Goldman's Jared Cohen and George Lee on the Unprecedented Shocks in Geopolitics
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Hello and welcome to another episode of the Odd Lots podcast. I'm Jill Wiesenthal. And I'm Tracy Alloway. Tracy, there's a lot going on in the world.

Are we going to start every podcast with that sentence? It's sort of a cliche now, right? There's a lot going on in the world. I have to say, you know, I recently were recording this February 25th. I don't know the exact date it's coming out. I recently took a vacation and I did a pretty good job. Tracy, wouldn't you say of like being unplugged? Like I probably sent like six or seven tweets. I don't think I responded to any emails or WhatsApp messages. I actually noticed this, that

The volume of Joe's digital presence was way, way down. And normally, listeners, normally when Joe is on vacation and sometimes bored, he just starts firing off emails saying like, oh, we should do this and we should do that.

None of those this time. It was a vacation for me too. A vacation from your co-host. Yeah, I really did not do much. And then I have to say like re-entry into the world, my 3,500 emails, catching up everything that happened in a week in the world was a lot this time. And I'll just say-

It's a cliche to say a lot happens, but it was like, OK, I really have some catching up to do. And I felt it. And it made the reentry from vacation worse. Well, it's not just the number of things that are happening. It's the significance as well. Right. So I imagine one of the things you came back to after your week off was the idea of a rift, a growing rift between the U.S. and Europe. There is all these lingering concerns as well about airspace.

competing with China, AI technology, big themes to think about. I know. I saw, I was like scrolling on my phone, I saw like J.D. Vance has given this big speech in Munich. And I'm like, do I want to watch this on the beach in Tulum? I do not want to watch this on the beach in Tulum. Good call. But now I have to understand how the world changes. And again, from week to week, but big things afoot in the world. And how should we make sense of these? And how should we cut through the noise and all that stuff? Anyway.

I'm very excited. We really do have the two perfect guests to discuss big things in the world, like technological changes, especially through the geopolitical lens and the straight-up geopolitics of what will be the nature of the U.S.'s relationship with Europe and other countries.

We're going to be speaking with Jared Cohen, president of global affairs and co-head of the Goldman Sachs Global Institute, and George Lee, the other co-head of the Goldman Sachs Global Institute. So Jared and George, thank you both for coming on OVLOT, joining us in the studio. Thank you. Thank you. As I mentioned to you before, I'm a longtime listener, first time caller, love the pod, so thrilled to be on it with you. Oh, thank you. I love it when people say that on

I know. I have a question just to begin with. What is the Goldman Sachs Global Institute? Good question. Sure. I'll start. Jared should pitch in. So the Goldman Sachs Global Institute is a new platform at the firm. We formed about two and a half years ago. And the goal is to promote the firm's thought leadership at the intersection of technology change, geopolitics, and markets. And the idea is that these factors have become extraordinarily consequential for global

boards, CEOs, investment committees, and many of our client types. And so this ability to transmit our thinking, be provocative, share a worldview is just a great way to engage our clients. It's been a lot of fun.

The only other thing that I would add is for some of the really kind of big strategic clients, let's take Sovereign as an example. There's a lot of ambitions that they have over the next three to five years. And what the Institute does is we pull together all the expertise that we have at the firm to essentially cover their ambitions. So when they say...

you know, here's at a high level what we want to try to do in the AI space, or here's what we want to try to do in the Indo-Pacific region. Our job is to be able to respond as a firm, to help them think through and define what that looks like, and then to help them make it happen. And through the combination of our banking franchise and our asset management franchise, that's what we try to do. Okay, let's just jump right into question number

I didn't, when I was on the beach, watch that J.D. Vance speech that he made in Munich. And I know there's all this falling out and frustrated columns in the Financial Times and stuff like that and all these big things. What was that all about? What happened there? So I was there. Oh, great. Perfect. Tell us about it. Tell us about it. And there's a little bit of a before and after. So I was with a number of the European leaders the month before.

And they were getting ready for the Trump administration to come into office and dealing also with the first 24 to 48 hours. And their biggest concern at the time was that a deal would be struck on Ukraine above their heads and the Ukrainians' heads. Now...

I think that that was a little bit of a false concern. It was more of a reflection of the difficulties they thought they'd find in the transatlantic relationship. I think a month later, by mid-February, they were surprised that a deal was actually being cut above their heads, not just

between the Trump administration and the Russians, but then brokered by the Gulf as an honest broker. And I think what was interesting about J.D. Vance's speech is he gave a speech at a security conference, and there was really nothing to offer on the foreign policy front. It was, for all intents and purposes, kind of a lecture about free speech. And I think it was more...

of a reset in a negative way of the transatlantic relationship. And I think what I was surprised by is that the Europeans were surprised by the speech. You know, it would have been very easy, by the way, for them to acknowledge that there was no new policy set in the speech. He didn't announce anything on Russia, Ukraine. He didn't announce anything on the Middle East. He didn't announce anything on...

on China, it was just kind of a difficult moment in the transatlantic relationship. I think part of the reason the Europeans are experiencing so much consternation over this is the lack of economic growth in Europe is causing Europe to essentially evaporate geopolitically. They don't have a seat at the table on the Middle East. They don't have a seat at the table on Ukraine. They're trying to figure out what tariffs are coming and how to respond. Then they know that lingering on the horizon is a confrontation with the U.S.,

over them having less dependence on China for manufacturing markets and other issues. And so they're scrambling, figuring out what to do. They're having a hard time acting collectively, which is making it difficult for them to respond in a way that's sufficiently robust to level the playing field with the Trump administration. You mentioned that you leaders were preparing for the Trump administration late last year. What does that look like? How do you prepare for

Well, for starters, most of them weren't around when he was president last time. And if you look at who was around last time, you had Macron, who Trump doesn't particularly like, Zelensky, who Trump doesn't particularly like, and Viktor Orban, who he does like. And so most of these leaders hadn't dealt with Trump before.

I think that one of the things that they're all surprised by is that what they observe and recall from watching the first Trump presidency, that this feels less like a second term and more like a totally separate presidency with a four-year interregnum in between. And that also shouldn't be...

surprising because he didn't recycle very many of the same people from the first time around. The world has completely changed in four years. And this time around, he wasn't surprised to win. And so he's coming in with a very clear doctrine and agenda focused really on reciprocity. So defense spending, trade deficits, areas where he feels like there's an imbalance and other countries haven't been kind of, quote, carrying their load. He's then taking a transactional approach to address that. And look, there's a little bit of

of what we've seen administrations do recently, which is show up with opposite day, which is if the previous administration was for it, were against it. But when you look at the policy in the Indo-Pacific,

That's where you've seen the most consistency. You know, you don't yet have kind of a special envoy on, you know, China and Indo-Pacific issues. The meetings with the quads have persisted. The administration did South Korea a solid amidst their political turmoil by reinforcing the importance of the Japan-U.S.-South Korea trilateral reinforcement of the quad. And even on tariffs, you know, he's launched a series of trade investigations into China, which will culminate

in May, whereas with Canada and Mexico, he's come in hot and heavy. With Europe, he's come in hot and heavy, and those tariffs look more robust than they did in 2017 and 2018. Jared, you've observed in the past that while we don't have the same shock and awe from that community that we had in 2016, they're kind of used to him stylistically and in his cadence.

There is a fundamental difference in that it's unclear who in the administration is running which pieces of the portfolio, and this seems to be more of a Trump-forward policy leadership by him himself. Maybe – is that accurate? Yeah, I think that's right. And by the way, when the 45th president was in office, there was also not a ton of –

clarity on who was going to get fired on the toilet versus who was going to end up running a fiefdom. I do think what George is referring to is a very astute observation, which is the first time around the departments and agencies, the heads of the departments and agencies in

exerted an enormous amount of influence and policy was much more decentralized. Different people had different accounts and different agendas that they were pushing. And occasionally the president would weigh in and there'd be a recalibration. This time around, you don't see that sort of strength at the departments and agencies and policy feels much more centralized at the White House with a sea of special envoys for just about every issue that you can imagine. And policy seems to be set more by the president with everybody waiting to see

what the sort of policy mark to market is before they fast follow and figure out what their agenda is going to be. Old trading walks into a bar. New trading raises it. Unlike some guys, tasty trade puts traders first. Maybe you're the type to hunker down on your desktop for hours. Maybe you breeze by on your browser, or maybe you just need that top rated app right by your side. How

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This is something we've talked about, the sort of what ails Europe. But, you know, even within the context of this most recent episode, like it hadn't clicked to me, the sort of elevated role that the Gulf states have had in playing an intermediary. Talk about how the world, whether it's political leaders or business leaders, are like thinking about this reality that what is still, you know, one of the richest countries.

regions on earth is at this moment where like people are asking existential questions about its capacity to be a player in anything.

So look, if you look at the Gulf, I've been traveling there for 25 years. And for most of that time, the international system was in a global war on terror paradigm. And in that context, the geopolitics were driving the economic interest. And when you talk to these leaders, they would say we want it to be the other way around. But they were stuck in this paradigm. And so the most important conversations that were happening at the political level were around geopolitics and security.

but you had these growing sovereign wealth funds that were kind of off to the side. And so these were countries that had sovereign wealth funds, but geopolitics was front and center. And then

A series of new leaders showed up in 2015 and 2016 in Saudi and Qatar and UAE, and they just brought with them a different set of ambitions that are born out of a different generation where they wanted to diversify the economies. They wanted to be leaders in science and technology, not followers, and they wanted to broaden the reach and international influence of each of their respective countries.

But they were still stuck in a global war on terror framework. And then COVID happened, and it completely shifted the paradigm towards a great return of great power competition and competitive coexistence between the US and China. And with all of that geopolitical brush cleared, that was the paradigmatic shift where these countries finally had a situation where their economic interests could drive the geopolitics. And what I would sort of say flippantly, that was the moment where they went from being countries with sovereign wealth funds to sovereign wealth funds with countries.

And put another way, they're now leading with strategic capital as opposed to being a place where people come to for capital. And so it's giving them the right to play the chessboard. And we lump the Gulf countries together because that's what historically we've done. These are distinct countries with unique ambitions. And what they have in common is they have a lot of money. After that,

Each of them are after very different things, and they're engaged in their own degree of competition with each other. So Jared mentioned this idea of a slowdown in the European economy contributing to all the, let's call it, existential angst that you see right now. And George, I want to bring you in here because...

One thing you often hear is this idea that Europe is lagging behind in AI, and if AI is going to be the next big thing, the next big economic driver, that's really a problem for them. Yep, Tracy, it's a great question. You know, having been in technology for 35 years and seen my share of platform transitions and new technologies arise, this is really the first one where world leaders have tagged AI as a matter of national destiny really early.

it's going to be consequential for their economies, their growth, their culture, their defense. And so we've seen enormous focus. And I'm just back, I was recently at the AI Action Summit in Paris, which was quite an impressive event and coalesced a bunch of investment within the borders of France, something Macron, I think, is a real leader on. And some of these European countries are a wellspring of enormous intellectual capital. Think about the Grand Ecole in France, that

combination of math and statistics that they lead in with excellence. You've got Cambridge and Oxford and places like that. So there is an enormous amount of intellectual capital emerging from Europe. And there's some really inspiring companies like Mistral out of France, etc.,

whether they can marshal the intent and capital to really lead in building the infrastructure and they need to support that intellectual capital is the big question. And it's why you saw a lot of the announcements around the AI Action Summit be about bringing capital to France, scaling their lead in atomic energy, which is a great energy source for this. And so

Everyone is giving it their best shot, but competing with the energy abundance, capital abundance of the Gulf countries or the just natural tech leadership of the US, I think it's a hard brief for them to compete in the scale that they want to. But make no mistake. They have real assets. Well, actually, this is a question I want to pose to both of you because whether we're talking about –

What does it actually take to, say, commercialize the intellectual capital of Europe? Or what does it actually take for the EU to be a geopolitical power player so that they're not taking a backseat and watching all of these actions, all of these conversations take place above their head?

There is this sense that large European organizations have been very good at expanding the number of member countries over time that exist, that they grow out. But the issue of like internal depth, single rules, market cohesion is really difficult and the sort of –

the deepening of these various unions that exist on the European continent. And every once in a while, there will be some leader, you know, come up with a 100-page report. I think we talked about it recently on the podcast, you know, last year, Mario Draghi issued a big report. And there's always some new report about competitiveness or whatever. I'd love to hear from both of you whether you think that the tides are shifting in Europe in such a way that,

that all of these things that sound good on PDFs and institutional websites can change the way the nature of politics and policy is run within the continent.

So look, you're getting at a debate that we certainly hear playing out every single day, which is the bearishness on Europe overplayed, right? Nobody's questioning the lack of economic growth and nobody's fooled by the economic rally they've had at the beginning of the year. There's some fundamental questions. I won't try to argue the other side because I'm quite bearish on it. And I'm quite bearish on it because...

It's not that European leaders don't know what they need to do. Let's take geopolitics and defense. George, you should talk on the AI side and the regulatory side, but on defense, it's very clear. What's interesting about Vance's speech, which you were talking about before, privately, every European leader said,

the US has a point on defense spending, they have a point on migration, they have a point on regulation, and every European leader has an idea for how to fix it, and they all like Draghi's report. The question is implementation, right? So Europe has a number of challenges, one of which is you become prime minister if you get the largest percentage of the vote, which is usually 13%, 14%, 15%, or if you're Merck, 29% with a blocking minority from the AFD, right? And so if you're

sitting on top of one of these coalition governments that you can barely scrap together in order to do the meaningful policy changes that you have to do, you're likely going to break the coalition in the process. So you have coalition politics getting in the way. That's one issue. On defense...

3% of GDP is the new 2%. In a lot of respects, what's happened with Ukraine and the fact that the Europeans now conclude they can't rely on the US for security guarantees, it's made them more comfortable with the idea of 3% or as you move east to places like Poland, 5%. The problem, again, is implementation at a collective level. So

There are certain countries that are strong on defense and certain countries that have medium and small-sized defense players. So is the answer that if Europe is going to get big enough from a defense perspective, you're going to have to have cross-border mergers and acquisitions and consolidation? Okay, fine. Who gets the national champion? The EU, yes, it's a coalition of countries or a union of countries. These are still national governments.

underneath it. You're really going to tell a medium-sized Central European country that they have to give up two of their biggest companies because Sweden's going to get bigger on the defense side when, by the way, they're closer to the Russian threat. This is just one example of where it breaks down implementation. Within the EU, you still have some politics that exist between the national governments, and then that gets exacerbated by the point I made earlier about coalition politics.

I'm struck. I've been at a couple of Goldman Sachs gatherings where you bring together CEO-level leaders in Europe in a couple different countries. I was struck by the degree of pessimism and almost resignation about their ability to influence policy that provides more of a pro-growth environment.

for them. Look, I think that, you know, hopefully events overtake some of this inertia because the competitive impulse for these countries is going to get increasingly important and challenging. And so maybe it will mediate some change and more collective, more effective collective action. But the business leaders are certainly frustrated and

And one of the things they reflect on is how Europe's leadership in AI in some ways perceptually has been defined by its leadership on AI safety. By the way, that's a worthy and important goal. One of my observations in the world of AI that's kind of fascinating is

You know, ChatGPT emerged in November 22, and there was an immediate outcry about AI safety, existential risk. A lot of headlines, a lot of ink spilled, a lot of time and energy. Fast forward now, we have machines that are 100 to 1,000 times more powerful, and it's a much more muted dialogue about those risks.

Interestingly, but there's frustration in Europe that, you know, kind of characteristic focus on privacy, regulatory bounds, safety is retarding their progress in something that now has really become kind of a commercial military and cultural arms race across the face of the earth.

This is what always happens, Joe. The U.S. invents the technology, China maybe improves on it, and Europe writes the regulations and the thought pieces about it. Jared, just going back to a point that you made about the European response, you used that word transactional earlier to describe the Trump administration's approach to geopolitics. And funnily enough, we just recorded an episode yesterday where we said the exact same thing

I guess I'm wondering, do you see any signs that the approach is actually working? Because so far...

When you look at the response from EU leaders, it's all about increasing their own domestic defense spending. No one seems to be taking the bait just yet about, you know, well, we'll work with Trump and then in return we'll get security protection. Well, I don't think anyone in Europe believes that that's a doable trade, at least in the short term. And I think what they're realizing this time around that they were maybe naive to last time around is that

I don't think that they look at any bilateral relationship and assign a historic premium to it as special. So this nostalgia for the transatlantic relationship, which I certainly have, and this feeling that certain bilateral relationships are special, which I certainly believe and many others certainly believe, there's no evidence that they're showing up

with that as a set of assumptions. And I think the Europeans are quickly realizing this. I think, honestly, this is a playbook that they're not quite used to. It's the same in Canada and Mexico, by the way, which we haven't talked about. They don't have a playbook for a scenario where they're being threatened with 25% tariffs that could lead to double digit unemployment. And that's

I think everybody's kind of gone off script in a sea of democratic countries where you're not used to having to go off script with each other. And this gets to sort of another debate. We talked about how one of the debates that's playing out is, are we too bearish on Europe? Another debate that's playing out is, should we maybe relax our skepticism about the forward direction of travel in the US-China relationship?

I there also subscribe to the view that I think the relationship is going to get worse for longer. So the question then is, why do things seem slightly calmer in that relationship right now? Well, I think if you're Xi Jinping, you're watching all the dynamics play out in North America between the US, Canada and Mexico and in the transatlantic relationship. And you're enjoying an early Q1 economic boom.

And tariffs on your country have been sort of punted until we get an outcome from these trade investigations. And you're thinking to yourself, I don't really need to insert myself in this. But the fundamental issues in terms of the tension between the US and China, I think, persist. It's still the case that America's most formidable adversary is also its third largest trading partner. It's still the case that short-term geopolitical thinking on both sides persists.

are coming at the expense of medium and long-term economic consequences. And it's therefore still the case that both countries are capable of doing something that's incredibly economically foolish in service of some of those short-term geopolitical goals. I just don't think we're going to see that excite

In the short term, I think that's much more of a medium-term horizon. This brings back this interesting intersection set that Jared and I operate in technology and geopolitics, because one of the key dimensions of the US-China relationship is this battle for supremacy around AI. And I know on your pod, you've beaten the deep-seek topic to death. No, never enough deep-seek talk. Yeah, I just actually think when you step back from it, I think the technology exploits, while impressive, are part of a continuum of improvements in AI and not

super extraordinary, impressive but not super extraordinary. The greatest provocation of DeepSeek may well be the open source decision under the MIT super permissive license. And I'm sort of paraphrasing Marc Andreessen, who I heard recently talk about this, which the irony of

a country that we believe to be generally more closed in orientation, creating the most abundantly available open source model in the world, while the US, an open society, has obviously meta in the open space, but by and large hosts research shops that have more closed orientation.

And so this impact of a Chinese model that is freely available, distillable, tunable, very low cost, that's a real provocation in this competition and relationship. So when DeepSeek made headlines and it had been percolating for a while, then suddenly everyone was talking about it. Everyone was a DeepSeek bro. Yeah, I declared myself as such. For one week, I switched my default to DeepSeek. But

So here's something I was thinking about then. Like that moment, like you had this hit to the stock market and there was this worry, oh, in fact, it's more efficient. What's it going to mean for NVIDIA demand, et cetera? But then the other, the bull case from a sort of pure market standpoint is, look, this moment established the idea of the race.

And if you think that we're in a, quote, race, that's not going to mean less spending. This is – right? Like this is going to mean a lot of spending and we can't lose this, et cetera. But then that made me wonder and you said something in the beginning, this idea that governments embraced AI as destiny. Right.

And I wonder, do we have to accept this premise? I'm very impressed with AI tools a lot. But when you say AI is destiny or when you compare it to who gets the nuclear bomb, you're guaranteed that there's just a flood of money and that's great for private companies. Do we ever have to pause here and say, yeah, this is a great narrative if you're a private AI company or if you're selling power or if you're selling chips, etc.?

And should we pause and say like, yeah, it's cool tech for doing various things, but can we question the premise that AI is in fact this destiny that a country must win in order to be powerful in the future?

Absolutely. And look, I should stipulate, we are two and a half years in to this. And so if you put that in comparison, the public facing dimension of generative A, if you put that in comparison to other technology shifts, we were at a very primordial state in those other shifts two and a half years later, and we still are now. And so-

This is moving very fast. It feels super consequential, but there's uncertainty. We may reach some glass ceiling of improvement and the impact of this technology be less profound than we expect.

I personally don't think that will be the case. I think the ability – just think about your own personal use cases, the way you consume information. You're having a machine interlocutor that is helping you understand the world, and it's transmitting a notion of culture that's embedded in that machine. And so if you think about that from a country perspective –

And you have your citizens accessing an information source to help them understand the world, make sense of the world. And those values are being, those cultural values embedded in that machine are being set in some other part of the world. Just that alone is important. Now we can debate about whether it is going to be really profound, fast-moving economic impact or whether it's going to be slower. We should talk more about that. And already we see evidence that generative AI technology is

on the backs of more traditional forms of AI and machine learning are having a real impact on the way that defense systems work, how warfare is being conducted, and the shape of the battlefield in the future. So yes, I think it's really good to take a deep breath and pause and not get over our skis

And yet, I believe it's going to be very consequential. Evidence of the fact that we all might be slightly over our skis is just the very deep-seek reaction you mentioned in and of itself. The reflexivity of markets, there's so much uncertainty today, but when there's a possible disruption or interruption, the market seems to sell first and ask questions later and then recalibrate.

We saw that with DeepSeek. We saw that even this week with a sort of, I think, misconstrued remark out of Microsoft and one of the analysts, someone in the analyst community about Microsoft data center leasing activity. So the market's twitchy. The market is supporting this heavily. People are heavily invested in it. And when these moments of uncertainty or disruption emerge, it causes very significant market ripples. One way to think about this question of AI being a country's destiny is

There's a category of country that George and I talk a lot about that we sort of describe as geopolitical swing states, right? And these are countries that in a world where the US and China are locked in competition and need other countries to gain the extra edge, countries that have a differentiated part of the supply chain, an abundant amount of flexible capital, and are attractive economically for nearshoring, offshoring.

And French Roaring are in a position with the right leader where they can kind of set an agenda that's independent of Washington and Beijing and swing on an issue-by-issue basis. And these countries, rather than the non-aligned movement of the Cold War, they kind of tend to go it more alone. And they're leaning into this particular paradigm of great power competition and their status of geopolitical swing states to achieve a certain level of mobility, right? And so not all geopolitical swing states possess an advantage when it comes to

AI, but the Gulf countries, which I think are quintessential geopolitical swing states, are looking at the attributes that they have to make them competitive with AI, which is unlimited capital, regulatory environments they control, the ability to do massive infrastructure at scale.

very quickly and sovereign ambition. And again, the ability to kind of play both sides. And they see a once in a generation opportunity to differentiate themselves in the AI space and leapfrog generations of geopolitical status. But you're seeing this. I spent a lot of years at Google and Alphabet and Saudi Arabia, Qatar, UAE, these countries were nowhere on anyone's

radar screen. They were not relevant technological players. They were not part of the conversation. There was no evidence they were ever going to be part of the conversation in a favorable way. Now, there's not a single major deal in the AI space. There's not a single AI conversation of any real significance that doesn't involve one of the three big sovereign countries in the Middle East. And Kuwait is not far behind as they're on the precipice of certain transformations nine months post-dissolving parliament. And so for them...

AI is destiny because that destiny is geopolitical mobility. And, you know, we wrote a companion piece to our geopolitical swing states thesis around AI swing states. And clearly the Gulf is...

frontally involved in all of that. But some others might surprise you. I mean, the Netherlands, the home of ASML, that makes that extremely strategic and relevant in the world. Who would have thought semiconductor capital equipment would become so geopolitically relevant? South Korea, the home of SK Telecom, the biggest provider of high bandwidth

a memory, which there's going to be extraordinary demand for going forward. India, with all its apex technical talent and a huge population, how they deploy and understand AI is going to be critical to the world. So the Gulf is, you know, in the headlines, but there are many other nations for whom this is, you know, really important to their strategies.

Bye.

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I want to try to connect, I guess, the old geopolitics with some of the new stuff that's happening, especially AI. Can we talk maybe about subsea cables? I've had people tweeting at me for the past week saying we need to do an episode on subsea cable warfare. So consider this maybe a preview for something longer that's coming up. Yeah, absolutely. If you think about two topics that are discussed a lot, one topic is trade and the other topic is AI.

AI. And if you look at global trade, 80% of it flows above the ocean.

And then 95% of all data flows on 750,000 miles of undersea cables that are the equivalent of circling the Earth 30 times. So what does that actually mean? That is $10 trillion of daily transactions. That's all the instant messages. That's offshore energy. And by the way, that's national secrets. And there's 150 cable breaks on average a year.

And that number is going up, not just in terms of volume, but in terms of geopolitical sensitivity. So just to give you an example from, let's call it the last six months, right? So in November, a Chinese vessel dragged an anchor 100 miles in the Baltic Sea, severing an undersea cable that connected Sweden to Lithuania and also Finland to Germany. A month later,

A Russian vessel as part of the Russian ghost fleet, also in the Baltic Sea, did the same thing, cutting an undersea cable from Finland to Estonia and had to be seized by Finnish authorities. And so these things continue to happen. What's interesting is the multilateral architecture that was established for repairing undersea cables, it predates the tech competition between the US and China. Undersea cables started being laid in the 1850s.

And so the ocean is broken up into different zones. So you can have an undersea cable that breaks in the South China Sea, and the Chinese have the authority to bring their repair vessels to repair it. Now, that's a very tricky thing when you start worrying about malware being thrown. Undersea cables, it's not the sexiest thing.

technology in the world, but it's in a lot of respects, I think one of the most important geopolitical features of the AI conversation and the technology conversation. But it's heavily dominated by Western players. So there's three companies, Subcom in the US, NEC in Japan, and Alcatel in France that have 87% of the market share. And then China has a minority player in this. And the US has actually been very successful in

at thwarting China's efforts to take control of subsea cables, right? So they use a combination of incentives, threats, telegraphing potential sanctions to ensure that China doesn't win the bid for some of these cables. And it's been quite effective.

The other thing that's interesting is the hyperscalers have increasingly been forming these consortiums with the big telecom companies to play a role in subsea cables. And so Google, for instance, is either a whole or part owner of 33 different subsea cables.

cables. And so I think we're going to see more and more breakage. And by the way, it's not just state actors, right? So when the Houthis started firing missiles into the Red Sea, they hit a commercial vessel that sank and its anchor broke two of the subsea cables in the Red Sea. 90% of data traffic from Europe to Asia carries through 14 cables in the Red Sea. So again, this isn't a highly talked about space, but...

when so much of our digital information moves undersea five miles below the surface in some cases, it's a very important theater. It's interesting to reflect. Obviously, Jared is your guy as it comes to subsea cables. He knows a lot about it. He's studied it a lot. But to me, at a high level, it's sort of fascinating that subsea cable complex is kind of the Silk Roads of the information economy. And so just like

The Silk Roads, securing them, the interstate transit that occurred, the international transit that occurred there, like the same dynamic is playing out here. These are the roads that our economy is traveling today. By the way, I just have to say in the year 2025, the existence of subsea cables actually still blows my mind. And the fact that the first one was laid down in the 1850s, there are various things in the past I can't wrap my head around. I can't wrap my head around, you know,

the Hudson tunnel or whatever, how they build a tunnel, uh,

Brooklyn Bridge. The fact that in the 18... There's a great book, The Victorian Internet, that came out in 1998 about that. It's also why the US-UK exchange rate is called a cable. Anyway, that always... Sorry, that always just blows my mind. I have one very random quick question for you, Jared. I know this is a little off topic, but you mentioned that China's got a little free pass. Trump really seems to have it out for Canada. At least...

With Mexico, it's obviously a source of significant drug traffic and there's a lot of migration that comes through the southern border. What is up with the antipathy for Canada, which I just don't think much about? So some of it is interpersonal.

He and Justin Trudeau never got along particularly well, which is also part of why I think Germany might be taking the wrong lesson from Prime Minister Trudeau going to Mar-a-Lago amidst the concerns about Trump tariffs and trying to

figure things out only to be on the receiving end of even harsher treatment. Their view was that means you need to show up with a loaded gun and be ready to pull the tariff trigger. I think they're underestimating how much of this is interpersonal. But I also think it gets back to, look, I don't claim to be an armchair psychologist for the 47th president, but I don't think

he's necessarily hiding this principle of reciprocity that's a key feature of his administration. And if you look at defense spending in Canada and you look at the trade deficit with Canada, it falls right in Trump's line of sight. And I think he's...

If you sort of add the context that his starting point is not that there's a special relationship between the US and Canada, and you're just looking at the numbers, I'm not saying it starts to make sense, but you're asking me kind of what's up with Canada. That's my best guess. What I will say also is...

If you look at the tariffs, I think they fall in three categories. I think there's tariffs that are based on things we've seen in the past with a lot of detail that they announced that they intend to implement and they will implement. Then you have what happened with Colombia, where it's clear that the tariffs are either something retroactive in response to an action that a country took that the administration doesn't like, or they're used as a negotiating tactic.

But it's this third category. And I think the tariffs on Canada and Mexico, which we'll find out more about in the next week, fall into, which is they announced tariffs with enough detail that it's clear they want to implement them and they intend to implement them, but they go beyond precedent. And the second and third order economic implications are not yet understood, nor are the

responses from the countries that have never found themselves in this situation. And so what you don't know is this going to be a six-month head fake to the market that ultimately ends up getting walked back because the economic pain is too much, or is it in fact going to get implemented? And I think the market's going to have to learn to be a little bit patient and weather the volatility. But I think given so many countries have never been in this situation before, there's a ton of room for miscalculation, right? And miscalculation, you know,

happens when countries are forced to go off script. And that's where you can have unforced errors. And that's where you can have unnecessary chaos. So on that note, I have a theoretical, I guess, big picture type question. And I think given that you guys said you're all about connecting geopolitics with technology and markets, you are the perfect people to ask this. But

Markets seem to really struggle with geopolitical uncertainty. It's such a huge topic. The possibilities are almost endless. You can get almost infinite permutations of geopolitical events and situations. It seems really hard to price and incorporate into your strategy.

How do you actually go about doing that? So this conversation that we just had, which was great and very interesting, if I'm an investment manager, what do I actually do with this info? Yep. Well, Jared should jump in because we have an opportunity to talk to some of the leading investors in the world around these topics.

It's funny. We began to undertake a study to try to discern what are the market impacts of really profound geopolitical events. First of all, as you know, as students of the market, it's very hard to isolate any given effect among the panoply of different things that drive stock prices and interest rates, et cetera. So we struggled with that. The second observation, and it wasn't really deep enough to be publishable or verifiable, is just that markets actually wait quite a while for clarity.

and then act as that clarity emerges. And so while I described the impulse in the AI world is a little bit sell first and ask questions later, in geopolitics, it seems to me at least, and Jared, I'm sure in your world, it's a little bit like ask questions first and then sell later. It seems to be the dynamic. And Jared, do you agree with that? Yeah, I'll make two points on this. And I think it depends. It's kind of a tale of two geopolitical stories. There's the downside risk

part of the story or the downside risk volatility. And what George and I always tell clients is when it comes to geopolitics, you can't predict what's going to happen on Tuesday or what's going to happen on Thursday. And if somebody does that, you should kick them out of the room. What you can do is say, here's the shocks to the system that tell you that this thing has gone off script. So here's what you should be looking for. And here are the key inflection points and the geopolitical time sequence that they're likely to happen in.

And so this occurs a lot in the context of the Middle East when people are sort of thinking about, will Israel bomb Iran? Nobody knows, right? But you can tell them

warning signs that they might look for and certain inflection points that increase the likelihood that that might happen. So that's the downside risk part. I personally think we spend too much time on downside risk volatility. There's a more- If people listen to geopolitical analysts, they would stay uninvested for their entire lives. This is why you got to, anyway, sorry, keep going on. It's just another volatility variable, right? And so let's take a more affirmative look at geopolitics. And George and I have talked a lot

about how geopolitics is pushing some pretty attractive economic environments into a situation where they're eventually going to trade at a geopolitical premium. So let's take India and Japan as an example. So India and Japan, already very attractive

for all the reasons that I think your listeners understand quite well. But if you double click on Japan, as an example, the geopolitics have brought them out of their shell. It used to be Japanese investors investing in Japanese companies or Japanese companies.

merging with other Japanese companies. The geopolitics have made them much more interconnected around the world. They're also massively increasing defense spending relative to what they've done before, which is giving them a defense renaissance. They're recognizing that they're going to be one of the big beneficiaries of reshoring in different parts of the AI value chain and other technology value chains. And it's triggering a bunch of reforms in how these companies are governed with regards to the value that they return to shareholders. So

Japan, as a result of the geopolitics, is undergoing a bunch of changes that over time are going to create more opportunities for investment. So I talked to a lot of strategic investors around the world that are pulling money out of Europe, and they're reallocating that capital towards the US, which they're bullish on, but then they're worried they're over allocated towards the US. And so where else are they putting capital? They're putting capital in places like Japan and India. Why? Because they understand that the geopolitics

are making places like Japan and India pockets of certainty and predictability amidst a geopolitical moment where it feels like there's a lot of uncertainty. But if things get worse between the US and China, which is the primary reason why you have all this geopolitical volatility, it's only going to benefit Japan and India because both countries are able to play

Both sides, and yet the U.S. has telegraphed their long-term commitment to both. So to take as an example with India, the U.S. is heavily reliant on India for pharmaceutical supply chains. India is highly reliant on certain elements from China that they require to produce their pharmaceuticals, and they have no interest and are not going to diversify from China. So they maintain a posture of strategic ambiguity with regards to most of the U.S.'s ambitions or policies towards China, unless it pertains to their land disputes.

with China. And so I think that affirmative case for riding the geopolitical volatility towards kind of new investment theses is quite attractive. You know, one thing, Jared's comments and remarks around inflection points reminds one of the techniques that we use in the Goldman Sachs Global Institute to engage clients is our simulations and war games.

We bring together policymakers, corporate leaders, and investors. We introduce a scenario. We introduce perturbations to that scenario. We ask people to really engage, help make decisions. And then at the end of these sessions, we get to reflect on what we all learned through that game turn. And that's a place where I've seen investors really step back and go like, wow.

Actually, when you scope out and think about all the chain of events we just described, I should be more attentive to inflationary impulses or allocation across geographies. So it's actually interesting to not to get caught up too much in the minutial movements of one geopolitic move or not, but then to just scope out 50,000 feet, think about the inflection points.

And then reason about your portfolio and your investing strategy. Can we come play the war games at Goldman Sachs? Yeah, we want to do a war games episode at some point. That would be great. It's such a fascinating technique. And in an era where we're all a little bit over-conferenced, the lean forward engaged dimension of war games with clients is really fun.

We'll make that happen. I hadn't even thought about that with India in the sort of middle between the raw commodities. I knew about the role of the supply chain. Anyway, fascinating conversation. We could just keep talking about all this stuff for hours.

It does feel like I'm not crazy or that we're not crazy, that things are a little bit crazier these days or unprecedented times, interesting times. Jared Cohen, George Lee of the Goldman Sachs Global Institute. Thank you so much for coming on my podcast. Thank you, guys. It's great. Thank you.

Tracy, I really like that conversation. You know, as I mentioned, it always feels, oh, there's a lot going on. These are unprecedented times. It's nice to talk to some professionals and like, no, you're not going crazy. These are kind of unprecedented.

It is different right now. Yeah. Yes. So two things stood out to me from that conversation. And one of them is it is truly remarkable just how quickly countries are moving at a strategic level when it comes to AI and that everyone seems to agree this is important, both strategically from a geopolitical perspective for national security, et cetera, and also for their respective domestic economies. Yeah.

The second thing that I find really interesting, and we've spoke about this before, we did that episode with Acquired, but it's the sort of intermingling of corporations with political power. So the idea that some of the hyperscalers are now in the subsea cable business too, and subsea cables are incredibly important to all those strategic AI missions that I just laid out, that seems different as well. Yeah.

You know what I thought was another interesting thing and why it's good to talk to geopolitics people sometimes? Like you and I, when we think about like, I don't know, the last 15 or 20 years, you know, how do we usually segment up? We think about the great financial crisis.

The COVID shock, the recession that happened for about 10 minutes and 20, and then the boom that turned really hot, right? When you talk to geopolitics people, it's the war on terror, which never comes up. But the idea of the war on terror being this very significant sort of economic story of impairing the economic ambitions for a long time. The war on terror in finance land is the era of Greenspan imbalances. Yeah.

Right. But the idea of like this was a fetter on the economic ambitions of Gulf states, which are now so huge and not really something I think much about. And then this idea of COVID, which, again, we usually talk about from a sort of economic standpoint. We've done a million episodes on that.

as marking the sort of starting gun of what we now call, you know, great power competition and their idea of geopolitical swing states. So I like the people coming at it from a different perspective, break up eras of history in a way that's distinct from the way econ and market people do.

Absolutely. And I do want to go into Goldman to play those war games. I've always been curious, like, how they actually work. Well, I want to play war games and I also want to do the ones like with the actual board or like with the board games where like they roll the dice and it's like, okay, you have a 70% chance of your amphibious mission actually working. You actually do that. I want to- Wait, does that mean you're going to go to one of those board game clubs with me? No, Tracy, I'm not going to. No. No.

That's not my vibe. You just said you want to play. No, I want to do like a serious one with like researchers. I'm not going. I'm sorry. I'm not. You're too cool. That's what you're saying. Playing like, you know, settlers of Catan and all this stuff. And then the one other thing that really, this is not my vibe. I'm sorry. You just angered a good chunk of our listeners. A bunch of our listeners. I'm sorry. I love you all. Sorry. The one other thing that I just think is like a stunning word to hear is

Jared used the word evaporate to talk about the sort of status of Europe, which is, you know, one of the richest areas of the world. And, you know, it's Europe. And to hear the word like evaporate is like actually, you know, there is no sign that the bearishness has gotten too far, which he described really well due to the nature of the parliamentary dynamics in Europe. It's bleak.

It is extreme, that kind of word. But on the other hand, I think everyone would agree we're sort of living in an era of extremes. So here we are. On that happy note, shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Traci Allaway. You can follow me at Traci Allaway. And I'm Jill Wiesenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Ehrman, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks.

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