the interwar years, almost 100 years ago, you had what might be called sort of nationalist populism that came in after World War One, replaced the earlier wave of globalization. And in the interwar years, you had a lot of protectionism, populism and patriotism, light word for nationalism. Then after World War Two, you had the rise Keynesian economics and the idea that governments should intervene in domestic economies to manage demand in a fairly benign, non-nationalist way, but for the most part. And then after the 1980s, you had the rise of Ronald Reagan and Margaret Thatcher and free market ideas, so-called neoliberalism. And that has really shaped the way that most of us have grown up. We've grown up assuming that economics have primacy over politics, and that free markets were good, and that globalization and trading was good. And what Donald Trump is unleashing now is a really dramatic change in the zeitgeist, or in fact, a repudiation of much of the philosophy that we've grown up with in the last few decades. And that, of course, is an enormous shock, intellectually, mentally, emotionally, for many people to build their careers in this world. But it's also a profound shock to the global economy, because our global economic system is built on these tightly entwined networks, supply chains, and financial connections that have unleashed so much growth in recent years. And President Trump appears to be determined to try and dismantle those. Yeah,

although, you know, I mean, yes, Trump has been in favor of tariffs for a long time. And he imposed some his last time around, although they were more akin to what we've seen over the years, targeted tariffs. Biden picked up and did some of that. This is sweeping and it's global. out of the Trump administration, right? Trump is for the tariffs and Peter Navarro is for the tariffs. Peter Navarro and Howard Lutnick are saying they're not going to negotiate. Scott Bess at the Treasury Secretary is saying, well, yes, we'll negotiate. And the White House is saying, oh, yes. In fact, the USTR testimony today said that we've heard from 50 countries that want to negotiate. And yet, on the other hand, when the Europeans, for example, or Ursula von der Leyen, said, well, how about we accept this and we'll just zero out our tariffs and you zero out your tariffs. from the White House and they say, well, that's not actually what we want. We're also interested in all the non-tariff barriers. And there have been variations on that theme with Netanyahu and others in the past few days. And you get the sense that at the core, Trump doesn't really want the negotiations because the negotiations remove the tariff barriers, which get you back to globalization and actually eliminate the possibility of tariff revenue replacing tax revenue, which is one of his apparent motivations. How do you suss out this very, very confused set of messages from the White House?

Well, the messages from the White House are indeed confused for three reasons. Firstly, Donald Trump himself is not an economist. And so he is putting politics and power first and economics is a derivative of that. And I'm not sure he actually fully understands all the economic implications of what he's saying because he's not an economist. He works as much through instinct and his gut as anything else. Secondly, the confusion arises because there are different factions around the president. There's a nationalist populist led by people like Peter Navarro and Steve Bannon, who have been pretty influential. There are the techno-libertarians like Elon Musk, and they have been fighting each other around tariffs in the last few days. Musk has made his displeasure very clear, and people like Navarro have hit back. And then you've got the congressional Republicans who are working with the MAGO group, people like Mike Johnson, and many of them have been historically free traders. So that adds another layer of complexity and confusion. And on top of that, you've got the fact that the way that policymaking is being made is quite unused, unlike what people are used to. And so it really is Donald Trump's show. He is calling the shots and everyone around him is dancing nervously around him, trying to read his mind half the time. And as I say, because the advisors are fighting with each other and because Donald Trump does not understand economics particularly well in terms of the way that we've been raised to look at macroeconomics, that creates a very confusing set of messages and policies. For my mind, the key questions right now are one, are the tariffs here as a revenue raising exercise, in which case they should be there permanently, or simply as a negotiating tool to try and bully other countries into cutting deals? We just don't know at the moment, because I, like many people, thought they were initially more of a negotiating strategy, but they now seem to be becoming a revenue raising strategy as well. And history shows that when you introduce tariffs, it's very hard to actually get rid of them. It takes a long time. And the other question is, are the tariffs intended to be part of trying to sort other countries into friends, foes, or simply adjacent countries or not? Because one of the really surprising things is that the tariffs have been imposed on friends and foes alike. And it's quite hard to see a clear geopolitical strategy behind the way that he has imposed them.

Yeah, well, also, I mean, you know, one of the stated objectives of the tariffs is to return manufacturing to the United States. There are a couple of problems with this. One of the problems is a lot of manufacturing jobs have been lost to productivity and technology and not to being exported to other countries. Another problem is that certain countries have great comparative advantages, which are almost impossible to make up for. And if you were to try to make up for them in the United States, you'd end up with products that were much more expensive and less competitive globally. And then finally, you've got this third problem associated with all of this, which is companies aren't going to relocate to the United States until they know what the long-term situation is. And the White House doesn't even seem to know what the situation today is. And so they're going to stop and watch. And as you say, it takes time to see what happens. If the White House is negotiating, and during the hearing today with the USTR, it was pointed out that, okay, fine, you're talking to 50 countries. How long is it going to take to negotiate all of that? It took two to three years. The last time you negotiated a deal with Mexico and Canada, this will get you to the far end of the Trump administration in which a lot of companies will think, well, whoever comes next is going to undo this. So we're not going to make some huge capital investment now because this is going to whipsaw back then. So it seems like this core goal regarding manufacturing is going to be impossible to realize. Am I overstating that? Well,

I don't think you're overstating it. And I'll say two things first of all in what they're trying to do. There is no doubt that the US has lost a fair amount of its industrial activities in the last few decades. And COVID-19 showed very clearly the gaps in the supply chain and the vulnerabilities that that had created by shipping so much overseas. And so it's not unreasonable to say, well, actually, there are key gaps in the supply chain that we need to address. And we can't just have an economy entirely built around services and digital tech. We do need some manufacturing capacity as well. So that's entirely reasonable. The problem really is twofold at the moment. Firstly, the cost differential between American workers' wages and those in places like Vietnam is huge. And although you've had Howard Lutton, the commerce secretary, come out and say that, well, yes, we should have Americans making iPhones and screwing in screws into iPhones. And that sparked a lot of, you know, farcical memes about, you know, just how easy is it going to be or not to get Americans to sit there and screw in screws into iPhones. The real problem is that these days, if you bring that operation back to America, it's probably going to be digitized and done by robots. Lutnik himself has conceded that. So that may not even create that many jobs. So another point of confusion is, is the administration trying to create jobs or trying to create industrial processes that are cutting edge and modern or not? Because they may not be the same thing. And of course, the issue around the uncertainty, the investment problem is that companies will not invest unless they have clarity in the medium to long term, and they simply don't right now. And the most dangerous thing, the most pernicious thing about what's happened in the last week is not the actual nature of tariffs, it's the extreme uncertainty that's now hanging over America. And there's been two other times we saw this level of uncertainty. One was in the great financial crisis, when people froze and did nothing for a long time. The other was at the beginning of the COVID-19 pandemic, when again, people froze. And we know that when that happens, it's not good. Economies do not work if everyone is freezing in fear, or rather they don't work well. And that's exactly where we're sliding right now.

For example, during the financial crisis, there was a huge amount of coordination between the White House and banks and others trying to resolve the crisis. And that doesn't seem to be going on right now. There is a kind of alienation between the White House and Wall Street because, you know, of all the things that we've just talked about. But let's, you know, shift to the consequence of what you're saying. And that is, you know, the economy over the next several months or the remainder of the year or onward. You know, today, the market, on Tuesday, the stock market went up a little bit. Then it went down a little bit, ascending the day down a bit. And there is within markets, volatility, and people are like, is there a negotiation? Is there not a negotiation? And so forth. But here's the thing. The tariffs are going to go into effect at midnight. They're going to go into effect in less than eight hours from when we're going to record this. They're not going to go away. If they don't go away, there's going to be recessionary pressure, inflationary pressure, and all sorts of things that we can't predict. And I'm going to get to China in a second, which is a manifestation of many of those things. But doesn't it seem like, quite apart from interday trading volatility, that as we look out to the remainder of this year, the projections from places like JP Morgan that a recession is more likely than not, a global recession, and a recession in the US, seem to be pretty fair with that. Absolutely.

I mean, the problem is when confidence collapses, and we've seen collapsing confidence from all the opinion surveys, opinion polls of business recently, even before the charity were announced, confidence was collapsing. When Comptance is collapsing and businesses are freezing, you don't get a vibrant economy. It's that simple. And one of the most remarkable things that's recently happened has been the upward explosion of inflation expectations. So at the end of last year, consumers in America were expecting future inflation to be around 3%. That's now jumped up to over 6%. And that's really bad news for Donald Trump, potentially, because in that kind of environment, consumers are too scared to spend lots of money. So it's very hard to see how this is going to create much of a vibrant economy in the short to medium term. And in fact, what's striking is that the Trump team themselves have acknowledged that repeatedly. And they've said that essentially, people need to suck up short term pain for long term gain. This is remarkable, partly because there have been very few presidents, if any, who have come into office and started talking nonstop about the long term, not the short term. Even fewer who've been trying to tell the voters and his base that they need to accept short term pain for long term gain, and simply suck up this level of dislocation. Now, some people in the Trump team say, well, listen, it won't be so bad for our base, because our base often doesn't own stocks. The people who own stocks and the equity markets tend to be the wealthy and there are large numbers of Americans who are not wealthy at all and have almost no exposure to these plunging equity prices. And that's entirely true. I've also been told by members of the Trump administration that if you are telling people to suck up pain and they already have pretty tough lives and tough conditions and not a lot of hope for the future, then that message is not quite as bad as it might be if you're telling somebody else he's been doing very well, that things are going to be tough. But leaving aside all that, to my mind, one of the most interesting questions is that Donald Trump has really launched a kind of social and political experiment, not just in terms of his policymaking, but in terms of specifically asking the electorate to suck up pain, suck up this occasion uncertainty, and put their faith in him, trust that he is correct about how to reform the economy against the advice of most mainstream economists. Well,

I mean, that's an accurate analysis, of course. And it's also a little bit charitable, because the idea that Donald Trump is conducting a social experiment, you know, sort of presupposes that he actually has conceived of it that way. And I think he's such an impulse driven character that, you know,

yeah, I would say that's a social experiment is now emerging about is America a country that can basically embrace the idea of shared sacrifice? And one reason I ask that is because I used to live in Japan and Japan plays a culture which has a really strong position of shared sacrifice and people will accept shared sacrifice in Japan. I've always assumed that the Americans wouldn't. Maybe I will not.

Yeah, well, and something that's coloring that, of course, is the fact that simultaneous to this, and this is what I was getting at with Trump not actually having conceived of a social experiment, is that they currently have on the table an $880 billion cut in Medicaid. And they are talking about, you know, reducing other vital social services that those people in their base depend upon, whether it's Social Security or, for example, the Veterans Administration. We've got a lot of people who are just not going to get an operation, not going to get the support that they needed. Cutting back in HHS has similar effect. And so we're not just saying here is the place that you're going to have to suck up the pain. We're saying you're going to have to suck up the pain in many different areas. And that's a problem. But there's another problem which I'd like to get to, and that is running up tariffs, big tariffs, is inflationary. Prices of things go up. They just announced a new tariff on Canadian hardwood. Why does that go into homes? You know, price of homes is going to go up. New home builds. You know, we're talking about $3,000 iPhones, but it's not just iPhones, which are kind of product that the middle or upper middle class are drawn to. China, for example, and we'll get to them one more second, produce clothing and toys and other kinds of things for others in the marketplace. And so as the interest rates go up, our independent central bank, at least so long as it can remain that way, is going to say, well, that's a problem. This is not the time to be lowering interest rates. We're going to push up our interest rates. Well, if we push up our interest rates, it's going to make it harder to to buy a house. It's also going to strengthen the dollar versus other currencies like China's currency, which they're currently weakening, which is going to create greater disadvantages in terms of trade imbalances. They also want to tax cuts, which are estimated by the Peterson Institute to produce a nine to $10 trillion increase in U.S. debt over the next 10 years. And, you know, we're going to have to borrow that money from somewhere. And so all of these things seem to take the bad situation we're in now. And if you project it out a little bit, it seems to get worse. At least that's the way it looks to me.