All right, Keith and Zach, long awaited.
Thank you guys for doing this.
So I'm going to try to be an impartial host, although I think my views tend to side a little bit more with Zach on this subject.
So I'll come out with my biases here off the top.
You're like ABC or CBS moderating the presidential debates.
This is like any other debate, you know, pretending to be impartial, but really having views here.
So, all right.
And I also have a mute button because, as I said, when we started the last time I hosted a debate with Zach, it did sound.
Depending on your view of entertainment and quality of discourse.
I think it maybe didn't go as well as I would have liked.
So I guess we'll try to rattle through some questions here.
I'll try to bounce back and forth between people.
So maybe just to start off Keith, Outline your perspective on the president's tariffs that were announced, I guess, six days ago.
At a strategic level.
I believe the use of tariffs is one of the best tools in the arsenal of the President of the United States to achieve foreign policy goals.
It's certainly better than invading countries and using military force.
So I think you can achieve many of our diplomatic goals and many of our military goals by using tariffs.
Specifically as an example, if you want to reduce the supply of fentanyl in the United States that kills 100000 Americans every year, tariffs are working very well in obliging and compelling Canada to police the poorest northern border.
They're eventually going to work in compelling China to stop allowing the precursors of fentanyl to be produced in China.
That accounts for 80 of these American deaths.
That's just one example.
They're going to be used to supply critical minerals, trade for minerals in various places.
We have a significant vulnerability on critical minerals that go into the production of everything from iPhones to pretty much every province that we depend upon.
We have some reserves in the United States, but we don't have a lot of them.
There's a lot of countries that do, and we need access to them.
China's already threatening to cut off minerals.
Now, and certainly in a hot war with Taiwan, they would absolutely deprive us of access to minerals.
So it's economic statecraft is how I describe it.
And so completely independent of economic goals, tariffs are very effective.
Secondly, I think there are a lot of economic benefits to using tariffs.
So at a strategic level, I think the use of tariffs that the president announced is brilliant.
You can debate the tactics, like which tariffs can be imposed on which countries, at what rate, under what formula.
I think that's actually a pretty complicated exercise, how to do that well.
And so I'm not going to specifically defend whether Ethiopia should have a 42% tariff or 16% tariff.
Personally, if I got to vote with my feet, I'd probably go with Chuck Miller's recommendation of a 10 flat tariff and then significant tariffs for all countries except the CCP.
That's where I, if I were in charge, but I'm not, would land.
But I think generally speaking, tariffs are a great tool.
Got it.
Zach, what's your perspective on tariffs that the president announced?
Well, let me ask a clarifying question so we make sure we're talking about the same thing.
Leaving the tools to achieve foreign policy aside for one second, because I think that's an interesting discussion and different than what maybe we're talking about in the public domain.
When you say we want to use tariffs from an economic benefit standpoint.
So let's say I'm going to pick a country Vietnam, for example.
It's a good trading partner of ours.
What's the economic benefit we're aiming for, if you will like?
What's the goal?
Yeah, it's a.
It's a good question, because it does vary by country and this is why, like such complicated extras, but vietnam specifically, the economic goal is vietnam's being used as a way of uh sort of circumnavigating uh tariffs on china.
So it's not that Vietnam.
I don't think Vietnam is doing anything egregious.
It's just that there's enough of an arbitrage there that if you have no tariffs on Vietnam, it's too attractive.
Too attractive.
It's arbitrage.
Vietnam and a couple other countries in Asia are intentionally being used as circumnavigating export controls and tariffs that are designed to affect the CCP.
It's the same thing with Nvidia selling, you know, 20% of their GPUs to Singapore.
Like, what the hell is Singapore doing with 20% of the GPUs on the planet?
A lot of them are obviously making their way to China.
So just to repeat it back, because it's a nuance of like, what are we trying to accomplish here, right?
The reason we care about Vietnam and exports coming out of Vietnam that we are purchasing and therefore potentially tariffing is, we think, Chinese companies that we are strategically trying to block for a variety of reasons we can talk about.
Why?
Probably industrial policy that China uses to subsidize its industry.
We are then trying to prevent those Chinese exports from making their way through the United States, through another country.
For Vietnam specifically, I believe that's the case.
I think in other countries, let's say Japan and South Korea, they are clearly protectionist and discriminating against American companies and taking advantage of what we consider to be free trade but is not reciprocal for American companies to sell goods into Japan and South Korea, right.
So the goal, let's say i'll use south korea as an example and we can talk about whether that makes sense.
But, like the goal in south korea is, we believe it's like the chinese aren't routing through south korea.
It's a different problem here.
Now we can go back to vietnam for a second, because the way we tariffed vietnam had nothing to do with like which industries china is actually exporting.
We kind of went with like drunk sailor tariffs.
But let's use.
Let's use south korea, for example.
So this is not a chinese china problem.
In south korea, we believe what's happening is south koreans are tariffing our exports And, as a result, US companies are not as competitive inside of South Korea as humanly possible.
And that's a problem.
They erect, to be really clear, they erect barriers to free trade.
And we don't like that.
This is the reciprocal you know, reciprocal tariff regime, like the paradigm of whatever country acts does, we need to reciprocate and eventually both countries will settle on a true free trade.
True free trade which i think does apply to a reasonable number of countries, right?
So it's not and it's.
I'm glad you're making this argument, because it's way more logical than some of the other people out there.
This isn't like the South Koreans are really good at manufacturing toasters.
We want to manufacture toasters.
So we need to tariff them to industrialize our toaster industry in the United States.
That's not what we're aiming for.
It's just, we're trying to get rid of the South Korean tariffs at the end of of that.
Yes.
In some cases though, I think there are industries, as a result of the protectionism of foreign markets, where the entire industry has kind of left the United States.
And because of sustained protectionism in some markets, and so free trade would allow perhaps, that to be reassured, so to speak.
Then there are a few verticals where there is a strategic national interest.
But those are limited and very specific verticals where we need the ability, like in your world.
We absolutely need the ability to manufacture more pharmaceuticals in the United States.
COVID exposed us.
We couldn't make drugs in the United States.
And that just cannot be.
The national security interest in the United States cannot allow that to be permanent.
So there are some industries where we may have to have some version of subsidization or central planning or whatever.
But I start with a pure free market orientation.
But free means free doesn't mean free with an asterisk.
Free only the United States.
I just have a clarifying question real fast on this.
So and I'm not asking you to defend the tactics by which we came up with the different numbers, but just so I understand, there's this stated tariff number that we can come up with through that gets reported in different systems.
And I've pulled it here if we want to pull it on screen.
Then there's this cheating refrain.
Can you walk through, I guess, some of the or maybe one consideration of why a stated terrorist number on a us export into a different country, how the mechanisms that people would maybe use to manipulate what that would actually look like?
Yeah, there's one example, for example in canada that's in the financial services world got a lot of discourse about a month ago which is Canada makes it almost impossible for American banks to have retail presences in Canada.
And the way they do that, there's not an explicit bar in the law.
They just changed the capital reserve requirements, so it's economically infeasible for an American bank.
Even though we allow Canadian banks and you can walk down the streets in New York and find them to have branches here.
So there are non-tariff based tools.
I saw another example yesterday, which haven't independently vetted, but sounds directionally right.
Then if you bought a Chevy, a Chevy Tahoe in Norway, it would cost 170K equivalent dollars.
And of course, nobody in Norway is gonna buy a Chevy Tahoe and 170K.
So Chevy can't produce enough.
And then we don't hire enough workers to support selling Scandinavia.
So there are non.
This is why coming up with the exact number per market is really tricky is There are stated tariffs and then there are other protectionist measures that are subtle.
And trying to quantify those empirically is difficult.
It doesn't mean you can't take an estimate and come up with something that's a rough proxy.
And I think what they were trying to do is use the trade deficit as a proxy for what the level of protectionism is.
I don't think that's the best way to do it.
I think trade deficits overall across all markets are interesting.
What is the US global trade deficit is interesting.
On a per market basis, I don't think you should kind of reason that way.
But I think that was the logic.
They were trying to find some synthetic way to add up all the protectionist measures in a particular market and use that as a way to kind of calibrate how high a tariff should be.
Logic is a generous use of the word for what's going on there.
I just want to go back to South Korea because I think what's interesting is I think your defense of tariffs is not what the administration is talking about.
So if you go to South Korea, we have a free trade agreement there, right?
The US Korea Free Trade Agreement course, I believe it's called.
And that eliminates tariffs on something like 95% of all goods.
There are some industries here that they talk about.
95% all goods, no tariffs in South Korea.
It's all free trade.
And then if you look at like the effective tariff rate on us goods, to be clear, it's something like less than three percent, anywhere from like 02 to two on on average.
So this is.
You know, the protectionism of korea is like two percent.
It's not a big number.
Uh, so our goal?
I just want to be clear because this we may agree with.
Our goal in tariffing South Korea is to get them to remove that 2 tariff on the 5 of goods that aren't tariff exempt already.
It's this like sliver of, you know, weird minor.
That's the goal, and to remove any non-explicit tariff-based protectionist measures that may be built into other legal regimes.
Which actually, which basically means we actually want tariffs to remove tariffs, right?
Like that's really what we're going for here.
Like the tariff to get rid of that.
Well, if you believe that the rest of the world to some extent has taken advantage of the United States since the 1970s which we can debate, but I believe there's a lot of people, even some non-Trump people, that believe that by being willing to sort of play a prisoner's dilemma game and say you know, we're gonna do this too you may wind up in a better state for everybody.
Yeah, no, but I just wanna be clear.
Like when we talk about like other countries have been like fucking us over for 30 years which, for the south koreans, would basically be selling us cheap electronics that we use day in and day out.
Uh, in electronics yes, but i think there's some other industries like and forget would.
Uh, where does whirlpool?
Uh, whirlpool was competing.
All I know is the tariff rate.
Effective tariff rate from South Korea is like less than 2.
So it's a tiny little tax.
But that means that the goal, like the administration goal, in slapping what I think is something like a 25 tariff on South Korea, is for them to go.
Oh shit, we're sorry.
We're going to remove the 2%.
Or the equivalent.
Yeah, exactly.
I do think you're seeing this play out.
Japan India, even the EU, are all of a sudden calling the administration and saying oh, you didn't really mean, we'll have to keep these things.
Let's start trading.
And I think that's generally good for everybody.
Sometimes you need you know in any negotiations, sometimes you need to kind of hit someone with a stick to get enough.
No no, i get it.
I mean look, if the key support of tariffs is more free trade at the end of the day, not less, we can debate the tactics of like.
Should you slap 25?
Maybe you should have called them first before you did that and like had a conversation.
But yes, the goal of like no tariffs is a good thing.
That is diametrically opposed to the rhetoric coming from Trump and others, which is all about revitalizing American manufacturing, American jobs.
That is literally the opposite of what they're talking about.
I think there's mixed messaging, which is obviously the administration's fault.
But depending on who's speaking, on what day, on what show, the messaging has been slightly different.
That's why when I responded to Logan's initial tweet about tariffs, I listed six objectives.
Now, the problem when you have six objectives that you're trying to use one tool for, is you're going to wind up with some either conflict in those objectives or conflict in the messaging, or both.
Know it's not just that different people in the administration may have slightly different, or more than slightly different perspectives, so they are trying to solve different issues.
Like fentanyl is a major driver.
That is different than solving mineral supply, which is different than allowing american companies to export more for the south korea example.
South korea's success is will american companies be able to export more goods, more for other countries?
Yeah Which, by the way, is like not at all what Trump and Navarro's giant idiot and among other people, are talking about.
What they're talking about is revitalizing American manufacturing.
And I want to be really crisp that is not something you agree with.
You don't think this is going to revitalize american manufacturing.
Save some industries.
Save a few strategic industries where we need to have the capabilities.
It would be nice to make our own bullets, i agree.
That would be like a good thing, but for for 99 of the economy and all the stuff that we've now benefited from as purchasers of these cheap goods, the tariff strategy is more free trade, not less.
And that is where this administration and, I think, a lot of the rhetoric is going crazy, which is like there's being sold to the American people as we're gonna create high-paying American jobs that didn't exist before.
And that is not at all what is going to happen.
Well, Trump's messaging incorporates often both.
He does talk about more American exports.
That's one of the reasons why he cares about the trade deficit.
He does want American companies to sell more.
He wants Europeans to buy more American goods.
He wants South Koreans to buy more, Japanese to buy more.
So he is an American, it's that old quote about America's business is business.
Trump is definitely a president who believes America's business is business.
He wants American companies to thrive.
And he feels like they're being artificially constrained.
You think Trump is a free trader?
Not necessarily a free trader, but he believes that his job is to help propel American companies and he feels like the world is discriminating against American companies, which ultimately translates to either American workforce hiring or the pay, the computation.
No, I get it, but we're saying that like sorry, the sell more shit externally.
The actual tactic to do that is more free trade.
Like, I just want to be crisp.
Like, that's what we're talking about.
Absolutely.
More total trade, definitely.
More total trade, more free trade, fewer tariffs for everybody, which would in theory make Trump a free trader, if that's actually his logic.
I am pretty convinced and we can debate this that this guy actually thinks the tariffs are going to stay and we are going to build domestic industries that make like T-shirts and hats and like cheap.
That's what he thinks.
Like he thinks the deficit means they owe us money.
He thinks they're stealing.
He doesn't understand it.
I'm with you.
If this whole thing is more free trade because we kind of threatened you, essentially, great.
That is not what they are talking about.
Well, I think there's a mix, because I think so much of this quote fake free trade has distorted so many industries where they're located globally.
Like.
For example, did you read this trajectory piece by Ben Thompson on tariffs and tech, about Apple and Steve Jobs complaining to Obama about this?
I think there's a lot of truth in that, which is there are a lot of industries that this regime of quote unquote free trade but not real free trade has caused dislocation of industries that might have stayed in the United States.
Now, can you bring them back?
Why should you bring them back?
You're talking about decades of problems here.
Trying to fix with one silver bullet may be challenging.
There's one other objective that I think some in the administration have, including maybe Trump, which is substituting a tariff-based tax regime, a consumption tax, effectively for an income tax.
And so, again, when you're trying to achieve multiple objectives, there's some tension there.
I personally would, if I could trade dollar for dollar, a consumption tax for an income tax, actually think it's significantly superior.
But then you have to reduce income taxes.
So I tweeted this out two years ago.
For every dollar a tariff raises, I would reduce income taxes by the same dollar.
Then I think you have, by the way, a 70 popular issue that states if you're pulling a normal American, would you like your income tax to go down for every tariff dollar?
The flip of that is a consumption tax is a regressive tax because it hits the point.
Well, I like that.
I think regressive is pejorative.
Now we're back to the normal.
It is pejorative, but I agree that what you mean by that is actually descriptively true.
Because I believe that the wealthy people in the United States pay way too much in income taxes.
1% of the US population pays 54% of the total revenues from the federal government.
That's insane.
One of the reasons why we have these deficits, more or maybe less political, is when you take...
50, 60, 70, 80% of Americans off of the income tax.
They don't have to pay any income taxes.
It's really easy to just increase spending because a lot of voters are not bearing the burden.
It's better for our society as a whole for most voters to bear the burden in paying.
I believe in a flat tax or something equivalent, but then you don't have deficit run amok, deficit spending or debt, because you can't just impose it on a very select number of people.
I feel like now we're back to traditional conservative points and like I feel like I'm on much sturdier ground now in talking to you versus the rhetoric that I've kind of heard, which has been a little, I mean, it's so populist and there's this horseshoe theory where I
The Democrats haven't really figured out how to criticize this, because I think Bernie Sanders actually supports a lot of elements of what we're talking about from a protectionism standpoint.
No, and this is one of the reasons why you know.
Just an observation of why Trump is a great politician.
I mean, you don't get elected president of the United States twice without being very good at some things.
He actually understands some of these elements of like what you call Hershey stuff is if he can take policy, if he can articulate policies and recommend policies or implement policies that he believes in and that also really divide the opposition.
He has a spidey sense of oh, that's really gonna be effective.
And I think on tariffs, it's very hard for Democrats who traditionally wooed union voters, who traditionally supported things like tariffs, to criticize him too much.
In fact, I think the only people really criticizing Trump are the laptop class, which includes a lot of liberals left and some right-leaning laptop intelligentsia.
But the mainstream Democrats are really like at a loss of what to do because you know, and even the stock market you know, historically Democrats aren't the biggest fan of like stock market growth.
And like cause.
You know, as Dustin's pointed out, like people like me generate, uh earn, you know, much more money when the stock market goes up than the average american.
It's like something.
It's heavily concentrated.
So, like the democrats are kind of like losing.
You know the argument the elected elected, elected officials.
So there's a quote.
There's a quote from trump, probably like once a day now, but i'll pull one.
He said, like five days ago he said jobs and factories will come roaring back.
That's a direct quote from him.
Well, think about my Chevrolet example.
Let's say Chevy can sell successfully to Scandinavia, let alone Germany, because we have more american jobs.
Norway doesn't like just generally tax american cars.
It's just they have a tax on non-electric cars because they're, you know, like a green energy country.
There's also like four million people in all of norway.
I'm not sure chevrolet is going to be booming business by selling to like another hundred.
This is an illustration.
Germany is a big automotive market, and they make it impossible.
And yes, there's German preferences for certain types of cars.
I definitely understand.
It's not just the protectionism.
But we don't sell any cars like Americans in Germany.
The German tariff on U.S. cars is 10%.
10%.
Great.
Well, make it zero.
Make it zero.
No, I get it.
And I get the whole point.
But when he's saying we are going to be like a manufacturing powerhouse, the way he communicates this is like new industries, new stuff.
And what you're saying is not what he's saying, which is like.
What you're saying is we have existing American exports that we're good at for whatever GM.
We make a bunch of stuff here that is reasonably complex to do.
And all we're trying to gain is increase the exports of our existing well-established industry by cutting that German 10 tariff to whatever zero.
Well, it gets more complicated.
I generally agree with that Art, but it gets more complicated because the example of Walter Isaacson's biography of Steve Jobs is Steve's like.
I would definitely build this here.
The reason why I can't is more subtle.
And this is why it's more interesting and this was talked about in depth is Jobs went to Obama and complained about I'd like to build this in the United States.
I would like to manufacture this in the United States.
And it's not an economic reason, it's that I don't have 30,000 engineers.
I need 30000 engineers to actually manufacture these, because you need to pair an engineer with your kind of manufacturing team, like the integrated process.
And we don't have 30,000 engineers that I can hire.
And by the way, we don't have 30,000 people.
And we don't have 30,000 people willing to work the hours.
Well, that's unclear.
I don't totally disagree, but there's a good anecdote or a good conceptual framework for budding that, which is if that were true logan, then these workers would be quitting these factories before they got shut down, and that wasn't the case.
It's the owners, the businesses were shutting down, like you think of ohio and all all these burnt out factories that you know, the president and jd talk about.
These were not shut down for a lot of workers.
They were shut down by the business owners, so people weren't working these jobs.
Well, they weren't making iPhones now, right.
They were doing very different things.
The hollowed out middle America that people talk about when they show these scenes on TV or something or political commercials, it wasn't the workers were leaving the factories.
The factories were shutting down first.
Well, they're shutting down because they're bankrupt right, so it's like there's a reason it wasn't a lot of americans willing to do the work, at least at the time, at the prices that need it.
Sustainable yes, continue to do the job that required, but i do.
I do think it's a really interesting thing right, because you know your support of the tariffs is actually as a free trader And I think this is the fundamental disconnect between the political party in charge now, which is Republicans, and the rhetoric and all they're talking about and maybe like a subset of the tech class who actually kind of understands this a little bit better, which is like you think the goal is net new free trade.
We're going to save the like weird little fentanyl thing.
And there's like some side stuff here, but like the bulk of it is free trade.
And every person, except for maybe Musk, in this administration is talking about domestic manufacturing of new stuff, new industries, new jobs.
I don't think my views are very different than the Secretary of Treasury.
I think he's just a minor.
Well, to be clear, he's not involved in the tariff decisions, right?
He's definitely involved, but statutorily, legally, the decisions are allocated to the U.S.
Trade Rep and the Commerce Secretary.
I mean, he said, he said.
Congress can change who gets to set the exact tariffs and how that works.
But right now, December Treasury is an advisor into the process.
He's a very influential one, obviously.
And he believes in tariffs, actually.
And he's grown up through traditional Wall Street and been very successful.
I think my views and his views are pretty damn similar.
I guess I'm curious then, like as you, I hear your tactics and goals around this and then I sort of see a team of rivals thing playing out, at least it seems.
Elon called and Pete Retardo today, which is, I mean, just clever.
Like, well, well, good.
He's probably learned that from Trump.
You know, Trump's the master of the decays.
I know.
I feel like if Elon was on the outs, now he's right back on the end using retardo to make fun of someone.
I feel like that's the quickest way back to Trump's loyalty in it.
But I'm curious, as you sort of look at the cabinet and you know some of these personalities or are familiar with some of the inner workings, I guess, do you think at a high level, What do you think Trump's end goal of these things are?
I heard yours, but what objective do you think he's personally driving to?
Is it just a bunch of one-off negotiations?
They're going to be very discreet decisions made for each country?
Well, he wants you know.
I think I outlined separately to you a set of goals which I think are the administration's goals.
Like, I think those are the collection of the administration would like to achieve those goals.
They're very specific.
I'll read them back.
Yeah, you can read it back or post it.
In rough order.
Reduce the importation of fentanyl into the US massively.
Accelerate access to critical raw materials.
Reduce debt load at 2019 levels at least.
Set the foundation for GDP growth of 3 to 5 consistently, sans inflation.
By the way, on the debt one, they're talking about a $1.5 trillion tax cut.
Or was it, sorry, $5 trillion tax cut and 1.5 in spending reduction.
So like, they don't really give a shit about the deficit.
Well, we do care about, we care about the cost of debt, not the deficit.
The 10 years off.
The 10 years off.
Well, that's because China's dumping, trying to retaliate by dumping.
The 10-year is going to go down.
Scott's going to win that trade.
Literally, you have the best person on the planet in manipulating currencies and winning this trade.
This is going to work out well.
It'll be a three-handle soon, and it's going to go down and down.
To be clear, that assumes, that argument assumes that the tariffs are a temporary measure to unlock reciprocal tax like to remove reciprocal tariffs let's call it that to get all our tariff rates with all of our trading partners basically to zero china being an exception because we don't really like them for certain reasons but globally this is about getting tariffs essentially to zero or somewhere between zero and ten now That also means the 10% tariff rate that we're talking about here as a revenue collector, the other countries, given this reciprocal measure, are going to charge a 10% tariff.
And I want to be very clear the average tariff rate globally of all of our trading partners is already below 10.
So on a stated tariff basis again.
Countries have been very clever about manipulating the protectionist regime.
It's part of the disadvantages of the World Trade Organization.
One of the reasons why it was set up was because people know there's these non-economic barriers.
It was to create a forum to sort of challenge the activities of protectionist measures of certain By the way, we have protectionist stuff too.
We had an EV credit of like 7,500 bucks to boost up our EV sector.
Tesla is a big beneficiary of that.
I'm not saying it was a bad thing.
Trump's got rid of it.
He's getting rid of it.
No, I agree.
But like, we've done the same thing.
But I just want to be clear about the math, right?
Like our current tariff rate that we are charged by companies.
Companies by countries that buy from us are already less than 10.
Is that weighted by the way?
It's with our top trading partners.
So like, obviously- Okay, so it's roughly weighted.
I don't know.
I don't really give two shits what Zimbabwe charges on our exports.
I don't think they're buying a lot of Ford trucks, you know, with their dollars over there or whatever Zimbabwean currency is.
But like for our major trading partners, we're like almost all below 10.
China is a weird one.
And we're trying to get that to zero.
But also, at the same time, we probably are going to raise our standard to 10 because we want to collect some revenue, which is naturally given, retaliatory tariffs going to bring them up to 10.
So we will net-net, if that plays out increase the tariff rate with most of our partners, like that is actually what i think.
I think it's really difficult to model, help this out, because some reciprocal trading partners will go down, like india.
South korea probably goes down actually, some they go up, but if india, india goes to zero, that'd be amazing.
But then are we keeping our, are we keeping our 10 or not?
No, probably not.
But in Japan, you know, probably goes down.
So how it blends, I think nobody really knows.
And whether you could achieve, if you want to replace the income tax, you have to have the revenue.
If you don't want to replace the income tax, then you could all go to zero.
It'd be great.
American companies will do better, will thrive.
And that is part of the goal.
We need to increase GDP.
If we increase GDP without inflation, Americans are going to be better off.
That's how you increase the standard of living, is you increase GDP.
And it also solves the debt problem.
If we have accelerated growth without inflation, the debt load is manageable.
Right now, it's intolerant.
I just sent you guys a text both of you with what I had pulled from ChatGBT and we'll show it here on screen of basically different tariff rates, what they currently are and what they're proposed to be.
So thank you, Deep Research.
Thank you, Sam, for this one.
I don't know how much time I saved in doing that.
Really good for podcast prep.
I think that deep research is best product market fit here.
What I think is going on is this guy has no idea what he's doing and he's making this shit up as he goes along.
That's unfair.
Every political party is a coalition, like period of different people have different, you know, views and different priorities, and that's any national political party is going to have that.
Yes, it's true, the reagan coalition, you know.
It's true the clinton coalition.
And it's true of trump, like there's definitely constituents.
One of the reasons why trump wins elections and most people where Republicans underperform him is he has a pretty good understanding of his coalition and the establishment.
Republicans that are running do not.
Yeah, I mean.
All I'm suggesting is he has materially conflicting goals of which you can't win both right, like it's impossible.
And and just the tariff rate versus revenue growth, like let's just talk about that one for a second.
If we want to use tariffs, that's called the 10 base rate.
That druck and miller has talked about, investments has talked about.
That is there's nothing to do with exporting, that is a revenue increaser, it's essentially a consumer tax.
That is it's like of that right and by doing that theoretically we pull in something like four or five, six hundred billion dollars a year from its global ten percent tariff.
Now the other commented thing that he wants to do is grow gdp, But what we will net be doing by raising our base rate tariff to 10 is rating the base rate tariff of every other country we trade with also to 10.
Unless you think India is just going to sit there and take it and be like cool, it's zero when we when we do it, but it's 10 when you do it.
That i mean these guys will be run out of office like you gave in to trump?
I can't believe it, no one's.
We're gonna end up at the same percentage we charge, which means net increase, which is a gdp shrinker.
So how do you do both of these things at the same time?
I'm not sure you can do the substitution for income tax at the same time.
You may have to decide strictly.
Is it better to have a consumption tax-oriented regime and displace the IRS and displace income taxes, or just grow GDP consistently without inflation and negotiate for the best possible situation for American companies to grow?
I think what happens is Trump doesn't understand that a trade deficit doesn't mean we are owed money.
And he's just like, deficit, that sounds bad.
I don't like it when people owe me money.
And he's like I'm going to charge them for it because he's a fucking moron and he doesn't understand how tariffs work.
And he's like, charge them, charge them, charge them.
And now all of a sudden, his people are like dude, this is not going to work in the long run because it's not actually a deficit.
It's just a trade balance.
Like they specialize in this stuff.
And now he's trying to like back into his logic and that's why all the logic doesn't make any sense and they're conflicting statements, because he didn't actually think about it before he started doing it.
Well, I think the trade deficit issue is pretty complicated.
It is a combination of two things comparative advantage, like there is specialization et cetera, and that's very rational.
And it is a synthetic proxy for some protectionist measures.
The problem is disambiguating those is very messy.
So for example, there's this old Buffett quote about believing the trade deficit is a real metric.
Overall.
That's why I think, if you look at it across all countries, It may be more valuable than trying to isolate it per country.
But one of the things I would do is you take GDP and either subtract or add the trade deficit.
It gives you a feel for net-net how healthy is our economy.
Who cares if we're buying more cheap stuff than we're selling?
Like, why does that matter?
Well, because when we sell stuff, we make profits, which means we hire more workers, we invest in factories.
Like, selling things is generally good.
Now there's a debate about whether selling services is equally good, and we don't really account for that in the same way.
But we're not not selling.
We're not not...
It's not because we bought this thing we're not selling over here.
We just happen to find that other people sub-specialize, make stuff cheaper, which is good for Americans.
Or they're making it unattractive for American companies to sell to Americans.
But we just talked about the tariff rates like less than 5%.
There's no way that 5% tariff rate is impacting our exports.
That's not a real thing.
Well, it's higher in some key markets that could buy our stuff, like Japan.
And Europe, one way or the other, absolutely has a high effective tariff rate on American goods.
No, they don't.
And they vary by industry.
They do.
That's why they're finally, you know, why finally they're desperate to negotiate a deal with Trump is they've realized that when we raise our rates, it's going to harmonize things in a way that is not advantageous to European companies.
I mean Europe is protectionist in its own little like unique ways, from like a regulatory perspective.
But like This idea that, like the rest of the world and we're always going to leave China out, because I actually think he's not agree about China but like the rest of the world, has somehow been like massively taxing our exports and harming American businesses and jobs, is just flat out not true.
It was a made up statistic.
Because when you pull the data, Logan, you'll pull it and they'll show it on the screen.
The average tariff rate for exports most of the time is zero, by the way, for like 50 of our experts, basically zero because we have free trade agreements with our top 20 trading partners.
And then some are like 2%, 3% short.
Germany maybe taxes our cars at 10.
But we're talking about going up to it is a made up problem that is like simply false.
And so this idea that like oh, this is the key to revitalizing American manufacturing, is like getting rid of the 45 tariff that like it's made up, it's made up.
It's like total chaos and totally made up.
If you actually cared and this is where I think you and I really will agree if you cared about revitalizing things like American manufacturing, kill regulatory issues in the United States that prevent us from building shit here for our own consumption, housing energy.
They're definitely trying.
Some of that unfortunately well, fortunately or unfortunately is the role of the federal government.
Some of it is not, like the housing stuff.
The federal government has some role to play, but it's mostly a state by state issue in housing supply.
But deregulation is at the top of the agenda.
I mean they started with this.
You know kind of net, you know sort of same kind of hammer approach of for every new rule you have to.
You know sunset 10 to try to get the regulatory state under control.
Fortunately, there's some legal developments that allow the executive branch to manage the regulatory state a little bit better.
But Biden, just the Biden administration, as far as I've seen, pretty neutral estimates added quote unquote, 14 trillion of regulatory drug coefficient.
Trump definitely needs to get rid of that as fast as possible.
No no, I mean like Biden's idea of like, of spending money and then layering on 7 million rules before somebody can get that money is one of the dumbest policies we have ever seen.
And it's like part of the reason why I also didn't like that administration, because it's like so ineffective.
But just yesterday I mean we had Ryan Peterson on Logan what like two weeks ago?
Yeah, last week they were talking about layering, basically like take the jones act and then just like actually expand it.
So, like some of the stuff they say oh, we're going to do like regulatory reform, and then you look at the specific policy that they're focused on and you're like this is inverse.
Regular we are layering more regs onto this, like what i just i think they're confused.
I think they're like regulatory reform is good.
And then, when it comes to getting into the details, they're just giant protectionist populist leaders.
And they go back to their playbook, which is like protection, protection, protection.
And they're basically just like loud versions of Bernie Sanders.
Well, I think there's a global political statement which is anytime you have a concentrated interest against a diffuse set of interests in politics, elected officials are going to respond to the concentrated interest more often than not.
And that's true of left-wing elected officials and conservative elected officials.
And then you try to have structural corrections for that.
But there's a natural dynamic to anytime there's a concentrated impact.
Those people are gonna have a lot more at stake and they're gonna be motivated.
Look, I pray you are right.
I pray that in five months the net effect of this is, if we take that little chart that Logan will show and we look at that tariff rate, it's lower.
I don't think there is a world where that is true.
I actually think it'll be higher, be closer to 10, although it depends on how this stuff i think we're actually going to net increase our tariffs and therefore like reduce free trade.
Hopefully it's not material like 10 fine, but like the outcome of that i'm not sure is actually good for americans.
I, i just i i think they're confused, they don't understand what's going on.
And then the messaging represents that because it got best in saying one thing and navarro, who is an actual insane person, saying another thing, like all of it is is cast.
I do wonder whether the fentanyl one because I'm kind of like hey, before we go fentanyl, because I know you want to do that, Keith.
What time horizon do you think it's OK to assess, like all of these different policies and like keep the score on on how it's going to play out?
And what what do you mean about about about a year? at a max before the midterms.
I mean like one way or the other, like and I think this is true of like.
I mentioned this yesterday on a different podcast.
You do other podcasts?
Yeah, there's other podcasts in the world, believe it or not.
Shocking.
We don't have a Monopoly yet.
But Satcher and Reagan both inherited basket case economies and very difficult geopolitical issues.
And both the first really rough first year in office.
And then both by the time they had significant policy changes and by when they were able to take impact.
Both the UK economy, which was horrific as a true basket case, and the United States, which suffered from significant stagflation, were fixed before re-election.
That's why Reagan ran, famously, Mourning in America.
I think there's a political timeframe that also has to be superimposed.
But I think the reality is one to four quarters out.
You can start seeing the stuff work or not work.
It's gonna be really fascinating to me how he will.
If you're right, if this is really just like more free trade, but like we're basically beating people with the stick because we have a big stick here, right.
Like we are a giant importer of all their stuff.
So I agree you can use a tariff to get to new tariffs.
But if that is the goal, the rhetoric in six months where we end up with like net more free trade, like I don't know what is he going to talk about.
Is he going to talk, they're no longer serious? he's i know he's been talking about ushering in this globally you know this new age of american prosperity he's going to talk about how american companies are growing adding more jobs and real jobs you know real steve miller talk about real full-time jobs to americans have grown you know six months in a row for the first time in 40 years blah blah that's what you're going to see because that's their goal their goal is higher paying quality full-time jobs for Americans, not foreigners.
No, I get it.
But like everything they're doing is going to shrink the actual economy.
And it's basically a tax.
I don't think that's true.
I think, if you look at tariffs and isolation, This is not.
I think it's unfair and this may be a messaging issue, but it's not like the administration is sitting around and saying the global fix to everything in America is tariffs.
It's like, no, we're gonna massively deregulate.
We're gonna cut taxes.
We're gonna do this, this, and this, and tariffs are an element in a strategy.
And I think that's why I'm optimistic that they're gonna be very effective.
They're, like they say, my favorite.
There's so many things where I'm just like you just said this one thing and then you did this other thing.
But even just on, like the deficit, which is, you know, probably the simplest one, where they're like ah, the deficit is a giant problem.
And it is.
And it mostly comes from entitlement spending, which is Medicare, Medicaid, social security.
Like 50%.
If you add the military in, it's like 67, 68, 70%.
Yeah, I think military adds another 15 to it.
Yeah.
And even if you like, the true discretionary spending as a percentage of the US budget is really small, like the mandatory spending is like 90 something percent.
It's great, everything's 15, interest serving the interest is 15, defense is 15, medicare's maybe 20 25, but something like that.
You can't.
You cannot address long-term us deficits without addressing the well.
You can't.
I've given this advice to various elected officials.
There's a global playbook here that will work, and I hope the administration buys into it.
Thatcher pretty much followed this strategy when she was first elected in 1979.
What you have to do is you have to reduce federal spending by one to 3%.
What that allows you to do is it allows you to decrease interest rates by the same amount without inflation.
So for every dollar you subtract out of federal spend, you can reduce interest rates without triggering inflation.
The whole fear of the Federal Reserve is we can't cut interest rates because it always triggers inflation.
That's why we have no growth anymore.
So, for example, from 1950 to 2010, we averaged three and a half years 37 years to be exact of 5 or more growth per decade.
Since 2010, we've had exactly two years and one is the post-COVID fake growth.
Because the Federal Reserve will no longer allow the American economy to grow without this avalanche of fears about inflation.
If you subtract out the federal spend by 1%, you can lower interest rates by 1% safely.
And so you get the GDP growth without inflation.
That's why 1% to 3% matters.
We had 0% rates with no inflation until we did the stupid COVID spending for like a decade.
And so like we have this.
They're not touching.
Also printing money, which is another whole set of challenges.
Totally.
And that was like really stupid.
But, you know, we're not actually cutting federal spending.
And then they're cutting federal revenues.
We are going to cut federal spending.
Like we're neck to neck, going to cut federal spending, going to cut medicaid spending, so they're basically, i said one percent, you don't have to cut like 50, like that became.
Like this is like one of these excuses.
Uh, it's like oh, we can't cut big chunks, so let's not cut anything.
No, but that's right.
That's why george is so effective.
They're cutting spending and then cutting revenue more than the point.
Yeah, but those are two different things.
Revenue and spending are not the same thing.
We need to cut spending.
We do not have, as Besson likes to say, we do not have a revenue problem.
We have too much revenue.
We have a spending problem.
If you went back to just 2019 spending, which isn't that long ago, we would be actually a balanced budget.
You're telling me I make a hundred?
2019.
For the same revenue.
I'm just going to do the like human example.
I make $100,000 a year and I buy $5 Starbucks.
And you're like, look, if you just spent $3 on the Starbucks, you don't need to make 100K anymore.
You'll make 80K.
Like that's essentially what we're talking about.
You can buy coffee for a dollar.
Sure.
No, I mean, like the reality is before Starbucks, that's what people used to spend on it.
And that's what the government does.
It's bloated.
Like everything we spend on an education.
A lot of stuff we spend in the military truthfully is wasted stuff.
We spend, you know, left and right.
That's what Doge is exposing.
We are spending money.
Like we're buying the $5 Starbucks.
We're actually buying $50 Starbucks when we could be buying dollar Starbucks.
I'm still waiting for the fraud because I assume if we had found fraud, we would have prosecuted it.
Oh, we're definitely going to prosecute it.
Well, the DOJ, you know... It's rhetoric.
The whole thing is rhetoric.
The DOJ is definitely going to prosecute people.
We're definitely going to prosecute people, including some elected Democrats.
I hope for the... Stacey Abrams is definitely getting prosecuted.
If there was real fraud at the hilarious scale that Musk and them made up, then we should have legitimate prosecutions.
I agree with that.
Oh, we're definitely going to have prosecutions.
We're definitely going to have prosecutions.
You have to think about it.
Some deputies to the Attorney General have not yet been confirmed by the Senate.
It's really asking a lot for the Democrats to attack the federal government, the executive branch in district court every day and prosecute all these people and fix all these messes without confirming her deputies.
One other way to you know would be interesting is like when you claim a trillion dollars of fraud and then you don't give a single example that comes anywhere near.
I think it's on their website.
I think it's on their website.
Go to their website.
This number keeps coming down.
We're going to have to wrap soon.
Ask your fentanyl question.
I cut you off.
Oh, yeah.
Go ahead.
I mean, there's like a whole bunch of things that I'm going to come off as a little bit of an asshole here.
But like, do the Republicans really care about fentanyl?
Like, is that a thing?
A thousand percent.
This is the top of.
Trump has made it very clear to the Chinese that he will trade fentanyl reduction for tariff reduction.
The American people, if they want... That's currently being negotiated.
If we want drugs here, we're going to get them.
Yeah.
Haven't we tried the war on drugs?
You may know about the precursors of phenol.
Phenol cannot be produced in small labs and it's very sophisticated sort of equipment.
They will find another place to make it.
The other thing I would argue is that- Well, then we should go after that government.
This is the reverse opium war.
This is an intentional strategy by the CCP to poison and kill Americans and we need to treat it that seriously.
We've been trying to stop the flow of drugs for 30 years.
It never works because people will figure it out.
Well, fentanyl is not that easy.
The CCP has intentionally allowed this to happen.
They are aware of every lab in China that is manufacturing precursors.
We're also going to stop the Mexican cartels by using the military and designating them as terrorists.
Here's what I actually think will happen.
And this is just on the Fentanyl one.
The Mexican cartels are exceptionally good at trafficking stuff that Americans want to buy.
Just so happens that Fentanyl is one of those things.
But they trafficked weed before and they trafficked ecstasy and a whole bunch of stuff.
Agreed.
Agreed. we want to buy like they're going to bring it in and they're going to make money doing it so we're going to slap this like 35 tariff on imports from mexico and you know what the the the cartels are going to do they're going to start importing not just fentanyl but they're going to be bringing other mexican products that americans want to buy on a black market like we're actually going to grow maybe one of the benefits of actually taking the cartels avocado importers in the world because like you know what people want more in fentanyl like guacamole and like that is going to be flowing through the tunnels Fortunately, there's a simple metric here.
We easily could observe the number of fentanyl deaths per year, unfortunately, and it's tragic.
And so if that number doesn't go down, then Trump would have been failed.
The problem with that number, which I think is a red herring, whatever the term is, is so much of the fentanyl deaths stem from, a few years ago, overprescribing of opioids, which was a really, And the medical community, slower than they should have, to their credit, has essentially stopped prescribing opioids in mass.
And so you should see like a natural come down rate in fentanyl deaths just because of that.
We can actually measure the number of prescriptions.
It's way down.
It's way down.
So you can show those correlations or inverse correlations or whatever you want and then see if there's a step function to prove it.
We also have thankfully, because of like biotech and pharma, we have like non-addictive pain meds.
That are all coming.
So I think this like fentanyl issue fentanyl is the product, but the customer at the end of the day is addicted to opioids or was addicted to heroin, or opioids and then heroin.
A whole other topic that'll get you totally ballistic, but that's a function of Obamacare.
Obamacare helped cause that problem.
And so if you ever kill Obamacare, we can fix that too.
That is an interesting argument.
My brain is like, how is that true?
But I don't want to go two minutes to figure that out.
There's a great slide that Logan and Chad CPT can provide you that shows you that those prescriptions correlated against when Obamacare was introduced.
It goes like this.
I'll let you post that.
Micro breweries or like VC micro funds or I don't know.
Well, that'll be the next episode.
Let's wrap this now.
I'll tease you for our next Obamacare is an unmitigated disaster episode.
I think the headline for me is I hope Keith and I agree that we are using tariffs to remove tariffs.
And if that is true, I'll be pretty happy.
You guys agree more than I expected on this.
I think we're all-
I don't know, everybody's a little different.
If you bring Tremoth on, he's gonna be like oh, we're gonna make manufacturing great by making T-shirts and stuff.
He has no idea what he's talking about.
So this is at least a little more- Are you biting the hand that feeds you again, Zach?
How many times can you do that?
You know that that seven dollar check he wrote in 130 million dollar round really moved the needle for us.
Uh, i appreciate it, by the way, which we made him like eight acts on.
So like i should be the one sending the bill right, like we made you money all right, all right, thank you guys.
I'll let you guys short that out on twitter.
I'm gonna press for action.
Yeah, thanks guys.
