Dive into the world of global trade in the latest episode of The
Impact Exchange with John Frehse as he is joined by trade expert
Kate Kalutkiewicz!
Kate unpacks the complexities of trade policies and tariffs that
are reshaping industries worldwide. From her experiences in the
Trump White House Administration to leading trade policy at Amazon,
Kate brings unparalleled insights into how these changes affect
businesses globally.
Discover why tariffs are more than just taxes, how they influence
everything from automotive supply chains to pharmaceutical pricing,
and what the current trade negotiations mean for the future of
international business.
John:
And I am the host of the Impact Exchange at Ankura and I am very,
very lucky to have a very special and in demand guest today and
Kate Kalutkiewicz.
Kate, can you please introduce yourself?
Kate:
Absolutely, and thanks for having me, John.
My name is Kate Kalutkiewicz. I lead the trade practice at McLarty
Associates, one of Ankura's companies.
We are a global consulting firm helping businesses try to make
sense of what's happening in DC and also around the world and
notably on trade policy.
I was a U.S. trade negotiator for the majority of my career but
concluded my time in the U.S. government in the first Trump White
House, where I served as his special assistant on trade and
investment.
John:
So you've done some stuff. What did you do after that?
Please tell me more.
Kate:
When I left the Trump White House, I mean, how could I go anywhere
but up?
But I went to Amazon, actually, where I led trade policy there for
three years.
John:
And then somehow we convinced you to come.
It probably came from Mac, who does a very good job of convincing
people.
Kate:
You know, I had been in the DC sphere for long enough to know who
McClarty Associates was and it was a dream job of mine.
So to be able to come and lead the trade practice was a no brainer
decision.
John:
Well, you're a dream guest of mine because it turns out people
are talking about this tariff thing a lot and I've stolen a ton
from you.
As I have shared from your memos, especially some of your general
memos on these are the facts and they're not going to
change.
A lot of other things are going to change, but there's some
facts that won't. So before we get into those things, what is
the, what is the big story around tariffs?
Why are we focused on this and why is it an issue that
matters?
Kate:
Well, you know, our president likes to call himself the Tariff Man.
He's a huge fan of them and he's put in a ton of them.
Obviously, he's been in office for 100 days. And these are 100
days that are very different from the last time when I worked in
the White House. He hit the ground running.
He moved and put tariffs in place across the world for a lot of
reasons. And with our clients, you know, generally I like, I'd
like to help them think about why, why is he doing this? What are
the motivations?
Because then it helps you understand which are likely to stay in
place and which are there for negotiation purposes.
You know, first and foremost, the president talks about the need
for tariffs to bring revenue into this country. He wants to bring
down the deficit and he thinks the tariffs, irrespective of who
pays them, are going to do that.
So one of the new tariffs he's put in place, a 10% increase on
the entire world, is likely to remain in place. The United States
had very low tariff rates, on average around to 2.5%. This 10% has
bumped us up to 12.5%.
And I think politically, both Republicans and Democrats are OK with
this. So it's here to stay.
We have tariffs in place for fentanyl. You've heard about the
fentanyl tariffs and the illegal immigration tariffs on Mexico,
Canada and China. Those are very specifically there for
negotiation.
And, you know, I think once the president feels satisfied on what
those nations are doing on fentanyl, he'll be prepared to bring
those down. Then there's the basket that's intended to
reset our trade relationship with the entire world. These are these
reciprocal tariffs. He talks about them as fairness tariffs. He put
those in place at different rates for almost every country in the
world
John:
and then paused that some that don't have populations.
Kate:
That's right.
John:
Some obscure islands in the Pacific, right in Madagascar, I
think.
Let's get the Penguins.
Kate:
Well, you know, he paused those. And the idea here, of course, is
to really bring countries to the table to, to give us some
wins.
The United States has already announced one negotiation with the
UK, which has yielded at least a framework. And they are actively
negotiating with a number of other countries.
And then finally, we have a whole bunch of tariffs on critical
sectors. And these are the sectors that President Trump really
wants to see come back to the United States.
These are areas like autos and steel and aluminium and
pharmaceuticals and semiconductors are probably about a dozen or so
of these types of investigations. And these tariffs are really
probably going to hang around for the most part because they want
to use them as a rationale for making it more competitive in the
U.S.
John:
So I have like, Ispent a lot of time in the automotive industry
consulting a lot of big names.
And the one, the thing that I, I'm concerned about there and I
want to unpack all of this with you in a 15 to 20 minute podcast,
is that it takes 2 1/2 to three years to build a factory minimum,
especially if we're looking at high tech manufacturing
automotive.
The thing that worries me is in a lean supply chain with just in
time where the muffler shows up right before it goes on in the car
and we have disruption. What happens in Detroit when the parts
don't come out across the border effectively from Canada? Are
we worried about that or do we have enough time to make adjustments
to make this work?
Kate:
I think those are exactly the right questions. And I think the auto
sector is probably a really important one to kind of zoom in
on.
You know, the president has made no surprise or secret of his long
term goal, which is to somehow relocalize the entire auto supply
chain in the United States.
Now, we've spent years and decades building a North American
supply chain, of course. And for the United States to be
competitive, you know, vis A vis China, vis A vis the EU, it's
clear that Mexico and Canada are really important components
there.
So the president came out of the gate, as he often does, with the
most extreme version of the tariffs and then immediately pulled
them back for Mexico and Canada.
John:
Didn't he negotiate though, the first one in his first term?
You were there.
Kate:
It was the greatest trade deal ever negotiated. The president says
it all the time.
But on autos in particular, he has made some carve outs which are
important and they are exactly to your point, which is without
North America, without on ramp, frankly to rebuild supply chains,
you can't yank this out overnight. We're going to be in
real trouble.
So he has put in place some important carve outs for the auto
sector for Mexico and Canada that I think indicate he's willing
to listen to reason there.
John:
So one thing that's interesting for me is when you look at a
presidential term, we'll say it has 3 1/2 years left, let's
say, if that's about how long it takes to build out the
infrastructure to do this.
And then we have a completely different president in the next term,
or we have a third term for Trump, depending whatever. But
let's say we have a completely different president and
everything gets reversed. Now we've built an infrastructure
that we don't need unless, listen, there's high tech ways
that we minimise labour in these environments, right, so that we
can still do it and labor cost or one, 2% of the finished
product.
But it is highly disruptive to make a, you know, $20 billion
investment that then you never needed to make if you just held on
for dear life. So I worry about that.
Kate:
No, it, and you're not the only one.
I mean, I, I think it's a fair worry, particularly when most of
these things are happening by executive action, right? I mean, the
next president, you're right, could come in and, and switch
things back. I think on this though, I see continuity no matter
what, right?
We had the, the major shift on trade really started the first
time Trump was in office, right? We had this huge shift in the way
we approach these things. And then we saw President Biden make very
few changes.
Now we have Trump again, I think his likely successors, you know,
JD Vance, Marco Rubio, they're going to continue this sort of
policy. And if we have a first term Democrat president as well, I
mean, I, I really don't think any of those people are going to
move away from an agenda which incentivizes new investments in the
United States.
Now, it would be better if Congress would do what it's supposed
to do and actually pass legislation to make this durable. But I
actually think there's little risk that we're going to have
a wide shift no matter who wins the next presidential.
John:
So what's interesting about what you're saying to me and
all of this, by the way, I obsess about everything you write.
Honestly, I authentically, I read all of it. So what's
interesting for me is, is a couple things. One is we, we always, we
don't always, we often appreciate the outcome of Trump's
chaos. So the chaotic speed and rules and lack of rules, the output
is appreciated by a broader group of people. And I've had
people from the Biden White House, I've sat down with them to
talk about the situation and they said, frankly, we appreciate all
the cost cutting. We didn't have the political power to do it,
and there's a lot of waste and we're glad he's getting
rid of it. It's a long time coming.
But the, the outcome I think might be very durable because if he
has the blood on his hands of how it got done and then we all agree
that this is working. Why would we ever reverse this? It would be
anti American. So there's do you want to reflect on that for a
second?
Kate:
I mean, sure. Well, I, well, I obviously I agree with you.
I mean, I think we have seen even in just regular Americans this
notion they respond to what President Trump talks about when he
says we've given so much to the rest of the world and we
haven't gotten the same in return.
And, you know, right before the election, even the public support
for tariffs as a former trade negotiator who used to bring tariffs
down was, was shockingly high. And so, you know, I do think
it's durable.
I do think I'm glad you mentioned the Biden administration
talking about the wins that he's producing. We hear this from
our trading partners as well, sometimes begrudgingly, right?
But, you know, the outcomes here are not just benefiting him and
his supporters, they're frankly for the entire country and in
some cases the world.
John:
So recently I had on as a guest Bret Stevens from the New York
Times. Everybody said they're going to cancel their
subscriptions because Brad Stevens is a terrible human, but
it's whatever. He's an old friend of mine, and he's an
old classmate of mine. And he makes this, and I promise you I'm
going somewhere with this.
He makes this argument that the population of the world is
overwhelmingly intellectually lazy. And the problem with that issue
is we never go past the headlines. And so when I'm very curious
about things that are not in the press right now because the press
isn't feeding me the details that I want. What I'm curious
about, and I'm hoping you can guide me through this, is we keep
on talking about all the other countries that have tariffs against
the United States. But it's not just tariffs. It's also
subsidies and other things that make unfair trade practices.
If we can take a chunk of time to talk about, we don't have to.
Some specifics are fine, but I want to know like what are they
actually doing to us? Can you explain the architecture of what the
threat is and the unfair fight that we're in?
Kate:
I'm glad you asked that question. It's a great question and
it is one that you wouldn't really know unless you dug into it.
And, agriculture is a great example of this generally, which, you
know, U.S., everybody thinks U.S. is the powerhouse in agriculture.
And we are by and large, we, we sell a lot of our farm goods to the
entire world.
The one place where that is shrinking increasingly is Europe. And
there's no real answer for that except for European regulation,
which, you know, goes a different way than us. And inconsistently,
you know, we do have World Trade rules in which we can challenge
regulations which are not based on science or risk assessment, the
way that that we come up with regulatory protections in the United
States.
Over and over, we've won litigation against the European Union
on unfair bans on our chicken, on our beef, on our pork, on our
corn, I mean the list goes on and on. And so the European Union, of
course, can have a 0% tariff, but if they have these barriers in
place, we can't sell. So that's one example.
Another, I think important and timely one is pharmaceuticals that,
you know, you saw the president issue a pharmaceutical executive
action this week that really looked at the domestic market, right?
It looked at how do pharmaceutical companies charge in the United
States. But really important provision in that EO is around
something the president calls freeloading. You know, this is the
kind of language he uses
John:
The technical term, the technical term
Kate:
Freeloading. But it reflects the fact that countries like
Germany, countries like Korea, you know, these are not third world
countries. They are negotiating and forcing U.S. companies to pay
much, much, much lower rates, which is not consistent with the
level of innovation or treatment.
But they're blackmailing them, essentially compelling then the
U.S. companies to recoup investments in the United States at the
cost of significantly higher drug prices.
So, you know, it would be pretty incredible if the president could
get other countries, particularly those that equal income levels to
they're their fair share of the burden here too. You know,
these are drugs that are often developed because of research in the
United States and benefit their economies.
So I think this is another example of the president seeking
reduction in things that are not tariff related to ensure fair
treatment.
John:
So there's and the subsidy issue for me is interesting when we
look at like Canadian forestry or, or anything in any country. And
I always again, it's that's not a headline. It's here
are the 15 reasons why it's unfair. And that's what I
struggle with.
Is there, is there a place where people go to actually like, I
mean, you've really got to dig.
Kate:
Yeah. I mean, they're subsidies are really challenging because
in some ways we've decided as a bunch of countries deciding
what's fair and what's not are that subsidies by themselves
are not the problem. So long as let's say we give a subsidy to
a company to build a new facility, right. So we say, OK, well,
we're gonna give you a little extra help if you come build it
in my community.
That is legal so long as a European company can compete for that
subsidy too, or a Japanese company, Right.
John:
So IRA, the Inflation Reduction Act,.
Kate:
IRA, good one. Yeah, exactly. So, subsidies are completely fine if
you let everybody compete for them.
The problem becomes when they are protected subsidies like lumber,
like everything the Chinese do to promote, you know, their in a new
production in ships, in semiconductors, in quantum computing and
the rest of it. Because what it does is create sort of an unfair
equilibrium in a market system. And these are the sorts of trading
rules we try to go after because in a system that preferences
domestic champions you, you completely upset fair
competition.
And this, I think this goes to some of the tariffs the president is
looking for, particularly in critical manufacturing.
Lumber is there, by the way, that's under investigation as
well.
John:
Yeah. I saw the map of Canadian lumber and I was like, oh, this is
this is big.
Kate:
So, you know, we don't always have clean hands ourselves.
I'll be very, very fair about that.
John:
How dare you. No, totally. I understand.
We do have our own games we play.
Can you explain to me as a person who is in charge of articulating
much of this stuff for much of your career, is there a reason? Is
it that we just don't think the public can digest the facts? Or
is it that the facts are too complicated? Or is it just easier to
say these are bad, these people are cheating?
Kate:
Well, I mean, I obviously it's a very diverse set of facts.
And, you know, the regular person probably doesn't have the
interest in sorting this out. They're too busy worried about
everything else.
I mean, look, and I, I think this is the issue on tariffs
generally, which is, you know, Americans, I will, I will say I, it
wasn't a huge focus on trade for so long. And then Trump came
in the first time and said we've been hollowed out. This has
been a, a net loser for us. All our companies are moving overseas
and taking their workers with them. We have the recession in
08.
People started to respond to that because they were seeing it. And
then COVID hit, right?
And then the American public in particular finally realised that a
lot of our supply chains are in a spread out around the world,
sometimes, you know, in control of countries that don't care so
much about us. And prices went up and people started to mistrust
the big multinationals, felt they were taking advantage of it. And
then we have, you know, the labour union strikes and the highest
support of for labour unions in this country since Kennedy. So the
entire dynamic has shifted.
And I think Americans are starting really to say, yeah, you know
what? This was a failed experiment. I think that we should have
more manufacturing. We should have more mining, you know, and you
and I can sit here and think, do Americans really want those jobs?
Because the whisper, the thing that is whispered and not shouted is
we might not have enough workers to do all of what President Trump
wants to do. And so that's gonna be, I think something that
plays out in the near term.
John:
I like that now it's you interviewing me, by the way, as the
head labor expert at Ankura. I mean, like all of your
questions.
So it is interesting the labor side of it and the drive for
innovation and automation is something that happens when things
become so scarce or so expensive. And when you look at the price of
labor on a fully built luxury car, it's about 3 or 4%. And
that's fascinating when we're fighting all of these UAW
contracts and all of these things are happening, you know, we may
lose, you know, half a percent of, you know, the total cost of the
car.
But I, you know, I know, we don't really know where it's
all going to go. But in conclusion, to think with you, meaning I
just listen and you tell me how it's all going to turn out.
What happens to turbulence and what should CEO, CFO ,COO, CHROS,
the executive leadership team, what should they be worried about
for the next 3 1/2 years?
Kate:
I'm going to spin it right. I'm going to first say what
I've been saying for the last year, even before
John:
This is your media training where you do the double reversal on
me
Kate:
No, it's me being it's me being a glass half full person.
I'll agree there's turbulence is staying right. But what I
try to help people think about is prepare, don't panic.
Everyone's heard me say it. I'm now becoming a broken
record. But it's true.
We know who he is. We know that the unpredictability is part of
this game. This is not, you know, an accident. So waiting for the
when is not the right strategy here, right? Like how to be
proactive, how to think about the tools in a company toolbox.
They're your workers, they're your customers, they're
your suppliers. They're the whole part of your your supply
chain, your representatives in Congress. I mean, there are any
number of people or you know, in an ecosystem that can be part of
your team. How do you be proactive? How do you try to find
opportunities? And there are many opportunities, right? How do you
mitigate the risks?
So there is a way, I think to be proactive in this space. It's
challenging. I know all companies would prefer to know exactly
what's going to happen. You know, many companies say we can
take 145% tariffs on China. If you tell us that's what it's
going to be, we'll figure it out. The problem is when
they're on and then they're off, and then they're on
and then they're off. But that's this president and I, I
think the one thing that's probably important to focus on. We
worry about 3 1/2 years, of course. But the reality is the midterm
elections are critical to his ability to continue to govern.
John:
So I don't think about this. That's a very good
point.
Kate:
Yeah. And I think what we have seen, you know, he went out very,
very strong on tariffs and he's been forced to come back. And
that that pull back is not because he's feeling kind to China,
right, or feels differently about his objectives, but the domestic
circumstances are changing. And the people in his party that have
to run for re election that have voters that remembered that
President Trump said he was going to bring prices down.
Let's not forget, have started to pressure the White House to
take a more nuanced approach. And so if the midterm elections
results in Democrat control of one house, we have a very different
last two years than we could if he retains control. And so that
will start to play very heavily, I think, on his mind.
John:
So I think this has been both reassuring and terrifying for me.
Thank you. I will call my therapist and say I'm having a really
rough day and I think things are going to work out.
Kate:
I love that. I'm going to steal that from you.
John:
Very good. Well, I've stolen everything else from you. And I
really appreciate you sharing your experience.
I really don't think there's anybody when you look at the
holistic story of tariffs in trade that knows more than you do in
the world. No, I mean, they need to read more of your stuff. They
need to read more of it. They need to listen to what you're
saying because it's not, you know, hysterical panic.
It's let's be rational, use the data and understand how it
impacts our businesses and our decision making. Maybe we need two
more warehouses than we have. Maybe we need a little bit more
inventory. And by the way, that's going to create better
customer service and maybe a slight increase in prices. But we will
be able to take better care of our workforce when they don't
have to go up and down freaking out over demand changes, right,
which happened anyway.
So I think the moral of the story is listen to Kate. That's how
she's making an impact. Thank you for giving me your time, too.
I really appreciate it.
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