E (2:56)

Well, I think, you know, the market can take a moment of breath finally, in general, I think this is terrific news and I will admit that it beat my expectation as I, you know, sort of go through my old Twitter post or X post. I did Write Something on April 9, I think about, I think a deal might be coming sooner than people expected. But I will admit, you know, reducing tariffs by 100 percentage point, that was beyond what I expected. So.

B (3:28)

Yeah, yeah. And Andrew, what about you? What's your take on it? Just, just at 30, 000ft?

D (3:35)

Yeah, I mean, definitely a positive development, as Lizzy said, also far beyond my expectations. I actually was in the camp that was like this thing is going to drag on forever. And just to be clear, this, this thing ain't done. So, you know, we're having a temporary reprieve, but you know, who knows what the next 90 days holds and beyond. Something I want to get into in a minute though is maybe the most important thing, at least for our clients, is not the reduction in tariffs, but the, the still unclear reduction in non tariff trade barriers China offered as well, which is likely to include, you know, more shipments of rare earth elements to US companies. So we can get into that in a minute.

C (4:20)

Yeah, especially like a pretty big concession.

E (4:23)

Yeah, especially with, you know, the, the repeal of AI diffusion rule and this global ban on Huawei chips. It's not clear to me what's going to happen because, you know, Andrea, as you know, a lot of the, the expert ban were actually tied to semiconductor expert control, not the tariffs per se. So it's not clear what's going to happen in that space. And we're also watching very closely on that front.

D (4:45)

Totally. And I heard Eric say as well, Lizzy, that, you know, it seems like a big concession, but our argument was all along that they're putting these things on so they have something to roll back if a deal happens. And so I think it was, you know, a concession that was sort of meant to be or that was designed into the process by the Chinese as we kind of see it.

B (5:09)

Right. I, I don't think that's, that's in doubt.

C (5:11)

I mean, I'm curious to get your guys reaction because my first gut feeling of all this when it, when it came down is what's the point of all this now? So I mean, the whole point of the high tariffs. I know, but this is what I don't understand is that the whole point was to put the embargo on in order to force companies to reshore manufacturing into the US Intellectually that made sense on one level. That it was prohibitive now to manufacture in China, to export to the U.S. 30%, 40%, wherever that number lies, no longer makes that prohibitive. It just makes it more expensive. Some of the costs will be absorbed by the supplier side, some will be absorbed by the importer and some will be absorbed by the consumer that will be spread out. And so what's the, what does Trump get out of this other than higher prices, which he's going to get killed at, at the polls because it's going to have an inflationary effect. I just, I don't.

B (6:09)

You're looking for a reason where you'll find that. I mean, you're looking for, I mean.

C (6:14)

It just didn't make any sense to me. I mean, what he was trying to achieve. Because if you listen to Steve Bannon, he makes a very kind of cogent argument that says this is all part of centering American manufacturing, but this deal with China will not center American manufacturing. Yeah.

B (6:29)

Because Steve Bannon's always the best at sane washing Trump effectively.

C (6:32)

He's not, I mean, he's actually one of the more articulate guys on the MAGA side of things and he does put out a, a vision which at least is coherent.

B (6:40)

Yeah.

C (6:40)

And so I just, I guess I'm really confused about what this whole point.

E (6:44)

Is, you know, and Eric, I think you are 100% right. I mean, the problem I have with tariffs is that if they're not high enough, say you know, 30%, 40%, they will basically just be passed on to, you know, consumers, manufacturers, as you said. So if you want to use tariffs as a tool to reshore supply chain manufacturing, they have to be high enough to offset China's cost advantage and they have to be sustained long enough to give companies actually pain, real motivation to move production back to the, to the US Again, like I don't know the exact tariffs that could achieve this. But you know, given China's cost advantage, which is, you know, on the scale of, you know, 30% to 50%, anything under 50% just won't cut it. But, you know, again, I think the thing is, if you have a, you know, 60%, 80% or even 100% tariff, with that sustained elevated level of tariff, that would be a major drag on the US Economy. So, you know, how do you actually re industrialize? Tariff is in some sense the wrong tool for potentially the right problem, I think. But again, is that the right goal? I'm not 100% sure, but tariff is definitely not the right tool. That's.

D (8:00)

And I'll say. I mean, the rationale for the tariffs or the various rationales for the tariffs have always been at odds with each other. Is it to raise massive revenue so that we can, you know, get rid of the income tax, or is it to reshore, or is it to build leverage? Well, if you're gonna. The more you reshore, the less revenue you get from tariffs. Right. Because you're not buying those goods from abroad. So the rationale has always been shifting just in tariffs in general. My view is that, you know, the kind of encircle China piece of this was also a post hoc rationalization. It was all just, well, we decided to drop the Liberation Day tariffs, except we can't drop China because they've retaliated. Now this is all about China.

B (8:47)

That was the plan all along.

C (8:49)

Yes. Yeah, that's the 4D chess, right?

D (8:53)

Yeah, exactly. So, I mean, I'm, I'm kind of. I'm very much with Lizzy in that, you know, a lot of these goals are arguably, you know, or at least debatably, you know, some positive goals to pursue for the US this isn't necessarily the wrong way about it or the right way about it. Sorry. I am not a supporter of tariffs generally. I hated it when the Biden administration put them on. I just was like, this is. Let's. We can. We have more appropriate tools. But generally speaking, Eric, I don't think there's a answer to your question.

C (9:30)

I don't feel. I don't feel alone then, you know, I think this is going to be a very boring show. If we all agree with each other too much like this Oakley, I can.

B (9:40)

Add a little spice. And. Well, I certainly think we all are probably in alignment also on the idea that reshoring of precision manufacturing is something that needs to happen in America, that we can't just go on not making things in this country. It's just financial services and social media are not in the economy. And I've made the argument a lot about how important that is in an innovation ecosystem. I was never in doubt that both sides were going to experience pain from this. The debate was always, who can endure more pain? No, nobody was enduring pain. Just, you know, for the hell of it, for the sake of it. And I. Neither was going to prefer, I mean, both were obviously going to prefer a climb down that didn't involve an obvious loss of face. But I, I think in a lot of ways that's, this is sort of the outcome that one would have hoped for, irrespective of which side you're on, despite the misgivings that you guys have about this. But, you know, both sides are able to declare victory, right? And both sides are. Are very loudly proclaiming victory. Neither side feels like it's been handed a gigantic defeat. My big question, though, to you guys is, will we look back on this moment as a defining moment, as a turning point in history? Is this the moment when a defiant China actually stood up, forced the United States to back down, and is now truly a peer competitor? Told you I'd spice things up.

C (11:08)

Yeah, I mean, I mean, I mean, I think this is a defining moment. I think when you're in the middle of the moment, it's hard to tell what that is. Something big is happening here, but we just, we don't know yet the magnitude and the depth of it. But I do feel that there's been a change in the force in the U. S. China relationship that is probably not going to go back. And Remember when, when Trump 1 was in power, we thought there would have been a slight reset when Biden came in, Biden did virtually nothing to reset those relationships. He didn't take down the tariffs, he stepped up the pressure in the South China Sea with alliances. So whoever replaces Trump in 28 is probably going to continue what we have now. This is the new normal of where we are. And I suspect that the relationship is going to get only more contentious. Also, just one other point to put out on the table for us to talk about. Remember in the first Trump, remember when the big juicy chocolate cake, you know, the whole Mar a Lago thing, and he had this great kind of relationship and everything was great, and then inevitably, invariably, it leads to disappointment, heartbreak and, and anger and animosity. I think we're at that point of the chocolate cake right now where he's kind of, you know, he's still talking, very excited about she as his friend. He's going to talk to him and give it six to 12 months and I suspect that their agendas are just so divergent that they don't at, they can't find a common ground that's going to make them happy ultimately. And so I, I just, I worry that we're going to next year at this time be in a much more difficult place.

B (12:35)

This is the US China relationship on a compressed timeline. This is always the case with the US we get our hopes up, we, we set these unrealistically high expectations and being unrealistically high, they're invariably dashed. And then we go back into this like behaving like jilted lovers. Right. We're so betrayed by China suddenly.

E (12:52)

Yeah. Can I just offer like a slightly more optimistic take on this again? Like, I think, you know, tariff created a lot of tension and then this sudden reduction in terrorists sort of created more goodwill. I think we need to be aware that we started with a very low trust environment between US and China and start with Trump 2016. You know, it was, this is kind of, we have been in this low trust environment for long. My hope is this climb down would sort of open up that space of trust a little more. And you know, again, like, I think there's a real desire from both sides to rebalance. If you guys see, saw, you know, Scott Benson's talk in Middle east yesterday, he was actually referring directly to Ray Dalio's work of big and beautiful rebalancing. I think, you know, there's a real desire from both side to rebalance. I think focusing on bilateral trade imbalance is, is the wrong way to go. But there is a real desire for, for the US to, to re. Industrialize it. There's a real desire from what I hear from Beijing to actually pivot to domestic economy. The political will is, is very real. But how do we actually do that? I think the only, the only way or I don't see many alternatives other than just, you know, permitting Chinese firms to invest in the US either by, you know, JVs or you know, share with some tech transfer built in. And speaking of spice and food, the Chinese side is happy with it in their word. They want to bring our own, bring our own food and eat at your table in a sense that, you know, we can just, you know, export our industrial capability to the US if you want us. Right. We can help you with your re. Industrialization goal. And for, for, for the U.S. i mean if you look at Trump statement, this is very much about we have market access, so it's basically market for technology. But reversing the role of The United States and China. Now China is the one who offers technology and I mean, you know, sorry, transfer to the United States and China is opening up its market for US firms to, to invest if out. I think we might actually be at a starting point of something that's similar to a reset but not in the sense of like US and China are like locked in this long term peer competitor. I just hate that framework.

B (15:16)

Right from your lips to God's ears.

C (15:19)

Exactly. I love what, I mean, I love it, I love your optimism. But I mean find me five people in Washington D.C. that have trust in China and yeah, I mean they're just. And find me five people in Beijing around Xi Jinping that, I mean, listen, Xi has been, you know, weaponizing the relationship with the US I mean this is a complete BS Chinese narrative out there that it's the US that wants to decouple. We've seen Chinese decouples. I don't know, that's pretty BS for 10 years. I mean, listen, I mean this is a mutual, both sides have deep, deep distrust and I, I think this is back to Ronald Reagan and Trust but Verify. And I, I think that they, I think it's going to take a long time for trust to be rebuilt now.

B (16:00)

Well look, I mean it's not going to go back to business as usual, but I see the likelihood of American US firms getting complacent. But I can pretty much promise you that no one who is running a firm in China with either export exposure or import vulnerabilities from the United States is going to get remotely complacent. This they, they are once bitten and many times shy. They're not. There's trust is means letting your guard down a little bit. Nobody in China is going to let their guard down on this.

E (16:31)

Well, I mean just to be more constructive in my optimism, I think, you know, sort of if potentially feasible next step is for maybe for both sides to have a clean, narrow sort of white list of investment. You know, what are the areas that we think are relatively low in terms of national security priorities and start from there. I think the current overreach in the name of national security, not just from China but from the United States is creating a lot of unnecessary tension in the bilateral business relationship. And it is like if both sides can publish a negative list clearly stating in which areas firms can and cannot invest, focusing on the can part and focus, starting from the low priority stuff, I think that will be a really helpful first step.

B (17:24)

Lizzie, it's going to happen in Europe first. Do you think that these, these sorts of, you know, JVs with transfer built into them is going to be something we see the Germans doing before the US takes it up?

E (17:35)

You know, I think that's, that's exactly the right question. I think we're, we will get more clarity maybe in the next two months or so, especially in July when you know, European leaders visit China and Xi Jinping him will be the one who receives them. And you know, I think the, the real, the, the, the really interesting piece is how China will offer in terms of addressing EU's concern over capacity. And you know, my sense that, you know, overcapacity is probably the wrong word, but it, it is a reality, it's a real concern. Will China actually impose price floors for its exports? Will China actually consolidate domestic EV economy to let maybe 80% of its EV firms to go bankrupt? I think if China can manage to do that, that's a really concrete, you know, trust building point with eu. And I think there, there's real motivation there. It's not, it's, it's, it's going to, it's, it's going to be painful for, for China but I think there's actual, you know, sort of political momentum behind that to address some of use more substantial concern, not just, oh, you know, it's not, it's the problem. It's not we are over producing. It's not your, it's that you don't have the capability to compete with us. If China can really address.

B (18:54)

Andrew, let's bring you in here. What's your sense of this?

D (18:57)

Oh, I was just gonna say, I mean I, I also was gonna say, I was laughing because I could hear Eric like holding himself back to Lizzie finished her sentence before you want to.

B (19:07)

Hold him back a little.

D (19:11)

You know, I also love the optimism. I'm also skeptical that, you know, the politics in D.C. will allow, at least on the U.S. china piece you talked about, for that to move forward. I mean the white list or the negative list is a great idea but you know, it kind of reminds me of yeah, of course that would be a logical solution. But guess what? Economists don't rule run the world. If they did, then there would be logical outcomes like that and instead politicians run the world. But I will say to sort of, you know, support Lizzy's optimism. Everything is on the table with Donald Trump, right? We can, we. I've, I've always said like we could end up in a much better place for US China relations. Now the national security hawks would hate it, but he is the one politician that can bring, you know, recalcitrant Republicans along with him. Right. And, and so if he says we want bid and cat or BYD and cattle to invest here, it could happen. And I, you know, I'm skeptical, but I'm like, I don't want to discount the possibility.

C (20:24)

Andrew, you're absolutely right. And just take a look at what's happened in the past week in the Mid east where, yeah, broken with Netanyahu and he's poised to make a breakthrough deal with Iran. This is kind of one of the things that Trump can do. I mean, we, a year ago, if you asked me would there be a break between Netanyahu and Trump, you would have said, no way. These guys are, you know, there's no daylight between them at all. I mean, you saw the press conferences, remember, making Gaza a the next Club Med kind of destination. But so to Andrew's point, I think everything is on the table. And, but I did, I want to get your guys's take on something and I put a graphic up earlier on this question of the farmers. You know, that's a very important constituency to Donald Trump. They're going to take a hit because one of the things that we're seeing is the Chinese are not messing around this time and moving their agricultural buys out of the US last week there was a $900 million letter of intent signed with Argentina. Huge increases in corn, beef, soybean buys in, in Brazil.

B (21:30)

And they are moving hard as we speak, right? Yep.

C (21:34)

And they are moving quick and fast. And I don't think they're ever going to come back. This could potentially damage Trump politically if the farmers suffer long term damage because of this, of what's going on. I'm just curious, you know, what you guys think if he's vulnerable on, on the agricultural side.

D (21:51)

Well, before we, if I can jump in, before we go to the US Side of it, I'll tie this to the question Kaiser asked earlier. Is this, you know, a big kind of world historic moment that we're going to look back at? I think the tariff agreement. Not necessarily. I think there's a, that's just a lot of volatility that people will see through. But what has fundamentally changed is China's playbook and its approach to these issues. China's, you know, approaching this trade, this element or this chapter of the trade war in my view, in such a more disciplined way than it did last time around. And that mindset and that capability, part of which is diversifying sources of imports and More import substitution. That's what's fundamentally changed. And I, I think, yeah, like that China will never go back. I mean, it might temporarily buy more US Agriculture as part of a trade deal, but as soon as that runs its course, those, they are diversifying and never going back.

C (22:58)

Yeah, I agree.

B (22:59)

Eric, you raised what's happening in the Middle east with Trump's visit there. I mean, besides the Qatar plane and all that stuff, that which is made a lot of headlines. There's, there's a lot of substance that's actually come out of this. But just to stay with China, what. How is the, the, the Geneva Conference or the Geneva statement being received in the rest of the world in your part of the world, in ASEAN or in.

C (23:26)

Well, there's just huge relief. I mean, everybody wants to see this just go away. I mean that's, they really want to see some type of resolution and some type of stability come back into the global trading mechanism. And it's just, it's not there yet, but there is relief. You know, here in Southeast Asia, some of the countries have received some reprieves like China and these 90 day reprieves and that's caused a lot of the anxiety to kind of subside. But people know that they're not out of the woods yet. You know, Vietnam just started its negotiations this week. There was talk earlier, the rumors last week that they had reached some kind of deal to bring the tariffs down to about the 20% range. Somehow the Trump family is going to probably get a golf course out of this, a very expensive golf course that will put hundreds of millions of dollars into his buck, into the family's pocket. That's going to be part of the deal. Starlink is coming into Vietnam and so in Cambodia starting their negotiations this week as well. The big question here in, in ASEAN countries is this question of, you know, rules of origin and also transshipments. And so everybody's kind of keeping their eye and they're making these public gestures to the Americans saying, you know, we're not going to be a back door, you know, for the Chinese around. Here's one of the interesting things. The, the State Department is going to be one of the, the divisions that would be tasked to monitor the, the content in, in to ensure that trans shipments and are, and rules of origin, you know, are being adhered to. And they're cutting the State Department a lot. And so there's a real open question as to how the United States is actually going to enforce the transshipment requirements that they're going to put on countries like Cambodia, Vietnam, Malaysia and others where Chinese companies will probably be very aggressive to circumvent the higher tariffs that will be imposed on them. And, you know, back home in China.

F (25:18)

Can I ask Eric a question on this one, Kaiser?

B (25:21)

Yeah, yeah, go for it.

D (25:22)

Or to the, to the group. But I mean, it strikes me that even the current deal with China. But let's say there's even a better deal at some point, really kind of raises the stakes for the negotiations between these Southeast Asian countries and the US because if Vietnam has a 25% tariff and China has 30, all of a sudden it's these Chinese companies who've been operating in Vietnam are like, maybe it makes sense to go back home. Right. Does that. Is there a feeling that the pressure might be on and they're worried about a deal between the US And China at all?

C (25:56)

No, I think that they want stability. There's been, and also remember the, the outflow of Chinese manufacturing to the global south has been a process that's been underway for four or five years. It's expanded, accelerating now in part because they want to diversify supply chains, they want to be closer to customers. They anticipated these, these tariff issues with the United States, lots of drivers for it, higher labor costs at home. I mean, we can go down the list of reasons why Chinese companies are moving abroad. So I don't think that there's going to be this reverse migration back home. The problem with China today is that the costs are considerably higher than they are in Cambodia and in Bangladesh and in Vietnam. Even in Vietnam, though. Vietnam, by the way, has a labor shortage problem too. And so there's kind of almost full employment here. So they're going to run into some of those higher costs as well, but probably not. The thing that everybody wants is stability back in the marketplace. And we're still a long way away from that.

E (26:53)

Yeah. Can I also ask Eric a question? Because this is super interesting to me. So, you know, the one thing that I heard is this new momentum to regionalize this whole sort of within region integration push. The idea is, well, you know, China has this problem, the United States, not really a predictable partner. How do we actually build more structural flexibility in our, in our trade system? Because, you know, a lot of Austrian countries still depend on the external sector. So it is, well, you know, why can't we just leverage sort of within region comparative advantages rate? So Vietnam is infrastructure. Malaysia is, you know, consumer market is tech. Cambodia has, you know, sort of relatively low cost labor. Well, you know, within our region there's comparative advantage. Why can't we just slash trade barriers between us? Can we just integrate more? So, you know, ASEAN as a whole has more stability against larger trade environments. Is that something real?

C (27:52)

Yeah, that is something real. So if you build a car in Thailand, it crosses the border into Vietnam, virtually no tariff. And so we already have that in, in asean and that works surprisingly well. One other thing that should keep the White House folks up at night. I don't know if Peter Navarro is still around. Is he still around? Is he around? Where is, he's hanging out with Melania. Okay.

B (28:17)

In Mar a Lago it could be with Ivanka.

C (28:21)

I mean Peter Navarro, you know, should, should be very concerned about was the Ozine plus three statement that came out with China, South Korea and Japan. And, and that is something that they're going to start working more closely together. We've, it's every third Tuesday now. We have a high level Japanese delegation somewhere in Southeast Asia. And this is one of the interesting points that I've been trying to warn my American friends about is how fast the world is reconfiguring around the United States right now. You cannot believe the speed with which this is happening, happening. And, and so I think, Lizzie, to your point, yes, this is happening and by the way, a lot more emphasis on rcep, the Regional Comprehensive Economic Partnership. That is going to be a mechanism that people are going to lean into ASEAN trading people are going to lead into, you know, much more talk about free trade agreements between individual ASEAN members and the rest of the world. Vietnam has pioneered this by the way. Vietnam has got something like nine FTAs and they're going to lean into this. So they want to reduce their exposure into the U.S. market so they're not as vulnerable. Right now 30% of Vietnamese exports go to the U.S. i've heard they'd like to bring that down to under 20 so that they're not as, not as vulnerable to this and do more intra regional trade. No doubt.

D (29:33)

Something I tell you know, policymakers in D.C. all the time who don't think about this stuff is that's not just happening at a political policy country level. Like all of us here have been a part of or owned small businesses. If you're a small business or any business and your main customer becomes unreliable, you, you just by, you know, nature, by survival instincts, start thinking, okay, I'm going to reduce my exposure to that customer because that customer, I can no longer rely on them as a firm. So companies in Southeast Asia and China and even multinationals because of this uncertainty, I think permanently are going to think we need to have a, at the very least have a contingency plan in case this ever happens again. But to your point, Eric, I think these decisions are being made very quickly on the fly and are totally changing kind of the calculus of how commerce is done.

E (30:36)

Yeah.

F (30:37)

Yeah.

B (30:38)

All right. Anything else we want to say about the trade agreement or the preliminary trade agreement or whatever? What are we calling it, by the way?

C (30:46)

It's, in fact, even Trump and I was going to bring a sound bite when he was doing an interview with Hannity on Air Force One on the way to Saudi Arabia. Hannity called it a trade deal and Trump corrected him and said it's the concept of a trade deal.

B (31:01)

Oh, right. He just, was he just sort of riffing on these old Iowa concepts that.

C (31:05)

Well, it's a concept. Yeah, but it's not. I think it's a mistake to call this a deal. Yeah, it is.

B (31:11)

It is a.

C (31:11)

It is. I mean, Scott Besson has called this a mechanism where there's a, you know, some type of structure in place for them to continue these negotiations. But I think it's premature. Yeah. Calling it a deal, I think is too early. And even Trump isn't calling it a deal.

B (31:24)

No, no. I mean, and he's the man who knows all about deals. Shall we move on? We have another big topic that we want to get to today. Let's shift gears and talk about the other big story from the week's news in the. I know that, you know, Eric, you're going to take center stage here a lot because you've been following this very closely and you've actually written about it. But there's this massive flare up, as everyone knows, between India and Pakistan over Kashmir. We know India retaliated against alleged Pakistan backed killings of tourists in Indian controlled parts of Kashmir. And on May 7, this culminated in a big aerial dogfight, one that took place at quite a distance. Apparently all the, none of the aircraft actually crossed the border. What does all of this have to do? Well, you know, as we, we apparently know, there were about five Indian jets that were downed by the paf, by the Pakistani Air force. And what does this have to do with China? Well, Pakistani, the Air force, the planes they used were Chinese made J10C vigorous dragons and they apparently downed as many as five that were, you know, two or possibly three of them were these very advanced 4.5 generation Rafale fighters from France. These are among the very, very best European made fighter jets, Eric. So you wrote about the reaction in China in a little piece that I actually published too. Al on cica, you compared this, you know, deep seek moment as, as everyone is off, you know, has been doing a lot this time in military hardware. So go.

C (32:59)

Okay, so indulge me for a few minutes here and allow me to prosecute my case here. So I wrote this column on Monday because I was looking at the, the Chinese media and looking at what you're seeing here on Reuters, and there was a lot of excitement on May 12 for the fact that there was these reports that the J10Cs performed admirably well against, you know, Indian Rafale fighters and whatnot. And so I have apparently angered the entire Indian subcontinent on LinkedIn.

B (33:28)

Seems easy to do, though.

C (33:30)

They are, they are absolutely furious with me. I am a propagandist. I'm paid by China, I'm paid by the CIA. Apparently USAID has money again and they're, they're giving it to me to kind of spread this kind of misinformation. So let me just kind of walk you through what I saw, and I'd love to get your take. If you think I was right, if you think I was wrong, I can already hear my, my legions of Twitter and, and Indian followers on, on you. LinkedIn kind of just fuming with me. So let me just quickly, you know, so you had that Reuters report. Let me just play a little sound bite here from, from the Pakistanis.

G (34:05)

Last night, they had all to all 80 jets through which they attacked six places of Pakistan, including two in Pakistan administered Kashmir. These were attacked by Indian planes last night. The Pakistani side was completely ready. The moment the Indian side released payloads, we engaged their jets and shot down five Indian aircraft.

E (34:25)

Pakistan says this is wreckage from one of the five Indian aircrafts it says it shot down. India has yet to comment on that claim.

C (34:34)

Okay, so that's where this all kind of started. On the Pakistani side, they had this video. They are the ones who said five jets were shot down. This then kind of goes forward and just sparks a fury of excitement in China where they are just thrilled over what they're calling, you know, their deep sea or their deep seik moment, where Chinese military tech, which had never been proven in battle before, demonstrated itself to be far more capable than a lot of people anticipated. And it kind of came as a surprise, which is kind of why, you know, comparing it to their deep sea. So you'll see, you know, all over Chinese media the same thing about the J10 and the deep sea moment and this and the, and the performance of it and there's just this national pride that came out. People are just, you know, really excited. And then at the same time last week, if you were the proud owner of Avet Chengdu Aircraft Company stock, one of you can see here this thing just shot up and if you look at the five day, it's been up 29%. And if you bought this thing last month, my God, you're up 50% in the market right now. So you could see kind of the euphoria that was going on in, in China. And so that was kind of the basis of, of what I was, I was kind of going. And one other thing I want to share with you guys is this comment from one of India's, you know, top national security commentators and writers. He's the editor of Force magazine. And I want to play you a short sound bite and I think it's going to be really good for this group here to kind of dissect. And this will lead to where my column came from.

G (36:14)

So 17, they both are of, of Chinese origin. Next, the BBR missiles beyond visual range missile we've already heard about of PL15 missile which has come from China. Then satellites. The Beidou system of China which has 44 satellites in its constellation is today the number one constellation satellite constellation in the world. And Pakistan military has access to its military resolutions which means as far as Pakistan military is concerned, during Operation Sindur, it had a complete visibility round the clock of the battle space and it was also available to them for their missile targeting. Now the next capability which they showcased was airborne early warning and control fighters. Now again these fighters, they are there for tracking a target, identification of the target. This is a capability, big capability. And they have nine of them, the Pakistan Air Force. Next is electronic warfare absolutely critical. And Pakistan Air Force we saw in Operation in 2019 Balakot air attacks that they have good electronic warfare. It does two things. One is it jams the communications of the enemy. And as part of electronic warfare there is something called signal intelligence which basically means that you can listen in to the communication of the enemy, which is what Orange say. He showed a clip of the audio of the Indian pilots talking amongst themselves to the international audience. That added to the credibility. And the next is the data linking. Pakistan Air Force data linking basically means you link up all these capabilities so that all these capabilities which are there, the satellites, the airborne assets, the ground assets, everybody can communicate with one another. Everybody knows what is going on in the battle space at any given runtime. Everybody knows who's doing what? That is data leaking. And Pakistan has Link 17 data linking it has had for many years now, now it has upgraded. So these six capabilities that I spoke about. The most important in my assessment are data linking. And the second is electronic warfare.

C (38:22)

Okay, so this is the point that I wanted to make. 81% of Pakistan's military hardware now comes from China. And the advantage that he laid out and was what I made in the column was the fact that because it's one ecosystem, right then Beidou can communicate with the JF17, can communicate with the ground stations, can communicate with the airborne. And so India has a very different situation where they've got, you know, Russian equipment, Indian equipment, some US equipment, the Rafaels are there from France and that makes it very difficult to have this type of integration. So we're literally looking at a Apple versus Android or Apple, you know, where basically the hardware and the software are unified. And that's one of the points that the Chinese have been making. And I just thought that was interesting from an Indian perspective, not a Pakistani, a Western, a Chinese perspective. And so that was the case that I made, that this was the deep seat moment based on what the Chinese and even some Indian commentators were saying. So would love to kind of put it out to the group now.

B (39:23)

No, that's fascinating, Eric. My initial question was is it the J10Cs or was it the, the PL15s?

C (39:30)

What really matters 15s did not perform as well, I mean according to Indian media. And again, one of the difficulties that we're having in all of this is.

B (39:39)

The amount by the way, there's the air to air missiles that.

C (39:45)

We have just quantities of misinformation out there that make it really difficult. That's why, you know, Kobus, I'm so used to Kaiser Kaiser. That's why, you know, even your intro saying 5 were shot down, 3 were sh down. We, we don't really know the definitive number and everybody's going to dispute the number.

B (40:03)

I mean I, I, yeah, you have.

C (40:04)

To put a ton. Nobody really knows and there's been no, you know, acknowledgement of it. But there is an assessment by a lot of Indian military analysts that the J10Cs and the JF17s, the Chinese tech, performed better than expected. And remember, India's defense budget is 11 times the size of Pakistan's. And it was apparently India that engaged JD Vance and Secretary of State Marco Rubio for the ceasefire talks. And so the question I kept putting back to the people yelling at me was, are you happy with how that played out. I mean, you have a defense budget 11 times larger than your rival and yet this is what happened. So, you know, that's where we are.

E (40:47)

And Eric, can I just say I think you are absolutely correct, correct in your assessment. I mean, if you look at like J10, right, it's, it's not even China's most advanced fighter. I think what really made a difference here is that how it performed as part of a bigger system, you know, paired with Chinese radar, early warning aircraft, long large missiles, et cetera. So it's not a tech to tech comparison, but a system to system comparison. I think this is what really makes China's innovation model ticks. So in that sense, I mean you see this in, in deep sea in Huawei, it's about system integration. It's not about kind of cutting edge for the sake of being cutting edge. And I think the, you know, that's a fundamentally different model of innovation. I think the world has yet to appreciate fully and you know, another part of it is cost effective. Right. And that's also part of how China innovates. They're not like chasing you know, prestige tech or like, you know, moonshots kind of innovations. It's more of a engineering mindset. You know, what works, what can scale, how to get the most bang for the buck. You see, you see this in deep seat, you see this in Huawei's Ascent chips and now in defense too. So in some sense China's innovation is not like breaking through the constraint. They're working around the constraint and they can iterate really fast and can push really hard on commercialization and deployment. So not everything's cutting edge, but it's good enough and they're integrated and they're, they're afraid, affordable. I think that's a very different model of innovation when we think about what innovation means. And I think, you know, Kaiser, you observe this on the ground and I think, you know, we need to pay more, more attention to this different mindsets around innovation.

B (42:30)

Absolutely. I think the Huawei comparison is, is even more apt maybe than the Apple because you know, Huawei really is just such an integrated technology ecosystem out there. You know, it's full stack at this point.

C (42:43)

But, but you would have heard, I mean a lot of Pentagon people will tell you, and this is their, their top line reaction. Well, you know, the Chinese, you know, stole all of our ip and, and it's well documented that the Chinese have pilfered a lot of American military ip and one of the questions was could they bring Together this acquired, quote, unquote, IP with their homegrown indigenous innovation to make it work. And they've had problems with some of their engines and they've had problems with some of that integration. What we saw in Pakistan seems to indicate that those problems may have been ironed out in many respects and the fusion of acquired IP with homegrown IP may have happened, at least at this level. So I think it defeats a little bit of some of the skepticism coming out of the Pentagon.

F (43:33)

Well, and that's. This was made. This is a point made in a different context, made in the semiconductor context, but I think is apt here, which is that China's, China's absorption, absorption capacity has increased. What that basically means is it doesn't matter if you acquire IP if you can't really reverse engineer it to apply it into your systems. But China's capability to absorb foreign ip, foreign technology into its systems, that's what, which is what Lizzie is talking about, is now so advanced that it, they can't. That, that those that, you know, whether they acquire IP or can kind of figure it out via, again, reverse engineering, it makes it much more difficult. It makes things like export controls and kind of trying to keep certain things from them much less effective and shows that they can. It's all about the integration, integration piece that we keep coming back to, which China is clearly getting better at.

B (44:34)

Right, Right. I just saw a little thing flash that said.

C (44:39)

Yeah, I'm getting, getting our promos ready for the.

F (44:43)

Okay, Erica, I had, I just. What was the nature of the pushback online?

D (44:50)

Just.

C (44:53)

Was there a substantive argument that people were making? No, it's, it was a, it was, you know, it'. Emotion.

B (44:58)

It's.

C (44:58)

Well, that I'm a liar and I don't know what I'm talking about. And I'm paid by the Chinese Communist Party to put this stuff out on LinkedIn. That's all true. Right.

E (45:07)

That's basically, you know, a career, like occupational hazard when it comes occupationalizer.

C (45:12)

But it is so interesting just to see how emotive the reaction is that there is you, you know, there's. I mean, listen, the Internet's not going to be a place where you get a lot of good, you know, intellectual nuance. Right. So especially comment threads. But, you know, it was just a lot of anger of, you know, you don't know what you're talking about. We basically could have wiped them off the map. And, and again, it was, you know, as an American, we hear these kind of arguments a lot. So I'm Kind of familiar with it, you know, and there was a lot of these arguments, well, if we wanted to, you know, as a nuclear power, we could have wiped out Pakistan in two seconds. And I'm like, no, you really couldn't have because they have a counter strike capability. And so, Eric, don't feed the trolls.

B (45:55)

Do not wait into the, don't feed the trolls.

C (45:58)

But again, this is a little bit of the arguments that the Americans had in Vietnam and in Afghanistan, in Iraq, that, you know, we could have, if we just used nuclear weapons, turned them all into glass. But we didn't do that for, exactly, but we didn't do that for very strategic reasons, you know, as well didn't do this.

B (46:14)

Let's be fair here. I mean, the Chinese response to this and you talked about stock prices of Chengdu Avic going up, but there was also a lot of very, very unkind trolling by Chinese who were glittering about this. This video which has been making the rounds and I think with insufficient criticism of it with this is straight up brown face, these Chinese guys, you know, dressed like, like they're from Rajasthan, turbans and big mustaches and doing, you know, Bollywood dances and singing the song about, you know, we bought a new plane. We bought a new plane. Our plane is, yeah, it's, it's, it's, it's pretty awful too. Chinese netizens.

E (46:51)

Kaiser, I, I need your take on this. Like this, this level of just casual racism, even among some of, you know, China's most sophisticated commentators is just like, I, I, I don't know what to make it, make of it. And I don't see it getting better over.

B (47:10)

It's casual racism. I mean, it's, it's, unfortunately, it's pretty endemic. And you know, it's obviously not just China. It's, it's everywhere. But I think Chinese have a particular blind spot with their racism toward people from the subcontinent. Yeah, yeah, it's, it's a, and it's coupled with a growing sense of some rivalry. It's grow, it's coupled with, you know, sort of the geopolitical dynamics of, you know, since the nuclear deal with, that Bush signed with India, there has been this sense that, you know, India has been enlisted in the China containment project, you know, with India's membership in the Quad and all this. So yeah, that's, that's exacerbated it and it's, it's really brought it to the surface, but it's been there for a long time. It's always, it's always Been, you know, there's, you know, very unkind epithets that Chinese use frequently and very casually again in reference to Indian people. It doesn't help that that there's just. There are, you know, no direct flights right now. There's almost no presence of, of. There is literally no presence of Indian media in China right now and very, very, very little Chinese coverage of India.

C (48:17)

Well, just on that, they, they were just, I mean, before all this happened, right? You know, we, we're on this positive upward momentum, repairing ties after, you know, the, the Galwan incident a few years ago where they were literally, you know, using sticks to fight each other in the Himalayas. There was, you know, we've got ambassadors back in each other's capitals, they're resuming student visas, direct flights are planned to be resumed. So there was this upward momentum. So, you know, there was a lot of, you know, conspiracy theories in India that, you know, China and Pakistan somehow conspired together to launch this, to provoke India into this attack. And my point was, no, I mean, like, what's in it for China to do that? They literally have a. They can gain so much more by trying to peel India away from the Quad and the US Security relationship and to, and, and we were seeing this, I mean, we were seeing a warming of relations. We saw troop pullbacks on the line of actual control, actual troop pullbacks. I mean, meaningful, tangible things. So I, I, you know, I mean, this, this, this is unfortunate for that, because when India and China are not getting along, it does create a lot of uncertainty, you know, in Asia more broadly.

B (49:27)

Right, right, right, right. All right. So if I think we don't have too much more to say on this particular topic, I wanted to, since we are talking a little bit about, and got Eric here, tell us a little bit about Lula's visit in Brazil, in China right now.

C (49:44)

Yeah, well, and not only that, we had, you know, a bunch of news this week where three Latin American leaders were in Beijing for the SELAC conference, and that's a ministerial gathering, but three heads of state went. So we had Borich from Chile and we had Lula from Brazil and Petro from Colombia. Colombia today signed on to the Belt and Road Initiative, So kind of lost one with Panama, but now gained another one with Colombia. That's, that's got to be considered a huge win, a big, very big risk for Colombia because, you know, they're going to piss off, you know, Marco Rubio and the Americans, and they're going to hear about this. So it's going to Be pretty contentious for Colombia. You can already see the kind of conservative right wing, you know, commercials that are going to be, you know, in Colombia's national elections next year are going to be like, we're going to get us out of the Belt and Road. And so China is now going to be an election issue in South America for a number of different governments. But $10 billion in export credits were announced by Xi at his speech to the SILAC gathering. Not a huge number, especially because Latin America and South America now are one of the most important trading regions for China. $515 billion of annual trade last year, that's a lot. And we're going to see it go up probably closer to 600 this year with all that agricultural buying.

B (51:04)

So you always have these numbers to hand. You always know the, the trade.

C (51:09)

Oh, because you just sit here obsessively in this room and banging out stories on it day in and day out. It just gets burned into your brain.

B (51:18)

I mean, I have to make flashcards to remember the Polito Standing Committee members.

C (51:21)

When I. Oh, I can't even remember that.

B (51:25)

You're amazing. So to wrap things up, I, I've got this little segment that I do at the end of Sinica, as you all know, about recommendations. But I usually, they're usually really off the wall. They can be, you know, anything at all. But, but what I want to do with, with this show is let's do plugs of China, specific media that we've come across, articles or, or interviews, podcasts, anything at all that's really caught your attention. And anything ought to be something that our audience ought to check out. And I can start, and I'm going to say the Odd Lots podcast with Arthur Kroeber, which was just amazing, if you haven't heard that. It was just from last week. It, it was just beautiful. I mean, the guy is. Well, he nailed it. First of all, he, he got everything completely right. You know, this was before the weekend meeting, but he had a very, very, very smart take on this. I think it's one of the, the smarter things I've, and I'm really curious especially about Lizzie and Andrew's responses to his understanding of the narrative of the need to rebalance and whether the, the, the, the urgent need to rebalance toward consumption is a largely foreign economist talking point or whether that is something that China and Chinese economists also repeat. That's something possibly controversial.

E (52:47)

I, you know, Kaiser, I think you are absolutely right. That's also the piece of the interview that caught my attention and I think we probably need a whole episode of voting into this. But I think, you know, he's absolutely right when it comes to sort of this, you know, so, so in the west, you know, when we think of consumption, well, it's a, you know, it's an argument in a utility function. Right. U is a function of C. Basically in a kinsman model, you trade off wage wages earned by labor and you know, your source of happiness, your source of utility is consumption. In China, I think when we think about sort of what the constructs of, of happiness or a construct of well being, it's much larger than consumption. And you know, what are the, what are the policy goals? What are the targets? What are the arguments into the utility function? When policymakers are thinking about this pivot to the domestic, I think it goes beyond consumption. I think, you know, it's structural. It's. Well the, you know, Western economists would interpret it as supply side, but for the Chinese policymakers, it's actually sort of the infrastructure of consumption that matters.

B (54:00)

To ride in high speed rail trains to get around on and you know, the, the, the seamless convenience of transportation in Chinese cities.

E (54:07)

Right, right. So, you know, that's, you know, that makes me think maybe a better term to capture this pivot is pivot to higher quality of life, not necessarily pivoting to consumption as a proxy for higher quality of life. Again, like I need.

B (54:21)

That is a supply side solution and that's been an interesting one. That's, that's basically, you know, when China talks about consumer upgrade, when they, they talk about that, that's all included in it. So. Yeah, I think he, he nailed that. Andrew, what were your thoughts?

E (54:38)

Well, I mean, to be fair. Yeah, go ahead.

F (54:41)

No, go ahead, Lizzie.

E (54:42)

So, so I think we need a new vocabulary. I mean the Chinese side need a new vocabulary to capture what it really wants. It's not infrastructure, it's not investment, it's not supply. Like what do you actually call it? I mean the new buzzword in town, quality of life. Yeah. From investing in infrastructure to investing in people. So we're still doing investing, but the, the object, I mean the objective of our investment is people. That's not a, you know, that's not a, like a, A plus vocabulary if you, if you ask me. But I think the Chinese side need to be much more articulate about what it, it's actually targeting when it's pivoting to domestic.

B (55:22)

Again, as I said something right now and make it.

C (55:27)

This is your moment, Lizzy.

E (55:29)

No, I like quality.

B (55:31)

Quality of life. I think is what I think of.

F (55:32)

It as sounds better in Chinese, right?

B (55:36)

Yeah, yeah.

F (55:38)

I, I, actually I haven't listened to the Odd Lots podcast. I will do so I'm not 100 sure familiar with Arthur's most recent argument, but I, I, I've been cut out.

B (55:48)

Here for a second.

C (55:50)

Oh, that's all good.

F (55:51)

You, you got me. Okay. I was just saying I haven't listened to the Odd Lots podcast. Podcast. So I'm not 100 sure about Arthur's argument but actually I really like the way Lizzie framed it because the way I frame it is that similarly I like the infrastructure of consumption. Chinese leaders in my view see consumption actually as the end of a process, not as the beginning.

D (56:16)

Right.

F (56:17)

And so western economists look and say, you know, you need, according to the national income accounting C as you know, is in the, you know, CS consumption, household consumption versus net imports, government spending, investment. We need that C to grow because that's a more sustainable way to grow your economy. Our view would be that actually Beijing's ideal plan would again start with sort of the supply side that Lizzie talked about. They want a more productive economy, more productive and innovative companies that make more profit, that can then raise wages for their, their employees, pay more in taxes. And then at the end of that process, the employees have more money in their pocket. The state has more money in its pocket to then build out a welfare system or a, you know, public welfare support that then allows people to save less and then they can spend more at the end of that because of all those things that have happened. And so our view is that they, they would like more consumption but kind of through a process that really focuses on innovation and selling, you know, more, you know, cutting edge technological goods, both domestically into the rest of the world. So my view is like they want consumption but they, they want it to be sustainable. And to make it sustainable all those other things have to happen first. So ultimately they're not going to pivot in the short term.

B (57:45)

But very glad my little plug sparked such an interesting conversation about all philosophy of the Chinese economy. But let's, let's, let's move around and let's start with Eric and then what do you have for a good plug for this week?

C (57:56)

Okay, so I feel like Kaiser, I have to repair my reputation with you because the last time I was on Seneca, I rep I recommended the Boiling Moat with by Matt Pottinger and I could hear the, the gasp from you. It was interesting, you know, nonetheless. Okay, so I'm gonna suck up to Lizzie now because I'm about 60% through her boss's book on Xi Jinping. And it's not an easy read. It's like reading his PhD dissertation. But it's an important read. He gets into the minutia of. And I think it's an important read right now to understand kind of the history of where he's coming from, how he sees the world, how he's been restructuring both the ideological and the policy base for this moment that we're in today. It's very interesting. It's heavy. It's not for the amateur, to be sure. Lizzy, have you read it? I mean, is it required reading at. At the office? That. That Kevin, everybody do it. You know, you got to get through all 900 pages of it.

E (59:00)

Yeah. Like, we study it. Like, we study Xi Jinping.

C (59:05)

Every Thursday at 10:30 of your study sessions with this, you know.

E (59:09)

Yeah. And we write report on how, you know, our. Our, you know, ideology is purified after reading the book. How we are more productive just, you know, by having it in our hand all the time. That's a joke.

B (59:20)

You have an app, right? You have a little red app, Like.

E (59:22)

Yeah. And we, like, you know, we sort of, you know, a little every day to click on the badge and stuff. It's like Duolingo.

C (59:30)

And so. And just for those at home who may not get the inside joke, Kevin Rudd, who is the author of this book, is also the former ambassador. Kevin Rudd is the former president of the Asia Society Policy Institute and now the ambassador to Washington, but spent a lot of time in Beijing, and he is very determined in the audiobook to make sure that, you know, that he speaks fluent Mandarin.

B (59:54)

Yeah.

C (59:54)

Because throughout the audiobook, there's a whole lot of him speaking Chinese, you know, so.

B (59:59)

Yeah.

C (59:59)

Which is good. You know, it's an excellent. It's a good read. It's a very good read. And I. And I think that paired with Richard McGregor's the party is really. Those are two good books that go together very, very well. Well, last rather, very quick thing, this. This week's interview on the Daily with Keith Bradsher from the New York Times. Excellent as well.

B (60:21)

Yeah, I had some quibbles, but. But it was. Yeah. Largely good. There.

C (60:24)

There was.

B (60:25)

I had quibbles. We can talk about that another time. But, yeah. All right, let's go to Lizzy. What's your. Your plug for the week?

E (60:32)

Well, I mean, first, I think, you know, I think, Eric, you're absolutely right, and Kevin is one of the most important, deep thinker thinkers Especially when it comes to party language. And I think, you know, it's, it's incredibly important for us to understand how the party not just talk to the world, but also talks to itself. Yeah. And I would, yeah, I would argue that, you know, even more important than understanding Xi Jinping's language is to understand his top bureaucrats language and their, their thinking sort of along those lines. I mean, I, I just love it when we on earth. Old gems from Chinese Internet, which is quickly narrowing and disappearing. Well, I just realized that one of the top three Chinese officials at the Geneva talk talks, Liao Min, is the same Liao Ming who was something of a folk music celebrity back in the, in the, in the 90s. And you know, he actually wrote a song called Waiting for Someone is Like Drinking Alcohol. So I have no idea whether one of our audience can find the original soundtrack of it. But what I find really interesting is he, you know, this is sort of, this is from an old interview with Aliang Min when he's not as prominent as an, as an official. He was talking about his days as a student in pigeon. So he was like, oh, we were so idealistic back then. The campus was not nearly as commercial or frantic as it, as it now we don't feel the pressure of lending a job as students do these days. We were so single minded in our pursuit of classical liberal learning. Each day we move between our classroom, the gym, the library and dorms. Just those four places. We never want to leave the campus. We basically just walked in straight lines without even turning corners. I just find that fascinating.

B (62:33)

Nice, nice, nice. That does sound like campus idealism. And he was sort of the Xiaoyan kind of guy.

E (62:39)

Right, right, right, right.

B (62:41)

Like campus folk rock Kaiser.

E (62:44)

That's, that's, you know, this on you to finance the soundtrack.

B (62:48)

Yeah, no, I'll find that. But also I'm, I'm feeling a little, you know, rivalrous here. I thought I, I had a lock on like former, you know, rock musician turned political commentator type. But that's great.

F (63:03)

It'll keep you sharp, keep it sharp to have some competition.

B (63:06)

Great, great recommendation. And, and Andrew, what's your plug for the week?

C (63:10)

Yeah, if I can.

F (63:11)

It's not totally selfish, but I'm gonna plug a piece that one of my business partners and colleagues wrote recently, Kendra Schaefer, who.

B (63:20)

Oh God, yeah, the algorithm.

D (63:23)

Yeah, yeah.

F (63:24)

So this is on our website tributechina.com under the research tab. But she basically wrote a piece that, you know, the, the Cyber Security Administration of China basically has a registration system for any AI products that goes onto the market. And so she pulled that and did some analysis on it. So some really fascinating preliminary findings just to run through a Couple. There's almost 4,000 registered generated generative AI or algorithmic tools operating in China. They're approving 250 to 300amonth. So you can kind of see how quickly the space is growing. They're mostly focused on B2B and kind of foundational technologies, not more the niche stuff. But the thing that I found, one of the things that I love about the piece is it just highlights. There are these data sets out there that the. That the state in China maintains that are. You can mine for all kinds of interesting information on what's going on. And it's fully publicly available. And I thought this was really great example of that. So encourage people to check it out.

B (64:33)

Yeah, it's amazing. It's astonishing. And I'm reading it again ahead of an interview with Kendra because I'm going to put her on Stinica and we're going to talk all about this. Kendra, by the way, is just brilliant. I had a chance to see her recently in Pittsburgh when I was. I was in town, and she took me to a cool little hip coffee shop and we chatted China for a good hour and a half. All right, well, that's a wrap, you guys. Thank you. This was our maiden voyage. We didn't dare go live with it, but I think. I think this is going to work. Yeah.

C (65:03)

What do you think? I think we will. It'll be a lot of fun.

B (65:07)

All right. And we will see you again in a couple of weeks. Right. And, Eric, you're still going to be out in Southeast Asia. You two are both going to be in D.C. or Lizzie, you're gonna be in New York. Andrew, you're gonna be D.C. i'm gonna be. Yeah. I will not have left for Beijing yet, so. But the week after that, I'll. I'll be doing that one from Beijing. All right, folks, thanks for joining us and we will see you next time. Take care.

C (65:29)

Thanks, guys.

F (65:30)

Appreciate it. Bye, guys.