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I have been a skeptic of this entire project, not because of ideology, but because of economic history.
I think the most dangerous long term trend that Trump has created is a sense among America's closest allies that, after eight decades of relying on the United States as the pivot of geopolitical strategy and geoeconomic security, they're asking themselves, do we diversify a little bit? Do we buy a little insurance?
Welcome to Trumpnomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy and what on earth is going to happen next. And this week I'm in California for the annual Milken Institute Global Conference, where Wall Street comes to Beverly Hills.
It's one of the greatest concentrations of investment capital on the planet, as they say, with tickets starting at twenty five thousand dollars ahead, and it attracts thousands of attendees wanting to hear from titans in the world of business and politics publicly and behind the seats. US Treasury sectary Scott Bessen kicked off the proceedings on day one, and that was followed by a long list of finance and
investment luminaries and chief executives. Now it's the twenty eighth year of this conference, and the boast was that the turnout and the money represented in the room was higher than ever. But of course it was happening only a few months after the fires that have left large chunks of the city still looking like a post nuclear wasteland. That was one weird thing about this year. The other
was well, that it felt remarkably normal. I mean, the rest of the world might be freaking out about the economic impact of Donald Trump's trade wars, America's reputation as a safe haven for global capital, or you know, the end of the rule based global order. But for the big money folks gathered here, I have to say, it
just seemed like a period of heightened uncertainty. So I was looking for a reality check when I sat down on the first day with the historian and commentator Neil Ferguson and CNN's for Reid Zakaria, who's the author most recently of the Age of Revolutions. We've got a lightly edited version of that conversation for you here. I started by asking them to put the past hundred days, this
moment in world history in some kind of perspective. What patterns do they recognize from previous eeries and what strikes them as genuinely new.
Well, if you think back to the campaign last year, President Trump cited a previous president in one of the interviews he did. I think it was a Bloomberg interview, and he said William McKinley was his inspiration tariff man. And that was something that most people ignored, but I found it very interesting, not least because McKinley was both a tariff man and something of an imperial president who, as a result of the Spanish American War in the late eighty nineties.
Acquired Puerto Rico, Guam, et cetera.
So that was a clue as to the kind of president that Donald Trump wanted us to expect. And unlike most political figures, Donald Trump has said what he was going to do and done it. The second historic analogy, and for read and I we're talking about this on his show, that's relevant here is the first hundred days of Franklin Delana Roosevelt's presidency. I don't think we have seen such an active one hundred day period in American
politics since nineteen thirty three. You have to go back to that extraordinary time to see a comparable level of presidential activity.
And I wrote.
A piece for Barry Weiss's Free Press saying, you kind of think of this as like Roosevelt in reverse, because Roosevelt came in after a depression with a mandate to expand the federal government, and Trump has come in after a boom with a mandate to shrink the federal government. I'll throw in one more way of thinking about this. I think behind all the bravado, Canada is going to be the fifty first state Greenland, We're going to annex the Panama Canal. All that trolling that drives liberals and
the professors insane. I don't really think that Trump is acting from a sense of strength. I don't think he is. In fact, William McKinley, I think a strong motivation in Trump's mind is.
That the United States is kind of weaker.
Than it looks, and it can't do all the things that it was able to do. Say, in the nineteen eighties, I got into a fight with Vice President Vance about this and my other analogy is that I think there's something quite Nixonian about the second term, the shocks to allies, the talk of some kind of devaluation, plus tariffs. It's all out of the Nixon nineteen seventy one playbook, even the Tacer reverse Nixon, which you hear from some of
his advisors. We're going to somehow peal Putin away from season pain and somehow find some space between China and Russia. That is at least an appeal to Nixon as a precedent. And you have to ask yourself, why has no president since Nixon regarded Nixon as a role model.
I'll just leave you to posit that's definite.
But it is an unusual thing to want to rerun some of these Nixonian gambits, and I do think it has some meaningful downside risk.
Although we are seeing in real time undoing of some of the things that were done directly in response to the Nixon experience. But we won't get we won't get into a left well that's right for ed place this moment.
For us, nothing is new under the sun. But what is unusual and hasn't happened for a long time is one the rise of cultural politics. If you look back over the twentieth century, most politics was explained by a left right divide. On economics, the left wanted to tax more and the right wanted to tack less. Similarly, the divide on spending. It was the role of the state. We're in a new era where culture is defining the
back life. If you try to predict how people vote based on their income, you find it very hard to do. Most of you are rich, and my guess is many of you voted left of center. The majority of people who are non college educated, working class now vote right of center. Why because we are in an age of great uncertainty and change and when that happens, and I owe Tony Blair this insight. When people feel deeply anxious, they tend to move right culturally, not left economically. They
don't say I need one more government program. They say, get those damn foreigners out of my country. And you can see this in almost every country in the Western world. The left is flailing. Think of France, think of Germany, think of Sweden, think of Italy, and of course think of the United States. Because the left finds it difficult
to address that cultural anxiety, people have. It is more easily addressed by a right wing populist movement, which is what has taken over right of center parties everywhere.
Point two.
What has changed is the United States has rarely had a culture of personality in its political system. But we now have a situation where the Republican Party is not really a party anymore. It has become a culture of personality. In the last Republican convention, no former nominee for the party, for the presidency, for the vice presidency, no former president or vice president, including Trump's own Vice president Mike Pence, was even invited to the convention, and yet five members
of the Trump family had prime time speaking slots. That is not a normal political party, but certainly by Western standards.
And finally, I would say, I.
Mean, honestly, what is unprecedented is the fairly systematic level of corruption taking place at the very highest level in the United States. I don't think I think we have seen something like that for a very very long time.
Can I jump in and say that if you go back far enough and you know this for ee, you do find exactly these things.
I mean, this is gilded Age.
I began by saying nothing is new under the sull.
I just want to illustrate at the point because maybe not everybody's studied this.
Morning talked about the Golden Age.
It's a very old and gilded sound of the region. Regency England had lots of corruption, but he you know, late nineteenth century United States, the time of McKinley was famously dropped. It was a time when Tammany Hall was one of the political machines that ran the system. Foreign visitors were shocked by the scurrilous quality of American politics, and the populaces of the late nineteenth century had very Trumpian themes.
You know, I have this long standing argument with people like Tim Snyder and Applebam about whether there's some kinshit between Trumpism and fascism in inter war Europe.
And my point to them has always been, you do not need.
To look so far afield, because the populace in the late nineteenth century were in favor of the same kind of things that Donald Trump's been talking about since even before twenty fifteen, twenty sixteen, That is to say, restriction of immigration tariffs a week dollar. I mean, even that's part of the populist.
But what was different about William Jennings Bryan, who was the great populist nominated three times by the Democratic Party. It was not anti democratic in quite the same way the extraordinary expansion of governmental authority. You know, all these tariffs are taking place in a situation that, frankly is illegal. The Constitution makes clear that Congress has the role of tariff's setting. It has delegated in very specific circumstances to
the presidency. The president claims that because there is a national security emergency, he has this power. It's a little odd that you would have a national security emergency against every country in the world simultaneously, including one that is only inhabited by penguins.
Yeah, right, they But Congress has over the years delegated more and more of that authority, so I think they could probably take it back, but they haven't chosen to take it back. We've got onto the sort of cultural and some of the political instincts of this administration. I suspect we'll get back to it, and many people here would be kind of mesmerized by those aspects of the administration.
But they have to live day to day, and we at Bloomberg a living day to day with the economic consequences trying to think about whether this administration can actually do the big things that it's set out to do economically in the world.
So maybe a sort of gut.
Check on that. I mean, the two very highly related targets decouple from China and reindustrialize the US feasible and if not feasible, what's going to happen in the attempt. It's certainly possible to decouple two large economies. Of Britain and Germany decoupled their economies, but that was the outbreak of World War One in nineteen fourteen. To kill what I called China America back in two thousand and seven, when the Chinese and American economies had almost fused is
extremely difficult. The President tried to do it in his first term, and all that happened was that Chinese goods were shifted via third countries and continue to flow to the United States. What he did since being inaugurated this second time has been to impose.
An embargo on US China trade. It's an extraordinary thing that went even further than the worst case scenario that the Chinese had been preparing for. The tariff rates on imports from China are now so high that nobody's quite sure what the rate is, but it amounts to prohibition.
Now you can take the.
View that this is a rare case where a country imposes sanctions on itself, maybe because the habit of imposing sanctions has become so ingrained with the American government, we finally had to sanction ourselves. But if you are running, let's just say, a small sized toy company, this is a catastrophic blow. You have already ordered the Christmas goods from China, and you cannot afford for those goods to
arrive unless this trade war is called off. So decoupling is in process, but its costs to the American economy have yet to be felt by the majority of people. Does this lead to the reindustrialization of the United States
if the President follows through with it. I'm skeptical because there are lots of reasons why all mature economies go through a period in where they industrialize, where manufacturing becomes a larger share of employment and a larger share of gross domestic product, and then after a certain per capita GDP, they shift away from manufacturing and they go into services.
There's no exception to this rule.
It's through of all the major economies, and the United States has gone down that curve. Turning the clock of history back is hard, and that's the project. The central project of Trumpism is We're going to turn the clock of history back and have the kind of manufacturing employment that we had in let's say the nineteen fifties. Now you'd have to reform permitting, you would have to make American labor significantly cheaper, and you'd have to live with
more expensive and inferior products as a consequence. I do not believe that any president can achieve those things in four years, and a president who loses one or both chambers of Congress that the midterms isn't going to get to first base. So I have been a skeptic of this entire project, not because of ideology, but because of economic history. I went to see the Minecraft movie. Who has seen the Minecraft movie in this audience? Okay, so
you have a seven year old kid. I'm not saying you should go and see Jack Black in the Minecraft movie. But as I was watching it and thinking about Minecraft, I realized the project is kind of Minecraft because in Minecraft, it's really easy to mine and manufacture and build staff all you do is you're just gonna go bam and
magically you've made something. And unfortunately there's a sort of Minecraft element to this strategy, and that's not the way the world works, as anybody knows who has tried to build a manufacturing entity in the United States in the last ten years.
I agree with everything Neil said, but let me add to it by pointing out the entire project is unnecessary. The United States in the last thirty years, contrary to what you hear, has not hollowed itself out turned itself into this basket case economy that is in severe need of some kind of revolution. The real story of the last thirty years is the United States has leapt ahead of every other advanced industrial country.
Let me give you a few numbers.
In two thousand and eight, the Eurozone economy and the US economy with the same size. The US economy is today twice the size of the Eurozone economies, and two thousand German wages in US wages were roughly the same. Today, US wages are fifty percent higher than German wages. If Great Britain were to join the United States, Bars Johnson once joked as the fifty first state. Little did he know the President from had another country in mind for that honor. But let us say they joined as the
fifty first state. On a per capitaal GDP basis, Great Britain would be the poorest state in the Union, poorer than Alabama, poorer than Mississippi. Why is this because unlike the other advanced industrial countries, what the United States was able to do was fully embrace the services economy, digital finance, software.
We export a trillion.
Dollars worth of services to the world every year. That someone doesn't show up in Donald Trump's theory of economics, even though services employ eighty percent of Americans manufacturing employees eight So the project that Nielss talking about also is essentially a project to tax the eighty percent who work in services, just subsidized the dwindling eight percent who were in manufacturing, almost out of a kind of esthetic desire to have a country where we build something.
That's the sense of which is like populism, because that was about agricult Populous were farmers going when it was clear that agriculture was going to decline as an employment sector. But Stephanie Canda at one point, because I don't want to sound entirely negative. I listened to Secretary Vescent this morning, and there was much that he.
Said that I liked. I think it's true that the.
United States economy is anti fragile, as Fred says, it has massively I performed the competition, particularly in the periods since the financial crisis.
Though. I think it implies that.
The trade war the tariffs are a kind of shock that the US is somehow going to be able to power through, and maybe it is. I think your Bloomberg readers will be interested to see if there really is going to be a Marilago accord. If the analogy with nineteen eighty five works, then you not only get tariffs, but more importantly, you get a weaker dollar and you
get lower interest rates. If they are able to do that, then it seems to me that the US may once again surprise to the upside, and the Cassandras are going to be left looking as they so often have, very wrong. The critical issue here for everybody who's interested in markets is as the dollar goes down, what the rates do.
Because the thing that has been most scary about the last month has been that moment between Liberation Day and April ninth, when the dollar did go down, but yields went up, and that in a way that is very very rare in modern financial history. And there you run the risk of what i'll call the Nixon moment, because Nixon had a weak currency strategy, he had a tariff strategy.
But what happened between seventy one and seventy four was that the dollar was weak, but rates went up because inflation went up, and you ended up with the stock market declining from Nixon's re election to his resignation by forty six percent. So there's risk embedded in this whole strategy.
But it could work.
And we mustn't underestimate the probability that once again Donald Trump surprises to the upside, because he does seem to have a strange luck as well as a powerful intuition about the people that he's up against.
That some of this may come down to a sort of fundamental tension which I think many people here and you guys have certainly identified in the president's approach, which is an end to forever wars, you know, channeling the sort of previous past history those populists who were isolationists as well. We don't want entanglements abroad, but China is the real enemy, and we are going to wage at least an economic war against China. Those two things certainly
come into tension over Taiwan in other areas. You and I spoke about this on my podcast last year. Neil, and you thought that the hawkish kind of bipartisan consensus in the US today and certainly in Congress would prevail over Trump's transactionalism. Do you still think that or do you think we'll have an accommodation with China that involves I don't know a few Trump towers in Taiwan.
It is so hard to know at this point because the administration has roughly three different strategies going on at the same time. There are those that they are much weakened now since Mike Watz's exit, who really wanted to take on the axis of authoritarians in every different theater from Eastern Europe to the Middle East to the Far East. Then there are the China Forest people like Bridge Colby, who want to focus on the Taiwan issue and not worry too much about Ukraine or even Israel. And then
there are the Hemisphere folks around Vice President Vance. You just want to focus on the Americas, and they really don't even care about Taiwan.
It's not clear who who comes out ahead. I will, for the sake of brevity put it this way.
At some point on this president's watch, I believe there will be a Taiwan crisis. I think season Ping has that option. It is risky for him, but he has to exercise it when Trump is president, because Trump does not look like a president who's willing to go to war, actual war, not trade war, over Taiwan. So if and she I want to pose that question either next year or in twenty twenty seven, not with an invasion, not
with a blockade. I just want to send my Coastguard vessels and claim that everything going into Taiwan has to clear Chinese customs, and present Trump with a choice, do you want the biggest naval battle since Midway? Do you actually want to have a war over Taiwan? Or do you want to fold and let the Chinese have not only Taiwan but TSMC and therefore the key to the
semiconductor industry in the world. That's a very nasty dilemma, and I think that Trump may well confront it before he leaves office.
Sie, what's the stake.
I think the central attention is exactly the one you described, which is, you can have a China strategy, the kind that Trump is talking about, but in order to have that, you need to unify the rest of the world with you and against China, where it's very hard to unify the rest of the world when you've slapped tariffs on them, and when you've disproportionately slapped tariffs on your closest allies.
If you look at the reciprocal tariffs, it was better to be a foe of the United States than a friend. Russia was exempt entirely from the tariffs. Some of the worst tariffs were on Canada, there on Germany. So part of the problem here is that Trump has broken the
trust that America's closest allies had with him. And if you look at that moment that Nil was talking about, that scary moment where all American assets started to decline, the dollar, the bond, and stocks, it was almost certainly because America's friends were selling treasury bills, the Canadians, the Japanese,
maybe others. And so I think the most dangerous long term trend that Trump has created is a sense among America's closest allies that after eight decades of relying on the United States as the pivot of geopolitical strategy and geoeconomic security, they're asking themselves, do we diversify a little bit? Do we buy a little insurance? And they just have to do it on the margin, because we are running
the largest deficits essentially in our history. We need enormous amount of confidence for people to buy that debt every few months. That is what Trump has jeopardized.
And obviously there's been a lot of talk about the sell America trade, as Neil mentioned, was pretty popular at various times over the last month or so, and it feels like a structural change in the attitude to American assets, maybe even to reset, as Scott Lesant said this morning. But one there's a question that sell America, but then buy what?
And you've just mentioned the right, So then there's always been this problem into the dollar's role as the reserve currency of the world is probably still pretty strong. Who knows if the Euro is going to exist, and it's a slow growth area. Japan is in demographic you know, death trap. China won't open its currency to the world. So Larry Summer's famous line about the dollar still holds.
As long as Europe is a museum, Japan is a retirement home, and China is a prison, the dollar will remain the reserve currency of the world.
And bitcoin is an experiment. Just to remember that additional line that Larry had as long as bitcoin is an experiment, but it's less of an experiment than it was when he said that back in twenty nineteen, we're almost out of time.
But can I just say the paradox.
Of all of this is that we we cudgel our brains trying to understand what Trump's strategy is. Is it to dimensional chess? Three dimensional chess? Is there's some master plan. The more we spend our time talking about that, the less we're talking about AI, the less we're talking about quantum computing, the less we're talking about the ways in which the United States is still far ahead of the competition.
I mean, you want to sell the US and buy Europe when all the innovation, by far more innovation, is happening here. So let's not be so distracted by politics that we forget what was long ago said by Carlvin Coolidge, the business of America is business, not political.
They give you one statistic to close, one hundred percent agre.
He always has the last word.
Have you noticed the United States is four percent of the world's population, It's about twenty seven percent of global GDP. It is currently seventy percent of the stock market capitalization of the world. You need a lot of confidence to maintain that. All I'm saying is you could go down to sixty percent, we'd still be dominating the world. But that's a twenty percent correction in the markets.
Thanks for listening to Trumponomics from Bloomberg by me Sephanie Flanders. I was joined by Neil Ferguson and Farreed Zakaria. Trumponomics is produced by Samasadi and Moses and Dam with help from Chris Martlu, tala Ahmadi, Ammy Keene and barricatte Ugado. Sound designed by Blake Maples and Brendan Francis Newnham is our executive producer and special thanks also to the entire team at the Milcon conference. Please do rate this show wherever you listen to podcasts so other people can enjoy it.