Martin Wolf on the 'Terrifying' Superpower That the US Wields

Introduction

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Live Show Announcement

1:35Hello, OddLots listeners. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, we're going to be doing another live show, this time once again in our hometown of New York City. That's right. On the evening of May 28th from 7 p.m., we will be at City Winery with a fantastic lineup of guests. Yeah, I really like our live show. They're a great chance to meet the listeners. They're a chance for listeners to meet us, and actually, more importantly, listeners to hang out with other listeners and, you know, all that community stuff. But if you would like... All that community stuff.

2:06And I think we're going to talk a lot about the future of trading because that is a very New York City topic, still figuring out the exact schedule. But yes, if you'd like to come to our live OddLots show at City Winery in New York City on May 28th, go find details at Bloomberg.com slash OddLots or look on either one of our Twitter handles. There are plenty of spaces to find it, and we'd love to see you there. That's right. Get offline and interact with some actual human beings and do some of that community stuff. We look forward to seeing you there.

2:37IRL is the new URL.

2:43Bloomberg Audio Studios. Podcasts. Radio. News.

Episode Introduction

2:55Hello, and welcome to another episode of the OddLots Podcast. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, we're back in London. We're making a tradition back in London. We were here last spring. That last year is April. This time it's May, but I like the idea. Let's do a recurring spring trip to London. Now, when you're in London, do you feel the urge to sort of stroke your beard and think about geopolitics? Can I say, well, yes, for sure.

3:25But as you can confirm, anytime there's like some big, you know, there's something feels pivotal or historical or geopolitical, I turn to you in the office. I say, you know what we really need? We really need like an episode with an old guy with a British accent. Like some moments, that's just what it calls for. You gave the secret away. You gave the secret OddLots booking process away. It doesn't really matter who it is per se, but it's like there's a certain type of guest that it's like, this is what this moment calls for.

3:56Someone with wisdom, someone with perspective.

Guest Introduction

3:58All right. Well, you've given it away at this point, but we are back here for our yearly check-in with Martin Wolf, who is, of course, the chief economics commentator over at the Financial Times. One of the most famous geopolitics, geoeconomics commentators of all time. And someone who is really good to talk to when we're living through these potentially historic, capital H, historic events on what seems to be more than a yearly basis at this point. So the last time we spoke to him was in April of 2025, and it was just after the Liberation Day

4:30tariff announcements. Now we're here in May, 2026, and we have the Iran situation going on. We have headlines about further fracturing of U.S.-Europe relations. Yeah. I mean, all of these potentially pivotal moments seem to be happening on a sort of monthly, if not weekly, basis at this point. Absolutely right. And as you mentioned, when we were here last year, it was in the immediate wake. I mean, I think maybe even just a week after the, or a few days after the Liberation Day

5:01tariff schedule had come out. It was still during that period of absolutely insane volatility. And there is a sense in which, I mean, the pure volatility currently is not actually like it was back then. But at the same time, perhaps probably because we're in the middle of a war, ceasefire aside, April 2025 feels a little quaint compared to where we are right now. Isn't that something? I mean, everything's relative, I guess. Okay, well, on that note, why don't we bring in our perfect guest, older gentleman,

5:32older British gentleman with a British accent, per Joe's description. That's my request. Martin Wolf, thank you so much for coming back on Odd Laws. Well, I'm very glad to fill a niche I didn't know you had. You truly are the perfect guest though, because, you know, again, a lot of people have described you as one of the most important economics commentators of all time. And so I think it's great that we get you back to opine on some of these very big events

Iran Situation Discussion

5:57that we're seeing. Speaking of large events, you have described the Iran situation as a nightmare scenario. Walk us through what you're thinking there, because when I look at some of the headlines around markets at the moment, the S&P 500 closed at a record on Friday. It doesn't seem like markets are aligned with that particular point of view. What's going on? Well, I suppose there's so many different things, aspects of this. I've been thinking of this wonderful

6:28Shakespearean line, life being a tale told by an idiot, full of sound and fury, signifying nothing. So one feels that when markets are looking at this, they feel this is full of sound and fury, but it doesn't signify anything. And there are, I think, two possible reasons for that. One is the famous taco line from my dear colleague, Robert Armstrong, that Trump always chickens out. So in the end,

6:59he's not going to blow up the world. He's going to find a way out of this, which will have done some damage, it will make, I think, the US look fairly ridiculous, but it can be forgotten. It will declare victory and stop. And I think that's still perfectly plausible, a perfectly reasonable view, because he's already sort of stopped the fighting and it feels like he's looking desperately for an end game. The question is whether the other side will play ball. And that is still to be seen.

7:31And then there's the other possibility that in the end, if the oil were lost, as it were, forever, the world will adjust to that. Yes, the output that goes through the straits is very large, but in the longer run, a lot of it can go through pipelines. They can build these. It will take quite a while. And the world can compress this demand in time. It might take a few years.

8:03The world growth will be lower. But what we're losing is about a fifth world output. Oil is much less important than it used to be. 70 years ago, prices have risen. But actually, if you look at real terms, the long history of oil prices since the first oil shock, they're not sensationally high. And so we will adjust to it. And we're very good at adjusting to it. The Gulf will end up as a different place because it won't be exporting the same way. But it's not enough to derail

8:35the world economy. And incidentally, the country that is likely to be the least damaged of the major ones is the US, which is not a coincidence. After all, they wouldn't have started it if that weren't at the back of their minds. China will be damaged. Russia is benefiting. But I don't think that's going to bother Mr. Trump. So in the end, the losers are Europe and China, not his favorite countries. I think that on the whole, Mr. Trump prefers China to the Europe.

9:06But the and the world economy will continue. And there's this huge technological upheaval going on, which is very much what the markets are talking about, which looks transformative. So I think the market's assumption that the profitability of companies is going to be fine. The world will have possibly a recession, but that's not the end of the world. World has recessions, probably not even zero growth. And life goes on. I'm glad that when you referenced Shakespeare and sound and fury signifying nothing,

9:38you were not referring to our conversation, et cetera. Always something, though, that I'm anxious about with respect to our business because we type and talk. It's like, what does it really matter? All that being said, you mentioned the profitability of companies. And if profits stay high, the stocks stay high, and it's all very explicable. One has to admit, or you have to admit, like sitting here today, recording this May 4th, you have to admit, it's pretty surprising, isn't it? Like if you knew all the headlines over the last year and a half

10:08between Liberation Day and a subpoena for Chairman Powell and this war, the early sustenance is pretty surprising. Yeah, this is what I don't get. So I think I mentioned this the last time we spoke, but both Joe and I did international relations at university. And we were told over and over again that the global economy does not like instability. It doesn't like chaos. And yet here we are in the midst of a lot of chaos and things are more or less chugging along. There's this disconnect, right?

10:38Yes, I think that's right. And there's been a greater disconnect that I would have expected. And so I've more than once used another famous quote from a British author. Of course, it has to be given the intro. Yes. Adam Smith. Listen to why we come here. There's a great deal of ruin in a country. Yeah. Which was, if I remember correctly, actually said in response to somebody saying that the loss of the American colonies was a tragedy,

11:10a catastrophe for this country. And I think that's the context. I believe that's the context in which you said there's a great deal of ruin in a country. So there's a great deal of ruin in the world economy. I have a favorite statistic which I use in many of my presentations because it surprised me so much when I looked at it. So since 1950, on the data from Angus Madison, must be right, there have only been two years

11:40in which the world economy shrank. Two. And they're both perfectly obvious. One was 2009.

11:50And even then, it shrank barely. It was close to zero because China was still growing. Lots of countries were still growing. And the other was the pandemic, 2020. Otherwise, the world economy grows. And nearly always between 2% and 4%. It's changed over time. Why? Well, because everybody matters is in a growth mode. I could go through what's driving it. I looked at this actually after the pandemic. I said, how often is it

12:20that we've had a genuine recession, a decline in GDP? Now, this isn't GDP per head. There will be more often times when GDP per head shrank. But basically, the world economy is unbelievably robust. And that's because lots of people are providing stuff people want. There are markets. They produce for the markets. They invest to produce for the markets. Investment is very important as a driver of demand, as Cain said. And so it takes something

12:53really enormous to stop it. I went through the two oil shocks of the 70s. I was already a working economist. And they were big shocks. And we got terrible inflation and all the rest of it. Volcker came along. And yes, he did cause a recession in the US, but it wasn't global. So I think we have to start off by saying the world economy is incredibly resilient. The second thing is that, and that's why I use the full of sound and fury, if you look at the actual policies that we've ended up with,

13:25they're sort of designed, I'm sure they're not intended, not really to hurt. So the protection is very uneven. This was part of, I wrote about this before Trump got into office. And that creates the opportunity, is designed in the system for trade diversion. Right? Now, if he just put up an average tariff of 40% or 35%, a lot of trade would disappear. But that's not what he did. He ended up with imposing very high tariffs

13:56on some origins. China still has very high tariffs. But the trade diversion has been phenomenal. So trade goes through Vietnam. It goes through Mexico. And the IMF had a very nice chant on that in the latest World Economic Outlook, which basically showed that, yes, direct trade between the US and China has shrunk. Direct trade between the US and Canada has shrunk. But other people have taken its place. And in some sense, it was designed to be porous.

14:27Then there are all sorts of exceptions that he's negotiated in return for who knows what with sundry companies like Apple. Apple would have been very badly hit. So it's all very porous and it's all negotiable. So it's not as serious as all that. And then the shock in the Gulf is significant. But oil isn't as important as it used to be, as we discussed. The energy system has changed across much of the world. And this will be accelerated, of course, but that's for the future.

14:57And prices have gone up. There will be a slowdown. I'm absolutely sure that we might get close, you know, really bad, really bad. Maybe the world economy grows at 1, 1.5%. But it's not a catastrophe. And finally, profits are robust because let's face it, worldwide, labor is weak. So companies can manage their affairs in a way to ensure that they survive. I'm sure lots, I haven't looked at this, I'm sure lots of small and medium-sized businesses

15:27are very badly affected. But the colossi that are generating most of the profits, particularly the tech colossi, they're not affected by this. this is at least expose, perhaps not as surprising as one might have thought. There's a great deal of ruin in the world economy. We should see if we can do this entire episode only referencing British historians and economic thinkers. Direct quotes. Are there any others? You know, one other thing, you mentioned those exceptions that, you know, last week,

15:58I think Trump announced that they made a little carve-out for UK whiskey or something like that on request of the king. So, therefore, much like us, Trump is a sucker for the British accent. Clearly, it was the king and everything. He's like, all right, I'll cave on that. Yeah, I think that he's also a sucker of people who have grand positions. Didn't he? Yeah, that's right. Didn't he have some sort of, maybe it was true social or something else, when he referred

16:29to there being two kings? Together. That was, I'm sure, not a joke. I think he would like to be king. But when I think about the king he would most like to be, I immediately come to Henry VIII, who was a real king, who made probably the single most important decision made by any English monarch, namely to leave the Catholic Church and make himself head of the church. I think Donald Trump would quite like that,

16:59don't you think? And he was an absolute buttock who chopped the heads of one advisor after another. I think he quite liked that. So, yeah, he likes the idea of being a king. Now, our poor King Charles isn't like that, but at least he's sort of connected to that. So I can see the glamour. And he lives in palaces. I mean, don't you think he'd rather like to, Mr. Trump would like to move Buckingham Palace to Washington and put it in the middle? I think the Oval Office

17:30makeover is very reminiscent of a classic European-style palace. I'm thinking of a particular French one. Data centers need electricity, AI needs copper, reshoring needs steel, and gold's run may tell you something about how the world is repricing money

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Europe's Dilemma

20:51interior decorating and Joe knows that I could certainly talk about this for much longer. But, you know, you mentioned this idea of Trump as king and you also mentioned this idea of trade adaptations. And one of the things that's happened since the Iran situation is Trump has come out and said, well, if you can't get oil from the Gulf and you're Europe, you can come to the U.S. and get oil from the U.S. And I'm very curious how statements like that play on the ground in Europe given that on the one hand this is a situation

21:21caused by the U.S. I think it's fair to say that Europeans regard Trump as somewhat unpredictable. Somewhat. Somewhat. I'm doing an impersonation of British understatedness here. And then his message to Europe is basically, well, you know, trust us for your energy security. Yes. Well, I think the trust us has definitively gone. That's hardly news. I think that's true worldwide.

21:51I'm just trying to think does anyone actually trust this guy? Because being untrustworthy seems to me the core of his modus operandi. I mean, he wants to surprise people and he does in both directions. So nobody in Europe believes now that there's any promise that will come from this administration that is to be believed. And I think that's true pretty well for everybody. That's understandable because it's consistent

22:22with the evidence and the behavior and even what he says. However, Europe is in a very, very unfortunate position, which is that it grew so dependent on America for so long that pretty well all its structures, its defense system very obviously, but also the things it didn't bother to produce itself. For instance, the whole tech

22:53array, the trade relations, the investment relations, and of course the underlying ideology, the sort of liberal democracy they imported. This all came from America. I mean, we're wrong to say that it wasn't there. A lot of this wasn't there before in different ways. But after the war, the first and second together, it was so shatteringly demoralized as a continent and so damaged,

23:24we can go through the damage done to all the different major countries, that the US became the core of every aspect of security. Believe, trust, they were very, very content with this. So, whether they were naive or not, very interesting question, it's all come as a colossal shock. Now, Trump won was when the first administration of Trump was a wake-up call,

23:54but in the end it wasn't so bad. They felt, oh, well, full of sound and fury, but didn't signify that much. In the end, he didn't do much so as he didn't change trade policy, didn't withdraw from NATO, so he filled his administration with the sort of people we're familiar with, we like and trust, those sorts of Americans. This is a shock. I don't think it should have been a shock, but this is a shock. And in the first year, when suddenly your trusted spouse, as it were,

24:25very much the relationship, turns around and becomes a violent bully, you're sort of in shock. But worse, you don't know where to go and live. Who do you get to, who's your alternative? Do you want to become friendly with China? Not really. Do you want to become friendly with Putin? Absolutely not. And are we strong enough to survive on our own in all these different dimensions? Of course not. The vulnerability of Europe is staggering. Just think what would happen if the American administration decided, if it could decide that, to just close off

24:55our access to the American digital stack, as it were. Cloud computing, all the rest of it. So then the question is, well, what do you do? And I think there are still really and truly the Europeans at an early stage of deciding what they want to do, and they find it difficult to agree. Very difficult. There are so many of them with different attitudes, values, historical relations. They don't trust one another. Very important point, by the way. The European history is not

25:27so far beneath the surface. So I think we are there at the stage of absolute intellectual moral confusion, but they don't trust Trump. I mean, you sort of anticipated where I was going to go with my next question because, you know, you've written about the threat to democracy that, both in Europe and the U.S., that you perceive the Trump administration as posing. And you mentioned that perhaps

25:58Trump actually prefers China to Europe at this point. And it seems like, as you've written, the administration seems to have two specific big critiques of Europe. One is a particular conception of free speech, which the administration does not perceive Europe as upholding. And then, of course, immigration, which they would associate with civilizational decline and so forth. Interestingly, in your writing, you acknowledge that the both of those are strains or

26:28they're kernels to both critiques that the European government has to take seriously, border control, maintaining those liberal values around speech. How much harder does it or how does Europe chart a path while also taking into account those factors which may have some grain of reality to them? Well, one of the problems we have is we don't feel looking at the whole range of what's going on in the United States that this administration really does believe in

26:59free speech. It's a particular conception. To put it mildly, quite a bit of hypocrisy going on. I don't think I need to lay that out for your audience. But there are, I suppose, a number of different elements in this story. I think that the administration is right, but I don't think they're honest in their critique,

27:29but some governments, my own included, have gone too far in protecting people from what is called hate speech. And that there is a perfectly good argument that both