Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Old Blots podcast.
Speaker 2: I'm Tracy Allaway.
Speaker 3: And I'm Joe. Why isn't thal Joe?
Speaker 2: We are recording this in August twenty twenty four, which
Speaker 2: means there's only six years to go. Six years to
Speaker 2: what six years until? According to John Maynard Keynes, we
Speaker 2: will have an era of abundance.
Speaker 4: Right.
Speaker 2: He wrote in nineteen thirty that he thought technological development
Speaker 2: would mean in one hundred years, which would be twenty thirty,
Speaker 2: that we would have a plethora of goods and elevated
Speaker 2: living standards and reduced working times and everything will be great.
Speaker 2: So I'm excited.
Speaker 5: Yeah, I think I can hang on with the sort
Speaker 5: of charge and toil scarcity mindset for another six years.
Speaker 3: Then we were reached nirvana here on earth.
Speaker 2: I mean, to be fair, he did sort of caveat.
Speaker 3: It, and I say, I have no idea where you're
Speaker 3: going with this.
Speaker 2: Yeah, okay, I promise I have a point and you're
Speaker 2: actually going to remember it in a second. But first
Speaker 2: I'm going to say that Caines did caveat his forecast,
Speaker 2: and he basically said, as long as there are no
Speaker 2: big wars or population booms. And that was in nineteen
Speaker 2: thirty so, you know, bad timing for both wars and
Speaker 2: population boos.
Speaker 3: So yeah, a few things happened. Maybe we've got to
Speaker 3: kick it back another fifty.
Speaker 2: Years, okay, But my point is, you know, in twenty
Speaker 2: twenty four, it feels like instead of abundance, there is
Speaker 2: very much And you touched on it just then this
Speaker 2: focus on scarcity. So maybe we have like, yeah.
Speaker 3: We love done here, Tracy, thank you.
Speaker 1: So maybe we.
Speaker 2: Have a lot of different types of goods that are
Speaker 2: available to us now, you know, I can go buy
Speaker 2: a pretty cool TV for not that much money. But
Speaker 2: in the past four years or so, we have seen
Speaker 2: shortages of very important items that have emerged.
Speaker 5: Yeah, and I would classify this into sort of two
Speaker 5: categories in my head, which is that there was sort
Speaker 5: of the acute scarcity of specific things that we saw
Speaker 5: during the COVID shock, and so you know, there were
Speaker 5: things like oh, suddenly we have a scarcity of protective
Speaker 5: equipment for doctors, or a certain type of lagging edge
Speaker 5: chip that went into automobiles, certain things like that that
Speaker 5: really became like scarce in that moment. But then I
Speaker 5: would say that maybe awakened a consciousness that we have
Speaker 5: these long term scarcities that are strategic in nature. So
Speaker 5: suddenly people worried about, well, do we have the minerals
Speaker 5: that we need in order to build out a domestic
Speaker 5: electric vehicle supply chain, do we have the industrial to
Speaker 5: build out things like semiconductors, concerns about the medical supply chain.
Speaker 5: And these are like long term strategic questions that aren't
Speaker 5: just related to sort of that exogenous shock that we
Speaker 5: got in March twenty twenty.
Speaker 2: Absolutely, and you just mentioned industrial capacity there. It does
Speaker 2: feel like governments around the world, and certainly the US,
Speaker 2: have become more active in how they manage some of
Speaker 2: these concerns. And I don't know if you remember, but
Speaker 2: back in twenty twenty, I think I frame this as
Speaker 2: like the choke point economy, where people become more concerned
Speaker 2: about the relative flow of goods and the idea of
Speaker 2: choke points in specific supply chains that sort of cascade
Speaker 2: through the rest of the economy. That was before we
Speaker 2: all started talking about the resurgence of industrial policy, but like,
Speaker 2: this is kind of what we're talking about.
Speaker 5: And then I think the other really important dimension here,
Speaker 5: and it fits right into what you're saying, is that
Speaker 5: we're seeing when it comes to things like industrial policy
Speaker 5: or reindustrialization, or this effort to build up semiconductor capacity.
Speaker 5: Part of it is sort of like pure economics, but
Speaker 5: is where you get this real intersection of economics and
Speaker 5: international security geopolitical anxiety, because a lot of this stuff
Speaker 5: is like building up capacity domestically in areas in which
Speaker 5: possible strategic rivals are independence of our.
Speaker 2: Right, and then of course how do you balance strategic
Speaker 2: independence with the risk of autarchy?
Speaker 3: Right, that's right.
Speaker 2: So I'm very pleased to say that we're getting back
Speaker 2: to our CIRCU twenty twenty roots. We're going to be
Speaker 2: talking about supply chains and a lot of other interesting things.
Speaker 2: But we really do have the perfect guest. We are
Speaker 2: going to be speaking with Deleep Seeingh. He is, of
Speaker 2: course the Deputy National Security Advisor for International Economics in
Speaker 2: the Biden administration. He's also the Deputy Director of the
Speaker 2: National Economic Council. He previously worked at Treasury and the
Speaker 2: New York Fed and Goldman and p Jim. So truly
Speaker 2: the perfect lots guest. Delip, thanks so much for coming
Speaker 2: on the show.
Speaker 4: Nice to be with you, Tracy and Joe.
Speaker 2: I think you are also the first all lots guests
Speaker 2: that might be coming to us from a secured, confidential
Speaker 2: room in the White House. So that's why the audio
Speaker 2: sounds a little bit different.
Speaker 4: Glad to be a pioneer. Yeah, you can, you can
Speaker 4: rest assured the line of secure.
Speaker 2: Okay, So I mentioned your career summary and it is
Speaker 2: very long. I just want to make sure did I
Speaker 2: hit all the important talking points? What have you been
Speaker 2: doing up until this particular moment.
Speaker 4: Yeah, I mean it's kind of a nonlinear career path.
Speaker 4: Some might say an incoherent one. But yes, I've spent
Speaker 4: roughly half of my career in the private sector, first
Speaker 4: in the tech boom during the nineties, then in financial
Speaker 4: markets at Goldman as the world hyper globalized during the
Speaker 4: two thousands, and then after the Financial Crisis of eight
Speaker 4: I've mostly been in government service at the Treasury, FED
Speaker 4: and now at the White House, excluding a year and
Speaker 4: a half at PGM as the Global Chief Economist and
Speaker 4: a similar type of role during the early Trump years.
Speaker 4: But really, the way I make sense of it is
Speaker 4: I've just my careers lived at the intersection of economics, geopolitics,
Speaker 4: and markets. It's essentially what I studied as an undergrad.
Speaker 4: Also in grad school. I actually thought, coming out of
Speaker 4: grad school, I might start a company in a developing
Speaker 4: country that could do well and maybe do some good.
Speaker 4: But my timing was pretty terrible. I was coming out
Speaker 4: of grad school in two thousand and three just after
Speaker 4: the dot com bubble had burst, and the moment wasn't
Speaker 4: exactly right for someone like me to get funded. And
Speaker 4: I also had hundreds of the hundreds of thousands of
Speaker 4: dollars in debt, so I grambled and took the only
Speaker 4: offer that was made to me, which was at Goldman Sachs.
Speaker 4: But you know, it gave me a particular lens through
Speaker 4: which to view the world, and over time I realized
Speaker 4: that sometimes you can see the world most clearly through
Speaker 4: the lens of markets, but I wanted to have I mean,
Speaker 4: I recognize that sometimes that lens can get distorted, and
Speaker 4: at other time it's better to look at the world
Speaker 4: through the lens of geopolitics or economics or technology. And
Speaker 4: my aspiration was to acquire as many lenses as possible.
Speaker 4: You know, if you want to make a push on
Speaker 4: the world, towards what it should be. You first have
Speaker 4: to see it for what it is.
Speaker 2: Joe, this is how I ended up at Bloomberg for
Speaker 2: my first job. They were the only news organization in
Speaker 2: London that was actually paying their interns, and so there
Speaker 2: you go, I realized I needed money.
Speaker 5: No, but the way you describe your career, you know,
Speaker 5: if you want to change the world, you first have
Speaker 5: to understand it. I think is like a like Tracy said,
Speaker 5: the perfect odd lots guests, especially given your private sector roles,
Speaker 5: public sector roles, economics, politics and markets, economics, geopolitics and markets,
Speaker 5: all the things that were interested. What does a Deputy
Speaker 5: National Security Advisor for international economics do?
Speaker 3: What is that role?
Speaker 4: Yeah, So basically it's to take on challenges that are
Speaker 4: at the intersection of economics and national security, whether they're
Speaker 4: domestic or or international. And the premise is that economic
Speaker 4: security is national security and vice versa. So if we're
Speaker 4: going to have strength at home, then we need to
Speaker 4: heal our divisions and revitalize our economy. That's what allows
Speaker 4: us to lead abroad. And if we can lead abroad
Speaker 4: from a position of strength, we'll create a safer, more
Speaker 4: prosperous world that reinforces all of our efforts at home.
Speaker 4: So I mean to bring it to life. Yeah, let
Speaker 4: me just give you an example of a few examples
Speaker 4: of what I do and no particular order. How can
Speaker 4: we launch a positive democratic alternative to the belt Road initiative?
Speaker 4: Can we design sanctions that change the calculus of Putin
Speaker 4: on prosecuting his war in Ukraine? Can we unlock the
Speaker 4: value of the Russian Central Bank reserves that we froze
Speaker 4: for the benefit of Ukraine as it fights for freedom.
Speaker 4: Can we design export controls in a way that don't
Speaker 4: dull the incentive for innovation You were talking about this
Speaker 4: in your opening, without seeding our crown technological jewels to
Speaker 4: a strategic adversary. Can we help to break the dead
Speaker 4: impact in the developing world to showcase our value proposition
Speaker 4: to countries that might be skeptical about our intentions? And
Speaker 4: then the passion project for me really is, can we reimagine,
Speaker 4: invent or revitalize the tools and institutions of American financial firepower?
Speaker 4: Because I mean, my view is we're living in the
Speaker 4: most intense period of geopolitical competition, at least since the
Speaker 4: Cold War ended. Maybe going much further back, and since
Speaker 4: the great powers of today are also nuclear powers, you know,
Speaker 4: barring catastrophic miscalculation, the logic of mutually assured destruction probably
Speaker 4: suggests that when confrontation occurs, it's less likely to play
Speaker 4: out on the military battlefield than it will in the
Speaker 4: theater of economics and technology. So we'd better go into
Speaker 4: this competition well armed, and we need to actually think
Speaker 4: really hard about how to.
Speaker 3: Do that cracy. We might get to this later, but
Speaker 3: one area that it might play out as in the
Speaker 3: Arctic circle.
Speaker 2: Oh yes, well, we should definitely talk about that. I'm
Speaker 2: trying to think of an elegant seg from mutually assured
Speaker 2: destruction back to supply chains, but I'll just do it, okay.
Speaker 2: So in twenty twenty, during the pandemic, we kind of
Speaker 2: woke up to the risk of supply chain disruptions and
Speaker 2: we saw a variety of things both big and small
Speaker 2: in terms of importance. So everything from I guess gatorade
Speaker 2: to the needles needed for vaccines and things like that.
Speaker 2: Suddenly there was a shortage. How do you in your
Speaker 2: position even begin to identify potential risks in the supply chain,
Speaker 2: and how do you go about evaluating their relative strategic importance.
Speaker 4: Yeah, so I mean this term, this phrase that gets
Speaker 4: thrown around supply chain resilience. I really think our task
Speaker 4: is to go beyond the abstractions and try to get
Speaker 4: into what it means in practice. And the context really matters,
Speaker 4: because the effort to revitalize our supply chain resilience, it's
Speaker 4: happening in the context of a multiplayer, multi stage geopolitical
Speaker 4: competition that's playing out across the world. So let me
Speaker 4: try to explain what I mean. So when people use
Speaker 4: this term supply chain resilience, the first question that we
Speaker 4: ask is resilience against what kind of shocks? Because they
Speaker 4: could be economic shocks, they could be geopolitical, climate health,
Speaker 4: all of the above. And each of these shocks, if
Speaker 4: they occur individually or collectively, they impose different kinds of
Speaker 4: stress on supply chains. So first, resilience against what? And
Speaker 4: then the second question is how do you define resilience.
Speaker 4: It comes in many different forms. It could be production capacity,
Speaker 4: It could be diversification of suppliers and buyers, you know,
Speaker 4: it could be having sufficient stockpiles that could plausibly absorb
Speaker 4: an exogenant shock, or it could be supply chain agreements
Speaker 4: with trusted partners that can surge capacity when the good
Speaker 4: or technology is scarce at home. And so, you know,
Speaker 4: what we have to evaluate now is should we think
Speaker 4: of these forms of resilience as economically equivalent or politically equivalent?
Speaker 4: And then is it really resilience that we're after? You know,
Speaker 4: maybe resilience is appropriate for certain supply chains, like you
Speaker 4: mentioned masks. In that category of good, you could argue
Speaker 4: we have no comparative advantage and margins are quite low,
Speaker 4: and so maybe resilience is the right word. But maybe
Speaker 4: resilience isn't really enough for a supply chain in which
Speaker 4: we have a clear national security nexus, like leading edge semiconductors,
Speaker 4: where the barriers to entry are very high, the economies
Speaker 4: of scale are very large, and you really want dominance.
Speaker 4: So I think there's a continuum between resilience and dominance,
Speaker 4: and you have to decide where do you want to
Speaker 4: be on that continuum. And then the fourth step is
Speaker 4: once once we define what we mean by resilience and
Speaker 4: we clarify with ourselves and our partners, is it really
Speaker 4: resilience we're after in this supply chain? What are the
Speaker 4: tools that we have and that we can deploy. Some
Speaker 4: of them are regulatory, that could be procurement, could be
Speaker 4: multilateral agreements, could be stockpiles. You know, it could be
Speaker 4: changed to our immigration policy. And then the last question,
Speaker 4: this is the hardest one, and this is where we
Speaker 4: really have to build our analytical muscles within the US government,
Speaker 4: is can we stress test and simulate if we use
Speaker 4: our tools in the way that's optimal for the United States,
Speaker 4: and we make assumptions about what our adversaries do, and
Speaker 4: then also non aligned countries and allies and partners, if
Speaker 4: we make assumptions about how that plays out over the
Speaker 4: course of five or ten years, are we net better
Speaker 4: off in equilibrium? That's the framework that I think we're
Speaker 4: trying to apply in every supply chain, and every supply
Speaker 4: chains a different story. I mean, there's some kind of
Speaker 4: Tolstoy logic behind it. And so pick a supply chain
Speaker 4: and we can get into the details.
Speaker 5: I'm really looking forward to getting into details and specific
Speaker 5: mechanisms and.
Speaker 3: Tools you have.
Speaker 5: I just want to you know, when you think about
Speaker 5: these like long term, we don't make five year plans
Speaker 5: in the US, in part because we don't know who's
Speaker 5: going to be in power in a year from now,
Speaker 5: and there's always changing. How do you think about at
Speaker 5: the abstract level or the big picture level, how do
Speaker 5: you think about the challenge of long term planning for
Speaker 5: some of these areas in a political system that is
Speaker 5: inherently by design, very volatile.
Speaker 4: It's very hard. About four decades have passed since we
Speaker 4: really practiced industrial policy in the United States, and some
Speaker 4: of those muscles that we used to have they've atrophied.
Speaker 4: And so that's what I was referencing when I said,
Speaker 4: we really do need to build an analytical infrastructure that's
Speaker 4: fit for purpose. Now it may be that the political
Speaker 4: judgments that are made, even with the best analysis, are
Speaker 4: going to take us in a very different place than
Speaker 4: the analysis would suggest we should. But we first have
Speaker 4: to do our homework. If we have tools that can
Speaker 4: boost our supply chain resilience, really you can apply the
Speaker 4: use of tools to any kind of geopolitical objective, not
Speaker 4: just supply chain resilience. Can we take inventory of all
Speaker 4: of those tools, When have they worked well when they're
Speaker 4: used alone or in tandem, when they're used unilaterally versus
Speaker 4: multilaterally with allies and partners. What are the limitations of
Speaker 4: using those tools, What are the trade offs? What are
Speaker 4: the spillovers? And then I don't think we have good
Speaker 4: models yet for thinking about how we're left in a
Speaker 4: if you want to think about it in a general
Speaker 4: equilibrium sense, if we deploy the tools that we have
Speaker 4: and they play out in the manner that we expect,
Speaker 4: how do we think about whether we're not better off
Speaker 4: when we consider how our adversaries might respond, or allies
Speaker 4: or partners or not aligned countries. Those models don't exist.
Speaker 4: I mean, I don't think you can use the fed's
Speaker 4: large scale general equilibrium models to find an answer. We
Speaker 4: have to invent those. So that's just the analysis part.
Speaker 4: And I think we have to build, my mind, a
Speaker 4: multidisciplinary swat team of sorts, with different kinds of expertise
Speaker 4: and a variety of disciplines I mean microeconomics, macro financial forensics,
Speaker 4: trade finance, diplomacy, international law, domestic law. And that's going
Speaker 4: to take time to build. Ultimately, though, I mean, you're
Speaker 4: asking the question of what happens if you have an
Speaker 4: abrupt political shift and we no longer stick to the
Speaker 4: plan that might have been imagined by a previous administration.
Speaker 4: That is a feature of democracy. You can look at
Speaker 4: it as a bug because we can't make long term
Speaker 4: plans in the way that an autocracy can. But it
Speaker 4: also prevents us from making big mistakes. You could argue,
Speaker 4: we have these checks and balances and we have to convince.
Speaker 4: I mean, a lot of the work that I think
Speaker 4: I do our team performs it should have bipartisan appeal.
Speaker 4: We think all the time about how do we sustain
Speaker 4: our technological pre eminence, how do we ensure that we
Speaker 4: have energy security, how can we shore up our resilience
Speaker 4: and critical supply chains. I don't think of those as
Speaker 4: being inherently partisan issues. Of course, they become part of
Speaker 4: the theater, but in their essence, we're just trying to
Speaker 4: think about what are the long term strategic objectives of
Speaker 4: this country, putting aside the politics of the day.
Speaker 2: Okay, So, in the spirit of moving away from abstraction
Speaker 2: about you know, catchphrases like supply chain, resilience and things
Speaker 2: like that, can you maybe give us a specific example
Speaker 2: of what you've done to shore up a specific thing
Speaker 2: or even service, walk us through the process of identifying
Speaker 2: it as something that is worth the government's time and
Speaker 2: effort to coming up with particular solutions and evaluating those
Speaker 2: different solutions versus the problem.
Speaker 4: Yeah. Sure, I mean, I'll give you a recent example
Speaker 4: from actually from last month. It's the polar Icebreaker deal.
Speaker 4: So on the sidelines of the NATO summit, the deal
Speaker 4: was President Biden and his counterparts in Finland and Canada.
Speaker 4: They announced the deal called the ice Pack, the ice
Speaker 4: Breaker Collaboration Effort. And here's the backdrop. I mean, the
Speaker 4: North Pole is warming rapidly. It's warming four times faster
Speaker 4: than the rest of the world. That means the Arctic
Speaker 4: ice is melting, and the melting accelerates the warming because
Speaker 4: the sea absorbs the heat from sunlight, whereas ice reflects it.
Speaker 4: And less ice means more Arctic shipping lanes that have
Speaker 4: shorter transits that bypass choke points in the Suez or
Speaker 4: Panama Canal. And less ice also means more commercial opportunity
Speaker 4: if you want to extract critical minerals or lay undersea
Speaker 4: data cables in the Arctic. And then it also creates
Speaker 4: and this is where my role at the intersection of
Speaker 4: economics and national security comes in. It creates geopolitical space
Speaker 4: to project military power, and Russia and China both have
Speaker 4: high ambitions in the Arctic. With a larger surface fleet
Speaker 4: that will be able to navigate the Arctic in ways
Speaker 4: that it couldn't when there was more ice. But for
Speaker 4: any of those opportunities to be realized, you need ice breakers.
Speaker 4: We only have two of them. Both of those ice
Speaker 4: breakers were built in the nineteen seventies. They're both past
Speaker 4: their service life, and it's taking a long time and
Speaker 4: a lot of money to replace these ice breakers and
Speaker 4: build a full US fleet to take advantage of the
Speaker 4: opportunities I mentioned. So that means we have to rebuild
Speaker 4: our productive capacity in building this highly specialized, highly complex
Speaker 4: niche of ships called polar ice breakers. And if you
Speaker 4: want to do that, you first have to have no
Speaker 4: how and expertise. You probably need to have economies of
Speaker 4: scale to make it financially viable, and then you need
Speaker 4: a steady demand signal to justify the upfront costs and
Speaker 4: capex and also investments in the workforce. Well, this is
Speaker 4: where your allies matter. Friends matter. So enter Finland. It's
Speaker 4: a newly minted NATO ally right. It joined after Russian
Speaker 4: invaded Ukraine. It's widely recognized as the world's best designer
Speaker 4: and leading producer of polar ice breakers. You may have
Speaker 4: heard at some point about the Helsinki Shipyard. It's actually
Speaker 4: produced more than half of the world's total fleet. Canada
Speaker 4: is also a leading player, and actually one of its
Speaker 4: firms bought the Helsinki shipyard after its previous owners, a
Speaker 4: couple of Russian oligarchs were caught up in sanctions after
Speaker 4: Putin invaded Ukraine. So this gets really interesting. And the
Speaker 4: deal we announced at NATO is for Finland and Canada
Speaker 4: to share their expertise with US and make investments in
Speaker 4: US shipyards to grow our collective production capacity to build
Speaker 4: ice breakers. And what do they get. Well, in exchange,
Speaker 4: we agree to integrate our ice breaking supply chains so
Speaker 4: that they are interoperable at every stage of production. And
Speaker 4: then ultimately our vision collectively all three countries, it's to
Speaker 4: create a suppliers club that can capture a greater share
Speaker 4: of the global order book. And it's a big global
Speaker 4: order book. There's a long list of allies and partners
Speaker 4: that understand what's happening in the Arctic and they want
Speaker 4: to build ice breakers for the same reasons that we do,
Speaker 4: but they don't have a shipyard. And our best estimate
Speaker 4: is that the global total global demand for ice breakers
Speaker 4: over the next decade from allies and partners is between
Speaker 4: seventy and ninety vessels. That's a lot. And so if
Speaker 4: we can pull this off, we get three benefits at once.
Speaker 4: We revitalize our capacity to innovate and produce at scale
Speaker 4: in a key industrial segment number one. Number two, we
Speaker 4: safeguard our national security and project power in a key
Speaker 4: geostrategic region number two. And then number three, it's not
Speaker 4: zero sum. You know, we strengthen our allies and partnerships
Speaker 4: as we execute this deal. That's not a bad trifecta.
Speaker 5: What happened to you as shipbuilding capacity in general, that
Speaker 5: it's become so constrained or atrophied. And when you talk
Speaker 5: about this agreement with Canada and Finland, what kind of
Speaker 5: numbers and concrete mechanisms are there other than just obviously
Speaker 5: the handshake or the agreement to do something.
Speaker 4: Our shipbuilding industry is atropheed. Over the course of decades,
Speaker 4: we began to outsource, just like in many other industries
Speaker 4: in which there's a large upfront capex investment required and
Speaker 4: low margins. We outsourced that type of business overseas. So
Speaker 4: China became the dominant player in large part because of
Speaker 4: the degree of subsidies that they deploy to their shipbuilding industry,
Speaker 4: and Japan and Korea were left as the only other
Speaker 4: major global players, and that created a major economic and
Speaker 4: geopolitical vulnerability that has been exposed in recent years. Now
Speaker 4: we could decide should we compete writ large in shipbuilding.
Speaker 4: I think we should, but we have to start somewhere.
Speaker 4: And so what we're doing is picking a niche that
Speaker 4: plays to our competitive strengths, because, as I mentioned, this
Speaker 4: is a this is a highly specialized niche, the one
Speaker 4: that I'm describing with polar ice breakers requires a lot
Speaker 4: of technology. Finland and Canada are best in class, and
Speaker 4: if they're willing to partner with us and share with
Speaker 4: us and rebuilding our productive capacity, that's why this deal
Speaker 4: makes sense. In terms of the numbers we're actually working
Speaker 4: on an MoU, I can't give you the exact numbers,
Speaker 4: but I mean I would go back to the Global
Speaker 4: order book that I mentioned. There are seventy to ninety
Speaker 4: ice breakers that the likes of India and Brazil and
Speaker 4: Argentina and Chile and Sweden many countries one ice breakers.
Speaker 4: We want to be their supplier of choice. All three
Speaker 4: of our countries do. And so instead of building two
Speaker 4: ice breakers in the past fifty years, we want to capture,
Speaker 4: you know, let's say ten twenty thirty ice breakers of
Speaker 4: demand over the next decade. And you can only have
Speaker 4: the kind of investments and workforce development that I'm describing
Speaker 4: if you have that sort of demand signal.
Speaker 2: So you mentioned strengthening cooperation with our allies through some
Speaker 2: of these initiatives, and you know, I take the point
Speaker 2: when it comes to things like icebreakers, but certainly in
Speaker 2: some areas where we've identified strategic importance or a particular
Speaker 2: industry that we do want to build up. I'm thinking
Speaker 2: specifically about domestic electric vehicle manufacturing, there is sometimes a
Speaker 2: tension between building up our own domestic capacity and our
Speaker 2: own independence supply versus the interests of some of our
Speaker 2: allies and specifically Europe in that case, Can you talk
Speaker 2: a little bit about how you balance those competing interests.
Speaker 4: Yeah, I mean so, I'm glad. I mean EV's that's
Speaker 4: a great example because you could generalize the challenge we're
Speaker 4: facing an EVS to the entire tradable good sector. And
Speaker 4: I mean the problem confronting the world, not just the US,
Speaker 4: is that China's production trajectory it's set to flood the
Speaker 4: world well beyond what global demand can plausibly absorb. And
Speaker 4: it's not a new problem. We've seen China run this
Speaker 4: play for the better part of the last two decades.
Speaker 4: It's how China has gained dominance and steel and solar
Speaker 4: and wind and medical devices, machine tools. But now the
Speaker 4: trend is broadening, it's intensifying, it's moving up the value chain.
Speaker 4: So evs are a good example of how they're doing so,
Speaker 4: but semiconductors or batteries would be other good examples. And
Speaker 4: the starting point is one of the worrisome aspects because
Speaker 4: China already accounts for thirty percent of the world's manufacturing
Speaker 4: sector and value added terms, and that's more than the
Speaker 4: US and Germany, Japan, India, and Mexico combined. And look
Speaker 4: China's dominance, if it's growing dominance of these sectors was
Speaker 4: merely the result of indigenous innovation and market forces, you know,
Speaker 4: we should apply, we should applaud the positive spillovers that
Speaker 4: would accrue to the rest of the world. But The
Speaker 4: reality is that the China is competing with massive state support.
Speaker 4: It's beyond anything we've seen in any other industrialized economy,
Speaker 4: and you can see it. I mean, we could talk
Speaker 4: through the metrics. There are volume based metrics, nominal metrics,
Speaker 4: financial results from its exporters. You could measure the scale
Speaker 4: of policy support directly. You could look at market structure
Speaker 4: and how much it's concentrated. You arrive at the same conclusion.
Speaker 4: And so your question is the right one. How do
Speaker 4: we confront that challenge without alienating allies? And we've tried
Speaker 4: to articulate three levers that we deploy and which lever
Speaker 4: you deployed and to what extent. It's more empirical than ideological.
Speaker 4: But the first lever is, yes, we are going to
Speaker 4: make investments at home to strengthen and scale up our
Speaker 4: productive capacity. I mean much in the way that I
Speaker 4: described for the Icebreaker deal. And that's an R and
Speaker 4: D and infrastructure and technology and manufacturing. It's also the
Speaker 4: size and skills of the labor force that's required to
Speaker 4: build out the capacity that you were trying to generate.
Speaker 4: But the second is partnerships, So partnerships with countries that
Speaker 4: are playing by the same rules to give each other
Speaker 4: access to our productive capacity and our purchasing power. And
Speaker 4: then the third part of it is, and it's regrettable,
Speaker 4: but it's the use of restrictive tools like tariffs with
Speaker 4: on trading partners that are not playing by the same rules.
Speaker 4: And that really is to prevent our investments from getting undercut.
Speaker 4: And I really do wish we didn't have to use tariffs,
Speaker 4: but the reality is that we're not competing by the
Speaker 4: same rules, and the harm from standing aside and doing
Speaker 4: nothing is not acceptable to our economic strategy, or our
Speaker 4: national security, or to our political economy. Now, I mean
Speaker 4: the challenge in terms of keeping our allies and partners
Speaker 4: with us, it's how exactly do you calibrate the use
Speaker 4: of all three of these levers and the optimal scale
Speaker 4: and scope of tariffs. It really depends on the pace
Speaker 4: at which we in our allies are deploying productive capacity
Speaker 4: and the extent to which our investments are getting multiplied
Speaker 4: by the private sector, and how China responds with affirmative
Speaker 4: measures or restrictive measures of its own. So this gets
Speaker 4: back to the point I was making earlier. I mean,
Speaker 4: we want to partner with our allies in terms of
Speaker 4: this analysis of multi stage multiplayer game theory. You know,
Speaker 4: we have choices to make, so does China. So do
Speaker 4: our allies, and so do non aligned countries. So we
Speaker 4: want to we actually want to roll up our sleeves
Speaker 4: with allies, think several steps ahead, anticipate their response from
Speaker 4: other players, and then make x anti judgments about whether
Speaker 4: our interventions, whether they're affirmative inducements in our productive capacity,
Speaker 4: or whether they're tariffs to remedy harm. Are they going
Speaker 4: to make us net better off in equilibrium for decades
Speaker 4: to come collectively, And that's the kind of conversation they welcome.
Speaker 4: And you know, I know we've had endless inkspilled about
Speaker 4: whether allies are alienated by our actions. But I have
Speaker 4: to say the technocratic dialogue that's taking place and really
Speaker 4: it's I mean, I was at the G seven earlier
Speaker 4: this summer as well. The dialogue at the highest levels
Speaker 4: of government it has become. I would say it's remarkably constructive.
Speaker 4: You know, I was away for a year and a half.
Speaker 4: I came back and the tone has really changed.
Speaker 5: You know, another area that we've seen this administration really
Speaker 5: used the idea of economic strains and geopolitical security is
Speaker 5: in the novel use of the Strategic Petroleum Reserve, which
Speaker 5: by its name, you know, people thought of it as like, oh,
Speaker 5: it's just a mechanism in case we were suddenly the
Speaker 5: US is like shut off from being able to import oil,
Speaker 5: which is no longer a big deal anymore because we're
Speaker 5: such a big oil producer, and now it has this
Speaker 5: sort of economic balancing effect. In fact, you wrote a
Speaker 5: piece that got published in the FT in February with
Speaker 5: previous odd Lad's guests are the data about this, But
Speaker 5: then there's talk about, well, can spr like mechanisms be
Speaker 5: used for other strategic commodities such as the various minerals
Speaker 5: that are necessary for say, EV batteries. Except for where
Speaker 5: are we on this? Is this still just in the
Speaker 5: sort of tweets and blogs and white papers world? Or
Speaker 5: is there a trajectory for more spr like infrastructure to
Speaker 5: stabilize a market induce demand for these other critical commodities.
Speaker 4: Well, I mean I no longer live in the world
Speaker 4: of tweets and blogs. Yeah, it can be, but there
Speaker 4: is real work taking place. I mean, for the reasons
Speaker 4: that I wrote about with ARNAB when we created the
Speaker 4: spr we were a major net importer of petroleum and
Speaker 4: we were going through the oil shocks of the nineteen seventies,
Speaker 4: and it made sense, of course to have a very
Speaker 4: large stockpile as a buffer against shocks. Now everyone knows
Speaker 4: we're a net exporter, but we have quite a bit
Speaker 4: of vulnerability on many of the inputs that are needed
Speaker 4: to make clean energy transition, and also for many of
Speaker 4: the refined products that come from petroleum that sometimes become scarce,
Speaker 4: particularly during the winter months. So can we broad in
Speaker 4: the concept of the strategic petroleum reserve to think about
Speaker 4: resilience more generally? And if you want to think about
Speaker 4: critical minerals, the reality is if you look at each
Speaker 4: of the markets and they're really embryonic markets for many
Speaker 4: of the critical minerals that are needed like lithium or nickel,
Speaker 4: or manganese, graphite, et cetera. We are facing serious shortfalls
Speaker 4: and under investments in you supply, and much of the
Speaker 4: investment problem relates to price spikes and just outright volatility
Speaker 4: in these markets. And I don't think the market is
Speaker 4: going to solve this problem by itself, and because the
Speaker 4: risks for producers, they're asymmetric to the downside, it's they
Speaker 4: undersupply a critical mineral. Okay, they may lose a little
Speaker 4: bit of profit. If they oversupply, they are potentially facing insolvency.
Speaker 4: They always of course, there's a sort of damicles hanging
Speaker 4: over all of these markets, which is China flooding the market.
Speaker 4: So there's an opportunity for the public sector to step in,
Speaker 4: and we really with some novel financial tools, can we
Speaker 4: think about an authority that gives us a demand backstop,
Speaker 4: the the ability to create a demand's backstop with price
Speaker 4: floors or guarantees or insurance mechanisms or a buyer of
Speaker 4: last resort function. Could we have the ability to intervene
Speaker 4: in markets to buy when the spot market is depressed
Speaker 4: and then sell the equivalent amount in futures markets, or
Speaker 4: create a synthetic reserve by selling put options without actually
Speaker 4: having to physically stockpile the mineral. If it's feasible, you know,
Speaker 4: if the good allows for it, can we stockpile. Can
Speaker 4: we provide non recourse bridge financing to a liquid but
Speaker 4: solvent producer. Can we create a marketplace for high standard
Speaker 4: critical minerals, the kind of minerals that have high standards
Speaker 4: for labor and environmental impact, or just transparency. These are
Speaker 4: all the kind of authorities that when I talked about
Speaker 4: reinventing or reimagining our tools, these are examples of the
Speaker 4: kind of tools I think we're going to need as
Speaker 4: we undergo this transition over the next few decades.
Speaker 2: So I know you were talking about minerals just then,
Speaker 2: but I have sometimes joked on this podcast that I'm
Speaker 2: going to campaign for a strategic pork reserve. So I
Speaker 2: feel it's incumbent upon me to ask how does food
Speaker 2: security fit into your thinking? And also is there potentially
Speaker 2: an overlap between the Biden administration's stated goal of bringing
Speaker 2: down prices and inflation and also building up independent supply
Speaker 2: and resiliency and things like that.
Speaker 4: Yeah. I mean, look, I no one should laught food
Speaker 4: security as national security. There's no question. We have to
Speaker 4: take it seriously, and sometimes markets for food fail. I
Speaker 4: think there is something to what you're asking. I mean,
Speaker 4: there's another idea that is worth thinking about more, which is,
Speaker 4: you know, should we create a pool of patient capital
Speaker 4: that could be invested with flexibility and at scale to
Speaker 4: advance strategic objectives that the private sector left to itself
Speaker 4: may not prioritize, especially during moments of exigency, and food
Speaker 4: security could be one of those objectives. So, for example,
Speaker 4: and you can call this what you want, but if
Speaker 4: you had a pool of flexible capital, perhaps we could
Speaker 4: give discretion for the US government, with all the appropriate guardrails,
Speaker 4: to make investments at home or abroad to advance strategic
Speaker 4: objectives that Congress or some other form of democratically legitimate
Speaker 4: deliberation decides are worth advancing. It could be energy security,
Speaker 4: could be food security, could be addressing supply chain vulnerabilities.
Speaker 4: It could be sustaining technological pre eminence. That could be
Speaker 4: one purpose of it. A second would be and this
Speaker 4: maybe gets to the more likely use case for food security.
Speaker 4: Could this pool of capital help US respond to or
Speaker 4: deter a disruptive shock, particularly a disruptive shock from economic coercion.
Speaker 4: And this happens all over the world, It's happening right
Speaker 4: now to some extent in the Philippines. And then three,
Speaker 4: could this pool of capital just help address what I
Speaker 4: think goes back to one of your questions from before, Joe,
Speaker 4: a strategic US disadvantage compared to some of our adversaries.
Speaker 4: Who can make very long term strategic investments over the
Speaker 4: course of decades. We don't have anything like that, but
Speaker 4: they have sovereign well funds, many of them do. It
Speaker 4: helps them gain a first mover advantage or just a
Speaker 4: competitive edge in many in many critical supply chains or
Speaker 4: foundational technologies, and it can confer a lot of soft power.
Speaker 4: So should we have something comparable to that. That's another
Speaker 4: you know, if you ask me what's in the R
Speaker 4: and D lab, this is something we're thinking about.
Speaker 5: One of the things we've talked a little bit about
Speaker 5: strategic planning in the area of relationships with our friends
Speaker 5: and allies. But one of the things that people talk
Speaker 5: about is that some of our actions to impair our
Speaker 5: adversary or constrain our adversaries can backfire or not be
Speaker 5: as powerful as we thought. And there's a lot of
Speaker 5: a lot of articles about how the Russian economy, for example,
Speaker 5: is doing much better than people would have expected in
Speaker 5: the spring twenty twenty two after the sanctions were first hit.
Speaker 5: Maybe it's not booming, but it does not seem like
Speaker 5: it's totally crippled. And then in the context of China,
Speaker 5: for example, you talk about tariffs, we've had technology export controls,
Speaker 5: things like that, constraints on what Nvidia can send to
Speaker 5: them and so forth. You hear, well, this is just
Speaker 5: going to prove to be an accelerant for their own
Speaker 5: domestic initiatives, and that it's going to cause they're going
Speaker 5: to do even more and they're going to do better
Speaker 5: et CETA than the otherwise would have been because they're
Speaker 5: gonna have to double down on homegrown technology. Taking that
Speaker 5: latter one, do you buy that premise? Do you think
Speaker 5: that China is making progress faster than it otherwise would
Speaker 5: have because of certain constraints that have been imposed by
Speaker 5: this administration in.
Speaker 3: The last one.
Speaker 4: I mean, Joe, we could spend multiple podcasts on the
Speaker 4: Russia sanctions regime and export controls on China. Let me
Speaker 4: try to, let me try to answer your questions on China.
Speaker 4: So look, no, I do think I do think these
Speaker 4: controls are absolutely necessary. But let me back up a
Speaker 4: little bit just to give you a sense of why
Speaker 4: I believe that. I mean, the first rule is do
Speaker 4: no harm, right, because our capacity to innovate, we know
Speaker 4: it's one of our superpowers, maybe it is the most
Speaker 4: important superpower we have as a country, and we do
Speaker 4: not want to dull the incentives for renovation, neither here
Speaker 4: or anywhere abroad. And we don't want to reduce our
Speaker 4: companies access to foreign markets unless we're confident that there
Speaker 4: is some national security objective that's implicated without controls. But
Speaker 4: here is the reality, and this is why the China
Speaker 4: export controls are absolutely necessary. There are a set of
Speaker 4: technologies that are they're foundational to economic growth, potential and
Speaker 4: national security, AI, quantum semiconductors, biotech, hypersonics. I mean that
Speaker 4: list is going to change over time, and those of
Speaker 4: us in government need to be humble. We're always going
Speaker 4: to be behind the frontiers of the private sector. But
Speaker 4: let's just stipulate there is a list of so called
Speaker 4: foundational technologies that really really matter. Number two military civil fusion.
Speaker 4: In China, it means the CCP doesn't make a distinction
Speaker 4: between its commercial and military sectors. And then three is
Speaker 4: our private sector. The private sector everywhere in the world,
Speaker 4: it does have this overwhelmingly strong incentive to sell cutting
Speaker 4: edge technology to an enormous Chinese market. And so that's
Speaker 4: the problem is that if we had unfettered diffusion of
Speaker 4: our most foundational technological advances that would be tantamount eventually
Speaker 4: to giving up the crown jewels of the American economy.
Speaker 4: And that's why we're pretty emphatic about not letting that happen.
Speaker 4: And export controls are just an acknowledgment of that geopolitical reality.
Speaker 4: They're not an attempt to hold China back. But that's
Speaker 4: why that you've heard my boss Jake Sullivan, one of
Speaker 4: my bosses, talk about the need to be careful and precise,
Speaker 4: the metaphor of a high fence around a small yard.
Speaker 4: And so what does that mean? I mean here again,
Speaker 4: like I can share with you a bit of the thinking,
Speaker 4: the framework. I mean. Number one, it's what are the
Speaker 4: technologies that are likely to be foundational to US national
Speaker 4: security and economic growth potential? So come up with that
Speaker 4: list number two of that of those technologies on the list,
Speaker 4: where do we have the largest lead and therefore, where
Speaker 4: will we most likely see maximal effort by our adversaries
Speaker 4: to close the gap if the diffusion of US technology
Speaker 4: was uncontrolled, And then conversely, where are we behind and
Speaker 4: therefore most vulnerable to foreign controls that might slow or
Speaker 4: impede our own technological development? And then three, we do
Speaker 4: think really hard about whether and to what extent the
Speaker 4: targets of export controls have substitutes for US foundational technology,
Speaker 4: either through indigenous development and there's been a lot of
Speaker 4: pressive course about what China's doing and lagging edge semiconductors
Speaker 4: in this regard, or from third countries. Can they get
Speaker 4: the supply from somewhere else? And then four is can
Speaker 4: you build a coalition how broad and how deep and
Speaker 4: could we plausibly sustain it around any control for foundational technology?
Speaker 4: And the fifth part of having a small yard high
Speaker 4: fence or a strategic anchor is again stress testing and
Speaker 4: simulating if we get into an escalatory tip for tat
Speaker 4: of technology controls with our adversaries, how does it play
Speaker 4: out in a multiplayer, multi stage contest over time? And
Speaker 4: then put a guardwill on ourselves that any imposition of
Speaker 4: control it has to surpass some threshold of efficacy compared
Speaker 4: to the next best alternative. Is it going to make
Speaker 4: us net better off? So this is not like arbitrary
Speaker 4: and reflexive placing of controls on really important technologies for
Speaker 4: really important markets. We are taking this process very seriously.
Speaker 4: I'm trying to give you a bit of a flavor
Speaker 4: for that.
Speaker 2: So Joe brought up the sanctions against Russia, and you
Speaker 2: were a key architect of those, so I feel we
Speaker 2: would be very remiss if we didn't talk about them
Speaker 2: a little bit more. But one of the criticisms that
Speaker 2: you sometimes see of those is a the efficacy, which
Speaker 2: Joe already alluded to, but be this idea of weaponizing
Speaker 2: the dollar's special status in the global financial system, the
Speaker 2: reserve status. So a lot of what we've been able
Speaker 2: to do is because the US dollar is central in
Speaker 2: the financial system and there are a lot of flows
Speaker 2: that go into dollar assets and things like that. So
Speaker 2: as a result, we have seen more concern about potentially
Speaker 2: countries like Russia and China maybe moving away from the dollar,
Speaker 2: maybe moving into gold or the un or whatever. Is
Speaker 2: that something that you are actively concerned about, And then
Speaker 2: how do you balance the I guess the power that
Speaker 2: the dollar's special status gives the US with maintaining that
Speaker 2: special status and not I guess overreaching in terms of weaponization.
Speaker 4: So I'm going to be a little careful about speaking
Speaker 4: on the dollar. That's uh, there's some kind of lightning
Speaker 4: bolt that will strike me down, because that's really the
Speaker 4: preserve of the Treasury secretary to talk about. But I'll
Speaker 4: just what I'll do is I'll talk to you about
Speaker 4: it in the context of my job. And you're right,
Speaker 4: I mean dollar primacy. It's a privilege. Perhaps it's exorbitant
Speaker 4: that and it allows us to fund our government, our households,
Speaker 4: are businesses much more cheaply than would otherwise be the case.
Speaker 4: It allows us to absorb a shock like no other country.
Speaker 4: And yeah, with sanctions and other forms of economic statecraft,
Speaker 4: that does give us a unique capacity to deliver a shock.
Speaker 4: And every time you use sanctions, especially when you do
Speaker 4: so forcefully, you do create an incentive for some countries
Speaker 4: to hedge against the dollar based financial system. And we've
Speaker 4: got to take that very seriously. But look, you also
Speaker 4: have to, I think step back and look at the
Speaker 4: numbers right now. If you think about the measure of primacy,
Speaker 4: is the currency used, how is it used to save
Speaker 4: to borrow in the transact? Right now, the dollars global
Speaker 4: shares on the order of sixty, sixty and forty percent
Speaker 4: on those measures. The rem and be share is somewhere
Speaker 4: between zero and two percent, and euro is in a
Speaker 4: distant second place. Somewhere around twenty twenty and maybe thirty
Speaker 4: five percent on those measures, And so the dollar still
Speaker 4: is the operating system of global finance. It has incredibly
Speaker 4: powerful network effects. And my view is that displacing the
Speaker 4: dollar would essentially require us to commit a series of
Speaker 4: unforced errors that you would think of as a failure
Speaker 4: from within. And I think that kind of failure would
Speaker 4: also have to be coupled with a more credible alternative
Speaker 4: to have sustained impact. And that is somewhat hard for
Speaker 4: me to see with Europe still challenged by internal divisions,
Speaker 4: Japan trying to break out of multi decade stagnation, and
Speaker 4: China just obviously moving in the wrong direction in terms
Speaker 4: of institutional reforms. But look, I mean, as I mentioned
Speaker 4: dollar primacy, it's a network. All networks have tipping points.
Speaker 4: Those tipping points are often psychological ones that are really
Speaker 4: hard to identify in advance, and we know from the
Speaker 4: study of networks. Anybody knows doesn't matter whether you're talking
Speaker 4: about biology or technology or finance, or like my daughter's
Speaker 4: lunch table at school, they lose value slowly, then very suddenly.
Speaker 4: So we're always going to be paranoid about dollar privacy,
Speaker 4: will never take it for granted. We'll always try to
Speaker 4: build a better product. And so it really depends on
Speaker 4: our policy choices what kind of country you want to be.
Speaker 4: We need to put to rest questions about whether the
Speaker 4: dollar's institutional strengths are going to be sustained across political cycles,
Speaker 4: rule of law, transparent regulation, independent judiciary, deep in liquid
Speaker 4: capital markets. And the most important from my perspective, is
Speaker 4: our story. Our ability to generate trust and to attract
Speaker 4: ideas and talent and investment. That's really ours to lose.
Speaker 5: You know, when I look at the big picture and
Speaker 5: I get excited about reindustrialization efforts and the new factories
Speaker 5: and all seem very cool. But the other thing that
Speaker 5: worries me, or one of the things that really worries me,
Speaker 5: is that the legacy industrial powerhouses of the United States
Speaker 5: seem to really be struggling. And I'm thinking of Going
Speaker 5: in particular, and I'm thinking of tell in particular, which
Speaker 5: is like, Okay, it's great if we have new things,
Speaker 5: but these are like our powerhouses, and they're not doing
Speaker 5: well on a raft of measures.
Speaker 3: What's going on there?
Speaker 5: Like people have different Oh is the financial people they
Speaker 5: got too focused on financials. They're different stories that people
Speaker 5: tell about what happens to legacy domestic industrial capacity. But
Speaker 5: I'm curious what you how you sort of think about
Speaker 5: identifying the problems that we've seen at some of these companies.
Speaker 4: Well, Joe, I'm not going to speak about a particular company,
Speaker 4: but let me try to answer your question more generally,
Speaker 4: because I think it's a really good one. Let me
Speaker 4: pick like a legacy, legacy sector that really matters for
Speaker 4: our national security. And so I don't know if you've
Speaker 4: heard about ship to shore cranes or if you know
Speaker 4: much about them, but it is what it sounds like.
Speaker 4: These are cranes that take a good from a ship
Speaker 4: they bring it to shore. It may not sound like it,
Speaker 4: but this is a critical piece of legacy, you may
Speaker 4: call it legacy legacy, relatively lower tech infrastructure that really matters.
Speaker 4: And it has a real vulnerability because the vast majority
Speaker 4: of the goods that enter or exit our economy they're
Speaker 4: shipped to ports and they're pulled off of ships with cranes.
Speaker 4: Here's the digital aspect of it. These cranes have onboard
Speaker 4: electronics that allow for remote software updates, and they can
Speaker 4: allow a foreign actor to interfere with port operations during
Speaker 4: a crisis, maybe even shut it down. Well, China makes
Speaker 4: eighty percent of these cranes that are used in the US.
Speaker 4: It's priced out the competition with massive subsidies to a
Speaker 4: state owned crane producer called ZPMC. So that gives China
Speaker 4: tremendous opportunity to collect information on what's coming in or
Speaker 4: out of the country, including for goods that supply our military.
Speaker 4: So the risk of another Huawei situation, it's non trivial.
Speaker 4: And so I'm mentioning this because what to do about it.
Speaker 4: It's similar for many other industries that you could reference,
Speaker 4: many companies that you could reference. It has to start
Speaker 4: with public investment to catalyze, ideally through the private sector,
Speaker 4: the rebuilding of our production capacity so on ship to
Speaker 4: shore cranes. Last month, this administration announced it was going
Speaker 4: to take twenty billion dollars from the bipartisan Infrastructure bill
Speaker 4: and start building cranes again because of the national security
Speaker 4: threat that it poses. But then the second piece of it,
Speaker 4: and it relates to a lot of the questions you've asked,
Speaker 4: you need friends to do this the right way. Friends
Speaker 4: with expertise in building cranes in this case, and here
Speaker 4: Japan is one such friend. I mean the twenty billion
Speaker 4: dollars that I referenced, a good part of it is
Speaker 4: going to go to a US subsidiary of Mitsui, a
Speaker 4: Japanese company, and they're now going to build the first
Speaker 4: domestic option for ports on ship to shore cranes in
Speaker 4: thirty years. And hopefully we'll give this firm a chance
Speaker 4: to scale up and compete with a heavily subsidized Chinese rival.
Speaker 4: But to give that a better chance, the President did
Speaker 4: propose twenty five percent tariffs on Chinese ship to shore cranes.
Speaker 4: And the last bit is the Coastguard is going to
Speaker 4: in the meantime it has been given authority to inspect
Speaker 4: all cranes for any signs of hackers that are burrowing
Speaker 4: into the software violating security protocols. So in any of
Speaker 4: these industries, Joe, I mean, this is going to be
Speaker 4: a painstaking process. It's going to require years of effort
Speaker 4: to do the basically the economic forensics of where do
Speaker 4: we have vulnerabilities to what extent is it critical for
Speaker 4: our industrial base, does it have a nexus with national security,
Speaker 4: and what combination of investments and diplomatic agreements and in
Speaker 4: some cases restrictive measures can give us a chance to
Speaker 4: compete in a much more contested environment. I mean, this
Speaker 4: is not las a fair free market economics. You know,
Speaker 4: I came of age in the nineteen nineties and we're
Speaker 4: just not in that world anymore. So this is what
Speaker 4: industrial policy is going to look like.
Speaker 2: Tilly, I'm going to squeeze in one more question, which
Speaker 2: is just going back to that idea of patient capital.
Speaker 2: So number one, how serious are those discussions or how
Speaker 2: serious is that idea being taken? And then secondly, in
Speaker 2: the realms of it building out industrial policy or capacity,
Speaker 2: one of the discussion points that you sometimes hear is
Speaker 2: whether or not it's more valuable to throw money at
Speaker 2: the initial investment, so building the first factory or whatever,
Speaker 2: versus the government committing itself in one way or another
Speaker 2: to longer term forward purchasing agreements so that there's always
Speaker 2: a flow on demand and companies can kind of plan
Speaker 2: accordingly and maybe avoid big cycles where demand is like
Speaker 2: vacillating up and down very dramatically. How are you thinking
Speaker 2: about that?
Speaker 4: Yeah, I don't want to put odds on whether the
Speaker 4: kind of work I was describing is going to end
Speaker 4: up with a particular final form. Just I'm always wrong,
Speaker 4: but let me just try to try to answer your question.
Speaker 4: I mean, I think what we're going to do if
Speaker 4: we have time and political spaces to continue to identify
Speaker 4: sectors that we think are going to be foundational to
Speaker 4: economic growth and essential for national security, and where the
Speaker 4: private sector on its own likely doesn't have the incentives
Speaker 4: to make the investments we need at tas and with
Speaker 4: scale to compete. And that really is all about identifying
Speaker 4: where they're clear market failures. It could be an infrastructure,
Speaker 4: it could be in particular sectors, it could be in
Speaker 4: the size and skills of our labor force. But we
Speaker 4: do know if we don't, if we don't prioritize growth
Speaker 4: in these strategic sectors and make sure that we have
Speaker 4: enough investment and we have enough diplomatic partnerships to help
Speaker 4: them scale, then we're probably going to have a continued
Speaker 4: hollowing out of our industrial base, and we're going to
Speaker 4: be vulnerable to shocks all manner of shocks, and we're
Speaker 4: probably going to have a political economy that becomes more
Speaker 4: and more disillusioned and we'll have a feeling that they've
Speaker 4: been left behind, and that leads us to a very
Speaker 4: bad place.
Speaker 2: De leep saying Deputy National Security Advisor for International Economics
Speaker 2: at the Biden administration, thank you so much for coming
Speaker 2: on all thoughts, really appreciating it's fantastic.
Speaker 3: Thank you so much, So great to get to chat
Speaker 3: with you.
Speaker 4: But really my pleasure, Joe.
Speaker 2: I thought that was very interesting. It also felt nice
Speaker 2: just to talk about supply chains rather than market volatility
Speaker 2: for a little bit. I thought you raise a crucial
Speaker 2: point in the industrial capacity build out, which is in
Speaker 2: some respects the US government is at a disadvantage because
Speaker 2: every four years we have the possibility of major political change,
Speaker 2: and if we're thinking on longer term time scales, you know,
Speaker 2: things like semiconductors take years, if not decades to actually
Speaker 2: build out that capacity, it can be difficult to maintain continuity. Obviously,
Speaker 2: we're in an election year. We don't know who's going
Speaker 2: to be president just yet, but it will be really
Speaker 2: interesting to see in twenty twenty five, like how much
Speaker 2: of this has continued.
Speaker 5: Yeah, you know, I think to Delete's point, look, we
Speaker 5: don't want to be an authoritarian system now, democracy is good,
Speaker 5: and as you put it, that's a feature in a bug.
Speaker 5: It's annoying because it does make long term planning in
Speaker 5: theory more difficult, but it's good because it also provides
Speaker 5: a very important check on long term strategic mistakes in theory,
Speaker 5: and so that's all good. I think where it's worriesome
Speaker 5: specifically is that if you have priorities that shouldn't necessarily
Speaker 5: be particularly controversial, such as say I have icebreakers, right,
Speaker 5: but if you have a political system that's sort of
Speaker 5: like so like polarized and perverted, that everything automatically becomes
Speaker 5: in this hyperpartisan lens. You can see then how any
Speaker 5: sort of priority becomes very difficult to execute on because
Speaker 5: as he said, people will see Zono politically one way
Speaker 5: or another, even if in theory it shouldn't be well.
Speaker 2: And also, the thing I was thinking about was something
Speaker 2: like Icebreakers was done in coordination with Finland and other countries,
Speaker 2: as Deleepe was talking about. But that's an interesting aspect
Speaker 2: where supply chains are becoming more of a coordinated thing.
Speaker 2: I think that's relatively new, at least in the West.
Speaker 2: But how does that continuity risk play out with allies?
Speaker 2: Is there a concern that if they commit to a
Speaker 2: specific thing, then maybe in four years or in a
Speaker 2: year or whatever, the political circumstances will change and US
Speaker 2: interest won't be there in the way it was previously.
Speaker 3: I think we just got to build more ships.
Speaker 5: I mean just I'm gonna say an opinion, like, it
Speaker 5: does not seem great that we've let our sort of
Speaker 5: shipbuilding capacity because it's obviously not just icebreakers. It's been
Speaker 5: a long time since we built like aircraft carriers and
Speaker 5: dredging and all that stuff.
Speaker 3: You gota bid ships in this country.
Speaker 2: We came so close to making this a nineteen oh
Speaker 2: six foreign dredging episode, but we didn't quite get there.
Speaker 3: At one time, the jones didn't come up easier.
Speaker 2: Oh yeah, that's right. Okay, shall we leave it there.
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Authlots podcast. I'm
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 5: And I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 5: Follow our producers Carmen Rodriguez at Carman armand Deesh, I'll
Speaker 5: Bennett at Dashbot and kill Brooks at Kilbrooks. Thank you
Speaker 5: to our producer Moses on them. For more Oddlogs content,
Speaker 5: go to Bloomberg dot com slash odd Lots, where we
Speaker 5: have transcripts, a blog, and a newsletter and you can
Speaker 5: chat about all of these topics with fellow supply Chain
Speaker 5: nerds in our discord Discord dot gg slash odlogs And.
Speaker 2: If you enjoy Oddlots, if you like these supply Chain episodes,
Speaker 2: then please leave us a positive review on your favorite
Speaker 2: podcast platform. And remember, if you are a Bloomberg subscriber,
Speaker 2: you can listen to all of our episodes absolutely ad free.
Speaker 2: All you need to do is connect your Bloomberg account
Speaker 2: with Apple Podcasts. In order to do that, just find
Speaker 2: the Bloomberg channel on Apple Podcasts and follow the instructions there.
Speaker 2: Thanks for listening.