Tariffs, Free Trade, Export Controls, H20 & Rare Earth Ban | BG2 w/ Bill Gurley & Brad Gerstner

Summary

In this episode of the Bg2 Podcast featuring Bill Gurley and Brad Gerstner, the discussion navigates the complexities of global trade dynamics, U.S. tariffs, and export controls, with a keen focus on their implications for the tech industry and broader economic landscape. The conversation delves deep into the unintended consequences of tariff walls, the geopolitical competition between the U.S. and China, and the potential for shifts in global economic alliances. Combining insights on economic theories with current policy analyses, they unpack the challenges of managing national economic security while promoting innovation and global cooperation.

Highlights

• Bill and Brad discuss the infinite nature of the AI 'war,' emphasizing collaboration rather than competition. 🤝
• The dynamic poker night in Austin adds a light-hearted touch to the serious economic discourse. 🎲
• Concerns about market volatility due to aggressive tariff strategies are highlighted, exposing potential economic downturns. 📉
• Export bans, especially on rare earths and tech products, are critiqued for their far-reaching impacts on global industries. 🛑
• Historical insights are shared about past trade policies and their often adverse outcomes on domestic economic health. 📚

Key Takeaways

• The AI 'war' is considered a long, infinite game, with no clear winner or endpoint. 🏁
• Tariffs often lead to retaliation, restricting global trade and hurting economic growth. 🔄
• Complex systems in global trade make predictability and control very challenging. 🔍
• Export bans, such as the rare earth and Nvidia H20 chip bans, can severely disrupt industries reliant on these technologies. 🚫
• There's a need for a balance between national security and free trade principles. ⚖️

Overview

In this dynamic episode of the Bg2 Podcast, Bill Gurley and Brad Gerstner tackle the hot-button issues surrounding tariffs, free trade, and export controls, set against an engaging backdrop of a poker night in Austin. From discussing the abstract nature of AI development as an infinite game to critiquing current U.S. trade policies, they offer a front-row seat to the complexities shaping today's economic climate.

The conversation delves into how tariffs can trigger retaliatory measures, creating a cycle of economic fallout and increased tensions between global powers. They emphasize the necessity of understanding and adapting to complex systems, noting that attempts to control such systems with tariffs and export bans often backfire, exacerbating the very issues they aim to solve.

Bill and Brad also address the balance between ensuring national security and maintaining the ethos of free trade, highlighting how these policies impact everything from tech innovation to geopolitical alliances. Their commentary serves as both a warning and a guide, underscoring the importance of strategic foresight in navigating an interconnected global economy.

Chapters

• 00:00 - 01:30: Introduction: US and AI War The chapter titled 'Introduction: US and AI War' discusses the prevailing sentiment in the AI community that the United States needs to 'win' the AI war. However, there is skepticism about what this actually means and whether it is even achievable. The conversation suggests that AI development is an 'infinite game,' implying an ongoing process rather than a finite competition. The dialogue questions the feasibility of inhibiting other nations from advancing in AI, highlighting an example where OpenAI was said to have borrowed or copied technology, indicating the collaborative and open nature of AI advancements.
• 01:30 - 03:30: Discussion on Poker Night and Florida Gators The chapter begins with a discussion on innovation at Google and Deep Seek, emphasizing how innovation occurs. The conversation shifts to a recent poker night attended by the speakers, along with friends Vinnie and Bill Lee in Austin. Reflecting on the poker night, the tone suggests an enjoyable experience, with one of the participants seemingly performing well.
• 03:30 - 05:30: New Administration and Market Uncertainty The chapter discusses the excitement and celebration surrounding the Florida Gators' recent success in a sports tournament. The narrator shares personal experiences of celebrating with friends at the river walk outside the team hotel, capturing the essence of fandom and the joy of victory.
• 05:30 - 08:00: Global Trade and Tariffs The chapter titled 'Global Trade and Tariffs' lacks concrete information about global trade and tariffs, and instead focuses on a conversation about a basketball game, specifically the Warriors' exciting win over Houston. The narrative also briefly touches upon a personal reflection about a special experience related to a team. The chapter does not provide relevant content on the intended topic of global trade and tariffs.
• 08:00 - 09:30: Macro and Market Impact The chapter 'Macro and Market Impact' discusses the complexities of current market conditions in the context of new administrative policies and their simultaneous changes. The conversation reflects on a past discussion about concerns regarding market discount rates and increased uncertainty. Using the metaphor of the Jimmy Butler trade, the speaker illustrates the intricate nature of these economic systems and the ripple effects of such large-scale changes.
• 09:30 - 14:00: Debate on Tariffs and Free Trade The current administration is aiming for a comprehensive transformation of global trade. This involves trade negotiations with numerous countries and dealing with an embargo between the US and China, characterized by a 140% tariff and export controls. Bessence mentioned that the renegotiation of this deal has not even started yet.
• 14:00 - 18:00: Reagan's Speech on Tariffs In Reagan's speech on tariffs, he addresses multiple pressing issues faced by the nation. He emphasizes the importance of locking in the current tax bill to prevent doubling taxes at the end of the year. Reagan discusses the reconciliation package and its implications for deficit reduction, highlighting the ongoing debate about the long-term impact on the national deficit. Additionally, he touches on international concerns, including the war in Ukraine and the volatile situation in the Middle East, while considering the possibility of an Israeli attack on Iran. The speech outlines the complex challenges at hand, indicating a need for careful policy management moving forward.
• 18:00 - 23:30: Historical Context of Tariffs and Economists' Views The chapter discusses the complexities and interwoven challenges surrounding tariffs and how economists perceive them. The narrator talks about the simultaneous factors at play and their discounted rates impacting the probable success of handling these issues smoothly. The speaker acknowledges that while there may be some victories, there will also be setbacks in managing these challenges effectively.
• 23:30 - 27:00: China and US Tech Competition The chapter titled 'China and US Tech Competition' discusses the intricate and high-stakes challenges faced by the administration in attempting to navigate trade dynamics, particularly around tariffs, free trade, and export controls. The conversation touches upon the complexity of these issues, likening it to the kind of complex system theories discussed at the Santa Fe Institute. Successfully addressing these challenges would mark a significant achievement given the difficulty involved.
• 27:00 - 33:00: Export Controls and Rare Earth Ban The chapter discusses the intricacies of multivariable systems, emphasizing the difficulty in predicting outcomes due to numerous interdependent variables. The speaker expresses skepticism about discussing macroeconomic topics because of the unpredictable nature arising from these complex relationships. The chapter ultimately highlights the challenges in foreseeing changes in systems with many variables and stresses cautiousness in making predictions.
• 33:00 - 37:30: Nvidia and Export Ban Implications This chapter discusses the challenges and impacts of macroeconomic factors on high-tech companies, with a focus on Nvidia. The conversation highlights difficulties in identifying the exact variables affecting the market and how companies like Meta are suffering revenue hits due to reduced advertising. It underscores an overarching theme where market conditions and external factors heavily influence business outcomes, irrespective of internal operations.
• 37:30 - 42:10: Impact of US Tariffs and Global Relations The chapter discusses the impact of US tariffs and global relations on businesses, particularly focusing on Chinese merchants on platforms like Meta. It highlights the significant profits made by these merchants, noting that the revenue generated is pure profit due to minimal costs. The chapter explores the potential consequences if these profits were to vanish and questions whether substitutes could match the profitability. The discussion reflects broader themes of economic interdependence and the fragility of current profit structures amid global political shifts.
• 42:10 - 50:00: Finite and Infinite Games in Global Strategy The chapter delves into the concept of 'Finite and Infinite Games' as it pertains to global strategy. It starts by acknowledging the overwhelming nature of constant news influx and the importance of staying focused amidst a busy schedule. The discussion transitions into an update on tariff negotiations, highlighting the administration's divided stance—one favoring a tactical, narrow view of tariffs. The conversation is rooted in previous discussions about the merits and arguments surrounding free trade, setting the stage for a deeper analysis of current approaches and potential impacts on global strategy.
• 50:00 - 57:00: US Tech Leadership and Global Strategy The chapter 'US Tech Leadership and Global Strategy' discusses two contrasting approaches to dealing with tariffs and the reonshoring of essential industries. One method, described as 'the best consensus,' involves targeted tariffs to support national industries with minimal discharge. The other approach, known as the 'nuclear Navarro approach,' proposes generating trillions in tariff revenue by imposing high structural tariffs on everyone and replacing the internal revenue system with an external one. This latter approach suggests a more structural shift.
• 57:00 - 68:30: Economic Indicators and Market Sentiment The chapter titled 'Economic Indicators and Market Sentiment' discusses the current state of the financial markets, highlighting a 15% decline since 'liberation day' on April 2nd. The market downturn is attributed to concerns over a global trade war, which has intensified with nations imposing export bans. On April 5th, China enacted an export ban on rare earth elements, prompting a retaliatory export ban on Nvidia chips by another country. The chapter promises to delve deeper into these issues.
• 68:30 - 75:00: Conclusion: Free Trade and Economic Strategy The chapter discusses the controversy surrounding bans and tariffs, noting that even within the Republican party, traditionally against tariffs, there's growing concern on Capitol Hill. Lawmakers are apprehensive about the future implications on the economy, currency stability, and the general chaos perceived in the current economic strategy.

Tariffs, Free Trade, Export Controls, H20 & Rare Earth Ban | BG2 w/ Bill Gurley & Brad Gerstner Transcription

• 00:00 - 00:30 almost everyone in the AI space that I see with a microphone in front of them says the US has to win the AI war yeah i don't know what that means and if if I guess as to what it means I don't think it's possible right and so because it's an infinite game it's an infinite game and no one that I talked to would argue we're going to somehow prohibit them from moving forward in AI let's not forget it wasn't that long ago that OpenAI they'll say borrowed or copied
• 00:30 - 01:00 the innovation that happened at at Google and Deep Seek like this is how innovation works bill great to be back in person good to see you sir that was fun last night we have to give a little shout out to our friends Vinnie and Bill Lee and some others who we got together with in Austin last night for some poker i think you did all right last night you had
• 01:00 - 01:30 some winnings and uh you had some more winnings in fact I brought you some flowers this is for your Florida Gator bring you your flowers thank you i I'm I'm sure the listeners are tired of hearing I started the last two podcasts one before the Sweet 16 and one before getting into the Final Four and then uh of course everyone knows the Gators went all the way we had uh I had a bunch of friends out we spent the whole day month the Monday of the game day on the river walk outside the team hotel saw a bunch of old friends i I know fandom is a
• 01:30 - 02:00 weird thing cuz you don't actually do anything you just go along for the ride but it creates it creates a very special experience and I'm super proud of of what they did in that team and how they won i had talked about it before and it it was dramatic too so but it was a great time just a great time what have you been up to speaking of games that was an exciting upset by the Warriors in game one over Houston the other night i I hope our guys make a run at it this year certainly looks like they're a totally different team with Jimmy Butler on the team and no doubt I think they're 25 and four or something like that since
• 02:00 - 02:30 the Jimmy Butler trade completely um I I tell you man I'm thinking a lot in fact this is something you you really uh drilled into me you know ages ago about thinking about just complex systems um when I look at all the things this new administration is trying to change right simultaneously you and I talked 3 months ago i said I was worried about the markets discount rates had to go up there was more uncertainty in the world but when I start thinking about what's
• 02:30 - 03:00 going on what this administration is trying to accomplish all at very large scale so think about this whatever you think about each one of these individual things they're trying to totally transform global trade so that's a you know trade negotiations with a 100 countries we effectively have an embargo between us and China 140% tariff export controls you know and so we have to renegotiate that deal bessence said today it really hasn't even started
• 03:00 - 03:30 that's going to be a slog on top of that we have taxes if we don't you know lock in the tax bill it doubles at the end of the year we have this reconciliation package we have Doge and deficit reduction you know we have questions around the 10-year and whether or not deficit is going to actually be larger this year we have the war in Ukraine right and and lots of back and forth there we have dealing with the volatile situation in the Middle East i mean it sounds like we were on the verge maybe of seeing an Israeli attack on Iran and
• 03:30 - 04:00 all of these things are happening simultaneously and so I one of the things that's just on my mind if you look at the discounted rate of uh uh dealing with any of them successfully and then you multiply those discounted rates together right the probability that you're going to land this plane and just a really smooth landing I think is is challenging to see right it's we're going to have some wins we're going to have some losses um and so today you
• 04:00 - 04:30 know I know we want to revisit some of these conversations around tariffs and free trade trade and these export controls and kind of where we are in the market but I would just say like we're attempting something very high difficulty level and if you know if this administration is able to land the plane on all these it will be quite an accomplishment yeah and you bring up complex systems this is the reason I spend so much time down at the Santa Fe Institute because that's all we talk about but a couple of features of those things that relate to exactly what you
• 04:30 - 05:00 said first it's very hard to know which variables are dependent in a in a complex multivariable system and it and and there may be one you don't know about that it flips and the whole system takes on a different shape and this makes these things very hard to predict which is why I don't like talking about macro for that exact very reason that there's so many variables it's very hard to be accurate and correct and even if you are it might just be by happen stance because you might not know the
• 05:00 - 05:30 exact variable that caused it um so it is it's difficult and unfortunately and and I I'll state again I don't like talking about macro but we're kind of forced into it because the market and even the destiny of many of the high-tech companies that we would prefer to focus on um seem to be caught up in this whole thing for sure for sure i mean I just saw a random tweet before we came in here you know somebody estimating that the revenue hit to Meta this year from reduced advertising by
• 05:30 - 06:00 the merchants Chinese merchants on Meta like Timu is like $7 billion wow now think about that that's pure profit right there's no incremental variable costs against serving those advertisers so if that just disappears you know it's very very high margin business and so again just the the downstream consequences backfill with something else that may not pay as much yeah you know perhaps but I think you know what it reminds me is you know it it feels
• 06:00 - 06:30 like there's news every hour it's pretty exhausting but we got to lock in you know there's a super busy calendar ahead so why don't we start with just maybe updating where we are on on on tariff negotiations and revisiting I think some important arguments about free trade so last time we were together we really framed this by saying on the one it seemed there were two different you know kind of sides in this administration on the one side we had kind of a more tactical narrow view of tariffs maybe
• 06:30 - 07:00 the best consensus I called it which was a fully loaded gun rarely discharged you know and have targeted tariffs to reonshore critical national industries and on the other side of this we had what I described as more the nuclear navaro approach this is that we generate trillions in tariff revenue that we tariff everybody high structural tariffs we replace the internal revenue service with the external revenue service and this is much more uh structurally uh
• 07:00 - 07:30 different not not not tactical at all well where are we now markets are now down 15% during this period since uh quote unquote liberation day on April 2nd the markets are clearly worried about a global trade war we now have export bans so China implemented an export ban on rare earths on April 5th we retaliated or at least implemented an export ban of our own last week on Nvidia chips we'll get into and all of
• 07:30 - 08:00 these bans and tariffs are quite controversial even among Republicans remember the Republican party on Capitol Hill has historically been against tariffs and so I think there's an increasing uh concern on Capitol Hill about where all of this is headed and what it means for the uh economy and so many people are saying this is feeling quite chaotic it's they're nervous about the tenure they're nervous about the impact on the dollar bessant's saying it's going to be a slog and this is going to take a while but the president
• 08:00 - 08:30 says on Friday he thinks it'll all you know we'll have it resolved in the next 3 to four weeks so what is your reaction to all of this what I want to do is take it up a level because I think there's an important conversation republicans have historically been a party of free trade and lower taxes right i think of Reagan or Milton Freriedman and yet today there seems to be this growing consensus around tariffs so let's just go back make the case for us steelman the case for why uh this may be a misadventure in
• 08:30 - 09:00 the first place bill when we were talking at the beginning of this podcast journey about skilled immigration we played a short clip from Ronald Reagan which was one of his last um speeches that he gave in office and this week with all this tariff discussion there was another Reagan clip floating around that I think does just as great a job of kind of summarizing something in a very efficient way so if you don't mind let's play that clip real quick and today many
• 09:00 - 09:30 economic analysts and historians argue that high tariff legislation passed back in that period called the Smoot Holly tariff greatly deepened the depression and prevented economic recovery you see at first when someone says "Let's impose tariffs on foreign imports," it looks like they're doing the patriotic thing by protecting American products and jobs and sometimes for a short while it works but only for a short time what eventually occurs is first homegrown
• 09:30 - 10:00 industries start relying on government protection in the form of high tariffs they stop competing and stop making the innovative management and technological changes they need to succeed in world markets and then while all this is going on something even worse occurs high tariffs inevitably lead to retaliation by foreign countries and the triggering of fierce trade wars the result is more and more tariffs higher and higher trade barriers and less and less competition so soon because of the prices made
• 10:00 - 10:30 artificially high by tariffs that subsidize inefficiency and poor management people stop buying then the worst happens markets shrink and collapse businesses and industries shut down and millions of people lose their jobs the memory of all this occurring back in the 30s made me determined when I came to Washington to spare the American people the protectionist legislation that destroys prosperity so I mean for me you know everything I
• 10:30 - 11:00 learned up until this point in time is congruent with what Reagan said you know tariffs lead to increased inflation they lead to reduced innovation putting a protective blanket over our companies and our country lead to them being less globally competitive and then fourth which he mentions you know it leads to retaliation and you know I've just been kind of revisiting a lot of my priors one of my favorite economists who spends time down
• 11:00 - 11:30 at Santa Fe Ricardo Houseman put out a great piece who said "We're not adding up everything the right way we're only looking at physical goods their services and intellectual property and net income that comes from um companies like Meta operating around the globe you know Neil Ferguson did an incredible hour with Barry Weiss that I would just tell everyone to go listen to and every one of these things takes me back to what I learned over 20 or 30 years that these
• 11:30 - 12:00 things aren't going to work out in the long run and so I'm I'm I'm skeptical i mean I'm always open-minded to revisiting my priors and if someone wants to put out an argument while this is all going to work but I and you and I were talking earlier but I find there's a lot of conflation going on you know about different different reasons arguing for why different actions are happening you know the tactical you know we need to have these specific technologies you know be we're be
• 12:00 - 12:30 resilient so we're not overly dependent on one country to this bigger thing where we're going to replace all of tax income right and I think you could do a little bit of the first the latter is just it just violates all my priors right so I'd have to I'd have to start fresh and I'd have to be convinced that all these great thinkers that came before us were wrong right you know so if our friend uh David Sachs were here and I think he brought you up on the all-in pod last week if he were here he
• 12:30 - 13:00 would say "Okay free trade is all well and good." Very Jeffrey Sachs um but he'd bring up John Mirshimer and he would say you know the reality is we're in a great power struggle we have a peer rival in China you know today and that national security must take priority over free trade and might make the argument I think that in particular creating resilience in these industries rare earths you know chip fabs in the United
• 13:00 - 13:30 States automanufacturing steel aluminum etc are essential to our national security and so therefore it's not inconsistent with free trade what would you say to that well you know we we talked in the past I think to the extent you doing something very tactical um it could be proposed as such the the the tone and the bravado of of the description of what we're doing isn't consistent with that um there's also if you're using the word resilient you know that can include other countries that
• 13:30 - 14:00 are allies it doesn't have to be on the shores of the US and I know people who in the first Trump administration were told to to diversify away from China and they built you know supply chains in Vietnam and now they're you know worried about tariffs there and so the there's there needs we talked about this but there needs to be a consistency in order for people to adjust to those things one more piece I would mention we'll put links to all these things is uh Thomas Freriedman has an op-ed in the New York
• 14:00 - 14:30 Times that says I I just saw the future and it was not in America you know he takes it further he he believes that in advanced manufacturing we're not just not doing it here but we we're not on the cutting edge of what it would take to do here um if you recall back in a in a day and age when Japanese manufacturing and and just in time was this huge thing where where all of America was convinced Japan was ahead of us in auto manufacturing and he says we
• 14:30 - 15:00 need to adopt that philosophy about manufacturing in China and he he goes to the point of saying look we need to force them to do JVS here so we can learn from them yes now no one's talking that way in the administration because there's so much vilification there's no recognition of where they might be better than us but but those problems I guess the point I'm making is those problems are worth solving but I I'm
• 15:00 - 15:30 still not convinced that we have a I think we have a huge labor problem trying to be competitive in manufacturing right neil makes a great point about the argument that oh we shouldn't have done this we we regret global trade that argument takes you you're you're allowing yourself to imagine you're you're you're taking where we are today and competing with an imaginary version of how things evolved if we didn't embrace global trade right and and assuming that we would have
• 15:30 - 16:00 manufacturing and be in a better place and I think that's uh he he used the word fanciful which I would agree with i mean I might also argue you know in response to Mir Shimemer it was an incredible debate last year the all-in summit between Mir Shimemer and Jeffrey Sachs you know that he comes out of the realist school of polit of of of political international relations and I think there's a lot of truth to it right i mean you can't stick your head in the sand and pret pretend that we don't operate in an international system in
• 16:00 - 16:30 the middle of the Cold War in the 1970s right we had all sorts of embargos on on Soviet Russia that were probably smart embargos a lot of people think that what you know the historical telling is that what brought the wall down ultimately uh against Soviet Russia was that our economy was triumphant and um so I look at the situation today and I think one part of the problem is that it's not clear out of the White House what the goal and objective is right if the goal
• 16:30 - 17:00 and objective is Navaro then I think there's broad opposition within not only uh you know the Democratic party but also the Republican party to the scale of tariffs and disruption um that that's going to have on the economy but I think it's fairly non-controversial that we should have tactic tactical narrowly tar tailored tariffs and tax subsidies and incentives in order to reonshore some critical capabilities you know I mentioned a few chip fab some pharma critical rare earths and production i
• 17:00 - 17:30 mean we don't want to be dependent on um the Chinese for whether or not we can produce an automobile or whether or not we can produce a phone you know etc and so I think that uh I think that some of that makes a lot of sense to me what doesn't make a lot of sense to me is that we launched what was kind of this nuclear style tariff war against every country on the planet right and so just the sequencing of events here I think is a bit confusing it should not be this
• 17:30 - 18:00 McKinley style multi-trillion dollar tariffs if what your objective is principally where the agreement is is to reonshore some of these critical industries and what I think is missing from this all we're talking about is tariffs right we need to be talking about what is the accelerationist agenda that we're going to put together in order to get these chip fabs there's a lot of things we can we could put together AI funds we can put together tax incentives and other packages to get people to build you know to build here i
• 18:00 - 18:30 think that gets lost in the conversation if we think that this alternative path is all about this this reon shoring bill is that consistent do you think with the Reagan and Milton Freriedman view of free trade like if it was if it was more tactical like that i think if it were more tactical I'm I'm probably push back on you and disagree i don't think our current um democracy is set up in a way that's really good for um the country to deploy dollars to help industry and I
• 18:30 - 19:00 gave this speech at the the original All-In Summit about regulatory capture and I just I can't imagine that if our well first of all the the AI boom in the US has attracted more capital dollars than I've ever seen accumulated in the history of mankind so why sprinkling a little more on would be helpful but also you get into this game of picking winners and losers now Freriedman highlights and I and I think this is true you know the the Chinese government
• 19:00 - 19:30 is just much more successful at at state involvement in innovation and if you maybe go back to the space race or the Manhattan project um we were capable of kind of mustering forces in that way but I haven't seen it done re recently like the past 40 or 50 years in many ways in many ways the private sector has done a more efficient job of uh you know of taking on the Manhattan uh project you know style project i mean you look at
• 19:30 - 20:00 what's going on in Abalene Texas and Denton Texas you know around uh building out incredible supercomputer clusters all done really without government involvement and I think that's you know an efficient and preferred mechanism uh you know where a lot of to your point there's a lot of capital available but there are areas where I don't think we will move forward much without government involvement a great example would be in energy so so as we talked about many episodes ago you know Korea
• 20:00 - 20:30 and China are delivering fision nuclear at 1/4 the price we are and I think that Korea example South Korea is very important because that is a democracy so here's one country that's that's authoritarian one that's a democracy and they're both achieving it uh and we are 4x over that that's going to require some type of government involvement to figure out why we can't build that better and faster and to be fair there's
• 20:30 - 21:00 a lot of movement around the country mostly at the state level about removing red tape as a uh as something governors celebrate which which is helpful and and may move us in this direction so those I tend to if we're going to help something along I think I think figuring out why our governments become friction and mud and changing that is probably going to be more impactful than the government doing the work themselves or picking winners with capital we're we're we're
• 21:00 - 21:30 quick to blame others around the world for our challenges right but I I I think we need to spend at least as much time accelerating ourselves and part of that acceleration is getting rid of needless regulation as looking at our own systems and asking that question why does it cost 4x more to build a fision reactor today in the United States than it does in South Korea hey yeah totally and and by the way I one thing you just spurred in my brain i was listening Freriedman also did a podcast with with Ezra Klein
• 21:30 - 22:00 and you I'm just going to steal his story i don't know that it's true but he says that what when China attacks a new industry these days that they encourage a ton of startups i didn't know this he said so when they went after solar powers they encourage like a hundred startups so rather than pick a winner they give money to everybody so in a in a thousand flower bloom kind of way and that those hundred compete their way
• 22:00 - 22:30 down to five and he said there's a lot of fraud and grift and waste for the ones in the losers but what you get out of the five are is something that's actually honed by a market force and I don't think anyone that thinks about authoritarian China thinks about the state using market forces to get to a higher level of of efficiency and production but if if what Thomas said is correct they're actually using this kind
• 22:30 - 23:00 of competitive market force to hone the better players in these indust let's let's talk a little bit about you know I think a lot of things get conflated when we talk about tariffs and one of the most important is export controls you know so an export control is effectively a license requirement that acts almost as an embargo on all trade in a particular good so on April 5th China implemented this rare earth ban and then we reciprocated last week of the ban on all Nvidia H20 chips uh going to China
• 23:00 - 23:30 so speak when you when you look at the rare earth band and I have a list here of the materials that were banned on April 5th and you have things you know that go in critical elements into magnets samarium turbium and so these are about 60% of these materials are mined in China okay so you do have other places on the planet that are that are uh mining these rare earths the problem is 90% of them are refined in China when
• 23:30 - 24:00 they banned those rare earths um these are the magnets that go into EVs phones computers machines of all sorts this was called by some in and around the White House as a killshot a kill shot against the US economy um that causes massive problems in industrial production you know when I think about um again the destabilization that comes from
• 24:00 - 24:30 overdependency on something like if every magnet that goes into every machine in the United States is coming from from China and now we've effectively banned it even though the ban was in response to the tariffs by the United States right what is the offramp to this you know I now see just this afternoon while we started recording the pod Trump has said that you know he doesn't expect uh the the tariffs to stay anywhere close to where they are in China he doesn't think they're going to be zero but they won't be anywhere close to where they are you
• 24:30 - 25:00 know he's and we see kind of a unilateral walking down of these tariffs but these export bans are really dangerous Bill so what what are your thoughts about an export ban perhaps just compared to uh the tariff itself well I mean I go back to the Reagan video right he says this will eventually lead to retaliation and escalation and and the fact that this video was recorded whatever ' 80s what is that 45 years ago yes like like this isn't a new
• 25:00 - 25:30 perspective so you could argue "Oh my god I can't believe this happened." Or you could say "Well if you studied history you should have expected this to happen." Right in fact there's this Milton Friedman video going around and he talks about retaliatory tariffs and he says "Okay let's say that somebody shoots a hole in the bottom of your boat right?" And so you know it's taking on water a retaliatory tariff would be like you shooting another hole in the bottom of the boat and then they shoot a hole in the bottom it just sinks faster yeah
• 25:30 - 26:00 right and he's saying uh you know but in fact what we did last week is the US did ban H20s going to China and this was a pretty controversial move and in fact I was you know looking at some of the analysis that was done this week and the newly launched Huawei cluster matrix 384 is China's competitor to the GB200 so semi analysis is out with you know an assessment of this and many others and basically what they concluded is that
• 26:00 - 26:30 Huawei is already on the frontier or near the frontier with respect to chips in fact one of the analysts on CNBC this week said "To be honest we basically just handed the China AR market to Huawei anyway right and as Bernstein analysts because they said what it effectively does is clears the decks for Huawei to have monopoly profits in China they no longer have to compete with CUDA uh and and Nvidia in China even though we were sending them the H20 was a
• 26:30 - 27:00 nerfed chip right it was a chip that was two or three generations behind what we have in this country but it was you know some people think in retaliation to the rare earths other people think it's just part of you know the AI strategy to try to win the AI war against China well and and le let's just take the the argument that it was a retaliatory move how good must it feel to be Nvidia and Jensen and the executive team there that you become
• 27:00 - 27:30 a pawn in these games that you had nothing to to do with creating you know and in fact you designed this product specifically to meet the expert control rule that was in place before this one which is very similar to this Vietnam thing that we were just talking about so you can't be happy with that i reposted when this all happened a great video that that Deerra did over at CNBC um about how this will be good for Huawei and I think if you ask Jensen he would
• 27:30 - 28:00 say "Yeah this is great for Huawei." And it's not just that you get an isolated market where everyone but but every participant in the AI market in China may have been working with Nvidia now they start working with this and they all collectively help improve it over time and you know there I read one article that said that China's you know getting some of their very first commercial planes off the ground one of the reasons is they became reliant on
• 28:00 - 28:30 Boeing and Airbus and so by by denying your exports to a market you increase the incentive they have to develop their own technology well particularly when they have the capability of China i mean the fact of the matter is if they had no capability to develop it it would be one thing right i think more like the the the race around nuclear arsenals if you will there's some countries that will never have the capacity to build said nuclear arsenal but the fact of the matter is China is so close in this regard with respect to the H20s from my
• 28:30 - 29:00 perspective it's a very close call i don't think we should be sending GB200s or cutting edge chips to China i think that there's a legitimate national interest in you know quote unquote staying out in front on AI i think there's a debate to be had about that that's where I come down on that side of the issue but the H20s it seemed to me was a very selfdefeating way i think that the competition with CUDA in China distracted uh the competition denied
• 29:00 - 29:30 them monopoly profits within China for these Chinese internet companies there was some insinuation last week that Jensen was intentionally right skirting all of this you know these rules around China and that there was you know maybe 30 or 40% of all their sales were going into China you know I you know as I look at this I think we have to be really careful um you know I think that you these tariffs all of a sudden right can find us in a place
• 29:30 - 30:00 where we're demonizing and I think Nvidia and Jensen are national heroes for the work that they've done and the leadership they've given us in global AI right american success stories totally agree and this idea that somehow um they comply with the exact attributes of the H20 prescribed by the US government i want I want to go back you know and then they sell those in China and then after the fact we go back and somehow start demonizing them I think is a very dangerous thing so so when I gave that
• 30:00 - 30:30 speech a while back on regulatory capture I made the argument that when in in America inside of America when we want to accomplish something through policy we gather a bunch of people we get a bunch of ideas and then we write some complex piece of legislation and what I highlighted is that in many cases it fails and in in some cases it spectacularly fails so when I what what does that mean you get the exact opposite outcome from which the policy
• 30:30 - 31:00 intended to create now the fact that this happens all the time inside of America is an interesting fact because in some ways expert control is external regulation so we're trying to implement a policy now not just in a in a place where we control most of the pieces but in a in a world where we don't control many of the pieces and then we expect that policy to work perfectly and the
• 31:00 - 31:30 problem is you know borders are porous money finds a home right you know I always tell people that try and build internet businesses internet arbitrage is undefeated and global markets kind of have the same thing like we're just coming off of a remark I would use the word spectacular again spectacular failure of Russian sanctions economic sanctions right so why do we think oh that didn't work but I'm going to go do
• 31:30 - 32:00 this and make it work I heard people who said we have to ban H20 saying oh well the Biden rules didn't work they failed right so oh so you you mean global expert controls didn't work so we're going to redouble them and see if they work again and I just you know I think if there were a piece of technology like say a fighter jet that you're giving to maybe one other country or two that's a super deep ally that's one thing if you're going to sell something in 120
• 32:00 - 32:30 countries around the world and try and tell one country they can't have it right there's no there's no effing way that's going to work like and especially these goods have digital attributes i mean you you know it's just it's going to it's going to work around and you know I think it's going to get worse before it gets better i have seen hints that the same people that push the H20 want to you know put even more restrictions on ASML which is a Dutch
• 32:30 - 33:00 company or fine TSMC for building Yway chips that's a company that's headquartered in Taiwan right so I'm sure Jensen's mythed that his company's become a pawn in this game how do how do you think these companies we talked about ASML in the in the past where the management there has already expressed some reluctance to to be our you know whipping whipping post or whatever but like I don't know that we just are allowed to start grabbing pieces of
• 33:00 - 33:30 chessboard that we don't even own and bringing them into this competition and you said earlier the the way we implemented tariffs we've we've alienated many of our allies and partners you know I won't be surprised at all if we wake up one day and one of these companies tells us no right yeah you know again it comes back to defining the objectives narrowly enough that you don't end up in this big retalatory and escal escalatory uh posture again I think it's a a reasonably close call
• 33:30 - 34:00 around H20s my sense is that Nvidia understands and is on board with not selling leading edge chips to China right like they didn't fight the fact that they weren't selling GB200s to China and the H20 is if you just looked at the facts on the table the Huawei Ascend 920s the number of these that they're now uh producing the way that they're interconnecting these things together yes they may be slightly less efficient it may take two or three times
• 34:00 - 34:30 the number of chips and amount of power in order to end up at the exact same place but we just talked about there are 100 nuclear power plants under construction in China power is not their limit well and they produce those plants at 1/4th the price we do so if it comes down to power and many people in AI world likes to say it's going to come down to power well I guess they're going to win well I mean so there's an interesting question here if you think about the off-ramp on these for President Trump again there's a lot of suggestions over the weekend that you
• 34:30 - 35:00 know if if you think we're going to land the plane in 3 to four weeks Bill the only way you do that is basically through unilateral concessions right that you define as victory so our uh you know all of these countries are calling us they want to do deals and so we're going to walk the Chinese tariffs back to 30 or 34% and we're going to suspend maybe for 90 days uh the H20 ban in the hopes that they will reciprocate by suspending the rare earth ban or something like that so I don't think we've seen the end of this when it comes
• 35:00 - 35:30 to uh this Nvidia ban but you know the flip side of this is Nvidia just had a big announcement right with the White House about a $500 billion investment right in combination with a bunch of other comp companies Foxcon TSMC etc building fabs in the United States i know the first GB200 is rolled off the assembly line out of those fabs in Arizona um to me again we need to rebalance and focus on accelerating
• 35:30 - 36:00 right and reonshoring these critical industries in the United States i think the distraction that we can keep China away from frontier level AI that will be a losing strategy in my mind i don't think we need to go out of our way to make it easy on them but I think the obsession and the time spent and the distraction for US CEOs to try to how to how they comply with all of this um I think is not particularly great and I'll I'll just give you where you know maybe the next frontier where this is going i've heard you know increasing chatter
• 36:00 - 36:30 that somehow we're going to try to ban deepseek models right and and somehow prevent US hyperscalers or cloud companies from integrating deepseeek models into their heard the same thing so so talk to me about about that and the slippery slope associated with that uh before before I go deep in on on deepseek which I want to do I I I want to mention a couple things from a very broad level you know one is um back to this freedman post he
• 36:30 - 37:00 mentions a quote from a book how why we do anything means everything and the quote is interdependence is no longer our choice it's our condition our only choice is whether we forge healthy interdependencies and rise together or maintain healthy interdependencies and fall together and you There's a uh there's a book that I've been rereading that the Collison's talked about once called Finite and Infinite Games uh by James Carrs and there's a reality that that a lot of our strategy that we think
• 37:00 - 37:30 about and how we compete in the world comes from finite games a finite game is a game that has a beginning and an end and a winner so a football game a Basketball game that kind of thing infinite games are different they just go on forever stock market you know most large companies they're infinite games like they're not there there's no clock that ends there's no one that declares a winner i fear that a lot of the attitude the vitriol the the language the tone
• 37:30 - 38:00 that's used between us and China is borrowed from from finite game thinking like that we're some you know win the AI war what does that mean like is it is there someone that's is the clock going to end like the Warriors versus the Rockets and they say oh we won like that there's no chance of that and and and most of the people that are even the biggest China hawks I said I say to them do you think you're going to prohibit China's long-term AI development and
• 38:00 - 38:30 they said no you know and I I just think we we there's a lot of zero sum thinking going on win lose I totally believe in this interdependence I I think there's zero chance that you're going to stop China or somehow like I even I use the phrase increase the gap there's there's a lot of arguments that the AI gap has been shrinking not not rising eric Schmidt had a big interview today where he said it was shrinking or this week right um we'll put show notes on that um
• 38:30 - 39:00 and a lot of people are saying they're catching up that semi analysis thing says Huawei is getting there and so this argument that oh we've got to do everything we can we have to act now to win the AI war that's like almost this belief that we're going to increase the gap and that it's a finite game that's just going to end one day and I don't believe in either of those things right and so I think the tone's wrong i think you got to get out of this enemy threat like all those words allow you to hate
• 39:00 - 39:30 you know there's a great great quote from the Godfather which is don't hate your enemies it clouds your judgment yeah one of my favorite quotes ever the the whole piece of this Freriedman article which I think everyone has to read he just went over there and spent time it's not what you think like they are way ahead in a lot of different areas they're super smart they're not you know I think a lot of people thought oh we have a democracy and capitalism and people get confused between those two and they think we we've got the
• 39:30 - 40:00 perfect American exceptionalism we're the only place where you can have innovation and and because we talk about oh they steal they steal we don't ever spend the time to go see if innovation's happening over there it is happening over there these you know and and these people are educated in the same schools and universities like the thought that they couldn't you know be educated or can't innovate is going to lead you to a lot of really bad policies and worse yet
• 40:00 - 40:30 and worse yet right if you believe they're on the frontier and they're going to have a frontier compute stack with frontier models whether we help them or not which I think even those people who who are more China hawkish agree with that statement right and if you wanted the rest of the world to run on US compute and US models what's the the number one thing you would not do you would not anger the rest of the world by launching a tariff assault on
• 40:30 - 41:00 them simultaneous with your tariff assault on on on China and so it is a mysterious policy and when you look at all of these headlines that are coming out the EU now negotiating directly with China right we now have Japan and South Korea and Vietnam negotiating with China you have the Middle East you know entering into you know deals with China i'm not sure again that we're advancing our cause right by making it harder on everybody else on in in the world and
• 41:00 - 41:30 telling them they are the cause for the demise of the US middle class well and I'll go even further like the tone they're adopting is more statesmanlike than us if you read the tone in those in those discussions and they highlight that they haven't invaded anybody in a very long time the US has been involved in a lot more wars around the globe so our ability and and I I brought this up a few podcasts ago i I you know I think you're you you you mentioned deepseek so
• 41:30 - 42:00 so we all believe that there's a imminent deepseek ban the level of which I don't think we fully know right now but you know my immediate reaction is oh I guess Europe and South America will run on deep sea like because the minute we start vilifying even that you know it it is I believe right now the best performing most open you know if you had a quadrant the one that's it's on the upper right on performance and openness
• 42:00 - 42:30 you know and if we ban it um boy it's just going to one you know even more people working with Huawei chip and deepseek trying to optimize it but two you know in this world we've created where there's so much animosity I I think people would be glad to use it in these other countries well the first thing it dawns on me is I ultimately don't think you know somebody asked me on CNBC you know they I I said your decision as to whether be in the market
• 42:30 - 43:00 comes down to whether you think the president is more you know kind of tactical free trader in the spirit of be the best consensus fully loaded gun rarely discharged or whether you really think he wants to reorient the world in the way Navaro discusses it um I I I still believe the president is fundamentally a free trader that this really is about making the US more resilient and he has to he has to bring us back there right because if we if we head in the direction of Navaro it's quite clear to me that we're going to so
• 43:00 - 43:30 anger the rest of the world that uh the chance that the rest of the world is going to run on US compute i think I think what we do in that instance is you move everybody in the direction of China it backfires we don't widen the gap with China with respect to AI or global trade or anything else in fact uh we we shrink the gap by the way by the way there's one I think hilarious irony with the with the Navaro point of view and combined with the um with with the
• 43:30 - 44:00 export control which is if we're going to if we're upset that there is this trade imbalance you know the worst thing the last thing you'd want to do is start penalizing our best creators our best manufacturers our best companies right how are you going to solve the trade imbalance if we tell people they can't buy our best stuff we're going to make them buy our shitty stuff like well just as an example I I I I think I think Nvidia sold you know 12 or 15 billion dollars worth of H20s so if you ban
• 44:00 - 44:30 those then your trade deficit with China goes up by 15 billion my very point let's not let's not wash over the I I think Nvidia is such a perform high performing company worth so much money such a large market cap so much cash no liquidity issues that this $5 billion write off they're going to take is kind of NBD move on it you know didn't affect the stock that much but a $5 billion write off they're just going to throw a bunch of inventory in the trash can well I mean that's that's that's remarkable
• 44:30 - 45:00 think about that bill right some of the people who are arguing right including some US AI companies that they shouldn't be able to sell the H20s to China right if Jensen or the team at Nvidia turned around and said "Great you buy them." Nobody would buy them because they're so underperforming right and yet it it makes the point for them but think about this 15 billion in sales of H20s right that probably results in you know 89 billion of of earnings you know back to
• 45:00 - 45:30 Nvidia you tax that at a corporate rate that's two or three billion dollars to the US Treasury right we are effectively taxing the Chinese on a nerfed product to provide profits to Nvidia to further distance the lead uh you know against Huawei and to put money in the US Treasury and we just unilaterally disarmed around that in a way that doesn't even advantage us against Huawei because their chips are already surpassing the H20 and and that leaves out and I agree with 100% of that and
• 45:30 - 46:00 there's even more because of escalation so So you know it's I I once again I go back to this finite game mindset i I think people are evaluating a decision on an expert export control or a tariff or a ban um without to totally in isolation as that one decision and what will its impact be but any one of these decisions and certainly the combination of them could
• 46:00 - 46:30 lead to escalation that could go as far as leading to a hot war and so you have to accept responsibility of making any one of these decisions that there are you know butterfly effects and escalatory effects that you may wade into right by doing that right I mean you can think about it this way we define some people define artificial intelligence as existential right like that it's absolutely essential to your
• 46:30 - 47:00 national security it's essential to your national economic security now if you are firing a shot at somebody that says "I'm going to deprive you of being able to build your national security or your national economic security right like it's it's a serious it's a serious thing." I um I I want to go on record as saying like almost everyone in the AI space that I see with a microphone in front of them says the US has to win the AI war yeah i don't know what that means
• 47:00 - 47:30 and if if I guess as to what it means I don't think it's possible right and so because it's an infinite game it's an infinite game and no one that I talked to would argue we're going to somehow prohibit them from moving forward in AI let's not forget it wasn't that long ago that OpenAI they'll say borrowed or copied the innovation that happened at at Google and Deep Seek like this is how innovation worked ideas spread like the wind they move fast people study what
• 47:30 - 48:00 other people do it happens all the time and when only when we apply these labels of theft or copy or steal do we start vilifying but but it happens all the time in our own ecosystem it's how these things evolve and so yeah I don't I don't think there's a finite game to win you know it's funny i was I I did some research on something because I was very curious i went back and studied and it's so easy with AI i went back and studied the space race and when when the space
• 48:00 - 48:30 race was underway if you go back and look at the quotes from all the senators and and President JFK and everything one of the reasons maybe the primary reason they said we got to win the space race is they all believed that the entire globe would be covered in this mesh of of rockets and satellites that would be used to control the military of the globe and whoever got to space first was going to have this control now that
• 48:30 - 49:00 never played out but I see a very similar vein in AI where people especially people that believe in AGI and ASI and magical AI think that it's just going to explode and then whoever controls this uncontrollable force will control the globe in a zero someum way and I I I just I don't buy it like I don't think that's going to happen if that does happen we're going to have much bigger problems i think you and I would maybe find a point of agreement
• 49:00 - 49:30 here like what is the northstar that should guide us and I think the the point of agreement if we were giving advice would be that the reonshoring of critical national industries through uh you know some tactical uh means is an important objective okay but I I I think you and I would also agree that we need to shift the focus radically on accelerating our own race right and and refocus from spending all of our time
• 49:30 - 50:00 trying to slow down everybody else and the objective should be the KPI should be do we widen the gap right do American companies are they as successful in AI as they were in the internet like I think anybody who looks back at the last 20 years would say that the United States has won both in terms of of of free trade and in terms of the global internet competition one as defined by improved the standard of living driven
• 50:00 - 50:30 the grow the the the economy in the United States uh in a way that was successful for the United States you know I I in one argument with someone I used the the simple metaphor that comes from swimming any anyone that becomes a competitive swimmer within a year or two you know a coach tells them don't look to the side you know cuz that's wasted energy and someone might pass you just swim as fast as you can just look ahead and I feel like you know it's it's
• 50:30 - 51:00 almost worse than just looking to the side we're trying to intentionally inhibit the other player now going back to f since since I mentioned you're trying to deflate the football yeah yeah it's exactly imagine if you were just watching a finite game and one team insisted that the other team have a technical disadvantage what What would your reaction be how would you think about that player right you you would probably assume they're scared that they're unsure of themselves like like
• 51:00 - 51:30 well and also if you told your team at the start of the season don't worry you don't have to train very hard because I've handicapped the other team they don't even know what I've done to them but I've you know I've tainted their system so they're not going to be very good as opposed to just focusing on your own training and winning the game but I I I might I might end by going back to you know this argument from the Freriedman please that that it's an interconnected world and there are a lot of very smart successful capable
• 51:30 - 52:00 innovative engineers researchers founders in China and if you think you're going to like keep them down or permanently you know prohibit them from playing in AI I think that mindset is going to lead to some spectacularly problematic policy yeah I agree well maybe talk about we can wrap Tesla reported tonight um and and the markets are clearly struggling down one day 4%
• 52:00 - 52:30 up the next day 4% clearly struggling trying to get their hands around uh you know where we are so since we were here last time you know the S&P's down 10% NASDAQ I think as of yesterday was down 20% peaked to trough and the question people ask me all the time is this all priced in how many units of risk do you have in the market we have Bessant doing a talk tomorrow morning on the financial system the VIX is still over 30 there
• 52:30 - 53:00 are fears and rumors out there about is our 10-year you know do we have demand for it on a global basis the dollar is is under assault here so and many of these conversations weren't happening 5 months ago right exactly we were just talking about AI and Nvidia and I mean I I go back to this Stan right the Stan Ducken Miller quote where you know after you know the president's election he said this is the mo this is the biggest shift from an anti-b businessiness administration to a pro business administration in my 50 years of being
• 53:00 - 53:30 in the business right that is how CEOs generally felt at the beginning of January moving in uh to this new presidency and it's really mindboggling to think in n you know in a few short weeks how quickly We went from that level of optimism to this level of concern and I was just looking at a chart you know Apple's down 21% nvidia's down 25% Google's down 20% Tesla's down 40% right we have major moves in the
• 53:30 - 54:00 market well and look I mean and both Tesla and and Apple have a huge amount of revenue in China and and when you sense that this thing may be escalating or that there are ripple effects going back and forth what one one plausible thing that could happen is either one of them get kicked out of the country right right that could happen yes and so of course you have to discount this course and and the question now of course is is enough discounted given where we are and so you know I said at the end of January
• 54:00 - 54:30 early February when you and I did the pod I said "We've taken down our units of risk because there's just more uncertainty in the world discount rates need to come up multiples are coming down." And we did and I would say over the course of the past several weeks we've had very little risk on directional risk along the market you can like Nvidia but if you wake up one morning and 12 billion of their sales are gone because they can no longer sell you know chips in China that's something again that that is the macro that is hard for you to forecast on you know
• 54:30 - 55:00 going to Nvidia i've heard rumors that that they want that the government US government US government and I by not to sound like a victory lap but I said a few episodes ago the biggest risk on Nvidia was the government and that turned out to be true here and um they may not be done i've heard arguments that they want to do a customer audit i don't know what that is or involves well they were suggesting it last week I think even on even even on our our friends pod where you know maybe you should look into all these shipments or
• 55:00 - 55:30 all these sales that are that that are going to Singapore or whatever and again I I I welcome all all of that like I think all companies should have to comply with US rules and regulations i suspect that they do but again if I just step back here gold's outperforming uh the S&P so far this year by about 40% right what does that tell you people are moving into safe havens they don't know where this is all going to land here's one of the things that really concerns me Bill if we look at consensus earnings
• 55:30 - 56:00 expectations for the S&P so far this year we started the year we expected 15% growth we expected the S&P to do $273 a share now the consensus is 12% growth so $265 a share so consensus earnings expectations for the S&P have barely moved down and when I think about the chaos of the last 8 weeks every CEO that I talked to says "We're on hold we're tightening our belts we're taking a more
• 56:00 - 56:30 cautious approach to the year we can't make decisions we don't know where tariffs are going to be we don't know where this is going to be." It's hard for me to think that you can literally wipe two months out of the year in terms of you you know where uh decision-m is going on in these companies and only have a 3% adjustment uh to S&P earnings now what are we seeing this uh over the course of the last two weeks well Scott Kirby from United Airlines comes out he gives two different guides and he says
• 56:30 - 57:00 you know if there's a recession which we may have you know then earnings are going to be 7 to eight bucks and if there's not a recession earnings will be 12 bucks so you have companies that are doing highly unusual things in terms of saying we don't know if we don't know the future so we're either not going to give you a guide at all or we're going to give you this wide dispersion in a guide so I think for most managers people are looking at this they're at max caution i think from an altimter perspective we were pretty cautious and now we're looking at again leaning back into markets on some of these down days
• 57:00 - 57:30 where it's big risk off because I think ultimately the president is going to make deals you know Bessant is going to get deals done i think we're going to probably land somewhere in this kind of 5 to 10% tariffs for the rest of the world right if you add that up that's going to be somewhere order of magnitude $200 billion of tariffs and you're not going to end up at 140 on China we're probably going to get rid of these export bans and embargos and land the plane somewhere around 25 or 30% um now
• 57:30 - 58:00 mind you that's still a 3 to 4x increase over the tariffs from last year but I think what the world needs is predictability and they need it soon i think if we're still having this conversation in 8 12 16 weeks with this level of uncertainty around tariffs I think it's going to have a much bigger headwind to those S&P earnings for the year and as those earnings come down we know that that that the market's going to have to come down with it so the S&P as of end of the day today is only down about 10% for the year and if you think
• 58:00 - 58:30 about all the things that have changed that feels to me like just the air coming out of the balloon in terms of like the certainty the and the uncertainty that we have in the market i think the next move down if we have it is going to be around growth and I yeah you really haven't got a lot of growth earnings tesla's out tonight and even though you know earnings came in a lot lower than expected I think people are looking through that as kind of one time um but by the time we get another month or two into you know uh the next earning season if we continue to see this level
• 58:30 - 59:00 of uncertainty and drifting down I think we're going to have problems further problems in the market i I admire your uh hopeful optimism and the the data points that I see in the past 24 hours about how soon something might come together um I think there was a announcement that India we had finalized the terms of reference i don't know what that means but it doesn't sound like you're very close to being done and that was that was JD Vance today in meetings
• 59:00 - 59:30 with Modi came out of the meetings said we had a big breakthrough we came we came to terms on the on on terms of reference on what the trade deal will be but it will still take months in order to hammer out so months I think months is too long i think the you know the reflexivity already starts to take place everything you just described and and once it does some of it is certainly self-reinforcing so you start decommitting capex you start decommitting
• 59:30 - 60:00 uh you know basic capacity on different manufacturing lines planes whatever and it will become self-reinforcing you raise prices when you decommit because you have less lanes like that's inflationary like everything starts the the fear of it starts to become the reality right i I guess a you know a thought experiment if I described everything to you uh that has happened thus far this year and I asked you should the market be higher or lower
• 60:00 - 60:30 from the all-time highs where we started the year you would say of course it should be lower right and I don't think that down 10% on the S&P sounds to me like irrational given the level of uncertainty that we've injected in a very short period of time and so to me if you're you know if you're thinking about units of risk you know it still feels to me like you're in that bottom third right of whatever your normal exposures are you're in kind of that bottom third it you know everybody wants
• 60:30 - 61:00 to buy the dip and go all in and you know I think we need a lot more certainty as to where this is going i do think that it would be very helpful and it sounds like the president is starting to make some of these comments just this afternoon to disavow ourselves of this you know Navaro style replace the Internal Revenue Service if we can just get a four-year forecast that it's about reonshoring a few industries land the plane on China or on on Japan and India
• 61:00 - 61:30 and then on China I think that gives us what we need to plan you know but there are a lot of other things that have to come together in order in order to keep the market moving forward so um you know we didn't even get to talk about the impact this is going to have on startups and on you know what we're seeing in kind of the startup ecosystem we'll come back and do that next time u but I think that listen I'm kind of tired of talking about tariffs um but but but it is the most important thing and it is impacting everything that we're looking at uh both
• 61:30 - 62:00 on the public and on the venture side of the business today so you you know it's unavoidable we have this really important divergence I think in terms of points of view and what's interesting to me is kind of the free trade side of this argument has largely been drowned out and you know so I appreciate you steel manning that side of it holy I mean look I I I assume most people that have at least had a finance class of study comparative advantage but it's very mathematical
• 62:00 - 62:30 like like it's very deterministic like doing stuff you're good at and letting other people do stuff they're good at is a winwin win and you start backing that up and you're going to get lose lose lose i I'm certain of it yeah here here let's land the plane uh and get back to building America okay take care man
• 62:30 - 63:00 as a reminder to everybody just our opinions not investment advice