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Perspectives: The world today
622 Plays9 days ago
The second episode of our Perspectives series, ‘The world today’, features eminent historian Sir Niall Ferguson in-conversation with Stephen King, HSBC’s Senior Economic Adviser, discussing the world today and learnings from the past.
Watch or listen to their discussion on geopolitics and the global economy – including US-China and US-Russia relations, European security, and learnings on economic policy from the Nixon shock.
This episode was recorded behind the scenes of the HSBC Global Investment Summit in Hong Kong on 25 March 2025. Find out more here: grp.hsbc/gis
Disclaimer: Views of external guest speakers do not represent those of HSBC.
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Transcript
00:00:05
Speaker
Welcome to Perspectives from HSBC. Thanks for joining us. And now on to today's show.
00:00:14
Speaker
Hello, my name is Stephen King. I'm HSBC Senior Economic Advisor and I'm delighted to welcome Sunil Ferguson to this HSBC Perspectives podcast. Maybe it's even a vlog cast because we're actually here in video as well.
00:00:29
Speaker
And Sunil, you don't really need any introduction because you're one of the most eminent historians there is at the moment. And we've been speaking really against the background of the Global Investment Summit that's been taking place in Hong Kong. And we're going to talk about so all things associated with China, the US and the rest of the world.
00:00:48
Speaker
and And I want to kick off with something because you've made the headlines over the course of the last, I guess, the last few weeks, partly because of a response to you by J.D. Vance, the vice president of the US, who has described you as purveying moralistic garbage.
00:01:06
Speaker
historical illiteracy and even worse than that, being a globalist. um And I know in one sense it's been very good news for you because it's given you lots and lots of publicity you might not otherwise have had, but can you just explain the background to these sort of rather aggressive comments about you as this eminent historian?
00:01:26
Speaker
The background to the the the spat, I think spat is the right word. I think is the right word, yes, absolutely. Bar fight or whatever you think it was. Punch up. Is that I had taken exception to some things that President Trump had said about the Ukrainian president Volodymyr Zelenskyy, that he was a dictator, that he had a 4% approval rating, etc.
00:01:43
Speaker
And I had said on Twitter, rather rather impetuously, that future historians would have trouble explaining to students why Republican presidents had stopped caring about the sovereignty of independent states that were invaded by dictators.
00:01:59
Speaker
And I quoted George H.W. Bush back in 1990, this will not stand. And I accused the Trump administration of appeasing Vladimir Putin. This appeasing is a pretty strong word to use isn't it? Well I suppose I should have known that I would trigger somebody and I certainly certainly did. I certainly was expecting some reaction. Yes.
00:02:19
Speaker
But I didn't expect it to come from the Vice President. Now the Vice President is a busy person. He has all kinds of chat groups that he has to participate in. Indeed. Including those ah discussing whether or not to attack the Houthis. So it was surprising to me that he had time to write a quite lengthy post accusing me of historical illiteracy. Now And many things. I don't claim to be perfect, but historically illiterate can't really be one of them.
00:02:43
Speaker
So i needed to respond. It surprise me, I have to admit, when I when i saw that. Well, I i think responded in Glaswegian fashion, which yeah I was raised always to retaliate. But not with any stupid strong Anglo-Saxon language, I don't think. I'm very careful to engage in civil discourse. That's one of my first principles. yeah And so I took issue with his categorization of my views.
00:03:04
Speaker
And we had quite a good back and forth, in fact. And it ended amicably rather as you might expect, a pub fight outside ah a Glasgow saloon bar to end. We shook hands and had, metaphorically, a drink. So I don't think we've ended on bad terms. I said, look,
00:03:20
Speaker
I don't think this is how to negotiate with Vladimir Putin. This is not how to negotiate with Russians. You don't give them what they want before the negotiations start. He said, we're not making concessions to Putin.
00:03:30
Speaker
I said, good. And now I'm watching to see how it turns out. If it turns out well, if they succeed in ending the war in Ukraine in a way that leaves Ukraine viable as an independent state, then well done.
00:03:43
Speaker
I'll be the first to congratulate And reaching out to Vladimir Putin, obviously this is something which we've not seen from any recent US president. um But in one sense, you, I think, believe that this is an attempt in one sense to peel Putin away from President Xi, that the sort of Russia-China relationship is very, very strong.
00:04:04
Speaker
But if somehow Trump and his his group of people can peel Putin away, get Russia perhaps closer to the US in the future, this is something that might pay dividends for the US? How plausible is that story, do you think?
00:04:16
Speaker
Well, Stephen, this argument is sometimes called the reverse Nixon Indeed. strategy To understand what why Nixon features, you have to remind yourself what happened in 71-72. At that time, the Nixon administration felt that it was in a weak position.
00:04:34
Speaker
It was trying to end the war in South Vietnam. It was worried about the Middle East, and it saw itself as losing the Cold War with the Soviet Union. And one of the things that Richard Nixon did was to go to Beijing to meet Mao Zedong.
00:04:48
Speaker
And this so-called opening to China was a major geopolitical breakthrough. It rattled the Soviets. But it's important to remember that the Nixon trip to China happened after the Soviet Union and China had gone to war yeah over their common border.
00:05:08
Speaker
And so it wasn't as if Richard Nixon had to peel Mao away from Brezhnev. Relations were already frosty. Well, they weren't frosty. They were deeply hostile. And of the great Sergei Radchenko has a terrific new book out.
00:05:21
Speaker
ah which shows that in the minds of both the Chinese and the Soviets, the principal division in the Cold War was not between communism and the United States. It was within communism between Moscow and Beijing. yeah So fast forward to 2025.
00:05:35
Speaker
I think it's naive to imagine that you could somehow peel Putin away from Xi Jinping by offering him an amazingly good deal in Ukraine, which seems to be the strategy. Seems, I don't know, but it seems like that's the strategy.
00:05:48
Speaker
Because at the moment, and this has been true now for years, the closest relationship between any two world leaders is between Vladimir Putin and Xi Jinping. They meet very frequently. When they meet, they speak very warmly. They talk in terms that seem to me to make it quite unlikely that one of them would defect.
00:06:06
Speaker
And so I think there's a flaw at the heart of reverse Nixon. And the flaw is that you might make a very sweet deal with Putin over Ukraine. And Putin might pocket Ukraine, say, thanks very much. sea Now, going back to Nixon. um Nixon had the shock in 1970, which was not just about...
00:06:25
Speaker
reaching out to China it was about actually imposing tariffs on America's allies trying to force the Germans and in particular the Japanese to really value the exchange rates. Many people today are saying that the tariff strategy of of of Trump is very similar to the Nixon in 1971. You impose tariffs not because you want to raise revenue or because you want to protect industries at home. You're trying to force other countries to change their exchange rate arrangements.
00:06:53
Speaker
Is that something that's plausible today, do you think? It's not a terrible analogy. i mean Tariffs weren't a big part of the 1971 conversation, although trade was. i mean At that point, the United States was under considerable pressure from Japan. I push back on that a little bit. I think tariffs were quite a big part, but they didn't last very long. They weren't they weren't as big a part as no the currency issue. yes And what really mattered in 1971, well, there were a bunch of things that they did, but the most important was to end the link between the dollar and gold.
00:07:20
Speaker
And that meant the end of what was left of the Bretton Woods system of fixed exchange rates. Absolutely. And it translated into a significantly weaker dollar in subsequent years. So I think that's really the important part here.
00:07:32
Speaker
But you're right, Stephen, trade was also a reason why Nixon decided to impose the famous shock of August 1971. Now, that that was a shock directed mainly at American allies.
00:07:43
Speaker
especially Japan and and West Germany. And I think in the same way, a lot of Trump's trade policies shock American allies, Canada being the obvious example. But there are going to be other shocks this year yeah for sure, because the way Trump talks represents a much bigger escalation of American tariffs than anything Richard Nixon ever contemplated.
00:08:08
Speaker
I mean, if you think about what would happen if you did reciprocal tariffs across the board, in other words, raising U.S. tariffs on every country that has significant tariff and non-tariff barriers to U.S. exports, we'd be going back in time to the average tariff rate of 1937.
00:08:26
Speaker
no Richard Nixon certainly never talked about anything as drastic as that. And for those people who who don't know the history of the 1930s, of course, 37 itself was bad enough, but the Smoot-Hawley tariff came in in 1930, which was designed effectively to protect the interests of American farmers against international competition. I suppose American farmers in the were the equivalent of American manufacturers today, ah needing protection from international competition.
00:08:50
Speaker
Smoot-Hawley came along. It wasn't the only cause of the Great Depression, not even the primary cause of the Great Depression, but it certainly made life a lot more difficult. yeah um for Most historians would say what Holly did was to signal that there was going to be no relaxation, but only escalation of American productionism, which was already pretty tough. It was already very hard, yeah hol yeah. But I think what's interesting here is that when they're trying to work out how to impose reciprocal tariffs, you'll find members of the administration explicitly saying, hey, there's legislation still in the statute books that go goes back to Smoot-Hawley that we can use. Well, happy days. I mean, that's the way you're describing it properly, isn't it? Let me just put it this way. It's a bit counterintuitive to ah an historian.
00:09:30
Speaker
For an administration to be citing Richard Nixon as the inspiration of their foreign policy, and Smoot-Holly is the inspiration for their trade policy. That kind of runs against the grain of conventional wisdom since, you know, looking back, yeah those aren't great precedents, let's just that way. I suppose you would say it shows that things are possible even they're not necessarily desirable, i think one way of putting it. think the Trump administration should not be underestimated.
00:09:56
Speaker
Part of what's interesting to me about the moment when we are speaking and when this event is happening in Hong Kong is that we've gone from a very positive assessment in the wake of Trump's election victory, a sort of bullish mood, to a much more bearish mood, whereas we're speaking, although markets have recovered slightly, U.S. equity markets are down significantly since their highs earlier this year, mostly because I think of trade policy uncertainty, but also because of a general sense that Trump has taken a four by four to both the international trade system and the international security system.
00:10:27
Speaker
And there are people in the administration who seem to want to do it to the international currency system too. The markets are, I think, disquieted by that. Well, I wanted to ask you something else though about going back to Nixon. The other comparison that a lot of people make at the moment is with the 1985 Accord. Yeah, I think that's dead wrong. I think that's dead wrong.
00:10:44
Speaker
um I think it's wrong as well, but I'm interested to know why you think it's wrong. Stephen Meere has this paper that he published before he became chairman of the Council of Economic Advisers. when he was on Wall Street that says it's not enough to do tariffs.
00:10:56
Speaker
I mean, that won't fix the problem of the global imbalances. yeah We also have to do something to alter the way in which the dollar is relatively strong.
00:11:07
Speaker
How do we do that? We have all these holders of dollar-denominated bonds. yeah Let's hit them with a tax. Let's... This is sort of turning into perpetuals with zero coupons. and that's fetch it It's kind of default, isn't it?
00:11:18
Speaker
Well, default is... Everything but name. default is one of these terms that you can be very pedantic about. But from the vantage point of a bondholder, being told we're going to tax your current holdings of US treasuries and we're going to force you to convert 10 years into 100 years century bonds is certainly the kind of thing that if Argentina did it to you, You wouldn't be crazy about it. You would not be crazy about it. So it's a very risky thing to propose, given that the United States not only has, by general agreement, the reserve currency, but also the safe asset. The 10-year Treasury is the safe asset, which global markets price a lot of things off. No, I agree. So for Stephen Muir to come along and say, hey, we should do something really radical, not just 1930s level of tariffs, not enough.
00:12:01
Speaker
We're also going to force a dollar devaluation by inflicting a haircut on bondholders and a forced conversion into longer majorities. yeah I mean, this is pretty risky stuff to do.
00:12:14
Speaker
International financial markets are a very large, complex system, much more complex than they were back in 1971. And so when you say something like that and you then get hired by the president of the United States to be the chair of the Council of Economic Advisers,
00:12:28
Speaker
I think markets have actually responded in quite a restrained way. Well, the dollar's down a fair bit from where it was, although some people put that more onto the fact that the Federal Reserve may be cutting interest rates faster than... I don't think any of this Mar-a-Lago stuff has really been priced... No, no, I don't think it has at all. In fact, one thing I was going to say is that people often ask me, you what what are the reasons why the US might lose reserve currency status? Could another currency come along to replace it And I've often said, well, actually, it's not an issue about another currency coming along to replace it.
00:12:56
Speaker
It is much more an issue of the US abusing its reserve currency to so to such a degree that you end up with financial chaos. You could arguably say that's what happened in the 1970s to a degree, coming off gold, dollar collapses, really messy, high inflation, and so on and so forth.
00:13:11
Speaker
I just wonder today, similar kind of reaction, if you really were to play fast and loose with the reserve currency status, with the credibility of the dollar as the world's reserve currency, do you again then enter a world of financial chaos internationally? When people were talking last year rather euphorically about American exceptionalism,
00:13:28
Speaker
I had to remind them. Well, this will be exceptional in the wrong direction. It wasn't too exceptional to be an investor in US equities in the 1970s. I mean, one has to remember that when all of these experiments were run, when the Nixon shock was administered, the consequences were adverse for investors in a lot of different ways.
00:13:47
Speaker
So US equities between Nixon's reelection in 72 and his resignation declined, get this, 46%, peaked the trough. yeah The dollar obviously sells off, but more importantly, you have a real problem of stagflation.
00:13:59
Speaker
ah Now, one of the things that's important to bring into the equation is national security, is geopolitics. One of the interesting things about this administration is not only Stephen Mirren, but also Scott Besson talk about the way in which the Trump administration is simultaneously solving for trade,
00:14:16
Speaker
for the economic side and national security. yeah So part of Miron's argument in the Mar-a-Lago piece is you're going to get your situation improved, say your tariffs reduced, if you accept the fiscal deal, and you get your bonds, the securities extended.
00:14:31
Speaker
in effect But the the payoff is that you're in the national security America team. You're going to be under that security umbrella. I wonder if that really works. It doesn't work for China, does it? China's major holder of US bonds and not exactly going to end up on the US security umbrella. I mean, that's the key the key question.
00:14:50
Speaker
A lot of countries just have to suck it up. If you're Canada, you can you know you can talk a good game and Mark Carney is talking a good game, but you're still in a much weaker position yeah than Donald Trump. So is Mexico.
00:15:00
Speaker
So is Denmark. There are lots of players who have to just jump when Donald Trump says jump and just ask how high. China's not in that position. And China doesn't have to accept any of this. And thus far, it's been very interesting to see how the Chinese government has responded, say, to the tariffs.
00:15:16
Speaker
Tariffs have gone up on China. now, I think, in total, if you include the Trump 1.0 tariffs to, say, 36%. Yeah, something like that, yeah. And the Chinese have retaliated. They've imposed their tariffs, but quite selectively. Let me ask something else which which is that you've talked um from time to time about the European reaction. Obviously, you had the Munich Security Conference.
00:15:36
Speaker
europeans i guess when biden won his time in office there was an assumption that trump was a sort of aberration yeah hed been there for four years you'd lost and now we're moving on to sort of mainstream sensible americans leading the free world adults are back in the room everything was going to be absolutely fine so in one sense the shock for europe isn is not just that trump turned up once it said you now have a trump administration which is more powerful more focused um more ambitious perhaps than the first administration and and which is determined to change the rules of the game for everybody else.
00:16:13
Speaker
And so from the point of view of of European security, how should Europe think about itself in these circumstances? Well, I think it's astonishing that the Europeans are shocked by what's happened.
00:16:23
Speaker
Because it's not as if the Biden administration delivered any of the improvement in transatlantic relations that they hoped for. yeah this was This was, I think, one of the striking things about the last four years.
00:16:35
Speaker
The Biden people came in and withdrew from Afghanistan with almost no consultation with the other NATO countries. That was a shocker for those who were involved. They then did the Chips and Science Act, which was an industrial policy.
00:16:47
Speaker
that took no account whatever of european interests and a kind of act of protectionism but not seen as a tariff story but it's still an act of protection in practice basically bringing bringing investment to the us and away from everywhere and extremely bad news for europe's hopes of being competitive in technology yeah particularly let's just look at what happened in ukraine because this is the tell this is the revealing thing yep when the war broke out in February 2022. The first American impulse was to simply fold and fly Zelensky out.
00:17:18
Speaker
And to the ah surprise of just about everybody, the Ukrainians fought and defeated the Russians ah in the Battle of Kyiv, and then proceeded to defeat the Russians in Kharkiv and Kherson in the late part of 2022.
00:17:31
Speaker
Now, at that point, the opportunity was there to try to bring the war to an end. And that would have been the right thing to do when the when Ukrainians were in a strong position and the Russians were in a weak position.
00:17:41
Speaker
What did the United States do? The Biden administration said, no, no, this is good. let's Let's keep this going, because the Ukrainians are just cleaning the Russians' clots. That's great. So let's not make any effort to end this.
00:17:54
Speaker
And the Europeans naively went along with it. We'll do whatever it takes. Biden said, whatever it takes. They said, whatever it takes. It always sounds good, doesn't it? Until discover you can't afford to do it. A war that had no end in sight.
00:18:06
Speaker
And, if you were watching closely, a rising probability that this, along with other policy mistakes, would lead to the Democrats, whoever their candidate was, losing. The Europeans don't appear to have fought this through.
00:18:18
Speaker
They don't appear to have realised that they were putting themselves in a very weak position by allowing that war to drag on. I think it's a bit changed in the sense that, psychologically, yeah There's been a shift in Germany and with the election of Friedrich Merz as Chancellor, there is going to be a concerted effort to revive the German economy through rearmament and infrastructure investment.
00:18:38
Speaker
And the fiscal gloves are off. I think at the European level too, they finally realise this is serious. and Let me ask you something, with my economics hat on. ah Everyone talks after the fall of the Berlin war, the collapse of the Soviet empire, of the so-called peace dividend.
00:18:53
Speaker
Everyone talks now about the positive effect on Europe of spending on defence. But in one sense, this is the reversal of the peace dividend, isn't it? it's It's exactly the opposite of what people hoped for and the thought they were seeing in the 1990s. I'm just sort of wondering whether it it may be a short-term positive for Germany, but long-term, higher interest rates, more inflationary pressures, bigger fiscal deficits, higher levels of government debt, these are all possible implications, aren't they, of I think it's positive for Germany. i don't think it's clear that it's positive for Italy.
00:19:20
Speaker
I think there's going to be, as happened after Germany. And our country, the UK, what do you think about that? We'll come to that in a minute, because it's a special case. So after German reunification, which was pre the Euro, so we had an exchange rate mechanism.
00:19:31
Speaker
but no single currency. Huge fiscal shock. Germany spends a ton of money on bringing the five East German lender into the Federal Republic. And everybody else gets caught in the crossfire because rates go up.
00:19:44
Speaker
And for France and Britain, it's unendurable. but To be fair, that's a short-term effect. It lasts for two or three years. i Chaos in the ERM. But was enough, wasn't It it was. but But then longer term, next 10 years, you have falling interest rates, falling inflation, fiscal numbers looking very, very good. Actually, on both sides of the Atlantic.
00:19:58
Speaker
So the piece of that was real. It looked like, you know, the... the US s national debt would disappear. oh This is a chaotic sort of idea this would happen. Didn't happen, of course. So so i i I fully accept that there was yeah know initial problems associated with the reunification of Germany.
00:20:14
Speaker
But thereafter, it strikes me that there was a significant benefit, lower borrowing, lower interest rates, crowding of investment in non-defense areas. That, I guess, is... maybe up for grabs now i' possibly going into the release, do you think? think the sign is reversed in the sense that the piece dividend over and it's been over for a while.
00:20:31
Speaker
Now Europeans have to invest in national security in a way that they haven't done since the 1980s. That will have positive effects, I think, for the German economy. There's a ton of manufacturing capacity that's been underutilized as the Germans finally discovered that their wonderful internal combustion engines are no longer required in China.
00:20:48
Speaker
So there's an opportunity to retool German manufacturing And my basic gut view is that Germany is ready to rearm and it will do it pretty well. It's not clear to me that that's great news for other parts of the European economy. Italians have a very large stock of debt, higher rates are bad news for George and Maloney.
00:21:07
Speaker
Britain's interesting because Britain did Brexit. which I always felt was an error under the circumstances. It would have been a great thing to do in, say, 1990, in an age of globalisation, in an age of of falling trade barriers.
00:21:23
Speaker
But in an age of increased security risks and high tariffs, Brexit starts to look very And where you have to make choices of failures, which becomes difficult. This is going to be very tough when they're offered, for example, British-American trade deal.
00:21:36
Speaker
That will run counter to Keir Starmer's desire to get closer to Europe. And to China, for that matter. And it gets complicated being prime minister because where do you stand? Britain's going to be drawn into this rearmament of Europe because it doesn't make sense to do without Britain.
00:21:53
Speaker
After all, There are only two nuclear powers in Europe, France and Britain. And if you don't have a US blanket anymore, then you're going to have to up their nuclear capability. So a lot of very interesting consequences flow from the Trump shock.
00:22:07
Speaker
I think it'll be positive for Germany because Germany's been in a stagnant state for some years. But I think it will create new strains that we haven't seen, especially for Italy. I'm just wondering, can you leave us with some optimism for the future parts of the world that might be doing a little bit better that we can sort of think might actually come out of this in a better state of mind than is the case currently? Germany, you've mentioned already. Anywhere else you might want to single out?
00:22:31
Speaker
Japan has been one of the upside stories. South Korean defense companies and shipbuilding companies are for sure going to carry on benefiting from all of this. The really interesting thing is what does all this mean for China?
00:22:45
Speaker
My sense is that under Donald Trump, his strong impulse is to achieve some big, beautiful deal with Xi Jinping. He certainly doesn't look to me to be spoiling for a fight. And that seems to me to be quite positive news for those people who've been keeping their distance from investing in China in the last few years.
00:23:04
Speaker
There's a possibility, it's not guaranteed, there's a possibility that in the Trump years relations will improve. And if that's the case, then I think you could see a significant revaluation of Chinese technology companies as American investors realize that Chimerica the great fusion of the U.S. and China something is still alive, that Trump hasn't killed Chimerica. To me, that's the big takeaway of the last eight years, that tariffs didn't kill it in Trump 1.0. The tech war didn't kill it under Biden.
00:23:34
Speaker
It's still remarkably resilient. Americans still buy a lot of stuff from China. Decoupling, shme coupling, it hasn't happened, even if the goods are going via Vietnam, via India, yeah via Mexico. So I Although at the moment sentiment is somewhat bearish, there is a possibility that Trump ends up making Chimerica great again. That would be a great historical irony if that happens. would be wouldn't it? tell you something. I was talking to someone from the first Trump administration a year or so ago, and I asked him, I said, what sort of metric would Trump use decide whether his second term in office be a success?
00:24:07
Speaker
He came back straight away. Very simple stock market. If it's up, Trump's done well. And I think that a good relationship between the US and China would certainly help to generate that kind of outcome for the stock market over the next three or four years.
00:24:20
Speaker
If there's one thing I've learned from studying history is that there's a lot of irony in the historical process. And so you think that Trump is a disaster for US-China relations because of stuff he said on the campaign trail. but If you look closely, it might end up being net positive for the U.S.-China relationship.
00:24:38
Speaker
It can't be certain, especially since many members of the administration are quite hawkish on China. Indeed, Trump himself is a dove. That is a very important thing to bear in mind. My sense is that Donald Trump wants to do detente, not only with Russia, but also with China.
00:24:53
Speaker
And detente with China, that has to be good for investors both sides of the Pacific. So I think what you're saying is that the art of the deal, in one sense, is still very much alive. yes It is the most important book that one should read to understand Donald Trump, even though he didn't write it himself. Indeed.
00:25:08
Speaker
So, Neil Ferguson, thank you very much indeed. and Thank you for joining our HSBC Perspectives podcast or vlogcast. Great talking to you um and to the audience at home. Thank you very much indeed. Thank you.
00:25:21
Speaker
Thank you for joining us for this episode of Perspectives. Make sure you're subscribed to HSBC Global Viewpoint to stay connected.