] They obviously are going to say, but by the way, we're going to make iron ore more expensive to try and compensate for the money that we're losing on the steel that we were selling. So the net gain is going to be quite small, isn't it? Oh, yeah. I mean, it's the main gain is really, you know, what I can understand Trump having as an objective is to bring production back on shore to reverse the deindustrialization of America. Because that's anybody who gets he takes the head out of economics textbook and takes a look at the real world can see that.
[00:25:44] And you did mention complexity a short while ago. So if you look at the ranking in terms of how complex the products are that the American economy can produce back in 2000, it rated number six in the world. The data doesn't go before 2000, unfortunately, because if you go back far enough, you find America being number one, of course, before Japan. I've got it as number 10 now, which is I've got it. I'm looking at something now, which has got in 10th place just above the UK. So it's sliding down. Yeah.
[00:26:12] The lead countries of Japan, Switzerland, Taiwan, Australia, because of that, dig it up and send it out and push house prices up. 82. Yeah. 82nd place. But America's gone from six to 14 since 2000. So that's, you know, we've gone from one to 14 if you go back far enough in time. But I still get back to the fact that, you know, are they doing badly because of it?
[00:26:37] You know, is the state of America, is the average American worker really doing it that tough? Yes. Okay. Now, I'm going to hit you with some statistics here. I haven't got them in front of me, so I've got to remember them. But if you look at the rate of economic growth over the last 100, 200 years, you find that the second highest rate of economic growth was between 1830 and 1940.
[00:27:00] So before the Second World War, the highest rate of growth was between the end of World War II and 1973. The lowest rate of growth is from 1973 on. And it's literally the rate of economic growth since we had the neoliberal takeover of economic policy, which dates from the mid-1970s, has fallen from 3.9% per annum in America's case to 1.7. Now, that's a total disaster.
[00:27:28] And that's been – globalization has been part of that, not the entire story, obviously. But yes, American workers, as they continued on the trend that existed up to 1973, when you still have what was called Keynesian policies running it, they'd be substantially better off because the economy was growing then at roughly 4% per annum. And they were getting a fairly constant share of that increase since then. It's grown at 1.7 and their share's been falling.
[00:27:55] Right, but how much of that is globalization and how much of it is automation? And just the fact that – There's tons of automation between 50 and 60. Even more so. So now – and it's only going to get worse. So if you bought back – I mean, say that manufacturer, a furniture manufacturer in China that you talked about, if you bought that back to the United States, it would be built by one of Elon Musk's robots.
[00:28:24] And these factories that used to employ thousands, the story is really you only need one man and a dog, don't you? You need the one man to press the go button. And then the dog's there to make sure that he doesn't touch anything else. That's all you need to operate a factory. And that's what we're going to do. In fact, it's – So that's not going to make any difference in that case, whether it's made in America or made overseas. Not to employment, but certainly to the complexity of what can be produced in the American economy.
[00:28:54] And like on that front, it's talk. Musk here, he's managed to internalize production for SpaceX and most of Tesla inside the one company. So rather than this huge distribution chain and massive numbers of suppliers and all that complexity, he's going in the opposite direction. And one of the reasons for that is the argument you can rapidly retool if you make everything yourself.
[00:29:18] Whereas if you relied upon numerous suppliers for cutting costs, you end up in the situation of Boeing and Ford where you can't afford to redesign because negotiating the contracts would just be incredible, though, to work for very expensive lawyers. Whereas retooling, you just change the manufacturing sector processes on relatively cheaper industrial workers and then industrial robots.
[00:29:44] So the globalization in many ways has been as successful for the capitalist class in terms of getting much more money because they pay international workers much less than they pay domestic workers. But in terms of the overall society, in terms of the capacity to produce more sophisticated goods over time, it's been a failure. And we're now – if you were seeing the roots of it, that's the roots of the election of Trump in the first place.
[00:30:10] So do you think that tariffs, a policy of tariffs would reverse that? Can it achieve that aim of trying to bring back businesses into America? It could, but of course we've now got the double whammy that any – if companies are actually reporting their legal obligations and companies do it rather better than the mafia does, the drug mafia,
[00:30:33] then they've now got what used to be a costless importing process through four or five countries as you're reworking a component for some product you're assembling in America. It's now going to be massively expensive. So there's going to be lots of companies redoing something. Holy shit, we can't make this for a profit anymore. We've got to put prices up. So I expect a fair bit of chaos out of this. It's being done in a – I wouldn't call it a bull in a China shop, maybe a Trump in a China shop. Yeah.
[00:31:03] And look, we know that – so the Reserve Bank in America is saying, in effect, that they're going to cut rates perhaps once this – interest rates once this year. If that – because they're concerned about inflation without actually saying it's Donald Trump's tariffs that are doing it. But say, in fact, actually, Jerome Powell the other day said it was not just the tariffs. Obviously, it's the migration – attitudes towards migration as well. There's a whole load of – and regulatory policy as well, fiscal policy, you know, cutting tax.
[00:31:31] There's a whole load of factors that need to – that will influence inflation in the United States. But say we live – and, you know, the question is, is the inflation permanent? Because once you've put prices up, they're up, aren't they? But the – unless it causes a steam oil effect and people want higher wages because everything's more expensive. But that can peter out eventually. So say we saw our way through all of that. Would Donald Trump get his way? Say he had – the problem is it's a two-decade job, isn't it, rather than a four-year job.
[00:32:00] But would it achieve its aims? Those are the questions. We'll look at that when we come back. Welcome back, the Debunking Economics podcast. And the question is, if Donald Trump had the benefit of time, if he had decades rather than just a few years, would his plan ultimately work, Steve? It would be feasible. But, again, this is not the sort of thing you do in a blunderbuss approach, and that's what they're taking, a blunderbuss approach. So I've got an expectation.
[00:32:26] It'll cause lots of companies to realize they've suddenly got to hike their prices or they're going to lose money on the current production line. Now, in that situation, how likely are you to invest in an alternative production line? It's going to be difficult. So this is the sort of thing I'd rather say, you know, we're giving you three years to get your act together. And in three years' time, we're going to put up tariffs that mean that your global production chain doesn't work anymore. You've got to do it all locally in America.
[00:32:54] But saying on day two of the administration, there's a 10% tariff on imports from every other country in the rest of the world, no, that won't necessarily generate the investment response that Trump wishes to generate in American manufacturers. And does it push up the U.S. dollar because all of this money all of a sudden is being imported into America because it's the place to be, either because you want to or because you have to to maintain your business?
[00:33:23] Because all that investment pushes up the value of the U.S. dollar. That makes – well, it does two things, doesn't it? Those companies that also want to export as well as service the domestic market find their exports get more expensive. But also, obviously, the stronger dollar means all those countries overseas can produce stuff at a more competitive rate. So it makes the job harder for America. Yeah, I mean – So pesky forex gets in the way here, doesn't it? And that's why they talk about a ball in the China shop. You know, you're not reorganizing your furniture.
[00:33:53] You're smashing it. So, yeah, it could be – I mean, Yanis Varoufakis, by the way, has a very nice little article on all of this. You know, what are the likely consequences and what is America not considering, including the fact that a major reason for its problem is the fact that it's the international currency. And the reason it's international currency is Americans insisted on it, but it will at Bretton Woods. So this is, you know, in many ways your past mistakes coming back to bite you.
[00:34:18] So – and that forex issue is probably the biggest one, isn't it? Plus the fact that, yeah, you're going to get rising costs. So I wonder whether that's sustainable for Donald Trump. I mean, I had a look at Twitter the other day – or X, sorry – also, you know, which is obviously a social media platform and the son of Elon Musk we learned this week as well. Well, it's all X from now on.
[00:34:42] And it seems like the tide has turned looking at some of the – even Republicans on there saying all of this isn't helping the price of eggs, which are expensive in America. It reminds me of the – if you've seen the – oh, bloody hell, the movie, I think of the thinking of Groundhog Day. When – who's the star of Groundhog Day? And I'm going – Bill Murray. Bill Murray.
[00:35:08] Bill Murray is having drinks with a couple of losers in the town and says, what would happen if you woke every day? And it was always the same thing and nothing you did made any difference. And one of them says, that about sums me up. But the other says, that means you could do anything. And then Bill says, that's right. I can do anything I like this day and nothing will change tomorrow. And so he decides to go driving on the railroad tracks. So –
[00:35:35] Because he knows he's going to die and then wake up being Sonny and Cher playing I Got You Babe on the clock radio and the other day begins. So, yeah, so you think he's doing that? He's just thinking, well, I can do anything I want. Yeah, and that's the trouble. I mean, he really has got a Nero complex and he's doing whatever he damn will. He's actually – I mean, talking about buying Greenland and making Canada an extra state of America.
[00:36:03] I mean, I've got a feeling I have a few Republicans and also people who thought he wasn't going to cause wars are now thinking a bit more – Well, yeah, no, so the Gaza Strip is going to be run by the Americans. And it's going to be – obviously he's going to have the – he's going to get a Gaza Lago resort there. Yeah, Gaza Lago. That's a good one. Gaza Lago. So long as those, you know, pesky residents move off despite, you know, the history of living on that land. And then, you know, then also siding with Russia.
[00:36:33] You know, just Ukraine, all the lives lost there, not the millions. I think you said the millions of people have died. I think it's 100,000. But anyway, he's not very good with numbers. But Ukraine, you know, we know that he's going to come to some sort of deal which is going to be favorable to Russia, which is going to be a problem for Europe. So I'm just wondering, through all of this, are we going to get to a stage where people go, America's not to be trusted? We need to find a whole new world order of which they're less prevalent across everything from defense, trade, you name it.
[00:37:01] That's already happened in many ways with America weaponizing SWIFT against Iran some years ago. So, you know, if you have a payment system which you don't let an individual country take place in because you don't like their politics, that is the sort of thing that destroys payment systems. So, yes, I've got a feeling there'll be quite a bit of discussions going on in the BRICS about an alternative financial system. But I'm just wondering, Europe joins BRICS. I mean, it's like it's not just a new world order.
[00:37:27] It's like the rest of the world against America if Trump carries on in this way. Because I tell you, Europe is not going to be happy at all to see after all the expense spent on trying to help Ukraine fight against Russia, to see the United States broker a deal with Russia that just ignores all of that war effort. I mean, that is very problematic for Donald Trump, I think. Yeah, but, you know, he seems to enjoy problems.
[00:37:54] So we now have to watch them play out in real time. And just final question, how does the UK do in all of this? Well, the UK is stuffing itself up internally without any need for help from America. The whole idea about balancing the budget and that nonsense that Reeves is just obsessed by. Yeah, I think Britain can bring itself down without needing any help from Donald Trump. Right. But he could expedite it. He could expedite it, yeah.
[00:38:21] If there's a trade war, because that's the – I mean, probably something you would agree with mainstream economists on, is if there is a trade war where you get tariffs and retaliatory tariffs, I mean, that is a scenario where no one wins. I mean, you just slow down global growth. Yeah, but I mean, you also put pressure on domestic industrialization and development. And that's – if you look back at the history of tariffs when they're used sensibly by countries that wish to industrialize,
[00:38:50] almost all of them have used tariffs to initially give protection for new domestic manufacturers to get going. Domestic manufacturers also often specialized in goods which are only of interest to the domestic industry, by the way. Like, for example, the very first Toyota motorbike was literally a pushbike with a motor attached. And you weren't going to sell that in America, but you could certainly sell it in Japan.
[00:39:13] So, giving a capacity for a set number of years for you to upskill your domestic manufacturing, that's been a common way in which tariffs has been used. And the Harvard University economist Danny Roddick, R-O-D-R-I-K, has done a lot of work on that. When you look empirically, tariffs have been used as part of a successful industrialization programs in pretty much every country that is successfully industrialized, including America.
[00:39:42] Right, OK. But that's fine for America because it's a big country, so it's got a big domestic market. Global, yeah. Global could be a disaster, yeah. And in fact, if you look at the percentage of GDP, which is actually international trade in America, it's actually quite small. It is, yeah. Compared to many other parts of the world. So, it's sort of on its way there anyway. Less so for countries like the UK or Germany, for example. But also, imagine countries with a fairly small population but a big balance of trade surplus, which could be a threat. So, you know, back to Australia.
[00:40:10] So, we're saying Australia has to dig it up, ship it out, make furniture, produce food, produce its own cars, do everything else that everybody wants to do. And that's the problem. You can't. Yeah, the small economies are screwed on that front. Well, that's the problem, isn't it? Yeah. Hence the need for international trade.
[00:40:31] Hence the need for agreed levels of behaviour and limits on how much you can use beggar-my-neighbour policies at any particular point in time. And that's what Keynes built into the bank call. Instead, we've got this crazy system with the American dollar. So, thank you very much, Harry Dexter White, who was the American negotiator at Bretton Woods. And we're now seeing the consequences of a bad system. Right.
[00:40:55] So, the bank call, that approach would not tolerate an America where they are bringing everything back home and so importing less but exporting more and therefore turning to a balance of trade surplus, which would be obviously Donald Trump's main aim. I mean, the bank call would see to that. The bank call has had controls for both surplus and deficit countries. And we're now paying the price to having controls on neither.
[00:41:19] Yeah, and we are with a radical policy from a man who doesn't seem to give the impression that there's any coherent thought behind what he's doing, which I think is the biggest threat, isn't it? Yeah, that's going to be another fun four years. It certainly is. All right. Very good, Steve. Catch you next time. Okay, mate. Bye. The Debunking Economics Podcast. Wir sind Theresa und Nemo. Und deshalb sind wir zu Shopify gewechselt.
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[00:42:15] If you've enjoyed listening to Debunking Economics, even if you haven't, you might also enjoy The Y Curve. Each week, Roger Heering and I talk to a guest about a topic that is very much in the news that week. It's lively. It's fun. It's informative. What more could you want? So search The Y Curve in your favourite podcast app or go to ycurve.com to listen.