The Tariff Tit-for-Tat Begins; The PRC and the Panama Canal; Apple and Google in China; DeepSeek One Week Later
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Thank you.

Hello and welcome back to another episode of Sharp China. I'm Andrew Sharp and on the other line, Bill Bishop. Bill, how you doing? I'm good, Andrew. Happy Year of the Snake to you and everyone listening to us. The Year of the Snake continues indeed. I still have not seen any snakes around my house, which I personally consider a good omen, but there's still plenty of time in the Year of the Snake for me to run into some snakes.

How's your year going? Good. It's D.C. There are lots of things slithering around here. Lots of slithering, indeed, as we all slither together. Well, we have a lot to work through on this show. We'll begin with tariffs.

As of 12.01 a.m. on Tuesday morning, the U.S. will impose a 10% tariff on all goods originating from the PRC. And I'm going to read a portion of the executive order that's at issue here. The Chinese Communist Party, which exerts ultimate control over the government and enterprises of the PRC, has subsidized and otherwise incentivized PRC chemical companies to export

fentanyl, and related precursor chemicals that are used to produce synthetic opioids sold illicitly in the United States. The influx of these drugs to our nation threatens the fabric of our society. The PRC plays a central role in this challenge, not merely by failing to stem the ultimate source of many illicit drugs distributed in the United States, but by actively sustaining and expanding the business of poisoning our citizens."

The PRC implements the most sophisticated domestic surveillance network coupled with the most comprehensive domestic law enforcement apparatus in the world. The PRC also routinely exerts extraterritorial reach across the globe to threaten, harass, and suppress what it views as political dissent.

As such, the CCP does not lack the capacity to severely blunt the global illicit opioid epidemic. It is simply unwilling to do so.

So as far as I know and from what I've read, all of that is true and has been supported by findings from Congress, among others. And I just I wanted to start there because there's a lot of talk about a trade war and all kinds of palace intrigue about what may or may not come next.

which obviously we're about to talk about. But it shouldn't be overlooked that this first round of tariffs is specifically a response to the PRC's role in the global fentanyl trade and the flow of fentanyl into the United States, which kills about 75,000 Americans every single year at this point. Did you have any thoughts on that point in particular?

I mean, I don't disagree that the PRC could do more. I think that, you know, the PRC view is the problem is on the U.S. side. The problem is demand. The problem is the drug abusers. I certainly, you know,

And the last year I saw a senior PRC diplomat and I got the – we talked about fentanyl and I got the why China is really working hard, the whole official line about all the things China is doing and really the problems on the American side. I think, though, that when you look back at the history of how the PRC has –

or increased cooperation on the fentanyl issue just in the Biden administration, it was clearly, you know, they linked it to other issues. And if they were mad at the U.S. or when they were mad at the U.S. over one thing, they would reduce fentanyl cooperation. Right, and look the other way on some of this enforcement. Right, and so I think there's no question that the PRC could do more. And so I think the issue is,

is trying to, you know, what the Trump administration is doing, what the Biden administration tried to do. The Trump administration is taking a bit of a different approach.

is trying to create the incentives for the PRC enforcement bureaucracies to pay more attention to some of the things like pill presses, chemical precursors that are being exported. So it's one of those things where if the bureaucracy is told from the top that these things really need to be stopped being exported or there needs to be much more scrutiny on where they're headed in terms of end user protection,

Because now, of course, the PRC has set up this whole export control regime that includes getting verification of end users or companies declaring the end users so they could do the same thing for all these fentanyl precursors and pill presses. One would think. Right. So we will see if this pressure from the Trump administration creates those incentives inside the PRC system to take more actions to limit the export of these things. Yeah.

you know, we'll see. Yeah, we will see. I mean, it's just like NPR in 2020 found at least 32 vendors who had been selling precursor chemicals on Alibaba in 2019. And then when those vendors were banned, there were

31 other vendors who were discovered selling to other precursor chemicals. So some of this has been happening kind of in plain view. And the China Select Committee has done a good job in the House documenting some of the abuses.

And like the U.S. has tried working group after working group after working group and nothing has really changed. So to the extent this is specifically designed to combat the tacit or explicit support of the fentanyl trade on the PRC side.

It's a good idea on that basis. But it's also only a small portion of the tariffs that were discussed in the lead up to the 2024 election. The number 60% has been thrown out. These are 10% tariffs. It is a 10% tariff on all goods from the PRC. So it's pretty meaningful. But then on Tuesday, there was an immediate round of responses from the PRC side.

Additional tariffs on 15% imported coal and liquefied natural gas originating from the United States. Additional tariffs of 15% crude oil, agricultural machinery, automobiles with large displacement and pickup trucks. Export controls on items related to tungsten, tellurium, bismuth, molybdenum, and indium.

the addition of PVH and Illumina to the unreliable entity list, and the publicizing of an already underway investigation into Google for suspected violation of antitrust laws.

We'll come back to Google and that element later in the show. But as far as the other retaliatory tariffs announced, how do you interpret this response from the PRC? So, you know, it's interesting, right? Because when President Trump issued the executive order, he also issued the executive orders for the 25% tariffs on Mexico and Canada. And both those countries were very quickly able to offer a

even though I think what they were offering was basically had they'd already announced, but it didn't matter. They were able to say, okay, we'll offer these things. And then they got a 30-day reprieve while there's going to be discussions. The Chinese response was,

was not at all, okay, let's talk. It was, I think, what they're doing here. And it was restrained. It doesn't actually have a particularly significant economic impact. The new measures they announced in terms of tariffs, the entity listing or the unreliable entity listing of those two US firms is potentially quite problematic for them. Not a complete surprise given investigations are underway, but clearly...

Held in reserve as part of a response package. What I think really is most interesting here is while they are being, they're trying to, you know, the response was quote unquote restrained. I think also though, they basically have sort of pulled out the blade to show all the things they can do. Right. Because things like the critical minerals list, you know, the export controls list,

If they really wanted to restrict tungsten and tungsten-related exports, they could actually cause U.S. a lot of problems. And so what I think they're doing here is they're just reminding, they're trying to make sure that the Trump administration understands that this is not 2017.

They have a lot more tools now that they can use, they can bring to bear to respond to US trade pressure, and that they are going to be very smart about targeting actions that will cause problems.

through specific US companies and specific industries. So one question, I mean, we talk about the tools they have now. Did they not have these tools in 2017? Why are they more prone to use- So things like the export controls, the entity list, the unreliable entity list, those are new. These were all been developed. They've been building up their toolkit and in many ways, they've mirrored what the US does. They've seen how the US has built out their whole system

infrastructure around sanctions and entity listing, export controls. And they see, obviously, a lot of those things have been applied to PRC firms and PRC individuals. And so I think they're like, well, we're going to do it too. And here's our roadmap. And so they're just... I think what they're trying to signal, and you hear this too from various think tankers on the PRC side, and they've been consistently pushing the message that

The Trump administration needs to understand that things have changed, that we have a much... We have one, we have... Yes, there are economic challenges, but we've also done a lot of work to harden our...

and harden our supply chains and frankly, bind more countries and companies to our supply chains or to supply chains in China. But we've also built out this much broader sanction coercion related toolbox so that we, we being China, can retaliate in a much more targeted and painful manner than we could during the first trade war.

And so what's interesting is in the executive orders for Canada, Mexico, and the PRC that Trump issued on earlier this week, there was a language that, in this case, should the PRC retaliate in response to this action through import duties on the US exports to the PRC or other measures, the

The president may increase or expand in scope the duties imposed under this EO to ensure the efficacy of this action. So he's basically saying, look, if you guys respond, we're going to double down. Right. There's like an escalation clause built into all this. Exactly. And so far, at least, Trump isn't escalating.

Yeah. Well, and the tariffs, I mean, how much coal was China actually importing from the U.S. or natural gas? It's like all superficial. It's a... I think, was it... Let me pull it up here. I think it was maybe the... Someone had the good number. Oh, so Bloomberg, sorry, said the tariffs affects only about $14 billion of U.S. exports to China. So it's not nothing. But again, this is not a...

we're going to cause you pain. This is a, really? You want to go down this road? We're ready to go. And I think that will be, it has been the Chinese message is, we will keep fighting with you. If you want to fight, we will fight you. We will keep talking while we're fighting. But we, of course, we think it's pointless. And so we'd rather find a way to have a deal to avoid this. But if you really want to go there, we'll go with you. Yeah. No, it's just interesting.

In terms of the escalation, that's where I'm like, OK, maybe Trump sees this as the most limited response that China could offer in this moment. It's unclear what's going on. You know, yesterday morning you had Peter Navarro saying there would be a call later that later the day between President Trump and Xi. And there's certainly been talk over the last few days of a call coming because China

The president, I think, is – President Trump would like to go to China relatively soon. He does, I think, want – or has been talking or people have been talking on both sides about working towards some sort of a peace plan for Ukraine. Yeah. But then yesterday, of course, there was the – the call didn't happen. And then in the Oval Office later in the day when Trump had his –

freewheeling press conference. Which is now a daily session out there. It is. He also said, what was the thing he said? He basically said that we're in no rush to have a call. Right. It didn't sound imminent based on his quote. So anyway, so now we're at the point where

We don't know when the call is. We've got sort of mutual actions on each other. You know, the U.S. tariffs, the Chinese multidimensional response. And, you know, we'll see. I mean, we're recording now at 11.30.

a.m. Eastern Time on Wednesday. I mean, by 1145, it could be something new. And then by 1215, it could be something else. Oh, God. Am I going to have to start checking Twitter while we record? No. Checking Truth Social, perhaps? I don't know. The challenge is going to be, you know, we're specifically talking about U.S.-China. The challenge on anything with the Trump administration is, you know, everyone ends up running around chasing their tails, trying to have a hot take on what's going on when it just keeps moving like by the minute.

And so I think at this point, I would just say on the US China thing, the thing to watch really is, okay, Trump said, if you retaliate, the EO said, if you retaliate, we may retaliate. 24 hours later, the US hasn't done anything. So probably, you know, they're going to just figure out a way to have a call to

But, again, because it is President Trump, there just is a lot more uncertainty and volatility. And so if the right or the wrong person gets to him and says, you know, she just basically called you a bluff and you look like a sucker, you know, and you look weak...

that we may get a tweet or a two social posts saying he's doubling down on more stuff because the Chinese retaliated. Yeah. This is the way things are in a Trump administration. Yeah. And I would also say that Xi didn't necessarily call his bluff based on what we have here. I mean, if you want to be really literal about it, yeah, sure, there are retaliatory tariffs, but China has...

much more aggressive actions that they can take in response to a tariff regime. So, yeah, I agree. So does the U.S. Right. And so I would say on the one hand, this response from the PRC was,

But I think it also carries a lot of warnings, or at least I think they're trying to communicate those warnings. And then the question is in the Trump administration, and again, we don't even know who's really advising him at this point on some of this stuff. But within the Trump administration, do they believe that China can't withstand significant escalation of trade war and so the U.S. holds all the cards?

Or do they have folks who are saying, you know, actually, things have changed and the Chinese can implement a lot, can exact, I think, a lot more targeted pain than they could have during the first trade war?

Yeah. Well, and as the negotiations continue, as you said a couple of weeks ago, the initial wave of executive orders included an order for agency heads to study the bilateral relationship with China and evaluate what sort of tariffs might be imposed. And those studies, I believe, are

I think April 1st.

that it should be allowed to buy goods it really needs, such as American chips and other tech products, which, hey, it's worth asking. I don't blame them in the course of those negotiations. And there may be folks in the administration who think, yeah, okay, whatever.

Yeah. You know, the export controls have failed. They're hurting American companies and, you know, just, you know, open the floodgates. Yeah. And China has pledged to not devalue the U.N. for now, which would undermine the effectiveness of any tariffs that Trump imposes. Right.

Beijing also plans to treat TikTok largely as a commercial matter, according to sources talking to The Wall Street Journal. We'll see about that. I don't know. Exactly. The line of, oh, they have to abide by the laws is fine. But among those laws, it is impossible for them to cut some sort of deal in the US without ensuring that they have...

sign off from the authorities in Beijing. Right. And even the journal notes that it's unclear what that means for control and ownership of the algorithm, which is the core issue with the TikTok question. But while we're talking TikTok and corrosive tech products, another aspect of the tariff story is

For avoidance of doubt, the executive order reads, duty-free de minimis treatment shall not be available for the articles described in subsection A of this section. So, Bill, we're approaching an anniversary.

The one-year anniversary of Timu becoming the breakout star of last year's Super Bowl. Were there six commercials? How many commercials did they have? I mean, it felt like 25 commercials across four hours. I don't know, but is it now time to say farewell to Timu? The de minimis exception was what...

basically built their business. And I feel like it's now all thrown into uncertainty. I mean, closing that exception is long overdue. It has really been abused by, you know, Timu, Sheehan, but also, frankly, you know, you look at a lot of the Amazon sellers. Amazon was getting in on it. Yeah, exactly. And so, but this was not designed for commercial products. And so, yes, I think there's also a, you know, some of these packages, you know, as a way to ship fentanyl directly to the U.S.,

And so it's all wrapped up together. There's a little bit of confusion overnight. The US Postal Service said they would no longer accept packages from the PRC in Hong Kong. And then a few hours later, they said, oh, actually, we will accept packages. Right. So they have to go through customs and pay the duties. But it's...

It's a really difficult administrative task for U.S. customs agents, you know, because tracking and analyzing all these packages, like that's why the de minimis loophole was created in the first place. So buy on Timu and you'll get it in, I don't know, March. Six weeks. Who knows? And you'll pay more for the stuff that...

At some point, if you have to pay enough, you realize, why am I paying so much for a lot of stuff that's frankly kind of crappy? Right. Well, closing that loophole has implications for e-commerce companies in America. It has implications for Meta, for one, who Timu and Sheehan were advertising on. And Google and all these companies. There's a lot of... I mean, I think they're like... Sheehan and Timu are among the biggest...

Advertisers on Facebook, aren't they? Yeah. I mean, look, they were the stars of the Super Bowl last year. Every Monday morning after that game, everyone was like, so what is Teemu and what is Sheehan? So it's been a hell of a year. I can't believe that was only last year. But to the extent this does spell the end of Teemu and Sheehan, and I'm not sure that it does, but it's certainly getting more complicated for those guys. I'll just note that it's probably a good thing.

And I'll read three quick items that I came across on Tuesday as I was prepping for the show. First, CSIS has written, And I can link people to that piece in the show notes if they want to read more. And then Annie, someone on Twitter, wrote,

It's like it was built by a dopamine addiction and gambling scientist. Having users run through 8 to 10 quote-unquote games that take about 30 minutes of time to win quote-unquote free stuff that one finds is only free with a handful of specific 40-plus dollar purchases. I honestly think the way the user process is made to unfold, it was designed to keep people on the app for hours.

like just to spend hours buying and quote unquote winning. Anyway, I got no sleep last night and now I have binder clips and LED lights and all sorts of shit on the way to my house. So it works. Exactly. That was just a good entertaining piece of writing that I wanted to share with the audience. On the data collection, remember in the oral arguments to the Supreme Court, the lawyers for TikTok said,

Invoked Timu. Yeah, exactly. And I think she and under the boss saying they collect as much or more data than TikTok does. And it was a good point. Yeah. It doesn't necessarily mean we shouldn't do anything about TikTok, but maybe we should do something about both. And then semaphore, the Trump administration is also discussing whether to add low priced Chinese retail companies, Shein and Timu, to the Department of Homeland Security's forced labor list.

Well, so that would be that would definitely be bad for Pinduoduo's stock. Right. That's listed on Nasdaq. And then, you know, Sheehan is had tried to list in the U.S. and got realized it was just not going to happen. And so now they're

They're trying to list in London. That's right. They were looking at the UK. And so we'll see if talk of this Xinjiang-related listing will have any impact on their prospects for listing in London. Yeah. Because, I mean, it could also... If they really get listed, it could cause...

potentially cause some reputational risks for some of the underwriters. But then again, it takes a lot for an underwriter to back out of a deal. Yep. Well, we'll continue to monitor that situation. But it was a, I would say, as important as anything else that was announced on the 10% tariffs. And we'll wait to see whether there are more tariffs forthcoming in the next couple of months here.

But to keep it moving, and speaking of trade, Bill, there has been a lot of discussion of Panama and the Panama Canal over the past month. I'll read a headline from Bloomberg this week. Panama offers concessions to the U.S. after Rubio meets the president.

And they write, Panama promised free passage for U.S. warships through the Panama Canal and said it will withdraw from China's signature lending program after Secretary of State Marco Rubio blasted the government during his visit on Sunday.

Rubio, echoing President Donald Trump's complaints about Chinese influence over the waterway, warned that the U.S. would, quote, take measures necessary to protect its rights, end quote, unless Panama makes immediate changes, the State Department said after Rubio met President Trump.

Jose Raul Molino. Molino also said his country would not renew its participation in China's Belt and Road Initiative, making Panama the first Latin American country to do so. He added that his government will evaluate whether to pull out before its current agreement ends in 2026.

U.S. National Security Advisor Mike Waltz called that move, quote, a step in the right direction in a post on X. A U.S. official said that while positive, the move doesn't fully resolve concerns about the canal. So I was reading about all this on Tuesday night, and particularly some of the history was interesting. What should people know about the PRC's activity in Panama and why it's concerning to the U.S.? Well, I think that the biggest concern,

Maybe that a Hong Kong company, Li Ka-shing, one of his companies, controls ports on both ends of the canal. That's Hutchison Ports PPC. And even though Li Ka-shing actually seems to have had a bit of a falling out with the Xi Jinping government and has really sold down a lot of its exposure in China and Hong Kong since Xi Jinping came to power, regardless, it's seen as...

a national security risk to the US. And then you've got, since the Panama switch recognition from Taiwan to the PRC, you've got a lot of PRC investment in China, in Panama, sorry, you've got the BRI participation. And so I think, you know, the US is seeing, you know, saying they're seeing lots of potentially malign PRC influence in the country. And what is a, you know,

I mean, the U.S., you know, long history in Panama, long checkered history in Panama. But what was interesting is how quickly, again, the Panamanian president said, okay, we're not going to renew participation in BRI. It's not exactly clear what that really means and what that means in terms of, you know, what among the projects that may have been signed under the auspices of BRI, will those continue? Will they pull out of them? You know, it's going to be pretty messy because if there are contracts for investment, you

they can't just tear those up without some sort of a legal process. Right. And also, I think what we haven't... We're just going to start to see the PRC reaction to all this because this Rubio's trip happened while...

The PRC is on holiday, you know, for Lunar New Year. And so, you know, you're starting to see there was an op, there was basically an op-ed in a Panamanian newspaper by the PRC ambassador to Panama that was titled America, please learn to respect, which sort of went through the history and criticized the U.S. actions.

I think there was comment at the foreign ministry press conference today, but we'll hear a lot more because Rubio is also, you know, he's going, he's making a tour. He went to Panama. He was in El Salvador where you had the El Salvador president, the readout. They also talked about Chinese influence. And then I guess he's also going to Costa Rica, Guatemala, and Dominican Republic. And it sounds like China influence in Colombia.

This hemisphere is very much a theme of the Trump administration. So I think we're going to hear a lot about it from all these stops. Yeah. I mean, this is the area where there's really like a note for note echo of what the Cold War turned into 50 years ago. Yeah. No, it's, you know, it harkens back to the Monroe Doctrine and...

trying to remove PRC influence from this hemisphere. You know, the flip side, of course, is if you're in Beijing, you're like, well, okay, you're saying, you know, you're worried about Greenland because of us. You're worried about Panama. You're worried about

you know, Mexico, right? Well, gee, we're worried about you because of Taiwan, because of Philippines, because of Japan, because of Korea, right? And so, okay, I mean, to your point, if that's the road we're going to go down to, then we have to sort of relate it to the trade discussion earlier in this episode. You know, the PRC is not just going to say, yeah, okay, we're going to take it, right? We're going to have to see how they really respond. They have a lot more

specifically back to Latin America, Central America. They have a lot of ties and investment in these countries. And the U.S. is... A lot of these countries don't have a particularly happy history with the U.S. I was going to say, it did get pretty messy in some of these countries. Many of them. And so, again, if the Trump administration comes in and says, you can't do this because China influence...

well, okay, what is the U.S. offering? Right. Right? Versus all this trade, you know, the new port that the Chinese built, you know, that she inaugurated at the end of the year to have a direct... You know, it's like all this infrastructure the Chinese were trying to build in Latin America, all the...

They're buying, you know, they shift a lot of those soybean purchases from the U.S. because of the last trade war to Brazil, for example. You know, they want to buy iron ore, all sorts of other minerals. I mean, there's a lot of PRC Latin America trade. And so it's going to take more than...

angry tweeting and berating from the new Secretary of State to get these countries to think that they really need to flip. Yeah. Well, and to that end, I'll relay some of what I read last night, just some notes in case anyone's interested or unaware of the dynamics here or found themselves over the last month or so wondering why exactly the Panama Canal is now in dispute. For

First, to your point on investment in Latin America, according to the World Economic Forum, in just two decades, the PRC's bilateral relations with Latin America, generally, not just Panama, have increased 26-fold from $12 billion in 2000 to $315 billion in 2020.

As for the Panama Canal, more than 40% of U.S. container traffic valued at roughly $270 billion annually transits the Panama Canal. The U.S. remains the canal's biggest user, accounting for roughly 74% of cargo tonnage. China is now the second largest customer at around 21%.

And in June 2017, as you alluded to, Panama severed its ties with Taiwan and established diplomatic ties with the PRC. They were the first Latin American country to join the Belt and Road Initiative, important context for them now leaving the Belt and Road Initiative.

And the PRC in the years since has poured a ton of public and private money into Panama infrastructure projects. They sent one of their most talented ambassadors to be the ambassador to Panama. He's fluent in Spanish. They established Confucius Institutes around the country to teach Chinese language and culture. And in March 2021, a 25-year extension of the lease contract was

to Hutchison Wampoa, the company we were alluding to earlier, that was signed to continue operating and managing the ports of Balboa and Cologne, one on each side of the canal. That contract is now at risk of being canceled, according to Bloomberg. President Molina is weighing the possibility of canceling that contract.

And we'll see what happens. It's unclear how any of this will play out, but I'll read one quote from Evan Ellis, who's a research professor of Latin American studies at the U.S. Army War College, the Strategic Studies Institute. He says, the level of cooperation that the Panamanian government can get from Hutchison, for example, is not the same as it can get from other port terminals. When you have limited transparency in the port and the

that is being operated by China, when you have limited transparency in the warehouses that are being operated by China, when you have politicians who are reluctant to stand up to the Chinese for their own interests, we're talking about a loss of sovereignty. And he added that the location of the ports on both sides of the canal, quote, allows China to observe the operational routes, personnel requirements and movements of other armed forces.

So, again, more will be revealed, but it's just another inflection point in the tensions between the U.S. and China. Well, and it also, you know, it's also I think the broader context here, right, is of course China.

you know, there's a handful or more of op-ed think pieces every day about what's Trump going to do on China, right? And, you know, Politico has one today about, I think, you know, how he's soft on China. And, you know, again, I think we have to see because we're 16, feels like a few years already, but we're 16 days into the second Trump administration. Oh my God, yeah. Right? And, you know, it is still not at all clear what,

what his ultimate set of policies will be towards China. But when you look at, you know, there are these 10% tariffs, which he talked about last year, after he was elected, that he would implement. You've got the executive order sort of instructing various agencies to embark on investigations around tariffs, around export controls. You've got this

Rubio, Greenland, Panama, I think there really is a nexus around concerns about China as part of what's driving this. And so you've got a view that China's influence is, at least in this hemisphere, is a real problem, right? Which doesn't then argue for, hey, they're going to be super soft, Trump's going to be super soft on China. But you've got some, you know,

uneven appointments in terms of his cabinet, in terms of how they view China and Taiwan. And then you've got things like, I think it was yesterday, the Philippine Air Force and the US Air Force had a joint flyover of Scarborough Shoal. The US had like two B-1B bombers, I think, which is a pretty significant hardware to fly over those rocks. But again, I think that was the

The national security side of the Trump administration, that was a demonstration. They're putting more assets into that. So,

Indo-PACOM region. And I think that's, again, a way to... Their idea is to signal, you know, we're not going anywhere and try and show more deterrence to the PRC. We'll see how that's received. So there are a lot of... My point is along the way to say... There's so many different vectors. There are a lot of conflicting streams here. And so I still think it's... You know, I do think, and I keep hearing from, you know, that Trump wants to go to China, he wants to have a talk to Xi...

you know, they want to have, he really wants to figure out a way to solve Ukraine and China is a part of that. But it's too early to say, oh yeah, Trump's gone soft on China. It's also too early to say he's like the China hawk's, you know, wet dream. Yeah. And that's just, if anything you learn from, if you take away from Trump, one is there's got to be a lot of cognitive dissonance because there's going to be all sorts of conflicting streams continuously. Yeah. It's just the way he rolls. And look,

To be fair, that was also true during the Biden administration. And so there was but there was a little more consistency and a little more of a sort of a there was just a lot less volatility. Yeah. Yeah. And I mean, we'll be trying to wrap our arms around it every week on Sharp China.

And, uh, I wasn't familiar with the Panama situation. And the other thing that I would add on the Panama story is that the PRC is behaving rationally and they've been very aggressive and pretty shrewd in making inroads into Panama and Latin America. And I don't begrudge them that strategic decision. Uh,

But that's the context for the U.S. suddenly waking up and getting aggressive and attempting to use its own leverage to sever some of those relationships. But so one of the questions is, OK, so so the U.S. pressures Panama. The Panama president said, oh, we'll review the deals with the Hutchinson, the port operator, right?

Okay, so they revoked them. Whatever the legal process is, it's probably not a simple thing to do. Well, then who runs the ports? The Chinese company, these Hong Kong, Hutchinson, they run these ports because they're actually really good at running ports. And does the US have that capacity at this point? I don't know. And we can run ports here, but do we have the capacity to then also run a port? I mean, this is a...

Again, if you want to really push back on – if you're a government, in this case, US government, and you want to push back on activities that concern you from the PRC, you have to provide alternatives. Mm-hmm.

So, again, I don't I don't I have not seen anyone discuss. OK, well, if they kick Hutchinson out, then who's going to run the horse? Who's moving in? Yeah. No, that is a good question and an important question as we move forward. So we'll see. We'll shift now back to the mainland.

We had the Google news. I'll read what you wrote in cynicism. The state administration for market regulation gave no details about Google's alleged issues in its one sentence announcement of the investigation into Google.

Even though Google long ago pulled its web search business out of the PRC, its Android OS has significant market share and the company generates billions of dollars in revenue each year selling ads to PRC firms marketing outside China. The Financial Times reported Tuesday that this investigation started in 2019, was paused, but was then reopened in December. Do you have any thoughts on Google and its fate here? A number of folks...

describe this as a more symbolic gesture in the course of the trade fight because obviously Google, I believe, stopped operating in the mainland in 2014, like Google, the search engine. But they, again, they have a...

They make a lot of money out of the PRC. Yeah. And they have... Through Android, right? Well, no, through selling Google ads to companies that are trying to market their products, including Xen and Teemu. Yeah. Right? I mean, they have a very... I mean, in the billions a year in revenue from Chinese companies buying ads to target buyers in the rest of the world, the internet ex-China. And how...

But what this investigation is really about, it's not at all clear. It sounds maybe about Android. And it's interesting, right? Because up until a few years ago, it was Android and iOS were the two mobile operating systems available to basically everyone around the world, but also in the PRC.

Huawei has now, you know, they started out with their own indigenous mobile operating system, which originally was just an Android fork. Now they claim it's not at all. It's completely independent. It's this Harmony OS. They've been really pushing it. They got a lot of users. Now there's a credible alternative to Android. And so maybe this is a...

the stars of the line so that they can potentially harm that Android business without really causing a lot of problems for PRC consumers. Maybe. I don't know. I'm speculating on that. I think also the timing is interesting if the Financial Times reporting is correct that they started this in 2019 then

Again, I guess for whatever reason, they shelved it. And it may have been because it's probably political. And then they reopened it right after Trump's elected. And it may certainly have been a... Again, let's...

It's an arrow in the quiver. They're just building up their ammunition chest of things that they can target. Well, and related, I mean, Apple is also being investigated. And this is bigger news than the Google news. China's antitrust watchdog—this is Bloomberg I'm reading from—is laying the groundwork for a potential probe into Apple's policies and the fees it charges app developers—

Part of a broader push by Beijing that risks becoming another flashpoint in the country's trade war with the U.S., the State Administration for Market Regulation is examining Apple's policies, which include taking a cut of as much as 30% on in-app spending and barring external payment services and stores. People familiar with the matter said.

Agency officials have spoken with Apple executives and app developers since last year, said the people who asked for anonymity to discuss sensitive moves. So this actually makes me wonder about the Google investigation. And again, we're all left to speculate here because we got one sentence making us aware that there is a Google investigation going.

But I wonder if they're apparently probing Apple for its App Store policies. Maybe that's happening in the Google Play Store, and that's part of what the Google investigation is focused on. I don't know. But I think the Apple point in particular is really interesting because they're being harangued on multiple continents over the App Store and the fees. Right.

Well, this is one of the things we have to be careful. Not that you're saying this, but okay. So Apple, Bloomberg reports, exclusive story that Apple may be approved for its App Store policies. And they've had issues with big Chinese companies like Tencent, well-publicized. But Apple's App Store, the EU has gone after them. I mean, anyone who has a product that is sold through the App Store is sick of the 30% tax. I mean...

I'm sick of even talking about it. We've talked about it so many times on Sharp Tech that I won't even bring it up anymore. So, I mean, Ben and you and Stratechery have done a great job. I mean, me personally, right? Because you can buy a subscription to Cinesysm through the Substack app. Oh, that's right. And they take the 30%. They take the 30%, right? Every time you charge, right? And so, you know, and I actually, if you buy through the app, you pay more.

Because I was like, well, screw that. I'm going to make the money back. But it's higher priced than the app. But it's like, okay...

you know, really every 30% of every transaction in perpetuity, it seems a bit much. It is a bit much. There's no question about it. And I mean, so when you message to potential subscribers in the app, are you allowed to make it clear? Like does Substack have a way to signal to them if you subscribe on a regular website, you pay less? No, it's there every, I probably shouldn't be getting in trouble for talking about this. I don't know, right? Yeah.

Well, yeah, you'll get a call from Apple attorneys. That's the portion of it. The anti-steering is awful. They're very much adhering to the App Store rules. And as a content producer in the app, that's great. It's a new channel. That's great. The app is very good. I like the app, but...

It is a – personally, it was like, wow, okay. This is 30%. Every transaction, if it's a monthly subscription, every month, 30% goes to Apple. And it's like, I get what you've created. Anyway, this is not about me or the newsletter, but the Apple tax that you and Ben have talked about and Ben has written about extensively, I can look at what the Chinese are – what Bloomberg reported the Chinese are doing and say, yeah, you know what?

They're not wrong. They're not wrong. The EU's not wrong. No. To the extent it becomes a point of contention in the US, I mean, I think there should be federal legislation to resolve it because I don't think you can really solve it via antitrust law. But then it'll be really unfortunate if it becomes somehow this political, like, you know, China attack on the US because they're going after the Apple App Store when in fact...

you know, the timing is interesting, but the actual substance of the case may be quite legitimate. Well, and what is interesting having followed Apple over the last couple of years, as I pay closer attention to tech, um, when the regulatory bodies in China tell Apple to do something, when they say jump, Apple says how high. And so they've been fighting tooth and nail on several continents, but to the extent this becomes, uh,

controversial in China, I wonder whether the response from Apple will change. And again, the details are pretty sparse right now. And that's a really interesting point because if Apple agrees to some sort of some set of changes to their app store for China, then

How are they going to not then be pressured to roll those out globally? Exactly. It becomes much harder for them to make that argument in the EU and the US. Wouldn't it be ironic if the PRC regulators actually do everyone a favor? I mean, they sort of did that. They sort of did that with text messaging.

I believe I might be getting some of the details wrong, but I believe for years people were pushing Apple to abandon MMS messaging and adopt RCS messaging. And then finally China mandated it. And then the rest of the world got RCS messaging from Apple. So who knows how this story will play out, but just interesting context for the next steps. And then also while we're talking Apple, Strangely,

Stratechery this week wrote, Greater China's year-over-year revenue was down for the sixth straight quarter, just as it has been for the last 12. This is in response to Apple's latest round of earnings. The iPhone 6 took China by storm, and Apple built up a large user base, but it never really penetrated far beyond the tier one cities. The one exception was the Huawei chip ban in 2020, which drove premium Android users to Apple.

Apple has done pretty well to maintain its customer base from that episode, but it absolutely is not growing and is likely shrinking slowly over time. So did you have any thoughts on Apple's struggles with Chinese consumers? Because you were living in Beijing when Apple began to explode over there. No, so I think, you know, it's still a massive...

pot of revenue for Apple, even though it isn't growing. China is important for Apple. They really have a double exposure in terms of that material amount of their annual revenue comes out of China, but then also, obviously, a massive amount of their production. Yeah. I mean, Apple is like the ultimate China success story for American companies in China. I think it was Ben...

Ben made this point. I forget if it's a sharp tech or dithering, but we've talked about before. I totally agree with it, which is one of the challenges with Apple is the phones look the same. And so if you really want to drive the upgrade cycle, you got to have something new. So people know that you have the new top Apple phone. And the problem is the top Apple phone has looked the same for several years, basically. Yeah.

And so I think that, and you know, they don't even, not that Apple intelligence is going to drive like a lot of new sales in China. I mean, I can't even figure out how to use the damn thing here in the US. Pretty big waste of time so far. And Siri, I've discovered, sorry, Apple, but I actually get more useful information from Tashi than from Siri at this point. Oh boy. A rough pod for any Apple executives listening. Sorry, but no, I'm not joking. It's crazy how crazy,

Useless. It has been for years. Less than useless. Actively negative use case. Total productive. But my point, the point is that

I think, and you look at, they got the bump when Huawei, the Huawei ban hit. And Huawei has really innovative phones. They've got the folding phones, the three-panel phone. They have a lot of, and it's also very much a,

patriotic consumption. I think it's also a story of China just moving up the value chain. Huawei's phones are pretty close to as good as Apple. I have an Apple. I have the 15. I didn't buy the 16 because the 15 is good enough. If what you're buying the new phone for is really to show off that you can buy the new phone, then the new phone has to look like it's something new that people know you bought the new phone. Right now, the Apple phones just aren't

doing that. I think also though, you know, there was a, I forget the name of the star, but you know, every year the CCTV has the spring festival gala around the, you know, the Chinese New Year, the lunar New Year's Eve, the big show. And, and there was a, I think one of the stars was shown taking pictures with an iPhone and got skewered online because like, why, you know, why are you using an American phone? You know, so, so there, so I think there are a lot of headwinds against Apple, uh,

ever-growing phone sales in China. I shouldn't say again, but certainly in the near future. Yeah. Well, and it's cooler to buy a patriotic phone when the actual quality of that phone is almost on par with what Apple's on par with. Or better. I mean, some of the camera functions, I mean, they're bits that are better designed for Chinese consumers. And so I think Apple...

Again, it's still a lot of revenue they're getting from China. It just isn't at all clear how they're going to

that's sort of the steadily, the slowing or declining revenue trajectory they're on. Indeed, yeah. Well, and we don't have time to get into it, but there was a story from rest of the world or rest of world, which does great work on Foxconn refusing to send Chinese workers to India, iPhone factories refusing to, or they're holding up shipments of specialized manufacturing equipment that would allow

Apple to assemble iPhones in India and continue sort of de-risking their supply chains. It

It's all interesting in part because Apple is just, again, it's been such a massive success story that China itself has sold to the rest of the world. Look at how great China has been for Apple. And I think the story is going to get more complicated, more complicated on the consumer side, more complicated on the manufacturing side. And Apple could well be again,

sort of a poster child for how difficult life can get for Western companies that are caught in the middle of a geopolitical struggle like this. And this first salvo, the 10% tariffs from President Trump, there are no exceptions. You know, Apple, Tim Cook was able to get the exemptions for Apple in the first Trump administration. Maybe there will eventually be a mechanism to get exemptions and Apple will

will work its magic. But so far, that 10% is not... Apple products are not exempted. Indeed. Yeah. Tim Cook, very good at working his magic, but he's going to have his work cut out for him. But back to that rest of the world story. And I think Nikkei also had a related story, which seemed to be saying, look, that the Chinese authorities want to limit the flow of this key equipment

and key knowledge from Chinese engineers from going to India so that Apple and Foxconn can recreate what they have in China outside of China. And, you know, honestly, if you're the PRC government and you are, you know, you're trying to bind countries and companies even more tightly to the PRC supply chains, and you're looking at the potential for a trade war with Trump where, you know, a company like Apple is potentially quite...

quite a lot of leverage, why would she allow this stuff to just freely flow outside of China? Of course, you're going to want to make it much harder for them to hedge out of China. And I think it's also though a sign that if this really is kind of more of a top-down order, and we don't know for sure...

then you could probably argue it's a sign that Apple was getting relatively successful at hedging out and that alarms, alarms were raised and they said, we have to slow this down. Yeah. We're not going to just sit by idly as we lose this massive choke point and point of leverage. Um,

Yeah, I mean, I certainly can't blame the PRC authorities for doing everything they can to keep companies like Apple bound to supply chains and Foxconn in China. I mean, it makes sense from a strategic standpoint.

So, speaking of tech, though, we can close with a few words about DeepSeek. Oh, I thought we were going to make it through the podcast without mentioning DeepSeek. Sorry. What a ride it was the last couple weeks. Everyone's got it. And then there's, I think there are two or three op-eds today about DeepSeek.

I know the op-ed industry, it took a little while to get up and running. So it feels like there was a delay and now there's like an avalanche of op-eds in the times and the post, everything else. The journal has one today from George Gilder about why, again, the export controls have failed, you know, this kind of. Yep.

And it really did. Deep Seek was great in that it was the sort of thing where you could project any narrative onto it that you wanted to confirm your prior arguments. And I think that's a lot of what's been happening here.

Eddie says Andrew is way too biased against China in his podcast. For example, he was questioning if deep seeks are one release was timed with Trump's inauguration. It is ruining the product and the stratechery bundle as a whole. I value the balanced opinions and analysis more than a politically loaded product.

All right. So I have two responses to this for Eddie. First of all, I was not myself arguing that the release of Deep Seek's R1 was timed with Trump's inauguration. I was merely relaying the questions I saw other folks asking, including some folks that I consider credible, given the fact that the Deep Seek CEO met with Lee Chong the day of Trump's inauguration and

we're 18 months removed from Huawei releasing the Mate 60 Pro during Secretary Raimondo's visit. So this sort of thing wouldn't have been unprecedented. But my second response, more importantly, ultimately my job on the show is to ask questions and

And me asking that question prompted you, Bill, to say that you thought the timing was probably organic, but some of the messaging may not have been organic. And we had an interesting conversation about it on the show. And then your take was then confirmed by some follow up from Reuters in the days to come. So I consider it a success in podcasting. No offense, Eddie.

but thank you for your comments. Thank you. Well, first, thank you, Eddie, for listening. Second, Eddie, would you pay extra for a Substack Live struggle session with Andrew? I'll happily go through it. A criticism session, I think. Let's do some reading. We appreciate the comments and we appreciate the criticism. And we do try to be balanced and not too politically loaded. But it is important that we hear from listeners. And I will say,

a couple of weeks on from the DeepSeek releases, I do think that you have to look at it from a Chinese timetable, which is you had... If you're a company and you've got

like a happy news, you probably want to get it out before the Lunar New Year holiday. That's potentially one scenario. The meeting with Li Qiang is that meeting happens every year around that time as part of the work towards the National People's Congress meeting in the first week of March. And so that is on the Chinese schedule. That has nothing to do with the US inauguration. Yeah.

But again, like you said, Andrew, at the beginning of this segment, it's like people are going to project what they believe. They're going to take what they already believe and then project it out on round deep seek. And so plenty of people are saying, oh, it was designed as a message to the US, designed as a message to Trump. And whether or not it was intentional, it probably was received that way by some people around Trump. Right. And I think, I mean...

about DeepSeek, DeepSeek is not Huawei. They were not moving in lockstep with the Chinese government. And so Huawei releasing the Mate 60 Pro during Raimondo's visit was definitely not a coincidence, but R1 probably was a coincidence. Well, I mean, Huawei pre-orders good. They also somehow, a CCTV journalist got the phone, the new Huawei phone, to take pictures with it. At the press conference. Exactly. At the press conference. I mean, the whole thing was planned. Whether or not it was planned right

with knowledge of, say, Premier Li, who visited Huawei the week before the Raimondo visit, we don't know. But certainly from the Huawei PR perspective, it was 100% planned as a massive event

F you to then Commerce Secretary Raimondo. And honestly, if you're trying to sell phones partially rooted in patriotism, really great marketing for Huawei that week. It was great marketing. It was brilliant. Yeah. But as I alluded to earlier, we did get a follow-up from Reuters about some of the conversations surrounding DeepSeek, which you said looked a little bit funny and not entirely organic. Yeah.

And they write Chinese state linked social media accounts, amplified narrative celebrating the launch of Chinese startup deep seeks AI models last week, days before the news tanked US tech stocks, according to online analysis from Grafica.

Quote, this activity shows how China is able to quickly mobilize a range of actors that seed and amplify online narratives, casting Beijing as surpassing the U.S. in critical areas of geopolitical competition, including the race to develop and deploy the most advanced AI technologies, Grafica Chief Intelligence Officer Jack Stubbs told Reuters.

So just a nice little bow on the digression last episode. And my only comment on that is I think there was absolutely some coordinated inorganic activity, but there was also a lot of organic activity, right? It was a big, it was a mix. I mean, there was a lot of organic activity from people that I'm familiar with because of my work on the tech podcast. Like people were genuinely wowed.

by what they were seeing and what the potential implications were for American tech companies. So that is a good point to emphasize. What else has caught your eye as Washington continues to react to deep seek here? Well, I just think the debate about export controls and whether or not

they failed, or, and again, this is a theme we've talked about, I acknowledge him on this podcast and the newsletter, is have they failed, or were they always going to not work as designed because of all the loopholes, or because they didn't go far enough? And that debate is ongoing. We don't know where the Trump administration is going to come down on export controls. You know, we had yesterday, there was the announcement of the nominee to oversee BIS, who's someone who has experience at

commerce. And then he's been a lawyer at WilmerHale. And people I know who've dealt with him think if he were deciding, he would probably be less willing to

have all the loopholes that the Raimondo team included, but he's not the decider. And then you've got, I think it was yesterday or Monday, the Washington Post got a copy of a letter from Elizabeth Warren and Josh Hawley, not the kind of bipartisan couple you usually expect to see on Capitol Hill, writing about Deep Seek and saying that Deep Seek's success shows that sort of the holes in the...

Yeah. I mean, they wrote, Yeah.

Right. Right.

may or may not matter going forward. He's not the ultimate decider either. He's not. And so, you know, one of those in that America trade executive order from day one of the Trump administration, one of the sections was about examining the export control policies and any potential loopholes. And so, again, there may be the bureaucracy may be working towards tightening them

What does Trump ultimately want? What is that? Does Musk have a say or does Musk stay out of this? Right. We just don't know at this point. Yeah. Well, and Trump also met with Jensen Wong, I believe, last Friday. And I don't know what they discussed. And I think that meeting could have gone a number of different directions. We don't. It's not really nothing has actually been leaked about the substance. Right. I guess one of the questions I have, and maybe I'm just being obtuse, but this idea, OK, the export controls have failed.

DeepSeq shows that they failed, so therefore the US should just back off. And you see people say, "Oh, well, look." And it looks like DeepSeq is doing inference on these Huawei AI chips, these Ascend chips. And it just shows that the Chinese have figured out how to innovate around the controls and they're building their good enough chips.

Okay, but if they really failed, then why is the Chinese government keep saying one of the big things they want is these export controls are lifted? No kidding. Shouldn't the Chinese government be like, this is great, give us more controls because you're forcing us to innovate and you're forcing us to...

move faster to break the U.S. technological chokeholds? If the controls have really failed and all these breakthrough technologies have been achieved, isn't that a win for the Chinese government? So why do they keep asking, do the export controls be removed? I kind of can't really figure out the logic there. Yeah. Wow. And the other aspect of the conversation that makes me feel like I'm going insane is people treating DeepSeek's success as evidence that it

all is a waste of time. While also every single report on deep seek says that they were working on high end and video hardware that made it possible for them to achieve those breakthroughs. So it's like, all right, there's some circular logic going on here. Uh, but, uh,

In any event, yeah. I mean, I feel like a lot of it will come down to Trump's ongoing negotiations with Xi Jinping. And whether or not this is just going to be another bargaining chip for some bigger deal. Same with TikTok, which, by the way, April 12th is the deadline from the

executive order that has no relation to the actual law that was passed and went into effect. That's not that far away. And I was taught a question, which we should have asked this before, is why 75 days? The law said 90. Why did Trump pick 75? Well, he wasn't working from the law. We know that much to be certain. But 75 days is really not that much time. But so again, it goes back to TikTok,

export controls, folks on the national security side talk about why these are bad or why there are problems and why we need to do these things or the U.S. needs to do these things. But then I think from the president's perspective, they're just

More bargaining chips. Yeah. Well, as far as just the dizzying status quo under Trump, the one note that I will add is Jeffrey Kessler is the name of the lawyer that they picked to head BIS. And when you reported that earlier this week or related on Substack,

I was so confused for about 90 seconds because there's a plaintiff's attorney in sports named Jeffrey Kessler. He's very famous and successful. He was part of the effort to sue the NCAA and allow athletes to get paid. He's been at the center of basically every major labor standoff. That would have been awesome if it was the same guy. Then we could have combined, you know, sharpening.

china would have been really really confusing that they chose jeff kessler to head up bis but apparently there are two very successful lawyers named jeffrey kessler and uh jeffrey kessler the one that they chose um we'll see he's gonna have a busy couple of years here managing this relationship and the export controls regime um that jeffrey kessler from sports would have been really entertaining he's a uh

quite a hard ass, frankly. And so, um, throwing him into the mix with us in China would have been fun. But, uh, Bill, speaking of sports, do you have a Superbowl pick before we close out? Commander. No, um, uh, I, I just, I can't, I can't ever support the Eagles. Okay. Um, I think it'll be an interesting game. The Eagles are tough. Uh, the chiefs,

The Chiefs have an aura about them. I don't know. It feels like a three-peat is somewhat inevitable. Yeah. I mean, the Chiefs have really been getting by with a little bit of fairy dust, I would say. Whatever. A win's a win. A win's a win. Yeah. They don't look like a team that's only lost once this season when I actually watch them. It's like, all right. This is pretty...

barely holding it together but patrick mahomes continues to be unbelievable so um i hope everyone enjoys the game this sunday maybe we'll get more timu advertising this sunday i don't know uh but bill continue slithering along enjoying the year of the snake and we can circle back next week thanks andrew thanks everybody