 Okay, we're back live for The 4 O'Clock Show. I'm Jay Fidel here on Think Tech, and I'd like to say that it's very important that not only the United States, but Hawaii, think globally. We have to see it the way Thomas Friedman sees it. We have to see a global world here. Like it or not, that's the way things are now. And Hawaii cannot afford to be not global. And so that's why we like to talk to Russell Hanra. Russell Hanra is the senior APEC official in Hawaii. He's the author of the master plan, the APEC master plan, and he follows APEC very carefully. That's the Asia Pacific Economic Cooperation. I get that right. Yes, Jay. Thank you for inviting me again, and I enjoyed this Think Tech Kauai show, and I can literate some of the issues that's very important to our community and what affects Hawaii. Yeah. Well, today, we reserve this time for you and me to talk about Donald Trump's tariffs and to put them in perspective, to look at them in the continuum of American diplomatic and global business history, and to see why they happened, what effect they're going to have, and how that will affect us, not only in the United States, but in Hawaii. So let's talk about tariffs in general. What is it and why are these tariffs different from all the other tariffs? Yeah, let me, Jay, explain what really tariffs mean. Tariffs is a word that they use for taxes, like putting linen on some of the imports that we bring in from foreign countries. And for example, the U.S. Customs here with the border control under the Homeland Security. The U.S. Customs actually looks at the, lead eyes, the import taxes of every items that's imported into us, into, from different country of origin. For example, you have, like, machine parts or aluminum or a steel that we're going to be talking of coming from China. And China is a communist country, but we don't have any free trade agreement with them. So we give certain tariffs import tax percentage. And just recently, Donald Trump signed an executive order on March 1st, giving 25 percent import tax tariffs on steel materials. That's a pretty high tariff, isn't it? Yes. And 25 percent on steel and 10 percent on aluminum. And I think what he wants to do is kind of help out the American manufacturing, especially for the steel mills and aluminum mills that we produce in the U.S. soil. For example, we have companies like U.S. Steel Corporation, Neck Car, or companies like aluminum. We have Kaiser Aluminum, Reynolds Aluminum. So at least big multinational companies, they do have a million. And even steel, if you break it down into steel commodities, see, I myself was an industrial technology major in college, and my major was in metals and millology. So there's a different types of steel that you can use. It could be hot-cold steel or non-fair steel. Hot-cold is the difference between how much carbon steel is in there. And when you say carbon steel, there's basically the construction materials that you use, like rebars or channels. And non-fairest metals is like without the carbon contact in there. It could be cobalt aluminum, or it could be different kind of alloys of graphite kind of materials. But basically, non-carbon steels are called non-fossil. That's a big one, because we've been buying a lot of steel from China, and this is a direct effect on China. And you said a minute ago that we don't have a trade agreement with China, which is interesting because we could be in a trade agreement with China with the Trans-Pacific Partnership. But Trump bowed out of that. So we don't have that. We don't have any trade agreement with them. And now, to add insult to injury, if I can say that, he is letting a 25 percent tariff. So does he have the power to do this, Russell? Can he wake up one morning with a headache or something at the side? He wants to lay a 25 percent tariff on steel around the world? I don't think he can do this overnight. I know that there must have been a complaint through the American industry, because you got to go through the Commerce Department, and we have an international trade administration that looks into if it's being harmful to our American industry here. And in this case, what Donald Trump is using this tariff on the steel and aluminum is because it affects our national security. And there is a provision called Section 232 of the National Security Act that calls about it's going to be harmful to bringing these cheap steel and aluminum from foreign countries that hurts our industries here. For example, our U.S. Steel Corporation, our Bethlehem Steel, Steel Digital Company on all these multinational steel companies that's part of our heartlands that produces manufacturing. If it hurts our industry here, we're taking our jobs away. And I know they did a number. In 2016, they brought roughly $29 billion of steel imported into the United States. From China mostly? Mostly from China and different countries as well, and $17 billion worth of aluminum. So it kind of tells you that. And that came mostly from Canada, though? Yeah. Canada is one of the most importers for steel and aluminum. But he's giving an exemption to Canada, isn't he? Canada, because of the negotiation. So they're tearing the bottom out of that increase in that tariff. So on day one, he makes the tariff, and after changing his mind a couple of times, he sticks with it, and then he gives an exemption to Canada, which is the biggest exporter of aluminum to the United States. I don't understand that. He's taking the bottom out of his own initiative by exempting Canada from the 10% on aluminum. Yeah, I think that's because I think right now we're negotiating the NAFTA agreement with Canada and Mexico. Negotiating chip. The North American Free Trade Agreement, NAFTA. So I think he wants to make sure that if we can renegotiate the terms and condition of the NAFTA agreement, then he will consider or leave out the non-tariff agreement for steel and aluminum. Oh, I see. So that is a trade-off. I think Trump is trying to work out a deal with Canada and Mexico. Bargaining chips, as he so often does, bargaining chips. So in the case of China, you mentioned also that there was something in the law about national security for the United States. So are we saying that the United States military, for example, is buying steel from China? We do have some steel companies here. Oh, yeah, definitely. Matter of fact, we are asking China to build those naval vessels. Some of these PTA boats or smaller vessels are made in China. And that kind of fixed Jones Act as well. And I have one time, some of these congressional delegates were trying to pass a bill in the Congress, saying that they want to change the Jones Act as well. Having some percentage, like 25 percent, can be made in China with China labor and China steel, the materials. So that's a concern. But now with the Trump administration, that's going to be off the books now because we want to protect our industry here and create more jobs using our American raw materials here. But we don't really have all that much—all that robust steel industry or aluminum industry. We have some, but not that much. What's the effect for somebody, a company that's buying steel, for example, from China when they have to—all of a sudden, we have a 25 percent tariff? And that means a 25 percent increase in the cost of steel to that company. And that same company cannot go around and find steel that's cheaper than what it could get from China. What happens? What's the economic effect of that kind of tariff? I think you already seen it. Soon as March 1st, when Donald Trump, the president, signed executive order of putting the tariffs on steel and aluminum, I think the stock market kind of went up for the steel and aluminum manufacturers in the U.S., as well as some of these automobile industry, the Detroit top three automakers, the stock market for them went down like 4 percent. And if you look at the aspect of the raw materials of the steel and aluminum industry, they're probably projecting 5 to 6 percent of increase in their profit and in return retained earnings. Of steel? Of steel and for their business. Yeah, but what about, like, for example, the car industry here in the United States? They're going to have to pay more for steel. That's—you know, whether it's the Chinese steel with the tariff or whether it's two American manufacturers who are clearly less efficient and charge a higher price, that's why this is all happening, they're going to pay more for steel, period. And that means you and I are going to pay more for our cars, because they will pass that additional tariff expense on to us as consumers. It's always the way it works, isn't it? Yeah, I think if you look at the economic—I think they did the numbers through the U.S. Commerce Department that with the tariffs that they're going to put, they're going to—the automobile industry, the price might go up from an X-Factory price to wholesale to a suggested retail price might be 4 percent increase. So I think that's going to be the economic impact as well with the industry that uses steel. You know, that might benefit them as well, so. Them meaning? In terms of cost of good returns. And the other thing, if you look at what Donald Trump did with the corporate taxes, I know that with 35 percent, he lowered it to 21 percent. So there's a margin of difference of 14 percent from 35 to 21 percent. That's 39 percent to 21 percent. Yeah, so— It's more than 14. Exactly. So in other words— It's 18 cents. So in other words, there's a 14 percent of difference. So the corporate structure-wise, they can use that 14 percent to benefit their employees out there. They want to do it. That's why you see a lot of these companies are giving employees bonuses or it might be another golden parachute kind of concept for them executives to make more of a— Well, I think he was job-burning them there at the beginning, and that's why a lot of the banks, including here, you know, gave bonuses to their—but you said can do it. They don't have to do it. So they can do—these companies, the banks and others, they've realized a huge windfall of the difference between 21 percent and 39 percent tax rate. And they have a lot—they have cash sloshing around now because of that. And so he was job-burning them, you know, you should give some bonuses, you know, to your employees. But in fact, they're not obligated to do that, and they may decide not to do it ever again, right? Yeah, it's up to—it's up to the decision of the board of directors, the management decision. Yeah. You've got to understand between is it a private firm or is it a public owned by stockholders? Yeah, sure. So that's—the decision-making is going to be different in those kinds of things. So, I mean, you know, what I see here is that these companies, maybe not all of them, maybe some of them will be, you know, good guys, but not all of them, maybe some of them, many of them will say, OK, we gave you a bonus. That's it. No more bonus. We're going to keep the rest of it for our stockholders and whatever we want. So there's no guarantee here that, you know, that tax reform act is actually going to have an effect, a long-term effect on their employees. There's no guarantee of that at all. Furthermore, it seems to me that this tariff is not necessarily going to have the effect that Donald Trump wanted to have, namely to encourage, incentivize the American steel industry. It will certainly increase the price of steel to consumers and consuming intermediate manufacturers, but it doesn't necessarily. Am I right? Yeah, I think in terms of—there will be some ramifications, some impact as it, but you've got to see which industry is going to benefit or not. Would you have done this? Oh, I think if you look at it from home rules of bringing—if you want to beef up the American industry— But does it beef up the American industry? Does it really do that? I mean, for example, the Jones Act you mentioned in passing a minute ago was intended, and that was it, 1919 or something, to beef up the American shipbuilding industry. It hasn't had that effect at all. What has done is increases the price of ships. I think what's going to do it, you see a lot of speculation, and that's exactly what happened with the stock market after the executive order and based on which commodities you're dealing with. But in the long term, sooner or later, it's going to catch up with you. So there will be competition from abroad. And I notice right now these other countries are buying out other steel mills and different—for example, Japan is buying at this company, the Nippon Steel, the Sumitomo Metals are investing in India and buying out a lot of steel mining over there. And you see a lot of what the company is like in Spain. Spain is a big steel mining corporation. Why are they doing that, Russell? Why are they doing that? Because right now they know it's volatile. The market is out of speculation, so they figured they've got to jump on the opportunity right now or else it'll be harder. So it's a business gamble that they take. Well, does this make America a bigger exporter of steel? I'm not sure America was that big an exporter of steel. In the first place, because we obviously have been importing from China. So are we leaving the world stage on the possibility of exporting now? Actually, if you look at the history, before China was South Korea and there was a steel building, they were one of the best steamship or shipbuilders. Yes, they are. And before that, it was Japan was one of the best steel and they were the best shipbuilders. Yes. Well, as the economy changes and gets developed nation, now everything's kind of focused on China because China's economy is booming and there'll be more industrialized and they've got so much raw materials there that they can come up with different kind of metal properties and between nonferrous and ferrous metals. They're in a great place because they've got the iron ore, they've got the cloak. Oh, yeah, definitely. In Africa and South America, and they've got steel mills, Chinese steel mills in both of those places. They're building steel like crazy and I don't know how American steel can compete with the steel the Chinese have been selling, not necessarily in this country, but all over the world. Yeah, I know. Are we kidding ourselves, Russell? We can always, what's going to happen in terms of domestic demand or exporting, depending on what commodities we're going to be manufacturing, could be washing machine, dryers, it could be industrial products for kitchen stuff or it could be automobiles or different kind of materials they're going to be implementing. But I think you've got to look at more of the micro aspect and think about not only are we going to bring the raw materials itself in the billet form or are we going to bring iron core or different kind of mining chemicals that make steel composition. So those things are not addressed yet. And I know that right now it takes about a one month to address it to the World Trade Organization that we are going to protest and put this anti-dumping kind of kind of value, kind of value, act on. I want to talk to you about that right after this break because the appeal of this, there still is a possibility of an appeal of this tariff that he put in place, it's already in place. But there are appellate procedures and when we come back from this break I want to talk about them and figure out with you what's going to happen with them. That's Russell Hanway. He's a senior APEC official at Hawaii and he's into trade and trade agreements around the world and he's certainly into tariffs because tariffs have a tremendous effect on that. We'll be right back. You'll see. Aloha kakau. I am Andrea. I am from Italy and I've been studying and working here in Hawaii for more than three years for my Ph.D. Hawaii is home to a truly fantastic community of middle and high school students. And did you know some of them are currently out there, right now, using their free time to invent new quantum computers? And did you know some of them are exploring cybersecurity and the new frontiers of robotics? I am just always amazed as I talk to them at science fairs. Oh, but there's more. Did you know that these students are coming here on FinTech Hawaii to hear their story with us? Come and join the new young talents making way show and discover how these students are shaping our future. Starting on February the 6th, every Tuesday at 11 a.m. only here at FinTech Hawaii, mahalo. Bingo. So we have a really interesting trade situation here. We have the United States isolating itself out of trade agreements all over the world. And we have tariffs. We're building walls, and only in the wall in Mexico is one thing. These are tariff walls, and they have an effect diplomatically on those countries with whom we have been trading. Some of our best trading partners have got shut out because of these tariffs, right? I mean, we gave exemption to Canada and Mexico, but not to anybody else just yet. And as you said, this is probably going to go up through the appellate process about tariffs. What happens? He's not final on this, right? The president is not final if he gets a bad headache one morning and decides you're going to put tariffs up and build walls and tariffs. That's not final. What happens? I think it's that the president did send a message with the United States trade representatives office, the executive office of the president. And we have our ambassador, Robert Linantizer, who's our United States trade representative. And he has to show a report to the Congress. There's a complaint made and dated authority study with the International Trade Administration that the steel and aluminum does harm our country, selling it below the fair market value as a dumping law, especially if they're targeting China. But in terms of Canada and Mexico, because of the NAFTA agreement status right now, we're negotiating, so he made that exemption. But if you look at focus like Korea, too, because we get a lot of steel coming in from South Korea. They're great shipbuilders. And we have a Korea-US-South Korea trade agreement right now. And I think Donald might want to, the president might want to see this if he can renegotiate that. But I think South Korea is our number one of our allies. And we're working on a deal with North Korea right now, so I think we don't want to make too much of a political issue right now. So those are the forces. You have somebody who was affected by dumping, arguably. And that's a pretty sophisticated claim to make. You have to show that the person offending, in this case, China, is selling steel in this country for less than its cost, something along those lines. And I have to make an analysis and satisfy that panel that it was dumping. And then that panel, what? Can reverse the president? Is that what happens? I think, instead of panel, what's going to happen is, if he does leave I, the executive order, you have a U.S. customs in the court. There's international court of justice under the U.S. customs. And I know, when I was in New York City, we had an international court system there. And they hear the hearings between the plaintiff and the defendant. And in other words, if it's going to affect the U.S. industry, for example, U.S. Steel Corporation or Bethlehem Steel or Norcore or Steel Digital wants to protest saying that we have a company from China selling it below the fair market and they can take it, well, a complaint and try to bring it up to the court system. And if the court system wins, then they're going to have to comply to the World Trade Organization. There's a big umbrella organization called WTO. And I remember like year 2002, when President Bush tried to protest and put a Levi on the steel imports. But I think the World Trade Organization stricken that out and kind of took that out and deferred a complaint from the U.S. OK, but here, so say U.S. Steel. I'm making this up. U.S. Steel decides that China is dumping. U.S. Steel goes to the WTO or the customs regulators and it says they're dumping, OK? The customs regulators make some decision, yes, they're dumping. That's not what Trump was operating on, though. Trump woke up one morning without the benefit of any ruling like that. Right, am I right? And he decided he wanted to put a tariff on China. That was not as part of a legal process. On the other hand, it seems to me that if China complained that that case, so whatever was in the pipeline there with the WTA, it was WTO, was wrong, then it could reverse. Am I right? It could reverse Trump's tariff. I mean, how do you reverse Trump's tariff? Is there a way or is he final? Well, actually, it hasn't been implemented. It's not final yet. He can make any executive order once and say the statement that we're going to try to proceed this. But in terms of policy-wise, you still got to go through the motion and into the rule of law. Congress can reverse this, exactly. Yes, exactly. And can the WTO or the court in the Hague, you know, the International Court? The Court of Justice. Can they reverse his order? Oh, yeah, definitely. They can say that it's not suitable. It's not part of Section 232 of National Security Act that the U.S. is. Are we obligated to follow what is decided in the court in the Hague? Usually, it's like a war opinion in certain aspects. The national law. Yeah, it's an international law. So they do usually comply with it, if you're a member of the WTO. Oh, well, he may not comply, though, he may say. And we've always been a law-abiding country with the WTO. So, I mean, I worry about this as a whole course of conduct, where he's taking these steps pretty much for now by himself. And it has an effect in a number of ways, all by itself, without any real review. And he's, you know, damaging American relations with trading partners going back when. He's damaging diplomatic relations with American allies who are not happy with what he's done. And he's damaging business. You could say he's damaging business, such as those companies which rely on, say, Chinese steel to make their steel products and sell their steel products here and around the world. And it just seems like there's no recourse. He's doubling down on it, and he's not changing his mind on it, and he's doing it. And I'm just very troubled. How is this going to wind up, Russell? I think my hunch, what's going to happen is, like, first of all, the American steel manufacture and aluminum, the manufacturers probably benefit, and they'll probably go on, like, two, three years. We have probably that ripple effect with the economy, and if they do implement the tariffs on those foreign imports of aluminum and steel, then American steel companies and aluminum companies are going to benefit tremendously. Such vice versa, the companies that rely on this foreign aluminum and steel might take a loss of about 4 or 5 percent. But in the long run, if it's going to create more jobs in the U.S. soil, let it be. I mean, it's going to happen that way. Is it? Because, you know, it's interesting, a lot of this depends on—I just posed one business question to you. A lot of this depends on how long he's going to be in office, right? Because if he could make an executive order like this, putting a tariff wall up like that, his successor could make an executive order, taking it right on down, OK? So now I'm an investor. I'm a Wall Street bank. Some steel manufacturer comes to me and says, good news, Jay. We have this 25 percent tariff, and now we can make a lot more steel at our inefficient higher prices, and we want to do that. But we need a billion dollars to expand our mill so we can make more steel and make all that money. And I say a billion dollars has to be amortized over a period of time. You know, I give you three years left on him, and at the end of that time, you know, the Democrats might be in control. I don't know what's really happened, but the Democrats might be in control. He may not be the next president. The Democrats may turn the whole thing upside down. So if that tariff comes down again, Wall Street says, oh, gee whiz, that may not be a good investment, because we'll put in a billion dollars, and then that steel company, right, won't have the market because they won't have the protective tariff. Can you describe what would happen? Yeah, I think if you've got to look at Jay and two sectors, even the audience got to realize that it's between the public sector and the private sector. And in the public sector, if it's a government contract, like, you know, Donald Trump came up with the $200 billion infrastructure development plan to invest in railroads, highways and airports, then those are government contracts. So if an American provision will apply, so you've got to have American steel, American labor. But if you go to the private sector, develop, like, building condominiums or hotels or buildings or private contractors and developers involved, they might have the difference. They were relying on cheap steel from imports, because it's not a government contract. They can cut corners here and there. So they might—the price of the private sector development might come up a little bit. But in terms of public sector government contracts, by American provisions, it's going to apply. OK. We're about out of time, Russell. And as before, I always like to get your advice to the president, because I think he needs your advice. So there's camera one over there. It's smiling at you. Can you please tell President Trump what he should be doing here? I think Donald Trump can, you know, reassess everything and see which direction it's going to take. But it's a sensitive issue, tariffs. I know that worldwide all the countries are trying to be moving the free trade agreements with non-tariff or non-protectionist movements. But from our point of view, I think we've got to be very careful when we approach this and go which segment and what sector might benefit and approach it in that fashion. OK. Russell Hanma. He's the senior APEC official here in Hawaii, and he's the author of the APEC master plan. And we've been talking about the Trump tariffs, both on steel and aluminum. And there will be more coming down the pike, I guarantee. This is not the end of the story about tariffs and free trade. So you'll be back. Right, Russell? I'll be back again, Jay. OK. Russell Hanma, thank you so much for coming around. Thank you, Jay.