The New Age of Making Stuff (or Pretending To)

We spend a couple minutes welcoming our new listeners, uh, explaining what this podcast is, why you should continue listening to us and share it all with your friends.

Then we spend most of the podcast debating tariffs and globalization. Uh, Marco takes the pro-globalization point of view. I take the devil's advocate position of the anti-globalization view, and then at the end we debate each other's points. Imagine that two people debating two sides of an issue and then coming together and talking about it. Um, and then at the very end we talk about Operation Spider's Web, the Ukrainian drone strike on Russia.

Russia's use of drones in that conflict and what that means about the future of war and power in general. Um. This. I mean, I love always talking to Marco. This is my favorite episode so far of what we've done. It feels like we're really hitting our stride. I hope you agree. I hope you share this podcast widely with anybody you think that would be interested in listening to it.

And thank you so much to the people who write in to give us constructive feedback, constructive criticism, uh, or questions that you want answered. Uh, we read everything. We try and hit everything, and we'll continue to do so. Or you can email me at jacob@jacobshapiro.com. I make sure that the emails get to Marco as well. And eventually we'll set up an email address just for the podcast. Okay. Enough of that. Let's get to the show. We'll see you at the day. Marco, how's it going?

I actually, uh, yeah, I went to get a haircut, you know, and uh, my guy who cuts my hair, uh, who is awesome, Jason Laura out there on Montana Street. Shout outs to this is, this is the hair that he's produced. Oh, he's gonna be very mad at me 'cause I didn't style it. Um, so, uh, Lux lab studio over on Montana Streets in Santa Monica. But yeah, so, um, he was like, Marco, Marco. We

And so it's not for our clients. So that's, that's the first thing. Uh, this is really, we're not here to give investment advice. We're not here to get really deep into markets, which is what we do for a living. Um, but my answer to Jason was like, well, it's actually for you, you're the target audience. Uh, it's somebody who's just casually, you know, like they're professional at their own craft. They spend a lot of time perfecting that craft, whatever that may be.

Maybe you're a hairdresser, maybe you know, you're an accountant, maybe you're a lawyer, maybe you're a doctor, maybe you're a manufacturing worker. This mythical unicorn creature that America apparently has lost, whatever it is that you are, uh, this podcast is really for you. This is not for investors, which is our normal clients.

And the purpose of this is really just to, uh, give you a sense of what we think is going on in the world so that we can inform you so that you don't have to go to some, you know, lunatic on YouTube. Um, now his answer, his question to me was like, okay, but what makes you special? You know? And what makes I think US special is two things. One, we were trained in the Art of Net assessment. Uh, weighing all sorts of, uh, variables in order to get to an answer, uh, on the geopolitical side.

But the other issue is that for the most part, we work for investors. And the reason that that matters is because our clients just wanna make money. And that washes us away of biases as much as anything will. Because what that means is that we're not trying to pick who's gonna win or lose or who's right or wrong, for the most part, uh, we're anchored by like, Hey, what's gonna happen in the world so that somebody can make money off of that forecast?

Now, that sounds very callous and Glip, and I get it. I know it does. It really does. But the fact that that is what we do professionally makes us as close to objective as it gets, you know, it's as it is, it's as close as it's gonna get. Now, obviously you might say, well, that's a bias of itself, right? You guys are just focused on how to deliver a future that somebody can trade off of. Therefore, you are pro investment ProfIn, world, plural, business world and like, yeah, that is correct.

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

Um, the, the, the fact that our feet are held to the fire if our decisions are made wrong with some of our clients, uh, means that no, we are actually held accountable when we're wrong. We don't get to just sell our next book or pretend like the thing that we said didn't happen and make the next video. It's like, no, like probably if you or I make a really big mistake, uh, we'll have to cancel the next podcast 'cause we'll be with our clients for the next three weeks.

Like backing out of the mistake and understanding, uh, what is coming next. I was actually talk my, I was talking about this with my wife last night 'cause she said jokingly to me, I don't understand 90% of the stuff you guys are talking about on the podcast. And I said, thank you for telling me that. 'cause then we're actually doing it wrong. It is meant for you to understand it like we are trying to be. Entertaining without dumbing shit down.

So we wanna explain things plainly so that anybody out there can listen to things. And then also we wanna make it a little bit entertaining. A lot of the analysis in this space can be very dry because it's pretending to be objective. Whereas you and I are comfortable that we're objective because we know where our money is printed and what's gonna happen. We don't need to like put on a tie and say all this stuff to be objective. Um, well that, yeah. Jump in. That I can tell. You wanna jump in?

You know, we're not trying to curry favor with, um, any administration or angle for some public sector job because that would, uh, mean a massive pay cut for both of us, like massive. Um, so because of that, I think you should listen to us because, uh, this is as close to objective as gonna get. I mean, you know, it's as close to a nihilist, you know, zero Fox given analysis on geopolitics as you're gonna find anywhere out there.

Um, and it also means that we, you know, take both sides or three sides or multiple sides, uh, and, and keep their feeds to the fire as well. So, um.

And it took me a long time to get comfortable with the fact that the thing that there was about me that made people wanna listen to me was that I engendered trust, that I made people feel like I knew what I was talking about, and I was addressing their concerns. About 90% of what you learn from the things that you hear on a daily basis, you will forget within 24 hours.

Most of the beautiful pearls of insight you hear on this podcast, you will not remember them, but you will remember how you felt in the moment that you were listening to them and the entire game here with the guy who's cutting your hair or anybody else, the reason you, you know, you come for the, oh, I want the objective analysis. I wanna stay on top of things. I can say things, but you stay honestly for some intangible chemistry reason.

Because you like us and it feels dirty to say that, but that's honestly it. Like that's the difference. And the thing that you and I are trying to do is we are trying to be personalities that you can like and that are entertaining, but maintain analytical and intellectual integrity. And it's really hard to have both. The media ecosystem is littered with people who are just gonna entertain you and tell you stuff and make you feel particular things.

And it's also littered with people who are very, very down in the weeds and can tell you probably better than us on a lot of the things we talk about, like all the nuances and things like that. But combining those two things being entertaining, but like analytically. Rigorous at the same time. Like that is the secret sauce. And I think, you know, our, our humor in making fun of each other and being willing to take the other sides of issues, all of that sort of plays into it.

But I think that's the real answer to your, your guy. It's, you know, why do, why do you go to him to get your hair cut? Probably 'cause you like him. Like, that's, well, actually probably why you interact with people.

But anyways, uh, enough about Jason Lara, the best hairdresser on Montana Street in Santa Monica. And by the way, I. If he's listening to this, like, you know, like, where's I, I need a discount code, geopolitical cousin, discount code. But I think it does concern me that your wife said that 90% of what we talk about, um, she, she didn't understand. Because you're right. Uh, first of all, your wife, uh, is, is a professional. Uh, she knows her stuff.

So we need to, I think, um, I think we need to definitely heed that, uh, criticism. To that end, we do have a topic today, uh, that we decided to kind of debate, uh, and, and we wanna simplify it.

I mean, tariffs, we just wanna talk tariffs, we wanna talk globalization, we wanna talk trade, um, and, uh, we want to talk about it, uh, in a way that will be approachable for everyone. Yeah. So, um, I, I wanna make a case here. Um, I, I wanna jump in straight into this and, and I just wanna say that, um, I. There are ways in which President Trump's policy makes sense. There's ways in which it doesn't. Um, is it cool if I just start, uh, my bit here, Jacob?

Or did you wanna set it up in any way?

And we got an email from a mutual friend, shout out to Tim, uh, you know, who you are, who is working in a space where he was actually pushing back and saying, you know, I work with. You know, a lot of in manufacturing and industrial construction trades, et cetera. And actually they've seen business pick up to the tune of, in his words, the most we've ever seen. And so he was kind of pushing back against some of our views that, you know, manufacturing that's like the old game.

Like you don't necessarily wanna do that. Um, and so what we decided to do is take a step back and Marco's really gonna argue a pro-globalization, like extend, uh, what he's talking about and talk very simply, you know, what are tariffs, why are they bad? Like, and then, uh, I have the, I have the, the task of being the devil's advocate and pushing back.

So Marco, I, I thought what we would do is I might just give you like six or seven minutes and say, all right, make the case in six or seven minutes. I'll have six or seven minutes, and then we can like, go back and forth, like make it almost like a little mini crossfire type exercise, if that sounds good.

Now, the problem with focusing on steel is that America doesn't import Chinese steel. It imports Canadian, Mexican, Brazilian, and European steel. So to what extent do you really need to have a steel mill inside of America? Can it be in Ontario? Can it be in, um, you know, Puebla? Probably can. Um, so I think that what defines as national security, I. Geographical location for the United States of America.

Like we know what it is for a country like India that doesn't have power projection, but maybe for the US it would be okay if those, um, assets were not located in its country, but in its allies. Nonetheless, I do think that imposing tariffs on specific sectors that are critical to the country's national security does make sense. And that's a conversation that any country can have and can justify to the rest of the world. Like, Hey, look, we really consider this a, a priority.

Uh, we want to have some of this in our country. The second way that tariffs do make sense is to enforce fair trade. And economic theory tells you that countries that trade freely with one another should not have massive imbalances. Why? Because if you sell a lot of things to another country. That country ends up having to buy a lot of your product. Let's say you're really good at bicycles. We ban cars, okay? We ban cars, and the number one export on planet is bicycles.

If you export a lot of bicycles, everybody's buying your bicycles. Oh, you got the best bicycles. This is amazing. They have to buy your currency to buy your bicycles. Your currency rises in its values, wages in your country rise because you're making so many bicycles, and eventually you become quite, quite expensive, unproductive and uncompetitive in everything.

But bicycles and other countries start to kind of export stuff to you because you've made so many bicycles, so many of your people are working in bicycle shops. Your currency has appreciated. And so if, if globalization was fair. If everybody had access to free markets, you shouldn't have the kind of trade deficit the United States of America has. That should not exist.

But the reason it is exists is because major competitors of the us, including China in particular, have used things like capital controls, currency manipulation, not like it sounds so, uh, evil manipulation of currency, but effectively the Chinese have made it difficult for you to buy their financial assets. If you buy them, you can't really leave them.

They've, they've made it a little bit easier to, I mean, a lot easier to be fair to them, to buy Chinese bonds, but not to really come in and out of their economy, to transact in their currency. They don't wantin to be an international, you know, reserve currency. And part of the reason is that they have not gotten the kind of an effect. A country with a huge trade surplus would get IE They've suppressed those costs that come with competitiveness.

The reason I say this is that I do also think that tariffs make sense when you wanna punish a country for, for not taking on the burdens of competitiveness. So you can use tariffs to basically tell China, like, look, we get it. You are really good at making stuff. However your currency should have appreciated, and also you are supporting certain industries inside your own country and therefore, you know, like you don't really need to do that anymore.

It's if, if like, if a really, really less developed country like Ethiopia decides to put 800% tariffs on textiles so that Ethiopia can have some people working in the garment industry, nobody should. Say that Ethiopia is using state aid. I mean, they're just trying to get some factories in their country and better the lives of their people. That makes sense. But China is no longer a less developed country. It is in the middle income kind of range.

We've all, well, I have, I've, I've been to many cities in China and they look like spaceships, you know, like, I get it. They're still interior China still probably should use industrial policy to, you know, like help some parts of China. That's all fine, but it's not where it was in the nineties. And so it cannot use these manipulative tools to remain competitive perhaps in industries that it should have lost competitiveness in maybe toaster ovens.

Toys t-shirts should move to other countries around the world should move to Vietnam. Maybe even further down the, the line, maybe Laos, maybe Cambodia. Maybe Ethiopia, those are the next countries that should start building those low value added goods. And, uh, and China has, for the most part, manipulated trade and its capital account and also its currency to, to remain competitive.

And that is where I wanna make a case for globalization In America, there's this sense that Americans have soured on globalization, although polling actually suggests that, uh, support for globalization has doubled since 2016, which is something we can come back to. Americans actually are not as anti-trade and anti-globalization as President Trump, but also liberal media often both agree.

There's this, there's this tired narrative that Americans are like yearning to be in a sweat shop with a, like, you know, like just overalls and like hammers and glistening sweat. Just a lot of like 1930s imagery. So there's a lot of that. First of all, polls don't support that. So let's park that aside. But my point is, when you say that China is manipulating certain things, or you say there are non tariff barriers to trade in Europe, um, you're not saying that the US should stop trading.

You are actually seeing the opposite thing. You're actually seeing, you want more globalization, not less of it. And this is where a lot of Trump fans, a lot of Trump supporters who do want to glisten their biceps in some like factory floor, you know, just hammering away at a, at a widget, I'm gonna tell them that's not what Donald Trump wants.

He actually wants more globalization because a lot of these reciprocal tariffs are actually designed to get other countries to become fair so that the trade can benefit all countries. Particularly can benefit them in those sectors where they're really good at.

Um, and so what I would say is that I think that the US is going to, uh, um, what, what basically what the, the case I'm making here is that if globalization is actually unfettered with tariff barriers to trade with currency manipulation, it will actually produce very positive outcomes for pretty much everyone. It will rise all the boats.

So it's not the globalization failed, it's that in the early two thousands and the 1990s, the US didn't, when it had preponderance of power, it didn't push other countries to open up fully. And so that's the irony. President Trump could both be right, but the outcome that he's gonna get is not going to be what his supporters think. The US will not open up manufacturing shops for bicycles. He probably is not going to increase manufacturing as percent of labor at all.

In fact, if trade is free and fair, the US is going to export a lot of things that many of his supporters probably believe is for quote unquote Girly Men services. That's what the US has a huge advantage in and US is going to continue to crush in exporting its service sector.

That means a lot of software, that means a lot of, uh, banking, insurance, you know, entertainment, movies, the NBA Hollywood, all sorts of things that the US is good at is actually not the stuff that, um, his supporters believe he's gonna bring back to America. And he's not, because if you actually make globalization work for the US it will only accentuate things that the US is good at.

Now why don't I think that the US is going to be able to, um, become more competitive in manufacturing and here because I think there's a lot of things that goes into being competitive in manufacturing and it's not just being unfair. Uh, when I think of Germany and why Germany is so good at manufacturing, uh, first and foremost, they have really good trade schools that educate people on how to be, uh, manufacturing workers.

But I think there's also a culture, there's a cultural element where there's a pride in metallurgical professionalism in Germany, in other words, working in a false fogging, you know, factory is not necessarily seen as a negative. And, and the reason for that is that healthcare and education are free. Now. Now I know I've lost all of our Republican listeners, but just hear me out.

If you have a very advanced and high quality social welfare system going out and just being a manufacturing worker is not a bad thing because you don't really care about where your kids are gonna go. If they're smart, they're not gonna end up in a factory right next to you. If they're smart, they're just gonna go to a university and it's gonna be free.

So the need to constantly generate high income in order to deliver outcomes for your family, that consists with middle class, it's not really needed in a society that has extremely well run social welfare state. And I do think that that also supports German, Germany and its ability to be a manufacturing power because if you, if you have the ability for your kids to basically determine their own future, whether they're gonna be next to you on an assembly line or not, um.

Based, based on the quality of education of universities, of healthcare, then I do think you might choose to go to an assembly line and work there. Just, you know, nine to five shift work and so on. So I'm not sure if the US can really compete with that, to be quite frank with you, I think that just throwing up tariffs in order to protect your domestic industry is going to lead to you protecting your own industry that's gonna work.

You're gonna produce cars that are crap that nobody in the world wants to build because you didn't gain advantage through productivity, through innovation and to the quality of your labor force. What you did is you produced a fake advantage using tariffs. And so if the US sticks to that strategy when it comes to cars, it's going to fall behind. Uh, economists call this import substitution, Google it, read Wikipedia pages on it. A lot of countries did it. It failed.

It fails because it leads to high, lower quality products. Um, and I think if the US wanted to become a manufacturing powerhouse, then it would probably have to create a lifestyle, a culture that makes people wanna be assembly line workers. And, uh, I don't think that just paying them $60 an hour is gonna do that. I, I'm not sure that's gonna, that's gonna be enough because the Germans do that. Plus they have all sorts of benefits that are associated with just being lower middle class.

Your life is amazing. You're fine. Um, so anyways, I'm gonna, I think I'm gonna stop there and I'm gonna let you cook on the other side.

It seems that even an advocate of globalization can't help but spend the first part of his argument talking about actually the inherent virtues of protectionism and tariffs and the very things that we're talking about, which I think points towards why globalization is actually the wrong way to think about how the United States should be engaging with the world. I think the most important thing missing from your full throated defense of globalization is a sense of. Context.

You sort of got to it at the end of your remarks. You talked about when the United States had a preponderance of power, that it did not open up markets up sufficiently, but this is precisely the point. The United States no longer has a preponderance of power in the world. We might argue that the only time that the United States had a true preponderance of power was from 1990 to 2001. During that time period, you can say safely, there is no communism.

There is no ism, there is no rival, there is no Jihadism. There was an 11 year period there where the United States was the unquestioned military, uh, political, economic, cultural power in the world. And what the United States said went, if you were Sloan Milovich and your old stomping grounds, and you went against what the United States wanted, you got the shit bombed out of you. And if a Chinese embassy was bombed in the course of that sucks to be you.

China, the United States is doing whatever the fuck it wants. If there's a genocide inside Rwanda, if militants are doing weird things inside of Somalia, um, okay, like the United States is not like this, the United States is going to come find you. If you start talking about nuclear weapons and you're, you're in the axis of evil. I mean, that starts to get outside of 2001. The United States has this role where it's gonna push for you. And in that context.

Globalization makes perfect sense because you are not afraid of anyone. There are no competitors. There is nobody that is coming for you, nobody that can marshal any kind of attack on your resources. And it makes sense to restrict access to the most closely held intellectual property, but to diversify the construction of all the different widgets that you talked about. So it's no longer an issue where steel is coming from or where you're gonna get your bicycle because the Soviet union's gone.

We're not hiding underneath our desks anymore. And there's a billion Chinese people who wanna make these products for a fraction of the cost that they could be made for in the United States. So let's let the Chinese people and all the slave labor in the world make these things for the American consumer. And the American consumer gets more money in their pocket. They get to listen to nineties music and everything is going fine now since 2001.

That is not the world that the United States has lived in. And because the United States is so generous and magnanimous in its spirit, it has taken the United States decades. To wake up to the fact that there are threats, that the 11 years of the giddy springtime of the bourgeoisie was not accepted by the rest of the world.

The end of history was a joke, so it started with the jihadist and then Russia decided we want Mother Russia back, and then Xi Jinping came in China, you start going down the list. All of these different challenges to the United States, and these were not just ephemeral passing challenges. These were true existential challenges. And at this moment, all of these different actors start taking advantage of the United States. The Jihadists did it by taking advantage of US military power.

They wanted the US to come bomb Iraq and Afghanistan so that they could use this as, as an example of how to spin up, uh, jihadism in their own region, see the great Satan coming to bomb us and things like that. Um, Russia taking advantage of its cheap energy supplies, getting Europe dependent on it, pushing into parts of Eastern Europe, they didn't, knows the west didn't give a shit about and saying, okay, we'll take this part of Georgia back and we'll take this part of Ukraine back.

And nobody was gonna care because nobody's, nobody was gonna push China. Slowly but surely. Not just manufacturing things and making its population a little bit richer, but stealing intellectual property and to your point, propping up domestic industries, violating all the rules of the order that it joined, um, that allowed it to participate in this process. It was obviously not a good faith effort. So we have moved now to a more inherently competitive and multipolar and.

FRAUGHT world where the United States is under threat, where we have enemies who want to attack us, and if we have enemies who want to attack us, it no longer matters what price you can buy a bicycle for or how much your iPhone costs. We need to make sure that the United States can defend itself. It is unfortunate that the rest of the world could not sign on to US ideals, but that is unfortunately where we are.

And in that moment, it means that we do have to protect industry in the United States because we have to make things here ourselves. It would be nice if a billion chin Chinese people would continue to make things for us, but we've seen that they can't be trusted. Look at how they treat the people in Xinjiang. Look at what they're doing with Taiwan. Look at what they did to Hong Kong.

This is not a nation that can be trusted, so it absolutely behooves us to come back and breathe, bring these things together. As for tariffs, tariffs are very simply a tool in this toolkit. They are just a simple thing. They are attacks, and it means that we don't want to import things from abroad because if you just leave the consumer to themselves and there's a cheaper product on the shelves from China or from Russia or from somewhere else, they will buy it.

So the tariff means, okay, you're not gonna buy from those different countries. We're gonna rebuild industry inside the United States when we are looking back for historical context here. That 10, 11 years of US dominance is not normal. We thought it was exceptional. We thought it would continue on forever, but most of the history of the 18th, 19th, and 20th century shows us that actually you need a form of protectionism in order to become a great industrial power.

Think of Great Britain from 1760 to 1840. What was one of the first things the British government did? Once it realized that the Industrial Revolution was upon it, and that it had fundamental advantages over France and other countries, it forbade the export of machinery and other things that were critical to the industrial revolution so that it could capitalize on that opportunity for as long as possible.

What happened in the United States in the 1890s after the Civil War and the rise of US industry? William McKinley, a self-professed tariff man comes to power and protects us industry so that it, it can continue its ascent along global value chain so that the south can be industrialized after the war, and that leads.

Two US Victory and World Wars One and two, US military power was defined not by the fact that we just woke up one morning and could make fighter jets, but because somebody like William McKinley protected US domestic industry in the 1890s because he saw the world that was in front of him. You mentioned Germany today. Think about Germany.

In the 1930s, we don't talk about this because it's politically incorrect to do so, but before Hitler tried to take over the world, he was actually doing incredible things for the German economy. One of the first things that he did when he became chancellor was erect tariffs to protect German industry. Germany was not known as a manufacturing superpower. Pre 1930s, the British were the ones who made things. The Americans were the one who made things.

That reputation of German metallurgical genius and manliness happens because the Nazis build factories and incentivize German companies to build things inside of Germany. That's where it happens. And Germany, of course, went off the deep end in its ideological fervor, but almost conquered the entire world. A small country of 50, 60 million people, whatever it was, because they protected their industry and because they knew they needed to protect themselves.

I think also of the United States in the 1960s and the 1970s, we talk often about the Vietnam war and social, uh, dysfunction and rising deficits. And Lyndon b Johnson, what really happened in the 1960s and seventies, the big success case was the space race.

The United States decided that it needed to win the space race at all costs, and so it incentivized and protected a US space industry That literally gave us most of the technological innovation that we interact with today because the United States government supported it. So I would tell you that as the person who is speaking pro tariffs right now, that the main problem with the Trump administration is that it is not going nearly far enough. In fact, it is doing a fairly wimpy and.

Namby-pamby approach to how tariffs should be done. And if I was advising President Trump right now on tariffs, I would say President Trump, go further and go further, specifically in these ways. Number one, don't listen to Elon. Don't listen to Cousin Marco about how you need to be fiscally conservative. You need to spend more, way more.

You need operation warp speed on ship building and active pharmaceutical ingredients and bicycles and every other fucking thing, because we can't afford to have these things from China and from India and from these WY Europeans anymore. God forbid other places in the world. We need to build this capacity. We need to pay the American worker as much as possible that they enjoy smelting on the floor of that factory. Maybe it's not 60 an hour, maybe it's 130 an hour, maybe it's 200 an hour.

It's all funny money. It needs to be spent. That means also more fiscal stimulus. Now that doesn't mean ad nauseum. If you put people. On the tit forever. They'll probably stay there forever. But maybe we say for the next five to 10 years, while we are in an economic conflict for the existential future of our country, we will have a universal basic income for the next eight years so that every person can live. As we go through some of these disruptions, tariffs, we need more of them.

They need to be higher, they need to be tighter, they need to be enforced incredibly strictly, because we can't have people get around them. No, Mr. Nvidia, CEO, you don't get to come to Saudi Arabia and whisper sweet nothings into President Trump's ear and get around some of these things and export your chips to China in the future. Absolutely not. Tariffs are ironclad. There is a great wall of America that we will erect so that these products do not get inside of the United States.

Here's the one that's really difficult for you, Mr. Trump, and it was, uh, articulated by Steve Bannon just yesterday in a podcast, you wanna balance the deficit. You want to pay for some of these things. Yes, tariffs will pay for these things in the long run. You know what you have to do first, you have to tax the rich. And I know you don't wanna do that, but this is an existential battle for our future.

And if the working man is sacrificing his ideals of what his future was going to be by going and smelting on the factory floor, then the rich are gonna have to pay for some of this. Now, 1890s, William McKinley, there was no income tax. So maybe we can get to a world in which the income tax also goes away, in which all these other tariffs and things like that pay for that.

So alongside that temporary universal income, maybe there should be a temporary income tax that is set at the 60 to 70% level that sunsets in 10 years time. And then we have no income tax in this country that we are building towards a better future in this country where we make things in this country in conjunction with our allies and those countries that wanna do us harm can no longer do. So. Last but not least, the problem of universities.

There should be government dispensation to pay for any American student who wants to go to a university, who wants to participate in either energy, artificial intelligence, biotech, or any of the trades. If you want to go to school for any of things, any of those things in the United States, not only will you incur no debt, the United States government will pay for you. That is what the United States government should do.

If you want to go study comparative literature and all sorts of other fun things, that's fine. You're gonna have to pay double for the privilege of doing those things. This is not a liberal arts world that we're living in. We're living in a real multipolar geopolitical world in general. And Marco, I'll close my statement with just this. I know the data says globalization.

The data also said that the Boston Celtics, when they played the New York Knicks, should just continue to hoist up threes and try and isolate Jalen Brunson over and over and over again, because eventually the data was gonna bend in their way. But that I. That is playing with the lead. And the United States cannot do that. If the United States is gonna move forward as the most powerful country in the world, if America is going to be great again, it has to keep pushing.

Don't be the Boston Celtics and the first two games of the Eastern Conference semifinals instead, think of the Oklahoma City Thunder, or of the Denver Nuggets, or any of these other teams that continue to grind, innovate, push, push, push. 'cause if you just think you're gonna continue to hoist up threes and get slave labor to build your fancy things in other countries abroad, you're gonna be in for a rude awakening. When China says, actually this is the Gulf of Beijing. Ah, mic drop.

Bam. I did it. Do you like it? Okay. I feel dirty.

Maybe, maybe, maybe in that world, the US market being the largest market in the world, will still produce enough competition domestically to produce the best bicycles. It requires a lot of maybes. So in other words, this is where the tariff thing doesn't mathematically make sense. First of all, if you want to raise revenue for the country, then you have to continue trading, and that's where the 10% across the board tariff that nobody talks about anymore.

So I think that that's where some tariffs can make a difference from a revenue perspective. But protecting industry, the problem with protective industry, protecting industry is that your domestic competitors then don't have any incentive to compete with the rest of the world. So if somebody abroad creates a better bicycle than you, you will never get that bicycle.

And by the way, this, this has happened a lot in American history, for example, why do American car companies and our friend Tim, actually agreed with me on this one.

So, uh, this, this whole debate here was prompted by one of our listeners who said, Hey, some good things are happening in manufacturing. But when I countered that tariffs would eventually lead to a complete destruction of American car industry, he did not really disagree. One of the reasons that American car companies produce absolutely terrible vehicles that nobody in the rest of the world wants to drive Facts.

The reason is that they, they, they've just overproduced pickup trucks because throughout the history of the US there's been ebbs and flows in protectionism of the car industry, and the car companies became quite uncompetitive globally. They're also perfectly fine with the domestic market. The domestic market, as far as they're concerned, is big enough. Trucks, pickup trucks have higher profit margins than sedans, and so they just became a pickup truck company. They cannot build a sedan.

American car companies have lost the ability, the technological ability to build a sedan, and that's what happens when you become overly indexed to a particular marketplace.

Another example of this is washing machines. When I first used moved to the US in 2000 and uh, six, I was like frustrated by this obsession with top loading washing machines. I was like, this is idiotic. Why? Because side loading, washing machines are more efficient. They wash clothes much better. You're not just sitting there in that shitty water and uh, and they're just like better pieces of equipment. And then what happened?

Lo and behold, today you can't even buy a top loading washing machine and lights. You look for one. This is technology. We in Europe, in Europe had in the sixties, Americans were just like, nah, we like top loading 'cause I don't wanna bend or whatever.

The point is, if you become overly focused on your own domestic market, you can miss innovation. It can just pass you by. That's what Terrace would do. Now, a couple of things that I would disagree as well. The main premise, your main premise, but also of those who think that this moment is gone is this idea that if something doesn't work and you keep doing it, you're an idiot. Right? Like the Boston Celtics with the three pointers. So from 1990 to 2001, US had preponderance of power.

It missed it. It's over. That moment is gone.

That's a really, really interesting argument, Jacob, that it's not just Stephen Bannon who would argue it, it's also many on the left and may many establishment and centrist say, look, we missed the moment. I think that us still has something going for it that is really powerful in trade negotiations and its access to its market. Mm-hmm. Because it's the largest market in the world still.

And so, no, I do think that the world can still be improved in terms of efficiency of trade, uh, but again, not necessarily for American manufacturing. This is where I do disagree with your, your counter, with our friend Tim. Definitely with Steven Bannon not for American manufacturing. I don't think that's where the advantage is. I think the advantage is in services, but here's why I don't care.

Your example of United Kingdom, uh, in the early 19th century preventing export of industrial machinery. I love it. Deep reference. I. Also, it didn't work at all.

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

And so you can't put a price tag on building that capacity at home. Does the math say you shouldn't have done that and done free trade and traded with Napoleon and everybody else? Sure. But when the chips were down and you had existential wars for your survival, boy was it nice that you made all the shit quicker and more efficiently, uh, more efficiently and better than everyone else, even if the math didn't work.

And what happened was coal and then moving coal like necessities, the mother of invention. And so that's one of the problems. Mm-hmm. The second issue is that we are not in 1820 or 1840. We're in 2025. The example of, uh, McKinley leading to America industrial power in the Second World War is a stretch, my friend. No, that's not how it happened. McKinley did not lay the seeds for industrial prowess of America in the Second World War.

The, the reason that happened is that the US went on war footing on a war economy. So I agree with the idea that you should retain some baseline. Industrial capacity and industrial capability, right? So I, I don't disagree with that at all. However, when, when war starts, you go into a war footing economy. You don't have to be producing crappy cars that nobody in the world wants. You just have to have the ability to produce cars if shit hits the fan.

And that's what's happening in every of these conflicts, by the way. But, but more than that, I'm not sure that the next war is gonna be about tanks and aircraft carriers. We're seeing what's, what's happening in Ukraine versus Russia is a very interesting example. Uh, I encourage our, uh, viewers to watch YouTube clips of the drone conflict that's going on. It's a lot of small innovation. Um, I, I quite frankly, I mean, look at Ukraine.

Ukraine, uh, Ukraine. Listen, Ukraine was definitely an industrialized economy for sure. The hake region in particular in the east, um, you know, even dunes with some of the mining. But like, the reality is that, you know, we're not gonna, like nobody was buying Ukrainian cars. Ukraine had some baseline level of industrial competency and it ratcheted that up in a conflict.

But most of the innovation happening on that battleground is not what it, it doesn't involve glistening sweat on an assembly line. It involves small electronic innovation. And so the drone, uh, innovation is actually what's winning that war. So I'm not so sure that, you know, you, you need to basically like reassure absolutely every single piece of manufacturing. You just have to leave some baseline. Um, but yeah.

Uh, one thing that I will say is that, uh, where the critics of globalization are right, is that those early deals from 1990 to 2001, were. We're onerous for the US. And one thing I wanna say about that is that there's two ways to think about it. One is that a hegemon will always negotiate generously, right? So that's, that's where we talk about naivete. Naivete of the Clinton administration of the Bush Senior and Bush, Jr. They were naive, right? Supposedly. Mm-hmm.

Well, not necessarily, they were running a hegemon in the greatest power in of the country, in the world. So they were going to negotiate. They, they were

I understand why America negotiated generously with the rest of the world, but here's where the actual ideology comes from. It was when America didn't redistribute the gains of globalization domestically. This entire narrative that this is somebody else's fault that America was taking for a ride is ideological. And I'm sad that you had to sit through 49 minutes to get to the crux of this, but this is the crux, my friends. Yes, you too, Steven.

Oh, now you're calling for taxes and they're wealthy. Okay, buddy. Now that most of it's probably in some Swiss private bank, shut up. I'll tell you what the problem was and where the ideology was. The ideology was not that like America let China take it for a ride and was naive. No, no, no, no. Don't sit here and pretend to me that American corporates didn't like absolutely bathe in profits thanks to globalization.

Don't tell me that this did not increase American GDP massively, or the America didn't profit the most it did. We can quantify, prove on any, any metric that the only country that crushed that period of supposed American Navy TE was America. America absolutely crushed the rest of the world. I witnessed with my own eyes, Jacob Shapiro, a line in Ahman Jordan for McDonald's in 1994. That was three days long. The line to eat a cheeseburger was not three hours long, three days long.

I witnessed the opening of first McDonald's in Belgrade, Yugoslavia. I was there for this, and it was American corporations that absolutely bathed themselves in cash thanks to the supposed naivete. So the real question that American public should ask themselves is not, is not like, how much did Germany take us for a ride or China? Or why weren't we mean to them? The real question is, why didn't we redistribute the gains of globalization?

Why isn't my education in this country high quality and free? Why isn't my healthcare like affordable? You know, because, because that's the real problem when people have lost faith in globalization. You know, like Scott Besant, the Treasury Secretary, I think, or maybe it was Howard Lutnick, said, look, um, the American dream is not cheap goods. Alright? Okay. I get that. I agree with you. I see what he's saying. Like if goods were a little bit more expensive, that's fine.

But the American dream Dream does mean equality of opportunity and there was a whole lot of profits and money made off of globalization in America that never, ever got redistributed to the rest of Americans. And that is the fundamental problem with the us. It's not globalization, it's not other countries taking America for a ride. It's not naivete on the geopolitical foreign policy front.

It's just a fact that fundamentally the ideology here was less fair capitalism of steroids, where corporates will make the profits and then, you know, we'll just stay with shareholders. And if that had been addressed, had that been addressed, Americas would be perfectly fine with their non-manufacturing low middle class jobs because they would have public spaces to go to that are nice and green.

It would have their kids going to cheap public universities, and they would have probably much better access to healthcare than they have now.

And I think in some ways, the original sin of what you're talking about, the opportunity to do this, and this actually cuts with the auto companies, is 2008 and the way that companies were bailed out in the context of the 2008 financial crisis by the US government. Some companies that were bailed out, whether it was automakers or whether it was, you know, a IG or some of these other, like they should have failed. And the US government wasn't willing to let them fail.

It wanted the party to keep going. And in some sense, I think since 2008, the party has kept going even though at that moment, I think you can forgive Bush Clinton, even second bush, you know, for, for indulging in idealism during that period. But by 2008, the writing was on the wall and most mainstream American politicians on both sides of the aisle wanted to keep playing. Like the game was still going.

And now the position is where we're now I'm gonna officially take off my, you know, I, I was doing devil's advocate, full throated defense for Terrace. That is surprise not what I think. Um, it's actually fun to argue something that you don't. I actually believe him. But there are a couple of things I wanna say, um, to, to what you said.

The first was that, um, I think you're e exactly right, that you actually, no matter how hard I tried, I cannot defend tariffs or protectionism with math in the sense that I can't say that it's going to make America richer. Um, I actually pulled some studies about, uh, president Trump's 2018 steel and aluminum tariffs doing some work for a, a client on something related to this.

And if you look at the impact of the 2008 steel aluminum, uh, 2018 steel and aluminum tariffs, which Trump just doubled down on here in the past week or two, uh, basically they reduced employment in the steel and aluminum industries in the United States. Prices rose. Production rose a couple percentage point, and imports also fell because the prices for these inputs were higher and put bigger strains on American companies. So actually in this case, it's an example of how tariffs actually does.

None of the things that you want them to do, they don't even give you the thing that you think you're gonna get and you're still also poisoning the well with trust in general. It's why I say if you're going to make a defense, uh, an argument that defends tariffs or protectionism in general, you have to move the goalposts. You have to say, this is not about economic growth right now.

This is about a battle for our lives and this is where your comments about the war footing thing acts your Very interesting.

Do you know when the first income tax was charged in the United States when the federal government first levied an income tax on the US population

I'm doing a lot of downward facing dog, uh, getting from William McKinley all the way to, to World War ii. But that said, uh, Woodrow Wilson flips the switch on the war footing, and he has an economy that can respond to it. And I think this is the one real kernel of truth, because I think if you were going to be, if you were gonna flip the switch today, you and I don't know how to manufacture things. And most people in this country don't know how to manufacture things.

Whereas our rivals like China will out manufacture us in a second flat. We can't build an aircraft carrier quickly. They'll build a thousand drones that'll knock out the one, you know, the carriers that we have in, that's five seconds. So like, I think there's this What? Yeah, go ahead.

Like that ended with 2022. By the way, all of those tanks have been destroyed by the Russians, just like all the Russian tanks have been destroyed. So the, the, the, the features of war have also changed, and I would say that the United States of America possesses actually sufficient industrial capacity. It is one of the largest producers of aircraft in the world. I think you will continue to need aircraft, and I don't think tanks and really even ships. I mean, submarines are very important.

And again, the United States does possess the ability to build the best submarines in the world, more or less. Maybe not the diesel kind that are maybe cheaper and even quieter, but fine, whatever. But it's really the drones that are happening. And so that's where I would also go further and say like trying to preserve late 19th century, early 20th century industrial capacity is not going to matter for the 21st century.

Not to Vietnam or to Ethiopia or anybody else robots, but to. To robots. It's happening in China itself. Of course. And you know what? Of course China's ahead on robots too.

It is, and this is the point where I would push back against you, like when it comes to where things are made in the world, they are made in China, whether it's active pharmaceutical ingredients, whether it's increasingly sort of the lower end chips that you need for semiconductors, whether it's the stuff that goes into the robot that gets created, all of these things are made in China. They are not made in the United States.

And the real problem for the United States, this is why I was asking you that trivia question about income taxes, because I didn't know this myself. Basically, since 1913, the US has been on a war footing. We never turned the switch off from the war footing, and we kept on taxing the population and doing all these other things as if we were on a war footing. And yes, it hid behind the rising complexity of government and the Great Depression and the new deal, yada, yada, yada.

But fundamentally, we have been spending to maintain our lifestyle. That's what globalization, um, actually maintains. And this is why I'm with you. I like my lifestyle. I like that I'm wearing a silly shirt with flamingos on it that was made in Vietnam that I could buy for $15 because it was on sale. I don't wanna have to go make this shirt myself. It's really, really fun.

But if you're going to like, make this argument that we have to make things inside of the United States, then what you're really telling the US population is your lifestyle is gonna suck. And this is something that Trump has said a couple times, right? He said a couple times your kid, maybe your kid shouldn't have four or five dolls. That's right. May, may. Maybe, maybe you guys need to tighten the belts a little bit. Leave aside hypocrisy of that and, and everything else. Quiet a dial quickly.

But like, let's look, you can protect certain industries in order to retain the ability, because once the war starts, the question is can you expand the capacity quickly and what America has proven in the past that yes, it can, it can. It can ramp up industrial capacity in the 1940s. The example was with aircraft, of course, started churning out crazy steam with tanks. I have no doubt that it can do that again, but

No, the, the thing to say is we need to make steel and aluminum in this country. There is no price we won't pay, and tariffs is a part of that strategy, but then there's also a whole host of other things we're gonna have to do in order to rebuild that industry and retrain workers or robots or whoever it is that is gonna be making the steel and aluminum like, okay, operation warp speed for steel and aluminum.

You're actually exactly right that the Trump administration is acting very much in a globalist mindset, like a tariff, a very limited tariff on a very narrow like band of products that is globalization. You're saying you have a trade dispute that you wanna solve so that everybody can go back to trading things.

That's not gonna really be the kind of war it's gonna be over Taiwan. United States has enough, uh, industrial capacity. I mean, the United States just propped up Ukraine against a neighbor that doesn't even have a water between Russia and Ukraine. There's no, there's no water. The Russians walked into Ukraine, and yet, somehow, magically, our supposed terrible industry that's on the dying gasp helped arrest the attack by the largest mechanized force in human history. I, Russian, I'll

And the capacity innovation is there and actually doesn't require that much glistening sweat on the manufacturing line to do the, the, the empirical example is Ukraine. That is the empirical example. We cannot avoid it. We're not gonna be fighting a war with like tanks going up against one another. It's gonna be drones, it's gonna be anti-aircraft, uh, missiles. It's going to be anti-tank missiles. It's going to be a lot of fighter jets. And Aax and the US absolutely crushes that.

Now it is falling behind on many other things. Uh, an America drone costs $30 million. A Ukrainian one costs $4,000. Hey, get a hint, right? Innovate in that lab, but that doesn't require huge manufacturing. The other issue, the other issue is you, if Americans decide that they want to live in war footing, then Americans have decided to democracy. But the problem is that this insidious argument that it, that the war fighting is already there.

United States of America has enough nuclear weapons to turn China into parking lots, like 12,000 times over. There isn't going to be a total war between China and the us. It's not gonna happen. We are not in a world of total wars. We're gonna be in a world of proxy wars. And yeah, like the US has industrial capacity to clearly protect its vassal states, as we've seen in Ukraine. So what it really comes down to is do Americans wanna live this? And this is where the polling comes back.

Like this is where domestic politics comes in. And yes, you're right. The Americans don't want because they're not, what's the word? Wait, I'm looking for it. What's the word? Insane. The American public is not insane. Why would you live on a war footing? Because China is going to do what? Invade Washington State and Oregon. No. And this is all just wool being pulled over people's eyes.

This entire competition with China, so that you don't have to redistribute wealth. That is my, that is basically my view.

Like that's more than what the next 10, 15 other countries combined. I love that trope, but then I also wanna take it back to McKinley. If you look back to 1890, when the US became the world's most productive economy, um, the United States, its army was less than 30,000 troops. But wait, hold it. It's maybe had fewer than 10,000 men in it, like it wasn't spending on the military like it is right now.

I mean, social welfare costs a lot, right? Social security in the US costs a lot. Europeans by the way, is percent of GDP, their governments are even bigger, so they tax even more. So I'm not sure we would say that that's a war footing, but like two point half percent, 3% spending on defense. Like is that too much?

There's two things I want to bring up here. The, the thing that made me think about it is if you look at the spending increases for defense and the border over the next three years, you're also, you're actually spending, you're getting big increases on that side. Increases bigger than the cuts on things like Medicaid to the bottom side.

So you're actually cutting Medicaid, uh, but you're actually paying, paying for increasing defense spending over this, over this time horizon, which is like exactly what I'm talking about. That's a war footing. Like add in the cost of the Afghanistan war, add in the cost of the Iraq war, add in the cost of all these things. What if you had those trillions of dollars just to pay down the deficit, let alone fix the American education system, fixed, blah, blah, blah, blah, blah. So that's 0.1.

The second point, and this I thought was interesting 'cause you've talked about how you know the market was ready for worse with the big, beautiful bill. Um, the, the spending in this bill is front loaded to 2028. The cuts only really kick in in 2030 when Mr. Trump is not going to be there, and it actually increases the budget deficit by almost a percent every single year going out to 2029 before it drops down. So I think there's actually, president Trump is actually telegraphing to you here.

I'm not gonna be here to deal with this problem by 29 or 2030. Somebody else is gonna have to pass the next bill, and maybe they won't. To your point, maybe politics will change by then, but I also think when you're looking at like where that spending is coming, that Trump is pushing all these different things now, I think that it makes sense to increase spending actually, but not to increase defense spending and decrease the spending on social things.

Like if you're actually going to protect the United States of America protectionism and the things you're gonna tear up, you have to make the United States better, not just like give some money to DOD and then cut the things that are gonna make, you know, literally more people die anyway. End.

Because we both agree that once you are in war footing, then you ramp up everything and you cannot have some component in an F 22 that was manufactured in Vietnam. Right? That's, that's what we're saying. But in order for that to happen, you have to convince yourself that the war with China is imminent. And that, and then I would, I would say a couple of things on that. Number one, a war with China will most likely never be a total war. They're very far away. We have nuclear weapons.

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

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

Correct. The, the other thing that I, that I would wanna point out is, the second thing I would point out is that when we do have proxy wars, America is more than capable of fighting it. So Ukraine is a great example of this.

But more fundamentally, the question is, is that a solution to this problem instead of changing the lifestyle of human beings in America dramatically, isn't the alternative to use both threats sticks and carrots with China to ensure that the spheres of influence are clearly delineated? Like that's what it's, and it's actually what Hack said, you know, like Secretary of State Hackett, who I said I wasn't gonna le learn his name because I called him Kendall.

Because I did not think he was gonna get confirmed, but God bless him, he did get confirmed. And his speech at s Shangrila dialogue, which everybody says was extremely aggressive, I mean on on many ways. He was on the other hand, he was saying to everybody there, Hey, you guys need to step up.

Like, you know, and that's, and that's a way in which China, those are the sticks that can be used against China sticks that can be used against China is making sure that Malaysia pays for its own defense as an example. And it doesn't require, but to your point,

No, I I'm not saying it's necessarily a problem, I'm just saying there's a disconnect between like, hegseth is saying one thing, but the, I don't think the White House is, I don't So is on the same page

You gotta be wealthy to be powerful. So what that means is getting a deal with China that allows American companies to make a lot of money in China is the foundation of material wealth and is not. Incompatible with Hack said, telling Southeast Asian economies and countries that are around China, Hey, you guys need to step up and you need to defend yourself because the two things will both make the US more capable of countering China.

Yes, trading with China absolutely is necessary because look, and this is something, this is literally for Jason, right? We started off talking about my hair guy, Jason. The fundamental fact is that a Boeing aircraft is 1980s. Technology, you know? Mm-hmm. Like 1990s maybe. Selling that to China does nothing to dent American security. In fact, it enhances it. The only way for Boeing to pivot to making innovative drones, because it doesn't do that right now.

The only way for them to do that is to invest in r and d. To do that, you need to sell aircraft. Selling a piece of 1980s technology to China does nothing to hurt America. It just makes money. Then Boeing can take that money and he can divert some of it into r and d so he can build drones that one day might be used against the Chinese. Oh my God. Look at that. And that is what's necessary.

Um, so I actually think that making a deal with China by President Trump is the appropriate, is the appropriate way to handle the Chinese threat. Yeah,

And then also you might have seen that it sounds like China's about to announce that they're gonna purchase, uh, all their aircraft, or at least most of their future orders from Airbus. Airbus No, for not going. I predict that's gonna be part of a shift towards Europe. Yes, you did.

If China is pivoting away from US aircraft to European aircraft, then China is not about to invade anyone because they would attacking Taiwan would usher in a bipolar world where the world would be divided to sphere, to spheres where they just can't compete. And usually people will say, yet, you know, they, China can't compete yet. I don't think that China in the next 20 years can compete against the United West because they have no real allies other than, you know, maybe Russia and maybe Iran.

Like, that's just not enough. And so everything breaks apart, like the, the deglobalization argument breaks apart because China is just not an imminent threat to anybody.

So if you want, like that's sort of, I think what China's big strength is. Like maybe they don't have the material wealth that you're talking about, but I think what they can have, and this is what Belt and Road really is, is hey, uh, have good relations with us. Say Taiwan is not a country. We'll build you a port or we'll build you some highways or we'll build some factories inside of Indonesia.

Okay, we'll agree to your terms, whatever else, we will make things better for you and make things really nice. Whereas the United States is not doing that anymore. The United States is turning away from that path. Yeah. So I think like that's the inherent, it's weird to think that China is now doing that because that used to be the US playbook.

Well, yeah, that's true because I can't tell you how many times Jacob, I had somebody come to my office, um, former, general, or some such nonsense, and tell me how Chinese lead in 5G technology was going to end humanity as we know it. And yet here we are in 2025. It doesn't matter. You know why? 'cause there's like six G coming.

But yes, Nokia and Ericsson also have a, a sort of toehold here. But like, you know, in, in 20 18, 20 19, the Trump administration was talking about working with American companies to build that supply chain inside the United States. As far as I know, and if any listeners or experts in telecoms, feel free to correct me. As far as I know, we, it's still zero.

We still import the switches and the antennae and all that other crap from South Korea, or which, which just had a really consequential election from Taiwan, from China, from all these other places.

Like if you put tariffs on Ethiopia, like that would suck. It would be mean, you know, but it would work.

The second point that the Huawei 5G nonsense shows is that our government officials who can barely reissue me a passport on a acceptable timeline, don't know what's coming on the technological side. Okay, let's, you know as somebody who works for the Pentagon, you know, who makes like as much an an analyst on Wall Street? Okay, no offense guys, sorry, but like, you suck. You don't know what's coming on the, you don't fuck. Like, no way. I can't tell you, Jacob, how many.

Generals I had to listen to in my line of work who are telling me how important 5G infrastructure is. Get outta here, please. Like, relax. You know, we're gonna survive somehow magically with Huawei, I guess, spying on us. No, you don't know what's coming. No. You don't know what's coming. And often you are absolutely wrong. And so you obsess about this nonsense. And then what comes out that nobody saw was like, oh, drone technology really matters. Like, oh, thanks.

You know, US produces, I think it's called MQ nine Reaper. It's $30 million. $30 million. You know what the most advanced drone today is? What? It's a Russian drone that's con remote controlled with a fiber optic cable tethered to it. It's like those cars we used to have, you know when mom bought you remote controlled cars? Yeah, of course. Yeah. But she didn't spend enough money on the really cool ones that actually had remote control. She bought you the one with a line.

The most advanced drone today doesn't even use radio signals. It uses a tether so they can avoid jamming technology, you know, and it doesn't use ai. I relax with the AI thing. Like the problem with ai, it's a great example. It's gonna be the next 5G, Huawei, it's gonna be the next where we're gonna like be like, this wasn't that important. Why? Because the elegance of your LLM model is not going to determine. Whether your swarm of drones knows how to be automated.

In other words, there's gonna be some baseline level of AI capability that will be sufficient and that everybody already has.

But we talked about it earlier when we talked about in China, manufacturing workers are reportedly losing jobs because they're being replaced by robots. That can only happen because they have good 5G infrastructure, because you need the low latency, high speeds of those types of networks on the factory floor and things like that. In order to do.

Like you could buy from Ericsson, but I'm saying there's a difference between Chinese factories are already doing that and adopting it in mass and thinking about the next generation. Whereas US factories, and maybe we go back to Tim and ask him this, my impression of seeing US factories or even factories in Mexico and things like that is, we're not even close to that. We're still debating about whether we should do some of those things.

No, no. So there is like a kernel of importance in the adoption of some of these things and productivity.

And I was like, really? Bro? FinTech his national security, relax. I mean, number one, yes, we should probably not use physical checks in this country anymore 'cause that's kind of medieval. But no, the fact that they use QFR codes to pay for everything, like, I don't know. I sleep well at night because of that. Call me naive. And that, and it, and this comes down to a very simple point. Very simple point. It really comes down to threat perception of China. Everything really comes down to that.

To what extent do you think China's gonna knock on the door in your country, in your home, in your Orleans or Kansas or wherever you are? Force you to teach your kids Mandarin. And I think that that is as far from a, a potential future as anything. 'cause we have nuclear weapons and no one's going to fight the great Power War with those. So

Anyway, um, we have 20 minutes left Marco, and I think this is actually a good segue to something that we should talk about before we get outta here, which we've danced around it in sort of everything we've talked about here today. But I think we should talk about Operation Spiderweb for 10, 15 minutes and give it, let's give it its own do. Um, unless you've been living under a rock. Um, so over last weekend, again recording here, June 5th, um, Ukraine conducted.

Uh, what it called, operation Spider's Web, a drone attack on at least five different air bases all over Russia from Siberia or, you know, that far away towards the Pacific side, all the way to around Moscow. Um, the details are of course, a little bit shady, but it looks like over a hundred drones.

And to your point, these drones costing about $600 a pop. Uh, basically taking out, and this is where the, the numbers are a little bit, um, a little bit shady, but let's say taking out one third of Russia's strategic bomber fleet. Just by using drones, uh, to bomb Russian air bases some of these bombers that were, you know, uh, running bombs against Ukraine, uh, and engaging in long range strikes in Ukraine against Ukrainian infrastructure and things like that.

Um, Ukraine has made a really big deal of it. Uh, president Zelensky said it took 18 months to plan the operation. He's, uh, he's today given out medals and awards to the guys who were behind it. Um, but for me, I, I sort of. Sat up in my chair because now it's, this is not the first example we have of this.

I, I thought, I mean, I'm not the first to make this connection, but there's Israel's assault on Hezbollah with the pagers, hijacking, international supply chains, putting explosives into those pagers, sending them to the people you wanna blow up. Um, the Houthis, who, despite President Trump's best efforts, are just sitting there continuing to bomb whatever the heck they want because the US Navy and Air Force with all of its capability can't bring.

A bunch of like non-state Yemeni militants chewing cot in the middle of the desert to heal. Like kind of remarkable. But here you have Ukraine, which has been on the ropes. Things have not been looking good. Russia's gonna out grind them and out suffer them and slowly take land in the east and then make, you know, some kind of frozen peace agreement based on whatever they want. Here's Ukraine striking back and saying, okay, Russia like.

For the price of $600 times, roughly a hundred, we're gonna wipe out a third of your strategic bombers. You wanna keep dancing or do you wanna meet us in Istanbul? Um, it, to me, it like opens up a question about rethinking the balance of power from a military perspective in the world. Is this bad news for conventional powers like the United States and China versus good news for smaller powers?

If you want to get real dystopian, what happens when Mexican drug cartels and other non-state actors are able to use drones in this particular way? And then you've got, you know, let's, let's use Mexico as an example. Let's say if. You know, the Mexican government trying to bring the cartels to heal, and the cartels are like, uh, what if we bomb the Mexican Air Force? Or what if we take out all of your conventional military capability?

You want to keep messing with us in the things that we're doing. Like we can do this all day with these drones. So I, for me, it was like, I need to really like rethink the military balance of power in the world. Uh, am I overstating it? Did you have a similar thought or are you a little more, uh, tell me I'm sensa sensationalist is what I'm hoping you're gonna tell me rather than that I'm Right.

I thought that was really hilarious. Um, but he says Ukrainians are actually better than Russian. So that was interesting. Mm-hmm. And then I'll send, uh, also a YouTube link on those fiber optic drones and, and shows their lethal lethality. Um, I think that we are at a threshold of potential over the next 30 years where all of this technology could very well undermine the very sinus that hold nation states together.

The reason, you know, earlier in this podcast you talked about how we're still on war footing because we have taxation, which is, which is like, which is a stretch, but like, meh. Not that, you know, um, the famous sociologist, Charles Tilley famously said that war makes states and states make war.

But what's happening with technology is that size doesn't and scale may not matter, you know, and the fact that the Ukrainians put a bunch of cheap drones into a truck, drove them across the border all the way to East Asia, a, according to news reports, they attacked a military base of Russia in East Asia. Closer to Tokyo than it is to Kiev. So the fact that they're able to do this undermines the very TA taxes we pay so that our country produces aircraft carriers to like defend us.

Because they can't. Because you're right. It's not just, I mean, it's not just the conflict with like the cartels. It's really everything. Drones are getting very cheap, very good. You can't jam them. An operator can use a fiber optic. These things, the cables look like a string of hair and the camera at the end of that drone has 4K HD. Jacob. You can go on YouTube and watch videos that are really grizzly because you see a lot of detail. Mm-hmm. Before they kill someone.

So you can have a very small drone that's operated with a string of hair line, you know, holding it 60 kilometer range. Crazy stuff. It's a lot a line. But the point is, uh, yeah, I mean this undermines the very notion that governments can't provide a level of security. And so what does it mean for warfare?

It means that all this nonsense there we're gonna need steel and glistening sweat of manly men banging hammers to produce tanks and howitzers ammunitions, you know, like, eh, I'm not sure that's where the wars are going in the future. And the fact is, America provided Ukraine with Javelins, which were pretty cheap themselves, that arrested that initial military mechanized attack. But since then, it's kind of been up to Ukrainians themselves and their, their ability to innovate.

Now, patriot missiles are also important. Obviously that's where America has helped immensely, uh, in allowing Ukraine to defend its airspace. But my point is that. You're gonna need some anti-aircraft weapon systems, you're gonna need some satellite command and control. That's where starlink comes in. Mm-hmm. You can't use these drones without that.

But then like, not even, you can even fly these drones tethered with a fiber optic cable and you're gonna get smaller and they're gonna get more and more lethal. And if you wanna assassinate somebody, it's gonna be like that little probe in, in dune that our hero Charlemagne had to fight. Right. Um, so like, I think, I think it's very interesting what's happening.

It's, it's basically war is getting less technologically sophisticated in some ways, and I find that fascinating. I find it fascinating that we always think that everything is gonna get super, super advanced. And if you allow me to cook on just one point. Yeah. When I was a kid, I liked computer games. In the nineties. Right. And I, I imagine I would often sit there and imagine, oh my God, I can't wait for 2025 when I'm in my forties.

I bet the graphics and the computers like, I'll be able to play Madden like as a quarterback, like, you know, inside the game. Yeah. And instead, computer games have actually gone the other way because of the, the phone. Mm-hmm. So when I see what my children are playing graphics of Roblox is absolutely terrible. And many, many games that have been very successful, like Angry Birds are being like, they're just like Prince of Persia from the nineties for God's sakes.

And so I think we're all sitting here and we're thinking we're gonna need AI robots to fight these huge wars, and they're gonna be devastating. And Russians have turned the tide of the war because they connected the drone with a cable to a remote control.

'cause they, once they lost control, they knew what an aircraft looked like, and then they autonomously went to it. Like, gimme a break. Like, relax again. No, this wasn't an AI attack. You're gonna, you're gonna need some low level baseline coding to make that happen. The future of warfare is not gonna be who has the most elegant ai. It's just not the future of war may very well be that you can't have a war.

I think we're in that situation right now, like the tactics are just beginning to sort of, uh, reach what, oh, we have these weapons, we can do what with this technology against these targets. Um, and I think it's fascinating to watch Russia and Ukraine, 'cause it's literally a laboratory in real time, to your point about what war is probably going to look like in the future. And it doesn't look like World War iii.

And you know, ironically, like in the example I just gave, like actually casualty numbers were higher because the weapons were so deadly and the tactics were just marched towards each other and shoot at each other. So you had like. Tens of thousands of people dying in battles that didn't need to. To your point, if you have these really, really precise things, like, I mean like, let's say we're 10 years in the future, you have some of these really precise drones.

Like, can you just assassinate Putin before things even get going? And like, and this like, I mean, that's the sort of world that it seems like we're heading towards, and maybe they'll be some kind of counterbalance or antione defense technology. I don't know.

But like, um, yeah, it's, it's changing the way I think about like military, you know, back to our geopolitical power index, like we might have to revisit the whole index just because we need to rethink like what conventional military power means on that scale.

I had our graphics team create like really intense geographic maps of Calahan and Arki and of, um, har uh, where are the harken's from? Uh, GS Prime? No, uh, it, it's giddy Prime. Yeah. Anyway, sorry. Gi Yeah, go ahead.

For war to become so precise, as you say, where you can basically use a hunter seeker drone to take out a leader. That's number one. And number two, I think that providing large mechanized military platforms like nuclear submarines, aircraft carriers, tanks, aircraft becomes less relevant. And if it becomes less relevant, states become less relevant. But that's like a 30, 50 year. I mean, that will require a whole podcast for itself.

I just do think that since Industrial Revolution, revolution was created since Industrial Revolution, everything's been about scale, Jacob, everything, and by, by everything, I don't mean just like producing industrial goods for war, but also producing educated human beings that can follow order in a war. Mm-hmm. They can work in a factory like mass Education, healthcare. Everything's been about the median outcome. Median outcome. Let's educate human beings in a median way.

So if you're extremely talented, who cares? Like you're just gonna get educated at a certain level. Nothing is customized to you. Oh, you have a headache, Jacob? That's cool. Take an aspirin. Oh, by the way, if Marco has a headache, he should take an aspirin too. It's a median outcome in most results. Most people fall into this median curve. That's what, that's the world we created. Since there's no customization, right? There's no art there.

There's no artisan like guilds producing things to your custom specifications. And I think that the world we're coming into with drones, with ai, with machine, with 3D, 3D, printing with, with new sources of energy, you know, wow. Put some solar panels on your roof. You don't need the median provider of, of energy. I think that where we're headed is a much different world, and in that different world.

The number one outdated technology that we may need to discard is actually the nation state, which is interesting because I'm not a libertarian, let me tell you this right now. But that is where this is headed. Like po potentially all these technologies make it less likely that you need to tax and collect resources at a continental level to have these continental wars against one another.