Peter St Onge: Will Trump and DOGE Succeed in Gutting the Regulatory State?

In this episode, we dive into President Donald Trump’s multi-pronged strategy to revitalize America’s economy, from aggressive reciprocal tariffs to massive DOGE cuts, and a large-scale deregulation effort to promote business growth.

The Code of Federal Regulations is now over 190,000 pages long. A 2017 Auburn University study found that each federal regulator effectively “costs the U.S. economy the equivalent of 138 private sector jobs per year.” The researchers said that equated to a $11 million annual loss for the U.S. economy for every additional regulator.

Watch the video:

What will be the impacts of the Trump administration’s policies? Will they usher in economic prosperity or will America have to head into a recession first?

Views expressed in this video are opinions of the host and the guest, and do not necessarily reflect the views of The Epoch Times.

RUSH TRANSCRIPT

Jan Jekielek:

Peter St. Onge, such a pleasure to have you on American Thought Leaders.

Peter St Onge:

Thank you for having me on.

Mr. Jekielek:

You’re very prolific on X and on social media. You wrote something the other week that is quite shocking. For every single federal regulator that’s kept on the job, there are 138 private sector jobs that get destroyed. It’s hard to fathom how this could be the case.

Mr. St Onge:

One of the great myths of government is that regulations exist because there’s some public need. People organize, and they stand up in their local community centers, and they bake cookies, and somehow, they power through against the man. In reality, regulations are bought. They’re bought by lobbyists. This has been true since the beginning of regulation.

They are generally bought by large incumbents, for instance, Wall Street bankers. They have big budgets. They use those budgets to put senators on speed dial. And then when they need a regulation written, they call up the senators. The people who actually write the regulations tend to be employed by those big companies. Their main goal is either to get bailouts, offload some of their costs onto the public, or to ban the competition.

You can look at 2008 which is a really nice example of this. So 2008 was a disgrace. Wall Street made billions of dollars by basically taking huge risks and then hiding the gambles they were taking. When they went against them, they handed it all to taxpayers. But the public was angry. They were angry on the left. They had the Occupy Wall Street Movement. They were angry on the right. They had the Tea Party.

The response from Wall Street was, we’ve been naughty. We need you to regulate us. And they wrote the regulations, of course, because who else is going to write regulations? Wall Street knows how the financial system works. The people doing the bake sales aren’t going to write competent regulations, they are going to get hustled.

Now, it’s kind of a fun chart when you look at the number of banks that were started in the U.S. It’s very hard to start banks because a lot of regulations that are bought by Wall Street make it almost impossible. So they got something like $800 billion worth of bailout. In return, their penance was that they rewrote the financial rules to outlaw competition and to keep it all for themselves, to monopolize finance into an oligopoly. The end result is that the regulations chased out our own job creators.

Mr. Jekielek:

Peter, this is an extreme position about regulations because obviously without any regulations, corporate America would run amok. Having zero regulation cannot be the right answer, even if the preponderance of regulation is as you have described. Where does this actual needed and valuable regulation come in? Or is your position that it simply doesn’t exist?

Mr. St Onge:

It doesn’t exist—with a caveat. We can ask what happened before we had the regulatory state and the federal government was, of course, much, much smaller. But how did you deal with companies behaving badly back in the 1800s? And that was dealt with by the tort system. With negligence rules, if a company was poisoning your soup, then you had a case. You could take them to court, and then you would get compensation for that. That was the main deterrent against companies.

What happened is during the progressive era, so this is about 1900 to about 1915 or so, that was really the heyday of the progressive era. Of course, it’s continued. But during that era, the regulatory state rose up. That was sort of the creation, one of the main creations of the progressive era. But something else they did was to capture the legal system, specifically by trial lawyer associations.

The American Bar Association was actually a union. It’s a sanctioned, official union of lawyers. These captured the legal system and converted into something very different today, where realistically, if you don’t have means, you can’t participate in the legal system on an equal footing anymore.

There’s a great movie called Unforgiven. It’s a Western from way back in the day. In the opening scene, she goes out and wants to hire a bounty hunter to track down the guy who killed her father. And there’s some legal transactions at the beginning of that. And it’s just absolutely striking to see how simple and straightforward the legal system was before the lawyers took it over.

So if you got rid of the regulations today, it would be an absolute mess because the lawyers and then the corporations who pay those lawyers, have essentially weaponized the legal system against regular people. So if you change it today, it would be an absolute disaster. Companies would indeed poison you because you wouldn’t be able to do anything about it. They would just outbid you in the legal process. They would have lawyers to run you around circles for the rest of your life, take away your house in the meantime.

So 95% of the regulatory state, you can get rid of without any consequences. That last little nugget of 5%, that is doing something. It’s very corrupt, but it is doing something at that point. You know, when and if we get to that point, then we can have a conversation about pairing that last bit of regulation together with legal reform, tort reform. There are hundreds of thousands of federal regulations. The vast majority of them are crony, and you can get rid of them with very little negative consequences, and a lot of positive consequences in terms of new entrants, being able to come into the industry and create jobs and create prosperity.

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Mr. Jekielek:

Let’s talk about DOGE. One of the arguments that’s been leveled against DOGE, there’s a lot of positive arguments, certainly, but one of the arguments that’s been leveled against DOGE is that it seems too arbitrary. There’s too much being taken out. It’s unclear. I’m thinking about these regulations. If you’re saying there’s 5% that are doing something, 95% that aren’t, if you get rid of the wrong five, you could create a mess for exactly the reasons you just described. Is this the situation with DOGE?

Mr. St Onge:

Yes, it’s always tricky if you’re reforming large organizations. So the US government employs about 2.4 million civilian workers. They have budgets, of course, about $6 trillion that they spend. It is by far the largest organization on Earth, outside of China anyway. It’s a very, very large organization. It is dysfunctional, by all accounts. No matter which side of the political aisle you’re on, people recognize that the federal government is dysfunctional.

It’s also protected by a lot of basically crony rules that have been inserted in there by government unions, by organizations of government workers. Government workers, ever since sort of the inception of the bureaucratic state, they’ve always voted left. They’ve sent their political donations to the left. They’ve aided the left, which is quite natural, right? The people who work for the government, of course, want a larger government. And so that means that they’ve had the ability, whenever the Democrats are in power, they’ve had the ability to insert these barriers.

And so if you’re trying to shrink it, if you’re talking about a private company, you can just go in there and look through what’s efficient, what’s inefficient, and then cut the fat. With the federal government, it’s very, very tricky because they’ve inserted sort of all of these tripwires and traps and fake doors. And so they have to go after what they’re able to go after initially. So to give an example, when you join the federal government, the first year you are a probationary worker, it’s much easier to fire you. You don’t yet have all of those government union roles. Now, what they’re currently doing is targeting those probationary workers because they’re the low-hanging fruit. In a perfect world, they would not do that, right? Instead, they would, you know, look at all of the employees and they would say, I don’t care how long you’ve been here, are you good at your job or you’re not? And of course, they know that.

This is what Trump does in his organizations. This is what Elon specifically did with Twitter. He did not fire everybody who was there for one year. Rather, he looked at everybody and saw if they were good workers or not. But because of all of those trap doors and tripwires inserted into sort of the, you know, federal to protect the federal bureaucracy, they have to do it that way.

Now, they’ve made a couple of mistakes. I think they were laid off. There were some nuclear inspectors or something where they rehire them within like 12 hours. Elon has said that that’s going to happen. You know, when you throw in the postal workers in the military, you’re talking close to 5 million people. If you’re trying to trim a 5 million person completely dysfunctional organization, yes, you’re going to make mistakes in both directions.

Mr. Jekielek:

Is it as simple as removing those regulators and then you’ve created these jobs?

Mr. St Onge:

You start the game with a certain number of regulations, and then you hire regulators and the regulators create new regulations. At this stage of the game, ideally, you would get rid of the regulators, so they stopped creating new ones. But you would also get rid of the unnecessary regulations themselves. Both Elon and Vivek had talked about that since the beginning of DOGE, that one of the goals is going to be to go through and identify regulations, not just useless ones, but which ones are unauthorized, and which ones lack congressional authority. Get rid of those. At that point, you should get rid of the regulator because they’re not doing anything. They’re not enforcing anything.

That really follows from a very important Supreme Court decision last year called Loper Bright Enterprises v. Raimondo. That case asked whether executive rules have the same weight as Congress. The way that our constitutional system works is that Congress is supposed to come up with laws. But in fact, well over 90% of the effective laws that we have to follow are actually rules that were written by the executive branch. They have no congressional authority.

That case was about whether the executive has the right to effectively write laws, just make up laws that don’t have congressional authority. And the Supreme Court said, no. In a perfect world, what would have happened at that point is that Joe Biden’s administration would have sat back and said, OK, this is very important because it means that the vast majority of what we’re doing is unconstitutional. And so we have to go back and review all of these rules and see which one the Supreme Court just said are unconstitutional.

Effectively, what Trump is doing is enforcing the will of the Supreme Court, which the rogue Biden administration had been ignoring. What it means for us on the ground is you could slash back 90 to 95 percent of regulations because they don’t have congressional authority. So there are thousands of thousands of regulations that are put out every year. It'll make you sick if you go and look at the list just month after month, while Congress passes very, very few of those.

The idea would be to go back to the few rules that Congress does pass. If Congress is unable to pass a rule like regulating the size of the trout you can catch, then that means that the federal government is therefore silent on it. So the people have the right to do that. It expands the scope of liberty, but it also creates a lot of business opportunities where small businesses especially can enter a space, entrepreneurs can come in, create new businesses, and then eventually expand them.

Mr. Jekielek: What is your opinion of DOGE so far?

Mr. St Onge:

I think it has been incredible. It’s something that both parties have been trying for decades. This is not a Republican issue. Bill Clinton and even Obama tried to rationalize government, and to make it more efficient.

President Clinton: (pre-recorded audio) We know big government does not have all the answers. We know there’s not a program for every problem. We know and we have worked to give the American people a smaller, less bureaucratic government in Washington. And we have to give the American people one that lives within its means. The era of big government is over.

Mr. St Onge: Famously, Al Gore was going to make the government more efficient. He was carrying around an $800 ashtray from the Pentagon. This has been a longstanding issue that has been recognized by both parties. It’s interesting that DOGE itself was created by Barack Obama. It was called the U.S. Digital Service, USDS. He created that in the aftermath of the Obamacare website fiasco which was very embarrassing.

They said, OK, the federal government is dysfunctional. We’re going to create this agency whose job is to go through and find efficiencies over or above all technical efficiencies. So they gave them a huge amount of power to go into each agency and look at how they’re doing things and then make it better. And so what I don’t know whose idea it was, but Trump and Elon simply took that U.S. Digital Service and made it the U.S. DOGE Service. He simply renamed the organization which Obama had created and had given all that authority. He renamed it. It already had authority. It already had a budget for staff. And so that is DOGE.

This notion that DOGE is some outside creation is wrong. It was created by Obama. It was created because there’s a longstanding need recognized by all parties to rationalize the federal government to make it more efficient. It’s just that when it’s Trump doing it, the Democrats go nuts. When it was Clinton doing it, he laid off several hundred thousand federal workers. Not a peep. That was all about efficiency. It made a lot of sense, is what New York Times tells us. When Trump does it, it’s literally destroying democracy.

Mr. Jekielek: Trump upped his game in terms of, for every new regulation or rule created, you have to cut some number. Now it’s up to 10, from what I understand.

Mr. St Onge: It’s great. You know, it’s rookie numbers. I’m going to get that to 50. But yes it’s fantastic. And his first term, I think he had said, I think it was three for one or two for one. And that ended up being seven. And so like any manager, now he’s going for a stretch goal here. So he’s going for 10 for one. The question is also how much does the regulation cost, right?

So if you put in one big regulation to take out 10 tiny ones, which is traditionally, that’s what the federal government tries to do because every agency is trying to keep power. It wants to keep power because power is a budget. Budget is how you get ahead in Washington. Apparently, it’s how you get a golden parachute when you’re done with the whole gig. So, you know, you have to kind of prevent them from gaming that.

Now, that takes us back to Doge. That’s a big reason why you want to lay off so many people if you want to make sure that they’re not gaming it. They’re not trying to follow the letter of the law while violating the spirit, which is, of course, something that we’ve seen an awful lot of these past four years, certainly, but arguably, really, this past 100 years.

Mr. Jekielek: Let’s talk about the economy. We’ve been hearing about lots of real structural problems with the economy. The debt, the amount of money that’s been printed in the last few years, the accelerating interest payments on the debt. At the same time, basically since inauguration, inflation, and I have this by quite reputable numbers from the folks over at Truflation, that it’s gone down to something like 1.4%, pretty steady. I don’t even understand how that works, given the reality of the previous years, given the amount of money printing and so forth. Can you give me a picture of the economic reality in the U.S. right now?

Mr. St Onge: That’s a big question. There’s a lot of parts to it. You’ve got three numbers that I think people really care about. One of them is inflation. One of them is growth. And one of them is jobs. And if we start with inflation, the big story at the moment is that we’ve got this overhang from the Biden administration. The numbers that we’re getting right now are really the tail end of Biden’s numbers.

The reason is that it takes a while to collate most of these statistics. So the numbers that we’ve been recently getting have been sort of the final report card for Biden. Those have been pretty bad. So Biden’s final month inflation rate was an annualized 5.7%. That was his parting gift to Trump. Economic growth, GDP growth was about 2.3%. That’s fairly good.

There’s a big caveat there, however, which is that if we go back through the Biden administration, about half of economic growth has just been increases in government spending, right? That is not sustainable. That’s not actually creating prosperity. It shows up as GDP, but it’s not creating prosperity.

So if you discount for that, then we’re probably closer to about 1.2%, which is pretty bad because the population grows about 1.2%. In other words, that’s flat. That is stagflation. So 5.7% inflation per capita, 0% economic growth. Biden gave Trump stagflation and the problem is that it takes a while to turn that around.

When you look at Federal Reserve interest rate cuts, which is the main way that the Fed tries to influence inflation, there’s a delay of about 12 to 18 months on those. Those take quite a while to work through the economy. That means that if Biden handed Trump stagflation, in theory, the first 12 to 18 months of Trump could still have all that inflation. So how do you fix that? How do you bend the curve on it faster?

The main way you do that is by cutting government spending. You can cut government spending or you can try to grow the economy very quickly. Spending, they’ve been trying very hard to do that with DOGE. Democrats have been fighting every step of the way. Some of that has been through lawfare, for example, trying to force them to hand out U.S. aid money, things like this.

On growth, which is the other way to do it, that also, it usually takes a while, right? It takes a while for people to start a new factory or to drill a new hole for oil. So Trump is trying to accelerate that as quickly as possible. What he’s really doing is following the playbook from what he did last time on a lot of these issues.

So last time around in his first term, Trump’s main emphasis was taxes, regulations, and then drilling oil, right? Taxes, if you cut taxes, that then allows businesses to grow. You get a lot more companies. If you cut regulations, that also allows them to grow. It’s fewer burdens. Also, you know, you can open up virgin territory for new entrepreneurs to come in.

Something important to remember on regulations is that across the board, regulations hit small companies much, much harder than big companies. The National Association of Manufacturing estimates it is about two to one. So for small companies, the regulatory burden per employee is north of $40,000. It’s darn close to their salary. thousand dollars. It’s darn close to their salary.

And if you think about this logically, if you’ve got a whole bunch of new regulations on hiring, on diversity, on emissions, whatever it is, if you’re Burger King, you’ve got a dedicated compliance group who is analyzing those, figuring out the cheapest way to do it, and then giving exact instructions to each franchisee, right? They say, buy this product, install it like this, boom, boom. If you’re a mom and pop, forget about it, right? The costs are going to be outrageous. So a lot of companies actually fold because of all those regulations.

But at any rate, that’s what Trump was trying to do in his first term was to use taxes and regulations to grow business. The reason you’re doing that is that inflation is fundamentally how much money is chasing how much stuff. If you can grow the economy, then you get more stuff. And so inflation comes down. On the other hand, if you’re not growing the economy, if you’re just printing more money, then inflation goes up. That’s exactly what happened under Biden.

So Trump is trying to follow that script, but it takes time. Over the next six to nine months before the new companies kick in, when we still have the overhang from Biden’s stagflation, that’s really the danger zone. You can look at the stock market and somebody called it a kangaroo market. It’s not a bull market. It’s not a bear market. It’s a kangaroo. It’s all over the place. A lot of that has to do with the market trying to figure out what they think is going to happen in the next six to nine months under Trump.

Mr. Jekielek: In other words, we don’t really know where things are going to go.

Mr. St Onge: We know that Trump is doing the right things. The trick is that all of these have delays on them. It takes time to start businesses. It takes time for interest rates to feed through the economy. It takes time for banks to make loans based on liquidity. All of these things have delays. And when we look back at historical numbers, a lot of the good stuff Trump is doing is not going to kick in for possibly up to a year.

Mr. Jekielek: You mentioned there are two approaches. One is that you can cut spending. The other one is you can create prosperity. And I'll get you to explain to me how prosperity is created. That’s a great question. There’s whole books that have been written on this, of course. But when you’re doing the cutting spending side of things, you mentioned that a significant portion of the jobs growth, for example, and the economic growth was actually that government spending in the first place. So you’re actually cutting the economy itself. So it almost seems like you have to do the other part, the increasing prosperity. Otherwise, you’re going to end up in a dark place, or correct me if I’m wrong.

Mr. St Onge: You’re going to end up in a recession, correct. You can look at Argentina and Javier Milei has been a model for what DOGE is aiming to do. Javier Milei came into an economy that was going through hyperinflation. The real economic growth was in freefall. It was just an absolute mess in Argentina. And what he did was slashed the federal government. He campaigned with a chainsaw.

Maybe viewers have seen the video of him eliminating ministries from off a whiteboard. He cut 6% of GDP in government spending, which in the U.S. GDP is going to go down by 6% because the GDP cut includes government. Now, what actually happened in Argentina is that in that first year, GDP growth only went down by 3.5%, meaning that the private sector almost immediately jumped in and made up for half of all the government cuts. One year later, the projections for Argentina’s GDP now are around 8% growth, right?

In other words, what happened in Argentina, you cut $1, the private sector immediately grew by 33 cents. And then the following year, it grew by like $1.50, right? So it’s incredibly good for the prosperity of the country. Your cancer is a strong word, but you are losing fat and you’re losing fat fast. If you cut 6%, it takes time to build the muscle. Going by Argentina, it was surprisingly fast. But yes, in the meantime, you did have that 3.5% drop. Argentina does not have a very robust welfare state, but we have an overgrown welfare state in this country. You’re eligible for Medicaid, for welfare, for unemployment benefits. So if we have something like a 3.5% recession here, In terms of public opinion, and just going by my interactions on X, many people understand that we’re going to have to go through a difficult period to make the country healthy again. But even so, even a 3.5 % recession is not going to be nearly as bad as Argentina, because we have this large welfare state.

Now, we’ve actually been through this before. At the end of World War II in 1946, we demobilized 11 million soldiers. That was enormous, close to 10% of the entire population, and close to a fifth of the workforce. We demobilized them because the war was over and GDP dropped by 11.2%. It was one of the worst recessions in American history. It was at a Great Depression level. Everybody understood you have to do it, because are you going to pay 11 million guys to march around in a circle?

Obviously, for the good of the country, you have to get them back into the private sector. You have to pound the swords into plowshares, and that’s what we did. Yes, it was a brutal recession in 1946, immediately followed by one of the golden ages leading up through the 1950s into the mid-1960s. This has happened before. Every time a war is over, you have this exact situation. You have an enormous amount of people who are doing something good, but they’re not doing something economically useful.

Blowing up bridges in Italy is not actually building the American economy. So you’re trying to transfer these people from a wasteful activity, i.e. working for the government today or blowing up bridges in 1945. You’re trying to bring them over to do something productive. You are going to have a hit to GDP.

Now, the wider question is, should we even be adding government into GDP? Howard Lutnick, the new Commerce Secretary, said that they’re going to start reporting both numbers with government spending and numbers without government spending for transparency to give people an idea of what’s actually happening to the productive economy, not to those 5 million government workers.

Mr. Jekielek: Very briefly, how is prosperity created?

Mr. St Onge: In brief, you take assets that are not being used very efficiently and you combine them to make something better. The iconic example would be Robinson Crusoe. He runs out every day. He grabs fish out of the stream, and it takes him a couple hours to get a hold of a fish because he’s not very good at it.

Then he’s sitting there one evening and he decides to build a net. So he grabs fronds and he weaves them together. Now he’s got the net. He can catch more fish. Now. he’s got a bunch of leisure time. He can use some of that leisure time to make it a better net or to build a house and so on. Fundamentally, you take your time, you take the things that are around you in the environment, you combine them together in ever better ways.

Another metaphor that’s often used is a recipe. If you are not a very good chef, then you can take amazing ingredients and make something disgusting. On the other hand, if you practice and if you learn, then you can take the same ingredients and make something a lot better. So economic growth is fundamentally getting a hold of the resources that are already around us, given to us by nature or by god, and then combining those in ways that create things that are better. How do we know they’re better? It’s because people are willing to pay for them.

How do you get there for an economy? In 1776, Adam Smith was writing his book, The Wealth of Nations, coincidentally, the same year as our birthday. He wrote about peace, easy taxes, and a tolerable administration of justice. And that pretty much sums it up. As long as you’re not at war, as long as your taxes are not too high, and as long as you have some semblance of natural law, in other words, you own what you produce, you own yourself, as long as you have those three things, then you are going to be rich.

This is validated throughout history. When those three things click, countries can get astoundingly rich. After World War II, people generally assumed that Asia outside Japan was not going to be very wealthy. I think it’s absolutely shocked people. For many countries in Asia, they did have peace, tolerable administration of justice, easy taxes, and indeed they got rich. Many countries are now far richer than the U.S., countries like Hong Kong, for example. Taiwan is far richer than Europe is. Japan and Korea have, of course, matched Europe.

So it’s not complicated. It’s a very simple recipe to make a country rich. Unfortunately, there’s a lot of profits in getting in the way of that, right? So there’s a lot of profit in becoming corrupt. There’s a lot of profit in war, unfortunately. There’s a lot of profit in taxation. If you are in the government, you'd like to hand that out to your friends.

Mr. Jekielek: In 1946, that deep recession was immediately followed by a golden age. When he talks about America having entered this golden age right now, is President Trump alluding to that process? Is that what you think?

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Mr. St Onge: I think he is. He and a lot of Republicans look back on the 1950s as an economic golden age. Trump is surprisingly aware of American economic history. He’s talked a lot about the period before the income tax, for example, the 19th century, when the government subsisted almost exclusively on tariffs. There was no income tax. There was no Federal Reserve.

He’s surprisingly familiar with these things for a president. I think he’s far more intellectually curious than, say, a Barack Obama, certainly than people give him credit for. But yes, he’s interested in the 1950s economy. In many ways, demobilizing our overgrown federal leviathan is very similar to demobilizing after a war.

Mr. Jekielek: You mentioned the administrative state, the regulatory state, and the deep state. Are all these the same thing in your lexicon?

Mr. St Onge: They’re coming from the same thing. Murray Rothbard, the economic historian, thought the beginning of the independent bureaucracy came with the 1883 Pendleton Act which was passed in the wake of the Civil War. It was marketed as a way to cut down on government corruption because the government is always corrupt. This is a fact of nature.

And so the idea was that you would have these technocrats, these independent experts modeled on like college professors who back then were considered unbiased. And these would be like a Jedi council that would sort of sit above the world. And they would just decide things not based on politics, but based on expertise. Now, here we are after Covid. We can see how that turned out. I think that’s been a disappointment. But at any rate, what that did do was create a federal bureaucracy that was independent of politics.

Now, the problem is if it’s independent of politics, that means it’s independent of politics. Now, the problem is, if it’s independent of politics, that means it’s independent of voters, because the voters are the, through their politicians, right, via elections, the only way that the voters can exert any influence on the federal government is through the politicians. So if a government is independent of politicians, it’s independent of voters. So at that point, who is it serving? From Covid, we can see it’s very naive to imagine that these people are neutral, like a Jedi council that considers all opinions equally. They’re serving somebody.

In particular, that institution or arrangement is going to attract political entrepreneurs. It’s going to attract lobbyists. It’s going to attract bribery, corruption. We saw, for example, there were FDA approval panels where people were literally being paid or they had a financial interest in the drug being approved. This is fairly shocking, but this is what you would expect, right? If it’s independent of the voters, it’s going to be seized by somebody. Nature abhors a vacuum.

It then bulletproofed itself, right? It created unions, it created work rules. Generally, these were passed by Congress. So there’s a legal issue now whether Congress actually had the authority to do any of that because Congress does not control the executive branch. But setting that aside, it sort of armored itself and bulletproofed itself over the decades until it metastasized until what we have today, which is this two-plus-million bureaucracy that lords over us.

By design, they’re independent of the people, right? They are the overlords. They’re an occupying army. They’re very upset with what DOGE is trying to do, and with what Trump is trying to do, which is reimposing democratic oversight on these people who view the government as belonging to them. It’s their property. The $2 billion going for transgender operas in Peru or whatever it is, that is their thing.

They’re probably getting kickbacks on the other side of it. But one way or the other, they view that as belonging to them. They’re very angry that the president, who’s the representative of the people, he’s the only representative of the people in the executive branch, they’re very upset that he’s coming in and breaking up their game.

Mr. Jekielek: You mentioned tariffs instead of taxes which the executive branch has been looking into and the president has mentioned specifically. This new approach that the president has been touting is reciprocal tariffs. This is when there is a significant imbalance in the tariffs that are being levied, and they will be equalized based on what the other side is doing. What is going to happen?

Mr. St Onge: A tariff fundamentally is similar to a sales tax, and it’s a tax on imported goods. The trick is that, generally speaking, other countries are putting a lot more tariffs on us than we’ve been putting on them. Now, they’re not all sort of tariffs written out on paper. A lot of them are non-tariff barriers. So they'll block our imports by claiming some environmental or health rules. Many of them are VATs, which are a type of income tax or a type of sales tax that most countries in the world impose. Those hit our goods if we sell stuff to France, but then France exempts its own products.

So there’s a variety of barriers that countries put on us. And for Europe, for example, they tax us at roughly 18% more than we tax them. is that he is very good at spotting the details of a negotiation, of understanding who holds which cards, and then seeing whether he can get a better deal. And when he looks at Europe, the striking thing about really every one of our trade partners is that they need us a heck of a lot more than we need them.

To give you an idea, something like 1% to 2% of the American economy is producing for export to Canada or to Mexico. On the other hand, one fifth, or 20% of the Canadian economy is produced for export to the US. One third of the Mexican economy is produced for export to the US. That means that we have massive leverage over these countries.

Now, we could just make them dance to entertain us, but specifically what Trump is interested in doing is getting them to lower those barriers. And what he’s saying is, if you get rid of your barriers, we'll get rid of our barriers. But in the meantime, we’re going to calculate how much we think you’re tariffing us with those non-tariff barriers and the VAT tax and all this, and we’re going to put the exact same on you. Because the U.S. economy is so important, Mexico cannot give up a third of its economy. They would have riots. They can’t do it.

What Trump is doing is recognizing the enormous leverage we have over these countries. Now, that’s not even to speak of the military. So there’s a number of countries in the world that only exist because the American taxpayer covers their bills for the military. It’s true of Europe. It’s true of Japan and Korea. It’s certainly true of Taiwan. It is outrageous that any of these countries should have any trade barriers whatsoever against us, given what we give to them.

Trump recognizes this. The biggest shock of it has been why for the past 80 years has America been running around shining everybody’s shoes when we always had 10 to 1 leverage over these countries? You can debate whether perhaps there’s something corrupt going on there, that senators in the U.S. get sweetheart jobs when they leave office. There may be quite a bit of that. I hope DOGE might look, and I think they will.

But for the moment, what Trump is doing that’s different from previous administrations is he’s recognizing that, and saying to other countries, if you are going to tariff us, not just tariff, if you’re going to do other outrageous things. For example, Colombia didn’t want to take back its criminal illegal immigrants. They said, no thanks, we don’t want them. So Trump threatened 25% tariffs. He is getting countries back in line that have been abusing the U.S. in the past.

Mr. Jekielek: Will DOGE be able to cut two trillion as Elon Musk has proposed?

Mr. St Onge: The trick is Congress. Elon wants to, and I think Trump wants to. Congress is the problem. Congress is a drunk 16-year-old with a credit card. They have always been like that. They will grab a hold of every dollar and they'll find another way to spend it.

For example, Trump is trying to wind down the Ukraine war. He’s trying to resolve the Middle East conflict. Yet, Republicans in Congress are trying to increase the military budget, which is already obscenely high. So they need to be kept on a very short leash. The issue is that Republican voters are 90 to 95 percent with Trump. Whenever I talk about Republicans in Congress, the voters have a lot of frustration with them.

Traditionally, the way Congress has worked is that the mainstream media, the left-wing legacy media, was able to be their filter. They could whisper to the media and then they could manipulate reality. They could gaslight voters. Republicans in Congress have an institutional culture where they lean left, because if they go to the right and actually try to cut government, the media will come after them. Whereas, if they go left, the media will cover for them with voters.

One of the biggest lessons of the 2024 election was that those days are gone, right? They rolled out the H word every single day, the Austrian corporal, they rolled that out every single day in the last week. That had been very taboo in the old days. They went for broke and it didn’t work. Republicans in Congress are behind the curve. They don’t understand that those old days of left wing media covering for left wing policy are gone.

The media, whether it’s The Epoch Times or whether it’s people like me, we are the people who are talking with Republican voters. What is likely to happen in 2026 is that there’s going to be a lot of primaries where a lot of Rinos, a lot of left-wing Republicans are going to get knocked out. That is then going to serve as a warning to the rest of them, and they'll straighten up.

But for the moment, I think there’s still a lot of Republicans in Congress who would rather take all the DOGE savings and just find something else to spend it on. It could be farm subsidies. It could be more military. And Democrats, of course, always want to spend more money. That’s the whole point. So I’m less optimistic than I was in the beginning, simply because Congress doesn’t seem to be appropriately afraid of the voters yet.

Mr. Jekielek: Let’s go back to tariffs. What would be the optimal thing for the Canadian government to do in this scenario where, as you say, the U.S. has huge leverage?

Mr. St Onge: Yes, so you’ve got optimal on two levels. One question is, does the Canadian government care about the well-being of the Canadian people? The next question is, does the Canadian government care about its own well-being? With the first question, in a perfectly logical world where Justin Trudeau truly cares about every Canadian, he would go through these various trade distortions that Trump is complaining about. Things like enormous tariffs on American milk coming into Canada. Also, functionally, U.S. banks cannot operate in Canada.

You would go through each of those, one by one. You would sit down with Trump and say, OK, here’s the barriers that I think we’re putting on you. And then, you know, we’re going to get rid of these. Can you get rid of the ones that are hitting us, like timber and things like this? You would sit down and rationally even them out, and take away any reason for Trump to be upset, by getting rid of as many barriers as possible.

If this gave you a world where there’s genuine free trade between the U.S. and Canada, as if they were each other’s states, as an economist, that would be fantastic for both sides. That’s if they’re being perfectly rational. The next question is, what do people actually do? Humans are crooked timber after all, and people are self-interested.

What’s happening in Canada, that may happen in other countries, is that there is a rally around the flag, where Canadians might feel like the country itself is being attacked. There’s a reason for them to feel that way, given how Trump talks. But anyway, they might feel that way and actually rally around whoever the leader happens to be at the moment.

Mr. Jekielek: Canadians have a bit of an oppositional identity. Essentially, the rhetoric that the President of the United States is using on Canada ignites whatever embers of nationalism still exist up there. They say, wait, what are you saying? Governor Trudeau? Wait, 51st state? What is this?

Mr. St Onge: Yes, Trump is making America much more nationalist, and he’s making every other country much more nationalist as well. Which I’m not necessarily opposed to. I am a huge fan of MAGA. I’m also a huge fan of Canadians looking after Canada first. Taiwan should be Taiwan first. Japan should be Japan first. Every country should love their own country first.

If a national leader is not loyal to their own people, who exactly are they serving? Who are they supposed to be serving? United Nations? Big businesses? Who else is there? Again, you’ve got to serve somebody in life. It seems to me appropriate that the Canadian government does indeed serve the Canadian people and fights for them.

Mr. Jekielek: Because of this huge push to offshore manufacturing over the last 30 to 40 years, the US manufacturing industry has been gutted. It simply has to be rebuilt to have a proper America first policy. The question is how to do it given the complexities of the existing system of communist China holding so much US debt, of the way the financial flows work in the world, of our addiction to cheap goods, so to speak, from other places. How to get that manufacturing back given all of these complex realities?

Mr. St Onge: So dealing with China first, I think that it’s a little bit of a boogeyman in the sense that China very much does not want to stop exporting to the US. If they do that, tens of millions of Chinese workers will be unemployed. China already has significant social disturbances. They have riots. There was a bank run last year where they had the tanks come out and parade around the street.

China has got a lot of problems. They are not interested in gutting their own manufacturers. If you look at Trump’s tariffs the first time around, Beijing covered them. Beijing stepped in and wrote checks to companies to cover the tariffs. Why? Because China is extraordinarily unstable. They are very, very afraid of what happens when they become unstable.

When you get people who say, China will cut off our toy supply or pharmaceutical supply, they won’t be there in the near term. In terms of what the long game is here, I think that, so what you’re trying to do is to bring production back into your country. If we go back to Adam Smith—tolerable administration, peace, easy taxes, it’s not rocket science. If you lower business taxes, especially, but ideally income taxes, if you lower those taxes and you get rid of the stupid regulations so that the burdens are not as high, and then together with that, you put these tariffs on to punish companies for being outside the country, you can absolutely bring production back into the U.S.

One of the things Trump has floated is having really high tariffs and getting rid of the income tax. Just for argument’s sake, today the U.S. is one quarter of world GDP. It is a tremendous market. So if you had a 25% tariff on everybody outside of the U.S., or you could produce in the U.S. where you would pay zero income tax and you had very few number of dumb regulations that you had to follow, everybody would be moving here. Chinese companies would be falling over themselves to move to the U.S. Beijing would have to block them.

So I think that it can absolutely work. The trick is there is some pain in the middle. Chinese toys and toasters are going to be more expensive in the interim, depending on whether Beijing covers it. Again, there is going to be some pain in the middle, but what he’s aiming at here is absolutely possible. I would take dramatic reductions in taxes, it would take dramatic reductions in spending, and it would take dramatic reductions in regulations. For a lot of that, he is going to need Congress to play ball, which comes back to the voters. Will Congress be feeling the heat from the voters?

Mr. Jekielek: Do you think the American public has the stamina to tighten up the belt, which will be necessary to see this through?

Mr. St Onge: Right. We’re about to fly a plane that’s never been flown before, which is that we have had a left wing media ever since Pulitzer in 1890. OK, so we’ve had 130 years of left wing media. In that world where that left wing media was framing everything, I would have said absolutely not. It ain’t going to work.

But we have a different media now. For the Trump voters, after all the things that the media was saying about him, you would need to be completely unplugged, or you would have opened your eyes to understand what the legacy media is. So we’ve never driven this car, and we’ve never flown this plane. We don’t know exactly what will happen.

I suspect that Trump supporters are on board. They, you know, are willing to suffer some pain. I put out polls on X every so often. My supporters are overwhelmingly Trump voters. Like 85 to 90% of people say, let’s do it. We can tighten our belts. They know what’s on the other side of it. Given that Trump won the election, if he keeps Trump voters, then that’s that. It doesn’t matter.

The Democrats will keep complaining, but it doesn’t matter. If he wants to get moderate Republicans on board there, he’s going to have to appeal to the independents. You could even get moderate Democrats in theory. For that, it’s going to be that battle royale between the left-wing legacy media and the new media. Again, people like us and thousands of other people like us out there on social media don’t know the answer to that question yet. It’s going to be interesting to be sure.

Mr. Jekielek: You’ve made a very interesting analysis of China. You’ve described China as going pear-shaped into a doom loop. Explain to me what this imagery means exactly. What’s happening over there?

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Mr. St Onge: It’s the pear-shaped doom loop. China is a fascinating mix because on the micro level, right on the firm level the individual company it’s surprisingly free market you can do a lot of things you can get done things done very very quickly if you look for example at new technologies so if you take electric vehicles, at one point there was something like 110 companies in China making electric vehicles.

That is a shocking degree of entrepreneurship that speaks to the vibrancy of Chinese culture. I used to work in a big toy company in Japan, and we competed with the Chinese. They are on the ball. They’re sharp. They’re smart. They’re fast.

On a micro level, China is just incredibly powerful, and Americans need to be very, very aware of that. However, it’s run by communists, and there is this top-down bureaucracy that allocates capital and manipulates interest rates. It is arguably worse than the European Union in terms of how it screws up the economy. You can kind of feel for the individual companies. They’re hustling and they’re doing their best. But they have this monster on top of them that’s screwing things up.

Mr. Jekielek: They also function at the behest of the regime. At any moment, They can get shut down. It’s not quite as free as you portray it.

Mr. St Onge: Absolutely. By the way, that’s a model that China is trying to export to the entire world. They sit down with Saudi Arabia or with countries in Africa and they say, look, we’re going to help you. We want access to your oil and in return, we’re going to build you a railroad line. But then they also give them advice and they say, listen, free up the companies, but zero political rights. That’s the Chinese recipe and that is what they’re trying to export to the whole world.

Right now, the Chinese economy is flirting with deflation, and it’s flirting with recession. The reason is because the central government flooded so much money into industries where they essentially picked the winners. It’s a bit like Japan in the 1980s, but on steroids, right? Back then you had medium IT, and they would sit there, the Jedi council with the big brains, and they would decide what the next industry is going to be. Then they would flood capital out of that and you would get something like 110 EV companies.

Notably, almost all of those 110 EV companies have gone bust now. So the illustration is not only that Chinese have an amazing amount of entrepreneurial verve, but also that the government is so stupid in how it allocates companies. Because if you dump money out to build 110 companies, then 90% of those go bust, you are wasting enormous amounts of capital. There are people who live in China who talk about how their local bus stop was rebuilt like five times, because the local government had to juice up the GDP numbers to show to the central government. There’s just an enormous, shocking amount of waste in China.

A lot of that comes out as overproduction. So they’re currently dumping a whole lot of products, selling them below cost because they got this free capital from the central government. So there’s an enormous amount of waste in China. When you tally up all the levels of debt in China, it is higher than most Western countries. That massive overcapacity and the dumping it creates is causing a lot of trade friction with Trump, but also with the European Union. The EU has put tariffs on Chinese EVs, for example.

There are probably going to be more industries where trade partners put tariffs on China specifically because they’re dumping all this capacity because the central government dumped money into it. So it’s sort of the classic central planning mistake. They fall in love with some industry or with some idea. They dump metric tons of capital into it, and then you end up getting a boom bust in all these industries. When those are happening all at once, then that can affect the entire economy.

Mr. Jekielek: They also have certain products and industries and companies which have strategic importance for them, and Huawei comes to mind. I’ve talked with diplomats from a number of countries that have allowed Huawei in, and they all said, they gave us such a great deal. I always said to them, they gave you a great deal because they want to have their infrastructure in your country.

Mr. St Onge: Absolutely. China does engage in a lot of unfair trade practices. One of the most infamous is that it forces tech transfer. So if you want to operate in China, then you literally have to train your competitors. Companies will do this because they’re looking at the short run. They’re not thinking about the long game.

But if you’re Huawei and you’re essentially cloning Cisco technology that you didn’t have to develop, you could just copy it because Cisco was forced to share it with you. That’s a heck of a deal. So there’s a lot of unfair trade practices that go on specifically with China, which is why I think there’s a lot more sympathy for what Trump is doing with China than even with other countries.

Mr. Jekielek: What is a doom loop? What is the outcome of that?

Mr. St Onge: A doom loop is the idea that your economy declines, and then the governance gets worse because of the declining economy. For example, if the government is forced to spend more to cover failed factories, the tariffs, for example, Beijing stepping in and paying those tariffs, is all very expensive. And if the economy is shrinking underneath you and the requirements for government action are actually growing, then that’s the term for that is a doom loop.

This happens in American cities. It can happen to Western countries if you get a really bad recession, and then the government responds to the recession by actually increasing its intervention in the economy. But that’s exactly what’s happening in China right now. One of the fears in China is that if you look at bonds, China is actually starting to look a lot like Japan did in the 1990s.

So bond markets are starting to ask, is China entering a long stagnation where bad central planning decisions are combined with bad demographics, the Chinese population shrinking by close to 2 million per year, which is quite a big number. And so whether those are combining so that the sort of glory days of the Chinese miracle are over.

Deng Xiaoping is the one who really liberalized the Chinese economy. The leaders since then generally averaged around eight to nine percent economic growth every year. This is why most people our age will think of China as being this miracle economy. But under President Xi, it’s been half for a poor country. The Chinese miracle is, what, 15 years out of date at this point. You look at stocks in Shanghai. They’ve been flat since 2008.

There is still this idea in the West that China can do no wrong, almost worshipful view of China. But China has a lot of issues. At this point, I think it’s really 50-50 whether it enters that doom loop and becomes Japan, or maybe Xi is replaced, or maybe Xi sees the writing on the wall and mends his evil ways and at least goes back to some of his predecessors like Hu Jintao.

Mr. Jekielek: What is the impact on the U.S. of this whole thing? Foreign direct investment has gone basically to zero now and people see it as not a good environment. There are now Chinese companies listed in the U.S. exchanges via these VIEs that are shell companies in the Cayman Islands. It’s an estimated $700 billion that Americans basically have invested into something which the SEC warns might actually be illegal from the Chinese perspective, and that you’re not actually owning anything tangible.

Mr. St Onge: Right. Also, on the flip side, it gives us a leverage point against China. If a lot of the Chinese champions are held overseas, whether it’s listed in the Caribbean or whether it’s in New York, we obviously have leverage over that. Honestly, it’s perfect timing for Trump. He is in a situation where China has to dump in order to stay alive. He’s also in a situation where Xi has been very bothersome to foreign companies in China.

I often joke that building a factory and investing in China is like dating a stripper. It’s fine in normal times, but you never know when you’re going to have some drama. I think that’s really true. Companies that have significant operations in China have to pay attention to the politics. They have to constantly be aware. There have been cases where foreign CEOs have been detained, held hostage, essentially, in order to put pressure on them.

So if companies are already a little bit dissatisfied with their relationship with China, they’re already moving offshore to places like Vietnam or even Ethiopia for clothing. They’re trying to get out of China to begin with. And then you’ve got China dumping, you know, which sort of encourages other countries like Europe to sort of form a united front against China.

The timing is almost providential for Donald Trump. It’s everything he wants because he is trying to lure companies out of China and he’s trying to get other countries to get together to put up a wall against China, partly to encourage China to behave better, but partly to lure those companies away. So I think China is very much concerned about what’s happening right now.

Mr. Jekielek: You are bullish on the U.S. economy. But it will be like threading a needle to get it all right, to get through to the other side, and to get to the golden age that President Trump has been promising.

Mr. St Onge: I think it is. I would not be surprised if we had a fairly severe recession the next year or two. We’re overdue. We haven’t had one in a very long time, since 2008. The 2020 recession was, you know, it was engineered. It was not a natural recession. It would not be shocking if we did, but long-term, I am extremely bullish. The reason is because golden ages can end one of two ways.

One of them is that they go into terminal decline and it is uninterrupted and that’s that. And then it stays down for potentially centuries. The other is that you get that political cycle. What is it? Good times make weak men, bad times make strong men. That’s a more than 2,000-year-old observation that you have that cycle. It stands the historical test of time.

For me, what has made me really bullish is that I was shocked that Trump won. When you look at the institutions that were arrayed against him, go back to the Covid days where like every organization in our country and really across the West, like the American Academy of Actuaries had strong opinions about BLM. It was weird. It was like the entire country had been taken over. It was like the invasion of the body snatchers.

Then to go from that to where we are now, where Trump won, and he’s just completely disassembling the entire left. This tells me that we are on that cycle. Okay, we are in the hard times that make strong men. We’re not out of the game. If you’re on that cycle, then you have a long way to go. So I am extraordinarily bullish.

What happens in the next 12 to 18 months? It could go either way. We have this stagflationary hangover from Biden. A lot of good things Trump’s doing are going to take time. There’s lawfare. There’s Congress standing in the way. There’s a lot of what ifs. But long term, I am very, very bullish on the U.S.

Mr. Jekielek: Things could change dramatically in just two years. Elections, as they say, have consequences.

Mr. St Onge: Yes, absolutely. We‘ll see what happens in 2026. Does the media succeed in poisoning voters against Trump or does it backfire? We’ll be getting information along the way. We’re already seeing popularity numbers where Trump is actually rising in the polls. Again, he’s being uniformly attacked by all the traditional institutions and societies. The fact that he’s becoming more popular, makes me think that a majority of the people may have broken free. If that’s the case, then America is going to go into a golden age.

Mr. Jekielek: After the State of the Union address, I saw a poll from CBS where 76% of viewers were positive about the message.

Mr. St Onge: It’s astounding. That was about 20 to 25 points higher than the share of Republicans who were watching. So either all independents loved the speech or a significant number of Democrats are walking away from the party. So yes, I am very, very optimistic right now.

Mr. Jekielek: Peter, any final thoughts as we finish up?

Mr. St Onge: If you look at what a difference it’s been since 2021, the dark days of Covid, this is one for the history books. We are living history right now.

Mr. Jekielek: Peter St Onge, it’s such a pleasure to have you on the show.

Mr. St Onge: Thank you for having me on, Jan.

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