Tariffs need a ramp so manufacturers can adapt

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 2:20:18

   listen I'm looking at the numbers here and I'm like we're gonna do something America's toast money money for anything Trump likes to talk a lot about a lot is tariffs yeah what are your thoughts on tariffs I know that's very controversial to even people, economists, they disagree, some agree, some think it's a good idea, some think it's a terrible idea. What do you think? I think you need to be careful with tariffs.

2. 2:20:44

   I deal a lot with supply chain issues, like the global automotive supply chain for Tesla, for example, is incredibly complex. So when there are sudden changes in tariffs, then you're like, well, we've got a factory somewhere else that's making a part that goes into the car, now that suddenly, if that part's suddenly twice as expensive, it like messes everything up, you know? So you want to have tariffs be predictable so that companies can adjust their supply chain.

3. 2:21:14

   I mean, I think companies are more than happy to increase manufacturing in America. It's just that you can't do it instantly. So if you put up giant tariffs immediately and don't give companies a chance to, you know, build factories in America. Because you've got to move atoms. Like you've got to build a building. You've got to install equipment. You've got to train people. Like that doesn't happen instantly.

4. 2:21:43

   So you just got to – you want to have – for tariffs, you want to have a ramp so that companies can adjust and build the factories and train the people and get the equipment in place. Otherwise, you basically just shock the system and it breaks or bad things happen. So I'm against like sudden giant tariffs because it's an impossible response if you've got to, you know, move a thousand tons of equipment.

5. 2:22:12

   You know, you can just – in some cases, collectively, millions of tons of equipment. You just can't do that overnight. It's literally impossible. So I think we want to be thoughtful about tariffs and give companies a ramp. I mean, I do generally agree that America should do more manufacturing. I'm a big manufacturing guy. I love manufacturing. So I've spent a lot of time in the factory. We've talked openly about the difficulties of manufacturing and how complicated it is and about most people who aren't really aware of something that's as complex as, say, building a Tesla.

6. 2:22:46

   Yeah. Manufacturing is super hard and complicated. so you know like a lot of people just they've never been in a factory or they don't know where how think how difficult it is to make things um and they you know for a lot of people i think just ketchup comes from the store you know like the store like just has a like this is like people Like for a lot of people who've been in academia or, you know, for all these like sort of socialist communist types, like they've never actually made anything.

7. 2:23:11

   So they're operating on the premise that there's this magical horn of plenty that just outputs goods and services. And if someone's got more goods and services than someone else's because they took more from this magical horn of plenty. And I'm like, guys, there's no magical horn of plenty. There's no cornucopia. It's actually goods and services come from people working collectively doing a lot of hard work to produce the goods and services that you like and that you need.

8. 2:23:39

   But we've become very accustomed to these things happening overseas. I mean, America is still the second biggest manufacturer in the world. So it's not – I mean, we still make a lot of stuff. But we could make more. We probably should make more. I think we should value manufacturing a lot more in the United States than we currently do. Well, it would be very nice if we were completely self-sufficient.

9. 2:23:58

   Like medicine, like there's a bunch of different things that get manufactured overseas. It was a huge problem during COVID because all the shipping was shut down. Yeah. I mean, you don't want to say like – so there's a lot of merit to the economics of comparative advantage. So if you're completely self-sufficient, what that means is that you make all the stuff yourself. And even if some other country is really good at making something, you still make it yourself, which means you're going to have the inferior, more costly product domestically.

10. 2:24:31

    Right. Like Soviet Russia. Yeah. Like trade improves prosperity. This is important. So you don't actually want to make everything yourself. And you can run this – like you can think of this thought experiment on a sort of a micro scale or small scale and then expand that and say where does the – at what point does the thought experiment no longer prove to be valid? Now, let's consider the case of you as an individual.

11. 2:25:02

    Imagine you had to do everything yourself. You had to farm. You had to grow chickens. You had to do food on eggs. You've got to build your own house. You've got to do your own electrical repair, your own plumbing, everything yourself, everything. Now, that would be impossible. Okay, now let's expand it to, okay, there's 10 people. Now you're going to have some specialization of tasks. Okay, well, maybe one person could be really good at construction.

12. 2:25:30

    Another person could be good at farming. It's like, but it's still, you know, 10 people is not enough. It's like, let's go to 100 people. Now let's go to 100 million people. Now let's go to a billion people. And you still get the economics of specialization, like specialization of labor, where people become expert at particular things, still matters at a billion people or at eight billion people, which is Earth.

13. 2:25:53

    So you still want – you do want specialization of labor. You do want countries to be really good at a particular thing and make that thing. Also, it encourages innovation if you have competition. If the Germans are making better cars, we have to make better cars. You have to compete with them, which is like one of the things that happened during like the 80s and 90s and America was making crap cars and Germany was making much better ones.

14. 2:26:16

    Yeah, exactly. I mean, the – yeah, the Japanese car – I mean, yeah. I mean, basically the American car industry got really lazy in the 70s and 80s and then the Japanese and German car companies came in and just cleaned the clock, you know. um and uh there was like a an old joke from the that that is kind of telling um it's a very old