America and the Trade Status Quo, Tariffs and What May Come Next, A Chance to Build in Tech and Beyond
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Hello, and welcome back to another episode of sharp tech. I'm Andrew sharp and on the other line, ben thomson. Then how you do and I don't know.

I don't know and I don't know how i'm doing. I literally just walked off a plane thirty minutes from playing the hotel room. Yes, so I could record this podcast.

But you know what? I was just getting up to grab something. Well, we were starting record.

I knocked my, I left my headphones on, knocked my coffee off my desk. Sounds like a bad sign. I mean, IT definitely .

IT literally sounded like a bad side because IT all happened off screen. And there was an exporting involved.

There's a clean, a family friendly. They sold the coffee, flew off the desk and landed directly upside down without the top coming off. And so only a small amount spilled out. That's a good time. We've got to put ford.

We've got to make that happen. Absolutely a good omen for the remainder of the podcast. Uh, has been shakes off the cobwebs after a thirteen hour flight. Here we are. It's great to be here and we're going to be talking through monday's strategic article a chance to build, which was all about the implications of potential terrorist s for both us tech companies and the world in general. I have ten questions for you, but question number one, there has been a lot of talk about tariff s and tech over the past several weeks. Was there any aspect of that conversation that prompted you to write this article now is there is something that you think people are getting wrong as they model what terrorists might look like?

Well, I actually I push back on that. I don't think there's been that much talk in tech about terrifying and sort of the implications. And I think that is in the string for a few reasons.

I mean, I think just in general, your globalization, which was was also what this article was about, is very much a tech story. I think there is a tech enabled story, which is things like containers or the seven forty seven or international communications of which made this new world order sort of possible. And there's also, I think, an under appreciated aspect to which tech drove globalization.

Like guys opened up with the story, fairchild semon ductor, or a predecessor to intel, like very early within a number of years, realizing we cannot do test and assembly economically, like the way chips used to be made. You'd actually manufactured the chip itself. But then to attach IT to the substrates, you actually have people with microscopes like attaching wires like one by one and dub.

And it's interesting because you always talk about chips in this story, that oh, this is our idea anyway, this LED to software where capital industry, because you design in a chip wants its a lot of work you have of the manufacturing process, but then it's like a zero marginal cost product. And that's the case today where stuff is very highly automated. Where are the reasons that like T, S M C can be persuaded to open fabs in america? Is because there's not that much labor involved in the actual as today.

But back then, that wasn't the case. It's a very early chip. You know the first one first child of some actually went to home kong, texas instruments with to taiwan. And then fair child h extended into singapore.

And there is a bit where tax spin sort of cheating from the very beginning and building up this worldwide global network, primarily centered in asia to make the economics of tech possible. And you know that has long running sort of implications, the biggest of which is it's hard to tell the honest story of tech without including asia and and people. Some people got grumpy.

I kept referred to asia ago. There's lots asia, very large, lots of countries. Number one, yes, I know I live there new year.

Yeah, but IT is complicated because some of IT is a china's story. Some of IT is just sort of an asia story generally. But this is a sort of a big deal for tech, both historical, icy and also sort of going forward.

That's all number one. Number two is the name of the article a chance to build is obviously a reference to market and reasons is time to build. The article he wrote sort of a couple years ago exhorting folks still like, like, we can do anything in america.

Honestly, I was a phenomenal article. I remember early days of coffee and think of myself yet has been a really long time. AmErica was actually building things right.

Well, you know, there is you know people are talking about like a vibe shift or whatever. And this is this has been happening in tech even before the election, like there's just been a lot of energy and things like particularly down in the lost Andrew area surrounding space acts. You have a lot of space x folks that are now spending out and starting their own things.

There's a lot of national security companies like andre is obviously a headline example, but there's a bunch of sort of national defense oriented military startups that are coming. We've talked about me on this podcast. You've references that, that know the talks of how was gregory Allen about these sorts various like this.

This is something that has been happening and there's just I think I think it's a good thing that's happening, but this is sort of a look let's take a sober look like there's a lot of chAllenges that are going to be entailed in this. And I do think changes need to be made, and I hope folks will push through and make stuff happen. But you know, it's going to be a hard road.

And and I think from a trajectory perspective, like I just tried to say what's going on in the context of hoping folks push beyond that and in sort to do more, there is actually a tian to sort of coincident anally the interview I did this week with burn hole bar, where he wrote this new book called boom. And what was so much about this book? He was like about bubbles.

And I went, before I read the book, I sume could be like, uh, extension of colloid prises, technological revolutions, where SHE sort of made the economic case for the positive outcome of certain bubbles. Bles is all this sort of build out, right? And what was entry about this book is IT wasn't really sort like a technocratic treats like I expected.

IT was like a call to action. You like very explicit invoke, almost like the religious meta physical aspect of bubbles and why that's important. And to me, it's a very good sort of compliment to there's going like this is going to be a tough thing to do, but I think it's a necessary thing. And just sort of I want to lay out the lay of the land and that's the context that the trump l action, the fact that terrorists are coming, we don't know they're onna look like this is all context for this. But also, there's an aspect of the last few months of this sort of general vibe shifting people wanting to do IT and that's what I was sort of hoping the tap into yeah.

it's funny. I have not read burn hearts book but that sort of spiritual sense that's what I took from Andrea S S A. Three or four years ago.

It's like this but IT seems to have been absent from american life over the last several decades and I would like you to come back um number two of my list here of questions. Can you explain the people what was agreed upon in britain, wood's new hampshire, in one hundred and forty four? It's an aspect of U.

S. Foreign policy and just the structure of the entire world that I wasn't familiar with until reading about IT a couple years ago. So can you give people a Cliff notes of what the world used to look like?

Yeah, I wanted tread carefully because I have not an economic history and necessarily, but I do think just the buy in large after world, world one, you had this economic chaos where you had these countries that were destroyed by the war, you had other countries that were not in you had view, tap to restart, yeah tet to restart the world's economy. Everyone is like depression in their currency to make competitive of.

And just there, there's a real strong sense that we don't want to make the same mistakes after world war two, particular most the us. I think the us. In this is sort of my read on the situation.

And not sure i'm sure I could find some history to agree with me, but my view of history of the end stage of world war ii was a lot of U. S. Foreign policy was predicated on europe were sick of this where we're we've had to value out twice.

It's not gonna happen again. And there were a lot of things that happened. I think that was the goal, that was the focus is we're not going to have war, particularly warn europe ever again.

And you do in any sort of a testiment, you see vestiges of this in foreign policy today. Part of this was like the eu, for example, very much to create an american creation. Obviously, there were europeans that push ford and wait IT, but the us.

Absolutely was facilitating IT, pushing for IT, in part because this idea that economic union is going to make IT, particularly between france and germany, is going to ensure that they won't go to war in in the future. Particularly you had started like the the urban unit, came up with the europe camera is called with like a steel arrangement where they basically work together to produce steel. Steel really important for war.

And if france and germany are dependent on each other to make steel, it's going to be very hard for france and germany go to war, right? And so so that there's just this general, like there's a water. One of this in britain was was absolutely part of this.

And basically the agreement was at that time, you know almost always like out of gold, like. And the U. S.

Had a ton of IT, in part because the U. S. Made every, like, particularly the U.

K. Pay for all their stuff. Now this is a whole complicated, a controversial area to what I sent to the U.

K. Have to pay in the U. S. S.

R, and not have to pay and withdraw those decisions at things on those lines. But the net result was the U. S, basically at all the worlds gold.

And you're just asking for the same sort of chaos rover one. So the U. S.

Basically impose this order, which is, everyone's currencies is going to be fixed to the us. And the us. Is back by globe.

And so by extension, everyone else is back by the U. S. Gold, like via the U.

S. dollars. And this was, and IT worked. IT worked in the sense of maintaining stability.

IT worked in the U. S. Sort of opening up their consumer market. Two particularly uh european and japanese sort of producers. So one of the one of the who had this huge cost vange right there that. Because they had nothing, so they had cheap labor.

They obviously had the wrong standing sort of capabilities that he was all destroyed to the war, but they had the ability to sort of mixed stuff and IT really worked like like all you know, the extent to which traditionally are closest allies, particular from a military perspective, ended up being west germany and japan, is actually pretty amazing. Yes, absolutely. So a lot of this stuff deserves a lot of critique.

And in twenty twenty four, there's a lot of things to criticize, but it's really important to have the context of why these decisions were made, why they were and sort of how they worked out. And so under this system, basically the us, this was the establishment of the us. Dollar as reserve currency.

People point to that as would britain would fell apart, but actually know what actually started before, because that's when all the currencies were linked to the us. dollar. And the us.

Dollar was not be back by goals. And red woods fell apart in thousand nine hundred and seventy one. What fell part was the linking to gold, but IT was already establish that the U.

S. Dollar is sort of the, that's the trading currency of the world. And what that enabled was you had the situation where countries made stuff, sold IT to the U.

S. market. Again, us, not destroyed by war. Huge growing population, you know, very wealthy, even back then, would buy all your sort of stuff.

So then these countries of all these extra dollars, and in like a Normal like classical economics thing, what would happen is the us. Would sort of appreciate the currency would appreciate because you have this this baLance of this this sort of account, this baLance. But that wasn't allowed.

Britton words didn't allow the U. S. Currency to appreciate role to these other countries. So they had all these dollars that were really valuable.

And you had dollars and more valuable than they should be that they converted just the us. Treasury ies. And so the us.

Got all. And so the U. S. Could start running deficits. And this you got into a state. Now technical.

The limitation running deficits was you had to have gold to back IT up, right? And and so the U. S. Gets in the sixties were paying for the vietnam war.

You have the huge expansion under wind, don Johnson of like sort of the the social welfare, you know, bits medicated. And and although the pieces that came with that, and the problem is that this story that the us. Dollars back by gold stopped sort of be incredible because there was just somebody dollars out in the world and and you know, they're multiplying.

And so basically the abandoned britain was as abandon the gold peak. And that trigger things like inflation that triggered things like currencies could start moving against each other more. There was a have happened to extent, but that this overall system, persistent U D O, establishes general trading system that was mediated in n dollars. You had this cycle going on, and you have this bit where to keep the whole thing working. If you needed security.

I was going to say that's the key component. Everybody was like we .

will take care of the security, right? Every discussing to like the criticism of the nato like IT on a on a narrow objective level. Yeah it's nuts.

The us. Pays basically update or these countries pay anything. You forget that the us. Was very okay with that for a long time because they didn't want these european countries militzer and fighting with each other. And so there's a bit we will paint for the security, but but the paint study.

all for we're going .

for the security with debt. The debt is which is the dollars that you have acquired by manufacturing stuff and selling and to our market. And so it's this sort of like circuit are bit and and so again, IT worked.

I was going to say there people with the structure that emerged, but at the same time, there has been a time of relative peace over the last seventy, seventy five years that .

is bore the most peaceful yeah in world history. yeah. Important to keep in mind, like I did work right.

Well, problem. sorry. I no sorry to go to question for you .

in terms of where we are now, you wrote on monday the big loser in the post world war two configuration I described above was the american worker. Yes, we have all those service jobs, but what we have much less of our traditional manufacturing jobs. What happened to chips in the one thousand nine hundred and sixties happened the manufacturing of all kinds over the ensuing decades. And then downstream from that comment, you you mentioned a conversation between Steve jobs and president obama in twenty ten, where jobs told obama that apple needs thirty thousand engineers to manufactured products in america. So to put this in tech terms, how does apple's manufacturing experience relate to where we are today?

So the problem U. S. Manufacturing was just fundamentally noncompetitive. Do I like just push for from a .

wage perspective?

Yeah from a wage perspective, again, we think about the in terms of china today, IT wasn't competitive with the german. IT wasn't competitive with japanese. Like like now they got richer and then Normally became more competitive than you just had to moving on to sort of other countries and know the problem is that so do you have this cycle going out of the U.

S. Basically printing dollars, particularly post britain woods, like was completely other link from gold. And there's these charts you see of this massive growth in the U.

S. And employment in areas like government jobs, in areas like health care and and sort of the service sector broadly are too really big categories. And it's like a direct replacement for all these manufacturing jobs.

So you have this money being printed and cycled in the economy. So many people were getting poor. In fact, the U.

S. Consumer is as rich as ever. The U. S. Consumer still powers the world.

And by the way, the social programs help with this, like people aren't afraid to spend because there is a falls back. You, like, if you lose all your money, there is medicate. If you get old and did save anything, there is social security.

Now, not say that's like an amazing life persue. But IT does exist in a way that IT does not exist in a place like china, a of these places that the criticize for the consumer market not spending efficiently and saving too much part. That is a lack of a social safety net.

So people say, oh, china needs to institute Better social safety net. Like what number one is that gonna credible? But that number two is just tin of this system.

The U U. S. Has leaned and it's not the way people think about things. IT is a certain, I don't want to say communities, but more the us. Is more socialist in this aspect and is appreciated. It's kind of call the na fell is the socialist sports I yeah like and IT doesn't make for a Better product.

Any team can can win and the candidate chiefs or the Green back packers can be not just as big but some of the biggest franchise in the sport despite being in small towns versus we talked last time about the MBA. The lakers are are just they have the most fans, they have the biggest arcon deal. They have all these advantages that it's just a hard thing to sort of deal with.

This is an aspect to the us because of the socialization of the safety net in the context of this market and the the charge that was given to the federal serve, in particular, of maintaining for employment. So you have that this sort of system going on that just doesn't make the manufacturing viable and IT does cycle into these other jobs and you're buying cheap stuff from places that at lower labor bounces. The problem is those places with lower labor advances like a china, you start manufacturing in china in like you know, the eighties and they're really bad at IT.

They're they're cheap. But the problem is that a lot of this like comparative advantage analysis, is kind of static in time, and there is a bit where you move down a learning curve yeah like you lose the learning curve in china has gotten Better and Better at manufacturing. And today, the chinese worker is not cheap. They don't have really a labor advantage.

not cheap and more skilled than american workers. If you're trying to manufacturer iphone in twenty twenty four.

exactly. So you build up this capability, this density of manufacturing, you have this a built. You again, IT starts with doing stuff like like what connecting little wires on chips.

You you develop skilled workforce. You develop engineers. Why do those develop? Because there's jobs, because there's up. That's the opportunity sort of in your economy. And so the reason I brought up that conversation with Steve jobs and president obama is, is so striking to me how I think jobs, a little self serving and odorous sly obama comes across this pretty naive and not understanding, why are there no engineers? And in this idea that all, if we could just train up some engineers apples, going to move their manufacturing backers to is is completely backwards.

If there were jobs, if there were opportunities to do that, the engineers would materialize, right? And the reality is there isn't because the manufacturer of an iphone and those production engineer jobs that jobs are talking about, those are downstream. The iphone is started production in two thousand and seven, that is downstream of two tuna, half decades worth of developing expertise and capability in china and not developing the expertise and capability in the us.

And again, the other thing about the iphone is IT is very labor intensive, like the final bits are taking all the pieces to put them together. And actually, for a long time, for the first half of the iphone trajectory, china captured a very small part of the value of an iphone. So number one, apple captured the most.

They do all the design, they get the profit margin, all the source of things. And by the way, this is an important factor. Economically speaking, this is worked out very well for the U. S. okay? We make the most money for all this sort of stuff that the advances of being on top.

we being american companies or american consumers that are to purchase iphone at a reasonable Price of american.

the american economy, generally, american companies make the most money. The american consumer gets stuff way cheaper than they might have. Otherwise it's just all win, win for america.

The other big winners are in the early iphone, where all these are other western economies, where I think I talked about this before. But china, because they had china was actually because china came up in a free trade world, relatively speaking, they are also kind of warped in their economy. And the the compared advance for them was cheap labor.

And so all the expertise has been in these sorts of areas. Even once the labor got expensive, they develop so much capabilities, so much density, they do so many different pieces. It's all right.

Next each other, you go to shanghai N. And in like a hundred square miles, there's basically every manufacturer of anything you possibly need to make, anything you would want to. It's incredible. And and so they developed all this.

But meanwhile, you had manufacturers in germany, for example, you had manufacturers in the netherlands or you had manufacturer in japan or south korea or taiwan who were not competitive on a labor advantage. So they focus more on capital intensive sorts of things yeah and A I P. So you have things like jet turbine blades.

China still struggles to make stuff like that, right? chips. China struggles to make stuff like that. This is all capital intensive, IP intensive, tacit knowledge sort of intensive, uh, capabilities that these other countries focused on because they couldn't compete on the labor stuff in china was actually quite an open economy during this time.

And every marginal factory owner opening a new factory and I got to buy a bunch of capital equipment and due high and stuff, no, i'm a figure out what I can do with with a bunch of workers and and plug into the sort of network. And so so you so for the iphone, you actually ended up that the U. S.

Captured the most. Taiwan captured the fair because the chip you had, uh there there. I wrote once about the of market cap of this company called dark precision that made like lenses for the iphone compared to fox kon, which manufacturer the phone.

And everyone knows what fox con they employ. Like millions of people in china, there's like a million people that make iphones and they weren't worth that much more. IT was actually very capable to large an precision which just made lenses, is a tiny little company in taiwan. Because the difference ation I P drove, that the chAllenge is and that china is presenting, particularly in the last few years, china share of the iphone is gonna lot of the value because they are moving up the chain in terms of the capabilities of doing the components of the iphone.

right? I mean, china, to its credit, throughout this muli decade evolution, china has learned to move up the chain in terms of what they're producing. Theyve learned from some of the western companies that have been manufacturing there, and they are indigenisation various aspects of these industries and can now produce them itself.

Yeah what the other thing that that is underrated, I think, is the great firewall. So what are the ways where the us. Continued to dominate is that they moved up in the software.

And so if you have a high cost labor force, but that cost is going into R N D. And like you don't need like yes, you have Operational workers that are maintaining the servers so google and facebook can run. But buying the large way the costs works is all the costs of the labor goes into develop the product and then the product is sort of served everyone.

This is the whole zero marginal cost aspect that I talk about. This is a great place for the U. S.

To play because the labor costs don't hurt them that much. And the of richness in the ability to pay more is here for for manufacturing stuff is paying less. That is advantage.

In the us, where IT comes the software and the leverage babble of software, paying more is the advantage. And so you, the us doesn't just sort of have this that slots into this new economic system. It's a magnet.

Anyone that wants to make money, you know, IT particular if your intact, get to the us. And there is other discussions about sort of dynamism and atta neuroses and things along those wines. But if you're just A A, uh really solid computer engineer, where would you want to work? Of course you want to go work in the us.

You're just gna make you way more money sort of doing IT. And so the internet comes along and the there there is no there's no terf, there's no borders. It's just the internet.

It's a completely different thing. And the us. Just completely dominates the internet. The U. S.

Dominates the internet to a far greater extent in any country is dominated anything. And then we have talked a lot about that with one exception, which is china. And the reason is china, for political reasons, wanted to keep U.

S. Tech companies out of china. They didn't want the free for of information, so they build this great firewall, which was mocked endlessly. By the way, you good luck with that. Jokes on you.

bill.

All this stuff all this stuff started under clinton um and then the bush in obama administration was just a continuous thread, was no real revisiting any of this thinking Frankly, until trump and and so that just sort of one category there and in china builds this great firewall and the economic implications of that were actually pretty profound.

And I would make the case, the great firewall is one of the single best arguments against free trade orthodoxy. China has benefit tremendously economically. We set aside all the political angles, right? The great firework is when the single most important things china did for their long term economic outcomes.

And the reason is by building the great firewall, they created a market independent of us. Tech companies. And so they develop their own tech giants. And you developed tech giants, there's lots of capabilities you get around that. And they had a market opportunity for quality engineers and quality building sort of things.

And so now where that starting to pay off is U L likes, say, chinese electric vehicles in the way that china the electronics are built are different. They're like platforms. They're closer to computers and then software goes on top.

You can be a show me and you can contract with the auto manufacturer. You make the design. You do all the software are all the tech.

Another company built IT how we does the same thing. They have three different companies they work with because they have three different kinds of otters. And so it's actually it's .

it's a crucial distinction from traditional cars, which amErica has dominated. AmErica in germany and japan have dominated for a hundred years because there you know hundred fifty components that go into making a car, whatever the actual number is. six. O, K, that estimate by me there. The point is there are lots of components .

that going to make your dorms of attitude rock basic.

It's more like learning how to make chips, making like tradition auto, auto manufacturing, uh, whether the evs are simpler. And china has been able to excel, Frankly, without any of the world noticing this sort of emerged out of nowhere a couple years ago and they are now a powerhouse. Um and IT would have been harder to do that with traditional cars.

What the big thing though is is is in the long run, the sort of profitable trade for tech was asia made the hardware, we make the software and there's more margin in software. And that's where the differences is driven. The tech is commoditize.

And you saw this happen with computers, like computers used to be back in the U. S. And then they they sort of and then they're not made the U.

S. anymore. They are, you know and um and you see this you saw this happened to what whats of lots of industries where they would hand off the o em.

Uh to an asian manufacturer, the asian manufacturer of letter up being an ODM where they would design the whole thing and then the other anxious sort of slapping their logo on IT, doing the selling and marketing in a hard goods. This has been a disaster for a lot of these companies. They are now completely be hold in to their asian suppliers. They're losing pricing power and they're losing or and they're suspect table to competition where you know their supplier could start selling their own thing and where are they gone to do because like they're sort of stuck.

I mean, that's literally happening with a lot of chinese companies in a lot of different industries right now like that mean, there were technology transfers. They were part there's but set .

aside the trade technology, it's really bad if you don't have technology because then is that whatever IT is like to the hard good when you get to technology, the us. Maintained its position because the software was highly differentiated. And I was like a network of facts and all the things that we talk about with software.

The problem is that when he comes something like cars, china, because the great firework developed massive software expertise. Now they can later up, not just to an O D M, but all the way to the full product. Where is a hardware product with difference to software on IT that can go out into the world.

So they they have they have the whole stack. And the chAllenge in this whole trade is it's easier to go up the stack and IT is to go down. And the us buyer large has really kind of again, we got into the system for a good reason.

The reasons for which we got into the system succeeded. But the reality is where now, fifty years behind a different eight ball, we were worried about one eight ball, others another eight ball. And the us.

You think about the the possibilities in the worst case scenario, say, a war with china. And yes, there's a bit where if we have to like we didn't have all the manufacturing capability we needed before world war two. World war two, particularly one because the U.

S. Didn't know how to make any plains or or ships or any of this sort of stuff. And so people point to that, say, what we wrapped up, then we can do IT again.

The U. S. Didn't know how to make cars. Who was the biggest yet?

A lot of factors at that point.

And we just repurpose. No, ford became, ford became a playmaker, right? And so the concern what is probably under appreciated is this whole change is whole learning curve of expertise.

And this gets into just the the broader overall chAllenge, which is it's not economically rational to change IT, right? Like the the we IT works very well the way that is until IT doesn't in which case your errol's sort kind screw. Well, yeah, I mean.

I had a question on here. Would any of this be worth considering, if not for the threat of war with china and sheet en ping, is there a quicker answer there?

Well, no. There's not a quick cancer in some respects because I just disorder to straight far beyond sort of tech yeah I think the question and this kids, that sort of our general sort of political moment is this sort of, yes, we've constructed a world where everyone is actually super rich and everyone's also very unhappy and know, is this the sort of economy that are we missing something when we just measure GDP per person, particularly in the context of inflation and things on those lines? Is there something to the sound so much like the dignity of work or actually making things in all those sorts of pieces?

I was going to say, yeah, no. The national spirit, the national identity. I mean, you talked about the system, the britain wood's structure being a win for america, a win for american consumers, american companies.

Globalization was obviously a win for china of. Win for a lot of workers in china. I mean that the collective wealth has skyrocketed over the last forty years. By the same token, IT is a unmitigated loss for american workers, you know. And like the narrative here was all rooted in language about .

democracy and freedom unified. They'll say, actually, people are making more money than ever, which to an extent is true. And yet the certain teams are missing, right? The interesting thing about this system, I think people miss, people with globalization are going on for forever, for one hundreds of years.

Trade always been a thing, the way I used to work, or like the industrial revolution, or a colonial sort of era, countries to go out, and they would get raw materials, they bring them back to the home country to manufacture them, value add, and then they would sell them to the whole world, right? And so, so, but the key thing he was going out in the rose stuff, bring IT in value adding at home, and then sort of sort of selling outward, what's barked, the vast fifty years of globalization has actually been the opposite. It's been the moving out of the value at.

And what stays home is like the design and the marketing. And and it's just in this entire sort of virtualization of the economy. And part of this, by the way, one of the big shifts, particularly spread IT was away and the golf center away, is the U.

S. Financial sectors. Massive growth as a person of the economics is as measure by GDP. And IT makes sense.

What we just described as this massive sort of financial arrangement, where these dollars are just moving around in a cycle there is sort of pushed out into the U. S. Economy with all these programs and and these jobs.

And then they use IT to buy stuff that goes these other countries and they buy our debt. And for the biliteral, like the us, it's all financialization in software like that is really the U. S.

In all that of sits on top. And so we collect all the benefits, but but the rest. And that part of the .

problem is like these policies amount to an upward transfer of wealth in america. And had people known that that's what I was GTA look like forty years ago, they would have been massively unpopular. And again, I was sort of london with language about unifying the world and democratizing all sorts of countries.

You know, it's going to help china liberalized. That hasn't worked, but and that's why it's controversial today. So as we look at what's possible now, trump has proposed sixty percent terrace on products from china.

He's also floated a fifteen to twenty percent tariff on all imported goods. And these proposals are understandably culture versions. They come with some clear potential downsides up.

But I can tell you in this article were equally intrigued by the upside here. So what are the opportunities for people who want to build? What's the chance to build as we look ahead?

Well, I don't know how I feel about this. The reality is the likes case scenario. I mean this this o there's people on on one side of the time of discussion that are really annoying because they view the world is completely static and never changes.

Though I know this Price be passed to consumers, you're going to pay more. And it's like, yes, that's true, but the world is dynamic and stuff will change. One of the big question is.

is also, yeah yeah well.

like where is there distinguish? Is there chinese persic turfs or a general tariff? The chinese positif h also going to do is just drive manufacturing a places like thailand and vietnam. B, which, by the way, has been happening to a massive scale ever since sort of the truck terf started six.

seven years ago. Chinese companies themselves are doing that. They're redirecting like solar panel to vietnam and selling that way. Well.

yeah, so there is an aspect that sort of cheating the system, where is moving stuff elsewhere. We IT and then importing IT. But there has been real genuine shifts in like factories to the extent which by the way, is sort of uh, reestablished china's labor and extent because work is much cheaper than they used to be because a lot of factors actually and works getting much more expensive in places like vietnam.

In taiwan. I just like on the ground and I want to talk to people. And there's a lot of this happening for sure.

And china share of imports to the us has gone down quite a bit in sort of the last, last six, seven years where the places like vietnam, thailand and and so like that has gone up. So a terrible answer of one country will impact that one country. But it's not gonna change this fundamental dynamic .

and bring IT all onshore .

yeah a blanket tariffs is very different. A blanket tarifa does attacked the core of the system itself and IT will, if persisted with, fundamentally restructure aspects of the economy. The problem is this is this will be very painful like we're talking about fifty or no.

We're time about seventy to eighty years of the way this system has been developed to undo that will be tremendous ly painful IT will take years is there are going to be so the political will to make that happen. Um not so sure about that, right. Are we just going to get some of the pain and sort the Better?

Let me drill down when you say pain, are you in visioning higher Prices for, let's say, tech hardware or tech software in turn?

Yeah, those like stuff stuff will be more expensive in the capable ability of making. This is not in the U. S. And even with if if there was, is still much more expensive.

And so you're like the again, if you're just putting terrace on china, it's gonna somewhat blunted for the consumer because stuff will just move around if you're doing a blanket are from the world that will actually be more likely to drive more manufacture in the U. S. But I will take longer and it's still gonna be sort of pretty expensive.

And by the way, i'm not sure what the employment benefit gonna be. One reason why this is a moment in time to do this is the increase in automation. And the fact is, like we tabble chips, chips are just super highly automated, including testing and assembly.

And so it's much more viable to make chips in the U. S. Now than IT was the whole process of making chips than IT was sort of forty, fifty years ago.

Even intel, which still always made chips in the us. They do all the assembly like blazer, right? That's like downstream from all this because IT didn't make economic sense to sort sort of do IT here. And so this would take a really long time. At the same time, there is this desire we need to build stuff, and there is this need for whether the nal security.

And there is this idea of the software defined sort of manufacturing where where, you know, if you have a, if you have a company like way mo that's building this in amazing software and capability, they need the cars to do this. In the end end, those cars should be modular. You should assume the software exists.

You should be out of sleep cars or two percent cars or vans or whatever. And like, like I feel like there there is a new opportunity to make new things. You that is obviously the chinese one to sees in many respects, but the chance to build is what we'll see how this works out.

But there if there is, even if you ever want to go for IT baby, you feel inspired right now because of the spirit some things is gonna happen with tiff s like, this is a chance. Like, like, like, I don't know if it's going to work. I actually, I don't know if any, this will work without a war, right? Like the war resets. I like IT well.

And that's why I included the question about china and SHE. It's like, is IT worth pursuing any of this, if not for national current risks? And the national security risks, precisely, are that we don't have the ability to produce in a number of critical industries that americans have come to rely on. And if supply chains around the world of amErica is going to really, really suffer in the course of any sort of prolonged global conflict, that's why the impulse to bring manufacturing and incentivize manufacturing to come on sure make sense to me. Um the idea and I thought your article was enlightening for me because I hadn't fully grasped how automated some of the onshore manufacturing would be. So the idea that we're suddenly gonna a be like china was in two thousand and seven and two thousand and eight and you know hiring seven hundred thousand factory workers with thirty thousand engineers to oversee those factories like that seems like more of a fantasy that's unlikely to actually be a reality at any point over the next ten or twenty years.

There's a big fly. The men here, which is china's much further down the road, is part of automatic, all this sort of stuff. T and we are because that's part of the learning curve, right? Like like there is there is a story about when you an mask ah IT was building, I think, was the three times the three to make IT all work.

IT had to be highly automated. But I was a disaster because they overly automated at the beginning. And he came back like where the big lessons learned was.

No, we have to start out, figure you out how to make the car and then you automate IT sort of over time. Can you just jump straight to automation? Not so, not so clear that possible.

And the other sort of push back and I push back on myself and pushed back on you, is, well, we need to this for national security reasons, or maybe we need to not do IT for national security reasons, because as long as we are immersed, baby, the system still works. The goal of the system was to stop war because companies were economically invest and that's the biggest reason. Think there won't be.

Maybe the problem is this was the argument people made in like thousand nine and ten. great. The reason there are what that we war is because europe is too economically invest. And um that and what .

you wrote in your article, americans typically make the mistake of viewing the united states as the only agent of change in the world and that would be my response to that particular talking point is I mean, he has been pretty clear about his intentions to eventually take taiwan. He literally told that president, by in a year ago, and like china, has been in the midst of an enormous military build out.

So that's why I feel crazy when other people say the types are crazy. Like clearly, this is worth expLoring and worth expLoring the best ways to bring manufacturing onshore. But speaking of taiwan, that was another question I had on the list here.

Drop has said we should put tariff s on chips from taiwan and that the chips act was a mistake. He was roundly marked for that suggestion. But what do you think of IT? I think is is trump crazy?

Well, there is a broader 的 thing about， you know, something about a taiwan stealing our our chips and you know, taiwan acting like the mafia and holding is up. I think these still in chips. Things not fair.

The us. Voluntarily pushed that out. us. Companies did. And that kind of on us, the taiwan using IT as a leaver to hold us up. Truth or right.

I mean, like you go back to when taiwan opened up to bring in texas instruments back in the day, this was part of their thinking is we need to get pulled into us supply chains so that the U. S. Fels compelled to defends us relative to china.

You fast forward to today, absolutely. Taiwan entire defense strategy is by and large predicted on we have T, S, M, C in the us, has to defend us like like the absa i've lived in. I want I don't see the commitment and the approach to wear investment in our in our own defense where business .

minds to be a porcupine .

not that I that I perceive and there is a lot of sense that know and so trump you know there's some things trump s says that are really rude and also totally correct. And I think there's an aspect of yeah taiwan seize itself as economically responsible to the us. And they are correct.

And they also see that as a reason to U. S. Will defend them and that is correct. And they probably don't invest enough in having a culture in a military and buying the right sort of weapons and the this plan to defend themselves.

And I think that's also correct and and that this is all a big problem, a big problem for everyone. And and the reality is the us. Does have this dependency on this place that china has its sights on for reasons outside of economics.

This is the big or so gono problem. If china just wanted taione because they also want chips, there's a deal to be cut. China watch taiwan independent of chips that makes IT a little more complicated because we're negotiating on different plants here.

And so when he comes to or the chips act, I mean, what trump I think about right about the Terry idea is that types into demand, you need to change the demand structure. Intel's problem is no one wants to buy chip from them because they can just buy T, S, M, C. And the child when you're when you're a chip is expensive, but it's a small portion of the overall cost of an item, you video system that goes for hundreds of thousands of dollars or millions of dollars.

So like I think it's like a three million dollars r for like a whole rax system or something like that. The actual like graphic or the car chip to whatever s like thirty thousand, thirty thousand dollars the actual chip in there yet T S M C charges a lot for that. But it's not, relatively speaking, adults in the thousands of dollars out of order, whatever might be.

And you're not onna risk the whole system networking because you're on like an untested new manufacturer process. X, Y, Z. When you could just go to T, S, M, C, A sitting right there, you're confident they're gone to build IT correctly and sort to do with the right way.

And so this is everyone like anyway that wants to go with l. They have this calculation in their head, which is even if intel is cheaper or slightly faster, is that worth risking our entire product to go there? And this applies.

You know, it's so so trumps right. You have to address a man. The problem is, if A T S M C chip was ten percent more expensive or twenty person more expensive with that change, people's choices? Not sure I kind of sceptical.

I also don't like the chips act. I don't like just giving money. What I wanted is guarantee purchases is based on certain.

So you will buy chips from intel. They do X, Y, Z. You will buy chips from T, S, M, C, if they do x.

But it's in the same broad category as what trump is talking about in terms of putting terrorist because it's about demand. The key here is demand instead of the chip's act, gives money to the supply side and IT gives money, you know. And the problem is that has all the strings attached, but the strings aren't relevant to like the issue.

And so you are the problem, this perverse outcome of the chips act, where companies are promised money, but that takes them forever to get tics, have to qualify all these sorts of things that has nothing to do with the actual issue at play. And the actual issue at play is like, can you actually make this and build a market and you get the money regardless? The chips act is the spirit is right? You do to undo fifty, sixty years.

You do need, I think, some aspect of industrial policy. You do need the government doing things that are uneconomical. Relatively speaking, if you want to change structure, I don't think the reputation was .

the best could be was T. S. M. See the beneficiary of taiwan industrial policies in terms of getting off ground and becoming this powerhouse?

Yes, the taiwan I was IT was the government was an investor in them early on. Flips also, the one flips is actually influences is very underwater, is a spin off from phillips. Phillips was a major investor and I think license the initial technology that T S N.

C. Used to them, a very underwater company actually with their fingers in a lot of stuff. But um the big thing the the taiwan currency is A T I don't think I don't think IT trades that a fair value.

That's what that way. And you do have a very weird economy in taiwan living there. Anything produced taiwan, shockingly cheap, way to super low. All imports are massively expensive. That's because the currency is too low, and that is a huge advantage ency. They get paid ten dollars and they paid their employees in anti and and so this is kind of the this is the a bit of the taiwan hold up, which is they're always forth with being identified as a currency manipulator and what he gets down to IT, they get well off the hook sort of beginning again because of this china sort of aspect now because of the ship aspect of and and yeah, so I think trump is directionally, I think more right than he got created for with this overall discussion.

To the extent that he's saying, look, the market needs .

to be involved no to the extension, saying taiwan is play us a little like a little here, but again, but this is this is the same thing, the same thing with nato. It's the same thing with a largest trade stuff. That's why it's important to go back to the nineteen forties, the one hundred and fifties, and say, yes, all that is true, but IT all happened for a good reason.

IT happened. And the, and that reason was successful. The goal was to tie the world together. And the goal was to maybe not explicit, but if you thought through IT that the U. S. Manufacturing was going to be sacrificed for the goals of the world peace and that has bin large that by in large, again for for seven eighty years .

held up right bretton woods emerged after world war two or near the end of world war two and um now unfortunately world war three is not possible. Ah so two final questions when I got to make IT through the ten questions here, but I did want to read two emails. Liberty, a couple weeks ago, responded to our trumpet tech episode by saying I really like the idea of special conomo zones in the U.

S. Where it's much easier to build stuff. I hope you keep talking about this concept and help inject IT into the site. Gust, so in the spirit of a chance to build, that was my favorite part of the trump p and tech episode also. Uh, can you expand on what you'd like to see and why something like a special economic zone would be necessary in the us?

Yeah I mean, again, i'm pretty far a field of like how this would actually work out, but I would sort of invision is just sort of areas. And again, I think figured the baLance of federalism and what rights states have verse, the federal government is gonna. There's some states can opt into this or whatever IT might be.

Again, I think current surprise have to authorize IT. But the the the the the i'm a little sceptical of all the the dose stuff in the reforming the federal government, all these sorts of things. There's it's also complex and and lost gazillion and loss that you're going to happen.

And yes, there's been the supreme court rulings that theoretically make a lot of regulation not constitutional. But you have to you have prosecuted one by one. And and there's a rule of all aspect.

There's lots of companies and industries that have built up around this and maybe there will this can be taken care of, i'm sceptical, be taken care of quickly and without a lot of pain and the sort of a lot of waste, just waste of effort and energy. I think we just need that. We need to build our way out.

We need to skyrocket. We have these new technologies coming online that we can leverage, hopefully, to do sort of amazing new things. And you can solve the debt by paying IT off and like you're trimming what you're spending.

But like personally, I don't give people this advice like you're not going to save your way to being rich. You're you're going to be rich by you. However.

you can make twice as much money if you are creative with the way you structure your tax profile. So that's always one other. Uh.

that does speaks to the regular issue like that. There should not be such a burgeoning industry in manager test budgeting. It's already master. What am I talking about the so what I want is this concept where you could basically have areas that you can just cut through all the regular ory red tape.

It's just sort of um you know and ideally, there's a way, again, I don't know how this would work constitutionally or whatever, where you can also preece, all the local regulations and it's like yet and there's a very stream line straightforward. You just have to you do these couple of things and then you can sort of build whatever you want. And ideally, there's a fear federalism positive bit this where these zones do so well and grow so much and ours become so rich than other areas that didn't opt in to or weren't a part of IT realize holy cow or sort of missing out.

No, I think you do have federal aspects that still exists in america. We talked about the kind of of self driving cars. It's great that different locales ties have different laws, and you can sort of see what works and what doesn't.

This is a huge strength of america, but the federalist aspect has been diminished because of the massive growth in the federal government and federal regulations. So at a minimum, m going to have a place where there's no federal regulations with federal relations are dramatically diminish our hugely streamlined. So that way, that's not the barrier.

The only barrier is local stuff. And then you can have actual competition between states, see who actually can build mass these these high growth sort of areas. But you have to get the that's one of the child.

The issues with this federal regulation in general is is IT levels the plane field, but leveling the plane field can be really destructive in terms of experimental and finding out what's possible and sort of new sorts of things. And so this is similar thing like a the spirit of doge is something I absolutely in favor with. I'm not sure the parts of IT that are focused on reducing regulation also.

great. yeah. But I really would like to see this ability to have distinct areas with different regulatory regimes, both because I think that can be the fastest, most sufficient way to get growth because there will be easier to do, but also to have this competitive aspect where you see, holy cow, that's doing really well.

We're not doing really well. We need to match that. I think that is something that is an additional aspect to this that I think would be very beneficial.

yes. Well, two thoughts. One, I have no idea. My working assumption is that this dosh aspect of the second trip administration seems to be or could be a superficial sort of title for musk e and viva. And I don't know exactly how real any of its gonna be in what a difference any of IT will make, right? But also i'm .

never with that you you want building rockets and he's .

doing enough absolutely, I would say he's doing enough. IT occurs to be, though, hearing you lay that out and particularly the state to state differences. Taxi is a good example of a special ish economic zone relative to a state like california yeah I the .

killing example is do you know where the most solar is?

The most solar yeah exactly. It's getting built up cover that isn't no for solar energy .

but for oil regulations um .

and that sometimes is enough no no .

absolutely has its own power grade which is again has plus and minus ses. But IT has like you couldn't do this crazy arbitrary tion yourself with solar and batteries and that sort of thing and it's stuff happens, mike. A bias we need a bias towards stuff happening.

And this is what I think a good point that, that were hobart matter interview, like the weakness of the sort of technocratic structural approach, which again, tragedy slots right in with all about sort of looking at the structural things in how stuff flows in all that there is a tangibility to. This is what we're going to do and we're going to go do IT. And and you can see the thing that was done and the to the extent there's a spirit of doing stuff that is again, that's what I optimistic about.

More than anything, I mentioned this in the interview with burn, but that whole european innovation report, the druggy report, druggy report, was kind of depressing because on one hand, IT identified a lot of issues, and that was good to identify those issues. But immediately the what do we do about IT? We need industrial policy.

We need subsidies. It's like the government has to solve this issue. And this is baby, where this is distinguished cultural trade that drives baby, our european lisha to the wall.

That makes me true. Blue, red blooded american is, no, I did government out of the way I did. People inspired to do stuff. And and there's a this is a part that hopefully is being ignited and that we need to not lose is the feeling that you can just go do stuff. This is the beauty of the internet.

And the worry with the rise of big tech companies and the controlling of information and distribution, is, do we still have you could just go do stuff right in the two twenty three, I could just go start a news letter. I could just do IT and no one could stop me. And today, when you hard to share links, can can anyone go do that? It's kind like this kind of obama, right? Yeah hand.

But it's just wait much more difficult and we need more areas where you could just go do stuff. And ideally, those areas are in the physical world because we've just fAllen so far behind and we're so efficient and it's just really not a good place to be. And I say this is someone whose life is totally this is the critique of a reason.

It's like at mark, how much money are you investing into hardware companies? Uh, just like it's affair point. Well.

U S. ChatGPT, to generate an image based on your life and what IT knows about you. And IT generated, I don't even think IT generated .

a human. A really great look .

at what he was like twitter out. If you're curious .

what I IT also, it's it's like a solid person with like a computer, in sum, could be any city in the world.

Action I make apartment building eighty time.

I talk about like globalization or the internet. Like i'm just the biggest hip cut ever because I am like peak twenty twenty four global virtual we just talked about I walked off a point thirty minutes ago i'm recording with you pathway around the world I the .

first podcast I love IT transcontinental tal .

band yeah but more transgender als like over the continent right? More try specific or trans ocean.

I don't know. I just know that cars have thirty thousand components and not so I got that going for me. Uh, what one thing about the car .

thing is like must build has built harvard companies, which is you know no ones done like it's just in the built up in the us. Tesla is super integrated like one reason they got to work as they they just did a bunch of the proposed itself. You go to supply chain.

This is where IT is. It's not cheap enough. It's not quite of whatever will just do IT ourselves. And that's by the way, they basically created the category.

We've talked about this when you're early into a category, you do the is much more highly integrated and is definitely the case with tesla. But down the road, things become modular and specialized. You're doing sort of xyz.

That's the natural role from the world as organized today is china. If someone wants to build something to me, it's the module manufacturing company. What is the in this where I had brought away before? Tesla is going now to this a sort of this world of autonomy and in that vision they're doing at all.

And that makes sense for them that, that is sort of the aspiration. But there's another vision where you have uber doing the handling and way more providing the software and other companies doing the sort of depos. And someone has to make the cars and they should be highly modular er because it's got all sort of software to find and that module should be extended to sort of lots of things like who's gonna the the module manufacturing company.

The budget manufacturing today is basically china. Can someone build that in amErica again? How do I don't know? I don't know, but if you're ever going to do IT, I guess knows knows .

the time to try well. And if we're talking about the future of evs, uh, and china as far as all that's concerned, the bite administration, I should note, has already imposed a hundred percent tariff on evs made in china and the commerce department has proposed a rule to ban all chinese software in automobiles and that ban would take a and I believe twenty, twenty seven, all of which is a nice same way to the final note here, anonymous rights.

Hey guys, I have on good authority that google and we will had to deal with the bite and her administration where they would buy a ton of china evs without terrorist after Harris was elected. It's hard to say how invested google was with Harris, but trump selection is a big blow for way. Mo, so I included to the end without any comment on the veracity of the claim there, except to say that the bite administration has included car bouts in the past for various other Green technologies, solar energy components being one example. But we all came up in your article on monday. So do you any quick thoughts on the way out on way mo and how that company fits into the future here?

I mean, the the the terms of chinese cards, a massive little way able like that. Was there you again? It's the it's the natural to my point, the natural fit for what they're doing. Their gene car was was zekle made by gilly and IT was a transit's a car built for transportation. IT wasn't built to be a car.

Now they're pivoting to you know working with handi, and it's again another adaptation of a passenger car is is just not as ideal and to ramp up into this dedicated cars with hard work built in, which would dramatically reduce their costs. But they're not at scale ET the scaling. It's gonna difficult if they could write along on the chinese EV train and they could already be tapped into an ecosystem that at scale and is a billion source of things that would help them a lot.

And the and they're not going to be allowed to do that. And I I don't know about this. This report IT certainly, I think does make some sense. But yeah the for just from a analyzing markets perspective, the fact that they're losing access to chinese easy manufacturers is a blow to mo and their ability to scale. You know it's going to take longer.

IT exemplifies the point that you made in the article, where there will be some pain for american companies, but there are also possibilities for american tech companies and the american economy writ broadly.

But the problem though, this is the band hair sort of thing, like why they elena musin, the first place IT was basically they're just to as a sop to auto worker units like like tesler is not unionized and that really bothers the U. S. Auto maker unions and like, I mean, the U.

S. Auto makers, are they going to there stuck in a certain paradigm, which is they are integrated sort of the the brand and the actual assembly. Uh, you know, you contrast that to, again, like to show me example where that's been separated.

Show me integrates the technology and the brand, and then they get the sort of the car from someone else. These other companies, they built the car and have their brand and then they just sort of slap some software on. It's just a, these are computers on wheels. There are different paradigms now.

And is that wise to be beholding to them for political reasons? But is IT wise me about them for manufacturing reasons like like artis even can we even actually deliver a way more future without a fresh start? Like can an any existing automated ker actually feel that void is is an open question.

Well, in a way of future that is in partly reliant on a hostel, foreign power, uh, is not.

Ah having a bunch of chinese having a butch chinese made cars with cameras and stuff on american roads.

Um the U. S. Government has already spoken on that issue. So a bad news for wao but good news for the audience are coming back next week. A A lot of really fun mail back questions have come in for the things giving guess .

thanksgiving. Not very tech heavy. yeah. It's not going to .

be purely non tech. We ve got a lot of non tech questions. So we're I could really hit all of the non tech questions, but it'll be about half and half and it'll be a good time.

My already excited for IT. But then for now, you have earned a nap. You made IT through an hour plus after a thirteen hour flight.

You didn't spill the coffee. IT was a good omen. And enjoy yourself this weekend, and we will come back next week.

Sounds like duck later.