00:00Coming back to this Truth Social post from the president, promising countermeasures to what we've seen from China when it comes to rare earths and other issues.
00:08You write in your notes that if Trump does retaliate with new tariffs, they will be limited and ineffective. Tell me why.
00:16Because we've already seen this movie before. Back in April, he threatened tariffs at the rate of 145 percent.
00:23And the administration recognized that this would be an entire embargo on all trade between the U.S. and China, including all rare earths.
00:32The Chinese did not back down, did not flinch at all. And after that, that's when we started hearing about the taco trade.
00:40Trump backed off. Trump blinked. And I think he should have learned from that experience that tariffs at that massive rate are just not sustainable on the U.S. side.
00:52And if he did impose those tariffs, there would be a lot of constituents in the United States that would object strenuously and the Chinese people would be hurt.
01:02But the Chinese government would play the nationalism card. And quite frankly, the Chinese people would eat the pain.
01:09And so this would not work out very well for Trump.
01:12And of course, we know that the president has the final say here when it comes to these negotiations.
01:16But you think about the teams on both sides who have spent months negotiating this.
01:21And certainly in the past few weeks, in the past few months, it seems like progress was being made.
01:26This could be, of course, another tactic.
01:28But how much could this potentially set back those conversations?
01:34Well, I think it has set them back to a certain extent.
01:36You know, when the negotiations began, Trump was talking about how we have all the cards.
01:42And Besant was saying that the Chinese have to fold because we buy all of their things.
01:47And then when rare earths became a topic, things calmed down.
01:51And in the past few months, it's amazing how the rhetoric has changed.
01:55I can't count the number of times that Besant has talked about the respectful interchange with his Chinese colleague and how respectful they all are.
02:04So the tone had been modified.
02:06It was very businesslike.
02:08I think on the Chinese side, they perceived that even though they had what they like to call a London consensus to proceed along those lines, that the U.S. kept on imposing restrictions on China.
02:22The most recent and the most painful probably was on the U.S. entity list, where the United States decided to cover not just entities that are listed on that list, but all subsidiaries as well.
02:33I think the Chinese really bristled at that.
02:35And that may be why they are reacting here and saying to Trump, you know, knock it off.
02:41If you want a respectful dialogue, you can probably have that.
02:45But if you don't, if you keep going down this road, then we can match you.
02:50And one of the things that's interesting to me is that, you know, China just came out of its week-long National Day holiday.
02:57And it announced these restrictions right after that.
03:00So that means that these restrictions were planned and approved before the holiday.
03:06Right.
03:06This is not an accidental event.
03:08This was something that was very intentional.
03:09Well, I'm curious as to what you make out of the strategy on China.
03:13I mean, we always kind of talk about what the U.S. or what Trump's strategy is.
03:16But, I mean, you had kind of a front row seat back when you were at the assistant U.S. trade representative for China affairs during the Obama administration.
03:26So that predated the first Trump administration.
03:29And I am curious as to how much their approach, the Chinese approach to the U.S., has changed over the last eight years.
03:37Well, we're seeing a lot of the same tactics that we used to see.
03:41It's just that it's much more aggressive, I think.
03:44The Chinese have always retaliated.
03:47I've been telling my clients for years that when, you know, the Chinese feel that they've been aggrieved, they will retaliate 100 percent plus 10 percent extra.
03:57They have always looked for leverage of various forms.
04:01One way they do that is to try to divide and conquer.
04:04That is to find interests in the United States that will oppose the U.S. government.
04:08For example, the semiconductor industry in this case, and also to try to do the same thing internationally, to try to find, you know, other countries that will object.
04:18The Chinese, another consistent Chinese theme is self-sufficiency.
04:22The Chinese, contrary to the Trump administration's belief that the Chinese might become dependent on U.S. technology, the Chinese, since the founding of the People's Republic, have always talked about developing their own technology and never being dependent on foreigners.
04:39And so there are a lot of these themes.
04:41It's just we're getting them in different flavors, I think, in this context and more aggressively.
04:45Well, that's what I'm curious as to what the U.S. could even offer in these negotiations that would be meaningful.
04:50I mean, first of all, we should just kind of point out, I mean, at least based on Bloomberg calculations, the effective tariff rate on Chinese goods is already around 40 percent.
04:58And for certain products, it's basically 100 percent, which basically means you're not buying them more or less right now.
05:04So I don't know what additional tariffs would actually do.
05:06But for China that's already seeking out chips from elsewhere, that's seeking out soybeans and other agricultural goods from elsewhere, that is looking to export its own goods that it would normally send to the U.S. elsewhere.
05:19What do we bring to the table in the negotiations, given how much of a runway China has had to adjust?
05:26Well, the Chinese want several things from the United States.
05:29They want tariffs to be lowered, specifically the 20 percent tariffs that Trump imposed supposedly due to fentanyl.
05:37They do, despite what they say, they do want U.S. chips.
05:41They've just imposed a variety of restrictions, but they want those chips and those restrictions could be lifted instantly.
05:48They need some things from the United States.
05:50They need airplane parts, for example.
05:52Chinese students want to come to the United States as well.
05:56They want to invest in the United States as well as a way to invest in firms and get around some of these tariff restrictions.
06:05And the U.S. has a lot of restrictions on Chinese investment.
06:08So there are a lot of issues that have been under discussion, and there are things that the Chinese want from the U.S.,
06:14although you're right that they have systematically been sort of rerouting both their needs and both their exports to avoid restrictions in the U.S.
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