A new paradigm for US-China relations?
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What does an expert on Sino-US business think of the current state of business and politics in D.C. and Beijing? Welcome to The Bridge, enlightening conversations on world cultures, life, and everything in between. Hey, everyone, this is Jason Smith, host of The Bridge podcast from sunny California. If you like the show, don't forget to subscribe. We love The Bridge. Oh, yeah.

Hey, everyone. My name is Jason. I'm from sunny California, now living in beautiful Beijing. Today's guest is Mitch Presnick, a visiting fellow of Practice at Harvard University's Fairbanks Center for Chinese Studies, founder of Super 8 Hotels China and APCO Worldwide China. Presnick studied at Peking University and Rutgers Business School and has spent 35 years in Beijing and Hong Kong. Welcome back to The Bridge to China, Mitch.

Great to see you, Jason. It's great to have you back. I'm always excited to hear what you have to say. I wanted to start out with, you've started a project. I heard a new X space called Saturday Tonight China recently. Quite impressive group of intelligent voices discussing the current state of play between the US and China. What is your

show's goal? Well, we're trying to basically have the adult conversation on China that's neither biased toward one side or the other. We sort of decided that we like the geeky conversation about China in a way because it tends to reveal a lot more truth. But on the other hand, the geeky conversation sometimes misses the plot, which is it's still about, you know, how people feel on both sides of the pond about this relationship. And so, yeah,

We thought, well, what can we do to try to create something that was sort of an all-in podcast for China? Something that, you know, brings a lot of very smart thinking with a lot of deep experience and different points of view, but all sort of quite, you know, quite constructive.

and people that you really couldn't say are in one camp or the other camp, as it were. And I believe, by the way, and we'll get to this in our conversation, but I believe that's where the overall relationship is going to. Despite all the evidence to the contrary, I think we're moving forward.

like a pendulum to a place where we've really never been. And I think it's going to be a sustainable place for the bilateral relationship. Well, that sounds really positive. So right off the bat, it sounds like things are going well. Let's talk about Trump. You

You know, obviously he's the one coming into power. And, you know, during the election process, he said he was going to lob 100 percent tariffs. Another time he said 60 percent tariffs. But it looks like he is now saying something like 10 percent tariffs across the board. What is his purpose in walking back the number? First of all, I think when I listen to Trump talk now, I don't always necessarily hear the details of what he's saying. I'm trying to listen more to Trump.

to what's driving this and where is it coming from, right? So let's talk about that for a second. Where this is coming from is that the U.S. is finally acknowledging that the position it's held since somewhere between World War I and World War II is sort of the preeminent economy in the world, the driver of innovation and

We were basically in China's position for most of the 20th century post-World War II, all of that time. And coming into like even 2010, 2015, we were still under the illusion that we were still leading in all these areas, although China was under the surface where they were slowly, slowly building it up. And so when I hear Trump talk about 100% tariffs, what he's really saying is,

the US has to get its game way up and we have serious work to do. Whatever we end up doing, we cannot sustain this idea that we are the global hegemon and we're going to span the world and police everywhere. I think what he's really saying is that era is over. He's saying we'll do anything to try to figure out where we need to land this aircraft. Because on the one hand,

One can make a good argument for a secular decline in the United States. But on the other hand, it's also true that the US has $100 trillion in its stock markets

It has $35 trillion equity value in its private equity and VC markets. And Hollywood is still the entertainment capital of the world. There's still things here. And the US dollar is still the, I mean, less and less, but very much still the reserve currency. And it's not going anywhere anytime soon. The US still runs the global financial system.

So there's enough pieces here that Trump is saying it may not be what it was, but I think we need to acknowledge that we need to move somewhere new and we need to be very open minded about how we get there. I think that what he's traditionally always done and I've read his book, Art of the Deal, and you can read about it here. You know, he puts pressure onto a point. This point in this case is the U.S.-China commercial relationship.

and then see what happens. There's just kind of, who can say? It could be this, it could be that, but one way or another, he knows where we are is not a tenable position. So we've got to move somewhere else. Now, specifically on the tariffs. Tariffs are a terrible strategy.

And they're not even really a good way to hurt somebody else. The reason you use tariffs usually is short term, very much sharpshooter purpose. And there's there's usually a it's usually a tactic as part of a strategy. So if you were to tell me that Trump's big idea is put up huge tariffs, which will then create a serious condition for people.

for enabling some kind of a reshoring of American manufacturing, if that were to sort of drive an investment push by countries like China, specifically China, to invest in the US and employ American workers and transfer key technology, I would say that sounds exactly like what China did for the last 40 years. It's exactly what China did. They created huge tariffs

barriers for imports of American automobiles and aircraft and other things. And then they said, but if you want to build something here and work with us under 50-50 JVs, which you don't control, and you have to transfer your key tech to us, then you can come in with your advanced manufacturing and train us how to use those things. And we'll then be able to

re-industrialize. That's exactly what I think. It may not be his original idea, but that's exactly what a strategy could look like, which could help America. And we're not going to reshore all of our manufacturing. But when I say America, I say America and its allies. Be

Being a decentralized geopolitical entity as we are, we tend to like alliances in the U.S. And Chinese, of course, have no tradition of building alliances. So they have a centralized system which relies on itself and sort of its relations with other states that it has more of a transactional relationship with. And then the U.S. has lots of allies like Japan and Korea and Germany and

the UK and other places, France, and that one could argue that as long as any of those countries are receiving some of this technology that we've lost and reshoring some manufacturing, that it may be that the supply chains are still very much dependent on China in the end of the day, but at least

at least having something that shows that the rest of the world can keep some of its industrial base and have China help with that process. I think that's a conversation China will be prepared to have. They may not agree to it, but that's not for the West to decide. We're only there to sort of say, hey, guys, we're looking to do this because this is the situation and then see what they say. That's a very interesting perspective because

I have been making the case, and I think you've noticed that Chinese companies should come to America and build factories with American workers to make products in America for American consumers. And it looks to me like, and has looked for a long time, like Chinese companies want to do that. Because you have a few examples in the United States right now where Chinese companies are javing, setting up factories in the United States and doing exactly that. But I think there's a lot of fear in China

about what happens if we set up a factory in the United States and then the feds just come in and say, no, no, we just passed a law and this is ours now and they lose their – they have to write it off. So I think there's actually a great deal of concern in my opinion on the Chinese side that the United States will not hold up its obligations or that they will only hold up those obligations.

obligations for, say, a four-year presidency. And then the fear is, well, then what happens after that? So do you... I mean, I think...

I think for the Chinese side, that's perfectly equitable. Do you think that the United States will create the conditions requisite to allow Chinese companies to set up factories in the U.S. and do exactly what you're talking about in a stable way? I mean, the U.S. often does the right thing once it's exhausted all other possibilities.

I think it's getting to the point where hawkishness and America first and transactional mercantilist policies regarding China are all starting to converge now. Right. I think I think like the idea that China is this country on the brink of collapse is

I mean, it's fringe. It's become a fringe idea. I've been very much part of that effort to make it a fringe idea because I don't think it serves America's interest to sandbag the actual conditions we're in. I think it makes a lot more sense to live an objective reality. And if anything, overestimate your opponent and their capabilities and underestimate your own capabilities rather than

vice versa, because that's a much better way to compete. And you know who would advise us that we do that? If they were advising us, the Chinese would advise we do that. You always underestimate your own abilities and overestimate your opponent. That's right out of Sun Tzu, Art of War. So

The only ones not doing that are us. I've been working very hard to get us to get our game up because the world's a more stable place if the US and China are feeling strong and confident about themselves without feeling cocky. The US tends to do better in a place like that than in the place we're in now, which is nervous out of our element.

trying to find a new way forward and questioning, you know, how did it all go so wrong? I think, you know, the funny thing is the U S is still a very wealthy country. It's still an enormously wealthy country. And, and I make, I think it makes a lot of sense for a Chinese company to want to set up here. Uh, it is, you know, if not the largest market in some areas, it's one of the largest markets for many areas by, by value. Uh,

for lots of things where we're not yet, we're not largest on volume anymore, but we are in many cases still largest in terms of value for many markets. So I think you want to be in here. I think you want to be in China. I think the more interesting question, though, is, and I wrote about this in my Harvard Business Review article in August, is that the real game is not in the US or China. And we have to get out of these narrow constructs of

you know, American companies in China and do they stay in China or do they leave or Chinese companies in America and vice versa. It's got to be much more about

There's a world out there. That's a world market. It's all interconnected. Tesla now may not be the largest EV company in the world. They've been overtaken by their Chinese competitor, BYD. But- And the market, just market share. Sorry? They have the largest investment, total value. Yeah.

They're not making the most cars, but they have the most money. They have the most money. And not only that, but their Model Y, at least last year, I think, was the highest selling individual car model in the world. And that's because it went to China. They were able to basically create all kinds of price reductions that were caused by cost savings in the Chinese system, which the Chinese supply chain allowed that. So everything...

They created the original idea in the US. They go to China to optimize the automation and the cost savings. And then they turn it into the best-selling car in the world using that combination. And that's my point, is that for most things nowadays, whether we like it or not, the idea that we can look at things like it was 1960, we're here, you're here, we do this, you do that. These things, these ideas just, they're no longer applicable anymore.

for the world we live in. And it's all interconnected now. And the last people to figure this out will be policy folks in DC and Beijing, because they live in a zero-sum world, unlike the rest of us who have to live in the real world. The real world isn't about an absolute risk that

If we cooperate with you on ceramics technology, then you might be able to figure out how to use that in your submarine detection. And then we say, OK, that's the risk and that's the absolute risk. So if you don't want to have any risk that that can happen, you cannot cooperate with the other party on ceramics.

But then you have to acknowledge the fact that there's also a risk, the risk that you're now boxed out from interacting with them and learning what they're doing. And maybe their ceramics research is far ahead of yours. And you've now, by trying to reduce this risk, you've created a much bigger risk, which is you're now boxed out of the future of ceramics technology because these guys are just far ahead. And that's actually what I've been arguing for a long time is,

When you talk about US-China, you have to talk about relative risk. And other than people in Washington and Beijing, relative risk is a very, very normal concept, where you have to compare the risk of one thing to the risk of another. And then if the risk of one just looks much, much more egregious, then you figure out a way to mitigate the other risk. You don't just cut off the

Cut off the entire conversation. And this is, I think, I think nuance is going to return to the conversation in Trump's first. I certainly hope so. Did you hear Gina Raimondo's comments about the fool's errand that she was sent on? And what do you think of that? Well, I mean, she's a very smart woman and she's a very smart leader. So, I mean, I mean, it's good that she's acknowledging objective reality that we all understand.

recognized the day that Huawei came out with their unit right in the middle of her visit. We all knew that these sanctions were ineffective at best and counterproductive at worst. And we told everyone that and nobody listened. And then they went and they still tried to say, well, maybe, you know, it reminds me of that skit in Monty Python and the Holy Grail.

where they're facing this terrible rabbit. And they said, maybe we'll confuse it more if we run away more. LAUGHTER

You're suggesting an ineffective strategy and you're suggesting it based on the fact that it hasn't worked yet. You think by doing more of it, it'll work better. It's actually the opposite. You want to get closer to your opponent, not further away on these things. I think that she's right. And I think that it's good that she acknowledges it. I mean, look, I don't think if Harris was coming in, I don't think you would have ever heard

that kind of statement come out of the administration. They would have just doubled down and tripled down because it's what they know. And that is exactly why that sort of thinking is no longer appropriate. It's actually that sort of thinking that's creating this gap where we're finding ourselves waking up every day and China's now taking over another industry. You know, when you're constantly focusing on this zero-sum contest and you're forgetting

that there's an entire world out there that you have to sort of monitor and you have to have a long-term plan to address, you end up in these kinds of unfortunate situations. And I'm arguing, and I will always argue, that we should be learning from China where they have strengths like this. And they're just better at executing on some of these ideas than we are now, and we need to be learning from them. That's what we need to be doing. And I think Trump understands that. Oh, yeah.

You're listening to The Bridge. Well, you know, I think you're actually looking at a bigger picture than I'm trying to surmise. But I mean, one of the things that came up years ago at the beginning of the first Trump administration was, you know, import and export parity, which is something the United States, I think, still very much wants with China.

to kind of level the playing field in terms of the amount of exports that China and the United States are giving to one another in terms of value. So do you think that is one of the things that Trump is doing with his 10% tariff-like pressure point, that he wants to bring the Chinese to the table for that? Or what other goals does the United States seek to achieve, in your opinion? So the U.S. has to achieve three things, right? Right.

The US has to get to a place of reciprocity with China, one way or the other. I don't think Trump really cares if our trade volume with China goes up or down so much as that it gets to some kind of a parity, it gets to some kind of a reciprocity. Look, I've been in China for as long as anybody that I know that's still involved with China. I can tell you there's never really been... I love China.

I do love it. I love the place. I love the people. I love everything about China. But let's be honest, there hasn't been a lot of reciprocity in this relationship. It had the veneer of reciprocity. And one could even argue that it had at times the look like it might get there. But it's never really been a case of reciprocity. And I don't blame China for that. I think a lot of times we just weren't playing our best game. But we need to have reciprocity now. I think at the point where some combination of

of us being outplayed and us not approaching the relationship with a long-term strategic vision quite the way the Chinese did, which they're just better at that sort of thing in general, just having a lot more history behind them and everything. But

But we haven't engaged our benefits either. Like the benefits we bring is that we're innovative and quick and we're very much a country that is capable of great things using a decentralized model, entrepreneurship and creativity and all that stuff. And we haven't been engaging our best to it. So Trump's got to basically engage our benefits and learn from China where they're clearly –

ahead. And he's going to try to put as much pressure on them. I mean, to a certain degree, if I'm China, I'm just going to go right off in the sunset now, right, and try to deal with the US as little as possible. And who can blame them? I mean, you know, we haven't exactly been cutting a splendid figure as global hegemon, welcoming this new peer competitor. It hasn't exactly been finest moment, in my opinion. And we haven't competed as well as we could have as a result of just approaching it with far too

primitive of a mindset. But that's having been said, he's got to have reciprocity now.

He's got to have reciprocity. He's got to preserve the things where we're strong. He's got to preserve the US dollar as reserve currency, which I don't think China has a problem with. China doesn't want the renminbi to be convertible right now. It likes the control it has over its economy and the control over fiscal policy that it gets, not having to worry about a convertible currency. So I think that works pretty well. The US wants to maintain it. China is not looking to knock the US off right now. The US actually betters

benefits from the current state of play there. Manufacturing and trade, China has become so dominant in both of those. There's nothing really that the US can do other than one way or the other leverage China's strengths in those areas. So he has to do those things. If you can do that through 50-50 JVs in the US and bring in Chinese companies, you asked me the question earlier about whether Chinese companies could get comfortable. I mean, I think that they're very transactional

I think that they're not necessarily that comfortable in their own country. It's not like the law protects them 100% of the time anyway. I mean, yeah, they know their alleys and they know how to keep themselves relatively well protected. But

The Chinese business environment is equally tough on both foreign and domestic players. It's not as if they get an easy ride. Yeah, they have some advantages being local players. They know how things get done locally, but that system can be like a wave that closes out on them just as easily as it is on us. I think that they'll understand the idea of relative risk, and there's a risk of going into the US, and there's risk of not going into the US. I think

I think overall, they'll do the math. I don't know if you ever watched the Netflix movie called American Factory about Fuyao Glass and entering into Ohio and all the trouble they had. But in the end, it became a profitable operation, the first of many. Fuyao Glass is a huge operation in the US. It can be done where Chinese companies

can, you know, integrate into their communities and do well here. And look, let's be honest, it's what the U.S. had to do in China. I mean, what we're really saying is, you know, a very much a symbiotic, non-voluntary symbiotic relationship forming. And I think these are some of the things, you know, that this will be emblematic of the future of the relationship. It's not going to be able to go towards an acrimonious relationship

future under Trump because that's not what he wants. And I think he'll avoid it getting there. He'll go right up to the brink. He'll, you know, lots of brinksmanship. And actually, he is prepared to have

have trade wars and tech wars and what other things. But he's also going to be very clear about this is what we're doing and this is why. And we're not going to give you some nonsense reason like we're trying to hold you back. We're not going to try to hold you back. You know, you can see that the people that he's brought into his administration are not the people that are other than Rubio are not the people that that really want to hold China back. Gallagher is no longer, you know, in the in the select committee. Yeah.

Lighthizer did not get a role, it looks like. I haven't heard anything about Pottinger. I have not heard anything about, I guess Pompeo is not getting a role. You can see that in his second term, Trump is creating a team that is looking to deal. Elon's in there, Vivek's in there. The people he's put around him are a lot of tech bros. They're all very constructive on China.

The all in, you know, the all in podcast crew, they're all very, you know, they but they're all in the same place where I am, which is like we've got to do something now. Like this is this is, you know, this isn't the scrimmage game anymore. This is like where the US actually has to get its act together and bring its best together.

to this next stage effort. I'm not even really looking at this in terms of the US-China competition. I think it's much bigger than that. Frankly, the US, China could fall off the world map today, and it wouldn't solve any of America's problems, right? America still has a massive problem with its federal debt and the accumulation of new debt. There's a lot

that needs to be addressed domestically that has nothing to do with China. But the things that China could help with is reshoring manufacturing, restoring American tech competitiveness, and helping the U.S. to rebuild some of its supply chains. These three things, and when I say the U.S., I mean the U.S. and the G7 and the EU as some kind of a block,

I think to tell the developing world at this point, yeah, sorry, guys, you know, you've been on top a long time, but you just go sit in the corner now. I just don't see China doing that. That's not its best play. It has a much better play than that. You're listening to The Bridge.

You know, you mentioned Rubio. I think it's really interesting because as soon as he was announced, he gave a speech that was the most amicable speech on China that he's ever given. So it looked like he completely turned. What did you think of two weeks ago, I guess a week and a half ago, Trump gave a speech at Mar-a-Lago saying that if China and the United States could work together, they could solve all of the world's problems. Did you think that was a kind of a

a gesture of good faith and peace? And do you think the Chinese are likely to see Trump as someone who's trying to bring stability to the relationship? You know, in 2007, I haven't really told this story much. You're getting an exclusive, I guess. In 2007, Super 8 International Convention was held in Las Vegas, and I was on the board of Super 8. And President Trump, then Mr. Trump, but President Trump was the keynote speaker. And

And so he was standing there in the room before the big event. And nobody was talking to him. And I had read his book, and I was interested to meet him. And I went up, and I introduced myself. And we spoke for like 20 minutes, just he and I talking about he's very interested in China. I mean, he was always very constructive on China. He was extremely – he would remember this story because he was so surprised –

And I told him that the other person that was really interested in my story was Dr. Kissinger because Kissinger, I had known him

since the days of course he became very interested in the story we talked about China and and how super 8 developed in China and and I told him I said you know listen China's not what you think you know he goes oh I know I know everyone's always trying to tell me it's you know it's this and that I said it's not what you think it's not it's not necessarily what you want but it's not what you think it's it's something it's its own thing it's it's not what anybody thinks you know it's

It's definitely a place that you can do better or worse depending on how good is your game. And, you know, he understood all these concepts in 2007. So I don't think nothing would surprise me, but I don't think that he's approaching the relationship with any acrimony. I think he has a great deal of admiration for

always has had a lot of admiration for Chinese business acumen and what they've accomplished. He respects money and power and wealth. And obviously, China's created a lot of that more than anyone else. They've been the ultimate unicorn over the last 40 years. So I think that what you're hearing is just, I think, the reality of how a businessman's

would think if he was a New York real estate developer who became president, that's exactly what you, nothing surprising in his viewpoint. It's pretty obvious. So on the other hand, I would say that isn't the only positive thing he said. Like he's actually, in word and deed, he's indicated a willingness to look at bringing in Chinese investment into factories and employing American workers,

I think he's very much in a constructive mindset. She, for his part, has definitely been much more dovish toward the American business community in the last year and a half. Now, I know that someone's going to say, oh, you're just you're just parroting, you know,

you know, the Chinese line. But it also happens to be true that when he does that, he does it because he's trying to signal something, right? I mean, he wasn't signaling that for many years. We were getting no love in the business community from him. In fact, for many years, even before that, we had all been told, you know, the days when you can just show up with your CEO and immediately see a vice premier, those days are over, you know, so don't ask us any more.

even if you're someone like JP Morgan or Apple, don't expect that you're necessarily going to see. We have a minister of commerce and maybe if you're really tight with us who will give you advice, premiere sometimes. But don't expect it. And don't expect to see the premiere every time because it used to be

Right. You know, somebody like John Pepper from P&G would come in. They'd oftentimes they'd see the head of state. And so that actually was an interesting way to signal that, you know, the importance of American and foreign business in China was becoming less. That was in like 2008, around the time of the Olympics is when all of that started to shift. So so I guess what I'm trying to say is that, you know,

I see both Xi and Trump as quite realistic about themselves, their relationship, and their country, and where it's at, and where the other country's at. And even as I've done the math, I would do exactly the same thing. I would be at least signaling...

a willingness to be transactional. We can get to this in the next question, but I have some ideas about where this relationship is going and why it needs to go there. I mean, maybe you don't know the answer to this question. I don't know because I don't know the answer to this question. But if exports from China to the United States were going to remain at similar levels to where they are now, what

kinds of things could China possibly buy from the United States? Is it just agriculture, goods and aeronautics? Oh, man, this could be a major change. This could be a case where we're trumping knowledge is the reality, which is, first of all, everything is dual use. So like if you're going to sell like a crappy chip to China that they themselves are

uh, can make very well themselves and you're not really, you're not really doing any additional damage, right. If, you know, or, so I think there might be a whole, a whole bunch of technology, uh, areas that Trump might decide are not strategically imperative to, you know, to keep from China. I think this whole idea that, you know, I think, I think that, you know, um, one of the most, I think one of the most impactful parts of, of, um,

The last year is, I think, and I was a part of this. I was very much beating this drum to arguing that we think that we're ahead of China in tech in all these areas of technology. But in fact, China is actually ahead of the U.S. in most of those areas. And even in the areas where we lead, we only lead in like a narrow, narrow sliver, because if you don't control the hardware production, the software eventually leaves. Like if you are if you're like a car company and you have an amazing design team,

a design studio, but you can't manufacture cars. Eventually, somebody who manufactures cars and can do the design will supplant you. So this is kind of where I've been arguing for a while that the U.S. is deindustrialized too much. It's in China, you can basically, you can not only design the latest products, but you can beta test them really quickly.

quickly with very fast iteration cycles because China has both hardware and software in-house in places like Shenzhen and around Shanghai. The US does not have that. So I'm arguing now that everybody understands this need for a vertically integrated set of industries, right? Industries can't just be one component. They have to have the whole chain. So I think...

China understands this. The US now is starting to understand this again. I think a lot of things that are happening right now are related to the idea of reshoring manufacturing, restoring tech competitiveness, rebuilding supply chains in the US. And the US is going to be really open to how all of that takes place. It decides to take a very different approach to China with regards to

you know, trading technology. And for those that think that's the worst thing in the world that could ever happen and they think it's, you know, then I would say to them, well, how do you like the way we're winning so far? Like, you know, how's it going, guys? Like, are you so happy with this method? Well, you know, you understand they'll steal our technology. Yes, they absolutely will steal your technology. They'll steal each other's technology. So they'll definitely steal our technology. So it's not a matter of whether they'll steal something. And we have

The question is, is there anything really that good to steal now that they haven't already gotten ahead of? I'd rather, if they stole it from us, I'd rather get it back, or at least get the latest version. You know, there are actually seeds...

in the Harvard Arboretum here that originally came from China, grew trees, and some of those trees in China are now extinct or nearly extinct. And we're sending those trees from the Harvard Arboretum back to China to repopulate species that have died there. I think that the symbiosis between the two countries is a really interesting one. And I think in technology, it's at its most vibrant, right? That's where...

That's where China's fast iteration and America's strong innovation skills actually are very complementary. You know, I was reading an article recently where the EU is actually looking to maintain

imports from China on the condition that they get technology transfers from China. And I just thought, wow, this is like the opposite of where we were 10 years ago, where China was getting technology transfers from the United States and Europe. Now, Europe and the United States are looking to get technology transfers from China for market access. So-

It's absolutely bizarre. You talk about vertical integration. One thing that looks really fascinating to me, and I've talked to a couple of people about it, is not actually having factories in the United States. It's actually maybe the United States and companies at home have gotten bad at making factories. And one of the things that the United States could really use from Chinese companies right now is having Chinese companies build factories in the United States because we've actually lost...

the ability to build businesses

big factories well in the United States. For you, what is vertical integration in terms of having all of these in-house tools? Because if I understood it correctly, we spent 100 years in busting monopolies, making sure that companies couldn't have all of the components that they need to make from beginning to end the same product. What does it mean to have those things at home? So horizontal integration is

is like a company, like a company. It's all in-house HR, R and D engineering product, sales, marketing, you know, horizontal integration means we take everything that we have when we integrate it horizontally. Vertical integration is where you take different sectors. Like, so, so like, let's say you want to dominate EVs. You're going to basically get, uh, you're going to get your academia and military and, uh,

your R&D operations, your SOEs and your private listed companies, plus your entrepreneurs, plus government, local and provincial and national. And you're going to get them all stacked around a few ideas around EV. We want to dominate EV batteries. We want to dominate EV

manufacturing automation. We want to dominate EV supply chain. So they're going to get around those little pieces and they're going to vertically integrate everything so that everybody is facing the same direction and going after it. This is the benefit of a collectivist

centralized system. That's where China is traditionally, not since 1949, but forever has been strong. Its ability to organize at scale, that's been something that China has been better at very large-scale projects because of the fact that it creates a society which creates a

homogenous cooperation and there's virtues baked into the social mores that encourage people to cooperate and to work well and to put aside their individual differences to get on board with large goals. So if you look in nature, I mean, you look at an anthill and you look at how well it integrates and how everybody's working together, that's

That's that's closer to the Chinese model than, say, the U.S. model of, you know, everybody's unique snowflake or snowflower or whatever. Everybody's unique flower and everybody's going to be, you know, bringing their own uniqueness to it. And we're going to make this salad. It's going to be delicious because all the different flavors are going to come. And so, you know, so their their their model is very good for vertical integration.

Our model actually, when we really put our mind to it, can be too. Like, I mean, we created a war economy after World War II and it was very, very good. There are times that the U.S. can be very good at collectivism. NFL, you know, I mean, you look at, you know, you look at the National Football League. I mean, it's a very, very successful sport.

type of American version of collectivism where everybody's focusing on the needs of the team. And so, I mean, we're, we're capable of doing it. We're not as quite as capable of scaling it, but we're very good at doing it. And, you know, I think that's, I don't know where I was even going. You're listening to the bridge. I just wanted to mention, I read a scientific article that said 20% of ants actually don't do anything.

which I thought was fascinating. But you mentioned SOEs. And when I was a kid, we had these things called utilities, but the United States doesn't really have as many utilities as it once did because everything is, oh, we need to privatize that. We need to privatize that. I was talking to another economist recently

on this show. And he said, one of the benefits that China has, and I'm also down for stealing good ideas from China and seeing if they can work back home. One of the things that we do back home in the United States is privatize everything because whatever it is, it can be privatized as a philosophy that a lot of Americans have. And one of the ideas I learned about

One of the advantages of state-owned enterprises in China is the input costs for businesses, for manufacturing, is really low because water is controlled by the state, because electricity is controlled by the state, because a gigabyte of information is issued by China Telecom and China Unicom, which are state-owned enterprises,

all of the inputs for a company in manufacturing, water, electricity, internet, are really low. So the cost of running your factory is very low. So the margins can be higher and the errors can be greater for businesses. What do you think about not having everything privatized in the United States? Because China is a socialist market economy. It has socialism, state-owned enterprises, and it has a completely thriving market economy that is in many ways

more vicious and competitive than parts of the United States market economy. I mean, China has always been very good at keeping its very specific political

policies around a few key things and then being very flexible about everything else. The U.S. used to be that way, and it's become very bureaucratic. The U.S. has become sort of ossified and brittle now with all the bureaucracy, the layers of bureaucracy that have kind of found their way in. First, it was

special interests and money kind of colonizing a lot of government agencies in the U.S. And then the bureaucracy kind of came along behind it, bureaucracies that build on themselves and create more power and fiefdoms. And this is where we are in the U.S. I mean, yeah, the U.S. used to be

pretty good at managing this. It's not so good at it now. China is better at managing it, but China has its issues too. There's definitely a lot of things that happen in

in China that you don't necessarily hear about, you know, challenges between national and local governments. There's always been a power play there. It's got some challenges there. It's like there's some things it's hard to be self-policing in some ways, and that can create some. But that's nothing compared to the inefficiencies created in the U.S. system right now. Right. We've got a much worse. We've got a lot bigger, bigger issue to solve. So

I think that, you know, look, I think that everything is on the table right now. Look, I mean, just look at the U.S.-China relationship. We went through the period from 1949 until 1970, where we were basically enemies in comunicado. Then from 70,

1971, we started to come back. But it wasn't really until 1979 that we were friendly with each other again. I mean, Deng Xiaoping came and did a tour in the US and wore a cowboy hat. And that helped. Not a lot of trust-based, but a lot of interest-based conversations happening between the US and China in the early 70s. Then it kind of swung all the way over to

engagement and love and everybody loved each other and we're going to be great friends. And the Chinese were going, no, we're not. We're definitely not. But the US wanted to believe that. We spent a lot of time at AmCham trying to tell people back in the US that that wasn't the case, that they weren't going to be our buddies, that they weren't going to become like us. We tried to tell them all this, but they didn't want to hear it. They were like, no, we're friends. And hey, they tell us how much they want to be like us. And they're like,

They're not going to be like us. But that was what was popular to believe. And now that we've all understood that that was never the case and it will never be the case, I think we're at a much more honest place. We can get to the place where this relationship was always supposed to be, where it was completely based on infidelity.

And the trust that you have is based on interest, not on whether you like the other side or whether you agree with their politics. This idea that the U.S. can't do business with China because they don't agree with their policies. And it's just not true that the U.S. executes its foreign policy on that basis. Like, I mean, I mean, when have you ever heard American government officials say we only do business with nice people, you know?

gentle politics. I always just give people, they always say, well, you know, they're doing this. And I'm like, you know, I'm not going to argue about whether they are or they aren't. I'm saying who cares? Like, you know, when you're talking about geopolitics, this isn't Lord of the Rings. Like unless you're Neil Ferguson, you don't actually believe that, that,

modern 21st century geopolitics should be run like a children's fantasy novel. That doesn't make any sense. But we're now just getting to the point where I think reasonable people are starting to understand this. And that's why nuance and understanding things at a more deep level is so important now because

in every area, there's going to be a reset. Look, Trump has the ability to be as impactful on the U.S.-China relationship in the 21st century as Nixon was in the 20th century. I want that to sink in for a minute. Like, I mean, we're talking about nothing less than a Nixonian level of impact that Trump can do. And he's well aware of that. Like, and he knows that the relationship is desperate for a new paradigm.

Right. So I think that all of this is playing into it. The tariffs, the invitation, the threats, the tear, you know, all of it. It's all part of this thing that we're we're in a new day. Trump sees I think he's I think he's I think he's a master of timing. I think he does understand timing like like all, you know, you know, successful business people.

he understands timing. And this is a time that you can actually create a generational, you know, definition of, of this relationship. That's neither based on, we love you or we hate you. We're just based on you're here. We're here. We have interests. You have interests. Uh,

let's do something together. You know, I heard that from a Chinese economist and a private dinner a couple of weeks ago that Trump is looking to set out his legacy and he wants it to be something profound and that there could be nothing more profound than settling the U.S.-China relationship at this time. So to hear you say that, an American, you know, on the East Coast saying the same thing is actually...

really kind of just like an echo in my head from both sides. Everyone is hoping that something like that happens. I hope so, too. Let's get to currency really quickly. It's never looked to me, never, that China wanted its currency to be an international trade settlement currency. It's never appeared that way, even though a lot of people in Western media has said so many, many, many times.

And BRICS has recently said that it is not planning on creating its own international currency settlement system. Not anytime soon anyway. But we have drifted to where just in the SWIFT system, I think the dollar is only 47% of current account settlement. What do you think about the direction of currency multipolarity? Well, I think as a starting point, I think the U.S.,

And I think Trump will do this. I think it needs to stop shooting itself in the foot on its currency. I mean, weaponizing the currency over Russia's invasion of a non-NATO country was, you know, forget about anything else. Geopolitically, it was about as dumb a thing as you could possibly do when you consider the amount of American prosperity that relies on the US dollar being the reserve currency.

I think without that status, the US has a very, very hard path to tread, to maintain its position in the next 50, 100 years. I've never seen a superpower in history that was able to maintain its status without reserve currency status. That's something that makes, I think, me nervous, and I think it would probably make a lot of people in Washington that are smart nervous.

So I think that's the first thing, is I think the US will stop weaponizing the dollar for political means. That's something that I think we'll see. Two, does China want to have its currency be the reserve currency? No. I mean, there are people that would argue that they will want that at some point. Right now, they definitely don't want that.

Right now, what they want is control. China, we know what they want. Chinese like control. They like control over their future and control over their world, and they don't want to have to deal with things. So the idea of having a reserve currency or some control over currency is only to the extent that they believe—

that of all the different ways that they are vulnerable, the way that they're most vulnerable is on international trade settlements. And the US happens to have its strongest leverage point on China

in the combination of the fact that U.S. is the global financial hegemon, and that's not going to change anytime soon, that the U.S. dollar is the reserve currency, that SWIFT is the primary payment system that's used worldwide, and that's not going to change, although there's another system that's coming up. So

So I think China is going to be quite sensitive on this one, as China has already supplanted the U.S. on both manufacturing and trade. I think it understands the stakes are really high. If you try to do anything to take away the U.S.'s position in that finance area, then you've really—

painted the U.S. into a corner. And I think China's way too smart to do that. So I don't think that China will help that process. I do think that process is already underway. It may be five or 10 years. It could be 30, 50 years. I think what's going to happen before all of this happens is that the digital currency movement is going to become more influential on

on how this plays out than it is right now. I think that just the fact that Bitcoin has recently topped $100,000 a coin, despite the fact that it's basically outlawed in most of the major countries, Russia, China, even the US is not comfortable with it. And the US has been trying to torpedo

to a certain degree. Because what happens is all kinds of technologies like these, a major country will first try to ignore it or disparage it, and then they'll try to kill it, and then they'll colonize it. That's how it always goes. But this is not something that's easy to colonize.

On the other hand, I don't really see how either the US or China can tolerate having a currency that's outside of their control that becomes the dominant currency in the world. I don't see how that they can do the things they want to do without it. So-

So all this is to say is it's like it's a three body problem. And that's why it's so difficult to solve. You've got the US piece, the China piece, and you've got the digital currency trend piece. Those three pieces together create very complicated calculations of terms of gravitational pull and which happens where. It's a great metaphor. You're listening to The Bridge.

I want to talk about universities because you studied in China. And I was looking at the data in the last couple of days from Statista just from 2019 and before. Every year for at least a decade going back in time, there were more than 10,000 U.S. students at Chinese universities studying.

And then since 2020, it dropped to below 300. And this year, it's only 460. I think it's 468. Could have that number one or two numbers off. That's a dramatic difference. And, you know, we still have a lot of Chinese students in the United States, not as many as before, but by far, it's much, much smaller.

higher. It's in the above 10, 20,000. If you have an enormous amount of students coming from China to the United States and studying, less than before, but still very high, but you have almost none, no American students studying in China virtually, doesn't that put the United States at a disadvantage? That's an understatement. Yes, it puts the U.S. as a, right? What is it? Sun Tzu said, know your enemy and know yourself.

and you'll win 100 battles. Know your enemy, but don't know yourself.

you'll lose every battle or something like that. Anyway, the point is that, yes, you have to know China and you have to know it on the ground. You're not going to know it. I mean, I think this is starting to become apparent. I've noticed that there's an echo chamber now of so-called China experts that opine on China, but they don't know China. But then they also interact with other people that also don't know China and also opine on China. And so all of them seem to have their followings

But they never really seem to get much attention from the people that actually know China, people that actually have lived there and know the language and the people like you do and I do. So I mean, I think that there is a limit to their influence outside of their sphere. But unfortunately, within their influence sphere is Washington and a lot of people that are in the establishment view, right, that all share these views together. So

The antidote for this...

is Americans studying there themselves and they can actually know what's going on because they actually see it on the ground. And yes, you don't know everything by living there. And I'm sure to a certain degree, we're all, you know, it's hard not to become emotionally attached to China when you're living there. It's a wonderful place to live and, you know, people are cool and food's good and all that stuff. But you actually can get a much better view in terms of if you're trying to

Well, look at me. I'm 35 years in China. I love the U.S. I love China. But but I mean, right now I'm trying to help the U.S. get its game up because that's where the work has to be done. Right. I don't think there's much for me to help the Chinese with. And I don't think they need my help. And actually, my job is to be a patriot right now for my country. I mean, China's been awesome.

But, you know, let's be honest, the time that I spent there, a lot of it helps me have a perspective that most people don't have. And that perspective can help can help me make proposals that are nuanced enough that, you know, that aren't necessarily they're not pro China at all. They're just they're just pro winning better for the US, if that's if that's the way you want to look at it, or they're pro China.

better way forward for the two countries. But whatever they are, there's definitely no panda hugging going on in there. So I think that people that go over to China, I think they will see this. What doesn't help is travel advisories and demonizing China and then asking Americans to get on a plane and go over there. Like,

When I went over in '88, I mean, it was still technically a place that was very unknown, but it wasn't a place that people said, "Oh, don't go there. The people are scary." They were like, "Wow, don't go there because Japan is a much better place to do business." That was what I heard.

What are you going to do in China? They're riding around on bicycles, wearing mouth suits with chickens on the back. What are you going to do with that?" I was like, "Well, they're going to be the next superpower." They were like, "Yeah, but Japan is a much better bet." That's how people have always approached China. They've tried to tell you why you shouldn't go. Before, they were telling me I shouldn't go because it wasn't a good bet, then later,

For a short time, everybody went, and that's when you got numbers like 10,000 a year, because everyone understood that China is the thing. Here's the reality, Jason. There is a G2 that's now formed.

a G2, that is the US and China. That alludes to what Trump said earlier about between the US and China, we can solve all the world's problems. I think what you're going to now see is as much as we're going to talk about BRICS and BRI and the EU and G7, all those will continue to be factors, but it's really going to be about these two countries. I think there's going to be a resurgence in interest

from the US side to have people study in China. I think that a lot of the heat's going to come off the relationship. I think they're going to take away this travel advisory, which is really stupid. First of all, China's a lot safer than anybody realizes. It's probably safer on the balance in the US. I definitely feel safer walking around China in a city at night than I would around a bus station in New York, to be honest. So

So I but I get the whole concern. Oh, you could get thrown in jail and who knows what. It's a different system. It's always been a different system, you know. But I think that I think there will be a resumption. I think there'll be a resumption because because, you know, a lot of this zero sum mentality came with Biden and came with the establishment view, which if Trump is successful, then

will give way to a new paradigm very soon. And I think that's what he's trying to do. - Wow, always amazing to hear your thoughts. You know, every time I come up with questions,

that I think I already know the answer to. And every time you give me unique answers that I wouldn't have expected that I, you know, I truly learn new things from you, Mitch Presnick. Thank you so much for coming on the show and sharing your wisdom with us again today. Great to see you, Jason. I'm always happy to see you. And yeah, keep up the good work, you know, keep getting the message out about, you know, the other side of the coin, right? You can definitely see that this US-China relationship isn't going anywhere. And I think you're doing very important work. Thank you.