The President's Daily Brief - July 13th, 2022. Chinese COVID Policies Create Opportunity for American Manufacturing. The (Subtle) Battle for the South Pacific.

Episode Date: July 13, 2022

It’s July 13th. You’re listening to the President’s Daily Brief. Your morning intel starts now. ------ First up, A major steel hub in China has gone into lockdown this morning over one case of COVID. We’re going to discuss the implications of that Zero COVID policy in China and how, if our leaders handle it right, we could use it to launch a new era of American manufacturing.  As always, I’m keeping an eye out for developing stories. Put these two on your radar. First, the Battle for the South Pacific is back in the news. The Biden Administration is trying to regain America’s power in that region that’s critically important in defending the homeland — especially Hawaii. I’ve got an update shortly. Finally, some big economic news coming out in the next few hours. We’ve got numbers from the Consumer Price Index telling us whether inflation is getting better or worse. I’ve got some projections — and even a bit of good news. All up next on the President's Daily Brief. ------ Please remember to subscribe if you enjoyed this episode of the President's Daily Brief. Learn more about your ad choices. Visit megaphone.fm/adchoices

It's July 13th. You're listening to the President's Daily Brief. I'm your host and former CIA officer Brian Dean Wright. Your morning intel starts now. First up, a major steel hub in China has gone into lockdown this morning over one case of COVID. We're going to discuss the implications of that zero COVID policy in China and how if our leaders handle it right, we could use it to launch a new era of American manufacturing. As always, I'm keeping an eye out for, developing stories, put these two on your radar. First, the battle for the South Pacific is back in the news. The Biden administration is trying to regain America's power in that region, and that's critically important for defending the homeland, especially Hawaii. I've got an update. Finally, some big economic news coming out in the next few hours.

We've got numbers from the Consumer Price Index telling us whether inflation is getting better or worse. I've got some projections and even a bit of good news. All up next on the press. President's Daily Brief. First up this morning on the PDB, you all might remember from previous briefs that China has embraced what's called a zero COVID policy. And that means that with even just one case, entire cities get locked down until Beijing

can get the outbreak under control. But again, they define an outbreak as one case. And that policy is really bad news, well, certainly for the Chinese people, but really for us, for Americans. because every time there's a lockdown, it's not just a Chinese movie theater or a gym that gets shuttered, it's their factories too. And those factories, as we all know, produce many of the goods that you and I buy. So when you can't find those products on the shelves, well, that means that the prices go up, inflation. And that's how you and I pay for China's zero COVID policy.

And that's the focus of today's first brief, because I have an outbreak to report. and given where it's at, it'll probably impact the price and the amount of steel that's available. But as you will see, this outbreak is about so much more than that. It's about the future of America's economy. So let's get started. In the city of Wu Gang China, authorities announced yesterday that they had discovered one case of COVID, just one. Now, in response, they are locking down hundreds of thousands of people for at least three days. No one is allowed to set foot outside of their homes.

Basic necessities like food and medicine will all be delivered by local authorities. And if you have an emergency, well, good luck. You have to contact local officials, request an exemption. And then if you're authorized, you can drive somewhere, but you can't get out of your car or lower your windows. Again, all of this because of one single COVID case. And we've seen this in city after city, Shanghai, Beijing, Macau, a few cases in those cities and everybody gets locked down. To the point, as of this morning, there are currently 250 million Chinese people under some degree of COVID control measures, all because of, in total, a few

dozen or a hundred cases. But this town that I mentioned, this Wu Gang, it's important because it's China's steelmaking hub. And the major steel plant there exports to places like Japan and Europe, even here in the United States. And that underlines the importance of this brief. Because with less supply, that could push up steel prices for all sorts of products. In other words, inflation, right here in this country. But beyond inflation, there's another important part of this story that we as a country need to discuss. And it has to do, with making America's manufacturers great again. Now, put aside President Trump's use of that phrase,

because if you really think about it, the data support that our manufacturing industry used to be great, but it's, well, less so today, at least when you look at the number of workers. About 12 million Americans work in the manufacturing sector today, but in 1980, that number was around 20 million or more. The numbers are a little bit squishy here, but the trend of lost jobs is absolutely indisputable.

Now, there are different reasons for those losses. For instance, robots and automation. Well, they're now widely used in places like automobile plants where there used to be a lot more workers. But an equally big reason for all those job losses is actually trade. When America signed our free trade agreement with Mexico back in the 1990s, some of our manufacturers headed south for cheap labor. But the really big change happened when Bill Clinton and Republicans in Congress let China into the World Trade Organization back in the 1990s.

And within a few years, we lost millions of manufacturing jobs. Factories shut down, communities absolutely destroyed. Maybe even communities where you are this morning. Now, to understand why so many companies left, I want to tell you a very brief story that was originally reported by Marketplace. There's a consumer in Alta, Iowa, and her name is Elizabeth. And she likes to order earrings from a website. That's one that you probably know, but I'm not going to mention the name here. Well, that website has a vendor in China, where the earrings are actually made.

And Elizabeth pays about eight bucks for those earrings, and that's why she buys them. They're cheap. But there's a reason that those earrings are so cheap. The company that makes them operates a factory in China that has no indoor heating. workers actually have to wear their own coats in the wintertime. And those workers are expected to come in six days a week for 10 to 12 hours a day, and they make about three bucks an hour. There are no unions and there's no press to demand things like, you know,

heat in the wintertime or better wages. And that helps explain a big reason for why U.S. manufacturers left in America starting in the 1980s and 1990s, and they haven't come back. simply put, there are cheap humans abroad, and you, my fellow Americans, are a lot more expensive, and you make crazy demands like having heat in the wintertime. But, ladies and gentlemen, there is a chance ever so slight that we can change all of that. And that's all because of China's zero COVID policy. Every time China shuts down a city and its factories because of a single COVID case,

that creates pain for American companies, all operating factories there. Some examples, Apple, they are likely to lose upwards of $8 billion because of China's COVID policies. Tesla for its part, well, they failed to build 50,000 vehicles in Shanghai for the exact same reason. Finally, there's the company Cisco, and they reported that they would lose about $300 million from this zero COVID policy. Now, there are a lot of other examples that I could share with you. with companies big and small, but the outcome is the same. Factories are feeling the pinch in China with every single case of COVID. And that is our opportunity.

If I were briefing you in the White House this morning, we would be laser focused on what is arguably the first opening that we have had to reset this relationship with China and our manufacturers in 25 years. So for whatever reason, Beijing has gone absolutely bonkers with COVID. They are the only major country on the planet with a zero COVID policy. Now, we know that the virus is endemic. It's never going to go away. But Beijing wants to chase an impossible goal, zero COVID. And I say, fine, let them. I hope it destroys them. Meanwhile, it gives us the chance to roll out the welcome mat to our old manufacturers who left. Now, we need to be talking about massive

tax breaks and incentives. We need energy subsidies. We need to relax regulations. But in return, we need companies to offer a guaranteed number of jobs and decent salaries to qualify for all those benefits. And then, once you offer those incentives to corporate America, well, frankly, you put on a squeeze. You announce very dark days ahead in our relationship with China and that America will not be around to help any of its companies who choose to stay behind with the communists. And then you slap on bigger tariffs than we ever have before. You revoke visas for Chinese nationals who are here. And then you start closing down Chinese consulates all of America. You send home their diplomats and their spies. In other words, you have a little bit of a

carrot and you have a little bit of a stick. Now, while all of this might sound good, or maybe a little bit too much swagger for your liking, we should also be very clear-eyed that the short list of things that I've just proposed would involve pain. Because so much of our economy, whether or not we like it, is based in China. And so much of our supply chain is in communist's hands too. Meanwhile, many of our old factories that we'd like to fire back up again, well, they've been shut down for many, many years or even torn down. And our trade schools, well, many of them are pretty good, but they could be better. And in some industries, we are really short of the skilled or semi-skilled labor that we need to run those new factories. In other words, when we lost

our manufacturing industry over the past 20 years, we didn't just lose buildings and jobs. We lost the concentration of knowledge and skills, equipment, and suppliers that are the key to not just running factories, but fostering innovation. So we're going to have to rebuild those ecosystems. But the we here is not the federal government. It's the entrepreneurs working with universities and chambers of commerce, nonprofits, and city and county governments. And you know what? We can do it. The American spirit is alive and well. In fact, in some of the most unexpected places. Let me give an example. There's a man named Mickey Ashmore. He's the CEO of a small shoe company called Saba. Now, most shoe companies operate in 8.000.

Asia, because just like those earrings that I mentioned earlier, they need cheap labor, and the supply chains are close to them too. But Mr. Ashmore took a chance. He opened a shoe factory in El Paso, Texas. And he chose El Paso because they have a very long history of working with leather, specifically making cowboy boots and saddles. And as he says, the process of making cowboy boots is pretty similar to his shoes. And that, ladies and gentlemen, is how you do it.

You have a product. You find the people and the place that have the passion to help you make it. And then you build slowly, with difficulty, no doubt at first, but you build. There are a thousand different cities around this country with all kinds of histories and niches of doing stuff that nobody else does as good. Maybe it's a small existing industry like leather in El Paso, or maybe it's something that a town or a county used to do, but we're a little russes. at it. It's been a while since those factory floors were humming or people worked with tools

in our hands. But by golly, we can do it. Mickey Ashmore and the people of El Paso are proving it. Look, none of this is to say that it'll be easy because it won't be. There's just no other way around that. And any president should be very honest about how painful that process is probably going to be. But I think that most Americans will understand that this is a war. and rebuilding our industries is a part of that war effort. Because if we don't do this, if we don't take advantage of Beijing's foolish zero COVID policies, what's the alternative? As PDB listeners know, Beijing steals over $600 billion worth of our trade secrets and sales every year

in cyber attacks and corporate espionage. And they've done it for decades, starting with President Reagan through Joe Biden. and no amount of diplomacy or even trade wars have done anything to change their behavior. So if we do nothing with this moment, if we don't take advantage of it, then we make it pretty clear to Beijing and each other that we've given up. We just embrace America last and watch the country circle the drain in many ways, all because we're not willing to fight and sacrifice for what made us great. The bottom line, friends, is that we have a chance to help rebuild this country in a way that we have not in 25 years. Corporate America is growing tired of operating in China, all because

of their zero COVID policies, and we can take advantage of that. We can bring our companies back home and rebuild what we lost. To say it simply, we can give our kids the country that our grandparents gave to us. Coming up, a closer look at what's on my. My radar. Own it all. Pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly, big board buck slot machine by aristocrat gaming,

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Monopoly is a trademark of Hasbro. Hasbro is not a sponsor of this promotion. As always, I'm watching a few other stories this morning on the PDB. Put these two on your radar. First, I've got an update on the battle for the South Pacific. We first talked about this maybe a month ago. So let's recap things and remind ourselves of why we care. There are a handful of nations in the South Pacific with names like Vanuatu and the Solomon Islands and Kiribosh.

And we've long had pretty good relationships with those countries, most especially after World War II. but candidly America sort of forgot about them and their needs. The last Secretary of State to visit the region was all the way back in the 1980s, until a couple of months ago, that is, and that big visit happened only because China stepped into the void that we left behind. They've been pouring in billions of dollars in aid and loans and long-term lease agreements for at least the past 10 years, and that's all for one reason. To control those islands for military and economic purposes,

most especially fishing and to control the shipping lanes. But that first bit, the military influence, well, that's the big one that you should care about. China is adopting a lily pad policy where they lock down an island so that their Navy and Air Force can use it for refueling purposes, and then they hop to the next island that they control, all to get closer to Hawaii. And that's not dissimilar from what the Japanese did in the run-up to World War II. So the bottom line is that controlling the South Pacific is actually a pretty big deal, but we just sort of forgot about that and them. And that brings us to the update.

Vice President Harris announced some pretty significant efforts to claw our way back into the region. Two new embassies in Kiribosh and Tonga. We're also speeding up the construction of an embassy in the Solomon Islands. There's also going to be a new envoy for a regional cooperation group called the Pacific Islands Forum. And next, we're sending back the Peace Corps, which used to be there decades ago. Now, that might not seem like a big deal, but consider this. China charmed their way into the Solomon Islands, in part, by providing school buses. So the little stuff matters.

On the economic front, Vice President Harris said that Congress will hopefully increase economic aid to around $600 million over the next decade. But that amount is a tiny fraction of what the Chinese have offered. Still, it's actually good and surprising to see the Biden administration taking some action here. Could we do better and smarter? Yeah, we could. But look, it's a start. Whatever comes next, I will keep you posted.

Finally this morning, all eyes are on the Consumer Price Index report that's coming out in the next couple of hours. Now, that index or the CPI is a key measurement of inflation. And it'll help us understand if things are getting worse or better economically in the country. Now, if you recall, the CPI increased 8.6% in May, and that was a 40-year high. Now, what will it be for June? Economists are guessing that it's going to go up, unfortunately, to about 8.8%. But there are some small indications of a silver lining to the bad news that you're probably going to hear this morning. For example, if you've been looking for a used car but you held off because of the high prices,

you might have made a smart choice. Data out for a few weeks now, has shown that the cost of used cars is slowly dropping. And that's because supply chains are starting to kind of untangle themselves and dealer inventories are getting restocked. Economists are predicting that that trend should continue for the next year or so. And that'll give car buyers a degree of leverage. So keep that in mind if you're still shopping.

But we are probably going to see more bad news than good. There was data out yesterday from the grocery price index. And it showed that baking goods were up 7.6%. Snacks like cookies and chips up 7.5%. And dairy and eggs up about 7% too. But it's actually a lot worse in some places more than others. In New York, that is to say, New York City, prices were up for produce 11.3% in San Francisco.

You all experienced an 8.7% increase in dairy and eggs. In Atlanta, your baking goods went up 10%. So keep your eyes out for the latest consumer price data this morning, but if you can't, don't worry, I will, and I'll keep you posting. And that ladies and gentlemen, concludes your morning brief. As always, we close out the show, reminding each other of why we are here, talking about our country and our world. It's the creed of every good spy and every smart American. It's from John, chapter 8, verse 32. And you shall know the truth. And the truth, shall make you free.

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