 Okay, we're back on a Friday afternoon with Russell Hanla. We're talking about Think Tech Asia. We're talking about retaliative tariffs by China. And we're talking about the trade war and how it's escalating every day lately. Russell Hanla, U.S. senior official for APEC in Hawaii. Welcome back to the show, Russell. Yeah, thank you, Jay, and I invite him in again. I know this is a very important topic here, and everybody's kind of concerned what's going to happen between the U.S.-China relationship with the retaliative measure on the tariffs. As you know, Donald Trump, our president, mentioned that he's going to put tariffs on the steel in aluminum. I think that we talked about on the last show that roughly up to $50 billion, and what happened was China came back and retaliatively said that they're going to put down roughly up to $50 billion, again, to match up their ante. So with all our American car parts, our American consumer goods that we produce here, they're going to put tariffs on made in American products when we export to China. That was retributive. So he started something up already, which has had two or three strokes already. And the latest stroke is his stroke, right? $10 billion this time, yeah? I think he kind of mentioned the latest, if you look at what the White House spokesperson said they're going to might bring it up to $100 billion, but what's happening, it's not going to happen overnight because as you know, you have to go through the motion of right now the U.S. officials and the Chinese officials are negotiating and see if they can prevent so-called the trade war from happening. We don't want to protect the tax, we don't want this to escalate it even worse because it kind of affects our industry here. And right now what's happening with the stock market is going down again and you don't see a positive outlook on it. Okay, so let's go to the fundamentals. Why did Trump start this whole argument? I think maybe the negotiation with our United States trade rep is a very lighten-houser and our Secretary of Treasury, Mr. Mutin, I know that they're negotiating and they're trying to see which direction they should take, but putting an ante up to $100 billion is kind of too steep and that's going to really create a really attention more and might possibly have a trade war. And I think what the Chinese are probably trying to do right now is see if they can bring it up to the World Trade Organization and see if they can mitigate that. And which direction they're going to take. But Trump has had the last stroke, the last threat. I realize from what you say that none of this may be actually implemented in the immediate future, but the threats are getting pretty steep already. And so why does China have a choice on this? When Trump does his threats in a tariff, whether it's implemented or not, does China have a choice? Does China have to do attributive or tallyative tariffs back on us or can it just do nothing? I mean, what are its options when this happens? Well, I think right now with the China, I think it came on the press in the newspapers that the Chinese are saying that they want to prevent the trade war, but if it happens, they're ready to have what he wants to have. But we don't want that to happen, especially it's going to impact here in Hawaii. So we have a lot of these Chinese descendants from China living in Hawaii, and they don't feel too comfortable seeing the US-China going to a trade war. I think it affects a lot of the businesses as well. And we want to keep things in terms of opennessness and see if we can resolve the issues. Yeah, that's the point I wanted to get to. So you have a rub. He's concerned, Trump is concerned that the Chinese are not playing fair on trade. And that's probably also foreign investment. In other words, if I wanted to go to China and invest in a company, I have to go through all kinds of hoops. I have to have a joint venture in many cases to follow a lot of regulations, form a Chinese company. It's a real hassle, it's expensive, it's time consuming, and so forth. And the Chinese government is all over me as I expand my company. This is hard for a multinational, but it's much harder for a little guy. So as a result, I have a lot of little guy investment these days in China. And that's not the case when the Chinese come to the US. They can buy into companies, they can participate in any kind of business. Like any American citizen, there is no barrier, no distinction between them and American citizen who wants to establish a company here. And they are. They do. And I think Trump included in his bag of complaints, if you will, is the notion that's not fair, that they should come around and let American investment in, let American entrepreneurs in, let American companies in. I don't know exactly what he has on his mind because I don't think anybody knows exactly what on his mind, but I think he's trying to sort of soften them up for a negotiation that will happen later, and he's not, he doesn't know a position he's going to take in that negotiation until he sees how they react to his threats and his efforts to soften them up. That's New York real estate style is what it is, you know, that's what he's done all his life. So I guess the question is, you know, what are their options? I mean, when he escalates this way, what are their options? They have to respond or is it a cultural thing where they don't like being stepped on? Why is Xi Jinping taking a line here that ultimately leads, that is leading to a trade war? Yeah. I think from my, you know, personal experience, what I've seen with the US, Japan, when they went through in the 1980s, they were in the brits of starting up a trade war. And that's when Prime Minister Nakasone and President Ronald Reagan were negotiating on the impact of the Trade Act of 301 provision, a retaliation of a harming our American industry. So they're going to put, especially with the dumping law, kind of a duty act, selling their merchandise below the fair market value. Below cost, yeah. Below cost, exactly. And I think in China's case, like our American business, when we try to do business in China, we have to show all our bloop, especially if you're going to have a product or in terms of technology transfer, we have to show all our manifest or in terms of blueprints and cinematics so they can take our trade secrets and not pay the copyrights or intellectual property rights. That's part of the glutton. If I go in with intellectual property in China and have to have in certain industries like technology, I have to have a joint venture agreement. Well, my joint venture partners from China get to see my intellectual property. And I'm not sure exactly what the provisions are, but after a certain amount of time, they will have access to that. Next time I look, my joint venture is over, and my joint venture partner is using my technology and my intellectual property. That's not fair. But why doesn't Xi Jinping say, look, let's talk? Why doesn't Trump say, let's talk? Why isn't there an ongoing State Department diplomacy, business hyphen diplomacy discussion going on right now? I mean, Trump has been eviscerating the State Department. He lost his Tillerson, it's not clear that Tillerson's successor is going to be useful. The whole thing is problematic because there is no State Department engagement right now in that area. So all we have is Trump making these threats and demands. Wouldn't it be better? I mean, forget about what the past practice was, but wouldn't it be better as a practical matter to have discussions instead of threats, don't you think? Yeah, definitely. We should have engaged in a dialogue. I think the Chinese prefer having a dialogue instead of playing it on the rough, playing hardball and try to, in terms of retaliative measures and putting on these tariffs. But I think it's going to take roughly about six months on the line because right now they're going to give some time to negotiate and see if we can come up with a resolve this issue. So is he softening? Is that what it is? I think right now he just want to work it from the hard part and kind of soften up as we go. It's my recollection. Good. I recall that when he first announced this, it was going to happen like on Monday. Bingo. Right now, today, we're going to have, what was it, 25% on steel and was it 10% on aluminum? All of a sudden, it was going to be within a matter of hours. Now it's six months. Things have changed. Exactly. Because he's still got, I think, got to go through the U.S. Congress and especially if there was a trade agreement before. Any trade agreement that's manifested through the U.S. Trade Representative's Office, you have to go through the Congress if you want to change that trade agreement. But in this case, with China, we did have some kind of trade agreement with the terrorist, a percentage of country of origin, with commodities in terms of U.S. customs regulations in terms of the liquidation process. So those kind of things they have to look into and see if they can work it out. Well, I hope Congress gets involved, because to have one man do this kind of negative type of bullying, may I use the term, is not a way to conduct diplomatic relations at any level. And Congress should get involved. I hope they get involved on a more independent basis than have been involved in some of his other initiatives. Yeah. And the other thing is, Jay, is, you know, right now we're trying to negotiate with the North Korea, and then we need China's help. And I think the North Korean leader is going to meet Kim and Eun on, I think, in April of this month in 27th and see what kind of peacekeeping measure, how they're going to try to resolve this issue as one Korea policy kind of effort. And from the May, I believe in the end of May, Donald Trump is going to meet Kim and Eun, but they haven't decided location yet. But we don't want to... Maybe it will be Hawaii, huh? Yeah, possible. I know that Representative Gene Ward is trying to wrote a letter to President Donald Trump. He's my good friend and my colleague of mine. And we worked on, had some dialogue about and come up with some kind of strategic measure for Hawaii, see if we can have hostess meeting in Hawaii and get the Pacific Command involved and hopefully if we can host somewhere either at the East-West Center or the Pacific Security Council. Boy, that would be something, that would be putting Hawaii on the map, wouldn't it? On a very important meeting like that, yeah. Yeah, definitely. And I think, you know, in terms of just showcasing what Hawaii is and if they do come up with some kind of disarmament of their nuclear weapons and weapons of mass destruction, that would be great for Hawaii. And we can say that Hawaii is a peaceful, we are a place for bringing this kind of harmony here for Asia-Pacific region. Yeah, yeah. So back to the notion, so if America needs Xi Jinping to negotiate to soften the position Kim Jong-un takes in this meeting now to come, then we shouldn't be pushing China around. We need him and if we push him around, we're not going to get his help. And that's going to cost us in terms of our attempt to deal with Kim Jong-un, isn't it? I mean, if you offend somebody, he's not going to help you, is he? Yeah, definitely. That's not a psychological effect that we're going to have. Any, you know, human being we think in terms of... We are offending China now, obviously, don't you think? They don't like it. Xi Jinping doesn't like it, sees it as a challenge. It's an adversarial relationship at the least, where we're cruising toward a very negative relationship with them, where a few years ago, a couple of years ago, it was very positive. So we're playing with fire, I think, don't you? Yeah, but I think in terms of trade surplus, I know China's have roughly over $300 billion of trade surplus a year, that President Trump in the USTR's office, we're trying to make sure that we can cut down to roughly $100 billion of trade surpluses. And I think those are the measures that Donald Trump is taking right now to see if we can bring down the balancing of the trade in terms of trade. Meanwhile, the trade surplus is going up. Exactly. I mean, right now, even after his threats, even after, you know, a year into his administration, trade surplus is going up. He hasn't achieved much. And although I suppose you could say that the stock market has done pretty well in the past year, well, from January 20th, 2017, until the end of the year, it was doing pretty well. But since the first of the year in 2018, it hasn't been doing so well. And right now, it's at levels, you know, no better than the first of the year. Yeah, plus I think he took down the corporate tax measure from 31%, bringing it up to 21%. So I think it gets more leverage to the corporations to... They loved it. They loved it. The average people and the people who kind of look down the road and look to see the protection of the middle class and the lower classes, they don't love it at all. And so it's a matter of, may I say, greed. But anyway, going back to the point about the market. So the market has taken a deep dive lately. It's very volatile now. And I think business has become concerned with the effects of this tariff war and Trump's... God, it's so isolationist. It's like the wall on Mexico. It's like sending the National Guard to defend the boundary with an allied nation. It doesn't sound so swift. But here we are. Wall Street is losing confidence, it seems to me. Even big businesses losing confidence because they're going to be hurt by these tariffs and a tariff war. Gee, when we come back from this break, Russell, I want to ask you how that's all going to work. Because to me, it sounds pretty scary. Maybe you're not scared. You're a courageous guy. We'll be right back. That's Russell Hamma. He's a senior government official, senior U.S. official on APEC in Hawaii. And we're talking about think tech Asia. We're talking about a retributive tariffs, retaliatory tariffs on China by China. And we're talking about the escalation of what is emerging as a trade war. Older than the last few weeks. Never dull moments here in these United States. We'll be right back. Aloha. I'm Keeley Ikeena and I'm here every other week on Mondays at 2 o'clock p.m. on Think Tech Hawaii's Hawaii Together. In Hawaii Together, we talk with some of the most fascinating people in the islands about working together, working together for a better economy, government and society. So I invite you into our conversation every other Monday at 2 p.m. on Think Tech Hawaii Broadcast Network. Join us for Hawaii Together. I'm Keeley Ikeena. Aloha. Welcome to Sister Power. I'm your host Sharon Thomas Yarbrough where we motivate, educate and power and inspire all women. We are live here every other Thursday at 4 p.m. and we welcome you to join us here at Sister Power. Aloha and thank you. Okay. We're back. We're live. We're dealing with the retaliatory tariffs by China against the United States and especially the Trump initiative. And Trump who really hasn't had a lot of support. I mean, he's reduced his support from the State Department and in fact from economic advisors and he's doing this by himself. It's Trump economics, Trump global economics, which is really another way of saying isolationism. So this is having an effect. Okay. My first question is what kind of effect is it having on China, if any? I think there's a great amount of impact to China. And I think within their, even in Hawaii or in the mainland, all the Chinese Americans with having their descendants coming from China or from Hong Kong, they're all worried that because they want to promote that goodwill relationship with the US China. I know that China is putting so much pressure right now. I mean, with 25% retaliation are putting it within our pork and wine and some of these fruits and dry nuts and produces that we produce here in terms of agriculture goods. Now, just recently China is going to put imposing on our soil beans. And our soil beans are the major export product that we produce in the hard lands in the United States. They are big producers of soybeans for sure. And what you see now even with the retaliation from the US side on the steel and aluminum, what you're seeing now is a lot of these companies that have manufacturing in China are trying to bring it back. Because that good example will be like in Taiwan, all those investment that the Taiwanese made in China with their manufacturing plant, like the Foxconn with the Apple phones. Now they were saying that maybe they want to bring some of these manufacturing back to Taiwan again. So you've seen that little trend now that the Taiwanese are thinking about bringing some of these investment back from China. Taking advantage of the situation. Yes. This is all about taking advantage of a situation that Trump has created without realizing the ripple effect of what he's doing. So we are standard agricultural products. The ones we've been selling to China for decades are now more expensive in China. And therefore China is not going to buy as much of that. They'll find other sources for those products. Maybe themselves, who knows what. But we are not going to be able to sell as much. So yes, China may have the consumer in China may have to pay more for this. But assuming it comes in at all, and the American manufacturers, some of whom are very large companies, they're not going to be able to sell it because China is a huge market. So we suffer. Do you have a handle on how much we are suffering or will suffer by virtue of this war? I think if you look at the numbers, there's like $300 billion of trade surplus that China has in terms of trade. But if you look at what China is going to try to do is if they don't have the marketplace for the United States, they're going to focus on other countries like in Australia, that's beef, poultry and wine. New Zealand has dairy products, milk and cheese and other producers that they produce. So they can use their neighboring countries to bring in and they have. China already have a bilateral type of free trade agreement with New Zealand. And they're working on a deal with Australia. So even with the ASEAN countries. So they're penetrating a lot of business with the ASEAN with their neighboring countries right now. Yeah, so interesting because a lot of New Zealand and Australia, they are our allies and our close allies for a long, long time. But this pits us against them. It means they're competing for the advantage that we have essentially given away. And it may not just revert back at the end of this war. Hopefully it'll end soon. It may be that when all the smoke clears, New Zealand and Australia will have a piece of China's market and we won't have that. And we won't be able to get it back. And that will be tremendous damage to the agricultural interests and companies in the U.S. who won't find a market in China or at least not the same dimensions of that market. It's really sad that we wind up competing with and disrupting relations with our own allies by doing this. Yeah, I think if you look at the export import regulation in terms of the performance invoice and the pricing structure between X-Factory, wholesale price and retail price. And based on the market in the United States, from X-Factory to wholesale to retail, it's roughly about 33% in between. So the market pricing structure. But if you look at China, who's going to pay that extra? Is the exporter going to pay it or is it the importer, the consignee, the buyer? Who's going to be the consumers? They might be saying, oh, meeting USA product. Oh yeah, we're going to pay a little bit more since it's coming from the United States. But it's a behavior pattern, a consumer behavior pattern. But that might have an effect of getting the momentum back again. Yeah, and we talked about this, too, on our side of it, when we're buying manufactured goods. Because our strength, it seems to me, is in services. It's also in agriculture. We've talked about that. And in terms of manufactured goods, we import a lot of manufacture from China. And we're going to pay more for that. So the end of the day is American citizens are paying more for things that were imported from China. So we get to pay the tariff. We get to pay it. Isn't that great? So you have an increase in inflationary experience. Because we use so much of their stuff, we're going to pay more for a lot of manufactured goods come from China. And that'll be right through the food chain, right through the production chain. And it'll raise prices for any product that is touched by Chinese imports subject to these increased tariffs. Yeah, I think so. If you look at the physical distribution network, most American companies, we start up the factories and we invest it into China's soil and invest it in their capital. And then we start a factory. We train their workers and be able to come up with a viable, suitable product to be exported back to the U.S. That's because we're using Chinese labor. Labor is cheap. It's not like the Chinese corporations and businesses coming up with their own innovative idea and exporting it directly. But most of these imports that we bring in, like Colgate, Gillette, some of these... Many, many, many others. Exactly. Some of these companies like K-Mark, Walmart, they have their own subsidiary companies in China that manufacture goods, especially plastic items, low-cost raw materials that split. Yeah, so that means that if you put tariffs on the manufactured goods that come in, and I don't know exactly what it's going to cover, then we pay more for everything here. Because we are so dependent on China. Now the other element I think we need to cover is that this has an effect. Now there are various government agencies taking positions against Chinese. They've made statements against Chinese thinking, you know, saying that Chinese are all working for the Chinese government, even American Chinese, working for the Chinese government, in the nature of sending information back, in the nature of espionage. And just generally building a wall, again, generally exacerbating racial tension, cultural tension in this country. So it goes hand in glove when you start getting into arguments about trade. You're also undermining the relationship of the countries. And in this case, because there are so many Chinese in this country, so many businesses that are owned by Chinese in this country, you know, you really go to another level of unhappiness and dissension and conflict. And all those things that are so negative. And I am worried that what he does is he may not realize the secondary effect he's having on not the government relationship with China, but the relationship of the individual people in this country, how they see China. And for that matter, the relationship of the individual people in China and how they see this country. It's got to filter down to the man on the street, doesn't it? Yeah, I think it's very important, especially if you're doing an international transaction or in terms of business relationship. I know that Chinese or so-called agents are very attentive for people-to-people relation is very important. They want to see you, they want to wind and dine, they want to see you, your personality. And if they feel comfortable working with you and if they trust you, they're going to do it. But right now in the past, Chinese people didn't trust the Westerners. They even among the Chinese among working there, it's hard to forget that trust because when it comes to business, they might cut you short under the table there. So it's kind of, you know, catch 22 there. Yeah, well, back in the early part of the 20th century, the U.S. was pretty hard on China. It was Europe for that matter. And I think we built in a certain amount of hostility there, which is probably still baked in somewhere. And we're not resolving that at all. We're exacerbating that right now. Okay, we only have a minute left, but one more question, Russell. And that is this, what is Trump really after? Xi Jinping is running the second biggest economy in the world. Xi Jinping has a huge military. Xi Jinping has great control around the country. Xi Jinping has a very supportive population, even more these days than it was a few years ago. And even with his mind control, you know, the techniques that he's using. The fact is that he's a very strong leader and he's president for life. He got that thing through. So you got to give him credit for that, good or bad. The problem is he's not going to bend over for Donald Trump. He's not going to do it. You know, even if there are economic reasons to do it, there are other reasons at play here. What can Trump hope to achieve by a trade war here? I think if you look at, because I know he's like following the Reagan-Novitz kind of concept. Through my personal experience, when I was engaged with the U.S.-Japan trade and we, you know, in terms of tentatively starting up a trade war or in terms of applying that Section 301, a kind of duty act and imposing these tariffs on it, especially with automobile, they had a lot of steel materials to be imported here. We had the high-tech war here with Hitachi, IBM, NEC, and some of these 64K RAM chips of making these personal computers. And back then, Japan was controlling like 64K RAM chips. So their monopoly is the industry. So that's when they wanted to bring that in terms of openness and see if the Americans can be more competitive. And I think that he's trying to approach that similar kind of fashion with China. Maybe he wants China to realize, hey, we want you to play ball with us and we want you to be part of our, come to the United States and be more civilized, be more open and approach in that fashion, invest into our U.S. soil, but do it with due diligence and transparency and approach it in that manner. Yeah, not in an adversarial way. I mean, some of the things that China does are adversarial and they're crafty, clever, but they're not necessarily on a fair, a fair-footed basis. So maybe that's what he wants, but I'm, you know, a question, last question, you only got a few seconds to answer. Is he going to be able to achieve that here? I don't think it's not going to happen. He might try to think that it's going to happen, but I think he set a tone, a message to ZZ Ping and Chinese officials that were willing to play ball. But see what happens with the negotiators. I know our U.S. official that specialized in China and Chinese officials are working on a deal right now and see if they can come up with some kind of measurement so they can work a deal with each other. Yeah, I'll be surprised myself because he's losing his allies. He's losing the support of the American population, support of American business, support of American Chinese. He's, as in so many other things, he's alone. If you're alone, you don't have the same bargaining power as when you have some friends around you. Anyway, Russell, thank you so much for coming around again. Appreciate it. Bill Hanma, senior U.S. senior official for APEC in Hawaii here on Think Tech Asia. Thank you so much. Okay, thank you, Jay.