Transcription
Hello, and welcome. Forecasting is extremely tricky. To get the odd trend right can be put down to luck. To get your forecast right again and again requires immense skill. The man I'm going to interview just now is arguably the hottest forecaster of the moment, globally. Because, unlike many others—almost all others—he picked the two trends which are dominating global headlines, bang on.
One I remember when we met Ruchir Sharma at the Nariman Point in November last year, you said, "Trump will do what he wants. The Supreme Court can't stop him; the executive can't stop him. The only way he gets pulled back is when the bond market freaks out." And that is exactly what happened.
And the other thing Ruchir spoke about in that interview and wrote about in his, uh, 10 top forecasts was the end of American exceptionalism—the idea that America, based on its stimulus, based on the growth in big tech stocks, would just keep growing faster than everybody else; that that was a bubble waiting to unravel.
So before I ask Ruchir my first question for this interview, I want to play out a small excerpt from that conversation from Nariman Point. Because when you hear him now and you remember this is going back to November 2024, it'll then make a lot more sense. So here is Ruchir Sharma before we talk to him today.
"So I think that the key thing, the key issue for the next year is going to be that when does the American bond market say—and that's the only check and balance really left on Trump—in a way that you can argue that, given the mandate he got, there's no check and balance really left, uh, in some ways. Because now the the Congress, the um, uh, is totally aligned with him, with both the House and the Senate likely going in his corner. Some people would make the argument that even the Supreme Court is ideologically more aligned with him. So I think the untold story of this, u, election just now is that there's only one check and balance, in a way, which is left, and that for me is the bond market. America used to run budget deficits about 3% of GDP for the last 20 years; in the, you know, like, in fact, I've got this amazing statistic which always stays with me, that America in its first nearly 250 years since independence accumulated about $17 trillion in debt. In the last 10 years, they've accumulated another $17 trillion in debt. So this trajectory has really gone vertical, and I think that this is where the big risk lies for America. And my suspicion is that in the next few months, possibly in 2025, I think that the bond market is going to start to revolt, because they're going to see that Trump's going to keep pushing for more tax cuts, or, you know, letting spending increase, because there's no incentive for him not to do that, uh, until the bond market revolts."
Now that is as precient as precient can be. It's almost as if we should call you the forecaster or the soothsayer, the man who saw tomorrow.
"No, I don't know, Raul. You know, like, in terms of just having watched, uh, trends for the last, uh, 30 plus years since I started, uh, started writing at a young age, um, I think that the one thing which you get conditioned to is to see when there's far too much groupthink; when everybody around you is saying exactly the same thing, and that is when I find that markets, uh, and the economic profession itself tends to be the most vulnerable. And that's the sense I got late last year, which is that everybody in the world thought the only place worth investing in is America, and so therefore I tagged that as the mother of all bubbles. That how could you have a situation where 80% of all the capital, uh, flows into stock markets around the world was going into just one country? That's what's been the trend this decade; that something was bound to snap it. Now, of course, people are saying that Trump is the one who is, uh, pricking this bubble, but somebody else put that air in the bubble in the first place, and I think that that's what's happening now; that the expectations were far too elevated; that we, that the American stock market, the American economy had already outperformed for many, many years, and like, people were expecting that to just continue extrapolation. So in forecasting, one of the very basic rules is that extrapolation is the single biggest mistake people make. You know, which is also why people who matter listen as carefully as they do to Ruchir Sharma."
I want to quote to you one paragraph from an article Ruchir wrote, and then what we'll do is use this opportunity to get Ruchir to forecast out from here, because so much has changed between January and March. So let's see what he can come up with. But let me read what he's written: "If the past is prelude, Trump 2.0 will not play out as most investors expect. Ironically, continuing faith in American exceptionalism assumes that under Trump the world will see more of the same trends it saw under Joe Biden: US dominance of the global economy and markets led by its big cap tech businesses. But those trends are already very extended and vulnerable to forces larger than the US president-elect. For a variety of reasons, competitive churn could return to global markets in 2025 and lead to seismic shifts."
It's almost as if, to the dot, you know, you're calling the future, you know, in terms of that these things happen.
"So I think that, I think the key thing, as you said, is that that this has happened now, what, and my, uh, suspicion here is that these are very long-term trends, which is that the US market and the US economy after the global financial crisis of 2008, 2009 had been on a tear; had dominated the world. The US stock market had come to be nearly 70% of the global stock market capitalization; 80% of all the incremental flows were just going into one market, and this process has only just started to reverse. The dollar was about the most overvalued that it had been in its floating rate history, which dates back to, uh, the early 1970s. So, you know, when something is so overvalued, it is telling you that it is set up for disappointment, and I think that's what's happening under Trump. And the other thing which I think that a lot of people have underestimated is the fact that why is Trump doing what he's doing, right? So a lot of people think that this is all just madness and stuff. I, you know, sort of believe that there's a certain method to the madness, which is that the what he's doing in terms of some of the tactics he's using and all are possibly wrong, but he sort of has identified that the that many Americans were not happy with the way the economy was performing. Inflation had been very high for the last few years under Joe Biden in particular, and also the fact that for the average American they were not seeing the benefits—the stock market's doing well, but who owns the stock market? It's mainly the top 10 or 20%; the bottom 80%, they were not getting any benefit from this, you know, great tech boom, the stock market boom. So it was a very stratified economy. Now, Trump, as a populist, has been able to identify that the average American is not happy with this, and they want disruption. Now, I think that disrupting it through tariffs is possibly the wrong way to go about it. Had he done more disruption by reducing the role of the government, which I think is a real problem for many Americans, I think that the results would have been better. But at the core of it, I think we have to admit that the American economy was a bubble; it was artificially juiced up by the government, and the average American was not happy with the way the American economy was performing. So identifying that was the key thing, and once you sort of identified that, then you can see that some disruptor's going to come to office and sort of, you know, start doing stuff which is not acceptable to the status quo and the elites."
So here's what I hope to do, Richard: I'll pick different sectors of the global economy and get you to forecast right; and wherever you think it's too tough, you can say you don't want to, but wherever you can give it a shot, let's do that. So let's start with whether Trump stays the course on tariffs, and that's really the big question, because he announces tariffs, there's some kind of a blowback, the bond market freaks out, or his billionaire tech friends put pressure on him, he backtracks, and that's the one critical question: Does he stay this course, or does he pull back?
"I think that he's already pulling back, right? So which is that, you know, someone once gave me, uh, someone who knows Trump very well, and I think there's been a lot of psychoanalysis of the man, but I think that one observation that someone gave me really stayed with me. In fact, he said that you, um, he's also been a developer and known Trump really from the early days; he says that Trump's style of operation is such, which is that every time somebody walks into a room, he loves to throw a bomb at a grenade and see what happens and adjust his style. So that's what's Trump doing all the time. And the other really observation he made was that Trump's style of bargaining tends to be that, let's say he thinks that something is worth $100,000, he will start by telling you that it is worth a million. It's called the anchoring bias, right? Which that you anchor the expectation such, and the end if he ends up getting $150,000, he thinks that's the victory. It's very far from what he said at a million; 100,000 is the true value, and he claims it's a victory, and of course all the critics will say, 'What a comedown that you asked for a million and you only got 150.' In his mind, he thinks, 'I asked for 100, I got 150 for this; that's a victory for me.' So I think there's some of that happening with the tariff negotiations as well, which is that in his first term the tariffs went up very slightly; the average effective tariff rate in America went up, I think, from 1% to 2.5%, mainly directed at China. The average effective tariff rate, I think, under this presidency, there is a base case that you can take that the average tariff rate is going to be about 10%, which is still a significant shift, but it's nowhere near the average of 25, 30% type tariff rates that he has spoken about in that famous April 9th announcement, or, uh, uh, liberation day. Yeah, liberation day, of course, was earlier, but April 9th was when it got all implemented; that was the peak shock day when it, those tariffs, we woke up in the morning, those tariffs were there until he, you know, unbound it that very day. So I think that that's where we're going to be at, which is that we saw peak tariffs on April 9th, and we, we know what the base is, which is that we're not going back to the 2 and a half percent world either. He's trying for something in the middle. The only risk with the strategy is of an accident happening, because you're playing, in some way, a big gamble out there. What could this accident be? China. And I think that's what's the real worry, which is that his sort of strategy is that, you know, and this comes from a bit of hubris about America as well, which I think permeates both the, uh, parties out there at, at the top, that, you know, 'We are the world's largest economy; we are the world's largest customer; where else will people go; where else will the money go? They have to come to us,' right? So he's, he's got that basic assumption. The biggest mistake that can happen here and lead to an accident is if China says, 'Is fine, uh, you want to play this hard ball, so will we. We are not going to come and negotiate with you,' uh, so that is where the danger happens, because he wants a deal with China; he wants the negotiations to happen where he gets a deal with China and show, you know, that they punish China to some extent, but in, at the end of the day, he wants some deal to happen. He seems to also be getting frustrated that China isn't coming to the negotiating table just yet."
It's impossible to say for sure, but what's your best sense? Does Xi Jinping plan to hold out, or is he also just playing double bluff?
"Well, it's impossible to know this, as I said, but I think that in terms of the fact that already what China has done, I think has gone a bit against their calculations; that's the mis, that's the accident which has sort of happened; therefore, the nervousness in the markets. Because even if you look at what happened, it's a very telling sign, which is that when he announced that tariffs on liberation day, the first reaction was bad, but not a panic. The real panic set in when China decided to retaliate. All the other countries in the world said, 'We will wait to retaliate; we will negotiate.' The moment China said, 'We are retaliating,' that's when the fear came in that maybe an accident here could happen. So I think that that's really the big risk out here. But having said that, what can we do today, which is that we can try and see what is going to emerge from this fog of war out here, right? So we got tariffs are going to go up in America; I think the base case is that we're going to be at least at 10%, somewhere north of 10, but at least at 10% is the effective tariff rate into America. Most economists calculate that for every 1 percentage point increase in the effective tariff rate in America that slows down America's economic growth rate by about 10 basis points—0.1%. So just the fact that you have a tariff rate of north of 10% means that the American economy just from that effect may slow down by almost 1% just due to that. Then he's putting curbs on immigration, uh, in a serious way. So if you look at America before the pandemic, America used to sort of, uh, get about a million immigrants a year net—all immigrants put together, asylum seekers, illegal, legal—like, used to be like a million. After the pandemic, and this was like the biggest failure under the Joe Biden administration, there was this massive surge in immigration which disturbed the social fabric of any country, and that average number went up to about 2 and a half million—so huge amount of immigrants coming in. A million now, your trend rate is running at 2 and a half million; that is expected to collapse this year to possibly half a million—so below even what existed before the pandemic. So these are big shocks to the system, because at the end of the day, like, America also needs labor, and a lot of the jobs which are being done by these immigrants, a lot of the local Americans do not want to do. So these are all shocks that are being, uh, given to the system at the same point in time. The next question is what impact do these shocks have on America's growth rate, which has massive bearing on global growth, right? I was reading a lot of brokerage reports which say that the probability of recession is now at 60%; it's almost 2/3, and some are saying we already in recession; we don't see it yet because it takes two quarters for the radar to come out, but we're already in recession. Is America almost certainly now hurtling into a recession? But there's no certainty, because remember that every economist was convinced in 2022 the Fed increased interest rates; every economist was convinced that America is going to have a recession; it didn't, because there was massive fiscal stimulus and other things offset it. So I think it's too early to pronounce definitively that a recession is coming in America, but I think that what I'm seeing around the world is the fact that, uh, and this is what I sort of had written about as well, that whether Trump makes America greater again is debatable, and the evidence is against that just now, but he may make the world great again—how? Because I think that many leaders around the world and countries are facing that we are now in an existential crisis. So what many countries around the world are doing is that they are beginning to carry out reforms and increase trade with each other. So, you know, there's a positive, uh, offset happening here, and the most talked about case this year has been Germany—that Germany went ahead and did this massive fiscal reform, and it's trying to back it up with some of the structural reforms on the labor markets and stuff, and Germany would have never done this had it not faced the threat of Trump and all this happening out there; that's what galvanized Germany. And we look at countries like India too."
Let's spend some time on India, because the critical question from the perspective of all those watching is what impact does this have on India's growth. Let's just spend a moment on growth, and then we'll deal with, uh, regulatory cholesterol and what we can do in terms of cleaning up Iraq. But in terms of growth, uh, a lot of economists I've been speaking to are knocking off at least half a percentage point from India's growth, but some suggest that maybe it won't be as bad. What's your reading?
"I think it may not be as bad for a, uh, for a separate reason, um, which I think that economists don't, you know, quite calculate, because economists look it through the trade, you know, the classical, uh, mechanism. But the other point which is what I've written about in my earlier pieces as well is the amount of money that America sucked in, right? So all the capital in the world was just going to America this decade, and if, if you look at the Indian market too, or India in general, capital inflows were pretty poor into India; foreign capital, foreign capital flows into India, even FDI had slowed down, but especially stock market flows had dried up over the last couple of years. I suspect what can happen in this new environment is that India could attract greater capital flows over the next couple of years; emerging markets in general could attract more capital flows, and the dollar also could be weaker, and a weaker dollar is generally a more conducive environment for emerging markets and other countries in the world because it promotes more capital flows. So it's possible that some of the negative shock from trade which comes because America's higher tariffs could be offset by more capital flows coming into countries such relative to other emerging economies."
How do you view the valuations of the Indian stock markets at this time, which were hugely overvalued in the eyes of global investors, but now there's been a substantial correction? Is this an opportunity that you think foreign portfolio investors will look to actually dive into the markets at current levels?
"I think that, you know, there's much greater interest, uh, because as I said that so much of the money has been locked up in America. So barring any absolute collapse in America, that if, you know, like, in terms of if this environment continues where, you know, the capital slowly keeps coming out of America over the next few years, I think that this is a much better opportunity for emerging markets, including India, and the fact that we've had a correction over the last 6 months, I think, is a positive, because it's…"
But where does India rank in your listing of the attractiveness of the Indian stock markets when compared with other pure economies?
"I think that, you know, like, it's a bit nuanced, that from a pure valuation standpoint India is clearly more expensive, but the growth opportunity here is much greater because of the size and the diversity of the market, uh, which is that, you know, we still have more than 500 companies in India with a market cap of more than a billion dollars. That kind of diversity and depth you don't find in any other emerging market. Because the money is also heading a lot towards China, where, uh, and you write about it in one of your pieces where you compare BYD with Tesla, uh, in terms of market cap, in terms of price-earning ratios, the fact that Chinese companies are, you know, undervalued relative to the American peers, and now with DeepSea, we've seen also out-innovating some of the American companies. So is China going to suck a lot of the money, or do you think western money will now be wary of going to China?"
"No, I think that in general the real place for where capital is going to come out is America. So don't think of this as an India-China thing; that it is really America. Our market may almost become negatively correlated, I feel, to the American market now, because in the past the whole thinking was, and something even I would sort of say all the time, that, you know, 'When America goes up, it takes the rest of the world with it; when America goes down, it takes the rest of the world down with it.' That relationship broke down in the last few years, because as the American market was surging, very few markets in the world went up with it; in fact, capital came out of other markets to fund the American boom in a way. Now I think what's happening is that capital is beginning to flow to other countries. We, we've seen massive flows, flows into Europe this year; it was unthinkable to say 6 months ago that Europe could attract capital flows from America, uh, you know, like, as you know that in places like Davos the complete consensus was exactly the opposite, which is that the only place in the world which can innovate is America; Europe is the silicon valley of regulation, not of innovation, right? That was the, uh, common talk out there. So I think that the, uh, single most important variable if you want to look at for capital flow is how much a foreigner is going to put into India; just look at the dollar exchange rate; that will tell you everything. And that's something which I said like even in November, that as long as the dollar was going up, don't expect capital flows to come to India. Now that the dollar has turned, and it seems to me that this is a turn which is here to stay for a while to come, I think that we should expect more capital flows. Now, of course, if we carry out policies at home which are, uh, anti-foreign capital, we make some silly decisions, that'll be counterproductive. There's no…"
What's your, what's your reading of the mood in the government from the outside? I mean, uh, do you think that this, we've set up a virtual deregulation committee, right, which is supposed to try and ease, uh, business in India, and they're also negotiating multiple bilateral trade agreements. Do you see the determination to push through? Do you think a trade deal is possible by fall between India and the United States, for example?
"Well, more than that, I think there are trade deals happening with other countries, right? So as I said, the focus can't be just America; it's the other countries. So there's definitely been a pickup in trade activity and trade deals, and this is a change, because in some of my earlier sort of, uh, interviews I had said that India had turned to protectionist over the last few years, and there's been a turn for the better in terms of that. Now, at least we're doing more trade deals; we are, you know, uh, getting more open again, because we need that as a developing economy; we can't follow America's policies currently of turning more protectionist; we still have to sort of follow the development model. So if you look at around the world, I think what India needs to do is to engage much more on trade, uh, you know, one of the data that I keep quoting is that the 10 fastest-growing trade routes in the world today, eight of them don't involve America anymore, and five of them involve China, and India is only in one of them, where the India-China trade was increasing a right up until 2022, then things have slowed down. So one thing which I think India has to do also is to, this distrust with China, I think, has to ease a bit. I…"
How can you trust China, given what they did along the line of actual control?
"I think so. I mean, you're, uh, uh, totally correct on that. I think that China's actions on what they did were totally irrational; it's something which baffled us also; that what is China doing out here in terms of it after the kind of effort Mr. Modi had put in, uh, you know, to cultivate, uh, Xi Jinping; that they've sort of spent so much time in Ahmedabad and everything, right? So it was something which was like there. So, but I think that you have to understand that China is also under pressure just now to change, so you…"
Know Xi Jinping's been on a tour of all of Southeast Asia, quoting neighbors. So I think that China's attitude is also changing under pressure, but the question is: can Modi trust she at this moment? Because the question is: are we drawing and from the statements that we see from Jan from Pu Goell, the Bobs on Beijing, it seems quite clear that India is drifting towards the Trump ecosystem, which is also what Trump wants very clearly. And at this moment, India seems more comfortable with that, maybe okay. But I mean, my point is that if China, you know, that like India's been sending much more mixed signals, as you know, you know, like in terms of that the that the uh compared to like a year ago, it seems to me some of the tensions have eased, uh, in terms of that.
Now I think that the whole issue is that we have to learn to trade with a lot more people out here, and I don't feel that the only issue with, you know, being too sucked into the Trump ecosystem is that Trump is a dealmaker. Tomorrow, if by any chance he cuts a deal with China, uh, you know, and with him you can't rule these things out, then we'll be left, you know, like feeling a bit more isolated. So I think that we have to trust and verify that what exactly is China doing out there. If China is beginning to sort of change its attitude, I think we should respond to it. And this is coming from someone, as you know, who's been a big, a longtime China bear and like suspicious of China on many fronts, but I'm seeing a change in China too, which is that Xi Jinping has been forced to change because of the external circumstances that he's facing. He's changed in two ways: one is that he's reaching out now much more to the private sector. Remember that he had really launched a massive crackdown on the private sector, which damaged business confidence in China a lot in the last few years. This year he's been meeting the private sector people a lot in public, sending a message that the government's out here to back you.
Similarly, on the external front, he has been, you know, like his whether it's him or the PLA or whatever have been very adventurous uh overseas, not just with India but in, you know, like in South China Sea, other places they've been very, you know, in terms of very aggressive; they are showing some signs of toning that down because they realize that we need other neighbors because they're under uh real attack from the US. So I think that that's the kind of environment that we are in, which is the fact that we have to sort of look out for ourselves, and I think that we should not sort of, you know, have these blind spots, you know, we're just not going to speak to anyone out there because the environment has changed. But netn net, I feel that for countries like India, this could be a good moment; in fact, so I like see more good uh of this coming for India than bad, in fact, uh in a way.
What's your reading of the Chinese economy at this moment? War game: if tariffs announced by China stay the way they are, the very real concerns of dumping in other countries and some of that reaching India, and secondly, the fact that there is an aging population, fewer younger people, advances in cutting-edge technology, so it's all playing out at the same time. If things stay the way they are and there is no deal with Trump, what does the economic trajectory of China look like from your lens? Well, I think it depends how China responds to it. Like one of the big sort of problems in China has been that it's model, especially for such a large economy, has been far too export dependent; it uh all economists will tell you it needs to do much more to increase domestic consumption. So does it use this opportunity now to finally make its economy much more domestic oriented, then sort of, you know, do uh be so export dependent? But my broad take of this uh trade war, you know, when I try and map the world that what can the world look like a few years from now, and I feel that, you know, that old saying is that when two elephants fight in the jungle, everybody gets trampled. Here I feel a bit of the opposite is going to happen: that the big losers of this are going to be US and China both, both uh on a net basis in the next few years, and the winners could be the countries like India, Brazil, you know, some of the uh European places where the domestic economy is large enough and yet trade plays some role but not of an oversized role uh because some of the very smaller economies, those which have been very export dependent particularly to the US, that model is under threat because because you know even the Trump administration now backs down a lot on the tariffs, every business person in America is going to think twice before setting up factories too much abroad because they know this threat is now there, you know, like like in a way that the no.
Do you think India is poised to benefit from globe western MNC's looking to diversify out of the United States because two impulses at play make in those benefit of course is that the United States simply doesn't have the kind of workforce required for the kind of manufacturing that Trump is talking about, so how does this play out? No, I think that to that American companies are going to be much more reluctant in general to invest overseas; in fact, I think one of the single biggest losers of this trade war are going to be American companies uh because if you look at what's happened in the last uh couple of decades, really since uh 2000 when globalization really took off with China entering the WTO, the profit margins of these American multinationals and American manufacturers exploded because they sort of were able to go and set up supply chains wherever they wanted, lowered their costs and were able to pay people overseas often for doing the same job much lower salaries, right? So their profit margins exploded, the profitability exploded, which was great for uh, you know, uh stock market uh and shareholders and stuff. Now uh regardless of what happens, I think that the calculation is not going to be pure about efficiency anymore; it's going to be about the fact that like I don't want to do something of being too overexposed to global supply chains where something may happen at some point in time. So I think that's going to hurt the profitability of American companies. So in that regard, for India to rely too much on American capital to come here, especially in terms of foreign direct investment from America from these companies, I think that scope's limited. Where things can increase a lot is that other European, Japanese, these other companies, they are going to still be sort of looking to diversify and to go out. Now it's what we do with our domestic regulatory environment that if we improve that and we get that in the problem in India, as you know, is not the fact that the opportunity sets not. What keeps foreigners out of India often is that a domestic regulatory environment and the domestic ecosystem is so complicated, that's what is the real.
Is that changing in your view? At the margin, I think it's only happening at a, you know, like not fast enough. Now again on trade, we have changed, you know, like I still don't see a regulatory agencies etc playing such a supportive role for foreign capital; that's what I'd like to see much more for us to attract far greater flows. Also, it's quite clear that while almost half the trade happens between China and the United States, it's very clear that trade between other countries, other blocks, not China, not the US, is increasing. How can India benefit from that? What what are the levers we should be pulling? Well, I said look like we should have been part of regional trade agreements; we should be part of, you know, and do more bilateral deals. And even in our own region, I think one of the things I've long spoken about, that one of India's biggest development weaknesses is around the world, South Asia, trade the least with each other. I think it's only parts of Africa where the uh trade uh intra-regional trade is uh comparable to India; all the booming economies around the world trade a lot with each other; Southeast Asia has shown that. So I think that we just have to sort of figure out how to become less America dependent. I think every leader in the world, every uh country in the world today is thinking: how do we become less America dependent? Because today in the short term, everybody wants a deal with America because the shock is too great of not doing a deal; everyone's doing that, but over the long term, what what are people going to do? People are going to be: how do we become less dependent on America? I think that's the single biggest thing that are taking away. And you know what this started, in fact, I would say in a very uh clear way in 2022 uh what happened in 2022 was when the kind of sanctions that America imposed on Russia and the way Russia was completely thrown off the grid, that's when something began to happen that a lot of the central banks around the world said: we don't want to put so much of our FX reserves in just the dollar; we want to start buying gold and other things. So because the fear and this was true even among Indian and Brazilian like even though they were on good terms with America then the fear was the fact that if America can do this to Russia one day, what prevents it from doing it to us under some pretext another day? So this trust in America has been declining gradually, and you know when something declines gradually but it's accelerated dramatically in the last couple of months. So companies, countries around the world are all thinking today: how do we reduce our dependence on America?
As the confrontation between the United States and China escalates, is this going to be a war to the finish where ultimately there is one winner, or do you think that two massive giants and they have to find a way of making peace with each other or living with each other and the world then gets divided into two blocks? What's your reading of what the future world order looks like? I don't think uh it's hard to sort of, you know, talk about, you know, like two blocks coming up as such. I think that a lot of countries from India to Indonesia, the attitude I see is that all these countries want to remain as independent as possible; they don't want to be seen in one camp or the other. So I think that this, you know, like this battle goes on now, and remember that in America there are still couple of things which could prevent uh, you know, this war from escalating further. One in the like in the short term is that the like even these tariffs, there could be some obstruction from the courts about these tariffs, you know, that is still a very live issue. Now Trump will find some way of doing it, but that may at least reduce the scope of the kind of tariffs he can do. And then in uh 18 months' time, you have a midterm election in in America, and everything points to the fact that there's an anti-establishment wave still going, so this time the Republicans could lose some of their majority out there, and the Democrats could sort of have some majority out there that will also put some check and balance back in place. So you know, as that old line goes that uh nothing is permanent, this too shall pass, but I think that enough has been done to at least sow the uh doubts here that you cannot rely on America all the time, and you can it is a complete folly to put all your capital into America and, you know, like ignore the rest of the world. That consensus has been badly shaken; it's almost as if Trump's second presidency has become entirely about tariffs. I mean, I don't know what happens from here, but so much disproportionate attention, it almost seems as if that's the wand that he wants to wave, and there's very little talk about anything else.
Yeah, so I think uh you've made a great point out here, which is that that's really unfortunate because if you uh talk to people in the administration and stuff, they will tell you about how much they have done to close the borders uh, you know, that that they've really the level of uh illegal immigration into America has come down significantly, but there's been collateral damage. There are so many people on this trip of mine to India that I've spoken to who are fearful of traveling to America, not knowing what's going to happen at the airports, right? So this collateral, the problem is that even where he's doing some things which are right of, you know, cutting down illegal immigration and stuff, the tactics being used are so heavy-handed that the collateral damages a lot, uh, you know, so like America, I think tourism is about 2 and a half percent of GDP or something like that, and the bookings are down about 25% uh, you know, for this for this season. So there's collateral damage. Why wouldn't you want tourists, but now because you want to stop illegal immigrants, you've given like in India we faces, and the moment you give the government too much power at any agency, they are bound to misuse it, and that's what's happening in America today as well.
I started this interview by quoting from one of your pieces; I'll end with that as well. You know, you write that the global economy moves in cycles, and that creative destruction, once a hallmark of capitalism, is either dead or dormant. If we are on the cusp of its return, as you suggest, you know, what are the signs that a contrarian shift is finally taking hold? So here's here's what you've written: "Creative destruction has been a defining and necessary feature of capitalism since its roots in the 18th century; either it's dead or dormant and poised for a comeback. My bet is on the comeback that would herald a belated return for contrarian investing, starting with the shift away from the US and its top tech companies." This was earlier. If you had to take a contrarian bet now, what would it look like? No, I think that you know you have to be very uh selective about when you take contrarian bets uh because of the fact that trends don't keep turning every year, but you know in terms of you have some variations every year. So I feel that this is a multi-year trend. So in fact, the domination of these top tech companies around the world in America uh coming from America I think had gotten too excessive, that how can these same companies dominate all the time and were leading to all sorts of again problems in America. There were so many towns in America dominated by just one employer of that one company, and then the labor was feeling very squeezed that you know if you have to only work for one company, we have no choice, uh, you know, this is very demeaning for us in the way we have to deal with it. So I think the the basic point about creative destruction is that the same companies, if if you look at the top 10 companies in the world every decade, there should be churn; new companies come up; very few are holdovers from the past. This decade that was not happening. Now in a perverse way, what Trump has done is to have accelerated the decline of those companies. So I doubt very much if these companies, all these top tech companies are going to regain their halo that they once had. At one point in time, it just seemed as if these companies were going to dominate the world; I think that that has been cracked, and it may have been cracked the wrong way, but I think that the decline of these companies, the relative decline of these companies is a positive.
Well, this has been a fascinating conversation, and I think especially because you got all your past forecasts right, people are going to be latching on to every word, try and find meaning and context in what you've said. Rich Sharma, for taking our time, thank you very much. Thanks Rob. Thank you. If you like the video, do like, comment, share, and [Music] subscribe. If you like the video, do like, comment, share, and subscribe.