Re-Globalisation Without America: Richard Baldwin
Insights on the global trading order, the resilience strategies businesses will need, and the geopolitical realignments shaping the future of trade.
On Episode 665 of The Core Report, financial journalist Govindraj Ethiraj talks to Dr Richard Baldwin, Editor in Chief, VOXEU.
SHOW NOTES
(00:31) A Quick Wrap
(09:44) Why Trump’s Tariffs Are Unlike Anything Since World War II
(13:48) The Myth of Bringing Back Manufacturing Jobs
(15:26) Ripple Effects: Cascading Protectionism and Domino Liberalisation
(19:46) From Obama to Trump: How America Turned Against Globalisation
(27:44) Strategic Tariffs, Supply Chains, and the Weaponisation of Trade
(29:40) Why Businesses Must Build Resilience Beyond the U.S. Market
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Monday, the 1st of September and this is Govindraj Ethiraj, broadcasting and streaming weekdays from Mumbai, India's financial capital. Today is the 1st of September, the 9th month of the year and well, time is flying.
A Quick Wrap
Well, it's just a quick wrap for today and no headlines because I've got a long interview for you which I would like you to listen to given everything that's going on right now.
Before that, the most significant geopolitical and potentially business event from an India standpoint over the weekend was a meeting between Prime Minister Narendra Modi and Chinese President Xi Jinping. Prime Minister Modi said that Delhi was committed to improving ties with China in that meeting on Sunday as both leaders discussed a need to expand trade and investments against the backdrop of US tariffs. Now, the significant part is this, Modi is in China for the first time in seven years and he's there to attend a two-day meeting of the Shanghai Cooperation Organisation.
He came to China from Japan where he also struck many deals. Russian President Vladimir Putin is also attending amongst leaders from other Central, South and Southeast Asia and the Middle East. Now, how could the markets view this and we'll come to the markets in a moment.
Well, it's unlikely that there are any clear wins from all of this because if anything, it does increase geopolitical uncertainty because we don't know how and whether the United States will respond to this particularly in the context of tariffs or the tariff threats and tariff impositions that we've been seeing in recent weeks. Now, this bilateral meeting took place five days after Washington's 50 percent tariffs on Indian exports to the United States and that additional 25 percent is because of India's buying of Russian oil. The Prime Minister said India and China pursued strategic autonomy and their tie should not be seen through the lens of a third country according to an Indian foreign ministry briefing quoted by Reuters.
Modi and Xi also discussed the need to proceed from a political and strategic direction to expand bilateral trade and investment ties and reduce India's trade deficit with China according to the foreign ministry in India. Elsewhere, India's economy grew at an unexpected 7.8 percent year-on-year in the April to June quarter, picking up from 7.4 percent in the previous three months according to data that was released on Friday. Economists polled by Reuters had forecast growth to be at 6.7 percent and they had said it would continue to slow as a sharp hike in U.S. tariffs would threaten Indian exporters and jobs.
There are a bunch of reactions which I put together. Quantico Research says the commendable growth upside appears to be more fortuitous stemming from strong pace of government capex spending, front-loading of manufacturing activity amidst impending tariffs, favourable southwest monsoon performance and a low deflator. HSBC Research said that June GDP came in at a whopping 7.8 percent year-on-year but we believe some deflator issues were at play.
Government spending was strong but net exports were weaker. High frequency data for July and August are also showing an uptick but may soften in September when the tariff kicks in. So, while there will continue to be some strong macro tailwinds including of course these now latest GDP numbers and a continuing strong monsoon, there is still and will remain nervousness on the street for some time.
The Sensex was down 270 points at 79,809. The Nifty 50 was down 74 points at 24,426. The Nifty Mid Cap and the Nifty Small Cap indices were down 0.57 and 0.39 percent respectively.
Elsewhere, Reliance Industries Chairman Mukesh Ambani told shareholders on Friday in the company's annual general meeting that it reported in 25-26 a consolidated revenue of about 10.71 trillion rupees and earnings before interest tax and depreciation of 1.83 trillion rupees and profits of 81,309 crore rupees. He also said Reliance hopes to double its EBITDA by the end of 2027. So that's 1.83 into 2 times.
Ambani also said that Jio has surpassed 500 million customers. That includes presumably both mobile and broadband and confirmed a Jio IPO planned for the first half of 2026. Reliance Retail is targeting a revenue-compounded annual growth rate of more than 20 percent over the next three years, the company said.
Ambani's AGM speech is under a bit of a shadow this time because it comes on the heels of fairly strong statements from the United States, particularly its trade advisor and the Treasury Secretary, which targeted the company for its importing Russian oil and exporting Finnish product to other countries, including Europe, and making profits from it. Now, the markets might be somewhat steady in the midst of all the tariff turmoil, but the currency is not. The Indian rupee hit a record low on Friday, breaching the 88 per dollar mark for the first time.
On those concerns, the rupee ended at 88 rupees 19 paise, down 0.65 percent for the day, and this was its biggest one-day loss in nearly three months, according to Reuters. It hit an all-time low of 88 rupees 30 paise during the session. It has now fallen about 0.68 percent in August, mostly because of Friday's fall, and that also extended its losing streak to the fourth month, according to Reuters.
Now, Forex analysts the core report has been speaking to even before the tariff situation kicked in have been projecting a weaker trajectory for the rupee this year.
Build On Blockchain (Quickbites)
And today is Monday, and as part of our Build on Blockchain series Quick Bytes, supported by Algorand, we're featuring Mirai Chatterjee, chairperson of the SEWA Cooperative Federation, and how they're using blockchain technology to empower their members. Here is a teaser of what's to come.
INTERVIEW TRANSCRIPT
Mirai Chatterjee: We had no idea about blockchain, and also less idea how it could be useful to women at the grassroots level, our members.
And then we started a dialogue. And what we found is that blockchain could be of great use to women at the grassroots, by digitising their documents, by connecting them to DigiLocker, which of course we've done, by creating an app. So our Aagevans, or grassroots women leaders, who actually facilitate this whole process of connecting to welfare schemes, can keep track of which member has which document, at which time.
Currently, all of that is being done manually in registers. It takes time, it takes a lot of effort, and it limits how we can expand and reach out to more and more women. But I think one major thing that attracted us to blockchain was the democratisation of data.
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And you can catch the whole interview if you follow the link, which is in the description.
Trumpian Tariffs Are Import Substitution Industrialisation 2.0
The new Trumpian tariffs are not the familiar protectionism G7 nations have applied for decades. Instead of shielding particular sectors, they wall off the entire American goods-producing economy from foreign competition.
This is from an article by Dr. Richard Baldwin, a professor of international economics at IMD Luzan, and joining me shortly. Dr. Baldwin is an expert in global economic policy and theory, specialising in international trade, and is recognised as an authority on the economic drivers and risks of globalisation. His work combines perspectives from economics and political economy, providing a comprehensive view that connects historical context, current events, and future trends.
Following an initial interest in economic development, his focus switched to trade when he met Paul Krugman in 1982, under whose guidance he worked on his PhD, with whom he would go on to write several articles. A regular speaker at business gatherings, Baldwin has been listed as amongst the 100 most influential German economists by Frankfurter Allemann Zeitung. In 2021, he was made a Schumpeter Haberler Distinguished Fellow by the International Economic Association.
Before joining the IMD in 2023, he founded the economic policy portal voxeu.org to promote research-based policy analysis and commentary by leading economists, and has since served as its editor-in-chief. He was a member of the World Economic Forum's Global Agenda Council on Trade from 2009 to 2015, and twice elected to the Council of the European Economic Association, and his book in 2016, The Great Convergence, Information Technology and the New Globalisation, was listed amongst the best books of 2016 by Financial Times and The Economist, and Microsoft CEO Satya Nadella cited it as one of the seven books you need to read to lead. I began my conversation with Dr. Baldwin by asking him to walk us through what he means by import substitution industrialisation 2.0 in the American context, including providing us some history, and more importantly, what would be the second order effect as we start looking beyond the impact of these high tariff walls that the US is erecting, not just in the US on local consumers, for example, but for the rest of the industrialised global world.
INTERVIEW TRANSCRIPT
Dr Richard Baldwin: So, it's very unusual, in fact, we haven't seen it since the end of World War II, that the advanced economies have very high and broad tariffs. That was more or less abandoned as a good way to go forwards with the multilateral trade liberalisation that happened in the 50s going on all the way until recently. Now, countries like the United States, Germany, Japan, have tariffs, even high tariffs, but only on narrow sectors.
So in the advanced economies, people are thinking about tariffs, including Trump's tariffs, as if they were protecting pickup trucks or sugar or cotton, something like that. In which case, a tariff really can move things around because you're essentially trying to promote one type of product and not another. What Trump has done is he put very high tariffs on all goods, basically, all manufactured goods and many commodities as well.
And as a consequence, you're not promoting one little part of manufacturing or another little part of manufacturing. The idea is that he's going to protect the whole thing and the whole thing is going to expand. Now, that was indeed the principle that people used to develop.
All the advanced economies, except England, did develop behind high walls. But the world changed around 1990-95 because you couldn't industrialise all on your own. It was a world of global value chains where if you weren't buying your inputs from the source which was most competitive, then you weren't competitive overall.
And as a consequence, countries all around the world lowered their tariffs in order to allow this back and forth trade that comes with global value chains. And the U.S. in particular has enormous value chains extending into Canada and Mexico. And really, U.S. industry could not make almost anything without the parts and components coming in from Canada and Mexico. So my point, first of all, is that Trump's tariffs should not be thought of as the tariffs we've known for the last 30 years or so. They're going to act differently. The second point is it's a very different proposition to try and promote the production of large pickup trucks, which is actually what's happening in Detroit and has for a long time, and then trying to promote the entire auto industry at one time.
And the big problem is the idea of putting up tariffs and industry will appear, saying that the problem was there was insufficient demand for local production. So the idea is you put up the tariff, you create the demand, and the demand creates the supply. Now, that might happen over a decade's period of time.
But right now, the U.S., for example, has over 400,000 job openings in manufacturing that they can't fill because they don't have the trained personnel who are willing to work in the factories. So it's not a question that there's insufficient demand to create an industry. You need other things as well.
You need training workers. You need excellent infrastructure. You need coordination so that the entire supply chain develops at once.
So the problem with Trump's tariffs and the reason it won't work is because you're relying entirely on tariffs to do all the reindustrialization work when indeed much more is needed.
Govindraj Ethiraj: And when you talk about reindustrialization, are you saying that if you calibrate it for time, that is an objective that a country like the United States or a developed Western country could even have?
Dr Richard Baldwin: Well, I don't think it's a good idea. But it's certainly in the rhetoric of what President Trump is talking about, he's always talking about bringing industry back. He doesn't think very hard about how that could happen.
And there's certainly not a lot of detailed policy work on how to make it possible. But he says that's what he wants. He says it repeatedly.
Now, the rest of the advanced economies have sort of realised that the good jobs aren't in manufacturing anymore. There's nothing wrong with good manufacturing jobs in Japan and Germany, but that's only satisfying a relatively small fraction of the workforce. So in the United States, for instance, about 8 percent of the workforce works in manufacturing.
In Germany, it might be more like 15 percent. And you can't run the entire economy thinking only about 15 percent and trying to move the 15 percent up to 17 percent. That's not the way you run an advanced economy.
The good jobs are in advanced services and innovative sectors. So that's why I think it's a bad idea to try and throw back to the good old days when manufacturing was actually a good job in the United States. But now, to a large extent, the good jobs are in the cities and they're in services, not manufacturing.
Govindraj Ethiraj: Right. So if I were to now try and get you to look forward, we are now in India, we are now facing a 50 percent tariff, 25 percent tariff and 25 percent penalty for importing Russian oil. Now, my question really is we don't, of course, know whether this additional 25 percent will remain.
The other 25 percent will be renegotiated. Anything is possible. But at this time, it is 50 percent as of August 27th.
And it's an effective blockade for many industries, particularly labour intensive like gems and jewellery and leather apparel. So my question is, as you look ahead six months, one year, and if we are going to continue to see this world of high tariffs, what are the second order effects and second order events that we could see? Sure.
Dr Richard Baldwin: So the way I think about it is President Trump threw a big stone in the pond and that started creating ripples. And that's what I'd like to characterise these knock on effects as ripple effects. And there's really two in the book I published in May 2025, an e-book.
I talked about it as cascading protectionism and domino liberalisation. And they're both driven by a relatively easy to understand political economy force. And that is goods that used to go to the United States are now deflected somewhere else.
And on the protectionist side, that leads to import surges, which leads to new protectionist pressures, which leads to, generally speaking, higher dumping duties or countervailing duties in a number of countries. And if you want a classic example of that, it's Chinese electric vehicles, where the U.S. put up 100 percent tariff on electric vehicles. They got diverted.
Canada put up a 100 percent tariff. They got diverted. And Europe put up a very high tariff on electric vehicles.
So that kind of trade deflection can cause protectionism. But at least so far, protectionism has been following WTO rules. So they'll just put up anti-dumping or anti-subsidy tariffs that are disciplined.
There's guardrails on them. So they haven't led to retaliation against the retaliation. It's just normal commercial disputes.
The second, and by the way, that doesn't affect as many products as you might imagine, because the U.S. market actually accounts for only less than 15 percent of all world imports. So shutting down this 15 percent market, that's desperately important for certain companies in certain sectors. But on the global scale, it's not a huge thing.
And I'm not saying it's not going to change a lot of things, but it's not as big an effect as you might imagine. Moreover, this deflection, which is much of it's happening with respect to China, only affects a few products where the exports of China to the U.S. are very important for China. And China, at least since 2018, when President Trump started his first trade war, has been reducing their dependence on the U.S. market. So there's not as much trade to divert this time as many people think. So that's the spreading protectionism, the cascading protectionism that comes out. But there's another side of it, which is just the opposite, but coming from the same thing.
So now, for example, Europe is having trouble exporting things to the U.S. The European exporters push their governments to sign free trade agreements with non-U.S. countries. And I call that domino liberalisation. So these deflected exports create new political economic forces in countries like the U.K. or the E.U. or Japan in order to sign more free trade agreements. And indeed, already since April, we've seen the U.K.-India free trade agreement signed. We saw the U.K. accede to the Comprehensive Partnership of Trade in the Pacific. And we've seen, for example, China and Brazil signed a free trade agreement.
So we're getting some of these ripples by lowering tariffs around the world in order to offset the loss of the American market. So that, I think, is something that's going to continue and, in essence, is pointing towards a world where we have re-globalisation without America.
Govindraj Ethiraj: And if I can pick up another current pointer that you made to an article in the FT, which refers to how basically everyone thought that China would become like America and it's America becoming like China. And the birth or rejuvenation of state-run capitalism. My question actually follows from that.
So Trump may not be here after some time when the next term comes and all that. If you were to look at any of the import tariffs that are in place today in the U.S., they actually hailed from his first term, which means they continued to the Biden administration, including on EVs and so on. Could some of these things remain even if, let's say, you know, he were to go or the existing party were to lose the next elections?
Dr Richard Baldwin: Right. So I think what you've picked up on, and I would trace it all the way back to Obama's first administration. So the U.S., you know, Reagan, Bush, Bush Jr., Clinton, they were super pro-trade, signing free trade agreements, enabling the WTO to get set up, enabling China's accession to the WTO. They were super pro-trade. And then Obama, who came in with the global financial crisis, there was a sense of victimhood that arose among the American middle class where the bankers got bailed out and they lost their house. And none of the bankers who caused the whole thing, none of them went to jail.
And the car companies got bailed out. The car workers did not. So it was this kind of victimisation narrative that grew.
And both Democrats and Republicans channelled that to foreigners, both immigrants and globalisation trade. So there is now really a bipartisan consensus that globalisation has not been great for the American middle class. And that's what's being blamed.
That's why Biden took off almost none of the tariffs and, in fact, was much more aggressive against China in particular. So Biden was relatively protectionist, not quite as hostile as Trump, but he was definitely hesitant on trade. And I do not see this going back to like a Bush Jr. who loves free trade agreements or let's support the WTO. I don't see that going back. I think there's a bilateral consensus that globalisation is a problem. Now, one thing to say is that the tariffs that Trump has put on are so high and so comprehensive that there will be an important effect on the cost of living and standard of living of his base.
So it's just starting now. Some of it's already come through. But as you pointed out, it was in July and August that the tariffs went from 10 percent for most people up to at least 20 percent and often higher than that.
So these very high tariffs are starting to be passed through because now it seems like they're fixed. It seems like they're going to be stable. And all your foreign competitors got tariffs as well.
So raising your tariffs is not really much less worrying about losing market share. So I think as those prices come through, the American political base of Trump and others will start to realise that these tariffs are really not the wonder drug that he's been selling. That there are costs that maybe you can believe in paying higher prices at Walmart for 10 years, hoping they'll make plastic chairs in America rather than India.
If you think they think that's a good idea, you haven't met Americans who are relatively impatient about these sorts of things. And it's one thing when your leader says, look, it's going to be great. The foreigners are going to pay the tariffs.
There will be no price rise. But those price rises are happening. So I think the next step, including perhaps even President Trump himself, will back off on some of those tariffs because it's hurting his base.
And one thing we've learned about Trump, including in his first administration, is he's not a fanatic. He's pragmatic. And so when he does things that are relatively ill-informed, like put tariffs on everything from Canada and Mexico, and the next day, the car company CEOs of American car companies call him up and say, look, we can't make cars without these parts and components and we'll get killed by the Japanese and the Europeans if you put a 25 percent tariff on our inputs.
He removed the tariffs on Canada and Mexico if they were compliant with the free trade agreement like they were before. So he backed off just two days later. Same thing with the cell phones.
He backed off on those. So I'm hoping and I believe that he'll bring back the tariffs. He'll, of course, declare victory.
The foreigners have finally made the trading system fair for America. But then he'll dial it down because he doesn't really want to hurt his base too much. So that's what I'm hoping for.
And I think going forward, the next president will keep a lot of the tariffs, but not as high and as systematic as they are now because it hurts the American people too much. So you're saying that some tariffs are fine or desirable? So I'm not going to take a stance on that.
I think there are a lot of things where the U.S. has just let the production go out of negligence, and that was probably a bad idea. So if for national security reasons, for example, the United States can't make its own communication equipment, 5G, there is no American maker of that. It just seems crazy that the entire information infrastructure of America should rely on foreigners.
Now, there's, you know, for a long time it was Huawei and now they're going to Ericsson and Nokia and stuff. And maybe that's OK. But, for example, America can't make its own ships.
That seems a bit of a problem. America can't make its own rare earth magnets. It can't make its own sophisticated semiconductors.
So I don't think protection needs to be everywhere. But I think there's been this kind of dream that the world was safe. And it was for decades after the wall fell.
The world was so safe that, you know, everybody thought it was a good idea to have all the world's most advanced chips made in Taiwan. So the chips that the Pentagon needs to build the stealth fighters are from Taiwan. And that was OK.
And, for example, sourcing all the rare earth magnets from China. That was OK. I think there was this idea that the world is safer than it really turned out to be.
And from about 2016, people are sort of realising that the world isn't as safe as we thought. And the Covid shock and the disruptions in the supply chain increased that. So I'm not arguing for broad protection, but I think, and the Biden administration did some of this, there are some industries in which countries should be more self-sufficient than they were in the past.
This is not a radical statement. Every country in the whole world thinks that they should have some capacity to produce food in case of famine. So all the countries have protectionist policies on food.
And the same thing. Many countries believe they should be able to make some of their own arms, military equipment. And so almost all of them have very high protection, subsidies, and regulations to bring local production.
So this farms and arms idea that the government needs to intervene in the market to change the location of production, that's spilled over now in the 21st century to semiconductors and maybe some medical products and maybe some of this rarer stuff and AI and quantum mechanics. There's a list of them, but it's a relatively narrow amount of industry that we're talking about that's really strategic. It's just that what is strategic, I think, has expanded.
And I'm not against using tariffs on that, but I think you're much better off doing what President Biden did, was get a bipartisan consensus for a 10 year plan with subsidies and regulations, government procurement, maybe some protection, but very intelligently applied in order to bring back industries which are essential to security. And I rush to say that Japan came to the same conclusion. And Japan has a big policy to bring semiconductors back.
And Europe came to the same conclusion. And they're also trying to promote local production of semiconductors. So it's not just the US.
I think it turned out the world's a much more dangerous place and trade and investment has been weaponised. And in that world, the idea that the market will find the best place for everything and that's just fine. I think that it kind of disappeared and evaporated and people are waking up to it.
Govindraj Ethiraj: And last couple of questions. So you're going to be visiting India shortly. How are you seeing India and all the recent going on in the geopolitical context, geopolitical, geoeconomic context?
Dr Richard Baldwin: Yeah, I have nothing to say about Indian politics because I know nothing about it. But geopolitics is very, very interesting. So China and India, two largest countries in the world, at least by population and soon to be two of the largest economies in the world, were both hit by very, very high tariffs.
So the standard estimate is 45 percent for China, 50 percent for India. And Brazil also got 50 percent. So it is possible and it surely is happening that President Trump's aggressive unilateralism is favouring China, India, Brazil, as people look to other countries to be responsible members in the multilateral trading system.
And I don't have to tell you, but India has done pretty well with the trading system since 1990. Actually, India has the second highest growth of manufacturing as a share of global manufacturing after China. A lot of it's centred on selling to the domestic market, but it's a very large, fast growing domestic market.
So there's nothing wrong with that. Industry is coming from somewhere. And China has done very well out of the global system.
So I think these big powers, your India's, your China's, your Brazil's, they do not want to see the world trading system collapse. And in some sense, as the U.S. has stepped back from world leadership, it makes geo-strategic room for other countries to step forward. I think it's an unintended consequence, but I think it's happening that the rest of the world is sort of turning away from the U.S. as a leader and turning towards each other, forming coalitions that we wouldn't have really thought possible before.
Govindraj Ethiraj: And last question, you know, so businesses, large businesses, medium sized businesses, how do they plan in this world? I know there are no easy answers to this, but when someone asks you this, particularly I'm talking about multinational companies, even small multinationals, exporters.
Dr Richard Baldwin: Sure, you know, I taught at IMD just two days ago. I was teaching a course on this. I think the good news is that we've seen a kind of plateau or a cease fire on the rising, radically changing tariffs. So I think at the end of July and early August, the tariffs were set.
I think they're going to stay there. And the president loves tariffs so much that he's going to continue torturing small countries like Switzerland, where I'm from, or on small areas, threatening 200 percent on that. But by and large, the big tariffs on the big countries, I think, have reached a plateau.
And I don't think they're going to go up because, as I was talking about, I think they're starting to hurt the American base, political base, in terms of price rises. So that'll sort of restrain them. So I think we have time now.
We sort of see where it is and businesses need to start planning. Now, as you pointed out, there's no easy answer. But what businessmen do is deal with the reality in front of them and they get by it.
In another five or 10 years, there will have been a lot of pain in adjustment to these tariffs, but they will have adjusted. At least the larger companies probably won't disappear. They'll find other markets, other product mixes, and they will find their way through.
Now, how they do that, that's really exactly the day in and day out business of finding new markets, making changes and all that. It's difficult to say what you should do. But I think one of the things that's absolutely clear is that rethinking your supply chains to make them more resilient to these kinds of shocks, because the ones we've seen from the U.S., by far, not the end. I mean, you can see China's weaponising trade. I wouldn't be surprised if other countries start weaponising trade. So worried about supply chain resilience, which is something that's been going on for years, especially after COVID.
The other one is to realise that the U.S. market is just going to become more closed and it's going to be less of a good place to sell, probably for a long time. But the world will move on.
Govindraj Ethiraj: Right. Sombre and optimistic note to end on. Richard Baldwin, it's been a pleasure speaking with you. Thank you so much for joining me.
Dr Richard Baldwin: Thank you for having me.
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And today's long interview is in partnership with Elara Capital, host of the Elara India Dialogue 2025, India edition starting today in Mumbai, where we are happy to be media partners as well. The theme for that conference is Ashwamedh or Indian Renaissance.
