WEBVTT - How the Election Will Affect US-China Relations 0:00:03.120 --> 0:00:08.440 Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.360 --> 0:00:12.640 Welcome to Marin Talk's Money, the podcast in which people 0:00:12.640 --> 0:00:14.920 who know the markets explain the markets. I'm mere in 0:00:14.960 --> 0:00:17.280 Sumset Web. This week we focus on China and how 0:00:17.280 --> 0:00:20.520 the West relationship is changing with the world's second largest economy. 0:00:20.800 --> 0:00:23.800 My guest is Diana Choilever. Diana is a leading expert 0:00:23.800 --> 0:00:26.400 on China's economy and politics. She's a chief economist at 0:00:26.400 --> 0:00:31.240 a Nodoeconomics, at independent macroeconomic, political, and geopolitical forecasting company. 0:00:31.400 --> 0:00:33.960 She set up herself in twenty sixteen to look at 0:00:34.080 --> 0:00:37.120 China and its global impact. She's also a Senior Fellow 0:00:37.200 --> 0:00:40.320 on the Chinese economy with the Asia Society Policy Institute's 0:00:40.360 --> 0:00:42.240 Center for Chinese Analysis. 0:00:42.320 --> 0:00:43.760 I started off by asking. 0:00:43.479 --> 0:00:46.360 How to look at the most important relationship in the world, 0:00:46.479 --> 0:00:53.680 that between China and the US. 0:00:56.040 --> 0:00:58.440 Diana, Hi, thank you so much for joining us today. 0:00:58.800 --> 0:01:00.440 Him Merrin, it's my pleasure. 0:01:01.080 --> 0:01:03.560 How does it look at the moment the most important 0:01:03.600 --> 0:01:05.440 relationship in the world, You could probably say the one 0:01:05.480 --> 0:01:08.400 between the US and China and the trade relationship between them. 0:01:09.200 --> 0:01:13.480 Well, look, I mean these are the existing hegemon and 0:01:13.600 --> 0:01:18.160 the expiring hegemon locked in a relentless and I would 0:01:18.160 --> 0:01:23.840 say escalating context for global supremacy. And of course, the 0:01:23.880 --> 0:01:28.680 most important event on the horizon that will shape certainly 0:01:28.760 --> 0:01:32.080 the next few years, if not longer, is the US 0:01:32.200 --> 0:01:37.240 presidential election. From the perspective of the Chinese side, She 0:01:37.480 --> 0:01:42.720 Jimpin is in control and has doubled down on his vision. 0:01:43.640 --> 0:01:48.320 And I would argue that even irrespective of whether a 0:01:48.360 --> 0:01:54.760 Trump or Harris wins, this contest will continue, but the 0:01:54.920 --> 0:01:58.520 shape of it will probably change depending on who is 0:01:58.600 --> 0:02:00.000 the next US president. 0:02:00.160 --> 0:02:03.720 Okay, well, let's talk first about about she doubling down 0:02:03.760 --> 0:02:06.280 on his vision. Let's what is that vision and what 0:02:06.320 --> 0:02:07.800 do you mean by doubling down on it? 0:02:08.880 --> 0:02:12.360 Well, look, coming he's been in power for two terms 0:02:12.440 --> 0:02:17.359 and now he is coming into you know, is into 0:02:17.400 --> 0:02:23.040 his unprecedented third term. And our analysis and other economics 0:02:23.040 --> 0:02:25.920 suggests that there is no feasible. 0:02:25.400 --> 0:02:27.720 Sort of grouping that can. 0:02:27.600 --> 0:02:31.280 Challenge him, so he's likely to be there for another 0:02:31.400 --> 0:02:35.400 five years. And finally, he's sort of taken him ten 0:02:35.480 --> 0:02:40.720 years to have his people in charge after a relentless 0:02:40.720 --> 0:02:43.280 anti corruption campaign that went on. 0:02:43.240 --> 0:02:44.600 And is still going on. 0:02:45.520 --> 0:02:50.680 So he now is his opportunity to really put in 0:02:50.800 --> 0:02:54.320 practice what has been talking about from the very start 0:02:54.560 --> 0:02:59.840 of becoming the Communist Parties General secret and she is 0:03:00.040 --> 0:03:07.680 really taking this second part now and putting the reforms 0:03:07.720 --> 0:03:13.400 in action to achieve a more equitable society. Because of course, 0:03:13.600 --> 0:03:18.359 China grew very fast as a result of them reforms. 0:03:18.400 --> 0:03:24.320 It industrialized at the breakneck speed and now oh is 0:03:24.400 --> 0:03:26.400 the global manufacturing club of the world. 0:03:26.520 --> 0:03:29.080 Certain mean low value act. 0:03:29.960 --> 0:03:36.320 And meanwhile, the inequality between both income and wealth between 0:03:36.320 --> 0:03:39.440 Reich and poor and China has exploded as well. 0:03:40.240 --> 0:03:42.160 So he's come up. 0:03:42.040 --> 0:03:46.800 With the idea of really common prosperity, which essentially is 0:03:46.960 --> 0:03:53.640 redistributing income. And it's a big question mark whether that 0:03:53.720 --> 0:03:58.600 will succeed as an economic policy because it changes fundamentally 0:03:58.640 --> 0:04:04.520 the incentive driving in China. Another very key feature of 0:04:04.560 --> 0:04:10.720 what he did is to basically put national security as 0:04:10.720 --> 0:04:18.000 the overriding objective, and that is really a priority. Economic 0:04:18.080 --> 0:04:23.120 growth and economic development is subjugated to this all encompassing 0:04:23.240 --> 0:04:27.160 idea of security, and he. 0:04:27.200 --> 0:04:31.000 Has focused on a supply side. 0:04:30.839 --> 0:04:38.160 Transformation of the economy, which is probably the most successful 0:04:38.240 --> 0:04:41.320 I would argue part of his vision and certainly the 0:04:41.360 --> 0:04:45.360 one where I see him likely to kind of get 0:04:45.400 --> 0:04:50.279 some productivity gains out of this transformation. But then really 0:04:50.360 --> 0:04:55.920 the big question is that if as a true Marxist Leninist, 0:04:56.040 --> 0:05:02.599 he really is all about frugality, despises consumption and sort 0:05:02.600 --> 0:05:08.240 of the excessive consumerism in the US, whether without the 0:05:08.320 --> 0:05:13.040 demand side, without the change is needed to get genuine 0:05:13.279 --> 0:05:18.039 Chinese consumption, even destructural reforms on the supply side, whether 0:05:18.160 --> 0:05:21.040 those will be able to carry the day by themselves. 0:05:21.360 --> 0:05:23.760 I mean, this is the thing that and assume we've 0:05:23.760 --> 0:05:26.120 been waiting for forever, is the sort of rise and 0:05:26.240 --> 0:05:29.640 domestic consumption, but it never quite seems to happen. We 0:05:29.720 --> 0:05:32.960 continually see China get getting rich or not quite rich 0:05:33.080 --> 0:05:36.279 enough by being a mass exporter, but we don't see 0:05:36.760 --> 0:05:40.080 it coming from internal demand and internal consumption. 0:05:40.160 --> 0:05:41.920 And that's the big challenge, isn't it. 0:05:42.480 --> 0:05:47.520 Oh No, absolutely, and the Chinese have talked about rebalancing 0:05:47.560 --> 0:05:52.279 the economy to more more consumption for a long time, 0:05:52.880 --> 0:05:57.800 and to be fair, there was some rebalancing between about 0:05:57.839 --> 0:06:05.400 twenty twelve and twenty eighty, largely because of demographics. You know, 0:06:05.600 --> 0:06:09.640 China used to have this endless cheap labor, which it 0:06:09.800 --> 0:06:14.359 stopped heavy by about then. First the migrant labor force 0:06:14.440 --> 0:06:18.479 started shrinking. Then the overall labor force right is shrinking, 0:06:18.680 --> 0:06:23.279 so labor got more bargaining power, and wages as a 0:06:23.320 --> 0:06:28.080 share of GDP started rising in China, and that did 0:06:28.279 --> 0:06:31.919 lead to an increase in the share of consumer spending 0:06:32.120 --> 0:06:36.400 in GDP. And so I've always said that perversely, the 0:06:36.440 --> 0:06:40.040 initial impact of the bad demographics was quite positive for 0:06:40.080 --> 0:06:41.080 what China needed. 0:06:41.520 --> 0:06:44.080 But now if you look at wages as a share 0:06:44.120 --> 0:06:45.080 of GDP. 0:06:44.800 --> 0:06:47.640 In China, they're the same as in the US, so 0:06:47.760 --> 0:06:51.560 they've kind of caught up on that front. And meanwhile, 0:06:51.640 --> 0:06:54.800 if you look at overall houseboat. 0:06:54.360 --> 0:06:56.680 Income as a share of GDP in China, you. 0:06:56.640 --> 0:07:00.640 Will see that it's the income from assets that is missing. 0:07:00.800 --> 0:07:03.760 You know, the US overall household income is much higher 0:07:03.760 --> 0:07:06.960 share of GDP because of income from assets. 0:07:07.200 --> 0:07:09.320 And they are the so called. 0:07:09.160 --> 0:07:15.000 Financial repression of the Chinese households. The fact that the 0:07:15.040 --> 0:07:18.679 authorities controlled at the end of the day, the interest rates, 0:07:18.760 --> 0:07:24.240 the capital account and have not developed capital markets sufficiently, 0:07:25.280 --> 0:07:29.000 and they are constantly channeling these domestic savings into their 0:07:29.040 --> 0:07:34.680 preferred industries at low cost, so that development has actually 0:07:35.040 --> 0:07:38.120 went in overdrive in the last few years. 0:07:38.720 --> 0:07:40.920 Yeah, okay, so just because let's step back a little bit, 0:07:41.000 --> 0:07:45.360 so that Chinese consumer can't really expect to see wages rising, 0:07:45.440 --> 0:07:49.440 particularly in less GDP were to expand, right, because there 0:07:49.480 --> 0:07:52.080 are wages are already a perfectly reasonable percent of GDP 0:07:52.240 --> 0:07:55.000 relative of the West. The problem is that, well Chinese 0:07:55.240 --> 0:07:58.880 households have a reasonable amount of savings, they can't get 0:07:58.920 --> 0:08:01.520 the kind of return on those savings that makes them 0:08:01.520 --> 0:08:05.520 more expense So the very difficult to invest abroad. The 0:08:05.640 --> 0:08:08.480 Chinese equity market hasn't been particularly engaging, and most people 0:08:08.480 --> 0:08:11.640 will keep their money in various deposit instruments that will 0:08:11.640 --> 0:08:14.400 pay a relatively low interest rate. And that's the financial 0:08:14.720 --> 0:08:18.000 repression you're talking about, that it's not possible to use 0:08:18.040 --> 0:08:23.280 your savings to increase your wealth particularly Yes, I mean 0:08:23.320 --> 0:08:25.720 I you know, Pernicketee, we're pro Prenickete. 0:08:27.640 --> 0:08:31.080 Well, I like to distinguish between savings and wealth, because 0:08:31.160 --> 0:08:33.520 one is a flow, the other one's a stock. I'm 0:08:33.559 --> 0:08:36.480 talking about you know here wealth. They just can't get 0:08:36.559 --> 0:08:40.520 enough of a return on their wealth, and perversely, as 0:08:40.559 --> 0:08:43.720 a result, they save excessively out of their income, and 0:08:43.760 --> 0:08:48.160 that is by far a huge determinant of this excessive 0:08:48.200 --> 0:08:52.240 desire to save in China. The other reasons like the 0:08:52.360 --> 0:08:58.040 la of social security, safety net, proper unemployment provisions, et cetera, 0:08:58.080 --> 0:09:01.800 et cetera, play a part, but they are not. 0:09:02.240 --> 0:09:05.520 The overriding calls of these saving. 0:09:05.720 --> 0:09:08.960 And this has quite an interesting side effect, which is 0:09:09.000 --> 0:09:12.280 that if interest rates fall in China, people tend to 0:09:12.480 --> 0:09:15.240 feel they need to save more rather than rather than less. 0:09:15.679 --> 0:09:19.400 Absolutely, you know it's when you think about interest rates 0:09:19.800 --> 0:09:25.199 arising them cutting them. What this does is actually effectively 0:09:25.280 --> 0:09:30.600 redistribute income in a society. And then it depends as 0:09:30.640 --> 0:09:33.480 to what the outcome will be whether the heat to 0:09:33.520 --> 0:09:36.920 the income and spending of those that you know of 0:09:37.040 --> 0:09:42.880 the basically savors outweighs or doesn't outweigh the boosts of 0:09:43.120 --> 0:09:46.439 income and spending of the borrowers. And in an economy 0:09:46.559 --> 0:09:50.600 like the UK or the US, because of their structure, 0:09:50.640 --> 0:09:54.360 because of the lack of financial depression, the causation always 0:09:54.480 --> 0:10:00.440 is towards lower interest rates leads to higher demands, but 0:10:00.600 --> 0:10:04.360 in China, because of its different structure, it actually is 0:10:04.440 --> 0:10:07.040 the other way around. But Marin I just went to 0:10:07.200 --> 0:10:10.760 a two week trip to China a month or so ago, 0:10:11.400 --> 0:10:15.600 talking to a lot of policy makers, you know, sharing 0:10:15.679 --> 0:10:18.920 the views that's actually contrary to what they're doing. 0:10:18.960 --> 0:10:19.559 They should be. 0:10:19.559 --> 0:10:23.000 Raising interest rates now, and I can tell you that 0:10:23.000 --> 0:10:29.119 that idea is way too unconventional and unlikely to be adopted. 0:10:29.400 --> 0:10:30.240 It's interesting, isn't it. 0:10:30.240 --> 0:10:32.320 I mean, when you look at that dynamic in China 0:10:32.400 --> 0:10:34.400 and then you look over to the West, one begins 0:10:34.440 --> 0:10:38.040 to wonder if maybe that's a dynamic we might start 0:10:38.080 --> 0:10:41.520 to see here as well as state provision for various 0:10:41.520 --> 0:10:45.959 things for and people become increasingly concerned about their retirement 0:10:46.120 --> 0:10:49.760 that perhaps you know, the less you get on your savings, 0:10:49.760 --> 0:10:51.400 the more you want to save, rather than the other 0:10:51.440 --> 0:10:53.920 way around. I mean, it's perfectly intuitive that that could 0:10:53.960 --> 0:10:54.600 happen here too. 0:10:55.640 --> 0:10:56.400 Yes, it is. 0:10:56.480 --> 0:10:59.800 It depends on the structure of what people's wealth is 0:10:59.840 --> 0:11:03.080 invested in. I would argue there was this development in 0:11:03.120 --> 0:11:07.600 the US and the UK peculiarly that happened post the 0:11:07.640 --> 0:11:12.599 COVID pandemic because housecoats were given all this handouts to 0:11:12.920 --> 0:11:16.480 smooth the transition, and then interest rates were jacked up 0:11:16.559 --> 0:11:21.080 simultaneously and all of a sudden that was quite stimulative. 0:11:21.880 --> 0:11:25.040 But of course, in the context of an equity market 0:11:25.640 --> 0:11:30.520 that went roaring ahead. Ideally, if it wasn't for the 0:11:30.679 --> 0:11:35.640 Magnificent Seven and AI and all of that simultaneously happening, 0:11:35.679 --> 0:11:39.240 we probably wouldn't have had the same equity market dynamic, 0:11:39.360 --> 0:11:41.760 and then the outcome as a whole might have been different. 0:11:41.840 --> 0:11:45.920 But in combination with the equity market shooting up, and 0:11:46.040 --> 0:11:49.280 that moves to the income of the savers post giving 0:11:49.320 --> 0:11:55.120 them handouts, really under the whole consumer stone in the US. 0:11:55.320 --> 0:11:58.120 I mean, it's unlikely that China's behavior will change as 0:11:58.120 --> 0:12:02.520 a result of the US election, but depending on who wins. 0:12:03.520 --> 0:12:07.200 There's so many things going on in the US politically 0:12:07.280 --> 0:12:09.920 in terms of how the US views China, and we're 0:12:09.920 --> 0:12:12.200 already in a bit of a cold war. 0:12:12.240 --> 0:12:14.760 We've got a trade wark going on, but with digital war, etc. 0:12:15.080 --> 0:12:18.880 So there's a lot of conflict here, a lot of difficulty, 0:12:18.880 --> 0:12:22.360 a lot of geopolitical change. How do you see that 0:12:23.000 --> 0:12:23.720 going forward? 0:12:24.280 --> 0:12:28.079 Well, one thing is clear, and that is that there 0:12:28.160 --> 0:12:32.320 is bipartisan consensus in the US on the need to 0:12:32.360 --> 0:12:37.040 be tough on China. So whoever comes to power politically 0:12:37.120 --> 0:12:40.640 will not have much leeway to be soft. 0:12:40.440 --> 0:12:41.960 On China if you'd like. 0:12:42.080 --> 0:12:45.840 And also all the surveys seem to suggest that kind 0:12:45.840 --> 0:12:50.800 of there is also popular support for the US government 0:12:50.920 --> 0:12:55.240 to be tough on Chi. Now, if Kamala Harris were 0:12:55.320 --> 0:12:59.480 to win, the assumption is that it will be just 0:12:59.559 --> 0:13:00.839 the innuation of. 0:13:00.840 --> 0:13:02.880 The Biden playbook. 0:13:03.800 --> 0:13:07.560 And I would argue that maybe that's a little bit 0:13:07.600 --> 0:13:09.880 too simplistic at this point. 0:13:10.280 --> 0:13:13.440 Of course, the problem is that we don't know as 0:13:13.520 --> 0:13:17.520 much about anything, and and. 0:13:17.720 --> 0:13:22.439 You know, trying to assess her is tricky. But what 0:13:22.679 --> 0:13:26.800 does come through is that when you look at sort 0:13:26.840 --> 0:13:31.280 of her career, the issue of human rights and more 0:13:31.320 --> 0:13:38.960 of a I would argue conviction would certainly great on China. 0:13:40.000 --> 0:13:42.960 I think if she sort of keeps that part of 0:13:43.040 --> 0:13:49.480 what she values and it's someone who puts it forward 0:13:49.559 --> 0:13:53.079 in it in her communication and dealings with. 0:13:53.120 --> 0:13:55.559 China, that would be quite problematic for. 0:13:55.640 --> 0:13:58.080 China because this is, at the end of the day, 0:13:58.360 --> 0:14:02.240 a battle of ideology, and the Chinese hate losing faith, 0:14:02.960 --> 0:14:07.320 and so anything that kind of doesn't take the sensibility 0:14:07.320 --> 0:14:10.280 into account tends to be quite confrontational. 0:14:11.120 --> 0:14:12.720 I think what is also. 0:14:13.080 --> 0:14:18.080 Very clear, and that is irrespective of who Kamala Harris is, 0:14:18.080 --> 0:14:21.560 is the fact that the Europeans and probably other allies 0:14:21.840 --> 0:14:26.160 of the US will feel calmer about it because and 0:14:26.280 --> 0:14:30.720 more wheeling to basically engage with the US in a 0:14:30.760 --> 0:14:34.760 more longer term constructive fashion, because during the Biden years, 0:14:35.400 --> 0:14:39.800 everyone was petrified by the likelihood of a second Trump 0:14:39.840 --> 0:14:46.040 residency and that really held back kind of a furthering ahead, 0:14:46.280 --> 0:14:51.200 the relationship building, the lion strengthening. That was the most 0:14:51.200 --> 0:14:55.520 successful part of Biden's for an policy. So I would 0:14:55.640 --> 0:14:59.920 argue that with the hef to the democratic machine be 0:15:00.000 --> 0:15:03.720 behind Kamala, even if she turns out to not be 0:15:04.160 --> 0:15:08.960 an amazing president, it would still provide more security because 0:15:09.000 --> 0:15:11.480 she would be more likely to be re elected. You know, 0:15:11.520 --> 0:15:15.280 a return of Trump or Trump like figure after a 0:15:15.360 --> 0:15:19.600 Kamala presidency, if that were to happen, is less likely 0:15:19.680 --> 0:15:22.800 in my view, and that would allow for this more 0:15:23.200 --> 0:15:28.640 really strengthened alliance pushback, and that strengthened alliance pushback we 0:15:28.800 --> 0:15:32.960 need to see transcend into the economic sphere because so 0:15:33.120 --> 0:15:37.080 far Biden has been focusing too much on the military 0:15:37.120 --> 0:15:39.960 side of things and on the technology side of things, 0:15:40.320 --> 0:15:43.800 and the IRA Act if you could think. 0:15:43.600 --> 0:15:47.520 About word's name for an act from the US. 0:15:46.960 --> 0:15:50.760 All of that has fed into both and you know, 0:15:50.880 --> 0:15:54.160 not really progressing in Asia with any kind of economic 0:15:55.280 --> 0:15:59.520 offer that betters the Chinese one. All of that, you 0:15:59.560 --> 0:16:01.680 know there is is likely put it that might change 0:16:01.720 --> 0:16:05.880 under Kamala Harris uh And so that would that would 0:16:06.240 --> 0:16:11.960 just be a much more efficient alliance network fighting with 0:16:12.600 --> 0:16:18.400 the kind of authoritarian led grouping sort of spearheaded by China. 0:16:18.960 --> 0:16:21.800 Now Trump will be a totally different story. 0:16:22.000 --> 0:16:26.640 You think, yees a better story, a better story or 0:16:26.680 --> 0:16:28.720 a worse story. 0:16:28.760 --> 0:16:33.680 It's undoubtedly a worse story, just because. 0:16:35.120 --> 0:16:37.680 America cannot do it by itself. 0:16:38.600 --> 0:16:41.280 And I but what I mean to do it is 0:16:41.400 --> 0:16:46.680 stand up to the authoritarian regimes around the world. And 0:16:47.520 --> 0:16:51.640 Trump is all about America first, and he is not 0:16:51.800 --> 0:16:56.960 going to be to be building effective alliances quite the contrary. 0:16:57.160 --> 0:17:01.280 And I also worry that having been there during his 0:17:01.400 --> 0:17:05.080 first term, he sort of learned the rules of the 0:17:05.200 --> 0:17:09.240 game and he will be more effective at pushing through 0:17:09.400 --> 0:17:13.240 his ideas that all these sort of guys that were 0:17:13.400 --> 0:17:17.679 around him in the first term, that kind of what 0:17:17.720 --> 0:17:22.360 they're doing national service, you know, those will be there 0:17:22.600 --> 0:17:26.959 this time around. Everyone has burned their fingers of what 0:17:27.040 --> 0:17:30.879 it's like to work for Trump. I wonder whether he 0:17:31.080 --> 0:17:34.000 will have you know, if he had the sort of 0:17:34.080 --> 0:17:37.320 C and D teams last time around this time, I 0:17:37.359 --> 0:17:41.080 don't know what's you know Z, and I don't know 0:17:41.160 --> 0:17:46.240 eminem teams he might have around him. So the quality 0:17:46.280 --> 0:17:50.200 of the overall machine might come down and he will 0:17:50.240 --> 0:17:54.840 be more used to manipulating it for his own or 0:17:54.880 --> 0:17:58.080 sort of pushing through his own ideas. So yes, I 0:17:58.600 --> 0:18:05.480 worry that presidency would actually probably weaken America's position. 0:18:05.920 --> 0:18:11.000 Okay, but either way, can we expect this ongoing rise 0:18:11.080 --> 0:18:15.840 and protectionism on going reduction in the progress of the 0:18:16.040 --> 0:18:17.240 trading relationship? 0:18:17.560 --> 0:18:19.560 And one thing that we talked about I think all 0:18:19.600 --> 0:18:21.760 that time ago, and we've been talking about ever since, 0:18:21.840 --> 0:18:25.200 this is reassuring the idea that big companies are either 0:18:25.359 --> 0:18:28.720 moving their manufacturing out of China into other countries or 0:18:28.720 --> 0:18:32.719 they're moving their manufacturing back in to the US. Some 0:18:32.760 --> 0:18:34.960 people say that's happening, and show us large amounts of 0:18:35.000 --> 0:18:36.840 data showing it is happening. Some people say it was 0:18:36.880 --> 0:18:39.280 not happening, shows large amuns of data saying that it 0:18:39.400 --> 0:18:40.120 isn't happening. 0:18:40.200 --> 0:18:40.919 How do you see that? 0:18:41.520 --> 0:18:43.720 I mean, first of all, the last couple of years, 0:18:43.720 --> 0:18:46.639 I've argued that I see it as an iceberg because 0:18:46.680 --> 0:18:49.560 whoever is the couple in moving away from China has 0:18:49.640 --> 0:18:53.080 plans to do so is keeping it quiet. So I 0:18:53.200 --> 0:18:56.280 always argue that we'll see it in the data when 0:18:56.359 --> 0:18:59.760 already it's hit right because they know that if they 0:18:59.760 --> 0:19:02.200 are now, if they'll offend at least one side, if 0:19:02.200 --> 0:19:06.719 not both. They also fear repraisal from the Chinese authorities. 0:19:06.760 --> 0:19:09.639 You know, wasn't these companies have to be a major 0:19:09.720 --> 0:19:14.000 tax bill or whatever. So you know, in my conversations 0:19:14.240 --> 0:19:19.960 with business leaders, it's clear that everyone is really finally 0:19:20.440 --> 0:19:23.679 got their head around the fact that this is a 0:19:23.800 --> 0:19:29.200 geopolitical fracture. If you remember we had the China plus 0:19:29.480 --> 0:19:33.000 one strategy a while back, it was largely because cots 0:19:33.000 --> 0:19:35.159 went up in China. All that wage growth that we 0:19:35.240 --> 0:19:39.320 talked about was positive for China, but the manufacturer goods 0:19:39.359 --> 0:19:42.960 became more expensive to produce in China. There is the 0:19:43.119 --> 0:19:45.439 issue of you know, the direction of the cost of 0:19:45.520 --> 0:19:49.560 capital energy market. So costs in China were going up 0:19:50.160 --> 0:19:54.600 and people were looking to diversified. Before the trade war, 0:19:54.800 --> 0:19:59.080 the Truns trade warjack to import tariffs, and again that 0:19:59.280 --> 0:20:03.399 was perceived as a cost issue. So when people relocate 0:20:03.480 --> 0:20:08.080 to Vietnam for manufacturing, do they really think that when 0:20:08.200 --> 0:20:10.520 push comes to sheff, Vietnam is going to stay in 0:20:10.560 --> 0:20:14.679 the Western sphere of influence. So for a long time, 0:20:14.960 --> 0:20:18.000 it was again a response to the trade war, that 0:20:18.240 --> 0:20:21.800 those people in the business world thought it was just 0:20:21.880 --> 0:20:25.760 not going to progress because it didn't make any economic sense. 0:20:25.840 --> 0:20:28.440 And you know, I had to explain that it wasn't 0:20:28.480 --> 0:20:31.960 the economics in the driving seat. In fact, you know, 0:20:32.080 --> 0:20:34.679 the whole clash of the economics was in the driving 0:20:34.720 --> 0:20:38.159 seat during the financial crisis, and then that resulted in 0:20:38.200 --> 0:20:41.560 the political backlash that built up the sort of prices 0:20:41.640 --> 0:20:45.399 of the Trump like figures, the popularist Then that lends 0:20:45.480 --> 0:20:49.560 to enabling this non economic change out of which we 0:20:49.600 --> 0:20:50.840 will all be worse. 0:20:50.680 --> 0:20:53.360 Not will be worse off, but most secure. 0:20:53.600 --> 0:20:55.040 Well, we are not. 0:20:55.200 --> 0:21:01.000 More secure because we're in that middle space where the 0:21:01.240 --> 0:21:07.680 existing hegemon sort of can't really fulfill all their security obligations. 0:21:07.720 --> 0:21:08.600 Around the world. 0:21:08.760 --> 0:21:12.760 We saw you know, America moving out of Afghanistan, watching 0:21:12.840 --> 0:21:17.640 the retreat as well, we saw essentially, you know, our 0:21:17.680 --> 0:21:22.040 hegemon that's struggling to provide the global security puts as 0:21:22.119 --> 0:21:25.679 it used to, and we see a China that is 0:21:25.720 --> 0:21:29.080 not yet ready and doesn't yet want to step in. 0:21:29.440 --> 0:21:32.480 So what this leads is a vacuum for middle powers 0:21:32.600 --> 0:21:36.840 to pursue their ownly using practicals. And so I would 0:21:36.960 --> 0:21:40.080 argue that put in this invasion of Ukraine was one 0:21:40.160 --> 0:21:44.040 such act, and in fact, it is that invasion of 0:21:44.160 --> 0:21:49.360 Ukraine that finally woke up I think the business elite 0:21:49.440 --> 0:21:54.000 around the world that the issue here about how strategized 0:21:54.040 --> 0:21:58.119 going forward is about the geopolitics. 0:21:56.840 --> 0:21:59.240 Not about where it's lower cost. 0:22:00.160 --> 0:22:03.960 And so that whole dynamics is really now playing out, 0:22:04.160 --> 0:22:05.000 and I would. 0:22:04.840 --> 0:22:08.040 Argue it will end up, you know, ideally. 0:22:07.480 --> 0:22:13.080 Into a peaceful biplocation into two trading blocks that are 0:22:13.119 --> 0:22:17.000 big enough within themselves to to kind of counteract each other, 0:22:17.480 --> 0:22:21.320 and they find a way to interact within with each other. 0:22:21.400 --> 0:22:23.560 Okay, But of course we have the. 0:22:23.520 --> 0:22:27.080 Issue of Taiwan, and that's a really torny one to 0:22:27.680 --> 0:22:29.760 sort of wish, you know, that that's. 0:22:29.359 --> 0:22:32.360 In the way of this being a peaceful. 0:22:31.920 --> 0:22:34.000 By for Okay, I want to I want to come 0:22:34.160 --> 0:22:38.080 to come back to US manufacturing, but let's do Taiwan first. 0:22:38.400 --> 0:22:40.480 How high do you think the risk is there and 0:22:40.640 --> 0:22:44.639 what happens in Taiwan and the relationship between Taiwan and China. 0:22:44.720 --> 0:22:47.320 So we've been looking at that issue. I mean a 0:22:47.359 --> 0:22:49.880 while back when we started. 0:22:49.840 --> 0:22:53.359 Arguing that you know, we're into the era of the 0:22:53.440 --> 0:22:54.359 Great decoupling. 0:22:54.440 --> 0:22:57.600 We split it in trade war Techboard Taiwan War. 0:22:58.000 --> 0:23:01.040 And I remember, you know, three four years ago, when 0:23:01.040 --> 0:23:04.240 I went around clients and was saying, look, you know, 0:23:04.400 --> 0:23:09.040 you should start considering this risk. I had blank either 0:23:09.160 --> 0:23:11.800 stairs or looks of disbelief. 0:23:12.359 --> 0:23:15.800 Now, probably the French point was when. 0:23:15.600 --> 0:23:19.440 The Economnes published an article with sort of the front 0:23:19.480 --> 0:23:22.520 page of the magazine saying, Taiwan the most intelous place 0:23:22.600 --> 0:23:26.520 on Earth that I think is on the radar. But 0:23:26.840 --> 0:23:31.679 I would say still this risk, and actually not so 0:23:31.840 --> 0:23:35.919 much even of the final flash point or event, but 0:23:36.240 --> 0:23:38.919 just what's happening in the build up to it is 0:23:38.960 --> 0:23:44.160 really underappreciated out there. And the reasoning is that if 0:23:44.160 --> 0:23:47.360 you believe that the Communist Party and she's in pink 0:23:47.440 --> 0:23:51.080 itself and turn to the Chinese people and say, look, guys, 0:23:51.119 --> 0:23:53.760 we've said this is an existential issue, it's been in 0:23:53.800 --> 0:23:56.879 our plan to reunify. It's being the reason for the 0:23:56.920 --> 0:23:59.960 distance of our party. But they don't want to sell 0:24:00.160 --> 0:24:03.000 let's forget about it. Then of course there's no conflict, 0:24:03.600 --> 0:24:07.800 but nothing that has gone on suggests that this is 0:24:07.920 --> 0:24:12.200 on the agenda. Then there are the Taiwanese themselves, which 0:24:12.240 --> 0:24:15.720 have now really developed the Taiwanese identity. I went to 0:24:15.760 --> 0:24:18.920 observe the elections in Taiwan earlier in the year, and 0:24:19.000 --> 0:24:24.000 it was amazing to see that kind of young democracy 0:24:24.040 --> 0:24:28.520 and the passion and importance that these elections meant to people. 0:24:28.560 --> 0:24:32.400 And it was also interesting to see that they chose, 0:24:32.520 --> 0:24:34.919 you know, a lot of people we spoke to chose 0:24:35.000 --> 0:24:39.160 to vote for William live for the presidency, but then 0:24:39.880 --> 0:24:43.000 vote for the KMT for the legislature to kind of 0:24:43.080 --> 0:24:46.280 have checks and balances, suggesting that they really after the 0:24:46.320 --> 0:24:49.560 status quo of sort of no change, you know, not 0:24:49.600 --> 0:24:53.240 announcing independence, but you know, not becoming part of China. 0:24:53.440 --> 0:24:57.119 China to the election results differently, it just sort of 0:24:57.200 --> 0:25:00.720 saw an opportunity to keep pushing. In some ways, it's 0:25:01.720 --> 0:25:05.880 better for the short term probability of conflict because they'd 0:25:05.960 --> 0:25:08.520 rather do it peacefully, but they've always said that if 0:25:08.520 --> 0:25:11.119 they can't do it peacefully, they'll do it militarily, and 0:25:11.160 --> 0:25:16.679 they've been preparing for it and accelerating those preparations, and 0:25:16.720 --> 0:25:18.240 the whole gray zone. 0:25:18.240 --> 0:25:20.680 Activity and strangulation. 0:25:20.080 --> 0:25:23.480 Of Taiwan and the US on the other side, it's 0:25:23.640 --> 0:25:27.399 final sort of third major player into this. They have 0:25:27.600 --> 0:25:32.840 also engaged actively now in preparing to withstand China's efforts 0:25:32.880 --> 0:25:35.280