The Next China Shock Is Here | The Ezra Klein Show

The biggest economic story in the world The biggest economic story in the world right now is China's growing dominance right now is China's growing dominance right now is China's growing dominance across advanced manufacturing sector across advanced manufacturing sector across advanced manufacturing sector after advanced manufacturing sector. after advanced manufacturing sector. after advanced manufacturing sector. From electric vehicles, batteries to From electric vehicles, batteries to From electric vehicles, batteries to solar panels to things that aren't even solar panels to things that aren't even solar panels to things that aren't even traditional manufacturing that are traditional manufacturing that are traditional manufacturing that are software like AI and open models where software like AI and open models where software like AI and open models where they become a world leader. they become a world leader. they become a world leader. What is happening here is very different What is happening here is very different What is happening here is very different than what we call the first China shock than what we call the first China shock than what we call the first China shock where China became a big exporter but of where China became a big exporter but of where China became a big exporter but of things that were not that important to things that were not that important to things that were not that important to advanced economies things that mattered advanced economies things that mattered advanced economies things that mattered maybe for particular communities maybe for particular communities maybe for particular communities mattered for many many jobs but weren't mattered for many many jobs but weren't mattered for many many jobs but weren't the frontier of economic growth but now the frontier of economic growth but now the frontier of economic growth but now it's different China is very much at the it's different China is very much at the it's different China is very much at the frontier and they're dominating it and frontier and they're dominating it and frontier and they're dominating it and that is going to transform geopolitics that is going to transform geopolitics that is going to transform geopolitics it is going to transform the politics of it is going to transform the politics of it is going to transform the politics of countries many [music] say in Europe countries many [music] say in Europe countries many [music] say in Europe where China is pushing them out of where China is pushing them out of where China is pushing them out of manufacturing that has been the absolute manufacturing that has been the absolute manufacturing that has been the absolute cornerstone of their economies. And so I cornerstone of their economies. And so I cornerstone of their economies. And so I think understanding it is about as think understanding it is about as think understanding it is about as essential to understanding economics and essential to understanding economics and essential to understanding economics and geopolitics in the coming era as geopolitics in the coming era as geopolitics in the coming era as literally anything else. Brad Settzer is literally anything else. Brad Settzer is literally anything else. Brad Settzer is a person who follows this about as a person who follows this about as a person who follows this about as closely as anyone on earth. He is a closely as anyone on earth. He is a closely as anyone on earth. He is a senior fellow at the Council of Foreign senior fellow at the Council of Foreign senior fellow at the Council of Foreign Relations. He has served in top trade Relations. He has served in top trade Relations. He has served in top trade roles [music] and economic roles in the roles [music] and economic roles in the roles [music] and economic roles in the Biden and Obama administrations. And so Biden and Obama administrations. And so Biden and Obama administrations. And so I wanted to hear his perspective on it.

I wanted to hear his perspective on it. I wanted to hear his perspective on it. He joins me now. [music] [music] >> Brad Sutzer, welcome to the show. >> Brad Sutzer, welcome to the show. >> Brad Sutzer, welcome to the show. >> Oh, thanks for inviting me. >> Oh, thanks for inviting me. >> Oh, thanks for inviting me. >> So you've been arguing that the world >> So you've been arguing that the world >> So you've been arguing that the world economy is going through a China shock economy is going through a China shock economy is going through a China shock 2.0. So for people not familiar with 2.0. So for people not familiar with 2.0. So for people not familiar with this, what was China shock 1.0? this, what was China shock 1.0? this, what was China shock 1.0? 2002. 2002. 2002. What happens is there's a big jump up in What happens is there's a big jump up in What happens is there's a big jump up in China's uh exports and at the time it's China's uh exports and at the time it's China's uh exports and at the time it's mostly in relatively low-end mostly in relatively low-end mostly in relatively low-end manufactured goods, furniture, household manufactured goods, furniture, household manufactured goods, furniture, household appliances, appliances, appliances, clothing. [snorts] Uh and I think there clothing. [snorts] Uh and I think there clothing. [snorts] Uh and I think there was a sense in the US that these were was a sense in the US that these were was a sense in the US that these were not the industries of the future. And I not the industries of the future. And I not the industries of the future. And I think what the China shock 1.0 do think what the China shock 1.0 do think what the China shock 1.0 do academic literature shows is [snorts] academic literature shows is [snorts] academic literature shows is [snorts] that even though these weren't the the that even though these weren't the the that even though these weren't the the industries of the future, they were industries of the future, they were industries of the future, they were still employing a meaningful number of still employing a meaningful number of still employing a meaningful number of Americans uh often in the south, often Americans uh often in the south, often Americans uh often in the south, often in the Midwest. And the China shock is in the Midwest. And the China shock is in the Midwest. And the China shock is how that impacted local, not national, how that impacted local, not national, how that impacted local, not national, local labor markets that had the most local labor markets that had the most local labor markets that had the most overlap with China. And this has sort of overlap with China. And this has sort of overlap with China. And this has sort of a a shortrun negative effect on parts of a a shortrun negative effect on parts of a a shortrun negative effect on parts of the economy. you know, when the local the economy. you know, when the local the economy. you know, when the local factory closes down, local real estate factory closes down, local real estate factory closes down, local real estate prices turn down. And so, uh, and the prices turn down. And so, uh, and the prices turn down. And so, uh, and the people who sell lunches to the factory people who sell lunches to the factory people who sell lunches to the factory workers have fewer people to sell to.

workers have fewer people to sell to. workers have fewer people to sell to. So, it becomes a generalized downturn in So, it becomes a generalized downturn in So, it becomes a generalized downturn in those communities. That was clearly those communities. That was clearly those communities. That was clearly underestimated. underestimated. underestimated. And then people have done all sorts of And then people have done all sorts of And then people have done all sorts of further studies which correlate the further studies which correlate the further studies which correlate the areas that have the most exposure to the areas that have the most exposure to the areas that have the most exposure to the Chinese export wave to you know deaths Chinese export wave to you know deaths Chinese export wave to you know deaths of despair to political realignments of despair to political realignments of despair to political realignments >> voting for Donald Trump. >> voting for Donald Trump. >> voting for Donald Trump. >> Voting for Donald Trump. But the basic >> Voting for Donald Trump. But the basic >> Voting for Donald Trump. But the basic idea here is that you have a bunch of idea here is that you have a bunch of idea here is that you have a bunch of places in the Midwest and the South places in the Midwest and the South places in the Midwest and the South primarily that are manufacturing towns primarily that are manufacturing towns primarily that are manufacturing towns >> that their factories are outsourced to >> that their factories are outsourced to >> that their factories are outsourced to China or the goods are out competed by China or the goods are out competed by China or the goods are out competed by China and basically the community goes China and basically the community goes China and basically the community goes into sharp decline. into sharp decline. into sharp decline. >> Correct. >> Correct. >> Correct. >> And we never have a very good policy >> And we never have a very good policy >> And we never have a very good policy answer. answer. answer. >> I mean I think at the time we didn't >> I mean I think at the time we didn't >> I mean I think at the time we didn't even try to have a policy answer. Uh but even try to have a policy answer. Uh but even try to have a policy answer. Uh but it is actually conceptually difficult to it is actually conceptually difficult to it is actually conceptually difficult to deal with uh the decline of a small town deal with uh the decline of a small town deal with uh the decline of a small town when it's big industry. Let's live in when it's big industry. Let's live in when it's big industry. Let's live in that debate for a minute. that debate for a minute. that debate for a minute. >> What is the argument about whether or >> What is the argument about whether or >> What is the argument about whether or not this rapidly accelerating level of not this rapidly accelerating level of not this rapidly accelerating level of trade with China is good or bad for trade with China is good or bad for trade with China is good or bad for America?

America? America? I think the overarching I think the overarching I think the overarching view at the time uh was that China's view at the time uh was that China's view at the time uh was that China's integration into the global economy was integration into the global economy was integration into the global economy was more or less inevitable. Um more or less inevitable. Um more or less inevitable. Um and that the negotiated terms of entry and that the negotiated terms of entry and that the negotiated terms of entry into the WTO provided a reasonable into the WTO provided a reasonable into the WTO provided a reasonable framework for China's entry full framework for China's entry full framework for China's entry full integration into the global economy. integration into the global economy. integration into the global economy. that trade was fundamentally good, that that trade was fundamentally good, that that trade was fundamentally good, that there would be shifts across industries. there would be shifts across industries. there would be shifts across industries. People would leave their jobs and import People would leave their jobs and import People would leave their jobs and import competing parts of the economy, but competing parts of the economy, but competing parts of the economy, but generally move to to exporting parts of generally move to to exporting parts of generally move to to exporting parts of the economy or into the services sector. the economy or into the services sector. the economy or into the services sector. And that we had a fairly flexible labor And that we had a fairly flexible labor And that we had a fairly flexible labor market. And by the way, integration market. And by the way, integration market. And by the way, integration would be a positive force for China's would be a positive force for China's would be a positive force for China's political development. It might lead to political development. It might lead to political development. It might lead to uh some forms of of liberalism within uh some forms of of liberalism within uh some forms of of liberalism within China. It might moderate China's global China. It might moderate China's global China. It might moderate China's global ambitions. It would sort of t commerce ambitions. It would sort of t commerce ambitions. It would sort of t commerce would tame the dragon so to speak. And would tame the dragon so to speak. And would tame the dragon so to speak. And the other dimension of the argument as the other dimension of the argument as the other dimension of the argument as I've heard it and remember it is if I've heard it and remember it is if I've heard it and remember it is if China wants to make cheap goods for China wants to make cheap goods for China wants to make cheap goods for Americans, Americans, Americans, people like low prices, they like low people like low prices, they like low people like low prices, they like low inflation. like why would we fight this inflation. like why would we fight this inflation. like why would we fight this gift?

gift? gift? >> I mean in particular because the >> I mean in particular because the >> I mean in particular because the industries that were going to China industries that were going to China industries that were going to China [clears throat] were not the source of [clears throat] were not the source of [clears throat] were not the source of top you know cutting edge technology at top you know cutting edge technology at top you know cutting edge technology at the time not generating a lot of high the time not generating a lot of high the time not generating a lot of high wage jobs. So there was indeed a sense wage jobs. So there was indeed a sense wage jobs. So there was indeed a sense that you know consumers would benefit that you know consumers would benefit that you know consumers would benefit and did benefit from cheap goods and uh and did benefit from cheap goods and uh and did benefit from cheap goods and uh the adjustment the adjustment the adjustment would not threaten the core strengths of would not threaten the core strengths of would not threaten the core strengths of the American economy. I think that was the American economy. I think that was the American economy. I think that was the the belief. I would put a little the the belief. I would put a little the the belief. I would put a little tiny asterisk around the cheap prices tiny asterisk around the cheap prices tiny asterisk around the cheap prices thing. Unambiguously, China's explosion thing. Unambiguously, China's explosion thing. Unambiguously, China's explosion of exports lowered the price of of exports lowered the price of of exports lowered the price of manufacturers. manufacturers. manufacturers. If you look at the overall evolution of If you look at the overall evolution of If you look at the overall evolution of consumer prices during this period, consumer prices during this period, consumer prices during this period, there's not much of a change. China's there's not much of a change. China's there's not much of a change. China's integration into the world economy led integration into the world economy led integration into the world economy led in huge amounts of investment ended up in huge amounts of investment ended up in huge amounts of investment ended up putting a lot of upward pressure on putting a lot of upward pressure on putting a lot of upward pressure on commodity prices. So you see oil prices commodity prices. So you see oil prices commodity prices. So you see oil prices really take off during this period and really take off during this period and really take off during this period and that's an offsetting that's an offsetting that's an offsetting change. So you know you got to always change. So you know you got to always change. So you know you got to always look at both sides of the ledge.

look at both sides of the ledge. look at both sides of the ledge. >> Yeah. So when you're going to Target or >> Yeah. So when you're going to Target or >> Yeah. So when you're going to Target or Walmart and you're buying clothes and Walmart and you're buying clothes and Walmart and you're buying clothes and toys. I mean they really are cheaper. Oh toys. I mean they really are cheaper. Oh toys. I mean they really are cheaper. Oh yeah. Like in real terms from when I was yeah. Like in real terms from when I was yeah. Like in real terms from when I was a kid, but you're saying that you know a kid, but you're saying that you know a kid, but you're saying that you know what we're not seeing there is, you what we're not seeing there is, you what we're not seeing there is, you know, the price of oil, the price of know, the price of oil, the price of know, the price of oil, the price of >> it cost you more to fill up your car to >> it cost you more to fill up your car to >> it cost you more to fill up your car to get to Target. get to Target. get to Target. >> Um but once you got to Target it was >> Um but once you got to Target it was >> Um but once you got to Target it was cheap. cheap. cheap. >> Okay. So China shock the reason we use >> Okay. So China shock the reason we use >> Okay. So China shock the reason we use this term is that this whole argument this term is that this whole argument this term is that this whole argument got re-evaluated and so which parts of got re-evaluated and so which parts of got re-evaluated and so which parts of it would you say panned out and which it would you say panned out and which it would you say panned out and which didn't didn't didn't I think the extent to which China would I think the extent to which China would I think the extent to which China would become a big export market was become a big export market was become a big export market was overestimated. overestimated. overestimated. Uh China never was fully open to US uh Uh China never was fully open to US uh Uh China never was fully open to US uh exports. I mean one of the more striking exports. I mean one of the more striking exports. I mean one of the more striking things is that after 2004 so two years things is that after 2004 so two years things is that after 2004 so two years after China's WTO entry China's imports after China's WTO entry China's imports after China's WTO entry China's imports as a share of its GDP start to fall and as a share of its GDP start to fall and as a share of its GDP start to fall and then it was not expected in a sense that then it was not expected in a sense that then it was not expected in a sense that China would succeed as much as it did China would succeed as much as it did China would succeed as much as it did while retaining the core aspects of its while retaining the core aspects of its while retaining the core aspects of its different economic system. there were different economic system. there were different economic system. there were the sense that China would have to the sense that China would have to the sense that China would have to converge have to become more like us converge have to become more like us converge have to become more like us maybe politically but certainly maybe politically but certainly maybe politically but certainly economically economically economically you know the state would wither away so you know the state would wither away so you know the state would wither away so stateown enterprises would be privatized stateown enterprises would be privatized stateown enterprises would be privatized you know 20 years after China joined the you know 20 years after China joined the you know 20 years after China joined the WTO China's economy was you know the WTO China's economy was you know the WTO China's economy was you know the thinking was it would kind of look like thinking was it would kind of look like thinking was it would kind of look like the US or maybe look like Europe it the US or maybe look like Europe it the US or maybe look like Europe it wouldn't be distinctively Chinese and wouldn't be distinctively Chinese and wouldn't be distinctively Chinese and that didn't pan out that didn't pan out that didn't pan out >> what is distinctively Chinese about the >> what is distinctively Chinese about the >> what is distinctively Chinese about the Chinese economy

Chinese economy Chinese economy >> that's a hard question. You You opened >> that's a hard question. You You opened >> that's a hard question. You You opened the door, man. the door, man. the door, man. >> Yeah, I did. [laughter] I did. Um, >> Yeah, I did. [laughter] I did. Um, >> Yeah, I did. [laughter] I did. Um, one thing that is distinctly Chinese, one thing that is distinctly Chinese, one thing that is distinctly Chinese, which is not what you would normally which is not what you would normally which is not what you would normally think about in a communist think about in a communist think about in a communist le society is that China actually has a le society is that China actually has a le society is that China actually has a rather thin system of social insurance. rather thin system of social insurance. rather thin system of social insurance. It doesn't actually collect that much It doesn't actually collect that much It doesn't actually collect that much tax. Uh, personal income tax collections tax. Uh, personal income tax collections tax. Uh, personal income tax collections are like 1% of China's GDP. It's 8% are like 1% of China's GDP. It's 8% are like 1% of China's GDP. It's 8% here. If you're not collecting personal here. If you're not collecting personal here. If you're not collecting personal income tax, you're not going to be not income tax, you're not going to be not income tax, you're not going to be not going to have the resources to be very going to have the resources to be very going to have the resources to be very generous uh and helping, you know, generous uh and helping, you know, generous uh and helping, you know, low-wage work. There's nothing like our low-wage work. There's nothing like our low-wage work. There's nothing like our earned income tax credit where you get a earned income tax credit where you get a earned income tax credit where you get a subsidy, basically money back from the subsidy, basically money back from the subsidy, basically money back from the government if you don't get paid that government if you don't get paid that government if you don't get paid that much. The taxation system relies heavily much. The taxation system relies heavily much. The taxation system relies heavily on taxes on consumption. It's really on taxes on consumption. It's really on taxes on consumption. It's really quite uh regressive. It hits poor quite uh regressive. It hits poor quite uh regressive. It hits poor Chinese workers much more heavily. It Chinese workers much more heavily. It Chinese workers much more heavily. It also does not have uh a unified national also does not have uh a unified national also does not have uh a unified national labor market. The so-called hookos labor market. The so-called hookos labor market. The so-called hookos system [snorts] uh basically means, you system [snorts] uh basically means, you system [snorts] uh basically means, you know, you're supposed to work where you know, you're supposed to work where you know, you're supposed to work where you were born. You can migrate and leave, were born. You can migrate and leave, were born. You can migrate and leave, but when you migrate and leave, you give but when you migrate and leave, you give but when you migrate and leave, you give up certain social rights. You got a up certain social rights. You got a up certain social rights. You got a financial system that is fundamentally financial system that is fundamentally financial system that is fundamentally state controlled. uh heavily banked, not state controlled. uh heavily banked, not state controlled. uh heavily banked, not so much, you know, like the Wall Street so much, you know, like the Wall Street so much, you know, like the Wall Street part of the Chinese economy exists, but part of the Chinese economy exists, but part of the Chinese economy exists, but it's much smaller. The old-fashioned put

it's much smaller. The old-fashioned put it's much smaller. The old-fashioned put your money on deposit in a state bank, your money on deposit in a state bank, your money on deposit in a state bank, [snorts] very much the dominant mode of [snorts] very much the dominant mode of [snorts] very much the dominant mode of savings. And then the state banks savings. And then the state banks savings. And then the state banks intermediate, so they can direct credit intermediate, so they can direct credit intermediate, so they can direct credit towards the goals of the party, towards towards the goals of the party, towards towards the goals of the party, towards the goals of the government. uh the goals of the government. uh the goals of the government. uh sometimes under the direction of local sometimes under the direction of local sometimes under the direction of local government, sometimes under the government, sometimes under the government, sometimes under the direction of the national government. direction of the national government. direction of the national government. The commanding heights of the Chinese The commanding heights of the Chinese The commanding heights of the Chinese economy are still primarily in the hands economy are still primarily in the hands economy are still primarily in the hands of centrallyowned stateowned of centrallyowned stateowned of centrallyowned stateowned enterprises. So this is, you know, why enterprises. So this is, you know, why enterprises. So this is, you know, why it's sometimes difficult to sell to it's sometimes difficult to sell to it's sometimes difficult to sell to China. You want to sell soybeans, China. You want to sell soybeans, China. You want to sell soybeans, actually you have to generally sell to actually you have to generally sell to actually you have to generally sell to the state oil seeds monopoly. Uh you're the state oil seeds monopoly. Uh you're the state oil seeds monopoly. Uh you're not selling to an individual soybean not selling to an individual soybean not selling to an individual soybean crusher. uh selling airplanes to China. crusher. uh selling airplanes to China. crusher. uh selling airplanes to China. You're selling to the big three state You're selling to the big three state You're selling to the big three state airlines who act as a coordinated block. airlines who act as a coordinated block. airlines who act as a coordinated block. Telecommunications, you're selling to Telecommunications, you're selling to Telecommunications, you're selling to three stateowned companies whose three stateowned companies whose three stateowned companies whose executives are picked by the party who executives are picked by the party who executives are picked by the party who take direction uh centrally.

take direction uh centrally. take direction uh centrally. And then on top of that when the And then on top of that when the And then on top of that when the government sets a policy direction you government sets a policy direction you government sets a policy direction you know say we want to have a semiconductor know say we want to have a semiconductor know say we want to have a semiconductor industry industry industry ambitious provinces will say well we ambitious provinces will say well we ambitious provinces will say well we should be the province that builds up should be the province that builds up should be the province that builds up China's national champion. Here's an China's national champion. Here's an China's national champion. Here's an ambitious guy he or girl looks like they ambitious guy he or girl looks like they ambitious guy he or girl looks like they got a good idea. Here's a whole bunch of got a good idea. Here's a whole bunch of got a good idea. Here's a whole bunch of money. We're going to subsidize your money. We're going to subsidize your money. We're going to subsidize your factory. Uh maybe we're going to take factory. Uh maybe we're going to take factory. Uh maybe we're going to take equity. We're going to make sure you get equity. We're going to make sure you get equity. We're going to make sure you get bank loans. And so a whole bunch of bank loans. And so a whole bunch of bank loans. And so a whole bunch of different firms spring up in that sector different firms spring up in that sector different firms spring up in that sector with support and they start competing with support and they start competing with support and they start competing very intensely. So it's you know a mix very intensely. So it's you know a mix very intensely. So it's you know a mix of state directed and intensely of state directed and intensely of state directed and intensely competitive. I want to draw something competitive. I want to draw something competitive. I want to draw something out in the description which I thought out in the description which I thought out in the description which I thought was great of how their economy is was great of how their economy is was great of how their economy is different. China has gotten a lot richer different. China has gotten a lot richer different. China has gotten a lot richer and less of that wealth than you might and less of that wealth than you might and less of that wealth than you might have thought has gone into things like a have thought has gone into things like a have thought has gone into things like a universal health care system, a social universal health care system, a social universal health care system, a social insurance system for the elderly. insurance system for the elderly. insurance system for the elderly. America got richer. We built social America got richer. We built social America got richer. We built social security, Medicare, Medicaid, welfare, security, Medicare, Medicaid, welfare, security, Medicare, Medicaid, welfare, earned income tax credit, child tax earned income tax credit, child tax earned income tax credit, child tax credit. It China's gotten richer because credit. It China's gotten richer because credit. It China's gotten richer because it has not allowed a lot of that because it has not allowed a lot of that because it has not allowed a lot of that because also you have such power over the also you have such power over the also you have such power over the financial system. It has just been able financial system. It has just been able financial system. It has just been able to move much more of that money into to move much more of that money into to move much more of that money into subsidizing subsidizing subsidizing production, innovation in like new production, innovation in like new production, innovation in like new economic areas it wants to dominate.

economic areas it wants to dominate. economic areas it wants to dominate. You know, the basic retirement benefit You know, the basic retirement benefit You know, the basic retirement benefit that anyone in China gets no matter what that anyone in China gets no matter what that anyone in China gets no matter what your your residency status is like tens your your residency status is like tens your your residency status is like tens of dollars a month. It's really really of dollars a month. It's really really of dollars a month. It's really really trivial. trivial. trivial. uh the health insurance system, you uh the health insurance system, you uh the health insurance system, you know, people aren't confident that when know, people aren't confident that when know, people aren't confident that when they walk into the hospital that the they walk into the hospital that the they walk into the hospital that the cost will be covered and frequently cost will be covered and frequently cost will be covered and frequently there's a lot of uh upfront payments. there's a lot of uh upfront payments. there's a lot of uh upfront payments. And some people also say the the one And some people also say the the one And some people also say the the one child policy and an incredibly child policy and an incredibly child policy and an incredibly competitive marriage market has made it, competitive marriage market has made it, competitive marriage market has made it, you know, a requirement for young men to you know, a requirement for young men to you know, a requirement for young men to save if they want to get married. All save if they want to get married. All save if they want to get married. All this has produced an economy that just this has produced an economy that just this has produced an economy that just saves an incredible share of its uh saves an incredible share of its uh saves an incredible share of its uh national income over 40% of GDP uniquely national income over 40% of GDP uniquely national income over 40% of GDP uniquely high. Uh and that means the state high. Uh and that means the state high. Uh and that means the state financial sector is just flushed with financial sector is just flushed with financial sector is just flushed with money. So part of it is that China has money. So part of it is that China has money. So part of it is that China has the capacity direct investment through the capacity direct investment through the capacity direct investment through the state. Part of it is just it can the state. Part of it is just it can the state. Part of it is just it can finance out of its own savings finance out of its own savings finance out of its own savings levels of investment that no other levels of investment that no other levels of investment that no other country has matched.

country has matched. country has matched. >> Right? So this I think this is all true >> Right? So this I think this is all true >> Right? So this I think this is all true through China shock 1.0. through China shock 1.0. through China shock 1.0. >> The view is maybe more of it would >> The view is maybe more of it would >> The view is maybe more of it would change as time went on, but it didn't. change as time went on, but it didn't. change as time went on, but it didn't. >> So what is China shock 2.0? When do you >> So what is China shock 2.0? When do you >> So what is China shock 2.0? When do you date it? How do you describe it? So I date it? How do you describe it? So I date it? How do you describe it? So I date the start of China shock 2.0 to the date the start of China shock 2.0 to the date the start of China shock 2.0 to the collapse of China's property market in collapse of China's property market in collapse of China's property market in 2021. Now we all know there was an awful 2021. Now we all know there was an awful 2021. Now we all know there was an awful lot going on in 2020, the pandemic. She lot going on in 2020, the pandemic. She lot going on in 2020, the pandemic. She gets concerned that the there's too much gets concerned that the there's too much gets concerned that the there's too much investment in property, probably rightly investment in property, probably rightly investment in property, probably rightly so, that there were empty buildings so, that there were empty buildings so, that there were empty buildings piling up. He introduces a policy, three piling up. He introduces a policy, three piling up. He introduces a policy, three red lines, which sort of restricts red lines, which sort of restricts red lines, which sort of restricts finance for the property sector and it finance for the property sector and it finance for the property sector and it succeeds too well and the property succeeds too well and the property succeeds too well and the property market basically tanks. And then in market basically tanks. And then in market basically tanks. And then in order to offset the economic impact of order to offset the economic impact of order to offset the economic impact of this fall, she more or less gives the this fall, she more or less gives the this fall, she more or less gives the banking system guidance to lend to banking system guidance to lend to banking system guidance to lend to finance finance finance uh a new wave of manufacturing uh a new wave of manufacturing uh a new wave of manufacturing investment and particularly investment and particularly investment and particularly manufacturing in more cutting edge manufacturing in more cutting edge manufacturing in more cutting edge sectors. So electric vehicles being the sectors. So electric vehicles being the sectors. So electric vehicles being the the the the leading example, but in general it's leading example, but in general it's leading example, but in general it's investment in any sector where China has investment in any sector where China has investment in any sector where China has import dependence and for she that's a import dependence and for she that's a import dependence and for she that's a vulnerability and so he really directs vulnerability and so he really directs vulnerability and so he really directs the states financial sector and you know

the states financial sector and you know the states financial sector and you know the party to throw money into building the party to throw money into building the party to throw money into building out sectors where China has an import out sectors where China has an import out sectors where China has an import dependence. The effect is China moves dependence. The effect is China moves dependence. The effect is China moves back to growing on the back of net back to growing on the back of net back to growing on the back of net exports. China's domestic economy is exports. China's domestic economy is exports. China's domestic economy is growing three four percent. So you know growing three four percent. So you know growing three four percent. So you know you're getting one and a half to two you're getting one and a half to two you're getting one and a half to two percentage points of growth from net percentage points of growth from net percentage points of growth from net exports. That's a lot of statistics. But exports. That's a lot of statistics. But exports. That's a lot of statistics. But what it basically means is China's what it basically means is China's what it basically means is China's exporting a ton of cars. China is exporting a ton of cars. China is exporting a ton of cars. China is supplying the entire world with supplying the entire world with supplying the entire world with batteries. Uh China is now the leading batteries. Uh China is now the leading batteries. Uh China is now the leading exporter of tunnel boring machines. you exporter of tunnel boring machines. you exporter of tunnel boring machines. you know, you name the the category of know, you name the the category of know, you name the the category of machinery, China's exports are growing. machinery, China's exports are growing. machinery, China's exports are growing. It's no longer just consumer It's no longer just consumer It's no longer just consumer electronics. So, China starts getting uh electronics. So, China starts getting uh electronics. So, China starts getting uh growth, big part of it growth from an growth, big part of it growth from an growth, big part of it growth from an expanding trade surplus. expanding trade surplus. expanding trade surplus. Imports stop growing. Imports stop growing. Imports stop growing. This is, you know, I think one of the This is, you know, I think one of the This is, you know, I think one of the key factors around the second China key factors around the second China key factors around the second China shock. Normally, you would say imports shock. Normally, you would say imports shock. Normally, you would say imports would grow with domestic demand. Chinese would grow with domestic demand. Chinese would grow with domestic demand. Chinese imports basically aren't growing and in imports basically aren't growing and in imports basically aren't growing and in key key key >> China is selling ever more to the world >> China is selling ever more to the world >> China is selling ever more to the world and then Chinese not buying more from and then Chinese not buying more from and then Chinese not buying more from the world.

the world. the world. >> Exactly. And Chinese exports >> Exactly. And Chinese exports >> Exactly. And Chinese exports particularly in the years right after particularly in the years right after particularly in the years right after the pandemic after the currencies the pandemic after the currencies the pandemic after the currencies depreciated start growing at two times depreciated start growing at two times depreciated start growing at two times or three times the pace of world trade. or three times the pace of world trade. or three times the pace of world trade. So China's imports of autos used to be So China's imports of autos used to be So China's imports of autos used to be about a million cars a year. That's now about a million cars a year. That's now about a million cars a year. That's now down. It's now under half a million cars down. It's now under half a million cars down. It's now under half a million cars a year. And over this same period, a year. And over this same period, a year. And over this same period, China's exports of cars have gone from China's exports of cars have gone from China's exports of cars have gone from little under a million to now 10 million little under a million to now 10 million little under a million to now 10 million [snorts] in the space of 5 years. Just a [snorts] in the space of 5 years. Just a [snorts] in the space of 5 years. Just a stunning shift in a range of industrial stunning shift in a range of industrial stunning shift in a range of industrial sectors and heavily industrial sectors sectors and heavily industrial sectors sectors and heavily industrial sectors that compete with Japan and compete with that compete with Japan and compete with that compete with Japan and compete with Europe. And [snorts] so you sort of see Europe. And [snorts] so you sort of see Europe. And [snorts] so you sort of see bad economic performance in the bad economic performance in the bad economic performance in the manufacturing heart of Europe in manufacturing heart of Europe in manufacturing heart of Europe in particular, a little less so in the US. particular, a little less so in the US. particular, a little less so in the US. >> So I I think this point about the Europe >> So I I think this point about the Europe >> So I I think this point about the Europe versus US is really interesting. In one versus US is really interesting. In one versus US is really interesting. In one of the pieces you wrote about this, you of the pieces you wrote about this, you of the pieces you wrote about this, you wrote that the US share of global output wrote that the US share of global output wrote that the US share of global output has been remarkably constant over the has been remarkably constant over the has been remarkably constant over the last 40 years. China's rise has come at last 40 years. China's rise has come at last 40 years. China's rise has come at the expense of the other G7 countries.

the expense of the other G7 countries. the expense of the other G7 countries. Can you talk about what that looks like? Can you talk about what that looks like? Can you talk about what that looks like? I mean, I know you've Let's use maybe I mean, I know you've Let's use maybe I mean, I know you've Let's use maybe Germany as an example. Germany as an example. Germany as an example. Germany didn't move as heavily into you Germany didn't move as heavily into you Germany didn't move as heavily into you know kind of software know kind of software know kind of software platforms they retained a more platforms they retained a more platforms they retained a more traditional manufacturing sector and traditional manufacturing sector and traditional manufacturing sector and focused on exports including to China so focused on exports including to China so focused on exports including to China so [snorts] you know Germany after the [snorts] you know Germany after the [snorts] you know Germany after the global financial crisis is exporting global financial crisis is exporting global financial crisis is exporting close to 3% of its GDP to China and close to 3% of its GDP to China and close to 3% of its GDP to China and manufactured goods that reflects the manufactured goods that reflects the manufactured goods that reflects the fact that Germany remained a very fact that Germany remained a very fact that Germany remained a very manufacturing centric economy, you know, manufacturing centric economy, you know, manufacturing centric economy, you know, the tunnel boring machines, the high-end the tunnel boring machines, the high-end the tunnel boring machines, the high-end sedans, the, you know, a lot of fancy sedans, the, you know, a lot of fancy sedans, the, you know, a lot of fancy SUVs, you know, also aircraft. The 320s SUVs, you know, also aircraft. The 320s SUVs, you know, also aircraft. The 320s made in Hamburg. All these industrial made in Hamburg. All these industrial made in Hamburg. All these industrial sectors tended to be industrial sectors sectors tended to be industrial sectors sectors tended to be industrial sectors which had a lot of overlap with China. which had a lot of overlap with China. which had a lot of overlap with China. Uh, and then you throw in Uh, and then you throw in Uh, and then you throw in uh the fact that the EV industry just uh the fact that the EV industry just uh the fact that the EV industry just took off in China. a lot of government took off in China. a lot of government took off in China. a lot of government support and the German companies they support and the German companies they support and the German companies they were made their own efforts to make EVs were made their own efforts to make EVs were made their own efforts to make EVs in Europe but those never took off in Europe but those never took off in Europe but those never took off globally in the way that China's EV globally in the way that China's EV globally in the way that China's EV industry has and nor are they Costco industry has and nor are they Costco industry has and nor are they Costco competitive so what you see is German competitive so what you see is German competitive so what you see is German exports to China have fallen [snorts] by exports to China have fallen [snorts] by exports to China have fallen [snorts] by about a percentage point of German GDP about a percentage point of German GDP about a percentage point of German GDP and what was a strength Germany and what was a strength Germany and what was a strength Germany benefited from selling to China right

benefited from selling to China right benefited from selling to China right after the global financial crisis became after the global financial crisis became after the global financial crisis became a weakness I want to focus in on another a weakness I want to focus in on another a weakness I want to focus in on another dimension of this that's kind of inside dimension of this that's kind of inside dimension of this that's kind of inside the story you're telling which is so the story you're telling which is so the story you're telling which is so China shock one it's China shock one it's China shock one it's lower on the value chain of manufactured lower on the value chain of manufactured lower on the value chain of manufactured goods it's you know uh clothes and goods it's you know uh clothes and goods it's you know uh clothes and consumer calculators and and all these consumer calculators and and all these consumer calculators and and all these things that the story that was told was things that the story that was told was things that the story that was told was we don't want these industries in the we don't want these industries in the we don't want these industries in the long run long run long run what happens in what happens in what happens in the China shock too is that China is the China shock too is that China is the China shock too is that China is starting to dominate industries on the starting to dominate industries on the starting to dominate industries on the technological frontier. I mean, you technological frontier. I mean, you technological frontier. I mean, you mentioned electric vehicles, you mentioned electric vehicles, you mentioned electric vehicles, you mentioned batteries, right? You could mentioned batteries, right? You could mentioned batteries, right? You could talk about solar panels, we could talk talk about solar panels, we could talk talk about solar panels, we could talk about, you know, AI where they're, you about, you know, AI where they're, you about, you know, AI where they're, you know, basically neck andneck with us. know, basically neck andneck with us. know, basically neck andneck with us. How did they go How did they go How did they go from kind of low to mid-level from kind of low to mid-level from kind of low to mid-level manufacturing to the absolute frontier manufacturing to the absolute frontier manufacturing to the absolute frontier in batteries, solar, etc.

in batteries, solar, etc. in batteries, solar, etc. that quickly that quickly that quickly there was certainly something in the air there was certainly something in the air there was certainly something in the air in China around manufacturing. The in China around manufacturing. The in China around manufacturing. The critical mass was built up and the critical mass was built up and the critical mass was built up and the foundations were laid and I think it's a foundations were laid and I think it's a foundations were laid and I think it's a complicated story. So if you think about complicated story. So if you think about complicated story. So if you think about electric vehicles being the like one of electric vehicles being the like one of electric vehicles being the like one of the famous uh sectors, what do you need the famous uh sectors, what do you need the famous uh sectors, what do you need to make an electric vehicle? You to make an electric vehicle? You to make an electric vehicle? You actually need to be able to make a car. actually need to be able to make a car. actually need to be able to make a car. It is you know a smartphone mixed with a It is you know a smartphone mixed with a It is you know a smartphone mixed with a car. So, how does China learn how to car. So, how does China learn how to car. So, how does China learn how to make cars, good cars? Well, a lot of make cars, good cars? Well, a lot of make cars, good cars? Well, a lot of foreign companies come in and Ford and foreign companies come in and Ford and foreign companies come in and Ford and GM and VW all had to partner with GM and VW all had to partner with GM and VW all had to partner with generally Chinese state companies to generally Chinese state companies to generally Chinese state companies to produce in China. That was just the rule produce in China. That was just the rule produce in China. That was just the rule and they didn't have really much of a and they didn't have really much of a and they didn't have really much of a choice because in China had a 25% auto choice because in China had a 25% auto choice because in China had a 25% auto tariff like for a very very very long tariff like for a very very very long tariff like for a very very very long time. So in order to, you know, if VW's time. So in order to, you know, if VW's time. So in order to, you know, if VW's on the other side of the tariff with a on the other side of the tariff with a on the other side of the tariff with a JV partner, they're going to have a big JV partner, they're going to have a big JV partner, they're going to have a big cost advantage. So GM had to also jump cost advantage. So GM had to also jump cost advantage. So GM had to also jump the tariff. Toyota had to jump the the tariff. Toyota had to jump the the tariff. Toyota had to jump the tariff. Everybody does the JVS, joint tariff. Everybody does the JVS, joint tariff. Everybody does the JVS, joint ventures. And then you want your part ventures. And then you want your part ventures. And then you want your part suppliers to come and produce high suppliers to come and produce high suppliers to come and produce high quality parts. So they come to China.

quality parts. So they come to China. quality parts. So they come to China. Well, guess what? They probably once Well, guess what? They probably once Well, guess what? They probably once they learn how to make parts in China, they learn how to make parts in China, they learn how to make parts in China, they are making parts at a much lower they are making parts at a much lower they are making parts at a much lower cost in China because China's relatively cost in China because China's relatively cost in China because China's relatively cheap. and you're starting to use those cheap. and you're starting to use those cheap. and you're starting to use those parts to export to the world and China parts to export to the world and China parts to export to the world and China and then local competitors spring up. and then local competitors spring up. and then local competitors spring up. So, China ends up having worldclass So, China ends up having worldclass So, China ends up having worldclass automotive parts production automotive parts production automotive parts production uh well before its companies suddenly uh well before its companies suddenly uh well before its companies suddenly master EVs master EVs master EVs at a certain point. And China was sort at a certain point. And China was sort at a certain point. And China was sort of they liked the results of the joint of they liked the results of the joint of they liked the results of the joint venture, but they didn't completely like venture, but they didn't completely like venture, but they didn't completely like the fact that for a while most of the the fact that for a while most of the the fact that for a while most of the Chinese market was being met by auto Chinese market was being met by auto Chinese market was being met by auto market was being met by joint venture market was being met by joint venture market was being met by joint venture output. the indigenous Chinese-owned output. the indigenous Chinese-owned output. the indigenous Chinese-owned companies were not all that competitive. companies were not all that competitive. companies were not all that competitive. There was a sense that the auto There was a sense that the auto There was a sense that the auto manufacturers who had a JV were fat and manufacturers who had a JV were fat and manufacturers who had a JV were fat and lazy because they, you know, they were lazy because they, you know, they were lazy because they, you know, they were too happy producing through their JVS. too happy producing through their JVS. too happy producing through their JVS. So there was a sense that okay, well So there was a sense that okay, well So there was a sense that okay, well this sector was still a little too this sector was still a little too this sector was still a little too foreign dominated and [snorts] then foreign dominated and [snorts] then foreign dominated and [snorts] then there was a correct sense that well we there was a correct sense that well we there was a correct sense that well we should try to take advantage of the should try to take advantage of the should try to take advantage of the transition to EVs.

transition to EVs. transition to EVs. So China you know makes it a priority. So China you know makes it a priority. So China you know makes it a priority. When China makes something a priority, When China makes something a priority, When China makes something a priority, credit is available to local firms that credit is available to local firms that credit is available to local firms that want to enter the EV market. The state want to enter the EV market. The state want to enter the EV market. The state banking system gets mobilized. Local banking system gets mobilized. Local banking system gets mobilized. Local governments start throwing money at it. governments start throwing money at it. governments start throwing money at it. You get a lot of small companies You get a lot of small companies You get a lot of small companies springing up. China supports the springing up. China supports the springing up. China supports the development of an indigenous local development of an indigenous local development of an indigenous local battery industry. Then, you know, battery industry. Then, you know, battery industry. Then, you know, Tesla's market entry is also viewed as Tesla's market entry is also viewed as Tesla's market entry is also viewed as significant. when Tesla enters is not significant. when Tesla enters is not significant. when Tesla enters is not required to do a JV, but in order to required to do a JV, but in order to required to do a JV, but in order to qualify for Shanghai government local qualify for Shanghai government local qualify for Shanghai government local support has to meet a lot of local support has to meet a lot of local support has to meet a lot of local content requirements. So a supply chain content requirements. So a supply chain content requirements. So a supply chain that serves Tesla can also serve others. that serves Tesla can also serve others. that serves Tesla can also serve others. [snorts] And when China sets up their [snorts] And when China sets up their [snorts] And when China sets up their consumer subsidies in order to qualify consumer subsidies in order to qualify consumer subsidies in order to qualify for that subsidy, for that subsidy, for that subsidy, the car initially had to be made in the car initially had to be made in the car initially had to be made in China. The battery had to be made in China. The battery had to be made in China. The battery had to be made in China. that that supported not just the China. that that supported not just the China. that that supported not just the Chinese battery industry but [snorts] Chinese battery industry but [snorts] Chinese battery industry but [snorts] the Chineseowned EV industry. And then the Chineseowned EV industry. And then the Chineseowned EV industry. And then you get the EVs kind of just taking off.

you get the EVs kind of just taking off. you get the EVs kind of just taking off. And so all of a sudden you just get an And so all of a sudden you just get an And so all of a sudden you just get an explosion explosion explosion uh which has been built on a a uh which has been built on a a uh which has been built on a a foundation from the migration of western foundation from the migration of western foundation from the migration of western parts makers, copying, emulation and parts makers, copying, emulation and parts makers, copying, emulation and then an awful lot of industrial policy. then an awful lot of industrial policy. then an awful lot of industrial policy. So something people may have heard is So something people may have heard is So something people may have heard is this argument that China is over this argument that China is over this argument that China is over capacity that that over capacity is a capacity that that over capacity is a capacity that that over capacity is a crisis. This is sort of related maybe to crisis. This is sort of related maybe to crisis. This is sort of related maybe to trade imbalances. I don't think that trade imbalances. I don't think that trade imbalances. I don't think that makes a lot of intuitive sense like why makes a lot of intuitive sense like why makes a lot of intuitive sense like why is that a problem if they produce more is that a problem if they produce more is that a problem if they produce more cars than they buy? So how would you cars than they buy? So how would you cars than they buy? So how would you describe what the over capacity issue describe what the over capacity issue describe what the over capacity issue is? is? is? uh to me the most coherent way of uh to me the most coherent way of uh to me the most coherent way of defining the concern about Chinese defining the concern about Chinese defining the concern about Chinese overcapacity overcapacity overcapacity is a set of sectors where China produces is a set of sectors where China produces is a set of sectors where China produces more than its domestic market can absorb more than its domestic market can absorb more than its domestic market can absorb and where globally and where globally and where globally China's adding capacity in a sector that China's adding capacity in a sector that China's adding capacity in a sector that in aggregate already has more capacity in aggregate already has more capacity in aggregate already has more capacity than there is global demand. [snorts] So than there is global demand. [snorts] So than there is global demand. [snorts] So in batteries for example, China's in batteries for example, China's in batteries for example, China's ability to make batteries is a a ability to make batteries is a a ability to make batteries is a a multiple of current global demand. Uh so multiple of current global demand. Uh so multiple of current global demand. Uh so there just no scope for anyone else to there just no scope for anyone else to there just no scope for anyone else to enter the market. Um I think the concern enter the market. Um I think the concern enter the market. Um I think the concern in a sector like autos where there is in a sector like autos where there is in a sector like autos where there is over capacity globally, there are more over capacity globally, there are more over capacity globally, there are more auto factories in Europe and in the US auto factories in Europe and in the US auto factories in Europe and in the US uh with capacity than there is demand.

uh with capacity than there is demand. uh with capacity than there is demand. So many factories are operating at low So many factories are operating at low So many factories are operating at low levels of capacity or being underused levels of capacity or being underused levels of capacity or being underused and there's overcapacity in China. A lot and there's overcapacity in China. A lot and there's overcapacity in China. A lot of Chinese factories are not being fully of Chinese factories are not being fully of Chinese factories are not being fully used and China is adding to its used and China is adding to its used and China is adding to its capacity. Uh so China you know has the capacity. Uh so China you know has the capacity. Uh so China you know has the ability to make 55 million cars which is ability to make 55 million cars which is ability to make 55 million cars which is you know well over a half close to you know well over a half close to you know well over a half close to twothirds of world demand. twothirds of world demand. twothirds of world demand. uh and there that is growing and so uh and there that is growing and so uh and there that is growing and so China's expansion necessarily means the China's expansion necessarily means the China's expansion necessarily means the exit of capacity elsewhere when there's exit of capacity elsewhere when there's exit of capacity elsewhere when there's already spare capacity now you can say already spare capacity now you can say already spare capacity now you can say that's just the operation of a market that's just the operation of a market that's just the operation of a market new entrance going to displace old new entrance going to displace old new entrance going to displace old capacity but it does feel different uh capacity but it does feel different uh capacity but it does feel different uh when a closed market suddenly is adding when a closed market suddenly is adding when a closed market suddenly is adding capacity to an industrial sector where capacity to an industrial sector where capacity to an industrial sector where in aggregate there's plenty of capacity in aggregate there's plenty of capacity in aggregate there's plenty of capacity and they're squeezing margin, squeezing and they're squeezing margin, squeezing and they're squeezing margin, squeezing production out of the rest of the world. production out of the rest of the world. production out of the rest of the world. >> One thing I've heard people ask is how >> One thing I've heard people ask is how >> One thing I've heard people ask is how is this different than America? America is this different than America? America is this different than America? America rises as a manufacturing juggernaut from rises as a manufacturing juggernaut from rises as a manufacturing juggernaut from being a much more modest economy at you being a much more modest economy at you being a much more modest economy at you know when the country is founded. It know when the country is founded. It know when the country is founded. It does over time displace great companies does over time displace great companies does over time displace great companies from other countries. It does lead to from other countries. It does lead to from other countries. It does lead to competition that you know is harder for competition that you know is harder for competition that you know is harder for other countries. But I do think other countries. But I do think other countries. But I do think economically America's rise is not in economically America's rise is not in economically America's rise is not in every respect but broadly considered to every respect but broadly considered to every respect but broadly considered to have been win-win in a lot of ways. So have been win-win in a lot of ways. So have been win-win in a lot of ways. So what is different about the rise of what is different about the rise of what is different about the rise of America as a manufacturer? Like the rise America as a manufacturer? Like the rise America as a manufacturer? Like the rise of Detroit, the rise of all these um

of Detroit, the rise of all these um of Detroit, the rise of all these um dimensions from what China is doing? dimensions from what China is doing? dimensions from what China is doing? >> So our story is much more one of >> So our story is much more one of >> So our story is much more one of industrial investment for our own industrial investment for our own industrial investment for our own rapidly growing internal market. And we rapidly growing internal market. And we rapidly growing internal market. And we only really become a big exporter uh only really become a big exporter uh only really become a big exporter uh after World War II when the world's on after World War II when the world's on after World War II when the world's on its back and that doesn't last that its back and that doesn't last that its back and that doesn't last that long. China's industrial rise is much long. China's industrial rise is much long. China's industrial rise is much more tied to exporting more tied to exporting more tied to exporting uh and it's a much bigger exporter than uh and it's a much bigger exporter than uh and it's a much bigger exporter than we ever were except for that brief we ever were except for that brief we ever were except for that brief period after World War II. So one period after World War II. So one period after World War II. So one argument here is simply China is argument here is simply China is argument here is simply China is winning. winning. winning. >> They're out competing the world, you >> They're out competing the world, you >> They're out competing the world, you know, pretty fair and square here. And know, pretty fair and square here. And know, pretty fair and square here. And if the world doesn't like it, it needs if the world doesn't like it, it needs if the world doesn't like it, it needs to build better cars, build cheaper to build better cars, build cheaper to build better cars, build cheaper solar panels, create stronger supply solar panels, create stronger supply solar panels, create stronger supply chains. All this talk of China shocks chains. All this talk of China shocks chains. All this talk of China shocks and a China problem is just kind of a and a China problem is just kind of a and a China problem is just kind of a way to whine and keep China down. And way to whine and keep China down. And way to whine and keep China down. And that there's no problem here. Like it that there's no problem here. Like it that there's no problem here. Like it would be great to have cheap Chinese would be great to have cheap Chinese would be great to have cheap Chinese electric vehicles. It's good for the electric vehicles. It's good for the electric vehicles. It's good for the world and the climate transition to have world and the climate transition to have world and the climate transition to have cheap Chinese solar panels. How do you cheap Chinese solar panels. How do you cheap Chinese solar panels. How do you take that argument?

take that argument? take that argument? Look, if your only goal Look, if your only goal Look, if your only goal is maximizing is maximizing is maximizing uh benefits to consumers in the short uh benefits to consumers in the short uh benefits to consumers in the short run, run, run, you should certainly import uh Chinese you should certainly import uh Chinese you should certainly import uh Chinese EVs, Chinese solar. Uh why not? open EVs, Chinese solar. Uh why not? open EVs, Chinese solar. Uh why not? open economics say buy from whoever is economics say buy from whoever is economics say buy from whoever is cheaper and then the competition will cheaper and then the competition will cheaper and then the competition will raise everyone else uh up. raise everyone else uh up. raise everyone else uh up. I think that misses a few things. I think that misses a few things. I think that misses a few things. one, it misses the the shock that one, it misses the the shock that one, it misses the the shock that happens to our economies if traditional happens to our economies if traditional happens to our economies if traditional even like traditional but still kind of even like traditional but still kind of even like traditional but still kind of cutting edge sectors disappear. China cutting edge sectors disappear. China cutting edge sectors disappear. China could supply out of capacity that it is could supply out of capacity that it is could supply out of capacity that it is already built the entire European auto already built the entire European auto already built the entire European auto market, all of it. 10 million cars, no market, all of it. 10 million cars, no market, all of it. 10 million cars, no problem. That's just giant compared to problem. That's just giant compared to problem. That's just giant compared to the global market.

the global market. the global market. If an industry suddenly goes away, you If an industry suddenly goes away, you If an industry suddenly goes away, you have all the China shock 1.0 type have all the China shock 1.0 type have all the China shock 1.0 type effects. Communities that grew up around effects. Communities that grew up around effects. Communities that grew up around building cars will just kind of building cars will just kind of building cars will just kind of disappear. Now, in the China shock 2.0, disappear. Now, in the China shock 2.0, disappear. Now, in the China shock 2.0, [snorts] you're not going to be moving [snorts] you're not going to be moving [snorts] you're not going to be moving to an export sector because there no to an export sector because there no to an export sector because there no one's exporting to China. So, you're one's exporting to China. So, you're one's exporting to China. So, you're going to move to necessarily a services going to move to necessarily a services going to move to necessarily a services sector. So you're going to become less sector. So you're going to become less sector. So you're going to become less focused on producing traded goods. Now focused on producing traded goods. Now focused on producing traded goods. Now you might say, who cares? On the other you might say, who cares? On the other you might say, who cares? On the other hand, in Europe, an awful lot of hand, in Europe, an awful lot of hand, in Europe, an awful lot of research and development, an awful lot research and development, an awful lot research and development, an awful lot of uh of innovation actually has emerged of uh of innovation actually has emerged of uh of innovation actually has emerged out of their automotive sector. Uh so out of their automotive sector. Uh so out of their automotive sector. Uh so it's not clear these people are going to it's not clear these people are going to it's not clear these people are going to jump to a more innovative sector. They jump to a more innovative sector. They jump to a more innovative sector. They may jump to less innovative, less may jump to less innovative, less may jump to less innovative, less well-paid sectors. And in the end, your well-paid sectors. And in the end, your well-paid sectors. And in the end, your economy is going to going to suffer. And economy is going to going to suffer. And economy is going to going to suffer. And then I think there's a sense that people then I think there's a sense that people then I think there's a sense that people have discovered that supply chain have discovered that supply chain have discovered that supply chain dependence can be weaponized. Uh China dependence can be weaponized. Uh China dependence can be weaponized. Uh China dominates magnets, rarers. If you want dominates magnets, rarers. If you want dominates magnets, rarers. If you want those magnets, you want those rarers, those magnets, you want those rarers, those magnets, you want those rarers, you better not tire off China. You you better not tire off China. You you better not tire off China. You better not, you better say nice things better not, you better say nice things better not, you better say nice things about China. You better not crit, you about China. You better not crit, you about China. You better not crit, you know, you better not do what Japan did know, you better not do what Japan did know, you better not do what Japan did and uh say you're going to come to and uh say you're going to come to and uh say you're going to come to Taiwan's defense if something were to Taiwan's defense if something were to Taiwan's defense if something were to happen. you kind [snorts] of need to uh happen. you kind [snorts] of need to uh happen. you kind [snorts] of need to uh respect China if you want access to respect China if you want access to respect China if you want access to their supply chain. That's kind of the their supply chain. That's kind of the their supply chain. That's kind of the argument that they are making. That kind argument that they are making. That kind argument that they are making. That kind of dependence scares people.

of dependence scares people. of dependence scares people. Finally, I would just say look, if you Finally, I would just say look, if you Finally, I would just say look, if you want to emulate China, if you admire want to emulate China, if you admire want to emulate China, if you admire China, you want to emulate, you like the China, you want to emulate, you like the China, you want to emulate, you like the way China's electric vehicle industry way China's electric vehicle industry way China's electric vehicle industry has developed, it did not develop just has developed, it did not develop just has developed, it did not develop just by throwing the by throwing the by throwing the uh doors open. It did not develop uh doors open. It did not develop uh doors open. It did not develop without industrial policy. China's EV without industrial policy. China's EV without industrial policy. China's EV industry developed behind some of the industry developed behind some of the industry developed behind some of the highest tariffs in the world at the highest tariffs in the world at the highest tariffs in the world at the time, 25%. time, 25%. time, 25%. Huge local preference, you know, Huge local preference, you know, Huge local preference, you know, Chinese-made battery, ideally from a Chinese-made battery, ideally from a Chinese-made battery, ideally from a Chinese company, Chinese-made car, could Chinese company, Chinese-made car, could Chinese company, Chinese-made car, could be a Tesla, but it was going to be Tesla be a Tesla, but it was going to be Tesla be a Tesla, but it was going to be Tesla made in China with 90% Chinese content. made in China with 90% Chinese content. made in China with 90% Chinese content. And then an awful lot of local And then an awful lot of local And then an awful lot of local government support. There are stories of government support. There are stories of government support. There are stories of entire factories being built not by the entire factories being built not by the entire factories being built not by the company but by the local government to company but by the local government to company but by the local government to the specifications the specifications the specifications of of of the company. So there's a a story of the company. So there's a a story of the company. So there's a a story of protection and industrial policy that protection and industrial policy that protection and industrial policy that leads to the creation of this sector.

leads to the creation of this sector. leads to the creation of this sector. You throw your doors open to China, You throw your doors open to China, You throw your doors open to China, you're going to get the cheap cars, but you're going to get the cheap cars, but you're going to get the cheap cars, but you're not going to get the the EV you're not going to get the the EV you're not going to get the the EV industry. And I think many countries are industry. And I think many countries are industry. And I think many countries are are reluctant to just seed more are reluctant to just seed more are reluctant to just seed more industrial ground to China. So for a industrial ground to China. So for a industrial ground to China. So for a long time the critique that you heard in long time the critique that you heard in long time the critique that you heard in American trade debate most often of American trade debate most often of American trade debate most often of China is that they were a currency China is that they were a currency China is that they were a currency manipulator. Um then you stopped hearing manipulator. Um then you stopped hearing manipulator. Um then you stopped hearing that as much. I think your view is that that as much. I think your view is that that as much. I think your view is that that has actually become a bigger part that has actually become a bigger part that has actually become a bigger part of the story again. So let's do this in of the story again. So let's do this in of the story again. So let's do this in two parts. What is currency two parts. What is currency two parts. What is currency manipulation? Why does it matter? And manipulation? Why does it matter? And manipulation? Why does it matter? And then what has been the sort of roller then what has been the sort of roller then what has been the sort of roller coaster or where are we on the roller coaster or where are we on the roller coaster or where are we on the roller coaster of Chinese currency coaster of Chinese currency coaster of Chinese currency manipulation? manipulation? manipulation? >> Sometimes currency manipulation is just >> Sometimes currency manipulation is just >> Sometimes currency manipulation is just like a currency whose value we don't like a currency whose value we don't like a currency whose value we don't like. Um which is I think how the like. Um which is I think how the like. Um which is I think how the president sometimes uses used to use it. president sometimes uses used to use it. president sometimes uses used to use it. He hasn't been talking as much about it. He hasn't been talking as much about it. He hasn't been talking as much about it. But the the more accurate way of of But the the more accurate way of of But the the more accurate way of of defining it would be a country that has defining it would be a country that has defining it would be a country that has an undervalued currency. You can an undervalued currency. You can an undervalued currency. You can quantify that. And so you look for a quantify that. And so you look for a quantify that. And so you look for a surplus that's bigger than you would surplus that's bigger than you would surplus that's bigger than you would expect given the underlying expect given the underlying expect given the underlying characteristics of the economy. Factor characteristics of the economy. Factor characteristics of the economy. Factor one. And then factor two is government one. And then factor two is government one. And then factor two is government or quasi government intervention in the or quasi government intervention in the or quasi government intervention in the foreign currency market. So it's not foreign currency market. So it's not foreign currency market. So it's not just uh the outcome of differences in just uh the outcome of differences in just uh the outcome of differences in monetary policy. There's a government monetary policy. There's a government monetary policy. There's a government with its finger on the FX market buying with its finger on the FX market buying with its finger on the FX market buying currency to hold the currency down.

currency to hold the currency down. currency to hold the currency down. China met both of those definitions China met both of those definitions China met both of those definitions unambiguously from 2003 to 2012. There unambiguously from 2003 to 2012. There unambiguously from 2003 to 2012. There [snorts] was a political decision not to [snorts] was a political decision not to [snorts] was a political decision not to call them a manipulator. Now during the call them a manipulator. Now during the call them a manipulator. Now during the latter part of their period, they were latter part of their period, they were latter part of their period, they were letting their currency appreciate. So letting their currency appreciate. So letting their currency appreciate. So they're kind of correcting the they're kind of correcting the they're kind of correcting the undervaluation, which is part of the undervaluation, which is part of the undervaluation, which is part of the reason why they weren't named. China is reason why they weren't named. China is reason why they weren't named. China is now back through its state banks buying now back through its state banks buying now back through its state banks buying a lot of foreign currency in the market. a lot of foreign currency in the market. a lot of foreign currency in the market. 50 billion a month, 600 billion a year. 50 billion a month, 600 billion a year. 50 billion a month, 600 billion a year. So there's a much clearer case that So there's a much clearer case that So there's a much clearer case that China is manipulating now than there was China is manipulating now than there was China is manipulating now than there was in the past. Trump hasn't taken interest in the past. Trump hasn't taken interest in the past. Trump hasn't taken interest in this. The Europeans though have and in this. The Europeans though have and in this. The Europeans though have and so I think the what you're seeing is so I think the what you're seeing is so I think the what you're seeing is this become shifting from being an this become shifting from being an this become shifting from being an American debate to being a global American debate to being a global American debate to being a global debate. debate. debate. When we were preparing for this When we were preparing for this When we were preparing for this conversation, something I found myself conversation, something I found myself conversation, something I found myself thinking about a lot was the question of thinking about a lot was the question of thinking about a lot was the question of whether or not it matters if the whether or not it matters if the whether or not it matters if the competition is fair. Mhm. competition is fair. Mhm. competition is fair. Mhm. >> I'd say for a long time the narrative >> I'd say for a long time the narrative >> I'd say for a long time the narrative that at least we were comfortable with that at least we were comfortable with that at least we were comfortable with in this was a very procedural narrative in this was a very procedural narrative in this was a very procedural narrative about China betraying the principles of about China betraying the principles of about China betraying the principles of free trade. They are a currency free trade. They are a currency free trade. They are a currency manipulator who is keeping their manipulator who is keeping their manipulator who is keeping their currency artificially cheap in order to currency artificially cheap in order to currency artificially cheap in order to make their exports cheaper or you know make their exports cheaper or you know make their exports cheaper or you know they're doing all these industrial they're doing all these industrial they're doing all these industrial subsidies and are you really supposed to subsidies and are you really supposed to subsidies and are you really supposed to do those under the World Trade do those under the World Trade do those under the World Trade Organization?

Organization? Organization? And it's a very sort of liberals who And it's a very sort of liberals who And it's a very sort of liberals who believe in the system believe in the system believe in the system >> way of thinking about the problem that >> way of thinking about the problem that >> way of thinking about the problem that the problem is China's cheating. the problem is China's cheating. the problem is China's cheating. And I'm not saying cheating can't be a And I'm not saying cheating can't be a And I'm not saying cheating can't be a problem, but there's clearly quite a few problem, but there's clearly quite a few problem, but there's clearly quite a few places now where China is just winning places now where China is just winning places now where China is just winning or they've gotten to a place where they or they've gotten to a place where they or they've gotten to a place where they can win. And so I guess my question is, can win. And so I guess my question is, can win. And so I guess my question is, is the problem that some of China's is the problem that some of China's is the problem that some of China's advantages are unfair? Right? They're advantages are unfair? Right? They're advantages are unfair? Right? They're back to currency manipulation. and their back to currency manipulation. and their back to currency manipulation. and their currency seems artificially cheap or is currency seems artificially cheap or is currency seems artificially cheap or is just the problem that from a national just the problem that from a national just the problem that from a national interest perspective, from an interest perspective, from an interest perspective, from an interdependence and weaponization interdependence and weaponization interdependence and weaponization perspective that you know Germany, perspective that you know Germany, perspective that you know Germany, Europe, the United States, Europe, the United States, Europe, the United States, it would be a mistake to just allow it would be a mistake to just allow it would be a mistake to just allow their industries to get wiped out. That their industries to get wiped out. That their industries to get wiped out. That the question here is not an abstract the question here is not an abstract the question here is not an abstract commitment to free trade. It is what commitment to free trade. It is what commitment to free trade. It is what creates a kind of healthy national creates a kind of healthy national creates a kind of healthy national ecosystem. ecosystem. ecosystem. Look, I increasingly Look, I increasingly Look, I increasingly lean towards lean towards lean towards the look, we just want these kinds of the look, we just want these kinds of the look, we just want these kinds of industries. We don't want full-on industries. We don't want full-on industries. We don't want full-on dependence. Uh we don't have to rely on dependence. Uh we don't have to rely on dependence. Uh we don't have to rely on arguments about procedural violation of arguments about procedural violation of arguments about procedural violation of rules, which feel a bit dated in a world rules, which feel a bit dated in a world rules, which feel a bit dated in a world where we ourselves are clearly not where we ourselves are clearly not where we ourselves are clearly not following the most basic of the rules.

following the most basic of the rules. following the most basic of the rules. And you know, the rules have a lot of And you know, the rules have a lot of And you know, the rules have a lot of complexity. You're allowed to subsidize complexity. You're allowed to subsidize complexity. You're allowed to subsidize under the rules. You're not supposed to under the rules. You're not supposed to under the rules. You're not supposed to subsidize if it's to substitute for subsidize if it's to substitute for subsidize if it's to substitute for imports. Well, if you subsidize a sector imports. Well, if you subsidize a sector imports. Well, if you subsidize a sector and everything in that sector previously and everything in that sector previously and everything in that sector previously was imported, are you import was imported, are you import was imported, are you import substituting or you just subsidizing substituting or you just subsidizing substituting or you just subsidizing that sector? Is a government guided fund that sector? Is a government guided fund that sector? Is a government guided fund that puts money into private equity that puts money into private equity that puts money into private equity funds and venture funds to invest in funds and venture funds to invest in funds and venture funds to invest in chip manufacturing, is that a subsidy? chip manufacturing, is that a subsidy? chip manufacturing, is that a subsidy? Yes and no. It may not be a subsidy Yes and no. It may not be a subsidy Yes and no. It may not be a subsidy under the rule. So the rules themselves under the rule. So the rules themselves under the rule. So the rules themselves are contested and not uniformly are contested and not uniformly are contested and not uniformly followed. And to some degree followed. And to some degree followed. And to some degree in certain sectors, I think we care much in certain sectors, I think we care much in certain sectors, I think we care much more about outcomes than about the more about outcomes than about the more about outcomes than about the rules. That's obvious in sectors uh of rules. That's obvious in sectors uh of rules. That's obvious in sectors uh of national security national security national security uh importance. So a lot of the rarer uh importance. So a lot of the rarer uh importance. So a lot of the rarer famous sector [snorts] uh have very very famous sector [snorts] uh have very very famous sector [snorts] uh have very very direct and important military direct and important military direct and important military applications. we should probably not applications. we should probably not applications. we should probably not even if China played completely fairly even if China played completely fairly even if China played completely fairly want to want to be 100% dependent on want to want to be 100% dependent on want to want to be 100% dependent on China uh for the supplies of those uh China uh for the supplies of those uh China uh for the supplies of those uh key materials and then you kind of have key materials and then you kind of have key materials and then you kind of have to work further from that where does the to work further from that where does the to work further from that where does the line come about what do you care about line come about what do you care about line come about what do you care about where do you just care about the outcome where do you just care about the outcome where do you just care about the outcome and where are you going to rely more on and where are you going to rely more on and where are you going to rely more on arguments around procedural fairness arguments around procedural fairness arguments around procedural fairness uh and then I think on the flip side.

uh and then I think on the flip side. uh and then I think on the flip side. China itself clearly cared about the China itself clearly cared about the China itself clearly cared about the outcome, not the procedural fairness. outcome, not the procedural fairness. outcome, not the procedural fairness. What would you say the Trump What would you say the Trump What would you say the Trump administration across its two terms, and administration across its two terms, and administration across its two terms, and I realize they've been different in I realize they've been different in I realize they've been different in important ways, has gotten right about important ways, has gotten right about important ways, has gotten right about China? I mean, if Trump has been China? I mean, if Trump has been China? I mean, if Trump has been disruptive on how America has thought disruptive on how America has thought disruptive on how America has thought about anything, it has been China. about anything, it has been China. about anything, it has been China. >> And what you think they've gotten wrong >> And what you think they've gotten wrong >> And what you think they've gotten wrong in their either China orientation or in their either China orientation or in their either China orientation or their China policy? their China policy? their China policy? There is something a little strange There is something a little strange There is something a little strange about Trump's first term. Um about Trump's first term. Um about Trump's first term. Um because the first term because the first term because the first term 2017 2018 2017 2018 2017 2018 it's like the US political system it's like the US political system it's like the US political system reacted to the China shock 5 to 10 years reacted to the China shock 5 to 10 years reacted to the China shock 5 to 10 years after the first China shock happened. after the first China shock happened. after the first China shock happened. So the timing was maybe strange but a a So the timing was maybe strange but a a So the timing was maybe strange but a a lot of the policy direction I would lot of the policy direction I would lot of the policy direction I would agree was more or less right. Um I think agree was more or less right. Um I think agree was more or less right. Um I think it was right to broadly say that the WTO it was right to broadly say that the WTO it was right to broadly say that the WTO rules which were thought to be rules which were thought to be rules which were thought to be constraining China have become a constraining China have become a constraining China have become a constraint on ourselves. China was constraint on ourselves. China was constraint on ourselves. China was really good at finding ways of achieving really good at finding ways of achieving really good at finding ways of achieving outcomes outcomes outcomes by living on the edge of the rules.

by living on the edge of the rules. by living on the edge of the rules. I think the targeted I think the targeted I think the targeted first wave of tariffs were actually sort first wave of tariffs were actually sort first wave of tariffs were actually sort of in sectors where it was reasonable of in sectors where it was reasonable of in sectors where it was reasonable generally speaking to have tariffs generally speaking to have tariffs generally speaking to have tariffs >> and you're talking here in the first >> and you're talking here in the first >> and you're talking here in the first term. term. term. >> First term. Yeah. So like >> First term. Yeah. So like >> First term. Yeah. So like >> in the first term the tariffs were >> in the first term the tariffs were >> in the first term the tariffs were basically on China. In the second term, basically on China. In the second term, basically on China. In the second term, the tariffs are basically on everyone. the tariffs are basically on everyone. the tariffs are basically on everyone. And I am much more comfortable with And I am much more comfortable with And I am much more comfortable with putting tariffs on China, particularly putting tariffs on China, particularly putting tariffs on China, particularly now because, you know, China's economy now because, you know, China's economy now because, you know, China's economy has shifted dramatically and become much has shifted dramatically and become much has shifted dramatically and become much more export-oriented, much more of a more export-oriented, much more of a more export-oriented, much more of a competitive threat now than it was then. competitive threat now than it was then. competitive threat now than it was then. So, I think I think Trump one got that So, I think I think Trump one got that So, I think I think Trump one got that bit right. like Bob Lighheiser, the bit right. like Bob Lighheiser, the bit right. like Bob Lighheiser, the United States trade representative under United States trade representative under United States trade representative under in Trump's first term was sort of the in Trump's first term was sort of the in Trump's first term was sort of the first step of moving us from the like first step of moving us from the like first step of moving us from the like WTO consensus to a world of reciprocal WTO consensus to a world of reciprocal WTO consensus to a world of reciprocal interdependence, supply chain interdependence, supply chain interdependence, supply chain vulnerability, supply chain warfare, vulnerability, supply chain warfare, vulnerability, supply chain warfare, concerns about retal like a world where concerns about retal like a world where concerns about retal like a world where everything is using a more militarized everything is using a more militarized everything is using a more militarized vocabulary even around economic vocabulary even around economic vocabulary even around economic exchange.

exchange. exchange. Trump won was still pretty unilateral. Trump won was still pretty unilateral. Trump won was still pretty unilateral. Uh there's a famous uh story I think in Uh there's a famous uh story I think in Uh there's a famous uh story I think in another newspaper another newspaper another newspaper uh where you know uh President Mackel uh where you know uh President Mackel uh where you know uh President Mackel asked like well maybe we should asked like well maybe we should asked like well maybe we should negotiate something together. when negotiate something together. when negotiate something together. when they're negotiating phase one the the they're negotiating phase one the the they're negotiating phase one the the deal and President Trump was like no no deal and President Trump was like no no deal and President Trump was like no no no no the we've done the tariffs all the no no the we've done the tariffs all the no no the we've done the tariffs all the benefits should go to us this has to benefits should go to us this has to benefits should go to us this has to flow to us and so there was an element flow to us and so there was an element flow to us and so there was an element in the first term of of unilateralism in the first term of of unilateralism in the first term of of unilateralism which obviously becomes unilateralism on which obviously becomes unilateralism on which obviously becomes unilateralism on steroids over time so maybe before then steroids over time so maybe before then steroids over time so maybe before then we get to Trump too it's worth talking we get to Trump too it's worth talking we get to Trump too it's worth talking about Biden about Biden about Biden >> because you know there's a lot of >> because you know there's a lot of >> because you know there's a lot of Democratic criticism of the way Trump Democratic criticism of the way Trump Democratic criticism of the way Trump talks about China to some degree of talks about China to some degree of talks about China to some degree of Trump's tariffs on China. But the Biden Trump's tariffs on China. But the Biden Trump's tariffs on China. But the Biden team comes in, they largely keep the team comes in, they largely keep the team comes in, they largely keep the tariffs, in some cases, expand them into tariffs, in some cases, expand them into tariffs, in some cases, expand them into new areas. They begin doing more to new areas. They begin doing more to new areas. They begin doing more to limit the export of what they consider limit the export of what they consider limit the export of what they consider to be strategically important to be strategically important to be strategically important technologies like advanced chips to technologies like advanced chips to technologies like advanced chips to China. Um they put on higher tariffs on China. Um they put on higher tariffs on China. Um they put on higher tariffs on on EVs and they do a lot of industrial on EVs and they do a lot of industrial on EVs and they do a lot of industrial policy that actually looks sort of like policy that actually looks sort of like policy that actually looks sort of like the way you're describing Chinese the way you're describing Chinese the way you're describing Chinese industrial policy. So the inflation industrial policy. So the inflation industrial policy. So the inflation reduction act is trying to build a reduction act is trying to build a reduction act is trying to build a domestic, you know, supply chain for domestic, you know, supply chain for domestic, you know, supply chain for things like solar panels and wind things like solar panels and wind things like solar panels and wind turbines. And now they're more okay with turbines. And now they're more okay with turbines. And now they're more okay with it being, you know, in friendly it being, you know, in friendly it being, you know, in friendly countries, too. But there's a lot of countries, too. But there's a lot of countries, too. But there's a lot of bi-American bi-American bi-American uh standards on all this and they begin

uh standards on all this and they begin uh standards on all this and they begin talking a lot in terms of strategic talking a lot in terms of strategic talking a lot in terms of strategic technological competition. Uh AI is a technological competition. Uh AI is a technological competition. Uh AI is a big thing for them in the AI competition big thing for them in the AI competition big thing for them in the AI competition with China. How do you think about the with China. How do you think about the with China. How do you think about the way the Biden administration way the Biden administration way the Biden administration approached this and both kind of tweaked approached this and both kind of tweaked approached this and both kind of tweaked but didn't upend like the Trump one but didn't upend like the Trump one but didn't upend like the Trump one approach? approach? approach? It probably in my view at least didn't It probably in my view at least didn't It probably in my view at least didn't go far enough. Um [snorts] go far enough. Um [snorts] go far enough. Um [snorts] it wasn't just clean energy although it wasn't just clean energy although it wasn't just clean energy although that was certainly a big focus. It also that was certainly a big focus. It also that was certainly a big focus. It also included semiconductors included semiconductors included semiconductors >> and in semiconductors at the time the >> and in semiconductors at the time the >> and in semiconductors at the time the concern was dependence on Taiwan which concern was dependence on Taiwan which concern was dependence on Taiwan which was vulnerable to pressure from China. was vulnerable to pressure from China. was vulnerable to pressure from China. Certainly vulnerable you know put the US Certainly vulnerable you know put the US Certainly vulnerable you know put the US in a difficult position if China were in a difficult position if China were in a difficult position if China were ever to put an embargo or attack Taiwan. ever to put an embargo or attack Taiwan. ever to put an embargo or attack Taiwan. And at a certain point, the US just made And at a certain point, the US just made And at a certain point, the US just made a decision uh that we did not want China a decision uh that we did not want China a decision uh that we did not want China to have access to the world's best. to have access to the world's best. to have access to the world's best. Certainly not the ability to make the Certainly not the ability to make the Certainly not the ability to make the world's best chips. Too many risk world's best chips. Too many risk world's best chips. Too many risk associated with that. I think that was associated with that. I think that was associated with that. I think that was the right decision, but it unambiguously the right decision, but it unambiguously the right decision, but it unambiguously was viewed by China as a directly was viewed by China as a directly was viewed by China as a directly hostile act. And I think we if someone hostile act. And I think we if someone hostile act. And I think we if someone had done that to us, we would have had done that to us, we would have had done that to us, we would have viewed it as a directly hostile act. So viewed it as a directly hostile act. So viewed it as a directly hostile act. So it put us into a world unambiguous world it put us into a world unambiguous world it put us into a world unambiguous world of rivalry and competition and in a of rivalry and competition and in a of rivalry and competition and in a position where we don't there is no way position where we don't there is no way position where we don't there is no way China is not going to try to engineer us China is not going to try to engineer us China is not going to try to engineer us out of their chip supply chains. That's out of their chip supply chains. That's out of their chip supply chains. That's become a national priority and so we are

become a national priority and so we are become a national priority and so we are and we are trying to reduce our and we are trying to reduce our and we are trying to reduce our vulnerabilities to Chinese economic vulnerabilities to Chinese economic vulnerabilities to Chinese economic coercion at the same time. Uh but it coercion at the same time. Uh but it coercion at the same time. Uh but it didn't really go far enough in didn't really go far enough in didn't really go far enough in uh critical minerals rarers. I mean uh critical minerals rarers. I mean uh critical minerals rarers. I mean there was plenty of talk about it but there was plenty of talk about it but there was plenty of talk about it but there wasn't enough action not enough on there wasn't enough action not enough on there wasn't enough action not enough on um active pharmaceutical ingredients um active pharmaceutical ingredients um active pharmaceutical ingredients where either the medicine or the key where either the medicine or the key where either the medicine or the key chemical precursors are almost 100% chemical precursors are almost 100% chemical precursors are almost 100% sourced from China. So I think you know sourced from China. So I think you know sourced from China. So I think you know it was a step in a necessary direction. it was a step in a necessary direction. it was a step in a necessary direction. It was controversial because industrial It was controversial because industrial It was controversial because industrial strategy industrial policy you know for strategy industrial policy you know for strategy industrial policy you know for a long time the thought was that was a long time the thought was that was a long time the thought was that was something other countries did. wasn't something other countries did. wasn't something other countries did. wasn't something that America did and it wasn't something that America did and it wasn't something that America did and it wasn't something we're necessarily very good something we're necessarily very good something we're necessarily very good at. And in some cases at. And in some cases at. And in some cases like uh rare earths and the magnets like like uh rare earths and the magnets like like uh rare earths and the magnets like active ingredients, it means finding active ingredients, it means finding active ingredients, it means finding ways to incentivize production in ways to incentivize production in ways to incentivize production in sectors where you know you can't compete sectors where you know you can't compete sectors where you know you can't compete with China on cost.

with China on cost. with China on cost. >> So that then brings us to Trump too. >> So that then brings us to Trump too. >> So that then brings us to Trump too. >> Mhm. And so how would you rate what they >> Mhm. And so how would you rate what they >> Mhm. And so how would you rate what they have done and where it has hit the right have done and where it has hit the right have done and where it has hit the right balance and where it's been off? balance and where it's been off? balance and where it's been off? Um so in general uh I have uh noted on Um so in general uh I have uh noted on Um so in general uh I have uh noted on many times that I like Bob Lighheiser's many times that I like Bob Lighheiser's many times that I like Bob Lighheiser's trade policy i.e. Trump's first term trade policy i.e. Trump's first term trade policy i.e. Trump's first term better than I like Donald Trump's trade better than I like Donald Trump's trade better than I like Donald Trump's trade policy i.e. Trump's second term. policy i.e. Trump's second term. policy i.e. Trump's second term. Lighheiser was careful to only threaten Lighheiser was careful to only threaten Lighheiser was careful to only threaten things that the US economy could things that the US economy could things that the US economy could sustain. So, you know, the tariff level sustain. So, you know, the tariff level sustain. So, you know, the tariff level was set at 25%. Which, yeah, people was set at 25%. Which, yeah, people was set at 25%. Which, yeah, people didn't like paying it, but you could didn't like paying it, but you could didn't like paying it, but you could afford to pay it. He didn't cover all of afford to pay it. He didn't cover all of afford to pay it. He didn't cover all of trade. So, there was always a little trade. So, there was always a little trade. So, there was always a little more trade you could bring into that more trade you could bring into that more trade you could bring into that tariff. Trump had a theory of the case tariff. Trump had a theory of the case tariff. Trump had a theory of the case in his second term, which worked for in his second term, which worked for in his second term, which worked for most of the world, but didn't work for most of the world, but didn't work for most of the world, but didn't work for China. And the theory of the case is, China. And the theory of the case is, China. And the theory of the case is, well, trade's rigged against us. We need well, trade's rigged against us. We need well, trade's rigged against us. We need to raise our tariffs, and you need to to raise our tariffs, and you need to to raise our tariffs, and you need to lower your tariffs, lower your barriers lower your tariffs, lower your barriers lower your tariffs, lower your barriers to US exports to put trade on a more to US exports to put trade on a more to US exports to put trade on a more fair footing. You shouldn't, in other fair footing. You shouldn't, in other fair footing. You shouldn't, in other words, retaliate for our tariffs. China words, retaliate for our tariffs. China words, retaliate for our tariffs. China retaliated. China said, "This is retaliated. China said, "This is retaliated. China said, "This is coercive." Plus, China knew they were coercive." Plus, China knew they were coercive." Plus, China knew they were going to be in the crosshairs. You know, going to be in the crosshairs. You know, going to be in the crosshairs. You know, she did a good job of getting ready.

she did a good job of getting ready. she did a good job of getting ready. He'd spent four years plotting this out. He'd spent four years plotting this out. He'd spent four years plotting this out. So, China retaliates. We counter So, China retaliates. We counter So, China retaliates. We counter retaliate. China retaliates some more. retaliate. China retaliates some more. retaliate. China retaliates some more. we retaliate again and we push tariffs we retaliate again and we push tariffs we retaliate again and we push tariffs up to 145%. up to 145%. up to 145%. You might think that gives us more You might think that gives us more You might think that gives us more leverage. We've completely cut off leverage. We've completely cut off leverage. We've completely cut off trade. It turned out to be the opposite. trade. It turned out to be the opposite. trade. It turned out to be the opposite. Our economy couldn't sustain 145% Our economy couldn't sustain 145% Our economy couldn't sustain 145% tariffs on pretty much everything coming tariffs on pretty much everything coming tariffs on pretty much everything coming from China. So the administration was in from China. So the administration was in from China. So the administration was in a position where they needed to a position where they needed to a position where they needed to negotiate a roll back in the tariffs. negotiate a roll back in the tariffs. negotiate a roll back in the tariffs. You know, there's a rare earth component You know, there's a rare earth component You know, there's a rare earth component as well. But I as well. But I as well. But I >> China where China was holding back rare >> China where China was holding back rare >> China where China was holding back rare earths which would our earths which would our earths which would our manufacturing. manufacturing. manufacturing. >> Yeah. So that was real. >> Yeah. So that was real. >> Yeah. So that was real. >> Mhm. >> Mhm. >> Mhm. >> But it's I think even if China had not >> But it's I think even if China had not >> But it's I think even if China had not done that, even without the supply chain done that, even without the supply chain done that, even without the supply chain restrictions, the administration knew it restrictions, the administration knew it restrictions, the administration knew it needed to roll back the 145% tariffs. needed to roll back the 145% tariffs. needed to roll back the 145% tariffs. You know, the the the example that uh I You know, the the the example that uh I You know, the the the example that uh I like to give is that in the summer of like to give is that in the summer of like to give is that in the summer of Trump's first year with 100ish plus Trump's first year with 100ish plus Trump's first year with 100ish plus tariffs, all the retailers who import tariffs, all the retailers who import tariffs, all the retailers who import artificial Christmas trees, which like artificial Christmas trees, which like artificial Christmas trees, which like all come from China. Think Christmas all come from China. Think Christmas all come from China. Think Christmas tree ornaments. think holidays. Well, tree ornaments. think holidays. Well, tree ornaments. think holidays. Well, those are are things that are actually those are are things that are actually those are are things that are actually typically imported during the summer.

typically imported during the summer. typically imported during the summer. Now, if you're paying 150% tariff, Now, if you're paying 150% tariff, Now, if you're paying 150% tariff, you're going to have to triple whatever you're going to have to triple whatever you're going to have to triple whatever your retail price or, you know, your retail price or, you know, your retail price or, you know, something crazy. And the Christmas tree something crazy. And the Christmas tree something crazy. And the Christmas tree importers weren't sure because they're importers weren't sure because they're importers weren't sure because they're building up inventory ahead of a future building up inventory ahead of a future building up inventory ahead of a future sale that American consumers would be sale that American consumers would be sale that American consumers would be willing to pay that high a price. So, willing to pay that high a price. So, willing to pay that high a price. So, they just stopped importing. they just stopped importing. they just stopped importing. And you know when there's a hole and And you know when there's a hole and And you know when there's a hole and there are other places where companies there are other places where companies there are other places where companies were having to pay that price for a part were having to pay that price for a part were having to pay that price for a part and that would render their ability to and that would render their ability to and that would render their ability to export utterly uncompetitive. So it was export utterly uncompetitive. So it was export utterly uncompetitive. So it was just it was too broad, too high, too just it was too broad, too high, too just it was too broad, too high, too fast. It was disrupting the US economy. fast. It was disrupting the US economy. fast. It was disrupting the US economy. That was a mistake. And I think That was a mistake. And I think That was a mistake. And I think Lighheiser in his first term got it uh Lighheiser in his first term got it uh Lighheiser in his first term got it uh closer to right. Don't don't don't ever closer to right. Don't don't don't ever closer to right. Don't don't don't ever escalate to the point where you're put escalate to the point where you're put escalate to the point where you're put on tariffs that you aren't willing to on tariffs that you aren't willing to on tariffs that you aren't willing to maintain. maintain. maintain. the other side will realize that you the other side will realize that you the other side will realize that you would are looking for a face- saving way would are looking for a face- saving way would are looking for a face- saving way to pull things back. That was I would to pull things back. That was I would to pull things back. That was I would say mistake uh one. Mistake two was the say mistake uh one. Mistake two was the say mistake uh one. Mistake two was the breadth of the tariffs.

breadth of the tariffs. breadth of the tariffs. not targeted not targeted not targeted reasonably by countries. Just everyone reasonably by countries. Just everyone reasonably by countries. Just everyone got hit with the liberation day tariffs got hit with the liberation day tariffs got hit with the liberation day tariffs in some cases very very very high in some cases very very very high in some cases very very very high tariffs tariffs tariffs that alienated a bunch of countries that that alienated a bunch of countries that that alienated a bunch of countries that themselves were worried about trade with themselves were worried about trade with themselves were worried about trade with China. So it kind of took away the China. So it kind of took away the China. So it kind of took away the possibility of building a broader possibility of building a broader possibility of building a broader coalition against China. So that's first coalition against China. So that's first coalition against China. So that's first problem with these very very broad problem with these very very broad problem with these very very broad tariffs. Second problem with the very tariffs. Second problem with the very tariffs. Second problem with the very very broad tariffs was that they ended very broad tariffs was that they ended very broad tariffs was that they ended up being done in kind of irrational to up being done in kind of irrational to up being done in kind of irrational to my mind ways. We were tariffing at my mind ways. We were tariffing at my mind ways. We were tariffing at really high levels Canadian aluminum. really high levels Canadian aluminum. really high levels Canadian aluminum. All right. Canadian aluminum is, you All right. Canadian aluminum is, you All right. Canadian aluminum is, you know, not that this administration know, not that this administration know, not that this administration cares, but it's made in a kind of cares, but it's made in a kind of cares, but it's made in a kind of greenway. H trapped hydro power in greenway. H trapped hydro power in greenway. H trapped hydro power in Quebec. Quebec. Quebec. It has been part of our aluminum It has been part of our aluminum It has been part of our aluminum industry since World War II. You know industry since World War II. You know industry since World War II. You know when the bombers were built with when the bombers were built with when the bombers were built with Canadian aluminum, there is no national Canadian aluminum, there is no national Canadian aluminum, there is no national security threat. It is essential to our security threat. It is essential to our security threat. It is essential to our market. There's the primary aluminum market. There's the primary aluminum market. There's the primary aluminum market doesn't clear in the US without market doesn't clear in the US without market doesn't clear in the US without Canadian imports, which meant that just Canadian imports, which meant that just Canadian imports, which meant that just prices shot up. And then the final prices shot up. And then the final prices shot up. And then the final problem was like, hey, aluminum is problem was like, hey, aluminum is problem was like, hey, aluminum is electricity distilled, incredibly uh electricity distilled, incredibly uh electricity distilled, incredibly uh energy intensive and electricity energy intensive and electricity energy intensive and electricity intensive. So it is competing with data intensive. So it is competing with data intensive. So it is competing with data centers uh for power. And so even with centers uh for power. And so even with centers uh for power. And so even with the really high tariffs, we weren't the really high tariffs, we weren't the really high tariffs, we weren't investing more in new aluminum. So it investing more in new aluminum. So it investing more in new aluminum. So it was pure self harm fully on board with was pure self harm fully on board with was pure self harm fully on board with limiting imports of aluminum from China,

limiting imports of aluminum from China, limiting imports of aluminum from China, having a more self-contained North having a more self-contained North having a more self-contained North American market. But this was kind of American market. But this was kind of American market. But this was kind of silly. The getting into a trade war with silly. The getting into a trade war with silly. The getting into a trade war with Brazil when Brazil is one of the few Brazil when Brazil is one of the few Brazil when Brazil is one of the few countries where we have a trade surplus countries where we have a trade surplus countries where we have a trade surplus didn't make sense in Trump's own terms. didn't make sense in Trump's own terms. didn't make sense in Trump's own terms. And then we ended up weirdly because you And then we ended up weirdly because you And then we ended up weirdly because you know electronics got excluded, chips got know electronics got excluded, chips got know electronics got excluded, chips got excluded because you know you can't excluded because you know you can't excluded because you know you can't penalize data center constructions right penalize data center constructions right penalize data center constructions right or wrong. The richest companies or wrong. The richest companies or wrong. The richest companies basically found ways out. So the highest basically found ways out. So the highest basically found ways out. So the highest tariffs at the end of the day were on tariffs at the end of the day were on tariffs at the end of the day were on low-end household goods coming from low-end household goods coming from low-end household goods coming from Southeast Asia. So it became sort of Southeast Asia. So it became sort of Southeast Asia. So it became sort of more of a Walmart tariff and not a more of a Walmart tariff and not a more of a Walmart tariff and not a strategic tariff. strategic tariff. strategic tariff. I think all these were just kind of I think all these were just kind of I think all these were just kind of mistakes of design. We ended up with a mistakes of design. We ended up with a mistakes of design. We ended up with a tariff policy that wasn't in the second tariff policy that wasn't in the second tariff policy that wasn't in the second year of the second term not at all year of the second term not at all year of the second term not at all focused on China. China basically they focused on China. China basically they focused on China. China basically they got the same deal as everyone else which got the same deal as everyone else which got the same deal as everyone else which was a huge win for them. Most important was a huge win for them. Most important was a huge win for them. Most important development is China showed it can punch development is China showed it can punch development is China showed it can punch back. Yeah. People worried for years back. Yeah. People worried for years back. Yeah. People worried for years about them unwinding purchases of US about them unwinding purchases of US about them unwinding purchases of US treasuries. They didn't do that. I mean treasuries. They didn't do that. I mean treasuries. They didn't do that. I mean the sense that if this escalated they the sense that if this escalated they the sense that if this escalated they had more dependencies that they could had more dependencies that they could had more dependencies that they could weaponize I think has been very salient.

weaponize I think has been very salient. weaponize I think has been very salient. There are multiple There are multiple There are multiple places where China has leverage. places where China has leverage. places where China has leverage. Ironically, the Treasury market turned Ironically, the Treasury market turned Ironically, the Treasury market turned out not to be one of them. It's not just out not to be one of them. It's not just out not to be one of them. It's not just that they didn't threaten it. It's it's that they didn't threaten it. It's it's that they didn't threaten it. It's it's been one of the harder places to been one of the harder places to been one of the harder places to weaponize partially because China isn't weaponize partially because China isn't weaponize partially because China isn't buying. I mean, some people think buying. I mean, some people think buying. I mean, some people think they're selling. That's not true. They they're selling. That's not true. They they're selling. That's not true. They just have moved to other custodians. just have moved to other custodians. just have moved to other custodians. Gets real technical. Uh but at the end Gets real technical. Uh but at the end Gets real technical. Uh but at the end of the day, we actually have a counter. of the day, we actually have a counter. of the day, we actually have a counter. If China sells treasuries, the Fed can If China sells treasuries, the Fed can If China sells treasuries, the Fed can always buy more treasuries QE than China always buy more treasuries QE than China always buy more treasuries QE than China can sell. We showed that in 2020. We can sell. We showed that in 2020. We can sell. We showed that in 2020. We actually showed that in ' 08 and09 when actually showed that in ' 08 and09 when actually showed that in ' 08 and09 when the China was selling agencies, Freddy the China was selling agencies, Freddy the China was selling agencies, Freddy Franny mortgage back securities and the Franny mortgage back securities and the Franny mortgage back securities and the Fed started buying them. It's not maybe Fed started buying them. It's not maybe Fed started buying them. It's not maybe ideal, but we have an alternative for ideal, but we have an alternative for ideal, but we have an alternative for the rare earth magnets that go into the rare earth magnets that go into the rare earth magnets that go into weapon systems. Unless we have weapon systems. Unless we have weapon systems. Unless we have stockpiles, stockpiles, stockpiles, we don't have alternatives. So, it's we don't have alternatives. So, it's we don't have alternatives. So, it's actually a more potent form of leverage. actually a more potent form of leverage. actually a more potent form of leverage. >> One of the charts as I was preparing for >> One of the charts as I was preparing for >> One of the charts as I was preparing for this that struck me is that if you look this that struck me is that if you look this that struck me is that if you look at America's trade deficit, the world at America's trade deficit, the world at America's trade deficit, the world doesn't look that different than at the doesn't look that different than at the doesn't look that different than at the beginning of Trump's term.

beginning of Trump's term. beginning of Trump's term. >> Mhm. >> Mhm. >> Mhm. >> So, in terms of what we've been trying >> So, in terms of what we've been trying >> So, in terms of what we've been trying to achieve with our various trade wars, to achieve with our various trade wars, to achieve with our various trade wars, our trade policies, our trade policies, our trade policies, have we achieved anything? I mean, in have we achieved anything? I mean, in have we achieved anything? I mean, in Trump's own sort of conception of the Trump's own sort of conception of the Trump's own sort of conception of the world, manufacturing, trade imbalances, world, manufacturing, trade imbalances, world, manufacturing, trade imbalances, is there progress that they can point is there progress that they can point is there progress that they can point to? to? to? >> Um, not much. [snorts] >> Um, not much. [snorts] >> Um, not much. [snorts] We haven't grown our exports to China We haven't grown our exports to China We haven't grown our exports to China with the deals. Our exports are actually with the deals. Our exports are actually with the deals. Our exports are actually down relative to where they were. down relative to where they were. down relative to where they were. Certainly down as a share of US GDP from Certainly down as a share of US GDP from Certainly down as a share of US GDP from before the trade war. We have not before the trade war. We have not before the trade war. We have not stopped Chinese industrial policy. We stopped Chinese industrial policy. We stopped Chinese industrial policy. We have not generated a structural change have not generated a structural change have not generated a structural change in China's economy. We haven't changed in China's economy. We haven't changed in China's economy. We haven't changed the fact that China has, you know, the fact that China has, you know, the fact that China has, you know, agricultural hostages that it takes agricultural hostages that it takes agricultural hostages that it takes whenever we threaten. You know, you want whenever we threaten. You know, you want whenever we threaten. You know, you want to sell soybeans to us, you want to sell to sell soybeans to us, you want to sell to sell soybeans to us, you want to sell beef to us, you got to be, you know, not beef to us, you got to be, you know, not beef to us, you got to be, you know, not tariff us. We we have leverage over you. tariff us. We we have leverage over you. tariff us. We we have leverage over you. We haven't changed that. Uh and we We haven't changed that. Uh and we We haven't changed that. Uh and we haven't changed China's broad haven't changed China's broad haven't changed China's broad trajectory. China is a bigger exporter trajectory. China is a bigger exporter trajectory. China is a bigger exporter globally, runs a bigger global trade, globally, runs a bigger global trade, globally, runs a bigger global trade, not not just by small amounts, by not not just by small amounts, by not not just by small amounts, by enormous amounts.

enormous amounts. enormous amounts. uh a more unbalanced economy now than it uh a more unbalanced economy now than it uh a more unbalanced economy now than it was when the trade war got started. We was when the trade war got started. We was when the trade war got started. We haven't changed our trade deficit in haven't changed our trade deficit in haven't changed our trade deficit in aggregate. Uh we have shifted final aggregate. Uh we have shifted final aggregate. Uh we have shifted final assembly for the US market away from assembly for the US market away from assembly for the US market away from China to Vietnam to Taiwan to Mexico but China to Vietnam to Taiwan to Mexico but China to Vietnam to Taiwan to Mexico but the components are still coming from the components are still coming from the components are still coming from China. Uh so I think you know the main China. Uh so I think you know the main China. Uh so I think you know the main thing you can say that Trump's second thing you can say that Trump's second thing you can say that Trump's second term trade policy you know unambiguously term trade policy you know unambiguously term trade policy you know unambiguously has achieved is it's alienated a lot of has achieved is it's alienated a lot of has achieved is it's alienated a lot of allies because it's not at all been allies because it's not at all been allies because it's not at all been targeted. Uh [snorts] targeted. Uh [snorts] targeted. Uh [snorts] it alienated the courts uh because it alienated the courts uh because it alienated the courts uh because not a lot of thought was put into not a lot of thought was put into not a lot of thought was put into conforming to reasonable expectations of conforming to reasonable expectations of conforming to reasonable expectations of what the law allowed. Uh and it what the law allowed. Uh and it what the law allowed. Uh and it generated a bit of revenue. And there's generated a bit of revenue. And there's generated a bit of revenue. And there's an oddness to the first part about an oddness to the first part about an oddness to the first part about allies to me because given everything allies to me because given everything allies to me because given everything that we were talking about with the that we were talking about with the that we were talking about with the second China shock being very focused on second China shock being very focused on second China shock being very focused on Europe uh among others, you really could Europe uh among others, you really could Europe uh among others, you really could have imagined something that was more of have imagined something that was more of have imagined something that was more of a like a united set of goals between us a like a united set of goals between us a like a united set of goals between us and Europe.

and Europe. and Europe. >> Um we all want to protect our auto >> Um we all want to protect our auto >> Um we all want to protect our auto industries. We all don't want to be industries. We all don't want to be industries. We all don't want to be dependent on you know Chinese chips or dependent on you know Chinese chips or dependent on you know Chinese chips or China taking over Taiwan and then you China taking over Taiwan and then you China taking over Taiwan and then you know we have a huge chip problem. know we have a huge chip problem. know we have a huge chip problem. I guess a question is what what do you I guess a question is what what do you I guess a question is what what do you think our goals should be here right think our goals should be here right think our goals should be here right what do you think the set of outcomes we what do you think the set of outcomes we what do you think the set of outcomes we are trying to generate should be and can are trying to generate should be and can are trying to generate should be and can they be generated they be generated they be generated or is there an inevitability to all this or is there an inevitability to all this or is there an inevitability to all this given China's size given its given China's size given its given China's size given its manufacturing capacity people sometimes manufacturing capacity people sometimes manufacturing capacity people sometimes talk about where we're going as as talk about where we're going as as talk about where we're going as as having an almost a yeah an inevitability having an almost a yeah an inevitability having an almost a yeah an inevitability to it I'm curious if you buy that to it I'm curious if you buy that to it I'm curious if you buy that >> um I do not believe in the >> um I do not believe in the >> um I do not believe in the inevitability. inevitability. inevitability. Um but I do [clears throat] believe Um but I do [clears throat] believe Um but I do [clears throat] believe uh the changes to avoid uh the changes to avoid uh the changes to avoid growing [snorts] growing [snorts] growing [snorts] dependence on China for inputs of dependence on China for inputs of dependence on China for inputs of manufacturers and final goods are quite manufacturers and final goods are quite manufacturers and final goods are quite uh quite significant. uh quite significant. uh quite significant. Look uh I was I was part of the Biden Look uh I was I was part of the Biden Look uh I was I was part of the Biden administration at the beginning. I'm I'm administration at the beginning. I'm I'm administration at the beginning. I'm I'm implicated in some of those decisions.

implicated in some of those decisions. implicated in some of those decisions. And in the early days of the Biden And in the early days of the Biden And in the early days of the Biden administration, the overarching goal of administration, the overarching goal of administration, the overarching goal of the trade policy was to avoid a trade the trade policy was to avoid a trade the trade policy was to avoid a trade war with Europe, which was sort of where war with Europe, which was sort of where war with Europe, which was sort of where Trump was heading had he won re-election Trump was heading had he won re-election Trump was heading had he won re-election that year, and convince Europe that that year, and convince Europe that that year, and convince Europe that whatever our traditional sources of whatever our traditional sources of whatever our traditional sources of friction, we had a common interest in friction, we had a common interest in friction, we had a common interest in thinking through how to handle China and thinking through how to handle China and thinking through how to handle China and taking real action against China. you taking real action against China. you taking real action against China. you know, make, you know, bring our policies know, make, you know, bring our policies know, make, you know, bring our policies into harmony, but by bringing European into harmony, but by bringing European into harmony, but by bringing European tariffs closer to US tariffs, not by tariffs closer to US tariffs, not by tariffs closer to US tariffs, not by bringing US tariffs on China down. bringing US tariffs on China down. bringing US tariffs on China down. At the time, the Europeans were not At the time, the Europeans were not At the time, the Europeans were not interested. Europe said, "The problem is interested. Europe said, "The problem is interested. Europe said, "The problem is that you guys aren't following the WTO that you guys aren't following the WTO that you guys aren't following the WTO rules. The rules are important. You got rules. The rules are important. You got rules. The rules are important. You got to go back to the rules." to go back to the rules." to go back to the rules." >> Nothing Europe loves like a procedural >> Nothing Europe loves like a procedural >> Nothing Europe loves like a procedural argument. argument. argument. >> H people love procedural. We We actually >> H people love procedural. We We actually >> H people love procedural. We We actually love procedural arguments, too. But the love procedural arguments, too. But the love procedural arguments, too. But the Europeans loved the notion that they Europeans loved the notion that they Europeans loved the notion that they were the rule abiding, rule creating, were the rule abiding, rule creating, were the rule abiding, rule creating, order enforcing order enforcing order enforcing uh power in the system.

uh power in the system. uh power in the system. That has shifted and I think the Trump That has shifted and I think the Trump That has shifted and I think the Trump administration missed the shift. Didn't administration missed the shift. Didn't administration missed the shift. Didn't explore the possibility of shift nor was explore the possibility of shift nor was explore the possibility of shift nor was it interested because you know I think it interested because you know I think it interested because you know I think Trump came in and he said many times Trump came in and he said many times Trump came in and he said many times that Europe's almost as bad as China. that Europe's almost as bad as China. that Europe's almost as bad as China. Allies, not allies, not how he thinks of Allies, not allies, not how he thinks of Allies, not allies, not how he thinks of the world. She great leader. We should the world. She great leader. We should the world. She great leader. We should be doing deals with shei. Bunch of be doing deals with shei. Bunch of be doing deals with shei. Bunch of European leaders not great leaders. You European leaders not great leaders. You European leaders not great leaders. You know, they, you know, they they they've know, they, you know, they they they've know, they, you know, they they they've allowed themselves to have their hands allowed themselves to have their hands allowed themselves to have their hands tied by the European Union. Real leaders tied by the European Union. Real leaders tied by the European Union. Real leaders like she, like Trump, don't allow their like she, like Trump, don't allow their like she, like Trump, don't allow their hands to be tied by super national hands to be tied by super national hands to be tied by super national institutions. Just kind of disdain. And institutions. Just kind of disdain. And institutions. Just kind of disdain. And so he missed an opportunity to explore so he missed an opportunity to explore so he missed an opportunity to explore if Europe was willing to join the US in if Europe was willing to join the US in if Europe was willing to join the US in some kind of economic alliance. some kind of economic alliance. some kind of economic alliance. North America plus Europe and North North America plus Europe and North North America plus Europe and North Atlantic alliance. you know, they Atlantic alliance. you know, they Atlantic alliance. you know, they wouldn't it wouldn't be called against wouldn't it wouldn't be called against wouldn't it wouldn't be called against China, but it would effectively be an China, but it would effectively be an China, but it would effectively be an alliance to create a bigger market alliance to create a bigger market alliance to create a bigger market outside of China with a some common outside of China with a some common outside of China with a some common barriers to China that would, you know, barriers to China that would, you know, barriers to China that would, you know, have allied scale would be big enough have allied scale would be big enough have allied scale would be big enough that it would easily support a that it would easily support a that it would easily support a competitive EV industry that didn't rely competitive EV industry that didn't rely competitive EV industry that didn't rely on Chinese parts. uh a competitive on Chinese parts. uh a competitive on Chinese parts. uh a competitive magnets industry that didn't rely on magnets industry that didn't rely on magnets industry that didn't rely on China so forth and so on. So I think you China so forth and so on. So I think you China so forth and so on. So I think you know where should we have gone? I think know where should we have gone? I think know where should we have gone? I think we should have moved in that direction.

we should have moved in that direction. we should have moved in that direction. There are ways to do better coordination There are ways to do better coordination There are ways to do better coordination of industrial policies too. But of industrial policies too. But of industrial policies too. But basically like extend our security basically like extend our security basically like extend our security alliances into economic alliances. alliances into economic alliances. alliances into economic alliances. Uh try to compete with China. Don't give Uh try to compete with China. Don't give Uh try to compete with China. Don't give up. Don't accept that every EV in the up. Don't accept that every EV in the up. Don't accept that every EV in the world is going to be made in China which world is going to be made in China which world is going to be made in China which is a realistic outcome right now. is a realistic outcome right now. is a realistic outcome right now. uh with fully you know China can expand uh with fully you know China can expand uh with fully you know China can expand its EV production capacity and has its EV production capacity and has its EV production capacity and has enough spare capacity to meet all global enough spare capacity to meet all global enough spare capacity to meet all global demand. So the entire EV industry could demand. So the entire EV industry could demand. So the entire EV industry could be Chinese production. You know China's be Chinese production. You know China's be Chinese production. You know China's supplying 10% of the European auto supplying 10% of the European auto supplying 10% of the European auto market. There's a future where it could market. There's a future where it could market. There's a future where it could supply 70. If that's not an outcome you supply 70. If that's not an outcome you supply 70. If that's not an outcome you think is acceptable, you kind of have to think is acceptable, you kind of have to think is acceptable, you kind of have to work backwards from that because that is work backwards from that because that is work backwards from that because that is now a realistic possibility. What do you now a realistic possibility. What do you now a realistic possibility. What do you think about the notion of a China shock think about the notion of a China shock think about the notion of a China shock 3 that you're beginning to see on the 3 that you're beginning to see on the 3 that you're beginning to see on the horizon which is we've been talking horizon which is we've been talking horizon which is we've been talking about how China shock one was kind of about how China shock one was kind of about how China shock one was kind of low-end middle-end manufacturing number low-end middle-end manufacturing number low-end middle-end manufacturing number two has been high-end batteries and cars two has been high-end batteries and cars two has been high-end batteries and cars and things like that but the thing that and things like that but the thing that and things like that but the thing that America has had that has insulated it America has had that has insulated it America has had that has insulated it that has made our stock market such a that has made our stock market such a that has made our stock market such a booming part of the global financial booming part of the global financial booming part of the global financial system is as we talked about sort of system is as we talked about sort of system is as we talked about sort of software finance software finance software finance and more recently of course AI Mhm.

and more recently of course AI Mhm. and more recently of course AI Mhm. >> And we are still have real leadership in >> And we are still have real leadership in >> And we are still have real leadership in AI, but it's amazing how strong the AI, but it's amazing how strong the AI, but it's amazing how strong the Chinese open- source models are, how Chinese open- source models are, how Chinese open- source models are, how close they are. They're a lot cheaper. close they are. They're a lot cheaper. close they are. They're a lot cheaper. They're cheaper to run. And China is They're cheaper to run. And China is They're cheaper to run. And China is able to I mean, China does not have the able to I mean, China does not have the able to I mean, China does not have the chips we have, but they are able to pump chips we have, but they are able to pump chips we have, but they are able to pump energy into it. They're not going to energy into it. They're not going to energy into it. They're not going to have the data center slowdown that we're have the data center slowdown that we're have the data center slowdown that we're going to have, right? You're not going going to have, right? You're not going going to have, right? You're not going to have, you know, local data center to have, you know, local data center to have, you know, local data center protests that are stopping China from protests that are stopping China from protests that are stopping China from building enough data centers. So it's building enough data centers. So it's building enough data centers. So it's not crazy given how much more difficult not crazy given how much more difficult not crazy given how much more difficult it is to create the infrastructure for it is to create the infrastructure for it is to create the infrastructure for AI here that China will pull ahead in AI here that China will pull ahead in AI here that China will pull ahead in the coming years. the coming years. the coming years. >> So I do think that's that is a a >> So I do think that's that is a a >> So I do think that's that is a a possibility possibility possibility if you think of China shock 3.0 do as if you think of China shock 3.0 do as if you think of China shock 3.0 do as sort of services but services not as in sort of services but services not as in sort of services but services not as in haircuts but as you know software AI the haircuts but as you know software AI the haircuts but as you know software AI the models uh models uh models uh there is a world there is a world there is a world uh where uh where uh where China and the US compete directly in a China and the US compete directly in a China and the US compete directly in a way that they didn't compete in the big way that they didn't compete in the big way that they didn't compete in the big platforms you know platforms you know platforms you know China protected its search market China protected its search market China protected its search market because it wanted political control but because it wanted political control but because it wanted political control but that sort of meant that China's search that sort of meant that China's search that sort of meant that China's search engines never really that competitive engines never really that competitive engines never really that competitive globally which left the lion share of globally which left the lion share of globally which left the lion share of the globe you know using US platforms the globe you know using US platforms the globe you know using US platforms using US software using US cloud using US software using US cloud using US software using US cloud [snorts] huge businesses incredibly [snorts] huge businesses incredibly [snorts] huge businesses incredibly profitable businesses the businesses

profitable businesses the businesses profitable businesses the businesses that have propelled the US stock market that have propelled the US stock market that have propelled the US stock market to a stratospheric heights that have to a stratospheric heights that have to a stratospheric heights that have made you know US stocks twothirds of the made you know US stocks twothirds of the made you know US stocks twothirds of the global stock market index so an global stock market index so an global stock market index so an enormously important part of the US enormously important part of the US enormously important part of the US economy and an even more important part economy and an even more important part economy and an even more important part of the stock market. of the stock market. of the stock market. Look, AI is up for grabs. We don't know Look, AI is up for grabs. We don't know Look, AI is up for grabs. We don't know if the US models will uh that people are if the US models will uh that people are if the US models will uh that people are willing to pay as much as the people who willing to pay as much as the people who willing to pay as much as the people who are spending tons of money to build all are spending tons of money to build all are spending tons of money to build all the data centers and buy all the NVIDIA the data centers and buy all the NVIDIA the data centers and buy all the NVIDIA chips are willing to invest. That's an chips are willing to invest. That's an chips are willing to invest. That's an open question. It is quite possible that open question. It is quite possible that open question. It is quite possible that uh it will prove to be a competitive uh it will prove to be a competitive uh it will prove to be a competitive market and no one will make the super market and no one will make the super market and no one will make the super profits that sort of Google, Alphabet, profits that sort of Google, Alphabet, profits that sort of Google, Alphabet, Microsoft, Apple generated out of the Microsoft, Apple generated out of the Microsoft, Apple generated out of the digital world we now live in. and that digital world we now live in. and that digital world we now live in. and that AI will either be dominated by China or AI will either be dominated by China or AI will either be dominated by China or will prove to be competitive and there will prove to be competitive and there will prove to be competitive and there won't be the kind of profits that people won't be the kind of profits that people won't be the kind of profits that people expect and so it will be disruptive and expect and so it will be disruptive and expect and so it will be disruptive and disruptive to the parts of the US disruptive to the parts of the US disruptive to the parts of the US economy that have generated the most economy that have generated the most economy that have generated the most high-end jobs and certainly the most high-end jobs and certainly the most high-end jobs and certainly the most profits. So to assume that we're going profits. So to assume that we're going profits. So to assume that we're going to have uh a lead in high-end digital to have uh a lead in high-end digital to have uh a lead in high-end digital services forever and that China is not services forever and that China is not services forever and that China is not going to compete, I think that's I going to compete, I think that's I going to compete, I think that's I wouldn't agree with that. is what we wouldn't agree with that. is what we wouldn't agree with that. is what we want or what we should want want or what we should want want or what we should want for China to be exporting less for them for China to be exporting less for them for China to be exporting less for them to have less of an over capacity as it to have less of an over capacity as it to have less of an over capacity as it gets called gets called gets called >> or is what we want for China to be more >> or is what we want for China to be more >> or is what we want for China to be more open to imports right this sort of bit open to imports right this sort of bit open to imports right this sort of bit around the fight over whether or not we around the fight over whether or not we around the fight over whether or not we should export chips to China the B should export chips to China the B should export chips to China the B administration really clamped down on

administration really clamped down on administration really clamped down on that Trump opened up a bit uh somewhat that Trump opened up a bit uh somewhat that Trump opened up a bit uh somewhat under the push from Jensen Wong of of under the push from Jensen Wong of of under the push from Jensen Wong of of Nvidia Nvidia Nvidia >> and Nvidia's argument and the argument >> and Nvidia's argument and the argument >> and Nvidia's argument and the argument that I heard from Trump people around that I heard from Trump people around that I heard from Trump people around this was look we actually want China this was look we actually want China this was look we actually want China somewhat dependent on Nvidia's chipset. somewhat dependent on Nvidia's chipset. somewhat dependent on Nvidia's chipset. We have all these dependencies on China. We have all these dependencies on China. We have all these dependencies on China. The idea they're somewhat dependent on The idea they're somewhat dependent on The idea they're somewhat dependent on us is not a bad thing. us is not a bad thing. us is not a bad thing. Now even once we sort of open that back Now even once we sort of open that back Now even once we sort of open that back up, China's not been excited about up, China's not been excited about up, China's not been excited about Nvidia chips. They have, you know, made Nvidia chips. They have, you know, made Nvidia chips. They have, you know, made strides on their own. And yes, they strides on their own. And yes, they strides on their own. And yes, they would like the very best stuff and would like the very best stuff and would like the very best stuff and there's some things we're still holding there's some things we're still holding there's some things we're still holding back. But I felt like in there you saw back. But I felt like in there you saw back. But I felt like in there you saw this kind of emergent fight which is do this kind of emergent fight which is do this kind of emergent fight which is do we want to be more separated or actually we want to be more separated or actually we want to be more separated or actually is a problem that you know there's been is a problem that you know there's been is a problem that you know there's been more openness in one direction than the more openness in one direction than the more openness in one direction than the other. It's like that's the the thing we other. It's like that's the the thing we other. It's like that's the the thing we should be targeting. How do you think should be targeting. How do you think should be targeting. How do you think about that? about that? about that? I have complex, conflicted and probably I have complex, conflicted and probably I have complex, conflicted and probably incoherent thoughts. But the goal from incoherent thoughts. But the goal from incoherent thoughts. But the goal from China and I think it's independent China and I think it's independent China and I think it's independent whether you give them this chip or that whether you give them this chip or that whether you give them this chip or that chip today. They may or may not achieve chip today. They may or may not achieve chip today. They may or may not achieve it. The goal is to replicate the full it. The goal is to replicate the full it. The goal is to replicate the full chip ecosystem to be able to make the chip ecosystem to be able to make the chip ecosystem to be able to make the machines as well as make the chips and machines as well as make the chips and machines as well as make the chips and be at the frontier. [snorts] So the risk be at the frontier. [snorts] So the risk be at the frontier. [snorts] So the risk is that you would become dependent over is that you would become dependent over is that you would become dependent over time on both Chinese models and then time on both Chinese models and then time on both Chinese models and then then the Chinese ships will displace then the Chinese ships will displace then the Chinese ships will displace their dependence on you and I think their dependence on you and I think their dependence on you and I think that's in that sector that's a a real that's in that sector that's a a real that's in that sector that's a a real risk set of risk. So I I'd be a bit risk set of risk. So I I'd be a bit risk set of risk. So I I'd be a bit cautious there.

cautious there. cautious there. I think conceptually mutual interdependence, reciprocal mutual interdependence, reciprocal vulnerabilities, vulnerabilities, vulnerabilities, control over offsetting choke points is control over offsetting choke points is control over offsetting choke points is a way that competing a way that competing a way that competing great powers, great military powers now, great powers, great military powers now, great powers, great military powers now, great economic powers that are rivals, great economic powers that are rivals, great economic powers that are rivals, not allies, can coexist. you cannot not allies, can coexist. you cannot not allies, can coexist. you cannot supply chain restrict me because I can supply chain restrict me because I can supply chain restrict me because I can supply chain restrict you and the we can supply chain restrict you and the we can supply chain restrict you and the we can deter each other. You you apply deter each other. You you apply deter each other. You you apply strategic and military concepts of round strategic and military concepts of round strategic and military concepts of round deterrence. So it's it's a vision that deterrence. So it's it's a vision that deterrence. So it's it's a vision that allows trade but it's kind of hostile allows trade but it's kind of hostile allows trade but it's kind of hostile trade so to speak where you're always trade so to speak where you're always trade so to speak where you're always worried uh that you're you're that worried uh that you're you're that worried uh that you're you're that interdependence is shifting towards interdependence is shifting towards interdependence is shifting towards dependence particularly because she has dependence particularly because she has dependence particularly because she has said today's goal is is dependence. He said today's goal is is dependence. He said today's goal is is dependence. He wants the world to rely on Chinese wants the world to rely on Chinese wants the world to rely on Chinese supply chains. Arguably, that's one supply chains. Arguably, that's one supply chains. Arguably, that's one theory he has about how he could achieve theory he has about how he could achieve theory he has about how he could achieve victory in Taiwan without actually victory in Taiwan without actually victory in Taiwan without actually fighting. Everyone needs us so much they fighting. Everyone needs us so much they fighting. Everyone needs us so much they can't can't react, can't respond.

can't can't react, can't respond. can't can't react, can't respond. The other vision is a vision where okay The other vision is a vision where okay The other vision is a vision where okay either fully either fully either fully uh split off into rival blocks. China uh split off into rival blocks. China uh split off into rival blocks. China has its EVA ecosystem. the US, US and has its EVA ecosystem. the US, US and has its EVA ecosystem. the US, US and Europe. Our block has its own EV Europe. Our block has its own EV Europe. Our block has its own EV ecosystem, own battery supply chains, ecosystem, own battery supply chains, ecosystem, own battery supply chains, own uh battery chemical supply chains, own uh battery chemical supply chains, own uh battery chemical supply chains, own EV companies, own EV designs. China own EV companies, own EV designs. China own EV companies, own EV designs. China has its there's a vast part of the world has its there's a vast part of the world has its there's a vast part of the world which gets to choose, but they're rival which gets to choose, but they're rival which gets to choose, but they're rival ecosystems that don't have a ton of of ecosystems that don't have a ton of of ecosystems that don't have a ton of of interdependence. I think you can hive interdependence. I think you can hive interdependence. I think you can hive off some of the strategic sectors and do off some of the strategic sectors and do off some of the strategic sectors and do that trade with allies that trade with allies that trade with allies uh and uh maintain some trade with uh and uh maintain some trade with uh and uh maintain some trade with China. I mean, we're not going to tell China. I mean, we're not going to tell China. I mean, we're not going to tell our farmers they can't sell to China. our farmers they can't sell to China. our farmers they can't sell to China. We're just not. Uh and there are certain We're just not. Uh and there are certain We're just not. Uh and there are certain products which I think we should be fine products which I think we should be fine products which I think we should be fine from China, but defining the lines is from China, but defining the lines is from China, but defining the lines is going to is is hard. On top of that, going to is is hard. On top of that, going to is is hard. On top of that, China cannot continue to rely on the China cannot continue to rely on the China cannot continue to rely on the world's demand to make up for the fact world's demand to make up for the fact world's demand to make up for the fact that it doesn't generate its own demand.

that it doesn't generate its own demand. that it doesn't generate its own demand. There's a macroeconomic component. There's a macroeconomic component. There's a macroeconomic component. China's economy, the export side of the China's economy, the export side of the China's economy, the export side of the economy has done great. No question. economy has done great. No question. economy has done great. No question. Booming, growing faster than global Booming, growing faster than global Booming, growing faster than global trade. The domestic side of the economy, trade. The domestic side of the economy, trade. The domestic side of the economy, people doubt whether the domestic side people doubt whether the domestic side people doubt whether the domestic side of the Chinese economy is really growing of the Chinese economy is really growing of the Chinese economy is really growing faster than the domestic side of the US faster than the domestic side of the US faster than the domestic side of the US economy. It is not doing great. There's economy. It is not doing great. There's economy. It is not doing great. There's a lot of unemployment. There's a lot of unemployment. There's a lot of unemployment. There's deflation. There's real internal deflation. There's real internal deflation. There's real internal problems. problems. problems. >> An aging population. >> An aging population. >> An aging population. >> We have an aging population, too. But >> We have an aging population, too. But >> We have an aging population, too. But China's aging a little faster. China's aging a little faster. China's aging a little faster. >> Yeah. >> Yeah. >> Yeah. >> And now there's a looming problem of >> And now there's a looming problem of >> And now there's a looming problem of overinvestment, not just in property, overinvestment, not just in property, overinvestment, not just in property, but in manufacturing capacity. Too many but in manufacturing capacity. Too many but in manufacturing capacity. Too many auto plants, not enough demand, internal auto plants, not enough demand, internal auto plants, not enough demand, internal demand is down 20% for Chinese cars. So, demand is down 20% for Chinese cars. So, demand is down 20% for Chinese cars. So, they're forced to export because their they're forced to export because their they're forced to export because their own market is is shrinking. That's own market is is shrinking. That's own market is is shrinking. That's that's a real problem because China's that's a real problem because China's that's a real problem because China's internal economy is incredibly internal economy is incredibly internal economy is incredibly unbalanced. Like it's second biggest unbalanced. Like it's second biggest unbalanced. Like it's second biggest world economy in the world, but with the world economy in the world, but with the world economy in the world, but with the biggest domestic distortions across the biggest domestic distortions across the biggest domestic distortions across the board, the most unbalanced pattern of board, the most unbalanced pattern of board, the most unbalanced pattern of savings [snorts] and investment. There savings [snorts] and investment. There savings [snorts] and investment. There will need to come a time when China will need to come a time when China will need to come a time when China doesn't have to have an expanding trade doesn't have to have an expanding trade doesn't have to have an expanding trade surplus to grow. So, I do think that surplus to grow. So, I do think that surplus to grow. So, I do think that that is a problem. And of course, it's that is a problem. And of course, it's that is a problem. And of course, it's it's tied on our side to our fiscal it's tied on our side to our fiscal it's tied on our side to our fiscal situation. You know, we're we're going situation. You know, we're we're going situation. You know, we're we're going to borrow insane amounts to build AI and to borrow insane amounts to build AI and to borrow insane amounts to build AI and we're also borrowing 6% of GDP to keep we're also borrowing 6% of GDP to keep we're also borrowing 6% of GDP to keep our consumer engine going. [snorts] our consumer engine going. [snorts] our consumer engine going. [snorts] There there probably eventually are There there probably eventually are There there probably eventually are limits on our side, too.

limits on our side, too. limits on our side, too. >> I think that's a good place to end. >> I think that's a good place to end. >> I think that's a good place to end. Always our final question. What are Always our final question. What are Always our final question. What are three books you'd recommend to the three books you'd recommend to the three books you'd recommend to the audience? audience? audience? >> Well, the the the one book that most uh >> Well, the the the one book that most uh >> Well, the the the one book that most uh shaped my own understanding of China is shaped my own understanding of China is shaped my own understanding of China is an old book actually. Uh it's by a an old book actually. Uh it's by a an old book actually. Uh it's by a friend of mine, Richard McGregor, friend of mine, Richard McGregor, friend of mine, Richard McGregor, uh longtime uh longtime uh longtime [snorts] Beijing correspondent for the [snorts] Beijing correspondent for the [snorts] Beijing correspondent for the Financial Times, who wrote a book called Financial Times, who wrote a book called Financial Times, who wrote a book called The Party. And he really showed that you The Party. And he really showed that you The Party. And he really showed that you can't understand modern China without can't understand modern China without can't understand modern China without understanding the modern Chinese understanding the modern Chinese understanding the modern Chinese Communist Party. And you know, vivid Communist Party. And you know, vivid Communist Party. And you know, vivid scenes with like red telephones where scenes with like red telephones where scenes with like red telephones where you know, your special party line where you know, your special party line where you know, your special party line where you get the instructions if you're the you get the instructions if you're the you get the instructions if you're the CEO of a big company about what you CEO of a big company about what you CEO of a big company about what you should be doing. should be doing. should be doing. Second book is is another old book Second book is is another old book Second book is is another old book actually. Um actually. Um actually. Um uh it's called the volatility machine by uh it's called the volatility machine by uh it's called the volatility machine by Michael Pettis. It is it is a thin book. Michael Pettis. It is it is a thin book. Michael Pettis. It is it is a thin book. It is not an easy read. Uh it is It is not an easy read. Uh it is It is not an easy read. Uh it is actually not even about China even actually not even about China even actually not even about China even though Pettis is now very well known for though Pettis is now very well known for though Pettis is now very well known for his work on China. It's about how to his work on China. It's about how to his work on China. It's about how to think about financial vulnerabilities in think about financial vulnerabilities in think about financial vulnerabilities in the global economy and in emerging the global economy and in emerging the global economy and in emerging economies in particular. I [snorts] economies in particular. I [snorts] economies in particular. I [snorts] think it's a modern classic and it's think it's a modern classic and it's think it's a modern classic and it's really important for understanding I really important for understanding I really important for understanding I think not just how emerging markets can think not just how emerging markets can think not just how emerging markets can get into trouble but somehow some of the get into trouble but somehow some of the get into trouble but somehow some of the financial structures that are now being financial structures that are now being financial structures that are now being used to finance the AI buildout could used to finance the AI buildout could used to finance the AI buildout could get in trouble that kind of that kind of get in trouble that kind of that kind of get in trouble that kind of that kind of framework. And the third book, a book

framework. And the third book, a book framework. And the third book, a book that exceeded my expectations is, you that exceeded my expectations is, you that exceeded my expectations is, you know, how to win a trade war war by Chad know, how to win a trade war war by Chad know, how to win a trade war war by Chad Bound and Somaya Kanes. Bound and Somaya Kanes. Bound and Somaya Kanes. Whatever side of the trade debate you're Whatever side of the trade debate you're Whatever side of the trade debate you're on, you're going to learn something. It on, you're going to learn something. It on, you're going to learn something. It is not a polymic. It is, I think, the is not a polymic. It is, I think, the is not a polymic. It is, I think, the best guide to a world where people are best guide to a world where people are best guide to a world where people are thinking about trade in terms of thinking about trade in terms of thinking about trade in terms of vulnerabilities, not just in terms of vulnerabilities, not just in terms of vulnerabilities, not just in terms of opportunities. opportunities. opportunities. >> Brad Settzer, thank you very much. >> Brad Settzer, thank you very much. >> Brad Settzer, thank you very much. >> Uh, thanks Ezra. It's been a pleasure to >> Uh, thanks Ezra. It's been a pleasure to >> Uh, thanks Ezra. It's been a pleasure to be on this show.