Drinks With Caroline
Caroline Levy, a veteran Wall Street analyst, delves deep into the world of beverages with some of her hero's.
Caroline’s quick wit, empathetic approach, and vibrant personality allow leaders to be vulnerable and speak truths not typically heard outside of closed-door conversations.
Drinks With Caroline
Andy Rothman, Founder & CEO of Sinology LLC - Expert Insights on the China-US Tariff Dispute, with Some Surprising Conclusions.
The pain for American consumers and companies will be a lot deeper than the pain felt in China.
Speaker 2:Hello friends, old and new, and welcome to Drinks with Caroline. I'm so happy you've joined me for what I believe will be another stimulating conversation with an industry expert, founder or otherwise fabulous person in the consumer industry. Well, andy Rothman, thank you so much for joining me for Drinks with Caroline For my listeners. I've known Andy for many, many years. We worked together at CLSA, which was a Hong Kong-based research firm, and Andy was our voice in China. The firm was known for its research in China and for being really well out ahead of the curve in understanding what was going on with the Chinese economy, which was incredibly valuable to me as a consumer analyst, covering names like Pepsi and Coke and looking at their businesses there, and Estee Lauder being another one where the China consumer, both domestic and international, became incredibly important. He now has his own company called Synology, and let me turn it over to Andy to tell you a little bit about his background.
Speaker 1:Thanks, caroline, great to be with you, Great to catch up again. It's been a while. Should I open my drink now, since we're having drinks?
Speaker 2:Yes, I keep forgetting to ask my guests to do that, so thank you for reminding me. What are you drinking, andy? Oh, that sounds good.
Speaker 1:Can you hear that?
Speaker 2:I heard that it was amazing.
Speaker 1:I am drinking an athletic in your honor. A extra dark.
Speaker 2:Yum, does it taste good.
Speaker 1:I'm still pouring it right now.
Speaker 2:While you're doing that, I poured myself a Libby non-alcoholic white sparkling wine and I have to say it is delicious. It's my new favorite go-to drink for something a little sophisticated but non-alcoholic.
Speaker 1:All right, the athletic is quite tasty, thank you. But non-alcoholic All right, the athletic is quite tasty, thank you. So just a little bit of background for your listeners. I have been focused on China for a long time, so I first went to China as a student in 1980. And that was just a few years after Mao's death and the end of the cultural revolution, so things were really chaotic and quite backward at that time.
Speaker 1:I went back to work there in 1984 as a very junior American diplomat in Guangzhou in the South, not far from Hong Kong, and even at that point it would have been impossible to predict that China would be the world's second largest consumer market, the world's fastest growing consumer market today, and something that everyone's paying attention to.
Speaker 1:I want to emphasize this, because you're going to hear from me today is probably a little bit more optimistic about the Chinese economy than a lot of people hear or read about, and I think one of the reasons for that is that I've seen China through some of its worst times. For example, when I first worked in China, the per capita GDP level was below that of Haiti, bangladesh, afghanistan. So this has led me to a couple of fundamental views. One is that the Chinese people are really resilient, and the second is that the Chinese government has been pretty pragmatic when it comes to economic policy. They make a lot of mistakes, but they generally course correct, and that's why China is now a fairly wealthy place, and so that's probably why I'm a little bit more optimistic that China can get through problems over time.
Speaker 2:That's an astounding background, Andy. Just four decades on the ground, or if not their full-time, their part-time.
Speaker 1:Yeah, so I spent 17 years with the State Department as a diplomat. My last job was running the macroeconomics office at the American Embassy in Beijing in the late 90s, when I worked on China's WTO negotiations. And then, in 2000, I left the government and joined CLSA and that's where we met and for 14 years I was the Shanghai-based China macro strategist for CLSA, an investment bank sell-side brokerage firm. And then, in 2014, after more than 20 years living and working in China, I moved back to the US and joined Matthews Asia, one of the largest Asia-focused active equity investors in the US. And then, at the beginning of this year, I started my own company, synology LLC, to advise corporate directors and institutional investors on risks and opportunities in the Chinese economy and how to navigate US-China relations.
Speaker 2:Well, no one better qualified to be here today to talk to us about how you could see the next year and three years playing out, maybe even longer. These are very confusing times, I think, for a lot of investors and young businesses and maybe even not maybe definitely more established businesses. Everybody is struggling to keep up with the latest news. You just got back from China. Your view on what you've seen so far and where we stand today Great. So yes, I just came back from China your view on what you've seen so far and where we stand today.
Speaker 1:Great. So, yes, I just came back from two weeks traveling around China Hong Kong, shanghai, xiamen, which is a city that maybe most of your listeners haven't heard of, but it's got a population bigger than LA. It's on the coast of Fujian province, right across from Taiwan, and then sometime in Beijing talking to people in the government and advisors to the government as well. I think there's two important things for companies and investors to think about about China right now. One is that, while the Chinese economy is growing more slowly, it's still growing faster than pretty much every economy in the world, with the exception of India. China is still accounting for about 20% of global economic growth.
Speaker 2:When you say is still growing. What's the latest data point you have?
Speaker 1:Well, the GDP official GDP growth rate is about 5%, but I wouldn't suggest that people focus on that because we know that's the least accurate statistic in China. But what is more accurate is that China is and despite the tariffs chaos will continue to be, I think, the world's second largest consumer market after the United States. It is the fastest growing consumer market, growing faster than the US and Europe and Japan and, as I said, also than the US and Europe and Japan and, as I said, also the main driver of global economic growth. So the IMF just put out an updated forecast to take into account what's happening with the tariff chaos and they are still predicting that this year and next year, china will account for 20% of global growth. That's more global growth than from the US and the rest of the G7 combined.
Speaker 1:So, regardless of what happens with the tariffs, china is going to continue to be important for companies and for investors for four reasons. One is it's going to continue to drive global growth, as I said. Second, it is going to continue to be the second largest and fastest growing consumer market. It's going to continue to be the driver of competition globally for many companies around the world. We're all aware of DeepSeek, for example, surprising a lot of people back in January with its successes in AI. But maybe not so many people have heard of Mishwe, which is a consumer company that went public in the Hong Kong market about a month and a half ago. They sell drinks and ice cream. They have, caroline, more global franchise outlets than Starbucks.
Speaker 2:Astounding. I keep being astounded.
Speaker 1:Andy. And then the fourth point is that China is still going to be a really important part of many companies' global supply chains. So we're having drinks here. I just poured myself a non-alcoholic beer in your honor from Athletic, and it comes out of an aluminum can and there are probably vitamins in there that come from China. China's going to remain important for all of those reasons.
Speaker 2:Where do you think we are right now with reaching some sort of agreement between the United States and China on tariffs?
Speaker 1:Well, you know, the news flow on this is almost every few hours, so we run the risk of everything that we talk about today is going to be out of date by the time your listeners put their headphones on. But there's a few things that I want to emphasize about the negotiations. One is from my discussions with officials in Beijing just about 10 days ago, it was clear to me that they really want to resolve this problem. They want to solve this tariff dispute and get back to a normal trading relationship. That doesn't mean they're not going to continue to fight back with tariffs in response to tariffs from Trump. That doesn't mean they're not going to continue to fight back with tariffs in response to tariffs from Trump. It doesn't mean that they're going to occasionally put out public statements that are somewhat strong, but they want to resolve this.
Speaker 1:The problem for them is twofold. One is Chinese officials say they don't know who to talk to. They told me they have tried multiple channels to get someone in the White House to represent Donald Trump and start negotiations, but there is no point person. I would assume that Treasury Secretary Besant, for example, would be the key player, but if you listen to his public comments, he clearly hasn't been talking to the Chinese, and I think that might be because Donald Trump really wants Xi Jinping to call him directly. But there's no way that's going to happen. First of all, no country likes to negotiate that way, including the US, prior to the Trump administration. First you'd have some progress made at working level or senior level discussions before it went up to the two countries' leaders. Second, Chinese officials say they just don't know what Donald Trump wants from them. They also don't know what he's willing to give them in return, because obviously in a negotiation usually both sides compromise a bit. So they're saying, for example well, sometimes President Trump says he's focused on fentanyl, but then often he doesn't talk about that again.
Speaker 1:So, for example, on April 2nd when he spoke, President Trump spoke for an hour in the Rose Garden about tariffs he didn't mention fentanyl once. So sometimes he talks about the bilateral trade deficit. The Chinese are asking does he want us to buy more LNG, more soybeans from America? We can talk about that, but he hasn't told us. Does he want, as he says sometimes, BYD, the electric vehicle manufacturer, to set up a plant in the US? We can talk about that. So they can't engage in negotiations until they know what it is President Trump wants.
Speaker 2:How long do you think the Chinese economy can go in this state without them feeling very anxious to get a deal done? Because it seems to me that's probably what Trump is going for.
Speaker 1:Yeah, and I think Trump and his team are making a big miscalculation here. The tariff conflict, if it kicks into full gear soon, is going to cause pain in both the Chinese and American economies. But my view is that the pain for American consumers and companies will be a lot deeper than the pain felt in China. Let me explain that for a minute. From the Chinese side, exports to the United States only account for 15% of China's total exports. Last year that's equal to 2.8% of China's GDP. So it's not trivial but it's not dramatic. And that 15% share of Chinese exports going to the United States that's down from over 20% several years ago. From the first Trump administration, chinese companies have been diversifying away from the US because they could see that this was possibly going to come back.
Speaker 1:Also important to recognize that the Chinese economy is not driven primarily by exports. If you go back to the five years before COVID, on average in each of those years, net exports that's the value of a country's exports minus their imports On average each year, net exports only contributed 1% of China's GDP growth. Now that contribution to growth went up dramatically last year because the domestic slowdown in China. Net exports were 30% of growth. So Xi Jinping is trying, I think, to get the structure of his economic growth back to where it was before COVID, where trade is just not that important compared to domestic demand.
Speaker 1:Also, if you look at what China imports from the United States a lot of that stuff. There are multiple other providers Soybeans, for example. China has been importing more from South America Airplanes. They can import more from Europe from Airbus LNG. They've diversified to other suppliers.
Speaker 1:But the reason I think that there's going to be more problems in the United States, more pain in the United States, is that in many cases the US does not have alternatives. There's a lot of goods like microwave ovens or Christmas decorations or toys where there's really no other supplier. We're coming up on the 4th of July soon. We get all our fireworks from China Now. More importantly, things like critical minerals, especially for things like EVs and solar and batteries most of those things we get the majority of our supplies from China and in many of those things China dominates the global supply chain. So I don't think this was carefully thought through. And even if you look at things like vitamins, a lot of them come from China. A lot of pharmaceuticals ingredients, active pharmaceutical ingredients China is the biggest producer, exporter of those things and so Can't they go through other countries and get into the US that way?
Speaker 1:It's possible, but it depends what Trump wants to do. So, for example, when I was in China a couple of weeks ago, I met with a small company that makes LEDs and the guy who runs that company pointed out to me that almost all the light bulbs sold in the United States are either made in China or they're made in Mexico with Chinese components. So he said that Americans will either have to pay the tariff of over 100 percent because he's not going to absorb it, because his margins are low, single digits, or Americans will have to sit in the dark. Now can Americans buy those light bulbs through Cambodia or Vietnam? Well, donald Trump's talking about a 40% tariff on those countries. Plus, under the customs regulations, unless the product is primarily value-added in those countries, it'd be considered a Chinese product. So it's not going to be easy.
Speaker 2:You're really saying that there aren't going to be a lot of creative workarounds that companies are already figuring out. You don't see that happening.
Speaker 1:I think it's going to be, in most cases, really difficult. Look at Apple, for example. They're talking about Tim Cook just said a couple of days ago that very soon he's going to import a larger share of iPhones from India and Vietnam rather than from China, but all the components that go into those iPhones, I assume, are going to continue to be sourced from China. So is the Trump administration going to consider those iPhones, which are simply assembled in India, as an Indian product? Or are they going to say most of the value in that iPhone is still coming from China and we're going to tax you like it's a Chinese good? Unclear.
Speaker 2:Well, if they did the latter, they can stay away from the negotiating table longer. I guess they could pretend that it wasn't happening. On the component parts.
Speaker 1:They could. Iphones will still be more expensive because assembling them in India with Chinese parts does cost more maybe 10%, 15% more. So Americans will have to pay that. But then you have to ask what's the point of all that?
Speaker 2:Right. I'm just wondering how long this is going to take. There seems to be a consensus view the market is going up substantially from its lows. There seems to be a view this is all going to get sorted out soon, or that, if it isn't, it doesn't matter, and I'm wondering about your opinion.
Speaker 1:I disagree with both of those. It clearly does matter. The market is seeing what it wants to see. For example, yesterday the market went up because people interpreted a statement from China's Ministry of Commerce as saying we're ready to talk now. Well, I read the statement and I didn't see anything new in there at all. It said we've always been open to talking. Anything new in there at all. It said we've always been open to talking, but the Trump administration started this conflict and they need to deescalate. I think the Chinese, as I said earlier, are just waiting for someone to come and say here's our point person, you can talk to him. He has authorization from the president to speak to you and here's what we want to accomplish.
Speaker 1:The idea that 100% plus tariffs are not going to matter to American consumers and companies is just all off base. Think about it this way Somewhere around half to 60% of what we import from China are intermediate goods pieces either metal, let's say, or small motors that American companies import mostly small businesses and they use them to make an American product to sell to Americans or to export to another market. They're going to have to pay the tariff on the imported components, which means that their prices are going to go up and they're going to be uncompetitive outside the rest of the world. They're going to be uncompetitive, possibly, with a machinery maker in Europe that doesn't have to pay the high taxes and has a lower tax rate here compared to China. We've already seen Mack Truck layoff workers at several of its factories around the United States. I think we're going to see more layoffs. I think we're going to see more layoffs. I think we're going to see empty shelves and higher prices for the things that are on the shelves. Walmart has been cutting back on its orders from China. We just haven't seen it yet.
Speaker 1:So I think it's going to take some time for this to show up, not only in the data, but also in terms of political pressure. So one of the things I would advise people to look at is the monthly Michigan University survey of consumer sentiment. They break down the responses by political affiliation and honestly, carolyn, this is something I wasn't aware of until just last month. What this shows is that Democrats have really high expectations for inflation short-term, long-term. Republicans, however, are telling University of Michigan I'm starting to get worried about short-term inflation, but I have no worries at all about long-term inflation because I believe Donald Trump will make everything great again a year from now.
Speaker 1:At some point, though, if this deal isn't done, those Republican voters are going to go. Wait a minute. I have to pay double the price of a year ago to buy shoes for my kids to go back to school in the fall. For a computer, I have to pay double or I can't get one. At some point, they're going to start rebelling and putting pressure on their members of Congress, and that's going to put pressure on the president. It just may take a while.
Speaker 2:Everything you're saying makes sense to me, and so I'm wondering what I'm missing in the market's reaction, which seems to be gaining confidence that we're close to an outcome that is not going to be bad. And how could we avoid a recession and high inflation if tariffs go up? Even 50%, 10%, 15%, that's inflationary, I imagine. What am I missing?
Speaker 1:Well, if you want to be an optimist, there are a few things to cheer you up. Maybe we should get out the drinks with alcohol for this part. One is it does seem like President Trump is increasingly becoming aware of the downsides of his tariff campaign. I'm sure many of your listeners saw the clip of him at a cabinet meeting the other day say well, yeah, maybe Americans are going to no longer buy 30 dolls for their children. They'll only buy two dolls and they'll have to pay more for those two dolls.
Speaker 1:So that was one of the first occasions where we've seen the president actually acknowledge that his tariffs are going to raise prices for consumers. We've seen him put exemptions in place for certain electronics. We've seen him put exemptions in place for automobiles. To a certain extent he's talking, apparently, to the pharmaceutical companies. So maybe he's beginning to understand how bad this is going to be for American companies and consumers, and then, when the tariffs do go into effect, the impact will be felt more widely. So maybe that will give him an opportunity. The other thing that's interesting is that his team has been saying lately well, maybe we won't really conclude a detailed trade agreement with countries in the next three months, but we'll have the framework for talking long-term about better deals. So he seems to be creating some wiggle room for himself to say OK, it won't be a traditional trade deal with India or Japan or China, but it will be enough that I can remove the tariffs and declare victory and we can move on.
Speaker 2:So if we take a look at this from China's perspective, if they did get to negotiate, what level of tariff do you think they might find acceptable and you kind of get on with business as usual at a 15% or 20%, or is it a 50% higher rate? What's a best case outcome, andy?
Speaker 1:That's an interesting question. The Chinese government might not look at it that way. They have already said that anything over 100% is effectively an embargo on shipping anything from China to the United States. So if it's 100 or 200 or 300, they don't care From their perspective, since the tariffs, whether they're 10 or 20%, are going to be paid by Americans. That's really. They would turn that around and say how much pain do you want to accept for your companies and consumers?
Speaker 1:What they will want to know is what does Donald Trump want them to do differently than they're doing today? Does Donald Trump want them to really do a lot more to crack down on the illegal production of precursor chemicals for fentanyl? These are chemicals that are made illegally in China and then shipped illegally to drug cartels in Mexico who create the fentanyl and send it across the border. They have cracked down on the production of fentanyl, which was always illegal on the chemicals. But their feeling is, when we've done this for Trump in the first term for Biden, we never got anything back in return.
Speaker 1:They didn't lower the tariffs. They didn't do other things that we expected, like on export controls on semiconductors. So, yeah, we can do more, but what are you going to do for us, and is this really what you're focused on? Do you really want us to buy more LNG and soybeans? Okay, just make it clear to us. So I think there are a lot of things that China is willing to do, but they need to know what the Trump administration is going to do in return, and they need to have some confidence that this isn't going to be a protection racket. I do one thing and then you come back for more.
Speaker 2:That's a really interesting point. What do you think a worst case is, Andy?
Speaker 1:Worst case is that President Trump feels embarrassed or humiliated by something that the Chinese government does or says possibly inadvertently, not a deliberate attempt to embarrass him, but he feels that way and then he lashes out and he keeps the high tariffs in place.
Speaker 1:That will be difficult for China, but manageable, I think. But he might also do other things. For example, he signed off on a memo called the America First Investment Policy back in February. That memo is basically a laundry list of retaliatory steps he might take, including delisting from New York exchanges all of the Chinese companies that trade in the US, like Alibaba, pdd, a lot of consumer names, vip shop. That, I think, would have an impact on some Chinese companies not Alibaba per se, because they already have a dual listing in Hong Kong, but PDD is probably the biggest consumer brand listed in New York that doesn't have that dual listing already, but they'll get a dual listing in Hong Kong. I think long-term the bigger negative consequence will be on the US Foreign companies and investors will just lose faith in US capital markets. But we should be aware that he might do those kinds of things if he feels embarrassed.
Speaker 2:As I see it, we've got two sides that need to save face Very, very important on both sides.
Speaker 1:Yeah, that's always the case when you're talking about two governments, but I think both sides have the capacity to find a way through this that doesn't require them losing face. I think the Chinese are perfectly happy to do something like that. Is Donald Trump? Does he see this negotiation with China as a typical negotiation between two governments, two governments of the two largest economies in the world, where you have to keep doing business with each other in perpetuity and so you don't want to make the other side feel like they lost it all, like they've been humiliated? That doesn't work well. Or is he going to view this as a real estate transaction where it's a one-off and I don't care if the other party in this negotiation hates me and feels embarrassed and humiliated because I'm never going to see them again?
Speaker 2:Wow, I hope it's not the latter.
Speaker 1:Yeah, and I am also hopeful. Odds are that eventually this will get sorted, because the pressure on the president from unhappy Republican voter consumers and small businesses will rise as the tariff impacts bite and that will lead him to search for a compromise. But there is a not zero risk that things blow up and the president reacts in a way which isn't actually good for the American economy but makes him feel good for the moment.
Speaker 2:Right. Can we switch to talking about Chinese consumers, to the extent that you have spent time learning about that recently? Is there any anti-American sentiment one would imagine there would be and any change in the demand for American brands within China?
Speaker 1:Great question that was actually the thing that surprised me the most on my trip last month is that I did not encounter any anti-American sentiment from consumers, from small businesses, even businesses that are afraid they're going to lose out a lot because they sell to the United States. I didn't hear it from Chinese government officials either None, and I was worried that when the tariff announcement was made ahead of my trip, that maybe people in the government wouldn't want to talk to me because I'm an American. That happened in the aftermath of the balloon and spy balloon incident a couple of years ago, but that wasn't the case. In fact, I think, if anything, people were more interested to talk to me, just hoping to get some perspective from an American as to what's going on in Washington and how should they deal with it.
Speaker 1:I spent two days in Shaman, the city I mentioned before, talking to entrepreneurs, and they weren't angry at America. They weren't angry at Donald Trump. In fact, a lot of them expressed empathy for what he's trying to achieve in terms of bringing back high-end, high-tech manufacturing to the United States. They were just bewildered at the strategy and tactics, saying things like I saw the video of Secretary Lutnick talking about wanting an army of millions of Americans screwing tiny little screws into iPhones and these people said to me nobody in China wants that job. Do Americans really want that job?
Speaker 2:It's so hard to believe that sentiment hasn't shifted negatively believe that sentiment hasn't shifted negatively.
Speaker 1:One of the things that isn't well known here is that there's a deep reservoir of goodwill and respect of America among most Chinese people, including in the government. For example, the Chinese government structure has been restructured dramatically over the last several decades. This was really getting started in the 90s. The way the central bank was reorganized or created really the way the Ministry of Agriculture was reorganized A lot of this reorganization is based on our model, and one of the things I heard from people that I spoke to when I visited factories or had meals with entrepreneurs and bankers and shaman was we grew up looking up to and admiring the United States and hoping that over time China would be more like the United States. So we're kind of bewildered and a little bit sad about what's happening in the US, particularly with respect to cuts to the education system, about what's happening in the US, particularly with respect to cuts to the education system, difficulties that foreign students are having cuts to R&D and they're like what's going on in your country now.
Speaker 2:If I look at Estee Lauder, for example, a consumer company that had a very big business in China that has shrunk for a number of reasons. Part was that a lot of it was in travel retail to Chinese consumers. But my understanding is there are a lot of local brands that are growing up in the consumer space. I don't know how much is happening in beverage. I know a lot in coffee. I don't know if that's happening in the world of soft drinks and other drinks, but my suspicion is that it is, and I just heard the phrase brand nationalism being something Gen Zs feel quite passionate about. Are you expecting that to increase or you're really saying that there's no bad feelings that would affect global brands in China?
Speaker 1:Right now. My view is that brand nationalism is not one of the most important elements in the Chinese consumer market, especially with respect to American brands. You might find that occasionally with Japanese brands, but not recently. I think American brands in consumer goods and from cosmetics to drinks have suffered more from competitive problems A lot of. If you go back to the heyday, for American brands there really weren't serious competitors among Chinese companies. The competitors were often European or Japanese companies, not Chinese, and that's not the case anymore. Companies, not Chinese, and that's not the case anymore. Chinese entrepreneurs have grown up so rapidly and they've learned and they've adapted really really quickly. So take coffee, for example.
Speaker 1:I'm a big coffee drinker. Most of the time that I lived in China, for more than 20 years, coffee was really hard to find. People just didn't drink it very much, or if you did find it, it was horrible. So I used to travel domestically in China carrying my own freshly ground coffee and a French press. But then over time I didn't have to do that anymore because there was good coffee to be found everywhere.
Speaker 1:In my neighborhood in Shanghai, where I lived, there were no coffee shops within walking distance of my house. I was back in my old neighborhood a couple of months ago and now I stopped counting it. A dozen coffee shops near my old house and two of them were Starbucks, but the rest of them were all tiny little local people with just one little coffee shop where they were making craft coffee with an elaborate machine or pour over. And you've got chains that make better coffee for a fraction of the price all over China, and part of it is that people have learned from the US model. Part of it is that people worked for American companies and then left and started up their own business. Part of it is that if you're a big American brand or European brand, your headquarters is thousands of miles away and maybe China's not their main focus. And when you go to them and say, hey, chinese consumers really like coffee with some weird flavor in it that you've never heard of before, and the headquarters goes. I don't want to spend time on that.
Speaker 2:Yes, you make such a good point. I think initially a lot of companies were caught unaware. I'm sure now the multinationals are very aware of how strong domestic competition can be and is. So, Andy, in wrapping this up, best guess at how likely it is that three months from now, if it could be a loose trade agreement but some sort of trade agreement that's allowing port traffic to go back to strong activity, how likely do you think that is in the next three months?
Speaker 1:It's so hard for me to answer that question because it's so difficult for me to understand the strategy in the White House right now, what they're really trying to achieve. Is there some substance to this trade war? Is this really a long, windy way to get China to buy more stuff from America, in which case I think that China will be willing to do that, especially with stuff that the government can influence, like LNG or soybeans? Or is this just a way for Donald Trump to say I want every world leader to line up in front of the White House and come and kiss my ring, in which case it's going to be more complicated? Is this a desire to decouple from China, like the Biden administration was pursuing? Really really hard to know.
Speaker 1:So I'm going to take kind of a wimpy way out to answering your question and say you know, maybe it's a toss up right now, but three months sounds optimistic to me. It could turn quickly, but we just don't know. Or because maybe President Trump himself isn't sure what he wants out of all of this, and this is why I'm providing advisory service to company directors and institutional investors, to kind of talk through these issues on a regular basis to help people plan a little bit more, but it's so hard to predict right now and on that topic, andy, because I'm sure you're in high demand right now do you think that going via other countries is at least a part solution?
Speaker 2:Can you at least lower the cost of tariffs by doing that Going to a Vietnam or anywhere else in the world that maybe there are some Chinese components, but that we could get supply and product on the shelf at, yes, a higher price, but nowhere near as high a price as if we're getting directly from China?
Speaker 1:Maybe I know that's an unsatisfactory answer, but, for example, I saw a friend in Shanghai when I was there a couple of weeks ago. He produces for export from China. Walmart, target are among his biggest customers and they encouraged him back during the first Trump administration to diversify his production. So he built factories in Cambodia and India. But now Trump has put prohibitively high tariffs on those countries as well. So he's now feeling like he's made a huge mistake because he spent a lot of money getting those factories ramped up. So we just don't know how. Again I have to keep repeating myself. Sorry. What does Trump really want out of this? If he really believes that he's going to make so much money from tariffs that he can substantially reduce or eliminate personal income tax for every American making less than $200,000 a year something he said recently If he really believes that and mathematically that's impossible, but if he really believes it then maybe he's going to keep high tariffs on everybody.
Speaker 2:Right and Andy, I'll give you full credit for even attempting to tackle these questions and certainly for laying out how you think about them. I think that's incredibly valuable. I find it incredibly valuable. I really appreciate your insights and thoughtfulness and the experience that you bring to this topic, and I want to give you the opportunity again to let people know how to reach you should they need advice.
Speaker 1:Sure, thank you, carolyn. So it's andyrothman at sinologyllccom, and you can also go to my LinkedIn account, where I'm publishing pretty regular commentary, and connect with me there.
Speaker 2:Thank you, Andy. Enjoy your athletic brews. I hope they're as delicious as I think they are.
Speaker 1:Thank you, I'm enjoying it and really enjoyed the conversation with you, caroline.
Speaker 2:Happy weekend, thanks. If you enjoyed this session, please do comment, rate and follow us on Apple Podcasts, spotify or wherever you listen, and please share this with your friends and colleagues.