How Trump's tariffs will accelerate US decline

Donald Trump’s tariffs will likely backfire, hurt the United States, and accelerate the decline of US dominance, argue political economists Radhika Desai, Michael Hudson, and Mick Dunford.

By Radhika Desai, Michael Hudson, and Mick Dunford

Will Donald Trump's tariffs backfire and hurt the United States, accelerating the decline of US dominance? This is what host Radhika Desai argues in the following episode of Geopolitical Economy Hour.

Radhika Desai is joined by economist Michael Hudson and China-based economic geographer Mick Dunford.

You can find more episodes of Geopolitical Economy Hour here.

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(Highlights)

RADHIKA DESAI: Trump has won his election by telling a big lie. What's the big lie? The big lie is that the people in the United States are suffering because of the trade deficit, because of China, because of Mexico, because of Canada. No!

MICHAEL HUDSON: What you're seeing in Trump, with his flurrying around, is a kind of desperation. He wants to appear to be acting in US interests, but it comes down really to blustering.

MICK DUNFORD: He's using tariffs not so much as to provide the framework for a domestic industrial policy, but he’s actually using it to threaten other countries, and to require them to transfer investments to the United States.

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(Full transcript)

RADHIKA DESAI: Hello and welcome to the 40th Geopolitical Economy Hour, the show that fortnightly brings you discussions about the fast-changing political and geopolitical economy of our time.

I'm Radhika Desai, your host. And behind the scenes, working to bring you the show every fortnight, are Paul Graham, our videographer; Eklavya Jain, our transcriber; and Ben Norton, our host.

So, what is it with Trump and tariffs? He says he loves the word. He says tariffs are better than sanctions — although exactly how weaponizing trade is going to improve things upon weaponizing the financial system is anybody's guess.

He thinks tariffs are a big revenue raiser, and harks back to the times of William McKinley, when there were no income taxes in the United States, and all the revenue was raised by imposing tariffs.

Sometimes we are told that Trump is using tariffs as a negotiating tool, but even after doing so, he talks continually about America's trade deficit and the need to correct it, and so on.

Of course, as many people point out, if tariffs of the sort that Trump is talking about, 25% on Mexico and Canada — and tariffs in Mexico and Canada have been put in abeyance, but 10% tariffs on China have already been imposed, and that's on top of tariffs that have already been imposed on China since his first term in office.

These sorts of tariffs are practically guaranteed to raise inflation. And this is precisely the point on which he was elected. People expected that he — you know, they associated Trump with the time of low inflation. This helped him immensely.

Trump also talks about tariffs helping to reindustrialize the United States. Are tariffs enough to do that? Does Trump even had an economic strategy of any sort?

And keeping track of the whirlwind of new orders and shocks, in addition to tariffs, as you know, there are lots of other things about making Gaza into a Mediterranean Riviera, to talk about just the most shocking. It's hard to keep up with all these threats, promises, executive orders, etc.

So how long can it last? Does Trump have a strategy? Will he stop, or will he be stopped, when his measures boomerang?

Joining me today to talk about all this are two of our regulars and favorites: Michael Hudson. Hello, Michael.

MICHAEL HUDSON: Hello.

RADHIKA DESAI: And Mick Dunford. Hello, Mick.

MICK DUNFORD: Hello, Radhika; hello, Michael; and thank you very much for the invitation.

RADHIKA DESAI: Yeah, it's always a great pleasure to have you, Mick, and Michael.

So, Michael, why don't you start us off by really talking about what you think Trump's game with tariffs is?

I mean, what do you think is really going on? Does he mean what he says? Does he mean what he says? Is he going to back off? Etc.

MICHAEL HUDSON: Well, before you look at Trump’s idiosyncrasies, I think it's good to put the big picture in perspective.

He looks back to President McKinley and the century in which America rose to become an industrial power. And it did so through protectionism. And the U.S. protectionist doctrine was more sophisticated than those of England or even Germany. It was not only protective tariffs; it was promoting public infrastructure investment, to provide basic needs for labor and for the population, so that the industrial employers wouldn't have to pay such high wages, because the government was subsidizing public transportation, education, healthcare — all sorts of things that today have to be paid for.

Well, once this strategy of development by the American School of political economy achieved dominance in World War I, helped by the fact of inter-Allied debts owed to the United States, the United States wanted to pull up the ladder, as it were. It did not try to promote its doctrine of protectionism and industrial growth to other countries.

Now that it was dominant, it did just exactly what England did: it moved for free trade. We have an advantage; we don't want other people to share our advantage. Let's have free trade so that we can out-compete them and increase our lead steadily.

And already at that time, in the 19th century and early 20th century, there was an idea that the world economy was polarizing. Well, all this seemed to be built into the World Order in 1945 when World War II was over, as we've discussed. But then you had the 1980s, you had neoliberalism, you had financialization, and that's the opposite of industrial capitalism. And so, by today, America has lost its industrial lead. And it has lost it by privatizing all of the infrastructure that was public before, forcing its labor to pay enormous costs for education that used to be free, for healthcare that used to be subsidized, for transportation that used to be subsidized.

So, Americans lost. What is it going to do when it still imagines that it can become the leading country in the world? The dominant financial power, the dominant trade power, and absorbing the world's economic surplus. There's a desperation going on, and I think what you're seeing in Trump with his flurrying around is a kind of desperation. So, we're going to discuss today his policies as they affect various countries.

But I think when you're analyzing why he's doing it, there are two dynamics at work. Not only the international dynamics but if you're looking at what he's done so far with the seemingly absurd claims against Canada and Mexico, it's all about—fentanyl and the drugs—he seems to be paying more attention to the domestic U.S. audience than actually seeking a serious response. He wants to appear to be acting in U.S. interests, but it comes down really to blustering in the U.S. interests.

And I think we can talk about his general strategy. His general strategy is simply to threaten to crash the international economy or the economy of his trading partners. And he's not really going to crash it, because that would crash the United States too. But he wants to panic them. And he panicked Canada and Mexico into agreeing to spend a billion dollars each—even Canada, a billion dollars—on border guards just to stop fentanyl and presumably people coming in from Ecuador into America vis-a-vis Canada. It doesn't seem to make sense.

I think I figured out what it is—he doesn't really expect the 25% tariffs to go into effect, but he thinks that other countries, Canada and Mexico, will be so frightened that they'll say, "Well, isn't there a compromise?" Well, the compromise is what he's wanted all along. He says, "All right, we'll suspend the tariffs for now. Let's pause them for a month. But in the meantime, you spend these billion dollars here." And when the month is over, he says, "Well, the tariffs are still back on. What are you going to give me?"

He's going to use salami tactics to cut—to get one advantage after another after another. What could it be? Maybe he wants Canada to sell its industry to some of his campaign contributors. I think he's making it up as he goes along. But his basic tactic is the opposite of China's tactic. He's not offering other countries a win-win game. What he's saying is, "If there's a win-win game, like President Xi wants in China, then we lose. Because if another country also gets a win in addition to us, that's something that we're not taking."

So, he's going to want to find out what everybody else's surplus is and take as much as he can. And a win-win game for him is a loss for the United States. He's using the tariffs to create a panic and saying, "What can I get from this?" And this is where we’re standing right now, at least in Canada and Mexico.

RADHIKA DESAI: And Mick, do you want to?

MICK DUNFORD: OK, if I just make two points. I mean, I think in some ways the background is that the United States is in dire straits in very many ways. No, I mean, in this year they have to refinance $9.8 trillion of debt. They've got a situation where they have a huge debt pile after many years of fiscal profligacy, productivity has slowed down, crumbling infrastructure, extraordinarily high costs for health and education, and of course, as Michael said, it has been deindustrialized in many ways by the offshoring of American capital. So, you know, the starting point in the sense is that very, very deeply problematic situation in which the United States finds itself.

And you know, I assume that the intention ultimately is to try to address these issues, but, as Michael said, in a kind of win-lose way. I mean, it seems to be targeted at gaining the United States and sort of monopolizing key areas of the new economy, for example, and excluding others from it, which, as Michael said, differs very, very radically from the Chinese path.

Beyond that, however, I do want to emphasize that tariffs are basically an instrument of trade and industrial policy. And as Michael said, they were used in the past by McKinley. They were used by Britain in the 1930s. They were used by Japan and South Korea and the other Asian tigers. In some respects, you know, one can also say that there are other industrial strategies, you know, in terms of credit policy and so on, that were used by China. So many countries that seek to come from behind to employ tariffs as one instrument amongst others of their industrial and trade strategy.

Now, one of the reasons for that, evidently, is that basically free trade is advantageous to the strongest competitor. So, in the 19th century, Britain imposed free trade on China with devastating consequences. Britain also imposed free trade on Portugal. And people drew on that story. You know that story of Ricardo who argued that trade is mutually beneficial because it's driven by comparative advantage. But in fact, I mean, trade is not driven by comparative advantage. It's driven by absolute advantage. And if you look at Ricardo's story, you know, Portugal could produce clothes and wine more cheaply than England.

RADHIKA DESAI: Correct.

MICK DUNFORD: All right, in that situation, everyone would buy all their clothes and all their wine from Portugal. The fact that British cloth is relatively less inexpensive would not encourage people to purchase English cloth. So, something had to happen, you know, such that the costs of English cloth were reduced and actually became cheaper than Portuguese cloth. So, I mean that rest upon certain adjustment mechanisms, and there's serious debate, you know, about the way in which these adjustment mechanisms work.

But I mean we do know is that in the past, free trade has led to polarization of development. So, in that sense, you know, these measures play a role, certainly in relation to the countries that have been left behind that are seeking to come up and improve the living standards of their people. And I think we have to keep that in mind.

But I do think, you know, we can come back to it. I do think that Trump is using it in a rather different way to try to impose American will and basically what are win-lose solutions on other countries in the world.

RADHIKA DESAI: Yeah. And you know, I mean, both of you raise some such important points that I just want to make a series of responses on a whole number of them. So first of all, you know, I'm very glad that you've mentioned—both of you have mentioned—that the United States itself has a history of industrialization that is based on tariffs, and it's important to recall that.

Because the bulk of the opposition to Trump's tariffs is coming from people who take a free trade point of view. But the free trade point of view is not necessarily what even the United States needs right now. This is not to endorse Trump's tariffs, the disruptive behavior that Trump is engaged in, or anything like that, but it is to remember that there's nothing in per say about tariffs that is necessarily bad.

And you see that one of the most talked about bits of opposition to Trump has been this letter written by Larry Summers and Phil Graham, in which they basically say, “The United States has no industrial problems at all.” United States industry is booming as never before, according to them. You think if you read that letter that there was absolutely no reason for Trump to get elected, that the American working class was doing fine, etcetera, etcetera.

Secondly, they also repeat a whole number of canards that have become part of the lexicon of the sort of globalist American position in which they want the United States to continue running deficits, trade and otherwise, and so on. And so, they say that while the United States has always run trade deficits when it's prosperous, when it is growing. But this is just the wrong way of putting it.

The problem is that the United States has become so deindustrialized; its economy has become so penetrated by imports that every time there is growth, every time people have a better money in their pockets, they spend it on imports. That's why the United States trade deficit always expands with American growth. But they celebrate as though, you know, deficits are a sign that America is growing, which is just completely economically illiterate.

And of course, I mean they repeat all sorts of such things. And so, I think it's very important for us to tell a different story. The problem is not times per se. The problem is the way in which Trump is imposing them and also the other thing is, is that Trump thinks that insofar as he says anything about this, he says, you know, tariffs are going to reindustrialize the United States.

But Mick as you were saying, in order to succeed at doing that, tariffs have to be part of a larger industrial strategy. That larger industrial strategy requires that the state controls capital. Unfortunately, in the United States, capital controls the state. There is no way in this context that the reindustrialization of the United States is going to be the result of Trump's tariffs policies.

And there's another very important thing here and which we have talked about the three of us and Michael and I and over many many geopolitical economy hour episodes. The inclination of the American corporate capitalist class is to invest in financial, in finance, in speculation and predatory lending, etc. It is not to invest productively and where is the power that is going to say to them, “No, you must if you if you. If you invest your way, we will close off these avenues of speculative investment and predatory lending and only allow you to invest productively.” There is no such power. Trump is as much, if not more, a creature of this financialized capitalist class than any other previous president. So, in that sense you know this is not going to work.

A related point, I just… very quickly. You know, it's important to remember that people always celebrate the United States turn to free trade in the context of the Great Depression and the passing of the Reciprocal Trade Agreements Act or whatever it was called, RTAA and so on. And this was, you know, the United States waking up and becoming more enlightened than the rest of the world, which was imposing protectionist tariffs and worsening the depression. There was a very simple reason why the United States had to become pro free trade during the Great Depression.

Number one, it suffered the most from the Great Depression and it suffered the most from the Great Depression because unlike its competitor powers, its peer powers, it did not have colonies which could be forced to accept America's surplus produce. That is why it's actually in the context of the 1930s that not only were steps towards free trade being made, but also the United States decided to normalize relations. With the Soviet Union. I mean, you know, whatever little market that created for them that would be a good idea. So that's another thing. So, there's a good reason why the United States became a free trading power.

And just two further points. I think that you know, both of you have said some things about, you know, whether Trump will carry through with his tariffs or not. Quite frankly, I don't think even Trump knows what he's going to do because Trump, is not a resolution to the deep crisis that the United States is in. The United States is in economic crisis. It is so far away from financial crisis. It is in social crisis. It is in public health crisis with the opioid epidemic and. So, on every front, it is in crisis. Trump is not a resolution to the crisis. Trump can only express the crisis in his contradictory behaviors. He can only express the fact that the United States does not have that many levers with which to deal with it.

And finally, I'm not so sure, that you can say the Trump's threats are working. I think Trump's threats because you see Canada has apparently announced that it's going to spend $1.3 billion more on border security. But that's an announcement. It's like Trump's threats. We have to see exactly what really happens in the course and the newspapers in Canada complaining that, you know we haven't got any details. Of course, you haven't got any details because it doesn't hurt to make an announcement. We are going to spend, but you haven't yet spent. We'll have to see how that works. So, so many things to talk about, but I think it's your turn Michael now.

MICHAEL HUDSON: Well, you made the important point that really is the takeoff points that America after World War 2 was supposed to provide dollars to the economy by growing. But it's not growing now. So, the question is, what is it going to do? Well, the only way instead of providing dollars to the economy, it has to suck up the surplus from other countries and specifically Europe. So, I think instead of just saying how bad America’s problems are, the three of us have just explained that.

Let's talk about what the response is going to be. What can other countries do when the United States says, well, we are not going to make prosperity from a trade surplus, but from a trade deficit, because we're not exporting that much anymore, but from the trade deficit, a deficit now, how can we make money off a trade deficit? Well, all of a sudden, tariffs. This means that you know other countries when they produce exports to the United States, now part of what they get in exports, they will have to absorb the price in tariffs that will be collected by the United States to finance this bunch of deficit, largely for the neoliberal policy of getting taxes.

Well, yesterday's Financial Times had a very interesting discussion of Europe. So far, if you look at Europe, Europe looks like the patsy in all of this—it looks like it hasn't been doing any response at all. But the Financial Times article said that when Trump began to get aggressive, just like today in his first term as president, Europeans threw up an Anti-Coercion Instrument (ACI) to impose penalties and restrictions on US goods and services.

If Trump use tariffs to force policy changes. Well, there's been no discussion of this in Canada or Mexico or the Global South countries. But now that Trump's wealthiest supporters and his closest advisors are from the high-tech sector, I think that certainly Europe said, well, we're going to retaliate against the US and the Silicon Valley companies—Facebook, X, and Google.

And retaliation, the Financial Times article said the retaliation may come in the form of “revoking the protection of intellectual property rights in their commercial exploitation, such as software downloads and streaming devices. It also allows the EU to block foreign direct investment or restrict market access for banking and financial services groups.” This is really serious.

This is the first revival of a discussion that American foreign policy is based on the assumption that other countries have no alternative, that they will not respond, that they're all going to be like Canada, just sort of going along with whatever the United States says—that the leaders of all other countries are like Justin Trudeau or like Olaf Scholz in Germany.

But in 2018, such retaliation took three months for Europe to begin to move against Trump, and it forced them to roll back his threats to Europe. Yesterday, the French Finance Minister said, "We're not going to take three months this time. It's going to be very quick." So, all of a sudden, despite the fact that you've seen Europe buckle under on trade with Russia and imposing sanctions on China and turning it into NATO, all of a sudden, the European heavy industry and the wealthiest industrial class are planning on retaliating quickly.

The big question is what will Trump be able to do against that? That’s the big question. For the first time now, Trump is not acting in the vacuum that he thinks he's acting in. He's acting in a way where if the United States tries to impose tariffs, threaten to wreck the economy of other countries, they can retaliate by wrecking the United States the more.

The result of Trump's actions that we're seeing unfolding now—the question to be asked is, how is this going to hurt the US economy itself? How is Trump's intention of controlling the rest of the world going to create feedback that ends up isolating the United States from the rest of the world going forward?

RADHIKA DESAI: Exactly. Mick, please.

MICK DUNFORD: OK, it strikes me, I mean, just looking at some of the statements that have been made in the recent past that he's using tariffs, not so much as to provide the framework for a domestic industrial policy, but he's actually using it to threaten other countries and to require them to transfer investments to the United States.

So, he demanded that Saudi Arabia undertake major investments in the United States. I read that he's threatened Taiwan, claiming that TSMC should relocate to the United States, and that if it did not do so, he would impose tariffs on Taiwan. In the case of Europe, I mean, Europe was pressed into imposing sanctions on Russia. As a result of that, energy costs soared. It's now provided with expensive energy from the United States, and a lot of European industry is considering relocating to the United States. So, its use of tariffs, if you like, is somewhat unusual in relation to the ways in which they've been used in the past. So that's the first point I want to make.

I just wanted to make a couple of others. I mean, if you look at what he does, he looks at bilateral trade balances. So, he looks at the trade with China and says, "We have a $360 billion deficit last year." Now, if you think about what is happening, basically the United States imports manufactured goods from China. China's overall trade surplus is not especially large—it's about 5% of GDP—because China imports large volumes of goods from other parts of the world. China has 20% of the world's population, 5% of the world's arable land, and 5% of many critical resources, so it has to import very, very many things in order to meet the needs of its people.

That means looking at bilateral balances doesn't make much sense. You have to think about it in a wider context of a set of relationships that are mutually beneficial between a large number of countries. And then, the other point is, of course, when China did have a significant trade surplus, what it was largely doing was using that trade surplus in order to purchase U.S. Treasuries. So, it was effectively lending money to the United States in order for it to spend.

That raises—and it's something that Michael said some very important things about recently—the whole question of the role of the capital account and of the capital flows going around in the world. Because United States is a large net recipient of capital from the rest of the world in a whole variety of ways. And Michael can speak about it himself—I mean, he's made a very important point recently that many countries are in debt. They have to repay their debt, but if they have to repay their debt, they need to generate revenue to do so, which means they need to be able to export to other countries.

So, if it becomes more difficult for them to export to the United States and other parts of the world because of a breakdown of the international trade system, that makes it exceptionally difficult for them to meet their debt obligations. So, it's a policy that has a number of very, very contradictory elements to it.

RADHIKA DESAI: Yeah, it's a bit like the interwar period, of course, where precisely the disruption of trade made it difficult for debts to be repaid. Exactly.

Again, a few points to the very excellent points that you've made. I think that, you know, Trump acts as though US threats are extremely serious—that the US threats are essentially the threat of a really, really large actor of a sort that the US simply is not today.

So, one very important statistic that I read in the FT a week or two ago is that the United States today accounts for only 15.9% of world imports. That is an end. The EU comes a close second, and China a close third. So apart from extremely vulnerable countries such as Mexico and Canada, which, thanks to NAFTA, are particularly deeply intertwined with the US economy—and their economies are not as big as China's is—they are very vulnerable.

But most of the rest of the world can very well do without trade with the United States. Yes, they will suffer a bit of a shock, but quite frankly, if they cannot export to the United States, they will find many other places to export to.

There are a few other trends as well. Trump is today speaking in a world in which trade is considerably less important. So, the head of the WTO was recently interviewed, and she pointed out that for the last decade—15 years, or since the middle of the 2000s—basically, world trade has been growing less fast than world GDP.

Which means that essentially, the bulk of what countries produce—on average, more of it—is being consumed at home. And that's not necessarily a bad thing. At the end of the day, while of course most people say trade drives growth, no—growth drives trade. And if countries are growing and populations of countries like India or Bangladesh or China or whatever are consuming more of what they produce, what's wrong with that?

The whole purpose of economic development is to expand the consumption of the people of your country, especially in places where consumption has historically been low. So anyway, I think the world will suffer a bit of a shock, but it is not a shock from which it cannot recover. So that's something that we must bear in mind.

That's why the Europeans and others will be able to retaliate. And I think that these sanctions, like the sanctions against Russia or these trade tariffs, will also boomerang.

Another point that people keep forgetting about—people say that, or rather, there are two points: one of which everybody does remember, lots of people remember; another people completely forget.

These tariffs, if they are imposed on the scale that Trump is talking about, will definitely lead immediately to inflation in the United States. And that inflation will have a further effect, which I mean—that inflation will be bad enough, but because of the cost-of-living crisis that is already raging in the United States, if that inflation then goes up, the Federal Reserve will be further constrained from reducing interest rates. It may even be constrained to increase interest rates, in which case it will more or less immediately trigger a financial collapse or a financial crisis, which will hurt Trump's own friends a great deal because they are the ones who are in the forefront of making lots of money based on borrowed money through leveraged trading and so on. And that is the wealth that will essentially go down.

And a final point—I'll make a couple of others, but I'll come back later—you know, Mick, you talked about capital inflows into the United States, but the fact of the matter is that these inflows had already gone down well before Trump came to power. And these inflows—the lowering of these inflows—has already led to a situation where the health of the treasury market is under scrutiny.

The treasury market used to be considered the broadest, deepest, most liquid market in the world. It is no longer. With the United States issuing more and more demand for credit, there are not enough suppliers. That's why the Federal Reserve has itself had to step in in order to keep up the treasury market. And all sorts of devices have had to be used in order to try to retain what liquidity it has. But the liquidity of the treasury market is itself in great doubt.

So, I just thought I'd leave it there. But Michael, I guess it's your turn now.

MICHAEL HUDSON: Well, I want to take off from the point that Mick made. That is all important. The key is not the balance of trade; it's the balance of payments, which is much larger in the end. And 60% of China's exports to the United States are made in American-owned factories there. They're important to the United States, and all of the same thing happens in Canada and Mexico for automobile parts made by firms that are affiliates of US parent companies.

So any attempt to impose tariffs on Chinese exports, or Canada's auto exports, or Mexico's auto exports to the United States—or all of the maquiladoras, the firms just over the border that are assembly plants to put parts together to send to US parent companies to put into American final products—all of this is going to, all of a sudden, increase the costs to the United States, that has set up these factories in China, Mexico, and Canada as part of its outsourcing of labor, which is part of the Clinton Democratic Party class war against the Labor in the United States, drive down wages by shifting your production abroad to foreign countries, and you'll cut back industrial employment here. That will create an oversupply of labor, and wages will go down, and presumably profits will go up, and therefore stock market prices will go up. That's the Democratic Party's growth plan that's become the whole basis of American strategy for the last few years.

Well, by America imposing tariffs on these goods that are used by American companies, just imagine—the first effect will be to price American automobiles out of the market because you're taxing many of the imports. But there's another factor that I want to point out. When you look at the overall balance of payments in the relationships of this trade, you realize that what is considered to be American production, and American GDP turns out not to be American at all.

If an automobile is made from parts that are imported—most of the parts from Canada or Mexico—then that means that, well, certainly when the car is shipped off from Detroit to the dealers, it's counted as American auto production, American GDP. But a large portion of this isn't American at all. It's foreign, of course. It shouldn't be in GDP because it's part of the output, and the way they measure it, but it's really not American.

So much so, in the way in which Trump has chosen to begin his tariff fight, is a fight against American companies above all. The single major victim of the tariffs against Canada are Ford and General Motors. And the threat against China—likewise, China has been cutting back its exports to the United States. It's fallen from, I think, 22% to now it's only 15% of China's exports here to the US. And many of these are to the US companies that have established the factories there.

And of course, the US has also diversified in importing from other Asian countries too. So, the kind of imports that America is importing to be part of its industrial plan turns out to be undercutting industrial revenue and industrial profits. You can expect the share prices of these firms to go down as their profits go down. The value of wealth in the form of stock and bond ownership is going to go down, and you're going to have the American auto companies fall into the same problem that you had years ago when there was the auto bailout.

You're also going to have companies like Walmart be targeted. Walmart gets an enormous amount of consumer goods from China. Well, just imagine—either Walmart will have to increase the price of these goods, or it'll have to absorb the cost of the tariffs itself. Same thing with the auto companies. Either they will increase the price of their autos by 25% or so—at least for the import content part of it—or they'll have to say, "Well, we'll lose our market if we raise the price by 25%. All we can do is absorb the profit ourselves. We will have to pay the tariff. We can't raise the prices and make the consumers pay because there are all these other cars that other countries are putting in."

So, you're seeing, if you look at who Trump is really threatening, think of him as threatening the US economy itself. And the question is going to be—are the big US industrial companies, those that are left, going to try to push back? That's going to be the domestic political question we're going to see unfolding, I think, in the next month or two.

RADHIKA DESAI: Yeah, Mick, please.

MICK DUNFORD: OK, I was very struck by what you said, Radhika, about the difficulties of the treasury market. And I think it brings us back to something that was said very early on, namely, you know, that in a sense, Trump is trying to manage the decline of the United States and trying to deal with the very difficult situation that is within the country itself.

I think an interesting question is whether what he is doing in the international arena will actually exacerbate some of the problems that he confronts. In relation, for example, to these tariffs that he's imposed on China—I mean, China provides certain critical goods. So, the first question is, can the United States obtain these intermediate goods and commodities that it imports from China from other countries?

So that raises the question as to what extent trade diversion is possible. And to some extent, I mean, it will probably occur. It's certainly the case that some Chinese companies are ramping up production in Vietnam, you know, in order to supply the US market and to circumvent these particular sanctions.

But I think, you know, that raises the question of the extent to which, confronting these sanctions, countries such as China—but also other countries in the Global South—are going to fundamentally reorient their trade away from the United States.

RADHIKA DESAI: That's it.

MICK DUNFORD: I was quite clear, you know, for some years now that China has been reorienting its trade towards Southeast Asia, towards its BRICS partners, and towards the Global South. And it's also very interesting that they actually responded in a very strong way to the imposition of tariffs on China because they introduced a 15% duty on coal, liquefied natural gas, and a 10% tariff on crude oil, agricultural equipment, and certain cars.

Now, these are products that China can very easily source from Russia, from its neighbor Russia. So again, it's quite conceivable that this set of tariffs will lead China itself to accelerate its diversification of its own trade. And in that sense, you know, it may actually exacerbate the difficulties of the United States.

So, I think, you know, this issue of trade diversion and how people respond to these tariffs is actually a question that's very important to explore.

RADHIKA DESAI: Yeah, and I'd say, you know, first of all, I mean, I would say that you inadvertently—I'm sure being too complimentary to Trump—when you say that Trump is trying to manage US decline. I think really Trump is surfing US decline, and in the process, he will make the most of it for himself and his corporate cronies and so on.

Beyond that, I don't think Trump has the capacity to think of the United States as an economy, as a people, as a country, or anything like that. I simply can't believe it. From what I've seen of the guy over the last 8-plus years, it's just not possible that he has anything in mind.

And here's a very interesting thing. You know, obviously, tariffs are such a big deal for Trump. He has made tariffs into such a big deal because, as I always love to say, Trump has won his election by telling a big lie. What's the big lie? The Big Lie is that the people in the United States are suffering because of the trade deficit—because of China, because of Mexico, because of Canada. No, the real reason the people in the US are suffering is because of 45 and more years of neoliberal policy, which have led to the systematic deindustrialization of the United States and all the other things that have led to the financialization of the US economy, led to, I mean, incredible, historically unprecedented levels of inequality—all those things, you know.

So, this is why people are suffering. But he needs to misdirect that anger—that righteous anger of people—at something else, and he's misdirecting it at trade: China, Mexico, Canada, Europe, and so on. So, this is why tariffs are such a big deal. He has to seem to be very active on the tariff front.

But here's another really dirty little secret about Trump's tariffs. Trump says that the Chinese will pay the tariffs, and the Mexicans will pay the tariffs. No, it's ordinary American consumers who are going to pay the tariffs. And you know, with suppliers like China or Mexico particularly, they have been supplying all the things that the American working class has been able to buy for very little for decades.

Now, it's going to become more expensive. This will lead to a direct decline in the cost of living of ordinary American people. And there's a Sorry story there, which I may come back to later on, but let me just say another thing.

What's the flip side of this? The flip side of this is that he wants tariffs to generate revenues so that he can give even more income tax cuts to his big corporate cronies.

So, this is really—I mean, this is a shabby, dirty little secret of Trump's tariffs. And that's why we should repeat them because they're not going to help ordinary American workers at all. This is the thing.

And of course, the secret of low inflation over the last 40-odd years, until very recently, has been precisely that the rest of the world has, for a variety of reasons, supplied the United States with dirt-cheap goods. And now that they are less easily available—partly because countries like China are doing well and their labor is no longer dirt cheap, and partly because the pressure of neoliberal policies, the pressure of climate change, the pressure of wars, et cetera, is actually destroying the world's capacity to produce in many countries—this is also happening.

And the dual pressure of that is leading to high inflation. None of that is going to be solved by Trump.

So, one more point—you know, we say, what will these tariffs mean for the United States? And we've already mentioned many things, and I'll mention another thing. People forget the extent to which the United States is still reliant on agricultural exports, and if there is retaliation, the US farmers are going to suffer an enormous amount.

But more than that, I think, from a macro point of view, from a big-picture point of view, I think that the effect of the tariffs on the US economy will be to accelerate the diminution—the already ongoing diminution—in the weight and influence of the United States in the world economy. It will shrink the US economy in relation to the world economy. It will shrink US imports and exports in relation to the world economy and all the things that follow from that.

MICHAEL HUDSON: All right, based on what you've just said, I think we should title the show with the words that Mick used: "Managing the US decline." That's really what we're talking about, and Trump is accelerating it. And Mick used the word "trade diversion"—that's exactly what is going to happen.

For instance, Tesla generated $22 billion from China in the last year, as reported in 2023. Now, that's 25% of Tesla's revenue coming from China. Imagine what would happen if China just moved against Tesla. That would enormously affect Tesla's owner.

Now, I imagine also how the terms of trade diversion could play out. Imagine how Mexico and Canada could realize that, well, because we're America's largest trading partners, who are they going to take from us? Because we're right next door. They're going to try to exploit their partners most of all because it's easier to exploit partners than enemies that are not going to let you do it or just more distant people.

Now, I think Dean Baker said the other day, "Well, what if Mexico, and Canada decided to shift their supply chains away from the United States towards China? Let's get their solar panels, batteries, and other items, like electric cars, from China instead of from the United States." Imagine if Canada, that has been blocking electronic vehicles from China in order to try to protect the market for US goods in China in Canada, decided to begin getting these from China.

Trump's actions have made the United States prone to a change in the supply chain to China. Shouldn't China choose to realize that there is a real economic, political, and military war against China now that it's been called the number one enemy of America, the existential enemy, and decides to play hardball?

America and Trump don't really have many cards to play. The cards to play are in the countries that have not been industrialized and the countries that are not very highly indebted and financialized. So, America is trying to bully from a very, very weak position, and Trump, blustering, wants to make it appear in his personality as if we're in a strong position, telling other people what to do. But it's really not in a very strong position at all. It's in a very weak position.

So, all of a sudden, he's made America prone to almost every kind of supply chain shift to other countries, and they now have the option of actually taking the initiative and conquering the US market for what it's worth. And whatever they're going to do with the Treasury and US dollar holdings, if they're going to get from this.

MICK DUNFORD: OK, I mean, something that I think one needs to ask is, why is the United States so uncompetitive? Now, you know, one reason obviously is the lack of investment in industry and the slowdown in productivity growth—the absence, if you like, of the kinds of factories you find in China that have extraordinary productivity levels and that actually, as you said, Radhika, pay good real wages to their workforce.

But at the beginning, you know, Michael talked about, for example, the cost of health in the United States. So, the United States has this extraordinary cost structure. I mean, I live in Beijing in an apartment, and for one year, electricity, gas, water, and district heating through the winter months cost me about $500 per year.

RADHIKA DESAI: What's district heating?

MICK DUNFORD: This is a central heating system, but for the whole community—a residential community. A lot of Americans discovered that these costs are way, way lower than China when TikTok was stopped, many of them immediately switched to something that's called Red Notes. Actually, the Chinese name is Xiaohongshu, and if you translate it, it means "Little Red Book." It's very amusing because its impact was almost revolutionary, because certainly all these Americans were actually talking to Chinese people, and they were comparing things like the cost of living, the quality of their transport infrastructure, the quality of their subway systems, the quality of their vehicles.

So, these are fundamental issues, you know, that if the United States is to rebuild itself, have to be addressed. And it's in many ways a much more important issue than threatening other countries in ways that may well prove deeply counterproductive.

RADHIKA DESAI: No, this is a very important question, and I should maybe put in a little advertisement for our next show because after this one, Mike Dunford and I are going to talk about the whole issue of competitiveness and about technological innovation and advancement, because we're going to devote a whole program to talking about what it means when China says that they're going to develop the new productive forces, and particularly talking about it in the light of what DeepSeek has done in the past couple of weeks.

I mean, DeepSeek has completely, in my humble opinion, upended the American business model. And you know, you and Michael pointed to how there are these broader social costs that are more efficiently paid in countries like China, whereas in the United States they end up, you know, making products less competitive and so on.

But there's also something else. I think the American capitalist class has long ago ceased to innovate in any serious sense. It has been a direct result of neoliberalism and financialization. Practically every other week, there is a news story about what went wrong with Boeing. How did it go from being a major innovative company producing the best aircraft in the world to becoming a company that cannot even produce aircraft that don't go down?

I mean, this is completely ridiculous, and it has everything to do with the fact that in Boeing, there was a huge culture shift when instead of keeping innovation, safety, and technological advancement in the forefront, they put the bottom line in the forefront of all their endeavors. And that's what you got.

But there are many, many other things besides. I think there is plenty of evidence to say that US capitalists today require a greater return on their capital than capitalists elsewhere. So, you know, there are so many things we can talk about, and we will. But I think we should probably wind down, as we are close to an hour. So maybe I'll give everybody a last little chance to say a couple of things each, and then I will close.

So, Michael, do you want to add any final reflections on our topic today?

MICHAEL HUDSON: But I think you just summed it up. We haven't even talked about the accompaniment to tariffs and that’s sanctions on other countries that America convinced that Europe and other allies to impose, much at their cost. What if the United States could say, “Well, the World Trade Organization isn't functioning anymore,” because the United States has refused to permit enough judges on the World Trade Organization court. So, when China and other countries sue the United States for violating the trade rules that America agreed to, it can't get a hearing because the United States has essentially blocked the World Trade Organization.

China's already been protesting, and I'm glad that Mick brought up TikTok because that's exactly the point. Now, the United States says if China or Taiwan or any other country invests in the United States, as we told them to, and creates a factory here, we can then expropriate them and take it over at pennies on the dollar by whatever campaign contributors are closest to whoever is the current president of the United States.

Other countries can say they don't want to go on this, and they can not only retaliate in terms of the tariffs, but they can say, "We're going to drop the sanctions. If we can't export to the United States, if we can't have production facilities in the United States without you doing to us what you did to TikTok—confiscate it and give it to your campaign contributors—we're just going to go back to where we were before with our focus on Asia."

Well, the problem for Europe, of course, is that Russia and Asia have turned their backs on Europe, and Europe is going to be left the big, probably the big loser in all of this. But you're seeing the whole system that America has created to make sure that it's an exploitative system and gets the benefit is being unwound by the way in which Trump is so blatantly and explicitly saying, "We're going to gain America first, you lose."

This is a declaration of war not only against the world but against the whole system of world trade, world investment, and international finance that was put in place after World War Two. We're seeing the ending of that very, very quickly—slowly at first, and then suddenly, as the saying goes.

MICK DUNFORD: OK, you know, I think Michael's highlighted the importance of the character of the international order. And then I think, you know, as he said, an international order was put in place after the Second World War. It had, in the United Nations, some very, very positive dimensions. But the point is, if you look at the United States, essentially, you know, from the Truman Doctrine onwards—and earlier, in fact, because that was formulated in 1945—the United States adopted a kind of modus operandi in which they work with these structures if they served their interests and work outside them if they do not.

So, if you go back, you know, to the Marshall Plan, instead of channeling it through the Economic Commission for Europe, it was managed by a separate agency, basically in order to secure the one-sided aims of the United States. And that abuse, you know, has actually increased, especially since the collapse of the Soviet Union in recent years.

I think an essential issue is the way in which other countries in the world are going to try to restore some kind of equitable international order that actually respects the equality of all states and tries to ensure that the benefits of trade are widely diffused. And try to ensure that technology spreads. If technology can spread, that can transform the lives of millions of people. And in that sense, that's why what has happened with DeepSeek is so important—because that has made it available to the entire world instead of trying to establish a monopoly in order to appropriate an extraordinary share of world wealth for a small minority.

RADHIKA DESAI: Well, that was great. Michael and Mike, really insightful closing comments. For my closing comments, I just want to make a couple of quick points.

The first really is that, as you've said on this program many times before, what China means by globalization and what the West means by globalization is very importantly different. Basically, in Western countries, globalization has been used as a way of talking about lifting all restrictions on free markets and free trade. So that essentially the result of that would be that the economies, people, and societies of the rest of the world become open to penetration by excess commodities from the West, excess capital from the West, and so on. They also become open to supplying what the West needs, particularly cheap labor and cheap inputs.

But in China, globalization has always meant expanding and deepening international cooperation, international trading, investment linkages, and international linkages of every sort that are mutually beneficial to the countries concerned—or at least considered by their governments to be so. This is the principle on which China has proceeded. And China has indeed deepened its interaction with the world economy, mostly to the benefit of the world economy, for the last many decades since 1978 and the reform and opening up.

It's important to understand this because, at a time when the United States is tearing up every agreement it has been part of—including essentially destroying the WTO, violating its decisions, refusing to appoint judges to the dispute resolution mechanism, and so on. Meanwhile, China continues to comply in its own way with its regulations. And I think the reason as well is important to remember is because the WTO while it was not a complete victory for developing countries, it did represent, to some extent, an advance in leveling the playing field, and so on, vis a vis the non-Western world, in particular.

And of course, China's entry into the WTO was also negotiated based on set of agreements in which China made sure that the WTO would be beneficial to it rather than just essentially exposing it to the marauding attentions and intentions of Western corporations. So, WTO in this form is probably something to defend, and undoubtedly also something to reform from the point of view of the rest of the world. But it is an existing structure. The United States is today attacking it, and it may very well be that in the end it is China's vision of globalization, rather than the US’ vision, that will save the WTO.

The second point I wanted to make is that the United States is today reduced to playing a zero-sum game. And I think when a country is reduced to playing a zero-sum game, it shows that they have nothing to offer their potential partners. Because in order to play a positive-sum game, it has to be a game of give and take. You have to be able to offer something to your potential partners, adversaries, or whoever in order to play a positive-sum game.

China can do that because it has much to offer the rest of the world. The United States finds itself today in a position where it simply cannot do that, and therefore it can only play a zero-sum game. And it is a very sad commentary on the leadership of a country that once had so many benefits and privileges to be reduced to this.

Ultimately, this is a question of leadership. The United States, as an economy, is ruled by the whims, needs, and fancies of a tiny corporate elite.

But yeah, that's it for now. Thank you very much, Mike and Michael, and thanks to all who are listening and will continue to listen. Please share with other people who may be interested. I think it's been a really, really fascinating discussion—far more in-depth than many that I have heard elsewhere by newspapers and magazines, as well as on YouTube.

So, thank you very much, and see you in a couple of weeks. Bye-bye.