Speaker 1: Als media.
Speaker 2: Welcome to it happened here, a podcast that's about trade policy.
Speaker 2: Now I'm your host, Via Wong. This is amazingly going
Speaker 2: to be the fun one of all of these episodes.
Speaker 2: It's about working tariffs, so it's gonna be a long week. Yeah. Yeah,
Speaker 2: that was the voice of the singular Garrison Davis, the
Speaker 2: one the only Yes. Hello, I'm excited to hear about tariffs.
Speaker 2: It's tariff talk here and it could happen here one
Speaker 2: of my favorite favorite topics. I guess now, all right, Garish,
Speaker 2: you're putting you on the spot. What is a tariff? Uh,
Speaker 2: it's basically googling tariff. No, A tariff is when Trump
Speaker 2: says China's bad, so he makes China pay extra money
Speaker 2: to sell their goods to Americans, and luckily China pays
Speaker 2: for all of it, and the American consumer gets off
Speaker 2: with a boot sting economy. That's at least what I've heard. Yeah, so,
Speaker 2: unfortunately for every one, I don't know, I guess I
Speaker 2: guess there's some acceleration this. Two are probably really excited
Speaker 2: about this, most certainly.
Speaker 3: But the way this actually works is Okay, So the
Speaker 3: government sets up a tariff and that means if anyone
Speaker 3: is bringing a good into the US, they have to
Speaker 3: pay the tariff on it, and that money goes to
Speaker 3: the government. So okay, that There's been a long history
Speaker 3: of tariffs in the US. This was a huge domestic
Speaker 3: policy think, particularly in the eighteen hundreds. That's really fucking boring.
Speaker 3: The incredibly short version of it is that the thing
Speaker 3: about tariffs is that, especially like tariffs on a specific sector,
Speaker 3: is that they're good for you manufacturing that thing kind
Speaker 3: of mostly, and they're bad for anyone trying to buy
Speaker 3: that good because it's now more expensive. So Trump's plan,
Speaker 3: and we're going to get into a bit more detail
Speaker 3: about this, because there's parts of Trump's tariff plan that
Speaker 3: everyone seems to have forgotten about for some reason that
Speaker 3: I don't know why they've forgotten about.
Speaker 2: But the basic plan is to impose something like a
Speaker 2: ten to twenty percent tariff on all goods that enter
Speaker 2: the US from anywhere. There's specifically one for Mexico, but
Speaker 2: the numbers on what the Mexico tariff is changes every
Speaker 2: time he opens his mouth. Sometimes it's like twenty five percent.
Speaker 2: There's one where it's like two hundred and fifty percent,
Speaker 2: of course, two interchangeable percentages. Yeah, and then for China,
Speaker 2: it's supposed to be a tariff of somewhere between sixty
Speaker 2: sixty percent is the most commonly sided number. But he's
Speaker 2: also set one hundred percent tariff once again basically the
Speaker 2: same thing. Yeah, and so you know, part of what we,
Speaker 2: unfortunately the rest of us who live in the normal world,
Speaker 2: have to do is figure out what is actually going
Speaker 2: to happen if we get, for example, twenty percent tariffs
Speaker 2: on all goods entering the US and a sixty percent
Speaker 2: tariff on goods from China. So the first thing you
Speaker 2: need to understand. I think most people kind of get
Speaker 2: this now. But the thing about a tariff is that
Speaker 2: you pay for it. So the way that it works
Speaker 2: in general is that this is just an additional cost
Speaker 2: for the company that's doing it, that's doing that like
Speaker 2: moving the good around, right, and so they are almost
Speaker 2: always going to just pass that cost directly on to you. Obviously,
Speaker 2: sometimes we've talked about pricing, the way that pricing works
Speaker 2: a lot on this show. Companies tend not to want
Speaker 2: to raise prices, largely because of their effects on consumer
Speaker 2: happiness and brand loyalty. And stuff like that.
Speaker 3: So sometimes people will just eat shit on it. But
Speaker 3: if you're talking about a sixty percent tariff, like you,
Speaker 3: the sixty percent tariff is going to be paid for
Speaker 3: by you.
Speaker 2: So that means that anytime we buy something that's either
Speaker 2: from Mexico or China or any of the other countries,
Speaker 2: that this will be applied to the easiest way for
Speaker 2: these for these companies to get around the tariff is
Speaker 2: just to pass off the cost to the consumer.
Speaker 3: Yeah, and it's actually worse than that because and this
Speaker 3: is something I don't think people really understand when you
Speaker 3: think about global trade, right, people tend to think about
Speaker 3: trade as something that happens between countries, and this is
Speaker 3: something that was an old you know dream, like the
Speaker 3: anti globalization movement. People sort of understood this and kind
Speaker 3: of don't now. Trade doesn't actually really happened between countries.
Speaker 3: Most trade is one company, an international company, moving a
Speaker 3: resource from one country to another. Right, So, like trade
Speaker 3: is fucking Amazon moving something from a warehouse in one
Speaker 3: country to a warehouse in a second country.
Speaker 2: Right now. I've seen a lot of people and this
Speaker 2: ranges from like very very serious sort of you know,
Speaker 2: news sources and economists trying to sort of just directly
Speaker 2: model what the price increases are going to be have
Speaker 2: since people be like, oh, your shirts are going to
Speaker 2: cost sixty percent more, or physical video games will stop
Speaker 2: existing because they're too expensive, and who gives a shit?
Speaker 2: Why are we even trying to do sectoral modeling of
Speaker 2: the impacts of this. If you try to impose a
Speaker 2: sixty to one hundred percent tariff on goods from China
Speaker 2: and a twenty percent tariff on all goes into the country,
Speaker 2: the economy will collapse. I don't know why everyone is
Speaker 2: pretending that this won't fucking happen. We're going to get
Speaker 2: into it a second. I guess the reason why people
Speaker 2: are pretending this is happening because the way they're doing
Speaker 2: the modeling kind of assumes that it won't, which is baffling,
Speaker 2: incomp handsible nonsense. Well, and that's especially amusing because the
Speaker 2: seemingly biggest issue this year around politics has been inflation,
Speaker 2: which has impacted every country around the globe. The US
Speaker 2: is actually whether it decently well, although there's been a
Speaker 2: catastrophic failure in communicating that and listening to the actual
Speaker 2: complaints from people on how they're still struggling with rising inflation,
Speaker 2: but still a big reason why Trump was elected is
Speaker 2: because he simply is not Joe Biden, and he's not
Speaker 2: from the Biden Harris administration, and there's this perception that
Speaker 2: he will be able to fix the economy, he will
Speaker 2: be able to get around inflation lower prices, when seemingly
Speaker 2: his main economic proposal will lead to what's probably going
Speaker 2: to be an economic collapse if it happens in the
Speaker 2: brutality of which he proposes. And there's another element of this,
Speaker 2: right when I say that the likely result of Trump
Speaker 2: actually trying to implement his tariff policy is a global
Speaker 2: economic collapse, there's another part of this that everyone seems
Speaker 2: to have forgotten. And I don't know why they've forgotten this.
Speaker 3: I guess it's because nobody he actually reads any of
Speaker 3: the things that Trump puts out on his website.
Speaker 2: Which is true. No one actually reads that stuff. It's nuts,
Speaker 2: especially his own supporters. Yeah, a majority of his own
Speaker 2: supporters do not pay attention to like Daily News.
Speaker 4: Yes, and now I remember this because I did an
Speaker 4: episode about these tariffs, like like six months ago, and
Speaker 4: one of the things about this, he has a thing
Speaker 4: called Agenda forty seven, right, which is his agenda for
Speaker 4: what he's going to do when he takes.
Speaker 2: Power, which no one has cared about. And now everyone
Speaker 2: is going through and posting policy proposals from like fucking
Speaker 2: two years ago with the headline breaking news Trump announces
Speaker 2: new plan, Like, no, he hasn't. This is our old plans.
Speaker 2: This stuff is like two years old. He's been openly
Speaker 2: talking about all that. Yeah, frages, And one of the
Speaker 2: important parts of this, I'm just gonna read this quote
Speaker 2: because it is a part of this has been ignored
Speaker 2: by every single fucking analysis I've seen, from like fucking
Speaker 2: the Center for American Progress, who obviously we're gonna screw
Speaker 2: this up, to like Stamford's labs, Like everyone who's been
Speaker 2: writing about this has just ignored this part, which is
Speaker 2: quote as one of his top economic priorities, President Trump
Speaker 2: will stop the flow of American jobs overseas by passing
Speaker 2: the Trump Reciprocal Trade Act. Under the landmark legislation, if
Speaker 2: any foreign country imposes a tariff on American made goods
Speaker 2: that is higher than the tariff imposed by the US,
Speaker 2: President Trump will have the authority to impose a reciprocal
Speaker 2: tariff on that country's goods. Okay, So what this would
Speaker 2: do again is that any country that has a tariff
Speaker 2: already or imposes a tariff. And this is important if
Speaker 2: we get into a trade war where countries start imposing
Speaker 2: tariffs on each other in retaliation for their other terrorists,
Speaker 2: which is what happens when he did this trade war
Speaker 2: with China in like twenty eighteen twenty nineteen. That means
Speaker 2: that we're also going to impose a tariff, which means
Speaker 2: that the tariff rates don't stay at ten to twenty percent,
Speaker 2: they cyclically spiral upwards. That's just like an escalating series
Speaker 2: of terroriffs.
Speaker 3: Yeah, and the thing is right, the policy process that
Speaker 3: they have on his page are like, well, okay, we're
Speaker 3: going to do this, do like a presidential Act, right,
Speaker 3: But the thing is the president actually has really, really,
Speaker 3: under a number of different acts, has extremely wide discretionary
Speaker 3: authority to set tariffs as long as he can basically
Speaker 3: sort of like cobble together.
Speaker 2: There's some kind of bullshit excuse.
Speaker 3: For it, and at that point you're lying on the
Speaker 3: Supreme Court to stop literally anything that Trump does, Like
Speaker 3: I don't give a shit, Well, I mean I don't know,
Speaker 3: maybe someone will like go up to like can Clarence
Speaker 3: Thomas and go like, hey, if we do this like
Speaker 3: importing new like windshield wipers for your RV is gonna
Speaker 3: cost ten million dollars more or whatever. But like there's
Speaker 3: there's no shot of this stuff getting stuff. And the
Speaker 3: thing is right, the reciprocal tariff stuff. He could just
Speaker 3: do this through his existing Terriforf authority. He doesn't actually
Speaker 3: even need to pass upthing through Congress. Who's actually be
Speaker 3: I think tricky for him, but he doesn't need to
Speaker 3: do You.
Speaker 2: Know what we need to do right now, Tomia just badly,
Speaker 2: badly cut to a bunch of companies that are going
Speaker 2: to be absolutely fucking eviscerated if this goes through. That's right,
Speaker 2: Donald Trump stands for anti capitalist action. He's going to
Speaker 2: destroy free trade. So enjoy these ads when you still can. Okay,
Speaker 2: we are back Miah. Let's hear how Trump is going
Speaker 2: to perfect the capitalist economic system by a series of
Speaker 2: escalating tariffs that will destroy the economy and in doing so,
Speaker 2: but about in the opportunity for Marxist to size power
Speaker 2: and change the world economic system. Yeah, so I'm going
Speaker 2: to read another quote from that same agenda forty seven thing. Quote.
Speaker 2: For example, food items like cereals, your other preparatory goods
Speaker 2: are tariffed at thirty two point nine percent by India
Speaker 2: and nineteen point five percent by China and only three
Speaker 2: point one percent by the US. India applies a tariff
Speaker 2: of twenty five point three percent on transportation equipment, while
Speaker 2: the US only terrorists goes at two point nine percent. Now,
Speaker 2: those exact numbers are debatable, but it doesn't matter because
Speaker 2: these these are going to be vibes based ones, based
Speaker 2: on how pissed off Trump is at a country. Yeah,
Speaker 2: as Trump is usually a vibes based guy. Yeah, especially
Speaker 2: when it comes to the economy, especially when it comes
Speaker 2: to like these numbers he's pulling out like between sixty
Speaker 2: to one hundred percent. He doesn't know what any of
Speaker 2: those numbers means. He's just thinking of a number and
Speaker 2: saying it out loud.
Speaker 3: And the thing about all of these things, right, even
Speaker 3: just the base twenty percent, or let's let's go to
Speaker 3: the lowest numbers he's talked about, which is a ten
Speaker 3: percent tariff on all goods and a sixty percent tariff
Speaker 3: on Chinese goods. Right, that in and of itself blows
Speaker 3: a smoking crater in the world economy. And none of
Speaker 3: the assessments that you will read are talking about this.
Speaker 3: One of the things that they will mention that is true,
Speaker 3: but they're not, you know, getting to the importance of
Speaker 3: is that this affects stuff that's made in the US.
Speaker 3: Because the thing about things that are made in the
Speaker 3: US is that they're made from components that are from elsewhere,
Speaker 3: because that's how international supply chains work.
Speaker 2: Oh wait, even though we have, through tariffs, moved all
Speaker 2: manufacturing of Toyota into the United States, you're saying that
Speaker 2: still some of the materials are not all solely made
Speaker 2: him produced within the country, and it actually requires unfeign trade. Yeah,
Speaker 2: and part of the problem I think of, like, Okay,
Speaker 2: so if you logically think out the conclusions of what
Speaker 2: that means, right, Okay, first mistake, Abia that you're trying
Speaker 2: to solve this problem through.
Speaker 3: Well, but here's the thing, right, Obviously Trump is not
Speaker 3: going to think through this, right, But I kind of
Speaker 3: expect people who are like writing about this for a
Speaker 3: living to do mildly better than this.
Speaker 2: And possibly some of the people that he like hires
Speaker 2: onto his cabinet and team. Maybe, but we'll.
Speaker 3: Say, you know, I'm not talking about like his critics.
Speaker 3: Oh sure, sure, one of the numbers will see all
Speaker 3: the time. The Center for American Progress has this line
Speaker 3: of how the terrofts will function as a tax that
Speaker 3: costs the America you conceive for like seventeen hundred dollars
Speaker 3: a year.
Speaker 2: Right, which was the line that Kamala used pretty often. Yeah,
Speaker 2: framing his tariffs as like a sales tax.
Speaker 3: This is fucking horseshit. The only way you can think
Speaker 3: that the net effect of this would just be a
Speaker 3: seventeen hundred dollars tax is if you don't understand how
Speaker 3: the economy works at all. Right, So I went there
Speaker 3: and read this, and the way that they model it
Speaker 3: is just by like they find the like net dollar
Speaker 3: value of imported goods and then apply a tax to it,
Speaker 3: and then try to figure out like how much of
Speaker 3: those goods that the average person would buy in a year,
Speaker 3: and then increase the price. But and this is something
Speaker 3: that's very at the end of the analysis, right right
Speaker 3: at the very end, there's little section where they say
Speaker 3: that they assume this would have no other effects on
Speaker 3: the economy. This is unbelievably fucking stupid. I can I
Speaker 3: emphasize enough?
Speaker 2: Can you explain why that doesn't make any sense? So? Okay,
Speaker 2: So here's the thing.
Speaker 3: Right, prices go up, now people can buy less things.
Speaker 3: What does that do to the economy, Well, it slows
Speaker 3: its growth rate. Right, companies start to go out of business.
Speaker 3: And we're gonna get me into more of the ways
Speaker 3: that this plays out in a second. Right, But a
Speaker 3: bunch of a bunch of people in a bunch of
Speaker 3: places fucking lose their jobs because suddenly the reduction and
Speaker 3: consumer demand means that there's a fucking reduction necessary production.
Speaker 3: And this has cyclical effects throughout the entire economy as
Speaker 3: more and more people fucking lose their jobs.
Speaker 2: And also, you know the thing, the thing about those
Speaker 2: people who lose their jobs is that that also fucking
Speaker 2: reduces demand because those people are now even less able
Speaker 2: to afford the stuff that's been increased by inflation prices,
Speaker 2: and this this spirals through the entire world economy. In
Speaker 2: order to.
Speaker 3: Understand what exactly this is going to do, I think
Speaker 3: we need to understand why, you know, because like if
Speaker 3: Kamala Harris, I don't know if it makes any difference
Speaker 3: in the election. But Kamala Harris walks of the stage
Speaker 3: and says this is going to cost you seventeen hundred dollars.
Speaker 3: She does not walk on the stage and say this
Speaker 3: is going to cause an economic collapse, right. And I
Speaker 3: think the reason that happened is because we've gotten into
Speaker 3: this place where nobody fucking understands how the economy works
Speaker 3: at all, in a way that's even worse than it
Speaker 3: was even in like the twenty tens. Like in the
Speaker 3: twenty tens, I think people sort of had a vague understanding.
Speaker 3: The thing that was happening to the economy was uberization,
Speaker 3: whatever you call it, was the expansion of gig work. Right,
Speaker 3: There was sort of an understanding and a focus on
Speaker 3: the very sort of low level parts of the economy,
Speaker 3: like what are you a poor person doing for your job?
Speaker 2: Right? Does how does your income work?
Speaker 3: And not purely on these sort of like high finance
Speaker 3: or in the case in the case of what's been
Speaker 3: happening here, everyone has been unbelievably completely focused on like
Speaker 3: the Chips Act and like state led industrialization and all
Speaker 3: that stuff is fucking bullshit. It's it basically hasn't done
Speaker 3: anything yet, it's not going to do anything for like
Speaker 3: a decade, and it's not mostly what's going on in
Speaker 3: the economy. I've been holding my tongue on this for years,
Speaker 3: but the people who have been writing about the economy
Speaker 3: don't understand how the fuck it works because they've been
Speaker 3: completely myopically obsessed with the idea that we're in this
Speaker 3: new era of state capitalism and no like the actual
Speaker 3: thing that's been happening in the economy. And I think
Speaker 3: if you are like a person who buys stuff, you
Speaker 3: probably understand this. But for some reason this has never
Speaker 3: made it to like economists or like people who fucking
Speaker 3: write about the economy for a living. Is consumer to
Speaker 3: manufacturer sales. So this is stuff like Temu. This is
Speaker 3: stuff like san who she I mean invented It's a
Speaker 3: strong word, but they're one of the first people who
Speaker 3: sort of popularized this model, right, And this is the
Speaker 3: thing where you have a platform that lets people like
Speaker 3: nominally buy directly from the factories or from you know,
Speaker 3: the people who are producing fruit, right, And these factories
Speaker 3: aren't producing goods until basically either people order the goods
Speaker 3: or like analytics tells them to order it, so they
Speaker 3: don't have a lot of the problems that other kind
Speaker 3: of like distribution bottels have. For you have a bunch
Speaker 3: of good sitting in a warehouse, like, you just don't
Speaker 3: have that because you don't start production until your sort
Speaker 3: of orders.
Speaker 2: Come in, your analytics come in. And the theory here
Speaker 2: is you can reduce costs by eliminating the middleman. But
Speaker 2: of course a new kind of middleman emerged, and that
Speaker 2: is the drop shipper god. So the drop shipper is
Speaker 2: just someone using the consumer to manufacturer pipeline right the
Speaker 2: platforms that are supposed to let you the consumer sort
Speaker 2: of just like buy directly from the thing and cut
Speaker 2: out milmen. It's just someone doing that but then turning
Speaker 2: around and selling you the result. And this has become
Speaker 2: just utterly fucking ubiquitous in the American economy. It's sort
Speaker 2: of like an integral part of the American scam economy
Speaker 2: now too, as the American economy has been increasingly sort
Speaker 2: of riddled and consumed by scams and riddled and consumed
Speaker 2: by sort of like people trying to capitalize on like
Speaker 2: some fucking meme or some political thing.
Speaker 3: You know, you have all these people doing like drop
Speaker 3: ship t shirts right where they can immediately come in
Speaker 3: and sell all of this stuff.
Speaker 2: These like short lived like trend meme based either like
Speaker 2: fashion or even like goods. You know, you can talk
Speaker 2: about like the amount of like content creator merch that
Speaker 2: is all funneled through these like drop shipping companies.
Speaker 3: Yeah, and it's also what's been It's a thing that's
Speaker 3: enabled like fast fashion to function.
Speaker 2: In the way that it is right now, right absolutely.
Speaker 3: And this has become what consumption is in large swaths
Speaker 3: of the world is from this sort of like direct
Speaker 3: to consumer drop shipping shit, right.
Speaker 2: Yeah.
Speaker 3: Now, the thing about about these drop shipping things is
Speaker 3: that their profit margins are really really low. They don't
Speaker 3: make that much money, and in fact, a lot of
Speaker 3: these things like hemorrhage money until they've basically you know,
Speaker 3: they do the thing that Amazon did, right, where like
Speaker 3: you lose money for a million years, but then eventually
Speaker 3: you have enough market chourney you start making money again.
Speaker 2: Yeah, because you make it so all your competitors basically
Speaker 2: can't function because you have prices that are so low.
Speaker 2: And then when you're the only one in the game
Speaker 2: with a sizeable power influence, you can raise prices and
Speaker 2: then you make tons of money. Also the Uber model,
Speaker 2: although Uber still is improfitable. Yeah well so yeah, Uber
Speaker 2: will never make any money. Right.
Speaker 3: But the other thing here that's important is that, you know,
Speaker 3: so the margins of a company like Temu, right, which
Speaker 3: is like probably the biggest of these sort of companies.
Speaker 2: Now, are low. But Tamu technically has tech money, Like
Speaker 2: they have money to back them up. Right, you know,
Speaker 2: who doesn't have an unbelievable amount of just like capital
Speaker 2: sitting around that they could just instantly pull from if
Speaker 2: suddenly there is I don't know, a sixty percent fucking
Speaker 2: price shock. Oh wait, it's all of the fucking manufacturing
Speaker 2: you know, like tiny manufacturing firms that these drop shipping
Speaker 2: things use to produce all their stuff. Right.
Speaker 3: That infrastructure is very fragile. It's it's margins are very bad.
Speaker 3: And oh guess what happens to that shit if you
Speaker 3: impose sixty percent terraces on it?
Speaker 2: Right, it just shuts down because that's the easiest option, right.
Speaker 3: Yeah, And you know, and presumably I think one of
Speaker 3: the other parts of this would be part of the
Speaker 3: reason that this has been happening is that all of
Speaker 3: this office are being imported like under terriff loopholes, but
Speaker 3: like that loopholes not hard to close, right.
Speaker 2: What terraf loopholes are you referring to? Oh yeah, so
Speaker 2: I talked about this the ten we episod. So those
Speaker 2: loopholes on American teriffs were like, if you're bringing stuff
Speaker 2: into the country that's below a certain value, it has
Speaker 2: to be above like a six hundred dollars something to
Speaker 2: like trigger a threshold to like activate the teriffs applying
Speaker 2: to it. So people just ship a bunch of like
Speaker 2: one billion boxes individually that are like five hundred and
Speaker 2: ninety nine dollars to go under the thing. So you're saying,
Speaker 2: I can still maybe buy my new Sonic the Hedgehog
Speaker 2: PS five game though, that should be fine. I'll be
Speaker 2: totally good. Oh god, okay.
Speaker 3: So the other part of this that's important, right, So
Speaker 3: this is the kind of I don't know if news
Speaker 3: the right word, but this is the kind of recent
Speaker 3: part of the economy that's incredibly dependent on Chinese supply chains, right,
Speaker 3: that gets just liquefied if these terrorifts go through. These
Speaker 3: are enormous companies that you know are going to just
Speaker 3: eat shit and those companies eating shit have the sort
Speaker 3: of effects we talked about earlier, right, which is it
Speaker 3: caused people to get fired, it causes growth collapses, it
Speaker 3: causes cyclical decreases in people's ability to buy thing, and
Speaker 3: then also like demand decreases because people can't buy things.
Speaker 2: But this is like the new school supply chain stuff. Right.
Speaker 3: Temu's a product of really the last six or seven years,
Speaker 3: and it really only functions the way it does now
Speaker 3: in last about four but the previous two eras supply
Speaker 3: and logistics, right, which is sort of Walmart and Amazon
Speaker 3: are both also almost completely dependent or Chinese supply chains.
Speaker 2: Right.
Speaker 3: Yeah, there's a good JD super article which is they're
Speaker 3: like a business intelligence website, right. You know, it talks
Speaker 3: about how Walmart imports seventy percent of all of it's
Speaker 3: goods from China.
Speaker 2: Yeah, that tracks seventy percent seven zero, right. And the
Speaker 2: reason that it works like this is because Walmart's entire
Speaker 2: business model, all of their supply chains, all of their logistics,
Speaker 2: everything that they do, right, was designed basically hand in
Speaker 2: hand to be integrated into Chinese economic production. And you
Speaker 2: can't just move that shit instantly. Right.
Speaker 3: And this is also true, something like Amazon right, where
Speaker 3: Amazon like sixty three percent of independent sellers on Amazon
Speaker 3: this is from the same source are Chinese. Right, So
Speaker 3: what you're dealing with is vast parts of the American economy, right,
Speaker 3: the parts of the American economy that you interface to
Speaker 3: buy things are based on goods that are suddenly going
Speaker 3: to have like sixty to one hundred percent tariff stapled
Speaker 3: onto them. Now, the thing that people have been talking
Speaker 3: about as the like, oh well, here's the thing that
Speaker 3: will happen instead instead like instead of the thing that's
Speaker 3: pretty obviously going to happen if this happens, which is
Speaker 3: just the decount of bubble we're in pops and everything
Speaker 3: starts to go to shit, people have been like, oh, well,
Speaker 3: this will just accelerate the shift of production of goods
Speaker 3: out from China. And like I've been talking about this
Speaker 3: for like a fucking decade, right, Like the journal Chwung
Speaker 3: is something that I talk about a lot that I record.
Speaker 3: People really has been talking about this for literally ages
Speaker 3: and ages and ages. So people have been trying to
Speaker 3: move production out of China for ages. I mean, like
Speaker 3: one of the first big attempts to do this was
Speaker 3: in twenty eleven when there is there's a series of
Speaker 3: riots in China and people tried to move production of
Speaker 3: goods out of and they couldn't do it. And the
Speaker 3: reason that they couldn't do it was because you have
Speaker 3: to find a country that has both like a relatively
Speaker 3: skilled and educated labor force and also has the infrastructure
Speaker 3: to be able to like match Chinese production. And so
Speaker 3: I mean they we're talking about things like they have
Speaker 3: to have like a functioning electrical grid that is stable enough.
Speaker 2: For production to function.
Speaker 3: And this rules out an enormous number of countries and
Speaker 3: it's it's just really really hard. And yeah, like Chinese
Speaker 3: capital has been moving away from its sort of old
Speaker 3: centers and the prop of delta to.
Speaker 2: Places like Vietnam.
Speaker 3: Right, But and this is the fucking big one, right,
Speaker 3: A lot of a lot of what's been happening for
Speaker 3: the people have been talking about this thing called quote
Speaker 3: quote unquote decoupling, which is which is the separation of
Speaker 3: the US and Chinese economy so that they're not like
Speaker 3: they're trying with each other. People think this is good
Speaker 3: for ideological reasons, or they think it's just something that's happening,
Speaker 3: and it's not it's not happening. You know what else
Speaker 3: isn't happening. It's us not plugging these products and services.
Speaker 2: I think we do legally have to plug them. So
Speaker 2: here they are. Here's the plugs for the products end services.
Speaker 3: All right, now that you've decoupled yourself from your money
Speaker 3: to buy these products and services, let's let's talk a
Speaker 3: little bit more about why decoupling is fucking bullshit. One,
Speaker 3: and I've been to something I've been saying on the
Speaker 3: show for years, like people have this sort of fantasy
Speaker 3: that what's happening is that, Okay, instead of making your
Speaker 3: thing in China, you make your thing somewhere else. And
Speaker 3: this means that American companies no longer have the supply
Speaker 3: change running through China. That's not what's happening at all.
Speaker 3: On the financial front, what you have is actually increasing
Speaker 3: integration as China attempts to sort of like you know,
Speaker 3: has been lifting restrictions on the ownership of different types
Speaker 3: of corporations to make it easier for foreign owners to
Speaker 3: actually come in and invest and put capital in China.
Speaker 2: Right.
Speaker 3: The second thing that's happening is a lot of these
Speaker 3: supposedly like we're cutting China out of the supply chain.
Speaker 3: Things have been a bunch of Chinese companies starts starting
Speaker 3: to set up production in Mexico. Now, the thing about that, right,
Speaker 3: if Mexico was supposed to be the fucking panacea forgetting
Speaker 3: it out of these tariffs, remember that Trump was talking
Speaker 3: about two hundred percent tariffs on Mexico, and that's the
Speaker 3: country that's supposed to like fucking get us out of
Speaker 3: this mess by like, Oh, we'll be fine because like
Speaker 3: production will just shift away from China to like to
Speaker 3: where like a lot of a lot of the assumptions
Speaker 3: I was reading was like people were talking about, oh,
Speaker 3: the production will like twenty five percent of production will like.
Speaker 2: Shift to Canada. It's like, no, it won't.
Speaker 3: Just Canada doesn't have the fucking production facilities to do
Speaker 3: They're like, what are you talking about, Like.
Speaker 2: Canada doesn't have the population to do that. No, it doesn't.
Speaker 2: This is this sort of problem, right, you know.
Speaker 3: On the one hand, you know, China has been de
Speaker 3: industrializing for like a decade and a half now, right
Speaker 3: and kind of slowly, but there's the percentage of the
Speaker 3: population that's working in manufacturing has been steadily decreasing for
Speaker 3: years and years and years and years. But the problem
Speaker 3: is that when you move production out of a place,
Speaker 3: you actually have to have a second place to produce it,
Speaker 3: and there just haven't been right like you, it's it's
Speaker 3: pretty easy to move low end manufacturing. This is what's
Speaker 3: been happening, right, Like really cheap garment stuff, for example,
Speaker 3: has been has a moving to places like.
Speaker 2: Bangald in Vietnam for a while. But once you start
Speaker 2: getting into the stuff that China produces like the most
Speaker 2: of right, which is things like fucking cell phones, sort
Speaker 2: of mid tier commodity production that gets way way, way,
Speaker 2: way way harder. No, but the Chips Act will save us. Me.
Speaker 2: I heard it from everyone on the television. I just
Speaker 2: got this.
Speaker 3: This is the sort of thing about this, right is
Speaker 3: if you look, if you read the analysis that people
Speaker 3: are doing of this, they just sort of assume that
Speaker 3: you can just like, oh well, like naturally a bunch
Speaker 3: of the consumption that Americans are doing will stay the
Speaker 3: same because they'll go buy goods that aren't produced in China.
Speaker 3: It's like, okay, like where where are you finding these
Speaker 3: goods from? Like what production facilities are you? Just like
Speaker 3: suddenly that have just been like sitting there fallow are
Speaker 3: just suddenly gonna like a peer out of nowhere, And
Speaker 3: the answer is like, that's not gonna happen, And it's not.
Speaker 3: It's not going to happen, partially because they don't exist.
Speaker 3: Partially because again, the immediate consequence of this is a
Speaker 3: massive economic labs. China's economy has already been slowing for
Speaker 3: the like basically, I mean it's been slowing.
Speaker 2: Since like two thousand and eight. Really wow, I see.
Speaker 3: That's an eleven kind of but it's especially been slowing
Speaker 3: in the past two or three years because of sort
Speaker 3: of cover restriction stuff and also just a kind of
Speaker 3: lackluster rate of returns on their own like they had
Speaker 3: their own version of the two thousand and eight housing
Speaker 3: bubble and that's annihilated and an unbelievable amount of money
Speaker 3: because it turns out investing in real estate doesn't work
Speaker 3: as his basis for your economy. But like that's the thing, right,
Speaker 3: If the Chinese economy fucking goes down, right, that's like
Speaker 3: that's seventeen percent of the world's GDP. Seventeen yeah, of
Speaker 3: the total GDP, right, And it's like the economy isn't
Speaker 3: national in a way where you can have an economic
Speaker 3: collapse in another country, in just a country that's that
Speaker 3: large and ignore it. And the thing I want to
Speaker 3: close on, and the reason we know that this is
Speaker 3: true is that it is actually possible kind of to
Speaker 3: restart america domestic manufacturing, right. Reagan was able to do
Speaker 3: it in the eighties. And Reagan did it through this
Speaker 3: thing called the Plaza Accords where he basically he didn't
Speaker 3: literally put the prime ministers of Japan and West Germany
Speaker 3: at gunpoint, but he basically put them at gunpoint and
Speaker 3: force them to increase the value of their currencies so
Speaker 3: that the US currency would devalue, which would admit which
Speaker 3: makes it like a more competitive export economy. And this
Speaker 3: actually brought back American manufacturing for a while until it
Speaker 3: had to all be reversed under the Clinton administration and
Speaker 3: the reverse Plaza Accords, because the problem was when you
Speaker 3: sort of nuked the zero sum manufacturing of a country
Speaker 3: like Japan, their fucking economy didn't work anymore. And in
Speaker 3: order to sort of bail out the Japanese economy and
Speaker 3: stop just a sort of world running economic collapse, it
Speaker 3: would have just like tore the absolute shit out of
Speaker 3: the economy. The US had to fucking reincrease the value
Speaker 3: of its currency and lose its whole domestic production base.
Speaker 2: Right. You can't actually increase a production base in the
Speaker 2: world right now without decreasing it somewhere else, and that
Speaker 2: has sort of staggering ripple economic effects for the entire
Speaker 2: global economy, which is why even if Trump's plan worked
Speaker 2: somehow and didn't immediately cause an economic collapse by like
Speaker 2: the direct effect on American consumers, it would cause another
Speaker 2: economic collapse by the effect on fucking people in China.
Speaker 2: So well, Mia, I think you might be overreacting here
Speaker 2: a little bit, because at least food will be available, obviously,
Speaker 2: and I learned this on X My main source for
Speaker 2: news is that agriculture almost all done in the States,
Speaker 2: so we should be fine, Like, we'll still be able
Speaker 2: to eat food, right, I say, staring.
Speaker 3: No to the voice, No, you can't, because, unfortunately, think
Speaker 3: about American agricultures. It's all fucking mechanized agriculture. The thing
Speaker 3: about mechanized agriculture is that you need the mechanized part,
Speaker 3: and that's all fucking produced either in other countries or
Speaker 3: the John Deere fucking like, tractor factories in the US
Speaker 3: are all unbelievably reliant on a bunch of parts that
Speaker 3: are made overseas.
Speaker 2: So also, we do import a great deal of food,
Speaker 2: well we do. Yeah, even just talking about the food
Speaker 2: that we produce here, right, Like, that's also gonna be fun.
Speaker 2: I wonder, I wonder where your strawberries in November are
Speaker 2: coming from. I think the other thing to keep in
Speaker 2: mind here is that this is only one aspect of
Speaker 2: how Trump will impact the economy. Obviously, his immigration policies
Speaker 2: could serve a similarly large financial problem if a whole
Speaker 2: bunch of agricultural jobs suddenly kind of vanish, and farms
Speaker 2: and other processing plants just to go out of business
Speaker 2: due to a lack of workers. And even some people
Speaker 2: on Trump's team have started to acknowledge this, mostly Elon Musk,
Speaker 2: who has openly said that Trump's term will involve some
Speaker 2: quote temporary hardship, so between tariffs and mass deportations. Like,
Speaker 2: even people on his team know that this is going
Speaker 2: to damage the economy, especially in the short term, if
Speaker 2: not the like forever term. Yeah, and yet he was
Speaker 2: still elected as the economically viable candidate.
Speaker 3: Yeah, and I think the last part we should say,
Speaker 3: and this is it's not that you can't like fucking
Speaker 3: obliterate a giant portion of the American economy is still
Speaker 3: come out extremely popular because because you've crushed the American
Speaker 3: working class like that, that's what Reagan did, right, Like
Speaker 3: Reagan and the Vulgar Shocks did this enormous. I mean,
Speaker 3: just put a crater in the American economy in Reagan's
Speaker 3: first term, Like there's skyrocketing unemployment, just like real, real
Speaker 3: sort of economic devastation. But the thing about the Vulgar
Speaker 3: Shock was that the way he blew up the economy
Speaker 3: was really really good for people who like fucking owned assets,
Speaker 3: like people who like owned bonds, like people like people
Speaker 3: who held other people's debt. He was great for those people.
Speaker 2: And like the burgeoning investment economy which now kind of
Speaker 2: dominates our entire economic system. Yeah, and it was incredible
Speaker 2: for those people. And so it was fine.
Speaker 3: But the think about this economic collapse that this is
Speaker 3: also going to just absolutely fuck up the days of
Speaker 3: a bunch of extremely wealthy and influential capitalists. So including
Speaker 3: by the way, Elon Musk, who's Tesla's are produced.
Speaker 2: In China, like he has a gigafactory. He's a gigafactory
Speaker 2: in shing John. So we'll see if Trump actually is
Speaker 2: able to implement this stuff. I think he able to
Speaker 2: on a policy level. It's just politically, can he actually
Speaker 2: do these tariffs? Yeah, it's it's it's unclear. It's also
Speaker 2: unclear what exact numbers he's gonna run with. A ten
Speaker 2: percent tariff will still be bad, but it's nothing compared
Speaker 2: to one hundred percent tariff. I think Trump by and
Speaker 2: large just says whatever comes into his head without thinking
Speaker 2: through the actual logistical ends of what he's saying. And
Speaker 2: I think most Trump's supporters do not take him literally
Speaker 2: as a person, at least they don't take what he
Speaker 2: says necessarily literally all the time. They take him seriously,
Speaker 2: but perhaps not literally.
Speaker 3: Yeah, so we'll have to see how this actually plays out.
Speaker 3: If it does play out in the ways that Trump
Speaker 3: has said that it is going to play out, it
Speaker 3: is going to just unbelievably tank the economy in ways
Speaker 3: that absolutely suck. So, yeah, that's that's happening here in
Speaker 3: the future. Maybe that's the name of the podcast, right.
Speaker 2: So stock up on your PS fives now. Before they
Speaker 2: get harder to buy, and it'll be fine, Yeah, they'll
Speaker 2: be There'll be nothing bad that happens to the economy
Speaker 2: as long as you have your PS fives. Yeah.
Speaker 3: People always want fucking books to the end of episodes,
Speaker 3: so I'm just putting books at the end of episodes.
Speaker 3: This is my plugging Chwang Chua Andng. We'll help, We'll
Speaker 3: put it in the description. It's a bunch of stuff
Speaker 3: about Chinese economics. Mostly it's a sort of economic history
Speaker 3: of visionally the socialist period and the transition to capitalism.
Speaker 3: But it also has a bunch of very very good stuff.
Speaker 3: I'm trying to understand the Chinese economy. And so if
Speaker 3: you want to be about ten years ahead of like
Speaker 3: guys you write for the economists, if you read Chwang,
Speaker 3: you will end up being like ten years ahead of
Speaker 3: those guys.
Speaker 2: So yeah, great stuff.
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Speaker 1: Listed directly in episode descriptions. Thanks for listening,