Brexit, bitcoin and marijuana — Martin Wolf answers readers’ questions

In a unique collaboration the FT’s chief economic commentator Martin Wolf answered users’ questions on Reddit, the US news aggregation website, last night and we thought FT readers would be interested in the wide-ranging discussion between Martin and the thousands of Reddit users who logged on to quiz our economics guru.

Topics covered included the newsy: US-China trade wars, the future of the marijuana industry, Federal Reserve policy and the future of US public finances. Plus questions on Brexit, the state of China’s economy and ways to thwart the appeal of populism.

The theoretical: neoclassical economics and what it can teach us about the financial crisis and the lessons the so-called Thucydides Trap has for Sino-American relations. And Bitcoin.

Reddit specialises in hosting Q&As, called ask me anything (AMAs), with various experts from across the world. Readers on the site “upvote” their favourite comments.

Here are the edited highlights of the discussion between Reddit readers and Martin Wolf.

US, China and trade wars

What do you think of the tariffs Trump has put on China and others?

MW: I have big problems with these tariffs, for the following reasons.

They are in violation of the rules of the world trading system, to which the US committed itself. Particularly dangerous is the abuse of the national security loophole. Once the US argued that protecting its steel industry is a national security issue, it opened the door for similar claims to be made by most other countries. In this way the entire framework of trade agreements might collapse.

The underlying idea of focusing on bilateral trade seems to be that this is a good way of changing the overall trade balance. This is false. Economic theory and experience demonstrate this. The move from bilaterally agreed trade to multilateral trade was one of the great achievements of the postwar trading system. To go back to bilateralism, unaware of why trade is inherently multilateral, is very depressing.

While there are important trade objectives to be achieved vis-à-vis China, it is simply unclear what the US actually wants. It has put forward at least five quite different objectives:

1. Lower barriers to inward investment and trade.
2. Improve protection of intellectual property.
3. Balance bilateral trade.
4. Repatriate supply chains back to the US.
5. Stop China’s rapid economic rise.

These objectives are totally different and some are in conflict with one another. People in China really don’t know what the US administration actually wants. My own view is that it has many different goals, with the president representing just one element.

By attacking the EU and Japan, the US has made it more difficult to form a united coalition against China on the first three goals mentioned above (which the EU and Japan share). On its own, I believe the US will fail to win any significant concessions from China. It is possible that China will never make concessions, in any case. For the Chinese leadership, “face” matters too much.

Can we expect the tariffs to have a large impact on markets worldwide?

MW: This is an excellent question.

By “markets”, I assume you mean stock markets. The answer is that so long as the tariffs are predominantly focused on trade with China, their impact on markets should be a secondary matter. Their impact would become more serious if they were seen to foreshadow any one (or more) of the following:

1. A breakdown of relations between the US and China, across the board.
2. An extension of the tariff war to most of world trade.
3. A breakdown of the trading system and the pattern of economic specialisation it has created over the past 40 years.

If investors around the world were to come to believe in such things, the impact on the economy and markets could become very significant.

The Fed and the future of the dollar

Do you think we will see larger outflows of US Treasuries from foreign central banks as more currency swaps are set up and the US needs to sell more to finance deficit spending?

What are the longer term consequences of less trade being conducted with US dollars in terms of US debt serviceability? Consumer spending? Dollar liquidity?

MW: This is a fascinating question. Foreign central banks hold US treasuries because they are such highly liquid assets. They need such liquidity to manage their economies in the event of shocks. For emerging and developing countries, there remains no real alternative to holding liquid reserves and also no good alternative to US assets. They don’t only hold US Treasuries. But these are clearly the safest and most liquid assets

Could this change? Yes. It is possible to imagine that debt denominated in other currencies might come to seem as safe and liquid as that of the US. But this is really quite unlikely in the near future. The only real potential competitors are the euro and the yuan. But both have huge problems. The eurozone doesn’t have a single treasury bond, but rather those of many…

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