The Podcast of the Lotus Eaters - PREVIEW： Brokenomics

00:00:00.000 Hello and welcome to Brokernomics. Now in this episode I have hastily put together something

00:00:05.780 on the question of tariffs. Tariffs popped up last night and I thought let's move things around

00:00:11.180 a bit on the Brokernomics schedule and get an explainer on tariffs up nice and quick. I want

00:00:16.860 to try and go through the full picture. I did have a bit of a stab at this on the podcast.

00:00:21.480 There's really only so much you can get through in a 20-minute segment, especially if Harry's on.

00:00:25.540 So I thought it needed a full Brokernomics as well to kind of really dive into the question at hand.

00:00:32.280 So I'm going to try and cover all the angles here, the reaction, why it happened, how they work,

00:00:38.360 the executive order, all that kind of thing. And we should come away from this one with a decent

00:00:42.880 understanding of why this is happening, what is happening, how it's happening, and what I expect

00:00:49.520 the reaction function to be following on from this. So the first thing is, let's put this in

00:00:56.740 context. And I did allude to this in the segment that I did earlier, where I basically said, okay,

00:01:02.840 look, you've got to consider the dollar system as a whole. And okay, so basically the quick version

00:01:09.440 there is that after the Second World War, America ended up with all the gold because it was both a

00:01:17.020 safe haven and a functional economy. And it supplied Europe with much of the rest of the world, what it

00:01:22.760 needed. And they paid in gold. So you get to the end of the Second World War and the US has all the

00:01:28.460 gold. And somebody, probably an American, thought, wouldn't it be good if we got to hang on to all of

00:01:34.660 this? So you then have a whole series of agreements that I've explained at length in previous Brokernomics.

00:01:40.600 The dollar system is a great one with the guests that I had on for that. So go into that if you

00:01:46.600 want to get all the details. But that all sort of worked perfectly fine until US politicians could not

00:01:55.200 stop spending more than they could justify, even with their dominant economic position, even as being

00:02:02.920 the world's reserve currency. So in 1971, and again, I've covered this at length in previous Brokernomics,

00:02:08.580 the US basically went off the gold standard to fiat-based money. They were still basically the

00:02:16.760 world's reserve currency, what everybody uses for trade internationally in order to keep things simple.

00:02:23.140 But now there was no limit to the amount of dollars that could be produced. The only limit was

00:02:27.780 the restraint of politicians, which obviously is not much of a restraint limit at all.

00:02:32.800 And what you ended up with was a situation where the dollar supply kept on going up. Now, weirdly,

00:02:41.080 you end up in a situation where the US can export basically just dollars, so pieces of paper that it

00:02:51.000 just makes out of thin air, and well, not the pieces of paper, but the dollars themselves, you can make

00:02:55.740 those out of thin air. And you send them abroad, and then people send you real stuff in exchange.

00:03:03.900 Now, that sounds fantastic, but it does mean that you end up exporting your entire manufacturing base

00:03:12.640 as a result of it. Because of course, why would you make anything at home if you can just magic money,

00:03:20.680 and then somebody else makes it for you and sends it to you? As you can imagine, that is quite an

00:03:26.100 attractive trick. And it's very difficult not to take advantage of that trick, but it's a bit

00:03:32.820 when it hollows you out. It's great if you're the money class. It's great if you're the ruling class.

00:03:40.000 It's very much not great if you're not part of those two groups, but you are in America, because now

00:03:46.500 all the elites are getting very, very rich, and you can't get a job because your job has been exported abroad.

00:03:54.020 So, a real issue. So, okay, actually, I'll tell you what, let's try and take us through the picture logically.

00:03:59.980 Dollar has US reserve status, massive demand for dollars around the world.

00:04:02.820 To meet that demand of massive dollars, the US must send dollars abroad. It does that by running a trade

00:04:11.460 deficit. America imports more than it exports, and it pays in dollars, which, as we've said,

00:04:18.160 you know, they can just magic up. And in exchange, the world sends them real things, okay?

00:04:23.660 Okay. So, sweet deal, as we've established. You know, you ship green paper abroad. In return,

00:04:30.760 then you get computers, flat screens, cars, clothes, agricultural goods, all of it, you know,

00:04:38.160 all of that stuff. And you could ask whether that's exploitation or privilege. I suppose it's both.

00:04:42.820 But the catch is, is that the US gets lived beyond its means, and it doesn't feel the pain of doing

00:04:49.920 so. Well, it does eventually, because it runs a huge deficit. It keeps on creating debt, and that debt

00:04:55.160 has a cost that needs to be serviced. And so, eventually, it does come back to bite you rather

00:05:02.500 hard. When does it come back to bite you? Oh, about 20 years ago, you really started to feel

00:05:08.480 the pain of it. You're really feeling it really acutely now with a deficit of $2 trillion a year,

00:05:14.000 and an interest expense. Just servicing US debt at this point is a trillion dollars a year,

00:05:20.720 and it is going to grow pretty consistently. So, the problem is with this dollar system

00:05:27.060 is that it allows really bad domestic policy to go unpunished. Any other country who ran domestic

00:05:38.320 policy as badly as the US would have already had an economic collapse, a revolution, you know,

00:05:47.720 military coup, something like that. But the US just carries on living beyond its means,

00:05:54.120 importing more and more, making astonishingly bad domestic decisions. I mean, Joe Biden was an

00:06:00.000 absolute case point example of this, and getting away with it until you get to the point where the

00:06:07.540 debt buildup is so massive that it overwhelms the system. And because you haven't taken the

00:06:13.060 corrective measures previously that any other country who didn't have this dollar system would

00:06:20.940 have been forced to take, the pain when it comes is quite potentially utterly catastrophic. And then

00:06:27.680 you get into the situation of the Brokonomics I did. Oh, what was that book? I did it with proper

00:06:33.720 horror show, the Mandibles. Yeah, the Brokonomics on the Mandibles. It was a fictional story.

00:06:40.380 But I mean, it spoke to me because it was an example of what America would look like

00:06:45.660 on the other side of an economic collapse, having built up the vast imbalances that it is able to

00:06:53.900 build up under this system. Okay, so what does Trump want to do? He wants to keep the privilege of

00:06:59.420 the dollar-based system. He doesn't want to lose that. And he doesn't want to suffer the downside

00:07:05.240 of, you know, uncompetitive export sector. So he kind of wants to use this to get the best of both

00:07:15.700 worlds, which is still going to be painful. So by taxing imports, Trump does make the dollar

00:07:22.600 that bit less attractive. It's still going to be attractive. It's still going to be used

00:07:26.500 across the world. But it is going to become less dominant. So he's indirectly weakening it without

00:07:34.440 messing with its reserve status, which is really US's superpower. I mean, people think they're a

00:07:42.380 superpower because they've got lots of aircraft carriers and they can make lots of things go boom

00:07:46.220 all over the world. Really, it's the dollar. That's their key superpower. So he's hoping to boost

00:07:53.140 US exports, bring some production back. It is a bit of a blunt instrument, but then it's not obvious

00:08:02.240 to me that there was a better option. You know, you'd like to think there's some highfalutin,

00:08:08.120 really complex, subtle strategy that could be weeded in. You've got to remember, he's working

00:08:13.400 on a political timescale. You know, he's only got four years. He's only got, well, less than two years

00:08:19.300 now until the midterms. He has to act fast unless he wants to completely torpedo J.D. Vance's or

00:08:26.280 whoever's prospects of winning in four years. So he needs to act fast. And actually, even if he did

00:08:33.780 take the time to come up with some absurdly complex, masterfully subtle alternative to this,

00:08:40.080 it's not necessarily obvious to me that it would be any better than this. Okay, so he's going with

00:08:44.620 this. So he's externalizing the costs instead of reforming domestic policy. And it shifts the

00:08:52.520 pressure onto basically US allies and trade partners. So he's not really doing monetary

00:08:58.420 reform. He's kind of doing a bit more, he's a little bit more coercive than that and a bit

00:09:03.120 of a blunt tactic. Short-term reaction, we're coming to some of this. In fact, let's talk about

00:09:09.600 it now. Short-term reaction is the S&P drops, you know, big stock dropped, everyone's portfolio

00:09:15.440 dropped. You know, my portfolio has declined quite a lot back to the levels that it was at in February.

00:09:23.640 Like, oh, okay, right. So we're in the early days of April and my portfolio is now back to where it was

00:09:29.600 in February of this year. You know, I think I live. But people are going, you can tell the people

00:09:35.760 who've got a stock portfolio online on social media because they are going absolutely berserk

00:09:42.300 at the moment because their portfolio has dropped. It's like, oh, suck it up. Come on,

00:09:46.400 be a big boy. I mean, my portfolio is back to where it was in February. But the S&P 500,

00:09:52.600 I believe, is back to where it was about two years ago. And people are saying, oh, it's the end

00:09:58.380 of the world. I mean, is it? It's back to where it was two years ago. Seriously, that's your definition

00:10:05.620 of what you need to completely freak out about. Some stocks, I think we have to talk about Nike

00:10:12.560 later because we talk about Nike later. But, you know, some stocks have been, you know, hit quite

00:10:18.460 bad on this. If that is you, if you are one of the Brokernomic listeners who actually has a portfolio,

00:10:25.000 don't panic. Don't freak out. You know, you see all these news headlines about two trillion was

00:10:32.460 wiped off the stock market. Makes it sound all very permanent and stuff. No, it's not. People are

00:10:37.980 panicking. People need cash liquidity or they're lowering their risk profile. And the marginal share

00:10:46.740 getting traded is getting pushed low. And if you then re-denominate the entire stock market by the

00:10:55.600 handful of marginal shares that got traded in a panic, then that notionally revalues the entire

00:11:00.960 stock market down by two trillion. But, I mean, could you really convince all of the shareholders to

00:11:07.520 sell their shares at this new low evaluation? So no, two trillion is, it's such a news headline-y

00:11:16.640 way of saying it. But it doesn't really. Two trillion has not really been wiped from the U.S.

00:11:23.000 market. It's just marginal shares have been traded and people are panicking and all that kind of

00:11:27.040 stuff. Okay, back to the explainer. It's an attempt to address an aspect of the core problem. But

00:11:34.500 this by itself is not going to tackle the whole problem, right? Because you can't reshore industry

00:11:40.800 with taxes alone. It is going to take more than that. Because actually the bigger problem is

00:11:47.060 probably productivity. And productivity is getting crushed by red tape, you know, all the regulation

00:11:54.760 that there is. A lot of that really needs to go. Deficit spending, union power, regulatory capture.

00:12:03.660 That's a big thing under Biden as well, wasn't it? Regularly. Well, I mean, it wasn't just under Biden,

00:12:08.280 but it ramped up significantly under Biden. All of that needs reworking. You've got a whole generation

00:12:18.480 of young white men who are targeted, trying to push them out of the workforce or basically just push

00:12:25.900 them out of society altogether. All of that needs to change. There's a whole bunch of other issues

00:12:33.440 down the line from this. I did a Brokonomics on The Wire not so long ago. And one of the things I

00:12:40.300 talked about there was US ports. And it was striking. I mean, I know that was a fictional

00:12:46.720 representation, but I mean, it highlighted a number of issues. The resistance to automation,

00:12:52.580 better workflow processes. It's the kind of shit that unions do and people resistant to change do.

00:13:00.280 US ports need to take on a lot more automation. They need to become a lot more efficient.

00:13:05.920 These tariffs are not going to handle any of that. I mean, to give an example, you need the tech

00:13:11.220 upgrades. You need to see the productivity rise. So there's a whole bunch of things down the line.

00:13:15.860 I mean, automation in factories as well. And I'll come to this later because I included a

00:13:20.840 social media post from somebody saying that they'd worked in a Chinese factory. We'll come to that

00:13:25.480 later. US workers are never going to work in the way that Chinese workers are prepared to work.

00:13:33.060 They're not going to work 13 hour shifts with no air conditioning, sleeping in a dorm on the top

00:13:39.200 level of the factory, eating a bowl of rice a day. You know, the US is never going to match Asia when it

00:13:46.560 comes to labor cost. But they can match them through superior education and American or Anglo propensity

00:13:57.320 for innovation and working with robots. Basically, that's what I'm getting at. They are going to be

00:14:06.520 able to work significantly more efficiently, even if they are not going to be able to work as cheaply

00:14:12.660 with bad conditions. That's that's not what that's not what the US should be should be going for.

00:14:18.660 OK, so so that basically sort of hopefully gives a big picture, which all of this fits into

00:14:24.740 created by dollar reserve system, which has allowed lots of bad habits to establish,

00:14:34.660 allowed America to live beyond its means. Seems great. You can understand why you're fully in favor of

00:14:41.400 this system. If you are a US elite and you've got a big stock portfolio, if you're a politician,

00:14:46.560 you know, if you're if you're doing well from this system, what Trump has just done.

00:14:52.400 It hits you like a hammer blow. The globalists are up in arms. Lots of lots of people with,

00:14:59.400 you know, what do they call them? 401ks are up in arms. There's loads and loads of people in America

00:15:05.420 who are not part of the elite or don't even have a 401k. They don't have a portfolio. They probably

00:15:12.220 don't even have a home of their own or a job. And those are the people that are actually really

00:15:19.260 looking to to benefit from this system. Right. So let's take a look at the tariffs themselves before

00:15:25.900 we get deeper into the explainer. So hopefully my editor can show on screen these. These are the

00:15:31.580 tariffs. So let's just let's just have a quick look at this list. So China.

00:15:38.620 Trump is framing this as if China is imposing a 67 percent tariff and then he's very generously halved

00:15:44.780 it to 34 percent. Not actually what's happening. You know, Vietnam. Vietnam is not imposing 90 percent

00:15:51.660 tariffs on US goods. All he's basically done is taken the exports from, say, Vietnam.

00:15:59.820 He's taken the exports from the US to Vietnam and then he's divided one number by the other

00:16:07.260 and done it as a percentage. So the trade imbalance between US and Vietnam is 90 percent. So 90 percent

00:16:15.180 more goes from Vietnam to the US than the other way around. That's how he's come up with these numbers.

00:16:23.100 But he hasn't framed it like that. He's framed it as if these are reciprocal tariffs, which which

00:16:27.660 which is inaccurate. Why has he done that? I suppose it's easier to justify. It's an easier pitch.

00:16:34.140 It's easier to get people on board because most people are. And I had this on my segment yesterday.

00:16:39.100 I put the segment up and I explained, no, actually, these are not reciprocal tariffs. That's not how it

00:16:43.500 worked. So many people were saying, oh, well, if we get in charge of this, then it's generous to be

00:16:48.620 charging half of it. No, no, no, no, no, no, no. That's not what's happening. And I even and I was

00:16:52.620 actually very supportive. I am supportive of this policy, very supportive of one of the one of the

00:16:57.180 relatively few people who were supportive of this policy. And I still had some knuckle-draggers

00:17:03.020 coming in and saying that I was bashing Trump for this. No, I'm not. I'm just let's be real. He's not

00:17:09.020 doing reciprocal tariffs. He's trying to address a trade imbalance. And I support him for that.

00:17:15.020 And I think it's right. It's fine. But it is what it is. It's a very blunt method.

00:17:20.620 It's like I say, I'm not sure there's a there's a better method available.

00:17:24.380 And it's not reciprocal, but he's framing it in that way. OK, so so so these are the countries that

00:17:29.500 are, you know, on his list. So, you know, you can see that China

00:17:33.820 are going to get tariffs of 34 percent. I mean, actually, 34 percent does sound about right for the

00:17:39.500 effective tariffs that China is imposing on the US effectively. So actually, the numbers that he

00:17:46.700 actually comes out with, I'm I'm kind of fine with. Yeah, European Union, 20 percent, Vietnam, 46

00:17:55.100 because Vietnam produces a shitload of apparel, textiles, you know, Nike, you know, your trainers

00:18:05.420 and polo shirts and all the rest of it. A lot of them are produced in Vietnam and Vietnam has a

00:18:10.140 limited demand for American goods. Yeah. Anyway, Taiwan, 32 percent, Japan, 24 percent, India, 26 percent.

00:18:19.500 These tariffs are much larger than people were expecting. People were expecting at the top end,

00:18:23.980 all the all the analysts were thinking top end, maybe 20, 25 percent, 20 to 25 percent, probably lower.

00:18:33.100 And so a lot of people have been caught out, a lot of scrambling, you know, thus the stock price

00:18:38.140 moved because people are repositioning their portfolio, getting out of companies like Nike, which

00:18:45.260 are hit well beyond what they're expecting it to happen. Switzerland, 31 percent. Switzerland doesn't,

00:18:53.340 I don't believe, I had a quick dig into this, I don't believe switching is imposing any great tariffs

00:18:58.860 on the US. I mean, they're imposing some, but not that high. So Indonesia, 32, Malaysia, 24,

00:19:07.180 let's go to, oh, United Kingdom, 10. Yeah, because we don't have a trading, we don't have a trading

00:19:11.340 balance with the US because our economy is also too orientated towards services, in our case, financial

00:19:18.940 services and media. Actually, some come to think of it, some of us do financial services and media

00:19:24.540 combined. But, you know, that's a subset. But, you know, you get the point. The UK is doing a lot of

00:19:30.940 ethereal type stuff and therefore we don't produce a lot of goods and therefore

00:19:37.740 we don't have a goods trading balance with the US. So, you know, we come out of this. Anyway, we go

00:19:43.020 into these tariffs in a bit more detail later, but just wanted to give you a look at it. Next thing,

00:19:47.660 let's take a look at the executive order itself. I won't read through the executive order itself

00:19:55.340 because it is very long and you would get bored and so would I. So instead, let's try and pick out

00:20:02.700 the key elements within it. So it's framed as a national emergency and it's framed that way because

00:20:09.660 there is a 1.2 trillion US trade goods deficit and that is up 40% in only five years. And it's

00:20:23.660 framed in the executive order and I agree with this, but that is a threat to national security

00:20:28.860 in the economy. So thus an emergency, thus an executive order. And the stat that was quite striking

00:20:35.420 for me is US manufacturing has dropped to 17.4% of global output down from 28.4% in 2021. So down from,

00:20:49.980 call that, let's round to the nearest integer, from 28% down to 17% in the space of about 20 years.

00:20:58.940 That is a significant loss. I think they go on to point out that 5 million jobs have been lost in

00:21:04.540 manufacturing since 1997 and that engenders weakness throughout the US economy.

00:21:15.100 Manufacturing drives 55% of patents, they say. It drives 75% of research and development

00:21:24.220 and they particularly highlight areas that they're concerned of such as defence and pharmaceuticals.

00:21:29.420 Fair enough. They highlight the supply chain risks. So they highlight the over-reliance on foreign

00:21:38.780 goods in sectors like, well, yeah, in sectors like defence and pharmaceuticals, citing COVID-19 as an

00:21:47.900 example of where that was really brought to the fore. And other supply chain issues they highlight is,

00:21:55.020 say, for example, the Houthi attacks, meaning that certain goods really, I mean, the Houthi attacks

00:22:04.300 didn't have a huge impact on the US. I mean, on the north, northwest, no, northeast coast, it would have done.

00:22:11.420 But the Houthi thing was a much bigger problem for Europe, less so northern Europe. For the Mediterranean,

00:22:17.500 it was devastating. But nevertheless, it's a good example of a supply chain disruption, along with COVID.

00:22:23.100 They highlight defence and agriculture. So they point out that US stockpiles of

00:22:35.980 military things is low. Agricultural inputs are low. Slight tangent, but OK, I will go on a tangent now.

00:22:46.380 One of the weird thought experiments that I sometimes run through my head when I've got nothing

00:22:50.860 better to do, like I'm driving to bloody Swindon or something, is to think about what would happen

00:22:56.860 if you took a country, a modern country, and you just sent it back in time to the Roman Empire or

00:23:02.460 something. And you tend to think this one through and basically any modern country, because they're so

00:23:08.460 high up the tech tree, would end up conquering the world eventually, even like bloody Malta or

00:23:15.740 something, Belgium, probably would eventually, because today we have guns and we know how things

00:23:22.300 work and stuff like that, medicines. As long as the Romans or the Gauls didn't completely rush you on day

00:23:29.980 one and overwhelm you, you'd probably end up taking over the world. But then there's the whole question

00:23:34.620 about how easy would it be. And, you know, make this comparison, if Britain of the 1960s

00:23:42.860 was sent back in time to the days of the Roman Empire, they would just clean sweep the world within

00:23:48.940 a few decades, no problems, because they were able to produce everything that they needed to produce

00:23:55.660 domestically. They could, well, no, they couldn't quite feed their population because we were reliant on

00:24:02.780 US agricultural support for a good few years after the war. But we could do a hell of a lot better

00:24:10.460 than we can today. If you were to send modern Britain back and put it in that situation,

00:24:16.060 force it to be self-reliant until it could conquer enough land and modernise it and bring in the farm

00:24:21.260 equipment and all the rest of it. If you were to do it to modern Britain, I mean, yes, it would probably

00:24:26.460 still take over the world eventually. But it might take 100 years because the first 30 to 40 years

00:24:34.460 would just be absolute collapse, absolute total collapse. We cannot remotely feed ourselves anymore.

00:24:44.940 We don't have remotely enough energy. We've got rid of vast amounts of our manufacturing. It would be

00:24:51.500 absolutely devastating. Cities would tear themselves apart and then promptly starve.

00:25:00.540 It's an interesting thought experiment, whatever that appeals to me sometimes.

00:25:04.700 But then you start applying it to other countries. Which countries would do well in that sort of

00:25:10.940 scenario? If you would like to see the full version of this premium video, please head over to

00:25:15.260 lotuseaters.com and subscribe to gain full access to all of our premium content.

The Podcast of the Lotus Eaters - April 08, 2025

PREVIEW： Brokenomics ｜ Trump’s Tariffs

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