A (4:25)

Right.

C (4:25)

Although actually not a lot of people. Compared to the global population. Yeah. Come back. Compared to the global population. No, economically, not a lot going on there. I mean, like, it's not even that it's that much closer geographically. I was curious about this, you know, yesterday or something, so I was pulling up in Gemini. If you take the population weighted center of the Western Hemisphere, excluding nafta, it's basically as far from the population weighted center of the continental United States as the population weighted center of Europe and of East Asia. So it's not even like, you know, it's our backyard. It's like not really like Brazil is really far. That's where most people in Latin America live, Right? So it just seems kind of strange that this is the, like, this is really just like a diminishment, you know, instead of making great. Again, it's the diminishment of the United States really radically. And if you are going back to like the 19th century, the 19th century US was not a global power. So if that's the world we're going back to, I mean the world of the Monroe Doctrine, I mean that was essentially a position of weakness. Right. That was the position of each European country by itself is so strong and so large relative to the United States that if any of them were to get a meaningful foothold in an area that was remotely close to the US Then the US Would be under threat. That was the origin of that. You know, the idea that that's relevant now is just sort of preposterous. So. I know, I think.

A (5:48)

Yeah.

C (5:49)

It's not.

A (5:51)

Like. Yeah. Continuing on like bad analogies, right. Like, like the, the fate of Venezuela and the fate of Cuba from or like whether or not like X, Y or Z, Latin American country has a left wing or right wing leader is just like deeply not meaningful to the future. Relative balance of power between the US and China or the US and Russia. And you know, the focus on it, like, I guess you can kind of say immigration. Sure. But it's also this just like esthetic thing of like now we're like in our backyard, which as you said, Matt, is just kind of defining down expectations.

C (6:28)

Another thing that's interesting in this question is if the argument is immigration, which, I mean, if you read the National Security Strategy a certain way, that is sort of part of the argument. Right. And part of the argument in Venezuela for a while is, oh, they're sending people over and if we, therefore we change the internal dynamics of Venezuela, then people will stop coming or whatever. But then what we've seen is that if that were the case, you'd want some kind of regime change to restore democracy and make it safe for people and all the Venezuelans who came would go back whatever. Right. If that were your view. But it's very clear in the past couple days that that's not actually the policy of this administration. And that in fact, to the extent that we have any news reports now, what's been happening in the time since Maduro was captured is that actually the Venezuelan government has reasserted its authority and has been repressing people pretty extremely. So even from the sort of particular perspective of what this administration says they care about, this is not really going to accomplish what they, you know, are going for. Like you're not going to have a reduction in immigration flows from Venezuela or return of people from the United States to Venezuela. If you're actually making the situation either no different or marginally worse than it was before.

A (7:41)

Other places where allies scale potentially relevant. The Middle East. Kevin, you hung out there for a little bit.

D (7:46)

I did, I did. So it's funny, we started out this conversation with the ally scale framework per Rush Doshi and I actually did a really quick chatgpt sanity check just to make sure if the Middle east is at all mentioned in Russia's framework and is actually not so so in Russia's brain, the Middle east is not part of the allied framework, even though obviously the Trump administration it very much is. So to back up the premise of my trip, this was this took place actually in the middle of December during the same week the National Security Strategy was published actually. So that was interesting was also during the week that the H200 export ban of the chips was lift. But the premise was actually a American delegation. It was basically a group of DC think tankers and me. I'm the cosplaying, my former DC self participant of the delegation. And it was also organized and funded by the UAE embassy. So I want to give that disclosure up front, right? Like there is a welcoming mat. They rolled out the red carpet. And the premise was actually specifically on AI infrastructure in particular.

A (8:59)

Let's zoom out a little bit more like does the Middle east matter for AI? You want to make both sides of that argument, Kevin?

D (9:09)

I can and I will. I think on the side of the argument where it doesn't matter. So, so, so if you're coming back to just like a pure kind of supply demand AI calculation, you know, we're all talking about the supply being just way under developed versus the demand, yada yada yada. Let's just take that for gr. Granted there's a ton of supply being built up in the UAE in these three countries alone, gigawatt worth of data centers. And they will actually pull it off because one, the energy is already there. Two, these countries are very aggressive about importing foreign construction workers at whatever condition they can get away with to build this stuff, Right? The one thing I didn't appreciate being a geopolitical novice, the region is how close physically South Asia is to the uae. For example, the flight between Mumbai and Dubai is two hours. The way that locals told me is that this is basically a Hong Kong PRC relationship. People go back and forth on a weekend right between India or parts of Pakistan and Sri Lanka and the uae, where all the work, quote unquote, is happening on the very low end of the labor stuff, right? And you look at the U.S. for example, one of the biggest bottleneck now is actually not just energy production for AI, but actually the capacity to construct these AI data centers fast enough to just hook everything up so the chips can be actually installed. So the bear case for UAE or the Middle east in general in AI is just that one, there's actually going to be some excess capacity potentially built in there. And two, from a data residency perspective, Matt, you mentioned even AWS being installed in a European country can be seen as a case of digital colonialism, for example. I find it very hard to believe then that some excess capacity or excess demand that coming from Europe will be routed to a data center, the uae where the European countries or companies are feeling very okay with data residing in the Middle east if they don't even feel like American company physically building in their country is good enough to satisfy some of those checklists. Right. Which makes the capacity probably just a little bit too much and going to be underutilized. So that's the bear case. And the bull case is that because the U.S. and this is sort of another tangent we can talk to later on, which is that I think there's going to be a lot of resistance this year to having all these data centers come online quickly enough. I think it's becoming a very potent domestic political issue. I think it could become a very much a bipartisan issue heading into the midterm. And if you have all these supply chain ramped up Blackwells and Vera Rubin products from Manevia coming off the chain, they have to go somewhere and they could actually all have to go to facilities in the Middle east just because they're much more ready to absorb them and hook them online. And they're going to serve that traffic because the Abilene data center or the one that we're planning in Michigan is going to get grounded to a halt because of either domestic political pressure or the fact that we don't have enough actual energy to be served up in the grid and the front of the meter gas turbine stuff is going to take a little bit longer. So that is the bulkheads for the Middle east actually building enough capacity and can be absorbed because we actually can't here in the United States domestically.

C (12:36)

Yeah, yeah. I guess I would just say I understand why Rustoshi would not have included the.

D (12:43)

Sure. It wasn't a criticism. I was like, just curious even.

C (12:46)

No, I mean, yeah, I mean, I guess like looking at from sort of the. It is among people looking at like you mentioned about Europe, for example, they trusted one of the things people have been observing in the past few years involving Russia is the way that UAE has been very friendly with Russia over the past few years and has been widely viewed as one of the conduits by which the Russians have been importing goods that the democracies have been trying to prevent them from getting since they invaded Ukraine. And so from that perspective, I could understand why someone concerned with US great power competition would not view the UAE as necessarily a reliable partner. Not uniquely the uae, right. But on the list of countries you'd want being sort of neutral rather than, or playing all sides or whatever you want to look at. And I would imagine that's probably true vis a vis their relations with China, irrespective of how they are with Huawei specifically.

A (13:46)

There's two questions, right? There's the ally question which TBD on the region. Then we have the scale question, like yes, there's capital, I guess there's oil, which is less and less of a thing, like well Venezuela is going to solve that one. Right Matt, but and then like if our best argument past just like money, which is going to have to go somewhere anyways and they're probably going to want to have a diversified pool of that which is not going to be like entirely Chinese is a market, like a consumption market is like okay, sure, it's a thing, but not like a world shaping one. And then maybe this like unique edge case of they're better able to like build data centers over, you know, the next 18 months. But all of those, I think over like a 10 year horizon, I don't know. I mean, yeah, we've like come back to the sort of other, other like inputs and determinants of national power stuff like manufacturing or you know, there's, there's, there's, there are, there are plenty of reasons, I think, to be skeptical if the main thing you have is like money, oil and like space. And every time that you've tried to like take a swing into like building another industry, you've still kind of failed.

D (15:11)

Yeah, I mean my quick over generalized analogy that I was in my head while I was in the middle in the UAE that week, which is that this feels like Singapore 10 years ago. And I think geopolitically speaking it probably will become that with its own characteristics and whatnot. Right. I mean it's ultimately ruled by a royal family. So regardless of what you care whether you think Singapore is like a pure democracy or not, it's not a monarchy. But it is over there, right? Like the emiratis, which is one out of the 10 million people rule the place and everybody else is a visitor. You know, they let you do whatever you want, but ultimately you're not part of this decision making process whatsoever.

A (15:55)

Well, the thing about Singapore, right, is like it had a Malaysia next to it. It had a Indonesia next to it. It had Vietnam next to it. It could like, you know, there was a lot of like trade and commerce and building things and selling things around the world that was happening like in the environs, right. And that was like a kind of key part. And also like part of the Singapore story is actually a manufacturing story, right? Where the first 20 years of it, like they had all these factories that were making all these things still is sold around there still is, sure. And like that's not what is happening in any of these little island nations that are incredible that, you know, have great resource endowments. They've like kept trying over and over again. And I mean the best industries are just the ones that you can get migrant labor to build, apparently. That and oil so far. So I don't know TBD on that. Peter, take us somewhere else.

B (16:51)

Well, I was going to say, I think on this allied scale question, are we cooked? I do think we should unpack what's going on with Europe in some more detail. And it seems to me that like, the European dynamic over the next couple of years is going to be one of the most interesting and challenging to watch because on the one hand, you see Europe has a vibrant manufacturing base. On the other hand, it is very much facing an incoming deluge of product from China. And there's going to be kind of a question I think the Europeans are going to face about, you know, do they accept that? You know, a few years ago I think they would have said, well, let's partner with the US to try to deal with this. But to the point Matt was making, I think they're much more nervous about the, the U.S. i think there's kind of a question of like with the European dynamic. And obviously Europe is also after the US sort of the largest consumer market. So it has the, the market for manufactured goods if we want to try and find an allied scale market. So I think there's sort of a question of like, can the US and Europe get a manufacturing industrial base, sort of joint manufacturing industrial base, you know, going in an effective way. And then I think the AI and data center question is very much a real one. And I mean, I very much agree with Matt and Kevin. I mean, you talk to Europeans, they are deeply skeptical about having to rely on U.S. cloud data providers and U.S. i mean, to the point that, you know, Microsoft earlier this year had to say publicly will sue the American government if the American government tries to use sanctions to force Microsoft to stop providing cloud services to European customers. So, you know, Europe clearly would like to have some alternative here. On the other hand, I don't think they trust the Chinese either. And they don't seem, despite, you know, know, much as much as the Middle east can't seem to actually get manufacturing going, Europe can't seem to get a domestic tech sector going. So, you know, I think there's a big question of like, can they overcome that hurdle and get a domestic tech sector going? Are they going to be kind of, you know, stuck, reliant on, you know, from their perspective, distrusted either US or Chinese kit?

D (19:00)

Yeah, I think that's right. And you know, like, you know, the narrative is always a Europe, Europe has the talent, it still has the great universities and they're still pumping out good engineers and whatnot. But they inevit move to Silicon Valley right when they have any sort of ambition that's beyond a series B, you know, level company. And it's one of those things where I don't think there's a whole lot of action. I mean, Europe has been complaining about the American clouds being in their backyard forever, right? And they have all the telecommunication infrastructure and they've never really incubated their own cloud. You know, this whole sovereign AI thing that I've been writing a little bit about recently, the term actually came from Europe as a defensive of way to describe sovereignty in the context of technology back in like 2019, I think. And then Jensen Huang basically took the term and turned it into the best sales picture there is for Nvidia, right? And Europe is sort of like sitting on their own idea kind of half baked all the time. And that's kind of the contrast with the uae. Like after I started going to, you know, I wrote a post about my trip to the uae. All these weird like X account that is all very UAE centric started popping up on my feed for some reason. And there's so much aggressive trolling from the, the, the, the media influencer personalities of that region of anything that has to do with Europe. The one thing that was all over my feed was this like Emirati, the Emirates plane dragging a Santa Claus into the sky that may or may not be real, probably AI generated, but trolling France or Air France for having this muted Christmas celebration because I guess of all the potential violence, right. I think A lot of the celebrations in Europe were curtailed, whether it's New Year or Christmas or whatever. So you're like, you know, the Arab countries are doing Christmas better than the Europeans. Hahaha. So that is like super aggressive, right from that particular direction of relationship. And I don't know what to make of it, but it's certainly fascinating.

B (21:03)

The Trump administration's perspective here, as best I can tell looking at from the outside is kind of well, you know, Europe fundamentally doesn't have a. Because they're not going to be able to get their own house in order, they fundamentally don't have a choice other than to engage with the United States on AI and you know, manufacturing on terms that the US sets. So you know, the bet the Trump administration is taking is that well, we'll get this kind of whingeing and there might be some sort of emotional alienation, you know, from European elites and European companies. At the end of the day, real politic is such that we can kind of force them to eat the relationship on our terms. And the data point that I think Trump looks at is the trade deal that he, you know, extracted from Europe in late summer where you know, after several months of the European Union saying look, we may retaliate, we may do, you know, X, Y and Z things to screw American companies here. At the end of the day they basically took a very lopsided in the US favor kind of trade deal with you know, non reciprocal tariffs and various commitments of, you know, US market access. And I, I think that we're now seeing like some second thinking on that in Europe. And I think that this from a US perspective probably isn't going to land well long term. I'm very skeptical of this approach, but I think the bet the Trump administration is taking is that they can kind of, you know, cram this down the Europeans throats.

C (22:32)

I would disagree with the interpretation of the so called deal that was struck over the summer. I know that that is a very popular interpretation both in the US and in Europe of what happened. But I mean the actual, I mean an alternative way of looking at it, which I think is more helpful is we raised taxes on Americans unilaterally and they did nothing in response. And from that perspective it's really also I think revealing of how this might work, which is that the Trump administration will do a lot of bluster and ultimately reduce America's overall economic capacity and leverage by varying amounts, whether little or a lot, and without actually improving the situation for the U.S. certainly not by increasing U.S. power, and certainly not by leveraging the gains that you had by combining US And European economic power. I mean, what happened with that deal was we said, okay, we will raise the prices of imports from Europe by 15%, with various exceptions that are a little higher or lower, depending on what they are. And then they said they would vaguely commit to putting money in the US in various ways and buying lng, which they can't actually commit to doing either of those things, nor is anyone going to enforce that. And then that's what happened. So it looked bad from the European perspective, and a lot of Europeans are mad about it because it looked like they were capitulating. But in practice, I mean, are Americans actually buying fewer things? Not obviously, no. Is it wounding European companies at the expense of American companies? No, it doesn't seem like it. Right. It's just. I mean, it looks kind of embarrassing, but, I mean, from the general perspective, placate the, you know, angry old man until he kind of leaves you, moves on to something else. I mean, it seemed like that's my interpretation of what happened there. And I don't see. I mean, the thing that a different point of context here is, and I don't know what this reveals really, but I've noticed over the years, Europeans can get very excised about what Americans are doing, regardless of what it is. So, I mean, a few years before that, right, when the US Was pushing the Inflation Reduction act, which was confusingly named industrial subsidy program for encouraging grain transition and so forth, something that was actually very good for European companies that were able to sell a lot of electric vehicles to Americans because they were heavily subsidized. And this was done by an administration that was led by, self consciously, the most transatlanticist president we had in, you know, a generation. It may have. Again, for a long time, they were also mad about this and saying that this is like, you know, profound threat to the European economic order. So, you know, I think now the mood is like, oh, you know, we should have, you know, appreciated it more. You know, now we had, you know, then, but, you know, hierarchy of complaints. Right. But I just, yeah, the idea that we can just sort of bully a large economy, I mean, they might go along with certain things. But again, if the question is scale, I don't see how you gain scale from. I mean, because there's the alternative of they're not going to actively send advanced military technology to China during a Taiwan event or whatever. But you could also just have people deciding not to do anything to help you or just do what's done now, which is you just have these unintegrated or less integrated than could be economic structures that are not optimized for maximizing kind of the material power of the democratic world. And that doesn't seem like the sort of optimal outcome from people who are concerned about how you can have the free world stick together. So I think that to me still seems like the big takeaway of what we've been seeing rather than there's some alternative grand design here to get the European manufacturing and the US Manufacturing aligned.

B (26:32)

One thing it has been interesting to see over the last couple of months with Trump's trade policy is that, well, you have these very high headline rates. The story of the last couple of months has very much been coming up with exceptions to, you know, deal with tariffs that are counterproductive to U.S. manufacturing, that counterproductive to U.S. consumer prices. And I think we are seeing, you know, something of a reconsideration by the Trump administration, though they'd never want to talk about it that way. And you know, Trump, if asked, would of course deny it. And then the other, I mean, you know, data point to your, your, your take on Europe actually may, maybe playing its cards well is of course that, you know. Well, Trump likes to talk up the fact we had what, a 15 or 16% increase in the S and P last year. German index I think was up 33% last year. So, you know, from that perspective, you can't actually argue that Europe seemed to come out particularly badly.

D (27:28)

That's right. Mr. Market knows best. Yeah. I mean the German defense sector was the hottest trade last year. Right. Like increase national budget to, you know, be more self sufficient when it comes to defense. And then all the, anything that makes, anything that has to do with weapon or machinery just go straight up and Italian banks and.

C (27:48)

Yeah, a lot of, lot of things.

D (27:49)

Yeah, there are a lot of good, good trades in Europe right now.

A (27:54)

Should we come to AI co opetition? We just had a fun feature with Kevin in the Wall Street Journal doing a tale of the tape of the US AI race, which I think we've, you know, kind of covered ad nauseam on this podcast. But the, the dynamic that Kevin has highlighted in a few articles recently about like just how integrated these two ecosystems are kind of still going to end up up being likely over the next few years was the angle which, which stretched my brain in a cool way. Why don't you, why don't you give the pitch, Kevin?

D (28:32)

Sure, yeah. I mean, first of all, I wrote this maybe a month or so ago and it's more of a self reflection like myself and others this podcast and a bunch of newsletters now have been talking about this US China competition or race or death match or arms race for forever and I've been pretty lazy in just using these terms and the more I think about it the more I realize one Anything that is is categorized as a race needs to have an endpoint or a finish line and AI does not have a finish line. I don't care if you're the most AGI pilled person in the world. AGI is not really a static finish line even if it's a real thing, nor is ASI or whatever acronym we're going to come up with to talk about or describe the machine. God. Right? So there's no endpoint. And then two I think the inherent zero sumness of this characterization, even though it makes people click on your post, is actually just completely inaccurate to the actual ground truth of what is happening and probably will continue to be that way for years to come. So coopetition, which I thought was a fake term, but it's actually a real ish business term. There are real business books written about it in business school using the term coopetition was the best way.

A (29:50)

That's how real business school is.

D (29:51)

Kevin, this is, yeah, I mean like what? I didn't go to business school and I was like I probably never will. But it is a real ish term. But it really talks about kind of the interconnectedness of these two countries, not just in terms of economics, which, you know, Peter and Matt, you guys have covered from like econ and a finance angle and trade. But even on AI, which is the most controversial and perhaps something that you expect as the least cooperative realm, there's still a lot of intermingling going on, right? So the competition part of coopetition is obvious. I think the cooperation part of coopetition is less obvious. But we've seen still quite a bit of academic exchange papers, maybe not joint published as much as before anymore, but certainly every single institute in China that does anything that related to AI, whether it's a lab or academic institute, reads all the papers that come out of the us And I'm pretty sure every single lab in the US does the exact same thing of every single deep Seq paper or Kimi paper or Qin paper paper as well. It's just not advertised as fully because of geopolitical toxicity. Right? So all kinds of cooperation going on kind of on the DL. And the third element that I wanted to show with this new framing is co opting each other, right? If you just think about 2ish years ago in the beginning of the ChatGPT moment when llama from Facebook or Meta was the best open model of the land at the moment, every single Chinese hyperscaler literally overnight supports Llama as their first tier cloud service to just stay relevant in the conversation. Right? Every model company at the time in China co opted whatever architecture Llama was willing to open source at the time to just get a jumpstart because they were behind. Now fast forward to basically last year, one of the biggest stories was this flooding the zone proliferation of open weight models coming from China. Right. Deep Sea started it. Quinn, Kimi, whatever. And now we have both companies like Airbnb, UiPath and a few others publicly admitting that they are building their product on top of really good, not best, but really good open weight models from China because it really helps with their cost structure. Let's be honest, they need to make a profit at the end of the day and paying an arm and leg foranthropic or OpenAI API service is only going to get you so far. But underneath the hood, a lot of startups in the Valley, Cursor and others, you have all these interesting research or forensic exercises where coders use a new cursor product to build their code and then you look at their chain of thought and then half of them were in Chinese. It's like, oh, and you can just find this stuff if you use them often enough. Especially with the reasoning model. Especially reasoning model. That opens up their chain of thought. Right? Their so called reasoning process or whatever. You're going to see like random Chinese characters pop up. So it's obvious that they're building it on top of Quinn or Deep Seq or what have you. So we're co opting each other again in this very subtle way because we don't want to talk about it because of geopolitics. But I think coopetition, competition, cooperation and co opting each other is really what's happening right now. And I think it's probably the healthier way to think about this going forward. I don't think the competition is going away, but I think a certain amount of like leveraging each other to keep going is probably not the worst idea as opposed to blowing each other up in a hypothetical race.

A (33:27)

Yeah, so you talked models, you talked talent compute the other piece of this, you know, bytedance buying hundreds of thousands of H200s, to say nothing of all of the compute that is, you know, all of the Western compute that these Chinese firms are accessing in Malaysia through random neoclouds, smuggling in the country or just like buying from aws, Google and Oracle. I mean, this is like, it is not illegal for Western hyperscalers to give the shiniest new Nvidia chips to Chinese clients. And that's just like something that's happening at a very large scale and is a weird intersection point between the two societies. And also like on the, even on the manufacturing side, like the amount of Western tooling that is still inside of Chinese fabs continuing to be sold into China. Remember we had that whole rare earths kerfuffle which happened because there was going to be a tightening of some of these loopholes that allowed more manufactured equipment to be sent to China, which is now like, I guess on pause through April tbd. But anyways, let's, let's actually come back to rare Earths because I think that was the biggest, like this sort of like economic war hot minute that the US and China had. You're thinking back. Maybe we'll start with Peter on that saga. Yeah.

B (34:55)

So I, I think that the US Government was surprised, A, at the extent that China had leverage via the rare earths vector and B, that China would in fact deploy it. Now. I think they shouldn't have been surprised. Like, this is something kind of, lots of people out there in the world knew for a very long time. And it, you know, you know, in sort of ad hoc ways, several administrations had been trying to begin to deal with the issue, but just as an observed matter, it seemed like the US Government was pretty surprised. And I do think that the, you know, the fact the Chinese were prepared to pull that lever is part of why. It's not the only reason. I think there are several reasons, but I do think it is part of why we see the Trump administration pivoting towards this, you know, detente that they seem to be pivoting towards with China. And where we see, you know, whether it's US Trade represent Jameson Greer or the National Security Strategy, sort of talking about a, you know, stable relationship with, with China.

A (35:58)

Right.

B (35:58)

I think that that realizing mutual leverage has in the short term contributed to a bit of a sense on the US side that we should seek some strategic stability. Now, I think the interesting question is, you know, and in a way the, the good news coming out of that jolt last year is that, that, you know, the US does finally seem to be getting a bit serious about trying to end our dependency on Chinese rare earths I mean, you know, we're throwing money at the problem via various, you know, Pentagon equity and Department of Energy equity stakes and mining companies. They're, you know, throwing money on neodymium magnets and probably for others, you know, forthcoming on price supports to sort of provide a demand signal for U.S. or allied produce rare earth. Certainly, you know, diplomatically, it looks like various US Government officials are going around to try to, you know, lock up access to mines. It's an issue in some of the trade deals that the Trump administration has, has struck. And I, I guess I am actually reasonably bullish that if you can maintain this level of focus and maintain the kind of open checkbook over a couple of years, you probably can substantially reduce China's leverage over the U. S via this ra Earth's vector. It's not going to be a sort of, you know, six or 12 month timeline, but over a couple of years I think you could do it. The question is going to be can we actually maintain the focus and the open checkbook for the couple of years that it will take to get there, or now that we're in this period of detente, will we sort of lose focus on the actual implementation of the kinds of steps that we need to end this in this dependence? And you know, historically we've not been great at maintaining focus for more than a year or two unless there is an ongoing crisis. So we'll have to sort of see if we are able to, to, you know, beat history over the next couple of years.

A (37:57)

Okay, say you do rare earths. It's not like we're getting a, you know, all out push across the entire list of like the 10 total tendencies. And so insofar as you solve that one, it's not like the leverage is going to go anywhere. I mean the open question for me is like even an achievable aim. I mean it is like, like it is conceptually achievable, to be sure. But like, are you going to have a hundred, I don't know, a hundred million dollars, $75 million billion dollars to like actually go down the list of like the pharmaceuticals and the, you know, parts, the electronic parts or whatever it is to get yourself the 80, 20 version of this? I mean, not sure. Kevin?

D (38:44)

Well, that was going to be my question too, right? Which is that Peter, you mentioned a couple of years and maybe that's more offhanded or it's more analytical, I don't know, but I feel like that's a big difference. Is it a couple of years Kind of exercise, right? From like equity injection stock pumping up to like actual domestic supply chain coming together where rare earth is actually refined and ready to be be installed into a GM SUV, right. Or we're really looking at 5 or even 10. And I think obviously if it's the 5 to 10 range, then I don't know, I don't feel so good about that timeline, right. But I don't know anything about real earth refinery or digging them out of the ground.

C (39:31)

The other question about leverage is like rare earths are a sexy topic because first of all, rare earths, I mean you could call it common, common dirt, right? But it's rare earth. And because it does have this sort of dual use applications and electronics and military stuff. But there are lots of other things that are a lot less catchy that are just as a situation like the US is extremely dependent on Chinese imports. Children's board books, strollers. These are also things where again, car seats, right. And if you wanted, if you were in, in Beijing and you wanted to exert pressure on Americans, you could do that. You could constrain those supplies and people would notice it very quickly and become very unpopular very quickly. I'm not saying they would necessarily choose to do that, but again, if you think about, okay, well what does it take to ramp up the supply chain or recreate, I mean, that would be actually probably at least as complicated as rare earths. I mean, there is a history of making rare earths and digging them up and refining them in this country within the 21st century. That's much less true in size, that's less true for a lot of these other things. And so that would be the idea that you can insulate yourself from all leverage is I think, unfortunately quite challenging.

B (40:46)

Yeah, I think one of the challenges we have as a country on this is we do not have a framework for understanding what we think the, you know, sort of critical products where we shouldn't be dependent on China are. We sort of chase whatever is in the news and whatever has maybe a political constituency around it. But there's really been no rigorous effort to analyze what are the things. There's a, you know, kind of real national security, real economic security. And let's identify, you know, maybe it's 20 over four years to see if we can make headway on. And I thought, you know, it's a very fair point that Chris Miller made, Jordan, in a newsletter for you, sort of special episode for you about why does manufacturing matter? And it's like, you know, not every type of Manufacturing matters, right? And it doing manufacturing in the US over China almost certainly is going to be more expensive and we should be clear eyed about those costs. And I think that reality is why, you know, if we are going to succeed in actually and finding a world where the Chinese have actual less leverage over us, we're going to need to be a lot more sort of proactively strategic about here are the things we want to, are prepared to invest in to reduce a dependency rather than just chasing the news.

A (42:10)

Well, but then that's, that's where it comes back to Matt's point about the sort of like children's goods. Right? Because like if we're going to make our 20 thing list, right Peter, it is not going to have car seats on it. But like, and that is the sort of things where you see politicians say oh we don't like whatever. I don't care if like socks are made in the. But if what you are worried about is like Chinese policymakers in Beijing being able to have like leverage over segments of the American society to like call up their senators and be like what the fuck, you guys got to figure this out like those sorts of long tail, like, I mean setting it setting aside the like the big political risk of like stopping you know, Tylenol exports and then like people are dying and then maybe it flips the wrong way and folks are so mad that it backfires. Right. But I do think that there are many other, other just like, like goods that you really, really, really have no excitement to manufacturing. They don't have like nice spillover effects to like innovation or productivity growth potentially. But you would kind of need to almost like have stockpiles or like alternative sources in order to be comfortable that it wouldn't have this impact. I mean we're talking, we haven't even talked, we haven't talked about Japan the whole episode. Right. It's like, like like scallops in Hokkaido are not like that's a localized piece of pain but the you know, banning exports or raising, raising like global prices on something that like I don't know, like a broad subsection of Americans like actually need in order to live modern lives. There are just I think far more dials that people that are potentially out there than maybe this logic train is priced in.

D (44:01)

Yeah, I mean, I don't know Peter. If you have a framework, I think you're totally right. Like we've never had a very rigorous process to just figure out what is strategically important that we need to have a solid amount of capacity where Isn't right. Like my own mental framework has always been, anything that goes into the delivery of national security programs could be part of it, which leaves out the car seats and everything. But, you know, maybe that's too simplistic.

B (44:28)

I think we're very, very unlikely to get to a world where the Chinese have no leverage over us. Right. That can't be our goal, because that's just not setting ourselves up for success. I think you need to have a goal that is, you know, something more of a combination of a, you know, if we got into a hot conflict with China, what are the things that, you know, on current supply chains, they could cripple our ability, you know, cripple our ability to, like, engage in the hot conflict successfully and, or really cripple our domestic economy. Right. So there's some sort of defense supply chain element there. And then probably over a longer term, there's some thinking about, you know, you know, manufacturing technologies that have a lot of spillover, beneficial economic effects. But, like, it can't be getting out from China having leverage over us because, you know, that's just not going to be an achievable goal.

C (45:25)

I mean, if that's the threshold, like, arguably, we're already in sort of a state of balance, right? Because the things that, in that kind of, you know, as you said, hot conflict scenario that the US could prevent China from accessing, that they would need, that are essential is also quite substantial. I mean, it's not. So if, if, if the goal is like just asymmetry there. I mean, we're already kind of in that spot. It's sort of the intermediate points where it's trickier. I mean, which is why the rare earth thing showing up when it did, I think was challenging because it wasn't done specifically because we're in a military conflict or anything, but just as a way of exerting leverage on some other issue.

A (46:07)

The symmetry question is an interesting one because you would argue, I think the way to look at it is that symmetry balance has shifted pretty dramatically over the past 15 years. And this has been like a core kind of, like, goal of Chinese economic policy is to, like, build those global dependencies and start to, like, manufacture, engineer them out. I mean, I remember there was this very famous, like, the 38 choke point, like, most important choke points that were, like, identified. And in 2015, there was a series of state media articles kind of like profiling each one. And, you know, so I, I think there is a world in which if, okay, if you want to say the balance is like 50, 50 or 60, 40. Today it ends up being more of a 80, 21 where like there's still.

C (46:57)

Things that a lot of food and energy over sea lanes. And as long as the Nevis Navy exists and a lot of that food energy comes from the U.S. like, I mean, it's pretty bleak, but if you're talking about the kinds of things you'd want to do in a, in a hot conflict, like, that would be pretty effective irrespective of any manufacturer. I mean, I'm not talking about ships or airplanes. I mean, you know, I said the food and energy comes from overseas.

A (47:22)

This is the tricky part of this. Like, like what do we want to prioritize conversation? Because there is like, there is like the wartime scenario or the like, we need to do stuff which is like aggressive enough to maybe deter war scenario. And then there is the like, all right, we're going to like have these like awkward word economic negotiation dances where someone's gonna like put a new card on the table, like a financial sanction or a chip control or a rare export ban. And we were gonna want to be able to like do some, you know, lighter jiu jitsu around that. And I don't, I don't. And I think if you, like, the more you are worried about actual war, like, like, if you, if you are truly worried about war and having that like, war type leverage, then the types of policy choices you make from a. So like economic security, like national industrial based development stuff, like, are different than the ones if you're just playing the. Oh, you know, let's just, you know, get some, get some better judo holds with this kind of economic dance we're playing. I don't know the answer to that. We're doing some essay contests later this month. You guys are going to get the chance to answer all these questions because I do think they're really important and not trivial by any means.

D (48:38)

The drone executive order border that came around Christmas, basically. That's an also interesting example, right, where all the new DJI drones and all the Chinese make drones are basically off limit now. But the American drones as far as I can tell, are not quite up to par in terms of performance or affordability. And you have all these random local police office police departments using DJI drones forever to do their surveillance and deliver public security on a local level. Not natural security on a, you know, a national level. But this is one of those things where I'm confused as to whether this is like serving us or not serving us. When our Own alternatives are actually not up to speed yet. But we are starting out maybe for very good trackable national security reasons that we don't want these jet drones flying around. But also are we ready there yet? And that is definitely a weapon ish type thing, right? Even more directly so than real earth, which is just an interesting input to dual use machinery, whether weapons or not.

B (49:42)

So I think this FCC action is really, really interesting and I, I think it should probably be unpacked. You know Jordan, you should do an episode, get, get Brendan Carr on her, you know and ask him to, to unpack it.

A (49:54)

I think he'd do it. All right?

B (49:56)

Oh, I think he'd do it. I, I think he'd do it. I think you should get Brandon on and ask him to unpack it. Maybe don't talk about media issues with, with Brandon, but definitely on this one just ask him.

A (50:08)

What would I, what would I have to say to get talk.

D (50:11)

Don't bring up South Park. You want to watch South Park.

B (50:17)

But I think it's like because so you know what has happened is the FCC has basically announced a ban on new model drones. So it's not just like new drones, it's next generation foreign made models. And I think the fact they are only doing this prospectively, Kevin, like to new models is to address exactly that issue you put on the table which is like the US manufacturing base, really frankly the non Chinese, it's not just a US issue. Like the non Chinese manufacturing base at all is in pathetic shape right now and it's going to take, you know, a couple of years, best case scenario for it to be developed at scale. And I think the FCC is basically saying, well by focusing on new models that's going to create some time to scale up the base. And I think their hope is that with that restriction on the books, obviously if you are a US drone maker or a venture capitalist looking to back a drone maker, you now can see this market and so they're trying to, you know, use this as part of industrial policy. I think there are going to be some questions on timelines. I also think this is one where, you know, I would hope as the administration implements it, they think about the kind of allies and partners role. It's actually a funny. Although it is sort of seen as an anti China thing, technically it is a ban on all foreign made drones, not just Chinese made drones. And I would hope they could figure out a way. And when you think about the value chain, where the value of the drones come from, a way that you Know if we are having drones that are assembled in, you know, Vietnam, you know, other low cost manufacturing centered Mexico, wherever, like there's a way to carve some of that in to give us a more plausible path to seeing a viable non Chinese industrial base come together.

D (52:03)

Right, right. And I think the Chinese is still placing a ban on like batteries, right. Like drone specific batteries that they have like literally 100 market share, you know, another form of rare earth derivative product. So there's all kinds of input problems there to domesticating or just like non China fying.

B (52:20)

Yeah, I mean I think there'll be an interesting question on that. I a like can we develop battery supply chain? But I've also like, you know, it's amazing to me because when we look at China and our export controls, you know, we assume and understand the Chinese are going to engage in a bunch of smuggling to circumvent our export export controls. Presumably there's going to be a ton of market opportunity here for a Malaysian based battery trader to, you know, go the other way.

D (52:44)

Right.

B (52:45)

Malaysian batteries, you know, to drone makers around the world.

A (52:51)

Well that's, I mean that's one of these fascinating things is this is like, like we're trying to do. We're like this FCC thing is a version of the Chinese. The model that China has perfected over the past 20 years is like slowly but steadily kind of of like pulling away your dependency and doing that industrial upgrading. And there aren't a ton of successful case studies in the west yet for having kind of like remade something that China already has a lead. And so I don't know Kevin, you want to reflect on that about the, the sort of, the mirroring that's going on a little bit here with this sort of thing.

D (53:26)

Well, I think that's such an interesting point. Like on a meta level I'm sure people are tired of people citing Dan Wang's engineering state versus Lower Lee society, but I still think it's a wonderful framework. But I think part of an engineering society, if you take that framework at its face value, is actually a willingness and humility to reverse engineer. Not just to engineer de novo things, but to be willing to take the best of whatever you can get your hands on around the world world if your goal is to make stuff and to reverse engineer the crap out of it so you can make it at least as good and hopefully better in the future. Right. And that has been more or less the, at least the entrepreneurial perspective from China for the last two decades or so. Right. BYD was famous for Wang Chuanfu, I think buying like 52 different secondhand models of like Mercedes and Toyotas and whatever and then just reverse engineered all these cars to make the first version of the BYD hybrid which look, you know, suspiciously like a Corolla. Right. And it was made fun of initially, but then over time he's making new stuff. Right. And I think if the United States or the west in general were to take this very, very seriously, there has to be a willingness, a humility and a capacity to reverse engineer whatever is the best on the market. A good chunk of it will come from China. And I don't know if we're mentally there yet or psychologically there yet, but I think that has to be kind of a big hurdle to climb before the execution really takes place at scale, not just kind of idiosyncratically like the Ford CEO, you know, importing a Xiaomi ev, driving around and being blown away by it and changing his whole design process potentially. Right. That is not, that's a point. Solution, solution, not a national strategy.

B (55:24)

On that note, I did enjoy but, but the story, I don't know if you saw Kevin or Jordan or Matt about a month, month and a half ago, it turns out there is a US military drone manufacturer, sort of guided missile loitering missile type drone, not a surveillance drone that by all accounts has literally copied Iran's Shaheed drone after one was recovered, you know, out of Ukraine. So maybe we are taking this, right? Maybe we are taking this like spy.

D (55:53)

Plane coming down, right? Like all this sort of stuff like that's been the practice at least in that world.

B (55:58)

Yeah, exactly. It's been what's happened for you know, a century at least.

D (56:02)

Right.

A (56:03)

Amazing.

B (56:05)

Any final thoughts we have?

D (56:07)

Do you have, do we have to answer the cooked or not cooked question or are we done with that?

A (56:12)

I mean this is a, this is a collective decision. I think we're all kind of in a not cooked mood.

B (56:17)

It's very interesting and you know, it's something I think is underappreciated. Both this action, like I think it's a very, very interesting action but also the kind of way the FCC historically was thought of as a national security agency.

A (56:33)

Right.

B (56:33)

I mean it was set up in part to prevent foreign ownership of a radio waves. You know, the reason you can go back and pull the New York Times stories, the reason Rupert Murdoch begot US citizenship was so that he could buy broadcast media in the United States which you then still couldn't do unless you were a U S, A U. S Citizen, like there is this sort of legacy of the fcc, a national security agency that very explicitly got shelved in the 1990s when we joined the WTO and we actually like revoked some of these restrictions, sort of foreign ownership restrictions and things that the FCC had historically administered. And I do think Brendan is trying to revive the vision of the FCC as a national security agency.

A (57:16)

Well, it makes it a more fun job to do more stuff like self spectrum. I don't know. Totally nice to make headlines. So in, in closing, you know, cooked theme, one of our big cooked themes of 2025 was tariffs and how that, you know, was gonna blow up everything and reshape the world. Like obviously we had, you know, not, we ended up not having the most extreme version that we were kind of staring down the barrel with in Liberation Day. And now we're looking at this Friday, potentially Supreme Court coming down with a ruling. Peter, what's your, what's your take on all this and where it might be going?

B (57:57)

I mean, first of all, you know, potentially coming down with a ruling. The Supreme Court has said in its sort of oracular fashion that it will release opinions maybe on Friday. So now we're all thinking, well, what's the opinion they might release on Friday? The logical one would be this tariff case. But, you know, watch this be a head fake and we'll put out some like, I don't know, you know, arcane aspect of the bankruptcy code that, you know, no one's paying any attention to. But anyway, on the, if it is the tariff case, I have had a view over the last couple of months that it's probably about a 55% odds of a complete victory for the plaintiffs. IA this 1977 emergency statute just doesn't allow tariffs at all. Maybe a 30% chance of some kind of split decision. You know, IPA doesn't allow tariffs for the trade deficit, so not the reciprocal tariffs, but maybe it does allow tariffs on Canada for, in Mexico and China for fentanyl trafficking. You know, some sort of split the baby approach. I put it at 30% percent chance and then maybe a, you know, 15% chance of a complete victory for the, for the government. But, you know, that was just listening to the oral arguments and reading the briefs and well, we'll have to see, you know, what these guys do.

A (59:09)

Jameson Greer said 2025 was the year of the tariff. Like, are we going to really going to get, are we really going to get another one of these if Trump loses?

B (59:19)

The administration has been very clear they're going to rely on other authorities to recreate the tariffs. So we will definitely see be a period of probably a couple of weeks to a month or two where they are scrambling and doing lots of announcements to try to recreate many of the tariffs under other authorities. So I think they don't, I think, you know, it's obviously not the situation they want to be in. If I look at the administration over the last month or two, they've been in the business of, you know, kind of gradually reducing some of the tariffs or talking about it less than they used to. I don't think they want to be in the political business of imposing a whole bunch of executive orders to impose tariffs and whatnot. But they're also not going to give up if they lose at the Supreme Court. So I think we will see a burst of tariff activity if they lose. The government had a filing a couple of weeks ago where they said the IIPA tariffs had collected. I think it was $139 billion. So I guess this is the $139 billion a year question. You know, I, I, I don't know. If I were them, what I would do is pull the trigger on something called section 122, which lets them impose a 15% tariff for up to five months. 15%, obviously that would like Vietnam, you know, would have to come down a couple of percentage points, but like 15 would cover a lot of what they're doing and then spend the next five months figuring out what to do after that.

D (60:47)

That.

C (60:48)

Okay, so, well, if you were in that like, job, like, I mean, because my, you know, layman's understanding is you have, you have to have some like national security thing for specific kind of good or industry sector or you have to basically say a specific country is doing something unfair. But if you want to do something for everybody, it's like, okay, so if.

B (61:05)

You want to unpack this in more detail and Jordan, you should cut, you know, use whatever, right. So 122 would let them declare on a get 15% tariffs for 150 days. 122, the threshold is, is there is a balance of payments crisis. Now, I think objectively there's probably not a balance of payments crisis. On the other hand, the question of whether there is a balance of payments crisis is probably not judicially reviewable. So practically speaking, they could get away with this for five, for five months. Odds are then their question is what do they do after that? And they have a couple of choices. They can either do 301.

A (61:47)

Right.

B (61:47)

Which is country by country, country X. You know, Japan is engaging in some unfair trade practice and the tariffs are in response to the unfair trade practice. And traditionally, these 301 investigations have been very long and detailed. Although, you know, the administration could also try to do shorter versions of these 301 reports to, you know, get through several dozen of them within a couple of months. So that's one thing.

D (62:15)

They could.

B (62:17)

They could also try to dust off this provision of the Smoot Hawley Tariff act, which is probably still on the books. Like, may not be still on the books, but it's probably still on the books that would let them impose tariffs based on a determination that a foreign country was discriminating against the US Vis a vis a third country like France giving the US Worse terms than France gives Germany. But that one, because it hasn't been used since probably the late 1930s or early 1940s and may no longer still be on the books. That's another sort of high risk legal option for them. And then finally they could go to Congress. I think it's hard to see Congress passing legislation here, but I also don't rule out that they at least send a bill over to Congress asking for, you know, for Congress to bail them out here.

A (63:08)

This feels like a high water mark, though, or it feels like we're already way past the high water mark of, I don't know, America's like, average global tariff rate. Is there a world where even regardless of how Friday the Supreme Court ruling comes out, like we come back to 20, 30% on anything besides a sort of weird China escalation?

B (63:32)

I think it's very, I do think we are probably past the overall average high water mark. I mean, we may not be past the high water mark on China. If things go pear shape there, I'll. Although, I think, you know, the administration clearly wants a detente. We also may not be past the high water mark on, you know, individual products. Right. I mean, he may, you know, he says a couple of weeks ago, right before New Year's, I guess a week ago, a couple of days ago, right before New Year's, he delayed an increase, a further increase in tariffs on van and bathroom vanities and kitchen cabinets. Like, you know, maybe he will decide at some point down the line on a, you know, trip to North Carolina that he will, you know, in fact, hike the tariffs on import of kitchen cabinets. You know, so we may not be past it on individual products, but I do think at an aggregate level, we're past the high water mark.

A (64:25)

All right. And with That I think we'll call it. Thanks again, everyone.

B (64:35)

All right, this has been great.

D (64:37)

Not cooked. I think we're overheating a little bit. I don't know if that's like changing the question a little bit, but we're super sous videing. Yeah, you were souv eating.

A (64:49)

All right, I'll call it. I'm glad we got the game back together. It's been too long. This has been great.

D (64:55)

This has been yes.

E (65:08)

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