The New Age of Making Stuff (or Pretending To)

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Jacob Shapiro (00:03):
Hello, listeners.
Welcome to another episodeof Geopolitical Cousins.
Uh, I am Jacob.
Marco is coming.
Uh, this was a really great episode.
We spend a couple minutes welcomingour new listeners, uh, explaining
what this podcast is, why youshould continue listening to us
and share it all with your friends.
Then we spend most of the podcastdebating tariffs and globalization.
Uh, Marco takes thepro-globalization point of view.

(00:25):
I take the devil's advocate position ofthe anti-globalization view, and then at
the end we debate each other's points.
Imagine that two people debating twosides of an issue and then coming
together and talking about it.
Um, and then at the very end we talkabout Operation Spider's Web, the
Ukrainian drone strike on Russia.
Russia's use of drones in thatconflict and what that means about the
future of war and power in general.
Um.

(00:46):
This.
I mean, I love always talking to Marco.
This is my favorite episodeso far of what we've done.
It feels like we'rereally hitting our stride.
I hope you agree.
I hope you share this podcast widelywith anybody you think that would
be interested in listening to it.
And thank you so much to the peoplewho write in to give us constructive
feedback, constructive criticism, uh,or questions that you want answered.
Uh, we read everything.

(01:06):
We try and hit everything,and we'll continue to do so.
Or you can email me atjacob@jacobshapiro.com.
I make sure that the emailsget to Marco as well.
And eventually we'll set up anemail address just for the podcast.
Okay.
Enough of that.
Let's get to the show.
We'll see you at the day.
Marco, how's it going?

Marko Papic (01:25):
It's, it's going great.
It's going great.
Um, just very busy.
Haven't traveled in awhile, so that's good.
So we're not doing this from the road.

Uh, same with me, but the travel kicks into gear next week for me.
I don't know when you'reback on the road next, but,

uh, like, yeah, like a week and a half from now.
Um, but yeah.
So one, one thing that I thought wasgood, we do have a lot of new listeners.
Um, maybe it's a good opportunity to kindof restate why you should listen to us.
I actually, uh, yeah, I went to get ahaircut, you know, and uh, my guy who

(01:59):
cuts my hair, uh, who is awesome, JasonLaura out there on Montana Street.
Shout outs to this is, this isthe hair that he's produced.
Oh, he's gonna be very mad atme 'cause I didn't style it.
Um, so, uh, Lux lab studio over onMontana Streets in Santa Monica.
But yeah, so, um, hewas like, Marco, Marco.

(02:19):
We

just, we just, we just lost all the manly listeners from
the last episode that we're like, oh,you're coming to learn about manliness.
And here we are talking about your hairdo.
Like, come on,

man.
Yeah.
My, my hair is done at a place inMontana Streets that is, uh, if you
don't, if you don't Santa Monica,you've just lost all respect for me.
But, um, so he asks, why would anybodylisten to, you know, like, who's this for?
And so it's not for our clients.
So that's, that's the first thing.
Uh, this is really, we're nothere to give investment advice.

(02:50):
We're not here to get really deep intomarkets, which is what we do for a living.
Um, but my answer to Jason waslike, well, it's actually for
you, you're the target audience.
Uh, it's somebody who's justcasually, you know, like they're
professional at their own craft.
They spend a lot of time perfectingthat craft, whatever that may be.
Maybe you're a hairdresser, maybeyou know, you're an accountant, maybe

(03:12):
you're a lawyer, maybe you're a doctor,maybe you're a manufacturing worker.
This mythical unicorn creaturethat America apparently has lost,
whatever it is that you are, uh,this podcast is really for you.
This is not for investors,which is our normal clients.
And the purpose of this is really justto, uh, give you a sense of what we think

(03:32):
is going on in the world so that we caninform you so that you don't have to go
to some, you know, lunatic on YouTube.
Um, now his answer, his question to me waslike, okay, but what makes you special?
You know?
And what makes I thinkUS special is two things.
One, we were trained inthe Art of Net assessment.

(03:52):
Uh, weighing all sorts of, uh,variables in order to get to an
answer, uh, on the geopolitical side.
But the other issue is that for themost part, we work for investors.
And the reason that that matters isbecause our clients just wanna make money.
And that washes us away ofbiases as much as anything will.

(04:15):
Because what that means is that we're nottrying to pick who's gonna win or lose or
who's right or wrong, for the most part,uh, we're anchored by like, Hey, what's
gonna happen in the world so that somebodycan make money off of that forecast?
Now, that sounds very callousand Glip, and I get it.
I know it does.
It really does.
But the fact that that is what we doprofessionally makes us as close to

(04:41):
objective as it gets, you know, it's asit is, it's as close as it's gonna get.
Now, obviously you might say, well,that's a bias of itself, right?
You guys are just focused onhow to deliver a future that
somebody can trade off of.
Therefore, you are pro investmentProfIn, world, plural, business world
and like, yeah, that is correct.

(05:02):
And if you are an ardent Marxist,you probably should not listen to us,

uh, or where you at, or you absolutely should because nowhere
else are you gonna find intelligent.
Uh, sort of materialistic based, uh,interpretations of what's going on in
history, uh, going forward, becauseboth of us were trained in that world
too, and probably took the best parts ofthat and integrated into our analysis.
But I think it's not aboutbias, it's about accountability.
Um, the, the, the fact that our feetare held to the fire if our decisions

(05:29):
are made wrong with some of our clients,uh, means that no, we are actually
held accountable when we're wrong.
We don't get to just sell our next bookor pretend like the thing that we said
didn't happen and make the next video.
It's like, no, like probably if you or Imake a really big mistake, uh, we'll have
to cancel the next podcast 'cause we'll bewith our clients for the next three weeks.
Like backing out of the mistake andunderstanding, uh, what is coming next.

(05:50):
I was actually talk my, I was talkingabout this with my wife last night
'cause she said jokingly to me, Idon't understand 90% of the stuff you
guys are talking about on the podcast.
And I said, thank you for telling me that.
'cause then we're actually doing it wrong.
It is meant for you to understandit like we are trying to be.
Entertaining without dumbing shit down.
So we wanna explain things plainly so thatanybody out there can listen to things.

(06:13):
And then also we wanna makeit a little bit entertaining.
A lot of the analysis in thisspace can be very dry because
it's pretending to be objective.
Whereas you and I are comfortable thatwe're objective because we know where our
money is printed and what's gonna happen.
We don't need to like put on a tie andsay all this stuff to be objective.
Um, well that, yeah.
Jump in.
That I can tell.
You wanna jump in?

No.
Hold that thought.
I think that's also important.
Uh, I don't wanna be a member of the cfr.
I couldn't give a shit.
Yeah, I don't wanna, I don't wanna, uh,I don't wanna be the under Secretary
of State for Eurasian affairs.
You know, that train has passed.
I work in finance, I work for investors.
That is my bailiwick.
And that's where my bread is buttered.
But it also means that.

(06:53):
You know, we're not trying to curryfavor with, um, any administration
or angle for some public sector jobbecause that would, uh, mean a massive
pay cut for both of us, like massive.
Um, so because of that, I think youshould listen to us because, uh, this
is as close to objective as gonna get.

(07:13):
I mean, you know, it's as close toa nihilist, you know, zero Fox given
analysis on geopolitics as you'regonna find anywhere out there.
Um, and it also means that we, youknow, take both sides or three sides
or multiple sides, uh, and, and keeptheir feeds to the fire as well.

(07:33):
So, um.

Yeah.
And I, and I think that's all nice, andI agree with all that, and that's how I,
I put myself to sleep at night, Marco.
But the real answer to this question,the real answer to why you should
listen to us is very, very simple.
Because you like us andbecause you trust us.
And it took me a long time to getcomfortable with the fact that the
thing that there was about me that madepeople wanna listen to me was that I

(07:56):
engendered trust, that I made people feellike I knew what I was talking about,
and I was addressing their concerns.
About 90% of what you learn from thethings that you hear on a daily basis,
you will forget within 24 hours.
Most of the beautiful pearls of insightyou hear on this podcast, you will not
remember them, but you will rememberhow you felt in the moment that you
were listening to them and the entiregame here with the guy who's cutting

(08:18):
your hair or anybody else, the reasonyou, you know, you come for the,
oh, I want the objective analysis.
I wanna stay on top of things.
I can say things, but you stay honestlyfor some intangible chemistry reason.
Because you like us and it feels dirtyto say that, but that's honestly it.
Like that's the difference.
And the thing that you and I aretrying to do is we are trying to be
personalities that you can like andthat are entertaining, but maintain

(08:40):
analytical and intellectual integrity.
And it's really hard to have both.
The media ecosystem is litteredwith people who are just gonna
entertain you and tell you stuffand make you feel particular things.
And it's also littered with people whoare very, very down in the weeds and
can tell you probably better than us ona lot of the things we talk about, like
all the nuances and things like that.
But combining those two things beingentertaining, but like analytically.

(09:04):
Rigorous at the same time.
Like that is the secret sauce.
And I think, you know, our, our humorin making fun of each other and being
willing to take the other sides ofissues, all of that sort of plays into it.
But I think that's the realanswer to your, your guy.
It's, you know, why do, why do yougo to him to get your hair cut?
Probably 'cause you like him.
Like, that's, well, actually probablywhy you interact with people.

Yeah.
I'll tell you why.
He's the only guy that, uh, convincedme that maybe I should not get a
buzz cut every single time I go.
It's, it's very funny.
Uh, which is, which is funny thingabout professionalism sometimes.
It's not about having the skillto actually craft a piece of
art that makes you an artist.
Sometimes it's being able toconvince your patron that that's

(09:45):
the art that needed to be made.
You know?
And I think that that's, that's like next,that's like 3D step of professionalism.
But anyways, uh, enough aboutJason Lara, the best hairdresser
on Montana Street in Santa Monica.
And by the way, I. If he's listeningto this, like, you know, like,
where's I, I need a discount code,geopolitical cousin, discount code.

(10:05):
But I think it does concern me thatyour wife said that 90% of what we talk
about, um, she, she didn't understand.
Because you're right.
Uh, first of all, your wife,uh, is, is a professional.
Uh, she knows her stuff.
So we need to, I think, um,I think we need to definitely
heed that, uh, criticism.

(10:26):
To that end, we do have a topic today,uh, that we decided to kind of debate,
uh, and, and we wanna simplify it.
I mean, tariffs, we just wanna talktariffs, we wanna talk globalization,
we wanna talk trade, um, and, uh, wewant to talk about it, uh, in a way
that will be approachable for everyone.
Yeah.
So, um, I, I wanna make a case here.

(10:46):
Um, I, I wanna jump in straightinto this and, and I just wanna say
that, um, I. There are ways in whichPresident Trump's policy makes sense.
There's ways in which it doesn't.
Um, is it cool if I juststart, uh, my bit here, Jacob?
Or did you wanna set it up in any way?

I'll set it up just a little bit and we're, we'll come
back to Ukraine at the very end then.
So we'll, we'll movethings around a little bit.
So the, the bit that we're just gonnaset up is, if you didn't listen to our
last episode, we were talking aboutsort of the crisis of, of masculinity
and of social economic issues insideof the United States in particular.
And we got an email from a mutualfriend, shout out to Tim, uh, you

(11:25):
know, who you are, who is working ina space where he was actually pushing
back and saying, you know, I work with.
You know, a lot of in manufacturing andindustrial construction trades, et cetera.
And actually they've seen businesspick up to the tune of, in his
words, the most we've ever seen.
And so he was kind of pushing backagainst some of our views that, you know,
manufacturing that's like the old game.
Like you don't necessarily wanna do that.

(11:47):
Um, and so what we decided to do istake a step back and Marco's really
gonna argue a pro-globalization,like extend, uh, what he's talking
about and talk very simply, you know,what are tariffs, why are they bad?
Like, and then, uh, I have the,I have the, the task of being the
devil's advocate and pushing back.
So Marco, I, I thought what we woulddo is I might just give you like six
or seven minutes and say, all right,make the case in six or seven minutes.

(12:09):
I'll have six or seven minutes, and thenwe can like, go back and forth, like make
it almost like a little mini crossfiretype exercise, if that sounds good.

Yeah.
Cool.
No, no problem.
And first of all, I wanna startoff by saying here's, uh, two, two
reasons why tariffs do make sense.
So there are two ways in which tariffswould make sense and um, I definitely
would basically support them.
Uh, first and foremost, foremost,national security does matter.
Uh, if you don't have steel, youdon't have a country as President

(12:38):
Trump has famously said so.
Sure, yeah.
There are some industries thatshould be geographically located
within your, uh, country.
Now, the problem with focusing on steel isthat America doesn't import Chinese steel.

(12:58):
It imports Canadian, Mexican,Brazilian, and European steel.
So to what extent do you really needto have a steel mill inside of America?
Can it be in Ontario?
Can it be in, um, you know, Puebla?
Probably can.

(13:18):
Um, so I think that what defines asnational security, I. Geographical
location for the United States of America.
Like we know what it is for a countrylike India that doesn't have power
projection, but maybe for the US it wouldbe okay if those, um, assets were not
located in its country, but in its allies.

(13:39):
Nonetheless, I do think that imposingtariffs on specific sectors that
are critical to the country'snational security does make sense.
And that's a conversation thatany country can have and can
justify to the rest of the world.
Like, Hey, look, we reallyconsider this a, a priority.
Uh, we want to have someof this in our country.
The second way that tariffs do makesense is to enforce fair trade.

(14:04):
And economic theory tellsyou that countries that trade
freely with one another shouldnot have massive imbalances.
Why?
Because if you sell a lot ofthings to another country.
That country ends up havingto buy a lot of your product.

(14:25):
Let's say you're really good at bicycles.
We ban cars, okay?
We ban cars, and the number oneexport on planet is bicycles.
If you export a lot of bicycles,everybody's buying your bicycles.
Oh, you got the best bicycles.
This is amazing.
They have to buy yourcurrency to buy your bicycles.
Your currency rises in its values,wages in your country rise because

(14:52):
you're making so many bicycles,and eventually you become quite,
quite expensive, unproductiveand uncompetitive in everything.
But bicycles and other countries startto kind of export stuff to you because
you've made so many bicycles, so many ofyour people are working in bicycle shops.

(15:13):
Your currency has appreciated.
And so if, if globalization was fair.
If everybody had access to free markets,you shouldn't have the kind of trade
deficit the United States of America has.
That should not exist.
But the reason it is exists is becausemajor competitors of the us, including

(15:36):
China in particular, have used things likecapital controls, currency manipulation,
not like it sounds so, uh, evilmanipulation of currency, but effectively
the Chinese have made it difficultfor you to buy their financial assets.
If you buy them, youcan't really leave them.
They've, they've made it a little biteasier to, I mean, a lot easier to be

(15:59):
fair to them, to buy Chinese bonds, butnot to really come in and out of their
economy, to transact in their currency.
They don't wantin to be an international,you know, reserve currency.
And part of the reason is that theyhave not gotten the kind of an effect.
A country with a huge trade surpluswould get IE They've suppressed those

(16:21):
costs that come with competitiveness.
The reason I say this is that I do alsothink that tariffs make sense when you
wanna punish a country for, for nottaking on the burdens of competitiveness.
So you can use tariffs to basicallytell China, like, look, we get it.
You are really good at making stuff.

(16:43):
However your currency should haveappreciated, and also you are supporting
certain industries inside your owncountry and therefore, you know, like
you don't really need to do that anymore.
It's if, if like, if a really, really lessdeveloped country like Ethiopia decides
to put 800% tariffs on textiles so thatEthiopia can have some people working

(17:10):
in the garment industry, nobody should.
Say that Ethiopia is using state aid.
I mean, they're just trying to getsome factories in their country and
better the lives of their people.
That makes sense.
But China is no longer aless developed country.
It is in the middle income kind of range.

(17:32):
We've all, well, I have, I've, I've beento many cities in China and they look
like spaceships, you know, like, I get it.
They're still interior China stillprobably should use industrial policy to,
you know, like help some parts of China.
That's all fine, but it's notwhere it was in the nineties.
And so it cannot use these manipulativetools to remain competitive perhaps

(17:55):
in industries that it should have lostcompetitiveness in maybe toaster ovens.
Toys t-shirts should move toother countries around the
world should move to Vietnam.
Maybe even further down the, theline, maybe Laos, maybe Cambodia.
Maybe Ethiopia, those are thenext countries that should start
building those low value added goods.

(18:18):
And, uh, and China has, for themost part, manipulated trade and
its capital account and also itscurrency to, to remain competitive.
And that is where I wanna make a casefor globalization In America, there's
this sense that Americans have souredon globalization, although polling

(18:40):
actually suggests that, uh, support forglobalization has doubled since 2016,
which is something we can come back to.
Americans actually are not as anti-tradeand anti-globalization as President Trump,
but also liberal media often both agree.
There's this, there's this tirednarrative that Americans are like
yearning to be in a sweat shop witha, like, you know, like just overalls

(19:03):
and like hammers and glistening sweat.
Just a lot of like 1930s imagery.
So there's a lot of that.
First of all, polls don't support that.
So let's park that aside.
But my point is, when you say thatChina is manipulating certain things,
or you say there are non tariff barriersto trade in Europe, um, you're not

(19:27):
saying that the US should stop trading.
You are actually seeingthe opposite thing.
You're actually seeing, you wantmore globalization, not less of it.
And this is where a lot of Trump fans,a lot of Trump supporters who do want
to glisten their biceps in some likefactory floor, you know, just hammering

(19:51):
away at a, at a widget, I'm gonna tellthem that's not what Donald Trump wants.
He actually wants more globalizationbecause a lot of these reciprocal
tariffs are actually designed to getother countries to become fair so that
the trade can benefit all countries.
Particularly can benefit them in thosesectors where they're really good at.

(20:15):
Um, and so what I would say is thatI think that the US is going to,
uh, um, what, what basically whatthe, the case I'm making here is
that if globalization is actuallyunfettered with tariff barriers to
trade with currency manipulation, itwill actually produce very positive

(20:37):
outcomes for pretty much everyone.
It will rise all the boats.
So it's not the globalization failed,it's that in the early two thousands
and the 1990s, the US didn't, when ithad preponderance of power, it didn't
push other countries to open up fully.
And so that's the irony.
President Trump could both be right, butthe outcome that he's gonna get is not

(21:01):
going to be what his supporters think.
The US will not open upmanufacturing shops for bicycles.
He probably is not going to increasemanufacturing as percent of labor at all.
In fact, if trade is free and fair, theUS is going to export a lot of things that
many of his supporters probably believeis for quote unquote Girly Men services.

(21:26):
That's what the US has a huge advantagein and US is going to continue to
crush in exporting its service sector.
That means a lot of software, that meansa lot of, uh, banking, insurance, you
know, entertainment, movies, the NBAHollywood, all sorts of things that
the US is good at is actually not thestuff that, um, his supporters believe

(21:50):
he's gonna bring back to America.
And he's not, because if you actually makeglobalization work for the US it will only
accentuate things that the US is good at.
Now why don't I think that the US is goingto be able to, um, become more competitive
in manufacturing and here because Ithink there's a lot of things that goes

(22:12):
into being competitive in manufacturingand it's not just being unfair.
Uh, when I think of Germany and whyGermany is so good at manufacturing,
uh, first and foremost, they have reallygood trade schools that educate people
on how to be, uh, manufacturing workers.
But I think there's also a culture,there's a cultural element where there's

(22:34):
a pride in metallurgical professionalismin Germany, in other words, working
in a false fogging, you know, factoryis not necessarily seen as a negative.
And, and the reason for that is thathealthcare and education are free.

(22:56):
Now.
Now I know I've lost all of our Republicanlisteners, but just hear me out.
If you have a very advanced and highquality social welfare system going out
and just being a manufacturing worker isnot a bad thing because you don't really
care about where your kids are gonna go.

(23:16):
If they're smart, they're not gonnaend up in a factory right next to you.
If they're smart, they're just gonna goto a university and it's gonna be free.
So the need to constantly generate highincome in order to deliver outcomes
for your family, that consists withmiddle class, it's not really needed
in a society that has extremelywell run social welfare state.

(23:40):
And I do think that that also supportsGerman, Germany and its ability to
be a manufacturing power because ifyou, if you have the ability for your
kids to basically determine their ownfuture, whether they're gonna be next
to you on an assembly line or not, um.
Based, based on the quality of educationof universities, of healthcare, then

(24:02):
I do think you might choose to goto an assembly line and work there.
Just, you know, nine tofive shift work and so on.
So I'm not sure if the US can reallycompete with that, to be quite frank with
you, I think that just throwing up tariffsin order to protect your domestic industry
is going to lead to you protectingyour own industry that's gonna work.

(24:23):
You're gonna produce cars that arecrap that nobody in the world wants to
build because you didn't gain advantagethrough productivity, through innovation
and to the quality of your labor force.
What you did is you produced afake advantage using tariffs.
And so if the US sticks to thatstrategy when it comes to cars,

(24:44):
it's going to fall behind.
Uh, economists call thisimport substitution, Google
it, read Wikipedia pages on it.
A lot of countries did it.
It failed.
It fails because it leads tohigh, lower quality products.
Um, and I think if the US wanted tobecome a manufacturing powerhouse,
then it would probably have to createa lifestyle, a culture that makes

(25:08):
people wanna be assembly line workers.
And, uh, I don't think that just payingthem $60 an hour is gonna do that.
I, I'm not sure that's gonna, that's gonnabe enough because the Germans do that.
Plus they have all sorts ofbenefits that are associated with
just being lower middle class.
Your life is amazing.

(25:28):
You're fine.
Um, so anyways, I'm gonna, I thinkI'm gonna stop there and I'm gonna
let you cook on the other side.

Yes, I think you've, I think you, I thought that my task
was gonna be harder, but I actuallythink in listening to you, uh, argue
the pro case for globalization, Iactually understand a lot better why
politically it's hard to make that casebecause, um, I thank you for spending
the first half of your justificationpraising the virtues of tariffs.
It seems that even an advocate ofglobalization can't help but spend

(25:59):
the first part of his argument talkingabout actually the inherent virtues
of protectionism and tariffs and thevery things that we're talking about,
which I think points towards whyglobalization is actually the wrong way
to think about how the United Statesshould be engaging with the world.
I think the most important thingmissing from your full throated
defense of globalization is a sense of.

(26:20):
Context.
You sort of got to it atthe end of your remarks.
You talked about when the United Stateshad a preponderance of power, that it
did not open up markets up sufficiently,but this is precisely the point.
The United States no longer has apreponderance of power in the world.
We might argue that the only time thatthe United States had a true preponderance
of power was from 1990 to 2001.

(26:42):
During that time period, you cansay safely, there is no communism.
There is no ism, there is norival, there is no Jihadism.
There was an 11 year period therewhere the United States was the
unquestioned military, uh, political,economic, cultural power in the world.
And what the United States said went,if you were Sloan Milovich and your

(27:02):
old stomping grounds, and you wentagainst what the United States wanted,
you got the shit bombed out of you.
And if a Chinese embassy was bombedin the course of that sucks to be you.
China, the United States isdoing whatever the fuck it wants.
If there's a genocide inside Rwanda,if militants are doing weird things
inside of Somalia, um, okay, like theUnited States is not like this, the
United States is going to come find you.
If you start talking about nuclear weaponsand you're, you're in the axis of evil.

(27:25):
I mean, that starts toget outside of 2001.
The United States has this rolewhere it's gonna push for you.
And in that context.
Globalization makes perfect sensebecause you are not afraid of anyone.
There are no competitors.
There is nobody that is coming foryou, nobody that can marshal any
kind of attack on your resources.
And it makes sense to restrict accessto the most closely held intellectual

(27:47):
property, but to diversify theconstruction of all the different
widgets that you talked about.
So it's no longer an issue where steel iscoming from or where you're gonna get your
bicycle because the Soviet union's gone.
We're not hiding underneathour desks anymore.
And there's a billion Chinese peoplewho wanna make these products for a
fraction of the cost that they couldbe made for in the United States.
So let's let the Chinese people andall the slave labor in the world make

(28:10):
these things for the American consumer.
And the American consumer getsmore money in their pocket.
They get to listen to nineties music andeverything is going fine now since 2001.
That is not the world that theUnited States has lived in.
And because the United States is sogenerous and magnanimous in its spirit,
it has taken the United States decades.
To wake up to the fact that there arethreats, that the 11 years of the giddy

(28:33):
springtime of the bourgeoisie was notaccepted by the rest of the world.
The end of history was a joke, so itstarted with the jihadist and then
Russia decided we want Mother Russiaback, and then Xi Jinping came in
China, you start going down the list.
All of these different challenges tothe United States, and these were not
just ephemeral passing challenges.
These were true existential challenges.
And at this moment, all of thesedifferent actors start taking

(28:56):
advantage of the United States.
The Jihadists did it by takingadvantage of US military power.
They wanted the US to come bomb Iraqand Afghanistan so that they could
use this as, as an example of how tospin up, uh, jihadism in their own
region, see the great Satan comingto bomb us and things like that.
Um, Russia taking advantage of its cheapenergy supplies, getting Europe dependent

(29:17):
on it, pushing into parts of EasternEurope, they didn't, knows the west
didn't give a shit about and saying, okay,we'll take this part of Georgia back and
we'll take this part of Ukraine back.
And nobody was gonna care becausenobody's, nobody was gonna push China.
Slowly but surely.
Not just manufacturing things and makingits population a little bit richer,
but stealing intellectual property andto your point, propping up domestic
industries, violating all the rulesof the order that it joined, um, that

(29:40):
allowed it to participate in this process.
It was obviously not a good faith effort.
So we have moved now to a more inherentlycompetitive and multipolar and.
FRAUGHT world where the United Statesis under threat, where we have enemies
who want to attack us, and if we haveenemies who want to attack us, it no
longer matters what price you can buy abicycle for or how much your iPhone costs.

(30:02):
We need to make sure that theUnited States can defend itself.
It is unfortunate that the rest of theworld could not sign on to US ideals,
but that is unfortunately where we are.
And in that moment, it means thatwe do have to protect industry in
the United States because we haveto make things here ourselves.
It would be nice if a billionchin Chinese people would continue
to make things for us, but we'veseen that they can't be trusted.

(30:24):
Look at how they treatthe people in Xinjiang.
Look at what they're doing with Taiwan.
Look at what they did to Hong Kong.
This is not a nation that can be trusted,so it absolutely behooves us to come back
and breathe, bring these things together.
As for tariffs, tariffs are verysimply a tool in this toolkit.
They are just a simple thing.
They are attacks, and it means that wedon't want to import things from abroad
because if you just leave the consumer tothemselves and there's a cheaper product

(30:46):
on the shelves from China or from Russiaor from somewhere else, they will buy it.
So the tariff means, okay, you're notgonna buy from those different countries.
We're gonna rebuild industry insidethe United States when we are looking
back for historical context here.
That 10, 11 years of USdominance is not normal.
We thought it was exceptional.
We thought it would continue on forever,but most of the history of the 18th, 19th,

(31:07):
and 20th century shows us that actuallyyou need a form of protectionism in
order to become a great industrial power.
Think of Great Britain from 1760 to 1840.
What was one of the first thingsthe British government did?
Once it realized that the IndustrialRevolution was upon it, and that it had
fundamental advantages over France andother countries, it forbade the export
of machinery and other things that werecritical to the industrial revolution

(31:31):
so that it could capitalize on thatopportunity for as long as possible.
What happened in the United Statesin the 1890s after the Civil
War and the rise of US industry?
William McKinley, a self-professedtariff man comes to power and protects
us industry so that it, it can continueits ascent along global value chain so
that the south can be industrializedafter the war, and that leads.

(31:53):
Two US Victory and World Wars One andtwo, US military power was defined not by
the fact that we just woke up one morningand could make fighter jets, but because
somebody like William McKinley protectedUS domestic industry in the 1890s because
he saw the world that was in front of him.
You mentioned Germany today.
Think about Germany.
In the 1930s, we don't talk about thisbecause it's politically incorrect to

(32:13):
do so, but before Hitler tried to takeover the world, he was actually doing
incredible things for the German economy.
One of the first things that he didwhen he became chancellor was erect
tariffs to protect German industry.
Germany was not known as amanufacturing superpower.
Pre 1930s, the British werethe ones who made things.
The Americans were theone who made things.
That reputation of German metallurgicalgenius and manliness happens

(32:37):
because the Nazis build factoriesand incentivize German companies
to build things inside of Germany.
That's where it happens.
And Germany, of course, went off thedeep end in its ideological fervor,
but almost conquered the entire world.
A small country of 50, 60 million people,whatever it was, because they protected
their industry and because they knewthey needed to protect themselves.

(32:58):
I think also of the United States inthe 1960s and the 1970s, we talk often
about the Vietnam war and social,uh, dysfunction and rising deficits.
And Lyndon b Johnson, what reallyhappened in the 1960s and seventies,
the big success case was the space race.
The United States decided that it neededto win the space race at all costs, and
so it incentivized and protected a USspace industry That literally gave us

(33:22):
most of the technological innovationthat we interact with today because the
United States government supported it.
So I would tell you that as theperson who is speaking pro tariffs
right now, that the main problemwith the Trump administration is that
it is not going nearly far enough.
In fact, it is doing a fairly wimpy and.
Namby-pamby approach tohow tariffs should be done.

(33:43):
And if I was advising President Trumpright now on tariffs, I would say
President Trump, go further and gofurther, specifically in these ways.
Number one, don't listen to Elon.
Don't listen to Cousin Marco about howyou need to be fiscally conservative.
You need to spend more, way more.
You need operation warp speed on shipbuilding and active pharmaceutical

(34:03):
ingredients and bicycles and every otherfucking thing, because we can't afford
to have these things from China and fromIndia and from these WY Europeans anymore.
God forbid other places in the world.
We need to build this capacity.
We need to pay the American workeras much as possible that they enjoy
smelting on the floor of that factory.
Maybe it's not 60 an hour, maybe it's130 an hour, maybe it's 200 an hour.

(34:27):
It's all funny money.
It needs to be spent.
That means also more fiscal stimulus.
Now that doesn't mean ad nauseum.
If you put people.
On the tit forever.
They'll probably stay there forever.
But maybe we say for the next five to10 years, while we are in an economic
conflict for the existential future ofour country, we will have a universal
basic income for the next eightyears so that every person can live.

(34:48):
As we go through some ofthese disruptions, tariffs,
we need more of them.
They need to be higher, they need tobe tighter, they need to be enforced
incredibly strictly, because wecan't have people get around them.
No, Mr. Nvidia, CEO, you don't get tocome to Saudi Arabia and whisper sweet
nothings into President Trump's earand get around some of these things and
export your chips to China in the future.
Absolutely not.

(35:09):
Tariffs are ironclad.
There is a great wall of America thatwe will erect so that these products
do not get inside of the United States.
Here's the one that's reallydifficult for you, Mr. Trump, and
it was, uh, articulated by SteveBannon just yesterday in a podcast,
you wanna balance the deficit.
You want to pay for some of these things.
Yes, tariffs will pay forthese things in the long run.
You know what you have to dofirst, you have to tax the rich.

(35:31):
And I know you don't wanna dothat, but this is an existential
battle for our future.
And if the working man is sacrificinghis ideals of what his future was
going to be by going and smelting onthe factory floor, then the rich are
gonna have to pay for some of this.
Now, 1890s, William McKinley,there was no income tax.
So maybe we can get to a world inwhich the income tax also goes away,
in which all these other tariffsand things like that pay for that.

(35:53):
So alongside that temporary universalincome, maybe there should be a temporary
income tax that is set at the 60 to 70%level that sunsets in 10 years time.
And then we have no income tax in thiscountry that we are building towards a
better future in this country where wemake things in this country in conjunction
with our allies and those countriesthat wanna do us harm can no longer do.

(36:13):
So.
Last but not least, theproblem of universities.
There should be government dispensationto pay for any American student
who wants to go to a university,who wants to participate in either
energy, artificial intelligence,biotech, or any of the trades.
If you want to go to school forany of things, any of those things
in the United States, not onlywill you incur no debt, the United

(36:34):
States government will pay for you.
That is what the UnitedStates government should do.
If you want to go study comparativeliterature and all sorts of
other fun things, that's fine.
You're gonna have to pay double forthe privilege of doing those things.
This is not a liberal artsworld that we're living in.
We're living in a real multipolargeopolitical world in general.
And Marco, I'll close mystatement with just this.

(36:54):
I know the data says globalization.
The data also said that the BostonCeltics, when they played the New
York Knicks, should just continue tohoist up threes and try and isolate
Jalen Brunson over and over andover again, because eventually the
data was gonna bend in their way.
But that I. That is playing with the lead.
And the United States cannot do that.
If the United States is gonna moveforward as the most powerful country

(37:16):
in the world, if America is going tobe great again, it has to keep pushing.
Don't be the Boston Celtics and thefirst two games of the Eastern Conference
semifinals instead, think of the OklahomaCity Thunder, or of the Denver Nuggets,
or any of these other teams that continueto grind, innovate, push, push, push.
'cause if you just think you're gonnacontinue to hoist up threes and get

(37:36):
slave labor to build your fancy thingsin other countries abroad, you're
gonna be in for a rude awakening.
When China says, actuallythis is the Gulf of Beijing.
Ah, mic drop.
Bam.
I did it.
Do you like it?
Okay.
I feel dirty.

Well, I mean, first of all, the reason it's not mic drop because
it, uh, avoids basic mathematics.

Oh, you, you wouldn't let things like basic mathematics
get in the way here, would you?

Yeah.
So, so the funny thing abouttariffs is that if you want
tariffs to actually raise revenue.
You have to have Divolevels of pro-globalization.
So if you want tariffs to payfor anything, you have to be more
pro-globalization than a Davos man.

(38:24):
Mm-hmm.
Otherwise they will raise no revenue.

Exactly.
Right.
Which is why President Trumpis not going far enough.
If you unrealistically think thattariffs today are gonna pay for
these things, it's not going to work.
If you're gonna have the, thetariffs, you're also gonna have
to find ways in the short run to,uh, account for the shortfalls

that Right.
Right.
Well, no, but, but they will never work.
Right.
Because like, again, if the purposeof tariffs is to move production
of widgets and bicycles to the US,tariffs will not raise revenue.
They will move production to the us.

Exactly.
And then once that production ismoved to the United States and we
are growing, uh, at the top line andproductivity is booming and everybody
wants our products and there's gonnabe paying all sorts of other things,
the case that's, well then there areall other sorts of ways to do this.
Yeah.

And then that doesn't happen.
Why not?
Because you moved things tothe US because you protected
the price level of your goods.
You didn't actuallyimprove them in quality.
And so nobody actuallywill want your goods.
And the US is 20% of globalGDP, which is a lot, but there's
80% of the rest of the world.

(39:38):
And the only way that the UScan win in that world is if
everybody else also launches atrade war against everybody else.
Mm-hmm.
Maybe, maybe, maybe in that world,the US market being the largest market
in the world, will still produceenough competition domestically
to produce the best bicycles.
It requires a lot of maybes.

(39:59):
So in other words, this iswhere the tariff thing doesn't
mathematically make sense.
First of all, if you want to raiserevenue for the country, then you
have to continue trading, and that'swhere the 10% across the board tariff
that nobody talks about anymore.

Mm-hmm.
Yeah,

we've all forgotten it.
But the 10% across the board tariff thatPresident Trump also imposed on April
2nd is low enough to, well, for mostgoods, it's low enough to allow trades
to continue, but that also means that asthat trade continues, you can actually
raise revenue by taring that trade.

(40:38):
If you impose a 40 or 30% tariffon goods, goods will not come in.
You will not raise any revenue.
You cannot impose a tax on a transaction.
That doesn't happen.
So I think that that's where sometariffs can make a difference
from a revenue perspective.
But protecting industry, the problemwith protective industry, protecting

(40:59):
industry is that your domestic competitorsthen don't have any incentive to
compete with the rest of the world.
So if somebody abroad createsa better bicycle than you, you
will never get that bicycle.
And by the way, this, this has happened alot in American history, for example, why
do American car companies and our friendTim, actually agreed with me on this one.

(41:21):
So, uh, this, this whole debate herewas prompted by one of our listeners
who said, Hey, some good thingsare happening in manufacturing.
But when I countered that tariffswould eventually lead to a complete
destruction of American carindustry, he did not really disagree.
One of the reasons that American carcompanies produce absolutely terrible

(41:42):
vehicles that nobody in the restof the world wants to drive Facts.
The reason is that they, they, they'vejust overproduced pickup trucks because
throughout the history of the US there'sbeen ebbs and flows in protectionism of
the car industry, and the car companiesbecame quite uncompetitive globally.

(42:03):
They're also perfectly finewith the domestic market.
The domestic market, as far asthey're concerned, is big enough.
Trucks, pickup trucks have higherprofit margins than sedans, and so they
just became a pickup truck company.
They cannot build a sedan.
American car companies have lost theability, the technological ability

(42:23):
to build a sedan, and that's whathappens when you become overly
indexed to a particular marketplace.
Another example of thisis washing machines.
When I first used moved to the USin 2000 and uh, six, I was like
frustrated by this obsession withtop loading washing machines.
I was like, this is idiotic.
Why?
Because side loading, washingmachines are more efficient.

(42:44):
They wash clothes much better.
You're not just sitting there inthat shitty water and uh, and they're
just like better pieces of equipment.
And then what happened?
Lo and behold, today you can't even buya top loading washing machine and lights.
You look for one.
This is technology.
We in Europe, in Europe had in thesixties, Americans were just like,
nah, we like top loading 'causeI don't wanna bend or whatever.

(43:07):
The point is, if you become overlyfocused on your own domestic
market, you can miss innovation.
It can just pass you by.
That's what Terrace would do.
Now, a couple of things thatI would disagree as well.
The main premise, your main premise,but also of those who think that
this moment is gone is this ideathat if something doesn't work and
you keep doing it, you're an idiot.

(43:28):
Right?
Like the Boston Celticswith the three pointers.
So from 1990 to 2001, UShad preponderance of power.
It missed it.
It's over.
That moment is gone.
That's a really, really interestingargument, Jacob, that it's not just
Stephen Bannon who would argue it,it's also many on the left and may
many establishment and centristsay, look, we missed the moment.

(43:49):
I think that us still has something goingfor it that is really powerful in trade
negotiations and its access to its market.
Mm-hmm.
Because it's the largestmarket in the world still.
And so, no, I do think that the worldcan still be improved in terms of
efficiency of trade, uh, but again, notnecessarily for American manufacturing.

(44:11):
This is where I do disagree with your,your counter, with our friend Tim.
Definitely with Steven Bannonnot for American manufacturing.
I don't think that'swhere the advantage is.
I think the advantage is in services,but here's why I don't care.
Your example of United Kingdom, uh,in the early 19th century preventing
export of industrial machinery.

(44:31):
I love it.
Deep reference.
I. Also, it didn't work at all.

No, it didn't.
It never worked.
No.
What do you mean it didn't work?
No, it didn't work.
It did work.
No, it didn't.
They won, they won theIndustrial Revolution.

Uh, no they didn't.
Sure they did mean they didn't.
The Industrial Revolution spread.
In fact, British, the United, yes,

it spread, it spread

more slowly as a result by 1871 No, but, but 1871 Germany Unified
by 1890, it was basically Oh, yeah.

Out producing.
But that, so, but thatwasn't the time period.
I was talking, I was talkingabout from 1760 to about 1840.
Like that was the, and really Britishprotectionism really starts to kick
in at the end of that cycle becausethey realize things are pushing on and
they want to extend the window of theempire as long as possible, but Right.
But it starts, the power starts withbeing able to manufacture things in your

(45:17):
own country better than everyone else.
And that's what allows you to defeatNapoleon and blah, blah, blah.

No, no, no.
But this, this is after Napoleon, right?
Sure.
Like, and I mean, like, like othercountries start industrializing.
And they started industrializing.
Yeah,

I hear you.
The, the, the point I was makingthere in my, and again, like this is
the devil's advocate, Jake, I'm gonnatake, I'm gonna take off my devil
devil's advocate hat here in a second.
But the, the point of the argumentwas that, uh, the British Empire
does not exist if Great Britainis not at the forefront of
manufacturing from 1760 to 1840.
So I agree with that.
Having a domestic manufacturing capacityis what allowed it to become an empire.

(45:54):
And so you can't put a price tagon building that capacity at home.
Does the math say you shouldn't havedone that and done free trade and
traded with Napoleon and everybody else?
Sure.
But when the chips were down and you hadexistential wars for your survival, boy
was it nice that you made all the shitquicker and more efficiently, uh, more
efficiently and better than everyoneelse, even if the math didn't work.

So my point was just that industrialization did spread
and the biggest risk, the biggestrisks of preventing technology from
going outside of your country is thatyou create necessity that produces.
Even greater innovationin the rest of the world.
And we've seen that thatwas really the reason UK
industrialized in the first place.

(46:35):
It was the fact that the UnitedKingdom had an energy crisis,
had lost access to trees.
It deforested its own island.
And what happened was coal andthen moving coal like necessities,
the mother of invention.
And so that's one of the problems.
Mm-hmm.
The second issue is thatwe are not in 1820 or 1840.
We're in 2025.

(46:56):
The example of, uh, McKinley leading toAmerica industrial power in the Second
World War is a stretch, my friend.
No, that's not how it happened.
McKinley did not lay the seedsfor industrial prowess of
America in the Second World War.
The, the reason that happened is that theUS went on war footing on a war economy.

(47:16):
So I agree with the idea thatyou should retain some baseline.
Industrial capacity andindustrial capability, right?
So I, I don't disagree with that at all.
However, when, when war starts,you go into a war footing economy.

(47:37):
You don't have to be producing crappycars that nobody in the world wants.
You just have to have the ability toproduce cars if shit hits the fan.
And that's what's happening in everyof these conflicts, by the way.
But, but more than that, I'm notsure that the next war is gonna be
about tanks and aircraft carriers.
We're seeing what's, what'shappening in Ukraine versus Russia

(47:58):
is a very interesting example.
Uh, I encourage our, uh, viewersto watch YouTube clips of the
drone conflict that's going on.
It's a lot of small innovation.
Um, I, I quite frankly,I mean, look at Ukraine.
Ukraine, uh, Ukraine.
Listen, Ukraine was definitely anindustrialized economy for sure.
The hake region in particularin the east, um, you know, even

(48:23):
dunes with some of the mining.
But like, the reality is that,you know, we're not gonna, like
nobody was buying Ukrainian cars.
Ukraine had some baseline levelof industrial competency and it
ratcheted that up in a conflict.
But most of the innovation happeningon that battleground is not what
it, it doesn't involve glisteningsweat on an assembly line.

(48:47):
It involves small electronic innovation.
And so the drone, uh, innovation isactually what's winning that war.
So I'm not so sure that, youknow, you, you need to basically
like reassure absolutely everysingle piece of manufacturing.
You just have to leave some baseline.
Um, but yeah.
Uh, one thing that I will say isthat, uh, where the critics of

(49:11):
globalization are right, is that thoseearly deals from 1990 to 2001, were.
We're onerous for the US.
And one thing I wanna say about that isthat there's two ways to think about it.
One is that a hegemon will alwaysnegotiate generously, right?
So that's, that's wherewe talk about naivete.
Naivete of the Clinton administrationof the Bush Senior and Bush,

(49:35):
Jr. They were naive, right?
Supposedly.
Mm-hmm.
Well, not necessarily, they wererunning a hegemon in the greatest
power in of the country, in the world.
So they were going to negotiate.
They, they were

idealistic and they should have been like we were all
idealistic at that time period.

That, that's true.
But you are also, you are alsothe, you are also in charge.
So some country comes to you and says,we want access to the American market,
but we're gonna protect our own.
You're like, eh, it's fine.
Just abide by our rules.
So you negotiate generously and they geta lot of flack for that from the Stephen
Bannons and the anti-globalization.

(50:09):
It's fine.
Like they should get flack for that.
But here's what America didn't have to do.
I understand why America negotiatedgenerously with the rest of
the world, but here's wherethe actual ideology comes from.
It was when America didn't redistributethe gains of globalization domestically.

(50:30):
This entire narrative that this issomebody else's fault that America
was taking for a ride is ideological.
And I'm sad that you had to sit through49 minutes to get to the crux of this,
but this is the crux, my friends.
Yes, you too, Steven.
Oh, now you're calling fortaxes and they're wealthy.
Okay, buddy.

(50:50):
Now that most of it's probably insome Swiss private bank, shut up.
I'll tell you what the problemwas and where the ideology was.
The ideology was not that like America letChina take it for a ride and was naive.
No, no, no, no.
Don't sit here and pretend to me thatAmerican corporates didn't like absolutely

(51:11):
bathe in profits thanks to globalization.
Don't tell me that this did notincrease American GDP massively, or the
America didn't profit the most it did.
We can quantify, prove on any, anymetric that the only country that
crushed that period of supposedAmerican Navy TE was America.

(51:34):
America absolutely crushedthe rest of the world.
I witnessed with my own eyes,Jacob Shapiro, a line in Ahman
Jordan for McDonald's in 1994.
That was three days long.
The line to eat a cheeseburger wasnot three hours long, three days long.
I witnessed the opening of firstMcDonald's in Belgrade, Yugoslavia.

(51:58):
I was there for this, and itwas American corporations that
absolutely bathed themselves incash thanks to the supposed naivete.
So the real question that Americanpublic should ask themselves is
not, is not like, how much didGermany take us for a ride or China?
Or why weren't we mean to them?
The real question is, why didn't weredistribute the gains of globalization?

(52:22):
Why isn't my education in thiscountry high quality and free?
Why isn't my healthcare like affordable?
You know, because, because that'sthe real problem when people
have lost faith in globalization.
You know, like Scott Besant, theTreasury Secretary, I think, or maybe
it was Howard Lutnick, said, look, um,the American dream is not cheap goods.

(52:47):
Alright?
Okay.
I get that.
I agree with you.
I see what he's saying.
Like if goods were a little bitmore expensive, that's fine.
But the American dream Dream doesmean equality of opportunity and
there was a whole lot of profitsand money made off of globalization
in America that never, ever gotredistributed to the rest of Americans.

(53:12):
And that is the fundamentalproblem with the us.
It's not globalization, it's not othercountries taking America for a ride.
It's not naivete on thegeopolitical foreign policy front.
It's just a fact that fundamentally theideology here was less fair capitalism
of steroids, where corporates willmake the profits and then, you know,

(53:33):
we'll just stay with shareholders.
And if that had been addressed,had that been addressed, Americas
would be perfectly fine with theirnon-manufacturing low middle class jobs
because they would have public spacesto go to that are nice and green.
It would have their kids going tocheap public universities, and they

(53:56):
would have probably much better accessto healthcare than they have now.

See, I told you the Marxist would like us.
We got talk, got to talking aboutredistributing American wealth.
And I think in some ways, the originalsin of what you're talking about,
the opportunity to do this, and thisactually cuts with the auto companies,
is 2008 and the way that companies werebailed out in the context of the 2008
financial crisis by the US government.
Some companies that were bailed out,whether it was automakers or whether

(54:20):
it was, you know, a IG or some of theseother, like they should have failed.
And the US government wasn'twilling to let them fail.
It wanted the party to keep going.
And in some sense, I think since2008, the party has kept going even
though at that moment, I think youcan forgive Bush Clinton, even second
bush, you know, for, for indulgingin idealism during that period.
But by 2008, the writing was on thewall and most mainstream American

(54:45):
politicians on both sides of theaisle wanted to keep playing.
Like the game was still going.
And now the position is where we're nowI'm gonna officially take off my, you
know, I, I was doing devil's advocate,full throated defense for Terrace.
That is surprise not what I think.
Um, it's actually fun to arguesomething that you don't.
I actually believe him.
But there are a couple of things Iwanna say, um, to, to what you said.
The first was that, um, I think you'ree exactly right, that you actually,

(55:07):
no matter how hard I tried, I cannotdefend tariffs or protectionism with
math in the sense that I can't saythat it's going to make America richer.
Um, I actually pulled some studies about,uh, president Trump's 2018 steel and
aluminum tariffs doing some work for a,a client on something related to this.
And if you look at the impact of the2008 steel aluminum, uh, 2018 steel

(55:28):
and aluminum tariffs, which Trump justdoubled down on here in the past week
or two, uh, basically they reducedemployment in the steel and aluminum
industries in the United States.
Prices rose.
Production rose a couple percentagepoint, and imports also fell because the
prices for these inputs were higher andput bigger strains on American companies.
So actually in this case, it's anexample of how tariffs actually does.

(55:51):
None of the things that you want themto do, they don't even give you the
thing that you think you're gonnaget and you're still also poisoning
the well with trust in general.
It's why I say if you're going tomake a defense, uh, an argument that
defends tariffs or protectionism ingeneral, you have to move the goalposts.
You have to say, this is notabout economic growth right now.
This is about a battle for our lives andthis is where your comments about the war

(56:11):
footing thing acts your Very interesting.
Do you know when the first income taxwas charged in the United States when
the federal government first leviedan income tax on the US population

1917.

1862.
In the context of the Civil War, the, theNorth Levies of Federal income tax, it
gets repealed after the Civil War ends.
When McKinley is president,there is no income tax.
Of course.
Yeah.
So from roughly 1873 to 1913 withthe 16th Amendment, 1913, no income.
There's no income taxin the United States.
And of course, shortly thereafter, youget World War I and the United States,

(56:47):
to your point, is on a war footing.
So I take your point that, you know,I'm, I'm really stretching there.
I'm doing a lot of downward facingdog, uh, getting from William McKinley
all the way to, to World War ii.
But that said, uh, Woodrow Wilson flipsthe switch on the war footing, and he
has an economy that can respond to it.
And I think this is the one realkernel of truth, because I think if

(57:07):
you were going to be, if you weregonna flip the switch today, you and I
don't know how to manufacture things.
And most people in this countrydon't know how to manufacture things.
Whereas our rivals like China willout manufacture us in a second flat.
We can't build anaircraft carrier quickly.
They'll build a thousand drones that'llknock out the one, you know, the carriers
that we have in, that's five seconds.
So like, I think there's this What?

(57:28):
Yeah, go ahead.

But what you just said is important because the fact that
they're gonna build a thousand dronesto our aircraft carrier is not a
function of industrial metallurgical.
Capabilities.
It's the fact that war itself haschanged away from those very expensive
platforms that require you tomanufacture an assembly line tanks.

(57:51):
Remember when we all debated whetherUkraine should receive Maine battle tanks?
When was the last time anybodytalked about Maine battle tanks
as critical to Ukrainian security?
Like that ended with 2022.
By the way, all of those tanks have beendestroyed by the Russians, just like all
the Russian tanks have been destroyed.
So the, the, the, the features of warhave also changed, and I would say that

(58:13):
the United States of America possessesactually sufficient industrial capacity.
It is one of the largest producersof aircraft in the world.
I think you will continue toneed aircraft, and I don't think
tanks and really even ships.
I mean, submarines are very important.
And again, the United States doespossess the ability to build the best

(58:34):
submarines in the world, more or less.
Maybe not the diesel kind thatare maybe cheaper and even
quieter, but fine, whatever.
But it's really thedrones that are happening.
And so that's where I would alsogo further and say like trying to
preserve late 19th century, early 20thcentury industrial capacity is not
going to matter for the 21st century.

Yeah, I take your point there, but, and, and this goes
back to again, you can't defend.
Protectionist policies and tariffs asif you're trying to get something back.
You have to say, this capacitydoesn't exist anymore and we
have to build this capacity here.
You're exactly right On, on drones.
And actually, um, this is somethingthat China's experiencing itself,
like some of the scuttlebutt I'veheard is that Chinese manufacturing

(59:17):
laborers are losing their jobs.
Not to Vietnam or to Ethiopiaor anybody else robots, but to.
To robots.
It's happening in China itself.
Of course.
And you know what?
Of course China's ahead on robots too.
It is, and this is the point where I wouldpush back against you, like when it comes
to where things are made in the world,they are made in China, whether it's
active pharmaceutical ingredients, whetherit's increasingly sort of the lower end

(59:38):
chips that you need for semiconductors,whether it's the stuff that goes
into the robot that gets created, allof these things are made in China.
They are not made in the United States.
And the real problem for the UnitedStates, this is why I was asking you
that trivia question about income taxes,because I didn't know this myself.
Basically, since 1913, theUS has been on a war footing.
We never turned the switch off from thewar footing, and we kept on taxing the

(01:00:01):
population and doing all these otherthings as if we were on a war footing.
And yes, it hid behind therising complexity of government
and the Great Depression andthe new deal, yada, yada, yada.
But fundamentally, we have beenspending to maintain our lifestyle.
That's what globalization,um, actually maintains.
And this is why I'm with you.
I like my lifestyle.
I like that I'm wearing a sillyshirt with flamingos on it that

(01:00:23):
was made in Vietnam that I couldbuy for $15 because it was on sale.
I don't wanna have to gomake this shirt myself.
It's really, really fun.
But if you're going to like, make thisargument that we have to make things
inside of the United States, then whatyou're really telling the US population
is your lifestyle is gonna suck.
And this is something that Trumphas said a couple times, right?
He said a couple times yourkid, maybe your kid shouldn't

(01:00:45):
have four or five dolls.
That's right.
May, may.
Maybe, maybe you guys need totighten the belts a little bit.
Leave aside hypocrisy of thatand, and everything else.
Quiet a dial quickly.

Marko Papic (01:00:54):
Yeah, he

Jacob Shapiro (01:00:55):
quieted down quickly.
But that the, the thing is that likethat's the case that you have to make.
That's the, if you're defending allof this, you are making the case
that you're gonna sacrifice yourlifestyle, which is absolutely upheld by
globalization in order to have defensivecapacity to fight future battles.
Well, just, and you can have, have oneor the other, but you can't have both.
Okay.
Go.

Well, I'm not sure you, you have to have one or the
other People in the 1930s had both.
Again, that's what I mean.
Like, when the war starts,you get on war footing.
You need to retain someminimum level of capacity.
Yes.
That's where I said stealan aluminum tariffs fine.
I mean, your point is like,no, not even fine on that.

(01:01:36):
But like, let's look, you can protectcertain industries in order to retain the
ability, because once the war starts, thequestion is can you expand the capacity
quickly and what America has provenin the past that yes, it can, it can.
It can ramp up industrialcapacity in the 1940s.
The example was with aircraft,of course, started churning

(01:01:56):
out crazy steam with tanks.
I have no doubt that itcan do that again, but

really that was a long time ago.
And we don't make things anymore.

Uh, we make, uh, the most sophisticated, the United States of
America makes the most sophisticatedaerospace aircraft out of anyone.
Like that's already there.
Yeah.

We can't, we can't make any of that stuff without importing a lot of
the inputs that go into these products.
Okay.
So that's, we design some of these thingsand we've had lots of innovation, but like
we can't do that vertically integratedin the United States if we had to.
No way.
I, uh,

yeah.
I mean like here.
No way.

There's no way China, with China go look up
and down the supply chain.
We don't do same.

But again, same with China, right?
They can't produce their main airlinerwithout engines that are produced abroad.
I.

Engine.
Yeah.
Like engines, they're, I bet youwithin five to 10 years they will.

Okay, fine.

Well, well, look, they, they're, they're on the war footing.
They are looking at all these thingshappening and saying, we need to
be self-sufficient on these things.
Whereas this government isactually not using tariffs.
The way that I'm talking about, likeyour point about tariffs with steel
and aluminum, like you can't just say,oh, people aren't treating this right.
We're gonna do tariffs sothat we get treated fairly.
No, the, the thing to say is we need tomake steel and aluminum in this country.
There is no price we won't pay, andtariffs is a part of that strategy,

(01:03:08):
but then there's also a whole host ofother things we're gonna have to do
in order to rebuild that industry andretrain workers or robots or whoever
it is that is gonna be making the steeland aluminum like, okay, operation
warp speed for steel and aluminum.
You're actually exactly right that theTrump administration is acting very much
in a globalist mindset, like a tariff, avery limited tariff on a very narrow like

(01:03:28):
band of products that is globalization.
You're saying you have a trade disputethat you wanna solve so that everybody
can go back to trading things.

United States of America and Europe can absolutely produce aircraft.
Absolutely that Will itrequire some pieces of, uh,
electronics from Italy or Canada?
Yes.
That's fine.
Right.
Like, it's fine.
The supply chains don't requireChinese products for ASML's, highly

(01:03:57):
advanced lithographic machines.
Like they don't mm-hmm.
China requires lithographicmachines themselves.
Yeah.

They're, they're doing a good job of getting by on their
own and also like huawe Absolutely.
With all it's chip design andstuff like that, but that's fine.
But like

they're competitor.
They're gonna get there.
Look, I'm not saying thatChina's not gonna get there.
I'm just saying that United Statesof America can absolutely pro produce
an aircraft without China and it canabsolutely like find those alternatives.
Again, war footing means, hold on.
What kind of aircraft?
Like a 7 37 or like an

F 16 fighter jet with all the computer systems that go into it.
Yeah,

absolutely.
Absolutely.
That's why they suck.
These are like touchscreen made in Vietnam.
That's why

they suck.

No, listen, look, look, look, look, look, look.
War footing means whatever you don'thave in your supply chain, you set
up a factory and you produce it.
And the question is, do you wanna liveon war footing or do you wanna like
be on war footing when there's a war?
Mm-hmm.
And so that's, that's the question.
And my question is, and my answer tothat question is like, look, United

(01:04:55):
States and uh, American China arenot gonna go to the kind of war where
you're gonna need to churn out tanks.
That's not gonna really be the kindof war it's gonna be over Taiwan.
United States has enough,uh, industrial capacity.
I mean, the United States justpropped up Ukraine against a
neighbor that doesn't even have awater between Russia and Ukraine.

(01:05:16):
There's no, there's no water.
The Russians walked into Ukraine, andyet, somehow, magically, our supposed
terrible industry that's on the dyinggasp helped arrest the attack by the
largest mechanized force in human history.
I, Russian, I'll

push back there again too.
We were, we were using up all the stockthat we didn't use in the Cold War.
Doesn't matter, we imaginewe were gonna use forever.
What?
Like, we're not making that stuff.
Like we started using, we started sendingthem different things because we ran out
of the stuff that they needed before.

Well, then why didn't they come back with more?
Thanks.
I mean, this is like,I'm sorry, I'm sorry.
I'm giving an actual empirical examplewhere the American industry did succeed
in arresting, and you're tellingme it's not gonna work next time.
Like, why

American industry did not manufacture those
things when you needed them.
The

Javelins did not get manufactured by American

industry.
Ja, yes, yes, the Javelins, but mostof the stuff they sent was stuff that
was sitting in a warehouse somewherethat they, they found use for.
And when they, when they wantedto spin up more capacity for that,
they had a lot of trouble doing.

They had a lot of trouble until they didn't,
and now they refilled stocks.
I've been listening to this, uh,nonsense bullshit that javelin stocks
are out for the past three yearsfrom National securities hawks, and
yet China has not invaded Taiwan.
Well agree with, you know, like,so, so, no, I agree with that.
Again, all of this can beramped up very quickly.
That's my point.
And the capacity innovation isthere and actually doesn't require

(01:06:34):
that much glistening sweat on themanufacturing line to do the, the,
the empirical example is Ukraine.
That is the empirical example.
We cannot avoid it.
We're not gonna be fighting a war withlike tanks going up against one another.
It's gonna be drones, it's gonnabe anti-aircraft, uh, missiles.
It's going to be anti-tank missiles.
It's going to be a lot of fighter jets.

(01:06:54):
And Aax and the USabsolutely crushes that.
Now it is falling behindon many other things.
Uh, an America drone costs $30 million.
A Ukrainian one costs $4,000.
Hey, get a hint, right?
Innovate in that lab, but thatdoesn't require huge manufacturing.
The other issue, the other issue isyou, if Americans decide that they

(01:07:15):
want to live in war footing, thenAmericans have decided to democracy.
But the problem is that thisinsidious argument that it, that
the war fighting is already there.
United States of America has enoughnuclear weapons to turn China into
parking lots, like 12,000 times over.

(01:07:36):
There isn't going to be a totalwar between China and the us.
It's not gonna happen.
We are not in a world of total wars.
We're gonna be in a world of proxy wars.
And yeah, like the US has industrialcapacity to clearly protect its vassal
states, as we've seen in Ukraine.
So what it really comes down tois do Americans wanna live this?
And this is where the polling comes back.

(01:07:57):
Like this is wheredomestic politics comes in.
And yes, you're right.
The Americans don't want becausethey're not, what's the word?
Wait, I'm looking for it.
What's the word?
Insane.
The American public is not insane.
Why would you live on a war footing?
Because China is going to do what?
Invade Washington State and Oregon.
No.

(01:08:18):
And this is all just wool beingpulled over people's eyes.
This entire competition withChina, so that you don't
have to redistribute wealth.
That is my, that is basically my view.

Well, you, you know that I agree with that, that part of what
you're talking about, and I'm, I'm playingdevil's advocate here still a little bit,
but I, I do wanna push back on one thing.
One thing I actually do thinkis, I do think the US is to some
extent, already on a war footing.
The, the budget for fiscal, forfiscal year 2025 for DOD is gonna
be, what was it, a 1.9 trillion?

(01:08:50):
Yeah.
1.9 trillion as I'm Googlingit, um, in, in 2024, it's, it's
meant a trillion on defense.
Like that's more than what the next10, 15 other countries combined.
I love that trope, but then I alsowanna take it back to McKinley.
If you look back to 1890, when theUS became the world's most productive
economy, um, the United States, itsarmy was less than 30,000 troops.

(01:09:13):
But wait, hold it.
It's maybe had fewer than 10,000 menin it, like it wasn't spending on
the military like it is right now.

Well, but the distances were different.
But look, look, look, look,look, look, first of all.
Absolute numbers never matter.
We have to look at this percent of GDP.
And even with the increase in spendingnow, uh, you know, the US was spending
in terms of percent of GDP, I mean,I'm looking at a chart here from
World Bank, you know, it was a 6% ofGDP on military in 1960 went down,
uh, after Vietnam War to a steadystate, steady state of three to 4%.

Mm-hmm.

We are now at 2.5%.
With this increase, we mightkiss 2.8, we're still less than
3% of GDP spending on military.
So now that is about 12%, I think11 or 12% of all taxes raised.
So I'm not saying that this isn't little,but it's still less than it was before.

(01:10:08):
So when you say that the US is onwar footing and you connected that
to taxation, and then you saidlike, I understand government has
gotten more complex and all that.
I kind of think that's what it is.
I mean, social welfare costs a lot,
right?
Social security in the US costs a lot.
Europeans by the way, is percent ofGDP, their governments are even bigger,

(01:10:33):
so they tax even more.
So I'm not sure we would say thatthat's a war footing, but like two point
half percent, 3% spending on defense.
Like is that too much?

Yeah.
No, I, I agree you, you picked a hole ina very weak part of my, my argument there.
I knew that was weak going in.
But this is actually, there isa, a kernel in here though that
I want to push back against you.
And this actually goes back to thepoint you made in the last episode about
the big beautiful tax bill, which is,you know, CBO put out a revised, um,
a revised study of, of the estimates,and you've talked about how it was less
than maybe the market was expecting.

(01:11:04):
But if you look.
There's two things Iwant to bring up here.
The, the thing that made me thinkabout it is if you look at the spending
increases for defense and the borderover the next three years, you're
also, you're actually spending, you'regetting big increases on that side.
Increases bigger than the cuts onthings like Medicaid to the bottom side.
So you're actually cutting Medicaid,uh, but you're actually paying, paying

(01:11:26):
for increasing defense spending overthis, over this time horizon, which is
like exactly what I'm talking about.
That's a war footing.
Like add in the cost of the Afghanistanwar, add in the cost of the Iraq war,
add in the cost of all these things.
What if you had those trillions ofdollars just to pay down the deficit, let
alone fix the American education system,fixed, blah, blah, blah, blah, blah.
So that's 0.1.
The second point, and this I thoughtwas interesting 'cause you've talked
about how you know the market was readyfor worse with the big, beautiful bill.

(01:11:50):
Um, the, the spending in thisbill is front loaded to 2028.
The cuts only really kick in in 2030 whenMr. Trump is not going to be there, and
it actually increases the budget deficitby almost a percent every single year
going out to 2029 before it drops down.
So I think there's actually,president Trump is actually

(01:12:10):
telegraphing to you here.
I'm not gonna be here to dealwith this problem by 29 or 2030.
Somebody else is gonna have to passthe next bill, and maybe they won't.
To your point, maybe politics will changeby then, but I also think when you're
looking at like where that spending iscoming, that Trump is pushing all these
different things now, I think that itmakes sense to increase spending actually,
but not to increase defense spending anddecrease the spending on social things.

(01:12:33):
Like if you're actually going to protectthe United States of America protectionism
and the things you're gonna tear up, youhave to make the United States better, not
just like give some money to DOD and thencut the things that are gonna make, you
know, literally more people die anyway.
End.

You know, I think this debate was really useful, right?
Because when you debate, youkind of, it's like boiling down.
It's like distilling a pieceof liquor down to the highest
concentration of alcohol.
And basically what we've, I think narrowedit down to is this President Trump is

(01:13:14):
actually a devo pro-globalization guy.
Effectively, he's not going far enough.
But in order to go far enough,you have to convince yourself
that you are in war footing.
Because we both agree that once you are inwar footing, then you ramp up everything
and you cannot have some component in anF 22 that was manufactured in Vietnam.

(01:13:38):
Right?
That's, that's what we're saying.
But in order for that to happen,you have to convince yourself that
the war with China is imminent.
And that, and then I would, I wouldsay a couple of things on that.
Number one, a war with China willmost likely never be a total war.

(01:13:58):
They're very far away.
We have nuclear weapons.
This is a different worldthan we were in the forties.
So, you know, like,let's keep that in mind.
Number

two.
Or, or, or in the fifties.
Like we, we fought a war with China once,it's called the Korean War, but like,
that was really the first US China war.

Right.
But they didn't have nuclear weapons.

Correct.
They didn't, they didn'teven have an air force then.
And they fought us to a stalemate.
So imagine what happens now.

No, no.
But, but, but to the point that like,mutual assured destruction was not mm-hmm.
A constraint on the conflict.
Correct.
The, the other thing that I, that Iwould wanna point out is, the second
thing I would point out is that whenwe do have proxy wars, America is
more than capable of fighting it.
So Ukraine is a great example of this.

And

so I, uh,

Yemen, Yemen not a good example of this now.

Okay.
But like, you know.
God bless the Houthis.
They are a different breed,obviously, and you can't, you know,
they're just not gonna be defeated.
Um, but the point is, like if youwanna arm somebody, like yeah, us
has the cap capacity to do that.
Um, and I'm not sure that the US requiresto be on a war voting to do that.

(01:15:05):
But more fundamentally, the questionis, is that a solution to this problem
instead of changing the lifestyle ofhuman beings in America dramatically,
isn't the alternative to use boththreats sticks and carrots with
China to ensure that the spheres ofinfluence are clearly delineated?

(01:15:28):
Like that's what it's, and it'sactually what Hack said, you know,
like Secretary of State Hackett, whoI said I wasn't gonna le learn his
name because I called him Kendall.
Because I did not think he wasgonna get confirmed, but God
bless him, he did get confirmed.
And his speech at s Shangrila dialogue,which everybody says was extremely

(01:15:51):
aggressive, I mean on on many ways.
He was on the other hand, hewas saying to everybody there,
Hey, you guys need to step up.
Like, you know, and that's, and that'sa way in which China, those are the
sticks that can be used against Chinasticks that can be used against China
is making sure that Malaysia paysfor its own defense as an example.

(01:16:13):
And it doesn't require, but to your point,

like, like today, president Trump, we're recording on
June 5th, Thursday, June 5th, Trumpfinally got his phone call with Xi
Jinping and he's bending over backwardsto have more calls with Xi Jinping.
I bet you he doesn't give ashit what Hegseth is doing.
All President Trump wants to dois make a deal with Xi Jinping
and get back to business.
Like I don't think he.

(01:16:36):
No, I I'm not saying it's necessarilya problem, I'm just saying there's
a disconnect between like, hegsethis saying one thing, but the, I
don't think the White House is,I don't So is on the same page

think no, I, I disagree.
Don't think disagree.
No, I disagree.
I think the foundation ofpower is material wealth.
That's it.
That's it.
And not manufacturing and notglistening men with sweat.
No.
You know what?
You can just get Jacob and Marcointo a factory if shit hits the fan.
So, no, sorry guys, you know,who have duly on your trucks

(01:17:05):
and who desire some sort of aconfrontation with China every day?
No, it's material wealth.
That's what it is.
It's just, it's wealth.
You gotta be wealthy to be powerful.
So what that means is getting a dealwith China that allows American companies
to make a lot of money in China is thefoundation of material wealth and is not.

(01:17:27):
Incompatible with Hack said, tellingSoutheast Asian economies and countries
that are around China, Hey, you guys needto step up and you need to defend yourself
because the two things will both makethe US more capable of countering China.
Yes, trading with China absolutelyis necessary because look,
and this is something, thisis literally for Jason, right?

(01:17:50):
We started off talkingabout my hair guy, Jason.
The fundamental fact is thata Boeing aircraft is 1980s.
Technology, you know?
Mm-hmm.
Like 1990s maybe.
Selling that to China doesnothing to dent American security.
In fact, it enhances it.
The only way for Boeing to pivot tomaking innovative drones, because

(01:18:13):
it doesn't do that right now.
The only way for them to do thatis to invest in r and d. To do
that, you need to sell aircraft.
Selling a piece of 1980s technologyto China does nothing to hurt America.
It just makes money.
Then Boeing can take that money andhe can divert some of it into r and
d so he can build drones that one daymight be used against the Chinese.

(01:18:35):
Oh my God.
Look at that.
And that is what's necessary.
Um, so I actually think that making adeal with China by President Trump is
the appropriate, is the appropriateway to handle the Chinese threat.
Yeah,

yeah, yeah.
I just, if there isn't, I thinkthe horses, I think the horse
already bolted the barn door there.
Um, the, the thing that he says, Imean, you're right about what he said
at Shangrila, but before that he saidthat war with China was maybe imminent.
So he's, he's talking outtaboth sides of his mouth there.
Um, so, so, so there's that thing.
And then also you might have seenthat it sounds like China's about to
announce that they're gonna purchase,uh, all their aircraft, or at least

(01:19:08):
most of their future orders from Airbus.
Airbus No, for not going.
I predict that's gonna be partof a shift towards Europe.
Yes, you did.

I predicted that six months ago.
And I mean, like, no, no,but look, look, look, look.
That is the trade negotiations.
That is like, that's Chinanegotiating with America.
But you know what's interestingabout what they just said there?
They effectively committed thatthey're not going to imminently
try to reunify with Taiwan.

Yeah, of course not.
Well, yeah, you and I are the same here.
Next time we should do a debate.
Maybe next time I'll have to do thedevil's advocate for China's going to
invade Taiwan and then I'll really wantto take a bath after we do a podcast.

But No, but listen, but listen, like this is where everything
breaks down though, because I think ourdebate boiled down the case for onerous
tariffs to reshore everything to America.
Right?
Be because those will not raiseany revenue if you put a 50%
tariff and then that good cannot beimported 'cause it's too expensive,
you're not gonna raise money.
Right?

(01:20:05):
People understand this concept.
So the only case fortariffs is war footing.
But war footing requiresChina to be mean and evil.
If China is pivoting away from USaircraft to European aircraft, then
China is not about to invade anyonebecause they would attacking Taiwan

(01:20:27):
would usher in a bipolar world wherethe world would be divided to sphere, to
spheres where they just can't compete.
And usually people will say, yet, youknow, they, China can't compete yet.
I don't think that China in thenext 20 years can compete against
the United West because they haveno real allies other than, you
know, maybe Russia and maybe Iran.

(01:20:49):
Like, that's just not enough.
And so everything breaks apart, likethe, the deglobalization argument
breaks apart because China is justnot an imminent threat to anybody.

And it, it breaks down even more because if what you want is
to have nicer things and for life tocontinue to become more comfortable.
You also need China.
If you want to buy your kidas many gifts as possible.
If your daughter has an ear infection andyou need children's ibuprofen for like,
you start going down the list of thingsthat you need China for and the things
that would no longer be on the shelves.
If you didn't have trade withChina, like to your point, it

(01:21:25):
would be really, really bad.
So if you want, like that's sort of,I think what China's big strength is.
Like maybe they don't have the materialwealth that you're talking about, but
I think what they can have, and thisis what Belt and Road really is, is
hey, uh, have good relations with us.
Say Taiwan is not a country.
We'll build you a port or we'll buildyou some highways or we'll build
some factories inside of Indonesia.
Okay, we'll agree to your terms,whatever else, we will make things better

(01:21:47):
for you and make things really nice.
Whereas the United Statesis not doing that anymore.
The United States isturning away from that path.
Yeah.
So I think like that's theinherent, it's weird to think that
China is now doing that becausethat used to be the US playbook.

The US is doing that.
It's building highwayson a, on a different way.
I guess you could argue that the ai,you know, uh, cloud infrastructure and
so on would be the equivalent of thatjust in a, in a digital tech space.
But

yeah, but the Chinese are better at all that stuff.
Like Huawe is, uh, like for the telecoms5G networks, all that stuff, China's
already care like they won then.
Uh, that,

that was, that was something six years ago.
And by the way, that's actually great.
I haven't heard anyone mention Huawei5G in like three years because, you
know, one of the things we reallyneed to stop doing is listening to
anyone who has like two stars on theirshoulder when it comes to technology.
Well, yeah, that's true because I can'ttell you how many times Jacob, I had
somebody come to my office, um, former,general, or some such nonsense, and tell

(01:22:50):
me how Chinese lead in 5G technologywas going to end humanity as we know it.
And yet here we are in 2025.
It doesn't matter.
You know why?
'cause there's like six G coming.

Well, no, but the thing is, here we are, uh,
like that was always stupid.
But here we are in 2025, Huawei isnot dead despite the first Trump
administration's attempts to kill it.
And despite us companies saying,oh, we're gonna start building the
switches and the things that goinside the towers that actually make,
'cause we, all of that comes fromChina, South Korea, Taiwan, and Japan.
Like, that's, those are theones that, those are eSuite.

(01:23:21):
Yeah.
But yeah, but they get input some parks.
But yes, Nokia and Ericsson alsohave a, a sort of toehold here.
But like, you know, in, in 20 18,20 19, the Trump administration was
talking about working with Americancompanies to build that supply
chain inside the United States.
As far as I know, and if anylisteners or experts in telecoms,
feel free to correct me.
As far as I know, we, it's still zero.
We still import the switches and theantennae and all that other crap from

(01:23:44):
South Korea, or which, which just had areally consequential election from Taiwan,
from China, from all these other places.

Well, and that's fine.
Again, like.

It's, it's fine.
It's fine to your point.
As long as, as long as everybody'sfriends and as long as she and,
and Trump are having chocolatecake, then, then it's good.

But this is how the world is different from 20,
from 1945 in a way, or, or 1840.
There is more integrationof a lot of this stuff.
It's, it's gotten really deep.
Uh, but my point is different twofold.
First of all, the Huawei survival ofHuawei is a company that innovates
and now builds cars and stuff.
Is a great example of what happenswhen you use Productionism.

(01:24:22):
It doesn't work, especially, Imean, you, it it works against the
country that hasn't industrialized.
Like if you put tariffs onEthiopia, like that would suck.
It would be mean, youknow, but it would work.

Yeah.
Or even Mexico,

or maybe even Mexico.
Yes.
Like Mexico is not, if US decided

to tariff Mexico like very, very bad.

But if you did it to South Korea would be bad for

me too.

Korea, if you did it to South Korea, it would be
the best thing that ever happenedto South Korea and it's history.

Yes.

Right.
And that's, and that's the, the issue.
And that was what Nvidia.
CEO is saying like, Hey, we needto ensure that there is monopoly
of American chip infrastructure.
That's his point.
Now, obviously he's the CEO of Nvidia.
He is biased.
He wants to sell chips China.
I get that.
But he's not wrong.
He's not wrong because these, likeyou are taring a country that can use

(01:25:11):
necessity as a tool of innovation.
The second point that the Huawei5G nonsense shows is that our
government officials who canbarely reissue me a passport on a
acceptable timeline, don't know what'scoming on the technological side.
Okay, let's, you know as somebodywho works for the Pentagon, you

(01:25:34):
know, who makes like as muchan an analyst on Wall Street?
Okay, no offense guys,sorry, but like, you suck.
You don't know what's comingon the, you don't fuck.
Like, no way.
I can't tell you, Jacob, how many.
Generals I had to listen to in myline of work who are telling me
how important 5G infrastructure is.

(01:25:54):
Get outta here, please.
Like, relax.
You know, we're gonna survivesomehow magically with
Huawei, I guess, spying on us.
No, you don't know what's coming.
No.
You don't know what's coming.
And often you are absolutely wrong.
And so you obsess about this nonsense.
And then what comes out thatnobody saw was like, oh, drone
technology really matters.
Like, oh, thanks.

(01:26:15):
You know, US produces, I thinkit's called MQ nine Reaper.
It's $30 million.
$30 million.
You know what the mostadvanced drone today is?
What?
It's a Russian drone that's conremote controlled with a fiber
optic cable tethered to it.

(01:26:38):
It's like those cars we used tohave, you know when mom bought
you remote controlled cars?
Yeah, of course.
Yeah.
But she didn't spend enough moneyon the really cool ones that
actually had remote control.
She bought you the one with a line.
The most advanced drone todaydoesn't even use radio signals.
It uses a tether so they canavoid jamming technology, you
know, and it doesn't use ai.

(01:26:59):
I relax with the AI thing.
Like the problem withai, it's a great example.
It's gonna be the next 5G, Huawei, it'sgonna be the next where we're gonna like
be like, this wasn't that important.
Why?
Because the elegance of your LLMmodel is not going to determine.
Whether your swarm of dronesknows how to be automated.
In other words, there's gonnabe some baseline level of AI

(01:27:22):
capability that will be sufficientand that everybody already has.

Yeah, I, I don't want, don't throw the baby
out with the Huawei water.
'cause there's just one thing I wanna say.
'cause we alluded to thisa little bit earlier.
You're right.
The people who, and generals likeBritish Intelligence HQ is putting
out huge reports about this.
This notion that the Chinese were gonnabe able to spy on us and destroy all the
ships and all the infra like nonsense.
But we talked about it earlier when wetalked about in China, manufacturing

(01:27:47):
workers are reportedly losing jobsbecause they're being replaced by robots.
That can only happen because theyhave good 5G infrastructure, because
you need the low latency, high speedsof those types of networks on the
factory floor and things like that.
In order to do.
Like you could buy from Ericsson,but I'm saying there's a difference
between Chinese factories are alreadydoing that and adopting it in mass and

(01:28:08):
thinking about the next generation.
Whereas US factories, and maybe wego back to Tim and ask him this, my
impression of seeing US factories oreven factories in Mexico and things like
that is, we're not even close to that.
We're still debating about whetherwe should do some of those things.
No, no.
So there is like a kernel ofimportance in the adoption of some
of these things and productivity.

China has installed the most robots in the world.
Yes, that is a fact.
However, you need

Huawei 5G to do that.

But Japan and Germany are also global
leaders in industrial robotics.
So the West is fine.
And, and,

and

there's, if

Germany and Japan will share with us, uh, chancellor Mer says
that he can't trust the United Statesanymore, and Japan was the one that gave
the middle finger after liberation day.
So again, things I wouldn'ttake for granted based on,

they'll sell a robot to, to the look.
Look, all I'm saying, all I'm sayingis that, uh, I think that this
is just, every single time Chinainnovates something, it's like, oh
my God, they're gonna defeat us and.
Eh, you know, like it's okay.
Like look, lemme do this.
They're innovating.
I, I think, I think the case here is that,um, it comes down to threat perception.

(01:29:13):
You know, and I once had a two stargeneral tell me that China's lead in
payment systems was cider coming for us.
And I was like, really?
Bro?
FinTech his national security, relax.
I mean, number one, yes, weshould probably not use physical
checks in this country anymore'cause that's kind of medieval.
But no, the fact that they use QFR codesto pay for everything, like, I don't know.

(01:29:37):
I sleep well at night because of that.
Call me naive.
And that, and it, and this comesdown to a very simple point.
Very simple point.
It really comes down tothreat perception of China.
Everything really comes down to that.
To what extent do you think China'sgonna knock on the door in your
country, in your home, in yourOrleans or Kansas or wherever you are?

(01:30:00):
Force you to teach your kids Mandarin.
And I think that that is as far froma, a potential future as anything.
'cause we have nuclear weaponsand no one's going to fight
the great Power War with those.
So

as I've joked many times, and I hope the Chinese Communist
Party is gonna listen at some point,uh, not only am I not afraid of that,
I would welcome them and please buildus some ports and some other nice
infrastructure down here in the south.
'cause we desperately need itbecause nobody in the United
States is building this shit.
Anyway, um, we have 20 minutes leftMarco, and I think this is actually a
good segue to something that we shouldtalk about before we get outta here,
which we've danced around it in sort ofeverything we've talked about here today.

(01:30:40):
But I think we should talk aboutOperation Spiderweb for 10, 15 minutes
and give it, let's give it its own do.
Um, unless you've beenliving under a rock.
Um, so over last weekend, again recordinghere, June 5th, um, Ukraine conducted.
Uh, what it called, operation Spider'sWeb, a drone attack on at least
five different air bases all overRussia from Siberia or, you know,

(01:31:02):
that far away towards the Pacificside, all the way to around Moscow.
Um, the details are of course,a little bit shady, but it looks
like over a hundred drones.
And to your point, these dronescosting about $600 a pop.
Uh, basically taking out, and thisis where the, the numbers are a
little bit, um, a little bit shady,but let's say taking out one third
of Russia's strategic bomber fleet.

(01:31:23):
Just by using drones, uh, to bomb Russianair bases some of these bombers that
were, you know, uh, running bombs againstUkraine, uh, and engaging in long range
strikes in Ukraine against Ukrainianinfrastructure and things like that.
Um, Ukraine has made areally big deal of it.
Uh, president Zelensky said it took18 months to plan the operation.
He's, uh, he's today given out medals andawards to the guys who were behind it.

(01:31:44):
Um, but for me, I, I sort of.
Sat up in my chair because now it's, thisis not the first example we have of this.
I, I thought, I mean, I'm not the firstto make this connection, but there's
Israel's assault on Hezbollah withthe pagers, hijacking, international
supply chains, putting explosivesinto those pagers, sending them
to the people you wanna blow up.
Um, the Houthis, who, despitePresident Trump's best efforts, are

(01:32:05):
just sitting there continuing tobomb whatever the heck they want
because the US Navy and Air Force withall of its capability can't bring.
A bunch of like non-state Yemenimilitants chewing cot in the
middle of the desert to heal.
Like kind of remarkable.
But here you have Ukraine,which has been on the ropes.
Things have not been looking good.
Russia's gonna out grind them andout suffer them and slowly take

(01:32:26):
land in the east and then make,you know, some kind of frozen peace
agreement based on whatever they want.
Here's Ukraine striking backand saying, okay, Russia like.
For the price of $600 times, roughlya hundred, we're gonna wipe out a
third of your strategic bombers.
You wanna keep dancing or doyou wanna meet us in Istanbul?
Um, it, to me, it like opens up a questionabout rethinking the balance of power

(01:32:47):
from a military perspective in the world.
Is this bad news for conventionalpowers like the United States and China
versus good news for smaller powers?
If you want to get real dystopian,what happens when Mexican drug cartels
and other non-state actors are ableto use drones in this particular way?
And then you've got, you know, let's,let's use Mexico as an example.
Let's say if.
You know, the Mexican governmenttrying to bring the cartels to heal,

(01:33:09):
and the cartels are like, uh, whatif we bomb the Mexican Air Force?
Or what if we take out all of yourconventional military capability?
You want to keep messing with usin the things that we're doing.
Like we can do this allday with these drones.
So I, for me, it was like, I needto really like rethink the military
balance of power in the world.
Uh, am I overstating it?
Did you have a similar thought or areyou a little more, uh, tell me I'm sensa

(01:33:30):
sensationalist is what I'm hoping you'regonna tell me rather than that I'm Right.

Um,
I mean, we can get verydystopian about this, right?
Um, so as I said earlier, youknow, like this, uh, fiber optic
cable tethered to a drone, itallows the drone to avoid jamming.
So Russians have basically, and thesedrones are now completely crushing it.
Uh, I'm gonna send you a couple of links.

(01:33:55):
Jacob, if, in case youwanna put 'em in the links,

please

if we can do that.
There's one, it's a 50 minute interviewwith an entrepreneur in Russia.
Who is producing Russian drones.
Uh, and it's fascinating.
He's very objective.
He gives Ukrainians lots of props.
He works for the Russian state.
I mean, the Russian state is his customer,but he is, uh, is uh, is a very kind of

(01:34:21):
objective, matter of fact kind of dude.
Uh, he describes different dronesand, and he takes a lot of pleasure
in making fun of American drones.
I thought that was really hilarious.
Um, but he says Ukrainians areactually better than Russian.
So that was interesting.
Mm-hmm.
And then I'll send, uh, also a YouTubelink on those fiber optic drones and,
and shows their lethal lethality.

(01:34:42):
Um, I think that we are at a thresholdof potential over the next 30 years where
all of this technology could very well
undermine the very sinus thathold nation states together.
The reason, you know, earlier in thispodcast you talked about how we're

(01:35:06):
still on war footing because we havetaxation, which is, which is like,
which is a stretch, but like, meh.
Not that, you know, um, thefamous sociologist, Charles Tilley
famously said that war makesstates and states make war.

Hmm.

In other words, we have nation states because of war.
Like if we didn't, maybe we would alljust live in like cantons or parishes,
is that what we call them in Louisiana?

It is.
Yeah.
Very

good.
Right.
Maybe, maybe that will be enough.
And so one of the reasons that stateshave to tax you, like, not like the main
reason, but like one of them, the reasonwe do it at that level, at a super high,
large level, continental size level inAmerica's case is not because providing

(01:36:04):
education and healthcare makes senseat a federal level of a continent.
But because defending your, you atyour, in your house from the threats
does make sense at a continent level.
Like size matters.
But what's happening with technologyis that size doesn't and scale may not
matter, you know, and the fact thatthe Ukrainians put a bunch of cheap

(01:36:28):
drones into a truck, drove them acrossthe border all the way to East Asia,
a, according to news reports,they attacked a military
base of Russia in East Asia.
Closer to Tokyo than it is to Kiev.
So the fact that they're able to dothis undermines the very TA taxes

(01:36:50):
we pay so that our country producesaircraft carriers to like defend us.
Because they can't.
Because you're right.
It's not just, I mean, it's not justthe conflict with like the cartels.
It's really everything.
Drones are getting very cheap, very good.
You can't jam them.
An operator can use a fiber optic.

(01:37:11):
These things, the cables look likea string of hair and the camera at
the end of that drone has 4K HD.
Jacob.
You can go on YouTube and watchvideos that are really grizzly
because you see a lot of detail.
Mm-hmm.
Before they kill someone.
So you can have a very small drone that'soperated with a string of hair line,

(01:37:32):
you know, holding it 60 kilometer range.
Crazy stuff.
It's a lot a line.
But the point is, uh, yeah, Imean this undermines the very
notion that governments can'tprovide a level of security.
And so what does it mean for warfare?
It means that all this nonsense therewe're gonna need steel and glistening

(01:37:55):
sweat of manly men banging hammers toproduce tanks and howitzers ammunitions,
you know, like, eh, I'm not sure that'swhere the wars are going in the future.
And the fact is, America providedUkraine with Javelins, which were pretty
cheap themselves, that arrested thatinitial military mechanized attack.

(01:38:20):
But since then, it's kind of beenup to Ukrainians themselves and
their, their ability to innovate.
Now, patriot missiles are also important.
Obviously that's where America hashelped immensely, uh, in allowing
Ukraine to defend its airspace.
But my point is that.
You're gonna need some anti-aircraftweapon systems, you're gonna need

(01:38:41):
some satellite command and control.
That's where starlink comes in.
Mm-hmm.
You can't use these drones without that.
But then like, not even, you can even flythese drones tethered with a fiber optic
cable and you're gonna get smaller andthey're gonna get more and more lethal.
And if you wanna assassinatesomebody, it's gonna be like
that little probe in, in dune

(01:39:03):
that our hero Charlemagne had to fight.
Right.
Um, so like, I think, I think it'svery interesting what's happening.
It's, it's basically war is gettingless technologically sophisticated in
some ways, and I find that fascinating.
I find it fascinating that wealways think that everything is
gonna get super, super advanced.

(01:39:25):
And if you allow me tocook on just one point.
Yeah.
When I was a kid, I liked computer games.
In the nineties.
Right.
And I, I imagine I would often sitthere and imagine, oh my God, I can't
wait for 2025 when I'm in my forties.
I bet the graphics and thecomputers like, I'll be able to
play Madden like as a quarterback,like, you know, inside the game.

(01:39:46):
Yeah.
And instead, computer gameshave actually gone the other
way because of the, the phone.
Mm-hmm.
So when I see what my children are playinggraphics of Roblox is absolutely terrible.
And many, many games that have beenvery successful, like Angry Birds are
being like, they're just like Prince ofPersia from the nineties for God's sakes.

(01:40:06):
And so I think we're all sitting hereand we're thinking we're gonna need
AI robots to fight these huge wars,and they're gonna be devastating.
And Russians have turned the tide ofthe war because they connected the
drone with a cable to a remote control.

Ukraine?

No, no.
Russians.
Russians.
Russians.
Uh, so, so.
The Russians are making gains inUkraine because of this tethered drone.
So that was a, that was actuallyvery, oh, I see what you're saying.
Sorry.
Sorry.
But your point, your point is youto be, to go back to your point,
he also put $600 drones in a truckand drove it and released them.
You know, like, this isn't like, andthen, and you know, the media, the

(01:40:47):
journalists obsessed about, apparentlysome of them had AI in like capabilities.
'cause they, once they lost control,they knew what an aircraft looked like,
and then they autonomously went to it.
Like, gimme a break.
Like, relax again.
No, this wasn't an AI attack.
You're gonna, you're gonna need some lowlevel baseline coding to make that happen.

(01:41:08):
The future of warfare is not gonnabe who has the most elegant ai.
It's just not the future of war mayvery well be that you can't have a war.

Maybe I'm, I'm reminded of, um, you know, the
Civil War, the u the American CivilWar is like my nerdy obsession.
And, um, of course, like I've, Ican't count the number of times I've
watched Ken Burns, uh, documentarymostly so I could watch Shelby Foote
pontificate about, uh, the Civil War.
But, um, one of the reasons the casualtyfigures in US Civil War battles was,
were so high, um, was because in thewords of Shelby Foot, the tactics

(01:41:39):
had not caught up with the weapons.
I think we're in that situation rightnow, like the tactics are just beginning
to sort of, uh, reach what, oh, wehave these weapons, we can do what with
this technology against these targets.
Um, and I think it's fascinating towatch Russia and Ukraine, 'cause it's
literally a laboratory in real time, toyour point about what war is probably
going to look like in the future.

(01:42:00):
And it doesn't look like World War iii.
And you know, ironically, like in theexample I just gave, like actually
casualty numbers were higher becausethe weapons were so deadly and the
tactics were just marched towardseach other and shoot at each other.
So you had like.
Tens of thousands of people dyingin battles that didn't need to.
To your point, if you have thesereally, really precise things, like,
I mean like, let's say we're 10years in the future, you have some

(01:42:21):
of these really precise drones.
Like, can you just assassinatePutin before things even get going?
And like, and this like, I mean,that's the sort of world that it seems
like we're heading towards, and maybethey'll be some kind of counterbalance
or antione defense technology.
I don't know.
But like, um, yeah, it's, it's changingthe way I think about like military,
you know, back to our geopoliticalpower index, like we might have to
revisit the whole index just because weneed to rethink like what conventional

(01:42:44):
military power means on that scale.

Well, I mean, watch that you, uh, YouTube clip of the scene where the
hunter seeker tries to kill prad in Dune.
Mm-hmm.
By the way, dune is fascinating.
You know, um, I read the bookswhen I was a kid and everything.
No, we, I mean, we can, we can go offanother, uh, 30 minutes on this, but.
The whole point.
Well, Margo, I,

I don't know if you know this, I'll, I'll put
this in the show notes too.
Back when I was still with George atGPF, uh, once a year, I commandeered the
website to do April Fools, uh, pieces.
And there is on the internet, I'll,I'll, we'll put it in the show notes.
There's a 15 page geopolitics ofDune from yours, truly that it
was released on April Fools 2019.
It's great.
I had our graphics team create likereally intense geographic maps of

(01:43:25):
Calahan and Arki and of, um, haruh, where are the harken's from?
Uh, GS Prime?
No, uh, it, it's giddy Prime.
Yeah.
Anyway, sorry.
Gi Yeah, go ahead.

Uh, okay, so, uh, no, I was just gonna say, uh, I mean
the whole premise of that, uh, showis that all these great houses have
nuclear weapons, but they choosenot to use them because obviously
it's mutual for assure destruction.
But technology has gottenso advanced in warfare.
They have to use basicallycombat, like hand to hand combat.
Yeah.
And I think that, um, you know, I,I do think that there's potential.

(01:43:59):
For war to become so precise, as yousay, where you can basically use a
hunter seeker drone to take out a leader.
That's number one.
And number two, I think that providinglarge mechanized military platforms like
nuclear submarines, aircraft carriers,tanks, aircraft becomes less relevant.

(01:44:23):
And if it becomes less relevant,
states become less relevant.
But that's like a 30, 50 year.
I mean, that will requirea whole podcast for itself.
I just do think that since IndustrialRevolution, revolution was created since
Industrial Revolution, everything'sbeen about scale, Jacob, everything,
and by, by everything, I don't meanjust like producing industrial goods for

(01:44:47):
war, but also producing educated humanbeings that can follow order in a war.
Mm-hmm.
They can work in a factory likemass Education, healthcare.
Everything's been aboutthe median outcome.
Median outcome.
Let's educate humanbeings in a median way.
So if you're extremelytalented, who cares?

(01:45:09):
Like you're just gonna geteducated at a certain level.
Nothing is customized to you.
Oh, you have a headache, Jacob?
That's cool.
Take an aspirin.
Oh, by the way, if Marco has aheadache, he should take an aspirin too.
It's a median outcome in most results.
Most people fall into this median curve.
That's what, that's the world we created.
Since there's no customization, right?

(01:45:30):
There's no art there.
There's no artisan like guilds producingthings to your custom specifications.
And I think that the world we're cominginto with drones, with ai, with machine,
with 3D, 3D, printing with, with newsources of energy, you know, wow.
Put some solar panels on your roof.
You don't need the medianprovider of, of energy.

(01:45:52):
I think that where we're headedis a much different world,
and in that different world.
The number one outdated technologythat we may need to discard is actually
the nation state, which is interestingbecause I'm not a libertarian,
let me tell you this right now.
But that is where this is headed.
Like po potentially all thesetechnologies make it less likely that

(01:46:17):
you need to tax and collect resourcesat a continental level to have these
continental wars against one another.

It all comes back to looking like the 1890s.
Uh, we could go on forever, butone of those clients that we were
talking about in the first 10minutes, uh, gets to see me in my
flamingo shirt in three minutes time.
So I think we will leave it there,uh, and leave it to next week.
Uh, dude, this was so good.
We're getting better.

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