China vs. the World, Chips Tariffs, and Global Minimum Tax

Summary

---

The Trade Guys – China vs. the World, Chips Tariffs, and Global Minimum Tax

Date: January 20, 2026
Host: Alex Kisling
Trade Guys: Scott Miller (A), Bill Reinsch (B)
Produced by: CSIS (Center for Strategic and International Studies)

---

Episode Overview

This episode dives into three significant trade topics shaping headlines and policy discussions in early 2026:

• The latest exemptions to the Global Minimum Tax regime,
• The Trump administration’s new tariffs on advanced semiconductor chips,
• Rising diplomatic and trade tensions between China and Japan.

Scott Miller and Bill Reinsch bring their trademark wit and clarity, breaking down how these complex developments will affect global trade, U.S. economic interests, and the future of international economic governance.

---

Supreme Court Watch: IEBA Case Delay

[01:11 - 03:44]

• The hosts and guests open with updates on the long-awaited Supreme Court decision in the IEBA case, affecting the scope of presidential tariff authority.
• Bill Reinsch predicts a complex, possibly non-binary outcome:

  "I think what is happening is that the Chief justice...wants to get as big a majority as he can for whatever the decision is...I think the answer is going to be none of the above." [02:09]

• Scott Miller notes whatever the SCOTUS outcome, implementing any remedy will be “messy.” [03:09]

---

Global Minimum Tax – U.S. Carve-out and OECD Regime Breakdown

[03:55 - 14:29]

Background of the Global Minimum Tax

• This tax initiative aims to deter multinational corporations from shifting profits to low-tax jurisdictions, by setting a 15% minimum global rate.
• Bill Reinsch emphasizes the negotiation’s decade-long saga and multi-pillar approach:

  “The OECD...has long consisted of two parts. One part is how to allocate taxable income among different countries...Pillar two is an effort to prevent basically tax shopping by creating a global minimum corporate tax of 15%.” [04:54]

U.S. Exemption Deal

• The Trump administration secured an exemption for U.S. companies (nicknamed the “side-by-side agreement”), arguing domestic laws already enforce a comparable tax burden and worldwide system.
• Reinsch:

  “The message that it sends...is the same message that they're getting from most everything that Trump is doing on trade, which is the US is demanding special treatment.” [09:20]

Global Implications & Breakdown

• Scott Miller reflects on the fading postwar multilateral order, noting that tax policy is unique to national sovereignty:

  “Taxation is the province of the nation state. So this is one where they picked a very tough issue and it was kind of always likely to come apart.” [11:04]

• Both experts agree that exceptions for the U.S. create a “gaping hole” in the agreement—an outcome unwelcome to tax transparency advocates and possibly a future regret for the U.S.

• On Ireland’s unique role in driving international tax debates:

  “Ireland was attractive for a lot of reasons that had nothing to do with tax...well educated, well motivated, well trained workforce, speaks English...” (Reinsch) [13:16]

---

Semiconductor Tariffs: Selective Pressure on Chips and Supply Chain Strategy

[14:29 - 23:22]

New Tariffs and Rationale

• The administration announced a new 25% tariff on certain high-end computing chips (notably Nvidia H200, AMD MI series), especially those produced in Taiwan and intended for re-export to China.

• Tariffs aim to capture value and scrutiny over chips before they reach China; chips shipped for U.S. domestic use or manufacturing are exempt.

• Bill Reinsch summarizes the setup:

  “These chips...are not going to be exported directly from Taiwan...They're going to be detoured through the United States...we collect the tariff and...they're re-exported somewhere else.” [16:45]

Strategic Focus on Production over Consumption

• Scott Miller sees a major policy shift:

  “That's the tell. The tell is the President cares about production, not about consumption. He wants stuff made in this country.” [19:18]

• Supply chain exemptions strongly reward U.S. production and capacity, rather than penalizing American technology consumption.

Trade Agreement with Taiwan and Manufacturing Jobs Context

• The U.S. also concluded a trade agreement with Taiwan, lowering Taiwanese tariffs and expanding their semiconductor manufacturing in the U.S.
• Ongoing decline in U.S. manufacturing employment continues (down 72,000 jobs since Trump’s tariffs began), despite hopes that onshoring will reverse the trend.
• Miller:

  “We're specialized at the high tech high skill, part of the manufacturing segment so...” [21:47]

• Both experts highlight that increased output coexists with fewer U.S. manufacturing jobs due to technology and automation.

The “How Much Is Enough?” Quandary

• Bill Reinsch asks the critical question:

  “How much [chip production in the US] is realistic and viable? 50, 40, 20, 80? Nobody's answered that question, including the administration.” [22:48]

---

China-Japan Trade & Diplomatic Standoff

[23:22 - 30:13]

Sequence of Escalations

• Japan’s Prime Minister labeled a Chinese invasion of Taiwan as an existential threat, provoking Beijing’s ire.

• China retaliated with bans on certain Japanese dual-use exports, Japanese seafood, and customs slowdowns for Japanese goods like sake.

• Scott Miller contextualizes:

  “China is continuing export led growth...They have a new prime minister [in Japan] who is fairly hardlined on these issues...But this is Chinese behavior in a nutshell and it's going to be experienced not just the US but all of the world.” [24:13]

China’s Playbook of Economic Coercion

• Reinsch draws parallels:

  “It's another example...of Chinese economic coercion...they don't need to go to court, they just tell people at the border, don't let it in, or come up with some reason to keep it on the dock while the bananas rot...” [26:44]

• China demands an explicit apology from Japan on the Taiwan remarks—Japan refuses, echoing similar standoffs with Australia and Canada.

The Snap Election in Japan

• Japan’s PM is calling a snap election, likely seeking a stronger majority and public approval for her tough stance against China.
• Reinsch predicts:

  “If she does that and the LDP vote goes up and they have a stronger governing coalition, that only encourages her to hold firm.” [30:12]

---

Notable Quotes & Memorable Moments

• On the durability of multilateralism:

  “A lot of these organizations are falling apart as we speak...the post World War II whatever created the order is no longer a good view of how the world works.”
  — Scott Miller [10:20]

• On chip tariffs’ hidden incentives:

  “He wants productive capacity in the United States in key geostrategic industries. Yes, that is what the guy really wants.”
  — Scott Miller [22:34]

• On recurring trend in manufacturing jobs:

  “They peaked at 19.7 million in 1979. They've been going down ever since. They continue to go down, yes. As Scott and I have said on this on other occasions, we're still making a lot more stuff.”
  — Bill Reinsch [21:47]

• On China’s patience for diplomatic slights:

  “But they [China] don't have any tolerance or ability to ignore things and just say, well, you know, this is just rhetoric...the one China policy has some particular sensitivities...”
  — Scott Miller [28:27]

---

Key Timestamps

• SCOTUS/IEBA anticipation and delay: [01:11 - 03:44]
• Global Minimum Tax regime and U.S. exemption: [03:55 - 14:29]
• Semiconductor tariffs and U.S. production incentives: [14:29 - 23:22]
• China-Japan trade/diplomatic conflict: [23:22 - 30:13]
• Reflections on manufacturing jobs and automation: [21:24 - 22:48]
• Japan’s snap election in response to China standoff: [29:52 - 30:13]

---

Episode Tone

The conversation is pragmatic, occasionally humorous ("We are nothing if not simple." – Reinsch, [03:51]), and rich with trade nerd details. Both guests bring historic perspective and a dose of skepticism about grand global bargains or nationalist industrial policy, always striving to ground their analysis in real-world implications for policy, industry, and ordinary citizens.

---

For those seeking context on current global trade tensions and U.S. policy shifts, this episode is a must-listen—clear, candid, and full of sharp insight.

Transcript

[A]

I'm Scott.

[B]

I'm Bill. And we're the Trade Guys.

[C]

You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm Alex Kisling and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys. Thanks for listening to the Trade Guys. On today's episode, we break down recent changes to the Global Minimum Tax Regiment and examine the Trump administration's latest moves on semiconductor tariffs. Then we dive into the trade implications of ongoing diplomatic tensions between China and Japan. All that and more on today's Trade Guys, Bill and Scott. This is our first episode together in 2026, so a belated happy new year to both of you.

[A]

Welcome to another year with the Trade Guys.

[B]

Yes. Another year of fun. Yes.

[C]

And Bill, congratulations on the Bears making it to the second round of the playoffs. Although we are recording this on Thursday, so by the time our listeners hear this episode, we'll see if the Bears are still in contention.

[B]

Still time for them to lose, but it's a welcome development. Anyway, they look good.

[C]

They look good. So. Well, it's good to see everybody and great to have our audience back with us as we start a new year. Before we dive in, just want to give a quick programming note. We're all, of course, waiting on the Supreme Court's decision in the IEBA case. And once the court rules, whenever that happens, we'll have you covered with a special episode of Trade Guys analyzing the decision shortly after it's released. So stay tuned. And in the meantime, we'll keep hitting refresh on SCOTUS blog. Before we get into it, Bill and Scott, were you expecting a decision this week?

[B]

Well, we all were, sort of. We had a grand plan amongst Alex and Scott and I to do a emergency podcast yesterday to comment on the Supreme Court decision decision. And of course, they foiled that plan by not making a decision. And so here we are, going back on our regular schedule. I think what is happening is that the Chief justice having realized that this case, while its economic impact may actually be minimal for reasons we've discussed, because the terrorists will reappear in a different form, its impact on the constitutional relationship between the executive branch and the legislative branch could be really significant. And this could be a significant expansion of presidential powers or a significant contraction of presidential powers, depending upon how the court rules. So I think the Chief justice would like to get as big a majority as he can for whatever the decision is. I think unanimity is unlikely these days on the court. I don't think he wants five to four. I think he wants to get as many as he can. And of course, that means a good bit of time back and forth, looking at drafts, trying to get everybody on board. And that takes time, which I think explains the delay. The other thing it means is that this is likely to be a complicated decision and a lot of people have been approaching this from a standpoint. Well, the president's going to win or the president's going to lose. It's either all or nothing. And I think the answer is going to be none of the above.

[A]

Yeah, it started complicated and whatever the remedies might be will certainly be complicated. Unwinding anything or even, even adopting it and creating sort of new opportunities is going to be messy. So I'm at least using care at this stage is probably wise.

[B]

But for our listeners, we're going to be resolute and we will bring you, as soon as there's a decision, we will bring you our instant analysis of what it is and what it means, notwithstanding what Scott just said, we will attempt to overcome all the complexities and simplify it for you.

[C]

That's what we're here for. So our aim is to get it a special episode out the same day as a decision again whenever, whenever that happens.

[B]

So we are nothing if not simple. Yes.

[C]

Well, let's get into our discussion today. We have several good topics to cover, but I want to start with the recent news on the global minimum tax. Earlier this month, US Multinational corporations were granted exemptions from key parts of the global minimum corporate tax regime. The the deal was brokered through the OECD after the Trump administration pushed for carve outs for American companies. The administration, of course, welcomed the move, while critics argued it significantly waters down the landmark 2021 agreement that set a global minimum corporate tax rate of 15%. There's a lot to unpack here. It's a bit complex. Bill, walk us through how we got to this point and what this deal actually does.

[B]

I was for the earlier version, but I don't think what they've done is a disaster. But by any means, this is a negotiation that's been going on for more than 10 years. I remember dealing with it when I was running the National Foreign Trade Council in the teens. And the overall negotiation, which is being done at the Organization for Economic Cooperation and Development, the oecd, which is the organization of basically developed countries with a couple extras thrown in, has long consisted of two parts. One part is designed to deal with the question of how to allocate taxable income among different countries for companies that do business in multiple countries, some of which they don't have a physical presence. And there's been a lot of tax manipulation of that. There's two pillars of the agreement. That's pillar one. That's not nearly ready for primetime yet. Pillar two is what came up last week and this week. Pillar two is an effort to prevent basically tax shopping by creating a global minimum corporate tax of 15%. So companies over the years have gotten used to manipulating tax codes and setting up at least headquarters or some version of headquarters in a low tax country and booking their income in that country in order to take advantage of its lower taxes. That means countries where they're doing legitimate business and have their real presence are missing out on tax revenue. And it creates one of those many sort of races to the bottom as countries compete with each other to produce lower tax rates in order to attract business. Although oftentimes the business they attract is not always much more than a mail drop and a handful of employees. So trying to deter venue shopping is a good idea. The 15% minimum is reasonable. Countries can always tax more. There's never a constraint on that. And the idea was that countries, and there's I believe now 165 of them that are signing on to this particular deal, countries would agree to have a 15% tax and that would be enforced through two different pieces. A rule that allows the actual parent of the country where the parent company is located to collect a top up tax is what it's called when its subsidiaries are taxed below 15%. So if you have a sub. If you're an American company and you. Well, let's not use an American example for reasons we'll get to. If you're a French company and you have a subsidiary in Pakistan that's only taxing your subsidiary at 10%, the parent jurisdiction, which in this case is France, is allowed to assess a top up tax on that company, which is the difference between what they're paying, in this case Pakistan and 15. So it would be an additional 5% tax. The other rule that's an enforcement rule, lets other countries collect also the same tax differential when the parent and the local country are not taxing at 15%. The United States signed onto this and the Biden administration in the presence of Treasury Secretary Yellen at the time.

[C]

Yeah, this was Janet Yellen's baby.

[B]

Yes. It moved on to semi completion. Republicans in the Congress have always been very upset about this and they have threatened and ultimately backed down from because of Secretary Bessant's persuasion. They threatened what became known as a revenge tax, which would allow the United States to tax other countries an additional amount if they imposed this kind of tax. That created a lot of consternation in the investment community and a lot of opposition from all quarters. In the end, the Congressional Republicans dropped that based on Besson's commitment to make sure that the United States was exempted from pillar two of the oecd. What they're celebrating this week is that he achieved that goal and that the US Is now going to be exempt from pillar two. They've created what they've called a side by side agreement in which the US Is treated one way and everybody else treated a different way. Part of the US argument though, was that we have a 15% corporate tax. And because we have a worldwide tax system rather than a national tax system, we also tax our companies on their additional income beyond our borders. So our argument has been that our companies are already well taxed.

[A]

Right.

[B]

And there I think the US Has a point. At the same time, I'm sure this, the message that it sends to other countries is the same message that they're getting from most everything that Trump is doing on trade, which is the US Is demanding special treatment.

[C]

Well, I guess that's maybe. Scott, I'll turn it over to you. Are other countries going to try to get this treatment? And I mean, we've seen a lot of criticism from the tax transparency groups out there. Are those concerns overblown?

[A]

Look, there's a couple overall points to make. What you have is 15 to 20 years solid effort that just sort of fell apart at the end. And there's got to be some appreciation for why that that happened. I'm so old. I remember when they called this a program to stop unfair tax competition until all the businesses asked unfair to whom? And they didn't like the answer. So it just became about tax competition. But here you have sort of another one of our post World War II rules based order organizations. The OECD was formed in 1948. They originally were created to allocate the spending in the Marshall Plan. So it literally is a Marshall Plan organization, but was originally based in Europe, now is broader and over the years they've done some useful things. And now a lot of these organizations are falling apart as we speak. The post World War II whatever created the order is no longer a good view of, of how the world works. And you see the strains everywhere. However, fiscal policy is always the toughest thing for These groups to do tax policy is really held very closely. Even the euro area where they have common monetary policy, the member states control their own fiscal policy. We fought about with King George called taxation without representation. And so it's a sensitive issue. It's held by elected officials to be so there's an attachment to sovereignty because taxation is the province of the nation state. So this is one where they picked a very tough issue and it was kind of always likely to come apart. Now look, tax competition and tax arbitrage happens everywhere. To quote the great senator from Louisiana, chairman of the Senate Finance Committee was don't tax me, don't tax the tax the feller behind that tree. There was wisdom in that day from Senator Long and there's wisdom today in being careful because look, you can tell it by the U haul moving vans. Which states have higher taxes than others? That's the individual income tax. But moving to a low tax jurisdiction is possible if you're in America. There's a lot of it going on within companies. Some companies are governed by tax policy that taxes worldwide income, others only the territorial income. There's all kinds of competition within small businesses as to whether to be taxed on corporate rates or personal rates. The C versus S corporation. So it's all around us and it's hard to settle. It's certainly hard to discipline in a big sort of worldwide agreement. So good effort but I think it was probably always destined to fail.

[B]

I think the motivation for this comes from developed countries primarily high tech countries primarily. And as with many things in trade, it really is all about the money. Yeah, countries were missing out on revenue and in Europe it was driven by Ireland really which for years had a 10% corporate tax rate. It's now gone up. I think it's currently 12 and a half. Maybe it's they're going to raise it to 15 now they're supposed to but that made them the lowest rate within the EU and there was concern that that was going to drive investment toward Ireland. In order to take advantage of that, we actually, when I was at running the National Foreign Council we actually did a little bit event on this and one of the things we learned was that tax policy is only one of many, many reasons why companies decide to locate where they locate.

[A]

Right.

[B]

And Ireland was attractive for a lot of reasons that had nothing to do with tax. Well educated, well motivated, well trained workforce, speaks English more or less depends upon the how you cope with their accents. Fast growing economy, favorable regulatory environment. And I, I could tell you from personal contact with them. When I looked into this, a part of the government that really goes out of its way to attract companies and then make them feel welcome once they're there and to help them deal with red tape and, you know, local zoning problems and all kinds of things. The decisions are always more complicated. But you had a bunch of countries who were thinking we are missing out on tax revenue that we should be getting because our taxable entities are leaving and going somewhere else. That was the motivation. And I think the outcome, the 15% is a reasonable outcome. Now, I think from the standpoint of the tax wonks and the tax transparency people, an exception for the US Is kind of a gaping hole that they will regret and we may come to regret too. I think the fact that they've been able to get this far, at least on pillar two, is a significant accomplishment. I'm not as optimistic about pillar one, and I think that may go on for quite some time.

[C]

All right, well, let's turn now to news on the chips front. On Wednesday, the White house announced a 25% tariff on certain advanced computing chips, including Nvidia's H200 chips, which are produced in Taiwan and the chips that the administration recently approved for sale to China. The tariff doesn't apply to imported chips used within the US Tech supply chain, but instead targets chips that are imported and then re exported. With China very much top of mind, the step is more limited than what the White House had initially floated, which would have imposed broader tariffs on imported semiconductors. But the White House said in its announcement on Wednesday that it may yet still take steps to broaden the tariffs down the road. Bill, this is another complicated one. So tell us what's happening here and what's the strategy?

[B]

Well, I initially thought it was complicated and then I talked to some people who helped me understand it. So I think it's a little less complicated. The most important feature about it and the most, I think, worrying feature about it is, and Alex, you alluded to this is part two. What the president said yesterday is I'm doing one thing right now which I'll get to in a minute, which affects only basically advanced AI related chips. But I'm giving the Secretary Lutnick and Ambassador Greer 90 days to have further negotiations on this, following which there's going to be step two that will cover presumably other chips and also, and this was stated in the order derivative, meaning downstream products. And that's what's gotten everybody worried over the long term because the larger number of chips that come into the United States don't come in as chips. They come in embedded in other products, laptops, automobiles, your refrigerator, toasters, whatever. None of that is touched now. But there's a new 90 day deadline looming and we'll see how that develops and we'll be back on that. With respect to what he did yesterday, basically the chips are going on a detour is the basic point here. Instead of being shipped from Taiwan and these are For Nvidia, they're H200 chips and for AMD they're Mi CBX35 or something. I forget exactly the number. The order mentions those two specific chips. But then wonks on this want to get into it. There's an annex that's been published that lays out precise performance parameters that may end up including other chips as well. The deal is now that these chips, which the President separately has said can be permitted for export to China, are not going to be exported directly from Taiwan, where they're manufactured to China. They're going to be detoured through the United States and when they get to the United States, they're going to be inspected to make sure they are presumably h200 and not something else. And bis at the commerce Department will determine whether or not they can be shipped to individual end users in China. That was a separate order. BIS has changed its policy on these chips from presumption of denial to case by case review, which means Nvidia can come in basically customer by customer and ask for a license. Because they come here, they'll pay a 25% tariff. That's what the President imposed yesterday. And then they will be exported from here to other locations, probably China. But that may not be the only location. So that's how the United States basically gets a cut of the basically is taking a cut out of the transaction by insisting that they come here first, we collect the tariff and then they're re exported somewhere else. There is a large exemption, as Alex mentioned, for chips that are coming here for incorporation into data centers and a long list of other activities that go beyond data centers, let's put it that way. And I think other people who've looked at the list have had a lot of trouble figuring out what's not on the list. For example, data centers for repairs and replacements performed in the United States, for research and development in the United States for use by startups for non data center consumer applications in the US for use in non data center civil industrial applications in the US for use in US public sector applications and any other uses the Secretary determines contributes to the strengthening of the US Technology supply chain or domestic manufacturing capacity for derivatives of semiconductors. In other words, a long list of exceptions that probably includes just about everybody.

[A]

Yeah. Now what you have though is that's the tell. The tell is the President cares about production, not about consumption. He wants stuff made in this country. He wants productive capacity in the U.S. that's why the exemptions, because that creates the incentives to produce here. That's the way I read it.

[C]

Is this the right strategy, Scott, in your mind?

[A]

Well, it's a very different strategy.

[C]

Right.

[A]

The open market, free trade strategy. All the measures were about consumption, you know, growth rates and household income and those kinds of things, or consumption measures. And that led to an economy that the President argued on the campaign trail was hollowed out and we didn't make anything anymore, which is never really true, but I get the message. And he is focused entirely on the production of goods in the United States. So we're going to have to figure out how to measure it if we want to account for the policy and really understand how it's performing. But it's different the past.

[B]

There are two other data points worth noting. The U.S. also announced today the conclusion of a trade agreement with Taiwan, right?

[A]

Yes.

[C]

Can you give us the contours of that? Because that's just breaking right before we record here.

[B]

Well, yeah, I haven't had time to look at the contours, except to say that it takes their tariffs down to 15%, which makes them the same as Japan and Korea, which is what they wanted. It also commits them to a substantial expansion of their semiconductor manufacturing capability in the United States. And that relates directly to what Scott said. It's an effort to pump up the manufacturing capability here, even though it would be Taiwanese. In fact, the other data point on the other side is there's a piece in the Washington Post just today by David lynch that mentions the continuing decline in manufacturing unemployment in the United States. This is unemployment, not production. And Scott makes a good point about output. It continue to increase, but in terms of manufacturing jobs, we now are employing 72,000 fewer manufacturing jobs today than when Trump announced his Liberation Day tariffs.

[C]

Interesting.

[B]

So we've had basically a eight month decline down to 12.7 million people in manufacturing their jobs today. To put it in context, they peaked at 19.7 million in 1979. They've been going down ever since. They continue to go down, yes. As Scott and I have said on this on other occasions, we're still making a lot more stuff.

[A]

Yeah, we're specialized at the high tech high skill, part of the manufacturing segment so.

[C]

Well, that 72,000 fewer jobs, I mean, to be fair to the administration, that's just continuing a trend, is it not? Or is that.

[A]

Yeah, it's a very, very long Trend.

[B]

Sure.

[C]

Right.

[A]

50 years.

[B]

It's not bucking the trend. I think you pointed the article, and I think the people who watch this more closely than we do, I think would argue that the trend is not likely to change because a lot of the manufacturing jobs that we're talking about are going to be robot assisted or IA assisted. So the idea that we're going to go back to 19.7 million, which is not something that Trump ever said we were going to do, but that's a fantasy. I think you're going to see continuing declines in the sector as far as jobs are concerned.

[A]

But he wants productive capacity in the United States in key geostrategic industries. Yes, that is what the guy really wants.

[B]

That may be attainable, but then ultimately it raises the question of how much is enough.

[A]

Right.

[B]

You know, I don't think that anybody believes that being able to produce 100% of our chip needs is realistic or viable. So how much is realistic and viable? 50, 40, 20, 80? Nobody's answered that question, including the administration.

[A]

I don't think anybody's asked it. So you may be the first there, Bill.

[C]

We're asking it now.

[B]

Well, I'm asking it and I'm demanding an answer.

[C]

Somebody give Bill an answer here.

[B]

Somebody. They need to figure this out.

[A]

I'm a taxpayer. I demand for an answer.

[B]

All right.

[C]

Well, let's close out today by taking a look at recent developments between China and Japan. Over the past several months, we've seen a series of, well, let's call them spats, with tensions flaring on multiple fronts. Most notably, the relationship took a turn after the Japanese prime minister said in November that Chinese invasion of Taiwan would be, quote, a situation threatening Japan's survival. Beijing has reacted sharply in response. Earlier this month, China moved to ban certain dual use exports to Japan or items with both commercial and military applications. And we've also seen some other measures, including the suspension of Japanese seafood imports and delayed customs clearance for Japanese sake, Bill's favorite drink. So, Scott, bring us up to speed here. Are we looking at a short term flare up? Is this going to risk spiraling further? And surely you'll have a view on the broader implications here.

[A]

Well, if you skipped last week's podcast, which a lot of people were out of the office, we understand. I'm happy that for those of you who listen and subscribe. And there are a lot of podcasts I subscribe to that I don't listen to all of them, so you're forgiven. But we discussed with the compliance guys about what the themes of the year would be. One of them was POTUS versus scotus. A second is United States versus Canada, Mexico you smack up being negotiated. The third is about tariffs, whether we have revenue versus growth or inflation. And the last one was China versus everybody else in the world. And that seems to be the story here. Look, China is continuing export led growth. The US and China have both decided it's in their individual interest to decouple. So that is happening. China's exports are finding its way to a lot of places but they're still running an economy that instead of 70% of output being consumed domestically, about 40% is. They're still running economic relations with neighbors that deal very harshly with any variance from the foreign policy line like Japan has been receiving. This treatment is going all over the world. It's not just the United States. Japan is an important ally to the United States. They have a new prime minister who is fairly hardlined on these issues.

[B]

Yeah.

[A]

Which she's entitled to be. That's her party's view. It's a tough spot. But this is Chinese behavior in a nutshell and it's going to be experienced not just the US but all of the world.

[C]

Is there any, just strategically, any real, just talking about Japan, any real risk to China's economy through these measures or are they they pretty insulated. This doesn't really have that much of an impact.

[A]

Well, there are a lot of Japanese investors in China. A lot of foreign investment that has the nationality of Japanese company in China. But that's not really a risk. These things drag on. So for instance there's a very specialized chemical used in the production of silicon chips that now there's an anti dumping countervailing duty case being developed which that'll bog down the company. Now chemicals dumping cases aren't unusual. In fact, after steel, the most FEQA product subject to anti dumping countervailing duties is chemicals. So each one on its own is feels like the usual business. But slowing import inspections, you know, outright bans or tariffs on sake or whatever it might be. It's a fairly harsh but consistent and frequently observed foreign policy tactic.

[B]

Right.

[C]

Bill, your take?

[B]

Well, I don't think banning sake or terrorists on sake is going to destroy Chinese culture or Japanese for that matter. I think bow Thai may still be the drink of choice there or the hard liquor of choice there. Although under Xi Jinping, you know, there's been a drift away from big banquets where everybody gets drunk. But it's another example of which we've seen many over the years of Chinese economic coercion. And they really are fine practitioners of this art. They know what to do. They have a system which, because it's not really rule of law based, they don't need to go to court, they don't need to get orders. They just tell people at the border, don't let it in, or come up with some reason to keep it on the dock while the bananas rot, or. Which is what they did to the Philippines a while a few years ago. Their philosophy on this is actually very similar to Trump's philosophy, which is, we're big, the rest of you are small, and we can do what we want.

[A]

Yep.

[B]

And that's what they're doing to the Japanese. Now, the new prime minister, Prime Minister Takichi, is, as Scott said, has a harder line on these things. And it'll be interesting to see what, you know, what she does. In a way, she kicked the whole thing off by making a remark about what Japan might do in the case of the Chinese invasion of Taiwan that irritated the Chinese.

[A]

That's to put it mildly.

[B]

To put it mildly. And which previous Japanese governments had not made. So it was a new thing in a way. And China has no, I don't want to say no sense of humor, because that's not really a hubris issue. But they don't have any tolerance or ability to ignore things and just say, well, you know, this is just rhetoric.

[A]

Plus, it was about one China. The one China policy has some particular sensitivities, much like Russia and the near abroad.

[B]

Yes.

[A]

Much like the Monroe Doctrine here. Okay. There are some things considered essential of their nearby interests.

[B]

You know, if I were giving them advice, it would be just say, let it go. You know, they're not going to do anything. Let it go. But the Chinese can't and won't for the reason Scott said. So it's turned into this big thing, and it'll be interesting to see how it. It unravels because the Japanese are not showing any interest in retracting her remarks, which is what the Chinese are demanding. Basically, they want an upfront apology. It doesn't sound like they're going to get it. The Chinese are showing no inclination to back off the various steps that they've taken. We've seen this movie before with Australia. We saw it in Canada, you know, when the hallway executive was detained in Canada, even though that was at U.S. behest. She was detained by Canadians in Canada.

[C]

Right.

[B]

That soured relations for years. Only now, really, Prime Minister Carney is there. Well, he was there yesterday. I guess he's still there today, trying to repair things. Once these things happen, it takes years to get back to normal. So Japan may be in for a difficult relationship with China for quite some time to come. And on top of that, the Japanese prime minister just announced she's going to call a snap election.

[C]

Snap elections. Right.

[B]

On February 8th to try to increase her majority, feeling that she's got public support, support for the position she's taken, including this one. So it'll be interesting to see what happens. I mean, if she does that and the LDP vote goes up and they have a stronger governing coalition, that only encourages her to hold firm.

[A]

Yeah.

[C]

She's not going to be apologizing. Yeah.

[A]

Oh, who needed a Supreme Court decision? We got through the podcast without it.

[C]

It's been a hell of a start to 2026.

[B]

Every day there's a new. A new development.

[C]

Every day. Every day. Well, guys, it is great to be back with you as we start the new year again. We'll be waiting for the Supreme Court to make a decision and we'll be out quickly with an episode after that if there is nothing. In the meantime, we'll continue on our regular schedule and look forward to being with our audience again for the next episode of Trade. Guys, see you later.

[A]

Bye now.

[B]

Thank you.

[C]

You've been listening to the tray guys, a csis podcast. For more audio content, visit csis.org podcasts. Thanks for tuning in.