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As Canada Turns From the US, Is China the Alternative? · Trumponomics

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Speaker 1: Bloomberg Audio Studios.
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Speaker 2: Podcasts.
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Speaker 3: Radio.
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Speaker 2: News.
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Speaker 4: Trump is such a unique individual that I think a
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Speaker 4: lot of countries now are just like, OK, we've got, what,
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Speaker 4: two more years.
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Speaker 3: The clock is ticking.
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Speaker 4: Let's just try and get past this and then we'll
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Speaker 4: see if we can get into a more normal relationship.
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Speaker 1: Music I'm Stephanie Flanders, Head of Government and Economics at Bloomberg,
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Speaker 1: and this is Trumponomics, the podcast that looks at pretty
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Speaker 1: much everything in the economic world of Donald Trump. Now,
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Speaker 1: you can debate how much President Trump's policies have really
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Speaker 1: changed the world, but one thing he does seem to
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Speaker 1: have transformed is the relative global popularity of China. A
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Speaker 1: recent Pew Research survey showed China was now viewed more
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Speaker 1: favourably than the US in 20 leading economies, a massive swing.
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Speaker 1: from just three years ago when the US led China
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Speaker 1: by around a two to one margin. Significantly, more Canadians
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Speaker 1: now consider Xi Jinping a reliable partner than the US president.
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Speaker 1: And Xi leads Trump by double digits in many European
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Speaker 1: countries as well. If you add those poll ratings to
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Speaker 1: the steady stream of headlines about China's increasingly sophisticated AI
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Speaker 1: models and increasingly ubiquitous electric cars and other Chinese products,
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Speaker 1: You'd think China was winning the race to be the
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Speaker 1: most popular and successful superpower. But the world falling out
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Speaker 1: of love with the US, does that necessarily mean countries
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Speaker 1: are rushing into the arms of China? In countries outside
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Speaker 1: China and the US, there doesn't seem to be much
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Speaker 1: enthusiasm for a world dominated by either of them. But
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Speaker 1: for the so-called middle powers, striking out on their own,
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Speaker 1: as Mark Carney urged them to do in Davos at
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Speaker 1: the start of the year, well, that's proving to be
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Speaker 1: tricky as well. I wanted to talk about all of
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Speaker 1: that today. How much in practice can China benefit from
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Speaker 1: the Trump slump in global opinions of the US? And
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Speaker 1: six or seven months on, how much progress, if any,
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Speaker 1: have the disgruntled middle made in seeking to extricate themselves
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Speaker 1: from the US? Well, joining us from Hong Kong is
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Speaker 1: Dan Tankate. You've heard from him before. He's the executive
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Speaker 1: editor for economics and government in Asia. Dan, thank you
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Speaker 1: very much. And you're joining us not only in the evening,
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Speaker 1: which is often the case if you're in Asia, but
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Speaker 1: on your holiday. So I appreciate it. Great to be here.
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Speaker 1: He says through gritted teeth. It's your own fault because
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Speaker 1: you've written an essay for Bloomberg Weekend, which touches on
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Speaker 1: a lot of this and reminded me that it was
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Speaker 1: a good topic I wanted to come back to. And
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Speaker 1: in Washington, D.C., another repeat guest, Chris Kennedy. Chris is
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Speaker 1: our lead for economic statecraft at Bloomberg Economics in the
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Speaker 1: Geoeconomics Group. And he most recently served on the policy
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Speaker 1: planning staff at the US Department of State and as
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Speaker 1: director for international economics on the US National Security Council
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Speaker 1: under the Biden and Trump administrations. Chris, thank you very
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Speaker 1: much for joining.
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Speaker 3: Thanks for having me back, Stephanie.
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Speaker 1: Thank you. So, Dan, some of those opinion polls I
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Speaker 1: had noticed in the essay you wrote, it is very
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Speaker 1: striking and we've heard talk about it before. But you
3:19
Speaker 1: also suggest in that piece that we should be looking
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Speaker 1: under the hood because, you know, it's not all good
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Speaker 1: news for China.
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Speaker 4: Yeah, that's right. I think if you look at the numbers,
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Speaker 4: they're very striking in the sense of, wow, China is
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Speaker 4: suddenly more popular than the US and Xi Jinping is
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Speaker 4: more trusted than the U.S. president, which is stunning on
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Speaker 4: its face. But anyone who's lived through the past two
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Speaker 4: years or so would know that it's not that surprising
3:45
Speaker 4: that there would be sort of a backlash in these countries.
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Speaker 4: Trump has done nearly everything you could do to upset everyone.
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Speaker 4: Liberation Day tariffs, threatening Greenland, name your country. There's been
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Speaker 4: some sort of grievance that Trump has taken aim at.
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Speaker 4: And India in particular was one of them that got
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Speaker 4: really smacked around. Not only did they get hit with
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Speaker 4: H-1B restrictions, which affected Indians quite a bit.
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Speaker 1: On the visas, in the U.S. visas, yeah.
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Speaker 3: Exactly.
4:15
Speaker 4: And got hit with much higher tariffs for buying Russian oil.
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Speaker 4: But they also had kind of this near daily humiliation
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Speaker 4: of Trump saying that he brokered this ceasefire with Pakistan,
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Speaker 4: which for India and Prime Minister Narendra Modi in particular,
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Speaker 4: is just completely embarrassing. It suggests that he would be
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Speaker 4: giving into foreign pressure on their biggest enemy. And so
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Speaker 4: this was politically toxic for Modi and for India. And
4:43
Speaker 4: they didn't really know what to say. So they basically
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Speaker 4: just had this strategic silence. For me, it was quite
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Speaker 4: interesting in the survey results to find that India was
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Speaker 4: third behind Japan and Israel, both staunch American allies and
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Speaker 4: security partners.
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Speaker 1: So still actually favoring the US.
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Speaker 4: Yes, favoring the US over China. And it had narrowed,
5:07
Speaker 4: it had narrowed, let's be clear. But I also took
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Speaker 4: a trip to Delhi a couple of weeks ago and
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Speaker 4: was just struck by the kind of bigger view that
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Speaker 4: the leaders had there, kind of a multi-decade view where
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Speaker 4: they were viewing this moment more as an aberration than
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Speaker 4: something permanent. And they were taking just a bigger look at,
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Speaker 4: the cold, hard strategic calculus that they face. And that
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Speaker 4: is that they sit on China's doorstep. And if you
5:36
Speaker 4: look at the countries where the U.S. in particular is
5:39
Speaker 4: still more favorable than China, a lot of those countries
5:42
Speaker 4: do sit right on China's doorstep. They have to deal
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Speaker 4: with China all the time. So geography plays a big
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Speaker 4: role there. And it just got me thinking, okay, to
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Speaker 4: what extent can China take advantage of this moment right
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Speaker 4: now where it has this popularity and And can it
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Speaker 4: actually translate that into serious strategic gains?
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Speaker 1: And we've discussed this a little bit in the past,
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Speaker 1: the extent to which China was willing or able to
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Speaker 1: step into any of the roles, even just symbolically, that
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Speaker 1: the US has played. The one that Xi Jinping, I think,
6:15
Speaker 1: has wanted to play up is as a supporter of
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Speaker 1: the global rule-based order. But even there, it's struggling with
6:26
Speaker 1: a trust deficit because at the same time as it's
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Speaker 1: sort of holding up the global world order, it's also
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Speaker 1: got this enormous export surplus and has traditionally not been
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Speaker 1: so keen on observing the sovereignty of its neighbouring countries.
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Speaker 3: I think that is right.
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Speaker 4: I think at the end of the day, countries would
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Speaker 4: deal with China more if they knew what was going
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Speaker 4: on there. And it's very difficult to understand what's happening there.
6:52
Speaker 4: So the U.S., for all its faults, you can see
6:55
Speaker 4: essentially everything happening in real time. Trump is speaking to
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Speaker 4: reporters a couple times a day. He's sending every thought
7:03
Speaker 4: that enters into his mind and through social. So we
7:08
Speaker 4: always know what he's saying, even if it's kind of
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Speaker 4: state media, state-directed imagine Xinhua was giving Xi Jinping's thoughts
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Speaker 4: on things 20 times a day. I mean, there's just
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Speaker 4: no trust, I think, in where China's going to go strategically.
7:23
Speaker 4: And that's because China, ultimately, at the end of the day,
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Speaker 4: the thing that matters there is the longevity of the
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Speaker 4: Communist Party and keeping Xi Jinping and the party in power.
7:35
Speaker 4: And so do you trust that you're interests on some
7:40
Speaker 4: level aren't going to be thrown under the bus if
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Speaker 4: that conflicts with the ultimate aim of China. And I
7:47
Speaker 4: think that's what has people worried. Obviously, there's a lack
7:50
Speaker 4: of transparency in the judicial system, property rights, everything answers
7:54
Speaker 4: to the Communist Party. Someone in India, an official was saying,
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Speaker 4: you know, that you can do business with China, but
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Speaker 4: they'll take you to the cleaners and wipe you out
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Speaker 4: and you won't even know what happened to you. The U.S.,
8:07
Speaker 4: could be messy right now, that could be doing lots
8:09
Speaker 4: of things. But you do have peaceful transfers of power regularly,
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Speaker 4: despite January 6th. And you do have courts that still
8:19
Speaker 4: make independent decisions and commercial decisions. These things are tested
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Speaker 4: for sure. But when you compare them to China, it's
8:27
Speaker 4: a completely different universe.
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Speaker 1: Yeah, your point about just not knowing what's going on
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Speaker 1: is a very, is a really well, well made. I mean, Chris,
8:35
Speaker 1: you were sitting inside the State Department and the NSC.
8:38
Speaker 1: And I suspect if you had a list of lines
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Speaker 1: that you don't cross in dealing with allies, ways that
8:45
Speaker 1: you don't want to undermine the US position in various ways,
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Speaker 1: Trump has ploughed through those over the last year and
8:51
Speaker 1: a half. And as Dan pointed out, he's kind of
8:53
Speaker 1: gone out of his way to undermine the sort of
8:56
Speaker 1: day-to-day relations with some of our biggest allies. But if
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Speaker 1: you were still there, would you still be thinking, as
9:03
Speaker 1: I suspect Donald Trump has in the back of his mind, well, ultimately,
9:06
Speaker 1: they've still got nowhere else to go. For all the
9:08
Speaker 1: reasons Dan said, it's not like we're really going to
9:12
Speaker 1: see everyone run into the arms of China.
9:15
Speaker 5: I think yes, as a simple answer to that question.
9:19
Speaker 5: But obviously, it's not purely binary. We have seen Europe
9:25
Speaker 5: middle powers and our Indo-Pacific allies start to diversify their relationships,
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Speaker 5: both their strategic defense relationships and then also their trade relationships.
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Speaker 3: This is being driven, of course, by U.S.
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Speaker 5: Policy, but also by the collapse of the Chinese domestic market,
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Speaker 5: which has led to this flood of exports. So there's
9:44
Speaker 5: these multiple trends happening that are driving the diversification. But
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Speaker 5: I think broadly, Yes. I'd be very surprised if we
9:54
Speaker 5: saw a long-term structural shift away from the U.S., and
9:58
Speaker 5: that's for a couple of reasons.
10:00
Speaker 3: Reasons.
10:00
Speaker 5: We are now just over two years away from the
10:03
Speaker 5: end of Donald Trump's second term. The chaos that he
10:06
Speaker 5: has injected into the global trading system in some ways
10:10
Speaker 5: has prevented broad-based diversification. The world has largely been trying
10:15
Speaker 5: to catch up to Trump's policy and over the past
10:18
Speaker 5: two years. And now we might see some stability in
10:21
Speaker 5: tariff rates, but in another two years, Trump is going
10:23
Speaker 5: to be gone. And I think economies are trying to
10:26
Speaker 5: prepare for what that looks like. If a Democrat wins,
10:29
Speaker 5: are we going to see tariffs remain in place? If
10:31
Speaker 5: a Vance or a Rubio replaces Trump, what does that mean?
10:35
Speaker 5: But what Europe knows is that Russia and Putin are
10:38
Speaker 5: likely to still be there. And what the rest of
10:40
Speaker 5: the world knows is that China is likely to still
10:43
Speaker 5: be there. And so the question is, how much are
10:46
Speaker 5: you going to invest in diversifying away from the US
10:50
Speaker 5: when the likelihood is that you would have a more
10:52
Speaker 5: mainstream president? Certainly not a president who's going to threaten
10:57
Speaker 5: to take Greenland, right? It's hard to imagine anybody replacing
11:01
Speaker 5: Trump with that sort of an approach to international diplomacy.
11:05
Speaker 5: I also would be very surprised if we saw the
11:06
Speaker 5: next president directly interfering in elections of our allies, for instance,
11:12
Speaker 5: by trying to bolster candidates of his or her political persuasion.
11:17
Speaker 5: So I do think there's a number of structural deeper
11:20
Speaker 5: factors that are going to prevent a real break from
11:24
Speaker 5: the U.S. Yes, we'll see diversification. Yes, we'll see Europe
11:27
Speaker 5: invest more in defense. We'll see Indo-Pacific allies start working
11:30
Speaker 5: closely together. But in the end, I think we're going
11:34
Speaker 5: to be in a place in 2029 where the U.S.
11:36
Speaker 5: would be welcomed back into the mix as an important
11:39
Speaker 5: leader of this order that is attempting to deal with
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Speaker 5: this really serious challenge of China and their overproduction and
11:47
Speaker 5: exports to the world, and then, of course, in.
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Speaker 3: Europe, Russia.
11:51
Speaker 1: I think we should try and go into a few
11:54
Speaker 1: of those different areas, because I think there's probably a
11:56
Speaker 1: slightly different story to tell in each area. That's a
11:59
Speaker 1: very good sort of big picture from you, Chris, and
12:02
Speaker 1: you've highlighted the challenge. In a sense, we're moving on
12:05
Speaker 1: now because we're not talking so much about whether or
12:07
Speaker 1: not everyone's just rushing to China, and it's more this
12:10
Speaker 1: When I mentioned the sort of Mark Carney call for
12:14
Speaker 1: middle powers to be realistic about the way the world
12:17
Speaker 1: was going and at least not giving the U.S. the
12:20
Speaker 1: benefit of the doubt and expecting a bit of unpredictability
12:24
Speaker 1: and unreliability from the U.S.
12:25
Speaker 2: We have a recognition of what's happening and a determination
12:28
Speaker 2: to act accordingly. We understand that this rupture calls for
12:33
Speaker 2: more than adaptation. It calls for honesty about the world
12:36
Speaker 2: as it is. We know the old order is not
12:39
Speaker 2: coming back. We shouldn't mourn it. Nostalgia is not a strategy.
12:46
Speaker 2: But we believe that from the fracture, we can build
12:48
Speaker 2: something bigger, better, stronger, more just.
12:52
Speaker 3: This is the task of the middle powers.
12:55
Speaker 1: So think about defence. Chris, certainly there's been a lot
12:59
Speaker 1: of talk in Europe, and we saw recently in the
13:02
Speaker 1: Middle East as well, we had sort of the new
13:04
Speaker 1: so-called Miket Pact between the Saudis, Pakistan and Turkey. How
13:09
Speaker 1: much movement have we seen on that so far this year?
13:11
Speaker 1: Not necessarily in response to Mark Carney, but in that
13:15
Speaker 1: kind of vein of seeking alternatives and diversification?
13:20
Speaker 5: Well, I think we've certainly seen Europe speak a lot
13:23
Speaker 5: about this. There are real questions about their ability to
13:27
Speaker 5: fund the sort of revitalization of the European defense industry
13:32
Speaker 5: that they seek to achieve. But in the end, it's
13:35
Speaker 5: going to be a very long time before Europe in
13:37
Speaker 5: particular can replace the sort of strategic value that the
13:42
Speaker 5: US provides to the continent. Like it or not, NATO
13:45
Speaker 5: and the US are very intertwined, and that's going to
13:49
Speaker 5: be the case for foreseeable future. I would say also
13:52
Speaker 5: in the Indo-Pacific, it's going to be very challenging to
13:55
Speaker 5: fully move away from the U.S.
13:58
Speaker 3: Even if the U.S.
13:59
Speaker 5: Pulls back, we're talking a generational challenge to build up
14:03
Speaker 5: the capacity to play that role.
14:06
Speaker 3: The U.S.
14:07
Speaker 5: Is by far the world's largest military and the most
14:12
Speaker 5: potent military force still, despite what we've seen Iran. I
14:16
Speaker 5: think that both parties in the U.S. would agree that
14:19
Speaker 5: it's good that Europe is investing more in its own
14:24
Speaker 5: defense systems and taking some more responsibility. I think that's
14:28
Speaker 5: been driven in part by Trump's first term and then,
14:30
Speaker 5: of course, Russia's invasion of Ukraine, and now it's being accelerated.
14:34
Speaker 5: But I don't think we're going to see a major
14:35
Speaker 5: structural shift.
14:36
Speaker 2: Mm-hmm.
14:37
Speaker 1: The other thing we saw was in the UK and
14:39
Speaker 1: Canada also intensifying their defence conversations, though, again, I'm not
14:43
Speaker 1: entirely sure what that's going to mean in practice. I mean, Dan,
14:47
Speaker 1: how would you see it on the trade front? You
14:49
Speaker 1: spent all this time in India. Are they sort of
14:51
Speaker 1: thinking we saw the big trade pact with the EU?
14:55
Speaker 1: Is that an area where they're moving away from the US?
14:58
Speaker 4: Yeah, I think India's strategy is to diversify in a
15:02
Speaker 4: lot of areas, but a lot of it is sort
15:05
Speaker 4: of focused on China. And trade is one example. India
15:09
Speaker 4: never really did trade deals. They famously stayed out of RCEP.
15:13
Speaker 4: They were very difficult to negotiate with.
15:16
Speaker 1: And they were always the last country blocking a WTO deal,
15:19
Speaker 1: I seem to remember, from those endless WTO meetings that
15:22
Speaker 1: ended in nothing. Yes.
15:24
Speaker 4: So the strategy in India now is essentially to cut
15:28
Speaker 4: trade deals with every country in the world except for China.
15:32
Speaker 4: So then you can be WTO compliant and keep higher
15:36
Speaker 4: rates on China than everybody else. So there is diversification there,
15:42
Speaker 4: but ultimately it's aimed at trying to protect the economy
15:47
Speaker 4: from China. Now, India is in a tough spot because
15:50
Speaker 4: they need certain technology from China. China doesn't want to
15:53
Speaker 4: give it to them because they'll just be helping India
15:57
Speaker 4: become a competitor to them. And we've already seen Apple
16:00
Speaker 4: shifting iPhone production to India. India wants to move up
16:04
Speaker 4: the value scale. They're trying to build fabs for semiconductor production.
16:10
Speaker 4: So that's very much in the works. They see their
16:13
Speaker 4: customers as in the US, essentially in Europe. So India
16:17
Speaker 4: wants to be a part of this, I guess you
16:20
Speaker 4: could call it a non-Chinese supply chain, where you're manufacturing
16:25
Speaker 4: stuff for clients in the US and Europe. So They
16:29
Speaker 4: need American tech. They need American investment. And that's why
16:33
Speaker 4: they're looking at the bigger picture, too. If Modi's going
16:36
Speaker 4: to hit his development goals for 2047, you really need
16:41
Speaker 4: capital coming in from the U.S., from Europe. They don't
16:44
Speaker 4: want a bunch of Chinese capital coming in the country
16:47
Speaker 4: or other places. So that is their economic imperative. They
16:50
Speaker 4: really see that more aligned with the West than China.
16:54
Speaker 4: And yes, they are legacy partners with Russia. But Russia's
16:58
Speaker 4: economy isn't terribly dynamic at the moment. And so there
17:01
Speaker 4: might be some joint defense deal productions where India can
17:05
Speaker 4: get some defense technology and start to boost its own
17:09
Speaker 4: self-sufficiency in producing weapons. But beyond that, if you look
17:14
Speaker 4: at the industries of the future, I think India long
17:17
Speaker 4: term still sees its future much more connected with the U.S.
17:21
Speaker 1: And Europe. Of course, it's not clear that Donald Trump
17:23
Speaker 1: is really on board with India being an alternative to
17:27
Speaker 1: China in terms of the supply chain.
17:29
Speaker 3: Yeah, that's definitely true.
17:30
Speaker 4: I think India right now is looking to survive two
17:33
Speaker 4: more years of Trump. Obviously, anything can happen in American politics.
17:37
Speaker 4: But Trump is such a unique individual that I think
17:41
Speaker 4: a lot of countries now are just like, OK, we've got, what,
17:44
Speaker 4: two more years.
17:44
Speaker 3: The clock is ticking.
17:46
Speaker 4: Let's just try and get past this and then we'll
17:49
Speaker 4: see if we can get into a more normal relationship.
18:02
Speaker 1: One area, and we talk about it a lot on
18:04
Speaker 1: this show, where arguably countries don't have two years just
18:08
Speaker 1: to count down the clock is AI, because things seem
18:11
Speaker 1: to be moving more at a kind of hourly, daily
18:13
Speaker 1: pace when it comes to that, including potentially sort of
18:17
Speaker 1: hardware and software choices that countries are making in their
18:21
Speaker 1: defence sector and elsewhere that could affect their ability to
18:27
Speaker 1: keep up in an AI-powered world for many years to come. Chris,
18:32
Speaker 1: when it comes to this choice, I suspect lots of
18:36
Speaker 1: countries would prefer to choose the US AI track But
18:41
Speaker 1: how much does this distrust of the U.S. and actually
18:44
Speaker 1: the U.S. trying to limit access to some of this
18:46
Speaker 1: technology get in the way of that?
18:49
Speaker 5: I think you made the distinction in your question between
18:53
Speaker 5: the hardware and the software. And I think certainly the U.S.
18:57
Speaker 5: is in a strong position to exert leverage over countries
19:01
Speaker 5: that are looking to build out their own data centers
19:04
Speaker 5: using advanced chips. We've seen this happen during Trump's administration,
19:08
Speaker 5: but also in the Biden administration. On the software side,
19:11
Speaker 5: this is where it's getting a little bit more complicated.
19:13
Speaker 5: Chinese companies have made decisions to offer up these open-weight
19:18
Speaker 5: models to the world, and these are effective models. They
19:21
Speaker 5: allow companies, enterprises, governments to deploy their AI solutions in
19:28
Speaker 5: a way that is perhaps more cost-effective and doesn't necessarily
19:31
Speaker 5: rely on the most advanced chips from the U.S.
19:34
Speaker 3: In every case.
19:36
Speaker 5: I would be surprised to see a flood of countries
19:40
Speaker 5: choosing to ban or otherwise refuse to use Chinese open.
19:45
Speaker 3: Weight models in the next couple of years. Of course,
19:48
Speaker 3: that could change.
19:49
Speaker 5: I think frankly, the most likely way for the U.S.
19:53
Speaker 5: to compete in this realm is for U.S. companies to
19:56
Speaker 5: start offering some of these open weight models. And we're
19:59
Speaker 5: seeing some discussion. Of course, Mark Zuckerberg has talked about this.
20:02
Speaker 5: Varying motivations have been offered for that. But In any case,
20:07
Speaker 5: there is a big distinction. I think we're going to
20:08
Speaker 5: see deployment of these models from both China and the U.S.
20:12
Speaker 3: Over time.
20:14
Speaker 5: The U.S. on the deployment side also does have a
20:16
Speaker 5: significant advantage with its cloud services. As much as European
20:19
Speaker 5: countries have discussed the need to move away from U.S.
20:22
Speaker 5: software solutions and cloud services, the reality is there isn't
20:26
Speaker 5: really that capacity in Europe and there isn't going to
20:29
Speaker 5: be in the next couple of years.
20:31
Speaker 3: And the U.S. is still going to be a major
20:32
Speaker 3: player there. And I just wanted to touch on another thing.
20:35
Speaker 3: We were talking about India. The U.S.
20:37
Speaker 5: Is still India's largest export market. Exports to the U.S.
20:42
Speaker 5: grew by 20% in 2025, despite the tariff chaos. Now,
20:45
Speaker 5: a lot of that was front-loaded in the beginning of
20:46
Speaker 5: the year. If you look at the G20, the U.S.
20:49
Speaker 5: is either the top or second highest export market for
20:54
Speaker 5: 14 of these economies. And this is going to continue.
20:58
Speaker 5: Of course, the European Union is a large market and
21:00
Speaker 5: an important market. But China is not consuming. They're not
21:03
Speaker 5: importing like they were at one point. And the reality
21:06
Speaker 5: is these economies, many, especially the middle powers, are really
21:09
Speaker 5: keen to keep access to the U.S.
21:12
Speaker 3: As a market.
21:13
Speaker 5: So I think that that is perhaps a big structural driver,
21:15
Speaker 5: I think, underlying what we're discussing here.
21:17
Speaker 1: Touching on India on that AI question, Dan, because I
21:20
Speaker 1: remember certainly a lot of our reporters have been picking
21:23
Speaker 1: up the Indians' concern that sort of the choice they
21:26
Speaker 1: might be forced to make. And as you mentioned, the
21:28
Speaker 1: sort of reluctance they have, they don't want to be
21:30
Speaker 1: caught in wedded to Chinese tech when actually most of
21:33
Speaker 1: their sort of economic development model is quite tied to
21:36
Speaker 1: the US. So when you were there the other day,
21:39
Speaker 1: how are they thinking about this challenge that Chris outlines
21:43
Speaker 1: about the AI adoption?
21:47
Speaker 4: I think people are still trying to figure out exactly
21:50
Speaker 4: what the risk of the open weight models are and
21:53
Speaker 4: how much China can weaponize that in the future. Some
21:58
Speaker 4: people are not that concerned about it. They're open for
22:01
Speaker 4: everyone to see. And if China was going to put
22:04
Speaker 4: a backdoor in it, it would be exposed. But then
22:08
Speaker 4: if everyone's on Chinese open-weight models, then there's all sorts
22:12
Speaker 4: of services and there's all sorts of other things that
22:15
Speaker 4: you could become hooked on and increase your reliance on
22:18
Speaker 4: China in the future. And I think it's those dependencies
22:21
Speaker 4: that might come out of that that then might be
22:24
Speaker 4: weaponized that governments are concerned about. But I think India,
22:27
Speaker 4: for the moment, is most concerned about trying to catch
22:30
Speaker 4: up and have its capabilities to defend itself properly. And
22:33
Speaker 4: I think a lot of governments are. And India just
22:36
Speaker 4: knows that they're not there yet and they need to
22:39
Speaker 4: do better. So they don't have any choice at the moment.
22:42
Speaker 4: They're kind of scrambling with whatever they can get.
22:45
Speaker 1: It's come up a few times on the show. I mean,
22:46
Speaker 1: the open source thing, I think Sebastian Malaby was on
22:49
Speaker 1: a while back. It was pretty clear that there's this
22:51
Speaker 1: kind of longer term economic security concerns, but there's also
22:57
Speaker 1: a sort of immediate concern about open source and that
23:00
Speaker 1: you can't kind of turn them off. You've put a
23:02
Speaker 1: lot of power potentially in the hands of people who
23:05
Speaker 1: can do some pretty bad things. If I can advertise
23:09
Speaker 1: an upcoming episode, having just recorded a very bracing but
23:12
Speaker 1: fun interview with Cory Doctorow, who has a more sceptical
23:16
Speaker 1: eye and gives a different take on this. He's a
23:18
Speaker 1: pretty well-informed, smart sceptic of many aspects of this AI boom.
23:24
Speaker 1: But we're reaching nearly the end of this conversation. And
23:27
Speaker 1: I just wanted to bring it back to something that's
23:29
Speaker 1: run through what both of you have said. And that's
23:33
Speaker 1: this question of the elephant in the room, which is
23:35
Speaker 1: way bigger than an elephant, which is the Chinese export
23:39
Speaker 1: onslaught onto the rest of the world. I just wonder,
23:42
Speaker 1: you know, in a couple of years time, if countries
23:46
Speaker 1: feel like they're already weak economies, and certainly they're increasingly
23:51
Speaker 1: weak manufacturing sectors have been decimated in key areas by
23:57
Speaker 1: this onslaught from China, the cheap electric vehicles and other things.
24:02
Speaker 1: when all the Chinese toys were hitting Europe and the US,
24:05
Speaker 1: it was a time when inflation was under control, growth
24:08
Speaker 1: was pretty good. It sort of added to the good news.
24:11
Speaker 1: I think that's probably not how people are looking at
24:14
Speaker 1: that surge in exports now. So could we be having
24:16
Speaker 1: just a very different conversation, Chris, in a couple of years'
24:19
Speaker 1: time as views have really hardened about these exports that
24:25
Speaker 1: China just keeps sending to the rest of the world?
24:27
Speaker 3: I think so.
24:28
Speaker 5: And it'll be interesting to see how Europe in particular,
24:32
Speaker 5: response to this over the next couple of years. I
24:35
Speaker 5: think where we might see some of the biggest shifts
24:36
Speaker 5: are actually in these middle emerging powers, because what we've
24:40
Speaker 5: seen is that China, unlike developed economies, instead of moving
24:44
Speaker 5: up the value chain and surrendering some of these intermediate
24:48
Speaker 5: parts of these production processes to emerging economies, it's not
24:53
Speaker 5: doing that. It's trying to keep a grip on these
24:55
Speaker 5: entire value chains. And so the combination of pressure to
24:59
Speaker 5: find new markets for exports as I would expect Europe
25:02
Speaker 5: to put up more barriers.
25:03
Speaker 1: The U.S.
25:04
Speaker 3: Is certainly likely to as well.
25:06
Speaker 5: So that pressure, that export pressure, the unwillingness to allow
25:11
Speaker 5: countries like Indonesia and India to really build out and
25:17
Speaker 5: also rise up these value chains, I think it's going
25:19
Speaker 5: to start turning the opinion of some of these economies
25:22
Speaker 5: more than it has so far. And Of course, two
25:26
Speaker 5: years is a lifetime, it seems like these days. But
25:30
Speaker 5: it's hard to see how this trend changes in the
25:34
Speaker 5: near term. Xi has shown no appetite to restrain Chinese production.
25:39
Speaker 5: It's keeping the economy afloat. There are a lot of
25:41
Speaker 5: other domestic pressures. And the awareness of this is only
25:45
Speaker 5: growing despite all of the U.S. tension with other economies
25:49
Speaker 5: around the world. This looming challenge of Chinese export capacity,
25:54
Speaker 5: that awareness just continues to grow.
25:56
Speaker 1: Dan, you point out that Germany, for example, although even
26:00
Speaker 1: in these opinion polls, you're seeing Trump fall, slightly less
26:04
Speaker 1: excitement around Xi Jinping, and there presumably will be even
26:08
Speaker 1: less when Volkswagen cuts 100,000 jobs and closes four plants
26:12
Speaker 1: as they're supposedly going to do.
26:13
Speaker 4: Yeah, you've had France and Germany basically aligned on China
26:19
Speaker 4: policy now. And in seeing this as a major problem.
26:22
Speaker 4: I think that goes back to the bigger constraints on
26:25
Speaker 4: how much China can actually take advantage of this moment.
26:29
Speaker 4: You have a lot of structural things and the exports
26:32
Speaker 4: are a big part of it. If there was no
26:34
Speaker 4: Liberation Day where Trump fired tariffs on every single country
26:39
Speaker 4: and got every country thinking about how to diversify away
26:42
Speaker 4: from the U.S., you would have seen this accelerated last
26:45
Speaker 4: year because this was already a problem last year. But
26:49
Speaker 4: it's basically taken a while because countries, they were thinking, OK,
26:53
Speaker 4: how do we diversify from the U.S.? Well, we have
26:55
Speaker 4: to try to boost economic ties with China. So Mark
26:59
Speaker 4: Carney went over there and other people. But now this
27:03
Speaker 4: flood of Chinese exports is not going to stop. And
27:06
Speaker 4: I think that Europe is realizing that at the moment.
27:10
Speaker 4: And the only way it's going to stop is if
27:12
Speaker 4: there is a collective action that forces China to change,
27:15
Speaker 4: because the domestic imperatives for Xi Jinping are or to
27:19
Speaker 4: just keep things going as they are. There is no
27:21
Speaker 4: domestic pressure right now. And Chinese companies are not making
27:26
Speaker 4: a lot of money. They're accepting very, very low profit margins.
27:30
Speaker 4: People aren't making a lot of money. But generally, they
27:33
Speaker 4: have a lot of stuff. Stuff is cheap, and they
27:36
Speaker 4: can get it. The other thing was Trump's attacks on
27:39
Speaker 4: China also helped solidify the Communist Party and bought them
27:43
Speaker 4: some time as well. But the domestic imperatives to switch
27:47
Speaker 4: to a consumption-driven economy in China, the costs for the
27:50
Speaker 4: party at the moment are just too high to do that.
27:53
Speaker 4: So the path of least resistance is just to continue
27:56
Speaker 4: what you've been doing. And you don't really care what
27:59
Speaker 4: Germany or France thinks so much. You care what the
28:03
Speaker 4: 1.4 billion Chinese people think. And I've had Chinese officials
28:07
Speaker 4: tell me that they thought the U.S. made a big
28:09
Speaker 4: mistake in exporting It's manufacturing to China. And so they
28:15
Speaker 4: don't want to actually do the same thing. And so
28:18
Speaker 4: they are keeping a grip on all corners of the
28:21
Speaker 4: value chain, not least because they think they might end
28:24
Speaker 4: up in a war one day and they don't want
28:26
Speaker 4: to have any dependency. They want to be completely self-sufficient.
28:30
Speaker 1: Well, that sense, that sort of visual image of them
28:32
Speaker 1: pulling up the ladder with them as they move up
28:36
Speaker 1: the value chain is certainly is not going to be
28:39
Speaker 1: winning them a lot of friends. I mean, maybe that's
28:41
Speaker 1: where we've ended up, that this environment, despite Donald Trump's
28:44
Speaker 1: best efforts, is not sending countries into the tight embrace
28:48
Speaker 1: of China. But You made a crucial point there. It
28:51
Speaker 1: is getting in the way of collective action against China's
28:56
Speaker 1: economic model insofar as it affects the rest.
28:59
Speaker 3: Of the world.
29:00
Speaker 1: And we might well otherwise be seeing that. So for
29:03
Speaker 1: Xi Jinping right now, that might just be enough of
29:06
Speaker 1: a favor for Donald Trump to have done them. Dan Tenkate,
29:10
Speaker 1: Chris Kennedy, thank you so much. Thank you.
29:12
Speaker 3: Thank you.
29:22
Speaker 1: Thanks for listening to Trumponomics from Bloomberg. It was hosted
29:25
Speaker 1: by me, Stephanie Flanders. I was joined by Dan Tenkate,
29:28
Speaker 1: Executive Editor for Economy and Government Coverage in Asia, and
29:33
Speaker 1: Chris Kennedy, Lead for Economic Statecraft at Bloomberg Economics. toponomics
29:39
Speaker 1: was produced by jennifer seeley moses andam and samasadi with
29:43
Speaker 1: help from amy keen and sound design was by blake
29:46
Speaker 1: maples and kelly gary and to help others find and
29:51
Speaker 1: enjoy this show please review us enthusiastically wherever you listen