Latest / The Fourcast / 'This is amateur hour': Joseph Stiglitz on Trump tariffs and China

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'This is amateur hour': Joseph Stiglitz on Trump tariffs and China · The Fourcast

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Welcome to another special edition of the Forecast from
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Washington DCA rather stormy Washington DC.
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The storm kind of reflects the political and economic mood at
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the moment here. To unpeel the onion of this is
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extraordinary week of events on the markets and in the White
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House behind me, I'm very happy to say I'm joined by Professor
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Joseph Stiglitz, one of the most eminent economists in this
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country. Amongst other things, he was
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economics professor at Columbia University, chief economist at
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the World Bank, and of course, a Nobel laureate.
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Welcome, Professor Stiglitz. Nice to be here.
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So I want to start off with a quote that caught my eye this
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morning from Bill Ackman, one of the billionaire hedge fund
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buddies of President Trump, who was panicking about 7 days ago
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about the markets going down too quickly for his liking.
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And then when there was a reprieve to most of the tariffs
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of 90 days announced by the White House and the markets shot
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up, this guy, Mr. Ackman said vintage out of the deal.
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This is a brilliant president. Do you agree with him?
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No. And you have to remember that
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market then went down again. This is vintage chaos that we've
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seen a really trademark of Donald Trump.
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And how dangerous is this chaos which seems to be soldiering on
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not just for the US economy, but the world economy?
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Very dangerous. You know, we've had 80 years of
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trying to create a rule of law, a world in which borders didn't
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matter very much, where we created complex and long supply
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chains. And all that is being thrown in
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the dustbin. It means that countries can't
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take advantage of comparative advantage as they did before.
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They can't rely on the rule of law as they did before.
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And business really doesn't like the kind of uncertainty, chaos
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and the absence of a rule of law.
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Of course, Trump and his friends in the White House would say
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this is about redressing the unfairness against America on
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trade. This is about making sure that
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China eventually, after this trade fall finishes, behaves
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correctly in terms of its trade practices.
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Do they have a point? A very small point, let me make
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it clear. United States, and to some
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extent Western Europe wrote the rules of the game.
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And so it's ironic that we are now complaining that the rules
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of the game that we wrote are working and we wrote them, let
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me make it clear, for the interests of American
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corporations and other Western corporations, American financial
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institutions, we wrote them for our advantage and now we're
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complaining the system is unfair.
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You know, what I hear is, yes, there may be some unfairness,
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but it's tilted. Where's the United States?
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Not away from the United States. The problem here is that he is
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interpreting trade deficits, and particularly deficits in goods
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as a symptom of unfair trade. I mean, and the logic is a very
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simplistic logic that we're better than any other country,
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therefore we ought to be exporting more than we're
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importing. And therefore if we're importing
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more, it must mean that somebody's doing something
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naughty. The fact of the matter is when
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you have a, a trade deficit at a multilateral level, it's a
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symptom of a macroeconomic problem.
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In particular, it's a symptom that the country's aggregate
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domestic savings is less than it's domestic aggregate
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investment, and there's going to be a capital inflow to make up
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for that difference, and corresponding to that capital
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inflow is a trade deficit. It's that simple.
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Yeah, so basically what Donald Trump was trying to do was
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punish foreign countries for not buying American goods.
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So this isn't just about tariffs.
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This is about the inability or the unwillingness or the
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unaffordability of places like Cambodia or Laos or Vietnam to
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buy expensive American stuff that they may not want.
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Exactly. And there's even a deeper flaw
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that in a modern world, we've moved from just trade and goods
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to trade and goods and services. You know, manufacturing is only
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less than 10% of the US economy in GDP and employment services
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are multiple of of goods. And United States is a major
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exporter of services, health services, financial services,
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tourism. And what Donald Trump is doing
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is shooting the US in the foot. If you look at what he's done in
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terms of the attack on our universities, one of our most
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important institutions, it makes it more difficult for us to
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export our educational services. If you look at what he's doing
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to tourists, including from the UK and from other countries
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wanting to come to the United States, there is the threat that
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they will put into tension, shipped off to some place and
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without the kinds of normal safeguards that you expect in a
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democratic country. So that's discouraging tourism.
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So he's doing more than anybody has ever done to actually harm
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American exports. So the tariffs that he's
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imposed, I mean, the the ones against China seem to be going
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up everyday. I think the last time I looked
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there was 140% American tariffs versus 125 from China.
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Then of course, all the other tariffs that may or may not come
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back in 90 days time. I mean, the last time we had
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tariffs like that was in 1903, more than a century ago.
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Is that the mindset of Donald Trump?
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Do you think that, you know, early 20th century, is that
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where he's gone back to? Very much so when the US was a
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dominant power. He, you know, this Make America
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Great Again is a, a, a going back to a world that no longer
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exists, a world where manufacturing dominated, where
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the US dominated and we could basically get away with
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anything. the United States now is less than 20% of global GDP.
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And China in terms of purchasing power parity is a larger economy
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than the United States. And there's another asymmetry
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that Donald Trump hasn't fully grassed that when we're imposing
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these high tariffs on China, it creates an aggregate demand
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problem for China. And they've been worried about
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that, and they anticipated that. And correcting an aggregate
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demand problem is not as difficult as correcting an
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aggregate supply problem. And what the tariffs against
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China are doing is creating an aggregate supply problem because
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our supply is so dependent on complex supply use in which
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China plays a central role. You know, we saw that after the
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pandemic and when Russia invaded Ukraine.
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Remember, in those days, there were these interruptions to
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supply and we had enormous inflation.
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We couldn't get some critical goods.
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That's what Donald Trump is doing.
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He's creating unnecessarily those supply side interruptions
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that we experienced just a few years ago.
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The other thing, of course, he wants to do 2 things really.
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He wants to increase the revenue, the amount of money the
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American government makes from these tariffs.
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And he wants to bring jobs back to the Rust Belt, to all those
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manufacturing towns that have been desolate for decades now.
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Are those not 2 contradictory things?
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Because of course, the less people sell to, to America, the
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less revenue they'll be from tariffs.
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And you know, the, the, the jobs don't necessarily come back as
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if no one's going to buy the stuff that they produce.
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It's actually worse than you just described because first, if
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we get manufacturing back, it's going to be modern
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manufacturing. You know, I just was saw a
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factory in China. We were there producing 1000
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cars a day with 2000 workers. Most of the production was done
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by Roebucks. Modern manufacturing is very
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advanced and China now has a comparative advantage in
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engineering, which is at the core modern manufacturing.
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So because we have not invested in railroads, we've not invested
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in logistics, we have a comparative disadvantage in some
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of the core ingredients for manufacturing.
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Secondly, it takes a long time to produce many of the to create
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the factories, and given the chaos that he's created, firms
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are going to be worried about moving into the United States.
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Thirdly, and most importantly, he's raised the tariffs on steel
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and aluminum, key ingredients into the production of other
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goods. And by increasing the cost of
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production, he makes American exports less competitive.
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So in fact, while he create a few jobs in, say, steel or
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aluminum, he destroys many more jobs in the sectors that in the
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areas where we use steel and aluminum.
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So he again is engaged in job destruction.
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So when economists look at the whole portfolio of what he has
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done, it's much more job destruction than job creation.
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I wonder, because it makes so little economic sense, what he's
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been doing, whether this is just really political.
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And what it's really about is trying to limit the expansion of
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China, put China back in its box.
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Because as you've just said, you know, when it comes to
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infrastructure, when it comes to innovation, when it comes to
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production and maybe even, you know, services down the road,
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China and nominally communist state is beating America at the
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capitalist game. That's right.
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You know, in some areas we we do have enormous strengths and one
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of our strengths was our universities, our research
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establishment and he in the last three months has done more to
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damage that than any competition with China.
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So over the short, medium and long term, he's really
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undermining the strength, the key strength of the United
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States. It's like he's been attacking
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the United States far more than China had been doing any any
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damage. There's another element that one
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can't underestimate, and that is the amateurness and maturing
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this of his team. You know, I've talked to people
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who've been in countries, you know, engaged in negotiations.
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It's not like the normal negotiation where one side comes
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in. Both sides come in with a sound
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understanding of economics, a strong view of what they want.
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And you have experienced and well informed negotiators.
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This is amateur hour. And so you have people who may
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be bright, may have been really good on Wall Street, but that
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doesn't mean that they have any fundamental knowledge of the
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deep intricacies of economic policy.
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And so you have people been working on these issues for
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decades and trying to interact with somebody who's just begun
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to think about these issues. They find it frustrating.
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But also, I wonder if it's amateur, because what's far more
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important for Donald Trump and the people around the cabinet
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table is loyalty to the boss than any kind of expertise which
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might involve them contradicting him.
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That's right. And there is an element of what
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is going on of a cultural revolution.
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You know, we've been talking about China and and China went
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through a devastating cultural Revolution and it was that
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experience that led to them to their reform and openness
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strategy, which over 45 years has led to the highest rates of
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growth and the largest numbers of people moved out of poverty
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in the history of mankind. We didn't learn the lessons of
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Chinese Cultural Revolution. And what I see going on right
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now on the attacks on the universities, the attacks on
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expertise are have a kind of close relationship to what
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happened. It's sort of like the
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establishment failed me. That's what failed us and these
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are the leaks that look down on us and it's not true.
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They were trying to create a better world for everybody, but
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there's that grievance and so they're going to shoot the
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country in the foot by destroying the expertise.
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And in this trade war between China and the US, which seems to
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be getting worse every day, what are the consequences of that
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going to be for China, for US and also for the world economy?
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Well, as we said for for 4045 years we've tried to create this
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global economy based on complex supply chains, comparative
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advantage and the whole the the standards of living on average
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around the world have increased and numbers of people moved out
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of poverty are enormous. That closing of the gap between
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China and the United States and the fact that China now in terms
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of the standard way of measuring these, the purchasing power
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parity, China is now larger than the United States.
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It's still per capita income is much lower, but it has four or
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five times the number of people so that it is a larger economy.
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the United States resents that. And Professor Graham Allison at
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Harvard has talked about this as the facilities trap, that the
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country that was #1 doesn't like the number 2 country coming up
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and threatening their dominant position.
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Well, China has been thinking about this issue for a long
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time. After the first Trump
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administration, they they began a process, didn't go fast
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enough, didn't go far enough, but are now and have anticipated
16:47
what the United States is doing. So they are relatively well
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prepared. You know, they've had some
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advertisement. Nobody could have anticipated
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COVID. They didn't manage COVID well.
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But where they are today, they are in a deeply optimistic
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position. DeepSeek, the advances in
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robotization, their integration to the global economy give them
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a set of a sense of confidence. So I think with difficulty
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they're going to be able to manage through this.
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On the other hand, as I said before, Donald Trump has not
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fully anticipated the extent to which our supply chain is so
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dependent on China and just breaking it adequately like
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that. I'm afraid we'll have some
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consequences for the United States, including inflation.
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And the Fed is going to respond to the inflation by raising
17:53
interest rates. Good chance of having the worst
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of all possible works works stagflation, which means that we
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will have a a recession and inflation.
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The critical question He wants the United States to be great
18:16
again. Will he restore manufacturing to
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the United States? Will he restore America's
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dominance in this area? There will be some movement of
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some firms back to the United States that will occur.
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But overall, because as I say, we're a service sector, we're a
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knowledge based economy. And I said that well before
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Donald Trump came on the scene. In the areas that are important
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for a 21st century economy, we'll be worse off.
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And so I think that the adverse consequences of this chaos for
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the United States are going to be quite significant.
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Now, the really interesting question, I think, is Europe.
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Europe finds it difficult to work together.
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The attack by the US against Europe has been uniting a lot of
19:34
discussion about the creation of a European Defence Force for a
19:37
long time, and there seems to be a significant movement in that
19:41
direction. If Europe gets united, responds
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strongly to the war in Ukraine, creates a European Defence
19:51
Force, scrap some of the constraints that they've imposed
19:57
on their fiscal policy. And reassesses its trade
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relationships with China and the rest of the world.
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I think Europe can navigate its way through this very difficult
20:14
period and emerge actually stronger rather than being a
20:20
sort of a dependent on the United States.
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There will be a more united Europe as a very important and I
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would say the critical country in the world country, a region
20:36
supporting democracy and human rights.
20:39
So that's my hope. A lot rests on what Europe does.
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Where does this leave Britain? The piggy court in the middle,
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if you like, between the European Union and the United
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States, which which with which it hopes it still has some kind
20:54
of special relationship. I think it's important for the
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UK to cast its lot with human rights and democracy and
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unfortunately Trump is moving away from both of those.
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And so when I say UK has to cast its lot with human rights and
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democracy, that means it has to move back towards Europe.
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And that doesn't mean it has to rejoin the EU, but it does mean
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it has to coordinate and be an active part of the European
21:33
Defence Force, cooperate with industrial policy, climate
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change, creating a kind of new multilateralism which
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unfortunately for a while may not.
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The US won't be at the centre, the EU will.
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The centre and the UK can be an important partner of the EU.
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Just back to China briefly. What are the ways in which
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China, which is the second biggest holder of American debt,
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can retaliate against the United States in this trade war?
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Well, I don't think it will actually do anything about
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dumping its U.S. Treasury bills.
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It would not be in its own interest to drive down the the
22:25
the price of those Treasury bills.
22:28
It could do that, but I don't think that will happen.
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China has many cards in its hands.
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It is the dominant player in a whole set of minerals and other
22:43
natural resources. While we weren't paying
22:46
attention, it it developed this dominance in materials that are
22:53
essential for your smartphone for for renewable energy.
22:59
You know, it's really quite remarkable that if you thought
23:03
that there was a a conflict of that kind, you would have begun
23:07
to to try to make sure you have the natural resources that would
23:12
make you able to have what might be called national economic
23:18
sovereignty. But the first Trump
23:21
administration didn't pay any attention to that.
23:25
It was more concerned with grievings and, and I would say
23:30
and, and other bad trade ballots, but not with the
23:34
extreme chaos that we have today.
23:37
There is one other dimension, obviously, that it could
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undertake. It's no longer dependent in the
23:45
way that it was 25 years ago on American investment.
23:51
It has an enormous amount of savings.
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You don't have that kind of savings.
23:56
It has far more engineers than we do.
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So it's in many areas equal to or surpassed American
24:07
engineering. So it's dependence on American
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firms has gone down. So take one example that might
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be very salient in EV electric vehicles.
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China's electric vehicles, BYD and a whole set of other
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companies are now much better, much cheaper than Tesla.
24:36
So it could tax, it could tax the profits of Tesla, not worry
24:43
that, well, a Tesla might say we're not going to invest
24:47
anymore in, in, in China. They don't need Tesla's
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investment. Apple makes a significant
24:53
impression of its profits from China and it could tax Apple
25:01
more. So it's this is not what it
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wants to do. It wants to continue an
25:08
arrangement of of cooperation. It's their leaders have made it
25:13
very clear they want to cooperate, but they're not going
25:18
to kowtow. They're not going to be
25:23
subservient. And to put it in a broader
25:27
historical context, which many Americans don't take into
25:32
account, you remember in the middle of the 19th century there
25:39
were trade wars. Those trade wars were actually
25:44
with guns. Europe, with the support of the
25:48
United States, invaded China and demanded, demanded that China
25:55
open up its doors to opium, to the sale of opium.
26:01
And they were called the Opium force.
26:03
And it was a disaster for China. But we insisted this was what
26:08
fair trade, free trade was about.
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China had that open its doors to opium.
26:13
It's ironic that now we're talking about phenotype, but
26:18
that that history which led to the what are called the
26:22
concessions and Shanghai and other cities in China where they
26:32
had to give up territory where Europe powers ruled.
26:37
Effectively, that memory is still there.
26:41
And so I do not see any way in which China is going to kowtow
26:47
to the United States where Donald Trump manding something
26:53
of China is going to get the resolution.
26:56
It has to be a dialogue based on equality.
27:04
And one of the problems here is they're more informed and
27:10
they've been better trained. United States universities,
27:15
their experts actually know more about economics in many cases
27:19
than than the negotiators that we're sending from the United
27:22
States. So, briefly, would you say that
27:25
what Donald Trump has done, what he's decided to do for political
27:29
and perhaps economic reasons, has hastened the ascendancy of
27:33
China and the decline of America?
27:36
Yes, it's true. I don't think the damage
27:38
necessarily in terms of this relative position is permanent,
27:45
but it's very, very deep. The most damaging thing for the
27:53
United States is what is, is not the trade war.
27:57
It's the attack on our science, an attack on our universities,
28:03
attack on the institutions that gave us really the comparative
28:07
advantage in technology. It's where we are today.
28:11
So his attack on those fundamental institutions
28:18
probably is the most damaging thing, but equally damaging is
28:24
the attack on the rule of law. You know, the the way in which
28:29
he's trampled on the safeguards, the the just ignoring the law.
28:39
And the last Nobel Prize in economics was given for studies
28:48
that emphasize something that I and A lot of other people have
28:52
for a long time. What has given rise to the
28:56
wealth of nations, to the success of countries like the UK
29:02
and the United States, Western Europe, is the rule of law, the
29:07
kind of certainty that that gives for investment.
29:11
And he's destroyed that. So this sort of crippled wing of
29:21
destroying, attacking silence and universities, attacking the
29:25
rule of law, and then attacking the trade framework and the
29:31
international rule of law has really damaged the United
29:35
States, I think very seriously. And of course, one of the things
29:39
that's really suffered is trust in the United States.
29:42
And trust in the United States is one of the things that has
29:46
always upheld the dollar, the US dollar as the currency of
29:49
reserve. I mean, you've effectively had a
29:51
golden credit card for decades. Is there a danger that that
29:55
golden credit card will not be demoted to silver or heavens
29:58
defend even bronze? You're absolutely right.
30:02
And let me say, emphasize something that that many of us
30:07
again have talked about for several decades, the importance
30:10
of soft power. It was US soft power that was
30:13
really much more important than our hard power.
30:16
People respected us because we were a carry country, a
30:22
successful country. People looked at us and said we
30:28
want to be like that. Now when people look at the US
30:31
and say no, we don't want to be like that, look what he's doing
30:37
to the universities. What are these doing to the rule
30:41
of law? Look at the inequality.
30:43
Look at the oligarchy, the role of money, the corruption.
30:49
So we are losing our soft power. Another example of the shooting
30:55
ourselves in the foot when he destroyed shut down USAAID
31:04
overnight it resulted in thousands of children dying in
31:12
Africa because they couldn't get the medicines.
31:14
It again undermined respect for the United States.
31:19
What kind of country could do that?
31:22
You know, it's an embarrassment. So he has destroyed our soft
31:27
power. Now to come to the more narrow
31:30
question of the dollar as a reserve currency.
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China already anticipated this problem.
31:40
It used to hold 22 trillion or more dollars, its reserves.
31:49
The latest numbers that I've reported are it's down to 700
31:54
billion. It's diversified go euro,
32:00
Japanese yen. So this March away from the
32:06
dollar as a reserve currency is already way.
32:11
You know, Trump wants to have it both ways.
32:15
It wants to have the dollar as a reserve currency, but also not
32:24
have the one critical disadvantage of the reserve
32:28
currency. And that advantage is that if
32:33
you are reserve currency, people will be accumulating dollars.
32:39
If they're accumulating dollars, that is equivalent to a capital
32:46
inflow, and a capital inflow is equivalent to a trade deficit.
32:53
He doesn't like the trade deficit, but you cannot be a
32:56
reserve currency without having a trade deficit.
33:00
The trade deficit normally gives rise to deficiency of aggregate
33:05
demand. That deficiency of aggregate
33:07
demand requires fiscal stimulus. That fiscal stimulus means a
33:15
fiscal deficit. And the Hawks, the fiscal Hawks,
33:21
the Republican Party don't like that.
33:24
You can't understand this under Keynes.
33:27
And some people say it was Keynes insight to say let's not
33:34
be a reserve currency, let's get rid of this hot potato.
33:40
And that had undermined the strength of the UK.
33:47
Triffin talked about a great professor in the last century
33:52
talked about what was called the Triffin paradox that the reserve
33:56
currency create. To maintain that reserve
34:00
currency, you have to get more and more debt, deficits
34:05
accumulating over time. And that of course has that debt
34:09
increases, the confidence in the reserve currency decreases.
34:14
And so he said, you know, there's a there's a a kind of
34:17
tension here. Now, the way front lungs resolve
34:24
this is to break the laws of arithmetic and just destroy
34:30
economics. The particular proposal that he
34:33
has, it has been, I don't know if you've heard about the
34:38
Marleco Accord. And when at feature of that is
34:42
that countries around the world would accept trade in their
34:49
T-bills for century bonds with which do not yield any interest.
34:57
And those in other governments that I talked about and say
35:00
what, what do you think about this?
35:02
They say, well, that's equivalent to a default.
35:05
And So what some people in the Trump administration are talking
35:11
about is a default on the dollar.
35:13
If that discussion continues, that of course will undermine
35:18
the USS reserve currency. Finally, Professor Stiglitz, I
35:23
mean Scott Besson, the Treasury Secretary, said the other day,
35:26
the next four years of this administration are going to be
35:29
about Main Street and not about Wall Street.
35:32
A kind of populist message from a rather unlikely man, to be
35:35
honest. If what's happening at the
35:38
moment means pain on Main Street, inflation, job losses.
35:43
Do you think that American Society can sustain that?
35:47
Or will there be a mass kind of electoral rebellion against
35:50
Donald Trump and his people? I think there will be an
35:53
electoral rebellion. What many Americans are not
35:58
worried about is will we have free elections in 2026?
36:04
You really think that's a danger that you won't have free
36:06
elections? Well, remember what happened in
36:08
2020. Donald Trump tried to overturn a
36:14
free and fair election where Joe Biden won by 7 million votes.
36:21
He tried to overturn that. Now, one can't help but ask the
36:27
question, if you accumulate a lot of power, if you show that
36:31
you're willing to trample the rule of law, is it not
36:36
conceivable that you would use that power and your
36:41
insensitivity to the rule of law to maintain your power?
36:46
And it's not that difficult because all you have to do is
36:51
intervene in a limited number of elections because we have red
36:56
states, we have blue states, and then we purple states.
36:59
And so if you intervene in enough of the purple states, you
37:04
can ensure that you maintain power.
37:08
So because we are a divided country, it's not like he has to
37:13
shut down the whole electoral process.
37:16
All he has to do is intervene in a relatively few stakes
37:24
congressional districts and we will not have free and fair
37:30
elections. That is the worry.
37:32
Is America becoming the most powerful Banana Republic the
37:36
world has ever seen? I think that that's the worry,
37:39
and it's a Banana Republic in so many ways.
37:42
When we talk about banana republics, we often talk about
37:45
leaders who don't have expertise, who govern on whims,
37:52
with authoritarian figures, who may have flawed views,
37:59
grievances, and it's their whims and their misconceptions,
38:06
obsessions which dictate economic and other social
38:13
policies. And we've never had a Banana
38:18
Republic with so much military power.
38:22
And that is what is so scary. Professor Joseph Stiglitz, thank
38:27
you very much indeed for joining us on this special edition of
38:31
the Forecast from Washington, DC Professor Stiglitz, thank you
38:34
very much for joining us. It's been a pleasure.