Trump Gets Introduced to Section 301

US Supreme Court Building

The Supreme Court ruled Trump’s tariffs were illegal, forcing the administration to do things…the right way. Welcome to Section 301 investigations.

This is the slower and more legally structured process of issuing tariffs run by the Office of the United States Trade Representative. Reminder that the USTR has been gutted, so they lack the staff to juggle multiple investigations. Especially since NAFTA renegotiations are just kicking off.

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Transcript

Hey all. Peter Zeihan here, coming to you from Tulsa. It’s way too windy outside to record there, so we’re into it right here by the coffee machine, which is keeping me alive today. All right. Today we’re talking about the next step of Donald Trump’s trade policy. As I’m sure you guys all knew, the Supreme Court recently ruled, six three that Trump’s tariffs, which he labeled as an emergency situation, putting tariffs on literally every country in the world were a gross abuse of the law that he cited that it was illegal and unconstitutional for him to do so, that, tariffs are the province of the Congress, unless the Congress has expressly granted authority to the executive. Now, there are laws where that has happened, and that is what brings us to today. There’s something called 301 tariffs where the president can say, hey, this country is not being fair. It’s violating American trade laws and any agreements that we have. Therefore, we will investigate this violation. We will open up the situation to public comment. 

So any consumers or American businesses can testify, will put it on record. We will pull all the information together, we will make a finding, and then we will use that as ammo in negotiations with the country on the other side. And if those negotiations do not go the way that we like, we will then impose some sort of punitive system that might include tariffs. 

That’s just one of many options. It’s very adult, it’s very constitutional, follows the letter of the law. Now that he has been unable to convince the courts that what he was doing before was legal, it also takes time. There are two problems that Donald Trump is going to face with the 301 approach. The first one is that it can’t be arbitrary. 

So something that Trump did over and over and over again last year is whatever happened in the international system that annoyed him. He threw a tariff on it. You’re trading with the country. I don’t like tariff. I don’t like you personally. Tariff. You say something about the military. I don’t like tariff. You seem to really like steel tariff. 

It didn’t matter what it was. You throw a tariff on anything and that is now been proven shockingly so. To be unconstitutional. Not what Congress intended. 

The problem, however, with this new approach is that there is a process and you have to start it and there’s negotiations and there’s a comment period. And you actually have to build your case. 

Now, I have no doubt that at the end of the day, the Trump administration will just say, oh yeah, of course we’ve now proven our case and we tariff, but that takes months. Second problem, all of this, all of it, every little bit of it is handled up by the US Trade Representative Office. Now the USTR run by a guy by the name of Jamison Greer, who knows what he’s doing. 

He was trained by one of the best in the industry, Bob Lighthizer. 

The problem with USTR is it can only do so many things at a time. And under Joe Biden, who did not push a single free trade deal, it was kind of hollowed out of its staff. And then when Trump came in and Dogecoin, Elon Musk and all that, it lost some more of its stuff. 

And that was never been rebuilt. So Greer and the USTR office in general, simply doesn’t have the capacity to really do more than one of these 3 or 1 investigations at a time. And Trump has already initiated 301 investigations on Canada, Japan, Korea, the European Union, Mexico, and, of course, China. And I’m sure there’s going to be many, many, many, many more. 

And because this is a process and you have to document and get comments and make findings, you can’t just wave a pen and make it happen. The US simply doesn’t have the staffing. That’s necessary to do that. And then third, on top of all of that, USTR is responsible for negotiating or renegotiating every other trade deal. 

Remember that when this all started in April of last year, tariff day, Liberation day, based on your politics, we put tariffs on every country on the planet. And Trump feels that that is necessary for every country on the planet. And now we’re doing 300 ones for all the big ones and probably many of the small ones in the weeks and months to come. 

But that ignores what else is going on, because the U.S. does have trade deals separate from all this. 301 stuff. So, for example, over the weekend, the United States, Canada and Mexico formally started the process of negotiating for what NAFTA is supposed to look like a year to five years from now, that until this moment was the US primary job, because Mexico and Canada or the United States is top and second largest trading partners. 

And whatever the future of American manufacturing happens to look like, or American agriculture, American energy or American population workforce, it’s going to be bound up and with whatever happens with NAFTA. But now the USTR has to do at least a dozen, three, oh ones, probably several 301 negotiations and investigations at the same time. Bottom line, this is like the hard, frustrating way to do it. 

Yes, but it should have started this way a year ago. The only alternative would have been to go to Congress and say that I need some sort of trade negotiation authority. Now, this is something that presidents in the past used to do. You’d have to go back to George W Bush for the last time this was done. It was called trade Acceleration or Trade Promotion Authority, where Congress grants the president the ability to do negotiations outside of the normal back and forth. 

Of the legalities. If you want to do that, you have to get congressional approval. The thing is, Trump really hates going to Congress because then he actually has to say out loud what he wants to do and put it up for a vote. Yay or nay. That was hard enough last year when he had a meaningful majority in the House and the Senate. 

But since then, Donald Trump has had a hard time staffing his government with people from the private sector, because there aren’t a lot of them that believe what he believes. And so he’s had to reach into his ideological allies, people who owe their political careers to him in Congress and in doing so, has whittled down the majority he has in the House, in the Senate to work with. 

And there are enough remaining trade based, business based, Republicans in the party that it’s unclear that he would get the sort of support that he would need in order to make the changes he wants to make. So that kind of leaves us in this stall where Trump is kind of forced to let the system be the system, but he’s unwilling to challenge the system legally. 

And so far in this administration, where that has ended has been with a Supreme Court case that tells him the thing that he never wants to hear. No.

The Semiconductor Tariff Nightmare

A semiconductor chip

A poorly designed and destined to backfire tariff has just been announced; this time, the Trump administration has turned its focus to high-end semiconductors.

Putting tariffs on semiconductors is nearly impossible to do cleanly. There are thousands of types, production stages, and end uses. So, the Trump admin thought it would be a good idea to tariff them based on the end use, rather than where they’re made. The only problem is that most importers don’t even know the final use of the chips upon import, creating a legally and financially risky situation for everyone involved.

This tariff will likely freeze access to advanced semiconductors and choke the US tech and manufacturing sectors. There are a few ways around the tariffs, but those offer little relief to existing manufacturers. But hey, let’s just keep trying to jam this square peg into that round hole.rough strong alliances will struggle to survive. And the next generation of kids (however small that cohort might be) will be studying those countries in the history books.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Iowa. Today is the 15th of January, and the Trump administration has at long last announced the first wave of semiconductor tariffs, specifically targeting high end semiconductors. There was always going to be a question as to how this was done and whether it was going to be a disaster. 

It really matters because semiconductors are, for most intents and purposes, a commodity. They come in in thousands of forms and at thousands of different stages of production. There’s over 100,000 steps for high end semiconductor fabs creation. And they can come in as raw chips still attached to the disk. They can come in separated from those disk. 

They can be put into intermediate products like motherboards or charging stations. They can be included into intermediate products. They can be incorporated into final products. And so whatever type of tariff regime you’re going to put in there is obviously going to be full of flaws, even if it’s very, very, very well designed. And commerce was never set up to manage this sort of system, much less, Customs and Border Patrol. 

And that was before we had the personnel purges of last calendar year. So the questions were always, you know, how are you going to do this? Are you going to look like at a car? And the 1500 types of semiconductors that are installed within it have a different tariff rate for each one. Do you tariff the entire car tariff the chips independently? 

You do it based on the intermediate products. Based on where the value added happens. Basically, you could get more paperwork for one tariff on one vehicle than all of the rest of the 30,000 pieces in a car combined. What the Trump administration has done with this round is instead of going by sourcing, which would make a degree of national security sense, even, it would be, logistically almost impossible. 

They’ve decided to go on end use, which is, if anything, even more confusing, because now anyone who is importing these products has to decide what each individual chip is going to be used for. Declare that on the tariff form and the way that Customs and Border Protection enforces the tariff regime is to not check it on the front end, but to randomly check it on the back end and then really bring down a hammer in terms of fines and penalties. 

The problem is if if somebody is important to, say, 10,000 of a specific type of chip, they’re not the ones who are probably going to use the chip. The chip is going to go on and get put into computers or cell phones or pacemakers or whatever it happens to be. And so who is responsible for it? So the person who is doing the importing has to go and gets a customer affidavit and assign them to each individual box, each individual chip that Customs and Border Protection can then go into later a year from now, three years from now, and attempt enforcement. So what we’ve gotten is something that will freeze the use of semiconductors at the high end, because no one is going to know how to do the paperwork on the front end. It’s difficult to come up with something that is going to chill American manufacturing more, because now simply accessing the pieces in the first place is not going to happen cleanly. 

And you could open yourself up to legal liability simply from plugging a piece of typical technology into something that you’re working on, because you’re not the one who did the actual importing, but you’re probably legally liable. So we’re probably going to see a seizing up across not just the tech space, but the advanced manufacturing space in the United States, especially in places like heavy machinery, automotive and aviation, where these chips are used in the thousands in every single vehicle. 

It’s going to be very interesting to see how this goes. The Trump administration says it’s going to do a review after 90 days where if progress has not been made and expanding the supply chain within the United States, then, more tariffs will be coming. One of the many exceptions, because there are a bunch is that if you’re using these chips to expand the construction of a supply chain, you get a pass. 

But if you’re already have a supply chain, you do not. So this is a horribly designed tariff, absolutely the wrong tool for the job. And it’s going to become very obvious as this year rolls on, that it is actually going to poison most of what progress the US has made in its industrialization effort over the last decade.

Mexico Horses Around with Tariffs

Mexico's flag

Mexico is hoofing a 50% tariff onto imports from countries without a free-trade agreement, giving the US a strong leg up out of the gate while competitors like China and Korea get left circling the track.

Because the US and Mexico are built like steady workhorses rather than fragile export show ponies, keeping their industrial supply chains bridled together lets them keep pace as demographic headwinds start to throw export-heavy models off their stride.

With NAFTA renegotiations cantering up in 2026, this move shows Mexico isn’t about to buck the system — it’s staying in the same stable, tightening the reins, and betting North America can outrun the field for the long haul.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Arizona. This is, Well, this is biscuit. He likes to eat phone, so I’m on my back up now. Today we’re to talk about something that went down in Mexico yesterday. Yesterday was the 11th of two. And that is my hand. Likes to eat hands, too. It was the 11th of December. 

And the Mexican Congress is in the process of passing a tariff bill, which, you know, from those of us on the north side of the border. It sounds pretty common. Anyway, the idea is that, Mexico will now have 50% tariff on, all products or almost all products that are coming from any country that it does not have a free trade agreement with. 

Now, Mexico has gone out over the last 25 years and built free trade agreements with a lot of countries that are not the United States, but the United States is still responsible for over 80% of their exports. And the United States and Mexico are now one another’s largest trading partners. And that is a position that is likely going to persist for at least the rest of my life, and probably for the rest of the century. 

Anyway. Why does this matter? Number one, Mexico is one of only a handful of countries in the world that still has a consumption led economy. He really wants my phone. Which means that in the world to come, where demographics are turning on a global basis, there just isn’t enough consumption capacity to drive what we consider to be a normal economic model for any appreciable amount of time. 

Countries as diverse as Korea and Japan and Germany and China and Italy, are all basically aging out, running out of people who are under age 50, which means that any sort of consumption led system is almost impossible. And you can’t have an export LED system if you can’t export to someone. So countries that still have consumption led economies like Mexico and the United States, are ones that can actually have an industrial base that is matched to what they actually produce. 

And if you can get those countries into a trading bloc, which honestly is some version of NAFTA, that’s basically the systems that are going to work. Everyone else is basically going to face some degree of do you industrialization and economic breakdown simply because the numbers don’t match up. So getting Mexico to put tariffs on countries, getting Mexico to put tariffs on countries that doesn’t have a free trade agreement with, means that the United States gets privileged access to the Mexican system. 

And countries like China, most notably, but also including Korea. Yes. Yes, I’m still here. All of a sudden have some pretty big restrictions and the way that the law is being phrase is it focuses specifically on sectors that Mexico is pretty good at, or the United States is good at, or more likely, ones that we’re good at as a pair. 

So what this is, is a big win, for the Trump administration in terms of shifting Mexico’s industrial policies to match American industrial policies and keeping Mexico and the United States locked together into an economic union. Now we have started the renegotiations of NAFTA now, and they’re probably going to be kind of brutal. But honestly, I don’t expect a whole lot to change. 

Number one, Mexico, is our largest trading partner. And the degree to which things would have to alter, in order for anything else to happen are pretty extreme from the American point of view, because we do need their industrial output, and we do need their super market. Second. 

The Trump administration still hasn’t staffed up the departments in the US government that would do negotiations in any sort of meaningful trade deals. I know that sounds crazy, considering that there’s like 200 under negotiation, but they’re really just about whether or not the United States can throw a tariff on without retribution. 

And we’ve discovered that the answer is not really. So when you got a country like Mexico, where the hard work has already been done in NAFTA, one and NAFTA two, and after two was negotiated by the first Trump administration, I really don’t expect a lot of major changes to happen in this re renegotiation. Anyway. That’ll happen in calendar year 2026 regardless. 

Bottom line, Mexico is showing itself to be very willing to be America’s long term partner, regardless of what the atmospherics of the politics happened to be. So with this new now, he’s after my shoes with this new structure in place. It pretty much guarantees for at least the next 20 years that the United States and the Mexicans will be working hand in glove on whatever the next phase of internationalism happens to look like. 

And that is really good news, really, regardless of what your politics happen to be.

All That Bitchin’ Won’t Keep China Around

A skyline of Beijing, China

We’ve all been there. It’s Friday evening, the office is packing up for the weekend, and the boss decides it’s the perfect time to announce something big. So, I hope you enjoyed your weekend of mulling over the idea of what a 100% tariff on all Chinese imports would look like.

This is a retaliatory tariff in response to Beijing’s rare earth restrictions, but this is bigger than trade drama. China is falling apart demographically, which will domino into everything else over the next decade (ahem, like exports). Whether China-US trade stops because of tariffs or demographics, it is coming soon.

In short, quitcha’ bitchin’ and get ready for a world without China.

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Transcript

Hey, everybody. Peter Zeihan here coming to you from Colorado. It is the 10th of October, and it’s just after closing time in Washington, D.C.. And right after everybody closed for the day, Donald Trump said that there’s going to be a 100% tariff on everything coming from China by November 1st, if not before, because the Chinese are putting restrictive, policies on their exports of rare earth materials, most notably to the United States. 

Rare earths are materials that are produced in trace amounts as a byproduct of the refining and mining of other metals, most notably, silver, lithium, copper. You basically have to take the concentrate that’s left over once you’ve gotten the primary stuff and then go through a series of refining steps that are very energy intensive and very polluting. 

And China has cornered that market. So they produce more than 80% of all of these materials. In some cases, it’s a functional 100% monopoly. Anyway, a lot of these materials help other properties emerge in more traditional things that I can be used very heavily in things like defense, materials. And so the Chinese have always found this to be a very useful pressure point. 

They’re also very much used in semiconductors. Anyway, the Chinese have restricted their exports. Trump has said no more and is now basically, saying that he’s going to double or more the tariffs that are in place. And that’s just the beginning. Okay. Now, before anyone makes this about trade or makes sort of Trump, I need to remind you guys of something. 

The Chinese are dying out. They already have more people aged 54 and over than 54 and under, and within ten years they will not have enough people under age 60 to run an economy. So it doesn’t matter who you are, it doesn’t matter what your producer export or import. 

You need to assume that that trade relationship is going to go to zero. Doesn’t matter if you’re exporting soy or beef or semiconductors or ethane or anything. Zero zero is where this is going. It doesn’t matter what you import from China, whether it’s transformers or wire or process chemicals or fertilizer or anything. It doesn’t matter. It’s going to zero. 

The only wiggle room here is the time frame. Either the Chinese die out over the next ten years and it goes to zero, or the Trump administration puts into place and owners tariffs. And by November 1st, or maybe even before it goes to zero, either way it is going to zero. So everyone needs to plan for that happening. 

Does the time frame matter? Of course it matters. Would I like to have more time? Of course I would like to have more time. But to pretend that this is a purely political question that can be negotiated away is a fallacy. And if that is your position, you’re going to lose everything. So quit your bitching and start your planning for a world without China. 

Sooner or later.

And You Thought the Jones Act Was Dumb…

A mack truck on the highway

If you tasked me with creating a list of the greatest threats to America, I’m not sure cabinets, name-brand drugs, and semi-trucks would be on there…but the President disagrees.

So, get ready for a massive economic bulldozer to hit the US due to these new tariffs. With 90% of all US cargo moving by truck, these higher costs will create a ripple effect through every sector. This all started back with the Jones Act, which made domestic shipping prohibitively expensive, causing a shift in freight from ships to rail to (almost entirely) trucks.

Since those trucks are made across an integrated North American supply chain, dipping into Canada, the US, and Mexico, tariffs are hitting hard. That means everything Americans consume, from your food to your clothes, will cost a whole lot more.

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Transcript

Hey all, Peter Zeihan here coming to you from Colorado today. We’re talking about the newest hit to the American economy. We now have tariffs on cabinetry, semi-trucks. And what was the third one? Name brand drugs, all of which have been classified as national security threats. Cabinetry. That’s an interesting one. Anyway, we could pick apart this all day, but I’m going to focus on the trucks because that’s the one we’re all going to feel soon. 

And most deeply, right now about 90% of all cargo, all ten miles of cargo that are transported to the United States are transported on the roads by semi-trucks. Now, it didn’t used to be this way. If you go back to, the depression, we had something called the Jones Act, the Interstate Commerce Act, which said that any to any cargo transported between any two American ports, regardless of where they were, had to be on a ship that was American built, American captain, American crude and American owned. 

As a result, we saw the cost of transport on the waterways increase in terms of, cost per ten mile by a factor of five. And we went from transporting most of our goods and especially most of our intermediate manufactured goods, especially in places like, the Great Lakes in the upper Midwest. We went from that being the dominant mode of transport to basically at whittling away to today in terms of ton miles, we only use our waterways for about 1% of our total cargo. 

It has been, in my opinion, the stupidest law that the United States has ever adopted. And it’s now been in place for a century. As a result, things went places where those restrictions were not in place. first with train and now with truck. Now with the Trump administration policy, there’s 100% tax on those trucks, of which about 80% of the imports come from Mexico. 

Another 10% from Canada. And As with anything that involves NAFTA, nothing that just made in one of the three countries. It’s an integrated supply chain that uses all three. So basically what we’re doing with this new tariff is saying this multi-step supply chain that we have, where parts of the trucks go back and forth among the three countries, if the finished product is actually done in Mexico, which is the relatively low cost work we will then tariff the cost of the entire truck when it comes back. 

So, in essence, retrofitting American workers and American companies who are making American products, who just happen to have the bumper stamped on in Mexico, and since 90% of our cargo is transported by heavy truck, you’re going to feel this in every sector. It doesn’t matter if you’re a hog farmer in Iowa sending your hogs to market, or if you are just ordering something on Amazon, it’s getting shipped across the country. 

The only people who will not feel this are the people who are in a physical position where supply chains for imported goods do not use the trucks, and that means you would have to be in one of the major port cities that has a mega port. So those are New York, new Jersey, Miami, Houston, Savannah, to Colma and LA Long Beach. 

Anyone else? This is going to hit everything that you consume. So I have long said that the Jones act is the dumbest law we’ve ever had, but it’s got some competition.

Immigration and Tariff Policies Stunt US Economy

Immigrants standing in line in front of an American flag | Licensed by Envato Elements

The Trump-era policies are going full Darth Vader and have the US economy in a chokehold (or force choke for the nerds out there). Today, we’ll be focusing on the policies covering immigration and tariffs.

Nearly all legal (and illegal) forms of immigration have been closed or drastically restricted. This includes high-skilled H-1B visas, which now have six figures in fees; most startups can’t go dropping that kind of dough. Once you mix in all the costly deportations and the retiring baby boomers, the US labor force is drying up quickly.

Tariffs are only adding to the problem. With 10-60% tariffs on imported goods (the Chinese sitting near the top with 50%), we’re beginning to see rapid price increases. Walmart and other retailers are reporting hikes that are only going to get worse.

Fewer workers, higher costs, and not enough domestic investment, all the things you don’t want to hear about an economy. The Fed warns that the only reason a recession hasn’t formally set in yet is because labor demand and the workforce are shrinking at similar rates. That has left the US economy dazed, confused, and highly vulnerable.

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Transcript

Hey, all Peter Zeihan here come from Colorado. Today we’re going to, look at the American economic situation, how a number of Trump policies are coming together in the current environment and where we should expect that to take us during the rest of the year. Short version is the picture doesn’t look great. Let’s start with immigration. 

There’s basically four paths to immigration that the Trump administration has, put the crimps on first. You’ve got your illegal, irregular migrants, who cross the border and then try to slip into the system somehow. Number two, you’ve got your people who try to follow the rules and do it legally. Third, you’ve got your folks who come in on a high skilled visa, something like H-1b, to get a specific job sponsored by a specific company. 

And then finally, you got your rich folk that just come because they went to all four of these routes are in collapse. We now have the Trump administration going into churches during services in order to round up Hispanics and kick them out, as well as intervening in courtrooms and going, where they’re having their hearing on things like asylum or even just to see if they’ve done the paperwork. 

Right. And, before the hearing can happen, escorting them out of the country comes out to about 17 grand per person to do extraditions this way. And it strongly preferences people who do not have criminal records because they’re more likely to be out in public. So the original promise of just going after criminals that has long in the past, and we’re basically going against the rank and file of people who came for jobs or to be with families. 

Regardless of what you think about this, from a legal point of view or an ethical point of view, it it has an absolute impact on the job market. We’ll get to that in a minute. Legal pathways, those are pretty much all been closed down. And that is not simply a Trump two thing. That’s also a trump one thing that is also a Biden thing. 

Most of restrictions that Trump won put on legal migration were actually codified by the Biden administration and now than doubled down on. So you wanna come to United States, there’s only two paths left. 

Number one is you get an H-1b visa. That is the visa that like, say, the tech industry uses to bring high skilled people in to help populate their workforces. The number of those being granted is being reduced by about three quarters. And the fee for it is going up to something between $100,000 and $2 million. What that means is not only are far fewer companies going to do it, but the companies that will do it are only going to be the really big ones. 

So your apple, your meta, things like that. And so if you’re a small startup, you’re now stuck with local labor. And as anyone who’s in the tech space will tell you, there is not enough local labor for a tech industry in any country of the world. There’s a global supply, but there’s only enough to man tech sectors in maybe one quarter of the world’s countries, of which the United States has always been the largest market. 

And by severing the United States from that labor pool, you’re basically guaranteeing that the pace of technological change, will arrest, significantly. And we’ll see impacts of that within a month. And then finally, the only other way to get in is a gold visa. Now, Trump’s original idea was a $5 million gold visa that would get you into the country and basically give you residency. 

There were no takers. None. That’s put too fine a point on it. But if you’ve got $5 million to spend for a green card, you don’t need a green card. So they’ve dropped the price now to $1 million. We’ll see if they get any takers from that. It’s pretty steep. Still has to be approved by Congress. 

So basically, almost every path, for bringing migrants, immigrants, vacationers, whatever you want to call it, you know, have to have a bond to travel the United States for tourism, has been severely crimped, if not closed down completely. And it’s leading to the first population reduction in American history. And, from an economic point of view, we’ve got two issues going on that are both really bad. 

Number one, for the first time since Vietnam, the workforce is shrinking. And for the first time in American history, the labor pool is shrinking. What companies are doing is in this sort of environment, they’re letting go their older employees as they retire the baby boomers, and they’re not hiring replacements. Now, that has happened before. But for that to show up in the data this time as a reduction in overall employment numbers, you’ve got to remember the scale here. 

The boomers were, until very recently the largest generation in American history. And the Zoomers at the bottom of the pyramid right now are the smallest generation in history. So for that to register as a collapse in jobs, the numbers is immense. And it’s the opinion of the Federal Reserve that the only reason we haven’t seen a formal recession yet is that the job market and the labor pool are shrinking at the same rate, and that it’s the fastest we’ve ever seen in any era of American history. 

Now, macroeconomic theory tells us that this will generate and, not particularly long order, a very, very crushing recession. But I’m not ready to say that yet. Jerome Powell, the Federal Reserve is not ready to say that yet because there’s so many things in motion. What we do know for certain is it makes the United States much more vulnerable to any sort of shock, because there’s just simply fewer pillars holding up the system. 

Well, we’re getting that shock because of the tariff policy. We’ve got tariffs ranging from 10 to 60% on various countries in the world. The tariffs are on China at 50%, which is where we get a lot of our consumer goods. And so just since September 1st, just in the last two, three weeks, we’ve now seen price increases across the board that will show up in statistics next month most likely. 

But we’re seeing in corporate earnings already, remind you’re that we went in and out and in and out and in and out of these tariffs from when they were, initially applied in April. There were extensions. There were there were holidays, and most of them are now in place. So we’ve really only had them now for about six weeks, but that’s an long enough time to burn through some inventories and jack up prices on shelves. 

So Walmart, writ large, is looking at a 30% increase in prices across the board, with some items being more than double that. Keep in mind that this is when people are still pulling inventory that they built up during those holidays in preparation, so that 30% increase is going to absolutely increase month on month unless and until these tariffs go away. 

So we have a far weaker employment situation. We have far smaller labor force. We have a far less skilled labor force. We are not seeing the industrial investment that would be necessary to replace the manufactured goods that we’re losing access to, and we have tariffs that are making everything more expensive. This will generate an economic adjustment, in the not too distant future. 

The question is how soon, how bad in which sector? If I were a betting man. Usually not, but here we are. I would say the manufacturing is a sector to look at first, because more blanket the tariff structure, the easier it is to relocate manufacturing supply chain steps outside of the country with the tariff structure and just do it somewhere else, because instead of having product going back and forth across borders, which is how we say produce cars, you then have to pay that tariff multiple times per vehicle, whereas if you build the car completely beyond your shores and then bring in the finished vehicle, you only have to pay it once. And we’re seeing that in the investment decisions of companies that will manifest as employment problems next year. I think we’ll have our economic correction far before that, though.

While I Was Gone, Part 1: Trade Policy Updates

Photo of trade containers stacked

A US federal appeals court has ruled that most of Trump’s tariffs are illegal since the president needs congressional authority to declare trade emergencies or impose tariffs.

So, it’s off to the Supreme Court to decide if Trump’s entire trade policy will get scratched. And if you’re thinking, “Did Trump’s trade team ever get staffed?” The answer is still a resounding “yeah right!”

This deep uncertainty is wreaking havoc on businesses that operate across borders; many of which are now shifting production out of the US. These policies are inadvertently accelerating American deindustrialization and whatever the Supreme Court decides, it’s going to be rough on the United States for at least the remainder of the year.

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here. Come to you from the Lake of the Ozarks. I just got back from backpacking in Yosemite for a couple of weeks and holy crap, you guys have lost your mind. So I’m doing a series of videos this week, basically on, what’s happened while I was gone and what it means. This has a very, frog and a boiling pot sort of situation. 

The water has been heating up, and I don’t know how many people ever actually notice what’s been going on, but a lot of things are breaking pretty quickly. So let’s start with trade. Just before I got back, an appeals court and the U.S. federal level ruled that most of the tariffs that Donald Trump has been executing over the last few months are illegal under current law. 

Specifically, the Trump doesn’t have the ability to declare a trade deficit as a emergency. He can’t use fentanyl as a justification for a trade war. And he can’t just establish tariffs however he wants, wherever, once and for as long as he wants. Which, you know, honestly, it’s not a particularly strict reading of the law. According to the Constitution, Congress has the authority to set tariffs, and Congress has in bits and pieces over the last several decades, given some of that power to the president, but never to the degree of expansiveness that Donald Trump has asserted. 

This is a second court ruling on this issue against Trump. It will now go to the Supreme Court, probably before the end of the year. And it throws everything about the Trump tariff policy, which is the core of Trump’s economic and foreign policy into doubt. Part of the problem that Trump is going to experience here is that once you get past the tariffs, there really isn’t anything else under the hood. 

The federal government is still not staffed out. The US Trade Representative Office, which is supposed to negotiate and trade deals, still hasn’t been stopped out. The Commerce Department still hasn’t been staffed out. It’s so bad that the Treasury Secretary has been involved in some of these trade talks, and none of the trade talks, none of them, none of the deals we’ve seen so far deal with any of the traditional irritants in economic relations between the United States and the rest of the world, or just about a tariff number. 

So if this number goes away, Trump is not simply starting from scratch. He has yet to build the team that is necessary to start a new policy. And we basically need to go all the way back to January 20th and start over. So big defeat for the president. As for corporate America and the American experience. 

Everything is in flux. We still don’t have a meaningful deal with Canada, Mexico or China, three of our four largest trading partners. And the deals we have with places like South Korea, Japan and the United Kingdom are wishy washy at best. And we’re almost designed to allow the other countries to avoid the tariffs in many ways. So these are sloppy deals that are very light on details that have yet to really be determined. 

And now we’re looking at probably having to start the entire thing over, which means if you are in the business of working in the United States, you still have no clarity. And the closest clarity you might get is on the other side of the Supreme Court ruling, which is at the moment unscheduled. So what we’re seeing is the beginnings of a deindustrialization of the American complex, because companies are now moving their facilities and their production capacity outside of the United States, knowing that they’ll have to pay tariffs when they bring stuff back in. 

But there’s no advantage to participating in a multi-state supply chain. Normally, with manufacturing, especially more advanced manufacturing. Different countries, different companies produce different pieces of whatever the final product is. And those pieces fly back and forth or ship back and forth across international boundaries as value add is added at every step with the United States with this tariff policy. 

You get taxed every time something comes in, even if it’s not a finished product. And so the solution is just to avoid the United States completely, make it entirely an international system, ship the final product to the United States consumer and pay the tariff once. So in its current form, we’re seeing a significant breakdown of American manufacturing. And that will continue until we have some clarity on what trade policy will produce. 

If the Supreme Court decides to reinstate the tariffs that will accelerate the industrialization of America. It’s the Supreme Court decides to ban the tariffs. Then we have to start over and we have all the uncertainty all over again from the beginning. So no matter how you look at this, this is not a great situation for the United States for at least the remainder of this calendar year.

American and Indian Relations Sour

Made in India. Cardboard boxes with text made in India and indian flag on the roller conveyor. Licensed by Envato Elements: https://elements.envato.com/made-in-india-cardboard-boxes-with-text-made-in-in-8X3N3JR

The global rise of right-wing populist governments has complicated the relationships between many of the dominant countries and leaders. The latest is America and India.

That trade deal everyone was optimistic about hasn’t quite played out so smoothly. India is facing steeper tariffs due to its ongoing or persistent trade relationship with Russia. Trump and Modi both expected special treatment for…being themselves; obviously, that didn’t play out for either of them.

Whether India decides to lean into its ties with Russia, form a stronger relationship with the US, or remain independent, its decision will carry huge implications for the global order. As these populist leaders continue to reject the old ways of doing things and seek to build new ones, small disagreements are more likely to intensify.

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Transcript

Hey, all. Peter Zeihan, I’m here coming to you from Colorado. And today we’re going to talk about relations between India, the United States, which have apparently just dropped into the crapper in the last couple of weeks. If you go back a few weeks, you know, maybe two months, there were very positive signals coming out of both Washington, DC and New Delhi that a meaningful trade deal was imminent. 

And it’s all falling apart. And not only is there no deal, India is now paying some of the highest tariffs of any country selling the United States. Right now it’s about 50%. And Trump has said it’s probably going to go up based on how relations with the Russians degrade. The Indians are saying this isn’t fair because lots of countries trade with the Russians. 

And so why should India be the only countries paying a penalty? And I’m not saying that there’s nothing to that point, but it kind of misses the point of how this works and where it’s leading, the United States and India right now, as well as a number of other countries that include China and Turkey and Russia, have rightist populist governments that focus on what makes their country special versus everyone else. 

These are not the sort of governments that normally get along. Normally, these are the type of countries that find themselves duking it out on the battlefield with one another. The reason that hasn’t happened is because we’ve been in this weird moment in the post Cold War environment where the old consensus has basically prevented it from happening. 

One of the things that, right wing governments, right wing populist governments hate is the idea of a transnational group of liberals who impose some sort of policy on things. And, you know, maybe there is something to that. But keep in mind what that means. If you have a multiple of countries that include, but are not limited to Japan, Korea, Taiwan, the United States, Canada, Britain, Germany, France, Italy, Spain, and on and on and on that broadly agree on the rules of the game and things like individual liberty and things like international cooperation and things like economic integration. 

Then there’s no reason for them to have an antagonist military approach to one another. There’s too many other things in the system that stabilize the relationship. But if you have countries that don’t see things that way, that focus on what makes countries different and unique, as opposed to on the same side, then you don’t have those are resting factors and you can get more conflict, not necessarily of the military form, but of any kind of form. 

And those are exactly the types of governments where you have rising in the world today. In the United States, we have Trump, in India, we have Modi in Turkey, we have a guy by the name of Erdogan who’s been dragging the country this direction for 25 years. In Japan, we are seeing a cracking of the post-World War Two consensus around centrist politics in, China. 

We’ve got chairman G who is now basically a tinpot dictator of a second world country. In Canada, we’ve had a bit of a hiccup where we looked like the government was going to go a different way in the last elections, in polls right now in Britain and in Italy and in France and in Germany, the hard right is the more popular than has ever been before. 

And of course, the Russians have been run by nationalists for quite some time. What this means is that consensus around liberal international values is breaking down in a way that we have not seen since the days before World War Two. And if you go back and look at your history, especially for the first half of the century and the period before World War one and World War two, we had a lot of governments that kind of fit the mold that we’re moving towards right now. 

Now, does that mean that we are doomed to have another major international conflagration on the scale, the World War? No, no different world? A couple big things to keep in mind. Number one, there are no countries, with the exception of the United States right now, that could fight in more than one theater. But if you don’t have things like trade and integration tying countries together, then it is really easy for small flaps to turn into big ones. 

What happened with India in particular is both Trump and Modi assumed that because the United States and India were so special that any deal would be done their way, and that’s just not how it works. Also, India has never really had a free trade agreement with anyone, so anyone who thought that a deal was imminent really hadn’t been paying attention to modern Indian economic structure or history. 

Where does this take us right now? Oh, India has to figure a few things out. During the Cold War, they were neutral, but broadly pro-Soviet. In fact, they were pro-Soviet. Even when the Soviets went away. And India now is a country that has agency in capacity. There are major refinery center. They are major stop on the path of all merchandise trade and energy trade between the Middle East and East Asia and between East Asia and Europe. 

They have a military that is capable for their needs. It can easily interrupt those flows, and they have an economy that is increasingly wealthier and increasingly diversified, increasingly technologically capable. What they don’t have is projection power, either economically or strategically. Their military is designed for the problems that they have. It’s designed for Pakistan, it’s designed for Sri Lanka and Bangladesh. 

It can’t project to the Middle East. It can’t project to East Asia. It is a unit to itself that defines how the Indians see themselves. They don’t see themselves as part of any coalition. They see themselves as their own thing. And if you put someone from a populist right in charge of that, if you accentuate that mindset, then the potential for arguments with everyone become very, very real. 

So India is one of those countries that matters, but it matters which side it doesn’t fall on because it empowers whoever is opposite. In the environment that we’re in today. We’re in this weird little situation where the country that the Indians are most dependent upon is China, which obviously makes Indian politics a little colorful these days. The Indians were thinking that their moment had arrived, that they had become strategically special and could have a leg in the American coalition without actually having to do anything that was never going to fly. 

But the Indians also, wherever they do put their foot, are going to matter. One way or another. So the debate right now is whether or not they should buddy up with the Russians again. If they do, they’re bearing almost all the risk. The Russians would get almost all of the reward. But this is what happens when you have a rightist government that sees themselves as special in a way that maybe doesn’t necessarily jive with strategic reality. 

Modi is learning that, Trump is learning that. And in time, pretty much all of governments like this will learn it. And when that happens, decision making becomes a lot more hostile because no longer are they rebelling against the existing order, they’re looking to build their own. And when that happens, we start getting new strategic relationships and hostilities. And that can boil up into something a lot more substantial.

Trump Trade Talks: Japan Gets a Deal

Photo of Japanese Yen

Japan is one of the few countries who has been willing to step into the batter’s box and take whatever Trump throws at them. This time at the plate, they were tossed a 15% tariff on Japanese goods (with some big caveats).

Tariffs on some of the most important exports, like cars and semiconductors, have been deferred for future negotiations. Which means Japan will be back at the plate in no time. The Japanese also pledged investment into US infrastructure via state-linked commodity institutions. Trump claims most of the profits will go to American pockets, but the Japanese disagree with that interpretation.

As is the running theme with most of Trump’s “trade deals”, this is predominantly fluff and the real talks are yet to begin.

Prefer to read the transcript? Click here

Transcript

Peter Zeihan here, continuing our series on the new deals that the Trump administration has announced for trade with our major trading partners. Today, we’re going to tackle Japan. The Japanese situation is very similar to the European situation. And then it looks like the Trump administration, Donald Trump personally came up with a few numbers, walked into the room, said, I want this, this and this and this. 

And the Japanese nodded their head and smiled and say, sure. The headline figure for tariffs going, for, for goods coming from Japan. The United States is now 15%. And unlike in Europe, where there’s not a lot of back and forth in manufactured goods, to the degree that industrial substitution might happen with Japan, there’s a fair amount. 

Japan is an industrialized economy that doesn’t have a lot of consumption because of their demographic bomb. And so they export basic goods. Intermediate goods, processed goods and finished goods to the United States. So there’s a lot of room for things to move around if that ends up being the final number for the long term. 

But that’s probably not going to be the final number for the long term. The most interesting piece of the trade deal, as it’s currently been announced, is that on things like cars and semiconductors, those are going to be pushed off to another day. So even the Trump administration is saying that this is the beginning of the negotiations, not the end. 

Here’s the problem. Japan doesn’t make a whole lot of semiconductor, and the United States doesn’t make a huge number of semiconductors. But both of us absolutely dominate certain pieces of the supply chain. So the United States makes the silicon dioxide that basically goes into all of the world’s semiconductors. And we also do almost all of the design. The Japanese do some design, but they absolutely dominate the photo mask, which is, for lack of a better phrase, really fancy sunscreen. 

So when you were throwing the lasers at the chips, you can trim to different depths to achieve different things. These steps are not replicated in either country to the same degree that they would need to be. If you wanted to have a purely national semiconductor supply chain system. So the Trump administration, by pushing this off, is leaving unresolved the question of what the United States is. 

Semiconductor policy is going to be are we only interested in the last step, fabrication, which is what the Taiwanese do? Is that what we want? And we still want to bring in all the inputs that we need from the rest of the world, or do we want to completely indigenous semiconductor system. The first one is $100 billion question that would take 10 to 15 years. 

The second one is a $5 trillion question. That would take 20 to 40 years. And the Trump administration, to this point, hasn’t figured out how it wants to approach that, because that’s a huge tax, no matter which version of the question it’s going to be. And so things with Japan in that regard are being put off. Something similar is happening with drug manufacturing because the Japanese aren’t the ones that make the really cheap drugs. 

They make the more advanced drugs. And if you want to do that at home, you need a whole support chain going up to it. Okay, that’s kind of piece one. Piece two is a promise of investment, unlike the Europeans, where everything is done at the nation state level. And so negotiating with the European Union is a little loosey goosey. 

Japan is a sovereign nation. when you negotiate with Tokyo, you’re negotiating with Tokyo. And Japan is a country that over the course of the last 50 years, has realized that they have a poor system for raw material production and processing. So they’ve built a number of state entities to basically compensate for that. You basically throw state money at entities who are kind of relieve from the normal laws of supply and demand, and go out into the world and make investments that under normal circumstances, Americans wouldn’t make in order to source lithium or oil or whatever it happens to be, according to the terms of the current deal, those institutions will now start investing 

in American infrastructure in order to produce products in the United States. And 90% of the profits from those institutions will go to American entities. So two problems with that. Number one, these Japanese financial institutions that are government linked, they usually go into raw commodity production and processing. That’s not what Donald Trump said they’re going to do. 

He says they’re going to go into high end manufacturing. So already you’re talking about a significant shift in their mission and outside of their normal realm of expertise. The second problem is the idea that the Japanese will provide all of the money, but take hardly any of the profit. That’s a stretch. And as soon as Trump made these announcements, the Japanese like, that’s not what we agreed to at all. 

So unfortunately, in a similar manner to what we have going on with the European situation, this is the start of talks. This is the Trump declaration of what they want. Here we are. When this all started back on April 2nd. We’re now see May, June, July. We’re now three and a half months later. And we’re only now getting the initial declaration of what Donald Trump actually wants to see. 

Now, this is progress. But if you’re talking about the re fabrication of financial entities at the government level in Japan as the starting point for whatever this later deal is going to be, you’re still talking about projects that are going to be realized over the course of a decade or more. Not the sort of thing that can have any impact on things like the trade deficit on any meaningful time frame. 

We are once again, at the beginning of this process. We are nowhere near the end.

Trump Trade Talks: US-EU Strike a Deal

European Union Flags in front of a stormy sky

The Trump administration and the EU have announced a new trade deal. It’s more of a political headline than a meaningful agreement, but let’s break it down.

The agreement includes a 15% tariff on European goods, $750 billion in US energy exports to Europe over three years, and $500 billion in investments from EU institutions in US infrastructure. There is a lot to going on here, but the bottom line is that the “deal” was made with the EU, NOT the member countries. So, until the individual countries agree or decide to move forward with this…it’s just another wish list from Trump that’s not likely to go anywhere.

Up until now, these talks have just been political fluff. The structural issues in the US-EU trade relationship remain untouched and will stay like that until the real negotiations begin.

Prefer to read the transcript? Click here

Transcript

Hey, I’m Peter Zeihan here, coming to you from a suddenly stormy Colorado. Today we’re launching off a new series on the status of the trade deals that the Trump administration has announced. We’re going to start with the European Union, which is by far the biggest. Now, Donald Trump has said this is the biggest trade deal ever. It doesn’t even make the top 25 list, actually, for the United States. 

And the problem is that a lot of the things that have supposedly been agreed to can’t happen. So, let’s start with the headline where we are at the moment. Then we’ll go into the detail. So the headline is that Trump was threatening the European Union with originally a 20% tariff, and that went up to 30%, then eventually 50%. 

And now it’s going to be 15%. And the Europeans agree to not retaliate, with their own tariffs. So there are a lot of folks across Europe who think that this is a particularly unfair deal. But, you know, whatever. 15% on European trade, Europe collectively is probably our fourth largest trading partner. That would have an impact on a lot of things. 

The United States and Europe have a relatively robust trading relationship that’s built on intermediate manufactured goods and then finished things like cars and aerospace that go both ways, as well as the United States sending a fair amount of energy products and processed materials, whether it’s lumber, cement or whatever. To the Europeans, the Europeans, of course, send a lot of luxury goods to the United States. 

French wine, of course, is on that list. Kentucky bourbon goes the other direction. You know, these are these are culturally intertwining trade types. And so throwing a 15% tariff on what’s coming from Europe to the United States is obviously going to require a squeeze in people’s budgets and redirect how things are going elsewhere. The thing to keep in mind, primarily when you’re talking about European trade, however, is that most of the stuff that we buy from Europe is not stuff that can really be sourced from other locations. 

So you’re either going to be looking at a reduction in demand as prices go up, or a withering of that trade relationship. So this is not one of those trade relationships where you’re going to see new industrial plant coming online in the United States to compensate. It’s not that kind of trade. That’s kind of the first piece. 

That’s the headline piece. That’s where we are. That all takes effect August 1st. The other two pieces are kind of loosey goosey and are very Trumpian. Trump has announced and the Europeans have said that, yes, this is broadly what we agreed to, that over the next three years, the Europeans will buy three quarters of $1 trillion in American energy products. 

Now, the energy product is defined very, very loosely to include things that don’t exist, like small modular nuclear reactors, or things that the Europeans just don’t buy from us like, for the most part, crude oil. Mostly we’re talking here about natural gas and liquefied form, but the number makes no sense. 

$750 billion in U.S. energy products over three years, the United States only exports a little over $300 billion of energy products total globally. So the idea that all of a sudden it’s all going to be and go to the United States, that would actually be a massive reduction in the take home pay for U.S. energy exporters. Right now, U.S. LNG exporters in particular, are in kind of the catbird seat because they look to see whoever is having a crunch, and then they send LNG there. 

So they get spot prices that are very, very, very high. If we were to send everything to the continent of Europe, we would be talking about more term contracts where the renumeration cost would be significantly lower because of the reliability. You would probably see U.S. LNG exporters see their profits drop by well over two thirds. And you’d probably drive a quarter of them out of the business if this agreement were to happen, which it won’t, because the European Union is not an economic entity. 

It is an international political organization among the member states. And the member states are the ones who decide what they buy from where. So the EU, the European Union institution, the executive arm, has committed to buy in the stuff, but their annual budget for the entire European Union is under $200 billion a year. So no, this is not going to happen at all. 

And if it did happen, it would be really bad for American energy exporters. That’s problem. One problem too, is that supposedly there’s going to be a half $1 trillion of investment by European entities in the United States. And again, the EU is a political institution that doesn’t have that kind of budget. It has agreed on behalf of the member states, but the member states are under no legal liability whatsoever to actually carry out the agreement. 

So what’s probably going to happen is a few months from now, these talks will continue again, because this is not a final deal. This is a memorandum of understanding for what the Trump administration would like to see happen. And even if this was a final deal, it would then have to be ratified by all the member states. But the EU institutions don’t have the political or legal authority to negotiate for their member states on behalf of things like energy and investment treaties. 

That is a bilateral deal. Those talks have not even begun. And from what we’re hearing from both the Trump administration and from Brussels, is that Trump basically came into the room with a few numbers, said, I want this, this, this, and this. And the Europeans kind of nod and smiled, assuming that this would end the conversation for the moment, which appears to be what has happened. 

But in terms of the real talks, the things that might address the irritants in the relationship, of which there are many, those haven’t even started.