Latest / Sharp China Podcast / Sharp China: Questions and Expectations for Trump 2.0; Looming Trade Tensions and PRC Responses; Volatility and Intermediaries; TikTok’s Last Hope?

Transcript

Sharp China: Questions and Expectations for Trump 2.0; Looming Trade Tensions and PRC Responses; Volatility and Intermediaries; TikTok’s Last Hope? · Sharp China Podcast

0:04
SPEAKER_03: Hello and welcome back to another episode of Sharp China.
0:08
SPEAKER_03: I'm Andrew Sharp.
0:10
SPEAKER_03: And on the other line, Bill Bishop.
0:12
SPEAKER_03: Bill, how you doing?
0:14
SPEAKER_01: Hey, Andrew.
0:15
SPEAKER_01: Hey, everybody.
0:16
SPEAKER_01: Doing well.
0:16
SPEAKER_01: Hope everyone's doing well.
0:18
SPEAKER_01: It's been a momentous week here in D.C.
0:20
SPEAKER_03: Yeah, some unseasonably warm days around D.C.
0:23
SPEAKER_03: this week.
0:24
SPEAKER_03: Spectacular weather.
0:25
SPEAKER_03: I would say the mood is decidedly mixed around D.C.
0:29
SPEAKER_03: this week.
0:30
SPEAKER_03: But here we are, you know, regardless of who's president, the commanders are seven and two.
0:35
SPEAKER_03: The Wizards are looking a little frisky.
0:37
SPEAKER_03: I don't know whether you've caught any Wizards,
0:39
SPEAKER_03: a little sharp shot of sports at the top,
0:41
SPEAKER_03: but the Wizards are the only sports team I truly care about.
0:45
SPEAKER_03: And I feel good about them for the first time in about seven years.
0:48
SPEAKER_03: So I'm in a good mood because of a bunch of 19 year olds that are giving me hope for the Wizards.
0:54
SPEAKER_01: Well, I hope your hope isn't crushed.
0:56
SPEAKER_01: Yeah, well, it usually is.
0:58
SPEAKER_01: That's all I can say.
0:59
SPEAKER_01: The Wizards,
1:00
SPEAKER_01: the last time the Wizards won,
1:01
SPEAKER_01: I think,
1:02
SPEAKER_01: a championship,
1:03
SPEAKER_01: I was in elementary school and they were the Bullets.
1:05
SPEAKER_01: Oh, God.
1:06
SPEAKER_01: Yep.
1:06
SPEAKER_01: It's been a while.
1:07
SPEAKER_01: You probably wouldn't have been born yet.
1:08
SPEAKER_01: I don't want to go there.
1:10
SPEAKER_03: They've never won 50 games in my lifetime.
1:12
SPEAKER_03: So one day we'll hit that mark.
1:15
SPEAKER_03: I'm not even worried about a championship.
1:17
SPEAKER_03: But in any event,
1:19
SPEAKER_03: yes,
1:19
SPEAKER_03: the election was resolved in about one day and was not a weeks long fight that
1:25
SPEAKER_03: drove the entire country insane.
1:27
SPEAKER_03: So we've got that going for us.
1:29
SPEAKER_03: Former President Trump is now the president elect.
1:33
SPEAKER_03: And as apolitically as we can,
1:36
SPEAKER_03: I want to talk through some of the U.S.-China implications of a Trump presidency,
1:41
SPEAKER_03: which you wrote about on Wednesday.
1:43
SPEAKER_03: There are a lot of unknowns here, but I'll start with Reuters.
1:47
SPEAKER_03: They write,
1:48
SPEAKER_03: China's President Xi Jinping congratulated Donald Trump on his U.S.
1:52
SPEAKER_03: presidential win and urged both nations to find the right way to get along.
1:58
SPEAKER_03: Stable, sound, and sustainable China-U.S.
2:01
SPEAKER_03: relations serve the interests of both,
2:03
SPEAKER_03: Xi said on Thursday,
2:05
SPEAKER_03: adding that the international community would expect the two powers to,
2:09
SPEAKER_03: quote,
2:09
SPEAKER_03: Respect each other and coexist peacefully.
2:12
SPEAKER_03: And she also discussed forging the right path for China and the United States to
2:18
SPEAKER_03: get along in the new era,
2:19
SPEAKER_03: benefiting both countries and contributing to the world.
2:24
SPEAKER_03: And China Daily,
2:25
SPEAKER_03: they portrayed Trump's second presidency as a potential new beginning in U.S.-China
2:30
SPEAKER_03: relations if the chance that has been offered is not wasted.
2:34
SPEAKER_03: So, Bill, what did you think of Xi's congratulations to Trump?
2:38
SPEAKER_03: And have there been any other indications from state media as to how the PRC is processing this news?
2:46
SPEAKER_01: No, that I think is the best indication is that congratulatory message to President-elect Trump.
2:51
SPEAKER_01: There were some reporting that
2:52
SPEAKER_01: Xi had called him.
2:53
SPEAKER_01: He didn't call him.
2:54
SPEAKER_01: He sent a congratulatory message.
2:55
SPEAKER_01: And, you know, the language, I mean, the thing that's most interesting, I thought, was just language.
3:00
SPEAKER_01: I mean,
3:00
SPEAKER_01: again,
3:01
SPEAKER_01: it's most of it or all of it in various forms we heard before,
3:04
SPEAKER_01: but it's sort of the Xi saying they hope they can forge the right path for China
3:08
SPEAKER_01: and the United States to get along in the new era,
3:10
SPEAKER_01: benefiting both countries and contributing to the world.
3:13
SPEAKER_01: And of course the right or correct path is one of those things that's up for debate.
3:18
SPEAKER_01: And it will certainly tie into the,
3:20
SPEAKER_01: you know,
3:20
SPEAKER_01: one of the complaints the Chinese always have is that the U S you know,
3:23
SPEAKER_01: the admonitions to the Biden administration is,
3:25
SPEAKER_01: you know,
3:26
SPEAKER_01: you have to have the correct perception of China.
3:28
SPEAKER_01: And, and,
3:29
SPEAKER_01: I think that they're going to find that from their perspective,
3:31
SPEAKER_01: President Trump and his team probably don't have the correct perception of China either.
3:35
SPEAKER_01: And so I think, what else is she going to say?
3:38
SPEAKER_01: I mean, in some ways, they know Trump, right?
3:42
SPEAKER_01: They've dealt with Trump for four years.
3:43
SPEAKER_01: She dealt with Trump for four years.
3:45
SPEAKER_01: And so they might be able to cut through some of the sort of sniffing around to get
3:49
SPEAKER_01: to know you BS that you would have with a new or untested
3:54
SPEAKER_01: president and their team.
3:56
SPEAKER_01: And so maybe it may end up that things move faster on the US-China side once Trump gets back into power.
4:04
SPEAKER_01: And a lot of that will depend, of course, on how Trump populates his team.
4:08
SPEAKER_01: But from the Chinese perspective, I think they clearly understand Trump to the extent that you can.
4:14
SPEAKER_01: They have a lot of experiences.
4:16
SPEAKER_01: I think one of the things that they bring to the table...
4:18
SPEAKER_01: This time is that they are in a much better position to deal with what Trump and
4:23
SPEAKER_01: his team would throw at them than they were six or seven or eight years ago.
4:27
SPEAKER_01: And one of these interesting writers today we're recording on November 7th.
4:30
SPEAKER_01: This comes out on November 8th.
4:32
SPEAKER_01: Number eight is seven years ago.
4:34
SPEAKER_01: Trump was on his sort of I think it was like the state visit plus to China.
4:39
SPEAKER_01: And, you know, one got a nice tour of the Forbidden City with Xi.
4:42
SPEAKER_01: I saw that picture.
4:43
SPEAKER_01: picture of him in the city yeah so again this is a mostly a known quantity I think
4:48
SPEAKER_01: from the US perspective it really one of the things that will be interesting to see
4:52
SPEAKER_01: how the Trump team and the president himself what kind of recognition they have
4:57
SPEAKER_01: about how quick how much
5:00
SPEAKER_01: China has changed and also how much she has pushed the country towards being in a
5:06
SPEAKER_01: much stronger position,
5:08
SPEAKER_01: both in terms of moving towards more self-sufficiency in a lot of areas,
5:11
SPEAKER_01: but also in terms of building up a toolkit to respond to
5:16
SPEAKER_01: tariffs, trade coercion, etc.
5:19
SPEAKER_03: Yeah, no, exactly.
5:20
SPEAKER_03: I mean,
5:21
SPEAKER_03: it certainly seems like and I don't know how much of that was inevitable and how
5:26
SPEAKER_03: much of that was a response to some of the experience during the first Trump
5:31
SPEAKER_03: administration and lessons learned then.
5:33
SPEAKER_03: And,
5:34
SPEAKER_03: you know,
5:34
SPEAKER_03: she looking to solidify the economic base so that they're not vulnerable to that
5:41
SPEAKER_03: sort of coercion in the future.
5:43
SPEAKER_01: I think it was inevitable, but accelerated.
5:45
SPEAKER_01: And then I think also the sanctions on Russia around Ukraine also accelerated that work.
5:52
SPEAKER_01: And so I would not expect the Chinese to do anything that they think would,
5:57
SPEAKER_01: quote unquote,
5:57
SPEAKER_01: anger Trump before he gets back into power for January 20th.
6:00
SPEAKER_01: But I also don't think that there will be
6:03
SPEAKER_01: a lot of patience on the Chinese side for big blustery threats and then moving
6:09
SPEAKER_01: quickly on,
6:09
SPEAKER_01: say,
6:09
SPEAKER_01: adding tariffs.
6:10
SPEAKER_01: I think the Chinese are less likely this time to just kind of take it and hope they
6:14
SPEAKER_01: can figure out some sort of way to mollify Trump and more make a point of saying,
6:19
SPEAKER_01: you know,
6:20
SPEAKER_01: we are different too now.
6:21
SPEAKER_01: Things have changed, is I think how they're probably more likely to approach it.
6:25
SPEAKER_01: But to start,
6:27
SPEAKER_01: I think they would much prefer to find a way to not even get to the point where
6:30
SPEAKER_01: they have to do that.
6:31
SPEAKER_03: Right.
6:32
SPEAKER_03: Well, this congratulations full of stock language is a worthy move in that direction.
6:40
SPEAKER_01: Well,
6:40
SPEAKER_01: the real stuff,
6:41
SPEAKER_01: the real action will be,
6:42
SPEAKER_01: so who are they now sending to the US to try and augment the PRC embassy's work
6:48
SPEAKER_01: around who matters in Trump world?
6:49
SPEAKER_01: How can they start getting meetings and get a better sense of what a Trump
6:53
SPEAKER_01: administration will look like in terms of China policy?
6:56
SPEAKER_01: I wrote about it yesterday.
6:57
SPEAKER_01: I talked about it a few weeks ago in that
6:59
SPEAKER_01: election dialogues thing I did with Chris Johnson,
7:02
SPEAKER_01: I think the Chinese government had a pretty good sense of who,
7:05
SPEAKER_01: say,
7:05
SPEAKER_01: a Harris administration China team would be.
7:07
SPEAKER_01: They know a lot of those people.
7:08
SPEAKER_01: A lot of them are in think tanks now or already in the government.
7:11
SPEAKER_01: On the Trump side, there's a lot more of...
7:16
SPEAKER_01: still uncertainty about who's going to staff what positions,
7:18
SPEAKER_01: especially around China policy,
7:20
SPEAKER_01: and at least at the sort of not the top levels.
7:23
SPEAKER_01: And so I think the Chinese are scrambling now to understand who to deal with.
7:27
SPEAKER_01: And I would not be surprised if we see the former ambassador of the U.S.,
7:30
SPEAKER_01: Fei-Tian Kai,
7:31
SPEAKER_01: who's been coming to the U.S.
7:32
SPEAKER_01: a lot.
7:33
SPEAKER_01: will probably pop up maybe even in Palm Beach just because he had a relationship
7:37
SPEAKER_01: with Jared Kushner and Trump's daughter,
7:40
SPEAKER_01: Ivanka.
7:41
SPEAKER_01: Again,
7:41
SPEAKER_01: whether or not they're going to be involved in this administration,
7:43
SPEAKER_01: when Tsai was ambassador,
7:45
SPEAKER_01: he was very assiduous in working the first daughter and her husband,
7:50
SPEAKER_01: Jared.
7:50
SPEAKER_01: And that turned out to be a very important, I think, useful back channel for the Chinese.
7:55
SPEAKER_03: Yeah,
7:56
SPEAKER_03: well,
7:56
SPEAKER_03: and it's pretty interesting because the Financial Times wrote about it a month or
8:00
SPEAKER_03: two back and we mentioned it on the podcast before.
8:03
SPEAKER_03: But because of the Russia scandal in 2016 and just general paranoia in the lead up to this election.
8:13
SPEAKER_03: Right.
8:13
SPEAKER_03: Right.
8:29
SPEAKER_03: it created this sort of barrier as, the PRC tried to get a sense for how this might play out.
8:36
SPEAKER_03: But,
8:37
SPEAKER_03: uh,
8:37
SPEAKER_03: before we get to how this might play out,
8:39
SPEAKER_03: I want to go back to the four years of interactions that we've already seen between
8:44
SPEAKER_03: the Trump campaign and the PRC or the Trump administration and the PRC.
8:49
SPEAKER_03: And I came up with a list of questions here on Trump 2.0 implications.
8:55
SPEAKER_03: Um,
8:56
SPEAKER_03: This was actually number two on the list of questions, but I'll start here just to provide a baseline.
9:00
SPEAKER_03: So for anyone in the Stratechery audience who's new to these issues or who only
9:05
SPEAKER_03: started paying attention after we started hosting the best China podcast anywhere,
9:11
SPEAKER_03: can you refresh people's memory on how the trade tensions emerged in the first
9:17
SPEAKER_03: Trump administration,
9:18
SPEAKER_03: what the trade deal was,
9:21
SPEAKER_03: and why Trump thinks that China reneged on its end of that trade deal?
9:26
SPEAKER_01: So it was about a trade deficit.
9:29
SPEAKER_01: Trump wanted to fix the trade deficit.
9:32
SPEAKER_01: The U.S.
9:33
SPEAKER_01: was importing more from China than they were importing from the U.S.
9:37
SPEAKER_01: And it ramped up.
9:38
SPEAKER_01: Trump had a lot of campaign rhetoric about China.
9:42
SPEAKER_01: Then 2017, he was inaugurated in January.
9:44
SPEAKER_01: I think by May or so,
9:46
SPEAKER_01: I forget the exact date,
9:47
SPEAKER_01: but there was the Mar-a-Lago summit where Xi Jinping came to the U.S.
9:51
SPEAKER_01: and they actually met at Mar-a-Lago.
9:54
SPEAKER_01: And there was talk of trying to figure stuff out.
9:57
SPEAKER_01: There was threats.
9:58
SPEAKER_01: And then you had basically a Bob Lighthizer,
10:02
SPEAKER_01: who is head of USDR,
10:03
SPEAKER_01: who launched an investigation that then led to Trump administration saying,
10:06
SPEAKER_01: we're going to put all these tariffs.
10:07
SPEAKER_01: And then they... But...
10:10
SPEAKER_01: They were trying to negotiate through some sort of a broader deal.
10:15
SPEAKER_01: And the US had a... I mean, just for purposes of simplification, I'm skipping around a little bit here.
10:21
SPEAKER_01: So basically,
10:22
SPEAKER_01: the US said they wanted China to buy more stuff,
10:26
SPEAKER_01: specifically agricultural goods,
10:28
SPEAKER_01: one of the key items,
10:29
SPEAKER_01: again,
10:29
SPEAKER_01: because that's also an important constituency for politicians here in the US.
10:33
SPEAKER_01: They also wanted...
10:35
SPEAKER_01: China to make certain commitments to kind of structural reforms that would open up
10:40
SPEAKER_01: their markets more and level the playing field for foreign companies,
10:45
SPEAKER_01: but specifically American companies,
10:47
SPEAKER_01: and reduce subsidies,
10:48
SPEAKER_01: etc.,
10:50
SPEAKER_01: And basically, they went back and forth on these negotiations.
10:54
SPEAKER_01: The point person on the Chinese side was Liu He.
10:56
SPEAKER_01: On the US side, it was really mostly Trump.
10:58
SPEAKER_01: But then it was then Treasury Secretary Mnuchin and USTR head Lighthizer.
11:04
SPEAKER_01: And basically, ultimately, they couldn't get a deal.
11:08
SPEAKER_01: They thought they had a deal a few times.
11:10
SPEAKER_01: So then Trump adds these tariffs.
11:12
SPEAKER_01: Then they announced a deal,
11:14
SPEAKER_01: but the way they finally sliced the deal was instead of just one big deal,
11:18
SPEAKER_01: it was sort of phase one,
11:19
SPEAKER_01: phase two,
11:19
SPEAKER_01: phase three,
11:20
SPEAKER_01: where the understanding really was phase one was the Chinese agreed to buy a bunch
11:24
SPEAKER_01: of stuff.
11:26
SPEAKER_01: And that's easy.
11:26
SPEAKER_01: The Chinese would have bought stuff the first day if that's all the US wanted.
11:29
SPEAKER_01: Right.
11:30
SPEAKER_01: And then phase two was supposed to be some of these more structural things,
11:33
SPEAKER_01: which no one expected would happen,
11:35
SPEAKER_01: and they didn't.
11:36
SPEAKER_01: But then even on the commitments, the purchase commitments on the Chinese side, they didn't hit them.
11:41
SPEAKER_01: And they will say, well, COVID hit, there's pandemic, etc.
11:44
SPEAKER_01: But ultimately, it was not a...
11:48
SPEAKER_01: It was not a successful deal for the U.S.
11:51
SPEAKER_01: And now you have to wonder when Trump, you know, he comes back in in 74 days or so.
11:58
SPEAKER_01: He doesn't need, you know, again, he's not also worried about reelection.
12:03
SPEAKER_01: Right.
12:04
SPEAKER_01: So he may not be so concerned about modifying certain constituencies in the U.S.
12:08
SPEAKER_01: so quickly.
12:09
SPEAKER_01: One of the questions then is,
12:11
SPEAKER_01: do they – and especially it goes back to,
12:13
SPEAKER_01: well,
12:14
SPEAKER_01: what role,
12:15
SPEAKER_01: if any,
12:16
SPEAKER_01: will Ambassador Lighthizer have?
12:17
SPEAKER_01: And we keep hearing probably a pretty significant role.
12:21
SPEAKER_01: I think he's not happy with how that deal ended up.
12:24
SPEAKER_01: And so then the question will be, will the U.S.
12:27
SPEAKER_01: make sort of broader demands for –
12:30
SPEAKER_01: Again,
12:30
SPEAKER_01: more of the structural changes,
12:31
SPEAKER_01: changes that have actually in some ways gotten even worse in the intervening four years.
12:37
SPEAKER_01: You know, when the U.S.
12:38
SPEAKER_01: talks about overcapacity, of course, the Chinese say there's no overcapacity.
12:41
SPEAKER_01: But the U.S.
12:42
SPEAKER_01: and the allies talk about, you know, industrial subsidies overcapacity.
12:46
SPEAKER_01: That, I think, was something that the Trump administration economic folks would also agree with.
12:50
SPEAKER_01: And so I think there's a reasonably high likelihood that pretty quickly you'll get
12:55
SPEAKER_01: right back into that sort of heated rhetoric and potentially,
12:58
SPEAKER_01: I mean,
12:59
SPEAKER_01: Trump has talked about up to 60% tariffs.
13:02
SPEAKER_01: I think we should take him at face value.
13:04
SPEAKER_01: Maybe there are not 60, there'll be 20 or 30 because you say a big number to negotiate.
13:09
SPEAKER_01: But it isn't at all clear what the Chinese can offer to get him to back down on the
13:15
SPEAKER_01: talk of putting more tariffs on Chinese goods.
13:17
SPEAKER_01: He means what he says, essentially.
13:21
SPEAKER_01: I also just think that they're unlikely to just go back down the old road they went
13:25
SPEAKER_01: down in Trump 1 that really ended up with not a particularly good deal.
13:29
SPEAKER_03: Right.
13:30
SPEAKER_03: Well, and Bob Lighthizer, you link to this in your cynicism piece on Wednesday.
13:35
SPEAKER_03: His essay in the Financial Times,
13:37
SPEAKER_03: I believe a week ago,
13:39
SPEAKER_03: he said,
13:40
SPEAKER_03: "...what we have seen in recent decades is countries adopting industrial policies
13:44
SPEAKER_03: that are designed not to raise their standard of living,
13:46
SPEAKER_03: but to increase exports in order both to accumulate assets abroad and to establish
13:51
SPEAKER_03: their advantage in leading-edge industries."
13:54
SPEAKER_03: These are not the market forces of Smith and Ricardo.
13:57
SPEAKER_03: These are beggar thy neighbor policies that were condemned early in the last century.
14:02
SPEAKER_03: Countries that run consistently large trade surpluses are the protectionists in the global economy.
14:08
SPEAKER_03: Others, like the US, that run perennial huge trade deficits are the victims.
14:14
SPEAKER_03: So that pretty clearly distills where Lighthizer is, at least.
14:20
SPEAKER_03: And it doesn't name China explicitly, but is pretty much... A lot of that is China.
14:28
SPEAKER_01: No, that's right.
14:29
SPEAKER_01: And I think that...
14:30
SPEAKER_01: The other thing,
14:31
SPEAKER_01: though,
14:31
SPEAKER_01: Trump did in Trump 1 is he had the moment where he basically cut off ZTE,
14:37
SPEAKER_01: the telecoms company,
14:38
SPEAKER_01: and then a week or so later tweeted that he had a conversation with Xi Jinping who
14:42
SPEAKER_01: asked him to uncut off ZTE because people were going to lose their jobs.
14:45
SPEAKER_01: And so he backed off.
14:46
SPEAKER_01: But then his administration moved forward on Huawei.
14:49
SPEAKER_01: They put on several restrictions.
14:51
SPEAKER_01: They asked the Canadians to arrest the CFO who was transiting through Vancouver.
14:56
SPEAKER_01: So that,
14:57
SPEAKER_01: again,
14:57
SPEAKER_01: I think when you fast forward to January,
15:01
SPEAKER_01: it's hard to see how the Trump team will have a less dark view of China's
15:06
SPEAKER_01: development than they did four,
15:08
SPEAKER_01: four and a half years ago.
15:10
SPEAKER_01: And it's interesting too,
15:11
SPEAKER_01: because if you look at the Biden administration,
15:14
SPEAKER_01: the Biden administration really continued and intensified many of the policies the
15:18
SPEAKER_01: Trump administration put in place around trade and technology.
15:21
SPEAKER_01: They did it with...
15:23
SPEAKER_01: with more of a smile and more of an attempt to persuade allies to get on board.
15:29
SPEAKER_01: I think that the Trump administration will be more likely not really worry about that.
15:34
SPEAKER_01: Well,
15:35
SPEAKER_01: you know,
15:35
SPEAKER_01: I think they would prefer,
15:36
SPEAKER_01: I think they understand that it's better to have other countries involved if
15:40
SPEAKER_01: they're willing to,
15:41
SPEAKER_01: but they're probably going to be a little more forceful and sort of get on board or,
15:45
SPEAKER_01: you know,
15:46
SPEAKER_01: my way or the highway.
15:47
SPEAKER_03: FDPR.
15:49
SPEAKER_03: Yeah, no, I mean, it is interesting.
15:52
SPEAKER_03: Just in terms of thinking back,
15:54
SPEAKER_03: I mean,
15:55
SPEAKER_03: I was not hosting this podcast during the first Trump administration,
15:59
SPEAKER_03: and I was not thinking about these issues every week.
16:02
SPEAKER_03: But thinking about China policy under Trump, my memories, I mean, I would say two things.
16:07
SPEAKER_03: I think Trump deserves credit for breaking with past administrations and
16:12
SPEAKER_03: understanding China as a competitor and not a potential ally and
16:17
SPEAKER_03: a framework for understanding the PRC that,
16:21
SPEAKER_03: as you said,
16:21
SPEAKER_03: has remained pretty consistent under the Biden administration.
16:25
SPEAKER_03: The way they execute policy and approach some of these conflicts may differ from
16:32
SPEAKER_03: administration to administration,
16:33
SPEAKER_03: but the baseline understanding has been pretty consistent under
16:37
SPEAKER_03: As far as actual policy,
16:38
SPEAKER_03: though,
16:39
SPEAKER_03: I mean,
16:40
SPEAKER_03: I recall the China approach as being almost schizophrenic,
16:44
SPEAKER_03: where the security and business folks were pushing different agendas.
16:49
SPEAKER_03: And on the outside, it seemed like some of the decision-making
16:53
SPEAKER_03: depended on who happened to have Trump's ear that day.
16:58
SPEAKER_03: And so I'm curious as to whether some of that schizophrenia will continue.
17:03
SPEAKER_01: No, I mean, that's the big question.
17:04
SPEAKER_01: It was exhausting.
17:05
SPEAKER_01: It was exhausting, I think, for people working in the administration.
17:07
SPEAKER_01: It was exhausting for people trying to figure out what's going on.
17:10
SPEAKER_01: A lot of it was policy by tweet.
17:12
SPEAKER_01: Right.
17:14
SPEAKER_01: Or phone conversation with she about ZTE.
17:17
SPEAKER_01: And so, no, that is one of those questions where we just don't know.
17:22
SPEAKER_01: And that's why it's in many ways, it's really hard to say anything specific about what Trump may do.
17:27
SPEAKER_01: I think, I mean, I'm fairly confident of the general direction of travel.
17:31
SPEAKER_01: However...
17:33
SPEAKER_01: there is always a chance that there's some reason to make a deal or there's
17:37
SPEAKER_01: something that's offered that he decides this makes more sense.
17:40
SPEAKER_01: And I think that the way...
17:43
SPEAKER_01: I mean,
17:44
SPEAKER_01: he listens,
17:45
SPEAKER_01: at least in the first administration,
17:46
SPEAKER_01: he listens to outside...
17:49
SPEAKER_01: Other businessmen,
17:50
SPEAKER_01: people,
17:51
SPEAKER_01: especially billionaires who have views,
17:53
SPEAKER_01: think they had a pretty direct feedback into parts of China policy.
17:59
SPEAKER_01: That will probably happen again.
18:01
SPEAKER_01: I wrote about it a little bit yesterday, and I think Ben may have mentioned it.
18:06
SPEAKER_01: He certainly had the piece about Elon Musk and Stratechery on Wednesday yesterday.
18:12
SPEAKER_01: But I think when you look at a guy like Elon Musk,
18:14
SPEAKER_01: who obviously did a lot to help Trump get elected,
18:17
SPEAKER_01: and not just with money,
18:19
SPEAKER_01: obviously with Vax,
18:22
SPEAKER_01: he's the richest of all the billionaires who talked to Trump.
18:25
SPEAKER_01: And he's also the one with the most exposure to China because of Tesla's...
18:33
SPEAKER_01: both sales in China and manufacturing for China and the global market out of Shanghai.
18:37
SPEAKER_00: Yeah.
18:38
SPEAKER_01: And so I think the question really is going to be,
18:42
SPEAKER_01: how will the Chinese try to use that conduit as a way to short circuit a return of
18:48
SPEAKER_01: brinksmanship over trade deals and instead work out some sort of a...
18:51
SPEAKER_01: Try and see if there isn't a way to work out some sort of a broader deal.
18:56
SPEAKER_01: Right.
18:56
SPEAKER_01: And that is possible.
18:57
SPEAKER_01: Never say never.
18:58
SPEAKER_01: Right.
18:59
SPEAKER_03: No,
18:59
SPEAKER_03: I mean,
18:59
SPEAKER_03: and it's one of the questions I have as we look ahead at who might be appointed to
19:06
SPEAKER_03: various cabinet secretary positions.
19:09
SPEAKER_03: I mean, I have no doubt whether Lighthizer is appointed to run Treasury or Commerce or wherever.
19:15
SPEAKER_03: I have no doubt that Trump will find various policy folks who are hawkish on China.
19:21
SPEAKER_03: And, you know, Tom Cotton, I saw floated as a potential cabinet secretary.
19:25
SPEAKER_03: But what I'm curious about is whether there will be like a Steve Mnuchin type who,
19:31
SPEAKER_03: if memory serves,
19:32
SPEAKER_03: was fairly effective at scuttling some of the more ambitious policies devised by
19:37
SPEAKER_03: like the Matt Pottingers of the world and and Musk.
19:41
SPEAKER_03: I don't know whether Musk will be part of a Trump administration.
19:44
SPEAKER_03: I mean, that's kind of crazy to think about.
19:47
SPEAKER_03: But Musk could end up wielding that sort of influence and.
19:52
SPEAKER_03: And I know in the past you've asked, like, who is Kissinger 2.0?
19:57
SPEAKER_03: Maybe Musk could be a Kissinger 2.0 in the eyes of the PRC.
20:01
SPEAKER_01: Well, yeah, I think the Chinese will end up with a bunch of mini Kissingers.
20:05
SPEAKER_01: And I think Musk will be the top of the list.
20:06
SPEAKER_01: You've also got John Thornton, who, you know, who was...
20:10
SPEAKER_01: When there was the signing deal in the Oval Office for – or at the White House for
20:15
SPEAKER_01: the first phase one of the U.S.-China trade deal,
20:18
SPEAKER_01: Neil Hoof from China was there.
20:20
SPEAKER_01: Trump gave a speech, thanked a bunch of people.
20:21
SPEAKER_01: He included – he thanked John Thornton, right?
20:23
SPEAKER_01: So you've got someone like him.
20:25
SPEAKER_01: You've got Steve Schwartzman.
20:28
SPEAKER_01: We just – there are a lot more variables in this policy.
20:31
SPEAKER_01: And to your point earlier, there's also, I think, really the –
20:35
SPEAKER_01: the process in the first administration wasn't particularly structured or disciplined.
20:42
SPEAKER_01: Yeah.
20:43
SPEAKER_01: And, you know, maybe it'll be different in Trump too.
20:46
SPEAKER_01: Uh,
20:48
SPEAKER_01: I guess skeptical facial expressions don't work on an audio podcast.
20:55
SPEAKER_01: I think it's...
20:57
SPEAKER_01: Again,
20:57
SPEAKER_01: never say never,
20:58
SPEAKER_01: but I think if I were to post on Polymarket and make a bet,
21:02
SPEAKER_01: it would certainly be...
21:05
SPEAKER_01: It'll be more like Trump won.
21:06
SPEAKER_01: And then there's a lot more ability for...
21:10
SPEAKER_01: outside actors to sort of shape the way things go.
21:13
SPEAKER_01: And so that,
21:14
SPEAKER_01: um,
21:14
SPEAKER_01: I will say,
21:15
SPEAKER_01: you know,
21:15
SPEAKER_01: the ministry of commerce in China,
21:17
SPEAKER_01: you know,
21:17
SPEAKER_01: put out a statement today and basically they talk about how they want to have,
21:20
SPEAKER_01: um,
21:21
SPEAKER_01: you know,
21:22
SPEAKER_01: it's,
21:22
SPEAKER_01: it's a positive,
21:23
SPEAKER_01: you know,
21:23
SPEAKER_01: the normal,
21:24
SPEAKER_01: we win cooperation,
21:26
SPEAKER_01: peaceful coexistence,
21:27
SPEAKER_01: resolve this discipline,
21:29
SPEAKER_01: you know,
21:29
SPEAKER_01: resolve the differences based on sort of mutual communication and respect.
21:32
SPEAKER_01: Um,
21:33
SPEAKER_01: I think the Chinese are very much signaling that they don't want a trade war.
21:37
SPEAKER_01: They don't want to do it all over again.
21:38
SPEAKER_01: I think it was exhausting.
21:40
SPEAKER_01: It was exhausting for them.
21:41
SPEAKER_01: But it's also their economy.
21:42
SPEAKER_01: On the one hand, their economy is different than it was six, seven years ago.
21:47
SPEAKER_01: They have, I think, more of an ability to withstand the pressures from the US up to a point.
21:53
SPEAKER_01: At the same time,
21:54
SPEAKER_01: their economy is not doing great,
21:55
SPEAKER_01: and they would prefer not to have to fight that fight.
21:59
SPEAKER_01: I think they are incented to try and figure out what they can offer the Trump administration,
22:05
SPEAKER_01: particularly what they can offer to forestall an intensification of the trade
22:12
SPEAKER_01: pressures on China.
22:13
SPEAKER_01: We'll see if they're successful, but I really don't think they're going to come out the gate like...
22:19
SPEAKER_01: I think they've been using various think tankers.
22:23
SPEAKER_01: The Chinese think tankers come through town.
22:25
SPEAKER_01: They've been using various people in the media to signal, we've got all these tools that we can use.
22:31
SPEAKER_01: We have a much more robust toolkit to respond.
22:34
SPEAKER_01: But they're also saying, basically, we don't want to use that if we don't have to.
22:38
SPEAKER_01: So let's find a way to figure it out.
22:39
SPEAKER_03: Well,
22:40
SPEAKER_03: as far as the tools,
22:41
SPEAKER_03: I did have one question because on Wednesday,
22:44
SPEAKER_03: you cited Scott Kennedy and a piece in Foreign Policy.
22:47
SPEAKER_03: Scott Kennedy is at CSIS, and he wrote about the trade tensions.
22:52
SPEAKER_03: And he wrote, last time China faced U.S.
22:54
SPEAKER_03: tariffs,
22:55
SPEAKER_03: President Xi Jinping appointed Vice Premier Liu He to negotiate,
22:59
SPEAKER_03: but this time she might well authorize a disproportionate response.
23:04
SPEAKER_03: The first step would be to massively penalize a few Fortune 500 U.S.
23:08
SPEAKER_03: companies.
23:09
SPEAKER_03: Most vulnerable are those in sectors with capable Chinese alternatives.
23:26
SPEAKER_03: And one might expect Beijing to act even more aggressively in the South China Sea
23:30
SPEAKER_03: and around Taiwan,
23:32
SPEAKER_03: raising anxieties about the prospects of a kinetic conflict.
23:36
SPEAKER_03: Its biggest weapon,
23:37
SPEAKER_03: however,
23:38
SPEAKER_03: may be to allow its currency,
23:39
SPEAKER_03: the UN,
23:40
SPEAKER_03: to fall from its current peg of 7.1 to the dollar to 10,
23:44
SPEAKER_03: 11,
23:45
SPEAKER_03: or 12 to the dollar.
23:47
SPEAKER_03: And if markets don't cooperate, engineer a downward devaluation.
23:52
SPEAKER_03: So I understand in broad strokes that devaluing the UN would undermine the
23:58
SPEAKER_03: effectiveness of any tariffs and could destabilize markets in the US.
24:03
SPEAKER_03: But can you explain any more about how that would work and how would devaluation
24:08
SPEAKER_03: affect the PRC and its own economy?
24:11
SPEAKER_01: See, I think that's more of an empty threat.
24:13
SPEAKER_01: I actually think that that kind of a...
24:16
SPEAKER_01: They let the UN devalue a little bit during the first trade war with Trump.
24:20
SPEAKER_01: The idea that they would go to 10 or 11,
24:22
SPEAKER_01: it's certainly possible,
24:23
SPEAKER_01: but I think that's more a bluster from the Chinese side because that would be very
24:27
SPEAKER_01: destabilizing both domestically because Xi Jinping is very clear about the
24:34
SPEAKER_01: importance of having a strong currency and it very much fits in his idea of
24:38
SPEAKER_01: building out a modern financial system with Chinese characteristics.
24:42
SPEAKER_01: It also is something that would have a huge ripple effect throughout emerging economies,
24:46
SPEAKER_01: also known what they call the Global South,
24:48
SPEAKER_01: and would harm,
24:50
SPEAKER_01: probably harm a lot of Global South countries in ways that China says they're not
24:54
SPEAKER_01: going to do.
24:54
SPEAKER_01: So I'm less...
24:57
SPEAKER_01: I just think that's something where they're going to put out a bunch of ideas that
25:00
SPEAKER_01: sound really threatening.
25:01
SPEAKER_01: You know,
25:02
SPEAKER_01: I think the things around export controls,
25:03
SPEAKER_01: you know,
25:04
SPEAKER_01: on certain types of critical minerals,
25:06
SPEAKER_01: you know,
25:06
SPEAKER_01: we've already seen that with gallium and geranium.
25:09
SPEAKER_01: And, you know, there are more that they can do.
25:12
SPEAKER_01: You know,
25:12
SPEAKER_01: one of these is interesting is back,
25:14
SPEAKER_01: I think it was 2019,
25:15
SPEAKER_01: when both sides,
25:16
SPEAKER_01: they thought that was a deal.
25:17
SPEAKER_01: I think then Treasury Secretary Mnuchin actually said,
25:20
SPEAKER_01: announced that there was a deal.
25:21
SPEAKER_01: And then Trump tweeted there wasn't a deal basically a couple of days later.
25:25
SPEAKER_01: I don't have the timeline right in front of me.
25:28
SPEAKER_01: She then made an inspection tour out to Jiangxi province.
25:32
SPEAKER_01: And Jiangxi province is probably, I think it's the biggest production province for rare earth minerals.
25:38
SPEAKER_01: Oh, okay.
25:39
SPEAKER_01: And he visited, I think it was a rare earth production processing company.
25:43
SPEAKER_01: Just checking it out, yeah.
25:45
SPEAKER_01: And he also visited a monument marking the start of the Long March.
25:48
SPEAKER_01: And it was pretty obvious.
25:51
SPEAKER_01: He didn't say,
25:52
SPEAKER_01: we're going to use rare earths to threaten you,
25:54
SPEAKER_01: but it was pretty obvious exactly what he was doing,
25:57
SPEAKER_01: right?
25:57
SPEAKER_01: And now fast forward, what is it, five years?
26:01
SPEAKER_01: five and a half years, right?
26:02
SPEAKER_01: We've seen them,
26:03
SPEAKER_01: again,
26:04
SPEAKER_01: build much more of a legal framework around how they can use export controls and
26:09
SPEAKER_01: things like they have their own entity list.
26:11
SPEAKER_01: So, you know, they can put company, US companies, they did that last week on the entity list, right?
26:15
SPEAKER_01: Last week it was, well, a month ago, they put the drone company Skydio.
26:19
SPEAKER_01: And then last week we learned that,
26:21
SPEAKER_01: well,
26:21
SPEAKER_01: Skydio basically can't,
26:23
SPEAKER_01: you know,
26:23
SPEAKER_01: produce,
26:24
SPEAKER_01: they can't sell drones right now because they can't get batteries because the
26:26
SPEAKER_01: battery manufacturer
26:28
SPEAKER_01: in China is not allowed to sell to them.
26:31
SPEAKER_01: And so I think that the Chinese,
26:34
SPEAKER_01: they have more tools,
26:35
SPEAKER_01: but the more they use them,
26:37
SPEAKER_01: the more it's going to force the decoupling.
26:39
SPEAKER_01: I don't think it's not like it's going to force the Trump team to say,
26:43
SPEAKER_01: oh,
26:43
SPEAKER_01: gee,
26:43
SPEAKER_01: okay,
26:43
SPEAKER_01: we're going to back off.
26:45
SPEAKER_01: It will become much more of a self-reinforcing dynamic.
26:50
SPEAKER_01: On the one hand, I think you're seeing the Chinese signaling, these are all things we can do.
26:53
SPEAKER_01: I think some of them are quite legitimate and could cause some harm.
26:57
SPEAKER_01: Again, I'm skeptical of a devaluation to 10 or 11, but again, never say never.
27:02
SPEAKER_01: The other thing, though, is you will see real attempts to...
27:07
SPEAKER_01: prevent this kind of escalation so that there can be something where they because
27:11
SPEAKER_01: the Chinese again it was exhausting for everybody in Trump won and they don't want
27:15
SPEAKER_03: to deal with that anymore and you know my understanding is that it hurt China more
27:20
SPEAKER_03: than it hurt the US in Trump won and they don't want to go through that again
27:24
SPEAKER_01: No, it has hurt China and it did accelerate.
27:28
SPEAKER_01: It really sort of was the catalyst for...
27:32
SPEAKER_01: And then,
27:32
SPEAKER_01: of course,
27:32
SPEAKER_01: the pandemic hit and that was even more of a catalyst for some movement towards,
27:38
SPEAKER_01: call it friend-shoring or moving supply chains partially out of China.
27:42
SPEAKER_01: But again, it hasn't...
27:43
SPEAKER_01: The U.S.
27:44
SPEAKER_01: and most countries around the world are still very reliant on China for lots of things.
27:49
SPEAKER_01: And China's point continues to be that they want that supply chain reliability
27:54
SPEAKER_01: because it gives them leverage.
27:55
SPEAKER_01: Right.
27:56
SPEAKER_01: And the cost for these foreign American companies to move their supply chains out
28:01
SPEAKER_01: of China are quite high.
28:02
SPEAKER_01: And again, like we're seeing with the most recent one with Skydio, I don't know.
28:09
SPEAKER_01: No one else seems to make the batteries they want.
28:11
SPEAKER_00: Mm-hmm.
28:12
SPEAKER_01: Well, yes, it's a challenge for the West over the next several years.
28:16
SPEAKER_01: The lesson is if you've got a company that has a critical supply chain reliance on China,
28:20
SPEAKER_01: you probably shouldn't be publicly lobbying against Chinese companies like they
28:24
SPEAKER_01: were lobbying against DGI.
28:28
SPEAKER_01: They sold stuff to Taiwan, but it was like Taiwan's fire agency.
28:31
SPEAKER_01: It wasn't even weapons.
28:33
SPEAKER_03: Well,
28:33
SPEAKER_03: yeah,
28:34
SPEAKER_03: but I would also say that the lesson is if you are over levered on Chinese
28:39
SPEAKER_03: manufacturing and or various critical components,
28:44
SPEAKER_03: that is a weakness that can and will be exploited at some point by the PRC.
28:48
SPEAKER_03: I mean, that's what we're seeing here.
28:50
SPEAKER_03: And I don't know if it's inevitable that it will be exploited,
28:54
SPEAKER_03: but it's like a real sort of existential risk to a lot of these businesses.
28:58
SPEAKER_01: And one of the things like the Scott Kennedy article you talked about where he
29:02
SPEAKER_01: mentioned maybe they go after some of the big U.S.
29:05
SPEAKER_01: companies to sort of make the point.
29:07
SPEAKER_01: The problem with that is you pull the gun out,
29:11
SPEAKER_01: and as soon as you pull the gun out,
29:12
SPEAKER_01: then you freak people out.
29:13
SPEAKER_01: And so if they were to say like,
29:15
SPEAKER_01: oh,
29:15
SPEAKER_01: gee,
29:16
SPEAKER_01: we need to do an inspection for labor violations at the Tesla Gigafactory so the
29:23
SPEAKER_01: Tesla Gigafactory is shut for a week.
29:26
SPEAKER_01: That would be an obvious sign of, hey, gee, nice factory you got there.
29:31
SPEAKER_01: No, exactly.
29:33
SPEAKER_01: But that would be counterproductive.
29:34
SPEAKER_01: That's very counterproductive.
29:36
SPEAKER_03: And from a fiduciary standpoint, if that happens and you don't start exploring...
29:41
SPEAKER_03: alternate right manufacturing options like you're reckless at that point as a
29:47
SPEAKER_03: corporate leader um so our corporate officer but yes um the main reason i i asked
29:53
SPEAKER_03: that is because i've seen the un theory floated a lot over the last couple of weeks
29:58
SPEAKER_03: like well that's the card that the prc will play in response to any tariff sub so
30:03
SPEAKER_03: that's really helpful context for
30:04
SPEAKER_01: And the same thing with the treasury.
30:06
SPEAKER_01: The problem, I mean, the Chinese are far from the biggest buyer of treasuries now.
30:09
SPEAKER_01: The US keeps trying to sell lots of treasuries.
30:11
SPEAKER_01: Also,
30:12
SPEAKER_01: the Chinese need somewhere to park all the foreign exchange they're earning from
30:15
SPEAKER_01: their massive trade surpluses.
30:17
SPEAKER_01: And so there aren't really many better alternatives for them that are so liquid and relatively stable.
30:24
SPEAKER_01: And so, again, they're sort of stuck too.
30:28
SPEAKER_01: I mean, maybe they start buying Bitcoin.
30:30
SPEAKER_01: I'm just kidding.
30:32
SPEAKER_01: Well...
30:32
SPEAKER_03: Bitcoin is looking up in the wake of this week's election results.
30:38
SPEAKER_03: One question for you.
30:39
SPEAKER_03: So China, you've mentioned Liu He a couple of times in the podcast so far.
30:45
SPEAKER_03: China relied on Liu He as an intermediary during the height of the trade war.
30:50
SPEAKER_03: So how instrumental was Liu during those years and during those negotiations?
30:56
SPEAKER_03: And is there any sort of successor who might play that role going forward?
31:00
SPEAKER_01: You know,
31:01
SPEAKER_01: I mean,
31:01
SPEAKER_01: Leo Ho was,
31:02
SPEAKER_01: he was a vice premier and he really took on the role of negotiating with the US.
31:07
SPEAKER_01: And I think that they obviously have plenty of econ technocrats and people who
31:11
SPEAKER_01: negotiate trade deals all the time.
31:14
SPEAKER_01: It's not clear if we get back into sort of more intense trade war, trade negotiations with the PRC.
31:21
SPEAKER_01: It's not clear by title or by rank.
31:25
SPEAKER_01: It should be He Lifeng.
31:29
SPEAKER_01: From folks who've met him, he's just not as dynamic as Liu He is in terms of dealing with foreigners.
31:36
SPEAKER_01: It is pretty interesting.
31:37
SPEAKER_01: I mean, the Wall Street Journal... Doesn't mean he won't be the person.
31:40
SPEAKER_03: Yeah.
31:41
SPEAKER_03: Well,
31:41
SPEAKER_03: and his ascendance,
31:43
SPEAKER_03: I mean,
31:44
SPEAKER_03: the Wall Street Journal had a big feature on her a few weeks ago,
31:47
SPEAKER_03: and that was my first introduction to the term barbarian wrangler to describe PRC
31:52
SPEAKER_03: intermediaries with Western politicians and businessmen.
31:56
SPEAKER_03: Great term.
31:57
SPEAKER_03: So I appreciate the journal for that.
31:59
SPEAKER_03: But I thought the story was pretty interesting,
32:02
SPEAKER_03: mainly as a reflection of where the PRC is today and what the priorities are,
32:07
SPEAKER_03: because like
32:08
SPEAKER_03: doesn't speak English doesn't seem to have the CV that one would expect from
32:13
SPEAKER_03: somebody who's like supposed to be navigating complex negotiations with the West I
32:19
SPEAKER_01: mean he's got a much bigger portfolio than that but yeah he's he's not as sort of
32:24
SPEAKER_01: used to like suavely dealing with foreigners as Leo Hill was
32:28
SPEAKER_03: Right.
32:28
SPEAKER_03: But he does have a decades long relationship with she.
32:32
SPEAKER_03: And then,
32:32
SPEAKER_03: you know,
32:33
SPEAKER_03: my takeaway from that profile,
32:35
SPEAKER_03: and it could be wrong,
32:36
SPEAKER_03: was just that the lack of expertise in that area from her and just dealing with the West,
32:42
SPEAKER_03: that might be more of a feature than a bug in terms of the way the PRC sees itself
32:47
SPEAKER_03: these days,
32:48
SPEAKER_03: because there's just more concern with developing its own dominant industries than
32:53
SPEAKER_03: like keeping Westerners happy and pacified.
32:57
SPEAKER_03: but they will probably need someone to be an intermediary to the Trump campaign.
33:02
SPEAKER_01: I joked yesterday that maybe they'll bring Leo Hill out of retirement.
33:05
SPEAKER_01: I think it's unlikely,
33:07
SPEAKER_01: but I certainly think it's not unlikely that he would be consulting just because
33:10
SPEAKER_01: he's seen it all from the Trump side.
33:13
SPEAKER_03: Right.
33:13
SPEAKER_03: And knows some of the people who will be involved.
33:16
SPEAKER_01: And why waste that knowledge if you have to go through some version of it all over again?
33:20
SPEAKER_03: Indeed.
33:22
SPEAKER_03: Well, final Trump question from the BBC.
33:25
SPEAKER_03: Trump said in October that if he returned to the White House,
33:28
SPEAKER_03: he would not have to use military force to prevent a Chinese blockade of Taiwan
33:33
SPEAKER_03: because President Xi knew he was effing crazy and he would impose paralyzing
33:38
SPEAKER_03: tariffs on Chinese imports if that happened.
33:41
SPEAKER_03: Do you buy the idea that Trump's volatility is a strategic advantage for the US and
33:47
SPEAKER_03: its interactions with China?
33:49
SPEAKER_03: Um...
33:52
SPEAKER_01: I think it's less... We'll have to find out.
33:56
SPEAKER_01: My guess would be it's sort of like you do it a few too many times and people just
34:01
SPEAKER_01: kind of get like,
34:02
SPEAKER_01: okay,
34:03
SPEAKER_01: crazy Ivan,
34:04
SPEAKER_01: move on.
34:05
SPEAKER_01: And I think also,
34:07
SPEAKER_01: particularly the Taiwan issue,
34:09
SPEAKER_01: so much of what the Chinese are doing around hardening their economy,
34:13
SPEAKER_01: building,
34:14
SPEAKER_01: call it a fortress economy,
34:15
SPEAKER_01: appears to be to be able to withstand crushing economic sanctions in the case they
34:20
SPEAKER_01: need to do something on Taiwan.
34:22
SPEAKER_01: And
34:22
SPEAKER_01: Taiwan is so important to the party, so important to Xi.
34:27
SPEAKER_01: They're willing to go through a lot of hardship if they have to,
34:30
SPEAKER_01: but they successfully were able to incorporate Taiwan into the PRC.
34:35
SPEAKER_01: And so I'm not sure that threats of massive sanctions are going to be enough to
34:41
SPEAKER_01: dissuade Xi if he decides he has to do something on Taiwan.
34:44
SPEAKER_03: Yeah,
34:44
SPEAKER_03: with that specific threat,
34:46
SPEAKER_03: I would imagine that China is pricing massive sanctions into anything that they're
34:52
SPEAKER_03: going to do in Taiwan and understanding that that's going to be the global response.
34:56
SPEAKER_01: We've talked about it.
34:57
SPEAKER_01: I mean, the Ukraine, the Russia's evasion of Ukraine and the West's response has been
35:03
SPEAKER_01: I think,
35:03
SPEAKER_01: extremely useful to the Chinese because they have an entire playbook of how
35:07
SPEAKER_01: sanctions would play out.
35:09
SPEAKER_01: And they know exactly where they,
35:10
SPEAKER_01: you know,
35:11
SPEAKER_01: not exactly,
35:12
SPEAKER_01: but they know lots of areas where they need to fix things,
35:14
SPEAKER_01: change things,
35:15
SPEAKER_01: harden things.
35:16
SPEAKER_01: And so,
35:16
SPEAKER_01: and the longer that drags on,
35:18
SPEAKER_01: the more they have time to prepare so that when it,
35:21
SPEAKER_01: if it comes to their turn,
35:23
SPEAKER_01: so to speak,
35:24
SPEAKER_01: they're much more hardened and much more resilient.
35:27
Yeah.
35:28
SPEAKER_03: Yeah,
35:28
SPEAKER_03: well,
35:29
SPEAKER_03: and the reason I asked the question and the reason I included it is just because I
35:33
SPEAKER_03: saw that quote and on its face,
35:35
SPEAKER_03: it sounds like a ridiculous idea.
35:37
SPEAKER_03: But when I think about the US interactions with China,
35:41
SPEAKER_03: particularly over the last couple of years,
35:42
SPEAKER_03: like one of the consistent themes with US-China policy conversations is that like
35:47
SPEAKER_03: U.S.
35:48
SPEAKER_03: leaders are reluctant to take certain actions because they're worried about what
35:52
SPEAKER_03: she will do because there's at least a chance that she isn't a rational actor and
35:57
SPEAKER_03: will escalate conflicts to a place that's detrimental to both sides and to global stability.
36:04
SPEAKER_03: And, like, so...
36:05
SPEAKER_03: To the extent anyone requires proof of concept of what Trump is describing there,
36:10
SPEAKER_03: I would say the last 10 years of US-China relations are evidence that a leader's
36:16
SPEAKER_03: perceived volatility can have strategic benefits.
36:18
SPEAKER_03: But I take no position on whether China sees Trump that way.
36:23
SPEAKER_03: And Trump's volatility could also benefit China in certain ways if it erodes
36:29
SPEAKER_03: relationships with allies around the world.
36:31
SPEAKER_03: So...
36:32
SPEAKER_01: Well, I mean, that's the thing.
36:33
SPEAKER_01: I think when you look at – and I tried to talk about this in my newsletter yesterday.
36:37
SPEAKER_01: When you look at how – and we've talked a few times about, well, who does China want?
36:43
SPEAKER_01: And a Harris administration would have been different.
36:46
SPEAKER_01: There would have been lots of problems with the Harris administration.
36:48
SPEAKER_01: There are lots of opportunities there.
36:50
SPEAKER_01: In this case with Trump,
36:52
SPEAKER_01: I think they understand – again,
36:55
SPEAKER_01: they've been through it,
36:56
SPEAKER_01: so it won't be the same,
36:57
SPEAKER_01: but I think they have a general sense of what could happen with the next Trump administration.
37:03
SPEAKER_01: And especially on the economic side,
37:05
SPEAKER_01: those are not things they prefer not to happen because their economy is not doing great,
37:09
SPEAKER_01: and they would prefer not to have –
37:11
SPEAKER_01: increasing external pressure,
37:13
SPEAKER_01: which is what is likely coming unless they can really figure out a way to mollify
37:18
SPEAKER_01: him and get a real...
37:20
SPEAKER_01: some sort of real deal quickly.
37:22
SPEAKER_01: But at the same time, I think they see lots of opportunities from Trump.
37:26
SPEAKER_01: And they see that...
37:29
SPEAKER_01: There's a reasonable chance that Trump will damage or undo some of the,
37:34
SPEAKER_01: you know,
37:34
SPEAKER_01: certainly some of the work that the Biden administration has done to build
37:37
SPEAKER_01: coalitions of countries to deal with China in certain areas.
37:42
SPEAKER_01: There, you know, may push, may cause problems in NATO, may cause problems in the EU.
37:46
SPEAKER_01: Honestly,
37:47
SPEAKER_01: I think that they're,
37:48
SPEAKER_01: you know,
37:48
SPEAKER_01: they also may see this as,
37:50
SPEAKER_01: especially if Trump is,
37:52
SPEAKER_01: you know,
37:52
SPEAKER_01: doesn't want to keep funding,
37:54
SPEAKER_01: you know,
37:55
SPEAKER_01: keep funding Ukraine,
37:56
SPEAKER_01: then this will be an opportunity for China,
37:59
SPEAKER_01: I think,
37:59
SPEAKER_01: to swoop in with their peace plan and sort of show up and say,
38:02
SPEAKER_01: look,
38:02
SPEAKER_01: we're the peacemakers and try and take more of a leading role in putting together
38:06
SPEAKER_01: some sort of a Ukraine peace package,
38:09
SPEAKER_01: you know.
38:10
SPEAKER_01: So I think, you know, you can go on the list, right?
38:12
SPEAKER_01: I think one of the things,
38:13
SPEAKER_01: you know,
38:13
SPEAKER_01: climate change is not on the top of the agenda for the Trump administration.
38:16
SPEAKER_01: So the Chinese will continue to,
38:20
SPEAKER_01: you know,
38:21
SPEAKER_01: look at what they've done in terms of renewable energy technology.
38:24
SPEAKER_01: They'll be able to say, look, we are the leader of climate change.
38:26
SPEAKER_01: We are trying to work with the Global South.
38:28
SPEAKER_01: They'll talk about how, you know, we are trying to address climate change.
38:32
SPEAKER_01: And, oh, look over there, look at the Trump administration.
38:34
SPEAKER_01: They don't care, right?
38:36
SPEAKER_01: You've got similar things around,
38:40
SPEAKER_01: Trade, right?
38:41
SPEAKER_01: I mean,
38:41
SPEAKER_01: one of the consistent messages you get from the Chinese now,
38:44
SPEAKER_01: they are basically the upholder of the multilateral system and the global trading
38:48
SPEAKER_01: system and defenders of the WTO,
38:51
SPEAKER_01: whereas the U.S.
38:53
SPEAKER_01: and increasingly the EU are the ones who are trying to break it.
38:56
SPEAKER_01: The U.S.
38:57
SPEAKER_01: will say, well, the Chinese broke it.
38:59
SPEAKER_01: But regardless,
39:00
SPEAKER_01: the point is that message,
39:01
SPEAKER_01: I think,
39:02
SPEAKER_01: resonates in a lot of other countries,
39:04
SPEAKER_01: especially the Global South,
39:05
SPEAKER_01: and will especially resonate in a Trump administration.
39:07
SPEAKER_01: True or not.
39:08
SPEAKER_01: In some ways, it doesn't matter if it's true or not.
39:10
SPEAKER_01: It's a message that will have an audience.
39:12
SPEAKER_03: Right.
39:13
SPEAKER_03: No,
39:13
SPEAKER_03: the perception of Trump will make other countries more sympathetic to PRC messaging is,
39:20
SPEAKER_00: I think,
39:20
SPEAKER_03: the overarching theme on in terms of what might benefit the PRC.
39:25
SPEAKER_03: There are real downsides and then there are certain opportunities and vectors where
39:29
SPEAKER_03: they can make progress.
39:31
SPEAKER_01: And then the other thing that I think is important,
39:34
SPEAKER_01: especially I know a lot of listeners work in technology,
39:38
SPEAKER_01: is if we see a resumption of the China initiative that was put in place under
39:45
SPEAKER_01: former Attorney General Sessions in the Trump administration,
39:48
SPEAKER_01: that will most likely accelerate
39:52
SPEAKER_01: a brain drain of Chinese and Chinese-American scientists to China.
39:55
SPEAKER_03: It's a great point.
39:57
SPEAKER_01: And that will be happening at a moment.
39:59
SPEAKER_01: China,
40:00
SPEAKER_01: in the wake of,
40:01
SPEAKER_01: sort of in the face of the US,
40:03
SPEAKER_01: the Biden administration increased technology restrictions.
40:07
SPEAKER_01: They have restructured their entire science and technology complex.
40:10
SPEAKER_01: There's this new Central Science Technology Commission.
40:13
SPEAKER_01: They restructured the Ministry of Science and Technology.
40:15
SPEAKER_01: They are
40:16
SPEAKER_01: It's all around the much-accelerated,
40:19
SPEAKER_01: decades-long push for technology,
40:21
SPEAKER_01: self-reliance and core key technologies,
40:24
SPEAKER_01: what they call chokehold technologies.
40:26
SPEAKER_01: And one of the things that they are really pushing,
40:28
SPEAKER_01: and you hear it whenever she talks about this,
40:31
SPEAKER_01: or they have a meeting around the science and technology issues,
40:35
SPEAKER_01: is they talk about how they want to build China into a global science and
40:38
SPEAKER_01: technology hub by attracting global talent,
40:41
SPEAKER_01: talent from all over the world.
40:42
SPEAKER_01: And so...
40:44
SPEAKER_01: That is something where they will probably be able to use a – if there's an
40:51
SPEAKER_01: increase of pressure on Chinese-Chinese Americans around – you can't access certain
40:57
SPEAKER_01: things to study or research labs,
40:59
SPEAKER_01: etc.
41:00
SPEAKER_01: That will probably accrue to the PRC's benefit if people decide,
41:03
SPEAKER_01: well,
41:03
SPEAKER_01: we're going to go where we're welcome.
41:05
SPEAKER_03: Right.
41:06
SPEAKER_03: Well,
41:07
SPEAKER_03: if I'm putting my America hat on,
41:08
SPEAKER_03: I think that America is still a more attractive place for most of the world's top scientists.
41:14
SPEAKER_03: But it is a really important issue to highlight.
41:18
SPEAKER_01: No, and we need that as one of our key strengths.
41:21
SPEAKER_01: And so we have to make sure that it stays that way.
41:24
SPEAKER_01: So the point is just that I think when they look at Trump,
41:30
SPEAKER_01: I think they see that there's more potential volatility.
41:32
SPEAKER_01: There's more potential for, I think, rapidly accelerating tensions around trade, for example.
41:38
SPEAKER_01: But there's also, I think, more opportunity for further...
41:44
SPEAKER_01: Delegitimizing the U.S.?
41:46
SPEAKER_01: Delegitimizing, undermining the U.S.
41:48
SPEAKER_01: and other parts of the world.
41:49
SPEAKER_01: Yes.
41:49
SPEAKER_01: Is I think how they see it.
41:50
SPEAKER_01: Now, we'll see if that really comes to pass.
41:53
SPEAKER_01: And if the U.S.
41:54
SPEAKER_01: economy, if Trump comes in and his policies, they end up creating a new economic boom in the U.S.
42:00
SPEAKER_01: And as they say they're going to, it's hard for... That has its own attraction about the U.S.
42:09
SPEAKER_01: market and about the U.S.,
42:11
SPEAKER_01: And so it's not black and white.
42:12
SPEAKER_01: But again,
42:13
SPEAKER_01: I think we are certainly...
42:17
SPEAKER_01: The other thing I will just say is having...
42:19
SPEAKER_01: I wrote the newsletter through the Trump administration.
42:22
SPEAKER_01: One, it's exhausting.
42:23
SPEAKER_01: Two, there's a lot of information, but there's a lot of bad information.
42:27
SPEAKER_01: And you're going to see lots of reports about so-and-so in the Trump administration
42:32
SPEAKER_01: or close to the Trump administration said this or they're going to do that.
42:36
SPEAKER_01: A lot of that doesn't matter until Trump decides what he wants to do.
42:40
SPEAKER_01: And so you end up with a lot of headless chickens running around with some new news
42:45
SPEAKER_01: that then turns out to just be...
42:49
SPEAKER_01: It's what they wanted,
42:50
SPEAKER_01: but it wasn't part of the process.
42:53
SPEAKER_01: It's exhausting.
42:55
SPEAKER_03: I said it earlier, and I wasn't joking.
42:58
SPEAKER_03: When I look back, it did really seem like...
43:02
SPEAKER_03: China policy depended on who Trump had talked to on a given day.
43:06
SPEAKER_03: And maybe that will continue in the second administration here.
43:10
SPEAKER_03: Maybe not.
43:12
SPEAKER_03: But volatility, I guess, will make for good podcasting.
43:16
SPEAKER_03: I don't know.
43:17
SPEAKER_03: We're getting it whether we want it or not.
43:20
SPEAKER_03: We'll see.
43:21
SPEAKER_03: I see some pluses.
43:22
SPEAKER_03: I see some minuses as far as U.S.-China policy is concerned.
43:26
SPEAKER_01: If he still makes market-moving China policy through Twitter or through XNow,
43:31
SPEAKER_01: Don't make me spend more time on Twitter.
43:34
SPEAKER_01: Is that what you're saying?
43:35
SPEAKER_01: It's a business opportunity for X if they can sell their data feed like the high-frequency traders.
43:43
SPEAKER_00: Oh, boy.
43:44
SPEAKER_01: Where you get the tweets a millisecond ahead and you only want the president's tweets.
43:48
SPEAKER_01: I'm so excited for this long weekend.
43:51
SPEAKER_03: I'm putting my phone away for 72 hours and just logging off after the last couple of weeks online.
43:57
SPEAKER_01: Um, well, speaking of phones, sorry, one, one, one last, one last area of a deal.
44:02
SPEAKER_01: And I mean, I think we're going to talk about it.
44:04
SPEAKER_01: So if I'm doing my podcast segue ahead of time, I apologize.
44:06
SPEAKER_01: I'm still working on the season pro here.
44:10
SPEAKER_01: I mean,
44:10
SPEAKER_01: one area,
44:11
SPEAKER_01: and I did this,
44:11
SPEAKER_01: this could really get interesting for some of his supporters,
44:14
SPEAKER_01: especially in Silicon Valley.
44:17
SPEAKER_01: is TikTok.
44:21
SPEAKER_01: And whether or not... I think there is a law that has been passed and signed by the president.
44:26
SPEAKER_01: It's actually enshrined in law.
44:28
SPEAKER_01: So it's a little more complicated if he wants to back off on forcing TikTok to be
44:33
SPEAKER_01: sold or have the app stores and data centers stop working with them in the US.
44:38
SPEAKER_01: But I believe he can just basically tell the DOJ not to enforce the law.
44:42
SPEAKER_01: And he has folks who are big supporters who are,
44:47
SPEAKER_01: I think,
44:47
SPEAKER_01: pushing him to effectively drop enforcement of the TikTok law.
44:52
SPEAKER_03: When you say big supporters, big donors, correct?
44:55
SPEAKER_01: Donors, yeah.
44:56
SPEAKER_01: Yes.
44:57
SPEAKER_01: Jeff, yes.
44:58
SPEAKER_01: And I believe Elon Musk even weighed in at one point and said he didn't think it should be banned.
45:02
SPEAKER_01: But I could be wrong.
45:03
SPEAKER_03: He did say that he was worried about the precedent it would set and how X would be next and this law.
45:11
SPEAKER_03: He actually misread the law on Twitter, which is helpful for everybody.
45:16
SPEAKER_01: Twitter X now looks more and more like TikTok too.
45:21
SPEAKER_01: It does.
45:23
SPEAKER_01: It might actually be good for X if TikTok goes away.
45:27
SPEAKER_01: But my point is this TikTok scenario, well, maybe there'll be a deal.
45:31
SPEAKER_01: And then that'll drive some of his supporters in Silicon Valley who were very
45:37
SPEAKER_01: influential and very much pushing for the TikTok ban to have to figure out how they
45:44
SPEAKER_01: deal with the fact that he has backed off on that.
45:47
SPEAKER_03: Well, the headline from the information was TikTok sees Trump victory as app's best hope.
45:53
SPEAKER_03: And yes,
45:54
SPEAKER_03: I mean,
45:55
SPEAKER_03: the information was helpful because the information,
45:59
SPEAKER_03: the publication,
46:00
SPEAKER_03: that is the article.
46:02
SPEAKER_03: I was thinking to myself.
46:04
SPEAKER_03: I understand that TikTok thinks that Trump is their best hope,
46:08
SPEAKER_03: but I don't really know what Trump can do at this point in the process because
46:13
SPEAKER_03: TikTok has challenged the constitutional validity of the law.
46:17
SPEAKER_03: They're in court.
46:19
SPEAKER_03: D.C.
46:19
SPEAKER_03: Circuit will decide apparently before Thanksgiving, according to the information.
46:25
SPEAKER_03: But also and then if the decision is adverse to TikTok, they'll appeal to the Supreme Court.
46:32
SPEAKER_03: And beyond that, like the law takes effect on January 19th or the law has already taken effect.
46:38
SPEAKER_03: But, you know, ByteDance has not divested from TikTok.
46:41
SPEAKER_03: So the ban takes effect on January 19th before Trump takes over.
46:45
SPEAKER_03: And I hadn't considered the possibility because I mentioned this on Sharp Tech earlier in the week.
46:51
SPEAKER_03: and said,
46:51
SPEAKER_03: I don't know what Trump can do to save TikTok,
46:55
SPEAKER_03: even though that talking point keeps getting repeated.
46:57
SPEAKER_03: I hadn't considered the possibility that he could just tell the DOJ not to enforce the law.
47:03
SPEAKER_03: And in this case,
47:04
SPEAKER_03: that would be enforcing the ban provision and the fines to Apple and Google if they
47:10
SPEAKER_03: continue to host TikTok in their app store.
47:13
SPEAKER_03: So I guess that's a possibility.
47:15
SPEAKER_03: Prepare for anything here as we enter this new era.
47:18
SPEAKER_03: But I think that would be a mistake and it would upset a lot of different people.
47:23
SPEAKER_03: But everything is on the table as we move forward.
47:27
SPEAKER_03: And just as we're talking TikTok, I will note that
47:31
SPEAKER_03: The CBC wrote this week,
47:33
SPEAKER_03: citing national security concerns,
47:35
SPEAKER_03: the federal government has ordered TikTok to shutter its Canadian operations,
47:39
SPEAKER_03: but users will still be able to access the popular video app.
47:43
SPEAKER_03: Innovation Minister Francois-Philippe Champagne said,
47:47
SPEAKER_03: said the decision to wind down TikTok's two Canadian offices in Toronto and
47:51
SPEAKER_03: Vancouver was based on information and evidence that surfaced during a recent
47:56
SPEAKER_03: national security review and the advice of Canada's security and intelligence community.
48:02
SPEAKER_03: First of all, what a name there, Francois-Philippe Champagne.
48:07
SPEAKER_03: is about as French Canadian a name as you will ever see.
48:11
SPEAKER_03: But it's just, it underscores the fact that a lot of countries see issues from a security standpoint.
48:19
SPEAKER_03: So it'll be interesting to see what happens in our country.
48:23
SPEAKER_01: Right.
48:24
SPEAKER_01: And of course, Canada is part of Five Eyes.
48:26
SPEAKER_01: And so they're not disclosing why, what they are seeing to do this.
48:31
SPEAKER_01: But that,
48:31
SPEAKER_01: I mean,
48:32
SPEAKER_01: again,
48:32
SPEAKER_01: it's an interesting move where you close their business operations,
48:34
SPEAKER_01: but you let the app continue.
48:36
SPEAKER_01: Right.
48:36
SPEAKER_03: Yeah.
48:37
SPEAKER_03: Well,
48:37
SPEAKER_03: and it made me wonder about the cascade scenario where if the US did move forward
48:41
SPEAKER_03: with a ban,
48:43
SPEAKER_03: how many other countries around the world would follow in the years to come?
48:47
SPEAKER_03: That's what I would be particularly concerned about if I were ByteDance.
48:50
SPEAKER_03: And I know Canada is not banning the app,
48:52
SPEAKER_03: but if the US banned the app,
48:54
SPEAKER_03: maybe Canada is more likely to ban the app.
48:56
SPEAKER_03: So a lot of unknowns on the TikTok front.
48:59
SPEAKER_03: But
49:00
SPEAKER_03: There's more hope than they had a week ago.
49:03
SPEAKER_03: So congrats to all the TikTok lobbyists, as usual.
49:08
SPEAKER_03: To keep it moving, I did mention phones earlier and the phone hacking story.
49:13
SPEAKER_03: We discussed it briefly last week,
49:15
SPEAKER_03: and I said we don't know the full scope of what exactly happened there and how bad
49:20
SPEAKER_03: it was.
49:21
SPEAKER_03: That is still true, but more details are trickling out.
49:25
SPEAKER_03: Keep coming out, yeah.
49:26
SPEAKER_03: It certainly sounds like this was a very, very, very serious breach.
49:31
SPEAKER_03: The Senate Intelligence Committee chairman,
49:33
SPEAKER_03: Mark Warner,
49:34
SPEAKER_03: told The Washington Post,
49:35
SPEAKER_03: it is much more serious and much worse than even what you all presume at this point.
49:40
SPEAKER_03: It is one of the most serious breaches in my time on the Intelligence Committee.
49:45
SPEAKER_03: Politico wrote,
49:46
SPEAKER_03: Chinese hackers accessed sensitive cellular logs on a vast number of Americans
49:51
SPEAKER_03: after penetrating inside a swath of U.S.
49:54
SPEAKER_03: telecommunications providers earlier this year,
49:57
SPEAKER_03: according to two people involved in the response to the hacks.
50:00
SPEAKER_03: The two people said a China-backed hacking group dubbed Salt Typhoon gained access
50:05
SPEAKER_03: to a vast trove of so-called call detail records.
50:09
SPEAKER_03: Those contain information on who Americans talk to,
50:12
SPEAKER_03: how often,
50:13
SPEAKER_03: and when,
50:14
SPEAKER_03: as well as detailed location data afforded by 5G networking services.
50:19
SPEAKER_03: Um, what's your reaction to some of the additional details we've gotten?
50:23
SPEAKER_03: We also got a more grave sort of expose from the wall street journal.
50:28
SPEAKER_03: I can read highlights from that, but what do you think of all this?
50:31
SPEAKER_01: So we,
50:32
SPEAKER_01: you know,
50:32
SPEAKER_01: it's possible that the earlier comments on this podcast about the Chinese trying to
50:35
SPEAKER_01: figure out who to talk to in the Trump world don't actually matter because they
50:38
SPEAKER_01: just listened to all the phones.
50:42
SPEAKER_01: It's on the table.
50:43
SPEAKER_01: They may already know everything, right?
50:45
SPEAKER_01: Joking, but not actually really.
50:47
SPEAKER_01: I know.
50:47
SPEAKER_01: I think this seems extraordinarily serious.
50:51
SPEAKER_01: I think what continues to come up in the reporting is just how,
50:57
SPEAKER_01: even after being discovered,
50:58
SPEAKER_01: the hackers continued to try and keep doing it.
51:01
SPEAKER_01: And I think someone said they were taunting us.
51:03
SPEAKER_00: Mm-hmm.
51:05
SPEAKER_01: There has not been any sort of official response in terms of pushback on the Chinese.
51:11
SPEAKER_01: I think that this is the kind of situation where if it's as bad as it's being described,
51:17
SPEAKER_01: as exhausted as the Biden team and disheartened they are after this week and being
51:23
SPEAKER_01: there for almost four years,
51:25
SPEAKER_01: this is something where maybe you'll see some sort of a brushback between now and
51:30
SPEAKER_01: the inauguration to basically try and tell the Chinese that,
51:33
SPEAKER_01: you know, this is too much.
51:35
SPEAKER_01: On the one hand,
51:35
SPEAKER_01: and I sort of made a flip comment in the newsletter,
51:37
SPEAKER_01: I think on Monday,
51:38
SPEAKER_01: which is,
51:38
SPEAKER_01: you know,
51:39
SPEAKER_01: I mean,
51:39
SPEAKER_01: look,
51:40
SPEAKER_01: we'd do it too if we could,
51:42
SPEAKER_01: right?
51:42
SPEAKER_01: I mean,
51:42
SPEAKER_01: any capable foreign intelligence service would love to be able to access phones around,
51:47
SPEAKER_01: you know,
51:47
SPEAKER_01: politicians in any country and,
51:49
SPEAKER_01: you know,
51:49
SPEAKER_01: phones of advisors to a president or to a leader.
51:53
SPEAKER_01: And so on one hand, it's like, okay, kudos to the Chinese.
51:55
SPEAKER_01: They're actually pretty good and they did it.
51:57
SPEAKER_01: And shame on the U.S.
51:58
SPEAKER_01: telecom companies for not having, you know, investing enough in cybersecurity.
52:03
SPEAKER_01: But at the same time, at some point, you go too far and you basically have to push back.
52:08
SPEAKER_00: You have to do something,
52:10
SPEAKER_01: not just send a mean letter or say something mean about China on an open line that
52:16
SPEAKER_01: you know they're listening to.
52:17
SPEAKER_01: You actually probably have to do something in their systems to show that,
52:22
SPEAKER_01: one,
52:22
SPEAKER_01: you're pissed off,
52:23
SPEAKER_01: two,
52:23
SPEAKER_01: that you can cause damage,
52:24
SPEAKER_01: two,
52:25
SPEAKER_01: and three,
52:25
SPEAKER_01: they need to back off.
52:27
SPEAKER_01: It's not clear that the Biden guys will do it.
52:29
SPEAKER_01: This will be an interesting case for the Trump team when they come in if the US has
52:33
SPEAKER_01: not really responded because this will probably continue to dribble out more stories.
52:37
SPEAKER_01: There'll probably be plenty of people working around Trump and who may end up with
52:42
SPEAKER_01: big positions in his administration,
52:44
SPEAKER_01: probably have had their phones accessed,
52:46
SPEAKER_01: if not actually audio of their calls or their text messages.
52:49
SPEAKER_01: They may be personally angry.
52:53
SPEAKER_01: Last year, two years ago or last year, they were reading Blinken's emails.
52:57
SPEAKER_01: They were reading unclassified emails, Raimondo's unclassified emails.
53:02
SPEAKER_01: And again, maybe the US did something unclassified, but it doesn't seem like nothing became public.
53:09
SPEAKER_01: And the Chinese behavior has only, I think, intensified in terms of
53:13
SPEAKER_01: This is more like espionage than necessarily,
53:16
SPEAKER_01: and maybe this is part of where they also plant malware to be able to cause
53:21
SPEAKER_01: destruction later.
53:23
SPEAKER_01: This seems like a very successful cyber espionage campaign by the Chinese.
53:29
SPEAKER_01: But again, will the US actually do something?
53:32
SPEAKER_01: Will the Biden administration,
53:33
SPEAKER_01: not just because they don't seem to be doing the next round of chip controls,
53:37
SPEAKER_01: they just don't seem to want to deal with it anymore.
53:41
SPEAKER_01: And so will this then be left in Trump's lap?
53:43
SPEAKER_01: And then how might they respond?
53:45
SPEAKER_03: Well,
53:45
SPEAKER_03: yeah,
53:45
SPEAKER_03: I mean,
53:46
SPEAKER_03: it's interesting because I actually I had one nagging thought after our
53:49
SPEAKER_03: conversations about the chip controls last week,
53:53
SPEAKER_03: and we talked about the Trump China policies at the start.
53:55
SPEAKER_03: So this is sort of a bigger picture thought on the Biden policies that I wanted to run by you.
54:01
SPEAKER_03: Is that OK with you as we close out here?
54:03
SPEAKER_00: Sure.
54:03
SPEAKER_03: Sure.
54:04
SPEAKER_03: Okay.
54:04
SPEAKER_03: So the chip policies,
54:06
SPEAKER_03: after we talked last week,
54:08
SPEAKER_03: I saw a note about Jake Sullivan trying to engage China to help convince North
54:13
SPEAKER_03: Korea not to send troops to help Russia and Ukraine.
54:17
SPEAKER_03: And first of all,
54:18
SPEAKER_03: that tweet almost reads like a parody after the last four years,
54:22
SPEAKER_03: but good luck engaging China to intervene.
54:25
SPEAKER_03: But
54:26
SPEAKER_03: I saw that as I was putting the show notes together for last week's sharp China
54:31
SPEAKER_03: episode and just thinking about the chip controls.
54:34
SPEAKER_03: And I,
54:35
SPEAKER_03: I actually wondered if we might be giving the chip lobby too much credit for
54:39
SPEAKER_03: swaying the administration,
54:41
SPEAKER_03: because like the practical reality is that hammering SMIC and Huawei and creating
54:48
SPEAKER_03: effective chip policies that really do cripple the PRC ambitions in that area is,
54:54
SPEAKER_03: would cause China real pain and make the PRC irate and probably provoke a response from the PRC.
55:02
SPEAKER_03: And so like lobbying or not,
55:05
SPEAKER_03: it's not that surprising to me that the Biden administration won't go that
55:09
SPEAKER_03: direction because we've seen over and over again similar stories play out where
55:15
SPEAKER_03: like
55:15
SPEAKER_03: China's support for the Russian war in Ukraine.
55:19
SPEAKER_03: The administration will talk tough in the international media,
55:23
SPEAKER_03: but there have been no sanctions on any of the big PRC banks that facilitate sales
55:29
SPEAKER_03: to the Russian defense industry or work with Iran or whatever it may be.
55:33
SPEAKER_03: And like South China Sea.
55:35
SPEAKER_03: no public tactical response to PRC aggression,
55:40
SPEAKER_03: no consequences for China's role in the fentanyl crisis,
55:43
SPEAKER_03: which kills like 100,000 Americans a year.
55:46
SPEAKER_03: It's just over and over again, whenever there's a conflict where any meaningful response from the U.S.
55:54
SPEAKER_03: runs the risk of really angering the PRC leadership,
55:57
SPEAKER_03: The Biden administration has not wanted to touch that third rail and run the risk
56:02
SPEAKER_03: of making the relationship even worse and more dysfunctional and jeopardizing the
56:07
SPEAKER_03: possibility of future engagement.
56:10
SPEAKER_03: And it's entirely possible that's the right approach.
56:13
SPEAKER_03: And that ultimately,
56:14
SPEAKER_03: like buying time and just avoiding kinetic conflict or like outright economic war
56:20
SPEAKER_03: is the best anyone can hope for at this point.
56:23
SPEAKER_03: But in the meantime, there have been real costs in terms of like corrosive PRC behaviors that the U.S.
56:30
SPEAKER_03: has had to tolerate and potentially cost U.S.
56:33
SPEAKER_03: credibility with allies in the South China Sea.
56:35
SPEAKER_03: And like U.S.
56:36
SPEAKER_03: restraint has not produced any meaningful benefits or concessions from the PRC to date.
56:42
SPEAKER_03: So just as I think back on the last several years,
56:45
SPEAKER_03: I just think it's instructive to sort of recognize that the Biden administration
56:49
SPEAKER_03: had a bunch of thoughtful and qualified people taking these issues seriously,
56:54
SPEAKER_03: and they tried to be transparent and fair with China,
56:57
SPEAKER_03: tried to avoid making anything worse.
56:59
SPEAKER_03: But the lack of progress in a number of key areas is clarifying in terms of
57:04
SPEAKER_03: challenges for the next administration here.
57:07
SPEAKER_01: Well, and they inherited a lot of these challenges from past administrations.
57:11
SPEAKER_01: I mean,
57:12
SPEAKER_01: I will say that I think if you talk to people in the Biden administration,
57:18
SPEAKER_01: they would,
57:18
SPEAKER_01: of course,
57:19
SPEAKER_01: very much vehemently disagree with your characterization of their China policy.
57:24
SPEAKER_01: I think they would argue they've done some hard things and
57:27
SPEAKER_01: made some progress.
57:31
SPEAKER_01: But I think ultimately, you go back to the balloon incident, and the Chinese blink and skip this trip.
57:39
SPEAKER_01: And then the Chinese basically cut off contact and did the classic,
57:44
SPEAKER_01: forced the US to feel like,
57:45
SPEAKER_01: oh my god,
57:46
SPEAKER_01: we have to do something to get him to talk to us again.
57:48
SPEAKER_01: Yeah.
57:49
SPEAKER_01: And it's stupid.
57:50
SPEAKER_01: And that really kind of reset, in a lot of ways, the relationship.
57:53
SPEAKER_01: I mean, obviously, then you had Pelosi in Taiwan, and then you had the first chip controls.
57:59
SPEAKER_01: And I mean, there were things that have been done.
58:01
SPEAKER_01: I mean, the chip controls are... Again, we've talked ad nauseum about them.
58:06
SPEAKER_01: I mean, they are pretty harsh...
58:08
SPEAKER_01: The challenge has been around enforcement in some areas, especially around Huawei and SMIC.
58:12
SPEAKER_01: Again,
58:13
SPEAKER_01: we don't have to beat this dead horse,
58:15
SPEAKER_01: but since our last podcast,
58:17
SPEAKER_01: Senator Mark Warner sent a letter,
58:20
SPEAKER_01: I think last Thursday,
58:21
SPEAKER_01: about enforcement of restrictions on sales to SMIC and Huawei based on the reports
58:28
SPEAKER_01: that TSMC had found this chip that was being made for Huawei.
58:31
SPEAKER_01: And then I think it was another the Republican McCall or McFaul,
58:36
SPEAKER_01: I think,
58:37
SPEAKER_01: wrote a letter,
58:37
SPEAKER_01: I think,
58:38
SPEAKER_01: on Monday,
58:38
SPEAKER_01: the same thing to the Commerce Secretary talking about how that,
58:41
SPEAKER_01: you know,
58:42
SPEAKER_01: the concern that the U.S.,
58:43
SPEAKER_01: that the Commerce Department is not fully enforcing the rules.
58:46
SPEAKER_03: Yeah.
58:46
SPEAKER_03: Well, you know, the one thing, even aside from the chip controls, you mentioned the balloon incident.
58:53
SPEAKER_03: I it is stupid to care about this,
58:56
SPEAKER_03: but like the Biden administration never released the FBI's balloon report.
59:01
SPEAKER_03: And just as a matter of transparency, I think that would have been the right thing to do.
59:05
SPEAKER_03: And like,
59:05
SPEAKER_03: at least according to the reporting,
59:07
SPEAKER_03: they didn't do that almost explicitly because it would have been embarrassing to
59:11
SPEAKER_03: the PRC leadership.
59:13
SPEAKER_03: And it just it's.
59:16
SPEAKER_03: It's odd in retrospect to look back at some of the decision-making,
59:20
SPEAKER_03: but maybe they just didn't want to risk making the relationship any worse.
59:24
SPEAKER_01: I mean, I think that there was a lot of concern.
59:27
SPEAKER_01: There was concern among allies too that the relationship was going off the rails
59:30
SPEAKER_01: and that it was going to veer into much more problematic areas or sort of a much
59:36
SPEAKER_01: more problematic and risky situation.
59:39
SPEAKER_01: And so there was,
59:40
SPEAKER_01: I think,
59:41
SPEAKER_01: a bit of a wake-up call that,
59:42
SPEAKER_01: okay,
59:42
SPEAKER_01: we have to figure out how to get this back on track.
59:45
SPEAKER_01: And
59:46
SPEAKER_01: Again, this is something of a broader issue where the Trump team comes in.
59:49
SPEAKER_01: And again,
59:49
SPEAKER_01: it really is going to depend on who is Secretary of State,
59:54
SPEAKER_01: who's our security advisor,
59:56
SPEAKER_01: who is running Asia and China policy and National Security Council.
1:00:01
SPEAKER_01: If it's some of the same people who are doing it in Trump 1,
1:00:04
SPEAKER_01: things could get pretty tense pretty quickly.
1:00:07
SPEAKER_03: Yes.
1:00:08
SPEAKER_01: And I think you would certainly not find anyone in the Trump,
1:00:11
SPEAKER_01: at least in Trump 1,
1:00:12
SPEAKER_01: who would think that the Biden administration...
1:00:14
SPEAKER_01: And actually,
1:00:15
SPEAKER_01: some of the folks have said that Biden administration,
1:00:17
SPEAKER_01: they like the way that...
1:00:19
SPEAKER_01: Because basically,
1:00:19
SPEAKER_01: the Biden administration continued a lot of their general direction of travel on
1:00:24
SPEAKER_01: policies towards the PRC,
1:00:25
SPEAKER_01: but maybe didn't push hard enough or were too willing to go back to trying to make
1:00:31
SPEAKER_01: sure that they were talking.
1:00:32
SPEAKER_01: And so again, it's a...
1:00:36
SPEAKER_01: The problem is China is a rising superpower that is increasingly unwilling to be
1:00:42
SPEAKER_01: lectured to and sees the U.S.
1:00:46
SPEAKER_01: as making lots of threats and still powerful, but not as powerful as it thinks it is.
1:00:50
SPEAKER_01: And the U.S.
1:00:51
SPEAKER_01: is overextended.
1:00:52
SPEAKER_01: And overextended.
1:00:54
SPEAKER_01: And they're just increasingly willing to basically say, we're going to call BS.
1:01:00
SPEAKER_01: Yes.
1:01:01
SPEAKER_01: And that does not lend itself to an easy relationship,
1:01:06
SPEAKER_01: especially when,
1:01:07
SPEAKER_01: whether it was Harris or certainly the Trump administration,
1:01:10
SPEAKER_01: they're not going to be like,
1:01:11
SPEAKER_01: yeah,
1:01:11
SPEAKER_01: okay,
1:01:11
SPEAKER_01: you're right.
1:01:12
SPEAKER_01: We need to back off on some things.
1:01:13
SPEAKER_01: That's not how the Trump guys, I think, are going to roll.
1:01:16
SPEAKER_01: And so that's why I think on net,
1:01:19
SPEAKER_01: there's really hard to find a high probability scenario where the US-China
1:01:24
SPEAKER_01: relationship gets better.
1:01:25
SPEAKER_01: Yes.
1:01:26
SPEAKER_01: Anytime soon.
1:01:27
SPEAKER_03: Yeah, well, there's been a lot of BS calls coming from the PRC over the last several years.
1:01:33
SPEAKER_03: And I mean what I say when I say that it's possible that just buying time,
1:01:38
SPEAKER_03: kicking the can down the road and avoiding things getting worse is the best
1:01:42
SPEAKER_03: strategy and trusting that over time.
1:01:45
SPEAKER_03: the U.S.
1:01:46
SPEAKER_03: dominance in a number of important areas will prevail and China will sort of
1:01:51
SPEAKER_03: collapse on itself with a failing economy.
1:01:54
SPEAKER_01: Yeah, that bet has not worked so far.
1:01:56
SPEAKER_01: It has not.
1:01:57
SPEAKER_03: And China's gotten more aggressive.
1:01:59
SPEAKER_01: Well,
1:01:59
SPEAKER_01: and they've also,
1:02:00
SPEAKER_01: you know,
1:02:00
SPEAKER_01: again,
1:02:01
SPEAKER_01: their economy is not doing great,
1:02:02
SPEAKER_01: but it's also not about to collapse.
1:02:03
SPEAKER_01: And I know that there's a lot of hope.
1:02:06
SPEAKER_01: Trump comes back,
1:02:06
SPEAKER_01: puts more pressure on China,
1:02:08
SPEAKER_01: and this will be the straw that breaks the camel's back,
1:02:11
SPEAKER_00: right?
1:02:11
SPEAKER_00: Mm-hmm.
1:02:12
SPEAKER_01: I... Don't bet on that.
1:02:14
SPEAKER_01: I wouldn't bet on that.
1:02:15
SPEAKER_01: I think also,
1:02:16
SPEAKER_01: again,
1:02:16
SPEAKER_01: and then we will...
1:02:17
SPEAKER_01: I know we need to wrap up here,
1:02:19
SPEAKER_01: but this podcast will come out on Friday morning on the 8th,
1:02:24
SPEAKER_01: Eastern Time on the 8th of November.
1:02:26
SPEAKER_01: And by the time it comes out, we should know the...
1:02:29
SPEAKER_01: The stimulus number.
1:02:30
SPEAKER_01: That's right.
1:02:31
SPEAKER_01: Quote, unquote, stimulus number.
1:02:32
SPEAKER_01: And today,
1:02:33
SPEAKER_01: the markets were up big in China because there were rumors that it may be bigger
1:02:37
SPEAKER_01: than people thought.
1:02:38
SPEAKER_01: Oh, boy.
1:02:39
SPEAKER_01: And there might be like 2 trillion renminbi for consumption.
1:02:42
SPEAKER_01: And we'll see, right?
1:02:44
SPEAKER_01: But they have tools is the key point to avoid a collapse.
1:02:50
SPEAKER_01: Yeah.
1:02:50
SPEAKER_01: And again, the economy, they've done a bunch of things over the last six, seven weeks.
1:02:55
SPEAKER_01: The goal here seems to be stabilizing.
1:02:58
SPEAKER_01: And I think that they have done enough that we're going to continue to see growth.
1:03:03
SPEAKER_01: And even into next year,
1:03:04
SPEAKER_01: I think there's an expectation that things will actually be a little bit better
1:03:07
SPEAKER_01: next year just because of all the policies they've already put into place.
1:03:10
SPEAKER_01: And so...
1:03:10
SPEAKER_01: Doesn't mean they don't need more sort of fiscal support.
1:03:13
SPEAKER_01: But again,
1:03:15
SPEAKER_01: I think,
1:03:17
SPEAKER_01: I hope listeners,
1:03:17
SPEAKER_01: I mean,
1:03:18
SPEAKER_01: we've only been doing this podcast for two years,
1:03:20
SPEAKER_01: but the sort of boom,
1:03:22
SPEAKER_01: the crash or boom.
1:03:26
SPEAKER_03: China's taking over the world or China's collapsing.
1:03:30
SPEAKER_01: Is historically just been a load of hooey.
1:03:32
SPEAKER_01: And I think people need to avoid that.
1:03:34
SPEAKER_03: Yes.
1:03:35
SPEAKER_03: Well, I will be at your house at 6 a.m.
1:03:38
SPEAKER_03: tomorrow.
1:03:39
SPEAKER_03: Tell Tasha to get the coffee ready.
1:03:40
SPEAKER_03: I'm sad.
1:03:41
SPEAKER_03: If we were releasing this podcast a day or two before,
1:03:44
SPEAKER_03: we could invite the entire audience over to your house at 6 a.m.
1:03:48
SPEAKER_00: Oh, God, we can have a CCTV watch party.
1:03:50
SPEAKER_00: Exactly.
1:03:51
SPEAKER_00: That sounds awful.
1:03:53
SPEAKER_03: I hope everybody has a wonderful weekend, however you feel about the state of U.S.
1:03:58
SPEAKER_03: politics.
1:03:58
SPEAKER_03: Things are looking up for the Washington Wizards, so everyone get excited about that.
1:04:03
SPEAKER_03: A team full of 19-year-olds, never been better here.
1:04:07
SPEAKER_03: They're going to lose 60 games this year, and I'm going to enjoy.
1:04:10
SPEAKER_03: ride uh but bill i hope you have a great weekend we are coming back with a podcast
1:04:17
SPEAKER_03: that will be dedicated to reactions to whatever the npc standing committee
1:04:22
SPEAKER_03: announces on friday so more domestic prc news next week uh but until then give
1:04:30
SPEAKER_03: tashi my best and i will talk to you soon thank you thanks everybody so