Sean Davis: China knows we have the stronger hand

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Save up to 40% your first year at lifelock.com slash podcast. Terms apply. But are you prepared for China to consider selling assets it holds in the United States, and do you want that to happen? Well, remember, China has been selling off treasuries for some time.

It's not a it's not a brand new development. You know, the Treasury's market will fluctuate. You know, I'm not the Treasury secretary, so I'm not the best poised to talk about that. But I think the issue is we've become so dependent on China, and for so many decades, we haven't had fair market access. So again, we see China taking action, implementing their policies. And I think that's why we're here today. And we're here today to try to be less tied up with us as well. So that is the trade representative and he's telling me he's talking about what we're up against.

And it looks like China is taking this personal and went from tariffs on everybody to tariffs just on China. And they decide to that chambers in Greer. They decide to number one. Well, I think we're in a little bit of a standstill right now. A lot of people are trying to analyze this as though negotiations have failed or this is the end. We're at the very beginning stages of a move to really do two things. One, we have to decouple from China. If we didn't learn that after COVID, we're nuts. But we have to decouple from China and have our own independence and not dependence on a foreign enemy of ours for key goods that we have. And then we also have to re-industrialize in America.

They're two sides of the same coin. And so I think where we are now with China is we're trying to see who's going to blink first as we work to get decoupled from China. And I think where we are now with China is we work to get decoupled from them and build back up our own manufacturing base so we don't have to depend on our enemies for key strategic goods. But their actions are so aggressive, Sean. They said until we're not showing them respect and they think the tariff move by Trump is laughable and a joke and they decide to amp up the aggression instead of just saying, OK, we're going to go over 100 percent tariffs. Do they want this fight?

Have they been ready for this? No, I kind of view that for people who are out there who are poker players, I view this as like a pretty early bluff from China. They know we have the stronger hand. They don't have the domestic capacity to support their economy. China cannot exist without everyone else buying their stuff.

That's why China has such a massive trade surplus. They've got a weak hand here. We know they've got a weak hand. They know that we know they've got a weak hand. And I think they're they're engaged in some early on bluffing here to see if they can kind of maybe blink us off, maybe lead us to believe they're tougher and stronger than than they are. It might have worked with another president. I don't I don't think Trump's going to buy that, to be honest. Well, he said I'm open to talk and they say no, not until you show us respect.

And they have played their two best cards, I think. You know, outside invading Taiwan, Taiwan, Taiwan, when you go out and take rare earth from us, that hurts electronics, hurts our military. The other thing, Sean, I cannot believe that we're still relying on them for rare earth and magnets and heavy metals.

It makes no sense. Well, I don't think we're totally dependent on them for rare earth minerals. We call them rare earth. We're talking about stuff like lithium and cobalt, which is generally used for the long lasting batteries.

They're not as rare as the name would lead you to believe. What we actually don't have is is the capacity to kind of refine them into the form that we need. It's another major reason why we have to build up our industrial capacity here and reindustrialize. Number one. Number two, it's also a good sign of why you shouldn't as a nation go all electric or try to go all electric, because you end up with these type of sticky supply chains where you have to depend on people who don't like you to just be able to literally function as an economy.

To me, that's nuts. So I want you to hear what Ray Dalio says, you know, respected investor, Bridgewater founder, cut 18. Do you think that these tariffs are being carried out in a practical way or a chaotic way? I think we'll we'll see. So far, very disruptive.

So far, very disruptive. Right. And so we don't know what the numbers are, but that could be part of a process.

Right. It depends where we are at the end of the 90 days. I think that right now we are at a decision making point and very close to recession. And I'm worried about something worse than a recession if this isn't handled well.

Are you worried about something worse than a reception recession? What I'm worried about is we end up five or 10 or 20 years from now with a complete inability to make anything we need to survive as a nation. Right now, we don't make our own medicines. You know, we don't get our own rare earth materials. That's next. Pharmaceuticals are next.

Exactly. Fertilizer. We don't make most of our own fertilizer. A lot of our food we don't make. Steel, most of which we don't make.

These are core strategic national goods. And I would tell you, if let's say I had a farm, I owned a farm and I'm trying to be self-sufficient. But it turns out that I have to rely on everyone else around me. People who might actually hate me for all the things I need to run a farm, water, food, livestock, seed, fertilizer.

I'm not going to last very long as a farmer. And what I think is much a bigger problem than, say, a short term recession is us becoming eventually a vassal of the Chinese economy where we can't do anything without their permission. That, to me, is the worst case scenario, not not a recession.

That's a couple months. So the Trump style is instead of sitting in a think tank coming up with a policy, Trump style is, hey, welcome to Monday. The world, the world trade, our relationship with the world when it comes to trade has changed forever. 10 percent across the board. China gets 25 percent.

Fentanyl is 10 percent in Mexico, as well as Canada. And then we add that on to China because you do the precursors. So in traditional politics, things happen gradually. There's an announcement, maybe work through Congress. That's not the way Trump works.

What do you think will work? Well, I think if you look at traditional politics, that's what we've had for the last 50 plus years. It's traditional politics that have allowed China to build up its war machine. It's allowed China to go after our friends to build up against Taiwan using the money that we've given them through our economy.

Excuse me. So I think the time now is is for untraditional politics. I think that that's what Trump's doing. You know, we were all alive during the first administration.

We saw how the economy was, how strong it was. I'm willing to give the guy a little leeway because it because, again, 50, 60 years of politics as usual. That's what's gotten us in this position.

So we need something different. No, I hear you. And the thing that emerged for me and I'm a non-economist, you're the economic expert. You're an adviser for Governor Perry. And this is where you thrive.

But for me, I need someone to tell me what they're doing. And the guy I like to hear from is Scott Besson. I don't like hearing from Peter Navarro. And I feel like Mark Lutnik is going for ratings rather than accuracy. So do you think behind the you know, it's like behind closed doors with Trump, your ex boss was energy secretary. Do you think that that message is brought over to Trump and say, listen, step the other guys back one voice except for Trump.

Another voice is going to be best and nothing else is just too much at stake. Oh, I think the messaging could absolutely be better on this because there's so many moving parts. There's a lot of different equities going on. There is the reindustrialization. There is fixing the trade deals so they're not rigged. There's refinancing nine trillion dollars of our debt, which we really can't afford to do at five or six percent. So we'd like rates to go down in order to do that. That's actually one major reason why China keeps on dumping securities is they want to drive rates up because they know that's a pain point for us. I quite honestly don't understand what the Fed is actually doing, why they're not going and picking up the slack from all the treasuries that China's selling. They've had no problem with doing that in the past.

Can you tell me what I mean? What do you mean by picking up the slack with China selling? So China's selling our bonds, trying to drive the rates up. All the Treasury Department, excuse me, the Federal Reserve.

Thank you for clarifying that. The Federal Reserve should go in and just buy those up, pick up the slack that's being created by China, dumping bonds into the market. But I do wish we had kind of a unified message, overall strategy coming from the president. Look, the guy's better at marketing and selling and sales than anyone else in that administration. There's people there who are very good at what they do, but nobody does the sales and the communication like Trump. So I wish he would be more clear about the overall strategy, because I think it would give people more confidence that there is a plan underlying all of this. So I want you to hear what Senator Kennedy said, kind of echoing what you said, cut 17. I think I know what's in the president's heart, but I don't know what's in his head.

The people you're talking about are right. The administration has not given one clear rationale for its tariffs. I think that's intentional that I don't know. But my guess is it's intentional and that it is part of the president's negotiating strategy. But I think I don't want to feign understanding here.

I don't know. But but that's my best guess, knowing how the president operates. So, I mean, if the Republicans in the Senate and somebody like Kennedy who is in a who to a president likes a lot doesn't know, you just got to think the communication could be better.

Who could bridge that gap there? James Blair, maybe deputy chief of staff. I think the only one who can do it is Trump himself. I mean, you look, you need staff, you need advisers and cabinet people to go in and execute on your strategy. But nobody can sell stuff and explain stuff the way Trump can. You and I could sit back and even try to come up with what we think Trump might say. And it's not what he would say. He's just better at this than everyone else. So I think if he needs if he believes he needs to come out at some point and say this is the strategy, he should do it. But, you know, to Kennedy's question there, he said, I don't think there's one clear rationale.

He's actually right, because there's not just one. You've got the interest rate issue with refinancing debt. You've got fixing trade deals, which were just bad. Those need to get fixed on principle. You've got decoupling from China and then you've got reindustrializing America. That's four kind of fairly complicated things right there. It's not something that's easy to just go in and explain and rationalize in a couple sentences.

I hear you. And lastly, the big, beautiful bill. I mean, it's about over halfway there from what you see, the framework on both sides, knowing they've got to bridge the gap. What do you think that's going to do the economy? Because people fear it's going to add to the debt.

But people know that it could also turbo charge this whole thing and bring up the revenue side. So I worked in Congress as a staffer for a long time, and I would just say I don't have very much confidence in the willingness or desire of Congress to cut much of anything. It's why we've gotten to the point where we have thirty five, forty trillion dollars in debt. I think it's why Doge has been so important, because Congress has just not expressed any desire to do what needs to be done on the cut side.

So I very much hope they all prove me wrong for being a cynic here. I personally don't have a lot of confidence that Congress itself has what it takes to go and actually fix our fiscal situation, which is a problem because Congress really is the only one with the authority to do it. What about the bill from the makeup of the bill continuing the tax cuts from twenty seventeen, adding things like tax on tips, manipulating salt a little bit, and taxes and Social Security, some of the other things that they want to bring up, spending up to a trillion dollars in defense. Your thoughts?

It's hard to say. You know, with these bills, especially this early in the process, we're in early April. It's like trying to pin Jell-O to a wall.

So the principles all sound fine to me. There needs to be way more cutting. We need to be looking at taking away from the debt, not just chipping away at the deficit. So right now, I think the whole thing is a moving target. I want to wait to see what the actual final agreement is that comes out of a conference between the House and Senate before, you know, deciding whether it's good or bad. They've got a long way to go. We've got a lot of work to do. I'm leaning towards good. I have a good feeling for the framework.

And I sense that Congress knows if they don't find a way to get a deal done, they're all going to lose both chambers in the midterms. Sean Davis, thanks so much. Thank you, sir. It is time to take the quiz. It's five questions in less than five minutes.

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