D.C. update with Jason Cole: Tariff takeback?

Head of Public Policy Jason Cole provides his latest briefing from Washington. Jason updates the team on critical policy developments impacting markets and shaping the Trump administration’s economic agenda. Jason joins SVP of Investment Research Andrew Korz and Investment Research Associate Alan Flannigan to cover the uncertain path forward for tariffs, the looming government shutdown and the evolution of U.S. industrial policy in an AI-driven world.

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Transcript

Alan Flannigan (00:09):

Welcome back. You're listening to a podcast from Future Standard. Today we'll be discussing the latest policy developments with our head of public policy, Jason Cole. We'll keep today's conversation focused on the policy issues shaping our economy and markets. Recognizing that moments like these remind us of the very human context in which policy debates unfold. There's a widening gap between the financial world and real world. Stocks are at all time highs, even as the economy appears to be weakening, rates have declined as the market looks forward to fed rate cuts. But the debate over the independence of the central bank remains a legitimate concern. And in the middle of all of this government policy and the uncertainty that seemingly surrounds it at all times remains central to the outlook for the economy and markets. To an extent, I can't recall in recent memory. Let's start with tariffs, which are reshaping America's trading relationships while also affecting the economic reality on either side of the Fed's dual mandate. Jason, welcome to the show.

Jason Cole (01:09):

Alan, thanks for having me. It's great to be back up here in Philadelphia

Alan Flannigan (01:13):

and we're also joined on the show by our executive Vice President of Investment Research, Andrew Korz, my usual co-host in podcasting.

Andrew Korz (01:23):

Absolutely. It's great to be here, Alan.

Alan Flannigan (01:25):

So Jason, thinking about the IEP tariffs, they've been all across the headlines and the business journals. They're going to the Supreme Court, which tariffs does this cover really just level set the playing field for the conversation with us? What percentage of the overall tariff rate, what are the administration's options to get it struck down? Where do we sit today?

Jason Cole (01:45):

Yeah, it's a great question. Let's take a quick step back, right. I, epa, international Emergency Economic Powers Act, and that's one power and authority the president used to levy tariffs. The president's actually levied two different types of tariffs to date. One on sectors, steel, aluminum, copper, now derivative parts of those products. So if you're buying a chair from ikea, that's probably going to be tariffed if there's steel on that product, autos, auto parts, semiconductors are coming, pharmaceuticals are coming, lumber is coming. All of that has been done under section 2 32 of the Trade Act, which really stipulates that if the president can identify an emergency or that there's a national security issue, he or she would, he in this instance, can levy tariffs after the United States Commerce Department conducts an investigation that takes six or nine months. And so it's a slower process, but it's a process that had been underway and he was able to do that relatively quickly on those sectoral level products. And those are very sticky. The law is very clear on that, and I think there's a lot of certainty around those tariffs that when it's all said and done, if the threats around semi's, pharma, lumber come, we're looking at about at $1.8 trillion worth of imports or roughly half of our trade. Then you have the country level tariffs, and these are the tariffs that were invoked under the statute IEPA that you mentioned. Again, the International Emergency Economic Powers Act very different statute, extraordinarily broad, allows the president a range of remedies when there's a declared national emergency. Interestingly, however, one of those remedies is not tariffs. The word tariff cannot be found anywhere in that statute. And that has been the subject of a number of court challenges. And recently, I think the last week or the last week or so, a federal APPELLATE'S court on bunk. So all 11 members of that court ruled against the president and his ability to enact tariffs on a seven four decision under the IEPA statute. That's definitely going to go to the Supreme Court. The Supreme Court indicated they're going to hear it on an expedited basis, probably in early November, likely get a ruling January early next year and have some definitive resolution as to whether or not the president can do country level tariffs under the a IEPA statute. So that's where we are on those.

Andrew Korz (04:23):

That makes sense. And I think right now, to your point, if the IEPA tariffs are struck down, that brings the effective tariff rate from something like 17.5% down to around six. To your point, you add pharmaceuticals, semiconductors, you probably get the section 2 32 tariffs equating to about 10 or 12% tariff. Probably.

Jason Cole (04:43):

It's a little tricky to unpack because the way some of these country level tariffs have been structured, for example, autos and auto parts 25%, but in the deal struck with Japan, they go down to

Andrew Korz (04:54):

15

Jason Cole (04:55):

In a deal struck with the eu, they go. So it's a little difficult to unpack where they would go with country, how these tariffs have stacked from a sectoral basis vis via country deal that's been struck.

Andrew Korz (05:07):

So if let's play this forward, right? We get to early November. I dunno when you think the Supreme Court will actually decide,

Jason Cole (05:14):

I think it's early January, I think it's early next year.

Andrew Korz (05:17):

So let's play that forward in both scenarios, right? First scenario they get struck down, right? Walk us through maybe quickly sort of what the administration's options are, and then on the other side, if they get upheld, what does that look like? And I'm actually curious if they do get upheld, are there knock on effects where that sort of pulls through to other powers to the president that we maybe didn't think about?

Jason Cole (05:41):

Yeah, no, it's a great question. Look, I think there's three passing. Well first of all, take a step back. I think what's important for investors here is certainty, right? Well, we're

Andrew Korz (05:50):

Not going to get that.

Jason Cole (05:51):

And there's been a lot of uncertainty particularly around these country level tariffs. That's why I mentioned the two buckets. Investors can be certain that the sectoral level tariffs are here and that they're here to stay and they represent a significant amount of imports around 50% if they're all said and done. But there's a lot of uncertainty surrounding these country level tariffs, namely right now this court decision, there's three paths here if they're overruled. One is that the administration simply accepts

Speaker 4 (06:19):

The

Jason Cole (06:19):

Court's decision and says, okay, we can't do that. I don't think that's a path that they'll take a second option for the administration. And in fact, a lower court gave them this roadmap, said, Hey, you could use section 1 22

(06:36):

Of the Trade Act, which allows you really for any reason to do tariffs actually for balance of payments reasons. And that's really at the core of the president's complaint is that we've been treated unfairly for years. We have a massive trade deficit, the trade deficit, which is a balance payment problem. And so a president can under section 1 22 do tariffs up to 15% for 150 days. That sounds all very familiar to what we're going through right now. I mean, tariffs right now are landing anywhere between 10 and 50, generally circling around the 1520 5% area and 50 is on India and Brazil, and there's other geopolitical issues going on for those two levies. But generally they're around that 15, 20, 20 5% level. A third option is to invoke section 3 38 of the renowned Smoot-Hawley Tariff Act. It's never been used, and I suspect that the administration didn't go that route because that also may then be subject to some legal challenges because there's a lot of uncertainty

Andrew Korz (07:43):

Around Smoot-Hawley does not have a great reputation around either.

Jason Cole (07:46):

No, exactly. And I think there may have been an optical issue there. So for me, it feels like if they were to lose at the Supreme Court, I see this sort of 1 22 option coming into play that puts tariffs in place at 15% for 150 days. That gets you into say probably may, June of 2026. In order to keep them on longer, Congress would have to say yes. And that becomes an interesting proposition four or five months out from an election whether or not Congress wants to have that vote. And I'm sure we'll be back having this conversation many times before then. But that's something I think from a certainty standpoint, I think there's a lot of uncertainty left with respect to country level tariffs. And even if the court rules with the administration, I think that uncertainty remains. Remember we've got deals sort of with only two countries inked, the UK and Japan, all of the other announced deals, whether it's with Europe, with Korea and Vietnam, none of those are inked and they're contingent, most of them on agreements for countries to do investments or at least countries, companies to do investments in the United States that's unenforceable the eu.

(09:10):

They're not China. They can't say Volkswagen, you have to build a factory in Indiana. And so one has to wonder if those investment commitments don't come through, does the tariff dynamic change? And so I'm not sure there's a lot of certainty even with these deals. And my view is that the market may be very much under underpricing tariff risk.

Alan Flannigan (09:33):

And Jason, something you alluded to and I'd like to pull on just a little bit is the role of Congress in this process. Let's say the Supreme Court strikes down the IE, the tariffs. There's all this money that's been collected that presumably Congress doesn't want to just return all of this money, although they did just pass one big beautiful bill and cut taxes and extended tax extension. So this could be a form of that in theory, but there are also many more fiscal hawks that want to have this tariff revenue to help with deficit issues. So what are you hearing in terms of appetite? And also would this be legislation that could be applied retroactively in terms of revenue that's been collected to date?

Jason Cole (10:16):

I think there's two interesting questions here. One is what do you do about the revenue if the Supreme Court overrules it that's already been collected? I think that's an immensely complicated question. I'm not a customs official or expert, but it seems to me, and there's probably a ledger where and who paid, but it seems to me that unpacking and unwinding that could be a very difficult

Andrew Korz (10:36):

Position. We hear the way that companies have had to deal with these new very complicated tariffs. It is a massive undertaking to try to understand and comply with all of these statutes.

Jason Cole (10:47):

And so unwinding that could be very difficult. I think the second question you're asking, Alan is what's Congress's role in this? And then 1 22 in 150 days, if 1 22 is invoked, they will have to make a decision. Do we carry tariffs honor or not? And the members I'm talking to, I think they're privately hoping the Supreme Court doesn't put them in that position. I don't think members want to take that vote. And it will be an interesting vote because this will be one of those areas where the idea of a left right political spectrum actually looks more like a horseshoe, right? Where you start seeing members of the Democratic Party, Bernie Sanders, Elizabeth Warren come to mind, who have historically been pro tariff. Do they vote to support President Trump's tariffs in this regard? And then you have some very free market conservative Republicans who have never supported tariffs. Do they feel compelled

Andrew Korz (11:48):

The types

Jason Cole (11:50):

And do they feel compelled that they need to support their president?

Andrew Korz (11:53):

It's

Jason Cole (11:53):

An interesting question. I think one that most members don't want to have to grapple with and are I think privately praying that we don't get to that

Andrew Korz (12:03):

Point next June. Then there's all that horse trading where I've got a factory in my district and I'd like to keep the tariffs on in just that industry. It becomes a total mess and a free for all. And hopefully it doesn't come to that.

Jason Cole (12:16):

No, that's exactly right. It could be an interesting late spring, early summer

Andrew Korz (12:21):

If

Jason Cole (12:21):

We get to that

Andrew Korz (12:22):

Point.

Alan Flannigan (12:22):

And this is leading into another very exciting topic. It's back once again, Andrew

Andrew Korz (12:26):

Exciting. Yeah, back for, for maybe the seventh or eighth time with Jason here on the podcast just once. It would be nice to have you on here not talking about either a government shutdown or a debt ceiling crisis, but here we are. It is mid-September, the continuing resolution, the temporary spending bill that was signed in March, goes through September 30th, politically last time there was hand wringing, but eventually the Democrats got on board,

(12:53):

They signed on with the Republicans bill. There were some Republicans, I believe, who were also unhappy with the fact that the temporary bill didn't include spending cuts. But I think there's a lot of political pressure right now on Democrats not to go along. So I think this sets this up for a very tricky situation. As you're talking to folks in DC, can you sort of handicap for us, there's a lot of these situations where there's a lot of news, there's a lot of hand wringing, but then nothing actually happens. Is this a boy who cried wolf situation or what do we got?

Jason Cole (13:25):

So it depends on who you talk to, right? So there's an old adage in Washington that there are actually three political parties, Republicans, Democrats, and appropriators. And the conversations I've had this week that's playing out, right? You talk to Tom Cole, the chairman of the House Appropriations Committee, and he will tell you that they are nearing a deal. They being his Democrat counterpart, Rosa Deloro. And then the Senate appropriators are nearing a deal on a three bill, what they'll call a mini bus. So there are 12 appropriations bills, 12 bills that in theory need to pass in order to fund all the agencies. And they're nearing a topline deal on three bills, military, construction, agriculture, and legislative branch that their ideas to pass. So

Andrew Korz (14:17):

They keep getting paid then is that

Jason Cole (14:19):

Those three bills move on and then they would do a continuing resolution for the remaining nine until November 20th. That's the date they've circled on the calendar. So the appropriators are nearing in principal agreement.

Andrew Korz (14:35):

When you say appropriators, you mean the appropriations committee? Correct.

Jason Cole (14:38):

Well, and really the leadership, the Republican and Democrat leadership of those two committees are nearing a deal. That was as of two nights ago, and I think it's getting closer and closer each minute that ticks off the clock. But you have their respective leaderships, particularly among the Democrats and Senator Schumer, leader Schumer and minority leader, Hakeem Jeffries that are feeling tremendous pressure from their rank and file to get something for voting for a cr, even if it's a near term one. And that's something right now everybody's beginning to circle around this idea of extending Obamacare, a tax credits that are set expires at the end of the year. And in reality, even though they expire on December 31st, in reality, the deadline is more like November 1st when exchange markets open up. And so the pressure is building for Democrats to say, we won't vote for any deal that doesn't contain an extension

(15:40):

Of Obamacare credits. And that of course is unpalatable to many in Speaker Johnson's caucus and leader TH's conference over in the Senate. And so we're circling around a potential math problem yet again, where you have a narrow three seat majority in the house, you do Obamacare credits, you could lose anywhere from 10 to 20 to 30 conservative Republicans. And then you have a deal in the Senate where Thune needs seven Democrats. And when you satisfy one avenue, it's like squeezing a balloon, right? The other, you create problems elsewhere. And so adding insult to injury in all of this, there's seven legislative days between now and September 30th. At the end of the fiscal year, both chambers are in session. Next week they take the following week off the week of the 22nd for to celebrate the Jewish holidays. And then Monday, September 30th is the deadline, or no, maybe it's Tuesday, the September 30, Monday or Tuesday early. That following week is the deadline. And so there's a lot of pressure building and really it's a triangle between Democrats, Republicans and the appropriators here who very much want to try to get something in and a deal.

Andrew Korz (16:52):

So what I'm hearing is even if we do get a deal, and it's interesting to hear that Democrats actually do have a clear ask here. It may not get fulfilled, but it sounds like we're going to just be doing this all over again in mid to late November if this situation gets worked out.

Jason Cole (17:10):

I think that's extremely likely, right? If Democrats win, for lack of a better word, and get the Obamacare credits, do they move the goalposts and ask for something else and to extend the government further beyond November 20th, if that's the date, let's stipulate that it is. And I don't know what that is at this point. If I were a betting man, I think that at some point this fall, we will end up in some level of a government shutdown. And I don't know how long that lasts

Andrew Korz (17:35):

And just to, I think the betting markets slightly agree with you. I think there's a 53% chance on poly market that's,

Alan Flannigan (17:42):

Andrew loves the

Andrew Korz (17:43):

Betting markets. Nothing says it's people putting real money.

Alan Flannigan (17:48):

Real time feedback.

Andrew Korz (17:49):

Yeah, realtime feedback. I think it's interesting.

Jason Cole (17:52):

I agree I should watch them more, but look, and at 53% maybe I don't bet on that. I would be better if it were only 20 and I can win. But I think at some point this fall, we will, whether it's October one or November 21, I think one is coming at some point.

Andrew Korz (18:09):

And for markets, I mean that's basically the balance of the year. Massive uncertainty from a policy perspective, massive uncertainty in terms of the spending that goes out the door to various companies and various industries. And markets don't like uncertainty, we know. So I think that's something we'll have to look forward to, especially with equity valuations where they are for the rest of the year.

Alan Flannigan (18:27):

And one of the additional forms of uncertainty that the market's really had to contend with of late is Central bank independence. And this is a topic that's very near and dear to me. So if you'll pardon me, I'd like to share a brief kind of anecdotal story about it. So in 2019, I had the privilege to go to an event where Candidate Biden, at the time soon to be President Biden, was giving a speech and attendees of the event had the opportunity to have a couple minutes with him, kind of go through, take a picture, shake a hand, and share with him. We were told to share with him what is one of the top priorities that you would like the president to know that's important for our country. And at the time, president Trump, first term, Trump was raising alarm bells around central bank independence. Then as well too. Things didn't seem to divulge anywhere near to the level that they are currently. But that was my one topic that I brought to President Biden, which was, Hey, this is our reserve currency status of the world is the greatest thing. For all these reasons, we got to preserve that and protect it. Please do everything you can to maintain central bank independence.

Andrew Korz (19:34):

That is the wonkiest answer you possibly could have given to him.

Alan Flannigan (19:37):

Well, I knew nobody else there was focused on that, so they had social issues and things of that nature, but that's how much it means to me. And the focus of the market's really been with an eye toward the likelihood of fed rate cuts and lower moving, but potentially more significant situation is the pressure being put on the Fed's independence. Donald Trump has specifically stated that he wants to have a majority of the Fed Board of Governors. His administration has recommended an investigation to Lisa Cook to try to have her fired. And JD Vance has specifically stated he thinks there should be more democratic accountability for monetary policy makers. Jason, what do you think about all this?

Jason Cole (20:15):

Yeah, I tend to agree with your wonky take, right? That independence of the Fed, at least as it regards the conduct of monetary policy should be held sacrosanct, right? Look at Greece, Argentina, Turkey. There's other nations around the world where you get political meddling in rate setting and it doesn't ever end well. And so I think it's extremely important that that independence, at least on monetary policy, I think there's a fair argument that could be made. The Fed also has a fair amount, particularly in a postdoc frank world of regulatory authority. I think there is a fair argument to be made that they don't deserve independence in that regard and should be subject to some congressional oversight in their policy, in their strict policymaking realm, not their monetary policy world. But on the monetary policy side, I am an adherent to an independent Fed, and there's some things that are concerning. Look, I think we're going to get a rate cut next week. Yeah, I think the only question now is at 25 or 50, I tend to lean toward 25. Still

Andrew Korz (21:32):

The market's pricing 25 with a very low chance for 50. As we sit here today and we've gotten most of the data we're going to get, it's seems

Jason Cole (21:39):

Going to, and it's mixed right. You have yesterday inflation ticking up slightly, but last week a horrific jobs number. And that augers toward, particularly with the Chairman Powell, indicating that they're a little more worried about jobs than inflation. Right? Now that I think we're going to see a cut, does that temper some of the president's zeal at poking at Powell or Lisa Cook? I don't think the Lisa Cook thing goes away.

Speaker 4 (22:06):

Sure.

Jason Cole (22:08):

In fact, the president last night filed the administration, filed an emergency appeal, a federal judge ruled that she could stay on and impending a review and an investigation in a court ruling on the for cause aspect of her termination. The administration have filed an emergency appeal on that last night and asked that the court figure that out by close of business on Monday.

Speaker 4 (22:31):

Yeah,

Jason Cole (22:32):

Because the Fed meets on Tuesday. I think the other thing that's going to happen on Monday, in all likelihood, the United States Senate will confirm Steven Myron to fill that vacant fed slot at least until for the remainder of the year. And so that sets up a fed that. And the fact that we're even having this conversation, frankly, is concerning to me. But that sets up a Fed that then is ostensibly three three with j Powell being somebody who's been nominated by both Democrat and Republican presidents. And again, the fact that we're even having a conversation about this party appointed that person vis-a-vis the Fed and the conduct of monetary policy concerns me a lot. But that's where we are. And if Lisa Cook goes and Myron comes on, then you're in a sort of a four three situation. And that becomes important when you look at the FOMC, right? You have seven board governors that then appoint the other five regional bank members that roll on and off on an annual or biannual basis.

Alan Flannigan (23:40):

And there's got to be some signal just from the sheer political capital that's been expended, chasing down a FHA mortgage application, I guess

Andrew Korz (23:48):

Is

Alan Flannigan (23:48):

The crime. So I mean, the level of prioritization of this specific change by the administration seems significant.

Jason Cole (23:58):

Yeah, I think there's clearly some signaling going on here. And look, I hope that the board remains steadfast and continues to follow the data.

Andrew Korz (24:07):

Yeah, I think it's important to step back and remind folks why fed credibility and independence is really important, right? Central Bank's job is to keep inflation and inflation expectations contained, right? So long as people,

Jason Cole (24:22):

Well, they have a dual mandate. No, no.

Andrew Korz (24:24):

Yes. Well, the Fed does. Other central banks don't,

Speaker 4 (24:27):

Correct.

Andrew Korz (24:27):

The Fed has dual mandate, but speaking in the sense of credibility and this idea that the Fed's job is to make sure that people's expectations of future inflation don't get out of control because if they do, you get risks of a vicious cycle where people expect inflation to go up by more. They ask for more of a raise, which stokes more inflation, which makes them ask for a larger raise, and it goes on and on and on. That has major implications for interest rates. Obviously investors will demand higher interest rates for that inflation risk, which has major implications for our debt load and our interest. All of these things come down to people's belief that the Fed truly is independent and that they will act when inflationary pressures come up. And there

Alan Flannigan (25:08):

Are many currencies that no longer, many more currencies that no longer exist than that currently do.

Andrew Korz (25:14):

Correct. Seashells being one of them. Yes.

Speaker 5 (25:20):

The mandate for private markets is to deliver alpha and investors will need to dig beyond the surface level to find it going forward. Read the complete midyear private markets outlook from future standards, click link in the description to download.

Andrew Korz (25:38):

Alright, so Scott Besson is running a search for the Fed chair right now. You've got I think three front runners, right? You've got Christopher Waller, Kevin Walsh, Kevin Hassett, maybe one or two more, maybe some dark horses. Give us your take. Do you have a projection for us today?

Jason Cole (25:56):

So I think of the three of the two Kevins and Governor Waller today, if the president were to make a choice today, I think it would probably be either Kevin Hassett or Christopher Waller. Marsh is making a bid. And frankly the reason is, and it'd probably be Hassett principally because I think the president is closest to him. That choice doesn't have to be made technically until May of 2020, may of next year, 26. And I think is the closer we get to that date, the increasing likelihood of Scott Bessant pulling a Dick Cheney and saying, I've done a vigorous search and I've discovered that the best person for this job is me. It gets increasingly likely I would not take Scott Besson out of the equation. And to be clear, even though he said he doesn't want it, and

Andrew Korz (26:49):

He would not serve as Secretary of the Treasury and the Fed chair, correct?

Jason Cole (26:55):

I don't think that's legal, although there's a lot of, I

Andrew Korz (26:58):

Think Steven Myron is staying on the Council of Economic Advisors, right?

Jason Cole (27:01):

He's taking a leave of absence. But in any event, I don't discount the Treasury Secretary, particularly as if the president waits longer and longer and trade gets settled and all these other things that essence Bestin playing an important role in. But don't discount him as the potential next Fed chairman. But again, if it were today, I think it would is Kevin Hassett or Christopher Waller.

Alan Flannigan (27:31):

Okay. So no TV personalities in the writing currently, we're not going to have Mr. Wonderful monetary policy.

Jason Cole (27:36):

No. Remember if you watch Myron's confirmation hearing last week, yes, he was confirmed on a strict partisan lines or not confirmed he was moved out of the banking committee on a partisan vote. But if you watch that hearing, there were concerns levied by Republican members about this question, defendant independence. And so I think here they will take their consent obligation very, very seriously. And I know you're kidding on the TV personalities, but I'm in a very serious note. I think you can expect to see members of the Senate Banking Committee take that very seriously and that will weigh heavily.

Andrew Korz (28:15):

Look, this is a murky subject, and once you lose the faith and the credibility from the public, it's hard to get it back. And there are a lot we've seen in the bond markets sort of echoes of this, not only in the US but we've seen echoes of fiscal concerns as well across the world. So I think there are real live concerns here that this would only potentially exacerbate. So I want to move on to our next topic, which is industrial policy, right?

Jason Cole (28:42):

Not at all controversial,

Andrew Korz (28:43):

Sort of a U-turn there. So obviously this administration seems quite comfortable utilizing the power of the state to further, whether it be domestic, international, national security goals. We've seen that in, they're taking a stake in Intel. They've levied what is basically an export tax on Nvidia to allow them to export not quite cutting edge chips to China. We've seen it in sort the Paramount CBS merger situation,

Jason Cole (29:08):

Golden Share and US Steel

Andrew Korz (29:10):

With Apple sort of pressures to bring manufacturing capacity back. I think there's a lot of things going on here. I think the last administration, whether you agree with it or not, had a coherent view of what industrial policy should look like and which industries they were targeting. This feels a little bit less clear. Can you kind of walk us through what you see as the theory of the case when it comes to industrial policy with this administration?

Jason Cole (29:37):

Yeah, I mean, that's a tricky question. Yeah, let me take a big step back. Probably consistent with my views on Fed independence. I'm not sure industrial policy is ever a good idea. And I think there's been this long brewing tension around free flow as a capital and national security where industrial policy is used or national security is uses a justification for invoking industrial policy and picking winners and losers. If you look past back through the last administrations back to President Bush, that is true. Where in the great financial crisis you had equity stakes taken in banks. You had post nine 11 the government saying, we're going to review and place restrictions on foreign investment in the United States through the creation of CFIUS and the Obama administration. You had the American rescue, no, not the Aura. The stimulus package that was passed early in his administration were everybody remember

Speaker 4 (30:42):

Lyra,

Jason Cole (30:43):

And then you had auto bailouts. Trump and Biden both invoked the Defense Production Act, which compelled industries to make stuff during COVID. And so this is a bipartisan problem. This isn't just, and you mentioned the Biden administration, whether through the Chips Act and doing subsidies for semiconductor production in the United States or the IRA that did energy. So this is something that's been going on for

Speaker 4 (31:13):

Decades

Jason Cole (31:17):

And you start getting into slippery slopes where today, as you mentioned, right, apple shows up and says, we know a semiconductor tariff is coming, the president has broadcast that for months. And Tim Cook shows up and says, I'm going to do a hundred billion worth of investment somewhere in the United States, and all of a sudden he's going to be exempt from those, right? Nvidia decides that they're going to pay a 15% tithe and they're going to be exempt from export controls. My personal view, regardless of who's in charge, that's really dangerous. You empower people like me, we cut to the chase, I'm lobbyist for Future Standard, and you begin then to question the investability of these companies. People like me aren't disclosed in 10 QS and 10 Ks. You don't know what type of access I have or Tim Cook's people have or wines people within N Video or whoever the industry is, what access they have and what special deal they might get. And I think that's dangerous and deviates us from efficiently allocating capital on market principles.

Andrew Korz (32:25):

I think that's totally fair. I think what a lot of folks on both sides probably would say is that the rise of China and the Chinese model has changed the game, right? Absolutely. They send price signals, they send long-term demand signals to these critical industries. And it seems to be working, and

Jason Cole (32:44):

This is less the case today, but in the last Congress, I mean then Speaker McCarthy set up a select committee on China, and it was bipartisan. It was the most bipartisan play in town for two years. And it's still going on a little bit. It's not quite the love fest that it was in the last Congress. But yeah, China has been used repeatedly as, for lack of a better word, the excuse to head down this slippery slope. And look, there's a huge tension there. We rightly need to worry about China and their ascendancy for our national security, but we also need to rightly preserve the foundations of this country and its market economy.

Andrew Korz (33:22):

And I think with China, the clear number one, I think point of contention or point of concern is ai right now it feels existential to both the US and the Chinese for economic reasons, for geopolitical reasons, certainly for military reasons as well. I think this is sort of where tech industrial policy markets, obviously the markets are massively concentrated in AI plays right now. This is where they all kind of meet. And I think, again, going back to the last administration, you had an AI policy that was sort of formed around this idea that we need to keep our adversaries and sometimes even our friends from getting our crucial AI related tech. You can't have NVIDIA's latest chips. You can have their third, fourth generation, but you can't have the latest generation, the new administration, correct me if I'm wrong, but seems to be taking a different tact if I can see this, or at least there are parts of the administration's actions that would suggest that. And I think the sort of theory of the case here is that actually you don't want to restrict exports because that just makes China ramp up the curve faster. Actually, what you want to do is diffuse American technology and American AI infrastructure throughout the world, and that's how you get everybody operating on American infrastructure. And that's how you win the AI race is that you become ubiquitous. Is that how you understand the AI policy? I think they just came out with sort of an ai, a big AI report,

Jason Cole (34:48):

And I think that's a well said and well put and directionally where things are heading. One, two, I think there's also generally on the Hill, by the way, much there was at the turn of the century and the internet explosion of hands off, let's not overregulate that you're beginning to see how safety

Andrew Korz (35:09):

Is another thing. AI safety, they have no interest in regulating

Jason Cole (35:12):

AI safety. And it's interesting because you close the doors with members on both sides of the aisle, and I think there is a bit of hand raining around, were we a little too loose when you look at section 2 32 and content moderation, for example, and social media, and should we have paid a little more attention? And it'd be interesting to watch over the coming months, probably years congress' appetite for maybe putting up some barriers. But I think right now the watch word is caution. Let's not rush to regulate. But you hear behind closed doors some handwriting and worry

Andrew Korz (35:55):

About especially labor market, right? You start to see labor market impacts, I think where people start to get really concerned.

Jason Cole (36:00):

So that's number one. I think the other thing that folks need to pay attention to is because I think you're absolutely right, but we need other countries and other countries. Technology A SML comes rushing to my mind in the Dutch, they do the lithography for Nvidia and others to make these,

Andrew Korz (36:23):

And China can't have their latest machines either.

Jason Cole (36:26):

Correct? And so I think we need to be cognizant of the fact that these international relationships on the friend side are maintained and deployed appropriately. And I think that's happening. But watch that in this tariff trade discussion and where access lies and all of these sorts of things because while it would be great if we owned it all, we don't, and there are other businesses that are domiciled and other places that have an edge on inputs and whether it's the technology or whether it's, we had the big fight with China over the minerals and some of the inputs that go into these technologies that are incredible.

Andrew Korz (37:06):

This is the challenge of deglobalization or stag globalization, however you want to put it.

Jason Cole (37:10):

Correct.

Andrew Korz (37:10):

These are incredibly complex systems. Absolutely. You cannot unravel them easily or quickly without massive disruption.

Alan Flannigan (37:16):

One of the things that is kind of sat with me that seems to draw a lot of these themes together is just this heliocentric of our current economy and our current situation and everything policy related that's changing significantly is so focused on the administration, the administration's extension into all different fields of industry, new types of policy that the market's not had to contend with for many years, and the leverage of the economy and the direction of the country to the administration relative to previous administrations that may have been more hands off with the free market. It seems like something that introduces some meaningful risk to the economy writ large if they come out with major policy and just get it flat wrong or there's again the oscillations back and forth that we've seen. Is that a fair characterization just in terms of what DC is operating right now? It is completely heliocentric,

Jason Cole (38:14):

Heliocentric. This is a word coming from the guy who raised monetary policy with a future president. Yeah, I think it's a fair assessment. Look, and potentially the biggest risk, and I think you nailed this, is that sort of vast pendulum swing we're seeing in our politics election to which sort of prevents any level of consistency here. And I think there's a lot of risk in bouncing back and forth between worldviews given the state of our a highly polarized electorate and then consequential highly polarized elections that bounce back and forth.

Andrew Korz (38:56):

I think we should also mention at the same time that the US economy is incredibly resilient. Yes, its ability to drive productivity gains beyond that of basically any other developed country. Despite all of these headwinds, the economy still seems to be doing okay. So I think it is important, despite some of these challenges that we're seeing and the uncertainties, the economy's chugging along. Obviously the AI boom, the stock market boom is helping that. But look, we're in a slower growth world. We're not in anything worse than that right now. So I think it's important to kind of level set that as well.

Alan Flannigan (39:31):

Still very much leader in the clubhouse.

Andrew Korz (39:33):

Yes, absolutely. Absolutely. I wouldn't rather be Europe right now, to be honest. Final question, Jason, and this kind of brings us back to home a little bit. We are an alternative private markets focused investment firm. Big news recently the Trump administration signed an executive order sort of directing, I believe the Department of Labor to allow

Jason Cole (39:54):

And SEC

Andrew Korz (39:54):

And SEC to allow defined contribution 401k plans, mostly to include alternative strategies in their offerings. We have not seen that previously. I don't know what the enforceability of that is exactly. I don't know what the next steps are. Curious to get your take there and how quickly people can maybe expect to start to see those offerings showing up in their 4 0 1 ks.

Jason Cole (40:17):

Yeah, no, it's a great question. So the EEO directed DOL and SEC, and remember, it is not illegal today to put just, nobody wants to get sued, right? Correct. But ERISA creates, which is A DOL sort of administered statute, creates some legal liability for plan sponsors to include things that might be higher fees in their plan. So don't, they're worried about the plaintiff's spar. And so I think what you're going to see here is I think the DOL coming out, for lack of a better word, with some regulatory safe harbor, saying that if you invest in these products or protect these into your plans, that that is not a default violation of your fiduciary obligation just because they may be a little more expensive, even if they outperform other markets. I think that's probably where this is going. When this morphs longer term into sort of firms like ours and others thinking about product development and whatnot. I don't think in, maybe you guys are younger than me, but I don't think in my lifetime I'll be able to go to, we use Fidelity, right? I don't think we'll be able to go to the platform and pull down and select

(41:34):

An FS private credit product or a private equity product. I don't think that will ever happen. I think more likely is you'll start seeing like you do today, default options being target date funds, where those target date funds have a 10 15, depending on where you are in the lifespan allocation to some mix of alternatives, whether it's private credit, private equity, real estate, other sorts of assets that aren't even developed yet. I mean, that's the other important thing here is that, and we're urging the administration to do is that they need to be asset class neutral. There's been this temptation to create a list, and I've argued that if you do a list, you're putting it in a time capsule and you're limiting innovation for product development down the road. I think they've been receptive to that argument. And so hopefully whatever comes out is a asset class neutral and allow us the market to innovate and we will see how this thing morphs out. But I think on a timeline, I think it's a longer fuse rather than a shorter one.

Alan Flannigan (42:43):

So Jason, it's always wide ranging with you. We cover so many important topics for our investors and I love how much you bring it back to the focus of our investors and clients. Thank you for being on the podcast today, sharing your expertise and wisdom from dc.

Jason Cole (42:55):

Yeah, thanks Alan. Thanks Andrew. It's great to be here. And let's do this again.