Michael Every on tariffs, economic statecraft and Europe’s strategy

When you heard that headline, the US starts a war against Iran- The United States military began major combat operations in Iran ... did that surprise you? No, completely logical, and I was waiting for it. The question was when it would come. If you look at Europe, what's, in your view, the currently the biggest strategic vulnerability? Biggest vulnerability of Europe is Europe. What's the grand strategic plan of the US right now? It's to remain top dog globally. What's the most overrated idea in economics right now? I kind of already touched on it. There are so many, but I'll go for free trade.

One country or market that's most misunderstood. Wow, that's a fantastic question. Purely off the top of my head, I would say- Welcome to another episode of 51 Insights, today with Michael Every. Michael, welcome to the show. Good to be here. Thank you. It's great to have you here because I know that you have a very particular worldview of how things work in geopolitics and the markets, and that's what we're gonna unpack today. You're a global strategist at Rabobank, and you read how tariffs and chip bans are one move, keeping the dollar on top as China rises.

We're gonna unpack all of that today. And first question I have for you, Michael, is you've made a sharp distinction between economic policy and economic statecraft. Can you unpack for our audience what you meant by that? Sure. Very simply, economic policy is when you do something in a particular silo using a technocratic handbook to try and achieve a particular target which stays within that silo. For example, you change tax because you want to achieve a marginal shift in the economy, or you raise interest rates because you're either trying to defend your currency, which is one target, or because you're trying to increase the cost of borrowing so that you slow down the economy or reduce inflation slightly.

That's a very s-- very simple answer. Economic statecraft is when you look at every single tool that you have as part of a toolkit, which collectively can be used to gain national power in a zero-sum international environment. So you are deciding, I need to move up the ladder, or I need to achieve particular foreign policy or national security goal XYZ, and it's always going to be the expense of somebody else. And to do that, I need to use tax, I need to use monetary policy, I need to use fiscal policy, I need to use effects policy, I need to use energy policy, I need to use defense policy, I need to use transport policy, et cetera, et cetera.

And all of them work together to that one goal. And you either get it as a, you know, as, as a strategist or you don't. And you argue a lot of people still don't get it. What is the market still getting wrong about this, about how the US right now behaves in the global stage? Well, I think people are starting to work out that the US has significantly changed in the past two years. You'd have to be blind not to. I think people are still confused about how the things that they are doing can join up, and they separate the signal from the noise, or they fail to separate the signal from the noise.

Um, and they fail to see that sometimes the madness is actually the method. And if you take a step back and you look at how things can be done in one arena and have an impact in another, and how confusion and bewilderment can actually be a deliberate policy, when you try and join those dots using a very different set of lenses, as I was just describing, you can see that with, with wiggle room, um, there actually is a strategic plan a lot of the time. Whereas if you are purely someone who thinks in terms of technocratic policy in one silo, all you see is chaos and confusion, and there's often more to it than that.

There's often more to it than that. Let's unpack that a little bit. In terms of the US, what's the grand strategic plan of the US right now? Well, very simply, and they're very transparent in this, it's to remain top dog globally, whilst at the same time radically transforming their economy away from the model that they've had for the past forty-five years since the end of the Cold War, and turning it into something else which they believe will last for the next forty-five years or the next one hundred years, and that will look much more like what the US did in the eighteenth or the nineteenth or the early twentieth century.

I believe, not being arrogant, I was the first person on, on the street, if you will, in terms of financial market research, to publish on that on the day Donald Trump won re-election, saying, you know, fasten your seatbelt because the US is going to go back a century or two in terms of how it does things going forward, and that's very much what they have done since. Can you unpack that for us a little bit? What does that mean when you say they have done what they've done hundred years ago? What are they doing right now that reminds you of their past actions?

Well, okay, let's just take a few because there are many. First of all, tariffs. Tariffs everywhere. People were shocked when Trump introduced tariffs more aggressively in this White House administration than he did in his first, even though he told everyone he was going to do it, and even though tariffs are as American as apple pie. They are absolutely dyed into the fabric of Old Glory, the American flag, since day one. The only era in which America didn't have significant tariffs were the last few decades. All the rest of the time they have. So that's a return to normality.

Equally, you can look around and say that the stronger role for the state in a developmental sense in the economy is again, something that historically was very, very much the norm. The state acted like an investment bank, if you will, attempting to try and grow the private sector. And then in terms of foreign policy, we are openly seeing talk about the Dunroe Doctrine, D-U-N-R-O-E, which is a play on words for, you know, for Donald, with the Monroe Doctrine, which is a nineteenth century foreign policy saying Europe stays in their sphere, we stay in ours, and we are champions of the Western Hemisphere.

Now, I specifically flagged he would use that policy when he was reelected. So again, no surprise to me, absolute shock horror to those who thought that American foreign policy wouldn't change that much. But it's all there in history if you go back and see it. Michael, you look at the markets every day, you look at geopolitics every day. What is the most interesting thing that you are looking at right now that surprises you or that you find interesting in any- Every single day we get on average three or four headlines, which on a normal day, five or six years ago, or 10 years ago, would've been the entire talking point for that day, and that's everything everyone would've focused on.

Now, we get three or four of them in a day, and we don't even have time to digest them before we move on to the next one. So it's the sheer scale of eyebrow-raising headlines that's grabbing my attention more than anything, even though naturally some of those individual headlines will get more attention from me than from others. I mean, just, just to give you a recent example, Europe is, if you read some of the headlines, right on the cusp of entering into a deep trade war with China, which will be every bit as transformative for Europe as it has been for the US versus China.

And yet Europe maintains the narrative that Donald Trump is silly, put up tariffs, and they're stupid, and they didn't achieve anything. And lo and behold, Europe is about to do exactly the same thing many years later and with a much stronger China to deal with than the one Trump started dealing with. Not much discussion, but I would imagine there will be once it begins. Obviously, we've entered a very transformative phase in geopolitics in the last year since Trump was elected to president for the second time. If you look back at these two years, what has significantly changed between Europe and the US and China?

And what are the things that US did right, and what are the things US did wrong, and equally for Europe as well? Wow. Okay. We could be here a long time answering that question. Let me try and give you a very succinct reply. China is accelerating everything that it was already doing. It's looking at some pivots where it can, but there's very limited room for it to pivot, so it's taking what was already an efficient, effective template in some respects, albeit with significant fixed costs, and it's amplifying them. America has done many of the things I expected it to do.

It hasn't always delivered on the promises as well as it could do, but on some of them it's actually moved faster than I expected. But it hasn't joined up everything quite as clearly as it needed to yet, even if most of what, as I said, it's doing does tick the boxes. But remember, it has to keep pace with what China is doing rather than what it thinks it should be doing historically. So I would say even more needs to be done in America. But, you know, the, the, the pace of change is at least starting to catch up with that reality.

Europe has done an enormous amount of talking and not a great deal of delivering. And I think if you take, for example, the U- the China-EU trade standoff, which I was just alluding to, that does indicate that Europe is starting to move in very radical directions. But I think it's still just not in the bones cognizant of how radically the world has changed, and therefore how radically it will need to change if it wants to keep up with the US and with China. Let's zoom into one of recent conflicts on the global stage that also affected markets a lot, which is Iran war and now the ongoing peace talks happening in Switzerland.

How do you see that war, and why did the US start that, and how do you make sense of that in, from a market perspective? Well, again, we could be here all day, but I'll try and give you, like, a bullet point answer. We had flagged before it happened that Trump would go into Venezuela because of Venezuelan oil and because of the national security threat that Venezuela presented going forward up into the US. We also then at that time, as we had done earlier, said that if Iran logically was the next target, it would be because, A, it's oil, B, the Middle Eastern energy complex, and C, because the US wanted to try and build a trade bridge between India and Europe via the Middle East to shut China out of the loop.

And those were very logical reasons on top of the success they'd had in Venezuela for the US to say, "Right, Iran is next." So that's why they went in. They expected to have an easy victory. They didn't get one, obviously. Then they tried to drag it out as long as possible to see if somehow Iran would buckle or if others would step up and help. Others didn't. Iran didn't. Then they've had to make a tactical retreat. Now, we will find out going forward if one of three things happens. First of all, this is what the market likes to joke is attack.

Trump always chickens out. That's it. That's the end of everything. America was humiliated by Iran. Yes, they damaged Iran, but a much smaller power managed to resist America. If that happens, there are significant market impacts for everyone from America to Europe to Australia to the entire Western complex, but it remains to be seen. That could be one. The second one is behind all the rhetoric, behind all the headline, Iran potentially could be having a perestroika moment where America says to it, "Look, if you reform, if you change, we're gonna open every door that's been closed to you, even doors that Obama didn't open with the JCPOA, and effectively you can be flooded with capital.

You can be integrated into the Middle East with all that money and all that dynamism, and you can be reintegrated back into the world economy. All you have to do is basically give up two things. First of all, uranium." That's front and center. We can see that. And secondly, not being discussed openly, but it's logically there in the background, "Give up Hezbollah," because without Hezbollah, Israel will always end up getting into a fight with Hezbollah, which will always end up getting into a fight with Iran. So if you give up those two things, all kinds of doors open and the world can change dramatically, which is, of course, very much to America's benefit and to the Middle East's benefit.

Now, if neither of those two transpire, then it could well be that what we are currently in now is a negotiating process for sixty days which goes nowhere, followed by another sixty days which goes nowhere, followed by another thirty days which goes nowhere, and then we're after the midterm elections and we have war again. And I wouldn't rule that out. I can't make a definitive call on any of them, but I would say that the probability is slightly higher at the moment that war is the more logical option if Iran isn't going to budge. Because the downside for the US of walking away and letting everyone see that Iran is the power in the Middle East, Iran is the one that everyone regionally has to then respond to and lose that energy complex to the nexus of Iran, Russia, and China, provided they fight the war more systematically next time and in a different way with, you know, different tactics and different weapons, defensive and offensive.

There's no reason at all why six months, five months from now the US couldn't be back and hitting Iran again rather than admitting that they've won. So we will find out, and the market reaction will vary enormously. If it's a taco, markets will love it because, hey, guess what? Markets go up. Let's talk markets. Geopolitics is secondary to markets. Trump always chickens out. The bond market and the oil market are king. That will be the reaction If it's just talking and talking and talking and talking, and we end up with more war, markets will freak out initially, but then they'll probably calm down because I think it won't do the same damage second time round it did first time round.

We should be better prepared. We should be. Depends how we're preparing. And lastly, if Iran transforms and behind the headlines, behind the lack of change that you see on the surface, you get a Venezuela-style situation where capital floods in from the GCC, Hezbollah doesn't get any new weapons and basically just withers on the vine. Were that to happen, unlikely as it is, that's transformative again. You have an enormous boom in the Middle East. It's going to be a huge growth area. Energy prices will come down a lot, and it's going to be good news for growth for, you know, tens if not hundreds of millions of people.

So very, very big shifts for markets in an aggregate sense there, and they all pivot on what the geopolitical outcome of this particular nexus is going to be, and we will have to watch carefully to find out. Do you think that the Iran war was started by the US had anything to do with the US wanting to secure oil trade lines in relation to China? Yes. That's specifically what I said. They went for Venezuela to do that, and then they went to Iran thinking they could do that. Of course, they miscalculated in that China immediately started to dip into its huge reserves and dropped its, uh, oil imports massively, which actually made sure the crisis wasn't as big as it would otherwise have been.

If China had been importing at the same pace, oil could have gone far, far higher than it did, which would have hurt China more than everyone else, too. So effectively, think of it as a game of cards in a casino. China said, "We have the rare earths card." The US said, "Right, we will control commodity supply chains upstream. Venezuela, let's try for Iran." And China said, "Fine. I've got electrification. I've got vast reserves. I can ride this out for six to nine months. You can't." And the, the US has had to back off. Now, does that mean it's lost the game?

Not necessarily. This game goes on and on and on. Then you have to find another hand, and there are always other hands to play, and one of them, as I said, would be to flip Iran. One of them, as I said, would be to attack it again. Only-- the only card that really shows they've lost this round, but you get to play another hand again in the future, is if they say, "Fine," you know, "we'll let Iran drift towards China and Russia and the whole Middle East with it, except Israel, and that's the best we can do." But that jury is out.

There is very, very polemic political discussion where people take a side very strongly one way or the other. No one yet knows what will transpire. When you heard that headline that the US starts a war against Iran, did that surprise you, or did you think that is just another logical step in the US' grand strategy? No, completely logical, and I was waiting for it. The question was when it would come. Now, the timing, I think, was more on the back of those protests back in January, which ended so sadly for the protesters, and the Venezuela victory because I think in all other circumstances, Trump would have preferred to wait until after the midterms.

So a quick victory would have set him up to go and visit Xi Jinping saying, "Hey, I've got Venezuela, and I've got Iran. We can talk very differently than if I don't have both of them." That didn't work out. Sometimes you gamble, and sometimes you win, and sometimes you lose. So I fully expected it. Now, there's a lot of talk that it was about China. Yes, it was, absolutely. As well as about, you know, the nuclear weapon as well. It was many things. But people are obviously a lot smarter after the event than they are before most of the time.

Another geopolitical hotspot is Taiwan, and Taiwan has Taiwan Semiconductors, one of the biggest chip factories in the world, uh, that also produces a lot of chips for US companies. And that's been a, a talking point between US and China for decades and years, and the discussions heated up in recent months with comments from Xi Jinping. How do you assess the geopolitical tension right now, uh, for Taiwan between the US and China? Well, it's very high within the region, which is not unusual, and it's certainly escalating between Japan and the Philippines and China. But the US, if anything, is actually delegating the geopolitics file on Taiwan to Japan and the Philippines supporting it.

So China is actually venting its ire at them more than it is at the US directly 'cause Trump wants to be able to say, "Hey, look, we can still do a deal." He's a deal maker. He's always looking for an attempt to try and get one done. So we have this kind of strange parallel where tensions are kind of easing on one respect, and the US is talking about maybe trying to, you know, c-cooperate with China more there, and at the same time, it's trying to help Japan do everything that it was doing previously. And what is your expectation on how this conflict will play out over the next couple of years?

On that, I don't have an expectation because it's very, very hard to see with any degree of transparency what China will do. I think we can fairly realistically say Taiwan isn't going to do anything stupid like declaring independence. But what China will do and what the US will do for the next, you know, two years plus under Trump and then the next president is an open question. And I don't think in any geopolitical context you can look at that in isolation because what the US does vis-à-vis Taiwan will also be reflected in what's going on vis-à-vis the US and Russia and Russia, Ukraine and vis-à-vis what's happening in the Middle East in that, uh, you're more likely to get one big deal with everybody than you are to get individual deals in one particular region.

Let's move to Europe for a second. If you look at Europe, what's, in your view, the currently the biggest strategic vulnerability? Biggest vulnerability of Europe is Europe. The fact that Europe isn't Europe. I'm merely just echoing the Draghi report here. But effectively, we're moving to a world now which is about supply chains. It's about control of resources. It's about hard power, not soft power. It's about the ability to carve out rules rather than get people to understand a technical argument within an existing body of rules. It's about technology as well as the military. And wrapped up in all of that, it's about energy, and it's about scale because you need to have cheap energy, great technology, strong military to support your supply chains, and then you need massive industrial scale to be able to survive in a world in which the US is already a giant but can effectively start to merge other economies into itself, which it is doing, and which China is a mind-blowing giant already.

And yet Europe is all the different individual countries of Europe, each one talking about Europe and yet having, you know, at most eighty million people, at least, what, four or five, depending on the European Union member that you're talking about, and each one thinking that they can compete on the global scale. They can't. So Europe ideally would need to listen to the Draghi report. This is not me telling it what to do, but I'm saying from a geopolitical perspective, it would need to have the heft that it can carry as Europe, but it doesn't carry that kef, uh, that heft.

It speaks as Europe while actually being many, many smaller parts, which are not greater than their sum. If you were in a room with the European leaders and you could give them an advice on what they should do in any area, whether it's politics or energy or defense, what would you advise them? Well, first of all, I try very hard not to give normative advice 'cause I don't know what they want to achieve, and what they want to achieve would determine what answer I would give them were they to ask me. But what I can say is, if they're aiming for strategic autonomy, if that is their stated goal, then, as I said, the number of different targets which you have to hit all at once, from supply chains to energy to industry to scale to military tech, you know, to even things like fiscal rules to make sure that you can pay for it all, is so staggeringly, staggeringly difficult and expensive that I don't think people fully recognize the sacrifices that would have to be made and the transformative effect we would be talking about.

It's to be almost revolutionary to try and do all those things on the scale that would-- they would need to be done, at the speed they would need to be done at once to get them done. Particularly because if Europe does do that, you are effectively walking away from both America and China. So then you effectively got two giant rivals on two different sides who would see you as a rival and a competitor rather than a, an ally of some sort. So that makes it even more difficult. Now, if Europe isn't going to do that, and it's not my job to tell Europe what to do, if Europe isn't going to do that, what are the other alternatives?

Well, effectively, it's work with one side or the other. So either work with China against America or work with America against China, or to say, "We're not going to do either, we'll work with both." But if you do that, effectively you get pulled apart because America will pass legislation in one direction, China will pass legislation in the other direction, and it's impossible to comply, and then individual European states may decide to go one way or the other, and then the, you know, the, the, the unity within Europe can start to fray. So again, I'm not telling Europe what to do.

What I am saying is that the, the, the task it wants to set itself will determine what it should do, but it has to be fully cognizant of the scale of the challenge, because it's very, very easy to say, "We're going to do X, Y, Z." You know, it's very easy to say, "I would like to be four inches taller." And you know what? You can do that. You can have an operation to break your legs. You know, put metal le- levers in your legs. You know that? Or let metal, metal poles and gradually turn it bit by bit by bit in agonizing pain and over, you know, over a year or so in a wheelchair, you can gradually make yourself taller.

Maybe I'm exaggerating four inches. You can certainly make yourself taller. Would anyone in their right mind want to do that? Well, it depends how badly you need to play basketball or, or, or whatever, right? I've, I've seen videos of people doing it. But these are many, many things that Europe's talking about doing all at once. Some of them are going to be healthy, like building up more healthy muscle or, or exercising, et cetera, and some of them are transformative in the way that I just described. And you have to work out what combination of all of them you want to do as Europe in order to achieve what target.

And at the moment, the drift is gradually towards, as far as I observe, actually working with the US against China, but that in itself still means admitting that certain things that one would like to do are going to be very hard to achieve. How do you work with the US against China and have tech autonomy, for example? How do you work with the US against China and try and introduce your own stablecoin rather than saying that we're going to try within the US loop, which is what the US will want instead? These are all compromises that will need to be made working towards a goal, which is, as I said at the beginning in response to your question, economic statecraft.

And in fact, I forgot to add one very key point. I'll bring it in here 'cause it bridges perfectly. The question that you ask if you are using economic statecraft is what is GDP for? Not what is GDP going to be, two, two point one. What is GDP for? If you're not asking that question, you're not doing economic statecraft. Europe's kind of starting to ask elements of that question, but it's not yet asking what is European GDP for in general. How do you think the US answers that question for itself? Maintain global hegemony. They're very clear.

If you read the National Security Strategy, they want to remain the world's number one economy, they want to remain the world's most dynamic economy, as well as the largest, they want to have the world's most powerful military, they want to have energy dominance, and they want to dominate AI. And they also, and they also want to reindustrialize to allow all of those things. So they've openly stated what they want, and whether they're implementing it properly or not varies area by area because it's incredibly ambitious and hard to do, as I said, for, for anyone. For Europe more than the US, because you're fragmented.

The US at least is unified in that respect, more or less. They are attempting to do all of them. They are trying to do all of them at once. So the tariffs are an attempt, along with subsidies, to reindustrialize. They're having mixed, a mixed effect. I think you are starting to see some reindustrialization there. Maybe not as much as they want, as fast as they want, but give it time, it could get there. Logically, historically, it would do. They are talking about massive rearmament. They are talking about energy dominance, and certainly they're producing more energy than Russia and Saudi Arabia at the moment, but then they're abandoning green tech, so they're only looking at one particular form of energy.

And AI, yeah, they're clearly still the world leaders in AI, and they're doing everything they can to try and get energy costs down so that people can afford to use those data centers to generate the miracles that they're creating with AI. They're joining it up. You, you can't say, for example, we want to be an AI power and have really expensive electricity. How does that work? Let's zoom in on tariffs for a second. I would be very curious to understand, I'm sure you followed this very, very closely and you looked at this even when the media stopped talking about it.

Have these tariffs actually had some effect on the goals that the US wanted to achieve with that? Do you see this in the numbers? Well, look, it depends which numbers you look at, and most people who look at US data hate tariffs because that's something that mainstream economics is supposed to do. And as I said, it's mixed. You haven't seen this broad-based industrial revival yet. You are seeing input costs being pushed higher, partly by the Iran war, but partly by the initial impact of tariffs. And there's no question that the US has to try and work out what it's doing with tariffs.

Does it want to keep low-cost inputs of raw materials coming in and then add value to them and have a tariff on the finished product to encourage domestic manufacturing? Which is what, for example, East Asia did in the old days. Well, no, because the US also has raw materials. The US has copper. The US has a lot of the inputs that it used to go into manufacturing as well. So ironically, they have to tariff cheap inputs as well as cheap finished products. And initially, of course, that makes everything more expensive. Of course it does. But if you provide the right subsidies and you provide the right purchasing power domestically via other channels, for example, bringing down the cost of certain things where you can through either regulation or deregulation, depending on what you're looking at, you can over time create an enormous industrial base.

It's been done again and again and again. You can do tariffs wrong, and they're inflationary. You can do tariffs right, and they're temporarily inflationary, and then actually you get a supply-side response, which no mainstream model ever assumes, and the supply-side response is deflationary. Because China had massive tariffs in the past. Japan had massive tariffs and non-tariff barriers, which are functionally the same thing. Guess what? They're absolute economic manufacturing superpowers now, and they built that with, with tariffs, as did the US hundreds of years ago. So th- this is not abstract voodoo economics. It's observable history.

It just doesn't happen in eighteen months. You know, history doesn't happen on fast-forward like that. I think we can say Europe is in a crisis, and my question here would be, based on what you just said, did Europe maneuver itself into this by themselves, or did they just found themself in a new world order? That's how you described before and the end of transatlanticism. I think the problem was there are examples where you can say America guided Europe in a direction maybe that wasn't good for it. You could say that Russia did the same thing in the past, you know, if you're trying to be objective.

But Europe effectively created what was a very effective architecture slash superstructure for a world that no longer exists. It's as simple as that. If the one thing that what everyone in the world thinks is valuable is the, you know, the oral transmission of, of songs, sitting around the campfire and listening to bards, you know, strum like minstrels and, and entertain you with songs, which, you know, back in the Middle Ages was very important or even pre-Middle Ages, having, like, great entertainers showed how wealthy you were, et cetera, et cetera, has a different stock of, uh, social value.

And, you know, a particular country prioritizes singing and musical instruments and that kind of beautiful artistic culture. They're very wealthy until a country next door says that, "No, tanks, bombs, and guns are what we need, and we're going to just mow down everybody who, who doesn't have them." At which point, everything you've built up as a culture doesn't work in that particular environment. And it is sad but true that history has seen repeated waves of this. Now, fortunately, Europe isn't d- That badly, you know, placed vis-a-vis the environment. It's not a wandering minstrel able to just kind sing for its supper.

But it does have to accept the fact that the rules-based order is dissolving, and Europe sees itself as a soft power, rules-based entity. And Europe sees itself as a free trade power. And I think that's actually questionable because Europe is a, what I call a neo-Merkelcantilist, not a neo-mercantilist, and it, it always talks about free trade while importing as little as possible and exporting as much as possible, which actually is mercantilism. But Europe always dresses it up as free trade, which it manages to cleverly do with technocracy. So it's now living in a world in which everybody wants to be the net exporter, not just Europe, everybody does.

So then how do you maintain that position when everybody will use tricks back at you to make sure that they can do what China is doing to Europe, which is to de-industrialize it? I believe ten thousand jobs a month are disappearing in Germany, for example, in the industrial sector, something like that. These are, you know, figures that I've seen mentioned. That's the product of other people's industrial and trade policy, which Europe is not being able to react to. So Europe did it to itself, but it did it because the environment it did it in said it would be rewarded for doing it, and now it needs to do something else.

And it keeps saying that, and so far, on aggregate, it isn't doing it. Why do you think Europe is not able to react? Again, there's no Europe. You don't have a president of Europe who can pass an executive order and force every sector in Europe to do what they say. You have all the European governments, some of whom are of course in the Euro, some are not, all of whom have their own vested interests, and all of whom lobby aggressively. And by the way, they really understand zero-sum games within Europe. Everybody understands, you know, that I want to get this, that means you can't have it, quid pro quo, et cetera.

So deal-making is in, you know, in the art of Europe, but only within Europe. As soon as they go outside Europe, it's all, "No, if you'll turn to page three and look at clause four, line five." And, and they seem to think that's how the world works. Whereas inside Europe, it's all, but if a Frenchman gets this, you've got to give that to a German, and you've got to give that to an Italian, et cetera. And they understand it's all about quotas and rotation, et cetera, et cetera, et cetera. And you know that's true, and I know that's true.

And it's, and it's how Europe works. Guess what? The world works like that too. Works like that too, except sometimes it's done with a gun on the table. So if all of Europe can collectively understand that, great. If Europe can collectively make a decision like that, great. But then it needs to have all the component parts of Europe agreeing in tandem, we need to do X or Y or Z, and there'll be winners and losers within that. Germany might benefit from a policy and France might lose. All the big countries might benefit from one, all the small ones might lose.

The north or the south, the east or the west. What do you do then? And again, Europe tends to find compromise, which is great. Compromise is a wonderful thing. Not if you need to make a life-changing decision. You know, do I jump out of this window or that window in a burning building? Or do I say, "We'll just sit here and, you know, decide slowly and, and, and, you know, get, get burned"? Sometimes you need to make a rapid decision. So I mean, Europe itself recognizes this. This is the Draghi argument. This is what you hear echoed, uh, repeatedly talking about like a group of six coming together to actually get a core of Europe and a multi-speed Europe.

There's a potential solution which Europe is talking about, not me, or, uh, more centralization in Brussels. There's another solution which Europe is talking about, not me. But one of them, or all of them in different combination, logically something that may be needed as the scale of crises continues to build and the reaction time within which one has to deal with them shortens. Michael, y-you've been following geopolitics for many, many years. Let's talk about the positive things. If you look at the state of the world right now, what excites you as a macro strategist? Well, look, I, I see things very positively in one regard, and it always surprises people.

First of all, I like to call myself an optimist wrapped in a pessimist. But as part of that, I am a firm believer, and I have been for decades, and you can read all my past work and see, that the global system that Europe built itself as the perfect exemplar of didn't work. The rules-based order was lovely, and it created the imbalances which would ultimately destroy it, which is always true for a system. And if that's not true, that system would last forever. Ergo, they don't last forever. Ergo, there is an inbuilt failure. Now, sometimes it can be exogenous, like an earthquake or something like that.

Fair enough. But most of the time, the system itself contains its own destruction. So let's look at this one very, very briefly on the economic side before we come back to the optimism, which is that the rules-based order is basically supported by the US dollar. You have to have a global currency. If you don't, how are you dealing with a globe? What's world GDP? It's this plus that plus this plus that plus... No, it has to be one currency. So if that's going to happen, you need a dollar everywhere. The US dollar is ultimately supported by the US military.

The only reason we have the US dollar is 'cause they won the World War II and the Cold War. If they hadn't, it wouldn't be the US dollar. Goodness me, I don't want to know what it would be if the US hadn't won World War II, but it would have been something else. So it's backed by the military. The US military is backed by US industry ultimately. Well, US industry is destroyed by the US dollar because the global dollar system means the dollar is too strong, which means US industry is too weak because everyone wants to hold US assets, not US goods.

And so actually, the US dollar destroys the US system, which it also creates. And this has been abundantly clear to me for a very long time, but I hope you can see the, you know, the closed loop of logic within it. The positive side is that what I think the US is trying to do here, messily, rudely, crudely, is to reconstruct an older system, less perfect, less utopian, more selfish, but which ultimately, I believe, provides a template to narrow the imbalances which are a logical corollary to the system that is now falling down. Because within the system that we've got now, the rich get richer, the poor get poorer.

Some countries have massive trade surpluses, others have massive trade deficits. Those are the same sides or similar mirrors of the same underlying fundamental imbalance. You wouldn't have one without the other. They, they're expressions of the same thing. If the US is going to re-industrialize and narrow its trade deficit, it will devastate people who export to it. At the same time, on a global level, if everyone reallocates supply and demand, you know, with a, with a frictional transition cost, you end up with less imbalances, less gap between rich and poor, less gaps between winners and losers.

Depending on how you manage the process, we can all be better off. But that doesn't mean that the vested interests who have done so well from this system for decades will see it like that. Very much the opposite, of course. They'll be passionately opposed to it, and they remain so. But that doesn't mean it can't be done well. In the medium to long term and actually leave us in a more sustainable equilibrium. 'Cause what we have now is not an equilibrium and it's not sustainable. Just to repeat that, is what you're arguing that Adam Smith, basically the first economist that promoted free markets, created a system that is unsustainable and that we now need to change?

No, uh, quite the opposite. I would say that the way Adam Smith is taught in economic schools today, which are, here are two bullet points, memorize these, is an insultingly stupid summary of what Adam Smith actually said. If you read Smith, he was a moral philosopher, and he argued himself that actually national security was more important than free markets. Uh, and that actually the government's role should be making sure that you don't get large monopolistic power from any large corporation, which we have all over the place. And that while free markets are efficient, the state still has a role.

So first of all, that's what Smith argued. We teach it in a bullet point, which is not accurate to what he taught. But more pertinently, David Ricardo, who I'm sure you're familiar with as well, we completely misteach what he taught too. David Ricardo, do, do you remember what he taught, the two examples of the commodities that would be swapped? I'm testing you here. No, no. Okay. Cloth and port. Cloth from the UK, port from Portugal, or cloth from England actually, wasn't even the UK. Port from Portugal. One's better at the other comparatively. The other is better at the other comparatively.

You specialize in the two and you exchange, and everyone gets more of both. Now, mathematically, that's true. Every economist will tell you that's true. Undeniably it's true, except a few things. First of all, what happens if making port is crap and making cloth is great? I'm not saying that is the case. But what happens if one of them pays really bad wages and is dirty and polluting and unpleasant, and the other one pays really high wages and is a great, great way to live your life? Why would anyone want to do that? It's more efficient.

It's more efficient to tell someone to clean the toilet forever while you sit there kind of reviewing sushi bars. Yeah, someone's gotta be a sushi reviewer. Someone's gotta clean the toilet. Let's create an economic system which says you can only do one of them forever. It's basically a caste system if you're going to do that, and we've tried to do that in different countries in the past. So that's one. Secondly, Ricardo himself argued the system doesn't work like that if you have global capital, mobile global capital. Because if each country shifts its comparative advantage based on its existing capital stock, and I don't mean physical capital stock, I mean capital stock in terms of money, then effectively all you can do gradually is internally change between this industry and that industry, which is a slower process.

If you can take all the money in your country and invest it in Portugal and make all the port over there, and all the cloth too, 'cause they've got low-cost labor, Ricardo said, "Well, of course you'll do that. You'll make all the port you can in Portugal, and you'll make all the cloth, and you know, what's England going to make?" Where do-- What do we have? Global-- Mobile global capital, which specifically is contradicted in Ricardo's work. Therefore, we don't teach it correctly, 'cause if we did, you can't say you're a, a free market economist who supports David Ricardo.

So therefore, we edit that out of how we teach it. And lastly, and most simply, if you discard the other two things I've said, which are 100% true, and again, that's why they're not taught, if you followed Ricardian theory, port, cloth, everybody's trade should balance. Unless you're Saudi Arabia or Kuwait with a small population and lots of oil, yeah, of course you're going to sell a higher value than you import. Of, of course you are. Let's be honest. There will be some countries like that, right? But 95% of countries, everything you export should be matched by everything you import.

You just mix the baskets. We don't do that. Europe runs persistently large trade surpluses, except with China. How is that the case? Magic? European genius? No. It's the structure of the political economy, and it's got nothing to do with, nothing to do with Ricardo. So I believe in what Ricardo said. We don't practice it. I believe in what Smith said. We don't practice it. The consequence of not practicing that means we get a world with more and more inequality and more and more debt, correct? Correct. And more and more unhappiness, more and more anger, more and more populism, more and more wars eventually, and the whole system starts to crumble.

Uh, you know, again, this is a theory which is hardly controversial now, and there are different aspects of it. You can be an Austrian. You can be a Marxist. You know, you can be an anarchist. There are all different ways of looking at this. But they all come back to the same conclusion, that if you have those long-running fundamental imbalances, it doesn't end in a good place. And our system, just saying what I flippantly call because-markets will end up in that again and again and again. So one may not like what one sees going on around one, and I think you're perfectly entitled to say that.

What's your plan B? Because it cannot be, "Well, not this." Fair enough, but not what we're doing now either. So how would, how would you restructure it? What would you change? And once you start doing that, you are asking the question, my friend, what is GDP for? And once you're asking that question, you are embracing economic statecraft, which means you're allowed to do pretty much whatever you want legally to try and get to where you want it to go because you have to, otherwise you can see you're gonna fall apart, and that's why things are falling apart.

That's super interesting. I have two questions on that. The, the first one is, how would you think about that? What would the questions be that you would ask if you were to state in the world into a different, better direction? And the second question is, if you were an investor and you just cared about making more money, how would you think about that question too? Sure. Very good questions. So the first one, everyone's entitled to have their own view, and it's a product of theology as much as it is of ideology. Okay? My personal one is I would look for a, a way to find an economy that's truly resilient in all aspects of that term.

Truly sustainable, as equal as it can be, with as much dynamism as it can also maintain at the same time, and which really has, in the broadest sense of the term, legs. You look at that society and you think, yeah, there's a successful model which will be there in twenty years, thirty years, forty years. It's adaptable. It can change. It's anti-fragile, you know, to use the, the, the Taleb term. I think there's an enormous amount to be said for that. Now, sadly, personally, I suspect that we will find out that unless we can get everyone in the world doing that collaboratively, that's a zero-sum process.

If you're resilient, that means that you have spare saving, which means you're not consuming everything that you produce, which is sensible, but that means you run a net export surplus. Logically, if you have ten apples, you only consume eight, you keep two apples, right? So you're saving two apples. Well, if you're running a net export surplus and you sell them to someone else, that means someone else is running a net deficit of two apples. So it is still zero-sum. You're recognizing that part of the world is not gonna be doing so well, and I find that very uncomfortable, but I don't see any way out unless you're a utopian, and I'm not a utopian and saying, "Well, there's a magic way via markets or Marxism or whatever ism you believe in that suddenly everybody will sing kumbaya and toast marshmallows together." Uh, show me the history book where that's ever worked, right?

So that's what I would say, but it's up to everyone in every country to think, what do I think is true for my society? What I would say to the second part of the question is, at what point when we enter this discussion is it healthy to have people saying, "How can I make as much money as I can as quickly as I can?" Now, that's human nature, sure, but that is again theological as much as it is ideological. Show me a religion that tells you that's a good idea rather than castigating those people as the root of all evil.

Show me a political ideology that tells me that's a good idea, and then show me a political ideology that tells me that's a good idea that has proved itself to be sustainable and resilient. Very interesting discussion, Michael. We're almost at the end of the show already. We usually do a quick lightning round, short questions, short answers. The first one is, what's the most overrated idea in economics right now? Okay. I kind of already touched on it. There are so many, but I'll go for free trade. Free trade, most of human history didn't have free trade, so free trade.

Second one is, what's the most underrated geopolitical risk? That we get conflating crises on different fronts. So you have one in the Middle East, one in the east of Europe, and, you know, certainly hope not one in Asia too, because once you start getting to that point, it's very hard to come back from the edge. And what's the biggest or most underrated geopolitical opportunity right now? The big deal that we could see on all of those fronts if people realize we're at the edge and that the system needs to change, and that we can all do better changing the system to move away from that edge, at which point we could see genuine, genuine transformation for the better for everybody.

One country or market that's most misunderstood. Wow, that's a fantastic question. Uh, okay. Purely off the top of my head, I would say by many people, America. It's an incredibly silly answer because there are so many economies which are much more obscure and have maybe more interesting nuance when you, when you dive deep into them. But I think so many people look at a country the size of America, and they already have a view of what it looks like and what it's trying to achieve. It's a very big place with a great deal of diversity to it, and I think people don't understand its own history, as I've been alluding to.

They have this copy and paste bullet point view of what America was and therefore what America is and what America will be. Um, and it can be very many, very, very different things going forward depending on the choices it makes. And then next one, the biggest blind spot in Western boardrooms right now. The fact that they're Western. There's, there's-- While we talk about the need for diversity of viewpoints all the time, I think it's very difficult to do, understandably, but it's important to have lived in other countries. I've been very fortunate, I've lived in many.

Speaking other languages is great. We're doing this in English. That's fantastic. Um, I could do it badly in one or two others, but not as fluently as you're doing in English. But, uh, it's really important to have literally seen other ways of doing things. And it's not even the case that if you went to an elite school in another country and then go and work in the States, for example, or in Europe, that you're necessarily seeing the world differently. If you're going to elite school, you see the world exactly the same way, even if you come from a different country.

But, you know, maybe work your way up from the bottom from a different country and then go to a Western boardroom, um, and then maybe you have a far deeper understanding of the cultural differences and how the world map looks if you literally start thinking, "I'm here, and my world map radiates out like this," rather than looking like that. And once you start seeing that, you can start to understand people better. All right. We're at the end of the show. Michael, that was extremely interesting, and we could have gone on for, uh, many hours on many of these topics.

Like, we just scratched the surface. Thank you for your time. Uh, we usually focus on digital asset and geopolitics, ch- digital assets and AI. This is only about geopolitics and macroeconomics. Also super interesting. I'm sure our listeners appreciate that. Michael, where can people learn more about you, about Rabobank? I'm sure those in Europe know Rabobank anyway, should do, one of the world's leading food and energy banks. At the same time, my work, if you want to look for it, I'm on LinkedIn, and equally, I'm on X. My handle is @themichaelevery, all one word. Come and join the discussion because I do talk about AI sometimes.

I do talk about digital assets sometimes too within this particular sphere, but this is a sphere that I look at them from. So I think it's better that we explored that today, and thank you for the platform. Amazing. Thank you, Michael, and all the best. Thank you. Bye-bye. You obviously like this video enough that you got to the end. Listen, do me a favor, hit that like and subscribe button because I think you'll like it. And if you want even more, with more I mean incredible alpha, research, and digital asset market updates, subscribe to our newsletter on fiftyone, that's the number five one, insights.xyz and get the most actionable insights on digital assets.

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