Transcription
Well, moving on now to uh well, amid what is being seen as the most serious fracture in decades of the relationship between the United States and Europe, European countries today considering how they might respond to Washington. This after US President Donald Trump on Saturday announced a 10% tariff on countries opposing American ownership of Greenland. With EU leaders having spent much of the weekend on the phone, an emergency summit is now to take place on Thursday. That's following the ambassador's meeting in Brussels on Sunday. The eight countries to be hit with the tariffs, including France and Germany, as well as the UK, which of course is not in the European Union, were being targeted, according to Trump, for sending troops to Greenland to take part in military drills organized by Denmark. Well, we're going to hear now from uh the European Union spokesperson. Uh take a listen to this.
>> EU leaders are consulting intensively. As well as that, engagement with the US is continuing at all levels. Our priority is to engage, not escalate.
Well, for a look now at how Europe might respond to this threat by Trump and some analysis of what the options are, we're now joined by Peter Schiff, who is uh chief economist and market strategist at Europacific Asset Management. Mijif also one of the very few economists to have accurately forecast the 2008 financial crisis well in advance. He's also authored several best-selling books. Well, uh, first of all, uh, Peter Schiff, welcome to the program. Good to have you with us. We do appreciate your time. Let's look first at how the EU might retaliate using trade measures by restricting US access to the market. I want to look then at some of the possible leverage Europe has in the financial uh, markets, which I know you're also interested in. But this uh trade measure, the so-called EU bazooka, the anti-coercion uh instrument that Emanuel McCoy is very keen to use, would that be an effective retaliation from the EU? What is it? You know, how much is it going to hurt the the United States? And what are the what are the downsides of that?
>> Well, first of all, how they may respond and how they should respond are probably completely different. Uh so when it comes to tariffs, right, the US is not hitting Europe with tariffs. Uh the US is hitting Americans with tariffs. Americans who buy European goods will now have to pay higher tariffs to buy them. Now, yes, that does make it more difficult for European companies, certain companies, to sell their goods in the United States because they're now more expensive and so fewer Americans can afford to buy them. But the loss is for the Americans, not for the Europeans. Yes, those European countries can figure out other countries uh they can trade with. They can consume more themselves, but the real losers are Americans. And it would be a mistake for Europe to retaliate by increasing tariffs on their own citizens, by making it more expensive for them to buy American products. Uh but you know politically politicians can't resist uh you know the urge uh to act tough by retaliating but tariffs always hurt most the nation that imposes them. Uh so Europe should do nothing but you know as far as if Europe wants to do something that would uh be harmful to the US but would also be helpful to Europe. Uh European central banks can sell US dollars, they can sell US treasuries and they can buy more gold. Yeah, I think that would hit the US where it hurts and it would actually help Europe because the more gold European central banks can have the better.
>> Yeah. And perhaps you could kind of elaborate on that. You know, I think a lot of people won't uh have known the fact that, you know, Europe owns a huge uh amount of US bonds. It's bought a lot of US debt. It is the world's biggest lender to the United States and owns, I have learned, eight trillion dollars of US bonds and equities. That's apparently almost twice as much as the rest of the world combined. So, do you think that's likely to happen? Would EU bond holders decide to sell their bonds or not buy any further bonds? Because of course, you know, the the US
>> Well, I mean, yeah. Yeah. Well, when when Trump accuses uh Europe of freeloading off the United States or that we're subsidizing Europe, he's got it the other way around. Europe is loaning us money. They're subsidizing us. They they they buy our bonds. So, they finance our budget deficits. They finance our trade deficits. You know, ironically, if the United States is going to buy Greenland instead of invading it, where are we going to get the money? We're going to have to borrow it from the Europeans because we don't have it ourselves. We're broke. The United States has a a $38.6 trillion national debt and rising fast and that only counts the funded debt. The unfunded liabilities dwarf that. Uh so we can't even afford uh uh uh to buy to buy Greenland. But you know, the last thing we should be considering is invading it. We've got serious structural financial problems in the United States that need to be solved. we shouldn't be antagonizing uh uh you know peaceful countries around the world. In fact, I think we've already uh done enough damage uh with all with all the tariffs uh to try to inhibit global trade because free trade benefits everybody. Uh and tariffs that limit the freedom of individuals uh to pursue, you know, their best options when it comes to uh how they consume and how they spend their money uh overall is is harmful to the global economy. Uh but you know I think to the extent that we see the markets react the way they have because the dollar is down, US treasuries are down and gold and silver have hit new record highs on this announcement. I think that there's a good indication that the US is heading towards a worse financial crisis than what we had in '08 because I think this time it's going to be a sovereign debt crisis and a dollar crisis. And when that happens, I think Donald Trump is going to have to focus his attention uh back home. I don't think he's going to be able to concern himself with things like Greenland when he've lost when he's lost all of his political capital based on a collapsing American economy.
>> So, two two questions from what you've just said. You know, one is I don't understand, you know, how does Donald Trump plan to get around this idea? He has said he wants to buy Greenland. You're saying that in order to do that he would have to borrow money from Europe. How does he get around that? And secondly, as you say, uh if uh the financial markets react as they already are today, that is going to hurt the American economy. This is a a year of midterm elections. Is he not worried about that? You know, who is advising him? Why does he not seem to care about these two huge factors?
>> Uh, I I don't think anybody advises Trump. I think Trump has surrounded himself with yesmen, and he advises himself. But the only way to get around having to borrow the money to buy Greenland is to have the Federal Reserve print it. And right now, you know, there's a big battle going on between the White House and the Fed. Uh, and that may be solved by Trump appointing another yes man uh to run the Fed. But yes, if the Fed buys the bonds that the government has to sell to raise the money to buy Greenland, uh then that's just going to create massive inflation in the United States and further uh suppress the purchasing power of the US dollar and cause more money to flow from dollars and treasuries into gold. So he's going to fuel uh the the existing fire. Uh in the United States, the Supreme Court has to rule on the legality of uh many of Trump's tariffs, the ones he's already imposed. I think they've suspended. They they haven't yet made their ruling. How would whatever they rule feed into this story over tariffs for Europe?
>> Well, first of all, there's no question that Trump's tariffs are unconstitutional. I mean, it's not even a close call. It should be 9 to one. I mean nine to zero in favor of striking them down because the Constitution is very clear that taxing authority lies in Congress and that all revenue bills must originate in the House of Representatives and tariffs are taxes. They're designed to raise revenue and Donald Trump is not a king. He cannot unilaterally tax the American public. Congress needs to vote to tax the American public. And so so it's pretty obvious. But the US Supreme Court has a history of vowing to political pressure. And I there's going to be a lot of pressure on the court not to strike down these tariffs because of all the money it's going to cause because now Trump is going to have to refund uh all the tariffs to the Americans that paid them. Right? Again, it the tariffs were not paid by foreigners. They were paid by by US importers and in part passed on to US consumers. But it's obviously going to be problematic uh fiscally, not you know structurally they can refund the money but again we don't have it. We have to borrow it. America's broke. Uh so there will be a lot of pre pressure on the Supreme Court. So we'll see you know what they end up doing. But it's not even a close call. I mean it it's it's totally illegal and there are a lot of things that the Trump administration is doing uh that are unconstitutional. But you know that's par for the course in Washington. There were a lot of things that the Biden administration did that were unconstitutional. The courts just allow uh the president and congress to get away with violating the constitution all the time.
>> How uh how are we going to get out of this? You know, it seems from what you're saying that apart from the legality or not of this, it is not in any way beneficial to the United States or Europe or NATO, uh the US population doesn't approve of it. 17% of the population do. None of the checks and balances appear to be working. As you say, the Supreme Court might well just wave it through. Uh Congress is pretty supine on most things. You know, how is this thing going to end?
>> Well, look, I think we're going to have a dollar crisis and a sovereign [clears throat] debt crisis. In fact, you can see what's happening with long-term bond yields in Japan. They moved above two and a quarter uh last night. I mean, so I think it could actually start in Japan, but it's going to reverberate to the United States. But as far as NATO, look, I don't even know why we still have NATO. You know, the Warsawar Pack is gone. Uh that's the reason that NATO exists. I think everybody would save a lot of money if we just disbanded NATO. I I I think it's a relic of the Cold War. Uh that we we don't need and we can't afford. I mean, America is not the only country that's borrowed too much money. You know, you have a lot of debt problems in Europe. uh and so European government should be looking for ways to cut back on on borrowing and government spending as well. But I think as far as living beyond our means, nobody does it like Americans. And we are at the center of this uh you know uh uh fiat currency uh experiment. The dollar has been uh the reserve and we have been the principal beneficiaries of of this of of this monetary system that I think is about to unravel. And I think that when the dollar collapses and interest rates and consumer prices surge in the United States and we go into a protracted uh economic decline, I think that's actually a big uh win for the rest of the world. I think it's a burden that's that's removed that they no longer have to bear. Uh especially in the emerging markets uh that have been uh doing a disproportionate amount of the heavy lifting. you know, they they produce a lot of the stuff that we can't afford to buy, but we we get to buy it anyway. And so they have to go without the things that they might otherwise get to consume because they allow Americans to to buy the stuff. and a lot of the money that has been loaned to the US to to finance consumption that those savings will now be available to be invested productively outside the United States which I think could ignite an economic boom uh in the countries that now have all that extra money uh to invest.
>> So who would you say are the biggest beneficiaries of all of this? You think Russia, China? They'll just be delighted.
>> Oh, they're they they're going to be the big winners. Ironically, you know, China is already winning uh the trade war with the US. Last year, the Chinese Juan was appreciated maybe 5% against the US dollar. It's up again this year. I think it's headed a lot higher. And even though Chinese exports to the United States were down, I forget 20 30%. Their overall trade surplus went up because China is now trading more with Europe. They're trading more with South America. They're trading with people who can actually afford to buy their stuff. I mean right now or when train China China trades with America, they have to loan us the money to buy their stuff because we can't afford it. It's a giant vendor financing scheme. But America, you know, is the one that benefits. China gets the short end of the stick because they have to expend real resources to produce products that make our lives better. And all we do is create money out of thin air and give it to the Chinese. They can't do anything with that but but blown it back to us and buy our debt and watch it depreciate.
>> Okay. Well, we're going to have to uh leave it there. Time is uh ticking on. Uh Peter Schiff, Peter Schiff of uh uh chief economist and market strategist of Europacific Asset Management. Thank you so much. That was really interesting. Thank you so much for your thoughts uh here on Around the World.