Winning The Trade War

[00:00:00] The Why Curve, with Phil Dobbie and Roger Hearing. The trade war has begun. Donald Trump believes in tariffs, and there are some tough mark-ups coming on what comes into the US. There's retaliation coming too. All imports across the world are going to get more expensive. So where does this leave Britain? We're not a big manufacturer anymore. We have to import a lot of stuff. And if these costs go up, so does inflation. How can the UK ride out this storm?

[00:00:28] Can we be a winner, or at least not a loser, in the coming global trade war? The Why Curve. So a few things to say on this. First of all, there's no guarantee that there is going to be a trade war. Because so far what we've seen is, apart from the 10% on China, Donald Trump has backtracked on everything so far. Well, he has. So it's a negotiating tool for him. But he can't keep on doing that. No. Because at some point he's going to cry wolf. And yeah, exactly, people won't believe it. And already there are retaliatory stuff coming down the line.

[00:00:56] The Canadians have it in view. And he's putting in place the steel and aluminium tariffs. They're not phantoms. So it is beginning. I think there are the signs of it there. And realistically, Britain's got to be working out how to deal with it. I wonder what he hopes to achieve by this. So first of all, I mean, the impact of inflation. A lot of economists would say, oh, that's a one-off impact.

[00:01:21] So if you increase something by 50%, for example, you increase it by 50%. That one time, it's not continually increasing by 50%. So there will be a quantum shift in the price of things. And that will make things more expensive. The only, in fact, is if there's secondary impact. So people demand more money. Because you've got to have more money to pay for stuff. So that's where you start to get rolling inflation. But I mean, that possibly can be contained.

[00:01:48] But it's just this idea that things are just going to get more expensive than they were compared to how much people are earning. So people's standard of living is going to go down. So that's the problem. And that is going to have a big pushback all over the place. But particularly in America. Yes. Well, but that leans on to us. That's the thing. We're not immune to any of this. No. But I wonder how long it'll last. I mean, if Americans – because they've been sold a pop on this, haven't they?

[00:02:13] Because they've been told that the costs are going to be borne, for example, by China. Yes. Which, I mean, is just hogwash. Because China is not going to pay anything. China exports something into the United States. The United States slaps a tariff on it. The importer, the American importer, pays that tariff. Yeah. Not China. Yeah. But the interesting thing there is how much America actually does import.

[00:02:36] And someone was explaining to me the other night that, in fact, the part of America's economy that is actually import is not that huge. They do make their own stuff. They can fill the gaps. But these countries in Europe, I mean, and us in Britain, I think are in much worse positions. Yeah. But I feel like – I mean, they are still importing a lot from China. And certainly steel is the interesting one because – and aluminium or aluminium. No, aluminium on this programme.

[00:03:03] But they – I do wonder where they can get around it, actually. And you go, actually, you've put a tariff on aluminium. We don't have any. We don't have any. We still were selling you aluminium, a completely different thing. And maybe you'll get away with it. But, I mean, if those costs are passed on to Americans, Americans are going to pay. Yeah. And you wonder how sustainable that's going to be. Because people – I mean, already you see it in social media. People going, hang on a second. We were promised that, you know, food was going to get cheaper and none of this is helping. Well, food is actually very much going up.

[00:03:30] I mean, the latest US inflation figures suggest that things are not going in the right direction. It's minor, but it is there. And things like eggs, very basic things. Yeah. I was being told in New York you can't actually get eggs at the moment, pretty much. Yeah. You know, there's something definitely going wrong. So once it becomes clear that they've been told a lie, basically, that this idea that the foreign country is the country that's going to be paying, when, in fact, it's the American consumer and the American importer that's going to be paid,

[00:03:56] when that is realised by people, you wonder how long this policy is going to be enacted for. Well – And whether Donald Trump will get away with it, you know. In the end, he's got Congress. He is the president. Yeah. To some extent, he has wiggle room on that. He doesn't have to – the midterm elections are the next ones. They're a year and a half away. So he can avoid that. But what I mean, you know, is how it affects everyone else. It's the thing, you know, when the elephants fight, it's the grass that suffers. Because – and we are that grass in a way. Europe, and Britain in particular – Are getting trodden on.

[00:04:25] Yeah, essentially. And, you know, we're a very small, even smaller player since Brexit, of course. So we just have to tell you what comes down the line. Yeah. Yeah. It's almost like, you know, we paid a price for international trade through COVID. Are we going to go through the same thing again? That's the question. It feels like it might be the case. And I think, you know, there must be – there may be strategies we can adopt. Maybe, you know, there is a trade deal to be done in certain areas.

[00:04:48] But if this is a contagion, you know, that retaliatory tariffs on, but lots of different things, and other governments and other exporters are talking about this happening, how does it work? How can we deal with it? What are the mechanisms? Well, when you're looking at the economic impact of something, I think it's sometimes not always a good idea to talk to an economist. Ah, there's a thought. Not always. No, no, no. It's a good economist. Yeah, and we have one, funnily enough. Good. Simon French, Chief Economist and Head of Research at Panmure Liberum, joins us now.

[00:05:16] So, Simon, first of all, Americans seem to have this crazy idea that if you've got tariffs imposed on China, China pays for them. And they believe that because that's what Donald Trump told them. And, I mean, he's told a lie on that, hasn't he? Because, obviously, American importers pay for them. He has told an alternative fact, Phil.

[00:05:39] One thing I would say is that the choice of China, indeed all countries potentially faced by tariffs, is whether to some extent they try and offset that in terms of the overall cost, which will mean that the U.S. household or the U.S. business that is buying this good will pay a lower price through either exchange rate movements or squeezed margins.

[00:06:05] So, it might be that that alternative fact assumes a rather different transmission, if you excuse the jargon, between a sort of levy, such as a tariff, and the end price faced by the U.S. consumer and U.S. household. But I think mainstream economics, and there is such a thing, would suggest that a tariff of that nature is largely borne by the country levying it and its consumer base and its business base.

[00:06:34] Well, the currency side of it is interesting, isn't it? Because the moment there is talk of tariffs coming in, the U.S. dollar strengthens. The moment it looks like, well, they are not going to happen, the U.S. dollar starts to weaken again. So, that sort of supports that argument, doesn't it? That, you know, it is going to weaken other currencies so that Americans can afford to pay for these increased costs because the currency is worth more.

[00:06:56] Well, it's interesting, isn't it, how the global flow of capital finds a way of returning to something relating to an equilibrium. Because if we go back to why these tariffs are being levied in the first place, I think it is that Donald Trump wants to put something of a, you know, protected perimeter around U.S. industry so that he can supply both its domestic markets and have more of a share of the global trade markets.

[00:07:27] However, if the dollar just strengthens each time that that happens, then, of course, the competitiveness of those exports becomes rather more muted. So, yes, there is an element of rather squeezing the balloon when you try and approach economics in this mercantilist way. So, it's good for bringing business back home, but only if it's there to serve the domestic market. I mean, forget about that.

[00:07:52] And the thing with that is it's fine if you are, like the Americans, to some extent, a manufacturing nation, something that makes things. You can do the balance. The retaliatory sanctions can be borne. It's part of all that. But how does that affect nations like Britain that aren't really in that game and, to that extent, have to bear whatever these movements are, these additional taxes on imports? And how that's going to work in terms of our position as a non-manufacturing. Moving on.

[00:08:21] If we're not exporting very much to them, it doesn't matter too much, does it? Because I'm going to think for them to stick a tariff on. Yeah, but it doesn't matter if we're importing stuff that we can't afford. I mean, that's the fundamental problem. Gosh, there's an enormous suite of questions in that. I'll try and take it. Now, we'll just go away. You answer that for the rest of the podcast. We'll just go off and have a coffee. I don't think listeners will help. They will thank you for doing that if I have to wobble on. But look, if I break that down into its component parts, let's put some numbers to the UK's position.

[00:08:51] It exports about $64 billion worth of goods to the United States each year. But actually, that makes it a trade deficit country on the goods side of the balance of payments. And therefore, if you think of Donald Trump targeting countries with a good surplus with the US, Mexico, Canada, China and the EU, actually the UK looks first order, unlikely to be in the crosshairs directly of these tariffs.

[00:09:22] But as an open economy, and by international standards, quite an open economy, disruption, sand in the gears, if you like, of global trade and global growth will have a negative blowback on the UK. But just to prove to you, I am the classic economist on the one hand. On the other hand, I will throw another aspect, which I think is probably underexplored, which is the UK could choose if it wants to.

[00:09:46] And it seems to have taken this political approach in recent days, recent weeks, to rather sit out the tariff tit-for-tat battle.

[00:09:55] And if countries like China, if economic areas like the euro area, weaken their currencies and divert their exports to other economies, why wouldn't the UK absorb cheaper imports into its own economy, given its fears and well-founded fears of domestic inflation?

[00:10:17] Maybe it imports a bit of international disinflation through that trade diversion to achieve its inflation target. It might appear a little bit sort of too clever for its own good. Right. So you're saying Europe, the value of the euro goes down because of the impact of this strong US dollar. Yeah. So we just, we don't impose any tariff, we just import stuff cheaper from Europe. The Brexit bonus, in fact.

[00:10:45] Yeah, I wouldn't go quite as far as a Brexit bonus, but I would certainly say that if you maybe questioned why Rachel Reeves was in China or questioned why Keir Starmer was in Brussels, I don't think you need to be a strategic genius to work out that there is a route through here where the UK isn't as buffeted by international trade breakdown as it undoubtedly has as a result of Brexit,

[00:11:13] but may choose to navigate through currency movements, trade divergence, a rather more advantageous path as a result of the US being rather more mercantilist over the next four years. So do you think we're actually going to see any of these, I mean, well, obviously we've got the 10% against China now, but of the rest, do you think the steel tariffs are going to stick? And because, I mean, there's different reasons, aren't there?

[00:11:38] So first of all, there was the rather curious, I don't think anyone quite believed it, the 25% tariff to try and stop the, you know, fentanyl and the migration numbers. Well, that was Mexico and Canada, which are now suspended. Suspended for a month and who knows whether they come back again or not. So there's that reason. Then the other one is, well, to try and deal with this imbalance of trade. And the other one, which is the curious one, which he said is to raise revenue. So in other words, we can, and let's talk about that last one, because is there anywhere in the world where anyone successfully said,

[00:12:07] well, we're going to tax our people less through income tax by putting up tariffs, which is just another form of tax, which is where we started, a form of tax, which if we ignore currency moves, is a tax on the local people through paying for imports. Yeah, I mean, there's something, a concept in economics, which you're both familiar with, which is the money illusion effect. But maybe we should rather sort of morph that into the tax illusion effect.

[00:12:34] Maybe the US household politically sees reduction in taxes, either to the household sector or the corporate sector, and doesn't observe the inflationary impulse that may happen. Inflation is often called a hidden tax. And therefore, to some extent, if what we see is inflation on one side and reduced tax on the other side, if that's something of the strategy, I don't think it's a good economic strategy or has any economic dividends.

[00:13:02] But maybe we're all looking through the wrong lens. And it should actually be seen as a political strategy, because economic agents don't observe the two as equivalent. Well, if I'm paying less tax, though, and particularly if I'm a business, and I've got more ability to grow domestically, so that would be, I mean, that's the low tax argument, isn't it? And if it can be paid for by people paying for higher prices on imports,

[00:13:29] if your business is importing them, you know, as you say, there's an inflation aspect. But that inflation aspect is a bit of a one-off, isn't it? I mean, if tariffs go up 25%, prices go up 25% from tariffs, I mean, they're not going to go up again 25% next year, are they? It's a one-off line, in other words. Yes, I mean, to a point. The other thing is, if you are doing this because you want to reroute supply chains,

[00:13:57] and you want to move, you want to get in the way of comparative advantage of trade, then you are actually moving production to a less productive, less efficient jurisdiction, be it another third country that isn't affected by tariffs or your domestic economy. I mean, there's a reason why, you know, trade is as globalised as it is. It's because there are comparative advantages to be reaped from that. You get in the way of it, you also get in the way of productivity growth,

[00:14:26] and therefore productivity, you know, overall economic well-being, which has a very, very strong link. But then there's also the argument about the subsidies that they claim are put on, particularly with China, obviously, certain areas, and that it's not a free market in that sense, that this is not fair competition, and actually putting in place tariffs makes a fairer competition. Well, that's a fair argument, out of all of it. I would stand by Donald Trump on that. You don't want to import subsidised goods from overseas.

[00:14:53] So if they are subsidised, I mean, the EU's got problems with that, obviously. Yeah, there's lots of subsidies there, so that's another issue. Within the EU, you shouldn't be, between EU members, you shouldn't be subsidising goods which are sold from one country to another. So, I mean, that's an established norm. Yeah, I mean, there are many credible economists who would say that China's entry to the World Trade Organisation in the mid-90s

[00:15:18] brought in a member who wasn't prepared to play by the same rules as everyone else in terms of, you know, state support of its industry, and dumping onto the world market of various items. Now, if Donald Trump's argument, and I think it is, is that these tariffs are, they're not forever, we shouldn't look at them as forever, but they need to be sufficiently credible to get a change of behaviour.

[00:15:47] And if in Beijing, and you can think of other capitals, you know, in Mexico City, in Ottawa, of course, in European capitals, if you're getting a change of behaviour as a result of those threats, then actually the overall tariff goes away. And Donald Trump, as he's been telling everybody who wants to listen for decades, he has broke the deal, he's the master of the deal.

[00:16:17] And I suspect, you know, I think, you know, those of us who have to observe the sort of, the whipsaw of the news agenda and the economic pricing that goes with it, to some extent, my frustration is that we sometimes believe literally what comes out of the President's mouth rather than trying to understand it. Yeah, take him seriously, but not literally. Exactly, but we're starting to understand that now, aren't we? That actually, the opposite is true. You don't believe anything that comes out of his mouth.

[00:16:44] So his power has diminished somewhat, hasn't it? I'm wondering whether we're starting to see that, you know, with this American... But some of these tariffs are real. I mean, we can't say they're not. Well, there's only China so far. So far. 10% from China. But the rest. And I mean, taking on board what you're saying, Sam, and if these are one-off and it changes behaviour, but actually, before we get to that stage, we're likely to have a war of reciprocal tariffs. People will, almost inflation in tariff terms. Do you think we'll get there? Do you think that's what's going to happen?

[00:17:14] Or is it just bravado and bluff? So I think we'll get there, but it's how long we will be there for. And the degree to which a president who, through video conference into Davos last month, wanted inflation low, interest rates cut, oil prices, gas prices lower, because he, you know, go figure, a real estate dealmaker all his life, wants lower interest rates in news shocker. And you can't have,

[00:17:44] unless you really want to debase the price level in the United States, you can't have the Federal Reserve, which is, as we're recording this, has now, markets have priced out their next interest rate cut to December. You can't have those interest rate cuts against an inflationary backdrop, facilitated by a prolonged tariff war. Now, short-term tariff spat, I think is pretty much consensus.

[00:18:12] A long-term imposition of tariffs and a steady ramp up of trade frictions, I think is less consensus. Why do you think that won't happen? Because, I mean, certainly the mood music that's coming, and, you know, it's not just Mexico and Canada. Obviously, China is a massive player in all this. Trade relations have been quite strained for a long time. Why do you think there won't be a big trade war? Because American people will pay for it. And Donald Trump will find that it's impossible. But that's a consequence further down the line.

[00:18:42] Phil's answered the question. So you think it's just that it will be political pressure that stops there being a trade war, in effect? I mean, he is both an anti-politician and an uber-politician. You know, they are... It's a very strange amalgam of priorities. But there are inconsistencies also in that economic agenda, and it's those inconsistencies of wanting low inflation, low interest rates, but using key policy tools that are actually inflationary

[00:19:12] that ultimately make it an unstable equilibrium. And an unstable equilibrium means that, I think, the idea of long tariffs between major trading partners throughout the Trump second term is an unlikely outcome. So as if I'm Keir Starmer looking at this and saying, OK, how do we ride this out? If it is a short-term spat, well, we just keep our noses clean. We open the communication channels to Washington. We reiterate, as you were talking about,

[00:19:40] the trade balance between the UK and the US, and hope by the end of it we're fine. Or do we do something positive, try and actually take this moment to try and push through, seems highly unlikely a real trade agreement with us and the US? How do you ride this? I'm excited to hear you are Keir Starmer. That was the revelation of that question. I think I spoke with more animation than he normally would. I stayed away for the entire sentence, so he wasn't playing that part too well.

[00:20:07] But look, he has the Master of the Dark Arts now in Washington in Peter Mandelson. So if anybody's going to be able to negotiate and navigate the volatile politics, he appears to have the right man over there. But in terms of making a positive action on tariffs,

[00:20:35] I don't think anything in the world's sixth biggest economy can be done quickly. We can't wean ourselves off a persistent trade deficit anytime soon. And therefore what we do in Washington, I think from a sort of trade perspective, is not pin our hopes on a, you know, a mutually advantageous trade deal.

[00:21:02] Let's not pretend that Donald Trump is out for anybody bar himself and the American people in that order. So he's not going to cut the UK a great trade deal. But are there areas where, you know, putting the data to the fore, which is that the UK is, you know, where it's, I think it's best occupies, which says we play by the international rules. We play by the fair trade rules. Therefore, don't pick on us.

[00:21:30] Indeed, we can be your allies on a number of areas, not just economic, but political. And you've seen in the recent AI conference in Paris, the UK align itself with the US on... Yeah, it's very interesting. They're walking out on, not walking out, but refusing to sign on exactly the same basis. Yeah. With J.D. Vance, it's extraordinary. Look, really. A strategic move, which you would hope will prove to be advantageous and the administration will remember that

[00:21:58] because you don't want to attract criticism. Now, for some people, that's deeply uncomfortable. That looks like, you know, sort of the US's lapdog. But the UK also, as an economy, as a political entity, has always been strongest when it has managed to navigate the various different sort of great powers around the world and be the interlocutor, if you like, which was why Brexit was, put aside the economic impact,

[00:22:28] politically so damaging for the UK. But it now gives us the opportunity to take that position and to say, you know, we know that Donald Trump is not happy with the way the EU is behaving in various ways. It does at least, putting my Nigel Farage hat on now, give us the opportunity to take a different position. So what is the problem with the EU? I mean, he says they've done awful things to us, you know, as though, you know, I mean, it's got a, it's obviously it is selling less to America than America is buying from the EU.

[00:22:58] Is that the terrible thing? I mean... Well, I think the terrible thing is probably the trade surplus, but I think it is also, as we've also seen in recent days, is the pressure that the president is looking to bring to bear on European defence spending, particularly its NATO commitments and actually moving up well above the de minimis up towards, you know, potentially up to 5% of GDP, which is going to be very, very hard across

[00:23:27] almost all European capitals, perhaps only really the Baltic states are anywhere near that level. What does America spend? It's just shy of 4%, I think. Right. So they've got to up their game too. Well, again, you are at risk, I think, of taking the president literally. It's an aspirational target. It's like trying to build one and a half million homes in the UK. It's no one really thinks it's going to happen, but as a focusing... Yeah, I know. You're a new shocker.

[00:23:57] But as an aspirational target of somewhere you want to get to, and you don't mind if you come up just short because it's still decent progress, I think that's how we should interpret that 5% target. So to some extent, those terrible things that the president's talking about in the European Union, probably all roads lead back to defence spending and not being seen to outsource that or not indeed actually outsource that to the US. In that area, things can move forward. It's an optional... Pressure might at least,

[00:24:28] maybe not getting to 5%, but getting to a much better and bigger part of the budget as far as the US is concerned in the EU. Does that mean the EU is somewhere that America can do business with perhaps more easily, certainly more easily than China and many other states or state groupings? And in fact, things could get better with the EU and we might, I suppose, simply geographically, benefit from the backwash of that. Well, he doesn't like the fact that obviously the EU is more successful

[00:24:57] at selling to them than they are the other way around and he doesn't like the fact that, you know, in Europe they make aircraft that don't fall out of the sky as well and he's probably a bit fearful that there's an aerospace industry that could actually pick up some ground in international defence as well. He probably doesn't... You know, he sees Europe as a bit of a threat, doesn't he? Yeah, I'm not going to speak with great sort of conviction on this because I think you can argue very competently from both sides.

[00:25:27] The one thing I would say on the whole defence, Europe, how the US sees this is I think the US has to be a little bit careful what it wishes for because if you look at the huge success of the US tech industry, a lot of the intellectual property, the research and development stems out of Department for Defence spending initially and it has, you know, proliferated out to make the US,

[00:25:57] you know, far and away the preeminent technological power and the moment... I mean, even going right back to the reason we have the internet really was a defence project. Indeed, indeed. Although Tim Berners-Lee might have something to say about that but let's go over the history of the internet. But I do think on a long-term view, increased defence spending in Europe may be just the shot in the arm

[00:26:24] to European growth, the European technology sector that has been missing for decades. I don't think they are two entirely independent facts. The fact that the European spending on defence has been so low and its technology sector is not at the table when you compare the US and to a modestly lesser extent China but with China catching up pretty quickly. What about looking at this from the other end of the telescope in a way and it was something

[00:26:54] we were talking about just at the beginning before you came on, Sam, which was the extent to which the rest of the world looking at Donald Trump and the way he is doing things and particularly, I guess, in the economic sphere and tariffs, can get to some extent together to stand back and say, well, can we deal with each other in a more rational way and maybe Britain could be part of that. Mexico, Canada, of course, China potentially, I suppose, the EU and Britain saying, well, let's let the storm carry on

[00:27:23] and we can observe it, perhaps try to deal with it in different ways but maybe coordinate. Yeah, in other words, could it backfire on Donald Trump if America is seen as a place that's not to be trusted? I'll make you a decent price on that international coordination happening. I think it's great in theory, the likelihood of that happening in practice, you know, the European Union coordinating itself as an entity to move quickly on energy and on defence

[00:27:52] regarding Ukraine hasn't really happened over three years. the idea then of aligning itself with other parts of the Americas and China as some sort of, you know, counterweight. I think we're in aspirational podcast territory rather than real politics. Yeah. Oh, I like that whole aspirational podcast territory. That's what we are. That's our zone. Particularly in terms of audience numbers, we aspire to any more.

[00:28:21] But if the Arab nations get a little bit teed off about the fact that, you know, the U.S. has sided with Israel and they feel as though, you know, there's room for a manoeuvre that's a retaliatory manoeuvre that's going to hurt America and on the other side, Europe and maybe the Arab nations as well look and think, well, hang on a second, we haven't, you know, they've given in to Putin as well. Do you start to get, you know, a groundswell of opinion from people with power and money

[00:28:50] that might be, you know, willing to take on America? And Britain could jump on the back of that? I refer you to my previous answer. One thing we haven't mentioned, Simon, and this is the energy area, the sort of oil thing. And Donald Trump's huge push towards that as a big thing they want to do and to export and to be very much at the top of that. That higher dollar. Yeah, and all the pushback against the green initiatives, of course, and in the U.S., the IRA, their act there

[00:29:20] that was supposed to bring the green economy right up. Is that going to have an impact on what Britain could do? Because certainly during the Biden years we must have our own version of that. Is that all going to have to be put on the back burner as well? Yeah, so there's a lot going on in the global energy market and both in terms of the relative investment in hydrocarbons versus renewables but also the energy market

[00:29:49] being very, very geopolitical in the Middle East. And one of the paths to lower gasoline prices in the U.S., lower inflation is an alliance between the U.S. and Saudi Arabia to flood the world market with oil to try and get, well, Vladimir Putin around the table in terms of negotiating a ceasefire but also

[00:30:16] from the pressure on the Iranians. There's a lot of role as always, honestly, or certainly to the last... Because Iran and Russia are reliant on that, those oil imports and so the price is... Correct. So it works on... We were talking about earlier in the podcast if you like, the intellectual inconsistency but actually this is quite consistent is the idea of you can squeeze Iran and Russia and simultaneously

[00:30:45] support the cost of living for U.S. households. Those are pretty aligned objectives. So I think with lots of things you can argue on both sides where the Trump administration will go but I think the priority on lower hydrocarbon costs and trying to incentivise investment, incentivising OPEC to pump more, to get the prices down because, you know, geopolitically it'll be to their attraction, certainly to Saudi Arabia. Minor inconvenience that we give up on the planet, of course, but, you know, that's just an aside. Now,

[00:31:14] which brings you back to the point on where does the UK which is certainly to Biden and under its current energy minister Ed Miliband has made a big play towards faster rollout of renewables. I think any energy economist I've spoken to in recent years has said you're going to need all this supply, you're going to need nuclear, you're going to need in the short term oil and gas, you're going to need renewables and so to some extent

[00:31:44] you look at the data and the three of us have chatted a number of occasions over a number of years about the UK is often held up as an outlier economically when it really isn't. It's actually boringly in the middle of the pack on loads of economic metrics. The one area where it is an outlier, it has the highest energy costs in the OECD and that is an impediment to growth, it is an impediment to household living standards and therefore

[00:32:13] I think the UK keeps it pretty simple and it works out how much capacity rather agnostic of where it comes from, be it nuclear, be it North Sea oil and gas or be it renewables and tries to get that outlier metric down. So it's supply and demand isn't it really and I'm wondering whether if we look at let's take steel as a example, so the United States says right well we're going to impose tariffs on steel because we don't want to be importing quite so much steel, that's all fine

[00:32:43] but you can't up your own steel production overnight, you're actually all you're doing is you're pushing up prices, I mean the whole argument for a tariff surely is aside from the currency fluctuations that we talked about is to try and up your own local production, now economists are very good on it assuming that all of these things that normally take a generation can happen overnight and Donald Trump seems to be falling into that assumption as well, surely you can't replace this international trade in a connected world where so much more trade

[00:33:12] compared to even a couple of decades ago is trading internationally, you can't replace that with domestic production overnight. But again, I think you're looking at it from an economist standpoint, which is very admirable but think of the swing states that will go to the polls in 2028 when Donald Trump will be going for his third term of office and you have a situation where Pennsylvania will be in play, it will be one of the states that will be

[00:33:42] in play and so being seen to have a story to tell around protecting the US steel industry, even if you haven't got the numbers on your side, if you've got a good story to tell, that is your route back to a third term in the White House. Yeah, which is interesting because a lot of what we're talking about isn't actually economic, it is political in terms of the headlines, it's I'm doing this, I'm protecting that. The actual knock-on effects, the real world effects perhaps are delayed and we won't even know about it

[00:34:12] so he'll be able to convince people for some time yet perhaps that he's doing the things in that way that he needs to. I was lost last night, I found myself in a very lonely place, a very dangerous world. Farnham is really bad of these days. Well I thought, I suddenly thought, oh my God, I'm on X and it was very different to last time I was there because I was finding, unless they've changed the algorithm again but I find that hard to believe, I found a lot of derogatory comments towards Trump as opposed to before the election it was all

[00:34:42] obviously very gung-ho even from supposed Republicans who were all talking about, you know, all this is great but what's it doing to the cost of fuel, particularly the cost of food. I'm just wondering whether already it's starting to backfire on Donald Trump and whether we're getting worried about something that might actually only last for a couple of years and then his days are numbered. It's possible. I mean, look, my economic forecast is much better than my political forecast. That much is evidential. But right now the two are hand in hand, surely.

[00:35:12] Well, they kind of have to be, don't they? Because that's what investors want to know about. But look, I think the reality is that it is much easier in opposition than it is in government. And criticising Joe Biden for his inflation, criticising him for a lack of backbone on the world stage is the easy bit. When you are then

[00:35:42] responsible for it, it's the hard bit. And Donald Trump is not alone in US politics, he's not alone in global politics, facing those challenges. What he has as a skill that is extraordinary, and I can't think of another politician globally who has this, is the ability, maybe Silvio Berlusconi, the ability just to completely let the criticism just not stick to

[00:36:10] him as a man, as a political figure. That is an extraordinary gift. And one that perhaps Keir Starmer could do with a bit more of. Because bringing it right round as we come to the end of this sort of conversation, Britain, Keir, Starmer, his government, from what you're saying need essentially to hold the line, hold their courage at this point, ride this one out, because actually we probably won't do badly as a result of all this. Because of our deficit. Yeah. I think if you look

[00:36:40] at that 64 billion I referred to earlier in the podcast, that's 2% of UK GDP. In the Eurozone, its goods trade with the US is 4% of their GDP. Similarly in China, it's 20% of Mexican GDP, it's 25% of Canadian GDP. So if you look at all the economic areas that are in the crosshairs, the UK sits as the least directly exposed. and some clever

[00:37:12] navigating this tariff battle is the best thing that the UK can do, because it can't make its own economic weather, but it can try and avoid being in the eye of Sauron, if you excuse the Lord of the Rings reference associated with international trade wars. So we just need to say, look, we don't make anything that you want, so don't worry about us, because we're

[00:37:40] not going to influence things. I wonder whether the EU needs to say, look, the fact that we are selling so much to you shows how well your economy is doing, and the fact that you've got so much money, people are so well off. Because you could fix that trading balance in Europe by people in America just not shopping as much, but then that would be a downturn in their standard of living. But I mean, that's quite often that's an economic argument, isn't it? Actually,

[00:38:10] a rise in imports is a sign that the domestic economy is doing well, so you'd embrace it. Yeah, I mean, this is the challenge facing Peter Mandelson facing Keir Starmer, which is, and European leaders, which is to convince that there are two sides to any trading relationship trade and the trade surpluses

[00:38:39] are the mirror image of strong underlying demand by the US consumer and industrial base, and they come hand in glove. whether that rational way of describing how international trade balances work will cut through, there I am more cynical. I imagine it's not all But it's a zero-sum game, however you look at it, it's all got to

[00:39:09] balance out at some point. but explaining that is another issue. I look forward, Phil, you being invited into the Oval Office to explain this. Well, next to Elon Musk and whichever latest child he brings on. I'll bring my small child who I'm going to call Y. We're working sequentially through the alphabet. Simon, thank you so much for being with us. We will see how it plays out, and no doubt talk to you about it again. Thank you. We need to

[00:39:38] build more houses. Yes, we do. I mean, that is part of the growth actually. Unless you have places for people to live, and I guess places where workers can live specifically, you are a bit screwed. And this is a story of the world over. It's not just a UK phenomenon obviously. House prices are crazy in Australia and Canada and North America. Less so actually in the United States, interestingly. But we all need more houses. Well, I'm quite happy with one. You really got the one. Well, actually, in Surrey, I think I'm

[00:40:08] quite unusual having one. Phil Dobby Industries is beginning. But I mean, generally, the population needs more houses because there's people living at home with their parents for a long time. We've got to bring prices down, and prices are only going to come down if we increase supply. So let's build lots of new towns. Yes, 100 sites have been earmarked by the government. They're not going to build 100, 100, but they're going to choose from 10, I think, are talking about as being a likely number, or is it going to be more than that? Well, 10 seems to be the number, doesn't it? But I mean, I just wonder, if you're going to

[00:40:38] build towns where they need it, sadly, they're all going to be just off the M25, aren't they? And that really doesn't help the north of England or the southwest or Wales or Scotland. I mean, is it social engineering to say, we're going to build houses where we think they should be, where we'd like to see growth, where there's not demand currently. it's social engineering, but it's also economic engineering. You've got a lovely area full of educated, willing workers, we'll give you money to invest in these areas. I mean,

[00:41:08] it could work. Yeah, let's look, and we can look at history, of course, we can look at places like Wellingarden City, or Milton Keens, which took a long time to take off, didn't it? And was subject to so much ridicule with its concrete cows. But is it the way forward or is it actually just adding to the housing stock in towns that we already have? But of course, you've got to make sure that you're adding to the capabilities and the facilities that are available. You've got to have all the necessaries and we don't have much money for it. We don't. So how do we pay for it?

[00:41:37] Many questions to answer on housing next week on The Why Curve. See you then. The Why Curve.