WEBVTT - Taiwan Speech Shows US-China Risk Can't Be Ignored 0:00:02.600 --> 0:00:05.960 You are listening to Asia Centric from Bloomberg Intelligence, the 0:00:06.000 --> 0:00:09.440 podcast that explores the big ideas and trends moving money 0:00:09.480 --> 0:00:13.640 across the region. My name is Kadid Miitrieva with Bloomberg News. 0:00:13.360 --> 0:00:16.560 In Hong Kong, and I'm John Lee from Bloomberg Intelligence. 0:00:17.160 --> 0:00:20.880 The President of Taiwan liking To last week gave it 0:00:20.880 --> 0:00:24.759 an important address to his people. The Annual ten tenths Speech, 0:00:24.840 --> 0:00:27.840 as it's called, lays out the leader's vision for the 0:00:27.880 --> 0:00:29.640 impacts go beyond its borders. 0:00:30.120 --> 0:00:33.400 Yes, it's always closely watched by people around the world, 0:00:33.760 --> 0:00:36.839 but especially in the US and China as a kind 0:00:36.880 --> 0:00:39.440 of gauge of how relations will shape up in the 0:00:39.479 --> 0:00:43.840 coming years with US. To discuss takeaways is David Sachs, 0:00:44.000 --> 0:00:47.040 Asia Studies Fellow at the Council on Foreign Relations. 0:00:47.440 --> 0:00:50.680 Welcome David, thanks for having me now. 0:00:50.800 --> 0:00:54.440 The Annual ten tens Speech as it's called, it's important 0:00:54.480 --> 0:00:58.760 not just for Taiwan, but also has global implications and 0:00:58.840 --> 0:01:02.040 it acts as a guide for US China relations as well. 0:01:02.320 --> 0:01:04.920 What were your takeaways from the speech this year? 0:01:05.480 --> 0:01:08.760 Well, if you compare President Lie's Double ten speech to 0:01:08.840 --> 0:01:12.240 his inaugural which was delivered in May, I think that 0:01:12.319 --> 0:01:15.000 the consensus is. He took a step back on a 0:01:15.040 --> 0:01:18.600 few of those points. So, for instance, in his inaugural address, 0:01:18.640 --> 0:01:21.679 he called out China by name and was very direct 0:01:21.680 --> 0:01:25.920 in his criticisms of China. There was no such direct 0:01:25.920 --> 0:01:29.200 criticism in this Double ten speech. Instead, he talked very 0:01:29.319 --> 0:01:33.720 vaguely about the threat that authoritarianism poses around the world. 0:01:34.560 --> 0:01:38.560 Now there were also olive branches to Beijing, so he 0:01:38.640 --> 0:01:41.840 talked about a willingness to work with China on global 0:01:41.840 --> 0:01:46.520 issues like climate change and infectious disease, and some members 0:01:46.520 --> 0:01:51.080 of Li's administration pointed to a line about hoping that 0:01:51.200 --> 0:01:54.200 China will live up to the expectations of the international 0:01:54.240 --> 0:01:58.840 community and take up its responsibilities as another signal of 0:01:58.880 --> 0:02:02.320 goodwill that he wasn't closing the door on China and 0:02:02.680 --> 0:02:07.080 prejudging it, so to speak, as kind of a revisionist power, 0:02:07.080 --> 0:02:10.839 but actually expressing hope that China could find its way 0:02:10.880 --> 0:02:14.640 in the international system without being disruptive. So those were 0:02:14.639 --> 0:02:18.000 some signals that observers in the United States looked to, 0:02:18.919 --> 0:02:21.920 as well as reassurances that he would seek to maintain 0:02:21.960 --> 0:02:26.840 the status quo, but those were clearly not reciprocated by 0:02:26.880 --> 0:02:31.080 Beijing and not recognized by Beijing. They responded to his 0:02:31.919 --> 0:02:36.440 Double ten speech by announcing Joint Sword B, a large 0:02:36.560 --> 0:02:40.120 military exercise. There was a continuation of Joint Sword A, 0:02:40.280 --> 0:02:43.239 which it introduced after his inaugural address. So I think 0:02:43.280 --> 0:02:47.280 that the quandary, or the dilemma for observers is that, 0:02:47.440 --> 0:02:50.120 on the one hand, I think many believe that this 0:02:50.280 --> 0:02:53.239 was a more moderate speech, but on the other hand, 0:02:53.400 --> 0:02:57.040 there wasn't really a moderation in Beijing's response, And so 0:02:57.120 --> 0:02:59.360 where does cross straight relations go from there? 0:03:00.320 --> 0:03:03.560 So, David, why do you think China stepped up these 0:03:03.600 --> 0:03:08.720 military exercises given as you say, President Lai extended these 0:03:08.919 --> 0:03:10.680 kinds of olive branches in his speech. 0:03:12.320 --> 0:03:15.360 Yeah, so, you know, we could all analyze the text 0:03:15.520 --> 0:03:18.280 of what Lai said, and I'll do that very briefly. 0:03:18.800 --> 0:03:22.360 He said that the Republic of China, which is Taiwan's 0:03:22.360 --> 0:03:24.840 formal name, and the People's Republic of China are not 0:03:24.919 --> 0:03:29.239 subordinate to each other. That's something that the PRC takes 0:03:29.320 --> 0:03:32.639 umbrage to, but it's not a new formulation, his predecessor 0:03:32.840 --> 0:03:35.960 saying when said the same thing during her twenty twenty 0:03:35.960 --> 0:03:41.040 one Double ten speech. He also talked about how essentially 0:03:41.080 --> 0:03:44.120 the name of Taiwan didn't really matter. Some people call 0:03:44.160 --> 0:03:46.200 it the Republic of China, some people call it the 0:03:46.240 --> 0:03:49.560 Republic of China Taiwan, and some people just call it Taiwan. 0:03:50.080 --> 0:03:53.280 And of course, you know, for China, that is akin 0:03:53.560 --> 0:03:59.160 to talking about independence and a separate identity internationally for Taiwan. Now, 0:03:59.200 --> 0:04:02.160 I'll take maybe a bit of a contrarian view on that. 0:04:02.640 --> 0:04:05.040 I think what Lie is trying to signal is actually 0:04:05.120 --> 0:04:08.560 that he's not going to pursue a formal name change 0:04:08.560 --> 0:04:11.920 of the island through the legislature or through other means 0:04:11.920 --> 0:04:14.560 that would cause a crisis. And he's essentially saying that 0:04:14.640 --> 0:04:18.440 he wants to set aside those divisive issues in the 0:04:18.880 --> 0:04:21.880 in favor of national unity. So that's my own view, 0:04:21.880 --> 0:04:26.200 but China clearly does not like that formulation. But you 0:04:26.279 --> 0:04:29.479 know what I would argue more broadly is that regardless 0:04:29.480 --> 0:04:33.120 of what Lie says, China will respond the way that 0:04:33.200 --> 0:04:36.280 it has responded. It has a deep distrust of Lie, 0:04:36.560 --> 0:04:38.680 and you might even say that it has a visceral 0:04:38.760 --> 0:04:42.080 hatred of Lie. This goes back to a statement that 0:04:42.160 --> 0:04:44.880 he made years ago that he was a quote pragmatic 0:04:45.000 --> 0:04:48.520 worker for Taiwan independence. Now, he said that before he 0:04:48.600 --> 0:04:51.400 was the vice president, and obviously before he was running 0:04:51.400 --> 0:04:55.200 for president. But if you meet with any Chinese scholar 0:04:55.600 --> 0:04:59.320 or official and they bring up lie, they always remind 0:04:59.360 --> 0:05:01.919 you of that common that he made now when he 0:05:01.960 --> 0:05:05.120 was running for president, and since he's assumed the presidency, 0:05:05.240 --> 0:05:09.120 he's had a few other lines that have raised eyebrows 0:05:09.160 --> 0:05:12.280 in Beijing. For instance, on the campaign trail, he talked 0:05:12.279 --> 0:05:14.760 about how his dream would be to visit the White 0:05:14.800 --> 0:05:19.080 House as president, which you know China really objected to, 0:05:19.520 --> 0:05:22.239 And since assuming the presidency, just a few days before 0:05:22.279 --> 0:05:26.200 his double ten speech, he asked rhetorically, how can China 0:05:26.880 --> 0:05:30.800 claim to be the motherland of Taiwan when the People's 0:05:30.839 --> 0:05:33.480 Republic of China is younger than the Republic of China, 0:05:34.279 --> 0:05:39.120 And so those kind of tweaks of China also really 0:05:39.120 --> 0:05:42.039 stick with them. But my overall point is, regardless of 0:05:42.080 --> 0:05:45.200 what he says, China's response will be Okay, well you 0:05:45.240 --> 0:05:48.320 have to match that with actions. How can we trust 0:05:48.360 --> 0:05:50.840 what you say and that you really mean it. So 0:05:50.920 --> 0:05:53.719 I think that no matter what the content of his 0:05:53.800 --> 0:05:56.919 speech was, they were going to react in a forceful way, 0:05:57.360 --> 0:05:59.440 and as you noted at the top, you know he's 0:05:59.440 --> 0:06:01.440 going to give three more of these speeches during a 0:06:01.480 --> 0:06:04.800 first term, so we should anticipate I think a pretty 0:06:05.040 --> 0:06:08.839 robust response from Beijing each of the next three octobers. 0:06:10.360 --> 0:06:14.160 Asia Centric is produced by Bloomberg Intelligence, where more than 0:06:14.200 --> 0:06:18.160 five hundred experienced analysts and strategists work around the clock 0:06:18.200 --> 0:06:22.120 to bring you timely, world class research. Our coverage spans 0:06:22.160 --> 0:06:26.800 two hundred market indices, currencies, commodities, and industries, as well 0:06:26.839 --> 0:06:30.000 as over two thousand equities and credits. If you like 0:06:30.040 --> 0:06:33.720 what you hear, don't forget to subscribe and chairm David, 0:06:33.800 --> 0:06:37.200 where do we go from here? Do you think geopolitical 0:06:37.279 --> 0:06:39.640 risks could escalate or do you think we're at the 0:06:39.640 --> 0:06:40.480 height right now? 0:06:41.880 --> 0:06:43.960 I don't think we're at the height, So I think 0:06:44.000 --> 0:06:46.719 that the risks will continue to be elevated because I 0:06:46.720 --> 0:06:50.760 don't think that Beijing is accepting of the status quo 0:06:50.839 --> 0:06:54.480 as most define it, and they continue to see opportunities 0:06:54.880 --> 0:06:58.039 to shift the status quo in their favor. So to 0:06:58.040 --> 0:07:01.320 give you just one example, a few months ago, there 0:07:01.400 --> 0:07:04.679 was a Chinese vessel that capsized off of the offshore 0:07:04.720 --> 0:07:09.000 island of gin Men, and some Chinese fishermen died and 0:07:09.040 --> 0:07:12.200 others were taken into custody in Taiwan. And China used 0:07:12.240 --> 0:07:15.480 that as an opportunity to change what had been practiced 0:07:15.480 --> 0:07:20.040 for decades around patrols near Jinmen. And they don't pull 0:07:20.160 --> 0:07:24.800 back after they've established a new baseline. Another instance, you know, 0:07:25.320 --> 0:07:29.480 China's naval vessels used to only operate really on Taiwan's 0:07:29.520 --> 0:07:33.360 west coast. Now on a near continuous basis, you have 0:07:34.040 --> 0:07:37.560 pla navy vessels on Taiwan's west coast, it's east coast, 0:07:37.680 --> 0:07:41.520 and the north of Taiwan. So the military activity the 0:07:41.600 --> 0:07:44.720 new normal is highly elevated, and in my view, China 0:07:44.760 --> 0:07:49.000 will continue to elevate the new normal military activity. In 0:07:49.040 --> 0:07:51.640 the economic realm, you know, we've seen a few rounds 0:07:51.680 --> 0:07:55.280 of tariffs imposed on Taiwanese goods since Li took office. 0:07:55.720 --> 0:07:58.520 My own view is that at some point China will 0:07:58.920 --> 0:08:02.680 will withdraw the EKFA agreement. They've already tried to lay 0:08:02.680 --> 0:08:05.480 the foundation for doing so, saying that Taiwan is in 0:08:05.560 --> 0:08:08.000 violation of its commitments under EKFA. 0:08:07.760 --> 0:08:11.400 And just for just for listeners, what is EKFA sure? 0:08:11.440 --> 0:08:16.280 So the Economic Cooperation Framework agreement is essentially a free 0:08:16.320 --> 0:08:20.440 trade deal reached under the mind Joe administration in Taiwan 0:08:20.520 --> 0:08:24.000 and the PRC, and it gives Taiwanese firms an array 0:08:24.360 --> 0:08:28.120 of ways to have preferential access to the Chinese market. 0:08:28.680 --> 0:08:32.400 China warned during the presidential election cycle, if you elect 0:08:32.400 --> 0:08:35.440 a lie, you know this might come into question. And 0:08:35.480 --> 0:08:38.480 the review just so happened to coincide with the day 0:08:38.480 --> 0:08:42.400 of the election. And I believe that China is going 0:08:42.480 --> 0:08:45.600 to do more to undo that agreement. So I think 0:08:45.600 --> 0:08:49.040 that impose more economic costs on Taiwan. The military pressure 0:08:49.080 --> 0:08:53.240 will rise, It'll continue to try to isolate Taiwan internationally, 0:08:53.800 --> 0:08:56.520 and then of course add into that mix. We don't 0:08:56.520 --> 0:08:59.679 really know what a future US administration's policy will be 0:08:59.720 --> 0:09:05.560 towards Taiwan. President Trump has said on multiple occasions, Taiwan 0:09:05.600 --> 0:09:11.080 hasn't given us anything. Taiwan stole our chips manufacturing. We 0:09:11.160 --> 0:09:13.920 are no different than an insurance company, and Taiwan should 0:09:13.920 --> 0:09:17.760 pay US for defense. So you could have an element 0:09:17.800 --> 0:09:20.880 of instability in the Taiwan straight in my view, if 0:09:20.880 --> 0:09:24.320 Trump returns to office and China concludes that the United 0:09:24.360 --> 0:09:28.199 States is not committed to Taiwan's defense, and it might 0:09:28.240 --> 0:09:31.960 seek to test a Trump administration on its commitments to Taiwan. 0:09:32.920 --> 0:09:35.240 On a Harris administration too, I think there's an open 0:09:35.320 --> 0:09:39.199 question is Harris more similar to Biden or is it 0:09:39.320 --> 0:09:42.240 going back to the Obama approach to China. So I 0:09:42.280 --> 0:09:45.320 think there will be a test regardless of what happens 0:09:45.320 --> 0:09:48.640 in the US election, in the South China Sea, potentially 0:09:48.720 --> 0:09:51.720 the Taiwan Straight and the question is really how that's 0:09:51.800 --> 0:09:54.480 navigated and what the takeaways from Beijing are. 0:09:55.480 --> 0:09:58.880 David, what would be an Obama approach to Taiwan. 0:10:00.640 --> 0:10:03.880 Well, it's a very interesting question. I think that what 0:10:03.920 --> 0:10:08.120 the Chinese concluded during the Obama administration was that they 0:10:08.160 --> 0:10:13.359 could get US restraint on Taiwan by dangling the prospect 0:10:13.440 --> 0:10:17.520 of US China cooperation on certain issues, and that they 0:10:18.320 --> 0:10:21.840 would present the Obama administration with those trade offs, and 0:10:21.960 --> 0:10:26.599 that the Obama administration would choose the US China cooperation 0:10:26.800 --> 0:10:29.360 at some point in the future over doing certain things 0:10:29.360 --> 0:10:33.280 with Taiwan. And so one tangible result of that is 0:10:33.400 --> 0:10:36.760 arm sales. So under the Obama administration you had what 0:10:36.880 --> 0:10:39.240 we're referred to as bundles of arm sales. So you 0:10:39.280 --> 0:10:41.920 would have arm sales that were not announced for months 0:10:41.960 --> 0:10:44.640 or even over a year, and then you would suddenly 0:10:44.720 --> 0:10:47.560 have a big package of arm sales announced, so that 0:10:47.600 --> 0:10:50.199 there would only be one set of blowback from Beijing. 0:10:50.800 --> 0:10:54.840 Under the Trump administration, arm sales were normalized so that 0:10:55.120 --> 0:10:57.439 just like we do with all other partners, when Taiwan 0:10:57.480 --> 0:11:01.559 makes a request for certain arms, those are reviewed and 0:11:01.600 --> 0:11:04.160 then if those are approved, they're notified in the order 0:11:04.200 --> 0:11:07.880 that they're approved. And that's continued under the Biden administration, 0:11:08.400 --> 0:11:11.800 so you see much more routine arm sales to Taiwan 0:11:12.120 --> 0:11:14.640 rather than what we saw under the Obama administration. 0:11:14.679 --> 0:11:18.559 Of the bundling, you're laying out a risky future. I 0:11:18.600 --> 0:11:22.760 guess it's always the case with Taiwan. So as an investor, 0:11:23.520 --> 0:11:27.360 I guess what should be the takeaways going forward? Because 0:11:27.800 --> 0:11:31.920 Taiwan's Semiconductor t SMC, it's the biggest chips company in 0:11:31.920 --> 0:11:35.520 the world based in Taiwan, We've seen the company increasingly 0:11:35.559 --> 0:11:39.559 look to build plants elsewhere. Other companies are doing the same. 0:11:39.880 --> 0:11:43.240 I mean, as an investor who's heard this speech, who's 0:11:43.280 --> 0:11:46.600 heard that there are some concessions, but China has still 0:11:46.640 --> 0:11:50.240 had this reaction. What is the takeaway what should they 0:11:50.320 --> 0:11:51.880 expect in the next couple of years. 0:11:53.760 --> 0:11:56.560 So I'll address the China part first and then the 0:11:56.600 --> 0:12:01.920 Taiwan part. I think that for many investors, the assumption 0:12:02.240 --> 0:12:05.280 was that a conflict over Taiwan was around zero percent. 0:12:05.679 --> 0:12:08.640 For a long time, I think the assumption was, you know, 0:12:08.760 --> 0:12:12.160 Beijing talks about potential use of force against Taiwan, but 0:12:12.200 --> 0:12:15.600 it's not really serious. It's just doing that to appease 0:12:15.800 --> 0:12:20.280 the nationalists at home and show its domestic audience that 0:12:20.360 --> 0:12:23.719 it's making progress on this issue. But I think that 0:12:23.720 --> 0:12:28.320 that has fundamentally changed over the last four to six years. 0:12:29.000 --> 0:12:32.040 Number one, due to what's happened in Hong Kong and 0:12:32.080 --> 0:12:35.640 the demolition of one country two systems. Number two, the 0:12:35.640 --> 0:12:38.440 war in Ukraine, I think has shown Taiwanese people, but 0:12:38.480 --> 0:12:41.480 also people around the world, that when an authoritarian wants 0:12:41.480 --> 0:12:44.880 a piece of land, they're going to act potentially aggressively, 0:12:44.960 --> 0:12:47.400 and what we might not think is rationally to try 0:12:47.400 --> 0:12:50.880 to achieve those geopolitical aims. And if you look at 0:12:50.880 --> 0:12:54.360 how Xi Jinping views Taiwan and how Putent views Ukraine, 0:12:54.400 --> 0:12:58.280 it's remarkably similar in a sense. So I think that 0:12:58.320 --> 0:13:01.800 you have to factor into your investment decisions in China 0:13:02.600 --> 0:13:05.960 a not zero percent chance that there is a major 0:13:06.000 --> 0:13:10.320 conflict potentially involving the United States. And so you know, 0:13:10.360 --> 0:13:12.360 as you well know, that's referred to as a China 0:13:12.400 --> 0:13:14.560 plus one model. You can't have all of your eggs 0:13:14.559 --> 0:13:17.800 in the China basket because there is a potential future 0:13:17.800 --> 0:13:21.319 where there are heavy sanctions levied on China and potentially 0:13:21.600 --> 0:13:26.679 major trade restrictions. So if I was running a multinational corporation, 0:13:26.800 --> 0:13:29.360 I would not be comfortable with all of my production 0:13:29.440 --> 0:13:34.680 occurring in China or with my biggest growing market being China. 0:13:34.800 --> 0:13:37.040 And I think that that's what needs to be taken 0:13:37.040 --> 0:13:40.440 into account on the Taiwan side of the ledger, you know, 0:13:40.480 --> 0:13:44.240 I think that what's striking to me is that there 0:13:44.280 --> 0:13:46.680 are some in the United States who do believe that 0:13:46.720 --> 0:13:50.400 we're going to achieve autonomy and semiconductors within the next 0:13:50.440 --> 0:13:53.480 five to ten years. They look at TSMC's investments in 0:13:53.520 --> 0:13:57.240 Arizona and they think, well, basically, at some point we'll 0:13:57.280 --> 0:13:59.640 manufacture one hundred percent of our chips and then we 0:13:59.679 --> 0:14:02.200 won't have a stake in piece of stability in the 0:14:02.200 --> 0:14:05.720 Taiwan straight And I think that that's quite flawed. I 0:14:05.720 --> 0:14:08.120 think that we're looking at a future where, regardless of 0:14:08.160 --> 0:14:11.480 the investments TSMC makes in Japan, in the United States, 0:14:11.480 --> 0:14:13.920 and in Europe, the world is going to be very 0:14:13.960 --> 0:14:17.520 reliant on Taiwan for its chip supply. And I think 0:14:17.559 --> 0:14:20.880 the best case scenario is that you're able to build 0:14:21.000 --> 0:14:24.920 redundancy and resilience for chips that you need for critical 0:14:25.000 --> 0:14:28.840 national security applications. So in a worst case scenario, if 0:14:28.840 --> 0:14:32.200 there is a conflict between China and Taiwan, you're still 0:14:32.200 --> 0:14:33.760 going to be able to get the chips you need 0:14:33.800 --> 0:14:38.560 to fight a war and to continue as a society. 0:14:39.080 --> 0:14:42.640 So I think that that's the most realistic scenario in 0:14:42.680 --> 0:14:46.160 the future. But I don't really see a future at 0:14:46.240 --> 0:14:50.840 least in the near to midterm where the world achieves 0:14:51.400 --> 0:14:55.040 self sufficiency in chips and doesn't need Taiwan, especially for 0:14:55.080 --> 0:14:57.840 the advanced chips that it really does have a stranglehold on. 0:14:59.000 --> 0:14:59.360 David. 0:15:00.040 --> 0:15:03.960 So your point, Taiwan exports to the United States for 0:15:04.000 --> 0:15:07.560 this year will likely eclips those to the mainland China 0:15:07.600 --> 0:15:09.840 for the first time in over twenty years. And now 0:15:09.880 --> 0:15:12.480 this was based on a report by my colleague Marvin 0:15:12.520 --> 0:15:15.560 Chen of Bloomberg Intelligence. A lot of this has been 0:15:15.680 --> 0:15:18.560 influenced by searching demand for AI chips by the likes 0:15:18.600 --> 0:15:23.440 of Nvidia, But you're also seeing US restrictions for Taiwan 0:15:23.520 --> 0:15:26.560 sales to these chips to mainland China. Do you see 0:15:26.560 --> 0:15:29.360 this as more of a blip or do you see 0:15:29.520 --> 0:15:35.240 Taiwan's economy slowly decoupling from mainland China towards the US. 0:15:36.440 --> 0:15:39.360 I think that we do see a decoupling in a sense. 0:15:39.520 --> 0:15:42.360 I mean, there's not going to be a full decoupling 0:15:42.480 --> 0:15:46.360 because so many of the intermediary goods the China needs 0:15:46.400 --> 0:15:49.720 to then manufacture the finished products that are re exported 0:15:49.720 --> 0:15:53.160 around the world come from Taiwan, so you know, Taiwan 0:15:53.280 --> 0:15:57.840 is deeply integrated into these supply chains. But you can 0:15:57.920 --> 0:16:03.360 also look at things like FDI where Taiwanese outbound FDI 0:16:03.440 --> 0:16:08.920 into China has gone down, you know, off a cliff 0:16:09.000 --> 0:16:12.520 essentially over the last six or eight years. And as 0:16:12.520 --> 0:16:15.640 you know it also Taiwan's trade is rebalancing away from 0:16:15.680 --> 0:16:17.680 the PRC. Some of this, I think is due to 0:16:17.720 --> 0:16:21.960 the COVID nineteen pandemic and fears of the lockdowns that 0:16:22.080 --> 0:16:26.840 caused companies to kind of reallocate their manufacturing and refocus 0:16:26.920 --> 0:16:30.400 in Southeast Asia. Some of it is due to policies 0:16:30.440 --> 0:16:33.240 that the Taiwanese government has undertaken, like the new Southbound 0:16:33.280 --> 0:16:35.880 policy under President's side that's sought to build up these 0:16:35.920 --> 0:16:40.120 relationships in Southeast Asia. But when you have also events 0:16:40.280 --> 0:16:44.320 like a executive of a major Taiwanese company you know, 0:16:44.520 --> 0:16:47.520 under an exit ban in the PRC right now, or 0:16:47.600 --> 0:16:53.400 you have Taiwanese individuals convicted under these guidelines of promoting 0:16:53.400 --> 0:16:57.000 Taiwan independence, a lot of Taiwanese businessmen are going to 0:16:57.040 --> 0:16:59.600 be increasingly uncomfortable doing business in China and they're going 0:16:59.640 --> 0:17:02.400 to look for other avenues. So I do think that 0:17:02.600 --> 0:17:05.679 we're going to continue to see a rebalancing of Taiwan's 0:17:05.680 --> 0:17:09.320 economy away from China and more towards Europe, the United 0:17:09.320 --> 0:17:10.600 States and Japan. 0:17:11.680 --> 0:17:16.240 Investors are likely thinking about this as well. They're quite optimistic. 0:17:16.520 --> 0:17:19.760 It looks like Taiwan stock index, the tai X, is 0:17:19.840 --> 0:17:23.320 up almost thirty percent year today. It's the best performing 0:17:23.840 --> 0:17:26.479 major stock index in the world. So do you think 0:17:26.560 --> 0:17:31.320 investors are correct and sort of ignoring the geopolitical risks, 0:17:31.320 --> 0:17:33.360 which it seems is happening. 0:17:35.040 --> 0:17:37.960 Well, I don't think you can ignore the geopolitical risks, 0:17:37.960 --> 0:17:41.720 and I think you have to understand that Chijinping, in 0:17:41.760 --> 0:17:45.480 my view, is fundamentally different from his predecessors. Think that 0:17:45.680 --> 0:17:48.160 the assumption, again to go back to how people were 0:17:48.200 --> 0:17:51.800 reading China for decades, was that the most important thing 0:17:51.880 --> 0:17:55.159 for the Chinese Communist Party leadership was generating economic growth, 0:17:55.520 --> 0:17:57.399 and that if there was ever a trade off that 0:17:57.480 --> 0:18:00.760 had to be made, they would choose a favor of 0:18:00.800 --> 0:18:05.280 economic growth because the regime legitimacy rested on delivering that 0:18:05.359 --> 0:18:08.400 prosperity to the Chinese people. But I think what's becoming 0:18:08.520 --> 0:18:13.040 increasingly clear is that the number one priority for Shijinping 0:18:13.440 --> 0:18:18.680 is national security, which he defines as regime security, and 0:18:19.200 --> 0:18:22.960 if there is a tension between economic growth and national security, 0:18:22.960 --> 0:18:26.240 he's going to choose national security. So I don't think 0:18:26.280 --> 0:18:29.560 that we can be complacent and say, well, China needs 0:18:29.600 --> 0:18:33.080 Taiwan's economy so much, it needs the trade so much, 0:18:33.080 --> 0:18:35.200 it needs trade with the West so much, it'll never 0:18:35.400 --> 0:18:38.679 use force against Taiwan because that would be lunacy. I 0:18:38.720 --> 0:18:42.400 think that he has a different calculus at work here. 0:18:42.880 --> 0:18:45.520 We don't really know exactly what it is, and I 0:18:45.640 --> 0:18:47.399 don't think that I can sit here and tell you 0:18:48.000 --> 0:18:50.360 exactly what he's going to do. But I also think 0:18:50.359 --> 0:18:54.239 we can't apply those frameworks that we've been using for 0:18:54.320 --> 0:18:57.240 decades because I think that they are flawed and pretty 0:18:57.280 --> 0:18:59.520 out of date at this point. So to get back 0:18:59.520 --> 0:19:02.560 to your QUO question, there's a risk here, but I 0:19:02.560 --> 0:19:05.639 don't think that a conflict is imminent. I think that 0:19:05.920 --> 0:19:09.240 deterrence in the Taiwan strad is real. I think that 0:19:09.440 --> 0:19:13.240 when you know, Chijinping asks his generals about whether they 0:19:13.280 --> 0:19:17.159 can accomplish unification at a acceptable cost to him, the 0:19:17.240 --> 0:19:21.720 answer is probably no. And so if Taiwan continues to 0:19:21.760 --> 0:19:25.560 invest in its defense, if the United States continues to 0:19:25.640 --> 0:19:28.320 take steps to bolster deterrence in the Taiwan strade, if 0:19:28.400 --> 0:19:32.720 Japan also is increasingly active in this respect, then I 0:19:32.760 --> 0:19:37.800 think deterrence will still hold. So you know, again, I 0:19:37.800 --> 0:19:41.880 think that that is what's keeping Sijinping from acting. It 0:19:41.960 --> 0:19:45.400 is the question in his mind on whether they can 0:19:45.400 --> 0:19:49.480 accomplish their objectives militarily and at an acceptable cost. And we, 0:19:49.600 --> 0:19:53.840 the United States as well as Taiwan, can manipulate that variable. 0:19:55.240 --> 0:19:59.000 David, if I could change track. What about the average person, 0:19:59.400 --> 0:20:03.720 average VERSI in Taiwan. You know, the world often views 0:20:03.760 --> 0:20:08.239 Taiwan through geopolitical risks, a tension between the US and 0:20:08.440 --> 0:20:11.560 China and Taiwan is stuck in between. But what about 0:20:11.560 --> 0:20:15.320 the average VHOTO Are they really concerned about these foreign 0:20:15.359 --> 0:20:18.720 policy risks or are they sort of more concerned about 0:20:18.880 --> 0:20:22.680 mundane domestic policies, for example, issues like housing prices. 0:20:23.960 --> 0:20:27.000 That's a really interesting question. So to get back to 0:20:27.640 --> 0:20:30.200 the main topic of our conversation, which is lies double 0:20:30.240 --> 0:20:34.040 ten speech, we're all focusing on crosstrate issues. That's what 0:20:34.280 --> 0:20:37.760 gets the PRC's attention, and that's what gets attention in Washington. 0:20:38.200 --> 0:20:42.000 But actually it was a very small proportion of his 0:20:42.080 --> 0:20:44.439 speech that dealton crosstraight issues. A lot of it was 0:20:44.480 --> 0:20:47.399 on the bread and butter issues that you were talking about, 0:20:47.440 --> 0:20:54.480 long term elderly care, youth, unemployment, housing prices. So I 0:20:54.520 --> 0:20:57.960 think that that is a core concern for Taiwanese people 0:20:58.000 --> 0:21:00.439 and they face a lot of the same challenge the 0:21:00.640 --> 0:21:04.879 advanced democracies around the world face. I think one of 0:21:04.920 --> 0:21:08.679 the takeaways from the DPP, the ruling party, from the 0:21:08.680 --> 0:21:13.840 election is actually the lie underperformed expectations because there was 0:21:13.920 --> 0:21:19.159 dissatisfaction with the DPP undertying when in a sense and 0:21:19.200 --> 0:21:22.600 how was able to address those quality of life issues. 0:21:22.840 --> 0:21:25.400 I mean, if you're young in Taiwan, it's incredibly difficult 0:21:25.400 --> 0:21:30.159 to buy a house. Youth unemployment, especially for college educated kids, 0:21:30.320 --> 0:21:32.879 is a real issue. Of course, you have, like in 0:21:32.960 --> 0:21:37.000 everywhere in East Asia, rapidly aging population and the costs 0:21:37.040 --> 0:21:39.400 that are associated with that. So those are real issues 0:21:39.440 --> 0:21:43.280 and that's what animates voters. But let me just qualify 0:21:43.320 --> 0:21:47.679 what I said, because at the presidential level, when you 0:21:47.760 --> 0:21:50.840 have a presidential race in Taiwan, everything is filtered through 0:21:50.840 --> 0:21:53.800 a cross straight lens in my view, And so for 0:21:53.880 --> 0:21:57.199 the KMT, much of its answer for how you address 0:21:57.280 --> 0:22:01.639 that is closer economic relations with the PC. If crosstrate 0:22:01.680 --> 0:22:03.720 relations are not so tense. If we have a better 0:22:03.720 --> 0:22:06.400 relationship with China, it'll make it much easier to address 0:22:06.480 --> 0:22:09.200 these issues. We won't have to invest as much in defense, 0:22:09.840 --> 0:22:11.639 you know, we can focus on this and we won't 0:22:11.640 --> 0:22:14.879 have to deal with the military intimidation every day. For 0:22:14.960 --> 0:22:19.280 the DPP, that is a big vulnerability. How much Taiwan 0:22:19.400 --> 0:22:22.639 relies on China and how China can manipulate that whenever 0:22:22.680 --> 0:22:26.639 it wants to inflict pain on Taiwan, and so part 0:22:26.680 --> 0:22:30.080 of dealing with all these challenges is to diversify the 0:22:30.119 --> 0:22:35.760 economy away from China. So crosstraight relations really also are 0:22:36.000 --> 0:22:38.199 at the front of mind when you get into a 0:22:38.280 --> 0:22:42.239 presidential contest and think about what your vision for the 0:22:42.240 --> 0:22:43.800 island's future is. 0:22:44.960 --> 0:22:50.120 Taiwan is obviously home to TSMC, the world's largest semiconductor company. 0:22:50.160 --> 0:22:54.440 But outside of technology, and outside of TSMC, what does 0:22:54.640 --> 0:22:58.080 Taiwan actually make? Are they famous for anything else? I 0:22:58.119 --> 0:23:00.639 heard that they are also the biggest bicycle manufacturer in 0:23:00.640 --> 0:23:01.320 the world as well. 0:23:01.440 --> 0:23:04.840 I was about to mention bicycle manufacturing, which was a 0:23:04.880 --> 0:23:07.600 surprise to me a long time ago, but actually I 0:23:07.640 --> 0:23:11.720 heard something interesting a little while ago, because in Washington 0:23:11.760 --> 0:23:15.600 there's a lot of tabletop exercises wargames going on about 0:23:15.600 --> 0:23:19.280 Taiwan scenarios if there is a war over Taiwan, what's 0:23:19.400 --> 0:23:23.120 vulnerable from the US perspective, where can China inflict pain 0:23:23.240 --> 0:23:25.960 on us? And how do we shore up those vulnerabilities? 0:23:26.000 --> 0:23:29.160 And one person mentioned to me that Taiwan is actually 0:23:29.200 --> 0:23:33.119 the world's second largest producer of screws. His point was 0:23:33.480 --> 0:23:35.879 it can be something as mundane as a screw. But 0:23:35.960 --> 0:23:39.959 if you run a multinational corporation, you probably rely on 0:23:39.960 --> 0:23:43.119 Taiwan for screws, and there are some very specialized screws 0:23:43.160 --> 0:23:45.680 out there, and so if you're not getting those anymore, 0:23:46.080 --> 0:23:48.400 how easy is it for you to find a substitute 0:23:48.440 --> 0:23:52.600 and to source those and get those in your production line. So, 0:23:52.960 --> 0:23:56.679 I full disclosure, I wasn't able to independently verify that 0:23:56.720 --> 0:23:59.240 Taiwan is the world's second largest producer of screws. But 0:23:59.280 --> 0:24:01.159