As the United States considers reinstating or increasing tariffs on a range of Chinese goods under a potential second Trump administration, India is emerging as a potential beneficiary of the shifting global trade landscape.
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00:00While American President Donald Trump has put a pause on his tariffs against
00:05other countries, he's going all out for the most part against China with a few
00:10exceptions. You have a situation in the larger context of economic rivalry
00:15between two superpowers, a situation where you've got an emerging power up
00:21against the modern-day superpower and they're now very deeply in conflict. Now
00:26this is being looked at at different planes. This is being looked at in the
00:31moment in terms of what's happening on tariffs where the headlines change on a
00:35day-to-day basis but we can also step out and look from far in a larger historic
00:43arc the economic rivalry between the current power and the emerging power and
00:50what's happened in the past when these two economic powers and giants have been
00:55in conflict going back millennia, going back centuries. It's a very tough thing to
01:01do but it's something that Professor William Kirby, my guest on the news track
01:05today, specializes in. I want to tell our viewers a bit about why this guest is so
01:09special because he's at the intersection of history, he started out as a historian,
01:14and economics. A highly rated professor at Harvard University, runs the Harvard China
01:22fund author, hugely acclaimed expert, and if you read academic circles and see what
01:28professors are saying at this moment many of them are quoting Bill Kirby. So I
01:31requested Professor Kirby to join us on this broadcast and here he is. Thank you
01:35very much Professor Kirby for taking our time and joining us on India today. I'm
01:40really looking forward to this conversation. It's a real real pleasure to
01:42join you on India today. Thank you so much. Sir, I want to start by getting you to
01:47explain to our viewers. In a historical prism what we're seeing currently between,
01:54take the personalities out, Trump versus she, but in a historical prism the battle
01:59between the modern-day power the United States and an emerging power that hopes
02:03very clearly to unseat the standing economic power. So just zoom out, explain
02:09this in a historical context and then we'll build on that. Well I think we need to
02:13take it back several centuries in order to understand where we are. You talked
02:19about China as an emerging power and of course it is, but it's also a returning
02:25power. My colleagues and I have just finished a new online course called The
02:30Return of China. And you know when the United States, you know, we I live here in
02:36Lexington, Massachusetts where 250 years ago this month the American Revolution broke out,
02:42but when the American Revolution broke out this was a kind of economic and
02:48cultural backwater of a comparatively undeveloped Britain in comparison with
02:53the great Qing Empire, which is in many ways the most sophisticated polity and the
02:59largest and without question the largest economy on earth. And what you see today
03:05with the rise, you can call it the rise or the return of China to a position of global
03:12eminence, the rise or in many ways the return of India to a position of these are
03:19civilization states that have an enduring impact on the history of the world. And
03:24the United States, we have to reckon with a good bit of humility in this country,
03:29which is unusual for us. We have to recognize that the United States has been
03:34around less long than than the great Qing dynasty, which was the last of 24 imperial
03:41dynasties in China. And so what you are seeing today is in many ways really a mutual
03:51paranoia on the part of the United States and of China. Sometimes I think quite unwanted fear,
03:57fear in the unwanted fear in the United States about China's return to prosperity and its seeking
04:05a position of global influence in the world and a paranoia in China about the intent, what the intent
04:13of the United States is toward it and toward its attempted return to a position of eminence. The one
04:22simple lesson of history in the history of U.S.-China relations is that whenever these two countries
04:30have worked together, it has been very good for both countries. And whenever they have been at
04:36loggerheads and or at worst at war in Korea, it has been very bad for both countries. Both have an enormous
04:46stake in having an accommodation at this moment in time and finding a way to work and live with one
04:57another because our interests are much more intertwined economically, culturally, educationally than ever
05:04they have been before, even if our political and strategic aims seem to have gone further apart.
05:11So, use what history teaches us to now project out into the future and given the lessons from history,
05:22when these two economic giants clash in the way that now seems inevitable and probably irreversible,
05:30how does it play out in your view? I don't think it's inevitable and I don't think it's irreversible.
05:36I do think you see here a panicked set of responses on the part of Americans,
05:44who, particularly in the Trump administration, who see this as, and again, the Trump administration,
05:51as you will know, is hardly a united group. There are many different views within it, many of which wish
05:58to engage more deeply with China. At the same time you have others who seek to, as it were, bludgeon China
06:07into trade agreements as the United States believed it had done in the 1980s with Japan. So, several of
06:17Trump's advisors on the tariff business basically are children of the 1980s in terms of their policy
06:27backgrounds and sought to use pressure on Japan in order to change and alter the trade balance between
06:36Japan and the United States at that point. But what we did also in the 1980s was to begin to welcome and
06:42allow Japanese investment into this country, in particular in the automobile industry, to the
06:49great benefit of the American public and actually to the ultimate benefit of the American automobile industry.
06:57But at the moment, that is not the way the world is going today. And if you look at your great wall of
07:05tariffs here, if it weren't so tragic, it would be comical to see numbers such as this. India's so-called
07:18reciprocal tariff was imposed at 27% before this 90-day pause. We brought it back to 10% temporarily.
07:28But even a 27% increase of tariffs on India could reduce Indian exports to the US by 30 billion dollars
07:38or more, costing India nearly one point of GDP, prospectively. We just don't know what will
07:48happen because you see here an administration that is quite literally making it up on the fly. And that is
07:56not good for the global economy. It's not good for stability. And so I hope that more sane views will
08:08prevail in Washington to allow for reasonable conversations between the United States and its
08:14major trading partners, China and India included. This has happened in the past. You said we can go
08:20back several millennia. The fact is when they're two powerful empires and they turn their economic backs
08:26on each other. How does it typically impact the other emerging powers countries like India? So looked
08:34at more from a historical lens. What do you think is the more likely impact of these trade wars which
08:40you're calling not irreversible on a country like India? Well, I would say the history gives us uneven
08:48guidance as it always does. You know, history is much easier. As a historian, I find it much easier to
08:54predict the past than to predict the future. But if you're to look at where we are, where we have
09:00been before the First World War, the European economy was extraordinarily integrated. Germany and France,
09:08France and Russia to a considerable range, certainly Germany and Britain as great rivals as they were in
09:14matters military and matters naval. Their economies were complementary one to another to a significant
09:22degree. And that did not stop war from breaking out. In the Second World War, by contrast, is the best
09:31example we know of in which trading blocks actually seem to accelerate the pace of conflict. The high
09:42American tariffs, the Smoot-Hawley tariffs of the early 1930s have long been considered one of the causes of
09:50turning a real recession into the Great Depression. The fact that you would have currency blocks turning
09:58you a pound block, a yen block, a dollar block, limiting global trade to those areas. The trade disputes
10:08between the United States and Japan are without question proximate causes of the Japanese attack
10:16on Pearl Harbor on December 7th, 1941. Okay, let's spend a moment on how this plays out for the United
10:24States. Over the weekend, all the major research houses have increased almost to 60 percent the
10:30probability of the United States going into recession. Are you seeing Trump at this moment as a master
10:37negotiator? You know, he's pulled out the sword, said I want to behead you and then just not put the sword
10:43back into the sheath, but basically held back the attack. Now, precipitating the process of trade
10:51negotiation, which may have otherwise taken say years, he kind of tries to pack it in, in say a 90 day window,
10:56which may or may not get fulfilled in that period. So, do you see this as negotiation tactics by someone
11:02who's super smart or do you think the guy frankly has no clue about what he's doing and is just making
11:07a policy on the fly? Well, I'm feared that the truth may more be on the latter side of your question
11:16rather than on the former side of it. One can hope that there is a grand strategy behind this and an
11:23end game that is clearly played out, but you see extraordinary amounts of division within the
11:29administration. You see Mr. Musk attacking Mr. Navarro, the trade representative of President Trump,
11:38the trade advisor of President Trump. And so, the fear is this consistent, the one thing that is
11:45consistent is the policy continues to change almost daily, a flip and flopping of priorities. And so,
11:54the one thing that is constant is the inconstancy of it. That is possible that this level of inconstancy
12:04will speed negotiations. I think that's actually a very good point. It will speed negotiations that might
12:09well have taken many, many years, but it will not necessarily lead to great outcomes if one believes,
12:16as Mr. Trump clearly does, the one area of utter consistency is he believes that tariffs are important.
12:23He believes that they are a means of raising revenue, as he does not see them for what they are,
12:30which are taxation on goods and ultimately on the people who purchase those goods.
12:35So, a major tax increase on Americans. So, that is absolutely consistent. He believes in this policy
12:45instrument, but his capacity to wield it is hindered dramatically by his own inconsistency and by the
12:53fact that he seems to agree with whomever he has last spoken with. Let's spend some time on China
12:59and your understanding of the impact of these tariffs on China. Because outside China, there are
13:06very few people who understand China the way that you do. In the belligerence with which Xi Jinping has
13:13hit back, he's not come to the negotiating table like Trump said, we'll have a meeting, we'll try and talk
13:17things out. She doesn't seem interested. Why is that? Well, you know, I don't think any country
13:23could not react to the kind of aggressive tariffs of this near declaration of economic war by the
13:31United States on China, at least so it appears at this 145 percent rate. That does not apply to all
13:40goods, for example, and some of the most important goods and most valuable goods are exempt from those
13:44tariffs. It's really quite a complex and messy situation. But I don't think President Xi would have had any
13:52choice but to respond. And it isn't just President Xi. I think any Chinese leader would have no choice
13:58but to respond in some way or other. And I can guarantee you that if India were suddenly hit with
14:03a 145 percent tariff increase, Mr. Modi, I think, would be hard-pressed not to respond to this. This is
14:12what governments do. They have to respond. They have domestic constituencies. They have to, if there is to be
14:18a negotiation, they will want to go in with a stronger rather than weaker hand. And there are, you know,
14:26thousands of American businesses in China, thousands, millions and millions of Americans who
14:32regularly are customers of Chinese goods. These are all constituents in what had been a
14:38largely beneficial economic, bilateral economic relationship between the United States and China
14:44over the last quarter century. Will this tariff war lead to an economic decoupling between Beijing and
14:50DC? Given how intertwined these two economies are, is that even possible? Is the world likely to be
14:57divided into two trading blocks? Right. I think it is possible. I think it's unlikely. But I think it is
15:05possible. These two countries, in many ways, could not be more intertwined in their economies,
15:12more mutually reliant one on another in their economies. At the same time, you have a history
15:21of US-China relations at times when we were deeply involved, for example, politically and militarily in
15:27China in the 1940s. And they were the total cutoff of relations from the early 1950s until the early 1970s,
15:38and really until the early 1980s in practical terms. So it is possible to see decoupling. But that was a
15:44period of enormous tragedy, we must remember. It's a period when Americans and Chinese fought each other
15:51in the utterly needless Korean War. It is a time in which all business contacts were severed. All academic
16:01contacts, which had been very robust between American and Chinese universities, were severed.
16:06And if we believe that decoupling is somehow to the benefit of either the United States and China,
16:15then we actually don't know our history at all.
16:17Mr. Trump's premise is that he can make America great again when it comes to manufacturing.
16:24You know, you've seen all the social media memes. The fact is that America doesn't have a workforce that
16:29can do low-end manufacturing, which the workers are simply not there. So how does this play out?
16:35Because as I speak to industrialists, especially in India, those who have interests in the US and
16:41elsewhere, they're putting a lot of investment decisions on hold because they frankly don't know
16:46what to expect next in terms of tariffs. And in that uncertainty, no one's going to go out and commit to
16:50major capacity expansion plans. The idea that Trump can, with the use of tariffs, turn America into a
16:59manufacturing power like it used to be back in the day, is that possible? Or is he just chasing an oasis?
17:08Well, the fact is, of course, that this era of globalization has cost the United States
17:14many, many thousands of jobs in the industrial sector. But if you were to look at, for example,
17:22where we have lost positions, are these areas, are these the kind of industries that we would like to
17:27revive in the United States? I don't think you can find too many descendants or, you know, or too many
17:37older people who used to work in American textile factories, who believe that a revived textile
17:43industry would be a source of pride for the United States. These were difficult, difficult jobs that
17:53have been replaced, in some cases, by higher value added manufacturing positions, such as in the
18:01international automobile industry and so on. What's much more likely to happen is that more industry,
18:07more Chinese industry, and more multinational companies will move to other places
18:13beyond China. This has already happened, of course, as Chinese firms have set up factories in Southeast
18:20Asia, in South America, in Mexico. India stands to benefit, possibly, from this ridiculously high
18:31degree of tariffs on Chinese goods, if it stands, which I doubt that it will, because that could entice
18:37multinational companies to move production from China to India. iPhone production, for example. Now,
18:43the iPhone isn't quite what it once was, but Apple aims to move iPhone production so that India can account
18:50for half of American demands, given that the tariffs on Chinese goods could add maybe 400, 500 dollars to
18:58the cost of the cost of my phone, right here. And in that case, maybe I would be better off buying a Huawei
19:07phone. Oh, you could just buy a made in India iPhone. That's my suggestion. That's all right. Okay, I'll do that.
19:13I'll do that. How does this impact China in the current economic moment, given the fact that they have an
19:20aging population, fewer younger people than they did in the past, a real estate bubble, which continues
19:28to be a cause of concern, slacking consumption demand. So it's not as if, if this tariff wall gets built,
19:36that China can just ride over. They have a consumption challenge, and they have a growth challenge.
19:41They've got this capacity they need to export.
19:43Well, they actually, I'll come back to their need to export. But this is not a good time for the
19:50Chinese economy, even before this kind of declaration of economic war by the United States.
19:58China is suffering what I would call a political and economic long COVID. And many of the problems
20:05that emerged during the COVID lockdown have persisted consistently. Demand has not picked back up.
20:14Internally, the real estate market has continued to collapse. Now it's perhaps at bottom. But the
20:21many, you know, really hundreds of millions of Chinese feel less wealthy today than they did
20:28five years ago, considerably less wealthy. Those with resources have tried to either get their
20:35resources out of the country or their children out of the country. Others, of course, are simply hunkering
20:41down. And so you see malls with numbers of vacant stores and so on in a way that you did not up to
20:50five years ago. Does China absolutely need to export in order to grow? However, it has been, of course,
20:57the major source of growth in the industrial economy or one of the two major sources of growth. But domestic
21:03consumption had been one that has is now considerably lowered. What one is missing in this and what the
21:11Chinese government has missed all along, perhaps it will change tack now, is that China, unlike the United
21:18States, unlike Europe, has another internal market of two to 300 million people who are simply too poor
21:26to consume. These people have no social safety net whatsoever. And if they were given one, if they
21:34were given rudimentary health care, education zone at prices that individuals could afford, that families
21:41could afford. So if they were given the rights to own the land for farmers that their families had plowed
21:49for generations rather than have the state own the land and gain all the profits from its eventual sale,
21:55if all if those things were to happen, you could see an enormous domestic boom in China based on a new
22:03generation of consumers at home. Does he have the financial wherewithal to unleash such a government led
22:09stimulus? It does. It does absolutely would be a stimulus that it's based also on fundamental policy
22:15changes, particularly in terms of property ownership for farmers. And so but Mr. Xi Jinping, he is he is
22:25a communist leader. He's he's the chair, you know, of course, chair of the Chinese Communist Party,
22:30general secretary of the party. But he's not a socialist at heart. He doesn't believe in welfare.
22:36He says welfare is a makes people lazy. And yet if you're a poor farmer in China,
22:43you cannot work hard enough in order to get well enough off in order to be a major consumer in that
22:51in that market. And you are consigned ultimately to poverty. There's a great businessman in Thailand,
23:01Dhanin Chervenot of the big agribusiness, the CP Group. This is a Chinese family that has been
23:08active for over a century in Southeast Asia and now in China. And he has a very wise saying.
23:15He says a rich country cannot have poor farmers. And if you look at any enduringly rich country today,
23:24whether it's in Europe, North America or East Asia, Japan, Korea, Taiwan, they all have vibrant
23:32agricultural sectors. China only has poor farmers. And that is a problem that the government could
23:40begin to resolve through a variety of social safety net measures and educational improvements
23:47and many other ways of bringing these people, helping to bring these people out of poverty.
23:53But at the moment, would that mean at an admission by Xi Jinping that things are much worse than he'd
23:59like? Because he likes to project military economic strength, great strategic acumen. If he dials back
24:07on notions that have been a key part of his economic DNA for decades, then is that just an admission by the
24:14almighty Xi that things aren't as rosy in mainland China as he'd like the world to believe?
24:20Well, the almighty Xi, as you put it, President Xi did reverse himself from one day to the next on
24:26Zero Covid. And so he is a person who is capable of grand gestures. This is, in principle, a socialist regime.
24:37Nothing would be more socialist than trying to help those of greater need, those in greater need.
24:44But at the moment, you have two constituencies that are really not doing well at all. Obviously, farmers
24:52and the rural sector, generally speaking, in economic terms. But then second, you have youth.
24:58You mentioned the demographic challenge that China has, but China still has a large number of young
25:04people today. And the de facto unemployment rate of young people in China, 16 to 24, is probably about
25:1340 percent. And the official number is, of course, much lower, is closer to 20 percent. But the official
25:24number assumes that if you work one day a month, then therefore you are employed. But it's a stunning
25:32degree of youth unemployment today that is perhaps a social problem waiting to happen.
25:40How serious is that problem? Because it's like a
25:44iron giant dark curtain. You can't really see through it.
25:4740 percent youth unemployment is a lot. Is there a crisis bubbling just below the surface waiting to
25:54explode? There may be. But I think that, you know, it's it's a crisis that can be averted with policy
26:02changes by by the government with increased stimulus, with perhaps reduced investment on physical
26:11infrastructure and greater investment on human infrastructure, on the human capital that comprises
26:18this extraordinary country. Given what you know of the current state of play between China and the
26:24United States, and given what's happened in the past when there's been a similar economic rivalry
26:30between the two most important powers of the world, and if nothing were to change, I know you suggested
26:37that you think that there will be a dial back on the part of Donald Trump. If that doesn't happen,
26:42and the tariffs persist and the war gets worse, the economic war gets worse, which of these two
26:50elephants wins in your view in the future? What does the future look like, Professor, if I were to ask
26:56you to project? Yes. Well, I think neither of them win. I think it would be destructive to both economies,
27:03probably more destructive to the American economy and to American leadership in the world.
27:08The United States has been, in many ways, both a leader and a guardian of the global economic order.
27:15And now we are the one that the country that has brought about the greatest global disorder
27:22in the international economy. And China has been comparatively consistent in its approach.
27:30But I think both countries lose. Neither side wins. What is also lost, though, if you were to think of
27:38the greater danger of a U.S.-China confrontation beyond the economic confrontation is that working
27:45together on matters economic is not a precondition, but it has been an important part of U.S.-China cooperation
27:54on many other fronts before the Trump administration on climate change before on in better times on the
28:05the denuclearization of North Korea and the Korean Peninsula. And I always say if those those, you know,
28:12if one thinks of the areas where a physical struggle, a war, is more likely to break out in East Asia,
28:20involving both China and the United States, the two obvious places are either in Korea
28:28or in the Taiwan Strait or in the Taiwan Strait.
28:32Does the tariff war make Xi, in your view, more likely to make a go for the Taiwan Strait?
28:40Unclear, unclear. I think it gives him more to worry about in the immediate terms at home,
28:45so maybe makes it less likely that one does something dramatic.
28:49But the fact is, you know, anyone who knows anything about the situation between Taiwan, mainland,
28:56and the United States, the best security for Taiwan is in a professional and ideally friendly
29:05relationship between Washington and Beijing. When Washington and Beijing are at odds, Taiwan is at
29:12much greater risk than when they work together. And this is something that...
29:17So can I counter-argument? You're the professor, I'm just asking a question, so allow me that.
29:21The counter-logic to what you're saying, sir, could be that if China and the United States are getting
29:26along really well, then the United States feels less compelled to jump in if China attacks Taiwan.
29:33But when China and the United States are already daggers drawn, that then puts someone like a President
29:38Trump more at the... gives him a greater chance of going in to save Taiwan because Taiwan is... China
29:45is doing something he doesn't like? I don't think so. I think, first of all, daggers drawn economically
29:51can lead to all kinds of other conflict. But I think a military conflict... one has to understand
29:58the risks for all sides in a military conflict and they are not small. Obviously, the risks to Taiwan
30:04are enormous. The risks to the United States for its credibility and its capacity are very large.
30:10But above all, the risks to China are extraordinary because a war in the Taiwan Strait would end China's
30:17international economic cooperation, not just with the United States overnight, but also in all likelihood
30:24with Japan, with Korea, with Europe, and so on. This would be a major catastrophe for the Chinese economy
30:32and for China's position in the world. And even if China won a war over Taiwan, what does it get?
30:40It gets 23 million people who don't want to be part of it. It gets a beautiful island, to be sure. It reunites
30:48the country in a theoretical sense, but it will set China back very dramatically for the point of view,
30:56for the pursuit of narrowly nationalist territorial aims. Now, the United States would have a better
31:09plank to stand on if its own president weren't calling for the territorial expansion of the United States
31:15in such strategically important places as Greenland. Give me a break.
31:21But I think the most important thing is it's so important that the leaders of China and the United
31:29States, and above all, their national security people, their military people, their economic
31:34security people, begin to talk very directly one with another. Because the longer that this goes on,
31:43the more entrenched these attitudes will be, and the more entrenched certain policies may become.
31:48And there's a great British historian of modern international history named AJP Taylor, who said this,
31:56War is never inevitable until it breaks out. Wow. Professor Bill Kirby, I was on a Harvard Business School
32:06call with some professors for my batch last week. There were several who were quoting you, which is when I said
32:14we must reach out to you and have you on the show. And they were all super impressed with the insights
32:21that you had to offer on this particular topic. This has been an absolute delight to know that everything
32:25that you've said has been music to anybody's ears. It's not. But you've been able to put it in context
32:30and in a framework which is super sharp and incisive. And for that, I appreciate you taking our time
32:35and joining us here on the India Today News Trek. Thank you, sir. Wow. It's been an honor to be with
32:40you. Thank you so much for having me on India Today. Thank you. Thank you very much.