The Dow Jones Industrial Average and S&P 500 hit new all-time lows on Thursday afternoon. What exactly happened? And why did the markets fall so much? What does it all mean? What is going on with the global economy and what does it mean for the stock market?
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00:00:27.000There was a lot of puzzlement yesterday.
00:00:29.000Among certain quarters about why exactly the stock market dropped precipitously after that massive run-up that happened on Wednesday.
00:00:36.000So as you recall, President Trump decided that he was going to reverse many of the sanctions, tariffs that he had placed on foreign nations as of Wednesday morning, 12.01 Wednesday morning.
00:00:46.000Within 13 hours, he reversed the vast majority of those, but he also put a 125% tariff on China and retained a 10% baseline tariff against everybody else.
00:00:56.000To the avoidance of the car crash that would have been the imposition of all those tariffs all at once, based on this bizarre formula, the markets reacted to President Trump's postponement with joy and soared almost 3,000 points in the Dow Jones Industrial Average.
00:01:10.000And then yesterday, there was a massive sell-off.
00:01:21.000That policy is going to be much more consistently applied.
00:01:23.000You're not going to see as much variation, vacillation back and forth.
00:01:26.000And so the markets are trying to price in that risk.
00:01:29.000And that is why U.S. stocks, according to The Wall Street Journal, fell sharply on Thursday as investors sorted through a global economic outlook that remains uncertain despite drastic improvements over the past 24 hours.
00:01:39.000The declines accelerated after the White House said the tariffs imposed on China by President Trump in his second term actually added up to 145 percent, not 125 percent.
00:01:48.000Stocks paired those losses a little bit in afternoon trading.
00:01:51.000The Dow Jones Industrial Average finished down about a thousand points.
00:01:54.000Again, none of that should be particularly surprising.
00:01:58.000What is a little bit surprising is that the bonds, the bond yields, for example, have been increasing precipitously at the same time, meaning that the market for bonds is really soft right now.
00:02:09.00030-year bond yields are up to about 5 percent, which is a very, very high rate.
00:02:13.000And that is happening because people are divesting from American investments overall.
00:02:26.000If stocks go up, then bond yields tend to increase because the price of bonds is going down.
00:02:32.000When you buy a bond, essentially what you're buying is a long-term investment that is going to pay off a certain amount at the end.
00:02:39.000And it's not a particularly high amount, typically speaking.
00:02:42.000So, if you are risk-seeking, you're going to buy stocks rather than bonds.
00:02:45.000If you have a lot of faith in the American economy, you're probably going to buy stocks rather than bonds.
00:02:49.000If you're a little nervous, you're going to buy bonds rather than stocks.
00:02:51.000If people aren't buying either, what that means is that they don't believe either that the stock market is going to continue to increase at rapid rates or that the bond market is going to be a problem because America is not going to pay back our debts.
00:03:04.000So that is just a sign of lack of faith in the American economy overall.
00:03:08.000Another sign of that lack of faith is the decline in the DXY dollar index.
00:03:14.000So that dollar index is a way of measuring the relative strength of the American dollar versus a basket of foreign currencies.
00:03:20.000As Mohamed El-Erin of Allianz points out, the DXY dollar index is currently trading below 100, a level last seen in early 2022.
00:03:28.000Unlike past moves, this year's sharp dollar depreciation is fueling worries about an erosion in international confidence in the dollar and in U.S. assets as a whole.
00:03:35.000And part of that, again, is due to the fact that when you actually cut off international trade,
00:03:43.000There's less demand for the dollar in international trade.
00:03:45.000And so overall, the dollar can weaken.
00:03:47.000And so what you see when you look at all of these things combined is enormous amounts of nervousness about the future of the global economy and the American economy in particular.
00:03:58.000I mean, the thing to remember about what President Trump is doing here is that it's not as huge and large as it was slated to be on Wednesday morning.
00:04:56.000What President Trump is doing policy-wise makes a lot of sense.
00:04:58.000However, the actual comparison should not be, this is what the markets are figuring out right now, the actual comparison should not be to what President Trump would have done if the tariff rates had remained in place on Wednesday morning.
00:05:08.000Instead of walking them back for 90 days.
00:05:10.000The real comparison should be to what the tariff rates were, say, three weeks ago before any of this began, or six weeks ago before any of this began.
00:05:18.000The tariff rates with China were fairly low.
00:05:22.000The tariff rates with Canada and Mexico were virtually non-existent.
00:05:33.000So no matter how you slice it, if you compare the average tariff rate Of the United States had on various countries that were not China, compared to what it is now, we basically quadrupled it overnight.
00:05:46.000That obviously is going to cause a lot of consternation in the markets.
00:05:50.000And this is why Scott Besson is going to be on the phone all weekend long and for the next couple of weeks trying to get trade deals that will reduce those 10% tariff rates back down towards zero.
00:06:36.000Herein lies the issue with regard to China.
00:06:38.000How fast you go, the measures that you take in order to box China in absolutely matter.
00:06:48.000All this pretend pussyfooting that's been going on between a wide variety of administrations over the course of my lifetime with regard to China is wrong, and President Trump is the only president who's had the courage to actually just say it.
00:06:59.000He's the only president who's had the courage to say they're not just a strategic competitor, which is what Joe Biden called them.
00:07:05.000They're not a rising market that we need to find a way to integrate with, which was the view of both George W. Bush and Bill Clinton.
00:07:14.000Donald Trump recognizes clearly that China is a geopolitical enemy of the United States, that they have been ripping us off, they've been stealing our IP, that they are spreading their tentacles all over the world, they're working with all the countries that hate our guts.
00:07:28.000President Trump has the courage to say that thing.
00:07:31.000Jordan Schachtel, who's an excellent foreign policy analyst, He has a list of the various IPs that have been stolen by the Chinese over the course of the last 10 years or so.
00:07:43.000Those include Stolen from military applications.
00:09:15.000If you're going to isolate China, you have to build better relations with everybody else on the planet, so as to isolate China.
00:09:21.000This, by the way, is what Scott Besant has been pitching.
00:09:22.000He says that President Trump's strategy here is to isolate China in this way, to flip everybody against China, so it's the US and all of our friends.
00:09:40.000It matters because if everybody is still trading in US dollars, we have leverage.
00:09:43.000If you cut yourself off from world markets, what you end up doing is reducing the leverage you have against other countries, economically speaking.
00:09:51.000One of the amazing things that has happened in terms of American power over the course of the last 30 years has been the integration of global financial systems.
00:09:59.000It's what has allowed, for example, the Trump administration to successfully sanction the nation of Iran.
00:10:05.000The state of Iran has been sanctioned by the United States.
00:10:08.000Russia has been sanctioned by the United States through use of international financial mechanisms like, for example, cutting Russia off from the SWIFT system.
00:10:15.000Doing these things is only possible because of the integrated nature of technological commerce in the modern era.
00:10:23.000It's not just that the United States can say we're not going to trade with Russia anymore.
00:10:26.000We don't do that much trade with Russia.
00:10:27.000Is that the United States could sanction banks that were doing business with Russia.
00:10:31.000It is not just that the United States could say we're not going to buy Iranian oil anymore.
00:10:34.000It is that the United States could threaten any bank or entity that did business with America with a cutoff if they did business with the Iranians.
00:10:43.000So in other words, removing yourself from the international system actually damages you if you're the most powerful person in the system.
00:10:50.000And the United States is the most powerful being in that system.
00:10:54.000It is the sun around which all of the other If we just disappear, if we just dissociate, that doesn't increase our power, it radically reduces our power.
00:11:05.000So, we need to increase our economic power, and that means greater integratedness with other countries economically that are not China.
00:11:11.000It means more integration into international financial systems that we control.
00:11:16.000This is how you build up the power to actually take on China, which is again a rising power with the ability to truly throw a wrench into the global economy.
00:11:25.000In amazing ways, while stealing American IP.
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00:13:38.000You also need to build up the American military.
00:13:41.000That means greater expenditure on different types of military tech.
00:13:46.000A few weeks ago, we had on Sham Sankar, who's the CTO, the Chief Technology Officer for Palantir, which is one of the new defense firms that does business with the American government.
00:13:53.000He was saying we need to reorient away from any of these sort of big-ticket items in the American military that are a legacy, and instead toward new technologies that allows for the United States, for example, to defend the Taiwan Straits or break a blockade around Taiwan.
00:14:39.000There's a bunch of stuff that we need that is made in China, including certain forms of semiconductors.
00:14:44.000Including rare earths materials, which we'll get to in a moment.
00:14:46.000There are all these things that are necessary.
00:14:48.000And so, in order for you to successfully fight a trade war that theoretically could go hot, if you're going to do that, you really need to put your ducks in a row.
00:14:57.000So, you can agree with the strategy of the Trump administration overall, but the tactics matter.
00:15:02.000How it gets implemented really, really matters.
00:15:07.000Because there are some countervailing possibilities, and this is what the market's trying to figure out right now.
00:15:11.000Even if you agree with Trump's tariff blitz on China and that it's going to do serious damage to China, you have to think, how could China strike back?
00:15:17.000This is how you're going to fight any war.
00:15:19.000You have to figure out, well, how does the enemy respond to the thing that you are doing?
00:15:22.000So there are several things that China could do that would really, really damage America and the global economy in a very serious way.
00:15:30.000China controls a heavy share of rare earth markets.
00:15:41.000Like 90% of global rare earths markets, according to Fox Business, are dominated by China.
00:15:45.000That is a group with 17 elements essential to defense, energy, and electronics industries.
00:15:50.000Last week, China placed seven kinds of medium and heavy rare earths on an export control list.
00:15:55.000That's not an outright ban, but if China just decides they're going to stop exporting all of that stuff, it really gums up the works.
00:16:02.000In 2010, by the way, the CCP actually did this to Japan.
00:16:05.000They halted rare earth exports to Japan during a diplomatic dispute.
00:16:10.000And they've restricted shipments of germanium, gallium, and graphite to the United States over the past two years.
00:16:16.000As Fox Business points out, U.S. companies would struggle to fill the gap.
00:16:19.000It takes an average of 29 years to go from mineral discovery to production in the United States.
00:16:23.000Meanwhile, in China, where they don't give a crap about the environment, they just drill it in months.
00:16:26.000They go and get all that stuff in months.
00:16:30.000So, tool number one that China could use against the United States is a total ban on rare earth mineral exports, which could render American missiles fighter jets Even consumer technology like smartphones, inoperable.
00:16:42.000Okay, so that's tool number one that China could use.
00:16:44.000Tool number two that China could use to strike back against the United States would be the mass sell-off of U.S. treasuries.
00:16:50.000So the United States has been, because we like to borrow money and spend it, selling bonds to China at an exorbitant rate.
00:16:57.000China likely owns well over $1 trillion in U.S. bonds at this point.
00:17:01.000If China decides to sell off those bonds at bargain basement rates and just take the loss, just realize the loss.
00:17:07.000It would destroy America's capacity to borrow in the market.
00:17:39.000So rare earth mineral export bans, treasury sales by the Chinese, and then finally, and most shockingly, China could simply try to blockade Taiwan.
00:17:47.000They could say, listen, we're so boxed in at this point, we're going to blockade Taiwan, and we're going to hold you hostage until you remove the tariffs, until you back off.
00:17:57.000They might not just blockade Taiwan, by the way.
00:17:59.000They could theoretically invade Taiwan.
00:18:00.000Now, a blockade of Taiwan is the safer option if you're the Chinese, because basically you're then daring the United States to fire on your ships.
00:18:06.000If they were to invade Taiwan and things went hot, that would not be a super shock because Taiwan would fire back.
00:18:12.000If they blockade Taiwan, they would be daring the Taiwanese to basically fire on Chinese ships and initiate a war that China would likely win.
00:18:20.000So, if they blockade Taiwan, the question is, would the United States actually be able to or have the courage to break the blockade around Taiwan at the risk of a possible hot war with China?
00:18:32.000And there are members of the defense establishment who have made pretty clear that they wouldn't.
00:18:36.000That includes the brand new Undersecretary for Defense, who was just confirmed by the Senate, Elbridge Colby, who's basically said this.
00:18:41.000He says we need to shift all of our focus to China.
00:18:43.000But also, if China invades Taiwan, that's not a core national interest for the United States.
00:18:48.000Well, China knows that, but here's the problem.
00:18:50.000If China were to blockade Taiwan, all the semiconductors that are sophisticated semiconductors, all the stuff in your phone, your computer, in our military tech, all that stuff is coming from China and Taiwan.
00:19:01.000And what that means is that we have not yet built up the domestic capacity or the other offshoring capacity to make up for that.
00:19:08.000So the question is, are enough of our ducks in a row to do the thing that we are doing?
00:19:13.000This is the reason why there are many advocates of harsh policy against China who say that we should actually go slower here.
00:19:20.000Instead of jumping to 145% tariff, for example, we should have gone to a 20% tariff on China.
00:19:25.000Gradually cause the reshoring of industries away from China.
00:19:30.000Given us time to build up relationships with other countries without, for example, yelling at them about Greenland or how we're going to invade Canada or some such.
00:19:38.000Now, again, this all could do and probably will do severe damage to China.
00:19:43.000But one of the things you have to make sure of is that when you do severe damage to a country, they don't try to break out.
00:19:50.000One of the realities of the beginning of World War II in the Pacific sphere is that it was Western cutoff of oil and rubber, largely.
00:19:59.000To the Japanese that created the impetus for the Japanese to invade Pearl Harbor.
00:20:05.000Now, again, the cutoff of oil and rubber made perfect sense.
00:20:10.000China was expanding its grip in Manchuria.
00:20:12.000It was expanding into areas of the South Pacific, obviously.
00:20:17.000And so the attempt to cut off resources to Japan, which was an FDR decision, that makes sense.
00:20:22.000It doesn't make sense if you're not going to then put yourself on a military readiness, military preparedness footing.
00:20:29.000The tragedy of Pearl Harbor is not just that we were surprised.
00:20:32.000The tragedy is that we weren't ready to fight back immediately because FDR had not done the necessary work in order to ensure that we were ready to go to war at that time.
00:20:40.000It took a couple of years for the United States Industrial Complex to fire up such that it could actually take on a war.
00:20:46.000Japan thought that it had a moment of opportunity specifically because of that.
00:20:51.000The face that you show to an enemy in a war ought to be impassive, invulnerable.
00:20:55.000And that means that everything has to move in lockstep.
00:20:58.000It means that when you take a trade policy that is likely to push in a more confrontational direction, you have to be ready with the iron fist inside the velvet glove.
00:21:10.000And if things get too bad economically for China, the chances that they actually try to start something like a hot war over Taiwan are not insignificant at all.
00:21:21.000It's why the markets are very, very nervous right now.
00:21:23.000They're not sure exactly what's going to happen.
00:21:24.000They also don't know whether President Trump is willing to go all the way.
00:21:35.000I'm just saying that we need to have a very concerted strategy for how we go about that trade war with China because international relations is certainly a delicate business.
00:21:46.000According to the Wall Street Journal, the gloves are off.
00:21:48.000The next chapter of U.S.-China decoupling has begun.
00:21:52.000In jacking up his tariffs on China and pausing steep duties on dozens of other nations, President Trump is pushing the world's two biggest economic powers into a battle that will leave neither unscathed and risks tanking the global economy.
00:22:02.000The total tariffs imposed on China in Trump's second term now add up to 145%.
00:22:06.000The tariffs could eventually be walked back, but already there are signs that a portion of the $582 billion in goods trading between the two countries is grinding to a halt.
00:22:14.000Now again, that's going to hurt America.
00:22:18.000As the Washington Post points out, Trump's tariff blitz could hardly have come at a worse time for China.
00:22:24.000Exports have been a rare bright spot in the Chinese economy, struggling with a property market slump, high youth unemployment, and domestic spending that is so weak it threatens to turn into a deflation crisis.
00:22:32.000The hit to exports threatens the legacy of Chinese leader Xi Jinping, who's trying to transform his country from the world's factory into an advanced manufacturing and technology superpower.
00:22:41.000A delicate transition that could be thrown off by this bruising trade war.
00:22:44.000By the way, there is great irony to the fact that while the United States is trying to up its manufacturing game, China is trying to downgrade its manufacturing game and move into high tech.
00:22:51.000In less than a week, the world's two largest economies have progressively upped the ante to a point where their respective import duties are now at historic highs.
00:22:59.000Now again, China requires the export market.
00:23:03.000It's going to hurt China tremendously.
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00:25:40.000According to Reuters, China and the European Union have exchanged views on strengthening their economic and trade cooperation in response to U.S. tariffs.
00:25:47.000The Chinese Commerce Ministry said on Thursday, again, that's not on Wednesday, that's on Thursday, that's after Trump relieved the tariffs on the EU, at least moved them down from what would have been 20% down to 10%.
00:25:56.000The EU and China are now moving toward closer trade relationships.
00:26:00.000So again, if the idea is that the policy is supposed to isolate China by basically forcing everybody to choose between the United States and China, you got to woo.
00:26:08.000It's not just a steak, it's also a carrot.
00:26:11.000Right now, we're using a lot of stick with our allies.
00:26:13.000We need to use more carrot with our allies.
00:26:14.000Presumably, that's what Scott Besant is going to try to do.
00:26:18.000Because there are, in fact, limits to what you can do if there are cracks in the edifice.
00:26:23.000You've seen this with Russia, by the way.
00:26:25.000All of Europe and the United States were supposedly unified under the Biden administration in fighting off the Russian invasion of Ukraine.
00:26:37.000And by the way, they sold an enormous amount of oil still to Europe.
00:26:41.000Cracks in the edifice mean that there is a way for China to escape the ring that surrounds it.
00:26:47.000And if they escape the ring that surrounds it, then you haven't actually achieved what you're seeking to achieve, which is complete containment of the Chinese economy.
00:26:53.000In a video call on Tuesday, China's Commerce Ministry Wang Wentao discussed with European Trade and Economic Security Commissioner Maros Sefcovic the restart of talks on trade relief and to immediately carry out negotiations on electric vehicle price commitments.
00:27:07.000One of the things that China's been doing is flooding the European market.
00:27:22.000Brussels and Beijing have floated the idea of lifting the tariffs through possible commitments to minimum prices, known as price undertakings for imported cars.
00:27:30.000So what are the other countries going to do?
00:27:32.000Are the other countries going to go along with the United States?
00:28:23.000I mean, if we can't make the deal that we want to make or we have to make or that's good for both parties, it's got to be good for both parties.
00:28:42.000So, if that's still on the table, maybe that's leverage.
00:28:45.000Maybe leverage is going to go back on the table and so you better sign on to a good...
00:28:48.000But one of the things that is just true about foreign relations, if you continually come with a carrot and then a stick and then a carrot and then a stick to the same countries over and over and over, eventually they triangulate.
00:29:20.000and transition problems but in the end it's going to be it's going to be a beautiful thing we're doing again what we should have done many years ago we're letting it get out of
00:29:49.000President Trump upended not just his tariff strategy, but his trade team this week.
00:29:52.000Former hedge fund manager and Treasury Secretary Scott Besant is now at the helm.
00:29:55.000Populist Peter Navarro has been relegated to the sidelines.
00:29:58.000Wall Street punching bag Howard Lutnick has been recast into the role of bad cop, according to three people close to the White House, granted anonymity to speak frankly about internal dynamics.
00:30:06.000The diminished roles of Lutnick, the Commerce Secretary who for weeks had been the administration's point person for foreign leaders on tariffs, and Navarro, Trump's trade advisor, reflect this week's turmoil over Trump's trade policy and a shift toward the fair trade policies that Besant So,
00:30:21.000again, that is a proper and smart shift by the presidents of the United States.
00:30:25.000That is a much better orientation of his team.
00:30:27.000Navarro, for his part, is still appearing on television, trying desperately to pretend that he has not been sidelined from all of this.
00:30:34.000Before we let you go, this is just breaking here.
00:30:36.000The media says you're in the doghouse with Trump.
00:30:49.000It's not really fake news, apparently.
00:30:51.000I mean, at the very least, Trump has shifted his trade policy away from the preferences of Peter Navarro, who is very happy with that gigantic trade war that was going to happen as of Wednesday morning.
00:30:59.000Meanwhile, in order for President Trump to continue to prop up and strengthen the American economy, the House and Senate need to get together on the one big, beautiful bill.
00:31:08.000House Speaker Mike Johnson has been performing admirably with the world's narrowest majority in the House of Representatives.
00:31:13.000According to the Wall Street Journal, House Speaker Mike Johnson performed another Houdini straitjacket escape on Thursday, passing a budget outline over doubts on his right flank.
00:31:21.000Now comes the hard work of ironing out the tax and spending details of a policy bill.
00:31:42.000The House holdouts fear the eventual policy bill will not include real spending restraint.
00:31:46.000They're right that cuts are always promised in Washington and seldom delivered, but they held a fight on is the detail in the final bill and not the budget outline that just opens up the debate.
00:31:54.000Senate Majority Leader John Thune also said that they were aligned with the House in terms of what their budget resolution outlines in terms of savings.
00:32:03.000Supposedly, there's supposed to be $1.5 trillion in savings in the budget.
00:32:08.000This is the first step toward getting the big, beautiful bill, so Johnson is steering that through.
00:32:12.000If that bill were to fail, it would sign effectively the death knell of the Trump administration in terms of its possible efficacy.
00:32:18.000Meanwhile, Democrats are already pouncing, hoping desperately that all of this collapses in like a house of cards.
00:32:24.000Janet Yellen, the former Treasury Secretary who did a brilliant job of ushering in 40-year inflation, she of Hobbiton, she explained that this was a massive self-inflicted wound.
00:32:41.000I think policy has been, this is the worst self-inflicted wound that I have ever seen an administration impose on a well-functioning economy.
00:32:58.000Okay, I'll take that with a giant block of salt, given the fact that, again, she presided over the worst inflation that we've had in this country since 40 years, leading to the inflated stock market that then has come down pretty significantly because of the tariff war and all of the rest.
00:33:13.000All of this is someone more expert than I in these matters.
00:33:15.000Mike Gallagher, he, of course, a former U.S. representative representing Wisconsin's 8th Congressional District.
00:33:21.000He is now the head of defense at Palantir.
00:33:23.000He's the former chairman of the Select Committee on China.
00:34:35.000As we endorsed in a bipartisan manner, even Democrats agreed to this on the committee, I think the time has come for us to remove permanent normal trade relations status with China.
00:34:44.000You can argue that the tariffs effectively have done that already.
00:34:47.000But if you remember, when we ratified PNTR, we basically said that China's economy is permanently a market economy.
00:34:55.000Okay, China's economy has never been a market economy at all.
00:35:13.000Because right now, we're subsidizing our own destruction, right?
00:35:16.000Chinese ships, military equipment, American asset managers are subsidizing that.
00:35:20.000So I think Trump can go hardcore on that.
00:35:22.000And then at the same time, and this is where the strategy comes in, I do think you need to, I don't, I'm less sympathetic to the 232 tariffs.
00:35:30.000I think you have to in order to mitigate the economic impact of China tariffs, but also just to rally the world against China's predatory practices.
00:35:37.000You need to find ways to break down economic and technological barriers within the free world and expand the bounds of the free world to include countries that don't fall neatly into the ally category.
00:35:48.000For example, even with our closest allies, the UK and the Aussies, we have this we have the AUKUS arrangement.
00:35:55.000There are still barriers to collaboration because of outdated ITAR regulations that we could get rid of.
00:36:00.000And Trump could claim, hey, I'm bringing the free world closer together.
00:36:04.000We are joining hands to push back against the commies who are trying to destroy us right now.
00:36:09.000That's like the highest level grand strategic move I think he needs to make.
00:36:14.000So, Mike, I was talking about this on the show, and one of the things that I've suggested was that if you are preparing for this level of a trade war, which could get into some pretty severe risks of the actual shooting war, and we'll talk about that in a moment.
00:36:26.000If you're doing a trade war like this, one of the things you have to make sure of is that all your ducks are in a row.
00:36:31.000What that means is you have to draw your allies close.
00:36:32.000You actually have to build these alliances to the point where they don't fracture.
00:36:35.000You don't have the EU working back channels with China, for example.
00:36:39.000You have to actually build up our military mechanisms such that if China should decide that it wants to try something, it's dissuaded by deterrence from doing anything.
00:36:48.000And you actually have to reshore or allow for the reshoring of crucial industries away from China.
00:36:52.000All those things take a little bit of time.
00:36:54.000And so perhaps the idea of a gradual escalation here that sort of boils the frog slowly as opposed to turning the flame all the way up would have been a better idea.
00:37:06.000You know, if you read the final economic report of the Select Committee on China, when we endorsed getting rid of PNTR, we argued for the gradual phasing in of a new tariff regime.
00:37:16.000There's some things that we care less about.
00:37:18.000For example, like I want Wisconsin farmers to sell soybeans to China.
00:37:22.000And quite honestly, I don't have a problem if Americans want to buy cheap textiles from China as long as long as those textiles aren't made with slave labor in Xinjiang province.
00:37:33.000Continuing our dependency when it comes to advanced pharmaceutical ingredients, rare earth and critical minerals, all things that we know are going to be weaponized by China if we find ourselves in a confrontation over Taiwan, for example, strikes me as a very bad,
00:37:50.000it's easy to start to revive a kind of bilateral trade agenda.
00:37:54.000I don't think anyone's arguing for a big multilateral trade agreement, perhaps a digital regional trade agreement in Indo-Pacific, but you could see a post-Brexit gold standard trade agreement with the UK with a docking provision.
00:38:05.000I've argued for a free trade agreement with Taiwan, provided the standards are high.
00:38:16.000Because I think the CHIPS Act provides a good example of how not to do this, right?
00:38:21.000We're not going to fork over $50 billion for every industry we decide is important from a national security perspective.
00:38:27.000And we certainly aren't going to have a good effect from that if we also saddle those grants with absurd conditions, right?
00:38:35.000Like in order to get a CHIPS Act grant, you need to build like a woke daycare next to your facility.
00:38:40.000There, I think the best mechanism for onshoring is a combination of bilateral trade agreements, technology agreements, and radical deregulation of the domestic economy and leveraging our asymmetric advantage, which is not throwing a ton of humans and money at the problem.
00:38:56.000It's leveraging software to reimagine, manufacturing, things like that.
00:39:01.000Above everything you said, though, Ben, I want to hammer home the most important variable, the variable that matters more than anything else, is the balance of conventional military power.
00:39:13.000But if we don't fix the balance of conventional military power, which is sliding in the wrong direction, the odds of a war with China that will not end well for us go up and up and up.
00:39:27.000So one of the points that I've been making is that we are building this economic cordon or attempting to build this economic cordon around China.
00:39:34.000Historically speaking, when countries Feel that cordon tightening.
00:39:39.000I mean, this is presumably what happened with the attack on Pearl Harbor.
00:39:42.000Historians basically suggest that because the West was working so hard to deprive Japan of rubber and oil, that basically Japan felt that the only way that it could break out was to preemptively strike the United States before the United States actually had time to mobilize its military capacity.
00:39:57.000So one of the things that becomes very clear here is that as the news tightens around China, which is obviously what the Trump administration would like to do, China could pursue some pretty significant retaliatory measures.
00:40:08.000And three that come to mind right away that we've been discussing on the show are the deprivation of rare earth minerals.
00:40:14.000China controls a huge percentage of rare earth.
00:40:16.000minerals. They could theoretically just stop exporting those.
00:40:19.000Two would be the mass sell-off of American bonds, try to undermine the American economy by basically killing our debt.
00:40:25.000And three would be the most extreme measure, which would be a blockade or even invasion of Taiwan.
00:40:29.000Maybe you can talk about those various risks.
00:40:33.000Well, maybe I'll attempt to connect sort of the economic dynamics you started with to the invasion of Taiwan.
00:40:38.000Because traditionally, particularly when people on Wall Street analyze this problem, they say, well, China would never invade Taiwan, right?
00:40:57.000Well, part of the reason China's economy sucks is because Xi Jinping is actually preparing his country for a war with America and the West over Taiwan, right?
00:41:06.000He's encouraging his citizens to eat bitterness, to use a phrase he's used to young Chinese...
00:41:20.000Just to reinforce the fact, you need to develop the ability, not just the threat, but the ability to put the entire PLA Navy on the bottom of the Taiwan Strait if they do something as foolish as trying to take Taiwan.
00:41:37.000If you remember in the early stages of the pandemic, Chinese officials threatened to cut off the export of pharmaceutical ingredients and plunge us into a sea of coronavirus.
00:41:45.000And in the wargaming we did on the Select Committee, we started off in the conventional military.
00:41:49.000But we increasingly realized a lot of this would play out in the economic space.
00:41:56.000And then third, I would say we have to, as of like yesterday, develop the capability to deal with the cyber weapons that China has pre-positioned in our critical infrastructure, right?
00:42:06.000Imagine someone went around the country like strapping sticks of dynamite to every water utility or grid system around the country.
00:42:12.000Well, effectively, that's what's happened with the revelations surrounding Bolt Typhoon.
00:42:19.000And one thing that's also apparent, if you do any wargaming around Taiwan, the United States homeland is a target for attack, especially in the cyber domain.
00:42:27.000In a meaningful sense, you can say the invasion of Taiwan has already begun in the cyber domain.
00:42:32.000And therefore, in order to have an effective deterrent in cyber, we also need to develop the offensive capability to tear down the great firewall in China.
00:42:40.000I've argued that that should take on a position of importance in our grand strategy, similar to the way tearing down the Berlin Wall was a centerpiece of late stage old Cold War strategy.
00:42:51.000So, Mike, obviously, as we watch all of this play out, I think we both agree that the orientation of the Trump administration is correct right here.
00:42:59.000I'm asking you to look into a crystal ball, but again, you work at a company called Palantir, so I suppose that's okay.
00:43:04.000What exactly do you think is going to be the Trump administration's plan going forward?
00:43:10.000Do you think they stick with this high level of tariffs?
00:43:12.000Are they able to broker these bilateral agreements?
00:43:14.000Or do you think that the Trump administration will look for some form of off-ramp?
00:43:18.000Because one of the things that we have to consider here is President Trump has said that he uses tariffs as leverage.
00:43:23.000The problem I have is I'm not sure exactly what leverage you could ever receive from China that would be sufficient to make anyone sanguine about going back to anything like a trade normalized relationship.
00:43:33.000I mean, they're stealing $600 billion a year in our intellectual properties, just
00:43:36.000Well, I do think the Trump administration has an opportunity to go around the world now and cut various deals with countries that they threaten to tariff.
00:43:46.000I think that would be good for Americans.
00:43:49.000I mean, a lot of the devil will be in the details.
00:43:52.000The area that my crystal ball or my palantir seeing stone is most murky is when it comes to the future of our economic relationship with China, right?
00:44:00.000Because President Trump has signaled time and again that he wants to cut a deal with Xi Jinping, right?
00:44:05.000In the first term, they had a phase one trade agreement with Xi Jinping.
00:44:09.000And there were a lot of other priorities that got held up in pursuit of that deal, right?
00:44:13.000I had an amendment to the defense bill that would have imposed the death penalty.
00:44:17.000And then the catastrophe scenario would be if...
00:44:43.000Some trade agreement with China or concession is bound up in a broader geopolitical agreement where we basically surrender a certain amount of our position in the Indo-Pacific.
00:44:53.000Now, I don't think that's what's going to happen, right?
00:44:55.000Because I know Mike Waltz, I know John Ratcliffe, I know Pete Hegsett.
00:44:59.000These are hawkish folks when it comes to China.
00:45:02.000I think they see the threat of the CCP clearly.
00:45:05.000And to sort of end where I began, Trump does deserve credit.
00:45:10.000We're the biggest shift in U.S. foreign policy since the end of the Cold War, right?
00:45:14.000The entire now bipartisan realignment in a hawkish direction on China was started in 2017 with the first Trump term.
00:45:23.000Now, the administration was divided on key issues.
00:45:25.000The division, however, was resolved at the end by what we saw with China's behavior in the pandemic and covering up the origin of the pandemic.
00:46:09.000Meanwhile, the Trump administration was dealt a bit of a blow with regard to its immigration plans.
00:46:14.000The Supreme Court on Thursday, according to the Associated Press, said the Trump administration has to work to bring back a Maryland man who was mistakenly deported to prison in El Salvador.
00:46:22.000The court acted in the case of Kilmar Abrego Garcia.
00:46:24.000That was the Salvadoran citizen who had an immigration court order preventing his deportation to his native country over fears he would face persecution.
00:46:32.000So the U.S. District Judge had ordered Abrego Garcia return to the United States by midnight on Monday.
00:46:38.000The order properly requires the government to facilitate Abrego Garcia's release from custody in El Salvador and to ensure his case is handled as it would have been had he not been improperly sent to El Salvador.
00:46:48.000The Chief Justice had already pushed back the deadline, and the Justice said that the court order had to be clarified to make sure it didn't intrude into the executive branch power over foreign affairs.
00:46:59.000The order says that they have to work to get this person back from El Salvador.
00:47:04.000It was a Venezuelan immigrant who had basically been labeled by the administration and also in a formal court case a likely member of MS-13.
00:47:12.000He had not been convicted of that crime, but he doesn't have to be.
00:47:14.000The foreign policy of the United States suggests that the executive branch does have the ability to deem whether somebody is a likely threat and then remove that person if that person does not have citizenship in the United States.
00:47:26.000This person happened to have a hold on him.
00:47:28.000Based on a claim of essentially asylum.
00:47:32.000The administration admitted that they had made a mistake in deporting the guy.
00:47:35.000So basically the court said a few things.
00:47:37.000The court said, number one, you got to work to bring this person back.
00:47:39.000Number two, the district judge has to make sure that they're not intruding into the executive branch's determination of what this person's status is.
00:47:50.000So this is not a complete rebuke to the Trump administration as many of the headlines would suggest.
00:47:55.000It is not them saying the executive branch no longer has the power to adjudicate.
00:47:58.000Whether this person should be in the country or not.
00:48:01.000It just means they have to go through the proper process in order to actually do that.
00:48:06.000So, the next move presumably would be for the Trump administration to actually work with the Salvadoran government in order to bring this person back and then the person will go through due process and then probably will be removed anyway.
00:48:19.000Meanwhile, the Iranian government is obviously attempting to slow play the Trump administration with regard to its nuclear negotiations.
00:48:24.000So President Trump wants to get to the end point, which is Iran dismantling its nuclear arsenal, its incipient nuclear program.
00:48:32.000It is pretty obvious that Iran can do this at literally any time.
00:48:34.000So there's not much to negotiate over.
00:48:35.000If they want to be ushered back into the community of nations and have their economy unlocked, all they have to do is get off the nuclear pathway.
00:48:43.000Instead, what they're trying to do is slow walk the administration so as to rebuild some of their air defenses to prevent against the possibility of a joint Israeli-U.S.
00:48:51.000strike. All that would really amount to, by the way, is the United States loaning Israel some B-2s.
00:48:55.000The real question for a while has been whether Israel has the unique capacity to actually hit the nuclear facilities in Iran.
00:49:02.000The problem for Israel is that unlike, for example, the Syrian attempted nuclear reactor 15 years ago or so when Israel hit the nuclear reactor that the Syrians were building.
00:49:10.000The biggest problem For Israel is that these nuclear reactors are actually built underneath mountains.
00:49:14.000So the best that Israel might be able to do is they block the entrances.
00:49:17.000It's unclear whether Israel has the overt capacity on its own to simply take out the entire nuclear facility.
00:49:24.000You need bunker buster bombs and all the rest.
00:49:26.000Iran is trying to slow play the United States.
00:49:29.000They're trying to slow play President Trump.
00:49:30.000According to Axios, Iran is considering proposing during talks with the United States that the two countries work on an interim nuclear agreement before pursuing negotiations over a comprehensive deal.
00:49:40.000President Trump set a two-month deadline for negotiations with Iran on a new nuclear deal and has ordered a pretty significant buildup of U.S. military force in the Middle East if diplomacy fails.
00:49:47.000If a deal is not reached, Trump could order a U.S. military strike against Iran's nuclear facilities or support an Israeli strike.
00:49:53.000The latter is obviously much more probable.
00:50:24.000That does not require a heavy negotiation in any way, shape, or form.
00:50:27.000So all this really is them trying to buy time, pretty clearly.
00:50:31.000An interim agreement could include suspending some of Iran's uranium enrichment activity, diluting its 60% enriched uranium stockpile, allowing UN inspectors more access to Iran's nuclear facilities, but apparently that would only slightly, even if that were done, that would only slightly decrease their time to break out,
00:50:49.000Also, apparently, that interim agreement would force the Trump administration to suspend his maximum pressure campaign on Iran's economy, so there's no reason for the United States to buy into that.
00:51:00.000On Thursday, the former head of Iran's National Security Council, a person named Ali Shamkhani, who is now a foreign policy advisor to the Supreme Leader Ali Khamenei, the Mullah, said the continued military threats against Iran may lead to deterrent measures.
00:51:12.000He suggested that Iran could actually expel IAEA inspectors and cease to cooperate at all with the nuclear watchdog.
00:51:17.000Well, if they do that, then the bombs are coming.
00:51:20.000President Trump is not likely to sit on his hands with regard to all of this.
00:51:25.000Okay, meanwhile, I know it's a Friday, so we're going to do a little bit of culture.
00:51:45.000I must have a massive disconnect with the younger generation now.
00:51:48.000I have now reached full-on middle age.
00:51:49.000I no longer am able to connect with people who think this movie was funny, entertaining, or interesting.
00:51:54.000I'm hoping that all of it is just a big in-joke that if you really love Minecraft, then you're just laughing and nodding at jokes that I don't understand because my entire exposure to Minecraft was another YouTube video that we made one time where I was forced to sit there and play Minecraft with one of our employees and basically wanted to hang myself.
00:52:24.000Minecraft is a very, very popular game.
00:52:26.000And I'll give it to the producers of the movie because at least they know the crowd to whom they are appealing.
00:52:31.000They totally went for all the in-jokes.
00:52:33.000And apparently, as I say, I saw the same movie all these people at this theater were about to show you saw, but they reacted like crazy to a chicken jockey, which is a character, I suppose, from the game that barely...
00:52:56.000And so apparently fans are very into it.
00:52:58.000And so here's what happened at one showing when the police had to be called because people were so enthusiastic about the appearance of the baby zombie riding a chicken.
00:53:21.000And people are losing their minds over the appearance of the chicken jockey.
00:53:36.000So, this is what our culture has become.
00:53:40.000I have been informed by Producer's Act that there was something once called the Gentle Minions Movement, which was apparently a bunch of high schoolers and college students who, when the Despicable Me movies would come out, Or the Minions movies would come out.
00:53:51.000They would dress up in tuxes or suits and they would go to the theater as sort of a joke.
00:53:58.000And apparently that has now devolved into people going to these movies and finding the dumbest parts of the movies and acting rowdy and crazy.
00:54:27.000The performances are ridiculous in the extreme.
00:54:31.000Jack Black has just been playing the same character since School of Rock, and now he has a beard, and he's pretty significantly fatter, so that's pretty much all that's happened to Jack Black right there.
00:54:40.000Jason Momoa is always Jason Momoa, and so he's just playing fat Jason Momoa, like slightly overweight Jason Momoa.
00:55:15.000If you're not a Minecraft fan, I would just suggest that you do not engage with this movie because you'll want to gouge out your own eyeballs fairly quickly watching this thing.
00:55:24.000Okay, meanwhile, my producers have exposed me to a new three-part Netflix docuseries that explores the shadowy world of child influencers called The Dark Side of Kidfluencing, and this is quite frightening.
00:55:35.000Again, none of this is shocking to me because it turns out that a huge number of people who are interested in having their kids be famous are really screwed up.
00:55:47.000The entire musical Gypsy is based on this.
00:55:50.000But apparently, in this documentary, there is a person named Tiffany Smith who is the mother of a child named Piper Raquel who began her career at age 8 and created dance videos,
00:56:05.000pranks, challenges, and crush content on YouTube.
00:56:08.000And her channel amassed over 12 million subscribers and was generating at its peak $625,000 per month.
00:56:14.000These tween influencers were known as The Squad.
00:56:17.000And apparently the mom manager, Tiffany Smith, is, I mean, the only way to describe this would be sociopathic behavior.
00:56:24.000Apparently, this clip, she sold her daughter's used underwear to random men on the Internet.
00:56:29.000Yeah, guys, I think the internet was a bad idea, maybe.
00:56:31.000Piper had acting lesson, voice lesson, one of those.
00:56:39.000After we dropped Piper off, Tiffany was like, I have to go to the post office and drop off some things.
00:56:45.000And she had a bag, and she pulled out what looked like Piper's underwear.
00:56:50.000And I asked her, like, why are you, like, shipping those out?
00:56:56.000And she told me that old men like to smell them.
00:57:47.000We've known what's going on in these spaces for probably generations.
00:57:51.000And it's certainly been true in Hollywood for a very, very long time.
00:57:55.000There's a reason why every child star, with very few exceptions, ends up incredibly screwed up as an adult.
00:58:00.000And that is not because high levels of fame and exposure are good for kids, especially when they are surrounded by adults who are willing to take advantage of them.
00:58:08.000Apparently, in January 2022, 11 X Squad members filed a lawsuit alleging emotional, physical, and sexual abuse, and the case was settled for $1.85 million.
00:58:16.000Which seems kind of low, frankly, if the career earnings of these people were...
00:58:21.000Presumably in the tens of millions of dollars.