How Trump’s tariffs actually work on the ground

24:10Whatever motivations the Trump administration might have, or whether the people involved are misinformed or simply reckless, is besides the point. The result is what matters. So I want to ask Ryan, what's going to happen now? Let me talk about a second number of consequences. I actually want to start with Flexport, and then I want to get into what you're seeing across your network and across your customers. Last time you were on the show, 2023, you described a pretty broad vision for the company. And at the time, it didn't strike me as being under threat by the collapse of global trade. But in your vision, there's the implication that global trade will get easier.

24:45And you described growth for Flexport in the following way. You said, I want to be able to go to a brand in the United States and say 90 % of your sales are in the US. But if you look at your Instagram followers, it's 50-50 global in the US. Why aren't you selling on Flipkart, Rocket on all these other platforms? I can let you up. We've got the international piece. We've got the customs. We can deploy the inventory and fulfillment and just help you grow your revenue. That is a growth story for your customers that implies that international trade will get easier or more predictable, that you can be a driver of growth.

25:14And what you were saying is, I don't want to be a cost center. I want to be a driver of growth. with all of these international capabilities. That was vision in 2023. It's 2025. A lot has changed. A lot continues to change day by day. Is that vision under threat? I think the vision becomes more important as it is under threat. Global trade is under threat. It's less popular, you know, than it's been for a long time. But it also makes it more important that we work on it. And it's kind of, in some ways, easier to create value if global trade gets harder than someone who's working to make it easier or is, like, more valuable.

25:43You know, I also take the really long-term view where global trade has just increased 4 % annually for the last 800 years, if you look at it on a long, long-term basis. And there have been major disruptions to global trade in that period, World War II, the Black Death. I mean, there's a lot of things happened. And yet global trade continued to outgrow it all. And those things barely show up when you look at the exponential growth curve of trade. You barely notice them. So I think on one hand, trade is, if you fast forward 10 or 20 years, there's going to be more trade than there is now. I have pretty strong conviction of that.

26:20I don't need that to be true for Flexport to win, but I believe it to be true. And then on the other hand, things I am certain of is that there will be trade and that people will value a cheaper platform that has higher quality, more on-time delivery, faster shipping. Like there are certain things that are going to be true no matter what. and we just have to be super persistent in pursuing that vision. And then to the specific point that you mentioned of like helping a company go global, that might be more important than ever. If trade in the United States is more difficult, brands are going to want to find, okay, where are my growing markets?

26:53Like people are looking right now, okay, I've got, it's going to be really hard to ship from China to the US. Can I sell that inventory made in China somewhere else? What are the markets that don't have these same protective barriers? And can I use my brand to go into other countries and sell stuff. I think U.S. brands and global brands are going to be important. That's one of our beliefs, is that not everything should just be commodity, Amazon Basics, cheap crap. Like, people, there is value in creating a brand story and taking that globally and selling your stuff. So I don't think our vision is under threat, like, that it won't happen, but it's definitely under threat in the sense that, like, it's harder than ever to make it happen.

27:35You just said something really profound there that some brands might say doing business in the U.S. is too hard. I need to take my Chinese manufacturing base or my Vietnamese manufacturing base and figure out what my other markets around the world are. For the past, I don't know, 15 years, what you want is you want to get into the Amazon shop and create a brand given the extremely fluid supply chain between China and the United States. There are a bunch of brands we've covered just in tech that are this story. Anchor is one of my favorites of these, right? It's a bunch of ex-Amazon engineers that moved to China and started selling batteries.

28:09Now they have a growing tech brand that just sort of relied on the ability to move things back and forth and use Amazon as a storefront. If all that moves outside the United States, where does it go? If the United States is no longer the preferred market for that kind of growth story, where does it go? Well, in aggregate, it will be very hard to replace the U.S. consumer, which is like the biggest consumer market by far. Just as it will be hard to replace the Chinese as a manufacturing site. But you'll see on any given brand, they're going to try really hard. You're seeing them shift pay-per-click ads to other countries, testing things out.

28:42I don't know if Europe becomes a growth market because of all of this, but for a given brand, they're going to try hard. They're going to push more ad spend into those markets. LATAM, we see a lot of companies looking at those markets. But, you know, it's going to be really hard. You're not going to be able to replace the U.S. consumer. And so, my broader point is just brands are going to want to be more global generally. and this might accelerate some of that. But when you look at it in a macro picture, there's not gonna be enough demand globally to replace the US consumer. A little earlier, you mentioned the iPhone is an easy example for people to wrap their heads around when it comes to tariffs.

29:17In whatever scenario we land on, if the United States tariffs smartphones ship from China, the components to make the smartphones or whatever it ends up being, the iPhone will be more expensive. But the iPhone is already expensive, right? It's just interesting to me because at the high end of the smartphone market, particularly where the pro phones sit, It feels like the customers of those kinds of devices will just eat the marginal cost of whatever tariff increases get baked into the price. We're actually already seeing this in the TV market. Sony just raised the prices of its most expensive TVs.

29:43It appears in the United States by$500. They're going to sell every one of those TVs. Those are the most expensive TVs you can buy. They were already selling every single one of those, and those customers are just going to pay the extra$500. It feels like the low end of the market is where the customers are going to be most sensitive to these price fluctuations and these price increases. Is that something you can see already, that it's the smaller goods, the cheaper goods that are the most affected? I haven't seen the data myself, no. I'm not saying it's not out there to be seen, but from where we sit, we're not necessarily seeing the final sales data yet.

30:16It is about the margin, though. So the higher the margin is, the less percent that it matters on the tariff. So, yeah, in that sense, it's really about margin that it is total dollar spent. It's like if you're marking the thing up 5X or 50X, like some Nike sneakers or whatever, then who cares if your cost goes – you sell a$5 product for$100. It doesn't really matter if it goes from$5 to$10. Okay, now it goes from$100 to$105. Whereas if you're a 5 % margin business on the goods, now you've got to mark the price up 2X basically. So that's the ultimate question here is the high margin businesses will be less impacted.

30:56than the low margin. I ask that question because I've been dying to ask you about the de minimis exception. You have entire companies here like Shein and Timu that basically have built their business on this one tariff exception that has existed, which you mentioned already. If the package is worth$800 or less, it's going directly to the customer. You don't have to worry about any of this. That's going away. That's a lot of volume from those two companies, right? They're sending a lot of things to the United States all the time. TikTok shop exists. It's sending a lot of things to the United States all the time.

31:27it just seems like enforcement of that volume might cost us more than it's worth. Like that whole thing might get wiped away by the de minimis exception disappearing. Do you see that already? I mean, you must see that volume coming through. Do you see that as being basically an existential risk now if we start actually enforcing it? Existential to who? To Shein, to Timo, to American consumers who love cheap stuff. Well, there's something I have to start paying duties. And then it's DBD, whether the products are still affordable for people they so like to buy it. The duty is not the only thing that makes those business models work.

32:01They have a just-in-time inventory model, so less inventory holding costs of cargo sitting on the water and sitting in warehouses. That gives them an advantage. They're doing fulfillment, pick-and-pack labor in China or in Asia, which is much cheaper than the U.S. The real estate cost is cheaper because they're not renting warehouses in the U.S. Their last mile costs are lower because they're flying in to an airport that's close to the final customer instead of having to truck it all over the country coming from an ocean port. So they have a few advantages there. And then I also think these guys are good at sourcing goods cheaply, better than your brand name American company that has to go source.

32:39So they buy a little bit cheaper. The scale lets them buy cheaper. So I don't know that the tariff alone is enough to derail the business model, but certainly they're going to have to start paying their duties. And then there's a lot of challenges. Not just the duty rates are higher. Customs inspection rates are going to go up. So some percentage of your packages won't arrive in three days. They'll arrive in three days plus two weeks as it goes through a customs inspection process. Customs requires more data on these products than in De Minimis' world. So they've got to go do a whole bunch of work to gather that data on every factory, where it's coming from, compliance data for all the different government agencies that might take an interest.

33:22So, jury's still out. We're going to find out over the next month what happens and do consumers – no one knows how consumers are going to respond to the higher prices. We don't really know. I've always wondered about the actual enforcement of that exception. How do you know if it's$801 versus$800? Just declared. Just the honor system? Yeah. Is there any – I mean, that always seems nuts to me, right? We're just letting this happen on the honor system. Was there any enforcement in the past of people lying, of companies taking advantage of the attention? Less so on the valuation front. How many orders on T-MU were over$800?

34:02You're going to kind of – Everything on T-MU. One of everything. You and I live very different lives.

34:11How many$5 pair of jeans do you need? You know, actually, the bigger thing that I'm surprised the Trump administration hasn't touched and that I'm pushing the thing I'm pushing the hardest for if they're listening out there because they're not going to listen to me. I don't like duties. They're bad for my business. Probably people just ignore me on that front. But the piece where I think the government, this administration should be focused on that I haven't seen anything is on what we call foreign importers of record. So in the United States, you don't need to be a U.S. company to import goods.

34:44And I don't even mean like you don't even need an entity in the United States. You can just import stuff as a foreign company and sell it on Amazon. And you have no U.S. entity at all, no employees for sure, but not even a legal entity. So that if you're caught committing fraud by U.S. customs, these companies just disappear. And there's no enforcement, no going after them. And so, yeah, as the duty rates go up, there's just a huge incentive to lie about the valuation or the classification of goods to get a lower duty rate code. And there's no consequences when they get caught. And Amazon actually allows them, I understand, to keep their – there's not a sync between Amazon and Custom so that they can keep their account on Amazon and keep selling the goods under – they get a new shell company and import the goods under a different name and keep the thing going and keep their reviews and everything.

35:36So that's the one that I think the government really should focus on is it puts American companies that are – and any company that's paying – that's honoring the law and saying, all right, this is the duty rate. I'm going to pay my taxes successfully. It puts them at a huge disadvantage for being law-abiding while other companies can be fly-by-night and just disappear. Yeah, I'm very curious to see how much actual enforcement gets increased here. Yeah. In the previous regime, maybe everyone complained that there wasn't enough enforcement, too much stuff was getting through, legal and illegal. Now it seems like we have a system that requires a lot of enforcement to work, right?

36:14You can't just read the label. That's directly related to what you all do, right? I mean that's being a customs broker. That's making sure the packages are getting through on time. What does that system look like now at the port? Is it just a guy with a scanner? Is it an automated system? They inspect some percentage of shipments. They're not exactly open about what percent get applied for customs inspection, and it'll be very different. So if it's your first time ever importing something, your inspection rate goes way, way up. And if you've imported the same thing over and over again, your inspection rates come down.

36:46And if you enroll in this program that Flexport's enrolled in called the Customs and Trade Partnership Against Terrorism, it's kind of like TSA pre or whatever for customs. You can still get flagged, but your rate goes down. That's like a post-9-11 program they built. And that's how it is. You get flagged. And if you are flagged, you must be able to present those goods to the customs officials. And often it'll be flagged before it leaves the port. So they take it over to a process where they x-ray things or open it up and go inside and look at it. And those inspection rates are high. They're higher than ever before right now.

37:20I understand that CBP is one of the only departments of the government that's going to get an increase in headcount as they start cutting headcount everywhere else. And so, yeah, they're going to need it if they try to ramp up enforcement on all these things. They're going to need more headcount. Do you think they have enough right now just from a capacity standpoint, a bandwidth standpoint? I doubt it given that they basically weren't inspecting very low inspection rates on the De Minimis program. And just to give you a sense of how that thing scaled, 10 years ago, there were about 100 ,000 packages a day imported under the de minimis regs.

38:00Last year, it was 4.1 million a day. And so they just haven't had the capacity to keep up with that from an enforcement standpoint of inspecting. You know, all of a sudden, you know, you're inspecting 1%. It's just like they can't keep up. So we'll see how that switches over to formal entry process. And if the formal entry inspection rate, which I think is kind of like around 1 % of packages get inspected of shipments, then there's a lot of new inspections that are going to ramp up. And I kind of doubt they have the headcount that they need to do that. Do you think they could ramp that as quickly as they need to?

38:35Even if they said you've got a new budget, you're going to hire twice as many people. Is that enough people in enough time? I don't know. I'm not close enough to the problem. I haven't seen anything from CBP on that. I'm just curious because the reason I ask that is because, again, famously, you were like, just stack the containers higher. Like, create more capacity in this part of the system to ease this bottleneck. And it does feel like we're staring at another bottleneck. There's probably some things. I agree with that. There's probably some low-hanging fruit in terms of technology that you could put in.

39:03You know, we only automate. We x-ray 1%. It seems like, I don't know. What do we need, more x-ray machines? What else is there? I met a company a few years ago. I haven't kept in touch with them, but they were doing some crazy stuff where they would put a chip in a rat in the brain. And rats have even a better sense of smell than dogs. And then put that alongside the conveyor belt, and it could detect fentanyl and then send a signal. And, you know, I mean, there's going to be some crazy future tech that might be needed. And I doubt they're doing much of that kind of stuff either. So, yeah, there's got to be a role for technology to help.

39:37And not to mention data science of machine learning to go look for patterns. You know, like the thing that I described of these fly-by-night entities that are serving as foreign importer of record and importing stuff, a smart data scientist could probably detect these patterns of like, hey, this company disappeared and then this other one showed up a week later, you know, with similar addresses or the manufacturer name or the product code. Like a lot of that could probably be detected through machine learning algorithms and other quantitative techniques. I don't know that customs has that capability right now and probably doesn't have it in enough scale given the changes that are happening.

40:15If I'm listening to this, I'm an entrepreneur. I'm thinking, okay, I'm going to go do some data science to detect fraud at customs. I'm going to talk to my friend in biosciences and we're going to make the fentanyl rat. It's going to happen. That all works if you think that there will be a need for these tools down the line, right? That the market will be sufficiently big in the United States or elsewhere. that those businesses will be necessary. But the whole theme of this episode is, well, this might all go away. And I'm just wondering how you're making those bets and those kinds of investment for Flexport and how people listening to this, describing these opportunities should think about those kinds of investments.

40:52Well, you're making a 50-year bet on fentanyl rats. Like it feels like you need to make sure that that's going to be a sufficient budget in the CBP line items to make it worth it, right? The rest should be able to detect other things besides people. I think some of these things, you know, are here to stay. Government's going to care more about borders than they have in the past. And that's pretty consistent. I mean, you know, the Biden administration was pretty – they were kind of like open on people coming across the border. But for trade, they increased Trump's duty rates from term one. They didn't decrease them.

41:31So I think in the U.S., it's both parties seem kind of aligned on that front. Reasonable bet to make. I think, you know, actually the bigger problem that I see as an entrepreneur is just like these, they're kind of like a lot of the edge case, a lot of the cases that we have of, we look at this end-to-end shipment. We're responsible from a factory, a company placing an order to their factory, submitting POs to their factory. The factories become users. So every time we get a company in the U.S., we're getting about 10 of their factories to become users. and then executing that full transaction from picking up the goods, export customs, loading it on a ship, right?

42:08Warehouse where we might consolidate it, but load it on a ship all the way through end-to-end. We look at that full end-to-end and then anywhere in that chain, we can go, oh, look at this, here's an application for AI. We can take away this little small detail that might only save two minutes of labor, but multiply it times a million shipments, it's like worth doing, but maybe not worth creating a whole startup around. You wouldn't even know about that problem. It's kind of nuanced and it maybe is too small to create a whole company around. So that's where we like our position in that sense of like, there's a million little things that we can go and automate and problems that we can solve that aren't maybe no one would ever know about that problem and wouldn't be worth, they're not market size, not big enough for a whole company.

42:51So yeah, it's hard to figure out this. It's also why I don't think you're going to see 18 year old kids straight out of high school build successful supply chain tech companies? Because you need some real world experience to actually see the problems up front. They're smart enough. They just won't have seen it. We need to take another quick break. We'll be right back.

43:21We're back with Flexport CEO Ryan Peterson. Before the break, we were talking through some of the actual on-the-ground consequences of Trump's tariff policies. For instance, what the future might hold for companies like Shein and marketplaces like TikTok Shop and Timu that have historically relied on the de minimis exemption to ship tons of cheap goods to American consumers. Or how you might even enforce some of these rules, given the sheer scale of exporters that want to reach the typical US buyers. We also talked about fentanyl rats, which was a first for us here on Decoder. But there's a much bigger picture here and one that really gets to the heart of what we think might be going on, China.

43:55This trade war looks increasingly like Trump's tool for punishing the Chinese government and the Chinese economy, and trying to tilt the balance of global trade in a way that decouples the US and its presumed allies from the world's biggest economy. As you might imagine, that has some profound consequences. So I wanted to ask Ryan about that and get his take on what he thinks will happen to manufacturing, trade, and the global supply chain if we stay on this current path. You mentioned borders. It seems like borders are going back up. This brings me to China pretty inevitably. It seems like changing the terms of our trade with China has been the goal of both administrations, Biden administration and the Trump administration.

44:33The terms are changing even more dramatically now. I think if Trump could say nothing was manufactured in China and all of it was being made in Kentucky, he would just write that EO tomorrow. He can't do that right now. But as you're saying, you're seeing increased shipments from Vietnam for the first time ever. Where else are you seeing that manufacturing move to? Is any of it moving to the United States or is it moving elsewhere in the world? No. I mean, U.S. has been – U.S. is a major manufacturing center. Before, you know, I might have said earlier we don't make anything. It's not true. America is one of the biggest export markets in the world.

45:05We export a lot. We do make a lot. We're one of the biggest industrial producers in the world too. But as a trend, what you see is manufacturing shifting always to low – water flows downhill. hill. And if you're looking for cheap labor costs, that's not the U.S. And it's not China either, by the way. So if it's just cheap labor, that's largely moved to places like Vietnam, Cambodia, Bangladesh, Sri Lanka for apparel. India is growing quite fast. And then parts of Latin America as well. So these policies are making it more difficult for U.S. manufacturing because of two things. I mean, they import machines, and a lot of those machines are not made in America.

45:52And if no one makes your machine, you just got to import it and pay the duties, and therefore your costs are going up. A lot of the machinery is made in Germany. And second is labor components. These supply chains are quite global. And so you want to buy your component from somewhere else. And now you can set up a foreign trade zone in the U.S. so that you could import and make your factory a foreign trade zone so that you don't pay duties on these things and you can process it inside the foreign trade zone. And then if you're exporting the goods, never pay U.S. duties on the way in. So that's going to be more and more popular, more and more common.

46:27That's a service that Flexport offers to help you get your factory turned into a foreign trade zone. But in general, that's a pain in the butt. And so people are just going to, if they're given a choice and they have, like I have a friend who has two factories, one's in Europe and one's in the U.S. he's going to shift manufacturing to Europe for the global market because he doesn't want to pay duties on the way in for components. And Europe's not making him do that on Chinese components. So the policies are not really designed as far as I can. Well, they're designed to generate reindustrialization.

47:02I don't think that's the result they're going to achieve. Yeah. That piece where it's factories outside the United States that actually boom feels like a small trend. It's – there hasn't been enough time. There's not enough data to actually call it a trend. But we've talked to several hardware manufacturers who say, look, I'm investing in Mexican production, right? I'm going to invest in production elsewhere because my components can at least come to these countries without all these extra duties. And then on final imports, I'd say I can just pay the final tax. I'm not managing all these different supply chain risks.

47:36I'm going to a place that allows me to just deal with that and then I can deal with it once entering the United States market. Are you seeing any glimmers of that in terms of where things are going to like what factories from different places where the components are being built? Yeah, I mean it's a long-run trend of companies diversifying away from China also because of Chinese labor costs. I mean China's done great. Their workers make more money and now it's more expensive. So if you're in China, it's not for cheap labor. You see that moving. the interesting question right now as trump's given these countries 90 days reprieve from the reciprocal tariffs um what do you think they're do you think they're reciprocal we're calling everyone has to call them reciprocal because that's what they say but do they feel reciprocal to you yeah i mean there's it's a reasonable case i mean a lot of these countries do have they're saying it's not about it's not reciprocal on their tariff levels it's reciprocal on their whole package of industrial policies.

48:32And on that, I think there's some reasonable grounds to stand on that. I mean, look at Vietnam. Their currency has depreciated the last five years, even as the amount of trade has boomed. I mean, in a normally functioning economy, the dong would have appreciated, not depreciated. So there's clearly some industrial policy going on. I mean, Korea was a famous one in the 60s and 70s. Korea adopted a national required six-day work week mandated by a dictatorship. Well, that's not like really fair. Like we're giving our people the weekend off. So there's some cases to be made here. I don't really care about the language of it all, but he's given them 90 days.

49:12Now we're like 80 days left, right. To make a deal. And I suspect a big part of what the deal he wants is, Hey, you have to put barriers up against Chinese goods coming into your country. If you want access to the U S market at a low duty rate. So we're going to see, I think it's too early to assess the landscape and people who are making, just creating this paralysis because you're sitting here going, I can't make any decisions. But you also should avoid declarative statements about what, you know, what the result of all this is and what it means until we have more, until some of these deals get negotiated.

49:45And I don't know, I'm trying to withhold some judgment and remain calm, even if I think I see them making some stuff that, if it ended in today's structure, it would be pretty bad. borderline catastrophic. But that's why I sort of believe that it can't end in this state. It's just like, can't be that this is the plan. Maybe there's no plan. It's a bunch of idiots, but I'll try to give them more credit than that. There does seem to be the whiplash every day or two days between these are the tariffs we need to make America great again. We're going to be so rich because of tariffs. The consumer won't pay them.

50:18The countries will pay them. We've got to do tariffs. And then we're walking the tariffs back, art of the deal. This was just a negotiation tactic. Trump is a brilliant negotiator. Love him or hate him, going back and forth between those two extremes seems not very stable for anyone to do business in as an environment. Where do you think this should land? If you had to end it and say, okay, here are the deals. I'm doing art of the deal. Here are the actual deals that need to get done. How would you draw about. Yeah. I mean, remember this is his negotiating style. I take a very extreme position.

50:55Therefore there's room for compromise because there's an extreme position, but then act incredibly unpredictably, erratically to make it, uh, the other side doesn't know what to expect, uh, and make a deal. I mean, that's like kind of Trump one-on-one. It's really interesting because they're like, on the one hand, they really would like to see industrialization and re-industrialization. So jobs coming to America manufacturing, on the other hand, talking about negotiating free trade agreements with other countries. Well, it's like, wait, I thought trade was bad. Why do we want a free trade agreement?

51:24So I don't get it. So my perspective, I'd like to see more free trade. Everybody trades equally with, you know, just like really open markets and government less involved in the economy. But that's classic libertarianism, which is pretty naive. We don't really get to work in an environment where the government's not involved in the economy. So, yeah, it depends whose perspective you're looking at. From the perspective of a business, you want low barriers to entry and low barriers to trade and let me buy my stuff from whoever makes it the cheapest. From the U.S. strategic interest standpoint, probably that's quite different.

51:58You want products made in America so that if there's a war, we have factories that we can convert to industrial wartime production. I haven't put enough time thinking about it from that lens. I'm always thinking about it from the lens of our customer. Let me ask you about the United States customers. and I have one wild card question to ask you at the end. You have customers in the United States. They're obviously shipping internationally, right? That's part of the growth story for Flexport. It occurs to me that a lot of these tariffs are premised on the United States being the most desirable market, right?

52:29We're going to raise the barriers of entry and you're going to want to be here anyway, so deal with it. Figure it out. The flip side of that is other countries are retaliating against us by raising their tariffs or protecting their markets in different ways. and the manufacturing facility in the United States that want to export, brands in the United States that want to export, are going to feel that pain just as much. You've alluded to it several times now. Are you already seeing that in outbound shipments? Yeah. We're seeing it more anecdotally right now, but definitely, you know, I talked to a company that makes products in Los Angeles.

53:01I was kind of surprised they still manufacture these type of things down in there. Well-known brands. I don't want to share too much about what they do, but make their products in L.A. and they've said that it's actually really, I was like, oh, maybe it's helping them, but they felt the American-made brands has a real tarnish on them and that people in Canada and in Europe are not buying their product as much right now because those countries don't like American-made right now. It's not a good reputation to have. And that's to say nothing, that's just branding. That's to say nothing about tariff barriers as they kind of get into these escalating trade wars with other countries.

53:37So, yeah, it's going to hurt American exporters for sure, just the ability to export. And then that's on top of adding duties to component costs and other things. I mean, these guys, I think all their components come from the U.S. too. But in a world where you're paying duties on the import, their machinery is made in Germany, but they're not having to import that. They already have their machines. But if they have to build up a new line, it'll be expensive. You mentioned that the strategic national interest of the United States are at play here. The last time you were on the show, you talked about the United States needing to treat its ports as strategic assets and manage them better.

54:09It's been something you've been talking about for a long time. So this brings me to the absolutely bizarre side quest here of the Panama Canal, which the Trump administration has just said it wants in the same way that it wants Greenland or SNAC or whatever it wants day to day. Do you have a sense of what is happening with the canal, why it became such an issue, whether that can be resolved? Yeah, the Canal, the government of Panama, well, Jimmy Carter gave them back to Canal for a dollar, I think. And it used to be autonomous territory of the United States, similar to Puerto Rico or something like that.

54:45It was a part of the United States until Jimmy Carter gave it back to them. And under the terms of the treaty, they're not to turn it over sovereignty of the Canal or Canal Zone to other countries besides Panama. and Trump administration, they did, they leased the terminals, the ports at either end of the canal. There's these two ports, one on the Atlantic, one in the Pacific. They leased them to a Hong Kong company owned by Li Ka-shing, the richest man in Hong Kong. So Trump administration feels that that's controlled by China and therefore is a violation of the treaty under which we turned over the canal back to Panama and wants that to be in the hands of American companies, at least.

55:30So he negotiated it. There was a deal that was set up for Li Ka-Shin to sell it to BlackRock, a consortium by BlackRock and MSC, which is actually a Swiss company, an Italian company, but they moved to Switzerland for their headquarters. Then the Chinese government, my understanding, just from reading about it, the Chinese government didn't like that deal and is currently blocking the sale, which I think Trump is going to lean on and say, well, see, it's definitely controlled by China, the fact that they can block the sale. And so the U.S. government is basically saying, hey, you've got to put these in the hands of an American company or we're going to do it by force in some way.

56:07So, yeah, that's my understanding of the current state of the Panama Canal. It's not the canal itself. It's the ports on either end of the canal that are in question. Is that affecting the volumes you're seeing your customers put through the canal? Has that affected its operations? No, it's functioning normally at present. Yeah. It feels like the deal with China has a lot of weird external factors in it, right? You're blocking the sale of this port on one end and then the ends of the Panama Canal. We want you to sell TikTok and you won't sell it. You're mad at J.D. Vance because he keeps running his mouth and the tariffs are at 5 billion percent.

56:41Do you think that we can get a reasonable deal with China that wraps it all up or do you think we have to parcel it out? I don't know. I think there's got to be a deal just because both sides need it so badly. I don't know if, but I don't know if the both sides know they need it. You know, there's a lot of ego involved. It's actually one of the biggest problems of negotiating a deal is their styles are so different that Trump wants to make the deal himself. Mano a mano, you know, top to top. She and Trump sit down and make a deal. I don't think that that's, the Chinese style, just culturally, the Chinese style is, hey, this gets sorted out at the lower levels, and then we come and it's a formality, the leadership shaking hands on the deal and too much risk to have the leader lose face if a deal falls apart and it looks bad.

57:35This isn't a statement on Xi Jinping. It's just broadly Chinese culture, the way deals get done. I just don't see Trump allowing this important to get solved at some lower level than himself. probably has to. I don't think that you're going to get to a place where Xi and Trump sit in a room and negotiate this one-to-one. Maybe that would be great for the world, but I just don't know that that fits with the Chinese style of negotiation. That's to say nothing of all the terms, you know, and where's the middle ground for a negotiated settlement? What are we actually trying to get at? Probably that it's around currencies at the end of the day and requiring that the Chinese allow their currency to appreciate.

58:16It's probably a place that the U.S. government will want to push on the most. That'll make their exports less attractive. It'll make our imports into China more attractive if their currency is more valuable relative to the dollar. There's not going to be a settlement on Taiwan. We're not going to see eye to eye there. What else does the U.S. want from them? I don't know. Some things around guarantees on IP protection or something that they might agree to it, but haven't really admitted to a company stealing IP. All the allegations the U.S. has against them, they don't admit to them in the first place.

58:47So what's the value of making a deal on that? But yeah, probably currency, maybe some commitments to buy more American products. I don't know, though. I think it's more of the hands being tied for the U.S. government rather than there's a deal that they really want to do. It's more just like there's going to be at some point a realization that the mass unemployment that comes from cutting off U.S. companies from buying Chinese goods, like, is so painful that they can't politically survive it. I do want to ask you this last question. You are a very unique person. Talked about all this. You're a software CEO.

59:21SoftBank is one of your investors, right? You're very much part of that class of entrepreneurs in America. But you're also on the ground, right? One of the reasons I always enjoy talking to you is you can see the problems in the real world, moving things around and actually making the things and getting them to customers. And there's a real tension between those viewpoints, right? You can see the tension expressed between, I don't know, Peter Navarro and Elon Musk who are just rage tweeting at each other all day long. I mean talk about solve it at the lower levels and then it's a formality. Like we're not going to solve it at the lower levels on this side of the ocean.

59:56But those are two worlds that don't agree right now and you're right at the intersection of them. Do you think our business community can put the pressure on the Trump administration to get this done on a timeline that makes sense? Because that seems like the lever. Yeah, you know, every day that goes by, I mean, we'll see. I think we'll know in the next 90 days. And my view is they have to make a deal much faster than that for this not to kind of derail here and lead to a huge wave of bankruptcies and unemployment. But you know what? Two weeks ago, I thought it was skies falling, and then they made a reprieve and said, okay, we're carving out these, you know, we're only doing it on China.

1:00:37So nothing will surprise me at this point from this administration. I will not be surprised by it. I'm ready for whatever is coming. It could be much worse or much better than currently, current situation, but unlikely that the current situation is the end game. Yeah. I don't know if that was a reassuring answer or not. It was a very pregnant pause. That's what I will say. Ryan, it's always great to talk to you. It feels like we're going to be talking a lot more over the next four years of the Trump administration. Thanks for being on Decoder. Great. Yeah. Great to be back. See you guys.

1:01:11I'd like to thank Ryan Peterson for joining me on the show and thank you for listening. I hope you enjoyed it. If you have thoughts about this episode or really anything else, you can email us at decoderatheverge.com. We really do read all the emails. You can also see me up directly on Threads or Blue Sky and we have a TikTok and an Instagram. Check them out. They're at DecoderPod. They're a lot of fun. If you like Decoder, please share with your friends and subscribe wherever you get podcasts. If you really love the show, hit us with a five-star review. Decoder is a production of The Verge and part of the Vox Media Podcast Network.

1:01:35Our producers are Kate Cox and Nick Stat. Our editor is Ursa Wright. The Decoder music is by Breakmaster Cylinder. We'll see you next time.