Episode 2524: Martin Wolf on whether Trump's tariffs are as dumb as they seem

There are few more respected economic analysts in the world than the Financial Times Chief Economic Commentator Martin Wolf. Yesterday, we ran a conversation with Wolf about the survival of American democracy. Today, we talk Trumpian economics, particularly tariff policy. Wolf characterizes Trump's trade policies as historically unprecedented in their scale, comprehensive nature, and unpredictability. But are they “dumb”, I asked? He acknowledges genuine issues driving tariff policy like global imbalances and deindustrialization but believes the current approach won't solve these problems. Wolf explains that the US-China trade war is causing significant economic disruption, with prohibitive tariffs likely stopping trade between the world’s two dominant economies. He warns that investor confidence is damaged by unpredictability, which will take years to restore, and questions the wisdom of dismantling America's alliance system. Dumb, dumb and dumber. Five Key Takeaways* Trump's tariff policies are unprecedented in economic history for their scale, comprehensive nature affecting most of the world, and extraordinary unpredictability.* There are legitimate economic problems regarding global imbalances and deindustrialization, but Wolf believes the current approach won't solve these issues and may worsen them.* The economic consequences include potential slowdowns in US retail sales, reduced profits for retailers, job losses, and decreased manufacturing investment due to uncertainty.* Investor confidence is severely damaged by unpredictability, with concerns about US government stability reflected in Treasury markets, and this uncertainty could take "a decade or two" to fully dissipate.* Wolf compares the current US withdrawal from global leadership to America's post-WWI rejection of the League of Nations, calling it "strikingly willful" and potentially destabilizing for the global order. Full TranscriptAndrew Keen: Hello everybody, we are at the London office of the Financial Times with the chief economics commentator of the newspaper, one of the world's leading economists, Martin Wolf. Martin's been on the show many times. Martin, before we went live you suggested to me that this was your moment, that suddenly economics has become interesting again. Is it because of this Tariff thing that a certain Donald Trump has introduced well, there's no doubtMartin Wolf: what you describe as this tariff thing has created a novelty, to put it mildly. He's done things that as far as I can see have never been done before in the history of economics. So and you don't normally live through an experience with a set of policies, trade policy, which has been pretty unexciting since the Second World War, and you're suddenly in a different world. And that was not quite what we expected. In addition to that, it's not even as though it's sort of predictably in a different world. It was sort of every day or so. It seems to be something different. So in that sense, yes, it is very, very exciting. Now, there are other things going on, obviously in the administration and other areas which might turn out to be even more important. The attack on science and the funding of science, for example, the attack on universities. These are all very, important, the dismantling of important parts of the government, the relationship with allies, but I think this tariff war is remarkable for its scale. We've never seen changes in tariffs on this level before. It's comprehensive nature that base effects most of the world and it's extraordinary unpredictability. So this This is a new world for economists and we will be studying this, I'm absolutely sure, for half a century.Andrew Keen: My sense, Martin, is that one of the reasons you're enjoying it is because you're a natural polemicist and you haven't pulled your punches in your columns. I think you recently wrote in one of your last FTPs that America is inevitably going to lose in this war against China. Is it as dumb? As it seems. I mean, you're the chief economist at the chief economics commentator at the FT, one of the world's, as I said, most respected economists. You're an expert on this area. Is it just dumb? Are there any coherent economic arguments in favor of tariffs, of what they're doing? Well, I think...Martin Wolf: There is a genuine problem, and part of that is to do with trade. And more broadly the balance of payments, which is affecting the U.S., is genuine. There's a real set of issues, and economists, including me actually, have been discussing these problems, which you might call actually two problems, the global imbalances problem and the deindustrialization problem. These are two real problems, economic and social. The problem is that it's very hard for me to see how these policies that are now being introduced will solve those problems worldwide, and they are global problems. And the way the war is being pursued, if you like, by the Trump administration is such as, I think, inevitably to lose the many of the allies they ought to have in this contest and therefore they are playing this match, if we like, without the help of lots of people who should be on their side. And I don't think the way they're going about it now will solve that problem. I think making it worse but yes there are a couple of genuine real problems which is perfectly reasonable for them want to for them to want to address address if they can do so in a coherent well-plannedAndrew Keen: relatively inclusive way is it a problem with China essentially in terms of China producing too much and not buying enough of American goods is that the heart of the problem I think the problem China'sMartin Wolf: not the only such country. They are right to observe that Germany has also behaved somewhat in the same way, but Germany's capacity for disruption, though very real in Europe and I wrote about that in my book on the crisis published about a decade ago, is not global. The rise of China was bound to be a massively disruptive event. How could it not be? Suddenly there's a new peer competitor out there in the world. I don't think we had the right or the capacity to prevent its rise I would have strongly opposed any such effort but some people I'm sure would disagree but China is a vast country with a tremendously capable population and an even more capable government than we thought 20 or 30 years ago and its rise was going to be very disruptive its disruption is for the world I mean it's also disrupted Europe a lot it's disrupted any country that is competing with Chinese manufacturers. Actually, that includes Japan. Japan has been displaced as a manufacturing exporter to significant degree by China. So it's not just about America. One of the mistakes is thinking it's just about America. The rise of China is a fundamental transformational moment. And there is a specific problem with China, which is it's been following the general line of East Asian manufacturing-led development but because it's much bigger and because there are features of its economy particularly excess savings which are even larger than in other countries the disruption is even bigger so there's a genuine disruptive force here which we should have started dealing with consistently.Andrew Keen: About two decades ago. My sense is that Trump is trying in his own peculiar way to walk back some of these policies. But has the damage already been done? Well, that's a very interesting question.