Why the US is losing its own trade war…
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Hey, everyone. Today we interview Dr. Doug Guthrie about the state of the global economy. Welcome to The Bridge, enlightening conversations on world cultures, life, and everything in between. Hey, everyone. This is Jason Smith, host of The Bridge podcast from sunny California. If you like the show, don't forget to subscribe. We love The Bridge. Oh, yeah, yeah.

Hi everyone, my name is Jason. I'm originally from sunny California, now living in beautiful Beijing.

Dr. Doug Guthrie is a professor of global leadership at the Thunderbird School of Global Management and director of China Initiatives at Arizona State University. He's held visiting professorships at several business schools, including Kellogg, Harvard, INSEAD, I hope I'm saying that right, Stanford, Columbia, Emory, and too many other accolades to enumerate. He leads a think tank at Argo.

On GlobalLeadership.com, welcome to the Bridge to China, Professor Guthrie. Thanks for having me. So great to be here with you, Jason. Look forward to talking with you. Well, I noticed before when we were setting up, I spoke one word of Chinese and you recognized it. So I'm assuming you know some Chinese. China and studying Chinese has been my life for...

more than 30 years. When I went to the University of Chicago as an undergraduate, I thought I was just going to be studying economics and do whatever I had to do to become a really good economist and go work for McKinsey.

And I had a Taiwanese roommate and he dared me to study Chinese and I fell in love with the language. And so I've basically been studying Chinese since I was about 19 years old. Wow. So, you know, I think that beginning early thing starts. It helps a lot. I didn't start learning Chinese until I was in my 30s. So my Chinese is just...

passable, but I get around here in China. So you are active in fostering connections between China and other countries, notably the United States, particularly through people-to-people exchanges. You recently gave a speech in Beijing at the Western Return Scholars Association on Sino-US relations, which was attended by many scholars who

who once studied in the U.S., could you share some key takeaways from that event? Well, yes, thank you. And, you know, as a young China scholar and somebody who fell in love with the language, literature, culture, and history, and then, you know, the real times in my life came when I lived in

Taiwan for a year right after that. And then when I was doing my doctoral dissertation research and living in Shanghai in the mid-1990s. And, you know, so my life has really been committed to being sort of just back and forth in China. And for me, that's how I've become a scholar and a practitioner, somebody who studies and research and writes about the issues, but also somebody who advises people about in governments and in corporations about how we

continue to grow together. Our two economies are the two largest economies in the world. We used to be the two largest trading partners. And now this little fallacy of the idea that Mexico is actually the largest trading partner. And I say fallacy because, you know, it's just because a lot of Chinese goods are being carted through Mexico. And so it's but China and the United States are still very deeply, deeply connected to each other.

But the people to people exchange stuff is real. Like it's really, really important. And so, you know, in the past, I've always just done that as a way of getting executives and people studying and politicians to to really think deeply about China. But now it is so, so important, Jason, because our two countries are so closely related and I haven't seen relations this bad in 30 years. And

And so it's so important that we get over there and we talk to people. One of the fun moments that came in my in my talk was one of my old friends is a person who I just respect very deeply in China. It's, I think, the greatest Chinese economist. His name is Justin Lin, and he was the senior economist for the World Bank when I was the dean of the business school at George Washington University. So we were both in Washington and we became friends.

And, you know, he helped me when I was helping Apple in China. And, you know, he also is a very high level person and advises President Xi and everything.

And it was a wonderful moment in this talk because the person who organized the talk introduced me to my translator. And she said, you two have something in common. And I said, what's that? And she said, well, you both really care about somebody who is a really important economist. And I said, what are you talking about? And she said, well, I know you really care about Justin Lin and you two are old friends. And this is Justin Lin's daughter-in-law.

And she's going to be your translator. And so it was really kind of an artful organizing of the issues. And now I'm back in touch with Justin Lin. And he and I are going to continue working together. People to people exchanges, my friend. This is what we need right now. I agree. I think the Xiaohongshu revolution or all the Americans now using red note is an important step forward for a lot of Americans and Chinese people who were able to communicate in a way that they weren't

You know, just last year. So there's just those connections seem to be really important for our peoples to understand one another. We're in a complex time, as you just mentioned, 30 years. That's that's kind of makes me feel sad that we're at a dark point after 2020.

for three decades. May I ask your general opinion of the effects of the current trade war in general and on China and the U.S. in particular? So thank you. And the reason I say 30 years is because, you know, I remember all too well when I was first living in Shanghai and, you know, things were OK, but we needed for them to kind of continue to develop and get better. And, you know, this was China and China and the U.S. normalized their relations in 1979 when Deng Xiaoping came to Washington and

And, you know, show hands with Jimmy Carter and they talked about what they were going to do. And but it wasn't until 1994 under the Clinton administration that the China engagement policy was set in motion. And that paved the way for China to get into the World Trade Organization. And since then, you know, since 94, things have been we've been working in partnership and just building our economies together.

Things got a little more tense in 2013, but it still felt like we were still in close partnership. And then, of course, 2016 was the first blustery period of President Trump. And 2018, we saw our first tariffs lifted.

And then, you know, things were still OK, but they were, you know, getting more and more tense. But I haven't seen it like this. I have not seen it in this second period of the lead up to the Trump presidency in these first couple of months. I've just not seen this kind of negativity. And it's sad. It's very, very sad to me when I was giving the talk that you mentioned in Beijing a couple of weeks ago.

I was just so stunned at the tone of the room and the ways in which people were really, you know, they weren't being aggressive or angry. They were just really plaintively asking Professor Doug, like, why do you guys hate us so much? Like, why don't we want to have relations with the United States anymore?

And so, you know, I think it's a bad moment for U.S.-China relations. And I hope through people to people to exchanges, we can kind of continue to dig our way out of it. But to your more specific answer to your question, the trade war is it's a ridiculous thing.

horrible circumstance that is not going to benefit anybody. So I often, in my own blustery way, say, you know, if Trump and Vance haven't had an economics class, I understand, but they seem to not understand how tariffs work. You know, tariffs are set up so that they increase the prices of things coming in so that there will be incentives for people to buy American, right? And

Except that only works if you have manufacturing supply chains that can produce things in America, and we don't. And so I think there's just a ridiculous rhetoric on these issues. And I think people who are thoughtful about this know that the reality is that this is not going to – this is just our prices that are passed on to U.S. consumers. And so it's bad for everybody.

And they create a real kind of negativity in terms of U.S.-China relations because what the administration is saying is, look, China stole your jobs. So now we're going to bring those jobs back even though they can't.

And so I just think it's a toxic way of deciding how to have an economic dialogue. And, you know, the bottom line is that we're married to China. You know, there is there is just no way that we are delinking or decoupling from China. And so it's a very, very, very I'm very down on what what the administration is doing with the trade war right now. You're listening to The Bridge.

Let's take up a devil's advocate position about what the current administration in the United States is trying to do. You're an economist. I'm not. And you've already answered this question, but I'm going to force you to answer it in a little more detail. So it does appear that the White House is attempting to force U.S. companies to build in the USA. And there are a lot of people involved.

in the current administration and around them, supporting them that think that this is possible. Do you think that the U.S. can rebuild its supply chains if it raises tariffs on Canada, Mexico, Europe, Japan, China, etc.? Do you think that if by cutting the United States off from the rest of the world will force the United States manufacturing to come back? Is that going to work? Well, I mean, in theory, it could work.

Right. Because, you know, you have the whole concept, as you as you pointed out, and I've already said it, but let me just reiterate it for the audience again. The idea of tariffs, the theory is that if you raise prices of goods at the border,

Those prices are going to be passed on to consumers and therefore if making goods in America is more expensive because wages are higher in American labor force But if that tariff equalizes the price then you're gonna buy American and support jobs now the problem with this is that you have to have sophisticated manufacturing supply chains China has been building the most sophisticated manufacturing supply chain in the world for the last 40 years and

And as I've studied it very closely over these 30 years that I've been studying China, it has taken 15 to 20 years to build a lot of the power of that manufacturing supply chain. So if you think that you're going to raise prices on, let's say, an iPhone, right? So iPhones were hit by about 25% tariffs in the 2018 tariffs. Right.

So is the idea that iPhones are going to be then produced in America and we will quickly rebuild those manufacturing supply chains and suddenly you'll be buying an American-made iPhone? No, it's absolutely not the case because those companies and those manufacturing supply chains don't exist in the United States and it would take a significant amount of time to rebuild them.

Now, so to answer your question, in theory, tariffs could move people to rebuild manufacturing supply chains in America. It would be very expensive and it will take decades. And so companies like Apple and Tesla and Walmart, I mean, here's my favorite, one of my favorite points. The single largest exporter from China to the United States is Walmart, right? And so like it would take –

And Walmart is light industry goods, so it could be rebuilt faster, but the expense of the goods would go up tremendously. It would take decades for Apple to rebuild the manufacturing supply chains that it has. The one interesting case here where tariffs actually do work, and I won't comment on this politically, but in the electric vehicle space,

Because Tesla, among all of these companies that we're talking about, is the one company that has a vertically integrated manufacturing supply chain in America. And now, ironically, the tariffs don't hit Tesla because all of the Chinese-made Tesla vehicles are sent to Europe and different parts of the world. And all of the American-made ones are sold in America.

But again, so the key answer to your question is if tariffs are going to work, you have to have manufacturing supply chains where these things can be produced and it will take decades to rebuild those in America. So it sounds relatively unrealistic. Harvard Research Fellow Mitch Presnick wrote an article in the Harvard Business Review in August of 2024 encouraging U.S. companies to joint venture with Chinese companies to manufacture in the U.S., giving Americans jobs.

Technology transfers back to the United States in exchange for Chinese access to the U.S. consumer market. So solar panels, maybe EVs if it was Detroit and, you know, BYD and so forth could potentially be made in the U.S. at relatively competitive prices, at least for the U.S. market. Is this a reasonable way forward? Should Chinese and American companies be working together to build some manufacturing in the United States again?

I love this article and I love this idea. I think it's a brilliant, thought-provoking piece and got me thinking a lot about these issues. And yes, the short answer is yes. If we really had responsible people running the economy and sort of thinking in diplomatic ways about how to continue to build our relations with China and we wanted to create jobs in America and to create manufacturing supply chains,

This is the way, right? Giving Chinese companies incentives to build joint venture relationships such that they're building manufacturing supply chains in America. I would love to see that happen. To give you one very concrete example where it is happening, the little Taiwanese semiconductor company TSMC. You know, there's a very complex politics around this issue. But under the CHIPS Act, under President Biden, the United States government gave an incentive package of $6.5 billion.

to begin the process of TSMC thinking about developing the manufacturing supply chain for three fab sites in Arizona. Since then, TSMC has invested $65 billion, and they've just recently guaranteed another $100 billion. So $165 billion has come into the building of the manufacturing supply chain, which will create jobs.

uh, in Arizona. And so this works now, it has to be a very, very delicate and complex process. And so J solar is another company that's thinking very deeply about Arizona because they want to build these industrial clusters here. And, uh,

And so I think this is brilliant and I love this idea. It's complicated, though, and it takes time. And having just a blustery administration who screams tariffs, tariffs, tariffs, tariffs, that's not how it happens. It happens by very, very careful negotiations. But this is if you want to create jobs in America, you have to have the people behind you who have built the most sophisticated manufacturing supply chains in the world. And those are mostly Chinese firms. Oh, yeah.

You're listening to The Bridge.

All right. So let's talk about the World Trade Organization. I don't understand it. I don't think most people do. Could you explain, is the World Trade Organization or also the WTO capable of managing the tariff spat between China and the U.S.? So first of all, you know, the World Trade Organization, it's an important body and it's an important arbiter of trade. At least it was in the years, you know, up until about a decade ago.

And so, you know, for example, when China was trying to develop itself as an economy, as I mentioned earlier, in the 1990s, China wasn't allowed in the World Trade Organization. And there was a very clear reason for it.

Which was that China in the 1990s, part of the reason it developed as such a powerful manufacturing economy was because if you wanted to do business in China and you wanted access to the 1.4 billion people who are in the consumer market, but also the 350 million people that were the migrant labor force.

If you wanted access to that, then you had to do a joint venture and set up a technology transfer agreement. Right. And so what this was referred to in WTO standards was a quid pro quo for market access. So if you want to get into the Chinese market, you better hand over some technology.

Now, if you're in the World Trade Organization, it is illegal to have a quid pro quo for market access. And so and China wanted desperately to be in the WTO so that they could just be a top rate economy that had access to all of the things that that people wanted, not just in terms of tariff dispute resolution, but also in terms of flows of capital, etc.,

Right. And so China got into the WTO in 2001. It became illegal to have a quid pro quo for market access. And, you know, China became a much more open market. Right. And so in that sense, you can imagine that. Yes. Yeah. The short answer is World Trade Organization has the teeth and the power to be able to control what players who want to be in the World Trade Organization are going to do.

And it does have discretionary bodies to deal with things like tariff disputes, right? So there's a dispute settlement body. And so anytime there's a dispute that's raised, it goes to the WTO. The WTO sets up a dispute settlement body. And then you figure out, like, how are we going to do this? And if you want to remain a member of the WTO, you've got to do what the WTO says.

Now, the WTO has been weakened considerably in the last 10 years. And in part, this is because of artful work by the Chinese administration.

So, for example, it's still illegal to have a quid pro quo for market access. But if you want to be aggressive about how to deal with things, you can set up different laws and regulations that can make it very, very difficult for companies like Apple and Tesla and Walmart to operate in China unless they do what you want them to do.

And so under this, as China has risen in power and China has become a very, very creative economic actor within this system, the WTO has gotten weaker. And I think these days the WTO is sort of, in my opinion, not taken nearly as seriously as it was 10 and 15 years ago. And partly this is because of the blustery process by which –

Countries like China, but also countries like the United States are handling their trade regulation within their borders. And so I think it's a much weaker organization today. Can it deal with trade disputes? Sure. But, you know, we see so much muscle flexing and bluster from countries like the United States that it's I think that we're in a much messier time than before. Recently, we saw the U.S. markets tend to

take a bloodbath, basically. There were two different days, one week apart, where stocks plummeted. And according to some of the sources that I read, US GDP may fall, at least for the second half of the year, to 1.5%, which is not ideal. It's not terrible either. But China's economy is expected to still grow about 5% again this year.

But U.S. mainstream economists often describe China's economy as slowing or sluggish. How do you see China's economic outlook for 2025? I think they're predicting 5% and they're going to hit 5%. There are weaknesses in the economy and people who are real sort of naysayers in terms of what's happening in China, you know, they'll point to the real estate market and the overinvestment in real estate and they'll point to slowing consumption.

But in my opinion, China has a much smarter capitalist system than the United States does. I've gotten in trouble with the U.S. State Department because I've said that Chinese capitalists or communist China is much better at capitalism than the United States is.

Now, why do I say that? The reason is because we in 1980 walked through the door under Milton Friedman and Ronald Reagan of neoclassical economic theory, which is the basic idea. And it comes from the Chicago School of Economics where I studied. But it's the basic idea is let markets do their work, right? Like just get out of the way, get governments out of the way. We don't want a Keynesian style state. We want governments to get out of the way and let corporations and the market decide how things are going to play out, right?

And what that does is that advantages corporations that want to make money. And so, you know, when we talk about China stealing our jobs, we forget that Milton Friedman and Ronald Reagan opened the door for this. China didn't steal our jobs. Companies like Apple and Tesla and Walmart went to China because labor was cheaper and eventually the manufacturing supply chains were better. Right. And so like this idea that.

You know, it's this horrible state where China stole all of our jobs. We were forgetting that we walked through the door of neoclassical economic theory. Now, what does that also mean in terms of thinking about how to manage economies? Right. And so this is where to answer your question is.

I'm less worried. If China says it's going to hit 5%, it'll hit 5%. But it's not because it's a state-directed economy. It's because it's a very organized and sort of – it's an economy that different economic actors think very carefully. They're not taking orders from Beijing, but they're thinking very carefully about how to build their local economies, right? And so if Beijing says we need 5% and over here we're seeing sluggishness in real estate, but over here, guys, solar panels are doing really well. I need you guys to push hard.

My favorite article written about China in the 1990s is by the eminent China scholar Andy Walder. And it was an article called Local Governments as Industrial Firms. And the basic idea was this is not centrally planned economies a la Moscow. This is –

Very, very coordinated capitalism in which local communist party officials are incentivized to think about how to grow their economies in very, very creative ways. And they create very powerful industrial clusters and they develop in very, very creative ways which manage the markets in their provinces together.

And so if they need to hit 5%, they will. And I don't think that's an overestimation of what they can do. We've dialed back from the fast growth period of double-digit economic growth, and they really think carefully about how to grow the economy. But they're going to get the numbers. For me, I'm actually situated in China. I have a different question. A lot of people ask me online. I'm very large online.

How do I invest in China? And honestly, I don't always know what to tell them because I can walk into a bank in Beijing and do that. It's not difficult for me to do that. But if you're in Ohio or Arizona, right, I don't know how you would do that. So people ask me, you know, especially with DeepSea, Kimmy, Quinn, Manus and other products following like a week apart these days. It's like almost every day China comes up with a new technology that's just a game changer.

People want to invest. Some people want to invest. How do people actually do that? Should they invest through the U.S. stock market into Chinese companies? What mechanisms are available? Well, you can invest in the U.S. stock market because there's a number of

There's a number of Chinese companies, the big ones that we know about, the Alibabas of the world that are traded on places like the New York Stock Exchange. But if you want to kind of get deeper, you know, I'm a big mutual fund person over being just picking companies and betting on them. But, you know, that's just my conservative approach to investment. But, you know, you can invest in ETFs, right? And so like ETFs are Chinese exchange trade funds, right?

And, you know, there are a number of ways that you can sort of figure out like what kind of risk you'd like to take. And then you put that money in a Chinese ETF and you can get access to the Chinese stock exchanges.

The two stock exchanges that are there are the Shanghai Stock Exchange and the Shenzhen Stock Exchange. And so, you know, if as you are, you're a resident there and you're sort of thinking about how to get access to those markets and find a Chinese investor, you can do it that way, too. But I think the easiest way for people internationally and the sort of risk hedging way is to is to get into a Chinese exchange fund.

I want to talk about semiconductors because this is a really hot issue. A lot of different opinions are out there. It's varied from one person to another considerably. China is working on trying to catch up with the rest of the world in refining the smallest semiconductor technology. It's got domestic lithography machines that may be coming in Q3 of 2025. Do you think China's domestic manufacturing of chips

will be able to take market share from other manufacturers. Do you think China will catch up

The short answer is yes. And again, I'm very bullish on just how studious the Chinese manufacturers are in terms of what they can learn from the world. And of course, you know, the leaders in the world right now are places like TSMC. And so, and by the way, TSMC, you know, it is building its three new fabs in Arizona around Phoenix. But, you know, it also has plants in California.

China around Nanjing. And so, you know, China is still learning in terms of how to develop what they're doing. But, you know, there's other players here, right? There's the semiconductor manufacturing industry.

Investment Corporation, SMIC, the Young's Telecom Corporation. And, you know, these are powerful players. They're not quite there with everybody else, but they're developing quickly. One of the great moments I thought was probably was about a year ago, but it was, you know, like we've

forbidden Huawei to have anything to do with U.S. markets for a long time. And, you know, I used to advise the Huawei people back a decade or more ago. And it was really sad because, you know, I think, again, you're better off by thinking about

economic development and partnership and how do we all keep track of each other? Well, tariffs and excluding people from economies or excluding companies from economies, it's not the way you keep tabs on them, right? And so now it did look like because, you know, under the CHIPS Act, it was not only

setting up investment in places like Phoenix, but it became illegal for companies to sell certain things and to have any kind of dealings with companies like Huawei. If you were on the blacklist, you just weren't allowed. If they were on the blacklist, you just weren't allowed to do business with them. There was a great moment when Gino Raimondo came to China. You must remember this, but this is about a year ago, but it was China planned it. Huawei planned it. That was the launch of the new

Huawei technology, which, you know, didn't have the four nanometer chip, but it had the five nanometer chip or whatever the details were. But I thought it was sort of an artfully choreographed moment when they said like, oh, and by the way, you remember how you excluded us from that? We got around. We're doing this. So the irony there is we're pushing these companies to innovate and

because thinking that we control all the technology here and excluding them from any kind of access to American chips, it doesn't mean that China is not going to develop their own. They're going to do fine. Right. And so I do believe they're going to catch up. I remember that. And it was actually very interesting. At the end of Biden's administration, Gina Raimondo came out and said that the task that she had been set upon was a fool's errand. And so I think that

Even she didn't have her heart fully behind what they were attempting to do and that they understood that eventually China would catch up into what did they call the small garden with high fences. But I mean, they still haven't broken through, really. So it's going to take some time. How long? Who knows?

You used to work for Apple. So I want to ask you some Apple related questions. My wife is a huge Apple fan. She had all of her computers are Apple and iPhones are still ridiculously popular in China.

Apple's profits seem to be linked to Chinese manufacturing and also Chinese consumers. What is the future for Apple in China in your assessment? So it's a great question. And this is this is such an important area because Apple is just one of many companies. But Apple is the one that I know the best. And it's the one that I always say, you know, Apple, Tesla, Walmart, these companies are married to China.

And there is no delinking or decoupling. And just because Foxconn has a plant in Chennai does not mean iPhones can be made in India. Right. Foxconn is just final assembly. So here's my favorite statistic for Apple. Apple controls about 30 percent of the smartphone market share in the world. Right. So one in three people have an iPhone.

You want to guess what level of profits they take in that product? No idea. It's about 90. It's about 90%. So one in three people have an iPhone, but Apple takes 90% of the profits in the smartphone segment, meaning all of the other companies get to divide up 10% of profits. Wow. Right? Wow. Now, how is that? Wow. Well, that happens not because iPhones are awesome and they're more expensive than others. It happens because Apple has worked together with China in building smartphones.

industrial clusters around all of the components and modules that they make. So here's what happens is that, I mean, this is Tim Cook's brilliance. He is a brilliant, brilliant, you know, we always think of Steve Jobs as the product genius, but Tim Cook is the business genius. And so Tim Cook is the one who took Apple into China in 2001, right after China's entry to the WTO.

And basically, instead of having the product engineers there who are building the ideas of products, the key thing is, you know, if you want to make an iPhone, touchscreen glass is a brilliant idea. But whether you can make that in the Cupertino laboratory or not doesn't matter. What matters is can you produce a million of them a quarter? Right. And so like you have to have a very efficient manufacturing supply chain to do that.

And so a lot of the real talent for Apple is not the product people in China. Talent for Apple in China is not the product people. It is the operations managers. And so what will happen is that the operations managers will work with different organizations, different factories that are industrial clusters around a given component or module.

And they will vie for Apple's attention because Apple will embed their ops supply chain people in those factories. Right. And they will help those factories become efficient. And so what will happen is that they will end up working for Apple for free, not for free in terms of cost, but for zero margins.

Basically, they'll fight with each other over the bidding for the next launch. And they will end up working for Apple for 1% or 2% margins, and Apple takes all of the rest. Why would they do that? Now, I've had people in these firms, the CEOs say to me, Doug, can't we just get a little bit more? And I'll say, don't work for Apple. Just don't do it. Don't take the contract. And they would say, we have to. And I would say, why? And they said, because we learned so much.

from the Apple operations engineers. And then they turn around and go make their money from everybody else, right? Because they were the firm that worked on that component with Apple. And then, you know, anybody else, Samsung, Huawei or Oppo, Vivo, Xiaomi, they'll take them because they want to work with them, with the firms that work with Apple. And so Apple doesn't just have Foxconn making phones. Apple works with 1,600 Chinese suppliers and they all compete with each other for Apple's attention.

And so then Apple drives the margin down and Apple walks away with 90% of the margins in the smartphone segment. So it's brilliant, brilliant, brilliant stuff. But the kicker is when we think, well, you know, like let's just have a trade war and Apple can go make their phones in Chennai or in Texas.

That's not how it works, right? It works because of these industrial clusters that are so embedded in China and the relationships that companies like Apple and Tesla – Tesla is the same too, by the way. I mean Tesla has its own gigafactory, but the gigafactory is, again, just final assembly. They're working with hundreds and hundreds of suppliers of different components in the electric vehicle market. And so –

These companies can't just up and move to places like India. Maybe eventually they could, but just with China, it will take 30 years to build a manufacturing supply chain as sophisticated as China's.

And so we just are not going anywhere. And so and so, you know, I think Apple's a fascinating case. And I sort of love the story of what they did with China. But they're deeply, deeply embedded. And so, you know, this is this is what what I think is the danger of this kind of trade war mentality is that we just don't realize. And by the way, we started to see this happening. So you can't violate the quid pro quo for market access, but you can change laws.

that make it impossible for companies like Apple to operate. And then suddenly, Apple's in trouble and they better figure out what those local officials want. So here's the tricky thing about a quid pro quo for market access. If China asks Apple for something or any company and says, this is what we want if you want to be here, then that's a violation of the World Trade Organization rules of the quid pro quo for market access. If you...

as an Apple employee, ask a local official what he or she wants, then they didn't violate the WTO rules. Right? So if you figure out, wow, in Guizhou, you guys are a really poor province. And Chen Ming'er had a very poor province that he was governing. And we thought it would be good to build a relationship with him. And so it ended up that they wanted data centers.

Right. And sort of we heard from the inside track that that Guizhou wanted data centers. And so if you offer it, it's not a violation of the quid pro quo for market access. And so there's just a very, very interesting dance that everybody's playing. And, you know, these companies are smart, like they know what they have to do to be able to continue to use the manufacturing supply chain there. But again, Apple's

Apple's married. Like they're not going anywhere. Or if they are, it will take decades for them to do that. And China holds the cards here because if China really wanted to hurt the U.S. economy and it decided to make life very difficult for Apple and Tesla and Apple suddenly wasn't the second most profitable company in the world and not the most valuable company in the world, that would affect everybody's 401ks. Everybody who has a 401k that's invested in an index fund, wow.

Wow, this would be a... And so I don't know if the Trump administration knows this. I know that Elon Musk knows it. And so China still holds the cards. You're listening to The Bridge.

Well, I think you kind of answered this already, specifically about Apple. But I wanted to ask about cheap labor, because this is something I think us non-economists struggle with. Obviously, China's labor has become more expensive over the last 20 years. Probably wages have more than doubled in China. But we still have countries like Thailand or India or countries all throughout the global south that can produce things for much lower wages.

So why do companies continue to manufacture in China? Well, so I love the question because, again, this gets to the complexities of how you think about building manufacturing supply chains. Right. And so, you know, yes, manufacturing supply chains is about having the best technology and having really good people who can who are trained to run these supply lines. But also they're often built on different tiers of labor. Right. And so, again,

In China, of course, you have the senior executives who are strategically thinking about what they're going to build and what to do. And then you have vocational technical labor force that oversees the line management. And China has been very good, much better than the United States over the last 30 years in investing in vocational technical education.

Right. So in China, you know, like the numbers of how many kids go to college are still relatively low. But the number of kids going to vocational technical education schools like the the the Jaxing Polytechnic Institute in Zhejiang province. I mean, these are incredible places that have been built up over the last 20 years and

And so they're basically training people not to get BAs, but to be able to manage supply lines. So you have senior people who are the leaders that go to Tsinghua University or Beida or wherever, Shanghai Jiao Tong, and then you have vocational technical people who went to polytechnic institutes who can manage lines.

And then you have a much cheaper labor force, right? And so here's where things are very interesting is in addition to having cheap labor forces that come from what's called the Vyodong Renko, basically the labor dispatch system, the floating population.

Right. So you have people who come in from the countryside and are making there's still labor contracts and they have the minimum wages that you can pay. But the other thing that China has been so effective at is understanding the seasonal production of a given product. Right. And so think about how iPhones are produced. Right. So if you want to basically hire people so that you can produce a

basic number of iPhones for every year. So let's take, for example, Foxconn Zhengzhou. So Foxconn Zhengzhou is a final assembly plant, and it's a big operation in Zhengzhou, and it's part of what helped make that city very effective. But

On any given period of time throughout most of the year, Foxconn Jungjo probably needs about 200,000 people to be employed in that factory to basically be able to make as many iPhones that they're going to be averaging over the course of the year. Except for two months out of every year when there's a huge spike in production because there's a new iPhone launch.

Right. So iPhone 16. Oh, my God, it's coming out. And so Foxconn Jung-go doesn't need 200000 people for two months. It needs 1.2 million. Right. And so so suddenly you have this big spike. Right. Now, if Foxconn Jung-go and Apple had to pay 1.2 million wage laborers over the course of 12 months, that's very different than paying 1.2 million people for two months and paying 200000 people for the remaining 10 months.

Now, how can you do that? Well, you have something that's called a labor dispatch system where the government is involved with the 350 million people.

who are the dispatch labor system. So 300, as many people as exist in the entire United States are cheap labor that are moved around the country, depending on when the employment spikes are accord. And so the government is very good at orchestrating this whole thing. The government brings the buses, it carts people from different factories. There's a whole coordinated system.

That, you know, the only place that could come close to this, of course, is India, because it's the only place with, you know, say 350, 400 million people that could work for very cheap wages as temporary laborers. But India does not have a government that is sort of thinking about how to orchestrate the labor dispatch system. And so, again, China is just like this is this is capitalism, you know,

And writ large, like this is awesome sort of thinking about how do you manage the building of an industrial supply chain and then how do you manage labor moving across? And so there's no place in the world that's even close to this. Now, we did used to talk a lot about when we were at Apple, you know, well, we're diversifying and we're building relationships with with Vietnam. Right. And we actually are a number of people on the procurement team and the ops team that would go to Vietnam. But let's think about that.

Vietnam is a country of 95 million people. Probably in terms of laborers, you have maybe 20 million, right? Or maybe a little bit more. And

you know, so it's just, it's not the same structure, right? So you don't have a government that can move people. And if you're moving people across borders, that's where things get really messy and complicated. So you need a big migrant labor force inside of a country, and then you need a vocational technical chain force, and then you need the leaders of industry who are educated the most highly. So it's just a very complicated system. And it's brilliant. It's

That's brilliant. Profoundly, I didn't know anything about this. This is actually very interesting, fascinating. I'm going to do a lot more research after this interview. So the TikTok ban apparently is coming back because there was a 90-day push by Trump to hold it off to see if there would be U.S. companies that would be able to buy U.S. TikTok.

And it's very soon that this is going to happen again. But TikTok ban also caused an unintended shift in U.S. sentiment towards using a Chinese app. And I think a lot of Americans thought they were going to Douyin, which is the Chinese version of TikTok. But they actually went to Xiaohongshu, which is kind of a hobby app.

About, you know, women cooking at home or men going and doing whatever. It was like so very peculiar that all of these people ended up on Xiaohongshu, red note. But millions of young Americans, at least for a short period of time, maybe tens of thousands left that are still actively using it.

We're suddenly making friends with millions of Chinese counterparts. Do you think that this will increase diplomatic pressure on the U.S. government or maybe the current administration to be friendlier with China because so many more Americans...

now have a more positive perception about China than they did before? Well, it's a great question, Jason. And I do think this needs to get worked out. And it's not just that it needs to be worked out because people are making friends with people 7,000 miles away over Xiaohongshu.

But which, by the way, I love that it's translated as red note, but really Xiaohongshu is Little Red Book, which is an allusion to Mao's Little Red Book of the Cultural Revolution. And so I think it's like I love I love that moment. But yeah, I mean, I think that if we think.

Building tariffs and throwing sharp elbows is going to get us a stronger economy. Again, we've talked about this already, but that's going to take a long time for that to happen. If we think Apple is going to be leaving China, that's not happening. But, you know, friendships are going to continue to develop.

I hope they will. The other thing that's very dangerous for the U.S. economy right now on these issues is that, you know, I've been in part of academia and business school world, but have lots of friends in academia and science and chemistry and math and engineering. And so many of our departments for so many years, Jason, had the benefit of the smartest young people in the world's most populous nation wanting to come to America.

And so you would look at these application pools and you're just like, wow, I got my pick of things like we can get, you know, all the best students from Beida or Tsinghua or Shanghai Jiao Tong. And those application pools have just dried up and we're just not seeing. And it's been pretty quick that it's happened just in the last couple of years.

And this is one of the things that happened. It was the sad moment of the talk I gave on people to people exchange a couple of weeks ago. You know, the real comment from people was like, wow, Professor Guthrie, like, I just didn't realize that you Americans just don't like Chinese people anymore. And it's a terribly sad statement because, you know, just thinking about this situation.

And economically, the amount of brain drain that we – it used to be the case that we had the pick of the smartest people in the world coming to America. And we're creating situations – and China is the one that I know the best. But I think it's going to be happening everywhere where people are just not going to want – and that means we're not going to have the smartest young scientists who are going to go think about things like AI and technology.

You know, in Silicon Valley. And so I think it's a really dangerous moment. But to go back to the lighter side, I do hope that we continue to develop friendships over things like Xiaohongshu. And, you know, and it's I think it's important. And then, you know.

My son was a huge TikTok person, and now he uses both TikTok and Red Note, and he loves it. And so he feels like he's back in China. You're trying to do something that I'm also trying to do, but I'm doing it from the other side. I am constantly posting on my social media for Americans why they should come and study at Chinese universities. My pitch is...

It's very affordable. And now China has, you know, some of the best STEM programs in the world, Tsinghua, Beida. There are scholarships available for bachelor's degrees, master's degrees, PhDs and so forth. And so I try to encourage more Americans to come to China. The real reason I do that isn't just because I want them to study at a Chinese university.

and save money and graduate without student loans. But the real reason is because I want to build people-to-people relations. And the best way to do that is to have Americans living in China. And for you, you're a professor in an American institution. The same would be true for having Chinese students study in an American institution. So if I could ask you, could you give us a pitch for our Chinese viewers and listeners? Why should you as a Chinese student come and study

in the United States or even in Arizona? Well, let me pitch Arizona specifically right now because, I mean, there is sort of the broader United States and I want to continue to develop people-to-people exchange and I want our countries to be friends. And, you know, so there are reasons why I spent a lot of time in China and I would love Chinese students to come here and I hope we can create circumstances in which we're welcoming.

And that's important. But I'll just pitch Arizona for a second here. So I'm at the Thunderbird School of Global Management and I am at Thunderbird as part of Arizona State University.

So Thunderbird is interesting just historically in terms of people to people exchange, because I don't know if you've ever heard of or remember the Flying Tigers, but the Flying Tigers was a group of military people who basically had Chinese individuals over to the United States to train them in navigating warplanes. They were all retired army people, but they were. And, you know, if you we have the 80th anniversary of the end of World War Two coming up in September of this year.

And, you know, if you ask people in China, if they know who the Flying Tigers were, they'll say, sure. You know, the Flying Tigers saved China from Japan. Do you know where the Flying Tigers were founded? They were founded on a little airstrip called the Thunderbird Airstrip in Glendale, Arizona, which after World War II was over, there were a bunch of people saying, what are we going to do with this? And they said, well, war is bad.

But maybe we should build a school of management because borders frequent and by trade seldom need soldiers. Right. That was the line that gave birth to Thunderbird. So that history that just makes me feel like we're wedded to each other. So Thunderbird is there. But also, I think Michael Crow, who's the president of Arizona State University, is the most talented, brilliant person.

university president in the world. He was provost at Columbia when I was a young professor at NYU, and we all thought he was going to be president of somewhere in the Ivy League. And then he, in 2001, took the job as president of ASU.

And he's the reason, for example, that U.S. News & World Report now doesn't just rate schools on selectivity, but they rate them on innovation. And, you know, in the 11 years that the U.S. News & World Report has been ranking universities on innovation, do you want to guess which university has won the top number one position of innovation in U.S. universities? Arizona State.

And that's because I just think Michael Crow is thinking so deep. It's part of the reason TSMC is in Phoenix, right? The reason 165 billion has been committed to building the Arizona economy is because of the Fulton School of Engineering and how just powerhouse it is. And so you have a really good opportunity. So even though we have tensions between each other,

You know, the U.S. is still an innovative place. There still is Silicon Valley and there still are ways that in a globalizing economy, I think we all are less Chinese citizens and U.S. citizens if we hunker down and kind of build walls and think about how we're going to build things internally. But if we embrace learning from each other, I just think we're all better. And so that's my pitch. I hope students will come.

You know, I'm looking at your CV and I noticed that you studied sociology, among other things. And obviously, I want to build better Sino-US relations as you do. And you still travel to China. What would you, because there's a lot of

strange opinions about what China is in the United States. Some of that comes from the media. Some of that comes from just echoes from things that have been said from decades ago. I mean, I think some people still think China is just a bunch of huts and villages. I mean, you have a lot of different misinterpretations of what China is. What would you like regular Americans, from your perspective, to know about what China is actually like? Well, so let me just...

take a step back and answer the question from the economic sociology perspective, and then I'll answer the very specific aspect of your question. So part of the reason I got my PhD in economic sociology instead of economics was I was frustrated by how much the field of economics was just focused on mathematical models and, you know, careful analysis of statistics, whereas the field of sociology is much more

tied to the idea of getting out there and meeting people and talking people. Like you don't get to understand what's happening in a place unless you really, really deeply go out into the field and do work. And so if on one end of the spectrum is economics and the other end of the spectrum is anthropology, where you go out and work in a factory for a year and do ethnography that way and learn about a society, but you can't generalize because you're just writing about one factory, sociology is in the middle. So when I did my doctoral dissertation research, I

I did do a data set and studied 100 factories in Shanghai, but I gathered all the data face to face. So I visited all these factories, sat down with the factory manager and sort of talked through like, OK, here's what I need. And, you know, let's be friends. And like, yeah, I'll say good things about you, but I need to tell the story.

And so sociology is sort of in this space where we care about the things that economists care about, but we also care about people to people exchange and understanding what matters. But in addition to it's not just face to face gathering of data, it's also whenever I teach my students these days, I always say three things matter. First, you want to understand China. You have to understand culture and history.

you do not get to be a good China scholar or even a good business person if you don't understand something about history, right? And so I just like for people to realize like historically,

China, the Middle Kingdom, thought of itself as a very powerful place. When I reflect on that issue, one of the things I often tell people is like, we have this thing called the G7. The G7 is supposed to be the most powerful economies in the world. China's like, we're the second largest economy in the world. How come we don't get a seat at that table? And then people will say, well, no, no, no, no, no, no, no. But that's because it's capitalist democracies.

Well, we know that's a lie because in 2008, they let Russia in because Russia was sitting on a lot of oil. Now, they kicked Russia back out in 2013 because of the invasion of Crimea. But when you say this to Chinese, we say, but you guys, it's OK. You can be at the kids table. You can be at the G20 because you're a developing nation. And China's like, really? Really? We're the second largest economy in the world and we're going to be the largest economy in the world over about six years. I'm sorry, guys. And so I just like to really get people to think about culture and history.

The one other thing, sorry for the long-winded answer, but the one other thing I like to remind people of is if you think China is just this big place and you just need a government affairs office in Beijing, you're not getting China. China is a very complex system of 31 provincial-level units. Four of those are provincial-level cities.

And each of these places are just dramatically different. And so if you really want to understand China, you've got to understand how Shanghai works and how Shenzhen works, but also how Zhejiang province works and also how all the second and third tier cities that are building the industrial clusters that companies like Apple and Tesla work with. So it's a complex system. And so I encourage my students and the executives that I advise to really think carefully about culture and history and local political economy.

So those are my tag pieces. You know, I often say in my private life that I'm very happy to do this show because it's like having a one-on-one session each week.

with a new brilliant person. And I just wanted to say that one time on the air after this show, because you have legitimately taught me a lot of things that I didn't know before this interview. And I just want to thank you so much for coming on the show, for educating me, for educating our listeners. And I hope that we can have you back someday in the future as well. Thank you so much for your time, Dr. Guthrie. Thank you, Jason. And you can have me back anytime. I've enjoyed this conversation, but let me just say the work you are doing is so important.

And so I'm just thankful to be a part of those conversations. But people helping people understand what's happening in the world's largest, most populous nation, but also soon to be the largest economy is critical. And so thank you for your work. Thank you. Thanks for having me.