Speaker 1: Hey, they're aud Loots listeners. It's Tracy Alloway.
Speaker 2: And Jill Wisenthal.
Speaker 1: We are very excited to announce that Audlots is going
Speaker 1: to Washington That's right.
Speaker 2: For the first time, we are going to do a
Speaker 2: live public Odd Lots recording in our nation's capital. That's
Speaker 2: going to be March twelfth in Washington, DC at the
Speaker 2: Miracle Theater and guests will be announced in the coming days,
Speaker 2: but in the meantime you can find a ticket link
Speaker 2: at Bloomberg dot com, slash odd.
Speaker 3: Lots, Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Jill Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, let's get back on the supply chain, shipping and
Speaker 2: industrial policy.
Speaker 4: Bee.
Speaker 5: I love it.
Speaker 1: I've been waiting for us to get back on that.
Speaker 1: Although actually, okay, so I'm excited about this for two reasons.
Speaker 1: One is I enjoy talking about supply chains and talking
Speaker 1: about how goods are actually transported. And I think I've
Speaker 1: told you before, I actually wanted to be a commodities
Speaker 1: reporter because like there's this element of romanticism to shipping
Speaker 1: actual things moving actual stuff around the world. But then secondly,
Speaker 1: the reason I'm excited for this conversation is because this
Speaker 1: is a rare example or instance of something that has
Speaker 1: bipartisan support.
Speaker 2: Yes, that's right. And so obviously during the last administration
Speaker 2: we saw these things. Do is the Chips Act, do
Speaker 2: is the Inflation Reduction Act, which primarily focused on energy,
Speaker 2: a lot of alternative energy. There's been some question obviously,
Speaker 2: with the changing of the guard in DC, are we
Speaker 2: going to see some more like activist efforts to shore
Speaker 2: up certain aspects of the US industrial capacity. There's a
Speaker 2: lot of anxiety about that right now, but you know,
Speaker 2: it's obviously an open question where that's going to go.
Speaker 2: But one of the things that has come up in
Speaker 2: some of our conversations that we haven't dived too deep
Speaker 2: into it is American maritime capacity specifically, and it comes
Speaker 2: up when we reference the Jones Act, and it comes
Speaker 2: up when we talk about port automation, and we've talked
Speaker 2: a little bit about icebreakers and things like that, and
Speaker 2: how sort of atrophied US capacity has become. And so
Speaker 2: then there's this question, like, you know, a what can
Speaker 2: we do about it and be how urgent is there
Speaker 2: a reason to rebuild this capacity.
Speaker 1: I was kind of wondering how long it would take
Speaker 1: for us to bring up the Genes Act in this conversation,
Speaker 1: and the answer is about one or two minutes. But
Speaker 1: I think this is it's a really interesting topic. From
Speaker 1: an all blots perspective. We have done shipping episodes in
Speaker 1: the past, and obviously everyone learned during the pandemic that
Speaker 1: shipping costs are really important. But also I'm just interested
Speaker 1: in this discussion from a sort of policy design perspective.
Speaker 1: How do you go about actually designing something like this
Speaker 1: that at first clients seems absolutely sprawling and complicated and
Speaker 1: touching on all these different things.
Speaker 2: Well, I'm excited to say we really do have the
Speaker 2: two perfect guests for this conversation. We're going to be
Speaker 2: speaking with Republican Senator Todd Young from Indiana and Democratic
Speaker 2: Senator Mark Kelly from Arizona. Senator Kelly is a trained
Speaker 2: merchant Marine. I see a class of eighty six the
Speaker 2: Merchant Marine Academy. So, like I said, truly the perfect guests.
Speaker 2: Senators Kelly and Young, thank you so much for coming
Speaker 2: on Outlaws.
Speaker 6: Thanks for having us.
Speaker 4: Yeah, thank you. Joe and Tracy for having us on.
Speaker 2: Why don't we just start what do you describe one
Speaker 2: of you or both of you describe the existing state
Speaker 2: of America's maritime capacity, and just like why it's something
Speaker 2: that we need to in your views address it.
Speaker 7: Joe, this is Mark Kelly. You know, just to start,
Speaker 7: I would say, big picture, the state of our maritime
Speaker 7: industry is really, really poor. I was in a brief
Speaker 7: just yesterday with the Admiral, the four star admiral, Admiral Paparo,
Speaker 7: who's the head of Indopaycom, and we're talking about the
Speaker 7: Western Pacific, and he was talking about the Military Sealift
Speaker 7: Command and how it is in bad shape materially and
Speaker 7: also from a workforce perspective.
Speaker 4: But when you consider where.
Speaker 7: We were and where we are today. So when I
Speaker 7: graduated from the US Merchantary Academy in nineteen eighty six,
Speaker 7: as you mentioned, made about four hundred US flagged ocean
Speaker 7: going vessels, and that was down, by the way, from.
Speaker 4: Thousands after World War Two.
Speaker 7: Today that number has fallen to eighty, so eighty US
Speaker 7: flag vessels in international commerce flying the US flag. China,
Speaker 7: you know, our peer or near peer adversary has five
Speaker 7: thousand five hundred and most of the cargo that comes
Speaker 7: to the United States can come on Chinese ships. So
Speaker 7: if you remember what happened in twenty twenty one twenty
Speaker 7: twenty two is supply chains and bottleneck at seaports, especially
Speaker 7: on the West Coast. I mean, if China wants to
Speaker 7: do that similar effect to US, they can.
Speaker 4: On any day, President she could.
Speaker 7: Say, hey, no Chinese ships take cargo to the United
Speaker 7: States anymore, and it would essentially shut down our economy.
Speaker 7: So this is a problem. It's a national security problem.
Speaker 7: We got to fix it.
Speaker 5: So how did this happen?
Speaker 1: I mean, eighty US flagged vessels versus five thousand, five
Speaker 1: hundred out of China is pretty stunning statistic. What are
Speaker 1: the things that went into making I guess the US
Speaker 1: less competitive when it comes to shipbuilding?
Speaker 7: God, I don't know if you want to take that
Speaker 7: or I could kin, yeah, I'll speak at a high level.
Speaker 6: I mean, what we have seen over the years is China,
Speaker 6: in a number of different sectors of the economy, they've
Speaker 6: subsidized their activities in furtherance of national security and domestic
Speaker 6: job creation and to master certain technologies and crafts so
Speaker 6: that they can leverage those for geopolitical purposes and also
Speaker 6: for commercial purposes to put other industries and other countries
Speaker 6: out of business. So examples, one example would be semiconductors,
Speaker 6: and it's not just the Chinese, many other Asian nations
Speaker 6: understood back You could point to the nineteen eighties. They
Speaker 6: understood that having some measure of control and expertise over
Speaker 6: semiconductor technologies was important to their growth and also important
Speaker 6: to their military using these technologygies, embedding them in different
Speaker 6: military platforms, and so they invested in them. We instead,
Speaker 6: we have a more efficient economic model that doesn't lead
Speaker 6: to the sort of over investment and waste by our
Speaker 6: capital markets and others that the Chinese do. We also
Speaker 6: don't look at economic exchanges historically through a military lens.
Speaker 4: Well.
Speaker 6: The disadvantage of that is when other countries are subsidizing
Speaker 6: their businesses, in this case shipbuilding, and we're not subsidizing,
Speaker 6: they will undercut us on price, and given enough practice,
Speaker 6: sometimes undercut us on quality. So we have gotten out
Speaker 6: of the business, in the case of semiconductors, of making them,
Speaker 6: and over time we became vulnerable the interruptions in the
Speaker 6: supply chain, the interruption that we might experience in shipbuilding
Speaker 6: our maritime industry that Mark just alluded to is one
Speaker 6: we're trying to prevent. We don't want a situation, whether
Speaker 6: it's a pandemic or a military conflict, in which we
Speaker 6: are dependent on our chief adversary, China to move materiel
Speaker 6: and personnel to other places, and on a day to
Speaker 6: day basis, as our government leaders are making foreign policy,
Speaker 6: we don't want to be coerced into making certain decisions
Speaker 6: by the mere threat of Chinese interruption of our economy.
Speaker 6: So that's why, at the highest level this is very
Speaker 6: important and why some sort of government intervention is needed
Speaker 6: because this, in the end is an economic security issue
Speaker 6: and also a national security issue.
Speaker 7: And Tracy to add on to that just a little,
Speaker 7: in the nineteen eighties, we used to do this differently,
Speaker 7: and before there was some more government involvement. We got
Speaker 7: out of that kind of left the maritime industry totally
Speaker 7: on its own, and it just decayed.
Speaker 4: Over decades for the last forty years.
Speaker 7: And you know, the other concern here about you know,
Speaker 7: it's not only the number of ships, but you know,
Speaker 7: the Chinese ships, the ocean going their ocean going vessels
Speaker 7: fifty five hundred or so that they have requirements put
Speaker 7: on them by the PLA Navy.
Speaker 4: So these ships are you know.
Speaker 7: Well equipped and configured to be what they need if
Speaker 7: they were in a conflict with US. Now, we rely
Speaker 7: on the Military Sealift Command for our initial capacity to
Speaker 7: move combat equipment and troops in some cases troops overseas, but.
Speaker 4: Those numbers are rather limited.
Speaker 7: And the reason why you want a large maritime fleet
Speaker 7: is not only you know, peace time to move you know, cargo,
Speaker 7: and it's healthy for our economy and it also helps
Speaker 7: us shipbuilding. But the other reason, as in time of conflict,
Speaker 7: we might have to rely on this capacity of ocean
Speaker 7: going merchant vessels to get combat power across the Pacific
Speaker 7: or Atlantic.
Speaker 6: Sorry, I was just going to build on Mark's point
Speaker 6: and emphasize the capacity that Mark just alluded to. Is
Speaker 6: what we're essentially trying to do is we're trying to
Speaker 6: train more mariners, build more ships, and then create more
Speaker 6: yard space in our existing yards and perhaps some older
Speaker 6: yards that need to be refurbished, create more yard space
Speaker 6: that can support additional military shipbuilding and repair during a
Speaker 6: wartime situation.
Speaker 2: It's interesting, you know, we're having this bipartisan conversation, and
Speaker 2: you laid it out the sort of tension very well,
Speaker 2: which is that sort of American economic philosophy has been
Speaker 2: optimized for efficiency and profit. And obviously we're extraordinarily wealthy
Speaker 2: as a country, probably enlarge part of that. But A
Speaker 2: there's the geopolitical risks that emerge with losing basically the
Speaker 2: ability to build stuff, and you mentioned semiconductors and ships,
Speaker 2: and there's a lot of this and so A, you know,
Speaker 2: you run the risk it's overseas, and then over time
Speaker 2: perhaps they don't even need the subsidies anymore because they
Speaker 2: just have years and years and years of practice getting
Speaker 2: better and better at it. Do you see this sort
Speaker 2: of framework, this sort of lens with which to view
Speaker 2: economic policy is fundamentally changing in DC because we're trying
Speaker 2: to sort of understand, you know, how much momentum and
Speaker 2: continuity there will be for just this general notion of
Speaker 2: what people call industrial policy.
Speaker 6: I do. I believe a lot of minds have been
Speaker 6: changed changed, and policy makers pensient for embracing these sorts
Speaker 6: of policies has fundamentally changed. Mark was helpful to me
Speaker 6: as we tried to push through the Chips and Science
Speaker 6: Act dealing with the semiconductor challenges, and I think through
Speaker 6: that exercise, many of us had to make what were
Speaker 6: challenging arguments to colleagues about why we needed to bake
Speaker 6: in a national security premium to the price of certain products,
Speaker 6: knowing that if we didn't make them here have the
Speaker 6: capacity to make them here in the future, there would
Speaker 6: be national security consequences to that. And we've done that
Speaker 6: on so many other technology areas in the past. The
Speaker 6: only difference now is that we have an adversary that
Speaker 6: does not really look at any commercial transactions through a
Speaker 6: purely commercial lens. There's always a geopolitical or military overlay
Speaker 6: to it. So we have to extend the long standing
Speaker 6: philosophy to other areas of our economy in order to
Speaker 6: protect our people. So if we continue to make the arguments,
Speaker 6: I think more people in Washington will embrace what most
Speaker 6: people across America already intuitively understand, which is yes. I
Speaker 6: remember during the global pandemic when I tried to get
Speaker 6: at Walmart and buy a consumer electronic and the shelves
Speaker 6: were half empty. They understood why that was and why
Speaker 6: it's hard to run a modern economy without more resiliency
Speaker 6: and a little more just in case instead of just
Speaker 6: in time.
Speaker 1: So one of the things that comes up quite a
Speaker 1: lot on this show is the importance of institutional knowledge. So,
Speaker 1: you know, you can have people in DC agree that
Speaker 1: the US should build, you know, more big and complicated things,
Speaker 1: whether those are semiconductors or ships, but you actually need
Speaker 1: people who know how to do that. And if we
Speaker 1: haven't been building these things for decades, then there probably
Speaker 1: aren't that many people around who have practical knowledge or
Speaker 1: experience of how to do this. And in fact, I
Speaker 1: don't think there's any major shipbuilder that is actually headquartered
Speaker 1: in the US, although there are some subsidiaries. How do
Speaker 1: you actually go about building up institutional knowledge for shipbuilding?
Speaker 7: Tracy So, one of my classmates from the US Merchant
Speaker 7: Many Academy in nineteen eighty six is a woman named
Speaker 7: Jennifer Boykin. She's the president of Newport News Shipbuilding, And
Speaker 7: before I was in this job, I remember going down
Speaker 7: there to visit her.
Speaker 4: And talking about some of the workforce issues.
Speaker 7: She builds aircraft carriers and Virginia Class submarines. You know,
Speaker 7: one of the pre eminent shipbuilders in the world. When
Speaker 7: you consider just the capability of these vessels, a US
Speaker 7: aircraft carrier or the Ford class aircraft carrier and the
Speaker 7: Virginia class attack submarines are you know, there's nothing better.
Speaker 7: So we can build really, really good and capable ships.
Speaker 7: But one of the challenges, you know, the chief faces
Speaker 7: is what you're talking about, is the workforce, you know,
Speaker 7: constantly trying to find people that will do these jobs
Speaker 7: and do them well and have the skills. Now, they
Speaker 7: train a lot of their own people welders and pipe fitters, electricians,
Speaker 7: but they often run into challenges and finding, you know,
Speaker 7: people to go into these jobs, and when they need
Speaker 7: people that are trained already, that ecosystem of shipbuilders doesn't
Speaker 7: really exist anymore in the United States. So part of
Speaker 7: the benefit of this and in the legislation itself, is
Speaker 7: a strategy to provide help for training programs so to
Speaker 7: build the workforce. You can think of this as kind
Speaker 7: of a three legged stool. One of them be in
Speaker 7: the shipyards, one of them being the US flag the vessels,
Speaker 7: and the third being the and by supporting the schools
Speaker 7: like the US Merchant Marine Academy and the state Maritime
Speaker 7: Academies and also the you know, the schools that train
Speaker 7: the unlicensed mariners, but then also programs to you know,
Speaker 7: help shipyards find pipe fitters and train them, and welders
Speaker 7: and electricians and all those trades will then grow this
Speaker 7: entire ecosystem. So there's extra capacity of a workforce that
Speaker 7: existing shipbuilders that build naval combatants can rely on.
Speaker 4: And then that extends not only.
Speaker 7: To the workforce, but to the companies that build the parts,
Speaker 7: you know, pumps and pipes. If you grow that, there's
Speaker 7: a more competitive economic environment, there's more availability in some
Speaker 7: cases now when when they're buying, you know, a pump
Speaker 7: or pipes, they might have only one or two vendors
Speaker 7: that they can rely on. So the idea here is
Speaker 7: by building the US merchant marine and the shipbuilding workforce,
Speaker 7: we're also going to help our naval shipbuilding.
Speaker 2: Well, this is actually just a good moment. Why don't
Speaker 2: you describe what give us the outline of the Ships
Speaker 2: for America Act. How much do you underspend, what does
Speaker 2: it hope to achieve? What would the US industry look
Speaker 2: like if all successfully implemented.
Speaker 7: Well, it's a three hundred page piece of legislation.
Speaker 4: It touches every aspect or nearly.
Speaker 7: Every aspect of the maritime industry. I guess I'll just
Speaker 7: start kind of in a random place here. Provide for
Speaker 7: a maritime Security Advisor within the White House who would
Speaker 7: lead an interagency maritime Security Board to make some whole
Speaker 7: of government strategic decisions on how to implement a national
Speaker 7: maritime strategy. It also establishes a Maritime Security Trust Fund
Speaker 7: that would rein asked duties and fees that are paid
Speaker 7: by the maritime industry into maritime security programs and infrastructure programs,
Speaker 7: with the goal here of having two hundred and fifty
Speaker 7: ocean going merchant vessels in ten years.
Speaker 4: We would create a strategic commercial fleet program.
Speaker 7: We would change or establish a rule making committee on
Speaker 7: commercial maritime regulations and standards, and then we would do
Speaker 7: things like requiring government funded cargo to move on US
Speaker 7: flag vessels and require a portion of the cargo imported
Speaker 7: from China to go on US flag vessels starting at
Speaker 7: a later time. There's tax credits, there's Title eleven Federal
Speaker 7: ship financing, there's shipbuilding financial incentive.
Speaker 4: Programs in the legislation.
Speaker 7: There's also a part of this it's about manufacturing and
Speaker 7: innovation and coming up with the next generation of ships
Speaker 7: and ship energy systems, and I could go on.
Speaker 1: Yeah, the bill in its official format is actually three
Speaker 1: hundred and forty four pages long, and I will confess
Speaker 1: I did not read all of it.
Speaker 2: Did you upload it?
Speaker 5: I did not. That's a good idea, Actually I did.
Speaker 1: One of the things I was wondering is, you know,
Speaker 1: this is kind of a Devil's advocate question, but a
Speaker 1: lot of the ACT, as you just outlined, is about
Speaker 1: creating incentives to build ships through things like tax credits
Speaker 1: or providing some subsidies for construction or training. Why can't
Speaker 1: the US government just fund ships directly? If ships are
Speaker 1: so important for national security and trade, why even try
Speaker 1: to leave it to private capital to build?
Speaker 4: Well, that's a good question.
Speaker 7: I mean, I guess that's what China does, right, They
Speaker 7: build them, you know, they put them out there on
Speaker 7: the oceans. They really belong to the Chinese government in
Speaker 7: a way. You know, we are a democracy, we're capitalist society.
Speaker 7: We believe in private markets and private ownership, and we
Speaker 7: believe in, you know, to some extent, maybe helping companies,
Speaker 7: but eventually getting them to the point where they're on
Speaker 7: their own. They're profitable, they're creating good paying jobs. These
Speaker 7: are jobs often that you can raise a family on,
Speaker 7: that do not require a four year degree. So these
Speaker 7: are you know, great you know jobs that are you know,
Speaker 7: provide an economic benefit not just to the people who
Speaker 7: work them, but.
Speaker 4: To our country, and they help us grow the economy.
Speaker 4: I don't think the.
Speaker 7: Government operating its own you know, fleet vessels to move
Speaker 7: commercial cargo, you know, makes a ton of sense, because
Speaker 7: this is this is an important part of our economy.
Speaker 7: It's deteriorated over the years. But you know, what you're
Speaker 7: suggesting would be really like a you know, wholesale pivot
Speaker 7: to government owned industry.
Speaker 2: Let me ask you another question. You know, we've done
Speaker 2: a lot on industrial policy in the past, and one
Speaker 2: of the preconditions or you know, industrial policy can fail easily,
Speaker 2: and you can have cronyism, and you can have companies
Speaker 2: overbuilding the government for mediocre products. And this is just
Speaker 2: one of the pitfalls of anytime there's a lot of
Speaker 2: public money going to something. But one way that this
Speaker 2: gets addressed historically in some markets is this idea of
Speaker 2: the domestic champion has to be competitive on the global market.
Speaker 2: And so if you're a car company or a chip
Speaker 2: company in China or something like. You know, you don't
Speaker 2: have any guaranteed buyers overseas because the chip maker is
Speaker 2: still competing with Texas Instruments or BYD is still competing
Speaker 2: with Tesla. What are the mechanisms that you have in
Speaker 2: place or that you envision to still have that sort
Speaker 2: of market discipline so to speak, so that yes, there
Speaker 2: is this public money going, but there is still this
Speaker 2: element that, yeah, we want the ships to be really
Speaker 2: good and competitive and competitively priced and to sort of win,
Speaker 2: so to speak, so that we know we're getting value
Speaker 2: from the spending.
Speaker 4: Well, yeah, let me take that.
Speaker 6: And frankly, this builds off of the previous question. First,
Speaker 6: I've learned a lot and frankly thought a fair amount
Speaker 6: about industrial policy in recent years through.
Speaker 4: The Chips Act.
Speaker 6: From a purely economic standpoint, there would be no difference
Speaker 6: when it comes to direct payments to grantee companies that
Speaker 6: are charged with building ships on behalf of both our
Speaker 6: commercial industry and for future national security reasons. But administratively
Speaker 6: you can cut down on any concerns over croniism or
Speaker 6: waste by having a neutral arbiter. And despite some anomalies
Speaker 6: over time. Our IRS is a pretty neutral arbiter. So
Speaker 6: when you are funding this shipbuilding initiative through the tax code,
Speaker 6: it does provide a neutral arbiter. Sometimes the downside to
Speaker 6: that approach is that you end up funding through the
Speaker 6: tax code more enterprises and certain enterprises the would otherwise fund.
Speaker 6: So there are trade offs when you make decisions about
Speaker 6: how you administer your industrial policy. That would be point one.
Speaker 6: Point two about establishing market discipline is very important. If
Speaker 6: you look at semiconductors, that market is incredibly distributed and
Speaker 6: ramified all across the world. We will see for any
Speaker 6: given semiconductor it going across international borders dozens and dozens
Speaker 6: of times before it becomes assembled component. In the case
Speaker 6: of ships, of course you're going to have components going
Speaker 6: in and out of the country some but it's less distributed,
Speaker 6: and it will be the job in the main of
Speaker 6: our diplomats and of our private enterprises to sell our
Speaker 6: ships into other markets. We need to open up other
Speaker 6: markets through trade policy, something I'm also an advocate of
Speaker 6: and will continue to argue for. In part, and this
Speaker 6: is a rarely mentioned dimension of trade policy, but one
Speaker 6: of the reasons we want to trade with the rest
Speaker 6: of the world is to enforce a certain efficiency and
Speaker 6: discipline on our own economy so that we will see
Speaker 6: a deployment of resources efficiently and we can grow faster
Speaker 6: and all become more wealthy. So I mean, that's how
Speaker 6: this will be accomplished. But what we have right now
Speaker 6: is we have a more concentrated shipbuilding industry in particular
Speaker 6: countries because they see not only the commercial but also
Speaker 6: the national security upside to excelling in shipbuilding. And it
Speaker 6: will take some work from our government to open up
Speaker 6: foreign markets for our ships down the road, so we're
Speaker 6: not there yet. We can't wait for that, however. I mean,
Speaker 6: we own three percent of the global commercial fleet right now.
Speaker 6: China owns roughly one fifth of the world's fleet, and
Speaker 6: they will, through their bulk carriers, move a far larger
Speaker 6: proportion of American goods into the United States. So they've
Speaker 6: got us at the end of a barrel, frankly, and
Speaker 6: there is some urgency to us beginning this exercise now,
Speaker 6: especially in light of many of our national security communities
Speaker 6: predictions about Chinese misbehavior visa VI Taiwan or South China Sea,
Speaker 6: which will require a maritime response from the United States,
Speaker 6: and at this point in time, we just cannot move
Speaker 6: enough material and enough of our soldier sailers and airmen
Speaker 6: to win a fight. And that ought to send a
Speaker 6: shiver down the spine of most Americans.
Speaker 1: Since you brought up the broader trade landscape, would you
Speaker 1: expect retaliation from China for this act? I think it's
Speaker 1: fair to say at the moment the relationship between the
Speaker 1: US and China is pretty freed given the ongoing trade war.
Speaker 1: And one of the things this act proposes is creating
Speaker 1: a commercial cargo preference, so that in fifteen years, ten
Speaker 1: percent of all cargo that's imported into the US from
Speaker 1: China will need to be imported on US flagged vessels.
Speaker 1: And I imagine that China might not like that, right
Speaker 1: We talked earlier about how they've been supporting their own
Speaker 1: domestic shipbuilding industry, so clearly this is important to them.
Speaker 1: Could they potentially respond in kind with their own restrictions.
Speaker 7: Well, they could always do that, Tracy, But when you
Speaker 7: think about ten percent is pretty modest. You know, we're
Speaker 7: building our capacity. We're going to require you know, certain
Speaker 7: cargo to be carried on US flag ships. Under you know,
Speaker 7: this Act, but we can't be making industrial policy decisions
Speaker 7: based on what we think the response from China is
Speaker 7: going to be.
Speaker 4: You know, if they.
Speaker 7: Respond, we'll figure out up way forward and figure out
Speaker 7: how do we you know, counter a response if it's unfair.
Speaker 4: But right now.
Speaker 7: When you you know, just consider the capacity that China
Speaker 7: has in this industry five thousand, five hundred ocean going
Speaker 7: merchant vessels and.
Speaker 4: We have eighty.
Speaker 7: We've got to turn this around. Like semiconductors, we didn't
Speaker 7: get into the you know, details of why you know,
Speaker 7: the semiconductor industry is so important, but the best semiconductors
Speaker 7: are made in Taiwan company to call TSMC, and if
Speaker 7: we lose access to those this is part of the
Speaker 7: discussion we had today with our yesterday with Admiral Paparo.
Speaker 7: If we lose access to semiconductor chips from Taiwan, we
Speaker 7: could very quickly lose five to ten percent of our GDP.
Speaker 7: Unemployment could go up ten percent in the United States
Speaker 7: rather rapidly. So that's one of the reasons we wanted
Speaker 7: to onshore you know, this capability. And you know, Todd
Speaker 7: was the author of the bill that I worked on
Speaker 7: with him. So, yeah, I think it's always possible we
Speaker 7: could see a response from the Chinese. But that doesn't,
Speaker 7: you know, mean we shouldn't do this.
Speaker 6: Yeah, Tracy, we have to assume that the Chinese will,
Speaker 6: you know, be upset. But what they aim to do,
Speaker 6: and it's an intelligent thing to do, is by threatening
Speaker 6: a response, because our economies remain interwoven. By threatening a response,
Speaker 6: they want to deter us from making our own economy
Speaker 6: more resilient. And as long as we remain vulnerable to
Speaker 6: their provocative threats and activities, then our policymakers will have
Speaker 6: to think about the economic cost and sometimes even military costs.
Speaker 4: They'll impose on our country.
Speaker 6: We have to get ourselves out of this predicament, and
Speaker 6: why not do so by being consistent with something we've
Speaker 6: told the Chinese and the rest of the world for generations,
Speaker 6: which is the United States of America will be the
Speaker 6: world's best friend and at times your best enemy. But
Speaker 6: all we ask to ensure we remain friends is a
Speaker 6: measure of reciprocity. It's a fundamental trading principle, and the
Speaker 6: Chinese favor their own commercial vessels. The Chinese offer extensive
Speaker 6: subsidies not only for their shipbuilding industry, but across the
Speaker 6: board for industries they regard as strategic. So we're following
Speaker 6: through with a long standing philosophy, and a key here
Speaker 6: is that when we make these sorts of actions, we
Speaker 6: do so in coordination with partners and allies. In this case,
Speaker 6: in the last administration, the Secretary of the Navy and
Speaker 6: the administration, we're able to unlock a significant investment which
Speaker 6: I understand may be forthcoming in our Philadelphia Naval shipyard
Speaker 6: from South Korea. So that's an illustration of how if
Speaker 6: we start to get some buy in from other economies
Speaker 6: and businesses and countries to our own shipbuilding exercise because
Speaker 6: they too have a vested interest in our economic and
Speaker 6: military strength, we can mitigate any blowback from China.
Speaker 2: You sort of anticipated my next question, because one way
Speaker 2: that you can sort of balance the goals for efficiency
Speaker 2: and dynamic market economies alongside the national security concerns is
Speaker 2: working with allies and countries that we trust in countries
Speaker 2: in similar positions and et cetera. In your law, in
Speaker 2: your proposed bill, what is the role for foreign companies
Speaker 2: either building directly here or you know, us investment elsewhere,
Speaker 2: but among friends, so to speak, in revitalizing this capacity,
Speaker 2: how are allies treated?
Speaker 7: Well, you know, we want our allies to work with
Speaker 7: us here in the United States. You know there are
Speaker 7: foreign shipbuilders that could build capacity here in shipyards and
Speaker 7: be our partners. You know, that's built into the legislation.
Speaker 7: So this could benefit our allies, and that's one of
Speaker 7: our you know, strategic strengths as.
Speaker 4: We actually have a China doesn't have that.
Speaker 7: So when we develop this sort of policy, it's important
Speaker 7: that we keep our allies in mind, and this legislation
Speaker 7: does that.
Speaker 1: One of the other things I'm sure people will be
Speaker 1: curious about is the ultimate impact on cargo costs. And
Speaker 1: as you mentioned, during the pandemic, we all experience the
Speaker 1: frustration of not being able to buy toilet paper or
Speaker 1: electronic goods or whatever because of empty shelves. And with
Speaker 1: this Act, on the one hand, you're trying to expand
Speaker 1: capacity with additional ships, which would presumably bring costs down.
Speaker 1: But on the other hand, there are people out there,
Speaker 1: I'm thinking specifically of Lars Jensen, shipping expert, who argue
Speaker 1: that the ACT as currently designed would increase shipping costs
Speaker 1: for US importers and exporters. And yeah, as we learned
Speaker 1: during the pandemic, the cost of transporting goods is pretty
Speaker 1: important to broader inflation. It feeds into almost everything, at
Speaker 1: least when it comes to goods. How do you sort
Speaker 1: of balance I guess, the additional costs of transitioning to
Speaker 1: this new system versus ultimately trying to bring down prices.
Speaker 6: Well, let me address that. From an economic standpoint. What
Speaker 6: you want to establish is certainty in your economy, and
Speaker 6: at the consumer level and the business level, you don't
Speaker 6: want big spikes and then valleys and prices. That does
Speaker 6: not lend itself to stability or confidence in the markets.
Speaker 6: It makes it very difficult at the household level to
Speaker 6: plan your expenditures. We I think all experienced a measure
Speaker 6: of that during the pandemic, where some things were shooting
Speaker 6: up and then other things were on discount, and it
Speaker 6: became kind of an alternative universe. And the way we
Speaker 6: aim to address prices, and you alluded to it, Tracy,
Speaker 6: was by making sure we have more control under a
Speaker 6: key uncertainty and the value chain, and that value chain
Speaker 6: is the shipping of your products across an ocean and
Speaker 6: that's at the export and import level, and so we
Speaker 6: have control over that. Does that in the near term,
Speaker 6: prior to a crisis lead to marginal premium on certain products.
Speaker 6: It could, it could lead to a marginal increase. But
Speaker 6: net net, you're not going to be experiencing those highs
Speaker 6: and lows, and most importantly, you will not experience the
Speaker 6: incredible cost of losing sovereignty, losing the ability to make
Speaker 6: your own economic policies because of economic coercion a key
Speaker 6: tactic of the Chinese Communist Party, or to be able
Speaker 6: to defend your way of life through military force, because
Speaker 6: you can't move the men and women to where they
Speaker 6: need to go and the material and difficult circumstances. So
Speaker 6: you know, as with other construction efforts, you know, we
Speaker 6: build military jets here. For example, there wasn't a robust
Speaker 6: enough consumer market in the United States to build fighter jets,
Speaker 6: so we ask the taxpayers to front some investments so
Speaker 6: we have the capacity to build it for a military
Speaker 6: There's a dimension of that here as well.
Speaker 2: I mean, I think this is a really important point.
Speaker 2: It gets to this very sort of deep tension. Everyone
Speaker 2: likes the idea of spare capacity, especially in the moment,
Speaker 2: like a March twenty twenty, or a pandemic or a
Speaker 2: theoretical war. On the other hand, you know in times
Speaker 2: of peace or in times of health when there isn't
Speaker 2: a pandemic, you know, it is a cost, and it's
Speaker 2: very hard to quantify or sort of perhaps into it
Speaker 2: the price that you're paying for this sort of you know,
Speaker 2: potential black swan event. Just real quickly, because we didn't
Speaker 2: touch on this, how much are you envisioning this would
Speaker 2: cost to get to your goals? How much would be
Speaker 2: actually allocated? And what are the funding mechanisms. I think
Speaker 2: you mentioned some sort of trust fund, but just talk
Speaker 2: us through the dollars aspect.
Speaker 7: Well, this bill is paid for, I mean, it's paid
Speaker 7: for within fees that are generated within our maritime industry.
Speaker 7: So there's not a significant amount of like direct funding.
Speaker 7: I don't think we have a score on it yet. Okay,
Speaker 7: tax credits are paid for by fees that you know,
Speaker 7: shipping companies you know, will be paying as they bring
Speaker 7: cargo into the United States, tonnage fees and other programs
Speaker 7: like that. So in some ways I'd say it's different
Speaker 7: than the Chips and Science Act in that regard and
Speaker 7: how these things are paid for.
Speaker 1: How confident are you of pushing this proposal through because
Speaker 1: you know, on the one hand, it has bipartisan support,
Speaker 1: and there are a lot of things you can say
Speaker 1: that about nowadays. But on the other hand, a lot
Speaker 1: of the focus of the new administration seems to be
Speaker 1: on dismantling various things or making things more efficient versus
Speaker 1: actually building new stuff.
Speaker 6: Well, I can as a Republican, I can tell you
Speaker 6: that President Trump likes to build things. He likes beautiful things.
Speaker 6: He likes to create jobs, manufacturing jobs. He especially likes
Speaker 6: the opportunity to create more manufacturing jobs in the industrial Midwest,
Speaker 6: a place that loves President Trump. And there will be
Speaker 6: compos of these ships, if not additional shipyards brought to
Speaker 6: bear on this national and economic security challenge. And he's
Speaker 6: enlisted the help already in his national security team of
Speaker 6: key individuals who are fully supportive of this effort, one
Speaker 6: being a friend of Mark Kelly's, Mike Waltz, who is
Speaker 6: now the National Security Advisor. He's bought into this vision
Speaker 6: in the past as a member of Congress. Another is
Speaker 6: Jerry Hendrix, who Mark also knows happens to be from
Speaker 6: my state. Jerry is a supply chain expert with particular
Speaker 6: expertise in shipbuilding and spent a career in the Navy,
Speaker 6: and he's bought into this sort of vision. So we
Speaker 6: have some key allies and surrogates who can help us
Speaker 6: make the case. It's never easy during times like these,
Speaker 6: when we Republicans, I think are rightly focused on fiscal responsibility,
Speaker 6: which I don't want to suggest Mark doesn't care about either.
Speaker 6: He does, but we are warm to making our military
Speaker 6: more effective and this is an important way to do so.
Speaker 7: And Tracy, I think there's going to be a tremendous
Speaker 7: amount of enthusiasm for this legislation. It's the kind of
Speaker 7: thing that works on both sides of the aisle. You know,
Speaker 7: we all realize that China is an adversary. President Shei,
Speaker 7: the Chinese president, has said things that are rather aggressive
Speaker 7: in the past. We've got to rebuild this industry. We
Speaker 7: are a maritime nation. We've got water on both sides.
Speaker 4: You know.
Speaker 7: The Chinese have this vision of being a worldwide naval
Speaker 7: and maritime power. They're building more naval ships than we
Speaker 7: are every single year.
Speaker 4: They're building more submarines.
Speaker 7: We've got to get this back on track, and this
Speaker 7: legislation is going to be a part of the thing
Speaker 7: that we need to do. A big part actually to
Speaker 7: turn this well, since I'm a Navy guy, to turn
Speaker 7: this like aircraft.
Speaker 4: Carry around take some time. It's a big part of this.
Speaker 7: But unfortunately I've got to go, so I want to
Speaker 7: wrap this up.
Speaker 4: Here with you.
Speaker 7: I appreciate your interest in this. You know, Todd and
Speaker 7: I have been working on this for some time. Todd
Speaker 7: mentioned Mike Waltz originally when this started. It was because
Speaker 7: we had a common interest in this topic. He's now
Speaker 7: the President's National Security Advisor, so we know at least
Speaker 7: in his office there's a lot of interest in getting
Speaker 7: this done. So I'm incredibly excited about getting this across
Speaker 7: the finish line. We're going to reintroduce this soon in
Speaker 7: this Congress, and then Todd and I in the Senate
Speaker 7: and Representative Kelly in the House and Representative Garymandi, We're
Speaker 7: all going to work together to get more co sponsors
Speaker 7: to go through the process of getting this across the place.
Speaker 2: Life Senators Mark Kelly and Todd Young, thank you so
Speaker 2: much for coming on online. There was fantastic Thanks.
Speaker 7: For having us write it.
Speaker 2: Tracy A. I really enjoyed that conversation. B You're gonna
Speaker 2: make fun of me because of how boomer I'm getting.
Speaker 2: Like when like when you just want to build the
Speaker 2: big Yeah, like Senator Kelly starts like a Virginia Class
Speaker 2: submarines and stuff like that. I get the hair on
Speaker 2: my arm picks up. You know, I get excited about
Speaker 2: stuff like that.
Speaker 5: They are cool things.
Speaker 4: You know what.
Speaker 1: I was rewatching Pretty Woman the other day, Yeah, and
Speaker 1: I realized I had an epiphany. It's actually it's all
Speaker 1: about shipbuilding. Yeah, right, that one guy wants to build
Speaker 1: ships and Richard Gear ultimately has it come to Jesus
Speaker 1: moment and decides to build them with him rather than
Speaker 1: dismantling the company. So you know, shipbuilding is part of
Speaker 1: the American jury.
Speaker 2: I mean it literally, it literally is. And you know,
Speaker 2: I actually really liked this conversation for many reasons. But
Speaker 2: one it's sort of like gets down to some core
Speaker 2: economic philosophical questions. And I remember, I think it was
Speaker 2: spring of last year we did that conversation with Christian
Speaker 2: Parente about Alexander Hamilton's Treaty or Treatise on Manufactures and
Speaker 2: this idea that I think there's two things. A that
Speaker 2: a country that can't build things is a country whose
Speaker 2: sovereignty is really in doubt. I think is a really
Speaker 2: just like core idea, And it's interesting to hear them
Speaker 2: articulate this. And then this idea that, yeah, the US
Speaker 2: economy is largely governed, so to speak, by the profit
Speaker 2: principle and maximum efficiency, and it's cheaper to ship goods
Speaker 2: on foreign owned ships, particularly if foreign governments are subsidizing
Speaker 2: those ships, which means it's a de facto subsidy to
Speaker 2: American consumers. But then the idea of okay, well, if
Speaker 2: that ultimately long term puts us in a position where
Speaker 2: our sovereignty is threatened. It's not just ships, it's obviously
Speaker 2: things like semi cans and really many other things, then
Speaker 2: you have to think about what is the price you're
Speaker 2: going to pay for avoiding some tail risk, which is
Speaker 2: really hard to measure down the.
Speaker 1: Road, There is certainly a tension there.
Speaker 4: Yeah.
Speaker 1: The other thing I would say is it's interesting to
Speaker 1: me how much this lines up with very traditional Knesian economics,
Speaker 1: right in the sense that Kines argued that there's a
Speaker 1: role for government to smooth economic cycles.
Speaker 5: Yes, and we're talking about.
Speaker 1: An extremely cyclical industry that's famous for boombust periods, and so,
Speaker 1: you know, coming at it from that perspective, the idea
Speaker 1: of the government being a sort of like smooth the
Speaker 1: cycle actor makes some sense.
Speaker 5: Well, this is interesting.
Speaker 2: I've been, you know, trying to read more about defense
Speaker 2: history and about defense procurement, and this is one of
Speaker 2: the arguments that the big defense giants have always made
Speaker 2: in the past, which is, you know, you can't just
Speaker 2: have their argument, and I find it there's some logic
Speaker 2: behind it. You know, you can't just have big orders
Speaker 2: come in during war and then all the orders go away,
Speaker 2: you know, after the war is over, and then you know,
Speaker 2: everyone gets a different job and the factories are dismantled
Speaker 2: and stuff, because then, you you know, you lose that
Speaker 2: institutional memory.
Speaker 1: This is how the Jones Act happened. So after the
Speaker 1: First World War, we had a surplus of ships, and
Speaker 1: so everyone was like, well, we'll just restrict it to
Speaker 1: US owned ships and everything will be fine. And then
Speaker 1: you know, fast forward like one hundred years and we
Speaker 1: don't have that surplus anymore.
Speaker 2: This is a really good topic for us. We should
Speaker 2: do more on this.
Speaker 1: Do you like how I brought it full service?
Speaker 5: Yes to the Jones well done? Yeah, thank you.
Speaker 2: And one day we're going to do a Jones Act episode.
Speaker 4: We will. There's a long.
Speaker 2: Recurring joke that we've never done a Jones Act episode.
Speaker 5: All right, shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 1: This has been another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stall.
Speaker 2: Follow our guests Indiana Senator Todd Young, He's at Senn
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Speaker 7: In