Why Should We Care Who Wins the U.S.-China Trade War?
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Welcome again to Why Should We Care About the Indo-Pacific, brought to you by our producer, IEJ Media, and our sponsor. Our group, Asia, will talk more about them in due course. I'm Ray Powell, the former military officer down in Arizona. We have Jim Caruso, the former diplomat. Jim, you know, I was just reading from a tweet from 2018 where the President of the United States said that trade wars are good and easy to win. So why are you so grumpy? Oh, I've been born grumpy.

Or I'm just tired of all the winning. But we have someone here who's going to explain what this winning looks like or not. An old friend of mine, Steve Oaken. Steve was a Deputy Assistant Secretary, I believe, in the Clinton administration, Department of Transportation. I met him when we were doing the free trade agreement negotiations in Thailand, and he was then in the private sector.

He's been now in Singapore for a whole bunch of years in the private sector and is the founder and CEO of APAC Advisors. Steve, great to see you again. Welcome to our program.

Great, Jim. So great to be with you, Ray. Great to meet you. Jim, I think you may have been one of the first diplomats I met when I moved to Singapore in 2003. And I basically followed Jim around all of his postings. I worked with him in Australia, worked with him in Asia, and worked with him when he was posted in D.C. So just such a pleasure to be back with you. And I was Deputy General Counsel when over at the Department of Transportation. My error. I...

No. When you're a man without such importance, it's hard to keep up. So, yeah. I mean, I think to answer the broader question is it's been basically it took 80 years to build the global rules based trading system that we have today that we all rely upon. And it took about 80 days to destroy it or certainly, if not outright destroyed it, which is possible, severely destroyed.

it and is changing it. And we don't know what's coming next. And so what we really are worried about

I think everybody, government, certainly from a Southeast Asia perspective, the governments here, the U.S. business community here, investors here, other businesses here is what's going to replace it. And as we're in this period of not knowing literally anything about what's going to come next, everything is starting to freeze up. Investment is freezing up. Trade is freezing up. Diplomacy is freezing up. And it's really, I don't know if I'd say it's a dangerous period.

But it is a very tenuous period that we're all in right now, trying to figure out what's going to happen next. And you kind of have to get inside of one person's brain, and then you got to get inside a second person's brain. And those are two very difficult, if not impossible things to do.

Well, Steve, if you, I mean, I think probably if you were to take a step back and think of this in the Trump administration's perspective, you know, we've had a trading relationship with China for many decades now, and it hasn't really been going that well by some measures, right? We've been taken advantage of. There's been a lot of loss of manufacturing jobs. And, you know, lots of presidents have come and gone and, you know, sort of made attempts to fix it, but it never seems to get fixed. Right.

Isn't this just a case where we just need some strong medicine and now we finally got a doctor who's willing to bring on the chemo? I mean, look, I will certainly say I am...

is cognizant of the difficulties of doing business in China as anybody. I've negotiated with the Chinese government in the business community back during my government days a little bit, very junior in terms of aviation and then Ford. And there is no question, the Chinese government did not live up to its commitments

in the various agreements that it made with the United States that the business community relied upon, at least in the spirit of their commitments, if not in the letter of their commitments. The Chinese government engaged, as the U.S. government has found across Democratic and Republican administrations, in unfair trade practices, forced technology transfers, etc.

In terms of creating a completely unlevel playing field where we're using state subsidies to prevent competition from foreign companies, not just the Americans. And that needs to be addressed. It's been needed to be addressed, you could argue, at least for a decade now. And if you want to start with Made in China 2025, which came out in 2015 as your starting point, you can go back before then. But that's clearly something that needed to be fixed.

And governments have tried to fix it. U.S. governments, U.S. administrations. The Obama administration went at it by working with partners and allies. And that was through primarily the TPP, as well as, of course, directly engaging with China. But it was a mix of both. The Trump administration and Trump 1.0 took a much harder stance and really used tariffs directly.

and economic sanctions and economic restrictions in a targeted way. And I think the business community, by and large, agreed with what the Trump administration was doing. They would have liked to see the work with partners and allies, but it was targeted and directed.

The Biden administration kept everything up that the Trump administration did and was tougher in a way. It was built upon it. So, of course, we need to deal with China differently than we dealt with them back in the days of President Clinton and President Bush. But what President Trump is doing now is not targeted and it is not working with partners and allies. It is working bilaterally. And that is what we have strong concerns about. Is the United States going to be better off or worse off?

And I think I would certainly personally argue the United States is going to be worse off long term using this strategy of Trump 2.0, as opposed to the strategy used in Trump 1.0. So the strategy is a movable feast as far as whether it's going to be at any particular day. Well, let's assume that it's going to be universal 10% tariffs everywhere and special tariffs on China.

If that was what came down and it's clear, how do you think American business and Southeast Asian business would respond? I think they would say, okay, we accept it. A universal 10% tariff, we're going to accept. And if that's something that we understand that the Trump administration wants to bring manufacturing back to the U.S., it wants to reshore. And if the 10% universal tariff can do that,

in a slight way, then fine. We can all live with it because we're on a level playing field. And if you want to continue your strong actions against China in a targeted way, then do that. If you want to have what we all called, the Biden administration called, that small yard, high fence concept, was you can trade with China other than within this small yard,

And if that yard needs to be a little bit bigger, that's fine. If the U.S. needs to stay ahead of China for national security reasons when it comes to AI, when it comes to other technologies, then by all means do that. Of hard decoupling, which is very different, and a hard decoupling, which will say the U.S.,

cannot engage with China, nor can U.S. partners and allies engage with China. And we are going to have a hard decoupling on everything. That is a very different world that the governments here and the businesses writ large don't want to be forced to do. And that's the question. Where is the U.S.-China relationship going? We don't know. Is it going to be

Basically, status quo plus, which is you take that small yard and it becomes a medium-sized yard, but there's still a yard with a fence around it and everything else is okay. Or are we going to go to decoupling? And I think that's an internal fight within the Trump administration now. And until we know how that is going to turn out, we're all going to kind of be frozen right now.

So we're talking about reshoring. And to some extent, I mean, if we're talking about something drastic, like having to move your factories from China, say, back to the United States in order to sort of get out from under the tariffs. Yeah, well, maybe, you know, the Trump administration would say, well, OK, that might be painful for business, but.

But that's what we got to do. We've lost a lot of jobs. You know, we've got Hyundai Steel has recently come in, said they're going to invest a bunch of money in the United States. They're going to build a new steel plant in Louisiana. Doesn't that sound like we're winning? Like it depends on the sector and it depends how you accomplish it. Every country wants to ensure that it has an automotive sector because...

Because an automotive sector is a, it goes to national security. If you lose your ability to make cars, you lose your ability to have a military. I remember, Ray, you're going to know this so much better than I am. But you need a domestic auto manufacturing sector. And that's why not only do the U.S. has tariffs on China when it comes to autos, the EU has tariffs, Canada has tariffs, Mexico has tariffs.

the Russians have tariffs on automobile when it comes to China, because every country needs to have a domestic auto manufacturing sector for their defense. You don't need to be making t-shirts in the United States. It's nice if you want to make t-shirts in the United States, by all means, if that's the case. But when you start putting massive tariffs on a country like Cambodia,

Um, when all they're doing is shipping, you know, could be high quality, but, but low cost, low value. And I mean, low value in terms of how much people pay for it. That is not something you need to have in the United States. If you want to have it, have it, but to tariff countries like Cambodia, like you're doing and, and,

as opposed to being very specific and very strategic in what sectors you're going to target in China. You can make arguments on pharmaceuticals if you want. You can make arguments on autos, certainly. But blanket tariffs on everybody based on some formula that is made up is not in the U.S. interest. And it is not going to bring the manufacturing back to the United States.

Yes, there is some manufacturing coming back, a part of it from the tariffs, part of it from, you know, basically the bullying of the Trump administration. And that may or may not actually turn out to be the case. But that's a good thing. You know, you could argue, but they're going about it in a way that isn't going to rebound to the benefit of the United States in the medium term, long term, and maybe not even in the short term. Yeah.

Part of the problem, of course, is if we're going to put a 10% tariff on all imports, and most things in the United States have some imported content, and we already have higher labor costs, and we already have higher environmental costs than most countries, we are going to be uncompetitive, aren't we, for export markets?

I mean, you're going against all the basic principles of free trade. You do what you do best, let others do what they do best, and then everybody benefits overall. And the other thing, Jim, that we're missing always when we start talking about tariffs in trade is that all of our discussion right now, and your question is also on trade and goods.

where the U.S. is dominant on trade and services, and we completely ignore all of the benefits and the surplus the United States gets from its dominance in the services sector. So, okay, putting aside that services piece, which is very difficult to do, we can live with the 10% tariff that everybody's going to be on a level playing field.

Americans are going to pay more for it. And it is regressive because those with lower incomes are going to be hit harder by this. And it certainly seems to be the case that part of the reason the Trump administration wants all of these tariffs is because it's going to be used to offset the tax cuts that are coming from the Congress as the 27 tax cuts that are

came in Trump's first term all expire this year. And so as you have to do that sausage making in Congress and you have to have trade-offs between revenue enhancement and tax cuts, the tariffs may be able to do that. I mean, you could argue that that's going to be beneficial to the United States overall. But again, a blanket 10% is fine. I

I mean, it's not great, but it's fine. It's when you start going after countries like Cambodia, when you go after countries like Vietnam, when you don't live up to your agreements, like we are not doing as the United States with the U.S.-Singapore FTA or the other FTAs that we've signed, that complicates it all up. FTA, Free Trade Agreement. So you talked about the United States' advantage in services.

What are services in a trade sense? What does that look like? And whom does that benefit in the United States to have that services advantage? Yeah, I mean, well, it's easier to define what it is, right? Anything you don't make physically is basically, you know, services. I mean, movies, right? That's that services. Tourism, that services, obviously legal, accounting, financial services, digital, online.

All of those things are services. And that's where the U.S. dominates, not in Asia, globally. I mean, we are leaders when it comes to the services sector. And one of the things that is quietly being concerned is that what happens when it comes to the retaliation for what the Trump administration is doing, because the Trump administration is putting tariffs on goods.

What happens when U.S. companies start to get tariffed? Not tariffed because it doesn't apply. But what happens when U.S. companies who are in the services sector get retaliated against?

then we are in a very different situation. And because we are the ones who have the surplus as the United States when it comes to services. So that is something that people are starting to think through as we get into not the first order effects, which we're dealing with now on tariffs, but those second order and third order effects. We don't know what is going to happen. Part of it is, are we going to go into a global recession? Are we going to

Maybe be even worse. So that's one issue. Then that second issue is what is the retaliation that's going to come after the tariff retaliation? We've only seen it from China. We haven't seen it from others. China started to retaliate in addition to placing the tariffs on the U.S. goods.

So, we're going to be in a very different situation in maybe months if this thing does not get settled sooner rather than later, either by the Trump administration or maybe by the market forcing the Trump administration to act. The other issue is, let's just say,

China is the target. But there's a huge amount of transshipment of Chinese goods through third countries. And even if they sometimes have some value added to a Chinese import before it's exported to the US, that's very hard to police. And how about a Chinese company that builds a factory in, say, Vietnam? Is that a Chinese good or a Vietnamese good? How do you think all this can be managed?

It is going to be very difficult, Jim, as you said. And this is something, you know, that that, you know, I've been talking about and others have been talking about in the region, you know, going back to November after after Trump won. But this is also a Biden administration question, because as tariffs become China plus one, you know,

You're going to have sanctions are going to be China. Let me rephrase that. So what we're seeing now is a diversification out of China. And we have been seeing this for the last five years or so. That's that China plus one strategy. And people are diversifying out of China for a number of reasons. Part of it is tariffs that the Trump administration put on, the Biden administration kept and upped in what we're seeing now. So part of that China diversification, that China plus one is geopolitics.

Part of it is the economics in China, because China is becoming more expensive to manufacture as it is becoming a more wealthy country. Therefore, labor costs go up. Therefore, you look to make you look to.

manufacture somewhere else. Same thing happened in Japan. We used to manufacture in Japan, got too expensive, you move to China. China's getting too expensive, you move to Cambodia, you move to Vietnam and Eastern Europe, whatever the case may be. You also have...

It used to be applicable to China. Now it's equally applicable to the United States. You have high political risk in China. When you have a one party rule and you have one person who is dictating what the country is going to do, that political risk is much higher than if you're in a system of checks and balances situation.

As used to more exist in China, as used to more exist in the United States. And so COVID zero taught companies that, that you can't put all your eggs in the China basket. And everything I'm saying is not only about US companies and European companies and Japanese companies and Singaporean companies, it's Chinese companies. Chinese companies are doing China plus one for all the reasons that US companies and European companies and others are doing China plus one. And

And so what that gets to is you go China plus one for Chinese companies. You have Chinese companies setting up in Vietnam. You have Chinese companies setting up in Thailand and Mexico and Eastern Europe. And the question is, as is supply chains become China plus one, do tariffs become China plus one, do investment restrictions become China plus one and China.

The hard question you asked, Jim, is what is a Chinese company? This is a very difficult question to ask. What is an American company? What is a Singaporean company?

You can you can look at is it is it who who issues the business license? Is it who owns the company? Is it who is the CEO? If you're below 50 percent on all of those things, what if you have a licensing agreement back to China forcing you to do things? Does that make you a Chinese company? We don't know the answer to any of those things.

What our experience, I'll talk writ large of the U.S. business community has been, though, is that China plus one Chinese companies coming out and setting up in Malaysia is a benefit to the United States. It's a benefit to business because now we're competing with a Chinese company in Malaysia and we're both subject to Malaysian law. We're both subject to a level playing field there.

And we'd rather compete with a Chinese company in Malaysia than a Chinese company in China because of the unfair advantage the Chinese government has given companies in certain sectors. If we take away the incentive for Chinese companies to do China plus one and everything stays in China, you could argue we're going to be worse off than we have been with the diversification out of China by the Chinese.

So, you know, up until now, China has at least rhetorically taken an extremely hard line and has indicated that it has no interest in sort of buckling to the Trump administration's increases in tariffs or even their rhetoric. But there was this little...

this nugget that was in one of their recent announcements that said that it's not going to retaliate anymore. It says, you know, the U.S. tariff increases are a joke. And if there are more, we're just not going to do anything. Could that be read by the Trump administration or by even an impartial third party as saying maybe this is getting to China a little bit? Maybe the Trump administration is on to something here. Well, there's...

We got to start with two places right now. The U.S. does not trust China when it comes to trade agreements. Then there is a history of years in which the Chinese have not lived up to their commitments. And

If you're the Chinese government right now, you have to ask yourself, should I trust the U.S. government? Look at what the U.S. government under the Trump administration is doing to its agreements under USMCA, U.S.-South Korea, U.S.-Singapore, U.S.-Australia. So right now you have two governments that don't trust one another. That is very difficult to bring two governments together to –

to have an agreement. So I don't see an agreement coming anytime soon for that reason. I also don't understand...

I don't understand what the U.S. position is towards China. Is the U.S. position that is Senator Rubio, then Senator Rubio, now Secretary Rubio, said in his confirmation hearings that China is the existential threat to the United States. And that wing of the America First movement

agenda, you know, American first proponents within the Trump administration, they favor decoupling. And they're like, we cannot allow, China's goal is to overtake the United States in every way possible. And the best way to protect the United States and the US national interest is to decouple.

There are others in the administration. I don't know how many. And frankly, we don't know where President Trump is. Is it that, look, we have to trade with China. We have to do business with China. It can't be the same way it's always been. Let's come to some agreement and that we can trade with China. And that's the small yard high fence getting bigger, but still having a small yard of fence.

We don't know where the Trump administration wants to be. I don't think that China knows where they want to be. I don't know that we know where China wants to go. So I think from a business and investor perspective, from a geopolitical perspective, everything's on pause right now until this gets to work out. The other question that I think that the Chinese have to be asking themselves is, will the market serve as a guardrail to what

the Trump administration is doing. I mean, you know, my friend and former Clinton colleague, you know, Thurgood Marshall Jr. and I wrote a commentary on the eve of President Trump's inauguration. And we said he will be the most powerful president since FDR, since President Roosevelt. And President Roosevelt was so powerful in part because of all the wartime powers, the

that he had is serving during World War II, and also all the powers he had to help the country get out of the Great Depression. No president has had that power until now, and President Trump is taking those powers. And so there are almost no checks on President Trump right now. The Congress is not a check on him. The Republicans in the House and the Senate refuse to be a check on him. The media is less of a check.

The courts are less of a check. The business community is less of a check. Law firms are less of a check. So the only check that remains on President Trump is the market. And we saw him walk back tariffs time and time again when the market really started to waver and the bond market in particular would flash again.

very, very, very significant warning lights. So you may have to ask yourself, let's wait this out. Let's put, if you're China, as many tariffs as we can onto the U.S. that politically China can take more pain than the U.S. can take. And then let the market guardrail kick. So I think we're going to not see any big grand bargain between the U.S. and China anytime soon for all of those reasons.

For all the reasons President Trump wasn't able to fix Ukraine on day one and cease Russia's invasion there. He hasn't been able to fix Israel and Gaza. He certainly doesn't seem to be able to address all of the ills that he sees in the global trading system in 80 days or 100 days or however many days it's going to be. So we see China putting reciprocal tariffs on our reciprocal tariffs, including on services and things like movies.

But Singapore and the rest of ASEAN seem to be saying, well, we're not going to do anything. We're going to try and negotiate. Do they have a negotiating plan that you can discern? Because it's hard to understand what to offer, especially in a country like Singapore, which already has free local trade, U.S. has a trade surplus. What do you think Singapore's move is and the other countries?

Well, and I love to get your impression on the soundbite that I've been using, Jim, because you served in Jakarta. First, Singapore's starting point is that small nations cannot survive on their own.

You can't be in a bilateral system as a country the size of Singapore. And Singapore is, while it's small in size, huge economy. It can't be on its own. No other small country can be on their own. They need that rules-based global trading system. It's why Singapore came out in sanctioned

Russia for its invasion of Ukraine. It's one of the few times Singapore ever acted outside of the UN when it came to sanctions. But it recognized that Russia's invasion of Ukraine, if that's going to take out the rules-based system that Singapore and other countries rely upon, then Singapore is going to be way worse off. So Singapore knows that

we need to have a rules-based system for countries like Singapore. Now, the question is, what is that rules-based system going to be? How do you get there? What do you do to protect your economy in the short term? And there's some discussion now that, well, maybe the 10 countries of Southeast Asia within ASEAN, the Association of Southeast Asian Nations, maybe ASEAN can play some type of role. Now, ASEAN,

has always been geopolitically irrelevant. I mean, it does not, it doesn't matter. Jim served there. I am shocked. You're shocked that ASEAN has been geopolitically irrelevant? No, that you said so. Oh, okay.

I was, I, I just had a side. I was, I was on a, a panel of the Singapore government held it. It was, it was, you know, it was off the record for a group of, of, of family investors. And, and one of the panelists who's, who's a professor here in Singaporean professor here in Singapore said,

He went after Hegsath, Secretary Hegsath, for not knowing what ASEAN was during his confirmation hearing. And I said, look, you're putting me in the position of defending Pete Hegsath. So this is a very difficult position for me to take. But why should the Secretary of Defense know what ASEAN is? It just didn't do anything.

Like ASEAN's crying when it comes to coming up with customs facilitation and a single window and all of those things. But geopolitically, you expect the Secretary of Defense to know ASEAN. So-

I'm pretty skeptical, but maybe this will be, maybe Donald Trump will do the impossible and make, make ASEAN geopolitically relevant. Uh, it's great again. No, not again. Uh, not again. Uh, but again, it, ASEAN has served its purpose and, and, and that's kind of, you know, we, we, we, we need to recognize it was never intended to be a geopolitically relevant association. That's, that's not why it's there. Um, but maybe it will become one. Uh,

But it will take time for that to happen. And I was speaking at a university yesterday and the students were saying, well, why don't all the other countries in the world get together and then go against the US and say what you're doing is wrong and we're going to create a market to compete with you? I said, well, the answer to that is one of is relatively simple. It's the prisoner's dilemma.

Right. Because the U.S. market is the most important market in the world. Full stop. The U.S. market is a consumer market is irreplaceable right now and will be for decades.

Maybe Trump will speed it up, but it's not going to change anytime soon. And so you have the prisoner's dilemma. So you can tell 10 countries, well, let's come together and we're going to stick together and we're going to take a very hard line against the United States. One of those countries peels off. Well, then they get the advantage that they want. There's no retribution against them. And you're right in the middle of that prisoner's dilemma. So very difficult to see that.

how you're going to have all of these countries come together. The market does, it doesn't make sense from a market perspective and you have, you know, the prisoner's dilemma on top of that. So it makes sense for the governments here to say, let's see what's going to happen. So there's, there's discussion. I mean, the prime minister of Malaysia posted on his, on his LinkedIn, you know, that we're going to have all these economic integration discussions with, with, with our neighbors, but it can't happen anytime soon.

So, you know, we're talking about all these countries getting together. I mean, once upon a time, there was this thing that I hear is still around, but I'm not sure is the World Trade Organization. And, you know, and there's other things. In fact, you know, you're from APAC Advisors. There's this thing called APAC. There are these other things that are supposed to help with that. Right. And to sort of bring everybody together and to sort of enforce that rules based system that you're talking about.

Were these organizations just not built to withstand these, you know, throwing China into the whole thing with their serial sort of violations of WTO rules? Were these organizations just not built to withstand the kind of the disruption from the big powers? No, they're not. And unless you have, you know, the U.S. and China both committed to following China,

the rules of a global trading system through the WTO, well, then that's not going to be your answer. So you might see a revitalization maybe of regional trade agreements. So we have the CPTPP, and that was started as a Trans-Pacific Partnership, which was the Obama administration way to deal with China, to deal with China's unfair trade practices, to deal with China's

you know, discriminating against, you know, companies from foreign governments. And so that was a way to bring like-minded countries together to facilitate trade and investment and to address environmental issues and labor issues. The U.S. pulled out. CPTPP replaces it and still exists. It is not merely as effective as it should be. And maybe that's something

That the governments who are members of CPTPP can say, this is something we need to come back to and really...

revitalize it and take advantage of it. So maybe you have that. Maybe you have the RCEP, the Regional Comprehensive Economic Partnership, which China is a member of with ASEAN and North Asia and Australia and New Zealand, the US is not part of. So maybe China can use RCEP. It's not going to be the WTO, but you will see these regional plurilateral type agreements

coming in multilateral, where you have rules and you have punishment and you have a secretariat. That's not going to happen. But these plurilateral type agreements could be there. One advantage that might happen out of the Trump administration and what their policies have been is that the

What we is that just because the Trump administration, just because Peter Navarro says something doesn't make it wrong and doesn't mean that they don't have a point. And and I think it was Peter Navarro who said or it might have been Secretary Lutnick who said Ambassador Greer probably would have said this as well, is that.

There are non-tariff barriers that the U.S. is dealing with. There are non-tariff barriers that are preventing U.S. companies, U.S. investors, not just the United States, others, from having the type of market access that they should have and that they should be having under either free trade agreements, plurilateral trade agreements, the WTO, whatever it is. And that...

There could be an opportunity here to address those non-tariff barriers, to address the foreign direct investment, you know, those FDI restrictions, to invest globally.

The licensing requirements, the types of things that I worked on with Jim in his various postings all over the region that we needed to try and get addressed. And quite often, the governments here, the governments in the region want to eliminate those non-tariff barriers, but they can't for political reasons. The same as you have political reasons on trade, not allowing, back when he led the

administrations which recognize the benefits of global trade, they couldn't take action. There's the farmers here. It could be the banks. It could be the oligarchs, whatever it may be in a country that prevent the country from doing what it needs to do. And there may be an opportunity to say, well, the Trump administration has forced me to address these non-tariff barriers. They're going to force me to open up

the retail sector. They're going to force me to open up digital trade. They're not going to allow me to have data localization rules anymore. There could be some benefits that governments can take advantage of. We saw it a bit with TPP where government said we're going to need to reform if we want to be into the TPP. This is a much,

harder way of forcing governments to do what they should be doing. So there may be some things that benefit out of the Trump administration. It may not offset the damage that's going to be caused, but we should be looking for things that can be fixed as part of this process. So you just came...

Return to Singapore from the U.S. Did you hear anything from the administration or Washington to indicate that these are the goals of these negotiations? Because we've also heard the goal of the tariff was the tariffs.

So what do you think? Well, we don't know. And I was in New York this entire trip. So I was more I was focused in my more in the private capital financial services world. And all everybody talks about, of course, is geopolitics now. And what did it kind of simplify? Right.

We don't know why the Trump administration is using tariffs because it could use tariffs for one of two reasons. It could either be using tariffs because the administration believes that the U.S. is being taken for suckers. Look at all of these trade imbalances. This shouldn't be the case. And so we're going to eliminate our trade imbalance through the use of tariffs. And it is going to force countries to buy from us.

And it is going to make them lower their cost or whatever it might be. So you use tariffs for trade balance or you use tariffs for bringing manufacturing back home, for making America great again, for bringing all the factories back to the United States. Now, if your goal is to lower the trade imbalance, well, then you will reduce the tariffs once countries reduce their tariffs.

So there is a negotiation and then it would make sense for countries to come in and say, we'll lower our tariffs. Now you lower your tariffs and we'll all be better off. But if your goal is to bring manufacturing home through high tariffs, you will never reduce the tariffs.

So you can't accomplish both of those things at the same time. You're either using tariffs to bring manufacturing home or you're going to use tariffs as a negotiating ploy to get lower tariffs and then you eliminate the tariffs that the Trump administration put on. You can't do both. And we don't know where the Trump administration is right now. Therefore, that's why everything is paused. I was talking to one big global fund and one of their portfolio companies.

had $2.5 billion, I think it was, give or take, for CapEx allocated for capital expenditure this year. And they've lowered it to a couple hundred million dollars. Because why are you going to invest if you don't know what the tariff is going to be? What's going to happen when... So the U.S.,

And I want to say the U.S. doesn't put tariffs on it. The U.S. retaliates against China because it's China that started the trade war, I think, is if you had to pick one side, who started it, China or the U.S.? China started the trade war. Then Obama addressed it. Trump upped it. Biden upped it. Trump's upping it even more. So this is all in reaction to what China has done going back for a decade plus. Now China retaliates. What's going to happen after that? This was the easy part to predict.

Because if China has not going to be accessing the US market for all of its manufactured goods, and it starts to dump those goods into Southeast Asia, Southeast Asia doesn't want them.

Mexico doesn't want to. Europe doesn't want to. So now you're going to get tariffs from countries onto China. Then what is China going to do? And then what's that going to do to all of those investments that you have out here? That's why everything's frozen right now, because it's not just the U.S. retaliating against China and then China retaliating against the U.S. Then what happens? And that's why we're all just waiting to see.

So you left out one or at least one rationale behind the tariffs, and that's the idea that it's going to raise revenue and that because we have tariffs, we're not going to have to pay so much taxes as Americans. Do tariffs raise revenue? Well, the question, I think, just to change it a tiny bit, Ray, or to add on to it,

Do tariffs raise revenue for purposes of Congress when it comes to passing the tax cuts? And I think the answer to that question is yes. And if the answer to that question is yes, then what it does economically is irrelevant because the Republicans in the House and the Republicans in the Senate

and you only need the Republicans to do this, uh, in the house, in the Senate to pass that tax, uh, bill this year. Um, it needs to be done revenue neutral. I'm really oversimplifying. I'm sure I'm getting a little bit, a little bit off a bit, but basically we have to have a revenue neutral tax package. And so if the administration and, or I say, if the Congress can count the revenue from the tariffs, uh,

as revenue to the United States, then it can cut that same amount in taxes. And President Trump has promised lots of people tax cuts. Not only did he, obviously you have the existing tax cuts from 2017 that expire. He promised no tax on overtime. He promised no tax on tips.

He promised no tax, no double taxation on expats. Okay, so I do agree with him on one of his tax provisions or tax promises. And so where is the revenue going to come from to offset all of the loss from the tax cuts? Well, is it going to come from Medicaid? Is it going to come from...

from Social Security. You can only cut so much from the State Department and USAID and the like. And so you have to have some revenue enhancers to go along with that. And if these tariffs are going to be counted as revenue for the tax bill, then yes, the answer to your question is an emphatic yes. The administration is going to want these tariffs to count as revenue

So they can be used to offset the tax cuts. And this is something that's going to play out, you know, really in the next four months, because this this this tax package has to has to pass, you know, this year or else everybody's taxes, including the two of yours, are going to go up. Yeah, but this is not a one for one tariffs replacing these taxes that are going to be reduced in the U.S. domestically.

My understanding from the analysis is the deficit will continue to rise because net income to the government will still be lowered. Is that what your understanding is?

I think, again, we're really getting – we need to get some joint tax committee expertise in for this. That's right. They love it. That's actually – you could do a whole thing on reconciliation. No, Jim, I think those are two different things. It's not the – the deficit's irrelevant.

for looking within the four corners of the tax bill. The question is, if you're going to cut tax here, are you going to raise revenue there? And you can cut, you can, you know, or you're going to eliminate, you're going to eliminate spend somewhere else. So you can cut taxes and you cut Medicaid.

Right. Because you get less revenue from tax. You you don't spend as much on Medicaid. So if you throw tariffs into that, that's what counts. It's not that the deficit it has nothing to do with the national deficit. It's what's what's what's within the four corners of of of that tax package. All right. And that's why tariffs get thrown into this. Now tariffs become political in the U.S. in addition to becoming economic and national security and trade and everything else that we deal with on tariffs.

All right. So having gone into U.S. domestic politics, let's pull back here for a second and get you out of here on an exit question. So here it is. You are going into the big trade negotiation between Donald Trump and Xi Jinping. Two men walk out, walk in, only one walks out a winner. Would you rather be playing the hand of Donald Trump or playing the hand of Xi Jinping as it stands today?

As it stands today, if Donald Trump doesn't change anything and he loses all of the advantages the United States has, then it becomes a wash. But if Donald Trump, before he negotiates with Xi Jinping, and from everything we hear, those negotiations aren't coming anytime soon. If he does negotiate, if Donald Trump can cut deals with Japan, with Korea, with

with the EU, with Southeast Asia, and have some alliance system back in place where it's not the US v. China, but it's the US and its partners and allies v. China, then Donald Trump has a much stronger hand. That goes against everything America First trade policy stands for. The America First trade policy is that the US is the biggest, strongest, most important economy in the world.

And we are better negotiating bilaterally because we have all the leverage. But when we get ganged up on in the WTO, in the TPP, wherever it may be, we lose our leverage. Therefore, we only want to negotiate bilaterally with everybody. If that is where the U.S. stands, then it becomes which economy can hold out longer, who can hold out longer politically.

Um, and the U S is better capable of withstanding this economically. Uh, Xi Jinping is probably better able to withstand this politically. Um, and so it's a wash what's going to win economics or politics. And, and, and because we have no idea to predict anything right now, it's why that the two words that, that, that, that come up all the time, um,

is volatility and uncertainty. And the things that businesses and investors hate more than anything is volatility and uncertainty. And that's literally all we have to deal with right now. Well, on that happy note, we do, Steve Okun, want to thank you for joining us and wish you all the best on those expat taxes.

Well, and I wish you all the best on your taxes back home. And I'll just say, Jim, we miss you out here in the region. We follow, of course, what you do. And, you know, Jim, what you and Ray are doing, you know, highlighting the importance of why we need to care about the Indo-Pacific. It's more important now than it's ever been. And so we all need to keep doing what we're doing.

You're a smart man. Tell us more about ourselves. Thanks for joining us, Steve. Absolutely. Thank you.

And our sponsor once again is Bauer Group Asia, a strategic advisory firm that specializes in the Indo-Pacific. And of course, if you are investing these days anywhere, but especially in the Indo-Pacific, you're going to need their unmatched expertise and experience to help you navigate the world's most complex and dynamic markets, which certainly explain today's markets. My co-host, Jim Caruso, is a senior advisor with Bauer Group. You can find them at BauerGroupAsia.com. So Jim, thanks for joining us.

Steve Okun likes to talk. He is a very enthusiastic guest. Steve was always a very fun interlocutor when I was at State doing economic stuff. He's very insightful and very single-minded, which reminds me of a story. All right. I jumped into my story because it involves Steve. So Steve was with a private equity company.

And he got involved in their social governance, do-goodism, if you like. And he found a guy, an American, who wanted to start a cashew growing business in Bali. Because this guy noticed that

Indian traders would come every year and buy the cashews that fell on the ground, and the Indian would take them back to India for processing and sell them for big margins. So this American decided to organize a co-op to do all the cashew processing right there in Bali. And Steve Oken got this major U.S. private equity company to support him.

And Steve promoted this company. They got them on Amazon, selling their cashews, different flavors, including extra spicy. And it was just so impressive to me that one man could be so enthusiastic about nuts other than you.

Well, somebody who's not nuts is our producer, Ian Ellis Jones. But he does put up with a couple of nuts. And his company, IEJ Media, has been a godsend for our podcast. But he's also very interesting out on his ex-profile at Ian Ellis Jones, where he does some fantastic military and geopolitical posts. And you definitely want to follow him. You also want to follow us on YouTube if you're not already. You want to go to youtube.com at IEJ.

at IP Podcast. You may be there right now. If you are, please hit that subscribe button at the bottom. Hit the big thumbs up. And then you can go back and watch some of our previous episodes, like why should we care about how Japan responds to Trump's tariffs or about trade with Southeast Asia if you're really into trade. Those are two recent ones we just did.

And you can, of course, follow us on social media. That's X, that's LinkedIn, that's Blue Sky. We're on all of them. Go look for us. And if you really want to get in touch with us, you can email us at indopacificpodcast at gmail.com. We do read all of those and we respond.

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