'This is amateur hour': Joseph Stiglitz on Trump tariffs and China

Summary

In a candid interview, Nobel laureate Joseph Stiglitz critiques former President Donald Trump's trade policies with China, highlighting numerous adverse effects on the U.S. and global economy. Stiglitz argues that Trump's tariffs and attacks on U.S. institutions, including science and universities, undermined the country's long-standing economic advantages. He describes the administration's actions as amateurish, prioritizing loyalty over expertise, and warns of repercussions like stagflation and decreased global trust in America.

Highlights

• Trump's tariffs and attacks are likened to shooting America in the foot 🦶🔫.
• The administration's actions led to more chaos than actual economic benefits 💥.
• Provocative strategies described as vintage chaos creating uncertainty 🌪.
• Stiglitz argues the real damage is to U.S. institutions, like science and education 🎓🔬.
• Trump's tariffs believed to create more job losses than gains in the U.S. 🇺🇸⁉️.
• The chaos might lead to stagflation—a perilous mix of recession and inflation 📉📈.
• With Trump's weakening of U.S. soft power, global trust in America declines 🌍⤵️.
• China's economic strategies have outpaced America in several sectors 🏭 vs. 🇺🇸.
• The U.S.'s historical trade policies branded China as unfairly treated, igniting tensions ⚖️🔥.

Key Takeaways

• Joseph Stiglitz blasts Trump's trade policies as harmful to both America and the world economy 🌎.
• Trump's tariffs with China viewed as chaotic and damaging, reminiscent of vintage chaos 🚧.
• Attack on U.S. institutions like science and education could undermine America's future 🌱.
• Trade deficits aren't just about trade—they're macroeconomic issues involving savings and investments 💡.
• America's supply chain heavily relies on China, making tariffs risky for U.S. economy 🔗.
• Europe might strengthen as a democratic ally in response to U.S. attacks on international norms 🇪🇺.
• Possible shifts in global economy dynamics with Europe and China emergent as key players 🏋️‍♂️.
• The U.S. risks losing its soft power and global trust due to perceived internal chaos 🌪.
• America might be seen as a 'banana republic' with powerful arms but uncertain democratic values 🍌.

Overview

Nobel laureate Joseph Stiglitz offers a scathing critique of Donald Trump's trade policies, especially regarding tariffs with China. He argues these measures have essentially backfired, making American exports less competitive and leading to more job destruction than creation. Furthermore, Stiglitz believes the administration's chaotic approach has damaged not only economic prospects but also America's institutional integrity and global standing.

Amidst an intricate web of international trade relations, Stiglitz raises the alarm on the U.S.'s unwelcome precedence in destabilizing these ties. The irony, he notes, lies in Trump's administration critiquing rules they once wrote. The chaotic scramble has potential to lead America towards stagflation—a dangerous duality of recession and inflation. It risks leaving the U.S. weaker on the global stage while empowering competitors like China and possibly Europe.

The broader implications of such policies, according to Stiglitz, extend beyond immediate economic effects to the erosion of American soft power—trust, influence, and global leadership. With Trump's tenure marked by an assault on science, education, and traditional democratic norms, there's a feared drift towards authoritarianism. Stiglitz evokes concern over the future of U.S. electoral processes and the prospect of it becoming an influential 'banana republic' with wavering democratic foundations.

Chapters

• 00:00 - 01:00: Introduction and General Remarks The chapter discusses how Donald Trump's actions are negatively impacting the United States, particularly in terms of its exports and international standing. It highlights that beyond trade wars, the more severe damage comes from attacks on essential American institutions such as science, universities, and other bodies responsible for technological advancements. This is portrayed as a chaotic scenario that undermines the foundations of U.S. innovation and competitive advantage globally.
• 01:00 - 03:00: Chaos and Damage Caused by Trump's Policies The chapter titled "Chaos and Damage Caused by Trump's Policies" features a discussion set in a "stormy" Washington DC, reflecting the unsettled political and economic climate. The narrative aims to unpack a week filled with significant events impacting the markets and the White House. Professor Joseph Stiglitz, a renowned economist, joins the discussion to provide insights into these developments.
• 03:00 - 05:00: The Dangers of Trade War and Global Economics The chapter discusses insights from an economics expert who has been a professor at Columbia University, served as chief economist at the World Bank, and won a Nobel Prize. The focal point is a conversation with Professor Stiglets, particularly concerning the remarks of Bill Aman, a billionaire hedge fund associate of President Trump. Aman expressed panic over the rapid market decline, stemming from trade tensions, particularly surrounding tariffs. The chapter explores the broader implications of these market reactions on global economics.
• 05:00 - 07:00: Comparative Advantage and Manufacturing This chapter highlights the tumultuous nature of market reactions to political announcements, as exemplified by a statement from the White House that temporarily boosted markets. The chapter discusses the volatility and unpredictability of such events, often characterized by the term 'vintage chaos,' a term associated with former President Donald Trump's administration. The text reflects on how these chaotic moments affect both the markets and perceptions of presidential decisions.
• 07:00 - 09:00: Impact on American Institutions and Supply Chains The chapter discusses the disruptions in global supply chains and their implications on American institutions. It highlights the fragility of the international economic system, which for 80 years has relied on stable legal and political frameworks to create efficient supply chains. The narrative indicates that these systems are now at risk, leading to potentially severe consequences not only for the United States but also for the global economy. The text underscores the sudden shift from a world where borders were less significant to a climate where national boundaries are reasserting their importance, thereby affecting international trade and cooperation.
• 09:00 - 11:00: Political Motives and Consequences The chapter explores the lack of comparative advantage and the absence of a reliable rule of law in the political landscape, causing discomfort for businesses due to uncertainty and chaos. It discusses Trump and his administration's perspective on addressing perceived unfairness against America.
• 11:00 - 13:00: America's Soft Power and Rule of Law In this chapter, the focus is on the concept of America's soft power and the rule of law, particularly in the context of international trade. The discussion highlights how the United States, along with Western Europe, established the rules governing global trade practices. The irony is noted in the situation where these same countries now face challenges with these rules, especially with China, in the aftermath of the trade war. The main point centers on ensuring China adheres to these established trade practices, while acknowledging that the criticism against China has some validity, albeit a small one.
• 13:00 - 15:00: Global Perspective and Historical Context This chapter discusses the global economic structure, highlighting that the rules were originally designed to favor American and Western corporations and financial institutions. The speaker points out the irony in current complaints about the system being unfair, noting that any existing unfairness tends to benefit the United States rather than disadvantage it. The issue of trade deficits is brought up, suggesting a misinterpretation or skewed perspective on economic imbalances.
• 15:00 - 17:00: Europe's Role and Potential in Global Politics The chapter discusses Europe's involvement and potential influence in global politics. It highlights the common perception of trade deficits in goods as indicators of unfair trade practices, emphasizing a simplistic viewpoint that assumes a country should always export more than it imports to maintain superiority. The narrative examines the complexity of multilateral trade and challenges the notion that trade deficits solely arise from unethical practices by trading partners.
• 17:00 - 19:00: UK’s Position between EU and US The chapter discusses the macroeconomic issue of a trade deficit, highlighting the relationship between domestic savings, investment, and capital inflow. It is described as a symptom of a situation where a country's total domestic savings are insufficient to cover aggregate domestic investment, leading to a necessity for capital inflow to bridge the gap, resulting in a trade deficit. The mention of Donald Trump suggests a potential political or policy context to this economic explanation.
• 19:00 - 21:00: Consequences of Trump's Trade Policies on China and the US The chapter discusses the consequences of Trump's trade policies, particularly focusing on how these policies aimed to penalize foreign countries for not purchasing American goods. The discussion highlights that the issue is not merely about tariffs, but also the inability or unwillingness of countries such as Cambodia, Laos, or Vietnam to buy expensive American goods. It addresses a fundamental flaw in the expectation that these countries should want or afford these products, emphasizing a shift in modern trade from merely goods to broader issues.
• 21:00 - 23:00: Risks to America's Economic and Political Stability The chapter discusses the composition of the US economy, highlighting that manufacturing comprises less than 10% of the US GDP and employment. In contrast, services form a significant portion, with the United States being a major exporter of services such as health, financial, and tourism. The chapter critiques actions by Donald Trump, implying that his policies might be detrimental to the US economy, especially in the services sector.

'This is amateur hour': Joseph Stiglitz on Trump tariffs and China Transcription

• 00:00 - 00:30 What Donald Trump is doing is shooting the US in the foot. He's doing more than anybody has ever done to actually harm American exports. This is vintage chaos. The most damaging thing for the United States is not the trade war. It's the attack on our science, an attack on our universities, attack on the institutions that gave us really the comparative advantage in technology. It's where we
• 00:30 - 01:00 are. Welcome to another special edition of the forecast from Washington DC. A rather stormy Washington DC as you can tell and the storm kind of reflects the political and economic mood at the moment. here to unpeel the onion of this is extraordinary week of events on the markets and in the White House behind me. I'm very happy to say I'm joined by Professor Joseph Stiglets, one of the most eminent economists in this country.
• 01:00 - 01:30 Amongst other things, he was economics professor at Columbia University, chief economist at the World Bank and of course a Nobel laureate. Welcome, Professor Stiglets. Nice to be here. So, I want to start off with a quote that caught my eye this morning from Bill Aman, one of the billionaire hedge fund buddies of President Trump, who was panicking uh about seven days ago about the markets going down too quickly for his liking. And then when there was a reprieve to most of the tariffs of 90
• 01:30 - 02:00 days announced by the White House and the markets shot up, this guy Mr. Aman said, "Vintage out of the deal. This is a brilliant president. Do you agree with him? No. And you have to remember that market then went down again. Uh this is vintage chaos uh that we've seen uh uh uh a really trademark of uh Donald Trump. And how dangerous is this chaos which seems to be soldiering on not just
• 02:00 - 02:30 for the US economy but the world economy? Very dangerous. You know, we've had 80 years of trying to create a rule of law, a world in which borders didn't matter very much, where we created uh complex and long supply chains and uh all that is being uh thrown in the dust bin. Uh it means that countries can't
• 02:30 - 03:00 take advantage of comparative advantage as they did before. they can't rely on the rule of law as they did before. Uh and uh uh business really doesn't like the kind of uncertainty, chaos, and uh the absence of a rule of law. Of course, Trump and his friends in the White House would say this is about red addressing the unfairness uh against America on
• 03:00 - 03:30 trade. This is about making sure that China eventually after this trade war finishes behaves correctly in terms of its trade practices. Do they have a point? A very small point. Let me make it clear. The United States and to some extent Western Europe wrote the rules of the game. And so it's ironic that we are now complaining that the rules of the game that we wrote are working and we
• 03:30 - 04:00 wrote them. Let me make it clear for the interests of American corporations and other western corporations, American financial institutions. We wrote them for our advantage and now we're complaining the system is unfair. You know what I hear is yes there may be some unfairness but it's tilted towards the United States not away from the United States. The problem here is that he is interpreting trade deficits and
• 04:00 - 04:30 particularly deficits in goods as a symptom of unfair trade. I mean, and the logic is a very simplistic logic that we're better than any other country. Therefore, we ought to be exporting more than we're importing. And therefore, if we're importing more, it must mean that somebody's uh doing something naughty. Uh the fact of the matter is when you have a a trade deficit uh at a multilateral level, it's
• 04:30 - 05:00 a symptom of a macroeconomic problem. In particular, it's a symptom that the country's aggregate domestic savings is less than its domestic aggregate investment and there's going to be a capital inflow to make up for that difference and corresponding to that capital inflow is a trade deficit. It's that simple. Yeah. So basically what Donald Trump was
• 05:00 - 05:30 trying to do was punish foreign countries for not buying American goods. So this isn't just about tariffs. This is about the inability or the unwillingness or the unaffordability of places like Cambodia or Laos or Vietnam to buy expensive American stuff that they may not want. Exactly. And it's ex there's even a deeper flaw that uh in a modern world we've moved from just trade and goods to trade in goods and
• 05:30 - 06:00 services. you know uh uh manufacturing is only less than 10% of the US economy uh in GDP and employment services are multiple uh of of uh goods and United States is a major exporter of services health services financial services tourism and what Donald Trump is doing is shooting the US in the foot if you
• 06:00 - 06:30 look at what he's done in terms of the attack on our universities, one of our most important institutions. Uh it makes it uh more difficult for us to export our uh educational services. If you look at what he's doing to tourists, including from the UK and from other countries, wanting to come to the United States, there's uh the threat that they will be put in detention, shipped off to some place and uh without uh the kinds
• 06:30 - 07:00 of normal safeguards that you expect in a democratic country. So that's discouraging uh tourism. So he's doing more than anybody has ever done to actually harm American exports. So the tariffs that he's imposed, I mean the ones against China seem to be going up every day. I think the last time I looked there was 140% uh American tariffs versus 125 from China. Then of course all the other tariffs that may or may not come back in 90 days time. I
• 07:00 - 07:30 mean the last time we had tariffs like that was in 1903 uh more than a century ago. Is that the mindset of Donald Trump do you think that you know early 20th century is that where he's gone back to very much so when the US was a dominant power uh he want you know this make America great again is a a a going back to a world that no longer exists a world where manufacturing dominated where the US dominated and we could basically uh get
• 07:30 - 08:00 away with uh anything uh United states now is less than 20% of global GDP and uh China in terms of purchasing power parody is a larger economy than the United States and there's another asymmetry that Donald Trump hasn't fully grasped that uh when we're imposing these high
• 08:00 - 08:30 tariffs on uh China it creates an aggregate demand problem for China and they've been worried about that and they anticipated that and correcting an aggregate demand problem is not as difficult as correcting an aggregate supply problem. And what the tariffs against China are doing is creating an aggregate supply problem because our
• 08:30 - 09:00 supply is so dependent on complex supply chains in which China plays a central role. You know we saw that after the pandemic uh and when Russia invaded Ukraine. Remember uh in those days there were these interruptions to supply and uh we had enormous inflation. and we couldn't get some critical goods. Uh that's what Donald Trump is doing. He's
• 09:00 - 09:30 creating unnecessarily those supply side interruptions that we experienced just a few years ago. The other thing of course he wants to do and two things really. He wants to increase the revenue, the amount of money the American government makes uh from these tariffs and he wants to bring jobs back to the rust belt to all those manufacturing towns that have been desolate for decades now. Are those not two contradictory things? Because of course the less people sell to to
• 09:30 - 10:00 America, the less revenue there'll be from tariffs and you know the jobs don't necessarily come back as if no one's going to buy the stuff that they produce. It's actually worse that you just described because uh first if we get manufacturing back uh it's going to be modern manufacturing. You know I just was saw a factory in China where they're producing uh a thousand cars a day with 2,000 workers. Most of the production was done by robots. uh modern
• 10:00 - 10:30 manufacturing is very advanced and China now has a comparative advantage in engineering uh which is at the core of modern manufacturing. So uh because we have not invested in railroads, we've not invested in logistics. Uh we have a comparative disadvantage in some of the core ingredients for uh manufacturing. Secondly, it takes a long time to
• 10:30 - 11:00 produce uh uh many of the manufact to to create the factories and given the chaos that he's uh uh created uh firms are going to be worried about moving into the United States. Thirdly, most importantly, he's raised uh the p tariffs on steel, aluminum, uh key ingredients into the production of other
• 11:00 - 11:30 goods. And by increasing the cost of production, he makes American exports less competitive. So in fact while he may create a few jobs in say steel or aluminum he destroys many more jobs in the sectors that in the fir areas where we use steel and aluminum. So he again is engaged in job destruction. So uh
• 11:30 - 12:00 when economists look at the whole portfolio of what he has done, it's much more job destruction than job creation. I wonder because it makes so little economic sense what he's been doing. whether this is just really political and what it's really about is trying to limit the expansion of China, put China back in its box because as you've just said, you know, when it comes to infrastructure, when it comes to innovation, when it comes to production,
• 12:00 - 12:30 and maybe even, you know, services down the road, China, a nominally communist state, is beating America at the capitalist game. That's right. you know, uh, in some areas we we do have enormous strengths and one of our strengths was our universities, uh, our, uh, research establishment and he in the last three months has done more to damage that than any competition with China. So over
• 12:30 - 13:00 the short, medium, and long term, he's really undermining the uh strength, the key strength of the United States. It's like uh he's been attacking the United States far more than uh China has been doing uh any damage. uh there's another element uh that one can't underestimate and that is uh the
• 13:00 - 13:30 amateuress amateuress of uh his team. You know, I've talked to uh people who've been enga countries engaged in negotiations. Uh it's not like the normal negotiation where uh one side comes in, both sides come in with a sound understanding of economics, a strong view of what they want. uh and uh you have experienced uh and
• 13:30 - 14:00 well-informed uh negotiators. Uh this is amateur hour and so you have some people who may be bright, may have been really good on Wall Street, but that doesn't mean that they have any fundamental knowledge of the deep intricacies of economic policy. And so you have people who've been working on these issues for decades and trying to interact with somebody who's just begun to think about
• 14:00 - 14:30 these issues. They find it frustrating. But also, I wonder if it's amateur hour because what's far more important for Donald Trump and the people around the cabinet table is loyalty to the boss than any kind of expertise, which might involve them contradicting him. That's right. And there's an element of what is going on of a cultural revolution. You know, we've been talking about China and and China went through a uh a devastating cultural revolution. And it
• 14:30 - 15:00 was that experience that led to them to their reform and openness uh strategy which over 45 years has had led to the highest rates of growth and the largest numbers of people moved out of poverty in the history of mankind. Uh we didn't learn the lessons of China's cultural revolution. And what I see going on right now on the attacks on the
• 15:00 - 15:30 universities, the attacks on expertise are have a a a kind of close relationship uh to what happened. Uh it's sort of like the establishment failed me. That's what uh failed us. Uh and uh these are the elites that look down on us. And it's not true. They were trying to create a better world for everybody. But there's that grievance and uh so uh uh they're going to shoot
• 15:30 - 16:00 the country in the foot by uh destroying uh the uh expertise and in this trade war between China and the US which seems to be getting worse every day. What are the consequences of that going to be for China, for us and also for the world economy? Well, as a we said for for 40 45 years we've tried to create this global economy based on complex supply
• 16:00 - 16:30 chains, comparative advantage and uh the whole the the standards of living on average around the world uh have increased and numbers of people moved out of poverty enormous. the closing of the gap between China and the United States and the fact that China now in terms of the standard way of measuring uh these the purchasing power parody China is now larger than the United
• 16:30 - 17:00 States still per capita income is much lower but it has four or five times the number of people so that it is a larger economy uh the United States resents that and professor Graham Allison uh at uh Harvard has talked about this as the fusidities trap that the country that was number one doesn't like the number two country coming up and uh uh uh threatening their dominant uh position. Well, um China has
• 17:00 - 17:30 been thinking about this issue for a long time. after the first Trump administration they they began a process didn't go fast enough didn't go far enough but uh are now and have anticipated what the United States is doing so they are relatively well prepared you know they've had some
• 17:30 - 18:00 adverse event spent nobody could have anticipated CO they didn't manage CO well uh but uh where they are today uh They are in a deeply uh optimistic uh position. Uh deepseek uh the banks in robotization uh their integration to the global economy uh give them a set a sense of confidence. Um so uh I think uh with
• 18:00 - 18:30 difficulty they're going to be able to manage through this. Uh on the other hand as I said before um the Donald Trump has not fully anticipated the extent to which our supply chain is so dependent on China and just breaking it like that. Yeah, I'm afraid we'll have some consequences for the United States, including inflation and the Fed is going to respond to the inflation by raising interest rates.
• 18:30 - 19:00 We're good chance of having the worst of all possible works works stagflation. Uh which means that we will have a a recession and inflation. Uh the critical question he wants the United States uh to be great again. Will he restore manufacturing to the United States? uh will he restore
• 19:00 - 19:30 America's dominance uh in this area? Uh there will be some movement of some firms back to the United States that will occur. But overall, because as I say, we're a service sector, we're a knowledgebased economy, and I said that well before Donald Trump came on the scene, uh, in the key areas that are important for a 21st century
• 19:30 - 20:00 economy, we'll be worse off. And uh uh so I think that the adverse consequences of this chaos for the United States are going to be quite significant. Now the really interesting question I think is Europe um Europe uh finds it difficult uh to work together. Uh the attack by the US
• 20:00 - 20:30 against Europe has been uh uniting uh a lot of discussion about the creation of a European defense force for a long time and there seems to be a significant movement in that direction. uh if Europe gets united uh responds strongly to the war in Ukraine, creates a European defense force, scraps some of the uh constraints
• 20:30 - 21:00 that they've imposed on their fiscal policy, uh and reassesses uh its trade relationships with China and uh the rest of the world. I think Europe can navigate its way through this very difficult period and emerge actually stronger uh uh rather than being a sort of a dependent on the United States, there will be a uh more united uh Europe
• 21:00 - 21:30 as a very important and I would say the critical uh uh country in the world uh country or region uh supporting democracy and human rights. So that's my hope. Uh a lot rest on what Europe does. Where does this leave uh Britain, the piggy caught in the middle, if you like, between uh the European Union and the United States, which which with which it hopes it still has some
• 21:30 - 22:00 kind of special relationship. I think it's important for the UK to cast uh its plot with human rights and democracy. And unfortunately uh Trump is moving away from both of those. And so when I say UK has to cast its lot lot with human rights and democracy that means it has to move back towards Europe and that doesn't mean it
• 22:00 - 22:30 has to rejoin the EU but it does mean it has to coordinate and be an active part of the European defense force cooperate uh with industrial policy uh climate change uh uh creating uh a kind of new multilateralism which unfortunately uh for a while may not the US won't be at the center uh the EU will the center uh
• 22:30 - 23:00 and uh the UK can be an important partner of the EU just back to China briefly what are the ways in which China which is the second biggest holder of American debt can retaliate against the United States in this trade Well, I don't think it will actually do anything about quote dumping uh its uh US uh treasury bills. Uh uh it would not be in its own interest to drive down the the
• 23:00 - 23:30 the price of those uh treasury bills. It could do that, but I don't think uh that will happen. China uh has uh many cards in its hands. uh it is the the dominant player in a whole set of uh na minerals and uh other natural resources. While we weren't paying attention, it it developed this dominance in materials that are essential for your
• 23:30 - 24:00 smartphone, for for renewable energy. Uh, you know, it's really quite remarkable that if you thought that there was a a a conflict of that kind, you would have begun to to try to uh make sure you had the natural resources that would make you able to uh have what might be called national economic sovereignty. But the f first Trump administration didn't pay any attention to that. uh it was more
• 24:00 - 24:30 concerned with grievance and and I would say another uh wor trade policy but not with the extreme chaos that we have today. There's one other dimension obviously that it could uh uh undertake. Uh it's no longer dependent in the way that it was 25 years ago on American investment. Uh it has an enormous amount of savings. you don't have that kind of
• 24:30 - 25:00 savings. Uh it has far more engineers than we do. So uh it's uh in many areas uh equal to or surpassed American engineering. So its dependence on American firms has gone down. uh so take one example um that uh might be very salient uh in in EV electric vehicles China's
• 25:00 - 25:30 electric vehicles BYD and a whole set of other companies are now much better much cheaper than Tesla. So, it could tax it could tax the profits of Tesla uh not worry that well uh Tesla might say uh we're not going to invest anymore in in in China. They don't need Tesla's investment. Uh Apple makes a significant fraction of its
• 25:30 - 26:00 profits uh from China and uh it could tax uh Apple more. So, ex this is not what it wants to do. uh it wants to continue an arrangement of of cooperation. It's their leaders have made it very clear they want to cooperate but uh they're not going to cau uh they're not going to uh be subservient and to put it in a broader
• 26:00 - 26:30 historical context which many Americans don't uh take into account you remember uh in the middle of the 19th century uh there were trade wars Uh those trade wars were actually with guns. Uh Europe with the support of the United States invaded China and demanded
• 26:30 - 27:00 demanded that China open up its doors to opium to the sale of opium. They were called the opium wars and it was a disaster for China. But we insisted this was what fair trade, free trade was about. China had to open its doors to opium. It's ironic that now we're talking about phenot. But uh that that history which led to the what are called the concessions uh uh and uh Shanghai
• 27:00 - 27:30 and uh uh other cities um uh in China uh where they had to give up territory where Europe powers ruled effectively. that memory is still there. And so uh I do not see any way in which China is going to cowtow to the United States where uh Donald Trump demanding something uh of China is going to get uh
• 27:30 - 28:00 the resolution. It has to be a dialogue based on uh uh equality. And uh you know one of the problems here is they're more informed and they've been better trained United States universities uh their experts actually know more about economics in many cases than than the negotiators that we're sending from the United States. So briefly, would you say
• 28:00 - 28:30 that what Donald Trump has done, what he's decided to do for political and perhaps economic reasons has hastened the ascendancy of China and the decline of America? Yes, it's true. I don't think the damage necessarily in terms of this relative position is permanent. U but it's very very deep. Uh the most damaging thing for the United States is what is is not the
• 28:30 - 29:00 trade war. It's the attack on our science, an attack on our universities, attack on the institutions that gave us really the comparative advantage and technology where we are today. So his attack on those fundamental institutions uh probably is the most damaging thing. But equally damaging is the attack on
• 29:00 - 29:30 the rule of law. You know the the way in which he's trampled on the safeguards uh uh the the uh just ignoring the law. uh and um the last Nobel Prize uh in economics was given for uh uh studies that emphasize something that I and a lot of other people have talked about for a long time.
• 29:30 - 30:00 What has given rise to the wealth of nations to uh the success of countries like the UK, the United States, Western Europe uh is the rule of law, the kind of certainty that that gives for investment and uh uh he's destroyed that. So this sort of went of destroying attacking science and universities, attacking the rule of law
• 30:00 - 30:30 and then attacking the trade framework and the international rule of law uh has really damaged the United States uh I think very seriously and of course one of the things that's really suffered is trust in the United States and trust in the United States is one of the things that has always upheld the dollar, the US dollar as the currency of reserve. I mean, you've effectively had a golden credit card for decades. Is there a
• 30:30 - 31:00 danger that that golden credit card will now be demoted to silver or heaven for even bronze? Uh, you're absolutely right. And let me say emphasize something that that uh uh many of us again have talked about for several decades. The importance of soft power. It was US soft power that was really much more important than our hard power. People respected us uh because we were a carry country, a successful country. Uh
• 31:00 - 31:30 people looked us at us and said we want to be like that. Uh now when people look at the US and say no we don't want to be like that. Uh look what he's doing uh to the universities. Look what he's doing to the uh rule of law. Look at the inequality. Look at the oligarchy, the role of money, the corruption. Uh so uh we are uh losing our soft power. Another example of the shooting ourselves in the
• 31:30 - 32:00 foot. uh when he uh destroyed shut down USA aid overnight, it resulted in thousands of children dying in Africa because they couldn't get the medicines. It again undermined respect for the United States. What kind of country could do that? Uh you know it's an embarrassment.
• 32:00 - 32:30 So uh he has destroyed our soft power. Now to come to the more narrow question of the dollar as a reserve currency. China already anticipated uh this problem. Uh it used to hold two two trillion or more dollars in its reserves. Uh the latest numbers that I've heard reported are it's down to 700
• 32:30 - 33:00 billion. It's diversified. Uh gold, euro, uh uh Japanese yen. Uh so uh this march away from the dollar as a reserve currency is already uh way. Um you know uh Trump wants to have it both ways. It wants to uh have the dollar as a reserve currency but also not have the one
• 33:00 - 33:30 critical disadvantage of the reserve currency. Uh and that advantage is that if you are a reserve currency, people will be accumulating dollars. if they're accumulating dollars that is equivalent to a capital inflow and a capital inflow is equivalent to a trade deficit. He doesn't like the trade deficit but you
• 33:30 - 34:00 cannot be a reserve currency without having a trade deficit. The trade deficit normally gives rise to deficiency of aggregate demand. That deficiency of aggregate demand requires uh fiscal stimulus. That fiscal stimulus means a fiscal deficit. Uh and uh the hawks, the fiscal hawks in the Republican party don't like that. The UK
• 34:00 - 34:30 understood this uh under Kanes and uh some people say it was uh Kane's insight to say let's not be a reserve currency uh let's get rid of this hot potato and uh that had undermined the strength of uh UK um Triffin talked uh a great professor uh in the last century talked about uh what was called the Kriffin paradox that
• 34:30 - 35:00 the reserve currency create to maintain that reserve currency you have to get more and more uh uh debt deficits accumulating over time and that of course as that debt increases the confidence in the reserve currency decreases and so he said you know there's there's a a kind of tension here um now the way frontline wants to resolve this is uh to break the laws of
• 35:00 - 35:30 arithmetic and just destroy economics. uh the particular proposal that he has uh uh has been I don't know if you've heard about the Marlego accord uh and one feature of that is that countries around the world would uh accept trade in their T bills for century bonds but uh uh which did not yield any uh
• 35:30 - 36:00 interest uh and officials and other governments that I talked about and say what do you think about this? They say, "Well, that's equivalent to a default." And so, uh, what some people in the Trump administration are talking about is a default on the dollar. If that discussion continues, uh, that of course will undermine the US as a reserve currency. Finally, Professor Stiglets, I mean, Scott Bessent, the Treasury Secretary
• 36:00 - 36:30 said the other day, "The next four years of this administration are going to be about Main Street and not about Wall Street," a kind of populist message from a rather unlikely man to be honest. If what's happening at the moment means pain on Main Street, inflation, job losses, do you think that American society can sustain that or will there be a mass kind of electoral rebellion against Donald Trump and his people? I think there will be an electoral
• 36:30 - 37:00 rebellion. Uh what many Americans are now worried about is will we have free elections in 2026? You really think that's a danger that you won't have free elections? Well, remember what happened in 2020? Donald Trump tried to overturn a free and fair election where Joe Biden won by 7 million votes. He tried to overturn that.
• 37:00 - 37:30 Now, one can't help but ask the question, if you accumulate a lot of power, if you show that you're willing to trample the rule of law, is it not conceivable that you would use that power and your insensitivity to the rule of law to maintain your power? And it's not that difficult because all you have to do is intervene in a limited number
• 37:30 - 38:00 of elections because we have red states, we have blue states, and then we have purple states. And so if you intervene in enough of the purple states, you can ensure that you uh maintain power. So because we are a divided country, it's not like he has to shut down the whole electoral process. All he has to do is intervene in a relatively few uh uh stakes congressional districts and
• 38:00 - 38:30 uh we will not have free and fair elections. That is the worry. Is America becoming the most powerful banana republic the world has ever seen? I think that's the worry. And it's a banana republic in so many ways. When we talk about banana republics, we often talk about leaders who uh don't have expertise uh who govern on whims with author authoritarian figures uh who uh
• 38:30 - 39:00 may have flawed views, grievances uh and uh it's their whims and their misconceptions, obsessions which uh dictate uh economic uh and other social policies. And uh we've never had a banana republic with so much military uh power. And uh that is what is so scary.
• 39:00 - 39:30 Professor Joseph Stiglets, thank you very much indeed for joining us on this special edition of the forecast from Washington DC. It's been a pleasure.