 We're back. We're live. I'm Jay Fiedel here on Think Tech Global. And we have the honor of Russell Liu, who's one of our longtime contributors over many years, who was a lawyer from Hawaii who has been practicing in China for, gee, quite some time. 13 years. 13 years. That's a long time. He's totally conversant with Mandarin and with things Chinese. He's been all over China and understands China better than most people have not done what he has done. And we'd like to talk to him today about Trump's first hundred days and some of the trade policy statements that he was making in his campaign over the past year and some of the moves he ostensibly will make after inauguration. I like, Jay, what you talk about the first hundred days. He's not elected yet, but we are actually in the first hundred days of the things that he's done already. We are. He started his first hundred days right after election day. And so customarily you give a winning candidate a hundred days, a honeymoon, right? So his honeymoon has already started. And we ought to measure that hundred days by not January 21st, but by November 9th, I think. Anyway, Russell, you have a lot of thoughts about this. Let's back it up a little bit and try to talk about before Trump BT. What was American policy like? What was the sensibility of the country about doing trade with China? Well, we have always had this one China policy. I think recently the telephone call that Donald Trump received from the head of Taiwan throws into question that policy that's been existing. Under that policy it has been peace, stability, economic trade has flourished. And now with that call, that set off a chain of events. And also recently Donald Trump, President-elect, has named a new head of the trade council, a newly created office that's going to work closely with the executive office. And the person his name is Peter Navarro, who is widely known as a critic of China. Well, I mean, it all follows what we saw. As I recall, what happened is he got a call from the Prime Minister of Taiwan, President of Taiwan, who was supposedly congratulating him. He took the call. It wasn't very diplomatic to do that, given the diplomatic considerations with China. And then when he was criticized for it, he turned against China and made some statements about how China's taking all our manufacturing jobs away. And we shouldn't be sympathetic to them in this matter. And that was, in my view, that was a greater transgression because that heated up a battle, a diplomatic battle anyway between and a trade battle between the U.S. and China. Because it seems like we have always had a kind of, in recent years, we've had a kind of discomfort with China and a lot of people in the country, especially the people who voted for Trump, feel that it wasn't a good idea because it wasn't a good idea to do trade with them because they would take our jobs. And we'd be buying all the manufactured goods from them and we wouldn't have the jobs to go along with it and so forth. So now that he has come into office and he is a part of this guy, Navarro, who is basically anti-trade with China person, we have an idea about what Trump is going to do when he gets inaugurated. What do you think he's going to do based on his statements at that appointment? Well, I think it's important to look at Peter Navarro, who's going to hold a very important position and important voice in the Trump administration. And we look, prior to his appointment for this new trade council, what are his thoughts? And it's amazing because in 2013, in an article that he wrote in The New York Times in a co-op editorial, he wrote, Buying Made in China. And what he did was said that buying things made in China hurts our economy and it's killing our economy. So we're going to look and see and talk about his mindset. I think there's a lot of fallacy to that because for many years Made in China are not made by, products are not made by government companies in China as Peter Navarro has insinuated or has presumed. All the products that are brought back into the U.S., most of them, over half of them are made by U.S. companies that are in China. So it has nothing to do with government companies in China. His point of view is that these government companies in China are making things that are killing our children and it's hurting our economy. What a grand generalization that is, eh? That's dangerous, Jay. That's very dangerous. And in fact, he's also insinuated that Americans are working with the Chinese companies in joint ventures to make these products. But in fact, government companies in China rarely will do a joint venture with an American company unless the American company seeks to manufacture, provide a service in China, not in the U.S. So we're not talking about imports that are made by joint venture companies. Most companies in China, I've been there for a number of years, Jay. I work with foreign companies, multinationalists. They look to incorporate in China, but they're the 100% shareholder of the Chinese entity that makes the products that send it back over to the U.S. Well, I think he's going to turn the screws down on trade with China. What specifically would he do? Would he impose tariffs on Chinese goods? Is that what we have at the start? That's a good question, Jay. So what he's proposing to do is to jack up the tariffs to equalize the same tariffs that Chinese throw in American products. So they're going to jack up the tariffs. Isn't that fair? What's good for the goose and the gander? Isn't that fair? Well, again, again, that hurts Americans because let's let's let's think about it for a second. If you jack up the tariffs, that means you're going to have less imports coming into the U.S. Or the prices of the product Chinese will be a higher price. And you're going to what's going to happen from a macroeconomic point of view is that there's going to be less consumer spending. Consumer spending is a key indicator. That's one side of it. But what about the other side? You know, if if if they charge a higher tariff than we do, or tariffs in general than we charge, then what we're saying is, you know, well, what's happening is that limits our ability to sell our goods in China. Okay. And it but it gives them greater capacity to sell their goods in the U.S. And so, you know, the average person would say, well, it's not really fair, even minded. Why why why can't it be across the board or tariff free even so that neither side has an advantage? Well, I think that thing's important to realize that China is still a developing country. If you look at the trade policies that U.S. has around the world, the tariffs usually are higher than the developing countries to enter the market. But let's take another look. Living in the ground in China, think about this from a business perspective. What kind of products enter a developing country like China? What sells the iPhone? What sells a Mac computer? You're talking about things that are higher priced, and people pay the price for that. They will pay the money in China for that. You're not talking about slippers. Americans manufacture slippers sending to China. You can't do that because they Americans won't make any money. So it's always the higher item goods that there's still a market demand for it because that's where I think you don't understand it unless you're in China. You see that they will pay the price for a higher product, a better quality product in China. And the also is true is with big Chinese outbound travel tourism market, they have a dream list of things they want to buy. They come to the U.S. and buy a lot of Apple things. They buy things that may be in China because a tariff may be a higher price. They'll pay the price and they'll come here and spend the money. So, and again, that is another thing you need to look at. And you have to understand that helps their economy. That's exports, basically. They come here and buy, and pay sales tax or gross exercise tax and all of that. Sure. So, but, you know, assuming that he changes the tariff structure and imposes tariffs or greater tariffs on Chinese goods coming into this country, making it more difficult for, more expensive for, you know, the consumers in this country to buy those goods. What's the net effect? What's the net effect on both countries? Can you say? Okay. First, let's look at the U.S. I think the first thing that you have to understand economics. When you start to kill imports of Chinese products into the U.S., consumer spending U.S. goes down. Consumer spending goes down. Okay. When you have consumer spending, that raises the GDP. When you, when you start to kill consumer spending, you get more expensive. That lowers the GDP. That's very important to realize from an economic point of view. The second thing I think from the China side is that it gives a lot of strength to, you know, I'm not going to talk politics. I'm not a politician. But in one sense, it makes a stronger China nationalism. And when you make that happen, they will start to buy less American goods, period, even the high-end goods. And that's going to be a problem. So it's a trade, not a trade war, but a tariff war. Yes. And so a tariff war is going to have, you know, an effect on the average Chinese person. And he's going to, he's going to want to be loyal to China. And he's going to take it out on the U.S. for attacking him with higher tariffs. And I think, I think, I think that there's a fact that you can understand if you're on the ground in China, and you realize that that there'll be more domestic spending from domestic brands. And that's not how it should work in the scheme of greater things. Okay, so that's what would happen. What else could Trump do about this? It's, I can't think of anything else aside from tariffs. Is there other other statements, other mechanics that he could install in order to, you know, follow through on his threats of limiting the importation of Chinese manufactured goods? I think we've got to understand the bigger picture. This is why we're called global world. Okay. No matter what you do to China, if you start to close a spicket and we become more isolationist, India, Brazil, all these countries around the world that now have internet, they have access to knowledge, they're going to go global. And we're going to be in this mode where the U.S. we're not going to go global. I think one of the failed economic policies we failed to make our build our capacity to become global, not only, you know, being a U.S. knowledge base, but we need to be global because around the world, everybody else is changing. They're going to become global. I hear you're talking about, you know, not only not raising tariffs, but, you know, taking tariffs off of being TPP, you know, free free trade kind of arrangement. You think we could do that with China would work out for us to do that with China? You mean to to no tariffs, no tariffs free trade, you know, take the concept of the Transpacific Partner Agreement and put it, you know, vis-à-vis the U.S. and China? Well, let's look at what happens if we have the TPP and then then we can understand that better, Jay. If we have the TPP and the Chinese have been have been actually geared up for the TPP several years ago. If we have the TPP, China is not included. What does that mean? Chinese investments are going to go all over in South America, Central America, Mexico, and Chinese companies will localize. They will become 100% shareholder and create their own Central American, South American company. And we have the existing NAFTA framework. We have the CAFTA, which says that Central American countries and Mexican companies will be tar-free. So they will boost these third world countries and they will get their products through that channel. So that means that we, as Americans, are probably going to lose a lot out of that because the Chinese will still be able to operate- They'll operate, yeah, back doors. Back doors. And through other countries and other arrangements. And one of the things from a political point of view for Americans, I'm not a foreign expert on diplomacy, but a stronger Central America or South America. Is that good for the U.S.? I say yes, but maybe some people in Washington, DC would say no. They may become a threat to us. Well, you know, what I hear you saying, and it's a really seductive possibility, is forget about tariffs. Everybody free trade. And maybe that's the future of the world. That's the global end game here that we all drop tariffs and we trade freely around the world. What happens if we do that? Would Trump's concern about manufacturing in this country be realized? Will we be able to manufacture competing against wages in every low-wage country? Shouldn't we be concerned? Is he right about that? Well, I think every country has the discretion or the sovereignty to set tariffs. And I think there's good reasons for setting tariffs. Yes, to some point you protect domestic jobs, but the world is becoming global. But let's look at it one step further. With the tariffs, how much tariffs are going to be will affect the consumer spending because less imports will come into the country. But maybe having some tariffs is important because then in a Chinese business mind, OK, China's policy now is to move up the value chain. High technology, it doesn't have it. Management processes, it doesn't have. OK, but through the years, because of multinational investing in China, they have great manufacturing. I understand how to do manufacturing operations. They've got the latest equipment in China. What happens now is that, OK, labor costs is rising in China. It's still a film country. So that means we take our Chinese operations, now move it into the U.S. We have a hiring product that we can now justify with high labor costs in China. Now we set in the U.S. We cut the distribution cost and we'll give more to the American worker. We'll create jobs. Case in point, a few weeks ago we brought up a Fuyang glass company, the billionaire who's multi-billionaire, who's investing a billion dollars and he's revived and bought up two former GM plants and is bringing his glass company to the U.S. It's going to be an American company that creates several thousands of jobs. Think about that. So we should be welcoming that kind of investment. But if we start to do a trade policy and start to restrict Chinese goods, high tariffs, remember one thing is that for any country for China, the money that will leave China to invest in the U.S. is regulated by the government. And pretty soon the government may not approve that investment to the U.S. We kill our foreign direct investment. The government can control it. Can you identify the government can control it? And besides that, the second point of view is that in a culture's society where the U.S. is bashing China, do you think that Chinese businessmen will want to go to the U.S.? No, they don't want to because they will be in their society. They will be on a list of maybe on the people's list that we won't support this company anymore. Yeah, and it's not only the businessmen that will be everybody and maybe everybody, including Xi Jinping. Let's take a short break, Russell, we'll come back and talk about, you know, what happens if Donald Trump implements his plan to limit imports from China into the United States? We'll be right back after this break. Hi, I'm Ethan Allen, host of likeable science on Think Tech Hawaii. I hope you'll join me every Friday at 2 p.m. to discover what is likeable about science. We bring on scientists of all ages, astronomers, physicists, chemists, biologists, ecologists, and they talk about their work. And more importantly, they talk about why you should talk about their work, why you should think about their work, why you should like their work. I help them bring out why their work is understandable, why it's meaningful, why people should care about it, why people should support science. We have a good time. We talk about current events of interest. We talk about historical events sometimes. We dig deep into their research, why they do, what the joys and delights and frustrations of their work are. And in all, we show a real world of science, a real world of likeable science. I hope you'll join us every Friday at 2 p.m. We're back. We're live. I'm Jay Fidel here on Think Tech Global, and my guest is actually our host, Russell Loo, who's a Hawaii lawyer who has been practicing in Beijing for, what, 13 years and who knows the territory there, and is concerned along with the rest of us about Donald Trump's plan to cut trade with China effectively by tariffs or otherwise. So let me just summarize what I think you were saying before, was that if we block the importation of Chinese goods in this country, there are some very negative effects to us. It's not clear that we would be improving, increasing our manufacturing capacity, but it is clear that people would, that the prices would be higher of things we customarily do buy through those channels, and just taking the laws of economics, people would not pay the higher prices, and although Donald Trump could afford to pay the higher prices, the average Joe, even in a community that voted for him, would buy less, and if people buy less, then you have a smaller economic development, and the whole supply chain begins to lose revenue, and GDP is thus made smaller. What's more is the secondary effect, and that is if you get into a tariff war or take these adverse negative steps toward trade with China, they are going to respond, and it's the response I'd like to talk to you about. It's the response you mentioned just before the break of people not being willing to come to the U.S. from China, not being willing to make investments, as they have been in the U.S., taking steps that are adverse to us, and of course there's Xi Jinping, who was not born yesterday. Xi Jinping is a tough character, and he is not going to stand by. He's going to make his own plan. My understanding of his technique is that he's a long-plan kind of guy, very Chinese kind of characteristic, and he is not going to just let Donald Trump or do what Donald Trump wants. All the breastfeeding in Washington isn't going to affect him. Xi Jinping will find a way to deal with us, and we won't necessarily like it. Am I right about that? You're right. I think let's really think about it for a second, okay? Let's really think about the dynamics of business done in Asia, which is very important, okay? We're talking about higher tariffs for China so that the Chinese products can enter the U.S. Think for a second, okay? What kind of products come into the U.S. these days made from China? We talk about all these things that go to Walmart, Costco, cheap things. But the truth of the fact, being in China 13 years, there's a shift. All the law in manufacturing is moving towards Southeast Asia. It's not coming from China, okay? So it means that, you know, it won't have that much effect because the goods that are coming from China are not going to be what it used to be 20 years ago, law in manufacturing, cheap stuff, okay? So how is that going to affect the U.S. economy? But second thing to point out is that from an economic point of view, it means that if we start to put a tariff war in effect, Chinese products that come here, there's going to be less consumer spending here. Consumer spending doesn't benefit China, it benefits the U.S. Well, the supply line, the supply chain. The supply, and all the people who work in all the Walmart stores, and all the stores in general, and sell Chinese goods would, you know, they might lose their jobs and those stores would lose revenue, and so you have an adverse effect on that level. We start to kill that. Prices are going to be higher. People are not spending. Our GDP is going to go down. At the same time, this doesn't necessarily mean that our manufacturing capacity will increase. I mean, I think one of the things that Trump and his friends are saying is that if you cut off the Chinese goods, we are somehow going to increase our manufacturing capacity. I'm not sure that's true. Do you think it's true? That's a great observation, Jay. Do we have the money to build the capacity? Do we have the manufacturing capacity? Do we have the know-how? China has actually acquired that know-how. We stopped manufacturing some time ago. We have to begin from, you know, from square one here and learn how to do it again, especially in goods that are, you know, sophisticated goods that they are building for us now. Exactly. So we're, you know, I'd like to, you know, go to the point and it's right here and this question is technology. You know, at the end of the day, it's not necessarily the cost of labor. It's the power of the technology. You can build an automated plant these days. It doesn't require a lot of labor. And so the guy that builds the automated plant, so if the U.S. wants to be, wants to recover its manufacturing prowess in the world, it should apply the technology to the manufacturing. In some quarters, this is already happening. And I suppose, you know, if I were advising Trump, I would say, why don't you encourage that instead of bashing China? Why don't you encourage manufacturing by incentivizing technology and manufacturing in this country? And the question behind it is who has the money to bring that technology now? Who has the money and investors from China? So you see where I'm getting at the point is that we will have a failed policy because we won't have the money to build the capacity. We've lost a capacity over 30 years ago, Jay. And all of that has been invested in China, the latest state of art manufacturing equipment, the quality control. And it's not necessarily giving jobs to Chinese because with high technology means it has been actually reducing a limiting number of jobs in China, high labor costs in China. But now we're going to kill that investment that comes into the U.S. A billion dollars in... The Chinese companies are pulling factories here. That's right. And we should be encouraging that. But if we do a trade war, some of all things, I think we're going to lose out because our GDP is going to decrease. We're not going to be able to attract foreign investor money into this country, Chinese money. And that's important. I mean, we have changed the curve from the 70s and 80s. Peter Navarro is thinking about 70s and 80s when Americans went and spent money in China. And then remember one thing when the WTO came in effect, then Chinese companies in 2004, I mean, excuse me, foreign companies, American companies in China, now didn't have to do joint ventures. They did what is called Woofies. And they're basically an American company operating in China. And with that increase in technology, it means they weren't paying a lot more for labor-intensive things. Those jobs are going to Southeast Asia, to Vietnam, Thailand, Indonesia. They're not doing that. So what we want from the Chinese, investment money, we want to know what's going on in the factories, that higher-end equipment to be brought to the US. And we need to gear up our manufacturing capacity, which we can't do alone. Yeah. I mean, even a great idea about technology still requires investment. So, but back to Xi Jinping for a minute. He's nobody's fool. Smart guy, powerful guy in China. He's consolidated his power. He's now talking about disregarding the succession rules. And he wants to be, he wants to go for a third term, despite the rules that call for him to leave after the second term. So this is a very powerful guy getting more powerful. This is a great issue for him to have on his plate, because he can use it as a scapegoat issue and scapegoat the United States the same way Navarro is scapegoating China, as a matter of fact. So the question I ask you, and this is a hard one, is what will he do? What will he do to neutralize the efforts of this administration to cut imports from China? Well, I think what's going to happen is when you start to cut the Chinese, you know, exports to the U.S. It, I think a number of things are going to happen. Chinese, China make, start to close its borders with regulations and making it difficult for American companies to invest in China. The biggest markets are in China for American companies, not the U.S. The biggest markets are in China. 1.4 billion people. And that's a tremendous market. When you start cutting access, who are you going to hurt? American companies try to sell things in China. American companies. So this is not necessarily strictly an economic game or a tariff game. This is diplomatic. Diplomatic moves by closing markets, by preventing the sale of goods at all in China. He could do draconian things to affect the ability of our companies selling or manufacturing for that matter in China. And you know, we've seen that before. It's kind of a tit for tat thing that China sometimes play. You want to mess with us, we mess with you. And I suspect that exact thing will happen here if Donald Trump does what he is suggesting. You know, and it's interesting to think about for a second since President Obama came to office, many people get very emotional. And say we're in a worst off of this. Statistics don't lie. You look at the unemployment rate. At a time he came to office in 2008, inherited the big economic fallout under the prior president's watch. And the question is, has unemployment rates gone up or gone down? And they've drastically gone down. Look at the stock market. Has the stock market gone up or down? It really has gone way up. That's a sign of a healthy economy. That's a sign of a healthy economy because we have a healthy relationship with China. Think about that for a second. Well, mostly, but I think that relationship has suffered since November 8th. And in fact, it suffered during the campaign when Trump was making his anti-Chinese remarks. So, you know, I think we're not only talking about the pure economics and the tariffs and the manufacturing companies and the restoration of manufacturing capacity in this country, or the protection of markets, our markets there. We're talking about the whole enchilada, the relationship of the U.S. and China. If we bash them, they will bash us. And we will not necessarily come out the winner on that. This kind of challenge thing. And he's doing the same thing, Trump, in his tweets and all, with Putin on nuclear proliferation. And so I think, you know, these things do not necessarily play in our favor. Not to say that everything that Obama did was right. But, you know, if you disrupt things this way, and you get into contentions around the world, diplomatically and nationally, in terms of the feeling of the populations in this country or that country, and the steps that are justified, you know, the payback steps that are justified by public opinion, we don't come out ahead on that. That's right. And let's take a look at back in a few years back. This is very, reminds us of Japan in the 70s and 80s. We started having a lot of Japanese cars. And we started bashing Japan. Think about the first second, okay? And we started to want to change our economic policy in the scheme of things. If we were successful bashing Japan, we wouldn't have Toyota Honda plants in the US. We wouldn't have jobs. We wouldn't have an auto industry. To some extent, you've got to realize that helps support the auto industry when our own American manufacturers were starting to have economic laws. Absolutely. And a number of communities depend on it. A number of communities. And the industry depends on it. And it has worked well. So we should learn by that experience. Learn by it. We're getting into this paranoia again. This paranoia that they are foreigners and that they're going to take over. And I think I think- It goes back hundreds of years. That's the point. It goes back- The yellow peril at all. The yellow peril. But think about this. We come from a society that's based on a lot of European civilization. Washington, D.C. is based out that. Leaders, we come from a lot of European heritage. And you take a look in Europe. Tell me, which country didn't go around the world to bash people and to do military conflict? We had the Vikings from Norway, Sweden, right? We had the Spaniards. We had the English. We had the French. We had the Portuguese. And think about that. It's the same mentality that we are on top of the world. And we tend to then become isolationists in some sense. Doesn't pay. Doesn't pay the long run. Not in the 21st century. He surely doesn't pay. It's- we're global. There's internet. There's technology. So what's happened is the curve, the game has changed because everybody in Asia and China 40 years ago made it mandatory for their students, young people who learn English. They read the internet. They understand English. They know the game of businesses is English. And so they see what's going on. So they're creating global networks. They're creating global companies. So where are we in the scheme of things? We've done the opposite. We've sat here thinking we're the greatest. And now we're going to be more isolationists by causing trade wars. We're going to lose friends around the world. The Chinese will gain a lot of friends going to South America, Central America. If you want to- if you want to survive, prevail on a global basis in the global economy, you've got to compete. And you can't be isolationist and compete. Russell, this is a great discussion. We have to continue this discussion. There's much more to come. And we have to compare notes right after January 21st. Great. We'll see where the first 100 days have gone. Yeah. Thank you. Thank you, Jake. Russell Lu, a lawyer from Hawaii doing practice in Beijing.