Skip to content

Podcast

The Great Tariff Debate With David Sacks, Larry Summers, and Ezra Klein

All-In with Chamath, Jason, Sacks & Friedberg

Source ↗ ← All highlights
  • Tariff Announcement and Market Reaction
    • Trump announced tariffs against China and paused them for other countries after Liberation Day.
    • Markets reacted with extreme volatility, experiencing both a 10% surge and a significant sell-off. Transcript: Jason Calacanis What it will be on Friday when you consume this podcast is anyone’s guess. S&P is down 5% today. For context, the S&P was at 5,700 pre-liberation day. So about a 9% drop after these wild swings and in fact this has been historic volatility here are the top sell-offs in history as you can see three of them came during black monday in 1987 Three of them came during the financial crisis three of them came during covid and uh coming in 11th is trump’s tariffs also in the gainers uh you have these big rebounds wednesday’s 9.5 recovery was number three the administration says this was all part of a master plan we’ll hear more about that later and that they laid a trap for China. They laid a trap. Besant has been the spokesperson during this retreat or whatever we’re going to call the pause. And quote, this was driven by the president’s strategy. He and I had a long talk on Sunday, and this was his strategy all along. I don’t think we need to play the clip. That’s the gist of it. The White House account then tweeted, in all caps, my favorite way to tweet, do not retaliate and you will be rewarded. Wall Street Journal, on the other side, posted a story about why Trump blinked. They chronicled the decision as being affected by Jamie Dimon, who went on Fox to express fears of recession while saying the tariffs were valid, and that he knew the Trump and cabinet Would be watching him on Fox. Other banking executives who felt they didn’t have a lot of influence in this administration, according to the Wall Street Journal, started lobbying Republican lawmakers that the Trump tariff plan would tank the economy. The White House chief of staff, Suzy Weil, started receiving calls from executives and lobbyists expressing concerns. And the Wall Street Journal reports that Trump was influenced heavily by Bessent. They were flooded with worried calls from Wall Street and that the president was lobbied to find an off-ramp. Trump ultimately relied on his instincts, according to the administration. Larry, is this 4G chess or is this something else? What are your thoughts? (Time 0:02:49)
  • Economic Impact of Tariffs
    • Larry Summers believes the tariff situation is dangerous for the global economy.
    • He argues it’s an inflation shock, reduces consumer spending, and makes the US look like an emerging market. Transcript: Larry Summers This is dangerous work with a sledgehammer on a pretty sensitive machine, which is the global economy that’s having really serious consequences. First, it’s important to understand that there’s more tariffs that are around than you described. Even after the big back-off, there’s a 10% across-the tariff, a range of structural tariffs like on steel and automobiles, a range of new tariff threats like on pharmaceuticals. Here’s a kind of market-based estimate of what the damage that the market thinks this is all doing to the US economy is. Markets down, let’s take today’s number, 9%. If that’s right, that would be about $4 trillion. Of course, $4 trillion since Liberation Day, of course, markets were down coming into Liberation Day because of some anticipation of these policies. So let’s be conservative and say these policies have taken $6 trillion off the stock market. Now, the stock market only measures the adverse impact on corporate profits, not the adverse impact on workers, not the adverse impact on consumers. So you need to add to that stock market number. One way of thinking about adding to it would be to say that corporate profits were 10% of the economy. So you could argue for multiplying by a factor of 10, but maybe that’s being too exaggerating or too bold. So let’s multiply by a factor of five. And what you get is a loss in the $30 trillion range as the present value as estimated by markets of what’s being done. Now, I know that Trump administration sometimes likes to say it’s working for Main Street, not Wall Street. I noticed that they were pretty excited about the stock market rally yesterday in a way that wouldn’t really go with not caring about markets. So I think what markets are seeing is what’s true, which is three things. This is an inflation shock because you’re adding to prices. CEO of Amazon got it right. The Secretary of the Treasury got it wrong. Increases in tariffs of this magnitude, the overwhelming part of them will be passed on to consumers. You’ve got an inflation shock. When you raise the prices of people and their income, at least in the short run, is the same, they’re poorer. And that means they can afford less stuff. And that pushes the economy down. And so you’ve got higher inflation and you’ve got more, less demand and therefore more unemployment. All of that’s bad for the economy and companies. And the last thing, which I think is profoundly important, is we are trading like an emerging market country right now. For serious countries, for the United States, the pattern is that when the world gets riskier, the bonds go down in yield and the currency goes up in value because people come for the Safe haven. When you’re a country like Argentina, then the assets all move together. Falling stock prices go with higher bond yields, go with a weakening currency. And so because of our erratic behavior, we have changed the zeitgeist surrounding America from the traditional zeitgeist surrounding America to the kind of zeitgeist that surrounded Juan Perón’s Argentina. And that goes with all the other things that are happening, the more protectionism, denying the independence of the central bank, fiscal irresponsibility, breakdown of traditional Boundaries between government and business, substantial cronyism as a strategy, authoritarian tendencies towards the opposition, lack of total respect for the judiciary. Keep going, Larry. Keep going. What we’re seeing is a pattern of America being governed on the kind of Juan Perón Argentina model. And that sometimes produces some benefits for some people in the short run. That sometimes generates popularity for it. Perón kept coming back in Argentina, but ultimately it’s extremely costly for a society. (Time 0:05:11)
  • Tariff Strategy as Leverage
    • David Sacks argues Trump’s tariff strategy was to gain leverage for renegotiating trade deals.
    • He claims the tariffs incentivized other countries to negotiate with the US. Transcript: Jason Calacanis What is your take, Sachs, on how this was executed and could this have been done better? David Sacks Well, I think what happened, if you go back to Liberation Day was only eight days ago, it was April 2nd. If I had told you on April 1st, that Donald Trump would find a way to get the entire world to eagerly embrace a 10% tariff on the American market, and not only would they not complain, but They’d actually be relieved that it was only 10%, you would have said that would be an April Fool’s joke. If I had told you eight days ago or nine days ago that Trump would find a way to accelerate the United States’ decoupling from China, which is something he’s long wanted to do, and that Wall Street would basically breathe a sigh of relief over that, you would have said that there’s no way that could happen. If I had told you eight or nine days ago that President Trump figured out a way to assert a presidential power in a way that gives America extraordinary leverage over virtually every Country in the world, you would have said, well, I don’t believe it. What is that power? And he proceeded to do that. And now basically every country in the world except for China is coming to Washington seeking to negotiate a new trade deal for the United States on better terms for the US. Larry Summers If you told me any of that a few days ago, I would have believed you and I would have thought the consequences would be a substantially deteriorated American economy and a substantially Less secure United States. I don’t think (Time 0:11:16)
  • Shifting Justifications for Tariffs
    • Ezra Klein points out the constantly shifting justifications for Trump’s tariff policies.
    • He questions the validity of an idea that requires frequent and contradictory defenses. Transcript: Ezra Klein I can’t say I wonder if it could have been done in a more gradual or thoughtful way. It could have. I defer to Larry on the markets. I’m more of a connoisseur of arguments. And something I’ve been thinking about over the past very long eight days is covering the 2024 election and covering Donald Trump’s tariff promises. And it was a thing that liberals like me were doing, where we do these shows and say, Donald Trump is promising a 10% to 20% global tariff and then 65% tariff on China. And if he does that, it’ll have this set of effects, higher prices, it’ll create financial uncertainty, etc. And what I would be told, like the counter argument was, oh, you libs, you always take him literally when you should be taking him seriously. I had Vivek Ramaswamy on my show. He said he’s not going to do that. That’s just a negotiating ploy. And this was the common line from Trump allies on Wall Street. And then I watched as he began doing not just that, but layering a series of them bilateral tariffs on top of that plan. The markets began freaking out. While they were freaking out, a bunch of his defenders said, no, no, no, actually, these tariffs, which we told you were never going to happen, are actually a great idea. We need to reset the entire global financial system. And you can’t ship those tectonic plates without creating a few earthquakes. Then the moment the tariffs paused, or the 90-day pause on the tariffs on top of the 10% and the China tariff, then I heard, nope, that pause is genius. Haven’t you read The Art of the Deal? And what I would observe from this is that usually when an idea is good, you don’t need people jumping back and forth on it so often, going between these tariffs are a bad idea, but they’re A smart negotiating ploy, to these tariffs plus are an actually great idea and you should all calm down. As Trump said, you should all be cool. Back to know these tariffs are a great idea. I think something I’d love to hear from David. It’s very hard to break the pattern of being a podcast host. I would like to hear what the measure of success in two years is. Right? We can sit here and speculate about the effect of these. And I’m much more on Larry’s side than what I’m hearing from Chamath and David. But what are your measures? What in two years? Good question. If manufacturing, employment or whatever is below X. Will you be unhappy if GDP is what what is a sort of objective yardstick where we could come back in 700 days and say, did this work out or was this a bad idea? (Time 0:19:09)
  • Debate on China’s WTO Entry
    • David Sacks and Larry Summers debate the impact of China joining the WTO.
    • Sacks argues it led to job losses and a weakened industrial base, while Summers claims no US trade barriers were reduced. Transcript: David Sacks Two or three minutes, and then Larry will go. I get to speak for two seconds, then you interrupt me. You speak for five or 10 minutes. Go right ahead. Larry, I just saw you do an interview with Neil Ferguson where he asked you, was it a good idea to bring China into the WTO? Was it a good idea to give them permanent, normal trade relations status, basically MFN, which is something that Bill Clinton did in 2000. And I admit it was bipartisan. George W. Bush continued it. And you were defending this as a good idea for the country. What was the result of that over the past 25 years? Millions of industrial jobs were lost. They were exported to China. Millions of factories shut down. The United States has a diminished and hollowed out industrial base. We certainly can’t make the products of the future like drones or semiconductors. Jason, just to answer your question. Yeah, obviously some industries are more strategic than others. Do I personally care about sneakers or textiles? No, I personally don’t. Do I care about semiconductors? Absolutely. Do I care about circuit boards? Do I care about drones? Do I care about robots? Do I care about EVs and cars? Absolutely. Okay. Those industries, we are no longer in a position as a country to make those products because we exported our entire supply chain and manufacturing base to China. David, I have three questions. So how is that a good idea, Larry? Okay, Larry, you go and then Ezra, I’ll go back to you and Shuma. Larry Summers Go ahead, Larry. I have three questions for you. One, can you name a single trade barrier that was reduced by the United States associated with China accession? A single restriction that existed in the United States that had not been in place for five years before that we removed during China’s WTO accession. Can you name one? I don’t think we should have done any of it, Larry. We threw open our markets to Chinese goods. What restriction, your thesis is that we threw open the market and therefore we exposed ourselves to all of this China thing. And question I’m asking you is, can you name any restriction on Chinese exports to the United States that was in effect in 1999 and was removed by our WTO accession in 2000? Can you name any such restriction? David Sacks Just name one for me. This was a policy that built up over time and was basically made permanent. Hold on. It was made permanent when we walked China to the WTO and gave them MFN status. Larry Summers I’m sorry, David. I’ll ask the question one more time. We had given them MFN status 15 years before. No one, they had MFN status. They had it for 15 years. There was not a single reduction in a barrier to Chinese trade. So the way in which you’re describing it is just bears no resemblance to what it was. David Sacks Bring them into the WTO. What was the point of bringing them into the WTO? Larry Summers The point of bringing them into the WTO was to use the leverage that we had to win a whole variety of concessions that enabled us to export more to China. This is an extraordinary writing of history, Larry. This is an extraordinary (Time 0:23:59)
  • Supply Chain Resilience
    • Chamath Palihapitiya emphasizes the need for US supply chain resilience.
    • He identifies four key areas: technology, energy, critical materials, and pharmaceuticals. Transcript: Chamath Palihapitiya There is a major issue that the United States has that’s much bigger than China, which can be framed in the lens of resiliency and the ability to fend for ourselves. There are supply chains that have many single points of failure. And independent of whichever country that single point of failure exists, it could be an ally, or it could be a foe, or it could be a frenemy, that creates risk. And I think what we are learning, and David’s right, it was really highlighted during COVID. We are not in a position to take care of what we need. So if I had to very precisely answer Ezra’s question, I would say that we need to measure and protect four critical areas. Everything else, I think we can deal with some inefficiency, some single points of failure. But the following four areas, Ezra, I would say are sacrosanct. Number one is all of the technology, both the chips as well as the enabling technology around artificial intelligence. It must be a robust, largely American supply chain. It must. You cannot have single of failure outside the United States, because what you see is even in allied countries, their posture towards things like free speech and other things can ebb And flow. Their posture on trade, their posture on defense. Okay, so that’s number one. It can change. Number two is energy. We have a critical deficit of electrons in America. We do not have the capability we need to make the energy we need quickly in many ways. We have supply chain issues on nat gas. We have critical supply chains that can be shut off by China around photovoltaics. So whether you believe in coal, whether you believe in nat gas, whether you believe in clean energy, we are in a very fragile case. We got to shore that up. Jason Calacanis Okay, I think we’re in agreement. Chamath Palihapitiya Keep going. Number three are there are critical material inputs that drive the material science of the future. Rare earths are an example. Going back to chips, things like gallium, things like phosphorus even. So we have a critical minerals and rare earths and material science input problem. And then the fourth, Ezra, are pharma APIs, so that when American citizens get sick, we have the ability to not just make it, but also design it and manufacture it. Because some of these APIs, the active principle ingredients for many of the drugs require very convoluted and complicated processes, cold chains, and the like. And again, there, we depend on folks whose view of the United States can change in real time. So if I had to say to you, Ezra, what I would expect is if the United States government, whoever was in charge, would put those four things on a board, then detail out all of the key inputs, Measure how much we can make ourselves versus import, and then basically (Time 0:35:28)
  • Trade Deficits and Exploitation
    • Larry Summers challenges the notion that trade deficits signify exploitation.
    • He uses the analogy of a grocery store to highlight the absurdity of this idea. Transcript: Larry Summers I would like to hear a defense from somebody. I’ll give it to you. Ezra and I agree, specific policies. I’d like somebody to explain to me why it’s a remotely sensible theory to say that the United States is being exploited by any country where the overall pattern of trade is such that we Are running a trade deficit. And maybe in the process, you could explain to me why my grocery store is exploiting me because I’m running a massive trade deficit with that. (Time 0:46:14)
  • Anecdote of Advising on Tariffs
    • Chamath Palihapitiya shares an anecdote about advising a foreign leader on responding to tariffs.
    • The leader offered to cut tariffs, switch contracts to Boeing, and consider US energy companies. Transcript: Chamath Palihapitiya And I think that we’re going to just find that out. So that’s that. On where we go from here, I can give you an anecdote and I’ll give you a projection. The anecdote is this weekend, my wife and I were in bed and a person called me, very successful businessman who was representing the president of a country saying, hey, Chamath, I need Some advice. What do we do here? And we walked through the three things that he and his government, that they government were trying to figure out because they wanted an off ramp. They were like, I’m ready to cry, uncle. We’re ready to tap out. And again, he was calling me as a private citizen, but I think this conversation was very instructive. Number one, he’s like, look, we have these really high tariffs on inbound American products. We’re happy to cut these things to zero. And I said, well, you should do that. Second, while we were exploring, he’s like, yeah, you know, we have an enormous capital purchase with Airbus. I said, cancel it, swap it to Boeing. He’s like, done. And then the third, which was interesting, is he’s like, we need to import an enormous amount of energy. And I said, well, who do you give that concession to right now? And it was a non-American company. And I said, well, why wouldn’t you just RFP that to an American business and let them compete? And he’s like, we’d be open to that as well. So he said, we’re getting prepared. We want to find a way to talk to the Trump administration. And I’m like, great. However, I can be helpful, I’ll be helpful to you. I got off the phone. I looked at my wife and I said, if even 30 of these 75 countries do a deal anywhere remotely close to this, this was an enormous win. (Time 1:03:54)
  • US as a Dangerous Economic Partner
    • Ezra Klein expresses concern about the US becoming a dangerous economic partner due to unpredictable policies.
    • He suggests other countries will seek to reduce their dependence on the US. Transcript: Ezra Klein But before I came on the show, I had gone on X and I saw a clip of you going around where you’re saying that one of the problems with the Biden administration was that you couldn’t get anybody On the phone. And in the Trump administration, you make the call, the deputy chief of staff picks up, you say, hey, I need you to talk to this company. I work with them. They’re freaking out about the tariffs. The deputy chief of staff tells the company, they work something out. Chamath Palihapitiya No, no, not that they work something out. They listen. They listen. Ezra Klein This world in which we are doing the deal making by individual relationships, by who can get their calls answered, not by rules that feel clear and stable. (Time 1:08:53)
  • Democratic Governance Issues
    • Ezra Klein discusses the Democratic Party’s governance issues, focusing on their abundance agenda.
    • He argues they often subsidize things while simultaneously restricting their supply. Transcript: Ezra Klein Well, there’s the problem of the party and the campaign. Let me bracket that because my book, Abundance, is more about how Democrats govern at both the state and local and federal level. And some of the pathologies of governance there make it hard for liberals to achieve their goals. There are versions of this on the right, but I’m not really writing about that in this. So my book Abundance with Derek Thompson is about the tendency Democrats have to subsidize things where they are choking off the supply of the thing they want people to have more of. So think about housing in California. You get rental vouchers from the federal government, but we make it incredibly hard to build homes. Clean energy, which a lot of the Biden administration’s policies were about putting huge subsidies behind the building of more clean energy. But they didn’t really do anything to make the permitting, the siting, the state capacity to do all of that capable of building that amount of clean energy at the pace they foresaw us Building it right that they wanted us to build it. And behind this, and I can sort of go into a lot of detail here, but is a diminishment of state capacity that comes from wrapping the state itself in red tape and regulation. I think we think and have an intuitive way of thinking about the idea of deregulation on the private sector, right? When the government is imposing regulations on private companies and it’s making it hard for those companies to act, to do business, et cetera. But this happens first and foremost on the government itself. One of my favorite examples I’ve been using lately, there’s a new RAND report that looks at how much it costs to construct a square foot of housing in California, in Texas, in Colorado. And it does it on two kinds of housing, market rate, and it does it on affordable housing subsidized by the public sector. And the cost of creating housing in California, market rate is 2x in California what it is in Texas. But when you get into that publicly subsidized housing, where you have all these new standards and rules and regulations being triggered by the addition of public money, it goes up To about 4.4x. And so you have this real problem, I think, in a way of governing that evolved in the 70s, the 80s. There’s a kind of small government version of the Democratic Party, the new left, more individualistic, that was worried about too much exercise of government power. And now that we are in a different world with different problems, we’re thinking about re-industrializing, we have a housing shortage, and you have things like the Biden administration, Which really are thinking about how to build a lot more in America, but you don’t have either a policy architecture or I would say a governing culture that makes that possible. (Time 1:20:02)
  • Critique of Doge Initiative
    • Ezra Klein criticizes the Doge initiative for potentially damaging state capacity and lacking clear objectives.
    • He argues that simply cutting headcount doesn’t necessarily equate to increased efficiency. Transcript: Jason Calacanis Got it. Ezra, you talk about your book. We got to move faster. We got to do things faster. We got to take more risk. So are you pro-Doge or not? And if you look at the Democratic, if you look at this administration, I’m going to call it Trump 2.0 for clarity. Three people around trump whether it’s chamath joe rogan besant howard even uh trump himself are clinton democrats so it’s basically clinton you’re gonna say yourself i don’t matter Ezra are you happy about doge your book seems to be a plan to do doge-like things i think building state capacity is two dimensions. Ezra Klein One is what the state can do. And the second is the rules under which it doesn’t. Doge seems to me to be fundamentally destructive of state capacity. First, and this goes again to my endless frustration that I feel like goals are not clearly laid out in the Trump administration. What are the measures we are looking at and how will they achieve them? Is it just trying to save a trillion dollars? They’ve been very clear. But that’s not efficiency, right? I could save a trillion dollars. No, I could save a trillion dollars in ways that will make the let’s put it this way. What Larry was just saying, right? If you cut everybody at the IRS, right, just cut every single one of them on the doge measure of how much did you save in headcount, that will look like it counted up towards your save a trillion Dollars goal. But in terms of what Larry is saying, which is the long term efficiency of U.S. Tax collections, you’d have just made the IRS much, much, much less efficient. (Time 1:31:26)
  • Grant Process vs. Stacey Abrams
    • Chamath Palihapitiya recounts his experience obtaining a federal grant for a battery materials plant.
    • He contrasts the lengthy process with Stacey Abrams allegedly receiving $2 billion quickly. Transcript: Chamath Palihapitiya Example, because those are these albatross projects that are largely a byproduct of ineptitude and corruption. But let me tell you a more tactical example so that you can understand why what Elon and Trump are doing is so necessary. So as I told you in 2020, on the back end of COVID, I started a business to build battery cathode active material in the United States. Okay. So that’s a business we need so that when you want to electrify everything you want to electrify, there are batteries that we can make that’s not reliant on the Chinese supply chain. It made sense. The guy that I started it with worked for Elon. The other guy I started it with was a professor at Stanford. And the third guy I started it with was the head of battery engineering at Toyota, a more complete group of people I think you couldn’t put together. So we start to build, we get a deal with General Motors. So far, so good. But eventually, you hit a point where in order to really commercialize, you need some form of government acknowledgement that you’re good. And the way that you do that is you apply to the DOE. And the DOE has a very legitimate grant program that tries to accelerate these key things, especially things that are critical. We went through that program, Ezra. We paid a couple million dollars in consulting fees to the people that we were told to pay it to, and we were rejected. Okay, fine. Kept going. I kept funding the business. And then next year, last year, we applied again. 125 companies applied. 25 were shortlisted. We all went through incredible diligence. We won. Incredible validation. At the end of that entire process, so really two years from when I started and millions of dollars, we got a $100 million federal grant from the DOE and $50 million from Michigan to build A plant in Michigan to help redomesticate battery cam in the United States. It turned out that in that same period, while we were going through that rigmarole, Stacey Abrams got $2 billion after 30 days. And I just asked the question, what is broken inside of the government that that’s possible? David Sacks It’s hopelessly corrupt. That’s exactly right. Chamath Palihapitiya It’s hopelessly 50 people, 50 people, where none of this money goes into our pockets. We take that money and we then have to raise more money. I have to put in more money. We try to hire people. We try to build a battery factory that can basically give us resilience against the Chinese, which I think is great. They’re an incredibly strong and viable competitor. In 30 days, she got 20 times more than we did. How do you explain it? (Time 1:42:10)