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Electric Empire: China’s EV Takeover with Michael Dunne · China Considered

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>> Elizabeth Economy: Welcome to China Considered, a podcast that brings fresh
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insights and informed discussion to one of the most consequential issues of our time,
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how China is changing and changing the world.
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I'm Liz Economy Hargrove, Senior Fellow and Co Director of the Program on us,
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China and the World at the Hoover Institution at Stanford University.
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Today I have with me Mike Dunne.
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He's the CEO of Dunne Insights and a world-class expert on all things auto.
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In particular, he has spent more than three decades as a consultant and
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thought leader focused on what's going on in the US and Chinese car industries.
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He has a new book coming out next year called Car Wars.
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And there's nobody better to help us understand the current competitive
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landscape.
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Welcome, Mike.
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>> Michael Dunne: So good to see you, Liz.
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And I've been looking forward to this conversation for weeks.
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>> Elizabeth Economy: Great.
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So you have been involved in the Chinese auto industry in one form or
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another since we were in graduate school together in the early 1990s.
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Did you ever expect the day would come when China would be the largest
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manufacturer and largest car market in the world?
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>> Michael Dunne: No, China's rise to global supremacy in cars is
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really nothing short of a miracle.
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To be honest, what I saw the country do in the space of 30 years, it's like,
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you know the movie Bad News Bears, Little League players, and they were hopeless.
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That was China when I first set foot in Beijing, Jeep's joint venture in 1990.
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Today, they're feared by all.
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They've transformed into the New York Yankees, World Series champions,
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perennial powerhouse, existential threat to global automakers worldwide.
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Whoa, how did that happen?
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That's just got everybody stunned.
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>> Elizabeth Economy: Right, and that's what you're gonna tell us.
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So who's their coach?
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I mean, who coached them from Bad News Bears to the Yankees in three decades?
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Is it the government?
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Was it a set of really incredible Chinese entrepreneurs?
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Was it the foreign companies who came in and
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did JVs with their Chinese counterparts?
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How did this miracle transformation occur?
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>> Michael Dunne: Yeah, so government from the very beginning plays that
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central role of setting the rules and setting the ambition.
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What are our objectives?
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So let me take you back just for
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a moment to when I did go to that Beijing Jeep plant in 1990, what I saw.
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The manager was still sleeping on cots, taking their afternoon naps.
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The cars were barely creeping along the final assembly line.
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There's a lot of tension between the partners, Chrysler and Beijing Jeep.
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Beijing officials from the city.
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And I got to together with a friend of mine, Kerry Ivan,
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who was the CFO at the time.
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And I said, what's it like here operating this JV?
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And he said, every day's a battle.
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It's quite depressing, in fact, I asked my assistant, Ms. Jung, how are you doing?
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Every morning I ask her, how are you doing, Ms. Jung?
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And she always replies the same way.
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Just waiting to die, Mr. Ivan, just waiting to die.
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Okay, so things were the Chinese were unhappy because they didn't have
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the wherewithal to build their own vehicles.
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They had to import the parts from Ohio, assemble them in China.
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Later that same day, I met the plant manager, and I said,
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how do you feel about this?
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You're not able to build your own Chinese cars.
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You're relying on the US for parts.
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And he said, you know what?
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It's okay for now until we learn how to do it ourselves and
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kick your asses out, really.
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>> Elizabeth Economy: So even back then, they had that as a motivation.
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>> Michael Dunne: Even back then, there was that deter.
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Quiet determination, like a burning ambition.
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We understand we're way behind today, but we.
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We know where we wanna take things.
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That was then government.
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Deng Xiaoping famously went and took a visit to the United States in Japan,
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in the.
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When was that?
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Gosh, 1980.
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And what he came away with is wealthy countries, powerful countries,
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have very strong auto industries.
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We want that for ourselves.
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So he came back and he told his lieutenants, hey, let's do that.
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And they said, great, boss, but we don't know anything about building cars.
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We don't have capital, we don't have the technology, the management expertise.
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He said, okay, you know what we need to do?
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Let's form joint ventures.
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Let's go out and recruit people from the West, Americans and
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Germans and Japanese to come here to China.
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And here are the rules.
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They won't be allowed to export into China.
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We'll have tariffs of 100% or more.
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And if they want access to the Chinese market,
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they'll have to manufacture inside China.
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Okay, that's interesting, we have to bring the capital and the know how inside.
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And, by the way, not only do they have to manufacture here, but
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they have to partner with a Chinese company, and that Chinese company will
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have at least 50% ownership in every single one of these JVs.
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Wow, okay, so on the one hand, Westerners thought, China's opening up.
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We can get into the market.
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This is awesome.
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But what they failed to see was that China was ultimately in control.
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They had the ace in the hole, they were in charge.
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>> Elizabeth Economy: So, Mike, let me interrupt you just for a second.
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I mean, did they have a model for this, or did Deng Xiaoping and
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his advisors simply create this idea for a JV structure that would enable
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their companies over time to absorb the technology and the knowledge and
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everything else they would need to become their own dominant player?
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Or was there someone else who had done this before in this way?
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>> Michael Dunne: You're absolutely right.
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They looked at Japan, they looked at Korea, and the Japanese and
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Koreans had formed joint ventures with Americans primarily and had
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successfully learned what they needed to learn until they could stand on their own.
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So there was precedent for it.
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The difference might be that, you know, China was insistent,
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we're not going to have any imports here.
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We're going to manufacture it ourselves, and we have to own at least 50%.
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So it really put solid lines in place.
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There was the precedent out of Japan and Korea.
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So, yes.
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So how does that play out from 1990, let's say, until 2010?
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It goes spectacularly well for China and for the global automakers entering
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China cuz the market exploded from a few thousand cars a year to,
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by 2010, they were building more than 10 million a year,
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surpassing the United States in terms of production for the first time.
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So I remember attending a summit at that time and led by a guy named Wan Gang,
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a very important character in China.
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>> Elizabeth Economy: I've met him myself,
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I remember Head of the Ministry of Science and Technology, former auto guy, right?
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>> Michael Dunne: Right. >> Elizabeth Economy: Yeah.
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>> Michael Dunne: So it's in Beijing and he's up in front, he goes,
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I have some great news that I have some disappointing news on the great news side,
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we're now the number one manufacturer of vehicles in the world.
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We're the biggest market in the world.
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We're number one.
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This joint venture strategy, actually, we got the capital and
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the know how here, he said.
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On the other hand, there's two things that I'm really frustrated about.
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One is, if you look out in the streets of Shanghai or Guangzhou or Beijing, almost
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all those cars are still foreign makes, Mercedes and Hyundai and Toyota and Buick.
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Where are the Chinese cars?
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Yeah, 20 years later, we're still not making a car to call our own.
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That was one big frustration.
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The second one was, hey, by the way,
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we're now the largest importer of oil in the world.
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We're becoming increasingly dependent on oil from the Middle East.
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We don't wanna find ourselves in the same kind of quagmire that the United States
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has found itself in.
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So how do we move off this joint venture arrangement to something bigger?
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Bigger, yeah?
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And so in 2010, we begin to see the seeds planted for,
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let's move to electric vehicles.
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>> Elizabeth Economy: Now.
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>> Michael Dunne: Of course, they looked across the ocean,
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they saw a guy named Elon Musk with Tesla, and, there's some possibility here.
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Maybe technology's ready.
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So what do they do next?
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Do you know the answer?
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>> Elizabeth Economy: I don't know, did they invite Tesla?
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I actually think, though, I seem to remember the story begins a little bit
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earlier than 2010 for EVs, right?
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I mean, I think they started thinking about new energy
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vehicles as early as the late 1990s.
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>> Michael Dunne: You're exactly right.
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>> Elizabeth Economy: They just couldn't get anywhere, right?
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And then I do kind of know the story of the EVs cuz I looked into it when I was
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writing one of my earlier books.
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So I know it was a big mess of government investment and
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local government investment and a lot of other stuff that took place.
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But let's hear it from you, cuz I think the world went into collective
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shock in 2023 after the Shanghai Auto Show, right?
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>> Michael Dunne: Yeah, totally.
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>> Elizabeth Economy: It was like, my God,
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where did all these Chinese EVs that are nice to look at,
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that are technologically excellent and run well?
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Where did they all come from?
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They just did this overnight, but it wasn't overnight.
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Okay, so tell us- >> Michael Dunne: Seemingly overnight.
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>> Elizabeth Economy: Tell us the story was not overnight.
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>> Michael Dunne: No, you're absolutely right.
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Let's go back, 2000 Wan Gang comes back from Germany and
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he delivers this white paper, the strategy paper, we should actually go electric.
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He knew then, 2000.
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And then a few years later, Wang Chuanfu, the founder of BYD, battery maker for
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cell phones, announced to his board, we're going into electric vehicles, that's 2003.
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His board says, you're out of your mind.
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We won't be competitive.
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It's capital intensive.
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We don't know anything about cars.
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Yes, we're going into cars even before they had wherewithal to build
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the batteries to power the car.
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So he bought a car company and he bought Mitsubishi engines for
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that car company as a stop cap until he was okay.
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>> Elizabeth Economy: Yep. >> Michael Dunne: So
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fast forward back to 2010 and we're gonna get to today pretty quickly.
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But in the first few years, what they did is they went to the foreign investors like
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GM and Toyota and others and said, we're going electric and you need to form new
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joint ventures, transfer your electric technology, and we'll be off and running.
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And the global automaker said, yeah, no, we'll sign up for it, but
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nothing's gonna happen.
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So for the next five years, there's a lot of wheel spin.
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Not much happened until made in China 2025,
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Xi Jinping gets together with lieutenants and
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says, how do we really win the future technologies around EVs and batteries?
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We're going to have to do this ourselves.
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And they put to it tens of billions by some measures, hundreds of billions
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of capital into charging systems, into batteries and battery supply chains.
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And we will have our own brands and we'll have our own technology.
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So that was the beginning of it.
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It's kind of like Deng Xiaoping's thing about crossing the river by feeling
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the tone.
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>> Elizabeth Economy: Feeling the stones, yes.
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>> Michael Dunne: That miracle that we've seen has never been a straight line.
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So for the next several years, there's a lot of corruption, fraud.
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Do customers really want EVs?
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Not really,
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the manufacturers aren't excited to build them cuz they can't make money on them.
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The government's pouring billions into it.
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It's a lot of question marks, how do we actually get-
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>> Elizabeth Economy: Absolutely.
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>> Michael Dunne: Yeah, and as recently as 2019 2019, I met with the CEOs of Chinese
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automakers saying, electrics I'm not sure they're the future.
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Enter Tesla.
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The Chinese government officials had been making visits to California to
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talk to the Air Resources Board here, UC Davis, people at UC Davis and Tesla,
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and they saw, Tesla's got traction here in the us how did that happen?
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What if we invited Tesla to come into China?
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That's exactly what they did.
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Starting in 2020, the miracle begins in 2020 when
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Tesla begins manufacturing the Model 3 in Shanghai.
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I saw that the customers in China's perceptions of what
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an electric vehicle could be completely changed.
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In China, where it's all like a school of fish are going here and
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then they go, everybody's going there now.
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And right out of the gates, red hot demand for Tesla.
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And suddenly electrics went from, do we have to do this to wow, I can't get
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wait to get my hands on a Tesla or some other cool new brands that are Chinese.
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>> Elizabeth Economy: Right. >> Michael Dunne: The Neos and XPengs.
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And then we went into Covid Liz, as you said, and everybody kind of okay,
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something's going over there in China.
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But we didn't really track it closely until 2023, as you say.
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Shanghai Auto show reopens to the west and it's a complete and
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utter shock to all the executives visiting saying it
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used to be the global brands took center stage.
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Now it's the Chinese brands that they've got product,
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they've got good looking quality products at low cost.
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How did this transformation happen so quickly?
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But it had been building for years and
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what ignited demand was the presence of Tesla.
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>> Elizabeth Economy: It's so interesting, honestly I hadn't realized it.
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I do remember that in Shanghai and Beijing that they were
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giving advantages like incentives to people to get electric
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cars by making the license plates contingent, right?
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So there a huge demand for license plates to be able to have a car in Shanghai and
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Beijing cuz of the traffic, they didn't want more cars.
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But if you had an electric car, right, you could get a license plate in Shanghai or
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Beijing.
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So I think there probably were some other
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smaller incentives that the local governments and
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maybe the central government were putting in place to try to help.
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But I take your point on Tesla and Tesla's a nice looking car, it's got a great ride
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and I'm sure that that also helped to sort of change the perception of the Chinese.
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>> Michael Dunne: Change of perception, you're absolutely right.
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Those incentives at the local level in Shanghai you got a free license plate
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instead of paying 10,000.
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Those were in place, but they were getting expensive for the government.
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And then the transformative effect of Tesla wasn't just that it was another
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electric car, but it was what we call a software defined vehicle with
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that big center stack screen that allows Tesla to update your car over the air
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just like you have updates on your phone.
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And this was mind blowing for your Chinese consumers.
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So it wasn't just that it was battery powered, but
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it had all these other cool features.
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And then the Chinese automaker were able to quickly duplicate,
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copy, or whatever word you wanna call it and get on that train.
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>> Elizabeth Economy: So that's the story.
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And here we are today, where China now dominates, right?
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The largest EV market and also exporter of EVs globally.
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And I think I read recently that BYD surpassed Tesla as the largest
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manufacturer of EVs this last year, 2024.
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So Tesla doesn't even hold sort of reigning champ anymore.
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Okay, so let me ask you one question about Made in China 2025.
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A little bit off the topic of cars, but it occurs to me if you look at solar panels,
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you look at wind, you look at EVs, you look at batteries,
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all of these also are made in China 2025 technologies.
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There are still a lot of Made in China 2025 technologies yet to come.
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Right, we've got semiconductors, we've got new materials, we've got AI.
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Should we expect that we're gonna see this same kind of first Chinese dominance of
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the market and then global dominance in all of these industries moving forward?
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Is this what we have to look forward to for the next three to five years?
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>> Michael Dunne: That's the not so secret master plan that's been developed in
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Beijing and they're hell bent on seeing it through.
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That they would dominate all of the above,
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from autonomous vehicles to AI, to chips, to batteries, to electrics.
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And because I'm closest to cars, it's just we're ten years and
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10x behind China when it comes to electric cars.
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They build 10 million a year, we build a million.
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They utterly control the battery supply chains from mining,
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to processing, to cell manufacturing, accounting for 70% of,
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so, yes, this is the first of many industries that China's targeted.
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Yes.
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>> Elizabeth Economy: So what are American car companies,
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what are European car companies?
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What are they doing at this point to try to compete and
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are they doing things differently?
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I had Jord Butka on podcast a couple of months ago and
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he seemed to suggest that the Europeans are adopting a very different
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model in terms of thinking about how to compete with China.
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Much more learning from China and
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integrating China into the European car manufacturing.
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So how do you see this competition evolving?
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And if we're 10x behind, is there any chance of catching up?
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>> Michael Dunne: So you're absolutely right,
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Europe has taken a different tack for different reasons.
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They engage with the Chinese.
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So Volkswagen has invested in Xpeng, an electric startup.
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Stellantis has invested in Leap Motor, there's a lot of talk with Mercedes trying
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to cooperate and do more R&D in China, just as Jorg puts it.
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It's like he calls it the fitness gym.
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And the Europeans, the Germans in particular, think we really need to stay
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engaged with China and allow them to come to Europe in order to remain competitive.
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So for better or for worse, that's Europe's tack right now.
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On the other hand, here in the United States, we've taken a very,
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let's call it timeout, defensive measure, we need tariffs in place.
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We don't want any Chinese competition in our home market.
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That could be the beginning of the end.
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So we have these 100% tariffs.
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Wait a second, what's today, maybe 240.
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>> Elizabeth Economy: More, we got more now.
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[LAUGH] >> Michael Dunne: Right.
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>> Elizabeth Economy: Yes. >> Michael Dunne: So we're really hard.
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>> Elizabeth Economy: 145% tariff, yeah.
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>> Michael Dunne: Yeah, we're really hard lying in the sense that we're
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not ready for and we don't want Chinese competition.
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So if you look at the map, the world is in terms you mentioned China is the number
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one exporter of vehicles globally, surpassing Japan and Germany.
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They export to virtually every market in the world except for the United States and
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Canada.
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So the US, has said we need to buy time.
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Now the question is, how do we become once more globally competitive?
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Because the reality is the Detroit Three are very good at making big pickup
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trucks and SUVs.
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But step outside of the United States, Southeast Asia, Africa, South America,
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we're not competitive anymore.
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And that's a huge, huge problem for our industry.
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Tesla's the exception, and they're the hope, they're competitive globally.
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>> Elizabeth Economy: They're expensive,
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right, compared to what the Chinese can produce?
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>> Michael Dunne: Yes.
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The Chinese are able to manufacture EVs at about 25% lower cost than most other
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automakers in the world, and they're doing it higher and higher levels of quality.
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So it's real when the CEO of Ford Motor Company,
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Jim Farley, says it's the next essential threat, he's not kidding.
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Yeah. >> Elizabeth Economy: So
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what are we doing aside from putting the tariffs [LAUGH]
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time out looking around the room, okay, what do we do now?
20:14
[CROSSTALK] We found ourselves in space, in our market of 400 million people.
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>> Michael Dunne: Yes. >> Elizabeth Economy: But
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what's the game plan here?
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>> Michael Dunne: Game plan.
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Under the Biden administration, very important moves were put in
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place to encourage investment in our own battery belt.
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And in fact, it was quite successful.
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Over $100 billion were invested across the southeast United States up into Ohio,
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Michigan.
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That's big money, that's probably the biggest industrial investment
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the United States has seen in a generation.
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>> Elizabeth Economy: And this was private money, public money, I mean,
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government money mix.
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What was the breakdown here?
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>> Michael Dunne: There were in the IRA, there were incentives for
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manufacturers to invest.
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They would get tax breaks and other things, but
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it was largely predominantly private money,
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joint ventures between, for example, GM, Ford,
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Stellantis, Toyota and partners from Japan and Korea.
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So this was a good news, that's huge.
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The tougher news is that we need demand for EVs.
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And just like China struggled with demand, United States finds itself,
21:25
well, the average consumer doesn't really love EVs yet.
21:29
Maybe on the coast, maybe some Teslas, but
21:31
we don't have the number of offerings at the right price points to really
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generate that demand that any investor in the battery facilities would need.
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I'm building batteries, this is great, who's buying them?
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And that's where we are today under the current administration,
21:48
Trump administration, it looks like we're moving away from incentives to buy EVs and
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we're stuck at about a million cars a year that are EVs.
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This is a big hurdle for us to clear.
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How do we generate demand for EVs, so that we can incentivize investment in battery
22:05
and battery supply chains, critical minerals processing and all the rest.
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That's where we are.
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We're at this juncture where we have to figure that out.
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>> Elizabeth Economy: Right and it seems the Trump administration,
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in addition to eliminating, I think there were some subsidies for
22:20
people buying EVs as well that involved right in the IRA.
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And I think they said they were booming flows, but I guess they're not
22:27
that interested in that sort of clean tech space writ large, right?
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I think this is not something they seem to be committed to.
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So does is that just gonna set us back another 10x in terms of our
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ability to compete?
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I mean, can our car companies, can those nascent battery companies,
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can they continue without the subsidies for consumers and
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the incentives of the IRA and so will they be able to move forward?
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>> Michael Dunne: It's looking tough right now, but
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the conversation is shifting from hey, let's do this because it's good for
23:03
the environment to let's do this because it's essential for national security.
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When you think about the future of our national defense,
23:14
from submarines to night vision to communications to
23:19
navigation to drones, all of these are powered by batteries.
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And we need to have our own capabilities to produce those batteries.
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And right now our cupboard is largely empty.
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We're totally dependent on China.
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That's really strange, it's like to use and now say, Winston Churchill,
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1939, the Germans go, we can supply you with all kinds of tanks and
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cars, whatever you like, you choose.
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And we're going, no, but we should be making our own.
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>> Elizabeth Economy: [LAUGH].
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>> Michael Dunne: Right?
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>> Elizabeth Economy: Okay, that's a really frightening analogy,
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Mike, but okay.
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>> Michael Dunne: That's who I think in a way, if we're really being honest.
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That's how vulnerable we are.
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The Churchill went in there and he saw we don't have the capability.
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We gotta get our capabilities up.
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And that's where the US is today with regards to we.
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Even if you don't like EVs, we need those batteries, critical minerals batteries and
24:18
those capabilities to support our national defense.
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>> Elizabeth Economy: So in the interim where we don't have batteries and
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we're not making our own and we're reliant on China.
24:28
I know there was a lot of discussion in the last administration and
24:33
I'm not sure there was any real resolution about whether or not we ought to
24:38
welcome investment from CATL, which is major Chinese battery maker.
24:43
I think has about a third of the global market share.
24:47
And they were interested, I think, in building companies doing a joint venture
24:51
in the United States in a couple different places.
24:54
And I think a couple of governors initially welcomed the idea.
24:56
Then there's a lot of sort of political consternation around this.
25:01
Where do you stand on whether we should welcome CATL to come in and
25:06
if we do welcome them, what kind of restrictions or what kind of regulations
25:12
should we be putting on them in terms of what do they need to do here?
25:17
Do they need to transfer their technology?
25:19
Do they need to set up an R&D facility?
25:22
All the kinds of things that China made US companies do when they went in.
25:25
Is that the answer or is it better just to keep them out for the time being?
25:30
Because once they're in, they're just gonna end up dominating the market here.
25:36
>> Michael Dunne: Can we go to the next question?
25:39
[LAUGH] That's a great question, goes right to the heart of the matter.
25:42
So kind of an easy solution, short term is let's bring them in and
25:46
try to duplicate what China did and say, hey, you're here to build, operate,
25:51
and transfer within ten years.
25:53
You'll have a ten year run, will you make a lot of money,
25:56
after ten years we must have the American equivalent of what you do, CATL.
26:00
That's the goal, everybody understand?
26:02
So that looks tempting, but it would require enormous,
26:06
what do you call it, tenacity by the American partner to
26:11
actually wrest that technology away and stand on its own.
26:15
So I'm not sure that would happen.
26:18
And then I go to okay, your second option.
26:21
Keep them out maybe because ultimately we have to figure this thing out ourselves.
26:27
Let's not use a crutch, let's face reality.
26:29
We're way behind.
26:30
And the Chinese themselves tried to wrest the internal combustion engine
26:35
technology from the foreigners for decades and it didn't work.
26:39
So it's not a perfect analogy, but
26:41
the point is that we need to be able to stand on our own.
26:45
We were the original inventors of lithium ion batteries, you have the capacity here,
26:52
I'm not sure bringing CATL, what does that actually do for
26:57
us as opposed to what benefits it generates for CATL?
27:01
On balance, I'd prefer us to work with other partners to get the job done.
27:06
>> Elizabeth Economy: And other partners would be the South Koreans and
27:08
the Japanese, who also have battery technology or
27:11
other partners, meaning our own companies here in the United States.
27:14
And we just need to get moving.
27:17
>> Michael Dunne: Japanese and Koreans, Koreans in particular,
27:19
very strong in this area.
27:21
They're not as strong as the Chinese in this chemistry called LFP,
27:24
but that can be solved.
27:26
And then in the meantime, yes, we want to develop and
27:30
cultivate our own supply chains here.
27:34
So that's a lot of opportunities for startups around the country.
27:38
Let's do it ourselves.
27:39
Let's not be lazy.
27:40
>> Elizabeth Economy: Okay and
27:41
then let's take one step sort of further down in the supply chain and
27:47
sort of all the critical minerals that are necessary for EVs.
27:52
China doesn't sort of dominate in the mining space entirely,
27:56
except with the exception maybe of graphite.
27:59
But the processing, they certainly do.
28:01
>> Michael Dunne: Yes.
28:02
>> Elizabeth Economy: So where do we stand right now in this world of access to
28:06
the sort of critical minerals that we need for EVs and in the processing,
28:11
what's the timeframe that it would take either for us or for trusted allies and
28:16
partners to get up to speed so that we're not dependent on China?
28:21
Because we can see very clearly,
28:23
in the midst of this tariff war that China has moved from licensing on
28:28
the export of things like some rare earth elements to basically a ban.
28:33
So I think we've got some big issues that we need to deal with and very quickly.
28:37
>> Michael Dunne: China's shown it, shown its hand, it's ready to use that leverage,
28:43
so let's face it, let's not be naive.
28:46
Five years, I think it would take a five year plan, probably seven.
28:51
The sourcing the materials is not the biggest issue.
28:55
There's plenty of lithium around the world,
28:57
including here in the United States.
28:59
Rare earths are actually not that rare.
29:01
>> Elizabeth Economy: Rare, right.
29:02
>> Michael Dunne: We can find the rare earth materials,
29:05
so that's not a showstopper.
29:07
Just as you said, the choke point is processing.
29:11
So virtually every battery, sooner or later,
29:14
all roads lead to China for processing.
29:17
How do we get more processing here, we would need to relax regulations
29:22
around processing because it's not the cleanest business in the world.
29:27
And then secondly, back to our earlier discussion.
29:29
We need the demand for EVs to justify the investment in processing here.
29:34
Otherwise, we've got beautiful processing plants and battery plants, but
29:39
without a customer, it's really hard to scale everything up.
29:43
Yeah. >> Elizabeth Economy: So that
29:44
sounds a little problematic to me, given the current administration.
29:49
>> Michael Dunne: It's does.
29:49
>> Elizabeth Economy: Not clear to me that they're gonna do anything to enable
29:54
that demand to sort of drive production.
29:58
>> Michael Dunne: Unless you definitely agree, Liz.
30:01
Unfortunately, that's where we are today.
30:03
Unless you really start to think ambitiously and say,
30:06
let's reinvent the American auto industry and take it to where it's globally
30:12
competitive because there's gonna be demand for electric vehicles globally.
30:17
>> Elizabeth Economy: Exactly. >> Michael Dunne: As the United States,
30:18
let's get started there.
30:20
Let's win in South America, let's win in Southeast Asia, let's win in Europe.
30:24
And then the US will come along and
30:26
electrics will become more acceptable as charging improves all the rest.
30:31
But don't just stop and say, well, we don't have it here at home, so we're out.
30:35
>> Elizabeth Economy: I have to say that' the one puzzling thing I think right
30:39
now is just not seeing, even forgetting just about EVs, but
30:44
the entire space of clean tech and
30:46
clean energy as just an incredible global sort of growth story.
30:51
And how we don't want to enable our companies to be not only
30:55
competitive to be, but to be best in class and
30:59
why we're not putting in sort of the enabling features to accomplish that.
31:05
I wonder whether there's anyone in the government who's right now who's thinking
31:09
in those terms.
31:10
I don't know if you've had any conversations with people that
31:14
are currently in the Trump administration or whether you have a sense for,
31:18
a direction where some might be pushing in this direction.
31:22
>> Michael Dunne: Some are, I was in D.C last week at a very important summit
31:25
called Safe Summit 2025 that securing America's Future Energy.
31:30
A lot of bright people were there talking about how
31:32
we become globally competitive again.
31:35
So there are voices, I think the United States
31:38
has to get out of its comfort zone of complacency here at home.
31:43
So if we take the Detroit Three, for example, the CEOs of Ford, GM and
31:48
Stellantis, they make $30 million a year by delivering big trucks and
31:53
SUVs here in North America, where all the profits are made.
31:58
Hey, that's great for them.
31:59
I'm looking for a leadership that says we want to be globally competitive again,
32:05
and that's the ingredient we're looking for to get there.
32:10
Right now, the Trump administration is probably leaning,
32:14
hoping for the reincarnation of the 1950s.
32:17
>> Elizabeth Economy: Right. >> Michael Dunne: [LAUGH]
32:18
>> Elizabeth Economy: In just about every
32:19
industry, it seems, maybe.
32:21
I don't know.
32:23
There are a lot of smart people in the administration.
32:25
I'm just not quite sure how they've got AI, big investments in AI and
32:30
talking about that, they've got semiconductors, I know on their mind.
32:36
But the rest of the innovation field and sort of global leadership,
32:41
I haven't heard much coming from them yet.
32:44
>> Michael Dunne: Does Elon Musk, is he part of the administration or not?
32:47
Or he's on the side.
32:49
He could be a force.
32:52
In particular, just this last week, he said two things.
32:55
One is we should have zero tariff relationship with Europe,
32:58
which I thought was highly significant for him, the timing of that.
33:01
The second one, he said the factory is the product of the future.
33:06
So he's less focused on the cars that he makes and
33:08
more focused on how does America become the best in manufacturing.
33:13
What's implied is as good or better than China.
33:16
So he has great innovative capabilities, of course.
33:20
And we do have that guy on our team.
33:22
He's in America, he's building Tesla electric cars.
33:25
>> Elizabeth Economy: Okay, let's move him out of DOGE and into the innovation space,
33:29
how about that?
33:30
>> Michael Dunne: Yes, perfect.
33:31
>> Elizabeth Economy: I think, we could probably both agree that his time and
33:34
energy and intellect could be very well deployed in thinking about America's
33:39
future innovation strategy.
33:40
>> Michael Dunne: Absolutely.
33:41
>> Elizabeth Economy: So let's see if we can't get him to be Mr.
33:44
Innovation instead of Mr. Government Efficiency.
33:48
Okay and I'm gonna come to what, honestly, though,
33:51
listening to you, I'm thinking to myself,
33:54
what we really need then is for Mike Dunne to move out of the consulting and
33:59
writing business and into the big three car maker leader, CEO business.
34:04
[LAUGH] Maybe we can find a way to facilitate that, okay.
34:09
>> Michael Dunne: What did Mao say?
34:10
A revolution's not a tea party.
34:13
So the tea party in Michigan would be over.
34:16
Would be over.
34:17
It's time to break some eggs and do all that.
34:21
>> Elizabeth Economy: Yeah, break some eggs, break some glass,
34:23
break some China for your tea party.
34:24
Okay, all right, last final questions that I ask everybody.
34:29
So quick answers.
34:30
>> Michael Dunne: Yes.
34:30
>> Elizabeth Economy: What book or article would you recommend on China?
34:34
Would you recommend that people read, what's top of mind for you right now?
34:39
>> Michael Dunne: So many good ones out there.
34:41
I would go first of all to,
34:44
To Change China by Jonathan Spence.
34:50
>> Elizabeth Economy: Okay. >> Michael Dunne: Where
34:50
he tracks the lives of some over the last several hundred years.
34:55
Really talented Westerners, scientists, politicians,
34:59
artists who go to China with really big ambitions to make it a better place.
35:05
They're still looking for one of them that might be successful.
35:07
So check that out, really good book.
35:10
>> Elizabeth Economy: Sounds like a good starting point for anybody, okay.
35:13
>> Michael Dunne: Okay, so if you're going that way.
35:14
>> Elizabeth Economy: All right.
35:15
>> Michael Dunne: Second book, I know we're moving fast here, Liz.
35:17
It was published in 2021, The World According to China.
35:22
>> Elizabeth Economy: All right, Mike.
35:24
>> Michael Dunne: Yes. >> Elizabeth Economy: [LAUGH]
35:24
>> Michael Dunne: And absolutely, why?
35:26
>> Elizabeth Economy: No, no, no.
35:27
>> Michael Dunne: Yes, by Elizabeth Economy, why?
35:30
Because up until very recently,
35:32
figuring out China was How to Change China, Jonathan Spence's book.
35:37
Now China's coming at us and it wants to write the rules and be in charge.
35:43
We shouldn't have any illusions about that and
35:46
we're very lucky to have your book to point that out to us.
35:49
Hey, read Liz's book.
35:51
It's right on target.
35:53
It's so important and getting more important by year.
35:56
>> Elizabeth Economy: Okay, thank you for that unpaid advertisement [LAUGH].
36:02
All right, what issue do you think we don't understand about China?
36:07
What do we not know enough about when it comes to China?
36:10
I mean, the universe is vast, I'm sure.
36:12
But what really important issue do you think?
36:19
>> Michael Dunne: I think that there's an asymmetry.
36:23
The Chinese know way more about us than we know about the Chinese but
36:26
people have talked about that before.
36:28
I think the more important one, the one that comes to mind,
36:32
is Lu Xun's writings 100 years ago.
36:35
He wrote, Chinese people see foreigners either as gods or
36:39
barbarians and never as equals.
36:44
In my experience, living in China, that has been so true.
36:49
So my first year in China in 1986, I'd walk up to the post office, get in line.
36:55
There's a Laowai here, get him to the front of the line.
36:58
No lines for them.
36:59
My most recent visit to China, 10 Cent.
37:02
Yeah, okay, what do you guys got?
37:06
You got something?
37:07
Cuz we're busy, and almost verging on,
37:10
I wouldn't say disdain, but sort of ambivalence.
37:15
We're kind of tolerating you guys at this point.
37:18
So why is that important?
37:20
Because we like to think that China is becoming.
37:24
We're all equals and we're all gonna meet, common ground, but maybe not.
37:28
Maybe we have to understand where they're coming from.
37:31
>> Elizabeth Economy: No, I mean, I think that is an incredible insight and
37:35
demonstrates a really precipitous fall, frankly for Americans.
37:40
And I think actually a really important insight for
37:43
the current administration, which I'm not sure appreciates
37:47
the way that China may be looking at the United States today,
37:51
may be radically different from the way that they think that power balance is.
37:57
All right and what about President Trump?
38:00
You've offered lots of interesting pieces of advice and thoughts about what
38:04
the US should be doing differently, what we could be doing differently.
38:08
But if you were sitting right next to President Trump and had him for
38:13
a minute and you wanted to say this is what we have to do now, one, two, three.
38:19
What would that advice look like?
38:23
>> Michael Dunne: First off, I don't mind the tariffs.
38:25
I don't mind them.
38:26
>> Elizabeth Economy: Okay. >> Michael Dunne: We need
38:27
to buy some time.
38:28
And if you look at the most successful auto industries around the world, Germany,
38:34
Korea, Japan, China, they're all heavily protected through tariffs and
38:39
non tariff barriers to consolidate power at home and then become an export machine.
38:45
So the tariffs are probably an essential.
38:47
No one likes tariffs, cuz they add costs.
38:50
May be required, protect the home market.
38:54
Then second and harder part is, let's get globally competitive.
38:58
Let's pick an area, South America or Southeast Asia.
39:02
We're going to dominate those auto markets in the future.
39:04
That's where the growth will be.
39:06
Let's be first in those markets.
39:09
And that means designing engineering, developing products that are competitive
39:13
globally, not just here in the United States.
39:15
That would be the advice, simple.
39:17
>> Elizabeth Economy: Okay, smart, okay.
39:19
I take it and I think he'd like to hear that part on the tariffs because all he's
39:22
getting is a lot of push back.
39:24
>> Michael Dunne: That's my strategy, yeah, tariffs.
39:25
>> Elizabeth Economy: I think that'd be a good way to get him to listen to you.
39:28
>> Michael Dunne: Awesome, genius.
39:30
>> Elizabeth Economy: Maybe you can write that up, actually, maybe start with that.
39:32
It's not a bad idea.
39:34
All right, last question.
39:36
What do you think is the likelihood of sort of Nixon Mao
39:41
moment between President Trump and President Xi?
39:45
One to ten, how likely are we to see a real breakthrough
39:49
in the US-China relationship in the next couple of years?
39:54
>> Michael Dunne: One to ten, I'd go a negative two.
39:57
>> Elizabeth Economy: Okay then, [LAUGH].
39:58
>> Michael Dunne: Yeah, I just don't see them coming together.
40:02
I think they both wanna be the guy in charge.
40:05
>> Elizabeth Economy: Yeah.
40:06
>> Michael Dunne: Uh-huh.
40:08
>> Elizabeth Economy: Okay, on that not terribly optimistic note,
40:12
let me thank you for taking the time to speak with me.
40:17
I mean, always engaging, always insightful.
40:20
Really, you are best in class [LAUGH].
40:23
So really appreciate your taking the time, Mike, and
40:26
hope that the administration does listen to what you have to say.
40:31
Because I think it's really important that we get this right.
40:35
And this is, I think, the inflection point.
40:37
And if we don't get it right now, we may be out of the game for decades to come.
40:44
So thanks very much for coming.
40:46
And if you enjoyed this podcast and want to hear more reasoned discourse and
40:49
debate on China, I encourage you to subscribe to China Considered
40:53
via The Hoover Institution YouTube channel or podcast platform of your choice.
40:57
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