WEBVTT - Author Patrick McGee Talks Apple in China 0:00:02.520 --> 0:00:04.220 Bloomberg Audio Studios. 0:00:04.690 --> 0:00:05.370 Podcasts. 0:00:05.690 --> 0:00:07.070 Radio. News. 0:00:07.950 --> 0:00:10.629 Safe to say we follow Apple so closely. We love 0:00:10.670 --> 0:00:13.510 talking with our Mark Gurman, who follows it very closely. 0:00:13.590 --> 0:00:15.510 It is, of course, one of the largest market cap 0:00:15.550 --> 0:00:18.919 companies in the world, a company whose brand, whose products, 0:00:18.960 --> 0:00:23.299 whose supply chain, whose deafness in managing tricky politics in 0:00:23.340 --> 0:00:26.940 the United States and in China is revered by many. 0:00:27.080 --> 0:00:30.740 And yet, As investigative journalist Patrick McGee wrote in his 0:00:30.780 --> 0:00:33.559 New York Times bestseller that was named by the Times, 0:00:33.740 --> 0:00:36.659 by the New Yorker, by the Washington Post, by Foreign Affairs, 0:00:37.050 --> 0:00:38.729 by the Globe and Mail as one of the best 0:00:38.780 --> 0:00:42.450 books written in 2025. He writes about the rise of 0:00:42.570 --> 0:00:45.110 Apple and how it led to an even greater rise 0:00:45.150 --> 0:00:49.630 by China and perhaps at a huge cost or implications, 0:00:49.690 --> 0:00:52.290 certainly for the company and maybe for the world at large. 0:00:52.350 --> 0:00:55.370 Patrick is a former journalist at the Financial Times. His 0:00:55.410 --> 0:00:58.010 book was out in May of 2025. But with everything 0:00:58.050 --> 0:01:00.430 going on, we wanted to bring him in. And I'm 0:01:00.450 --> 0:01:02.300 going to be quite honest. I was listening to a 0:01:02.400 --> 0:01:06.940 podcast with Anthony Scaramucci before he came on. And Patrick, 0:01:06.980 --> 0:01:09.150 he mentioned your book. He loved it. He loved it. 0:01:10.470 --> 0:01:12.390 It is entitled Apple in China, the Capture of the 0:01:12.430 --> 0:01:15.030 World's Greatest Company. And Patrick is joining us on this 0:01:15.090 --> 0:01:17.690 Friday from the Bloomberg News San Francisco Bureau. It is 0:01:17.750 --> 0:01:19.850 great to have you here. It is a company we 0:01:19.890 --> 0:01:22.070 talk about so much. And then we think about the 0:01:22.110 --> 0:01:25.650 rise of China as well. I want to ask you, 0:01:25.709 --> 0:01:28.089 when you set out to write the book, did you 0:01:28.150 --> 0:01:30.789 have an idea of the story that you wanted to 0:01:30.850 --> 0:01:33.550 tell or did it really evolve as you dug more 0:01:33.569 --> 0:01:34.830 and more into things? 0:01:36.260 --> 0:01:38.660 So I wrote a 70-page book pitch to get the 0:01:38.700 --> 0:01:40.910 book deal. So I certainly had a pretty clear sense 0:01:41.030 --> 0:01:43.350 of what the book was going to say. But nevertheless, 0:01:43.410 --> 0:01:45.990 I ended up being flabbergasted by the extent to which 0:01:46.170 --> 0:01:48.950 Apple had a massive influence on China. So if you've 0:01:48.970 --> 0:01:50.910 read the book, you know that the thesis, in a sense, 0:01:51.270 --> 0:01:54.920 is that Apple had a nation-building-like influence on China. It 0:01:54.940 --> 0:01:56.780 would be trivial to say that Apple wouldn't be Apple 0:01:56.800 --> 0:01:59.400 without China. I actually argue that China wouldn't be China 0:01:59.420 --> 0:02:02.180 without Apple. It's a sort of thesis that sounds, I think, 0:02:02.200 --> 0:02:06.100 pretty unhinged, even bonkers. But if you go through the 0:02:06.100 --> 0:02:10.340 400 pages, I think it's pretty well stacked up. So 0:02:10.460 --> 0:02:12.780 I didn't think that I was going in that direction. 0:02:12.820 --> 0:02:14.600 I was trying to write a standard corporate history of 0:02:14.639 --> 0:02:16.880 how Apple became the most valuable company on the planet 0:02:17.200 --> 0:02:20.700 and ended up writing something that had geopolitical implications, the 0:02:20.740 --> 0:02:23.650 likes of which I had de minimis understanding before tackling 0:02:23.690 --> 0:02:24.120 the project. 0:02:24.220 --> 0:02:26.670 Well, I think what's so notable is what happened since 0:02:26.690 --> 0:02:28.970 you wrote the book. And that's the fact that Tim 0:02:29.010 --> 0:02:32.310 Cook is out as CEO. But he remains as executive chair. 0:02:32.370 --> 0:02:34.910 And in his role as executive chair, he continues to 0:02:35.730 --> 0:02:39.310 meet with the heads of state of many countries throughout 0:02:39.370 --> 0:02:42.769 the world, including China, including the United States. And, you know, 0:02:42.810 --> 0:02:44.130 just in the last couple of weeks, he was at 0:02:44.150 --> 0:02:48.000 that state dinner with Xi Jinping in Washington, D.C. On 0:02:48.030 --> 0:02:52.080 the individual, the people who made this possible, who at 0:02:52.180 --> 0:02:55.639 Apple was the most responsible for Apple's role in China? 0:02:57.490 --> 0:02:59.190 That's a good question. I mean, I don't want to 0:02:59.230 --> 0:03:01.500 give the boring answer of Tim Cook, but of course, 0:03:01.560 --> 0:03:03.780 he was the CEO since 2011. I mean, it certainly 0:03:03.820 --> 0:03:07.000 wasn't Steve Jobs, right? Steve Jobs, as far as I know, 0:03:07.100 --> 0:03:09.079 if someone wants to prove me wrong, go ahead, never 0:03:09.139 --> 0:03:12.170 stepped foot in China in his whole life. So as 0:03:12.270 --> 0:03:16.330 instrumental as he was for Apple and product design, he 0:03:16.370 --> 0:03:18.950 was not the guy running operations or making the decisions, 0:03:19.030 --> 0:03:19.829 never went to China. 0:03:19.930 --> 0:03:21.410 But Tim Cook... Yeah, go ahead. 0:03:21.440 --> 0:03:24.540 Sorry. But Tim Cook was there all the time. Now, 0:03:24.580 --> 0:03:27.079 that being said, Tim Cook traditionally goes to China two 0:03:27.139 --> 0:03:29.660 or three times a year. And it's certainly not difficult 0:03:29.700 --> 0:03:32.040 to find people who were living in China on behalf 0:03:32.080 --> 0:03:35.250 of Apple or going there so many times per year 0:03:35.530 --> 0:03:37.810 that they would say the idea that Tim Cook is 0:03:37.870 --> 0:03:40.450 the reason that either we're succeeding in China or whatever 0:03:40.990 --> 0:03:43.510 is faintly ridiculous because, of course, he's more orchestrating things 0:03:43.530 --> 0:03:45.550 from Cupertino, but there are people on the ground, in 0:03:45.590 --> 0:03:48.790 the weeds, you know, training suppliers and that sort of thing. 0:03:49.010 --> 0:03:51.470 So it's not a particular individual, I would say. It's 0:03:51.510 --> 0:03:55.150 the unit called a manufacturing design, a unit within Apple 0:03:55.190 --> 0:03:58.110 that specifically goes from Cupertino or from other parts of Asia, 0:03:58.130 --> 0:04:01.369 but traditionally from Cupertino to factories across Asia and over 0:04:01.390 --> 0:04:06.370 time increasingly directly to China to train up factories. You know, 0:04:06.390 --> 0:04:08.850 we're talking millions upon millions of people were trained at 0:04:08.870 --> 0:04:11.410 the behest of Apple to meet their quality demands and 0:04:11.430 --> 0:04:13.910 then to learn how to retain that quality as they scaled. 0:04:14.210 --> 0:04:16.110 And the result of that was the formation of entire 0:04:16.150 --> 0:04:19.370 industrial clusters devoted to building something like the iPhone, which 0:04:19.390 --> 0:04:22.750 of course goes from 5 million units in 2007 to 0:04:22.750 --> 0:04:27.610 230 million by 2015. The reason I don't think that's 0:04:27.650 --> 0:04:30.110 a boring answer is because Tim Cook may have become 0:04:30.150 --> 0:04:33.310 CEO in 2011, but Tim Cook was the supply chain 0:04:33.330 --> 0:04:37.830 guy for a decade before this. So he was the 0:04:37.950 --> 0:04:40.570 one who was figuring out where in the world these 0:04:40.650 --> 0:04:44.350 things could be made and also the supply chains and 0:04:44.370 --> 0:04:48.479 the complicated supply chains that would make this possible. So 0:04:48.500 --> 0:04:51.020 I'm slightly being pedantic, but I would say that I 0:04:51.160 --> 0:04:53.479 disagree with the general notion that Tim Cook was the 0:04:53.600 --> 0:04:56.930 architect of the China strategy. That's sort of the... the 0:04:56.970 --> 0:04:58.910 word people had used to describe him before I wrote 0:04:58.950 --> 0:05:00.770 the book, I would say you can give him a 0:05:00.810 --> 0:05:03.770 nice title like Admiral rather than Architect. The reason I 0:05:03.810 --> 0:05:07.099 say that is because when Apple adopts an outsourcing strategy 0:05:07.160 --> 0:05:11.540 in 1996 and then consolidates basically everything to China in 2003, 0:05:11.540 --> 0:05:14.540 it's not really that they're deciding, hey, you know what's 0:05:14.560 --> 0:05:17.240 a good place to manufacture? It's China. It's that hundreds 0:05:17.360 --> 0:05:21.160 of suppliers who had previously been in America, but principally 0:05:21.300 --> 0:05:25.470 in Korea and Japan and especially Taiwan, they were moving 0:05:25.510 --> 0:05:28.150 to China. And so I say admiral because Tim Cook 0:05:28.170 --> 0:05:32.310 sort of navigated the macroeconomic seas better than anybody else, 0:05:32.570 --> 0:05:36.450 but he didn't actually sort of build or decide that 0:05:36.470 --> 0:05:38.710 China was the answer. They were kind of late to 0:05:38.730 --> 0:05:41.360 the game of both outsourcing and moving to China. They 0:05:41.380 --> 0:05:42.860 just did better than everybody else. 0:05:43.960 --> 0:05:47.640 So I want to go to, you know, I think 0:05:47.700 --> 0:05:52.830 about Apple when it was thinking about starting its investments 0:05:53.450 --> 0:05:57.450 and having its manufacturing happen in China. I would imagine, 0:05:57.470 --> 0:06:01.330 and I think you cite an Apple engineer talking about 0:06:01.350 --> 0:06:05.029 visiting suppliers in the southern Chinese manufacturing center, Shenzhen. It's 0:06:05.050 --> 0:06:07.680 also something that the Times I know highlighted too, was 0:06:07.750 --> 0:06:10.640 horrified that there were no elevators in the slapdash facility, 0:06:11.000 --> 0:06:14.060 that the stairs were built with troubling irregularity with, say, 0:06:14.060 --> 0:06:17.040 12 steps of varying heights between the first and second floors, 0:06:17.080 --> 0:06:19.570 and 18 to the next, and 16, then 24. Apple, 0:06:19.770 --> 0:06:23.469 if you think about this company, Patrick, design and even 0:06:23.490 --> 0:06:26.729 the packaging, everything is so immaculate. To go over there 0:06:27.830 --> 0:06:31.730 and understand what they were walking into initially, I always 0:06:31.750 --> 0:06:34.430 think about corporate conscience or thinking, is this really the 0:06:34.470 --> 0:06:37.150 right thing? Or did they really play into that narrative 0:06:37.170 --> 0:06:39.310 that the whole world did at that time of, we're 0:06:39.350 --> 0:06:40.770 going to go over there and we're going to help 0:06:40.830 --> 0:06:43.890 the plight of Chinese workers. We're going to create better 0:06:43.930 --> 0:06:46.970 situations for them. Is that what was part of their thinking? 0:06:48.380 --> 0:06:50.500 You know, my favorite quote in the book comes from 0:06:50.520 --> 0:06:53.520 a former vice president at Apple. We're having coffee, and 0:06:53.540 --> 0:06:55.719 I'm asking him all these geopolitical questions about the rise 0:06:55.740 --> 0:06:58.060 of China. And he says to me, are you sure 0:06:58.080 --> 0:07:02.150 you're not overthinking your thesis? Because you keep talking about geopolitics, 0:07:02.250 --> 0:07:04.429 but I can tell you, I was there in China 0:07:04.510 --> 0:07:06.310 when we were building up the supply chain in the 0:07:06.330 --> 0:07:09.510 early 2000s, and we weren't thinking about geopolitics at all. 0:07:10.410 --> 0:07:11.930 And that might as well be on the back of 0:07:11.950 --> 0:07:14.700 the book. That is the thesis in a nutshell. That 0:07:14.840 --> 0:07:20.450 Apple was very engineering-minded, perfectionist mindset, very product-focused, and wasn't 0:07:20.610 --> 0:07:23.270 sending people over to sort of learn Mandarin and affairs 0:07:23.310 --> 0:07:27.110 of state and understand the perspective of their partners. They 0:07:27.130 --> 0:07:30.570 were there to get stuff done. And they had really 0:07:30.630 --> 0:07:33.420 demanding bosses making sure they got stuff done. And I 0:07:33.450 --> 0:07:37.260 don't think they quite realized the implications or consequences of 0:07:37.320 --> 0:07:41.560 what it meant to scale just enormous quantities of the 0:07:41.600 --> 0:07:44.670 most iconic product of the 21st century. in a country 0:07:44.950 --> 0:07:47.010 just as it became an adversary of the U.S. I mean, 0:07:47.030 --> 0:07:48.830 that's the whole tension of the narrative right there. 0:07:49.090 --> 0:07:51.810 It is. It's incredible. Go there, and forgive me, I 0:07:51.850 --> 0:07:54.130 know you have said this a million times over, certainly 0:07:54.170 --> 0:07:55.739 listening to podcasts and so on and so forth, but 0:07:56.000 --> 0:07:58.780 the size and scope in terms of the amount of 0:07:58.830 --> 0:08:03.500 money that was invested over and over again by Apple continues, 0:08:03.720 --> 0:08:06.100 or although we know that they are kind of spreading 0:08:06.180 --> 0:08:08.900 out in terms of manufacturing. Give us some of the numbers. 0:08:08.940 --> 0:08:10.540 Give us that size and scope, if you will. 0:08:11.770 --> 0:08:14.040 Yeah, so within the narrative context here, what happens is 0:08:14.060 --> 0:08:17.560 that Xi Jinping comes into power in 2013, and Apple 0:08:17.640 --> 0:08:20.740 is within 36 hours on the back foot, basically put 0:08:20.780 --> 0:08:23.850 in a position where they think our products might get blacklisted. 0:08:24.190 --> 0:08:26.810 Not an idle threat. Facebook had been blacklisted. Google had 0:08:26.830 --> 0:08:29.530 been blacklisted. And Apple had become, by this point, the 0:08:29.550 --> 0:08:33.839 most successful retailer within China and the most successful operator. 0:08:34.120 --> 0:08:35.800 So the idea that it's going to have a problem 0:08:35.860 --> 0:08:38.600 in China, both in terms of manufacturing and selling, becomes 0:08:38.640 --> 0:08:41.979 something close to an existential crisis, and Apple has to 0:08:42.040 --> 0:08:45.150 figure out what to do. In figuring out what to do, 0:08:45.250 --> 0:08:47.290 there's this gang of characters called the Gang of Eight, 0:08:47.809 --> 0:08:50.350 sort of the eyes and ears of Cupertino, on the ground, 0:08:50.410 --> 0:08:52.670 senior people living in China for the first time ever, 0:08:52.750 --> 0:08:55.130 despite having a presence there for 20 years at that point. 0:08:55.770 --> 0:08:59.030 And they and the government affairs team essentially do a 0:08:59.070 --> 0:09:02.500 supply chain audit, a supply chain study, and recognize that 0:09:02.600 --> 0:09:05.540 what they're investing into Chinese factories is $ 55 billion per year. 0:09:07.540 --> 0:09:09.880 To be clear, this does not count the components. I'm 0:09:09.900 --> 0:09:12.349 not talking about aluminum chassis or anything like that. If 0:09:12.370 --> 0:09:13.990 you were to count that, it would double or triple 0:09:14.010 --> 0:09:16.770 the figure. This is just counting the machinery that Apple 0:09:16.809 --> 0:09:20.390 was purchasing and putting on suppliers' production lines. And crucially, 0:09:20.470 --> 0:09:22.710 it was the wages of up to 3 million people 0:09:22.830 --> 0:09:27.220 per year in the Apple supply chain, principally concentrated in China, 0:09:27.240 --> 0:09:30.000 of course. And so this is not a figure that's 0:09:30.040 --> 0:09:33.060 been updated. And I don't think Apple internally tallies it. 0:09:33.120 --> 0:09:35.860 But effectively what happens is this study goes to Tim Cook, 0:09:36.230 --> 0:09:39.950 And in May 2016, he, Lisa Williams, and his operating chief, 0:09:39.990 --> 0:09:43.179 Jeff Williams, go to Jiangnanhai. That's like the citadel of 0:09:43.200 --> 0:09:45.460 communist power, the equivalent of the White House, if you will. 0:09:45.920 --> 0:09:49.439 And they promised to quintuple that figure over five years. 0:09:49.760 --> 0:09:54.050 So they promised to invest $ 275 billion into Chinese factories. 0:09:54.470 --> 0:09:57.530 The reason why this is important is because at the time, 0:09:57.550 --> 0:10:02.830 Xi Jinping was... chief policy was called Made in China 2025. 0:10:02.830 --> 0:10:05.690 In effect, the idea was we're going to make the 0:10:05.730 --> 0:10:08.130 world dependent on China, and we're going to be less 0:10:08.150 --> 0:10:12.640 dependent on the world. So it's a play to indigenize innovation, right? 0:10:12.679 --> 0:10:16.420 Indigenize production in the country. And Apple basically realizes, this 0:10:16.480 --> 0:10:18.830 is of course my wording, not theirs, that We are 0:10:18.890 --> 0:10:22.270 the biggest contributor of Made in China 2025. And the 0:10:22.330 --> 0:10:24.849 reason why Beijing is upset with us is they have 0:10:25.010 --> 0:10:29.530 no idea how much we are doing to up-train the engineering, 0:10:29.840 --> 0:10:34.260 up-skill and train engineering forces across the country. So this 0:10:34.320 --> 0:10:36.700 figure is enormous. And it's so big that I couldn't 0:10:36.740 --> 0:10:39.620 find another example of a corporation investing that much in 0:10:39.660 --> 0:10:42.839 another country. So I had to go to nation-building efforts, right? 0:10:43.160 --> 0:10:45.350 And so if you take the Marshall Plan, which was 0:10:45.410 --> 0:10:49.089 America and some allies, investing in 16 countries to a 0:10:49.130 --> 0:10:53.150 devastated Europe after World War II. In 2015 dollars, that 0:10:53.190 --> 0:10:57.640 was $ 131 billion invested in four years. So the Cook Plan, 0:10:57.760 --> 0:11:00.720 if you will, was double the amount in a similar 0:11:00.760 --> 0:11:03.819 time period. And whereas the Marshall Plan, if you remember 0:11:03.840 --> 0:11:07.750 from your high school textbooks, is effectively an investment to 0:11:07.830 --> 0:11:10.590 ward off the threat of communism from the Soviet Union, 0:11:10.850 --> 0:11:14.670 sort of like making hay, becoming more popular in places 0:11:14.690 --> 0:11:17.390 like France or Eastern Europe. The idea was to ward 0:11:17.480 --> 0:11:20.800 off communism. The Cook Plan is the opposite. It's a 0:11:20.820 --> 0:11:25.020 way to ingratiate Apple with communist rulers in Beijing so 0:11:25.040 --> 0:11:28.120 that they can continue to have shareholder success there. So 0:11:28.220 --> 0:11:29.700 it's quite a remarkable comparison. 0:11:29.820 --> 0:11:33.000 Can we go as far... China, forgive me. Apple knew 0:11:33.020 --> 0:11:34.020 exactly what they were doing. 0:11:36.800 --> 0:11:41.220 Oh, that's a great question. Look, some people, even at Apple, 0:11:41.260 --> 0:11:41.620 have been. 0:11:44.770 --> 0:11:47.020 Have questions that I've said a lot of this was 0:11:47.160 --> 0:11:49.939 inadvertent on the part of Apple, because people will say 0:11:50.080 --> 0:11:52.640 Apple seemed to know everything that they were doing. And 0:11:52.679 --> 0:11:55.700 that's up for a healthy debate, let's just say. In 0:11:55.720 --> 0:11:57.459 a certain sense, I would still say they were an 0:11:57.540 --> 0:12:02.349 engineering-focused organization that wasn't thinking about the geopolitical implications of 0:12:02.370 --> 0:12:05.250 what they were doing. On the other hand, they absolutely 0:12:05.309 --> 0:12:08.490 began to understand that the impact they were having was 0:12:08.670 --> 0:12:12.510 meaning that all of their competitors were becoming Chinese, right? 0:12:12.550 --> 0:12:15.910 In other words... Why does Nokia die? Nokia doesn't die 0:12:15.950 --> 0:12:18.530 because they couldn't keep up with the iPhone interface or 0:12:18.570 --> 0:12:22.270 the software prowess of Apple. That's the traditional narrative. But 0:12:22.500 --> 0:12:24.760 Apple was never big enough to kill Nokia. They've never 0:12:24.800 --> 0:12:28.240 had more than 20% market share. So where's the other 80%? Well, principally, 0:12:28.280 --> 0:12:31.260 it's the Chinese competitors, right? And so I argue that 0:12:31.780 --> 0:12:34.679 it's not Apple that killed Nokia. It's the Chinese imitators 0:12:34.720 --> 0:12:38.420 of Apple that killed Nokia because collectively they have almost 60% 0:12:38.420 --> 0:12:40.850 market share globally. And then you add Apple and then 0:12:40.870 --> 0:12:44.270 you add Samsung and that's basically everybody. So Apple began 0:12:44.309 --> 0:12:47.030 to understand that by building up its supply chain there, 0:12:47.230 --> 0:12:51.500 the supply chain would then feed Xiaomi, Huawei, Oppo, and Vivo. 0:12:51.760 --> 0:12:54.900 So they were having dramatic impact on the Chinese competitors 0:12:54.920 --> 0:12:57.780 to Apple. And the people that weren't receiving the same 0:12:57.820 --> 0:13:03.210 lessons were Nokia or Motorola, other companies that basically had 0:13:03.230 --> 0:13:09.150 become has-beens. So in that sense, they absolutely understood. But 0:13:09.230 --> 0:13:13.340 I'm saying inadvertent because... I guess I'm trying to be generous. 0:13:13.760 --> 0:13:16.179 And if I had one criticism, if there's one point 0:13:16.200 --> 0:13:18.780 where things could have gone differently, it really was when 0:13:18.820 --> 0:13:21.640 Xi Jinping came into power in 2013 and Apple had 0:13:21.679 --> 0:13:24.280 what I call this political awakening. And that's around the 0:13:24.300 --> 0:13:27.209 same period. I believe that's the same year where Tim 0:13:27.230 --> 0:13:30.189 Cook instituted something Steve Jobs had never done, which was 0:13:30.250 --> 0:13:34.170 shareholder buybacks and I think dividends as well. And Apple 0:13:34.210 --> 0:13:39.680 spends more than $ 100 billion per year on share buybacks 0:13:39.760 --> 0:13:42.970 and dividends, right? More than all seven of Wall Street's 0:13:43.010 --> 0:13:46.230 top seven banks spend on share buybacks and dividends. So 0:13:46.370 --> 0:13:48.190 it's hard to understand how large Apple is. I mean, 0:13:48.210 --> 0:13:51.150 it's just absolutely enormous. And I think if they had spent, 0:13:51.190 --> 0:13:53.730 let's say, half of that, some fraction of that, on 0:13:53.750 --> 0:13:56.880 supply chain resiliency and making sure they really had a 0:13:56.920 --> 0:13:59.280 plan B outside of China, I don't think Apple would 0:13:59.300 --> 0:14:02.719 be in the sort of existential vulnerable position that they're 0:14:02.760 --> 0:14:03.500 in today. 0:14:04.070 --> 0:14:06.390 We're speaking with Patrick McGee. He's the author of Apple 0:14:06.450 --> 0:14:08.610 in China, the Capture of the World's Greatest Company. He 0:14:08.650 --> 0:14:12.349 joins us from San Francisco. Perhaps the manufacturing side of 0:14:12.390 --> 0:14:15.090 this brings us to a good place to talk about 0:14:15.150 --> 0:14:18.980 Hanhai Precision Technology, the company that I think more people 0:14:19.000 --> 0:14:22.860 know as Foxconn, a Taiwanese company, but with a huge 0:14:22.920 --> 0:14:27.320 presence in China. What is its role in this buildup? 0:14:27.340 --> 0:14:29.160 PATRICK MCGEE. 0:14:29.180 --> 0:14:33.430 So Terry Guo founded Foxconn in 1974, two years before 0:14:33.490 --> 0:14:38.050 two guys named Steve launched Apple. And for a while, 0:14:38.110 --> 0:14:41.330 it's really a Taiwanese company that's doing some pretty boring things. 0:14:42.170 --> 0:14:46.720 Foxconn comes from connector because it was doing connectors inside computers. 0:14:46.760 --> 0:14:48.900 And even before that, it was doing things like television knobs, 0:14:49.140 --> 0:14:52.000 plastic injection molding of these things, and really undercutting others 0:14:52.060 --> 0:14:54.660 on price in the Western markets just because they could 0:14:54.680 --> 0:14:57.900 do things in Taiwan. So Terry Guo was very savvy, 0:14:57.960 --> 0:14:59.760 not just in terms of building things, but in terms 0:14:59.830 --> 0:15:02.330 of political connections and You know, he used to tour 0:15:02.390 --> 0:15:05.830 America and finds people like Michael Dell, bring them to 0:15:06.270 --> 0:15:09.479 factories and demonstrate what he was capable of. And in 0:15:09.500 --> 0:15:12.460 the late 1990s, he, I think, is the first person 0:15:12.480 --> 0:15:16.400 to understand that Apple, this fledgling company that was sort 0:15:16.420 --> 0:15:19.180 of on the magazine covers, you know, famously Bloomberg Businessweek, 0:15:19.800 --> 0:15:22.540 that it was like close to bankruptcy and so forth. 0:15:23.130 --> 0:15:25.530 Nobody really wanted to be working with it, not just 0:15:25.570 --> 0:15:29.030 because their volumes were low, but because they were so demanding, right? 0:15:29.090 --> 0:15:32.090 Like Apple would send these engineers to your factories, breathe 0:15:32.130 --> 0:15:34.630 down the neck of everybody and just, you know, reject 0:15:34.710 --> 0:15:37.490 every components, right? Just sort of force a level of 0:15:37.590 --> 0:15:40.650 quality and discipline onto the workforce that basically nobody wanted 0:15:40.670 --> 0:15:44.250 to deal with. And Terry Guo understood that the learning 0:15:44.530 --> 0:15:46.930 that his team received from Apple coming in and sort 0:15:46.970 --> 0:15:49.370 of taking control of his factories was was way more 0:15:49.410 --> 0:15:52.590 important than any profits that he could gain from the company. 0:15:52.830 --> 0:15:55.750 So other companies looked at Apple and said, they negotiate 0:15:55.770 --> 0:15:57.850 too hard and we don't earn anything. Why would we 0:15:57.890 --> 0:16:00.250 work with this company? And Terry Guo was the brilliant 0:16:00.270 --> 0:16:02.880 mastermind who figures out that it's not about the profits, 0:16:03.010 --> 0:16:05.000 it's about the learning. And if we can train up 0:16:05.080 --> 0:16:08.280 our force to please Apple and receive their training to 0:16:08.300 --> 0:16:11.440 please Apple, we'll be able to please anyone. And Foxconn 0:16:11.720 --> 0:16:14.160 since 2001 has been the largest contract manufacturer in the 0:16:14.200 --> 0:16:17.940 world with Apple as their number one client that entire period. 0:16:18.040 --> 0:16:20.000 And that's what's kind of wild, Patrick. You talk about 0:16:20.040 --> 0:16:23.320 all the investments that Apple did into China, but it's 0:16:23.340 --> 0:16:26.320 not like they actually own the factories or anything. But 0:16:26.360 --> 0:16:29.780 what they did is spent money, but they were teaching 0:16:29.820 --> 0:16:32.700 their expertise in the process of how to do things. 0:16:32.780 --> 0:16:35.090 And I think about where we are today, whether it's 0:16:35.300 --> 0:16:39.430 EVs or You name it. I mean, anybody talks about manufacturing, 0:16:39.450 --> 0:16:42.020 they're like, you got to go to China because their 0:16:42.140 --> 0:16:45.140 level of expertise is beyond everyone else's. 0:16:46.540 --> 0:16:48.540 Yeah, I mean, I'll tell you one funny anecdote. I've 0:16:48.640 --> 0:16:51.020 given talks about this book to Apple suppliers and a 0:16:51.040 --> 0:16:53.990 whole host of other companies. And one small hardware company 0:16:54.040 --> 0:16:57.710 in the Bay Area moved their operations from Vietnam to 0:16:57.750 --> 0:17:00.610 China upon reading the book because I gather the book 0:17:00.630 --> 0:17:02.650 was so convincing that Shenzhen was the place to get 0:17:02.690 --> 0:17:05.030 everything done. The irony here, of course, is, you know, 0:17:05.350 --> 0:17:07.530 it's sort of told in a neutral sense. If you 0:17:07.550 --> 0:17:09.869 finish the book, I mean, maybe in the conclusion, it's 0:17:09.890 --> 0:17:11.830 a little more biting. But generally speaking, it's just sort 0:17:11.850 --> 0:17:16.590 of one thing after another. without me interjecting my political voice. 0:17:16.710 --> 0:17:19.770 But the subtext is kind of screaming at you that 0:17:19.890 --> 0:17:22.149 America has a real problem here of how dependent we 0:17:22.310 --> 0:17:25.609 are on a foreign rival that's four times the size 0:17:25.770 --> 0:17:27.610 of our population and so on and so forth, right? 0:17:27.970 --> 0:17:30.530 And so the idea that someone is going to move 0:17:30.570 --> 0:17:33.020 their operations to China upon reading the book, on the 0:17:33.080 --> 0:17:36.520 one hand, it's amusing. And of course, it's a little disappointing. 0:17:36.760 --> 0:17:38.560 But I'm also sort of heartened by the fact that 0:17:38.660 --> 0:17:41.940 I really do try to write without my own political interjections. 0:17:42.060 --> 0:17:44.110 And so for someone to sort of use the book 0:17:44.850 --> 0:17:47.280 and derive value from it, but from a totally different 0:17:47.760 --> 0:17:50.480 political standpoint, I suppose, it pleases me very much. 0:17:50.840 --> 0:17:52.859 What about when you think about something like TSMC and 0:17:52.900 --> 0:17:55.359 you write about it and you say, well, maybe, you know, 0:17:55.380 --> 0:17:58.590 we talked about the political vulnerabilities, where it's located, you know, 0:17:58.630 --> 0:18:01.450 and what China, the pressure that it could possibly be. 0:18:01.490 --> 0:18:05.050 TSMC is so crucial to all of the semiconductors that 0:18:05.070 --> 0:18:06.870 are made in this world. You write in the book 0:18:06.890 --> 0:18:09.550 that maybe the biggest concern is that it's on a 0:18:09.590 --> 0:18:12.610 major earthquake fault and that might be the bigger problem. 0:18:12.650 --> 0:18:15.070 But I do think about, you know, here we are, 0:18:15.090 --> 0:18:16.820 this war, forgive me as I kind of try to 0:18:16.840 --> 0:18:21.280 make this connection, but U.S. war against Iran and Iran 0:18:21.300 --> 0:18:23.920 being able to kind of bring much of the world 0:18:23.960 --> 0:18:26.280 to its knees by shutting down the Strait of Hormuz 0:18:26.320 --> 0:18:28.320 and energy. We were lucky in the U.S. because we've 0:18:28.340 --> 0:18:33.390 got energy independence, if you will. But at the same time, semiconductors, 0:18:33.450 --> 0:18:35.919 China could bring the world to its knees, whether it's 0:18:35.980 --> 0:18:39.820 rare earths or semiconductor manufacturing. I mean, how do you 0:18:39.840 --> 0:18:42.920 think about the vulnerability of the U.S., of all these 0:18:42.980 --> 0:18:46.200 major companies, or the world at large, as you look 0:18:46.240 --> 0:18:47.740 at China and its power today? 0:18:49.119 --> 0:18:51.600 I mean, this is the biggest overriding issue, because I 0:18:51.700 --> 0:18:54.970 think the layperson has some understanding that China, in terms 0:18:55.010 --> 0:18:57.910 of manufacturing dominance, has peaked, and that there's a big 0:18:57.970 --> 0:19:02.420 re-industrialization narrative taking place in America. I think there's substantially 0:19:02.480 --> 0:19:04.780 no evidence for that. Of course you can find anecdotes 0:19:04.960 --> 0:19:07.310 of things being produced in America, but in terms of 0:19:07.350 --> 0:19:09.590 the actual statistics, it's just not the case at all. 0:19:10.340 --> 0:19:15.480 since Donald Trump in the first term put out policies 0:19:15.510 --> 0:19:19.710 to really hamper China, you have had a decline in 0:19:19.750 --> 0:19:23.270 the trade surplus that China has with the U.S., but 0:19:23.310 --> 0:19:27.040 China's trade surplus with the world has gotten far, far larger, right? 0:19:27.300 --> 0:19:28.419 The last time I looked at this was a few 0:19:28.460 --> 0:19:31.219 months ago. I think it was $ 1. 2 trillion surplus for 0:19:31.260 --> 0:19:33.340 last year, and then the first three or four months 0:19:33.359 --> 0:19:36.000 of this year had gone up by another 15%. So 0:19:36.020 --> 0:19:38.619 if you're narrowly looking just at U.S.-China trade, you can 0:19:38.640 --> 0:19:40.980 get some statistics that look like, oh, we really are 0:19:41.020 --> 0:19:44.590 sort of rebalancing this relationship. But it's only because China 0:19:44.710 --> 0:19:47.770 is savvy in terms of having products go to India 0:19:47.869 --> 0:19:50.060 or Vietnam or someplace else first and then go. to 0:19:50.260 --> 0:19:53.380 the US, right? So it's still principally made in China. 0:19:53.400 --> 0:19:54.840 I mean, the iPhone is a great example of this. 0:19:55.160 --> 0:19:58.540 It's still principally made in China. But if the final step, 0:19:59.100 --> 0:20:02.920 what's called FATP, Final Assembly Test Impact, is done in Karnataka, 0:20:03.240 --> 0:20:05.380 then it gets a Made in India stamp. And voila, 0:20:05.820 --> 0:20:07.879 it looks like we have a deficit now with India 0:20:07.940 --> 0:20:11.310 versus China. But nothing's actually changed. So that's one part 0:20:11.350 --> 0:20:15.629 of the equation. So I'm someone who worries that China 0:20:15.770 --> 0:20:17.910 already has huge dominance. And if you look at where 0:20:17.930 --> 0:20:21.270 they're investing in AI, it's not on this sort of 0:20:21.530 --> 0:20:25.530 airy-fairy artificial general intelligence that's going to solve cancer within 0:20:25.530 --> 0:20:29.449 10 years. It is 3%, 5% improvements on the production 0:20:29.490 --> 0:20:33.040 line at hundreds, if not thousands of factories across the country. 0:20:33.430 --> 0:20:36.040