Marc Andreessen and Joe Lonsdale on Tariffs and Trade

0:00AI is happening and AI is only happening in two places. Like it's only US versus China, there's a whole competition thing there, but like the US is like very powerful. If you dis -aggregate sectors of the economy over the last 25 years, what you find is basically everything that technology touches, basically collapses in price. If the country is growing faster, it's going to be a fundamentally happier place because people, whichever side of the political spectrum you're on, there's going to be a sense of optimism. There's going to be a sense of opportunity. There's going to be the sense that your kids are going to live better lives than you do.

0:29Today on the A16Z Podcast, we're sharing an episode from Joe Lawn's Dale's American Optimist, recorded live at the first Ronald Reagan Economic Forum. Joe sits down with A16Z co -founder Mark Andreessen to explore one of the biggest questions of our time. Can the rise of AI spark a new American industrial revival and what would it take to make sure the entire country, including rural America, shares in the growth? They cover the history of US manufacturing, debate over tariffs and trade and how AI and robotics might create the jobs and economic momentum of the future. They also dig into immigration, regulatory bottlenecks, and what smart policy should look like in an AI -driven world.

1:06Let's get into it. This information is for educational purposes only and is not a recommendation to buy, hold, or sell any investment or financial product. This podcast has been produced by a third party and may include pay promotional advertisements, other company references and individuals unaffiliated with A16Z. Such advertisements, companies, and individuals are not endorsed by A .H. Capital Management LLC, A16Z, or any of its affiliates. Information is from sources deep reliable on the date of publication, but A16Z does not guarantee its accuracy. Mark, everyone, welcome to our first annual Reagan Economic Forum.

1:43It's an honor to have you guys here. We talk a lot here, of course, about Reagan's economic pillars and policies, which include to deregulation and lower taxes and lower spending, all of which are very relevant today. But Mark, I wanna start off asking you about someone. I know you've been reading about, and President Trump's been reading about, from 100 years before, which is William McKinley. And William McKinley, of course, was staunch protectionists at first. Is this historical example of how to revitalize American industry relevant today? Is it relevant to everything we're doing in AI and energy?

2:10Like, how do you think about this? Yeah, so I've been doing my best to kind of spin up in the history of this. And so there was something in the 19th century, actually originally created by Alexander Hamilton And when he was Treasury Secretary, called the American system, so like 80 years before McKinley, 90 years before McKinley. What they were dealing with was the British Empire, right? The UK was the free, imminent industrial power. They were the first giant industrial power on planet Earth. And it had built this very commanding economic, technological, military position. And of course, America at the time of the revolution was mostly farmland.

2:38And then there was this raging debate between Hamilton and Jefferson as to whether you'd want America to be an industrial kind of urban, financialized power, which was what Hamilton wanted or kind of a rural, farming aristocratic power, which is what Jefferson wanted and Hamilton wanted at debate. And so that led to what was called the American system. The American system led to the creation of the United States as an industrial power that developed over the course of the 19th century. But it really took off at the tail end of the 19th century and what was called the second industrial revolution.

3:04And so between, call it 1870, 1880 and like 1930, basically everything we view today as the modern world was basically invented then. And you could almost look around the room here today. And you could say basically every piece of physical infrastructure, everything around us, literally everything. The airplane, manufacturing techniques to be able to make modern glassware at scale, air conditioning, television radio, the automobiles we drove to get here, it always resulted in the second industrial revolution. And then the McKinley presidency was right in the middle of that period, it's really when the whole thing catalyzed.

3:36And so it was really the point at which America became the world's industrial superpower. And then of course that led to America being able to become a huge player in both World War I and World War II. ultimately winning World War II and becoming the Arsenal democracy. They all kind of floated out of that period. And so the American system is something that people really don't like to talk about these days because it was heavily protectionist. And the whole theory of it was you don't industrialize just with a single technology or a single company you industrialize by having an entire ecosystem, right?

4:02You industrialize by having not just three car companies, but by having all the thousands of parts suppliers that make all the parts for the cars. And so the Brits had done this. They had run a very heavily protectionist program to be able to boot up the first industrial of a revolution in the UK, but they then advocated for free trade when exports became more important. McKinley was the inheritor of the American system, and so he was heavily protectionist to build up the second industrial revolution, and then he actually switched to become more of an advocate for free trade, because his American exporters were becoming more successful.

4:29They needed export that they needed foreign markets. And then by the way, in the 20th century, basically every industrial revolution in every other country that has worked in the last 100 years basically follows that model as well. So it's the same thing Germany did. It's the same thing Japan did. It's the same think Korea did, it's the same thing China is doing right now. China's basically been running the American system playbook in China. And so, and then this goes to terra policy. And I'm not here to make an argument like it's like in favor of tariffs, but more of a historical observation that there has been this phenomenon over time that if you want to have the kind of clustering effect that leads to industrial preeminence, it is not unusual to have a combination of tools and kind of tools and methods used to do that.

5:07It has been historically characteristic that tariffs would be a part of that. But it's It's also historically characteristic that there becomes this point when you also therefore want to go for exports and you want to go for free trade. And McKinley specifically, he ran for office very much on the idea of having a high and permanent tariff. Once he was in office, he switched more to a model of what he called reciprocity. And basically, we start out by tariffing, but the goal actually is to get everybody to lower their tariffs. The goal is to get a world of much more free trade and then, therefore, these American exporters are able to succeed globally.

5:36And of course, he was able to use American tariffs as a lever to get other countries to drop their tariffs. And so in that sense what we're going through right now in the US is sort of very characteristic of that. And what makes maybe the whole thing kind of more poignant is there is this kind of fundamental underlying question, which is do we want the US to be an industrial superpower or not? Right? And in the 19th century they were like completely clear that they wanted that. And in our time, I think we're still ambiguous about it. So it's interesting though, because and you've said this yourself in other contexts, we had this manufacturing wave.

6:04And then in starting the 1960s, services really drove a lot of growth the last six years, which obviously was not as tied to that. So the elite, maybe we're not thinking about these issues as much. And I guess the question is today, are we shifting into something else? Is it an AI -driven economy? What is it? And it seems like Trump's camps a little bit split. You have really two visions. One vision, you'd say, maybe more like the ban inside is more focused on reviving traditional manufacturing through tariffs, through industrial incentives. Then you have the other side, there's more about tech acceleration via AI, via chips, via energy.

6:34So how do these things play into, I mean, is it, are we going to be able to copy the past or is it a new policy here? Yes, I mean, this is sort of this central question, I think. So my read of the trajectory basically is called between 1870 and 1920, the US economy was heavily based on industrialization. All this stuff I just talked about, by the way, very high immigration environment at the time, very rapid rate of immigration, and then actually very high tariffs. And by the way, annual growth rate of something like 3X, the current growth rate of the US, with a much smaller population with fewer tools to work with.

7:01Then there was sort of the 1920 to 1970 period where the growth rate was maybe something like two X, the rate that we have now. And that was the space race and rockets and electronics and the beginning of the computer industry and it went quite well from an economic growth standpoint. And then around the time I was born around 1971, basically the US economy permanently downshifted its growth rate in both in terms of productivity growth, which of course measures technological transformation of the economy as well as economic growth. And so we went from like super high growth to like high growth to low growth.

7:28That low growth coincided with this shift, right, with all the shifts that happened in the 1970s, many of which Reagan was a reaction to, but many of those shifts happen and many of those shifts have continued. As you said, less industrial enthusiasm, more, what they call services. And by the way, the good news of that transition is that transition to knowledge work has worked really well. And we live and work in places like Silicon Valley and Austin and others have done phenomenally well because you've got all these tech companies that are global export as technology and the AI revolution is happening in the US, and it's absolutely tremendous.

7:56But we transform the American economy to basically have knowledge work on the high end and then financialization, banking and currency, and being the safe bond asset on the other hand. And then we basically chose to deindustrialize. And we chose to deindustrialize through a set of explicit policy choices, not least of which is we made a lot of industrial activity illegal over time. And I would argue that formula, first of all, it just hasn't worked that well in terms of growth. If it doesn't pay off in terms of productivity growth and economic growth, like how is it actually going? And of course, the problem, the irony of this, is if you don't like populism, the way that you get populism is slow growth.

8:28Because slow growth puts everybody in the mind And of zero sum, everything becomes a zero sum, kind of fight for resources, because people don't think that there's a lot of opportunity in the future. And so the formula that kind of all of this smart people did actually created the preconditions for the sort of research that some populism on both left and the right. And then the other kind of really critical thing happening right now that you see just happening kind of everywhere in our politics and society as this just giant divide between the cities and the countryside. And I'm sort of a weird example of this myself.

8:54I grew up in rural Wisconsin when what was sort of originally farming and then sort of a light industry kind of world. And then when I graduated college, I moved to California, I did a jump to kind of the polar opposite kind of culture and kind of world. And of course, when I was in Wisconsin, I was like, wow, those far people in the coast must be so much better as smarter than we are. And then I got to the coast and I was like, wow, these people in the coast really hate everybody where I grew up. This is interesting. I knew they didn't like us. I didn't realize they despised us quite to this degree.

9:19And so now we have this just like raging cultural social economic disconnect between the cities and the countryside, which I think is quite dangerous. Let's be controversial and dig into this a little bit more in cities. So I think a lot of us have noticed that our cities are deeply dysfunctional. They're broken in our society, right? I think we have a candidate who's like a socialist Islamist who's in danger of taking over New York very soon right now. And we have all sorts of problems. People can't afford to have kids in cities the way they're set up. I think there's this cost disease for everything.

9:47What went wrong? What's going on with these cities? What's an optimistic take on it, Mark? How can we fix this? Yeah, so the guy in New York is interesting. And he's kind of running slightly behind Cuomo for New York mayor. but he's literally running out of platform among other things of having city -owned grocery stores. Right? And so the joke is he's reinventing bread lines for the 21st century. Like, you know, really impressive. Really try to run his platform. Seattle is another case study of this. Seattle, to give you a sense how crazy things are, the district in Seattle, the city council district, where the most Microsoft and Amazon executives live, I elected a city councilwoman, ran a platform of nationalizing Microsoft and Amazon.

10:18Right? And then, you know, in the Bay Area, I live in ground zero of dysfunction and collapse. And I've got thousands of stories from the Bay Area. Yeah. Yeah. So I think there's like a very fundamental political economy thing happening which falls out of this sort of economic transformation that's happened and this policy transformation has happened. And so there's actually a French writer, a geographer who has I think the best analysis on this and is written a great book on it called Twilight of the Elites. And what he basically observes is if you look at all the Western countries through this process of sort of de -industrialization and financialization and sort of technology knowledge work becoming preeminent at the height of the economy, you sort of have this pattern where basically like in an agricultural economy or in a manufacturer economy you kind of have to spread everything out throughout the country because like natural resources really matter and energy really matters and physical infrastructure matters and access to trains and all these things you know really in rivers and water and so forth really matters but if you're going to replant the sort of commanding heights of your economy on knowledge work then what you're going to do is you're going to slam basically all economic growth into the cities right which is what Silicon Valley has done right so you're going to all the software developers in one place the good news is they're going to eat at high -end restaurants and they're going to employ a lot of nannies, but fundamentally they're going to be sitting in conference rooms designing software together.

11:23And you want that to happen in a single concentrated place. And so what happens is basically the city's become a magnet for basically two kinds of people. One is sort of the upper class, which is to say kind of the highly educated elite in the knowledge of professions who make enough money where they can afford to buy, you know, $3 million houses. So you've got basically like super expensive homes and then you've got so -called public housing, right? Counselor's States in the UK or Section 8, 8 -H or whatever it is housing here, where you've that, basically, public housing. And then the public housing is basically, it's people who are very low paid, kind of on the low end of the service economy.

11:53And then that's the city. And then who's squeezed out of the city is basically right, the entire middle class is squeezed out. And just to give you an example of this in the Bay Area, if you're a cop or a firefighter in the Bay Area and you work in Palo Alto, you can be at three hours, both ways, just to be able to like have a house and afford a family. Right. And then of course, you look what's happening in the cities and like, there's like lots of dogs, there's very few kids, right? And it's like, what on earth is that about? Well, you can't buy a house, you can't have a family. You may not even own a car, like how are you going to kids anywhere.

12:18But what happens is from a political standpoint is the cities then are run in their local democracies. It's these super high end kind of very progressive elites. And then it's sort of the clientele underclass, right, of, you know, in the US, it's Hispanic immigrants or African Americans. When Europe, it's their other kind of clientele underclass that they've developed in places like Paris. And so you've got this high plus, you've got this kind of old political kind of structure of sort of top plus bottom kind of configuration. And what you've done is you squeeze the middle and you've ejected the middle out of the cities into the countryside, but you've deindustrialized.

12:46And so there's no new economic activity happening in the countryside for all the middle class people would do. This is so far as not an optimistic panel, Mark. Sorry. Sorry. Let me try to make it optimistic. Sorry. Let me try to make it optimistic. These are choices. These are choices. These are policy choices. Sometimes the way this stuff gets painted is that these are just like impersonal economic forces or technology forces. And of course, you know, I get this a lot. It's like you idiot. Don't you understand that like, you know, manufacturing is old fashioned. We have all this new stuff we shouldn't eat.

13:13You know, these are choices. Like, there were specific choices made. So the classic choice, the classic choice it was made since we're at the Reagan Library. I'll beat up on Nixon. So Richard Nixon, the year I was born, 1971, he proposed something called Project Independence. He actually, visionary visionary president. He saw the energy crisis coming. And he set us a national imperative to build 1 ,000 nuclear power plants. Civilian nuclear power plants in the US by the year 2000 cut the entire US electric grid over to nuclear. By the way, it would have gotten us to electric cars probably 30, 40 years faster.

13:39and would have completely separated us from strategic involvement in the Middle East for energy. So that was the good news. The bad news is he created the EPA of the Nuclear Regulatory Commission, which then prevented project independence from happening and of course no new nuclear power plants got built. But that was a policy choice, right? And I'm sure that was not the result that he intended, but that was a policy choice. And by the way, a lot of this is happening right now in Washington. Like there is an opportunity to look at everything from nuclear power minerals, natural resources. I was on a call this morning on natural resources with very promising progress being made, You know, rare earth metals, there's construction.

14:09We have a project to build a new city in California. We've bought four times the acreage of Manhattan, it's a lot of county. We have the opportunity to build like entirely new cities in this country. There's any number of these policy decisions that we could make that would cause revitalization. So we're gonna fix better policies. There's something else going on though, which I think you and I are both very bullish on, which is these AI wave and AI services, right? And so I think one thing that's very interesting right now is obviously we all know there's major cost disease in our society. Healthcare is becoming more and more affordable.

14:35I think people are talking about our $36 trillion debt. It's actually 150 trillion more if you include our healthcare promises, much bigger problem. Obviously education, housing, all these things are becoming less affordable. But you and I have both seen that a lot of these new technologies are going to turn some of these services into much more affordable products. And I think we're making big bets on that. Tell us about this. Yeah. So first of all, just a moment on AI. So you asked a question earlier, which is, there's a traditionalist view of like we need to go get the jobs that used to exist.

14:58We need to somehow bring them back. And here you get into this argument of well, you've got Chinese laborers working for a dollar an hour or whatever, it was just not cost effective, bring those jobs back. What we have, those were at this very specific and important and fundamental and I think profound turning point in technology, which is the rise of AI. And I would say the good news, let's make the panel optimistic. The good news is the US is like, by far the leader on AI. No, by the way, we need to decide whether we want to be the leader in AI because there's like a lot of forces in the US and in the US government that are trying to prevent that from happening.

15:25But there's over a thousand laws this day level. We've been trying to fight and stop. They would screw this up. Right. So there's a lot of people who are against this. California State Government almost passed a lot out in California six months ago, which is an indication how crazy California is, but yes, it's like everything else. We can have it if we want it. AI is happening, and AI is only happening in two places. It's only US versus China, there's a whole competition thing there, but the US is very powerful on this. And then by the way, the US is benefiting a lot because Europe has basically made AI illegal, like they're regulating themselves to death.

15:52And so the smart AI people in Europe are moving to the US. And so the US really is ground zero for AI. Today, AI is software, right? And so when you use AI, you use ChatGPT, it's an app on your phone. There's no manufacturing component. People are building giant data centers, but it's not a huge generator of middle class jobs. But there's another turn on AI that's coming, which is the turn to embodied physical AI, which is robotics. And this is a transition that has already happened. It's already actually happened in drones. Where drones went from being human piloted to actually be autonomously piloted, they now fly themselves.

16:23It's a transition that's happening in cars right now, where cars went from basically purely physical products to now basically being rolling computers that drive themselves. And if you haven't tried this yet, if you ever have the misfortune to find yourself in San Francisco, take away Mo. It's amazing to live in a cyberpunk future reality where you're in literally a state -of -the -art self -driving car that's literally out of the jessons driving fast people who are dying a fentanyl overdoses on the sidewalk. I recommend having the experience at least once. But the self -driving car really does work, like it's really happening.

16:50And then what's going to happen, you've all probably seen, you know, Elon has this optimist robot that he's building, these humanoid robots, Like the general purpose robotics thing is going to happen, and it's going to happen in the next decade, and it's going to happen at giant scale. And I think there's a plausible argument, which Elon also believes that robotics is going to be the biggest industry in the history of the planet. It's usually gigantic. There's tens of billions, hundreds of billions of robots, all shaped sizes, descriptions running around doing all kinds of things. Those robots need to get designed and built, right?

17:15And so my view is we don't try to get the old manufacturing jobs back. What we should do is lean hard into the manufacturing jobs of the future, which is designing and building all of these new things, right? By the way, which includes drones and cars, right, and robots. And we shouldn't be building manufacturing lines that have people sitting on a rubber mat for 10 hours screwing screws in by hand, but we should be building what Elon calls alien dread not factories, right? Which is like these super sophisticated factories with like tons of robotics. But you can imagine thousands and thousands of different categories of industrial production that have to happen all across the US in order to make this happen.

17:45And would cause just like enormous economic growth throughout the country. We get a huge payoff from all the tech investment that the coasts are making, but we generate many tens or hundreds of millions as a jobs in the countryside. And then the US would lead, it would be the third industrial, the fourth industrial revolution. We would lead in the development of all these new things. And then you get to the national security side of this, which is if you don't do this, you're living in a world of Chinese robots everywhere. And that has very profound consequences for, let's just say, yeah, profound consequences.

18:11And it's an important policy point. And I wanted to dig into this a little bit more. A lot of, I was just gonna interview up there, like, aren't we gonna destroy tens of millions of jobs? This is an AI scary. A lot of people are very scared right now with the disruption. I'm very excited about the higher productivity, because I see it being disinflationary, I see it creating more jobs. If assuming we're aligned, how do we explain this to people? How do we explain this? This is actually a really good thing for the country, because a lot of the lights are going to attack this. They are going to try to stop it.

18:33Yeah, so the lights are wrong. They're wrong in the sense of like, for the reason they've always been wrong, which is the reality is we have not, in the last 50 years, been in an era of fast productivity growth, technological change. We've been in an area of slow productivity change, slow economic growth. AI, if it works the way that actually people either hope or fear that it's going to work, it's going to cause productivity growth to shoot up, that will naturally accelerate economic growth But look, if it just stays a software, then the result of that is just going to make the cities much better off.

18:57Right? It's going to make San Francisco and LA and New York much better off and Austin much better off. But it's still not going to answer this question of what happens in the countryside. To answer the question of what happens in the countryside, you need to get to the next thing. You need to make AI hardwaves as well as software. And you're right back to that same prescription of basically reindustrializing the country. And again, not reindustrializing the country on the stuff that has already left, reindustrializing the country based on all the things that have to be invented and built. And it's just like we know, I mean, just like incredibly highly confident that there's going to be these giant industries of computerized everything AI powered all kinds of hardware of all kinds of shapesizes to descriptions You know, you're finding a lot of that kind of thing.