Podcast: Deconstructing Trump’s tariffs, turning point in history and the end of globalisation
Economist Richard Duncan cautions that China can’t possibly meet the demands on trade laid out by the Trump administration; warns of dire outcome for global economy
The deepening trade dispute between the United States and China could mark a “turning point in history”, ending the system of global trade that brought low-cost goods to consumers and fuelled the rise of the Chinese mainland and other emerging markets in just a few decades, according to noted economist and author Richard Duncan.
Bangkok-based Duncan believes the US$50 billion of Chinese products designated for 25 per cent tariffs by the Trump administration – in addition to a proposed 10 per cent tariff on an additional US$200 billion in Chinese goods – may represent the first steps in a policy shift by Washington that goes far beyond what many observers expect.
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“I am becoming concerned that they really do intend to put up trade tariffs on a very large scale against China and that perhaps there’s more to this strategy than just balancing trade. They may be intent on stopping China’s economic growth altogether, now that China has become so large they are becoming not only an economic competitor, but potentially a military threat to US global dominance. If that’s the case, this could be a turning point in history,” Duncan said in a new South China Morning Post business podcast.
While it is too early to say how the trade talks between the two sides will play out, one concern is that escalating tariffs, beginning with the US$34 billion of Chinese products which went into effect on July 6, are about to become the norm, rather than the exception.
Another is whether the trade policies are really designed to reverse the deindustrialisation of the US economy – a theme made prominent during Donald Trump’s presidential campaign.
“Over the last 30 years the rapid economic rise of China has really transformed the world, but if the US starts putting tariffs on US$200 billion and US$500 billion of Chinese exports, then China’s economy could go into a very serious crisis,” Duncan said.
Duncan, who now publishes independent research at his subscription video newsletter Macro Watch (richardduncaneconomics.com), said China’s growth could come to a “screeching halt”, resulting in millions of job losses, while a domino slowdown would also be felt among its major trading partners.
Another outcome would be rising inflation, higher interest rates, and a global drag on asset prices ranging from stocks to real estate.
“The impact would be global and we would see a drop in metal prices and that would be a blow to metal and mining companies. Also as commodity prices fell, the economies of the commodity-producing economies would go into recession,” he said.
Duncan started his career in finance in Hong Kong in 1986, working as a research analyst for a local brokerage. His insights into the global economy were partly inspired by visits to factories in Guangdong province, where he witnessed first-hand the rapid industrial transformation underway at the time.
“There were factories all along the Pearl River Delta full of 19-year-old women working for US$3 per day. It didn’t take long to realise that this was going to be very deflationary and very disruptive for the US economy if we had free trade with China because clearly this would result in the deindustrialisation of the US because how could it compete when it paid its workers roughly US$200 per day,” Duncan said.
Duncan said his thoughts on global trade were also fuelled by his experience heading equity research departments for James Capel Securities and Salomon Brothers in Bangkok during the 1990s, a period that he credits as his education in “bubblenomics”.
Duncan later worked as a financial sector specialist for the World Bank in Washington.
In 2003, he laid out his theories on global trade in the international bestseller The Dollar Crisis, a book which he said “forecast the global economic crisis [of 2008] quite accurately”.
Duncan, an American, said he does not side with Washington in this conflict. Instead he has been promoting an alternative path that takes advantage of low interest rates to help fund state-backed scientific research on a massive scale.
“I don’t view this as a conflict between the US and China. It is not that simple, it’s not team USA versus team China. There are interests in the United States that have benefited enormously from this arrangement that now exists, in particular, the large US multinationals. They have been able to drive down their labour costs by moving their factories from Detroit and other US cities into China. Their wage costs have collapsed as a result of this move. The share of profits that are split between labour and capital have shifted.”
Duncan thinks a moon shot, similar in nature to Nasa’s Apollo programme of the 1960s – this time in such areas as genetic engineering, biotechnology, nanotechnology and clean energy – is the best way forward.
“It would be much better for the government to undertake at the government level a very aggressive investment programme … in new industries and new technologies,” Duncan said.