Pod Insights Decoder How Trump’s tariffs actually work on the ground About this episode One of the ways I’ve been trying to sort out the chaos of tariffs and trade wars is by talking to the people behind the software that makes the global trade system go. So today I wanted to bring back one of my favorite Decoder guests: Flexport CEO Ryan Petersen, whose software manages the logistics of moving things around the world, from factory to doorstep.
We didn’t get too much into the numbers — those tariff percentages keep changing — so instead Ryan and I really focused on how this system works, how it’s supposed to work, and how it’s working now, if it’s working at all.
Links:
Flexport Tariff Live Blog | Flexport
US tariffs: how Trump’s tax is hitting Big Tech and beyond | Verge
How much will Trump’s tariffs cost U. S. importers? | NYT
How much are tariffs on Chinese goods? It’s tricky | NYT
How Trump’s tariff chaos is already changing global trade | Decoder
Can software simplify the supply chain? Ryan Petersen thinks so | Decoder
Why Flexport CEO Ryan Petersen took his company back | Decoder
The U. S.-China decoupling arrives | Axios
Credits:
Decoder is a production of The Verge and part of the Vox Media Podcast Network.
Our producers are Kate Cox and Nick Statt. Our editor is Ursa Wright.
The Decoder music is by Breakmaster Cylinder.
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Transcript 13,109 words · 10 speakers
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1:30 Speaker 04 Hello and welcome to Decoder. I'm Neelai Patel, editor in chief of The Verge, and Decoder is my show about big ideas and other problems. So one of the ways that I have been trying to sort out the chaos of tariffs and trade wars is by talking to the people that make the software, which actually runs our global trade systems. We got a lot of notes from listeners who really appreciated our episode with Altanas Evan Smith, whose systems track the global supply chain. He was able to come on the show and really illustrate where manufacturing is moving as globalization starts to break down.
1:59 Speaker 04 So today, I wanted to bring back one of my very favorite Decoder guests, Flexport CEO Ryan Peterson, who software manages the logistics of moving things around the world, from factory to your doorstep. We've done two episodes with Ryan in the past, we'll link them in the show notes. They're both fascinating. And one of the reasons for that is that Ryan is unique. He runs a software company in Silicon Valley, but his product is actually all about the very real and very complicated process of actually shipping things on planes and ships and trucks. And I've always appreciated his perspective to connect the dots between what's happening on the screen and what's happening in the real world. In the case of tariffs, that means he has a real-time view of how his customers are dealing with them as products arrive in our ports and go through customs.
2:42 Speaker 04 Flexport is itself a customs broker, so it manages the tariff process pretty directly. But nothing about Trump's tariffs are business as usual, so I really wanted to dig into how they're working in reality. At the highest level, the Trump administration has launched into what feels like a game of chicken with the Chinese government, a game which is completely upending the stock market and putting industries of all kinds into outright panic. We can all see that. But down in the ground, the systems still have to work. Goods and services still have to move across the ocean, and these tariffs need to actually get paid. You'll hear Ryan say the tariffs are already changing where things are coming from, and that shipments from Vietnam and Flexport's platform overtook shipments from China for the first time in the past week. You're also going to hear that Ryan and Flexport have basically been in war mode for the past
3:27 Speaker 04 several weeks, trying to keep up with all the changes. Flexport is running a literal tariffs live blog for its customers, just to try to keep the latest information going out the door. In fact, Trump's tariffs are so unpredictable that when we sat down to record on Monday, we knew the numbers we were talking about would change, and we were right. The tariff on syringes from China somehow went from 154% to 245, and lithium-ion batteries shot up to 173%. So instead of specific numbers, Ryan and I really focused on how this system works, how it's supposed to work, and how it's working now, if it's working at all. If you follow Ryan on X, you know that he thinks things are breaking in ways that create nothing but paralysis in the short term, and potentially widespread bankruptcy in the medium and long term.
4:10 Speaker 04 So I just asked him, is there anything anyone can do right now to pressure the White House to make this make sense on a timetable that saves the US economy from potential devastation? I'll let you listen to his answer. To his credit, Ryan took a pretty valiant demeanor throughout this conversation. He says he wants to give the people in charge the benefit of the doubt and keep his cool so he can keep advising his customers well. But I think you're going to be able to hear how quickly he's running out of patience. And he didn't hold back in describing the kinds of frankly scary consequences that might await us if things keep escalating at their current rate. Okay, Flexport CEO Ryan Peterson on Trump's tariffs and the ongoing trade war. Here we go.
5:02 Speaker 04 Ryan Peterson, you are the founder and CEO of Flexport. Welcome back to Decoder.
5:06 Speaker 05 Great to be here.
5:07 Speaker 04 I'm excited to talk to you. This is your third time on the show. I have to tell you, you're one of my very favorite guests because I'm so obsessed with hidden systems and how things move around the world. It's a very obvious system whose mechanics are usually pretty hidden. And you do such a great job of explaining that. That said, I feel like it's not great for a shipping software logistics company to be running a live blog about tariffs, which is a thing Flexport is currently doing. I actually just want to start there. Why is Flexport running a live blog about tariffs?
5:39 Speaker 05 Oh, I mean, we're one of the biggest customs brokers in the United States. So our customers need to know what's going on because this is dollars out of their pocket. They're trying to figure it out. So we want to be the go, we are the go to source of information for them. It's hard to keep it up to date, honestly. We got people working the weekend shift to make sure because there's news that keeps dropping on the weekend.
5:55 Speaker 04 Yeah, I just, I just looked at it and I thought, what, what is the single best symbol of our moment right now? How is all this chaos affecting the flow of goods in the United States right now? What are you seeing from your customers? Are they sending more stuff, less stuff? Are they trying to get ahead of the tariffs?
6:09 Speaker 05 Well, there was a big surge. So the, the deadline for the tariffs, as I said before, was based on the destination, based on departure of the goods. So there was a huge rush right after they were announced. You had about seven days to get the goods out. So there was a big switch of air, ocean freight over to air freight to try to get things out. Air freight, you can just ship that same day. Ocean freight, you need to get it to the port three or four days in advance of the ship departing. So a lot of cargo moved to the air, air freight.
6:37 Speaker 05 We've seen a big shift. Bookings from China are way down on our platform and bookings from Vietnam are way up. First, in fact, last week was the first week in Flexport's history where we did more ocean freight out of Vietnam than we did out of China. So, big shift there as people ramp up manufacturing. A lot of the companies have dual sourced already, so they just shifted, hey, we're going to start producing the goods in Vietnam. There was also this case where people saw this coming for a long time. Trump announced April 1st was originally the date, April 2nd was the final date for Liberation Day. That was known for two to three months in advance that you would have these higher tariffs. And so, companies really pulled forward and got their orders in ahead of time and have
7:18 Speaker 05 now are well-stocked and are starting to say, hey, let's move to Vietnamese or Southeast Asian or other manufacturing outside of China. And then there's also just a lot of like, let's just wait and see because many people like me don't believe that the current 125% plus duty rate is the final duty rate that's going to be applied to China. I think many of us believe there will be a deal cut and this is going to come back down from here.
7:45 Speaker 04 Obviously, moving things from ocean freight to air freight, that has to be more expensive. Is that enough to arbitrage the cost difference of the tariffs?
7:54 Speaker 05 Yeah, for sure. I mean, the duty rate on, let's say, typical container's got about $100,000 worth of goods. So, if it's 125% duty, that's $125,000 extra on top of your 100K, something like that, right? Air freight's not that much more expensive. It'll be more, you definitely save money there.
8:11 Speaker 04 I don't think people know. What's the cost of shipping one container on a plane right now?
8:15 Speaker 05 Um, well, air freight's about six times more. We don't really talk in terms of containers on air freight, so it depends on the weight of the product and stuff, but usually air freight's between five and 10 times more expensive than ocean freight. Ocean freight's about $2,000, so call it 10 to 20 grand to ship it by air. And you're saving 125 grand by, I'm just doing this math off the top of my head. I might be off by a little bit, but depends on how dense it is and other things. But yeah, probably it would save you 80,000 bucks to ship that container by air. Last week it would have, it's too late now.
8:48 Speaker 04 Well, I'm just wondering, I mean, even that math, as rough as it is, it seems really challenging, right? You're, you gotta get that money from somewhere and say, okay, I'm going to spend more money shipping my existing product. That's got to come out of R and D or manufacturing the next set of products or whatever it's marketing, whatever it's going to be. Where are your customers getting that money from?
9:08 Speaker 05 Well, basically you got to raise your prices to your customers. Um, the, the dollar amounts of these tariffs are so high that you are going to pass it through. I've seen a few brands say they're not going to pass it through, but I'm skeptical. The big question mark is do people buy less stuff?
9:21 Speaker 05 The app, you know, iPhone has been, it seems to have been exempted for a moment, but that's an easy one for people to got, wrap their heads around. I haven't looked at these in many years. It was like 400 bucks to manufacture the phone that sells for a thousand or something like that. The margins are pretty good. Might have even, I, I forget, but it, let's just say that was the math and you applied 125% duty. That's on the 400, not on the thousand. So you take 125% of 400, I think it's 500 bucks. So now let's say you add 500. So the, the phone that was a thousand now is going to cost 1500. If you just pass it through one to one, you don't mark up the duty. I think a lot of people will, on a thousand dollar phone, maybe they buy one every two years.
10:01 Speaker 05 If it's 1500, they go every three year, you know, I mean, that's the, that's the equation that different people are going to make. And so that would be a 30% reduction in sales. If you went from a two-year upgrade cycle to a three-year upgrade cycle.
10:16 Speaker 05 And that's, that's a product that everybody kind of needs and wants and is a, is a necessity. A lot of products you're like, ah, just not going to buy it. I'll buy, I'll, I'll eat more in the restaurant or I'll save money because I'm worried about my job.
10:28 Speaker 04 Obviously Flexport runs the software that helps people ship things from manufacturing site to people's doorsteps. You're at every level of the chain from the trucks to the ships. How are these tariffs actually collected? Where does this happen?
10:41 Speaker 05 Oh, you make a payment to the US Treasury. So, most companies will set up an ACH. What does that stand for? Automated Clearinghouse? You'd set up a, you know, like a wire transfer effectively that you make to the government, to the Treasury.
10:55 Speaker 05 You can pay a check. Sometimes your customs broker, Flexport, is one of the largest customs brokers that will make the payment for you. And you pay us back. And so, that's pretty straightforward. It's gotten a little messy because the government, the executive order here made it so that the effective date of the tariff is based on when the goods depart at origin. That's like the first I've ever seen that done. It's always based on when the goods arrive. And that's what CBP, that's what Customs and Border Protection Systems are set up for, is to be based on arrival date. And so, they're having a lot of problems right now, I understand, at CBP because their tech systems are not made to actually function the way that this executive order was set up. So, there's a scramble, I assume, going on right now is to get the tech systems updated
11:40 Speaker 05 to work the right way.
11:42 Speaker 04 A few days ago, CNBC reported that actually these tariffs weren't being collected because the systems are actually broken. They weren't capable of collecting the tariffs. Has that been fixed? Is that something you saw ripple throughout your system?
11:53 Speaker 05 I'm still working on getting an assessment there, but that's what I'm describing here is it was because they're actually collecting the wrong amount. They're collecting it based on arrival date instead of departure date. And those will be different for ocean freight, obviously, quite different. So, I think it's going to take a little while. That's fine. These things get, you know, there's a process by which you, it's called a post-entry summary correction. So, you can go get a correction, get a refund if you paid too much, or, which is what this would be. People have paid the wrong duty amount. They would have paid too much and then go get a refund. So, that's a service that Flexport offers, by the way. It can go help you get refunds on your customs duties.
12:33 Speaker 04 The last time I talked to you was about two years ago, and you had reconfigured the company, and you were talking at the time about all the things you would do if you had more just liquid capital. And you said, "Well, we don't. So, we got to be smaller, more focused." It strikes me that being a big customs broker in a time of tariff uncertainty requires you to just have a lot of capital sloshing around. Has that been a problem? Is that something you're seeing that there's pressure on just the amount of liquidity you need at your company?
12:59 Speaker 05 Not because of customs in particular. I mean, we are making sure that as many customers as possible, try to put them on a direct, pay the government directly without paying for export, but it's fine. We have a good business. I mean, first of all, we have a great, strong balance sheet and then it's actually a good business for us. If we outlay duties for you, we charge for that. So it's not, it's actually a pretty high margin part of our business. It's kind of almost a lending business that we have going there. So it's less so that than it is assessing the health of our customers, making sure that everybody's in a good place. Just in a general, you know, this is a kind of a black death moment for a lot of, for importers from China and see who survives and helping them all maximize their chances
13:42 Speaker 05 of survival. It's pretty grim out there for a lot of companies if they've, if they're single sourced from China and there's, and they've got, especially if they have competitors who are buying from other countries, all of a sudden they're at a huge disadvantage from other countries, from their competition. And so, yeah, we may get stuck with some bad debt if companies fail and owe us money.
14:01 Speaker 04 How quickly do you see the information from a Truth Social post or an Air Force One interview ripple through the system? At some point, someone's got to actually update all the software to say this is the tariff rate, right? How quickly is that happening? Because it, there does seem to be a delay between what gets posted to Truth Social and what the actual rates are, or even what the other members of the administration believe.
14:27 Speaker 05 Yeah, so this was really interesting when, when Trump first took office a few months ago, where he would, I think it was the very first day, second day in the office where he started to say, you know, he imposed, hey, the 10% duty on China. My first instinct was, okay, we got to send out, notify the customers, like, tell everybody. But it turns out, you know, you go from that Truth Social statement to a statement by the White House spokesman, to an actual executive order.
14:54 Speaker 05 To what really matters is an update to the Code of Federal Regulations. That's where it becomes law. I mean, that's where it becomes the rule. And so now we've built a little discipline where we're rounding these things up in a weekly update. And we're really only super concerned. I mean, we're concerned always, but we're really taking action when it hits the CFR, the Code of Federal Regulations. That's when we start translating it into our systems and updating the regulation, updating the duty rates effective in our software. So that can be a week or more. Otherwise, we're rolling things up into a weekly update for our customers. Unlike, we have a weekly newsletter that goes out of what's happened, what's hit, you know, what's new. But that took us a little while to get used to because, you know, in the old world, you were just like, oh, the president said something massive on tariffs.
15:38 Speaker 05 Like notify your customers. It turns out now it's been a few hours. And so it'd be too many emails and not enough signal and all the noise.
15:45 Speaker 04 How often do you have to update your system? How often are you watching the Code of Federal Regulations to say, okay, like Flexport Systems need to be aware of this change?
15:53 Speaker 05 Constantly. I mean, we're trying to update it within minutes when it does hit. And it's one of the big advantages that we have as a software-based platform is that, you know, with one database query, we're finding all the customers affected by this. And the amount that it would impact them and get our, within an hour, our teams are calling, you know, to have conversations with customers and we want them to hear from us first and see us as the real trusted experts. Whereas a company that doesn't have good databases for all this stuff, which is most of the industry, was founded way before Netscape. When you had, they're not built around web, the web and the cloud. And it's hard for them to query this data. They store it in actual physical files in some cases and just don't have the systems in place.
16:38 Speaker 05 So it gives us some competitive advantage. It's like, I think we're going to take a lot of market share in this environment. It's ugly for our competition as it is for us. But I think it's just a massive opportunity to lean into being the most customer-centric customs broker and freight forwarder in the industry and take market share. But yeah, having to fight through a lot of friction to get there.
16:56 Speaker 04 Just put that into a little bit of context for me. Right now, we're updating this. How often compared to how often you were updating it in the Biden administration or the first Trump administration?
17:06 Speaker 05 Well, oh, I mean, now several times a week and before Biden administration.
17:12 Speaker 05 They made a big update at one point, but they give you six months notice or something. There wasn't one day's notice. That's the biggest difference. They actually increased Trump's duties and tariffs from Trump won. It was one thing, actually, I would say the Democrats and the Republicans are relatively aligned on is they both seem to hate trade, especially trade with China. But yeah, the Biden administration was a little bit more process oriented. You'd have a years, you know, for example, they did, they notified that we'd be, they'd be shutting down the de minimis exemption, which allows you to import goods duty free if they're less than $800 per package. And they're going all the way to a final consumer's house or business.
17:54 Speaker 05 That was announced, but they were like, basically, they announced it with an indefinite timeframe when it, when it would happen. And everyone was like, yeah, it'd probably be a year. And then Trump announced and gave you 30 days. And, and so it was much faster pace of like needing to change. We, again, think this gives us an advantage being a less bureaucratic company than, than some of the big old school companies we compete against. We feel like if, if we can't be faster than them responding to this kind of change, we, shame on us, right?
18:24 Speaker 04 Walking through just the, there's one this weekend that I think is really relevant to the Verge audience, the Coder audience. They announced huge tariffs on everything from China. Then they announced an exception for smartphones and chips and computers. And then I didn't even know if that was announced. It was like buried in a customs document. And then Howard Lutnick says, it's not actually an exception. And Trump says, it's not an exception. It's, it's in a different tariff bucket.
18:52 Speaker 04 I've been paying a lot of attention to all of this. I couldn't really tell you what any of that means. Do you know?
19:00 Speaker 05 Well, it was, there was an exemption for those things. I mean, that was just published. Now, what they're signaling is, stay tuned, that they've exempted from the, the duties, the reciprocal duties, but we have another set of program coming for those categories and they will get duties of their own. And we don't know what those are. So it'd be nice if they just went ahead and published it all at once.
19:27 Speaker 05 They said there might be an update as soon as today, today is Monday, the 14th. So by the time we go live, we may know more.
19:32 Speaker 04 Almost certainly.
19:34 Speaker 05 That's the pain for all of this is, is just they got to get it over with. Nobody can make any plans or investments in their supply chain right now while it's changing every single day. I mean, you might, even if you were going to make your stuff in America, it'd be crazy to do that right now because tomorrow it might be cheaper to make it in Vietnam. Who knows what deal he's going to strike. So it's until they get through all these backlog of deals and just set that these are the tariffs for the next, call it few years, everybody's paralyzed. And one interesting thing here is under the US Constitution, it's very, very clear that the Congress controls the tariffs, not the president and that he's only able to do these things because of a, an act in 1977, a few other acts, but 1977 was the big one that he's using for the reciprocal tariffs was that under a national emergency, then the
20:18 Speaker 05 president can take control of the duty rates of the tariffs. And so we had to declare a national emergency here. That's going to get challenged right now. The Republicans control the Congress, but if it looks like they're going to get wiped out in the midterm, you probably see enough defections that they might take back that control. Likely they would win if it went to the Supreme Court right now. The Supreme Court seems relatively stacked on the president's side, but I don't, I'm not a political analyst there, but it does seem likely if this thing gets bad enough that the Congress could take back control of the tariffs and end it that way. So there's a lot of different scenarios for how all this plays out, but all of that leads to even less certainty for a company that needs to make decisions about where to manufacture.
21:02 Speaker 05 It was like, if it's all going to change again, supply chains need many years of investment to pay back. So really difficult moment.
21:10 Speaker 04 Your tweets right now are pretty spicy. You have one recently that said, the entire system is designed to create paralysis. What do you think that process serves?
21:18 Speaker 05 I don't really know if that's true, but I mean, the, I also tweeted, you know, the purpose of a system is. Is the result that it generates. And so at some point, even if that's not their intention, if that's what it generates, it's kind of like, I don't really think that's what they're setting out to do. I think they, I also don't believe in getting in any argument unless you can understand the other side's point of view, at least as, and explain it better than they can. And I have a sense of what they're trying to do. And I think some of it's admirable and noble, reducing debt, increasing manufacturing, creating leverage over the other countries. Like it's, these countries are going to offer better trade deals than we've had in the past because they're horrified about the idea of getting these duties put on them. So there's
22:00 Speaker 05 some, there's some strategic rationale to some of that, too. But man, there's going to be some side, some, some second order consequences that they have not modeled it out properly from my, from my point of view.
22:14 Speaker 04 We need to take a quick break. We'll be right back.
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23:58 Speaker 04 We're back with Flexport CEO Ryan Peterson. Before the break, we were discussing some of the actual mechanisms of tariff enforcement here in the United States, how they get applied, how that change ripples through the shipping logistics systems of customs brokers like Flexport, and what effects that might have on the broader economy. Those are the first order effects. Ryan just mentioned the second order consequences, and that's what I really want to talk about now. Because sure, the immediate tariff situation is chaotic and changing almost nonstop. But the actual end result beyond the day to day is that the Trump administration is squeezing global trade and try to exploit what it thinks are vulnerabilities and how the system has functioned for decades. Whatever motivations the Trump administration might have, or whether the people involved are misinformed or simply reckless, is besides the point.
24:40 Speaker 04 The result is what matters. So I want to ask Ryan, what's going to happen now?
24:47 Speaker 04 Let me talk about the second order consequences. I actually want to start with Flexport, and then I want to get into what you're seeing across your network and across your customers. Last time on the show, 2023, you described a pretty broad vision for the company. And at the time, it didn't strike me as being under threat by the collapse of global trade. But in your vision, there's the implication that global trade will get easier. And you described growth for Flexport in the following way. You said, "I want to be able to go to a brand in the United States and say 90% of your sales are in the US. But if you look at your Instagram followers, it's 50/50 global and in the US. Why aren't you selling on Flipkart, Rocket and all these other platforms? I can light you up. We've got the international piece. We've got the customs. We can deploy the inventory and fulfillment, and we just help you grow your revenue."
25:29 Speaker 04 That is a growth story for your customers that implies that international trade will get easier or more predictable, that you can be a driver of growth. And what you were saying is, "I don't want to be a cost center. I want to be a driver of growth with all of these international capabilities." That was a vision in 2023. It's 2025. A lot has changed. A lot continues to change day by day. Is that vision under threat?
25:52 Speaker 05 I think the vision becomes more important as it is under threat. Global trade is under threat. It's less popular, you know, than it's been for a long time. But it also makes it more important that we work on it. And it's kind of in some ways easier to create value. If global trade gets harder than someone who's working to make it easier is like more valuable. You know, I also take the long, really long term view where global trade has just increased 4% annually for the last 800 years. If you look at it on a long, long term basis, and there have been major disruptions to global trade in that period. World War II, the Black Death. I mean, there's a lot of, a lot of things happened and yet global trade continued to outgrow it all. And those things barely show up when you look at the exponential growth curve of trade. You barely notice them.
26:34 Speaker 05 So I, I think on one hand, trade is, if you fast forward 10 or 20 years, there's going to be more trade than there is now. I have pretty strong conviction of that. I don't need that to be true for Flexport to win, but I, I believe it to be true. And then on the, on the other hand, things I am certain of is that there will be trade and that people will value a cheaper platform that does, that has higher quality, more time, on time delivery, faster shipping. Like there are certain things that are going to be true no matter what. And we just have to be super persistent in pursuing that vision. And then to the specific point that you mentioned of like helping a country, company go global, that might be more important than ever. If, if trade to the United States is more difficult, brands are going to want to find, okay, where are my growing markets?
27:16 Speaker 05 Like people are looking right now, okay, I've got, it's going to be really hard to ship from China to the US. Can I sell that inventory made in China somewhere else? What are the markets that don't have these same protective barriers? And can I use my brand to go into other countries and sell stuff? I think US brands are, and, and global brands are going to, are going to be important. That's one of our beliefs is that not everything should just be commodity, Amazon basics, cheap crap. Like people, there is, there is value in creating a brand story and taking that globally and selling your stuff. So I don't think our vision is under threat, like that it won't happen, but it's definitely under threat in the sense that like it's harder than ever to, to make it happen.
27:58 Speaker 04 You just said something really profound there that some brands might say doing business in the US is too hard. I need to take my Chinese manufacturing base or my Vietnamese manufacturing base and figure out what my other markets around the world are. For the past, I don't know, 15 years, what you want is you want to get into the Amazon shop and create a brand, given the extremely fluid supply chain between China and the United States. There are a bunch of brands we've covered just in tech that are the story. Anchor is one of my favorites of these, right? It's a bunch of ex-Amazon engineers that moved to China, started selling batteries. Now they have a growing tech brand that just sort of relied on the ability to move things back and forth and use Amazon as a storefront. If all that moves outside the United States, where does it go?
28:43 Speaker 04 If the United States is no longer the preferred market for that kind of growth story, where does it go?
28:47 Speaker 05 Well, in aggregate, it'll be very hard to replace the US consumer. We're just like the biggest consumer market by far, just as it'll be hard to replace the Chinese as a manufacturing site. But you'll see on any given brand, they're going to try really hard. You're seeing them shift pay-per-click ads to other countries, testing things out. I don't know if Europe becomes a growth market because of all of this, but for a given brand, they're going to try hard, they're going to push more ad spend into those markets. Latam, we see a lot of companies looking at those markets. But, you know, it's going to be really hard to, you're not going to be able to replace the US consumer. And so I just, my broader point is just brands are going to want to be more global generally, and this might accelerate some of that. But when you look at it in a macro picture, it's, there's not going to be enough demand
29:32 Speaker 05 globally to replace the US consumer.
29:34 Speaker 04 A little earlier, you mentioned the iPhone is an easy example for people to wrap their heads around when it comes to tariffs. In whatever scenario we land on, if the United States tariffs smartphones shipped from China, the components to make the smartphones, or whatever it ends up being, the iPhone will be more expensive. But the iPhone is already expensive, right? It's just interesting to me because at the high end of the smartphone market, particularly where the pro phone sit, it feels like the customers of those kinds of devices will just eat the marginal cost of whatever tariff increases get baked into the price. We're actually already seeing this in the TV market. Sony just raised the prices of its most expensive TVs, it appears, in the United States, by $500. They're going to sell every one of those TVs. Those are the most expensive TVs you can buy. They were already selling every single one of those, and those customers are just going to pay the extra $500.
30:17 Speaker 04 It feels like the low end of the market is where the customers are going to be most sensitive to these price fluctuations and these price increases. Is that something you can see already? That it's the, it's the smaller goods, the cheaper goods that are the most affected?
30:30 Speaker 05 I haven't seen the data myself, no. I'm not saying it's not to be out there to be seen, but from where we sit, we're not necessarily seeing the final sales data yet. It is about the margin, though, so the higher the margin is, the less percent that it matters on the tariff. So yeah, in that sense, it's really about margin than it is total dollar spent. It's like if you're marking the thing up 5X or 50X, like some Nike sneakers or whatever, then who cares if your cost goes, you know, you sell a $5 product for 100, it doesn't really matter if it goes from 5 to 10, like you could, okay, now it goes from 100 to 105. Whereas if you're a 5% margin business on the goods, now you got to mark the price
31:12 Speaker 05 up 2X, basically. So that's the ultimate question here is the high-margin businesses will be less impacted than the low margin.
31:20 Speaker 04 I ask that question because I've been dying to ask you about the de minimis exception. You have entire companies here like Shein and Timu that basically have built their business on this one tariff exception that has existed, which you mentioned already. If the package is worth $800 or less, it's going directly to the customer. You don't have to worry about any of this. That's going away. That's a lot of volume from those two companies, right? They're sending a lot of things to the United States all the time. TikTok Shop exists. It's sending a lot of things to the United States all the time. It just seems like enforcement of that volume might cost us more than it's worth. Like, that whole thing might get wiped away by the de minimis exception disappearing. Do you see that already? I mean, you must see that volume coming through. Do you see that
32:04 Speaker 04 as being basically existential risk now if we start actually enforcing it?
32:09 Speaker 05 Existential to who?
32:10 Speaker 04 To Shein, to Timu, to American consumers who love cheap stuff?
32:14 Speaker 05 Well, there's something I have to start paying duties, and then it's TBD whether the products are still affordable for people. They still like to buy it. Duty is not the only thing that makes those business models work. They have a just-in-time inventory model, so less inventory holding costs of cargo sitting on the water and sitting in warehouses. That gives them advantage. They're doing fulfillment, pick and pack labor in China or in Asia, which is much cheaper than the US. The real estate cost is cheaper because they're not renting warehouses in the US. Their last mile costs are lower because they're flying in to an airport that's close to the final customer instead of having to truck it all over the country coming from an ocean port. So they have a few advantages there. And then I also think these guys are good at sourcing goods cheaply, better than.
32:59 Speaker 05 You know, your brand name, American company that has to go source. So they're they're they buy a little bit cheaper. They scale lets them buy cheaper. So I don't know that the tariff alone is enough to derail the business model, but certainly they're gonna have to start paying their duties. And then they have a lot of there. There's a lot of challenges like not just the duty rates are higher. Customs inspection rates are going to go up. So some percentage of your packages won't arrive in three days. They'll arrive in three days plus two weeks as it goes through a customs inspection process. Customs requires more data on these products than in de minimis world. So they've got to go do a whole bunch of work to gather that data on every factory, where it's coming from.
33:41 Speaker 05 For compliance data for all the different government agencies that might take an interest. So jury's still out. We're gonna find out over the next month what happens and to consumers. How to consume. We no one knows how consumers are going to respond to the higher prices. We don't really know.
33:57 Speaker 04 I've always wondered about the the actual enforcement of that exception. How do you know if it's eight oh one versus $800?
34:05 Speaker 05 Just declared.
34:06 Speaker 04 Just the honor system?
34:07 Speaker 05 Yeah.
34:09 Speaker 04 Is there any? Is there? I mean, that always seems nuts to me, right? We're just letting this happen on the honor system. Was there any enforcement in the past of people lying? Of companies taking advantage of the exception?
34:20 Speaker 05 Um, less so on the valuation front. How many orders on Timo were over 800 bucks? You're going to kind of.
34:27 Speaker 04 Everything on Timo. Just one of everything.
34:29 Speaker 05 You and I live very different lives.
34:34 Speaker 05 How many $5 pair of jeans do you need? You know, actually, the bigger thing that I'm surprised the Trump administration hasn't touched and that I'm pushing. The thing I'm pushing the hardest for, if they're listening out there, because they're not going to listen to me. I don't like duties. They're bad for my business. Probably people just ignore me on that front. But the piece where I think. The government, this administration should be focused on that haven't seen anything is on what we call foreign importers of record. So in the United States, you don't need to be a US company to import goods. And not, I don't even mean like, you don't even need an entity in the United States. You can just import stuff as a foreign company and
35:16 Speaker 05 sell it on Amazon and you have no US entity at all, no employees for sure, but not even a legal entity. So that if you're caught committing fraud by US Customs, these companies just disappear. And there's no enforcement, no going after them. And so, yeah, as the duty rates go up, there's just a huge incentive to lie about the valuation or the classification of goods to get a lower duty rate code. And there's no consequences when they get caught. And Amazon actually allows them, I understand, to keep their, there's not a sync between Amazon and Customs so that they can keep their account on Amazon and keep selling the goods under, you know, they get a new shell company and import the goods under a different name and keep the thing going and
35:58 Speaker 05 keep their reviews and everything. So that's the one that I think the government really should focus on is like, is it puts American companies that are, and any company that's paying, that's honoring the law and saying, all right, this is the duty rate, I'm going to pay my taxes successfully. It puts them at a huge disadvantage for being law abiding while, while other companies can be fly by night and just disappear.
36:19 Speaker 04 Yeah, I'm very curious to see how much actual enforcement gets increased here.
36:25 Speaker 05 Yep.
36:26 Speaker 04 In the previous regime, maybe everyone complained that there wasn't enough enforcement, too much stuff was getting through legal and illegal. Now it seems like we have a system that requires a lot of enforcement to work, right? Where you can't just read the label. That's directly related to what you all do, right? I mean, that's being the customs broker, that's making sure the packages are getting through on time. What does that system look like now at the port? Is it just a guy with a scanner? Is it an automated system? How does
36:54 Speaker 05 They inspect some percentage of shipments. They're not exactly open about what percent get applied for customs inspection and it'll be very different. So if it's your first time ever importing something, your inspection rate goes way, way up. And if you've, and if you've imported the same thing over and over again, your inspection rates come down. And if you enroll in this program that Flexport's enrolled in called the Customs and Trade Partnership Against Terrorism. It's kind of like TSA pre or whatever for a custom. You can still get flagged, but you're right. That's like a post nine 11 program they built. And that's how it is. You get flagged and if you're flagged, you must be able to present those goods to the customs officials. And often it'll be flagged before it leaves the port. So they they take it over to a x-ray, you know, a process where they x-ray things or open it up and go inside and look at it.
37:38 Speaker 05 And those inspection rates are high. They're higher than ever before right now. I understand that CBP is one of the only departments of the government that's going to get an increase in headcount as they start cutting headcount everywhere else. And so, yeah, unfortunately, they're going to need it if they try to ramp up enforcement on all these things. They're going to need more headcount.
37:58 Speaker 04 Do you think they have enough right now, just from a capacity standpoint, a bandwidth standpoint?
38:03 Speaker 05 Um, I doubt it, given that they basically weren't inspecting very low inspection rates on the de minimis program. And just to give you a sense of how that thing scaled, 10 years ago, there were about 100,000 packages a day imported under the de minimis regs. Last year was 4.1 million a day. And so they just haven't had the capacity to keep up with that from an enforcement standpoint of inspecting, you know, all of a sudden, you know, you're inspecting 1%. It's just like they can't keep up. So we'll see how that switches over to formal entry process. And if the formal entry inspection rate, which I think is kind
38:44 Speaker 05 of like around 1% of packages get inspected of shipments, then it's a lot of new inspections that are going to ramp up. And I kind of doubt they have the headcount that they need to do that.
38:55 Speaker 04 Do you think they could ramp that as quickly as they need to? You know, even if they said, you've got a new budget, you're going to hire twice as many people. Is that enough people in enough time?
39:04 Speaker 05 I don't know. I'm not close enough to the problem. I haven't, I haven't, I haven't seen anything from CBP on that.
39:08 Speaker 04 I'm just curious because the reason I ask that is because, again, famously, you were like, just stack the containers higher, like, create more capacity in this part of the system to ease this bottleneck. And it does feel like we're staring at another bottleneck.
39:20 Speaker 05 There's probably something, I agree with that. There's probably some low hanging fruit in terms of technology that you could put in that, you know, we only, we only automate one, we x-ray 1%. It seems like, I don't know, we need more x-ray machines. What else is there? I saw, I met a company a few years ago. I haven't kept in touch with them, but they were doing some crazy stuff where they would put a chip in a rat. In the brain and rats have like even a better sense of smell than dogs. And then put that alongside the conveyor belt and it could detect fentanyl. Uh, and then send a signal. And yeah, I mean, there's some, gonna be some crazy future tech that might be needed. And, uh, I doubt they're doing much of that kind of stuff either. So yeah, there's gotta be a role for technology to help.
40:00 Speaker 05 And not, not to mention data science of machine learning to go look for patterns, you know, like the thing that I described of these fly by night entities. That are serving as foreign importer of record and importing stuff. A smart data scientist could probably detect these patterns of like, hey, this company disappeared and then this other one showed up a week later. You know, with similar addresses or factor, the manufacturer name or the product code, like. A lot of that could probably be detected through machine learning algorithms and other quantitative techniques. I don't know that customs has that capability right now and probably doesn't have it in enough scale, given the changes that are happening.
40:39 Speaker 04 If I'm listening to this, I'm an entrepreneur, I'm thinking. Okay, I'm gonna go do some data science to detect fraud at customs. I'm gonna talk to my friend in biosciences and we're gonna make the fentanyl rat, it's gonna happen. That all works if you think that there will be a need for these tools. Down the line, right? That the market will be sufficiently big in the United States or elsewhere. That those businesses will be necessary. But the whole theme of this episode is, well, this might all go away. And I'm just wondering how you're making those bets and those kinds of investment for FLEXWARR, now. People listening to this describing these opportunities should think about those kinds of investments.
41:14 Speaker 05 Hmm. Well.
41:17 Speaker 04 But you're making a 50 year bet on fentanyl rats, like it feels like. You need to make sure that that's gonna be a sufficient budget in the CVP line items.
41:26 Speaker 05 The rats.
41:27 Speaker 04 Worth it, right?
41:28 Speaker 05 The rats should be able to detect other things besides fentanyl. The I think some of these things, you know, are here to stay. Government's going to care more about borders than they have in the past. And that's, that's pretty consistent. I mean, you know, the Biden administration was pretty, they were kind of like open on people coming across the border, but for trade, they were, they increased Trump's duty rates from term one. They didn't decrease them. So I think in the U.S., it's both parties seem kind of aligned on that front. Reasonable bet to make. I think, you know, actually, the bigger problem that I see as an entrepreneur is just like these, they're kind of like a lot of the edge case, a lot of the cases that we have of, we look at this end to end shipment.
42:11 Speaker 05 We're, we're responsible from a factory, a company placing an order to their factory, submitting POs to their factory. The factories become users. So every time we get a company in the U.S., we're getting about 10 of their factories to become users and then executing that, that full transaction from picking up the goods, export customs, loading it on a ship, right? Warehouse where we might consolidate it, but load it on a ship all the way through end to end. We look at that full end to end and then anywhere in that chain, we can go, oh, look at this, here's an application for AI. We can take away this little, small detail that might only save two minutes of labor, but multiply it times a million shipments. It's like worth doing, but maybe not worth creating a whole startup around. You wouldn't even know about that problem.
42:53 Speaker 05 It's kind of nuanced and it maybe is too small to create a, create a whole company around. So that's where we like our position in that sense of like, there's a million little things that we can go and automate and problems that we can solve that aren't maybe no one would ever know about that problem and wouldn't be worth, they're not market size, not big enough for a, a whole company. So, yeah, it's hard to figure out this. It's also why I don't think you're going to see 18 year old kids straight out of high school build successful supply chain tech companies because you need some real world experience to actually see the problems upfront. They're smart enough, they just won't have seen it.
43:30 Speaker 04 We need to take another quick break. We'll be right back.
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45:15 Speaker 04 We're back with FLEXPORT CEO Ryan Peterson. For the break, we're talking through some of the actual on-the-ground consequences of Trump's tariff policies. For instance, what the future might hold for companies like Shein and marketplaces like TikTok Shop and Timu that have historically relied on the de minimis exemption to ship tons of cheap goods to American consumers. Or how you might even enforce some of these rules, given the sheer scale of exporters that want to reach the typical US buyers. We also talked about fentanyl rats, which was a first for us here in Dakota. But there's much bigger picture here and one that really gets to the heart of what we think might be going on: China. This trade war looks increasingly like Trump's tool for punishing the Chinese government and the Chinese economy, and trying to tilt the balance of global trade in a way that
45:56 Speaker 04 decouples the US and its presumed allies from the world's biggest economy. As you might imagine, that has some profound consequences. So I wanted to ask Ryan about that and get his take on what he thinks will happen to manufacturing trade in the global supply chain if we stay on this current path.
46:13 Speaker 04 You mentioned borders. It seems like borders are going back up. This brings me to China pretty inevitably. It seems like changing the terms of our trade with China has been the goal of both administrations, Biden administration and the Trump administration. The terms are changing even more dramatically now. I think if Trump could say nothing was manufactured in China and all of it was being made in Kentucky, he would just write that EO tomorrow. He can't do that right now. But as you're saying, you're seeing increased shipments from Vietnam for the first time ever. Where else are you seeing that manufacturing move to? Is any of it moving to United States or is it moving elsewhere in the world?
46:49 Speaker 05 No, I mean, US has been, US is a major manufacturing center. Before, you know, I might have said earlier, we don't make anything. It's not true. America is one of the biggest export markets in the world. We export a lot. We do make a lot. We're one of the biggest industrial producers in the world, too. But as a trend, what you see is manufacturing shifting always to low, water flows downhill and you're looking, if you're looking for cheap labor costs, that's not the US. And it's not China either, by the way. So if it's just cheap labor, that's largely moved to places like Vietnam, Cambodia, Bangladesh, Sri Lanka for apparel. India's growing quite fast. And then parts of Latin
47:31 Speaker 05 America as well. So these policies are making it more difficult for US manufacturing because of two things. I mean, they import machines and a lot of those machines are not made in America. And if no one makes your machine, you just got to import it and pay the duties and therefore your costs are going up. A lot of the machinery is made in Germany. And second is labor components, you know, these supply chains are quite global. And so you want to buy your component from somewhere else. And now you can set up a foreign trade zone in the U.S. So that you could import and make your factory a foreign trade zone so that you don't pay duties on these things and you can process it inside the foreign trade zone.
48:14 Speaker 05 And then if you're exporting the goods, never pay U.S. duties on the way in. So that's going to be more and more popular, more and more common. That's a service that Flexport offers is to help you get your factory turned into a foreign trade zone. But in general, that's a pain in the butt. And so people are just gonna, if they're given a choice and they have, like I have a friend who has two factories, one's in Europe and one's in the U.S. He's going to shift manufacturing to Europe for the global market because he doesn't want to pay duties on the way in for components. And Europe's not making him do that on Chinese components. So it's, the policies are not really designed as far as I, well, they're designed to generate reindustrialization. I don't think that's the result they're going to achieve.
48:58 Speaker 04 Yeah. That piece where it's factories outside the United States that actually boom feels like a small trend. It's right, there hasn't been enough time, there's not enough data to actually call it a trend, but we've talked to several hardware manufacturers who say, look, I'm investing in Mexican production, right? I'm going to invest in production elsewhere because my components can at least come to these countries without all these extra duties. And then on final imports in the United States, I can just pay the final tax. I'm not managing all these different supply chain risks. I'm going to a place that allows me to just deal with that and then I can deal with it once entering the United States market. Are you seeing any glimmers of that in terms of where things are going to like what factories from different places where the components are being built?
49:44 Speaker 05 Yeah, I mean, it's a long run trend of companies diversifying away from China also because of Chinese labor costs. I mean, China's done great, their workers make more money and now it's more expensive. So if you're in China, it's not for cheap labor. You see that moving. The interesting question right now, as Trump's given these countries 90 days reprieve from the reciprocal tariffs.
50:06 Speaker 04 Do you think they're reciprocal? Everyone has to call them reciprocal because that's what they say. Do they feel reciprocal to you?
50:13 Speaker 05 Yeah, I mean, it's a reasonable case. I mean, a lot of these countries do have, they're saying it's not reciprocal on their tariff levels. It's reciprocal on their whole package of industrial policies. And on that, I think there's some reasonable grounds to stand on that like, I mean, look at Vietnam, their currency has depreciated the last five years, even as the amount of trade and it's boomed. I mean, in a normally functioning economy, the dong would have appreciated, not depreciated. So there's clearly some industrial policy going on. I mean, Korea was a famous one. In the 60s and 70s, Korea adopted a national required six-day work week mandated by a dictatorship. Well, that's not like really fair.
50:58 Speaker 05 Like, we're giving our people the weekend off. So there's some cases to be made here. I don't really care about the language of it all, but he's given them 90 days. Now we're like 80 days left, right, to make a deal. And I suspect a big part of what the deal he wants is, hey, you have to put barriers up against Chinese goods coming into your country if you want access to the US market at a low duty rate. So we're going to see, I think it's too early to assess the landscape. And people who are making, just creating this paralysis because you're sitting here going, I can't make any decisions. But you also should avoid declarative statements about what, you know, what the result of all this is and what it means until we have more, until some of these deals get negotiated. And I don't know, I'm trying to withhold some judgment and remain calm, even if I think,
51:43 Speaker 05 I see them making some stuff that if it ended in today's structure, it would be pretty bad, borderline catastrophic. And, but that's why I sort of believe that it can't end in this state. It's just like, can't be that this is the plan. Maybe there's no plan, it's a bunch of idiots, but I'll try to give them more credit than that.
52:00 Speaker 04 There does seem to be the whiplash every day or two days between, these are the tariffs we need to make America great again. We're going to be so rich because of tariffs. The consumer won't pay them, the countries will pay them, we've got to do tariffs. And then we're walking the tariffs back, art of the deal, this was just a negotiation tactic. Trump is a brilliant negotiator. That just... Love him or hate him, going back and forth between those two extremes seems not very stable for anyone to do business in as an environment. Which, where do you think this should land? Right? If you, if you had to end it and say, okay, here are the deals. I'm doing art of the deal. Here are the actual deals that need to get done. How would you draw them up?
52:44 Speaker 05 Yeah, I mean, remember, this is negotiating style. I take a very extreme position. Therefore, there's room for compromise because there's an extreme position, but then act incredibly unpredictably, radically to make it, the other side doesn't know what to expect and make a deal. I mean, that's like kind of Trump 101. It's really interesting because they're like, on the one hand, they really would like to see industrialization and re-industrialization, so jobs coming to America manufacturing. On the other hand, talking about negotiating free trade agreements with other countries. Well, it's like, wait, I thought trade was bad. Why do we want a free trade agreement? So I don't get it. So my perspective, I'd like to see more free trade. Everybody trades equally with, you know, just like really open markets and government less involved in the economy. But that's classic libertarianism,
53:27 Speaker 05 which is pretty naive. We don't really get to work in an environment where the government's not involved in the economy. So yeah, it depends whose perspective you're looking at. From the, from a regular, from the perspective of a business, you want low barriers to entry and cheapest, low barriers to trade and let me buy my stuff from whoever makes it the cheapest. From the US strategic interest standpoint, probably that's quite different. You want products made in America so that if there's a war, we have factories that we can convert to industrial, you know, wartime production. I don't, I haven't put enough time thinking about it from that lens. I'm always thinking about it from the lens of our customer.
54:04 Speaker 04 Let me ask you about the United States customers, and I have one wild card question to ask you at the end. You have customers here in the United States, they're obviously shipping internationally, right? That's part of the growth story for Flexport. It occurs to me that a lot of these tariffs are premised on the United States being the most desirable market. Right? We're going to raise the barriers of entry, and you're going to want to be here anyway, so deal with it, figure it out.
54:28 Speaker 04 The flip side of that is other countries are retaliating against us by raising their tariffs or protecting their markets in different ways and that manufacturing facility in the United States that want to export, brands in the United States that want to export are gonna feel that pain just as much. You've alluded to it several times now. Are you already seeing that in outbound shipments?
54:47 Speaker 05 Yeah, we're seeing it more anecdotally right now, but definitely, you know, I talked to a company that makes products in Los Angeles. I was kind of surprised they still manufacture these type of things down in there. Well-known brands, I don't want to share too much about what they do, but make their products in LA and they've said that it's actually really, I was like, oh, you know, maybe it's helping them, but they felt that American-made brands has a real tarnish on them and that people in Canada and in Europe are not buying their products as much right now because those countries don't like American-made right now. It's not a good reputation to have. And that's to say nothing, that's just branding. That's to say nothing about tariff barriers as they kind of get into these escalating trade wars
55:30 Speaker 05 with other countries. So, yeah, it's gonna hurt American exporters for sure, just the ability to export. And then that's on top of adding duties to component costs and other things. I mean, these guys, I think all their components come from the US too, but in a world where you're paying duties on the import, their machinery is made in Germany, but they're not having to import that. They already have their machines. But if they have to build up a new line, it'll be expensive.
55:52 Speaker 04 You mentioned that the strategic national interest the United States are at play here. The last time you were on the show, you talked about the United States needing to treat its ports as strategic assets and manage them better. It's been something you've been talking about for a long time. So this brings me to the absolutely bizarre side quest here of the Panama Canal, which the Trump administration has just said it wants in the same way that it wants Greenland or Snack or whatever it wants day-to-day. Do you have a sense of what is happening with the canal, why it became such an issue, whether that can be resolved?
56:27 Speaker 05 Canal, the government of Panama, well Jimmy Carter gave him back the canal for a dollar, I think. And it was, it used to be autonomous territory of the United States, similar to Puerto Rico or something like that. It was, it was a part of the United States until Jimmy Carter gave it back to them. And they, under the terms of the treaty, they're not to turn over sovereignty of the canal or canal zone to other countries besides Panama. And Trump administration, they, they did, they leased the terminals, the ports at either end of the canal. There's these two ports, one on the Atlantic, one in the Pacific. They leased them to a Hong Kong company owned by Li Ka Sheng, the richest man in Hong Kong. So Trump administration feels that that's controlled by China,
57:13 Speaker 05 and therefore is a violation of the treaty, under which we turned over the canal back to Panama, and wants that to be in the hands of American companies at least. So he negotiated, there was a deal that was set up for Li Ka Sheng to sell it to BlackRock, consortium by BlackRock and MSC, which is actually a Swiss company, an Italian company, but they moved to Swiss for a length of their headquarters. Then the Chinese government, my understanding, just from reading about it, Chinese government didn't like that deal and blocked, is currently blocking the sale, which I think Trump is going to lean on and say, well, see, it's definitely controlled by China, the fact that they can block this sale. And so there, the US government is basically saying,
57:54 Speaker 05 hey, you gotta put these in the hands of an American company, or we're gonna do it by force in some way. So yeah, that's my understanding of the current state of the Panama Canal. It's not the canal itself, it's the ports on either end of the canal that are in question.
58:07 Speaker 04 Is that affecting the volumes you're seeing your customers put through the canal? Has that affected its operations?
58:11 Speaker 05 No, it's, it's functioning normally at present.
58:15 Speaker 04 Yeah. It feels like the deal with China has a lot of weird external factors in it, right? You're blocking the sale of this port on one end, and then the ends of the Panama Canal, we want you to sell TikTok and you won't sell it. You're mad at JD Vance because he keeps running his mouth, and the tariffs are at five billion percent. Do you think that we can get a reasonable deal with China that wraps it all up? Or do you think we have to portion it, parcel it out?
58:43 Speaker 05 I don't know. I, I think there's gotta be a deal just because both sides need it so badly.
58:50 Speaker 05 I don't know.
58:52 Speaker 05 But I don't know if the both sides know they need it, you know, there's a lot of ego involved. It's actually one of the biggest problems of negotiating a deal is their styles are so different that Trump wants to make the deal himself, mono a mono, you know, top to top. Xi and Trump sit down and make a deal. I don't think that that's the Chinese style. The Chinese, just culturally, the Chinese style is, hey, this gets sorted out at the lower levels and then we come and it's a formality, the leadership shaking hands on the deal and too much risk to have the leader lose face if a deal falls apart and it looks bad. This isn't a statement on Xi Jinping. It's just broadly Chinese culture, the way, the way deals get done. I just don't see Trump allowing this such, this important,
59:37 Speaker 05 you know, to get solved at some lower level than himself. Probably has to. I don't think that you're going to get to a place where Xi and Trump sit in a room and negotiate this one to one. Maybe, maybe that'd be great for the world, but I just don't know that that fits with the Chinese style of negotiation. That's to say, nothing of all the terms, you know, and where's the middle ground for a negotiated settlement? What are we actually trying to get at? Probably that it's around currencies at the end of the day and requiring that the Chinese allow their currency to appreciate is probably the place that the government, US government will want to push on the most. That'll make their exports less attractive. It'll make our imports into China more attractive if
1:00:19 Speaker 05 their currency is more valuable relative to the dollar. There's not going to be a settlement on Taiwan. We're not going to see eye to eye there. What else does the US want from them? I don't know. Some things around guarantees on IP protection or something that they're not going to, they might agree to it, but haven't really admitted to a company stealing. All the allegations the US has against them, they don't admit to them in the first place. So what's the value of making a deal on that? But yeah, probably currency, maybe some commitments to buy more American products. I don't know, though. I don't, I think it's more of the, that hands being tied for the US government rather than there's a deal that they really want to do. It's more just like, there's going to be at some point a realization that the mass unemployment that comes from cutting off the US companies
1:01:02 Speaker 05 from buying Chinese goods like is, is so painful that they can't politically survive it.
1:01:08 Speaker 04 I do want to ask you this last question. You are a very unique person, talked about all this. You're a software CEO. SoftBank is one of your investors, right? You're very much part of that class of entrepreneurs in America. But you're also on the ground, right? One of the reasons I always enjoy talking to you is you can see the problems in the real world, moving things around and actually making the things and getting them to customers. And there's a real tension between those viewpoints, right? You can see the tension expressed between, I don't know, Peter Navarro and Elon Musk, where just rage tweeting at each other all day long. I mean, talk about solve it at the lower levels and then it's a formality. Like, we're not going to solve it at the lower levels on this side of the ocean. But those are two worlds that don't agree right now, and you're right at the intersection
1:01:53 Speaker 04 of them. Do you think our business community can put the pressure on the Trump administration to get this done on a timeline that makes sense? Because that seems like the lever.
1:02:06 Speaker 05 I don't, yeah, you know, every day that goes by, I mean, we'll see. I think we'll know in the next 90 days. And my view is they have to make a deal much faster than that for this not to kind of derail here and lead to a huge wave of bankruptcies and unemployment. But you know what? Two weeks ago, I thought it was skies falling and then they made a reprieve and said, okay, we're carving out these, you know, we're only doing it on China. So I, nothing will surprise me at this point from this administration. I will not be surprised by it. I'm ready for whatever is coming. It could be much worse or much better than currently, current situation. But unlikely that the current situation is the end game.
1:02:46 Speaker 04 Yeah. I don't know if that was a reassuring answer or not. It was, it was a very pregnant pause. That's what I will say. Ryan, it's always great to talk to you. It feels like we're going to be talking a lot more over the next four years of the Trump administration. Thanks for being on Decoder.
1:03:00 Speaker 05 Great, yeah, great to be back. See you, guys.
1:03:05 Speaker 04 I'd like to thank Ryan Peterson for joining me on the show and thank you for listening. I hope you enjoyed it. If you have thoughts about this episode or really anything else, you can email us at [email protected] . We really do read all the emails. You can also email me up directly on Threads or Blue Sky, and we have a TikTok and an Instagram. Check them out there, at DecoderPod. They're a lot of fun. If you like Decoder, please share with your friends and subscribe wherever you get podcasts. If you really love the show, hit us with a five star review. Decoder is a production of The Verge and part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Statt. Our editor is Ursa Wright. The Decoder music is by Breakmaster Cylinder. We'll see you next time.
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