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The stock market's the economy now with Mohamed El-Erian, chief economic advisor to Allianz and president of Queen's College, Cambridge University. Here, though, in person, no less. Good morning, Andy. Okay, so we're going to get these we'll get the tariff numbers, whatever that even means, tomorrow.
And then what happens? So, one of two one of two things happen. Either the rest of the world agree to a fairer trading system and these are short-term tariffs. And and they agree how quickly? Hopefully quickly. Well, what does that mean, quickly? Like a week or a month or six months? a few weeks, but the destination becomes clear that we're going to a fairer trading system.
That's option one. Okay. Option two is they decide to put on their set of tariffs on us and then we go through a few rounds of tit-for-tat before everybody comes Okay, so which one are you betting on? I think it's a 50/50. I don't think anybody knows. Mhm. Um that's fascinating. And and you see this in markets.
I mean You would think that you'd bet on the other one your second option, I would think. No, because I think there is a case for a fairer trading system. There is a case for a fairer distribution of defense spending. Mhm. And and people see that. The question is, do you get there in one round or do you get there in multi multiple rounds?
And that's really important because ultimately, I think we're looking at a 50/50 outcome and I hate saying this. This could be a major re-wiring of the domestic economy and of the global economy, ala Thatcher, ala Reagan, where you get a more enabled private sector, streamlined government, a fairer trading system.
Or alternatively, if we get tit-for-tat tariffs, we slip into stagflation. And that stagflation becomes well anchored and that becomes problematic. So, here's the thing that I don't understand. If you just think about the politics of what you're talking about. US puts these tariffs on. What do you think the reaction is in any of the countries where the tariffs are being put on?
Do you think that they the the the people say that seems fair or cool with this and they put no pressure on their politicians or anybody else to do anything? That that's when you say Don't they already have tariffs? Don't they already have They're the ones that started it. They started it. It doesn't matter.
This is about the psychology of how people operate. How can they be mad at us and say, "What are these Americans doing?" when they've been doing it to us for 50 years? And you you think that that's how they will react? I think that's how they'll react. to say, "Oh, this is totally we're totally cool with this." I think they fully know we're the biggest economy on Earth and everybody else can leech off of us and I think they're they're fully Aren't there countries like that?
So, the UK is definitely in your camp. The UK recognizes this. They know they're on the weak side of the argument and they just want to get it You don't think India knows? India does to some extent. Europe is the big problem. Europe is the Europe knows. Canada knows. Canada knows. I think Europe knows.
You think that Mark Carney knows? Uh And that he's just going to He's he's worried about I don't know, the next hurricane that he caused cuz he's got a big call. but but that's your view of him, which is the point. The point is he he and he thinks as he thinks as critically as you do of him. I think that that what they say um in terms of grandstanding on TV and what they really know in in their you know, in their heart, I think they know that that we have a legitimate gripe.
A lot of other places we have a legitimate gripe. Yeah, I mean I think on the China knows. On defense people people absolutely agree. I mean, there are people in Europe that are thanking the US for the so-called Germany Sputnik moment for the realization by Germany that they've got to take more responsibility for their defense and that opens up not just defense spending, but infrastructure spending for the one country that has massive fiscal space.
Um let me ask you a different inflationary question. If all of this actually works out in our favor, I could imagine in a a different type of inflation issue, which is an employment problem, which is if you actually bring all the business back here, which would be a great thing in some respects, you'd also have an inflationary effect because you'd actually not have enough people for the jobs.
But it takes time. I think the major issue now on inflation is that the supply chains are getting disrupted again and people have a recent memory of inflation. That's the problem. Is they remember when we spiked at over 9%. So, people's companies in particular agility in adjusting prices is much higher than it was a few years ago.
That's the concern. So, you get preemptive price increases and we're starting to see that. That's my main worry. You don't want a second inflation shock so so soon after you've had one. Given your optimism, you think you should short gold right now? No, I think gold is has broken every correlation and I said this last time I was here.
It is seen by many central banks as a way to diversify at the margin away from the dollar and that's going to continue.
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