 Okay, we're back. We're live. This is ThinkTech. This is ThinkTech. I'm Jay Fidel and today we're going to do Global Connections with Russell Hanma. Russell is into APEC. He's the writer of the APEC plan in Hawaii and he follows international events. And of course, he follows all the trade agreements you can think of. Russell, welcome to the show. Thank you, Jay. Happy New Year. Good to have that joy. I know that today's a significant day for the U.S.-China trade deal being signed finally after going over for almost two years of retaliation of tariffs and more like a trade war. But hopefully the phase one was signed today with President Donald Trump and Vice Premier Liu He from China. So what happened right after that or day before the stock market just went up tremendously and I'm sure that a lot of the investors that invested in the stock market, even for retirement, are very happy about their initiative that the president did today with the phase one of the U.S.-China trade deal. A couple of things though, timing is everything and it took a long time to reach this. I mean, he's been putting tariffs on them and they've been putting tariffs on us and it's been a degraded relationship for as long as he's been in office. Now all of a sudden we have a trade deal. What is this really about? Because he's the one who started the war and he's the one who's apparently bringing it to a trade deal. What is it about? Why now and what exactly is this supposed to do? Well, I can tell you that some of the insight, they haven't really disclosed the detail. I know it's roughly about 80 pages long with the trade agreement. And so when you look at it, they wanted to make sure that the USTR's office ambassador, Robert Linehauser, and our trade specialist of the USTR has been negotiating for the past two years and came down of having $200 billion of trade. And out of the $200 billion, China has to invest $50 billion in agriculture goods, which includes soybeans, poultry, meat, and whatnot. And another $75 billion in manufactured goods, like made in American products, so we can hopefully export it out to China. And the third item is energy products. Roughly, they're going to have to purchase about $50 billion of energy products, which can be solar panels, wind power, the other generation of power sources that we can use alternative wise as well. And the fourth item is financial services. I would have thought that China would like to buy oil and gas from us because we have huge production going on. In fact, all the talk is that we want to root our gas, our natural gas, which is being well developed in the US now to China because they need the fuel. But in terms of solar panels, I'm really wondering about that because China has been supplying all the solar panels. They have a huge manufacturing capacity for solar panels. They don't need to buy from us. We need to buy from them. So, I mean, if that's what the agreement says, I'm not so sure it's going to pan out that way. It sounds like it might be backward. I mean, not necessary to solar panels, but I think in terms of technology transfer agreement or intellectual property rights, because a lot of our technology in the energy field is allocated in that way. And we have our trade secrets, and we need to protect our patterns as well with our trade secrets. And those kinds of concerns. And the fourth item that's in the trade agreement was on the financial services. This includes a service that they render and also with a financial institution. I know prior to the signing of the agreement, there was all these the business leaders in the blue chip companies from the CEOs and presidents were there. For example, MasterCard, Visa, Merrill Lynch, Bank of Hawaii, Morgan Stanley, all these multi-national financial companies can do business in China. So, in other words, China needs to open up the door for our financial services to go there so we can conduct better businesses in terms of import, export, and American companies that's in China currently can use the American financial institution to do the transactions. I want to ask you about the detail on this. You said earlier that it's an 80-page document, and you have been talking about some of the provisions, but you also said that we don't know what's in the 80 pages. And I read that too. I read that when this first came out that we don't really know what's in there. So what troubles me to a significant degree is that China knows what's in there. They were our negotiating partner on this deal. And the U.S., at least somebody, at least Trump knows what's in there, because he negotiated it and made his demands and so forth. Why is it that Congress and the American people don't know what's in there? Doesn't that sound strange to you? Yeah, I think you're right, Jay. In terms of the rule of law and legality, any trade agreements that we initiated in the USDA or office has to go to the Congress to approve both. But I guess in this time, the administration under the Trump administration took the initiative to go forward with the agreement. And eventually, I'm sure they're going to have to pass it on to the Congress to take a look at the trade measures in terms of terms and condition that's going to be applying to our American industries. Yeah, so when I shake it and bake it, what I get is that he's out there, he was out there this morning, a few hours ago, signing this with the representative of China. But that signature is conditioned on approval by Congress. Congress, both houses, must approve this deal. He didn't say that. It hasn't been a lot of talk about it except between you and me, Russell. Yeah, but I think what's going to happen is Congressional approval, doesn't it? Right. But I think what's going to happen then, the agreement, they're going to give them two years to make sure they comply with the condition. And they got 90 days to look over those, the trade agreements. So in the long run, what's going to happen, tactic wise, I think what the Trump administration is doing is they want to hold on, if they're going to eventually have a phase two of the U.S.-China trade agreement, meeting the conditions of the phase one. And if that happens, phase twos can include other high-level type of agreements, like in terms of information technology transfer agreement, that can be applied because right now, China is known as not paying for their copyrights and rents from the licensing fees and all that. So they have to comply. Then make sure they can go to a high level. Then we can do the high tech technology transfer. Maybe China can be part of our aerospace or space technology program that we're trying to push with NASA. And maybe they can be a partner with the International Space Center. But those kind of technical issues have to be addressed, but they have to have an address in the phase one of the trade agreement. So I think we're trying to look at what China's going to do right now and make sure they follow what we're trying to push forward. And I think the international community is kind of looking at that as well. It does make a lot of impact to it. Just the other day, I think it was yesterday, Trump stood on the White House lawn and introduced the new commander of the space command. So at his initiative, I guess, the government has created a space command, so he's into that. But it's interesting that he doesn't yet trust the Chinese with being a partner in that. I think, therefore, it's probably more military than anything else. Yeah, I think if you look at the trade conditions, we still left a tariff on, even though there's that two-year threshold that they have to meet those conditions of 200 billion dollars annually. So what's going to happen is when they have that 200 billion dollars is being met or not, then they're going to go ahead and see if we can explore other avenues for the phase two or a moving forward. And I think Trump administration wants to maybe hold on to because it's upcoming presidential elections coming too. So strategically, he's kind of play it as a kind of approach, play it by year. He may not be around in one year, much less two years. Yeah, and you mentioned that. I want to go into that a little bit. You mentioned when we first talked about this a few days ago, that in fact, the tariffs are still on. He claims the right to raise the tariffs to something like 19% on certain goods, even during the pendency, during the rollout of this phase one trade agreement. Not only the tariffs stay on, but he has the power. He reserves the power, whether it's legal or not, is another question. Yeah, I think he was going to, I think in the trade agreement, they were going to initiate roughly a couple of tariffs for about $156 billion initially. And by the December 15th deadline, so obviously they approved that measure. So they're going to alleviate roughly $156 billion. But however, they're going to keep on the general commodities, general goods, they're going to keep the tariff for $360 billion in tax before the phase one is closed. So in other words, they're going to keep the tariff of $360 billion roughly until phase two is initiated. So in other words, we have the stronghold on, we're still getting, you know, allocating resources from the tariff revenues that China is going to have to be levied on. So what happens, hypothetically, if Chinese do not hold up their end of the deal in the course of this phase one two-part phase agreement? What are our options? What's our leverage there? I think right now, you know, that's why they kept the safeguard of keeping that general commodity of $360 billion of tariff on on the trade agreement. So they just want to make sure. Leave it on. Just leave it on. Right. Never take it. Yeah. So they, they haven't taken off. So they have to make sure that China complies with that. The phase one, which is about $200 billion of goods that the Chinese have to purchase from the United States. Do we know what phase two is going to cover? Is there any discussion about, you know, excluding issues from phase one and then negotiating them for phase two? What are the issues that are left for phase two? Actually, they haven't decided the details yet, because they want to see what direction China is going to take. I don't know, because you know, in China's case, internal policy is the problem, because they have the state-owned enterprise and you have the private sector that they're pushing. And usually like this kind of regulation, the state-owned enterprise is going to push forward. But if you're going to trickle down to the private sector in terms of policy, how can you influence that in terms of intellectual property rights, something law, you know, selling it below the fair market value because and not paying for infringement of copyright, those kind of things still exist in the private sector side of the China businesses. But in terms of state-owned enterprise, I'm sure they can come up with the measure of prevention, those measures, those issues. Okay. There's lots more to cover here, including how this affects the American consumer and where it all goes from here in terms of the juxtaposition of the American economy and the Chinese economy. But before we get to that, I'd like to take a one-minute break. Are you ready? Yeah, thanks. Let's take a one-minute break then. Russell Hanma, we're talking about the deal that was signed this morning, phase one with China on trade agreement. Hi, I'm Rusty Kamori, host of Beyond the Lines. I have a TV show based on my book, which is also called Beyond the Lines, and it's about leadership, creating a superior culture of excellence and building winning teams. We are having a fun drive for ThinkTek Hawaii and please, please, please, please help us keep these shows going. Please go on our website, thinktekawaii.com to donate. Thank you. Hi, I am Yukari Kunisue, host of Konnichiwa Hawaii, ThinkTek Hawaii's Japanese program, broadcasting every Monday from 2 p.m. I usually invite a guest in Japanese language community who does interesting things and I'd like to share stories with you guys. Please tune in and listen to Konnichiwa Hawaii. Okay, we're back for live. I'm Jay Fiedel. This is ThinkTek. This is Global Connections featuring Russell Hanma and we're talking about the U.S.-China trade deal that was signed by the president just this morning. The provisions are not well known. In fact, I don't think a lot of them have been released to the public, but we do know some of it and we're going to talk about it. We are talking about it now. So Russell, you know, one of the things that I saw is that Trump was concerned, as he should be, that tariffs at the end of the day, we impose a tariff on China, but our consumers wind up paying it. So, you know, it's kind of like for show and the real injured party isn't China. It's our consumers who wind up paying extra for the goods they want to buy from China. This is really a reverse twist and I'm not sure the people really understand that, but Trump is sensitive to this. Somebody, you know, told him about it and so, you know, he wants to ameliorate the burden on the American consumer and he's got some kind of really unprecedented arrangement. I'm not sure it's in effect yet, but it's a way to somehow make it right with the American consumer. What is he doing about that and how does that work? Well, I'm glad that you brought that up. I know it's a big ramification on the trade agreement that the general consumer like us taxpayers that, you know, regular people, they got to go and buy groceries at the store or buy, you know, things for the household and taking care of family, the medium income people as well. Because what happens with tariffs right now is I spoke about this in the last show that we talked about, we're talented on the tax measure. If you look at the tax of the import tax on the tariffs, US customs devise the import tax on the consigning who the importer is. For example, the importers in this case from China could be Walmart, Kmart, all these Macy's, all these department stores, that's retail stores, that's importing goods into United States from China. And they haven't really, what happens, they have to pay extra tariff on these goods. So what happens, you have to pay to the US customs and they leave by the taxes. And what happened, it goes to the US Treasury Department in the general conflict and doesn't get passed to the general consumer from wholesale price to retail price. So in other words, the general consumer is the one that's paying for these extra because if you're an importer, if you're going to get taxed, you're going to pass it on to the end user to the consumer. In other words, we're passing the buck to the consumer. Yeah, but what's really strange about that, when you shake it and bake it, what's happening is Trump imposes the tariff on China. The Chinese goods come in, the American government collects the tariffs at the time the Chinese goods come in, and the American government has revenue that when they collect that money, they're collecting revenue for the American, you know, the American Treasury. That's really good. But then we wind up paying more for the goods. So what happens is the price of the goods is increased by X dollars and the government gets the X dollars and we have to pay, you know, that extra price. Yeah, exactly. There's a cash plenty to that one. What it is to the American consumer, you're sitting down Russell, what it is to the American consumer is a tax. We are being taxed and that that money is going to the US Treasury and we're paying it. What kind of thing is that? Who's getting hurt by that? Why is that, you know, a way to sanction China or get China to agree to other things when we're the ones who are shooting ourselves in the proverbial foot? Can you explain that to me? Yeah, exactly. That's what's happening right now. And so we realize that I think there's been a lot of studies, even with the US Consumer Commerce Department, International Trade Administration, we've got to look at the ramification of the impact to the general consumer. So what we need to do or what the government needs to do, we need to pass some kind of bill form in the Congress, given some kind of tax credit. So the general consumer or the taxpayer can get credit on it either in their income tax or the general sales tax or they've got to be or even the corporations, I know like in our Marathon National Corporation last year, we lowered corporate tax from 35% to 21%. So that gives them more leverage to the private corporation. So they have to make sure that they pass it on the savings to the consumer in terms of being a good corporate citizen. Well, that's a change in the tax code. And presumably, I mean, it sounds like it'd be hard to draft that kind of legislation. But the tax credit will equal, should equal, the excess that the consumer is paying because of the tariff. And he gets a credit for that. He doesn't have to pay, he doesn't have to pay tax on that. But it all sounds like it returns home to zero. Again, what is the benefit? Now we're taking it out of the Treasury. We're imposing it on the consumer, but we're giving him a tax break, which he doesn't get till the next tax year anyway. And he may not get as much as it's costing him. That's kind of vague, I think. So Congress would have to pass that. Just like Congress would have to approve this whole trade deal in the beginning. Congress is going to have to pass that both houses before you can have a change in the statute and the tax statute. Is Congress going to do that? It doesn't sound to me like it's slam dunk, Russell. It sounds like they could talk about that for a long time. And then the Senate could hold up on it, as it does on so many things these days, on nearly everything these days. So it sounds like this amelioration is not going to happen right away. It's going to happen sometime much later. Yes, it's a process. That's what they gave him like two years to allocate those terms and conditions of the trade agreement. In the meantime, we should find a measure so the regular taxpayers that's paying for those additional tariffs that's passed on to the consumer needs to be revisited and make sure that something's got to be done in terms of tax credit or tax reform for the general consumer. Right. But in the meantime, in the meantime, before any approvals, any changes in the tax code, we wind up paying the cost of the additional tariffs. Am I right? Exactly. That's what's happening right now. So we're just pumping the money into the general fund for the U.S. Treasurer's Department so they can allocate the funds for other human service needs or possible other allocation of their balance in their budget in that way. Who knows? Maybe this will help reduce the multi-trillion dollar deficit that the President has created over his time in office way beyond anything we've ever had before. Yeah, definitely. If they're trying to get $360 billion dollars annually with their junction right now currently intact, you give them a few more years. That's going to be a trillion dollars right there just from one country. I don't know if those numbers are accurate, but statistically, they're trying to do it that way, I'm supposed. Russell, let's go to the implications. Let's start with the U.S. In the U.S., you said, and I think it's an important point, that the market seemed to jump in anticipation of this trade deal today. I haven't looked at the market today, but it might have jumped again yet today in anticipation that the deal was going to be signed. And that's Wall Street. Those are the guys with the capital concentrations. But what about the guy in the street? How does the guy in the street feel? How does the farmer in Indiana feel? What kind of reaction are we having around the country due to the continuation of these tariffs and the possible amelioration by way of the trade deal? I think what the government is going to do like in the Federal Architecture Department, with the U.S. Commerce as well, is they've got to come some kind of a program to subdivide those farmers that lost businesses because of the trade issues, like the soil being industry, the poultry with the pork industry, which we could export it much more to China if we didn't have the trade war initiated two years ago. So that now Trump is trying to do is allocating that 50 billion dollars into subsiding those farmers who lost business. So they can get something out of it. But you know, from now on, that's the trend you might see. And we want to see the farming industry or American agriculture to strive and be able to export some of these American agriculture goods. The last question I want to pose to you, Russell, is the people in China. Xi Jinping has image problems these days with the Uyghurs. He has image problems these days with Hong Kong and the continuing protests there. He has image problems with Taiwan and the fact that the anti-China candidate, Tsai Ing-wen, was just reelected recently. And so the world is not giving him positive feedback these days. And in fact, they're treating him as a pretty brutal guy with respect to the programs he's put into place on the Uyghurs. So my question is, where does the trade deal fit in all of that? Where does that fit in the trade deal? What does that fit with Xi Jinping and his government? Are we in a better relationship? By the way, Trump has done nothing to really support any of those people, either the Uyghurs, the Hong Kong protesters and the Taiwanese. He's going soft on all of them. And so the question is, how does that relate to this trade deal for the people in China? Yeah, I think in people in China, my hunch, even with Hong Kong issue with the protests there, with Kerry Lam, they're trying to make her resign. There's conditions that the Hong Kong protesters want. I think there was a four or five items they're requesting. But right now, it's just that financial chaos there, business cannot be run. There's a lot of turmoil over there with the violence and stuff like that. So I think a lot of international community and the people who wanted to invest in Hong Kong or shine away. And technically, maybe China wanted to do that because they wanted to diversify or diffuse Hong Kong and make sure the international community investors in Shanghai or Shenzhen, the next neighboring customs bridge from Hong Kong that they want to focus on. And if you go to Taiwan, I know with the new election with Tsai Ing-wen winnings, I think the Hong Kong, I mean, the Taiwan people want to claim they want to be more sovereignty and be more independent movement. So I think what would you look at that with one China policy, what ZZ Ping is trying to do with one Belt Road initiative, I think they needed to open up with United States, with the trade, or else they're going to be isolated. If maybe someone of business might go to Indonesia, India, or the ASEAN countries, even with your Asia trade that Europeans want to come into Asia to do business. So Chinese are pretty clever. So they answered the paid all that. So that's why in this case, even with the phase one of the trade agreement, you know, the United States had a stronghold and they kept a tariff on. But Chinese realize that maybe they're sacrificing some of those tariffs in order to open up their market and learn from the United States so they can be pro-democracy in the business side. It all plays together and it all played together going forward. It needs to be watched. And I hope we can have you back and talk some more about it as it unfolds, as this phase one unfolds, and as we get closer to possibility of a phase two. Russell Hanma, a guy who follows trade agreements all around the world. Thank you so much for joining us.