Ed Elson (3:06)

Okay, what else is happening? China just hit a major milestone, racking up a record $1 trillion trade surplus for the first time ever. Exports jumped 6% in November, driving a $112 billion surplus. That is the third largest monthly surplus that China has ever. Meanwhile, Chinese shipments to the US plummeted 29% in November. This marks the eighth straight month of double digit declines as US companies shift supply chains away from China. Okay, for more on what this surplus actually means for China and for the world, we are speaking with James King, senior Research Fellow at Chatham House and also co host of China Decode. James, great to see you. Thank you for joining us.

James King (3:52)

Great to see you, Ed.

Ed Elson (3:54)

So we want to just jump right into it here. China's annual trade surplus has surpassed a trillion dollars for the first time ever.

Ed Elson (4:03)

Just before we dive in here, what does this actually mean? What does it mean to have a trade surplus? And why is $1 trillion here an important number, if at all?

James King (4:15)

Well, a trade surplus is when your exports exceed your imports. And in the case of China this year, it's done so by a simply enormous margin and a 1 trillion vast trade surplus, such as you've mentioned. I've been looking back into economic history and talking to experts that are helping me to do that. They reckon that this is the biggest ever peacetime trade surplus since the Second World War. It does seem to be the case that during the Second World War, the US Enjoyed some extraordinarily large surpluses, but the figures are not that clear. But I think we can safely say that since the Second World War, this is number one.

Ed Elson (4:56)

The biggest that we've seen is the strategy to this. I mean, what does this mean for China? Why is it good or bad for China to be running up such a giant surplus? And what does it mean for the rest of us?

James King (5:09)

Well, I guess it's good for China in the sense that it allows Chinese companies to earn more revenue. It's good for the economy in that it contributes to China's GDP growth. And it also helps to build up the enormous Chinese foreign exchange reserves, which is a sort of a warchief chest of more than US$3 trillion that China holds and can use for various things like investing around the world or buying U.S. treasury bonds or bailing out countries. So it basically adds considerably to the general heft of China's economic and political.

Ed Elson (5:49)

Power and bad for the rest of us. I mean, I just see this quote from Emmanuel Macron, President of France. He called the trade imbalance, quote, unbearable. What makes this unbearable for, say, Europe?

James King (6:05)

Well, I suppose every surplus has its deficit and in the case of the European Union and France is of course part of that. There's a massive trade deficit to China, more than US$300 billion.

James King (6:20)

In recent years. And this year it looks like it's going to be another record. That basically means that your companies are selling less to China and than China is selling to them. And so all of the positive things that I mentioned go into reverse. You're bleeding money, you've got money going out, your companies are earning less, your GDP is being run down by your trade deficit. So I think that's what Macron is talking about. And what we're hearing a lot in Europe now is countries and leaders talking about tariffs and non tariff barriers to Chinese imports. But, you know, we haven't seen a lot of action, but, but we're seeing a definite increase in the amount of talk on that topic.

Ed Elson (7:05)

Yeah, it seems as though Europe is now kind of following in the footsteps of the U.S. i mean, it's kind of seemingly becoming the next battleground for a trade war. And they're talking about tariffs. What do you make of the fact that Trump's been talking about tariffs, he's been talking about the trade imbalance, and I guess now it appears Europe agrees.

James King (7:29)

Well, yeah, I mean, there's a bit of a difference. I mean, I would say that Trump has been talking the talk on the tariffs and he's raised tariffs very, very strongly in about April to, I think about a peak level of 145% on Chinese imports. But those have now come sharply down. And I understand that the current average for US tariffs on Chinese imports is only around 45.

James King (7:59)

In Europe, it's a different situation. Europe has got a few tariffs on Chinese imports in areas such as cars and a few others, but really it hasn't joined the US Zeitgeist. And I think that Europe will be constrained even despite the huge pressures that we've just been talking about. And this is because a lot of Europe's biggest companies are in China, making a lot of money in China. And the Chinese government is pressuring them to lobby their home governments back in Europe not to put tariffs on. And so far that's winning the day. Now, it is possible that at some point that breaks and Europe just goes, enough is enough. We're slapping on massive tariffs. We're joining the US Tariff war on China. But, you know, I don't want to call that. I'm not sure that will happen. Some people are saying it will, but personally I think it might not.

Ed Elson (8:58)

What are your views on Trump's handling of China so far? Just at a general level, the tariffs that we've seen, I mean, if you had to give him a grade on his China policy thus far, given what we're seeing here with this news, what would you give it?

James King (9:14)

Well, Ed, I mean, I suppose if I was a teacher, I think I'd be a pretty hard taskmaster. I would have to give him a D minus. I think he lost the tariff war with China. He came in swinging in April Liberation Day. 145% tariffs on China, and now he's had to bring it right back down. The Chinese have muscled the US with these rare earth export controls and the US has really had to cave somewhat. I mean, not completely, of course. The US remains a very powerful country, but it's had to cave somewhat. I'd give him a D minus, I'm afraid.

Ed Elson (9:54)

The shipments from China to the US are down. Shipments to the Europe, obviously we've just discussed, are up. And also shipments up to Africa are up 28%. What does this mean for just the global trade economy? I mean, it looks as though we're beginning to cut ties, US versus China, but then China's just going off to everyone else. Perhaps these trade partnerships are forming with everyone except for us.

James King (10:24)

That's such a great observation, Ed. I really think that what we're seeing now, aside from the US China trade war, is a reorientation in the global world of trade. And what's happening is the non west is rising sharply and China is really a catalyst for this rise. We're seeing big exports from China to the global south, including Africa, Southeast Asia, other countries, and we're also seeing quite a bit of exports from those places to China. So really what's happening is that the world is being created sort of almost without the west or increasingly without the West. It's the non west that's growing quicker than the west and it's the west that's got these huge trade deficits to China, whereas in some cases, countries of the global south have got more balanced trade with China. So it's a fascinating big picture story as well as a sort of short term acrimonious battle between the US and China.

Ed Elson (11:33)

All right, James King, senior research fellow at Chatham House and co host of China Decode, which I am loving Keep up the great work there James, and really appreciate your time. Thank you.

James King (11:44)

Thanks so much Ed. Great to be on.

Ed Elson (11:47)

After the break, a look at Paramount's hostile bid for Warner Brothers Discovery. If you're enjoying the show, give Profgy Markets a follow.

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Jonathan Kanter (14:10)

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Ed Elson (14:12)

It's impossible to do anything in 15 minutes. Oh, it's possible, Harvey. I mean, you can switch to T mobile in just 15 minutes. So you think you can find your auntie a sweater?

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Come on, you spent an hour buying jelly beans.

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No, no. Maybe I should switch to T Mobile right now.

James King (14:31)

This holiday.

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Switch to T mobile in just 15 minutes from your phone. Check out in 15 minutes or less per line. T Mobile is the best mobile network in the US based on analysis by Ooklo speed test intelligence data. 1H 2025.

Ed Elson (14:44)

We're back with Profg Markets. Paramount has gone hostile, throwing an all cash $108 billion offer into the ring for Warner Brothers Discovery. David Ellison argues that it is a better deal for shareholders and easier to clear with regulators than Netflix's $72 billion deal. Netflix fell 3% on the news. Meanwhile, Warner Brothers Discovery rose 4% and Paramount popped 9%. At the center of this saga is, of course, one issue, and that is antitrust. The Netflix deal has already raised a lot of eyebrows, but could Paramount really stand a better chance of getting cleared? Here to discuss all of this, we are speaking with our favorite antitrust expert, Jonathan Kanter, former Assistant Attorney General for the Antitrust division of the U.S. department of Justice. Jonathan, good to see you again. Seeing you sooner than I thought I would.

Jonathan Kanter (15:40)

Sorry about that. And.

Ed Elson (15:43)

So we want to get your breakdown on what's happening here. We had the Netflix deal, which was announced on Friday, and then Netflix basically confirmed it. I got an email from Netflix. I am a subscriber saying they had acquired Warner Brothers. And then on Monday, we get this other bid from Paramount. They're offering more than $100 billion, all cash. We'll get to the antitrust implications, but first, just your reactions to what we're seeing this week.

Jonathan Kanter (16:09)

Listen, as someone who used to be in the middle of it, I'm enjoying this as a spectator. It's actually a lot of fun. It's quite entertaining, but it's also very serious at the same time.

Jonathan Kanter (16:21)

It's kind of like UFC for M and A and antitrust. But you have a situation here where Netflix, which is largely considered the 800 pound gorilla in video streaming, the number one player, is proposing to buy what is probably the number three player in the market.

Jonathan Kanter (16:40)

On the streaming side, in addition to a library. And so the antitrust issues there are obvious. At the same time, you have Paramount coming in as the interloper with the now rumors of a hostile bid or reports of a hostile bid, or I guess, the confirmation of a hostile bid, I should say. And while they have their own set of antitrust issues, they're not quite as substantial. What makes this all. What's really interesting is the President of the United States has inserted himself in the process, insisted that he's going to be involved in the decision, which is highly unusual, but sets up a situation where both companies now will be trying to curry the favor of the president. And he's clearly positioning himself to extract concessions from both parties and create a different auction.

Jonathan Kanter (17:29)

To be in his good graces. And that could be things that relate to competition, but could also be things that are far afield from competition, like rejecting DEI or emphasizing conservative views and censoring non conservative views. And all the things that I think cause at least me and others like me to worry.

Ed Elson (17:48)

Yeah, he said that the deal, quote, could be a problem. He was asked about it. This is Donald Trump over the weekend said it could be a problem. He also said kind of nice things about Ted Sarandos, who's the CEO of Netflix. So there's a question there of does he like Netflix and how much does that matter? But then we also learn this week that one of the backers of the Paramount deal is Jared Kushner, who is his son in law. So, I mean, it seems as if there, there are loyalties perhaps on both sides here. But I guess the larger question here, does this basically come down to which company and which deal Trump likes more? I mean, it sounds like that is actually the analysis here that there are antitrust implications and it's essentially whichever one Trump likes is the one that he's going to greenlight. Is that what we have on our hands here?

Jonathan Kanter (18:44)

It's not that simple.

Ed Elson (18:45)

Okay.

Jonathan Kanter (18:46)

So certainly that's the way it's being positioned. And I think that's problematic. It's not the job of the President of the United States to engage in law enforcement. Even if you believe in the unitary executive, ultimately decisions should be made on the facts and the law, not on these sort of ancillary concerns and favoritism by the President. But, but that's, alas, the world we live in today. But even then, there are a number of other regulatory authorities here that are relevant. You have state attorneys general, you have private plaintiffs, and you have foreign authorities, and you have courts. And by that I mean you can't just wave your hand and block a deal. You might be able to wave your hand and decide that the Department of Justice is not going to challenge the deal. But ultimately, if the Department of Justice does challenge the deal, that will have to be fought in the court of law on the facts and the law and the merits of the case.

Ed Elson (19:37)

So after Trump said that, said that it could be a problem, we looked at the prediction markets and the chances that it actually went through, plummeted. Would you say that that is the market kind of having a slightly false reaction, believing too strongly in the power of. Of the President here?

Jonathan Kanter (19:56)

Well, I think it's important to take a step back, actually, and think about what's really going on here. So the reaction at the time the merger is announced versus the outcome at the time a decision has to be made are going to be roughly a year apart, if not a little longer. And so we're not gonna know the fate of either transaction, whichever bidder ultimately wins for a while. And that's going to be in a very different political and economic. Potentially, you'll have the midterms either right before or right after. You'll have.

Jonathan Kanter (20:33)

Who knows what the status of the economy is going to be. It's going to be a very different time. And there will be a lot of water under the bridge between now and then in terms of lobbying for and against the deal. And so the environment, the context in which the decision be made politically, even setting aside the merits of the case, will be different then than it is now. So it's difficult to predict. The thing that I would want to emphasize is that we are not going to know.

Ed Elson (21:00)

Right.

Jonathan Kanter (21:00)

And so who bears the most risk in that situation, it's Warner. And so risk of closing is there's only one thing that matters more than price when you're selling a company. It's certainty of closing. And if you're Warner and the Warner shareholders right now, you definitely want to be optimizing for certainty of closing, unless your goal is not to do a deal at all.

Ed Elson (21:25)

You mentioned the merits of the case here, which we haven't really looked at yet because we're more worried about what the President's role is going to be in this. But could you walk us through the merits of the case here? The idea that Netflix goes in and buys the number three versus Paramount. I mean, what are the actual antitrust implications here? And if you were head of antitrust, as you were just a few years ago. What would you be thinking about? What would you be concerned about?

Jonathan Kanter (21:52)

Yeah, we'd be rolling up our sleeves and taking a close look. So Netflix, good company, innovative company, but it's big. It's not particularly well liked by a lot of folks in Hollywood. And so here are the issues of the Netflix bid. First is straight merger of number one and number three. And so what are you worried about when the top streaming player gets more dominant because of an acquisition? You're worried about prices going up, something that we've seen happen quite a bit in the context of.

Jonathan Kanter (22:23)

Streaming. You're worried about the negotiating leverage of showrunners and creators and actors going down. And that's very similar to a challenge under my watch against the Penguin, Random House Simon and Schuster transaction. We successfully challenged that transaction in court, not because prices of books were going to go up, but because book advances, the amount of money that the publishers were paying to authors would go down. What we called a monopsony concern. And so those monopsony concerns will be relevant here. On top of that, you have concerns about.

Jonathan Kanter (23:01)

Combining these two very powerful libraries and potentially cutting off access to rival streamers. So the issues for a Netflix deal are quite.

Jonathan Kanter (23:14)

Traditional, if you will, more traditional from an antitrust perspective. You also have.

Jonathan Kanter (23:21)

A situation where you have Paramount bidding, and Paramount has some streaming overlaps with Paramount plus, but they're not quite as significant because Paramount plus isn't as big. But it also has the overlap on the library, which is quite large, and an overlap on news. So.

Jonathan Kanter (23:44)

It has its own set of antitrust issues. They're just different in flavor and probably in magnitude than the Netflix issues.

Ed Elson (23:51)

And yet both companies, I mean, you mention a lot of concerns there. Those whole sound like very large and obvious red flags when it comes to antitrust. And yet both Paramount and Netflix have agreed to pay these giant breakup fees. I think I forget the exact number with Paramount, but then I see Netflix comes out and they say, we'll pay you $6 billion if this doesn't go through. Which is surprising to me because based on the merits of the case, you just tell me there, it seems like this probably shouldn't go through, but they think it will. Do they just think that the ofTC and the DOJ are not really going to do anything about this. Yeah.

Jonathan Kanter (24:27)

So this would be the Department of Justice reviewing the transaction. I was actually surprised the breakup fee wasn't larger. So market for, we call it reverse termination fee, but breakup fee for short, for regulatory reasons, is usually 5 or 6% of overall deal value. But in a transaction that has significant antitrust concerns, one where the assets will sit limbo and potentially deteriorate during the interim period, you might expect a higher fee. You want it to be enough. So that's really painful for the buyer. And in this situation you can almost make an argument that Netflix, if it has to pay, for example, 5.8 billion or whatever it's reported to be, they might make some of that or a good chunk of that back just on its stock price. Because if it doesn't have to buy Warner, the Netflix stock price is likely to go up because it's not spending so much money, $83 billion or whatever, on the assets. And that could actually cover a good chunk of, of the breakup fee. So, you know, it's is actually a little lower than I would have expected for a transaction like this. It's one where there's going to be a lot of built in opposition.

Ed Elson (25:40)

Were you surprised to see that they actually made an offer in the first place?

Jonathan Kanter (25:45)

I was. Well, I mean the reporting had been there. So when I first heard that Netflix would make an attempt for this, I was surprised. One because it's not an area where they've played a lot in the past. And so they've, they've largely pursued.

Jonathan Kanter (26:00)

More of an organic growth strategy, which is admirable, frankly. The other piece is that they are really the 800 pound gorilla in streaming and they're seen that way by Hollywood. And there's a lot of symbolism here. I mean, it's almost as if Silicon Valley is buying the Hollywood sign and Hollywood has been encroaching on Silicon Valley, has been encroaching on Hollywood now for a decade plus. And so that's not new, but this sort of feels like the final move in the takeover. And so I think in terms of the legacy of Hollywood and the old time studios and the real center of gravity being Southern California versus Northern, a Netflix deal would shift that and sort of lock that in.

Ed Elson (26:53)

So it's very confusing right now because we've got this hostile bid which as you just came in, but if you had to make predictions about how this is all going to unfold, maybe about at least the timeline on this thing. It's unclear to me at least how long a giant transaction like this would actually take before it actually closes. What do you foresee will happen over the next few months? Perhaps the next year or so.

Jonathan Kanter (27:19)

Yeah, so I think the next few months are going to be the arm wrestling over which deal the shareholders are going to accept. They have reported that if Warner wants to switch horses and move to Paramount, they'll have to Pay, I think, 2.8%, 8 billion. So that'll have to be baked into whatever offer Paramount makes in order to subsidize, you know, that walkaway fee.

Jonathan Kanter (27:44)

So I think there'll be that arm wrestling. And then from, you know, then on, we'll have this regulatory review period, which will occur at the federal level in the United States by the Department of Justice. Inevitably, whichever buyer wins, there will be a rigorous State Attorneys General review. But they're also going to be foreign filings, including in the uk, probably in Europe. And so all of that suggests there's going to be a very lengthy timeline.

Jonathan Kanter (28:15)

Certainly six months, but I predict it's likely to be a year or longer, which again, puts you into a very interesting moment politically and economically. Right. Because we've seen so much shift in how our economy is performing. Who knows where we'll be and frankly, what the value of the deal, whether it will be viewed as too much or too little by the time a decision is actually made.

Ed Elson (28:41)

Just a final question before we let you go here. If Netflix does buy Warner Brothers successfully, what will this actually mean for the consumer? What will this mean in terms of prices?

Jonathan Kanter (28:53)

I couldn't say for sure. It really depends on the data. I think the thing I would make sure that listeners are aware of is that increase in concentration often leads to higher prices and it leads to less choice. And so.

Jonathan Kanter (29:09)

Particularly in the streaming area, when you have a company that's in growth mode, they're working very hard not just to deliver a low price service, but to deliver really innovative content. And so you saw that when a lot of these streaming services were getting up and running, it was the golden era of tv. They were investing in just tons and tons of content. And I think from a consumer's perspective, it feels like while there's still some good stuff out there, it's held off. There's a lot more kind of mediocre content, a lot more reality TV and other things. And so I think.

Jonathan Kanter (29:49)

From a consumer's perspective, what you want is you want there to be that competitive vigor that forces streaming companies to try harder, to want to invest in innovative content, who want to grow and lure consumers in with lower prices. I think when companies start to get to that flat part of the curve, when they start maturing, then they're worried more about retention and attrition than they are about growth. And it's harder to earn a customer than it is to keep a customer from Leaving. And so you like when you have companies who are in growth mode because they get aggressive and they want to build. And so the other thing I would say from more of a macro perspective is Warner is this massive brand. It's got an incredible library. It has the crown jewel of streaming, which is hbo.

Jonathan Kanter (30:48)

If we're in a world where Warner is too small to survive, I think that tells us something about our economy. It shouldn't be the case that the only way to compete is to be so massive that Warner is considered subscale. And I think it's symptomatic of a bigger problem.

Ed Elson (31:05)

Jonathan Kanter, former Assistant Attorney General for the Antitrust division of the U.S. department of Justice. Jonathan, always appreciate your time. Thank you for joining us.

Jonathan Kanter (31:14)

You bet. Thanks, Ed.

Ed Elson (31:18)

Well, we make a lot of predictions on this show, and we do always try to revisit them. Recently, we've gotten a lot of stuff right. We said that Alphabet was a buy at 150. It's more than doubled since then. We said that emerging markets would outperform this year. We said Oracle would be the new AI stock, et cetera. We have done pretty well this year, I think most would agree. But it is also important to acknowledge when we get stuff wrong, and we do get stuff wrong, and this deal here is a great example. In fact, I probably could not have been more wrong about how this Warner Brothers situation would all play out. I thought that this was gonna be a failed auction. I thought that Paramount was. Was secretly the only one who wanted Warner Brothers. And I thought that David Zaslav was kind of manufacturing a fake auction to bid up the price. And I thought that this would all end kind of unceremoniously. And I talked about it on the podcast. Totally, totally wrong. This was very real. Netflix did want Warner Brothers, and it has resulted in what may turn out to be one of the most successful M and A auctions in ever. So what did I get wrong? Well, my problem was I underplayed these rumors that Netflix and Comcast were submitting bids. I thought that these were generally unserious claims. And it wasn't just because they were rumors, and it wasn't just because they were unverified rumors, but it was also because the deals themselves just didn't make a whole lot of sense. And the reason they didn't make a whole lot of sense, at least to me, was quite, quite simple. And it was antitrust. I mean, the idea, as Jonathan said, that Netflix, the world's largest Entertainment company worth $400 billion, the idea that that company would buy Warner Brothers Discovery, another gigantic entertainment company. That simply seemed implausible to me. It seemed like an M and a nightmare that surely posed huge antitrust issues and that would surely get struck down by the ofTC or the DOJ. And surely Netflix and Netflix's executives knew this. I mean, even the Paramount acquisition sounded crazy. And Paramount is 27 times smaller than Netflix. So did Netflix really believe that this would pass the DOJ's smell test? Would they allow one company to own two of the four largest streamers in the world? Would they let one company essentially buy their way into owning a fifth of all streaming and to own almost all of the most iconic IP in the world? I thought, no way. No way the government's down for that, and no way Netflix thinks the government is down for that. I was completely mistaken. It turns out that Netflix actually does believe all of that. In fact, they believe it enough that they are willing to Pay Warner Brothers $6 billion dollars if this gets struck down. Which tells you something about the state of antitrust right now. I mean, from Meta's recent win against the FTC to the court's recent decision not to punish Google for operating what they admitted was an illegal monopoly, it seems as though Big Tech has learned a very important lesson this year, and that is monopolization is okay. I mean, we may frown upon it, but when it comes to the law, when it comes to enforcement, it appears that they believe that it is no problem. And Netflix clearly ran that calculation. They believe this transaction is worth it because they believe that the FTC and the DOJ will just twiddle their thumbs and do nothing. And that calculation, that belief, is something that I missed. So we'll see how this all shakes out.

Jonathan Kanter (35:14)

Out.

Ed Elson (35:14)

It could be that Netflix actually did miscalculate. It could be that it doesn't go through. And it could be that now Paramount wins the auction. I don't know. But until then, I will admit my misjudgment. I predicted that this auction would be unsuccessful. It turned out to be extremely successful. David Zaslav, the CEO of Warner Brothers Discovery, he has essentially tripled this stock in one year. And that isn't because he's a great operator. He isn't really. Rather, he is an incredible salesman, and I underestimated that. He has knocked this auction out of the park. And he is proof that sometimes, in business, as we're seeing this week, sales and negotiation are all that really matter.

Ed Elson (36:03)

Okay, that's it for today. This episode was produced by Claire Miller, edited by Joel Paston and engineered by Ben Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. And our technical director is Drew Burrows. Thank you for listening to Profg Markets from Profg Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.