Questions and Expectations for Trump 2.0; Looming Trade Tensions and PRC Responses; Volatility and Intermediaries; TikTok’s Last Hope?
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Hello and welcome back to another episode of Sharp China. I'm Andrew Sharp and on the other line, Bill Bishop. Bill, how you doing? Hey, Andrew. Hey, everybody. Doing well. Hope everyone's doing well. It's been a momentous week here in D.C.,

Yeah, some unseasonably warm days around D.C. this week. Spectacular weather. I would say the mood is decidedly mixed around D.C. this week, but here we are, you know, regardless of who's president, the commanders are seven and two.

the Wizards are looking a little frisky. I don't know whether you've caught any Wizards, a little sharp shot of sports at the top, but the Wizards are the only sports team I truly care about. And I feel good about them for the first time in about seven years. So I'm in a good mood because of a bunch of 19 year olds that are giving me hope for the Wizards. Well, I hope your hope isn't crushed. That's all I can say. The Wizards...

The last time the Wizards won, I think, a championship, I was in elementary school and they were the Bullets. Oh, God. Yep. It's been a while. You probably won't have been born yet. I don't want to go there.

They've never won 50 games in my lifetime. So one day we'll hit that mark. I'm not even worried about a championship. But in any event, yes, the election was resolved in about one day and was not a weeks long fight that drove the entire country insane. So we've got that going for us. Former President Trump is now the president elect.

And as apolitically as we can, I want to talk through some of the U.S.-China implications of a Trump presidency, which you wrote about on Wednesday. There are a lot of unknowns here, but I'll start with Reuters. They write, China's President Xi Jinping congratulated Donald Trump on his U.S. presidential win and urged both nations to find...

The right way to get along, stable, sound and sustainable China-U.S. relations serve the interests of both, Xi said on Thursday, adding that the international community would expect the two powers to, quote, respect each other and coexist peacefully. And Xi also discussed forging the right path for China and the United States to get along in the new era, benefiting both countries and contributing to the world.

and China Daily, they portrayed Trump's second presidency as a potential new beginning in U.S.-China relations if the chance that has been offered is not wasted. So Bill, what did you think of Xi's congratulations to Trump? And have there been any other indications from state media as to how the PRC is processing this news? No, that I think is the best indication, is that congratulatory message to President-elect Trump. There were some reporting that

She had called him. He didn't call him. He sent a congratulatory message. And the language, I mean, the thing that's most interesting, I thought, was just language. I mean, again, most of it or all of it in various forms we heard before, but it's sort of the she saying the...

hope they can forge the right path for China and the United States to get along in the new era, benefiting both countries and contributing to the world. And of course, the right or correct path is one of those things that's up for debate. And it will certainly tie into the, you know, one of the complaints the Chinese always have is that the U.S., you know, the admonitions to the Biden administration is, you know, you have to have the correct perception of China. And I think that they're going to find that from their perspective, President Trump and his team probably don't have the correct perception of China either. Right.

Right. And so I think, you know, what else is she going to say? I mean, you know, in some ways they know Trump. Right. They've dealt with Trump for four years. She dealt with Trump for four years. And so they might be able to cut through some of the sort of sniffing around to get to know you BS that you would have with a new or untested person.

president and their team. And so maybe it may mean, it may end up that, you know, things move faster on the U S China side. Once Trump gets back into power, just because they're in. And a lot of that will depend of course, on how Trump populates his team. But from the Chinese perspective, I think they clearly have, you know, understand Trump and to the extent that you can, they have a lot of experiences. I think one of the things that they bring to the table is,

This time is that they are in a much better position to deal with what Trump and his team would throw at them than they were six or seven or eight years ago. And one of these interesting writers today we're recording on November 7th.

This comes out on November 8th. Number eight is seven years ago, Trump was on his sort of, I think it was like the state visit plus to China and, you know, got a nice tour of the forbidden city with Xi. I saw that picture of him in the city. Yeah. So again, this is a mostly a known quantity. I think from the U S perspective, it really, one of the things that will be interesting to see how the Trump team and the president himself, what kind of recognition they have about how quick, how much, uh,

China has changed and also how much she has pushed the country towards being in a much stronger position, both in terms of moving towards more self-sufficiency in a lot of areas, but also in terms of building up a toolkit to respond to tariffs, trade coercion, etc.?

Yeah, no, exactly. I mean, it certainly seems like and I don't know how much of that was inevitable and how much of that was a response to some of the experience during the first Trump administration and lessons learned then. And, you know, she looking to solidify it.

the economic base so that they're not vulnerable to that sort of coercion in the future? I think it was inevitable, but accelerated. And then I think also the sanctions around on Russia, around Ukraine also accelerated that work. And so I would not expect the Chinese to do anything that they think would quote unquote anger Trump before he gets back into power for January 20th. But I also I also don't think that there will be

Right.

Right. Well, this congratulations full of stock language is a worthy move in that direction. Well, the real stuff, the real action will be, so who are they now sending to the U.S. to try and augment the PRC embassy's work around who matters in Trump world? How can they start getting meetings and get a better sense of what a Trump administration will look like in terms of China policy? I wrote about it yesterday. I talked about it a few weeks ago in that

election dialogues thing I did with Chris Johnson, I think the Chinese government had a pretty good sense of who, say, a Harris administration China team would be. They know a lot of those people. A lot of them are in think tanks now or already in the government. On the Trump side, there's a lot more of...

Still uncertainty about who's going to staff what positions, especially around China policy and at least at the sort of the not the top levels. And so I think the Chinese are scrambling now to understand who to deal with. And I would not be surprised if we see the former ambassador of the U.S., Fei-Tian Kai, who's been coming to the U.S. a lot.

will probably pop up maybe even in Palm Beach just because he had a relationship with Jared Kushner and Trump's daughter Ivanka. Again, whether or not they're going to be involved in this administration, when Tsai was ambassador, he was very assiduous in working the first daughter and her husband, Jared. And that turned out to be a very important, I think, useful back channel for the Chinese.

Yeah, well, and it's pretty interesting because the Financial Times wrote about it a month or two back, and we mentioned it on the podcast before. But because of the Russia scandal in 2016 and just general paranoia in the lead up to this election, nobody who might be associated with the Trump administration over the last six months has.

wanted to take meetings with PRC emissaries and be seen dealing with anybody that might be seen as like making inroads into the Trump campaign. And so it created this sort of barrier as the PRC tried to get a sense for how this might play out. But

Before we get to how this might play out, I want to go back to the four years of interactions that we've already seen between the Trump campaign and the PRC or the Trump administration and the PRC. And I came up with a list of questions here on Trump 2.0 implications. Yes.

This was actually number two on the list of questions, but I'll start here just to provide a baseline. So for anyone in the Stratechery audience who's new to these issues or who only started paying attention after we started hosting the best China podcast anywhere,

Can you refresh people's memory on how the trade tensions emerged in the first Trump administration, what the trade deal was and why Trump thinks that China reneged on its end of that trade deal? So it was about Trump.

Trade deficit. Trump wanted to fix the trade deficit. You know, the U.S. was importing more from China than they were importing from the U.S. And it ramped up. Trump had a lot of campaign rhetoric about China. Then 2017, he was inaugurated in January. I think by May or so, forget the exact date, but there was the Mar-a-Lago summit where Xi Jinping came to the U.S. and they actually met at Mar-a-Lago.

And there was talk of trying to figure stuff out. There was threats. And then you had basically a Bob Lighthizer, who is head of USDR, who launched an investigation that then led to Trump administration saying, we're going to put all these tariffs. But they were trying to negotiate through some sort of a broader deal that

And the US had a... I mean, just for purposes of simplification, I'm skipping around a little bit here. So basically, the US said they wanted China to buy more stuff, specifically agricultural goods, one of the key items, again, because that's also an important constituency for politicians here in the US. They also wanted China to make certain commitments to structural reforms that would open up their markets more and...

level the playing field for foreign companies, but specifically American companies and reduce subsidies, etc. And basically, they went back and forth on these negotiations. The point person on the Chinese side was Liu He on the US side. It was really mostly it was Trump, but then it was then Treasury Secretary Mnuchin and USTR head Lighthizer.

And basically, ultimately, they couldn't get a deal. They thought they had a deal a few times. So then Trump adds these tariffs. Then they get it. Then they announce the deal. But the way they finally sliced the deal was instead of just one big deal, it was sort of phase one, phase two, phase three, where the understanding really was phase one was the Chinese agreed to buy a bunch of stuff. And that's easy. The Chinese would have bought stuff the first day if that's all the US wanted. Right.

And then phase two was supposed to be some of these more structural things, which no one expected would happen. And they didn't. But then even on the commitments, the purchase commitments on the Chinese side, they didn't hit them. And they will say, well, COVID hit, there's pandemic, etc. But ultimately, it was not a successful deal for the US. And now you have to wonder when Trump comes back in in 74 days or so.

He doesn't need... Again, he's not also worried about re-election. So he may not be so concerned about mollifying certain constituencies in the US so quickly. One of the questions then is...

And especially it goes back to, well, what role, if any, will Ambassador Lighthizer have? And we keep hearing probably a pretty significant role. I think he's not happy with how that deal ended up. And so then the question will be, will the U.S. make sort of broader demands for, again, more of these structural changes, changes that have actually in some ways gotten even worse recently?

In the intervening four years, you know, when the U.S. talks about overcapacity, of course, the Chinese say there's no overcapacity. But the U.S. and the allies talk about, you know, industrial subsidies overcapacity. That, I think, was something that the Trump administration economic folks would also agree with.

And so I think there's a reasonably high likelihood that pretty quickly you'll get right back into that sort of heated rhetoric and potentially... I mean, Trump has talked about up to 60% tariffs. I think we should take him at face value. Maybe there are not 60, there'll be 20 or 30 because you say a big number to negotiate. But...

It isn't at all clear what the Chinese can offer to get him to back down on the talk of putting more tariffs on Chinese goods. He means what he says, essentially. I also just think that they're unlikely to just go back down the old road they went down in Trump 1 that really ended up with not a particularly good deal.

Right. Well, and Bob Lighthizer, you link to this in your cynicism piece on Wednesday. His essay in the Financial Times, I believe a week ago, he said, What we have seen in recent decades is countries adopting industrial policies that are designed not to raise their standard of living, but to increase exports in order both to accumulate assets abroad and to establish their advantage in leading edge industries.

These are not the market forces of Smith and Ricardo. These are beggar thy neighbor policies that were condemned early in the last century. Countries that run consistently large trade surpluses are the protectionists in the global economy. Others, like the U.S., that run perennial huge trade deficits are the victims.

So that pretty clearly distills where Lighthizer is, at least. And it doesn't name China explicitly, but is pretty much... That described... A lot of that is China. No, that's right. And I think that

The other thing that Trump did in Trump 1 is he had the moment where he basically cut off ZTE, the telecoms company, and then a week or so later tweeted that he had a conversation with Xi Jinping who asked him to uncut off ZTE because people were going to lose their jobs. And so he backed off. But then his administration moved forward on Huawei. They put on several restrictions. They asked the Canadians to arrest the CFO who was transiting through Vancouver and

So that, again, I think when you fast forward to January, it's hard to see how the Trump team will have a less dark view of China's development than they did four, four and a half years ago. Right.

Right. And it's interesting, too, because if you look at the Biden administration, the Biden administration really continued and intensified many of the policies the Trump administration put in place around trade and technology. You know, they did it with with more of a smile and more of an attempt to persuade allies to get on board. I think that the Trump administration will.

be more likely to... Not really worry about that. Well, you know, I think they would prefer... I think they understand that it's better to have other countries involved if they're willing to, but they're probably going to be a little more forceful and sort of get on board or, you know, my way or the highway. FDPR. Yeah, no, I mean...

It is interesting. I just in terms of thinking back, I mean, I was not hosting this podcast during the first Trump administration and I was not thinking about these issues every week, but thinking about China policy under Trump.

My memories, I mean, I would say two things. I think Trump deserves credit for breaking with past administrations and understanding China as a competitor and not a potential ally and developing a framework for understanding the PRC that...

as you said, has remained pretty consistent under the Biden administration. The way they execute policy and approach some of these conflicts may differ from administration to administration, but the baseline understanding has been pretty consistent.

As far as actual policy, though, I mean, I recall the China approach as being almost schizophrenic, where like the security and business folks were pushing different agendas. And on the outside, it seemed like some of the decision making depended on who happened to have Trump's ear that day, right?

And so I'm curious as to whether some of that schizophrenia will continue. No, I mean, that's the big question. It was exhausting. It was exhausting, I think, for people working in the administration. It was exhausting for people trying to figure out what's going on. You know, a lot of it was policy by tweet.

Right. Or phone conversation with she about ZTE. And so, no, that is one of those questions where we just don't know. And that's why it's in many ways, it's really hard to say anything specific about what Trump may do. I think, I mean, I'm fairly confident of the general direction of travel. However, you know, there is always a chance that there's some reason to make a deal or there's something that's offered that he decides this makes more sense. And I think that

the way, I mean, like he listens, at least in the first administration, he listens to outside other businessmen, you know, people, especially billionaires who have views, think they had a pretty direct feedback into parts of China policy. That would probably happen again. And, you know, we talked, I mean, I wrote about it a little bit yesterday, and I think Ben may have mentioned it. I mean, he certainly had the piece about Elon Musk and Stratechery on, maybe it was on Wednesday, right?

But I think when you look at a guy like Elon Musk, who obviously, you know, he did a lot to help Trump get elected. He and not just with money, obviously with Vaxx.

He's the richest of all the billionaires who talked to Trump. And he's also the one with the most exposure to China because of Tesla's both sales in China and manufacturing for China and the global market out of Shanghai. And so I think the question really is going to be, how will the Chinese try to use that conduit as a way to short circuit a...

return of brinksmanship over trade deals and instead work out some sort of a try and see if there isn't a way to work out some sort of a broader deal. Right. That is possible. Never say never.

No, I mean, and it's one of the questions I have as we look ahead at who might be appointed to various cabinet secretary positions. I mean, I have no doubt whether Lighthizer is appointed to run Treasury or Commerce or wherever. I have no doubt that Trump will find various policy folks.

who are hawkish on China. And, you know, Tom Cotton, I saw floated as a potential cabinet secretary. But what I'm curious about is whether there will be like a Steve Mnuchin type who, if memory serves, was fairly effective at scuttling some of the more ambitious policies devised by like the Matt Pottingers of the world and and Musk and

I don't know whether Musk will be part of a Trump administration. I mean, that's kind of crazy to think about. But...

But Musk could end up wielding that sort of influence. And I know in the past you've asked, like, who is Kissinger 2.0? Maybe Musk could be a Kissinger 2.0 in the eyes of the PRC. Well, yeah, I think the Chinese will end up with a bunch of mini Kissingers. And I think Musk will be the top of the list. You've also got John Thornton, who was –

when there was the signing deal in the Oval Office for, or at the White House for the first phase one of the US-China trade deal, Neil Hoof from China was there. Trump gave a speech, thanked a bunch of people, including he thanked John Thornton, right? So you've got someone like him, you've got Steve Schwartzman. You know, we just, there are a lot more variables in this policy. And to your point earlier, there's also the, I think really the process of

in the first Trump administration, wasn't particularly structured or disciplined. Yeah. And, you know, maybe it'll be different in Trump too. I guess skeptical facial expressions don't come on a work on an audio podcast. I think, I think it's, it's, it's again, never say never, but I think the, you know, I, if I were to post on poly market, make a bet, it would certainly be, uh,

uh, you know, more, it'll be more like Trump one. And then there's a lot more ability for outside actors to sort of shape the way things go. And so that, um, I will say, you know, the ministry of commerce in China, you know, put out a statement today and basically they talk about how they want to have, um,

It's a positive, the normal win-win cooperation, peaceful coexistence, resolve the differences based on mutual communication and respect. I think the Chinese are very much signaling that they don't want a trade war. They don't want to do it all over again. I think it was exhausting. It was exhausting for them, but it's also their economy on the one hand.

Their economy is different than it was six, seven years ago. They have, I think, more of an ability to withstand the pressures from the U.S.,

up to a point, at the same time, their economy is not doing great and they would prefer not to have to fight that fight. So I think they are incented to try and figure out what they can offer the Trump administration, particularly what they can offer to forestall an intensification of the trade pressures on China. We'll see if they're successful, but I really don't think they're going to come out. They're not going to come out the gate like

I think they've been using various think tankers, the Chinese think tankers who come through town. They've been using various people in the media to signal, we've got all these tools that we can use. We have a much more robust toolkit to respond. But they're also saying, basically, we don't want to use that if we don't have to. So let's find a way to figure it out.

Well, as far as the tools, I did have one question because on Wednesday you cited Scott Kennedy and a piece in Foreign Policy. Scott Kennedy is at CSIS and he wrote about the trade tensions and he wrote, last time China faced U.S. tariffs, President Xi Jinping appointed Vice Premier Liu He to negotiate, but this time she might well authorize a disproportionate response.

The first step would be to massively penalize a few Fortune 500 U.S. companies. Most vulnerable are those in sectors with capable Chinese alternatives. China could expand restrictions on exports of critical minerals and move forward with other export controls. It could sell off $100 billion or more of its $775 billion in U.S. treasuries.

and one might expect Beijing to act even more aggressively in the South China Sea and around Taiwan, raising anxieties about the prospects of a kinetic conflict. Its biggest weapon, however, may be to allow its currency, the UN, to fall from its current peg of $7.1 to $10, $11, or $12, and if markets don't cooperate, engineer a downward devaluation.

So I understand in broad strokes that devaluing the UN would undermine the effectiveness of any tariffs and could destabilize markets in the US. But can you explain any more about how that would work? And how would devaluation affect the PRC and its own economy? See, I think that's more of an empty threat. I actually think that that kind of a...

They let the UN devalue a little bit during the first trade war with Trump. The idea that they would go to 10 or 11, I mean, it's certainly possible, but I think that's more a bluster from the Chinese side because that would be very destabilizing both domestically because, again, Xi Jinping is very clear about the importance of having a strong currency and it very much fits in his idea of building out a modern financial system with Chinese characteristics. It also is something that would

have a huge ripple effect throughout emerging economies, also known what they call the global South and would, would, would harm, probably harm a lot of global South countries in ways that China says they're not going to do. So I'm, I'm less, uh,

I just think that's something where they're going to put out a bunch of ideas that sound really threatening. You know, I think the things around export controls, you know, on certain types of critical minerals, you know, we've already seen that with gallium and geranium. And, you know, there are more that they can do. You know, one of these is interesting is back, I think it was 2019, when both sides, they thought that was a deal. I think then Treasury Secretary Mnuchin actually said,

like announced that there was a deal. And then Trump tweeted, there wasn't a deal. Basically a couple of days later, I don't have the timeline right in front of me. Um, she then made an inspection tour out to a Jungsee province and Jungsee province is probably the, I think it's the biggest production province for rare earth minerals. Uh,

Oh, okay. And he visited, I think it was a rare earth production processing company. Just checking it out. Yeah. And he also visited a monument marking the start of the Long March. And it was pretty obvious. He didn't say, we're going to use rare earths to threaten you, but it was pretty obvious exactly what he was doing. And now fast forward, what is it? Five years?

five and a half years, right? We've seen them, again, build much more of a legal framework around how they can use export controls and things like they have their own entity list. So, you know, they can put company, US companies that did that last week on the entity list, right? Last week it was

Well, a month ago, they put the drone company Skydio. Then last week, we learned that Skydio basically can't sell drones right now because they can't get batteries because the battery manufacturer in China is not allowed to sell to them. And so I think that the Chinese...

They have more tools, but the more they use them, the more it's going to force the decoupling. I don't think it's not like it's going to force the Trump team to say, oh, gee, okay, we're going to back off. Right. Yeah. No, that's interesting. It will become much more of a sort of a self-reinforcing dynamic. And so on the one hand, I think you're seeing the Chinese signaling, these are all things we can do. And I think

Some of them are quite legitimate and could cause some harm. Again, I'm skeptical of a devaluation to 10 or 11, but I mean, again, never say never. The other thing though is you will see real attempts to

prevent this kind of escalation so that there can be something where they... Because the Chinese... Again, it was exhausting for everybody in Trump 1. And they don't want to deal with that anymore. My understanding is that it hurt China more than it hurt the US in Trump 1. And they don't want to go through that again. No, it has hurt China. And it did accelerate. It really sort of was the catalyst for... And then, of course, the pandemic hit. And that was even more of a catalyst for...

some movement towards, call it friend-shoring or moving supply chains partially out of China. But again, the US and most countries around the world are still very reliant on China for lots of things. And China's point continues to be that they want that supply chain reliability because it gives them leverage.

Right. And the cost for these foreign American companies to move their supply chains out of China are quite high. And again, like we're seeing with the most recent one with Skydio, I don't know, you know,

that they can't, no one else seems to make the batteries they want. Well, yes, it's a challenge for the West over the next several years. The lesson is if you've got a company that has a critical supply chain reliance on China, you probably shouldn't be publicly lobbying against Chinese companies. Like they were lobbying against DGI, right? And what they, they had a, they sold stuff to Taiwan, but it was like, it was Taiwan's fire agency. It wasn't even weapons. Well,

Well, yeah, but I would also say that the lesson is if you are over levered on Chinese manufacturing and or various critical components, that is a weakness that can and will be exploited at some point by the PRC. I mean, that's what we're seeing here. And I don't know if it's inevitable that it will be exploited, but it's like a real sort of existential risk to a lot of these businesses.

And one of the things, like the Scott Kennedy article you talked about where he mentioned maybe they go after some of the big US companies to sort of make the point. The problem with that is you pull the gun out, and as soon as you pull the gun out, then you freak people out. And so if they were to say like, oh, gee, we need to do an inspection for health fire or labor violations at the Tesla Gigafactory so the Tesla Gigafactory is shut for a week, right? Mm-hmm.

That would be an obvious sign of, hey, gee, nice factory you got there. No, exactly. But that would be counterproductive. That's very counterproductive. And from a fiduciary standpoint, if that happens and you don't start exploring alternate manufacturing options, like...

you're reckless at that point as a corporate leader or corporate officer. But yes, the main reason I asked that is because I've seen the UN theory floated a lot over the last couple of weeks. Like, well, that's the card that the PRC will play in response to any tariff sub. So that's really helpful context for you. And the same thing with the treasury. You know, the problem, I mean, the Chinese are far from the biggest buyer of treasuries now. The US keeps trying to sell lots of treasuries.

Also, the Chinese need somewhere to park all the foreign exchange they're earning from their massive trade surpluses. And so there aren't really many better alternatives for them that are so liquid and relatively stable. And so, you know, again, it's a... They're sort of stuck, too. I mean, maybe they start buying Bitcoin. I'm just kidding. Well, Bitcoin is looking up in the wake of this week's election results. Yeah.

One question for you. So China, you've mentioned Liu He a couple times in the podcast so far. China relied on Liu He as an intermediary during the height of the trade war. So how instrumental was Liu during those years and during those negotiations? And is there any sort of successor who might play that role going forward?

I mean, Liu He was a vice premier, and he really took on the role of negotiating with the US. And I think that they obviously have plenty of econ technocrats and people who negotiate trade deals all the time. It's not clear if we get back into more intense trade war, trade negotiations with the PRC. It's not clear by title or by rank, it should be He Lifeng. Yep.

He is, from folks who've met him, he's just not as dynamic as Leo He is in terms of dealing with foreigners. It is pretty interesting. I mean, the Wall Street Journal... Doesn't mean he won't be the person. Yeah. Well, and his ascendance... I mean, the Wall Street Journal had a big feature on He a few weeks ago, and that was my first introduction to the term barbarian wrangler to describe PRC intermediaries with Western politicians and businessmen.

great term. So I appreciate the journal for that. But I thought the story was pretty interesting, mainly as a reflection of where the PRC is today and what the priorities are. Because like, he doesn't speak English, doesn't seem to have the CV that one would expect from somebody who's like supposed to be navigating complex negotiations with the West. I mean, he's got a much bigger portfolio than that. But yeah, he's not as sort of

used to like suavely dealing with foreigners as Leo Ho was. Right. But he does have a decades long relationship with Xi. And then, you know, my takeaway from that profile, and it could be wrong, was just that the lack of expertise in that area from Ho is,

Just dealing with the West, that might be more of a feature than a bug in terms of the way the PRC sees itself these days, because there's just more concern with developing its own dominant industries than keeping Westerners happy and pacified. But they will probably need someone to be an intermediary to the Trump campaign. Yeah.

I joked yesterday that maybe they'll bring Leo Hill out of retirement. I think it's unlikely, but I certainly think it's not unlikely that he would be consulting just because he's seen it all from the Trump side. Right. And knows some of the people who will be involved. And why waste that knowledge if you have to go through some version of it all over again?

Indeed. Well, final Trump question from the BBC. Trump said in October that if he returned to the White House, he would not have to use military force to prevent a Chinese blockade of Taiwan because President Xi knew he was effing crazy and he would impose paralyzing tariffs on Chinese imports if that happened. Do you buy the idea that Trump's volatility is a strategic advantage for the U.S. and its interactions with China?

I think it's less... We'll have to find out. My guess would be it's sort of like you do it a few too many times and people just kind of get like, okay, crazy Ivan, move on. And I think also, particularly the Taiwan issue...

So much of what the Chinese are doing around hardening their economy, building, you know, call it a fortress economy, appears to be to be able to withstand crushing economic sanctions in the case they need to do something on Taiwan. And Taiwan is so important to the party, so important to Xi Jinping.

They're willing to go through a lot of hardship if they have to, but they successfully were able to incorporate Taiwan into the PRC. And so I'm not sure that threats of massive sanctions are going to be enough to...

to dissuade Xi if he decides he has to do something on Taiwan. Yeah. With that specific threat, I would imagine that China is pricing massive sanctions into anything that they're going to do in Taiwan and understanding that that's going to be the global response. We've talked about it. I mean, the Russians' invasion of Ukraine and the West's response has been

I think, extremely useful to the Chinese because they have an entire playbook of how sanctions would play out. And they know exactly where they, you know, not exactly, but they know lots of areas where they need to fix things, change things, harden things. And so, and the longer that drags on, the more they have time to prepare so that when it, if it comes to their turn, so to speak, they're much more hardened and much more resilient.

Yeah, well, and the reason I asked the question and the reason I included it is just because I saw that quote and on its face, it sounds like a ridiculous idea. But when I think about the U.S. interactions with China, particularly over the last couple of years, like one of the consistent themes with U.S.-China policy conversations is that like.

Yeah.

And so to the extent anyone requires proof of concept of what Trump is describing there, I would say the last 10 years of US-China relations are evidence that a leader's perceived volatility can have strategic benefits. But

I take no position on whether China sees Trump that way. And Trump's volatility could also benefit China in certain ways if it erodes relationships with allies around the world. So... Well, I mean, that's the thing. I think when you look at... I think when... And I tried to talk about this in my newsletter yesterday. When you look at how...

And, you know, we've talked a few times about, well, what is who does China want? And a Harris administration would have been different. There would have been lots of problems with the Harris administration. There are lots of opportunities in this case with Trump. You know, I think they understand that.

Again, they've been through it, so it won't be the same, but I think they have a general sense of what could happen with the next Trump administration. And especially on the economic side, those are not things they prefer not to happen because their economy is not doing great and they would prefer not to have increasing external pressure, which is what is likely coming in us. They can really figure out a way to mollify them and get a real deal.

some sort of real deal quickly. But at the same time, you know, I think they see lots of opportunities from Trump and, you know, they, they see that,

There's a reasonable chance that Trump will damage or undo some of the, you know, certainly some of the work that the Biden administration has done to build coalitions of countries to deal with China in certain areas. There, you know, may push, may cause problems in NATO, may cause problems in the EU. Honestly, I think that there, you know, they also may see this as, especially if Trump is

you know, doesn't want to keep funding, you know, keep funding Ukraine, then this will be an opportunity for China, I think, to swoop in with their peace plan and sort of show up and say, look, we're the peacemakers and try and take more of a leading role in putting together some sort of a Ukraine peace package. You know, so I think, you know, you can go on the list, right? I think one of the things, you know, climate change is not on the top of the agenda for the Trump administration. So the Chinese will continue to, you know,

Look at what they've done in terms of renewable energy technology. They'll be able to say, look, we are the leader of climate change. We are trying to work with the global South. They'll talk about how, you know, we are, we are trying to address climate change and Oh, look over there, look at the Trump administration. They don't, they don't care. Right. You've got similar things around, um,

One of the consistent messages you get from the Chinese now, they are basically the upholder of the multilateral system and the global trading system and defenders of the WTO. Whereas the U.S. and increasingly the EU are the ones who are trying to break it. The U.S. will say, well, the Chinese broke it.

But regardless, the point is, is that message, I think, resonates in a lot of other countries, especially the global south, and will especially resonate in a Trump administration. True or not. Right. In some ways, it doesn't matter if it's true or not. It's a message that will have an audience. Right. No, the perception of Trump will make other countries more sympathetic to PRC messaging is, I think, the overarching theme on in terms of what messaging.

might benefit the PRC. There are real downsides and then there are certain opportunities and vectors where they can make progress. Again, I think, you know, and then the other thing that I think is important, especially, you know, I know a lot of listeners work in technology, is, you know,

If we see a resumption of the China initiative that was put in place under former Attorney General Sessions and the Trump administration, that will most likely accelerate a brain drain of Chinese and Chinese-American scientists to China. It's a great point. And that will be happening at a moment. China, in the wake of, sort of in the face of the US, the Biden administration is

Increased technology restrictions. They have restructured their entire science and technology complex. There's this new Central Science and Technology Commission. They restructured the Ministry of Science and Technology there. It's all around the much accelerated, decades-long push for technology, self-reliance and core technology.

key technologies, what they call chokehold technologies. And one of the things that they are really pushing, and you hear it whenever she talks about this, so they have a meeting around the science technology issues, they talk about how they want to build China into a global science technology hub by attracting global talent, talent from all over the world. And so that is something where they will probably be able to use a... If there's

an increase of pressure on Chinese, Chinese Americans around, you know, you can't access certain, you can't access certain things to study or, you know, research labs, et cetera, that will probably accrue to the PRC's benefit if people decide, well, we're going to go where we're welcome. Right.

Well, if I'm putting my America hat on, I think that America is still a more attractive place for most of the world's top scientists. But it is a really important issue to highlight. No, and we need that as one of our key strengths. And so we have to make sure that it stays that way. So the point is just that I think when they look at

I think when they look at Trump, I think they see that there's more potential volatility. There's more potential for, I think, rapidly accelerating tensions around trade, for example. But there's also, I think, more opportunity for further growth.

sort of delegitimizing the U.S. Delegitimizing, undermining the U.S. and other parts of the world. Yes. Is I think how they see it. Now, we'll see if that really comes to pass. And if the U.S. economy, if Trump comes in and his policies, they end up creating a new economic boom in the U.S. And as they say they're going to, it's hard for

you know, that has its own attraction about the U.S. market and about the U.S. And so it's not black and white. But again, I think we are certainly, you know, the other thing I will just say is having, you know, I wrote the newsletter through the Trump administration. One, it's exhausting. Two, there's a lot of information, but there's a lot of bad information. And you're going to see lots of reports about so-and-so in the Trump administration or close to the Trump administration said this or they're going to do that.

A lot of that doesn't matter until Trump decides what he wants to do. Yeah. And so you end up with a lot of sort of headless chickens running around with sort of some new news that then turns out to just be, you know...

Just someone had it's what they wanted, but it wasn't part of the process or it just it's it's pretty it's exhausting. But I said it earlier and I wasn't joking. When I look back, it did really seem like China policy depended on who Trump had talked to on a given day. And maybe that will continue in the second administration here. Maybe not. But volatility is.

I guess we'll make for good podcasting. I don't know. We're getting it whether we want it or not. We'll see. I see some pluses. I see some minuses as far as U.S.-China policy is concerned. If he still makes market-moving China policy through Twitter or through XNow...

Don't make me spend more time on Twitter. Is that what you're saying? It's a business opportunity for X if they can sell their data feed like the high-frequency traders. Oh, boy. Where you get the tweets a millisecond ahead and you only want the president's tweets.

I'm so excited for this long weekend. I'm putting my phone away for 72 hours and just logging off after the last couple of weeks online. Well, speaking of phones though... Sorry, one last area of a deal. And I think we're going to talk about it. So if I'm doing my podcast segue ahead of time, I apologize. I'm still working on the... Seasoned pro here. But I mean, one area, and this could really get interesting for some of his supporters, especially in Silicon Valley,

is TikTok. And whether or not... I think there is a law that has been passed and signed by the president. It's actually enshrined in law. So it's a little more complicated if he wants to back off on forcing TikTok to be sold or have the app stores and data centers stop working with them in the US.

But I believe he can just basically tell the DOJ not to enforce the law. And he has folks who are big supporters who are, I think, pushing him to effectively drop enforcement of the TikTok law. When you say big supporters, big donors, correct? Donors, yeah. Yes. Jeff, yes. And I believe Elon Musk even weighed in at one point and said he didn't think it should be banned. But I could be wrong.

He did say that he was worried about the precedent it would set and how X would be next. And, you know, this law, he actually misread the law on Twitter. I mean, I mean, helpful for everybody. Twitter X now looks a lot like it looks, you know, looks more and more like.

TikTok too. So it might, you know, again, it might actually be good. It might actually be good. It might actually be good for, good for X if TikTok goes away. But my point is, is TikTok scenario where maybe there'll be a deal. Yeah. No, I mean, look. And then that'll drive, that'll drive some of his supporters in Silicon Valley who were very influential and very much pushing for the TikTok ban to have to figure out how they deal with the fact that he has backed off on that. Yeah.

Well, the headline from the information was TikTok sees Trump victory as app's best hope. And yes, I mean, the information was helpful because the information, the publication that is the article I was thinking to myself.

I understand that TikTok thinks that Trump is their best hope, but I don't really know what Trump can do at this point in the process because TikTok has challenged the constitutional validity of the law. They're in court. DC Circuit will decide apparently before Thanksgiving, according to the information. But also, and then if the decision is adverse to TikTok, they'll appeal to the Supreme Court. And

Beyond that, like the law takes effect on January 19th or the law has already taken effect. But, you know, ByteDance has not divested from TikTok. So the ban takes effect on January 19th before Trump takes over. And I hadn't considered the possibility because I mentioned this on Sharp Tech earlier in the week.

and said, I don't know what Trump can do to save TikTok, even though that talking point keeps getting repeated. I hadn't considered the possibility that he could just tell the DOJ not to enforce the law. And in this case, that would be enforcing the ban provision and the fines to Apple and Google if they continue to host TikTok in their app store. So I guess that's a possibility. Prepare for anything here as we enter this new era. But

I think that would be a mistake and it would upset a lot of different people. But everything is on the table as we move forward. And just as we're talking TikTok, I will note that the CBC wrote this week, citing national security concerns, the federal government has ordered TikTok to shutter its Canadian operations, but users will still be able to access the popular video app.

Innovation Minister Francois-Philippe Champagne said the decision to wind down TikTok's two Canadian offices in Toronto and Vancouver was based on information and evidence that surfaced during a recent national security review and the advice of Canada's security and intelligence community. First of all, what a name there. Francois-Philippe Champagne is about as French-Canadian a name as you will ever see. But...

it's just, it underscores the fact that a lot of countries see issues from a security standpoint. So it'll be interesting to see what happens in our country. Right. And of course, Canada is part of Five Eyes. And so, you know, they don't, they, they,

They're not disclosing why, what they are seeing to do this. But that, I mean, again, it's an interesting move where you close their business operations, but you let the app continue. Yeah. Well, and it made me wonder about the cascade scenario where like if the US did move forward with a ban, how many other countries around the world would follow in the years to come? That's what I would be particularly concerned about if I were ByteDance. And I know Canada is not banning the app, but if the US banned the app, maybe Canada is more likely to ban the app. So-

A lot of unknowns on the TikTok front, but there's more hope than they had a week ago. So congrats to all the TikTok lobbyists as usual. To keep it moving, I did mention phones earlier and the phone hacking story. We discussed it briefly last week and I said we don't know the full scope of what exactly happened there and how bad it was.

That is still true, but more details are trickling out. Keep coming out. Yeah. It certainly sounds like this was a very, very, very serious breach. The Senate Intelligence Committee chairman, Mark Warner, told The Washington Post, it is much more serious and much worse than even what you all presume at this point. It is one of the most serious breaches in my time on the Intelligence Committee.

And then Politico wrote, Chinese hackers access sensitive cellular logs on a vast number of Americans after penetrating inside a swath of U.S. telecommunications providers earlier this year, according to two people involved in the response to the hacks.

The two people said a China-backed hacking group dubbed Salt Typhoon gained access to a vast trove of so-called call detail records. Those contain information on who Americans talk to, how often, and when, as well as detailed location data afforded by 5G networking services.

What's your reaction to some of the additional details we've gotten? We also got a more grave sort of expose from the Wall Street Journal. I can read highlights from that. But what do you think of all this?

So it's possible that the earlier comments on this podcast about the Chinese trying to figure out who to talk to in the Trump world don't actually matter because they just listen to all the phones. It's on the table. They may already know everything, right? Joking, but not actually really. I know. I think this seems extraordinarily serious. I think what continues to come up in the reporting is just how

Even after being discovered, the hackers continued to try and keep doing it. And I think someone said they were taunting us. There has not been any sort of official response in terms of pushback on the Chinese. I think that this is the kind of situation where...

If it's as bad as it's being described, as exhausted as the Biden team and disheartened they are after this week and being there for almost four years, this is something where maybe you'll see some sort of a brushback between now and the inauguration to basically try and tell the Chinese that,

you know, this is too much on the one hand. And I sort of made a flip comment in the newsletter, I think on Monday, which is, you know, I mean, look, this, we do it too, if we could, right. I mean, any capable foreign intelligence service would love to be able to access phones around, you know, politicians in any country and, you know, phones of advisors to a president or to a leader. Um,

And so on one hand, it's like, okay, kudos to the Chinese. They're actually pretty good and they did it. And shame on the US telecom companies for not investing enough in cybersecurity. But at the same time, at some point you go too far and you basically have to push back.

Yeah. I mean, you have to do something, not just send like a mean letter, right? Or say something mean about China on an open line that you know they're listening to. You actually probably have to do something in their systems to show that one, you're pissed off, two, that you can cause damage too, and three, they need to back off.

And it's not clear. One, it's not clear that the Biden guys will do it. This will be an interesting case for the Trump team when they come in, if the U S has not really responded, because this will probably continue to dribble out more stories. They'll probably, you know, plenty of people working around Trump and who may end up with big positions in his administration probably have had their phones accessed, if not actually audio of their calls or their text messages. They may be personally angry. I mean, you know, this is the, you know, they,

Last year, right, we learned there was two years ago or last year, they were reading Blinken's emails. They were reading non-classified, unclassified emails, Armando's unclassified emails. And again, maybe the US did something classified, but it doesn't seem like nothing became public. And the Chinese behavior is only, I think, intensified in terms of... This is more like espionage than necessarily. And maybe this is part of where they also plant malware to be able to cause...

destruction later. This seems like a very successful cyber espionage campaign by the Chinese. But again, will the US actually do something? Will the Biden administration not just because they don't seem to be doing the next round of chip controls, they just don't seem to want to deal with it anymore? And so will this then be left in Trump's lap? And then how might they respond?

Well, yeah, I mean, it's interesting because I actually I had one nagging thought after our conversations about the chip controls last week, and we talked about the Trump China policies at the start. So this is sort of a bigger picture thought on the Biden policies that I wanted to run by you. Is that OK with you as we close out here? Sure, sure. OK, so.

The chip policies, after we talked last week, I saw a note about Jake Sullivan trying to engage China to help convince North Korea not to send troops to help Russia and Ukraine. And first of all, that tweet almost reads like a parody after the last four years. But good luck engaging China to intervene. But...

But I saw that as I was putting the show notes together for last week's Sharp China episode and just thinking about the chip controls. And I actually wondered if we might be giving the chip lobby too much credit for swaying the administration because like.

The practical reality is that hammering SMIC and Huawei and creating effective chip policies that really do cripple the PRC ambitions in that area would cause China real pain and make the PRC irate and probably provoke

response from the PRC. And so like lobbying or not, it's not that surprising to me that the Biden administration won't go that direction because we've seen over and over again, similar stories play out where like

China's support for the Russian war in Ukraine, the administration will talk tough in the international media, but there have been no sanctions on any of the big PRC banks that facilitate sales to the Russian defense industry or work with Iran or whatever it may be. And like South China Sea, no public tactical response to PRC aggression, uh,

No consequences for China's role in the fentanyl crisis, which kills like 100,000 Americans a year. Like,

Like, it's just over and over again, whenever there's a conflict where any meaningful response from the U.S. runs the risk of really angering the PRC leadership, the Biden administration has not wanted to touch that third rail and run the risk of making the relationship even worse and more dysfunctional and jeopardizing the possibility of future engagement. And it's entirely possible that's the right approach.

And that ultimately, like buying time and just avoiding kinetic conflict or like outright economic war is the best anyone can hope for at this point.

But in the meantime, there have been real costs in terms of corrosive PRC behaviors that the U.S. has had to tolerate and potentially cost U.S. credibility with allies in the South China Sea. And U.S. restraint has not produced any meaningful benefits or concessions from the PRC to date. So just as I think back on the last several years, I just think it's instructive to sort of recognize...

that the Biden administration had a bunch of thoughtful and qualified people taking these issues seriously, and they tried to be transparent and fair with China, tried to avoid making anything worse. But the lack of progress in a number of key areas is clarifying in terms of challenges for the next administration here.

Well, and they inherited a lot of these challenges from past administrations. I mean, you know, I will say that, you know, I, I, I think if you talk to the Biden administration, they would, of course, very much vehemently disagree with your characterization of their China policy. I think they would argue they've done some hard things and, you know, made some progress. Yeah.

But I think ultimately, you go back to the balloon incident and the Chinese...

You know, Blinken skipped his trip and then the Chinese basically cut off contact and sort of did the classic, like, you know, forced the U.S. to feel like, oh, my God, we have to do something to get him to talk to us again. Yeah. I mean, and it's stupid. And that really kind of reset in a lot of ways the relationship. I mean, obviously, then, you know, you had Pelosi in Taiwan and then you had the first chip controls. And I mean, there were things that have been done. I mean, the...

The chip controls are, you know, again, we've talked ad nauseum about them. I mean, they are pretty harsh. The challenge has been around enforcement in some areas, especially around Huawei and SMIC. And, you know, again, we don't have to beat this dead horse. But since our last podcast, Senator Mark Warner sent a letter last, I think, last Thursday about enforcement of chips.

restrictions on sales to SMIC and Huawei based on the reports that TSMC had found this chip that was being made for Huawei. And then I think it was another, the Republican McHall or McFaul, I think, wrote a letter, I think on Monday, the same thing to the Commerce Secretary talking about how the concern that the US, that the Commerce Department is not fully enforcing the rules. Yeah. Well, the one thing, even aside from the chip controls, you mentioned the balloon incident.

It is stupid to care about this, but the Biden administration never released the FBI's balloon report. And just as a matter of transparency, I think that would have been the right thing to do. And at least according to the reporting, they didn't do that almost explicitly because it would have been embarrassing to the PRC leadership. And it just...

It's odd in retrospect to look back at some of the decision making, but maybe they just didn't want to risk making the relationship any worse. I mean, I think that there was a lot of concern. There was concern among allies too that the relationship was going off the rails and that it was going to veer into much more problematic situations.

areas or sort of a much more problematic and risky situation. And so there was, I think, a bit of a wake-up call that, okay, we have to figure out how to get this back on track. And again, this is something, a broader issue where the Trump team comes in. And again, it really is going to depend on who is Secretary of State, who's our security advisor, who is running Asia and China policy and National Security Council. If it's some of the same people who are doing it in Trump 1,

things could get pretty tense pretty quickly. Yes. And I think you would certainly not find anyone in the Trump, at least in Trump 1, who would think that the Biden administration...

And actually, some of the folks have said that Biden administration, they like the way that... Because basically, the Biden administration continued a lot of their general direction of travel on policies towards the PRC. But maybe didn't push hard enough or were too willing to go back to trying to make sure that they were talking. And so again, it's a...

The problem is China is a rising superpower that is increasingly unwilling to be lectured to and sees the U.S. as making lots of threats and still powerful, but not as powerful as it thinks it is. And the U.S. is overextended. And overextended. And they're just increasingly willing to basically say, we're going to call BS.

And that does not lend itself to an easy relationship, especially when, whether it was Harris or certainly the Trump administration, they're not going to be like, yeah, okay, you're right. We need to back off on some things. That's not how the Trump guys, I think, are going to roll. And so that's why I think on net, there's really hard to find a high probability scenario where the US-China relationship gets better anytime soon.

Yeah, well, there's been a lot of BS calls coming from the PRC over the last several years. And I mean what I say when I say that it's possible that just buying time, kicking the can down the road and avoiding things getting worse is the best strategy and trusting that over time, the U.S. dominance in a number of important areas will prevail and China will sort of collapse on itself.

with a failing economy. Yeah, that bet has not worked so far. It has not. And China's gotten more aggressive. Well, and they've also, you know, again, their economy is not doing great, but it's also not about to collapse. And I know that there's a lot of hope. Trump comes back, puts more pressure on China, and this will be the, you know, this will be the straw that breaks the camel's back. Right? Don't bet on that. I wouldn't bet on that. I think also, again, and then we will, I know we need to wrap up here, but

This podcast will come out on Friday morning on the 8th, Eastern time on the 8th of November. And by the time it comes out, we should know the...

The stimulus number. That's right. Quote, unquote, stimulus number. And today, the markets were up big in China because there were rumors that it may be bigger than people thought. Oh, boy. Like $2 trillion revenue for consumption. And we'll see, right? But they have tools is the key point to avoid a collapse. Yeah. And again, the economy, they've done a bunch of things over the last six, seven weeks. The economy is...

The goal here seems to be stabilizing, and I think that they have done enough that we're going to continue to see growth. And even into next year, I think there's an expectation that things will actually be a little bit better next year just because of all the policies they've already put into place. And so it doesn't mean they don't need more sort of fiscal support. But again, I think – I hope listeners – I mean, we've only been doing this podcast for two years, but the sort of boom – the crash or boom –

China's taking over the world or China's collapsing. Is historically just been a load of hooey. And I think people need to avoid that. Yes. Well, I will be at your house at 6 a.m. tomorrow. Tell Tasha to get the coffee ready. I'm sad. If we were releasing this podcast a day or two before, we could invite the entire audience over to your house at 6 a.m. Oh, God, we can have a CCTV watch party. Exactly. But hey. That sounds awful.

I hope everybody has a wonderful weekend. However you feel about the state of U.S. politics. Things are looking up for the Washington Wizards, so everyone get excited about that. Team full of 19-year-olds. Never been better here. They're going to lose 60 games this year, and I'm going to enjoy the ride.

But Bill, I hope you have a great weekend. We are coming back with a podcast that will be dedicated to reactions to whatever the NPC Standing Committee announces on Friday. So more domestic PRC news next week. But until then, give Tashi my best and I will talk to you soon. Thank you. Thanks, everybody.