A Week of Trade War Chaos & What's Next For Tech

27:44I'm not sure what part of China they go to, but the truth is China stopped being the low labor cost country many years ago. The reason is because of the skill, the quantity of skill in one location and the type of skill it is. Like the products we do require really advanced tooling and the the precision that you have to have in tooling and working with the materials that we do are state-of-the-art. And the tooling skill is very deep here. You know in the US you could have a meeting of tooling engineers and I'm not sure we could fill the room. In China you could fill multiple football fields. Okay, so that is Tim Cook on why Apple has such a reliance on China.

28:28And I think it's important to say that it isn't just the cost of labor, it's the expertise. And any way you look at it, whether Apple moves manufacturing to another country, or whether Apple brings manufacturing to the United States, it has become so reliant on China, not just because the systems are set up there, but because the expertise that Cook speaks about is there, that any change to its operation, which Cook has meticulously built for many, many years, a decade plus, that's under threat. So what's your reaction to that, Ranjan? Yeah, I think Tim Cook makes a really important point there that the assumption, at least in the arguments of kind of the overall Trump rhetoric, is China is just low cost.

29:15But he's correct. I think even in retail, you see that certainly in hardware, you see that there is an expertise in the manufacturing and engineering that's been built over 25 years or even longer than that. So I think when we're talking about what can businesses do, it's a really difficult discussion because those skills might not exist in Vietnam or India or certainly in the US. So you can't just shift stuff around. And then also, I mean, on the Apple side, they made$67 billion in China last year selling products to Chinese consumers. So does that just go away? As of today, it certainly feels like at this exact moment for the next few days till a deal is struck, that revenue is gone.

30:00So I think, I mean, Apple is going to get hit on both sides here. Yeah. And so it was almost a necessary risk that they had to take. But we always have said, even on this show in particular, that it was always going to be a risk for them to be this close to China. And now it seems like that's playing out. Now, look, I think you and I both believe, and you correct me if I'm wrong because I'm speaking for you here, that China and the U.S. are going to figure out a way for Apple to continue to operate in that country. It's just too important for both of their economies. You know what? I think I disagree.

30:35I think like there is a world where and we've just become so used to the idea that that is how it works. And there's a world where it doesn't work like that. Like maybe everyone's got a Xiaomi phone. They're actually pretty good. I kind of want to get one of their foldable phones. Like, you know, there is a world where Apple is selling 67 billion dollars of products to China. Maybe they're not, you know, like it's it's it's still not. I mean, it'll hurt them significantly, but Facebook and Twitter and all these platforms are banned. China does, I mean, that's the kind of ironic part of this whole discussion is, for years, I've actually been saying, you know, Chinese behavior and protectionism is often unfair.

31:23There's a lot of unfair trade practices. Economic conflict with China is one of the biggest issues and threats for America to deal with. So it is ironic that that is being dealt with, right? That it's happening. I should be a little bit happier. But yeah, I definitely think there's a world where TikTok doesn't exist in India. Like there's plenty of economic borders that have been put up around the world that we just kind of, because in the US we do have such a free market that we forget about. But that could, Xiaomi phones for all. Everyone's got a green bubble on their iMessage if you're getting messages from someone.

32:06Well, the Chinese government has banned iPhones in government offices, so we know that. What's going to happen if Apple, though, completely goes? Because remember, it's not just not being able to sell into that market, which makes up 15 % to 20 % of its sales, but it's potentially not being able to produce there. Let's go to somebody who really has his finger on the pulse here of what Apple is doing in China, and that's M.G. Siegler. I'm just going to read a little bit of his piece, Trump Throws Apple Under the Tariff Bus. He says, Tim Cook may have put in the legwork and money to try to ensure that Apple was in the best possible position with the Trump administration, but at the end of the day, the president undoubtedly sees the world's most valuable company, or second most valuable company, because it did fall over the past week, as his greatest bargaining chip when it comes to China.

32:52because Apple is so heavily embedded in Chinese manufacturing when it comes to the most profitable product on the planet, the iPhone. Trump must view the dynamic as not just important to Apple, but important to China too, and he's not wrong. There's no way Apple can or will move manufacturing to the US. They might move a small subset of the process or give some lip service about considering it to appease the president, but it will not happen because it cannot happen. Such a move would destroy Apple as a company that's not hyperbole. it's their most important and profitable products product destroying the margins as would have happened to in a move in the u.s as would happen in a move into the u.s would cripple the company as it stands today at least on the stock market and jacking up the price as would be required to maintain those margins and manufacture in the u.s would probably destroy them people love the iphone a lot few people fewer people are going to love the iphone that cost 300 or 3 000 or 4 000 dollars I mean, basically what MG is saying is that Apple cannot continue to operate if it moved to the United States.

33:56Now, maybe it moves to Vietnam and that's part of this decoupling. That's always possible. But again, going back to what we just heard Tim Cook say about China, it's going to be some fairly important stuff for Apple to resolve and potential. I mean, what MG is saying is it's existential to the company. A hundred percent agree to existential. I think the way to think about this, and this is for a lot of companies out there, the business as it exists today, as every analyst has built any kind of financial model around it, what their margin structure looks like, what any kind of growth forecast looks like, all of that completely gets demolished if this sticks.

34:36And not to say that Apple couldn't reinvent itself, reinvent its supply chain, maybe make Siri work a little better. whatever, you know, like maybe they figure something out. But the business of Apple today is not in any way the business of Apple five years from now. If this sticks.

35:14Listen to The World on your local public radio station and wherever you find your podcasts.

35:25Tim Cook has just had a horrid 2025 so far. The disaster that is Apple intelligence, this tariff thing, which is even worse, which is amazing. We were talking like the Apple intelligence was existential. Not being able to make the iPhones, I think, would be even further of a problem. So terrible. They're down 18 % of the year, even after coming up a little bit today. So very bad for Apple. I think a lot of this might hinge on Apple, and I wouldn't be surprised to see Tim Cook get involved in the discussions. Another company that this is very bad for is Tesla. And Elon Musk has been, I don't want to say absent on this, but he was a central figure in the administration from, let's say, January 20th to April 1st, maybe 2nd.

36:10And then we start to hear things about he's going to go back to run Tesla. He's not going to be as involved anymore. And this central voice of support for Trump has now become a detractor to the tariff policy. And he's called Peter Navarro, the aforementioned Peter Navarro, some very bad names on X. What is the implication for Tesla? Because Tesla also has a supply chain and also a market within China. So this is one moment I will be a bit more generous with Elon Musk and Tesla. The one advantage they have is they can manufacture in China to sell to the Chinese consumer. They can manufacture in the U.S.

36:54to sell to the American consumer. Now, there's a lot of debate over how many of the parts are really coming from the country of manufacturing. Would they have to paid duties on some parts of the car. Are there some other implications? But relative to Apple, they're a little better set up. But I agree. I mean, still, they made 20 plus percent, I think, of their overall revenue from the Chinese consumer or the Chinese market. Everything goes under threat if this stuff sticks. But him being silent has been quite something to watch, I think. Do you think he's going to come out a bit stronger soon?

37:33Well, it's not exactly silence. I mean, he has spoken against tariffs, but he hasn't been because he had been so loud and so amplified by the White House for so long. It does feel like he's being quiet, but he's not. Now, look, he's definitely anti-tariff. We know that. Now, listen, he might also say we already make Teslas in the U.S., so we won't be impacted. What do you think about that argument? No, no, that's definitely what he is saying. And again, that's why it's true. So they're better positioned than Apple, I believe. But there's a lot of question again over what would apply to them. And I think that's the problem with so much of this is unclear.

38:14Like, are certain components going to be tariffed within a Tesla? There's no way. Are the rare earth minerals that are going into making the battery, could that be as a cost input tariff? So it definitely still would affect it and change it. And I do love the fact that I just said he is being quiet in any other world. Would him calling the chief economic advisor driving this policy from the administration, Peter? I'll say it. I mean, it's newsworthy. He's called him Peter Retardo. Yeah, Peter Retardo. There we go. I mean, in any other world, that would be screaming loud and like throwing a fit.

38:55And I just, in the world of Elon Musk, he's actually being kind of quiet and civil about all this. Yeah. Well, I think he's probably very anti. I think that he just can't. I mean, if he was pro, he would be defending it. He's not defending it. So he's probably anti and just realizes that his relationship with Trump might be at risk if he speaks up. Okay, now we have some other companies that you did this ranking of the Mac 7. Tesla and Apple equals screwed, okay? Negative is Meta, Apple, and NVIDIA for advertising and supply chain reasons. Do you want to share a little bit more about that? Yeah, Meta, Amazon, and NVIDIA.

39:38Oh, Amazon, yep. solely on if recession comes, advertising is the first market to be hit very severely. So I think - Wait, hold on. I'm going to stop you there already. Solely, I mean, there's so many Chinese products that are sold with meta ads. So there's going to be an immediate hit. Okay. No, no, that's fair. That's fair. And actually, yeah, sorry. Yeah. And Shein and Timur have been, I think 2023, it was something like 15 to 20 % of overall advertising revenue was from Chinese advertisers. So yes. Okay. So it's both immediate and medium-term negative. Amazon is actually like seems to be pretty calm about it.

40:17We all, most people know they have very heavily moved towards lower cost Chinese suppliers. And kind of that was like a big strategic move that worked out really well and allowed them to compete on price against Xi and Intimu. That could definitely have short-term or medium-term consequences. And NVIDIA, again, the uncertainty around the supply chain, any kind of downturn from any of these companies, AI spending could be the hardest hit in AI investment or at least hit hard and it'll change the trajectory of the company. So they're all kind of medium. This is not good, but it's definitely not existential for any of them.

40:58Yeah. I mean, Andy Jassy had the most CEO line. this week he said that the company made strategic forward inventory buys which basically meant that they were basically shipping pallets of Chinese goods to the U.S. as fast as they could before the deadline and Apple was doing the same apparently Apple this week loaded 600 tons of iPhones onto cargo flights from India and rushed them to the U.S. so there's definitely even if they seem calm on the exterior they're taking pretty extreme actions to get around or to try to get ahead of this stuff. And then you have Google and Microsoft as okay. So talk through that part.

41:32Yeah. I mean, Google is suddenly benefiting from never really being given much access to the Chinese market. And so they're, they, they are relatively okay in this. There's no large piece of the business that I think is like a recession certainly will affect them. And I think Microsoft falls into relatively the same bucket. They have a bit more active business in the greater China region. But overall, like those two businesses are probably the most decoupled already. They're not selling really physical goods, maybe the Pixel and other devices for Google. But like, I think they're sitting relatively pretty short of a recession and on a relative basis, very pretty.

42:15You're talking though about China, but what happens if the EU decides whatever's happening is not to their liking? because they're talking about some unprecedented stuff. This is from the FT. The EU could tax big tech if Trump trade talks fall. The EU is prepared to deploy its most powerful trade measures and may impose levies on U.S. digital companies if negotiations with Donald Trump fail to end his terror for against Europe. The European Commissioner President Ursula von der Leyen told the Financial Times the EU would seek a completely balanced agreement with Washington and what is going to happen if that doesn't get pushed through.

42:53She says, we are developing retaliatory measures. There's a wide range of countermeasures in the case negotiations are not satisfactory. An example is you could put a levy on the advertising revenues of digital services. I think this is going to become increasingly popular among countries that are negotiating with the U.S. Basically, so far, the tariff discussion has been goods for goods. But what about services? And what the EU is saying is like, you're right, you want to tax our goods, we'll tax your service right back or we'll tariff your services right back. And now, of course, there is sales tax in individual EU countries, but they typically operate in places like Ireland where the tax is low and there's incentives to operate.

43:36And this could be a block wide tariff. So what do you think about the fact that like clearly Europe and other countries have seen that tech is sort of the golden child of the US? It's the thing that powers the economy behind Trump at the administration. We're at the inauguration where Mark Zuckerberg, Bezos, Elon, et cetera, et cetera, Sundar. And what they're saying is, all right, you want to tax our goods? We'll hit you where it hurts. We'll hit you. We'll tax big tech. Yeah, this one is one of those reminders. So we have like first order consequences. Any company doing business, selling to China, manufacturing out of China, other really trade related things.

44:14but then we start to get into these kind of second order more unpredictable consequences I mean like every big tech company runs a lot of revenue through Ireland because I think it's a low or almost no tax jurisdiction it's actually my favorite named tax strategy the double dutch sandwich somehow it's called that like to move revenue from there I think anywhere else in the stuff hard, they have leverage. And as you said, you're exactly right that like these are American companies that have dominated our markets, dominated the globe, have powered US financial dominance for the last 10 years, 15 years.

44:58So if they can really show some pressure and hit them, it's certainly a card to play at the table. Yeah. I mean, that is a big risk. The other, I wrote about this in big technology. So you could see that. And by the way, this was not even an idea a couple months ago and now it's being advanced by the commissioner of the eu so like okay now all of a sudden this idea of taxing services in the us like we weren't speaking about it before we are speaking about it now talking about like long-term implications even if you say psych what do you think about we've talked about this with brian mccullough a little while ago about this retreat from ai us ai models that you know speaking of trust countries or companies in different countries might be like, you know what, open AI seems fine, or Anthropic and Google seem fine, but we'd rather just like, work on, let's say, a Chinese open source or a French open source model, because we know there won't be any trade trouble with those countries.

45:50I think that's a possibility. Yeah, it's certainly a possibility. I mean, I think it's almost the policies are designed to do exactly that. And there's a world where you have no other alternative, like Tim Cook saying manufacturing in China and expertise, you're dependent on it. But if Mistral is there, if DeepSeek is there, if Alibaba's open source models are there, and suddenly you're like, do I got to pay a tax on my OpenAI API bill of 20, 30, 50%, whatever it is, you're certainly going to change your investment decisions and where you start to actually build out your AI solutions. And then And you think, is there long-term implications of that for the entire AI battles?

46:34Because whatever people choose to start building on in the next one to two years could very well be their solution for the next 10. So I think that threat from them has a lot of weight. You know, Ranjan, isn't it crazy that we were talking about a soft landing or a no landing, it seems like just a couple months ago. And now all of a sudden there's just like total upheaval in the markets and the economy. Yeah, it's just one press conference and one chart. And that's it. That's it. It's incredible. So where do you think is going to happen from here? What do you think is going to happen from here, Alex?

47:17I think that there will be, I think Trump is going to have to try to find some way to declare victory. I don't know if he's going to find it. I think the Chinese are ready. I don't know if you've seen, I've been dropping it in our discord, but the Chinese have absolutely been cooking the US on social media. Their meme game is top notch. Now I'm not cheering Chinese propaganda, but I do laugh at it sometimes. I think that China is prepared. I think that there could be some pretty ugly consequences here. I just don't, I think that Trump is, I don't know if you've seen the polls, but Trump has been about as far down on the economy as he's ever been in terms of trust.

47:57And that was always sort of his floor. And so he could eventually look at that and respond. I don't know. I mean, if you there's basically two ways that I see this happening. One is Trump goes back on the tariff plan and fires everyone, fires Peter Navarro, fires Lutnik, fires Besant and says, you know, these people pushed me into this. It was a terrible decision and they're gone. The other thing that he says is basically, all right, we have to decouple from China. It's going to be painful. He seems like he's willing to risk a recession. And so he could basically ride it out. And I don't necessarily see the Chinese caving either.

48:37My hunch is because of I've been talking about this through the whole episode. My hunch is that basically Trump goes back from this and China backs away. And in a year from now, we're talking about the same system we've always had, because I don't know, I guess that system is just resilient. And that would be my best guess. But I would be the first to tell you, I have no idea. I'll be the second to say I have no idea. But I think, to me, the central question is exactly what you ended on. Can the system survive a walk back on this? And I have to think it can't. Like you already have the Spanish prime minister or president is in China today.

49:21Xi Jinping's going to Vietnam next week. Like the global system's getting reordered and all of this could have worked if China was the target and like it was around building alliances and then going after China and encircling them and, you know, like being really clear on that and doing it strategically. But I don't see how you go back from that. And then you get into the, I mean, when you start looking on a medium term time horizon, if another like administration is voted in with very, very different, a very different worldview, does anyone trust us again? Like, can you rebuild? Like, I think we're past the point of the American system, American led system of the last few decades, maybe even longer.

50:12I think it's gone. And and there's plenty of people who myself who saw certain problems in it. There's a lot of people who thought overall it was bad. I think overall it was very good. But I don't see how America specifically comes back to the exact same system. I think that there's a chance that everything just goes back to normal. Maybe I'm naive, but I think that world leaders will see Trump as a singular type of figure, a unique individual, and they'll take a look at the clock and say that, okay, he's got three years left, and things will probably go back to normal after he leaves. And plan accordingly.

50:51I was thinking about, I was in Paris recently, and my wife took us, my son and I moved to Disneyland Paris and it's it's like insane to me where you watch everything is Americana like it's the old west they even have like a whole Casey Stengel baseball thing set up like and all these little French kids are just indulging in pure Americana nostalgia and like thinking about the soft power that was built over I mean that's like a century almost I agree there's part of me that's like, could all of that really evaporate in three years from a singular figure that it seems difficult, but it's also, I don't know, we got, we got a long way to go.

51:38We're only in April. Yeah, nothing's impossible. I was recently talking to someone about how there was this theory that two countries with a McDonald's never went to war with each other. Right. That was kind of like the cliche globalization is good theory. And then of course it happened and then happened again. And so I think some of our assumptions might be gone, but I just think the system is resilient and the world needs it to work. And it has left people behind. I'm not going to deny that like it has. And there are, I mean, the idea of trying to mitigate its downsides should have been the whole way.

52:13You know, if the U.S. had gone down this route, the U.S. had gone down this free trade route, the idea of mitigating this downsides should have been front and center the whole way through. And it hasn't been. And I mean, think about like U.S. politics over the past, I don't know, three decades. Clinton said it was the economy. Bush was trying to basically continue an economic, you know, the NBA president, 9-11 happens. And then our politics become about wars, culture war, COVID and more culture war. So I think that the United States has completely let its eye come off the ball, to use that baseball metaphor, and has allowed itself to fall into this position because its leadership has not been concentrating on what's important.

53:01I mean, the U.S. was central in establishing this free trade system in the globe, understood that it was going to be complicated while it could help everybody. There would need to be work to help everybody. And then it refused to do the work. And then people got mad. And, you know, the answer being then smashed the entire system down just doesn't seem to me to be the right mitigation. But we'll find out. I mean, you're right. It could all crumble. There's too many people's livelihood. Think about all these CEOs that have donated all this money. And I'm not saying their money should buy influence, but I'm saying it does.

53:42They are powerful. And the president does care about the economy. We know that. So if it's all going to fall apart, there's a chance that their influence will eventually hold sway. Even the bond market pushed Trump to the pause. Nothing else. So he is influenceable and I believe he'll be influenced, but I'm the first to admit that that my position might be naive. Trust in the bond market. That's all we can do right now. Fingers crossed. All right, Ranjan, any final words, any final thoughts? yeah i think i what you're saying just had me thinking like in the 2017 2018 i actually like wrote a lot about being a recovering neoliberal and like actually trying to identify these things regular listeners know like she and timu selling cheap shit into the u.s and flooding our markets and hurting our actual business like american businesses and retail has been one of my biggest rants for a long time.

54:43I mean, that's, that's a tough part about all this. It's like, there's so many of the kind of like end goals that I actually do agree with, but it's the, don't, I can't trust this process, the process I do not trust. You know, it's, it's so true because we've been talking some of a lot of the stuff we've been talking about. They're trying, they're saying they're trying to address, right. Um, this idea that all this, uh, cheap shit is flooding into the United States and hurting businesses. Um, totally along the lines of the Sheehan and Timu stuff. Scott Besson has even been like very clear in saying that like, if you're, if you don't have an income, like a strong income and you can buy cheap shit, you're not better off.

55:24And we need to basically declutter ourselves. And I think you and I both agree with this, this idea. Yep. Just didn't picture it coming from Scott Besson to all people. No, definitely. But just to see that the tactics have obviously been bad. And we're going to spend a long time trying to figure out why this happened the way it did. That's about as much as you can say about it. It's April 11th. S &P is up one and a half percent. So is the 10 years up. Yields are up about a percent. So Sunday night's a long, long way away right now. I know. I mean, we had the Friday show last week. That was Mustafa Suleiman because we flipped our Wednesday and Friday show.

56:06And as you and I were texting all through the weekend about what the hell was happening. I was just like man like we got to get back on the air with Ranjan so I'm sure we'll have a lot to speak about next week as well alright Ranjan thanks so much for coming on the show great to see you as always alright see you next week alright everybody thank you so much for listening we'll see you next time on Big Technology Podcast