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Jan. 20, 2025 - Epoch Times
23:44
Will Tariffs Work or Make Things Worse for Americans? - Nazak Nikakhtar Explains
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A gentleman in the front row in the audience asked, do you know how much the Trump tariffs are costing the average American family?
And I said, do you know how much China's unfair trade practices are harming American households, such that mothers and fathers now have to work three, four, five jobs to have enough money to put food on their table?
The Chinese have made us poor because of their low-cost economic structure.
We've lowered prices as much as we humanly can to be able to compete, and wages have gone down.
In this latest installment of our special series on the U.S. presidential transition period, I'm sitting down with Nazak Nikakhtar, former Assistant Secretary of Commerce for Industry and Analysis in the first Trump administration.
She's a longtime expert on trade and national security and a partner at Wiley Reign LLP. In this episode, we dive deep into the debate around tariffs.
How have China's unfair trade practices impacted American manufacturing?
Will tariffs work or make things worse for average Americans?
And what other tools will Trump have at his disposal to restore the U.S. manufacturing sector and help it flourish?
This is American Thought Leaders, and I'm Jan Jekielek.
There are few people in America who know as much about crafting trade policy as Nazak Nikakhtar.
She's represented U.S. industry and multibillion-dollar companies in cases against dumping and subsidies, and led large U.S. business delegations and international trade missions all around the globe.
While critics of Trump's China tariffs say they will cause prices to rise and harm American consumers, Nazak disagrees.
In fact, she says that in her 25 years of work in trade, She's observed that Chinese companies do something quite strange in the face of tariffs.
Watch to the end to find out.
Nazak Nikhaktar, such a pleasure to have you on American Thought Leaders.
Thank you for having me.
Glad to be here.
So President Trump has indicated on repeated occasions since his re-election that He's going to use tariffs as a tool.
In some cases, it almost looks like a tool of diplomacy.
In other cases, as a tool, even perhaps of economic warfare, but also for bolstering U.S. manufacturing.
So can these tariffs be used in all these different ways?
What is he doing here?
Yeah, that's an excellent question, and it's something that's been very often debated.
When we look at tariff authority, we have Congress has tariff authority and it by statute mandates what the tariff levels need to be.
And we have most favored nation tariffs across the board.
But then we have legal authorities that allow us to increase tariff levels if certain things happen.
So China has given us so many different We have tariffs on their steel and aluminum overcapacity.
We have tariffs for their IP theft, right?
But it doesn't stop there.
China has more industrial subsidies.
They have many other unfair to trade actions that they have been...
Basically doubling down on to cripple the U.S. economy and cripple economies throughout the rest of the world.
And we have legal tools to address them.
So when President Trump is talking about tariffs on China, he's really talking most fundamentally about retaliatory tariffs to push back against China on this range of problematic things it's been doing, including the exports of...
Deadly illicit fentanyl that's harming the United States, including overcapacity in batteries, semiconductors, etc., that are also harming U.S. interests and, frankly, interests around the world.
So when you say overcapacity, explain it to me like I'm five.
In the first Trump administration, we were faced with facts of Chinese overcapacity in steel and aluminum.
And one way I've heard it described, which is...
What stuck with me for eight years now is the fact that China was producing so much excess steel in the global markets, right?
Supply way beyond demand.
And that supply, it was enough to build a steel bridge to the moon nine times and back, right?
That will illustrate to you the true extent of overcapacity.
And what does overcapacity do, right?
It collapses global market prices.
At the end of the day, we're talking about, even if it's specialized, we're talking about commodity goods.
So was this a play by China to basically corner the steel market?
Absolutely.
China does this over and over again.
What we see happen in steel and aluminum, China is now doing in semiconductors.
China's been doing in optical fiber cables, and China is doing in batteries right now.
And EVs, right?
It's actually building.
Massive, massive foundries to make legacy chips.
Low-cost production, underpricing everybody else, is taking market share away from the Taiwanese producers, the Korean semiconductor producers, the U.S. semiconductor producers, and so on and so forth, right?
In batteries, right, lithium-ion batteries, it's producing the lion's share of the global demand, it's underpricing everyone, and other producers have exited the market.
EVs is an interesting dynamic, and we're hearing a lot about this.
Chinese EVs are $8,000, $8,500.
How do you ever compete?
If you're a market economy and you're going to adhere to market principles when you're building out costs, how do you compete against $8,000 vehicles, right?
But China's flooding the global markets with cheap EVs.
Japan...
Can't sell in third-country markets anymore.
It's lost all the other markets.
South Korea has lost its internal market and third-country markets.
The Europeans can't sell at home anymore and can't sell to their trading partners.
Those cars are now coming into the United States.
It's surging volumes, too.
Same story as before.
We can't take this excess capacity.
We're going to have to do something to shield ourselves against what has been caused by China's excess capacity, but the domino-cascading effects have hit our...
One of our closest sort of trading blocs, the European Union, has spent decades discriminating against U.S. autos.
But it is welcomed with open arms Chinese EVs that have now destroyed its market, right?
We've got to reset our trading relationships with all of our allies in terms of reciprocity, fair trade, and then work with them to counter China.
Probably, obviously, become an expert in supply chains.
Yeah.
And so I've recently talked about medical supply chains.
There's some portion of medical precursors today that are only manufactured in communist China.
So this creates a huge national security vulnerability.
Never mind dumping and this sort of reality.
Cost prohibitive to manufacture some of these things here, I guess.
I don't know the exact dynamic, but that exists today.
And in fact, during the pandemic, they threatened to withhold some of these.
There's examples today where there's rare earth minerals that are actively being withheld.
Where do you see the biggest or most pervasive supply chain vulnerability that has this national security dimension?
I love your question because it actually relates to the earlier question, which is how did China get these supply chains by dumping, by underpricing?
There was really good studies about how the Chinese cartel depressed global antibiotic prices to get everybody out of the market and then started, you know, raising the prices again.
This is what they do.
They underprice to get everybody else out of the market so the Chinese can control that supply chain.
And through that...
Exercise of that control of the supply chain, right?
Coerce the United States and the rest of the world.
So those two things are really related.
The government fails to make a distinction between two types of supply chain vulnerabilities.
Supply chain vulnerabilities that we know how to resolve.
We have the IP. We have industries that can do it.
But the problem there is, and the government tends to dismiss that.
Yeah, we could do it.
We just chose not to do it.
Uh-uh.
Our supply chain vulnerability there, and it could be with active pharmaceutical ingredients.
It can be with these industrial diamonds that we use in, like, literally every single cutting tool.
And the entire supply chain is in China because in the 2000s, China flooded the global markets and everybody.
Flock to China, right?
Those industrial diamonds that go into every cutting tool and you can't make any manufactured good without them.
Yeah, we have the IP to make it here, but it'll take us three years.
So when that global supply chain is in China, right, and China cuts off our access tomorrow, and it has, and I'll explain that in a second.
We don't have three years to sit and erect these new industries and build plants to produce this capacity.
The government fails to recognize, they tend to dismiss, well, we have the IP, we can do it when we need to.
No, we can't.
We can't do it when we need to.
We need to plan ahead because we need X amount of lead time.
Right?
So they're missing the lead time gap.
Now we have this other subset of supply chain vulnerabilities where we actually don't have the IP. And we don't have to just build up the facilities, but we have to develop the IP, and that's where critical minerals comes in.
Right?
And China has gotten control of the entire global minerals processing stages.
Right?
Yes, the mineral, the mines are around the world.
China's buying up a lot of them, so we've got to address that issue.
But on the processing, China controls the entire global processing of all 50-plus critical minerals, and nobody outside China has the IP to do that.
And so the U.S. is trying to—there's a lot of good companies who've made a lot of progress in developing the IP to do this.
You need sort of different IP for every critical mineral, but— They're not getting investment dollars into developing and onshoring that supply chain because the investors are saying, I'm not going to invest in this if China's underpricing me.
I'm not going to be able to make a profit.
The government isn't doing anything to protect the emergence of those industries.
By blocking the low-price Chinese goods.
I mean, everywhere we look, our policies are just mistake after mistake.
We've really got to correct this.
Government funding, the government is pouring a lot of money in industries that need to emerge.
But I ask you, you build a plant and the Chinese underprice you.
What are you going to do with your idle capacity in this plant?
Our semiconductor companies are already losing market share to China, right?
They already have idle capacity.
So we're going to build new plants to do what exactly when the government isn't imposing...
Import restrictions on the Chinese stuff that's undercut.
Same with batteries.
Same with critical minerals, right?
We've got to get smart about our policy.
We can't just continue to throw money at the problem.
If you want to throw money at the problem, fine.
But you've got to keep the low-priced stuff from undercutting our businesses.
And that's what the government has been failing to do thus far.
And that's going back to your first question.
That's what President Trump is talking about in terms of tariffs.
Let's talk about these rare earth minerals that China is actively preventing from the U.S. having access to right now.
So just explain that picture to me.
It's gallium.
There's three of them, I believe.
Yeah, it's gallium, germanium, and antimony.
I predicted that China was going to impose export controls on gallium and germanium in October 2021. All I needed to do was look at export statistics and look at who's producing what to say, China knows semiconductors are important to the United States.
It controls gallium and germanium.
Gallium and germanium are minerals used in substrates of, like, very advanced semiconductors.
And, of course, China is going to attempt to hurt us by withholding those exports, and they eventually did.
They also did for antimony.
We are having a hard time in the United States producing ammunition and antimony goes into lead batteries, right?
And China has straight...
Ban the exports.
Our export control rules are pretty porous.
There's still avenues to get things to China.
China's export controls against the United States are black and white.
They are not exporting things to the United States, and the Chinese government has made clear to other countries, if you dare export to the United States, I'm retaliating against you too.
So it's made very clear that it's banning this.
So without antimony, we're not making ammunition.
Without antimony, we're not making lead batteries, right?
And now they've threatened the export controls on graphite, which we need for batteries and a number of other items.
The other thing I alluded to earlier was these industrial diamonds, right?
China flooded the global markets with cheap industrial diamonds.
Manufacturers flocked to China.
The supply chain has since been consolidated into SOEs in China.
Right.
State-owned enterprises.
State-owned enterprises.
Thank you.
And so every single advanced manufacturing, which is 90-plus percent of manufacturing that happens in the U.S. and globally today, uses these industrial diamonds that you need for cutting tools.
China has a supply chain there.
China's been tinkering around with export volumes, flooding the global markets and restricting it, restricting exports over the last couple of years just to see how the world is reacting.
China just imposed export controls on the presses to make these industrial diamonds.
China is preparing to ban exports of industrial diamonds to the United States.
Once it happens, we cannot manufacture anything in the United States.
And I want to underscore that one more time.
With export bans, they've already banned the presses.
Now we can't buy the presses to make the industrial diamonds.
Now if China bans the exports of the industrial diamonds and the cubic boron nitride to the United States, all U.S. manufacturing stops.
We have no stockpiles, and the volume we have in the United States is going to run out in about a month.
Imagine a U.S. economy with zero manufacturing, right?
And yet the U.S. has not done anything about it.
We haven't stockpiled.
We haven't invested in manufacturing.
We're still walking around with our head in the sand.
And it's just time to wake up, right?
China has made clear that it is moving in this direction.
We've got to take them at their word.
We're already hurting through the export controls they've already imposed.
They're going to ratchet this up.
And there is a precedent with these three rare earths minerals.
But zero manufacturing?
Zero manufacturing.
That's a very extreme.
Zero manufacturing.
60% of semiconductor manufacturing steps use these industrial diamonds and the cutting tools, the wafer and the polishing tools.
Battery manufacturing, aerospace and defense manufacturing.
Anything that uses cutting, you need these tools.
And so the Department of Defense is well aware of this.
Manufacturers, because this is so upstream, manufacturers generally just buy the tools.
They don't really think about where their supply chains are.
But the tool manufacturers who rely on these supply chains are very aware of this.
Consider this.
the chinese government has been subsidizing the exports of the illicit variant of fentanyl the deadly variant not the medicinal kind but the deadly strain of fentanyl into the united states again the house select committee on the ccp has done great reports on it the government is giving subsidizing companies to export deadly poison to the united states and that's not even the precursors now that we've talked about Yeah, so it's super fascinating how this has evolved.
So the Chinese...
They've been exporting fentanyl to the United States for a number of years now.
We're losing 200, 300-plus individuals every day just over the last few years, 400,000-plus individuals, right?
We've lost 3,000 in 9-11, right?
We've lost more than 9-11, yet somehow we still don't think of China as an adversary, right?
We told the Chinese government, you've got to stop the exports of finished fentanyl to the United States.
And the Chinese government effectively did that.
But what did it allow to happen?
Then it started allowing the exports of the precursors to go into the United States, right?
And between 2019 and 2024, China begging China, please stop the exports of illicit fentanyl precursors to the United States through Mexico or whatever means.
Finally, the Chinese said in July 2024, I will stop the exports of three, not the hundreds of analog.
Just the exports of three.
The U.S. government says, wow, victory.
Great pat on the back.
We got the Finnish fentanyl banned.
Remember, China can ban it because it banned the exports of Finnish fentanyl into the United States.
China agreed to ban three precursors, right?
But then we have the Mexican cartels now start infighting for power, whatever their issues are.
because of the infighting, it slowed the Chinese channels of distribution to the United States, the distribution of illicit fentanyl.
So the Chinese have now gone back on their promise and have started exporting finished fentanyl to the United States again.
I give you intent right there, further to the point of intent.
The Chinese government has been very adept at preventing the exports of gallium and germanium and antimony to the United States.
They haven't just banned the export.
They've told every country around the world, if you dare export to the United States, I'm coming after you too.
So they have demonstrated, and through the export ban on finished fentanyl, that they can absolutely control exports.
They're a surveillance state.
They shut down any website that sells...
Fentanyl inside the country.
They can't do it outside.
But anyway, this is not hyperbole.
This is not hysteria.
I am laying out facts so your audience can make those decisions for themselves.
But these are the facts, and you've got to take the facts for what they are.
So you're telling me that Communist China today is exporting, again, the illicit variant of fentanyl into the United States, fully formed.
How do we know this?
The U.S. government has mentioned this to families of victims that have been lost because of fentanyl.
They periodically give them briefings, and they've been relaying that to the affected families.
What is our reaction?
Well, I had mentioned a little bit earlier that we have this very incredible law that allows us to retaliate against foreign countries for harmful trade practices.
China is exporting illicit fentanyl to the United States and killing Americans.
That is a harmful trade practice.
So what can our retaliation look like under U.S. laws?
We can retaliate against China in any way by depriving it from the trade benefits that it is entitled to under the World Trade Organization rules.
So we can impose tariffs on it.
We can discriminate against their goods, etc.
I think one smart way that the U.S. government should approach this is apply Broad tariffs on Chinese goods and take that revenue that we've collected from tariffs and direct it to the states to help them offset the enormous costs that they've been incurring to educate the public on fentanyl, treat fentanyl victims, etc.
And then the federal government will take some of that money for its own efforts, too.
But the notion that we shouldn't hit back against China for it killing 300-plus Americans every day to me is just mind-boggling, right?
We should be outraged.
We should be doing everything we can to retaliate, and we have the laws to retaliate.
I also hear this notion of, well, why are we going to have price increases because of tariffs?
What's very, really interesting about China is that Remember, it goes back to the Chinese companies having to work on behalf of the government.
The Chinese, what I found in 25 years' experience doing trade with China, is that Chinese companies tend to absorb tariffs.
It varies sector by sector, but up to high double-digit levels or triple-digit levels.
They will actually absorb the tariffs.
The reason that they will absorb the tariffs is they don't want to displace themselves from the U.S. market.
If their prices get too high, the U.S. manufacturers are going to get in the game.
Other foreign manufacturers are going to get in the game and displace them.
So they will take the pain for as long as they can until they can't anymore, and then they'll exit the U.S. market and flood the other global markets to collapse prices.
So the Chinese, again, tend to not pass through tariffs to increase consumer prices, which means our retaliatory tariffs can be effective.
We impose tariffs and ratchet it up to make the Chinese companies feel the pain.
And whoever is implementing this could do it incrementally and just see...
Absolutely.
All at once.
You can see the reaction.
You can test your theory.
Test your hypothesis, rather.
Yeah, and under the laws, we can ratchet up tariffs because of fentanyl up to the level of harm that the Chinese have imposed on the United States.
And so there are estimates, very conservative estimates, that the economic harm to the United States because of China's exports of illicit fentanyl to the United States has been $1 trillion annually.
So think about it, right?
We don't have to impose tariffs up to a trillion dollars, but we could slowly start ratcheting up and we have a high ceiling to get to until there's enough pain.
And it's fascinating that your expectation, based on your experience, is that at least for some considerable amount of increase, that wouldn't actually impact the U.S. citizen or consumer.
Yeah, it hasn't.
And we've seen, even when you look at the Section 301 tariffs that have been imposed, right, the Chinese have not ceded the market.
Very briefly, Section 301 tariffs.
Oh, the tariffs that were imposed in 2000. We've seen through those tariffs that we've already imposed, the Chinese haven't ceded the market.
The bipartisan quasi-government body, the International Trade Commission, has already done a study that the tariffs we've already imposed on China of 25% because of IP theft hasn't had any impact on the U.S. economy.
There's been other studies that have concluded the same.
So the point is...
We have all of this empirical data that shows that China has been absorbing the tariffs.
So, yeah, let's throw more tariffs on them to make them really feel the pain.
You do not get away with killing Americans and not have to endure the pain of us responding to what you're doing.
Well, Nazak, Nick Akhtar, it's such a pleasure to have had you on.
Thank you for having me.
I enjoyed our discussion very much.
Thank you all for joining Nazak, Nick Akhtar, and me on this episode of American Thought Leaders.
I'm your host, Yanya Kellek.
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