Scott and Ed open the show by discussing the aluminum and steel tariffs, Trump’s plan to close the carried interest loophole, and Elon Musk’s bid for OpenAI. Then Alice Han, China economist and director at Greenmantle, returns to the show to break down the potential impact of Trump’s tariffs on China’s economy. She explains how China’s weak consumer environment is driving down prices domestically, weighs in on what the “Sputnik moment” of DeepSeek means for China’s place in the AI race, and offers her take on the country’s relationship with Elon Musk. Finally, Alice shares why she believes we’re entering a period of heightened geopolitical instability. Subscribe to the Prof G Markets newsletter Come see us live at SXSW Order "The Algebra of Wealth," out now Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices
Chapter 1: What are the implications of Trump's aluminum and steel tariffs?
Now is the time to cry. I hope you have plenty of the wherewithal.
President Trump announced a 25% tariff on all aluminum and steel imports to the US starting in early March. He also plans to implement reciprocal tariffs on countries that impose duties on US goods.
Trump has also proposed closing the carried interest loophole, which allows investment fund managers to pay a lower capital gains tax on carried interest, which is one of their primary forms of compensation. His plan would tax carried interest as ordinary income, which could reduce the federal deficit, by $13 billion over the next decade.
And finally, a group of investors led by Elon Musk has submitted a $97.4 billion bid to buy the nonprofit that controls OpenAI. OpenAI CEO Sam Altman responded to the offer on X. He said, quote, no thank you, but we will buy Twitter for $9.74 billion if you want. Scott, your thoughts, starting with Trump's 25% tariff on steel and aluminum.
We have produced 75% of the steel we use. So the remaining 25% comes primarily from Canada, Brazil, Mexico, and South Korea. And I would think that they'd want to have some kind of slack supply in the in the form of imports and not reduce or make imports less attractive.
I don't know if it's kind of union or regulatory capture where he did, you know, he promised steel workers a better deal or something like that. And what do you know, the steel industry donated over $10 million to political campaigns in 2024 across both Democratic and Republican parties. Do you have any thoughts here, Ed?
The steel unions are just incredibly powerful. I mean, you mentioned that lobbying power there. You want to get the steel workers on your side. And this is to the benefit of American metal companies. I mean, we saw this in the stock market. U.S. steel went up. Cleveland Cliffs went up. Steel Dynamics, Alcoa, all of these steel and aluminum stocks in America rose. Why?
Because, I mean, pretty simply, they're going to have more demand now. You can have less international metal coming into America, which gives all of these domestic metal companies more pricing power. This is a win for US steel and aluminum companies. Now, who are the losers?
Obviously, the international metal companies, and most of those companies that are gonna be affected are in Mexico and in Canada and in China, but there are also some companies in Europe and in South Korea and in Japan that sell us a lot of steel, and those stocks all fell on this news.
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Chapter 2: Why is the carried interest loophole controversial?
Anything that is manufactured in a factory has an element of steel or aluminum to it. And so if we're going to dramatically increase the price of steel and aluminum, it's just going to increase the price of everything. And the estimation on what it'll do to inflation, the price of all goods, it's estimated this will increase inflation by 0.1%. So it's not huge. It's not a real...
you know, issue, but it's still increasing the price. So again, it all sounds very pro-America. It's like got this very America first feel to the whole thing. But as we've done with all of these tariffs, you know, you do the math and ultimately you realize this just hurts us and it's for no good reason at all. Let's talk about the carried interest loophole.
You have been pushing for this for a while, actually. Why don't you first just remind us, what is the carried interest loophole?
It's the most obscene, ridiculous tax loophole, probably in the tax code. And that is, let's figure out a way to give an enormous tax break to what is probably the wealthiest or the wealthiest cohort of people in American history. And that is people managing other people's money. So the loophole is the following.
There's essentially income is divided, broadly speaking, into two categories, a capital gain or ordinary income. Ordinary income is what the majority of the team here makes. And that is they come to work, they do podcasts, they produce, they edit, they get paid. That's ordinary income. And that's taxed at up to 37% federal.
And then if you roll in state and local and you live in a place like New York, at some point, you could be paying 48 to 52% taxes. And then there's capital gains, which means you buy an asset, you invest, and then you sell it. And if you held onto that asset for longer than a year, I think the highest rate is 22.8%.
So you want to have as much income qualify as capital gain as opposed to ordinary income. And really kind of the secret to building wealth is to make the jump to life speed such that the majority of your income comes from capital gains as opposed to ordinary income. What the private equity industry figured out a way to do is that if they raise a billion dollars and they invest it,
And they turn that billion dollars into $2 billion over seven years. That billion dollars in profits that goes back to their investors, they get a 20% carried interest on. So they get $200 million. Really think of it as a commission, right? If you sell something for more than you bought it for, as most salespeople are charged with doing in any organization, if they get a commission on that sale—
They get taxed at ordinary income. But private equity has figured out a way to weaponize government and through regulatory capture, turn those commissions. And that's what carried interest is. It's a commission on the incremental gains from investing other people's money. For some reason, the government decided that qualifies as a capital gain. This is the definition of just...
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Chapter 3: Will Elon Musk acquire OpenAI?
Let's wrap up here with this Elon Musk bid for OpenAI. Let's just sort of first address this one detail. There's been some confusion over what he's actually bidding for. Some say it is the operating assets of the business. Others say it is the nonprofit arm that controls the company. As of this recording, we don't actually know.
What we do know, though, is that either way, a successful purchase of either of those two things would mean that Elon has control of OpenAI as we know it. So I think the question here is, would the board accept $97 billion to relinquish control of the company? The answer is quite simple. No. I mean, this company was last valued at almost $160 billion.
They're currently in talks with SoftBank for a valuation of $300 billion and Elon has offered 97. So he's off by around $200 billion. And that doesn't account for the fact that you're probably going to need an acquisition premium or the fact that Sam Altman just doesn't want to sell. So I think if you account for all of those factors, you know, this is the hottest company in the world.
They're already extremely well capitalized. Sam Altman doesn't want to sell, and he also just doesn't like him. If you account for all of that, I think a serious offer, I'd like to get your take, would be half a trillion dollars, at least. And then he's come up with 97. So I don't think this is a serious offer. I know you've said this is probably just an attempt to slow him down. I would agree.
He's also trying to do that in court, so we'll see where that goes. But more than anything, this is just another example of how far Elon has fallen. And I was just thinking, like, I think back to the Elon Musk of 2010. who at the time was sort of an inspiration to people. This was the guy who built stuff.
He was the champion of getting things done, of innovating, of making products that are useful to people. He really captured people's imaginations. And I just think, imagine if you told that Elon that in 15 years, he would be spending $100 billion, not to build a new company, but to tear down the progress and the innovation of someone else's company.
A company which, you know, for all of its faults, it has inspired millions of people around the world. It's inspired trillions of dollars of value in the marketplace. It's created arguably the greatest technology of our time. You know, what would he say about that? Like, would he be proud of this? Would he think that was cool?
So I feel like we increasingly need to think about Elon and his role in America. We need to think of him as two different people. There was the pre-Twitter Elon and there's the post-Twitter Elon. And those are two totally different characters. You know, one is like an innovator, he's an inspiration. The other is a shit poster. The other one is embarrassing.
So, you know, I'm criticizing Elon again, but when I criticize him, I'm not criticizing his past achievements, who he was. I'm criticizing who he is now. And I really believe that the man he is now would be a total embarrassment to the man he used to be. And this is just another example of that.
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Chapter 4: How has Elon Musk's public image changed over time?
So if OpenAI was publicly traded and had a market cap of $70 billion and he showed up, as he did with Twitter... and said, okay, I'm paying an enormous premium for a shitty company. The board has a fiduciary obligation to accept his bid. And ultimately they did when they saw he was paying 44 billion for something worth 10. And then they forced him to close, right?
Because they said, this guy's an idiot and he's overpaying. So fine, we're gonna force you to close because we're being good fiduciaries for our shareholders. In this instance, the board, I think can pretty much dismiss it out of hand They can say, we represent all stakeholders. This guy is a fucking train wreck. He has a competitive company that's well behind. He wants to slow us down.
I mean, they can just come up with a billion reasons and they don't even really need to because I think it's a fairly... closely held company, no employee. I just don't think anyone's going to put up a big fuss here. He'll file a bunch of lawsuits or whatever. But again, I think us, the Marines storming the shores of Greenland is more likely than him getting control of OpenAI at this point.
So this is just more, I want to be in the news. And the energy he's bringing here is what I'd call really, really bitter, angry ex-spouse energy. And that is, you divorced me, you kicked me out of the house, and then you went on to be Tom Brady, and I ended up being a waitress at Waffle House. I am fucking pissed off.
And even though the guy is remarkably successful, the fact that he doesn't control AI infuriates him. And what's even worse, is he used to. He was the largest shareholder here and he wanted to be in charge and the governance there said, no, we don't want you in charge. He said, that's it, I'm out. And he signed airtight legal documents stating, I'm out. I no longer own shares here. It's all yours.
I'm gone. And now he's decided now that the thing is arguably on this next financing going to be one of the 20 most valuable companies in the world and is well ahead of his AI efforts. I want back in the marriage and I want my marital assets back.
But the thing about Sam and the lesson here is that I do believe Sam takes relationships and friendships seriously and has created a lot more allies than enemies along the way. And I would argue over the last... five to eight years, Musk has created more enemies and that his friends are essentially friends who've made money from him.
And when he stops making money for people, I mean, Tesla's, I don't know if you saw Tesla sales in Europe, Tesla sales in Europe, they're off 67% in France. They're off like 44% in Germany. The sales are imploding. We just heard, or we're going to hear what Alice said, Alice said about Tesla and China, which is not doing well. Here's the thing. You don't need friends when you're right.
When you're making money, you're going to have no shortage of friends. When you're not doing well, that's when you find out if you have friends. I think Sam Altman has a lot of friends. You want to put yourself through generosity, through opportunities to help people by being a decent person, by occasionally taking a blow and not feeling you got to hit back all the time.
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Chapter 5: Why is the OpenAI governance structure significant?
And the guy died alone of stomach cancer in St. Helena in exile. And it feels like Elon is just going, God, you're so sexy right now with all your history.
That's why your parents paid half a million dollars for you to go to Princeton so you could talk about Napoleon and St. Helena. I just watched the movie. I love, by the way, I love the actress that plays Was it Glenevieve? She was outstanding. Did you see the movie, Napoleon?
I did. People hated that movie. I thought it was quite good. I liked it. Yeah, I thought it was quite good. I thought it was a very similar character arc, and I could totally see that happening for Elon.
Vanessa Kirby. She's outstanding. Yeah, she's great. She's outstanding. She's also, I got some insight, some scoop here. I don't think I'm speaking out of school. She's engaged to one of the great athletes of all time. Who is? I'll let people guess. She's engaged to this incredibly, literally one of the most dominant athletes in history.
And he's also a very soulful guy that reaches out to professors to ask for life advice. It's not Tom Brady. It's not Tom Brady. No, Tom does not reach out to me for advice. Yeah. One of the greatest athletes of all time. More as dominant as Tom Brady. I'm not exaggerating. He'll send me long voice memos saying, you were talking about love and I wanted to give you my view.
Holy shit, I'm so intrigued.
Yeah. So go online right now, go into the comments and guess who it is. Guess who is engaged to one of the great actresses and is the most dominant athlete of his sport in history and is also a very like... very emotional, in touch, like evolved man. It's going to be like the world darts champion or something. This guy made millions of dollars. Anyways.
We'll be right back after the break for our conversation with Alice Hahn. And for even more Profiteer Markets content, check out our new Profiteer Markets newsletter. Click the link in the description or go to profiteermarkets.com to subscribe.
President Trump on Truth Social has been suggesting that he's open to deals to end the trade war that he started by levying tariffs on U.S. trading partners. The administration says these Liberation Day tariffs will bring manufacturing jobs back to America. Why is that so important? There are some really dumb ways to answer that question.
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Chapter 6: What is the future of AI and geopolitical stability?
Well, it's a bit of a mixed bag. And thank you for that question, Ed. Certainly, if you look at some metrics, whether it's deflation in the economy or it's the GDP outlook, China is continuing to slow down. It's continuing to face these big disinflationary pressures.
But at the same time, if you look at the stock market, it's been doing pretty well, especially now with announcements of DeepSeek and Alibaba's AI models. We've seen actually Chinese tech stocks, including Buyu Buyu Di, do extremely, extremely well. And this is in the midst of obviously these tariff threats that have been thrown onto China.
We've seen the 10% tariffs that have just been put into place on Chinese goods. China has retaliated in kind in the last few days. And certainly now we have more threats of 25% tariffs on steel and aluminum across the board, not just China, but a host of countries. So China is facing a lot of these trade war risks and pressures to the economy.
But at the same time, it is riding the tailwinds of positive, I would say, upbeat news about Chinese tech, Chinese AI, Chinese autonomous vehicles in the case of BYD. And certainly, our clients are particularly interested in the stimulus that is probably going to come down the pipeline in March when the NPC meets.
So an uptick in both monetary and fiscal should be supportive of more Chinese equities. And so we really get this bifurcation. The stocks look pretty attractive, but at the same time, we've got these deep-seated macro issues that aren't going away anytime soon.
Yeah, you mentioned deflation there. I'd love to double-click on that because I just find this idea of deflation very strange because the rest of the world is struggling with... this thing called inflation. You know, we've been trying to get prices down. And meanwhile, China has been struggling with deflation. Apparently prices are too low. So two questions. One, what is deflation?
Why is it a bad thing? And two, how come China is suffering from what seems to be the opposite problem as basically everyone else in the world?
Well, deflation is a sign of weak demand internally. And in the case of China, this is borne out by two major factors.
One is the fact that domestic demand has been hit hard by a number of factors, the financial repression of the household sector, the fact that interest rates remain extremely low at the expense of the household sector, and the fact that COVID really had long-term consequences on the household balance sheets.
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