armchaireconomists
Welcome to Average Armchair Economists, a show about economics, markets, geopolitics, technology, and the increasingly messy places where all of those things collide. We are not professors, central bankers, or cable-news pundits. We are two people who spend an unreasonable amount of time reading, debating, and trying to understand what is actually driving the economy and markets. Each episode, we will take a handful of major stories, dig into the data behind them, challenge the popular narratives, and argue about what they could mean next. The goal is not to pretend we have all the answers. It is to ask better questions, separate facts from opinions, and hopefully leave all of us a little less confused than when we started.
armchaireconomists
Tariffs, Canada, And China Shock 2.0
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The U.S. is picking fights with allies, slapping tariffs on strategic goods, and talking about “national security” like it’s an economic policy. That sounds chaotic until you zoom out and ask the uncomfortable question we keep coming back to: is this really about Canada, or is Canada the first test case in a bigger rewiring of the U.S.-led global order?
We start with the U.S. Canada trade dispute and get specific about what’s on the table: autos and rules of origin under USMCA, steel and aluminum, Canada’s dairy supply management system, and the surprisingly telling fight over bourbon sales. Then we dig into the motive layer, where access to the American market starts to look like a privilege the U.S. can price and police, especially as Washington tries to reduce China’s “back door” into North American supply chains.
From there we pivot to China Shock 2.0 and why it hits differently than the first wave. We talk manufacturing power in real terms: electric vehicles, batteries, shipbuilding, drones, industrial machinery, and the chip bottleneck that still shapes the semiconductor race. Along the way we debate whether this is mainly an economic challenge or a national security challenge, what tariffs can and cannot do, and what rebuilding productive capacity actually requires: energy and electricity growth, nuclear build speed, defense industrial capacity, workforce skills, automation, and industrial policy tools like subsidies and incentives.
If you want a clear, curious conversation that challenges the easy narratives, listen through to our predictions and tell us where you disagree. Subscribe on Spotify or Apple Podcasts, watch on YouTube, and if you like the show, share it and leave a review.
Welcome And Podcast Mission
SPEAKER_03Welcome everybody to the Average Armchair Economist Podcast. I'm Brett and I'm joined by my good friend TXMC. Say hi.
SPEAKER_01Hey, what's up, man?
SPEAKER_03Good to see you, man. How was your weekend this weekend?
SPEAKER_01That's been pretty good so far. You know, it was the first uh weekend back for school, so it was a little hectic. Um, but uh yeah, it went well. How about you?
SPEAKER_03Oh, nice. Oh yeah, I can't complain. I uh that was pretty chill. I mean, the weekend before school starts is always really busy. Um so what is it sixth or seventh grade for for your child now? Seventh grade. Oh my gosh, I remember when he was a baby. Yeah, yeah. How times flies. Well, Wolf, welcome folks. I just wanted to quickly introduce this as this is our first episode, um, what we're trying to do in this podcast and and kind of the general format and what we're thinking we're gonna talk about. That could change along the way. This is not written in stone. Uh, we're trying different things out. Um, so what this podcast you know really is about, if you boil down to uh what we're doing, is it's in a podcast uh uh about economics, markets, and geopolitics, probably with some technology mixed in, because that's pretty prevalent these days with those other three. Uh in an increasingly messy world where all these things collide. We're not professors, we're not central bankers, we're not cable news pundits, we're barely qualified to talk about these things. I have an undergrad in economics. If at all. Yeah, if at all. And here's the thing: like, I've been around some of these luminaries and these people who with advanced degrees, or they went to Harvard, or they're this big hedge fund manager, or they're a CEO, and late don't really know that much more than we do.
SPEAKER_01No, no, and you and I already talk about this stuff all the time, and so we just thought, like, maybe we'll just record ourselves doing it and we won't change anything else. And uh maybe someone will want to listen to it, but maybe not, you know.
SPEAKER_03Exactly. Yeah. We we spend an unreasonable amount of time just having these debates. Uh, and we just thought it would be fun to see where it goes. All right, so each episode we'll we'll take out a couple a handful of stories, we'll dig into the data if we can. Uh, that's certainly TXMC's uh cup of tea. And we'll we'll see if we can challenge the popular narratives, if not just argue about kind of the topics of the day. The goal is not to provide a lot of answers, it's to ask questions. And I I think that's the most important part here is at least asking the right questions. I think so often the narratives uh uh from different sources uh don't really focus on asking the right questions. It's asking what a question based on their agenda. All right, so real quick, um I'm Brett, as I already said, uh a pretty mixed background, uh a little bit in economics. That's my undergrad. Worked and had some schooling in technology, was a recruiter for a very long time, and over the last six or seven years, I'd be more focused on entrepreneurship technology. So really I I'm a generalist who likes to kind of look at the macro nature of the business world, and I try to adapt it to my life and to what I'm doing. Um so that's just kind of a nutshell of you know who I am. T XMC, do you want to kind of briefly share a little bit about you and we can kind of kick things off from there?
SPEAKER_01Yeah, sure. Um I'm TX. Uh Brett and I are friends in real life, so this is a little weird for him calling me TXMC, but that's all right. He and I have been buddies for about 10 years. Um and uh, you know, I I'm just a casual enthusiast of markets and economics and an observer of world events and things like that. And um very opinionated person. I like to read a lot and uh certainly not qualified in any level. I didn't graduate from college, I don't have a degree, uh, didn't work in finance or economics or for government or anything. I'm just a guy at his house uh who has a lot of things to say. Um, and so we're just gonna kind of see where this goes.
SPEAKER_03He's being modest. He reads everything, just so we're clear. The day he brought up like the the the the Fed minutes from nine April 1977, like he lost all credibility with I don't know anything.
SPEAKER_01My wife is thinking I've got a lot of things I haven't read yet.
SPEAKER_03Okay, fair enough. So
Today’s Agenda And Big Themes
SPEAKER_03we're we're gonna kind of cover three main topics today. You know, one of them is gonna be because it's pretty fresh. This happened Friday. This is being recorded on Sunday, the 23rd. Uh, the trade war, we're starting with Canada again. That's gonna kick off. And we'll kind of talk through what's going on there. And then we're gonna talk through uh something that I heard about, or at least the title of, on a recent uh interview that Ezra Klein did uh with the New York Times, uh uh talking about the China Shock 2.0, uh, because I think that's interesting to discuss. And if we have time, we don't know how long this is gonna take, we might launch into uh kind of some of the geopolitics and economics of uh the latest goings-on in Iran between the United States and Iran. So that's generally what we're working with today. Um I think with Canada, let's let's set it up a little bit. So the US and and Canada are in a trade dispute. Um so it includes a steel aluminum other goods, and it appears that negotiations recently uh were called off by the Canadians. I don't know if you read much or or saw many of the interviews with Mark Carney. Uh but it appears that you know, as happens with this administration, they came in with the last second with some demands, and it was different from the negotiations all along. And Carney, who is a really senior economist, I don't for you those of you who don't know, he has led both the Bank of Canada and the Bank of England. Uh that's a pretty unique unique um qualification for a world leader to have previously been a central banker for two what the ten largest economies in the world. I don't know where Canada falls in this, but the UK is definitely what five or six.
SPEAKER_02Yeah.
SPEAKER_03Yeah. So um and it appears that we're gonna retaliate, we're we're gonna put tariffs on um a bunch of new things, and then and and then we're gonna retaliate or they're gonna retaliate with some some more tariffs uh on a number of things. And so I guess what are we trying to accomplish here? Uh what do you what do you think that we're trying to do here, TXMC? Like what is in the mind of Scott Besson, etc.
SPEAKER_01Yeah, I have been paying a little bit of attention to this.
Tariffs As A Strategic Reset
SPEAKER_01Um it kind of is related to a bigger topic that I've been um reading a lot about and thinking about, um, which is just kind of um what I think is a a restructuring or a reshaping of the US-led global order. And it's because I think the US has to because of the relative ascent of China due to the success of the previous system that we've that we're now having to change. And I think because China uh went from being a relatively harmless but incredibly important cog in the globalized US-led order that we've known for the last few decades. Um they went from being, like I said, relatively unim relatively harmless but very important cog in that. And now they are the principal economic and strategic rival of the United States. They no longer can play the same role, but they're deeply embedded in Western supply chains and Western economies. And because the U.S.
SPEAKER_03Are they really a rival anymore? Like, I I and we'll get into this in our next section, but like I I don't know that they have a rival.
SPEAKER_01Well, I mean, I think like it there, I mean, we definitely are in a lot of different ways. You know, like there's certain races where we're probably ahead of them, and there's certain aspects of technology and manufacturing and things like that where they they might be ahead of us. And I I certainly don't know all the ins and outs of that. But from the US's perspective, China is no longer a harmless player in this. They're now someone who for whom decisions have to be changed, right? And I think it Canada is one of the countries that that starts with because they might be the most economically integrated ally of the US in the world, perhaps. Uh and I think that this, what we're watching, this kind of dance between them and the U.S., I don't think it's really about tariffs. It's not really about like, oh, what are you doing with your autos specifically? What are you doing with this? What are you doing with that? I think it's kind of a broader shift in the posture from the US, where they're basically telling Canada, uh, we need you to reorient your productive and economic choices in ways that's that further our interests, because our interests have changed a little bit where they were maybe eight, 10 years ago. And if you want to continue to sell three-quarters of your exports into our country every year, uh, we're gonna need to change some of those rules. And so that that process of us getting to that, whatever that endpoint looks like. Uh we're in the middle of it, and I think it's gonna be very ugly and uncomfortable.
SPEAKER_03Yeah, and and I I think my opinion on this, and I I kind of want to launch into a little bit, I'm gonna cover a little bit of you know what what the asks are and and and you know what where the conflicts are and where the asks are. But but I think some of this trade dispute is based into a bit of like strategic reality, as you're alluding to. And some of it's just ridiculous. And so I think it's it's gonna be interesting kind of to kind of suss out like what those things are. And and and I think one of the reasons why, and I'll give some examples here shortly. One of the reasons why I think we're doing this is because I think trade and specifically trade after globalism, right, has really changed, right? And how companies are countries, not companies, their their economies work and function, and how they specialize and what they chose to specialize in. And then you contrast that versus their national interests and national security interests. And I think that the there's a bigger delta between what they are producing, and then I'm saying by they, you know, maybe consider most of the first world outside of China, what they're producing versus what their country needs them to produce for suitability for national security, etc.
Autos, Steel, Dairy, And Bourbon
SPEAKER_03Um, so real quick, let's cover what some of the disagreements are. So the US wants more vehicles and more of the vehicles produced in Canada rather than simply like a North American region, which is what Canada's advocating for. Um currently, if if you all don't know, you know, a car as it's produced, this parts go up and down between the United States, Canada, and Mexico several times throughout the production process. And I know for a fact that a lot of the even some of the skilled component manufacturing and motor manufacturing, at least on the electric electric motor sides, heavily rests of Mexico. So this is I wonder a little bit about if this is like you know, correctly, their anger is correctly positioned. I mean, I think this is a little bit of the current administration just likes Carney less than they like Scheinbaum down in down in Mexico, and like they seem to make decisions based on that. Uh Canada wants on steel and aluminum, Canada wants tariff reduction. The US views these industries as strategically important tied to national security. And they kind of are, but we're really doing a crap job of propping these industries up. And we can kind of debate, like, I think that's kind of you know something to talk about too is are tariffs effective? And if you really truly need to prop up a you know a commodity industry, what does that look like? Dairy. So this is one that's kind of near and dear to me. I grew up in Wisconsin, so lots of dairy. So the US objects to Canada's supply management system uh import restrictions, where they basically there's a if if Canada produces uh uh below a certain threshold, or if they import a certain threshold, a tariff kicks in, is from my understanding, right? There's there's like a quota limit on this. Um and the other the other conflict is over alcohol. I mean, really, that's bourbon, right? Like what's called a spade-a-spade. Kentucky wants their bourbon to be sold in in Canada. So the United States wants more manufacturing in the ice in the United States. They want greater access to the Canadian market, and they want uh a tougher USMCA. Um so I I I I kind of want to double-click on this concept of where Canada's coming from of more of a NAFTA arrangement where it was a free trade zone between these three countries, United States, Canada, and Mexico. And what the United States wants is to like pull more of that in. Because in in my opinion, and I would love to hear what you think, TX, is if we really want to go after China, like this is the way to do it. We need to get with our allies. We're not gonna it's not gonna be 1941 in this country where we're gonna outproduce it, we're not even 41, 44 in this country, where we out you know produce the rest of the world combined, right? And in in in industrial capacity. Um I I think if we're gonna actually compete against China, like what we should be doing is working with Canada, working with Mexico to a degree, um, and working with the European Union to a degree as well. I'd be kind of getting curious to get your take on you know what your thoughts are on that.
SPEAKER_01I mean, I agree that that's what it will ultimately take. Um, but I think right now we can't choose our starting point right now. And right now, um, the starting point is that um China is deeply embedded in our supply chains and we have to separate those things. And we and I don't think that it would have been uh and we'll we're gonna find out if this is even the right way to go. But I I I don't I'm not even sold on the idea that like if if the US rewind a year or two back had been like, hey, Canada, China or Canada, Europe, Japan, why don't we like get in a room and hang out and talk about how we should build our own supply chains? Like I think that not that that's not what you mean, that's kind of like my caricature of it, right? But I I think that's what I'm saying though.
SPEAKER_03So that's all right.
SPEAKER_01Like I think that what we're we're we're at a place where um it's clear, at least to me, it seems that the US has chosen um to go about this a little differently and to act in a more imperial kind of way and to be less accommodative. Um because I think what they're asking is going to be economically painful if they are to get their way, which is less economic integration with China amongst its major trade partners and very controlled interaction with China, where the U.S. gets a front-row seat into what those details are and even veto power, which is from my understanding one of the negotiations that are kind of going on between Canada and uh the US right now. And I think the reason why it's happening now is because they just had that deadline where if they didn't meet some certain agreements, the terrorists kicked in. So that's why we're talking about this now. But I thought the I think the Mexico's situation with the US is gonna look the same. Europe's is gonna look the same. Japan's is gonna look the same, tailored to each economy and their situation. But I think broadly the US seems to be saying to all of its partners and tr and allies right now, it seems to be saying that if you want to continue to have preferential access to our enormous base of wealthy consumers, to our financial markets, to our technology and our weapons, then we're going to need you to align with us on X, Y, and Z. Whereas maybe 10 years ago, we just really wanted you to do all the first things, which is uh sell into our economy and recycle your surpluses into our financial markets and let us handle all the security. But because the costs of maintaining that system are too much for the US now, I think they're they're having to renegotiate the terms of participation in the US dollar-centric global economy. And for people who people, for countries that are very close to us, uh that is going to look different than like the way we handle Vietnam or something. We're just gonna kind of muscle them into a certain kind of trade agreement, or they'll defect and not sell so much to us and they'll go with well, they'll go with China. But for someone like for someone like Canada, just to finish my point, like they uh 75% of their merchandise, maybe a little less, 72% of their merchandise exports last year went to the United States, and that is 20% of their GDP. And so, like, if you look at China, like if you're if if you were just gonna make this a binary choice between uh China and the United States, Canada has to go with the United States. They can't go to China's not gonna buy $400 billion worth of their goods every year. And so that it's gonna crater their economy. And so the the I think that the US is using that as leverage in a way, kind of, and Carney alluded to that. If you look at his quotes, he said something about how the US is selling access to its market, how they're using integration as a weapon. And I think that is exactly what they're doing. And I think that they're going to continue doing that because they're divorcing from China.
Bretton Woods Lessons And Leverage
SPEAKER_03Yeah, this strikes me as an interesting kind of classical game theory, like prison's dilemma problem, right? Like where the best outcome is where everybody cooperates. But in the end, everybody always chooses to not cooperate and they get a suboptimal outcome. But it's better than if they're the one holding the bag at the end of it.
SPEAKER_01That's why I don't believe in the like let's get around a big table and work it out kind of thing. I I that's not usually how it happens, right? Like Bretton Woods only took place uh because the world was getting destroyed by World War II and the and the US was coming in to help, and we kind of were able to just dictate terms because the second biggest person at the table, the United Kingdom, helped that to happen. And they were the prior hegemon. Yeah, and we were yeah, so it it that that was like a perfect little situation. People always refer to Bretton Woods. Oh, let's just do that again. Let's just reorganize the monetary system in a fucking hotel lobby in New Hampshire. We're not gonna do that.
SPEAKER_03So I I think there was a a lot of resentment, especially from the European powers, of their back seat that they took over the years. I mean, we did not get when we had the Marshall Plan, we rebeat all of Europe. Like that we did that. Like, let's be clear about that.
SPEAKER_01We contributed a part of it. I think it wasn't a huge amount of their rebuild, total rebuild, but we helped get them off the ground.
SPEAKER_03Yeah, yeah. All that financing started with us.
SPEAKER_01Yeah. Um and for decades, our security helped, you know, uh ensure safe shipping lanes and increased trade and general free flows of capital. And so most countries benefited from that.
SPEAKER_03We might have to have a separate you know episode on this, but it's very interesting, uh at least even if you look at like the last 10 years, how much the security situation's changed. And I think um some of that is because some of the deep internal rot of our industrial base for defense has been exposed. We're we're a bit of we're a bit of a paper tiger at the moment, and and I think we kind of knew that for a while. But as recent as I think it was 2014 or 15, the UK was considering getting rid of their high-dollar military capital equipment like their Navy. Um in lieu of just caring maintaining personnel to contribute and man our our you know war machine, right? So they got real close to defunding their military to the point, or specializing and and providing manpower to the US security kind of alliance, right? Which is existed maybe last under Obama. Maybe that's kind of I was already, I feel like it's starting to fray at the end of Obama.
SPEAKER_01Obama was when we started the pivot to Asia as well. So that's when things really started changing.
SPEAKER_03Yeah, yeah, there's a lot going on here. But but I I I I feel like the situation that security situation has changed quite a bit. I and I and I don't know I I to your point, uh, it's very unrealistic to well maybe I'm an over an optimist. I really feel like the best interest of you know, Japan, South Korea, the United States, Canada, Mexico, the EU is to get together and realize that China's coming for all their shit. And it's it's they they already have it. I I mean they're better at manufacturing and and and then maybe this is a good transition into our next topic. Um but they're they're pretty much and and why why don't we just transition to our next topic and close out the cannabis? I think it's related. Yeah.
China Shock 2.0 Explained
SPEAKER_03And so so what happened with with what we call the China Shock 1.0, right? That's when they started taking all the cheap crap that used to be produced everywhere else in the world and made it themselves. You know, machine parts, all this stuff, and it the quality was less good, but good enough. And you know, the costs were so low uh that people were starting to use them. And then slowly over the time they built proficiency in manufacturing. And they were very smart, um, you know, after they accomplished some some degree of competence with manufacturing to um subsidize advanced manufacturing and I would say subsidize knowledge transfer espionage-ish, right? Like let's let's take a look at like right, Tesla. They were in dire financial straights, and China basically built them out with the idea that you build your plant here, make your cars here, great, you have this new market, but they were literally having people going from one shift at at Tesla and literally walking across the street to BYD and telling them how to do it. Uh and so they got really good and and clever, or not so clever, at paying for information, sometimes stealing it. And now we're in a situation where where China's I would say everything besides advanced chips is at the bleeding edge of of manufacturing. I would say they're at the bleeding edge of manufacturing with electric vehicles, it's not close. Batteries. I don't know if if if you folks on on YouTube who are watching this, because we will be there, uh far will uh follow Will Power. Powell uh he's somebody who just reviews lithium ion batteries, and and it the quality difference between a Chinese battery and American one is is it's not even close. Um shipbuilding, right? They have the capacity to build building, yeah. 15 times. I don't know where the exact thing is more than us. Or industrial machinery, like a lot of that stuff, even when we stopped doing it, was was being produced in Germany, and even a lot of that now is in China. Electronics, power equipment, drones. I mean, most of the FPG drones used at the start of of the Ukraine war were all Chinese on both sides. Um so and and and and you know, from what I've read recently, they've they've they've caught up on uh uh maybe a bit. They caught up to the technology at a um the Dutch company that uh does the uh ultraviolet um lithograph machines. Was it A ALSM or those who know uh know I'm sure I'm butchering that, but uh they they've they've caught up in that space too, while they don't have those you know machines in mass, right? Right. So just so you know, the ultraviolet lithograph I think it's the extreme ultraviolet lithography machines are what's necessary to go below three nanometers for chips. And only one company in the EU makes these machines, and we have some in the United States, and they have some in Taiwan. They don't they're not allowed to be sold in China. So that's one of the things we can do. We've done. Um China now produces roughly 32% of uh of global manufactured goods. So w what I mean I kind of did give a synopsis of how we went from you know China Shock 1.0 to 2.0. But what's your comments on how we got there? You know, what what do they do smart? Where are there gaps if there are any?
SPEAKER_01Well I think like um China was clearly the main beneficiary of um the prior status quo that now I think is having to change. Um the system worked pretty well, it worked extremely well, actually, to the point that China has now changed like some fundamental assumptions that the entire system rested upon, which is that US comparative advanced relative advantage over the rest of the world militarily and economically uh uh allows kind of increased global cooperation and low barriers to trade, free flow of capital, and things like that. And I think now we're shifting uh because of because China did such a good job of kind of exploiting the way the pre prior system worked, they were able to, they realized the US was configured in a way to just kind of be a sponge for global for capital surpluses. And so they've they've been running an increasingly large trade surplus for years, and now it's gigantic. I don't even know what the figures are the last time I saw, uh, but it's continued to grow. Uh while their imports stay relatively flat, they continue to export more and more. Uh and I think now, because of what you're saying, you're listing out all the different kinds of industries they've gained an advantage in. Um, a lot of those things, you know, for a very long time, businesses kind of around the world that chose to participate in this system where we all sang around, sat around a campfire and sang kumbaya, and we all traded with each other. And a car wouldn't just go back and forth between the US and Canada a bunch of times, but it'd go to f six, seven different countries before it would get it would get built. And I think uh now, you know, for a long time it was who can build this more efficiently? I'm gonna put my capital there, and businesses could optimize for those things, and countries could allow their supply chains to optimize for those things and spend relatively less on defense because the US footed that bill in in exchange for them participating in this economy, for recycling their surpluses into U.S. assets, buying treasuries, buying our stocks, all those kinds of things. That system worked really well for a while until China rose. And now some pieces of that supply chain, where they live, is not is no longer an economically optimized question. It's now a national security question. Where are our semiconductor manufacturers? Where is our shipbuilding? You know, look, where is our advanced manufacturing? Where do we build our weapons at? Where do we get our rare earth materials from? And so all of the where do we get our batteries from? All of those things matter now.
Supply Chains Turn Into Security
SPEAKER_01And what I think is going on with Canada and eventually Mexico, I think, will have the same general kind of outcome with the US. The US is saying, okay, with within our little North American trading ecosystem, we don't want China to have a back door into our manufacturing anymore. We don't want Chinese parts to randomly be coming into our supply chains. We want stuff built in America or built in Canada or built in Mexico, and we just trade it amongst ourselves because we can do that and it's better for our strategic interests. And then I think you extrapolate that more globally, and I think that's what the U.S. is gonna try to do with everyone who wants to play in this system to continue selling to wealthy American customers and other people in this ecosystem to in order to do that. I think the U.S. is gonna say, there are certain aspects of Chinese output that you are no longer allowed to take into your country. And we you we want you to match us in tariff policy and in the way that we police those kinds of interactions because it's too expensive for us. We're not we can't do it anymore. We're not going to. They've basically said we're not gonna just come swoop into your aid anytime something happens. We need you to spend more on defense. They want everyone to spend three to five percent of their GDP on defense instead of two percent or less, as some other people have been. Taiwan, just yesterday or today, there was a headline that Taiwan has spent three percent of GDP on defense for the first time, like ever. And so a lot of that includes buying from America, who is the world's largest weapons manufacturer. So like it's all right.
SPEAKER_03We have like a five-year, we have a five-year backlog with them. I get that's that's a whole nother issue.
SPEAKER_01We do I think like there's definitely questions, like to kind of couch what I'm saying. I don't I don't I don't present this idea of what I think the US is trying to do as me believing it's all going to work out perfectly and that they're all that are gonna get exactly what they want. All the supply chains are gonna move into some Western hemisphere/slash EU friendly block, and China will be completely excluded. I don't it's not gonna go well. It takes years to move capacity. We have really high input labor costs here in the West that kind of make it hard for manufacturing to come back over here in a huge. I don't think that's the biggest gap anymore.
SPEAKER_03I really think it's the skill. I think it's the skill. Well, uh, it used to be that. And now I think we don't possess the skills that China does. And this kind of like bleeds into what I think is is the main main question here is at what point does manufacturing capacity stop being an economic issue and start becoming a national security issue? Right. That's what I was saying, right? Yeah, because what what what if happens? But we we literally, for some of these skill sets, we don't possess them. We don't have the people here to do them. And and and uh TSMC found this out when they tried to build you know their plants in Arizona, they were importing all kinds of talent because we just didn't have it here.
SPEAKER_01You know, when when somebody graduates from we're not semiconductor manufacturers, we gotta figure out how to be one of those.
SPEAKER_03Yeah, it takes years. And so and so like that's kind of like where this started, and it's been both administrations that have been working on the chip manufacturers. You know, Biden had the CHIPS Act, and you know, Trump has done his buying 10% of Intel and bullying TSMC into building more plants here. Um and I kind of think some of that makes sense. I think you know, both ways, like a little bit of stick, a little bit of sugar, uh, because we were we were in danger there. I think that was the biggest supply chain risk.
SPEAKER_01Um yeah, exactly. And and like uh I I think that it's it's exactly where we're going here. And they're having to you know it's gonna take some time and it's gonna take a lot of capital investment. And I think you know, we're starting to see governments starting to do those things, especially here in the US. So uh we're starting to direct a lot more credit and government resources towards certain industries that we want rebuilt here that we know if we leave it up to the private market, it's not gonna happen on a fast enough timeline for us. So, like the export import bank has been writing a bunch of loans to like uh some laser manufacturer or some company that makes kind of chips. I don't I don't know all the technical terms in there, uh, but they've been creating a lot of credit, which just comes directly out of the treasury. It's not like they have to go to some commercial bank and do it, it just comes right out of the government. Um, the UK has been doing similar things. Uh and I I think that we're gonna see more and more of that because, like you said, like uh there's these are no longer economic questions, they're national security questions. And they are it's because China was so skillful at exploiting the status quo of the last, call it 30 years, uh, that it necessarily has to change now. And it's not something I think is gonna be very pretty. Productive capacity itself is now a form of national power. And so, like if you just think of the implications of that, there's gonna be a lot more intervention in order to move those things to places.
SPEAKER_03What year was China added to the WTO? Was it 1920? 2001. 2001. Okay, so it's been 25 years on the side.
SPEAKER_01But they were they were already like starting to get integrated right in the 90s. Yeah. Um, and you know, one thing that I think in the the original China shock was about the amount of labor they also brought to the global economy. There's this paper from the uh Bank of International Settlements from like 2015 that talks about how when China and the Eastern Europe, but the Soviet bloc um integrated into the Western economy and Western supply chain start in the mid-90s into the early 2000s, uh, they alone, just China and Eastern Europe, had 125% of the amount of labor that the rest of the Western global economy had. And we just they just added all of it over a period of like 10 years and created this massive disinflationary effect. That and also expanding their capacity, right? And it just kind of was a flywheel that worked really well for a while. But I think when we look at the next 10, 15 years of who wins the manufacturing race, uh, I I think it's really gonna be about who can automate as much of this shit as possible because China's demographics look worse than ours. Uh and so that there's no way that they're gonna that's a turning more supply shock's not coming anymore. Yeah, well, it's right. Uh but that labor supply shock is not coming anymore, right? And and this is not just a Trump thing, just to kind of put a final point. You mentioned something about Biden, the Biden and the Chips Act. I I tell this to people a lot, like it's easy to focus on Trump because he's a very bold and boisterous and obnoxious person, and he's he doesn't do things according to the way you expect them to be done, according to tradition or whatever. But Trump didn't come up with this idea of pushing Canada around on trade with China and and and re- this reshaping of supply chains. If anything, Biden's policies on China look very similar to Trump 1.0, and in some ways we're just advanced further. And those guys politically were on very opposite sides of the spectrum.
SPEAKER_03Yeah, I think that's it.
Bipartisan China Policy And Trump Style
SPEAKER_03And and like I want to make one point here, because this is our first episode. We we don't like both sides, right? No, we're you call them opportunity political haters, so it's not, you know, you're gonna hear us talk about Trump probably a little bit more because he's the current president. That's just the way it is.
SPEAKER_00Why don't you guys talk about Biden? Well, because he's on the he's on the verge of death and he's no longer he's got cancer and he's dying.
SPEAKER_03Let's just leave. He's gone. He's gone. Yeah, no, I I I think I think you're right. I think here's where I'll draw a distinction between uh the two most recent administrations is the strategy seems a little less cogent with with Trump 2.0. It does hectic. Yeah, I I know that's like part of like his shtick is to be like you know, flood the zone or or be an anarchist. I I just don't think that really works in geopolitics as it does in real estate, right? So I I think there's a problem there. And and I think what you're describing of what we're trying to do and what's happening in the background is what all the adults are trying to do. Uh, I think it may be difficult with you know his ego getting in the way. I think that's you know a whole nother discussion. But and that's I think that's one of the things that makes him appealing to some folks is a lot of the issues that he pushes on, there's a reason why he's pushing on them because they're real issues. He's not making these shows.
SPEAKER_01Right, and he and he's been informed by you know and uh a cadre of experts who have also been the same people who informed Biden in a lot of cases uh about what the US needs to do, what it's trying to do, things that operate beyond administrations. And you know, he just kind of fits some of that into his erratic way of governing. And I and I think he it becomes everything becomes about Trump because he kind of sucks the air out of the room with any room that he's in. Yeah. But but this is a long-term thing. And I think no matter who takes office next, you might hear the tone of the way some of these things are reported in the media change because maybe the media is more friendly to the next guy. Uh but the actual direction of travel, I just I don't think is going to change at all. And what I what I wonder about, I'm I'd be interested to get your thoughts on this, is when I read a lot of I'm on Twitter a lot, and uh as people have been talking about this, um, this whole move over the last year and a half, this this change in tone with our allies and the way we're we're we're demanding more from them in order to participate in our kind of system and to be our friend. Um, a lot of people seem to think that there is no plan, that this is completely by the seat of our pants, that it's completely erratic and pointless and stupid, and that Trump is destroying the US hegemony and we're walking away from the US-led global order, and we're abandoning our allies and uh every every permutation of that. And so I I I don't believe that, but I'd be curious what you think about that.
SPEAKER_03You know, I I I really compare um the Trump presidency to a recent president in the Philippines, and let me look his name up quick. And I don't know if you guys remember this guy. I think it's um oh what was his name? Dwarrow or something. Uh sorry, let me get I want to get his name so I don't butcher it. Yeah, Dirte. Here we go, Dirte. So I I remember when he was president, he would say all this shit, and he'd go through his country and he would kill a bunch of bad people, and then he would pop off to the United States and like flirt with China, and then a bunch of the people behind the scenes would be like, whoa, US administration, like we're gonna get rid of this guy in four years, like it's gonna be okay. Here's what the adults are actually doing. I think there's a bit of that going on. Um there's too many people with too much to lose for that not to be going on. Um I mean it's it's kind of like you know, with this trust with the bond market, you know, the bond market was her daddy. I think the bond market could be Trump's daddy as well. I think we've seen some of that recently where they've just had to make some moves. Um and so I I think I I think he gets a lot more freedom than that other people exercise, you know, kind of just based on his personality. But I to your to your to your point, I don't I don't see directionally things changing. I I think some of the rhetoric is detrimental to some of what we're trying to accomplish. I it and I'm I'm a little bit more of a negotiator. And I think we should be negotiating with some of these countries like the EU, you know, Canada and Japan and South Korea. But here's the thing is is some of this I mean you can squint hard enough and you can see how we actually benefit from having somebody who's belligerent like Trump so they get a taste of like what the world is like without us, because a lot of them were kind of sticking it to us like they were consuming but not really reciprocating. Like what's let's call let's call a spade a spade here. I mean I I I would say especially with European Union, I don't know why he's picking a fight with Canada. I mean they've been they've been attached to the hip with us. Could you balance some things out? Yeah. I mean, if you you could get upset about some of the dairy things, but like basically Canada's just putting a floor on their level of agricultural production. So in case something happens, like they have a trade war with the United States, they actually have their own industry to feed themselves, right? Like their own dairy industry to produce milk and cheese and all those other things. And and I think I think candidly the United States should be doing some of those things. Uh we have to uh i i i everybody wants to do one thing, right? Do we tariff, do we subsidize? The answer is both. And and it's applying those tools correctly. And in the and the answer is also taxing people for certain behaviors, whether it's offshoring or not, or providing tax incentives for for people who are reshoring jobs, who are you know have net job growth for these larger companies. I I think the way you the way you change people's behaviors through their wallet. And it's not only a person, you know, I guess a business is now a person, right? Since Citizens United, but uh a business is is is an entity that it solely exists to make money. And so that's how you change a business's behavior. A business does not have a conscience, it does not have national security interests in mind, it's not American or otherwise. A business make is is trying to make money. So you as the society, as the government, have to align these businesses with your goals. And the way to do that is through you know, stick and carrot, right? You don't pollute or you're gonna get fined. If you do these things that are good for the environment, we'll give you subsidies. I mean, that's just an example. I'm not saying I'm you know that's that's what we should be necessarily the the topics we're talking about, but I think I think that's more of the approaches we should have where I think so I expect the current I I expect the the next administration to try to patch things up a bit and might actually benefit from Trump being belligerent. I mean you you can squint and see enough where that could be beneficial. I but we have to see how far this goes and how irrational he gets, right? And how much pain we ever suffered. Yeah, and it it feels like the rest of the world is making trade deals and we aren't, right? And like it just feels like you know, everybody else is teaming up and we're not, and they're and they're gonna just let us self-destruct. And I think we gotta get off that train a little.
SPEAKER_01I think it can feel that way. Um, but I don't think there's a lot has really changed other than the kind of public tone of our interactions with others. Uh obviously the terrorists changed some things, but I I think you mentioned that the way to hit people is hit them in the wallet. Uh I think that's exactly what the US is doing, right? Like that we're we're we are swinging the leverage of our economic and financial market access amongst people who are deeply embedded with us already, and saying if you want to continue to play in this playground, there's going to be some new rules, and this is what we think we should do. And I think part of where Trump maybe is shaping the way this is going a bit is his kind of art of the deal style of making ridiculous uh a ridiculous initial position and then walking back from that to something more moderate. Is my stream working okay?
SPEAKER_04Yep.
SPEAKER_01Okay, for a second there, I got a I got a message. Just want to make sure. Yeah, um I think Trump's kind of like art of the deal style is let's let's start with an a ridiculous initial position that we know no one will accept. And by the time we get them so tired of dealing with us that they accept, we're somewhere we actually want to be, which is more in the middle from here to there. And I saw like what I saw some list of I don't know if this is real or not, uh, but I saw a list on Twitter earlier going around, and it was apparently a bunch of the talking points between the US and Canada, and like half of them seemed realistic, and the other half seemed absolutely preposterous, and like nothing that would ever actually be agreed upon. Uh but I but of the 10 things, four of them are probably really important. And like they throw the other eight on there so that they can knock those off and seem like they're negotiating, right? And so, like, oh well, we'll take that off. You don't have to do that. That's fine, but we're really sticking with these points here. And those points that matter are at what degree and in what ways is China into infiltrating your supply chains and how are those things making it back to our economy? And yeah, we're gonna use access to the dollar as a weapon because everyone is deeply embedded in the system. Like I said, we are three-fourths of Canada's exports. If you look at uh European trade, right, European trade exeu, so like European trade with anyone outside the EU, uh, 50% of their imports are dollar denominated. A third of their exports are dollar denominated. This is data on Eurostat's website, it's official EU data. Uh so half of their own imports are dollar denominated. They can't just walk away from that. If they started charging in Euros all of a sudden, that would shift a lot of the dynamics of the way reserves are accumulated, how financial markets are bound. You can't just walk away from that, right? And Australia, the Australia is the same way, right? They have huge dollar denominated trade. And so, like there's a lot of these countries, they're kind of stuck in
Can The World Push Back Together
SPEAKER_01the system that they're. In right now. And I think the U.S. is trying to figure out how hard they can push them into some new regime without them leaving that system.
SPEAKER_03Yeah, and I think that's where I get back to some of the problems with execution, right? So, like to my point about us getting a bunch of countries to team up and go after China, I think we needed to take these trade deals on a bit more one at the time or two and three at the time, as opposed to like machine gunning tariffs across the entire world.
SPEAKER_01And then so you call us if you don't like the tariffs.
SPEAKER_04Yeah, yeah, exactly. I I just it didn't.
SPEAKER_01But this Canada thing's been going on for a while. We've been talking to Canada off and on for this whole time. So we are talking in the background, you know?
SPEAKER_03Yeah, but doesn't the Canada thing, like in the focus on it, feel more like ego, right?
SPEAKER_01Like because I think the bigger-cause they're making a bit of an example of Canada because Canada is one of the least likely to go side with the China. They're more one of the most likely at the end of the road to be the one that sides with us. And so they're kind of making him it's like, you know, when you when the when the drill sergeant comes in and he beats the shit out of like the tough guy, out of the new recruits, you know, and it kind of puts everyone on an even keel because he knows that guy can take it, you know, like what a bad example, but you get what I'm trying to say. Like they know that Canada's not going anywhere.
SPEAKER_03I I hear you, but to your uh you're I think you're after that's a gr a great read, actually. But to our earlier discussion, Mexico has way more of China, you know, reshoring their their partially finished goods and finishing in Mexico and then importing into the United States. Trans Mexico. Yeah, well, yeah, even like partial assembly, right? Like some components come in, they're put together there, and it's a Mexican-made, and they go up to the United States. Yeah.
SPEAKER_01Um the White House released a port about a report about that two days ago called the big trans transshipment scam or something. And they they called out Mexico is one of the chief countries involved in transshipping from China into the US when they don't want it to be happening.
SPEAKER_03Yeah, and Mexico is also like pretty politically unstable, right? Like they really don't run their own government outside of Mexico City. Like it's it's it's almost an active war zone. So I mean you the the you know Acapulco used to be somewhere where people vacation. Now it's like a gangland.
SPEAKER_00Yeah, like I was just reading about that the other day. Uh yeah, okay.
SPEAKER_01So how maybe Mexico, Mexico might be a a stickier situation to deal with in Canada. Canada seems kind of straightforward. Where Canada, yeah, Mexico, they don't even have full credible authority across their full territory. Right. And like you said, they have a lot of like there's more transshipment going on with Mexico than there is with Canada right now. And so I think maybe they'll be next, right? What they will get dealt with right at some point. But I think Canada just unfortunately, also because Carney's kind of a douche, I think that they just they just happen to be first up, you know.
SPEAKER_03Yeah, I consulted with two like kind of global 1000 companies in the pandemic era, and one well, one was more of a I'd say one was a global one thousand, one was more of a a large startup, and both of them moved manufacturing from China to other countries. One was a consumer goods company, and they uh moved all of their production from from China to Malaysia and Vietnam, and another produced uh a unique electric motor, and they moved all their production from China to Mexico. So I I felt like I felt like the previous administration was starting to get people to move their supply chains closer or with more friendly countries, and I thought that was a step in the right direction. And so, like, yeah, that's where I'm going here. So the last to kind of close this out, and we're we've kind of gone a little long on this, but how can anybody compete against China's dominant Yeah, how can anybody compete against China's you know dominant position right now? It just feels like we talked about for years how China was gonna pass this up, and they haven't passed this up in as far as the size of the economy, but they have absolutely passed this up in as far as economic power, I think. They they produce the world's everything and can produce manufacturing power, maybe manufacturing power outside of oil and gas. I mean, let me give me give let me give you one factoid. China added last year the entire size of Germany's electric in capacity in that year.
SPEAKER_01Yeah. Well, Germany's kind of a joke, right, because they shut down all their nuclear a bunch of their nuclear plants. Which Trump told them was stupid during Trump term one. He told them it was stupid, and the German delegation laughed at him. I remember it was at the United Nations, and the Trump administration said, We think you guys are stupid for shutting down your nuclear plants, and the Germans were sitting there looking at each other and laughing about how the how how could they be telling us this and look at us now?
SPEAKER_03Yeah, and they're buying they're well, we're just gonna buy natural gas from Russia. Like, how did that turn out? Yeah, good job.
SPEAKER_01Yeah, but how this is why I think I think you know, I don't know if you're familiar, there's this guy named Michael Pettis, uh, who writes a lot about China's economy and about global trade imbalances. It's like a big topic that he knows a lot about. And something he talks a lot about is that China, because they intentionally run manufacturing output as like a national strategy, and like that is literally their goal. They put all their capital to it, all of their investment goes towards that. It's very state directed. Um, they have very weak private demand and weak consumption, and it's all about output, right? And what that ends up doing is it forces other countries who are not running such a who have more open economies to kind of absorb those excesses, right? They just get and they it just ends up happening as a result of market forces, right? And that's what happened to the US for so long. And for a while, we liked that, right? We talked about it earlier with the China with the China Shock 1.0. It eroded our manufacturing base, but it also kept goods down. We didn't have inflation for a long time. Our central bankers were like, why can't we produce inflation? And it was literally because of this. Uh but yeah.
SPEAKER_03Do you remember when they were talking about how reflation was was a thing of the inflation was a thing of the past?
SPEAKER_01Yeah. Well, and so like China was China's running these massive imbalances, right? But if if if the US by itself decided that it wanted to try to fight back against these imbalances and it was gonna raise really draponian tariffs, like put aside the logic of it, but let's just say they wanted to do that and they wanted to just shut out Chinese imbalances from their economy, put dumping cheap goods. If they did that, then the next most available liquid open economies would just absorb those excesses because China's not gonna stop doing what they're doing, right? So it's just gonna go to EU or it's gonna go to Brazil or it's gonna go to South Korea. And some of these places, by the way, have anti-dumping uh duties currently in place against Chinese goods because the Chinese are dumping a bunch of steel in Brazil and fucking up Brazil's cargo. They were dumping a bunch of batteries and steel cylinders and tires in the EU. And the EU's like, fuck you, you can't do this. And so what I think the US is trying to do to answer to take it back to your question, how can anyone can we compete? Can we compete? The way we compete is we get everyone else to agree that we have to collectively push back against Chinese imbalances. Uh but in order for that to be something that everyone actually does and is even maybe remotely economically successful, they have to kind of renegotiate the terms of their integration economically. And they have to decide which parts of our supply chain does China get to still have access to and which don't they? And we and the US can't be the only one doing this, or else the whole thing is for naught, right? We we cannot be the only one doing prohibition because it'll just go all the speakeasies will just end up somewhere else. So, like we have to get everyone working with us on the same page. And so to do that, we've chosen to swing our dick around and to try to see if we can get it done. And it's gonna be incredible. I think the direction of travel is clear. The tone may shift from administration to administration. Like you said, maybe it's helpful that Trump is really a dick now. Maybe, you know, I don't know if we're gonna even make it to talking about the Iran war, but I think some of that stuff is also like intentional discomfort in order to accelerate the change in incentives. And so I think that all of this kind of ties back to what the U.S. is trying to achieve. It's not sexy, it is not elegant. It seems like they have no plan, but like it there there is a thread. There is the Doctor Strange with the one finger up, there's the one path through all this stuff that maybe the U.S. is successful. Uh, and I think that that's the only way you compete because China's not going to stop doing what they're doing. They don't want a strong consumer economy. If they did, they would have done it years ago because it means the last thing I'll say, it means for them to do that, that the communists would have to surrender some of the allocation of capital in their economy to their own people, and they have shown no willingness to do that, even in the middle of a multi-year deflation.
SPEAKER_03Yeah, yes and no, right? I mean, what they're communists with a with an asterisk, right? We still have, you know, you know, Jack Ma, right? Like, I mean, I always have to.
SPEAKER_01Jack Ma, no one even hears from that guy. He's been totally he's been totally castrated by the CCP. Jack Ma lives on a glass. Yeah, but he's still everywhere, and he comes out he comes out once a year and says something to the media, and he got he has to live in his bubble now.
SPEAKER_03He he's a state-owned entrepreneur, right, at this point. I mean, I mean, uh G definitely cracked down on those guys, but I'm saying there's still plenty of of capitalists, I mean, probably corrupt capitalists. A lot of them are a fill leader with the government in some ways.
SPEAKER_01It's state directed. Everything's state-directed in the race.
Energy, Defense, And Talent Gaps
SPEAKER_03All right, so I'm gonna briefly kind of cover where where I think I think there are risks here and gaps that we need to fill to kind of execute on what you're saying. And so that's energy vulnerability. We have one of the biggest issues I have with the current administration is like we need more energy capacity, period. It doesn't matter if it's wind, solar. I'm not even saying taking, you know, oil and gas or coal offline is already online. Nuclear. But but but the fossil fuel burning stuff, it's not sustainable, right? Like I I grew up and you never heard about hurricanes in Hawaii. There's been there's two fucking tropical storms in Hawaii over the last two weeks. I'm sorry. This is a thing. Like can we just stop? Anyways, another another topic for another day. Uh but we have to we have to produce more electricity. And so we you know, getting mad and tilting at windmills in the Atlantic and taking that capacity offline and you know, putting import barriers on solar panels because they're all made in China. All the best ones are made in China at least. Right, yeah.
SPEAKER_01Like 80% of them or something are made over there.
SPEAKER_03Yeah. It's counterproductive, and getting in the way of you know, wind production is is counterproductive. And we have to figure out a way to produce nuclear power plants more efficiently. And so I don't know. We should be building them. I don't know why we're not building a dozen of them right now. Because we have one company, Westinghouse, who builds these things, and I even think m most or part of that's owned by Canadian enterprises. I'm not quite sure how that works. I think the the part of the company that makes the nuclear plants is in the United States, but I have to look this up, but uh a larger piece of Westinghouse is owned by Canada, which makes this you know even an more interesting conversation. But um I think that we've built one reactor to completion in Georgia in the last 30 years, and that's it. I think they're working on a second. But that's it. And then you have you know the gates is the world that are building micro reactors or whatever. But we have we have to solve that. We have to fix our defensive industrial base. Like we've been overpaying for years for research, and we get like low production quantities of these advanced weapons and in the modern environment where munitions are cheap, that it just doesn't work. We can't pay for these high-dollar missiles to blow up a $50,000, you know, one-way drone or a you know, we can't build this, you know, $50 million microwave system to take out this $100 FPV drone. Like we have to be a lot smarter about how we're defending.
SPEAKER_01Right, because because the actual the opposite is happening, like over in Iran, right? They're using like a $40,000 drone to cause like nine figures of damage to Qatari LNG infrastructure.
SPEAKER_03Yeah, exactly. It's asymmetric warfare, right? And and we've lost we've lost the the narrative there, and we've completely let all of that pass us by. And we've lost industrial know-how. Like one example that I always like to give is is my wife's grandfather was a was a rocket scientist, and he literally worked in into his early 80s because he was one of the few people who could still do a lot of the math by hand, right? And they kept him around for a lot of a lot of reasons. I just don't think we have the engineering capacity, and I think it's made worse by the attacks in academia. Now, some of the attacks in academia were valid, if I'm honest, right? Like I I don't I don't like I definitely think our higher education and K-12 for that matter needs to be reformed. But we were importing a lot of brain cells into this country, and that was net positive for us.
SPEAKER_01Um Operation Paperclip. You know, that is who brought all the Nazis over here after World War II and they helped build the space program.
SPEAKER_04Yeah, I mean one of them brown, he heard it Warner Van Braun was a literal excess in the not in the Nazi party. Yeah, I mean he's the father of the space travel. A hundred percent.
SPEAKER_03Uh a hundred percent. He wanted us to go to Mars and he died shortly after they told him that we weren't gonna do that. Um interesting, interesting story that. Yeah, to your point, Operation Paperclip. Um and we we have to put a floor on our dependency on foreign supply chains. I'm I throughout most of my life I was generally more of a believer in globalization because I think that more cultures want to intermix and the more they trade, we're all better off. But I but I think that you you can't just depend on everybody's good action and you have to plan for bad action. So you have to put some type of floor in for your supply chain. All right, example. You may import 75% of your steel, but you need 25% of it produced in the country to a certain level, to a certain grade, and you understand that it's gonna lose money. And whether that's subsidy or tariff, or you put tariff controls on where it kicks in over a certain percentage, there are certain industries that we just have to have.
SPEAKER_01Yes. Just to decide like semi semiconductor fab is important enough to us that we are willing to pay a premium to have it here and not to just put it wherever the cheapest place it can be made is.
SPEAKER_03Yeah, exactly.
SPEAKER_01Because we no longer trust the person who can make it the cheapest.
SPEAKER_03Exactly. Exactly. And or what if, you know, Toywan's a perfect example. What if they get invaded? And all basically all the advanced chips in the world are offline.
SPEAKER_01That was the whole impetus for them to move into Arizona, right?
SPEAKER_03Yeah, I mean, but we're years, we're years away from you know catching up. We we're they're producing TSMC is producing chips for the first time. Intel's caught up with their 1.8 nanometer chips, but I think they're at like a 50 or 60 percent success rate on those on those wafers, so it's it's not like high capacity yet. But we still don't have what they call advanced packaging, right? And so that's these systems on a chip or socks that Apple builds, that's all still built in Taiwan, and we won't have one of those until 2029. So if a war starts today, we can't even produce Raspberry Pis here.
SPEAKER_01Right. Right. Yeah, it's a big problem. And it's we kind of have to hope that this budding cold war does not escalate into something more kinetic or discomfortable, uncomfortable before we get to the end of the decade and some of this capacity starts coming online. And I think that that's that is a very delicate balance for us to try to walk here. Um absolutely, but I think like the what what you said before touches on my my overall point uh too about a lot as it relates to China and the US's motivations, is that productive capacity is now a form of national power and national security, and we can no longer optimize for the most efficient supply chains across any number of borders. There are certain people that we can no longer play nice with, presumably because the US doesn't want that. And so if we want to stay on the US's good terms, we have to decide, okay, how much of this capacity are we willing to bring back over here and pay a premium for? How much can we let America build? How much will we buy from them? Because there are costs involved in doing that, but there is also a cost in walking away from the US slash dollar-centric global system. That is also a cost. And I think if this if this whole situation, this reshaping of things drags out, if the if the Hormuz disruptions drag out for years, if the reshaping of supply chains drags out for many years, uh, and the U.S. continues this kind of belligerent tact that they've had the last couple years, I think that it it grows the incentives for other countries to build financial rails and trade rails and security uh outside U.S. influence and kind of weakening their hed hegem hegemony. But I think it takes time. And in the short term, the U.S. is gonna use as much leverage as it can, and other countries have to decide like that ultimate cost down the road is still too high for us. So we're probably just gonna pay whatever we got to pay now, move shit to the U.S. We got to do it because we can't just lose three-quarters of our exports like overnight. You know, we can't send it all to fucking EU.
SPEAKER_03We agree. I I I think I think to a certain degree, some foresight you know should have been necessary here. I mean, the world is generally a world of you know overcorrection, and we over-globalized to the point that didn't make sense. Because I I think what we failed to plan for was you know can conditions changing and the global uh the the global politics and geoeconomics changing, right? And so we provided no buffer for us. We didn't give ourselves a floor. Um and so I think that's you know what we have to change. All right. I'm
Two Quick Questions On Tariffs
SPEAKER_03gonna move on here in our segment because we've been a little long. We're gonna do two, try to quickly do two, two more quick segments. I'm gonna ask TXMC a couple a couple questions and have them respond. And then uh we're gonna make our our armchair call. So we're gonna each take on a one point we want to emphasize and and kind of uh with one measurable prediction so we can be on the record on something to move forward with. So TXMC, ready for my questions for you? I got two for you today.
SPEAKER_01Sure, I'll give it a shot.
SPEAKER_03Can tariffs actually rebuild US manufacturing?
SPEAKER_01Not really, no. Uh they can marginally incentivize certain little percentages of output to move back here. Certain businesses might just be right on the cusp of like, yeah, that makes sense for us. We were already thinking about moving back that company you consulted with or moving come, you know, moving uh capacity outside of China. I think like marginally, yes, it can do that, but uh tariffs cannot force an entire rebuilding and resh and shifting of an industrial base from where it currently lives to the US because there's part there there are reasons why it's not here to begin with, and tariffs don't change those factors, so no.
SPEAKER_03So thank you for that. Uh my next question, and I think we kinda answered this, but I don't know if we drew a line. Is the China shock, the 2.0, primarily an economic challenge or a set national security challenge?
SPEAKER_01It is mostly an economic challenge, uh, but it is being increasingly uh presented as a national security challenge. It is national security more so for the United States, and I think it is an economic challenge for everyone else.
SPEAKER_03Perfect. All right, we're gonna move on to our our armchair call.
Armchair Calls And Predictions
SPEAKER_03So we're just gonna pick one thing we talked about today and make a prediction for the future. Um my prediction is as it relates to U.S. Canada trade talks. I expect the outcome will be very similar to the previous agreement. I don't think we're gonna long term have a lot of trade restrictions. I don't think there's gonna be a measurable movement of auto manufacturing to the United States. I don't think that Canada is ever gonna remove the floor of their dairy industry. I think eventually bourbon will start being sold in Canada again. Although maybe Chase have changed. I guess they're buying a lot more Canadian whiskey. I don't know. But I think I think the new regime will look sh trade regime will look very similar to the old one with some new tweaks. That that's my prediction. What prediction do you want to make?
SPEAKER_01I think I'll take the other side of what you said. Uh and I don't know what the window of time we want to give ourselves on this is, but I about the end of the year. Okay, okay. I think that the reason I the reason I'm gonna take the other side um is because uh the USMCA, uh the previous trade agreement, the one that we're maybe put trying to change, uh, was kind of just like here's the rules governing participation in the North American economic system. Just really basic, really like, hey, this this is kind of how we interact with each other. We like free trade. Uh but this new framework is access to the American economy is a privilege. And so the terms of that access now depend partly upon whether your broader economic behavior advances our, meaning American, strategic interests. And so the USMCA is not constructed to deal with that, it's just a trade agreement. And it sounds like to me the US wants more of an economic security arrangement. And I think that that is what is going to come. And I think eventually it means Canada is gonna have to make some more bigger compromises than the US.
SPEAKER_03Thanks, DSMC. We'll we'll see who's right. Uh a couple pieces of housekeeping
Subscribe, Patreon, And Closing
SPEAKER_03here. If you've made it to the end, please subscribe and whatever platform you are listening to us on or watching us on. We're gonna be on Spotify, Apple Podcasts, as well as YouTube. Um look out.
SPEAKER_01Smash the like button if you're on YouTube.
SPEAKER_03Absolutely. We will also be putting out a Patreon uh, and I'll put a link below in the description on YouTube as well as uh the podcast platforms. If you want to support us, um this is not our full-time gig. We do this because we like it, but if you want to see more of this type of content, help us out. Um other than that, I think we're gonna try to do this about once a week. Uh, I don't know that we have a specific day that we'll release on. Uh recording on a Sunday, we'll probably release this about midweek on a Wednesday. Uh once we get you know the flywheel going, we'll probably have a little bit tighter cycle from when we record to when we release because we want to stay current with what's going on. Um, but that's that's what we're trying to do. TSX, do you have anything you want to add?
SPEAKER_01No, man, this was a lot of fun. I'm looking forward to doing it a lot more. It's nice that we're like actually really friends, and so we already have a rapport, and so we can just kind of fall back into or it's weird doing it with the technology in between us. Usually we're like at a bar or a coffee shop or something. So that's a little weird. Um but uh yeah, man, I'm actually really looking forward to it. And you know, I've been I I try to make content on my own, and sometimes I get it's it's hard for me to know like what to write about, what to talk about, or maybe there's things that don't fit into me doing that. And so I'm really looking forward to just having like another completely different kind of outlet, and the tone of this is also less formal than the writing, and so I'm just looking forward to that.
SPEAKER_03Sounds good. Well, thanks so much for everybody for joining us today. I think that's all for me, Brett, and Tix MC. Uh, have a good evening or afternoon or morning, whenever you're listening to this. Bye now.
SPEAKER_01Bye, guys.