Can the World Unite Against U.S. Trade Weaponization?

Revenge Economics: How Trump’s Trade War Hurts America First

NIMA ALKHORSHID: Hi, everybody. Today is Thursday, April 3rd, 2025, and our friends, Michael Hudson and Richard Wolff are back with us. Welcome back.

Let’s talk about the “Liberation Day,” and the new tariffs on each and every country on this planet. And here is what the White House press secretary said about the tariffs.
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Karoline Leavitt: They’re not going to be wrong. It is going to work. And the president has a brilliant team of advisors who have been studying these issues for decades. And we are focused on restoring the golden age of America and making America a manufacturing superpower. And again, Peter, I would point you to the investments that have already trickled into this country.
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NIMA ALKHORSHID: Yeah, let’s put the main question right now. What is the main economic fallacy that President Trump is perpetuating regarding the U.S. trade deficit? Michael, go ahead.

MICHAEL HUDSON: Well, the fallacy is the way in which he’s calculated his statistics. And the fallacy is somehow that tariffs are going to re-industrialize the United States. The way that he’s structured them, he has not taken into account that a very large share of U.S. imports are from foreign affiliates of American firms. And these affiliates, all of a sudden, that have made foreign investments – not only in Canada and Mexico, but in Asia and Vietnam, and other countries – are now going to have their costs very sharply increased. The result of the tariffs are actually going to be causing, as we’ve discussed before, vast instability and destabilization.

Richard and I have talked in two of your shows about tariffs. And the fact is, I don’t think we expected this to happen. We thought that the United States, like other countries, were going to act in its self-interest. And, of course, you realize that this self-interest is that of the corporate elite and the big financial investors, and Trump’s donor class.

But they didn’t expect any of this either. And that’s the biggest surprise. The stock market yesterday actually rose throughout the day, as people thought, well, he can’t really mean it. And this plunge so quickly after his speech. And this morning, it continued to plunge. It opened with the Standard & Poor down 4%, and the Dow Jones losing 1,500 points, by 3.5%. These are gigantic plunges, and Japan was hit even harder.

So, now we know why he timed his announcements to 4 p.m: that’s when the stock market closed. If TV viewers of his talk were able to see it during stock market hours, they’d see him talking, on the one hand, and the split screen would show the stock market plunging. In other words, this is Big Capital. This is the corporate sector. This is what the bulk of investors think the effect is going to be on the stock market, and they think it’s a disaster. I don’t know how much money’s been wiped out just in the first hour of trading, but it’s been gigantic.

So, this shows the degree to which corporations and investors thought, well, this is all bluster. And in a way, I think it is bluster. And we’ve seen that by what’s happened with what Trump has been talking about for the last month, and that’s the tariffs on Canada and Mexico. If you look at the tariffs, the threats that he had – 25% tariffs – he’s backed down on just about everything. The mainstream press, you know, is talking about a “Mar-a-Lago Accord:” a new Plaza Accord, referring to the 1985 agreement with Japan that ended up pushing that economy into [a] thirty years’ depression. But that was part of a negotiated G7 agreement, where the U.S. brought everybody together.

But this is different. Trump is acting unilaterally, and his strategy is to divide and conquer. He’s going to negotiate with each country separately and agree to soften his tariff, if they give America something of value. For instance, in China, I’m sure he wants to say: You’ve got to sell TikTok to U.S. investors. You’ve got to do whatever the neocons are insisting (that he tells them to do).

So, the right to buy out any key industry or real estate is what other countries are doing.

Basically, what Trump did yesterday is these disruptions that he’s threatening are so large that he’s going to destabilize other countries, unless they give in to what turns out to be a shakedown.

I just want to talk about the details of Canada because they were not made clear yesterday. He’s already said there’s not going to be a tariff on auto parts, at least until May 3rd. That’s a month from now. And there’s going to be a partial exemption for cars made in Mexico and Canada that meets the terms of the NAFTA agreement. After all, there’s been a huge back-down in all of this, on vehicles. He’s only going to try to tax the foreign-made parts that are in these vehicles.

But that’s still a threat. And the question is whether this is going to prevent General Motors – which has a very large proportion of its autos made in Mexico and Canada (for the auto parts) – is this going to prevent them from making a profit?

And [I] suppose it looks like the head of General Motors may have called Trump in the last month and said: Look, if you’re going to impose the tariffs the way you threaten to do, then we’re not going to be able to make a profit. And if we’re not able to make a profit, what are we going to do? Are we going to lay off the labor force? Suppose Mr. Trump, that I, head of GM, went to, and threatened to make a public announcement: We’re putting GM up for sale. There’s no way we can make a profit any longer under the way in which Trump did the profit, the tariffs. We’re going to tell our labor: We may have to lay you off. Maybe a foreign auto company will want to buy us, but we’re being prevented from making a profit, unless we raise the price of American cars so high that Americans can’t afford it, as the economy is moving into the depression that Trump is driving it into. We’ll have no recourse but to do that.

And other industries may follow suit. Look at Apple in China. It’s another multinational company importing the parts for its iPhones and computers. A hundred percent of U.S. oil imports are made by U.S. oil companies. The same is true of much of the mineral trade.

So, the question is, why aren’t U.S. corporate leaders speaking up more verbally than they have? You remember, back in the 60s, General Motors’ famous head Charlie Wilson said: What’s good for General Motors is good for the country? Well, the new motto is, what Donald Trump says is good for the country is bad for General Motors. It’s still going to be one of the hardest auto companies hit because of its proportion abroad.

So, where is the power elite in all of this?

NIMA ALKHORSHID: Richard, it seems that Donald Trump believes that the deficit is the outcome of unfair trade practices. But, in your opinion, does trade deficit reflect a country spending more than it produces, or saving less than it invests?

RICHARD WOLFF: Okay, there’s so much noise, and chaos, around this, that we are in danger. And that may be Mr. Trump’s area of wisdom: manipulating the noise level, and distractions, and claims. You know, you made a joke, and I understand it, about Liberation Day. But that’s a very important part of the story he wants us to come away with.

So, we can go at it in a number of ways. I’m going to choose two, but then, you know, you take it where you think it should go, Nima, in setting this up.

First, the notion that we have been victimized by foreigners. This is the largest nonsense I’ve heard in a long time. You know, it reminds me of the kind of conversation you get with a white supremacist who explains and whines that white people are at the wrong end of discrimination in this country. The attempt to snatch from the black and brown people who’ve actually suffered centuries of repression from white people, to try to erase all of that by telling some story that makes it all reversed.

It is preposterous, it is outrageous, and it is a manipulation by demagogues who use the difficulties white people have – and those are genuine economic difficulties for whites, have been serious. But to blame victimization at the hands of black and brown people is a spectacular effort to shift to the right what is a problem with American capitalism, and has been from the beginning.

The notion that the people of Vietnam, who got a tremendous increase in their tariff, are oppressing the United States, are foreigners oppressing, is catastrophic in its misunderstanding.

The last fifty years were times in which Americans lost jobs. That’s correct. But the reason they did, was the profit-maximizing strategy of American corporations, who left! The Chinese couldn’t have done it by themselves. They’re over there. No one held a gun to anyone’s head and said: Close your factory in Cincinnati and open it in Shanghai. That was done because the American corporations saw a gain: They could pay workers a lot less, and they’d be located in the fastest-growing market on earth. The United States couldn’t compete on either one of those things, and so has lost. But the agent of the change was corporate America, the very industries.

It’s fantastic to have a leader like Mr. Trump suggest that the blame for that falls on the foreign country. What a strange effort to get the corporate leaders of America, who made the key decisions, off the hook. They’re not part of the story. It’s Liberation from the Evil. And who’s the Evil? Foreigners! This is as old as Methuselah. It is really BS of the first rank, liberating us.

The whole rest of the world has been working for two or three centuries to liberate itself from imperialists and colonialists, like the United States. And here he is, turning it around: We’re going to liberate from them. Just like a white supremacist: We have to be liberated from the pressure of black and brown people and their allies.

Nobody should be fooled by this, number one.

Now, number two: tariffs are not new. Tariffs have been used by countries, including the United States, at various points in their history. There is a huge literature, books and articles. Courses are taught in every economics department, called international trade, or international economics, and they have a segment of the course on tariffs. I’ve taught the courses, I know what I’m talking about. Mr. Trump clearly doesn’t.

What does the literature teach us? The impact of a tariff depends on the circumstances in all of the countries affected by the tariff. You cannot know in advance it will have this particular outcome. Why not? Because it depends on interest rates, on exchange rates, on monetary movements, on whether or not the countries retaliate; and if they do retaliate, how will there then be a response on the United States’ part? The Secretary of the Treasury made a statement yesterday that he hopes no country retaliates. And when the reporter asked him, why, he said: Because then there’ll be escalation.

As if what Mr. Trump has just done isn’t escalation?

The level of BS here is overwhelming. Mr. Trump cannot know what the consequence will be. Will there be an inflation? Probably. Will it be hard and terrible? Could be. Will it be mild? Could be.

You know, there is no way to do this. The important thing here, is that this is a declaration of desperation, not liberation. This is an economy that has to now attack the whole world. That’s it. That’s what it’s doing. It’s making difficulties for every other country.

And it’s now holding the gun to every country. As Michael just explained, it now is going to say: We will negotiate bilaterally, one by one. And we will play with these tariffs in order to squeeze you for some other agenda that we have, or will develop. We want a piece of this mine. We want you not to pass that law. We want you to give us this money, or maybe give us Greenland. Or whatever else he has in mind.

But let me clarify: Every country now understands that the United States has changed. It is not going to administer an empire of the whole world, keeping the peace, and having everyone rely on it doing that.

It is just like Mr. Trump sometimes says: We’re throwing all of that out the window. We are now going to weaponize our remaining assets. We’re no longer the biggest economic bloc in the world – that’s China and the BRICS – but we’re big enough that we can threaten, and weaponize, and force the rest of the world to give us a portion of its wealth.

You know what that means, beyond a change of the last fifty years’ economic policy? It means the United States is advertising itself as the new number one rogue nation in this world.

Even China, Japan, and South Korea announced they’re getting together. Those three countries have a history of tension, and conflict, and bitterness. All of that was put aside. They’re meeting together and, I quote, to coordinate their response to Mr. Trump.

Europe, who could never unify, and therefore gave up the ghost as an economic powerhouse when they were allied with the United States, may, by result of Mr. Trump, be able to unify against the United States. I admit, it’s a long shot. Disunity in Europe is intrinsic to that poor continent.

But that’s the reality. No one should be fooled. The isolation of the United States is what we are watching. Big time.

MICHAEL HUDSON: I want to get into the nitty-gritty of the details because that’s where the devil is.

NIMA ALKHORSHID: Michael, let me ask you the question, which is so important. Why will Trump’s tariffs fail to close the U.S. trade deficit? Are the tariffs addressing the root causes of the trade deficit?

MICHAEL HUDSON: Because the trade deficit is a result of the de-industrialization that we’ve been talking about on your show for the last few months, there’s no way that tariffs can suddenly, within one week, one month, or five years, create a domestic ability to produce these products. What there’s no mention of is, if you impose the tariffs in order to produce here the autos, parts, and all of the manual labor that we’ve been importing from Southeast Asia, it takes five years to organize a factory, to make the planning, to organize the labor force, to raise the money, to organize the marketing distribution.

Trump believes that in one week, we can suddenly re-industrialize. He’s leaving out the time element. If you’re going to re-industrialize the United States, you’re going to have to build factories here.

And, as we’ve discussed in the past, I really don’t want to go over the past shows that we’ve done, except to do what Richard has done, and sort of describe the setting. But suppose we set up factories here to make, hire the labor, to do the manual labor, to make the toys, and all of the kinds of consumer goods that Walmart has been importing from China. You’re going to have to raise the tariffs by, I’d say, about 300%. You will have to raise the cost of doing bus[iness], the consumer price index by maybe 40%.

Because if the Americans produce these, how are you going to hire labor, that you have to provide with health insurance, that you have to provide with enough money to buy housing, that’s rising, medical costs, that are soaring. And the cost of employing labor in the United States has been escalating, partly because of the privatization that’s occurred, of public services that, hitherto, were provided at subsidized rates so that corporations did not have to pay high enough wages, because the government was taking care of a lot of basic needs. All of this has made America a high-cost economy.

But I really would like to talk about what Trump’s specific strategy is, within all of this.

RICHARD WOLFF: Could I just add something, before Michael?

NIMA ALKHORSHID: Go ahead.

RICHARD WOLFF: There is another thing. Everything Michael said is right. I just want to add something.

Mr. Trump’s herky-jerky behavior – the Canada-Mexico tariff, go up, then it goes down, then it is modified, then it is adjusted – and now we are told that he’s willing to negotiate with all of the other tariff victims, to get this from this one, to get that from…

Here’s what that means. It means that none of these tariffs are a certainty. No planning corporation can say: Okay, this is the new level of expenses I have, with the tariff being what it is, so I’m going to compare, when I decide where to build my next factory, all my options. He can’t do that, because the tariff that he’s counting may not be there next month, may not be there next year, in which case the enormous expense… That’s why it’s so important, what Michael just said: It takes years, and a lot of money, to move a production facility from one place to another, or to re-organize your supply chain, because instead of building in this country over the next ten years, as you had planned, you’re going to have to move your new factories. And that means you have to rearrange your supply line… all of that is enormously expensive.

No corporation is going to undertake those expenses, only to discover, after having spent $2 billion, that the $5 billion project is now to be abandoned, because the tariffs were changed – on your supplier, on you… He can’t do what he is doing. It’ll mean that corporations are hesitant, will hold back on these decisions, will delay them.

And, as every undergraduate student in economics learns, in capitalism, we are all held hostage to corporate plans about investment. The working class gets money and spends it. End of conversation. Not interesting.

The corporate sector earns profits, and then decides whether or not to invest them, if it’s profitable. If it isn’t, they’ll lend it to the United States government, or put it in some other non-productive activity. And that will cause us depressions, recessions, delays, all kinds of stuff. No one talks about this.

Mr. Trump wants the freedom. He likes the “deal” to be made. Yeah? Well, no one explained to him. None of his advisors (who all have PhDs – or many of them do – from fancy universities, just like Michael and me), but they didn’t explain to him: You can’t do that. As if it had no effect.

The United States isn’t the overwhelming powerhouse that it was in the second half of the 20th century. That’s the empire that’s over. And this is the desperate, largely blind, desperate gesture of a government that cannot admit where it is, and fantasizes that it can do all these things as if they’re automatic. They aren’t.

Now let’s go and let Michael explain that in the most important statistical focus.

MICHAEL HUDSON: When you look at the statistics in Trump’s explanation, you realize how really goofy all of this is. And the goofiness is something new that we haven’t – neither Richard, nor I, nor anyone else could have – imagined would have come up.

Commentators have been puzzling over, how did Trump come up with these charts explaining how other countries were exploiting us with tariff and trade policies of enormous magnitude, far above their actual tariff rates? How is it that we can impose tariffs of 50%, or 40%, because they’re punishing us with 100% tariffs, and 80% tariffs?

These are goofy figures.

I got calls last night from former presidential candidates, and research foundations, asking me, what do these numbers mean? And it took me hours to figure out how goofy they all were. So, it’s worthwhile taking a minute – it’s actually going to take about ten or fifteen minutes – to explain how Trump calculated these tariffs. At first, it seems like he wants just to beat up the poorest and weaker countries, like Myanmar, Burma, Bangladesh. That’s what bullies do. And he wants to cut out Chinese proxy factories in Vietnam. But when one looks at his numbers, you see the deception of the work.

He explained that the tariff rates attributed to other countries against the United States were not merely the official tariff rates that we all look at, but some countries are attacking us in two ways. Some are buying U.S. dollars, by holding their reserves in dollars. They do this to recycle their dollars to the United States to prevent their currencies from rising – and they hold their foreign reserves in dollars. This is the U.S. Treasury Bill standard. This is what enabled America to get a free lunch: by blocking other countries from buying gold and depleting America’s gold stock and forcing them to use their economic and trade surplus to lend to the U.S. Treasury.

Trump says that instead of recognizing that that’s been the key to America’s financial imperialism, that’s been an attack on us.

And the other problem, that they’ve been attacking us, is being too poor to buy as many exports from us as we’ve been buying from them. So, Taiwan is accused of a 64% tariff. China: 67% tariff. India: 52% tariff. Vietnam: 90% tariffs. And in addition to Vietnam, there are Laos and Cambodia, with 49% tariffs. Thailand and Indonesia are imposed tariffs of 36% and 32%.

Who would have thought that these are the countries that are leading an economic war against the United States to take advantage of us? This seems bizarre at first sight.

As Richard pointed out, South Korea and Japan are singled out. Many of the imports from them are from affiliates of U.S. multinationals. They’re our allies! Well, Trump claims that other countries are recycling their export earnings into buying dollars.

That’s artificial. That’s currency manipulation. And if they didn’t buy U.S. Treasury bonds, if they didn’t buy U.S. stocks, then their currencies would have gone up and presumably made American industrial exports more competitive – if we had in any industry to produce these exports, which we don’t anymore.

So, I think what’s upside down here, is that it’s not that other countries have fought to manipulate their currency, it’s that the United States dollar has risen against every other currency in the world in the last decade.

And this began with Obama’s resolution of the junk mortgage fraud in 2008. The solution of the Obama administration was for the Federal Reserve to come in and pursue a zero interest rate policy that caused an enormous amount of gain for the stock market. And the biggest bond rally in history has resulted from lowering the price of bonds, you know, from 5%, 6%, all the way down to 0.1%.

Well, if you look at the distribution of wealth in America, the bottom 50% haven’t increased their wealth at all. It’s a teeny little sliver of their stock market holdings and wealth since 2008. All of this increase in wealth has accrued to the top 10%, and almost entirely in stock and bond and real estate prices.

So, the United States dollar has been soaring against other countries. It’s not because we’re exporting more, because we’re de-industrializing. It’s not because of our budget moving into surplus, because we’ve been running a budget deficit of huge proportions. And we’ve been spending military money all over the world.

How is it that America – de-industrializing, huge military spending, with a huge budget deficit – has been raising the dollar’s exchange rate, except by creating this hothouse, artificial, manipulated stock market boom that has attracted speculative investment capital from all the other countries.

The reason for these exchange rate shifts has nothing to do with trade. It’s all about the financial sector.

And not a word about that from Trump.

RICHARD WOLFF: Michael, let me just add. Let me break in and add just very quickly.

MICHAEL HUDSON: Please.

RICHARD WOLFF: The phony, or goofy, numbers that are being put out here. If you get these crazy tariff rates that have been imposed on the United States by counting in, in this bizarre way, the deficits.

I want to remind people that the trade deficit, that the fact that we send out dollars to buy tons and tons of stuff. That’s what puts the dollars in the hands of the countries from which we buy. And why do we do that? Because the American companies moved over there. There’s also local companies over there, and French and German and British; but the American companies are a very large part of why we send all those dollars over there.

Now, what do they do with the dollars? Let’s be real clear. They lend them back to the United States. They buy treasuries. And let’s be clear what that means. Is that an oppression of the United States? Of course not.

Here’s what it has made possible: The United States has been able to fight the Vietnam War, the Afghanistani War, the Iraq War, and the Ukraine War. Last week, the New York Times published how big the United States has been in that war from the beginning. And we were able to do that without taxing the American people. You know why? Because all of those holders of dollars lent the money to the United States government to pay for the war.

Patriotic Americans ought to be grateful. We got them, those countries, many of whom, let me make it clear to you, are on Russia’s side – like China – lent money to the United States to fight a war against Russia.

And we are wanting to claim, now, they oppressed us, those foreigners oppressed us.

Believe me, if the American people had been taxed to pay for those wars, if they were taxed today to pay for the war in Ukraine, the war in Gaza, and all the other things they’re paying for, these wars would have stopped.

So this recalculation to fit into the crazy narrative that Mr. Trump wants to put forward is really bizarre.

And the last point, the rest of the world has not been dumping on us. We have tariffs that have been in place for fifty years. And I keep wanting to remind Americans: Over fifty years ago, we imposed a tariff on European makers of pick-up trucks – a big, fat 25% tariff. It’s been in effect for the last fifty years. Americans are not in love with pickup trucks because they make men feel manly.

The advertising that made men feel that way came once it was profitable to produce a pick-up truck, and you needed to convince Americans to buy that thing, rather than a car, which has only a 2% or 2.5% tariff on it.

The United States has been wielding tariffs.

Last point. We used to call tariffs “justified” tariffs, it’s the way you teach it in a university, because it has something to do with an event we call “infant industry.” The idea here is, when you’re a poor country, when you’re just coming out from being a colony, for example, like the United States once was, and you want to build up your industry, you have a hard time competing against those who’ve been doing that industry for fifty years.

So, there is a notion: Temporarily, you put a tariff just to get your infant to maturity, then you take away the tariff because you want the benefits, so-called, of competition. That’s the story told in every textbook.

Well, we’re not a little country with an infant industry. That’s what all those other countries are, like Bangladesh and Vietnam. They have a reason and a justification. We don’t. This is turning all of it on its head.

We’re all supposed to believe now that two hundred years of economic theory, fifty years of experience in free trade, which the United States benefited from, and the solution is to throw it all out the window and go with that “stable genius” of economic policy, Donald Trump. You must be kidding.

MICHAEL HUDSON: So you’re saying that we’re protecting decadence, not infant industry. I love it.

But you also mentioned that when we import, we provide countries with money. But this is exactly the imbalance that Trump, how this worked out from what the government announced. For every country, they took the trade deficit with that country, and they divided it by that country’s export to us.

So, if we have an $18 billion trade deficit with Indonesia that supports and its exports at $28 billion, then, if you divide 18 by 28, that’s 64%. That’s where that crazy number for Indonesia came. And he claims that that’s the tariff rate that Indonesia charges us.

It’s not a tariff rate. It’s a measure of the imbalance of trade.

And of course, the imbalance of trade is largest with the poorest countries in the world because they can’t afford to pay very much, largely because of the polarization of the world economy that the United States created after World War II. So, of course, we import from Vietnam low-wage products, and from Iraq, and raw materials exporters on the list. They’re too poor to buy the United States, and that has zero to do with tariffs at all.

There’s a rationalization for this treatment, and that’s what I want to talk about, because that’s so crazy. And I mentioned briefly in summary what that was before: If a country’s exchange rate falls against the dollar, that’s considered an attack on the U.S. economy, against what Trump is responding in kind.

So, let’s look at the most guilty. Again, Myanmar, Madagascar, 93%, Lesotho, 99%, Serbia, Botswana, 74%, Guyana, 76%. How can these poorest countries that are running a trade deficit be aggressing to the United States?

Well, the answer is either that they’re poor, or that their exchange rates are plunging, or that they’re recycling money that they earn into loans to the U.S. Treasury – because of the dollar’s exorbitant privilege of what used to be, what I’ve called “Super-Imperialism.” That’s not trade aggression.

And Trump has even, in separate talks for the last month, talked about charging a financial tariffs for other countries to buy U.S. securities, treasury securities or stocks. In other words, if they buy stocks, they’ll have to pay a 5% penalty, or tariff, to recycle their money.

Well, that means that the money that has been re-flowing into treasury securities is going to stop. What’s it going to do? Five percent is a huge amount on treasury securities that are earning less. In other words, either they lose money on treasury securities, or they buy something else. What’s happening? I didn’t mention it, but gold prices are way up. Trump is driving other countries out of the dollar into gold, and he’s driving other countries together, to create their own mutual holdings of each other’s currencies.

But, Trump says, that if other countries, if the BRICS countries get together and find an alternative to the dollar and buy their currencies, then that’s another form of trade aggression against the United States, and he’s going to retaliate, to prevent them from having an alternative to the dollar.

So what he wants to do is lock them into the U.S. dollar, losing money where the interest they get on the dollar will be less than the trade penalty, the investment penalty, they have to pay.

And that is an unprecedented form of financial exploitation, this financial tariff for buying U.S. securities. That’s something entirely new.

The whole rest of the world is supposed to be turned into a tributary economy to the United States, based on blocking them from having an alternative to the dollar, but making them lose money on every stock, bond, or treasury security that they buy.

That’s the big picture that he’s trying to impose, and he’s saying that if you don’t submit to this, we’re going to wreck your economy by interrupting your exports. What’s going to happen to all your factories and the labor that’s working in these factories? Now, you can’t make money exporting them to the United States, unless we raise our consumer prices by 10% or 20% this year.

Well, the result is they are going to continue exporting because the United States doesn’t have an alternative to these exports because it takes time to build the factories. And as Richard pointed out, how are you going to take the time to build the factories, if the tariff terms are going to be renegotiated every year or so by Trump?

It’s chaos: that’s the plan. Somehow, chaos is going to save the United States and be able to protect our de-industrialized decadence.

NIMA ALKHORSHID: Richard, what I’m understanding from you both that the contribution of America’s corporate ruling class and fiscal irresponsibility, which is the budget deficit caused by the tax cuts for the wealthy, and the spending on wars, and the excessive budget of the militaries. How is that going to influence? Are they the main reasons for the budget deficit, which finally leads to a trade deficit?

RICHARD WOLFF: Well, the way to understand this is to understand that we have a very peculiar political economy in the United States.

Think of it this way. We have the 3% of our population that are employers. That’s the top of our economic system. And that becomes the self-reproducing group of people. They make all the decisions whether or not to invest the money. They’re the ones who set the prices we pay, and they’re the ones who pay the wages, or not, that we depend on. So we are controlled by the 3%, of the employer. That’s the way capitalism is set up. Okay?

They long ago understood, the people at the top, what they have to do, because we have a political system that is a little odd to go with a top-down economic system. In our political system, we have universal suffrage. Everybody gets one vote. Well, the vast majority of people, 97%, are not employers. Three percent are. It would be easy to mobilize a majority of the 97% to limit the wealth of the 3%. In fact, you would expect that to happen, because the 3% are the ones with all the money, and the 97% are the ones who control the majority in the voting.

So what did the ruling class of 3% do in America? They bought the government, of course! That’s how they protect their situation in a world of universal suffrage.

And how did they do it? They did it with two political parties. Each of them depends on the 3% for their money – the donor class, if you like, the 3%. And now they divide: Half of them go to the right and mobilize in mass support, you know, for things like guns and white supremacy and against abortion, and all of that; and the other ones, they go for more liberal, progressive, social welfare, all of that, and minorities and women.

And so we have two parties, both of whom control the mass of the vote.

Now the punchline. What the system does is it goes to the rich people, says: You’re the donors, so we won’t tax you. Then it goes, each party to its mass base: We’ll take care of you, we’ll give you this, we’ll give you that.

Here’s the problem. You can’t buy the mass of people unless you tax where the wealth is.

But there is a way out, in the craziness of capitalism.

You don’t tax the wealthy. You do provide for the mass of people. And the way you do it is you go to the wealthy and you say: Since we didn’t tax you, you have all this money, please lend it to us. We’ll give it back to you after a few years, plus pay you interest while you wait.

That’s called the deficit. And the reason we have a deficit is a deference to those at the top to not tax them to pay for the masses.

I’ll give you one simple example. Elon Musk, the last I looked, has $350 billion, or more, of personal wealth. If you taxed away – because we, the majority, voted for it – half his money, he’d still be the richest person on earth, but the government would have $250 billion with which to solve social problems.

And you know who would be better off if we solved the social problems with his money? Mr. Musk. He would live in a less conflicted society. He would be less at risk from angry poor people, etc., etc., etc.

It is irrational. And what you’re watching with Mr. Trump in the Rose Garden is the irrational effort to deal with an irrational problem whose irrationality you dare not admit.

So you’re going to now do what? Punish the rest of the world.

You know what that reminds me of? Every now and then here in the United States, a city – New York, Philadelphia, any – tries to solve its economic problems – once again not taxing the rich – by taxing commuters. New York has famously toyed with that idea.

The people of New Jersey get enraged because a government – not of them, another state, New York – is solving its problems in part on the back of people that are not New York voters, have no say in any of this. And so it usually comes to grief. You can’t do that.

You know why? Because it risks blowing the United States apart.

And you know what Mr. Trump is doing? He’s risking not blowing the world apart – it’ll stay – but making the United States the isolated, rogue nation that this looks like to the rest of the world. beware. That is a very large danger that will come back and bite this country in places I don’t even want to think about.

MICHAEL HUDSON: Well, Richard’s quite right in shifting the focus from tariffs to taxes, because Trump’s whole focus on tariffs is, as he said, to idealize the Gilded Age of President McKinley.

And until 1913, the United States didn’t have an income tax on rich people. The U.S. government budget was funded mainly by tariff revenues, but also by land sales, of the land that it seized from the Native Americans, including my ancestors. And so no income tax at all.

And Trump says: Look, there was a Gilded Age in which the rich people weren’t taxed. And then what happened? Trump said it was a disaster. In 1913, you had an income tax. And the income tax fell almost entirely, only 2% of the American population had to pay an income tax –

RICHARD WOLFF: The richest 2%.

MICHAEL HUDSON: – there were the financial sector, the real estate, the monopolists, and the property owners. Economic rent is what was taxed. Not labor. Not industry, very much.

And so Trump says: What I want to do is roll back history, and reverse it, to make history run backwards to the time when we can restore tariffs as a tax on labor and on industry, and leave all the economic surplus in the hands of the financial class, the monopolists, and the real estate sector: the rentier sector.

That’s his big plan: to essentially reduce the whole dynamic of industrial capitalism that Richard and I have been talking about for the last half year, back towards the kind of feudal ideal where you had a rentier sector receiving unearned income: economic rent, land rent, monopoly rent, and financial interest and fees.

That’s basically the kind of world that he wants to restore. And he said: Look how rich it was.

But it was the most unequal distribution of wealth and income in American history. That’s why it was called the Gilded Age.

In the rest of the country, you had the growth of the populist parties, fighting, and saying: You have to have a reform.

It was the populists of the Western states and the Midwestern states that tried already in the 1880s to get an income tax, and to support the eight-hour day, and to support labor unionization, and to make federal laws against companies calling in strike-breakers to violently break up attempts by labor to unionize.

If you look at how that world was – the great Pullman strikes and the massacres, and the terrorism that was taking place, and the absolute corruption of government – that is the ideal that Trump wants to present as making America great again, is rolling back history to before the whole century and a half of democratic reform.

NIMA ALKHORSHID: What you’ve just mentioned is all about the federal budget deficit, which would be reflected in the trade deficit, isn’t it, Richard?

RICHARD WOLFF: Yes, those two are linked very closely because in order to run a deficit, you have to issue treasury securities. And in order to sell the treasury securities, you have to have the rest of the world, because America can’t buy back its own treasury securities at the level that need to be sold.

So you have this problem. That’s how the American empire organized itself.

Now that that empire is declining, it is dissolving its own organization. It’s very internal to what is going on. If the United States were still a superpower, it wouldn’t need to do this. That’s why Obama didn’t. That’s why Bush didn’t. That’s why Clinton. It’s not that they’re any less smart than Mr. Trump, or any less committed to making America number one. They didn’t need to.

We supported free trade for the last fifty years because the United States did real well for the people that matter in this country, and dribbled off enough to the rest to keep them quiet. They can’t do it anymore. So they now want, as Michael says, tributary, a tributary economy: You better give us TikTok; you better give us the Panama Canal; you better give us Greenland; you better give us your minerals… Look at the deal they’re imposing on Mr. Zelensky, etc., etc.

This is now thievery, open and undisguised the way it had been before.

But it’s a sign of desperation. You don’t want to do this.

Let me tell you where this is going to go, because Americans have a stunning inability to imagine that other people have the same understanding they do.

The people of the world are understanding the United States has become their enemy. Look at the numbers. Canadians are not coming here as tourists anymore. European governments are telling trans people around the world it’s not safe to travel to the United States. Well, that anger and that bitterness will now be enhanced by the governments there who are wanting to get out of the blame for the difficulties this is going to cause.

If Germany cannot sell its BMWs and its Mercedes in this country anymore because of these whopping tariffs, and they have to lay off large numbers of German workers, that’s going to be explained to the German people: That’s Mr. Trump. The Americans are doing that to you.

Now, guess what? Angry people around the world are going to – here we go – stop buying American.

Look at what has happened in the last three months to the Tesla automobile. Nobody will touch it. Mr. Musk is discovering that there are real costs to prancing around the stage with a chainsaw, celebrating how he’s firing tens of thousands of workers.

Well, guess what? They have a way of getting back at him, whether it’s damaging a Tesla car, or anything.

American goods in the rest of the world? They’re not going to all be wearing jeans because Americans are. They’re going to find a new pair of pants not produced in the United States and the jeans market will dissolve. And that’s just the tip of the iceberg here.

Mr. Trump is telling a story, a fanciful story, about these wonderful things that are going to flow from what he’s done. He doesn’t tell you, even the most elementary honesty of all the things that could go wrong here. And the notion that none of them will happen, that’s so preposterous, he can’t afford to be honest. He has to be a huckster, an advertiser.

Remember what an advertiser is.

A person who figures out real and imagined good things about his client’s project and product, and he makes disappear all the bad ones.

(This can only help you, it won’t hurt you: it’s the mentality of the advertiser.)

Only this person is now the leader, and he’s telling us desperate stories because his client is an empire going down.

MICHAEL HUDSON: I’m glad you mentioned tourism and demographics because that is a very major contributor to the U.S. balance of payments, especially from Canada: tourists – the snowbirds, they call them, going into Florida – but also students.

Universities in America are very largely, increasingly reliant on students from China and other countries that pay the whole $75,000 tuition a year. Now, all of a sudden, with ICE arresting students that talk out and say we’re against genocide in principle, you know, we think that the Gaza Palestinians shouldn’t be killed. They’re all of a sudden seized and deported. Now, this has had a paralyzing effect on other countries sending their students here.

The Canadians have already canceled – are reported to be canceling – many of their travel meetings that they’d planned for the summer to the United States, and for the winter.

There’s the non-trade elements of the U.S. balance of payments, in the form of tourism, students, is another damage that is going to push the U.S. deficit even further.

And the United States is blocking other countries from financing this deficit by buying treasury bills. So you can expect a very sharp decline in the dollar. And that means that foreign goods are going to be much more expensive.

There’s going to be a very large inflation here that’s going to squeeze the wage-earning class that already is falling behind in its home loans, in its student debt, in its credit card debt, in its bank debt.

The worry of the stock market is there’s going to be a break in the chain of payments, defaults.

And unless you can bring Obama back in to say: We’re going to foreclose on the poor people and kick them out of their houses – like he kicked out eight million homeowners that were victimized by junk mortgages – unless you can repeat Obama’s class war, you’re going to have polarization in the United States that may actually lead other people to begin discussing the kind of alternative that Richard and I have been talking about.

RICHARD WOLFF: Yeah, I think it’s very serious. I do think if you’re looking for a way to hold in your mind the complexity of all of this, coupled with all the noise around it, it is beginning to make clear what MAGA means. It wants to go back to the end of the 19th century to an economy utterly controlled by a private capitalist elite that was much bigger then, because our industries weren’t so concentrated. Now, you know, the many companies have become many fewer companies, so the ruling class is much more condensed, much smaller, much able to coordinate a little bit better, and they want to run the show. They’re convinced that private enterprise – namely them – are better than anything else, so they’re going to privatize, and they’re going to go after poor people in this country.

Look at the efforts to cut Medicaid that are now getting some traction in Congress, coupled with these efforts to smash down the poorest countries on Earth. Can you imagine? Myanmar had one of the worst earthquakes in history a few days ago, and he still went ahead and included them in it. Look at the mentality! You are destroying the poorest people, blaming immigrants – among the poorest people who have ripped themselves out of Central America where they were poor to begin with, grabbing the stuff on the back that they can carry with their children and their elderly, coming to the United States – and making a big, proud effort of expelling them.

A country that claimed it owed its greatness to being a melting pot for immigrants is now not melting in the old sense. It’s melting by literally killing these people, in terms of what it’s doing to them.

Extraordinary way to make your own country healthier economically on the backs of the poorest of the poor. Wow. And to think you can keep doing that without retribution coming is an amazing act of stupidity.

MICHAEL HUDSON: And without immigrant labor, who’s going to make all of the toys and the textile and the Walmart consumer goods that are being made by foreign labor? It’ll be a labor shortage here because it’s very unlikely that you’re going to have college graduates, or high school graduates, or, let’s say, American-style labor, performing the kind of duties that the Asians have been.

RICHARD WOLFF: But careful. When I talk to those people, here’s what – you know, I use their idioms so I don’t frighten them – they will explain to me: No, no, no, no, no, no, no. That’s what AI is for. AI is going to substitute for all of the world. We’re going to be able to do all of this because robots will be doing everything. And then I say to them: And what happens to the millions then who have no job? And they look at me, and they say (the honest ones): We will wait for them to die off.

We’re living in a country where this is becoming the humane way to cope. You cannot criticize the economic system, so you have to welcome mass death. Wow. That’s a commitment to an economic system that shows above all that that system needs to go.

NIMA ALKHORSHID: Michael, so the budget deficit is primarily due to tax cuts for the rich, reckless military spending and the interest payments on the growing national debt, not waste in civil servant salaries?

RICHARD WOLFF: Of course. Let me do that quickly, just, again, to remind. Civilian labor force of the federal government: two and a half million people. The other two and a half that the federal government pays are the military. I’m going to put them aside. So two and a half million people are federal government.

If you wanted to have efficiency, you would look at the federal government. But we have two other levels of government: state government and local government. And they’re much bigger. State government across fifty states is five million civilian employees. And local government, fifteen million. So state and local is twenty million. Federal government is one-tenth, two and a half million. If you’re interested in efficiency, why would you go after the smallest one? That’s stupid.

But here’s the stupidity. Even worse. In the 1960s, if you look at the list, the government’s federal civilian employees? Two and a half million. Here we are, a half-century later, our population a hundred million people bigger, and we still service them with two and a half million civilian federal employees. You know what economists call that? “Efficiency.” Two and a half million are servicing a hundred million more. That’s the last place then you would go and cut.

If you’re interested in government efficiency, have a program to deal with state and local. If you actually… this is all fake. This is all foolery. Or, if you like, advertising. He’s advertising: Look at me. I am… (hoping that no one knows what I just told you).

But that is the reality. I didn’t make these numbers up.

And you’ll never hear those numbers from the spokespersons because of what they obviously tell you.

Talk about Mr. Trump’s fake news. He’s generating fake news at a speed way ahead of all of those he criticized for that over his lifetime.

NIMA ALKHORSHID: So, Michael, what are the broader implications of Trump’s trade and fiscal policies for the United States, and the global economy? It seems that the United States could make the U.S. the enemy of the world, by harming both domestic and global economies.

MICHAEL HUDSON: We’ve just explained that the purpose of tariffs is to protect decadence, not an infant industry.

What you’d have to roll back is the whole transition of the United States into a post-industrial, financialized, rent-seeking economy.

But the rentiers have cannibalized industry, and there is no political party that is supporting an alternative.

That’s what we’ve also been speaking about on your show.

Not the Democrats and not the Republicans. There’s no populist party today, as arose in the 1880s and 1890s. There’s no William Jennings Bryan to say: Don’t crucify labor on the “cross of gold,” which is now the cross of debt: personal debt that they can’t pay, local debt, corporate debt, government debt.

There’s none of that even being discussed.

So, at least in the Gilded Age, you did have alternatives being discussed, and you had the populist party representing between a quarter and 40% of Americans – voters – in the 1880s. Where are they today? There’s no sign of them emerging. There’s no academic alternative, as there was in the American School of Protectionist Economics.

The whole logic of industrialization in the 1890s, including under the Democrats, Grover Cleveland as well as McKinley, said: If America is going to get rich and become the industrial power, we need high-wage labor. High-wage labor can drive out pauper labor. We need to raise living standards. And we don’t want the corporations to have to pay high wages, so we’re going to have the government provide all sorts of public services so that industrial corporations can employ labor that is raising its productivity, raising its living standards, because of public investment, government railroads, education, healthcare, communication, parks, urban improvements.

None of that.

All of that has become privatized, and thatcherized. We’re really rolling history back in time without any understanding of the time we’re returning to as an idealized autocracy, a time only for the wealthiest ruling class, not for the agriculture and the industry that was being so highly exploited in what Trump considers to be the Gilded Age.

NIMA ALKHORSHID: Richard, it seems that programs like Medicaid, Social Security, Medicare, are at risk of being cut to fund additional tax breaks for the real [estate]. I don’t know if the Congress would go along with Donald Trump, if that happens.

RICHARD WOLFF: Yeah, that’s the only question. The Democrats will be the ones who do all of this kind of stuff, more slowly. And they will appeal to their base, as they always do: Now that you’re suffering from what the Republicans are doing to you, wouldn’t you prefer if this were done more slowly?

They won’t say it quite like that, but most people will know. Remember, half the American people have figured out that this is silly and don’t bother voting or paying attention, even if they do vote. They vote for other reasons, but not out of an engagement with the material, which is denied them. It’s not their fault, it really isn’t. Appealing to them to vote and making it absurd to do so is a bad combination.

But I think we’re not anymore in the Tweedledum, Tweedledee game. That’s what those parties will do, because that’s what they’ve always done. And they don’t have the competitor, as Michael just pointed out, that would make that risky.

For that to happen, you have to have an upsurge of a new, and an independent, political movement that puts their feet to the fire, and exposes what this Tweedledum and Tweedledee have done to the United States.

Mr. Trump inherited from Biden. Biden inherited — and you can go backwards — they’re all complicit in this game. They’ve all been playing it.

All that Mr. Trump is doing is correctly surmising that people are getting sick and tired, so he decided to be a more extreme version of the Republican Party. But that’s all he is.

He is taking us back to what Republican employer-class mentality has always wanted: Everything should be done by the private employer. He should not be regulated by the government. He should not be taxed by the government. Because if the government gets out the old laissez-faire nonsense, well, then everything will work.

Well, the last time we tried that, it eventuated in the greatest crash of capitalism in its history: 1929.

If we allow that to happen again, the world is very different then.

The United States had no serious economic competitor in 1929.

It’s got one now, and the whole world is different, and abusing the world, as we go into the risk of a crash or even a recession, is terribly stupid, and would only be done by people who no longer can see any other way to hold on to the notion that the best thing this country needs is to damage the poor, restrict the working class, and do everything possible to protect the people at the top.

Come on, folks, you all know enough about history. When the empires of the past, Greek, Roman, Persian, any of them, when they go down, you know what always happens? The people at the top, the richest and the most powerful, use their position to be the last ones to lose as the empire goes down, to hold on to what’s theirs. And that means the costs of a declining empire are offloaded from them on to the rest of us. That’s what’s happening.

MICHAEL HUDSON: Yep.

NIMA ALKHORSHID: Thank you so much, Richard and Michael. Great pleasure as always.