The Economic Fallout from Trump’s China Tariffs | Shehzad Qazi
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What's up, everybody? My name is Demetri Grafinis, and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Chief Operating Officer at research firm China Beige Book, Shehzad Qazi.

Shehzad was last on the podcast more than two years ago to discuss the post-COVID reopening of the Chinese economy. I asked him back on the podcast today to discuss the preliminary impact Trump's tariffs have had on US and Chinese businesses and on their respective economies, stock markets, and currencies.

We also discuss whether the action plan to revitalize consumption that was recently announced by the Chinese State Council and CPC Central Committee represents a more determined effort by Beijing to ignite a flywheel of endogenous demand for Chinese output should the country's export sector become priced out of critical markets in the U.S. and Europe.

I also asked Shahzad about Trump's stated desire to do a deal with China, what such a deal would look like, how big it could be, and what concessions either side is prepared to make in order to get it done.

If you want access to all of our premium content, or you want to learn more about the Hidden Forces Genius Community and how to attend one of our many virtual Q&As, in-person events, and dinners, you can do that at hiddenforces.io slash subscribe. And if you still have questions, feel free to send an email to info at hiddenforces.io, and I or someone from our team will get right back to you.

And with that, please enjoy this timely and informative conversation with my guest, Shehzad Qazi.

Shehzad Qazi, welcome back to Hidden Forces. Hey, thanks for having me back on, Demetri. It's great having you. How long ago were you on the podcast? It was like three years ago? Something like that. I think about three years ago. Right. And you were at one of our New York dinners a couple of years ago too. Yeah, exactly. We actually just did one recently in Washington DC and the focus there was on the Trump administration's China policy to the extent that there is one. It's not entirely clear.

Rush Doshi was there. John Pelso, who you remember from the dinner that you were at, was there too. That was a very interesting conversation.

I feel like, and tell me if this is right, and then we'll get into a series of questions about the economy. It doesn't seem like we have heard as much of a coherent policy articulated for the public on China from this administration as I would have expected us to based on how important China was and how big it factored into the Trump administration's first term.

Do you generally agree with that? And if that's the case, why do you think that is? Is it just in your estimation because they haven't communicated that publicly, but there is a larger strategy internally? What do we know there? How would you answer that question?

Yeah, there isn't necessarily a full-blown strategy that has at least been unveiled publicly. And I don't believe that there really exists one behind closed doors either. Instead, what the administration has come out with this time around is something different. They've got a global goal. They've got a goal of structurally changing America's trading relationships.

with the world writ large. That by and large includes changing America's trading relationships with China. And so a series of goals are being pursued. And we've heard about things like there may be more investment restrictions,

We've heard about things like there might be more export controls. But what we haven't seen is sort of a comprehensive plan that says, look, these are our top three or top five things we're going to accomplish vis-a-vis China. And this is how it's being done as part of this global effort of rewiring US trade. Yeah. So let me ask you this question, which is, what do we know about what the material impact has been so far on the ground

in China from the tariffs, and also, I think more importantly, from the rhetoric that's coming out of the Trump administration? Yeah. So I think as soon as the election took place in the US, it was pretty clear on the Chinese side that there's going to be a round two of a US-China trade war. And funny enough, I think it was Wall Street that certainly did not expect

despite over the several weeks and months once the administration took control, that there absolutely was going to be a global trade war of sorts, certainly global tariffs. But I think in China, they certainly understood that. At the same time, they believed thus far, and they continue to believe that there eventually will also be some kind of US-China deal. That said, on the economic front, the first impact was actually...

positive in the sense that there was a lot of front-loading, companies buying a lot of materials in advance of tariffs coming, and a lot of inventory buildup taking place out here in the U.S. So the economic impact was positive because manufacturing looked good, exports looked strong. But where we are today on the ground, as China Beige Book's real-time data showed us, a lot of that front-loading effect and the boost to exports was positive.

certainly present in the first couple of months of the year, certainly there at the end of 2024, but has now expired. So into March, we saw our export orders indices slide, we saw manufacturing beginning to slow down, factory production began to slow down. So the economic impact that pulling forward of growth that took place, that trend has faded. And now we're, I think, on track to look at what is most likely going to be a sequential slowdown in the Chinese manufacturing sector.

All right. So I'm going to have more questions to ask about that, about the impact on China's economy. I still would love to get some clarity because I feel like I'm in the majority of the cohort of people who don't really exactly know what is being tariffed, how much it's being tariffed, which tariffs are for negotiations, which aren't, what's on today that was off yesterday, or that's what's off today that was on yesterday. Where are we today? We're recording this on Wednesday, April 16th.

What exactly do we know about what has been tariffed? And from those things, what do you think is going to remain on at these levels or close to these levels?

Yeah, I mean, this is a pretty fluid situation for sure. And there has been such a rapid ratcheting up or escalation of tariffs that it's become almost dizzying for markets. And we saw markets, you know, what happens when you get really dizzy, sometimes you puke. And that's what happened last week in the bond market and certainly has been happening with equities lately. So the simple way to put it right now, I think vis-a-vis China, at least, is that you have the top line tariffs at 145% on China right now.

Now you have any products that contain chips or semiconductors that have been moved out of that top 145% rate. And instead, the 20% initial fentanyl tariffs that have gone into effect in February, those still apply to the consumer electronics and those products like your iPhones, computers, and such.

And that basket of goods is going to be most likely hit under the upcoming sectoral tariffs, which are going to be announced once the U.S. trade representative finishes his investigation, where they're looking, it's called a Section 232. Basically, it's saying that, look, there are national security concerns around a foreign country's trade practices or violation of trade laws and trade agreements.

And so as a result, they're off. We have to punish them by putting tariffs on. We don't know what that tariff amount is going to look like. We also currently don't necessarily have clarity on how quickly that investigation can be done. Typically, those investigations take about 270 days.

I do not anticipate that the U.S. trade representative will be taking that long of a time. But at the same time, we don't know how soon and what that number is going to look like. So over the weekend, you heard a lot of things being referred to as exemptions. They're not technically exemptions as much as they are just moving them from one tariff basket to another with the expectation of more higher tariffs on those goods coming. Let me make one other point. As I said that everything else is under the 145%.

So how do you think about that in terms of whether they're going to stay or not stay? Look, at the end of the day, we don't know. We're dealing with an administration where President Trump is certainly the decision maker here. I think everybody finally understands that. And so that means things can change and change very, very quickly without much forewarning. Pulling back, one could expect that, look, tariff levels on most products will most likely not stay at these high levels. But we're certainly not going back. I think one thing we can all probably backtrack

bet our money on today safely. Is that status quo anti? As in, where was the US-China trading relationships vis-a-vis tariff numbers on February 1st or January 31st, or even the day the president got inaugurated? Are we going back to that? I can say fairly confidently, no. So a few more pointed questions on tariffs. Let's just talk about auto tariffs here for a second, because this is also a low margin business.

And there's a lot of uncertainty as well here. I know a lot of folks are looking to maybe try to order a car or get a car early and ahead of the tariffs being imposed.

put back on because I think there was some kind of pause on these tariffs as well. Maybe I'm mistaken. So can you just walk me through exactly what's going on here? Because a lot of these brands that are also foreign brands, they have some that have domestic manufacturing like BMW, but they don't manufacture all their cars domestically. So there's so much confusion here. What do we know about auto tariffs?

Yeah. So if my understanding of this is correct, essentially the auto tariffs rule has been amended or the way this was written out in the proclamation and then subsequently in other documents has been amended to say that if a certain amount of U.S. content is included in an automobile, you would deduct that when determining the tariff order.

on the rest of the auto parts. So this is where tariffs start to get incredibly confusing and incredibly technical. And so they are not necessarily being hit with one singular number, because again, the idea is that we don't want to punish. As a matter of fact, we want to encourage more production being done within the United States. So you make sure that you're not then penalizing car companies when they do have a certain amount of United States product in there. So the rule of origin,

laws as they exist. Everything is now being talked about. The conversations are getting more technical. And I think markets and the professional investors are certainly having a hard time. And I can imagine why a lot of people who are trying to keep on top of this would be having a tough time. This is complicated stuff that normally trade lawyers in stiff suits in DC...

talk about. And then we don't typically talk about these things on social media and in the press. Yeah. I feel like I probably need to bring on a trade expert to walk me through some of this stuff because it clearly isn't just based on where the product is assembled or manufactured in the final stage. It's about the entire supply chain. And it sounds like it, at least. It sounds like every part that is manufactured outside the United States gets tariffed.

And if that's indeed the case, one has to ask him or herself, what's the goal here? Is the goal here to bring the entire manufacturing chain back to the United States, or are we eventually going to get a more targeted set of tariffs that looks to onshore certain parts of certain supply chains? I mean, that to me is the important clarity that I'm looking for at least. So let's shift now to talk a little bit about the Chinese consumer. So I've seen reports that

China's consumers have increased their consumption of domestic brands over foreign ones amidst the recent trade war. I've also seen a lot of these TikTok videos of different people running wholesalers out of China that are producing, let's say, Fendi bags at a fraction of the cost that it's being sold to a

American consumers, European consumers. I'm not entirely clear what's happening there, if this is being promoted to distributors in the US, directly to consumers, to domestic consumers in China. I'm curious to understand about that too. And I'm also curious to understand how much of this reported move by Chinese consumers to domestic consumption of Chinese brands, I've seen some talk about an accelerated shift away from US consumption. How much of that move was already in the making?

And how meaningful is it on the margin, at the very least, to possibly kind of offset some of the demand crush for Chinese production from lost overseas markets? So there's two questions. So sorry about that. Why don't you just take the last one first, and then we can re-ask you the first one.

Sure. So let me maybe sketch out something from first starting from the macro point for our audiences. The first thing to understand is that Chinese consumer spending has been incredibly lackluster in the aftermath of COVID and more specifically COVID lockdowns.

The two years that you had a zero COVID policy in China were absolutely, were incredibly destructive, as you can imagine, because you're looking at firms shutting down, you're looking at incredibly sluggish economic growth, you are looking at people losing jobs,

There are livelihoods, you're looking at young graduates not being able to find jobs, you're looking at most fundamentally a lot of economic uncertainty. In the midst of all that, you also got a very severe and very serious property market crisis, which was of course by and large engineered by

by the Chinese authorities, by the CCP, by President Xi as a way to begin and as a way to maybe more proactively address the property bubble, to prick the bubble, to let the air out and to deal with that situation or problem before it turned into a actual very serious crisis. But the result of that was a lot of wealth destruction took place in China as well, which of course subsequently also resulted in consumers becoming incredibly cautious.

So this is the background for the last five years, really, that matters. Nothing before that makes too much of a difference anymore. Now, where we are in real-time numbers, if you will, is that Chinese consumer spending has slowly but surely gotten...

better if you look at year over year comparisons, right? So if you looked at consumer spending around the Lunar New Year holiday this year in our data, you would see that it certainly looked better than a year ago levels and it was on par with pre-COVID levels as a matter of fact. Other indicators would show that it was like airline bookings perhaps were even better than 2019.

So consumers are out there. They are spending some money now that previously they were not. But at the same time, they're still very defensive. They're not going to continue to spend outside of instances, holidays, and very specific periods where more consumption typically takes place anyway. What that means, by the way, is that they are also looking for... Being competitive on a pricing level is very important, but they're also not going to be supporting, I think, a lot of these expensive foreign brands when they have...

have very good local alternatives. So for foreign companies, this is a challenge anyway, because they were looking at it as it is, they were looking at a slowing consumer market in China. Then they were looking at a potential crisis in the consumer part of the economy and the consumption side of the economy. And then they have a range of local companies that they need to increasingly compete with. So that story, that pain point has been around for a few years now for foreign companies.

That leads me to your second question and the second point, which is this new idea I've seen around being floated around and argued that

Well, if China loses the U.S. market, it'll be able to make up for it by not only selling to other countries, but also through domestic consumption. And now this could not be farther from the truth that, you know, both couldn't be farther from the truth, but the domestic consumption side is even more fantastical because the reality is, as I just described, consumer spending has been by and large, just not at a level where they could support everything that China produces. And more importantly, the government has not done

done anything meaningful on the consumer side, on the household side vis-a-vis providing stimulus that would actually help spur consumer spending and do so in a way that was sustainable. They have done trade-in programs and goods trade-in programs and such and provided subsidies for a very short time that has provided a short-term, very limited boost

to the economy, to things like retail sales. But this is not the stuff that is going to change the consumer spending patterns in any kind of meaningful way. So no, if the US market is lost, that is going to create, that is a very big, very serious headwind for the Chinese economy that carries very serious repercussions for the Chinese economy.

So last month, China's State Council and the CPC Central Committee issued an action plan to revitalize consumption to boost domestic demand. The action plan focuses on increasing incomes, improvising consumption capacity, upgrading service quality, and optimizing the consumption environment.

How important is this plan? This got a lot of attention in my world because the argument has been made for years now that the Chinese government would ultimately have to restructure the incentives and the regulations in its economy, boost safety nets, et cetera, in order to find a way to boost domestic consumption in order to get this flywheel happening and so that the producers weren't so dependent on external markets for economic growth.

What do you know about this plan? How important is it? And how does it factor in here? Yeah, look, for the last probably at least 10 years, we've heard some version of a plan to boost domestic consumption, some version of a plan to, quote unquote, rebalance the economy, some version of a plan to create dual circulation.

What unfortunately we get is a lot of catchy sounding titles and promises coming out of the CCP and off Beijing. But we see little to no progress, right? 10 years is a very, very long time to be making the same promise and then at the same time making little to no progress on that stated policy goal.

So I know that every time one of these new things comes out of a central party committee meeting or an annual meeting of party officials or the Chinese government, there's a lot of attention paid to such promises. But at the end of the day, we collect large-scale private data in China, and we have been wishing and wanting for a long time to see evidence within the numbers, and it's just not there. The support for SMEs, the credit support for SMEs is just not there. The types of

of changes, structural changes that need to be made in order to create a state that provides better elderly care, better support for childcare. A lot of the rules have to change around their local IDs and such, residency requirements, more importantly, none of that is taking place. So I wouldn't pay too much attention, and I certainly have not paid too much attention to the latest batch

off pledges that have come out of Beijing. But we'll see if they're finally ready to make the changes, it'll show up in the data first, and that's the place to look. So we know what's happened to US equities as a result of, and to the US dollar as a result of the last few months. What has been the impact on Chinese equities and the Chinese renminbi? So the Chinese yuan is most certainly beginning to weaken. It has led to, once again, a call on

on there's a Chinese devaluation coming. And as we recently wrote in a client note that foreign observers have called eight of the last zero Chinese devaluations. So we certainly don't believe today that a Chinese one-off deval is in the offing, that there's a higher likelihood of that happening.

The reasons for that are kind of well understood. They do not want to create a financial panic. They don't need a currency manipulator label to be added onto them. They don't want to upset their trading relationships with other countries because that wouldn't just hit the US, that would hit other countries. So the Chinese yuan has certainly weakened. There seem to be

comfortable with it weakening a little bit compared to where it was. 7.2 was the latest line in the sand and it's weakened since then. So maybe some depreciation is happening and is in order. And that would certainly sort of ease the blow from the tariffs, but certainly no one-off devaluation in the cards today.

Chinese equities have had a pretty good time starting fall of 2024 because there was a big call on Wall Street that, hey, look, there's big bazooka is about to be fired in China. Big stimulus is coming. The stimulus never came, but whatever policy announcements did come through and a lot of the risk mitigation that was announced in terms of, you know, loans being switched from one balance sheet to the other and allowances to issue more debt.

at the local government level, at the federal government, at the center, they were sort of seen as examples of stimulus. And so the Chinese equities started to do well. And then, of course, you got DeepSea.

And when deep seek happened, that was treated on the street as a total and absolute game changer that China was now leading the AI race perhaps. And this was going to create more opportunities. So Chinese equities hit, you know, obviously multi-year highs. But in the aftermath of tariffs and trade war, starting especially after what happened, you know, post quote unquote liberation day, you know, we've seen Chinese equities also struggle, also beginning to decline again. So that trade did not last a long time.

And I have to make this point, I went repeatedly on various television networks arguing pretty aggressively that, look, markets had to take geopolitical risk very, very seriously. Markets had to take trade war risk very seriously. And it's just nobody was interested because people, again, the market continues to see President Trump more so as a dealmaker than as tariff man. And that has proven to be immensely costly in the last several weeks.

I've not heard anyone juxtapose those two, tariff man and dealmaker. That's interesting. I mean, you're right, the way we think of Trump, and I still think the way we think of Trump is as dealmaker. And that's actually going to be a question that I'm going to ask you, Shahzad, so let's hold off for that one. But what has been the policy response thus far since Liberation Day? The Chinese responded with reciprocal tariffs

However, I don't know how meaningful that is because again, it's not like US companies are hyper competitive within China's economy to begin with. So what has been the policy response and how do we interpret those responses? How much of that is just signaling?

to try to get a deal maybe, or to try to say, "Hey, we're going to respond to save face, but we want to meet you at the table." And how much of that response has actually been to try and put pressure on the US? I know there've been some reports. I don't know how true they are or aren't that the Chinese have been selling US Treasuries on the margin. Some people might argue, even if they agree that that is happening, they might argue about

Why it's happening? Is it happening because the Chinese are voluntarily selling treasuries in order to send a signal? Are they selling treasuries because they need dollars? I can't make sense of any of this. So you tell me, what have they done thus far and how do we pull signal from the noise here? Yeah, the Chinese response as far as their retaliatory tariffs of 125% on US goods, excluding US semiconductor imports, because they of course want any and all semiconductors they can get from us.

are not particularly meaningful. You cannot be the world's biggest exporter and have incredibly weak consumption and then expect your retaliatory tariffs to carry much meaning. That said, there are, of course, companies that sell into China that would prefer not to have those tariffs. So my comment applies to the larger trade balance and where things stand at a macro level. But certainly, again, it doesn't apply to every and all company selling inside of China. But

That said, the other thing they've done, of course, is try to institute export controls or further export controls on rare earth or so-called rare earth minerals. Again, there we are yet to see in practice in the coming months and so forth. How far can they go in actually enforcing?

and ensuring that the U.S. isn't just pulling a China, and by that I mean just buying those rare earth minerals and critical minerals from third parties, right? So I'm not sure what capacity and what authority and what ability Beijing actually has to stop the U.S. from just buying it from elsewhere. Because unless China wants to cut off the whole world, which doesn't seem like a good idea when China is trying to rally lots of countries on its side to do

actually push back against the US, that becomes very difficult. They have, of course, announced

a suspension of buying planes from Boeing. So that's kind of stood out. It's not clear how meaningful that is for Boeing because it seems like that was a very small percentage of Boeing sales this year to begin with. So I think all we're saying, so we're giving lots of examples here. What are we really saying? What we're really saying here is that when it comes to a trade war, the world's largest consumer holds far more cards than the world's largest exporter. That's the bottom line here.

And so China cannot do any kind of one-to-one retaliation. And China's retaliatory measures are, at the end of the day, going to be pretty limited in their impact. China's toolkit to retaliate is also very limited. Now, what happens next? What happens next is they could really escalate this. They could really escalate by actually selling treasuries, which there is no evidence that they're doing right now.

They could escalate this by saying we're going to start interfering in critical supplies like pharmaceuticals, like medical equipment. So as it is now, the 145% tariff means that a lot of U.S.-China bilateral trade is basically coming to a standstill anyway, which means that China itself will now be relying on rerouting its products to the U.S. But do they actually say, you know what, forget about it. Things they really need, let's not do that. Or let's suffer the pain and let's create the shortage economy in the U.S.,

when consumers start running out of basic goods and basic supplies that they rely on us for, like what happened during COVID, that is gonna put so much pressure on the administration that it'll have no option but to change tack. So they could go through a series of very serious escalations here, but that would put us in a different water. I think that would probably bring us closer to a hot war. Right now, this is really a trade war. This is not really even full-fledged economic warfare. That would start taking us much closer to something much more dangerous.

So, I'm so glad you brought up the whole who holds the cards here, because that was going to be my next question. Because the administration, including the treasury secretary, have really made this point over and over again in interviews, which is that we quote, "Hold the cards," not China as a surplus trading partner. Is it fair to say that that conclusion derives from viewing this trade war in very conventional terms, which is to say you've got two trading partners

And they each are motivated by gaining as much access to the other party's market as possible. And so escalation really comes along the lines of raising tariffs and making it harder to access the other person's domestic marketplace. Whereas if you were to focus on China's ability to withhold critical inputs for the pharmaceutical supply chain, for example.

Then you could say that China actually holds the cards. Again, depending on the pain point you're looking at. First of all, do you agree with that? It depends on how we're defining the scope of the possible war here. The way I like to think about it and frame it is that just because we hold the cards doesn't mean that China cannot hurt us.

That China cannot make this incredibly difficult for us, incredibly painful for us, and incredibly dangerous for our own stability and economic well-being at home. Okay. So here's my last question, Shahzad.

What is the deal that comes out of this? Where do we finally end up? Because I feel like that's what investors are most focused on. And I'm sure many business people in China and the US to the extent that they're up to speed on this issue and how it's impacting their businesses are concerned about as well. Is there a quote deal to be made here? What is the scope of that deal? Who are the people that are having it? What do you know? And what do we know about this?

Yeah. So, you know, I think a lot of people talk about the U.S.-China deal and the person who talks about it most, of course, is the president, is Donald Trump. I think, you know, this will boil down to what everybody thinks is a deal, as you just said, right? What do we mean by it?

I am incredibly skeptical today of the idea that there can be a big deal for the centuries, deal for the ages between the US and China. And what I mean by that is a deal where we get rid of all tariffs and take them back to levels, even take them back to levels where they were at at the end of the Biden administration. Forget about the first Trump administration.

And, of course, China gets rid of their 125%. China, again, has unfettered access to our market. On the other hand, they are saying full cooperation on fentanyl, absolutely going to make structural changes to our economy so we actually survive.

support consumption over production. We actually therefore open up the market, create more opportunities for American companies. Then we open up the market in real ways where we stop providing subsidies and support to our own companies. So we create more fair access for your countries. We are companies, we get rid of any problems you have with IP theft.

and so on and so forth. So this magical scenario, this utopia that was once conceived of in terms of what China would eventually look like from the US standpoint, and the converse being China having unfettered and total open access, come here, buy the farmlands, doesn't matter where you want to put them. We'll buy all your technology and put them in our military bases again. That stuff's not going to happen.

Not even close to it. And I deliberately sketched this out so that I can explain to people what a true deal between the two sides could actually look like. We are nowhere there and we will never be there.

What is possible between the two sides, however, is a series of mini deals or maybe a skinny deal, as I could call it, which is that we have deals around very specific things, a deal around TikTok, a deal around more fentanyl cooperation, realizing that China will probably never fully comply and may not even ultimately have the ability to help us as much as we'd like it to.

And a deal that focuses on bringing, eventually bringing down tariffs to some level that is below 145%, but certainly remains above where it was even above the 20% fentanyl tariff. So I think we are headed towards a lot of volatility in this relationship because we are structurally changing it.

And change is painful and change creates a lot of chaos. So really, the thing to do is to brace for that and to understand that big China recoupling is out. Total decoupling is an unlikely scenario right now. And a recoupling is certainly an unlikely scenario right now. It's a messy middle that we have to prepare for. And so it's complicated, tough, chaotic times ahead.

So, superficially, this looks like a very unilateral approach by the United States, which you can see even evidenced by the blanket tariff bans and the tariffing of our close allies and partners in Europe and Asia. Is there any talk about this administration looking to pivot, maybe again, maybe this is all part of some strategy, to pivot into creating some kind of new trading block or ecosystem that relies more on countries with which the US is aligned or has friendly relations?

And how are China's trading partners? I mean, we saw talk about the... Again, these are superficial readings of headlines coming from my end, but the South Koreans, the Japanese looking to kind of do some kind of joint thing with China, try to put pressure on the US to reduce tariffs. So how is this shaking out from an international perspective?

There has been a lot of chatter lately, certainly on this idea of creating a new customs union or new trading blocks where countries with similar values and similar laws and adherence to trade laws and trade agreements trade with each other.

That's, of course, not something we can expect in the short run or probably even in the medium run. Now, that said, as we try to move supply chains out of China, as we try to substitute Chinese products or other products for Chinese products, more inputs from Mexico, more inputs from Vietnam,

South Korea and so forth, and maybe other countries in Latin America, as we try to enforce things like nearshoring, friendshoring, and of course reshoring. The reality is that the changes in supply chains will over time most likely create this new quote unquote trading block.

The question that we don't have much clarity on today is where ultimately do we see China in all of this? Because obviously Chinese inputs are in so many things that we would still be buying from these other countries. So where do we want to have them completely restricted and brought them down to zero? Where are we okay with 10% Chinese inputs? Where are we okay with 50% Chinese inputs if those things exist at some point at the end of the day? That thinking, that strategizing, I just don't think has been done yet. But I think we are certainly moving towards

supply chains shifting more reliably out of China and not just shifting. And as you say, you know, you use the word superficial in another context here, but the superficial change of supply chains, which has been the transshipment problem that, you know, factories just load up a ship, send it to Vietnam, hang out in the port for however long you need to so that the goods now become Vietnamese goods and then you get the new product.

piece of paper and you move on towards the U.S. Or you send, you know, a pair of shoes, as I like to say, and you change the tag on it, you know, or you maybe put a pair of laces in there and say, now this is a Vietnamese pair of sneakers and not Chinese. So that's not a real shifting of supply chains. You know, we need much more than that. Chinese-owned factories may be even producing things in Cambodia and shipping them to the U.S. may not be good enough either. So this is all very complicated. We'll see where it ends up.

But the long-term trend has to be shifting supply chains out of China and doing it at a faster pace and more reliably than it's been done so far. Again, is there any talk or do you think that eventually this administration...

will focus in on specific supply chains that they want to prioritize reshoring or friendshoring. And let's say when it comes to things like Nike sneakers or apparel made in China, that they're going to be less concerned about that and they're happy to sort of yield that industry to the Chinese.

I would hope that the upcoming reviews and investigations on the so-called sectoral tariffs, which are supposed to focus on pharmaceuticals, semiconductors, and metals, copper, steel, and one more, I believe. I think some of those should... That's an opportunity for the administration to not just tell us what the tariffs are going to be and what type of trade issues we're trying to correct for, but to also come out with a plan that says, look, this is 10%.

off X, Y, and Z thing needs to move out by the end of 2026, or 50% by the end of 2027 needs to be placed in another country, right? I'm throwing numbers out. Obviously, I'm pulling these from the air. But a realistic plan, a reshoring plan, a near-shoring plan would be good to see. You know, the administration has been in power for just under a quarter, an economic quarter yet. So I know they're trying to get a lot done in a short time period. But soon enough, it would be good to start hearing these ideas as well.

I mean, I feel like that's what most Americans, and this is what I'm interested in, which is where can we find consensus in this country? Because that's where we can develop the most durable, sustainable cross-party policies that can endure across administrations and across party administrations.

I think one of those areas would be most people can agree that we don't want to be in a situation where if something happens to the rest of the world, we can't produce insulin in the United States. I'm not saying that's the case with insulin. I don't know enough about these supply chains to know which drugs are most affected. But there are clearly critical supply chains where I think most Americans would be willing

to endure whatever is necessary, so long as they feel like it's being done in a competent way, to actually get those supply chains friend-shored or near-shored or on-shored.

And to that degree, maybe this is my last question. I said my last question a couple of questions ago, but maybe my last question has to do with Latin America. So this seems like, again, based on how Trump seems to talk about regional spheres of influence, it seems that there's a real opportunity here for Latin America to play an outsized role in whatever the vision is from this administration, whatever the Trump doctrine is on trade.

Do you agree with that? And what kind of talk do we hear around some of these companies moving manufacturing to Latin America and what that would mean for tariffs, it would mean for the cost of goods, et cetera?

Yeah, I wish I knew more about Latin American economies and where they are today. But of course, you know, that seems like a obvious part of the plan. So, you know, not only do we want things very, very close by and which really quite honestly puts Mexico in a very good position.

But there may be other Latin American countries, especially Latin American countries where increasingly you're also getting a big Chinese presence, where we want to take a closer look at what's going on and where American companies need to be or should be or could be also placed. Same thing again, what's going on in Central America? Are there opportunities there? So these are conversations that I think should be very live, should be happening. I am, of course, not read into this. And again, I don't know the region well enough to be able to talk intelligently, but

But the reality is, to your earlier point, that the concept here needs to be economic security. The concept here needs to be supply chain security, and especially for things that are necessary. Too much of the online commentary it has focused on correctly, as you said, on things like our Nike t-shirts and our Nike shoes. But that's not what this is about.

Ultimately, this is also by the way, the administration would do itself a lot of favors if they sent out people to very competently talk about it. And I know they've got the people to do it. I mean, the vice president himself is certainly a big fan of this idea, but talking about the manufacturing of the future.

talking about how America will support the manufacturing of the future. What does that look like? What do factories look like in the 21st century? So that we can actually have a more sensible, a more advanced, a more current conversation about manufacturing. Because I think a lot of people snicker and jeer and sneer because they think we want people to go back to sweatshops. And that's certainly...

I don't think that's the idea and I obviously would not be advisable. So there's a great opportunity here, Demetri, to talk about the revitalization of the United States, to talk about the re-industrialization, and to talk about it in a technologically sophisticated and advanced way so that we're talking about the future and not looking back at the past. So again, it wasn't my last question. One more. Let's see where this goes. I don't believe the talk about fiscal austerity in the United States. I don't believe...

the administration when they say they're looking to cut back fiscal spending and all this stuff. I don't think that's consistent with the larger goals of re-industrializing the United States. That's going to require a huge capex spend. What is your take on this? And what would be the implications of that, of your answer for the budget deficit, for yields? I mean, I'm just curious to know what your thinking is there.

So I would leave that up to economists, and I will leave that up especially to people who really understand US economic policy and fiscal policy. But the larger point stands that at the place we are today, if we want to be, this is a big if, if we want to actually do industrial policy in a serious way, if we want to support industries and encourage them to come back home, we will not most likely be able to do that by just saying, here are some tax cuts, here's deregulation.

Because at the end of the day, I'm not sure if our tax cuts and our deregulation will still make the economics of it all work for the companies who may alternatively say, you know, look at Apple, for example. Okay, so China's getting a lot of tariffs. Fine, temporarily we'll shift a significant amount of our production into India because that makes more sense for them. It doesn't make as much sense as China.

They'd rather just stay in China, but if they can't, then they'd go to India next. They're not bringing it to California, Arizona, or South Carolina. So if we want other aspects of our other industries, other factories, and other manufacturing parts of the economy to come back home, we're going to have to think about this in a bigger way.

Shahzad, this is great, man. It was great seeing you again. Of course, I see you all the time on CNBC. You've been crushing it over there. For people that want to read, subscribe to China Beige Book stuff or follow you or the team there at China Beige Book, how can they do that?

You know, we've got a very active ex or Twitter account. It's called China Beige Book. So follow us there. Visit our website as well, www.chinabeigebook.com and follow our media and listen to our podcast wherever you get your podcasts. Awesome, Shahzad. Again, man, thank you so much for coming on the show.

Hey, thanks so much, Demetri. Good to see you. For everyone listening, Hidden Forces is a listener supported podcast. We don't accept advertisers or commercial sponsors. If you want to learn more about our premium only content, including paywalled podcasts and intelligence reports, you can do that at hiddenforces.io/subscribe, where you can also schedule a call to learn more about our genius community and how to access special pricing to third party research,

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