WEBVTT - Stephen Roach Warns of Disaster From Our 'Sinophobic' China Policy 0:00:02.680 --> 0:00:15.520 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.720 --> 0:00:22.279 Hello and welcome to another episode of the Odd Lots podcast. 0:00:22.320 --> 0:00:24.759 I'm Joe Wisenthal, and I'm Tracy Alloway. 0:00:25.040 --> 0:00:28.320 Tracy, you know, when it comes to US trade tensions 0:00:28.440 --> 0:00:31.520 with China, obviously there are a number of people they 0:00:31.600 --> 0:00:34.880 sort of reach back for the fear and the anxiety 0:00:34.920 --> 0:00:37.320 of trade with Japan in the eighties. But I have 0:00:37.360 --> 0:00:40.080 to say, like, I don't actually know much about that. 0:00:40.159 --> 0:00:43.400 I wasn't paying that much attention to trade policy when 0:00:43.440 --> 0:00:46.280 I was seven years old or nine years old and stuff. 0:00:46.400 --> 0:00:48.320 That's very disappointing, even though I'm aware. 0:00:48.400 --> 0:00:50.720 I know, even though I'm aware that that was a thing, 0:00:50.800 --> 0:00:54.320 and probably some of the concerns, particularly about automobiles specifically 0:00:54.400 --> 0:00:57.000 and the threat to Detroit and all that was popular 0:00:57.040 --> 0:00:59.360 the way it is popular now, Like, I actually know 0:00:59.480 --> 0:00:59.960 very little of it. 0:01:00.560 --> 0:01:03.080 Don't you watch movies from the nineteen eighties. There are 0:01:03.160 --> 0:01:07.240 quite a few villains from nineteen eighties cult classic movies 0:01:07.280 --> 0:01:11.200 that end up being Japanese businessmen. And I do remember 0:01:11.760 --> 0:01:17.320 some pop culture zeitgeiste moments from the Big Fear that 0:01:17.480 --> 0:01:21.080 Japan Inc. Was going to eat the US economy. For instance, 0:01:21.080 --> 0:01:23.720 there was that famous photo of I think it was 0:01:23.760 --> 0:01:27.600 a bunch of congressmen smashing like a radio or a 0:01:27.680 --> 0:01:31.840 TV or something in Washington in the late nineteen eighties. 0:01:31.880 --> 0:01:35.800 Do you remember seeing that, which you can imagine. So 0:01:35.880 --> 0:01:42.080 the idea was the US feels threatened by Japan's dominance 0:01:42.319 --> 0:01:47.000 in certain primarily consumer electronic goods back then, but also 0:01:47.600 --> 0:01:51.000 increasingly in computers, and so a bunch of politicians went 0:01:51.040 --> 0:01:53.800 out and started smashing those publicly to make a statement. 0:01:54.280 --> 0:01:57.559 That hasn't happened with China just yet, but you could 0:01:57.560 --> 0:01:59.960 imagine something like that being done today, but it would 0:01:59.960 --> 0:02:02.600 be with Chinese solar panels or something like that. 0:02:02.680 --> 0:02:05.120 Oh, I'm looking at the photo. They smashed a boombox 0:02:05.720 --> 0:02:06.639 right in front of the cavalon. 0:02:07.800 --> 0:02:11.240 You can't get much more in nineteen eighties than smashing 0:02:11.280 --> 0:02:12.600 a Japanese boombox. 0:02:12.720 --> 0:02:16.160 This photo goes, it goes hard. As the kids say, 0:02:16.160 --> 0:02:18.040 it's quite a photo. But you're right, And I do 0:02:18.120 --> 0:02:21.720 remember the pop culture elements, and you know, movies like 0:02:21.760 --> 0:02:24.959 Falling Down or the Villain in Back to the Future too. 0:02:25.160 --> 0:02:27.880 I think it was, or maybe whatever, So I remember, 0:02:28.000 --> 0:02:30.760 well what I certainly don't remember how it resolved or 0:02:30.800 --> 0:02:33.880 why it faded or why you know, I know a 0:02:33.880 --> 0:02:36.600 little bit, but not really like what the ultimate was there, 0:02:36.880 --> 0:02:39.840 how similar it actually was, because yeah, I sure that 0:02:39.880 --> 0:02:42.800 you know, it's one thing with boomboxes and cars, but 0:02:42.840 --> 0:02:46.680 obviously there seems to be, at least in US policy circles, 0:02:46.720 --> 0:02:50.200 this big national security element that dovetails with some of 0:02:50.200 --> 0:02:53.920 the concerns about cars and solar and stuff like that. 0:02:54.400 --> 0:02:56.760 And of course, when speaking of analogies, you know, we've 0:02:56.800 --> 0:02:59.960 also talked about the history with the real estate bubble 0:03:00.200 --> 0:03:03.680 and bust. We've talked with Richard kob about the similarities 0:03:03.680 --> 0:03:06.120 of the real estate boom that Japan had and the 0:03:06.160 --> 0:03:09.320 bust that subsequently followed, and there may be parallels there, 0:03:09.360 --> 0:03:12.200 but I definitely feel like I need to wrap my 0:03:12.240 --> 0:03:15.920 head around even further about how useful or not some 0:03:15.960 --> 0:03:17.600 of these historical patterns are. 0:03:17.680 --> 0:03:20.080 Absolutely. The other thing I would say is it is 0:03:20.560 --> 0:03:26.839 remarkable in some respect that the commonality between Biden and 0:03:26.919 --> 0:03:30.880 Trump is being tough on China trade. Right, That is 0:03:30.880 --> 0:03:34.399 a common thread, And so no matter what happens in November, 0:03:34.480 --> 0:03:37.400 it seems reasonable to expect that these trade tensions are 0:03:37.440 --> 0:03:40.440 going to continue in one way or another. So I 0:03:40.480 --> 0:03:42.680 definitely think it's worth talking about totally. 0:03:42.720 --> 0:03:44.760 This is really an important element, and I'm glad you 0:03:44.760 --> 0:03:48.360 brought it up, which is the complete Washington consensus. It 0:03:48.400 --> 0:03:51.840 would seem at this point where there doesn't seem to 0:03:51.880 --> 0:03:54.800 be any disagreement about the basic notion that we have 0:03:54.880 --> 0:03:58.000 to do something on trade, that we have to amp 0:03:58.080 --> 0:04:02.000 up the national security as whatever it is with respect 0:04:02.000 --> 0:04:06.000 to China has become completely conventional wisdom of both parties. 0:04:06.640 --> 0:04:09.480 And you know, when something is conventional wisdom like that, 0:04:09.560 --> 0:04:11.480 it's probably good to question some things. 0:04:11.520 --> 0:04:12.880 Absolutely, let's do it, all right. 0:04:12.840 --> 0:04:15.560 I'm excited. We really do have the perfect guest today, 0:04:15.560 --> 0:04:18.440 someone I don't believe we've ever had on the podcast before, 0:04:18.480 --> 0:04:21.560 but someone who's work and writing I've admired and read 0:04:21.600 --> 0:04:24.040 for a really long time. Really excited to be chatting 0:04:24.040 --> 0:04:27.520 with Stephen Roach. He's a senior fellow at Yale Law School, 0:04:27.600 --> 0:04:30.799 former chairman of Morgan Stanley Asia and has been talking 0:04:30.920 --> 0:04:33.839 a lot about this topic for years and years and 0:04:33.880 --> 0:04:36.719 has been warning about what he sees as the errors 0:04:36.760 --> 0:04:39.640 of our current approach to China. So, Stephen, thank you 0:04:39.680 --> 0:04:40.560 so much for coming on. 0:04:40.600 --> 0:04:44.000 Odd lots well, great to be with you, Joe and Tracy. 0:04:44.320 --> 0:04:47.240 I'm astonished at how young the two of you are. 0:04:49.000 --> 0:04:50.200 Thank you don't know, what's. 0:04:50.120 --> 0:04:53.200 Any firsthand knowledge of what it was like to live 0:04:53.240 --> 0:04:58.159 in an era where Japan was our main economic enemy. 0:04:58.279 --> 0:05:01.680 But well, I was out in the nineteen eighties, so 0:05:01.960 --> 0:05:03.599 maybe I missed out on it because I was on 0:05:03.640 --> 0:05:06.120 the other side. Japan in the nineteen eighties was great. 0:05:06.240 --> 0:05:07.600 I gotta say just this. 0:05:07.800 --> 0:05:11.600 One background note. I mean, I taught a seminar at 0:05:11.680 --> 0:05:17.960 Yale for twelve years called the Lessons of Japan, and 0:05:18.040 --> 0:05:22.159 in that seminar I went through in great detail what 0:05:22.480 --> 0:05:27.120 happened to what at the time was Asia's first major 0:05:27.240 --> 0:05:30.680 growth engine, the rise in the Fall, and how that 0:05:31.000 --> 0:05:37.520 came into the crosshairs of American economic and political policy. 0:05:38.320 --> 0:05:40.000 And that was just the first half of the course. 0:05:40.000 --> 0:05:42.280 The second half of the course was to look at 0:05:42.279 --> 0:05:46.680 those lessons to see how they applied to other economies 0:05:46.720 --> 0:05:49.920 around the world. And you know, in keeping with your 0:05:50.080 --> 0:05:53.719 pithy introduction, you know, the main candidate was China. So 0:05:53.880 --> 0:05:58.880 how much of the China story has an antecedent in 0:05:58.920 --> 0:06:03.279 our experience with is a very very important question. And 0:06:03.320 --> 0:06:05.160 I'm delighted to talk to. 0:06:05.080 --> 0:06:06.440 You about fantastic. 0:06:06.600 --> 0:06:08.919 You know, one thing I remember at the time, and 0:06:08.960 --> 0:06:11.239 I guess by this point I was eleven years old. 0:06:11.760 --> 0:06:15.479 I remember George H. W. Bush vomiting onto the lap 0:06:15.600 --> 0:06:19.240 of the former Prime minister while on some you know visit. 0:06:19.560 --> 0:06:21.760 Well what happened? I mean, the story is so big, 0:06:21.800 --> 0:06:24.159 As you mentioned, it was a whole lecture series that 0:06:24.200 --> 0:06:27.520 you did over years at Yale. But like, how did 0:06:27.520 --> 0:06:29.800 that end? Because I remember, like some of the anxiety 0:06:29.800 --> 0:06:32.279 about cars from when I was ten or nine or whatever, 0:06:32.400 --> 0:06:34.800 and they're eating or lunch and stuff like that. But 0:06:34.960 --> 0:06:37.640 and then you know, by the mid nineties it did 0:06:37.680 --> 0:06:39.440 not seem to be a thing that people were talking 0:06:39.440 --> 0:06:42.839 about as much. How did I guess, in the minds 0:06:42.880 --> 0:06:46.039 of the America or in the literal economics did that end? 0:06:46.080 --> 0:06:47.799 What happened? How did that fade? 0:06:48.480 --> 0:06:51.760 You alluded to the auto area that was a major 0:06:51.839 --> 0:06:57.760 issue of contention that we've negotiated some voluntary export restraints 0:06:57.839 --> 0:07:02.760 on Japan. And then Japan, who you know, we had 0:07:02.760 --> 0:07:06.320 a very close security relationship with which is of course 0:07:06.440 --> 0:07:11.520 very different than our current situation with China. Japan was 0:07:12.400 --> 0:07:18.160 eager to shift some of its domestic auto production into 0:07:18.280 --> 0:07:23.640 the United States through building and investing in American made facilities, 0:07:23.760 --> 0:07:28.160 using American workers, And so we all ended up buying 0:07:28.240 --> 0:07:30.920 Japanese cars, but you know, they were produced in the 0:07:31.000 --> 0:07:35.160 United States. But I think the endgame was quite tough 0:07:35.240 --> 0:07:40.160 for Japan. You know, Japan went from a growth miracle 0:07:40.320 --> 0:07:46.320 to a growth bust, went through arguably three lost decades 0:07:46.960 --> 0:07:51.760 of neo economic stagnation, a considerable amount of which was 0:07:51.800 --> 0:07:56.200 an outgrowth of the currency policy that we and other 0:07:57.200 --> 0:07:59.400 developed nations. 0:08:00.520 --> 0:08:01.160 On Japan. 0:08:01.320 --> 0:08:05.320 They voluntarily agreed to it, but that triggered a series 0:08:05.360 --> 0:08:11.120 of policy blunders that led to acid bubbles. And you said, 0:08:11.160 --> 0:08:14.360 you spoke with Richard Ko the balance sheet recession that 0:08:14.400 --> 0:08:19.320 he's written so eloquently about that really left Japan flat 0:08:19.360 --> 0:08:24.440 on its back for as I said, nearly three lost decades. 0:08:25.160 --> 0:08:29.320 So Japan did an end around in moving production to 0:08:29.360 --> 0:08:34.880 the US and then was effectively neutered as an economic 0:08:35.000 --> 0:08:40.000 power by these lost decades. And so it didn't end 0:08:40.040 --> 0:08:41.240 all that well for Japan. 0:08:42.080 --> 0:08:44.680 Maybe we could step back for a second, because the 0:08:44.760 --> 0:08:49.240 thing that I'm unclear on with the Japan US business 0:08:49.360 --> 0:08:52.640 rivalry of the nineteen eighties is and you touched on 0:08:52.679 --> 0:08:56.160 this Stephen already. But there was there is a security 0:08:56.160 --> 0:08:59.480 alliance in place between the US and Japan. I mean, 0:08:59.520 --> 0:09:02.640 the has lots of military bases in Japan. I grew 0:09:02.760 --> 0:09:05.640 up on one of those. So how was it that 0:09:06.360 --> 0:09:12.360 Japan's industry and technology was viewed as such an enormous 0:09:12.440 --> 0:09:16.320 threat for the US, even if they were military and 0:09:16.360 --> 0:09:18.520 strategic allies. That's the one thing I don't get. 0:09:19.480 --> 0:09:24.320 Well, that's a fair point. The main issue in the 0:09:24.400 --> 0:09:27.920 United States at that point was I think a total 0:09:27.960 --> 0:09:34.680 misunderstanding of international economics. We had a large trade deficit 0:09:34.760 --> 0:09:38.800 as a nation, and we came out of a horrible 0:09:39.640 --> 0:09:43.600 recession in the early eighties that continued even in the 0:09:43.600 --> 0:09:49.440 face of economic recovery, to leave our manufacturing sector under pressure. 0:09:50.520 --> 0:09:57.319 The manufacturing recession continued well into the mid nineteen eighties, 0:09:57.360 --> 0:10:03.680 even though the overall economic recovery was progressing nice. Our 0:10:03.760 --> 0:10:10.440 politicians figured out that the main culprit in the manufacturing 0:10:11.240 --> 0:10:15.679 recession was this thing that they didn't understand, but it 0:10:15.720 --> 0:10:18.440 was a trade deficit, and the biggest piece of the 0:10:18.440 --> 0:10:24.760 trade deficit was with Japan. They were highly critical of Japan. 0:10:24.920 --> 0:10:31.120 The politicians were for unfair trading practices, for running an 0:10:31.280 --> 0:10:37.079 undervalued currency, the yen in their case, and for basically 0:10:37.160 --> 0:10:41.960 eating our lunch in terms of putting pressure on our 0:10:42.040 --> 0:10:47.720 companies and our workers and our communities. You noted in 0:10:47.760 --> 0:10:51.160 your intro that you know, there was a boombox that 0:10:51.400 --> 0:10:55.840 was destroyed. There were a number of other highly public 0:10:56.120 --> 0:11:03.760 episodes of destroying Japanese cars. There was even an unfortunate instance, 0:11:04.240 --> 0:11:08.840 you know, in the late nineteen eighties where two displaced 0:11:09.160 --> 0:11:16.200 laid off auto workers assaulted and ultimately murdered a Chinese 0:11:16.280 --> 0:11:21.280 American in the late eighties, not being able to mistake 0:11:21.760 --> 0:11:25.679 the difference between the two nationalities. So it wasn't a 0:11:25.679 --> 0:11:32.960 particularly pretty period, but it unmasked a really critical misunderstanding 0:11:33.040 --> 0:11:36.040 of the role that trade plays in an economy that 0:11:36.160 --> 0:11:40.559 was evident in Japan, that is even more evident than 0:11:40.559 --> 0:11:45.400 today in China, and that is, the US has trade 0:11:45.440 --> 0:11:50.600 deficits with many countries, and it's wrong to single out 0:11:50.679 --> 0:11:55.600 one country in an effort to eliminate the trade deficit. 0:11:55.800 --> 0:12:00.200 You can't do it because our multilateral trade deficit, that 0:12:00.240 --> 0:12:04.640 a trade deficit with many countries is an outgrowth of 0:12:04.720 --> 0:12:11.400 our shortfall of domestic savings. When nations don't save and 0:12:11.440 --> 0:12:15.520 they want to grow, they import surplus savings from abroad, 0:12:16.200 --> 0:12:19.200 and they run what's called a balance of payments deficit 0:12:19.880 --> 0:12:24.360 that gives rise to a multilateral trade deficit with many 0:12:24.400 --> 0:12:32.400 many nations. So fast forward to today. In twenty twenty three, 0:12:33.040 --> 0:12:35.920 we ran trade deficits with one hundred and six countries. 0:12:37.040 --> 0:12:40.800 China was the largest, although it has come down. There's 0:12:40.840 --> 0:12:45.640 a share of our overall trade deficit because of the 0:12:45.679 --> 0:12:50.680 tariffs that were imposed and sustained from Trump to Biden. 0:12:51.440 --> 0:12:55.400 But if you take China out of the equation, it 0:12:55.480 --> 0:12:59.359 still leaves you with one hundred and five other countries 0:12:59.400 --> 0:13:04.840 that we ran deficits with last year. So we tried 0:13:04.840 --> 0:13:09.440 the japan recipe on China. We put huge tariffs on China. 0:13:09.800 --> 0:13:14.920 The Chinese piece of the overall merchandised trade deficit, which 0:13:14.960 --> 0:13:19.400 peaked out a little below fifty percent in twenty fifteen, 0:13:20.200 --> 0:13:25.360 has since come down to a little below thirty percent. 0:13:25.480 --> 0:13:28.320 So you say, wow, that's a great strategy, and Trump 0:13:28.360 --> 0:13:32.679 would say, see my policy work. But we didn't boost 0:13:32.720 --> 0:13:36.880 our domestic savings because we run these massive budget deficits. 0:13:36.880 --> 0:13:41.640 So all that happened was the Chinese piece went somewhere else, 0:13:42.440 --> 0:13:50.960 and that somewhere else were countries like Mexico, Vietnam, Canada, Korea, Taiwan, India, Ireland, 0:13:51.520 --> 0:13:55.320 and even Germany. In large part, these countries are higher 0:13:55.400 --> 0:13:59.760 cost producers, so the trade shifted from a low cost 0:13:59.840 --> 0:14:04.800 producer like China to higher cost producers, which ends up 0:14:04.880 --> 0:14:11.040 taxing American workers. So the policy reflects a total misunderstanding 0:14:11.720 --> 0:14:15.280 of the way that international economics works in the context 0:14:15.840 --> 0:14:23.480 of our saving short US economy. 0:14:34.560 --> 0:14:37.280 So I want to obviously get into more soon about 0:14:37.280 --> 0:14:40.520 the current conditions and the mistakes that you believe we're 0:14:40.560 --> 0:14:42.840 making with respect to China. But you know, going back 0:14:42.880 --> 0:14:45.560 to the parallels between China and Japan, and there's something 0:14:45.560 --> 0:14:48.240 we talked with Richard Coo about is like they had 0:14:48.240 --> 0:14:52.000 this real estate bubble and for Japan the aftermath is 0:14:52.040 --> 0:14:55.840 really bad, multiple lost decades. And you know, obviously there 0:14:55.840 --> 0:14:59.440 are a lot of academics and policy makers in China 0:14:59.560 --> 0:15:03.680 today looking at that experience and hoping to avoid similar 0:15:03.800 --> 0:15:07.880 loss decades after as they tried to control their own 0:15:08.000 --> 0:15:10.440 real estate bubble, which is something they've done. I mean, 0:15:10.440 --> 0:15:12.560 when you tell the story of what happened with US 0:15:12.600 --> 0:15:15.960 and Japan, I listened to that and say, actually, it 0:15:15.960 --> 0:15:18.760 seems like it turned out fairly well from the US perspective, 0:15:19.160 --> 0:15:22.640 but that it turned out very badly from the Japanese perspective. 0:15:23.200 --> 0:15:25.920 Had they not acquiesced in the same way to our 0:15:25.960 --> 0:15:29.760 desire for export restrictions or building some of their vehicles 0:15:29.760 --> 0:15:33.200 in the US, would that have allowed the country to 0:15:33.520 --> 0:15:37.520 move from manufacturing to a robust industrial power in a 0:15:37.560 --> 0:15:41.720 more stable manner that didn't result in so many lost years. 0:15:41.880 --> 0:15:43.000 It's a fair point. 0:15:43.880 --> 0:15:48.760 Japan had an economic model that it developed in the 0:15:48.800 --> 0:15:53.360 aftermath of the total destruction of its economy during World 0:15:53.440 --> 0:15:58.720 War Two that was very focused on boosting economic growth 0:15:59.320 --> 0:16:05.840 through arts largely supported by a cheap or undervalued currency. 0:16:06.360 --> 0:16:10.240 We called them on that. There was a currency agreement 0:16:10.280 --> 0:16:13.160 in the mid eighties and the so called Plaza Accord 0:16:13.680 --> 0:16:20.360 that forced the Japanese to revalue their currency. They panicked 0:16:20.560 --> 0:16:25.560 over this threat to their economic model, and the Ministry 0:16:25.560 --> 0:16:28.440 of Finance, which controlled the Central Bank as well as 0:16:28.480 --> 0:16:33.440 the foreign exchange policy, basically ordered the Bank of Japan 0:16:34.200 --> 0:16:40.640 to slash domestic interest rates. And that's what boosted asset 0:16:40.720 --> 0:16:46.280 bubbles in equities and property, and when they burst. 0:16:45.960 --> 0:16:47.880 Is all bubbles. Do you know? 0:16:48.000 --> 0:16:53.840 The rest is history, one lost decade followed by another. 0:16:54.040 --> 0:17:00.880 So this policy that was imposed from the outside on 0:17:01.560 --> 0:17:07.320 Japan was not without consequences for other policy choices they made. 0:17:07.560 --> 0:17:11.960 By no means was that the sole source of the 0:17:12.040 --> 0:17:14.679 lost decade, As I teach it in my seminar. There 0:17:14.680 --> 0:17:17.960 are many, many sources, but that was clearly an important 0:17:18.000 --> 0:17:19.080 part of their story. 0:17:20.160 --> 0:17:24.160 Talk to us about the Chinese economy now, and in particular, 0:17:24.560 --> 0:17:29.200 how you would characterize trade relations between the US and China. 0:17:29.280 --> 0:17:30.000 What are you seeing? 0:17:30.560 --> 0:17:34.760 Well, the Chinese economy is in difficult shape right now. 0:17:34.840 --> 0:17:41.560 It's facing a number of short term headwinds brought about 0:17:41.680 --> 0:17:46.760 by the property crisis, which is very Japanese like, and 0:17:46.920 --> 0:17:53.760 also financial problems amongst many of their local governments. And 0:17:54.119 --> 0:17:59.600 that a combination of issues that certainly led to a 0:17:59.640 --> 0:18:05.200 significant slowing of the Chinese economy relative to this historic 0:18:05.960 --> 0:18:10.840 thirty plus years of ten percent growth. And yet you 0:18:10.880 --> 0:18:14.359 know that is only part of the problem. China is 0:18:14.400 --> 0:18:18.399 afflicted by a number of structural problems, not the least 0:18:18.400 --> 0:18:22.480 of which is declining population, especially the working age piece 0:18:22.520 --> 0:18:27.000 of the population, and weak productivity. What we learned from 0:18:27.119 --> 0:18:31.720 Japan and this is very relevant for China, is when 0:18:32.240 --> 0:18:35.960 the demography works against you is it certainly did and 0:18:36.720 --> 0:18:40.560 continues to do so in Japan. You've got to have 0:18:41.320 --> 0:18:44.600 strong productivity to offset that. You've got to get more 0:18:45.240 --> 0:18:49.760 out of the surviving workforce, otherwise your growth will weaken, 0:18:49.840 --> 0:18:53.560 and it has done that in Japan now for three 0:18:53.640 --> 0:18:58.679 decades plus. China's got a similar problem. It's population is 0:18:58.800 --> 0:19:02.440 now declining. We knew this was coming because of their 0:19:03.040 --> 0:19:07.359 unsustainable one child family planning policy, but it's come sooner 0:19:07.400 --> 0:19:13.000 than we thought. And their productivity problems are actually worse 0:19:13.119 --> 0:19:17.040 right now than they were in the nineties in Japan. 0:19:17.240 --> 0:19:22.240 So you know, China's got some structural issues on top 0:19:22.320 --> 0:19:28.040 of the cyclical problems. US China trade relations your second question. 0:19:28.760 --> 0:19:32.840 You know, the relationship is in the worst shape it's 0:19:32.960 --> 0:19:40.399 been in since the US championed China's membership in joining 0:19:40.400 --> 0:19:44.240 the WTO in late two thousand and one. We've had 0:19:45.080 --> 0:19:50.679 tariffs initiated by Trump and sustained under Biden, who is 0:19:51.480 --> 0:19:57.119 tightened the news further through sanctions and through making every 0:19:57.160 --> 0:20:03.119 conceivable effort to contain Chinese technology under the guise of 0:20:03.280 --> 0:20:07.000 national security risks, which as you pointed out earlier, were 0:20:07.080 --> 0:20:12.080 not a serious consideration with Japan in the nineteen eighties. 0:20:12.440 --> 0:20:15.639 So that is obviously does seem like a pretty big difference. 0:20:15.680 --> 0:20:18.000 And when I think about the tensions between the US 0:20:18.040 --> 0:20:22.200 and China, there seems to be the national security concerns, 0:20:22.680 --> 0:20:26.520 the concerns that Chinese exporters are going to undermine American 0:20:26.720 --> 0:20:31.520 industrial powerhouses, whether we're talking chips, planes, cars, solar powers, whatever, 0:20:31.840 --> 0:20:34.160 and then the synthesis of the two, which is, well, 0:20:34.200 --> 0:20:38.640 if we continue to let our industrial companies weaken, then 0:20:38.680 --> 0:20:42.880 that also has security concerns directly due to our ability 0:20:42.880 --> 0:20:46.280 to manufacture things like weaponry or whatever else from a 0:20:46.440 --> 0:20:50.040 national security standpoint. So maybe the way i'd ask you 0:20:50.080 --> 0:20:53.160 is setting aside trade, do you consider the national security 0:20:53.160 --> 0:20:58.120 concerns real or is this something that has been more 0:20:58.240 --> 0:21:02.639 ginned up in the head of policymakers in DC. Should 0:21:02.640 --> 0:21:04.359 it inform how we trade with China. 0:21:05.200 --> 0:21:08.440 I think that there has been a lot of exaggeration 0:21:09.240 --> 0:21:14.600 of the so called security threat from China. Certainly, they 0:21:14.640 --> 0:21:20.040 are moving ahead aggressively in the area of technological change 0:21:20.040 --> 0:21:25.760 and innovation, and they're applying these breakthroughs to their military 0:21:26.040 --> 0:21:30.160 capabilities as you would expect any leading power to do. 0:21:30.680 --> 0:21:34.000 But I think personally, I've looked at a lot of 0:21:34.040 --> 0:21:37.879 this very carefully wrote about it in my last book 0:21:38.080 --> 0:21:42.760 called Accidental Conflict, or I lay out the thesis that 0:21:43.400 --> 0:21:47.600 a lot of the national security concerns that have been 0:21:47.640 --> 0:21:54.320 expressed by politicians and by executive branch officials, either in 0:21:54.400 --> 0:21:59.920 the Trump or the Biden administration, are false narratives based 0:21:59.960 --> 0:22:05.520 on the presumption of intent on the part of China. 0:22:05.840 --> 0:22:10.639 They cannot really be validated. I mean, just take electric vehicles. 0:22:10.680 --> 0:22:15.679 I mean, we had the spectacle of a Commerce Secretary 0:22:15.800 --> 0:22:22.040 Jeana Raimondo warning that if China was, for some motive 0:22:22.119 --> 0:22:26.080 that she was unable to articulate, felt like it, they 0:22:26.160 --> 0:22:32.840 could transform Chinese made evs, presuming that they were allowed 0:22:32.880 --> 0:22:37.399 to be sold in the US into vehicular weapons of 0:22:37.440 --> 0:22:42.480 mass destruction. And there's just absolutely no credible evidence of that. 0:22:43.119 --> 0:22:45.879 And you could argue the same thing with respect to 0:22:46.040 --> 0:22:53.160 and I have Huawei on five G telecommunications, even TikTok 0:22:53.240 --> 0:22:59.240 in terms of the allegations that TikTok as you know, corrupted, 0:22:59.640 --> 0:23:03.480 you know, the minds of innocent young teenagers. We've got 0:23:03.800 --> 0:23:08.119 concerns that have been raised over dock loading cranes that 0:23:08.160 --> 0:23:10.879 are made in China, that you know, with the flick 0:23:10.920 --> 0:23:14.679 of a switch, that the Chinese could disable all of 0:23:14.720 --> 0:23:18.920 our dock loading infrastructure. You have an FBI director of 0:23:19.000 --> 0:23:24.040 Christopher Ray, who's been negative on China as long as 0:23:24.040 --> 0:23:28.119 I can remember, who's absolutely convinced that in China has 0:23:28.119 --> 0:23:34.679 a stranglehold on America's utility infrastructure. And again, with just 0:23:34.800 --> 0:23:39.719 a flip of a switch from Beijing, our entire public 0:23:39.800 --> 0:23:43.800 utility system won't come to a halt. Our politicians are 0:23:44.080 --> 0:23:49.960 eager and aggressive to warn of consequences based on the 0:23:50.080 --> 0:23:54.040 presumption of intent that they have not been able and 0:23:54.160 --> 0:23:57.680 are unwilling to validate. And I know that's an unpopular 0:23:58.359 --> 0:24:03.600 view to hold in this bipartisan era of what I've 0:24:03.880 --> 0:24:09.879 called sinophobia. But I've never seen in my adult lifetime 0:24:10.480 --> 0:24:13.919 an adversary that's been so vilified as we are now 0:24:14.720 --> 0:24:16.640 vilifying the Chinese. 0:24:16.720 --> 0:24:18.920 So I find it very worrisome. 0:24:19.760 --> 0:24:22.720 My sense of some of the concerns is that they 0:24:22.720 --> 0:24:26.639 have more to do with the strategic importance of certain 0:24:26.720 --> 0:24:30.679 industries and the idea that well, if something were to 0:24:30.840 --> 0:24:34.080 happen with China, you know, for instance, if it were 0:24:34.119 --> 0:24:38.080 to invade Taiwan, the assumption would be that the US 0:24:38.160 --> 0:24:41.399 is cut off from Chinese exports, or at least they 0:24:41.400 --> 0:24:45.480 would be disrupted in some way, And so it might 0:24:45.560 --> 0:24:50.720 be desirable from the US's economic and national security perspective 0:24:50.800 --> 0:24:56.040 to build out your own strategically important industries, so things 0:24:56.200 --> 0:25:01.800 like batteries, semiconductors, maybe even solar panels. So I guess 0:25:01.880 --> 0:25:03.680 I always thought they were coming at it from more 0:25:03.720 --> 0:25:08.440 of an autarchy point of view rather than a vehicular 0:25:08.520 --> 0:25:11.240 weapons of mass destruction point of view. 0:25:11.800 --> 0:25:15.679 There's some of that tracy, I will every nation wants 0:25:15.760 --> 0:25:20.159 to be able to stand on its own and not 0:25:20.359 --> 0:25:26.080 be strategically reliant on others, especially on a nation who 0:25:27.000 --> 0:25:32.760 has a different ideology, who you feel has been engaging 0:25:33.000 --> 0:25:36.879 in activities, whether it's with respect to Taiwan, the South 0:25:37.000 --> 0:25:40.480 China Sea, the partnership with Russia, who have to be 0:25:40.600 --> 0:25:47.080 prosecuting a criminal war in Ukraine. So yeah, that's certainly 0:25:47.119 --> 0:25:52.879 a part of the political equation. And you know, the 0:25:53.280 --> 0:26:00.600 idea of being strategically reliant on production a whole is good. 0:26:00.640 --> 0:26:02.920 But this just gets back to my economic lesson that 0:26:03.040 --> 0:26:05.240 I tried to teach you guys. 0:26:05.480 --> 0:26:06.120 Earlier on. 0:26:06.960 --> 0:26:11.520 You know, if we want to be strategically reliance on 0:26:11.560 --> 0:26:16.000 our own production, then we have to be able to 0:26:16.040 --> 0:26:22.040 save more at home and reduce our tendency to run 0:26:22.080 --> 0:26:29.920 these trade deficits which create this linkage with overseas production. 0:26:30.520 --> 0:26:32.879 I gave you some of the numbers. I mean, you know, 0:26:32.920 --> 0:26:36.119 we've cut our trade deficit with China, so you can 0:26:36.280 --> 0:26:39.240 arguably say that, you know, we have made some progress 0:26:39.880 --> 0:26:45.679 and at least weaning ourselves from the Chinese, but you know, 0:26:45.720 --> 0:26:48.840 we've shifted our alliance to other countries. Our overall trade 0:26:48.880 --> 0:26:51.919 deficit is bigger today, a lot bigger today than it 0:26:52.040 --> 0:26:55.560 was when the Trump tariffs were imposed on China in 0:26:55.840 --> 0:27:00.960 twenty eighteen. So you know, you've got a good point, 0:27:00.960 --> 0:27:04.560 But it just the numbers just don't add up. And 0:27:04.920 --> 0:27:10.439 the point you're making on strategy and its role in 0:27:10.560 --> 0:27:15.399 shaping national defense, how do you stretch that to the 0:27:15.440 --> 0:27:19.480 outright ban of TikTok? I mean, I have a hard 0:27:19.520 --> 0:27:19.920 time with it. 0:27:21.119 --> 0:27:23.520 What happens if we go down this route, because like 0:27:23.680 --> 0:27:27.240 Tracy said, it's consensus. It's probably the case that if 0:27:27.359 --> 0:27:31.200 we get another Trump presidency, we will see policy titan 0:27:31.400 --> 0:27:36.160 or harden even further against China. What worries you about 0:27:36.320 --> 0:27:38.240 this trajectory? How does it go bad? 0:27:38.680 --> 0:27:41.439 Well, again, I'm not trying to sell my book because 0:27:41.520 --> 0:27:43.560 you know it's it's been out for a while. But 0:27:43.640 --> 0:27:47.600 I did write a book called Accidental Conflict, and. 0:27:46.840 --> 0:27:48.080 That doesn't good. 0:27:49.359 --> 0:27:52.600 Time to argue in the book, Joe is Look, both 0:27:52.840 --> 0:28:00.959 nations are prone to politically expedient false narrative. Is that 0:28:01.040 --> 0:28:05.200 they've framed about the other, and that has really poisoned 0:28:05.200 --> 0:28:08.919