Certainly.
We'll talk a little bit more about Hong Kong a little bit.
But I want to get to your latest column about how you think U.S.
trade policy is incoherent. What do you think is wrong about it
right now? Well, I don't think we know what we're
trying to accomplish with trade policy. Are we trying to reduce the trade
deficit? Are we trying to stop
Chinese technology? Are we trying to protect
U.S. industries and
green technology products who do not have a comparative advantage?
You do not have the scale. Are we trying to contain China and geo
strategically, what are we trying to do?
I mean, we're multiple goals with with one instrument.
And I would say and I've written books about this, that
we have a huge trade problem. We have deficits with over 105
countries. We're going after the biggest one.
But, you know, that leaves, you know, 100 plus countries
that still have significant imbalances with the United States.
And as we squeeze the Chinese piece, that portion of our deficit goes to them
and their higher cost producers and that taxes American consumers.
So what are we doing with trade policy? Do we actually have a clue, a strategy
as to what we're trying to accomplish? You know, politicians, they see the word
trade deficit and they start running and they start trying to put a positive
spin. As an economist, you think having a
trade deficit is a bad thing? You know, for politicians who most of
whom have never taken an economics class?
Trade deficits are bad. But the point that I have made to our
friendly politicians in Washington is that the trade deficit really is on
their backs by running massive budget deficits.
The United States is suppressing domestic saving, forcing us to import
surplus savings from abroad and running massive trade deficits to attract the
capital. So you want to fix the trade deficit?
Mr. Politician Look in the mirror and fix
the budget deficit in the United States. Stephen Walt We're talking to the
intersection of politics and business, obviously.
Let me take the devil's advocate on your claim about essentially a forever war.
The Biden administration, they tell me essentially in economics and in trade,
the Biden administration officials that I've spoken to say, listen, it's only a
small proportion of products that are being tariffs right now of the overall
two way trade between China and the United States, EVs, even at 25%, they
wouldn't nobody there was no access to EVs.
A Chinese EV is in the United States. Syringes and surgical gloves.
The Chinese have the scale already to outcompete any product that the United
States might make, and that's not going to necessarily spur domestic industry.
And so it goes back to the question is, is this just for political show?
Because Donald Trump and the Republicans are talking 60% across the board on all
Chinese tariffs? Well, there's no mistaking, Steve, the
political motive here is, you know, we're certainly in moving into the most
intense part of our rather insane political season.
But the new tariffs that were just announced a couple of weeks ago
cover $18 billion of items. But how about the old tariffs that are
still in place that were put in place by President Trump 2018 to 2019?
That covers something like $350 billion of imports from China.
They are still in place. So we're throwing bad money after bad
money and the level of tariffs. I think the latest numbers are roughly
20% tariffs on all Chinese products versus free trade war of a number closer
to three. So,
you know, I take no comfort from the fact that these latest
tariffs on Chinese imports are small. The overall volume of tariff imports is
high and likely to rise further. What about what the U.S.
says about overcapacity? I mean, are those claims, you think,
overdone? I mean, the Chinese are obviously
helping, subsidizing and supporting the production of clean tech and the like.
They're totally overdone. I mean, first of all, and I think you
reported on this when you mentioned my comments in Beijing on Friday when it
comes to green technology goods. But in today's world, that is getting
hugely challenged by climate change. There is no such thing.
As excess capacity. We need all the capacity we can get to
move away from carbon to alternatives. Shame on us if we don't have the
capacity to make those goods at home. But in the meantime, let's take
advantage of somebody who has the technology, who has the scale, who has
the product, who can help make global climate.
You know, I certainly won't end climate change, but help make global climate
more more tolerable in the meantime. Right.
What do you think the fix should be? So what should a what should a US
president that's party agnostic question What should a US president do to either
manage or spin the deficit problem, whether that's trade or budget?
Like far be it for me to have a solution to a problem that has spanned both
parties over decades. I mean, I've looked at the budget
numbers, you know, since I think 1962, according to the Congressional Budget
Office, we've been in deficit every year except two.
So there's no easy fix. It's politically expedient for
politicians to keep pumping more money into their
constituencies, and they never lose by doing it.
They never lose their position in office.
So they're not going to stop. And they are unaware or unwilling to
accept the consequences for their irresponsible fiscal policy.
And trade is one of them a big one. Stephen, you just came back from
Beijing. What's the mood on the street that you
got from there? I mean, you've taught lessons at Yale
University about the property crisis in Japan that lasted nearly two decades.
You see parallels there and just at the beginning.
But there's also some despair, I would assume, among small to medium sized
enterprises and young people. What did you find?
I found a Beijing that really didn't have much
of the spark that I had been accustomed to over my many years of traveling
there. Steve, especially, as you said, amongst
private sector entrepreneurs and students, not just undergraduate
students, but graduate students completing PhDs and leading Chinese
universities with not much hope for job prospects.
Post Ph.D.. I think the mood was one
certainly the best I could call it was a mood of grim resignation.
And you can go further, but I don't care.
Care to really do that fixable either.
So cyclical or is there a structural component here that and if it's
structural, do you think they have the toolkit to manage that structural?
It's a big structural issue. And what what my work shows and actually
what President Xi has elliptically said
recently is that because the population is declining, the workforce is
declining, China needs to boost productivity, even cited a term I'm sure
he knows nothing about total factor productivity as a potential offset.
And China's new approach to focusing on new productive forces is aimed at doing
that. And there are consequences of that of
that for the rest of the world that, you know, we're pushing back on, which is
unfortunate. China needs a lot of help in grappling
with its structural issues. And it would be not only in China's best
interest, but for the rest of this region as well as the world for them to
succeed. And in you're seeing that Hong Kong
might be feeling those effects in some ways.
I mean, it's been few months since you wrote that controversial column that
that Hong Kong may be over. Just wondering what what are you looking
for on this trip, being in Hong Kong? Well, I'm looking for some interesting
discussions from my good friends.
Number one, to see if they're still friends.
And number two, to, you know, hear their side of the story.
They have pushed back on me a lot, saying Hong Kong is historically the
most resilient economy in the world and you're missing that.
And even you said, well, you know, China's connection may cause problems.
It's not that it may cause problems, it will cause problems.
The linkage between Chinese economic growth and Hong Kong economic growth has
a precision that will stagger you. I've done the math.
I can cite the numbers, but when China underperformed.
Forms. There is no way that Hong Kong can
overperform. So is this more about Hong Kong being a
part of the Greater Bay Area as well as what, China's a vision or is it?
You know, is is is Hong Kong still able to maintain that international status?
That's the question. You know, I'm looking forward to
debating that. I think Hong Kong still has an important
role to play as an international financial centre.
But, you know, it's getting certainly swallowed up by the mainland.
It's part of the Greater Bay Area. It is not the crown jewel of the Greater
Bay area as the press release would lead you to believe.
I am delighted to be back here, but I think Hong Kong faces challenges of
historic proportions for the city.
