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- [00:01]
Steve Ratner
Close your eyes.
- [00:02]
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- [00:28]
Henry
1-800-contacts. It's tax season and at LifeLock, we know you're tired of numbers, but here's a big one you need to billions. That's the amount of money and refunds the IRS has flagged for possible identity fraud. Now here's another big number. 100 million. That's how many data points LifeLock monitors every second. If your identity is stolen, we'll fix it, guaranteed. One last big number. Save up to 40% your first year. Visit lifelock.com podcast for the threats you can't control. Terms apply. We are not winning. That's our guest's view of the US's economic competition with China. In fact, when you learn what China is actually doing today in many key industries, it seems more accurate to say we are getting our butts kicked. Steve Ratner is the CEO of investment firm Willett Advisors. He's a contributing op ed writer at the New York Times. And he was President Obama's car czar. The the head of the team that helped save the United States auto industry during the great financial crisis in 2008. 2009. Steve says the solution is for the U.S. to develop a much more comprehensive industrial policy. He says we need to stop being a country of lawyers and start being a country of engineers and scientists who make things. Lastly, he thinks we need to get hungry again. Here's our conversation. Steve, great to have you. Thank you so much for doing this very much enjoyed your recent editorial in New York Times called We are Not Winning about the US relationship with China, which has obviously been enormously in the news over the last year. In fact, just this morning as we're taping, a related Supreme Court decision just came down which the Supreme Court seems to have ruled that President Trump's broad tariffs are not, in fact, legal. And maybe that will have some impact on what we're talking about. But I think where I'd like to start is one thing I am struck by and you can go ahead and tell me that I'm a patsy or a SAP and I don't get it. And this is hand to hand combat. Why is it that the China and United States trade relationship is always held up as a, a something that is a competitive to the death situation that we have to win? Is that the case?
- [02:49]
Steve Ratner
Well, I don't think, I don't think we have to win. I think both countries in theory anyway, could win. But, but every country competes with other countries for trade, for resources, for whatever. And it just so happens that China at the moment is our biggest competitor. You would have said 30 or 40 years ago, probably you might have said the Soviet Union was our biggest competitor, but obviously that didn't work out so well for them. So every country has competitors and it was actually obviously a lot worse than the 19th centuries and the 18th century when people fought lots of wars over this kind of stuff.
- [03:26]
Henry
Well, so let me step back and just press on that a little bit. So go back, roll it back. England was on top of the world for a while. China way back, was on top of the world. Japan was incredibly strong for a while. We have blown past Europe over the past 75 years. Europe, when you go visit it, seems to be doing fine. In fact, there are a lot of things about a lot of countries in Europe that are better than the United States, I think arguably. So at least for normal people, why does it matter whether we beat China?
- [03:58]
Steve Ratner
Oh, I, I, I, first of all, I, and I know the subject is meant to be China, but I'm happy to talk about Europe too. To say Europe is doing fine, I think is a, frankly a, a gross overstatement of the situation, at least in economic terms. They have wonderful restaurants, they have wonderful museums, they have a nice lifestyle, but economically they're not doing fine at all. The rate of growth of the US economy versus Europe has diverged enormously in the last 10 years. And the difference in the standard of living between Americans and Europeans has diverged enormously in the last 10 years. It's a political mess. No, I wouldn't say Europe is doing fine.
- [04:37]
Henry
I will just say that for the individual citizens with some of the social programs they have, some of the stability that they have, you could make the case that what you just described, the nice restaurants and so forth, actually make life a lot better in, in some of those countries than here. But let's just talk about the economics of it because that is obviously what you were writing about here. So, so why are we not winning against China?
- [05:04]
Steve Ratner
We're not winning against China because China is, is continuing to develop more and more technologies that are competitive with ours. The President's effort to reduce the amount of exports that they drop into the rest of the world at low prices and thereby get the jobs associated with it is not working. China had a record trade surplus of $1.2 trillion last year. It is true that our imports from China are down as stated, but we, I think all of us believe there's a fair amount of what we call trans shipping going on, where a product is sent from China to some country and then to us. So it doesn't look like it's coming from China or it's sent to some country partially manufactured, and then it's sent to us. So it looks like it's not coming from China. But if you take things like biotech, where China used to in license, meaning China used to license its drugs from us and from other countries. China now conducts as many clinical trials as we do, and they're out licensing drugs. US Biotech firms are going to China and licensing their products in AI, which is obviously all the rage at the moment. China is, I would say, is clearly behind us. I don't think anybody's going to argue with that, but I think most of us would say they're not that far behind us and they're racing furiously to catch up. So you can go on. I can go on and on.
- [06:33]
Henry
But yeah, I think some other very vivid examples that you cite in your editorial, one is cars. What I'm struck by is I see the CEO of Ford and others who have actually test driven some of the newer Chinese cars. There are EVs, they're battery powered. People are blown away by how good they are and how cheap they are relative to the cars in the United States. And so this for me, along with everything that you cite, is very much really updating my sense of what's actually going on in China. I mean, I think people still have the idea that that's where we make the socks in the world. And in fact, they have these incredibly vibrant new industries that are putting us to shame. And one of the things, particularly in cars that's very frustrating to me is we can't even buy the cars in the United States because of the protectionist policies that have been put up to apparently protect us or protect our industry, even though our industry is not anywhere near what China's is. So what's going on in with that and to sort of balance it a little bit? I think actually the EV protectionism started with President Biden.
- [07:41]
Steve Ratner
So let's. So there's a lot to unpack there. And it is a fascinating subject. It's, it's, it's a piece of the puzzle. It's a microcosm, if you will. So, as it happens, as you may know, I led the Obama administration rescue of the car industry in 2009. And when we did that, US cars were the most popular cars in China. The most desired cars in China. Buick, if you can believe it, was the most popular, one of the most popular brands in China. General Motors made a huge amount of money from its China operations, as did Volkswagen, as did a number of other countries. The Chinese forced all the US Companies to do this in joint ventures. And what the Chinese essentially did was partially learned on our dime. They learned by watching how General Motors and Volkswagen and others operated there, and partly by their own innovation. So fast forward. Here we are, what, 17 years later? Almost. Yeah, 17 years later, and the Chinese, as you suggest, are now making cars that are arguably demonstrably cheaper and arguably better. And I don't even think that's arguable. I think they are better. As I wrote in the piece, when we toured the Xiaomi factory and we came out onto the what was kind of the equivalent of a showroom, but they didn't sell cars there. It was just for display. I saw this beautiful yellow sports car, which I would have thought could have been a Porsche if you hadn't told me otherwise. And the inside and the technology was all quite remarkable. And so this is an example of why we're not winning against China. Here we are, we keep talking about EVs and we're going the other way on them. At the moment, we hardly make them. But the point you're making is an important point, because the Chinese cars are not only demonstrably as good or better than ours, they're a lot cheaper. By some measures, as little as half the price. And so what the decision we made, and there are some other bits and pieces to this, but I'll start with the big picture. The decision we effectively made as a country is we want to stay in the automobile production business. And therefore, we are going to effectively ban them by putting 100% tariff on them, as well as some other restrictions so that you really can't get them here. Now, you have to ask yourself the following question. Are we doing Americans a favor? We sell 16 million cars a year in this country. Let's just assume the price difference is $10,000. I suspect it's a good bit, could be a good bit more, but at $10,000, that's $160 billion a year that America extra that American consumers are paying for the privilege of protecting, because that's what it is, the US Car industry. And as I said, I was tasked with saving the car industry. So I'm certainly not going to sit here and tell you we should get rid of it. But there is a trade off there and right now it's coming out against the side of American consumers.
- [10:29]
Henry
So talk about what China did to get there and this is where we can start to move into your solutions. What do we have to do? Because you say very strongly you don't think tariffs or getting tougher on trade policy is going to do it. You say basically we got to get our house in order and start to really compete again.
- [10:49]
Steve Ratner
Well, this gets to another important piece of the puzzle, which is, you can call it industrial policy, we would call it industrial policy. We would call what the Chinese do state directed capitalism. And what they do is they sit down and they say, we want to out compete the US in cars. So what do we have to do to do that? We have to graduate a lot of engineers, we have to build a lot of factories, we have to learn the technology, we have to learn how to make batteries and how to make better batteries and so on and so forth. And so China has something like 50 car companies making EVs at the moment. It's too many. And they are in the process of consolidating, but that's what they did. We have this kind of start stop approach where under the Biden administration we provided these tax credits. The US Companies kind of ramped up and tried to get into the starting to make EVs in greater numbers and develop more EVs and so forth. Then along comes the Trump administration. They repeal all the tax credits and all the other aspects of this, all the mandates. And the US car companies announced something like $30 billion of write offs and shut down all kinds of EV production. So we're in this kind of stop start world of our political system. There's a good new book on China, I think it's called Breakthrough, if I remember correctly, by a Chinese American who has lived in both places. And his most telling line, the line that stuck with me is he said that China is a country of engineers and we're a country of lawyers and are run by lawyers. And China graduates this extraordinary number of engineers and they get to work and
- [12:29]
Henry
talk more about the government policy because you talk about state directed capitalism. One question is, is it better at doing what you're talking about, which is Building industries of the future. And I think a lot of people in the Trump administration would say that's what President Trump is trying to do. He's trying to make it state directed capitalism. He wants to get involved. So is that what's going on?
- [12:52]
Steve Ratner
But that's the problem. Everybody in my line of work thinks that they should be in charge of industrial policy and everything would be fine. I think if I were given the mandate and the tools, I can make this all work, but I don't want anybody else to be doing it because it's too terrifying to get the politicians into the system and have log rolling and all this stuff. And President Trump's version of industrial policy is a good example of it, because that's not really industrial policy. That's like, well, I think I can grab some money here. I think I can grab some money here. I'm going to charge Nvidia 25% export fee, if you want to call it that, for selling chips to China. I'm going to take 10 or 15%, whatever it was of intel. He's just trying to put his hands in a cookie jar. That's not a coherent policy.
- [13:38]
Henry
So what would a coherent policy look like in the auto industry, for example?
- [13:43]
Steve Ratner
I think we faced some tough questions. I think we were on the right track in terms of providing tax credits and other mandates to try to push us into the EV business. I think EV business is important for a couple of reasons. One, it's very good technology and if we can get the cost curve down, it can be better. But also the environmental aspect of it and we really do need to something about the climate. But if you take even the Biden administration, which was trying to do the right thing, the legislation that was passed under Biden, it was supposed to create thousands and thousands of charging stations. By the end of the Biden administration, I think there was something like 35 built. And so it is just very hard in our system to get stuff done. It just is. And you can go back to the famous abundance notion, which is now much the rage. We got to fix the permitting problem, we got to fix the regulatory problem. We got to make government better at getting stuff done. We've got to stop lurching in our policies from one administration to another. Just one other comment on this. It wasn't that long ago that the difference between a mainstream Democrat and a mainstream Republican wasn't that far apart. Today it's like this. And so when you have a change in administration from Biden, who is obviously way on the progressive End to Trump, who's obviously way on the conservative end, you get these enormous lurches in policy which can't possibly be good for the economy.
- [15:14]
Henry
And given that, I mean, yes, it sounds like industrial policy as you're describing it requires a long term big commitment to industries of the future. And even somebody who was a supporter of President Trump, like Elon Musk was blasting the big beautiful bill as saying this rewarding industries of the past and screwing industries of the future. So what would we have to do as a country to establish an industrial policy that made sense that both parties could stick with?
- [15:48]
Steve Ratner
First of all, Elon Musk obviously has a dog in the fight. He is an industry arising. But Elon Musk is a good example. He is a unique figure in business history in terms of what he's accomplished. I can't think of almost anybody maybe have to go back to Edison or something to find someone who's accomplished what he's accomplished. But he's shown you can do it. You can in fact start a car company in the US and build a product that people actually want to buy, or at least they did for a time that is better and better for the environment and a better product. So it can be done. What do we need to do? If it were up to me, and this sounds somewhat anti small d Democratic, what I would do is essentially what we would need is some kind of a national industrial development corporation that the government would fund, but that would be removed from politics, removed from bureaucracy, removed from all the red tape of government in terms of doing stuff and be able to go out there and actually put money to work in constructive ways. The CHIPS act that I'm sure you're familiar with was a good step in that direction. It wasn't perfect because it did get involved in other stuff like, like unions and steel, buying American steel and childcare and all that. But it was a step in the right direction. I would say that what we did in the auto thing was a step in the right direction in that we had access to the so called TARP money that was used to rescue the banks and we were told to just go off to President Obama's everlasting credit. We were told to just go off and solve the problem. And so we did and we were able to do it, I think, the right way.
- [17:29]
Henry
And what is it when you fix the auto industry, save the auto industry, you had the benefit in one way of a crisis, which is it's going to be toast without you. So everyone was able to give you the room that President Obama gave you. What about some of the other controversial decisions that have been made to create institutions like this? And I'm thinking of the Fed, which back when it was created was also very controversial. Huge frustration on Wall street in the 1920s, as Andrew Ross Sorkin has talked about in his recent book. So it that you have to do to get Congress to create something like that.
- [18:05]
Steve Ratner
You know, it usually takes a crisis or something like that. The Fed was created in 1913 or 1915 following the panic of 1907 when everybody realized that leaving it to the bankers, J.P. morgan in particular, to stop the stock market panic and kind of get the economy going was the right thing to do. And it took us 100 years. You know, we had a central bank in the early part of the 19th century, and then Andrew Jackson abolished it essentially. And so throughout the rest of the 19th century, while our economy did well in balance, we had lots of crises and depressions and lurching back and forth because we didn't have a central bank. And eventually people realized we needed one. So the problem with the current situation is there's unlikely to be the kind of crisis that might stimulate that. It's more like the parable of the boiled frog. The temperature of the water just goes up and up and suddenly you realize that you're about to be boiled alive.
- [19:09]
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- [19:52]
Steve Ratner
How did I not know Rack has Adidas?
- [19:54]
Henry
Because there's always something new.
- [19:56]
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- [20:39]
Henry
You also talk in the editorial about the need for us to roll back regulation and permitting requirements, at least in some specifically very important indust. Talk more about that. What do you mean? And you're a Democrat. Democrats instinctively flinch whenever you say that because the instinct seems to be no, we must make it harder for companies to screw people and so forth. And so why is that so important? And how would one do that?
- [21:06]
Steve Ratner
Well, let me give you an example. We mine a lot of copper in this country, but we don't have what's called the smelting capacity, the ability to refine it into sufficient to refine it into the finished product. So what do we do? We send it to China and they refine it and send it back here. Why do we not have that capacity? Because you can't get a smelter permanent here, at least not very easily because of the concerns about the environment, which I totally share. But is it really any better for the planet for the Chinese to be polluting by smelting the copper over there, then for us to be doing it here with more state of the art climate controls and minimizing the pollution as well as the economic security aspects of having enough copper that's refined here so that we don't depend on China for refining it? Not to mention the fact that I'm not sure at the end of all that what's happening now is any better for the environment because the copper is getting on a ship, it's going to China and it's coming back that's burning a lot of fuel. So I think there's just some common sense approaches that in a better world you'd be able to put in place.
- [22:08]
Henry
And how does one do that? I mean, another striking thing to me about China that was in a Tom Friedman op ed on the same topic, basically saying China is kicking our ass. We've got to get, we've got to get on it. He points out that they now have high speed trains connecting 550 cities. And depending on whether you want to say Acela is high speed or not, we have a few connected but just seemingly impossible to actually have a high speed modern train network. And when I've looked at that issue, the most persuasive explanation of why we can't is that we are so balkanized in our regulations from state and municipalities and everybody has power. And as you say, the lawyers have the ability to slow things down because everybody wants to have their, their say. So easy to say rollback in regulations and let's build some smelters. Very difficult to do. So how does one do it?
- [23:05]
Steve Ratner
I think. Well, let me give you another example on your side of this argument. The California high speed rail project, which as you may know, is years and years over budget, tens of billions of dollars over budget. They've kind of given up hope for the moment of actually having it go from LA to San Francisco. It kind of goes from nowhere to nowhere in the California desert. Part of why it's been held up so long is because of the difficulty of getting rights away. And what you have, the process you have to go through, even with eminent domain to get the land you need to build it on. China doesn't really think about those kinds of problems. They just go and do it. And again, I'm not suggesting that we violate people's rights to private property or anything of the kind of. But there's got to be a better way to do this than the way that we're doing it. Look, let me step back a second and put it this way. I think right now the country is kind of floundering around looking for solutions. As I said, we tried the progressive Democratic approach. People weren't really satisfied by it. For whatever set of reasons we're trying this other approach. I don't think people are going to be any happier with that, maybe even less happy. And so people are looking for a solution to this affordability problem, if you want to call it that, the lack of infrastructure, the lack of competitiveness, the jobs. And it's just going to take maybe more of a crisis. Maybe it's going to take some sensible people coming together and just saying, we've got to fix this problem. Maybe someone will emerge out of the wilderness who is a messenger for a common sense approach to these kinds of issues and people will get behind it. I don't know.
- [24:40]
Henry
And going back to the state directed capitalism, because I think what I heard you suggest is you don't want to violate anybody's rights. On the other hand, we ought to be able to build a modern train in California. So is there something to the idea that a potential solution is, hey, let's give one guy a lot more power. Doesn't have to be President Trump, but the presidency. And I think one of the things that you've got Going in China is the Communist Party is extraordinarily powerful. They can do a lot more than any party can do in the United States. Or are there benefits to that? And is there something to those who just the folks in the United States who just say, I've had it, I've had it, we are sclerotic, we need to clear away all this crap. And so bring me somebody who's going to go do that.
- [25:28]
Steve Ratner
So I don't want to come across sounding like I'm a Communist or on the payroll of the Chinese Communist Party or anything of the sort. I am an avowed Democrat, small D Democrat. But the Chinese system, you should be aware of how it works. It is, I'm sure, political in a sense, but very much meritocracy. Somebody like Xi starts out as a small town politician, the equivalent of a mayor or something like that. Then he becomes a county commissioner, comes up through the system, he eventually gets more and more responsibility. And again, while I'm sure there's internal politics within the Communist Party, they don't pick some former reality TV show host, failed real estate developer and say, hey, you're now in charge. The people who are running China are people who are A, engineers, as I said, a lot of them, and B, have been trained in the system for decades and have learned the system and know how to get stuff done. And so they just go and do it. Now, the U.S. we have our elections, which I'm in favor of. We have the system of checks and balances, which we all studied in school and why it exists and why Congress is the article one branch and all that stuff. But that said, and I know there's risks to it, right now we're seeing the risks to it. I personally am in favor of a stronger executive. I just think that we should have more of an attitude of you put somebody in the job, you give him four years. If he doesn't work, you fire him. Kind of the way a corporation works. They have boards of directors, but for the most part, CEOs get a chance to show that they can or can't do the job, and then they either get renewed or they get fired. Our system is Congress has an enormous amount of control over what the President can do and I'm not sure it always serves us well.
- [27:20]
Henry
So that is a fascinating statement and shows that there maybe isn't as much room between the two parties as there. One might think if we're all effectively saying we do need a stronger executive, we just have a difference of opinion about who it would be. Let's go into another example that I think is incredibly vivid about how China is winning. Another statistic from one of Tom Friedman's pieces is in 2000, the United States was producing three times as much electricity as China. Now China is producing at least twice as much electricity as the United States. And we're growing incredibly slowly, even though we have this huge AI boom and we know we need vast amounts of new electricity capacity. Talk about that. Why is that happening and what's happening in China and what could happen here that we could use to grease the wheels again?
- [28:10]
Steve Ratner
China, China basically sat down and said, we need more electricity. Let's go out and do it. And it's a kind of all of the above strategy. I think over half of the car sales in China now are EVs, so they're, they're not polluting, they're building nuclear. We have built, I think there's one nuclear plant in Georgia or one of the Carolinas that's still being constructed, but other than that, we have no nuclear coming online. And indeed, some that's being shut down. They're talking about restarting Three Mile island to provide power for data centers. So, you know, I think that, look, take nuclear. I think there's a general agreement, certainly a preponderance of people would say, yeah, nuclear should be part of the solution, but you can't get one permitted or built in any way that allows it to become economic. The regulatory burdens are so great that it's just not economic. And nuclear should absolutely be part of the solution. It should even potentially be the main part of the solution, because nuclear produces what's called baseload power, meaning it's always on 24. 7. Solar only works when the sun is shining. Wind only works when the wind is blowing. And so if you want to get out of the fossil fuel business, nuclear is by far our best option, in my opinion.
- [29:29]
Henry
And one thing it's incredibly frustrating to watch for folks who do want more power is what the Trump administration has been doing to renewables, which are actually one of the cheaper ways to bring new power online quickly. Going back to that, if the argument is actually, we do need the president to have a lot more power than he or she has, and we want a different president, how do you sell that to the Democratic Party, which is, yes, environment is important, but we're going to build a lot more nuclear plants and we're going to roll back regulation and make it much easier. That generally scares a lot of folks in the Democratic Party.
- [30:07]
Steve Ratner
The Democratic Party is at a bit of a crossroads. And I speak as not just a small D Democrat, but also big D Democrat. I've been involved with Democratic politics for a long time, and there is and has been now for a good while, really, since last 12 or 16 years. The rise of Bernie Sanders, Elizabeth Warren, a fight kind of going on for the heart and soul of the Democratic Party. Bill Clinton came in in 1992, took office in 93, as you know, and basically said the era of big government is over, and that's, for the most part, the way he governed. I would argue Obama, who I think was also a great president, essentially did the same thing. But since then, we've had this battle going on. And Biden was the moderate candidate in the primaries in 2020, but he governed much more like a progressive because I think he was concerned about the progressive wing and maybe having a primary fight if he ran again or at least having them sniping at him. And so right now, right now, this debate is going on inside the party. Do the Democrats want to be the party of. I know Jimmy Carter is not always thought of in a favorable light, but he was a very moderate Democrat. Bill Clinton, Barack Obama. Or do you want to be the party of Bernie Sanders and Elizabeth Warren and aoc? And we're going to find out in the next few years which it is. And you can, I'm sure, guess which one I'm rooting for.
- [31:35]
Henry
All right, so let's go to more of your solutions. You talked about how China has invested so much in STEM and the. Just the number of people graduating from their institutions and the incredible expertise in things like rare earths and so forth that we are basically ignoring. One of the things that's happening with the Trump administration is they're cutting a lot of government research funding. Is that. And what they would say, which I think a lot of people on both sides are starting to believe is, hey,
- [32:05]
Steve Ratner
we can't afford it.
- [32:06]
Henry
You know, we got a debt problem. And maybe it wasn't a problem 15 years ago, but now it's a problem. And so we just can't spend all that money. So talk about that, like, how do we build up that STEM capacity? And where does the money come from?
- [32:18]
Steve Ratner
Well, the president tried to cut all that spending, and unfortunately, the Congress essentially rejected most of his requests, and very little of it is actually going to get cut. But, you know, maybe a good analogy for all this was Sputnik. You know, we had what. I don't know if younger people have even heard this term we had in America what was called the Sputnik moment when the Russians got into space before we did in the late 1950s with their Sputnik spaceships. And so we basically turned on the afterburners and President Kennedy announced a goal to get to the moon by the end of the 1960s. We poured a lot of resources into NASA and lo and behold, we beat the Russians to the moon. Sputnik did provide that kind of wake up call. I, just, as I've been suggesting, I'm not sure in the case of China, I know what that wake up call will be that will be so dramatic that it'll cause us to really marshal government and be effective in a way that government here just hasn't been effective in a long time. But that's kind of what we need. Look, we, we, we have the money or we can borrow the money. And borrowing money to basically invest in your future is not a terrible thing to do, but it has to be used wisely.
- [33:27]
Henry
So you, with your finance expertise think we do have capacity, like we can actually borrow more. It's okay to invest in these long term projects.
- [33:36]
Steve Ratner
It's. Look, it's not great to borrow money, just like it's not great for any family to borrow money. But just take a small businessman. A small businessman goes out and borrows money to buy a new machine to produce a product more efficiently than he used to do it by hand or whatever, and then he generates more profits and he pays the money back. The same thing can exist here. We could go out and create a national pool of capital of $100 billion or $200 billion and go out and, and do some very productive things with it. But the STEM problem is not really a problem of money. It's really a problem of getting young Americans excited about the idea of becoming engineers again. And that has not been the American way for a good while. We've become much more focused on the liberal arts and other subjects.
- [34:27]
Henry
So. That's right, there is enough education capacity to radically increase the number of folks who go into stem. Or is that something we do need to address from the governments?
- [34:39]
Steve Ratner
Well, look, you would redirect some of it. In other words, you'd have, and I have nothing against being an English major, but you'd have fewer English majors and more engineering majors. And yeah, maybe it costs a little more to educate an engineer because you need labs and things than it costs to educate an English major, but that's not a huge difference. I mean, we could easily afford to educate a lot of engineers if we wanted to.
- [35:06]
Henry
When you look beyond the headlines at the trend lines, what is really going to matter? Even if you're not worried about AI per se, you certainly ought to be concerned. Do we have the cultural, you know, strength and resilience to get it right? Now, imagine we had to write a new constitution today, put aside AI. Like, how good a job do you think we would do? I'm John Finer. And I'm Jake Sullivan. And we're the hosts of the Long Game, a weekly national security podcast. This week, we're joined by economist and author Tyler Cowen. We discuss China, the AI race, and aliens. The episode's out now. Search for and follow the Long Game wherever you get your podcasts. So we embrace stem. We need to roll back regulation. Another thing that China is doing that we seem to be quite squeamish about here is really embracing AI. And what I'm struck by there is there seems to be panic, particularly among Democrats, but more broadly, just among younger people in particular, that AI is going to wipe out jobs. And yet China seems to be saying, yeah, well, it's the future. We got to go for it. We seem to be resistant to that. What do we do there?
- [36:18]
Steve Ratner
So there are two problems with AI, two potential risks with AI, one of which I have no particular expertise in, but I recognize it's a very serious problem, which is the problem about safety, kids, security, all those kinds of issues. Freedom of speech. So that's out of my pay grade. The economic piece of it, I will speak to and I'll say the following. There is no technological innovation in human history that I'm aware of, and nobody has contradicted me yet when I keep saying this that has not ended up resulting in more jobs rather than fewer jobs. AI is a huge enhancement of what we call productivity, which you can think of it as efficiency. How much work can I get done in a day? When we got the Internet and I stopped having to go to my bookshelf to look something up, that saved me an awful lot of time. I got a lot more work done. I was more productive. I added more to the economy. Same is true with AI. Instead of sitting there having to write computer code, you can now use a coding assistant and it'll write it for you. And is it going to be an impact on jobs? Absolutely. There's going to be an impact of jobs in the short run, maybe even in the medium run, as the economy readjusts itself to this new reality. But at the end of the day, AI makes the economic flywheel. Go faster, makes the economy grow faster, that creates more profits, which in turn becomes wages and capital investment. And the flywheel gets going. Some people call it the third or fourth industrial revolution. That's what it is.
- [37:51]
Henry
I agree completely on the history of technology innovation and what it does to the job market and interviewed Dean David Deming from Harvard, who studied all the tech transitions and says exactly the same thing. Many more jobs are ultimately created at the same time. As you say, there is a lot of disruption and certain jobs get phased out and folks who are experts in those jobs have to scramble and find something else to do. And so I do have a lot of sympathy, especially for the generation coming out of college now saying, like, it is unnerving to watch a lot of things that we all thought were going to be incredibly important and have been for decades. Suddenly they may not be that valuable anymore. So, so what do you tell young people to do today? What should I tell the folks who ask me, wow, what should I study? It was supposed to be coding or it was supposed to learn how to communicate. Now that doesn't matter anymore.
- [38:42]
Steve Ratner
We're still going to need a lot of software engineers. They're going to be doing different jobs than what they were doing before, but we're still going to need them at the moment. And this is more in the blue collar category. We need an enormous number of blue collar workers, trades, construction trades, to go build all these data centers and things like that. I know that's kind of a one time event, but it's going to be an important source of jobs. Look, I think there are two groups of people to worry about. One are the 50 or 55 year olds who may lose a job in all of this. And you're not going to retrain people at that stage of their careers. Realistically, that requires a strong social safety net. They will find other jobs, but they may be down a notch from what they were used to. We've got to take care of them. And then you have the ones you were alluding to, the kids coming out of college now. And in a way it's, and I don't want to be blase at all about this, in a way, it's not that different from a recession. You know, you have a recession and for a few years the job market is really tough and then the economy finds its footing. And I think that's gonna happen here.
- [39:43]
Henry
So going back to China, just to close, another thing that President Trump seems to be saying is, hey, yeah, I know you got great cars, just make them Here, and then we will be happy to buy them. And you don't have to have the big tariff wall. I think Tom Friedman says the same thing. We should have JVs. You mentioned that the way one of the ways China got so good at manufacturing was by doing JVs with our companies making the products, and then they learned how to make them and now they sell them to us. Is that a part of your solution?
- [40:15]
Steve Ratner
I think it can be a part of it. I think it's ironic Trump is saying that because once he removed a lot of both the incentives and the requirements that were helping our EV industry develop. As I said earlier, our EV industry has contracted. There's a battery plant in Kentucky that just closed. You know, we're going the wrong way on this stuff, not. Not the other way. Number two, to make a car or to make probably almost any product, but I know more about cars than many others. It's not just a car factory. You need a whole ecosystem. You need suppliers. You need batteries, obviously, but all sorts of other parts and services and technicians. It's just not a single plant. And we can do that, but it takes a long time and it requires a lot of help from government, which is what the Chinese EV companies. Chinese EV companies got. But we can't also ignore the fact that our costs are higher here, both because labor is more expensive and because we do impose more regulatory, appropriately, some more regulatory restrictions about how things are done here, the environment and worker safety and things like that. And frankly, and this is not something economists can put in their models, as I said in my piece, every time I go to China, I am just dazzled by the work ethic and the drive to succeed. I mean, these are people who just want to get rich, and they're obviously been getting rich at a pace unprecedented probably in human history.
- [41:45]
Henry
And from what I hear you saying, part of the solution here is that we kind of have to get that fire again, individually and as a country to compete or at least to fight our way through what is a challenging time, as opposed to waiting for the government to fix everything. At the same time, you say very clearly, clearly, you know, it's actually, we don't need Washington on the sidelines anymore. That's not going to work. So what specifically. And let's talk about the auto industry, because you're obviously an expert in that. What specifically should the government be doing to fix that and start to close the gap?
- [42:19]
Steve Ratner
I think the government's principal role is one of providing incentives and disincentives. And so, for example, we haven't raised the gasoline tax in this country in, I don't know, decades. And so therefore, if you were to raise the gasoline tax, and there have been proposals, nobody even proposes it anymore. But if you put a 50 cent, especially with gasoline being so cheap at the moment, if you put a 50 cent or a dollar tax on gasoline and use that money to help develop EVs, that would change the incentives. People would start to be more interested in buying EVs. If you simply got out of this business of stop start policies on EV tax credits or regulatory mandates that would give companies, companies need some certainty and they need some predictability to make investments. And they don't have any of that right now because of the way we've been lurching from left to right on our policies. So what we would really. And if I were a God, because even the President can't do this, you have to be God, I would lay out a clear roadmap, no pun intended, for the auto industry. Say, here's what we're going to achieve, here's what the government's going to do to help you. Here are the things we're going to do to encourage consumers to buy these cars and we're going to stick to it and we're not going to keep lurching policy back and forth.
- [43:40]
Henry
Is there any role for tariffs or trade policy, which is what President Trump seems to think it all comes down to?
- [43:46]
Steve Ratner
Yeah, there is. Obviously. Maybe not obviously, like anyone who's taken more than about three economics courses, I understand that tariffs are a tax, that trade is creates greater efficiency. But Alexander Hamilton was in favor of tariffs to protect our domestic manufacturing industries and get them started. So to use a tariff to get an industry started, as we're kind of doing with Chinese EVs at the moment, keeping them out, the idea was to keep them out so we can start building them. That's not the craziest thing in the world as long as we start building them. But if you just throw tariffs on for the hell of it, that doesn't accomplish anything. And that's kind of what we're doing at the moment.
- [44:27]
Henry
And what about trade policy? Because one of the things that I hear a lot from Silicon Valley, where there was a big surge of support for President Trump, was finally, finally somebody is standing up for the United States. China's been socking it to us for decades, and it was the whole WTO thing and these mistakes and so forth. Were mistakes made? And if so, what were they? And is there anything to the idea that, hey, if we get them back at the table and we do a good deal, that'll fix a lot of it.
- [44:57]
Steve Ratner
I don't think it's Silicon Valley that particularly believes those things. I think Silicon Valley did shift over to Trump, but it was more because they perceived Biden to be anti business, anti crypto, which is a big part of Silicon Valley these days, anti mergers and so on. But in terms of what you're framing is sort of, and as I say in the piece, one of the two alternatives that are being discussed are you got tariffs over here and you've got a more conventional. So let's sit down at the table and negotiate something kind of approach over here. The problem with the Chinese, and I see both sides of them, is they don't play by the rules and we let them into the World Trade Organization, we gave them most Favored nation treatment. And they're not free traders. I can't argue with that. They use trade policy as kind of a weapon in terms of subsidizing their industries. You can go back to when they were pirating our DVDs and things like that. So you have to be willing to use tariffs or import restrictions as a stick when there's really bad behavior, not just let me try to make this distinction. You don't use it because somebody's doing something better than you're doing it. You use it either because you think you can do it as well as they are and therefore it's this temporary lever, or because you think they're not playing fair.
- [46:18]
Henry
But, but I think what you just said is why President Trump has a lot of sympathy for this idea, which is that if the Chinese are not free traders, are we suckers to be having free trade with them? And in fact, did we need somebody to come in and be much more of a hard ass? Not that that's actually what's going on here.
- [46:38]
Steve Ratner
Yeah, but remember, President Biden put tariffs on some Chinese products as well, like washing machines, that where, you know, the concept is when products are being dumped, for example, sold below cost in another country just to get the orders. You should, you should. It's entirely appropriate to do something about that. But that's a surgical approach. It's not a, we're just going to put a 54% tariff on China or 120% tariff on China or whatever. And so that's the distinction I would make.
- [47:08]
Henry
Steve, let's leave it there. It's terrific. Thank you so much for your time and editorials, which are terrific. I hope you Have a great day.
- [47:14]
Steve Ratner
Thanks, Henry. Thanks so much. Nice to see you.