The Munk Debates Podcast - Friday Focus: America and China's trade war is destabilizing the global economy

Episode Date: April 11, 2025

Friday Focus provides listeners with a focused, half-hour masterclass on the big issues, events and trends driving the news and current events. The show features Janice Gross Stein, the founding director of the Munk School of Global Affairs and bestselling author, in conversation with Rudyard Griffiths, Chair and moderator of the Munk Debates. Rudyard and Janice open the show talking about the escalating trade war between the US and China. The pace and magnitude of this growing dispute is destabilizing the global economy and forcing both countries down a dangerous path. Instead of talking to China about trade, Trump should be talking to Xi about growing domestic consumption in China so that their exports don't destroy foreign industries. In the second half of the show Rudyard and Janice predict how this trade dispute will play out: which leader will blink first? Is there another leader - an ally of both countries - who can step in to resolve this? and how will China react to the strangling of their economy? On this point they both agree: we are in a dangerous and unstable period in history, and Donald Trump is the most erratic decision maker that has ever been in charge of a nuclear power. To support the Friday Focus podcast consider becoming a donor to the Munk Debates for as little as $25 annually, or $.50 per episode. Canadian donors receive a charitable tax receipt. This podcast is a project of the Munk Debates, a Canadian charitable organization dedicated to fostering civil and substantive public dialogue. More information at www.munkdebates.com.Become a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.

The following is a complimentary excerpt of this week's edition of the Friday Focus podcast by The Monk Debates. To access full-length editions of each and every episode, along with all kinds of great additional benefits and perks, become a donor to the Monk debates. You can do that for as little as $25 a year, and you'll receive each and every year 50 Friday Focus episodes at full length. It's all available right now on our website. in just a few simple clicks. Triple W. The Monk Debates.com. Look for the Friday Focus option in our navigation bar, the top right of the website.

Make your donation, and we will send you each and every Friday a link to listen to the full-length edition of this program. Thanks in advance for your generous contribution. Ruddier Griffiths here, the chair of the Monk Debates. Welcome to this, the Friday Focus podcast for the 11th of April. I'm joined in studio by Janice Gross Stein, the founding director of the Monk School of Global Affairs. Janice, one of those classic sucker punch days out there. I'm not talking about geopolitics.

I'm talking about the weather in downtown Toronto as we record this podcast. You know what I did? I might live with it if it was a sucker punch day. It's been a sucker punch week. Yeah. What is that about this country and what we call the shoulder seasons? I love that euphemism. It's kind of like, please, let's get this winter over.

But here we are warm and cozy in the Monk Debates studio. So if you are listening to this podcast, head over to the email that we sent you today, Friday the 11th, and check out the link to the video version of the podcast. And you can see Janice and me in beautiful High Definition TV do this whole thing together. And so warm and cozy. Exactly. Let's thank Janice off the top, some of the amazing supporters that have come on board to underwrite the bunk debate's work on civil and substantive discourse.

So Richard A joining as a curator. Thank you, Richard, so much for coming on board and a whole bunch of new supporters this week. Janice, we have Genevieve R, Don M, Dorada G, Sonia L, Kim R, and, Glamin L. So thank you to all those folks. That's really great. This is a moment where we need to support free and independent media. It really matters. Yeah. Let's Janice talk about the big news of this week, which is the accelerating trade war between China and the United States. We've seen now a series of tit for tat, retaliatory tariffs between the world's two big economic superpowers, China last night, adding to their tariffs on U.S. imports into China, taking this well over 100%. Both sides seemingly,

though, indicating that this is a pause. I mean, you can't go higher. I mean, we're up to 150% on something like a balance of trade combined between these two countries that would add up to almost half a trillion dollars a year. They are very large traders with each other, right? So this matters. When we were all sighing with relief earlier in the week, that Trump had rolled back those tariffs, the piece we missed, frankly,

was that if you think of the combined U.S.-China trade and you understand that tariffs are tax, we have just taxed by 100% have a trillion dollars worth of trade. And that doesn't count the flow-throughs to neighbors all around. Yeah. So, Janice, what do we make of this? Because I'm feeling increasingly disposed to the idea that this is not just a regular eruption in the bilateral relationship between China,

which has happened at various times in various ways. including in the previous Trump administration, where there was a tariff spat. It was ultimately resolved in a way by 2020, but it certainly destabilized the China-U.S. relationship during Trump's first term. This, to me, feels qualitatively and quantitatively different on the part of both parties. I think you're absolutely right, Roger. First of all, let's talk about the pace. You referred to the earlier China.

How long did that take much? to build up. It was a slow climb. This is racing to the top of a mountain. And the second thing is both of them, both Shishyping and Donald Trump, to the extent that Donald Trump has ever dug it on anything, but they have staked their prestige on this. It is really tough for either of them to back down. So both the pace and then the magnitude and then the status of each of these two presidents is heavily, heavily engaged in this dispute. I don't think Trump won is any guide to Trump to whatsoever.

Yeah. Well, let's talk about the kind of psychology and motivations of these two leaders, Xi and Trump. So Trump this week, a bit like the Canada-of-Mexico tariffs, if we go back 60-odd days when he imposed 25 percent tariffs on Canada and Mexico, he then flip-flopped within 72 hours. He lasted a little bit longer, five days on his big, you know, global set of tariffs, but then in the face of market turmoil, he's flip-flopped again. So what does that, what does that communicate to Xi? What is that, how did the Chinese interpret what happened between last Wednesday's, you know, Rose Garden speech and what was it, this Tuesday?

or Wednesday's flip-flop. So Trump has, in fact, engaged in behavior, the worst possible sequencing of behavior. But Janice, he's one of the world's best negotiators. He's, you know, the art of the deal. Come on. Is this not art of the deal material? Wow.

If this is the art of the deal, I don't want any part of it, frankly. You know, when you stake out a tough position, you think it through before you do it. And you ask yourself, how long can I sustain this? And if you can't sustain it, that's the famous red line theory. Don't draw them if you're not going to stand behind them. Well, he broke every rule. He comes out swinging.

He commits himself. His advisors in the White House that morning, Wednesday morning, are telling him this is not. And walk us through this, Janice, because you were shocked as someone who advises leaders and has worked with government officials in high-stakes situations. He supposedly was making the decisions on what the terrorists would be, how would they be calculated, who they would apply to, literally hours before the announcement. It's actually a worst story. It was actually a worst story.

My job dropped, frankly. He had his officials, Roger, who's senior people out front, testifying one of them in Congress. His press secretary was in the middle. of a press conference defending the tariffs when he changes his mind based on really what it appears to be treasury yields. He was watching those treasuries and he was watching the yields climb. And you know what? He got that because he's a real estate guy. And he understood from the days he was trading real estate in New York that those yields really matter and he pivots and he leaves his officials

hanging. I've never seen a performance like this. If you're shishi pink, you're watching this. You smell blood, don't you? You smell blood. You smell blood for two reasons. One, you figure, okay, I know what the indicator is now. I know what this, what, where this guy is going to choke. The pressure point. Yeah. Yeah. It's league in baseball. Where are you going to choke, right? And it's when it sells treasury yields. Secondly, you say to your There's only one person. It doesn't matter what Besson. And Besson, and look, Nick, I've been trying to move him back.

This is Scott Besson's the U.S. Treasury Secretary, right? And Howard Lutnik. They have been trying to move him back because they understood it was the market. Let's just understand. It wasn't anything that any other country did. It wasn't anything that his advisors did. So if you're an advisor, you're asking yourself, Do I want to go down with this ship and destroy my career based on all of this?

If I was Xi Jinping at this point, I would have no incentive to be the first to concede. None. And he's steely. Xi Jinping, we've seen, is steely. He doesn't do this. So you know the counter argument that Scott Besson and others in the U.S. administration are floating is that obviously these tariffs are much more punishing to China because the balance of trade And again, we're going to get into this, but you know, it's the wrong way, but to go about it.

But Trump is addressing a not unsurious issue, which is not simply that China exports the United States at a rate of like five to one what the United States imports into China. It's the nature of those products. China is increasingly becoming a high-tech, sophisticated manufacturer, not of, you know, child's, toys and Walmart, you know, Chotchkis. We're talking sophisticated EVs. We're talking state-of-the-art electronics. China just this week debuted, if you believe it, a breakthrough in quantum computing applied to AI and large learning language models that are supposedly going to further supercharge, you know, China's prowess in the AI space, which the Americans had previously thought was more exclusively their domain. So there is a real competition here. We can't.

deny that. But Janice, you know, what happens now that the G, if he feels weakness, how does the Trump administration respond to that if you were advising them? And I know you're not. But if you were, you're in a decision maker's dilemma here because you've precipitated all this. And now you're kind of trapped in your own feedback loop and this big flip-flop that you did on Wednesday. So I'd love your thoughts on the three-dimensional chess because I'm playing checkers and I'm pretty confused right now. So they're playing the wrong game, Richard. There is a problem with China. The problem with China is that there's no investment in consumption and huge investment in savings in order. I was stunned when I looked at some numbers earlier this

week, the numbers of factories that are being built every day in China, China has more robots at factories than the rest of the world combined. And this is a critical point. What China did when their property bubble exploded, the state investment obviously didn't want to keep property up and fueling the bubble, so they diverted it to manufacturing. And what I didn't fully appreciate is the extent to which the last 18 to 24 months, China has been on a massive manufacturing high-tech build-out of its key industries across these, you've mentioned before, these 44 verticals from biotech to AI to car manufacturing.

Pharmaceuticals, absolutely everything. And the critical point is they're higher value, right? They're more advanced. Here's the dilemma. The rest of the world cannot absorb those exports. It's not only the United States, Europe. And why can't they absorb those exports, even though they're cheaper? Because it would destroy manufacturing.

Whatever remains of manufacturing in Europe and North America would be wiped out. I agree with just because I need your help here. Because there's the idea of competitive advantage with trade. It's the oldest and probably truest insight of the Scottish Enlightenment, going back to Adam Smith and Ricardo and others from centuries ago, that you want specialization, that maybe we should welcome China becoming the high-tech. manufacturing of the world because we're going to get all kinds of great products inexpensively, and we're going to go figure out something else that we can do, whether that's Hewing Wood or

drawing water or, I don't know, using our hydroelectric power to cleanly fuel AI data centers. We're going to find out our ability to do something that is unique to the world and is a value of the world. If we end up just, I don't know, ignoring the whole theory of competitive advantage trade, then we end up building EV cars that are secondary in price and efficiency and technology to the Chinese cars and we sell them to ourselves as opposed to selling the cheaper Chinese cars. Like there's an element here, Janice, that I struggle with because we are kind of cutting off our nose to save our face. So you have just given voice to the purest theory of international trade and competitive advantage.

We lived that in a sense once. We've seen this movie before, we lived that in the 90s when China first came in to the double-deal. A million jobs went to China. Now, you could argue, well, we all benefited. It goes cheaper toys, cheaper toys. And a million, frankly, miserable jobs screwing, you know, the equivalent today of little, you know, little screws into iPhones.

Like, they were not good high-value manufacturing jobs. He's going to be honest about it. Says the economists. But what happened to those people? They were never reabsorbed into the economy. Rust Belt towns became rust belt towns. And they've now bounced back, though. They've created.

30 years, 30 years. Okay. And all over Michigan, which states, Michigan, Wisconsin. These are the people who went through and didn't get support. Yeah. Look, it was badly executed. Don't get me wrong here. I don't know if you can execute.

So let's talk about it. But AI is coming, Janice. We know there's going to be huge disruptions of the workforce. So the whole thing I've read is that it's about the rate of change. It's not about the destination. The world changes. Technologies emerge like AI or robotic manufacturing. You can't unlearn these things or unstop them.

It's the rate of change. So I agree with you. Governments and others need to be there to slow that. But to think that you could reverse it, which is what Trump and the protectionists are arguing, They're in effect saying let's undo the competitive advantage of trade. Let's make crappy EVs that are never going to be as good as the Chinese because we have much smaller market to sell into. And we'll sell them to ourselves at a cost that's way higher than what we could have if we just simply bought the better Chinese EVs, to use an example. Yeah.

So what does it mean slow? You're right. You know, we can't put technology back in the bottle. We can't undo what AI is going to do, by the way, to auto parts manufacturing. And white-collar jobs, too. And white-collar jobs. So that's not a Trump problem. That's, in fact, an economy changing as there are new and more effective ways to do things. What does it mean slowing? Okay. It doesn't mean allowing Chinese exports to swamp the world at the higher level of value within two years. Because we and I both said the transition took 30 years in those rest of belt economies. And let's have one more factor here. What kind of politics does that produce populist, right-wing politics, which has its own costs and consequences?

And if you're an economist, you're looking at this week, Reddard, and I heard one of the most senior ones say, we can't model this, right? So we have to take slowing seriously if we're not going to have the same kind of disruption, but faster. again and again. Trump should not be talking to China about trade. That is not the right demand. Trump should be taught, and we tried it in the past and failed, Trump should be talking to Xi Jinping about

growing domestic consumption in China. That's the issue, because if we mean slowing and we have to do that, that's what they need to absorb it themselves. They need to absorb more of it, right, so that they don't. But they have had this huge property bubble. They've had malinvestment, and they have their own problems, too. But let's get back. You can argue this is malinvestment in a way. What they're doing now is malinvestment because they can't consume what they're manufacturing. The only way for them to recoup their investment is to flood Europe,

destroy the German car industry, not only the North American industry, and everything else, by the way. Well, the German car industry and the North American car industry has gotten smaller every single year relative to other manufacturers. So we have to ask ourselves in Canada. Is that a legacy industry? Yeah, is this something, you know, we want? But let's go back to our protagonist, Trump and Xi, because I don't think we're quite finished there yet.

But I'm going to take a quick break just to say goodbye to our complimentary listeners now and encourage them that if you're enjoying this type of conversation, and you think this is helpful at all to you and thinking through the big events shaping our world, then become a monk donor. You can do that for as little as $25 a year. So 50. How many cups of coffee?

Would you have to buy in order to subscribe for a year, Roger? Well, if you're buying at Starbucks, I don't know, six or seven, and you've got a Friday Focus podcast delivered to you in beautiful high-definition video if you're watching us online now or to your favorite audio app. So do that now. And then we will be back in just a nanosecond to talk to all of our lovely donors about the second half of today's discussion on Friday Focus. Thanks for listening to this excerpt of the Friday Focus podcast.

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