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00:00So, Peter, one of the things I wanted to dive in is you have been writing quite a bit about
00:05the latest grouping of trade tariffs that have been coming out, the Section 232s and all the others you've been
00:12talking about, budget deficits.
00:14I feel like in the backdrop of all of this, hanging over these massive trade and economic questions is this
00:23ongoing war with Iran.
00:26And I'm just wondering, is that fair to say? Is it fair to say that the war in Iran is
00:31actually maybe causing a bit more of a policy problem for this current White House over all these other trade
00:38and economic issues that you've been writing about?
00:40Yeah, well, Joe, first of all, thanks for having me on. And I think it's a really important question.
00:45I do think we are seeing some interplay between the war in Iran and the White House, the White House's
00:52tariff agenda.
00:53And, you know, as I think of it on the war in Iran, we're in kind of the phase of
00:57this war where it is a war of economic attrition on both sides, right?
01:02The Trump administration is imposing a naval blockade on Iran's oil exports.
01:07Iran is trying to reduce global oil exports from the Gulf by keeping the Strait of Hormuz closed.
01:12And that is keeping energy prices elevated, at least where they were at the beginning of the year, going into
01:18a midterm.
01:19We are in a higher oil price environment, which is politically challenging for the president.
01:24And interestingly, one thing you see the president having done over the last month or so is having made a
01:32decision not to take U.S. tariff rates all the way back to where they were at the beginning of
01:39this year before the Supreme Court ruled his first round of tariffs illegal.
01:43So, you know, his average tariff rate at the beginning of the year was maybe about 15 percent or so.
01:49After the Supreme Court that fell to about 10 percent, they have said, you know, they said at the time
01:56we're going to fully recreate these tariff rates, but they haven't actually done so.
01:59They've kind of kept them more in that 10 to 11 percent range.
02:03And I do think that's because the war in Iran has made energy prices and thus inflation run a little
02:09bit hotter than it otherwise would have.
02:11And I do think that's, you know, we still have tariff man for a president.
02:14We've got to be direct about that.
02:15But I do think that has made them a little bit more cautious about fully reimposing the full tariff rates
02:21they had before the Supreme Court ruled in February.
02:24So more of a practical approach this time than maybe what we saw about a year, year and a half
02:30ago, Peter.
02:31Yeah, I think that's correct.
02:33I actually think one of the stories of Trump tariffs over the course of really starting late last year is
02:39that beneath the headlines, beneath a president who continues to want to talk about tariffs, lean into tariffs, beneath those
02:48headlines, you have begun to see the Trump administration take a more practical approach.
02:53You know, so as I say, he has not fully recreated the tariffs, the sort of high tariff rates that
02:58he had earlier this year.
02:59I don't want to minimize them.
03:00They're still several times higher than they were when he came in.
03:03But, you know, they are a couple of percentage points lower.
03:05But we've also seen him take often quiet, you know, sometimes on Friday afternoon, take measures to exempt different kinds
03:14of price sensitive products from the tariffs.
03:17Right. So late last year, earlier this year, they exempted a bunch of foodstuffs from the tariffs to try to
03:23take some of that price pressure off.
03:26They have they have very quietly, you know, made sure that they are exempting farm and fertilizer inputs.
03:34They did that earlier this spring.
03:36So, you know, again, they want to be able to talk about tariffs.
03:39It is a very aggressive tariff regime compared to what we've seen in recent years.
03:43But I think they have pivoted to be a little bit more pragmatic than they were, you know, kind of
03:48peak tariff last spring, last summer.
03:50Peter, we mentioned in the intro to you that you worked with the Biden administration, White House senior director for
03:56international economics.
03:57I do wonder if you think now that in terms of international economics, you look around the world, are we
04:05in a completely new era?
04:07And whether it's tariffs, investments in companies, governments taking investments in companies, onshoring, that we are whoever is in the
04:16White House, whatever happens in the midterms, who's ever in the White House next?
04:19That this is our our new era when it comes to what companies and countries are doing to kind of
04:28protect themselves.
04:31I think we are in a quite different era, certainly at a policy level.
04:37And we talked about tariffs.
04:38You bring up another very important point on government equity investments.
04:42I think this is often underappreciated by the public here in the U.S.
04:47You know, the Trump administration has taken either 35 or 37 different equity stakes with a market value of 60
04:55or 70 billion dollars today, just on a straight line trajectory.
04:58We're probably looking at by the end of the Trump administration.
05:01I don't know, you know, 100 to 200 equity stakes, 100 to 200 billion in market cap.
05:07Like this is very different from what we have seen in the past.
05:11And I do think we are in a new era when it comes to policy, whether it's trade policy and
05:15tariffs, whether it is this sort of supply chain policy, whether it is these these these equity investments.
05:21I think there's still an open question about, OK, we have a very different policies.
05:26But what is this going to do on the data?
05:28Because, you know, for all the tariffs that were imposed over the last year, year and a half, the U
05:34.S.
05:34trade deficit was basically it's basically been unchanged over the last six months.
05:37It's pretty wild, right? You know, I think we have to be realistic that policy is changing.
05:42The data has not yet caught up with the policy changes.
05:45But can I just just real quickly, like 20, 30 seconds, whoever is next in the White House, you think
05:49this these kind of policies continue?
05:51If it's a Democrat, if it's a socialist, if it's a communist, who knows?
05:55But I mean, I mean, there will certainly there will certainly be differences with the next president.
06:03But I do think we are in a structurally higher tariff environment than we were a couple of years ago.
06:09And I do also think this kind of idea of a more activist interventionist government in markets is going to
06:16be here to stay, though, whether it partly rolls back, I think, is an open question.
06:22I feel like there's a book in there for you, Peter.
06:26There's so much on the table for this.
06:28But I do want to pivot.
06:30We have we have the meeting from Xi Jinping, the president of China, that's supposed to be coming up in
06:34the next month with Donald Trump, the president of the United States.
06:39All of this tariff discussion, you know, like you said, we've seen polysilicon tariff announcement come out, drone tariff come
06:47out.
06:47Now, all of this is slowly coming out ahead of that meeting.
06:51How do we position the importance of that meeting and what we're seeing from this White House right now and
06:57the weeks leading up to it?
07:00Yeah, it is interesting to me that we have seen some continued action again that is clearly focused on China,
07:08even if sort of the stated reason is more general.
07:11It wasn't Chinese polysilicon tariffs.
07:14Perhaps it was polysilicon tariffs, but this is really all about China.
07:17Similarly, similarly, we have seen the Federal Communications Commission, you know, roll out some bans on robots, on power inverters.
07:28These are also not stated to be about China, but are about China.
07:32It has been interesting to me to see the Trump administration continue to put some pressure on China in advance
07:40of the Xi meeting.
07:41You know, sometimes you think, oh, there'll be a period of quiet before a summit like that to keep the
07:46diplomatic waters calm.
07:48The Trump administration has clearly been willing to put some chips on the table in advance of that meeting.
07:54I think what will be interesting to see is does does the Trump administration negotiate any of this away or
08:01are they setting a new baseline going into that that negotiate that that negotiation with Xi to say, hey, this
08:08is what we've done.
08:10You know, we're only going to be talking about the future.
08:12Well, you know, on that, I just want to throw in, I mean, the U.S. planning to warn dozens
08:16of countries that they'll be shut out of a U.S.-led AI coalition if they sign on to a similar
08:20framework proposed by China.
08:22This is coming out of Reuters.
08:25I mean, yeah, is it just U.S. reminding China of potentially the power they can still wield or are
08:34they serious about this?
08:35I mean, this is one of the big races and wars of our time, it feels like.
08:39I think the Trump administration, I think the Trump administration is internally divided sometimes about.
08:47They want the decoupling with China to go clearly on AI, they are quite committed to an aggressive American preeminence
08:56posture.
08:57We've seen that with their, you know, kind of diplomatic initiatives.
09:02We've seen that with their kind of accelerationist posture, putting aside the issues with this recently with with Anthropic on
09:09model safety.
09:10But they clearly want to have an accelerationist posture here vis-a-vis China on AI.
09:16That said, I do think both Trump and Xi will want to talk about AI next month at Mar-a
09:26-Lago.
09:26And I won't be surprised if we see at least some rhetorical talk around cooperation on safety and the like.
09:36I don't think that's necessarily mutually exclusive.
09:38I think the U.S. would like to have those negotiations from kind of a position of strength.
09:42But I do think there will be some desire to cooperate on some core safety principles.
09:47Just as a quick one, though, Peter, I mean, there's a lot of concern in the circles that I speak
09:52to and the circles that you run in as well,
09:55that this is a tough meeting for Donald Trump because in the minds of a lot of folks who've been
10:00around this space for a long time,
10:01they feel like Xi Jinping holds a lot more cards than the president of the United States does at this
10:07moment.
10:08Do you think that is fair directionally?
10:11I think both governments here hold quite a bit, quite a number of cards.
10:17Like clearly the Chinese continue to hold a lot of leverage through their control of rare earths.
10:22The Trump administration is trying to reduce U.S. dependencies, but that's a two, three year, four year kind of
10:28play.
10:29The Chinese continue to have a lot of leverage there.
10:32Clearly, actually, the Chinese, we talked about oil markets earlier, like the Chinese have actually been incredibly helpful
10:38in keeping oil prices from going even higher because they've been releasing enormous amounts from stockpiles.
10:45I do think President Trump is going to want that to continue.
10:48I think the Chinese have a lot of cards.
10:49Of course, we do, too, right?
10:51We continue to have a lot of cards in the financial domain, in the technology domain and the like.
10:56Yeah.
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