 Think Tech Hawaii, civil engagement lives here. It's the 4 o'clock clock. I'm Jake Feidell. This is Think Tech and we're doing Think Tech Asia today with Russell Liu, who joins us by a combination of methodologies from Beijing in China. Welcome back to the show, Russell. Welcome, Jake. Welcome to Beijing. Yeah, so there must be some talk about Mr. Trump's new tariffs, which were going to take place today in steel and aluminum and other manufactured products around the world. And I suggest to you that this leaves a lot of options open, maybe new, adventurous, and highly beneficial options open to China, to Xi Jinping. And what I would like to discuss with you today is what the reaction is in China, how this will, in fact, affect China, and what strategies Xi Jinping is likely to use. What do you think? Yeah, I think China's going to take a very major approach because actually the steel exports directly coming from China is very small. It's very, very small. They export less than 2% of steel from China to the US. Now, however, I believe that China is looking and to understand the reason behind it, because this signal of trade war, I think that's a bigger question. And I think the collective wisdom because the Congress' discussion, I think there's going to be a lot of thinking. I think one of the things that China has to advantage is that nine out of the 10 major steel supplies to the US are actually, you're exceeding things going to wait to see their response, the response of the EU and Canada, in particular, who are the greatest suppliers of steel. So we're going to see probably after that a very calculated measure that articulate a response. Well, what do you think the Allies are going to do? I mean, some of them are not very happy, Allies are no. He sort of, Trump sort of accepted friendly nations, friendly Allies, but they didn't really particularly appreciate what he's doing and they may not be so friendly actually on a trade war. So given that, and given the fact that it's a little unknown as to whether our, quote, friendly Allies will be friendly in this trade war that Trump has created, what does Xi Jinping do? I mean, what are his options? I know we can't tell exactly what they are because we have to see the world react first, but what do you think his options are depending on how the differential on how they do react? Well, I think we need to look at the larger picture. First of all, if I were China's opinion process, I would look at the reason behind tariffs and there is no logic or reason to understand what is Trump doing. First of all, the reason that it's necessary for the US's national security, they need to make a steel industry so it can build fighter jets. Well, that doesn't work because in fact, nine out of 10 major steel exporters to the US are all its allies, so that doesn't work. Second of all, looking to logic that it's necessary, there's only 160,000 workers in the US that actually make the steel. They're involved in growing or so who work in industries that use the steel, such as the US dollar industry, or industry to the consumer goods, there's no logic behind the actual plan, but I think the greater picture is now we're seeing Trump's economic advisor or trade advisor named Peter Navarro, he's stepping out of the Woodward's. He has been very quiet for a year and as you may recall during the election, Peter Navarro and Donald Trump were set on agenda that we are going to confront China. So I think a concern that Woodward had that this is actually a trade war that has actually started, this is, we're on the road to a trade war because if you look at it with the North Korea rhetoric, so now that rhetoric has died down, so it looks like Trump now is this possible igniting a trade war. Yeah, I thought at first it was a distraction from North Korea and other things that were happening around the Russia investigation, but it has a life of its own these days and we really have to figure out what's gonna happen. Even his own staff in this morning's New York Times indicated they were not sure whether he was gonna do it, that what he said is what he meant and whether he would change his tune about this in the next day or two. So it's all up in the air right now and that suggests that this is just a distraction for other events. But let me ask you this, Russell, what is a trade war? What exactly is a trade war and how does it start? How does it proceed and how does it finish? Well, you know, there's just two routes to trade war. The first route is when we have something brought to the WTO and particularly industries are, for example, the US has clamped down on the solar industry and China portrayed practices. And China in response to the tariff on the solar industry, which was recently started investigation on certain agricultural industries in the US, such as the sorghum industry, which brings in under a billion dollars a year to the farm communities in America. So I think that the next step is probably more of a diplomatic response. China going to the WTO, but I could see immediate measures that can be taken. I'm not saying it will be taken, but for example, I think the biggest initiative we get will be the US soybean industry. It brings in 16 billion dollars a year and the solar industry, as you know, is out of the Midwest. And in the Midwest, that's calculated response towards these industries. Yeah, well, I think what's happening is, as you said, he's waiting to see what happens. He's waiting to see other responses. But I also feel that he himself has a plan here that he does not feel that he is drastically affected. I hope you agree with me by whatever Trump is doing. And he wants to turn this back on Trump and back on the United States. So at the end of the day, the United States paints itself into a corner. That's why I think it's worth inquiring as to exactly what a trade war is. My humble assessment of it is, a trade war is where I put a tariff against you, you put a tariff against me, we both build walls with tariffs. At the end of the day, the guy with the higher walls wins, I guess, and the guy with the lower walls loses. And it's a question of global economic power. It doesn't really do anybody any good. I suppose you could have a world without tariffs, or you could have a world with lots of tariffs, and I wonder which world is better. All the free trade agreements, Trump is backing out of them and denying them going forward. Is this part of his trade war? And when China puts up tariffs against us, what will it put a tariff up on our manufactured goods that are sold in China? You know, it may feel these days, Russell, that it is manufacturing all the things it needs. It doesn't need anything from us. So who cares about putting up tariffs by China against the United States? They're not going to import much anyway. Isn't that the way it works? I think one of the critical things, you have to look more of a long term. China is moving up the innovation of supply chain. I think when it gets to a point where it can develop its own chips, not gift held chips, I think the game is over. Because if China wanted to, 40% of the inventory at Walmart comes from China. That means when you start putting on tariffs, the Americans will not be able, at least to voter base, the middle class will not be able to afford a lot of things. Things are going to be expensive in America. And I would think that China would look around the globe. And I believe that all these other countries that are hurt by the tariffs will probably do a collective response, a response that's going to be coordinated. And so I think it's going to, in some sense, hurt American consumer in many ways. Yeah, well, and then you go and you say, well, it's not only the US and China. It's, if you have a true trade war, you having it all over the country, the world. And it's a trade war now between some countries in Europe and the United States. This has a ripple effect everywhere you go. And I suppose in order to make a proper evaluation of it, you have to look at the goods that are being bought and sold in global commerce and the resources, the natural resources that are being bought and sold in commerce internationally to figure out who would be hurt by a tariff and who wouldn't. But if you look at manufactured goods alone and you say, well, most of the goods that are sold on the shelves of Walmart in this country come from China, it would be shooting ourselves in the foot, I suppose you could argue, by putting a tariff against goods that are manufactured in China. On the other hand, maybe Trump has a point and I like your opinion about this. We can manufacture these goods ourselves. Let's make America great again. Let's start all those factories up again and manufacture all those goods that Walmart wants to sell right here in this country. And that's a factor in determining the policy and the strategy. Can we do it here? I ask you, Russell, can we do it here? Can we manufacture everything we want right here at home? Well, I think we have to look at the, actually 30 years ago, maybe it would be a different story than today. Most of the goods and manufacture, a lot in China are manufactured through robots, artificial intelligence. And in the United States, we may not get the curve with that. We will not necessarily be hiring a lot of workers if we started that in the US factories. So again, in terms of capacity, in terms of artificial intelligence, these are things that America has to rebuild itself if it's gonna go back into manufacturing, but again, manufacturing will not necessarily employ the same amount of people as it did 30 years ago. Times have changed. Factories are done very differently. And again, the reason why this field industry has the less people working in it is because of technology, efficiencies have made it so that you do not need a lot of human bodies around. Yeah, well, you know, this reminds me of the Jones Act, you know? The Jones Act, which I guess protects American shipbuilders from competition, from shipbuilders in, say, Korea, who can build a ship at a fraction of what it takes to build a ship in Louisiana at the shipyards there, the one or two shipyards in the country. It strikes me that we really don't have an option to build a lot of ships here. If you can put a tariff against, we have, the Jones Act is a tariff. It is a tariff against Korean ships because you can't use them in the inter-coastal trade. And the problem there is that, has that helped build ships in this country? No, because ships in this country are so expensive. Only the military build ships, and I don't think they like it either, only the military build ships in the United States because they have to. But ordinary shipping, no, it's always cheaper to buy it overseas. Result is that nobody's coming to this country to buy ships. And so if you put a tariff against the Korean shipbuilding, you're only really hurting the United States. And you're hurting Hawaii, by the way, the Jones Act hurts Hawaii, and it hurts poor dear Puerto Rico, I might add. Anyway, fact is that you have to have a global view of this. And to have a tariff war at this point in terms of global history is really a horrendous mistake because you could wind up, this country could wind up losing it big time. And the question I would like to have some input from you on is how will China do in a trade war? How will China do when the whole thing, if the whole thing gets crazy? I mean, I think Trump is trying to use it as a negotiating point on free trade agreements. It's really a distraction and it's a negotiating point for other issues. But let's assume there really is a trade war. Let's assume that the world is caught off guard. Let's assume that everybody starts building walls. I think he likes walls against trade into that country by tariffs. Where does China come out? When you look at the goods that they're importing and exporting, when you look at the One Belt One Road initiative into Europe and Africa and South America, for that matter, where do they come out? It strikes me that Xi Jinping has options that he can play out, which will pull the rug out from under us. Not only will we not win the trade war, but we will suffer mightily for an indeterminate period of time because we tried that. What do you think? I think one of the things that we have to look at is a big picture. And that is this. I think you mentioned your point about the One Belt One Road. Again, this puts the US as allies in a very awkward position because this would mean more and more that China will have more global influence. More influence because now they're forced to, European countries are even forced more to find ways to work with China. And I think that that's gonna be a very big reality. The US would become more isolated. I think the other part about it is that some of the large markets here that are speaking to go like Apple, there were Apple phones, I believe, that are sold in China last year. I believe it was 130 million iPhones versus 110 of the US. So these are definitely gonna hurt Americans, a lot of Americans' interest in then actually getting their products into China. I'm seeing that China's moving very rapidly in the area of technology. And again, I think they'll find ways to develop their technology, to be a better technology than the US. And the long run, the US may suffer. Yeah, well, you know, that very thought, you and I discussed this a couple of days ago. That very thought is interesting. Technology-wise, we're kind of in a trade war already because the Chinese have developed or copied, you can say copied, and developed a lot of technology that we were doing. They're doing industrial technology, a computer technology, all the robots and the automated manufacturing systems. They've got a lot of retail and personal phones and related technology that makes it easier to buy things, facilitate their economy. They're using their own technology. So it's not as if Silicon Valley can export technology to China anymore. I think there was a time, maybe there was a time when China was looking at that very carefully, maybe copying it. But now we can't export to them. It doesn't matter whether they put up a tariff or not. I guess they have in some ways. And we're not gonna be able to import from them. I guess if we wind up importing technology from them, we're gonna pay mightily for it. And in many ways, they're moving ahead of us. So we're kind of in a trade war vis-a-vis technology. Their technology serves the same purposes that ours does and they're pulling ahead of us. So where does that leave us? We cannot export technology the way we used to, because they won't buy it. They don't need it. And maybe the real issue here is not steel or aluminum, not cars, not natural resources, but technology. After all, one technology company can be so valuable that it makes all those other companies look small. So what do you think? I mean, where does that play? Where does technology play in this now emerging trade war that actually in some ways has been a trade war for some time? Technology, I think China has really moved up to current technology. I think most of the investor funds are coming to China to develop, for example, financial technology. The promise of a greater market is here because China is such a huge market of internet users. I think technology is definitely a key important factor here. But I think one of the most important factors that we really may overlooking this conversation that I see living there for 15 years is people. And I really think that the people here, and I think the last 30 years, we've seen a rise in China. And it's because the people here, the people all are looking to make it a place where education is important, unless you live here and see the culture. People here are the move. People are, no matter what, suffer. If they suffer, I think that something like this has gone up more on the US side if the Chinese can gain this. So again, I think there are a lot of options that the Chinese have, but I think the most important thing, it has a lot of capability here to do things for other needs. So I think that's something that may have been overlooked a lot on the US side. Yeah, well, I mean, as you said, we don't buy a lot of steel from China. There's not a big benefit in putting tariff on steel from China. We buy aluminum from Canada. I don't know why we want to get into an argument with Canada. And so what happens is I think China, here's the thing. I think China is in a better position to sell overseas at its highly efficient manufacturing rates because we isolate ourselves not only through trade war, but otherwise not being involved in free trade agreements. So the market, the global market becomes all the more a China global market. And if I were Xi Jinping, I would consider advancing into it and selling everything into that global market and not involving myself in a tariff war so that people are comfortable in buying from me. And of course, if they are comfortable in buying from you, they'll continue to buy from you and you'll have a regular and maybe a loyal clientele in various continents around the world in steel and manufactured goods. So by isolating ourselves, however we do that, we're cutting ourselves off and limiting ourselves from selling into that market. And if I were him, that's what I'd be thinking about, wouldn't you? I would think that the Chinese could really make a big difference into effect in US. I think China is scheduled to buy an estimated 6,800 airplanes from Boeing over the next 20 years. That's gonna be about a trillion dollars. And with this, China can simply say, we're gonna switch a contract and we're gonna go to Airbus. We're going to go to European competitor. And again, that's a trillion dollar industry year. If China decides to, well, we're gonna go elsewhere to get our start these. These are all different things, which again, I think are gonna be a bigger hit on the US side. Yeah, but I think you pointed out something very important. And that is we put up a wall and we say, we're not gonna buy your stuff. And they say, okay, fine, because you're being aggressive like that and uncooperative and unfree, so to speak, then we are going to make things that we would otherwise buy from you, like Boeing planes. And so we will make them. This is a big opportunity for us to make things and block you out of the market. And you won't be able to sell it to us. And we will be selling our new Chinese Boeing planes everywhere in the world and we'll be competing with you head on. So do what you like, Mr. Trump, but we're gonna take advantage of the vacuum and we're gonna sell these new things we're gonna design and develop to everyone. And I think it is a really good point here, Jay. This year, I believe Airbus is working with China to develop its first manufacture in China. That's gonna happen this year, from what I understand. So I can see China will say, well, okay, well, if this is gonna be the situation, we're gonna develop our own planes, just like the trains that they've developed. They've built their own trains now. It'll happen with jets. Once the Chinese are able to do that, now you just push the Chinese over the edge and they do that. You'll see it will be greatly hurting the US. Yeah, you raised another point there. Essentially, it's that trade wars and this kind of isolationism does change things. It does tend to change things. And inherent in that change is the question of whether the change is temporary or permanent. And I suggest that history keeps on moving forward and you can't reverse it so easily. And if you decide some other time, you don't wanna be in isolationist country and you don't wanna have tariffs like this, you can't go back home again. You can't go back like a yoyo to where you used to be because the actions you've taken in the interim have actually changed things. They've changed things for the people you are building barriers against. They also changed things for you. And just one other point I wanna make is when I was a kid, the system in New York City had a strike and people were really ticked off about that and they decided, well, if they can't ride in the subway, they wouldn't ride on the bus. And so everybody began riding on the bus. And then the strike was settled in the subway, no more strike, but you know what? People kept riding on the bus. And that's the problem here. You can settle all this tariff negotiation that he's talking about, but at the end of the day, we lose. At the end of the day, people will change there. Countries will change. Businesses, international businesses will change their way of doing things and we will have less of the pie than we had before. Well, it's time to close. Russell, can you give us a closing comment about what you would advise both Xi Jinping and Donald Trump to do to avoid a negative result for one or the other? I think there's an opportunity for the diplomatic channel as well as going to the WTO mechanism. I think it's a chance for China to exercise global responsibility to work with the CEO of the US. Again, I think these are all opportunities for China. And I think Xi Jinping and China will, at the end of the day, we understand what a global economy really is where I think of President Trump. It's no longer a manufacturing innovation, technology economy and knowledge economy. And I think this is what the opportunities are here. That economy of manufacturing to move ahead in a different... Now, yeah, and I would add that in terms of advice, I would advise President Trump to get off this thing about isolationism and backing out of free trade agreements and putting tariffs up. It's not good for the country. It's not good for him. And if he thinks it's gonna help him by distracting public attention from other issues like the Russia probe and other things, at the end of the day, it's not worth it. It's not gonna do that. And people are getting really akamai, including Xi Jinping, about when he means it and when he doesn't mean it, when he's using it as a distraction. And I think that his credibility has sorely been undermined by his own inconsistency. Anyway, that's just my thought, my two cents. Thank you very much, Russell, for this discussion. I hope we can get together again in a couple of weeks. Aloha, Russell.