CDE Conversations with Martin Wolf

Good afternoon everybody and welcome to CDE virtual. It's my great pleasure and privilege tonight to welcome Martin Wolf back on the CDE platform again. Thank you, Martin. In this age of uncertainty, one turns to someone like Martin to help us understand where we are and where we're going. One of the world's most influential columnists, best-selling author of numerous books, recipient of six honorary doctorates, an honorary fellow at two different Oxford colleges and at King's College London. Martin is read and invited to speak all over the world. So, welcome back to South Africa and to CDE. Thank you for your time, Martin.

It's a pleasure to be with you. I look forward to it.

Great. Your recent article that Trump was waging war on America's greatness had a big impact on me. Can you talk about America's greatness as you see it and the key areas where you see Trump's assault on all of this?

Well, this article was basically referring, as it were, to post-war America. I think actually if we went beyond that, and some of what I have to say fits in with that, uh, but if we think about what made America so powerful and so influential in the world, um, since the Second World War, since it was dragged, as it were, into global politics as the leading actor, uh, in 1941 with America's with Japan's attack on Pearl Harbor. So the assets it had were obviously, first and foremost, its enormously powerful economy. It's been the biggest economy in the world, um, and continues to be on at least some measures for well over a century. And, uh, it has been the world's technological leader, uh, for longer, um, really since the late 19th century, and very definitely ever since the Second World War. It has been the architect and supporter of the post-war international order in some pretty obvious ways, despite all the defects.

Um, Franklin Delano Roosevelt essentially created the United Nations and, uh, and all the international institutions, the IMF, the World Bank, uh, the General Agreement on Tariff and Trade, which became, um, which became the World Trade Organization, and a host of other international institutions. Um, none of these would have existed without American support and encouragement. And the latter, the trade system, was a very important part of that. It, it was a pioneering power in trying to make the idea of development, economic development, work become a central part of those institutions, not entirely on its own. A lot of these ideas went back again to an American-inspired but failed creation, the League of Nations after the First World War. But it was after the Second World War that the Americans really put their backs behind this. It was, of course, the creator of the Western Alliance, uh, particularly NATO. It encouraged the creation of the European Union. It supported the liberal order and liberal and democratic systems, again, despite many failings and failures, which South Africans will know a lot about, uh, against the communists, which I think they were completely right. And it encouraged and opened, uh, itself up to China. Without it, the rise of China, I think, was inconceivable. So I think it is fair to say that the world we live in now, or have lived in, um, uh, was in all these respects America's creation.

Now, why do I say they're fighting a war against this? Well, they are, uh, essentially arguing ferociously against what they call globalism, in both politics and economics. The current administration is fiercely opposed to every principle of liberal world trade. Um, it has radically destroyed non-discrimination. It has violated essentially every agreement it's ever reached and, and all the principles and rules that go with it. It is, uh, uh, um, threatening the operation of the International Monetary Fund, though it hasn't yet withdrawn, and is clearly very unwilling to, to make any further assistance, uh, via that institution. It has, of course, overthrown, uh, most of its contributions to development assistance. No doubt, no obviously with the overthrow of USAID, which has had, I think, particularly serious consequences for its support for, uh, health, public health in Africa. Um, it has withdrawn from the WHO. It has withdrawn from all climate agreements, uh, and basically is throwing all its weight against that. And these are the international side of it. And domestically, it is, uh, clearly not only threatening or undermining the operation of the American state, but American universities, the great American universities, its support for science, and, uh, which has been, I would argue, the basis of American economic power and success. The rule of law, the independence of courts, uh, is constantly under attack. It is, um, uh, it has given the right, in the administration, is claiming the right to order the Department of Justice and other core institutions for the rule of law and domestic security to the president to do with them what it he and the administration wills. It has put armed forces into cities. Uh, and it is operating, uh, uh, an immigration and customs enforcement agency which looks very much like a secret police, without any means of identifying who is doing the arrests, and there seems to be almost no legal constraint on what they then do. All these things taken together, I know it's a bit lengthy, amount to an absolutely fundamental reversal of core American values as we understood them, and core American assets and institutions. And since I think those were the basis of America's influence on the world, its prosperity, its alliances, which made it even more powerful than it was on its own, you add this together, uh, this looks like a war on America's greatness and on America's future prosperity and capacity to innovate. So that's why I use this. Perhaps it sounds a bit over-the-top description, but I don't think it really is. It's pretty devastating.

Were you surprised when President Trump was reelected? Have you been surprised by how far he's gone, or is this going according to what you anticipated, or is it worse?

Well, this is a very interesting question. Uh, I think by and large, uh, those who follow this fairly closely, and I did, I've been following it very closely really since 2016. Uh, and I wrote my first article arguing, uh, under the headline, "Donald Trump: How Great Republics Meet Their End," in March 2016, which was before, even before he became the nominee. So I'm, I'm not, in some sense, surprised. It was pretty obvious that he was an extremely able demagogue with very strong authoritarian leanings and inclinations. So, uh, since we've seen people like this before in history, and we see people like this today, uh, it was pretty clear where he wanted to go. Um, the question was whether he would make, whether it would be possible for him to do this in America. That was the question then. Well, in the first term, he didn't really go very far. He did quite important things, particularly in world trade. There's no question about that. But he didn't go very far because he wasn't prepared. He hadn't got the people behind him. He relied very much on traditional Republican heavyweights who were still traditional Republicans, uh, people like General Mattis, for example. I can give other names, and they constrained very much what he could do.

But over the last, uh, uh, four years before his reelection, and particularly after, uh, what I think of as an attempted insurrection, which he got away with in, uh, late 2020 and early '21, the attempt to overthrow the results of the election. This all changed, and a project was created, particularly by the Heritage Foundation, the so-called Project 2025, to enable a radical, to design, if you like, to design a radical restructuring of the American polity and the American system in the most, the dimensions I describe. And that was well known, and I read quite a bit of it, and I read people who were expert, and it was pretty clear that if they came into power, they would be doing most of the things, uh, we have, I have discussed.

So, where did it go which was even more extreme than I thought? Um, the most obvious thing, I think, actually, is in, um, uh, the international area, and particularly the trade area. Um, it never occurred to me that, for example, that he would start threatening, uh, uh, Canada with annexation. I mean, that was not in discussion before the election, and it was unthinkable. I mean, this has been a pretty stable and peaceful relationship for well, more than 200 years now. Uh, and, uh, uh, good two centuries. Canada was in no way a threat. And it was particularly surprising that along with that, he he proposed basically scrapping, uh, uh, the Mexico-Canada USMCA agreement, um, which, uh, he himself had signed, you know, after a lot of pressure and difficulty. One of my good friends, Chrystia Freeland, was the Canadian negotiator. And this is only, what is it now, five years ago that he was president, when, uh, when maybe six years ago, when they signed it. I can't remember exactly, but something like that. So, was he going to do that? That was, to me, completely unthinkable. I didn't expect him to propose different bilateral tariffs for effectively all his trading partners of radically different levels and stupendously high, so quickly, on the basis of a formula for deciding what the tariff should be, initially on the so-called liberation day in April. Uh, that was completely nuts from an economic point of view. That was not expected. And the final tariffs have shot the United States back to an average level of protection which they haven't had since the 1930s. Again, that was far beyond what anyone expected. And the outcome now is a completely irrational and deeply disruptive, uh, tariff, set of tariffs, which may not last. And that. So that was much more extreme than I expected. And just, I could go with some more things. But the other thing that really surprised me was the unpredictable whimsy, whimsy, in whimsicality, if I can use that word, uh, of some of the specific country decisions. Nobody, nobody imagined that he would go all out to attack India. India was a very important partner. The relationship between Trump and, and Mr. Modi was seen as very strong. The United States was seen as wanting to battle China, and India was an enormously important ally in that. And then he basically, India was thrown under a bus with a stupendously high tariff, similar insanity with a 50% tariff on Brazil, another important partner, of which because it was actually prosecuting, uh, uh, Mr. Bolsonaro for doing what Trump was lucky enough to get away with. So these were real surprises. And then, of course, there's the Greenland saga. All these things together were surprising, not in, sort of, in some sense, in their nature, but in making one realize the man has no limits, and he's com-, he's fundamentally unpredictable. So if someone said to me now that five months from now, six months from now, all the current tariffs will be changed again, or perhaps every day, or I wouldn't be surprised. And this, this, so the extent not just of the radical nature of the policies in so many areas, which one had by and large expected, but the sheer, um, unpredictability of it all, and the lack of any rationale, any link with some notion of America's interests, Americans objectives. Similarly, the attack on Mr. Zelensky, innocent man, uh, in the Oval Office alongside his Vice President. All these things were really surprising. Um, so I would say, yes, this is largely what we expected, but the nature, character, and, uh, of the operation has been really surprising. When I've been thinking about historical analogies, uh, for this, I mean, the only people I've been able to think of are Caligula and Nero in Western history. I don't know enough about Chinese emperors, but here is an arbitrary despot, essentially doing things which I just can't make sense of, even in terms of his own interests.

Oh, a lot of questions following that. Um, if you think about it, does Russia benefit from this? You know, there are people who claim he's a Russian kind of, some sort of agent or runner, who benefits from what Trump is doing in, in the world. Is there another country? Do you give any consideration to this, what seemingly crazy idea to me, that he might be somehow beholden to Russia or some sort of relationship behind the scenes? Is this crazy?

Well, my view tends to be that I, I don't speculate where I have no evidence, and I don't think the evidence I've seen is adequate to support it. We all know where it comes from, uh, but I don't, I don't think there's evidence. Um, on the other hand, it, it is, it has plausibility in the sense that when I think of whom position in the world is likely to be benefited by, uh, a situation in which the US makes itself so radically untrustworthy and so radically unattractive to the people who have most trusted in it and have historically been its closest friends and allies. Well, it seems to me the only countries that really do benefit from that are the US and China. US, sorry, Russia and China.

Russia.

Uh, uh, Russia, because it clearly wants to win in, um, in, uh, Ukraine. And the more unpredictable, uh, Trump is, the more unwilling he, he is to, uh, persist with, uh, American security, uh, commitments that it's made. And it clearly was seen as having made, as a country, commitments to Ukraine with a lot of support coming not just from the previous administration but from Congress. Um, that is sort of gone. Well, it's pretty obviously obvious that countries that depend on the United States are weakened, and forces in those countries close to Russia are strengthened. And lots of countries like that, or a number of countries like that in Europe. And of course, uh, Russia is strengthening itself against Ukraine, which is likely to be seen as much weaker. So, in that sense, since Mr. Putin has bet his his regime on winning in Ukraine, it would look like a beneficiary. Now, Mr. Trump hasn't given him everything he wants. He's, he seems to be unpredictable, even from, uh, um, the Russian's point of view. But clearly, it does seem to me that in the great scheme of things, compared with the continuation of the previous administration, Russia has benefited.

And then China is directly, of course, to some degree, um, hurt, because China, uh, um, does gain a great deal from access to the US markets, and the new tariffs on Chinese products are very high. But China's come out of this being able to exert quite a little pressure on the US. It's the only country really that has retaliated and got away with it. And more important, I think, from the Chinese point of view, is that Mr. Xi can quite credibly now argue to the whole world, look, um, you can, you can see, look, um, we're a much more reliable trading partner than America. You relied on America, and America has shown that it isn't reliable. It is prepared, uh, to throw your companies and your workers under a bus if it wants to, just like that. So, you, if you're Vietnam, um, or Bangladesh, or Laos, or all sorts of countries that had come to rely on the American market, well, they're suddenly facing very, very high tariffs. They may be able to get round them in one way or another, but that's the reality. And it happened completely unexpectedly. So when China says, we're going to be predictable, we will open our markets, we're in favor of globalization, unlike those Americans, well, it's not ridiculous. It's not ridiculous. So, uh, uh, it seems to me that if you have a competition with another, between great powers, and one of the great powers says to all the countries that relied on it and were its friends, well, actually, we have a trade war with you, and, and we're not sure our security guarantees mean anything, um, for, who knows whether we'll be there to help you when you're in real trouble, and we might turn around and attack you, as you've just done with India. Um, well, then all these countries are bound to say, okay, who's the best ally? Who's, we don't really trust and like China, okay, that's true, but do we trust and like the Americans more? Not, not in my view. So I think China comes out, uh, as a huge beneficiary. I also think, for the reasons I've already outlined, that in the long run, and we're talking about the real long run, this is going to weaken the American economy hugely. Let me give you one example. Uh, America is a much smaller country than China in population. Its universities and its science and technology have relied for many, many, many decades on brilliant immigrants. You know, uh, a whole host of brilliant immigrants from Europe, from from China, from India, from all over the world. Well, a lot of these people now feel very, very insecure. I know it personally, and the universities in which they went and studied and worked, um, are under attack. That's going to affect where people go, and it's going to weaken. And all the, a lot of money to fund research, notably in biosciences, but not only there, is also under attack. So, given this situation, over the next 10, 20, 30 years, unless this is radically reversed, you look at the also their attitudes on climate change and so forth, people are going to say, well, America isn't the frontier for science and technology. The Americans themselves are turning against it. Um, well, again, if I'm a Chinese, maybe I should go back to China. Um, it all looks to me as though in the longer run, um, China, which is putting enormous resources into its competition in these areas, is going to be helped. So it seems to me very difficult to argue against the proposition that what Mr. Trump is doing is consistent with his actually being rather confused about which side he's on.

Oh, yeah, very depressing. Let me, a lot of questions coming up. I'm going to come back to some of those issues. I want to ask you a question about American business. Now, parts of American business, in Silicon Valley and on Wall Street, came out very forcefully for Mr. Trump before the election, and then those pictures on inauguration day. What, what's going on here? What, what do you think about all of this? How do you see them, the support he managed to get from important parts of corporate America?

Well, well, the first thing I think about this is, it's what I expected. Um, I mean, there's a long history of, uh, what leading businesses and capitalists do when faced with a rising dictator, particularly, and I think that's the right word to use, particularly, um, when there is, from their point of view, a strong antagonistic left. Uh, so, uh, I don't want, I'm not trying to at the moment to make other comparisons, but we all know what happened in, in Germany in the early '30s on this front. Um, the conservatives, which included business and the aristocracy, decided Hitler was a better bet, um, because the alternatives they thought were the communists, the socialists, or communists. Well, of course, the, the democratic left weren't communists, despite what Mr. Trump says, but from the point of view of many business people, they were far to the left. They, they were in favor of taxes, they were higher tax, they were in favor of, um, uh, quite aggressive competition policy, particularly vis-à-vis Silicon Valley. They were in favor of regulation of quite a few of Silicon Valley's, uh, activities, particularly the way social media worked and other things of that kind. And, uh, and, uh, so, and of course, uh, the Democrats had come to be seen as the party of regulation in environment and all the rest of it. So business didn't want that. Um, but Trump, in addition, actively promised to deregulate, and he actively promised to lower taxes, and that's consistent with what he's done in office. So, if you look at it from a purely economic point of view and business point of view, in the short to medium run, it's a completely rational decision of, uh, these people. Now, they probably knew that there were certain risks associated with this, but they assumed, and they continue to behave as if they were, as if they could reasonably assume that as long as they were sufficiently subservient and gave a sufficient amount of money, they'd be fine. And I think by and large, that's consistent with the evidence. Uh, the, so that's rational. They also probably feel, and this is where I'm somewhat on, on their side. If you're very wealthy and very powerful, running a very big business, it's really pretty difficult to be invisible. Most people can hope to be invisible. You know, they can protest and complain a bit. Uh, but by and large, you can be invisible. But if you're, uh, a great, you know, a multi-undecillionaire, um, you can't be. And well, if you're going to be in a choosing between one regime, which will be a nuisance, but not really threatening, and another which could be really threatening, well, it makes quite a lot of sense. Completely rational, um, to butter up to the latter, because they could, that guy could be really dangerous. H, and so being preemptively making concessions, preemptively and giving him resources would seem a very, very good way of ensuring that you would be left reasonably, uh, well in peace. So, and for these reasons, partly, um, uh, completely rational cowardice, and partly actually perfectly rational self-interest, I expect, um, the leading capitalists and the chief executives of the leading businesses to support Mr. Trump and people like Trump if they're given the chance, and they were. Um, so I'm, I'm not in the least surprised. I expect that to happen in almost every society. I've never seen, I may be missing something, but I've never seen a, a, a movement for democracy and freedom led by business people. That's not what they do. They might not oppose it, and they might be quite happy when it happens because they sort of know it's better to have the rule of law than not, but they're not going to be the leaders in this, uh, struggle. Other people have to be, uh, the leaders in such struggles. Um, so unfortunately, I think what is happening was predictable, and from my point of view, I, exactly what I expected.

Well, surely there are people with a more far-sighted vision that that everything that's made America great, as you've told us, has been built on the rule of law and freedom of speech and a whole lot of predictability of policy, policy certainty, that that Trump threatens that this approach threatens, and so their prosperity, uh, is ultimately threatened, and maybe sooner than, than later. So, there's another rational argument you could make about this, uh, as well from a business.

I agree with that, and of course, if they were, I'm sure lots of people think that, and some of them are acting in that way. But there is another way of thinking about this, uh, which also explains why, uh, this doesn't happen. It's sort of linked with my theory about what the stock market tells you and what it doesn't tell you. Uh, so I'll explain what I mean. Uh, the great businessmen of the day are, as you like, the product of history. They are history embodied. The businesses they created were created in precisely the environment you describe. Uh, exploiting precisely the opportunities you describe, 10, 20, 30, or 40 years ago. Yeah. The, these are not yesterday's businesses, and they're not tomorrow's businesses. They're the businesses that are the product of all that in the past. What they're defending, there are one or two exceptions, but basically they're defending an incumbency position. And that's pretty clear. And the chances that any of these businesses will create radically more valuable companies in future activities in future than they already have are not zero, but they're not gigantic either. So one way you can think about those values that you describe, yes, you're absolutely right. But they, the great benefit they offer is the activities that have not begun, the firms that have not been created, the ideas that have not been implemented. That's what you're losing in all probability. The long-term future now, the long-term future. I, I was thinking about my comparison with the stock market is something like this. Suppose in the 1970s, you were a genius and you said to yourself, then the digital economy is going to absolutely transform the world in the next half century. Absolutely. So I want to invest in it big time. And well, if you wanted to invest in this in, say, the early '70s, what would you invest in? IBM, Digital Equipment, Burroughs. The firms that you would want to invest in didn't exist. Mr. Jobs was just about to start working in his garage. So the incumbents, almost by definition, including incumbent investors, can't invest in the future in this way. And the values and institutions that made all that possible, the research, the science, the entrepreneurship, the laws, the venture capital, they, they existed, but they hadn't created any of this. So I think that what you see in, and that's one of the great problems with capitalism, lots have written about it, is existing capitalists are a lobby for the past, if you like. It's not their fault, but they are, they're incumbents. Now, if they are told that Mr. Trump will protect the incumbents, and he is right, he's going to, uh, and he's going to get rid of a lot of restraints on competition which allow them basically to buy up or throttle all the newcomers, which they've been doing very well. And if he attacks the universities, which will undermine future research, which might involve creating businesses which won't be theirs, although that's a bit more theoretical, they would probably feel, well, we're not going to lose much as a result of that. But right now, we're going to be okay. And if we damage the future of the US in the next 50, 100 years, well, that's not our problem, is it? I'm being very cynical, but it seems to me understandable that these people could say to themselves, in, you know, quietly, they're not going to say it publicly, um, okay, US is going to be damaged, but we can't stop this. The political forces are too great. But we need to survive ourselves. Our businesses need to survive. And the way we do that is to deal, make a deal with the most threatening person around. And the most threatening person around is is the existing dictatorial. And that's what the Germans and many other examples of that. I won't go into all the contemporary other contemporary examples where businesses do exactly that, because it's the way to survive. H.

So, moving on from that, what are the institutions? Are there any institutions that might constrain President Trump? Is it Congress? Is it the judiciary? Is there anything that gives you a little bit of hope? Are there American checks and balances that work?

That's absolutely, of course, there are. And the next, uh, few years will see how they work out. Um, so, uh, the obvious ones are the courts, and the courts are fighting. Uh, um, the, unfortunately, because the Supreme Court has been allowed to become a politically partisan body on both sides. By the way, this is clearly, it's been a polit-, it's a politicized court, um, its position on much of this is, in my view, not very helpful. I'm putting it gently. Uh, uh, they, they are, and we don't know where they're going to go. Uh, but I am concerned that they won't necessarily back the courts that have said, for example, two courts have now said that the new trade policy of Mr. Trump is illegal. And it seems to me absolutely clear from what I've read. I know a little bit about this. I followed trade policy in America for about 40 years. Um, it seems to me that he is pushing the boundaries of the emergency authority he has in these areas way beyond any plausible interpretation of the law that Congress has passed. So, but will the Supreme Court back those, uh, um, those constraints? Similarly, the constraints on firing, uh, officials at will, uh, his attempts to to sack a member of the Federal Reserve Board, I think it's Lisa Cook right now. Uh, all these things are in the courts, and we're going to have to see what the courts decide, up to the Supreme Court level. Um, but that's obviously an important constraint. The second important constraint is federalism. Uh, yeah. They, they don't control all the states very much, not. And some of the states they control are very, very powerful. California, for example, and the governor of California is fighting pretty hard right now. Um, and so it's not going to be so easy for him to take them over, to put the the army into every major city of the country, for instance, during elections and so forth. So it, it remains a federal country, though he has taken control of national guards, uh, and he has tremendous power for that. That's the, that's the, but the federal government is clearly a very important constraint. And the third, which is linked to that, obviously, is the electoral process. Uh, and, you know, there will be midterms of some kind, and the question is, will this be a fair process? Uh, uh, will, or will it be rigged? Well, we know how elections are rigged, it's happening all over the world in these situations. Will it, will it work as a fair process in the US, uh, or not? That elections are really, really important. Then there's civil society. Uh, again, with the courts, the universities are fighting back. Harvard's fighting back. Um, uh, but there's a limit. I know if the, it's going to be interesting to see whether the federal government will be able to stop all the spending on science is stopped. But in the end, if the federal government will is unwilling to sign checks, then, um, it's going to be difficult to force them, as far as I can see. In, uh, future Congress. Well, that obviously now depends on the midterms. Um, we now know, there's been no real secret about this, that by early 2021, uh, after the insurrection, Trump had taken, took control of the Republican party. It had ceased to be what it was, the traditional American party, with all the differences, opinions, and currents of thought within it, and become, well, I think what we think of as a MAGA party. Uh, and it's been staggering to, to me, even to me, how far he has been able to get the parties in Congress to confirm appointments, and this is the Senate, uh, to immensely important positions like Secretary of Defense, um, uh, head of the Department of Justice, Attorney General, and so forth, who are really, let's be brutally clear about it, hopelessly unqualified for these jobs. So it doesn't look as though Congress, without a reversal in the midterms, is going to make much difference. But the question you ask is the question of the next two to four years. Uh, you know, will the normal electoral, legal, institutional processes of American life, which Americans rely on, and we have relied on, continue to work in these very, very challenging circumstances? I don't know the odds, but it's clearly going to be quite a battle.

Martin, there are two other areas I want to talk about. Um, the one is trade. Uh, lots of questions, but maybe to ask you, what happens to the global trading system with, you know, with what Trump is doing? What will countries be able to find different markets, and some countries not others? But what does this do to world prosperity in your view? And sort of coupled with that, it seems that China has been the most effective in standing up to Trump. What do we learn from different countries, from the EU to China, on how to deal with Trump on trade? So just your thoughts on some big questions on trade.

Well, let's assume for the moment that what we have is what we have. So I'm, uh, because, but, uh, yeah, could change tomorrow. Uh, could well be different tomorrow, uh, for any sort of reason. Um, the, what we know is that we are now moving in a, in a protectionist world, with, uh, pretty high average tariffs, close to 20% on average tariffs on imports to the US, which is, um, 1930s levels. And, um, therefore, we must assume, we must assume a very significant contraction in imports into the US. Uh, and that will be contractionary for the rest of the world. It cannot but be contractionary for the rest of the world. One shouldn't exaggerate the impact on, there are, every country's situation is different, but the only countries that are really massively dependent on the US market were Canada and Mexico. I mean, they're going to be really, really badly hit. Um, but if you look at, just looking at the figure, I think, net exports of the EU to the US are, I think, about 3 or 4% of GDP. I'm not sure of the exact figures. Uh, that's a blow, but with the right policies, it's, uh, to a significant end, survivable. The problem is they can't really use domestic fiscal offsets because they already all have pretty big fiscal deficits, except the Germans. Um, so it will have an evative impact on the rest of the world, but it shouldn't be, uh, on its own, anything like the Great Depression, for example, which is often used as a parallel, because the crucial thing that happened there was a giant recession, and it's pretty clear that Mr. Trump has no intention, uh, of having a giant recession in the US, and that means domestic demand in the US should be pretty strong, and that will tend to mean that one way or another, trade with US will continue, if, even if at somewhat lower, uh, level. And even in predicting that it will be at a lower level, you have to take account of the fact that macroeconomic policy in the US looks like being very, very, uh, expansionary, particularly if he does get control over the Fed. So, except for Canada and Mexico, it seems to me there will be a negative effect on the rest of the world, but not necessarily colossal. I haven't seen really meticulous, uh, forecasts of this for the world yet. We presumably will get that from the IMF very soon, in a few weeks, and that will be very interesting to look at. Uh, but that's my guess. But a lot, of course, will also depend on what the rest of the world does. Now, so far, remember, you know, the US, uh, uh, imports, I can't remember the exact figure, it's something, it's less than a fifth of world imports, that's for sure, I think significantly less. So, the, because US is rather, uh, is not a very trade-dependent economy, and that means its imports are not a very high share of GDP, and so they're not that high a share of world GDP. So US is about 25% of the world nominal GDP, but its share of imports is significantly smaller now. So that, a lot depends on what happens with the rest of the world. Now, we know that the rest of the world, rightly or wrongly, has decided not to retaliate, except China. And that means imports from the US presumably will continue to be quite strong, and that will support the American economy. Um, they, the, it might be quite good for the rest of the world in a sense, though it makes it look better from Trump's point of view. Uh, the, I won't go into how this trade policy interacts with macroeconomic policy, because my own view is it's not going to improve the US balance trade balance of trade very much, because exports will be reabsorbed into the domestic economy. But that's a more complicated discussion, depends on exchange rates and lots of other things which are proving difficult to forecast. So, um, but the rest of the world can, of course, offset the losses by pursuing more expansionary policies where they can, where they have the room to do so. Uh, some European countries do, Germany does, obviously China can, and I think will need to. And, uh, and, uh, and that can provide trading opportunities for other countries, particularly hard hit, or at least some hard hit developing, uh, countries. They can decide to keep all their existing tariff schedules vis-à-vis each other, one another, and they can, if they're sensible, I think, pursue more liberalization of their own. Vis-à-vis, they can say, none of this applies to the US, because the US has violated all the agreements, but on a most favored nation basis, and non-discriminatory basis, we're going to open our markets to one another. And the combination of offsetting expansionary macroeconomic policy, which China definitely needs, uh, in its own interests, with liberalization, could well replace quite an important part of that trade. And I think this will be very, very important for African economies, for example. It is, however, true that even though the US does not dominate the world's imports, um, it is the biggest single consumer market in the world. It's the biggest market for final goods, and, uh, uh, because it's such a strong consumer economy. So I've been arguing for years that we need, uh, more consumption in the surplus countries like Germany and, and in Europe, and we need more consumption or investment, but in this case, obviously consumption by China. And it's in their interests, and it's become more in their interests now, because they're going to lose in exports, and it will benefit the rest of the world. So there's a macroeconomic response. They've got to become less export-dependent. China's far too big to pursue this sort of export-led growth policy. And with the US out of the game, it's impossible. There is no other big market except Europe, and the Europeans won't have it. So, a lot depends. Therefore, it's a lengthy answer. What happens to the, the rest of the world trading system and the rest of the world's macroeconomic policy? I would hope for coordination. I mean, I, I've said this before, however difficult it may be, I think the Europeans need to do a lot of talking with the Chinese and the Indians, particularly the Chinese, to try and work out what a sensible economic, macroeconomic, and trade policy is, looks like in this new world.

Very interesting. I want to move, uh, to a different topic, which is one I know you've written a lot about and think a lot about, the Russian invasion of Ukraine and the, the war, and the impact of this, if for Europe. So Europe becomes more important in some ways. It's under greater threat, probably, without, with the uncertainties of the NATO and American umbrella. And how do you see this? How, how you've said this is really important, and how this plays out for Europe, and if we can talk a bit about that, and then I want to ask one specific question. So, um, I've just been doing a presentation on, um, what all this means for Europe. Uh, and well, uh, one simple way of putting this is, some sense, every assumption on which post-war Europe was built has been blown up. So the Europeans decided, um, to unif-, pursue a degree of economic and political union, very much with American support. It's important to remember that they, they, in doing so, they decided to integrate pretty fully into the liberal international order being created by America, and they were enthusiastic supporters of it from the very beginning. And the Marshall Plan was to very significant extent the first step towards the integration of the European economy internally and with America. And subsequently, this continued, uh, uh, through the Kennedy, the Tokyo rounds, which were really basically negotiations between the US and Europe. Uh, it's only much later that developing countries in the '80s with Uruguay round really got going in the trading system. So, uh, those America, in other words, was the guarantor of the liberal economic system and of their security. And NATO was created in '49 for that reason, in response to Soviet activity in Eastern Europe, and particularly the threat to Berlin. So, uh, security, economic policy, and values. You know, the Europeans thought they were becoming good democrats and good liberals, uh, adopting market policies, which were what, in the initial European Community treaties, uh, uh, competition policy and all this stuff. So they thought they were joining a solid left, a solid West, which the US was leading. And, uh, now, well, the US has tacked the trading system. It's supporting the most autocratic elements in their domestic politics. That's what JD Vance's celebrated speech earlier this year was about in Munich. Uh, you know, the, uh, um, the, the defense guarantor, guarantees have been thrown very strongly into doubt, and this is shown both in what they've said about NATO, but also their attitude to the Ukraine war, as you mentioned. Uh, the, so this historic position is now in profound, uh, question. And in addition to those geopolitical elements, of course, as Mario Draghi's excellent report a year ago showed, Europe has fallen hugely behind as an economy in the last 20 or 30 years, in terms of productivity, growth, innovation, role in the new technologies, all which are sort of similar things. So it has a huge economic, uh, uh, problem. And now, basically, it's been told by the Americans, you guys, you're on your own. Oversimplifying, then, if they look around the world, are there any powerful friends? Well, China may be an important, uh, asset for certain purposes, but it's clearly not a friend, clearly not a country with which Europe shares these values. India is not big enough and is certainly not clear enough, uh, uh, as, um, an aid. There isn't anybody else. Japan, yes, but Japan is not a, a world power of the first rank, and is in decline relatively and demographically definitively, as indeed is much of Europe. So, it's an enormous crisis for Europe. Uh, and it's pretty clear what they should do. Um, uh, the question, I won't go into all that because it's sort of obvious, they have to integrate more. They have to spend more on defense. They have to cut a lot of nonsense spending, which because of which they spend far too much. Just seen what's happened to a French government trying to do that, it's collapsed. Uh, uh, Germany is the only country with freedom of maneuver because its debt is relatively low. I won't go into the implications of that. So the point is, what they, they have to create a defense union, which means a foreign policy union, which means much greater integration. And they have 27 countries, which are all nationalist. And the reason Mario Draghi's report doesn't get anywhere is they really like the regulations, and they don't really want to integrate the sensitive sectors like tech, uh, like the technology sector, the universities, uh, the financial sector, they're fighting that to the death. So this is one of those decisive moments of sort of sink or swim. Uh, you know, there's a famous remark by one of the founders that Europe progresses through crisis. Well, this is the crisis. Will they progress? Well, the last year has not been a disaster, but it's not been a really big success either. And I'm very anxious that they won't do anything. And at the end, you have to say, in this world, if the US goes really badly and doesn't recover, please God, no, from this, uh, malady, um, never, we won't forget it, but doesn't recover, at least for a for a good time, then Europe is sort of the, the strongest liberal democratic entity. And I should add crucially, it has a huge number of far-right populists internally in every country, and in any of these countries, he could come into power, and then these people are all anti-Europe. So I'd love to believe that Europe is going to really rise to the occasion. Um, but I don't believe it.

It's hard to see how to manage besides the divisions in European countries, which seem to have gotten stronger. The challenge to move more money to defense, which inevitably means you've got to be cutting something, and probably elements of the welfare state. This is going to be incredibly difficult politics to to manage, which is what you're referring to. And

It is what I mean. These are slow-growing economies, one, you know, 1% a year or so, um, very low, um, um, they have poor demographics. Uh, the elderly are a hu-, you know, a lobby for high spending. That's what they are. They all vote. Uh, they have huge pension burdens. Uh, and most of them, Germany is the important exception, have terrible fiscal positions. It varies a bit. Uh, of course, they don't want to raise public spending. They promised to increase defense spending sometime way into the future, to Mr. Trump, to 5% of GDP. This is simply not going to happen. Uh, now, even with much lower spending, if they integrated their spending, they spend in aggregate much more than Russia. But the problem is, it's all broken up and fragmented and split into national armies and national, uh, defense suppliers. They don't have the benefits of economies of scale, which is their biggest disadvantage vis-à-vis the US economically. Exactly the same applies in innovation. They don't have, Europe is not a single market because it's not a single polity, and that makes a real difference in the end. Um, and they, these are problems that they can't fix. So for the reason you mentioned, and this reason of fragmentation, it will be incredibly difficult for this, what is effectively a league of nations, to be effective in the way that an integrated polity like the US or China can be.

My last question, because unfortunately, we're running out of time. This has been absolutely fascinating. If, if

If, if the Democratic Party in America can get its act together and can put up somebody, a centrist, whatever, somebody to win in three years' time, can I, I know we can't go back to the world that was, but can, can America recover? Can we get back to a better situation? How do you see that?

Uh, well, first of all, as you say, the necessary condition for this is that they win. And, um, I think there's a reasonable chance from what I'm seeing that the mistakes Trump has made and will make, uh, in economic policy will be bad enough and damaging enough that if there are genuinely fair elections, uh, he will, he, if he tries to run for a third term, I won't go into that constitutional impossibility, as it were, or somebody else, uh, that his, whoever follows him will lose. JD Vance, whoever there, remember despite everything, uh, the, uh, he only won by one and a half percentage points of the vote. Uh, admittedly, because of the distribution of the vote, uh, he got a sort of, sort of landslide, but it wasn't a huge margin of victory. So a swing of three or four percentage points should do it quite comfortably. And if it's a big enough mess, look at what happened to Biden because of the inflation. Well, with the sort of policies he's pursuing, fiscal and monetary policy, it's quite plausible there'll be a resurgence of inflation three years or so from now. I mean, quite plausible. Not, uh, so, um, it's quite possible that they could win in a reasonably fair election.

The difficulty is, what then? Uh, ultimately, a democratic system and credible rule of law depend, the theme of my most recent book, "The Crisis of Democratic Capitalism," on an entrenched legal system in which everybody can trust, in a foreign policy from our point of view which is reasonably predictable, and, uh, and governing institutions staffed by people who think they're serving the country, not just a particular party. Now, it's going to be very, very difficult to reestablish these, uh, and we can see a beautiful example of this in Poland today, which I follow quite closely. There, the democratic forces won the last election against the autocratic forces, I would say socially and politically autocratic, but the, the government is full of bureaucrats, um, who are on the other side. It's difficult to change all that. The courts are, of course, full of people representing the other side. The presidency, in this case, remains with people on the other side. Uh, that's everyone. Country is complex. Changing all that back, well, you, you have a terrible problem. And do you want to go and try and push out judges? It looks just like your opponents. So you, you won't go back to the status quo ante. You cannot, because the changes in the government system, the institutions, uh, core institutions, possibly the Fed, who knows what else, will, will just take a long time to reverse. So you would either need, you would need either an enormous landslide, which makes it credible that the Democrats are there indefinitely, which happened in the '30s with FDR. That looks very unlikely given the politics of the American states. Very, very unlikely. And or a complete fracturing of the MAGA movement and the decision that this was the wrong way to go. Again, looking at the current con, you know, the supporters, why they're the supporters, the values, the supporters have, there's an increasing number of people who are just outright authoritarians who believe in it. Quite a few of the Silicon Valley people basically have gone onto the side of dictatorship. Uh, um, some of them are former South Africans and the, uh, the, uh, as you no doubt know. So going back is not a four-year project. It's a multiple period project. And then from the rest of the world's point of view, until you're confident they've gone back durably, credibly, there's a new establishment and this MAGA movement is over, um, then they're not going to trust it. So my view is, uh, the Democrats might come into power, but MAGA will remain. It won't be Trump's, it'll be somebody else's. It will be different, of course, might be more coherent and might be more dangerous because, just to give you an example, I think JD Vance is a much more intelligent man than Donald Trump.

So, uh, and younger and more coherent and for that reason more dangerous. So I think it is a mistake analytically to believe this is now an interlude. If Trump, miss Donald Trump, had lost now in 2024 and by a bigish margin to a really good candidate, and my God, the Democrats screwed that up. My God, they did. Then it would be different. You could say the American people were offered him. They chose him once. They realized it was a stake and they never did it again. That's no longer true. It's now clear that there's a lot of people in America, a huge number, who want this. And I think the rest of the world can't forget that because it's the reality.

Well, Martin, on this disturbing note, um, thank you very much for an absolutely fascinating hour. I hope everyone listening found this as interesting, if depressing, as I do. Sorry, I really didn't want to depress you all. And, but all I can say is this was your idea.

Well, thank you very much. Thanks for your time. We really appreciate it. And thank you for joining us, everybody. Uh, I'm going to now close our Zoom session. Thank you very much, Martin. This was fantastic.

Great pleasure. Sort of in a depressing way.

Sort of. Nice to see you again. Best of luck.