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- [00:01]
Tomer Cohen
A leading expert on international trade tells us how Silicon Valley might change after this week's U.S. presidential election. Are we heading towards a destabilizing trade war? That's coming up right after this.
- [00:12]
Alan Deardorff
Hey, I'm Michael Kovnat, host of the Next Big Idea Daily. The show is a masterclass in better living from some of the smartest writers around. Every morning, Monday through Friday, we'll serve up a quick 10 minute lesson on how to strengthen your relationships, supercharge your creativity, boost your productivity, and more. Follow the Next Big Idea Daily wherever.
- [00:33]
Tomer Cohen
You get your podcasts. I'm Tomer Cohen, LinkedIn's chief product officer. In my new podcast, Building One, I interview some of the best product builders out there. People at the intersection of dreaming and building and learning. Together, you and I will learn from their experiences. If you're just as curious as I am, follow Building One wherever you listen and check out the conversation on LinkedIn. Welcome to Big Technology Podcast, a show for cool headed nuanced conversation of the tech world and beyond. Bonus Election week edition. We have two episodes for you this week, not telling you how to vote, but telling you what the implications might be for Silicon Valley, depending on who ends up getting elected. And today we're going to talk about tariffs and trade war. This is a major, major issue for Trump. Actually, it's something that Kamala Harris might be implementing as well. We'll talk about that in the episode. Coming up. To do it, we have Professor Alan Deardorff. He's a professor emeritus of international economics and public policy at the University of Michigan, someone who's been studying this stuff for 50 years. So we have the right person on the show. Professor Deardorff, welcome.
- [01:39]
Alan Deardorff
Thank you.
- [01:41]
Tomer Cohen
So let me kick this off with a question about whether this is worth paying attention to. I happen to think that this is going to be the biggest story coming out of Tuesday for Silicon Valley is tariffs is going to be the trade war. So just to catch people up to speed, according to Trump's plan, there'll be 20% tariffs on all imports and potentially 60% tariffs on all imports from China. That could vary. That could go up and down. We know that he can promise and deliver two different things, but that's the baseline right now. In a recent event, he said tariff is the most beautiful word in the dictionary. More beautiful than love, more beautiful than respect. So, Professor, I'm going to turn it over to you. Think about Silicon Valley. So much determined by international trade, whether that's Apple building and selling iPhones in China, whether that's Semiconductors being produced in Taiwan, whether that's Amazon or Shein and Temu, where E commerce goods, you know, can cross borders, multiple borders, before they're sold to the end user. So do you think it's the right thing to be thinking about in terms of the big story for Silicon Valley, that after this election, we're going to be dealing with this in one way or another?
- [02:49]
Alan Deardorff
Yes, I think so. Certainly, if Trump is elected and if he is able to do what he says he will do, which given that he did such things before suggests, yes, he probably can. Yeah. For the reasons you just gave. I don't know much about Silicon Valley. I only know about tariffs. But I do understand that the technology sector depends very, very heav on imports into the United States as well as trade through the supply chains all over the world. So, yeah, I'm less sure about what Harris will do if she is elected. Like Biden. Biden has used some tariffs. He's used them on China, and I'm pretty sure Harris would, too, in ways that I personally, as a trade economist, would not approve of. But Biden has been, and Harris promises to be much more focused in what they will put the tariffs on. So to me, it's quite conceivable that they might put tariffs on a bunch of things but not touch much that matters to Silicon Valley.
- [03:52]
Tomer Cohen
Well, hold on, I gotta stop you on that one, because the Biden administration, I was gonna bring this up later, but the Biden administration, there's already a 25% tax on semiconductors, and they're planning to up that, or they've said that that's gonna be up to 50% in 2025.
- [04:09]
Alan Deardorff
Okay, well, then I'm wrong. All right? As I said, I'm not an expert on Silicon Valley or the technology sector. Most of the things that I've been noticing in their list. I guess you're right. There's been kind of a fight over chips now for quite a while. So. Yeah, but I don't think it will be as broad as, for example, just Trump's tariffs on all of the phones that come in from Asia because they're all. None of them are made here. Right. And that sort of thing.
- [04:39]
Tomer Cohen
Okay? So to me, semiconductors is the one outlier, and I want to talk about the outlier before we get into some of the more meat and potatoes of this issue, which is Apple. And so my theory on this is that we're going to have an increased tariff on semiconductors no matter what, whether it's Harris or Trump. The thing is that I wonder about is if Trump goes to the extreme, the way that he's sort of promising tariffs, let's say he puts 60% tariff on China. You don't really know what they're going to do in response. Well, they have been.
- [05:16]
Alan Deardorff
You sort of know what they're going to do because they did what they did last time.
- [05:20]
Tomer Cohen
So talk about that.
- [05:21]
Alan Deardorff
Yeah. In 2018, he put tariffs first on metals, steel and aluminum from almost the whole world. They responded right away with tariffs on other things that we export. Then he put in, I think, three or four different rounds, he raised tariffs on products from China. And every time, I think pretty much on the same day that he raised tariffs on them, they raised tariffs on us. So they did retaliate and the world did retaliate. So you can be pretty sure that with either administration raises tariffs, the rest of the world is going to respond to that with increased tariffs on the.
- [05:58]
Tomer Cohen
US and do you think the 60% tariff on China is a magnitude more than what Trump did in the first term in his term in office? Or do you.
- [06:10]
Alan Deardorff
Remember the tariffs he put on in his first term are still there. They haven't gone away. We are still taxing. So the trade war isn't over at all. The analog to shooting people in the real war is not the raising of tariffs, it's the levying, having the tariffs in place. And those are in place, place. So we are still shooting in both directions between us and China with our tariffs, and he's going to raise them. So we're going to shoot more and they're going to shoot more.
- [06:41]
Tomer Cohen
Right. And when I talked about, you don't really know what's going to happen, I'm thinking about can things spiral? Can they go out of control? Can the two economies isolate to the point where you end up having, let's say, China deciding that it wants to blockade Taiwan and control the exports of that country. So I'm curious if you think that. I mean, to me that's the risk with semiconductors, is that this just continues to get out of hand and then all of a sudden you're dealing with China and not Taiwan with semiconductors. I know it's still a remote possibility, but I'm curious what you think on that front.
- [07:18]
Alan Deardorff
Well, that tariffs will spiral and get out of hand, I think is inevitable if Trump gets in, because he's going to. He's promised to go so wild with that. I don't think the Harris administration will do anything like as much as Trump will based on Everything that's been said so far on both sides, and therefore I think it's less likely to spiral out of hand. But my knowledge is only about how trade policies respond to each other. I almost wanted to say we've had no experience of trade policy leading to war, but of course we have. World War II with Japan, in fact, started largely because of restrictions we were putting on Japan. And they got upset enough about that. At least that's one of the things I read, that they caused them to bomb Pearl Harbor. So the notion that China might get so upset with our trade policies that they would take military action, it makes sense that the only military action that they would take would be against Taiwan in the hopes that we wouldn't resist that ourselves militarily. So it doesn't seem crazy that that might happen. I think that's much more likely with Trump than with Harris. But I must say, you're worrying me with the things you're saying about semiconductors.
- [08:40]
Tomer Cohen
I do want to say one more thing about semiconductors before we move on, which is that I do think it's a good idea for countries like the United States to have semiconductor production at home. But the one thing about it is it takes a long time to build the foundries that would get you capable of being able to build them. We had Intel CEO Pat Gelsinger on the show, and we had a pretty interesting exchange where he talked about how it's going to take five years for intel to build plants, and that's probably even more delayed, even though we've had action from the CHIPS Act. So I'm curious, like, what you think about, again, with these tariffs, like, yes, they inspire the building of. Of production capabilities in the United States, but what happens when it's something that takes so long to build? Like, it's not. I'm curious what you think about the time discrepancy there.
- [09:33]
Alan Deardorff
Well, I'm sure it exists. I mean, back up a second. I'm saying that others would use tariffs in order to get production here. I'm not saying that they should use tariffs to get production here or that we should even necessarily want production here. You said you think it's a good idea that we produce semiconductors here. One of the basics of the economics of international trade, in fact, the basic of international trade is that the world is better off if countries produce what they do best and not try to produce everything. A huge amount of the progress and standards of living all over the world over the last two centuries is because we have relied on other countries to produce the things that they produce best while we produce and export the things that we produce best. And to try to move production home must mean, because it would already be happening if that weren't the case, raising the costs. So whatever we value about, in this case, semiconductors, why do we want to hamper our industry by enforcing them to rely on more expensive inputs, more expensive semiconductors? You got to have a pretty good reason to want to do that. Now, I understand if you thought you're about to get into a shooting war with the country that you're relying on, then, yeah, you'd like to anticipate that by pouring resources into replacing the production and doing it at home. You wouldn't care that it's going to be really expensive if you knew that you were about to break down completely the source of supply you're going after. But are we in that position? I don't think so.
- [11:13]
Tomer Cohen
Just the thing is that we rely so much on semiconductors. I mean, our economy would grind to a halt if we couldn't have them. I mean, obviously computers and phones, but cars, even basic kitchen appliances wouldn't be able to be produced without them. And I think that's the strategy behind producing them in the United States. And you know, as we're talking, this is another question that comes up for you, which is that you articulated the sort of the goals and the value of free global trade so well when you were talking about why you wouldn't necessarily want to create build semiconductors at home. And maybe what you want to do is design them or build the products that would be in them, because at the end of the day, they are good.
- [11:53]
Alan Deardorff
By the way, what we're doing, right?
- [11:54]
Tomer Cohen
Yes, exactly.
- [11:55]
Alan Deardorff
Are doing the design part. I don't think we're building the products. I think building is going abroad.
- [11:59]
Tomer Cohen
But yeah, I mean, think about Nvidia. Nvidia is a company that's, you know, basically designed, made, made, you know, built a $3 trillion company out of design that TSMC manufactures in Taiwan. Of course, there are other things, the networking components and the software that you use to build AI. But it's the design of Nvidia that really is, you know, support of the value. But then there's. It's this interesting thing where you go from the theory, and I know you're pro the theory, but then you speak to people on the ground and I think they feel like the theory hasn't fully accounted for the situation in their lives. And that's why it's been interesting as I've been reporting and researching some of these stories about the potential impact of tariffs and sort of what the free trade argument would be versus what the politician argument would be. I see a delta like a real difference between pro free trade economists like yourself and then politicians. Right. Politicians are definitely much warmer to protection. And people in your position are just like, you know, if we go full free trade, we're going to end up raising the living standards for everyone. And I'm just curious why you think, you know what your best explanation is for why there is that gap between you and the people running for office.
- [13:17]
Alan Deardorff
Well, first of all, that gap hasn't always existed in quite as broad a sense as you're perceiving it now. And you're correct. Up until Trump came along, the Republican party in the US ever since World War II, has tended to be pro free trade and negotiating trade agreements and so forth and building up the world system to try to bring tariffs down. It was the Democrats whose constituents were labor unions that tended to be more protectionist. And even they when they got into power. For example, when Clinton won the presidency in the 90s, even though he was a Democrat and was trying to support labor, he also worked very hard to get the North American Free Trade Agreement passed through Congress. And he had to do it with Republican votes because the Democrats weren't as for it as him. So it's only since Trump came along that, broadly speaking, politicians seem to be protectionist. And I honestly don't know why the very same people that weren't protectionist, once they realized that Trump was going to use tariffs, decided Trump will hurt me if I don't side with him. And so now they're on his side. And that suggests to me that they just didn't have much of a backbone or something. But that's, I don't know why there has been that shift. There's always been in the public a lot of people resistant to trade because they feel threatened in their jobs. And that's especially true, as you know, I'm in Michigan, where the auto industry, we went through all of this back in the 1980s when the perception was that the auto industry was going to be hurt by imports from Japan, and they were hurt by imports from Japan. But what was the end result of all of that? Well, we now have lots better cars than we had before that because of that competition from Japan. And of course, they also started building a lot of their cars here. But I think unambiguously, the country is better off and even most of Michigan is better off in spite of the trauma of that. And yes, I suppose it's going to take time, it must take a long time to build an auto factory too. But it got done. Now, you probably know, it sounds like you know how long it takes to build a chip factory.
- [15:52]
Tomer Cohen
Five years if things go well.
- [15:55]
Alan Deardorff
Five years. Why is it so hard?
- [15:57]
Tomer Cohen
That's the question I have. But it's very, I mean, I try to get.
- [16:02]
Alan Deardorff
Surely you're, you're the expert on this, aren't you?
- [16:04]
Tomer Cohen
I mean, I obviously understand that there's, these are intricate machines and it is a pro there. It's tremendous amount of process, extreme amount of detail that that's involved. And you also, if you build a foundry, you need to get the people that are designing the chips on your process. So there's a lot of moving parts. But it does seem to me that it's way too long and there should be a way to speed it up. But let's get back to my, this question here because it's interesting to me, I to hear you say Michigan is better off and then we'll move on to Apple after this. But, but I, I want to talk about the Michigan thing for a second because the perception is that Michigan has lost a ton of jobs from people who are making good money, stable jobs in auto factories. Those factories because of nafta, which you mentioned, have moved out of the country. Those jobs are gone. And now the people who would have had those, what, $80 an hour jobs in the auto factory, they don't have.
- [17:03]
Alan Deardorff
Them anymore and many of them have gone elsewhere. We've lost population. Right. Fortunately, we live in a country that has lots of different places people can go.
- [17:12]
Tomer Cohen
Right. And that's what I think some of the politicians are tapping into. And I'm curious what you think about.
- [17:17]
Alan Deardorff
That's right.
- [17:18]
Tomer Cohen
Is just like your job evaporated, you have to move. Your community is sort of weakened by free trade and that, you know, and it seems like the, the net benefits are going to a smaller handful of winners than they used to. And I'm curious. So that's the argument. What do you think about that as an economist?
- [17:39]
Alan Deardorff
No, it's the net benefits are going to consumers all over the country. That's much bigger group. Okay. We are getting better, cheaper cars than we would otherwise if it hadn't been for that.
- [17:48]
Tomer Cohen
But as a, as a Michigan guy, what wasn't, wasn't like the perspective of Ford to pay his workers enough so that they could buy the cars and if we have better, cheaper cars. But we're not. We don't have those jobs anymore. It's not a wash.
- [18:03]
Alan Deardorff
But we don't have other jobs. We. We do the things we are relatively best at doing, and that's where the best jobs are. And we have export sectors. We export a lot of stuff and the people in those sectors have good jobs. Just if you are relying on a sector that is not going to keep up with the technology or the ability to produce abroad, you need to shift into doing things that you can do well so that you can have everybody. Most people have higher wages now. You're right. There are losers from that process. When things change, people lose. And we don't do a very good job of helping those people who lose. But those changes are making others, larger numbers of people typically better off. And to deny that. Think of technology. Technology comes along. When the Cold War ended, the defense sector shrank. A lot of people were hurt and lost their jobs when that happened. But does that mean that we shouldn't have ended the Cold War? I don't think so.
- [19:08]
Tomer Cohen
It's a little different. I mean, that's, you know, to talk about a war versus policies that will lead to redistribution of jobs and wealth.
- [19:20]
Alan Deardorff
Yeah, that's true. So you would say the same thing for technology that when digital photography came along, the fact that I assume a bunch of people in, I guess Kodak must have lost their jobs, there was no reason why we should have protected them. But we do need to protect people who are getting cheaper stuff from abroad.
- [19:40]
Tomer Cohen
No, look, I'm just like trying to play through the arguments here. So I'm not going to staunchly stand on like, one side or the other, which is like an unfortunate advantage as a podcast host. But look, when it comes to a company shifting with the technological times, I do believe that, like, it's incumbent on the tech, on the company to be able to adapt. And in fact, you had companies like Xerox actually building very interesting innovations within Xerox PARC and then ultimately deciding to sell those to Apple to become the basis of the iPhone as opposed to developing that phone in house. I think that's a huge mistake that Xerox make. They could have been much more relevant now. And Kodak, you know, I don't think they had to do film forever. They could have done. Well, they could have done digital cameras, but which they did, but then they would have eventually been replaced by the phone. So, yeah, you definitely. I definitely think there are economic shifts that will happen, but we're talking about a policy decision here and not an inevitability when it comes to deciding what to do with trade. And, you know, we're here speaking on the eve of the election, and we have a lot of people in the country, in the United States and probably worldwide who have been in similar situations to feel that these policies have led to bad outcomes for them and their families. And there's a sense of anger because of it.
- [21:03]
Alan Deardorff
Yeah, you're right. There is. As I say, we don't do a very good job. In fact, we do an appallingly poor job of helping those who get hurt by change that takes place in the economy, including change in international trade. I mean, there was no policy really, that expanded trade. That just happened over time as the technology of trade expanded. We did lower tariffs ever since World War II, but so gradually over time that that isn't the main reason why there was an expansion of trade. The bigger reason for that was probably China entering the world economy. That included our letting them into the World Trade Organization. And some would say that if we hadn't done that, they wouldn't have expanded as much. And, well, that's probably true, but the only POS policy action there was not to resist it more than we did by raising tariffs on them. Our tariffs were already low and we didn't lower them at that point. We haven't lowered our tariffs in quite a long time, actually.
- [22:11]
Tomer Cohen
Okay, I want to talk about China in particular and the way that they have flooded supply and then also Apple. Why don't we do that on the other side of this break?
- [22:21]
Alan Deardorff
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- [22:53]
Tomer Cohen
And we're back here with Professor Emeritus Alan Deardorff of the University of Michigan. Professor, great first half. Let's talk a little bit more about some of the particular companies in Silicon Valley. You know, I keep teasing Apple, but you said something in the in the end of the first half that I want to pick up on because it's pertinent to Amazon and it's pertinent to US Suppliers and it's pertinent to discussion we've had on the show about Shein and Temu, which are Chinese e commerce players that have been rising in the United States, which is that basically the world liberalized trade with China and now the barriers have come down somewhat, even though there have been some tariffs recently with the, with the country. I was speaking with a lawyer, former lawyer, who was working in the US Government, talking about the implications of allowing China in. And basically their argument was that the Chinese government has subsidized the creation of products to the point where they become so slow, so low priced, you have to go to China there which are gonna end, which would. The end result will be that they put out the, they put out a business, businesses in the United States so that they become the sole suppliers and then eventually they'll raise prices. But they needed to become this export economy and that is the method that they're doing it. And obviously that comes into play with Shein and Temu and some of the Chinese made products we buy on Amazon. So I'm curious what you think about that argument.
- [24:25]
Alan Deardorff
Okay, there's a lot of pieces there, I think. Oh, first of all, we didn't lower tariffs on China. Their expansion was because they agreed to limit their own. Well, we did promise not to raise tariffs on them by letting them join the World Trade Organization. That's the only. But we never lowered tariffs on them and their expansion was because they were an expanding economy. That was doing a very good job of that. Okay. But anyway, if indeed they are subsidizing production, we have on the books laws to use that would allow us to use tariffs on subsidized imports. And we have used them on occasion in the past, although not as much perhaps as we should. But if that's the argument about China, then what we should be doing is documenting that and using the tariffs that our own law and international trade law permits one to do in response. It's called countervailing duties. And that is something that would be quite legal for us to do. I. Economists tend to look at that as being a little bit perverse because if a country is subsidizing something they want to sell you, then why do you not just say thank you for the fact that they're doing the hard work of making stuff that you then were going to be able to enjoy consuming. But we have these laws on the books about using countervailing duties and it would make sense to do that. We'd have to of course, document and make certain that the subsidies are in fact being used, but that that's the appropriate response in international trade law to subsidies.
- [26:07]
Tomer Cohen
Okay, so let's go with the Michigan example again. So in China, they're they've been very successful in making affordable EVs. I'm not 100% sure if they're subsidized or not, but you can buy them for $10,000 per car, a good one. So we're putting a hundred percent. 100% tariff on it. That's the Biden administration.
- [26:27]
Alan Deardorff
Yep.
- [26:29]
Tomer Cohen
So when you ask, like, why would you not just take the thing that they're producing, it's like, well, won't you have most of Detroit go out of business if you have great EVs for 10 grand a pop?
- [26:40]
Alan Deardorff
Well. Or you might get Detroit to learn how to do a proper job of making those things. That's what happened with Japan in the 1980s. The Detroit industry got much better at producing quality cars and survived reasonably well. So maybe that's the answer. Okay, the counter to something here. If the Biden administration, or any administration really wants us to deal with climate change by shifting to electric vehicles, then putting a tax on them to make them too expensive for people to buy is hardly the right thing to do. Why do you tax something that you want people to be buying more of?
- [27:25]
Tomer Cohen
Yeah, this is a debate that I've had with RJ Scurringe, who's the CEO of Rivian, which is an electric car maker in the United States. They have great cars. They are quite expensive. But I always wonder about whether you really want to incentivize more consumption as a way to deal with climate problems. But no, that's being said.
- [27:46]
Alan Deardorff
I thought the idea was to incentivize. Yes. Consumption that is less harmful to the environment than the consumption that we know.
- [27:53]
Tomer Cohen
No, no, I'm with you on that one. That one I'm with you. But yeah, it's a good question. I mean, that's why I think one of these policy questions, it's not black and white, and it's why we have to talk about this on the eve of election day, because this is on the ballot.
- [28:09]
Alan Deardorff
Well, yeah, I wondered about that when you said you were going to broadcast this on Election day, by which time most people will have voted.
- [28:17]
Tomer Cohen
Well, to me, first of all, I think that, like part of so our show, we're not going to try to influence people on the way to vote, even if they take some of the information that we're sharing into account. What I want to do is really just illuminate how the world is changing and people will vote the way I don't think most people are going to vote based off of at least our listeners on tariffs. But I do think that they are going to want to hear sort of how the world might change, whether it's Trump or Harris. And that's what we're here to do is sort of decode some of that.
- [28:48]
Alan Deardorff
Okay. Yeah.
- [28:49]
Tomer Cohen
And I'm speeding up the publication of this, by the way. This is, we're recording Monday morning, November 4th. This is going to go live Monday, late afternoon, November 4th, because.
- [29:00]
Alan Deardorff
Oh really? Okay.
- [29:01]
Tomer Cohen
I just thought, well, we're doing this and might as well. We won't know a winner anyway till probably Thursday or Friday.
- [29:07]
Alan Deardorff
Oh, who knows when we'll know.
- [29:09]
Tomer Cohen
Who knows. So this will be, it'll be valuable, listen, I hope for people. And then it's a good moment for me to tease. We're also, we also have Dan Pramak of Axios and Anna Swanson of the New York Times coming on Wednesday to talk about the results. So folks, stay tuned for that. Whether we know much or whether we don't, we'll pick that up then.
- [29:31]
Alan Deardorff
I don't know those people, but I certainly see Anna Swanson's articles in the New York Times because she often writes about trade.
- [29:37]
Tomer Cohen
Exactly. So you can vouch.
- [29:40]
Alan Deardorff
Well, I assign her articles to my students, so yes, I guess I can vouch.
- [29:43]
Tomer Cohen
That's great. So let's get a little bit more into the details here. I've been promising it the whole time, but we keep going on these fun theoretical tangents and I'm not going to limit them. The 60% tariff on China, how do you think that might impact both Amazon's business? Amazon, a lot of the things that are sold on Amazon are imported from China. And then we also have these two businesses, Shein and Temu, which are Chinese.
- [30:14]
Alan Deardorff
E commerce, but I don't know anything about them.
- [30:16]
Tomer Cohen
Yeah, they're Chinese e commerce companies that sells items for quite low. But yeah. Well, I'm curious, maybe take to answer what you can on on that one. And I'm curious about the Amazon side in particular. Does Amazon retail suffer?
- [30:30]
Alan Deardorff
Oh, I would think so, yeah. Now, I don't know how much they are able to get around those tariffs. First of all, some things, I feel like we already talked about this, but some things will move production outside of China to Vietnam or some such place where they won't be subject to Trump's tariffs. And I'm sure Amazon will take advantage of that as much as they can. But yeah, they're going to be paying more for the products. They're going to be charging more for the products, but so is everybody else. So I don't know that it's going to hurt their business all that much because it's hitting everybody that is sourcing those goods.
- [31:14]
Tomer Cohen
Does that give a leg up to US Retailers selling through Amazon if there's going to be a 60% tariff on China?
- [31:21]
Alan Deardorff
I suppose if they are selling the same stuff, yeah, yeah, absolutely. But chances are to the extent that it does, they will raise their prices in response to the competition becoming easier. And so we as consumers will still pay more.
- [31:38]
Tomer Cohen
So overall, U.S. suppliers, this is not something you want if you're running Amazon's business.
- [31:45]
Alan Deardorff
I agree. I wouldn't think it's something that they want, but I think they'll deal with it. It's not going to put them out of business.
- [31:50]
Tomer Cohen
Okay. And I've been saving the best for last. But let's talk about Apple. Right? Apple has a sizable percentage of its assembly. Wow, you got an iPhone. Yes, I do, too. Both made in China. What do they say? Designed in Cupertino, something like that on the back. Designed in California.
- [32:11]
Alan Deardorff
It's not made in China in the sense that people might interpret that it is assembled in China from pieces that come from all over the world. Right. But yes, the final product is assembled in China.
- [32:25]
Tomer Cohen
Okay, so let's say again, run us through the scenarios. Trump, Harris, 60% tariff on this Manu or assembling, I guess it would be assembled, you would pay that tariff if you're assembling the phone in China.
- [32:40]
Alan Deardorff
Oh, yeah, yeah.
- [32:41]
Tomer Cohen
So what does it look like?
- [32:43]
Alan Deardorff
A rise in the price of iPhones, but not just iPhones, right? Well, okay. No. Okay. The Samsung ones, I guess, are going to not be hit with that, although I bet they get a lot of their stuff from China. But yeah, I think it's going to hurt Apple if they let it happen. Apple's a big enough company that I can easily imagine that they would lobby effectively to get Trump not to do it on their product. I'm sure they would try. Trump, like most politicians, but maybe more so than many, is responsive to what people do for him. So I wouldn't be real surprised if they found a way. If Apple found a way to get him to exempt iPhones.
- [33:29]
Tomer Cohen
They did last time. I mean, when Trump was president, between 2016 and 2020, I think they found exemptions or exclusions on the iPhone, the iPad, the MacBook, and then eventually the Apple Watch.
- [33:40]
Alan Deardorff
Is that right? Okay.
- [33:41]
Tomer Cohen
So in exchange for manufacturing some within.
- [33:44]
Alan Deardorff
The United States, they will try very hard, I'm sure, to get something like that. And he's not using tariffs As a matter of principle, he's using tariffs as a basis for dealing, and so he'll be happy to deal with whoever offers him the best deal to give him what they want.
- [34:04]
Tomer Cohen
But then on the negotiation front, do you think that Trump using a tariff as a threat will be an effective negotiation tactic to get them to manufacture in the United States?
- [34:17]
Alan Deardorff
Oh, to manufacture in the United States. I kind of doubt it. But as you said, that what they did before is that they will do some token thing so that he can claim that he got them to manufacture in the United States, but they won't do very much, I would guess, because the cost would be so much higher.
- [34:40]
Tomer Cohen
We talked earlier about some of the threats that Apple has. I guess semiconductors have. Should we end up in a. Yeah. In a trade war or we. I guess your argument is we're already in a trade war.
- [34:52]
Alan Deardorff
Oh, of course we're already in a trade war. Yeah. The tariffs are still in place and it's going to get worse because they're going to raise the tariffs and the other side is going to raise their tariffs, too. So. Yeah.
- [35:01]
Tomer Cohen
So either escalating trade war or something worse than that is how exposed do you think Apple is by having so much of its production within China? I know that they are starting to build some components or do some manufacturing in Vietnam and India.
- [35:17]
Alan Deardorff
So they're trying to diversify, shifting their sources to. To other countries for exactly that reason. Yeah. Yeah. To the extent that they succeed in doing that, however, Trump being Trump will put higher tariffs on those countries as well.
- [35:34]
Tomer Cohen
Yeah. So I think, to me, I'm trying to think through some of the chain, the differences within the candidates and what we've spoken about, I'm kind of coming away with. You'll see the US Tech companies in Silicon Valley have to deal with. I would see. I would see it really as an inconvenience of tariffs, but it's not like it would necessarily turn them into different companies or change the way they operate all that much. If you take a look at the difference between Trump and the Harris plans.
- [36:10]
Alan Deardorff
Yeah, I think that's probably right for the most successful of those companies. I mean, one thing about Apple, although I don't know for a fact, I've always assumed there's a big markup there. They can afford to absorb increasing costs, whereas some of their competitors probably cannot. And so they might end up doing better in spite of all that compared to their competitors. I don't know. Because their competitors don't rely maybe as much on China, you know, more about that than I do.
- [36:40]
Tomer Cohen
And then there's the other side of it is though. So that's if everything continues as normal, the other side of it is the unintended consequences. And I do think that we talked about a little bit in the beginning of the show. If you end up going, I don't know, full blown tariff, go 60% tariffs on China, a little bit more antagonizing and you don't know where you land.
- [37:03]
Alan Deardorff
You don't know. But I mean, they're going to pick our strongest, they'll pick the sector they can hurt us most to put tariffs on. So, you know, last time around when he put tariffs on China, they put tariffs on soybeans and our soybean farmers got hurt badly and so badly that then Trump, I think, pushed through subsidies to our soybean farmers to compensate for what he indirectly had done to them. So just what industries will be hit hardest this time? We're big in agriculture, so that's where our biggest vulnerability will always lie. That's such a big exporting sector for us. So you gotta expect some harm there.
- [37:46]
Tomer Cohen
Okay, a couple more big picture questions for you before we leave. Do you think we're in a new era where we were in the, let's say, free trade consensus maybe from 2000? Oh, yeah. So talk a little bit about that.
- [37:59]
Alan Deardorff
Well, I mean, it's been clear to me as I as well from the time Trump came along. I mean, I've been seeing resistance to globalization for a decade or two, but it wasn't really turning up in the policy realm very much. And there still were a lot of people that appreciated that they were benefiting from the imported goods that we would buy. I think it's still probably true that the public is responding to surveys more favorably to trade than unfavorably, but in the political sphere, not at all. It's very clear that here, and I think in a number of other countries, we've shifted rather dramatically away from feeling positively about trade and we're going to be using tariffs more and more regardless of who comes into power. And I think that's from my point of view, that's horrible. It's not a disaster like a shooting war, but it is really unfortunate for the well being of people all over the world. I think, I do think to some extent it might be that the United States, where that seems to be coming along more than other places, that the result will be that we will cut ourselves off from the rest of the world while the rest of the world continues to trade with each other. And if that's the case, we'll survive that. We are such a big country, we can exist without very much trade, much better than any smaller country could. But I think maybe the rest of the world will continue to move in the direction of greater trade. They're continuing to negotiate trade agreements. The United States hasn't done one in years. But. But the rest of the world continues to have new agreements to reduce tariffs on each other. So I think that will continue.
- [39:53]
Tomer Cohen
And how do you see the broader economy changing under the Trump plan versus the Harris plan in terms of like thinking about the impact of tariffs in particular?
- [40:03]
Alan Deardorff
Well, I mean, it's going to raise prices. Some people say it's going to cause inflation, but only the change will do that. Inflation is year after year prices going up. And I don't think that's. There's no reason why this should increase the trend rate of prices going up. That'll continue to be managed by the Fed. It won't drive us into poverty or anything like that. We just will not. Our well being will not improve over time quite as much as it has in the past. And we'll take a bit of a hit that most people won't notice on things being a little more expensive than they were. That's going to hurt poor people more than rich people because it's the poor people that buy most of the stuff from China. I guess I'm a rich person and I'm buying an Apple phone. But nonetheless, the tariffs are going to be more harmful for the lower income strata of the US Economy.
- [40:58]
Tomer Cohen
Does manufacturing come back to the United States after tariffs?
- [41:04]
Alan Deardorff
No, I don't think so. Manufacturing has been in decline in terms of employment for 70 years and very little of that has had anything to do with trade. Most of that has been technology. The fact that we just don't need workers as much to produce stuff. We have robots and such. I suppose it's possible that the tariffs will make robots too expensive to use and maybe that will mean we'll keep a few more jobs. I don't know about that. But I think manufacturing employment will continue on the trend it's been on for all that time. Manufacturing output hasn't declined particularly and it probably won't.
- [41:48]
Tomer Cohen
Okay. And then last thing that I want to ask you about is currency debasement. I'm curious whether, because you've talked about this in the past, we're spending a lot of money in the United States. We just had two stock analysts on talk about how both Trump and Kamala Harris. They're going to spend. And there's some talk about whether the US Dollar would be devalued or debased. And you've waited on that. So what do you think is going to happen there?
- [42:13]
Alan Deardorff
Okay. Well, you're connecting our government spending a lot, and therefore the expansion of the government's debt to somehow causing our currency to fall in value. I don't think there's really any connection that I'm aware of of that. Unless what happens is we borrow and borrow and borrow and then suddenly stop paying it back, stop servicing our debt, then yes, absolutely. If we defaulted on our government debt, then surely that would cause the dollar to plummet because people would try to get out of US Government debt. But even though we occasionally have our Congress threatening to not pay on our debt, so far they've never delivered on that and it has been for a long time. And it looks to me, I think, like it'll continue to be that the US Dollar is going to be the one currency that most of the world trusts to have their wealth in. So I don't think that's going to change. I don't like it. It seems unfair that our country should be able to spend so much more than our income year after year after year, which is what our trade deficit means, being one of the richest countries in the world in a big part, not big, I'm overstating it, but a significant share of what we get to consume is made by poor people around the world. I don't like that. But that's the way the world is moving. And I don't see that it's going to change or. No, it's not just moving. It's been there ever since World War II, and it's probably not going to change.
- [44:00]
Tomer Cohen
Professor Alan Deardorff, thank you so much for joining. Great speaking with you.
- [44:03]
Alan Deardorff
I enjoyed it. Thank you. Okay.
- [44:05]
Tomer Cohen
All right, everybody. Thank you for listening again. We'll be back on Wednesday afternoon evening with a special edition with Dan Premack and Anna Swanson. We'll see you next time. And thanks again for listening to Big Technology Podcast.