1
00:00:02,120 --> 00:00:04,880
Speaker 1: All eyes have been on Apple this hour as it

2
00:00:04,960 --> 00:00:07,040
Speaker 1: unveils the iPhone fifteen.

3
00:00:07,240 --> 00:00:08,640
Speaker 2: Cheering is starting right now.

4
00:00:08,800 --> 00:00:10,640
Speaker 1: People were already in line. I got here a little

5
00:00:10,640 --> 00:00:12,480
Speaker 1: before five am, and.

6
00:00:12,680 --> 00:00:14,600
Speaker 2: People are already lined up. I talked to the first

7
00:00:14,640 --> 00:00:15,240
Speaker 2: eye line.

8
00:00:15,280 --> 00:00:18,680
Speaker 3: That's the familiar buzz we hear every time Apple releases

9
00:00:18,760 --> 00:00:21,680
Speaker 3: a new iPhone, people waiting in line to be one

10
00:00:21,680 --> 00:00:25,000
Speaker 3: of the first to get one. A few weeks earlier, though,

11
00:00:25,160 --> 00:00:30,040
Speaker 3: another next generation smartphone very quietly hit the market. It's

12
00:00:30,080 --> 00:00:33,640
Speaker 3: called the May sixty Pro and it's made by China's

13
00:00:33,640 --> 00:00:38,320
Speaker 3: technology giant Huawei. If it's not quite iPhone level tech,

14
00:00:38,760 --> 00:00:40,840
Speaker 3: it's also not too far off.

15
00:00:41,720 --> 00:00:44,519
Speaker 2: In the US When a big phone comes out, like

16
00:00:44,560 --> 00:00:47,760
Speaker 2: Apple just released the iPhone fifteen, Tim Cook is literally

17
00:00:47,880 --> 00:00:51,199
Speaker 2: ushering people into the store on Fifth Avenue. But in

18
00:00:51,280 --> 00:00:55,240
Speaker 2: Huawei's case, they just quietly released this phone online, no fanfare,

19
00:00:55,400 --> 00:00:56,480
Speaker 2: no pomping circumstance.

20
00:00:57,280 --> 00:00:59,680
Speaker 3: You know who did sit up and take notice? The

21
00:00:59,840 --> 00:01:03,560
Speaker 3: US government, not so much because of the phone itself,

22
00:01:03,680 --> 00:01:07,000
Speaker 3: but the sophisticated chip that powers it, which is far

23
00:01:07,120 --> 00:01:10,440
Speaker 3: ahead of where China was thought to be. For years,

24
00:01:10,480 --> 00:01:14,440
Speaker 3: the US has tried to slow Beijing's progress in making semiconductors,

25
00:01:14,840 --> 00:01:18,480
Speaker 3: enforcing export controls that restrict the sale of the most

26
00:01:18,520 --> 00:01:23,480
Speaker 3: advanced chip making materials and equipment to China. Bloomberg's Mackenzie

27
00:01:23,520 --> 00:01:26,919
Speaker 3: Hawkins and Peter Elstrom report that chips like the one

28
00:01:26,959 --> 00:01:31,679
Speaker 3: inside this new phone show how rapidly China is moving ahead.

29
00:01:32,200 --> 00:01:36,040
Speaker 1: Huahwei is able to get domestic supply of these semiconductors

30
00:01:36,280 --> 00:01:39,720
Speaker 1: that are so essential to its smartphone business and perhaps

31
00:01:39,760 --> 00:01:42,480
Speaker 1: more importantly, could be used in other kinds of applications

32
00:01:42,520 --> 00:01:44,320
Speaker 1: to including military applications.

33
00:01:50,200 --> 00:01:53,640
Speaker 3: I'm west Kosova today on the Big Take, Why Huawei's

34
00:01:53,640 --> 00:02:06,160
Speaker 3: new phone is a wake up call for Washington. I

35
00:02:06,200 --> 00:02:09,760
Speaker 3: asked Peter why the launch of Huawei's Mate sixty Pro

36
00:02:09,960 --> 00:02:12,000
Speaker 3: smartphone was such a big deal.

37
00:02:13,160 --> 00:02:16,840
Speaker 1: Usually, of course, phone companies want to trumpet their accomplishments.

38
00:02:16,880 --> 00:02:19,360
Speaker 1: They want to talk like Apple does, about how great

39
00:02:19,360 --> 00:02:21,440
Speaker 1: their new phone is and talk about the new specs.

40
00:02:21,760 --> 00:02:25,040
Speaker 1: Huawei did not disclose most of the key specs of

41
00:02:25,080 --> 00:02:27,399
Speaker 1: the phone at the time. They just put it online

42
00:02:27,440 --> 00:02:31,040
Speaker 1: and started selling it very very quietly. But it caught

43
00:02:31,080 --> 00:02:34,920
Speaker 1: global attention really, and that's because of the technology that

44
00:02:35,040 --> 00:02:39,040
Speaker 1: was inside of it, specifically this microprocessor that was powering

45
00:02:39,120 --> 00:02:41,959
Speaker 1: the phone. It's a seven nanimeter chip, which is a

46
00:02:42,040 --> 00:02:44,560
Speaker 1: quite advanced chip, and it was a very big step

47
00:02:44,600 --> 00:02:48,000
Speaker 1: forward for Huawei, which essentially had been blasted out of

48
00:02:48,000 --> 00:02:50,679
Speaker 1: the smartphone market a few years ago by the US.

49
00:02:51,160 --> 00:02:55,160
Speaker 3: Niketzie. Why is the fact that this phone contains this

50
00:02:55,360 --> 00:02:56,640
Speaker 3: chip such a big deal?

51
00:02:57,280 --> 00:03:00,240
Speaker 2: So this is a huge deal in what's basically became

52
00:03:00,480 --> 00:03:03,880
Speaker 2: a global cold war over tech, and the US and

53
00:03:04,000 --> 00:03:05,360
Speaker 2: China are the main opponents.

54
00:03:05,639 --> 00:03:05,799
Speaker 1: Now.

55
00:03:05,840 --> 00:03:08,400
Speaker 2: The interesting thing about this phone's releases that happened while

56
00:03:08,400 --> 00:03:11,680
Speaker 2: the US Commerce Secretary, Gina Raimando, was in China, and

57
00:03:11,760 --> 00:03:13,720
Speaker 2: I was in China with her and had gone to

58
00:03:13,760 --> 00:03:16,440
Speaker 2: these kind of days of diplomatic meetings. She's meeting with

59
00:03:16,480 --> 00:03:19,120
Speaker 2: her counterpart of the Ministry of Commerce. She's trying to

60
00:03:19,240 --> 00:03:23,320
Speaker 2: establish more formal diplomatic relations with China. And then at

61
00:03:23,320 --> 00:03:27,320
Speaker 2: the tail end of her trip, the US's main technological

62
00:03:27,360 --> 00:03:31,519
Speaker 2: adversary releases this phone that has semiconductor of technology, which

63
00:03:31,560 --> 00:03:35,120
Speaker 2: is electronic component technology, a generation ahead of where the

64
00:03:35,200 --> 00:03:38,160
Speaker 2: US wants it to be. So since the Trump administration,

65
00:03:38,520 --> 00:03:41,320
Speaker 2: the US government has been trying to block China's access

66
00:03:41,400 --> 00:03:45,160
Speaker 2: to super advanced technology that runs everything from electric vehicles

67
00:03:45,200 --> 00:03:48,800
Speaker 2: to nuclear missiles, and China has showed that despite those attempts,

68
00:03:48,880 --> 00:03:51,320
Speaker 2: it's been able to get ahead.

69
00:03:52,160 --> 00:03:55,240
Speaker 3: Peter, let's talk for a second about this chip. What

70
00:03:55,480 --> 00:03:58,440
Speaker 3: is it and why did it cause such a stir.

71
00:03:58,960 --> 00:04:02,520
Speaker 1: What Bloomberg did was we got one of the early

72
00:04:02,600 --> 00:04:05,480
Speaker 1: versions of this phone, and we worked with a company

73
00:04:05,480 --> 00:04:07,880
Speaker 1: that specializes in teardown so that we could look at

74
00:04:07,880 --> 00:04:11,320
Speaker 1: the chip inside, because essentially nobody knew exactly what the

75
00:04:11,400 --> 00:04:14,000
Speaker 1: chip was or what it could do. What we found

76
00:04:14,040 --> 00:04:17,000
Speaker 1: when we tore apart the phone and looked inside was this,

77
00:04:17,120 --> 00:04:20,039
Speaker 1: in fact, was a seven nanometer chip that was made

78
00:04:20,040 --> 00:04:23,400
Speaker 1: by a company called Smick. It's a Chinese company that

79
00:04:23,480 --> 00:04:27,600
Speaker 1: specializes in producing these phones, and the US government had

80
00:04:27,640 --> 00:04:31,000
Speaker 1: been trying to keep Chinese companies away from being able

81
00:04:31,040 --> 00:04:33,240
Speaker 1: to make chips as advanced as this one. So it

82
00:04:33,279 --> 00:04:35,560
Speaker 1: was a surprise that it came from Smick, and it

83
00:04:35,600 --> 00:04:37,760
Speaker 1: was a surprise that it was this advanced. And it

84
00:04:37,880 --> 00:04:41,719
Speaker 1: means that Huawei is able to get domestic supply of

85
00:04:41,760 --> 00:04:45,400
Speaker 1: these semiconductors that are so essential to its smartphone business,

86
00:04:45,800 --> 00:04:48,520
Speaker 1: and perhaps more importantly, could be used in other kinds

87
00:04:48,560 --> 00:04:51,120
Speaker 1: of applications, to including military applications.

88
00:04:51,880 --> 00:04:56,760
Speaker 3: So you described it as being a seven nanometer chip. Mackenzie,

89
00:04:56,800 --> 00:04:59,000
Speaker 3: what does that mean, Like, how do we compare that with, say,

90
00:04:59,040 --> 00:05:00,000
Speaker 3: what's in the iPhone.

91
00:05:01,120 --> 00:05:03,400
Speaker 2: There's a handful of companies in the world that produce chips,

92
00:05:03,880 --> 00:05:08,039
Speaker 2: and they use these many, many million dollar machines to

93
00:05:08,120 --> 00:05:11,839
Speaker 2: etch tiny patterns onto silicon wafers, and the goal is

94
00:05:11,880 --> 00:05:15,240
Speaker 2: to get the patterns as minute as possible so that

95
00:05:15,440 --> 00:05:18,000
Speaker 2: the chips can be as powerful as possible. You can

96
00:05:18,040 --> 00:05:22,040
Speaker 2: pack more onto a single wafer. And the most advanced

97
00:05:22,040 --> 00:05:24,720
Speaker 2: ships are what we have in like the latest iPhone

98
00:05:24,839 --> 00:05:28,080
Speaker 2: that Apple produce, and those are down to three nanometers,

99
00:05:28,320 --> 00:05:31,400
Speaker 2: which is basically the equivalent of like a strand and

100
00:05:31,440 --> 00:05:34,680
Speaker 2: a half of human DNA. Now, the US was trying

101
00:05:34,720 --> 00:05:38,400
Speaker 2: to keep China's abilities at fourteen nanometers, which are considered

102
00:05:38,480 --> 00:05:42,359
Speaker 2: more mature and legacy. Ships still really important for consumer

103
00:05:42,480 --> 00:05:45,800
Speaker 2: tech things like electric vehicles, but not powerful enough for

104
00:05:45,920 --> 00:05:48,880
Speaker 2: like the super advanced military equipment that the US government

105
00:05:48,920 --> 00:05:50,280
Speaker 2: really doesn't want China to have.

106
00:05:51,120 --> 00:05:53,880
Speaker 3: Peter, this new phone, the Mate sixty pro, is made

107
00:05:53,880 --> 00:05:56,560
Speaker 3: by Huawei, which itself is an important thing.

108
00:05:57,360 --> 00:06:00,560
Speaker 1: That's right. Huawei has really been at the heart of

109
00:06:00,760 --> 00:06:05,159
Speaker 1: US China tensions for many, many years. You recall, Hawei

110
00:06:05,160 --> 00:06:09,000
Speaker 1: really made its name by developing telecom equipment that was

111
00:06:09,600 --> 00:06:12,520
Speaker 1: very good, very inexpensive. It was known to have very

112
00:06:12,560 --> 00:06:16,200
Speaker 1: good customer service behind it too. Huawei took on companies

113
00:06:16,240 --> 00:06:20,239
Speaker 1: like Ericson and Cisco in particular, and expanded around the world.

114
00:06:20,640 --> 00:06:23,400
Speaker 1: But it became a boneu of contention because the US

115
00:06:23,480 --> 00:06:27,560
Speaker 1: began to try to convince its allies that Huawei's equipment

116
00:06:27,600 --> 00:06:30,640
Speaker 1: was dangerous, that perhaps they could be using it for spying,

117
00:06:30,720 --> 00:06:33,240
Speaker 1: for monitoring exactly what was going on, not just in

118
00:06:33,279 --> 00:06:36,080
Speaker 1: the US but in other countries too, So the US

119
00:06:36,120 --> 00:06:38,200
Speaker 1: took it upon itself to go out and try to

120
00:06:38,200 --> 00:06:43,240
Speaker 1: get other countries to ban Huawei's equipment. These tensions simmered

121
00:06:43,279 --> 00:06:47,320
Speaker 1: for many years, and European companies were not so crazy

122
00:06:47,360 --> 00:06:51,360
Speaker 1: about going along with this because Huawei's equipment was inexpensive,

123
00:06:51,400 --> 00:06:54,760
Speaker 1: it was very good, particularly in five G wireless technology,

124
00:06:55,080 --> 00:06:57,440
Speaker 1: so there are many companies that wanted to continue buying

125
00:06:57,520 --> 00:07:00,520
Speaker 1: want weight gear even as Washington was trying to get

126
00:07:00,520 --> 00:07:03,880
Speaker 1: it banned. So it was effectively out of the smartphone

127
00:07:03,920 --> 00:07:06,799
Speaker 1: business for years. It had been the largest smartphone company

128
00:07:06,880 --> 00:07:09,800
Speaker 1: in the world at one point, and it was essentially out.

129
00:07:09,840 --> 00:07:13,440
Speaker 1: Its business was really decimated by these US controls. And

130
00:07:13,600 --> 00:07:16,960
Speaker 1: what we saw this year in August was essentially while

131
00:07:16,960 --> 00:07:19,960
Speaker 1: we getting back into the smartphone business, showing that they

132
00:07:20,000 --> 00:07:22,720
Speaker 1: were going to be able to get some of this equipment,

133
00:07:22,760 --> 00:07:25,160
Speaker 1: at least domestically, so that they could come back, they

134
00:07:25,160 --> 00:07:27,440
Speaker 1: could be a player in the smartphone business, and they

135
00:07:27,440 --> 00:07:30,720
Speaker 1: could take on companies like Apple and Samsung and McKenzie.

136
00:07:30,760 --> 00:07:33,600
Speaker 3: China found a way to very publicly respond to some

137
00:07:33,720 --> 00:07:35,520
Speaker 3: of the US export controls.

138
00:07:36,080 --> 00:07:39,679
Speaker 2: Yeah, so the Chinese government recently placed restrictions on using

139
00:07:39,760 --> 00:07:43,560
Speaker 2: iPhones at state backed companies and agencies. So if the

140
00:07:43,680 --> 00:07:46,400
Speaker 2: US takes aim at one of its most important taech companies,

141
00:07:46,440 --> 00:07:48,000
Speaker 2: they're going to do the same right back.

142
00:07:48,160 --> 00:07:51,160
Speaker 3: Which is kind of ironic because, of course, very famously,

143
00:07:51,200 --> 00:07:53,600
Speaker 3: the iPhone has been made in China for many years.

144
00:07:54,600 --> 00:07:58,240
Speaker 1: Yeah, the Chinese government has not said anything publicly about this.

145
00:07:58,440 --> 00:08:01,600
Speaker 1: In fact, they said there isn't aficial ban on iPhones

146
00:08:01,640 --> 00:08:04,520
Speaker 1: within the government, But what our reporting has shown is

147
00:08:04,560 --> 00:08:08,280
Speaker 1: that they are expanding controls on the iPhone within certain

148
00:08:08,320 --> 00:08:12,960
Speaker 1: government agencies and within some state owned enterprises. So it's

149
00:08:12,960 --> 00:08:16,160
Speaker 1: a big deal. For Apple, the most valuable company in

150
00:08:16,200 --> 00:08:18,880
Speaker 1: the world. They get about twenty percent of their revenue

151
00:08:18,960 --> 00:08:21,840
Speaker 1: from China and now it looks like some of that

152
00:08:21,920 --> 00:08:23,280
Speaker 1: could be in jeopardy.

153
00:08:23,760 --> 00:08:26,880
Speaker 2: And of course, the fact that Huawei, a Chinese company,

154
00:08:26,960 --> 00:08:29,320
Speaker 2: has produced such an advanced phone is a huge source

155
00:08:29,320 --> 00:08:33,080
Speaker 2: of patriotism for people in China. We talked to several

156
00:08:33,120 --> 00:08:35,880
Speaker 2: customers shortly after the launch day for this phone who said,

157
00:08:36,080 --> 00:08:37,839
Speaker 2: I don't want to buy an iPhone, I want to

158
00:08:37,840 --> 00:08:38,840
Speaker 2: support China's tech.

159
00:08:40,679 --> 00:08:44,400
Speaker 3: Peter like Mackenzie said, the US has been trying to

160
00:08:44,440 --> 00:08:48,240
Speaker 3: prevent China from getting this kind of technology. Exactly how

161
00:08:48,360 --> 00:08:50,960
Speaker 3: is the US responded to the fact that they're able

162
00:08:51,080 --> 00:08:54,079
Speaker 3: now to produce chips at a higher level than they

163
00:08:54,120 --> 00:08:54,880
Speaker 3: wanted them to be.

164
00:08:54,840 --> 00:08:55,320
Speaker 2: Able to do.

165
00:08:56,080 --> 00:09:00,000
Speaker 1: This all really accelerated last year when the Biden administry

166
00:09:00,480 --> 00:09:04,120
Speaker 1: introduced a whole new round of export controls on China,

167
00:09:04,280 --> 00:09:07,360
Speaker 1: and that stopped them from getting access to certain kinds

168
00:09:07,360 --> 00:09:10,240
Speaker 1: of chips, including the most advanced AI chips and the

169
00:09:10,320 --> 00:09:13,960
Speaker 1: kinds that you could use and other kinds of advanced applications. Also,

170
00:09:14,080 --> 00:09:17,960
Speaker 1: the Biden administration wanted to cut off Chinese customers from

171
00:09:17,960 --> 00:09:20,680
Speaker 1: being able to buy the machines that actually make chips,

172
00:09:20,679 --> 00:09:24,080
Speaker 1: and those come from American companies, and particularly this Dutch

173
00:09:24,120 --> 00:09:28,280
Speaker 1: company ASML. That's so important to this story. What happened, though,

174
00:09:28,600 --> 00:09:33,000
Speaker 1: is that as the Biden administration imposed these controls itself

175
00:09:33,040 --> 00:09:36,200
Speaker 1: on American companies, it left the door open for the

176
00:09:36,280 --> 00:09:39,280
Speaker 1: Dutch companies and the Japanese companies. It had not gotten

177
00:09:39,280 --> 00:09:42,959
Speaker 1: the allies on board in terms of agreen to those controls.

178
00:09:43,000 --> 00:09:46,079
Speaker 2: And so basically what that allowed the Chinese to do

179
00:09:46,320 --> 00:09:49,920
Speaker 2: is import a ton of pretty advanced chip making equipment

180
00:09:50,200 --> 00:09:53,080
Speaker 2: from the Netherlands and from Japan, and now there's this

181
00:09:53,280 --> 00:09:56,720
Speaker 2: massive stockpile that it seems like they've basically used to

182
00:09:56,800 --> 00:10:00,520
Speaker 2: produce this seven nanometer chip. And so the reaction that

183
00:10:00,559 --> 00:10:03,560
Speaker 2: you're seeing now in the US is a WHOA, our

184
00:10:03,600 --> 00:10:06,520
Speaker 2: export controls did not work as planned? How do we

185
00:10:06,640 --> 00:10:08,800
Speaker 2: ramp these up? Do we ramp these up? At the

186
00:10:08,840 --> 00:10:11,640
Speaker 2: same time that the Bide administration is trying to pursue better,

187
00:10:11,720 --> 00:10:15,880
Speaker 2: more normal diplomatic relations with China, And so earlier this month,

188
00:10:16,160 --> 00:10:19,640
Speaker 2: the Commerce Secretary testified on Capitol Hill and talked about

189
00:10:19,640 --> 00:10:21,600
Speaker 2: the Huawei phon. She said she was upset that it

190
00:10:21,640 --> 00:10:24,560
Speaker 2: came out while she was in China, but she doubted

191
00:10:24,600 --> 00:10:28,760
Speaker 2: the Chinese ability to produce seven nanometer chips at scale

192
00:10:29,080 --> 00:10:32,400
Speaker 2: because they're using less advanced machines than you know, a

193
00:10:32,559 --> 00:10:36,080
Speaker 2: US company or a Taiwanese company might have access to,

194
00:10:36,640 --> 00:10:39,840
Speaker 2: and so it requires massive, massive infusions of capital from

195
00:10:39,880 --> 00:10:42,920
Speaker 2: the Chinese government to keep it going, and she basically said,

196
00:10:43,040 --> 00:10:44,640
Speaker 2: we have doubts about whether they can do it.

197
00:10:45,880 --> 00:10:59,400
Speaker 3: After the break, some chip makers push back against US restrictions. Peter,

198
00:10:59,679 --> 00:11:02,600
Speaker 3: can you explain how this isn't just a story about

199
00:11:02,640 --> 00:11:05,920
Speaker 3: the US versus China, but really the US versus its

200
00:11:05,920 --> 00:11:06,800
Speaker 3: own friends.

201
00:11:07,200 --> 00:11:10,880
Speaker 1: Yes, So there are a very small number of companies

202
00:11:10,960 --> 00:11:13,520
Speaker 1: that produce the machines that are able to make chips,

203
00:11:13,600 --> 00:11:17,040
Speaker 1: really just five key ones. Three of those are American companies,

204
00:11:17,480 --> 00:11:20,320
Speaker 1: and then there's one in the Netherlands ASML, which is

205
00:11:20,400 --> 00:11:23,600
Speaker 1: very important, in one in Japan Tokyo Electron that's also

206
00:11:24,000 --> 00:11:27,600
Speaker 1: very very important. So when the US announced it's export

207
00:11:27,679 --> 00:11:31,520
Speaker 1: controls last year, that immediately cut off the American companies

208
00:11:31,559 --> 00:11:35,040
Speaker 1: from selling into Chinese customers. However, it did not have

209
00:11:35,080 --> 00:11:37,040
Speaker 1: the Dutch on board, and it did not have the

210
00:11:37,120 --> 00:11:40,559
Speaker 1: Japanese on board. As discussed, they began negotiating these things.

211
00:11:41,559 --> 00:11:44,880
Speaker 1: The CEO of ASML has been very outspoken in his

212
00:11:45,040 --> 00:11:49,120
Speaker 1: opposition to these controls. ASML is not just another company

213
00:11:49,120 --> 00:11:51,640
Speaker 1: in the Netherlands, it's the most important company there. It's

214
00:11:51,679 --> 00:11:54,880
Speaker 1: the most valuable tech company in Europe. So when the

215
00:11:54,920 --> 00:11:57,840
Speaker 1: CEO speaks out against these things, they certainly get the

216
00:11:57,880 --> 00:12:02,200
Speaker 1: politician's attention. So ASML has not been able to sell

217
00:12:02,280 --> 00:12:05,440
Speaker 1: its most advanced machines. This gets a little technical, but

218
00:12:05,520 --> 00:12:11,480
Speaker 1: these are extreme ultraviolet lithography equipment or EUV machines. It

219
00:12:11,520 --> 00:12:15,160
Speaker 1: has been able to continue selling its next most advanced machines,

220
00:12:15,200 --> 00:12:20,880
Speaker 1: which are called DUV or deep ultraviolet lithography machines. So

221
00:12:21,000 --> 00:12:23,160
Speaker 1: this year it has been selling a bunch of those

222
00:12:23,240 --> 00:12:27,079
Speaker 1: DUV machines into China to Chinese customers, and you can

223
00:12:27,120 --> 00:12:30,960
Speaker 1: see this in China's import data. The sales from the

224
00:12:31,000 --> 00:12:34,360
Speaker 1: Netherlands and from Japan in particular have spiked this year.

225
00:12:34,400 --> 00:12:37,320
Speaker 1: They reached a record four billion dollars in July alone,

226
00:12:37,640 --> 00:12:40,600
Speaker 1: so you can see that Chinese chip companies are stocking

227
00:12:40,679 --> 00:12:43,040
Speaker 1: up on all this equipment that's going to help them

228
00:12:43,080 --> 00:12:45,400
Speaker 1: make as advanced chips as they can possibly make.

229
00:12:46,120 --> 00:12:50,920
Speaker 3: McKenzie what if the government, say of the Netherlands, decided no,

230
00:12:51,000 --> 00:12:53,920
Speaker 3: we're just going to allow our manufacturers to sell to China.

231
00:12:53,960 --> 00:12:55,840
Speaker 3: Can the US bring any pressure to bear if they

232
00:12:55,880 --> 00:12:57,280
Speaker 3: simply don't go along.

233
00:12:58,520 --> 00:13:01,840
Speaker 2: So there is one potential option for the Biden administration,

234
00:13:01,960 --> 00:13:04,840
Speaker 2: and that's invoking what's called a foreign direct Product rule,

235
00:13:05,160 --> 00:13:09,560
Speaker 2: which basically allows the Commerce Department to regulate products of

236
00:13:09,760 --> 00:13:13,160
Speaker 2: companies based in other countries because they use a share

237
00:13:13,200 --> 00:13:17,199
Speaker 2: of US technology. But that could be seen basically as

238
00:13:17,320 --> 00:13:21,360
Speaker 2: extra territorial bullying. The US Netherlands relationship is important to

239
00:13:21,400 --> 00:13:24,320
Speaker 2: both governments. It took a lot of time and legwork

240
00:13:24,360 --> 00:13:26,360
Speaker 2: to get them on board the first time around, and

241
00:13:26,400 --> 00:13:29,120
Speaker 2: that would be a pretty diplomatically risky move for the

242
00:13:29,120 --> 00:13:32,160
Speaker 2: Biden administration to take. They would much much rather get

243
00:13:32,160 --> 00:13:34,760
Speaker 2: the Dutch government on board. But as Peter said, this

244
00:13:34,880 --> 00:13:37,360
Speaker 2: is their most valuable company, and this is really a

245
00:13:37,559 --> 00:13:40,120
Speaker 2: US China fight, not a Netherlands China fight.

246
00:13:41,160 --> 00:13:44,520
Speaker 1: And there are similar tensions in Japan too. Of course,

247
00:13:44,679 --> 00:13:48,280
Speaker 1: Japan and the Netherlands are considered allies of the United States.

248
00:13:48,280 --> 00:13:50,000
Speaker 1: They tend to be on the same side of most

249
00:13:50,040 --> 00:13:53,840
Speaker 1: political issues, including when it comes to China. However, In Japan,

250
00:13:54,280 --> 00:13:57,760
Speaker 1: the Prime Minister Kashida has a similar kind of dilemma

251
00:13:57,920 --> 00:14:00,880
Speaker 1: where there are about a dozen Japanese companies that are

252
00:14:01,040 --> 00:14:05,560
Speaker 1: very dominant in key parts of the semiconductor's supply chain. Kashita,

253
00:14:05,679 --> 00:14:08,200
Speaker 1: in theory, could go to these companies and say, hey,

254
00:14:08,240 --> 00:14:11,200
Speaker 1: you should cut off your Chinese customers, you should pull

255
00:14:11,240 --> 00:14:12,960
Speaker 1: back from them, and that way they won't be able

256
00:14:13,000 --> 00:14:15,840
Speaker 1: to run the chip making equipment as efficiently as well

257
00:14:15,880 --> 00:14:17,400
Speaker 1: as they could in the past. They may not be

258
00:14:17,440 --> 00:14:20,840
Speaker 1: able to run at all. But there's a political dilemma there.

259
00:14:21,120 --> 00:14:23,960
Speaker 1: He's going to essentially the pillars of the economy asking

260
00:14:24,000 --> 00:14:26,600
Speaker 1: them to pull back loose sales when you know that

261
00:14:26,640 --> 00:14:31,000
Speaker 1: the Chinese government is investing in competitors and would accelerate

262
00:14:31,040 --> 00:14:34,320
Speaker 1: any kind of investments and competitors to create competition for

263
00:14:34,360 --> 00:14:36,720
Speaker 1: these Japanese companies if they went ahead and did this,

264
00:14:37,160 --> 00:14:40,000
Speaker 1: and that's a political tension for Kashita that he has

265
00:14:40,040 --> 00:14:41,320
Speaker 1: to sort out with the White House.

266
00:14:42,960 --> 00:14:45,720
Speaker 3: McKenzie, one thing you write is that even though China

267
00:14:45,760 --> 00:14:50,200
Speaker 3: isn't able to import the most advanced machines, they've gotten very,

268
00:14:50,320 --> 00:14:53,760
Speaker 3: very creative with trying to squeeze as much as they

269
00:14:53,800 --> 00:14:56,000
Speaker 3: can out of the machines they're able to buy.

270
00:14:57,120 --> 00:14:59,960
Speaker 2: That's right. So, you know, as Peter explained, these kind

271
00:15:00,160 --> 00:15:04,520
Speaker 2: of holes in the overall export control regime between the US, Japan,

272
00:15:04,640 --> 00:15:08,600
Speaker 2: and the Netherlands allowed China to massively massively stock up

273
00:15:08,640 --> 00:15:12,000
Speaker 2: on equipment that could be even if it's not the best,

274
00:15:12,240 --> 00:15:15,600
Speaker 2: good enough. And so when the US is casting doubt

275
00:15:15,640 --> 00:15:18,720
Speaker 2: on China's ability to produce these chips at scale, We've

276
00:15:18,720 --> 00:15:21,120
Speaker 2: talked to some analysts who say they might just be

277
00:15:21,160 --> 00:15:23,360
Speaker 2: able to do that. And you have to bear in

278
00:15:23,400 --> 00:15:27,360
Speaker 2: mind the Chinese government is massively backing these companies. They

279
00:15:27,400 --> 00:15:30,160
Speaker 2: plan to invest more than one hundred and fifty billion

280
00:15:30,280 --> 00:15:35,520
Speaker 2: US dollars into their domestic semiconductor industry by twenty thirty. Now,

281
00:15:35,800 --> 00:15:37,640
Speaker 2: take it all with a grain of salt. The Chinese

282
00:15:37,680 --> 00:15:40,880
Speaker 2: economy is not doing well. A real estate meltdown might

283
00:15:40,920 --> 00:15:44,920
Speaker 2: squeeze government funding at all levels. But they've shown so far,

284
00:15:45,080 --> 00:15:48,320
Speaker 2: and they've shown over decades, not just in ships but

285
00:15:48,440 --> 00:15:51,520
Speaker 2: also in products like electric vehicles, that they're willing to

286
00:15:51,520 --> 00:15:54,000
Speaker 2: put a lot of state money behind their tech companies.

287
00:15:54,800 --> 00:15:58,840
Speaker 1: The concerns are not just that the export controls are failing,

288
00:15:58,960 --> 00:16:02,360
Speaker 1: but that the export controls are backfiring on the US.

289
00:16:02,920 --> 00:16:05,520
Speaker 1: What Beijing has decided is that they're at a point

290
00:16:05,520 --> 00:16:08,360
Speaker 1: of no return. They need to invest in their own

291
00:16:08,440 --> 00:16:11,720
Speaker 1: chip industry because they need to become self sufficient.

292
00:16:12,640 --> 00:16:15,760
Speaker 3: When we come back, Can the US actually curb China's

293
00:16:15,840 --> 00:16:28,400
Speaker 3: chip trade? Peter If China can't get the most advanced machines,

294
00:16:28,440 --> 00:16:30,000
Speaker 3: but they're working to make them, that's going to take

295
00:16:30,040 --> 00:16:35,400
Speaker 3: some time. What happens in this intermediate period where they

296
00:16:35,440 --> 00:16:37,800
Speaker 3: do appear to be somewhat throttled in what they're able

297
00:16:37,840 --> 00:16:38,880
Speaker 3: to produce.

298
00:16:39,320 --> 00:16:44,320
Speaker 1: We are entering into uncertain territory for China. As much

299
00:16:44,360 --> 00:16:48,200
Speaker 1: as Huaweiho's demonstrated the ability to make some progress here,

300
00:16:48,480 --> 00:16:51,720
Speaker 1: Smick is helping them with these seven nanometer chips. We

301
00:16:51,760 --> 00:16:54,680
Speaker 1: don't know exactly how far they can get on their own,

302
00:16:55,200 --> 00:16:57,400
Speaker 1: but come the end of this year, they won't be

303
00:16:57,400 --> 00:16:59,440
Speaker 1: able to get new machines, and they won't be able

304
00:16:59,480 --> 00:17:02,120
Speaker 1: to get the of services and support that you would

305
00:17:02,120 --> 00:17:05,360
Speaker 1: typically get from the companies that supply those machines too.

306
00:17:06,480 --> 00:17:09,399
Speaker 1: So Chinese companies are going to be in a risky

307
00:17:09,440 --> 00:17:12,800
Speaker 1: position as they try to function on their own produce

308
00:17:12,880 --> 00:17:17,080
Speaker 1: these chips under trying circumstances. It is, as we've talked

309
00:17:17,080 --> 00:17:19,960
Speaker 1: about a bit, it is less efficient to do it

310
00:17:20,000 --> 00:17:22,760
Speaker 1: with the kind of DUV machines that they have right now,

311
00:17:23,200 --> 00:17:25,320
Speaker 1: and there's a limited period of time where they can

312
00:17:25,480 --> 00:17:28,960
Speaker 1: use these foreign machines to be able to make these chips.

313
00:17:29,000 --> 00:17:31,919
Speaker 1: At some point, if the US keeps up the pressure

314
00:17:31,960 --> 00:17:34,359
Speaker 1: and its allies keep up the pressure, they're going to

315
00:17:34,440 --> 00:17:37,080
Speaker 1: run out of the stuff that they've bought from overseas.

316
00:17:37,119 --> 00:17:39,240
Speaker 1: They're going to run out of their stockpiles, and then

317
00:17:39,280 --> 00:17:42,399
Speaker 1: they need to have established the domestic industry that can

318
00:17:42,440 --> 00:17:45,160
Speaker 1: help them pick it up from there support them as

319
00:17:45,160 --> 00:17:47,399
Speaker 1: they go forward in making these chips in the future.

320
00:17:48,040 --> 00:17:51,720
Speaker 2: And the question for the US is what kind of pressure.

321
00:17:52,040 --> 00:17:55,359
Speaker 2: There's this debate happening in Washington right now over is

322
00:17:55,400 --> 00:17:58,840
Speaker 2: it just that we didn't enforce export controls well enough

323
00:17:59,119 --> 00:18:02,199
Speaker 2: or are ATO controls not actually the right tool to

324
00:18:02,240 --> 00:18:05,000
Speaker 2: deal with this, And there's this kind of push and

325
00:18:05,080 --> 00:18:08,800
Speaker 2: pull with industry and the Biden administration over how tight

326
00:18:08,880 --> 00:18:10,760
Speaker 2: can we go? How much are you willing to hurt

327
00:18:10,800 --> 00:18:13,840
Speaker 2: the revenue of American companies, And then there's this pressure

328
00:18:13,920 --> 00:18:17,520
Speaker 2: mostly from Republicans on Capitol Hill who say the Bide

329
00:18:17,520 --> 00:18:20,800
Speaker 2: administration is soft on China. This is a huge political

330
00:18:20,840 --> 00:18:24,600
Speaker 2: liability for the president, it's a liability for the Commerce Secretary,

331
00:18:24,680 --> 00:18:27,800
Speaker 2: Gina Raimondo. And it's all happening at the same time

332
00:18:27,880 --> 00:18:31,440
Speaker 2: as the Bide administration has been sending cabinet official after

333
00:18:31,560 --> 00:18:35,280
Speaker 2: cabinet official to Beijing trying to restore diplomatic relations, and

334
00:18:35,320 --> 00:18:37,280
Speaker 2: then this feels a little bit like a slap in

335
00:18:37,280 --> 00:18:40,480
Speaker 2: the face. In the backdrop of US China relations, there's

336
00:18:40,480 --> 00:18:44,080
Speaker 2: always the looming question of Taiwan, and relations between Washington

337
00:18:44,119 --> 00:18:45,919
Speaker 2: and Beijing have been souring for months. There was a

338
00:18:45,920 --> 00:18:49,320
Speaker 2: spy balloon in February, the Secretary of State canceled his

339
00:18:49,400 --> 00:18:52,560
Speaker 2: trip over there. But Taiwan is really the central question,

340
00:18:52,600 --> 00:18:55,600
Speaker 2: and there's a fear that if China ever invaded Taiwan,

341
00:18:55,880 --> 00:18:58,760
Speaker 2: the US and the world could lose access to the

342
00:18:58,800 --> 00:19:01,560
Speaker 2: most advanced chips, which are produced by a Taiwanese company

343
00:19:01,560 --> 00:19:05,320
Speaker 2: called TSMC. That's part of why the US is looking

344
00:19:05,520 --> 00:19:08,280
Speaker 2: likely to issue subsidies to TSMC, which is building a

345
00:19:08,320 --> 00:19:11,480
Speaker 2: plant in Arizona.

346
00:19:11,720 --> 00:19:14,960
Speaker 3: Was it ever realistic to think that export controls could

347
00:19:15,040 --> 00:19:17,400
Speaker 3: keep China from advancing this technology?

348
00:19:18,240 --> 00:19:20,080
Speaker 2: If you talk to people who have been watching the

349
00:19:20,119 --> 00:19:22,800
Speaker 2: industry for a while, none of them are surprised, and

350
00:19:22,840 --> 00:19:26,040
Speaker 2: they say that the US government shouldn't be either. China's

351
00:19:26,040 --> 00:19:30,480
Speaker 2: been trying to produce advanced indigenous semiconductor technology for years,

352
00:19:30,800 --> 00:19:33,040
Speaker 2: and the fact that they did it so soon after

353
00:19:33,080 --> 00:19:36,120
Speaker 2: the US imposed its controls, some people would say, means

354
00:19:36,119 --> 00:19:37,800
Speaker 2: that the controls came too late.

355
00:19:38,760 --> 00:19:41,560
Speaker 3: So, Peter, where do you see all this headed? Obviously,

356
00:19:41,600 --> 00:19:44,720
Speaker 3: the stakes couldn't be higher, the tensions couldn't be higher

357
00:19:44,800 --> 00:19:48,040
Speaker 3: between the US and China, even between the US and

358
00:19:48,080 --> 00:19:50,160
Speaker 3: its allies. What happens next?

359
00:19:50,800 --> 00:19:54,879
Speaker 1: It seems right now that Beijing is growing in confidence.

360
00:19:55,640 --> 00:19:59,400
Speaker 1: Huawei is showing that it is possible to make breakthroughs

361
00:19:59,440 --> 00:20:01,840
Speaker 1: in some of these key areas that are important to

362
00:20:02,119 --> 00:20:05,119
Speaker 1: the technology industry in China. They were able to come

363
00:20:05,160 --> 00:20:07,879
Speaker 1: out with this seven nanimeter chip, So there is a

364
00:20:07,880 --> 00:20:11,159
Speaker 1: bit of a rallying cry around Huawei right now. They

365
00:20:11,200 --> 00:20:13,840
Speaker 1: seem to be not just a national champion, but a

366
00:20:13,920 --> 00:20:16,760
Speaker 1: national champion that's been able to take on some of

367
00:20:16,800 --> 00:20:20,439
Speaker 1: the constraints of the US and break through. After the

368
00:20:20,480 --> 00:20:23,680
Speaker 1: Mate phone came out, there were all sorts of memes circulating.

369
00:20:24,080 --> 00:20:26,920
Speaker 1: Some of them mocked Gina Ramundo, who was in China

370
00:20:26,920 --> 00:20:29,200
Speaker 1: at the time, as we discussed as a new brand

371
00:20:29,240 --> 00:20:33,560
Speaker 1: ambassador for Huawei, you also saw caricatures of Uncle Sam

372
00:20:33,600 --> 00:20:36,639
Speaker 1: being left behind as Huawei busted through the barriers that

373
00:20:36,680 --> 00:20:40,400
Speaker 1: were being set up. So from Beijing's standpoint, they are

374
00:20:40,480 --> 00:20:43,760
Speaker 1: certainly planning on accelerating their investments in some of these

375
00:20:43,840 --> 00:20:46,600
Speaker 1: key areas. They want to be able to get a

376
00:20:46,680 --> 00:20:50,760
Speaker 1: stable domestic semiconductor industry that can supply all sorts of things,

377
00:20:50,800 --> 00:20:54,960
Speaker 1: certainly the tech industry and smartphone companies like Huawei, but

378
00:20:55,119 --> 00:20:59,760
Speaker 1: beyond that very important areas like artificial intelligence like super

379
00:21:00,560 --> 00:21:04,800
Speaker 1: and especially the military activities that they are going to

380
00:21:04,840 --> 00:21:05,840
Speaker 1: develop in the future.

381
00:21:06,560 --> 00:21:09,679
Speaker 3: Peter mackenzie, thanks so much. I learned a ton from

382
00:21:09,720 --> 00:21:10,400
Speaker 3: this conversation.

383
00:21:10,920 --> 00:21:13,160
Speaker 1: Great, thank you, weis, thank you so much.

384
00:21:14,600 --> 00:21:16,400
Speaker 3: Thanks for listening to us here at The Big Take.

385
00:21:16,480 --> 00:21:19,560
Speaker 3: It's a daily podcast from Bloomberg and iHeartRadio. For more

386
00:21:19,600 --> 00:21:23,480
Speaker 3: shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or

387
00:21:23,520 --> 00:21:26,000
Speaker 3: wherever you listen, and we'd love to hear from you.

388
00:21:26,320 --> 00:21:29,360
Speaker 3: Email us questions or comments to Big Take at Bloomberg

389
00:21:29,400 --> 00:21:32,840
Speaker 3: dot net. The supervising producer of the Big Take is

390
00:21:32,960 --> 00:21:37,600
Speaker 3: Vicky Virgolina. Our senior producer is Katherine Fink. Frederica Romanello

391
00:21:37,760 --> 00:21:42,520
Speaker 3: is our producer. Our associate producer is Zenobsidiki. Raphael mcili

392
00:21:42,640 --> 00:21:46,480
Speaker 3: is our engineer. Our original music was composed by Leo Sidrin.

393
00:21:46,960 --> 00:21:50,160
Speaker 3: I'm West Kasova. We'll be back tomorrow with another Big

394
00:21:50,200 --> 00:21:50,440
Speaker 3: Take