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‘Gloves off’: A former Trump trade official on his China fight
00:22:20
After days of stock market mayhem, President Donald Trump pulled back most of the tariffs he slapped on U.S. trade partners. But not China. Trump upped his tariffs on China to 125 percent — the latest shot in a rapidly escalating trade war. On POLITICO Tech, host Steven Overly talks to Nazak Nikakhtar, a former Commerce Department official during Trump’s first term and law partner at Wiley, about the ways in which the tech industry is vulnerable to Beijing’s retaliation, and why she thinks the economic pain from these sky-high tariffs is necessary.
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- [00:00]
Nazakna Kochtar
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- [00:12]
Stephen Overle
At participating McDonald's for a limited time. A Minecraft movie only in theaters. Hey, welcome back to Politico Tech. I'm your host Stephen Overle. And now China stands alone. After days of stock market mayhem, President Donald Trump didn't about face yesterday and pulled back most of the tariffs he slapped on US Trade partners, but not China. When it comes to China, Trump upped his tariffs to 125% just hours after Beijing cranked its own tariffs up to 84%. And by the time you're hearing this, hell, the numbers could be even higher.
- [00:56]
Nazakna Kochtar
As far as China's concerned, gloves off. I think. As far as the President Trump's concerned, gloves off.
- [01:01]
Stephen Overle
This is Nizakna Kochtar. She helped set export policy in the Commerce Department during Trump's first term and she now leads the national security practice at the law firm Wiley.
- [01:13]
Nazakna Kochtar
Every single business in the United States will feel the impact of this all almost instant. Decoupling from China.
- [01:21]
Stephen Overle
On the show today, Nazank tells me how the tech industry is vulnerable to China's retaliation and why the economic pain from these sky high tariffs is necessary if Republicans can handle it. Here's our conversation. Nazak, welcome back to Politico Tech.
- [01:41]
Nazakna Kochtar
Great to be with you. Thank you for having me.
- [01:44]
Stephen Overle
So the tariff rate on China stands right now at 125%. Though by the time we're done talking, who knows where it could be. Things have been changing so fast. Can you kind of wrap your head around how dramatically this has escalated?
- [01:57]
Nazakna Kochtar
Wow. Incredibly, I think maybe about a month ago, two months ago, the people in the United States around the world would have thought it was unfathomable to get to tariff rates that high with China. Because just for example, over my almost 25 years dealing with trade with China specifically, once you get into high double digits, essentially trade stops. Right. China will just pull back and really focus on other markets just to have indirect impact on the United States. And so this really is forcing a decoupling. It's, it's our high tariff rates, China's counter, counter tariff rates and China's export restrictions to the United States. And the reason the export restrictions are pretty severe is that China knows exactly where to hit to have maximum impact. And where they've decided to focus their export restrictions are really the nuts and bolts that our manufacturing sector needs and the manufacturing sector that supports the economy. So in a nutshell, it's getting pretty ugly. Did anybody, you know, think that inevitably. Right. Not maybe as quickly as we got there, but never we would have gotten there? Absolutely. I think everybody knew that decoupling was almost certain just because of the continued aggressive economic behavior by China and then also more of the aggressive tactics around the Indo Pacific.
- [03:28]
Stephen Overle
And so, I mean, we're talking about the world's two largest economies here. They are deeply intertwined. And you're right, decoupling has been talked about in the past, but I know a lot of folks sort of said that complete decoupling was impossible just given the size of these economies. I mean, is this a test of whether that is actually true?
- [03:47]
Nazakna Kochtar
I don't actually prescribe to the idea that complete decoupling isn't possible, only because when you look at maybe about 25 years ago, which is really not that long ago, our economies really weren't integrated to the level that they are today. And for folks who wanted decouple 25 years ago isn't really that long ago to rewind the clock now, whether it's immediate or not, whether that can be done or not is completely different story. And those who are advocating for strategic decoupling are really recognizing that overnight decoupling isn't. Isn't possible. But here we are. We are essentially overnight decoupling. And what does that do? What does that mean for our industrial base that actually doesn't have the supply chains that we depend on China for and will take several years to build? That's anybody's guess. Folks are very, very concerned about what the capacity we don't have right now to sustain our economy if we decouple.
- [04:42]
Stephen Overle
I was going to say, are you worried about sort of the floor falling out in a way from some of these sectors that do depend so heavily on China, whether it's for products or inputs or just their supply chains in general?
- [04:52]
Nazakna Kochtar
Yeah. I mean, I'll give you an example of those industrial diamond super abrasives that we need for, you know, cutting tools for anything from drilling to semiconductor manufacturing. Right. And then aerospace and defense weapons. They all use these sort of industrial diamonds from China. And China predominantly has sort of the world supply chain. China's known that we've been vulnerable there. This is very much like critical minerals. But the reason I focus on this is because it's these other raw materials that people don't generally think about, but it's very much like critical minerals. China has sort of the global supply chain. And China knows that it knows where to kick us where it'll hurt the most. And right now we have gloves off, we're hurting China, and China is ready and preparing to hit us back where it hurts.
- [05:38]
Stephen Overle
I want to ask you, Nazak, you know, I keep hearing over and over again how different Trump's approach to trade in tariffs is this time around compared to his first term. You obviously worked in his first administration. How big of a departure do you see here?
- [05:53]
Nazakna Kochtar
It's a big departure. I think in the first administration, Trump knew that we had a lot of trade distortions and he understood that we had to fix them. But there was a lot of thought about which legal authorities do you have? How do you use it, how do you signal it to the markets in advance enough so that we don't have these volatile market reactions? Right. You know, it was a year to do the 232s on steel and aluminum. It was a year to do practically the IP theft investigations. And things were announced and things were communicated. I think part of the reason we see the market volatility is sort of twofold. One, I think the Trump administration feels sort of emboldened by the successes of the first administration and wants to go bigger and harder. But I think on some level they also feel like they don't have the luxury of time. They feel like they need to move much faster and they feel like they need to keep the element of surprise to keep our trading partners guessing. And so they're racing, you know, pretty quickly. They're using, they're looking for the legal tools that allow them to move quickly. And then of course, we have the market reactions because if you're not communicating about what you're doing right, then people are going to panic and the markets are going to panic. And that's what we see. And so I think that's probably why they've, they pulled back a little bit, because I think that they're understanding and they're saying that we don't want to create chaos where we don't need to create chaos. Right. At Capella University, you can learn at your own pace with our flexpath learning format. Take one or two courses at a time and complete as many as you can in a 12 week billing session. With Flexpath, you can even finish the bachelor's degree you started in 22 months for $20,000. A different future is closer than you think with Capella University. Learn more at Capella. Eduardo Fastest 25% of students. Cost varies by pace. Transfer credits and other Factors, fees apply.
- [07:55]
Stephen Overle
You know, you were talking before about China kind of knowing how to hit the US where it hurts. I wonder if tech is one of those pain points. You know, there are obviously tech companies like Apple and Nvidia that make a lot of products in China or sell them there. How hard could those companies be hit, do you think?
- [08:11]
Nazakna Kochtar
You know, the Chinese Communist Party is really, I mean, it has before. This is its playbook. It will retaliate against companies so that it uses companies as, you know, in a way, it's sort of de facto lobbyists. Right. And so any company that does business in the United States is going to be leveraged by the Chinese government in two ways. One, the Chinese government is going to threaten them unless they kind of use their influence on the US Government to walk the US Government back, or it's just going to go after them directly so that the U.S. that those companies are going to have no choice but to advocate to the US Government, look, I'm going to lose all this revenue and I'm going to collapse if I'm not allowed to do business there. And, you know, to be honest with you, the government has now heard this narrative so much when we put. It's almost. Almost kind of becoming immune to it. And I'll give you an example. When we put Huawei on the entity list, we had so many companies coming to us and saying, but I'm going to lose money. And our response was, what do you mean we're not going to. Huawei violated financial, financial sanctions against Iran. Right? Financial sanctions against Iran, like it's a big deal. What are we going to do? Not take action in our national security interests because you have financial interests there. So we, we try to walk the line and try to still be tough on Huawei, but, you know, create at least some pathways for, for exports to China, even some to Huawei. But how long can, frankly, could that go on? The US Government can only be sympathetic for so long. And frankly, I think the Trump administration is kind of expecting businesses like you've had eight years to understand that I'm not going to protect your financial interests by not going after China to protect our national security interests. So you better get out of the way, because I got to do what I need to do to protect America's essential security interests. And I think that that's what they're expecting companies of companies right now.
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Stephen Overle
Got it. So it sounds like sort of the industry playbook of sort of sweet talk or flattery or, you know, appealing to business sensibilities. Just may not resonate as much this time around. You think?
- [10:24]
Nazakna Kochtar
Yeah, I don't think it is resonating that much. And we see it. Right. I mean, there's so. I can't think of one American company that is not either directly or indirectly exposed to supply chains from China or sales to China or retaliation from China. Right. And of course, the administration knows every industry, every company in the United States has some level of exposure and is going to feel some level of pain. But I think they're really looking at this like, well, what other option do I have? I mean, China has been systematically, systematically and deliberately hollowing out US industries by dumping subsidization, cartel behavior, IP theft, market manipulation. I mean, the list goes on and on and on. And the status quo isn't working. Nobody's really taken China on at a level that's commensurate with the level of harm that they've inflicted on the United States. And where do we go from here?
- [11:19]
Stephen Overle
Right.
- [11:20]
Nazakna Kochtar
At some point, I think a lot of people are saying we're just going to have to rip the band aid off because that is going to be the forcing function for us to build at home, because we're just not going to organically build at home. Companies won't. There's, there's too much on allure with respect to sort of profits in China. So they're not going to onshore until we force them to. And here we go.
- [11:40]
Stephen Overle
You know, I sort of hear you saying two things. One, that, you know, this decoupling is somehow inevitable, right. Given China's trade practices. On the other hand, that industry is really not ready for it, that a lot of industries just do not have the supply chains. And so I guess with those two things being so at odds, what path forward is there for the US And China?
- [12:05]
Nazakna Kochtar
You know, that's a really good and tough question. What I lose sleep at night over is it will take us a few years to become ready and have the manufacturing capabilities in the United States that we need or elsewhere that China almost exclusively controls to be able to sustain our economy and to sustain our operations and frankly feed people. Right. Without the supply chains from China. And so what has happened is, and I really don't think any fault of our own. I think that the President, he felt like he had to do something with respect to China before it's too late. But at the same time, the President was dealing with this reality of we're not ready, our industrial base isn't ready. Maybe. I think there's a lot of the national security community who says, well, we weren't going to be organically ready anyway. And so this is just going to be a forcing function, and there will be a period where we just can't make stuff or we can barely make things, but we're just going to have to persevere. And that in and of itself will be the forcing function and will create the demand for further investments in the United States, like critical minerals. Now we have no choice but to develop our supply chain because we're just not getting anything from China anymore.
- [13:16]
Stephen Overle
Is there a path forward, you think, that involves negotiation? You know, yesterday we saw the President take tariffs off a bunch of countries because he said that they've shown an eagerness to come to the negotiating table. Is it possible for China to still get that treatment?
- [13:33]
Nazakna Kochtar
I think the President is going to be very open for negotiating with China, even though the president and frankly, all of the US Government leaders have been burned by China by doing some deal with China. And China's just really never adhered to any of its deals. The Obama administration famously tried to do sort of a cyber security deal with, with the Chinese, and they never adhered to that either. And so this, this, this just goes on and on. So, yes, absolutely. I think the President still wants to figure out how to get a deal with China, where China is going to comply. I don't think China wants the deal. I think Xi Jinping, President Xi Jinping is different, different person than he was in 2018. I think he's consolidated power. He's indigenized high tech capabilities, including semiconductors, AI, et cetera. He almost, at the end of his unprecedented third term, looking for a four. He's got a safe face at home. He has enough control over the Chinese economy to prevent a collapse. He pretty much knows something we don't know, which is they don't really need the American economy as much as we think that they do. And I think that, you know, is Xi Jinping willing to inflict more pain on his people? Because people are already suffering. So my point is he's not going to want a deal. He's, he's, he's going to power through this. And so he's going to have to save face to the Communist Party and the Politburo, and he is not going to kiss the ring, and he's tired of kissing the ring. So to him, he doesn't need to. He has the power. He needs to persevere. And that's what I'm very concerned about.
- [15:10]
Stephen Overle
I guess with that being said, I mean, we're sort of describing two leaders here who are both kind of digging in. Right. Doesn't sound like either may have incentive to make the first move. As you look ahead, do you think Donald Trump or Xi Jinping is in the more comfortable position here?
- [15:26]
Nazakna Kochtar
I don't know who's in a more comfortable position. I think Xi Jinping has a facts to maybe be in a more comfortable position. I think that the American people generally, I mean, we just saw the stock market, right, A little bit of pain and the economy goes berserk. So I think that little bit of the disconnect is that the president, I think, thinks that he has a little bit more cards than he does. He has some, but I think he's overestimating sort of the hand that he has. I think the American, American economy just is not willing to withstand even a day of pain. Now, does China have some weaknesses too? It's. It's the rest of the world slowly potentially starting to turn their back on China. But I don't think Xi Jinping cares. I think Trump is going to care a little bit more than Xi Jinping does and really does want a deal, but he's going to want a deal on his terms, and he was going to want a deal from his position of power, and Xi Jinping is not going to give it to him.
- [16:28]
Stephen Overle
There are a lot of kind of conflicting opinions among Republicans about how to handle all this. Right. We've seen that on the Hill, for instance, some pushback to the tariffs. Even within the administration, different views on kind of the purpose of these tariffs and the end game here in that division. Do you see kind of a strategy going forward for Republicans on this?
- [16:49]
Nazakna Kochtar
I think it's really true that the Trump administration this time around, the last time they really did articulate a strategy in an end game. I think that this time around, I think they have multiple endgames. I think that they want manufacturing to onshore. I think that they want to get fairer trade. I think that they really want to see if they can sort of discipline China. I think that they do want to raise revenue. Do all of these things reinforce each other? I think some of them are conflict. If you have more manufacturing at home and you're tariffing less and consumption, you know, may in the interim go a little bit decrease. So you're not raising as much tariff revenues, but I think that's generally sort of the direction that they're trying to go. At least see how much manufacturing you get back at home. But manufacturing will onshore when the investors have confidence that this is going to be a long term situation. Right. Because when you move supply chains, it just costs a lot of money. And with the IP tariffs on China back in 2018 imposed on Trump 1.0, I think industries generally knew things are not going to go well with China. China's threatening industries that are there anyway, and it's threatening to retaliate against them. So maybe it is good to just sort of step away from. But I don't think companies are going to say, you know, every few years I have to like, pick up my plant and move to Canada, move to the United States, move to Mexico.
- [18:16]
Stephen Overle
Right.
- [18:16]
Nazakna Kochtar
They're just not going to do that. So I think that we may not get all of the supply chain movements that the President and his team are expecting. And I don't think everybody in Congress is fully aligned on what ultimately should happen either.
- [18:31]
Stephen Overle
Right.
- [18:31]
Nazakna Kochtar
I really want to underscore that we're going through growing pains globally. We've gone from globalization to what does the next thing look like? And I think that there's going to be growing pains. And I don't think we should be afraid of growing pains now. Growing pains cause economic disruptions, and I think the Trump administration will ultimately start really paying attention to the economic indicators to minimize economic disruptions. But at the end of the day, I think they're all so comfortable with, as we see with the, with the trade frictions with China, we're gonna have some pain because we really do have to transition away from harmful places.
- [19:10]
Stephen Overle
I wonder how you bring along voters with that economic pain. Right. Whether they have kind of the stomach for it. I mean, as someone who was in this kind of position in the first term, I mean, do those political pressures kind of make you crawl out of your skin or do they make you kind of guide your decisions?
- [19:28]
Nazakna Kochtar
You know, it's fascinating because everybody that I've spoken to, whether it's in the business community, the investor community, political community, really understands we gotta get away from China. And even the way that this has been done sort of very quickly and much faster than anybody's anticipated, I think there's kind of either some people who are openly encouraging the President and some who are saying, you know what, maybe we, it's too fast, but we have to get there anyway. So I'm not going to criticize the President too much. It's just a necessary pain. And I think generally Americans feel that way. I think until the pain gets too much, and then we'll see how people react if, if the pain becomes too much with respect to that. So. So their tolerance for dealing with China is much higher than their tolerance for dealing with the rest of the world. And I think that's where the division is really coming into play. Go full, full force on China. We understand that they're bad. We understand that they're eroding and our manufacturing and base, and maybe we can take a little bit for the betterment of the future for our children, but they're looking at Canada and the UK and other countries and saying, really, did we need to do it this way with respect to China, I think that everybody kind of realizes, well, it was inevitable and we were either going to go through painting sooner rather than later. It's better we just go through it sooner because the pain is going to be less if we act now versus becoming even more entangled in the Chinese economy.
- [20:59]
Stephen Overle
Excellent. Well, Nazak, thanks for being here on Politico Tech.
- [21:03]
Nazakna Kochtar
My pleasure. Good to be with you.
- [21:06]
Stephen Overle
That's all for today's Politico Tech. If you enjoy Politico Tech, please subscribe and recommend it to a friend or colleague. And for more tech news, subscribe to our newsletters, Digital Future Daily and Morning Tech. Music in our show comes from the mysterious Breakmaster Cylinder. Our managing producer is Annie Reiss. I am Steven Overlea. See you back here on Monday.