On "Forbes Newsroom," former Commerce Secretary Wilbur Ross, who served in President Trump's first term, gave his take on the new sweeping tariffs, present Commerce Secretary Howard Lutnick, the "endgame" for the tariff push, and more.
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00:00Hi, everybody. I'm Bernie Lewis, a breaking news reporter here at Forbes.
00:07Joining me now is former Commerce Secretary Wilbur Ross.
00:10Secretary, thank you so much for joining me.
00:13Well, thank you for having me on.
00:16We are talking tariffs today, and I really think that you could provide a unique perspective here,
00:21considering you served as President Trump's Commerce Secretary in his previous administration.
00:26There were tariffs in that first term, but not nearly as sweeping as we see present day.
00:32So to start off the conversation, I would love if you could give your assessment of
00:35current Commerce Secretary Howard Lutnick. How do you think he's doing?
00:40Well, I think he's doing fine. Howard is not historically a trade expert,
00:48but he's a very good businessman. He's a very quick learner,
00:53and he's working very, very hard at implementing a much more comprehensive program than we had in the
01:04first term, because what's happened, President Trump is now much stronger than he had been in
01:11the first term. He controls the Republican Party, pretty much controls the Congress,
01:18even though the majorities are small. So between those facts and the fact that we've won the court
01:27battles in the first administration about how we could do the tariffs, he now is using them much more
01:36broadly, much more comprehensively, and as a result, there's even more tariff activity than we had in
01:46the first term. So Howard's had a lot to catch up with.
01:50There's more tariff activity, as you said, but Secretary Lutnick is getting hit for his messaging.
01:57Even Steve Bannon said that he's close to being an unmitigated disaster, and there is online
02:01speculation that should Lutnick leave the administration, markets would rally. What's your
02:07reaction to that? Well, because they're moving so quickly, naturally, there are some changes that
02:18they have to make as they go along. And that has result that in the scope of it has people concerned,
02:29because they don't see where is the end. Whereas last time, we were fairly clearly defined. One would be stale,
02:39one would be aluminum, one would be refrigerated, one would be this. So it was a much narrower definition.
02:47It was clear where we were heading. And so it was a different program. Here, it's a whole lot of products
02:56to a whole lot of countries with a whole lot of different tariff levels. So naturally, in the
03:05beginning, that makes people a little confused. And I think the real thing they're worried about is,
03:13what is the end game? Because these levels are also higher tariff levels than we were doing. We didn't
03:22have anything around 40, 50, 80, 100, 150%. So people are worried, is this going to be a forever
03:32escalating thing? And when you think about it, businesses can adapt to good news, they can adapt
03:40to bad news. What they have trouble adapting to is uncertainty. And now, there's for the moment,
03:49quite a bit of uncertainty. But I think once the President makes a deal with the first couple
03:57of large countries, and whether that's Vietnam, or it's Japan, or whoever it is, I think that will
04:06start to give people clarity. They will see there is an end to things. And I think then the markets will
04:14settle down.
04:14LESLIE KENDRICK You're a lifelong businessman. Are you one of those people who are worried? I mean,
04:20when you're looking at this, what do you think the end game is?
04:25Well, I think it's clear the end game has multiple dimensions to it. One part of the end game,
04:34he definitely wants to reduce our trade deficit and reduce it quite materially. Number two,
04:42he's particularly interested in toning down the Chinese exports to us.
04:53Number three, so those are the big tariff things. However, he's also got some other objectives.
05:02These numbers are so big that they also are generating meaningful revenues
05:09to the U.S. government that can be used to offset tax cuts and other things that the president wants to undertake.
05:19We didn't have that as a big objective last time. And then finally, he's also broadening it to deal with
05:29non-trade, non-cash diplomatic objectives, like controlling fentanyl, like border security,
05:39like making larger contributions to NATO. So part of the reason people are feeling a bit uncertain is they see
05:50that he has multiple objectives. But there's nothing that will stop him from accomplishing
05:59all of those objectives. It's just, he's throwing a lot of people all at one time. And I think that's
06:07good because he doesn't have that much time to make these things happen. So he might as well really
06:15launch a big broad offensive. Secretary, I would love to turn to semiconductors because that's where
06:21we saw a lot of that mixed messaging, especially over the weekend. The Trump administration said
06:26that they are conducting a Section 232 investigation into the import of semiconductors. And this is largely
06:33viewed as a harbinger to implement tariffs. I'm curious how you think the Trump administration is doing
06:38vis-a-vis semiconductors and tariffs? Well, 232 is the basic legislation, Section 232 is the basic
06:49legislation that we use in the Trump's first administration. So that ground is very well trodden.
06:58It's been tested all the way up to the Supreme Court. So there's one good thing about it is we know that it
07:06works and we know that it will be upheld on appeal. What's bad about it is it slows things down a bit
07:16because you have to prepare and research a very detailed report. You have to get the written
07:23concurrence of the Secretary of Defense. You have to have public hearings. You have a whole lot of steps
07:33you need to go through. So it's better in the sense that it's more bulletproof. It's worse in the sense
07:41that it takes a bit longer to complete. But as to whether we need a program for semiconductors, I think
07:52we clearly do. You may remember I was the big proponent of the CHIPS Act in the first administration.
08:03And while it did get passed and it's finally getting to be implemented, even that will not make us
08:12self-sufficient in semiconductors. We still will be importing a majority of the semiconductors that we
08:22consume. And we are in fact the world's largest consumer of semiconductors.
08:30So it is important to put up a tariff wall so that there's further assurance to people building
08:38semiconductor fabrication in the U.S. that they will have a market and they will have a market
08:46that's not interfered with by products subsidized from other countries.
08:52Before we move on there, I do want to get your take on what you would say to Secretary Lutnik about
08:59the Section 232 because you gave a pros and cons list. He has nine months to complete the investigation,
09:06but he indicated that he will implement tariffs on semis in one to two months. What's your advice to
09:13him when it comes to this Section 232? Well, clearly, any time a president asks for something to be
09:21investigated, he has a target that the end result of the investigation will be a recommended action.
09:31Otherwise, he wouldn't bother to request the investigation to be done. So that's pretty logical.
09:39As to Secretary Lutnik, as I've said, I think we need to become more self-sufficient in semiconductors.
09:50I think what's important, though, is whatever level of tariff they aim to put on, there perhaps should be
10:01a graduated path to it because it takes two to three years to build a semiconductor facility
10:11and to train the workers to do it. It's very, very technical work, very precise work,
10:20because remember, you're dealing with very, very small things, a couple of nanometers in dimension,
10:30and it takes three nanometers to make one human hair in size. So you're dealing with really minute things,
10:40and you've got to get it exactly right.
10:44So I think a phasing in of it in some way would make sense, because if you put a giant tariff on
10:55semiconductors right now, it won't stop the imports because we do not have the capacity to make enough
11:04semiconductors. So all it will do is raise the cost of semiconductors.
11:12And therefore, I would recommend that they consider a ramp up over a couple of year time period.
11:22To that point, you can't exactly snap your fingers and make a semiconductor factory in the United
11:27States. As you said, it takes about two to three years. So do you think that these tariffs are
11:32premature? Would it make more sense for the tariffs to wait while we beef up domestic manufacturing?
11:37No, I don't think they're premature in the sense that we do need to send the very clear message
11:51that there are going to be very big tariffs on them from countries. We need to give businesses who are
12:01considering putting in a fabricating plan assurance that this is real, that there will really be tariffs.
12:09And remember, a fab plant is billions of dollars. These are very, very expensive things to build,
12:19because you need to make them pretty large scale. They have to be extremely clean.
12:25I mean, there are a whole lot of requirements that are much more precise than, let's say, building an
12:32automotive factory or something like that. So I don't think it's premature,
12:38especially because if you go through the list of the president's several objectives, one of them is
12:48raising revenues. And so semiconductor tariffs are certainly one way to raise revenue.
12:57How, let's say you were Commerce Secretary right now, how exactly would you implement the semiconductor
13:04tariffs? Because you said you would do it in a more phased approach. What would that look like
13:08under Commerce Secretary Ross? Well, what will be important will be, we probably will end up
13:19with different tariffs on the same product depending on the country it comes from. And if we end up that way,
13:31then we will also need to work out with the lower tariff countries, a situation where they won't accept
13:42semiconductors to come in from, say, China on a trend shipment basis and benefit from the lower tariff of
13:56that other country. So it's going to be both sides of our supplier countries that we need to deal with. And that's a
14:08complication. The semiconductors also are not a homogenous entity. The size of the semiconductor in general,
14:23the smaller the size, the more powerful and the more useful. So the commodity type ones, the very large ones,
14:34are not necessarily of military significance, but are of commercial significance. Typical automobile has
14:46between 400 and 500 semiconductors in it, most of which are fairly commodity type. So there's also a difference,
14:58at least in my personal view of the national security implications, depending on whether it's a very high
15:07tech one or a very low tech. So I would hope they give attention to not just the mass fact of semiconductors,
15:20but also to which size, which quality, which power they're dealing with, and perhaps treat them differently.
15:31I would love to pick your brain on the H20 chips, because AI chip maker Nvidia said they will suffer a $5.5 billion blow
15:40after the Trump administration put new restrictions on selling H20 chips to China. And do you see
15:46President Trump's about face when it comes to new restrictions on the H20 chips, which were
15:51originally made to adhere with U.S. export restrictions as a response to China blocking rare earth shipments?
15:58Well, that's a whole complicated issue. I think the idea of China making a strenuous response
16:11should not surprise anyone. China is very dependent on exports, and the trade war, especially from their
16:24point of view, is quite complicated in that their economy is only two-thirds the size of ours. So that means
16:35a dollar of pain that we inflict on their exports has one and a half times the impact of a power of a pain
16:48that they inflict on us. Second, they export to us so much more than we do to them that pretty soon
17:00they run out of products to put tariffs on long before we would. So the strategies for a China are very
17:11complex. And I was pleased to see, and I think it was constructive, that the Chinese publicly indicated
17:23that they're open to negotiating the tariff situation. And they even appointed a special,
17:32very senior person to be their point person. And they asked President Trump to do the same thing.
17:42And the only quid pro quo they sought was to be treated with a little more respect and not have all the
17:51the slamming that many of the cabinet officials have been doing of China. So I thought that was a good
18:01conciliatory move on their part, and one that hopefully will lead to negotiations.
18:10The other part of negotiations, though, is this. During Trump's first administration,
18:17we made a fairly extensive phase one deal with China, but they never lived up to it. So one of the key
18:27things that we ought to focus on this time is enforcement. If we do make a deal with China and they don't live up to it,
18:38what are we going to do to enforce it? How will we in effect punish them if they don't live up to the deal
18:48this time? And that's a complicated thing to do. But I think given our history with them, it's a very
18:57important component. If you don't have an ability to enforce an agreement, what is it really worth?
19:05President Trump said that talks between the United States and China are underway. He expects more
19:13talks to come, and he does predict that we will find a deal with China. In President Trump's first
19:18term as Commerce Secretary, you traveled to Beijing for trade talks with China. If you could impart any
19:24advice to the Trump administration and Commerce Secretary Lutnik in particular when it comes to dealing with
19:30China, speaking with them and negotiating with them, what would that advice be?
19:37Well, the main thing would be to recognize that we will have to make some sort of concessions
19:45to them in order to get concessions from them. I don't mean just in terms of tariff because the Chinese
19:56also have put up a lot of non-tariff trade barriers, limitations on products that are not science-based
20:10at all, but are really just designed to prevent us from selling those products to them. You have to factor
20:18in the non-tariff trade barriers as well. We have very few non-tariff trade barriers,
20:28so there isn't much to worry about for the Chinese from us, but we have a lot to worry about from the
20:38Chinese side. You've seen President Trump do his deal-making. You've been in the room where it
20:44happens, so to speak. When you see President Trump now focusing on semiconductors, do you think he's
20:50using that as a chip, no pun intended, to get China to the negotiating table?
20:58Well, every trade discussion ends up being a negotiation, and that is not only appropriate,
21:08it's inevitable, because trade is one of the most complicated economic phenomena a country has to deal
21:18with, because there are so many different geographies. There are so many different products. Every
21:26situation is a little bit different. Everybody's coming at it from a little different angle.
21:36President Trump learned a lot about it during his first administration, because we had extensive
21:43negotiations, not just with China, but with lots of other folks as well. He also, very importantly,
21:53has become acquainted with the Chinese leadership. Prior to the administration, he had never dealt with
22:04the Chinese governmental leadership, so he didn't really have a clear idea what it would be like to
22:12deal with them. Now he's dealt with them quite a bit, both in terms of trade and in terms of all sorts of
22:22other policies. So I think he's better positioned to understand how to get a deal done.
22:30I can only imagine how interesting of a seat you must be in right now, seeing all of this tariff talk and
22:38knowing that you were in that seat in Secretary Lutnik's position just a couple of years ago. If you were thrown
22:45back in as Commerce Secretary now, what would you do immediately? A, and B, seeing all the market volatility
22:52when it comes to these tariffs, does that concern you at all? The objectives now, as I said, are more
23:00all-encompassing than what we had. So that means the negotiations will also be more complicated. For
23:10example, last time we weren't tying defense spending by target countries as a particular part of tariff
23:22negotiations. The president has made clear that with the European countries, he wants them to step up the
23:32percent of GDP that they use for defense, and he's prepared to use trade tariffs as a weapon for doing that.
23:44So that adds another whole set of dimensions, because how do you balance how much benefit you
23:53get from the trade part as opposed to how much benefit you get from the non-trade part like defense spending?
24:02And my second part of the question was, are you concerned about the market volatility that we're
24:07seeing since the tariff plan was rolled out? The reason for the market volatility
24:13has been A, the inherent uncertainty of the process, B, people were surprised with the extent of the
24:25initial batch. They were surprised at the rates, the tariff rates, some of which were quite high by
24:34historical standards, and they were surprised at how extensive it was.
24:40You saw some of the jokes about there were tariffs put in on a little island that doesn't have any
24:48people. It just has some animals on it. So they were maybe overly comprehensive.
24:57Secretary, my final question to you is, tariff talks have been ongoing now and they have been
25:06the top headlines for months. Do you think anything is missing from the national and
25:11international dialogue when it comes to President Trump's tariff plan?
25:17Well, I think you have to take Trump's economic policies as an overall entity. There's a very
25:27important offset to the impact of tariffs and that's his tax bill. The tax bill would not only make permanent
25:39the corporate and individual rate reductions that were put in during the first term, but they also would make
25:49Social Security payments tax-free. They would make overtime payments tax-free, a whole bunch of things.
25:58Now, those two items are very powerful economic stimulators because people on Social Security
26:08have a very high propensity to consume. So the extra money that you give the retiree pretty much will get
26:19spent very, very quickly and therefore will be stimulatory to the economy. Making overtime tax-free
26:30would also have that benefit, but it would have another further benefit which is simply stepping up
26:39industrial production and making it more efficient because your variable costs are not nearly as
26:48extensive as the fixed cost. Secretary Wilbur Ross, I appreciate your time today. I appreciate the
26:55in-depth conversation. You are welcome back anytime. Thanks for joining me.
27:01Well, thank you. I enjoyed chatting with you. You had some very good questions. It'll be great to see how
27:07they're finally answered.