From the Free Press, this is Honestly, and I'm Barry Weiss. If your head has been spinning since Donald Trump walked into the Rose Garden last Wednesday and declared Liberation Day... My fellow Americans, this is... liberation day waiting for a long time april 2nd 2025 will forever be remembered as the day American industry was reborn the day America's destiny was reclaimed and the day that we began to make America wealthy again. Introducing historic tariffs.
And not just because it was nauseating watching the stock market or your 401k whipsaw down and up and down and now it appears up again. But nauseating because it was unclear what exactly we were looking at. As my guest today, economic historian and free press columnist Neil Ferguson, wrote last week in our pages, depending on your worldview, you probably think Trump's tariff blitz is one of two things.
Either a committed protectionist is trying to make America great again by killing globalism, ending forever wars, and bringing manufacturing jobs back to the United States. Alternatively, an unhinged demagogue in the White House is crashing both the world economy and the liberal international order, mainly to the advantage of authoritarian regimes. But here's what actually is happening, writes Neil.
The American empire that came into existence after the failed protectionism and the isolationism of the 1930s. is being broken up after 80 years. Despite Donald Trump's imperial impulses, like wanting to annex Greenland or calling for Canada to become the 51st state, He is engaged right now in a kind of wild decolonization project. Whether or not you agree with Neil's conclusion that the American empire is now being unraveled, I don't think there's a question that the real story here
It's not about the particular tariff rate that we're going to slap on Cambodia or Taiwan. But it's fundamentally about reordering America's place in the world. Over the past decade, there's been an intense debate over what role America should play on the world stage in geopolitics, in trade, and in technology. And whatever the ultimate tariff rates wind up being, I think what's clear is that Trump and the Trump White House
has made a very clear set of decisions on that question. And that's the case whether or not most Americans understand it yet or not. So what are the consequences when the U.S. acts unilaterally to upend the global trading system? What is the outcome when the U.S. weaponizes its own economic power? What happens when the world order as we know it is upended? Will the moves that the Trump administration has made so far embolden our adversaries around the world or weaken them?
Will this ultimately make us poorer or better off? Has the American empire reached its end? And is the Trump administration hastening its end? Or was the end already here and they're merely exposing it? In other words, was this inevitable or self-inflicted?
One note, as Neil and I were recording this conversation, Trump announced a 90-day pause on the reciprocal tariffs. As he texted me, well, Trump blinked while we were talking. In other words, Trump either backed down Or this was the crazy art of the deal in action. Notably, there's no pause on the tariff on China. In fact, it went up. When we started this conversation, it was at 104%.
Now, as I'm recording this, it's at 125%. And by the time this episode drops tomorrow morning, who knows where it will be. But the point remains. And the face-off. between America and China has only heated up. What does that mean? Is the 21st century destined to be ours? Or is it destined to be China? All of these questions and more with free press columnist, the brilliant Neil Ferguson. This is a conversation you won't want to miss. Stay with us.
Did you know that two-thirds of the products that Walmart buys are made, grown, or assembled in America? It's part of Walmart's $350 billion investment in helping small and medium-sized businesses across the country grow more, hire more, and strengthen local economy. Learn more about Walmart's commitment to supporting American jobs and U.S. manufacturing at walmart.com slash America at work. Neil Ferguson, welcome to Honestly. It is great to be back with you, Barry.
Okay, well, it's been quite a week. It's felt like longer than a week. And I want to just... set the table for listeners who... broadly know that there's something called a trade war going on, but... And they've maybe seen a dip or maybe more than a dip in their 401k. They see the headlines are bad, but they haven't been following all of the developments closely. I want to just set the table for that person.
So last Wednesday in the Rose Garden, Trump set a baseline 10% tariff on all imports from all foreign countries. And then a few days later, even more tariffs, much, much, much bigger, took hold. And I think the most notable of these, and we'll get deeper into China later in this conversation, is this 104% tariff on China. Neil, if you could, and I know it's asking a lot, give us the sort of big picture story of what we have seen over the past.
Donald Trump has a few cherished principles. One of them is that trade deficits are bad. And that countries running trade surpluses with the United States, exporting more to us than we export to them, are kind of ripping us off. This has no standing in economics. Most economists, with perhaps one exception we'll come to in a minute, regard this as loony tunes economics, but it is a dearly cherished principle of the present.
He did a little bit of raising tariffs in his first administration, but by comparison with what just happened, it was fairly minor. What just happened was that Trump turned the clock of economic history back. to roughly 1909, which was the last time the average tariff rate on imports into the United States was this high. To just give you a sense, the United States was a protectionist country throughout the 19th century, into the 20th century, and right up until the Great Depression.
And then Americans decided that maybe raising tariffs was not the way to go. Let me just give you a little bit of background on tariffs. They do three kind of different things. One is that they make imports more expensive than they would otherwise be and therefore encourage Americans to make stuff themselves. This was one of the original rationales for tariffs in the 19th century. Secondly, they are a source of revenue. The federal government relied heavily on tariffs.
for its early history before it had an income tax in the early 20th century. And then the third thing that you can do with tariffs is you can use them to negotiate, a little bit like economic sanctions. You can kind of say, we'll hit you with this unless you do that. So Trump sees all of these as legitimate and mutually compatible rationales for imposing tariffs.
Now that he has a second term, he's unconstrained by skeptical advisors surrounded by loyalists, including the one economist in the world who believes this is a good idea, namely Peter Navarro. He has been, more or less since Inauguration Day, moving in this direction. He raised tariffs already before so-called Liberation Day last Wednesday on Canada, Mexico, and he kind of took them back off. He raised them on China twice already. Chinese tariffs have been going up in steps since 2018.
And the culmination was last night. when the cumulative tariff on Chinese imports to the United States past, I think, the 104% mark, which is effectively a prohibition on US imports. from China. Last thing I'll say, Barry, before your eyes glaze over and... They're not. In four minutes, you've explained this.
more cogently than like the thousands of words I had read this week. So please, go on. So the last thing I'll say is that if you think of it in terms of revenue, what just happened wasn't just that we turned the economic clock back. of trade policy to 1909. We also slapped a huge tax on Americans if one assumes that American consumers will absorb a pretty big part of the increase in import cost. One of the biggest tax hikes of our lifetime has just been imposed on Americans.
And when you add all of these things together, the shock to the international trade system and the implied shock to American consumers, You can see why the stock market sold off, which was the first sign of trouble. Most investors are looking at companies and saying, is this good for NVIDIA? Is this good for Apple? And the answer is no, because most major American corporations import a ton of stuff. And if you put a huge tax on import,
That is going to hit the bottom line of the overwhelming majority of companies in the S&P 500. You mentioned in there. goals of tariff regimes. And I think right now what we're seeing is a lot of debate about what Trump's goal here actually is. Is it to get Americans to make cheap t-shirts here at home so we don't buy them from China via H&M or The Gap?
Is it to re-industrialize America in the eventuality of a potential war with China? Again, which we'll get into. Is it pure retribution and to sort of— level the playing field. And I think one thing that's so confusing is the White House itself doesn't seem to know what the goal is. You have the Treasury Secretary, Scott Besant, or Besant, I never know how to pronounce it,
saying that tariffs, don't worry guys, they're a negotiating tactic, a la NAFTA or all of these other things. It's just a way of bringing people to the table. But then you have White House advisor Peter Navarro, who you just mentioned, saying the exact opposite, saying, no, this is what we mean. This is an ideological move.
Tariffs are good and there's no negotiation. And then other people are saying, you guys are missing the big picture here. Trump's playing four-dimensional chess. It's actually about decoupling from China. Maybe it's all of the above. Which is it? Because I think that there's a lot of cope involved in some of these answers. Yeah, that's a good way to put it. COPE is all around. Wherever one looks, there is COPE, even within the administration and in parts of...
Wall Street and Silicon Valley. But the president is the key figure here. And it's the president's vision that is being realized. We know this because Ever since the administration was formed, people within it knew that they had to come up with some kind of tariff plan. And particularly after Trump called for reciprocal tariffs, i.e. he asked the administration, go work out what they're really charging. Not just their tariffs, but their non-tariff barriers to American good.
Include even value-added tax that the Europeans charge. Include everything that could possibly be a barrier to American exports. Work out what that is costing us and then calculate what we should. charge them with a reciprocal tariff. And they all sat around with their slide rules, calculators, artificial intelligence, mostly artificial intelligence, to try and come up with a way of doing this. It was impossibly difficult and complicated, obviously.
And so in the end, they went with the AI suggestion, hey, just figure out what the goods trade deficit is. And yeah, base it on that. And so any country that was running a good surplus with the United States. got hit with a tariff roughly proportional to that with some carve-outs. Like Canada and Mexico were not hit with the same tariff. A lot of countries just got the 10% that everybody got.
But if you were a little old Vietnam and you had been just running a ton of exports to the United States, then you were suddenly looking at a massive in your tariffs. So it's Trump's vision executed with the aid of artificial intelligence. I think this may be the first major policy based on the answers from Groff. And then you have the Coke. Wait, we should add, which they're denying. Which of course they're denying, but it's plain that that's what happened.
It's also interesting that they miscalculated, even with the help of AI, they actually came up with an error. But that's a whole subplot. I'll spare you. Though I do think that there is a clown show element here that we should not.
I wish I had been a fly on the wall in the final meeting before Trump went out into the Rose Garden to announce and indeed unveil the list of the new tariffs, because Anybody who really understands economics must have realized that the doomsday machine was about to be unveiled by the president. has been fairly consistent from Scott Besson, the Treasury Secretary. Namely, this is a negotiation. Trump is Trump, so he always opens with an extravagant bid.
And everybody's going to come to the table. In fact, they already did. They're lining up 70 countries to negotiate, to reduce their tariff barriers, to capitulate to Trump. And it's true that quite a lot of countries have rushed to do that. Cambodia, to name, I think, the first off the block. But China is the most important player in this game. And China is not coming to the table. China has retaliated at each step.
to Trump's new tariffs and used implacable language along the lines of, you know, we will go to war. If you want a trade war, you can have a trade war. So the problem with the COPE is that the Chinese show very little sign of coming to the table for a deal with Trump, which means that. All kinds of perverse outcomes follow. First, it's very, very hard to negotiate 70 bilateral trade agreements at once.
I don't think the federal government is likely to be able to do that. Secondly, as you do those deals and reduce tariffs on certain countries, but not below 10%, everybody's going to get stuck with that 10%. But as you do it, global supply chains will quickly reconfigure to find the lowest cost way into the US market. And this is important to know because First of all, we ran a test experiment in Trump 1, which was, we did some tarot.
Trump imposed some tariffs, principally on China, and principally on things like steel and aluminum. And we know what happened. What happened was... that everything that was being exported to the United States directly from China was rerouted through countries like Mexico or Vietnam or India, so that it was... still getting from China to the United States, but with a stopover to another country.
What is being attempted now is to stop that, to somehow prevent the Chinese figuring out a reconfigured supply chain that gets them, their manufacturers to us. And that will be very difficult to do because you're going to have to figure out where did this really come from? I know it's coming from Mexico, but if I look closely, is this not actually a Chinese semiconductor I see here?
So you imagine the complexity that rules of origin would generate. The second thing, and this is the most important. is that we're trying to apply a 19th or early 20th century policy instrument, the tariff, to an incredibly complex global trading system. which if you graph it like a network, is a bewilderingly complex. network of interlocking companies, the balance sheets of companies. And your 19th century tariff is like a very blunt instrument.
that is being smashed on top of a super complicated international trading system. That's bound to have unpredictable consequences. I would argue it's already having unpredictable consequences. Okay, there are people who are not Peter Navarro. who are incredibly smart. I think, you know, we know some of these people, and I think on many topics, at least, you'd respect many of these people, who make the following argument.
They basically say, look, Neil, the sort of post-World War II economic order, globalization especially, has had enormous benefits for people like us. coastal elites, even though I hate that phrase. But it has quite obviously, free trade has, the system that has made these goods cheaper and that has allowed for, you know. us to go into a Walmart and get a microwave for however much a microwave costs, $100. It has fundamentally hollowed out.
Middle America, it has hollowed out the working class. And these tariffs... painful as they might be for people on Wall Street, are a necessary corrective. They're a necessary reckoning for wealth inequality in this country, for a system that was inevitably going to lead to a disastrous outcome domestically in this country. Is there anything to that argument, in your view? Well, there's a little bit to that argument, but not enough to justify this policy. And let me try and explain why.
Globalization has been a kind of post-Cold War phenomenon in which the entry into the global market of Chinese labor as well as Chinese savings. had enormous consequences, not just for the US, but for everybody. It greatly lowered the cost of labor. It made a great deal of capital available. And the benefits unquestionably went to two groups. the elite of the United States and the Chinese middle class.
And it is clear that really from the 1990s until around 2016, the median American household saw barely any change in inflation-adjusted disposable income. So that's the part that's right. It's also true to say that the United States couldn't carry on as it had under the Biden-Harris administration. running deficits of 6% of GDP a year, stimulating consumption beyond what Americans, in fact, could afford because that was leading to an accumulation of debt.
that was not sustainable. So the other part of this argument that's true is that we couldn't carry on like we did in the last... four years, there already was a fiscal constraint. And one argument for voting for Trump back on November 5th was, you really need to stop this unsustainable trend. But if you want to fix the problems, the way not to do it is to impose a whole bunch of arbitrary tariffs on every single trading partner based on a random formula plucked from AI.
You could certainly do things to try to bring the United States economy into equilibrium, like reduce the fiscal deficit. like try to encourage saving and avoid running a colossally large current account deficit. But you kind of need other countries to do stuff too. Like you would need the Chinese meaningfully to stimulate their domestic consumption. Because the reason Michael Pettis has made this point for many years, the reason we have imbalances is not just that Americans consume too much.
It's also the case that Chinese people don't consume enough. And so in effect, Chinese living standards are suppressed, which is why Chinese exports are so competitive, which is why the world is flooded with BYD automobiles and Chinese-made solar panels. So you'd love a more balanced world economy. It would be desirable for both Americans and for the Chinese.
It's very hard for one country to bring about that kind of adjustment unilaterally even with well-designed policies. Barry, these are not well-designed policies. They mistake the problem in a couple of ways. We should just focus on the US current account deficit and not just look at goods, but look at services. The United States exports a lot of services to the rest of the world, digital services especially. It is not a world in which only stuff matters.
Secondly, and this is important, that the American working class or the American middle class, whichever class you want to talk about, would have been materially better off in a counterfactual world where the United States had not done globalization. Because the assumption seems to be there's some parallel universe.
in which there was no WTO, no globalization, no trade liberalization. And lo and behold, the living standards of middle Americans are better than they turned out to be. This is highly implausible. Let me tell you why. Every single economy that industrializes from the late 18th century through the 19th century into the 20th century reached a peak at some point along the way, roughly when per capita GDP reached $40,000, after which manufacturing as a share of employment declined.
And the decline is essentially identical for all developed economies as people move out of working in factories. and move in to service sector jobs, which are less physically demanding and require more education. And so that happened everywhere. It wasn't just in the United States. I grew up in Scotland, which industrialized before most countries. And Scotland de-industrialized well before the United States did.
So one has to recognize that the vision that Donald Trump had The idea that you're going to somehow make the United States a major manufacturing economy again, in which there will be lots of jobs in factories. That is the equivalent of turning time's arrow around and having it go backwards. We cannot go back to the 1950s or, for that matter, to the 1910s. not socially and not economically.
There is not a world in which these policies could lead to the reindustrialization of the United States because it is way more expensive to do manufacturing in this country than it is to do it. practically anywhere else apart from in Europe. We do have a lot of cheap energy, but our permitting sucks. Our labor costs are high. Our workforce is not particularly suited to the kind of manufacturing jobs that we're talking about. I mean, one of the hilarious memes to have come out of this week are
I'm sure you've seen them. These AI-produced, generated images of, you know, whether it's famous Silicon Valley founders or just, you know, overweight. Americans sort of like laboring over a sewing machine. And you just look at the image and you're like, this seems implausible, but there's a lot of people. talking about it like it is plausible. No, no. Peter Navarro and Hardlotnik, the Commerce Secretary, have interviews that they've given.
explicitly said that it would be better if Americans were assembling automobiles. like in the good old days, with the tires from Akron, Ohio. So this is an explicit nostalgia trip that we're being invited to go on, where we go back in time and make the kind of things that the United States made. in the 1950s before trade liberalization really got going. But there's a big problem with this, which is that this would make everything way more expensive.
And if things are way more expensive, then the real incomes of working Americans are not going to go up. They are going to go down. I think many Americans looking at this issue are looking it through a pretty simple lens. Prices at Costco and Walmart and the price of a car and everything else, televisions, have decreased a lot over, you know, post-Cold War as a result of WTO and NAFTA and all these free trade agreements.
But what they're asking themselves is, was that a good trade-off for the loss of, I'm from Pittsburgh, great steelworking jobs, union manufacturing jobs? People used to get $70 an hour at a GM job not that long ago. And I think what this whole week of news is forcing people to ask themselves is, was it worth it?
Taking your point. That's the wrong question. But do you understand why people are asking that question? I do. I do. But it's actually the wrong question. Why? Because the real question is, was there an alternative? Would they all have had wonderfully better lives if the United States had put up tariffs in, let us say, 1980, if Ronald Reagan had been Donald Trump? and from 1981 onwards, had raised tariffs decisively.
Reagan only did a small amount of trade war and was mostly against the Japanese. And he didn't really use tariffs. He forced the Japanese into restricting exports. But broadly speaking, Reagan was a trade liberal. If Reagan had been a protectionist, and if the United States had never gone down the global path, are we really to believe that the United States would still have had great industrial jobs?
Well, we know the answer to this because some countries tried this kind of policy. They tried to protect their industries behind tariff barriers. In multiple parts of the world after World War II, not everybody tried the great liberalization. India didn't. Britain put up high tariff barriers around its industry after World War II. And the Brazilians also, and most Latin Americans, were protection.
How'd that turn out? Well, the answer is, and this is not a great surprise to anybody who studies economics, very inefficient industries that were wholly uncompetitive in global markets. Substandard product. and generally rather overpowerful trade unions. So there is a parallel world in which the United States doesn't do Reagan. you know, doesn't do Clinton, doesn't do globalization.
But the idea that it would have been better and we'd all be better off in a protectionist America is fanciful. It doesn't bear any relationship to the realities of economic history because nowhere has that worked. So what is your message, Neil, to someone living in a deindustrialized, hollowed out town in the Rust Belt?
Who looks at the history, economically speaking, of the past 30 years and thinks, this didn't work for me. And I need something to work for me. What is the message to those people? If the message is not, manufacturing is coming back. And you're saying that's a nostalgia trip. What is the message? Well, it's the same message you would have given people in agriculture who were making similar lamentations in the 1920s.
when American agriculture started to encounter very severe competition. And the message is, I'm really sorry economic history hasn't been on your side. But you're still getting a better deal than the people who died in the trenches in World War I. or who were mown down in the battlefields of Europe in World War II. Economic history is kinder than military and geopolitical history can be. You cannot turn the economic historical clock back.
It's as realistic to imagine America being an industrial superpower again as to imagine that Britain could rebuild the British Empire by an act of political will. So one has to accept that times change. The industrial age is over. It's over, and it will be over in China one day, because at some point, these things run their course. And look, I grew up in a Rust Belt.
I had this ridiculous argument with J.D. Vance. Before hillbilly elegy was even thought of in places like Ohio, central Scotland, which had been a cradle of the Industrial Revolution, ceased to be. Because the steelworks of Glasgow and the shipyards of Glasgow were no longer competitive with even the East European, never mind the Asian shipyards. So I watched all this happen in my childhood.
And the lesson was absolutely clear. The only way out of the working class or indeed of the lumpen proletariat of the underclass, was educated. That was the only way out. And there is no alternative in a world in which the complexity of the economy keeps growing than to make sure that you and your children have appropriate skills.
Where the American people have been failed, especially the American working class, is that their education has deteriorated in international terms to the point that the baseline is shockingly low. And so that's a much more serious concern to me than whether we can magically restore 1950s America with a bunch of randomly calculated tariffs. I've been saying now for, gosh, more than a decade that the great degeneration of the West, and especially of the United States,
takes the following forms. There is a fiscal degeneration where we consistently live beyond our means and accumulate debt in a way that's unsustainable. We have a regulatory problem due to the administrative or deep state, which is why, by the way, building factories in this country is so difficult, because the permitting is part of the bureaucratic kludge. Thirdly, we have a chronically dysfunctional system of law.
in which it is extremely difficult for ordinary people to get due process. You pay to play. And finally, we have an education system that has been underperforming now for about a half century relative to international peers. And that is why the problems, it seems to me, can't be blamed on trade policy. can't be blamed on China when they really have much more to do with an unsustainable policy mix ranging from public finance to education. So what we have here is a genuine social problem.
Nobody would deny that the sheer misery of post-industrial Pennsylvania, it's just like post-industrial Scotland with all the pathologies you know about, Barry, like the drug abuse. the declining life expectancy, all of that is bad and we should be addressing it. And it wasn't being addressed by much that the Democrats were doing.
Neither of the parties has been honest about the origins of these pathologies. There's been, I think, a sustained multi-decade failure to confront the realities that lie behind these problems. And Donald Trump's fantasy that we can return to our glorious industrial past via tariffs is not the only fantasy that we've indulged in. The Democrats had an equally bizarre fantasy that we could, through diversity, equity and inclusion, simply abolish unfairness.
by intervening in order to discriminate against anybody who was doing okay. That was equally insane. But I'm afraid this isn't a massive improvement. In terms of the likely outcomes, it isn't any better at all. What should people expect? Like people that are invested in the stock market, people that have 401ks already seeing the impact of this, or at least the volatility.
When I go into a store six months from now, what should I expect to see? How is this going to play out practically for ordinary people? Unless there is a dramatic reversal. then one should anticipate the prices. will be higher. iPhones, maybe 50% to 60% higher. Apparel, probably 17% higher. Prices will be higher. There will be shortages of certain things.
We don't grow much coffee in the United States. You may have heard, I don't know how much you like coffee. I'm pretty addicted to it. I worry a little bit that we're going to disrupt supply chains of certain things that we are incapable of producing for ourselves. So that's one thing to expect. I actually think before we get there, there are such severe financial stresses being created by these events.
that there is going to be either a major financial crisis comparable in scale to 2008, or an intervention by the Federal Reserve of the sort that we saw in the early days of COVID. Actually, this is increasingly reminding me of COVID because COVID was a man-made disaster. The virus originated in Wuhan. This is Donald 25, and the virus originated in Mar-a-Lago. But the impact as an economic shock is comparable in its scale, because you are actually stopping.
shipments of goods right now, because there are so many companies that will not be able to afford the tariffs, they might as well not deliver to the American poor. So it's a huge supply disruptive shock. This time, the result of policy rather than of a lab leak. But it's going to have such disruptive effects that there either will be a kind of financial meltdown or another Fed intervention.
Jay Powell is a key player at this point, and the other key player is Xi Jinping. Xi has a couple of options. One is just to carry on playing the game of chicken. I would say he can take more pain on behalf of the Chinese population than Donald Trump can on behalf of the US population. So in the game of chicken, I'm inclined to think that China has some advantages. He also can escalate in a different domain, which is namely geopolitics.
And I think the other option that he has is to make the Taiwan crisis happen sooner rather than later and expose the great weakness. in Trump's grand strategy. That is, you've not only created a huge economic shock to the trade system, you've also alienated all of your allies. with the antics since your inauguration. And so if there's a geopolitical crisis and you just tariffed Japan and South Korea and the Europeans, who are you going to call?
Interestingly, since the tariffs started to ratchet up, we've had two meetings between South Korean, Japanese, and Chinese officials. The world is reconfiguring geopolitically almost as rapidly as the supply chains are being reconfigured and not to the advantage of the United States. The argument, and there's a viral clip going around of Kevin O'Leary last night on, I think, CNN, Mr. Wonderful from Shark Tank, saying 104% tariffs aren't enough. We need 400% tariffs against China because—
Look at the way they have lied, stolen, cheated their way. They're invited into these international trade agreements, but they steal IP, they cheat, they price dump, and they should pay a price for their behavior. What do you say to that? Like a lot of people are saying the decoupling from China.
was or is inevitable. It has to happen. What do we think it would be, Neil? Vibes, you know, papers, essays. This is what it looks like. It's going to be painful. But in the long run, you know, it's necessary. Well, first of all, the idea that China's going to pay, I think, is misconceived because, as we've discussed, American consumers will pay.
not entirely clear what percentage will be absorbed by Chinese exporters and US consumers. But US consumers do not get a free lunch in a trade war, point one. Point two, I can remember 20 years ago teaching a case at Harvard Business School on the China's accession to the World Trade Organization, which had happened in 2001. And in that class, I remember explaining to the class that it would be a disaster if China were not held accountable, if it were not made to comply with WTO rule.
That was never done. They were never enforced. The Chinese did indeed cheat. But one of the reasons that they cheated was that the United States and other trading partners did not insist. on enforcing the WTO rules to which the Chinese had committed because everybody was doing too well out of the China shock, apart from the workers who lost their jobs in manufacturing. The key here is that the Chinese did indeed steal intellectual property, engage in rampant subsidizing of their manufacturing.
They depressed the wages of their workers in order to promote their exports. All of this is true. And we did very little indeed through the routes that were available in the WTO, in the World Trade Organization, to stop that happening. The idea that you can use US tariffs on China and other countries to undo this.
is, I think, misconceived. And to couch it in terms of retribution, what is this, reparations for the white working class? It's kind of, this is what Jim Lindsay means by the woke right. And it completely leaves the realm of economic rationality. As I said to you earlier, China still exports an enormous number of things to the United States. They just go via third countries to avoid the earlier Trump tarot.
Small businesses all over this country rely on China for a vast range of the components of the products that they sell. You know, people who make toys. who are already in the midst of the cycle for the next Christmas season, are staring insolvency in the face because the tariffs that they're now going to have to pay on the goods that they ordered from Asia are crushing.
So I think the notion that this is sort of payback for Chinese misbehavior is doubly misconceived. We winked at and tolerated the misbehavior. It was part of what I called Chimerica, where China and America had a moment of economic symbiosis. and we got the benefits of their cheap labor and all their savings that flowed in to finance our current account deficit. It's too late now to undo those things, and nor is it effective to try to undo them with tariffs.
One argument that people are making, and again, you might think this is a cope, is that Soon enough, Xi or someone like Xi around him will be on a plane to Washington to negotiate with Trump because these tariffs will destabilize the Chinese economy and therefore the stability of the CCP. Do you think that that's true? Or do you think? Okay, tell me why. Well, if you take a look at what's been happening in China in the past year.
First, they saw this coming. They knew that because Trump threatened it on the campaign trail, they knew that they would be singled out for very high tarot. So first, Xi Jinping made peace with the China tech companies. Jack Ma was rehabilitated. The creators of Deep Seek were fated. The Chinese tech community was told, all is forgiven. Secondly, the party began preparing for large-scale stimulus to the Chinese domestic economy to offset the shock of tariffs.
I just listened to a video by the Chinese economist Li Daokui, who's been in the past and advisor to Xi Jinping. And he set out the Chinese path in response to Trump, which is... Retaliate. Play this game of chicken. Don't blink. stimulate the Chinese economy with a large-scale deficit spending program designed to incentivize consumption and only then consider negotiation. So I don't think... Xi Jinping's on a plane to anywhere.
I think the problem for Trump is, as has already been made clear, A, it's the US market that is tanking. not the Chinese markets, and B, there is no sign from China of any desire to negotiate. And there hasn't been at any point since Trump was elected. Remember, he invited Xi to the inauguration. No show.
He's repeatedly indicated his interest in talks, even going to Beijing, not interested. The Chinese are not interested in this kind of negotiation because they recognize that they're being played. by the art of the deal tactic. Do you think every leading party official hasn't read the art of the deal? So I think here I disagree with some analysts. I think China has the upper hand in a game of mutually assured economic or financial destruction because we know.
from the events of 2020, that the Chinese can impose significant economic pain on their population and maintain complete social control. That is not the case for any elected president or congressman. The American public voted for Donald Trump partly because of illegal immigration. And partly because of inflation. They voted in response to the upward jump in prices that happened in 21-22. Another upward jump in prices is going to look like promises made.
Promises broken, to paraphrase President Trump. And the American public turns on a dime. You know that, Barry. They're fickle. Trump didn't win a vast mandate. A relatively small number of voters in the counties, the swing counties, in the seven swing states. decided on balance they preferred him, an experienced president, to Kamala Harris, a DEI candidate. That's all that happened. And now they're asked to accept a 2% of GDP tax hike.
Inflation, that's probably going to take the inflation rate well above 3% again. and a financial crisis. I'm sorry. I know who is escalation dominance in this game of chicken, and it's not Donald Trump. After the break, I asked Neil to contend with the idea that this is what the American people voted for and wanted. Stay with us. Okay, one thing that we have been talking about in our newsroom since last Wednesday in the Rose Garden is the big question of who owns the 21st century.
Is it America or is it China? And you wrote a piece Monday in the Free Press. For people who haven't read it, I think it was the definitive piece on this subject so far because it allowed the reader to sort of look beyond. the day's headlines to understand the much bigger picture. The piece is called Trump's Tariffs and the End of American Empire. And I just want to read the two critical graphs here and then have you riff on it.
Depending on your worldview, you wrote, you probably think that Trump's tariff blitz is one of two things. Either a committed protectionist is trying to make America great again by killing globalism, ending forever wars, and bringing manufacturing jobs back to the United States. Alternatively, an unhinged demagogue is crashing both the world economy and the liberal international order, mainly to the advantage of authoritarian regimes. But here is what actually is happening.
The American empire that came into existence after the failed autarchy and isolationism of the 1930s, is being broken up after 80 years. Despite Trump's imperial impulses, wanting to annex Greenland, calling for Canada to become the 51st state, he's engaged right now in a kind of wild decolonization project.
Explain that last bit, because I think that is fascinating. Trump, Kamala might have been the DEI candidate, but Trump is the decolonization president, as it turns out. Explain to people what you mean by that. 21 years ago, I published a book called Colossus, The Rise and Fall of America's Empire, arguing that to almost everybody who's not a US citizen, The United States has long been the world empire. It was the heir of the British Empire. It inherited a global dominance.
during and after World War II and a series of retreats from empire that the British made, that US generally stepped in. The United States to this day has an enormous network of military bases. all over the world. And the United States Navy and Air Force and Strategic Command, the nuclear capability, those have been the foundations of the international order. Americans had a different kind of empire from the Brits.
an empire that imported rather than exported capital. It was an empire that imported rather than exported people. It was a very different kind of empire. But to the eyes of the outsider, as the legions swept into Mesopotamia and the Hindu Kush after 9-11, there was a familiar pattern playing out.
This is, I don't think, a distinctly left-wing argument. It's simply a reality that most of history is the history of empires. And the United States has been the dominant empire in the world, really, I'd say, since the Battle of Midway. Today... Donald Trump has decided, for reasons of his own, with the assistance of advisers who share his vision, to dismantle this in two bold strokes. First, to dismantle the financial international economic structure of the empire.
which has been based on the dollar as the international reserve currency, the 10-year treasury as the universally regarded safe asset. and the American financial system as the global financial system. Trump is dismantling that, beginning with the free trade. the trade liberalisation that, remember, took average tariff rates down below 2%. You know, on the eve of the Trump era, the average tariff rate on imports to the United States was less than 2%. It's now above 22%.
So the first big blow to American empire is to smash the international trading order and hurt American allies as much as American adversaries in doing so. The second and more important part is to entirely undermine the international security order. by ending the transatlantic alliance, NATO, the North Atlantic Treaty Organization.
telling the Europeans, you're on your own. You have to do your own defense. We're not subsidizing you anymore. In fact, we don't care about Europe. We don't care about Ukraine. You know what? We don't even care about the Middle East.
You know, after this Iran thing is sorted out, we're leaving the Middle East too. And this is a kind of hemispheric vision in which the United States only cares about the Western hemisphere. And we're back in the... I suppose glad, confident mourning of 100 plus years ago when the United States was not a superpower, did not have a global military, and behind a tariff barrier was the world's but it was not an empire. That's the vision of Trump. And I think that is what is not understood.
We are witnessing this rapid dismantling of American empire, or if you prefer to call it hegemony, because it's more polite, call it that. But it's being dismantled very rapidly, within 100 days. Agree or disagree with Donald Trump, think he is of low character or not. hate his approach to policies, even if you agree with some of them. I think we can agree that he thinks of himself as loving America and many of the people serving around him.
Feel the same way. Otherwise, they wouldn't be giving up all kinds of other things to go and do that work. Help me understand, help listeners understand what they believe they are doing. Because I think if they heard your description of this, they would take issue with it and say, no, actually, we're doing, fill it in for me. Like, who would willingly choose to give up being the world's hegemon?
People who have got the math wrong. So you would want to get rid of this if you thought, as Donald Trump clearly does, that the costs massively outweigh the benefits. Because in your mind, the costs are, well, we stop being the workshop of the world, and China does. The costs are, we have to keep sending our soldiers to all these faraway places.
We shouldn't have to do that. And, oh, it's very costly that we run trade deficits with Europeans. That's the kind of cost argument. But this omits the benefit. And the benefits are the things that you only miss when they're gone. The benefit of having the reserve currency is not trivial. It means that, for example, the United States has colossal power through financial channels.
It can borrow and has borrowed on a vast scale, can rely on foreign investors to hold treasury bonds, even when fiscal policy is manifestly reckless. We don't really have the ability to use financial sanctions if we lose that reserve currency status. Americans may complain about the loss of manufacturing jobs, but they don't celebrate the cheapness of the consumer goods that they have been buying made in Asia. in increasing quantities since really the 1970s and 80s.
And so the benefit of being the empire of consumption, which is that you get to run a large current account deficit, you get to consume the produce of the rest of the world. and pay for it with IOUs called treasury bonds denominated in dollars. We don't notice how valuable the benefit is because we're not asking the counterfactual question, what would it be like?
if we no longer had that benefit. So I ask listeners, particularly those who think that Donald Trump can do no wrong, to contemplate the world that they're heading toward. a world in which the United States is no longer a superpower, in which it no longer has primacy in the Indo-Pacific. in which China controls Taiwan, and therefore TSMC, the source of all the most sophisticated semiconductors, which are the key to the AI race.
a world in which China wins the AI race, a world in which the United States pays much more. for imports than it previously did, or has to manufacture its own iPhones at perhaps three times the cost of an iPhone largely made in Asia. And I could go on in this vein. The greatest problem with MPART is always that the costs are more visible than the benefit. And that's part of what drove decolonization in Britain after 1945. I deliberately likened Trump.
to Clement Attlee, the post-1945 prime minister, a Labour prime minister, because Attlee envisioned getting rid of overseas commitments. And, of course, protecting British manufacturing jobs and the working class behind tariff barriers. How'd that turn out for England over time? The thing about losing your status as a superpower is it's very hard to get it back when it's gone. Depends who succeeds you. We were lucky. Britain was succeeded by the United States.
An American-dominated world, a Pax Americana, has been by and large a congenial place for Britain to live. But if the United States has succeeded by China, that already has a highly sophisticated form of totalitarianism. And that form of totalitarianism is then exported with all the surveillance technology that can be built in China. The world is a much less pleasant place to be an American in, even if you're an American who never leaves. the United States. So most of this discussion
is based on the same fantasy that Minecraft creates, that you can just go into a magical world and make stuff with a wave of a hand. The Minecraft vision of America re-industrialized. by magical thinking is extremely hazardous. Because the portal it really leads to is the nether. You actually end up in the nether for Minecraft fans.
And that is a world in which China is number one. And a world with China as number one will be a world in which the kind of free speech that brought us together, Barry, the thing that really linked us, made us friends, that will be in danger everywhere. I think after this week, many people are worried about A world sort of turning away from the U.S. as the U.S. turns away from the world. And maybe rushing into the arms of China. Is that what's going to happen? Are they right to fear that?
Well, if it does happen, it won't be surprising. The vice president went to Munich on a mission to antagonize and alienate the Europeans. He and the president consciously humiliated European leaders, including... the Ukrainian president in the Oval Office reality TV show.
They set out to shock the Europeans into realizing that NATO was essentially a contingent commitment that the United States might or might not honor, and therefore they would have to take care of themselves. That was the message. So, of course, the Europeans got the message and realized, OK, the transatlantic era is over. What do we do? And it would be amazing to me if we didn't see a thaw in relations between the EU and China in the wake of this.
in the same way that we see the Chinese, Japanese, South Koreans holding meetings that hasn't happened in a long time, but it's happening this year. You know, I used to say that people were wrong in thinking that Donald Trump was an isolationist. That his impulses were, if anything, imperialist in the William McKinley sense. I want Canada. Give me the Panama Canal. How about Greenland? But he could end up being an isolationist inadvertently.
You're an inadvertent isolationist if through your imperial-type policies, your chest-beating protectionist William McKinley policies. You lose friends and alienate people to the extent that you end up isolated. That's the risk. The US runs. Oh, sure. The Japanese are going to come and negotiate. The Europeans will do some negotiation over trade. But what are they thinking?
What are they thinking? Are they thinking it's so awesome that we get to abase ourselves before President Trump? No, they're thinking we better go through this. We have to protect our economy. We have to avoid the worst. If we can get it down to 10%, that's a win. This guy, this country, is no longer a reliable partner. It's no longer meaningful to call the United States an ally if it can treat its allies the way the United States has been treating its allies.
Before the election, Trump talked a lot about how the most beautiful word in the English language was tariffs. He talked about this, and the American people in their infinite wisdom voted for it. Did people know what they were signing up for? Is this... the will of the American people. Is this just the reality that elections have consequences? Donald Trump won the election. He talked about tariffs very, very openly. And why should anyone be surprised?
I think the reason it's a shock is that we'd seen Trump be president once before, and the trade war of 2018-19 had not been an apocalyptic event. It was mostly directed against China. The tariff rates were relatively low. And negotiations produced a largely meaningless phase one deal that was then swept away by COVID. So we had heard Trump talk the tariff talk before.
And we had seen him, as we thought, walk the tariff walk, and it had been no biggie. So I don't think one can feel too hoodwinked. I don't think anybody expected the tariff policy to be as as crazy insane as what we saw last Wednesday on so-called Liberation Day. I don't know anybody who expected such a radical outcome. Just to give you an illustration. The chair of the Council of Economic Advisers, Stephen Mirren, has been seen as one of the...
real thinkers of this administration. He did a paper. We wrote a piece about it on how you were going to change the international trade system. And one could accept that that was some kind of blueprint for what they would do. It was published in November. He gets the job. But what does that paper say? It says that the US should gradually and predictably raise tariffs. Gradually and predictably raise tariffs and not...
immediately and impulsively and randomly impose all kinds of crazy bilateral tariffs. So he hasn't done what one could plausibly have expected him to do. He's gone full retard. What's going to happen next? Are you personally hoarding coffee? People who are listening to this, I think, are going to feel tremendous anxiety hearing what you're saying about the direction of where we're going. I should be hoarding coffee. Make a mental note.
Put in some orders now. You're going to start canning, and soon enough, you're going to be on the factory line at GM, Neil. I can see it now. You know, it's never been my ambition because as I said, I grew up in that industrial heartland as was. My goal was always to escape. Got to be very unfamiliar with factories to want to have more people work in them. That's always been one response I've had to this vision.
The key thing to watch is the speed with which two things happen. First, the financial crisis forces a change of course. Second, the political backlash forces a change of course. This is still the United States of America. The separation of powers still applies. Congress is in fact really supposed to be in charge of trade policy. And there are ways in which the balancing forces of American politics will kick in relatively speedily.
Despite the hubris of the president, he is only the president of the United States. So I think that the financial pressures and the political backlash together will prevent this being pursued to the point of a complete economic disaster, I think. It's not that we can pick the broken glass back off the floor and put it back together again. Some damage has been done that can't be undone. But I do think there'll be some kind of course correction. I'll be amazed if that's not the case.
That's the most optimistic thing I can say at this point. The thing I worry about is what we saw in 2020. When a shock like a new virus has a cascading effect, one thing leads to another in an unstoppable, unpredictable, nonlinear sequence of events. And we could imagine quite easily that the crisis in the realm of economics begins also to be a crisis in the realm of geopolitics.
At some point soon, I think Israel will get a green light to take military action against Iran's nuclear facilities after what remains of diplomacy has manifestly failed. Well, there's a meeting this weekend, I think, in Oman. Steve Whitcoff. Who knows what will come of it. If Steve Whitcoff is Henry Kissinger, then I'm Edward Gibbon. We'll see. But then that gives Xi Jinping the option.
to unleash his dogs of war. You know, everybody has dogs of war, but China has built up a phenomenal military capability. over the last 10 years. It now has a larger navy than the United States. It is certainly an equal of the United States in space, where all the key sources of military communications are now located. And so the big worry I have is that, as happened in the 1930s, trade wars are followed by actual wars. That's the thing that's more concerning than the price of coffee.
And that's the thing I'll write about for you next, Barry, if you're very nice. That'll be very, very nice. And I will send you some coffee to make sure you have appropriate stores. Neil Ferguson, I think you're talking to me from Alabama. Montgomery, Alabama. I'm at the Air War College. A place that I'm visiting not accidentally because, as I said, no trade war, but you also need to know real war. Neil Ferguson, a pleasure to talk to you as always. Pleasure to talk to you, Barry.
Thanks for listening. Neil's piece is Trump's tariffs and the end of American empire. You can read it in the show notes or by going over to the Free Press's website at thefp.com. If you appreciated this conversation, if you do not miss a Neil Ferguson column, and why would you?
There's only one way to support his work and the work that we do. It's by going to thefp.com. I'm never going to stop saying it. And becoming a paid subscriber today. Thanks so much for your support. I'll see you next time.