Hello and welcome to the forecast.
So Donald Trump has opened fire on a global trade war and
countries around the world are working out what to do.
Even the Penguins in Antarctica must be shuffling around
wondering what they've done to preserve it.
The UK faces 10% on everything and 25% on cars and steel.
So what does it mean for us? Where's this heading?
Does economic war put us on a road to something even worse?
With us today, the American author Robert Kaplan, whose new
book is cheerily titled Wasteland, a World in Permanent
Crisis, and our economics correspondent Helia Ebrahimi.
Robert, thank you very much indeed for joining us.
It's a. Pleasure to be here.
Let's look at this through the prism of how you analyze where
we are at the moment with sort of strong men, democracy in
crisis, and where you think this is actually heading.
Well, I think it's history shows that trade wars can lead to real
military conflict because trade, free trade cushions the impact
of bad relations between great powers because they have too
much at stake economically. But if you put up economic wall
walls, that increases the likelihood of the probability of
the military conflict. And I'm thinking about China
specifically because markets have priced in rather
impressively, the Gaza war, the Ukraine war.
Nobody notices a difference on their savings accounts when
because of those wars, you know, to be brutal about it.
But if there was a high end military conflict between the
world's largest economies in the South China Sea or Taiwan, it
would have a devastating impact on global markets.
And by putting and starting a tariff regime does not 'cause
that, but it increases the probability of an of something
like that happening. Because for decades the US China
relationship has been cushioned by trade between the two
countries and and by the fact that each country knows that
there's too much to lose if there was a real war.
So that inhibits both parties. Why would that not continue to
be the case? Well, the problem now is that if
he's putting high tariffs on China, for instance, as an
example, the relations go South, you know, the relations get more
tense and you know, it's Shakespearean, you know, in
terms of what's going on in the minds of leaders, will they, the
Chinese just keep finished conducting a military exercise
involving the occupation of Taiwan.
And this comes on top of that. So you know it again, it
increases the likelihood or the probability that that one or
both leaders will miscalculate. And and if it is Shakespearean,
then let's look at the characters.
You know, if you look at Trump and Xi Jinping, yeah, how how do
the way they are developing that?
Trump is post literate. I didn't say illiterate.
I say post literate. He, he can use a smartphone.
He can he, you know, he can send social media messages, but he
doesn't read books. He never has.
So by not reading books, how can he know about the origins of the
Western alliance or of the treaty alliances in the Pacific,
which were established 80 years ago?
It's too long for memory, for a living memory.
So he has no appreciation of that.
So he's reduced to like, brutal territoriality.
And he's surrounded by people who don't tell him neither.
Right, You know, take Greenland because it's an extension of
North America. Make Canada subservient, take
the Panama Canal, you know, create like a greater North
America on on the map to compete with China and Russia, countries
that he takes seriously. He doesn't take seriously as
much the European Union because he sees it as weak and divided
and has and as I said, has no appreciation for the origins of
the Western alliance. Now Xi Jinping is, he's a
Leninist autocrat. China has been different things
under different leaders. It's had, you know, a
revolutionary anarchy under Mao, a kind of Mandarin aid, a wise
Mandarin aid under Deng Xiaoping and Zhang Zeman and Hu Jintao.
And now it is a real hardcore Leninist where you have
ideologues making complex financial decisions.
Again, so much power is invested in these two men, to say nothing
of Putin, that the chances of them to miscalculate are great.
It's amazing how even markets which are supposed to be
rational, supposed to be rational, are affected and have
big downturns because of human error.
You know I'm talking about human Shakespearean era here.
I. Mean just on that is there?
Is it? Is it too much of A stretch to
say there's a little bit of Leninism in Trump as well?
You know, in in the sense of a man who who believes in
punishing the innocent to some degree.
That's, that's the best way to describe Leninism.
Don't just punish the guilty 'cause that gets you nothing.
You have to, you have to strike fear into the hearts of the
innocent. That way you get total control.
That was the innovation of Leninism.
And there's a little bit of that of Trump, but that's not really
where he is. He's not serious enough to be a
fascist or an ideal or a Leninist ideal.
You know, to be a fascist or a Leninist ideologue, you have to
read, you have to have a program, etcetera, etcetera.
But it's quite interesting because the the economic vision
that he has is not really in line with western modern
economics. You know that he wants to bring
back AUS economy that belongs to the last century.
It's fantastic. He's saying he's doing all of
this because workers have been disrespected.
He he wants American workers to have respect again.
He wants manufacturing to come back to the US.
Now the US has really transitioned from a
manufacturing nation to a services behemoth.
You know does. The political problem he's got
is workers who are worried about their jobs and worried about
their incomes, and that's what he's playing to.
Yeah, and he has. No, he has no concept of complex
global supply chain. And I think that is the problem.
And he thinks the that you are going to have these massive
onshoring. You know, he points to, he says,
well, look, I got Apple to promise, you know, $500 billion
of reassuring, although poor Apple, they're getting hammered
in the market today because despite placating Donald Trump
and saying we're going to bring back all of these jobs to the
US. You saw the tariffs that were
hit not just against China, but across Asia, across Vietnam, all
these countries. To your point, Robert, that
created that link between these blocks, between the China block
and the US block, allowing trade to flow the kind of back door
through China. They've also been massively hit
with huge, huge, huge tariffs. And I think The thing is that he
thinks that you're in a wink of an eye going to bring back all
of these manufacturing jobs and bring back all of this
investment. But when you talk to companies,
Chris, they tell you we don't even know where Donald Trump
stands because he changes his mind so.
We. Can't have a 10 year plan.
Exactly. Apple.
Poor Apple. As you said, you know it's
supply. Chain that you say that there is
it. Is so it's supply chain is so in
so dependent on China, Yes that you know, when Tim Cook made
this bet, you know, a decade and a half ago to locate in China,
he had no idea of the character like Xi Jinping coming to power.
So, you know, so it so it really effects them as well.
But but they have tried to work with Trump's, you know, previous
Trump won type of tariffs and get some of their manufacturing,
which has happened across not just Apple, but a whole bunch of
American companies where they've taken Chinese manufacturing and
parked at somewhere else. And that is also in the
crosshairs now. But you know, Trump would tell
you, look, we've got you know, even LVMH has talking about
beefing uppers production in the US.
But I think to the core of the economic issue is you said
there's a political issue because, you know, the Magas
love those manufacturing jobs. How, how many of those jobs are
really going to exist? Because if you are going to
build modern factories, they are not going to be labour
intensive. They'll.
Be AI intensive. Exactly, they'll be AI
intensive. So who are going to get these
jobs? So at the moment he's because
his argument when he stood there with his board and he said,
well, they charge us 67%. Gotta love a man with a board.
And, you know, and he laid it out.
You can see why it might have seemed persuasive to some people
who haven't yet gone to the shops and seen their prices
going up. When is that going to happen?
Well, look, in terms of prices, it's going to happen in the US,
You know, it depends how much the companies pass on.
Remember that this is a tariff. You know, we're talking about
potentially $700 billion of tariffs that the US is going to
collect. So is that a big win for Trump
or is that $700 billion going to be passed on to US consumers?
So they're going to have to pay more for car industry.
For example, analysts think that cars at the top end will now now
cost $10,000 plus plus plus more.
And even at the bottom end of the car market, it's going to
cost one or $2000 more. And it's not just that it will
cost more, it's that people will stop buying cars.
It's not just OK Consumers will just, you know, stump it up and
it'll be out of their pocket. They will actually stop buying
these products. Very few economic decisions from
the average American consumer that have so much of symbolic
effect on their lives. It's the price of a new car
because many Americans now lease cars, which means they exchange
them every three or four years. And if the lease goes up by 1000
or $2000, that's like when the gas price goes up.
It could change an election if the gas price goes up.
So what? You don't, I would say, to keep
your attention in terms of Trump's popularity as we go
forward on the bread and butter thing like people's retirement
savings accounts. We look at the market today, you
know, the price of cars. Also, he's gutting the Social
Security Department, the Health and Human Services department.
So when consumers call up to see because there's a mistake on
their retirement check, there's nobody to answer the phone.
They they're on hold for five hours.
Those are the things that change votes.
And, and you've got, so you've got these first round effects,
Chris, which is, you know, prices are going to go up.
If companies don't, you know, swallow the hit and have less
margin, they pass it on to consumers.
And at the moment, analysts are talking about inflation going up
to 4%. You know, that is quite
considerable. I'm predicting a recession now.
Predicting materially a bigger risk of recession.
So one of one of the caveats I would say, and there's been a
bit of chatter from the administration today is look at
the markets. Don't look at the markets
because we're going to give all of that money back to you, the
US citizen through tax cuts. So I think that is an
interesting thing to watch and will impact how you know bigger
risk for recession there is. And tax cuts will generate a
higher deficit, which is which is such a, you know, the the
building the deficit is like high blood pressure.
It's the silent killer. You know, people just it's an
abstract mathematical story that nobody bothers to read, but it
really impacts the health of a nation going.
But what do they do? If they pay down U.S.
Debt, then they definitively will have a big so their choice.
Just to be clear, their choice is to either pay down the debt
or to give it back to people in tax cuts.
And what Trump said last night is we're going to give it back
to you. And so consumers will be will be
expecting that, but that is going to be quite challenging.
And you've got to think, Chris, that because I was talking about
first round and second round effects.
So the first round, as prices go up, you people who are Trump
voters go into their supermarket and go hang on a moment.
I no, I don't like this. I don't want to pay more for
buying groceries. That's not nice.
I don't want to pay more for my cars in this field, you know,
suddenly unhelpful. And then all of a sudden,
businesses invest less and the economy starts to shrink.
And that's going to happen not just in the US but, you know,
that story of the US sneezes and the whole world catches a cold.
It's amazing that we live in a world of so many brilliant
financial experts and yet and yet democracy has produced
someone who's an economic illiterate in some respects.
So how, how do you get Robert from that?
Because you know, the, the natural reaction to that as
well. It's all going to go wrong quite
quickly. Surely the American voters will
see this and Trump will be forced either into a climb down
or they'll be swept out of power and the world can can reset.
Why do you not think things are going to go that well?
I think. From your point of.
View I think things are not going to go well.
Remember, the president is in power in the American system for
four years. He may lose the midterms
dramatically, but he still has enormous power in foreign
policy, even if he loses both houses in the midterm.
And I think we're entering an era of real where all great
powers are threatened. As I layout in my book, they're
all in decline, but at different rates and in a very slow way and
in different ways. And great powers in decline have
a tendency to lash out and take risks.
I mean, there's nothing more dangerous than a China where
billions of dollars are fleeing the country and at the same time
they're planning on invading Taiwan.
But interesting isn't it, when we talk about kind of the
spheres of influence that just last week you had a meeting, I
think the first in five years between China, South Korea and
Japan talking about trade, you know, and that is the these are
the kind of shifting tides of what's going to go on.
Right, There's an important point to make with that, which
is that, you know, China is there.
It is the geographical, economic, debt, demographic
organizing principle of East Asia and the Western Pacific.
America is 1/2 a world away in a real clash between the US and
China, with the US providing its allies with less assurances than
in previous administrations. Countries from Japan and the
North to Australia and the South can slowly, gradually, without
admitting it, be captured by China, you know, move in the
direction of China. You know, to to the extent that
Trump may be helping China created the its old tribute
system, which is not exactly imperialism.
It's something more subtle than that.
Well, I mean, it's, it's, it's very interesting.
I mean, they, they are relatively small countries to
worry about, I suppose. But when you look at, for
example, what's happened with Australia, yeah, you had a
situation where the Biden administration had pulled
Australia in. Right, exactly.
Created orcas they were going to get nuclear powered submarines.
Suddenly Australia is pulled away from China, yes, which is
what, you know, it had been growing, growing, you know,
increasingly under China cell over the last 10 years.
But that's kind of now blown out the water because China's now
saying these are not the actions of a friend.
Yeah, remember, Australia had it good for decades.
It was getting rich off China and it was protected by the US
Navy and Air Force. So it was kind of hedging a bit
while being in the western camp. August, as you say, you know,
which is the treaty to provide Australia with nuclear powered
submarines has shifted Australia to the to the to the western
side. But some but.
Some of this could change. This could change everything.
But some of the kind of economic philosophy of what the Trump
administration are doing so bizarre.
Like you, Yeah, Lutnick today was talking about Australia.
Well, why did you, you know, slap Australia with 10% tariffs?
Oh, well, you know, they just buy LNG from us.
We don't want to sell them LNG. That's what they want.
But hang on a moment. That is not how the global
economy works. That is how a managed economy
works. They're so concerned about we
want to sell our beef. We want to sell our agriculture,
which I don't know if yes, it that will resonate, as you said,
Chris, with a contingent of American MAGA or, you know,
voting, but it's not all of America because they they're
more interested in the wider, you know, U.S. economy than just
agriculture. There is something deeper going
on, which is this happened in the Weimar Republic, where you
had a lot of smart people at the end who were experts.
And all of that gets swept in. You know, it's swept gradually
into the Nazi Party, saying things that they didn't really
believe. But we're so interested in their
careers in power. And we're seeing some.
Yeah, they're enthralled by the proximity to power.
And we're seeing some of that with people who should know
better are saying things. Remember, Marco Rubio was in It
was a neoconservative 12 years ago.
Where's that gone? Yeah, that's nowhere in this in
administration. Exactly.
It's all about proximity to power.
I mean, you look at these tech billionaires, that tableau of
the inauguration. Never has there been this much
collusion between massive wealth and political power as now where
you take people who are worth 10s of billions of dollars.
Yet they feel the necessity to get on their hands and knees
before Trump, who may be broke for all for all.
We know his finances are so complex.
The the other thing about this that that you know, that makes
you wonder is quite, quite a lot of the theoretical upsides are
long term. They are not likely to
materialize in the next two to three years.
Yeah. So these do not look like the
economic plans of a man or a movement who think they're going
anywhere. Yeah, that's absolutely true.
Trump and well, in this sense, JD Vance, who in the vice
president, who in some respects is more extreme than Trump, when
you actually look at his. Yeah, he really believes a lot
of this is, you know, he's only in his mid 40s.
He can run for president. You know, he could be a
president for eight years. And that, you know, the, the
Trump, the Trump, the Trump party could be in power for 12
years. But Trump, as you said, is not
laying the groundwork for that with this.
But the rhetoric will be there, Chris, you know that I, I
proved, you know, I brought these many.
Jobs, you mean by your comparisons to Weimar and sort
of where that really takes us with a with?
A well, Weimar, Weimar led to Hitler.
The the world, the United States and the world are not going to
have another Hitler. But if you look at the look at
the patterns of how the Weimar system, you know, ended and how
the Remember, Hitler was very popular.
Had he died in 1938, he would have gone down in history as a,
you know, as a fairly popular German leader who got back lost
territories, revived the economy and and, you know, and did
things like that. So it's like Weimar in the sense
that, you know, it's it's a human proclivity that people
brilliant but are but are absolutely obsessed with their
careers and their social position get swept into this
wave. And I think the Lutnick comment
is is is very symbolic of this because he should know better of
all people. And, you know, the, the, the
language that the administration using is that America has
somehow been ripped off. I mean, if we've been ripping
them off, we've not done a very good job because they're the
wealthiest nation in the world. But that they're being abused
that the whole global economic system is built on the back of
ripping Americans off. This morning they were saying
again that, you know, it's not just tariffs that are problem.
It's all all the rules that different countries bring in,
you know, that are barriers that somehow subsidized our national
interests above US interests. And then that is the dragon that
Trump and Trump's administration has to say that was not
realistic, that kind of portrait of what's happened.
But. There is also a logic for the
MAGA crowd. If you look at the trade
restrictions India imposes on America and.
Yeah, they don't buy. They don't buy American corn,
you know, So that's why. Or whatever it might be that you
go, well, hang on what you know, why are we not charging
something similar? You know that that is a
difficult one to answer, I think, when you look at the
protectionist policies of other countries.
You know, one of the things that Trump realized before other
politicians back in 2014, 2015, was that the elites, Republicans
and Democrats were all in favor of free trade.
And he saw how free trade was making life more difficult for
American workers. It wasn't just jobs,
manufacturing jobs in the northern Midwest lost to China.
It was, it was the, you know, it was, it was other things as well
that that, that there were less good paying jobs.
And the states that lost the most jobs to China in 2016 were
the states he carried by thin margins, which enabled him to
beat Hillary Clinton. So from his perspective, he's
been ahead of the curve when you know, when he looks back at it,
that because he started attacking free trade before
almost anyone did. And, and it resonates with
voters. And I mean, in that way, it's
quite interesting because it, you know, it, it could be a
traditional very left wing philosophy that we need to, you
know, that it's not a very, as you were saying, but not a very
Republican kind of economic ideology.
And it does resonate with people.
You know, he's going to be able to say, look, Louisiana, I got
Hyundai to bring steel manufacturing and invest, you
know, six billion, 6 1/2 billion dollars there.
That will win votes. That will bring people on side.
But just because people, you know, it resonates with voters,
it doesn't mean that that is an accurate reflection of the US as
trade situation. What's happened in America is
that there's no center anymore. You have the the the far right
Trumpian right, not the center right of the old Republican
Party. And you have a progressive left,
not the center left of the old Democratic Party.
And the center has been lost, I would argue, because of two big
reasons. You can name 20, but I'll name
21 is globalization has split American Society down the
middle. It's it's created a globalized,
cosmopolitan, multilingual wine sipping class of people dreaming
of European vacations and stuff. And then there's the other half
that has been left behind in the old nation state in the fly over
states of Kansas and Nebraska and etcetera.
So globalization divided America as it has some other countries
as well. I mean, there was a bit of this
in Brexit. And the other thing I would
mention is the change in the media environment.
America was a great mass democracy in what I call the
print and typewriter era when people got their news from
centrist and their and you know, got not only got their news, but
their whole outlook on the world from centrist Fact Check,
professionally written long, you know, long articles and
newspapers that provided people with complexity and context that
they could understand. The digital video era has erased
that. It's created a social media
environment of passion, ideology and simplicity.
Simplistic narrative, so and. Trump rise that very well, yeah,
but the genie is out of the bottle now, isn't it?
You can't. You can't put.
That no, you can't put that. And what that goes with also is
the hollowing out of of the of the American bureaucracy, which
Trump is sort of slashing and burning.
And and that is really weakening US power, the hollowing out of
the bureaucracy, because what we see of American foreign policy
is like an iceberg. You see the top, you don't see
everything's underwater, everything that's underwater.
And what's underwater is the 10s of thousands of foreign service
officers working in complex, troubled countries like
Pakistan, Nigeria, Colombia, etcetera, etcetera, who are
solving crises on a daily basis so that they never reach up to
the newspapers. It's amazing what the US Foreign
Service accomplishes, keeping the world at Bay so that the
president only has to deal with the three or four top foreign
policy issues on a daily basis. And Trump is hollowing this out.
What what do you think in terms of the geopolitics happens to
Britain, Europe, the sort of the medium sized players, if you
like? We're not superpowers, we're
never going to be. And we're trying to sort of find
a role in this, in this new world.
And Britain sort of sees its role as sort of convening,
trying to be the glue, trying to be a sort of a a player that
sort of punches above its weight and size.
Does that get anywhere in this new?
For so many decades, Europe less so Britain, less so France.
But Europe has has been in a state of dependency on the
United States for its security and that's lasted 80 years and
80 years is a long time, you know, And so getting its act
together to, you know, to produce a military, you know, a
capable your pan European military.
It's not just a matter of budget procurements.
It's a matter of a mentality of producing a military that
actually fights, not just like Aun toy soul soldiers in
southern Lebanon, you know? So that I think that's the
Silver Linings argument is could everything that Trump is doing
all, are there some repercussions that could be
positive in terms of defence? Has it catalysed Europe to do
what it should have done a very long time ago?
Does it catalysed Europe to think economically very
differently? We had the Dragu report a while
ago saying Europe was inefficient.
Maybe, maybe this is an opportunity to say what can we
do to be a kind of economic force of the next century?
You know, you think about kind of American hegemony, and a lot
of it has been through the big tech companies.
Something that has SAT politically a little bit
uncomfortably with Europe is now the moment where the economics
and the politics work side by side.
But this? Is where I think this is
slightly sort of fairy land because in your argument and all
the great powers are in decline. Yeah.
And the truth is so, so, so are the medium sized and small ones.
There's there's nobody really in the ascendancy in this, in this
world is that. I don't see it the the 1 silver
lining that I see that's going to happen over the next five
years and it's a region wide thing.
It's not a global wide thing is I think that of all places that
can have a democratic trending upheaval and get rid of a tired
regime, it's Iran. And Iran has 85 million people
highly educated waiting to be unleashed into the global
economy. And I think Iran is at the end
of what will go down in Persian history is the most destructive
tragic regime in, in, you know, in, in, in memory and that.
And if Iran changes, the whole Middle East change.
Well, there's some speculation that that that might also be
what Trump has in the mind as well.
That's, you know, that sort of military action on Iran.
Well, I'm not talking about a military action because of
country of 85,000,000. You're not going to invade and
dominate. I'm talking about an internally
driven upheaval that is very possible.
Remember, Iran is the land of demonstrations.
They demonstrate all the. Demonstrations that have been
brutally. Suppressed, but it's But we
haven't had a big wave of demonstrations since the
Israelis attacked Iran, since Hezbollah has been virtually
destroyed, since Hamas has been virtually destroyed, the the
regime is perceived to be in a much weaker and more vulnerable
position than it was before. At some point, demonstrations
may topple. Robert, you're both
simultaneously very positive and actually out glooming me on the
global economy. I mean, I, I, I think there is
chance for Europe to collect itself.
You know, these these are moments where big leaders, big
thinkers can make a difference. Look at the German economy and
the two big assumptions they made, which was that we will
have US security forever and ever and we will be able to rely
on Russian energy forever and ever.
That was a mistake. That is not the new world.
But we are in an environment where technology is changing.
Look at what's happening with AI.
You know, US search is not necessarily dominant.
Look at what DeepSeek is doing. It shows that there is a
potential, the shift, the the kind of technological.
I know you're saying this is all fairy and we haven't done it,
Europe hasn't managed to do it yet, but that is because it was
only a political ambition. And what I'm saying is there is
now an opportunity where you say if your back is against the
wall, all these decisions suddenly become more attractive
to investment. My fear is that it's all
different levels of negative, you know, and, and, and that
that none of this is really, you know, there are no winners here.
This is all. Just Mark Carney might disagree
with you. Well, he would, but I mean, he's
well, yeah. We'll look at the position
they're in and you know, when it comes to do doing deals now with
Trump, if that, you know, Britain's going to try and
improve its position. There is no win.
It's just different degrees of cost.
We're going to either lose tax revenue by giving it back to the
tech Bros. We're going to flood our markets
with American agricultural goods.
You know there is nothing good that comes out of this.
What if it what if it's closer relation?
What if it is to catalyse us to have closer ties to Europe?
And that, that I'm not, I'm not disagreeing with you, but the
reality is that Trump is empowered.
This is these are the actions he's taking.
I think it's up to the world to respond in a way and think of
where are the opportunities. Just finally, I mean, you know,
if you think that you know the these dips, you know, if this is
a vimar period, the response will eventually be to turn
around and rebuild institutions and rebuild democracy.
Can that be done without, you know, a horrific dip first, You
know, a terrible war, You know, a terrible calamity, terrible
economic crisis? Well, one would hope.
But what often happens is things have to get worse before they
get better until, until the, you know, America is a mass
democracy still, even though Trump is taking a hatchet to
institutions, but it is a mass democracy still.
And until Americans feel the pain more, there's going to be
no curtailing effect on Trump's on Trump's actions.
Robert Kaplan, Helia, thank you very much indeed.
That's it for this edition of the FORECAST.
Until next time, bye bye.