Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal. Uh. My co host Tracy Alloway. She's off.
Speaker 1: She couldn't make today's episode. It's kind of an emergency
Speaker 1: at last minute episode though, because we wanted to do
Speaker 1: something very timely with just the right guest. Obviously, the
Speaker 1: trade tensions with China continuing to ratchet up, and it's
Speaker 1: really becoming less and less I would say about the
Speaker 1: trade deficit and some of these classical topics that we
Speaker 1: think of in a trade war, and much more about
Speaker 1: this sort of brewing technology cold war as people are
Speaker 1: putting it, and the moves that the Trump administration has
Speaker 1: taken against some of China's big tech companies. Today, I'm
Speaker 1: going to be speaking on the subject with a previous
Speaker 1: Odd Lots guest. Going to be talking with Dan Wong.
Speaker 1: He's a technology analyst at gav Quel dragon Omics. He's
Speaker 1: also a Bloomberg opinion columnist, which is very cool. You
Speaker 1: might recall we spoke to Dan a while ago about
Speaker 1: the China Initiative, the endeavor on the part of the
Speaker 1: Chinese government to really sort of build its own domestic
Speaker 1: leadership and all these big tech areas. So Dan is
Speaker 1: really the perfect person to discuss these new developments with.
Speaker 1: Wanted to get him on, wanted to get his perspective
Speaker 1: on the latest development. So without further ado, I want
Speaker 1: to bring in Uh Dan Dan Wong, thank you very
Speaker 1: much for joining us. So obviously pretty uh, pretty interesting
Speaker 1: moves we've seen over the last few weeks, a very
Speaker 1: serious ratcheting up in the trade war talks as President
Speaker 1: Trump has moved to uh really uh put the pressure
Speaker 1: on Huawei, major Chinese tech giant. What do you describe
Speaker 1: to us to start? What is Huahwei? What is their
Speaker 1: significant in the global or in the Chinese tech ecosystem?
Speaker 1: Where did they come from? How did they become so important?
Speaker 1: So I think Huawei is the most important technology company
Speaker 1: in China uh, and it has a few major business lines.
Speaker 1: I think the two most important ones are it's smartphone
Speaker 1: business UH and then it's a network equipment business. So
Speaker 1: as a matter of comparison, Huawei sold about as many
Speaker 1: smartphones as Apple did last year, although much lower profits UM.
Speaker 1: But it is a major seller of smartphones around the world,
Speaker 1: not just in China but also in Southeast Asia and
Speaker 1: now increasingly UH in Europe. The other major business line
Speaker 1: it has is network infrastructure equipment. So all of these
Speaker 1: things that make mobile calling possible and for G or
Speaker 1: LTE possible. This a lot of it, at least outside
Speaker 1: the US, is provided by Huawei, And as the world
Speaker 1: is getting ready to transition to the next generation, the
Speaker 1: fifth generation of mobile network technologies or five G, Huawei
Speaker 1: is a pretty major player in that ecosystem. How cutting
Speaker 1: edge are they? I mean, if you look at the
Speaker 1: company and I guess either on both lines, whether it's
Speaker 1: smartphones or networking equipment, are they sort of a best
Speaker 1: of breed player on this stuff? I think the consensus
Speaker 1: is that Huawei is very competent on both the smartphone
Speaker 1: business and then also the network business. So on the smartphones,
Speaker 1: I think people in the US don't really get to
Speaker 1: see this, But a lot of the reason that Apple
Speaker 1: has been doing not so well in China is that
Speaker 1: basically Huawei and a few other players have made pretty
Speaker 1: good phones at quite a bit lower prices than Apple does.
Speaker 1: In fact, Samsung has been almost completely squeezed out of
Speaker 1: the China market because Huawis phones are really good, and
Speaker 1: Huawei is giving a run for Samsung's money basically and
Speaker 1: many more kids in the world. But you know, plausibly,
Speaker 1: Huawei is a little bit behind, are quite a lot
Speaker 1: behind Apple on the smartphone business. On the network equipment business,
Speaker 1: I think it is arguably really eating everything I hear
Speaker 1: is that basically the network equipment business. Uh. Not only
Speaker 1: is it selling as good or cutting edge equipment or
Speaker 1: even better equipment than its competitors, which are mostly Ericson
Speaker 1: and Nokia, it is also often significantly cheaper. Talk to
Speaker 1: us about the action that Trump took. Obviously, the companies
Speaker 1: that supplied technology to Huahwei, including many American companies, are
Speaker 1: now theoretically restricted from doing business with them. So how
Speaker 1: existential is this to Huahwei's business? Uh, this move from
Speaker 1: the Trump administration, I think it is a pretty existential threat. Now,
Speaker 1: what the Trump administration did was about two weeks ago
Speaker 1: it added Huawei to this UH list called the Entity List.
Speaker 1: And what this is effectively as this export blacklist, which
Speaker 1: doesn't allow US companies to export any equipment basically any
Speaker 1: components or any technologies over to Huawei. And I think
Speaker 1: this is a really big deal because Huawei depends very
Speaker 1: significantly on US technology to make a lot of its
Speaker 1: own systems function. So on the smartphone side, it needs
Speaker 1: a lot of different types of chips. On the network
Speaker 1: equipment side, it also needs a lot of chips, and
Speaker 1: then also some specialty laser products. Not only is the
Speaker 1: US are the US chips companies prevented from selling to Huawei. Basically,
Speaker 1: the US is able to cut off Google's Android from
Speaker 1: supplying to Huawei as well. This is another big risk
Speaker 1: this to the company. This is able to Basically I
Speaker 1: think there's a good chance that Huawei's smartphone sales overseas
Speaker 1: outside China could very well collapse this year because it
Speaker 1: doesn't have access to Android. And uh, there's just a
Speaker 1: lot of components that Huawei needs that are almost exclusively
Speaker 1: supplied by the US. There's a lot of these types
Speaker 1: of chips, you know, if you have if you lack
Speaker 1: even a single chip inside inn a system, the entire
Speaker 1: thing may not work. And so I think this is
Speaker 1: a pretty big deal. And not only is the US
Speaker 1: able to stop basically U S companies from supplying to Halweih,
Speaker 1: the US has a little bit of an extra territorial
Speaker 1: reach as well. So the U S Department of Commerce
Speaker 1: defines has this di Minimus threshold standard. If it takes
Speaker 1: a look at any foreign product sold by let's say
Speaker 1: European or Japanese or Korean company, and if over the
Speaker 1: value was generated in the US, then the U S
Speaker 1: Department of Commerce asserts that to be a US product.
Speaker 1: And so in this way, basically it can deny non
Speaker 1: U S firms from selling to the Chinese UH controlled
Speaker 1: entity in this case allway as well. And so from
Speaker 1: news reports we've seen that basically in fine On, a
Speaker 1: German semi conductor firm, arm a UK semi conductor firm,
Speaker 1: and then also Panasonic, a Japanese firm, all have announced
Speaker 1: that they are going to stop us supplying to Haalwei.
Speaker 1: And as soon as this happened, the founder came out
Speaker 1: saying that's basically this may not be too big of
Speaker 1: a deal. We have plenty of spare tires. I really
Speaker 1: don't buy that argument. I think that it is very
Speaker 1: unlikely that while we can still survive basically being cut
Speaker 1: off from almost all of its forts suppliers. So I mean,
Speaker 1: that's exactly right. I mean there had been reports and
Speaker 1: I guess Huawei itself saying that it had a stockpile
Speaker 1: of chips. Maybe it anticipated a potential action like this,
Speaker 1: but ultimately, in your view, it just doesn't have many
Speaker 1: cards to play as long as this action by the
Speaker 1: Trump administration remains in effect. That's right. It's really striking
Speaker 1: just hearing you describe the severity of this, and to
Speaker 1: think that a few months ago we were talking about
Speaker 1: China is going to increase its purchase of US soybeans
Speaker 1: and that was going to help get a deal you
Speaker 1: can just send. This is a very serious escalation. I
Speaker 1: think it is a very serious escalation that basically the
Speaker 1: US has this ability to turn off one of China's
Speaker 1: most important companies period that this is a company that
Speaker 1: is really important domestically in China as one of the
Speaker 1: few firms that really do have does have an international
Speaker 1: presence selling smartphones all over the world outside of the US.
Speaker 1: Then also selling network equipment all over the world, but
Speaker 1: again outside the US, just to illustrate a little bit
Speaker 1: of how important this company is. Basically, you know, if
Speaker 1: you ignore the smartphones and focus on the network equipment business,
Speaker 1: it's become an incredibly consolidated market. So always main competitors
Speaker 1: selling four gen now as soon to be five G
Speaker 1: equipment are ericson in Nokia. Basically a lot of the
Speaker 1: US position has pretty much vanished. These firms that used
Speaker 1: to be major US of phone technology mobile telephony technology
Speaker 1: companies included names like Motorola, Lucent and in Canada based Nortel.
Speaker 1: Basically none of these are going independent concerns anymore, and
Speaker 1: a Huawei Arison and Nokia are really the big players
Speaker 1: left in the game. You know, if you go is
Speaker 1: an incredibly consolidated market, and if the US is able
Speaker 1: to knock out the biggest player in a consolidated market,
Speaker 1: bring the number of players from three to two. Basically
Speaker 1: the prices may not rise by only a few percentage points.
Speaker 1: For service providers let's say like Deutsche Telecom or Vota
Speaker 1: Phone or British Telecom, prices can may well double because
Speaker 1: there's just so much less competition and there's just so
Speaker 1: much more collusion when you have the world being supplied
Speaker 1: by this Nordic duopoly. And so, you know, I think
Speaker 1: this is the actions are of the US are having
Speaker 1: reverberations around the world on not just in the U
Speaker 1: S and China as well. Is there something about the
Speaker 1: telecom equipment industry that has naturally caused it to have
Speaker 1: so many major flame outs. I mean you I forgot
Speaker 1: you know all these names that you mentioned, like Motorola, Lucent,
Speaker 1: nor Tell, all those companies like just sort of I
Speaker 1: don't remember exactly. I think when a Motorola like selled
Speaker 1: a Google or something like that. Uh yeah, all these
Speaker 1: companies sort of like evaporated as shelves of their former selves.
Speaker 1: Why has this business been so brutal and gotten to
Speaker 1: the point where there's just a few a few oleglopolistic players. Arguably, well, arguably,
Speaker 1: I think that is a lot of the story with
Speaker 1: the uh, you know, chech general technology sector and not
Speaker 1: so much talking about the Internet companies here, although I
Speaker 1: know that's a big debate. Basically, if you look at
Speaker 1: something like chips, something really striking to me recently was
Speaker 1: that Apple had to settle very long running litigations with
Speaker 1: Qualcom firm. It's been embroiled with in litigation for a
Speaker 1: really long time, mostly because a firm like Intel couldn't
Speaker 1: step up and be a credible supplier on something called
Speaker 1: moting chips. And so just generally, I think the story
Speaker 1: in this hardware space and technology is consolidation everywhere and uh,
Speaker 1: limited players in basically every segment of hardware technologies. Is
Speaker 1: it a situation where it's just really hard technologically to
Speaker 1: produce this at scale? And so even you know, you
Speaker 1: mentioned a giant like Intel. I think they're still the
Speaker 1: biggest semiconductor company in the world and they're unable to
Speaker 1: deliver these motive chips to Apple at scale. Is it
Speaker 1: just because it's hard stuff to get right and get
Speaker 1: good and doing high quantity? My understanding is that this
Speaker 1: is not one of the most difficult technologies that the
Speaker 1: world can produce. UM. A lot of this is still
Speaker 1: fairly low margin, and that's uh one of the reasons
Speaker 1: why so many firms have accidented the market. So one
Speaker 1: of the things I mentioned it in the intro um.
Speaker 1: But obviously last time you're on the podcast, we're talking
Speaker 1: about the China Initiative and its efforts to become a
Speaker 1: world leader at all these different areas like aerospace and
Speaker 1: semiconductor and medical equipment and robotics, transportation, things like that.
Speaker 1: The fact that the US can, in theory still unilaterally
Speaker 1: deliver a death penalty to a major Chinese player. It
Speaker 1: can't do anything, I would imagine except remind the Chinese
Speaker 1: leadership how important it is to build up their own
Speaker 1: domestic tech sector. I think that's exactly right. And I
Speaker 1: think in an area like semiconductors is where the U
Speaker 1: S power is clearest, that basically a lot of the
Speaker 1: world has given up on semiconductors. A lot of the
Speaker 1: European firms that used to be big have gone away,
Speaker 1: the same ghost for Japan uh and China's trying to
Speaker 1: work really hard to enter this technology space, in part
Speaker 1: because it is just so owned by the US. And
Speaker 1: I think that, um, you know, the Chinese response to
Speaker 1: a lot of these actions really has to be to
Speaker 1: try to double down on its efforts to develop all
Speaker 1: of these different technologies. Not only can it basically not
Speaker 1: count on US supply, a lot of foreign supply may
Speaker 1: not be able to flow to China because of this
Speaker 1: the Minimus threshold. And you know, I think it is
Speaker 1: politically intolerable for the Chinese that the US has this
Speaker 1: at will ability to shut off a major technology company.
Speaker 1: This is not the first time over the last year
Speaker 1: that the US has done this. In fact, the US
Speaker 1: has done this three times over the last twelve months.
Speaker 1: In April last year, the U s A. This is
Speaker 1: z T, which is kind of like a small Quahwei
Speaker 1: with both smartphone presents and then also network equipment presence.
Speaker 1: And also did this to a company called fusansin KLA,
Speaker 1: which is a memory chip maker in Southeast China. And
Speaker 1: now the US is doing this to Huawei, And so
Speaker 1: I think the Chinese leadership really feels that needs to
Speaker 1: do a lot more to promote its own capabilities and
Speaker 1: these trips. So is this always where it was inevitably headed?
Speaker 1: Because when Donald Trump decided to really change the US
Speaker 1: trading polished your with China the start of administration, the
Speaker 1: critique was that, you know, his complaints about the trade
Speaker 1: deficit and how much we import from China were off
Speaker 1: the mark or maybe not clear economic thinking, but that
Speaker 1: there really was some merit to this idea that on
Speaker 1: areas like technology and intellectual privacy, China really did pose
Speaker 1: some sort of threat and it didn't play by the rules,
Speaker 1: arguably according to some people we've spoken with, So these
Speaker 1: moves against the Chinese tech sector, is this sort of
Speaker 1: always what it was really about? I think that's a
Speaker 1: really fair assessment. And basically, if you look at the
Speaker 1: report that launched this trade war UH and referring specifically
Speaker 1: to the US Trade Representatives Section three or one report,
Speaker 1: Basically it lists a lot of these technology issues of
Speaker 1: front and center and core, including basically the term that
Speaker 1: they use force technology transfer UH and it mentions made
Speaker 1: in China. I believe over a hundred times in the
Speaker 1: section three of one report basically that the US feels
Speaker 1: challenged on a lot of these technology areas, that it
Speaker 1: alleges that China doesn't play fair trying to compete against
Speaker 1: the US and a lot of these areas, and so
Speaker 1: it really has to maintain its technological edge over the Chinese.
Speaker 1: Now as of right now when we're recording this UM,
Speaker 1: I guess people are still holding out some hope for
Speaker 1: a deal. If you talk to investors and traders, they're like, oh,
Speaker 1: they'll come to something. There's an upcoming G twenty meeting
Speaker 1: and Trump and she shouldn't paying or might meet. Maybe
Speaker 1: they'll shake hands there and there will be a thought.
Speaker 1: Do you see any possibility of a thought on the
Speaker 1: tensions here still at this point or have we sort
Speaker 1: of hit a point of no return in which the
Speaker 1: book sides are really going to be dug in for
Speaker 1: a while, and the relationship between these two countries is
Speaker 1: sort of permanently and revocably changed. I think it is
Speaker 1: a permanent change in many ways. Now, I think it
Speaker 1: is really difficult to predict whether there will be a deal.
Speaker 1: I think it is at least still plausible that you
Speaker 1: can read a lot of the actions in recent weeks,
Speaker 1: ever since the Trump tweets on the tariffs on the
Speaker 1: five to be basically this negotiating, you know, tactic to
Speaker 1: get the Chinese to concede on a little bit more
Speaker 1: basically at the end of the process um or you know,
Speaker 1: maybe it is the case that both sides are basically
Speaker 1: walking away from a deal. And if you had to
Speaker 1: push me, I would say it's a little bit of
Speaker 1: the ladder. It is um you know, especially with this
Speaker 1: escalation on Huawei, I think it just makes it much
Speaker 1: more difficult for the On the one handed, you know,
Speaker 1: taking down one of their major companies, it's really a
Speaker 1: big deal, and Chinese diplomats are not willing to see
Speaker 1: one of its major companies fail. On the other hand,
Speaker 1: you know, it just makes it much more difficult to
Speaker 1: come to a deal. But one core point that I
Speaker 1: want to make is that regardless of whether there will
Speaker 1: be a trade deal, I think a lot of these
Speaker 1: technology issues are permanently changed. Basically, by that, I mean
Speaker 1: that while the White House was prosecuting this trade war,
Speaker 1: Congress has handed a lot of tools so the rest
Speaker 1: of the bureaucracy to deal with the tech sector, not
Speaker 1: just in China but also in the US by passing
Speaker 1: various laws. Dan Agri go into that further, I hadn't
Speaker 1: seen much or heard much about this. So what are
Speaker 1: the sort of uh, the specific laws that Congress has
Speaker 1: passed to what you're referring. So I think this is
Speaker 1: the shows that the US has a really wide toolbox
Speaker 1: to deal with the Chinese and then also to some extent,
Speaker 1: the American tech sector. One recent legislative change is the
Speaker 1: Foreign Investment Risk Review Modernization Act or FIRMA. So this
Speaker 1: is a bill that Congress passed last year that significantly
Speaker 1: strengthens this fairly obscure government body called CIFIUS c f
Speaker 1: i U S, which is the Committee for Foreign Investment
Speaker 1: into the United States. Previously, SIFIAS was scrutinizing acquisitions of
Speaker 1: US companies by foreigners for a national security review. And
Speaker 1: you know, if this uh interagency body, which is staffed
Speaker 1: mostly by Treasury but also has representatives from Department of
Speaker 1: Defense and Department of Commerce and a few other places,
Speaker 1: decides that a foreigner cannot own a US asset, then
Speaker 1: it has the ability to uh, you know, block that acquisition.
Speaker 1: And what firma the legislative act passed in August did
Speaker 1: was expand the SIFEST power to scrutinize beyond acquisitions to
Speaker 1: into non controlling investments. So basically, a deal now that
Speaker 1: involves a foreigner that is offers a foreigner any information
Speaker 1: rights or decision making rights has the chance to be rejected.
Speaker 1: And this is applies mostly to technology companies, even unlisted ones.
Speaker 1: So I think the interesting news from last month was
Speaker 1: that siphias forced the divestment by a Chinese company of Grinder,
Speaker 1: which is, uh, you know, I'm not sure if everybody
Speaker 1: on Bloomberg knows this, but it is a gay dating app.
Speaker 1: This was a gay dating app that had been acquired
Speaker 1: by a Chinese firm. The sifia's body has decided that
Speaker 1: this is a national security risk for the Chinese to
Speaker 1: own our gay dating apps and therefore must be divested.
Speaker 1: And that's because of the data and the information that
Speaker 1: could be gleaned from that app presumably, but Siphias is
Speaker 1: not very often open about publishing these opinions. But I
Speaker 1: think that is the right idea. What are there Are
Speaker 1: there any other tools that the US has available to
Speaker 1: you mentioned Sifia's I've usually we talked about export controls
Speaker 1: in the beginning. Are there any other tools in the
Speaker 1: administration's toolbox at this point to further apply pressure on
Speaker 1: Chinese investors or Chinese tech or Chinese companies. Another tool
Speaker 1: tool in the toolbox is um criminal prosecutions from the
Speaker 1: Department of Justice, and there is a formal named initiative here.
Speaker 1: Basically it is called the China Initiative. Right before Jeff Sessions,
Speaker 1: the previous Attorney General, departed from his post, he announced
Speaker 1: this China Initiative, which is this political instruction on the
Speaker 1: rest of the bureaucracy to scrutinized Chinese actions a lot
Speaker 1: more closely. It includes a lot of things, but mostly
Speaker 1: ideas like trade secret misappropriation. If a Chinese person or
Speaker 1: firm has done that, then the US ought to really
Speaker 1: bring it to prosecution. One interesting thing to note about
Speaker 1: the China initiative is that it designates five U S
Speaker 1: attorneys as part of a working group to carry this out.
Speaker 1: One of the five US attorneys is the U S
Speaker 1: Attorney for the Eastern District of New York, who is
Speaker 1: the person who issued the arrest warrant for Moment Show,
Speaker 1: who is the CFO of Allway. This is a very
Speaker 1: novel sort of prosecution, basically nabbing the CFO of a
Speaker 1: company alleged you to have broken sanctions and then also
Speaker 1: committed financial fraud while she wasn't transit in Canada. And
Speaker 1: so this is creating basically a political issue as well.
Speaker 1: But basically you can see how these types of fairly
Speaker 1: novel prosecutions are now permissible in this new political environment.
Speaker 1: After you know, something like the China Initiative has been announced,
Speaker 1: we just have a few minutes left, so let's talk
Speaker 1: about what we should be watching for next. So from
Speaker 1: China's perspective, obviously the moves against Huawei will encourage them to,
Speaker 1: you know, double down on building their domestic tech sector.
Speaker 1: But you know that's an overnight thing that's gonna it's
Speaker 1: a long term project. You can't just snap your fingers
Speaker 1: and create domestic replacements for chip suppliers. So what else
Speaker 1: might we see from the Chinese in your view, to
Speaker 1: address the current tent and both in terms of their
Speaker 1: own domestic needs and also from a retaliatory perspective. So
Speaker 1: we believe that the Chinese retaliatory toolboxes quite weak. Um, Basically,
Speaker 1: you know, there's some news now that they may impose
Speaker 1: rare earth bands. I think that is a temporary sort
Speaker 1: of thing that will cause some pain. Our view is
Speaker 1: that it will not harass the U S companies too much,
Speaker 1: mostly because the Chinese companies are not very entwined in
Speaker 1: the US, but US companies are very entwined in China.
Speaker 1: So Apple employees something like, you know, a few hundred
Speaker 1: thousand young Chinese men uh making iPhones through Fox Con
Speaker 1: and basically the Chinese government would like to see these
Speaker 1: people continue to be employed. A similar story goes for
Speaker 1: major US firms like GM or even Starbucks and McDonald's.
Speaker 1: It keeps a lot of people employed. So the Chinese
Speaker 1: you know, harassment tool basically also hurts itself quite a lot.
Speaker 1: We really don't buy the idea that the Chinese will
Speaker 1: sell US treasuries. That is not unnecessarily a very effective option.
Speaker 1: But basically what they can do is to permit the
Speaker 1: currency to depreciate, which is mostly a market driven process
Speaker 1: that you know, if the U S imposes greater tariffs
Speaker 1: than the currency should weaken, and the People's Bank of
Speaker 1: China is not going to get in the way, uh
Speaker 1: necessarily unless it is quite a steep fall from basically
Speaker 1: allowing the currency to depreciate a little bit. Further, real
Speaker 1: quickly on the rare Earth's questions, So it's literally just
Speaker 1: as of this morning when we're recording it, and this is,
Speaker 1: by the way, recording it on the twenty nine. There's
Speaker 1: a lot of rare earth talk today because of something
Speaker 1: that was published in Peopil's Daily. Why is that people
Speaker 1: hear that and I see rare earths and apparently they're
Speaker 1: not even that rare, but they know that they're important
Speaker 1: for all kinds of advanced technologies and that currently about
Speaker 1: eighty percent of them come from China. Why is that
Speaker 1: threat not really as big of a deal as maybe
Speaker 1: people might think it when they see the headlines. So
Speaker 1: as you point out where earths doesn't turn out to
Speaker 1: be all that rare, it seems like there are major
Speaker 1: deposits also in Australia, Japan, California. It's just going to
Speaker 1: take a little bit of time for that to come online.
Speaker 1: And actually this is sort of a similar point with
Speaker 1: you know, the um with US export controls trying to
Speaker 1: mike export control rare earths. While in general as economists
Speaker 1: we believe that the supply curve slopes up, you know,
Speaker 1: at higher price points, there will be more supplied come
Speaker 1: supply this sort of thing. If the Chinese significantly raised
Speaker 1: the price, while there will be more processing overseas to
Speaker 1: do something like this. And similarly, as the Americans raise
Speaker 1: the price of semi conductors in some cases to affinity
Speaker 1: by totally banning them, while the Chinese also have more
Speaker 1: incentive to try to figure out a lot of this
Speaker 1: stuff as well, It's just going to take a lot
Speaker 1: more time for the Chinese to figure out most aspects
Speaker 1: of semi conductors than for most of the rest of
Speaker 1: the world to develop their reserves of rare earths. And then,
Speaker 1: so what would you be watching for next From the
Speaker 1: West perspective again, I would come to export controls. That
Speaker 1: export controls is really, I think the most important tool
Speaker 1: in the U S toolbox to her China. I think
Speaker 1: we've seen them being used to devastating effect with Chinese
Speaker 1: firms with the ones I mentioned were Zte, Fudanti in
Speaker 1: Qua and now with Huawei. And I want to preview
Speaker 1: a little bit that this is another legislative change that
Speaker 1: the US has offered. Basically concurrently with passing the bill
Speaker 1: on SIPHIUS, the US also passed the Export Control Reform
Speaker 1: Act in August of last year, and among several things,
Speaker 1: the Export Control Reform Act requires the Department of Commerce
Speaker 1: to come up with several lists of technologies. One is
Speaker 1: in UH Emerging List of Technologies, and others a Foundational
Speaker 1: List of technologies. The Emerging List is something we have
Speaker 1: a proposal of. It hasn't been finalized yet. The Foundational
Speaker 1: List hasn't been finalized yet, so we have a sense
Speaker 1: of what the Emerging List looks like. It is UH.
Speaker 1: It enumerates technologies like artificial intelligence, biotechnology, quantum computing. If
Speaker 1: you take a look at a lot of these items,
Speaker 1: smart dust is in their M sensing whatever that is,
Speaker 1: it's in there. And these look like big science projects
Speaker 1: rather than major pillars of US exports. But I think
Speaker 1: they really are quite material, mostly because the US defines
Speaker 1: and export and extremely brought terms. It is not just
Speaker 1: the sale of a final good across borders. Any transfer
Speaker 1: of information to a foreign national is deemed and export.
Speaker 1: It is a deemed export. So Joe, let's say that
Speaker 1: you know, you and I are sitting in a cafe
Speaker 1: in Australia and I am a U S national and
Speaker 1: you are a French national, or Iranian national or Russian national, whatever.
Speaker 1: And if I'm just talking to you, or if I'm
Speaker 1: sending you an email about a control technology, which right
Speaker 1: now is mostly things like munitions and weaponry, that is
Speaker 1: deemed an export subject to control by the Department of Commerce.
Speaker 1: And if you think through the implications of that, plus
Speaker 1: the idea that the US might control UH as something
Speaker 1: as vague as artificial intelligence AI as a national security technology,
Speaker 1: then you know, consider that US firm in the US,
Speaker 1: like Microsoft, Amazon, Intel, Apple, Amazon, the employee substantial numbers
Speaker 1: of foreign nationals working on these technologies. And I've spoken
Speaker 1: to people at these firms who say that, you know,
Speaker 1: they have to really think about if they had to
Speaker 1: sequester or even terminate portions of their staff, otherwise they
Speaker 1: would be in violation of USX port control laws, So
Speaker 1: I think that is possibly the next shoot to drop,
Speaker 1: just depending on how this regulatory process goes. This is
Speaker 1: one of the risks that I think people ought to
Speaker 1: be watching out for. I think it's going to create
Speaker 1: basically a lot of havoc um if the rolemaking process
Speaker 1: posed as you know, the proposal, what it looks like
Speaker 1: so people talk, I mean, you think about this term.
Speaker 1: You hear a tech cold war, so to speak. But
Speaker 1: that's really what this sounds like when you think of
Speaker 1: this idea that you know, US tech multinationals might not
Speaker 1: even be able to allow collaboration between their US based
Speaker 1: researchers and foreign nationals. You could really just sort of
Speaker 1: see how essentially disruptive to the way the world works
Speaker 1: that would be. I think it could be really disruptive
Speaker 1: that h Potentially the US might stop flows of knowledge
Speaker 1: between people, and I think the you know, I I
Speaker 1: am still not quite yet ready to call this a
Speaker 1: cold war. I think that is a fairly extreme scenario.
Speaker 1: And in any case, basically China is much more entwined
Speaker 1: with the US than the U S was with the
Speaker 1: Soviet Union. So how this exactly shakes out, I don't
Speaker 1: even know. If the previous Cold War might be a
Speaker 1: useful president. But yes, I think you are getting into
Speaker 1: some interesting problems here. UH industry has pushed back a
Speaker 1: lot against this deemed exports idea. One of the industries
Speaker 1: has suggested that basically, you know, if you take this
Speaker 1: steamed exports very seriously, an admitter of a technology, if
Speaker 1: it had gone up a final list of control technologies
Speaker 1: might be prevented from possessing it. And oh, you know,
Speaker 1: you get into these very odd situations where you know,
Speaker 1: a lot of things can be shaken up. Well, Dan,
Speaker 1: on that note, I'm thinking we have to reschedule you again,
Speaker 1: maybe every six months or something like that, for the
Speaker 1: next several years, because it feels like what you're describing
Speaker 1: and as you say, it's not going away, and the
Speaker 1: uh the ramifications of these moves are bewildering and kind
Speaker 1: of almost extremely hard to comprehend how they will really
Speaker 1: play out. But really appreciate your perspective. The perfect guest
Speaker 1: given the spade of news over the last few weeks.
Speaker 1: So thank you very much for coming on. Well, thank you. Well,
Speaker 1: here is where I would normally chat with Tracy and
Speaker 1: talk about what a great conversation that was and that
Speaker 1: one actually was really fantastic. But since she's not here,
Speaker 1: I'm just going to wrap it up and obviously, uh,
Speaker 1: this has been another episode of the Odd Lots podcast
Speaker 1: and I'm Joe Wi isn't though you can follow me
Speaker 1: on Twitter at the Stalwart. Even though she wasn't here,
Speaker 1: you should still follow Tracy on Twitter at Tracy Alloway,
Speaker 1: definitely follow our guest on Twitter, Dan Wong at Dan
Speaker 1: w Wong, and be sure to follow our producer Laura Carlson.
Speaker 1: She's at Laura M. Carlson, as well as the Bloomberg
Speaker 1: head of podcast, Francesco Levie at Francesca Today. Thanks for
Speaker 1: listening