1 00:00:00,680 --> 00:00:03,440 Welcome to another special edition of the Forecast from 2 00:00:03,440 --> 00:00:06,520 Washington DCA rather stormy Washington DC. 3 00:00:06,840 --> 00:00:10,000 The storm kind of reflects the political and economic mood at 4 00:00:10,000 --> 00:00:13,360 the moment here. To unpeel the onion of this is 5 00:00:13,440 --> 00:00:17,360 extraordinary week of events on the markets and in the White 6 00:00:17,360 --> 00:00:20,600 House behind me, I'm very happy to say I'm joined by Professor 7 00:00:20,600 --> 00:00:23,640 Joseph Stiglitz, one of the most eminent economists in this 8 00:00:23,640 --> 00:00:25,680 country. Amongst other things, he was 9 00:00:25,720 --> 00:00:29,080 economics professor at Columbia University, chief economist at 10 00:00:29,080 --> 00:00:31,920 the World Bank, and of course, a Nobel laureate. 11 00:00:32,200 --> 00:00:34,880 Welcome, Professor Stiglitz. Nice to be here. 12 00:00:35,400 --> 00:00:38,440 So I want to start off with a quote that caught my eye this 13 00:00:38,440 --> 00:00:41,920 morning from Bill Ackman, one of the billionaire hedge fund 14 00:00:41,920 --> 00:00:47,160 buddies of President Trump, who was panicking about 7 days ago 15 00:00:47,160 --> 00:00:51,080 about the markets going down too quickly for his liking. 16 00:00:51,400 --> 00:00:55,520 And then when there was a reprieve to most of the tariffs 17 00:00:55,520 --> 00:00:58,160 of 90 days announced by the White House and the markets shot 18 00:00:58,160 --> 00:01:03,160 up, this guy, Mr. Ackman said vintage out of the deal. 19 00:01:03,240 --> 00:01:06,040 This is a brilliant president. Do you agree with him? 20 00:01:06,360 --> 00:01:08,000 No. And you have to remember that 21 00:01:08,000 --> 00:01:14,080 market then went down again. This is vintage chaos that we've 22 00:01:14,080 --> 00:01:20,520 seen a really trademark of Donald Trump. 23 00:01:20,920 --> 00:01:25,480 And how dangerous is this chaos which seems to be soldiering on 24 00:01:25,480 --> 00:01:28,840 not just for the US economy, but the world economy? 25 00:01:29,360 --> 00:01:32,320 Very dangerous. You know, we've had 80 years of 26 00:01:32,320 --> 00:01:38,520 trying to create a rule of law, a world in which borders didn't 27 00:01:38,520 --> 00:01:44,800 matter very much, where we created complex and long supply 28 00:01:44,800 --> 00:01:50,400 chains. And all that is being thrown in 29 00:01:50,400 --> 00:01:55,040 the dustbin. It means that countries can't 30 00:01:55,040 --> 00:01:58,240 take advantage of comparative advantage as they did before. 31 00:01:58,600 --> 00:02:02,920 They can't rely on the rule of law as they did before. 32 00:02:04,080 --> 00:02:12,000 And business really doesn't like the kind of uncertainty, chaos 33 00:02:12,360 --> 00:02:15,520 and the absence of a rule of law. 34 00:02:16,400 --> 00:02:19,840 Of course, Trump and his friends in the White House would say 35 00:02:20,320 --> 00:02:25,280 this is about redressing the unfairness against America on 36 00:02:25,280 --> 00:02:27,320 trade. This is about making sure that 37 00:02:27,320 --> 00:02:31,360 China eventually, after this trade fall finishes, behaves 38 00:02:31,440 --> 00:02:33,880 correctly in terms of its trade practices. 39 00:02:34,280 --> 00:02:37,960 Do they have a point? A very small point, let me make 40 00:02:37,960 --> 00:02:41,560 it clear. United States, and to some 41 00:02:41,560 --> 00:02:45,320 extent Western Europe wrote the rules of the game. 42 00:02:46,000 --> 00:02:50,840 And so it's ironic that we are now complaining that the rules 43 00:02:50,840 --> 00:02:55,160 of the game that we wrote are working and we wrote them, let 44 00:02:55,160 --> 00:02:58,320 me make it clear, for the interests of American 45 00:02:58,320 --> 00:03:02,880 corporations and other Western corporations, American financial 46 00:03:02,880 --> 00:03:07,360 institutions, we wrote them for our advantage and now we're 47 00:03:07,360 --> 00:03:09,400 complaining the system is unfair. 48 00:03:09,560 --> 00:03:13,000 You know, what I hear is, yes, there may be some unfairness, 49 00:03:13,240 --> 00:03:15,840 but it's tilted. Where's the United States? 50 00:03:15,840 --> 00:03:20,840 Not away from the United States. The problem here is that he is 51 00:03:20,840 --> 00:03:27,880 interpreting trade deficits, and particularly deficits in goods 52 00:03:28,240 --> 00:03:33,120 as a symptom of unfair trade. I mean, and the logic is a very 53 00:03:33,320 --> 00:03:37,040 simplistic logic that we're better than any other country, 54 00:03:37,040 --> 00:03:40,040 therefore we ought to be exporting more than we're 55 00:03:40,040 --> 00:03:43,080 importing. And therefore if we're importing 56 00:03:43,080 --> 00:03:46,640 more, it must mean that somebody's doing something 57 00:03:46,640 --> 00:03:50,760 naughty. The fact of the matter is when 58 00:03:50,760 --> 00:03:56,720 you have a, a trade deficit at a multilateral level, it's a 59 00:03:56,720 --> 00:04:00,960 symptom of a macroeconomic problem. 60 00:04:01,200 --> 00:04:05,440 In particular, it's a symptom that the country's aggregate 61 00:04:05,480 --> 00:04:10,720 domestic savings is less than it's domestic aggregate 62 00:04:10,720 --> 00:04:15,560 investment, and there's going to be a capital inflow to make up 63 00:04:15,560 --> 00:04:18,320 for that difference, and corresponding to that capital 64 00:04:18,320 --> 00:04:22,240 inflow is a trade deficit. It's that simple. 65 00:04:22,360 --> 00:04:25,280 Yeah, so basically what Donald Trump was trying to do was 66 00:04:25,520 --> 00:04:29,960 punish foreign countries for not buying American goods. 67 00:04:30,400 --> 00:04:31,800 So this isn't just about tariffs. 68 00:04:31,800 --> 00:04:35,120 This is about the inability or the unwillingness or the 69 00:04:35,160 --> 00:04:39,640 unaffordability of places like Cambodia or Laos or Vietnam to 70 00:04:39,640 --> 00:04:42,440 buy expensive American stuff that they may not want. 71 00:04:42,800 --> 00:04:46,280 Exactly. And there's even a deeper flaw 72 00:04:46,720 --> 00:04:54,640 that in a modern world, we've moved from just trade and goods 73 00:04:54,640 --> 00:04:59,760 to trade and goods and services. You know, manufacturing is only 74 00:04:59,760 --> 00:05:05,640 less than 10% of the US economy in GDP and employment services 75 00:05:05,640 --> 00:05:12,720 are multiple of of goods. And United States is a major 76 00:05:12,760 --> 00:05:17,320 exporter of services, health services, financial services, 77 00:05:17,320 --> 00:05:20,800 tourism. And what Donald Trump is doing 78 00:05:20,800 --> 00:05:26,160 is shooting the US in the foot. If you look at what he's done in 79 00:05:26,160 --> 00:05:29,920 terms of the attack on our universities, one of our most 80 00:05:29,920 --> 00:05:35,040 important institutions, it makes it more difficult for us to 81 00:05:35,280 --> 00:05:40,760 export our educational services. If you look at what he's doing 82 00:05:40,760 --> 00:05:44,880 to tourists, including from the UK and from other countries 83 00:05:44,880 --> 00:05:48,320 wanting to come to the United States, there is the threat that 84 00:05:48,320 --> 00:05:53,320 they will put into tension, shipped off to some place and 85 00:05:53,600 --> 00:05:58,160 without the kinds of normal safeguards that you expect in a 86 00:05:58,160 --> 00:06:02,200 democratic country. So that's discouraging tourism. 87 00:06:02,360 --> 00:06:07,840 So he's doing more than anybody has ever done to actually harm 88 00:06:07,880 --> 00:06:11,160 American exports. So the tariffs that he's 89 00:06:11,160 --> 00:06:14,800 imposed, I mean, the the ones against China seem to be going 90 00:06:14,800 --> 00:06:16,120 up everyday. I think the last time I looked 91 00:06:16,120 --> 00:06:21,040 there was 140% American tariffs versus 125 from China. 92 00:06:21,360 --> 00:06:23,480 Then of course, all the other tariffs that may or may not come 93 00:06:23,480 --> 00:06:26,240 back in 90 days time. I mean, the last time we had 94 00:06:26,240 --> 00:06:31,200 tariffs like that was in 1903, more than a century ago. 95 00:06:31,480 --> 00:06:33,600 Is that the mindset of Donald Trump? 96 00:06:33,600 --> 00:06:37,080 Do you think that, you know, early 20th century, is that 97 00:06:37,080 --> 00:06:41,640 where he's gone back to? Very much so when the US was a 98 00:06:41,640 --> 00:06:45,320 dominant power. He, you know, this Make America 99 00:06:45,320 --> 00:06:50,240 Great Again is a, a, a going back to a world that no longer 100 00:06:50,240 --> 00:06:53,720 exists, a world where manufacturing dominated, where 101 00:06:53,720 --> 00:06:57,920 the US dominated and we could basically get away with 102 00:06:58,400 --> 00:07:04,960 anything. the United States now is less than 20% of global GDP. 103 00:07:05,880 --> 00:07:13,480 And China in terms of purchasing power parity is a larger economy 104 00:07:13,880 --> 00:07:17,480 than the United States. And there's another asymmetry 105 00:07:17,480 --> 00:07:25,520 that Donald Trump hasn't fully grassed that when we're imposing 106 00:07:25,800 --> 00:07:32,440 these high tariffs on China, it creates an aggregate demand 107 00:07:32,440 --> 00:07:35,480 problem for China. And they've been worried about 108 00:07:35,480 --> 00:07:40,560 that, and they anticipated that. And correcting an aggregate 109 00:07:40,560 --> 00:07:45,560 demand problem is not as difficult as correcting an 110 00:07:45,560 --> 00:07:50,440 aggregate supply problem. And what the tariffs against 111 00:07:50,440 --> 00:07:54,360 China are doing is creating an aggregate supply problem because 112 00:07:54,720 --> 00:08:01,520 our supply is so dependent on complex supply use in which 113 00:08:01,680 --> 00:08:05,880 China plays a central role. You know, we saw that after the 114 00:08:05,880 --> 00:08:09,800 pandemic and when Russia invaded Ukraine. 115 00:08:09,800 --> 00:08:13,200 Remember, in those days, there were these interruptions to 116 00:08:13,200 --> 00:08:16,280 supply and we had enormous inflation. 117 00:08:16,280 --> 00:08:18,880 We couldn't get some critical goods. 118 00:08:20,440 --> 00:08:23,840 That's what Donald Trump is doing. 119 00:08:24,040 --> 00:08:29,840 He's creating unnecessarily those supply side interruptions 120 00:08:30,240 --> 00:08:33,559 that we experienced just a few years ago. 121 00:08:34,080 --> 00:08:36,679 The other thing, of course, he wants to do 2 things really. 122 00:08:36,679 --> 00:08:39,520 He wants to increase the revenue, the amount of money the 123 00:08:39,520 --> 00:08:42,080 American government makes from these tariffs. 124 00:08:42,159 --> 00:08:46,240 And he wants to bring jobs back to the Rust Belt, to all those 125 00:08:46,240 --> 00:08:48,960 manufacturing towns that have been desolate for decades now. 126 00:08:49,400 --> 00:08:51,960 Are those not 2 contradictory things? 127 00:08:52,160 --> 00:08:55,600 Because of course, the less people sell to, to America, the 128 00:08:55,600 --> 00:08:57,400 less revenue they'll be from tariffs. 129 00:08:57,880 --> 00:09:00,760 And you know, the, the, the jobs don't necessarily come back as 130 00:09:00,760 --> 00:09:02,640 if no one's going to buy the stuff that they produce. 131 00:09:03,120 --> 00:09:08,040 It's actually worse than you just described because first, if 132 00:09:08,040 --> 00:09:12,480 we get manufacturing back, it's going to be modern 133 00:09:12,480 --> 00:09:15,880 manufacturing. You know, I just was saw a 134 00:09:15,880 --> 00:09:19,760 factory in China. We were there producing 1000 135 00:09:19,760 --> 00:09:23,720 cars a day with 2000 workers. Most of the production was done 136 00:09:23,720 --> 00:09:28,320 by Roebucks. Modern manufacturing is very 137 00:09:28,320 --> 00:09:33,040 advanced and China now has a comparative advantage in 138 00:09:33,080 --> 00:09:37,560 engineering, which is at the core modern manufacturing. 139 00:09:37,960 --> 00:09:43,440 So because we have not invested in railroads, we've not invested 140 00:09:43,440 --> 00:09:48,920 in logistics, we have a comparative disadvantage in some 141 00:09:48,920 --> 00:09:53,160 of the core ingredients for manufacturing. 142 00:09:53,480 --> 00:10:01,280 Secondly, it takes a long time to produce many of the to create 143 00:10:01,280 --> 00:10:08,200 the factories, and given the chaos that he's created, firms 144 00:10:08,200 --> 00:10:11,400 are going to be worried about moving into the United States. 145 00:10:12,240 --> 00:10:18,000 Thirdly, and most importantly, he's raised the tariffs on steel 146 00:10:18,000 --> 00:10:25,120 and aluminum, key ingredients into the production of other 147 00:10:25,120 --> 00:10:29,280 goods. And by increasing the cost of 148 00:10:29,280 --> 00:10:34,320 production, he makes American exports less competitive. 149 00:10:34,800 --> 00:10:40,240 So in fact, while he create a few jobs in, say, steel or 150 00:10:40,240 --> 00:10:45,960 aluminum, he destroys many more jobs in the sectors that in the 151 00:10:47,160 --> 00:10:49,840 areas where we use steel and aluminum. 152 00:10:50,040 --> 00:10:54,600 So he again is engaged in job destruction. 153 00:10:54,920 --> 00:11:01,040 So when economists look at the whole portfolio of what he has 154 00:11:01,040 --> 00:11:05,480 done, it's much more job destruction than job creation. 155 00:11:05,960 --> 00:11:10,400 I wonder, because it makes so little economic sense, what he's 156 00:11:10,400 --> 00:11:12,880 been doing, whether this is just really political. 157 00:11:12,880 --> 00:11:16,640 And what it's really about is trying to limit the expansion of 158 00:11:16,640 --> 00:11:18,480 China, put China back in its box. 159 00:11:18,840 --> 00:11:21,120 Because as you've just said, you know, when it comes to 160 00:11:21,120 --> 00:11:23,760 infrastructure, when it comes to innovation, when it comes to 161 00:11:23,760 --> 00:11:26,880 production and maybe even, you know, services down the road, 162 00:11:27,160 --> 00:11:32,520 China and nominally communist state is beating America at the 163 00:11:32,520 --> 00:11:34,920 capitalist game. That's right. 164 00:11:35,080 --> 00:11:41,400 You know, in some areas we we do have enormous strengths and one 165 00:11:41,400 --> 00:11:46,040 of our strengths was our universities, our research 166 00:11:46,040 --> 00:11:50,680 establishment and he in the last three months has done more to 167 00:11:50,680 --> 00:11:54,640 damage that than any competition with China. 168 00:11:55,000 --> 00:12:00,800 So over the short, medium and long term, he's really 169 00:12:00,920 --> 00:12:06,080 undermining the strength, the key strength of the United 170 00:12:06,080 --> 00:12:08,760 States. It's like he's been attacking 171 00:12:08,760 --> 00:12:15,280 the United States far more than China had been doing any any 172 00:12:15,280 --> 00:12:20,160 damage. There's another element that one 173 00:12:20,160 --> 00:12:26,440 can't underestimate, and that is the amateurness and maturing 174 00:12:26,440 --> 00:12:30,600 this of his team. You know, I've talked to people 175 00:12:30,600 --> 00:12:34,520 who've been in countries, you know, engaged in negotiations. 176 00:12:35,760 --> 00:12:42,880 It's not like the normal negotiation where one side comes 177 00:12:42,880 --> 00:12:45,720 in. Both sides come in with a sound 178 00:12:45,720 --> 00:12:50,360 understanding of economics, a strong view of what they want. 179 00:12:51,240 --> 00:12:58,400 And you have experienced and well informed negotiators. 180 00:12:59,120 --> 00:13:04,320 This is amateur hour. And so you have people who may 181 00:13:04,320 --> 00:13:09,040 be bright, may have been really good on Wall Street, but that 182 00:13:09,040 --> 00:13:13,400 doesn't mean that they have any fundamental knowledge of the 183 00:13:13,400 --> 00:13:16,400 deep intricacies of economic policy. 184 00:13:17,160 --> 00:13:19,800 And so you have people been working on these issues for 185 00:13:20,240 --> 00:13:24,280 decades and trying to interact with somebody who's just begun 186 00:13:24,280 --> 00:13:27,880 to think about these issues. They find it frustrating. 187 00:13:28,400 --> 00:13:31,800 But also, I wonder if it's amateur, because what's far more 188 00:13:31,800 --> 00:13:34,360 important for Donald Trump and the people around the cabinet 189 00:13:34,360 --> 00:13:38,840 table is loyalty to the boss than any kind of expertise which 190 00:13:38,840 --> 00:13:40,960 might involve them contradicting him. 191 00:13:41,720 --> 00:13:44,320 That's right. And there is an element of what 192 00:13:44,320 --> 00:13:47,920 is going on of a cultural revolution. 193 00:13:48,480 --> 00:13:51,720 You know, we've been talking about China and and China went 194 00:13:51,720 --> 00:13:57,480 through a devastating cultural Revolution and it was that 195 00:13:57,480 --> 00:14:02,840 experience that led to them to their reform and openness 196 00:14:03,080 --> 00:14:08,600 strategy, which over 45 years has led to the highest rates of 197 00:14:08,600 --> 00:14:12,960 growth and the largest numbers of people moved out of poverty 198 00:14:12,960 --> 00:14:18,240 in the history of mankind. We didn't learn the lessons of 199 00:14:18,240 --> 00:14:22,840 Chinese Cultural Revolution. And what I see going on right 200 00:14:22,840 --> 00:14:26,000 now on the attacks on the universities, the attacks on 201 00:14:26,000 --> 00:14:32,000 expertise are have a kind of close relationship to what 202 00:14:32,000 --> 00:14:34,880 happened. It's sort of like the 203 00:14:34,880 --> 00:14:41,800 establishment failed me. That's what failed us and these 204 00:14:41,800 --> 00:14:45,680 are the leaks that look down on us and it's not true. 205 00:14:45,840 --> 00:14:49,440 They were trying to create a better world for everybody, but 206 00:14:49,440 --> 00:14:57,280 there's that grievance and so they're going to shoot the 207 00:14:57,280 --> 00:15:04,920 country in the foot by destroying the expertise. 208 00:15:05,440 --> 00:15:08,760 And in this trade war between China and the US, which seems to 209 00:15:08,760 --> 00:15:12,200 be getting worse every day, what are the consequences of that 210 00:15:12,200 --> 00:15:15,960 going to be for China, for US and also for the world economy? 211 00:15:16,640 --> 00:15:22,960 Well, as we said for for 4045 years we've tried to create this 212 00:15:22,960 --> 00:15:27,040 global economy based on complex supply chains, comparative 213 00:15:27,040 --> 00:15:34,320 advantage and the whole the the standards of living on average 214 00:15:34,680 --> 00:15:38,280 around the world have increased and numbers of people moved out 215 00:15:38,280 --> 00:15:42,400 of poverty are enormous. That closing of the gap between 216 00:15:42,400 --> 00:15:46,400 China and the United States and the fact that China now in terms 217 00:15:46,400 --> 00:15:51,960 of the standard way of measuring these, the purchasing power 218 00:15:51,960 --> 00:15:55,200 parity, China is now larger than the United States. 219 00:15:55,200 --> 00:15:59,240 It's still per capita income is much lower, but it has four or 220 00:15:59,240 --> 00:16:03,040 five times the number of people so that it is a larger economy. 221 00:16:03,960 --> 00:16:09,040 the United States resents that. And Professor Graham Allison at 222 00:16:09,680 --> 00:16:14,480 Harvard has talked about this as the facilities trap, that the 223 00:16:15,520 --> 00:16:20,080 country that was #1 doesn't like the number 2 country coming up 224 00:16:20,080 --> 00:16:25,720 and threatening their dominant position. 225 00:16:26,280 --> 00:16:32,840 Well, China has been thinking about this issue for a long 226 00:16:32,840 --> 00:16:35,680 time. After the first Trump 227 00:16:35,680 --> 00:16:40,320 administration, they they began a process, didn't go fast 228 00:16:40,320 --> 00:16:46,960 enough, didn't go far enough, but are now and have anticipated 229 00:16:47,320 --> 00:16:52,400 what the United States is doing. So they are relatively well 230 00:16:52,400 --> 00:16:54,360 prepared. You know, they've had some 231 00:16:54,600 --> 00:16:56,920 advertisement. Nobody could have anticipated 232 00:16:56,920 --> 00:16:59,200 COVID. They didn't manage COVID well. 233 00:17:00,080 --> 00:17:06,760 But where they are today, they are in a deeply optimistic 234 00:17:07,119 --> 00:17:11,040 position. DeepSeek, the advances in 235 00:17:11,040 --> 00:17:17,160 robotization, their integration to the global economy give them 236 00:17:17,160 --> 00:17:24,920 a set of a sense of confidence. So I think with difficulty 237 00:17:24,960 --> 00:17:27,119 they're going to be able to manage through this. 238 00:17:28,280 --> 00:17:34,640 On the other hand, as I said before, Donald Trump has not 239 00:17:34,640 --> 00:17:39,680 fully anticipated the extent to which our supply chain is so 240 00:17:39,680 --> 00:17:44,520 dependent on China and just breaking it adequately like 241 00:17:44,520 --> 00:17:46,920 that. I'm afraid we'll have some 242 00:17:46,920 --> 00:17:50,640 consequences for the United States, including inflation. 243 00:17:50,640 --> 00:17:53,360 And the Fed is going to respond to the inflation by raising 244 00:17:53,360 --> 00:17:58,400 interest rates. Good chance of having the worst 245 00:17:58,400 --> 00:18:04,240 of all possible works works stagflation, which means that we 246 00:18:04,240 --> 00:18:08,000 will have a a recession and inflation. 247 00:18:09,280 --> 00:18:16,640 The critical question He wants the United States to be great 248 00:18:16,640 --> 00:18:21,880 again. Will he restore manufacturing to 249 00:18:21,880 --> 00:18:26,440 the United States? Will he restore America's 250 00:18:26,520 --> 00:18:34,000 dominance in this area? There will be some movement of 251 00:18:34,000 --> 00:18:38,080 some firms back to the United States that will occur. 252 00:18:38,640 --> 00:18:42,840 But overall, because as I say, we're a service sector, we're a 253 00:18:42,840 --> 00:18:46,560 knowledge based economy. And I said that well before 254 00:18:46,560 --> 00:18:51,880 Donald Trump came on the scene. In the areas that are important 255 00:18:51,880 --> 00:18:56,400 for a 21st century economy, we'll be worse off. 256 00:18:57,360 --> 00:19:08,080 And so I think that the adverse consequences of this chaos for 257 00:19:08,080 --> 00:19:10,400 the United States are going to be quite significant. 258 00:19:11,040 --> 00:19:15,040 Now, the really interesting question, I think, is Europe. 259 00:19:17,600 --> 00:19:23,600 Europe finds it difficult to work together. 260 00:19:25,320 --> 00:19:34,200 The attack by the US against Europe has been uniting a lot of 261 00:19:34,200 --> 00:19:37,480 discussion about the creation of a European Defence Force for a 262 00:19:37,480 --> 00:19:41,120 long time, and there seems to be a significant movement in that 263 00:19:41,120 --> 00:19:48,120 direction. If Europe gets united, responds 264 00:19:48,120 --> 00:19:51,880 strongly to the war in Ukraine, creates a European Defence 265 00:19:51,880 --> 00:19:57,640 Force, scrap some of the constraints that they've imposed 266 00:19:57,640 --> 00:20:03,840 on their fiscal policy. And reassesses its trade 267 00:20:03,840 --> 00:20:08,400 relationships with China and the rest of the world. 268 00:20:09,080 --> 00:20:14,200 I think Europe can navigate its way through this very difficult 269 00:20:14,200 --> 00:20:20,480 period and emerge actually stronger rather than being a 270 00:20:20,480 --> 00:20:22,800 sort of a dependent on the United States. 271 00:20:23,080 --> 00:20:29,960 There will be a more united Europe as a very important and I 272 00:20:29,960 --> 00:20:35,800 would say the critical country in the world country, a region 273 00:20:36,680 --> 00:20:39,120 supporting democracy and human rights. 274 00:20:39,360 --> 00:20:43,560 So that's my hope. A lot rests on what Europe does. 275 00:20:44,000 --> 00:20:47,640 Where does this leave Britain? The piggy court in the middle, 276 00:20:47,640 --> 00:20:51,600 if you like, between the European Union and the United 277 00:20:51,600 --> 00:20:54,880 States, which which with which it hopes it still has some kind 278 00:20:54,880 --> 00:20:58,600 of special relationship. I think it's important for the 279 00:20:58,600 --> 00:21:07,080 UK to cast its lot with human rights and democracy and 280 00:21:07,080 --> 00:21:13,040 unfortunately Trump is moving away from both of those. 281 00:21:13,680 --> 00:21:19,520 And so when I say UK has to cast its lot with human rights and 282 00:21:19,520 --> 00:21:24,280 democracy, that means it has to move back towards Europe. 283 00:21:25,000 --> 00:21:29,080 And that doesn't mean it has to rejoin the EU, but it does mean 284 00:21:29,080 --> 00:21:33,360 it has to coordinate and be an active part of the European 285 00:21:33,360 --> 00:21:39,240 Defence Force, cooperate with industrial policy, climate 286 00:21:39,240 --> 00:21:45,760 change, creating a kind of new multilateralism which 287 00:21:45,760 --> 00:21:49,320 unfortunately for a while may not. 288 00:21:49,960 --> 00:21:54,480 The US won't be at the centre, the EU will. 289 00:21:54,800 --> 00:22:01,400 The centre and the UK can be an important partner of the EU. 290 00:22:01,760 --> 00:22:04,720 Just back to China briefly. What are the ways in which 291 00:22:04,720 --> 00:22:08,720 China, which is the second biggest holder of American debt, 292 00:22:09,000 --> 00:22:13,240 can retaliate against the United States in this trade war? 293 00:22:13,400 --> 00:22:16,120 Well, I don't think it will actually do anything about 294 00:22:16,640 --> 00:22:20,920 dumping its U.S. Treasury bills. 295 00:22:21,920 --> 00:22:25,400 It would not be in its own interest to drive down the the 296 00:22:25,640 --> 00:22:28,200 the price of those Treasury bills. 297 00:22:28,200 --> 00:22:31,160 It could do that, but I don't think that will happen. 298 00:22:31,360 --> 00:22:35,640 China has many cards in its hands. 299 00:22:36,680 --> 00:22:43,560 It is the dominant player in a whole set of minerals and other 300 00:22:43,560 --> 00:22:46,320 natural resources. While we weren't paying 301 00:22:46,320 --> 00:22:53,320 attention, it it developed this dominance in materials that are 302 00:22:53,640 --> 00:22:59,120 essential for your smartphone for for renewable energy. 303 00:22:59,840 --> 00:23:03,240 You know, it's really quite remarkable that if you thought 304 00:23:03,240 --> 00:23:07,560 that there was a a conflict of that kind, you would have begun 305 00:23:07,560 --> 00:23:12,920 to to try to make sure you have the natural resources that would 306 00:23:12,920 --> 00:23:18,760 make you able to have what might be called national economic 307 00:23:18,760 --> 00:23:21,480 sovereignty. But the first Trump 308 00:23:21,480 --> 00:23:24,600 administration didn't pay any attention to that. 309 00:23:25,320 --> 00:23:30,360 It was more concerned with grievings and, and I would say 310 00:23:30,400 --> 00:23:34,880 and, and other bad trade ballots, but not with the 311 00:23:34,880 --> 00:23:37,200 extreme chaos that we have today. 312 00:23:37,400 --> 00:23:40,160 There is one other dimension, obviously, that it could 313 00:23:42,400 --> 00:23:45,920 undertake. It's no longer dependent in the 314 00:23:45,920 --> 00:23:50,520 way that it was 25 years ago on American investment. 315 00:23:51,600 --> 00:23:53,920 It has an enormous amount of savings. 316 00:23:54,200 --> 00:23:55,880 You don't have that kind of savings. 317 00:23:56,840 --> 00:24:00,160 It has far more engineers than we do. 318 00:24:00,160 --> 00:24:07,280 So it's in many areas equal to or surpassed American 319 00:24:07,280 --> 00:24:11,640 engineering. So it's dependence on American 320 00:24:11,640 --> 00:24:18,680 firms has gone down. So take one example that might 321 00:24:18,680 --> 00:24:25,040 be very salient in EV electric vehicles. 322 00:24:25,440 --> 00:24:29,880 China's electric vehicles, BYD and a whole set of other 323 00:24:29,880 --> 00:24:35,480 companies are now much better, much cheaper than Tesla. 324 00:24:36,760 --> 00:24:43,320 So it could tax, it could tax the profits of Tesla, not worry 325 00:24:43,320 --> 00:24:47,520 that, well, a Tesla might say we're not going to invest 326 00:24:47,520 --> 00:24:50,920 anymore in, in, in China. They don't need Tesla's 327 00:24:50,920 --> 00:24:53,920 investment. Apple makes a significant 328 00:24:53,920 --> 00:25:01,400 impression of its profits from China and it could tax Apple 329 00:25:01,600 --> 00:25:04,840 more. So it's this is not what it 330 00:25:04,840 --> 00:25:08,360 wants to do. It wants to continue an 331 00:25:08,360 --> 00:25:13,440 arrangement of of cooperation. It's their leaders have made it 332 00:25:13,440 --> 00:25:18,760 very clear they want to cooperate, but they're not going 333 00:25:18,760 --> 00:25:23,720 to kowtow. They're not going to be 334 00:25:23,720 --> 00:25:27,480 subservient. And to put it in a broader 335 00:25:27,480 --> 00:25:32,720 historical context, which many Americans don't take into 336 00:25:32,720 --> 00:25:39,560 account, you remember in the middle of the 19th century there 337 00:25:39,560 --> 00:25:44,600 were trade wars. Those trade wars were actually 338 00:25:44,640 --> 00:25:48,600 with guns. Europe, with the support of the 339 00:25:48,680 --> 00:25:55,920 United States, invaded China and demanded, demanded that China 340 00:25:55,920 --> 00:26:01,040 open up its doors to opium, to the sale of opium. 341 00:26:01,040 --> 00:26:02,800 And they were called the Opium force. 342 00:26:03,160 --> 00:26:07,840 And it was a disaster for China. But we insisted this was what 343 00:26:08,000 --> 00:26:10,040 fair trade, free trade was about. 344 00:26:10,320 --> 00:26:13,360 China had that open its doors to opium. 345 00:26:13,640 --> 00:26:17,320 It's ironic that now we're talking about phenotype, but 346 00:26:18,400 --> 00:26:22,520 that that history which led to the what are called the 347 00:26:22,520 --> 00:26:32,640 concessions and Shanghai and other cities in China where they 348 00:26:32,640 --> 00:26:37,400 had to give up territory where Europe powers ruled. 349 00:26:37,400 --> 00:26:40,480 Effectively, that memory is still there. 350 00:26:41,040 --> 00:26:47,320 And so I do not see any way in which China is going to kowtow 351 00:26:47,320 --> 00:26:52,120 to the United States where Donald Trump manding something 352 00:26:53,040 --> 00:26:55,960 of China is going to get the resolution. 353 00:26:56,280 --> 00:27:03,520 It has to be a dialogue based on equality. 354 00:27:04,000 --> 00:27:10,240 And one of the problems here is they're more informed and 355 00:27:10,240 --> 00:27:14,360 they've been better trained. United States universities, 356 00:27:15,000 --> 00:27:19,240 their experts actually know more about economics in many cases 357 00:27:19,240 --> 00:27:22,800 than than the negotiators that we're sending from the United 358 00:27:22,800 --> 00:27:25,560 States. So, briefly, would you say that 359 00:27:25,880 --> 00:27:29,480 what Donald Trump has done, what he's decided to do for political 360 00:27:29,480 --> 00:27:33,680 and perhaps economic reasons, has hastened the ascendancy of 361 00:27:33,680 --> 00:27:36,080 China and the decline of America? 362 00:27:36,360 --> 00:27:38,600 Yes, it's true. I don't think the damage 363 00:27:38,760 --> 00:27:43,680 necessarily in terms of this relative position is permanent, 364 00:27:45,520 --> 00:27:53,360 but it's very, very deep. The most damaging thing for the 365 00:27:53,360 --> 00:27:57,440 United States is what is, is not the trade war. 366 00:27:57,840 --> 00:28:02,720 It's the attack on our science, an attack on our universities, 367 00:28:03,040 --> 00:28:07,480 attack on the institutions that gave us really the comparative 368 00:28:07,480 --> 00:28:11,240 advantage in technology. It's where we are today. 369 00:28:11,720 --> 00:28:17,280 So his attack on those fundamental institutions 370 00:28:18,280 --> 00:28:24,440 probably is the most damaging thing, but equally damaging is 371 00:28:24,560 --> 00:28:29,040 the attack on the rule of law. You know, the the way in which 372 00:28:29,040 --> 00:28:37,960 he's trampled on the safeguards, the the just ignoring the law. 373 00:28:39,000 --> 00:28:48,360 And the last Nobel Prize in economics was given for studies 374 00:28:48,360 --> 00:28:52,360 that emphasize something that I and A lot of other people have 375 00:28:52,680 --> 00:28:56,880 for a long time. What has given rise to the 376 00:28:56,880 --> 00:29:02,040 wealth of nations, to the success of countries like the UK 377 00:29:02,040 --> 00:29:07,200 and the United States, Western Europe, is the rule of law, the 378 00:29:07,200 --> 00:29:10,680 kind of certainty that that gives for investment. 379 00:29:11,200 --> 00:29:21,240 And he's destroyed that. So this sort of crippled wing of 380 00:29:21,520 --> 00:29:25,680 destroying, attacking silence and universities, attacking the 381 00:29:25,680 --> 00:29:31,160 rule of law, and then attacking the trade framework and the 382 00:29:31,160 --> 00:29:35,440 international rule of law has really damaged the United 383 00:29:35,440 --> 00:29:39,760 States, I think very seriously. And of course, one of the things 384 00:29:39,760 --> 00:29:42,840 that's really suffered is trust in the United States. 385 00:29:42,840 --> 00:29:46,280 And trust in the United States is one of the things that has 386 00:29:46,280 --> 00:29:49,520 always upheld the dollar, the US dollar as the currency of 387 00:29:49,520 --> 00:29:51,800 reserve. I mean, you've effectively had a 388 00:29:51,800 --> 00:29:55,440 golden credit card for decades. Is there a danger that that 389 00:29:55,440 --> 00:29:58,960 golden credit card will not be demoted to silver or heavens 390 00:29:58,960 --> 00:30:02,080 defend even bronze? You're absolutely right. 391 00:30:02,080 --> 00:30:07,120 And let me say, emphasize something that that many of us 392 00:30:07,120 --> 00:30:10,760 again have talked about for several decades, the importance 393 00:30:10,760 --> 00:30:13,840 of soft power. It was US soft power that was 394 00:30:13,840 --> 00:30:16,200 really much more important than our hard power. 395 00:30:16,440 --> 00:30:22,880 People respected us because we were a carry country, a 396 00:30:22,880 --> 00:30:28,000 successful country. People looked at us and said we 397 00:30:28,000 --> 00:30:31,960 want to be like that. Now when people look at the US 398 00:30:31,960 --> 00:30:36,560 and say no, we don't want to be like that, look what he's doing 399 00:30:37,200 --> 00:30:41,000 to the universities. What are these doing to the rule 400 00:30:41,000 --> 00:30:43,000 of law? Look at the inequality. 401 00:30:43,280 --> 00:30:48,040 Look at the oligarchy, the role of money, the corruption. 402 00:30:49,120 --> 00:30:55,560 So we are losing our soft power. Another example of the shooting 403 00:30:55,560 --> 00:31:04,240 ourselves in the foot when he destroyed shut down USAAID 404 00:31:04,240 --> 00:31:12,040 overnight it resulted in thousands of children dying in 405 00:31:12,040 --> 00:31:14,600 Africa because they couldn't get the medicines. 406 00:31:14,720 --> 00:31:19,120 It again undermined respect for the United States. 407 00:31:19,120 --> 00:31:21,720 What kind of country could do that? 408 00:31:22,760 --> 00:31:27,600 You know, it's an embarrassment. So he has destroyed our soft 409 00:31:27,600 --> 00:31:30,880 power. Now to come to the more narrow 410 00:31:30,880 --> 00:31:34,160 question of the dollar as a reserve currency. 411 00:31:34,560 --> 00:31:39,400 China already anticipated this problem. 412 00:31:40,880 --> 00:31:48,880 It used to hold 22 trillion or more dollars, its reserves. 413 00:31:49,920 --> 00:31:54,840 The latest numbers that I've reported are it's down to 700 414 00:31:54,840 --> 00:31:58,920 billion. It's diversified go euro, 415 00:32:00,760 --> 00:32:06,280 Japanese yen. So this March away from the 416 00:32:06,280 --> 00:32:10,040 dollar as a reserve currency is already way. 417 00:32:11,680 --> 00:32:15,880 You know, Trump wants to have it both ways. 418 00:32:15,880 --> 00:32:24,040 It wants to have the dollar as a reserve currency, but also not 419 00:32:24,040 --> 00:32:28,840 have the one critical disadvantage of the reserve 420 00:32:28,840 --> 00:32:33,960 currency. And that advantage is that if 421 00:32:33,960 --> 00:32:38,640 you are reserve currency, people will be accumulating dollars. 422 00:32:39,160 --> 00:32:46,400 If they're accumulating dollars, that is equivalent to a capital 423 00:32:46,400 --> 00:32:52,400 inflow, and a capital inflow is equivalent to a trade deficit. 424 00:32:53,160 --> 00:32:56,640 He doesn't like the trade deficit, but you cannot be a 425 00:32:56,640 --> 00:33:00,680 reserve currency without having a trade deficit. 426 00:33:00,920 --> 00:33:05,120 The trade deficit normally gives rise to deficiency of aggregate 427 00:33:05,120 --> 00:33:07,840 demand. That deficiency of aggregate 428 00:33:07,840 --> 00:33:15,000 demand requires fiscal stimulus. That fiscal stimulus means a 429 00:33:15,360 --> 00:33:21,920 fiscal deficit. And the Hawks, the fiscal Hawks, 430 00:33:21,920 --> 00:33:23,880 the Republican Party don't like that. 431 00:33:24,040 --> 00:33:27,360 You can't understand this under Keynes. 432 00:33:27,960 --> 00:33:34,680 And some people say it was Keynes insight to say let's not 433 00:33:34,680 --> 00:33:39,600 be a reserve currency, let's get rid of this hot potato. 434 00:33:40,080 --> 00:33:45,240 And that had undermined the strength of the UK. 435 00:33:47,040 --> 00:33:52,200 Triffin talked about a great professor in the last century 436 00:33:52,200 --> 00:33:56,720 talked about what was called the Triffin paradox that the reserve 437 00:33:56,720 --> 00:34:00,760 currency create. To maintain that reserve 438 00:34:00,760 --> 00:34:05,920 currency, you have to get more and more debt, deficits 439 00:34:05,920 --> 00:34:09,360 accumulating over time. And that of course has that debt 440 00:34:09,679 --> 00:34:14,400 increases, the confidence in the reserve currency decreases. 441 00:34:14,679 --> 00:34:17,400 And so he said, you know, there's a there's a a kind of 442 00:34:17,400 --> 00:34:24,000 tension here. Now, the way front lungs resolve 443 00:34:24,000 --> 00:34:29,840 this is to break the laws of arithmetic and just destroy 444 00:34:30,120 --> 00:34:33,639 economics. The particular proposal that he 445 00:34:33,639 --> 00:34:38,199 has, it has been, I don't know if you've heard about the 446 00:34:38,199 --> 00:34:42,400 Marleco Accord. And when at feature of that is 447 00:34:42,400 --> 00:34:49,120 that countries around the world would accept trade in their 448 00:34:49,120 --> 00:34:56,199 T-bills for century bonds with which do not yield any interest. 449 00:34:57,120 --> 00:35:00,400 And those in other governments that I talked about and say 450 00:35:00,400 --> 00:35:02,280 what, what do you think about this? 451 00:35:02,280 --> 00:35:04,640 They say, well, that's equivalent to a default. 452 00:35:05,120 --> 00:35:11,160 And So what some people in the Trump administration are talking 453 00:35:11,160 --> 00:35:13,120 about is a default on the dollar. 454 00:35:13,440 --> 00:35:17,760 If that discussion continues, that of course will undermine 455 00:35:18,480 --> 00:35:23,120 the USS reserve currency. Finally, Professor Stiglitz, I 456 00:35:23,120 --> 00:35:25,960 mean Scott Besson, the Treasury Secretary, said the other day, 457 00:35:26,200 --> 00:35:29,120 the next four years of this administration are going to be 458 00:35:29,120 --> 00:35:32,160 about Main Street and not about Wall Street. 459 00:35:32,400 --> 00:35:35,760 A kind of populist message from a rather unlikely man, to be 460 00:35:35,760 --> 00:35:38,240 honest. If what's happening at the 461 00:35:38,240 --> 00:35:43,040 moment means pain on Main Street, inflation, job losses. 462 00:35:43,360 --> 00:35:46,840 Do you think that American Society can sustain that? 463 00:35:47,160 --> 00:35:50,760 Or will there be a mass kind of electoral rebellion against 464 00:35:50,760 --> 00:35:53,360 Donald Trump and his people? I think there will be an 465 00:35:53,360 --> 00:35:58,440 electoral rebellion. What many Americans are not 466 00:35:58,440 --> 00:36:03,800 worried about is will we have free elections in 2026? 467 00:36:04,320 --> 00:36:06,520 You really think that's a danger that you won't have free 468 00:36:06,520 --> 00:36:08,560 elections? Well, remember what happened in 469 00:36:08,560 --> 00:36:14,160 2020. Donald Trump tried to overturn a 470 00:36:14,160 --> 00:36:20,400 free and fair election where Joe Biden won by 7 million votes. 471 00:36:21,520 --> 00:36:27,000 He tried to overturn that. Now, one can't help but ask the 472 00:36:27,000 --> 00:36:31,800 question, if you accumulate a lot of power, if you show that 473 00:36:31,800 --> 00:36:36,840 you're willing to trample the rule of law, is it not 474 00:36:36,840 --> 00:36:41,440 conceivable that you would use that power and your 475 00:36:41,720 --> 00:36:46,080 insensitivity to the rule of law to maintain your power? 476 00:36:46,760 --> 00:36:51,040 And it's not that difficult because all you have to do is 477 00:36:51,040 --> 00:36:56,280 intervene in a limited number of elections because we have red 478 00:36:56,280 --> 00:36:59,160 states, we have blue states, and then we purple states. 479 00:36:59,640 --> 00:37:04,160 And so if you intervene in enough of the purple states, you 480 00:37:04,160 --> 00:37:08,760 can ensure that you maintain power. 481 00:37:08,920 --> 00:37:13,480 So because we are a divided country, it's not like he has to 482 00:37:13,480 --> 00:37:15,720 shut down the whole electoral process. 483 00:37:16,240 --> 00:37:24,240 All he has to do is intervene in a relatively few stakes 484 00:37:24,240 --> 00:37:30,200 congressional districts and we will not have free and fair 485 00:37:30,200 --> 00:37:32,280 elections. That is the worry. 486 00:37:32,560 --> 00:37:36,160 Is America becoming the most powerful Banana Republic the 487 00:37:36,160 --> 00:37:39,240 world has ever seen? I think that that's the worry, 488 00:37:39,320 --> 00:37:42,480 and it's a Banana Republic in so many ways. 489 00:37:42,480 --> 00:37:45,880 When we talk about banana republics, we often talk about 490 00:37:45,880 --> 00:37:51,640 leaders who don't have expertise, who govern on whims, 491 00:37:52,000 --> 00:37:59,840 with authoritarian figures, who may have flawed views, 492 00:37:59,840 --> 00:38:06,280 grievances, and it's their whims and their misconceptions, 493 00:38:06,280 --> 00:38:13,040 obsessions which dictate economic and other social 494 00:38:13,040 --> 00:38:18,400 policies. And we've never had a Banana 495 00:38:18,400 --> 00:38:22,160 Republic with so much military power. 496 00:38:22,600 --> 00:38:27,840 And that is what is so scary. Professor Joseph Stiglitz, thank 497 00:38:27,840 --> 00:38:31,000 you very much indeed for joining us on this special edition of 498 00:38:31,000 --> 00:38:34,560 the Forecast from Washington, DC Professor Stiglitz, thank you 499 00:38:34,560 --> 00:38:36,800 very much for joining us. It's been a pleasure.