Transcription
But I think these kinds of actions stay long in people's minds. The US cannot be trusted. Pakistan has a has a tariff rate of 19%, India has 50. Where is the friendship between Modi and uh and Trump?
So before I come to you, I I I have to push you a little bit on this because you're painting a world of, you know, two behemoths that are kind of illiberal in their own way and then the sort of rest of the world that's liberal and we know that that's not how the rest of the world is. We know that we have populism. We have anti-immigrant movements. Some of them are gaining traction in certain parts of the world. Some of them aren't. Being opposed to trade is presumably part of that agenda. Um and and then I guess the other question is, you know, how much does it amount to really if the United States is not really in the game? If China still isn't really in the game, then if Africa gets together, if Europe is, you know, working with Merkaser, like what does it really amount to in real terms? Um, how meaningful are those trade agreements?
So, first I you're right that immigration seems to be a common concern of populists in Europe and uh and elsewhere. Uh, I'm not sure trade is Europe, you know, Europe, there's been more of a consensus towards trade. The whole European project, the whole European Union is really based around opening, integrating with each other. They put a high value on that and they're very much committed to multilateralism. It'll it'll be interesting to see what strains that comes under. Uh uh Germany, of course, you know, has been very reliant on the China market. It's now finding that it's getting squeezed out of the China market. There's much more openness in Europe. We go back to electric vehicles to having these really, you know, uh terrific Chinese companies. They produce excellent electric vehicles, very welldesigned, relatively inexpensive um to come and invest in Germany. What happens when Volkswagen, BMW, Renault are done and they're replaced by BYD and other Chinese companies? Either officially replaced or they just buy, you know, BYD ends up buying Volkswagen. I think the political ramifications in a country like Germany are pretty significant and you might see this commitment to free trade which in in Germany as well as Scandinavia and other parts of Europe has cut across management as well as labor unions uh which is a different dynamic than what we have here. I think you might see some fraying at that point.
An opportunity for a certain kind of leadership.
Yes.
Um Ragu tell us about India. you know India was hoping the bet for Democrats for Republicans for Indian leaders was that you know obviously trade between the US and India hasn't been perfect but certainly the relationship was charged and moving forward seemingly singularly until recently um how does India sit positioned you know multi-aligned non-aligned stumbling to grow trying to grow where does India sit in all of this?
Well, I think India was getting closer to the United States over the last, you know, 20 years and uh it's very disappointing. Uh I'm not talking about leadership. I'm talking about people who you know get hit with this. I mean to rub salt in the wound uh at the same time Pakistan has a has a tariff rate of 19%, India has 50. uh where is the friendship between Modi and uh and Trump that was extolled and and that it's a slap in the face for Modi because uh the Indian opposition is asking him where's your friendship uh what were you talking about was it all all I think it's a it's one of those things where I think they'll figure out uh an agreement it can't be that you're the most tariff country in the world more than China and you know you talk about uh you know military friendship and uh and and alignments and and joint maneuvers and so on. Uh so I think they have to come to an accommodation but I think these kinds of actions stay long in people's minds. The US cannot be trusted. I mean the earlier it took a long time in in the early 1970s when uh Nixon and Kissinger uh tilted the US towards Pakistan in the Indo Park war in 1971. They sent the seventh fleet to stop the war uh to help Pakistan. Uh Indians were very miffed at that and the Soviet Union helped India. That put India in the Soviet camp for 25 years. It took a long time to get India out of that camp and to start working with the United States again to the extent that the quad uh uh relationship uh in uh and the joint military exercises and all that happen but this has the effect of basically disappointing India. Now India doesn't have a lot of other places to go. um shares a border with China, has fought uh one serious border war and a bunch of skirmishes with China. Uh India is suspicious of China. Uh it's also very worried about Chinese goods coming and swamping India. It's happy for Chinese investment but it's wants to be a little careful about becoming dependent on on China. um India's good friends with Japan, Australia that you know parts of the Quad can can sort of be uh be relied upon but it it it wants to build a relationship with the United States and very disappointed that it it became transactional.
Can you say just a word about what the impact of the tariffs on India have been domestically within India? Have they has that impact been felt yet or are we waiting for it?
So? Uh it is I it it is felt across different industries in different ways. So Apple assemble cell phones in India. The value added is relatively small and they may have gotten a waiver. By the way, a lot of firms get waiverss in these if uh if they can persuade the administration it is to the administration's interest to allow the imports. So uh Apple not hugely affected. Uh an Indian textile manufacturer selling goods into the Christmas season is terrible. I have a friend whose work has just stopped because she can't sell her dresses to US stores with a 50% tariff. It doesn't make economic sense for them to consume buy. Now those relationships once disrupted are hard to build back because somebody else has taken up the slack. uh you know in in Bangladesh or or Vietnam and so it's something that will have costs and it's typically small and medium enterprises uh that will bear that cost and the longer this lasts the more it becomes a permanent rupture.
Mike the domestic costs in here in the United States of the tariffs how would you assess those now?
Look I I think um uh so I think if we think about why Trump loves tariffs and he's loved them for a long time. This is an area of deep deeply held views. Goes back to 1987 when he gave an interview to Larry King about about tariffs. Uh as a source of leverage, they've been very effective. They brought other countries to the table to talk about fentinel, about migration, about other issues. As a source of revenue, um uh quite effective. We'll end up collecting something around $300 billion of tariff revenue, which is significantly more than we normally uh collect. Although today is, as many of you probably know, there was a very interesting case in front of the Supreme Court to see whether some part of the tariff regime um uh is illegal or not. And we'll see. It'll take court probably months to come up with a uh an opinion, but uh but it'll be very very interesting to see what happens there. Um, you know, I think we've been surprised that we haven't seen more effect yet. inflation has ticked up um you know a little bit each month but it hasn't been as significant as people thought so far and there's lots of explanations or proposed explanations for that. Um, you know the tariffs Trump is wrong. President Trump is wrong when he says foreigners pay it all but foreigners have paid some of it. If you're Walmart again you have a lot of leverage over your suppliers. You can get your suppliers to eat some portion of the of the of the price increase. Importers pay some of it. Um, and we should see that in the earnings of US companies that have to import their product. Haven't seen a lot of that yet. Some I mean GM took a charge I believe. Um, others have taken the charge. Uh, and then consumers pay for it. And I think the the we just put out a a chart I think yesterday that shows uh over the last 6 months what percentage is being paid by each and the percentage being paid by uh consumers has gone from 20% to about 60%. So consumers ultimately will end up paying for it one way one way or or the other. And whether it it adds to inflation or it's a step change in prices that then sort of flattens out. Um, you know I think economists have have have varying varying views on it. Um, it's also likely to lead to productivity decreases. You know we had we have data you know 2018 the Trump administration imposed 25% tariffs on steel and aluminum. Two years later, uh, we had 1,000 more steel workers and 75,000 fewer workers in industries that use steel, in manufacturing industries that use steel. And productivity of those steel mills was 30% less than it was before. So, you know, you you can't you can't overrule the law of economics through executive orders, right? I mean, there ultimately it sort of comes through. it may take more time and even on tariffs, you know, there is a view that may take a couple more quarters for us to see the inflationary effects effects on growth maybe take even longer. Um u but it's hard to deny that if you're raising that this system we're going to be living with for a while for maybe for the for the foreseeable future uh is going to be more expensive, you know, less efficient than the system that we had before. And those costs have to show up someplace.
[Applause]
[Music]