Episode Transcript
[00:00:00] Speaker A: Delegating more of that power back to Congress and saying, hey, we just need things to move a little bit quicker would probably ensure a more stable climate. That would allow businesses to be able to invest. Right. That would allow them to say, well, we think that this is what's going to happen. We think that these changes are going to be durable instead of these executive actions which can be done and undone in literally 48 hours time. I mean, these are all I can't emphasize how quick this has all been.
[00:00:27] Speaker B: Right.
[00:00:27] Speaker A: Which is very unprecedented with all this. So I think sending things back and having a more robust process by which, you know, the different constituencies in the United States can advocate for themselves in that kind of forum. Because as it is, the USTR has some of this, they have a public comment process, but that's not super efficient for, I think, where we want to go.
[00:00:54] Speaker C: I want to welcome you back to another episode of the Movers and Makers podcast. Will Drury today and I are excited to welcome Jack Slagle, one of our old colleagues from Tesla on for a very relevant topic with all of the tariff news that's happening in the news today. So Jack is an expert in export controls, tariffs and kind of international policy especially tied to the US and he's led these programs at Tesla where we work with him, Mitsubishi as well as restoration hardware, and now does it as a consultant. So first of all, I want to say thank you to Jack for joining us today, especially where I'm sure he's very busy based on how much news is happening. So thanks for coming on.
[00:01:32] Speaker A: Yeah, no, I'm super happy to be here. Always happy to talk trade and I'm glad other people are talking about trade now as well.
[00:01:39] Speaker C: Yeah, no, we're excited to have a conversation and we realize there's a lot of uncertainty, so we'll try not to nail your feet to the floor too much on what you think will happen. But you know, that's what a lot of businesses and business leaders are trying to come up with, the best guess and ways to mitigate the risks as much as they can. And I will ask like I have some context, Will and I have obviously read and understood a lot of it, but some of the things will be trying to understand the basics. But I wonder if you could help frame it up a little bit like what happened last week in simple terms or the way you interpret it.
[00:02:09] Speaker A: At least what we're seeing this past week was the much heralded Liberation Day from the Trump administration. This has been a consistent hallmark of trade policy since really the re election, if you went back and you read Project 2025, there was extensive discussion of what reciprocal tariffs could look like. Really the focus of these is on the trade deficit.
[00:02:35] Speaker B: Right.
[00:02:36] Speaker A: So the netting between countries imports and countries exports results in a trade deficit. The United States has in the past, call it 50 years, maybe a little bit less, started to run pretty large trade deficits with different trading partners. And the entire focus of what we're seeing is supposed to address that, and that's the outline of the policy is to say we want to encourage American manufacturing, therefore we're going to put tariffs on everything. To try to have a, instead of a support base where you're throwing money into businesses, instead trying to disincentivize businesses from getting their imports from abroad. That's kind of the entire focus of what we're seeing now. There's a lot of details obviously that go into that as y'all are very well aware, but that is really where this administration is putting the most of their focus.
[00:03:30] Speaker C: Because you see like. And maybe you could talk about this. There was a lot of discussion online about how they were calculated and that it wasn't, you know, maybe directly reciprocal terrorists. It was kind of we, we think, or a lot of people think it's based on the trade deficit. Yeah, kind of number. But I don't know if you could help us understand why they, it might have been calculated that way. Is there some sound logic to maybe why that approach?
[00:03:51] Speaker A: I'll try to get into a little bit of the logic. I've seen a lot of theories floating around about how exactly they came to these numbers. It seems that it's a pretty simple division calculation with the relative size of the deficit involved. They're really laser focused on well that's going to be how we calculate what reciprocal tariffs would be. Which does kind of belie the fact that there are ways in which you can calculate out a country's relative trade barriers. Right. The wto, World Economic Forum, all these intergovernmental organizations do put a lot of attention on like what do trade barriers look like? And they have calculations, they have this map about non tariff barriers, about the actual tariffs being assessed themselves. That being said, it doesn't look like a lot of that work actually made it into these calculations. I've seen some indicators that if you put the question of how do you resolve countries trade deficits into a large language model, you get something that looks pretty similar to this. I don't know. In particular, there has been an announcement from the U.S. trade Representative about how they calculated this, but it seems to be simply focused on the deficit, which is not necessarily in line with what you would imagine with reciprocal tariff. The idea being that, well, they're charging X amount on us, we should charge the same amount. It seems to the extent that that is a consideration, it didn't make it into the math.
[00:05:10] Speaker D: Yeah, it's interesting. There has been a lot of talk about did they use ChatGPT or Claude or one of the other large language models to help with some of this calculation. Regardless of how we came to these determinations, the fact is now that we're dealing with, there are lots of responses now that we're seeing from other countries. I've always cautioned people that there's a fair amount of game theory you need to be able to play out whenever you impose something like a new tariff regime, because countries don't just sit there and take it for lack of better term. They oftentimes will respond with trade compliance, trade regulations, retaliatory tariffs, and things like that. And now it seems like we're starting to see some of that. And countries either are falling into one of two categories that you either have the countries that are kind of capitulating and saying, you know what, we really don't want any beef. We want to be on the good side. We're happy to lower some tariff barriers for some relief or reprieve. And then other countries that are going the other way where they're just like, you know what? If you guys are going to slap tariffs on us, we're going to slap tariffs back on you, and we can play this game all day a la China. So I'm curious to just get your. Your thoughts on that and just like how you've been interpreting the responses that countries have been giving to that.
[00:06:31] Speaker A: Yeah, it's been really interesting to see how divergent some of those responses have been. Because one thing you have to remember when it comes to all of this is that other countries have just as many tools in their boxes to address these kinds of things.
[00:06:44] Speaker B: Right.
[00:06:45] Speaker A: We saw this with the first, the Section 301, the original Trump tariffs.
[00:06:50] Speaker B: Right.
[00:06:51] Speaker A: Where the first retaliations that came out of China were narrowly focused and very targeted towards hitting American policymakers.
[00:07:00] Speaker B: Right.
[00:07:01] Speaker A: I mean, it's no accident that Kentucky bourbon tends to drift to the top of the list when it comes to these kinds of things, because, you know, former Senate Majority Leader Mitch McConnell, that was his home state, and that sends quite a powerful message, you know. And so to the extent you have countries that are going to attempt to play ball. They're there is this idea that they are going to start to pull those levers, even if their eventual goal is negotiation? I took a lot of classes at University of Georgia about how international policy is made. And there is a fair amount of wheeling and dealing. And so as much as people might look at the balance sheet of it, there is also a certain amount of, like you said, game theory, a little bit of emotional, a little bit of emotional stakes that are involved. And one of those is knowing the field in which you're playing. As far as countries that are kind of taking a step back, I am cautioning clients that now is not the time to panic about anything. This is a highly dynamic environment. I think there are countries that are also playing that long game to say, okay, where are we actually going to land with this? Is this something we can negotiate our way around or is this something we're simply going to have to accept, for lack of a better word? Because if you look at the list of countries that are being included, Aside from the 10% everywhere rate, you've got some countries where obviously there's a huge amount of impact and they're going to come to the table. The White House has said, I think something like 50 different countries have come and started wanting to have negotiations. Considering there's only about 60 different countries that are on the, you know, the list of special tariffs, you know, not just the simple 10%, that's pretty good numbers. But if you look through, there's some of these countries where you don't have a lot of, a lot of throw to give.
[00:08:44] Speaker B: Right?
[00:08:45] Speaker A: There's just not that much bilateral trade between the United States and say, Laos directly right now. Maybe it impacts regional blocs, but for a lot of these countries, they're weighing their options and they're making that calculus of like, is how exactly are we going to respond to this? And I think you're going to see everybody land somewhere in the middle. Obviously your larger trading powers are going to start to think about what their options are. The EU has already said they're running through what that could look like. China obviously is imposing a like for like 34% tariffs starting, I think it's April 10, MOFCOM said. So there's going to be a lot of discussions. There's going to be. The phones will be ringing off the hook at the U.S. trade Representative, I would bet in the next couple of weeks.
[00:09:30] Speaker C: Do you think the tariffs are going to be long term or short? Short term, I think is the simple way of saying it. You know the simple, some people think it's negotiating tactic, you create leverage, but then you, once they come to the table, you go back to zero. But then there's a broader thing where it seems to be a message of we want to reassure. These are kind of permanent and enduring. So what do you think? What do you think the longer term plan is to keep tariffs or at what kind of level?
[00:09:57] Speaker A: So I think there's two things that you have to keep in mind when it comes to tariffs. The first is they are a pretty good negotiating tactic to try to drive people to the table and removing them can provide a powerful incentive. Also, governments tend to not to like to give up revenue when they start collecting it. I mean that's been one of the consistent things that we have seen through this is historically U.S. customs and Border Protection has taken a bit of a hit when it comes to some of the more focused tariffs like anti dumping and counter bailing duties, which are very, very narrowly tailored. Congress has called on customs is like, hey, can you guys actually make sure that you're getting this revenue? And now that they have this golden opportunity, right, to collect a lot of revenue and to, you know, actually show, show their work, right. It's like this is funding our efforts on the borders, you know, all that stuff. It's going to be hard for them to walk it back even in the event of a successful negotiation.
[00:10:57] Speaker B: Right.
[00:10:58] Speaker A: And it is funny, it's nothing new to negotiate about trade, right. I mean we've seen, we saw the initial USMCA renegotiation phase, the new nafta, right. We saw how some of that stuff went. And the United States has negotiated at this point, I want to say, almost 20 odd different kinds of free trade agreements. And all of those were just about lowering existing barriers. Now we're talking about imposing a higher barrier and then having to come back down from that. I think it's an open question as to whether or not some of these we stick. My, my feeling is that they will be stickier than, than folks will expect even when there are deals made. Because normally we did have phase one deals right after the first three round of 301 tariffs were imposed, there was this idea of like, well, we're going to monitor this agreement for China to buy agricultural products.
[00:11:48] Speaker B: Right.
[00:11:48] Speaker A: And even though there have been some improvements to, in US exports to China for agricultural goods, the tariffs have remained. And so that's always what you have to balance that against. Is this hard to give up money?
Yeah.
[00:12:05] Speaker D: So Jack, when you mentioned the 301 tariffs. Are these the tariffs from the previous Trump administration from 2016? Because those went into place when we were all working together. That was almost 10 years ago at this point. And one would think, one would expect that if these things are really temporal, just kind of during one administration, that the Biden administration would have rolled them back. But rolling those back and giving up that revenue was not what we saw happen. I think that that plays to exactly what you're saying, that once you turn on that revenue spigot, it's hard to turn it off.
[00:12:39] Speaker A: Absolutely. I mean, and you mentioned the Biden administration. The Biden administration did not roll back the Section 301 tariffs, in fact, expanded them in some sectors. You know, you know, semiconductor technology, battery equipment.
[00:12:52] Speaker B: Right.
[00:12:53] Speaker A: These are things that we have seen new tariffs that were put in place by the Biden administration that have now kicked on. So even though they were, the strategy was different. Now it seems that there is at least some consensus among different administrations that tariffs are a valid tool of policy.
[00:13:10] Speaker B: Right.
[00:13:11] Speaker A: And that's a, that's a pretty big reversal from what we've seen in US Trade policy to date.
[00:13:15] Speaker C: Maybe if we can talk about some of the individual countries or regions. And China is obviously a very important one. And I wonder, you know, what I read some this weekend is that that this could be a big advantage for China to consolidate non US Trades. That you see rumors of them working with Korea and Japan and then even the EU looking to diversify their own or de risk the US by partnering with China. I wonder how you see some of those things playing out.
[00:13:42] Speaker A: Yeah, I was pretty struck that you could get South Korea, China and Japan to sign on to a joint statement for pretty much anything given geopolitically is.
[00:13:52] Speaker D: Like it's a pretty strong feat.
[00:13:55] Speaker A: Exactly. And that was a big signal on purpose.
[00:13:58] Speaker B: Right.
[00:13:58] Speaker A: You know, that was them presenting a united front, saying, hey, think twice about this. And I think you are going to see more of that kind of behavior from different countries because the US for where we're at, we are obviously tremendous part of the global economy, but we are not the only, we are not the only country on this planet that gets to say how trade policy works.
[00:14:22] Speaker B: Right.
[00:14:22] Speaker A: You know, and other countries are starting to realize that there is power, there is power together. I mean, that's kind of the entire purpose of the EU Right. From the jump is that instead of having all these smaller polities negotiating, you know, individual tariffs so they could have a common external tariff.
[00:14:39] Speaker B: Right.
[00:14:40] Speaker A: And be able to negotiate as A bloc while retaining some measure of, you know, internal sovereignty. That's big. And I think you're going to start to see more countries going back to the trading blocks. And, and that's an interesting development because that seemed to be not the direction things were going up until about 10 years ago, give or take. You will definitely start to see more regional considerations about how countries work together. You know, obviously, if you look at the actual list of reciprocal tariffs, the ASEAN region, Southeast Asia, strongly targeted.
[00:15:13] Speaker B: Right.
[00:15:13] Speaker A: And it's hard to imagine that, you know, given that they've worked so hard to reduce trade barriers with other countries and also amongst themselves, that they're not going to start looking for different, perhaps more reliable trade partners.
[00:15:27] Speaker B: Right.
[00:15:28] Speaker A: Where the situation is not so volatile.
[00:15:30] Speaker D: Yeah, right. Like, while we're on the, on the region of Asia, we're going to go all around the world here, but in Asia specifically, it seems like, especially in Southeast Asia, countries like Indonesia, Singapore, Philippines, you see that there is strong interest in working with China because it's considered to be like the big brother in that region. And even in the midst of the original set of tariffs that were placed on China, there was a wave of friend shoring that was happening where these Chinese companies were setting up, you know, I won't call them shell companies, but subsidiaries in places like Vietnam and Indonesia to be able to export from those countries to the US and it seems like in this round of, of tariffs that was specifically targeted, and I'm curious if, if you think that that's going to set up a dynamic where those countries will capitulate so that they can do more trade with the US or if they're going to end up aligning themselves more with China.
[00:16:28] Speaker A: It's a very interesting situation that we're seeing because you're exactly right about the French shoring. In conversations that I had with clients and also seeing conversations in the wider press after the China stuff has really started to sink in, the next thought that a lot of companies had was, let's go to Vietnam. Pretty nearby, you've got strong regional trading connections, reasonably good logistics infrastructure. And that did not escape the attention of the administration. You know, they, they full, they said as much when they put out policy to say, we believe, you know, Vietnam is manipulating their currency. We believe that they are not a fair trading partner and they've been consistently beating that drum. And so it's very clear that the US Vietnam relationship is very important to the Vietnamese.
[00:17:22] Speaker B: Right.
[00:17:23] Speaker A: To the, to the policymakers there. They're already talking about, you know, how do try to balance this equation? Because those regional trading blocks are also very strong. Those connections are, you know, literally thousands of years old, you know, for some places.
[00:17:35] Speaker B: Right.
[00:17:36] Speaker A: And it's not a spigot that you can turn off and turn on. So they're in the unenviable position of having to balance those relations. And it's interesting, it's a very uncertain moment, and I think the next call it three weeks or so, we'll start to learn a lot more about what those conversations are going to look like.
[00:17:56] Speaker D: Yeah, Southeast Asia is definitely one of the interesting case studies in this experiment. Maybe moving our way northward. You've got Taiwan, which if people are familiar with the political situation between Taiwan and China, it's been a contentious one for almost the entire existence of Taiwan as an independent autonomous region. What has been the target of the tariffs with Taiwan and what do you think is. Is a likely outcome in that, with. In this situation with China?
[00:18:31] Speaker A: I thought it was very interesting that the administration chose to put the 32% tariff on Taiwan because it, it suggests the shift in policy.
[00:18:42] Speaker B: Right.
[00:18:42] Speaker A: Because I guess peel back the kernel a bit. My original background is actually in international security.
[00:18:48] Speaker B: Right.
[00:18:48] Speaker A: I was always very focused on the geopolitics of it all before I even came to trade. And, you know, the US Taiwan relationship, wherein, you know, we have this hot and cold, right. There's a lack of an official diplomatic recognition, but also they are a major trading partner.
[00:19:05] Speaker D: And now we've got country, we've got companies like TSMC that have set up major manufacturing facilities in Arizona. And so, you know, was part of the intention that, like, if we place the tariffs generally or more broadly on Taiwan, then that will encourage more, what do you call it, like, uptake from our facility in Arizona as opposed to importing?
[00:19:28] Speaker A: Oh, yeah, absolutely. I think that was absolutely the target in with Taiwan in particular, right. Was to. Was to try to spur a bit more investment by TSMC into the U.S. you know, by Taiwanese, you know, the Taiwanese semiconductor industry more broadly into the U.S. but the challenges there don't really have much to do with. With cost. They have much more to do with infrastructure.
[00:19:49] Speaker B: Right.
[00:19:49] Speaker A: And I mean infrastructure in the broadest possible sen. You know, tsmc, you know, has reported out at different points that they can't get enough of the labor that they need to actually run these facilities that they're building right. In the US in the US There simply aren't enough people with the right kinds of PhDs, which makes that investment really tough. And I can see a World where, you know, the administration was specifically wanting to kind of maybe spur that investment along.
But it's also very tough to square because they're an immensely important security partner in the region.
[00:20:25] Speaker B: Right.
[00:20:26] Speaker A: I mean, and also it should be noted like that Taiwan has built up this immense powerhouse within the tech industry. Wasn't an intentional move on their part.
[00:20:35] Speaker B: Right.
[00:20:36] Speaker A: This was an intentional industrial policy to not only broker some economic prosperity, but a certain amount of security from the United States.
[00:20:43] Speaker B: Right.
[00:20:44] Speaker A: And from, you know, regional, you know, partner allies.
[00:20:47] Speaker B: Right.
[00:20:47] Speaker A: That was all a little, not a little bit on purpose. That was on purpose. You know. Yeah. There's a fantastic book called Chip War that talks a lot about the early days of the semiconductor industry and the geopolitical implications that that feed into that really great stuff and elucidates that this really was very intentional. And now, and now that the calculus has changed a bit because it is expensive. But also the United States, we're not there yet. We don't have the facilities. And it's going to take a longer time than a two year, four year time span to get these facilities up and running. You guys well know that, having seen how that all works, we're going to.
[00:21:30] Speaker D: Get to the industry implications in a minute here. While we're still just on the geopolitical spectrum moving our way north from Taiwan into really East Asian countries like Japan and South Korea, who also have historically relied a lot on the US Is military support in defense against North Korea and other kind of adversaries that they have in the region. There were also some pretty sharp tariffs placed on those countries as well. And I think that if I were to categorize, if there's maybe one similarity between all of them is that as relatively small countries with aging labor forces in, especially in South Korea and in Japan, it seems to me that like there's certainly a need and an interest in having some economic backing by a world superpower. And that dynamic has seen seems to be steadily shifting from US oriented to China oriented, even to the point where a lot of like Japanese and South Korean companies are now setting up factories in China where they're now doing local production of their products in country. I'm curious to get your your thoughts on those countries and how that dynamic is shaping too.
[00:22:49] Speaker A: It is really interesting, especially considering that the United States has fairly recent trade agreements with both Korea, you know, South Korea and Japan.
[00:23:00] Speaker B: Right.
[00:23:00] Speaker A: The Japan agreement was, I think, flew a little bit under the radar. But the idea is we have been engaging with those governments on trying to reduce Barriers to trade as a little bit of the incentive to continue these kind of cooperation measures. And to your point about shoring things into China, that is a bit of an extension of obviously some overarching trends, the kinds of things that started with China's accession to the WTO in 97. But also I think what we're seeing in part is a willingness to shore things to where customers are. And it's not lost on me that it's a tremendous consumer market that exists in China and they do have some comparatively high barriers to being able to enter that market. So for a lot of these companies, it already made a good amount of sense to build facilities there, to build production, to build that capacity. And I can't help but imagine that this will only strengthen that.
[00:23:58] Speaker B: Right.
[00:23:59] Speaker A: If you're talking about generally the walls going up a little bit higher everywhere when it comes to these kinds of trade barriers, they're just going to increase that investment in there, so long as they're, so long as there is an alignment of incentives. And in my mind they only seem to be becoming more closely aligned.
[00:24:16] Speaker D: Yeah, yeah, yeah, for sure. One observation I think has been interesting, is really interesting, is that when you think of the largest populations of consumers, like where are the buyers? So you're making these products in one country with the intent of selling them to buyers in different, different countries. The US has a major consumer population. You have China that has a massive kind of well financed middle class that are high consumer rates for things like electronics, luxury goods, EVs, things like that. You know, now maybe moving our way eastward. We're going to get to the EU in a minute. But actually one that's been surprising for me has been, has been India. So India just has a massive population, really large middle class of people. I've been seeing that there are lots of companies now setting up. These are Indian companies setting up manufacturing operations in India with no intent on even really exporting from India. Maybe if they're exporting things like two wheelers, they're going to countries like Vietnam or in Southeast Asia. But it seems like India is really content in their position, having a large population of consumers and addressing that as directly as possible. I'm curious to just get your thoughts on the India market and kind of where they're shaking out in this whole global dynamic.
[00:25:37] Speaker A: Yeah. In a lot of ways you can see parallels in I think what the US administration is aiming for and what Modi in India has also been aiming for. Right. You've got this whole make in India initiative where they are trying to onshore things, and that is a reflection of that. They can throw their weight around.
[00:25:58] Speaker B: Right.
[00:25:58] Speaker A: There's. You're exactly right. It's an absolutely massive economy and they do have a lot of the resources, but historically a lot of investment has been kind of curtailed because of the business climate.
[00:26:09] Speaker B: Right.
[00:26:10] Speaker A: You know, there are a fair. There's still a lot of regulatory barriers. You know, if you actually pick up and read the report that Trump had during the quote, unquote, Liberation Day announcement, it was the USTR report on barriers to trade. And if you read those over years, which unfortunately I have, India is pretty consistently pegged as having a lot of barriers to foreign investment.
And so there has been a strategy, a shift in strategy relatively, to say, well, so maybe we'll make it a little bit easier as far as some of the particulars about how. How business is done here.
[00:26:49] Speaker B: Right.
[00:26:49] Speaker A: You know, you're not seeing a full retreat of the barriers that are in place, but a relative slackening so that those kinds of companies who want to do business there, who want to make things there for the domestic market, can engage with that. I think there's still some. Some ground that needs to be covered on that. But now the incentive is very clearly there.
[00:27:07] Speaker B: Right.
[00:27:07] Speaker A: If you're talking again, if the barriers are kind of going up the world over, then why not get a little bit closer to where you're going to actually distribute goods. Right. Especially if you have a large population of consumers and also a large population of workers that you can leverage.
[00:27:23] Speaker B: Right.
[00:27:24] Speaker A: I mean, that's absolutely immense. So it's going to be a really interesting. See how that changes the overall dynamics.
[00:27:30] Speaker D: Yeah. I hadn't thought about the large population of workers, but it actually highlights one of the largest partners that India has had over the years has been the Japanese. And when you talk about two demographics that couldn't be more different from each other, I mean, maybe this wasn't the case when companies like Suzuki were setting up shop in India, but today they're by far the largest kind of trading partners outside of India, where they've entered into joint ventures with so many automotive companies, electronics companies, etc. Yeah. I'd be curious to see how that's going to evolve over the next decade as well.
[00:28:08] Speaker A: Yeah, there's going to be, I think, a hunger for lots of multinationals to get partnered up with local entities or to start their own and make their own direct investments into these countries. Because now there's been this reliance on the idea that we can do anything, anywhere and the cost is going to be fairly negligible. Whereas now there's a lot of debate about how much sense that's going to make if you're talking about these kinds of reciprocal tariffs. If there are countries that if the US is not alone and suddenly there is a desire to raise those barriers, it suddenly makes a lot more sense to say, well, we are going to make ourselves into a multinational if we have the resources and we're going to have an Indian production facility. Looking at some of the other, the other brics country that comes to mind immediately is Brazil.
[00:29:00] Speaker B: Right.
[00:29:01] Speaker A: Looking at these kinds of places where there are consumer populations and also the ability to get manufacturing done, access to raw materials, all the things that you need, instead of saying, well, we're going to entirely localize our operations in one place, maybe we do spread things around because that also allows you flexibility when there are, say, exigent circumstances even beyond the world of trade. I mean, look at everything that happened with the COVID 19 and how that strains supply chains. And if you think about that's just another point in terms of near shoring, French shoring, on shoring, all the different kinds of shoring to bring things closer to you.
[00:29:37] Speaker B: Right.
[00:29:38] Speaker A: Suddenly that logic starts to make a lot more sense.
[00:29:40] Speaker B: Yeah.
[00:29:41] Speaker D: Oh man, there are so many more regions. You mentioned Brazil and I hadn't, don't have a section here yet on Latin America. But I am curious to maybe get your thoughts on the EU as maybe the last region I'll ask about. And I think the EU is always one of the more interesting ones because you have so many voices just within one region. You've got France, you've got Germany, Italy and they might all have different versions of what's their ideal state. So I'm curious how things are shaking out with the EU or how you think things are going to shake out with the EU with the new tariffs that have been imposed.
[00:30:16] Speaker A: So if I go to get my magic eight ball and to do a little bit of prognosticating, I think one of the more likely outcomes that we could see with regards to the EU is the revival of some of these long standing trade conflicts. The one that immediately comes to mind is Boeing versus Airbus. Because these are giant capital goods, they employ a lot of people. They're also kind of hit that critical nexus of commercial trade and defense trade. I think that the EU's responses to this point have been fairly measured.
They're not choosing the we're going to tariff everything, you know, right off the bat. They're Very focused on making sure that pressure is applied and in the narrowest possible circumstances. But that being said, I would not be wholly surprised if the existing trade disputes between the EU and the US Boeing versus Airbus is the one that comes to mind the most. You know, I know a lot of folks in aviation, but there are plenty of others to pick from. There's the nascent carbon border adjustment mechanisms. If that could be the subject of a dispute where we're alleging that that's fair trade practice, that then becomes more fuel for the fire digital transaction taxes, it could even extend further out. And that's the one thing I do want to keep, I would keep my eye on, is seeing these measures extend beyond tariffs and start to extend out to broader areas of cooperation and trade, because this is obviously all multidimensional. One of the things that we do with the United States does very well with the EU is export control cooperation.
[00:31:58] Speaker B: Right.
[00:31:59] Speaker A: And to this point that has been rather balanced against China and Russia. Just put broadly now, what we have is a different environment in that the U.S. export control authorities have said we're going to actually back away from a lot of these cooperative measures that we've been working on with some of our partners because we think we can go it all well own for some of these issues, even though these are in support of multilateral arms control arrangements. So. And in the current environment, to that end, the EU has gotten pretty good treatment as far as you know, how are, how are license transactions, you know, so we're talking about dual use goods, advanced manufacturing equipment, but also commercial aviation gets impacted by this. There's obviously a tremendous amount of defense trade.
[00:32:44] Speaker B: Right.
[00:32:45] Speaker A: If then the environment is, well, we're putting 20% on all of your imports and also we're not really going to cooperate on the export control side. Do they start to go to the other partners for that kind of cooperation and leaving us a little bit out on our own? I don't know that that's exactly where it's going to go, but I have to imagine those conversations are happening across the globe, right. That those conversations are happening at the Japan to EU level. Korea, Australia.
[00:33:12] Speaker B: Right.
[00:33:12] Speaker A: The other, call it OVCD countries that.
[00:33:15] Speaker B: Are in the mix.
[00:33:16] Speaker A: I have to imagine that has to be part of the conversation that goes back to the idea of these kind of alternative blocks forming. I think we're going to see a lot of that and obviously it's very early days for that. But I have to imagine that as the EU moves as one, they're also going to be Talking to a lot of other potential partners about what they think their new role is in this world.
[00:33:37] Speaker C: Maybe just thinking about what the long term effects. I think we saw phase one with the 301 tariffs and I wonder just how you think, you know, a big part of our company is helping people build factories and just curious how, you know, and those things don't happen overnight. You know, even the most modest factories are a year. But some, most of the time they're, they're two or three years to go from a decision to, you know, early production. But I wonder how you see that evolving especially for critical industries. I mean automotive EVs, semiconductor conductors, agriculture, batteries specifically. But how do you see thousands of factories being announced? I think that's I think President Trump's dream. Or do you see the near shoring even seems risky where NAFTA seems safe in Mexico and Canada were desirable places. But the economics of building in the US Is still a difficult one with labor as you talked about. But I'm just curious how you see that unfolding in the coming years.
[00:34:37] Speaker A: I think that there will be additional investment into the US because it makes a lot of sense for certain sectors. It's just a good place to go. If you're talking about especially industries that already have a lot of supports in the United States. You mentioned defense. Defense has obviously a lot of support and a lot of the reasons that are not simply incentivized but also mandated things have to happen here. So I think you are going to see an uptick in those investments. But for a lot of companies where the margin just isn't there, I don't know that they're going to be willing to make that investment.
[00:35:12] Speaker B: Right.
[00:35:13] Speaker A: Because the environment is also so unpredictable. And with this latest round of tariffs, there hasn't really been any allowance for the idea that we do need to live in a world where we have comparative advantage. I mean, that's what I kind of come back to with all of this is there are some things that we do not make here that we could make here and there are also things that we could not make here if we tried.
I just don't see as much as I love living in Tennessee, I just don't see the idea that we're going to get banana farms here. It's just not going to happen.
There is this notion that, oh, we should be doing so much of this in one place. And it's like, well, you could. But the investment that it would require to put some of these facilities in place on top of an already uncertain trading environment. I think you're going to see a lot of companies who shy away from that and who are going to play more of a wait and see, who are going to say to themselves, well, there are some things we can immediately do. We can start to identify those partners, we can start that work. But also it's just a tough environment to say for certain because to your point exactly, these things take years, these things take decades in some cases to bring these up to snuff. And I just don't see a tremendous number of international trading partners immediately saying, well, we're going to build an iPhone factory in Kansas. I don't know. Because there has been some of that and there have been some positive incentives. Even having seen those pot incentives go into place, it's just never a guarantee. Especially knowing that those incentives could be so easily taken away.
[00:36:48] Speaker B: Right.
[00:36:48] Speaker A: We were talking about all the things that happened in the past, seeing this desire to hit on the chips act and be like, we're not going to really do this anymore.
[00:36:58] Speaker C: Well, I kind of have two questions. The first one, if you were president for a day right now, what nuance or what would you do based on the current climate? Is there one specific country that you think is most important? Is there one act? Is there anything that if you had a magic wand or if you were in charge for a week or a.
[00:37:19] Speaker A: Year, what you do one immediately off the bat, I think I would send a lot of these powers back to Congress. A lot of what you're seeing is this unified executive vision of how trade should work, which was never the intent of the framers. If you look at how the Constitution is laid out, the power to levy duties is explicitly given to Congress. And because of the late issues with how fast you need to move in a trading world, Congress has delegated a lot of those powers back to the executive. But the thing that you lose with that is, I think the valuable process of collecting information from your constituents. And this goes for businesses as well as it does for consumers. Delegating more of that power back to Congress and saying, hey, we just need things to move a little bit quicker would probably ensure a more stable climate that would allow businesses to be able to invest, that would allow them to say, well, we think that this is what's going to happen. We think that these changes are going to be durable instead of these executive actions which can be done and undone literally 48 hours time.
I can't emphasize how quick this has all been, which is very unprecedented with all this. So I Think sending things back and having a more robust process by which, you know, the different constituencies in the United States can advocate for themselves in that kind of form. Because as it is, the USTR has some of this. They have a public comment process, but that's, it's not super efficient for, I think, where we want to go. And then we're talking about regions on Taiwan. I mean, Taiwan kind of has, is like a linchpin of so much of this. I mean, the existence of tsmc, right. The role that it plays in the global economy to this point, really trying to make sure that that relationship remains on good footing while also making sure that bilateral investment remains strong. Because I'm not opposed to the idea of American manufacturing. I think it's actually a pretty good idea. I think there's a way that we can accomplish these goals and also give businesses and investors more firm guarantees, more durable guarantees as to what the regulatory environment would be like.
[00:39:33] Speaker C: Yeah, those are great answers, honestly, and something I hadn't thought about, especially with the congressional power to do so. I wonder, there's a lot of headlines right now. Is there some element of this that folks are not paying attention to that they should be?
[00:39:49] Speaker A: There are a lot of elements to this because I joke whenever I look at trade data. It's like an MRI of the US consumer spending economy to look at trade data.
[00:39:58] Speaker B: Right.
[00:39:59] Speaker A: And once you start to realize how big of a role that trade plays in so many different sectors, it's hard to avoid. You know, one of the things that's come out from the administration recently is a Section 232 investigation on, on lumber and timber. The one thing with that is that that's going to directly impact housing starts. If you're talking about housing, it touches everything. And that people think I'm a little bit, you know, kooky when I say like trade, it's at the core of everything, but in the global economy it really impacts a lot. And there are all, all the measures that we're seeing will have down, will have secondary and tertiary effects that at the moment we can foresee in some regard. But the uncertainty is what's driving the market moves. The 232 investigation on lumber, the reinstatement of the 232 tariffs on automotive goods, I think is, is going to be very impactful in a lot of different ways because we are such an automotive dependent economy.
And I talk about the tertiary effects too. So one of the things about the new economy is that you have a lot of folks who are doing drop shipping Right. You know, I, I certainly see it in my Instagram feed that people are saying, hey, you know, buy this hair care product or, you know, buy this whey protein or what have you. Right. And for a lot of those folks, one of the other things is the elimination of de minimis.
[00:41:21] Speaker B: Right.
[00:41:22] Speaker A: The small regulations were under.
[00:41:24] Speaker C: That was like it's under $800 effectively is not taxed now. Right. Which is like the temu. The TEMU tax is going to, going to come back.
[00:41:31] Speaker A: Yeah. It pretty much entirely disrupts their business model because they were entirely reliant on sending these small parcels through and not having to pay the full tariff. There's some different kinds of ways that they do pay, like fees and things like that. But now you're seeing a reversal towards that. And I would not be wholly surprised if this expanded beyond just China and also went to maybe eliminating diminutives for other countries. Because then you kind of get to the idea of like, well, any small parcel is going to hit that and that's going to impact those economies as well. The ripples will cascade through a lot of sectors that people don't necessarily anticipate.
[00:42:13] Speaker D: Just knowing what you know about this current situation, where are their bright spots and opportunities? So if you were to be able to invest into any area or to bet on any kind of one industry or sector doing well, what would that be?
[00:42:29] Speaker A: Well, that's a good question. I know gold is doing particularly well, but that's I think, a reflection more of the market instability at the moment. I think that there is going to be a lot of focus on, on what can be done in the United States and those that can make do with doing more in country will try to do more. So obviously you're looking at enhancements in the logistics infrastructure. I think that's going to continue to be pretty durable even in spite of headwinds in trade, like warehouses, as warehouses. I think that there's also going to be a fair amount of sense making on these kinds of investments in the United States with regards to like, you know, data centers. Obviously you're spending a lot of scuttlebutt about data centers for AI. I would imagine that part of what you might see also is an increased focus on reshoring data. And we've already seen some kinds of moves. You know, everything to do with TikTok was framed around national security and where American data was going. I think there will. Even with some of the crosswinds that you see coming for the AI sector, there is still going to be some appetite for data centers in the US as far as, like, any kind of broader trends. It's a good question.
[00:43:50] Speaker C: Thank you. Well, maybe we'll have to record a second episode. But, Will, do you have a positive one, or do you want to end us off with maybe what you see as a positive from this?
[00:44:00] Speaker D: Yeah, I mean, I think one sector that for sure is doing really well right now is global trade Compliance Consulting. So I think there's no shortage of work for you to do right now, Jack. And I appreciate you spending even a little bit of your time discussing this with us. I'm looking forward to talking a little bit more about it later. But thanks again for your time.
[00:44:22] Speaker A: No, happy to. I really enjoyed our conversation today.
[00:44:25] Speaker C: All right, we'll wrap things up here. But thanks for me as well, Jack. I'm sure we'll be in touch and. And hopefully you get some sleep. I know you're going to be a busy man for the coming weeks and months, but hopefully job security is not an issue of something you'll have to worry about for a long time.
[00:44:39] Speaker A: Hey, I. I don't mind. I don't mind the work, you know, I just. I just love that people are talking about trade.
[00:44:44] Speaker C: Exactly. Okay.
[00:44:46] Speaker A: All right.
[00:44:46] Speaker C: I will say thanks again, and we'll sign off from here. Make sure to listen to future episodes of Movers and Makers. Thanks again by.
