Transcript: Are Trade Wars Really Class Wars? | May 31, 2021

Steve sits in a room with white walls, a low slanted ceiling and several framed pictures on the walls including one of George Drew. He's slim, clean-shaven, in his fifties, with short curly brown hair. He's wearing a pale blue shirt, and a checked blue tie.

A caption on screen reads "Are trade wars really class wars? @spaikin, @theagenda."

Steve says THE PREVIOUS U.S. PRESIDENT FAMOUSLY REMARKED: "TRADE WARS ARE GOOD, AND EASY TO WIN." THAT MARKED A REAL DEPARTURE, AFTER DECADES OF GLOBALIZATION. A QUITE DIFFERENT TAKE EMERGES IN THE PAGES OF THIS YEAR'S WINNER OF THE LIONEL GELBER PRIZE FOR FOREIGN AFFAIRS. THE BOOK IS CALLED "TRADE WARS ARE CLASS WARS: HOW RISING INEQUALITY DISTORTS THE GLOBAL ECONOMY AND THREATENS INTERNATIONAL PEACE."

A picture of the book appears briefly on screen. The cover is white, with the title cut out of an unintelligible picture.

Steve continues IT'S CO-WRITTEN BY MATTHEW C. KLEIN AND MICHAEL PETTIS. AND IT BRINGS MATTHEW KLEIN TO OUR VIRTUAL STUDIO TONIGHT FROM SAN FRANCISCO, CALIFORNIA.

Matthew is in his thirties, clean-shaven, with short curly brown hair. He's wearing glasses, a black suit and a white shirt.

Steve continues MATTHEW, IT'S GREAT TO MEET YOU. CONGRATULATIONS ON THE GERBER PRIZE. I GUESS THIS HASN'T BEEN THE WORST LAST FEW WEEKS OF YOUR LIVE.

Matthew says NOT AT ALL. THANKS FOR HAVING ME.

Steve says LET'S START WITH THIS EXCERPT...

A quote appears on screen, under the title "Shifting our collective gaze." The quote reads "Trade war is often presented as a conflict between countries. It is not: it is a conflict mainly between bankers and owners of financial assets on one side and ordinary households on the other -between the very rich and everyone else. Rising inequality has produced gluts of manufactured goods, job loss, and rising indebtedness. It is an economic and financial perversion of what global integration was supposed to achieve."
Quoted from Matthew C. Klein and Michael Pettis, "Trade wars are class wars." 2020.

Steve says OKAY. LET'S DIG INTO THAT, MATTHEW. ARE YOU SAYING ALL THESE YEARS WE'VE ESSENTIALLY BEEN TRICKED INTO BELIEVING THAT OUR COUNTRIES ARE FUNDAMENTALLY AT ODDS DUE TO OUR DIFFERENT NATIONALITIES?

The caption changes to "Matthew Klein. Author, 'Trade wars are class wars.'"

Matthew says I THINK THAT'S LARGELY IT, THAT'S RIGHT. THE TRUMPIAN LANGUAGE THAT YOU QUOTED AT THE BEGINNING REFLECTS THIS VERY OUTDATED IDEA THAT COUNTRIES ARE THESE UNIFIED ENTITIES THAT COMPETE WITH EACH OTHER ECONOMICALLY AND ONE COUNTRY PROSPERS AT THE EXPENSE OF THE OTHER. OUR POINT IS THAT'S NOT TRUE AT ALL. THE GLOBAL ECONOMY IS A UNIFIED SYSTEM THAT WE'RE ALL LIVING TOGETHER AND WE'LL ALL EITHER PROSPER OR NOT. TO LOOK AT THIS CONCRETELY, WE THINK ABOUT THE U.S.-CHINA CONFLICT. IT WASN'T THAT CHINESE WORKERS DID WELL AT THE EXPENSE OF AMERICAN WORKERS AND CHINESE WORKERS TOOK OUR JOBS. WHAT HAPPENED WAS THERE WERE CHANGES WITHIN CHINA THAT WE DESCRIBE IN THE BOOK THAT WERE ULTIMATELY BAD FOR A LOT OF PEOPLE WITHIN CHINA AND THAT IS A SIDE EFFECT OF THIS WERE ALSO BAD FOR A LOT OF PEOPLE IN THE UNITED STATES AND ELSEWHERE.

Steve says IS THAT TO SAY THE BILLIONAIRE IN CHINA AND THE BILLIONAIRE IN AMERICA, THEY ACTUALLY HAVE MORE IN COMMON WITH EACH OTHER THAN SAY AMERICANS DO WITH AMERICANS OR CHINESE WITH CHINESE?

Matthew says ECONOMICALLY I THINK THAT'S RIGHT. THERE ARE OTHER POLITICAL FACTORS OUTSIDE THE SCOPE OF THE BOOK IN TERMS OF IDEOLOGY OR NATIONAL SECURITY OR THINGS OF THAT NATURE. WHEN WE TALK ABOUT THE STRICT ECONOMICS OF THIS, THAT'S ABSOLUTELY RIGHT. IT'S NOT AS IF AMERICA AS A COUNTRY DOES WELL ECONOMICALLY AT THE EXPENSE OF CHINA ECONOMICALLY. THERE ARE CERTAIN ENTITIES WITHIN THESE SOCIETIES THAT CAN COOPERATE WITH EACH OTHER AT THE EXPENSE OF OTHERS WITHIN THEIR OWN SOCIETY. THAT'S WHAT'S BEEN HAPPENING FOR 30, 40 YEARS.

Steve says IS THAT TO SAY, MATTHEW, THAT NATIONALISM OR SOME SENSE OF NATIONAL CONSCIOUSNESS IS NOT FOR YOU AND YOUR CO-AUTHOR A SIGNIFICANT FORM OF IDENTITY TO YOU?

Matthew says IT'S CLEARLY A FORM OF IDENTITY IN TERMS OF HOW PEOPLE CHOOSE TO, YOU KNOW, THINK OF THEMSELVES AND AFFILIATE POLITICALLY. I WOULD NOT DISCOUNT THAT. I THINK THE QUESTION IS, IS IT USEFUL AS A UNIT OF ECONOMIC ANALYSIS FOR UNDERSTANDING WHAT'S GOING ON IN THE WORLD? SO CLEARLY, YOU KNOW, THESE THINGS MATTER. I CONSIDER MYSELF AN AMERICAN. I'M NOT ASHAMED OF THAT IN ANY WAY. BUT I THINK IF THE QUESTION IS, WHAT IS DRIVING CHANGES IN THE U.S. ECONOMY OR THE GLOBAL ECONOMY OR CHANGES IN THE RELATIONSHIP BETWEEN DIFFERENT SOCIETIES? IT'S VERY IMPORTANT TO UNDERSTAND WHERE ALL THE MOVING PARTS ARE AND THAT IN MANY CASES IT'S VERY USEFUL TO ACTUALLY LOOK WITHIN EACH SOCIETY. IN STEAD OF THINKING OF INTERNATIONAL ECONOMICS BEING ABOUT THIS COUNTRY DOES THIS, THIS COUNTRY DOES THIS, IT'S MUCH MORE HELPFUL TO LOOK AT ALL THE MOVING PARTS AND SEE THERE'S ACTUALLY A CONNECTED GLOBAL SYSTEM AND THERE ARE CERTAIN GROUPS ACROSS COUNTRIES THAT HAVE MORE IN COMMON WITH EACH OTHER AND COOPERATE OR CONFLICT WITH EACH OTHER IN WAYS THAT ARE DISTINCT FROM THE NATIONAL BOUNDARY.

Steve says PEOPLE WHO ARE WATCHING OR LISTENING TO THIS RIGHT NOW ARE GOING TO WANT TO PEG YOU SOMEWHERE ON THE POLITICAL IDEOLOGY CONTINUUM, AND AS I LOOK AT SOME OF THE LANGUAGE IN THE BOOK, YOU KNOW, WORKERS HAVE NO HOMELANDS, THEY ARE BOUND BY PROLETARIAN SOLIDARITY, THEY SHOULD UNITE, THEY SHOULD BRING DOWN THE BANKERS AND BUSINESS OWNERS, THIS DOES SOUND A LITTLE KARL MARX.

The caption changes to "Matthew Klein, @M_C_Klein."

Matthew says I THINK THE RECOMMENDATIONS ARE QUITE DIFFERENT. IF THERE'S REALLY ANY... THE EXPLICIT LINEARS ARE THOSE IN THE LIBERAL REFORMIST ENGLISH TRADITION AND THE IDEA OF BEING THAT, YOU KNOW, WE DON'T VIEW ANY SORT OF FUNDAMENTAL PROBLEM WITH CAPITALISM ITSELF, WHATEVER EXACTLY... HOWEVER YOU WANT TO DEFINE THAT. IT'S MORE THAT THERE HAPPEN TO BE SOMETIMES CERTAIN GLITCHES THAT NEED TO BE ADDRESSED, AND THAT UNDERMINE THE EFFECTIVE FUNCTIONING OF THE SYSTEM. BUT THAT'S VERY DIFFERENT I THINK THAT SORT OF THE MARXIST LENINIST VIEW OF INEVITABLE CRISES AND... I WOULD PUT IT IN SORT OF THE KEYNESIAN HOBSONIAN TRADITION.

Steve says LET'S PUT CHINA UNDER THE MIKE STOPE. THEY WILL BE THE FIRST TO TELL YOU THEY HAVE LIFTED HUNDREDS OF MILLIONS OF PEOPLE BECAUSE OF THEIR BRAND OF AUTHORITARIAN CAPITALISM OUT OF POVERTY AND INTO SOME FORM OF PROSPERITY. BUT ACCORDING THE WAY YOU LOOK AT THINGS, THEY STILL NEED MASSIVE WEALTH DISTRIBUTION TO BOOST HOUSEHOLD INCOME. WHAT IS NOT GOING QUITE RIGHT IN CHINA?

Matthew says THERE ARE SEVERAL PARTS HERE. ONE THING I THINK IT'S INSTRUCTIVE AS A USEFUL POINT OF COMPARISON. EVEN NOW, EVEN THOUGH CHINA'S GROWTH HAS BEEN INCREDIBLY YOU SUCCESSFUL AND LARGE SUCCESSFUL COMPANIES THAT ARE BASED THERE, IT'S WORTH POINTING OUT THAT THE AVERAGE INCOME PER PERSON IN CHINA IS THE SAME AS IN MEXICO AND THAT THAT REFLECTS AN AVERAGE THAT COMES... YOU HAVE VERY WEALTHY COASTAL CITIES ON THE ONE HAND AND YOU HAVE VERY, VERY WELL, RELATIVELY UNDERDEVELOPED POOR RURAL AREAS. SO IT'S NOT AS IF CHINA HAS MANAGED TO DEVELOP THE KIND OF WEALTH THAT WE WOULD ASSOCIATE WITH, SAY, JAPAN, UNITED STATES, CANADA. AND THE QUESTION IS, TO WHAT EXTENT HAS... HAVE THE CHOICES THAT THE COMMUNIST PARTY AND THE GOVERNMENT MADE IN TERMS OF ITS DEVELOPMENT STRATEGY LED TO THE BEST POSSIBLE OUTCOME. AND THE POINT THAT WE MAKE IS, YOU CAN HAVE PERIODS OF VERY RAPID GROWTH, ESPECIALLY IF YOU'RE STARTING FROM A VERY LOW BASE, WHICH CHINA WAS IN THE LATE 1970s AFTER MORE THAN 100 YEARS OF WAR AND REVOLUTION AND MAOISM AND SO FORTH. IF YOU'RE STARTING FROM A VERY LOW PACE YOU CAN GO QUICKLY. THE QUESTION IS AT WHAT POINT DOES THAT DEVELOPMENT MODEL BREAK DOWN? AND THEIR MODEL WAS USED IN OTHER SOCIETIES IN THE PAST, INCLUDING IN THE SOVIET UNION WHERE ESSENTIALLY YOU SQUEEZE WORKERS AS MUCH AS POSSIBLE AND WANTING HOUSEHOLDS TO DIVERT RESOURCES TO LOCAL BUSINESSES AND GOVERNMENT. WHEN YOU HAVEN'T HAD INVESTMENTS IN INFRASTRUCTURE IN OVER 100 YEARS, THAT CAN WORK VERY WELL. THE PROBLEM IS THAT YOU END UP IN A SITUATION PRETTY QUICKLY WHERE YOU CREATE... FIRST OF ALL, YOU END UP OVERINVESTING IN INFRASTRUCTURE THAT PEOPLE DON'T NECESSARILY NEED OR CAN AFFORD AT THE EXPENSE OF OTHER THINGS. THERE'S A BOOK THAT CAME OUT RECENTLY THAT TALK ABOUT THIS IN DETAIL ABOUT THE KINDS OF CONDITIONS IN RURAL CHINA. YOU HAVE HIGH SPEED TRAINS BEING BUILT IN PLACES WHERE CHILDREN AREN'T ABLE TO HAVE GLASSES, FOR EXAMPLE. THAT CLEARLY SEEMS TO BE SORT OF A MISALLOCATION OF RESOURCES. CLEARLY OVER THE LONGER TERM IT'S BETTER TO HAVE HUNDREDS OF MILLIONS OF PEOPLE BE ABLE TO READ AND SO FORTH THAN BE ABLE TO GO SOMEWHERE IN A SHINY TRAIN THEY CAN'T USE. THERE'S THAT ELEMENT OF IT. THERE'S ALSO THE FACT THAT IT CREATES THIS SORT OF DISTORTED SET OF INCENTIVES WHERE THE PEOPLE WHO BENEFIT TREMENDOUSLY FROM THIS, THE OWNERS OR THE MANAGERS OF STATE-OWNED ENTERPRISES OR GOVERNMENT OFFICIALS BECOME POWERFUL ENEMIES OF REFORM AND IN FACT THE CHINESE LEADERSHIP HAS TALKED ABOUT THIS IN THE PAST, THEY CALLED THEM THE VESTED INTERESTS. WHAT IT MEANS IS THAT THESE ENTITIES THEN BLOCK ANY EFFORTS TO REVERSE SOME OF THE REALLY HARMFUL CHANGES THAT LIMIT THE SPENDING POWER OF ORDINARY CHINESE PEOPLE. SO EVEN THOUGH IT'S BEEN A REPEATED THEME OF COMMUNIST PARTY PLENARY SESSIONS FOR AT LEAST 15 YEARS AT THIS POINT THAT MORE SHOULD BE DONE TO LIFT AVERAGE HOUSEHOLD INCOMES, THE MEDIAN HOUSEHOLD INCOME TO ALLOW MORE CONSUMPTION OF GOODS AND SERVICES BY PEOPLE WHO LIVE IN CHINA TO RAISE LIVING STANDARDS. EVEN THOUGH THAT'S BEEN ACKNOWLEDGED REPEATEDLY, YOU HAVEN'T SEEN ANY PROGRESS. IN FACT, THE RESULT IS THE SHARE OF ECONOMIC OUTPUT PRODUCED BY CHINESE HOUSEHOLDS AND BUSINESSES ACTUALLY CONSUMED BY PEOPLE IN CHINA IS EXTRAORDINARILY LOW AND REMAINS LOW. IT HAS FALLEN OVER THE COURSE OF THE CORONAVIRUS PANDEMIC. THAT'S REALLY I THINK KIND OF A BIG FUNDAMENTAL ECONOMIC PROBLEM AND CHALLENGE THAT CHINA FOCUSES. ONE OF THE POINTS WE MAKE IN THE BOOK AND WE EXPLAIN IN DETAIL IS HOW THIS HAS SIGNIFICANT EFFECTS ON OTHERS IN THE REST OF THE WORLD EVEN THOUGH PEOPLE IN CHINA AREN'T THINKING OF THESE PROBLEMS.

Steve says YOU POINT OUT BULLET TRAINS. OF COURSE THE CHINESE ARE VERY PROUD OF THEIR GLEAMING NEW SKYSCRAPERS AND THEIR THOUSANDS UPON THOUSANDS OF KILOMETRES OF NEW ROADS AND SO ON. BUT AS YOU POINT OUT IN THE BOOK, WHAT'S THE REST OF THE STORY THERE?

Matthew says RIGHT. AND SO, YOU KNOW, YOUR QUESTION IS... THERE ARE CHOICES AND TRADE-OFFS THAT WERE MADE HERE. AND YOU LOOK AT SOME OF THE KEY FEATURES OF WHAT WERE CHINA'S DEVELOPMENT MODELS, THE TRANSFERS WE TALKED ABOUT THAT WERE FORCED ON ORDINARY WORKERS AND HOUSEHOLDS. AND AMONG THEM ARE THINGS SUCH AS ESSENTIALLY EXPROPRIATION OF PEASANT LAND. YOU SEE THIS LESS NOW BECAUSE IT SORT OF HAPPENED... IT'S PLAYED ITSELF OUT. BUT THERE WERE BASICALLY REAL ESTATE DEVELOPERS AND SO FORTH WERE ABLE TO SEIZE LANDS THAT PEASANTS HAVE BEEN FARMING AND LIVING ON FOR A VERY LONG TIME AT VERY CHEAP PRICES. THERE WERE PROTESTS ABOUT THIS ALL OVER CHINA OR HAD BEEN FOR DECADES AND VIOLENTLY. THE ADVERSARIAL LABOUR UNIONS ARE ILLEGAL AND EVEN YOU HAD SITUATIONS... THIS IS A COUPLE OF YEARS AGO. YOU HAD SITUATIONS WHERE STUDENTS AT ELITE CHINESE UNIVERSITIES WHO HAD BEEN READING THE MARXIST TEXT AS PART OF THEIR CURRICULUM DECIDED THEY SHOULD ORGANIZE PEOPLE AND THEY WERE PROMPTLY ARRESTED AND SAID THEY DID IT IN ERROR. THAT'S A MAJOR ELEMENT OF THE SOCIAL MODEL. THERE'S THE HOUSEHOLD REGISTRATION SYSTEM, PROBABLY THE SINGLE BIGGEST ONE, THE HUKO SYSTEM, IT'S A MODERN FORM CREATED UNDER MAO AND YOU LIMIT INTERNAL MOBILITY WITHIN CHINA SO PEOPLE CAN'T GO FROM THE COUNTRYSIDE TO THE CITIES EASILY. THAT GOT LOOSENED OVER TIME, SO OBVIOUSLY WE HAVE HAD HUNDREDS OF MILLIONS OF PEOPLE MOVE FROM THE COUNTRYSIDE TO THE CITIES. BUT IN DOING SO, THEY FORFEIT A LOT OF THE SORT OF NORMAL ECONOMIC AND SOCIAL RIGHTS THAT PEOPLE WHO HAVE CITY, HUKOS HAVE. THEY HAVE TO PAY LOCAL TAXES. BUT THEY DON'T HAVE ACCESS TO HEALTH CARE OR UNEMPLOYMENT INSURANCE, ALL THE HUKO LOCALS HAVE. FOR EXAMPLE, DURING THE PANDEMIC, YOU HAD... THERE AREN'T ANY EXACT STATISTICS AVAILABLE. BUT THE ESTIMATES WE SAW FROM PEOPLE IN CHINA LOOKING AT THIS IS 50 MILLION TO 60 MILLION PEOPLE ENDED UP LEAVING THE CITIES TO GO BACK TO THE FARMS TO BE SUBSISTENCE FARMERS. LACK OF ENVIRONMENTAL PROTECTIONS, FOR EXAMPLE. THESE ARE THE KINDS OF THINGS THAT COLLECTIVELY ADD UP TO LARGE SUBSIDIES FOR BUSINESSES, BOTH CHINESE-OWNED BUSINESSES AND FOREIGN-OWNED BUSINESSES AT THE EXPENSE OF PEOPLE WHO LIVE IN CHINA. YOU CAN ARGUE THERE MIGHT BE PARTICULAR CIRCUMSTANCES OR POINTS IN TIME WHEN THOSE SUBSIDIES ARE VALUABLE BECAUSE THEY ENCOURAGE INVESTMENT THAT'S NEEDED IN THE COUNTRY. BUT IT PROBABLY HASN'T BEEN TRUE FOR 15, 20 YEARS. AND THAT AS A RESULT IS ACTUALLY JUST HARMING THE LONGER TERM GROWTH OF CHINESE SOCIETY AT THE EXPENSE OF PEOPLE WHO LIVE IN CHINA.

Steve says LET'S DO SOME COMPARING AND CONTRASTING HERE. THAT'S CHINA. IN THE UNITED STATES YOU DESCRIBE AS HAVING AN EXORBITANT BURDEN BECOMING THE WORLD'S DUMPING GROUND. WHAT DO YOU MEAN BY THAT?

Matthew says THIS IS SORT OF AN INTERESTING AND SURPRISING FACT I THINK FOR A LOT OF PEOPLE, IS THAT THE U.S. DOLLAR, PEOPLE TALK ABOUT IT AS THE GLOBAL RESERVE CURRENCY AND PEOPLE SAY IT'S A GREAT PRIVILEGE, EXORBITANT PHRASE IS THE FRENCH CAME UP IN THE 1960s, YOU HEAR IT MORE RECENTLY SINCE THAT. OUR POINT IS THAT'S NOT THE RIGHT WAY OF THINKING ABOUT IT. A BETTER WAY OF THINKING ABOUT THIS IS AS THE U.S. ECONOMY SHRINKS IN RELATIVE SIDE COMPARED TO THE REST OF THE WORLD, SO THE U.S. ECONOMY IS NOW ABOUT A QUARTER OF GLOBAL GDP, WHICH IS THE SINGLE LARGEST ECONOMY BUT OBVIOUSLY NOWHERE CLOSE TO THE MAJORITY. IF THE U.S. FINANCIAL SYSTEM AND THE U.S. DOLLAR ARE USED BY PEOPLE ALL OVER THE WORLD AND THE U.S. FINANCIAL SYSTEM AS A CONSEQUENCE RESPONDS TO AND ADAPTS TO THE NEEDS OF PEOPLE OUTSIDE THE UNITED STATES, THAT HAS A LOT OF CONSEQUENCES FOR PEOPLE IN THE UNITED STATES, POTENTIALLY QUITE NEGATIVE. AND, YOU KNOW, THAT'S ESSENTIALLY THE POINT THAT WE TALK ABOUT IN THE BOOK, WHICH IS THAT IF PEOPLE OUTSIDE THE U.S. FOR THEIR OWN REASONS WANT TO HOLD DOLLAR ASSETS AND THERE ARE A LOT OF SPECIFIC REASONS WHY THEY MIGHT WANT TO DO THIS, THAT ENDS UP CREATING A NEED FOR AMERICAN BANKS AND OTHERS TO CREATE DOLLAR ASSETS. AND IN PLAIN ENGLISH, THAT MEANS THAT AMERICANS HAVE TO BORROW MORE THAN THEY OTHERWISE WOULD BECAUSE PEOPLE WANT TO LEND TO AMERICANS REGARDLESS OF WHETHER AMERICANS ACTUALLY WANT TO BORROW ANYTHING. THAT ENDS UP LEAVING A WHOLE LOT OF DISTORTIONS INCLUDING AN OVERVALUED CURRENCY WHICH, IN TURN, ENDS UP MEANING THAT AMERICAN MANUFACTURERS HAVE A MUCH MORE DIFFICULT TIME SELLING GOODS BOTH ABROAD, BECAUSE THEIR GOODS ARE GOING TO BE PRICED RELATIVELY EXPENSIVELY COMPARED TO GOODS MADE IN OTHER COUNTRIES, AND IT ALSO MEANS THAT AMERICAN MANUFACTURERS ARE GOING TO HAVE A HARDER TIME SELLING GOODS IN THE UNITED STATES BECAUSE AGAIN THEIR GOODS ARE GOING TO BE RELATIVELY MORE EXPENSIVE COMPARED TO IMPORTS. THAT'S IN FACT WHAT WE'VE SEEN. THERE'S SOME REALLY GOOD STUDIES THAT HAVE BEEN DONE BY PEOPLE, THE NEW YORK FED AND OTHERS, AND WHAT THEY FOUND IS THAT IN THE 2000s, WHICH IS A PERIOD OF REALLY INTENSE DEINDUSTRIALIZATION IN THE UNITED STATES IN TERMS OF BOTH JOB LOSSES AND OVERALL OUTPUT, WHAT YOU SAW IS, ON THE ONE HAND YOU HAD A LOT OF JOB LOSSES IN CONSTRUCTION AND MANUFACTURING IN THE UNITED STATES. ON THE OTHER HAND YOU HAD A BIG INCREASE IN THOSE PLACES IN HOUSEHOLD DEBT. YOU THINK OF THIS ESSENTIALLY AS PEOPLE LOSE THEIR JOBS OR THEIR HOURS GET CUT OR THINGS OF THAT NATURE, BUT AT THE SAME TIME THEY'RE ABLE TO OFFSET A LOT OF THE IMPACT... NOT ALL, BUT A LOT OF THE IMPACT ON THEIR LIVING STANDARDS BY BEING ABLE TO BORROW MUCH MORE CHEAPLY AGAINST THEIR HOME THAN THEY OTHERWISE COULD HAVE IN THE PAST. AND OF COURSE THAT TURNED OUT NOT TO BE A SUSTAINABLE PROCESS AS WE SAW IN 2008, BUT FOR A WHILE IT SEEMED TO WORK. AND THAT'S SORT OF THE EXORBITANT BURDEN. THAT'S AN EXAMPLE OF THE KIND OF THING THAT OCCURS. THERE'S A DIFFERENT WAY OF TRANSMUTING THAT. IT'S AN ESSENTIAL FEATURE OF THE INTERNATIONAL ECONOMIC SYSTEM AS IT CURRENTLY EXISTS THAT IF PEOPLE IN THE REST OF THE WORLD WANT TO SPEND LESS THAN THEY EARN AND THEY WANT TO SAVE AND THEY WANT TO INVEST THOSE SAVINGS IN THE UNITED STATES AND THERE HAS TO BE A CORRESPONDING EFFECT ON AMERICANS, WHETHER OR NOT AMERICANS HAVE ANY PARTICULAR DESIRE TO, YOU KNOW, BORROW MORE OR PRODUCE LESS.

Steve says IN WHICH CASE, MATTHEW, YOU'VE OUTLINED WHAT YOU SEE AS A BROKEN INTERNATIONAL TRADING SYSTEM. WHAT WOULD YOU LIKE TO SEE HAPPEN INSTEAD?

Matthew says SO THE BASIC THING IS THAT A LOT OF THE STUFF WE THINK OF AS BEING TRADE-RELATED ARE IN MANY WAYS SORT OF RESIDUAL EFFECTS OF THIS DEEPER PROBLEM WE TALK ABOUT, THE INCREASING INEQUALITY AND WHAT THAT DOES FOR THE GLOBAL ECONOMY. IF WE STEP BACK FOR A SECOND AND IMAGINE FOR THE SAKE OF ARGUMENT HERE, WE DON'T LOOK AT NATIONAL BORDERS, WE LOOK AT THE GLOBAL ECONOMY AS A WHOLE. WHAT WE'VE SEEN OVER THE PAST SEVERAL DECADES IS THAT BUSINESSES ARE CAPABLE OF PRODUCING A LOT MORE THAN CONSUMERS SEEM TO BE WILLING OR ABLE TO ABSORB, AND THERE'S AN IMBALANCE THERE BASICALLY BETWEEN AMPLE GLOBAL SUPPLY AND RELATIVELY WEAK DEMAND. OUR ARGUMENT IS THAT IS ITSELF A FUNCTION OF THE FACT WE'VE HAD THESE TRANSFERS OF INCOME AND PURCHASING POWER TOWARDS THE VERY, VERY RICH. AND THIS ISN'T A MORAL JUDGMENT ABOUT WHETHER RICH PEOPLE ARE GOOD OR BAD, IT'S A BASIC OBSERVATION THAT PEOPLE WHO EARN EXTRAORDINARILY LARGE AMOUNTS OF MONEY AND AS A CONSEQUENCE ALSO IF YOU HAVE A SHIFT IN INCOME IN TERMS OF PROFIT MARGINS TO BUSINESSES BECAUSE IT'S THE SAME EFFECT, THEY DON'T SPEND THOSE THINGS ON GOODS AND SERVICES. IF YOU'RE NOT SPENDING ON GOODS AND SERVICES YOU'RE NOT DIRECTLY CREATING JOBS AND INCOMES FOR OTHER PEOPLE. WHAT YOU'RE DOING IS YOU'RE CREATING MARKETS FOR FINANCIAL ASSETS. YOU'RE MAKING IT EASIER FOR PEOPLE TO BORROW BUT YOU'RE NOT CREATING PEOPLE INCOME. THAT CREATES A TENSION THERE, WHICH IS ESSENTIALLY WHAT WE'VE SEEN. IT'S HARD TO GET A CERTAIN DEMAND FOR GOODS AND SERVICES IN THE PAST. IF THERE HAD BEEN ENOUGH DEMAND FOR PEOPLE TO BE EMPLOYED GLOBALLY, IT'S REQUIRED VERY LARGE INCREASES IN DEBT, WHETHER IT'S GOVERNMENT OR HOUSEHOLD DEBT. THAT'S A FUNDAMENTALLY UNSTABLE SYSTEM. OUR POINT IS THAT THAT'S THE GLOBAL PICTURE AS A WHOLE. YOU CAN THEN LOOK AND SEE THAT THESE THINGS DON'T ADD UP ACROSS COUNTRIES IN AN EVEN WAY. YOU MIGHT HAVE A LARGE INCREASE IN INEQUALITY IN SAY CHINA OR IN GERMANY AND THE INCREASE IN INDEBTEDNESS DOESN'T NECESSARILY TAKE PLACE THERE. IT COULD TAKE PLACE SOMEWHERE ELSE. IN FACT THAT'S WHAT WE'VE SEEN. THAT SHOWS UP IN TRADE IMBALANCES AND PEOPLE PERCEIVE THIS AS BEING A TRADE CONFLICT AND YOU HAVE THE CHALLENGE WE TALK ABOUT IN THE BOOK, PEOPLE THINK THIS IS A DELIBERATE STRATEGY OF THE GERMANS TAKING ADVANTAGE OF THE GREEKS, WHETHER IN REALITY IT'S A MUCH MORE COMPLEX AND NUANCED PICTURE. THAT'S REALLY THE BASIC PROBLEM HERE. THE WAY TO FIX THIS, IN SOME WAYS IT'S VERY SIMPLE. YOU ADDRESS THESE INEQUALITIES OF DISTRIBUTION. YOU TWEAK INCOME AND YOU DON'T HAVE TO DO ANYTHING PARTICULARLY RADICAL OR UNDO CAPITALISM. WE KNOW HOW TO DO INCOME REDISTRIBUTION IN A PRETTY REASONABLE WAY IN TERMS OF MORE WELFARE SPENDING, PROGRESSIVE TAXATION. THAT'S NOT COMPLICATED. AND THAT SHOULD ALLOW FOR ORGANIC GROWTH IN CONSUMPTION BY PEOPLE OUT OF INCOME RATHER THAN OUT OF DEBT. AND IT WILL ALLOW FOR A REBALANCING TOWARDS MORE SPENDING. THEN THE GLOBAL TRADING SYSTEM WOULD WORK A LOT BETTER. ONCE YOU HAVE A SITUATION WHERE COMPANIES AREN'T SORT OF FORCED TO KEEP FIGHTING OVER THE STAGNANT MARKET SHARE BUT INSTEAD EVERYONE IS ABLE TO SELL MORE BECAUSE DEMAND IS GROWING AND MARKETS ARE GROWING AND YOU IMMEDIATELY END UP WITH A MORE PROSPEROUS GLOBAL SOCIETY AND A MUCH LESS ADVERSARIAL SOCIETY. THAT'S WHAT WE WANT TO ACHIEVE.

Steve says IN OUR LAST COUPLE OF MINUTES HERE LET ME HONE IN ON THAT LAST POINT. THAT'S THE CONSEQUENCE, RIGHT, OF SUGGESTING NOT DOING IT YOUR WAY, OF REIMAGINING THE WORLD TRADING SYSTEM IS THAT WE COULD BE ON THE VERGE OF, WELL, IT'S A THREAT TO WORLD PEACE, IN YOUR VIEW; IS THAT RIGHT?

Matthew says YES. I THINK... I DON'T WANT TO SAY THAT WE'RE GOING TO HAVE WORLD WAR III AS A CONSEQUENCE OF THIS. I DO THINK IT'S FAIR TO SAY, LOOKING AT WHAT'S ALREADY HAPPENED, THAT ECONOMIC CONFLICTS AND DEPRIVATION AND THE NOT ENTIRELY WRONG BELIEF THAT PEOPLE OUTSIDE OF YOUR OWN COUNTRY ARE RESPONSIBLE FOR YOUR PROBLEMS, IT DOES LEAD TO A LESS STABLE INTERNATIONAL SYSTEM. THIS IS SOMETHING THAT WAS RECOGNIZED IN THE PAST AS WELL. YOU LOOK AT WHAT KEYNES IS WRITING IN THE 1930s. IF WE'RE ABLE TO FIGURE OUT HOW TO GET FULL EMPLOYMENT AT HOME WITHOUT HAVING TO SHIFT PROBLEMS ABROAD, ESSENTIALLY USING THE EXACT SAME... THE ESSENTIAL FRAMEWORK, YOU DON'T HAVE TO WORRY ABOUT THE KINDS OF CONFLICTS THAT HE WAS SEEING. THIS WAS WRITING IN 1936 IN THE CONTEXT OF THE GREAT DEPRESSION AND THE TRADE CONFLICTS THAT WERE OCCURRING AT THAT TIME. AND, AGAIN, I MEAN, YOU CAN LOOK AT THE WORLD AS IT'S BEEN OVER THE PAST TEN YEARS, WHETHER IT'S THE RISE OF A LOT OF ANTAGONISM, WHETHER IT'S WITHIN EUROPE OR EVEN BETWEEN EUROPE AND THE UNITED STATES SOMETIMES OR CERTAINLY BETWEEN THE U.S. AND CHINA. OBVIOUSLY THERE ARE A VARIETY OF FACTORS IN ALL THESE THINGS TAKING PLACE. BUT I THINK A KEY ELEMENT WE CAN'T IGNORE IS THE ECONOMIC BACKDROP IN ALL THESE CASES. IF WE'RE ABLE TO FIX THIS IN A CONSTRUCTIVE WAY, PRESUMABLY THAT WILL ALLEVIATE A LOT OF TENSION. IF WE DON'T, THAT CREATES A REALLY UNFORTUNATE SITUATION. IT CERTAINLY INCREASES THE RISK OF CONFLICT AND LOWERS THE CHANCE OF SORT OF AMICABLE RESOLUTION OF NON-ECONOMIC CONFLICTS.

Steve says HOW DO YOU LIKE BIDEN VERSUS TRUMP AS THE GET THAT GETS TO LOWER THE TEMPERATURE NOW?

Matthew says I THINK SO FAR THE BIDEN ADMINISTRATION HAS BEEN DOING A LOT OF THINGS THAT WE WOULD HAVE SUGGESTED. I THINK THE CHALLENGE IS THAT THE U.S. IS THE SINGLE LARGEST ELEMENT OF THE GLOBAL SYSTEM, BUT IT'S STILL A MINORITY, AND A LOT OF THE POINTS THAT WE MAKE IN THE BOOK IS THAT, THERE'S ONLY SO MUCH AGENCY THAT SAY THE UNITED STATES HAS. THAT A LOT OF THE BIG CHANGES WE WOULD WANT TO SEE OR ARGUABLY NEED TO SEE ARE IN OTHER SOCIETIES, WHETHER IT'S EUROPE OR CHINA OR OTHER COUNTRIES WE DON'T TALK ABOUT AS MUCH. THE QUESTION IS, WHAT KINDS OF CHANGES CAN WE EXPECT TO SEE THERE? THERE ARE SOME ENCOURAGING SIGNS ACTUALLY COMING OUT OF EUROPE, AND GERMANY IN PARTICULAR, AND IT WILL BE REALLY INTERESTING TO SEE HOW THAT PLAYS OUT IN THE NEXT COUPLE OF YEARS. I THINK WHILE THE BIDEN ADMINISTRATION IS MOVING MORE IN THE DIRECTION OF LOOKING AT THE WORLD THE WAY WE WOULD, I THINK THAT THAT IN AND OF ITSELF UNFORTUNATELY WOULD NOT BE SUFFICIENT FOR REALLY ADDRESSING THE PROBLEMS THAT WE DESCRIBE.

The caption changes to "Producer: Harrison Lowman, @harrisonlowman. Producer: Wodek Szemberg, @wodekszemberg."

Steve says WELL, AS WE OFTEN SAY ON THIS PROGRAM: STAY TUNED. MATTHEW KLEIN, CO-AUTHOR "TRADE WARS ARE CLASS WARS," WE CONGRATULATE YOU ONCE AGAIN FOR WINNING THE LIONEL GERBER PRIZE FOR FOREIGN POLICY AND WE WISH YOU WELL IN THESE DIFFICULT DAYS AHEAD. TAKE CARE.

Matthew says THANK YOU VERY MUCH.

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