In short
The Logan Bartlett Show - Episode 137: Keith Rabois and Zach Weinberg Debate: Are Tariffs a Smart Economic Weapon?
Overview In this episode, Logan Bartlett hosts a debate between Keith Rabois and Zach Weinberg discussing the implications and effectiveness of tariffs as an economic strategy. The conversation delves into the motivations behind tariffs, their economic impact, and the broader context of free trade versus protectionism.
Key Themes and Discussions
Introduction
- Host's Bias: Logan admits a bias towards Zach's views at the onset, setting the stage for a dynamic debate.
Tariffs as a Strategic Tool
- Keith's Perspective:
- Views tariffs as vital tools for achieving foreign policy goals, suggesting they are preferable to military action.
- Argues that tariffs can compel countries like China and Canada to address issues such as the fentanyl crisis.
- Believes tariffs can be used to secure critical minerals essential for U.S. industries.
- Zach's Perspective:
- Challenges the effectiveness of tariffs, questioning their economic benefits and raising concerns about their implications.
- Emphasizes the importance of understanding the economic goals behind tariffs, particularly concerning countries like Vietnam and South Korea.
Economic Implications of Tariffs
- Debate on Effectiveness:
- Discussion on whether tariffs are beneficial for American manufacturing or if they merely serve as a negotiation tactic.
- Zach critiques the notion that tariffs will revitalize U.S. manufacturing, arguing that they could hinder economic growth instead.
- Trade Deficit as a Metric:
- The significance of the trade deficit is debated, with arguments on whether it is a meaningful measure of economic health or merely a misunderstood talking point.
- Zach asserts that the trade deficit should not be solely viewed as a negative metric since it can reflect international specialization and comparative advantages.
Political Context and Goals
- Administration's Mixed Messaging:
- Discussion on the conflicting objectives within the current administration regarding tariffs, manufacturing, and trade.
- Zach highlights inconsistencies in the administration's messaging, particularly relating to its stance on revitalizing American jobs versus promoting free trade.
Tariffs and the Tax System
- Consumption-Based Tax Discussion:
- Keith raises the idea of replacing income tax with a consumption tax via tariffs, urging a shift in tax policy.
- The potential regressive nature of a consumption tax is acknowledged, sparking a deeper conversation about taxation equity.
Addressing the Fentanyl Crisis
- Fentanyl and Trade Policy:
- Keith argues that tariffs can be leveraged to reduce the fentanyl supply entering the U.S. from China and Mexico.
- The complexity of addressing drug trafficking through tariffs is acknowledged, with skepticism expressed over the effectiveness of such measures.
Concluding Remarks
- Final Thoughts:
- The debate ends with a recognition of the nuanced perspectives on tariffs and their implications for free trade and economic policy.
- Emphasis on the need for clarity in goals and messaging within trade policies to avoid confusion and misinterpretation.
Key Takeaways
- Tariffs as Negotiation Tools: Both speakers agree that tariffs serve multiple purposes, including negotiating trade terms and achieving foreign policy goals.
- Economic Growth vs. Protectionism: The discussion reveals a fundamental divide on whether tariffs lead to economic growth or hinder it through increased costs and reduced trade.
- The Role of Trade Deficits: There is a consensus that trade deficits are complex and don't necessarily indicate economic failure.
- Regulatory Considerations: Keith and Zach discuss the need for regulatory reform alongside tariff strategies for effective economic policy.
Additional Notes
- The conversation is marked by a vigorous debate, showcasing opposing viewpoints yet maintaining a level of respect and intellectual engagement.
- This episode is part of a larger dialogue on the implications of economic policies, including international relations, taxation, and the dynamics of trade.
Production Credits
- Executive Producer: Rashad Assir
- Producer: Leah Clapper
- Mixing and Editing: Justin Hrabovsky
Where to Listen
- [Apple Podcasts](https://podcasts.apple.com/us/podcast/the-logan-bartlett-show/id1606770839)
- [Spotify](https://open.spotify.com/show/5WqBqDb4br3LlyVrdqOYYb?si=3076e6c1b5c94d63&nd=1)
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Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:00All right. It's Keith and Zach. Long awaited. Thank you guys for doing this. I'm going to try to be an impartial host. Although I think my views tend to decide a little bit more with Zach on this subject. So I'll come out with my biases here off the top. You're like ABC or CBS moderating the presidential debates. This is like any other debate, you know, pretending to be impartial, but really having views here. So, all right. And I also have a mute button because, as I said, when we started the last time I hosted a debate with Zach, depending on your view of entertainment and quality of discourse, I think it maybe didn't go as well as I would have liked.
0:40But so I guess we'll try to rattle through some questions here. I'll try to bounce back and forth between between people. So maybe just to start off, Keith, can you outline your perspective on the president's tariffs that were announced, I guess, six days ago? Sure. At a strategic level, I believe the use of tariffs is one of the best tools in the arsenal of the President of the United States to achieve foreign policy goals. It's certainly better than invading countries and using military force. So I think you can achieve many of our diplomatic goals and many of our military goals by using tariffs.
1:14Specifically, as an example, if you want to reduce the supply of fentanyl in the United States that kills 100 ,000 Americans every year, tariffs are working very well in obliging and compelling Canada to police the poorest northern border. They're eventually going to work in compelling China to stop allowing the precursors of fentanyl to be produced in China that accounts for 80 % of these American deaths. That's just one example. They're going to be used to supply critical minerals, trade through minerals in various places. We have a significant vulnerability on critical minerals that go into the production of everything from iPhones to pretty much every product that we depend upon.
1:56We have some reserves in the United States, but we don't have a lot of them. There's a lot of countries that do, and we need access to them. China's already threatening to cut off minerals now. And certainly in a hot war with Taiwan, they would absolutely deprive us of access to minerals. So it's economic statecraft is how I describe it. And so completely independent of economic goals, tariffs are very effective. Secondly, I think there are a lot of economic benefits to using tariffs. So at a strategic level, I think the use of tariffs that the president announced is brilliant. You can debate the tactics, like which tariffs can be imposed on which countries, at what rate, under what formula.
2:34I think that's actually a pretty complicated exercise, how to do that well. And so I'm not going to specifically defend whether Ethiopia should have a 42 % tariff or 16 % tariff. Personally, if I got to vote with my feet, I'd probably go with Dr. Miller's recommendation of a 10 % flat tariff. and then significant tariffs for all countries except the CCP. That's where I, if I were in charge, but I'm not, would land. But I think generally speaking, tariffs are a great tool. Got it. Zach, what's your perspective on tariffs that the president announced? Well, I guess let me ask like a clarifying question so we make sure we're talking about the same thing.
3:15Leaving the tools to achieve foreign policy aside for one second, because I think that's an interesting discussion and kind of like different than what maybe we're talking about in the public domain. When you say we want to use tariffs from an economic benefit standpoint, so let's say I'm going to pick a country, Vietnam, for example, because it's a good trading partner of ours. What's the economic benefit we're aiming for, if you will? Like what's the goal? Yeah, it's a good question because it does vary by country and this is why like this stuff is complicated extra charts. But Vietnam specifically, the economic goal is Vietnam's being used as a way of sort of circumnavigating tariffs on China.
3:58So it's not that Vietnam, I don't think Vietnam is doing anything egregious. It's just that there's enough of an arbitrage there that if you have no tariffs on Vietnam, it's too attractive. Too attractive? It's arbitrage. Vietnam and a couple other countries in Asia are intentionally being used as a circumnavigating export controls and tariffs that are designed to affect the CCP. It's the same thing with NVIDIA selling, you know, 20 % of their GPUs to Singapore. Like, what the hell is Singapore doing with 20 % of the GPUs on the planet? A lot of them are obviously making their way to China. So just to repeat it back, because it's a nuance of like, what are we trying to accomplish here, right?
4:41the reason we care about Vietnam and exports coming out of Vietnam that we are purchasing and therefore potentially tariffing is we think Chinese companies that we are strategically trying to block for a variety of reasons. We can talk about why, you know, probably industrial policy that China uses to subsidize its industry. We are then trying to prevent those Chinese exports from making their way through the United States through another country? For Vietnam specifically, I believe that's the case. I think in other countries, let's say Japan and South Korea, they are clearly protectionist and discriminating against American companies and taking advantage of what we consider to be free trade, but it's not reciprocal for American companies to sell goods into Japan and South Korea.
5:32Right. So the goal was to use South Korea as an example, and we can talk about whether that makes sense, but like the goal in South Korea is we believe, it's like the Chinese aren't routing through South Korea. It's a different problem here. Now we can go back to Vietnam for a second because the way we tariffed Vietnam had nothing to do with like which industries China is actually exporting. We kind of went with like drunk sailor tariffs, but let's use South Korea for example. This is not a China problem in South Korea. We believe what's happening is South Koreans are tariffing our exports. And as a result, U.S.
6:08companies are not as competitive inside of South Korea as humanly possible. And that's a problem. They erect, to be really clear, they erect barriers to free trade. And we don't like that. This is the reciprocal tariff regime, like the paradigm of whatever country acts as we need to reciprocate. and eventually both countries will settle on true free trade. True free trade. Which I think does apply to a reasonable number of countries. Right. So it's not, and I'm glad you're making this argument because it's way more logical than some of the other people out there. This isn't like the South Koreans are really good at manufacturing toasters.
6:43We want to manufacture toasters. So we need to tariff them to industrialize our toaster industry in the United States. That's not what we're aiming for. It's just we're trying to get rid of the South Korean tariffs at the end of the day. Yes. In some cases, though, I think there are industries as a result of the protectionism of foreign markets where the entire industry has kind of left the United States and because of sustained protectionism in some markets. And so free trade would allow for hops that to be re, you know, reassured, so to speak. Then there are a few verticals where there is a strategic national interest, but those are limited and very specific verticals where we need the ability, like in your world, we absolutely need the ability to manufacture more pharmaceuticals in the United States.
7:28COVID exposed us. We couldn't make drugs in the United States. And that just cannot be the national security interest in the United States, cannot allow that to be permanent. So there are some industries where we may have to have some version of subsidization or central planning or whatever. But I start with a pure free market orientation. But free means free. It doesn't mean free with an asterisk. Free only the United States. No, and interestingly - But I just have a clarifying question real fast on this. So, and I'm not asking you to defend the tactics by which we came up with the different numbers.
8:00But just so I understand, there's this stated tariff number that we can come up with through, that gets reported in different systems. And I've pulled it here. if we want to pull it on screen. Then there's this cheating refrain. Can you walk through, I guess, some of the, or maybe one consideration of why a stated terrorist number on a U.S. export into a different country, how the mechanisms that people would maybe use to manipulate what that would actually look like? Yeah, there's one example, for example, in Canada that's in the financial services world, got a lot of discourse about a month ago, which is Canada makes it almost impossible for American banks to have retail presences in Canada.
8:48And the way they do that, there's not an explicit bar in the law. They just change the capital reserve requirements. So it's economically infeasible for an American bank, even though we allow Canadian banks and they can walk down the streets of New York and find them to have branches here. So there are non-tariff based tools. I saw another example yesterday, which haven't independently vetted, but sounds directionally right, then if you bought a Chevy Tahoe in Norway, it would cost$170K equivalent dollars. And of course, nobody in Norway is going to buy a Chevy Tahoe and$170K, so Chevy can't produce enough.
9:21And then we don't hire enough workers to support selling to Scandinavia. So there are non... This is why coming up with the exact number per market is really tricky, is there are stated tariffs, and then there are other protectionist measures that are subtle. and trying to quantify those empirically is difficult. It doesn't mean you can't take an estimate and come up with something that's a rough proxy. And I think what they were trying to do is use the trade deficit as a proxy for what the level of protectionism is. I don't think that's the best way to do it. I think trade deficits overall across all markets are interesting.
9:59Like what is the US global trade deficit is interesting. On a per market basis, I don't think you should kind of reason that way. But I think that was the logic. They were trying to find some synthetic way to add up all the protectionist measures in a particular market and use that as a way to kind of calibrate how high a tariff should be. Logic is a generous use of the word for what's going on there. I just want to go back. I want to go back to South Korea because I think what's interesting is I think your defensive tariffs is not what the administration is talking about. So if you go to South Korea, we have a free trade agreement there, right?
10:32the U.S.-Korea Free Trade Agreement, CORUS, I believe it's called. And that eliminates tariffs on something like 95 % of all goods. There are some industries here that they talk about. 95 % all goods, no tariffs in South Korea. It's all free trade. And then if you look at the effective tariff rate on U.S. goods, to be clear, it's something like less than 3%, anywhere from like 0.2 to on average. So this is, you know, the protectionism of Korea is like 2%. It's not a big number. So our goal with tariff, I just want to be clear, because this we may agree with. Our goal in tariffing South Korea is to get them to remove that 2 % tariff on the 5 % of goods that aren't tariff exempt already.
11:16It's this like sliver of, you know, weird, minor. That's the goal. And to remove any non-explicit tariff-based protectionist measures that may be built into other legal regimes. Which basically means we actually want tariffs to remove tariffs, right? Like, that's really what we're going for here. Like, the tariff to get rid of that. Well, it's like, you know, sort of, if you believe that the rest of the world, to some extent, has taken advantage of the United States since the 1970s, which we can debate, but I believe there's a lot of people, even some non, you know, sort of Trump people that believe that.
11:53by being willing to sort of play a prisoner's dilemma game and say, you know, we're going to do this too, you may wind up in a better state for everybody. Yeah, no, but I just want to be clear. Like, when we talk about, like, other countries have been, like, fucking us over for 30 years, which for the South Koreans would basically be selling us cheap electronics that we use day in and day out. In electronics, yes, but I think there's some other industries. Like, I forget, where does Whirlpool? was competing. All I know is that the tariff rate, effective tariff rate from South Korea is like less than 2%.
12:28So it's a tiny little tax. But that means that the goal, like the administration goal in slapping what I think is something like a 25 % tariff on South Korea is for them to go, oh shit, we're sorry. We're going to remove the 2%. Or the equivalent. Whatever the equivalent one is, right. Yeah, exactly. I do think you're seeing this play. out, like Japan, India, even the EU, you know, are all of a sudden calling the administration and say, oh, you know, you didn't really mean we'll have to keep these things. Let's start trading. And I think that's generally good for everybody. Sometimes, you know, in any negotiations, sometimes you need to kind of hit someone with a stick to get enough.
13:13No, no, I get it. I mean, look, if the key support of tariffs is more free trade at the end of the day, not less. We can debate the tactics of like, should you slap 25 %? Maybe you should have called them first before you did that and like had a conversation. But yes, the goal of like, no tariffs is a good thing. That is diametrically opposed to the rhetoric coming from Trump and others, which is all about revitalizing American manufacturing, American jobs. That is literally the opposite of what they're talking about. I think there's mixed messaging, which, you know, is obviously the administration's fault.
13:49But depending on who's speaking on what day, on what show, the messaging has been slightly different. That's why when I responded to Logan's initial tweet about tariffs, I listed six objectives. Now, the problem when you have six objectives that you're trying to use one tool for is you're going to wind up with some either conflict in those objectives or conflict in the messaging or both. And so, you know, it's not just that different people in the administration may have slightly different or more than slightly different perspectives. So they are trying to solve different issues. like fentanyl is a major driver.
14:18That is different than solving mineral supply, which is different than allowing American companies to export more. For the South Korea example, South Korea's success is, will American companies be able to export more goods to other countries? Yeah, no, I agree more for trade. To the EU. Which, by the way, is like not at all what Trump and Navarro is a giant idiot and among other people are talking about. What they're talking about is revitalizing American manufacturing. And I want to be really crisp, that is not something you agree with. You don't think this is going to revitalize American manufacturing, save for like - In some industries, save a few strategic industries where we need to have the capabilities in lock of dependencies.
14:58It would be nice to make our own bullets. I agree that would be like a good thing. But for 99 % of the economy and all the stuff that we've now benefited from as purchasers of these cheap goods, the tariff strategy is more free trade, not less. And that is where this administration, and I think a lot of the rhetoric is going crazy, which is like there's being sold to the American people as we're going to create high-paying American jobs that didn't exist before. And that is not at all what is going to happen. Well, Trump's messaging incorporates often both. He does talk about more American exports.
15:30Like that's one reason why he cares about the trade deficit. He does want American companies to sell more. He wants Europeans to buy more American goods. He wants South Koreans to buy more, Japanese to buy more. So he is an American, it's that old quote about America's business is business. Trump is definitely a president who believes America's business is business. He wants American companies to thrive. And he feels like they're being artificially constrained. You think Trump is a free trader? Not necessarily a free trader, but he believes that his job is to help propel American companies. And he feels like the world is discriminating against American companies, which ultimately translates to either American workforce hiring or the pay, the competition.
16:09no i get it but we're saying that like sorry like the the the sell more shit externally the actual tactic to do that is more free trade like i just want to be crisp like that's what we're talking about absolutely more trade more total trade more total trade more free trade fewer tariffs for everybody which would would in theory make trump a free trader if that's actually his logic i am pretty convinced and we can debate this that this guy actually thinks the tariffs are going to stay and we are going to build domestic industries that make like t-shirts and hats and like cheap. That's what he thinks.
16:44Like he thinks the deficit means they owe us money. He thinks they're stealing. He doesn't understand it. I'm with you. If this whole thing is like free trade, more free trade, because we like kind of threatened you essentially. Great. That is not what they are talking about. Well, I think there's a mix because I think it has so much of this quote, fake or fake free trade has distorted so many industries where they're located globally. Like, for example, did you read the Stratechery piece by Ben Thompson on tariffs and tech about Apple and Steve Jobs, you know, complaining to Obama about this?
17:15I think there's a lot of truth in that, which is there are a lot of industries that this regime of, quote unquote, free trade, but not real free trade has caused dislocation of industries that might have stayed in the United States. Now, can you bring them back? Why should you bring them back? You know, you're talking about decades of problems here. trying to fix with one silver bullet may be challenging. There's one other objective that I think some in the administration have, including maybe Trump, which is substituting a tariff-based tax regime, a consumption tax effectively, for an income tax.
17:49And so again, when you're trying to solve, you're trying to achieve multiple objectives, there's some tension there. I personally would, if I could trade dollar for dollar a consumption tax for an income tax, actually think it's significantly superior. But then you have to reduce income taxes. So I tweeted this out two years ago. For every dollar a tariff raises, I would reduce income taxes by the same dollar. Then I think you have, by the way, a 70 % popular issue in the United States if you pull a normal American, which would be like your income tax go down for every tariff dollar. The flip of that is a consumption tax is a regressive tax because it hits the point.
18:28Well, I like that. I mean, regressive is pejorative. Now we're back to the normal... It is pejorative, but I agree that what you mean by that is actually descriptively true. Because I believe that the wealthy people in the United States pay way too much in income taxes. 1 % of the U.S. population pays 54 % of the total revenues from the federal government. That's insane. One of the reasons why we have these deficits, maybe less political, is when you take 50, 60, 70, 80 % of Americans off of the income tax, they don't have to pay any income taxes. it's really easy to just increase spending because nobody's bare a lot of voters are not bearing the burden it's better for our society as a whole for most voters to bear the burden in paying you know i believe in a flat tax or something equivalent but then you don't have deficit run or run run amok deficit spending or debt because you can't just impose it on a very select number of people i feel like now we're back to uh traditional conservative points and Like, I feel like I'm a much sturdier ground now in talking to you versus the rhetoric that I've kind of heard, which has been a little I mean, it's so populist.
19:35And there's this horseshoe theory where I the Democrats haven't really figured out how to criticize this, because I think Bernie Sanders actually supports a lot of elements of what we're talking about from a protectionism standpoint. I guess what? No. And this is what this is one of the reasons why, you know, just an observation of why Trump is a great politician. I mean, you don't get elected president of the United States twice without being very good at some things. He actually understands some of these elements of what you call Hershey stuff. If he can take policy, if he can articulate policies and recommend policies or implement policies that he believes in and that also really divide the opposition, he has a spidey sense of, oh, that's really going to be effective.
20:18And I think on tariffs, it's very hard for Democrats who traditionally, you know, rude union voters who traditionally supported things like tariffs to criticize him too much. In fact, I think the only people really criticizing. Trump are the laptop class, which includes a lot of liberals left and some right-leaning laptop intelligentsia. But the mainstream Democrats are really at a loss of what to do because, you know, and even the stock market, you know, historically Democrats aren't the biggest fan of stock market growth and like, because, you know, as Dustin's point out, like people like me generate, earn much more money when the stock market goes up than the average American.
21:06It's heavily concentrated. So the Democrats are kind of like losing the argument, elected officials for Democrats. So there's a quote from Trump, probably like once a day now, but I'll pull one. He said it like five days ago. He said, jobs and factories will come roaring back. That's a direct quote from him. Well, think about my Chevrolet example. Let's say Chevy can sell successfully into Scandinavia, let alone Germany. We have more American jobs. Norway doesn't like just generally tax American cars. It's just they have a tax on non-electric cars because they're, you know, like a green energy country.
21:42There's also like four million people in all of Norway. I'm not sure Chevrolet is going to be booming business by selling to like another hundred thousand. This is an illustration. Germany is a big automotive market and they make it impossible. And yes, there's German preferences for certain types of cars. I definitely understand. It's not just the protectionism. but we don't sell any cars like americans in you know germany the german tariff on u.s cars is 10 10 great well make it zero make it zero no i get it and i get the whole point but all really like when he's saying we are going to be like a manufacturing powerhouse the way he communicates this is like new industries new stuff and what you're saying is not what he's saying which is like what you're saying is we have existing american exports that we're good at for you know whatever, GM, we make a bunch of stuff here that is like reasonably complex to do.
22:31And all we're trying to gain is like increase the exports of our existing well-established industry by cutting that German 10 % tariff to whatever, zero. Well, it gets more, it gets more complicated. I generally agree with that arc, but it gets more complicated because the example of Walter Isakson's buy-in 50 jobs is, seems like I would definitely build this here. The reason why I can't is more subtle. And this is why it's more interesting. and this was Stratagari talked about in depth, is Jobs went to Obama and complained about, I'd like to build this in the United States. I would like to manufacture these in the United States.
23:01And it's not an economic reason. It's that I don't have 30 ,000 engineers. I need 30 ,000 engineers to actually manufacture these because you need a parent engineer with your kind of manufacturing team. Like it's an integrated process and we don't have 30 ,000 engineers that I can hire. And by the way, we don't have 30 ,000 people willing to, you know, work the hours and... Well, that's unclear. So like, I don't totally disagree, but there's a good anecdote or good conceptual framework for rebutting that, which is if that were true, Logan, then these workers would be quitting these factories before they got shut down.
23:40And that wasn't the case. It's the owners, the businesses were shutting down. Like you think of Ohio and all these burnt out factories that, you know, the president and JD talk about, these were not shut down for a lot of workers. They were shut down by the business owners. So people weren't working these jobs. Well, they weren't making iPhones though, right? They were doing very different things. The hollowed out middle America that people talk about when they show these scenes on TV or something, or political commercials, it wasn't the workers were leaving the factories. The factories were shutting down first.
24:10Well, they're shutting down because they're bankrupt. Right. So it's like there's a reason they're shutting down. It wasn't a lot of Americans willing to do the work, at least at the time. At the prices that need it sustainable to continue to do the job that required. But I do I do think it's a really interesting thing. Right. Because, you know, your support of the tariffs is actually as a free trader. And I think this is the fundamental disconnect between the political party in charge now, which is Republicans and the rhetoric and all they're talking about. and maybe like a subset of the tech class who actually kind of understands this a little bit better, which is like, you think the goal is net new free trade.
24:48We're going to save the like weird little fentanyl thing. And there's like some side stuff here, but like the bulk of it is free trade. And every person, except for maybe Musk, in this administration is talking about domestic manufacturing of new stuff, new industries, new jobs. I don't think my views are very different than the Secretary of Treasury. I think he's used a minor. Well, to be clear, he's not involved in the tariff decisions, right? like he's definitely involved, but statutorily, legally, those decisions are allocated to the U.S. Trade Rep and the Commerce Secretary. I mean, he said Congress can change who gets to set the exact tariffs and how that works.
25:28But right now, the Secretary of Treasury is an advisor into the process. He's a very influential one, obviously, and he believes in tariffs, actually, and he's grown up through traditional Wall Street and been very successful. I think my views and his views are pretty damn similar. Oh, well, I guess I'm curious then, like, as you, I hear your tactics and goals around this, and then I sort of see a team of rivals thing playing out, at least it seems, uh, Elon called and Pete, uh, retardo today, uh, which is, I mean, just clever, like, well, well, he's probably learned that from Trump, you know, Trump's the master of the decades.
Read the full transcript
26:04I feel like if Elon was on the outs, now he's right back on the end using retardo to make fun of someone. I feel like that's the quickest way back to Trump's loyalty. But I'm curious, as you sort of look at the cabinet and you know some of these personalities or, you know, familiar with some of the inner workings, I guess. Do you do you think at a high level, like, what do you think Trump's end goal of these things are? I heard yours, but like what objective do you think he's personally driving to? Is it just a bunch of one off negotiations? They're going to be very discreet decisions made for each country.
26:41Well, he wants, you know, I think I outlined separately to you a set of goals, which I think are the administration's goals. Like, I think those are the collection of the administration would like to achieve those goals. They're very specific. Yeah, you can read it back or post it. in rough order, reduce the importation of fentanyl into the U.S., massively accelerate access to critical raw materials, reduce debt load at 2019 levels at least, set the foundation for GDP growth of 3 % to 5 % consistently, sans inflation. By the way, on the debt one, they're talking about a$1.5 trillion tax cut. Or was it, sorry,$5 trillion tax cut and$1.5 trillion in spending reductions.
27:19So they don't really give a shit about the deficit. Well, we do care about the cost of debt, not the deficit. The 10 years up. The 10 years up. Well, that's because China's dumping, trying to retaliate dumping. The 10 years is going to go down. Scott's going to win that trade. Literally, you have the best person on the planet in manipulating currencies and winning this trade. This is going to work out well. It'll be a three-handle soon, and it's going to go down and down. To be clear, that assumes, that argument assumes that the tariffs are a temporary measure to unlock reciprocal tariffs, like to remove reciprocal tariffs, let's call it that, to get all our tariff rates with all of our trading partners basically to zero, China being an exception because we don't really like them for certain reasons.
28:02But globally, this is about getting tariffs essentially to zero or somewhere between zero and 10. Now, that also means the 10 % tariff rate that we're talking about here as a revenue collector, the other countries, given this reciprocal nature, are going to charge a 10 % tariff. And I want to be very clear. The average tariff rate globally of all of our trading partners is already below 10%. percent. So on a stated tariff basis, again, countries have been very clever about manipulating the protectionist regime as part of the disadvantages of the World Trade Organization. One of the reasons why it was set up was because people know there's these non-economic barriers.
28:44It was to create a forum to sort of challenge the activities and protectionist measures of certain markets. We have protectionist stuff, too. We had an EV credit of like$7 ,500 to boost up our EV sector. Tesla's a big beneficiary of that. I'm not saying it was a bad thing. Trump's got rid of it. He's getting rid of it. No, I agree. But we've done the same thing. I just want to be clear about the math. Our current tariff rate that we are charged by companies, by countries that buy from us, are already less than 10%. Is that weighted, by the way? It's with our top trading partners. So obviously, it's roughly weighted.
29:22I don't really give two shits what Zimbabwe charges on our exports. I don't think they're buying a lot of Ford trucks, you know, with their dollars over there, whatever the Bobby and Curseus. But like for our major trading partners, we're like almost all below 10. China is a weird one. And we're trying to get that to zero. But also at the same time, we probably are going to raise our standard to 10 because we want to collect some revenue, which is naturally given retaliatory tariffs, going to bring them up to 10. So we will net net, if that plays out, increase the tariff rate with most of our partners.
29:53Like that is actually what would happen. I think it's really difficult to model how things out because some reciprocal trading partners will go down. Like India, South Korea probably goes down, actually. Some may go up. But if India goes to zero, that'd be amazing. But then are we keeping our 10 % or not? No, probably not. But then Japan probably goes down. So how it blends, I think nobody really knows. And whether you can achieve, if you want to replace the income tax, you have to have the revenue. If you don't want to replace the income tax, then you could all go to zero. It'd be great. American companies will do better, will thrive.
30:30And that is part of the goal. Like, we need to increase GDP. If we increase GDP without inflation, Americans are going to be better off. Like, that's how you do standard of living. That's how you improve the standard of living, is you increase GDP. And it also solves the debt problem. If we have accelerated growth without inflation, the debt load is manageable. Right now, it's intolerant. By the way, I just sent you guys a text, both of you, with what I had pulled from ChatGVT. And we'll show it here on screen of basically different tariff rates, what they currently are and what they're proposed to be.
31:03So thank you, Deep Research. Thank you, Sam, for this one. I don't know how much time I saved in doing that. Really good for podcast prep. I think that Deep Research is best product market fit here. I just want to like play because I think what I think is going on is this guy has no idea what he's doing and he's making the shit up as he goes along. And wait, that's that's unfair. Every every political party is a coalition, like period of different people have different views and different priorities. And that's any national political party is going to have that. Yes. It's true. The Reagan coalition, you know, it's true.
31:34The Clinton coalition. And it's true of Trump. Like there's definitely constituents. One of the reasons why Trump wins elections and most people who are Republicans underperform him is he has a pretty good understanding of his coalition and the establishment Republicans that are running do not. Yeah. I mean, all I'm suggesting is he has materially conflicting goals of which you can't win both, right? Like, it's impossible. And just the tariff rate versus revenue growth, like, let's just talk about that one for a second. If we want to use tariffs, let's call it the 10 % base rate that Druckenmiller has talked about, Investant has talked about, that is, there's nothing to do with exporting.
32:14That is a revenue increaser. It's essentially a consumer tax that is - It's like a vat. It's a vat. Right. And by doing that, theoretically, we pull in something like$400,$500,$600 billion a year from its global 10 % tariff. Now, the other commented thing that he wants to do is grow GDP. But what we will net be doing by raising our base rate tariff to 10 % is rating the base rate tariff of every other country we trade with also to 10%. Unless you think India is just going to sit there and take it and be like, cool, it's zero when we do it, but it's 10 when you do it. I mean, these guys will be run out of office.
32:53It's like, you gave in to Trump. I can't fucking believe it. We're going to end up at the same percentage we charge, which means net increase, which is a GDP shrinker. So how do you do both of these things at the same time? I'm not sure you can do this substitution for income tax at the same time. You may have to decide strictly, like, is it better to have a consumption tax-oriented regime and displace the IRS and displace income taxes or just grow GDP consistently without inflation and negotiate for the best possible situation for American companies to grow? I think what happens is Trump doesn't understand that a trade deficit doesn't mean we are owed money.
33:35And he's just like, deficit, that sounds bad. I don't like it when people owe me money. And he's like, I'm going to charge them for it because he's a fucking moron and he doesn't understand how tariffs work. And he's like, charge them, charge them, charge them. And now all of a sudden his people are like, dude, this is not going to work in the long run because it's not actually a deficit. It's just a trade balance. Like they specialize in this stuff. And now he's trying to like back into his logic. And that's why all the logic doesn't make any sense. And they're conflicting statements because he didn't actually think about it before.
34:05Well, I think the trade deficit issue is pretty complicated. Like it is a combination of two things, comparative advantage. There is specialization, et cetera. And that drives and that's very rational. And it is a synthetic proxy for some protectionist measures. The problem is like disambiguating those is very messy. So like, for example, there's this old Buffett quote about believing the trade deficit is a real metric. Overall, that's why I think if you look at it across all countries, it may be more valuable than trying to isolate it per country. But it is like one of the things I would do is you take GDP and either subtract or add the trade deficit.
34:44Like it gives you a feel for like net-net how healthy is our economy. Who cares if we're buying more cheap stuff than we're selling? Like why does that matter? Well, because when we sell stuff, we make profits, which means we hire more workers, we invest in factories. Like, selling things is generally good. Now, there's a debate about whether selling services is equally good, and we don't really account for that in the same way. But we're not not selling. It's not because we bought this thing we're not selling over here. We just happen to find that other people subspecialize, make stuff cheaper, which is good for Americans.
35:16Or they're making it unattractive for American companies to sell to Americans. But we just talked about the tariff rate's like less than 5%. There's no way that 5 % tariff rate is impacting our exports. That's not a real thing. Well, it's higher in some key markets that could buy our stuff, like Japan. And Europe, one way or the other, absolutely has a high effective tariff rate on American goods. No, they don't. It may vary by industry. They do. That's why they're finally desperate to negotiate a deal with Trump. is they've realized that when we raise our rates, it's going to harmonize things in a way that is not advantageous to European companies.
35:56I mean, Europe is protectionist in its own little unique ways from a regulatory perspective. But this idea that the rest of the world, and we're always going to leave China out because I actually think Keith and I agree about China, but the rest of the world has somehow been massively taxing our exports and harming American businesses and jobs is just flat out not true. It was a made up statistic because when you pull a data load and you'll pull it and they'll show it on the screen, the average tariff rate for exports most of the time is zero, by the way, for like 50 % of our exports, basically zero because we have free trade agreements with our top 20 trading partners.
36:30And then some are like 2%, 3 % sure. Germany maybe taxes our cars at 10. But we're talking about going up to, it is a made up problem that is like simply false. And so this idea that like, oh, this is the key to revitalizing American manufacturing is like getting rid of the 4.5 % tariff that like some pop-up, which are, it's made up, it's made up. It's like total chaos and totally made up. If you actually cared, and this is where I think you and I really will agree, if you cared about revitalizing things like American manufacturing, kill regulatory issues in the United States that prevent us from building shit here for our own consumption, housing, energy.
37:08They're definitely trying. And some of that, unfortunately, well, fortunately or unfortunately, is the role of the federal government. Some of it is not. Like the housing stuff, the federal government has some role to play, but it's mostly a state-by-state issue in housing supply. But deregulation is at the top of the agenda. I mean, they started with this, you know, kind of net, you know, sort of same kind of hammer approach of for every new rule, you have to, you know, sunset 10 to try to get the regulatory state under control. Fortunately, there's some legal developments that allow the executive branch to manage the regulatory state a little bit better.
37:38But Biden, just the Biden administration, as far as I've seen, pretty neutral estimates added, quote unquote,$1.4 trillion of regulatory drug coefficient. Trump definitely needs to get rid of that as fast as possible. No, no. Biden's idea of like of spending money and then layering on seven million rules before somebody can get that money is one of the dumbest policies we have ever seen. And it's like part of the reason why I also didn't like that administration because it's like so ineffective. But just yesterday, I mean, you know, we had Ryan Peterson on Logan, what, like two weeks ago? Yeah, last week.
38:16They were talking about layering basically like take the Jones Act and then just like actually expand it. So like some of the stuff they say, oh, we're going to do like regulatory form. And then you look at the specific policy that they're focused on and you're like, this is inverse. We are layering more regs onto this. I think they're confused. I think they're like, regulatory reform is good. And then when it comes to getting into the details, they're just giant protectionist populist leaders. And they go back to their playbook, which is like protection, protection, protection. And they're basically just like loud versions of Bernie Sanders, which is bad.
38:52Well, I think there's a global political statement, which is anytime we have a concentrated interest against a diffuse set of interests. In politics, elected officials are going to respond to the concentrated interest more often than not. And that's true of left-wing elected officials and conservative elected officials. And then you try to have structural corrections for that. But there's a natural dynamic to, you know, anytime there's a concentrated impact, those people are going to have a lot more at stake and they're going to be motivated. Look, I pray you are right. I pray that in five months, the net effect of this is if we take that little chart that Logan will show and we look at that tariff rate, it's lower.
39:35I don't think there is a world where that is true. I actually think it'll be higher, be closer to 10%, although it depends on how this stuff should. I think we're actually going to net increase our tariffs and therefore reduce free trade. Hopefully, it's not material. Like 10, fine. But the outcome of that, I'm not sure, is actually good for Americans. I think they're confused. they don't understand what's going on and then the messaging represents that because it got best in saying one thing and navarro who is an actual insane person saying another thing like all of it is is cast i i do want to go whether the fentanyl one because i'm kind of like hey before we go fentanyl because i know you want to do that keith what what time horizon do you think it's okay to assess uh like all of these uh different policies and like keep the score on on how it's going to out and what what do you mean about about a about a year um and a max before the midterms i mean like one way or the other like and i think this is true of like i mentioned this yesterday on different you know podcasts you do other podcasts yeah there's other podcasts in the world believe it or not um uh shocking we don't have a bit awfully yet but uh uh satcher and reagan both inherited basket case economies and very difficult geopolitical issues.
40:50And both had a really rough first year in office. And then both, they had significant policy changes. And when they were able to take impact, both the UK economy, which was horrific as a true basket case, and the United States was suffering from significant stacculation, were fixed before re-election. That's why Reagan ran a famously morning in America. So I think there's a political time frame that also has to be superimposed. But I think the reality is one to four quarters out, you can start seeing the stuff work on outward. It's going to be really fascinating to me how he will, if you're right, if this is really just like more free trade, but like we're basically beating people with the stick, because we have a big stick here, right?
41:39Like we are a giant importer of all their stuff. So I agree you can use a tariff to get to no tariffs. But if that is the goal, the rhetoric in six months where we end up with like net more free trade, like I don't know, what is he going to talk about? Is he going to talk? They're no longer screwing us? No, he's been talking about ushering in this global age, you know, this new age of American prosperity. He's going to talk about how American companies are growing and adding more jobs and real jobs. you know real steve miller talk about real full-time jobs to americans have grown you know six months in a row for the first time in 40 years blah blah that's what you're going to see because that's their goal their goal is higher paying quality full-time jobs for americans not foreigners no i get it but like everything they're doing is going to shrink the actual economy and it's basically i don't know i don't think i don't think that's true i think if you look at tariffs in isolation, this is not, I think it's unfair, and this may be a messaging issue, but it's not like the administration is sitting around and saying, the global fix to everything in America is tariffs.
42:40It's like, no, we're going to massively deregulate. We're going to cut taxes. We're going to do this, this, and this. And tariffs are an element in a strategy. And I think that's why I'm optimistic that they're going to be very effective. They're like, they say, my favorite, there's so many things where I'm just like, you just said this one thing, and then you did this other thing but even just on like the deficit which is you know probably the simplest one where they're like ah the deficit is a giant problem and it is and it mostly comes from entitlement spending which is medicare medicaid social security like 50 if you add the military in it's like 67 yeah i think military has another 15 to it yeah and even if you like the true discretionary spending as a percentage of the u.s budget is really small like the mandatory spending is like 90 something percent.
43:23It's great. Everything's 15 percent. Interest servicing, the interest is 15 percent. Defense is 15 percent. Medicare is maybe 20, 25, but something like that. You can't, you cannot address long-term U.S. deficits without addressing the... Well, you can. I've given this, you know, advice to various elected officials. There's a global playbook here that will work, and I hope the administration buys into it. Thatcher pretty much followed this strategy when she was first elected in 1979. what you have to do is you have to reduce federal spending by 1 % to 3%. What that allows you to do is it allows you to decrease interest rates by the same amount without inflation.
44:03So for every dollar you subtract out of federal spend, you can reduce interest rates without triggering inflation. The whole fear of the Federal Reserve is we can't cut interest rates because it always triggers inflation. That's why we have no growth anymore. So for example, from 1950 to 2010, we averaged three and a half years, 3.7 years to be exact, a 5 % or more growth per decade. Since 2010, we've had exactly two years, and one is the post-COVID fake growth. Because the Federal Reserve will no longer allow the American economy to grow without this avalanche of fears about inflation. If you subtract out the federal spend by 1%, you can lower interest rates by 1 % safely until you get the GDP growth without inflation.
44:48That's why 1 % matters. We had 0 % rates with no inflation until we did this stupid COVID spending for like a decade. And so like we have this, they're not touching - Well, we were also printing money, which is another whole set of challenges, but - Totally. And that was like really stupid, but we're not actually cutting federal spending. And then they're cutting federal revenues. We are going to cut federal spending. Like we're not going to cut federal spending. They're going to cut Medicaid spending so they're basically like i said one percent you don't have to cut like 50 like that became like this is like one of these excuses uh it's like oh we can't cut big chunks so let's not cut anything no but they're that's why joe's that's why joe's so effective they're cutting spending and then cutting revenue more than the well yeah but those are two different things revenue and spending are not the same thing we need to cut spending we do not have a asbestos likes to say we do not have a revenue problem.
45:40We have too much revenue. We have a spending problem. If you went back to just 2019 spending, which isn't that long ago, we would be actually a balanced budget. You're telling me I make - 2019. We're the same in revenue. I'm just going to do the human example. I make$100 ,000 a year and I buy$5 Starbucks. And you're like, look, if you just spent$3 on the Starbucks, you don't need to make$100K anymore. You'll make $80K. That's essentially what we're talking about doing because we're cutting revenue. If you can buy coffee for a dollar, sure. No. I mean, like the reality is before Starbucks, that's what people used to spend on it.
46:11And that's what the government does. It's bloated. Like everything we spend on education, a lot of stuff we spend in the military, truthfully, is wasted. Stuff we spend, you know, left and right. That's what Doge is exposing. We are spending money. Like we're buying the$5 Starbucks. We're actually buying$50 Starbucks when we could be buying dollars Starbucks. I'm still waiting for the fraud because I assume if we had found fraud, we would have prosecuted it. Oh, we're definitely going to prosecute it. Well, the DOJ, you know, it's rhetoric. The whole thing is rhetoric. The DOJ is definitely going to prosecute people.
46:39We're definitely going to prosecute people, including some elected Democrats. I hope for the Stacey Abrams is definitely getting prosecuted. If there was real fraud at the hilarious scale that Musk and them made up, then we should have like legitimate prosecutions. I agree with that. Prosecutions. We're definitely going to have prosecutions. You have to think about it. Some deputies to the attorney general have not yet been confirmed by the Senate. It's really asking a lot for the Democrats to attack the federal government, the executive branch, and disrecord every day and prosecute all these people and fix all these messes without confirming her deputies.
47:13One other way that would be interesting is when you claim a trillion dollars of fraud and then you don't give a single example that comes anywhere near it. I think it's on their website. I think it's on their website. Go to their website. The number keeps coming down. We're going to have to wrap soon. Ask your fentanyl question. I cut you off. I know you love it. Oh, yeah, go ahead. Far right. I mean, there's like a whole bunch of things that I'm going to come off as a little bit of an asshole here. But like, do the Republicans really care about fentanyl? Like, is that a thing? A thousand percent.
47:39This is the top of the Trump has made it very clear to the Chinese. I know he cares. Very clear that he will trade fentanyl reduction for tariff reduction. The American people, if they want. That's currently being negotiated. If we if we want drugs here, like we're going to get them. Yeah, haven't we tried the war on drugs there? You may know about the precursors of fentanyl. Fentanyl cannot be produced in small labs, and it's very sophisticated sort of equipment. They will find another place to make it. The other thing I would argue is that— Well, then we should go after that government. This is the reverse opium war.
48:12This is an intentional strategy by the CCP to poison and kill Americans, and we need to treat it that seriously. We've been trying to stop the flow of drugs for 30 years. It never works because, like, people will figure it out. Well, fentanyl is not that easy. Like the CCP has intentionally allowed this to happen. They are aware of every lab in China that is manufacturing precursors. No, I agree. We're also going to stop the Mexican cartels by using the military and designating them as terrorists. Here's what I actually think will happen. And this is just on the fentanyl one. The Mexican cartels are exceptionally good at trafficking stuff that Americans want to buy.
48:46Just so happens that fentanyl is one of those things. But they trafficked weed before and they trafficked ecstasy and a whole bunch of stuff. Agree. Agree. If we want to buy it, they're going to bring it in, and they're going to make money doing it. So we're going to slap this 35 % tariff on imports from Mexico. And you know what the cartels are going to do? They're going to start importing not just fentanyl, but they're going to be bringing other Mexican products that Americans want to buy on a black market. We're actually going to grow the cartel business. Maybe one of the benefits of actually taking the Mexican cartels seriously.
49:17The cartels are going to be the biggest avocado importers in the world. You know what people want more than fentanyl? like guacamole. And that shit is going to be flowing through the tunnels. Fortunately, there's a simple metric here. We easily could observe the number of fentanyl deaths per year, unfortunately. And it's tragic. And so if that number doesn't go down, then the problem with that number, which I think is a red herring, whatever the term is, is so much of the fentanyl deaths stem from a few years ago, over prescribing of opioids, which was a really big problem. A hundred percent. A hundred percent.
49:50And the medical community, slower than they should have, to their credit, has essentially stopped prescribing opioids in mass. And so you should see like a natural come down rate in fentanyl deaths just because of that. We can actually measure the number of prescriptions. It's way down. It's way down. Yeah. So you can show those correlations or inverse correlations or whatever you want and then see if there's a step function to prevent. We also have, thankfully, because of like biotech and pharma, we have like non-addictive pain meds that are all coming. So I think this like fentanyl issue, fentanyl is the product, but the customer at the end of the day is addicted to opioids or was addicted to heroin or opioids.
50:28And then a whole other topic that'll get you totally ballistic, but that's a function of Obamacare. Obamacare helped cause that problem. And so if you kill Obamacare, we can fix that too. That is an interesting part. My brain is like, how is that true? But I don't want to go in two minutes, figure that out. There's a great slide that Logan and Chad CPT can provide you that shows you that those prescriptions correlated against when Obamacare was introduced. It goes like this. I'll let you post that. Micro breweries or like VC micro funds or I don't know. Well, that'll be the next episode. Let's wrap this now.
51:09I'll tease you for our next Obamacare is an unmitigated disaster episode. I think the headline for me is I hope Keith and I agree that we are using tariffs to remove tariffs. And if that is true, I'll be pretty happy. I agree more than I expected on this. I don't know. Everybody's a little different. If you bring Tamath on, he's going to be like, oh, we're going to make manufacturing great by making T-shirts and stuff. He has no idea what he's talking about. So like this is at least a little more. Are you biting the hand that feeds you again, Zach? How many times can you do that? You know, that$7 check he wrote in the$130 million round really moved the needle for us.
51:47I appreciate it. By the way, which we made him like 8X on. So like I should be the one sending the bill, right? Like we made you money. All right. All right. Thank you guys. I'll let you guys short that out on Twitter. I'm going to press for X. Yeah. Thanks, guys.
52:10Thank you.
From the publisher
Debate between Keith Rabois and Zach Weinberg on what tariffs are actually trying to accomplish. One core theme: Tariffs aren’t fully about “bringing back factories,” but rather a negotiation tool to eliminate foreign trade barriers - ultimately aiming to increase free trade, not restrict it.
We also got into:
- What each of them would do if they were in charge
- Whether the trade deficit is a meaningful metric or just a misunderstood talking point
- If tariffs could be part of an initiative to replace income tax — shifting toward a more consumption-based tax system
- If tariffs could successfully be used as a non-military tool to reduce drug supply to the US
- If there’s a major disconnect between the new administration’s rhetoric and the actual economic goals behind the policy
One of the deepest economic conversations from the show’s recent history — and a rare debate where both sides had real logic behind their views.
(00:00) Introduction and Host's Biases
(00:46) Keith's Perspective on Tariffs
(03:05) Zach's Perspective and Clarifying Questions
(05:14) Debating Tariff Strategies
(07:45) Economic Implications and Free Trade
(13:31) Trump's Tariff Policies and Goals
(16:57) Global Trade and Protectionism
(25:52) Final Thoughts on Tariffs and Trade
(29:16) Discussion on Trade Tariffs and Partners
(30:17) Impact of Tariffs on GDP and Debt
(31:20) Political Coalitions and Trade Policies
(32:00) Tariffs as Consumer Taxes
(33:30) Debate on Trade Deficit and Tariff Rates
(36:53) Regulatory Reforms and Economic Policies
(47:25) Fentanyl Crisis and Trade Negotiations
(51:06) Closing Remarks and Future Topics
Executive Producer: Rashad Assir
Producer: Leah Clapper
Mixing and editing: Justin Hrabovsky
Check out Unsupervised Learning, Redpoint's AI Podcast: https://www.youtube.com/@UCUl-s_Vp-Kkk_XVyDylNwLA
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About the Show
Logan Bartlett is a Software Investor at Redpoint Ventures - a Silicon Valley-based VC with $6B AUM and investments in Snowflake, DraftKings, Twilio, and Netflix. In each episode, Logan goes behind the scenes with world-class entrepreneurs and investors. If you're interested in the real inside baseball of tech, entrepreneurship, and start-up investing, tune in every Friday for new episodes.
