Deep Dive
Shownotes Transcript
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Hello and welcome to another edition of the China Global South podcast, a proud member of the Seneca Podcast Network. I'm Eric Olander, and as always, I'm joined by China Global South's managing editor, Kobus Van Staden, in Cape Town, South Africa. A very good afternoon to you, Kobus. Good afternoon.
Kobus, I'd like to say it's a good afternoon, but I'll tell you right now we're recording this on Monday night in Asia, and people are shell-shocked over what happened today. This was the biggest market sell-off in many countries since the Great Depression, certainly in the past 20 years.
trading in Taiwan stopped double-digit downs in many Asian countries, and the same situation occurred in Europe. Let's listen to how Bloomberg reported the news after hours here in Asia.
Carnage, panic, bloodbath doesn't even begin to cut it. And you look at the declines on the region's benchmark, worse since 2008. It is across all asset classes. We're seeing the reeling from this ramped up tariff war. And it is also across geographies, across sectors when you're looking at stocks.
Really interesting as well, the likes of the Singapore benchmark normally seen as very stable, plunging by the most on record. That tells you a lot. Now, she talked about Singapore there and you can just hear the urgency in her voice. This, of course, has all been brought on by the tariffs, the huge tariffs that were introduced by US President Donald Trump.
Last week, trading that got traded in the US lost a lot on Thursday and Friday. And again, we're recording this before the opening bell on Monday, but all the pointers, and by the time you're listening to this and watching this, there's pretty much no doubt that the Dow and the S&P in New York are going to suffer a similar fate. What's basically happened in the sense out here in Asia, Kobus, is that these tariffs put forward by the Trump administration have effectively ended the
the international economic system as we've known it for the past 75 years. Now, Singapore, she mentioned, had the biggest losses. In part, this came about because Prime Minister Lawrence Wang, he gave a video address to the Singaporean people over the weekend that really went viral and really set the tone. And let's remember that Singapore is probably, if not the most
moderate government in the world, the least kind of partisan towards the US and China, and really does benefit from strong relations with both. Keep that in mind when you listen to the Prime Minister's remarks that came out over the weekend. My fellow Singaporeans, I've said before that the world is changing in ways that will disadvantage small open economies like Singapore.
Some had previously questioned this assessment, but the recent Liberation Day announcement by the U.S. leaves no room for doubt. It marks a seismic change in the global order. The era of rules-based globalization and free trade is over. There you are, Kobus. The rules-based order as we heard it. Now, we heard this
from then Senator Marco Rubio and his testimony and confirmation hearing to become Secretary of State that the rules-based international order as we know it, as he knows it, is over. It was not serving the United States well. This is the line coming out of the Trump administration. And I want to close this little introduction over what happened today with some remarks by David Edelman, who is the Managing Director and General Counsel of CraneShares. He was speaking on CNBC Asia again
about the magnitude of what we've seen over the past several days, but particularly on Monday in Asian trading. - You know, a shooting war is one thing to talk about, but a trade war can be quite devastating. And we are seeing, I think, the beginning of what very much is a world trade war, something we really haven't seen since, you know, in 100 years from the United States. - There we go, a world trade war. We're in it now, Kobus. You know, I just cannot overstate
the magnitude of what's happened in the past few days and what's happened here in Asia, particularly on Monday. If I sound shell-shocked, I am shell-shocked because I live in a country here in Southeast Asia that is extraordinarily vulnerable to what's happened. Southeast Asia was among the hardest hit of all
the tariffs that came out. 50% tariffs on Cambodia, 46% tariffs on Vietnam, equal amount in Indonesia. Kobus, I'm not sure if you're feeling it in Africa, but it is ground zero here in Asia. Well, the Singaporean leader mentioning small open economies immediately made me think of South Africa because that's exactly what South Africa is, is a small open economy. So I think the South Africans are freaking out, particularly, I
I think because it's not only the trade with the US, which I think everyone in South Africa was already kind of worried about, of course, but it's the knock-on effects of all of, you know, all of the rest of the kind of global system being impacted. Now that will also affect South Africa. It's, I think, extremely worrying. And, you know, and I assume that many people around the world are feeling exactly the same thing with fill-in-the-blank country as well. You know, like every person is feeling that about their own country, I think.
And I think right now everybody's concerned because the U.S. president is showing no signs at this point of relenting and he's holding the line and they keep coming out with the White House line that says, you know, the patient is sick and the patient needs medicine and we have to go through this difficult period in order to get healthy again. The question is,
is the cure worse than the illness? That's what we're going to talk about a little bit today. But again, we're going to focus now on China. And as awful as today was, the timing couldn't have been better to have Kyle Chan join us. And again, you almost think that I planned this, Kyle. Kyle is a postdoctoral researcher at Princeton University and
the man behind the indispensable Substack to High Capacity blog. Also, I'm going to put a link to it in our show notes. His Twitter feed is like getting a PhD in global economics. And I'm just so thrilled. I've been a fanboy of Kyle's for a very long time. And when I reached out to him to invite him on the show, and Kyle, you were so kind to say, yes, you are familiar with what we do. And I was just so jazzed, did not expect that this would be the conditions. And
and the moment that you would be joining us, but it is perfect for someone with your perspective. So really appreciate you joining us very early in the morning from Princeton. My pleasure. I've been a huge fan of the show and the other podcasts too for years. Oh, wonderful. Well, that's very kind of you. So let's get right into it. Chinese President Xi Jinping will be coming to Southeast Asia next week, we expect. We don't know the precise dates. Cambodia, Vietnam, and Malaysia are on the itinerary.
What do you think is happening right now in the leadership compound in Zhongnanhai? And what is the thinking on the part of the Chinese? I was approached by two international media outlets today for some comment. They were putting forth the narrative that they think China and Xi are going to kind of retaliate against the United States, not just in one-to-one, but also to try and take advantage of this moment for a global leadership in trade. They were suggesting that there might be announcements of big free trade deals and
And I disagreed with them on that. I said, I don't think the Chinese president's going to make big sudden moves that will limit his flexibility down the road, but love to get your take on what you think Xi is thinking at this point and what his policy advisors may be talking to him about in terms of how to respond to the dramatic events that have unfolded over the past four or five days. Yeah. So, you know, I share your view. I think at this point, there's
There's a lot that I think Beijing can gain from just letting sort of like U.S. actions unfold and send shockwaves to the world and destroy sort of American credibility and trust in the U.S. as a trading partner, not to say anything of upholding the so-called international order as it was once talked about. So I just see that, especially at this moment, China...
almost hardly has to do anything to start to get the advantage, to sort of read the benefits of what's going. I share your view, too, that I think there are likely and there have been efforts to reach out to, you know, we've seen efforts in the EU to start to at least
sort of like warm-up ties again. We've seen, you know, a meeting between sort of an economic summit for Japan, South Korea, and China. And, you know, I've been following all the memes about how, you know, to get those three countries to agree on anything, it takes something pretty significant. Yeah, that was remarkable. That
That is, you can't, I mean, that's again, Kobus, you know from your time in Japan as well, how these are historical rivals, particularly Japan, South Korea, and China. I mean, Japan and those other two countries, but even China and South Korea have had a very tense relationship over the years. And that speaks, Kobus, a little bit to this issue that we've been talking about in our coverage recently.
about how quickly the rest of the world is reconfiguring around the United States. So we saw Jet P, which is the Just Energy Transition Project, I think is what it is, J-E-T. Partnership. Partnership, there we go. How the U.S. pulled out of that, but yet the U.K. increased its support for it.
for South Africa. And Indonesia said it would continue with Jet P without the US, as did Vietnam, so quickly. So it's interesting to hear what Kyle's saying, Kobus, about the reconfiguring may be one of the consequences that the US did not anticipate when they went into this.
Yeah, I think so. I think that is the way that when Trump pulled out of the Trans-Pacific Partnership a few years ago and the other countries went ahead and set up a partnership of their own, I think that was an early indicator maybe of some of this kind of regrouping. But I think it now happens at a moment of high crisis. So the consequences are much more immediate. Kyle, this weekend, People's Daily published a long op-ed
in which they were essentially making the point that this isn't 2017, and that China, while these measures are certainly going to hurt the Chinese economy and Chinese exports, they have kind of tariff-proofed the economy in a lot of different ways. I was wondering what you make of that narrative. Like, you know, which kind of lessons did China take from Trump 1.0, and what may they be implementing now?
Yeah. At this point, ironically, because of Trump won and because China was the focus of Trump won and because China went through the sort of the round one of the stage of the trade war, China was in a much better position, even just sort of psychologically, not to mention, you know, in terms of actual policy measures to respond to Trump too, in a way that I think other countries are now, I mean, Canada, I don't think they expect it to also be pulled into all this, for example. So,
Yeah, in the time since, we have seen sort of a whole toolkit being developed by Beijing for how to handle this, both in terms of what to do in direct response to the U.S., but I think more importantly and sort of more interestingly for the rest of the world, sort of a new approach or a change in approach to engaging with the rest of the world.
And so what we have seen is, I mean, a lot of this was already starting, but has accelerated significantly. We see sort of reconfiguration of global supply chains and expansion of Chinese manufacturing investment in many different parts of the world that, again, were already beginning, but really sort of went into full swing. At the same time, you have China focusing on what it sees as the, you know, in the
industries of the future, trying to make that long-term investments on future drivers of economic growth that are not necessarily so exclusively dependent on, say, American consumers. And there's a whole range. And along with that, there is an effort to, if not export to, at least try to reach a wide range of foreign markets, especially across the global south. So ultimately, China is in a position that
I think it will still be disruptive. It will still be painful. I think the Chinese markets are also feeling it. But, you know, sort of relatively speaking, the sort of perforations that have gone in from the Chinese side, I think, put China in at least a more favorable position than I think some of the other countries getting hit.
Yeah, let's take a few minutes to talk about that and dive into your thinking on supply chains in particular and how the Chinese have insulated themselves a little bit from the U.S. If I recall, and I don't have the statistic off the top of my head, China only exports about 20% of its total volume to the United States. It's been steadily been reducing its dependence on the U.S. in anticipation that something like this would happen.
Again, don't quote me on that, but that's the number that I think I've read a couple times. But one of the most interesting parts of this was the retaliation that the Chinese took, which they didn't do as much last time, but they put a 34% tariff on inbound American goods. Now, the Americans don't sell that much to the Chinese anymore.
but particularly it's around food. So sorghum, soy, pork, beef. This is where the United States and those farmers are very vulnerable. One of the things that we've seen on agricultural supply chains is a shift to Southeast Asia. So here in Southeast Asia, we export about a trillion dollars to China in terms of total trade. And then Brazil has been a big beneficiary of whatever problems the United States is creating for itself. So there are winners and losers in this
Before we get into the manufacturing supply chain issues, which you've written about extensively, can you talk a little bit about the impact on agriculture and how you see maybe the shift from the U.S. to, say, Central and South America and other parts of the global south? Yeah, definitely. So you bring up some great examples. So Brazil is one sort of
relationship that I've been following more closely. And you saw, again, the beginnings of this with Trump won, with the shift towards soybean purchases from U.S.,
farmers to Brazil. And I don't have the numbers off the top of my head, but you can see overall that that shift had been maintained and even sort of continued in the time since to reduce exposure. You know, it can work both ways. It can actually then, you know, China can insulate itself by reducing sort of its agricultural imports from the U.S. That does also reduce that tool as a economic sort of retaliation measure.
But I think from probably China's standpoint, it's better to, what is it called? Sort of like prepare yourself, protect yourself first rather than, you
hold this back and reserve it back later. But either way, you see already a diversification of one of the key, key imports that China brings in from the rest of the world. You recently wrote about superconductor and chip supply chain specifically. We've seen over the last while, we've seen two different trends, I guess. One is not only increasing pressure from the US around these issues, but
you know, during the Biden era, this kind of China excluding coalition building, and now the counter trend where even where Taiwan and all, you know, the Netherlands and all of these other, these other kind of people or countries who used to be core kind of like superconductor partners for the US are now also being hit by tariffs. How do you see this turn affecting the super, the superconductor kind of supply chain more broadly?
Yeah, definitely. So this has been a big issue for Beijing. So the U.S. has led a set of countries, especially the Netherlands and Japan, and trying to bring in South Korea and Germany as well, in levying these export controls to limit exports.
China's ability to procure or produce high-end semiconductors. So it's sort of a series of escalating export controls that really took off under Trump 1, really ramped up even further under Biden. The question is now for many people, how much higher can it go? The key here is that these sort of choke points in the semiconductor supply chain. And here, the U.S. controls some of those.
So, LAM research, there's a couple of sort of US semiconductor companies. And then, of course, obviously, the 800-pound barrel in the room, so NVIDIA chips themselves are a key area where the US can exert pressure on China and limit China's ability, especially now China. A lot of Chinese AI companies have really taken off and been pouring investment into building up computational capacity. At the same time, though, the US doesn't have all the cards. It relies heavily on
on especially the Netherlands, ASML being the main, being the only producer of the highest end lithography machines for producing two nanometer, three nanometer level chips. And Japan also, Tokyo Electron has, is a huge part of the supply chain. So a lot of this depends on American partners going along with this, especially
especially at great cost economic cost to themselves. So ASNL CEO has complained about this. You know Dutch political leaders
I was publicly are in support or have been until they were clear. They were. They were. Exactly. Exactly. I think it all depends on this sense that we are in this together, that we share a common goal of preventing China from getting high end semiconductors and that
We are willing to all share the pain, sort of the economic burden of this. And there is an economic cost to these countries. And I think we are now in a different world where a lot of that trust, a lot of that sense, not just trust,
sort of economic cooperation, but of geopolitical cooperation much more broadly has been ripped apart. Yeah. So speaking of Europe, what we've seen recently in the past few weeks coming out of Europe is that Portugal canceled its F-35 contract. French President Emmanuel Macron said it's time to foster a new relationship with China, indicating probably that we're not together with the United States on this at all.
And then even Germany's new chancellor is also considering new approaches to China. Interesting because the German chancellor came through the industrial sector and he was very critical of China. But, you know, circumstances change things. So what's the old saying? Principles are subject to circumstance, right? So ASML may no longer be, you know, aligned with the United States if the Europeans feel like they have a foreign policy agenda that is relevant.
radically different than that of the United States. Let's stick again with the supply chain questions, whether it's agriculture or semiconductors, as what Kobus brought up. One of the tactics that the US is using is to start pressuring third countries
to cut their ties with China. And this is where a lot of developing countries like Panama and potentially Chile and Peru now are vulnerable, that they will have to make a choice. You either do business with us or you do business with the Chinese. Kobish, you remember when we were talking to one of the, or we heard soundbites from a gentleman by the name of Joel Pollack, who was at, for a time, apparently considered to be the US ambassador to South Africa. And he very aggressively said,
just, he spelled it out. Either South Africa trades with us or they trade with communist China. That was his saying. And if you want to go trade with communist China, great, have at it, but you lose all the benefits and perks of trading with the United States. It's us or them. That is a very difficult position for many countries to be put in, particularly developing countries.
Kyle, do you think that this is going to be an effective approach, particularly for a country like Brazil, that's now becoming very dependent on the China trade for beef and for sorghum and for soy and for any number of agricultural products? But at the same time, it trades an enormous amount with the United States as well. What do we make of this as the U.S. gets more aggressive now in challenging some of China's trading partners?
Yeah, I think it's interesting to see sort of the carrots and the sticks here because a lot of these countries are under a lot of pressure. And I think what's sort of funny to see here is the U.S. is applying sort of sticks, is trying to say, at least for, you know, so far in this administration, they're trying to almost sort of threaten his country, his Panama, being a classic example. And boy, does that sort of hit
hit a nerve in some of these countries. China, it's very interesting. One of the biggest tools, in addition to sort of just direct trade that has been emerging, sort of one of the biggest carrots that China is now offering a lot of countries in the world is manufacturing investment. And specifically, it's useful to break down this term because it's not just, FDI is not just FDI. There's different kinds. And to build a factory, to build a new manufacturing plant,
that can employ local workers. Now, of course, the devil's in the detail, and there's always questions about the sort of mix of Chinese versus local workers, but I think there's a lot of pressure to have local workers. But to create local jobs, to contribute to the local economy, to even potentially play a role in technology sharing, either sort of formally or informally, worker training also along with this, these Chinese manufacturing plants
are a very, very attractive thing for a lot of countries, whether you're talking about Southeast Asia and you see a boom in tourism
in Chinese manufacturing investment, Vietnam, Thailand, Malaysia, and I mean, all over, as well as you see Brazil. And we can get into the details, especially if BYD is a great example where you just see factory after factory being announced or launched. But then you do have cases like Mexico, where
decision-making is not always going to be publicly shared, but you have a sense that there was a lot of pressure from the U.S., from Trump, to not have a BYD factory there. And so it's sort of interesting, this moment where these countries, especially some that used to kind of win by being in between the two, are now getting pressured and maybe, at least relative to their position before, they're
Maybe losing a bit, at least just from the US pressure, but to see what China is trying to offer. This is sort of building off of a previous wave that is still ongoing, but that has, I think, started to abate a little bit, which is the Bell and Rohn initiative. So
the previous offers of building infrastructure were very interesting to many countries. There were some mixed results in terms of maybe some public opinion about certain projects, but that was something that a lot of countries were
were eager for. They were eager for, you know, including also a sort of digital infrastructure as well in particular. And now I think this is almost even more enticing idea of building plants in your own country and creating jobs. I mean, who doesn't want that? It's really, and even Europe too, right? Speaking of BYD, this weekend, as all of this chaos was happening, a shipment of 7,000 BYD cars arrived in Turkey, which
BYD's own ship, which I, that blew my mind. Weirdly that BYD also like runs its own shipping, like for all of these cars around the world. Yep, there you go. Total vertical integration. That's the BYD ways. Total vertical integration. Yeah. So, you know, one of the kind of mega trends that many people have been
predicting is that all of these tariffs is going to increase as China's now looking for other kind of export destinations, it's going to rapidly increase the flow of Chinese products into the global south. So I was wondering what you think some of the bigger kind of impacts are. Like one of the impacts, of course, is impacts on local manufacturing, as you've been pointing out, but
Not necessarily all of these countries don't necessarily all have local manufacturers. So I was wondering, you know, how you see the different kinds of impacts of the kind of flow of these technologies and products into the global south. Yeah, there are certainly some countries that are perhaps better positioned to attract and benefit from especially Chinese investment.
in manufacturing. So, you know, the two types of countries I have in mind are either countries that themselves are large markets like Brazil and actually India. That is a whole whole- India's a weird one. Let's put a pin in India because we're going to come back to India at the end, okay?
Great. And the other type of country in particular are ones that have access to or used to have access to markets in large markets. So some that might not be on everyone's radar include Morocco, which actually has sort of trade agreements with the EU and the US. And, you know, we'll see how that unfolds.
how that ends up. But, and Turkey with its connection to the EU. So those types of countries, because of their position. And Mexico, of course. Mexico. Yeah. Mexico got a lot of investment. Absolutely. Absolutely. So those countries, you can kind of see they occupy a,
a sort of unique position in the global sort of geopolitical and economic structure that makes them especially attractive for these sorts of things. But just to pick up on what Kobus was talking about in terms of are we going to see more trade, maybe not investment, but let's focus on trade.
More trade, that's a double-edged sword though, and we've seen a pushback from a number of countries, including Vietnam, Indonesia, South Africa, let's see, Brazil, Chile, and Mexico on steel in particular, various steel products. And there is a growing concern about a flood of low-cost Chinese products
imports coming into their countries, displacing local businesses and local service providers and whatnot. The US calls this the overcapacity thing. I know that's a sensitive word in the Chinese side of things, but at the end of the day, the Chinese had a trillion dollar trade surplus, and we spoke with Judeh Moore, who's one of our old friends from formerly of the Center for Global Development, and his point was that this trillion dollar trade surplus is really a sign of weakness
not a sign of strength, in part because they don't have the domestic market to absorb that consumption. So they're just pumping out huge amounts of products into places like Southeast Asia, the Middle East, Latin America, and Africa. What does this do to those countries? Now, the consumerism
Consumers benefit from a lot of low-cost goods. Cobus loves low-cost Chinese-made solar panels in Africa. But at the end of the day, lots of Xi'an and Timu stuff is also bad news for local producers here in Southeast Asia, for example. Yeah, definitely. So I would break it down by industry, by type of product, because I think there's sort of different drivers and different effects depending on which industry or product you're looking at. Actually, speaking of Xi'an and Timu, so
So the textiles and sort of, I don't know how else to say it, but sort of like really cheap consumer goods that especially get in, get in under certain sort of regulatory thresholds. That has been a huge flashpoint in, as you mentioned, a number of countries. I think, um,
A few countries in Southeast Asia have either imposed, Indonesia was planning to do sort of very high tariffs specifically on textiles from China and clothing imports because it was really decimating their own local textile production. The Shin and Tumu, I think, has been banned or being considered being banned or limited in some way by a number of countries.
So that in particular, I think, is one area where I see definitely a lot of pushback, especially for countries where not only is it a sensitive economic issue, but it's a very sensitive political issue. You have workers and folks in the industry who are politically important who don't want to see this happen. The steel issue is another one where, I mean...
Even you can even see in China's steel production figures, they are trying to figure out what to do about their steel because it has been an, it's astronomical. I mean, it's like a classic China chart, but on steroids, if you could, if you could imagine of just a surge in, uh, overall production. And there you have not only, um, countries like the U S starting to, um,
raise tariffs and try to block out Chinese steel.
And they're actually not the major importer, actually. But you have, I think, perhaps even more importantly, within China, a structural change and a question about, you know, sort of like, what is peak steel? How much steel does the country need, much less the world need? And for a while, there was, you know, such heavy investment in not just infrastructure, but real estate that required a lot of this material that it was...
at least for a time, it seemed to be feeding into at least that part of the domestic economy. So the Chinese domestic economy might not need quite as much steel anymore, even with this shift towards sort of high-end manufacturing in the same way as it did before. And the rest of the world is now getting nervous about steel
about getting flooded with Chinese steel. So I think those two cases in particular are ones where there are sort of longer standing, I think, structural issues, both sort of internationally and within China that are driving on some of these. So I would expect to see even more sort of efforts to try to reduce the impact of that.
On a broad level, you know, at the beginning we talked about, well, how quickly the world is reconfiguring itself. How are you at the moment thinking about the future of free trade and particularly on the kind of underlying norms that guarantee free trade? That system used to be built around the US and the US was a kind of a crucial part of it. It was kind of almost built in its image in a way and it was a kind of a guarantor of that system. Is there a chance for that system to drift loose from the US intact?
Or are we looking at a fractured system? Are we looking at, you know, like, what are some of the kind of broad kind of, you know, kind of scenarios that you're thinking of at the moment in terms of the future of free trade? Yeah. One way I've been kind of thinking about this is a shift from free trade to fair trade. And I don't have all my thoughts in order on this, but a sense, you know, not just from the U.S., but in the EU's relationship with China, there's, I think, a
ultimately a sort of a moral dimension to this issue that I feel like either had been downplayed before or is coming to the fore now about not just sort of like should we open up our markets? Is trade in and of itself a good thing? But what should the terms of
of trade be? What should the role of state support for domestic producers and exports be? And what should other countries do when they feel like it's not fair? And this is, I'm trying to give the, you know, I'm trying to
see the world not just from the US standpoint or a Chinese standpoint, but also I think the EU has been pretty vocal about this, but also, you know other countries I think more broadly have been Speaking in this sort of in these terms of sort of fair fair trade So I do wonder what that means going forward. I think for the US Now we are seeing what fair trade looks like and it doesn't look
very fair to a lot of other countries. I guess what's frustrating for me when I hear this fair trade argument and I hear Donald Trump talking about and the MAGA movement talking about how the U.S. has been ripped off. I've lived in Asia now for 25 years.
And I've seen the ecological price that China has paid for all the cheap crap that fills Walmart and Target. I live here in Southeast Asia now, and I see firsthand the strain on the bodies that make the shoes and the textiles. And we have AQI, the air quality index here is 125, 130, 140 regularly.
You know, when we talk about fair trade, Americans and Europeans and wealthy countries have been able to move all that pollution to poorer countries.
They've been able to move all of those those that hardship on on the human body that makes this stuff six days a week Nike's not gonna pay $35 an hour with with benefits to produce a shoe that cost 80 bucks at the shoe Depot I mean, I just I don't know what planet that they're on and I think I wonder if Americans or at least the MAGA side of Americans have been so disconnected from what manufacturing actually is and you see what?
what it takes to build an iPhone. I mean, to see the, Lutnik on TV talking about how, today he was talking about how all the little screws that go in to make the iPhone, we're gonna do that in America. What he doesn't understand is that around a Foxconn iPhone factory,
are 500 other factories that are supplying into that factory. There is a 15 lane highway with railroads leading in from world-class ports that are all automated by AI that all feed into that factory. We don't have any of that infrastructure in that network in the United States, impossible.
So when we talk about fair trade, the investments that China's made in infrastructure, the pollution that it suffered, and then in Southeast Asia, in Bangladesh as well, that isn't factored into the equation. I do not believe that American taxpayers want to have AQI levels of 125.
around their factories. I think those days are gone where they would tolerate that. So when we talk about fair trade, they're only talking about it in monetary terms. I'll get off my soapbox right now and stop ranting and raving, but it is frustrating as somebody who lives in a manufacturing country to hear talk about manufacturing as if it's going to be clean, well-paid, it's going to be safe, it's not going to damage the environment, and that's just not the way manufacturing works. I mean, what's your take on that, Kyle?
Yeah. You know, one sector I've been very focused on lately has been the robotics and industrial automation sector, which has been really booming in China. But if you talk to folks who are in the industry, they use this expression to talk about the kinds of jobs that robots are especially poised to take over. And those jobs are the three Ds, dull, dirty, and dangerous. And when I hear them talk about that, I think immediately of not robotics, but of
but of trade and of who makes the stuff that we, the rest of the world, but also in my position, we American consumers love. We love the products. We love the price. We love not having to have the pollution, as you say, and not having to do these sorts of jobs that would, you know, we would otherwise, you know, we would not, you know, wish on our children, for example. So it is very striking to see
have this idea of like, you know, is this what we want? - Yeah, I mean, you don't want a t-shirt factory here in Vietnam in Topeka, Kansas. That is, it's just not the economics. And Kobus, you've made this point before on the iPhone that, you know, American consumers benefited enormously from having access to low-cost products.
And so this notion that Americans are being ripped off, and not even Americans, all consumers in advanced economies. I was up in Japan over Christmas, same thing, tons of cheap crap everywhere made in China. In fact, you know, there was a district in Tokyo called Akihabara, which used to sell electronics. They don't do that anymore because China took all that business away from Japan. Akihabara sells manga now. Yeah.
Yes, it's right. It's manga. Exactly. It's a manga central, yeah. But interestingly, they're selling knowledge, software, service, and entertainment, which is what an advanced economy actually is poised to sell. And that's what... So it's just kind of funny. Listen, Kyle, we're running out of time, and I know you have a big day to get going with and a lot to think about today, given everything that's happened. You did mention India. I don't want to leave our conversation without talking about India. In many ways, India...
is the 800 pound elephant, if you will. We got the dragon, we've got the elephant, to use the caricatures. India's in an interesting position. It got tariffed pretty hard, interestingly enough. But it's part of an American security relationship that's intended to confront China. At the same time, Narendra Modi, the prime minister, is apparently bros with Donald Trump and they like each other. Modi's oftentimes added to the group of increasingly authoritarian
leaders that Trump is now in as well. But at the same time, we've seen a detente between China and India, resumption of direct flights, ambassadors are back in both each other's countries, and the past four or five years of chill that emerged from the 2020 Galwan border dispute
appears to be giving way to some kind of economic relationship. And there's a lot more talk now of Chinese factories opening up in India. BYD talking about tapping into the huge Indian market. Talk to us a little bit about the contradictions and the complexities of India-China supply chains and the economic relationship, particularly in this moment that we're in right now. Yeah, India and China...
That relationship has been one of the most complex, one of the most fascinating to follow. So my view is that India trying to make natural economic partners in so many ways that in terms of...
the similarities of their domestic markets, in terms of the complementarities between their firms, in terms of what they could do if they sort of integrated supply chains. And also India is making a big, big push in two areas that are sort of China's bread and butter, infrastructure and manufacturing. And so from India's standpoint, you know, if
geopolitics aside, if you could have picked any country to work with,
your neighbor next door would seem to be the perfect partner. At the same time, of course, you have, you know, you had, you know, even, even, um, Dakwan in 2017 and then Galwan is, uh, 2020 was where things really came to a head. You have a sense of, um, geopolitical insecurity in India and this, I don't know how else to characterize it, but sort of this dance with the U S where the U S is trying to forge some kind of, uh,
coalition or group across Asia to counter China, to put it bluntly, and sees India as a central part of that equation to the extent that I think that they adopted, I think it was Shinzo Abe's terminology, Indo-Pacific, rather than just Asia-Pacific or
So you saw that especially ramped up as well under the Biden administration. And many observers, I think, thought that would continue with the bahami between Trump and Modi. And then you get his laugh with massive tariffs. I mean, that was a surprise.
That really was a surprise. And India exports, for its own sake, it exports a lot to the U.S. It will hurt a lot economically for India. So does this force India to look now more to China, do you think? I mean, to say, listen, okay, you know. I mean, remember, Modi's got a lot of pressure domestically on the economic front that this economy is not performing anywhere near as strong as he would like. So...
ends justify the means here, right? If he's blocked out of the U.S. market from growth, I mean, maybe he'll get some kind of deal with Trump, maybe not. But China does present at least a way out for him, at least in part, to get that economic growth going. Yeah, definitely. I think, you know, there was a trajectory actually of greater integration, a lot of Chinese investment in India before 2020, before things really came to a head. That already sort of is
is sort of a blueprint for what the relationship could look like. I think there are some things that India would like to change as well, but right now the U S I think is doing sort of like the ideal from India and China to him, where the ideal thing to push them closer together, you know, more than anything else. Okay. Well, Kyle, thank you so much for your time today. Again, you know, unfortunate for the world, but great for us that you were able to join us today.
on this important day when so much is happening and the world does seem to have changed now. As we heard at the top of the show, potentially we're in a global trade war. And that is scary to think about, but your insights help us to figure out what's going on. Kyle Chan is the man behind the high-capacity sub-stack and also a postdoctoral researcher at Princeton University. And I will put a note to his absolutely indispensable expertise
feed in the show notes. Kyle, thank you so much for joining us today. We really appreciate it. My pleasure.
Kogus, again, a treat to have someone like Kyle on. But again, the circumstances, I wish, were very different. Again, I'm not sure if folks in the United States, well, yeah, they are because there's stock markets feeling it. But the level of anxiety that we have out here in Southeast Asia just cannot be overstated. And you heard from Lawrence Wang, the Singaporean prime minister, he said,
It's over. This was similar comments that we heard from the Canadian prime minister, that the relationship between Canada and the US is over. We're going to emerge from the Trump era in a world that looks nothing like it did on January 19th, before Trump took power again. I mean, it is...
unrecognizable. And I don't know if everybody fully appreciates the magnitude of the change that seems to be going on, especially those who don't follow news so closely. But boy, what's happening now is just mind-boggling.
Yeah, it's really scary, just simply because, you know, the last time one saw these kind of historical developments, the stuff that came afterwards were not wonderful. Which period are you referring to? I'm thinking of the 1920s, 1930s. You know, yeah, you know, so in that sense, but at the same time, it's a very different world. And obviously, you know, I think one of the things that is not...
enough about the First World War and particularly the Second World War is how it was embedded in the dissolution of European empire and the wealth bases that countries like Germany and the United
kingdom were coming from, you know, was very much to do with where they were imperially. Also, the Holocaust was in lots of ways, you know, a very famous kind of theory of the Holocaust from post-colonial perspective, that it was essentially the blowback from the colonies back into the center. So, you know, that was a very different moment than now. You know, we're talking about a much more developed, a much more empowered global South and an entire kind of array of non-Western
and powers, you know, that have risen in, you know, in the meanwhile, including China. So it's a very different situation. But at the same time, it's the same level of insanity that's going to be thrown into a very fragile system. So we've had a lot of discussions, both on the show and individually, and then obviously in our daily interactions with people, trying to find some parallel in history for when something like this has happened. Yeah.
And I've asked a lot of people, what is a period of history where a country at the apex of its power
No country has a military that's ever been as powerful as the United States. Up until this year, up until January 19th, the United States had 4% unemployment. It was one of the strongest performing economies in the G7, if not the strongest performing economy in the G7. Yes, it's a politically divided country, but for the most part, its economic power and fundamentals and its hegemonic power were unrivaled.
And so I was asking some historians, where in history do we have a precedent for this? And somebody pointed out to me that we have to go back 500 years to the end of the Ming dynasty when the emperors burned the ships.
And that was the apex of Chinese power, by the way. Remember Zheng He, that's the period of Zheng He when he sailed to Africa. And there was a xenophobic, paranoid emperor, and I'm just starting a book on this, so my knowledge is quite weak. But I do want to maybe get a Ming Dynasty scholar to come in and join us on this to talk about what happened at the end of the 15th century when the Ming Dynasty literally burned the ships, pulled up the drawbridges, and cut China off from the world.
And that led China into a 500-year period of darkness that Xi himself today says part of his mandate to rule the way he is ruling is to say we are emerging from this 500-year darkness from the burning of the ships at the end of the 15th century. I mean, Xi makes that line, that direct line to history back.
So it's a very important part of history. But I do think there are some parallels. And my early cursory reading of this period of when a country at the peak of its power decided to abandon and throw it all away.
And that does feel a little bit like what the United States is doing, because I can tell you from being here in Southeast Asia that trust is gone. Remember, Donald Trump backed out at the last minute of the Trans-Pacific Partnership. That was bad. But to slap this level of tariffs and to cause this much anxiety and to threaten...
of economic warfare, basically, to countries that, for the most part, have been very supportive of the United States. I mean, Indonesia, Singapore, Malaysia, Vietnam even, these are not hostile countries to the United States. In any way, they feel completely burned by this, as we heard from the Singaporean prime minister.
Yeah, I think for those within the US, and particularly for younger people within the US, they won't remember this, but it's important, I think, to go back to the 80s and 90s, and to really see how hard the US was pushing free trade. You know, it was not even a doctrine, it was like evangelical levels, right? They were really like free trade was going to solve everything.
And then all of these countries essentially redesigned their economies around this orthodoxy. That was the Washington Consensus, wasn't it? I mean, that was the essence of the Washington Consensus. Exactly. And so with that came a kind of a trust transaction, right? Kind of like that the US market...
will remain as it is, that this integrated world system will continue as it is, and that the US will remain in the middle as this guarantor of it. So it's beyond just these short-term supply chains or long-term supply chains. It's beyond the specific economics of it. It's an entire worldview, an entire way of understanding the world that's going up in flames.
So in that sense, I think it's very traumatizing, I think, for a lot of these countries, because it was like the U.S. kind of shaped reality in lots of ways. And so reality is now kind of shifting under their feet suddenly. And that was the foundational disappointment that the United States has with China, because the assumption was—and remember, Bill Clinton ushered in China into the World Trade Organization—
And the assumption was that as China trades with the rest of the world, they're going to liberalize and they will even become more democratic. And either one of those things happened. And what you hear today is the bitterness in the Americans about that. And even on Capitol Hill, we hear it over and over again saying, you know, the Chinese have abused their position within the World Trade Organization. We brought them in. We helped them get in and they screwed us.
And I think you can argue this one on both sides very effectively. And I'm not trying to do a both and here, but the Chinese definitely did not adhere to both the letter and the spirit of the World Trade Organization. There's, I mean. But at the same time, like, I think one thing that is important to point out is the way that that then happened.
happened in the US. The way that manufacturing was hollowed out, the massive wealth gap that resulted in the process, the way that the middle class was weakened.
China can't be blamed for that, right? Or not fully, at least. Because a lot of that was American dynamics. A lot of that was, you know, it had a lot to do with what was happening, you know, in the wake of 9-11. It had a lot to do with a lot of, like, inherent, like, internal issues within the US. You know, so...
That seems like China's Chinese kind of mega manufacturing and what that did to how that changed the logic of manufacturing around the world was certainly a big factor there.
But it wasn't some kind of situation where China was somewhat plotting to, like, you know, immiserate the American working class. That ended up being an American project, unfortunately. And if you want to really put blame somewhere, put it at the feet of Democratic President Bill Clinton, who, after he signed NAFTA, promised the Rust Belt.
promised those workers that he was going to come in with billions of dollars of training and upskilling. And he said, this is going to be good for these states. This is going to be good for jobs. He promised that, never delivered it. And the Democrats are absolutely complicit in this.
this. I mean, they want to put it all at the feet of the Republicans and of Donald Trump. But at the end of the day, the Democrats played a huge role in this. So to your point on this, I think you're absolutely right that to blame all of this on China. And remember, American corporates literally
Loved moving to China both because there was this huge domestic market in China for their goods Starbucks Ford you go you name it even Google Facebook They were all there in the early days in two in 2008. I remember living in China in 2008 and logging on to YouTube I mean amazing and Twitter back then it was not closed and then American corporates also loved going to China for the low-cost manufacturing that they sold back into the US Walmart is a product of modern China
Target is a product of modern China. We will see if these companies can survive without the China discount and the famed China price.
We're going to find out now. Well, both those companies are currently leaning on Chinese manufacturers to try and absorb the costs on the Chinese side of the tariffs to not have prices rise in the US. And we've already seen Walmart executives being summoned by the party in China. And since then, they've been doubling down on that. So there may be some ructions coming for Walmart, Costco targets as well.
Another reason why you don't want these jobs in your country. I mean, these are not great jobs, these low-end manufacturing jobs. But the lesson that Xi Jinping has taken away from Donald Trump, and I've said this before on the show, and I think it's appropriate to say it again here, is don't hollow out your manufacturing sector and your industrial class and your working sector, because that will lead to a populist backlash the way it has in both Europe and the United States. You
You have to hold on to this. So he's holding on to that manufacturing sector, even if it's not the direction he wants to go to become an advanced economy, you know, that focuses on services tech and high-end manufacturing. But he needs those blue-collar jobs to prevent the same kind of backlash that we've seen in other countries where the manufacturing sector has been hollowed out. Last comment, because we got to go. When you see the events that have happened over the past couple of days in the markets—
When you see the events that have happened politically, as somebody sitting in South Africa and in Africa, are you as concerned in part because, again, at the end of the day, you know, you've been taking the hits from the Trump administration now for the past two months. You know, what's your feeling right now? What do you...
What are you going into this thinking right now? I'm definitely very worried. I think, you know, South Africa is an outlier in, you know, among African economies. It's a much more sophisticated, much more service-based economy. Sophisticated is the wrong word, but like, you know, it's a...
It's an economy that has a lot of financialization, a lot of, you know, it's open. Yeah, more advanced services. Exactly. So in that sense, I think South Africa, like I'm really worried about the volatility in the global system and how that's going to affect the South African economy. Overall, one of the weird things about Africa is that the broader context of Africa is that even though it has such a big population,
It is in some ways kind of so outside of big parts of the world economy. It's so marginalized from the world economy. So one of the things that I'm interested in is how that's going to shift now. That might be an advantage actually, ironically. Yeah, exactly. Because in some ways they're not being hit by all these kind of direct blows because they were never in that system to begin with. And they were kind of structurally excluded from that system to begin with.
And so now the system is kind of changing around the continent. And it's not only a loss. I think some opportunities are going to come up, but I think it's really difficult to say which exactly, I think, at the moment. We're going to keep an eye on this very closely. I mean, this is the only story that matters right now, is understanding what comes next, how to look around the corner, what China's role in all of this is. And again, I think
a lot of unintended consequences are going to be born from what Trump has unleashed. I mean, I don't think that is. And that's what's, I mean, this is a fascinating time to be alive. I mean, things are changing in such ways at a speed and a scale that very few of us could have ever imagined that we would live through. And so this is an important moment in history
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