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Trump’s Tariffs: Art of the Deal or Economic Disaster? w/ Darren Brady Nelson – Bonus Episode

Are Trump’s tariffs a masterstroke of economic negotiation or a blunder with global consequences? Show host Gene Tunny and returning guest Darren Brady Nelson debate the rationale behind punitive tariffs, the backlash from markets, and whether this is all part of a broader deal-making strategy. They also discuss Elon Musk’s DOGE initiative and Darren’s run-in with a wild turkey on Wisconsin’s special elections campaign trail.

Please let Gene know your thoughts on Trump’s tariffs and any questions or comments regarding this episode by emailing Gene at contact@economicsexplored.com.

You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.

Timestamps

  • Introduction and Market Reaction to Trump’s Tariffs (0:00)
  • Darren Brady Nelson’s Run-In with a Wild Turkey (1:45)
  • Assessment of Trump’s Tariffs (6:51)
  • Formula for Calculating Tariffs (12:26)
  • Impact on Consumers and Businesses (19:59)
  • National Security Considerations (37:06)
  • DOGE’s Role in Identifying Waste and Fraud (44:07)
  • Wisconsin Special Election and Voter ID Law (55:14)
  • Australian Election Predictions (1:00:42)
  • Final Thoughts and Closing Remarks (1:05:44)

Links relevant to the conversation

Trump’s Executive Order “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits”:

https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits

Statement by IMF Managing Director Kristalina Georgieva:

https://www.imf.org/en/News/Articles/2025/04/03/pr2587-statement-by-imf-managing-director-kristalina-georgieva

Darren’s 2018 article “Trumpʼs tariffs: free, fair or foul trade?”, in which he discusses Adam Smith and free trade: 

https://drive.google.com/file/d/1xQEt4n1bJ-W3RN2-H7_0w3q6vcI3eBCc/view?usp=sharing

Dan Mitchell’s “Six Visuals to Understand Trump’s Suicidal Tax Increase on Trade”:

https://www.imf.org/en/News/Articles/2025/04/03/pr2587-statement-by-imf-managing-director-kristalina-georgieva

CNN reporting, “This is the dubious way Trump calculated his ‘reciprocal’ tariffs”:

https://edition.cnn.com/2025/04/03/economy/reciprocal-tariff-math/index.html

Axios reporting, “Trump’s surprisingly simple tariff math”:

https://www.axios.com/2025/04/03/how-trump-calculated-tariffs-trade-deficit

CNBC reporting, “Trump open to tariff negotiations, contradicting White House aides”:

https://www.cnbc.com/2025/04/03/trump-tariffs-live-updates-stock-market-trade-war.html

Note this reporting: ‘Top Trump trade advisor Peter Navarro denied that Trump’s new tariffs are being used as a tool to negotiate better trade terms with other countries.’

Great Reset discussion with Darren from 2020:

https://economics-explained.simplecast.com/episodes/the-great-reset

DOGE’s reported savings:

https://doge.gov/savings

Lumo Coffee promotion

10% of Lumo Coffee’s Seriously Healthy Organic Coffee.

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Transcript: Trump’s Tariffs: Art of the Deal or Economic Disaster? w/ Darren Brady Nelson – Bonus Episode

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:00

Gene, welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene, Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. This is a special bonus episode of economics explored to talk about, among other things, what else but the new reciprocal tariffs that President Trump announced in the Rose Garden earlier this week. We’ve seen the S and p5 100. It’s fallen around 10% ASX 200 it’s down 4% over the week. So big impacts on global markets. The IMF Managing Director has called the tariffs a significant risk to the global outlook at a time of sluggish growth. Before we get into it, I should say this episode sponsored by Lumo coffee, they’re high quality, organic coffee from the highlands of Peru. It’s jam packed full of antioxidants. So economics explore. Listeners can get 10% off. So check out the show notes for that link. Now, back to the show. We’re going to be talking about the tariffs. We’re going to be talking about Doge, and also elections that we’ve had in recent, elections in the US, in Wisconsin, the upcoming Australian election. My guest who else? It’s my good friend, Darren Brady Nelson, who’s joining me from Milwaukee, and he’s just he’s had some recent run ins with Turkey, Turkeys on the campaign trail in Wisconsin. Darren, good to have you back on the show.

Darren Brady Nelson  02:06

Great. Yeah, good to see you too. Thank you. First, you got to

Gene Tunny  02:10

tell me what happened with that Turkey. I heard you had a run in with a turkey on the campaign trail.

Darren Brady Nelson  02:15

I did. I did. Yeah, I’ve been doing sort of, you know, you know, like you, well, a little bit similar to you. I mean, you, you actually set up your own firm, and all adept at economics and all that sort of things. You You certainly taken, you know, being, if you like, a freelancer, independent, to sort of higher levels than I have, I’d kind of just go fly solo. And that’s what I do, kind of economic stuff, mainly. But sometimes I get weird stuff, like elections. So, you know, I did the, obviously, the Trump election, I think we spoke about that, you know, last year at some stage, or in the wake of last year, and then more recently, I got, you know, kind of involved in the Wisconsin Supreme Court election. So in the US, pretty much most of the courts, the judges run for office like, you know, politicians, the only exception being the US, you know, Supreme Court. So anyway, so there’s a big election for one, you know, one, one seat was up for contention in Wisconsin, and so, you know, I’ve been doing that for the past five weeks or so, you know, literally going out there and knocking on doors and speaking to people and, you know, handing out literature. So, you know, I’ve become, the past couple of years, the door knocking economist, but as you mentioned, I’ve also become the turkey fighting economist as well. So what happened is there’s a suburb called Wauwatosa in in Milwaukee County. So Milwaukee County’s got the City of Milwaukee, which is dominates, but it has a bunch of other kind of subsidiary cities or suburbs, including Wauwatosa. And just just one morning, when I meet on the second house, I went to Wauwatosa. You know, just after 9am I was walking up to go knock on the door, and I heard this hissing behind me, you know, you know, I don’t know what I was thinking, I guess. I thought maybe cat or something, I suppose. And then I turned around this really huge Turkey. I didn’t even know turkeys could get this big. Was kind of like chasing me. Essentially, I didn’t even know it was until I got up to, you know, nearly to knock on this, this person’s door. And, you know, it was a big male Turkey and all puffed up and all this sort of stuff was like, you know, like, about four feet tall. The thing was huge, you know, a meter. And obviously they puffed themselves up. So, you know, obviously it took me a little bit unawares. And, you know, I tried to shush it off and scare it off with loud noises, but it was not going down for that. And fortunately, there was like a, you know, winter is, you know, pretty much over. But, you know, they had, like a kind of a plastic shovel. Lot of Wisconsinites just keep their shovel just sitting outside. I say most people don’t just steal people’s shovels, I guess. But anyway, it was there. It was, it was, it was plastic, so it wasn’t like a big metal one. So I grabbed that ice, tried to, you know, like, you know, poke it and, you know, have it scare away. But I sat there for like, up to 10 minutes, literally fighting this turkey with a shovel, it would not it kept on coming. In fact, I hit it like several times. Usually when you hit something once it runs off, right? But this thing would not run off. And I actually got saved by just some retired lady and her rather large dog cut me going for a walk, and she sicced the dog on on the turkey, and it finally took off. So, yeah, there’s my weird story about, you know, getting attacked by a turkey, obviously, um, you know, I certainly wanted, um, you know, Brad Schimmel to win pretty badly, but I’m not sure about, you know, fighting a turkey for him, right?

Gene Tunny  05:58

Okay, so Turkey’s protected. I mean, you didn’t harm the turkey, did you? I mean, you just sort of

Darren Brady Nelson  06:05

harm that Turkey because it because they have these, these, you know, really, I mean, they’re not going to kill you, but they could, they have these spurs on their, on their, you know, their feet, so they could, you know, you know, cut you up pretty nicely. So they’re not harmless birds, right? They’re not like, you know, maybe not like an emu or something like that, which is obviously far bigger and, you know, can probably, you know, break your ribs or something if it kicks you. But they’re not, they’re not harmless. They’re not like, gonna kill you, but they’re not harmless, right? So, no, they’re not protected. In fact, while with toast, has had a problem with wild turkeys for quite some time. They need to probably call them actually,

Gene Tunny  06:45

okay, well, thanks to that old lady and a dog. So, yeah, the

Darren Brady Nelson  06:51

dog, the dog was great. So it was a really large sort of golden retriever or something. So, yeah, okay, so

Gene Tunny  06:57

you’re, you’re able to answer my questions regarding Trump’s tariffs, among among other things. So, Darren, first, what’s your assessment of the market reaction? I mean, the market reaction has been pretty bad. It’s it looks like a mark of disapproval for the tariffs. What’s your assessment of it, please?

Darren Brady Nelson  07:15

Um, yeah, that’s not, yeah, that’s a reasonable assessment. Do I think it’s going to be some sort of like even medium term thing for the markets. No, I think they’re going to bounce back fairly quickly. So, you know, my, you know, we’ll obviously get into a bit of, you know, I’ve been kind of like changing my views on tariffs in recent times, not to the point of being like pro tariffs or pro protection, or anything like that. But, you know, I mean, I think that the White House statement, the executive order, and the accompanying statement, you know, sets it out pretty well. I think, you know, the reasons for it, and the whole backdrop, I think it’s actually a and, you know, it’s actually one of the best written executive orders I’ve actually seen, you know. So I don’t know who actually wrote that, but you know it certainly, you know, doesn’t it’s not, you know. I mean, Trump talks in terms of, and sometimes he speaks and he and he trolls people talking about beautiful tariffs and, you know, that sort of stuff. And but you know, I know people have been in the Oval Office with him, and I don’t think he he is a protectionist, nor does he think tariffs actually, you know, ultimately, if that’s all you’re doing, it’s not going to, you know, really create wealth. It’ll help domestic industries, for a time, certain domestic industries, but you know, at the end of the day, it’s not going to, obviously, we’ve seen what happened to, you know, the the automobile industry in Australia, eventually, you know, tariffs and subsidies and all the right and regulations that all directed to help them, eventually they collapse and fail. But that’s what, what Trump’s trying to do is really more art of the deal, and I’ve kind of first started to get a feel for that. You know, that that’s what he was trying to do in, I guess, probably 2018 particularly talking to, you know, a a former Cato economist, who, obviously Cato is, you know, like kind of the libertarian think tank in Washington, DC. So if he was convinced that that Trump wasn’t a protectionist and was just doing it for Art of the Deal purposes. You know, that’s that’s pretty good evidence, on top of what I’ve also seen since then as well,

Gene Tunny  09:29

right? Okay. Now, who do you think drafted that order? Was it Peter Navarro? Is Peter Navarro still involved in in the White House?

Darren Brady Nelson  09:41

I understand he is, I don’t look it’s hard to say who actually, literally drafted that I’m sure was, you know, I’m sure if someone drafted it, and there was a team with input, but you know, it just like, you know, I’ve seen a lot of government stuff across multiple countries, and it just, you know, you know, particularly, I guess, you know, Trump has, you know, him. Self, obviously, what’s what the weave? You know, how? Obviously he does the weave when he’s actually speaking. You heard that term, the we, yes, yes, yes, yeah. You know, he kind of, you know, wanders around and goes kind of off on tangents and comes back and all that, you know, like, you know, I’m not sure how he writes, To be honest, I’m, you know, but I doubt he wrote that, but, so, you know that, I mean, in a nutshell, what I understand, and I remember this, you know, particularly after a g7 meeting, I think in 2018 and I wrote an article about it, which I sent to you. You know, we’re, you know, basically the the g7 leaders were complaining about, you know, some of the tariffs, obviously. And then Trump, you know, hit back with, like, you know, hey, Canada, you’re doing this, you know, these partners are doing these ones. Okay, fine, let’s all get in a room and let’s get rid of all our tariffs, or, you know, or at least significantly reduce them down to, you know, very small numbers. And of course, Trudeau and everybody else backed off from that idea, you know. So that tells me, you know, these criticisms aren’t really necessarily some big stance on principle about tariffs, and not even just simply, hey, you’re harming us with this tariff, which, of course, yes, you know, there’s, there’s that, but I think, I think there’s some broader stuff and bigger stuff going on we can get into later, but, but, you know, at a simple level, I think, again, it’s art of the deal. I think Trump’s doing this. And, you know, as Dan Mitchell, who’s, you know, and you know, essentially, I’ve seen ardent opponent of terrorists, but he’s kind of a little bit of an ardent opponent of Trump, no matter what he does. But he, you know, he says, you know, he points out rightly, these aren’t simply reciprocal at times, like, you know, not just the same level as, you know, China or Canada or the EU that’s true, as far as I understand. But they’re punitive. But they’re punitive with a point to get these people into a room, basically to do a deal, to ultimately, you know, sort of get better trade arrangements, lower tariffs, and not just tariffs, but other non tariff barriers to trade, which there’s plenty of. And because, you know, the US, you know, certainly seems like they’ve kind of allowed countries to kind of hit them harder with stuff over the years, and the US not sort of retaliating, and now they finally are, and they’re making up for lost time.

Gene Tunny  12:25

Yeah, look, Darren, I think you there’s some interesting points you made there. Now the issue about Yeah, you rightly acknowledge these tariffs aren’t genuinely reciprocal. They are. Some of them are punitive, and a lot of economists and market commentators have been shocked by the formula that was used to calculate them. So it’s it’s either 10% or it’s the if there’s any sort of restriction on any imports, then it’s a minimum of and that could be for biosecurity reasons, as in Australia. So one of the things they’re concerned about beef, and I mean, we’ve got very strict regulations on food that can be imported. And so that’s one of the points of contention. But it’s basically, what was it? It was the trade deficit with a country divided by the the exports of that country to the US. And that’s a that’s a percentage, and they divide that by two, and it’s, it’s either that or 10% whichever is greater. So an economist are just sort of scratching their head, how does this make any sense? So that’s one of the, one of the concerns. You mean, where’d you get this formula from? Well, that’s the formula. That’s how that’s basically what everyone’s what everyone’s reporting, how they figured out, how they

Darren Brady Nelson  13:39

actually I contend whether that’s actually in the executive order. But anyway,

Gene Tunny  13:43

that’s, you can work that out from the chart that, you know, the chart he held up on the, yeah, the Rose Garden. So that’s, that’s essentially how he’s come to this. There’s this bizarre formula that that no one can figure out. So that’s one of the concerns. But I think that’s good. You’ve acknowledged that these are punitive. You think this is about the the art of the deal. Now, this is what Scott Besson, the Treasury Secretary, was saying. He was trying to hint, oh, okay, this is, look, we want to have a negotiation with these countries. But then Caroline Levitt, or someone from the White House, has come out and said, Oh, no, this is final. So, I mean, what’s your so is your? Is your view that this is the start of a negotiation with different countries, and so we will have lower tariffs eventually. Or how long is this going to last? How do you see this playing out?

Darren Brady Nelson  14:32

Look, you know, it’s obviously hard to say how long, and it’ll probably be be on a country to country basis. I think some will kind of go all right, you know, like, let’s we’ll come to the table pretty quickly. I didn’t hear the comment by Levitt that you’re saying that doesn’t sound accurate. That doesn’t sound in keeping with, you know, not just Trump over, you know, his previous presidency in the start of this one, but obviously he’s famous for the art of the deal, his book. So. I don’t think Trump’s change on that that, you know, I think he’s changed in terms of the art of the deal, with dealing with Democrats and and the kind of the his ardent left opponents, I don’t think he’s given up that you can’t do a deal with them, right? But that’s not applying this. That doesn’t apply in this setting. I don’t think and, and, you know, in terms of, yes, I think you can do a deal with any country, you know, Canada, China, EU, all that, even though there’s obviously people there who you know, are reluctant to do any deal with with Trump, because they just don’t like him, right? They don’t like what he stands for. They don’t like his style, etc, etc. And then there’s kind of that long standing and growing kind of European disdain for the US anyway, that that’s a separate issue, I suppose, but so, yeah, I totally see it as art of the deal. You can find a statement or something, but that’s not I think that the weight of evidence suggests it’s art of the deal. It does get more complex, because Trump is a bit of a troller, and he and he’s, he’s loose with language. But, you know, I was thinking that too. And I was thinking, Wait a second, maybe not so much, because if you’re doing the art of the deal, if you make it explicit that, well, this is the art of the deal. I don’t actually believe in tariffs, and I don’t really want to keep them on, you know, people might balk and go, all right, we’ll just wait it out for a while, because, you know, you know, he doesn’t really believe in this, and he’ll eventually just get rid of him, right? He’ll, he’ll, he’ll bow to the, you know, the pressure, if the markets don’t recover quite the way we think they will, or, or of the political pressure, or, you know, Republicans in Congress, you know, get weak knees. So I think, you know, actually, to give him a little bit more credit, I think sometimes this trolling also does have a purpose besides the fact he may enjoy the trolling in the first place because you let your opponents note leaner, you know, or your negotiating partners, know, look, I’m not really serious about my position, then that that really undermines your art of the deal. Basically, does it not so. But I think ultimately, you know, he’s not a believer in protectionism, or, you know, like tariffs are somehow the long term path to even domestic growth of industry. So, you know, I think the way to the evidence is, you know, in that and you could certainly, you know, I, you know, I haven’t looked at their formula that you, that you suggest they’re using, and if maybe that is true, I didn’t see that in the executive order doesn’t say that it doesn’t exist, just because it’s not an executive order. But I didn’t get that impression from the executive order. And, you know, ultimately, you could certainly make a cost benefit analysis, you know, case, you know, like, obviously discounted over time, if Trump is doing an art of the deal and he gets a lot of these lower tariffs and other non tariff barriers to trade, putting side, obviously, we can talk about the defense argument too. I think you could certainly make a case, because I think that the world, the WTO and all these things, have just not been doing. They’ve been doing a very bad job, you know, over not just years, but probably decades. Actually, it just hasn’t been really particularly when it comes to non tariff barriers to trade in particular, that I think there’s a reason why Trump and some others are just starting to move to these bilateral trades, because the WTO is just kind of captured by dei and green stuff and all the rest. You know, it’s no it’s no longer devoted to free trade as such,

Gene Tunny  18:37

right? And so do you think that these the failure of the WTO, this is behind the large trade deficits that the US has with China and other countries. Is that the is that the contention definitely

Darren Brady Nelson  18:52

with China, I think, I think it’s huge. I think, I think these trade deals, you know, particularly when they’re like, 8000 pages long, etc, like the, you know, the Trans Pacific Partnership. It’s just a lot of just like, Yeah, you know, we’re gonna help my friends over here. We’ll help your friends over here. We’ll help my friends over here. Blah, blah, blah. They’re not free trade agreements. They’re not even vaguely like, free trade agreements used to be done, you know, once upon a time, I’d argue, you haven’t even had a free trade agreement. You know, maybe you could say, in the early days of these, of these multilateral, you know, gat and stuff, maybe there was some, you know, a period of time where you really were, you know, and probably were moving the in the direction, back in the direction towards free trade. And I say back, because really, since World War One onwards, you haven’t seen much in the way of actual free trade agreements, which used to be very small and didn’t have to say a whole lot, you know, as you’d expect, a free trade agreement too. You know, you’re not sitting there picking winners and losers, which is what they do now. And sadly, you know, they were so keen to get China into the WTO, they just threw all sorts of, you know. Unfair sort of advantages their way. There’s no way Communist China that could do nothing well, all Sun is this, you know, turns into this powerhouse of capitalism purely because they were really good at stuff, or even purely because they had cheap labor, because a lot of stuff that’s going over there is even capital intensive sort of manufacturing and other items, which you know, obviously, over time, China got better at this and that, no doubt, but you know, to suggest, all sudden, almost overnight, China is super awesome at all these things. I know I don’t think so well, what

Gene Tunny  20:37

are some of the unfair advantages you do? You think that China has had thrown its way that, you know, that the White House would be concerned about, what do you think? What is it specifically the Trump administration is concerned

Darren Brady Nelson  20:50

about? Well, clearly, they’ve bought off a lot of politicians. I mean, you know, over the years, you know, to get these sweet deals. They’ve been, you know, the Bidens, the Clintons, the Bucha, over the years, they’ve thrown a lot of money at these people to get kind of sweeter deals. And it’s not always, yeah, it’s not always the stuff you can just pick up the Trans Pacific Partnership and see the bias in there, although you can still see it in there too. But I think it’s, kind of, kind of, if you like, the shady stuff behind the scenes that have been done,

Gene Tunny  21:28

yeah, yeah. I mean, it’d be, I mean, I’m, no doubt there are. I mean, I’ve had guests on this show

Darren Brady Nelson  21:33

labor in Australia, too. I mean, it’s just like, there’s a lot of stuff that’s gone down that’s, you know, it’s been documented. Some people have actually been prosecuted for saying something. Some people have not. So, you know, some stuff, you know, obviously hasn’t gone to court or trial. So you could say, well, that’s just conspiratorial, yeah, yeah, maybe, maybe not. You know, the world’s not sort of, you know, there’s a lot of nefarious things that happen this world, you know, I don’t know why people seem surprised as though, like, this is, you know, everything’s above board, you know. I mean, China’s clearly set out its strategy, and it’s not, oh, we just want to be, you know, just compete in free trade agreements with the world and just be a part of the international community. They fairly well documented their grand strategy in particular, you know, China, I’ve seen particular has so they’re not, you know, they’re not, sort of like, Oh, we’re not going to do shady deals, because, you know, that’s beneath us,

Gene Tunny  22:36

right? Okay, what I would, what I’m wondering about, Darren is, what does this mean for us, consumers and businesses? Because China has become the new workshop of the world. Our mutual friend Dan Mitchell, who you mentioned before, he’s pointed out the tariffs there are tax so you can argue about to what extent the the tax is borne by by foreigners, by by exporters, who might have to cut prices to be able to keep selling to the US or to sell elsewhere. But there’s no doubt that they are a tax, and us, consumers and and importing businesses, will pay more Dan quotes, some estimates that it could cost Americans 2000 to $4,000 reduction in disposable income. What do you think will be the impacts on consumers of the Trump tariffs, please? Darren,

Darren Brady Nelson  23:34

yeah. I mean, I would say that analysis sounds fairly incomplete, because you have to take in in account the whole sort of, you know, gambit of taxes, like the ones that the people who are now paying more tariffs weren’t paying in terms of domestic taxes, you also have to take into effect, obviously, you know, Trump has a huge tax reduction package that’s that’s going to be coming up, so you have to factor that in as well. So to just suggest that it’s just purely tariffs, and there’s going to be no changes to other taxes. So Dan’s right, it is a tax, which means you have to look at the whole sort of like, what’s Trump doing on all the taxes, basically, that are obviously under his disposal at the federal level, of course, and includes, obviously international as well. So again, you could certainly make it a case. I think it’s not unreasonable to, you know, particularly if you’re going to have a trade off and you’re going to have lower income taxes, lower corporate taxes, maybe lower capital gains taxes and that sort of thing, and then you you know, I’m not going to talk about these particular punitive tariffs, but I can see, you know, you know, a sensible level, obviously much lower, once you get, hopefully, people in the room, and you start getting tariffs and non tariff barriers lowered, at least on a bilateral basis, bilateral, bilateral, bilateral, that you could end up with an actual lower tax burden on American consumers over time. Even though you putting aside, like the spike, obviously right now with tariffs. And also you have to throw in the fact the US, unlike a lot of countries, is less reliant on foreign trade than it has historically been. It’s got a huge domestic market, and there’s competition domestically now, again, like I’m saying, in principle, I don’t favor like, hey, we’ll just throw tariffs on because, you know, we want to help out industry a over industry b. Or, you know, domestic industry a versus its its foreign competitors. Like I said, I think in the context of this, I believe this is Art of the Deal. It’s not, they’re not going to keep these in place, they’re going to, you know, massively lower them when they get deals, you know, with each country, China and the EU will probably be the last to come to the table. In fact, I would argue EU will be the very last China will come to the table, much quicker than the EU will, actually, because I think China is so reliant on, you know, you know, sort of, according to the US, I think it’s, it’s, you know, G, G’s pride. At the moment, the EU is a bit different. They, like I said, there’s such a, weirdly enough, I don’t think G. And oddly enough, the Communist Chinese, even though they obviously want to ultimately be the number one power in the world that, weirdly enough, there’s not at the same time, there’s not this kind of decades grown up anti Americanism that you have the EU. So that’s kind of interesting kind of dynamic that’s going to make doing a deal with the EU probably the most difficult. I think, ultimately, weirdly enough, yeah, I know it’s weird. It’s kind of, in one sense, China should be the most difficult, because obviously they want, they want to, you know, supplant the US as the top strategic power. But then you have the EU, you know, with its long standing disdain for American culture, and particularly, obviously, for Trump and mega, Chinese probably don’t, you know, they kind of have, probably have a weird respect for Trump and mega that the EU does not. That’s interesting.

Gene Tunny  27:12

Who is it the Chinese blame for the century of humiliation? I mean, would that be primarily the British because of the Opium Wars? Probably is, I guess

Darren Brady Nelson  27:21

so, yeah, I guess so, yeah, you know. And look, let me put this all in the context of, you know, you know, I was straight up Dan liberty, Dan Mitchell, Libertarian, slash, classical liberal view of tariffs. But the thing is that what I’ve noticed is a lot of people like Dan, and he’s my friend. He’s, you know, he’s turned into a religion, as though, like, you know, like he won’t complain about other taxes so much, but tariffs are, like, sacrosanct, you know, like they’re not, they’re a tax, you know, like they’re not a super special tax, in some sense, you know. You know, they behave like a transaction tax for the most part. And as you mentioned, yes, they get shared between producers and consumers, whether they’re domestic, and in this case, obviously the producers will be the foreign ones. Whereas, you know, normal transaction tax analysis, you’re thinking in domestic context. But that’s fine. It’s, it’s, it’s pretty much the same thing. Well, it’s been on elasticities of supply and demand, obviously, you know, in particular markets, you know how much, which will depend, obviously, on competition versus, you know, how, how much of a cartel type of industry it is, etc. And what you mean, what are the substitutes and compliments, etc? But yeah, I’ve noticed this weird thing. And I think I also had this once about time, like, tariffs, oh, they’re the special tax that you can never, ever do, any ever put on for any reason whatsoever, even if you actually lower taxes elsewhere. You know. So, no, I think, I think that’s kind of ridiculous sort of stance. Well,

Gene Tunny  28:53

I think the point you make about you talked about elasticities. And I mean, if the Trump tariff formula actually had an elasticity or two in it, then you might think, oh, okay, there’s some logic to it. And there is that concept of the optimal tariff for a large country like the US, which can actually affect the terms of trade. So but, I mean, my concern is just how, just the formula that’s been applied, how wide ranging it is. It doesn’t seem I mean, I can’t understand it. I mean, I don’t think they’ll last either. I mean, I think we both agree this is, this is temporary. I have a different hypothesis to why it’s temporary. I think it’s it’s going to be temporary because the people on Wall Street, the people in Connecticut who had got the hedge funds, they’re going to be knocking on the door of the west the West week, saying you’ve got to stop this. This is, yeah, this is costly this week.

Darren Brady Nelson  29:48

Yeah. What’s the sorry, forget the name escapes the who’s the UK Prime Minister that these sort of people pushed out the door fairly? Liz truss, sorry, yeah. Let’s trust Trump is not. Liz truss. They’re not going to be able to to they can come knocking on the door as much as they like. First of all, Trump knows the game as well as they do, right? So he’s he, you know, I’m not sure Liz really understood it as much. And I’d say the US is a much bigger, more powerful country, etc. But also, Trump has almost been killed. I don’t think the hedge people are going to be able to pressure him like you know, maybe they could have in 2017, 1819, but they’re not going to be able to this time Trump. Trump’s sticking to his guns on all these things. Obviously, we’ll talk about Doge as well, but he’s sticking to his guns. I The hedge fund people in Connecticut? No, they got zero influence on Trump. Well, the

Gene Tunny  30:44

benefit, the the what Trump has in his favor is that there’s still a huge demand for US Treasuries, right? There’s still, you know, they talk about the safe asset shortage, so people want to hold US Treasury bonds, because they’re seen as safe. And even, like, if you have global turmoil, people still want to hold US Treasury bonds because they’re seen as safe. So whereas with the UK, I mean people, you know, the people in the markets, go, Oh, we’re, we’re concerned about their ability to repay all this debt, and yeah, we’ll punish them in the in the bond market. So yeah, that’s, that’s really what, what brought down Liz truss? So, yeah, I think he’s a lot in a lot firmer position than than trust. I think he can, yeah, I don’t see any threat to him. I mean, he can’t be kicked out, like Liz truss. I mean, he doesn’t have a he’s in for the next, next four years, isn’t he true?

Darren Brady Nelson  31:38

And it’s actually have said, or the, you know, like, you know, some of the stuff, you know, I mentioned, you know, the kind of the dirty deals and the that are done, you know, I never thought about these things much prior to the 2020s and I probably would have been like, you like, oh, you know, like, you know, kind of like, oh, I don’t know about that. But now here’s the other context, the West globalists. There’s a war against Trump and people like Trump. So this is also and a lot of these people are hedge managers, so there’s that. So they’re trying to make the markets look tanked and make Trump look bad as much as they can as well. So it’s not just purely, yes, there are people literally are scared and whatnot and but there’s also people because, you know, we have BlackRock. It’s not like these markets are. There’s sort of cartel elements to these markets. They’re not these purely competitive markets, and no one’s really influencing it. And this is purely just a sensible market reaction to stuff it. It’s partly that, but it’s also partly people trying to make this happen as well, the black rocks of this world as well. They who are just ardent opponents of Trump, right? And they’re opponents of Trump, they’re opponents of, you know, me lay their opponents of Orban. They’re opponents of all these, you know, these Trump like movements. I know Milo is a bit different, but he’s also, you know, he’s a strong ally of Trump as well, even though, obviously he takes kind of a more libertarian approach that Dan Mitchell would approve of in Argentina. But they’re both on board with fighting, sort of the globalists, right? The Black Rocks, the the weft and all that sort of stuff.

Gene Tunny  33:19

Darren wasn’t Wall Street, weren’t BlackRock and Ray Dalio and all the hedge funders. I mean, maybe not Dali. I can’t speak about him specifically, but my impression was that they were all in favor of Trump, and the didn’t the stock market have a bit of a boost when he got elected. So, I mean, people, people that you’re talking about, were actually excited about Trump, but now they’re not, because they see that the diet, the adverse consequences these tariffs. Did you see Jim Craver Cramer was on with Aaron Burnett on CNN the other day, just saying, What madness it is. I mean, the I just can’t understand that argument. I mean, wasn’t

Darren Brady Nelson  33:54

Wait a second. When were they on board? I don’t I never heard them release statements Well,

Gene Tunny  33:59

I mean, well, the markets were, the markets got a boost when Trump was elected, and when he and he is Trump, was actually claiming that. Well, he was claiming credit for the markets going up when they were starting to think that he could get elected. So, yeah,

Darren Brady Nelson  34:13

look, he does, you’re right. I mean, all politicians start doing that. They claim, you know, markets go up purely because of them, and then when they go down, that’s not to do anything with them. Obviously, it’s a mix of both. But no, there’s the black rocks. And people have never been on they didn’t also turn to Trump, you know, this time around, he has, you know, this is like a drop dead war to the death, almost, you know, actually, literally, maybe also death, you know, between sort of globalists and the kind of, like the nationalist sort of movements of Trump and Orban and Milo and people like that. I don’t know why you’re smirking at me. This is fairly

Gene Tunny  34:53

honestly, Darren, I don’t, I don’t understand. And I mean, most of these people just want to make money, don’t they? I mean, I don’t know about this. Whether you how you can call them. Maybe they they’re more, yeah, definitely, they’re going to be more in favor of, you know, free or globalization, than, say, the people in the current White House. But I just, I just can’t understand this well, I think deliberately crashes the market. That doesn’t make any sense to me. We’re talking

Darren Brady Nelson  35:19

about Soros did the exact same. Soros, back in the day, did the same thing, not for some market driven purposes, for his political agenda. Soros did this, you know, once upon a time. So these people, I mean, Bill Gates, is long removed from like, Oh, I’m just trying to make a profit at Microsoft. I mean, they’ve moved on from this. They have other agendas that they’re using their wealth for. This stuff’s pretty well documented, and it’s not documented on fringe websites. It’s documented fairly well, you know, maybe not on CNN, but it is documented on Fox Business and plenty of other sort of websites like that.

Gene Tunny  35:59

I think if you can send me some links to that. Darren, I’d appreciate it. Yeah, honestly, I’m, I’m skeptical. But look, it just doesn’t, it just doesn’t appear that. It just doesn’t make any sense to me that they would want to crash the market in that way. There are a lot of people who, from what my impression is that there are a lot of people on Wall Street who are mad at Trump at the moment because of what’s happened in the markets due to his tariff announcement. So these

Darren Brady Nelson  36:27

people support, you know, the COVID restrictions that I mean, this little mini crash from Trump and his tariffs is nothing compared to what happened, you know, under the very end of Trump and, you know, for another, you know, the first year or so, Biden and these people were very supportive, yet they were getting smashed in the pocketbook. Were they not? So people aren’t just motivated purely by profit, and even people in Wall Street and et cetera, aren’t just purely profit, particularly if they have kind of, you know, obviously, if they’re not in a position where, if they lose right now, they’re gone. You know, as long as they can recover and they have other purposes, and they can have other influences and and hopefully make a buck, obviously, as well as, you know, pursuing, you know, what are their sort of broader goals they have, like a Bill Gates or, or George Soros or, you know, Larry Fink, because they all have broader goals and, and, you Know, weff in particular, you know, their website sets out those goals, and they’re not just to, oh, let’s we want more free trade. That’s not their goal,

Gene Tunny  37:29

right? It’s the great reset you’re talking about. We had an episode on the the great reset a while back. People

Darren Brady Nelson  37:34

always go like, they go like, Oh, I’m skeptical. And then I immediately send them the link to their actual website that talks about the great reset. It’s like, it’s that it’s not like a crazy conspiracy theory. They set it out quite clearly. What they’re trying to do,

Gene Tunny  37:46

what I’ll do is, I’ll put a link in the show notes to our chat about the great reset, and because I think we had a good conversation about that a few years ago. So just finally, on the tariffs, Darren, you you mentioned, you know, other considerations, or other considerations, I presume you’re talking about national security. What do you see a national security aspect to these tariffs?

Darren Brady Nelson  38:12

Yeah, I think there is. I don’t think that’s the main one. Obviously, if you go through the big list, you know, there will be for China, without a doubt that that’s actually with China. It’s, that’s, that’s actually maybe the number one reason, actually with China. I think you can probably, you know the notes, you know where Adam Smith sets out the three exceptions defense is not before he tried to free trade. Yes, yeah, where he sets out the exceptions to free trade, you know, where it is legitimate to do, you know, tariffs or whatever else, right? So defense is number one, and then the next two are almost kind of the same thing, a little bit different. The second one’s the reciprocal, you know, straight up reciprocal. And the third one is the punitive one. And he sets out for a goal, though not punitive, just to be punitive, obviously punitive to then get them back to the negotiation table, and then, you know, open up both markets, if you like. Are, you know, more than just two markets, perhaps. So Adam Smith sets out the himself, sets out the reason for the punitive tariffs, right? So, you know, which we obviously spent a lot of time on previously. So you know, Adam Smith himself, who is obviously against mercantilism, if you like mercantilism, obviously thought like this was a good long term strategy, right? You know, mixed in with the concept of, like, we want lots of gold and all that sort of stuff. But that’s obviously not an issue nowadays. So, yeah, defense definitely it. You know, I’ve surprised in recent years to learn that just the amount of stuff that, you know, the US military relies on China for, you know, inputs, it’s that’s just like, No, it’s like, it’s one thing to rely on Canada or Australia, obviously, or even like countries that may not be your allies, but aren’t literally. Your rivals and could be your enemies overnight, you know, if something went, you know, you know, in Taiwan, if something happened, for instance, which, of course, the US doesn’t rely on Russia in any way, for, for, you know, defense related inputs, but it does for from China,

Gene Tunny  40:17

right? Okay, so national security. I mean, this is interesting that you think that’s, I mean, that’s part of it. But the the biggest story is you think that you agree with Trump, that you think America is getting ripped off. I mean, I’m just trying to understand what the what is it? How are they getting ripped off? I mean, what’s, what are the consequences of that, that jobs and factories have gone overseas, and the idea is to reassure those jobs and factories, is that the idea? Well, look,

Darren Brady Nelson  40:43

you know, I think it’s partly that. I mean, I’ve just purely as an, you know, you know, the evidence I’ve seen, you know, has looked like the US has done a lot of bad deals that that have, if you’ve like, skewed things in favor of Mexico, in favor of Canada, even in their, you know, their overall North American agreement. But more importantly, obviously, you know, through the WTO, things skewing towards China and other agreements. So, you know. So I think they are trying to rebalance, you know, basically, in a nutshell, to others like, you know, look, I can’t speak for Navarro. And all his views, I think you seem to know a lot more about you know him, and you know where he comes from than I do. Maybe he’s got something, a grand strategy that’s beyond just, hey, let’s kind of, you know, level the playing field, you know. I think this is ultimately just kind of aimed at that, because I don’t think you know Trump, or you know, a lot of Americans don’t feel as though they can’t compete if the fields you know more level than it has been in recent decades you know, particularly from you know, probably Clinton onwards, perhaps longer, but at least since then. So you know, that’s, that’s my take on it, that, you know, ultimately these punitive tariffs and putting again, defense to the side for the moment, defense is a different issue, and I think you’ll have to treat it separately. But of course, you know, you can get, you know, obviously the there’s a danger the military industrial complex claiming things are skewed. You know, you know that things are important to them when maybe it’s not. So there’ll be a lot of you know that obviously this will have to be looked at closely to make sure that it’s not just you end up just protect, if you like, really end up just protecting industries over a longer period of time, rather than, you know, having really good, you know, national security reasons for, for, you know, sort of like taking, you know, so making it hard for China to have an input into, you know, this or that particular, you know, crucial security or defense aspect,

Gene Tunny  42:50

yeah, okay, okay, Darren, I think we’ve chatted plenty about tariffs for the time being. Let me it is totally out of the deal. Yeah,

Darren Brady Nelson  43:04

go ahead, yeah. Look, I think this is, you know, something about this tells me I’m right when, when people get, like, just overly emotional about it, like, particularly economists. I kind of kind of not saying you but, you know, but I’ve been talking to libertarian and classical liberal economists, and they don’t even want to consider that. You know, that maybe these trade deals have not been very good and skewed. They don’t want to consider that. They don’t even want to consider that this is Art of the Deal. They don’t want to even consider that the Trump is anything but a protectionist. They don’t want to consider that tariffs, oh, yeah, their taxes. Remember, their taxes, you know. Thus, let’s look at the overall tax mix, including tariffs. They just have, like, this is like a sacred cow. You can’t ever put a tariff up for any reason or put a tariff on even if you can actually say, you know, these Adam Smith reasons, defense, reciprocal, punitive, to then recapture a more free trade arrangement. I’m surprised at the amount of people who they have such emotive responses to it. And they’re not. They don’t go, oh yeah, okay, let me consider this, you know, or you know. Okay, fine, show me some of the evidence for that, etc. No, there. It’s usually a very visceral reaction right away. Perhaps 10 years ago, I might have had the same or maybe seven years ago, I might have had the same reaction too. Well,

Gene Tunny  44:29

that’s what I’d like to see. I’d like to see what is that evidence that that is being claimed, that of these skewed trade agreements, I think it would be good for for the White House to put that out and then have more targeted. I mean, if the genuine reciprocal tariffs, or if they’ve got a beef with a specific country, then then actually, you know, provide the evidence for that, and rather than just what they’ve done. But look, if you’re saying, look, I mean, maybe it is out of the deal, well, I don’t. Know what’s going on in Trump’s head? Yeah,

Darren Brady Nelson  45:02

look, I would, I think, I think, I think you may have relied too much on reporting and what they’ve done. I think, look at that, go, go to the source, and I sent you the link to the White House, their whole, you know, the executive order, plus their whole rationale for that order. And then, you know, judge that alongside of the commentary of whoever else.

Gene Tunny  45:24

Okay, right? Oh, Darren. I think we’ve chatted plenty about tariffs before we better get on to Doge. Elon Musk is, I think he’s finishing up his what was it 130 days as a special government consultant. And I mean, what’s your assessment of how Doge has performed? It’s been controversial. There was a whole, I mean, USA ID was shut down. There are concerns about what that means for Well, for the countries that it used to support, there are concerns about what it means for us soft power around the world. What’s your assessment of how Doge has performed,

Darren Brady Nelson  46:03

they’ve actually opened my eyes. They’ve actually performed better, you know, even though they don’t, you know, it’s not like, you know, typically, you know, if they, if the White House would have asked us, you know, hey, you know, you know, let’s see. We probably would have got a team of economists or whatever. And there’s nothing wrong with that. Of course, that’s typically how it would be done. But it’s interesting in this, you know, given, yeah, it’s interesting that they’re the tech people, the tech gurus that they got, and they AI wizards, I’ve been, you know, and I’m not a, you know, I’m a skeptic of AI like, you know, and this kind of tech in general, you know, like, I’m kind of like, you know, sure, I have to use tech, and I’m not like, against AI or anything like that, but, you know, I’m skeptical. And I’ve been like, they’ve kind of opened my eyes, like, wow, the stuff they found and how quickly they found it, and how broadly they found it. And then, you know, I was also like, you know, when the first thing they went after it was us a ID, and I’m glad you pronounce it that way, because I used to go USAID, and because it gives it, it gives it a sound of because it isn’t really a foreign aid organization. That’s the thing. I thought it was too It isn’t that, you said soft power. That’s being kind, that’s being very kind to what they do, you know, the, you know, Clinton Foundation and all the other stuff that they fund. I’m not sure. You know, it’s not quite the foreign aid organization that people kind of thought it was, including me, the the amount of Basic Black Ops, political black ops that this thing funds is like that surprises me, too. I didn’t realize that’s what it largely does. You know, for every mosquito net that it may provide in Africa, it’s that’s like, that’s mini skill for what it actually really does. So it’s not just that it’s inefficient and waste, if you like, wasting taxpayers money. It’s, again, it’s far more nefarious than even I kind of thought it might be, to be honest. So now understand why they went after it first. It wasn’t purely like, yeah, you’re wasting taxpayers money on this or that, including, you know, political donations and all these things. And of course, to only one side, it’s far worse than this. So I’m impressed by that, and also things like, you know, finding even though, obviously, social security isn’t really something that you know was going to be a reform target for the Trump administration, in fact, they kind of said the opposite. And obviously, pretty much Republicans and Democrats have said this for decades. We can get onto this, and I think they should just copy the Australian reforms in the 1990s they’re not perfect, but, boy, they’re pretty darn good by comparison. But anyway,

Gene Tunny  48:53

this is, you mean, the individual retirement accounts, superannuation, superannuation, yeah, it’s not

Darren Brady Nelson  48:59

perfect, you know? And then there’s the labor unions and all the, okay, it’s not perfect, obviously, but, you know, it’s, it’s, you know, the US Social Security Systems, clearly, the worst system in the Western world, it seems, as far as I can understand, but, but, you know, Doge is just targeting the the weird stuff, like, Why do you have people on the rolls that are 160 years Old? Clearly, no one is 160 years old, right? So, you know, all that sort of stuff, you know. And as if we went in there, we probably it would have taken us forever to get to that sort of stuff, right? You know. No, no, I think you know, over time, you know, Doge, if they keep it around, I think they need to, obviously, bring in economists and you know, and hopefully they’ll work closely with OMB, which they probably are, I’m not, you know, I don’t know, in Treasury, although the US Treasury doesn’t quite have the same broad role that the Australian Treasury does. You know, it’s very much focused on tax and debt, not so much spending, which is weird. I kind of was surprised to find that the US Treasury doesn’t. Even though they dole out money, they they leave it to OMB to do that, right? So that’s kind of what OMB kind of focuses on, spending and stuff like that. Well,

Gene Tunny  50:10

yeah, I’ll have to look at the specifics. I thought, how they how Doge has been so successful, is that they actually, no, I’m saying that it’s part of Treasury.

Darren Brady Nelson  50:18

Your Treasury doesn’t focus on, they have the data, but they’re not like the way that you’ve worked in the Australian treasury, yes, and state treasuries, you know, they’re heavily involved in what gets spent, right? You know,

Gene Tunny  50:33

yeah, to an extent. I mean, you

Darren Brady Nelson  50:35

know, by agency, by agency, there’s a, there’s a negotiation process, yes, yes. They don’t do Treasury doesn’t do that. It’s they kind of leave it to OMB to kind of do that in along with the Congressional Budget Office. And, you know, it’s kind of a, it’s a, kind of a different sort of system. But yeah,

Gene Tunny  50:52

from what I saw, that they were able to tap into some Treasury system that gave them really amazing data on all of the payments going out from US government. It’s quite extraordinary, and that’s how they’ve been able to be, you know, do as much as they’ve done.

Darren Brady Nelson  51:07

Yeah, Treasury has got data, but it’s weird. It’s like they have it, but they’re not like, they don’t actively use it, and they’re not involved in the process of spending like an Australian Treasury is, or even the Queensland treasury. So, but you’re right, yeah, they, yeah, I understand, you know, I’ve seen some of their data, which is public, obviously, and obviously, Doge has got access to much deeper, and I’ve data than, than what we can get at the public level. Yeah, yeah. Okay. So I’m impressed by just, you know, just the way they get, you know, even when, when, when, you know, the the Republicans in Congress were going to go along with this ridiculous, you know, spending budget. And, you know, Doge got onto it really quickly and went, Wait a second. They found all this stuff really quickly, you know, like the speed and the depth and this, you know, scale and scope. It’s like, it’s fairly impressive. Now, ultimately, when they kind of do the report, you know, by the Fourth of July next year, maybe it’ll probably come out on the Fourth of July, I suppose, you know, it’ll be a grant, you know, kind of a ribbon cutting exercise, maybe, type of thing, you know, if they continue to carry on, or whatever, however they hand us over, maybe to OMB. Then, obviously, OMB has got plenty of economists, you know, but I’m impressed by the tech people, and I still think they should be involved and rolled into an OMB and a Treasury or whatever CBO, because, you know, they’re, you know, quite impressive. What they can do so quickly, just on going

Gene Tunny  52:43

back to us a ID, what evidence is that they is there that they are running Black Ops? Is that just a Is that for real, or is that just a talking point from the doge folk?

Darren Brady Nelson  52:53

No, they said it out. They said they put out a great detail. They give you the numbers and stuff. You know, you mentioned the Treasury data stuff. They weren’t, yeah, they’re not. Such as a talking point. Obviously, it gets turned to a talking point for both sides, you know. You know, one side who says, yeah, and then the other side goes, no, that’s not the case. No. Doge, I found that, you know, they don’t just talk they they provide data, you know. And yeah, like I said, I didn’t, you know, like, six months ago, I didn’t, you know, I didn’t have a particularly strong view one way or the other, towards USAID, to be honest, you know, you know, except for, like, just the broader argument that a lot of economists have made, how foreign aid just doesn’t really work. It’s not, you know, East Asia and other places. You know, using market reforms has done way better than Africa, South America, etc, through this, this, this foreign aid. You know, plenty of economists have documented that, you know, conceptually. So, you know, I guess I had that view of it. But, you know, I was surprised that it really wasn’t really much of a foreign aid, you know, outfit, which is why it’s officially called a ID and not actually aid. You know that lot of people are careful not to call it US aid, to make it sound like a straight up foreign aid organization, which I didn’t know really, to be honest, I was kind of surprised too, you know. So they kind of opened my eyes at the, you know, corruption, which is beyond just inefficiency and waste, you know. I think you know, when it comes to corruption, that should certainly be the number one target. Then, you know, waste, and then you know, just kind of efficiencies, if you like, third. And I kind of miss that. I missed that kind of the corruption element of things, I suppose, I guess I realize that there’ll be elements of government that are corrupt to whatever extent, and fraud too. Obviously, that’s what they’ve been highlighting at the Social Security Administration, not suggesting the Social Security, you know, the SSA are fraudulent in them. Cells, but they’re being taken for a ride at times, I think, is what Doge was suggesting, right? It might

Gene Tunny  55:08

have to come back to Doge and have do a bit of a deep dive on some of these, yeah, some of these issues. Just, just so, yeah, I better do, sounds like, I better have a closer look at some, you know, some of what it’s found, and just try and figure out what’s going on. All right, just before we go, Darren, I gotta ask you about the Wisconsin special election. So the Democrats won is the US falling out of love with Maga

Darren Brady Nelson  55:32

no Wisconsin’s kind of Wisconsin’s always weird, but it’s a purple state. It does these weird little swings. It’s not a referendum on Trump. I mean, two things, it’s certainly, I guess it’s a silly referendum on some of Trump’s supporters of Wisconsin who couldn’t be bothered to get out to vote. And I think it’s also a referendum. The weird thing, because I was involved, you know, I did the Trump sort of campaigning stuff last year, and it was all hands on deck by, you know, all sorts of organizations. It wasn’t all hands on deck this time for the Supreme Court, even though it’s very important, because it has national consequences. Basically, the Republicans could maybe lose two seats in the house because of this? Right? Yeah, right. Two seats in the house, in the House of Representatives, not talking about the state legislature. Talk about the in Washington, DC, right? So, and some other stuff too. There’s other things, important things that you know, the Wisconsin Supreme Court will decide on that that have, obviously, state significance, but they also will have, you know, some federal significance too,

Gene Tunny  56:42

because of the boundaries. Is it the electoral Yeah,

Darren Brady Nelson  56:45

you know, gerrymandering? Yeah, both parties do it, but you know, that’s Australia did the same thing. It’s not like no one’s clean on the gerrymandering thing, but so, yeah, gerrymandering, essentially,

Gene Tunny  56:59

we turned it into an art here in in Queensland, I think we were the best at it for a while. Some of those large, all of those regional like we had these huge electorates in the cities, but the these electorates in the in the regions with far fewer people, and so, yeah, there are many more regional members that are the city. It’s

Darren Brady Nelson  57:19

exactly the same thing Wisconsin. That’s the Democrats complain that that that’s the case. The Republicans are, you know, making it a bit too suburban or rural and not urban enough. And, you know, so, yeah, so, yeah. So, so, basically, so, two things, you know, the trump the mega supporters, they didn’t take the election seriously enough. They didn’t come out. And also the various groups, even the one I was involved with, we didn’t get started till the end of February. This is something that should have jumped in by the bare minimum, the beginning of January, probably really mid November, you know, like once Trump won, get stuck into it, because this was such an important election, I’m not gonna, you know, I won’t blame the Schimmel campaign, because, you know, they only have, you know, they certainly attracted a decent amount of money, you know. And obviously more money was poured into Schimmel and Crawford. These were the two opponents, Brad Schimmel and Susan Crawford. So Brad Schimmel was the Republican, Susan Crawford was the Democrat, with the weird caveat of, they don’t actually officially run as Republican and Democrat. You know, kind of how they do at, you know, like City Council like Brisbane, yeah, and in the US, they had the same convention that council level, they don’t officially run as Democrat or Republican. But you kind of figure them out fairly quickly. Although you do get at council level here, you do get some people literally aren’t either party, you know. They’re just people who’ve been in the community, like I mentioned, wabatosa. There was this guy I kept on seeing his sign up, and he was the only person I saw his sign up next to Schimmel and next to Crawford. At times it’s like, Who is this person? Like both sides, like him, you know. So he’s got to win. He was just kind of a local guy sort of thing, you know. So, so anyway, so it was combination of, yeah, they didn’t get out the vote early enough. They didn’t make, you know, an effort. They poured a lot of money into stupid TV ads. I think that everybody on both sides complained. Were just awful. You know, from both sides, everybody, like that was the feedback I was getting. It’s like, no one liked anybody’s TV commercials. They just weren’t very good. So, anyways, yeah, but, but what did get up is the voter ID constitutional referendum, the Wisconsin State Constitution. So that will be in the Wisconsin State Constitution that you will have to have voter ID. Now it’s also in the context of there already are voter ID laws here, right? Yeah, you can change laws, right? So, and the Democrats were looking to change those laws to not have voter ID. Basically, um. Which, you know, does seem weird, because, you know, even labor, I don’t think has ever suggested that you shouldn’t have voter ID, have the greens. I wonder if the Greens have ever suggested that.

Gene Tunny  1:00:10

I’m unsure. I honestly don’t know. I mean, the greens are more I mean, they’re, yeah, they’re focused on the big issues for them are obviously the environment, but also housing affordability. I mean, housing affordability is pretty dire here in Australia at the moment. And I mean, the Greens have a lot of policies on that. I don’t think they’re the right policies, but at least they’re, you know, they’re concerned about it, and they’re and they’re, you know, they’re making a lot of noise about it. So, yeah, I mean, we’re having an election that’s coming up on third of, think it’s the Third of May. It’s early May. So, yeah, I don’t know if you’re keeping an eye on that, Darren, if you have any thoughts on what we’re in for over here.

Darren Brady Nelson  1:00:50

Yeah, look, I don’t have strong thoughts on it. I have, you know, kind of fairly shallow thought because it, you know, it’s like, I mean, obviously, even in the internet age, obviously, I have access to all the same information as you do sitting in Australia as you do with the US. But it’s funny, when you’re not sitting in the country, you just, there’s kind of you just don’t soak the stuff as much. So, you know, look, I obviously listen to, you know what? You know friends like you or or mutual friend, Alex Robson has to say about, you know, what he thinks about the election and others. So I understand it’s, well, I don’t know. It’s kind of going back and forth, is it not? My feeling is Dutton will win, or, you know, Dutton, it’s not like Dutton literally wins, obviously, but the Dutton government will win. But, you know, maybe scraping it in, I guess it will be a landslide mandate sort of thing. Anyway, it’s

Gene Tunny  1:01:43

actually swung back to the government, to the Labor government, being returned, at least as a, probably as a minority government with support of TEALS, those, you know, those independents.

Darren Brady Nelson  1:01:57

I think dun will still win. That’s all I’m saying. Yeah. Okay, interesting. I think you’ll still win, because the poll, the polls, they’re always a little bit biased against conservatives. Right now, that’s on steroids in the US, right particularly when Trump’s on the ballot. You know, the polls are just like they were wrong. They were dead wrong. They were, they weren’t even close in the US right now, I’m not saying they’re like that in Australia there, but they are skewed and biased a little bit away from conservatives in Australia as they are, I believe, in UK, Canada. So I think you need to factor that in a bit. It was scomo. I mean, like scomo the other he’s got, you know, really not much of a chance. You know, now,

Gene Tunny  1:02:42

was seen as a bit of a disappointment in the end, I think so. Oh no, no,

Darren Brady Nelson  1:02:47

I agree. I mean, I’m not depending scomo How he performed, what he actually won, yeah, but he was, he was not, he was not, you know, favored in the polls very often, right in the lead up to that election.

Gene Tunny  1:02:59

Oh, not to for 2019 That’s right. He, that was a, that was a real surprise. He, he had a good campaign in 2019 but in 2022 I think

Darren Brady Nelson  1:03:08

everyone, well, I’m talking 2019 sorry, yeah, early 2019 Yeah, yeah, just Yeah. I mean, the mainstream media is left leaning. It just is, you know. And their biases, you know, come through, you know Murdoch? Yeah, Murdoch’s in the middle. He’s not right wing, he’s not left wing. He’s murdered Rupert Murdoch, that is, I’m not. His kids are left wing, lock Lachlan and all the rest. But, you know, give Rupert credit, you know, he’s a, you know, he talked about, you know, he said, Oh, Wall Street, you know, these people just want to make a profit. But that’s Rupert Murdoch, to be honest, you know, like he’s backed left and right over the years. I don’t see him as an ideologue. He owns more left wing publications than he does right wing ones, you know. And it was Roger Ailes, you know that, you know, kind of was the brainchild behind Fox News. Murdoch just saw an opportunity. Like, wait a second. I mean, he’s not blind. Freddie, you can see all the mainstream media was all left, left wing, right in the US at the time, and the new cable. Well, CNN wasn’t all that left wing back then. To be honest, they were. They kind of did actually have a decent mix back in the day CNN, but he certainly saw a market for a rate leaning cable TV, Fox News, you know. So I’m not

Gene Tunny  1:04:27

sure what left wing publications you think Murdoch owns, unless you’re claiming the Times and the Wall Street Journal are left wing. Oh,

Darren Brady Nelson  1:04:36

he owns lots of stuff around the world. He still own a lot of stuff that lean left. You know, I’m not sure if he, if he’s divested of some of that stuff over the years, the times, sorry, what did in London? Yeah, he owns the times. That’s, that’s that leans left. Yeah, definitely. And the Wall Street Journal is, at best, a neocon sort of Reg, um. Of it’s basically a combination of neocons and Neo Neo liberals. So whether you call that left or not, I don’t know, but it’s certainly there hardly free marketeers at the Wall Street Journal.

Gene Tunny  1:05:13

Certainly everything’s nothing’s like it once was Darren. I mean, it’s we live in, live in interesting times, don’t we? Right? I think we’ve, we’ve had a we’ve had a good chat of, I think it’s, it’s good to catch up with you on tariffs, and what’s been happening with with Doge, and your experience in Wisconsin, your your story about the turkey, I’ll have to look out for them. I mean, we have those little bush turkeys in here, scrub turkeys in Brisbane, you’d be aware of, but you wouldn’t get cornered by one of them for 10 minutes.

Darren Brady Nelson  1:05:49

I’ve seen, you know, my, my, my niece’s cat chases those things around. So no, you know. Do you have any, you have any views on the the Canadian election?

Gene Tunny  1:06:00

No, I think it’s extraordinary. Mark Carney was it was parachuted in. I did, didn’t see that coming. I don’t follow Canada closely enough. I know that he could get a benefit from the spat with the dispute with the US. I mean, that could actually help him out, couldn’t it? I mean, that could help the liberals in in Canada, yeah, yeah.

Darren Brady Nelson  1:06:22

Actually, the person who saw that, apparently, and probably not the only one, but, you know, some years back, was a Tucker Carlson, how’s that, right? Yeah, yeah. He saw that, yeah. He saw that, that he’d probably be parachuted in for Trudeau at some stage. Yeah. But interesting enough, it seems that the, you know, the opposition leader there is, he’s, he’s doing an uncomfortable game of, you know, trying to be, I’ve seen the conservative alternative a little bit Trump, like on certain issues, but on tariffs, not like Trump, you know. So it’s, it’s not going to be an easy balance for him to do, I imagine. Yeah, well,

Gene Tunny  1:07:00

lots of fascinating, fascinating things to always talk about with you, Darren. I really enjoyed the conversation. Anything you want to say before we wrap up, you can have the final word.

Darren Brady Nelson  1:07:11

Okay, well, look, you know, I predicted shimmel And I didn’t get that right, you know, hopefully I’ll be better on Dutton and the Canadian election. Because, you know, yeah, I hope, I hope those two governments win, but we’ll see what happens.

Gene Tunny  1:07:26

Well, I hope you’re right about the art of the deal, that’s all. I just hope this is part of his negotiated strategy.

Darren Brady Nelson  1:07:32

Well, yeah, I am too. I’m no supportive, like you have tariffs for tariffs sake. No,

Gene Tunny  1:07:38

yeah. Okay. Very good. Darren Brady Nelson, thanks for joining me. I really enjoyed the conversation. Thank you.

Credits

Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.

Categories
Economic update

Oz Federal Budget, Brisbane Olympics, & Trump’s Tariffs Chat w/ Damian Coory & Dan Petrie

Is there a brilliant ‘Art of the Deal’ strategy behind Trump’s tariff policy? It has been a big failure for the US so far, as attested to by the 7% fall in the US share market since inauguration day (see the chart below) and a 12% fall in consumer confidence from January to March, according to the Conference Board. The US has inflicted more harm on itself than its trading partners.

Theoretically, there is the possibility a large country like the US, as opposed to a small country like Australia, can impose an ‘optimal tariff’, as Nicholas Gruen and I explain in an article published in CrikeyWhy Trump’s tariffs are better than you think — and much worse. We note:

“When large countries trade, they move prices. That means foreigners do effectively pay some of their tariffs.”

A member of Keynes’ Cambridge Circus,  Richard Kahn, wrote the best and most lucid paper on the so-called optimal tariff, Tariffs and the Terms of Trade, published in 1947. Based on Kahn’s optimal tariff formula and plausible values for the parameters, an optimal tariff for the US could be around 20%. However, this calculation is based on a theoretical model without retaliatory tariffs or macroeconomic implications. The benefits of the terms of trade improvement can be quickly outweighed by the costs of retaliation and a global trade war, as well as the fact that tariffs increase the tax burden on American consumers and businesses and will have adverse macroeconomic impacts. Nicholas and I aren’t defending the Trump tariffs. Indeed, we’re supporters of free trade, as you would expect economists to be, but we are pointing out that the terms of trade impact must be considered when assessing the tariffs. Based on the fall in the S&P 500, American investors have judged that the adverse macroeconomic effects of tariffs will outweigh any possible terms-of-trade benefits. 

Earlier this week, I spoke about Trump’s tariffs, the federal budget, and the Olympics with fellow Queenslanders Damian Coory and Dan Petrie on Damian’s The Other Side Unplugged show. You can watch the interview here:

I’ve included the time stamps below so you can jump to my remarks on the latest federal budget, the Olympics, and Trump’s tariffs, if you’re interested:

  • Federal Budget Overview and Critique (0:00)
  • Jim Chalmers’ Values-Based Capitalism (5:38)
  • Structural Deficits and Bracket Creep (10:56)
  • Government Spending and Debt Concerns (13:55)
  • Olympic Games Plan for Brisbane (30:52)
  • Trump’s Tariffs and Their Economic Impact (41:15)
  • Alternatives to Promote Economic Growth (54:39)
  • Final Thoughts and Future Directions (55:57)

This post has been cross-posted at Queensland Economy Watch. Please comment below or email Economics Explored host Gene Tunny at contact@economicsexplored.com.

Categories
Podcast episode

How Global Events are Affecting Coffee Prices w/ Raihaan Esat, International Coffee Traders – EP267

Coffee prices have surged dramatically over the past year, with green coffee increasing by 78%. In this episode, International Coffee Traders GM Raihaan Esat joins hosts Gene Tunny and Tim Hughes to explore the key drivers behind this spike, including harvest shortages, supply chain disruptions, and geopolitical factors. Discover why your morning brew may soon cost more and how the coffee industry is navigating these challenges.

If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com.

You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.

About our guest: Raihaan Esat, General Manager, International Coffee Traders

Raihaan Esat is a passionate and seasoned coffee professional with extensive experience across the coffee industry. From working in bustling espresso bars and competing at the highest levels of barista competitions to managing roasteries and developing quality control systems, Raihaan has cultivated a deep understanding of every facet of coffee craftsmanship.

As General Manager of International Coffee Traders (ICT), a green coffee sales business, Raihaan connects both commercial and home roasters with premium green beans and equipment, sharing his love for exceptional coffee. Inspired by mentors like Phillip Di Bella and a history of innovation, Raihaan is also spearheading coffee events at The Coffee Commune, fostering a thriving community of coffee enthusiasts. Dedicated to excellence and driven by a lifelong passion, Raihaan continues to inspire others through mentorship, entrepreneurship, and a relentless pursuit of the perfect cup.

Source: https://www.roastmagazine.com/roastsummit/events/raihann-esat 

Timestamps for EP267

  • Coffee Market Overview and Initial Discussion (0:00)
  • Factors Contributing to Coffee Price Increases (7:36)
  • Quality Concerns and Market Dynamics (19:41)
  • Consumer Behavior and Market Volatility (26:44)
  • Impact on Coffee Shops and Consumers (47:07)
  • Geopolitical and Weather Impact on Coffee Prices (54:20)

Takeaways

  1. Green Coffee Prices Surge: Over the past 12 months, green coffee prices have increased by 78%, impacting every part of the supply chain.
  2. Major Producers Facing Challenges: Brazil and Vietnam, responsible for a large share of global coffee production, are experiencing lower yields due to weather conditions and harvest quality issues.
  3. Geopolitical Factors: Disruptions in trade routes, such as those caused by Middle East conflicts, have further strained the coffee supply chain, driving up costs.
  4. Changing Consumer Expectations: As prices rise, consumers may need to reconsider what they expect for a $5 cup of coffee and the value they receive in return.
  5. Sustainability of Cafes: For cafes to survive, they need to adjust their pricing to reflect increasing costs in labor, rent, and coffee supplies.

Links relevant to the conversation

Our previous conversation with Raihaan, “The Future of Coffee: Climate Change & Rising Prices w/ Raihaan Esat, International Coffee Traders  – EP217”:

https://economicsexplored.com/2023/12/06/the-future-of-coffee-climate-change-rising-prices-w-raihaan-esat-international-coffee-traders-ep217/

Raihaan’s slide explaining factors driving up coffee prices:

https://drive.google.com/file/d/1JAhmCl_TmfSoWRkh9wF9fDFU395mPnyL/view?usp=sharing

Chart of the green coffee price:

https://drive.google.com/file/d/1qnX28VagJ3FtD40JntMujADsNKI-NhBs/view?usp=sharing

International Coffee Traders at the Coffee Commune:

https://www.coffeecommune.com.au/international-coffee-traders

ABC News article “Coffee prices hit record high after bad weather”:

https://www.abc.net.au/news/2024-12-11/coffee-prices-hit-record-high-after-bad-weather/104711708

Greensquare coffee roaster app:

https://www.greensquare.co

Lumo Coffee promotion

10% of Lumo Coffee’s Seriously Healthy Organic Coffee.

Website: https://www.lumocoffee.com/10EXPLORED 

Promo code: 10EXPLORED 

Transcript: Is DeFi the Future of Finance? Exploring VirtuSwap’s Vision w/ Prof. Evgeny Lyandres – EP262

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:05

Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene, Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the program. It’s the 20th of December, 2024 we’re rapidly approaching Christmas, and I’m here today at the coffee commune with my occasional co host, Tim. Hughes, Tim, good to have you on the show again. Good to be here. Thanks. Gene, yes, and we’re catching up with Ray at from international coffee traders at the coffee commune. So, Ray, good to have you back on the show. So good to be back. Excellent. Ray, so there’s been a bit of news regarding the coffee market. We’ve seen stories about how coffee prices have spiked. Can you tell us a bit about what’s happening in the market? Please?

Raihaan Esat  01:17

Yeah. I think in the last episode we recorded, I made some predictions, and I said, Oh, you know, the coffee market could go one or two ways. Things could get very, very, very expensive, or things could level out and flatten out and become more stable. Turns out, things got very, very, very, very expensive. Yeah. So, you know, there’s a huge amount of reasons, and I hope, hope we can tackle some of those things today in the podcast on why the coffee market has become so expensive, especially around green coffee, which is the input source for so many roasters who roast the green coffee, produce it into drink, produce it into roasted coffee, send it to cafes, who then produce it into drinks. But it starts as at the raw material, at the source. Okay,

Gene Tunny  01:59

so in terms of very expensive what are we talking about in price terms? Okay.

Raihaan Esat  02:04

So in a nutshell, coffee is traded on an exchange in us, dollars per pound, and roasters need to buy coffee based on the market rate at the time. Yeah. So historically, the market used to change no more than a couple of cents a week, you wouldn’t see that much volatility. Coffee prices were relatively stable. Then after COVID, things got a bit more volatile. But in the last 12 months, coffee has increased something like 78% we’re talking about green coffee here. The input that goes into roasters, 78% price increase in the market. That’s massive over 12 months. And that’s not something that a business can just absorb. It has to get passed on down the chain, down the supply chain, and eventually into cafes. So eventually you’ll see cups of coffee prices increasing quite substantially. And everyone’s kind of worried about it. You know, there’s a lot of talk in the media about we’re not willing to pay more than $5 for a cup of coffee, that sort of thing. That’s a value discussion that we can get into a bit later. But, you know, it’s unsustainable for businesses to continue charging what they’ve been charging up until now. Things have to move down the chain. You know, because the supply chain costs. The value increases through every step it’s it gets passed on. And it’s not just green coffee that’s gone up. Gas and electricity has gone up. Everyone’s feeling it, on water, on wages, on every single other input cost that goes into manufacturing coffee. It’s not just green coffee,

Gene Tunny  03:40

yeah, just on that, on the $5 coffees. I mean, I guess I’m paying that already at quite a few places, but yeah, I guess there is that sensitivity to the price of it. Maybe there are some places out I’m wondering what we won’t name any particular cafes, but I’m just just thinking, because a lot of Yeah, the coffee prices have started to rise already, haven’t they? I mean, we’re Yeah, I think

Raihaan Esat  04:03

so. I think we need to start asking a different kind of question here. Rather than asking, uh, you know, is $5 too much for a cup of coffee, we need to ask, if you’re gonna pay above $5 for a cup of coffee, what do you expect to get for it? Yeah, right, if you’re gonna pay six or $7 for a cup of coffee. What do you expect to get for it? Yeah, in return, what’s going to make it a valuable transaction to you? I’m sure we can find some sort of trade where you’re willing to sec to pay $7 for a cup of coffee, but what? What are you willing to going to receive in return? Yeah, are you going to receive incredible service. Are you going to have a barista that remembers your name and says hello to you joyfully the next time that he sees you? Are you going to have a very, very, very delicious cup of coffee? Are you going to have something that’s a little bit more premium in feeling? Is the paper cup going to be the cheapest paper cup on the planet, or is. Going to be something a little bit more substantial, something that feels nice to drink out of, is the environment that you step into, welcoming and friendly. I think all of these things contribute to how good a cup of coffee tastes and what it’s worth. So that’s

Tim Hughes  05:15

very much the experience, rather than just the coffee and the price of a coffee bean, it’s

Raihaan Esat  05:19

high value as well. How do you put a price on, you know, the atmosphere in the cafe, but it’s something that contributes to your perception of value. Yeah,

Tim Hughes  05:29

that’s a it’s a good point, because not every, I think we’ve all experienced that. When we go into a place where you don’t get that, and you don’t get a great coffee, and you don’t get any kind of experience, and then you go to somewhere, like we went to this morning, yeah, and the coffee we had, we remarked on it. It was so good here at the coffee commune, I’m gonna say it, you know, like, and it was a special blend that was put together for Christmas. It had shortbread in it. We tasted it. I could taste whiskey in it, yeah, which there wasn’t, but I could taste it. So it was that thing. It was an experience. It was beyond a coffee.

Gene Tunny  06:05

That was the taste of shortbread. It didn’t actually, literally have shortbread in it. Did it? No, no,

06:10

no. But that’s the thing. Like it was all

Raihaan Esat  06:12

done through the experience, right? That’s exactly right, yeah, yeah. And I’m not going to argue that cheap coffee shouldn’t exist. I think Cheap Coffee definitely has a place. It’s just the the the arbitrage, the the gulf between cheap coffee and expensive coffee will get wider and wider. And I think anything in the middle is probably gonna gonna need to rearrange themselves or reevaluate their business and figure out, do they want to be budget coffee or do they want to be experienced coffee? Yeah.

Gene Tunny  06:39

Yeah, exactly. Okay, Ray, we might get on to I want to ask you about the drivers of the price increase, but before we get there, Tim, do you have any follow on questions for Ray after that? No,

Tim Hughes  06:54

it’s funny, because I think we get hung up on price all the time. Yeah, but it’s absolutely, I absolutely I absolutely agree that the experience of whatever it is you’re having, and you see it in cinemas as well, like I think of cinemas often with these comparisons, the experience at a cinema is very different from one place to another. Yeah, the film’s the same, but the experience is different. And so, yeah, you can put that over to many different industries, but especially when it comes to coffee, going beyond just the price, how else can it be better and a different or better experience?

Raihaan Esat  07:26

Okay, so we’re going to get stuck into some green coffee talk, right? I

Gene Tunny  07:29

think so. So you, you did a presentation recently which itemized or identified, I think it’s nine different drivers of the price increase. Can you tell us a bit about what was that presentation? And then if we could, if you could tell us what you think the the drivers are, and I guess you know what the most significant ones are in your view. I know it can be hard to

Raihaan Esat  07:53

Okay, yeah, but So in a nutshell, the last 12 months have been a roller coaster for everyone in the industry. And my role has not just been to source coffee, but also to help educate roasters and understand what’s going on in the market so that they can make informed and educated decisions for their business in the future. So some of the drivers, some of the fundamental things that are affecting Green Coffee pricing, and I’ll just run through them really quickly, and then we can go deeper into them and talk about them one by one. But first of all, like I said, 78% cost increase on raw materials, green coffee, the base price, has gone up by that much, 78% and some of the factors that contribute to that, the two main producers, this is number one, the two main producers, Brazil and Vietnam, they produce close to 60% of the world’s coffee production. It’s massive how much they contribute to the world’s coffee they’re looking ahead to the 2025, harvest season, and they’ve said our harvest is not going to be that great. So there’s some speculation about the quantity of coffee that’s going to be available in 2025 second, you’ve got two main types of coffee. You got Arabica and you’ve got Robusta. Now, generally, there’s been an arbitrage between the two. Robusta is usually the cheaper option. Arabica is the more expensive option. But when you’ve gotten got a when you’ve got a shortage on the cheaper option, what happens? All the supply shifts back to the more expensive option, the Arabica, and vice versa. So you’ve had a couple of shifts towards Robusta and back towards Arabica through the year, which has created a lot of volatility, right?

Gene Tunny  09:38

Can I just ask you about that, in terms of that substitution, what’s the degree to which that can occur? I mean, is it within a certain Is it is it bounded? Or is it just or could it be 100% could you just shift completely, 100% from one to the other, the

Raihaan Esat  09:56

way I look at it? Okay, so everything is an ingredient, like a chef. Would a chef would choose the mushrooms for his pasta, right? Okay, yeah, I can’t get field mushrooms today, but tomorrow I can get Swiss mushrooms. Okay, right? There is a degree of substitution that you can do, yeah, but there is an impact. A Swiss mushroom doesn’t taste like a mushroom. Yes, it’s a little bit different. So there, there are some of those things to manage in the process, but there’s no reason why you couldn’t, from a purely fundamental point of view, right? Okay, interesting. Other things that have been affecting the Green Market, US politics. We’ve got President Donald Trump is has just been elected and is going to take office in the new year. So his promise has been to strengthen the US economy. How does that affect us in Australia and other countries around the world, while a strong US economy strengthens the US dollar, so we’re going to be seeing some effects based on transactions that have to happen. Coffee has to be financed, it has to be transported around the world. So you’re gonna, you’ve got, you’ve got effects from that decision by the US to elect President

Gene Tunny  11:03

Trump, and you’re buying coffee in US dollars, aren’t you? You have to, yeah, you have to. The contracts are written in US dollars, yeah, gotcha

Tim Hughes  11:10

on that note, because I know that he’s made a point about talking about tariffs as being his favorite word, and there’s a small question about how that affects the consumer, as to whether that actually makes it more expensive for somebody in America or not. So I’m putting that to Eugene, I guess yes, you How does is that a thing that the tariffs can ultimately make it more expensive for a US consumer? Yes,

Gene Tunny  11:34

because it’s the tariff is essentially a tax on, well, it’s a tax on imports and so, yeah, it’s passed on to local consumers or businesses. I mean, I think one, one of the problems is it’s going to impact both consumers and businesses, because they’ll face higher input costs. That’s why I think some of the people in the market expect that a lot of us is just tough talk from Trump, and he won’t go through as much as as he’s threatened, because, you know, ultimately, it will be counterproductive if they do this like, I think the markets are hoping that this is some type of negotiating tactic with China to get them to make some concessions, but who knows? Yeah, but it’ll definitely cost consumers. Yeah, it seems

Tim Hughes  12:17

to be a little bit more complicated than it would initially appear, where tariffs, you would imagine, is going to be to the expense of whoever is exporting to the US. But it’s not necessarily the case. Well, the

Gene Tunny  12:28

Tariffs applied when the at the when it’s imported, right? So it’s applied at the by the, you know, on the imports into the US, yeah,

Raihaan Esat  12:37

the producer doesn’t wear the cost of that. It’s the importer that weighs the cost of that and has to pass it on to to the to the next level,

Gene Tunny  12:44

yeah, I mean the so the producers in China could be it affected to the extent there’s an impact on the demand for their product, right? So, and maybe they have to discount to some extent to to compensate for the the tariff in the other country. Like there could be some impact, but the major impacts going to be on the consumers in in that country? Yeah, so that’s why, I don’t know how many dozens of economists, like prominent economists, came out critical of of Trump’s tariff plan, and the only argument you can make in favor of it is it’s some sort of strategic strategy. It’s a it’s a negotiating position to try and get some concessions from China. So it

Tim Hughes  13:23

would help American companies who for any products that can be produced in America. There’s an advantage given homegrown stuff, but where all those imports clearly, there’s not enough coffee being grown in America. In

Raihaan Esat  13:36

the context of coffee, and you’d expect these tariffs would protect a local industry. There’s not a lot of coffee grown in America. There’s nothing to protect. Everything has to get imported. Are they going to risk? You know, tariffing coffee, which is, which is 98% imported from overseas, yeah.

Gene Tunny  13:53

But if you know, and China’s not exporting coffee the US, is it all so?

Raihaan Esat  13:58

Well, China is an emerging origin. At the moment, they are producing a heck of a lot of coffee. The government is investing massive amounts into improving the networks, the processing facilities, everything around coffee production, to increase the amount of coffee that China produces in green form. So that could be a target for Donald Trump, if he specifically wants to target China, but that just means it’s got more coffee available for us, right?

Tim Hughes  14:25

Because China’s coffee consumption per capita has increased somewhat, yeah,

Raihaan Esat  14:30

massively, massively. Actually, this is another, another major factor that’s happened this year is the China’s very, very strongly growing in coffee consumption. They’re traditionally a tea drinking company. Country. However, we see brands like luck and coffee and Starbucks expanding very aggressively. And in fact, there’s been a deal done between luck and coffee and the Brazilian producers to to purchase. $1.4 billion worth of coffee from Brazil in the next harvest. So they’ve already contracted a huge quantity of coffee that hasn’t even been produced yet. Yeah, that’s what they’re expecting to need. That’s what they’re expecting to use. Now, the way that that affects us is, you know, we can’t access that coffee. That’s coffee going to China. That’s coffee off the market now. So there’s technically a shortage of Brazilian coffee for the rest of the world. Gotcha,

Gene Tunny  15:32

this is probably something that you probably don’t, you probably can’t answer. But you know, like, How significant is that as a share of the total market? I mean, 1.4 billion sounds like a lot of money, but a billion dollars doesn’t go as far as it once did. You know what I mean. So that’s a big global market, so look,

Raihaan Esat  15:51

it’s significant enough that everyone is worried. Okay, you know it’s enough to cause a stir in the market, because there’s a significant quantity of coffee behind that. And it’s an indication, more than anything else, that this is the direction that China is going in. They are willing to pre contract huge amounts of coffee well in advance and take it off the market. So, you know, if that’s their move this year, what’s the move in? 2026 going to be 2027 2028 right? So, so there’s a bit of forward thinking going on here that, geez, China’s Making Moves. You know, we should be thinking that far ahead as well. Should we be contracting that far ahead? Maybe we should,

Gene Tunny  16:30

yeah, well, I mean, so there’s a scramble, yeah, by you, you mean maybe we should, you talk, you’re talking about international coffee traders here, yeah, yeah, gotcha, yeah.

Raihaan Esat  16:38

But I’m not the only one thinking like that. There’s, there’s many traders and importers also starting to think like that and going. It’s creating a bit of a scramble to go, oh, well, okay, that coffee’s off the market. I better secure mine now. So we have this inflated demand for Brazilian coffee that’s been caused by this China deal,

Gene Tunny  16:58

right? Okay, very interesting. How

Tim Hughes  17:01

far ahead do people normally do those kind of deals? Like, is it like a six to 12 month sort of, you know, foresight, or is that now being extended to to longer periods with what’s happening with China? Yeah,

Raihaan Esat  17:13

generally, generally, you can, you can contract out, you know, something for next season. Producers generally don’t offer anything past that. So if the next harvest is coming up, for example, in February March, they’ll they’ll say, okay, you know, we’re expecting to produce this amount of coffee in February or March next year. We can start taking contracts against that now, you know, pair that up with what I just said previously, where Brazil and Vietnam both both forecast a lower production than expected. That creates a situation where there’s an increased demand and an expected shortage in supply. And so the price effects are crazy, because everything is so sensitive, because everyone is speculating. There’s people wondering, are we going to get our coffee? Are we not secure it now, even if it’s a high price, there’s other people sitting on their hands going, price will come back down. This is short term wait. And then they can’t wait any longer, and then they buy at a high, even higher price, yeah. So there’s this huge speculative effect that’s also feeding the volatility in the market, right? It’s, it’s really, I mean, if I was, if I had a box of popcorn and I could just sit back and watch it, it’d be very entertaining, but I’m in the middle of it, and it’s, uh, can get kind of stressful sometimes. Yeah,

Gene Tunny  18:38

it’s fascinating market dynamics. I mean, one thing I learned when we said, sat down earlier for a coffee, you’ve got a platform. Maybe we talked about it last time we caught up, but you’ve got a there’s an online platform where you do these trades, where you got all the data on the market. And what’s that platform called? Again,

Raihaan Esat  18:54

there’s a few different ones I use. You can look at just the basic C market. You can look at that on almost any trading platform that that that gives you data on any commodities like gold, silver, zinc, wheat, cotton, they’ll usually list coffee as well, yeah. But I have a platform that we look at called green square. It’s it gives us up to date data, all that every day. But there’s some other functionality that’s useful for us as well.

Gene Tunny  19:26

Good. One, okay, so we’ve have we covered one or two factors so far. What we covered, the demand, the shock to was it one, Brazil and three. I think we’ve got three. Rough three. Okay, okay, yeah. What else is

Raihaan Esat  19:41

there to mention here? There’s quality concerns over the next, next harvest in a number of countries, all because of these high prices. So I was just in China recently looking at some coffee farms there and connecting with some new producers. And one of the, one of the guys I spoke to, he said, You know, there’s, there’s some high pricing. Right now, farmers are very excited by it. They are getting paid higher prices for their coffee, but the result is they’re not sure if the high prices are going to last, so they’re just picking everything. They are harvesting coffees that should not be harvested yet. They’re not ripe, or they’re taking coffee that’s overripe and that’s outside of the acceptable quality, because they can get money for it. Yeah. So the quality is a little bit all over the place. Having said that, the way that they’re picking as well is that they’re just stripping coffee off the trees. In some cases, that affects the tree for next season, that tree will not produce the same amount of coffee next year, if it’s harvested incorrectly, if it’s basically just, you know, stripped of all of its coffee,

Gene Tunny  20:47

right? What’s the correct way to harvest? Well,

Raihaan Esat  20:50

I spoke to a farmer about this, and, you know, he said, When the coffee is ripe, if you’ve ever seen a coffee cherry before, it’s a red cherry. It’s beautiful. It looks delicious. You’ve got to grab it, you’ve got to pinch it, and you’ve got to twist it, and that breaks it clean, and that doesn’t do any damage to the branch on which it’s growing. If you damage the branch, like if you pull it and you strip some of the bark away, that area will not produce coffee again.

Gene Tunny  21:19

Yeah, that makes sense. So you know, it’s

Raihaan Esat  21:21

not just an impact now, but there’s an impact down the line of how you harvest that ensures whether you’ll get a good harvest next year or not. Yeah. So the short term thinking is, look, I can get a high price for my coffee now, get everything off the tree as quickly as possible. But the long term effect is, next year you’re not going to get as much coffee. Yeah, okay, that all makes sense, yeah. So you’re affecting next year’s supply, and I think there is some understanding in the market right now that next year’s harvest is not going to be quite as good. There are going to be some effects because of that, and people are willing to pay a higher price now to ensure that they get coffee, and to some degree, even stockpile coffee to see them through some part of next year, right?

Gene Tunny  22:04

So, yeah, everyone’s concerned. And I mean, how are we? How’s ICT? I mean, you guys, fine, you’ve got to talk about it. If it’s okay. If it’s

Raihaan Esat  22:12

No, I can’t. I can’t personally confident. There’s some things I can’t say, but some things I could definitely can say. ICT works on both sides. We work with producers and we work with roasters. Yeah. So, you know, traditionally, a trader will bring coffee into Australia, have it in their warehouse and say to a roaster, right, here’s 20 different coffees that I have available, right? Choose what you want, and this is the price. Yeah, that’s the traditional coffee trading model. ICT is a little bit different. We we go to our clients and we go, what do you want? We’re gonna go find it for you. Give us your price parameters. Give us you give us your idea for what you want, for flavor, what you want for quality, and let’s see if I can find that for you. If I can’t find that, let me, let let us take our knowledge of coffee, our understanding of roasting, our understanding of production and operations, and give you some good alternatives. Yeah, so even though you’re asking us for organic certified Peruvian coffee, you know that that has a high triple A antioxidant, high antioxidant content. Thank you very If I can’t, you know, if I can’t find that for you, I’m going to bring you three alternatives. One might be from Ecuador, one might be from Uganda, one might be from Siberia. I have no idea what I’m going to find, but unless I go looking, I don’t know what I’m going to come up with. Yeah. So we’re okay, from that perspective, because the coffee is pre sold already that we’re selling in the market. You know, we agree on a price, we agree on terms and conditions and everything before we sell the coffee, before we even bring the coffee into Australia. Yeah. So everything is kind of pre, pre agreed. Of course, all the volatility in the market makes those discussions a lot more difficult, but that’s why we do things like this? We put out a lot of media. We have discussions one on one with our clients to say, Hey, this is the situation on the ground. So you can make informed decisions for your business. Here are our recommendations. But we’re not the only people with knowledge out there. Go and do some research, find out, get other quotes from other traders, and you know, see what’s the best option for your business. But

Gene Tunny  24:22

so in terms of your clients, teams, one of your your clients, is that correct? Tim, a client of ICT. Yeah.

Tim Hughes  24:27

So I just want to explain. ICT is International Coffee traders, for those who don’t know, and based here in Brisbane. So it was through these guys that I was able to launch my coffee business, Lumo coffee. So, so yes, essentially, and that whole process that Ray just described was what we went through. And because it was such a specific brief, I was able to use the connections that Ray had had built over the years, and no way I could have done that on my own. And the and what they do here with the ray. Interesting as well. So the all of those connections. It’s a very complex business like I guess many businesses are, when you get into the nuts and bolts of it, but it just shows how those relationships that are built, and the dependency on the weather, the global economies, local economies, whether all of these things that we’re talking about now. It’s fascinating to see it play out. What goes on to get a cup of coffee in front of us. Yeah,

Gene Tunny  25:28

have you been impacted by the rising prices this year? Not

Tim Hughes  25:31

yet. So this, and this is one of the things, because this is normally six to 12 months out, so it’s a conversation we get to have when

Raihaan Esat  25:38

Tim’s coffee runs out. Yes, he will be impacted, but we’ve got foresight on that. You know, Tim. Tim knew what his price was going to be for the stock that he secured. And you know we’re holding that stock for him. It means that he knows exactly what his price is going to be. And guess what? When it when we’re running at, say, 25% of what’s left, when we know we’re at that level, 25% of stock remaining, we can go, Tim, this is your replacement cost for the same coffee. Gotcha. So you can make some decisions for your business.

Gene Tunny  26:07

Oh, that’s very good. And

Tim Hughes  26:08

that’s also the nature of I knew that at the time, whenever you get a supply of something like this, it’s not necessarily going to be there forever. You go with you have to be flexible. And we spoke about that at the time. You know that there’s, there are comparisons that you can draw with other ones. We’d have to test it because of the nature of what we do with the high antioxidants. So we need to find something that’s as good as, if not better, but that’s, we sort of knew that was likely to happen. So that’s always been part of the plan is to have contingencies and other options open and so, yeah, they’ll get explored if our supply gets impacted in any way,

Raihaan Esat  26:48

right? Yeah, I think we take it for granted that coffee is an organic product. It’s it’s an agricultural product. It’s something that’s grown on a tree. It has to be harvested. It’s not available all year round. It is seasonal, you know, and it’s something that has to be grown, harvested, produced, processed, dried, shipped halfway around the world, roasted, turned into a beverage and then served in a cafe. There is a huge supply chain behind getting a cup of coffee to a consumer at the end of the day. So, you know, the more that we can understand the supply chain and the pressures behind it, the more that we can do better, better business. You know, on both sides, we need the farmers to be sustainable. We need to be sustainable, the roasters need to be sustainable, and then the cafes need to be sustainable as well. You can’t have too much pressure on the supply chain in one spot, otherwise, things start to break. Yeah,

Gene Tunny  27:41

yeah, absolutely. Okay. It’s been a lot of pressure lately, that’s for sure. So Ray, so far, we’ve covered the harvest there. They weren’t what was expected. So that’s been an impact. We’ve we’ve covered quality issues. We’ve covered, uh, yeah. Buyers get it all, you know, the the traders getting ahead of the trying to get ahead of the market. They’re worried that price will be, will be higher later on, so they’re trying to secure supplies now. Or they’re worried about, yeah, they’re worried about the availability later on. What else is there that we, that we should, that you should mention, I

Raihaan Esat  28:14

think, since we’ve been talking about farms and talking about farmers and producing countries, there is an under undercurrent of producers are starting to understand that they can affect the global market. They, in the past, were kind of held to the bodies in their in their governments, or in their local areas, just sort of dictating prices. But producers are starting to understand now that if they withhold stock, they can drive the price up. Withholding supply into the market means that they create an artificial shortage, and the price will naturally increase as a result of that. So we’re starting to see traders all around the world, or sort of like producers all around the world starting to go withhold coffee if they feel like the market can move up, and then they sell coffee at the right times. They’re not just selling everything all at once. So So do

Gene Tunny  29:11

you is this? Is this coordinated? Is it? Are you saying there’s some sort of cartel like behavior in the coffee market? I

Raihaan Esat  29:17

don’t. Wouldn’t go so far to say it’s a cartel like behavior, but something like a communal behavior, there is an understanding, because the coffee producers are moving into a new generation now, okay, traditionally, you know, coffee producers were families that have had farms in their family for, you know, two, three generations, and It was just something they did. But the new generation, of coffee producers, they’ve been educated, they’ve gone to Europe, they’ve traveled the world. They’ve, you know, seen how business gets done, and they’re going back to their home countries and going, we have this coffee farm that’s capable of so much we can produce coffee, and it’s very good coffee. And. Let’s get what it’s what it’s actually worth,

Gene Tunny  30:02

yeah, which is fair enough. And so I mean that. So I’m just trying to understand to what extent, because economists are generally fairly skeptical of of of cartels. Cartels are very difficult to to enforce and to keep everyone, uh, cooperating, because there’s always an incentive to cheat, to go behind the back of the cartel. And, yeah, try and undercut the cartel. And so that’s why, you know, OPEC, historically is sort of waxed and waned in effectiveness. And yeah, so I’m just wondering to what extent there’s an actual genuine collusion or a cartel, because, because otherwise it’s hard to see how that could I mean, it’s an interesting hypothesis. I just have to think more about how that could work in what I

Raihaan Esat  30:45

should just preface this by saying that coffee actually has been too cheap for too long. Okay, and we’re suffering the effects of that now, coffee is probably back where it’s supposed to be. This is, this is a more sustainable price for the entire supply chain where we’re at now, it was just too cheap for too long. If you look at some of the historical data, coffee has had these spikes of volatility through its life. But then from the same mid 90s right up until the mid 2000s coffee price was actually going down, and it was getting cheaper and cheaper and cheaper a green coffee price, and that was because producers didn’t know the value, the actual value, of their coffee. Roasters were demanding cheaper and cheaper coffee. There was a lot of pressure put on the supply chain to deliver cheaper and cheaper products, but that was becoming very unsustainable, especially on the producer side, and now, because of this volatility, now we’re paying what we actually think the coffee is worth, but it’s a shock to the system, because it’s coming, because it’s come all at once, yeah, if it had happened gradually over the last 15 years, you know, this sort of price increase, we wouldn’t even have felt it. Yeah,

Gene Tunny  31:58

yeah. Gotcha. Gotcha. Okay, so what does

Tim Hughes  32:01

this look like by the time it gets to a cafe like so coffee’s sold in cafes underpriced, in your view, right?

Raihaan Esat  32:10

So I think cafes are where it’s going to hurt the pockets of the consumer the most, right? Because that’s where the consumers go, and that’s where they feel the effects of any price increases through the supply chain, cafes traditionally have also behaved like the supply chain, where they’ve just gone. We’ll bear it. We’ll bear it. We’ll bear the cost of labor increase. We’ll bear the rent increase. They’re not passing it. Haven’t passed it on well enough. So you know, if you think back 10 years ago, how much was a coffee? 350, $4 yeah, 10 years ago, yeah. And what is it now? Maybe $5 yeah. So $1 increase over 10 years. That’s nowhere near keeping up with CPI, with inflation, with interest rates, with everything that’s happened over the last 10 years on cost increase. So you know, cafes need to move their prices along with price increases, not just with green coffee from their roasters, but you know, the on all the input costs, actually, the biggest cost to a cafe right now is rent, not rent. Apologies, labor, yeah, especially in Australia. In other countries, probably not so much. But in Australia, most cafes would be running at least 45% labor. Yeah? Well,

Gene Tunny  33:21

yeah, yeah, yeah. Actually,

Tim Hughes  33:24

there was an interesting there was a good article in the ABC recently, Australian Broadcasting Corporation, for those in America,

Raihaan Esat  33:31

yeah, I think that article that you’re referring to actually showed labor at about 35% is on the low side. Yeah,

Tim Hughes  33:38

that’s what Gene said exactly that he thought that was lower, but I was interested to see, and if this sounds about right to you, so they had the coffee at around 11% and milk around the same. In fact, milk was a little bit more. And so we were talking before earlier, about just that. And the with milk, it’s including soy all the alternatives, which, of course, are a lot more expensive than regular milk, but that has a significant contribution towards a coffee price as well. So we were talking in the you know, for instance, if people just had espresso or long black, short blacks, basically anything without additives, that’s fundamentally a cheaper coffee for them to drink and for a cafe to produce. Do you think that might be reflected in how the pricing is changed in the future, with cafes to really reflect that in someone who’s having a grand day with, you know, almond milk,

Raihaan Esat  34:34

if you just drink black coffee, it’s definitely the one with the least amount of inputs into it. There’s still the labor, there’s still the rent, there’s still the cup to wash afterwards. Someone’s got to do all of that. But there’s no milk. There’s no extra syrups or any additives to it to make it more expensive. So if you’re looking purely from an economical way of drinking coffee, yeah, probably, probably black coffee. Is the way to go. But at the same time, am I going to encourage people to to give up their cappuccinos and start drinking black coffee? Probably not, because if you went to a restaurant, would you say, oh, you know, it’s cheaper for you to get the burger patty without the bun and the lettuce.

Tim Hughes  35:18

Yeah, I would do that. I would do that, but not everyone would not for the price just to not eat the bread. Yeah, I’m hearing it. I’m hearing it, yeah.

Raihaan Esat  35:26

So, you know, there’s that discussion to have on consumer preference. And I think with all of these rising prices, consumer behavior is something that’s very interesting to observe. You know, people making decisions on value now and really considering where they spend their money, how they spend their dollars, whether it’s on the production side, whether it’s on the cafe side. You know, we’re going to see some interesting observations. And the thing that I have about, I mean, I studied economics at university. I love economics, and it’s a big part of what I do. And the thing about supply and demand is that it assumes everyone is logical. And when have you ever met a logical human being? So that’s the that’s the only thing that like that that comes into preference, that comes into how consumers behave, how people behave based on emotion rather than logic, because that’s a decision making process. Sometimes emotion matters, and that’s one thing that, you know, it’s hard to measure.

Gene Tunny  36:29

Yeah. I mean, we like to think that markets tend back towards more rational outcomes over time, that there is an incentive to be rational, right? So you’ll go out of business if you’re irrational, or you’ll you’ll suffer if you’re irrational. So there’s a, there is a strong incentive for people to to act rationally and eventually or figure things out. But yeah, the markets can be markets, collectively can be irrational. And I guess that does reflect some irrational behavior. There’s a famous quote, was it? John Maynard Keynes, it was someone who said that the market can remain irrational longer than you can remain solvent, which is just a reminder that, yeah, you can have some outcomes that look a bit a bit irrational. Oh, well,

Raihaan Esat  37:14

I’m going to say that if the market is behaving in an irrational way, yeah, the best decision to make is an irrational decision, because it’s consistent with the market, right? If you’re making rational decisions in an irrational, behaving system, you’re almost fighting against a grain. You’re making a risky decision there, because you’re assuming it’s going to behave logic, yeah, yeah.

Gene Tunny  37:39

I guess there’s a bit of insurance too. So a lot of people are trying to take out insurance against things being worse in the future, the shortage in the future. So they’re scrambling to get get coffee now, yeah, that’s right,

Raihaan Esat  37:50

but the decisions are not based on logical reasons. The decisions are risk aversion,

Gene Tunny  37:55

yeah, yeah, which I guess, you know, maybe that is logical. I mean, if you had perfect foresight, it probably wouldn’t be but I guess we don’t have perfect foresight. So big questions here Ray about about markets and expectations and rationality. That’s

Raihaan Esat  38:11

also sparked a thought in my mind, when you said people are taking insurance by buying more coffee. Now that’s created another pressure on that’s on finance, yeah. So you see, not just not just us, not just small businesses, but even very large traders are starting to have financial difficulties right now, because in a market where the price of coffee has nearly doubled in 12 months, how do you finance that you know when you when you’ve got a Finance Facility of let’s just pick an arbitrary number here. If you’ve got ten million a year to spend on coffee, and the price of coffee doubles, your ten million doesn’t go as far as it used to last year. So how do you fund the coffee that you need when banks, financial institutions, prefer to lend on your balance sheet rather than on your stock holding, yeah, or on your stock requirements, yeah, yeah. There’s some really difficult situations that businesses are facing now when it comes to funding their coffee, because you need to buy your product before you’ve sold it. In most cases, you’ve got to buy it, get it here, into Australia, and then sell it. So you only get your money back after you’ve sold it, and sometimes that can be three to six months later,

Gene Tunny  39:26

right? Okay, so is this something that’s increasing the costs of to the Yeah, the producers. Is

Raihaan Esat  39:33

it? Well, the, it’s not so much the cost to the producer. It’s a cost now on the on the roasters side, roaster Yeah, yeah, the roast the roasters. The Coffee Roasters have to spend more on their coffee because they’ve got to finance it for longer terms. There’s a risk that they may not get it next year. So they’ve got to buy more coffee and hold it for longer Yeah, you’ve got store, extra storage costs now, yeah, to you know which increases the cost of your coffee and. And, you know, the finance rates haven’t been cheap lately. You know, think back to the to the mid 2000s the finance was quite cheap, but then interest rates went up and up and up and up to try to control Fla inflation. And that was, you know, that was monetary policy from the government side. They wanted to control inflation. Interest rates were going up. That’s the tool that they’ve got. But how that affects us? We are importers in Australia. Australia imports, not just coffee, but so many things, all of that has to be under finance that contributes to the increasing costs. So, you know, while it’s not a fundamental supply and demand sort of discussion on finance, it affects the price to the end consumer, because it’s an add on cost. Yeah, it’s important

Gene Tunny  40:47

to consider. It’s something you’re, you’re, you’re obviously dealing with, I think, in terms of the storage. I mean, you guys here, you’ve got those big silos downstairs, haven’t you? Yeah, that you can stick the,

Raihaan Esat  40:58

yeah, we store coffee. We store coffee here, but that we burn through that in no time. That’s only temporary. What we have downstairs in the silos, two ton silos. It’s probably only about a week supply. Okay? We have a warehouse over near the near the port that has a couple of 100 tons waiting, waiting to get pulled in and used. So we are holding enough stock, and we’ve got enough stock on the water to see through the contracts and see through our see through our clients for the next 12 months. Not everyone is in that position.

Gene Tunny  41:30

That’s impressive. I didn’t realize that. I mean, I guess I hadn’t thought about it in any great death, but that the amount of throughput you’re talking about is massive. So is this, I guess, I guess, compared with say, say, NES cafe or something up at Gympie or whatever, you’re smaller, but you’re still significant in terms of, where are you in the tunnel?

Raihaan Esat  41:53

We are international coffee traders. Is a very small coffee trader. In the grand scheme of things, there are many much larger coffee trading businesses in Australia. Okay? Last year, I’ll give you some numbers. Last year, we bought and imported something like containers, 20 tons of coffee, and we did about 30 containers, source, that’s 600 tons of coffee into Australia. That’s tiny in the grand scheme of things. What that makes in terms of, if you did the numbers, it, how many coffees could you make with 600 tons of green coffee, something like 1.9 million cups of coffee? Yeah, okay, okay. But the in Australia, 1.9 million cups of coffee. That’s not even a day, yeah? Days for assumption for the whole of Australia,

Gene Tunny  42:40

yeah, yeah, yeah. That’s right, yeah. I think I’ve seen stats like that somewhere. I’ll have to dig them up and put them in the show notes. I think Arturo, who works in my business, did an article on that. But, yeah, that’s interesting to think about it that way. It’s still impressive, like thinking about that many tons of coffee flowing through coffee commune that’s amazing, or ICT that you’re handling, yeah,

Raihaan Esat  43:02

look, ICT supplies green beans, not just a coffee commune, but to many roasters around Australia, right?

Gene Tunny  43:09

Gotcha. Yeah, extraordinary. Too many questions. No,

Tim Hughes  43:15

actually, I did have a thought, just going back slightly, because with coffee, for instance, like it is, you know, for instance, the emotional attachment that we have to coffee. You know, when you catch up with someone for a coffee, it’s never just to sit there and drink a coffee. It’s what comes with that where, whether it’s business, personal, whatever. So it’s this thing, of like, it’s, we have an emotional attachment to this product that is beyond just the drink itself, you know, it represents an opportunity to catch up with other people and exchange so that’s part of the experience that we attach with coffee, you know? So, yeah, it’s an interesting product to be talking about because it’s part of our DNA now, and especially over the last 20 years. For instance, living in Brisbane, I’ve seen that change in somewhere like Brisbane. There are certainly parts of the UK where that hasn’t happened, and you can imagine it happening. I’m sure it’s happening in the bigger cities, but out in the sticks where I come from, it hasn’t transferred it to be the same kind of cultural sort of norm coffee and tea and beer rather would have those but certainly not coffee yet.

Gene Tunny  44:21

Yeah,

Raihaan Esat  44:22

yeah. I’ve always wrestled with this, with this idea of coffee, because on one level, coffee is a commodity, just like other commodities, just like wheat and cotton and soya beans and products like that. And I don’t have the same attachment to those products yet. Wheat we consume every day, if you eat bread, and cotton is on all your clothing. And you know, coffee is lumped into commodities, just like those things, and it’s traded as commodities, just like those things, but we have such a deep emotional attachment to it, yeah, and even the people that don’t drink coffee have an opinion about coffee. Yeah. Up. So everyone’s got something to say about coffee. Well, I

Gene Tunny  45:03

mean, coffee was, you know, there’s a good case to be made that coffee was responsible for the growth of capitalism. I mean, well, essentially, because, you know, it powered all of the, all the business people in London, when all the coffee, the coffee houses opened up. And it was also responsible for the enlightenment, because all

Raihaan Esat  45:21

the coffees were actually called Penny universities, yes, because you could, because of the people that it attracted into the coffee houses, and they would have these high profile discussions. They would have educated debates over cups of coffee. And so people would pay a penny to get a cup of coffee, yeah, and they could be surrounded by these, uh, academics who were discussing, discussing intricate theories and concepts, and it was like going to university. That’s why they started being called Penny universities, exactly.

Gene Tunny  45:49

And didn’t Lloyds of London start out as a coffee house, a coffee house that, right?

Raihaan Esat  45:53

And then it became an in the world’s most well known insurance broker, yeah, yeah. And in fact, a lot of the workers in Lloyds are still called waiters. Is

Gene Tunny  46:02

that right? Yeah, okay, that’s interesting. Love to do a show about Lloyds sometime, yeah, and also the history of coffee, and it’s linked to capitalism and the enlightenment. Because I think I was, yeah, I was basically freestyling a bit there, right? Oh, okay, a couple of things we should pick up on. Tim, you were talking about the costs of a cup of coffee. And I think, did you ask, like, what’s the flow through from this thing? Like, we’re talking about a large increase in green bean prices, the figure, the figures you were quoting. Tim, so 12% of the cost of a cup of coffee is the beans, but that’s roasted beans. So that’s so the actual cost impact of the green beans on the cup of coffee is going to be smaller than that. So if you’re talking like you may have a large increase in the price of green beans, but it might translate into a relatively small increase in the price of a cup of coffee,

Tim Hughes  46:57

but it might eat into considerably the profit per cup, which we were talking about. So part of that, I’ll let you explain this ray in detail, like so if we talk about, say, three main sizes of coffee here in Australia anyway. So would you say the smallest is a six ounce, or is it an eight

Raihaan Esat  47:14

ounce? Yeah, generally, six or eight ounce is a small coffee in Australia. Then we got a 12

Tim Hughes  47:18

ounce and a 16 ounce. So sort of small, medium, large. What would that look like if, because currently you feel they’re underpriced?

Raihaan Esat  47:26

Yeah. Okay, so I’ve done a lot of research on this, and we’ve got about 700 cafes on our network here at the coffee commune. So, you know, we get a lot of data from those cafes on what they’re charging, what consumers are thinking, that sort of thing. There’s two parts to this. The first, first is a question I need to ask. If Green Coffee goes up by $1 Yes, how much does a cup of coffee need to go up by? Yes? Cover it exactly. All right, the answer may shock you. Okay, it’s only about three cents. Yeah.

Gene Tunny  47:55

And I think that makes sense, given what the figures Tim was saying, yeah, yeah. So

Raihaan Esat  47:59

if Green Coffee goes up by $1 the cup of coffee at the end of the line is impacted by about a three cent increase. Yeah, because one kilo of coffee makes about 40 cups of coffee, you know. So the increase gets spread over quite a large quantity. Yeah. Now the problem is those increases haven’t been passed on over the years, and so now there’s a bit of shock in the system, because all of it’s coming all at once, because businesses are failing, and businesses are finding it very difficult to maintain their prices. So you’re finding larger increases being delivered in the market, which don’t really refresh reflect the size of the increase on the green side, also, coffee is only 10 to 15% of the total cost of a cup of coffee. There’s all the other inputs as well. The second thing that Tim mentioned is you’ve got different cup sizes, and I think fundamentally, what the data is showing us is your small coffee, whether that’s a six or eight ounce, is roughly priced around the 480, to $5 mark. Your medium coffee, which is usually a 12 ounce coffee, is something like maybe $1 more, 50 cents to $1 more. So that’s 550, or $6 and then you some cafes even do a larger, large coffee, like a 16 ounce or a 20 ounce. And again, generally they go up by 50 cents to $1 the extra milk, the extra labor, the extra coffee that goes into the larger coffees is not being valued correctly for the most part. And I’d like to see cafes really nail down their costings, and what they’ll see is that their small coffee is the most profitable. Yet the 12 ounce, the medium and the large is what’s most popular. So they’re selling lots of those coffees which are much less profitable than the small coffee. So pricing strategy we’re now getting into behavior you can dry. People to buying the more of the small coffee by increasing the price of the large one. Yeah, right. So you can keep the small one the same, you can actually discount that a little bit, yeah, and offer that as a value option for a cafe, you can say our small coffee is going to be 450 we’re not moving the price, but the big ones we are. Yes,

Gene Tunny  50:20

yeah, that’s interesting. And consumer education, is there a consumer education piece in in that? Do you have to, yeah?

Raihaan Esat  50:27

Look, you need to know how to cost a product. You know? You have to be able to say, right, I buy 1000 lids at this price. What’s one lid cost? Yeah, I buy 1000 cups at this price. What’s one cup cost? When I build my coffee. It’s a lid, plus a cup, plus a shot of coffee, plus milk, plus a person to do it, plus a person to take the money, plus F plus charges, plus, plus, plus, plus, plus. You look at everything that runs your business, all the dollars in, all the dollars out, and you figure out the cost per unit, yeah,

Gene Tunny  51:03

yeah. So much depends on utilization. I was just thinking about this earlier, because if you can, if you can do more coffees an hour, your labor, cost per coffee falls. So yeah. So there may be scope to Yeah, cut, yeah, if you can increase the demand for your product by cutting the price. Yeah, so shifting demand from the larger coffees to the smaller coffees? Yep, and you could end up the company, the business could end up being better off.

Raihaan Esat  51:30

Yeah, you can make more coffees in less time because you’re doing the small ones, not the large ones. Oh, yeah. There’s a lot of lot of additional benefits to this. There’s here’s here’s another thing that that’s always been on my mind, is I, this is a consumer behavior sort of discussion. If I increase the price, even if I sell less coffee, I can sell that coffee. It’s more profitable, but I can sell less of them. Yeah, so there is already some parity that comes back just because of that. Making less coffee means I can do so with more quality, because I’m not rushed off my feet to make 400 coffees a day. Now I only have to make 300 coffees a day. I can deliver better service. I can use less staff to do it, and I have less input costs like milk. I’m using less cups. I’m using less less less less less. So I think there’s an optimum for every cafe on how many cups a day they should be producing, and then they should price accordingly. If they’re over producing, they need to increase their price and actually produce less. Or if they’re under producing, you know, discount a little bit and produce more. So there is some pricing to quantity ratio that that needs to be optimized, not, and I think that’s something that’s not well, scienced, if that makes sense.

Tim Hughes  52:48

Yeah, there is some, sorry, the that’s taking the experience into consideration and using that as a commodity, I guess, in a way, like it’s a focusing more on the experience rather than just the production,

Raihaan Esat  53:01

yeah, yeah. It’s very hard to produce more and maintain quality, right? So at some point you go, Well, I’m just going to increase my price. So that way, that way I actually keeping people away.

Gene Tunny  53:11

Yeah, yeah. It reminds me of Jerry Maguire. Show me the money. No fewer clients, more time, yeah. And then all of his colleagues just go,

Raihaan Esat  53:23

Yeah, but, but it, but it works. If you’re in that situation where, you know, you can’t really produce more,

Gene Tunny  53:30

yeah, that’s interesting. I have to think, yeah, that’s another consideration. So I mean, the way economists will often think about this is that, you know, to the extent that the demand is price inelastic, so demands not that responsive to price. You can increase the price, and then you can, you’ll get more from the higher price that compensates for the loss of some some customers. Yeah. And there’s always

Raihaan Esat  53:52

been the discussion on the green coffee side that, oh, if we increase quality, we can charge more. And now what we’re finding is that we can charge more because there’s a shortage, and it’s easier to do that than to do it on quality. And that’s a consumer mindset thing. That’s a production mindset thing, that I think we’re more risk averse than we are looking for better products. It’s an interesting trade off between the two. Yeah, it’s

Gene Tunny  54:19

amazing to get all these insights into the market, right? It’s great. We might go back to the just these nine factors, and I’ll put these in the show notes, because I think that slide you’ve you prepared for that presentation you gave here, which sounds like it was a ripper of a presentation. I mean, like, that’s some great insight in that that slide, I guess, to some to finish off with, what do you think the major factors are like, if I had to put a percentage contribution to each of those factors, what do you think the top one would be, and would it be about 50% or would it be about 40 or 30? I mean, do you have a sense of that?

Raihaan Esat  54:59

At the one that’s in the news that’s the most important, but, and that might be different every day, okay, so, you know, there’s one that was very topical about two weeks ago. It drove some prices up quite significantly, and that was, that was the I’m trying to try to figure out what’s a nice, neat way to say this. There was some conflicts in the Middle East. Oh yes, that were, that were a Frick affecting trade supply routes through the Red Sea. So through the Red Sea, you’ve got the the canal, and a lot of shipping lines use that canal to shortcut their way through to Europe and through to this part of the world now, with attacks on shipping vessels in protest of conflicts in the Middle East, all the shipping lines went we’re not shipping through that channel anymore. Guess what? There’s a container shortage now in Ethiopia, you can’t ship coffee out of Ethiopia. It’s had a massive effect on global supply chains, yeah, and that news going out to the world meant that everyone kind of overreacted. And was like, Oh man, we gotta buy coffee. We gotta get it out now we gotta there was caused a massive reaction. But then the news of, you know, that sort of dies down and quietens down, and then no one’s really acting on that, even though that that stuff is still happening right now. So whatever’s topical, whatever’s in the news, is kind of has the biggest impact at the time. At the moment, whatever’s being covered, there’s nothing, I don’t know how to say it, but, but there’s so it’s all about news. It’s all about what’s brought to our awareness.

Gene Tunny  56:41

But that impact on the supply side, on the harvests you mentioned, was it weather conditions in was it Brazil and Vietnam?

Raihaan Esat  56:49

Yeah, especially Brazil has had an unusually hot season, very little rain. So that’s, you know, there’s, there’s some speculation that that’s already caused crop damage for next year. So there are, there are some bodies in Brazil, like agricultural associations and stuff, that will report on this stuff, yeah. And, you know, with us, we deal directly with producers as well, and we can get on the phone and ask them, how are things looking, and they’ll go, we’re concerned, we’re

Gene Tunny  57:20

working, yeah, but now that must be one of the bigger drivers of what’s been happening with the price, because

Raihaan Esat  57:25

there’s a saying in the coffee industry that if Brazil sneezes, the whole world catches a cold, right? Yeah, because they are 30% of the entire world’s production. So they have a major impact on on pricing, on availability, on what happens in the world of coffee. Brazil, massive, absolutely massive. Vietnam, I would say the biggest contributors out of the things that we spoke to today, geopolitics, like the war in the Middle East, because that affects oil prices, transport prices, transport, trade routes. And that’s, you know, we need to get coffee from halfway around the world to Australia, Brazil and Vietnam and finance, those are probably the three biggest and then everything else after that. Yeah, okay,

Gene Tunny  58:11

right. This has been a really good summary of what’s going on the coffee market. I mean, if you’re listening and you got any thoughts or any questions on the coffee market, please send them through to contact at Ekta economics, explore.com and I’ll want to

Raihaan Esat  58:28

keep this discussion going. There’s a lot going on in coffee, and it means a lot to everyone. So I don’t mean to be the bearer of bad news, but I want to, want to, you know, voice what’s happening in the world right now of coffee and so that people understand what’s going on

Gene Tunny  58:43

Absolutely. Well, we’re realists on the show. We deal with reality, so we want to know what’s happening and and how do you best position yourself to deal with that reality? Tim, any final questions for Ray,

Tim Hughes  58:55

you had me at coffee? Very good. No, it’s great. It was really good. It’s funny. I wasn’t expecting it, but it’s such a big part of it, like is the experience that you talk about, as far as the value of a coffee is a really interesting prospect. And as humans, the probably the most interesting thing that we can look at, you know, like so I think it’s really good having that as part of the conversation. Yeah,

Raihaan Esat  59:26

I think my final thought for this podcast would just be on the consumer side. You know, we’re all consumers. We all go to coffee shops. We all go to restaurants, whatever it is, we’re all consuming coffee to some degree. And I think we can all be more mindful of the places that are doing a really great job and support them. Pay more for your coffee, but get value in return. It makes it worthwhile that we support the businesses, the local businesses, doing a fantastic job, and it allows the entire supply chain to be healthy if we’re pricing things correctly on the. Consumer side, it all flows back through for a healthy supply chain.

Gene Tunny  1:00:04

Okay, so support your favorite cafe everybody. I think that’s a that’s a good message. And yeah, the Yeah, recognize that they have to charge these prices to cover their costs, and those costs are rising. So I think that’s a important point, right? Oh, Ray from international coffee traders, thanks so much for your time. It’s been a lot of fun. Appreciated it. Yep, it’s been terrific. Tim, always a pleasure to catch up any to have on your show. And finally, 10% off Lumo coffee for economics explored. Listeners. Details are in the show notes. Okay, thanks. Gene, good on you.

Credits

Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.