Luncheon

Transcription:

John Drake (00:10):

Good afternoon, and these lunchtime speaking opportunities are always kind of a two-edged sword, right? Because I'm keeping you from meeting your lunch and I'm also trying to grab your attention at the same time too. So we'll see how this goes. Thank you for the Bond Buyer for having me. What I want to focus my remarks on today is just how we're looking and how we're approaching this new Washington that we find ourselves in today with the Trump administration and a Republican Congress. I'm going to talk a little bit about what's happening this year with tax reform, which really is going to be the most consequential and I think the most consuming debate that Washington will have in 2025. And then what I'd like to do is shift my remarks for what I'm looking to see as part of the 2026 debate, which is the reauthorization of the infrastructure programs that were last created or last established under the Infrastructure Investment and Jobs Act of 2021.

(01:11):

So let's just talk about the outlook of 2025, 2026. So top line points to sort of take away from this one, Republicans control Washington DC outright. Trump is in the White House. The house Republicans control the house with a 218 to 215 majority pay attention to this number because that is a razor thin majority and it's going to have a huge impact on what Republicans can get done in the Senate. The Republicans are enjoying a slightly healthier majority of 53 senators to 47 Democrats. Bottom line with all this, you're seeing this right now with the Trump administration trying to get his secretaries confirmed where he's getting at least 50 votes for most of his nominees. Hegseth, the Department of Defense nominee just barely scraped by his interior secretary, his commerce secretary, are getting much healthier majorities. But all that's to say is as 2025 ramps up, as we really start getting into the tough debates that are ahead of us, bipartisanship is going to be key.

(02:20):

The house, if you look at the 218 to 215 majority, look, I would argue that Speaker Johnson, he probably has a harder time managing his own caucus than he will managing Democrats. He's got the House Freedom Caucus, he's got the Main Street study group, all these various factions from the Republican party. It's going to make getting stuff done really, really hard unless you are relying upon Democrats to get it done. What's also driving a lot of attention are the elections. And I know people are really, really excited to be talking more about elections after we just got through what seemed like the longest election of our lifetime. But 2025, you have the gubernatorial race for New Jersey and for Virginia coming up, I would argue that these races are going to be incredibly important for how Washington proceeds going forward. And the reason for that is because the Democrats got trounced in the 2024 elections and 2025 for them means what template is going to work when we're heading into the 2026 elections.

(03:24):

You have Spam Berger in Virginia. She's a moderate Democrat. You also have the race in New Jersey as well, and Democrats are going to be, they're going to be test driving a series of messages. They're going to be understanding how to run against Trump and Republicans in Washington DC and what comes out of the 2025 election is going to have huge ramifications of what Democrats and the Democrats are pushing going into 2026. The 2026 election. Also very important. So right now Republicans have unified control of Washington. Charlie Cook, he's a longtime political analyst. He's been around DC for 20, 30 years right now. He estimates that the Republicans have a 90% chance of losing control of the house in the 2026 elections. Now, if you are the speaker, if you are the Senate majority leader, what you're thinking is, I've got two years to get my agenda done. And anything after that is oversight from the house, from the house leadership. It's going to be subpoenas for the Trump administration. Basically, if it doesn't have to get done after 2026, it most likely will not get done. So if you want to get tax cuts, if you want to do infrastructure, if you want to do an energy bill, if you want get immigration reform, all those things, you've got two years to get it done.

(04:58):

Trump 2.0, so he's certainly not a wallflower by any means, right? I will tell you though, so I was a senior political appointee in the Obama administration at the end of the Obama term. So 2016, and I remember when Trump won, the common narrative going around was that Trump didn't expect to win and he didn't expect to win because he wasn't prepared to win. And that showed through when it came time to sit down with the transition team of the Trump campaign. And for those of you who may not know, so anytime a general nominee is brought forth by each party in addition to the campaign side, there's also a transition team that's set up. And the idea of the transition team is it helps get you ready to take over its president on day one. So it's finding staff who are going to be your political appointees.

(05:49):

It's finding your secretaries. It's figuring out what policies you're going to be pushing Trump 1.0, they weren't ready Trump 2.0, they're ready. They have been much more aggressive on the staffing side. They know exactly what they want to get done. I would argue that they're operating on the same assumption that I am, which is they know that if you've got two years to get everything they want to get done, done, and then everything after that is just gravy. And I think you're seeing that in the energy that's coming out, a much more organized series of agenda that's coming out than what I saw in 2017 personality wise. So Trump versus Biden versus Obama. So Obama was, he was the intellectual president, right? He was much less comfortable talking to people in glad handing and shaking hands and meeting with 30 or 40 people at once.

(06:41):

He was much more standoffish. Biden, there's a whole lot we could talk about with Biden, but I think the bottom line there was he was much more aloof and much more distant from a lot of the interactions that were happening. Trump is the exact opposite of Biden and Obama. He's much more of a glad hander. He's developing policy and committee by talking to people in a room constantly looking to make deals. And you see that in how a lot of the policies that he's putting out there oftentimes very much feel like this is the idea that came forth. And I'm going to run with it until people tell me not to. I lost my slide.

(07:18):

Thank you. So with Trump, I think the most important thing with him is focus less on what he says and more on what he does. So this Doge operation, right? What's happening with U-S-I-I-D, that's all coming to a head and I think just remember there's a lot of noise coming out with those developments and I think just be patient because despite all the drama, despite all the hoopla on some of these announcements, if you take a look at really what Congress is allowing, what the administration's going forward with and what the courts are allowing, nothing's been decided yet. So 2025 agenda must dos tax reform. If we don't get tax reform done, taxes are going up. I don't need to tell you this. Government funding has to get done. We have a debt ceiling coming up, farm Bill on the National Defense Authorization Act. Other priorities of the Republican leadership, energy policy, border and immigration, all that's to say is 2025 is going to be a packed year on the tax cliff side. So this is going to be the focal point of 2025. It's going to take up the most oxygen in Washington it already has.

(08:40):

All concerns right now is that we will be using the tax, excuse me, we'll be using budget reconciliation to enact the tax reforms that the Trump administration wants to do. That is not easier said than done, but I will tell you how the chamber is approaching this is we have a three-pronged strategy of what we're trying to accomplish. One, preserving the competitive tax rates at 21% at best, the 20% past tax through for qualified business income. Two, restore competitive business for the tax base. So something that we hear over and over again is what happened with r and d expenses, full capital expense for certain business assets, et cetera. So we're trying to bring that back in and then finally maintain the competitiveness of the US international tax system. One thing that we are hearing a lot about from our membership is what's on the table?

(09:37):

What's off the table if you are private activity bonds, right? The EV tax credits, all these things. And what I'm advising our members is it's all on the table. If you don't have your folks in Washington DC educating policy makers about what these programs mean, what these tax benefit means, not just for your business but for the people and the consumers who do appreciate or do enjoy these benefits, you should be careful about what might happen to you if you're not doing that work now. And that work has started last year and it's going to consume the entirety of this year. Another thing that we have been talking a lot about is what's really on the table. There's a lot of discussion during the campaign about, for example, accepting tips from taxes, a whole laundry list of things that were discussed. We don't quite know where all that fits into the debate right now. Was it just a one-off to appease a certain block of voters? Was it a serious proposal? Was it something kind, a first draft? And upon further reflection, folks realized it didn't make a whole lot of sense. No one really has an understanding of what all that means. So when you think about all these things that were talked about, exempting from taxes and so on, exempting social security taxes, right? Don't treat it as dead, treat it very much as a live ball and very much part of the debate going forward.

(11:10):

Lemme talk a little bit about costs here. So if you were just to extend the 2017 tax cuts as they were, no changes with the tax cuts and the tax increases, you're looking at $4.5 trillion increase the deficit. And that's important because, and this number obviously is going up and up and up every day and this number was pulled 11 o'clock last night. But when I did this presentation about five months ago, we were at $35 trillion. And the argument I'm making with this is that my presumption is that once we get through the tax debate later this year, my sense is that policymakers are going to start getting religion about fiscal responsibility. The Republicans have made such a commitment to the American people. Trump has made enormous commitments to the American people about continuing to enact tax reform that I think is just going to be a full press forward to get this done. And then let's pick up the pieces after that.

(12:17):

So with the fiscal situation being what it is, that's what brings us into the renewal of the infrastructure Investment and Jobs Act. So I assume most of you know this, but for those of you may not. IIJA was a $1.2 trillion infrastructure bill that was passed in 2021. What made it over and above what historically happened in Washington is it represented a 40% increase over normal spending for federal infrastructure programs. It also expanded the scope of what was included in federal infrastructure. So broadband, EV chargers, building up the EV networks, et cetera, ports, all things that historically were not included in infrastructure bills that Congress passed. And as we're looking at the renewal of IIJA, one of the things that is really driving home our thinking is going back to that first slide, which is that we have two years to get this done before we probably have about four years before it gets done again. And what that means is from my vantage point 2026, the election, you really don't legislate a whole lot unless you're trying to pass bills and say how the other side's horrible and they are doing all sorts of horrible things. So you've got basically until the spring summer to get something done that isn't a political vehicle of any sort.

(13:43):

And part of that debate is looking at what congress has the appetite to pass. I think for many of you, some of your folks benefited from the EV tax credits and all that that were part of IIJA. My working presumption right now is that Congress is going to figure out if they're going to do a surface transportation reauthorization, which is roads, bridges, trucks, maybe ports and so on, or if they're going to swing for the fences and go for something closer to an IIJA reauthorization. My thinking right now is we are much closer to a surface transportation bill. What has historically been done than IJA? I think if you are the one who is advocating for policies that support the EV industry, I think you have the wins in your face and I think you've got some big fights ahead of you to do anything that isn't just modest in that space.

(14:40):

I think the EV tax credits are very much going to be front and center on the tax debate this year. They may win out, they may not. I think it's going to be a fight though. But I think as we look at the IIJA reauthorization, I think you need to start with the assumption that we're going to be looking at something much more in line with what Congress has historically done and not assume that we're going to be anywhere near what IIJA was A second point where we see opportunity is inflation and permitting reform. So since 2021, the spending power of IIJA has gone down $50 billion because of inflation and sourcing requirements. I think Brightline West, is that something that's familiar with you? So someone left, so alright. It's okay. It's okay.

(15:30):

I never quite know who I'm speaking with. So really great story there. So the Biden administration, some of the things they did behind the scenes was really try to prioritize domestic manufacturing and domestic sources of all sorts of construction materials from steel to aggregates and so on. This had a big impact on the Bright Line West Project actually happening. Many of you probably don't know is that the then Deputy Secretary of Transportation, Pauly Trottenberg actually had to make a call to the White House to say, do you really want to get this project done or do you want it to fall by the wayside? Because of union and other interests who don't want to allow the bright line industry to go out to Europe to get the components they need to actually build this at a cost that makes sense, that in my mind is very much sort of a part of a permitting and sourcing reform that needs to take place.

(16:26):

Because right now what's happening, Trump 1.0 Biden and what we expect, Trump 2.0 are going to continue to focus in on making sure that if you need it, it needs to come from the United States. And the challenge there obviously is that the US doesn't make everything that we need and to presume that we can just do it at a significantly higher cost and still do it doesn't make sense. So I think one of the opportunities that we see is if you want to do another Bright Line project, you have to recognize that the industries that we have here in the United States simply don't support the scale of work that needs to be done. And if the bright lines of the world are going to continue to be successful, we need Washington to understand that there needs to be some flexibility in how that sourcing is taking place, how the permitting process is done right now, it takes anywhere from seven to 10 years to get permits for a new road or a new bridge or a new port that increases the cost of whatever you're trying to get done.

(17:28):

Next opportunity is the funding side. So gas tax I think is going to be front and center for this entire debate then that has been since the 1950s, the number one primary funder of all of our transportation infrastructure in our nation. The gas tax, however, was last raised in 1993. The spending power of the gas tax has gone down 50% since then. And in the meantime you've got a whole change in the fleet of vehicles that are driving over our roads much more fuel efficient. EVs are approximately 8% of the vehicle fleet today. And as a result of that, in addition to the gas tax having less buying power than it did, you've got fewer vehicles putting into the gas tax as they once did. Unless you drive a Ford F-150 truck then thank you very much, the federal government thanks you. But a reckoning is happening right now when it comes to funding and think that reckoning will, I think there's a good opportunity for that reckoning to take place as part of this next infrastructure bill in 2026, especially if you value transit funding and keeping the funding going at the levels of IIJA or even better over the last few years, last 15 years to be precise, Congress has had to pull money out of the general fund to keep financing going in the Highway Trust fund.

(18:57):

I think as part of this, once we get through the tax debate, those sorts of discussions become a lot harder to do. And I think policymakers are going to be looking for a long-term solution to fix the gas tax fix the highway trust fund. So there's not constantly this, how are we going to pay for these investments that the American public wants. Right?

(19:19):

IIJA was a great example of that. There was a $400 million general fund transfer in the Highway Trust fund programs to allow for a lot of those investments to go forward. We were essentially clearing out the pockets of our suits to find money to pay for these programs. I think that's going to be a lot harder to do in 2026. And as part of that, there seems to be increasing focus around reforming the pay fors for these programs. And I think the three ideas right now is the gas tax increasing it finally going to a vehicle miles traveled program, which is where basically there's a device in your car that tracks the number of miles that you're driving and then reports that up to the federal government and you're taxed on that. And the last is a relatively new proposal, which is a national registry proposal.

(20:10):

And I think of the three proposals that are currently being debated right now, I think the gas tax is dead. I think the last time that anybody touched it was in 1993, and I don't think anybody touches it ever again except to get rid of it. I think on the VMT side, everyone is perfectly fine with Apple and Google tracking where you go, how many steps you take, your heart rate, all these things. But for some reason there's a real sensitivity about the government tracking how many miles you travel every day, right in your car. What's that? It's the government, right? And Big Brother watching you is a really powerful political narrative that I think that means that VMT is likely not going to get very far politically despite I think the historical sense that there was a lot of optimism behind the idea in the years past.

(21:06):

And so in my mind, that brings us to the third proposal that seems to be gathering traction, which is this idea of a national registry proposal. And with that, what that essentially means is so every year, whether you have an electric vehicle, whether you have an F-150 truck or whether you have a regular car or a commercial truck, you have to pay the state a fee for the right to use that truck. And the idea behind this proposal is that there is a federal fee on top of that, and that fee takes the place of the gas tax. It also takes the place of any sort of taxes that you pay whenever you're buying a new commercial truck, for example. For example, the tire taxes, the FET fees, et cetera. And you're just paying one time to one entity. And the sense that we're getting is there's a lot of promise behind this, partly because there's already a mechanism in place that allows for the collection of these fees.

(22:06):

Every state has a DMV, they have a state DOT that collects this, and this would essentially just be sort of a pass through where the states would be collecting the federal fee and then that would be passed on the federal government. It doesn't require with the VMT example that you have to set up a whole new program to be collecting this money. And I think what it also does is it allows Republicans in Congress to deliver on the promise to make EVs pay, and it also potentially allows 'em to communicate that they've gotten rid of the gas tax, which for a lot of Americans make, a lot of Americans believe that they're paying a thousand dollars plus in gas taxes every year because every time that you go to fill your car up, you're paying that tax. And what we found is that most Americans, the gas tax, it's about $50 to $70 per year.

(22:55):

So we think that the fee is going to be much more politically sellable and getting rid of the gas tax I think is going to be very popular. I think watch this debate as it goes forward. But if you care about transit funding, maintaining that split of gas tax dollars going into support transit investments, how we pay for the next infrastructure bill is going to be really, really important. And if we can't figure that out, then there's probably even a higher likelihood that we kick the can down the road for the next three to four years until we find the next ideal political environment. Just quickly, some of the other things that we're looking at stable funding streams and IIJA new baseline states hate the short-term extensions, the interruptions in funding it's under of them, we want to try to get through that. So we're going to be pushing to get this new bill passed before the current one expires.

(23:48):

And then finally, supply chains innovation and nearshoring reassuring. I think we really have to, in Washington, the debates right now are all about China bad. How do you make more stuff here in the United States? How do we make ourselves more globally competitive? And right now, I don't think there's really any mechanism to translate how those debates impact where we're putting our dollars in for the logistics networks that we're building up to support all this freight and economic development. And my sense is that there's an opportunity here to really kind of bring a lot of those discussions into the discussion around infrastructure. And I think it's a win for all because it makes the topic for Washington much more exciting. Right now, Washington spent a lot more time focusing on where you can't get stuff like the Uighur Force Labor Act from a few years ago that prevents goods coming in from the Uyghur region of China, but not a lot of time focusing on what that means for if it's relevant to have $500 million in port improvements made for the port of LA, for example.

(24:57):

Or if more and more stuff is going out of China and going to Vietnam or to Europe, does that mean that the freight flows are going to be shifting away from the west coast ports and going to the East coast or the Gulf Coast ports as a result? And there really doesn't seem to be a lot of sort of long-term thinking about what the ramifications of those sorts of decisions are. And I think if we're going to be a lot more accountable for how our federal dollars are being spent, I think this last point I think is going to have a lot of resonance. So you've been very patient with me, especially as I asked you about the Bright Line West Project, but I'm happy to take any questions and I really appreciate your time this afternoon.

(25:49):

Yes ma'am.

Audience Member 1 (25:52):

But how do you think the tariffs are going to impact economic growth and the overall view of congress on tax policy?

John Drake (26:04):

That's a good question. So my sense is we're going to find ourselves back in this tariff debate in 30 years time, 30 days time, not 30 years. Trump sees this as the best C, he has to try to cut deals that he thinks are economically advantageous for the United States. The Chinese tariffs did go through. Included in that tariff was an elimination of minimus for e-commerce shipments in the United States. So di minimus for those of you may not know anything under $800 of value comes into the United States duty free tax free. So if you buy a $50 set of apple chargers with the elimination dous that was announced as part of this tariff decision, that $50 pair of chargers now costs a hundred dollars because you're paying for the duty, you're paying for the taxes, and you're paying for the tariffs on it as well.

(27:08):

So for consumers, it's going to go up across the board, right on the tariffs, it's going to go up across the board. I think this administration will continue selling that with the tax cuts that they're realizing. Everything will kind of balance out. I think for the average consumer, they're already struggling under high cost of eggs and all these sorts of things. There's not a lot of wiggle room for these sorts of price increases to have an impact pretty quickly. And I think there's a lot more tension around what these decisions are, meaning I think one of the big changes between the first Trump administration and the current Trump administration is I think there's a lot more education of what's happening on these sorts of decisions with the American public than I think it was happening a few years ago. And so I think we're kind in this honeymoon period where Trump is, he's trumping a lot of these successes he's having and he's having success.

(28:02):

But I think we're kind of in a honeymoon period and I think within six months time the conversation that we're having around tariffs, not China's paying for the tariffs and the American consumer's not paying for the tariff, I don't know if that's the conversation we're going to be having. So I would say stay tuned. I think Congress is giving Trump a lot of leeway right now to do these sorts of things. You're already seeing Susan Collins came out against what Elon Musk was doing with the U-S-A-I-D decision. So I wouldn't be surprised if you start getting a little bit more shoots of, Hey, do we really want to be doing this? Nope. Yes sir. Thank you.

Audience Member 2 (29:05):

My question to you as a member of the Chamber of Commerce is given the potential exodus of civil servants throughout the different agencies, a number of which would impact a lot of your points that you made today, have you factored in the costs of the brain potential brain drain, assuming it happens because apparently the email that went out to fork in a road,

John Drake (29:37):

Yeah.

Audience Member 2 (29:37):

The fork in a road, there's a question as to its validity or legality because given that we seem to budget in this country three months at a time to actually write into an email that you're going to get paid up through September, assuming you accept this offer, may not necessarily be a big motivator to folks if they understand that that might not be a valid contract, but have you taken to take into effect what the actual cost would be if we have such a brain drain through all these agencies and what's going to be the impact?

John Drake (30:34):

So bottom line right now, I think there's a real question as a legality of the authority that Trump is utilizing to make this announcement, the federal workforce is questioning if Trump can actually follow through on the commitment to pay somebody through the end of the fiscal year as part of this agreement. And I think a lot of federal workers are concerned that he won't commit to it either because he's illegally not able to or because he doesn't. Right. So I think the response to this announcement has been significantly less than I think what was originally thought would result. So I think originally Elon and the president were advertising approximately 10% reduction in federal workforce because of this announcement so far. And the deadline for agreeing to this decision is tomorrow. But so far the sense is that approximately 3 to 4% of the federal workforce has responded with an affirmation that I'll take the deal.

(31:43):

The sense that I'm getting is that 3 to 4% are largely very, very new young workers or people who are going to retire anyways. And we're like, I've got two years worth of leave. See you later. Right. So the order itself, I'm not quite sure what the ultimate impact will be. And remember, pay attention to what he does, not what he says right now with this, this is what he says, I don't know what he's going to do. But before Trump took office, there was a lot of folks who just said, I'm out, especially at the senior level. And that has a very real impact. Now I think, here's the thing, it depends who you are. It depends where your position is. You may have frustrations before the EPA, you may have frustrations before a certain agency and having a refreshed sense of what this agency should be doing on your behalf or for the American public may be very different from what this workforce has done historically. So we'll see.

Audience Member 2 (32:54):

Well, just a follow up question, Congress still controls the purse strings, right?

John Drake (32:59):

They do.

Audience Member 2 (33:00):

Okay.

John Drake (33:00):

And the other thing, just to be mindful of, so right now we are operating under a continuing resolution. So what that means is Congress couldn't get a deal done to on the federal government for a full fiscal year. So they kicked the can road, they kicked the can down the road for a few months. I think this debate really takes head when that continuing resolution comes up for renewal. So I think that's where is this real? Is this, are we going to make a slight cut on some things on some programs? That's when we will have a better sense of what's actually going to happen here. Yes sir.

Audience Member 3 (33:42):

It seems that Kennedy, assuming that he gets approved, has an impact on a fairly vast number of things that we care about.

John Drake (33:55):

And you're quickly going outside my expertise areas and I know enough to be dangerous, but

Audience Member 3 (34:00):

Alright, well be dangerous. Alright, so the question was if assuming that Kennedy gets through an awful lot of healthcare stuff that we care about, and if you have any thoughts on that,

John Drake (34:26):

The federal government is always slow. I think a lot of the sorts of things that people are concerned that he's going to be able to do if he were to be the devil that some people believe that he is. And I'm not saying he is, and I'm not saying he isn't. I'm just saying the department that he oversees has a very slow process for effectuating a lot of these things. And there's the courts and there's congress. So there's a very treacherous path for him to realize the full scope of his ambitions, whatever it may be. And I think he may quickly find that his ability to effectuate everything he wants to get done and it is not a Kennedy, it's like anybody else who goes to Washington DC and myself included. It's really, really hard. Just enough to be dangerous, I promise you that. Okay. Oh yeah,

Audience Member 4 (35:32):

Thank you for your remarks. I was kind of disappointed to hear that, although not surprised that the gas tax would not be on the table even though it hasn't been raised since 93. And it kind of brings up a broader point. Is there any constituency for meaningful deficit reduction now? Or is there's kind of a general acceptance of the continued glide path to the increase in debt and what we're seeing?

John Drake (36:03):

You were talking about the highway trust fund side or just broadly fiscal responsibility?

Audience Member 4 (36:08):

I'm sorry, what was the question?

John Drake (36:09):

Are you talking about the highway trust fund in terms of

Audience Member 4 (36:11):

No, more broadly. I was just using that as an example. If they can't touch that and they don't want to, the myriad things like that,

John Drake (36:18):

I'm probably the worst person to ask just because I'm a creature of Washington DC. I would say though that it's becoming much more prevalent in conversations than I'm a part of, and not just with the K Street crowd, but Congress and the administration. So again, my sense is we got to get through tax reform and then I think once we're through that and once the hangover takes hold, then I think the more serious discussions about fiscal responsibility takes hold. But you're right, it is not sustainable and I think we're kind of hitting that inflection point where if we don't take it on now, the ramifications are a lot higher. Alright. I don't know how long they're going to have me hang out here, but maybe I guess one more question and then I'll Okay, question. Oh yeah,

Audience Member 2 (37:19):

Same person. But do you have any comments regarding I guess what was announced yesterday regarding the focus of transportation funding towards areas in the country that are concentrated with married people and birth rates?

John Drake (37:46):

I feel like you're punking me transportation. I don't know. I don't know. I don't do that one. I mean that's Texas, so

Audience Member 2 (38:04):

It's a lot of red states, but some loose states. But it's primarily focused in large red states where Trump's idea of focus in transportation funding going forward will go towards suburban areas as opposed to urban areas.

John Drake (38:25):

So lemme tell you this, every federal program that Trump can utilize to direct federal dollars to certain parts of the country has performance standards that are written to the statute. It has to reduce congestion, it has to improve safety, it has to push cars off the road, whatever it's right. Every administration has already between the lines added their own set of priorities, whether we're going to emphasize reducing congestion or we're going to emphasize safety and identify those projects that are more aligned with that Trump can add on top of any grant agreement that he puts out that this is going towards this part of the country that is realizing this huge birth increase. But if it's not meeting those clearly defined federal goals, then very quickly he's going to come in as problems because there's going to be a lot of states and a lot of localities are going to say, wait, that doesn't mean any of the federal criteria that are laid out. And I had a project that did, so I'm going to take you to court, so I'm going to watch you. Yes sir.

Audience Member 5 (39:54):

Just getting back to the supply chain, you mentioned that do Terrace and how it impact small purchases that are currently impacted. What's the downstream impact of that? Not just on consumers, but small businesses who purchase some smaller amounts? Is there unintended margin? Small Businesses that most of America,

John Drake (40:13):

I think it's going to be huge. So small businesses rely on the do exemption quite a bit, right? Because they're either sourcing from China for a lot of their goods or they're in partnership with Chinese companies. So that's one. Two, if you're just from a supply chain efficiency standpoint, so there are several hundred million packages that come across through each one of our ports of entry every day, right? Part of the reason the minimus exemption is in place is so di of little value. So if you assume that 50 million packages per day are mini shipments, what that means now is you have to have an inspector who previously wasn't doing this, going through and verifying that the package they have in his or her hands is in fact a minimus product from a country that allowed to ship into the United States under minis or not.

(41:12):

So a huge increase the cost of processing goods by the federal government. The federal government is not staffed to process that increase in flows right now. I think CBP has a inspector shortage of approximately 2,800 people. And you saw this right when we were having the crisis along the southern border, CBP was actively pulling people from Niagara Falls and other ports of entry to staff what was happening with the response there. But the third point I would say is other countries are watching what the United States does. And right now the United States has a historically very generous to minimum provision. Europe, Africa, a lot of Asia, they do not. And so what I would say is probably the worst part of this is if you're a small business and you've got a marketplace in Europe that you're trying to grow, or if you've got a small business in Canada or wherever Europe is watching and saying, well you got rid of Dimis for China, why should I get rid of Dimis for you?

(42:22):

What probability this not happening? So I think the China part has gone through dimis has been one of those tricky topics because it's essentially been the assign the source of all evils in Washington. If you are concerned about fentanyl, if you're concerned about counterfeits, dous is your problem. And so I think there's a reckoning that's about to take place with Mimis. I don't think this executive order regarding China is the extent of it. I think congress will likely get involved is if there's a trade deal or if there's a customs reauthorization that happens in the next couple of years. I think there's a high likelihood that this gets wrapped into that debate. She was going over there and I was saying you were going to ask another question, so I was like, we ready for it.

Audience Member Julie Needham (43:25):

Hi, Julie Needham, Echo Valley advisors. I have a client who's ordered a $4 million electrical transformer and it's a three year wait time. And so my question about supply chain relates to large items as opposed to the di minimis side and to what extent this is emblematic. I have other clients, fire trucks, there's quite a few things on the, we want to make this million dollar purchase and it's an X year wait time conversation. So to what extent is the structural changes being talked about either potentially successful in all of a sudden there's electrical transformer factories being made in New Jersey and to what extent is this three year wait time is now an eight year wait time because of a trade war problem in your opinion?

John Drake (44:17):

Too soon to say, right? I think we're kind of at the early stages of this, but I think, help me understand your question a little bit more. I'm sorry. So this three year wait time to get this.

Audience Member Julie Needham (44:29):

So the question is for large items, expensive capital investments, the new administration, clearly their policy is we'd like to see more of this being made in the United States

(44:45):

And being less dependent on international supply chains. But there's a lot of obstacles in practicality to making things that currently are not being made in the United States that involve huge investments and lead times and all of that. So my personal impression is that the trade war that we've now embarked on is going to make it harder rather than easier to buy things that cost $4 million and take two years to get. But you might have a different perspective in terms of whether some of this will unlock some kind of benefit in terms of domestic production.

Audience Member 7 (45:28):

What are these producers going to hear from magically that hadn't been in business in the last 30?

John Drake (45:36):

You're asking a good question, which is why I'm going to ignore you. Look, I think, and thank you for helping me understand your question better. I think the trend right now is greater preponderance of why can't we make it here? And you need to justify why you need to import this super heavy, expensive item and explain to me why you couldn't have made it here in the United States. And maybe you don't have to justify that to such an extent right now with the purchase that already have been made. But my sense is, and this isn't a Trump thing, this was something was happening in the Biden administration, the political wind seemed to be shifting more towards we need to be making specialized very important products like this transformer here in the United States, whether it's a national security issue or just being less dependent upon other nations. And that I think is going to be the trend going forward. And it's not a trade war issue. I think it's just this is the direction of policymakers thinking in Washington DC right now. I joke that the easiest way to get a bill considered by the United States Congress is to say it's an anti-China bill.

(46:54):

And I think that continues to be true. So for your client, I think they're going to be having harder questions on these sorts of products rather than fewer questions. Okay. Alright. Thank you.