Transcript of the above video: 

As the title of this video suggests, we are discussing the trade so-called surplus between the United States of America and Thailand. So big topic right now; buckle up folks, this one's going to be a long video. I have been mulling this one over for a few days. For those that haven't followed this channel with any regularity over the years, those that know me know I don't often - although sometimes if it's necessary - but I don't often riff off of just the immediate news because one, I don't view this channel as really a news channel in the traditional sense. We are not trying to break stories, it's a different kind of analysis and you need a little time to process things as they are coming down the pike so I have taken the last few days and kind of formulated what I wanted to talk about in this video, so let's start going through it.

I thought of making this video after reading a recent article in the Bangkok Post, bangkokpost.com, the article is titled: Thailand will negotiate with US on tariffs, says Paetongtarn. Quoting directly: "Thailand's Trade surplus with the US totalled $45 billion last year" - and this is what I want to come back to. The crux of this, there are two cruxes if you will of this issue. And what I would say is on the Thai side and if you will the American side. So one part of this has to do with the notion of a “trade surplus”, which I will get to in a moment. The other has to do with Value Added Tax, VAT, so let me keep going here. "Thailand's Trade surplus with the US totalled $45 billion last year, according to the Office of the US Trade Representative. The country had adopted a wait-and-see strategy in the run-up to the tariff announcement and promised to step up imports of energy and food products to cut the trade surplus." 

So the first thing you have to understand is, and the point of the thumbnail, for those who are unaware, the thumbnail is actually the Judge from the film Bridge of Spies with Tom Hanks and there is a scene in that movie. I have tried to find it, I can't find the exact scene where Tom Hanks is actually arguing a suppression motion, an evidence suppression motion against an accused spy in the United States and his argument is that they didn't have a warrant to search this person's studio. They had a warrant to search I believe his house, but not another premises and under the rules regarding fruit of the poisonous tree and tainted evidence and things, he was arguing that needed to be suppressed. That what they found on those premises needed to be suppressed and the Court could not use it as evidence against his client. In the scene that I am referencing or I'm paraphrasing, there is a scene where I believe it was Yick Wo vs. Hopkins case, but Tom Hanks the Attorney is arguing in favour of his client saying, oh this guy has a right to basically Fourth Amendment privileges and immunities. And the Judge turns around and this is a very pertinent scene. I kind of hope anybody that is watching this or something, I don't know how to clip things and put them up on YouTube or X or whatever, but maybe find this scene because it gets to two major issues that we are dealing with, especially in the American context right now. But specifically, to the American Thai trade relationship, I'm paraphrasing it but what he says to Tom Hanks is “rights as what, counselor?” And the reason is he says, look this guy was in the United States illegally as a spy to basically commit espionage. Your argument is we should accord him legal rights as somebody that was here legally? The Judge's response is “rights as what?” What do you mean “rights”? He is here as a criminal, he's here, I actually think in the scene - again I can't find the scene - he actually says “this man came here to destroy our way of life” is I believe part of the line if you will. And I bring this up because the Judge brings up a good point. He says “rights as what?” Now in the context, and we are going to get into that specific issue in the context of US Immigration actually in another video I am making contemporaneously with this one and I believe will be released, in a synchronized manner; it will be released after this video. This one should go up at 3:45. I should have the other one that's sort of the companion video regarding US Immigration up at 11:45, but I wanted the sort of the spirit of that line, that “rights as what?” What are you talking about? When it came to US Immigration law, US Privileges and Immunities regarding rights in the United States. The same thing I think can be said to some degree regarding “what surplus?” Surplus of what in the context of trade? And what are we talking about here? The US dollar has been heretofore the global Reserve currency since effectively what was known as the Bretton Woods meeting which occurred, not actually in the aftermath of the Second World War, but as the Second World War was winding down. There's actually a great scene in the series Band of Brothers, where they talked about the last year of the Second World War back in America, especially like the last 6 months, things were getting back to normal but there was still a war going on; there were still guys out there doing what they were doing. In any event, the point I am trying to make is Bretton Woods was created in that milieu, in that environment, around these folks. They were academics; they were primarily British and American sort of financial academics and economic academics led up by a guy named Keynes who basically adapted his idea of a bank core which was sort of like a Global Reserve Currency not unlike what's now called the SDR, Special Drawing Right I should say. In any event he came up with the Bretton Woods System, which was basically everybody would peg to the dollar, and then the dollar would peg to gold, and any trade deficits would be offset in moving around gold between the Central Banks to offset any trade deficits. As time went on, we get up to about the late '60s, early '70s, the United States is having problems basically with the dollar's relationship to gold. De Gaulle came up with a statement called “Exorbitant Privilege”, the exorbitant privilege of the country that has the Global Reserve Currency. Which is basically you can print something that buys things. That's the point, and that's what I'm getting to in the whole issue of trade surplus. On a certain level, where from a negotiating standpoint I see what Trump is doing. Let me be clear, I am almost academic in my analysis of this because I want to see a good deal between the United States and Thailand moving forward. I get what Trump is doing. I get that it's probably necessary; I look at it almost akin to so-called “shock treatment” back during the '90s where the Russian economy and the old USSR just had to get on board with the way the world really worked and it wasn't each according to his ability, each according to his needs. It was hey you have got to get a job and you have got to provide, add value, create goods and services, have a real economy. That was a shock. There is a certain component of the Western “Golden Billion” if you will kind of the nomenclature elite that are going to go through a shock not unlike what happened in the Eastern Bloc some 30 odd years ago. The point I'm trying to make with all of this though, at the end of the day, is it comes down to this issue of the Global Reserve Currency having been the dollar. And when you are the Global Reserve Currency, you have an issue called the Triffin Dilemma which basically stipulates that look, you have to keep your currency the Global Reserve so you want to push out if you will, actual creation of value to other places and then have them create goods and services and send them back to you, basically in exchange for just your currency, for just green slips of paper. Now I'm oversimplifying here, and I'll get to the finer analysis in a moment, but I can't put too fine a point on this. This is framed as a trade imbalance in the old school sense of it where real things of value are being exchanged in an effort to come to some sort of equilibrium which is either enforced via sort of the gold standard or some other mechanism. Well that doesn't exist anymore, basically. That other mechanism created in 1971 when Nixon temporarily went off the gold standard, was actually created in a genius move by then Secretary of State Kissinger with the Saudi Arabians whereby they created the so-called Petro Dollar scheme. That sort of held things up to that point. Let me be clear, I'm not Chicken Little; I'm not saying everything's falling apart. It isn't, it's transitioning is my point. So up to roughly now, we've had this sort of quasi Petro Dollar scheme that sort of was an ad hoc replacement for the old Bretton Woods system; it's operated for about 50 years now. It's worked as good as can be expected but it's starting to show signs of wear and tear as a system and we are seeing it transition is my point. One of the major symptoms of this transition is Trump's abrupt policy shift - like pulling a brake lever on a train - on these tariffs and the impact it will have will have an impact on International Trade. I'm keeping it specific to Thailand and back to my point. Under the Triffin Dilemma, you send out paper, your “dollars”, which is ostensibly something of value but when all you are doing is printing money, which has been happening especially is the case since 2008 and the so-called great financial crisis, also called the Lehman Crash, since 2008 we've seen a lot of “quantitative easing”, i.e. “money printing” okay, and then since COVID, we saw a ton of “money printing”. Now did anybody disagree with either thing? Not really. Everybody just kind of went along with it because they needed to re-liquify the system, but all good things come to an end, and look there's entropy in any system. I think that's what we're seeing and frankly I think Trump is being proactive in dealing with that entropy and changing the system to something that's going to be advantageous to Americans.

Now that said, Thailand has to react now as well and has to do what's right for Thailand. Going back to my main point here though is a couple of things. First of all, one needs to understand we are not talking about real deficits here. Where the United States falls short, they print money. Now that's an oversimplification. The US really does trade goods and services with other countries. A real example of that, a prime one where you can show basically big capital exchanges for goods and services is actually in the armaments industry, okay. So Thailand trades, does what it does and then buys weaponry for example from the United States or from the West. But there are other things. Agricultural products, all kinds of technological products. I'm not saying there's not real trade here; I'm not oversimplifying it. But that said, intentionally inflating a currency intentionally debases it. It's a secret tax; it sucks away wealth and when all you're doing in the Triffin Dilemma model, is paying in something that out the back door, you are sucking down the value of, that's a tax as well as a practical matter. So here's my point. And let me go over here regarding, first of all, regarding “offshoring”. There is this kind of misconception that this “offshoring” is like oh all the factories left America and then became Thai Companies and they manufacture here and send back to America. No, no, no, these are “multinational” so-called corporations - primarily ones that began in the United States - they saw a bundle of money to be had in offshoring their manufacturing base and then importing stuff back into America because they could get way, way, lower labour costs to say nothing of the leverage that they can try to put on other jurisdictions to grant concessions and tax breaks and all kinds of stuff - they have tried all kinds of things with Thailand over the years, as well as other jurisdictions - business is business, I get all of that. But the point I'm trying to make with this is first - and I'm going to put a link in the description - there's actually a link to Mr. Brian Roemmele's X account where he's got a clip on there from Steve Jobs talking about offshoring manufacturing of computer stuff to Singapore. This is back in like the '80s, '90s where he is talking about that because it was the beginning phases of this that is now culminating, this phenomenon that is now culminating.

The point I am trying to make is, first, it needs to be understood that this is not like the Thais set up these factories and are like competing directly with American companies, no, no. These are American companies that have availed themselves of benefits from being here and then instead of giving jobs to Americans, they basically make stuff here and send it back to Americans and make money off the spread, between the low cost of labour and the price that a consumer will pay in the American economy. And that was very lucrative for a number of years but as Mr. Trump has pointed out, it has eroded our manufacturing base. At the end of the day - and I'll put a link up in the description below as well to a Mr. George Gammon Rebel Capitalist, he talks about this a lot - it's not about currency, currency units, whatever. It's about creation of goods and services. Who is creating goods and services, okay? So the first point I'm trying to make is one, understand that this “surplus” sometimes is made up for, whatever deficits there are between the actual exchange of value, is just made up for by Americans printing money; there's an element of that. Then there's another thing that must be understood that again, these are not Thai companies oftentimes, I'm not saying ever, but oftentimes it's not Thai companies that are competing with American companies. It's American companies that intentionally chose to go offshore and then sell back into the American market. So also understand that as well. 

And then the other thing to sort of grasp here, now this is where I think Mr. Trump has some really key points and it pertains to VAT. Let me go over here to ielp.worldtradelaw.net, under the title: International Economic Law and Policy Blog. Quoting directly: "Trump raises the VAT issue. Quoting directly, now first of all I need to explain this. This is a White Paper from Trump's first campaign. These were positions that go back nearly 10 years now okay. I really have to say with regard to Trump at least through these White Papers, they have a grasp on how VAT works and look the VAT system, how it interacts with America, it is unfair. That is a fact. Now, I think Thailand much like a lot of things, this VAT kind of came in not necessarily foreign compulsion or anything, but they oftentimes will sort of do things to be in alignment with the rest of the world and I think to a certain extent, maybe that was what was going on. But that said, quoting directly: “The Trump campaign released an Economic Plan today,” - so again this is the 2016 Trump campaign – “on trade, they raised one issue that has been of concern to respected trade policy people and has been lingering for quite a while.” Yeah this is something that when you see it, you can't unsee it. Basically VAT like over here, in between economic actors that have VAT certificates, you can get offsets of your VAT payment but when you export out of Thailand, say to America that's a non-VAT country and they don't have any way of offsetting that, that consumer just eats all that tax, okay. Quoting further: “Ending the Unequal Value Added Tax Treatment Under WTO Rules. In addition to the obvious problem of relatively high corporate tax rates pushing American capital offshore, there is a more subtle tax problem pulling US corporations off shore. It relates to the unequal treatment of the US income tax system by the World Trade Organization.” So yeah, as I said, basically the VAT gets eaten by Americans and we don't get any offset for that VAT. So on that point, Trump has a real point, that that part is unfair. Meanwhile, from the Thai side of the perspective my response to that would be okay, fair enough on VAT. Maybe we can figure out a way to just nullify that, knock that out, but you have to admit that the exorbitant privilege, you are able to shave off value of what you are trading to us i.e. dollars, okay, which there is nothing wrong with dollars but again where you have had all of this money printing - especially in COVID where it's like I think they jacked up the total amount of money in the system by something like two orders of magnitude more than existed going in - under those circumstances, it is a reasonable question for somebody to say well hey is it fair to have all of these tariffs on us when effectively your inflation acts as something as a tax or tariff. Now again, I'm in favour of a deal getting struck that makes America and makes Thailand great, that helps everybody okay. And as I said, I think there is fault to find on both sides of the trade relationship. On the one side, you have got the issue associated with VAT, Value Added Tax. On the other side, you  have got the Exorbitant Privilege and it's not unreasonable and it's very apropos to point out that look we are not talking about America somehow lost something, okay. These jobs and this manufacturing capacity was intentionally moved offshore under the auspices of the World Trade Organization which we are sort of seeing the remnants of that being effectively dismantled, which again may be a good thing but due to the Triffin Dilemma, they off-shored all this stuff, made a fortune selling it back into the consumer market but I don't think it's very reasonable to sort of put the onus for that on the countries that were the location for that activity, and it's not fair at all to sort of conflate an American company doing business say in Thailand or, let's just stick with Thailand, doing business here in Thailand. I don't think it is fair to completely conflate that as oh this is Thai competition with an American Business. No, this is an American Business that opted to put some if not all of its operation here in Thailand and then import back to America. So be clear on who the players are, who the winners and losers could be, and what the policies in play are here, because it's a nuanced thing and I'm very hopeful, it looks like if I'm not mistaken and let me double check here, I may have a source on this, but if I am not mistaken, I do believe there is going to be a meeting, yeah. Quoting directly from a recent article in the Bangkok Post, bangkokpost.com, the article is titled: Government to buy more from the US. “The Government has pledged to increase imports of energy, aircraft and agricultural products from the United States as part of its offer to mitigate the impact of the US’ 36% tariff on Thai exports, says Prime Minister Paetongtarn Shinawatra. Finance Minister Pichai Chunvavajira will lead a delegation to the US this week”. So again, I am very hopeful here. The relationship is what it is; it is a solid - I mean we go back almost 2 centuries in formal diplomatic relations with the Thais and trade relations, so I am very hopeful that this meeting, some real benefit will come out of this. That said, quoting further. “to the US this week to discuss trade issues and tell the US that Thailand is not only an exporter but also a reliable friend of the US, se was quoted as saying in a statement. Her remarks came a day after criticism emerged over the Government’s slow response to President Trump’s tariff hike – especially when compared to the swift reactions by leaders of other Asean nations. Well you know, on that one, in this world we live in now, everybody is just expected to just hop at every little bit of data that comes up. Look the Thais are a deliberative people. Some call us, Thais, whatever, slow. They are not. They think for a minute oftentimes, okay. And they think about different things than others do sometimes. Their priorities may be a little different so their reaction may not exactly be what you would expect. That said, quoting further: “The US had imposed a 36% tariff on Thai exports and many other countries she said were in a similar situation and preparing measures in response. Quote: "We believe the world will see fierce retaliation through tax instruments.” That's interesting, “tax instruments” which as I brought up regarding tax - which my own sort of moratorium on this is kind of over, but I'm still, I'll be circumspect for the moment for my own reasons - but that said, interesting that tax and tax instruments may come into play in all this discussion. That said, quoting further: “Many countries have decided to talk to the US Government but not have seen any conclusive results”, Miss Paetongtarn said. Quote: "The new measure has an agriculture impact on our exports, especially electronics, processed food and agricultural products."

Yeah, look at the end of the day nobody wants to see obstacles to mutually beneficial trade. I don't think Mr. Trump wants that, I don't think anybody wants that. I think Mr. Trump is right. The system needs to change. It is probably no longer fit to purpose, and we need to make these changes. That said, is it going to be the most fun thing in the world? I would maybe liken this era at least to some degree, to be something akin to the so-called “shock therapy” of the Eastern Bloc so to speak. How exactly this plays out remains to be seen. That said, I am very confident, and I am very optimistic about any outcomes regarding talks because look Mr. Trump is reasonable with people who don’t come with sort of an aggressive sort of attitude regarding their position. As long as you come to him with a reasonable position - I think the Thais have a reasonable position - there is room to talk and discuss and I am very hopeful that such discussion will come to benefit both sides in further trade relations between the United States and the Kingdom of Thailand.