The New Age of Making Stuff (or Pretending To)

Jacob Shapiro: 00:00:03

Hello, listeners.

Jacob Shapiro: 00:00:04

Welcome to another episode of Geopolitical Cousins.

Jacob Shapiro: 00:00:07

Uh, I am Jacob.

Jacob Shapiro: 00:00:08

Marco is coming.

Jacob Shapiro: 00:00:09

Uh, this was a really great episode.

Jacob Shapiro: 00:00:11

We spend a couple minutes welcoming our new listeners, uh, explaining

Jacob Shapiro: 00:00:14

what this podcast is, why you should continue listening to us

Jacob Shapiro: 00:00:16

and share it all with your friends.

Jacob Shapiro: 00:00:18

Then we spend most of the podcast debating tariffs and globalization.

Jacob Shapiro: 00:00:22

Uh, Marco takes the pro-globalization point of view.

Jacob Shapiro: 00:00:25

I take the devil's advocate position of the anti-globalization view, and then at

Jacob Shapiro: 00:00:28

the end we debate each other's points.

Jacob Shapiro: 00:00:30

Imagine that two people debating two sides of an issue and then coming

Jacob Shapiro: 00:00:33

together and talking about it.

Jacob Shapiro: 00:00:34

Um, and then at the very end we talk about Operation Spider's Web, the

Jacob Shapiro: 00:00:38

Ukrainian drone strike on Russia.

Jacob Shapiro: 00:00:40

Russia's use of drones in that conflict and what that means about the

Jacob Shapiro: 00:00:42

future of war and power in general.

Jacob Shapiro: 00:00:45

Um.

Jacob Shapiro: 00:00:46

This.

Jacob Shapiro: 00:00:46

I mean, I love always talking to Marco.

Jacob Shapiro: 00:00:48

This is my favorite episode so far of what we've done.

Jacob Shapiro: 00:00:50

It feels like we're really hitting our stride.

Jacob Shapiro: 00:00:51

I hope you agree.

Jacob Shapiro: 00:00:52

I hope you share this podcast widely with anybody you think that would

Jacob Shapiro: 00:00:55

be interested in listening to it.

Jacob Shapiro: 00:00:57

And thank you so much to the people who write in to give us constructive

Jacob Shapiro: 00:01:00

feedback, constructive criticism, uh, or questions that you want answered.

Jacob Shapiro: 00:01:05

Uh, we read everything.

Jacob Shapiro: 00:01:06

We try and hit everything, and we'll continue to do so.

Jacob Shapiro: 00:01:08

Or you can email me at jacob@jacobshapiro.com.

Jacob Shapiro: 00:01:10

I make sure that the emails get to Marco as well.

Jacob Shapiro: 00:01:13

And eventually we'll set up an email address just for the podcast.

Jacob Shapiro: 00:01:15

Okay.

Jacob Shapiro: 00:01:16

Enough of that.

Jacob Shapiro: 00:01:16

Let's get to the show.

Jacob Shapiro: 00:01:17

We'll see you at the day.

Jacob Shapiro: 00:01:24

Marco, how's it going?

Marko Papic: 00:01:25

It's, it's going great.

Marko Papic: 00:01:26

It's going great.

Marko Papic: 00:01:27

Um, just very busy.

Marko Papic: 00:01:29

Haven't traveled in a while, so that's good.

Marko Papic: 00:01:30

So we're not doing this from the road.

Jacob Shapiro: 00:01:34

Uh, same with me, but the travel kicks into gear next week for me.

Jacob Shapiro: 00:01:37

I don't know when you're back on the road next, but,

Marko Papic: 00:01:39

uh, like, yeah, like a week and a half from now.

Marko Papic: 00:01:42

Um, but yeah.

Marko Papic: 00:01:43

So one, one thing that I thought was good, we do have a lot of new listeners.

Marko Papic: 00:01:48

Um, maybe it's a good opportunity to kind of restate why you should listen to us.

Marko Papic: 00:01:54

I actually, uh, yeah, I went to get a haircut, you know, and uh, my guy who

Marko Papic: 00:01:59

cuts my hair, uh, who is awesome, Jason Laura out there on Montana Street.

Marko Papic: 00:02:05

Shout outs to this is, this is the hair that he's produced.

Marko Papic: 00:02:08

Oh, he's gonna be very mad at me 'cause I didn't style it.

Marko Papic: 00:02:11

Um, so, uh, Lux lab studio over on Montana Streets in Santa Monica.

Marko Papic: 00:02:17

But yeah, so, um, he was like, Marco, Marco.

Marko Papic: 00:02:19

We

Jacob Shapiro: 00:02:19

just, we just, we just lost all the manly listeners from

Jacob Shapiro: 00:02:22

the last episode that we're like, oh, you're coming to learn about manliness.

Jacob Shapiro: 00:02:24

And here we are talking about your hairdo.

Jacob Shapiro: 00:02:26

Like, come on,

Marko Papic: 00:02:26

man.

Marko Papic: 00:02:27

Yeah.

Marko Papic: 00:02:27

My, my hair is done at a place in Montana Streets that is, uh, if you

Marko Papic: 00:02:31

don't, if you don't Santa Monica, you've just lost all respect for me.

Marko Papic: 00:02:34

But, um, so he asks, why would anybody listen to, you know, like, who's this for?

Marko Papic: 00:02:41

And so it's not for our clients.

Marko Papic: 00:02:43

So that's, that's the first thing.

Marko Papic: 00:02:45

Uh, this is really, we're not here to give investment advice.

Marko Papic: 00:02:50

We're not here to get really deep into markets, which is what we do for a living.

Marko Papic: 00:02:54

Um, but my answer to Jason was like, well, it's actually for

Marko Papic: 00:02:57

you, you're the target audience.

Marko Papic: 00:03:00

Uh, it's somebody who's just casually, you know, like they're

Marko Papic: 00:03:03

professional at their own craft.

Marko Papic: 00:03:05

They spend a lot of time perfecting that craft, whatever that may be.

Marko Papic: 00:03:08

Maybe you're a hairdresser, maybe you know, you're an accountant, maybe

Marko Papic: 00:03:12

you're a lawyer, maybe you're a doctor, maybe you're a manufacturing worker.

Marko Papic: 00:03:16

This mythical unicorn creature that America apparently has lost,

Marko Papic: 00:03:21

whatever it is that you are, uh, this podcast is really for you.

Marko Papic: 00:03:25

This is not for investors, which is our normal clients.

Marko Papic: 00:03:27

And the purpose of this is really just to, uh, give you a sense of what we think

Marko Papic: 00:03:32

is going on in the world so that we can inform you so that you don't have to go

Marko Papic: 00:03:36

to some, you know, lunatic on YouTube.

Marko Papic: 00:03:39

Um, now his answer, his question to me was like, okay, but what makes you special?

Marko Papic: 00:03:45

You know?

Marko Papic: 00:03:45

And what makes I think US special is two things.

Marko Papic: 00:03:48

One, we were trained in the Art of Net assessment.

Marko Papic: 00:03:52

Uh, weighing all sorts of, uh, variables in order to get to an

Marko Papic: 00:03:56

answer, uh, on the geopolitical side.

Marko Papic: 00:03:59

But the other issue is that for the most part, we work for investors.

Marko Papic: 00:04:02

And the reason that that matters is because our clients just wanna make money.

Marko Papic: 00:04:08

And that washes us away of biases as much as anything will.

Marko Papic: 00:04:15

Because what that means is that we're not trying to pick who's gonna win or lose or

Marko Papic: 00:04:20

who's right or wrong, for the most part, uh, we're anchored by like, Hey, what's

Marko Papic: 00:04:24

gonna happen in the world so that somebody can make money off of that forecast?

Marko Papic: 00:04:29

Now, that sounds very callous and Glip, and I get it.

Marko Papic: 00:04:32

I know it does.

Marko Papic: 00:04:34

It really does.

Marko Papic: 00:04:34

But the fact that that is what we do professionally makes us as close to

Marko Papic: 00:04:41

objective as it gets, you know, it's as it is, it's as close as it's gonna get.

Marko Papic: 00:04:46

Now, obviously you might say, well, that's a bias of itself, right?

Marko Papic: 00:04:50

You guys are just focused on how to deliver a future that

Marko Papic: 00:04:53

somebody can trade off of.

Marko Papic: 00:04:55

Therefore, you are pro investment ProfIn, world, plural, business world

Marko Papic: 00:05:00

and like, yeah, that is correct.

Marko Papic: 00:05:02

And if you are an ardent Marxist, you probably should not listen to us,

Jacob Shapiro: 00:05:08

uh, or where you at, or you absolutely should because nowhere

Jacob Shapiro: 00:05:11

else are you gonna find intelligent.

Jacob Shapiro: 00:05:13

Uh, sort of materialistic based, uh, interpretations of what's going on in

Jacob Shapiro: 00:05:17

history, uh, going forward, because both of us were trained in that world

Jacob Shapiro: 00:05:20

too, and probably took the best parts of that and integrated into our analysis.

Jacob Shapiro: 00:05:23

But I think it's not about bias, it's about accountability.

Jacob Shapiro: 00:05:26

Um, the, the, the fact that our feet are held to the fire if our decisions

Jacob Shapiro: 00:05:29

are made wrong with some of our clients, uh, means that no, we are actually

Jacob Shapiro: 00:05:33

held accountable when we're wrong.

Jacob Shapiro: 00:05:35

We don't get to just sell our next book or pretend like the thing that we said

Jacob Shapiro: 00:05:38

didn't happen and make the next video.

Jacob Shapiro: 00:05:40

It's like, no, like probably if you or I make a really big mistake, uh, we'll have

Jacob Shapiro: 00:05:44

to cancel the next podcast 'cause we'll be with our clients for the next three weeks.

Jacob Shapiro: 00:05:47

Like backing out of the mistake and understanding, uh, what is coming next.

Jacob Shapiro: 00:05:50

I was actually talk my, I was talking about this with my wife last night

Jacob Shapiro: 00:05:53

'cause she said jokingly to me, I don't understand 90% of the stuff you

Jacob Shapiro: 00:05:57

guys are talking about on the podcast.

Jacob Shapiro: 00:05:58

And I said, thank you for telling me that.

Jacob Shapiro: 00:06:00

'cause then we're actually doing it wrong.

Jacob Shapiro: 00:06:02

It is meant for you to understand it like we are trying to be.

Jacob Shapiro: 00:06:06

Entertaining without dumbing shit down.

Jacob Shapiro: 00:06:08

So we wanna explain things plainly so that anybody out there can listen to things.

Jacob Shapiro: 00:06:13

And then also we wanna make it a little bit entertaining.

Jacob Shapiro: 00:06:15

A lot of the analysis in this space can be very dry because

Jacob Shapiro: 00:06:18

it's pretending to be objective.

Jacob Shapiro: 00:06:19

Whereas you and I are comfortable that we're objective because we know where our

Jacob Shapiro: 00:06:23

money is printed and what's gonna happen.

Jacob Shapiro: 00:06:24

We don't need to like put on a tie and say all this stuff to be objective.

Jacob Shapiro: 00:06:28

Um, well that, yeah.

Jacob Shapiro: 00:06:30

Jump in.

Jacob Shapiro: 00:06:30

That I can tell.

Jacob Shapiro: 00:06:30

You wanna jump in?

Marko Papic: 00:06:31

No.

Marko Papic: 00:06:31

Hold that thought.

Marko Papic: 00:06:32

I think that's also important.

Marko Papic: 00:06:33

Uh, I don't wanna be a member of the cfr.

Marko Papic: 00:06:35

I couldn't give a shit.

Marko Papic: 00:06:37

Yeah, I don't wanna, I don't wanna, uh, I don't wanna be the under Secretary

Marko Papic: 00:06:40

of State for Eurasian affairs.

Marko Papic: 00:06:42

You know, that train has passed.

Marko Papic: 00:06:44

I work in finance, I work for investors.

Marko Papic: 00:06:47

That is my bailiwick.

Marko Papic: 00:06:49

And that's where my bread is buttered.

Marko Papic: 00:06:50

But it also means that.

Marko Papic: 00:06:53

You know, we're not trying to curry favor with, um, any administration

Marko Papic: 00:06:57

or angle for some public sector job because that would, uh, mean a massive

Marko Papic: 00:07:02

pay cut for both of us, like massive.

Marko Papic: 00:07:05

Um, so because of that, I think you should listen to us because, uh, this

Marko Papic: 00:07:11

is as close to objective as gonna get.

Marko Papic: 00:07:13

I mean, you know, it's as close to a nihilist, you know, zero Fox given

Marko Papic: 00:07:19

analysis on geopolitics as you're gonna find anywhere out there.

Marko Papic: 00:07:23

Um, and it also means that we, you know, take both sides or three sides

Marko Papic: 00:07:28

or multiple sides, uh, and, and keep their feeds to the fire as well.

Marko Papic: 00:07:33

So, um.

Jacob Shapiro: 00:07:35

Yeah.

Jacob Shapiro: 00:07:35

And I, and I think that's all nice, and I agree with all that, and that's how I,

Jacob Shapiro: 00:07:38

I put myself to sleep at night, Marco.

Jacob Shapiro: 00:07:39

But the real answer to this question, the real answer to why you should

Jacob Shapiro: 00:07:43

listen to us is very, very simple.

Jacob Shapiro: 00:07:46

Because you like us and because you trust us.

Jacob Shapiro: 00:07:50

And it took me a long time to get comfortable with the fact that the

Jacob Shapiro: 00:07:53

thing that there was about me that made people wanna listen to me was that I

Jacob Shapiro: 00:07:56

engendered trust, that I made people feel like I knew what I was talking about,

Jacob Shapiro: 00:08:00

and I was addressing their concerns.

Jacob Shapiro: 00:08:01

About 90% of what you learn from the things that you hear on a daily basis,

Jacob Shapiro: 00:08:06

you will forget within 24 hours.

Jacob Shapiro: 00:08:08

Most of the beautiful pearls of insight you hear on this podcast, you will not

Jacob Shapiro: 00:08:11

remember them, but you will remember how you felt in the moment that you

Jacob Shapiro: 00:08:14

were listening to them and the entire game here with the guy who's cutting

Jacob Shapiro: 00:08:18

your hair or anybody else, the reason you, you know, you come for the,

Jacob Shapiro: 00:08:21

oh, I want the objective analysis.

Jacob Shapiro: 00:08:23

I wanna stay on top of things.

Jacob Shapiro: 00:08:24

I can say things, but you stay honestly for some intangible chemistry reason.

Jacob Shapiro: 00:08:28

Because you like us and it feels dirty to say that, but that's honestly it.

Jacob Shapiro: 00:08:32

Like that's the difference.

Jacob Shapiro: 00:08:33

And the thing that you and I are trying to do is we are trying to be

Jacob Shapiro: 00:08:35

personalities that you can like and that are entertaining, but maintain

Jacob Shapiro: 00:08:40

analytical and intellectual integrity.

Jacob Shapiro: 00:08:42

And it's really hard to have both.

Jacob Shapiro: 00:08:44

The media ecosystem is littered with people who are just gonna

Jacob Shapiro: 00:08:47

entertain you and tell you stuff and make you feel particular things.

Jacob Shapiro: 00:08:50

And it's also littered with people who are very, very down in the weeds and

Jacob Shapiro: 00:08:53

can tell you probably better than us on a lot of the things we talk about, like

Jacob Shapiro: 00:08:56

all the nuances and things like that.

Jacob Shapiro: 00:08:58

But combining those two things being entertaining, but like analytically.

Jacob Shapiro: 00:09:04

Rigorous at the same time.

Jacob Shapiro: 00:09:05

Like that is the secret sauce.

Jacob Shapiro: 00:09:07

And I think, you know, our, our humor in making fun of each other and being

Jacob Shapiro: 00:09:10

willing to take the other sides of issues, all of that sort of plays into it.

Jacob Shapiro: 00:09:12

But I think that's the real answer to your, your guy.

Jacob Shapiro: 00:09:15

It's, you know, why do, why do you go to him to get your hair cut?

Jacob Shapiro: 00:09:18

Probably 'cause you like him.

Jacob Shapiro: 00:09:19

Like, that's, well, actually probably why you interact with people.

Marko Papic: 00:09:21

Yeah.

Marko Papic: 00:09:22

I'll tell you why.

Marko Papic: 00:09:22

He's the only guy that, uh, convinced me that maybe I should not get a

Marko Papic: 00:09:26

buzz cut every single time I go.

Marko Papic: 00:09:30

It's, it's very funny.

Marko Papic: 00:09:31

Uh, which is, which is funny thing about professionalism sometimes.

Marko Papic: 00:09:34

It's not about having the skill to actually craft a piece of

Marko Papic: 00:09:38

art that makes you an artist.

Marko Papic: 00:09:40

Sometimes it's being able to convince your patron that that's

Marko Papic: 00:09:45

the art that needed to be made.

Marko Papic: 00:09:47

You know?

Marko Papic: 00:09:47

And I think that that's, that's like next, that's like 3D step of professionalism.

Marko Papic: 00:09:51

But anyways, uh, enough about Jason Lara, the best hairdresser

Marko Papic: 00:09:55

on Montana Street in Santa Monica.

Marko Papic: 00:09:57

And by the way, I. If he's listening to this, like, you know, like,

Marko Papic: 00:10:01

where's I, I need a discount code, geopolitical cousin, discount code.

Marko Papic: 00:10:05

But I think it does concern me that your wife said that 90% of what we talk

Marko Papic: 00:10:10

about, um, she, she didn't understand.

Marko Papic: 00:10:13

Because you're right.

Marko Papic: 00:10:13

Uh, first of all, your wife, uh, is, is a professional.

Marko Papic: 00:10:18

Uh, she knows her stuff.

Marko Papic: 00:10:19

So we need to, I think, um, I think we need to definitely

Marko Papic: 00:10:23

heed that, uh, criticism.

Marko Papic: 00:10:26

To that end, we do have a topic today, uh, that we decided to kind of debate,

Marko Papic: 00:10:30

uh, and, and we wanna simplify it.

Marko Papic: 00:10:31

I mean, tariffs, we just wanna talk tariffs, we wanna talk globalization,

Marko Papic: 00:10:35

we wanna talk trade, um, and, uh, we want to talk about it, uh, in a way

Marko Papic: 00:10:40

that will be approachable for everyone.

Marko Papic: 00:10:41

Yeah.

Marko Papic: 00:10:42

So, um, I, I wanna make a case here.

Marko Papic: 00:10:46

Um, I, I wanna jump in straight into this and, and I just wanna say

Marko Papic: 00:10:50

that, um, I. There are ways in which President Trump's policy makes sense.

Marko Papic: 00:10:56

There's ways in which it doesn't.

Marko Papic: 00:10:58

Um, is it cool if I just start, uh, my bit here, Jacob?

Marko Papic: 00:11:03

Or did you wanna set it up in any way?

Jacob Shapiro: 00:11:05

I'll set it up just a little bit and we're, we'll come

Jacob Shapiro: 00:11:07

back to Ukraine at the very end then.

Jacob Shapiro: 00:11:08

So we'll, we'll move things around a little bit.

Jacob Shapiro: 00:11:09

So the, the bit that we're just gonna set up is, if you didn't listen to our

Jacob Shapiro: 00:11:12

last episode, we were talking about sort of the crisis of, of masculinity

Jacob Shapiro: 00:11:17

and of social economic issues inside of the United States in particular.

Jacob Shapiro: 00:11:21

And we got an email from a mutual friend, shout out to Tim, uh, you

Jacob Shapiro: 00:11:25

know, who you are, who is working in a space where he was actually pushing

Jacob Shapiro: 00:11:29

back and saying, you know, I work with.

Jacob Shapiro: 00:11:31

You know, a lot of in manufacturing and industrial construction trades, et cetera.

Jacob Shapiro: 00:11:35

And actually they've seen business pick up to the tune of, in his

Jacob Shapiro: 00:11:39

words, the most we've ever seen.

Jacob Shapiro: 00:11:41

And so he was kind of pushing back against some of our views that, you know,

Jacob Shapiro: 00:11:43

manufacturing that's like the old game.

Jacob Shapiro: 00:11:45

Like you don't necessarily wanna do that.

Jacob Shapiro: 00:11:47

Um, and so what we decided to do is take a step back and Marco's really

Jacob Shapiro: 00:11:50

gonna argue a pro-globalization, like extend, uh, what he's talking

Jacob Shapiro: 00:11:54

about and talk very simply, you know, what are tariffs, why are they bad?

Jacob Shapiro: 00:11:57

Like, and then, uh, I have the, I have the, the task of being the

Jacob Shapiro: 00:12:01

devil's advocate and pushing back.

Jacob Shapiro: 00:12:03

So Marco, I, I thought what we would do is I might just give you like six

Jacob Shapiro: 00:12:06

or seven minutes and say, all right, make the case in six or seven minutes.

Jacob Shapiro: 00:12:09

I'll have six or seven minutes, and then we can like, go back and forth, like make

Jacob Shapiro: 00:12:12

it almost like a little mini crossfire type exercise, if that sounds good.

Marko Papic: 00:12:16

Yeah.

Marko Papic: 00:12:17

Cool.

Marko Papic: 00:12:17

No, no problem.

Marko Papic: 00:12:18

And first of all, I wanna start off by saying here's, uh, two, two

Marko Papic: 00:12:21

reasons why tariffs do make sense.

Marko Papic: 00:12:24

So there are two ways in which tariffs would make sense and um, I definitely

Marko Papic: 00:12:29

would basically support them.

Marko Papic: 00:12:31

Uh, first and foremost, foremost, national security does matter.

Marko Papic: 00:12:35

Uh, if you don't have steel, you don't have a country as President

Marko Papic: 00:12:38

Trump has famously said so.

Marko Papic: 00:12:41

Sure, yeah.

Marko Papic: 00:12:42

There are some industries that should be geographically located

Marko Papic: 00:12:47

within your, uh, country.

Marko Papic: 00:12:50

Now, the problem with focusing on steel is that America doesn't import Chinese steel.

Marko Papic: 00:12:58

It imports Canadian, Mexican, Brazilian, and European steel.

Marko Papic: 00:13:03

So to what extent do you really need to have a steel mill inside of America?

Marko Papic: 00:13:10

Can it be in Ontario?

Marko Papic: 00:13:13

Can it be in, um, you know, Puebla?

Marko Papic: 00:13:17

Probably can.

Marko Papic: 00:13:18

Um, so I think that what defines as national security, I. Geographical

Marko Papic: 00:13:26

location for the United States of America.

Marko Papic: 00:13:28

Like we know what it is for a country like India that doesn't have power

Marko Papic: 00:13:31

projection, but maybe for the US it would be okay if those, um, assets were not

Marko Papic: 00:13:37

located in its country, but in its allies.

Marko Papic: 00:13:39

Nonetheless, I do think that imposing tariffs on specific sectors that

Marko Papic: 00:13:44

are critical to the country's national security does make sense.

Marko Papic: 00:13:48

And that's a conversation that any country can have and can

Marko Papic: 00:13:51

justify to the rest of the world.

Marko Papic: 00:13:52

Like, Hey, look, we really consider this a, a priority.

Marko Papic: 00:13:55

Uh, we want to have some of this in our country.

Marko Papic: 00:13:58

The second way that tariffs do make sense is to enforce fair trade.

Marko Papic: 00:14:04

And economic theory tells you that countries that trade

Marko Papic: 00:14:09

freely with one another should not have massive imbalances.

Marko Papic: 00:14:15

Why?

Marko Papic: 00:14:16

Because if you sell a lot of things to another country.

Marko Papic: 00:14:20

That country ends up having to buy a lot of your product.

Marko Papic: 00:14:25

Let's say you're really good at bicycles.

Marko Papic: 00:14:27

We ban cars, okay?

Marko Papic: 00:14:30

We ban cars, and the number one export on planet is bicycles.

Marko Papic: 00:14:35

If you export a lot of bicycles, everybody's buying your bicycles.

Marko Papic: 00:14:38

Oh, you got the best bicycles.

Marko Papic: 00:14:40

This is amazing.

Marko Papic: 00:14:41

They have to buy your currency to buy your bicycles.

Marko Papic: 00:14:45

Your currency rises in its values, wages in your country rise because

Marko Papic: 00:14:52

you're making so many bicycles, and eventually you become quite,

Marko Papic: 00:14:57

quite expensive, unproductive and uncompetitive in everything.

Marko Papic: 00:15:01

But bicycles and other countries start to kind of export stuff to you because

Marko Papic: 00:15:08

you've made so many bicycles, so many of your people are working in bicycle shops.

Marko Papic: 00:15:13

Your currency has appreciated.

Marko Papic: 00:15:15

And so if, if globalization was fair.

Marko Papic: 00:15:21

If everybody had access to free markets, you shouldn't have the kind of trade

Marko Papic: 00:15:26

deficit the United States of America has.

Marko Papic: 00:15:28

That should not exist.

Marko Papic: 00:15:30

But the reason it is exists is because major competitors of the us, including

Marko Papic: 00:15:36

China in particular, have used things like capital controls, currency manipulation,

Marko Papic: 00:15:43

not like it sounds so, uh, evil manipulation of currency, but effectively

Marko Papic: 00:15:49

the Chinese have made it difficult for you to buy their financial assets.

Marko Papic: 00:15:54

If you buy them, you can't really leave them.

Marko Papic: 00:15:56

They've, they've made it a little bit easier to, I mean, a lot easier to be

Marko Papic: 00:15:59

fair to them, to buy Chinese bonds, but not to really come in and out of their

Marko Papic: 00:16:05

economy, to transact in their currency.

Marko Papic: 00:16:07

They don't wantin to be an international, you know, reserve currency.

Marko Papic: 00:16:11

And part of the reason is that they have not gotten the kind of an effect.

Marko Papic: 00:16:17

A country with a huge trade surplus would get IE They've suppressed those

Marko Papic: 00:16:21

costs that come with competitiveness.

Marko Papic: 00:16:24

The reason I say this is that I do also think that tariffs make sense when you

Marko Papic: 00:16:29

wanna punish a country for, for not taking on the burdens of competitiveness.

Marko Papic: 00:16:36

So you can use tariffs to basically tell China, like, look, we get it.

Marko Papic: 00:16:41

You are really good at making stuff.

Marko Papic: 00:16:43

However your currency should have appreciated, and also you are supporting

Marko Papic: 00:16:48

certain industries inside your own country and therefore, you know, like

Marko Papic: 00:16:52

you don't really need to do that anymore.

Marko Papic: 00:16:54

It's if, if like, if a really, really less developed country like Ethiopia decides

Marko Papic: 00:17:03

to put 800% tariffs on textiles so that Ethiopia can have some people working

Marko Papic: 00:17:10

in the garment industry, nobody should.

Marko Papic: 00:17:14

Say that Ethiopia is using state aid.

Marko Papic: 00:17:17

I mean, they're just trying to get some factories in their country and

Marko Papic: 00:17:21

better the lives of their people.

Marko Papic: 00:17:23

That makes sense.

Marko Papic: 00:17:25

But China is no longer a less developed country.

Marko Papic: 00:17:28

It is in the middle income kind of range.

Marko Papic: 00:17:32

We've all, well, I have, I've, I've been to many cities in China and they look

Marko Papic: 00:17:36

like spaceships, you know, like, I get it.

Marko Papic: 00:17:38

They're still interior China still probably should use industrial policy to,

Marko Papic: 00:17:44

you know, like help some parts of China.

Marko Papic: 00:17:46

That's all fine, but it's not where it was in the nineties.

Marko Papic: 00:17:49

And so it cannot use these manipulative tools to remain competitive perhaps

Marko Papic: 00:17:55

in industries that it should have lost competitiveness in maybe toaster ovens.

Marko Papic: 00:18:00

Toys t-shirts should move to other countries around the

Marko Papic: 00:18:05

world should move to Vietnam.

Marko Papic: 00:18:07

Maybe even further down the, the line, maybe Laos, maybe Cambodia.

Marko Papic: 00:18:12

Maybe Ethiopia, those are the next countries that should start

Marko Papic: 00:18:15

building those low value added goods.

Marko Papic: 00:18:18

And, uh, and China has, for the most part, manipulated trade and

Marko Papic: 00:18:23

its capital account and also its currency to, to remain competitive.

Marko Papic: 00:18:29

And that is where I wanna make a case for globalization In America, there's

Marko Papic: 00:18:36

this sense that Americans have soured on globalization, although polling

Marko Papic: 00:18:40

actually suggests that, uh, support for globalization has doubled since 2016,

Marko Papic: 00:18:44

which is something we can come back to.

Marko Papic: 00:18:46

Americans actually are not as anti-trade and anti-globalization as President Trump,

Marko Papic: 00:18:52

but also liberal media often both agree.

Marko Papic: 00:18:55

There's this, there's this tired narrative that Americans are like

Marko Papic: 00:18:58

yearning to be in a sweat shop with a, like, you know, like just overalls

Marko Papic: 00:19:03

and like hammers and glistening sweat.

Marko Papic: 00:19:06

Just a lot of like 1930s imagery.

Marko Papic: 00:19:09

So there's a lot of that.

Marko Papic: 00:19:11

First of all, polls don't support that.

Marko Papic: 00:19:12

So let's park that aside.

Marko Papic: 00:19:14

But my point is, when you say that China is manipulating certain things,

Marko Papic: 00:19:20

or you say there are non tariff barriers to trade in Europe, um, you're not

Marko Papic: 00:19:27

saying that the US should stop trading.

Marko Papic: 00:19:31

You are actually seeing the opposite thing.

Marko Papic: 00:19:34

You're actually seeing, you want more globalization, not less of it.

Marko Papic: 00:19:39

And this is where a lot of Trump fans, a lot of Trump supporters who do want

Marko Papic: 00:19:44

to glisten their biceps in some like factory floor, you know, just hammering

Marko Papic: 00:19:51

away at a, at a widget, I'm gonna tell them that's not what Donald Trump wants.

Marko Papic: 00:19:56

He actually wants more globalization because a lot of these reciprocal

Marko Papic: 00:20:00

tariffs are actually designed to get other countries to become fair so that

Marko Papic: 00:20:07

the trade can benefit all countries.

Marko Papic: 00:20:10

Particularly can benefit them in those sectors where they're really good at.

Marko Papic: 00:20:15

Um, and so what I would say is that I think that the US is going to,

Marko Papic: 00:20:21

uh, um, what, what basically what the, the case I'm making here is

Marko Papic: 00:20:26

that if globalization is actually unfettered with tariff barriers to

Marko Papic: 00:20:32

trade with currency manipulation, it will actually produce very positive

Marko Papic: 00:20:37

outcomes for pretty much everyone.

Marko Papic: 00:20:38

It will rise all the boats.

Marko Papic: 00:20:40

So it's not the globalization failed, it's that in the early two thousands

Marko Papic: 00:20:46

and the 1990s, the US didn't, when it had preponderance of power, it didn't

Marko Papic: 00:20:51

push other countries to open up fully.

Marko Papic: 00:20:55

And so that's the irony.

Marko Papic: 00:20:56

President Trump could both be right, but the outcome that he's gonna get is not

Marko Papic: 00:21:01

going to be what his supporters think.

Marko Papic: 00:21:03

The US will not open up manufacturing shops for bicycles.

Marko Papic: 00:21:08

He probably is not going to increase manufacturing as percent of labor at all.

Marko Papic: 00:21:15

In fact, if trade is free and fair, the US is going to export a lot of things that

Marko Papic: 00:21:20

many of his supporters probably believe is for quote unquote Girly Men services.

Marko Papic: 00:21:26

That's what the US has a huge advantage in and US is going to continue to

Marko Papic: 00:21:31

crush in exporting its service sector.

Marko Papic: 00:21:34

That means a lot of software, that means a lot of, uh, banking, insurance, you

Marko Papic: 00:21:39

know, entertainment, movies, the NBA Hollywood, all sorts of things that

Marko Papic: 00:21:44

the US is good at is actually not the stuff that, um, his supporters believe

Marko Papic: 00:21:50

he's gonna bring back to America.

Marko Papic: 00:21:52

And he's not, because if you actually make globalization work for the US it will only

Marko Papic: 00:21:58

accentuate things that the US is good at.

Marko Papic: 00:22:01

Now why don't I think that the US is going to be able to, um, become more competitive

Marko Papic: 00:22:06

in manufacturing and here because I think there's a lot of things that goes

Marko Papic: 00:22:12

into being competitive in manufacturing and it's not just being unfair.

Marko Papic: 00:22:17

Uh, when I think of Germany and why Germany is so good at manufacturing,

Marko Papic: 00:22:21

uh, first and foremost, they have really good trade schools that educate people

Marko Papic: 00:22:27

on how to be, uh, manufacturing workers.

Marko Papic: 00:22:31

But I think there's also a culture, there's a cultural element where there's

Marko Papic: 00:22:34

a pride in metallurgical professionalism in Germany, in other words, working

Marko Papic: 00:22:41

in a false fogging, you know, factory is not necessarily seen as a negative.

Marko Papic: 00:22:49

And, and the reason for that is that healthcare and education are free.

Marko Papic: 00:22:56

Now.

Marko Papic: 00:22:57

Now I know I've lost all of our Republican listeners, but just hear me out.

Marko Papic: 00:23:01

If you have a very advanced and high quality social welfare system going out

Marko Papic: 00:23:09

and just being a manufacturing worker is not a bad thing because you don't really

Marko Papic: 00:23:15

care about where your kids are gonna go.

Marko Papic: 00:23:16

If they're smart, they're not gonna end up in a factory right next to you.

Marko Papic: 00:23:20

If they're smart, they're just gonna go to a university and it's gonna be free.

Marko Papic: 00:23:24

So the need to constantly generate high income in order to deliver outcomes

Marko Papic: 00:23:31

for your family, that consists with middle class, it's not really needed

Marko Papic: 00:23:36

in a society that has extremely well run social welfare state.

Marko Papic: 00:23:40

And I do think that that also supports German, Germany and its ability to

Marko Papic: 00:23:45

be a manufacturing power because if you, if you have the ability for your

Marko Papic: 00:23:49

kids to basically determine their own future, whether they're gonna be next

Marko Papic: 00:23:53

to you on an assembly line or not, um.

Marko Papic: 00:23:56

Based, based on the quality of education of universities, of healthcare, then

Marko Papic: 00:24:02

I do think you might choose to go to an assembly line and work there.

Marko Papic: 00:24:06

Just, you know, nine to five shift work and so on.

Marko Papic: 00:24:10

So I'm not sure if the US can really compete with that, to be quite frank with

Marko Papic: 00:24:14

you, I think that just throwing up tariffs in order to protect your domestic industry

Marko Papic: 00:24:18

is going to lead to you protecting your own industry that's gonna work.

Marko Papic: 00:24:23

You're gonna produce cars that are crap that nobody in the world wants to

Marko Papic: 00:24:27

build because you didn't gain advantage through productivity, through innovation

Marko Papic: 00:24:32

and to the quality of your labor force.

Marko Papic: 00:24:35

What you did is you produced a fake advantage using tariffs.

Marko Papic: 00:24:39

And so if the US sticks to that strategy when it comes to cars,

Marko Papic: 00:24:44

it's going to fall behind.

Marko Papic: 00:24:46

Uh, economists call this import substitution, Google

Marko Papic: 00:24:50

it, read Wikipedia pages on it.

Marko Papic: 00:24:52

A lot of countries did it.

Marko Papic: 00:24:53

It failed.

Marko Papic: 00:24:54

It fails because it leads to high, lower quality products.

Marko Papic: 00:24:57

Um, and I think if the US wanted to become a manufacturing powerhouse,

Marko Papic: 00:25:01

then it would probably have to create a lifestyle, a culture that makes

Marko Papic: 00:25:08

people wanna be assembly line workers.

Marko Papic: 00:25:11

And, uh, I don't think that just paying them $60 an hour is gonna do that.

Marko Papic: 00:25:15

I, I'm not sure that's gonna, that's gonna be enough because the Germans do that.

Marko Papic: 00:25:21

Plus they have all sorts of benefits that are associated with

Marko Papic: 00:25:25

just being lower middle class.

Marko Papic: 00:25:27

Your life is amazing.

Marko Papic: 00:25:28

You're fine.

Marko Papic: 00:25:30

Um, so anyways, I'm gonna, I think I'm gonna stop there and I'm gonna

Marko Papic: 00:25:33

let you cook on the other side.

Jacob Shapiro: 00:25:36

Yes, I think you've, I think you, I thought that my task

Jacob Shapiro: 00:25:39

was gonna be harder, but I actually think in listening to you, uh, argue

Jacob Shapiro: 00:25:43

the pro case for globalization, I actually understand a lot better why

Jacob Shapiro: 00:25:47

politically it's hard to make that case because, um, I thank you for spending

Jacob Shapiro: 00:25:52

the first half of your justification praising the virtues of tariffs.

Jacob Shapiro: 00:25:56

It seems that even an advocate of globalization can't help but spend

Jacob Shapiro: 00:25:59

the first part of his argument talking about actually the inherent virtues

Jacob Shapiro: 00:26:04

of protectionism and tariffs and the very things that we're talking about,

Jacob Shapiro: 00:26:06

which I think points towards why globalization is actually the wrong way

Jacob Shapiro: 00:26:10

to think about how the United States should be engaging with the world.

Jacob Shapiro: 00:26:13

I think the most important thing missing from your full throated

Jacob Shapiro: 00:26:17

defense of globalization is a sense of.

Jacob Shapiro: 00:26:20

Context.

Jacob Shapiro: 00:26:21

You sort of got to it at the end of your remarks.

Jacob Shapiro: 00:26:23

You talked about when the United States had a preponderance of power, that it

Jacob Shapiro: 00:26:26

did not open up markets up sufficiently, but this is precisely the point.

Jacob Shapiro: 00:26:31

The United States no longer has a preponderance of power in the world.

Jacob Shapiro: 00:26:35

We might argue that the only time that the United States had a true preponderance

Jacob Shapiro: 00:26:38

of power was from 1990 to 2001.

Jacob Shapiro: 00:26:42

During that time period, you can say safely, there is no communism.

Jacob Shapiro: 00:26:46

There is no ism, there is no rival, there is no Jihadism.

Jacob Shapiro: 00:26:49

There was an 11 year period there where the United States was the

Jacob Shapiro: 00:26:53

unquestioned military, uh, political, economic, cultural power in the world.

Jacob Shapiro: 00:26:58

And what the United States said went, if you were Sloan Milovich and your

Jacob Shapiro: 00:27:02

old stomping grounds, and you went against what the United States wanted,

Jacob Shapiro: 00:27:05

you got the shit bombed out of you.

Jacob Shapiro: 00:27:07

And if a Chinese embassy was bombed in the course of that sucks to be you.

Jacob Shapiro: 00:27:10

China, the United States is doing whatever the fuck it wants.

Jacob Shapiro: 00:27:13

If there's a genocide inside Rwanda, if militants are doing weird things

Jacob Shapiro: 00:27:16

inside of Somalia, um, okay, like the United States is not like this, the

Jacob Shapiro: 00:27:20

United States is going to come find you.

Jacob Shapiro: 00:27:22

If you start talking about nuclear weapons and you're, you're in the axis of evil.

Jacob Shapiro: 00:27:25

I mean, that starts to get outside of 2001.

Jacob Shapiro: 00:27:27

The United States has this role where it's gonna push for you.

Jacob Shapiro: 00:27:30

And in that context.

Jacob Shapiro: 00:27:32

Globalization makes perfect sense because you are not afraid of anyone.

Jacob Shapiro: 00:27:36

There are no competitors.

Jacob Shapiro: 00:27:37

There is nobody that is coming for you, nobody that can marshal any

Jacob Shapiro: 00:27:40

kind of attack on your resources.

Jacob Shapiro: 00:27:42

And it makes sense to restrict access to the most closely held intellectual

Jacob Shapiro: 00:27:47

property, but to diversify the construction of all the different

Jacob Shapiro: 00:27:50

widgets that you talked about.

Jacob Shapiro: 00:27:52

So it's no longer an issue where steel is coming from or where you're gonna get your

Jacob Shapiro: 00:27:55

bicycle because the Soviet union's gone.

Jacob Shapiro: 00:27:58

We're not hiding underneath our desks anymore.

Jacob Shapiro: 00:27:59

And there's a billion Chinese people who wanna make these products for a

Jacob Shapiro: 00:28:03

fraction of the cost that they could be made for in the United States.

Jacob Shapiro: 00:28:06

So let's let the Chinese people and all the slave labor in the world make

Jacob Shapiro: 00:28:10

these things for the American consumer.

Jacob Shapiro: 00:28:12

And the American consumer gets more money in their pocket.

Jacob Shapiro: 00:28:14

They get to listen to nineties music and everything is going fine now since 2001.

Jacob Shapiro: 00:28:20

That is not the world that the United States has lived in.

Jacob Shapiro: 00:28:22

And because the United States is so generous and magnanimous in its spirit,

Jacob Shapiro: 00:28:26

it has taken the United States decades.

Jacob Shapiro: 00:28:28

To wake up to the fact that there are threats, that the 11 years of the giddy

Jacob Shapiro: 00:28:33

springtime of the bourgeoisie was not accepted by the rest of the world.

Jacob Shapiro: 00:28:37

The end of history was a joke, so it started with the jihadist and then

Jacob Shapiro: 00:28:40

Russia decided we want Mother Russia back, and then Xi Jinping came in

Jacob Shapiro: 00:28:44

China, you start going down the list.

Jacob Shapiro: 00:28:45

All of these different challenges to the United States, and these were not

Jacob Shapiro: 00:28:48

just ephemeral passing challenges.

Jacob Shapiro: 00:28:51

These were true existential challenges.

Jacob Shapiro: 00:28:53

And at this moment, all of these different actors start taking

Jacob Shapiro: 00:28:56

advantage of the United States.

Jacob Shapiro: 00:28:58

The Jihadists did it by taking advantage of US military power.

Jacob Shapiro: 00:29:01

They wanted the US to come bomb Iraq and Afghanistan so that they could

Jacob Shapiro: 00:29:04

use this as, as an example of how to spin up, uh, jihadism in their own

Jacob Shapiro: 00:29:08

region, see the great Satan coming to bomb us and things like that.

Jacob Shapiro: 00:29:12

Um, Russia taking advantage of its cheap energy supplies, getting Europe dependent

Jacob Shapiro: 00:29:17

on it, pushing into parts of Eastern Europe, they didn't, knows the west

Jacob Shapiro: 00:29:20

didn't give a shit about and saying, okay, we'll take this part of Georgia back and

Jacob Shapiro: 00:29:23

we'll take this part of Ukraine back.

Jacob Shapiro: 00:29:25

And nobody was gonna care because nobody's, nobody was gonna push China.

Jacob Shapiro: 00:29:28

Slowly but surely.

Jacob Shapiro: 00:29:30

Not just manufacturing things and making its population a little bit richer,

Jacob Shapiro: 00:29:33

but stealing intellectual property and to your point, propping up domestic

Jacob Shapiro: 00:29:37

industries, violating all the rules of the order that it joined, um, that

Jacob Shapiro: 00:29:40

allowed it to participate in this process.

Jacob Shapiro: 00:29:42

It was obviously not a good faith effort.

Jacob Shapiro: 00:29:44

So we have moved now to a more inherently competitive and multipolar and.

Jacob Shapiro: 00:29:50

FRAUGHT world where the United States is under threat, where we have enemies

Jacob Shapiro: 00:29:53

who want to attack us, and if we have enemies who want to attack us, it no

Jacob Shapiro: 00:29:57

longer matters what price you can buy a bicycle for or how much your iPhone costs.

Jacob Shapiro: 00:30:02

We need to make sure that the United States can defend itself.

Jacob Shapiro: 00:30:06

It is unfortunate that the rest of the world could not sign on to US ideals,

Jacob Shapiro: 00:30:10

but that is unfortunately where we are.

Jacob Shapiro: 00:30:12

And in that moment, it means that we do have to protect industry in

Jacob Shapiro: 00:30:15

the United States because we have to make things here ourselves.

Jacob Shapiro: 00:30:17

It would be nice if a billion chin Chinese people would continue

Jacob Shapiro: 00:30:21

to make things for us, but we've seen that they can't be trusted.

Jacob Shapiro: 00:30:24

Look at how they treat the people in Xinjiang.

Jacob Shapiro: 00:30:25

Look at what they're doing with Taiwan.

Jacob Shapiro: 00:30:27

Look at what they did to Hong Kong.

Jacob Shapiro: 00:30:28

This is not a nation that can be trusted, so it absolutely behooves us to come back

Jacob Shapiro: 00:30:32

and breathe, bring these things together.

Jacob Shapiro: 00:30:34

As for tariffs, tariffs are very simply a tool in this toolkit.

Jacob Shapiro: 00:30:38

They are just a simple thing.

Jacob Shapiro: 00:30:39

They are attacks, and it means that we don't want to import things from abroad

Jacob Shapiro: 00:30:42

because if you just leave the consumer to themselves and there's a cheaper product

Jacob Shapiro: 00:30:46

on the shelves from China or from Russia or from somewhere else, they will buy it.

Jacob Shapiro: 00:30:49

So the tariff means, okay, you're not gonna buy from those different countries.

Jacob Shapiro: 00:30:53

We're gonna rebuild industry inside the United States when we are looking

Jacob Shapiro: 00:30:56

back for historical context here.

Jacob Shapiro: 00:30:59

That 10, 11 years of US dominance is not normal.

Jacob Shapiro: 00:31:02

We thought it was exceptional.

Jacob Shapiro: 00:31:03

We thought it would continue on forever, but most of the history of the 18th, 19th,

Jacob Shapiro: 00:31:07

and 20th century shows us that actually you need a form of protectionism in

Jacob Shapiro: 00:31:11

order to become a great industrial power.

Jacob Shapiro: 00:31:13

Think of Great Britain from 1760 to 1840.

Jacob Shapiro: 00:31:16

What was one of the first things the British government did?

Jacob Shapiro: 00:31:19

Once it realized that the Industrial Revolution was upon it, and that it had

Jacob Shapiro: 00:31:23

fundamental advantages over France and other countries, it forbade the export

Jacob Shapiro: 00:31:27

of machinery and other things that were critical to the industrial revolution

Jacob Shapiro: 00:31:31

so that it could capitalize on that opportunity for as long as possible.

Jacob Shapiro: 00:31:35

What happened in the United States in the 1890s after the Civil

Jacob Shapiro: 00:31:38

War and the rise of US industry?

Jacob Shapiro: 00:31:40

William McKinley, a self-professed tariff man comes to power and protects

Jacob Shapiro: 00:31:44

us industry so that it, it can continue its ascent along global value chain so

Jacob Shapiro: 00:31:49

that the south can be industrialized after the war, and that leads.

Jacob Shapiro: 00:31:53

Two US Victory and World Wars One and two, US military power was defined not by

Jacob Shapiro: 00:31:58

the fact that we just woke up one morning and could make fighter jets, but because

Jacob Shapiro: 00:32:01

somebody like William McKinley protected US domestic industry in the 1890s because

Jacob Shapiro: 00:32:06

he saw the world that was in front of him.

Jacob Shapiro: 00:32:08

You mentioned Germany today.

Jacob Shapiro: 00:32:09

Think about Germany.

Jacob Shapiro: 00:32:10

In the 1930s, we don't talk about this because it's politically incorrect to

Jacob Shapiro: 00:32:13

do so, but before Hitler tried to take over the world, he was actually doing

Jacob Shapiro: 00:32:17

incredible things for the German economy.

Jacob Shapiro: 00:32:19

One of the first things that he did when he became chancellor was erect

Jacob Shapiro: 00:32:23

tariffs to protect German industry.

Jacob Shapiro: 00:32:25

Germany was not known as a manufacturing superpower.

Jacob Shapiro: 00:32:28

Pre 1930s, the British were the ones who made things.

Jacob Shapiro: 00:32:31

The Americans were the one who made things.

Jacob Shapiro: 00:32:33

That reputation of German metallurgical genius and manliness happens

Jacob Shapiro: 00:32:37

because the Nazis build factories and incentivize German companies

Jacob Shapiro: 00:32:42

to build things inside of Germany.

Jacob Shapiro: 00:32:44

That's where it happens.

Jacob Shapiro: 00:32:45

And Germany, of course, went off the deep end in its ideological fervor,

Jacob Shapiro: 00:32:49

but almost conquered the entire world.

Jacob Shapiro: 00:32:51

A small country of 50, 60 million people, whatever it was, because they protected

Jacob Shapiro: 00:32:55

their industry and because they knew they needed to protect themselves.

Jacob Shapiro: 00:32:58

I think also of the United States in the 1960s and the 1970s, we talk often

Jacob Shapiro: 00:33:03

about the Vietnam war and social, uh, dysfunction and rising deficits.

Jacob Shapiro: 00:33:08

And Lyndon b Johnson, what really happened in the 1960s and seventies,

Jacob Shapiro: 00:33:11

the big success case was the space race.

Jacob Shapiro: 00:33:13

The United States decided that it needed to win the space race at all costs, and

Jacob Shapiro: 00:33:17

so it incentivized and protected a US space industry That literally gave us

Jacob Shapiro: 00:33:22

most of the technological innovation that we interact with today because the

Jacob Shapiro: 00:33:25

United States government supported it.

Jacob Shapiro: 00:33:27

So I would tell you that as the person who is speaking pro tariffs

Jacob Shapiro: 00:33:30

right now, that the main problem with the Trump administration is that

Jacob Shapiro: 00:33:34

it is not going nearly far enough.

Jacob Shapiro: 00:33:36

In fact, it is doing a fairly wimpy and.

Jacob Shapiro: 00:33:40

Namby-pamby approach to how tariffs should be done.

Jacob Shapiro: 00:33:43

And if I was advising President Trump right now on tariffs, I would say

Jacob Shapiro: 00:33:46

President Trump, go further and go further, specifically in these ways.

Jacob Shapiro: 00:33:50

Number one, don't listen to Elon.

Jacob Shapiro: 00:33:53

Don't listen to Cousin Marco about how you need to be fiscally conservative.

Jacob Shapiro: 00:33:57

You need to spend more, way more.

Jacob Shapiro: 00:33:59

You need operation warp speed on ship building and active pharmaceutical

Jacob Shapiro: 00:34:03

ingredients and bicycles and every other fucking thing, because we can't afford

Jacob Shapiro: 00:34:08

to have these things from China and from India and from these WY Europeans anymore.

Jacob Shapiro: 00:34:13

God forbid other places in the world.

Jacob Shapiro: 00:34:15

We need to build this capacity.

Jacob Shapiro: 00:34:16

We need to pay the American worker as much as possible that they enjoy

Jacob Shapiro: 00:34:20

smelting on the floor of that factory.

Jacob Shapiro: 00:34:22

Maybe it's not 60 an hour, maybe it's 130 an hour, maybe it's 200 an hour.

Jacob Shapiro: 00:34:27

It's all funny money.

Jacob Shapiro: 00:34:28

It needs to be spent.

Jacob Shapiro: 00:34:29

That means also more fiscal stimulus.

Jacob Shapiro: 00:34:32

Now that doesn't mean ad nauseum.

Jacob Shapiro: 00:34:33

If you put people.

Jacob Shapiro: 00:34:35

On the tit forever.

Jacob Shapiro: 00:34:36

They'll probably stay there forever.

Jacob Shapiro: 00:34:37

But maybe we say for the next five to 10 years, while we are in an economic

Jacob Shapiro: 00:34:41

conflict for the existential future of our country, we will have a universal

Jacob Shapiro: 00:34:45

basic income for the next eight years so that every person can live.

Jacob Shapiro: 00:34:48

As we go through some of these disruptions, tariffs,

Jacob Shapiro: 00:34:51

we need more of them.

Jacob Shapiro: 00:34:52

They need to be higher, they need to be tighter, they need to be enforced

Jacob Shapiro: 00:34:55

incredibly strictly, because we can't have people get around them.

Jacob Shapiro: 00:34:58

No, Mr. Nvidia, CEO, you don't get to come to Saudi Arabia and whisper sweet

Jacob Shapiro: 00:35:03

nothings into President Trump's ear and get around some of these things and

Jacob Shapiro: 00:35:06

export your chips to China in the future.

Jacob Shapiro: 00:35:08

Absolutely not.

Jacob Shapiro: 00:35:09

Tariffs are ironclad.

Jacob Shapiro: 00:35:10

There is a great wall of America that we will erect so that these products

Jacob Shapiro: 00:35:14

do not get inside of the United States.

Jacob Shapiro: 00:35:16

Here's the one that's really difficult for you, Mr. Trump, and

Jacob Shapiro: 00:35:18

it was, uh, articulated by Steve Bannon just yesterday in a podcast,

Jacob Shapiro: 00:35:23

you wanna balance the deficit.

Jacob Shapiro: 00:35:24

You want to pay for some of these things.

Jacob Shapiro: 00:35:26

Yes, tariffs will pay for these things in the long run.

Jacob Shapiro: 00:35:28

You know what you have to do first, you have to tax the rich.

Jacob Shapiro: 00:35:31

And I know you don't wanna do that, but this is an existential

Jacob Shapiro: 00:35:33

battle for our future.

Jacob Shapiro: 00:35:34

And if the working man is sacrificing his ideals of what his future was

Jacob Shapiro: 00:35:38

going to be by going and smelting on the factory floor, then the rich are

Jacob Shapiro: 00:35:41

gonna have to pay for some of this.

Jacob Shapiro: 00:35:42

Now, 1890s, William McKinley, there was no income tax.

Jacob Shapiro: 00:35:46

So maybe we can get to a world in which the income tax also goes away,

Jacob Shapiro: 00:35:50

in which all these other tariffs and things like that pay for that.

Jacob Shapiro: 00:35:53

So alongside that temporary universal income, maybe there should be a temporary

Jacob Shapiro: 00:35:57

income tax that is set at the 60 to 70% level that sunsets in 10 years time.

Jacob Shapiro: 00:36:02

And then we have no income tax in this country that we are building towards a

Jacob Shapiro: 00:36:05

better future in this country where we make things in this country in conjunction

Jacob Shapiro: 00:36:09

with our allies and those countries that wanna do us harm can no longer do.

Jacob Shapiro: 00:36:13

So.

Jacob Shapiro: 00:36:13

Last but not least, the problem of universities.

Jacob Shapiro: 00:36:17

There should be government dispensation to pay for any American student

Jacob Shapiro: 00:36:21

who wants to go to a university, who wants to participate in either

Jacob Shapiro: 00:36:25

energy, artificial intelligence, biotech, or any of the trades.

Jacob Shapiro: 00:36:29

If you want to go to school for any of things, any of those things

Jacob Shapiro: 00:36:32

in the United States, not only will you incur no debt, the United

Jacob Shapiro: 00:36:34

States government will pay for you.

Jacob Shapiro: 00:36:36

That is what the United States government should do.

Jacob Shapiro: 00:36:38

If you want to go study comparative literature and all sorts of

Jacob Shapiro: 00:36:42

other fun things, that's fine.

Jacob Shapiro: 00:36:43

You're gonna have to pay double for the privilege of doing those things.

Jacob Shapiro: 00:36:46

This is not a liberal arts world that we're living in.

Jacob Shapiro: 00:36:48

We're living in a real multipolar geopolitical world in general.

Jacob Shapiro: 00:36:51

And Marco, I'll close my statement with just this.

Jacob Shapiro: 00:36:54

I know the data says globalization.

Jacob Shapiro: 00:36:56

The data also said that the Boston Celtics, when they played the New

Jacob Shapiro: 00:36:59

York Knicks, should just continue to hoist up threes and try and isolate

Jacob Shapiro: 00:37:03

Jalen Brunson over and over and over again, because eventually the

Jacob Shapiro: 00:37:06

data was gonna bend in their way.

Jacob Shapiro: 00:37:08

But that I. That is playing with the lead.

Jacob Shapiro: 00:37:11

And the United States cannot do that.

Jacob Shapiro: 00:37:13

If the United States is gonna move forward as the most powerful country

Jacob Shapiro: 00:37:16

in the world, if America is going to be great again, it has to keep pushing.

Jacob Shapiro: 00:37:20

Don't be the Boston Celtics and the first two games of the Eastern Conference

Jacob Shapiro: 00:37:25

semifinals instead, think of the Oklahoma City Thunder, or of the Denver Nuggets,

Jacob Shapiro: 00:37:29

or any of these other teams that continue to grind, innovate, push, push, push.

Jacob Shapiro: 00:37:33

'cause if you just think you're gonna continue to hoist up threes and get

Jacob Shapiro: 00:37:36

slave labor to build your fancy things in other countries abroad, you're

Jacob Shapiro: 00:37:40

gonna be in for a rude awakening.

Jacob Shapiro: 00:37:42

When China says, actually this is the Gulf of Beijing.

Jacob Shapiro: 00:37:46

Ah, mic drop.

Jacob Shapiro: 00:37:48

Bam.

Jacob Shapiro: 00:37:48

I did it.

Jacob Shapiro: 00:37:49

Do you like it?

Jacob Shapiro: 00:37:50

Okay.

Jacob Shapiro: 00:37:50

I feel dirty.

Marko Papic: 00:37:52

Well, I mean, first of all, the reason it's not mic drop because

Marko Papic: 00:37:54

it, uh, avoids basic mathematics.

Jacob Shapiro: 00:37:58

Oh, you, you wouldn't let things like basic mathematics

Jacob Shapiro: 00:38:00

get in the way here, would you?

Marko Papic: 00:38:02

Yeah.

Marko Papic: 00:38:02

So, so the funny thing about tariffs is that if you want

Marko Papic: 00:38:06

tariffs to actually raise revenue.

Marko Papic: 00:38:08

You have to have Divo levels of pro-globalization.

Marko Papic: 00:38:16

So if you want tariffs to pay for anything, you have to be more

Marko Papic: 00:38:21

pro-globalization than a Davos man.

Marko Papic: 00:38:24

Mm-hmm.

Marko Papic: 00:38:25

Otherwise they will raise no revenue.

Jacob Shapiro: 00:38:29

Exactly.

Jacob Shapiro: 00:38:30

Right.

Jacob Shapiro: 00:38:30

Which is why President Trump is not going far enough.

Jacob Shapiro: 00:38:33

If you unrealistically think that tariffs today are gonna pay for

Jacob Shapiro: 00:38:35

these things, it's not going to work.

Jacob Shapiro: 00:38:38

If you're gonna have the, the tariffs, you're also gonna have

Jacob Shapiro: 00:38:39

to find ways in the short run to, uh, account for the shortfalls

Marko Papic: 00:38:44

that Right.

Marko Papic: 00:38:44

Right.

Marko Papic: 00:38:45

Well, no, but, but they will never work.

Marko Papic: 00:38:46

Right.

Marko Papic: 00:38:47

Because like, again, if the purpose of tariffs is to move production

Marko Papic: 00:38:52

of widgets and bicycles to the US, tariffs will not raise revenue.

Marko Papic: 00:39:00

They will move production to the us.

Jacob Shapiro: 00:39:02

Exactly.

Jacob Shapiro: 00:39:03

And then once that production is moved to the United States and we

Jacob Shapiro: 00:39:05

are growing, uh, at the top line and productivity is booming and everybody

Jacob Shapiro: 00:39:09

wants our products and there's gonna be paying all sorts of other things,

Jacob Shapiro: 00:39:12

the case that's, well then there are all other sorts of ways to do this.

Jacob Shapiro: 00:39:15

Yeah.

Marko Papic: 00:39:15

And then that doesn't happen.

Marko Papic: 00:39:17

Why not?

Marko Papic: 00:39:18

Because you moved things to the US because you protected

Marko Papic: 00:39:23

the price level of your goods.

Marko Papic: 00:39:25

You didn't actually improve them in quality.

Marko Papic: 00:39:28

And so nobody actually will want your goods.

Marko Papic: 00:39:31

And the US is 20% of global GDP, which is a lot, but there's

Marko Papic: 00:39:35

80% of the rest of the world.

Marko Papic: 00:39:38

And the only way that the US can win in that world is if

Marko Papic: 00:39:42

everybody else also launches a trade war against everybody else.

Marko Papic: 00:39:46

Mm-hmm.

Marko Papic: 00:39:46

Maybe, maybe, maybe in that world, the US market being the largest market

Marko Papic: 00:39:51

in the world, will still produce enough competition domestically

Marko Papic: 00:39:54

to produce the best bicycles.

Marko Papic: 00:39:57

It requires a lot of maybes.

Marko Papic: 00:39:59

So in other words, this is where the tariff thing doesn't

Marko Papic: 00:40:03

mathematically make sense.

Marko Papic: 00:40:04

First of all, if you want to raise revenue for the country, then you

Marko Papic: 00:40:08

have to continue trading, and that's where the 10% across the board tariff

Marko Papic: 00:40:13

that nobody talks about anymore.

Jacob Shapiro: 00:40:15

Mm-hmm.

Jacob Shapiro: 00:40:16

Yeah,

Marko Papic: 00:40:16

we've all forgotten it.

Marko Papic: 00:40:18

But the 10% across the board tariff that President Trump also imposed on April

Marko Papic: 00:40:21

2nd is low enough to, well, for most goods, it's low enough to allow trades

Marko Papic: 00:40:29

to continue, but that also means that as that trade continues, you can actually

Marko Papic: 00:40:35

raise revenue by taring that trade.

Marko Papic: 00:40:38

If you impose a 40 or 30% tariff on goods, goods will not come in.

Marko Papic: 00:40:43

You will not raise any revenue.

Marko Papic: 00:40:44

You cannot impose a tax on a transaction.

Marko Papic: 00:40:47

That doesn't happen.

Marko Papic: 00:40:48

So I think that that's where some tariffs can make a difference

Marko Papic: 00:40:54

from a revenue perspective.

Marko Papic: 00:40:55

But protecting industry, the problem with protective industry, protecting

Marko Papic: 00:40:59

industry is that your domestic competitors then don't have any incentive to

Marko Papic: 00:41:03

compete with the rest of the world.

Marko Papic: 00:41:06

So if somebody abroad creates a better bicycle than you, you

Marko Papic: 00:41:11

will never get that bicycle.

Marko Papic: 00:41:12

And by the way, this, this has happened a lot in American history, for example, why

Marko Papic: 00:41:17

do American car companies and our friend Tim, actually agreed with me on this one.

Marko Papic: 00:41:21

So, uh, this, this whole debate here was prompted by one of our listeners

Marko Papic: 00:41:26

who said, Hey, some good things are happening in manufacturing.

Marko Papic: 00:41:29

But when I countered that tariffs would eventually lead to a complete

Marko Papic: 00:41:33

destruction of American car industry, he did not really disagree.

Marko Papic: 00:41:37

One of the reasons that American car companies produce absolutely terrible

Marko Papic: 00:41:42

vehicles that nobody in the rest of the world wants to drive Facts.

Marko Papic: 00:41:48

The reason is that they, they, they've just overproduced pickup trucks because

Marko Papic: 00:41:54

throughout the history of the US there's been ebbs and flows in protectionism of

Marko Papic: 00:41:58

the car industry, and the car companies became quite uncompetitive globally.

Marko Papic: 00:42:03

They're also perfectly fine with the domestic market.

Marko Papic: 00:42:06

The domestic market, as far as they're concerned, is big enough.

Marko Papic: 00:42:10

Trucks, pickup trucks have higher profit margins than sedans, and so they

Marko Papic: 00:42:14

just became a pickup truck company.

Marko Papic: 00:42:16

They cannot build a sedan.

Marko Papic: 00:42:19

American car companies have lost the ability, the technological ability

Marko Papic: 00:42:23

to build a sedan, and that's what happens when you become overly

Marko Papic: 00:42:27

indexed to a particular marketplace.

Marko Papic: 00:42:29

Another example of this is washing machines.

Marko Papic: 00:42:31

When I first used moved to the US in 2000 and uh, six, I was like

Marko Papic: 00:42:35

frustrated by this obsession with top loading washing machines.

Marko Papic: 00:42:39

I was like, this is idiotic.

Marko Papic: 00:42:41

Why?

Marko Papic: 00:42:41

Because side loading, washing machines are more efficient.

Marko Papic: 00:42:44

They wash clothes much better.

Marko Papic: 00:42:46

You're not just sitting there in that shitty water and uh, and they're

Marko Papic: 00:42:50

just like better pieces of equipment.

Marko Papic: 00:42:52

And then what happened?

Marko Papic: 00:42:53

Lo and behold, today you can't even buy a top loading washing machine and lights.

Marko Papic: 00:42:56

You look for one.

Marko Papic: 00:42:57

This is technology.

Marko Papic: 00:42:58

We in Europe, in Europe had in the sixties, Americans were just like,

Marko Papic: 00:43:02

nah, we like top loading 'cause I don't wanna bend or whatever.

Marko Papic: 00:43:07

The point is, if you become overly focused on your own domestic

Marko Papic: 00:43:11

market, you can miss innovation.

Marko Papic: 00:43:13

It can just pass you by.

Marko Papic: 00:43:14

That's what Terrace would do.

Marko Papic: 00:43:15

Now, a couple of things that I would disagree as well.

Marko Papic: 00:43:17

The main premise, your main premise, but also of those who think that

Marko Papic: 00:43:22

this moment is gone is this idea that if something doesn't work and

Marko Papic: 00:43:26

you keep doing it, you're an idiot.

Marko Papic: 00:43:28

Right?

Marko Papic: 00:43:28

Like the Boston Celtics with the three pointers.

Marko Papic: 00:43:31

So from 1990 to 2001, US had preponderance of power.

Marko Papic: 00:43:35

It missed it.

Marko Papic: 00:43:35

It's over.

Marko Papic: 00:43:36

That moment is gone.

Marko Papic: 00:43:38

That's a really, really interesting argument, Jacob, that it's not just

Marko Papic: 00:43:41

Stephen Bannon who would argue it, it's also many on the left and may

Marko Papic: 00:43:45

many establishment and centrist say, look, we missed the moment.

Marko Papic: 00:43:49

I think that us still has something going for it that is really powerful in trade

Marko Papic: 00:43:54

negotiations and its access to its market.

Marko Papic: 00:43:56

Mm-hmm.

Marko Papic: 00:43:58

Because it's the largest market in the world still.

Marko Papic: 00:44:01

And so, no, I do think that the world can still be improved in terms of

Marko Papic: 00:44:05

efficiency of trade, uh, but again, not necessarily for American manufacturing.

Marko Papic: 00:44:11

This is where I do disagree with your, your counter, with our friend Tim.

Marko Papic: 00:44:16

Definitely with Steven Bannon not for American manufacturing.

Marko Papic: 00:44:19

I don't think that's where the advantage is.

Marko Papic: 00:44:21

I think the advantage is in services, but here's why I don't care.

Marko Papic: 00:44:24

Your example of United Kingdom, uh, in the early 19th century preventing

Marko Papic: 00:44:29

export of industrial machinery.

Marko Papic: 00:44:31

I love it.

Marko Papic: 00:44:31

Deep reference.

Marko Papic: 00:44:32

I. Also, it didn't work at all.

Jacob Shapiro: 00:44:36

No, it didn't.

Jacob Shapiro: 00:44:36

It never worked.

Jacob Shapiro: 00:44:36

No.

Jacob Shapiro: 00:44:36

What do you mean it didn't work?

Jacob Shapiro: 00:44:37

No, it didn't work.

Jacob Shapiro: 00:44:39

It did work.

Jacob Shapiro: 00:44:40

No, it didn't.

Jacob Shapiro: 00:44:40

They won, they won the Industrial Revolution.

Marko Papic: 00:44:42

Uh, no they didn't.

Marko Papic: 00:44:45

Sure they did mean they didn't.

Marko Papic: 00:44:47

The Industrial Revolution spread.

Marko Papic: 00:44:47

In fact, British, the United, yes,

Jacob Shapiro: 00:44:49

it spread, it spread

Marko Papic: 00:44:50

more slowly as a result by 1871 No, but, but 1871 Germany Unified

Marko Papic: 00:44:55

by 1890, it was basically Oh, yeah.

Jacob Shapiro: 00:44:57

Out producing.

Jacob Shapiro: 00:44:58

But that, so, but that wasn't the time period.

Jacob Shapiro: 00:44:59

I was talking, I was talking about from 1760 to about 1840.

Jacob Shapiro: 00:45:03

Like that was the, and really British protectionism really starts to kick

Jacob Shapiro: 00:45:06

in at the end of that cycle because they realize things are pushing on and

Jacob Shapiro: 00:45:10

they want to extend the window of the empire as long as possible, but Right.

Jacob Shapiro: 00:45:14

But it starts, the power starts with being able to manufacture things in your

Jacob Shapiro: 00:45:17

own country better than everyone else.

Jacob Shapiro: 00:45:19

And that's what allows you to defeat Napoleon and blah, blah, blah.

Marko Papic: 00:45:22

No, no, no.

Marko Papic: 00:45:22

But this, this is after Napoleon, right?

Marko Papic: 00:45:26

Sure.

Marko Papic: 00:45:26

Like, and I mean, like, like other countries start industrializing.

Marko Papic: 00:45:30

And they started industrializing.

Marko Papic: 00:45:32

Yeah,

Jacob Shapiro: 00:45:32

I hear you.

Jacob Shapiro: 00:45:33

The, the, the point I was making there in my, and again, like this is

Jacob Shapiro: 00:45:36

the devil's advocate, Jake, I'm gonna take, I'm gonna take off my devil

Jacob Shapiro: 00:45:38

devil's advocate hat here in a second.

Jacob Shapiro: 00:45:39

But the, the point of the argument was that, uh, the British Empire

Jacob Shapiro: 00:45:43

does not exist if Great Britain is not at the forefront of

Jacob Shapiro: 00:45:46

manufacturing from 1760 to 1840.

Jacob Shapiro: 00:45:49

So I agree with that.

Jacob Shapiro: 00:45:50

Having a domestic manufacturing capacity is what allowed it to become an empire.

Jacob Shapiro: 00:45:54

And so you can't put a price tag on building that capacity at home.

Jacob Shapiro: 00:45:58

Does the math say you shouldn't have done that and done free trade and

Jacob Shapiro: 00:46:01

traded with Napoleon and everybody else?

Jacob Shapiro: 00:46:03

Sure.

Jacob Shapiro: 00:46:04

But when the chips were down and you had existential wars for your survival, boy

Jacob Shapiro: 00:46:08

was it nice that you made all the shit quicker and more efficiently, uh, more

Jacob Shapiro: 00:46:11

efficiently and better than everyone else, even if the math didn't work.

Marko Papic: 00:46:14

So my point was just that industrialization did spread

Marko Papic: 00:46:18

and the biggest risk, the biggest risks of preventing technology from

Marko Papic: 00:46:23

going outside of your country is that you create necessity that produces.

Marko Papic: 00:46:27

Even greater innovation in the rest of the world.

Marko Papic: 00:46:29

And we've seen that that was really the reason UK

Marko Papic: 00:46:32

industrialized in the first place.

Marko Papic: 00:46:35

It was the fact that the United Kingdom had an energy crisis,

Marko Papic: 00:46:38

had lost access to trees.

Marko Papic: 00:46:40

It deforested its own island.

Marko Papic: 00:46:43

And what happened was coal and then moving coal like necessities,

Marko Papic: 00:46:47

the mother of invention.

Marko Papic: 00:46:48

And so that's one of the problems.

Marko Papic: 00:46:50

Mm-hmm.

Marko Papic: 00:46:50

The second issue is that we are not in 1820 or 1840.

Marko Papic: 00:46:54

We're in 2025.

Marko Papic: 00:46:56

The example of, uh, McKinley leading to America industrial power in the Second

Marko Papic: 00:47:02

World War is a stretch, my friend.

Marko Papic: 00:47:06

No, that's not how it happened.

Marko Papic: 00:47:08

McKinley did not lay the seeds for industrial prowess of

Marko Papic: 00:47:11

America in the Second World War.

Marko Papic: 00:47:13

The, the reason that happened is that the US went on war footing on a war economy.

Marko Papic: 00:47:16

So I agree with the idea that you should retain some baseline.

Marko Papic: 00:47:25

Industrial capacity and industrial capability, right?

Marko Papic: 00:47:30

So I, I don't disagree with that at all.

Marko Papic: 00:47:32

However, when, when war starts, you go into a war footing economy.

Marko Papic: 00:47:37

You don't have to be producing crappy cars that nobody in the world wants.

Marko Papic: 00:47:42

You just have to have the ability to produce cars if shit hits the fan.

Marko Papic: 00:47:46

And that's what's happening in every of these conflicts, by the way.

Marko Papic: 00:47:49

But, but more than that, I'm not sure that the next war is gonna be

Marko Papic: 00:47:52

about tanks and aircraft carriers.

Marko Papic: 00:47:54

We're seeing what's, what's happening in Ukraine versus Russia

Marko Papic: 00:47:58

is a very interesting example.

Marko Papic: 00:47:59

Uh, I encourage our, uh, viewers to watch YouTube clips of the

Marko Papic: 00:48:04

drone conflict that's going on.

Marko Papic: 00:48:07

It's a lot of small innovation.

Marko Papic: 00:48:09

Um, I, I quite frankly, I mean, look at Ukraine.

Marko Papic: 00:48:12

Ukraine, uh, Ukraine.

Marko Papic: 00:48:13

Listen, Ukraine was definitely an industrialized economy for sure.

Marko Papic: 00:48:17

The hake region in particular in the east, um, you know, even

Marko Papic: 00:48:23

dunes with some of the mining.

Marko Papic: 00:48:24

But like, the reality is that, you know, we're not gonna, like

Marko Papic: 00:48:28

nobody was buying Ukrainian cars.

Marko Papic: 00:48:31

Ukraine had some baseline level of industrial competency and it

Marko Papic: 00:48:35

ratcheted that up in a conflict.

Marko Papic: 00:48:37

But most of the innovation happening on that battleground is not what

Marko Papic: 00:48:41

it, it doesn't involve glistening sweat on an assembly line.

Marko Papic: 00:48:47

It involves small electronic innovation.

Marko Papic: 00:48:51

And so the drone, uh, innovation is actually what's winning that war.

Marko Papic: 00:48:55

So I'm not so sure that, you know, you, you need to basically

Marko Papic: 00:48:58

like reassure absolutely every single piece of manufacturing.

Marko Papic: 00:49:03

You just have to leave some baseline.

Marko Papic: 00:49:05

Um, but yeah.

Marko Papic: 00:49:06

Uh, one thing that I will say is that, uh, where the critics of

Marko Papic: 00:49:11

globalization are right, is that those early deals from 1990 to 2001, were.

Marko Papic: 00:49:16

We're onerous for the US.

Marko Papic: 00:49:17

And one thing I wanna say about that is that there's two ways to think about it.

Marko Papic: 00:49:22

One is that a hegemon will always negotiate generously, right?

Marko Papic: 00:49:28

So that's, that's where we talk about naivete.

Marko Papic: 00:49:31

Naivete of the Clinton administration of the Bush Senior and Bush,

Marko Papic: 00:49:35

Jr. They were naive, right?

Marko Papic: 00:49:37

Supposedly.

Marko Papic: 00:49:38

Mm-hmm.

Marko Papic: 00:49:38

Well, not necessarily, they were running a hegemon in the greatest

Marko Papic: 00:49:42

power in of the country, in the world.

Marko Papic: 00:49:43

So they were going to negotiate.

Marko Papic: 00:49:44

They, they were

Jacob Shapiro: 00:49:44

idealistic and they should have been like we were all

Jacob Shapiro: 00:49:47

idealistic at that time period.

Marko Papic: 00:49:48

That, that's true.

Marko Papic: 00:49:49

But you are also, you are also the, you are also in charge.

Marko Papic: 00:49:52

So some country comes to you and says, we want access to the American market,

Marko Papic: 00:49:56

but we're gonna protect our own.

Marko Papic: 00:49:57

You're like, eh, it's fine.

Marko Papic: 00:50:00

Just abide by our rules.

Marko Papic: 00:50:03

So you negotiate generously and they get a lot of flack for that from the Stephen

Marko Papic: 00:50:08

Bannons and the anti-globalization.

Marko Papic: 00:50:09

It's fine.

Marko Papic: 00:50:09

Like they should get flack for that.

Marko Papic: 00:50:11

But here's what America didn't have to do.

Marko Papic: 00:50:14

I understand why America negotiated generously with the rest of

Marko Papic: 00:50:17

the world, but here's where the actual ideology comes from.

Marko Papic: 00:50:23

It was when America didn't redistribute the gains of globalization domestically.

Marko Papic: 00:50:30

This entire narrative that this is somebody else's fault that America

Marko Papic: 00:50:35

was taking for a ride is ideological.

Marko Papic: 00:50:38

And I'm sad that you had to sit through 49 minutes to get to the crux of this,

Marko Papic: 00:50:42

but this is the crux, my friends.

Marko Papic: 00:50:44

Yes, you too, Steven.

Marko Papic: 00:50:46

Oh, now you're calling for taxes and they're wealthy.

Marko Papic: 00:50:49

Okay, buddy.

Marko Papic: 00:50:50

Now that most of it's probably in some Swiss private bank, shut up.

Marko Papic: 00:50:54

I'll tell you what the problem was and where the ideology was.

Marko Papic: 00:50:58

The ideology was not that like America let China take it for a ride and was naive.

Marko Papic: 00:51:04

No, no, no, no.

Marko Papic: 00:51:06

Don't sit here and pretend to me that American corporates didn't like absolutely

Marko Papic: 00:51:11

bathe in profits thanks to globalization.

Marko Papic: 00:51:15

Don't tell me that this did not increase American GDP massively, or the

Marko Papic: 00:51:18

America didn't profit the most it did.

Marko Papic: 00:51:20

We can quantify, prove on any, any metric that the only country that

Marko Papic: 00:51:27

crushed that period of supposed American Navy TE was America.

Marko Papic: 00:51:34

America absolutely crushed the rest of the world.

Marko Papic: 00:51:36

I witnessed with my own eyes, Jacob Shapiro, a line in Ahman

Marko Papic: 00:51:42

Jordan for McDonald's in 1994.

Marko Papic: 00:51:45

That was three days long.

Marko Papic: 00:51:48

The line to eat a cheeseburger was not three hours long, three days long.

Marko Papic: 00:51:53

I witnessed the opening of first McDonald's in Belgrade, Yugoslavia.

Marko Papic: 00:51:58

I was there for this, and it was American corporations that

Marko Papic: 00:52:01

absolutely bathed themselves in cash thanks to the supposed naivete.

Marko Papic: 00:52:07

So the real question that American public should ask themselves is

Marko Papic: 00:52:11

not, is not like, how much did Germany take us for a ride or China?

Marko Papic: 00:52:16

Or why weren't we mean to them?

Marko Papic: 00:52:17

The real question is, why didn't we redistribute the gains of globalization?

Marko Papic: 00:52:22

Why isn't my education in this country high quality and free?

Marko Papic: 00:52:28

Why isn't my healthcare like affordable?

Marko Papic: 00:52:32

You know, because, because that's the real problem when people

Marko Papic: 00:52:37

have lost faith in globalization.

Marko Papic: 00:52:39

You know, like Scott Besant, the Treasury Secretary, I think, or maybe

Marko Papic: 00:52:42

it was Howard Lutnick, said, look, um, the American dream is not cheap goods.

Marko Papic: 00:52:47

Alright?

Marko Papic: 00:52:48

Okay.

Marko Papic: 00:52:48

I get that.

Marko Papic: 00:52:50

I agree with you.

Marko Papic: 00:52:51

I see what he's saying.

Marko Papic: 00:52:52

Like if goods were a little bit more expensive, that's fine.

Marko Papic: 00:52:55

But the American dream Dream does mean equality of opportunity and

Marko Papic: 00:53:00

there was a whole lot of profits and money made off of globalization

Marko Papic: 00:53:06

in America that never, ever got redistributed to the rest of Americans.

Marko Papic: 00:53:12

And that is the fundamental problem with the us.

Marko Papic: 00:53:15

It's not globalization, it's not other countries taking America for a ride.

Marko Papic: 00:53:19

It's not naivete on the geopolitical foreign policy front.

Marko Papic: 00:53:23

It's just a fact that fundamentally the ideology here was less fair capitalism

Marko Papic: 00:53:29

of steroids, where corporates will make the profits and then, you know,

Marko Papic: 00:53:33

we'll just stay with shareholders.

Marko Papic: 00:53:36

And if that had been addressed, had that been addressed, Americas

Marko Papic: 00:53:40

would be perfectly fine with their non-manufacturing low middle class jobs

Marko Papic: 00:53:45

because they would have public spaces to go to that are nice and green.

Marko Papic: 00:53:49

It would have their kids going to cheap public universities, and they

Marko Papic: 00:53:56

would have probably much better access to healthcare than they have now.

Jacob Shapiro: 00:54:00

See, I told you the Marxist would like us.

Jacob Shapiro: 00:54:02

We got talk, got to talking about redistributing American wealth.

Jacob Shapiro: 00:54:05

And I think in some ways, the original sin of what you're talking about,

Jacob Shapiro: 00:54:07

the opportunity to do this, and this actually cuts with the auto companies,

Jacob Shapiro: 00:54:11

is 2008 and the way that companies were bailed out in the context of the 2008

Jacob Shapiro: 00:54:15

financial crisis by the US government.

Jacob Shapiro: 00:54:17

Some companies that were bailed out, whether it was automakers or whether

Jacob Shapiro: 00:54:20

it was, you know, a IG or some of these other, like they should have failed.

Jacob Shapiro: 00:54:24

And the US government wasn't willing to let them fail.

Jacob Shapiro: 00:54:25

It wanted the party to keep going.

Jacob Shapiro: 00:54:28

And in some sense, I think since 2008, the party has kept going even

Jacob Shapiro: 00:54:32

though at that moment, I think you can forgive Bush Clinton, even second

Jacob Shapiro: 00:54:36

bush, you know, for, for indulging in idealism during that period.

Jacob Shapiro: 00:54:40

But by 2008, the writing was on the wall and most mainstream American

Jacob Shapiro: 00:54:45

politicians on both sides of the aisle wanted to keep playing.

Jacob Shapiro: 00:54:47

Like the game was still going.

Jacob Shapiro: 00:54:49

And now the position is where we're now I'm gonna officially take off my, you

Jacob Shapiro: 00:54:52

know, I, I was doing devil's advocate, full throated defense for Terrace.

Jacob Shapiro: 00:54:55

That is surprise not what I think.

Jacob Shapiro: 00:54:56

Um, it's actually fun to argue something that you don't.

Jacob Shapiro: 00:54:59

I actually believe him.

Jacob Shapiro: 00:55:00

But there are a couple of things I wanna say, um, to, to what you said.

Jacob Shapiro: 00:55:03

The first was that, um, I think you're e exactly right, that you actually,

Jacob Shapiro: 00:55:07

no matter how hard I tried, I cannot defend tariffs or protectionism with

Jacob Shapiro: 00:55:12

math in the sense that I can't say that it's going to make America richer.

Jacob Shapiro: 00:55:16

Um, I actually pulled some studies about, uh, president Trump's 2018 steel and

Jacob Shapiro: 00:55:20

aluminum tariffs doing some work for a, a client on something related to this.

Jacob Shapiro: 00:55:23

And if you look at the impact of the 2008 steel aluminum, uh, 2018 steel

Jacob Shapiro: 00:55:28

and aluminum tariffs, which Trump just doubled down on here in the past week

Jacob Shapiro: 00:55:32

or two, uh, basically they reduced employment in the steel and aluminum

Jacob Shapiro: 00:55:37

industries in the United States.

Jacob Shapiro: 00:55:38

Prices rose.

Jacob Shapiro: 00:55:40

Production rose a couple percentage point, and imports also fell because the

Jacob Shapiro: 00:55:44

prices for these inputs were higher and put bigger strains on American companies.

Jacob Shapiro: 00:55:48

So actually in this case, it's an example of how tariffs actually does.

Jacob Shapiro: 00:55:51

None of the things that you want them to do, they don't even give you the

Jacob Shapiro: 00:55:54

thing that you think you're gonna get and you're still also poisoning

Jacob Shapiro: 00:55:56

the well with trust in general.

Jacob Shapiro: 00:55:58

It's why I say if you're going to make a defense, uh, an argument that

Jacob Shapiro: 00:56:01

defends tariffs or protectionism in general, you have to move the goalposts.

Jacob Shapiro: 00:56:05

You have to say, this is not about economic growth right now.

Jacob Shapiro: 00:56:08

This is about a battle for our lives and this is where your comments about the war

Jacob Shapiro: 00:56:11

footing thing acts your Very interesting.

Jacob Shapiro: 00:56:13

Do you know when the first income tax was charged in the United States when

Jacob Shapiro: 00:56:17

the federal government first levied an income tax on the US population

Marko Papic: 00:56:21

1917.

Jacob Shapiro: 00:56:23

1862.

Jacob Shapiro: 00:56:25

In the context of the Civil War, the, the North Levies of Federal income tax, it

Jacob Shapiro: 00:56:29

gets repealed after the Civil War ends.

Jacob Shapiro: 00:56:31

When McKinley is president, there is no income tax.

Jacob Shapiro: 00:56:34

Of course.

Jacob Shapiro: 00:56:34

Yeah.

Jacob Shapiro: 00:56:35

So from roughly 1873 to 1913 with the 16th Amendment, 1913, no income.

Jacob Shapiro: 00:56:41

There's no income tax in the United States.

Jacob Shapiro: 00:56:43

And of course, shortly thereafter, you get World War I and the United States,

Jacob Shapiro: 00:56:47

to your point, is on a war footing.

Jacob Shapiro: 00:56:48

So I take your point that, you know, I'm, I'm really stretching there.

Jacob Shapiro: 00:56:51

I'm doing a lot of downward facing dog, uh, getting from William McKinley

Jacob Shapiro: 00:56:55

all the way to, to World War ii.

Jacob Shapiro: 00:56:56

But that said, uh, Woodrow Wilson flips the switch on the war footing, and he

Jacob Shapiro: 00:57:02

has an economy that can respond to it.

Jacob Shapiro: 00:57:04

And I think this is the one real kernel of truth, because I think if

Jacob Shapiro: 00:57:07

you were going to be, if you were gonna flip the switch today, you and I

Jacob Shapiro: 00:57:11

don't know how to manufacture things.

Jacob Shapiro: 00:57:12

And most people in this country don't know how to manufacture things.

Jacob Shapiro: 00:57:14

Whereas our rivals like China will out manufacture us in a second flat.

Jacob Shapiro: 00:57:20

We can't build an aircraft carrier quickly.

Jacob Shapiro: 00:57:21

They'll build a thousand drones that'll knock out the one, you know, the carriers

Jacob Shapiro: 00:57:25

that we have in, that's five seconds.

Jacob Shapiro: 00:57:27

So like, I think there's this What?

Jacob Shapiro: 00:57:28

Yeah, go ahead.

Marko Papic: 00:57:29

But what you just said is important because the fact that

Marko Papic: 00:57:33

they're gonna build a thousand drones to our aircraft carrier is not a

Marko Papic: 00:57:36

function of industrial metallurgical.

Marko Papic: 00:57:40

Capabilities.

Marko Papic: 00:57:41

It's the fact that war itself has changed away from those very expensive

Marko Papic: 00:57:46

platforms that require you to manufacture an assembly line tanks.

Marko Papic: 00:57:51

Remember when we all debated whether Ukraine should receive Maine battle tanks?

Marko Papic: 00:57:56

When was the last time anybody talked about Maine battle tanks

Marko Papic: 00:57:59

as critical to Ukrainian security?

Marko Papic: 00:58:01

Like that ended with 2022.

Marko Papic: 00:58:03

By the way, all of those tanks have been destroyed by the Russians, just like all

Marko Papic: 00:58:07

the Russian tanks have been destroyed.

Marko Papic: 00:58:08

So the, the, the, the features of war have also changed, and I would say that

Marko Papic: 00:58:13

the United States of America possesses actually sufficient industrial capacity.

Marko Papic: 00:58:19

It is one of the largest producers of aircraft in the world.

Marko Papic: 00:58:22

I think you will continue to need aircraft, and I don't think

Marko Papic: 00:58:26

tanks and really even ships.

Marko Papic: 00:58:29

I mean, submarines are very important.

Marko Papic: 00:58:31

And again, the United States does possess the ability to build the best

Marko Papic: 00:58:34

submarines in the world, more or less.

Marko Papic: 00:58:36

Maybe not the diesel kind that are maybe cheaper and even

Marko Papic: 00:58:39

quieter, but fine, whatever.

Marko Papic: 00:58:41

But it's really the drones that are happening.

Marko Papic: 00:58:43

And so that's where I would also go further and say like trying to

Marko Papic: 00:58:46

preserve late 19th century, early 20th century industrial capacity is not

Marko Papic: 00:58:52

going to matter for the 21st century.

Jacob Shapiro: 00:58:55

Yeah, I take your point there, but, and, and this goes

Jacob Shapiro: 00:58:57

back to again, you can't defend.

Jacob Shapiro: 00:59:00

Protectionist policies and tariffs as if you're trying to get something back.

Jacob Shapiro: 00:59:04

You have to say, this capacity doesn't exist anymore and we

Jacob Shapiro: 00:59:07

have to build this capacity here.

Jacob Shapiro: 00:59:08

You're exactly right On, on drones.

Jacob Shapiro: 00:59:10

And actually, um, this is something that China's experiencing itself,

Jacob Shapiro: 00:59:13

like some of the scuttlebutt I've heard is that Chinese manufacturing

Jacob Shapiro: 00:59:17

laborers are losing their jobs.

Jacob Shapiro: 00:59:18

Not to Vietnam or to Ethiopia or anybody else robots, but to.

Jacob Shapiro: 00:59:22

To robots.

Jacob Shapiro: 00:59:23

It's happening in China itself.

Jacob Shapiro: 00:59:24

Of course.

Jacob Shapiro: 00:59:25

And you know what?

Jacob Shapiro: 00:59:25

Of course China's ahead on robots too.

Jacob Shapiro: 00:59:27

It is, and this is the point where I would push back against you, like when it comes

Jacob Shapiro: 00:59:29

to where things are made in the world, they are made in China, whether it's

Jacob Shapiro: 00:59:34

active pharmaceutical ingredients, whether it's increasingly sort of the lower end

Jacob Shapiro: 00:59:38

chips that you need for semiconductors, whether it's the stuff that goes

Jacob Shapiro: 00:59:41

into the robot that gets created, all of these things are made in China.

Jacob Shapiro: 00:59:45

They are not made in the United States.

Jacob Shapiro: 00:59:46

And the real problem for the United States, this is why I was asking you

Jacob Shapiro: 00:59:49

that trivia question about income taxes, because I didn't know this myself.

Jacob Shapiro: 00:59:52

Basically, since 1913, the US has been on a war footing.

Jacob Shapiro: 00:59:57

We never turned the switch off from the war footing, and we kept on taxing the

Jacob Shapiro: 01:00:01

population and doing all these other things as if we were on a war footing.

Jacob Shapiro: 01:00:04

And yes, it hid behind the rising complexity of government

Jacob Shapiro: 01:00:07

and the Great Depression and the new deal, yada, yada, yada.

Jacob Shapiro: 01:00:10

But fundamentally, we have been spending to maintain our lifestyle.

Jacob Shapiro: 01:00:15

That's what globalization, um, actually maintains.

Jacob Shapiro: 01:00:17

And this is why I'm with you.

Jacob Shapiro: 01:00:19

I like my lifestyle.

Jacob Shapiro: 01:00:20

I like that I'm wearing a silly shirt with flamingos on it that

Jacob Shapiro: 01:00:23

was made in Vietnam that I could buy for $15 because it was on sale.

Jacob Shapiro: 01:00:27

I don't wanna have to go make this shirt myself.

Jacob Shapiro: 01:00:29

It's really, really fun.

Jacob Shapiro: 01:00:31

But if you're going to like, make this argument that we have to make things

Jacob Shapiro: 01:00:34

inside of the United States, then what you're really telling the US population

Jacob Shapiro: 01:00:38

is your lifestyle is gonna suck.

Jacob Shapiro: 01:00:40

And this is something that Trump has said a couple times, right?

Jacob Shapiro: 01:00:43

He said a couple times your kid, maybe your kid shouldn't

Jacob Shapiro: 01:00:45

have four or five dolls.

Jacob Shapiro: 01:00:47

That's right.

Jacob Shapiro: 01:00:48

May, may.

Jacob Shapiro: 01:00:48

Maybe, maybe you guys need to tighten the belts a little bit.

Jacob Shapiro: 01:00:50

Leave aside hypocrisy of that and, and everything else.

Jacob Shapiro: 01:00:53

Quiet a dial quickly.

Marko Papic: 01:00:54

Yeah, he

Jacob Shapiro: 01:00:55

quieted down quickly.

Jacob Shapiro: 01:00:56

But that the, the thing is that like that's the case that you have to make.

Jacob Shapiro: 01:00:59

That's the, if you're defending all of this, you are making the case

Jacob Shapiro: 01:01:02

that you're gonna sacrifice your lifestyle, which is absolutely upheld by

Jacob Shapiro: 01:01:05

globalization in order to have defensive capacity to fight future battles.

Jacob Shapiro: 01:01:10

Well, just, and you can have, have one or the other, but you can't have both.

Jacob Shapiro: 01:01:13

Okay.

Jacob Shapiro: 01:01:13

Go.

Marko Papic: 01:01:13

Well, I'm not sure you, you have to have one or the

Marko Papic: 01:01:16

other People in the 1930s had both.

Marko Papic: 01:01:20

Again, that's what I mean.

Marko Papic: 01:01:21

Like, when the war starts, you get on war footing.

Marko Papic: 01:01:25

You need to retain some minimum level of capacity.

Marko Papic: 01:01:29

Yes.

Marko Papic: 01:01:29

That's where I said steal an aluminum tariffs fine.

Marko Papic: 01:01:33

I mean, your point is like, no, not even fine on that.

Marko Papic: 01:01:36

But like, let's look, you can protect certain industries in order to retain the

Marko Papic: 01:01:42

ability, because once the war starts, the question is can you expand the capacity

Marko Papic: 01:01:45

quickly and what America has proven in the past that yes, it can, it can.

Marko Papic: 01:01:49

It can ramp up industrial capacity in the 1940s.

Marko Papic: 01:01:54

The example was with aircraft, of course, started churning

Marko Papic: 01:01:56

out crazy steam with tanks.

Marko Papic: 01:01:58

I have no doubt that it can do that again, but

Jacob Shapiro: 01:02:00

really that was a long time ago.

Jacob Shapiro: 01:02:03

And we don't make things anymore.

Marko Papic: 01:02:05

Uh, we make, uh, the most sophisticated, the United States of

Marko Papic: 01:02:09

America makes the most sophisticated aerospace aircraft out of anyone.

Marko Papic: 01:02:14

Like that's already there.

Marko Papic: 01:02:15

Yeah.

Jacob Shapiro: 01:02:15

We can't, we can't make any of that stuff without importing a lot of

Jacob Shapiro: 01:02:18

the inputs that go into these products.

Jacob Shapiro: 01:02:19

Okay.

Jacob Shapiro: 01:02:19

So that's, we design some of these things and we've had lots of innovation, but like

Jacob Shapiro: 01:02:22

we can't do that vertically integrated in the United States if we had to.

Jacob Shapiro: 01:02:26

No way.

Jacob Shapiro: 01:02:26

I, uh,

Marko Papic: 01:02:28

yeah.

Marko Papic: 01:02:28

I mean like here.

Marko Papic: 01:02:29

No way.

Jacob Shapiro: 01:02:29

There's no way China, with China go look up

Jacob Shapiro: 01:02:31

and down the supply chain.

Jacob Shapiro: 01:02:32

We don't do same.

Marko Papic: 01:02:33

But again, same with China, right?

Marko Papic: 01:02:34

They can't produce their main airliner without engines that are produced abroad.

Marko Papic: 01:02:39

I.

Jacob Shapiro: 01:02:40

Engine.

Jacob Shapiro: 01:02:41

Yeah.

Jacob Shapiro: 01:02:41

Like engines, they're, I bet you within five to 10 years they will.

Marko Papic: 01:02:45

Okay, fine.

Jacob Shapiro: 01:02:45

Well, well, look, they, they're, they're on the war footing.

Jacob Shapiro: 01:02:48

They are looking at all these things happening and saying, we need to

Jacob Shapiro: 01:02:50

be self-sufficient on these things.

Jacob Shapiro: 01:02:52

Whereas this government is actually not using tariffs.

Jacob Shapiro: 01:02:54

The way that I'm talking about, like your point about tariffs with steel

Jacob Shapiro: 01:02:57

and aluminum, like you can't just say, oh, people aren't treating this right.

Jacob Shapiro: 01:03:00

We're gonna do tariffs so that we get treated fairly.

Jacob Shapiro: 01:03:01

No, the, the thing to say is we need to make steel and aluminum in this country.

Jacob Shapiro: 01:03:05

There is no price we won't pay, and tariffs is a part of that strategy,

Jacob Shapiro: 01:03:08

but then there's also a whole host of other things we're gonna have to do

Jacob Shapiro: 01:03:11

in order to rebuild that industry and retrain workers or robots or whoever

Jacob Shapiro: 01:03:15

it is that is gonna be making the steel and aluminum like, okay, operation

Jacob Shapiro: 01:03:18

warp speed for steel and aluminum.

Jacob Shapiro: 01:03:19

You're actually exactly right that the Trump administration is acting very much

Jacob Shapiro: 01:03:23

in a globalist mindset, like a tariff, a very limited tariff on a very narrow like

Jacob Shapiro: 01:03:28

band of products that is globalization.

Jacob Shapiro: 01:03:31

You're saying you have a trade dispute that you wanna solve so that everybody

Jacob Shapiro: 01:03:34

can go back to trading things.

Marko Papic: 01:03:35

United States of America and Europe can absolutely produce aircraft.

Marko Papic: 01:03:40

Absolutely that Will it require some pieces of, uh,

Marko Papic: 01:03:44

electronics from Italy or Canada?

Marko Papic: 01:03:47

Yes.

Marko Papic: 01:03:48

That's fine.

Marko Papic: 01:03:49

Right.

Marko Papic: 01:03:49

Like, it's fine.

Marko Papic: 01:03:50

The supply chains don't require Chinese products for ASML's, highly

Marko Papic: 01:03:57

advanced lithographic machines.

Marko Papic: 01:03:59

Like they don't mm-hmm.

Marko Papic: 01:04:00

China requires lithographic machines themselves.

Marko Papic: 01:04:03

Yeah.

Jacob Shapiro: 01:04:04

They're, they're doing a good job of getting by on their

Jacob Shapiro: 01:04:06

own and also like huawe Absolutely.

Jacob Shapiro: 01:04:07

With all it's chip design and stuff like that, but that's fine.

Jacob Shapiro: 01:04:09

But like

Marko Papic: 01:04:09

they're competitor.

Marko Papic: 01:04:10

They're gonna get there.

Marko Papic: 01:04:10

Look, I'm not saying that China's not gonna get there.

Marko Papic: 01:04:12

I'm just saying that United States of America can absolutely pro produce

Marko Papic: 01:04:15

an aircraft without China and it can absolutely like find those alternatives.

Marko Papic: 01:04:20

Again, war footing means, hold on.

Marko Papic: 01:04:23

What kind of aircraft?

Marko Papic: 01:04:24

Like a 7 37 or like an

Jacob Shapiro: 01:04:26

F 16 fighter jet with all the computer systems that go into it.

Jacob Shapiro: 01:04:29

Yeah,

Marko Papic: 01:04:29

absolutely.

Marko Papic: 01:04:29

Absolutely.

Marko Papic: 01:04:30

That's why they suck.

Marko Papic: 01:04:31

These are like touch screen made in Vietnam.

Marko Papic: 01:04:33

That's why

Jacob Shapiro: 01:04:34

they suck.

Marko Papic: 01:04:34

No, listen, look, look, look, look, look, look.

Marko Papic: 01:04:36

War footing means whatever you don't have in your supply chain, you set

Marko Papic: 01:04:40

up a factory and you produce it.

Marko Papic: 01:04:42

And the question is, do you wanna live on war footing or do you wanna like

Marko Papic: 01:04:46

be on war footing when there's a war?

Marko Papic: 01:04:49

Mm-hmm.

Marko Papic: 01:04:50

And so that's, that's the question.

Marko Papic: 01:04:52

And my question is, and my answer to that question is like, look, United

Marko Papic: 01:04:55

States and uh, American China are not gonna go to the kind of war where

Marko Papic: 01:04:59

you're gonna need to churn out tanks.

Marko Papic: 01:05:02

That's not gonna really be the kind of war it's gonna be over Taiwan.

Marko Papic: 01:05:06

United States has enough, uh, industrial capacity.

Marko Papic: 01:05:09

I mean, the United States just propped up Ukraine against a

Marko Papic: 01:05:11

neighbor that doesn't even have a water between Russia and Ukraine.

Marko Papic: 01:05:16

There's no, there's no water.

Marko Papic: 01:05:17

The Russians walked into Ukraine, and yet, somehow, magically, our supposed

Marko Papic: 01:05:22

terrible industry that's on the dying gasp helped arrest the attack by the

Marko Papic: 01:05:28

largest mechanized force in human history.

Marko Papic: 01:05:32

I, Russian, I'll

Jacob Shapiro: 01:05:33

push back there again too.

Jacob Shapiro: 01:05:34

We were, we were using up all the stock that we didn't use in the Cold War.

Jacob Shapiro: 01:05:36

Doesn't matter, we imagine we were gonna use forever.

Jacob Shapiro: 01:05:38

What?

Jacob Shapiro: 01:05:38

Like, we're not making that stuff.

Jacob Shapiro: 01:05:39

Like we started using, we started sending them different things because we ran out

Jacob Shapiro: 01:05:42

of the stuff that they needed before.

Marko Papic: 01:05:43

Well, then why didn't they come back with more?

Marko Papic: 01:05:44

Thanks.

Marko Papic: 01:05:46

I mean, this is like, I'm sorry, I'm sorry.

Marko Papic: 01:05:48

I'm giving an actual empirical example where the American industry did succeed

Marko Papic: 01:05:52

in arresting, and you're telling me it's not gonna work next time.

Marko Papic: 01:05:55

Like, why

Jacob Shapiro: 01:05:56

American industry did not manufacture those

Jacob Shapiro: 01:05:58

things when you needed them.

Jacob Shapiro: 01:05:59

The

Marko Papic: 01:05:59

Javelins did not get manufactured by American

Jacob Shapiro: 01:06:01

industry.

Jacob Shapiro: 01:06:01

Ja, yes, yes, the Javelins, but most of the stuff they sent was stuff that

Jacob Shapiro: 01:06:04

was sitting in a warehouse somewhere that they, they found use for.

Jacob Shapiro: 01:06:08

And when they, when they wanted to spin up more capacity for that,

Jacob Shapiro: 01:06:10

they had a lot of trouble doing.

Marko Papic: 01:06:12

They had a lot of trouble until they didn't,

Marko Papic: 01:06:13

and now they refilled stocks.

Marko Papic: 01:06:15

I've been listening to this, uh, nonsense bullshit that javelin stocks

Marko Papic: 01:06:18

are out for the past three years from National securities hawks, and

Marko Papic: 01:06:22

yet China has not invaded Taiwan.

Marko Papic: 01:06:26

Well agree with, you know, like, so, so, no, I agree with that.

Marko Papic: 01:06:27

Again, all of this can be ramped up very quickly.

Marko Papic: 01:06:30

That's my point.

Marko Papic: 01:06:31

And the capacity innovation is there and actually doesn't require

Marko Papic: 01:06:34

that much glistening sweat on the manufacturing line to do the, the,

Marko Papic: 01:06:38

the empirical example is Ukraine.

Marko Papic: 01:06:41

That is the empirical example.

Marko Papic: 01:06:43

We cannot avoid it.

Marko Papic: 01:06:44

We're not gonna be fighting a war with like tanks going up against one another.

Marko Papic: 01:06:47

It's gonna be drones, it's gonna be anti-aircraft, uh, missiles.

Marko Papic: 01:06:51

It's going to be anti-tank missiles.

Marko Papic: 01:06:53

It's going to be a lot of fighter jets.

Marko Papic: 01:06:54

And Aax and the US absolutely crushes that.

Marko Papic: 01:06:57

Now it is falling behind on many other things.

Marko Papic: 01:06:59

Uh, an America drone costs $30 million.

Marko Papic: 01:07:02

A Ukrainian one costs $4,000.

Marko Papic: 01:07:04

Hey, get a hint, right?

Marko Papic: 01:07:06

Innovate in that lab, but that doesn't require huge manufacturing.

Marko Papic: 01:07:10

The other issue, the other issue is you, if Americans decide that they

Marko Papic: 01:07:15

want to live in war footing, then Americans have decided to democracy.

Marko Papic: 01:07:19

But the problem is that this insidious argument that it, that

Marko Papic: 01:07:23

the war fighting is already there.

Marko Papic: 01:07:25

United States of America has enough nuclear weapons to turn China into

Marko Papic: 01:07:31

parking lots, like 12,000 times over.

Marko Papic: 01:07:36

There isn't going to be a total war between China and the us.

Marko Papic: 01:07:39

It's not gonna happen.

Marko Papic: 01:07:40

We are not in a world of total wars.

Marko Papic: 01:07:42

We're gonna be in a world of proxy wars.

Marko Papic: 01:07:44

And yeah, like the US has industrial capacity to clearly protect its vassal

Marko Papic: 01:07:49

states, as we've seen in Ukraine.

Marko Papic: 01:07:53

So what it really comes down to is do Americans wanna live this?

Marko Papic: 01:07:56

And this is where the polling comes back.

Marko Papic: 01:07:57

Like this is where domestic politics comes in.

Marko Papic: 01:08:00

And yes, you're right.

Marko Papic: 01:08:01

The Americans don't want because they're not, what's the word?

Marko Papic: 01:08:04

Wait, I'm looking for it.

Marko Papic: 01:08:05

What's the word?

Marko Papic: 01:08:05

Insane.

Marko Papic: 01:08:07

The American public is not insane.

Marko Papic: 01:08:10

Why would you live on a war footing?

Marko Papic: 01:08:12

Because China is going to do what?

Marko Papic: 01:08:14

Invade Washington State and Oregon.

Marko Papic: 01:08:17

No.

Marko Papic: 01:08:18

And this is all just wool being pulled over people's eyes.

Marko Papic: 01:08:22

This entire competition with China, so that you don't

Marko Papic: 01:08:25

have to redistribute wealth.

Marko Papic: 01:08:27

That is my, that is basically my view.

Jacob Shapiro: 01:08:29

Well, you, you know that I agree with that, that part of what

Jacob Shapiro: 01:08:31

you're talking about, and I'm, I'm playing devil's advocate here still a little bit,

Jacob Shapiro: 01:08:34

but I, I do wanna push back on one thing.

Jacob Shapiro: 01:08:36

One thing I actually do think is, I do think the US is to some

Jacob Shapiro: 01:08:38

extent, already on a war footing.

Jacob Shapiro: 01:08:40

The, the budget for fiscal, for fiscal year 2025 for DOD is gonna

Jacob Shapiro: 01:08:45

be, what was it, a 1.9 trillion?

Jacob Shapiro: 01:08:50

Yeah.

Jacob Shapiro: 01:08:50

1.9 trillion as I'm Googling it, um, in, in 2024, it's, it's

Jacob Shapiro: 01:08:56

meant a trillion on defense.

Jacob Shapiro: 01:08:58

Like that's more than what the next 10, 15 other countries combined.

Jacob Shapiro: 01:09:02

I love that trope, but then I also wanna take it back to McKinley.

Jacob Shapiro: 01:09:05

If you look back to 1890, when the US became the world's most productive

Jacob Shapiro: 01:09:08

economy, um, the United States, its army was less than 30,000 troops.

Jacob Shapiro: 01:09:13

But wait, hold it.

Jacob Shapiro: 01:09:14

It's maybe had fewer than 10,000 men in it, like it wasn't spending on

Jacob Shapiro: 01:09:17

the military like it is right now.

Marko Papic: 01:09:19

Well, but the distances were different.

Marko Papic: 01:09:20

But look, look, look, look, look, look, first of all.

Marko Papic: 01:09:22

Absolute numbers never matter.

Marko Papic: 01:09:24

We have to look at this percent of GDP.

Marko Papic: 01:09:26

And even with the increase in spending now, uh, you know, the US was spending

Marko Papic: 01:09:30

in terms of percent of GDP, I mean, I'm looking at a chart here from

Marko Papic: 01:09:33

World Bank, you know, it was a 6% of GDP on military in 1960 went down,

Marko Papic: 01:09:39

uh, after Vietnam War to a steady state, steady state of three to 4%.

Jacob Shapiro: 01:09:45

Mm-hmm.

Marko Papic: 01:09:45

We are now at 2.5%.

Marko Papic: 01:09:48

With this increase, we might kiss 2.8, we're still less than

Marko Papic: 01:09:52

3% of GDP spending on military.

Marko Papic: 01:09:56

So now that is about 12%, I think 11 or 12% of all taxes raised.

Marko Papic: 01:10:04

So I'm not saying that this isn't little, but it's still less than it was before.

Marko Papic: 01:10:08

So when you say that the US is on war footing and you connected that

Marko Papic: 01:10:11

to taxation, and then you said like, I understand government has

Marko Papic: 01:10:15

gotten more complex and all that.

Marko Papic: 01:10:18

I kind of think that's what it is.

Marko Papic: 01:10:19

I mean, social welfare costs a lot,

Marko Papic: 01:10:24

right?

Marko Papic: 01:10:25

Social security in the US costs a lot.

Marko Papic: 01:10:27

Europeans by the way, is percent of GDP, their governments are even bigger,

Marko Papic: 01:10:33

so they tax even more.

Marko Papic: 01:10:35

So I'm not sure we would say that that's a war footing, but like two point

Marko Papic: 01:10:38

half percent, 3% spending on defense.

Marko Papic: 01:10:41

Like is that too much?

Jacob Shapiro: 01:10:43

Yeah.

Jacob Shapiro: 01:10:44

No, I, I agree you, you picked a hole in a very weak part of my, my argument there.

Jacob Shapiro: 01:10:47

I knew that was weak going in.

Jacob Shapiro: 01:10:48

But this is actually, there is a, a kernel in here though that

Jacob Shapiro: 01:10:51

I want to push back against you.

Jacob Shapiro: 01:10:52

And this actually goes back to the point you made in the last episode about

Jacob Shapiro: 01:10:55

the big beautiful tax bill, which is, you know, CBO put out a revised, um,

Jacob Shapiro: 01:10:59

a revised study of, of the estimates, and you've talked about how it was less

Jacob Shapiro: 01:11:02

than maybe the market was expecting.

Jacob Shapiro: 01:11:04

But if you look.

Jacob Shapiro: 01:11:05

There's two things I want to bring up here.

Jacob Shapiro: 01:11:07

The, the thing that made me think about it is if you look at the spending

Jacob Shapiro: 01:11:10

increases for defense and the border over the next three years, you're

Jacob Shapiro: 01:11:14

also, you're actually spending, you're getting big increases on that side.

Jacob Shapiro: 01:11:18

Increases bigger than the cuts on things like Medicaid to the bottom side.

Jacob Shapiro: 01:11:23

So you're actually cutting Medicaid, uh, but you're actually paying, paying

Jacob Shapiro: 01:11:26

for increasing defense spending over this, over this time horizon, which is

Jacob Shapiro: 01:11:29

like exactly what I'm talking about.

Jacob Shapiro: 01:11:30

That's a war footing.

Jacob Shapiro: 01:11:31

Like add in the cost of the Afghanistan war, add in the cost of the Iraq war,

Jacob Shapiro: 01:11:34

add in the cost of all these things.

Jacob Shapiro: 01:11:36

What if you had those trillions of dollars just to pay down the deficit, let

Jacob Shapiro: 01:11:39

alone fix the American education system, fixed, blah, blah, blah, blah, blah.

Jacob Shapiro: 01:11:42

So that's 0.1.

Jacob Shapiro: 01:11:43

The second point, and this I thought was interesting 'cause you've talked

Jacob Shapiro: 01:11:45

about how you know the market was ready for worse with the big, beautiful bill.

Jacob Shapiro: 01:11:50

Um, the, the spending in this bill is front loaded to 2028.

Jacob Shapiro: 01:11:55

The cuts only really kick in in 2030 when Mr. Trump is not going to be there, and

Jacob Shapiro: 01:12:00

it actually increases the budget deficit by almost a percent every single year

Jacob Shapiro: 01:12:05

going out to 2029 before it drops down.

Jacob Shapiro: 01:12:08

So I think there's actually, president Trump is actually

Jacob Shapiro: 01:12:10

telegraphing to you here.

Jacob Shapiro: 01:12:11

I'm not gonna be here to deal with this problem by 29 or 2030.

Jacob Shapiro: 01:12:14

Somebody else is gonna have to pass the next bill, and maybe they won't.

Jacob Shapiro: 01:12:18

To your point, maybe politics will change by then, but I also think when you're

Jacob Shapiro: 01:12:21

looking at like where that spending is coming, that Trump is pushing all these

Jacob Shapiro: 01:12:24

different things now, I think that it makes sense to increase spending actually,

Jacob Shapiro: 01:12:28

but not to increase defense spending and decrease the spending on social things.

Jacob Shapiro: 01:12:33

Like if you're actually going to protect the United States of America protectionism

Jacob Shapiro: 01:12:37

and the things you're gonna tear up, you have to make the United States better, not

Jacob Shapiro: 01:12:41

just like give some money to DOD and then cut the things that are gonna make, you

Jacob Shapiro: 01:12:45

know, literally more people die anyway.

Jacob Shapiro: 01:12:47

End.

Marko Papic: 01:12:49

You know, I think this debate was really useful, right?

Marko Papic: 01:12:54

Because when you debate, you kind of, it's like boiling down.

Marko Papic: 01:12:59

It's like distilling a piece of liquor down to the highest

Marko Papic: 01:13:03

concentration of alcohol.

Marko Papic: 01:13:05

And basically what we've, I think narrowed it down to is this President Trump is

Marko Papic: 01:13:14

actually a devo pro-globalization guy.

Marko Papic: 01:13:17

Effectively, he's not going far enough.

Marko Papic: 01:13:22

But in order to go far enough, you have to convince yourself

Marko Papic: 01:13:25

that you are in war footing.

Marko Papic: 01:13:27

Because we both agree that once you are in war footing, then you ramp up everything

Marko Papic: 01:13:32

and you cannot have some component in an F 22 that was manufactured in Vietnam.

Marko Papic: 01:13:38

Right?

Marko Papic: 01:13:39

That's, that's what we're saying.

Marko Papic: 01:13:42

But in order for that to happen, you have to convince yourself that

Marko Papic: 01:13:45

the war with China is imminent.

Marko Papic: 01:13:48

And that, and then I would, I would say a couple of things on that.

Marko Papic: 01:13:53

Number one, a war with China will most likely never be a total war.

Marko Papic: 01:13:58

They're very far away.

Marko Papic: 01:14:00

We have nuclear weapons.

Marko Papic: 01:14:03

This is a different world than we were in the forties.

Marko Papic: 01:14:05

So, you know, like, let's keep that in mind.

Marko Papic: 01:14:08

Number

Jacob Shapiro: 01:14:09

two.

Jacob Shapiro: 01:14:09

Or, or, or in the fifties.

Jacob Shapiro: 01:14:10

Like we, we fought a war with China once, it's called the Korean War, but like,

Jacob Shapiro: 01:14:13

that was really the first US China war.

Marko Papic: 01:14:15

Right.

Marko Papic: 01:14:16

But they didn't have nuclear weapons.

Jacob Shapiro: 01:14:18

Correct.

Jacob Shapiro: 01:14:18

They didn't, they didn't even have an air force then.

Jacob Shapiro: 01:14:20

And they fought us to a stalemate.

Jacob Shapiro: 01:14:21

So imagine what happens now.

Marko Papic: 01:14:22

No, no.

Marko Papic: 01:14:22

But, but, but to the point that like, mutual assured destruction was not mm-hmm.

Marko Papic: 01:14:26

A constraint on the conflict.

Marko Papic: 01:14:28

Correct.

Marko Papic: 01:14:28

The, the other thing that I, that I would wanna point out is, the second

Marko Papic: 01:14:31

thing I would point out is that when we do have proxy wars, America is

Marko Papic: 01:14:35

more than capable of fighting it.

Marko Papic: 01:14:37

So Ukraine is a great example of this.

Jacob Shapiro: 01:14:41

And

Marko Papic: 01:14:41

so I, uh,

Jacob Shapiro: 01:14:41

Yemen, Yemen not a good example of this now.

Marko Papic: 01:14:44

Okay.

Marko Papic: 01:14:44

But like, you know.

Marko Papic: 01:14:46

God bless the Houthis.

Marko Papic: 01:14:47

They are a different breed, obviously, and you can't, you know,

Marko Papic: 01:14:52

they're just not gonna be defeated.

Marko Papic: 01:14:54

Um, but the point is, like if you wanna arm somebody, like yeah, us

Marko Papic: 01:14:58

has the cap capacity to do that.

Marko Papic: 01:15:00

Um, and I'm not sure that the US requires to be on a war voting to do that.

Marko Papic: 01:15:05

But more fundamentally, the question is, is that a solution to this problem

Marko Papic: 01:15:09

instead of changing the lifestyle of human beings in America dramatically,

Marko Papic: 01:15:14

isn't the alternative to use both threats sticks and carrots with

Marko Papic: 01:15:23

China to ensure that the spheres of influence are clearly delineated?

Marko Papic: 01:15:28

Like that's what it's, and it's actually what Hack said, you know,

Marko Papic: 01:15:32

like Secretary of State Hackett, who I said I wasn't gonna le learn his

Marko Papic: 01:15:38

name because I called him Kendall.

Marko Papic: 01:15:42

Because I did not think he was gonna get confirmed, but God

Marko Papic: 01:15:44

bless him, he did get confirmed.

Marko Papic: 01:15:46

And his speech at s Shangrila dialogue, which everybody says was extremely

Marko Papic: 01:15:51

aggressive, I mean on on many ways.

Marko Papic: 01:15:53

He was on the other hand, he was saying to everybody there,

Marko Papic: 01:15:56

Hey, you guys need to step up.

Marko Papic: 01:15:58

Like, you know, and that's, and that's a way in which China, those are the

Marko Papic: 01:16:04

sticks that can be used against China sticks that can be used against China

Marko Papic: 01:16:08

is making sure that Malaysia pays for its own defense as an example.

Marko Papic: 01:16:13

And it doesn't require, but to your point,

Jacob Shapiro: 01:16:14

like, like today, president Trump, we're recording on

Jacob Shapiro: 01:16:16

June 5th, Thursday, June 5th, Trump finally got his phone call with Xi

Jacob Shapiro: 01:16:20

Jinping and he's bending over backwards to have more calls with Xi Jinping.

Jacob Shapiro: 01:16:23

I bet you he doesn't give a shit what Hegseth is doing.

Jacob Shapiro: 01:16:25

All President Trump wants to do is make a deal with Xi Jinping

Jacob Shapiro: 01:16:29

and get back to business.

Jacob Shapiro: 01:16:30

Like I don't think he.

Jacob Shapiro: 01:16:36

No, I I'm not saying it's necessarily a problem, I'm just saying there's

Jacob Shapiro: 01:16:38

a disconnect between like, hegseth is saying one thing, but the, I

Jacob Shapiro: 01:16:40

don't think the White House is, I don't So is on the same page

Marko Papic: 01:16:43

think no, I, I disagree.

Marko Papic: 01:16:43

Don't think disagree.

Marko Papic: 01:16:44

No, I disagree.

Marko Papic: 01:16:45

I think the foundation of power is material wealth.

Marko Papic: 01:16:50

That's it.

Marko Papic: 01:16:52

That's it.

Marko Papic: 01:16:52

And not manufacturing and not glistening men with sweat.

Marko Papic: 01:16:55

No.

Marko Papic: 01:16:56

You know what?

Marko Papic: 01:16:56

You can just get Jacob and Marco into a factory if shit hits the fan.

Marko Papic: 01:17:01

So, no, sorry guys, you know, who have duly on your trucks

Marko Papic: 01:17:05

and who desire some sort of a confrontation with China every day?

Marko Papic: 01:17:08

No, it's material wealth.

Marko Papic: 01:17:11

That's what it is.

Marko Papic: 01:17:12

It's just, it's wealth.

Marko Papic: 01:17:14

You gotta be wealthy to be powerful.

Marko Papic: 01:17:15

So what that means is getting a deal with China that allows American companies

Marko Papic: 01:17:21

to make a lot of money in China is the foundation of material wealth and is not.

Marko Papic: 01:17:27

Incompatible with Hack said, telling Southeast Asian economies and countries

Marko Papic: 01:17:32

that are around China, Hey, you guys need to step up and you need to defend yourself

Marko Papic: 01:17:36

because the two things will both make the US more capable of countering China.

Marko Papic: 01:17:41

Yes, trading with China absolutely is necessary because look,

Marko Papic: 01:17:46

and this is something, this is literally for Jason, right?

Marko Papic: 01:17:50

We started off talking about my hair guy, Jason.

Marko Papic: 01:17:54

The fundamental fact is that a Boeing aircraft is 1980s.

Marko Papic: 01:17:58

Technology, you know?

Marko Papic: 01:17:59

Mm-hmm.

Marko Papic: 01:18:00

Like 1990s maybe.

Marko Papic: 01:18:02

Selling that to China does nothing to dent American security.

Marko Papic: 01:18:06

In fact, it enhances it.

Marko Papic: 01:18:08

The only way for Boeing to pivot to making innovative drones, because

Marko Papic: 01:18:13

it doesn't do that right now.

Marko Papic: 01:18:15

The only way for them to do that is to invest in r and d. To do

Marko Papic: 01:18:17

that, you need to sell aircraft.

Marko Papic: 01:18:20

Selling a piece of 1980s technology to China does nothing to hurt America.

Marko Papic: 01:18:25

It just makes money.

Marko Papic: 01:18:27

Then Boeing can take that money and he can divert some of it into r and

Marko Papic: 01:18:30

d so he can build drones that one day might be used against the Chinese.

Marko Papic: 01:18:35

Oh my God.

Marko Papic: 01:18:36

Look at that.

Marko Papic: 01:18:37

And that is what's necessary.

Marko Papic: 01:18:39

Um, so I actually think that making a deal with China by President Trump is

Marko Papic: 01:18:43

the appropriate, is the appropriate way to handle the Chinese threat.

Marko Papic: 01:18:47

Yeah,

Jacob Shapiro: 01:18:48

yeah, yeah.

Jacob Shapiro: 01:18:48

I just, if there isn't, I think the horses, I think the horse

Jacob Shapiro: 01:18:50

already bolted the barn door there.

Jacob Shapiro: 01:18:52

Um, the, the thing that he says, I mean, you're right about what he said

Jacob Shapiro: 01:18:55

at Shangrila, but before that he said that war with China was maybe imminent.

Jacob Shapiro: 01:18:59

So he's, he's talking outta both sides of his mouth there.

Jacob Shapiro: 01:19:01

Um, so, so, so there's that thing.

Jacob Shapiro: 01:19:03

And then also you might have seen that it sounds like China's about to

Jacob Shapiro: 01:19:05

announce that they're gonna purchase, uh, all their aircraft, or at least

Jacob Shapiro: 01:19:08

most of their future orders from Airbus.

Jacob Shapiro: 01:19:11

Airbus No, for not going.

Jacob Shapiro: 01:19:13

I predict that's gonna be part of a shift towards Europe.

Jacob Shapiro: 01:19:14

Yes, you did.

Marko Papic: 01:19:15

I predicted that six months ago.

Marko Papic: 01:19:16

And I mean, like, no, no, but look, look, look, look.

Marko Papic: 01:19:18

That is the trade negotiations.

Marko Papic: 01:19:22

That is like, that's China negotiating with America.

Marko Papic: 01:19:25

But you know what's interesting about what they just said there?

Marko Papic: 01:19:28

They effectively committed that they're not going to imminently

Marko Papic: 01:19:32

try to reunify with Taiwan.

Jacob Shapiro: 01:19:35

Yeah, of course not.

Jacob Shapiro: 01:19:36

Well, yeah, you and I are the same here.

Jacob Shapiro: 01:19:37

Next time we should do a debate.

Jacob Shapiro: 01:19:39

Maybe next time I'll have to do the devil's advocate for China's going to

Jacob Shapiro: 01:19:42

invade Taiwan and then I'll really want to take a bath after we do a podcast.

Marko Papic: 01:19:45

But No, but listen, but listen, like this is where everything

Marko Papic: 01:19:49

breaks down though, because I think our debate boiled down the case for onerous

Marko Papic: 01:19:53

tariffs to reshore everything to America.

Marko Papic: 01:19:57

Right?

Marko Papic: 01:19:57

Be because those will not raise any revenue if you put a 50%

Marko Papic: 01:20:01

tariff and then that good cannot be imported 'cause it's too expensive,

Marko Papic: 01:20:04

you're not gonna raise money.

Marko Papic: 01:20:05

Right?

Marko Papic: 01:20:05

People understand this concept.

Marko Papic: 01:20:07

So the only case for tariffs is war footing.

Marko Papic: 01:20:12

But war footing requires China to be mean and evil.

Marko Papic: 01:20:17

If China is pivoting away from US aircraft to European aircraft, then

Marko Papic: 01:20:22

China is not about to invade anyone because they would attacking Taiwan

Marko Papic: 01:20:27

would usher in a bipolar world where the world would be divided to sphere, to

Marko Papic: 01:20:32

spheres where they just can't compete.

Marko Papic: 01:20:35

And usually people will say, yet, you know, they, China can't compete yet.

Marko Papic: 01:20:39

I don't think that China in the next 20 years can compete against

Marko Papic: 01:20:43

the United West because they have no real allies other than, you

Marko Papic: 01:20:47

know, maybe Russia and maybe Iran.

Marko Papic: 01:20:49

Like, that's just not enough.

Marko Papic: 01:20:51

And so everything breaks apart, like the, the deglobalization argument

Marko Papic: 01:20:56

breaks apart because China is just not an imminent threat to anybody.

Jacob Shapiro: 01:21:03

And it, it breaks down even more because if what you want is

Jacob Shapiro: 01:21:06

to have nicer things and for life to continue to become more comfortable.

Jacob Shapiro: 01:21:10

You also need China.

Jacob Shapiro: 01:21:11

If you want to buy your kid as many gifts as possible.

Jacob Shapiro: 01:21:14

If your daughter has an ear infection and you need children's ibuprofen for like,

Jacob Shapiro: 01:21:18

you start going down the list of things that you need China for and the things

Jacob Shapiro: 01:21:20

that would no longer be on the shelves.

Jacob Shapiro: 01:21:22

If you didn't have trade with China, like to your point, it

Jacob Shapiro: 01:21:25

would be really, really bad.

Jacob Shapiro: 01:21:27

So if you want, like that's sort of, I think what China's big strength is.

Jacob Shapiro: 01:21:30

Like maybe they don't have the material wealth that you're talking about, but

Jacob Shapiro: 01:21:32

I think what they can have, and this is what Belt and Road really is, is

Jacob Shapiro: 01:21:35

hey, uh, have good relations with us.

Jacob Shapiro: 01:21:37

Say Taiwan is not a country.

Jacob Shapiro: 01:21:38

We'll build you a port or we'll build you some highways or we'll build

Jacob Shapiro: 01:21:42

some factories inside of Indonesia.

Jacob Shapiro: 01:21:44

Okay, we'll agree to your terms, whatever else, we will make things better

Jacob Shapiro: 01:21:47

for you and make things really nice.

Jacob Shapiro: 01:21:49

Whereas the United States is not doing that anymore.

Jacob Shapiro: 01:21:51

The United States is turning away from that path.

Jacob Shapiro: 01:21:53

Yeah.

Jacob Shapiro: 01:21:53

So I think like that's the inherent, it's weird to think that

Jacob Shapiro: 01:21:55

China is now doing that because that used to be the US playbook.

Marko Papic: 01:22:01

The US is doing that.

Marko Papic: 01:22:02

It's building highways on a, on a different way.

Marko Papic: 01:22:04

I guess you could argue that the ai, you know, uh, cloud infrastructure and

Marko Papic: 01:22:08

so on would be the equivalent of that just in a, in a digital tech space.

Marko Papic: 01:22:12

But

Jacob Shapiro: 01:22:13

yeah, but the Chinese are better at all that stuff.

Jacob Shapiro: 01:22:15

Like Huawe is, uh, like for the telecoms 5G networks, all that stuff, China's

Jacob Shapiro: 01:22:21

already care like they won then.

Jacob Shapiro: 01:22:22

Uh, that,

Marko Papic: 01:22:24

that was, that was something six years ago.

Marko Papic: 01:22:25

And by the way, that's actually great.

Marko Papic: 01:22:27

I haven't heard anyone mention Huawei 5G in like three years because, you

Marko Papic: 01:22:33

know, one of the things we really need to stop doing is listening to

Marko Papic: 01:22:36

anyone who has like two stars on their shoulder when it comes to technology.

Marko Papic: 01:22:40

Well, yeah, that's true because I can't tell you how many times Jacob, I had

Marko Papic: 01:22:43

somebody come to my office, um, former, general, or some such nonsense, and tell

Marko Papic: 01:22:50

me how Chinese lead in 5G technology was going to end humanity as we know it.

Marko Papic: 01:22:54

And yet here we are in 2025.

Marko Papic: 01:22:57

It doesn't matter.

Marko Papic: 01:22:57

You know why?

Marko Papic: 01:22:58

'cause there's like six G coming.

Jacob Shapiro: 01:23:00

Well, no, but the thing is, here we are, uh,

Jacob Shapiro: 01:23:02

like that was always stupid.

Jacob Shapiro: 01:23:03

But here we are in 2025, Huawei is not dead despite the first Trump

Jacob Shapiro: 01:23:06

administration's attempts to kill it.

Jacob Shapiro: 01:23:08

And despite us companies saying, oh, we're gonna start building the

Jacob Shapiro: 01:23:11

switches and the things that go inside the towers that actually make,

Jacob Shapiro: 01:23:14

'cause we, all of that comes from China, South Korea, Taiwan, and Japan.

Jacob Shapiro: 01:23:18

Like, that's, those are the ones that, those are eSuite.

Jacob Shapiro: 01:23:21

Yeah.

Jacob Shapiro: 01:23:21

But yeah, but they get input some parks.

Jacob Shapiro: 01:23:23

But yes, Nokia and Ericsson also have a, a sort of toehold here.

Jacob Shapiro: 01:23:26

But like, you know, in, in 20 18, 20 19, the Trump administration was

Jacob Shapiro: 01:23:29

talking about working with American companies to build that supply

Jacob Shapiro: 01:23:32

chain inside the United States.

Jacob Shapiro: 01:23:33

As far as I know, and if any listeners or experts in telecoms,

Jacob Shapiro: 01:23:36

feel free to correct me.

Jacob Shapiro: 01:23:37

As far as I know, we, it's still zero.

Jacob Shapiro: 01:23:39

We still import the switches and the antennae and all that other crap from

Jacob Shapiro: 01:23:44

South Korea, or which, which just had a really consequential election from Taiwan,

Jacob Shapiro: 01:23:48

from China, from all these other places.

Marko Papic: 01:23:49

Well, and that's fine.

Marko Papic: 01:23:50

Again, like.

Jacob Shapiro: 01:23:52

It's, it's fine.

Jacob Shapiro: 01:23:53

It's fine to your point.

Jacob Shapiro: 01:23:54

As long as, as long as everybody's friends and as long as she and,

Jacob Shapiro: 01:23:57

and Trump are having chocolate cake, then, then it's good.

Marko Papic: 01:23:59

But this is how the world is different from 20,

Marko Papic: 01:24:03

from 1945 in a way, or, or 1840.

Marko Papic: 01:24:06

There is more integration of a lot of this stuff.

Marko Papic: 01:24:08

It's, it's gotten really deep.

Marko Papic: 01:24:10

Uh, but my point is different twofold.

Marko Papic: 01:24:13

First of all, the Huawei survival of Huawei is a company that innovates

Marko Papic: 01:24:16

and now builds cars and stuff.

Marko Papic: 01:24:18

Is a great example of what happens when you use Productionism.

Marko Papic: 01:24:22

It doesn't work, especially, I mean, you, it it works against the

Marko Papic: 01:24:25

country that hasn't industrialized.

Marko Papic: 01:24:26

Like if you put tariffs on Ethiopia, like that would suck.

Marko Papic: 01:24:29

It would be mean, you know, but it would work.

Jacob Shapiro: 01:24:32

Yeah.

Jacob Shapiro: 01:24:32

Or even Mexico,

Marko Papic: 01:24:34

or maybe even Mexico.

Marko Papic: 01:24:35

Yes.

Marko Papic: 01:24:35

Like Mexico is not, if US decided

Jacob Shapiro: 01:24:37

to tariff Mexico like very, very bad.

Marko Papic: 01:24:40

But if you did it to South Korea would be bad for

Jacob Shapiro: 01:24:41

me too.

Marko Papic: 01:24:42

Korea, if you did it to South Korea, it would be

Marko Papic: 01:24:44

the best thing that ever happened to South Korea and it's history.

Jacob Shapiro: 01:24:47

Yes.

Marko Papic: 01:24:48

Right.

Marko Papic: 01:24:48

And that's, and that's the, the issue.

Marko Papic: 01:24:50

And that was what Nvidia.

Marko Papic: 01:24:52

CEO is saying like, Hey, we need to ensure that there is monopoly

Marko Papic: 01:24:56

of American chip infrastructure.

Marko Papic: 01:24:59

That's his point.

Marko Papic: 01:25:00

Now, obviously he's the CEO of Nvidia.

Marko Papic: 01:25:02

He is biased.

Marko Papic: 01:25:03

He wants to sell chips China.

Marko Papic: 01:25:04

I get that.

Marko Papic: 01:25:05

But he's not wrong.

Marko Papic: 01:25:06

He's not wrong because these, like you are taring a country that can use

Marko Papic: 01:25:11

necessity as a tool of innovation.

Marko Papic: 01:25:13

The second point that the Huawei 5G nonsense shows is that our

Marko Papic: 01:25:18

government officials who can barely reissue me a passport on a

Marko Papic: 01:25:23

acceptable timeline, don't know what's coming on the technological side.

Marko Papic: 01:25:30

Okay, let's, you know as somebody who works for the Pentagon, you

Marko Papic: 01:25:34

know, who makes like as much an an analyst on Wall Street?

Marko Papic: 01:25:37

Okay, no offense guys, sorry, but like, you suck.

Marko Papic: 01:25:41

You don't know what's coming on the, you don't fuck.

Marko Papic: 01:25:44

Like, no way.

Marko Papic: 01:25:45

I can't tell you, Jacob, how many.

Marko Papic: 01:25:48

Generals I had to listen to in my line of work who are telling me

Marko Papic: 01:25:52

how important 5G infrastructure is.

Marko Papic: 01:25:54

Get outta here, please.

Marko Papic: 01:25:56

Like, relax.

Marko Papic: 01:25:57

You know, we're gonna survive somehow magically with

Marko Papic: 01:25:59

Huawei, I guess, spying on us.

Marko Papic: 01:26:01

No, you don't know what's coming.

Marko Papic: 01:26:03

No.

Marko Papic: 01:26:03

You don't know what's coming.

Marko Papic: 01:26:04

And often you are absolutely wrong.

Marko Papic: 01:26:07

And so you obsess about this nonsense.

Marko Papic: 01:26:09

And then what comes out that nobody saw was like, oh, drone

Marko Papic: 01:26:12

technology really matters.

Marko Papic: 01:26:14

Like, oh, thanks.

Marko Papic: 01:26:15

You know, US produces, I think it's called MQ nine Reaper.

Marko Papic: 01:26:20

It's $30 million.

Marko Papic: 01:26:21

$30 million.

Marko Papic: 01:26:23

You know what the most advanced drone today is?

Marko Papic: 01:26:29

What?

Marko Papic: 01:26:29

It's a Russian drone that's con remote controlled with a fiber

Marko Papic: 01:26:34

optic cable tethered to it.

Marko Papic: 01:26:38

It's like those cars we used to have, you know when mom bought

Marko Papic: 01:26:40

you remote controlled cars?

Marko Papic: 01:26:42

Yeah, of course.

Marko Papic: 01:26:43

Yeah.

Marko Papic: 01:26:43

But she didn't spend enough money on the really cool ones that

Marko Papic: 01:26:45

actually had remote control.

Marko Papic: 01:26:46

She bought you the one with a line.

Marko Papic: 01:26:49

The most advanced drone today doesn't even use radio signals.

Marko Papic: 01:26:54

It uses a tether so they can avoid jamming technology, you

Marko Papic: 01:26:57

know, and it doesn't use ai.

Marko Papic: 01:26:59

I relax with the AI thing.

Marko Papic: 01:27:01

Like the problem with ai, it's a great example.

Marko Papic: 01:27:03

It's gonna be the next 5G, Huawei, it's gonna be the next where we're gonna like

Marko Papic: 01:27:07

be like, this wasn't that important.

Marko Papic: 01:27:08

Why?

Marko Papic: 01:27:10

Because the elegance of your LLM model is not going to determine.

Marko Papic: 01:27:14

Whether your swarm of drones knows how to be automated.

Marko Papic: 01:27:19

In other words, there's gonna be some baseline level of AI

Marko Papic: 01:27:22

capability that will be sufficient and that everybody already has.

Jacob Shapiro: 01:27:27

Yeah, I, I don't want, don't throw the baby

Jacob Shapiro: 01:27:29

out with the Huawei water.

Jacob Shapiro: 01:27:30

'cause there's just one thing I wanna say.

Jacob Shapiro: 01:27:31

'cause we alluded to this a little bit earlier.

Jacob Shapiro: 01:27:33

You're right.

Jacob Shapiro: 01:27:33

The people who, and generals like British Intelligence HQ is putting

Jacob Shapiro: 01:27:37

out huge reports about this.

Jacob Shapiro: 01:27:38

This notion that the Chinese were gonna be able to spy on us and destroy all the

Jacob Shapiro: 01:27:41

ships and all the infra like nonsense.

Jacob Shapiro: 01:27:43

But we talked about it earlier when we talked about in China, manufacturing

Jacob Shapiro: 01:27:47

workers are reportedly losing jobs because they're being replaced by robots.

Jacob Shapiro: 01:27:51

That can only happen because they have good 5G infrastructure, because

Jacob Shapiro: 01:27:55

you need the low latency, high speeds of those types of networks on the

Jacob Shapiro: 01:27:59

factory floor and things like that.

Jacob Shapiro: 01:28:00

In order to do.

Jacob Shapiro: 01:28:02

Like you could buy from Ericsson, but I'm saying there's a difference

Jacob Shapiro: 01:28:04

between Chinese factories are already doing that and adopting it in mass and

Jacob Shapiro: 01:28:08

thinking about the next generation.

Jacob Shapiro: 01:28:09

Whereas US factories, and maybe we go back to Tim and ask him this, my

Jacob Shapiro: 01:28:13

impression of seeing US factories or even factories in Mexico and things like

Jacob Shapiro: 01:28:16

that is, we're not even close to that.

Jacob Shapiro: 01:28:18

We're still debating about whether we should do some of those things.

Jacob Shapiro: 01:28:20

No, no.

Jacob Shapiro: 01:28:20

So there is like a kernel of importance in the adoption of some

Jacob Shapiro: 01:28:23

of these things and productivity.

Marko Papic: 01:28:24

China has installed the most robots in the world.

Marko Papic: 01:28:27

Yes, that is a fact.

Marko Papic: 01:28:29

However, you need

Jacob Shapiro: 01:28:30

Huawei 5G to do that.

Marko Papic: 01:28:31

But Japan and Germany are also global

Marko Papic: 01:28:34

leaders in industrial robotics.

Marko Papic: 01:28:36

So the West is fine.

Marko Papic: 01:28:39

And, and,

Jacob Shapiro: 01:28:40

and

Marko Papic: 01:28:40

there's, if

Jacob Shapiro: 01:28:40

Germany and Japan will share with us, uh, chancellor Mer says

Jacob Shapiro: 01:28:43

that he can't trust the United States anymore, and Japan was the one that gave

Jacob Shapiro: 01:28:46

the middle finger after liberation day.

Jacob Shapiro: 01:28:48

So again, things I wouldn't take for granted based on,

Marko Papic: 01:28:50

they'll sell a robot to, to the look.

Marko Papic: 01:28:52

Look, all I'm saying, all I'm saying is that, uh, I think that this

Marko Papic: 01:28:55

is just, every single time China innovates something, it's like, oh

Marko Papic: 01:28:59

my God, they're gonna defeat us and.

Marko Papic: 01:29:02

Eh, you know, like it's okay.

Marko Papic: 01:29:04

Like look, lemme do this.

Marko Papic: 01:29:05

They're innovating.

Marko Papic: 01:29:06

I, I think, I think the case here is that, um, it comes down to threat perception.

Marko Papic: 01:29:13

You know, and I once had a two star general tell me that China's lead in

Marko Papic: 01:29:19

payment systems was cider coming for us.

Marko Papic: 01:29:23

And I was like, really?

Marko Papic: 01:29:23

Bro?

Marko Papic: 01:29:24

FinTech his national security, relax.

Marko Papic: 01:29:26

I mean, number one, yes, we should probably not use physical

Marko Papic: 01:29:29

checks in this country anymore 'cause that's kind of medieval.

Marko Papic: 01:29:33

But no, the fact that they use QFR codes to pay for everything, like, I don't know.

Marko Papic: 01:29:37

I sleep well at night because of that.

Marko Papic: 01:29:39

Call me naive.

Marko Papic: 01:29:41

And that, and it, and this comes down to a very simple point.

Marko Papic: 01:29:45

Very simple point.

Marko Papic: 01:29:47

It really comes down to threat perception of China.

Marko Papic: 01:29:50

Everything really comes down to that.

Marko Papic: 01:29:52

To what extent do you think China's gonna knock on the door in your

Marko Papic: 01:29:55

country, in your home, in your Orleans or Kansas or wherever you are?

Marko Papic: 01:30:00

Force you to teach your kids Mandarin.

Marko Papic: 01:30:02

And I think that that is as far from a, a potential future as anything.

Marko Papic: 01:30:08

'cause we have nuclear weapons and no one's going to fight

Marko Papic: 01:30:14

the great Power War with those.

Marko Papic: 01:30:16

So

Jacob Shapiro: 01:30:17

as I've joked many times, and I hope the Chinese Communist

Jacob Shapiro: 01:30:19

Party is gonna listen at some point, uh, not only am I not afraid of that,

Jacob Shapiro: 01:30:23

I would welcome them and please build us some ports and some other nice

Jacob Shapiro: 01:30:26

infrastructure down here in the south.

Jacob Shapiro: 01:30:27

'cause we desperately need it because nobody in the United

Jacob Shapiro: 01:30:29

States is building this shit.

Jacob Shapiro: 01:30:30

Anyway, um, we have 20 minutes left Marco, and I think this is actually a

Jacob Shapiro: 01:30:33

good segue to something that we should talk about before we get outta here,

Jacob Shapiro: 01:30:36

which we've danced around it in sort of everything we've talked about here today.

Jacob Shapiro: 01:30:40

But I think we should talk about Operation Spiderweb for 10, 15 minutes

Jacob Shapiro: 01:30:43

and give it, let's give it its own do.

Jacob Shapiro: 01:30:44

Um, unless you've been living under a rock.

Jacob Shapiro: 01:30:47

Um, so over last weekend, again recording here, June 5th, um, Ukraine conducted.

Jacob Shapiro: 01:30:53

Uh, what it called, operation Spider's Web, a drone attack on at least

Jacob Shapiro: 01:30:57

five different air bases all over Russia from Siberia or, you know,

Jacob Shapiro: 01:31:02

that far away towards the Pacific side, all the way to around Moscow.

Jacob Shapiro: 01:31:05

Um, the details are of course, a little bit shady, but it looks

Jacob Shapiro: 01:31:08

like over a hundred drones.

Jacob Shapiro: 01:31:09

And to your point, these drones costing about $600 a pop.

Jacob Shapiro: 01:31:13

Uh, basically taking out, and this is where the, the numbers are a

Jacob Shapiro: 01:31:16

little bit, um, a little bit shady, but let's say taking out one third

Jacob Shapiro: 01:31:21

of Russia's strategic bomber fleet.

Jacob Shapiro: 01:31:23

Just by using drones, uh, to bomb Russian air bases some of these bombers that

Jacob Shapiro: 01:31:28

were, you know, uh, running bombs against Ukraine, uh, and engaging in long range

Jacob Shapiro: 01:31:32

strikes in Ukraine against Ukrainian infrastructure and things like that.

Jacob Shapiro: 01:31:35

Um, Ukraine has made a really big deal of it.

Jacob Shapiro: 01:31:37

Uh, president Zelensky said it took 18 months to plan the operation.

Jacob Shapiro: 01:31:40

He's, uh, he's today given out medals and awards to the guys who were behind it.

Jacob Shapiro: 01:31:44

Um, but for me, I, I sort of.

Jacob Shapiro: 01:31:46

Sat up in my chair because now it's, this is not the first example we have of this.

Jacob Shapiro: 01:31:50

I, I thought, I mean, I'm not the first to make this connection, but there's

Jacob Shapiro: 01:31:53

Israel's assault on Hezbollah with the pagers, hijacking, international

Jacob Shapiro: 01:31:57

supply chains, putting explosives into those pagers, sending them

Jacob Shapiro: 01:32:00

to the people you wanna blow up.

Jacob Shapiro: 01:32:02

Um, the Houthis, who, despite President Trump's best efforts, are

Jacob Shapiro: 01:32:05

just sitting there continuing to bomb whatever the heck they want

Jacob Shapiro: 01:32:08

because the US Navy and Air Force with all of its capability can't bring.

Jacob Shapiro: 01:32:12

A bunch of like non-state Yemeni militants chewing cot in the

Jacob Shapiro: 01:32:16

middle of the desert to heal.

Jacob Shapiro: 01:32:18

Like kind of remarkable.

Jacob Shapiro: 01:32:19

But here you have Ukraine, which has been on the ropes.

Jacob Shapiro: 01:32:21

Things have not been looking good.

Jacob Shapiro: 01:32:23

Russia's gonna out grind them and out suffer them and slowly take

Jacob Shapiro: 01:32:26

land in the east and then make, you know, some kind of frozen peace

Jacob Shapiro: 01:32:29

agreement based on whatever they want.

Jacob Shapiro: 01:32:30

Here's Ukraine striking back and saying, okay, Russia like.

Jacob Shapiro: 01:32:34

For the price of $600 times, roughly a hundred, we're gonna wipe out a

Jacob Shapiro: 01:32:38

third of your strategic bombers.

Jacob Shapiro: 01:32:40

You wanna keep dancing or do you wanna meet us in Istanbul?

Jacob Shapiro: 01:32:43

Um, it, to me, it like opens up a question about rethinking the balance of power

Jacob Shapiro: 01:32:47

from a military perspective in the world.

Jacob Shapiro: 01:32:49

Is this bad news for conventional powers like the United States and China

Jacob Shapiro: 01:32:53

versus good news for smaller powers?

Jacob Shapiro: 01:32:55

If you want to get real dystopian, what happens when Mexican drug cartels

Jacob Shapiro: 01:32:59

and other non-state actors are able to use drones in this particular way?

Jacob Shapiro: 01:33:03

And then you've got, you know, let's, let's use Mexico as an example.

Jacob Shapiro: 01:33:06

Let's say if.

Jacob Shapiro: 01:33:06

You know, the Mexican government trying to bring the cartels to heal,

Jacob Shapiro: 01:33:09

and the cartels are like, uh, what if we bomb the Mexican Air Force?

Jacob Shapiro: 01:33:12

Or what if we take out all of your conventional military capability?

Jacob Shapiro: 01:33:15

You want to keep messing with us in the things that we're doing.

Jacob Shapiro: 01:33:17

Like we can do this all day with these drones.

Jacob Shapiro: 01:33:19

So I, for me, it was like, I need to really like rethink the military

Jacob Shapiro: 01:33:23

balance of power in the world.

Jacob Shapiro: 01:33:24

Uh, am I overstating it?

Jacob Shapiro: 01:33:25

Did you have a similar thought or are you a little more, uh, tell me I'm sensa

Jacob Shapiro: 01:33:30

sensationalist is what I'm hoping you're gonna tell me rather than that I'm Right.

Marko Papic: 01:33:35

Um,

Marko Papic: 01:33:38

I mean, we can get very dystopian about this, right?

Marko Papic: 01:33:40

Um, so as I said earlier, you know, like this, uh, fiber optic

Marko Papic: 01:33:45

cable tethered to a drone, it allows the drone to avoid jamming.

Marko Papic: 01:33:50

So Russians have basically, and these drones are now completely crushing it.

Marko Papic: 01:33:54

Uh, I'm gonna send you a couple of links.

Marko Papic: 01:33:55

Jacob, if, in case you wanna put 'em in the links,

Jacob Shapiro: 01:33:58

please

Marko Papic: 01:33:59

if we can do that.

Marko Papic: 01:34:00

There's one, it's a 50 minute interview with an entrepreneur in Russia.

Marko Papic: 01:34:06

Who is producing Russian drones.

Marko Papic: 01:34:09

Uh, and it's fascinating.

Marko Papic: 01:34:11

He's very objective.

Marko Papic: 01:34:12

He gives Ukrainians lots of props.

Marko Papic: 01:34:14

He works for the Russian state.

Marko Papic: 01:34:16

I mean, the Russian state is his customer, but he is, uh, is uh, is a very kind of

Marko Papic: 01:34:21

objective, matter of fact kind of dude.

Marko Papic: 01:34:23

Uh, he describes different drones and, and he takes a lot of pleasure

Marko Papic: 01:34:26

in making fun of American drones.

Marko Papic: 01:34:28

I thought that was really hilarious.

Marko Papic: 01:34:29

Um, but he says Ukrainians are actually better than Russian.

Marko Papic: 01:34:33

So that was interesting.

Marko Papic: 01:34:34

Mm-hmm.

Marko Papic: 01:34:34

And then I'll send, uh, also a YouTube link on those fiber optic drones and,

Marko Papic: 01:34:39

and shows their lethal lethality.

Marko Papic: 01:34:42

Um, I think that we are at a threshold of potential over the next 30 years where

Marko Papic: 01:34:49

all of this technology could very well

Marko Papic: 01:34:54

undermine the very sinus that hold nation states together.

Marko Papic: 01:35:01

The reason, you know, earlier in this podcast you talked about how we're

Marko Papic: 01:35:06

still on war footing because we have taxation, which is, which is like,

Marko Papic: 01:35:11

which is a stretch, but like, meh.

Marko Papic: 01:35:15

Not that, you know, um, the famous sociologist, Charles Tilley

Marko Papic: 01:35:23

famously said that war makes states and states make war.

Jacob Shapiro: 01:35:30

Hmm.

Marko Papic: 01:35:31

In other words, we have nation states because of war.

Marko Papic: 01:35:35

Like if we didn't, maybe we would all just live in like cantons or parishes,

Marko Papic: 01:35:40

is that what we call them in Louisiana?

Jacob Shapiro: 01:35:42

It is.

Jacob Shapiro: 01:35:43

Yeah.

Jacob Shapiro: 01:35:43

Very

Marko Papic: 01:35:43

good.

Marko Papic: 01:35:43

Right.

Marko Papic: 01:35:44

Maybe, maybe that will be enough.

Marko Papic: 01:35:46

And so one of the reasons that states have to tax you, like, not like the main

Marko Papic: 01:35:51

reason, but like one of them, the reason we do it at that level, at a super high,

Marko Papic: 01:35:57

large level, continental size level in America's case is not because providing

Marko Papic: 01:36:04

education and healthcare makes sense at a federal level of a continent.

Marko Papic: 01:36:10

But because defending your, you at your, in your house from the threats

Marko Papic: 01:36:15

does make sense at a continent level.

Marko Papic: 01:36:17

Like size matters.

Marko Papic: 01:36:19

But what's happening with technology is that size doesn't and scale may not

Marko Papic: 01:36:23

matter, you know, and the fact that the Ukrainians put a bunch of cheap

Marko Papic: 01:36:28

drones into a truck, drove them across the border all the way to East Asia,

Marko Papic: 01:36:35

a, according to news reports, they attacked a military

Marko Papic: 01:36:38

base of Russia in East Asia.

Marko Papic: 01:36:42

Closer to Tokyo than it is to Kiev.

Marko Papic: 01:36:45

So the fact that they're able to do this undermines the very TA taxes

Marko Papic: 01:36:50

we pay so that our country produces aircraft carriers to like defend us.

Marko Papic: 01:36:56

Because they can't.

Marko Papic: 01:36:58

Because you're right.

Marko Papic: 01:36:59

It's not just, I mean, it's not just the conflict with like the cartels.

Marko Papic: 01:37:02

It's really everything.

Marko Papic: 01:37:04

Drones are getting very cheap, very good.

Marko Papic: 01:37:07

You can't jam them.

Marko Papic: 01:37:09

An operator can use a fiber optic.

Marko Papic: 01:37:11

These things, the cables look like a string of hair and the camera at

Marko Papic: 01:37:15

the end of that drone has 4K HD.

Marko Papic: 01:37:18

Jacob.

Marko Papic: 01:37:20

You can go on YouTube and watch videos that are really grizzly

Marko Papic: 01:37:23

because you see a lot of detail.

Marko Papic: 01:37:25

Mm-hmm.

Marko Papic: 01:37:25

Before they kill someone.

Marko Papic: 01:37:27

So you can have a very small drone that's operated with a string of hair line,

Marko Papic: 01:37:32

you know, holding it 60 kilometer range.

Marko Papic: 01:37:36

Crazy stuff.

Marko Papic: 01:37:38

It's a lot a line.

Marko Papic: 01:37:39

But the point is, uh, yeah, I mean this undermines the very

Marko Papic: 01:37:44

notion that governments can't provide a level of security.

Marko Papic: 01:37:48

And so what does it mean for warfare?

Marko Papic: 01:37:51

It means that all this nonsense there we're gonna need steel and glistening

Marko Papic: 01:37:55

sweat of manly men banging hammers to produce tanks and howitzers ammunitions,

Marko Papic: 01:38:04

you know, like, eh, I'm not sure that's where the wars are going in the future.

Marko Papic: 01:38:09

And the fact is, America provided Ukraine with Javelins, which were pretty

Marko Papic: 01:38:14

cheap themselves, that arrested that initial military mechanized attack.

Marko Papic: 01:38:20

But since then, it's kind of been up to Ukrainians themselves and

Marko Papic: 01:38:24

their, their ability to innovate.

Marko Papic: 01:38:26

Now, patriot missiles are also important.

Marko Papic: 01:38:29

Obviously that's where America has helped immensely, uh, in allowing

Marko Papic: 01:38:34

Ukraine to defend its airspace.

Marko Papic: 01:38:35

But my point is that.

Marko Papic: 01:38:37

You're gonna need some anti-aircraft weapon systems, you're gonna need

Marko Papic: 01:38:41

some satellite command and control.

Marko Papic: 01:38:42

That's where starlink comes in.

Marko Papic: 01:38:43

Mm-hmm.

Marko Papic: 01:38:44

You can't use these drones without that.

Marko Papic: 01:38:46

But then like, not even, you can even fly these drones tethered with a fiber optic

Marko Papic: 01:38:51

cable and you're gonna get smaller and they're gonna get more and more lethal.

Marko Papic: 01:38:56

And if you wanna assassinate somebody, it's gonna be like

Marko Papic: 01:38:59

that little probe in, in dune

Marko Papic: 01:39:03

that our hero Charlemagne had to fight.

Marko Papic: 01:39:07

Right.

Marko Papic: 01:39:08

Um, so like, I think, I think it's very interesting what's happening.

Marko Papic: 01:39:12

It's, it's basically war is getting less technologically sophisticated in

Marko Papic: 01:39:16

some ways, and I find that fascinating.

Marko Papic: 01:39:19

I find it fascinating that we always think that everything is

Marko Papic: 01:39:22

gonna get super, super advanced.

Marko Papic: 01:39:25

And if you allow me to cook on just one point.

Marko Papic: 01:39:28

Yeah.

Marko Papic: 01:39:28

When I was a kid, I liked computer games.

Marko Papic: 01:39:31

In the nineties.

Marko Papic: 01:39:32

Right.

Marko Papic: 01:39:32

And I, I imagine I would often sit there and imagine, oh my God, I can't

Marko Papic: 01:39:36

wait for 2025 when I'm in my forties.

Marko Papic: 01:39:38

I bet the graphics and the computers like, I'll be able to

Marko Papic: 01:39:41

play Madden like as a quarterback, like, you know, inside the game.

Marko Papic: 01:39:46

Yeah.

Marko Papic: 01:39:46

And instead, computer games have actually gone the other

Marko Papic: 01:39:48

way because of the, the phone.

Marko Papic: 01:39:51

Mm-hmm.

Marko Papic: 01:39:51

So when I see what my children are playing graphics of Roblox is absolutely terrible.

Marko Papic: 01:39:57

And many, many games that have been very successful, like Angry Birds are

Marko Papic: 01:40:01

being like, they're just like Prince of Persia from the nineties for God's sakes.

Marko Papic: 01:40:06

And so I think we're all sitting here and we're thinking we're gonna need

Marko Papic: 01:40:11

AI robots to fight these huge wars, and they're gonna be devastating.

Marko Papic: 01:40:17

And Russians have turned the tide of the war because they connected the

Marko Papic: 01:40:20

drone with a cable to a remote control.

Jacob Shapiro: 01:40:24

Ukraine?

Marko Papic: 01:40:25

No, no.

Marko Papic: 01:40:25

Russians.

Marko Papic: 01:40:26

Russians.

Marko Papic: 01:40:26

Russians.

Marko Papic: 01:40:27

Uh, so, so.

Marko Papic: 01:40:29

The Russians are making gains in Ukraine because of this tethered drone.

Marko Papic: 01:40:33

So that was a, that was actually very, oh, I see what you're saying.

Marko Papic: 01:40:35

Sorry.

Marko Papic: 01:40:35

Sorry.

Marko Papic: 01:40:35

But your point, your point is you to be, to go back to your point,

Marko Papic: 01:40:39

he also put $600 drones in a truck and drove it and released them.

Marko Papic: 01:40:44

You know, like, this isn't like, and then, and you know, the media, the

Marko Papic: 01:40:47

journalists obsessed about, apparently some of them had AI in like capabilities.

Marko Papic: 01:40:53

'cause they, once they lost control, they knew what an aircraft looked like,

Marko Papic: 01:40:56

and then they autonomously went to it.

Marko Papic: 01:40:58

Like, gimme a break.

Marko Papic: 01:40:59

Like, relax again.

Marko Papic: 01:41:01

No, this wasn't an AI attack.

Marko Papic: 01:41:02

You're gonna, you're gonna need some low level baseline coding to make that happen.

Marko Papic: 01:41:08

The future of warfare is not gonna be who has the most elegant ai.

Marko Papic: 01:41:12

It's just not the future of war may very well be that you can't have a war.

Jacob Shapiro: 01:41:18

Maybe I'm, I'm reminded of, um, you know, the

Jacob Shapiro: 01:41:20

Civil War, the u the American Civil War is like my nerdy obsession.

Jacob Shapiro: 01:41:23

And, um, of course, like I've, I can't count the number of times I've

Jacob Shapiro: 01:41:26

watched Ken Burns, uh, documentary mostly so I could watch Shelby Foote

Jacob Shapiro: 01:41:29

pontificate about, uh, the Civil War.

Jacob Shapiro: 01:41:31

But, um, one of the reasons the casualty figures in US Civil War battles was,

Jacob Shapiro: 01:41:35

were so high, um, was because in the words of Shelby Foot, the tactics

Jacob Shapiro: 01:41:39

had not caught up with the weapons.

Jacob Shapiro: 01:41:40

I think we're in that situation right now, like the tactics are just beginning

Jacob Shapiro: 01:41:44

to sort of, uh, reach what, oh, we have these weapons, we can do what with

Jacob Shapiro: 01:41:49

this technology against these targets.

Jacob Shapiro: 01:41:52

Um, and I think it's fascinating to watch Russia and Ukraine, 'cause it's

Jacob Shapiro: 01:41:54

literally a laboratory in real time, to your point about what war is probably

Jacob Shapiro: 01:41:58

going to look like in the future.

Jacob Shapiro: 01:42:00

And it doesn't look like World War iii.

Jacob Shapiro: 01:42:01

And you know, ironically, like in the example I just gave, like actually

Jacob Shapiro: 01:42:05

casualty numbers were higher because the weapons were so deadly and the

Jacob Shapiro: 01:42:08

tactics were just marched towards each other and shoot at each other.

Jacob Shapiro: 01:42:10

So you had like.

Jacob Shapiro: 01:42:11

Tens of thousands of people dying in battles that didn't need to.

Jacob Shapiro: 01:42:14

To your point, if you have these really, really precise things, like,

Jacob Shapiro: 01:42:19

I mean like, let's say we're 10 years in the future, you have some

Jacob Shapiro: 01:42:21

of these really precise drones.

Jacob Shapiro: 01:42:22

Like, can you just assassinate Putin before things even get going?

Jacob Shapiro: 01:42:26

And like, and this like, I mean, that's the sort of world that it seems

Jacob Shapiro: 01:42:29

like we're heading towards, and maybe they'll be some kind of counterbalance

Jacob Shapiro: 01:42:31

or antione defense technology.

Jacob Shapiro: 01:42:33

I don't know.

Jacob Shapiro: 01:42:33

But like, um, yeah, it's, it's changing the way I think about like military,

Jacob Shapiro: 01:42:37

you know, back to our geopolitical power index, like we might have to

Jacob Shapiro: 01:42:41

revisit the whole index just because we need to rethink like what conventional

Jacob Shapiro: 01:42:44

military power means on that scale.

Marko Papic: 01:42:46

Well, I mean, watch that you, uh, YouTube clip of the scene where the

Marko Papic: 01:42:50

hunter seeker tries to kill prad in Dune.

Marko Papic: 01:42:54

Mm-hmm.

Marko Papic: 01:42:55

By the way, dune is fascinating.

Marko Papic: 01:42:56

You know, um, I read the books when I was a kid and everything.

Marko Papic: 01:42:59

No, we, I mean, we can, we can go off another, uh, 30 minutes on this, but.

Marko Papic: 01:43:03

The whole point.

Marko Papic: 01:43:04

Well, Margo, I,

Jacob Shapiro: 01:43:04

I don't know if you know this, I'll, I'll put

Jacob Shapiro: 01:43:05

this in the show notes too.

Jacob Shapiro: 01:43:06

Back when I was still with George at GPF, uh, once a year, I commandeered the

Jacob Shapiro: 01:43:10

website to do April Fools, uh, pieces.

Jacob Shapiro: 01:43:12

And there is on the internet, I'll, I'll, we'll put it in the show notes.

Jacob Shapiro: 01:43:15

There's a 15 page geopolitics of Dune from yours, truly that it

Jacob Shapiro: 01:43:18

was released on April Fools 2019.

Jacob Shapiro: 01:43:20

It's great.

Jacob Shapiro: 01:43:21

I had our graphics team create like really intense geographic maps of

Jacob Shapiro: 01:43:25

Calahan and Arki and of, um, har uh, where are the harken's from?

Jacob Shapiro: 01:43:29

Uh, GS Prime?

Jacob Shapiro: 01:43:32

No, uh, it, it's giddy Prime.

Jacob Shapiro: 01:43:33

Yeah.

Jacob Shapiro: 01:43:33

Anyway, sorry.

Jacob Shapiro: 01:43:34

Gi Yeah, go ahead.

Marko Papic: 01:43:35

Uh, okay, so, uh, no, I was just gonna say, uh, I mean

Marko Papic: 01:43:38

the whole premise of that, uh, show is that all these great houses have

Marko Papic: 01:43:42

nuclear weapons, but they choose not to use them because obviously

Marko Papic: 01:43:45

it's mutual for assure destruction.

Marko Papic: 01:43:47

But technology has gotten so advanced in warfare.

Marko Papic: 01:43:50

They have to use basically combat, like hand to hand combat.

Marko Papic: 01:43:55

Yeah.

Marko Papic: 01:43:55

And I think that, um, you know, I, I do think that there's potential.

Marko Papic: 01:43:59

For war to become so precise, as you say, where you can basically use a

Marko Papic: 01:44:04

hunter seeker drone to take out a leader.

Marko Papic: 01:44:08

That's number one.

Marko Papic: 01:44:08

And number two, I think that providing large mechanized military platforms like

Marko Papic: 01:44:17

nuclear submarines, aircraft carriers, tanks, aircraft becomes less relevant.

Marko Papic: 01:44:23

And if it becomes less relevant,

Marko Papic: 01:44:27

states become less relevant.

Marko Papic: 01:44:29

But that's like a 30, 50 year.

Marko Papic: 01:44:30

I mean, that will require a whole podcast for itself.

Marko Papic: 01:44:33

I just do think that since Industrial Revolution, revolution was created since

Marko Papic: 01:44:38

Industrial Revolution, everything's been about scale, Jacob, everything,

Marko Papic: 01:44:42

and by, by everything, I don't mean just like producing industrial goods for

Marko Papic: 01:44:47

war, but also producing educated human beings that can follow order in a war.

Marko Papic: 01:44:53

Mm-hmm.

Marko Papic: 01:44:54

They can work in a factory like mass Education, healthcare.

Marko Papic: 01:44:59

Everything's been about the median outcome.

Marko Papic: 01:45:02

Median outcome.

Marko Papic: 01:45:04

Let's educate human beings in a median way.

Marko Papic: 01:45:07

So if you're extremely talented, who cares?

Marko Papic: 01:45:09

Like you're just gonna get educated at a certain level.

Marko Papic: 01:45:11

Nothing is customized to you.

Marko Papic: 01:45:12

Oh, you have a headache, Jacob?

Marko Papic: 01:45:14

That's cool.

Marko Papic: 01:45:15

Take an aspirin.

Marko Papic: 01:45:16

Oh, by the way, if Marco has a headache, he should take an aspirin too.

Marko Papic: 01:45:19

It's a median outcome in most results.

Marko Papic: 01:45:22

Most people fall into this median curve.

Marko Papic: 01:45:25

That's what, that's the world we created.

Marko Papic: 01:45:27

Since there's no customization, right?

Marko Papic: 01:45:30

There's no art there.

Marko Papic: 01:45:32

There's no artisan like guilds producing things to your custom specifications.

Marko Papic: 01:45:37

And I think that the world we're coming into with drones, with ai, with machine,

Marko Papic: 01:45:41

with 3D, 3D, printing with, with new sources of energy, you know, wow.

Marko Papic: 01:45:47

Put some solar panels on your roof.

Marko Papic: 01:45:49

You don't need the median provider of, of energy.

Marko Papic: 01:45:52

I think that where we're headed is a much different world,

Marko Papic: 01:45:56

and in that different world.

Marko Papic: 01:45:58

The number one outdated technology that we may need to discard is actually

Marko Papic: 01:46:03

the nation state, which is interesting because I'm not a libertarian,

Marko Papic: 01:46:08

let me tell you this right now.

Marko Papic: 01:46:10

But that is where this is headed.

Marko Papic: 01:46:12

Like po potentially all these technologies make it less likely that

Marko Papic: 01:46:17

you need to tax and collect resources at a continental level to have these

Marko Papic: 01:46:23

continental wars against one another.

Jacob Shapiro: 01:46:26

It all comes back to looking like the 1890s.

Jacob Shapiro: 01:46:28

Uh, we could go on forever, but one of those clients that we were

Jacob Shapiro: 01:46:30

talking about in the first 10 minutes, uh, gets to see me in my

Jacob Shapiro: 01:46:33

flamingo shirt in three minutes time.

Jacob Shapiro: 01:46:35

So I think we will leave it there, uh, and leave it to next week.

Jacob Shapiro: 01:46:38

Uh, dude, this was so good.

Jacob Shapiro: 01:46:40

We're getting better.