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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: You're listening to the Bloomberg Balance of Power podcast.

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Speaker 1: Catch us live weekdays at noon Eastern on epocarplaying Thenrouno

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Speaker 1: with the Bloomberg Business app. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 3: So you're the richest man of the world, you get

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Speaker 3: on your jet, you come to Washington to save the day.

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Speaker 4: You're gonna cut two trillion dollars. That's part of the DOGE.

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Speaker 4: Elon Musk. If you're Elon Musk, do you bring your

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Speaker 4: son to the party.

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Speaker 3: He brought his son to the meeting. He walked in

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Speaker 3: the meeting with Senator John Thunne with his young boy

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Speaker 3: sitting on his shoulders. And what a story he's going

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Speaker 3: to have to tell someday.

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Speaker 4: Huh, this is not really a department. Has anyone mentioned that?

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Speaker 1: Yet?

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Speaker 3: DOGE stands for not only the coin but the Department

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Speaker 3: of Government Efficiency, and there is no department.

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Speaker 4: It's kind of a well, it's a panel, I guess.

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Speaker 3: So connecting the dots between the DOGE and actual legislation

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Speaker 3: might be a longer walk than some are thinking. Then again,

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Speaker 3: this is Trump's town Trump's Congress and a lot of

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Speaker 3: lawmakers looking to make him happy. So what Elon Muskin

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Speaker 3: Vivek Ramaswami have to say must carry some weight, right,

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Speaker 3: let's find out from our panel. I mentioned Jeanie Shanzay No, yeah,

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Speaker 3: she's here today, Bloomberg Politics contributor, Democratic analyst, senior democracy

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Speaker 3: fellow with the Center for the Study of the Presidency

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Speaker 3: in Congress, and Shape and Fay is back, Republican strategist,

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Speaker 3: founder of Lighthouse Public Affairs. Great to see you both here.

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Speaker 3: I'm just gonna bet both of you would bring your

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Speaker 3: young child to Washington if you were the richest person

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Speaker 3: in the world.

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Speaker 4: Shape in Fay.

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Speaker 3: Does anyone listen to what comes out of this not

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Speaker 3: department but panel?

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Speaker 1: I think so.

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Speaker 5: Listen. Donald Trump is about to do what conservatives have

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Speaker 5: been trying and talking about doing for decades. Right, He's

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Speaker 5: going to disrupt the government, and I think a lot

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Speaker 5: of the ideas and a lot of the ways to

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Speaker 5: implement these policies are going to come out of the

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Speaker 5: Department of Government Efficiency. Like you said, However that looks right,

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Speaker 5: whether it has teeth or not, is really going to

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Speaker 5: be up to the legislature. But again Republicans won. I

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Speaker 5: think Donald Trump is heading into the White House in

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Speaker 5: January what they mandate to do the thing that he

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Speaker 5: said he was going to do and disrupt some of

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Speaker 5: these government institutions that are no longer serving Americans. And

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Speaker 5: I think that's exactly what they're going to do. And

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Speaker 5: Elon and Vivic are going to be sort of tip

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Speaker 5: of the spear of that.

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Speaker 3: Well, it's a tall order, Genie, when you start getting

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Speaker 3: down of the math here, I mean two trillion dollars.

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Speaker 3: My god, it would be impossible to do that without

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Speaker 3: starting to eat into entitlements, and so far there's been

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Speaker 3: no appetite to do that, not just on Capitol Hill,

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Speaker 3: but in Washington through the presidential campaigns would go near

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Speaker 3: Social Security and Medicare. In fact, the president was going

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Speaker 3: to lift taxes on some of these benefits. Right, So

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Speaker 3: how does this come together in the form of law.

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Speaker 6: Yeah, First of all, Joe I would take that. Very

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Speaker 6: cute kid, and it's going to soften the blow when

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Speaker 6: they have to make these tough decisions. I think Alon

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Speaker 6: Musk is onto something as usual. Very cute kid, but

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Speaker 6: you know the reality is I said before I will

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Speaker 6: repeat again. They need somebody like Maya McGuinness to hold

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Speaker 6: their feet to the fire. You know. The fact is

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Speaker 6: is that when you look at the federal budget, sixty

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Speaker 6: two percent of it is mandatory spending. And you're absolutely right, both,

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Speaker 6: you know, the Democrats and then President the Trump they

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Speaker 6: ran through this campaign saying things like they won't touch

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Speaker 6: social Security, won't touch Medicare, won't touch all of these things.

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Speaker 6: And so substantial cups, particularly in the two trillion dollar range,

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Speaker 6: would be in possible if you don't start to have

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Speaker 6: a serious conversation about that. That said, I think Democrats

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Speaker 6: have to be very very careful here. The idea is right,

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Speaker 6: and the notion that you need to cut, the notion

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Speaker 6: that you need to streamline the federal government is exactly right.

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Speaker 6: And so Democrats can't get caught in this trap of

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Speaker 6: you know, looking the other way and saying all of

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Speaker 6: these ideas are wrong. They have to be reformers as well,

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Speaker 6: and they have to hold these people's feet to the

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Speaker 6: fire when they talk about these cuts.

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Speaker 7: But they should.

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Speaker 6: Support smart streamlining and cuts as well. They just obviously

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Speaker 6: are not going to talk about, you know, destroying the

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Speaker 6: Department of Education overall.

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Speaker 4: You know, bringing the kid.

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Speaker 3: We call that pulling a shirley around here at balance

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Speaker 3: of power. You both know it's a long story. Would

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Speaker 3: you show them the picture of the cute child before

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Speaker 3: you deliver the bad news?

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Speaker 4: Shape and faith. Senator Marsha Blackburn.

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Speaker 3: Thinks that she's got this worked out. I will be

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Speaker 3: introducing legislations you just put this on Twitter that coincides

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Speaker 3: with Doge's plan. My Doge Act will freeze federal hiring,

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Speaker 3: begin the process to relocate agencies out of the DC swamp,

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Speaker 3: she says, and establish a merit based salary system for

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Speaker 3: the federal workforce.

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Speaker 4: Did something like that pass?

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Speaker 5: Listen? I think those are all great ideas, and I

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Speaker 5: think it will bring this federal government closer to the

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Speaker 5: people that it's supposedly serving. And you know, those of

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Speaker 5: us on the right believe that it has stopped serving

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Speaker 5: Americans for a long time. Are they achievable? They are

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Speaker 5: very ambitious goals, and Democrats have in the past, you know,

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Speaker 5: been really entrenched on behalf of government employees and benefits

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Speaker 5: and sort of the DC culture in our nation's capital.

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Speaker 5: So I do think there's going to be a fight

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Speaker 5: right in the Senate. Democrats can certainly hold up legislation

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Speaker 5: and work to get compromises and shape the bills and

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Speaker 5: the House. Of course, it's majority rules pretty much, so

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Speaker 5: there shouldn't be too much of an issue there as

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Speaker 5: long as the Republicans hold on to their slim majority.

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Speaker 5: But I do think those are ambitious gold like you said,

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Speaker 5: and I do think there will be some fights. There

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Speaker 5: will be definitely some public affairs battles over I think

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Speaker 5: probably a lot of these ideas and a lot of

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Speaker 5: other things, particularly coming out of DOGE, just because you know,

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Speaker 5: change is scary for a lot of people, and changes

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Speaker 5: certainly scary for the establishment and incumbents, so it's gonna

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Speaker 5: I do think there are gonna be some battles. I

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Speaker 5: do think some of that stuff does have a chance

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Speaker 5: and a shot. I mean, moving moving an agency out

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Speaker 5: of d C. Right, that's probably a lot easier than

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Speaker 5: you know, a hiring freeze or changing civil service rules

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Speaker 5: and regulations. But I think they're all the right ideas,

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Speaker 5: and I think I think there's gonna be a fight,

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Speaker 5: and I think it's a worthy discussion to have regardless.

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Speaker 3: How about bringing people back to work in the office

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Speaker 3: five days a week, Genie, This is actually one of

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Speaker 3: the few specific suggestions that we've heard from Musk and Ramaswami,

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Speaker 3: not only out of fairness, they say, in the spirit

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Speaker 3: of productivity.

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Speaker 4: But also might thin the herd a little bit.

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Speaker 3: A lot of people don't want to come back to

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Speaker 3: work five days a week, and that might result in

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Speaker 3: a lower head count.

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Speaker 6: What do you think it can Absolutely and we've seen that,

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Speaker 6: you know, throughout the country and in other organizations. We've

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Speaker 6: also seen and they've talked about enticing people to retire early,

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Speaker 6: so retirement packages that also can work. The problem is

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Speaker 6: they have to curb their enthusiasm when they talk two

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Speaker 6: trillion dollars in cuts. You know, you could cut out

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Speaker 6: the entire workforce almost and it wouldn't approach that. And

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Speaker 6: so it is the you know, scope of what they're

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Speaker 6: talking about that they may not be able to reach.

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Speaker 7: I wouldn't count against them.

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Speaker 6: These are two guys who have been insanely successful in

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Speaker 6: their other aspects of their professional lives. But the reality

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Speaker 6: is this process is still very unclear. They are not,

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Speaker 6: as you said, part of the government. You know, I

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Speaker 6: loved when Donald Trump said this was like the Manhattan Project. Okay,

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Speaker 6: you know, that's that is a lofty goal. But you

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Speaker 6: know what is the process? These cuts, for the most part,

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Speaker 6: would have to go through Congress. You're talking about a

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Speaker 6: House with maybe even just a one seat majority at

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Speaker 6: some points, you're talking about a Senate and a House

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Speaker 6: that already the GOP is disagreeing. Do we start with

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Speaker 6: tax cuts? Do we start with Donald Trump's non tax cuts?

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Speaker 6: So the priorities, So, how do you do this? And

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Speaker 6: do this in a two year period, because of course

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Speaker 6: Donald Trump said they will shut down DOGE by July.

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Speaker 6: I think it's twenty twenty six, So a lot to

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Speaker 6: do in a short period of time. Worthy goal, but

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Speaker 6: you know, the devil is in the details here, and

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Speaker 6: we haven't heard any of these details yet.

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Speaker 3: Yeah, as always, Okay, So the other specific idea that

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Speaker 3: we had, beyond the broadcut two trillion, we had bring

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Speaker 3: people back in the office five days a week, the

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Speaker 3: federal workforce, and then do away with daylight savings. Now,

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Speaker 3: this is something that's come up before. Ask ed Marky

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Speaker 3: about it his pet issue. I think Marco Rubio signed

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Speaker 3: on to that bill as well. Look, I don't know

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Speaker 3: if we're going to favor Sun in the Morning or

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Speaker 3: sun later in the day here Chhape and Faye. But

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Speaker 3: would that actually make a difference.

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Speaker 5: I do think it would make a difference. What that

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Speaker 5: difference is, I think is anybody's guess. If if it

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Speaker 5: stays sunnier or a lighter out during the day for us,

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Speaker 5: I think that's I would I would support it. And

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Speaker 5: of course time zones, you know, can cause difficulty. But

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Speaker 5: you know, I don't know that this is the fight

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Speaker 5: that they really want to get into. Considering some of

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Speaker 5: the earlier things that we talked about that are going

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Speaker 5: to be fights that I think are real will have

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Speaker 5: an immediate and real substantial impact on making the government

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Speaker 5: more efficient. I don't know if this one will do that,

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Speaker 5: but again I think people could support it if it

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Speaker 5: will help that personally.

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Speaker 4: Yeah, I look, this has come up before.

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Speaker 3: As I mentioned, Genie ed Markey made a cause around

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Speaker 3: this whole idea.

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Speaker 4: You're an educator.

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Speaker 3: This actually was a big part of the reason why

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Speaker 3: we do this, so kids weren't going to school in

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Speaker 3: the dark in the morning. I feel like I'm setting

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Speaker 3: up some kind of online poll here.

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Speaker 4: If you like it.

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Speaker 3: Late in the morning or in the afternoon, we can

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Speaker 3: all weigh in on that later.

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Speaker 4: But is this something we should be spending time talking about.

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Speaker 7: Uh, probably not.

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Speaker 6: You know, I do recall like in high school, Joe Matthew,

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Speaker 6: I'd have to you and I growing up in Connecticut,

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Speaker 6: I had to get.

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Speaker 7: On that bus. It was pitch black.

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Speaker 5: It was very pitch black.

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Speaker 6: Yeah, yeah, so you know there is you know, but

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Speaker 6: I think am I correct Joe that some of our

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Speaker 6: colleagues in the more vacation spots, they're not keen.

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Speaker 7: On this idea.

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Speaker 6: So there's a plus minds here. But to Japin's point,

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Speaker 6: the reality is this probably isn't going to get you

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Speaker 6: near where you need to be to addrust the serious

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Speaker 6: problems in our budget deficits. So yes, you know, for

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Speaker 6: the kids, we can think about it, but you know,

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Speaker 6: I think we need to look elsewhere.

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Speaker 7: Entitlements and titlements and titlements.

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Speaker 3: In a series of posts on X, both entrepreneurs Musk

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Speaker 3: and Ramaswami went there must declaring Americans want the United

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Speaker 3: States to quote abolish the annoying time changes unquote. Ramaswami

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Speaker 3: described the practice as inefficient and easy to change.

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Speaker 4: Unquote.

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Speaker 3: Here's my question for you, Chapin, and you guys can

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Speaker 3: you imagine being Chapin and Genie and have to answer

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Speaker 3: the questions that Joe has every day about.

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Speaker 4: This wacky stuff. Does Elon Musk get bored?

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Speaker 3: I mean, really, where's Elon Musk six months down the

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Speaker 3: road here when he's got a rocket company, He's got X,

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Speaker 3: He's got a lot of stuff going on.

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Speaker 5: Japin, listen, maybe his son can carry this argument and

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Speaker 5: that could be his pet issue, the daylight issue. Well,

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Speaker 5: that that might be the way to get it done.

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Speaker 5: I do not think he gets bored. I think these

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Speaker 5: are very talented, smart, thoughtful men, and they care right

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Speaker 5: now about government efficiency and I think that they're going

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Speaker 5: to do their best at trying to do, you know,

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Speaker 5: U execute Trump's vision of this, and I think they

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Speaker 5: are the two people that can do it. I mean

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Speaker 5: Elon Musk is literally a rocket scientist, right, and it

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Speaker 5: is doing things that we, you know, didn't think possible

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Speaker 5: a year ago. So I think he had I think

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Speaker 5: these are the exact right people to be looking at

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Speaker 5: government right. One of the problems in government is that

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Speaker 5: is not innovative most of it. Right, There's there's no innovation.

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Speaker 5: The Department of Education, it's one of the one. You know,

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Speaker 5: agencies where there's just an innovation is frowned upon, right,

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Speaker 5: So continuity of government is good. Innovation and change every

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Speaker 5: now and then is better.

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Speaker 3: Doad's Day with gd Shanzano and Chape and Fay. Our

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Speaker 3: great panel will have a lot more to talk about

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Speaker 3: coming up.

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Speaker 2: You're listening to the Bloomberg Balance of Power podcast Ken

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Speaker 2: Just Live weekdays at noon Eastern on Apple car Play

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Speaker 2: and then roud Oto with the Bloomberg Business Ad.

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Speaker 1: You can also listen live on Amazon Alexa from our

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Speaker 1: Flag New York station Just say Alexa play Bloomberg eleven.

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Speaker 4: It's Doge Day.

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Speaker 3: The Big Buzz today inside the Beltway Elon Musk the

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Speaker 3: viik Ramaswami meeting with lawmakers today to walk through their

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Speaker 3: plan that is bringing more questions than answers at the moment.

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Speaker 3: Where the cuts will come from, how it will become law.

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Speaker 3: It's something that Speaker Mike Johnson was asked about earlier today.

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Speaker 8: Here he is, we do have to scale back the

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Speaker 8: size and scope, but government it serves the people. It

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Speaker 8: unleashes the free market again. Our policy changes will be

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Speaker 8: a part of that. But I think that if we

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Speaker 8: can make some dramatic changes in downsizing the scale and

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Speaker 8: scope of these things will go a long way.

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Speaker 9: And two specific examples, planned parenthood and PBS are in

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Speaker 9: congressional control.

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Speaker 10: Are you planning to act both of those?

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Speaker 8: I would like to, that's for sure for both of those. Yeah,

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Speaker 8: we got to build consensus to have the votes to

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Speaker 8: do that.

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Speaker 4: And just like that, we're right back to cutting big bird.

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Speaker 3: Let's get into it with Jack Fitzpatrick, our appropriations expert

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Speaker 3: at Bloomberg Government. He's on Capitol Hill today as well

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Speaker 3: for an important series of meetings with these two individuals.

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Speaker 4: Jacket's great to have you back.

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Speaker 3: I see Senator Marshall Blackburn has raised her hand to

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Speaker 3: begin potentially drafting some legislation that would include the findings

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Speaker 3: or recommendations of this panel. But that's the point here, right,

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Speaker 3: It's not a department, it is a panel, and there's

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Speaker 3: no clear path for any of these ideas to become law.

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Speaker 11: Yeah, there's a lot of interest you mentioned, Senator Blackburn.

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Speaker 11: Senator Joni Ernst started the Senate caucus, the Doge Caucus,

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Speaker 11: Aaron Bean, Republican from Florida, and the House started a

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Speaker 11: House caucus. A lot of people want to be involved.

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Speaker 11: There's a lot of enthusiasm and there were big promises

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Speaker 11: made regarding two trillion dollars in cuts, but this is

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Speaker 11: basically a think tank or an advisory board, and Republicans

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Speaker 11: are happy to hear their ideas, but there are a

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Speaker 11: lot of limitations on how you put those ideas into law.

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Speaker 11: If you want to cut huge dollars from the federal budget,

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Speaker 11: you're probably looking at Social Security or Medicaid. Medicare or

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Speaker 11: Medicaid not easy things to legislate. You can't just pull

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Speaker 11: it from the annual budget.

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Speaker 10: So there have been some.

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Speaker 11: Warnings from key members. Susan Collins, who's the incoming Appropriations chair,

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Speaker 11: said she wants to hear their ideas. She respects them,

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Speaker 11: but this is not business. This is government and it

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Speaker 11: works differently than private enterprise.

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Speaker 3: Well, Jack, this is your wheelhouse. You specialize in appropriations.

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Speaker 3: If one were to cut two trillion dollars out of

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Speaker 3: government spending, what would it mean for our budget?

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Speaker 4: What would it mean for the economy?

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Speaker 11: It would be huge, you know. The two trillion dollar

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Speaker 11: number comes from Elon Musk. At that Madison Square Garden event,

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Speaker 11: he was asked, how much can you cut from the

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Speaker 11: annual budget, which was six point seventy five trillion dollars

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Speaker 11: last year, So cutting almost a third of federal spending

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Speaker 11: would be wild. It would require massive overhauls of popular

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Speaker 11: entitlement programs.

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Speaker 4: You know this.

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Speaker 11: They've talked about finding efficiencies in Department of Defense contracting.

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Speaker 11: That doesn't do it. So we should acknowledge upfront some

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Speaker 11: of the campaign promises and rhetoric were not realistic. But

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Speaker 11: if we do take them at their word that they're

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Speaker 11: being very ambitious. The things you'd have to look at

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Speaker 11: are popular entitlement programs like Social Security, Medicare. Social Security

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Speaker 11: has to be bipartisan. You can't do that through reconciliation.

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Speaker 11: So there are some huge stumbling blocks, and the reality

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Speaker 11: check is probably going to be difficult when they actually

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Speaker 11: start talking about legislating any of.

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Speaker 3: This, which brings us to your column earlier today, the

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Speaker 3: headlines schoolhouse doge mus get Ramaswami talk cuts on Capitol Hill.

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Speaker 3: Your point here not only is talk cheap jack, but

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Speaker 3: maybe everybody needs to go back to school here on

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Speaker 3: how a bill is written.

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Speaker 11: Yeah, well, look, they can rewrite some of the things

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Speaker 11: on how a bill is written. The expanding use of

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Speaker 11: budget reconciliation to get around the Senate filibuster is as

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Speaker 11: significant as it has ever been. Republicans are talking about

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Speaker 11: how many spending cuts can we find to offset the

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Speaker 11: impact of extending tax cuts. So there's some reality to

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Speaker 11: Republicans saying we're going to do something significant. We're going

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Speaker 11: to cut a lout of spending. They're not going to

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Speaker 11: do it with Democrats, but two trillion dollars and the

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Speaker 11: idea of waiting into major entitlement reform does not seem

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Speaker 11: realistic because they've talked so much about it already and

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Speaker 11: no one has taken action lately.

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Speaker 4: Well, so what of the old timers say here?

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Speaker 3: And I say that with all due respect, you talk

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Speaker 3: to the appropriations experts, including the chairman, Tom Cole. Does

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Speaker 3: you want to see everybody go back to schoolhouse Rock?

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Speaker 4: What does he think of these ideas?

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Speaker 11: They've offered some reminders that Congress controls the power of

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Speaker 11: the purse. You don't set up a think tank or

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Speaker 11: an advisory board and then just put Elon Musk and

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Speaker 11: vivik Ramaswami in charge of the federal budget. So there's

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Speaker 11: a warning there. Cole also said earmarks don't add up

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Speaker 11: to that much money anyway, So we're not touching those,

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Speaker 11: We're not getting rid of that. Susan Collins said she

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Speaker 11: is very interested in looking at telework and getting federal

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Speaker 11: employees back in person or saving money on federal leases.

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Speaker 11: So there are some ideas, there's some enthusiasm, but a

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Speaker 11: lot of warnings that ideas are one thing, but it's

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Speaker 11: still Congress that makes the decisions regarding federal spending.

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Speaker 3: Well, the two most specific ideas that we've heard would

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Speaker 3: include one you just mentioned, bringing workers back into the

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Speaker 3: office five days a week, knowing that a lot of

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Speaker 3: federal workers are still doing the work from home. Bit

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Speaker 3: also eliminating daylight savings time. That seemed to be a

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Speaker 3: cause that both Elon Musk and Vivek Ramaswami wanted to endorse.

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Speaker 3: In terms of the first one, though, you seem to

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Speaker 3: think that's something that actually has enough support in Washington.

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Speaker 3: Would it result in a lower head count because many

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Speaker 3: federal workers do not want to return to the office.

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Speaker 11: You know, that's something that Republicans have brought up, but

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Speaker 11: they've gone back and forth because on one hand, it

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Speaker 11: may result in people leaving and not being replaced and

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Speaker 11: you have a smaller workforce through attrition, but also Republicans themselves,

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Speaker 11: including relevant appropriators. Steve Walmack has brought this up, has said,

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Speaker 11: you know, we could save a lot of money by

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Speaker 11: embracing some telework not paying as much through the General

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Speaker 11: Services Administration on federal leases, telework can be used as

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Speaker 11: an efficiency, and Republicans, though they're interested in cracking down

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Speaker 11: on inappropriate telework and excessive locality pay for people who

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Speaker 11: don't actually live in DC.

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Speaker 10: They have to choose a direction.

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Speaker 11: Are you bringing back everybody full time or are you

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Speaker 11: looking for savings through efficient telework Sometimes so that's another

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Speaker 11: area where they have to make some more specific decisions

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Speaker 11: rather than just identifying this issue.

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Speaker 3: Got it, Jack, It's great to have you back. Good

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Speaker 3: to see Jack Fitzpatrick. With a busy day on Capitol Hill.

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Speaker 3: We didn't even get to the fun deadline that is looming.

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Speaker 3: By the way, December twentieth, we're fifteen days out and

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Speaker 3: there is still no deal on top lines on how

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Speaker 3: to avoid a shutdown. So the logic at this point

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Speaker 3: is we kick the can into early next year, so

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Speaker 3: we could kick the can again presumably until March. That

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Speaker 3: is the buzz at the moment here on Capitol Hill,

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Speaker 3: as Elon Musk continues his stride across the Capital with

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Speaker 3: the vik Ramaswami, I'm drawn to a quote in this

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Speaker 3: morning's punch Bowl tip sheet, a senior Republican talking with

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Speaker 3: punch Bowl about this idea. Two people, they say, who

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Speaker 3: know nothing about how the government works, pretending they can

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Speaker 3: cut a trillion dollars, both with decent pulpits to preach

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Speaker 3: from and the ear of an unpredictable president disaster. The

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Speaker 3: only good thing is at some point the'll over promise

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Speaker 3: and get bounced by Trump. But until then, disaster, said

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Speaker 3: this senior Republican aid gives you a sense of what

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Speaker 3: we're heading for in the new year. As we had

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Speaker 3: the voice of Rosemary Becky, a conversation we've been looking

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Speaker 3: forward to as we try to bring you voices of experts,

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Speaker 3: people with experience that might have seen these movies before.

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Speaker 3: Tax Attorney with Brownstein, former Tax Council to the Senate

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Speaker 3: Finance Committee.

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Speaker 4: Rosemary is great to have you.

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Speaker 3: Welcome to Bloomberg TV and Radio. Will doge results in

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Speaker 3: a smaller government.

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Speaker 9: So it quite possibly could there could be some great

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Speaker 9: recommendations that come out of it to make our government

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Speaker 9: a little bit smaller.

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Speaker 3: Well, two trillion dollars, of course is a lot smaller.

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Speaker 3: And I wonder if this falls into the category of

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Speaker 3: a lot of things involving Donald Trump, that the opening

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Speaker 3: salvo is just that, and that at some point there

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Speaker 3: will be maybe some spending cuts that they can take

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Speaker 3: credit for.

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Speaker 4: Is that how this goes?

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Speaker 7: Yeah?

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Speaker 9: And so how this process is all going to play

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Speaker 9: out is initially the DOGE is going to be set

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Speaker 9: up as an advisory committee, and I think your prior

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Speaker 9: guest talked a little bit about this and show it

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Speaker 9: will be set up as an advisory committee to OMB

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Speaker 9: and it will provide recommendations as the President puts forward

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Speaker 9: his budget for twenty twenty six.

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Speaker 3: So how does it play out then when it comes

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Speaker 3: time to actually crafting a budget. I mentioned the stopgap.

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Speaker 3: We're going to go through this kicking the can. But

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Speaker 3: at some point, likely by March, I think is the

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Speaker 3: conventional wisdom on Capitol Hill, there will.

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Speaker 4: Be a budget crafted.

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Speaker 3: Dare I say using regular order? But I don't want

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Speaker 3: to get too crazy here, but we'll actually have Donald

441
00:22:36,960 --> 00:22:40,960
Speaker 3: Trump's fingerprints on them. Is that how he implements what

442
00:22:41,000 --> 00:22:42,720
Speaker 3: we hear from Musk and Ramaswami.

443
00:22:43,840 --> 00:22:49,400
Speaker 9: Yeah, no, absolutely, and show this advisory committee will make

444
00:22:49,520 --> 00:22:53,800
Speaker 9: recommendations to OMB and ultimately it'll be up to the

445
00:22:53,840 --> 00:22:58,560
Speaker 9: President and OMB to put together a budget proposal that

446
00:22:58,640 --> 00:23:00,600
Speaker 9: they'll send up to Capital Hill.

447
00:23:00,840 --> 00:23:04,040
Speaker 7: And then it's up to wallmakers right to.

448
00:23:04,359 --> 00:23:08,400
Speaker 9: Craft a budget and to go through the appropriations process

449
00:23:08,920 --> 00:23:11,879
Speaker 9: and show, you know, hard to say at this point

450
00:23:12,000 --> 00:23:16,320
Speaker 9: you know which recommendations will be taken into account, and

451
00:23:16,359 --> 00:23:19,520
Speaker 9: it may be some recommendations are held back or further

452
00:23:19,640 --> 00:23:25,399
Speaker 9: developed as they look at other budgets spending proposals like

453
00:23:25,440 --> 00:23:28,760
Speaker 9: a tax bill. Maybe you saved some of the proposals

454
00:23:28,800 --> 00:23:30,200
Speaker 9: for that exercise.

455
00:23:31,280 --> 00:23:33,320
Speaker 4: Sure, that was really the genesis of this.

456
00:23:33,440 --> 00:23:33,600
Speaker 1: Right.

457
00:23:33,640 --> 00:23:36,080
Speaker 3: When the idea of extending or making permanent the Trump

458
00:23:36,119 --> 00:23:41,320
Speaker 3: tax cuts came about, everyone cried deficit spending, bigger deficits,

459
00:23:41,400 --> 00:23:44,760
Speaker 3: maybe higher inflation. And then we heard this idea about

460
00:23:44,760 --> 00:23:48,080
Speaker 3: the doge. Is it the answer to higher deficiles.

461
00:23:49,320 --> 00:23:53,800
Speaker 9: It's it's certainly part of a process to pay for

462
00:23:53,880 --> 00:23:58,199
Speaker 9: the tax bill, right is looking for ways to cut

463
00:23:58,240 --> 00:24:04,000
Speaker 9: spending as an offset to cutting those taxes. It will

464
00:24:04,240 --> 00:24:08,320
Speaker 9: cost in order to extend all of the twenty seventeen

465
00:24:08,640 --> 00:24:12,639
Speaker 9: expiring provisions. It's going to cost a net number of

466
00:24:12,760 --> 00:24:17,240
Speaker 9: four point six trillion dollars, and so hopefully you can

467
00:24:17,359 --> 00:24:21,440
Speaker 9: use some government savings to pay for that process and

468
00:24:21,560 --> 00:24:23,560
Speaker 9: the extension of those tax cuts.

469
00:24:24,800 --> 00:24:28,480
Speaker 3: You believe Donald Trump actually wants to cut spending. Did

470
00:24:28,520 --> 00:24:31,720
Speaker 3: his first administration show us a pattern there?

471
00:24:33,040 --> 00:24:33,200
Speaker 9: Oh?

472
00:24:33,280 --> 00:24:34,040
Speaker 7: Absolutely.

473
00:24:34,359 --> 00:24:40,120
Speaker 9: I look, I think that people are looking for real change,

474
00:24:40,640 --> 00:24:46,280
Speaker 9: They're looking to see our economy expand to create jobs,

475
00:24:46,400 --> 00:24:48,480
Speaker 9: and so I do think that they are going to

476
00:24:48,480 --> 00:24:52,760
Speaker 9: be looking at cutting government spending. And as I said before,

477
00:24:52,880 --> 00:24:55,840
Speaker 9: I think that you know, it'll be part of just

478
00:24:56,040 --> 00:24:59,240
Speaker 9: the general budget process, and we could see some of

479
00:24:59,280 --> 00:25:03,520
Speaker 9: those additional cuts appear as part of a tax bill

480
00:25:03,800 --> 00:25:06,640
Speaker 9: or other budget processes.

481
00:25:09,000 --> 00:25:13,040
Speaker 3: Rosemary, you started your government career at the IRS, which

482
00:25:13,080 --> 00:25:17,960
Speaker 3: gives you unique perspective on everything we're talking about here, including,

483
00:25:18,000 --> 00:25:20,159
Speaker 3: by the way, Donald Trump's new pick to run the IRS,

484
00:25:20,200 --> 00:25:22,160
Speaker 3: which I want to ask you about. But this agency

485
00:25:22,240 --> 00:25:24,800
Speaker 3: is at the center of so much strife in Washington.

486
00:25:25,560 --> 00:25:28,720
Speaker 3: Many Republicans wanted to pull back the funding that the

487
00:25:28,720 --> 00:25:31,840
Speaker 3: Biden administration had given, saying that you'd have armed agents

488
00:25:31,960 --> 00:25:36,280
Speaker 3: knocking on your doors. Are you concerned about the image

489
00:25:37,080 --> 00:25:40,840
Speaker 3: the way that IRS has been framed by people. What is,

490
00:25:40,840 --> 00:25:43,280
Speaker 3: in fact an agency that's willfully underfunded.

491
00:25:45,400 --> 00:25:48,840
Speaker 9: I'm not concerned about it because I think that it's

492
00:25:48,880 --> 00:25:53,960
Speaker 9: a perfect example of where there's inefficiencies and an agency

493
00:25:54,080 --> 00:25:59,000
Speaker 9: that hasn't run well and hasn't served the taxpayers well.

494
00:25:59,200 --> 00:26:03,000
Speaker 9: And so I think what President Trump is looking to

495
00:26:03,080 --> 00:26:05,560
Speaker 9: do is to bring in a fresh set of eyes

496
00:26:06,200 --> 00:26:09,639
Speaker 9: and to take another look at ways to make that

497
00:26:09,800 --> 00:26:11,960
Speaker 9: agency more efficient.

498
00:26:12,119 --> 00:26:13,560
Speaker 6: And again, you.

499
00:26:13,440 --> 00:26:19,320
Speaker 9: Know, just automating that agency isn't the answer. We really,

500
00:26:19,680 --> 00:26:25,520
Speaker 9: you know, need taxpayer services and people to help taxpayers.

501
00:26:25,680 --> 00:26:30,000
Speaker 9: I think that's where the real frustration is at with Americans.

502
00:26:31,200 --> 00:26:33,840
Speaker 3: Well, we do have a name, Billy Long, former congressman

503
00:26:33,840 --> 00:26:37,800
Speaker 3: from Missouri, named yesterday by Donald Trump to lead the

504
00:26:37,840 --> 00:26:41,840
Speaker 3: Internal Revenue Service. I'm a little bit confused to here, Rosemary.

505
00:26:41,880 --> 00:26:43,440
Speaker 3: You might think this is a great pick or not,

506
00:26:43,560 --> 00:26:47,119
Speaker 3: But don't we have an IRS commissioner already?

507
00:26:47,800 --> 00:26:52,880
Speaker 9: We do, and he has a five year term and

508
00:26:52,960 --> 00:26:56,960
Speaker 9: he is confirmed by the Senate. I suspect there will

509
00:26:57,000 --> 00:27:00,960
Speaker 9: be a lot of pressure for him to lead his position,

510
00:27:01,320 --> 00:27:05,639
Speaker 9: and which case, then you know, this nomination could move forward.

511
00:27:07,680 --> 00:27:10,879
Speaker 3: What can mister Long, assuming he gets this job, do

512
00:27:11,000 --> 00:27:14,600
Speaker 3: then to make the IRSM or efficient agency, one that

513
00:27:14,680 --> 00:27:18,480
Speaker 3: works better, one that Republicans will not be allergic to.

514
00:27:20,400 --> 00:27:24,879
Speaker 9: I think it's about making sure that agents are trained properly,

515
00:27:26,040 --> 00:27:29,800
Speaker 9: that automation isn't actually running the agency.

516
00:27:30,359 --> 00:27:33,159
Speaker 7: I think that there is so much that can be

517
00:27:33,240 --> 00:27:33,880
Speaker 7: done in.

518
00:27:33,920 --> 00:27:39,320
Speaker 9: Terms of again providing real service to taxpayers and helping

519
00:27:39,480 --> 00:27:44,560
Speaker 9: people get their questions answered. I feel like at time

520
00:27:44,640 --> 00:27:48,239
Speaker 9: and time again you're hearing about people getting notices and

521
00:27:48,280 --> 00:27:52,520
Speaker 9: being frustrated with the process because there's no one that

522
00:27:52,640 --> 00:27:56,920
Speaker 9: can answer their questions and help them with notices that

523
00:27:56,960 --> 00:28:00,640
Speaker 9: they receive it in the mail. So I do think

524
00:28:00,680 --> 00:28:04,360
Speaker 9: there's a real opportunity to take a hard look at

525
00:28:04,400 --> 00:28:06,640
Speaker 9: this agency and make some change.

526
00:28:08,080 --> 00:28:11,920
Speaker 3: What do you expect in terms of the tax debate here?

527
00:28:12,040 --> 00:28:13,920
Speaker 3: And it's you know, it's funny. We've been talking about

528
00:28:13,960 --> 00:28:17,240
Speaker 3: tax reform and reforming the tax code, Rosemary for a

529
00:28:17,320 --> 00:28:19,040
Speaker 3: lot of years. Remember when it was going to fit

530
00:28:19,119 --> 00:28:23,560
Speaker 3: on a postcard. What will this debate look like when

531
00:28:23,600 --> 00:28:26,320
Speaker 3: it comes to extending the Trump tax cuts and will

532
00:28:26,320 --> 00:28:29,120
Speaker 3: it include all of the exemptions that he rolled out

533
00:28:29,320 --> 00:28:32,440
Speaker 3: on the campaign trail? No taxes on tips, no taxes

534
00:28:32,480 --> 00:28:35,399
Speaker 3: on overtime. I could keep going. I haven't even mentioned

535
00:28:35,440 --> 00:28:37,520
Speaker 3: salt yet. What will the final product look like?

536
00:28:39,080 --> 00:28:42,400
Speaker 9: You know, the final product is probably going to be

537
00:28:42,520 --> 00:28:48,240
Speaker 9: a combination of extending the twenty seventeen tax cuts as

538
00:28:48,280 --> 00:28:52,240
Speaker 9: well as making good on a lot of the campaign promises.

539
00:28:53,520 --> 00:28:56,640
Speaker 9: And I think what we're also going to see is

540
00:28:56,760 --> 00:29:01,840
Speaker 9: maybe looking again at different ways to pay for that again,

541
00:29:01,960 --> 00:29:08,760
Speaker 9: whether it's through tariffs or through cutting further cutting government spending.

542
00:29:09,960 --> 00:29:12,480
Speaker 9: But there's going to be some trade offs and it's

543
00:29:12,520 --> 00:29:17,280
Speaker 9: going to be a really hard process. I mean, you're

544
00:29:17,600 --> 00:29:22,960
Speaker 9: talking about members who are definitely concerned about deficits and debt,

545
00:29:23,640 --> 00:29:26,640
Speaker 9: and so that's all got to be taken into account

546
00:29:26,720 --> 00:29:27,800
Speaker 9: during this process.

547
00:29:29,080 --> 00:29:32,520
Speaker 3: Just quickly, one more as we get ready for the

548
00:29:32,560 --> 00:29:35,760
Speaker 3: confirmation process or whatever we're going to call this for

549
00:29:35,880 --> 00:29:38,640
Speaker 3: Billy Long, assuming there is a change here at the

550
00:29:38,640 --> 00:29:42,320
Speaker 3: top of the irs, because it can't result in a firing.

551
00:29:42,360 --> 00:29:46,960
Speaker 3: As you've pointed out, this former congressman spent a long

552
00:29:47,040 --> 00:29:54,400
Speaker 3: time dealing with the pandemic era tax credit. I want

553
00:29:54,440 --> 00:29:58,680
Speaker 3: to be exact about this, the employee retention tax credit,

554
00:29:58,680 --> 00:30:01,600
Speaker 3: which has been very controversial. A lot of lawmakers tried

555
00:30:01,640 --> 00:30:06,120
Speaker 3: to shut down. Will that make it problematic for him

556
00:30:06,160 --> 00:30:06,960
Speaker 3: to get this job.

557
00:30:09,440 --> 00:30:11,920
Speaker 7: I don't think it'll make them problematic.

558
00:30:12,160 --> 00:30:15,800
Speaker 9: I think it's certainly he'll have to answer questions about it.

559
00:30:16,280 --> 00:30:20,040
Speaker 9: You know, it is certainly a program that needs to

560
00:30:20,120 --> 00:30:26,800
Speaker 9: be taken looked at and reevaluate it and frankly probably

561
00:30:27,760 --> 00:30:34,240
Speaker 9: they need to learn from from that experience. So so

562
00:30:34,360 --> 00:30:37,480
Speaker 9: that'll all be his affirmation process.

563
00:30:38,760 --> 00:30:41,479
Speaker 3: I'm glad you could join us. Rosemary Becky, tax attorney

564
00:30:41,520 --> 00:30:44,600
Speaker 3: with Brownstein. We thank you for the insights. As always

565
00:30:44,640 --> 00:30:46,880
Speaker 3: here on Balance of Power. We'll follow the beat on

566
00:30:46,960 --> 00:30:49,400
Speaker 3: Billy Long for you in the future of the irs.

567
00:30:53,120 --> 00:30:56,080
Speaker 2: You're listening to the Bloomberg Balance of Power podcast.

568
00:30:56,400 --> 00:30:59,520
Speaker 1: Catch Just Live weekdays at noon Eastern onmo car Play

569
00:30:59,560 --> 00:31:02,360
Speaker 1: and then Oh where the Bloomberg Business at Listen on

570
00:31:02,440 --> 00:31:05,640
Speaker 1: demand wherever you get your podcasts, or watch us live

571
00:31:05,760 --> 00:31:08,680
Speaker 1: on YouTube.

572
00:31:09,040 --> 00:31:11,360
Speaker 3: Thanks for joining us on the Fastest Show in Politics.

573
00:31:11,440 --> 00:31:14,200
Speaker 3: Thursday edition of Balance of Power. We're live in Washington,

574
00:31:14,200 --> 00:31:16,520
Speaker 3: where it's been a pretty busy day around Here is

575
00:31:16,560 --> 00:31:19,920
Speaker 3: Doge Day on the Fastest Show in Politics. That means

576
00:31:19,960 --> 00:31:23,600
Speaker 3: the Departments of Government efficiency. Yes, we're following the coin

577
00:31:23,640 --> 00:31:25,800
Speaker 3: as well. It's actually doing pretty well. As Elon Musk

578
00:31:26,120 --> 00:31:28,960
Speaker 3: and the vek Ramaswami meet with lawmakers today, we're told

579
00:31:29,000 --> 00:31:30,600
Speaker 3: they're going to be holding a news conference or at

580
00:31:30,640 --> 00:31:33,640
Speaker 3: least making a statement a bit later on following their meetings,

581
00:31:34,120 --> 00:31:36,440
Speaker 3: and we'll hear what they have to say, knowing that

582
00:31:36,480 --> 00:31:38,840
Speaker 3: Elon Musk has promised to find a way to cut

583
00:31:38,880 --> 00:31:42,240
Speaker 3: some two trillion dollars out of the federal budget while

584
00:31:42,240 --> 00:31:44,680
Speaker 3: we're at it. By the way, fifteen days from now,

585
00:31:44,960 --> 00:31:47,320
Speaker 3: we will not have a federal budget. The government will

586
00:31:47,400 --> 00:31:49,560
Speaker 3: run out of money. So there's also an effort underway

587
00:31:49,760 --> 00:31:51,840
Speaker 3: to try to craft the stopgap to get us through

588
00:31:52,320 --> 00:31:54,920
Speaker 3: the new year here without a government shut down. One

589
00:31:54,960 --> 00:31:56,959
Speaker 3: of the big stories that we've been talking about with

590
00:31:57,000 --> 00:32:00,000
Speaker 3: regard to geopolitics are eyes on China and the intersection

591
00:32:00,360 --> 00:32:04,760
Speaker 3: with politics, policy and technology is the tip for tat

592
00:32:04,800 --> 00:32:08,400
Speaker 3: that we have been seeing when it comes to access

593
00:32:09,120 --> 00:32:11,400
Speaker 3: to some of the most advanced technology and in this

594
00:32:11,520 --> 00:32:14,840
Speaker 3: case many cases at least chips from companies like in

595
00:32:14,880 --> 00:32:19,080
Speaker 3: Nvidia that are helping to create this new age of

596
00:32:19,240 --> 00:32:22,920
Speaker 3: artificial intelligence. China ratcheting up trade tensions with the ban

597
00:32:23,080 --> 00:32:25,880
Speaker 3: on rare earths this tip for tat that not a

598
00:32:25,880 --> 00:32:29,080
Speaker 3: lot of people saw bringing equity to the situation. But

599
00:32:29,160 --> 00:32:33,800
Speaker 3: Gregory Allen, who runs the wadwani Ai Center at the

600
00:32:33,800 --> 00:32:37,240
Speaker 3: Center for Strategic and International Studies, embarked on a great

601
00:32:37,280 --> 00:32:40,440
Speaker 3: project because we talk a lot here on Bloomberg about

602
00:32:40,480 --> 00:32:43,400
Speaker 3: the impact of these export controls and what they will

603
00:32:43,440 --> 00:32:47,640
Speaker 3: mean for our relationships and our economies, but nowhere do

604
00:32:47,720 --> 00:32:50,640
Speaker 3: we really get answers on what that impact will be.

605
00:32:50,680 --> 00:32:53,320
Speaker 3: And that's what Gregory Allen set out to find. It's

606
00:32:53,320 --> 00:32:54,840
Speaker 3: great to see you, welcome back. Nice to see you

607
00:32:54,880 --> 00:32:55,960
Speaker 3: at the table here at Bloomberg.

608
00:32:55,960 --> 00:32:57,000
Speaker 10: It's wonderful to be back.

609
00:32:57,320 --> 00:32:59,360
Speaker 3: This is a big, squishy story, so we can go

610
00:32:59,400 --> 00:33:01,200
Speaker 3: on a lot of different directions here, and you're a

611
00:33:01,200 --> 00:33:03,640
Speaker 3: real expert. So I want to start with the most

612
00:33:03,680 --> 00:33:07,360
Speaker 3: recent turn in this Tit for tat With China, we're

613
00:33:07,400 --> 00:33:09,600
Speaker 3: trying to keep technology out of their hands and they're

614
00:33:09,600 --> 00:33:11,320
Speaker 3: trying to keep rare earth's out of ours.

615
00:33:11,360 --> 00:33:13,120
Speaker 4: But we don't buy all of that from China.

616
00:33:13,200 --> 00:33:17,200
Speaker 10: To me, no, So China is a really strong supplier

617
00:33:17,320 --> 00:33:20,800
Speaker 10: in the world's rare earth market. Most of their strength

618
00:33:20,880 --> 00:33:23,959
Speaker 10: is actually as a refiner, not as a miner So

619
00:33:24,080 --> 00:33:27,120
Speaker 10: while they have really strong market share in most of

620
00:33:27,160 --> 00:33:29,040
Speaker 10: the mining in terms of owning the mines around the

621
00:33:29,080 --> 00:33:31,959
Speaker 10: world that produce rare earths, where they really dominate is

622
00:33:32,000 --> 00:33:35,000
Speaker 10: in refining capacity. And what we've seen with the most

623
00:33:35,040 --> 00:33:37,800
Speaker 10: recent round of export controls coming out of China, so

624
00:33:37,880 --> 00:33:41,360
Speaker 10: this is their restricting sales to America is on gallium

625
00:33:41,360 --> 00:33:44,200
Speaker 10: and germanium. But I would say it's actually not nearly

626
00:33:44,240 --> 00:33:46,560
Speaker 10: as strong as what the United States has done to China.

627
00:33:46,600 --> 00:33:49,160
Speaker 10: And there's two reasons for that. The first of which

628
00:33:49,200 --> 00:33:53,280
Speaker 10: is gallium and germanium are natural byproducts of aluminum and

629
00:33:53,400 --> 00:33:56,480
Speaker 10: zinc mining, which means just about anybody who right now

630
00:33:56,520 --> 00:33:59,440
Speaker 10: today is mining aluminum or zinc could get into the

631
00:33:59,480 --> 00:34:02,720
Speaker 10: business of alium or germanium if they wanted to. Fascinating

632
00:34:02,760 --> 00:34:04,920
Speaker 10: now once they have all that or they're going to

633
00:34:04,920 --> 00:34:06,680
Speaker 10: have to find a refinery to ship it to. And

634
00:34:06,760 --> 00:34:09,640
Speaker 10: right now, China dominates the world of refining. So the

635
00:34:09,719 --> 00:34:13,359
Speaker 10: question is, are these export controls that China has put

636
00:34:13,400 --> 00:34:16,560
Speaker 10: in place scary enough that somebody in the West is

637
00:34:16,560 --> 00:34:19,440
Speaker 10: actually going to start putting the money into building local

638
00:34:19,480 --> 00:34:22,120
Speaker 10: refining capacity for these metals, and that could take a

639
00:34:22,160 --> 00:34:24,239
Speaker 10: year or two to set up, and then China might

640
00:34:24,280 --> 00:34:27,040
Speaker 10: flood the market later to sort of destroy that investment.

641
00:34:27,200 --> 00:34:28,880
Speaker 4: Is that a nimby story, is it?

642
00:34:29,080 --> 00:34:31,520
Speaker 3: I mean, we're actually hearing Democrats warm up to the

643
00:34:31,600 --> 00:34:34,880
Speaker 3: idea of opening new nuclear power plants to help to

644
00:34:34,960 --> 00:34:37,880
Speaker 3: provide power for AI data centers, for instance. It sounds

645
00:34:37,920 --> 00:34:39,240
Speaker 3: like everything is being considered.

646
00:34:39,239 --> 00:34:41,560
Speaker 10: Again, well, I think in the United States' this case,

647
00:34:41,600 --> 00:34:44,680
Speaker 10: we don't necessarily need it to happen in the United States.

648
00:34:44,719 --> 00:34:46,480
Speaker 10: Of course, there's folks who would love for that to

649
00:34:46,480 --> 00:34:50,040
Speaker 10: be the case for the jobs or for the strategic positioning,

650
00:34:50,080 --> 00:34:52,360
Speaker 10: et cetera. But what we really need more than we

651
00:34:52,440 --> 00:34:56,799
Speaker 10: need American sources are just non Chinese? Are those or Africa?

652
00:34:56,920 --> 00:34:59,280
Speaker 10: In terms of where the medals are, that's actually almost

653
00:34:59,320 --> 00:35:02,839
Speaker 10: everywhere here. I'm talking specifically about gallium and germanium again

654
00:35:03,280 --> 00:35:05,239
Speaker 10: anywhere processing facilities.

655
00:35:05,320 --> 00:35:08,479
Speaker 3: Right, we're paying for this trans continental railroad. Maybe that's

656
00:35:08,600 --> 00:35:09,680
Speaker 3: the next source for these.

657
00:35:10,040 --> 00:35:12,680
Speaker 10: So that's the point is you could put these refining

658
00:35:12,719 --> 00:35:16,480
Speaker 10: sources anywhere, and some developing countries such as Indonesia, which

659
00:35:16,480 --> 00:35:19,320
Speaker 10: are strong in mining certain metals, have expressed an interest

660
00:35:19,400 --> 00:35:22,040
Speaker 10: in getting into the refining market. The problem is on

661
00:35:22,080 --> 00:35:25,040
Speaker 10: the investor side, because they're asking themselves, if we put

662
00:35:25,120 --> 00:35:27,799
Speaker 10: up the money for a refinery, is China just going

663
00:35:27,840 --> 00:35:30,120
Speaker 10: to flood the market to press prices so that our

664
00:35:30,160 --> 00:35:32,319
Speaker 10: refinery goes out of business. So they're going to be

665
00:35:32,320 --> 00:35:35,920
Speaker 10: looking for long term purchase agreements with US customers that

666
00:35:35,960 --> 00:35:38,280
Speaker 10: are going to ensure that they're still going to have access.

667
00:35:38,320 --> 00:35:38,840
Speaker 4: Fascinating.

668
00:35:39,000 --> 00:35:40,839
Speaker 10: There's one other thing here that I think is really

669
00:35:40,880 --> 00:35:43,680
Speaker 10: worth pointing out, and this is a research done by

670
00:35:43,760 --> 00:35:47,600
Speaker 10: your colleague in Bloomberg, Gerard de Pippo, who has pointed

671
00:35:47,640 --> 00:35:50,440
Speaker 10: out that there's really a lot of circumvention of Chinese

672
00:35:50,480 --> 00:35:54,080
Speaker 10: export controls going on right now because US purchases from

673
00:35:54,160 --> 00:35:57,160
Speaker 10: China have obviously plummeted in the wake of these export controls,

674
00:35:57,560 --> 00:36:01,400
Speaker 10: but Chinese exports to Europe have surged, and Chinese exports

675
00:36:01,400 --> 00:36:04,200
Speaker 10: from Europe to the United States have also served. And

676
00:36:04,280 --> 00:36:06,040
Speaker 10: so China is getting a little bit of a taste

677
00:36:06,080 --> 00:36:08,000
Speaker 10: of its own medicine when it comes to working to

678
00:36:08,000 --> 00:36:08,920
Speaker 10: evade export control.

679
00:36:09,080 --> 00:36:11,000
Speaker 3: Nice had tip to Gerard his team is doing amazing

680
00:36:11,080 --> 00:36:13,920
Speaker 3: work over there. China wants to have its own industry.

681
00:36:14,760 --> 00:36:17,000
Speaker 3: It wants to get the chip making equipment that we

682
00:36:17,120 --> 00:36:20,680
Speaker 3: don't want it to have. What's so, when you put

683
00:36:20,680 --> 00:36:26,399
Speaker 3: the walls around China's chip manufacturing capacity, how far behind

684
00:36:26,760 --> 00:36:29,000
Speaker 3: the US is it and how could it catch up?

685
00:36:29,400 --> 00:36:31,520
Speaker 10: So there's multiple ways you can think about this. The

686
00:36:31,560 --> 00:36:34,239
Speaker 10: first is in the types of equipment. What do you

687
00:36:34,280 --> 00:36:37,759
Speaker 10: need to actually put in the chip fabrication facility to

688
00:36:37,800 --> 00:36:40,480
Speaker 10: operate that facility. The one that's best known is the

689
00:36:40,520 --> 00:36:43,840
Speaker 10: lithography equipment. This is sort of using light to print

690
00:36:44,040 --> 00:36:47,800
Speaker 10: the design on the chip. But there's also advanced deposition equipment,

691
00:36:47,920 --> 00:36:52,440
Speaker 10: advanced etching equipment, and China's positioning differs in these different

692
00:36:52,520 --> 00:36:57,680
Speaker 10: categories of equipment. They're dramatically behind in lithography equipment. In

693
00:36:57,719 --> 00:37:01,400
Speaker 10: some sub niches of deposition and etching equipment, they're still good,

694
00:37:01,480 --> 00:37:03,759
Speaker 10: although they're quite a bit behind the global state of

695
00:37:03,760 --> 00:37:06,760
Speaker 10: the art, as represented by what the United States companies

696
00:37:06,760 --> 00:37:08,680
Speaker 10: can do, what the Japanese companies can do, what the

697
00:37:08,760 --> 00:37:09,680
Speaker 10: Dutch companies can do.

698
00:37:09,800 --> 00:37:14,320
Speaker 3: How can China get that equipment American made equipment potentially

699
00:37:14,320 --> 00:37:16,120
Speaker 3: through other countries. There's a lot of ways to backdoor

700
00:37:16,200 --> 00:37:17,600
Speaker 3: this stuff, as we have seen.

701
00:37:17,640 --> 00:37:20,680
Speaker 10: Yes exactly, and of course the American equipment companies. The

702
00:37:20,719 --> 00:37:23,239
Speaker 10: point that they're making is Hey, if other countries are

703
00:37:23,280 --> 00:37:25,520
Speaker 10: going to sell this, we want to be able to

704
00:37:25,520 --> 00:37:28,319
Speaker 10: sell it too. So that's why they're really concerned about

705
00:37:28,320 --> 00:37:31,759
Speaker 10: the export controls occurring in a unilateral basis, because then

706
00:37:31,800 --> 00:37:34,959
Speaker 10: there's no strategic impact on China and there's a loss

707
00:37:34,960 --> 00:37:38,520
Speaker 10: of sale by US companies. And so in earlier tranches

708
00:37:38,520 --> 00:37:42,280
Speaker 10: of export controls, what you've seen is US firms actually

709
00:37:42,320 --> 00:37:46,040
Speaker 10: increasing their shipments of semiconductor manufacturing equipment coming out of

710
00:37:46,320 --> 00:37:49,080
Speaker 10: the countries to which they have outsourced some of their manufacturing.

711
00:37:49,360 --> 00:37:51,600
Speaker 10: So it's no longer a US export. It is now

712
00:37:51,640 --> 00:37:54,920
Speaker 10: a Malaysian export, even though it's coming from a US company.

713
00:37:55,080 --> 00:37:57,640
Speaker 10: The most recent tranch of export controls, designed by the

714
00:37:57,640 --> 00:38:01,439
Speaker 10: Bide Administration expands the usage of the foreign Direct Product rule,

715
00:38:01,440 --> 00:38:05,000
Speaker 10: which is a little bit esoteric category of export control law,

716
00:38:05,200 --> 00:38:07,239
Speaker 10: but it should put a real stop to all of

717
00:38:07,239 --> 00:38:10,440
Speaker 10: that category of stuff there now, wherever it's made in

718
00:38:10,480 --> 00:38:13,880
Speaker 10: the world, if it includes US content, export controls are

719
00:38:13,880 --> 00:38:16,840
Speaker 10: going to apply, or Dutch or Japanese local export controls

720
00:38:16,880 --> 00:38:17,440
Speaker 10: are going to apply.

721
00:38:17,480 --> 00:38:20,279
Speaker 3: You're so good at this that when you consider some

722
00:38:20,360 --> 00:38:24,480
Speaker 3: of the impacts more broadly speaking, here, you're actually trying

723
00:38:24,520 --> 00:38:27,560
Speaker 3: to find the impact this has economically financially. How about

724
00:38:27,560 --> 00:38:31,279
Speaker 3: for the companies themselves, whether you're an Nvidia or an

725
00:38:31,320 --> 00:38:32,560
Speaker 3: Applied Materials.

726
00:38:32,880 --> 00:38:34,359
Speaker 4: Every time there's a quarterly.

727
00:38:34,040 --> 00:38:37,320
Speaker 3: Conference call, we hear that demand is off the scale

728
00:38:37,360 --> 00:38:40,000
Speaker 3: and we can't even can't keep up with the backlog.

729
00:38:40,480 --> 00:38:42,640
Speaker 4: So what does it matter to them if China's not buying?

730
00:38:43,000 --> 00:38:45,400
Speaker 10: So it's worth saying here, you know that it's a

731
00:38:45,400 --> 00:38:48,680
Speaker 10: little bit different for different markets. Now. In the case

732
00:38:48,719 --> 00:38:53,000
Speaker 10: of semiconductor manufacturing equipment, it's often described in the press

733
00:38:53,040 --> 00:38:55,000
Speaker 10: as a ban, but what it really is is a

734
00:38:55,000 --> 00:38:59,200
Speaker 10: ban on advanced semiconductor manufacturing equipment. You can still sell

735
00:38:59,200 --> 00:39:02,240
Speaker 10: the old stuff, and it's also a ban of selling

736
00:39:02,320 --> 00:39:04,840
Speaker 10: all types of equipment to those chip fabs in China

737
00:39:05,120 --> 00:39:07,719
Speaker 10: that are producing advanced chips, the types of chips that

738
00:39:07,719 --> 00:39:11,439
Speaker 10: would compete with an Nvidia, for example. So what we've

739
00:39:11,440 --> 00:39:14,640
Speaker 10: seen is not a reduction in demand from China. In fact,

740
00:39:14,680 --> 00:39:17,560
Speaker 10: demand from China is exploding right now. But what you

741
00:39:17,640 --> 00:39:20,960
Speaker 10: have seen is a major change in the composition of demand,

742
00:39:21,280 --> 00:39:24,319
Speaker 10: buying more of the older types of machines that they're

743
00:39:24,360 --> 00:39:26,800
Speaker 10: still allowed exactly.

744
00:39:26,440 --> 00:39:29,440
Speaker 3: So does that help the intels or the AMDs, or

745
00:39:29,480 --> 00:39:31,520
Speaker 3: those who are not quite at the point of an

746
00:39:31,600 --> 00:39:34,920
Speaker 3: Nvidia with prohibitively advanced technology.

747
00:39:35,320 --> 00:39:38,280
Speaker 10: Yes, indeed, So what it really does is it changes

748
00:39:38,480 --> 00:39:41,200
Speaker 10: what China is setting its sights on in terms of

749
00:39:41,400 --> 00:39:44,640
Speaker 10: chip manufacturing. You know, if you think about a most

750
00:39:44,640 --> 00:39:48,239
Speaker 10: advanced in Nvidia chip, that's you know, being manufactured at

751
00:39:48,280 --> 00:39:52,680
Speaker 10: five nanometers, soon at three nanometers, those really really small,

752
00:39:52,760 --> 00:39:56,720
Speaker 10: really precise components at the bleeding edge. Now what China

753
00:39:56,760 --> 00:39:59,560
Speaker 10: can't buy is the equipment you use to manufacture five

754
00:39:59,640 --> 00:40:02,480
Speaker 10: nanime or three and animeters. So what you've seen is

755
00:40:02,480 --> 00:40:05,560
Speaker 10: a surge of increasing chip production capacity at what we

756
00:40:05,640 --> 00:40:10,319
Speaker 10: call legacy nodes nineteen animeters, forty eight animeters, twenty four

757
00:40:10,320 --> 00:40:13,399
Speaker 10: and animeters or twenty eight animeters. These are the types

758
00:40:13,440 --> 00:40:16,040
Speaker 10: of chips that go into your washing machine, into your

759
00:40:16,080 --> 00:40:18,960
Speaker 10: hair dryer, to a certain extent, into your car, and

760
00:40:19,080 --> 00:40:22,640
Speaker 10: China is looking to become the new juggernaut of legacy chips. Now,

761
00:40:22,680 --> 00:40:26,040
Speaker 10: for the US equipment suppliers, it's been a bonanza because

762
00:40:26,040 --> 00:40:28,600
Speaker 10: they're continuing to get all the dollars, but what they're

763
00:40:28,640 --> 00:40:31,160
Speaker 10: selling is the older equipment. That's at least what we've

764
00:40:31,160 --> 00:40:34,600
Speaker 10: seen so far but the expert controls that came out

765
00:40:34,600 --> 00:40:37,080
Speaker 10: this Monday really are designed to sort of change the story.

766
00:40:37,120 --> 00:40:39,640
Speaker 4: Those old fashioned chips go into weapons too, don't they.

767
00:40:39,640 --> 00:40:41,000
Speaker 10: Oh yes, absolutely, which has.

768
00:40:40,920 --> 00:40:43,800
Speaker 4: Been quite a bit of demand for Russia.

769
00:40:43,840 --> 00:40:46,120
Speaker 3: Gregory Allen, It's a great conversation and great to see

770
00:40:46,160 --> 00:40:47,920
Speaker 3: you again. I appreciate the work so much, Director of

771
00:40:47,960 --> 00:40:50,799
Speaker 3: the juadwani Ai Center at the Center for Strategic and

772
00:40:50,840 --> 00:40:52,920
Speaker 3: International Studies CSIS.

773
00:40:53,000 --> 00:40:55,040
Speaker 4: You're always welcome here. I appreciate your research and sharing

774
00:40:55,040 --> 00:40:55,840
Speaker 4: your work with a scriptory.

775
00:40:55,880 --> 00:40:57,360
Speaker 7: It's good to see you.

776
00:40:59,480 --> 00:41:01,960
Speaker 4: Thanks for listening to the Balance of Power podcast.

777
00:41:02,600 --> 00:41:05,719
Speaker 3: Make sure to subscribe if you haven't already, at Apple, Spotify,

778
00:41:05,800 --> 00:41:08,399
Speaker 3: or wherever you get your podcasts, and you can find

779
00:41:08,440 --> 00:41:12,160
Speaker 3: us live every weekday from Washington, DC at Noontimeeastern at

780
00:41:12,160 --> 00:41:13,440
Speaker 3: Bloomberg dot com.