Jacob Shapiro: Hello, listeners.
Welcome to another episode of Geopolitical Cousins.
Uh, I am Jacob.
Marco is coming.
Uh, this was a really great episode.
We spend a couple minutes welcoming our new listeners, uh, explaining
what this podcast is, why you should continue listening to us
and share it all with your friends.
Then we spend most of the podcast debating tariffs and globalization.
Uh, Marco takes the pro-globalization point of view.
I take the devil's advocate position of the anti-globalization view, and then at
the end we debate each other's points.
Imagine that two people debating two sides of an issue and then coming
together and talking about it.
Um, and then at the very end we talk about Operation Spider's Web, the
Ukrainian drone strike on Russia.
Russia's use of drones in that conflict and what that means about the
future of war and power in general.
Um.
This.
I mean, I love always talking to Marco.
This is my favorite episode so far of what we've done.
It feels like we're really hitting our stride.
I hope you agree.
I hope you share this podcast widely with anybody you think that would
be interested in listening to it.
And thank you so much to the people who write in to give us constructive
feedback, constructive criticism, uh, or questions that you want answered.
Uh, we read everything.
We try and hit everything, and we'll continue to do so.
Or you can email me at jacob@jacobshapiro.com.
I make sure that the emails get to Marco as well.
And eventually we'll set up an email address just for the podcast.
Okay.
Enough of that.
Let's get to the show.
We'll see you at the day.
Marco, how's it going?
Marko Papic: It's, it's going great.
It's going great.
Um, just very busy.
Haven't traveled in a while, so that's good.
So we're not doing this from the road.
Jacob Shapiro: Uh, same with me, but the travel kicks into gear next week for me.
I don't know when you're back on the road next, but,
Marko Papic: uh, like, yeah, like a week and a half from now.
Um, but yeah.
So one, one thing that I thought was good, we do have a lot of new listeners.
Um, maybe it's a good opportunity to kind of restate why you should listen to us.
I actually, uh, yeah, I went to get a haircut, you know, and uh, my guy who
cuts my hair, uh, who is awesome, Jason Laura out there on Montana Street.
Shout outs to this is, this is the hair that he's produced.
Oh, he's gonna be very mad at me 'cause I didn't style it.
Um, so, uh, Lux lab studio over on Montana Streets in Santa Monica.
But yeah, so, um, he was like, Marco, Marco.
We
Jacob Shapiro: just, we just, we just lost all the manly listeners from
the last episode that we're like, oh, you're coming to learn about manliness.
And here we are talking about your hairdo.
Like, come on,
Marko Papic: man.
Yeah.
My, my hair is done at a place in Montana Streets that is, uh, if you
don't, if you don't Santa Monica, you've just lost all respect for me.
But, um, so he asks, why would anybody listen to, you know, like, who's this for?
And so it's not for our clients.
So that's, that's the first thing.
Uh, this is really, we're not here to give investment advice.
We're not here to get really deep into markets, which is what we do for a living.
Um, but my answer to Jason was like, well, it's actually for
you, you're the target audience.
Uh, it's somebody who's just casually, you know, like they're
professional at their own craft.
They spend a lot of time perfecting that craft, whatever that may be.
Maybe you're a hairdresser, maybe you know, you're an accountant, maybe
you're a lawyer, maybe you're a doctor, maybe you're a manufacturing worker.
This mythical unicorn creature that America apparently has lost,
whatever it is that you are, uh, this podcast is really for you.
This is not for investors, which is our normal clients.
And the purpose of this is really just to, uh, give you a sense of what we think
is going on in the world so that we can inform you so that you don't have to go
to some, you know, lunatic on YouTube.
Um, now his answer, his question to me was like, okay, but what makes you special?
You know?
And what makes I think US special is two things.
One, we were trained in the Art of Net assessment.
Uh, weighing all sorts of, uh, variables in order to get to an
answer, uh, on the geopolitical side.
But the other issue is that for the most part, we work for investors.
And the reason that that matters is because our clients just wanna make money.
And that washes us away of biases as much as anything will.
Because what that means is that we're not trying to pick who's gonna win or lose or
who's right or wrong, for the most part, uh, we're anchored by like, Hey, what's
gonna happen in the world so that somebody can make money off of that forecast?
Now, that sounds very callous and Glip, and I get it.
I know it does.
It really does.
But the fact that that is what we do professionally makes us as close to
objective as it gets, you know, it's as it is, it's as close as it's gonna get.
Now, obviously you might say, well, that's a bias of itself, right?
You guys are just focused on how to deliver a future that
somebody can trade off of.
Therefore, you are pro investment ProfIn, world, plural, business world
and like, yeah, that is correct.
And if you are an ardent Marxist, you probably should not listen to us,
Jacob Shapiro: uh, or where you at, or you absolutely should because nowhere
else are you gonna find intelligent.
Uh, sort of materialistic based, uh, interpretations of what's going on in
history, uh, going forward, because both of us were trained in that world
too, and probably took the best parts of that and integrated into our analysis.
But I think it's not about bias, it's about accountability.
Um, the, the, the fact that our feet are held to the fire if our decisions
are made wrong with some of our clients, uh, means that no, we are actually
held accountable when we're wrong.
We don't get to just sell our next book or pretend like the thing that we said
didn't happen and make the next video.
It's like, no, like probably if you or I make a really big mistake, uh, we'll have
to cancel the next podcast 'cause we'll be with our clients for the next three weeks.
Like backing out of the mistake and understanding, uh, what is coming next.
I was actually talk my, I was talking about this with my wife last night
'cause she said jokingly to me, I don't understand 90% of the stuff you
guys are talking about on the podcast.
And I said, thank you for telling me that.
'cause then we're actually doing it wrong.
It is meant for you to understand it like we are trying to be.
Entertaining without dumbing shit down.
So we wanna explain things plainly so that anybody out there can listen to things.
And then also we wanna make it a little bit entertaining.
A lot of the analysis in this space can be very dry because
it's pretending to be objective.
Whereas you and I are comfortable that we're objective because we know where our
money is printed and what's gonna happen.
We don't need to like put on a tie and say all this stuff to be objective.
Um, well that, yeah.
Jump in.
That I can tell.
You wanna jump in?
Marko Papic: No.
Hold that thought.
I think that's also important.
Uh, I don't wanna be a member of the cfr.
I couldn't give a shit.
Yeah, I don't wanna, I don't wanna, uh, I don't wanna be the under Secretary
of State for Eurasian affairs.
You know, that train has passed.
I work in finance, I work for investors.
That is my bailiwick.
And that's where my bread is buttered.
But it also means that.
You know, we're not trying to curry favor with, um, any administration
or angle for some public sector job because that would, uh, mean a massive
pay cut for both of us, like massive.
Um, so because of that, I think you should listen to us because, uh, this
is as close to objective as gonna get.
I mean, you know, it's as close to a nihilist, you know, zero Fox given
analysis on geopolitics as you're gonna find anywhere out there.
Um, and it also means that we, you know, take both sides or three sides
or multiple sides, uh, and, and keep their feeds to the fire as well.
So, um.
Jacob Shapiro: Yeah.
And I, and I think that's all nice, and I agree with all that, and that's how I,
I put myself to sleep at night, Marco.
But the real answer to this question, the real answer to why you should
listen to us is very, very simple.
Because you like us and because you trust us.
And it took me a long time to get comfortable with the fact that the
thing that there was about me that made people wanna listen to me was that I
engendered trust, that I made people feel like I knew what I was talking about,
and I was addressing their concerns.
About 90% of what you learn from the things that you hear on a daily basis,
you will forget within 24 hours.
Most of the beautiful pearls of insight you hear on this podcast, you will not
remember them, but you will remember how you felt in the moment that you
were listening to them and the entire game here with the guy who's cutting
your hair or anybody else, the reason you, you know, you come for the,
oh, I want the objective analysis.
I wanna stay on top of things.
I can say things, but you stay honestly for some intangible chemistry reason.
Because you like us and it feels dirty to say that, but that's honestly it.
Like that's the difference.
And the thing that you and I are trying to do is we are trying to be
personalities that you can like and that are entertaining, but maintain
analytical and intellectual integrity.
And it's really hard to have both.
The media ecosystem is littered with people who are just gonna
entertain you and tell you stuff and make you feel particular things.
And it's also littered with people who are very, very down in the weeds and
can tell you probably better than us on a lot of the things we talk about, like
all the nuances and things like that.
But combining those two things being entertaining, but like analytically.
Rigorous at the same time.
Like that is the secret sauce.
And I think, you know, our, our humor in making fun of each other and being
willing to take the other sides of issues, all of that sort of plays into it.
But I think that's the real answer to your, your guy.
It's, you know, why do, why do you go to him to get your hair cut?
Probably 'cause you like him.
Like, that's, well, actually probably why you interact with people.
Marko Papic: Yeah.
I'll tell you why.
He's the only guy that, uh, convinced me that maybe I should not get a
buzz cut every single time I go.
It's, it's very funny.
Uh, which is, which is funny thing about professionalism sometimes.
It's not about having the skill to actually craft a piece of
art that makes you an artist.
Sometimes it's being able to convince your patron that that's
the art that needed to be made.
You know?
And I think that that's, that's like next, that's like 3D step of professionalism.
But anyways, uh, enough about Jason Lara, the best hairdresser
on Montana Street in Santa Monica.
And by the way, I. If he's listening to this, like, you know, like,
where's I, I need a discount code, geopolitical cousin, discount code.
But I think it does concern me that your wife said that 90% of what we talk
about, um, she, she didn't understand.
Because you're right.
Uh, first of all, your wife, uh, is, is a professional.
Uh, she knows her stuff.
So we need to, I think, um, I think we need to definitely
heed that, uh, criticism.
To that end, we do have a topic today, uh, that we decided to kind of debate,
uh, and, and we wanna simplify it.
I mean, tariffs, we just wanna talk tariffs, we wanna talk globalization,
we wanna talk trade, um, and, uh, we want to talk about it, uh, in a way
that will be approachable for everyone.
Yeah.
So, um, I, I wanna make a case here.
Um, I, I wanna jump in straight into this and, and I just wanna say
that, um, I. There are ways in which President Trump's policy makes sense.
There's ways in which it doesn't.
Um, is it cool if I just start, uh, my bit here, Jacob?
Or did you wanna set it up in any way?
Jacob Shapiro: I'll set it up just a little bit and we're, we'll come
back to Ukraine at the very end then.
So we'll, we'll move things around a little bit.
So the, the bit that we're just gonna set up is, if you didn't listen to our
last episode, we were talking about sort of the crisis of, of masculinity
and of social economic issues inside of the United States in particular.
And we got an email from a mutual friend, shout out to Tim, uh, you
know, who you are, who is working in a space where he was actually pushing
back and saying, you know, I work with.
You know, a lot of in manufacturing and industrial construction trades, et cetera.
And actually they've seen business pick up to the tune of, in his
words, the most we've ever seen.
And so he was kind of pushing back against some of our views that, you know,
manufacturing that's like the old game.
Like you don't necessarily wanna do that.
Um, and so what we decided to do is take a step back and Marco's really
gonna argue a pro-globalization, like extend, uh, what he's talking
about and talk very simply, you know, what are tariffs, why are they bad?
Like, and then, uh, I have the, I have the, the task of being the
devil's advocate and pushing back.
So Marco, I, I thought what we would do is I might just give you like six
or seven minutes and say, all right, make the case in six or seven minutes.
I'll have six or seven minutes, and then we can like, go back and forth, like make
it almost like a little mini crossfire type exercise, if that sounds good.
Marko Papic: Yeah.
Cool.
No, no problem.
And first of all, I wanna start off by saying here's, uh, two, two
reasons why tariffs do make sense.
So there are two ways in which tariffs would make sense and um, I definitely
would basically support them.
Uh, first and foremost, foremost, national security does matter.
Uh, if you don't have steel, you don't have a country as President
Trump has famously said so.
Sure, yeah.
There are some industries that should be geographically located
within your, uh, country.
Now, the problem with focusing on steel is that America doesn't import Chinese steel.
It imports Canadian, Mexican, Brazilian, and European steel.
So to what extent do you really need to have a steel mill inside of America?
Can it be in Ontario?
Can it be in, um, you know, Puebla?
Probably can.
Um, so I think that what defines as national security, I. Geographical
location for the United States of America.
Like we know what it is for a country like India that doesn't have power
projection, but maybe for the US it would be okay if those, um, assets were not
located in its country, but in its allies.
Nonetheless, I do think that imposing tariffs on specific sectors that
are critical to the country's national security does make sense.
And that's a conversation that any country can have and can
justify to the rest of the world.
Like, Hey, look, we really consider this a, a priority.
Uh, we want to have some of this in our country.
The second way that tariffs do make sense is to enforce fair trade.
And economic theory tells you that countries that trade
freely with one another should not have massive imbalances.
Why?
Because if you sell a lot of things to another country.
That country ends up having to buy a lot of your product.
Let's say you're really good at bicycles.
We ban cars, okay?
We ban cars, and the number one export on planet is bicycles.
If you export a lot of bicycles, everybody's buying your bicycles.
Oh, you got the best bicycles.
This is amazing.
They have to buy your currency to buy your bicycles.
Your currency rises in its values, wages in your country rise because
you're making so many bicycles, and eventually you become quite,
quite expensive, unproductive and uncompetitive in everything.
But bicycles and other countries start to kind of export stuff to you because
you've made so many bicycles, so many of your people are working in bicycle shops.
Your currency has appreciated.
And so if, if globalization was fair.
If everybody had access to free markets, you shouldn't have the kind of trade
deficit the United States of America has.
That should not exist.
But the reason it is exists is because major competitors of the us, including
China in particular, have used things like capital controls, currency manipulation,
not like it sounds so, uh, evil manipulation of currency, but effectively
the Chinese have made it difficult for you to buy their financial assets.
If you buy them, you can't really leave them.
They've, they've made it a little bit easier to, I mean, a lot easier to be
fair to them, to buy Chinese bonds, but not to really come in and out of their
economy, to transact in their currency.
They don't wantin to be an international, you know, reserve currency.
And part of the reason is that they have not gotten the kind of an effect.
A country with a huge trade surplus would get IE They've suppressed those
costs that come with competitiveness.
The reason I say this is that I do also think that tariffs make sense when you
wanna punish a country for, for not taking on the burdens of competitiveness.
So you can use tariffs to basically tell China, like, look, we get it.
You are really good at making stuff.
However your currency should have appreciated, and also you are supporting
certain industries inside your own country and therefore, you know, like
you don't really need to do that anymore.
It's if, if like, if a really, really less developed country like Ethiopia decides
to put 800% tariffs on textiles so that Ethiopia can have some people working
in the garment industry, nobody should.
Say that Ethiopia is using state aid.
I mean, they're just trying to get some factories in their country and
better the lives of their people.
That makes sense.
But China is no longer a less developed country.
It is in the middle income kind of range.
We've all, well, I have, I've, I've been to many cities in China and they look
like spaceships, you know, like, I get it.
They're still interior China still probably should use industrial policy to,
you know, like help some parts of China.
That's all fine, but it's not where it was in the nineties.
And so it cannot use these manipulative tools to remain competitive perhaps
in industries that it should have lost competitiveness in maybe toaster ovens.
Toys t-shirts should move to other countries around the
world should move to Vietnam.
Maybe even further down the, the line, maybe Laos, maybe Cambodia.
Maybe Ethiopia, those are the next countries that should start
building those low value added goods.
And, uh, and China has, for the most part, manipulated trade and
its capital account and also its currency to, to remain competitive.
And that is where I wanna make a case for globalization In America, there's
this sense that Americans have soured on globalization, although polling
actually suggests that, uh, support for globalization has doubled since 2016,
which is something we can come back to.
Americans actually are not as anti-trade and anti-globalization as President Trump,
but also liberal media often both agree.
There's this, there's this tired narrative that Americans are like
yearning to be in a sweat shop with a, like, you know, like just overalls
and like hammers and glistening sweat.
Just a lot of like 1930s imagery.
So there's a lot of that.
First of all, polls don't support that.
So let's park that aside.
But my point is, when you say that China is manipulating certain things,
or you say there are non tariff barriers to trade in Europe, um, you're not
saying that the US should stop trading.
You are actually seeing the opposite thing.
You're actually seeing, you want more globalization, not less of it.
And this is where a lot of Trump fans, a lot of Trump supporters who do want
to glisten their biceps in some like factory floor, you know, just hammering
away at a, at a widget, I'm gonna tell them that's not what Donald Trump wants.
He actually wants more globalization because a lot of these reciprocal
tariffs are actually designed to get other countries to become fair so that
the trade can benefit all countries.
Particularly can benefit them in those sectors where they're really good at.
Um, and so what I would say is that I think that the US is going to,
uh, um, what, what basically what the, the case I'm making here is
that if globalization is actually unfettered with tariff barriers to
trade with currency manipulation, it will actually produce very positive
outcomes for pretty much everyone.
It will rise all the boats.
So it's not the globalization failed, it's that in the early two thousands
and the 1990s, the US didn't, when it had preponderance of power, it didn't
push other countries to open up fully.
And so that's the irony.
President Trump could both be right, but the outcome that he's gonna get is not
going to be what his supporters think.
The US will not open up manufacturing shops for bicycles.
He probably is not going to increase manufacturing as percent of labor at all.
In fact, if trade is free and fair, the US is going to export a lot of things that
many of his supporters probably believe is for quote unquote Girly Men services.
That's what the US has a huge advantage in and US is going to continue to
crush in exporting its service sector.
That means a lot of software, that means a lot of, uh, banking, insurance, you
know, entertainment, movies, the NBA Hollywood, all sorts of things that
the US is good at is actually not the stuff that, um, his supporters believe
he's gonna bring back to America.
And he's not, because if you actually make globalization work for the US it will only
accentuate things that the US is good at.
Now why don't I think that the US is going to be able to, um, become more competitive
in manufacturing and here because I think there's a lot of things that goes
into being competitive in manufacturing and it's not just being unfair.
Uh, when I think of Germany and why Germany is so good at manufacturing,
uh, first and foremost, they have really good trade schools that educate people
on how to be, uh, manufacturing workers.
But I think there's also a culture, there's a cultural element where there's
a pride in metallurgical professionalism in Germany, in other words, working
in a false fogging, you know, factory is not necessarily seen as a negative.
And, and the reason for that is that healthcare and education are free.
Now.
Now I know I've lost all of our Republican listeners, but just hear me out.
If you have a very advanced and high quality social welfare system going out
and just being a manufacturing worker is not a bad thing because you don't really
care about where your kids are gonna go.
If they're smart, they're not gonna end up in a factory right next to you.
If they're smart, they're just gonna go to a university and it's gonna be free.
So the need to constantly generate high income in order to deliver outcomes
for your family, that consists with middle class, it's not really needed
in a society that has extremely well run social welfare state.
And I do think that that also supports German, Germany and its ability to
be a manufacturing power because if you, if you have the ability for your
kids to basically determine their own future, whether they're gonna be next
to you on an assembly line or not, um.
Based, based on the quality of education of universities, of healthcare, then
I do think you might choose to go to an assembly line and work there.
Just, you know, nine to five shift work and so on.
So I'm not sure if the US can really compete with that, to be quite frank with
you, I think that just throwing up tariffs in order to protect your domestic industry
is going to lead to you protecting your own industry that's gonna work.
You're gonna produce cars that are crap that nobody in the world wants to
build because you didn't gain advantage through productivity, through innovation
and to the quality of your labor force.
What you did is you produced a fake advantage using tariffs.
And so if the US sticks to that strategy when it comes to cars,
it's going to fall behind.
Uh, economists call this import substitution, Google
it, read Wikipedia pages on it.
A lot of countries did it.
It failed.
It fails because it leads to high, lower quality products.
Um, and I think if the US wanted to become a manufacturing powerhouse,
then it would probably have to create a lifestyle, a culture that makes
people wanna be assembly line workers.
And, uh, I don't think that just paying them $60 an hour is gonna do that.
I, I'm not sure that's gonna, that's gonna be enough because the Germans do that.
Plus they have all sorts of benefits that are associated with
just being lower middle class.
Your life is amazing.
You're fine.
Um, so anyways, I'm gonna, I think I'm gonna stop there and I'm gonna
let you cook on the other side.
Jacob Shapiro: Yes, I think you've, I think you, I thought that my task
was gonna be harder, but I actually think in listening to you, uh, argue
the pro case for globalization, I actually understand a lot better why
politically it's hard to make that case because, um, I thank you for spending
the first half of your justification praising the virtues of tariffs.
It seems that even an advocate of globalization can't help but spend
the first part of his argument talking about actually the inherent virtues
of protectionism and tariffs and the very things that we're talking about,
which I think points towards why globalization is actually the wrong way
to think about how the United States should be engaging with the world.
I think the most important thing missing from your full throated
defense of globalization is a sense of.
Context.
You sort of got to it at the end of your remarks.
You talked about when the United States had a preponderance of power, that it
did not open up markets up sufficiently, but this is precisely the point.
The United States no longer has a preponderance of power in the world.
We might argue that the only time that the United States had a true preponderance
of power was from 1990 to 2001.
During that time period, you can say safely, there is no communism.
There is no ism, there is no rival, there is no Jihadism.
There was an 11 year period there where the United States was the
unquestioned military, uh, political, economic, cultural power in the world.
And what the United States said went, if you were Sloan Milovich and your
old stomping grounds, and you went against what the United States wanted,
you got the shit bombed out of you.
And if a Chinese embassy was bombed in the course of that sucks to be you.
China, the United States is doing whatever the fuck it wants.
If there's a genocide inside Rwanda, if militants are doing weird things
inside of Somalia, um, okay, like the United States is not like this, the
United States is going to come find you.
If you start talking about nuclear weapons and you're, you're in the axis of evil.
I mean, that starts to get outside of 2001.
The United States has this role where it's gonna push for you.
And in that context.
Globalization makes perfect sense because you are not afraid of anyone.
There are no competitors.
There is nobody that is coming for you, nobody that can marshal any
kind of attack on your resources.
And it makes sense to restrict access to the most closely held intellectual
property, but to diversify the construction of all the different
widgets that you talked about.
So it's no longer an issue where steel is coming from or where you're gonna get your
bicycle because the Soviet union's gone.
We're not hiding underneath our desks anymore.
And there's a billion Chinese people who wanna make these products for a
fraction of the cost that they could be made for in the United States.
So let's let the Chinese people and all the slave labor in the world make
these things for the American consumer.
And the American consumer gets more money in their pocket.
They get to listen to nineties music and everything is going fine now since 2001.
That is not the world that the United States has lived in.
And because the United States is so generous and magnanimous in its spirit,
it has taken the United States decades.
To wake up to the fact that there are threats, that the 11 years of the giddy
springtime of the bourgeoisie was not accepted by the rest of the world.
The end of history was a joke, so it started with the jihadist and then
Russia decided we want Mother Russia back, and then Xi Jinping came in
China, you start going down the list.
All of these different challenges to the United States, and these were not
just ephemeral passing challenges.
These were true existential challenges.
And at this moment, all of these different actors start taking
advantage of the United States.
The Jihadists did it by taking advantage of US military power.
They wanted the US to come bomb Iraq and Afghanistan so that they could
use this as, as an example of how to spin up, uh, jihadism in their own
region, see the great Satan coming to bomb us and things like that.
Um, Russia taking advantage of its cheap energy supplies, getting Europe dependent
on it, pushing into parts of Eastern Europe, they didn't, knows the west
didn't give a shit about and saying, okay, we'll take this part of Georgia back and
we'll take this part of Ukraine back.
And nobody was gonna care because nobody's, nobody was gonna push China.
Slowly but surely.
Not just manufacturing things and making its population a little bit richer,
but stealing intellectual property and to your point, propping up domestic
industries, violating all the rules of the order that it joined, um, that
allowed it to participate in this process.
It was obviously not a good faith effort.
So we have moved now to a more inherently competitive and multipolar and.
FRAUGHT world where the United States is under threat, where we have enemies
who want to attack us, and if we have enemies who want to attack us, it no
longer matters what price you can buy a bicycle for or how much your iPhone costs.
We need to make sure that the United States can defend itself.
It is unfortunate that the rest of the world could not sign on to US ideals,
but that is unfortunately where we are.
And in that moment, it means that we do have to protect industry in
the United States because we have to make things here ourselves.
It would be nice if a billion chin Chinese people would continue
to make things for us, but we've seen that they can't be trusted.
Look at how they treat the people in Xinjiang.
Look at what they're doing with Taiwan.
Look at what they did to Hong Kong.
This is not a nation that can be trusted, so it absolutely behooves us to come back
and breathe, bring these things together.
As for tariffs, tariffs are very simply a tool in this toolkit.
They are just a simple thing.
They are attacks, and it means that we don't want to import things from abroad
because if you just leave the consumer to themselves and there's a cheaper product
on the shelves from China or from Russia or from somewhere else, they will buy it.
So the tariff means, okay, you're not gonna buy from those different countries.
We're gonna rebuild industry inside the United States when we are looking
back for historical context here.
That 10, 11 years of US dominance is not normal.
We thought it was exceptional.
We thought it would continue on forever, but most of the history of the 18th, 19th,
and 20th century shows us that actually you need a form of protectionism in
order to become a great industrial power.
Think of Great Britain from 1760 to 1840.
What was one of the first things the British government did?
Once it realized that the Industrial Revolution was upon it, and that it had
fundamental advantages over France and other countries, it forbade the export
of machinery and other things that were critical to the industrial revolution
so that it could capitalize on that opportunity for as long as possible.
What happened in the United States in the 1890s after the Civil
War and the rise of US industry?
William McKinley, a self-professed tariff man comes to power and protects
us industry so that it, it can continue its ascent along global value chain so
that the south can be industrialized after the war, and that leads.
Two US Victory and World Wars One and two, US military power was defined not by
the fact that we just woke up one morning and could make fighter jets, but because
somebody like William McKinley protected US domestic industry in the 1890s because
he saw the world that was in front of him.
You mentioned Germany today.
Think about Germany.
In the 1930s, we don't talk about this because it's politically incorrect to
do so, but before Hitler tried to take over the world, he was actually doing
incredible things for the German economy.
One of the first things that he did when he became chancellor was erect
tariffs to protect German industry.
Germany was not known as a manufacturing superpower.
Pre 1930s, the British were the ones who made things.
The Americans were the one who made things.
That reputation of German metallurgical genius and manliness happens
because the Nazis build factories and incentivize German companies
to build things inside of Germany.
That's where it happens.
And Germany, of course, went off the deep end in its ideological fervor,
but almost conquered the entire world.
A small country of 50, 60 million people, whatever it was, because they protected
their industry and because they knew they needed to protect themselves.
I think also of the United States in the 1960s and the 1970s, we talk often
about the Vietnam war and social, uh, dysfunction and rising deficits.
And Lyndon b Johnson, what really happened in the 1960s and seventies,
the big success case was the space race.
The United States decided that it needed to win the space race at all costs, and
so it incentivized and protected a US space industry That literally gave us
most of the technological innovation that we interact with today because the
United States government supported it.
So I would tell you that as the person who is speaking pro tariffs
right now, that the main problem with the Trump administration is that
it is not going nearly far enough.
In fact, it is doing a fairly wimpy and.
Namby-pamby approach to how tariffs should be done.
And if I was advising President Trump right now on tariffs, I would say
President Trump, go further and go further, specifically in these ways.
Number one, don't listen to Elon.
Don't listen to Cousin Marco about how you need to be fiscally conservative.
You need to spend more, way more.
You need operation warp speed on ship building and active pharmaceutical
ingredients and bicycles and every other fucking thing, because we can't afford
to have these things from China and from India and from these WY Europeans anymore.
God forbid other places in the world.
We need to build this capacity.
We need to pay the American worker as much as possible that they enjoy
smelting on the floor of that factory.
Maybe it's not 60 an hour, maybe it's 130 an hour, maybe it's 200 an hour.
It's all funny money.
It needs to be spent.
That means also more fiscal stimulus.
Now that doesn't mean ad nauseum.
If you put people.
On the tit forever.
They'll probably stay there forever.
But maybe we say for the next five to 10 years, while we are in an economic
conflict for the existential future of our country, we will have a universal
basic income for the next eight years so that every person can live.
As we go through some of these disruptions, tariffs,
we need more of them.
They need to be higher, they need to be tighter, they need to be enforced
incredibly strictly, because we can't have people get around them.
No, Mr. Nvidia, CEO, you don't get to come to Saudi Arabia and whisper sweet
nothings into President Trump's ear and get around some of these things and
export your chips to China in the future.
Absolutely not.
Tariffs are ironclad.
There is a great wall of America that we will erect so that these products
do not get inside of the United States.
Here's the one that's really difficult for you, Mr. Trump, and
it was, uh, articulated by Steve Bannon just yesterday in a podcast,
you wanna balance the deficit.
You want to pay for some of these things.
Yes, tariffs will pay for these things in the long run.
You know what you have to do first, you have to tax the rich.
And I know you don't wanna do that, but this is an existential
battle for our future.
And if the working man is sacrificing his ideals of what his future was
going to be by going and smelting on the factory floor, then the rich are
gonna have to pay for some of this.
Now, 1890s, William McKinley, there was no income tax.
So maybe we can get to a world in which the income tax also goes away,
in which all these other tariffs and things like that pay for that.
So alongside that temporary universal income, maybe there should be a temporary
income tax that is set at the 60 to 70% level that sunsets in 10 years time.
And then we have no income tax in this country that we are building towards a
better future in this country where we make things in this country in conjunction
with our allies and those countries that wanna do us harm can no longer do.
So.
Last but not least, the problem of universities.
There should be government dispensation to pay for any American student
who wants to go to a university, who wants to participate in either
energy, artificial intelligence, biotech, or any of the trades.
If you want to go to school for any of things, any of those things
in the United States, not only will you incur no debt, the United
States government will pay for you.
That is what the United States government should do.
If you want to go study comparative literature and all sorts of
other fun things, that's fine.
You're gonna have to pay double for the privilege of doing those things.
This is not a liberal arts world that we're living in.
We're living in a real multipolar geopolitical world in general.
And Marco, I'll close my statement with just this.
I know the data says globalization.
The data also said that the Boston Celtics, when they played the New
York Knicks, should just continue to hoist up threes and try and isolate
Jalen Brunson over and over and over again, because eventually the
data was gonna bend in their way.
But that I. That is playing with the lead.
And the United States cannot do that.
If the United States is gonna move forward as the most powerful country
in the world, if America is going to be great again, it has to keep pushing.
Don't be the Boston Celtics and the first two games of the Eastern Conference
semifinals instead, think of the Oklahoma City Thunder, or of the Denver Nuggets,
or any of these other teams that continue to grind, innovate, push, push, push.
'cause if you just think you're gonna continue to hoist up threes and get
slave labor to build your fancy things in other countries abroad, you're
gonna be in for a rude awakening.
When China says, actually this is the Gulf of Beijing.
Ah, mic drop.
Bam.
I did it.
Do you like it?
Okay.
I feel dirty.
Marko Papic: Well, I mean, first of all, the reason it's not mic drop because
it, uh, avoids basic mathematics.
Jacob Shapiro: Oh, you, you wouldn't let things like basic mathematics
get in the way here, would you?
Marko Papic: Yeah.
So, so the funny thing about tariffs is that if you want
tariffs to actually raise revenue.
You have to have Divo levels of pro-globalization.
So if you want tariffs to pay for anything, you have to be more
pro-globalization than a Davos man.
Mm-hmm.
Otherwise they will raise no revenue.
Jacob Shapiro: Exactly.
Right.
Which is why President Trump is not going far enough.
If you unrealistically think that tariffs today are gonna pay for
these things, it's not going to work.
If you're gonna have the, the tariffs, you're also gonna have
to find ways in the short run to, uh, account for the shortfalls
Marko Papic: that Right.
Right.
Well, no, but, but they will never work.
Right.
Because like, again, if the purpose of tariffs is to move production
of widgets and bicycles to the US, tariffs will not raise revenue.
They will move production to the us.
Jacob Shapiro: Exactly.
And then once that production is moved to the United States and we
are growing, uh, at the top line and productivity is booming and everybody
wants our products and there's gonna be paying all sorts of other things,
the case that's, well then there are all other sorts of ways to do this.
Yeah.
Marko Papic: And then that doesn't happen.
Why not?
Because you moved things to the US because you protected
the price level of your goods.
You didn't actually improve them in quality.
And so nobody actually will want your goods.
And the US is 20% of global GDP, which is a lot, but there's
80% of the rest of the world.
And the only way that the US can win in that world is if
everybody else also launches a trade war against everybody else.
Mm-hmm.
Maybe, maybe, maybe in that world, the US market being the largest market
in the world, will still produce enough competition domestically
to produce the best bicycles.
It requires a lot of maybes.
So in other words, this is where the tariff thing doesn't
mathematically make sense.
First of all, if you want to raise revenue for the country, then you
have to continue trading, and that's where the 10% across the board tariff
that nobody talks about anymore.
Jacob Shapiro: Mm-hmm.
Yeah,
Marko Papic: we've all forgotten it.
But the 10% across the board tariff that President Trump also imposed on April
2nd is low enough to, well, for most goods, it's low enough to allow trades
to continue, but that also means that as that trade continues, you can actually
raise revenue by taring that trade.
If you impose a 40 or 30% tariff on goods, goods will not come in.
You will not raise any revenue.
You cannot impose a tax on a transaction.
That doesn't happen.
So I think that that's where some tariffs can make a difference
from a revenue perspective.
But protecting industry, the problem with protective industry, protecting
industry is that your domestic competitors then don't have any incentive to
compete with the rest of the world.
So if somebody abroad creates a better bicycle than you, you
will never get that bicycle.
And by the way, this, this has happened a lot in American history, for example, why
do American car companies and our friend Tim, actually agreed with me on this one.
So, uh, this, this whole debate here was prompted by one of our listeners
who said, Hey, some good things are happening in manufacturing.
But when I countered that tariffs would eventually lead to a complete
destruction of American car industry, he did not really disagree.
One of the reasons that American car companies produce absolutely terrible
vehicles that nobody in the rest of the world wants to drive Facts.
The reason is that they, they, they've just overproduced pickup trucks because
throughout the history of the US there's been ebbs and flows in protectionism of
the car industry, and the car companies became quite uncompetitive globally.
They're also perfectly fine with the domestic market.
The domestic market, as far as they're concerned, is big enough.
Trucks, pickup trucks have higher profit margins than sedans, and so they
just became a pickup truck company.
They cannot build a sedan.
American car companies have lost the ability, the technological ability
to build a sedan, and that's what happens when you become overly
indexed to a particular marketplace.
Another example of this is washing machines.
When I first used moved to the US in 2000 and uh, six, I was like
frustrated by this obsession with top loading washing machines.
I was like, this is idiotic.
Why?
Because side loading, washing machines are more efficient.
They wash clothes much better.
You're not just sitting there in that shitty water and uh, and they're
just like better pieces of equipment.
And then what happened?
Lo and behold, today you can't even buy a top loading washing machine and lights.
You look for one.
This is technology.
We in Europe, in Europe had in the sixties, Americans were just like,
nah, we like top loading 'cause I don't wanna bend or whatever.
The point is, if you become overly focused on your own domestic
market, you can miss innovation.
It can just pass you by.
That's what Terrace would do.
Now, a couple of things that I would disagree as well.
The main premise, your main premise, but also of those who think that
this moment is gone is this idea that if something doesn't work and
you keep doing it, you're an idiot.
Right?
Like the Boston Celtics with the three pointers.
So from 1990 to 2001, US had preponderance of power.
It missed it.
It's over.
That moment is gone.
That's a really, really interesting argument, Jacob, that it's not just
Stephen Bannon who would argue it, it's also many on the left and may
many establishment and centrist say, look, we missed the moment.
I think that us still has something going for it that is really powerful in trade
negotiations and its access to its market.
Mm-hmm.
Because it's the largest market in the world still.
And so, no, I do think that the world can still be improved in terms of
efficiency of trade, uh, but again, not necessarily for American manufacturing.
This is where I do disagree with your, your counter, with our friend Tim.
Definitely with Steven Bannon not for American manufacturing.
I don't think that's where the advantage is.
I think the advantage is in services, but here's why I don't care.
Your example of United Kingdom, uh, in the early 19th century preventing
export of industrial machinery.
I love it.
Deep reference.
I. Also, it didn't work at all.
Jacob Shapiro: No, it didn't.
It never worked.
No.
What do you mean it didn't work?
No, it didn't work.
It did work.
No, it didn't.
They won, they won the Industrial Revolution.
Marko Papic: Uh, no they didn't.
Sure they did mean they didn't.
The Industrial Revolution spread.
In fact, British, the United, yes,
Jacob Shapiro: it spread, it spread
Marko Papic: more slowly as a result by 1871 No, but, but 1871 Germany Unified
by 1890, it was basically Oh, yeah.
Jacob Shapiro: Out producing.
But that, so, but that wasn't the time period.
I was talking, I was talking about from 1760 to about 1840.
Like that was the, and really British protectionism really starts to kick
in at the end of that cycle because they realize things are pushing on and
they want to extend the window of the empire as long as possible, but Right.
But it starts, the power starts with being able to manufacture things in your
own country better than everyone else.
And that's what allows you to defeat Napoleon and blah, blah, blah.
Marko Papic: No, no, no.
But this, this is after Napoleon, right?
Sure.
Like, and I mean, like, like other countries start industrializing.
And they started industrializing.
Yeah,
Jacob Shapiro: I hear you.
The, the, the point I was making there in my, and again, like this is
the devil's advocate, Jake, I'm gonna take, I'm gonna take off my devil
devil's advocate hat here in a second.
But the, the point of the argument was that, uh, the British Empire
does not exist if Great Britain is not at the forefront of
manufacturing from 1760 to 1840.
So I agree with that.
Having a domestic manufacturing capacity is what allowed it to become an empire.
And so you can't put a price tag on building that capacity at home.
Does the math say you shouldn't have done that and done free trade and
traded with Napoleon and everybody else?
Sure.
But when the chips were down and you had existential wars for your survival, boy
was it nice that you made all the shit quicker and more efficiently, uh, more
efficiently and better than everyone else, even if the math didn't work.
Marko Papic: So my point was just that industrialization did spread
and the biggest risk, the biggest risks of preventing technology from
going outside of your country is that you create necessity that produces.
Even greater innovation in the rest of the world.
And we've seen that that was really the reason UK
industrialized in the first place.
It was the fact that the United Kingdom had an energy crisis,
had lost access to trees.
It deforested its own island.
And what happened was coal and then moving coal like necessities,
the mother of invention.
And so that's one of the problems.
Mm-hmm.
The second issue is that we are not in 1820 or 1840.
We're in 2025.
The example of, uh, McKinley leading to America industrial power in the Second
World War is a stretch, my friend.
No, that's not how it happened.
McKinley did not lay the seeds for industrial prowess of
America in the Second World War.
The, the reason that happened is that the US went on war footing on a war economy.
So I agree with the idea that you should retain some baseline.
Industrial capacity and industrial capability, right?
So I, I don't disagree with that at all.
However, when, when war starts, you go into a war footing economy.
You don't have to be producing crappy cars that nobody in the world wants.
You just have to have the ability to produce cars if shit hits the fan.
And that's what's happening in every of these conflicts, by the way.
But, but more than that, I'm not sure that the next war is gonna be
about tanks and aircraft carriers.
We're seeing what's, what's happening in Ukraine versus Russia
is a very interesting example.
Uh, I encourage our, uh, viewers to watch YouTube clips of the
drone conflict that's going on.
It's a lot of small innovation.
Um, I, I quite frankly, I mean, look at Ukraine.
Ukraine, uh, Ukraine.
Listen, Ukraine was definitely an industrialized economy for sure.
The hake region in particular in the east, um, you know, even
dunes with some of the mining.
But like, the reality is that, you know, we're not gonna, like
nobody was buying Ukrainian cars.
Ukraine had some baseline level of industrial competency and it
ratcheted that up in a conflict.
But most of the innovation happening on that battleground is not what
it, it doesn't involve glistening sweat on an assembly line.
It involves small electronic innovation.
And so the drone, uh, innovation is actually what's winning that war.
So I'm not so sure that, you know, you, you need to basically
like reassure absolutely every single piece of manufacturing.
You just have to leave some baseline.
Um, but yeah.
Uh, one thing that I will say is that, uh, where the critics of
globalization are right, is that those early deals from 1990 to 2001, were.
We're onerous for the US.
And one thing I wanna say about that is that there's two ways to think about it.
One is that a hegemon will always negotiate generously, right?
So that's, that's where we talk about naivete.
Naivete of the Clinton administration of the Bush Senior and Bush,
Jr. They were naive, right?
Supposedly.
Mm-hmm.
Well, not necessarily, they were running a hegemon in the greatest
power in of the country, in the world.
So they were going to negotiate.
They, they were
Jacob Shapiro: idealistic and they should have been like we were all
idealistic at that time period.
Marko Papic: That, that's true.
But you are also, you are also the, you are also in charge.
So some country comes to you and says, we want access to the American market,
but we're gonna protect our own.
You're like, eh, it's fine.
Just abide by our rules.
So you negotiate generously and they get a lot of flack for that from the Stephen
Bannons and the anti-globalization.
It's fine.
Like they should get flack for that.
But here's what America didn't have to do.
I understand why America negotiated generously with the rest of
the world, but here's where the actual ideology comes from.
It was when America didn't redistribute the gains of globalization domestically.
This entire narrative that this is somebody else's fault that America
was taking for a ride is ideological.
And I'm sad that you had to sit through 49 minutes to get to the crux of this,
but this is the crux, my friends.
Yes, you too, Steven.
Oh, now you're calling for taxes and they're wealthy.
Okay, buddy.
Now that most of it's probably in some Swiss private bank, shut up.
I'll tell you what the problem was and where the ideology was.
The ideology was not that like America let China take it for a ride and was naive.
No, no, no, no.
Don't sit here and pretend to me that American corporates didn't like absolutely
bathe in profits thanks to globalization.
Don't tell me that this did not increase American GDP massively, or the
America didn't profit the most it did.
We can quantify, prove on any, any metric that the only country that
crushed that period of supposed American Navy TE was America.
America absolutely crushed the rest of the world.
I witnessed with my own eyes, Jacob Shapiro, a line in Ahman
Jordan for McDonald's in 1994.
That was three days long.
The line to eat a cheeseburger was not three hours long, three days long.
I witnessed the opening of first McDonald's in Belgrade, Yugoslavia.
I was there for this, and it was American corporations that
absolutely bathed themselves in cash thanks to the supposed naivete.
So the real question that American public should ask themselves is
not, is not like, how much did Germany take us for a ride or China?
Or why weren't we mean to them?
The real question is, why didn't we redistribute the gains of globalization?
Why isn't my education in this country high quality and free?
Why isn't my healthcare like affordable?
You know, because, because that's the real problem when people
have lost faith in globalization.
You know, like Scott Besant, the Treasury Secretary, I think, or maybe
it was Howard Lutnick, said, look, um, the American dream is not cheap goods.
Alright?
Okay.
I get that.
I agree with you.
I see what he's saying.
Like if goods were a little bit more expensive, that's fine.
But the American dream Dream does mean equality of opportunity and
there was a whole lot of profits and money made off of globalization
in America that never, ever got redistributed to the rest of Americans.
And that is the fundamental problem with the us.
It's not globalization, it's not other countries taking America for a ride.
It's not naivete on the geopolitical foreign policy front.
It's just a fact that fundamentally the ideology here was less fair capitalism
of steroids, where corporates will make the profits and then, you know,
we'll just stay with shareholders.
And if that had been addressed, had that been addressed, Americas
would be perfectly fine with their non-manufacturing low middle class jobs
because they would have public spaces to go to that are nice and green.
It would have their kids going to cheap public universities, and they
would have probably much better access to healthcare than they have now.
Jacob Shapiro: See, I told you the Marxist would like us.
We got talk, got to talking about redistributing American wealth.
And I think in some ways, the original sin of what you're talking about,
the opportunity to do this, and this actually cuts with the auto companies,
is 2008 and the way that companies were bailed out in the context of the 2008
financial crisis by the US government.
Some companies that were bailed out, whether it was automakers or whether
it was, you know, a IG or some of these other, like they should have failed.
And the US government wasn't willing to let them fail.
It wanted the party to keep going.
And in some sense, I think since 2008, the party has kept going even
though at that moment, I think you can forgive Bush Clinton, even second
bush, you know, for, for indulging in idealism during that period.
But by 2008, the writing was on the wall and most mainstream American
politicians on both sides of the aisle wanted to keep playing.
Like the game was still going.
And now the position is where we're now I'm gonna officially take off my, you
know, I, I was doing devil's advocate, full throated defense for Terrace.
That is surprise not what I think.
Um, it's actually fun to argue something that you don't.
I actually believe him.
But there are a couple of things I wanna say, um, to, to what you said.
The first was that, um, I think you're e exactly right, that you actually,
no matter how hard I tried, I cannot defend tariffs or protectionism with
math in the sense that I can't say that it's going to make America richer.
Um, I actually pulled some studies about, uh, president Trump's 2018 steel and
aluminum tariffs doing some work for a, a client on something related to this.
And if you look at the impact of the 2008 steel aluminum, uh, 2018 steel
and aluminum tariffs, which Trump just doubled down on here in the past week
or two, uh, basically they reduced employment in the steel and aluminum
industries in the United States.
Prices rose.
Production rose a couple percentage point, and imports also fell because the
prices for these inputs were higher and put bigger strains on American companies.
So actually in this case, it's an example of how tariffs actually does.
None of the things that you want them to do, they don't even give you the
thing that you think you're gonna get and you're still also poisoning
the well with trust in general.
It's why I say if you're going to make a defense, uh, an argument that
defends tariffs or protectionism in general, you have to move the goalposts.
You have to say, this is not about economic growth right now.
This is about a battle for our lives and this is where your comments about the war
footing thing acts your Very interesting.
Do you know when the first income tax was charged in the United States when
the federal government first levied an income tax on the US population
Marko Papic: 1917.
Jacob Shapiro: 1862.
In the context of the Civil War, the, the North Levies of Federal income tax, it
gets repealed after the Civil War ends.
When McKinley is president, there is no income tax.
Of course.
Yeah.
So from roughly 1873 to 1913 with the 16th Amendment, 1913, no income.
There's no income tax in the United States.
And of course, shortly thereafter, you get World War I and the United States,
to your point, is on a war footing.
So I take your point that, you know, I'm, I'm really stretching there.
I'm doing a lot of downward facing dog, uh, getting from William McKinley
all the way to, to World War ii.
But that said, uh, Woodrow Wilson flips the switch on the war footing, and he
has an economy that can respond to it.
And I think this is the one real kernel of truth, because I think if
you were going to be, if you were gonna flip the switch today, you and I
don't know how to manufacture things.
And most people in this country don't know how to manufacture things.
Whereas our rivals like China will out manufacture us in a second flat.
We can't build an aircraft carrier quickly.
They'll build a thousand drones that'll knock out the one, you know, the carriers
that we have in, that's five seconds.
So like, I think there's this What?
Yeah, go ahead.
Marko Papic: But what you just said is important because the fact that
they're gonna build a thousand drones to our aircraft carrier is not a
function of industrial metallurgical.
Capabilities.
It's the fact that war itself has changed away from those very expensive
platforms that require you to manufacture an assembly line tanks.
Remember when we all debated whether Ukraine should receive Maine battle tanks?
When was the last time anybody talked about Maine battle tanks
as critical to Ukrainian security?
Like that ended with 2022.
By the way, all of those tanks have been destroyed by the Russians, just like all
the Russian tanks have been destroyed.
So the, the, the, the features of war have also changed, and I would say that
the United States of America possesses actually sufficient industrial capacity.
It is one of the largest producers of aircraft in the world.
I think you will continue to need aircraft, and I don't think
tanks and really even ships.
I mean, submarines are very important.
And again, the United States does possess the ability to build the best
submarines in the world, more or less.
Maybe not the diesel kind that are maybe cheaper and even
quieter, but fine, whatever.
But it's really the drones that are happening.
And so that's where I would also go further and say like trying to
preserve late 19th century, early 20th century industrial capacity is not
going to matter for the 21st century.
Jacob Shapiro: Yeah, I take your point there, but, and, and this goes
back to again, you can't defend.
Protectionist policies and tariffs as if you're trying to get something back.
You have to say, this capacity doesn't exist anymore and we
have to build this capacity here.
You're exactly right On, on drones.
And actually, um, this is something that China's experiencing itself,
like some of the scuttlebutt I've heard is that Chinese manufacturing
laborers are losing their jobs.
Not to Vietnam or to Ethiopia or anybody else robots, but to.
To robots.
It's happening in China itself.
Of course.
And you know what?
Of course China's ahead on robots too.
It is, and this is the point where I would push back against you, like when it comes
to where things are made in the world, they are made in China, whether it's
active pharmaceutical ingredients, whether it's increasingly sort of the lower end
chips that you need for semiconductors, whether it's the stuff that goes
into the robot that gets created, all of these things are made in China.
They are not made in the United States.
And the real problem for the United States, this is why I was asking you
that trivia question about income taxes, because I didn't know this myself.
Basically, since 1913, the US has been on a war footing.
We never turned the switch off from the war footing, and we kept on taxing the
population and doing all these other things as if we were on a war footing.
And yes, it hid behind the rising complexity of government
and the Great Depression and the new deal, yada, yada, yada.
But fundamentally, we have been spending to maintain our lifestyle.
That's what globalization, um, actually maintains.
And this is why I'm with you.
I like my lifestyle.
I like that I'm wearing a silly shirt with flamingos on it that
was made in Vietnam that I could buy for $15 because it was on sale.
I don't wanna have to go make this shirt myself.
It's really, really fun.
But if you're going to like, make this argument that we have to make things
inside of the United States, then what you're really telling the US population
is your lifestyle is gonna suck.
And this is something that Trump has said a couple times, right?
He said a couple times your kid, maybe your kid shouldn't
have four or five dolls.
That's right.
May, may.
Maybe, maybe you guys need to tighten the belts a little bit.
Leave aside hypocrisy of that and, and everything else.
Quiet a dial quickly.
Marko Papic: Yeah, he
Jacob Shapiro: quieted down quickly.
But that the, the thing is that like that's the case that you have to make.
That's the, if you're defending all of this, you are making the case
that you're gonna sacrifice your lifestyle, which is absolutely upheld by
globalization in order to have defensive capacity to fight future battles.
Well, just, and you can have, have one or the other, but you can't have both.
Okay.
Go.
Marko Papic: Well, I'm not sure you, you have to have one or the
other People in the 1930s had both.
Again, that's what I mean.
Like, when the war starts, you get on war footing.
You need to retain some minimum level of capacity.
Yes.
That's where I said steal an aluminum tariffs fine.
I mean, your point is like, no, not even fine on that.
But like, let's look, you can protect certain industries in order to retain the
ability, because once the war starts, the question is can you expand the capacity
quickly and what America has proven in the past that yes, it can, it can.
It can ramp up industrial capacity in the 1940s.
The example was with aircraft, of course, started churning
out crazy steam with tanks.
I have no doubt that it can do that again, but
Jacob Shapiro: really that was a long time ago.
And we don't make things anymore.
Marko Papic: Uh, we make, uh, the most sophisticated, the United States of
America makes the most sophisticated aerospace aircraft out of anyone.
Like that's already there.
Yeah.
Jacob Shapiro: We can't, we can't make any of that stuff without importing a lot of
the inputs that go into these products.
Okay.
So that's, we design some of these things and we've had lots of innovation, but like
we can't do that vertically integrated in the United States if we had to.
No way.
I, uh,
Marko Papic: yeah.
I mean like here.
No way.
Jacob Shapiro: There's no way China, with China go look up
and down the supply chain.
We don't do same.
Marko Papic: But again, same with China, right?
They can't produce their main airliner without engines that are produced abroad.
I.
Jacob Shapiro: Engine.
Yeah.
Like engines, they're, I bet you within five to 10 years they will.
Marko Papic: Okay, fine.
Jacob Shapiro: Well, well, look, they, they're, they're on the war footing.
They are looking at all these things happening and saying, we need to
be self-sufficient on these things.
Whereas this government is actually not using tariffs.
The way that I'm talking about, like your point about tariffs with steel
and aluminum, like you can't just say, oh, people aren't treating this right.
We're gonna do tariffs so that we get treated fairly.
No, the, the thing to say is we need to make steel and aluminum in this country.
There is no price we won't pay, and tariffs is a part of that strategy,
but then there's also a whole host of other things we're gonna have to do
in order to rebuild that industry and retrain workers or robots or whoever
it is that is gonna be making the steel and aluminum like, okay, operation
warp speed for steel and aluminum.
You're actually exactly right that the Trump administration is acting very much
in a globalist mindset, like a tariff, a very limited tariff on a very narrow like
band of products that is globalization.
You're saying you have a trade dispute that you wanna solve so that everybody
can go back to trading things.
Marko Papic: United States of America and Europe can absolutely produce aircraft.
Absolutely that Will it require some pieces of, uh,
electronics from Italy or Canada?
Yes.
That's fine.
Right.
Like, it's fine.
The supply chains don't require Chinese products for ASML's, highly
advanced lithographic machines.
Like they don't mm-hmm.
China requires lithographic machines themselves.
Yeah.
Jacob Shapiro: They're, they're doing a good job of getting by on their
own and also like huawe Absolutely.
With all it's chip design and stuff like that, but that's fine.
But like
Marko Papic: they're competitor.
They're gonna get there.
Look, I'm not saying that China's not gonna get there.
I'm just saying that United States of America can absolutely pro produce
an aircraft without China and it can absolutely like find those alternatives.
Again, war footing means, hold on.
What kind of aircraft?
Like a 7 37 or like an
Jacob Shapiro: F 16 fighter jet with all the computer systems that go into it.
Yeah,
Marko Papic: absolutely.
Absolutely.
That's why they suck.
These are like touch screen made in Vietnam.
That's why
Jacob Shapiro: they suck.
Marko Papic: No, listen, look, look, look, look, look, look.
War footing means whatever you don't have in your supply chain, you set
up a factory and you produce it.
And the question is, do you wanna live on war footing or do you wanna like
be on war footing when there's a war?
Mm-hmm.
And so that's, that's the question.
And my question is, and my answer to that question is like, look, United
States and uh, American China are not gonna go to the kind of war where
you're gonna need to churn out tanks.
That's not gonna really be the kind of war it's gonna be over Taiwan.
United States has enough, uh, industrial capacity.
I mean, the United States just propped up Ukraine against a
neighbor that doesn't even have a water between Russia and Ukraine.
There's no, there's no water.
The Russians walked into Ukraine, and yet, somehow, magically, our supposed
terrible industry that's on the dying gasp helped arrest the attack by the
largest mechanized force in human history.
I, Russian, I'll
Jacob Shapiro: push back there again too.
We were, we were using up all the stock that we didn't use in the Cold War.
Doesn't matter, we imagine we were gonna use forever.
What?
Like, we're not making that stuff.
Like we started using, we started sending them different things because we ran out
of the stuff that they needed before.
Marko Papic: Well, then why didn't they come back with more?
Thanks.
I mean, this is like, I'm sorry, I'm sorry.
I'm giving an actual empirical example where the American industry did succeed
in arresting, and you're telling me it's not gonna work next time.
Like, why
Jacob Shapiro: American industry did not manufacture those
things when you needed them.
The
Marko Papic: Javelins did not get manufactured by American
Jacob Shapiro: industry.
Ja, yes, yes, the Javelins, but most of the stuff they sent was stuff that
was sitting in a warehouse somewhere that they, they found use for.
And when they, when they wanted to spin up more capacity for that,
they had a lot of trouble doing.
Marko Papic: They had a lot of trouble until they didn't,
and now they refilled stocks.
I've been listening to this, uh, nonsense bullshit that javelin stocks
are out for the past three years from National securities hawks, and
yet China has not invaded Taiwan.
Well agree with, you know, like, so, so, no, I agree with that.
Again, all of this can be ramped up very quickly.
That's my point.
And the capacity innovation is there and actually doesn't require
that much glistening sweat on the manufacturing line to do the, the,
the empirical example is Ukraine.
That is the empirical example.
We cannot avoid it.
We're not gonna be fighting a war with like tanks going up against one another.
It's gonna be drones, it's gonna be anti-aircraft, uh, missiles.
It's going to be anti-tank missiles.
It's going to be a lot of fighter jets.
And Aax and the US absolutely crushes that.
Now it is falling behind on many other things.
Uh, an America drone costs $30 million.
A Ukrainian one costs $4,000.
Hey, get a hint, right?
Innovate in that lab, but that doesn't require huge manufacturing.
The other issue, the other issue is you, if Americans decide that they
want to live in war footing, then Americans have decided to democracy.
But the problem is that this insidious argument that it, that
the war fighting is already there.
United States of America has enough nuclear weapons to turn China into
parking lots, like 12,000 times over.
There isn't going to be a total war between China and the us.
It's not gonna happen.
We are not in a world of total wars.
We're gonna be in a world of proxy wars.
And yeah, like the US has industrial capacity to clearly protect its vassal
states, as we've seen in Ukraine.
So what it really comes down to is do Americans wanna live this?
And this is where the polling comes back.
Like this is where domestic politics comes in.
And yes, you're right.
The Americans don't want because they're not, what's the word?
Wait, I'm looking for it.
What's the word?
Insane.
The American public is not insane.
Why would you live on a war footing?
Because China is going to do what?
Invade Washington State and Oregon.
No.
And this is all just wool being pulled over people's eyes.
This entire competition with China, so that you don't
have to redistribute wealth.
That is my, that is basically my view.
Jacob Shapiro: Well, you, you know that I agree with that, that part of what
you're talking about, and I'm, I'm playing devil's advocate here still a little bit,
but I, I do wanna push back on one thing.
One thing I actually do think is, I do think the US is to some
extent, already on a war footing.
The, the budget for fiscal, for fiscal year 2025 for DOD is gonna
be, what was it, a 1.9 trillion?
Yeah.
1.9 trillion as I'm Googling it, um, in, in 2024, it's, it's
meant a trillion on defense.
Like that's more than what the next 10, 15 other countries combined.
I love that trope, but then I also wanna take it back to McKinley.
If you look back to 1890, when the US became the world's most productive
economy, um, the United States, its army was less than 30,000 troops.
But wait, hold it.
It's maybe had fewer than 10,000 men in it, like it wasn't spending on
the military like it is right now.
Marko Papic: Well, but the distances were different.
But look, look, look, look, look, look, first of all.
Absolute numbers never matter.
We have to look at this percent of GDP.
And even with the increase in spending now, uh, you know, the US was spending
in terms of percent of GDP, I mean, I'm looking at a chart here from
World Bank, you know, it was a 6% of GDP on military in 1960 went down,
uh, after Vietnam War to a steady state, steady state of three to 4%.
Jacob Shapiro: Mm-hmm.
Marko Papic: We are now at 2.5%.
With this increase, we might kiss 2.8, we're still less than
3% of GDP spending on military.
So now that is about 12%, I think 11 or 12% of all taxes raised.
So I'm not saying that this isn't little, but it's still less than it was before.
So when you say that the US is on war footing and you connected that
to taxation, and then you said like, I understand government has
gotten more complex and all that.
I kind of think that's what it is.
I mean, social welfare costs a lot,
right?
Social security in the US costs a lot.
Europeans by the way, is percent of GDP, their governments are even bigger,
so they tax even more.
So I'm not sure we would say that that's a war footing, but like two point
half percent, 3% spending on defense.
Like is that too much?
Jacob Shapiro: Yeah.
No, I, I agree you, you picked a hole in a very weak part of my, my argument there.
I knew that was weak going in.
But this is actually, there is a, a kernel in here though that
I want to push back against you.
And this actually goes back to the point you made in the last episode about
the big beautiful tax bill, which is, you know, CBO put out a revised, um,
a revised study of, of the estimates, and you've talked about how it was less
than maybe the market was expecting.
But if you look.
There's two things I want to bring up here.
The, the thing that made me think about it is if you look at the spending
increases for defense and the border over the next three years, you're
also, you're actually spending, you're getting big increases on that side.
Increases bigger than the cuts on things like Medicaid to the bottom side.
So you're actually cutting Medicaid, uh, but you're actually paying, paying
for increasing defense spending over this, over this time horizon, which is
like exactly what I'm talking about.
That's a war footing.
Like add in the cost of the Afghanistan war, add in the cost of the Iraq war,
add in the cost of all these things.
What if you had those trillions of dollars just to pay down the deficit, let
alone fix the American education system, fixed, blah, blah, blah, blah, blah.
So that's 0.1.
The second point, and this I thought was interesting 'cause you've talked
about how you know the market was ready for worse with the big, beautiful bill.
Um, the, the spending in this bill is front loaded to 2028.
The cuts only really kick in in 2030 when Mr. Trump is not going to be there, and
it actually increases the budget deficit by almost a percent every single year
going out to 2029 before it drops down.
So I think there's actually, president Trump is actually
telegraphing to you here.
I'm not gonna be here to deal with this problem by 29 or 2030.
Somebody else is gonna have to pass the next bill, and maybe they won't.
To your point, maybe politics will change by then, but I also think when you're
looking at like where that spending is coming, that Trump is pushing all these
different things now, I think that it makes sense to increase spending actually,
but not to increase defense spending and decrease the spending on social things.
Like if you're actually going to protect the United States of America protectionism
and the things you're gonna tear up, you have to make the United States better, not
just like give some money to DOD and then cut the things that are gonna make, you
know, literally more people die anyway.
End.
Marko Papic: You know, I think this debate was really useful, right?
Because when you debate, you kind of, it's like boiling down.
It's like distilling a piece of liquor down to the highest
concentration of alcohol.
And basically what we've, I think narrowed it down to is this President Trump is
actually a devo pro-globalization guy.
Effectively, he's not going far enough.
But in order to go far enough, you have to convince yourself
that you are in war footing.
Because we both agree that once you are in war footing, then you ramp up everything
and you cannot have some component in an F 22 that was manufactured in Vietnam.
Right?
That's, that's what we're saying.
But in order for that to happen, you have to convince yourself that
the war with China is imminent.
And that, and then I would, I would say a couple of things on that.
Number one, a war with China will most likely never be a total war.
They're very far away.
We have nuclear weapons.
This is a different world than we were in the forties.
So, you know, like, let's keep that in mind.
Number
Jacob Shapiro: two.
Or, or, or in the fifties.
Like we, we fought a war with China once, it's called the Korean War, but like,
that was really the first US China war.
Marko Papic: Right.
But they didn't have nuclear weapons.
Jacob Shapiro: Correct.
They didn't, they didn't even have an air force then.
And they fought us to a stalemate.
So imagine what happens now.
Marko Papic: No, no.
But, but, but to the point that like, mutual assured destruction was not mm-hmm.
A constraint on the conflict.
Correct.
The, the other thing that I, that I would wanna point out is, the second
thing I would point out is that when we do have proxy wars, America is
more than capable of fighting it.
So Ukraine is a great example of this.
Jacob Shapiro: And
Marko Papic: so I, uh,
Jacob Shapiro: Yemen, Yemen not a good example of this now.
Marko Papic: Okay.
But like, you know.
God bless the Houthis.
They are a different breed, obviously, and you can't, you know,
they're just not gonna be defeated.
Um, but the point is, like if you wanna arm somebody, like yeah, us
has the cap capacity to do that.
Um, and I'm not sure that the US requires to be on a war voting to do that.
But more fundamentally, the question is, is that a solution to this problem
instead of changing the lifestyle of human beings in America dramatically,
isn't the alternative to use both threats sticks and carrots with
China to ensure that the spheres of influence are clearly delineated?
Like that's what it's, and it's actually what Hack said, you know,
like Secretary of State Hackett, who I said I wasn't gonna le learn his
name because I called him Kendall.
Because I did not think he was gonna get confirmed, but God
bless him, he did get confirmed.
And his speech at s Shangrila dialogue, which everybody says was extremely
aggressive, I mean on on many ways.
He was on the other hand, he was saying to everybody there,
Hey, you guys need to step up.
Like, you know, and that's, and that's a way in which China, those are the
sticks that can be used against China sticks that can be used against China
is making sure that Malaysia pays for its own defense as an example.
And it doesn't require, but to your point,
Jacob Shapiro: like, like today, president Trump, we're recording on
June 5th, Thursday, June 5th, Trump finally got his phone call with Xi
Jinping and he's bending over backwards to have more calls with Xi Jinping.
I bet you he doesn't give a shit what Hegseth is doing.
All President Trump wants to do is make a deal with Xi Jinping
and get back to business.
Like I don't think he.
No, I I'm not saying it's necessarily a problem, I'm just saying there's
a disconnect between like, hegseth is saying one thing, but the, I
don't think the White House is, I don't So is on the same page
Marko Papic: think no, I, I disagree.
Don't think disagree.
No, I disagree.
I think the foundation of power is material wealth.
That's it.
And not manufacturing and not glistening men with sweat.
No.
You know what?
You can just get Jacob and Marco into a factory if shit hits the fan.
So, no, sorry guys, you know, who have duly on your trucks
and who desire some sort of a confrontation with China every day?
No, it's material wealth.
That's what it is.
It's just, it's wealth.
You gotta be wealthy to be powerful.
So what that means is getting a deal with China that allows American companies
to make a lot of money in China is the foundation of material wealth and is not.
Incompatible with Hack said, telling Southeast Asian economies and countries
that are around China, Hey, you guys need to step up and you need to defend yourself
because the two things will both make the US more capable of countering China.
Yes, trading with China absolutely is necessary because look,
and this is something, this is literally for Jason, right?
We started off talking about my hair guy, Jason.
The fundamental fact is that a Boeing aircraft is 1980s.
Technology, you know?
Mm-hmm.
Like 1990s maybe.
Selling that to China does nothing to dent American security.
In fact, it enhances it.
The only way for Boeing to pivot to making innovative drones, because
it doesn't do that right now.
The only way for them to do that is to invest in r and d. To do
that, you need to sell aircraft.
Selling a piece of 1980s technology to China does nothing to hurt America.
It just makes money.
Then Boeing can take that money and he can divert some of it into r and
d so he can build drones that one day might be used against the Chinese.
Oh my God.
Look at that.
And that is what's necessary.
Um, so I actually think that making a deal with China by President Trump is
the appropriate, is the appropriate way to handle the Chinese threat.
Yeah,
Jacob Shapiro: yeah, yeah.
I just, if there isn't, I think the horses, I think the horse
already bolted the barn door there.
Um, the, the thing that he says, I mean, you're right about what he said
at Shangrila, but before that he said that war with China was maybe imminent.
So he's, he's talking outta both sides of his mouth there.
Um, so, so, so there's that thing.
And then also you might have seen that it sounds like China's about to
announce that they're gonna purchase, uh, all their aircraft, or at least
most of their future orders from Airbus.
Airbus No, for not going.
I predict that's gonna be part of a shift towards Europe.
Yes, you did.
Marko Papic: I predicted that six months ago.
And I mean, like, no, no, but look, look, look, look.
That is the trade negotiations.
That is like, that's China negotiating with America.
But you know what's interesting about what they just said there?
They effectively committed that they're not going to imminently
try to reunify with Taiwan.
Jacob Shapiro: Yeah, of course not.
Well, yeah, you and I are the same here.
Next time we should do a debate.
Maybe next time I'll have to do the devil's advocate for China's going to
invade Taiwan and then I'll really want to take a bath after we do a podcast.
Marko Papic: But No, but listen, but listen, like this is where everything
breaks down though, because I think our debate boiled down the case for onerous
tariffs to reshore everything to America.
Right?
Be because those will not raise any revenue if you put a 50%
tariff and then that good cannot be imported 'cause it's too expensive,
you're not gonna raise money.
Right?
People understand this concept.
So the only case for tariffs is war footing.
But war footing requires China to be mean and evil.
If China is pivoting away from US aircraft to European aircraft, then
China is not about to invade anyone because they would attacking Taiwan
would usher in a bipolar world where the world would be divided to sphere, to
spheres where they just can't compete.
And usually people will say, yet, you know, they, China can't compete yet.
I don't think that China in the next 20 years can compete against
the United West because they have no real allies other than, you
know, maybe Russia and maybe Iran.
Like, that's just not enough.
And so everything breaks apart, like the, the deglobalization argument
breaks apart because China is just not an imminent threat to anybody.
Jacob Shapiro: And it, it breaks down even more because if what you want is
to have nicer things and for life to continue to become more comfortable.
You also need China.
If you want to buy your kid as many gifts as possible.
If your daughter has an ear infection and you need children's ibuprofen for like,
you start going down the list of things that you need China for and the things
that would no longer be on the shelves.
If you didn't have trade with China, like to your point, it
would be really, really bad.
So if you want, like that's sort of, I think what China's big strength is.
Like maybe they don't have the material wealth that you're talking about, but
I think what they can have, and this is what Belt and Road really is, is
hey, uh, have good relations with us.
Say Taiwan is not a country.
We'll build you a port or we'll build you some highways or we'll build
some factories inside of Indonesia.
Okay, we'll agree to your terms, whatever else, we will make things better
for you and make things really nice.
Whereas the United States is not doing that anymore.
The United States is turning away from that path.
Yeah.
So I think like that's the inherent, it's weird to think that
China is now doing that because that used to be the US playbook.
Marko Papic: The US is doing that.
It's building highways on a, on a different way.
I guess you could argue that the ai, you know, uh, cloud infrastructure and
so on would be the equivalent of that just in a, in a digital tech space.
But
Jacob Shapiro: yeah, but the Chinese are better at all that stuff.
Like Huawe is, uh, like for the telecoms 5G networks, all that stuff, China's
already care like they won then.
Uh, that,
Marko Papic: that was, that was something six years ago.
And by the way, that's actually great.
I haven't heard anyone mention Huawei 5G in like three years because, you
know, one of the things we really need to stop doing is listening to
anyone who has like two stars on their shoulder when it comes to technology.
Well, yeah, that's true because I can't tell you how many times Jacob, I had
somebody come to my office, um, former, general, or some such nonsense, and tell
me how Chinese lead in 5G technology was going to end humanity as we know it.
And yet here we are in 2025.
It doesn't matter.
You know why?
'cause there's like six G coming.
Jacob Shapiro: Well, no, but the thing is, here we are, uh,
like that was always stupid.
But here we are in 2025, Huawei is not dead despite the first Trump
administration's attempts to kill it.
And despite us companies saying, oh, we're gonna start building the
switches and the things that go inside the towers that actually make,
'cause we, all of that comes from China, South Korea, Taiwan, and Japan.
Like, that's, those are the ones that, those are eSuite.
Yeah.
But yeah, but they get input some parks.
But yes, Nokia and Ericsson also have a, a sort of toehold here.
But like, you know, in, in 20 18, 20 19, the Trump administration was
talking about working with American companies to build that supply
chain inside the United States.
As far as I know, and if any listeners or experts in telecoms,
feel free to correct me.
As far as I know, we, it's still zero.
We still import the switches and the antennae and all that other crap from
South Korea, or which, which just had a really consequential election from Taiwan,
from China, from all these other places.
Marko Papic: Well, and that's fine.
Again, like.
Jacob Shapiro: It's, it's fine.
It's fine to your point.
As long as, as long as everybody's friends and as long as she and,
and Trump are having chocolate cake, then, then it's good.
Marko Papic: But this is how the world is different from 20,
from 1945 in a way, or, or 1840.
There is more integration of a lot of this stuff.
It's, it's gotten really deep.
Uh, but my point is different twofold.
First of all, the Huawei survival of Huawei is a company that innovates
and now builds cars and stuff.
Is a great example of what happens when you use Productionism.
It doesn't work, especially, I mean, you, it it works against the
country that hasn't industrialized.
Like if you put tariffs on Ethiopia, like that would suck.
It would be mean, you know, but it would work.
Jacob Shapiro: Yeah.
Or even Mexico,
Marko Papic: or maybe even Mexico.
Yes.
Like Mexico is not, if US decided
Jacob Shapiro: to tariff Mexico like very, very bad.
Marko Papic: But if you did it to South Korea would be bad for
Jacob Shapiro: me too.
Marko Papic: Korea, if you did it to South Korea, it would be
the best thing that ever happened to South Korea and it's history.
Jacob Shapiro: Yes.
Marko Papic: Right.
And that's, and that's the, the issue.
And that was what Nvidia.
CEO is saying like, Hey, we need to ensure that there is monopoly
of American chip infrastructure.
That's his point.
Now, obviously he's the CEO of Nvidia.
He is biased.
He wants to sell chips China.
I get that.
But he's not wrong.
He's not wrong because these, like you are taring a country that can use
necessity as a tool of innovation.
The second point that the Huawei 5G nonsense shows is that our
government officials who can barely reissue me a passport on a
acceptable timeline, don't know what's coming on the technological side.
Okay, let's, you know as somebody who works for the Pentagon, you
know, who makes like as much an an analyst on Wall Street?
Okay, no offense guys, sorry, but like, you suck.
You don't know what's coming on the, you don't fuck.
Like, no way.
I can't tell you, Jacob, how many.
Generals I had to listen to in my line of work who are telling me
how important 5G infrastructure is.
Get outta here, please.
Like, relax.
You know, we're gonna survive somehow magically with
Huawei, I guess, spying on us.
No, you don't know what's coming.
No.
You don't know what's coming.
And often you are absolutely wrong.
And so you obsess about this nonsense.
And then what comes out that nobody saw was like, oh, drone
technology really matters.
Like, oh, thanks.
You know, US produces, I think it's called MQ nine Reaper.
It's $30 million.
$30 million.
You know what the most advanced drone today is?
What?
It's a Russian drone that's con remote controlled with a fiber
optic cable tethered to it.
It's like those cars we used to have, you know when mom bought
you remote controlled cars?
Yeah, of course.
Yeah.
But she didn't spend enough money on the really cool ones that
actually had remote control.
She bought you the one with a line.
The most advanced drone today doesn't even use radio signals.
It uses a tether so they can avoid jamming technology, you
know, and it doesn't use ai.
I relax with the AI thing.
Like the problem with ai, it's a great example.
It's gonna be the next 5G, Huawei, it's gonna be the next where we're gonna like
be like, this wasn't that important.
Why?
Because the elegance of your LLM model is not going to determine.
Whether your swarm of drones knows how to be automated.
In other words, there's gonna be some baseline level of AI
capability that will be sufficient and that everybody already has.
Jacob Shapiro: Yeah, I, I don't want, don't throw the baby
out with the Huawei water.
'cause there's just one thing I wanna say.
'cause we alluded to this a little bit earlier.
You're right.
The people who, and generals like British Intelligence HQ is putting
out huge reports about this.
This notion that the Chinese were gonna be able to spy on us and destroy all the
ships and all the infra like nonsense.
But we talked about it earlier when we talked about in China, manufacturing
workers are reportedly losing jobs because they're being replaced by robots.
That can only happen because they have good 5G infrastructure, because
you need the low latency, high speeds of those types of networks on the
factory floor and things like that.
In order to do.
Like you could buy from Ericsson, but I'm saying there's a difference
between Chinese factories are already doing that and adopting it in mass and
thinking about the next generation.
Whereas US factories, and maybe we go back to Tim and ask him this, my
impression of seeing US factories or even factories in Mexico and things like
that is, we're not even close to that.
We're still debating about whether we should do some of those things.
No, no.
So there is like a kernel of importance in the adoption of some
of these things and productivity.
Marko Papic: China has installed the most robots in the world.
Yes, that is a fact.
However, you need
Jacob Shapiro: Huawei 5G to do that.
Marko Papic: But Japan and Germany are also global
leaders in industrial robotics.
So the West is fine.
And, and,
Jacob Shapiro: and
Marko Papic: there's, if
Jacob Shapiro: Germany and Japan will share with us, uh, chancellor Mer says
that he can't trust the United States anymore, and Japan was the one that gave
the middle finger after liberation day.
So again, things I wouldn't take for granted based on,
Marko Papic: they'll sell a robot to, to the look.
Look, all I'm saying, all I'm saying is that, uh, I think that this
is just, every single time China innovates something, it's like, oh
my God, they're gonna defeat us and.
Eh, you know, like it's okay.
Like look, lemme do this.
They're innovating.
I, I think, I think the case here is that, um, it comes down to threat perception.
You know, and I once had a two star general tell me that China's lead in
payment systems was cider coming for us.
And I was like, really?
Bro?
FinTech his national security, relax.
I mean, number one, yes, we should probably not use physical
checks in this country anymore 'cause that's kind of medieval.
But no, the fact that they use QFR codes to pay for everything, like, I don't know.
I sleep well at night because of that.
Call me naive.
And that, and it, and this comes down to a very simple point.
Very simple point.
It really comes down to threat perception of China.
Everything really comes down to that.
To what extent do you think China's gonna knock on the door in your
country, in your home, in your Orleans or Kansas or wherever you are?
Force you to teach your kids Mandarin.
And I think that that is as far from a, a potential future as anything.
'cause we have nuclear weapons and no one's going to fight
the great Power War with those.
So
Jacob Shapiro: as I've joked many times, and I hope the Chinese Communist
Party is gonna listen at some point, uh, not only am I not afraid of that,
I would welcome them and please build us some ports and some other nice
infrastructure down here in the south.
'cause we desperately need it because nobody in the United
States is building this shit.
Anyway, um, we have 20 minutes left Marco, and I think this is actually a
good segue to something that we should talk about before we get outta here,
which we've danced around it in sort of everything we've talked about here today.
But I think we should talk about Operation Spiderweb for 10, 15 minutes
and give it, let's give it its own do.
Um, unless you've been living under a rock.
Um, so over last weekend, again recording here, June 5th, um, Ukraine conducted.
Uh, what it called, operation Spider's Web, a drone attack on at least
five different air bases all over Russia from Siberia or, you know,
that far away towards the Pacific side, all the way to around Moscow.
Um, the details are of course, a little bit shady, but it looks
like over a hundred drones.
And to your point, these drones costing about $600 a pop.
Uh, basically taking out, and this is where the, the numbers are a
little bit, um, a little bit shady, but let's say taking out one third
of Russia's strategic bomber fleet.
Just by using drones, uh, to bomb Russian air bases some of these bombers that
were, you know, uh, running bombs against Ukraine, uh, and engaging in long range
strikes in Ukraine against Ukrainian infrastructure and things like that.
Um, Ukraine has made a really big deal of it.
Uh, president Zelensky said it took 18 months to plan the operation.
He's, uh, he's today given out medals and awards to the guys who were behind it.
Um, but for me, I, I sort of.
Sat up in my chair because now it's, this is not the first example we have of this.
I, I thought, I mean, I'm not the first to make this connection, but there's
Israel's assault on Hezbollah with the pagers, hijacking, international
supply chains, putting explosives into those pagers, sending them
to the people you wanna blow up.
Um, the Houthis, who, despite President Trump's best efforts, are
just sitting there continuing to bomb whatever the heck they want
because the US Navy and Air Force with all of its capability can't bring.
A bunch of like non-state Yemeni militants chewing cot in the
middle of the desert to heal.
Like kind of remarkable.
But here you have Ukraine, which has been on the ropes.
Things have not been looking good.
Russia's gonna out grind them and out suffer them and slowly take
land in the east and then make, you know, some kind of frozen peace
agreement based on whatever they want.
Here's Ukraine striking back and saying, okay, Russia like.
For the price of $600 times, roughly a hundred, we're gonna wipe out a
third of your strategic bombers.
You wanna keep dancing or do you wanna meet us in Istanbul?
Um, it, to me, it like opens up a question about rethinking the balance of power
from a military perspective in the world.
Is this bad news for conventional powers like the United States and China
versus good news for smaller powers?
If you want to get real dystopian, what happens when Mexican drug cartels
and other non-state actors are able to use drones in this particular way?
And then you've got, you know, let's, let's use Mexico as an example.
Let's say if.
You know, the Mexican government trying to bring the cartels to heal,
and the cartels are like, uh, what if we bomb the Mexican Air Force?
Or what if we take out all of your conventional military capability?
You want to keep messing with us in the things that we're doing.
Like we can do this all day with these drones.
So I, for me, it was like, I need to really like rethink the military
balance of power in the world.
Uh, am I overstating it?
Did you have a similar thought or are you a little more, uh, tell me I'm sensa
sensationalist is what I'm hoping you're gonna tell me rather than that I'm Right.
Marko Papic: Um,
I mean, we can get very dystopian about this, right?
Um, so as I said earlier, you know, like this, uh, fiber optic
cable tethered to a drone, it allows the drone to avoid jamming.
So Russians have basically, and these drones are now completely crushing it.
Uh, I'm gonna send you a couple of links.
Jacob, if, in case you wanna put 'em in the links,
Jacob Shapiro: please
Marko Papic: if we can do that.
There's one, it's a 50 minute interview with an entrepreneur in Russia.
Who is producing Russian drones.
Uh, and it's fascinating.
He's very objective.
He gives Ukrainians lots of props.
He works for the Russian state.
I mean, the Russian state is his customer, but he is, uh, is uh, is a very kind of
objective, matter of fact kind of dude.
Uh, he describes different drones and, and he takes a lot of pleasure
in making fun of American drones.
I thought that was really hilarious.
Um, but he says Ukrainians are actually better than Russian.
So that was interesting.
Mm-hmm.
And then I'll send, uh, also a YouTube link on those fiber optic drones and,
and shows their lethal lethality.
Um, I think that we are at a threshold of potential over the next 30 years where
all of this technology could very well
undermine the very sinus that hold nation states together.
The reason, you know, earlier in this podcast you talked about how we're
still on war footing because we have taxation, which is, which is like,
which is a stretch, but like, meh.
Not that, you know, um, the famous sociologist, Charles Tilley
famously said that war makes states and states make war.
Jacob Shapiro: Hmm.
Marko Papic: In other words, we have nation states because of war.
Like if we didn't, maybe we would all just live in like cantons or parishes,
is that what we call them in Louisiana?
Jacob Shapiro: It is.
Yeah.
Very
Marko Papic: good.
Right.
Maybe, maybe that will be enough.
And so one of the reasons that states have to tax you, like, not like the main
reason, but like one of them, the reason we do it at that level, at a super high,
large level, continental size level in America's case is not because providing
education and healthcare makes sense at a federal level of a continent.
But because defending your, you at your, in your house from the threats
does make sense at a continent level.
Like size matters.
But what's happening with technology is that size doesn't and scale may not
matter, you know, and the fact that the Ukrainians put a bunch of cheap
drones into a truck, drove them across the border all the way to East Asia,
a, according to news reports, they attacked a military
base of Russia in East Asia.
Closer to Tokyo than it is to Kiev.
So the fact that they're able to do this undermines the very TA taxes
we pay so that our country produces aircraft carriers to like defend us.
Because they can't.
Because you're right.
It's not just, I mean, it's not just the conflict with like the cartels.
It's really everything.
Drones are getting very cheap, very good.
You can't jam them.
An operator can use a fiber optic.
These things, the cables look like a string of hair and the camera at
the end of that drone has 4K HD.
Jacob.
You can go on YouTube and watch videos that are really grizzly
because you see a lot of detail.
Mm-hmm.
Before they kill someone.
So you can have a very small drone that's operated with a string of hair line,
you know, holding it 60 kilometer range.
Crazy stuff.
It's a lot a line.
But the point is, uh, yeah, I mean this undermines the very
notion that governments can't provide a level of security.
And so what does it mean for warfare?
It means that all this nonsense there we're gonna need steel and glistening
sweat of manly men banging hammers to produce tanks and howitzers ammunitions,
you know, like, eh, I'm not sure that's where the wars are going in the future.
And the fact is, America provided Ukraine with Javelins, which were pretty
cheap themselves, that arrested that initial military mechanized attack.
But since then, it's kind of been up to Ukrainians themselves and
their, their ability to innovate.
Now, patriot missiles are also important.
Obviously that's where America has helped immensely, uh, in allowing
Ukraine to defend its airspace.
But my point is that.
You're gonna need some anti-aircraft weapon systems, you're gonna need
some satellite command and control.
That's where starlink comes in.
Mm-hmm.
You can't use these drones without that.
But then like, not even, you can even fly these drones tethered with a fiber optic
cable and you're gonna get smaller and they're gonna get more and more lethal.
And if you wanna assassinate somebody, it's gonna be like
that little probe in, in dune
that our hero Charlemagne had to fight.
Right.
Um, so like, I think, I think it's very interesting what's happening.
It's, it's basically war is getting less technologically sophisticated in
some ways, and I find that fascinating.
I find it fascinating that we always think that everything is
gonna get super, super advanced.
And if you allow me to cook on just one point.
Yeah.
When I was a kid, I liked computer games.
In the nineties.
Right.
And I, I imagine I would often sit there and imagine, oh my God, I can't
wait for 2025 when I'm in my forties.
I bet the graphics and the computers like, I'll be able to
play Madden like as a quarterback, like, you know, inside the game.
Yeah.
And instead, computer games have actually gone the other
way because of the, the phone.
Mm-hmm.
So when I see what my children are playing graphics of Roblox is absolutely terrible.
And many, many games that have been very successful, like Angry Birds are
being like, they're just like Prince of Persia from the nineties for God's sakes.
And so I think we're all sitting here and we're thinking we're gonna need
AI robots to fight these huge wars, and they're gonna be devastating.
And Russians have turned the tide of the war because they connected the
drone with a cable to a remote control.
Jacob Shapiro: Ukraine?
Marko Papic: No, no.
Russians.
Uh, so, so.
The Russians are making gains in Ukraine because of this tethered drone.
So that was a, that was actually very, oh, I see what you're saying.
Sorry.
But your point, your point is you to be, to go back to your point,
he also put $600 drones in a truck and drove it and released them.
You know, like, this isn't like, and then, and you know, the media, the
journalists obsessed about, apparently some of them had AI in like capabilities.
'cause they, once they lost control, they knew what an aircraft looked like,
and then they autonomously went to it.
Like, gimme a break.
Like, relax again.
No, this wasn't an AI attack.
You're gonna, you're gonna need some low level baseline coding to make that happen.
The future of warfare is not gonna be who has the most elegant ai.
It's just not the future of war may very well be that you can't have a war.
Jacob Shapiro: Maybe I'm, I'm reminded of, um, you know, the
Civil War, the u the American Civil War is like my nerdy obsession.
And, um, of course, like I've, I can't count the number of times I've
watched Ken Burns, uh, documentary mostly so I could watch Shelby Foote
pontificate about, uh, the Civil War.
But, um, one of the reasons the casualty figures in US Civil War battles was,
were so high, um, was because in the words of Shelby Foot, the tactics
had not caught up with the weapons.
I think we're in that situation right now, like the tactics are just beginning
to sort of, uh, reach what, oh, we have these weapons, we can do what with
this technology against these targets.
Um, and I think it's fascinating to watch Russia and Ukraine, 'cause it's
literally a laboratory in real time, to your point about what war is probably
going to look like in the future.
And it doesn't look like World War iii.
And you know, ironically, like in the example I just gave, like actually
casualty numbers were higher because the weapons were so deadly and the
tactics were just marched towards each other and shoot at each other.
So you had like.
Tens of thousands of people dying in battles that didn't need to.
To your point, if you have these really, really precise things, like,
I mean like, let's say we're 10 years in the future, you have some
of these really precise drones.
Like, can you just assassinate Putin before things even get going?
And like, and this like, I mean, that's the sort of world that it seems
like we're heading towards, and maybe they'll be some kind of counterbalance
or antione defense technology.
I don't know.
But like, um, yeah, it's, it's changing the way I think about like military,
you know, back to our geopolitical power index, like we might have to
revisit the whole index just because we need to rethink like what conventional
military power means on that scale.
Marko Papic: Well, I mean, watch that you, uh, YouTube clip of the scene where the
hunter seeker tries to kill prad in Dune.
Mm-hmm.
By the way, dune is fascinating.
You know, um, I read the books when I was a kid and everything.
No, we, I mean, we can, we can go off another, uh, 30 minutes on this, but.
The whole point.
Well, Margo, I,
Jacob Shapiro: I don't know if you know this, I'll, I'll put
this in the show notes too.
Back when I was still with George at GPF, uh, once a year, I commandeered the
website to do April Fools, uh, pieces.
And there is on the internet, I'll, I'll, we'll put it in the show notes.
There's a 15 page geopolitics of Dune from yours, truly that it
was released on April Fools 2019.
It's great.
I had our graphics team create like really intense geographic maps of
Calahan and Arki and of, um, har uh, where are the harken's from?
Uh, GS Prime?
No, uh, it, it's giddy Prime.
Yeah.
Anyway, sorry.
Gi Yeah, go ahead.
Marko Papic: Uh, okay, so, uh, no, I was just gonna say, uh, I mean
the whole premise of that, uh, show is that all these great houses have
nuclear weapons, but they choose not to use them because obviously
it's mutual for assure destruction.
But technology has gotten so advanced in warfare.
They have to use basically combat, like hand to hand combat.
Yeah.
And I think that, um, you know, I, I do think that there's potential.
For war to become so precise, as you say, where you can basically use a
hunter seeker drone to take out a leader.
That's number one.
And number two, I think that providing large mechanized military platforms like
nuclear submarines, aircraft carriers, tanks, aircraft becomes less relevant.
And if it becomes less relevant,
states become less relevant.
But that's like a 30, 50 year.
I mean, that will require a whole podcast for itself.
I just do think that since Industrial Revolution, revolution was created since
Industrial Revolution, everything's been about scale, Jacob, everything,
and by, by everything, I don't mean just like producing industrial goods for
war, but also producing educated human beings that can follow order in a war.
Mm-hmm.
They can work in a factory like mass Education, healthcare.
Everything's been about the median outcome.
Median outcome.
Let's educate human beings in a median way.
So if you're extremely talented, who cares?
Like you're just gonna get educated at a certain level.
Nothing is customized to you.
Oh, you have a headache, Jacob?
That's cool.
Take an aspirin.
Oh, by the way, if Marco has a headache, he should take an aspirin too.
It's a median outcome in most results.
Most people fall into this median curve.
That's what, that's the world we created.
Since there's no customization, right?
There's no art there.
There's no artisan like guilds producing things to your custom specifications.
And I think that the world we're coming into with drones, with ai, with machine,
with 3D, 3D, printing with, with new sources of energy, you know, wow.
Put some solar panels on your roof.
You don't need the median provider of, of energy.
I think that where we're headed is a much different world,
and in that different world.
The number one outdated technology that we may need to discard is actually
the nation state, which is interesting because I'm not a libertarian,
let me tell you this right now.
But that is where this is headed.
Like po potentially all these technologies make it less likely that
you need to tax and collect resources at a continental level to have these
continental wars against one another.
Jacob Shapiro: It all comes back to looking like the 1890s.
Uh, we could go on forever, but one of those clients that we were
talking about in the first 10 minutes, uh, gets to see me in my
flamingo shirt in three minutes time.
So I think we will leave it there, uh, and leave it to next week.
Uh, dude, this was so good.
We're getting better.