CNBC Transcript: Joseph Stiglitz, Professor, Colombia University and Nobel Laureate

Following is the transcript of a CNBC interview with Colombia University professor and Nobel Laureate, Joseph Stiglitz at the China Development Forum in Beijing. The interview was broadcast on CNBC's The Rundown on 26 March 2018.

All references must be sourced to a "CNBC Interview'.

Interviewed by CNBC's Martin Soong.

Martin Soong (MS): So we've got what looks to be trade war brewing right? President Trump fired some shots, we had a return salvo from China. Thankfully, that's actually been pretty modest; does that give you some hope?

Joseph Stiglitz: Yes. When I was here the China Development Forum a year ago and Trump had basically already announced that his intent was to start a trade war, he said he was going to impose 45 percent tariffs against China, what I said was that China needs to respond in a temperate way, realizing that you're dealing with a very difficult person, but firmly and within the international rule of law.

MS: Which is what they've been doing?

Joseph Stiglitz: Which is what they've been doing. I think they need to bring a case at the WTO, to show their commitment to the international rule of law. When President Xi was at Davos in January of 2017 he made a very important speech about China's commitment to sustaining the international rule of law.

At the moment it was very clear the U.S. president was raising questions. I want to emphasize that it's just President Trump who is challenging the international rule of law. The American people I think are not with Trump or at least a very significant fraction of them or not. Trump only has about 30-some percent of support, the lowest any president is out in that part of his presidency.

MS: Do you think that the tariffs could backfire and that support could dwindle even more ahead of the midterms or even ahead of the next election cycle?

Joseph Stiglitz: The evidence so far is that that 30-some percent is a very solid core. Trump has boasted basically that he could kill somebody in the street, or something like that, and he would not lose the support of that core. This may however affect them in their pocketbook. Because if there is a broad range increase in tariffs, it would affect their cost of living, the inflation would lead the Fed to raise interest rates at a higher rate, it would certainly impose a risk to the return to the U.S. to robust economic growth.

So you know there's a general theory 'economy is stupid' and this may be the one thing that actually does change this group of people who seem to have stuck with him even as he demonstrated bigotry, misogyny, support of people who Nazi background. So they stood with him so far, the question is when their pocketbook gets hit will they still?

MS: And this is the good question right because I mean depending what China decides to do next right. If they target let's say the farm-belt states which is where a lot of that 30 percent comes from, that's going to be very focused and pocketbooks is one thing, the ballot box may be another?

Joseph Stiglitz: That's right. And this has of course been traditional, I won't say trade war, but tit-for-tat trade policy. You target where it hurts the most. When the U.S. threatened steel tariffs against the EU, the EU came back in a very focused way and says Harley Davidson, bourbon and jeans. Now you say, why in the world they pick those three commodities, they're not the most important commodities. Well Harley Davidson – Wisconsin- Paul Ryan, bourbon - Mitch McConnell and jeans - Nancy Pelosi in San Francisco.

So that's the way trade game is played and China has I'm quite sure a very good economic map with which they will target certain places in the United States where the pain will be maximized.

MS: Potentially it could get ugly. But you know I mean we've seen this kind of thing before, what happens when nations get into trade skirmishes. But there also seems to be a sort of regression, this is not WTO, this is not GATT, this is even pre-GATT. It's almost prehistoric.

Joseph Stiglitz: That's right. And in previous you might go trade skirmishes, the bananas case, some of these are really quite absurd, it was always done within the framework of the WTO, within an international rule of law, they would bring the case to the WTO, there would be an appellate provision, what makes things particularly of concern to me right now is that Trump has blocked the appointment of new judges at the WTO and really the WTO appellate body is getting hamstrung.

And whether the WTO will go ahead and say look that there's nothing in the rules that requires unanimity, they can go ahead and appoint new judges without the unanimity, which has been a practice in the past. They are reluctant to depart from that practice that would obviously alienate Trump even more. But it seems to me important for the world to do what they can to save our rules-based system. Now I've been critical of some of the rules but I believe that a rule of law is better than the rule of jungle.

MS: Yeah. Rather than no rules so to speak.

Joseph Stiglitz: And so the right way if you criticize a rule is to begin to negotiation and try to convince other people, but not to say we're going to walk away and go to a world in which it's sheer power.

MS: How concerning is it to you that you've got John Bolton in now as national security adviser?

Joseph Stiglitz: That is very concerning because he has been one of the people who talked about using military more extensively. My experience, when I was in the White House, is the military are actually very conscious of the limits of military power. And that's why there was some news he doesn't want to send his troops as sacrificial lambs in a hopeless fight. You know Bolton was very supportive of the war in Iraq, that cost America trillions of dollars just in terms of the cost of Americans that were disabled. The disability and health benefits for those individuals, which numbered about 50 percent of the people who went there, is over a trillion dollars now, at present discounted value.

So anybody in the military knows that you don't play war games and the war in Iraq did not solve anything. And war in Iran or North Korea is not going to solve anything, but the potential deaths that could result of Americans and others is just mind boggling.

END

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