Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe. Why isn't thal so, Joe?
Speaker 2: One thing I find interesting about China, or maybe I
Speaker 2: should say one thing I find interesting about how the
Speaker 2: world views China is it seems to be this economy
Speaker 2: that is always simultaneously a massive competitive threat, especially to
Speaker 2: the US, and then simultaneously it always seems to be
Speaker 2: on the verge of some big disaster caused by too
Speaker 2: much debt or bad demographics or the collapse of the
Speaker 2: housing market and so on. So for as long as
Speaker 2: I can remember, China has been a bundle of contradictions.
Speaker 3: No, totally.
Speaker 4: And look, they're very good reporters on China, and they're
Speaker 4: very good analysts on China.
Speaker 3: But throughout my.
Speaker 4: Entire career I completely agree with you. There has always
Speaker 4: been that narrative of the imminent disaster that is the
Speaker 4: Chinese economy, whether it's the housing bubble is going to collapse,
Speaker 4: which it kind of did, and maybe we'll talk about that,
Speaker 4: or you mentioned demographics or you know, all this over
Speaker 4: capacity that if there's a little bit of reduction demand,
Speaker 4: they'll have mass unemployment, et cetera. And again, by and large,
Speaker 4: the Chinese economy, from my outside perspective and I've never
Speaker 4: been there, continues to grow more robust.
Speaker 3: You know, there have been obvious hiccups, yes, for sure.
Speaker 2: Okay, So speaking of hiccups, now that we have this
Speaker 2: new tariff regime from the Trump administration, I think we're
Speaker 2: getting even more contradictions. Right, So we hear that tariffs
Speaker 2: are going to be disastrous for the Chinese economy. Sometimes
Speaker 2: we hear that they could be a good thing if
Speaker 2: they encourage Chinese citizens to actually consume more than they save.
Speaker 2: So maybe this is the impetus for actually finally restructuring
Speaker 2: the Chinese economy. We hear stuff like export controls are
Speaker 2: going to impede China's technological development. But then you also
Speaker 2: hear that the export controls are speeding it up because
Speaker 2: China now is forced to build domestic capacity. So there
Speaker 2: are all these competing narratives. We should definitely talk about
Speaker 2: all of them. And I realize we haven't actually done
Speaker 2: a China centric tariff episode anyway. That's right.
Speaker 4: We talk a lot about the US economy and potential
Speaker 4: of empty shelves and market reactions. But we have not
Speaker 4: talked about this story from the perspective of the Chinese
Speaker 4: economy right now, right.
Speaker 2: And obviously this is important because we're talking about a
Speaker 2: potential trade war between the world's two biggest economies. But
Speaker 2: I think it's also important because China so far is
Speaker 2: the only big country that seems to really have retaliated
Speaker 2: against the US. And just to make things even more complicated,
Speaker 2: we've also seen Treasury Secretary Scott Besson basically offering reduced
Speaker 2: tariffs to countries that agree to implement tougher trade restrictions
Speaker 2: on China. So it seems to be a special case
Speaker 2: in the overall trade crackdown for sure, and we should
Speaker 2: talk about it. And I am very very happy to
Speaker 2: say that we do, in fact have the perfect guest.
Speaker 2: We're going to be speaking with, Arthur Kroeber. He is
Speaker 2: the founding partner and head of research at Gavcal Dragonomics.
Speaker 2: So Arthur, thank you so much for coming on all thoughts.
Speaker 3: Hi there, It's great to be here.
Speaker 2: So I guess my first question is if we assume
Speaker 2: that China does have a lot to lose in a
Speaker 2: trade war with America, which I think is a widely
Speaker 2: held assumption. Why did it choose to retaliate against the US.
Speaker 3: Yeah, that's a great question for a couple of reasons.
Speaker 3: First of all, you know, as you both know, China
Speaker 3: is a very heavily export dependent economy. The pattern of
Speaker 3: exports has changed a little bit since the first trade
Speaker 3: war with Trump, but they still depend a lot on
Speaker 3: the US market directly and indirectly, so there's a clear
Speaker 3: direct cost there. And also, the government has been struggling
Speaker 3: for the last year and a half to revive growth
Speaker 3: that by their standards was very sluggish. So why would
Speaker 3: you take on an additional, not necessarily required hit to
Speaker 3: the economy at this time when you're struggling. So it's
Speaker 3: very good question. I think the basic answer is number one,
Speaker 3: because of the first trade war in the first Trump
Speaker 3: administration and the subsequent campaign of export controls and technology
Speaker 3: constraints by the Biden administration, they've been kind of girding
Speaker 3: themselves for a long time for more self sufficiency, to
Speaker 3: insulate themselves against external shocks. So there's a kind of
Speaker 3: a baseline of confidence that they can take a lot
Speaker 3: of pounding and they'll still be okay. But then I
Speaker 3: think the specific reason why they alone, basically of all
Speaker 3: countries in the world, chose to retaliate against the Liberation
Speaker 3: Day tariffs was they were really mad. This is very
Speaker 3: visible to me. When I was in last and Bidjing
Speaker 3: in late March, I got a lot of comments from
Speaker 3: people about basically how the Chinese had been trying since
Speaker 3: the beginning of the year before Trump was inaugurated to
Speaker 3: get messages to him to kind of lay out, you know,
Speaker 3: make it clear that they were interested in talking and
Speaker 3: suggest some things that could be on the agenda, etc.
Speaker 3: Asking for who's the person that we should talk to,
Speaker 3: and they just hit a stone wall. Basically, they were
Speaker 3: unable to establish contact with anyone in the Trump administration
Speaker 3: who would tell them anything, and instead what they got
Speaker 3: was twenty percent tariffs, remember, in February and January, on
Speaker 3: the grounds that they hadn't done enough to control fentanyl flows,
Speaker 3: which they were also mad about, because they'd spend a
Speaker 3: lot of time in last year negotiating an agreement with
Speaker 3: the Biden administration, which they complied with, which made a
Speaker 3: real dent in the export of fentanyl precursors out of China.
Speaker 3: It was not complete but they had really made a
Speaker 3: serious effort. So from their standpoint, they'd been trying to
Speaker 3: open a conversation and the door had been shut in
Speaker 3: their face time and time again, and they'd just been
Speaker 3: whacked with stuff that they thought was completely unfair. So
Speaker 3: I think they were just kind of fed up. They
Speaker 3: had a baseline sense of security that if we hit back,
Speaker 3: we know it's going to be bad, but we'll be
Speaker 3: able to take it. Then. I think the other consideration
Speaker 3: was essentially political, which is that, you know, even if
Speaker 3: they hadn't retaliated, they were still facing tariffs of over
Speaker 3: sixty percent, so no matter what they did, it was
Speaker 3: going to be bad. So they had to have a
Speaker 3: story to tell their people, what are we doing about
Speaker 3: this bad thing? And it's a lot easier to mobilize
Speaker 3: domestic support if you're standing tall and pushing back, which
Speaker 3: actually is you know, it's like what Mark Karney did
Speaker 3: in Canada. It's how he won that election was by
Speaker 3: being the guy who pushed back against the so called
Speaker 3: bolay So I think it was a combination of frustration,
Speaker 3: a sense of security that they could outlast the US,
Speaker 3: and war of economictrician and in a sense that this
Speaker 3: was the best way to get people in China on
Speaker 3: board for what was going to be a tough time
Speaker 3: no matter what.
Speaker 4: Right, So, even in a one party state, there's politics,
Speaker 4: and there's the requirement to maintain domestic credibility and so forth.
Speaker 4: You know, this actually gets to something I've wondered about
Speaker 4: for a long time. Rhetoric that you hear from Chinese
Speaker 4: officials will often talk about their very long history, going
Speaker 4: back thousands of years, and then Americans will parrot that
Speaker 4: and sometimes say it's like, well, you know, they have
Speaker 4: history going back a long time and they suffered a
Speaker 4: century of humiliation and etc. How real is that in
Speaker 4: the sense of like, it's a government that doesn't want
Speaker 4: to see unemployment go up in the short term, et cetera.
Speaker 4: I think many Americans have really internalized this idea of
Speaker 4: they think really long term, they think in century, if
Speaker 4: they think in millennia.
Speaker 3: That's true.
Speaker 4: How should we think about some of this, Righttoray? Yeah,
Speaker 4: it's sort of half true and half not true. So
Speaker 4: you know, I've been looking at the Chinese economy for
Speaker 4: the last thirty five years, basically, and I can tell
Speaker 4: you there's plenty of short termism and emergency thinking and
Speaker 4: ignoring problems until they catastrophically become too bad, and then
Speaker 4: scrambling to come with solutions. So underneath this veneer, there's
Speaker 4: plenty of chaos, but there are I think a few
Speaker 4: things that are true about that. So, first of all,
Speaker 4: this century of humiliation idea that is number one. It's
Speaker 4: something that is played up by the Chinese educational systems,
Speaker 4: has drummed into people starting an elementary school. That's part
Speaker 4: of the nationalist narrative that the CCP has used for.
Speaker 3: A long time. But I think it's important to recognize
Speaker 3: that this is not just a communist party thing. This
Speaker 3: is basically Chinese elites of whatever stripe since the mid
Speaker 3: nineteenth century have been really distressed at the loss of
Speaker 3: standing that China has achieved in the world. I mean,
Speaker 3: you know, up until the early nineteenth century, it was
Speaker 3: undisputedly this great empire, and people within China had the
Speaker 3: sense of being part of a great global power, and
Speaker 3: then that was all taken away and they had a
Speaker 3: pretty catastrophic hundred years of civil war and famine and
Speaker 3: all kinds of stuff. So it has been a theme
Speaker 3: of Chinese elite since the eighteen forties, that they have
Speaker 3: to rebuild the nation, acquire the technological means to stand
Speaker 3: on an even footing with the West, and so forth.
Speaker 3: And the current regime is just the one that has
Speaker 3: been most effective at sort of realizing that vision. But
Speaker 3: if you changed the regime tomorrow, whatever came in its
Speaker 3: place would have the same I think underlying ambitions. So that,
Speaker 3: I would say, is a common theme. I think. The
Speaker 3: other thing that is, I don't I'm not a real
Speaker 3: buyer in the super long term thinking thing. But you know,
Speaker 3: if you look at Chijinping's utterances, he took over in
Speaker 3: twenty twelve, and he started laying out some pretty long
Speaker 3: term stuff right away. He had these various goals that
Speaker 3: stretched out to twenty thirty five and twenty forty nine,
Speaker 3: which is one hundredth anniversary of the Communist Party, and
Speaker 3: so forth. And so there is an ability of the
Speaker 3: Chinese state, because they don't have to face elections to
Speaker 3: organize kind of strategic plans that last a little bit
Speaker 3: longer than would typically be.
Speaker 2: The case, longer than four years, certainly.
Speaker 3: Longer than four years. So a good example it's made
Speaker 3: in China twenty twenty five which is their Industrial Policy Idea,
Speaker 3: which was released in twenty fifteen. It builds on previous
Speaker 3: policies that they had. It was not some completely new thing,
Speaker 3: but they set out some ten year goals for how
Speaker 3: where we want to be roughly in a whole bunch
Speaker 3: of technologies, and the reality is they did a pretty
Speaker 3: good job on a lot of them. So the planning
Speaker 3: is not I think there's often a mystique about it,
Speaker 3: but they are able sometimes to sort of point the
Speaker 3: ship in a particular direction and then get a lot
Speaker 3: of people in society on board with steering that ship
Speaker 3: where they want to go.
Speaker 2: So speaking of long term strategies, one thing that is
Speaker 2: different in this current bout of trade tension. We could
Speaker 2: probably call it a trade war at this point.
Speaker 3: I think that's always it's a complete embargo except for
Speaker 3: a few things that we've you know, each side is
Speaker 3: exempted about twenty twenty five percent of what the import.
Speaker 3: But yeah, otherwise, effectively it's an embargo.
Speaker 2: I definitely want to ask you about those exemptions too.
Speaker 2: But one thing that's different about this trade war to
Speaker 2: the tensions that we saw in the first Trump administration
Speaker 2: is that China has basically had some practice with increased tariffs,
Speaker 2: and so what we saw in sort of twenty sixteen
Speaker 2: twenty eighteen was China just moved a bunch of production
Speaker 2: over the border to places like Vietnam, basically re routed
Speaker 2: a bunch of things to get around the tariffs. Is
Speaker 2: that an option this time around, given that Trump seems
Speaker 2: to be cracking down on pretty much all of America's
Speaker 2: trading partners all at the same time.
Speaker 3: Oh, it's totally an option, and I think it will
Speaker 3: definitely have And so a couple things here. So, first
Speaker 3: of all, you can describe that as kind of a
Speaker 3: government strategy, but actually it was largely just companies on
Speaker 3: their own deciding. So, like the first companies that did
Speaker 3: this were the solar panel makers who got whacked by
Speaker 3: tariffs in the Obama administration twenty twelve, very high ones,
Speaker 3: and so they immediately moved a lot of their production
Speaker 3: to Southeast Asia. It wasn't the government saying please do this.
Speaker 3: It was just they said, well, we want to sell
Speaker 3: to the US. We can't do it from here. Where
Speaker 3: do we go? Oh, we can go across the border
Speaker 3: and it'll be fine. And it was now they've diversified
Speaker 3: they used to be just in a couple of countries,
Speaker 3: and now they're in a larger number of countries. It's
Speaker 3: if you try to go after this stuff, it's like
Speaker 3: playing a game of whack themole. The other thing I
Speaker 3: would observe on that, just beyond the solar people, is
Speaker 3: China is now at a stage of development where they
Speaker 3: have very sophisticated companies that are very good at what
Speaker 3: they're doing, increasingly have markets in a wide range of
Speaker 3: places around the world. And what do companies do when
Speaker 3: they are in that situation, be they from China or Japan,
Speaker 3: or the United States or Germany, They invest abroad, They internationalized.
Speaker 3: And so what we're in right now is kind of
Speaker 3: act one, I would say, of what is clearly going
Speaker 3: to be a very long process of Chinese companies turning
Speaker 3: themselves into multinationals, just like the companies of every other
Speaker 3: industrialized country have done. And so they don't need the
Speaker 3: government to tell them do this. They have their own reasons,
Speaker 3: not just teriff avoidance, but to be closer to different markets,
Speaker 3: et cetera. So that process, I think is just going
Speaker 3: to continue because it has many many drivers, not just
Speaker 3: teriff avoidance.
Speaker 4: Right and you know, we've certainly talked about bid setting
Speaker 4: up auto facilities all over the world. They're in Brazil,
Speaker 4: they're in Hungary, right, they're elsewhere. But it also, like,
Speaker 4: I mean, this is one of the things that I
Speaker 4: guess confuses me about the US administration policy, you know,
Speaker 4: all these other It's like, oh, we're going to like
Speaker 4: split off Vietnam or gonna make it like it's hard
Speaker 4: for me to imagine that given the amount of cross
Speaker 4: border investment that we've seen over the last years and years.
Speaker 3: Right, well, okay, yeah, basically I would describe it. There's
Speaker 3: an economics term of art for that strategy. It's looney.
Speaker 3: So but this gives me an opportunity, I guess to
Speaker 3: make a little bit of a comment on what I
Speaker 3: see about what's coming out of the Trump administration, Okay,
Speaker 3: which is basically chaos. Right. There is not a clear strategy,
Speaker 3: There is not a clear policy. What you have basically
Speaker 3: is Trump's impulses, which are number one, I want to
Speaker 3: sort of demonstrate dominance over everyone and I want them
Speaker 3: to exhibit difference. And number two, I really like tariffs
Speaker 3: for some strange reason that I don't think any of
Speaker 3: us understand but he really likes them. But he also
Speaker 3: likes them specifically because they are a tool that as
Speaker 3: the president of the United States, he is the legal
Speaker 3: authority to use without restraint. So if he wants to
Speaker 3: hurt people, he doesn't have to go to Congress, he
Speaker 3: doesn't have to ask anyone in Congress. He just does it.
Speaker 3: So it's very usef for him. And I've found a
Speaker 3: lot of the commentary over the last couple of months
Speaker 3: trying to explain the rational strategy behind this to be
Speaker 3: completely off target because it isn't. And various people in
Speaker 3: the administration, like Scott Bessant, would like there to be
Speaker 3: a strategy, and they are desperately trying to corral the
Speaker 3: stuff into the semblance of a strategy, but they have
Speaker 3: to improvise. So that's sort of my general comment on that.
Speaker 3: And then specifically in the question is does it work. No,
Speaker 3: The reality is there are now I believe one hundred
Speaker 3: and forty countries in the world that trade more with
Speaker 3: China than with the United States. China is now the
Speaker 3: number two source in the world, behind the United States
Speaker 3: of direct investment, and it's growing its economic relationships with
Speaker 3: many countries, including in the Latin America are much deeper
Speaker 3: than those of the United States, let alone Southeast Asia,
Speaker 3: where their economies are completely tied to China. So there's
Speaker 3: no way, no way that any sane leader of any
Speaker 3: of these countries would sign on to a deal where
Speaker 3: they would say, oh, we'll get our teriffs on the
Speaker 3: US lowered from ten percent to five percent in exchange
Speaker 3: for which we have to sacrifice our principal economic relationship.
Speaker 3: It's not going to happen.
Speaker 2: So you mentioned the exemptions earlier, and we've also seen
Speaker 2: some carve outs for specific things like electronics imports, and
Speaker 2: at this point, I'm actually finding it kind of difficult
Speaker 2: to keep track of what's delayed and what's exempt just
Speaker 2: because it changes so often. But my question is how
Speaker 2: much signal should we take away from all those exemptions.
Speaker 2: Do they show that there's potentially a path forward to
Speaker 2: a US China deal or is it just Trump trying
Speaker 2: to retroactively protect some pretty important industries.
Speaker 3: Yeah, it's more of the latter, you know. And remember
Speaker 3: there's exemptions on both sides. So Trump exempted cell phones
Speaker 3: and most consumer electronics basically because he was told that
Speaker 3: you cannot allow the prices of iPhones to double, people
Speaker 3: will revolt, and he took that seriously. So that was
Speaker 3: clearly a political move, just to alleviate the domestic political
Speaker 3: cost of this action. And similarly, if you look at
Speaker 3: what the Chinese did, they exempted a lot of imports
Speaker 3: like semiconductors and some key technology inputs. Despite all of
Speaker 3: their progress, they're still pretty dependent on global supply chains
Speaker 3: outside of China for a lot of stuff that goes
Speaker 3: into their tech ecosystem, and they could not afford to
Speaker 3: have this stuff cost a lot more. So I think
Speaker 3: in both cases it's roughly twenty percent or a bit
Speaker 3: more that has been exempted. As you said, it's very
Speaker 3: hard to know exactly when this is going into effect,
Speaker 3: and blah blah blah. But both sides have sort of
Speaker 3: picked out the parts of their economies which are most
Speaker 3: vulnerable and said, okay, you don't have to take the pain.
Speaker 3: But it doesn't tell us anything about It's not like
Speaker 3: both sides are signaling to each other, hey, if you
Speaker 3: lower your tariffs, all lower mine, and then maybe we
Speaker 3: can get somewhere. They're just doing what they need to
Speaker 3: do to protect themselves.
Speaker 4: So Trump recently said that for gifts that kids could
Speaker 4: maybe have two dolls instead of thirty dollars. And I
Speaker 4: completely agree. I spent this weekend taking out a bunch
Speaker 4: of random plastic garbage, broken toys, etc. For my children's room,
Speaker 4: five trash bags, and I've barely made a dent in
Speaker 4: what they have. So I'm completely in agreement on that point.
Speaker 4: All that being said, two questions about that. So let's
Speaker 4: say there's a major reduction in buying plastic stuff from China,
Speaker 4: low end stuff. A. Are we already seeing real in
Speaker 4: China un parts of the economy from these tariffs that's
Speaker 4: visible from what you're looking at. And B how much
Speaker 4: of that stuff is still in China as opposed to
Speaker 4: that's the low margin stuff that you probably quickly have
Speaker 4: it some cheaper destination. How important is stuff, the cheap
Speaker 4: stuff to China's economy these days?
Speaker 3: You know, it's somewhat important, you know, for employment purposes,
Speaker 3: because a lot of that stuff is fairly labor intensive
Speaker 3: Tho's lower end exports, but it certainly is not very
Speaker 3: relevant from the standpoint of Jinping's grand strategic vision as
Speaker 3: China's technology superpower. So and if you look in terms
Speaker 3: of like total value of what they export. The stuff
Speaker 3: that goes into Walmart is significant, but a shrinking portion
Speaker 3: of the total. They're moving up the value chain pretty fast.
Speaker 3: So you are starting to see some softness in the
Speaker 3: industrial and manufacturing indicators. I mean, you've had an employment
Speaker 3: a pretty weak employment market since the end of COVID
Speaker 3: basically that they've been struggling to address. So this is
Speaker 3: going to have some impact. You know, the Chinese export
Speaker 3: numbers have still been quite strong. Most people think that's
Speaker 3: because there's been some front loading, because people are anticipating tariffs,
Speaker 3: and we're expecting significant weakness, you know, in the coming months.
Speaker 3: I think that will happen. It will hurt, but I
Speaker 3: don't think any of that is going to hurt enough
Speaker 3: for China to feel like it has to make a move.
Speaker 3: They've clearly signaled Trump wants to have a deal. He
Speaker 3: has to make the first move. He has to initiate
Speaker 3: show some good faith. They've laid out their position, they're
Speaker 3: waiting for him to pick up the phone and call basically.
Speaker 3: So yeah, this is going to cause some real difficulties,
Speaker 3: and I think they're going to have a real challenge
Speaker 3: meeting their growth target this year. If this goes on
Speaker 3: for much longer, but I think they're willing to wait
Speaker 3: it out.
Speaker 2: So speaking of economic transformation, in addition to being a
Speaker 2: bundle of contradictions, the other thing that has existed for
Speaker 2: as long as I've been I guess covering China from
Speaker 2: an economic perspective is this idea that the economy needs
Speaker 2: to rebalance towards consumption. So Chinese people save too much
Speaker 2: and we really need to get them to spend on
Speaker 2: our own domestically manufactured goods, and that will help resolve
Speaker 2: some of the tensions in the economy. What's your sense
Speaker 2: of how much Chinese people might actually be able to
Speaker 2: boost their own consumption right now to offset the trade war.
Speaker 3: Oh, there's some, not a lot. So just to back
Speaker 3: up a little bit on that. So, I think it's
Speaker 3: important to clarify that when people talk about this project
Speaker 3: of rebalancing the economy from investment consumption, this has been
Speaker 3: a project of economists, mostly outside China. It has never
Speaker 3: been a project of the Chinese government itself. They have
Speaker 3: never really forcefully and clearly stated that it is their
Speaker 3: objective to do that. They've put out various policies where
Speaker 3: they say, yeah, we want incomes to rise fast. We
Speaker 3: would like there to be a stronger services consumption and
Speaker 3: so forth, But they have never said that, we think
Speaker 3: we should fundamental out in the shop. Well, they haven't
Speaker 3: said that. But the other thing is, I think it's
Speaker 3: really important to understand these people are not They're not Americans,
Speaker 3: They're Chinese. They have a different concept of how an
Speaker 3: economy grows. So we grew up in this sort of
Speaker 3: Canesian world where we believe that demand drives everything, and
Speaker 3: Chinese authorities don't believe that. They believe that investment drives everything.
Speaker 3: That progress, productivity, future income growth, it all comes from
Speaker 3: investing in the right things. So they have been very
Speaker 3: clear for as long as I've been studying it, including
Speaker 3: the last decade, on saying to secure the growth of
Speaker 3: the future that is stable, well balanced, whatever, we need
Speaker 3: to invest in the right things. That is the principal
Speaker 3: job of government economic policy is to steer investment. So
Speaker 3: that's point one. They've never really had an agenda of
Speaker 3: substantially balancing. Second is, up until COVID, the fastest growing
Speaker 3: consumer economy in the world by an order of magnitude
Speaker 3: was China's for twenty years. There is no economy that
Speaker 3: comes even close to the rate of consumer spending growth
Speaker 3: that Chin enjoyed between twenty twenty twenty. It was I
Speaker 3: think the total aggrig growth was more than triple what
Speaker 3: you saw in India, for example, and much faster than
Speaker 3: you saw in advanced economies that grows lower rates. So
Speaker 3: they didn't really have, in my opinion, a consumer spending problem,
Speaker 3: and I think they look at that, you know, much
Speaker 3: the same way they say, well, you know, we actually
Speaker 3: don't need to rebalance. Now I think that's changed a
Speaker 3: little bit. I think they really in the last few
Speaker 3: months have started to say, oh, actually, we're going to
Speaker 3: be facing a lot of head winds in the export economy,
Speaker 3: largely from the US, but not just the US. They're
Speaker 3: in a tariff battle with the European Union over electric vehicles,
Speaker 3: a lot of other kind are beginning to put up barriers,
Speaker 3: and I think they are beginning to realize that they
Speaker 3: need to both for the short term, you know, trade
Speaker 3: war issues, but also for just having a more comfortable
Speaker 3: place in the global economy, that they have to do
Speaker 3: a little bit more to boost the consumer part of
Speaker 3: the economy. But they they're limited in their tools for
Speaker 3: being able to do that.
Speaker 4: When I think about consumer comfort, consumer wealth, et cetera.
Speaker 4: I'm on social media all day, and so I see
Speaker 4: all the videos of like these like amazing futuristic cities
Speaker 4: with these incredible plazas and lights and transportation that zips
Speaker 4: you from one place to another. And I imagine those
Speaker 4: things don't show up in consumption. You know, they're not
Speaker 4: retail consumption, right, but as a form of lifestyle consumption,
Speaker 4: whether your city just has greater amenities and comforts and
Speaker 4: cleanliness and so forth, et cetera, are those all real?
Speaker 3: You know?
Speaker 4: Because like you know, you see like a ninety second video,
Speaker 4: like you've been going to You've been living and traveling
Speaker 4: to China for decades. How different outside of you know, Okay,
Speaker 4: I'm sure you know in multiple cities around the country.
Speaker 4: Is the day to day experience of being a citizen
Speaker 4: or consumer?
Speaker 3: Yeah, well it's a large question. So if you had
Speaker 3: turned this around and you had said, well, you know,
Speaker 3: I look at these pictures of what life in Silicon
Speaker 3: Valley's life, is that really what it's like in America?
Speaker 3: You know your responsibily, Well, America is a big country.
Speaker 3: There's a lot of different things. And China is an
Speaker 3: even bigger country in terms of the number of people,
Speaker 3: so huge variety the stuff that you see there is reel.
Speaker 3: You have a lot of first class urban infrastructure in
Speaker 3: places like Shanghai, Shunjan, Beijing, and increasingly in a couple
Speaker 3: of interior cities like Chungdu and so forth, and things
Speaker 3: work quite well. And you have large swaths of the
Speaker 3: country where people are still living fairly, you know, modest lives,
Speaker 3: one generation removed from the family farm that their parents
Speaker 3: still live on, and so forth. There's parts in the
Speaker 3: northeast which are a super rust belt of these old
Speaker 3: sort of fifties and sixties areas industrial towns built around
Speaker 3: industries that really aren't that important anymore, mining or whatever.
Speaker 3: So they have an enormous variety of things. But I
Speaker 3: would say it is fair if you go around to
Speaker 3: sort of random Chinese cities in sort of eastern and
Speaker 3: central China, most people now have pretty comfortable lives. They're
Speaker 3: not as shiny as you might see in these social
Speaker 3: media egos, but things work, their needs are taken care
Speaker 3: of pretty well.
Speaker 4: Is that true for healthcare too?
Speaker 3: That is true increasingly true of healthcare and pensions they
Speaker 3: went through a period where they basically had abolished the
Speaker 3: old planned economy social safety net, and there was nothing,
Speaker 3: and it was really bad, and it's still not terrific.
Speaker 3: But they have greatly increased the coverage of healthcare. There's universal,
Speaker 3: almost universal pensions. Even for farmers in the countryside, they
Speaker 3: get something, People have access to facilities. The quality of
Speaker 3: care can vary quite a lot. I would say, on average,
Speaker 3: the situation there is quite a bit better than it
Speaker 3: was ten or fifteen years ago, with a lot of
Speaker 3: room for improvement.
Speaker 2: So you briefly mentioned the idea of tools that China
Speaker 2: can use to offset some of the impact from the
Speaker 2: trade war walk US through the levers that it has available,
Speaker 2: and then I guess how policymakers might actually balance the
Speaker 2: use of these levers with the message that China is
Speaker 2: still a great place to do business and invest and
Speaker 2: so on. And I don't mean to single out China
Speaker 2: on this issue, because I think the US faces a
Speaker 2: very similar balancing act, but arguably the US is much
Speaker 2: more developed in its capital markets and has certain advantages
Speaker 2: in global markets that China just doesn't.
Speaker 3: Sure. Yeah, well, so I think you can sort of
Speaker 3: divide it into two buckets. So there are things that
Speaker 3: China is doing to retaliate against the US, and that's
Speaker 3: where it really runs the risk of alienating the business community,
Speaker 3: because part of your retaliation has to be to make
Speaker 3: life difficult for US businesses, either in China or back
Speaker 3: in the US. But then there are also response mechanisms,
Speaker 3: which are basically things that they can do to make
Speaker 3: the economy stronger and able to weather the shock. So
Speaker 3: in retaliation, you know, clearly they have the countervailing tariffs.
Speaker 3: They have increasingly comprehensive export controls on rare earths and
Speaker 3: rare earth based technologies, which are actually not just rare earths,
Speaker 3: but a various sort of critical minerals, antimony being sort
Speaker 3: of the big example of the moment, and those are
Speaker 3: part of that is Yeah, that's actually.
Speaker 2: People don't talk about antimony enough.
Speaker 3: It's a mineral that is used, It has a lot
Speaker 3: of applications, many of them in the defense industry. There
Speaker 3: basically is no viable source of production in the United States,
Speaker 3: and China has i think sixty or seventy percent control
Speaker 3: of sort of global refined supplies, and they have basically
Speaker 3: banned exports of it to the United States, and this
Speaker 3: is starting to create real health headaches in defense and
Speaker 3: other kinds of technology related supply chains. So they have
Speaker 3: a few things that they can do like that. They've
Speaker 3: singled out a few US companies operating you or selling
Speaker 3: into China for various kinds of investigations. Those are more
Speaker 3: kind of shots across the bow. They're kind of gestures.
Speaker 3: I don't think they're really that serious. They don't really
Speaker 3: want to make it harder for Nvidia to do business
Speaker 3: in China than it is already. But basically what they're
Speaker 3: doing is they're picking out companies that may sell a
Speaker 3: lot to China but don't have a lot of investment
Speaker 3: on the ground in China and saying, if you don't
Speaker 3: basically help us get this guy in the White House
Speaker 3: to see reason, we might make it a little difficult
Speaker 3: for you. And they'll only do that if they think
Speaker 3: there are reasonable domestic substitutes. So they're doing a little
Speaker 3: bit of that, but they're being very cautious because they
Speaker 3: are keenly aware that their economy still needs international businesses
Speaker 3: to participate in China at many different levels. They do
Speaker 3: not want to scare them away. So what they're mainly
Speaker 3: left with is response mechanisms, which is, you know, some
Speaker 3: of it is the usual stuff. They can lower interest
Speaker 3: rates and they'll probably do a bit more of that
Speaker 3: this year. They were already planning a big fiscal expansion
Speaker 3: this year, one of the biggest budget deficits in history.
Speaker 3: They're probably going to expand that more. To get up consumption,
Speaker 3: they have this cash for Clunkers kind of trading program
Speaker 3: where you have an old appliance, you can trade it in,
Speaker 3: you can get a discount on the new one. That's
Speaker 3: for both households and for businesses. They can trade in
Speaker 3: old capital equipment and get new stuff at a cheaper price.
Speaker 3: And then the other thing that they've been doing actually
Speaker 3: is to get more money into consumer pockets. They have
Speaker 3: started to expand pension payments, focusing on people lower in
Speaker 3: the income spectrum and just putting an extra five or
Speaker 3: ten bucks into their accounts every month so that they
Speaker 3: have a little bit more cash to spend. And by
Speaker 3: focusing on the lower income, those are people who basically
Speaker 3: spend most of what they have, so it has a
Speaker 3: big impact. But yeah, so they can do all of
Speaker 3: these things and they will all work to some degree.
Speaker 3: The cash for clunquors thing actually worked a lot better
Speaker 3: than I thought it was. I was very skeptical, But
Speaker 3: at the end of the day, consumer behavior is pretty
Speaker 3: sticky in any country. The job market is still not terrific.
Speaker 3: They're going to have a lot of difficulty really really
Speaker 3: moving the needle on boosting domestic demand. They can get
Speaker 3: it up a little bit, but not a lot in
Speaker 3: the short term.
Speaker 2: Joe, I do find it really ironic slash remarkable that
Speaker 2: China has a cash for clunkers program, which we all
Speaker 2: recognize from the post two thousand and eight era. And meanwhile,
Speaker 2: Trump is, you know, going on TV and telling everyone
Speaker 2: to stop buying and you only need two Barbie dolls
Speaker 2: instead of fifteen.
Speaker 4: No Trump, Trump has producrist impulses on some level. Do
Speaker 4: you know, actually, since we're talking about ideology, how much
Speaker 4: continuity in your view, has there been in Chinese policy
Speaker 4: pre Xjinping to now? Because there's debates about this, and
Speaker 4: the party itself always stresses continuity and nothing ever really changes.
Speaker 4: But you've seen the country for a long time. How
Speaker 4: much of a pivot happened in twenty twelve that continues
Speaker 4: to this day.
Speaker 3: That's a really great question. And you know, I hate
Speaker 3: to sound like you know, Harry Truman's hated to handed economist,
Speaker 3: but there is both continuity and change here, there's no question, right.
Speaker 3: So the things I think that are largely unchanged is
Speaker 3: I talked earlier about this kind of view of how
Speaker 3: economies work, that they are driven by the investment cycle,
Speaker 3: and that the government has a important role to play
Speaker 3: in kind of identifying the key top areas for investment,
Speaker 3: not necessarily spending the money, but say pointing and saying
Speaker 3: go there, and then all the entrepreneurs in the country say, oh,
Speaker 3: we should go there, We'll go there. That has not
Speaker 3: really changed. That is a and you can talk about
Speaker 3: people you know before she who were more quote unquote
Speaker 3: reformists and so forth, but if you look closely at
Speaker 3: what they were doing, they had the same objective. They
Speaker 3: wanted to increase state capacity. They wanted to strengthen the
Speaker 3: technological foundations of the economy. The first long term Science
Speaker 3: and Technology Plan actually came out in two thousand and six,
Speaker 3: which was six years before she jent Ping took over.
Speaker 3: It had nothing to do with him, and it was
Speaker 3: very much the product of everyone else in the government
Speaker 3: at that time, so that I think general orientation has
Speaker 3: not changed. What she has done is that he has
Speaker 3: made the coordination of that strategy much more effective. So
Speaker 3: he's increased the capacity the same government to kind of
Speaker 3: mobilize and guide resources. He has reined in what he
Speaker 3: thought were big excesses, notably in the property market, but
Speaker 3: also in the internet sector, where he thought a lot
Speaker 3: of investment was going to stuff that was actually not
Speaker 3: advancing the ball technologically, and it was also creating significant
Speaker 3: social and political risks for the Communist Party, and it
Speaker 3: needed to be rained in. But you know, a lot
Speaker 3: of the concerns that you see expressed about social media
Speaker 3: and the power of internet firms in China totally indistinguishable
Speaker 3: from the discourse that we have here in the United
Speaker 3: States about the same problems. So part of what they
Speaker 3: were doing was try to say, let's have less resources
Speaker 3: to that kind of stuff and more to the kind
Speaker 3: of stuff that we think that will really generate long
Speaker 3: term growth, that is, will enhance productivity and social cohesion.
Speaker 3: So he hasn't changed the sort of the basic orientation,
Speaker 3: but he's made the execution of that generally much more effective.
Speaker 3: And then the other big thing that he did do
Speaker 3: that is a major change, is that he overturned the
Speaker 3: foreign policy that dung Shaping had laid down, which is,
Speaker 3: you know, the idea that you stay quiet and stay
Speaker 3: behind and stay quiet and sort of hyde your capabilities
Speaker 3: or by your time and whatever. And he pretty aggressively
Speaker 3: said no, no, China's great power. Now we have to
Speaker 3: act internationally, and so we're going to take a much
Speaker 3: more aggressive view. And I think you could argue that
Speaker 3: that's a real shift. You could argue that he moved
Speaker 3: a little bit too quickly on that and that has
Speaker 3: you know, created some unnecessary costs for China. Would have
Speaker 3: been wiser to hide and buy for a few years longer.
Speaker 3: But anyway, he did it, and that is a that
Speaker 3: is a material change, I would say.
Speaker 2: So, I think I just have one more question, and
Speaker 2: it's the big one, which is do we have any
Speaker 2: idea or sense of what the off ramp for all
Speaker 2: of this actually is? And do we have a good
Speaker 2: idea of what Trump actually wants China and do we
Speaker 2: have a good idea of what is palatable to China?
Speaker 3: Right, Okay, so what's the off ramp? I think the
Speaker 3: off ramp is basically that Trump and his people have
Speaker 3: to recognize that they've put themselves in an untenable position
Speaker 3: and they need to figure out a way to climb
Speaker 3: down from it as gracefully as they can. I think
Speaker 3: the Chinese have been very clear in their communications that
Speaker 3: they are happy to talk, and they keep saying, we
Speaker 3: are happy to talk, but we're not going to make
Speaker 3: the first move. And if you want to prolong this
Speaker 3: trade war, we think that we can sit with art
Speaker 3: deflation longer than you United States can stick with your stagflation,
Speaker 3: given your political system. So I think the ball is
Speaker 3: really in Trump's court to do something to figure out
Speaker 3: how to unstick this, and the difficulty is, I think
Speaker 3: what does he want. My theory of the case is
Speaker 3: that Trump is not really driven by specific policy outcomes.
Speaker 3: He is a guy who has very authoritary instincts who
Speaker 3: wants to be recognized as the boss. It is basically
Speaker 3: all about power and so everything that he does, and
Speaker 3: I think this applies to a lot of the domestic
Speaker 3: policy too, is to demonstrate that he has power and
Speaker 3: that other people have to show submission and deference. So
Speaker 3: if you really want to get on Trump's good side,
Speaker 3: that's what you do, and the Chinese will not play
Speaker 3: that game. They are too big, they are too strong,
Speaker 3: they have too much at stake domestically in terms of
Speaker 3: their own political credibility to play that. They will not
Speaker 3: do that. So that puts Trump in a bind because
Speaker 3: what he really wants they will not give him. So
Speaker 3: then people on Trump's team need to figure out, Okay,
Speaker 3: what is an agenda that we can put together of
Speaker 3: actual policy aims that could form the basis of a negotiation,
Speaker 3: and then how do we communicate that to China and
Speaker 3: how do we get them to start talking to us.
Speaker 3: It's not an easy problem to solve, right, So what
Speaker 3: it means is that people in the administration who have
Speaker 3: actual policy aims somehow need to seize control of that process,
Speaker 3: and they haven't done that yet. So a couple other
Speaker 3: theories on how this could unwind. So one theory is
Speaker 3: that at the end of the day, nothing is going
Speaker 3: to happen until Trump and She get together face to face,
Speaker 3: because in both systems, no one really has the authority
Speaker 3: lower down to make a move, and so then you
Speaker 3: have to think about, well, how could that happen. It's
Speaker 3: unlikely that you're going to have a trip of one
Speaker 3: leader to the other countries. So you have to start
Speaker 3: thinking about is there some third country that could be.
Speaker 2: Which country is exactly halfway between the US and China.
Speaker 2: Will have to figure that out.
Speaker 4: What's your good what's the third country?
Speaker 3: Well, somewhere in the Middle East. I don't have a
Speaker 3: good theory on that. Arduawan and Turkey, they are kind
Speaker 3: of halfway between, and he sort of has these fantasies
Speaker 3: of being a broker. He tried to do that. I'm
Speaker 3: just making that up. I have no information that he
Speaker 3: actually has any interest in doing that. So that's one
Speaker 3: theory is that you need somehow to get the two
Speaker 3: leaders together, and that will probably require a third party.
Speaker 3: So that's one way of thinking about it. Another way
Speaker 3: of thinking about it is just to say, well, Trump
Speaker 3: is driven by markets to some degree, not quite the
Speaker 3: same way that he was in his first term, but
Speaker 3: right now you have this weird situation where basically, if
Speaker 3: you talk to people in the markets, they are convinced
Speaker 3: that a deal will happen. I keep telling them on
Speaker 3: what basis do you hold this belief? I can see none,
Speaker 3: but they are convinced that essentially because it's impossible or
Speaker 3: they think it's impossible to maintain these high tariffs for
Speaker 3: too long. Therefore something must happen. So markets actually are
Speaker 3: doing okay right now because they're essentially pricing in there
Speaker 3: will be a deal. And if you look at this
Speaker 3: from Trump's standpoint, it's like, oh, markets are happy, I
Speaker 3: have no incentive to deal. So the only way he
Speaker 3: can have more incentive to deal is if markets are
Speaker 3: convinced that there is no deal and the tank and
Speaker 3: then he says, oh, I really got to do something.
Speaker 3: So that's another theory. Full credit. That was suggested to
Speaker 3: be my colleague Andrew Batson, who runs our China team
Speaker 3: very effectively, and I thought that was a very good
Speaker 3: way of thinking about it. So market pressure in the
Speaker 3: US could be a forcing mechanism. You could maybe have
Speaker 3: some kind of intermediary, but I think unless you have
Speaker 3: some kind of force acting like that, or some kind
Speaker 3: of revolution within the White House where actual policy makers
Speaker 3: take over and seize command of things somehow and start
Speaker 3: to work out how do they get a communications channel
Speaker 3: open to the Chinese, communicate some kind of mutual reduction
Speaker 3: of tariffs to a lower level as an opening thing,
Speaker 3: and then a negotiation but I think we're some ways
Speaker 3: away from any of that happening.
Speaker 4: I just have one short comment. One is I've talked
Speaker 4: to an investor who literally used that logic. They said,
Speaker 4: there is going to be a deal because there must
Speaker 4: be a deal, and so therefore there will be one.
Speaker 4: Which one last question our colleague got Anna Wong, us
Speaker 4: economist here at Bloomberg. She thought, one possibility is maybe
Speaker 4: there's a deal that still leaves the sort of like
Speaker 4: Vietnam transshipment open that looks like something tough, and that
Speaker 4: there is some third party country that could still be
Speaker 4: a route for flows, keep high nominal numbers up on China,
Speaker 4: et cetera. Could that be a path out where it
Speaker 4: looks like you've maintained a hard line, but you allow
Speaker 4: an escape valve of some sort.
Speaker 3: You know, I think that's very plausible, because, as I
Speaker 3: mentioned before, I don't think it's just not realistic to
Speaker 3: think that you're going to be able to close off
Speaker 3: the trendshipment channels. So deal or no deal, a lot
Speaker 3: of those channels are going to remain open one way
Speaker 3: or another. So you might as well take advantage of
Speaker 3: that and incorporate it into deal. And one other comment
Speaker 3: on that, because you then get into this question of like, Okay,
Speaker 3: suppose there is a deal, what's in it? And my
Speaker 3: view on this is most of the deal structures that
Speaker 3: seem plausible are not very meaningful others from the standpoint
Speaker 3: of calming markets down. So you have the situation where
Speaker 3: the US and China very adversarial. Most people in Washington
Speaker 3: think we are already in another Cold war. And to me,
Speaker 3: a substantive deal would be one that makes a significant
Speaker 3: change in the quality of the relationship. And so if
Speaker 3: you have something that's like a phase one trade deal
Speaker 3: plus where the China agrees to buy more stuff and
Speaker 3: they make some gestures towards more domestic demand support, and
Speaker 3: we cut tariffs a little bit, Okay, that's fine. Markets
Speaker 3: will be okay with it, but it doesn't really change
Speaker 3: the underlying dynamic, which I think is really bad. And
Speaker 3: I think the thing to look for, which is what
Speaker 3: China really wants. One of the things that they really
Speaker 3: want that could be given to them is the ability
Speaker 3: for their companies to invest a lot more in the
Speaker 3: United States byd c ATL all of these Chinese hi
Speaker 3: tech firms, they would love to be able to invest
Speaker 3: in the UN States and tap into this market more directly.
Speaker 3: They would be very happy to accept. I think a
Speaker 3: lot of different potential structures for that investment, but effectively
Speaker 3: Chinese companies are shut out. And Trump on the campaign
Speaker 3: trail said that he was open to this. So the
Speaker 3: interesting thing there is that basically no one else in
Speaker 3: the administration seems very interested in this, but Trump might be.
Speaker 3: And if you're serious about reindustrializing the United States, you
Speaker 3: cannot do that without significant participation by China. I'm sorry,
Speaker 3: China accunts for a third of global manufacturing production now
Speaker 3: going to forty They are close to or at the
Speaker 3: leading edge of many of the technologies of the future.
Speaker 3: It is as absurd for us to think that we
Speaker 3: can ramp up our industrialization without China as it was
Speaker 3: forty years ago would have been for China to think
Speaker 3: that they could ramp up their industrialization without bringing the
Speaker 3: leaders then the US, Japan, and Germany. So there is
Speaker 3: in principle, it seems to me there is a deal
Speaker 3: to be done there where that's what you give to
Speaker 3: China and then you might be able to get something
Speaker 3: for it that could be quite transformational in terms of
Speaker 3: the basic relationship between these two big economies. Am I
Speaker 3: betting on that.
Speaker 1: No.
Speaker 3: I think the chances of that actually happening are quite low.
Speaker 3: But I think people who are serious about thinking that
Speaker 3: there should be a deal and that the deal is
Speaker 3: economically meaningful, not just like ASoP to markets, they should
Speaker 3: be thinking about that.
Speaker 2: Yeah, are we in a cold war with China? Is
Speaker 2: that even useful framing?
Speaker 3: I think it's not. I disagree vigorously with the people
Speaker 3: who say that we are already there. I mean, we
Speaker 3: could get there. The reason that we're not is a
Speaker 3: couple things. Just if you look at the substance of
Speaker 3: the economic relationship, China's trade with the US direct trade
Speaker 3: with the United States several years ago before Trump's first
Speaker 3: term was the same as our trade was with Japan
Speaker 3: in the mid nineteen eighties. So it's about I think
Speaker 3: seventeen or eighteen percent of our total global trade. Our
Speaker 3: trade with the Soviet Union and all of its successor
Speaker 3: states after the Soviet Union collapsed was more than about
Speaker 3: one or two percent or so. We are linked. We
Speaker 3: have thousands of US companies that operate in China and
Speaker 3: generate somewhere between five and seven hundred million dollars a
Speaker 3: year of annual sales, which is triple or more the
Speaker 3: amount of exports that go from the United States to China,
Speaker 3: the global supply chains or lengthd I could go on
Speaker 3: and on, but the economic linkages are not the linkages
Speaker 3: of countries at war. The reason you could call the
Speaker 3: Cold War a cold war was because it wasn't direct fighting,
Speaker 3: but many of the other conditions, particularly economic, were very,
Speaker 3: very similar to wartime conditions. And this just is not
Speaker 3: It is a completely different beast than I could go on.
Speaker 3: But that's I think the principal thing and the reason
Speaker 3: I think that it's really not only not useful framing,
Speaker 3: but I think toxic framing, is that we have this
Speaker 3: kind of view in the United States that essentially, either
Speaker 3: if you're another country, you are or ally or we
Speaker 3: are at war with you. Those are the two possible states.
Speaker 3: And I think these are conditioned by the fact that
Speaker 3: we thought these multiple wars hot and cold in the
Speaker 3: twentieth century, and our kind of national foreign policy ethos
Speaker 3: was defined by dividing the world into good guys and
Speaker 3: bad guys, beating the fascists, beating the communists. China is
Speaker 3: not a place that can be beat. It is a
Speaker 3: large country. It's not going away. It is very integrated,
Speaker 3: not just with the US but with the entire global economy.
Speaker 3: They're heavily invested in the global order. So the only solution,
Speaker 3: it seems to me, is that you need to figure
Speaker 3: out what is a state of coexistence with China that
Speaker 3: you don't have to define in these martiall terms. It's like,
Speaker 3: and it doesn't have to be we're friends and can
Speaker 3: include we have some very serious adversarial components to the
Speaker 3: relationship in really deep competition, not just in economics of
Speaker 3: geopolitics that can be there. But describing it as war
Speaker 3: I think is not only.
Speaker 2: Not useful but dangerous frenemies the US and China, maybe
Speaker 2: that maybe we can describe it thus. Okay, Arthur Kroeber,
Speaker 2: thank you so much for coming on all thoughts.
Speaker 3: That was great, my pleasure. Thank you, Joe.
Speaker 2: I thought that was a really great state of play conversation,
Speaker 2: and also, you know, sort of considering where things might
Speaker 2: be headed, I realized we forgot one very important thing,
Speaker 2: which is we have to say the day that we're
Speaker 2: actually recording this, because you never know what's going to
Speaker 2: happen in between now and when we actually publish this episode,
Speaker 2: so it is May sixth, two fifty nine.
Speaker 3: I thought it was great.
Speaker 4: I kind of feel stupid for not having had Arthur
Speaker 4: on before because I really thought he was excellent and
Speaker 4: very clear and clear eyed about Chinese economy our relation.
Speaker 3: You know.
Speaker 4: Just there was a lot in there that was very good.
Speaker 4: That last point about like, you know, if we were
Speaker 4: actually serious about quote reindustrializing unquote, that we would want
Speaker 4: to bring Chinese manufacturers give them mistake in the US economy,
Speaker 4: both in terms of selling into the US economy, both
Speaker 4: in terms of owning assets or maybe forty nine percent
Speaker 4: of assets of various factories. Like that makes a lot
Speaker 4: of sense to me. It seems like that's distant politically,
Speaker 4: but it's certainly very intuitively logical to me.
Speaker 2: Yeah, and I also thought the point about demand driving
Speaker 2: everything in the US and versus investment driving everything in
Speaker 2: China to be kind of interesting. Although I would argue
Speaker 2: that those two things, like they're starting to get mingled
Speaker 2: in both America and China, so you're seeing China kind
Speaker 2: of borrow a lot of policies or thoughts that would
Speaker 2: be very familiar to anyone who's lived in the US
Speaker 2: in recent decades, And meanwhile you're starting to see the
Speaker 2: US take gone some Chinese characteristics in various ways.
Speaker 4: Arthur is a good point, and I think you've written
Speaker 4: about this as well, and I think others are confused
Speaker 4: on this. It's like, from Trump's perspective, what does a
Speaker 4: successful outcome look like? We know that he likes the
Speaker 4: forms of things. He likes handshakes, he likes the idea
Speaker 4: of dealing.
Speaker 2: He hates handshakes, doesn't he Oh, he likes deals, he likes.
Speaker 3: He likes tariffs, et cetera.
Speaker 4: But what does say the US economy look like in
Speaker 4: ten years were we to take a correct policy line.
Speaker 4: Really hard to still totally understand. But again, like, yeah,
Speaker 4: maybe it's a lot more factories, and maybe we should
Speaker 4: invite one of the world's you know, some of the
Speaker 4: world's most advanced companies to set them up.
Speaker 2: Yeah, And I guess the question is, you know, he's
Speaker 2: on TV now saying that we don't need fifteen Barbie
Speaker 2: dolls per child. But if we do build that Barbie
Speaker 2: factory in the US, then does that kind of consumerism
Speaker 2: become Okay?
Speaker 4: Again, well, you know, and this is by the way,
Speaker 4: you know, it's like on this point, so I think
Speaker 4: a lot of people can make an intelligent rationale for
Speaker 4: more US manufacturing in certain areas. It's really unclear, you know,
Speaker 4: the White House. I think there was a tweet a
Speaker 4: few days ago talking about how much we import in
Speaker 4: terms of textiles, which is the vast majority of clothing
Speaker 4: et cetera we import. It's really unclear to me why
Speaker 4: it's important at all to have significant domestic capacity in
Speaker 4: these low value, low margin, low strategic areas and what
Speaker 4: that benefits US. I get maybe there's an aesthetic appeal.
Speaker 4: Obviously we want to have a lot of jobs. But
Speaker 4: this is a really difficult thing to wrap my head around,
Speaker 4: which is like you have to make decisions right a
Speaker 4: worker on one line as a worker who's not on
Speaker 4: another line. And so why you want to have more
Speaker 4: clothes manufacturing or more doll manufacturing at a time when
Speaker 4: there's an impulse to sort of build up in these
Speaker 4: higher value is very unclear to me.
Speaker 2: Yeah, there's definitely a tension there. Yeah, all right, shall
Speaker 2: we leave it there.
Speaker 4: Let's leave it there.
Speaker 2: This has been another episode of the Odd Lots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
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