Tariffs, Trade, and TikTok

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Emma Varvaloucas: What is the biggest economic myth that people still believe?

Noah Smith: Imports subtract from GDP. They don’t. If you look at the equation of GDP, you know, consumption plus investment plus government spending plus net exports, net exports has a minus imports in there. So people think that imports subtract from GDP.

The only reason that’s in there is to net out. Imports that are counted in consumption, investment, and government spending.

Zachary Karabell: What could go right? I’m Zachary Karabell, the founder of the Progress Network joined as always by my cohost, Emma Varvaloucas, the executive director of the Progress Network. And What Could Go Right? Is our weekly podcast where we look at, yes, what could go right in a world where everybody is, and always has been, looking at what could go wrong.

The lure of the negative is powerful, the appeal of outrage, and oh my god, is palpable. But at any given time, there are things going on that are more constructive, more forward looking, that are more likely to create the future of our dreams and not the future of our fears, even though we are swimming every day in what feels to be a dystopian brew, a soup of negativity.

That augurs everything going downhill and nothing going up in spite of the oft heard belief that we are about to make America great again. And maybe we will, that would be great if we make America great again, or make America great, or keep America great, or make the world great. So we’re going to talk to someone today who writes frequently for Substack, is in fact one of the luminaries of Substack, often optimistic, but often just very hard nosed about what’s going on. So, Emma, who are we talking to today?

Emma Varvaloucas: Today, we’re going to talk to Noah Smith. He writes about economics and current events on his substack, which is called Noahpinion. He first got his start writing at least online for Bloomberg back in 2014. And he also used to be an economics professor at Stony Brook University.

Ready to talk to Noah?

Zachary Karabell: Yes, indeed.

Noah Smith, it is such a pleasure having you on What Could Go Right? I’ve been reading your work for feels like a exceedingly long time. It’s probably only been a decade, but it feels kind of like you’ve been running around my consciousness for longer than that.

Maybe because it echoes things that I say, and of course, we always pay attention to people we agree with more than we pay attention to people that we don’t agree with. So, you’re one of the earlier Substack success stories, so actually one of the, you know, major Substack success stories. And I wonder if you feel, having written for what is affectionately or not so affectionately known as the mainstream media, whether You feel you could really have written the kind of stuff that you have written.

Did you really write that way when you’re writing for Bloomberg? I’m sure you appreciate it individually, but I’m wondering what it says culturally about you can do this on your own, but you couldn’t do it for others.

Noah Smith: Right. So basically what’s true is that the mainstream media has applied the same editorial model toward op eds, what they call op eds, that they have applied toward journalism, reporting.

And those are kept separate, you know, in newsroom terms, those are separate desks. We’re trained to say that like, Oh, the Wall Street Journal op ed page is different from their reporting. So everybody knows there’s a difference between these two things conceptually, but many of the same editorial procedures, you know, the pitching and the, you know, editing and all this stuff is done the same for both of these.

Actually, it shouldn’t be the same because op ed writing, what we call op ed writing is actually a much, much different thing than reporting and the failure to conceptually to separate those procedurally, even though they’re already separated conceptually has been a big millstone around the neck of mainstream media, because what a lot of people who read the news want is analysis.

They want people not just to tell them what’s going on in the world, but to break it down, to express some opinions about it, but also to just sort of place it within a larger analytical framework, explaining to me what’s going on in the world today, what does this mean? Make this make sense.

And that’s something that reporters are ill equipped to do because you need a basic framework for analysis. Like I usually often think of things in terms of economics, but then not everyone does that. Like obviously some people think of in terms of history, historical parallels or political science, things like that.

But then usually you have some framework for analysis and you bring in disparate threads and then you weave these facts along with other stuff like, you know, research, you know, another data into a cohesive whole, the mainstream media treats op ed writers as if they’re simply reporters who are allowed to express their own opinions. And there’s so much more than that. And Substack liberates op ed writers from the tyranny of editors who are used to editing reporters and have no idea how to edit op eds.

And that’s why the op eds you read on Substack are just so much better than they are what you’ll read in the New York Times or the Washington Post or these things. It’s not because those people can’t write. It’s because editors edit them as if they’re reporters.

Zachary Karabell: You know, it’s funny, when I started the Progress Network, one of the hypotheses about what happens when society has become increasingly negative about the future and increasingly pessimistic and low trust in each other is that in addition to it leading to a lot of short term ism and a certain amount of why should I contribute to the collective or start a company or do anything that’s forward looking when the future is screwed?

Yeah. Yeah. You know, it leads to a kind of, I’m going to get mine while I can. They’re also, you know, when you look around the world, that conspiracy theories become ever more prominent as part of the collective narrative. Observably it’s true. I mean, when I travel around the Middle East or I’d go to Asia, I go to Latin America, the degree to which, what we consider conspiracy theories, were just part and parcel of this is how the world works seemed ubiquitous and it didn’t seem nearly as, it seemed much more fringe in the United States. I wonder if there’s some sort of like correlation between you get more pessimistic about the future you think, you know, that everything’s going downhill and then you also become much more prone to look for just weird explanations for bad shit.

Noah Smith: I honestly don’t understand the sociology or political science of conspiracy theories well enough, so that, I mean, that sounds plausible to me. But then again, I remember that there was a decent amount of conspiracy theorizing on talk radio in the, in the nineties, and it’s hard to imagine a modern era that could go better than the nineties went.

Like obviously the nineties had some problems still, but then just, you know, almost everything went well in the nineties. And yet still conspiracy theories, you know, that was when you had like the black helicopter theory, the United Nations taking over things. And you had some people who do domestic terrorism based on some of this thinking.

Someone bombed the Olympics. Like, can you imagine the Beijing Olympics being bombed? But our Olympics in Atlanta was bombed by some guy who cared about right wing politics. More people were being killed in the 90s by like right wingers than during the first Trump term or, or whatever. I don’t know that simply making things go well is the panacea that we need or making people optimistic about the future because people were very optimistic in the 90s.

Zachary Karabell: It’s a good point. You had the whole Vince Foster, you know, Travelgate, like there was some conspiracy within the White House to eliminate enemies and they were, they were dying in mysterious ways. They weren’t actually mysterious, but that was the, that was part of the conspiracy theory circulating then, in many ways, the origin of all of this now.

Noah Smith: But then, you know, the, the economy has been great for a while, even if people say it’s bad, they say that their own personal financial situation is good. I think the same thing that makes people look out at the national economy and say it’s going so much worse than their own personal financial circumstances is probably the same thing that’s leading to all these conspiracy theories, but it’s probably just.

Media. It’s probably just the fact that people are getting their information from TikTok. And TikTok is an attention economy, you know, besides whatever controlled by the communist party. I know, blah, blah, blah, which it probably is, but, but I think that’s not what’s much, much, much more significant than that is that it’s an attention economy and you get attention, you know, the mainstream media has always gotten attention for saying negative things. No news is good news. There’s negativity bias in the news and it’s well documented. But then that gets turbocharged in social media and you have people making a TikTok saying, like, capitalism is destroying your life, your life sucks because of capitalism or the brown people are taking over and destroying Western civilization, whatever, you know, crap people are making on these apps.

I think that they do it for attention, because negative stuff gets attention. We are genetically programmed to be alarmed at things, to say, oh my god, disaster! There’s a fire, there’s a tiger, whatever, right? And people take advantage of that and just press that button over and over so they can get likes and subscribe, so they can get attention, so they can be like little social media divas.

And I think I’m a little insulated from this because I became that by accident. I got attention by accident. I simply wrote for myself and to learn and to think. And then I haven’t done any marketing and didn’t promote myself and just attention just came when I look out at other people, like they don’t get that automatically.

So they hustle for it. And part of that hustling is extreme negativity on social media. And I think conspiracy theories do that. So I think info sphere contamination happens because of the attention economy. Maybe that’s too many buzzwords in one sentence. But I think that everybody’s shouting on TikTok and saying, like, or like, the sky is falling because it gets some attention.

Emma Varvaloucas: To me, it also seems like the lack of analysis in the media and the lack of a framework, the lack of explaining things to people is that people just don’t know how things work. Like, people don’t know how the government works. They don’t know how it’s set up, like, kind of on the back end, right? And I think that leads to a lot of the negativity as well because people just don’t understand the big gap between conspiracies and reality because they don’t know what that reality actually is.

They haven’t, like, touched it in their normal lives. Does that resonate with you at all?

Noah Smith: I think so. I think, you know, we each have only a tiny sphere of experience. You know, I live in San Francisco, I get to see local politics on the ground, like what’s happening here and my local sphere. But then if we’re talking about what’s happening in Georgia, I have no idea.

I have no idea what’s going on in Georgia, what the economy is like, what conditions are like on the ground. No one even talks about Georgia now, but yet millions of people live in Georgia and that’s just one example of many other places that I can name in America that I have no idea what’s going on in.

You know, I know a little bit about what’s going on in like, TSMC Arizona. I know a lot about what’s going on in Texas because I follow it a lot because I’m from Texas, and I care about it a lot and also because it’s a state that tends to get in the news a lot. So I know about Texas. I know about some from reading, you know, and then I, I visit there and see, you know, a few things.

And then, you know, what’s going on in Atlanta, what’s going on in, you know, rural Georgia, what’s going on in, you know, I haven’t seen Georgia in the news for like literally years of my life.

Emma Varvaloucas: It fell off the map.

Zachary Karabell: I wrote a book about 10 years ago about economic numbers and economic statistics, and one of the points I was trying to highlight is that, like, all of our national economic numbers are essentially a story that we’re telling about data nationally that comes up with one synthetic number for a big phenomenon, like employment or inflation or, you know, GDP, and without the recognition that what you just said about one’s own awareness of what’s going on in a very large country with incredibly disparate population pertains to our economic realities as well, you know, that we don’t really, the idea that there’s this thing called the economy, and it’s one economy that we all share is a statistical fiction. Now it may make a little bit of sense if you’re at the Federal Reserve and it, you know, there’s a utility for understanding how this thing is working as one big aggregate system, but it doesn’t really tell you much about your actual lived experience or even the lived experience of Buffalo versus Indianapolis versus Oakland versus San Francisco.

And yet we act all the time as if, you know, it is like there’s one number and it applies to all of us. And I mean, you’ve done a lot of work, obviously showing the ways in which, you know, the lived reality versus the statistical reality versus the story that people tell themselves. Those are all very different things. Sometimes they convert often. They’re totally divergent.

Have you felt in the, in the writing that you’ve been doing? This is a hard question to answer. I know, but I’m just curious, given that, you know, we all want to do something with a sense of purpose. Like, do you feel you’re getting through to people or do you just feel you’re getting through to the people who are already on your wavelength?

Noah Smith: I mean, I get through to some people, but my audience is naturally limited. Like, you know, I think I have about 330K followers on, on Substack, about, you know, half of whom will read anything or less. I have 330K followers on Twitter, about exactly the same actually, and far fewer of them will read anything that I, that I write.

Because, you know, everything just goes by in the feed and most of those accounts are deactivated anyway. Yeah, so I’m just a tiny drop in the bucket. I do podcasts, a few thousand people listen to those podcasts. And those people may be like people that matter, you know, I mean, I’m sure like tech CEOs read my, my blog and venture capitalists, and then some people in DC read my blog.

But like, I can have some influence, but in terms of mass public opinion, nothing. Like, and, and we don’t really have mass media in the way we used to, you know, like. We used to have things like USA Today and Oprah that would just reach everybody. And then before that, like CBS and ABC, NBC, that would reach everybody.

Now we have, I guess, I mean, there’s Joe Rogan, but like how many, how many listeners does Joe Rogan have? Like he doesn’t reach that many people.

Emma Varvaloucas: 10 or 13 million, I think.

Noah Smith: 10 or 13 million. That’s right. So that’s like, you know, he’s, he’s the biggest name in podcasting, right? And that he reaches more people than I think TV news, any TV news program reaches.

And he’s reaching one out of 30 Americans. Not all those people are listening to all of his podcasts. They probably listened to like one out of three at best. Right?

Zachary Karabell: Right. I suppose like Walter Cronkite who might’ve reached one in four at some point in 1970.

Noah Smith: That’s right. So, so Rogan is like a baby compared to Cronkite or even Rush Limbaugh in the heyday or Oprah or yeah, or USA Today or any of the things like in Japan, you know, like the big newspapers will reach like 20 percent of people.

Like Rogan is just, you know, he’s the biggest, he’s this giant super whale, and yet he’s tiny.

Emma Varvaloucas: I hate to do this to us and the conversation and our listeners, but I’m gonna move us on to Trump. Before Trump was elected, you wrote something on your Substack about the best case scenario for the Trump administration, which at the time was very comforting.

You wrote very recently that this best case scenario is not turning out the way that we all might have hoped. We’re recording this at a period of time where Trump put the 25 percent tariffs on Mexico and Canada. Now they’re in a 30 day pause because of some concessions that Mexico and Canada made. The ones on China are going through.

By the time this conversation comes out, that all might have changed, as we know the chaos rules the day in Trump land, but given what we have seen so far, economically speaking, what does this signal to you about the Trump administration vis a vis the economy? How screwed up could this get? I suppose it’s another way to answer, ask that question.

Noah Smith: If you look at what happened with tariffs on Mexico and Canada, Trump put tariffs on Mexico and Canada, let everybody freak out for a few days, and then took the tariffs away, or paused the tariffs once Canada and Mexico agreed to do very symbolic, tiny, like little things to control the fentanyl trade that they had already basically agreed to do.

So it was that’s the least bad outcome of that. Then he used this as sort of cover to close the de minimis loophole on China, on Chinese goods, Temu and Shein and that stuff, which honestly is good. That’s, that’s something we needed to have done. And that was a good policy. So, so far that has turned out not great because now there’s a lot of policy uncertainty around tariffs, but it’s not, so it’s not the best case scenario, but it’s, it’s very far from the worst case scenario so far.

Remember what Homer says to Bart, right? He’s like, this is the worst day of my life. And Homer says. No, it’s the worst day of your life so far. I mean, it’s a little bit, but so far putting 10 percent tariffs on China is fine. And tariffing, you know, getting rid of the de minimis loophole is actually a big policy change that we needed to do because it was basically a giant loophole in tariffs.

And you know, if you want to do tariffs on China, which you might, the de minimis loophole really is important.

Zachary Karabell: Just let me interrupt for a sec for those who listeners who may not know the de minimis loophole is goods under $800 were not either routinely inspected or required to be reported in quite the same way.

So you could have, again, these Chinese companies that you’ve referred to, Temu and Shein, that could sell a lot of stuff to the United States. And even if you had a tariff regime, they weren’t subject to it.

Noah Smith: That’s right. So small stuff wasn’t tariff. Now it is. That’s the easiest. Big change to make it was the second biggest thing we needed to do to tighten up the, the tariff regime.

Are tariffs good? That’s a question nobody knows. It’s a complicated question. There’s lots of obvious ways in which they can be bad. The tariffs on Canada and Mexico would have been bad, but it’s not so simple as saying tariffs are always bad, which, you know, people at the Cato Institute would say that.

Tariffs are not always bad, and we shouldn’t become, we’re not going to go back to being dogmatic free traders. That’s just not going to happen. Tariffs on our allies, you know, are bad generally, because we want to build up scale. And I think that’s not something that’s popularly understood, and that’s something that I will labor in the coming months to explain to the few people who read my blog and listen to me.

Emma Varvaloucas: Could you elaborate a little bit on that now? What do you mean by it prevents from building scale? Yeah?

Noah Smith: That’s right. So take a Chinese company like BYD. BYD has a huge captive Chinese domestic market to sell their cars to and batteries. Right? They have this huge, huge Chinese market, so they can get massive, massive scale because basically they can just invest and invest and build factories and factories and factories and factories and factories and hire like a billion engineers to serve this giant Chinese domestic market.

And after that, expanding into export markets is much less difficult because they’ve already got this massive scale. They’ve driven their costs down with economies of scale, and this allows them to produce tons of cars and, and the cars they export are almost an afterthought. They’re like, Oh. We have got a few extra billion cars here.

I mean, you know, it’s millions. We’ve got a few extra million cars, have our extra million cars, have them cheap, whatever. We’ve got scale. So, you know, we’re, we’re doing good on cost. And so they can do that. And so achieving scale through China’s internal domestic market is a huge force multiplier for Chinese national champions.

If we want our national champions, you know, to, to do the same, not just Tesla, but all the old auto companies too. We need them to have scale and we’re just not as big a company as China. We’re a richer country, right? But in terms of actual units sold, we just can’t compare like in terms of number of cars made, maybe we could pay more for, for each car than Chinese people can.

But then the number of units, economies of scale are driven by like, how many cars do you make? Right? And GM and Ford aren’t making as many cars for the American domestic market is, well, I think now China’s getting bigger than us in the past. They were smaller because more Americans drove than Chinese people. But now China’s the biggest domestic market.

So we want GM and Ford to have a pseudo domestic market with our allies. We want GM and Ford to be able to sell a lot to Canada, a lot to Mexico and a lot to Europe and the other countries, so that they can build up scale to compete with BYD. And even if you have tariffs, the more scale you have, the less of a tariff you need to levy in order for our domestic companies to compete with the Chinese companies.

If tariffs do have a potential benefit, a lot of that comes from scale. And tariffs on Canada and Mexico reduce the scale, you know, available to our, to our companies because it makes our currency appreciate against the peso and the Canadian dollar, which makes our expense, you know, GM and Ford’s cars more expensive.

There are people don’t buy them plus retaliation, right? Those are the two different effects that both limit the scale that our companies are able to achieve. So it limits the market size for American exporters and thus limits our scale and makes it harder to compete against China.

Zachary Karabell: So you mentioned before the, you know, the other big loophole of course is the component one, you know, sort of, we did all these tariffs in China in 2018, the Biden administration continued the Trump tariffs.

And when it came to semiconductors actually enhanced not just tariffs, but export controls. And then some of what China did was they just outsourced 90 percent finished goods to Vietnam, Mexico, you name it. And then the goods were finished and then exported from there and thereby evading many of the either export controls or. tariffs.

But all this is predicated, and I’m curious to hear where you go with this, is the assumption of China, not just as a competitor, but as an adversary that poses a threat, and that’s become essentially conventional wisdom widely shared by most Americans, many people in Europe, and by the Chinese, of course, themselves.

I still feel it’s worth asking the question. As it would have in 1946 or 47 or 48 about the Soviet Union. Like, why are they a threat? And the answer to the Soviet Union in 48 or 49 was, you know, they’re, they’re developing nuclear weapons and they want to take over the world. Why do we know what they want to take over the world?

Cause they say they do. And they’re building an arsenal accordingly. So like, what’s the reason that China is a threat and an adversary? It’s clearly a competitor. It’s a big country that makes a lot of the stuff that we make and make some of it cheaper, make some of it better. But, but in what way is it a threat to your life in the Bay Area or my life in New York or, or that proverbial person that we just talked about in Georgia such that we need to erect an architecture of threat containment?

Noah Smith: That’s right. So the answer is not difficult, but it’s also not so widely discussed. China would like us to be a much weaker country so that we don’t threaten their hegemony. China’s leaders want power, especially power over Asia. Also power in the world, but China, you know, China would like to dominate the Middle East so they can get secure supply of oil, but it’s not a high priority for them.

But China would like to dominate Asia because of prestige, history, you know, it’s what they think is their place in the world. And when I say they, I don’t mean regular Chinese people, some regular Chinese people, certainly. I mean the guys in charge. China is basically, it’s a one man show, one man and his cronies.

It didn’t used to be like that, but now it is. Xi Jinping has been very good at riding herd on the Chinese Communist Party and basically personalizing it. He has accumulated, reaccumulated something approaching the power of Mao in terms of how much he controls this party. Actually, maybe more in some ways.

So what these guys, the dudes in charge, not just Xi Jinping, but like, you know, Wang Huning and all these other guys who like are his cronies and buddies, they want to dominate Asia and America is a possible threat to that. And they want to, and they thus want to push us out and make us, and also just weaken us, make us a weaker country so that we don’t threaten them, right?

Like if America’s strong, maybe we have, you know, we go through a period of detente or whatever, but ultimately it’s better for those guys from their point of view, they want us to be a weaker. And so that’s, that’s a problem for us because how, how can they weaken us? Well, first, what they can do is they can cut us off from important sources of trade.

Much of our trade goes through the waters around China and our Navy, our powerful Navy, protects freedom of the seas, freedom of navigation in the waters through which most of our trade passes, much of our trade passes. China would like to take that away. So China did this thing called the nine-dash line where they, they claimed the entire South China Sea.

They claimed this, this maritime territory and said, within this, we get to decide which ships pass. Now that’s in direct violation of the United Nations convention on the law of the sea, violation to how, you know, to the sort of rules of freedom of navigation that the United States Navy is basically enforced since World War II, and it would be a return to older patterns where whole maritime areas were controlled by certain navies and where, you know, where traffic through those could police those. That’s one example. That’s what they did when, when we were nominally, you know, still the most powerful country in the world, sort of.

And that’s what they did then. Since they’re getting more powerful, they will do even more of that. And if we sort of let up and take away our Navy, our Navy goes poof, or, you know, essentially China is much more powerful than us, they’ll do a lot more of that. And that also includes cutting deals with countries that are rich in minerals that we don’t have here.

You know, there’s mineral, our economy takes a lot of metals. And a lot of, you know, chemicals from all around the world that we dig up out of the ground. And those are often dug up in developing countries. And if right now we have deals with developing countries to get those minerals, part of the way we get those minerals is to pay them, basically give them a bunch of aid, foreign aid in exchange for getting mineral rights and assuring the supply of minerals to us.

And we just cut off all our foreign aid. But China certainly would like to make deals with those countries to cut off to make sure that the minerals all go to China instead of us. That’s one example of how they can weaken us. China would also like to control our media through Tik Tok, the most important media source that’s a billion times more important than your podcast or my podcast or my blog will ever get.

And, you know, China controls that directly. They control the algorithm of that very directly. They would like to control even more, but they already do control that. And they would like to use that just so chaos and descent in American society. If you’re looking for negativity. You know, like if you’re just looking out and you’re frustrated because all these Americans are very negative, well, part of that is because, you know, our foreign adversaries would like to amplify domestic dissent, would like to make people believe in conspiracy theories and believe that everything’s going terrible and get angry all day at politics.

Get angry at our leaders all day. They want that to happen. They want you to be angry all day and they want your listeners to be angry all day. And through algorithmic control, they can further that goal. So those are just two examples of ways in which China’s leadership would like to weaken us so that we don’t pose a threat to their power in Asia.

One reason we know we’ll do that, they’ll do this and they’re already doing this is because we did this to the Soviet Union. We did this in the Cold War and China’s not as nice as we were. China’s actually a meaner country, tougher. They’re not as mean and tough as the Soviet Union, but they’re as mean and tough, they’re meaner and tougher than us.

And the fact that we did these things means that they certainly won’t hesitate to do these things. This is how superpower politics is played. A weakened, divided, or even collapsed or much poorer America is in the interest of sort of the ruling clique in China right now, unfortunately.

Emma Varvaloucas: Are you convinced Zachary?

Zachary Karabell: Am I convinced? I mean, I think that is the argument and Noah makes it quite well. I think there is a degree to which we have magnified the threat in a way that minimizes our power.

Noah Smith: How so?

Zachary Karabell: What’s interesting about the first period of Trump again, I mean, I don’t think this is going to change in three or four weeks, that come between this conversation and whatever. You pointed out the aid question, right? The United States has actually thrived. Much of its power has been from being an open society. That’s not been perfect. And that’s certainly not been nearly as true as our ideals would have it, but you know, it’s been a porous open society.

And it’s also been a society that’s sought connections with the world, sometimes domination of parts of the world. And it’s a little like fighting water, right? It’s very hard to fight disparate power in an open society. And China is a closed society that has done amazingly well for itself internally, but has been, you know, much more constrained even without the United States trying to constrain it because there’s a limit to which people are willing to be influenced and whether that’s an African country where they’ve happily taken Chinese money to build a road or a dam or a mine, but been, you know, largely impervious to China’s attempts to at a more micro level, control what’s going on domestically.

Same thing in Latin America. You know, China’s been all over Peru and Brazil and all these other places. Not clear that they have, you know, much influence other than money. So, I don’t know, I just, I, I think that China wants to be a great power and wants to be impervious. Totally true. And Xi Jinping is kind of.

Turned a lot of China’s strengths into weaknesses. And so far as a lot of the world bears China no goodwill, but I still don’t know how much of that is a threat to the United States. I mean, if you took TikTok out of the equation, I don’t know that our domestic politics would be radically different right now because you’d still have, you know, reels and Instagram and YouTube and Twitter and Musk’s Twitter is a pretty disruptive place, all things being equal, right? And that has nothing to do with the Communist Party, at least I don’t think so. You make the point that, that needs making, which is here’s the reason why. I’m just not as convinced that the reason why is as, as requires the kind of response that we have.

Although I suppose you would probably agree that if those are actually the reasons and the way Trump’s dealing with it is not exactly helping.

Noah Smith: That’s right. Trump’s approach toward China is not that effective. The Biden administration’s approach was, was more effective, although still a lot more needed to be done.

Jake Sullivan understood the threat of China well, and he understood largely what needs to be done to counter it. I think he, his understanding was not complete, but no one’s as complete. And I think that, you know, he, out of all figures, I would say that he understood the integration of the economic threat and the security threat better than anyone else that I’ve, I’ve seen.

People criticize Jake Sullivan for a lot of different things, but I think that that was, he got that right. Note that the policies I’m advocating to stand up to China are actually whimpier and nicer than the policies that they’ve already done toward us. You know, if you’re talking about industrial policy so that we can have domestic military related manufacturing capability en mass, they’ve been doing that with something called Made in China 2025 for a decade.

They’ve reshored most of their component manufacturing and turn themselves into an economic fortress in many ways. You’ve already done that, right? If you’re talking about military buildup, I advocate increased defense spending. China’s defense spending has gone through the roof. And then if you look at combination of off budget spending and, you know, adjust for the prices of what they’re paying and et cetera, their spending may already be greater than ours, or at least around the same amount.

They’ve done this unprecedented military buildup, including building a lot more nuclear weapons. I think they recently ordered a million kamikaze drones. So if you look at the military buildup, I’m advocating, it’s much, it’s actually smaller than what China’s doing. So, you know, I think that this idea of you can sit there and not pay attention to the, the, the military buildup China’s doing and the, you know, onshoring the hardening of their economy that they’re doing and all these other things that they’re doing, you can choose to not read the news stories about that and to say, well, I don’t think China’s that much of a threat. Look, they never invaded my neighborhood.

You can do that if you want, but that’s just like when people, when like COVID was spreading and people are like, well, my neighbors don’t have COVID. I don’t see any COVID here. You know, like humans’, humans’ ability to react to threats comes from our ability to observe things, trends happening far from us to actually look out in the world and see what’s happening and to understand what that means for our future.

Now, the spread of COVID is a little more understandable than the, you know, then great power politics and like what China’s military buildup and, you know, all these things could mean, of course, we don’t understand international relations as well as we understand the spread of communicable disease. But still, it pays to have some foresight and it pays to, it pays to pay attention to what’s going on to not just think what’s already happened to you, but what will likely happen to you in the future, given things that are happening far away in the world.

Zachary Karabell: I think you can look at China’s ability and desire to be the dominant power in Asia, as well as untouchable by any other power, particularly the United States, militarily and economically, without that then translating into a threat to the United States, unless the United States, in order to be prosperous, needs to be dominant everywhere.

And that’s kind of the hegemon question.

Noah Smith: We don’t, we of course don’t.

Zachary Karabell: And it is also true in East Asia that, I mean, as you know, having lived in Japan, you know, Japan may have a constitutional bar against aggressive military buildup, but they’ve essentially broken that quietly anyway, over the past four or five years and are spending, you know, by some accounts, the third or fourth largest defense budget in the world is now Japan.

South Korea is certainly spending a lot of money, their own political chaos, notwithstanding. So one of the effects of China’s rise has been to militarize Asia. Now that of course may, you know, in the longterm, increase the risk of conflict. It just means that China’s path, even without the United States for that kind of domination regionally is much more complicated than it was 10 years ago cause a lot of people who are regional are going, Hey, wait a minute. We don’t, we don’t want that.

As opposed to the United States necessarily needing to be that shield ultimately. And you know, they’re also doing it. It’s cheaper and cheaper to do some of the more, I mean, Ukraine has shown things like cybersecurity and drones, there’s an asymmetry.

So the ability of China to develop kind of asymmetric power militarily is huge, but it also means that those who want to counter China also have the ability to counter China asymmetrically. I don’t think the COVID analogy applies to what I’m saying, which is I’m saying that China is determined to be a great power, particularly within its sphere, but whether or not we need to stop that in order to have global peace and prosperity, I think is much more of an open question.

Noah Smith: No one’s talking about stopping it. And it’s not stoppable. China is a great power already. They are the most powerful country in the world. They are already the most powerful country in the world. That is not what I’m talking about stopping. And I’m not talking about crashing China’s economy or eliminating China’s power, blah, blah, blah.

That’s not what I’m talking about. I’m talking about building up our capability to defend us and our allies and our, you know, the, the way of life that we hold dear against, against, you know, threats from the most powerful country in the world, which is China. I think that, you know, respectfully, the more, the more you pay attention to this idea, the more worried you’ll be.

It’s people who tune out who aren’t worried about this and who, you know, just have a idea of China that’s Basically, you know, 15, 20 years in the past. And so I would urge simply, you know, more paying attention to this.

News Clip: China really did learn some hard lessons from the first Trump administration. And what we have to remember as we talk about this additional 10 percent tariff is that it is indeed additional.

This is on top of the tariffs that many of them that have remained in place from the first Trump administration that the Biden administration kept in place throughout the years. And so Chinese businesses did have to learn some hard lessons. Particularly those businesses that were focused on the U. S. market. They had to look to things like potentially moving their factories out of mainland China, looking at opportunities in Southeast Asia. That has been a really big region of opportunity for Chinese businesses.

Emma Varvaloucas: Noah, I have a maybe potentially fun, potentially ending question since we’re running out of time, given that there’s a not insignificant amount of economic anxiety in the United States around China, around automation, around AI, people are really angry about inflation, right, during the last election. We kind of asked you this fun question that it’s not going to be in this interview, but before we started, we asked you, which country’s economy would you bet on over the next 25 years? And you said Poland.

And I wanted to ask if you would also bet on the American economy for the next 25 years.

Noah Smith: I don’t know. That’s, that’s a tough one. We’re doing so well. And we’ve done so well over the past dozen years, 12 years, since 2013, we’ve done so amazingly well, even inequalities gone a little bit down, we’ve done so well that it’s hard to think of how that streak will continue.

And yet at the same time, I think that our main policy problem is regulation. Everybody sort of agrees that deregulation is the thing and people just have very different ideas on how that needs to happen, but we focused on it. We’ve realized that the regulatory state we created since 1978 was strangling some of our industry.

AI is an important technology. I think we’ll do well in that technological area. I think, unfortunately, we’re setting ourselves up to not do well in energy technology, but then that could change. There are many reasons the future could be bright in terms of, in terms of building up, if we want to, you know, increase our trading networks and increase our supply chaining and things like that, that have also been a booster to our production in the past.

I think that investing more in India. And Indonesia and Vietnam and Bangladesh and the Philippines will be more fruitful than China was because their policies are different and they don’t want to eventually kick our, all our companies out like, like China did, there’s a lot of scope for gains there. So technologically trading wise and policy wise, I see lots of scope for gains.

The final thing is population in terms of population, I think. We, you know, it’s immigration, we need, we need to continue the flow of immigration. And I know a lot of people in Trump world don’t like that. So that’s something that I think we could stumble on a bit and then, and then aging could kick in more strongly.

But, you know, I, I think the business Republicans are getting strong via the, the tech people integrating themselves into the Trump administration. You saw Elon really fighting with the fighting with the, like the rightists about H1Bs. And he’s like, fuck yourself in the face, you know, like I will go to war more than you can possibly imagine.

And just, and just telling all the Nazis to get lost about immigration, that’ll stand up for H 1Bs. And so I think there’s a chance that the increasing power of business Republicans through the tech right will lead to a rational solution on immigration. I don’t think anyone wants like mass illegal immigration.

No one wants that, except for like a few leftists, I guess, but they don’t matter. So no one, no one wants that. But then in terms of like large scale, high skilled immigration. I think that a lot of business Republicans want that and Democrats will, will accept that as well. So there’s a possibility that we’ll, we’ll get this sort of right.

And so I, you know, I’m, I’m cautiously optimistic about the American economy. I think there’s lots of stuff Trump could break and some stuff, maybe some stuff he will break, although he backs off of anything that tanks the stock market. So that’s, that’s sort of, you know, it’s short term thinking, but it’s better than no thinking, right?

Like avoiding short term pain in terms of the stock market is a lot better of a decision algorithm than like, let me implement my mad theory for, you know, doing this and that. And so, so Trump’s mad theories, he backs off of whenever the stock market goes down. And that’s good. Also the crypto market. Now we have the crypto market, which is just like a stock market with a high beta, with a high correlation with the stock market that amplifies the effect.

Trump has all this crypto and the crypto markets go down when he proposes tariffs like Bitcoin tanked. That makes me less pessimistic. I think it would be better for us to think long term, but given that our long, you know, Trump’s long term ideas are all crazy, it’s better for him to do short term stuff that avoids staying in the stock market, that’ll probably be our saving grace over the next few years.

Zachary Karabell: Again, who knows what the situation is going to be when this interview actually comes out. And I think part of the challenge, right, of Trumplandia, of course, is when, when everything is caveated by, I have no idea what the reality is going to be in four weeks. Like that’s a, that’s a tough reality to live in for too long.

Like it’s one thing to have everybody be on edge, but kind of constantly on edge, it would be nice if there was a feeling of a more of a coherent strategy, like we’re going to do tariffs and then we’re going to spend a lot of money to build American industry, right? I mean, I always felt like if you came out and you said we’re going to do 150 percent tariffs on every country. And we’re going to spend 2 trillion a year for the next four years to build a domestic, all of our domestic industry.

I mean, I’m not sure, I doubt I would agree with that policy, but it would be strategically coherent, right? It would, it would sort of recognize that you’re trying to create something at the end of these set of policies that has a whole series of moving parts.

You know, in that kind of classic, does the arc of history bend toward progress? Are we bending toward a continuation of what has been the emergence of a global middle class, rising affluence around the world, you know, rising affluence in the United States? Or are we at a pause that could be a reversal?

Noah Smith: The good stuff’s continuing. The main threat to all of that is population aging all over the world, low fertility, and I’d say climate change is probably number two, but distant second compared to population aging is the big threat to global, the continued growth of the global economy. Because when you start thinning out the markets and you, you don’t get the economies of scale that you did before and lack of economies of scale could decrease investment in new technologies.

I think we’ve seen some of this in Japan. In addition to decreasing productivity growth directly, I think same thing. We’ve, we’re starting to see stagnation. Some of the older economies, Japan, Britain, Italy, Germany, also Canada, I guess, we’re starting to see a lot of rich countries stagnate. Now it’s not, you can’t just look at the sick man of, of Europe or the world or whatever.

There’s a lot of sick men out there. Aging is a big part of that and immigration is not going to just fix it because A, people there’s some level of immigration people won’t accept. But B, like fertility is plummeting fastest in Africa. And that’s the last place that has like a decent, like four kids or more.

You know, like, and it used to be six, you’re like, Oh, Africa’s got this really high fertility. They have four kids. That was six 20 years ago. And in, you know, 20 more years, that’ll be two. And then you’re done. And then you’re done. That’s the last bastion of fertility, the last, you know, the last bastion of available immigrants in the world.

And then, so at that point, immigration will become much more of a zero sum thing. And so, so that’s the big threat and nobody knows how to solve it because nobody knows how to increase the country’s fertility rate. So I think that there will be, and Elon Musk is right about this, by the way, and nobody knows how to solve it.

And people yell a lot of shit about culture, about this and that policy, but nobody’s figured anything out. And so figuring that out and solving that will be a big task for the next two decades, three decades. And I don’t know how that’s going to turn out and maybe unsolvable, which case we could see the diminishment of humanity.

Zachary Karabell: I’m really glad you ended with that. I mean, I, I think you’re totally right that the, basically the great challenge and the great unknown of the 21st century is population decline because most of our recent 200, 300 years is all unfolded with rapid population increase and capitalism in many ways as a response mechanism to more people.

And you know, what do you do when they’re older and fewer? I mean, the one silver lining on that, because you mentioned climate change is a close second is to some degree, fewer people ameliorate some of the issues around climate change, right? Because fewer people is less resource intensive may not be in time.

And then, you know, Japan’s an interesting example in that it’s stagnant, but it’s also highly affluent. And as you mentioned, before we got on air, you know, if Japan’s your worst case human scenario, that’s pretty good. It’s like if, if Sudan is your worst case human scenario, then that’s really bad.

Noah Smith: But Japan might get worse than it is now. Like there’s no, there’s no guarantee that this is the worst Japan will get as things roll on.

Like aging hasn’t stopped and the effects, the downstream effects of aging haven’t stopped. Japan is affluent, but they’re a lot less affluent than Americans. You know, you’ve got people like eating cup ramen, like college, like middle class people eating cup ramen, like college students there.

And you’re like, Oh, look, the streets are so nice. And blah, blah, blah, blah. The restaurants are so nice. That’s for tourists. You know, and people are really struggling in Japan and it’s not a thing and they don’t like to show it because of shame, because they have a strong ethic of personal responsibility. But yet there’s a lot of people really struggling and this failures of the system are often responsible for that in Japan. China looks like they’re doing great, but ultimately they’re still a much poorer country than us and poorer country than Japan. You know, they’re already seeing population decline.

They’re about to see a, starting in 2028, they’re going to see a big decline in their working age population. We’ll see what happens with that. It will thin out their domestic market and reduce the amount of young talent available for their companies and blah, blah, blah. So to say that, Oh, look, Japan’s old and they’re doing fine is another statement where I think the less, you know, the more complacent you are about this.

So I think it’s another thing in which people ought to know more about poverty in Japan and about, you know, what the real material effects of stagnation are on Japanese people and how they live their daily lives.

Zachary Karabell: Well Noah, you’re someone who we could obviously talk for hours about almost anything kind of economic, cultural, political, but unfortunately we don’t have that time because we’re not the Joe Rogan podcast.

Noah Smith: I want to go on Rogan.

Zachary Karabell: Thank you for coming on. I want to urge everyone to sign up for Noahpinion on Subsack and follow Noah, always eclectic unique.

Noah Smith: Thank you.

Zachary Karabell: Provocative take on what’s going on at the most central way And I imagine in the time ahead particularly in Trumplandia that will be ever more so, so thanks for your voice ,your writing and your time today.

Noah Smith: Thanks for having me on.

Emma Varvaloucas: Thank you, Noah.

Zachary Karabell: So Emma we often have a, you know, insta reaction conversation digest. I felt like that conversation more spoke for itself. Like, I don’t have as much to say about it. I think it might be good to come back during the season about this population question, just because, you know, it’s one of these things that is perhaps the most macro issue of the next decades, but because it’s amorphous, it doesn’t get the attention that it deserves.

And it certainly doesn’t get the attention of climate change as one of the things that’s really going to shape slash threaten the live lives of everybody on the planet come 2050. I think people are beginning to recognize this as a thing like the population. The planet is not only going to level out at a lower rate than what we thought 20 years ago, but it’s going to level out at a lower rate sooner and then start to decline more quickly than anybody expected.

Emma Varvaloucas: Yeah, I mean, amorphous and long term, right? Infamously bad at dealing with long term problems. But I think it’s also like, it’s, it’s what Noah said about people have tried various things, like people have framed this as a, it’s too difficult to have a family these days and let’s do a government intervention.

They framed it as really an issue of women are educated now and they don’t want to have as many kids because like, it’s just not. It’s a lot of work. I don’t want to say little reward, but it’s a lot of work in a lot of different ways. And I think there’s some avoidance of talking about the problem precisely for that reason, because the solutions I feel like, or the conversation about solutions, can veer very easily into hyper conservative, make women broodmare conversations.

It’s distasteful, right? So.

Zachary Karabell: And it hasn’t worked in the few societies that have kind of gone there. I mean, Hungary’s sort of tried to preach some of this. Russia’s certainly tried to preach some of this, and it doesn’t work. And funny enough, paying people doesn’t work. Positive carrots and sticks, neither seem to do much good on this particular equation, or at least not yet, which is fascinating, right?

Usually one of those things works, but in this case, neither seem to have much effect. The broodmare or the, we’ll pay you $5,000 per kid, or $10,000, or we’ll, you know, we’ll give you all this time off, even Scandinavia, where they’ve created an ecosystem where having a child has an infrastructure of support that is kind of the envy of the world if what you want is the infrastructure of support. But they’re not having, you know, five kids per family.

Emma Varvaloucas: We might just be in a world where we find out that if people had their druthers, they would have like two kids or less. This is a topic for me that I am a little alarmed that people are gonna, when it gets closer to where you see the consequences of this, people are gonna panic and try to put the birth control back in the bottle.

Zachary Karabell: Literally.

Emma Varvaloucas: In a very ugly way. Literally, yeah. So, interesting to me to try to have a constructive conversation about it. It doesn’t feel that way right now.

Zachary Karabell: All right. Well, maybe we will revisit this issue. I want to thank you all for listening this week and listening every week. Please send us your thoughts at theprogressnetwork.org.

Sign up for the weekly newsletter, What Could Go Right? conveniently named the same as the podcast, also at theprogressnetwork.org. Listen to our Progress Report, which is a shorter version of what’s going on in the world this week that is constructive, hopeful, forward looking. Thank you to the Podglomerate for producing and to all of you and to Emma for co-hosting.

And we will be back with you soon enough. Thanks.

Emma Varvaloucas: Thanks everyone. See you next week.