Trump’s 2025 Tariff Revolution? Wilbur Ross Spills the Dirty Secrets on Trade, China, and Your Money!

[00:00:00] Today on The James Altucher Show. I don't know of anyone who's ever before announced in one shot, blank of tariffs on everybody, plus special tariffs on individual countries and on individual products. That's a level of complexity that's quite novel in the tariff world.

[00:00:22] And I think he's quite frustrated that the Chinese do not have a domestic problem with fentanyl. If you're selling fentanyl on the streets in Beijing, they arrest you and they generally execute you. The rare earths are being processed, and I don't think it makes the planet as a whole any better off to have them processed in China than processed here.

[00:00:52] China has been buying up reserves and tying them up with contracts everywhere. Myanmar is a big supplier of rare earths to China. This isn't your average business podcast, and he's not your average host. This is The James Altucher Show.

[00:01:25] Well, you can't get more information about tariffs and the economy than what I just got and you're about to listen to. So Wilbur Ross, who was Secretary of Commerce under the first administration of Trump, just came on the podcast. Let me ask any question I want about tariffs, the economy, and so on.

[00:01:45] Don't forget, in Trump's first administration, steel and aluminum tariffs, and there was the same pushbacks and the same concerns about the economy and inflation and so on. And there was the same political blowback and so on. And so what happened? And, well, Wilbur Ross was the center of all that action. And he's also obviously incredibly insightful about what's going on right now.

[00:02:10] And he gives me the complete download about everything he thinks is happening now and what the outcomes will be. And it was fascinating. It was a lot of things I didn't know. And I had a lot of questions. And he gracefully answered all of them. And I just want to remind people, this is a guy who has had an amazing career. Not only was he Secretary of Commerce, but obviously he's built up and created entire industries. He's a billionaire many times over.

[00:02:40] His book that came out last year, Risks and Returns, Creating Success in Business and Life. I highly recommend it. Again, that's Risks and Returns, Creating Success in Business and Life. I consider him an economic and business inspiration. I'm sure you will as well after you listen to this episode. Please share this episode with anyone you feel like who needs to learn a little bit more about what's going on in the economy and tariffs. So thanks so much and enjoy the episode.

[00:03:17] You were Secretary of Commerce during Trump's first administration. And you really were in the trenches with President Trump on the tariffs that he initiated back in, you know, whenever it was, 2017, 2018. And so I really wanted to follow up and see what your thinking is now. In particular, you have described Trump's second-term tariffs as his strategy is more aggressive. He's using the International Emergency Economic Powers Act. He's offered higher rates.

[00:03:47] What's your thinking right now? Has he been doing what you thought he would do? Do you like what he's doing? Well, that's a whole bunch of questions I'll try to answer. The tariffs that he initially put out were both broader and higher than I would have thought. It hadn't occurred to me that he would put some base level of tariff on essentially every country in the world.

[00:04:15] I think it's actually not such a bad idea, but that was a novel thing. Normally, people have put tariffs one country at a time or maybe one group of countries at a time. I don't know of anyone who's ever before announced in one shot blanket tariffs on everybody,

[00:04:40] plus special tariffs on individual countries and on individual products. That's a level of complexity that's quite novel in the tariff world. Now, do you compare it, though, to Smoot-Hawley, which was more of a blanket tariff than we've seen until now? Well, yeah, I think the purpose that he has in it is threefold. I think he has three purposes.

[00:05:07] One, and the main one, is to reduce our trade deficit. Two is to raise federal revenues that will help pay for the tax cuts that he's putting in. And then third is to help him achieve other diplomatic initiatives, like stopping fentanyl, like getting Russia to cooperate, things of that sort.

[00:05:37] So he's got a more complicated agenda than he had the first time. Last time, we were essentially just interested in trying to offset some of the trade imbalances. Yeah, it seems like of those three things, it looks like getting other strategic initiatives might be the most important

[00:06:01] because he's sitting down with something like 80 countries now negotiating specific trade deals. Well, I think they're all important. Two of the three are obviously flip sides of the same equation, and one does well if the other one does poorly. And that's the tariff raising as a revenue source.

[00:06:27] That does better if people continue to ship in and pay tariff. But the trade balance fixing works much better if they stop shipping in and therefore don't pay tariffs. Do you think the tariffs can actually raise enough revenues to offset tax cuts? Well, not in its entirety.

[00:06:52] The tax cuts are causing incremental deficits of around $300 billion a year. If we are lucky, the tariffs maybe could take a third of that. Right. Now, that's still a big number over 10 years. That would be a trillion dollars. Yeah, of course. That's great. And what specific strategic initiatives do you think are most important?

[00:07:21] Like, let's say with China, what strategic initiatives are most important to President Trump in terms of when he sits down with them? I think probably the fentanyl issue is of strategic, the most important. It's certainly one he talks about the most. And it's one I know is very near and dear to his heart.

[00:07:44] And I think he's quite frustrated that the Chinese do not have a domestic problem with fentanyl. If you're selling fentanyl on the streets in Beijing, they arrest you and they generally execute you. So they don't have a fentanyl problem. But they have been actually helping people export fentanyl.

[00:08:13] They've been subsidizing them to some degree. And I think that has him extremely upset and should be. Do you think he'll make progress on that if he negotiates with China? Frankly, it should be the easiest thing for them to do. They know it's bad. They don't let it happen domestically in terms of the dollar value because they're really

[00:08:38] just exporting the raw materials, which then get refined in Mexico or elsewhere. So it's not a huge export product for them. So I don't think it will hurt their economy at all. And it would make their foreign policy on fentanyl more consistent with their domestic policy.

[00:09:04] I think one thing we all realized during COVID was how much we depended on China for almost all of our electronics, our pharmaceuticals, our drugs. Do you think there is a chance we could start insuring some of these? I mean, given that we're in all these political tensions with China, but at the same time, we're dependent on them for rare earths, for our drugs, for semiconductors. What do you think is an outcome there? Like, can we realistically insource?

[00:09:34] Will tariffs affect these industries? Well, it's different by each industry. In the case of semiconductors, we only manufacture a small fraction in fabrication facilities of the semiconductors that we need. So even with the CHIP SAC, we still will be majority dependent on foreign sources.

[00:10:02] Now, it doesn't have to be China. And in the case of the advanced ones, the very powerful semiconductors, it's not China. It's mostly commoditized semiconductors. The high-end ones are mostly from Taiwan, but also some from South Korea and some from Japan. What about things like the Apple iPhones, though?

[00:10:32] So again, I agree those are commoditized, the chips in those. But we pay, let's say, $600 for an iPhone made in China. But if it's made here, we might pay like $2,000. Is this a risk? Well, so far, Cook has said he's not going to move them to here. But he apparently has moved a lot of assembly work from China to India.

[00:11:00] And India, of course, is a very low-cost country as well. Now, whether, as many people suspect, that's a precursor to moving all the production out of China into India, we don't know. He hasn't been very open about that.

[00:11:21] But so far, he does not seem to have shown very much inclination to reshore iPhones to the U.S. I wonder if robotics will help things when factory floors will essentially be automated. Well, it should. And you know, one of the stranger things, China makes more active use of robots and factories

[00:11:48] than we do by far, even though their fundamental wages are much cheaper. So there's a lot of room for us to do better with robotics. Take a quick break. If you like this episode, I'd really, really appreciate it. It means so much to me. Please share it with your friends and subscribe to the podcast.

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[00:14:06] And we're kind of our dependent on China for our most critical minerals. Right. Well, that's starting to change. The government is making some grants and some loans, and Trump has been loosening up the environmental regulation. The processing of rare earths is a very messy process, and it's somewhat polluted.

[00:14:34] So the environmentalists have always been against U.S. processing rare earths. But there's a fallacy to that, because the rare earths are being processed. And I don't think it makes the planet as a whole any better off to have them processed in China than processed here. So there's a bit of a fallacy in their thinking.

[00:15:03] And I think within the next year or so, we'll be becoming more self-sufficient in rare earths, since as you correctly point out, we have them. We have the raw materials. We just haven't been refining them. Yeah. And you know, interestingly, Greenland has a lot of rare earths, which is part of the reason Trump is interested in Greenland. And most people don't realize this.

[00:15:30] There's a company that Greenland and Denmark have basically given all the rights to mine for rare earths. I think it's called Greenland Minerals or Greenland Natural Resources. And that company is owned by China. And so it's part of the tension we're having with Denmark and Greenland right now. Oh, yeah. Because China has been buying up reserves and tying them up with contracts everywhere.

[00:15:56] Myanmar is a big supplier of rare earths to China. But as I say, our problem isn't so much the physical supply. Our problem is much more the processing. And finally on China, what about the pharmaceutical industry? Like we get a lot of our drugs from China, which could have very big strategic risk if tensions get any higher with China.

[00:16:23] Do you think he's negotiating this or working on this? I know he tried to work on this in his first term, and it didn't quite work to move things to India. No, it did not. What we really get from China is not the finished drugs, not the fancy products. What we get are a lot of the basic raw materials from China. So I'm sure that will be a topic of discussion.

[00:16:51] It's a little tricky, though, because on the one hand, we want the materials made in the U.S., but on the other hand, he's trying to hold down medical costs. So there's both attention with China and there's attention within the U.S. about what do you do?

[00:17:16] Because no question, it would cost somewhat more to produce those pharmaceuticals here than in China. Right. Right. Like, so his recent attempt to use executive orders to kind of level the playing field in terms of what farmer companies charge here versus other countries. I remember, again, in 2020, in his last term, he tried to do something similar, and the farmer industry basically ignored him, despite the fact that there were executive orders.

[00:17:45] And I wonder if something similar is going to happen now. Well, I don't think he will let them ignore them. What actually happened is, I think, in the last term, Congress stepped in. And the pharmaceutical lobby in Congress is extremely powerful.

[00:18:08] But I think this program that Trump has ordered makes all the sense in the world. I take Echol as this blood thinner. The government pays $140 or something dollars for a very small quantity. You can get the exact same brand from the exact same factory in London for about $9. Wow.

[00:18:38] So it's not even close. And this may shock you, but at one point, Congress actually passed legislation saying that you could not use the price netted in foreign jurisdictions as a basis for negotiating price with big farmer. That is unbelievable that Congress would say that. Oh, it's incredible.

[00:19:07] And I think what will happen under Trump, first of all, I think he's deadly serious about it. I think Bobby Kennedy is deadly serious about it. I think Dr. Oz is deadly serious. So I think they will go to great lengths to make sure that that happens. And what I think will be the end result will be instead of it being $9 like it is now, let's say, in London.

[00:19:36] And instead of being $100 and some odd like it is here, ours will come down somewhat and theirs will come up. And so we'll reach a kind of equilibrium. And whether that will be halfway through or where, I don't know. But I think he will force that to happen.

[00:19:55] And I'm quite astonished that there hasn't been overt support among the Democrats in the Congress for that. I mean, it's hard to, other than the lobbying, it's hard to imagine how anybody would think that was anything but a rational thing to do. Yeah, so do they give?

[00:20:22] And without being like political, you know, do the Democrats give a reason why they are not supportive of this proposal? I really haven't heard it. They just seem to have kind of ignored the proposal. But pharmaceuticals, as you know, are a huge component of the whole medical budget for the whole country.

[00:20:47] Yeah. And, you know, using these executive orders, this reminds me again of the tariffs. Again, Trump was using the International Emergency Economic Powers Act to kind of put these tariffs through and sort of to avoid bureaucracy and Congress and so on. But does any of this catch up to him where a judge says or Congress says, no, you can't do that anymore? You've used the emergency powers. Now we've got to take over.

[00:21:18] Well, it is a high probability that once his tariffs are finalized, there will be some legal challenges. There were last time. We didn't use IEPA last time. What we used was Section 302 and Section 201.

[00:21:40] And those were based on national security. So they were somewhat similar to IEPA, but a little different wording. And those were tested in the courts. And in fact, in the case of the steel industry, it went to the Supreme Court and it was upheld.

[00:22:01] So the real question is, has he gone through the right process to use the act? And the acts that we used last term were aluminum and the steel. We did a big study. We had public hearings. We took comment from the industry.

[00:22:25] There was a whole procedure that we went through following the act. And we also, under the act, were required to get a written agreement from the Secretary of Defense that there was a national security issue in those products.

[00:22:50] I'm not enough inside to know whether he's got similar backup this time or if he doesn't. But if he doesn't, I'm sure people will challenge it. Yeah, I mean, look at the whole pushback now on tariffs. In 2017, 2018, you were dead center in the middle of that pushback. You were fighting the fight and you did, as you said, you kind of had this process of making sure these tariffs stuck.

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[00:26:38] Is there any particular advice you would give Trump now, given the severe blowback that is happening? Well, I assume and I hope that they are using the required process because they know everything Trump does gets into court anyway.

[00:27:07] So they can't imagine that they haven't thought about that and how to deal with it. And, you know, the basic question a lot of people are saying, and again, you have direct experience with this, is a lot of people are saying tariffs are going to cause inflation. But on the other hand, people are saying tariffs are going to cause a recession. And so usually you don't see a recession and inflation happen at the same time.

[00:27:35] That's been very rare in American history, maybe in the 70s and the 30s. But from my perspective, yes, Nike might raise the price of sneakers, but overall the price of sneakers will have to go down because people will choose alternatives like basic economics. What's your view on this? And what was your experience in 2018? Well, it did not cause widespread inflation.

[00:27:59] In the 2017, 18, 19, 2020 period, inflation was not really the problem at all because what happened in the real world is the countries from which the products were coming ate part of the tariff. The exporter ate part of it. The importer ate part of it.

[00:28:24] And some little bit got passed on to customers here, but it wasn't enough to make a big difference. And here, you really should look at it in the frame of reference of his overall economic policy.

[00:28:43] And with him putting $4,000 more into the pockets of elderly people, in effect, making kind of tax-free the Social Security payment, that's a very powerful stimulus to the economy. Because those are people who are very high propensity to consume.

[00:29:11] So that money will get spent. And in a very real sense, will help offset some of these other things. Similarly, if he's able to get the cost of health care down, that will be a tremendous saving. Mostly, again, for older people, but for everybody.

[00:29:34] And then finally, his energy policies are already one of the reasons why gas at the pump has gone way down. Down to penny on the state, anywhere between 15% and 20% from where it was when Trump was inaugurated.

[00:29:56] And that's something that touches just about everybody, because every product has to be shipped from somewhere to somewhere else. And also, people notice it because you fill up your car probably once a month or something like that. So you notice it. It's so interesting, though, that I 100% agree with you.

[00:30:21] And yet, very smart people, like let's say Federal Reserve Chairman Jerome Powell, he has stated that these tariffs could likely cause inflation. And he's taken his hands off the rate cuts that he was doing. Why does he feel the opposite? Well, I don't know why he's going the opposite, but he and Trump are certainly not on very good terms with each other.

[00:30:50] And he was far more willing to cut interest rates when Biden was up for re-election than he is now. And so I'll leave that to you to figure out what could be the reasons for it.

[00:31:09] But I think for him to say that a one-time imposition of a tariff rate could lead to recurring inflation, I frankly think is a little bit preposterous. It could lead to a one-time step-up of some sort.

[00:31:30] But if he only put the tariff in one time, I don't see how it has a further effect in the next year and a further effect in the year after. So personally, I'm inclined to think he's hiding behind that as an excuse not to cut rates. Because inflation in general has been coming down. And the economy has also been in pretty good shape.

[00:31:59] So I think it's just something that's very convenient for him to cite as an uncertainty that justifies keeping rates a little higher a little bit longer. And wouldn't there be reason to cut rates also? Because the U.S. has to roll over trillions of dollars in debt this year. Wouldn't Powell want rates to go down so the U.S. is not borrowing at these inflated rates right now, particularly with inflation going down?

[00:32:27] Well, he views, and on this I must agree with him, his mandate is to try to maximize employment and minimize inflation. He doesn't have any responsibility directly for interest rates as such. And especially he doesn't for the longer-term rates.

[00:32:55] And if you notice, Scott Besson, our Treasury Secretary, has been very focused on the 10-year government bond. And the reason for that is that's the benchmark against which mortgage lenders price their mortgages. They price it at a premium over the 10-year Treasury. So that's a very, very important indicator.

[00:33:24] A 30-year bond doesn't make that much difference. We don't issue that many of them anyway. And it isn't really a benchmark for anything else. But the 10-year is. And that's something that Scott Besson is focusing on quite intently. You know, one thing Powell has done, though, is it looks like there's been kind of a subtle qualitative easing.

[00:33:52] Like the M2, the money supply, is higher than ever. And that could potentially be a boost to markets, even if he doesn't cut rates. Well, a lot of prices have come down. Price of eggs has come down. And that's something that had been real irritant to people. Because, again, that affects everyday people in their everyday life.

[00:34:16] And it contributes a lot to their perception of inflation. When you think about it, let's say the price of a car does go up some. How often do you buy a car once in every several years? Who even remembers the exact price you paid for your car last time?

[00:34:40] But to the degree that people think about it, they really think about what are my monthly payments? And a lot of that really relates to interest. So I think if you notice the TV ads for the car companies, they don't even talk about the price. They just say how much it is per month.

[00:35:05] And so if he can bring interest rates down, it would help car sales and it would help home sales. And as you know, Trump has been wanting deductibility of the interest for that. So that could be a very helpful thing.

[00:35:24] You know, and related to all this, you know, the recent economic numbers for Q1 showed that with inflation, maybe the economy didn't grow. And what I'm wondering is, in anticipation of the tariffs, do you think many companies bought ahead of the tariffs being initiated on April 2nd?

[00:35:46] So the trade deficit went up so much in Q1, and that affected negatively the GDP growth, almost making it look like we could be heading towards a recession. My theory is, and I'm wondering if you agree, is that in Q2 or Q3, we're going to see actually a boom in GDP growth as counteracting that. Well, it's a little confusing in that there have been these postponements of when tariffs come in.

[00:36:15] So I don't know how many more shipments came in during, for example, this period with China. There's a huge sudden increase in container shipments coming out of China to the U.S. because of this hiatus. You know, it takes whatever it is, six, eight weeks to get here. So it's been jagged.

[00:36:44] There were some orders canceled when the tariffs were first announced. Then more recently with the postponements, you see some orders going back in. So it's hard to figure how much is just noise and how much is fundamental.

[00:37:03] But I agree with you, it won't be until we have a full quarter or maybe two quarters of whatever the tariffs are going to end up. That's when we'll see what's their real impact. Again, related to this and generating revenues, when Trump or other cabinet members have alluded to, oh, we're going to reduce the IRS, we will call it the external revenue service, you know, referring to tariffs.

[00:37:30] Do you think there is a realistic plan to, you know, basically eliminate income taxes or income taxes for certain categories of people or something drastic that would be really noticeable? Well, I think the most drastic thing they're doing on tax is this bill that just got through the House and now is being debated in the Senate.

[00:37:57] And it has really a couple of components. It makes more permanent the tax cuts that Trump put in back in 2017. But it also adds these new features like $4,000 tax credit to old people, like $1,000 tax credit for having a baby,

[00:38:23] like making tips tax-free, making overtime tax-free. Those are big deal things that affect a lot of people and will put a lot of money in their pockets. So I think getting that bill through is a very powerful antidote,

[00:38:46] both because of tax offset by tariffs and because of increasing the emulation to the economy. So I think you've got to look at it in the overall context. And you also have to look at it. He is cutting out a lot of the regulations that Biden had put in. I think they're up to a couple thousand now.

[00:39:17] Every one of those regulations costs some company something. And it's hard to measure exactly how much, but you know there's a cost to it. And therefore, that's also something that's giving people, A, more confidence, and B, is letting them absorb a little bit more of a tariff.

[00:39:44] And as you notice, he's gotten a lot of commitments for foreign direct investment in the U.S. And that's really a good thing because that builds the economy. And while it doesn't count directly against the trade deficit, it helps equalize things out a bit. Well, think about it.

[00:40:09] If he got, let's say he gets a trillion dollars worth of commitments from foreign companies to start doing manufacturing here. If you add money velocity or the money multiplier to that, that could be trillions of dollars in additional GDP growth that at some point will suddenly appear. Oh, for sure. For sure. Now, a lot of it will come in over five years or even 10 years.

[00:40:35] But let's just say that 100 billion a year comes in. The cumulative effect of that is pretty big. Yeah. Now, would you ever consider something like a federal consumption tax? So the idea being, you know, at least people get their money and are able to spend it before the money is taxed. Well, that's really what the Europeans have and most other countries have. So-called VAT.

[00:41:05] And it's one of the trade barriers to our companies. For example, if you make a Mercedes in Germany and you sell it in Germany, your German customer has to pay something like a 20% VAT. But if you export that car to the U.S., we don't have a VAT.

[00:41:30] So you can literally sell the same car for a lower price in the U.S. than in Germany. And in reverse, we don't have a VAT here. So we don't have any rebate. And therefore, if you make a Ford in the U.S. and you ship it to Germany,

[00:41:54] you sell the car effectively for a higher price in Germany than in the U.S. It's one of the many things that our government is complaining about. And we twice tried to pass legislation to correct that. And each time, the World Trade Organization knocked it out. So it's a big, big problem.

[00:42:23] Because think about it. It's roughly a 20% tariff on top of whatever real tariffs they put in on everything made in America and exported to Europe. That's right. Look, hopefully all these negotiations he's doing with these other countries works out. You mentioned so many interesting concepts that are actually either stimulative to the economy or deflationary to the economy.

[00:42:52] For instance, if he reduces health care costs, if the stimulation from all these various tax cuts, reducing all the regulations from the prior administration, all this should have a very positive, stimulative effect. It's kind of disheartening to see so many personal agendas kind of arguing on whether these are good or bad, rather than looking at the actual numbers and facts. And you have the facts, because in 2018, you saw there was less than 2% inflation,

[00:43:21] despite steel and aluminum tariffs. Right. Absolutely. So it's just always disappointing to me when people bring politics into issues that are so important to our livelihoods. Well, it is. But the strangest thing is that the hardest part toward Trump, because the majority of the Republicans is so small in the Senate, he can't have very many defections from his own party,

[00:43:50] or else he won't be able to get his tax bill through. So it's become a very narrow call whether it can go through or not, because the Democrats tend to vote in lockstep, whereas the Republicans tend to be a little more ideological and to have ideological differences among themselves.

[00:44:17] So it's a very curious set of political tensions that's at work on the tax bill. Do you think the tax bill will get passed ultimately, or do you think they'll be making concessions? I think something like it will get passed. I can't imagine, especially the Republicans who are up for re-election, I can't imagine them having the tax bill destroyed

[00:44:43] and raising literally everybody's taxes. That makes no sense to me. But, you know, people do commit Harry Caray every now and again. Well, I hope they don't now. This is such a critical time in the markets. And starting on April 2nd, there was so much psychological tension about these tariffs without anybody truly understanding them. So I hope that kind of lessens.

[00:45:13] And, you know, we'll see. Well, we'll see. So I don't know. Well, you know, Wilbur Ross, former Secretary of Commerce under Trump, and really you've been involved in so many industries. You've famously in the coal industry, famously in private equity. You've had so many second acts in your career with Secretary of Commerce being your act in politics. You're an American hero. And I really appreciate what you've done

[00:45:42] and coming on the podcast. I really appreciate it. Well, thank you. Well, that's a good commercial from my book, Risks and Returns, Creating Success in Business and Life. It's available on Amazon. And I think you'll find it a good read. Risks and Returns. I've read it. Excellent book. You were on the podcast previously from that book. And once again, I appreciate you so much. Thank you, Wilbur. And again, thank you so much for coming on the show.

[00:46:11] And you answered a lot of my questions. I'm really happy. Good. Thank you, James. Pluto TV has all the shows and movies you love streaming for free. That means laughter is free with gut-busting comedies like The Neighborhood,

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