Keith Rabois defends tariffs as economic statecraft: fentanyl, manufacturing, and the Monroe Doctrine

all right. to see you guys. Great to see you, Logan. Uh yeah, Keith, how you doing? Great. Yeah. So, you're happy about all this? Well, I mean, obviously there's, you know, volatility, you know, can be terrifying for everybody. Yeah.

Um but I I think directionally the administration has the right strategy, which is we need to address the absurd cost of our debt. We need to rebuild American manufacturing and there are certain strategic industries we absolutely need to have control of our which we learned during COVID.

We're massively exposed to strategic weaknesses. We couldn't manufacture even prescription drugs during the co you know fiasco.

And then on top of that we need to unlock this golden age of prosperity which does require rethinking uh globalism does require rethinking our tax and regulate overt taxed and overregulated state and so I think some people are isolating tariffs as an individual lever in a grand equation and there's a lot of moving pieces the country does need to deregulate.

Biden alone just in the Biden administration we added $1. 4 trillion dollars of regulatory costs. Trump will get rid of all of that and go back, you know, and reverse prior administrative buildup of regulatory burdens. That's great. Energy costs soared under Biden. We need to drill baby drill.

We need to bring down the cost of energy which a major input into goods and services goods most is some services like Uber. And you need to um invest in the future of technology which also lowers the cost of goods. But tariffs are also strategic.

The best way to often convince foreign countries and nations to do things we need them to do is through what I call economic statecraftraft and tariffs are perfect lever. Let me give you two examples.

Canada has been ha has been enabled under the Trudeau, you know, regime, an incredibly poorest border and the Mexican cartels took advantage of that and imported fentanyl at massive scale into the United States and various people in the administration, Biden, the new administration were complaining about this, but Trudeau administration did literally nothing to seal the border.

Think about these, you know, cartoonish uh Canadian Mounties on their little horses. That's basically the entire security protecting the northern border from fentanyl and the cartels have been killing Americans uh through the northern border.

So once Trump started threatening tariffs all of a sudden even under like the you know current regime which is not particularly conservative they started cracking down on the border. So we've already seen improvements in interdictions of fentanyl uh from Canada.

All fentanyl, virtually all fentanyl that's manufactured, the precursors are manufactured in China with the knowledge and consent of the CCP. So 100,000 Americans are dying completely unnecessarily because the CCP and indirectly Mexico and Canada aren't willing to do anything about it.

Trump has told China and will continue to tell China that when you stop allowing the precursors of fentanyl to be produced in China, we will relax some tariffs. It's much better if a 100,000 Americans are alive even if the stock market goes through a day of turmoil. Uh what uh historical precedents are you digging into?

We've seen a lot of people uh calling up Brettton Woods uh the gold standard or deping. Um what are you looking to to kind of inform lessons? Ben Thompson today was writing about how the Nixon shock was received very well from the public. The New York Times was raving about it.

The market jumped way up, but over time it became very uh very it was a very rough decade in the 70s. What are you looking to to inform uh where we go from here? Well, I look first of all just 2017 to 2020.

The first Trump administration was a massive success until COVID was unleashed arguably, you know, intentionally, arguably through misfe malfeasants or negligence in the American people and the blue states and the blue cities shut down. This was an incredible economy.

We had high growth and low inflation, everything we want. And so despite that two, despite that three-year trajectory, we also increased tariffs massively strategically. And so, and every economist, by the way, was wrong.

There's a list, a laundry list of economists that said tariffs wouldn't work in the first administration. So, they were wrong then, and they're going to be wrong now. So, that's the most relevant history, and it's pretty predictable.

Um, I do think that Ray Delio's post, which I retweeted, uh, is interesting, which is this is definitely an intentional strategy to kill globalism and reshape the political order, the global order. Absolutely. And so I think the implications of that will take months, years to play out.

I don't think you can, you know, look at the stock. I think it's a fool's idea, you know, sort of a fool's crusade anyway to look at, you know, the hourly or daily uh trading on the stock market as a, you know, indication of the wisdom or folly of a particular policy.

just today alone we've been up down up down up like it's it's crazy to evaluate policy from that perspective. So I do think that we will see this administration execute on challenging the CCP's threat posed to the United States and the democratic order on multiple fronts.

AI winning an in AI is ex existential on Fed and all and on their attempt to expand their influence in Taiwan and various other key supply chain moves.

I think the United States will be closer to the Monroe Doctrine if you want to go historical where expansion of the United States is a positive expansion influence but expansion of land mass. I think the Panama Canal is a very serious agenda item.

uh Greenland is a very serious agenda item for this administration and we're going to continue to think that way for the first time since you know President Monroe. At the same time uh if there is if the market continues to crash, maybe we even go into a recession for a couple quarters.

Uh you could see consumers tightening their belts, you could see investors tightening their belts. Um, what advice are you giving to founders in your portfolio today about how to deal with m maybe it all works out like you're proposing but it could be a rough couple quarters. What are you what are you advising folks?

Well, it's uncertain. So, I think the best way to approach from an entrepreneurial standpoint is uncertainty is you have to have scenario planning, probabilistic scenario planning like if if then I would do why. However, I don't agree that we will go into a recession. I don't think we should go into a recession.

And I don't think we should accept that as um a reasonable approach. I think we need to cut interest rates, which I think there's going to be some movement on. The evidence is that inflation has been solved by this administration already.

Um you know, you wait for the official government print of the CPI numbers, but there's better, more accurate metrics like call to inflation that show you in real time and we're down to like a 1. 28% inflation. So we can clearly lower interest rates safely.

Um, as I mentioned, energy prices, oil prices, you know, continuing to crash and that's going to continue to happen as long as we explore alternative energy, but drill and proven reserves. So, I think those are major inputs in allowing people to spend money.

Um there is a wealth effect and it is important to know you know that it's been studied pretty accurately that if if people's savings in you know 401ks and various other stock like instruments go down they may spend less and that's not necessarily good. Now I don't think tariffs cause the spending less directly.

People talk about tariffs causing inflation. First of all that's false like definitionally false. Inflation is the rate of growth of prices. tariffs are uh at most are a one-time price shock. So, they can't cause inflation by definition. Second, um I don't think anybody can easily model the impact.

First of all, some countries are clearly going to bring their uh tariffs on the US down. Maybe not all 170 companies, but some are already rushing to the doors, you know, to negotiate better trade deals with the United States than we've had in 10, 20, 30, 40 years.

So the net effect of tariffs may not even be even may not even raise prices at all. But even if it does, consumers are smart and savvy and they compare and contrast. They substitute goods.

So you know the price of of a good from let's say somewhere in Latin America goes up maybe the domestic equivalent Americans substitute for and that's actually a cheaper product. So you have deflation if anything not inflation.

And then it's not even that obvious because yeah that's true of competitive like directly competitive. Let's say you're buying coffee and you know coffee from Latin America gets tariffed and it goes up but you can buy like cheaper but let's say less quality coffee in the United States people substitute etc.

But maybe some people just decide to buy a substitute instead and like so all the people who are alleging that there's these studies absolutely do not know how the American consumer is going to substitute from Latin American expensive coffee to American domestic coffee to Celsius and at what rates.

And so that's why nobody really knows the net effect. But I think if you even if you have I saw Bessins estimate that even these very high tariffs on on the CCP in China which are warranted probably add something like 70 basis points of cost across all goods from China over five years or something like that.

And I don't know exactly how we did the math and I don't have time to like rebuild the spreadsheet, but people definitely are overrating the impact that tariffs have because consumers vote with their feet.

And that's part of the point is they vote with their feet for products that are manufactured in America that are not subject to tariffs, whether they're American automobiles. So, for example, some people are like, well, why would you, you know, care?

Um, apparently a Chevrolet um, like one of these uh, standard model Chevrolet like SUV things costs $170,000 in Norway. Well, of course, no Norwegians are buying a Chevrolet Tahoe, it actually is. It at $170,000.

that whether they call it a bad or call it some other policy or something less, it's clearly it's clearly discriminating against American goods and causing Chevrolet to manufacture less than a fair and free market across the world would you know sort of naturally stabilize and where equilibrium would be.

So we need to address this but the most important thing is we need to achieve foreign policy objectives. econom economic tools are better than military tools. Secondly, we definitely need to crack down on fentanyl. It's this, you know, unbelievable how many people die compared to like COVID or Vietnam.

And the American people, you know, have accepted politicians doing almost nothing about it. And we need to stop that.

And then third is we need to set the platform for a century of prosperity and eventually this burden of debt which was exceeding the defense department budget and growing at 40% a year is completely unacceptable and was eventually going to crash us into at least a recession if not something severe you know significantly more severe.

to President Trump at least has the courage to address fundamental root causes of economic challenges that most American presidents have avoided confronting since the 1980s. Um in Ray Dalio's uh post which he mentioned earlier uh he has a bunch of different points.

One of them he says is uh sort of part of this whole conversation which which is amazing changes in technology such as AI will be highly impactful to all aspects of life including the money debt economic order the political order and the international order.

Um there was also a post uh from a friend of ours Will Manitis the other day where he said worth figuring out what happens if LLM stagnate at 1 to 2x what we have today. smart enough to slowly displace all low-skilled digital work and things like call centers. Uh no loss for lawyers, doctors, bankers.

This is very good for the US uh and very bad for elsewhere. I'm curious how you think about all of this, you know, sort of drama around tariffs with the backdrop, the sort of like looming, you know, AI steamroller like coming to uh transform the economy in many ways.

Well, it is going to transform the economy, but historically speaking, technology has unlocked new opportunities rather than completely suppressed the ability of humans to thrive. So, for example, when I was growing up as a lawyer, actually, I had a secretary, literally had a secretary.

And the idea that an individual associate would have a secretary today makes no sense.

Yeah, but obviously once you know Microsoft innovated with actually Microsoft Word for lawyers actually that's what it was called there was it became less needs for secretaries but and my secretary was highly compensated at a law firm in New York City in Washington DC 100 plus thousand dollar jobs the this whole workforce has migrated into other higher productive you know things to do and so it would be inconceivable for me to wake up and you know literally expect to have a secretary Um so I think that is the history of technology.

I think AI will actually displace lawyers, accountants, investment bankers more rapidly than the middle and certainly faster than manufacturing. I mean obviously it's a hyped area in venture now is robotic innovation, AI meets robots, whether software, hardware, the intersection of the two.

But if you've ever been in a light industrial warehouse, I I think that's years out. Whereas replacing lawyers, you know, can be done much faster and much better, cheaper, less annoying.

Replacing doctors, um, you know, the node Kosa, you know, who runs Kosa Ventures wrote a paper, I believe in 2011 or 12 about how AI was going to replace doctors. And, you know, I think that is much more realistic in the short term.

and they will give people access lower cost which will bring health care costs you know to roughly 22% of the GD GDP or somewhere like that now so if you bring down the cost of health care that also affects whether we have inflation the disposable income that a consumer has Obamacare has been a massive disaster the costs are up fivex on the average health care plan than before Obama the American American people just don't have money to spend on disposable income on disposable discretionary purchases so even If tariffs raise things by 1%, if you bring down the cost of healthcare, the cost of energy, allow affordable doctors, you know, there's so many offsets that are much much better and much more fundamental and durable than worrying about a one-time tariff.

Personally, I would go with a flat tariff of like roughly 10% and then extremely high tariffs on China. I think Dr. Miller is more right than wrong, but I trust Treasury Secretary to calibrate this correctly.

uh how do you think about uh entrepreneurs coming to pitch today that that want to you know be a part of the sort of reshoring onshoring manufacturing there's fortunately a bunch of companies that have gotten started in the last few years that were focused on manufacturing but I'm curious you know what the playbook sort of you're giving them how you think about the space and how you think of manufacturing broadly as a venture investable category if it is at all.

Yeah, that's a it's a great question because you know venture is probably like 4% of the capital um that funds you know sort of startups and it's not appropriate for many many many great or good or great businesses. Venture capital is designed for high risk high reward explosive opportunities and those are rare.

Manufacturing usually does not meet that standard. It's really hard to scale manufacturing like a thousandx year to year.

And so I do think we need to look at alternative sources of capital for innovation in manufacturing and there will be some where venture is appropriate but just like there's only some financial services innovation where venture is appropriate there's only some transportation opportunities there's only some in health actually like what fraction of health care you know dollar venture dollars going into healthcare is a fairly small fraction and so I don't think venture is the panacea I also think to go back one question a bit is look when I I invest in seed rounds and series A rounds predominantly that's my sweet spot I'm taking an 8 to 12 maybe 15 year view to what tariffs do today should not be affecting the people pitching me the people that my evaluation my criteria for something that's eight to 10 years in the future completely like ridiculous that said anytime there's massive uh sort of turmoil or flux in a system, it's a really great time for an entrepreneur.

I I have a macro thesis that the more flux there is in any market or system, it's a really great time because inertia is not your friend. Let's take take a step back as entrepreneurs, inertia is not your friend as a founder. You have to invert inertia and create momentum in a physics sense.

And so when the world is kind of moving around, it's the best time to start a company. So I think now is a wonderful opportunity for everybody who's stuck at some large company, not being challenged, you know, etc.

to look at starting new companies and be innovative because the world is in flux in all the dimensions that Dallio outlined so well. Yeah. Can you talk a little bit about deregulation? You said you're uh optimistic there uh on the White House's website.

They're kind of claiming that they're not going to create new agencies and um there's the one in 10 out regulatory budget, but we haven't heard very many concrete details of what that could look like. What are you optimistic about on the deregulation side?

What's the top Well, so I think that standard of, you know, for every new one you have to eliminate 10 sounds great kind of reset the equilibrium. We've been overregulated.

I think it's it's you know cabinet secretary and agency specific and you know only recently have we seen the staffing of these agencies you know get confirmed by the Senate. You have to remember the administration starts on January 20th.

The cabinet gets confirmed typically pretty quickly call it a couple weeks but then they have deputies secretaries under secretaries. These are the people that are the political appointees that drive the administration's agenda.

Most of the departments do not have even half of their political appointees confirmed by the US Senate.

So you're asking the secretary, let's imagine like the secretary of state who's got to, you know, work on the Panama Canal, help negotiate various economic things, solve wars globally, blah blah blah blah blah, and doesn't have his full staff.

or the you know the left is assaulting the administration every day in in all these district courts and this kind of absurd district court litigation. Well, it's it's really unfair to the attorney general when she doesn't have her team confirmed. Last I looked and hopefully this has changed or will change imminently.

The solicitor general of the United States, the principal like appellet lawyer who's supposed to quarterback all this strategy has not been confirmed by the Senate.

So people are taking advantage of vacuums in the presidential staffing and I think this is you know an artifact of history when the world moves more slowly maybe new presidents acted more you know cautiously perhaps but slowly and so there was more time for an administration to get staff but with an agenda where Trump's running a like sort of a no no huddle playbook you know he's like boom boom boom boom next the nicest way to describe it Yeah, and it's intentional that hey, there's a hell lot of problems, a lot of things to fix.

He's had four years to, you know, contemplate what to do. But secondly, just like the no huddle offense leaves defenses, you know, kind of befuddled. Is it intentional to keep the Democrats in the left, you know, not able to keep up? And that's what's happened. Legacy media can't keep up.

Like, what's the latest thing to complain about? Oops. The news changed yesterday. Sorry. Okay, we're on to our next EO. Um, but in any event, you need a more modern confirmation process, I suspect, to allow an administration take office with their core team that can execute.

Otherwise, you're going to see things mistakes made, things broken. It's it's just not it's not reasonable to ask an administration to fix everything with onetenth their team or one-third their team. And so, we're have to really revisit this.

And this this should be bipartisan because there will be a Democrat president and they're going to want to appoint he or she's going to want to appoint his or her nominees and the Senate's going to have to act with fast to allow that president to exe and if anything the velocity in the world with a free form of information things like X is going to accelerate not decelerate.

Yeah. Uh one last question for me and then I'll hand it over to John. Hopefully this one's quick. Uh do you think we should be taking more decisive action against uh Uni, Robotics, uh DJI, you know, groups like that in terms of just blanket bans? Like tariffs are a good start, but potentially not significant enough.

Yeah. So, absolutely. I mean, we talked about this before, but Tik Tok is a threat. I think DJI is even worse probably. And then advanced robots manufacturer in China uh are probably an order of magnitude more threat. And these things could run 17 miles an hour. They have military applications.

Um you know there's a a tweet I posted yesterday that retweeted some of the spire that's already embedded in the Chinese for context. Uh they discovered a remote access backdoor and the robot dog from Unree. Yeah. So I I you know I think we take this very seriously.

I hope the administration and the legislative branch act on this very quickly. I think there is a lot of attention being paid to this. So, I think there'll be some traction here, but absolutely we need to be very we need to take this stuff very seriously. Yeah.

I want to let you go, but I want to give you a chance to respond to this Derek Thompson post. He was asking, "How do you know if your plan to shock the system is failing? One of the confusing aspects of the tariff defense is the idea that every event justifies the strategy. stock market goes down.

Oh, we're just taking our medicine. Stock market goes up. It's so it's so obvious it's working. Uh have you had a chance to think more about his uh his critique?

Yeah, as I said, it's a very good question because I think anytime you have a new strategy, whether you're in a startup or in politics, you want to have directional feedback, you know, is your nose, you know, nose plane going up or down and stuff like that force. So, I think on the fentanyl stuff, it's pretty easy.

um we need less fentanyl debts which is less fentanyl being imported to the United States blah blah blah blah on the economic front I think definitely the yield the various yields on our debt are pretty critical it does seem like that best managing towards that I think we need the inflation we need inflation to stay lower and be slightly lower so that interest rates can come down which accelerates growth and makes homes more affordable which is absolutely critical so I think those are easy relatively short-term metrics to look at whether this whole reinventing the global order is working or not is going to take time.

Pretty your point about Ben Thompson's post about Nixon that is not going to be measurable, you know, overnight and maybe not even this year. I think we'll have visibility into it by the midterms.

Um, you know, when Thatcher and Reagan, the closest metaphors that I think about is both Thatcher and Reagan inherited economic basket cases and geopolitical basket cases in many ways. And it took both of them a year or two of pain, but then everything was up into the right.

And you know, Morning in America in the famous Reagan re-election, Thatcher went through a very tough one or two years when, you know, she mentioned this lady's not returning is because she was actually cutting some spending, allowing for the the, you know, getting out of stlflation, rebuilding the military in the UK, etc.

But I think two years is a pretty realistic time horizon. That's great. Uh, well, we'll let you go. We know you got to get out of here. Uh, but thanks so much for stopping by. Always a pleasure. Great time. Always a pleasure. Thanks. God soon. Cheers.

And, uh, our next guest is coming in in two minutes, but we got to talk about numero sales tax on autopilot. Spend less than five minutes per month on sales tax compliance. Gong. Uh, numeral puts sales tax on autopilot for leading e-commerce and SAS companies. It is the platform for sales tax compliance. We have a 4.

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You're going to You don't want to be slipping on your sales tax. Head over to Numeral HQ. Uh and I also want to review quickly, how'd you sleep last night? Because we are sponsored by eight, baby. Eightlee. Go to eight. com. I had a It felt rough. Yep. Still got an 88. White Lotus threw me off a little bit.

I got to bed a little bit later. I got an 86. I only slept for 6 hours and 34. It was a long episode. It was I was planned my sleep around it being like 50 60 minutes by and then I Yeah. Halfway through I pause it and it's like or I thought we were halfway through and it was like 54 minutes left. I was like great.

I I was rushing to be like I I need to start this at 8:30 or else I can't get to bed by 10. You know what I had no difficulty waking up this morning in part because of autopilot was adjusting the temperature throughout the night. Yeah. In part because you know it's also been hot.

We also some information Jordy was repping 225 today. Baby leaked here. We're going to leak it. There was leaks. Don't put out a press release. Don't share that. Don't share that. Leak it out there. It was uh It's Monday, which is National Chess Day push day. We also we also got a little son yesterday. We did.

We were hanging out with Justin Mars and and I honestly was Yeah. We had an inerson guest for our off pod pod. Yeah. Yeah. Yeah. You get us together. It's We got Bryce in the waiting room. Bryce, how you doing?