President Trump and President Xi, the two most powerful men in the world, met last week in Korea to try to, basically, calm things down. China had just flexed its muscles, threatening to limit the export of key inputs like rare earth magnets and other critical minerals without which auto assembly plants in America could, within weeks, come to a standstill. America could inflict its own damage, by widening the net of sanctions on Chinese companies and individuals. Looking at the images on the TV screen, I began to wonder: In what areas are America and China still in agreement? Taiwan? No. South China Sea? No. Russia? No. Chips? No. Trade. A big no. That got me thinking about what lies ahead. To bring clarity and wisdom, I welcome Jorge Guajardo, former ambassador of Mexico to China to the show to ask him some fundamental questions: Since the US and China seem to have different values, different priorities and different regulations, can they ever see eye to eye? Who is decoupling more quickly, the United States or China. And how will Mexico play its cards as it finds itself squeezed between China and the United States with the car industry, investments and jobs looming large.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Hello, and welcome to the Driving with Dunn podcast. I'm
your host, Michael Dunn. So Donald Trump seating ping last
week meet in Korea to do what exactly calm the
waters a little bit? Maybe that's it. They came away
calling it a trade truce. But what exactly does a
trade truce mean?
Speaker 2 (00:23):
Do we know? To borrow the words of Winston Churchill,
are we at the end? Are we at the beginning
of the end?
Speaker 1 (00:30):
Or maybe just maybe we're at the end of the beginning? Yes,
what comes next to find out? Joining me today is
my good friend mister Orge Guahardo, former ambassador to China
from Mexico and one of the few people on the
planet who gets China and gets the West. He's always
(00:53):
got fresh, original insights, and I know that you're going
to enjoy this conversation. Let's listen to mister Corgiate Guahardo
right here, right now on the Driving with Don podcast.
(01:15):
Mister Guahardo, so nice to have you back on the
Driving with Done podcast.
Speaker 3 (01:21):
Michael, what a pleasure to be back. I had a
great time last time we talked. I obviously follow everything
you boast and write closely, and it's nice to be
talking to you today.
Speaker 1 (01:31):
Today, in particular because just hours ago over in Korea,
President Trump and Chi Jinping President She apparently, if I
read the FT headline here, it says US and China
agree a one year trade truce. After the Trump she talks, Hmmm,
(01:52):
what do we make of that?
Speaker 3 (01:54):
Well, a trade truth which part of trade sold? A
truths on new tariffs at truths, a new chokeholds at truths.
I don't know. I don't know what to make of it.
But just again, I don't know what to make of it.
(02:18):
We're gonna have to see. But I was sort of surprised.
But something I read after they met, and that is
the Justice Department, together with the Pentagon, making a recommendation
in the United States that households changed their Tippi Link
routers because they're made in China and they are not trustworthy.
(02:41):
This is after the meeting.
Speaker 1 (02:43):
The American households, three hundred and fifty million people change
around them.
Speaker 3 (02:47):
All of them change a router, which, never mind you,
most tip link router, I mean most routers are TIPI
link apparently, and I am not an expert on the subject,
but a tipi link had either sold or made it
a US company which is making these routers. Nevertheless, there's
a link to China. The Justice Department today or late
(03:11):
last night said they are not to be trusted because
they're linked to China. So every household should change their router. Okay,
that's why we're not an issue, not for the purposes
of this podcast. But again, does that represent the truth?
I don't know. Will the Chinese assume well, that was
(03:34):
on the side that doesn't include what we agreed. I
don't know. These truths are needed, are helpful, are welcome,
but they are not addressing the issue at heart, which
began this whole trade war, if you will, which was
China's huge trade surplus with the US. In fact, it
(03:55):
increased by twenty two percent in the first seven months
of this year.
Speaker 2 (03:59):
Who would have cast that? Nobody?
Speaker 3 (04:01):
Why exactly? So you put a truth once, they've already
had a first and ten.
Speaker 1 (04:09):
Complicated So you're getting to you've got this veneer. At
least the headline is truth sounds good, But underneath that
veneer things are still boiling.
Speaker 3 (04:22):
So.
Speaker 1 (04:23):
Oh, by the way, American households, get rid of your links.
They may be compromise. Oh by the way, yes, the
United States is ready to prepare to resume nuclear testing.
Speaker 3 (04:34):
What hang on?
Speaker 1 (04:35):
That was hours after they met. That is kind of
a message. I was really fascinating, fascinated. I was really
fascinated just about a week ago when I read your
post here on LinkedIn where you said, I think you
got right to the heart of the matter. You said,
the US and China have different value systems. We tend
(04:55):
to forget that, and as a result of those different
value systems, each country has different priorities and regulations. So
can you talk a little bit more about how you
see Chinese value systems and how they're different from what
we have in the West.
Speaker 3 (05:12):
So I'm going to use the very simplistic that any
serious China watcher will take issue with and is going
to say, seriously, did you go there? Let's start with
a very simplistic that not China, but in general, Asian
cultures tend to favor more the community versus the individual.
(05:34):
So something is good for the community in China's is
that's what we're talking about, that takes precedence over what's
good for the individual. Let me give you an example
where I first started using this issue about China having
a different value system in the United States or the West,
(05:55):
if you will, And I started with EVY tolls. If
IT tolls are the flying cars. We know those quad
copters that you see on Instagram that can carry one
or two persons. The plan, Well, China has made a
big advices on if IT tolls on quad copters. Does
(06:18):
it have better technology than the United States? Not necessarily.
What they have is a better regulatory system for these purposes.
Now let me let me. I just said a different
regulatory system, not a better regulatory system. And why do
I say different not better? Well, let's put it this way.
(06:39):
Chinese building a whole The government is supporting the building
of infrastructure for for EVY tools, for quad copters before
they are proven safe. There's again a simplistic scenario which China.
In China, you try things and then you regulate them,
whereas in the US you regulate and then you try them.
(07:01):
So they're building this whole industry low altitude economy, which
at first sights looks wonderful. Who wanna arrive at an
airport board a quad copter and be taken to your hotel?
I'm all in for that, except when they start falling
over my car, or when they start making huge noise
(07:22):
or where they are like lived blowers times a thousand
and everywhere, you know, can you imagine that? And that's
the type of thing in which in China the government
has decided that that is an industry that they want
to support because it's good for China's economic development, Whereas
in the US you would assume the FAA, the National
(07:43):
Transportation Safety Board get involved and said, well, first of all,
is it safe?
Speaker 2 (07:48):
Is it safe?
Speaker 3 (07:49):
Is it gonna put pedestrians or people on the ground
at risk from one of those quad cultures falling over you?
Are they going to a nuisance to society because they're
just too noisy? I don't know. There are other issues,
and so they relate in the US first.
Speaker 1 (08:10):
Now it sounds like the US regulators are almost gatekeepers
or limitters, whereas in China it feels like they're almost facilitators.
Speaker 3 (08:19):
Accelerators, because in China it's a government thinking community and
whatever supports a community should have presence, whereas in the
US is whatever empowers the individual, if you will or
protect or protects thank you, that's the word, yes, or
protect the individual? Now, do you want to go all
(08:39):
in on the way China is doing it. I'm not sure.
I'm not sure. Maybe we overdo it in the West.
Ezra Client wrote a book Abundance saying that the US
is overregulated, and he makes a case that that is
because there are too many lawyers in government, whereas China
has too many engineers.
Speaker 1 (09:00):
M hm.
Speaker 3 (09:00):
And I think that is a somewhat easy narrative to take,
because sure, yes, there are a lot of lawyers in
the US, and there are a lot of regulations, and
let's get rid of them. Who wants regulations? But remember
when in China, when Jack Ma first got in trouble,
it was for the same reason. He got up on
a stage and said the financial sector was overregulated, and
(09:25):
the next day they stopped and financial IPO he went into.
Wherever he went, he went. Those are the things that
people don't remember that in China, it's not just sure
engineers just doing what's practical. There are regulations as well,
and regulations are needed. It's a different value system that
(09:46):
guides them.
Speaker 2 (09:48):
Right.
Speaker 1 (09:48):
He did make a mistake, perhaps of referring to state
banks as nothing better than pawn shops, and.
Speaker 3 (09:56):
In essense he was saying telling the government get out
of the way, you are the red. But there are
many other instances. So for instance, with crisper. You know,
in China there were two crisper babies which were born
and after they were born, so again they try something
and after they do outraged and it was regulated. Hey
Janko a scientist, the doctor. The scientist was imprisoned. But
(10:18):
it was after the fact that the last article I
posted on this subject was about China using a pets
or large animals for medical testing, something that is not
done in the West. Dogs, pigs, something bigger than mice.
Now again I'm not a doctor, I'm not a researcher.
But apparently that's a difference in value systems, and it's
(10:41):
saying how in China testing on large animals is allowing
them to make headway on medical discoveries, whereas in China,
whereas in the West, our value system does not allow
us to test in the in big animals. Again, different
value system. That doesn't necess mean one is better than
the other, end that you want to copy the other.
(11:04):
It's a different value system and that values different industries to.
Speaker 2 (11:10):
Grow and move faster than others than we can.
Speaker 3 (11:14):
In some cases, because in other cases you would say
in the US, you have, for instance, individual rights, and
you have a property rights, and you have rule of
law that allows entrepreneurs to take risk and know that
their property and their whatever they invent will belong to them.
So that also allows for entrepreneurship that in China might
(11:37):
be more risky. Again, different value system.
Speaker 2 (11:41):
What does that mean then for us?
Speaker 1 (11:43):
So not exactly the same, but some people talk about
Chinese economic system as being not necessarily more efficient, but
more effective. So there's mistakes along the way because these
TV tools fall out of the sky, a dozen people
are killed, all the rest. It's not the most efficient
or air tight, but it advances the commercial aspect more
(12:05):
quickly than we have are able to do in the
States potentially.
Speaker 3 (12:10):
On those projects the government favors.
Speaker 2 (12:14):
On the projects that the government favors.
Speaker 3 (12:16):
These are industries that the government has chosen to be
champions and national champions and they support them. So again
on those yes, they have a lot of support to
invent to grow whea in the United States or in
the West, but let's talk about the United States. You
(12:37):
can go out and invent something nobody was thinking about
and all of a sudden make it big and create
a whole new industry without the government being behind you.
So yes, if it is, they have a planned economy,
So if you're part of the planned economy, you tend
to benefit greatly. In the United States, there is no
(12:59):
plant economies. If you can take the losses of I mean,
you'd wish that they could build high speed trains the
way they do in China. You cannot in the United
States because it's complicated, or have all these supply chains.
But it's a different value system.
Speaker 1 (13:13):
So in those industries, as you pointed out moments ago,
where the government has thrown its support, is it possible
for the West to compete in those industries?
Speaker 3 (13:25):
Good question. The funny thing, Michael, is that many of
these industries were invented or products or that were invented
in the West, but that China just managed to develop.
And that is the case with the lithium battery, that
is the case. We leader, that is the case, I mean,
and on and on we go with solar panels, all
(13:48):
these things that the US first invents or discovers, but
since there is no planned economy support behind it it,
whether it's or in China spots it. They see it
and they develop it. And one of them is rare earths.
(14:09):
Earths used to be a US product. Mountain Pass out
of Utah used to have a monopoly on rare earths.
And then the Chinese said, hey, you know that sounds
like an interesting technology. We have reserves, let's go buy it.
Let's go, and with a lot of government support, built
the monopoly they now have. But it's not because they
(14:29):
discovered or discovered it. It was discovered in the US the
mining and the refining. They just brought it over and
now they have made great strikes in efficient refining and
they have a lead.
Speaker 2 (14:46):
On this massively.
Speaker 1 (14:48):
Just as we KNDA reported that it was going to
need to pause assembly of one of its plants here
in North America because of a shortage of magnets. So
China enjoys enormous leverage over supply supply of these magnets,
and they could bring plants in the Western Europe and
the United States to a standstill within days.
Speaker 3 (15:08):
Let's let me see if we're on the same page.
My understanding was that Honda was passing the plant and
also won in Mexico because of the chips from Experia.
Speaker 2 (15:17):
Ah, not the magnets.
Speaker 3 (15:19):
Okay, and that's an interesting issue to to to discuss.
So Experia is a Chinese company that does legacy chips,
very simple chips for a windshield, white berds for seat adjustments.
I mean something that I mean this is this isn't Nvidia,
(15:43):
And they had a subsidiary in the Netherlands which apparently
was being mismanaged by the Chinese owners. At some point,
the US government gets involved. There's a Dutch government to
sort of take get away from their Chinese manager, and
(16:04):
China retaliates, or the Chinese government takes offense or takes issue,
not offense, takes issue with the way this is handled,
and they say, well, if you take it away from
Chinese hands, we're gonna stop exporting chips from China. And
what we have there, Michael, is a second monopoly, the
(16:29):
Chinese weaponizing They started with where earths. All the attention
went there, we're still talking about where Earth's President Trump
met with Partic secretary She they both agreed that they
would not control the export of our earths Experiod chips
and as you will say, Honda stopped this plant in
the US and another one in Mexico because they don't
(16:51):
have these very common legacy chips that at this point
only China makes. And the question we have to ask
ourselves is what other supply chain choke holds does China
have and now we know they will weaponize them, and
how much is the West willing to endure this vulnerability?
Speaker 1 (17:14):
Right, China not only has a chokehold on magnets. What
we're discovering new areas. Just recently this week, Honda had
to pause manufacturing in the United States and in Mexico
because of a shortage, sudden shortage of chips from a
company called Netperiod.
Speaker 2 (17:32):
What what's going on there?
Speaker 3 (17:34):
Okay, interesting question, Michael, and and and when you call
it a shortage, which it is, it's a Chinese government
induced shortage. So next Period, which is a Chinese own
company that does legacy chips, chips for windshield wipers, for
seat adjustment, for rear view mirror, the very basic things
(17:57):
that you need a chip for in a card, which
we learn after go it turns out, is everything in
a car. So that's what the experia does. And they
had a Dutch subsidiary that apparently was being mismanaged. The
US government got involved, requested that the Dutch government take
it away. From the Chinese owners. The Chinese government takes
issue with this, and how do they respond. They say, well,
(18:22):
if you're gonna act this way, we're gonna instruct and
experiod China, which does the bulk of the chips, to
stop exports of chips to the world. So here is
a second case of China of the Chinese government weaponizing
(18:42):
a monopoly or a chokehold in the supply chain. They
started with a threat on rare earths, and now they're
doing it with chips. And they suddenly say, we will
not permit the export of these very basic legacy chips,
the Saint n Vidia, I mean, these are very basic chips.
And you have Honda now stopping production. You have many
(19:06):
other car companies saying we will have to stop as
well because they hadn't stockpiled as much. And and we
start realizing all these chokeholds that China had that we
never took into consideration because they were not high tech,
so we assumed it wasn't much there. But now now
they're weaponizing those choke holds and they're affecting industry. And
(19:30):
the question is how much will the West tolerate these
vulnerabilities and how and if they don't tolerat it, how
soon they can take those supply chains out of China.
Not an easy process, but one Michael that I think
will define the economic story of the next ten years.
Speaker 1 (19:52):
The future of the West could depend on it.
Speaker 3 (19:57):
Yes, but the question is how do you take them out?
What do you take them? Which country is going to
take them? It's not an obvious I mean, you cannot
replace factory China and just move it abroad to Mexico,
Vietnam and Malaysia. It's much bigger than that, So how
do you do that? Certainly you cannot bring it to
the United States as much as you want to, or
(20:18):
as much as President Trump would want to. There is
a deficit currently as of today right now of one
hundred thousand workers in US factories. If the US were
to produce everything it consumed, you would need five million
additional workers at a time when the when the population
is increasing, you know, so there is no labor for this.
(20:43):
So you have to take it somewhere else, but you
have to risk it from China. Where is it going
to go to be determined. I think part of it
will be to Mexico, maybe some Vietnam, maybe some Malaysia,
but it's going to be I think the economic story
of the next decade.
Speaker 1 (20:59):
If we step back and look at those actions by China,
those chokeholds, magnets, chips, et cetera, it's hard not to
come to the conclusion that we're already engaged in a
kind of call it economic war. I mean, what what
what other countries say? You know what, We're not going
to send you the chips?
Speaker 3 (21:21):
No? So yeah, absolutely. So what started like a commercial war,
a trade war in Trump one, which was I will
allow you access to my market or not based on tariffs.
Now you know, I will increase tariffs kick you out
of my market. And that was a trade war which
(21:42):
were is it to win? Has now turned into a
supply chain war in which I have something that you
need and will decide if I give it to you
or not not. It's a different game now. It turns
out that China does have artillery in this space, so
(22:08):
it's not just where earths. It's now a legacy chips
and I guess it's going to be many other things
on which they have a chokehold, and that there will
be an urgency to the risk because China what changed
was China's willingness to weaponize. Yes, Whereas before they had
(22:32):
it but they didn't use it. Now they say okay.
And you had a President Trump over in Korea negotiating
with the Chinese with what most observers say was a
weaker hand because of these chokeholds. Now will President Trump
(22:54):
will the US accept this weaker hand? My guess is no.
So the only way you don't that is you take
the choke holds out of China's grip to other countries
as soon as possible.
Speaker 2 (23:07):
So supply chain choke holds.
Speaker 1 (23:10):
And then there's another dimension to China's weapons, and that
is they have call it over supplier overcapacity of certain
products in their economy. The most notable for our conversation today,
of course, is cars, and they've been pouring cars into
markets worldwide over the last four years, going from about
(23:31):
a million exports a year to this year on track
for seven million. Virtually every market in the world is
after the United States, in Canada. Mexico in particular, has
been a huge target for the Chinese. Recently, the Mexican
government lifted tariffs from twenty percent I believe to fifty percent,
and I noted with interest on a recent LinkedIn post.
(23:52):
You said, why fifty percent is not enough? It should
be much higher? What's going on there? Why would fifty
percent not be enough?
Speaker 3 (24:02):
So let me just too simple statistics. The average export
price of a Chinese car went from twenty one thousand
dollars in twenty twenty three to sixteen thousand dollars in March.
And I emphasized March of twenty twenty five. My guess
(24:26):
we're now almost in November. My guess is much lower now.
So that's almost a twenty five percent decrease in export price.
Now keep in mind that that remain be that you
want is packed to the dollar for our intensive purposes,
which has also depreciated next to the pestro, the Mexican pestro,
so about five percent. So you had those two things together,
(24:49):
the depreciation or the lowering of export prices and the
depreciation of the RMB, and you realize that a fifty
percent tariff does nothing, nothing, nothing, So what am I saying?
Either you take it up to two hundred or three
hundred percent? Wow or so and again, well, and I
(25:10):
think it's important that your listeners understand what we're talking
about and This was a based on a study done
by the Rodium group, which does great stuff on China,
and there was a study they did, I believe about
a year and a half ago, which was titled and
You'll get you like it, ain't no tariff high enough,
(25:33):
just like the song Ain't no Mountain Highena. And in
that study they said that a BYD seal sold in
China makes BYD a profit this is in euros of
one four hundred euros. The same BYD seal sold in
(25:54):
Europe made a profit of fourteen thousand, four hundred euros. Goodness,
what type of tariff do you need to stop that?
I mean, you put a two hundred percent tariff and
they're still making a profit. So in the case of
the United States, it's been half tariff, but mostly connected
(26:17):
vehicles as a national security issue. That's where they're not
allowed into the US market. In other countries, we're trying
to be too technical, and that's what I criticize about Mexico,
that we're trying to be too cute by half saying well,
you know, we see a distortion of thirty eight percent
of the market, so therefore we'll put a tariff. It
does nothing. The challenge we're dealing with in terms of
(26:42):
China exporting its over capacity, it's of such scale that
we need to be so much more aggressive in putting
just big, heavy, impossible tariffs on them.
Speaker 1 (26:57):
Just as I have a chokehold called chokehold for some
fly chains. They have the ability to overwhelm virtually any
market they choose to. So if they wanted to swamp
completely flood Mexico with low cost products, they can do
that and knock so many industries out out of the
game in months.
Speaker 2 (27:18):
That's what we're contending with.
Speaker 3 (27:19):
So again, let let's give me three minutes, and I'll
try to keep it to three just to give you
a brief background of why China is in this position. Basically,
we all know that China Group by becoming the factory
to the world and they produce everything, and they did
it cheaper and at larger scale. We all know that story.
The story that most of us outside of China don't
(27:41):
know is that China group by urbanizing it's a rural population.
They were urbanizing one percent of their rural population from
nineteen seventy nine onwards. One percent of the Chinese population
is thirteen million thirteen million a year people every year,
which just for all inters of purposes, about two New
(28:03):
York cities a year every year. So we know that
in New York they have three airports, they have a
subway system, they have a highway system, they have hospital, schools,
residential everything that it tells was imagine building two a year.
And so China grew and everybody went to China and
(28:23):
they talked about the Putoon skyline and about the new
airports and all these things, and oh my god, you
gotta see. It was based on urbanizing and building the
infrastructure to urbanize this population, which started shrinking to the
point that those thirteen million people they were urbanizing per year,
they started projecting that by the year twenty twenty five
(28:45):
so about this year, would go down to about six million,
and by the year twenty thirty zero zero. So all
of a sudden, they put a stop on this building
of infrastructure to urbanize these people, which was their engine
of growth. Remember, to urbanize these people, they started building
all that they needed. The steel. So China used more
(29:08):
steel domestically in its first in the first twenty years
of the twenty first century than the United States did
in one hundred years from nineteen hundred to the year
two thousand. That's the extent of what they were using.
Speaker 1 (29:22):
Eight But Jane thanks living in China. To understand the
scale of the number of people, or the oceans of factories,
or the houcal goes on forever, it's is mind blowing.
Speaker 3 (29:34):
So in the year two thousand and eighteen, seventy nine
percent of homes but in China were bought from the developer.
By the year twenty nineteen, a year later, that was
eighty nine percent of homes but were butt from the developer,
(29:57):
that is to say, new homes for this population they
were urbanizing. For context, in the United States, it's thirteen percent.
But from the all they say, as they were building
all these things, they started building stell foundaries, petrochemical plants,
glass factories, car factories.
Speaker 2 (30:19):
When you're going with this, you're going.
Speaker 3 (30:22):
And they had all this industry to support their internal growth,
which was a lot. Everybody was enjoying it. Everybody wanted
a piece of that. And what change was that in
twenty twenty two they realized that the population was shrinking.
They put an end to this real estate boom. And
(30:44):
as it fell, they said, well, we lost our growth
engine on real estate. What are we going to do.
Let's double down on manufacturing, manufacturing for who there was
no domestic market anymore for exports, and that's where they
started exporting to the rest of the world all these
(31:06):
goods at the same time, Michael, in the year twenty
twenty one, twenty two, and this is after we went
blind on what was happening in China because of COVID.
China comes out as it reopens. It also reopens as
a technological powerhouse, which it wasn't.
Speaker 2 (31:28):
It wasn't.
Speaker 3 (31:29):
And all of a sudden, you have byd you have Shaomi,
you have Chili, you have all these cars, which what
do you know, are pretty goodtty good? I mean they're good.
It's not that they're cheap, it's that they're good. Yes,
So they are doubling down on manufacturing for a market
that they no longer have. And two things happen in
(31:51):
the auto industry. One, they're doubling down on manufacturing, so
they have over capacity at the same time that they
start transitioning from the the internal control combustion engine two electric.
Speaker 2 (32:05):
Yes.
Speaker 3 (32:05):
And you have Western manufacturers, which you've written about, lost
half their market share in China from sixty percent to
thirty percent. So you have these save factories with no
market anymore.
Speaker 1 (32:18):
This massive overcapacity, massive overcast year sixty percent to thirty
percent in absolute terms went from like they are making
eight million fewer sales in China today than they were
five years ago.
Speaker 2 (32:33):
So yeah, wow.
Speaker 3 (32:34):
And that's the thing because oftentimes when we think about
Chinese over capacity, we assume that it is just Chinese products. Well, no,
this over capacity is owned by General Motors, which, as
you've documented, half of the Chinese cars ship to Mexico
are GM branded.
Speaker 2 (32:49):
Are GM branded cheves.
Speaker 3 (32:52):
Exactly, which for me is still problematic because none of
them have any autoparts made in Mexico. And the autoparts
industry in Mexico is bigger than the auto industry. The
auto the oem in industry in Mexico is it. I
didn't know that it is the auto parts So two things.
The auto parts industry is bigger in size and in
(33:15):
jobs created, and it's also owned by Mexicans. And there
is something to be said about you know, you want
your companies to thrive. So you have all these Chinese cars,
whether they are Jilli's BYDS or General motors Kias or
Ford coming into Mexico with no Mexican produced autopoints. That
(33:36):
reatens the industry. So it gets complicated very quickly in
Chinese just exporting and Mexico is being again trying to
be too technical saying we're going to put in a
forty percent time for a fifty percent case of cars,
and you are dealing with these bimod So there was
an article.
Speaker 1 (33:54):
Today on the talking to Chinese automakers since that fifty
announcement was they've shrugged, They tell me shrugged.
Speaker 3 (34:02):
So it's revenue generating for the government. Good. Who doesn't
want more revenue, but it does nothing to protect the industry.
There was an article and we are we are tapping
this on October thirty. Yeah, so there was an article
today on the Financial Times that by thiss revenue went
down thirty three percent because of profits their profits right,
(34:27):
their profits, yes, went down thirty three percent, and that
that was only going to put more pressure in their
expansion overseas again. And you want to stop them with
a fifty percent tariff in Mexico. No, I mean if UK, EU,
Latin America or any auto producing country doesn't impose very
(34:53):
steep tariffs. They're gonna be wiped out by this job.
Speaker 1 (34:57):
Our wiped out. I was just in London. We could go.
Went from nothing a few years ago. Thirteen percent of
new car sales or Chinese. They're projecting within two years
it'll be a third one third of the entire market
will be Chinese cars. So it's real. It's not like oh,
coming around the corner, maybe niche. It's it's a flood.
Speaker 3 (35:17):
It takes ober. It's a flood. And the thing about
floods is that there's not much time to react. And
we're still thinking we're dealing with the China twenty fifteen,
which yes, is problematic, and they were exporting and maybe
dumping and you can you have time to take it
to the WTO and build a dumping case. It's a
different beast now, and that the tsunami comes at you
(35:39):
at such base that if you don't react immediately, by
the time you do, it's game over and you'd be
surprised at least talk about Mexico, how little understanding the
re is of this is.
Speaker 1 (35:52):
A little understanding, So talk a little bit about people
making those decisions inside Mexico. I think you already answered it,
but just to confirm, they landed at fifty percent, which
is kind of a nothing burger.
Speaker 2 (36:05):
It's not opening and it's not closing.
Speaker 1 (36:07):
Why didn't they just go Canada US or at one
hundred plus will go there too?
Speaker 2 (36:12):
What held them back from that?
Speaker 3 (36:14):
So it technically so two things. Keep in mind that
Mexico doesn't have the human resources in government that a
US or a Western or a developatry has. We don't
have expertise in government to understand this. And again, most
(36:35):
of our government officials are thinking about China from twenty
sixteen and seventeen, which is a different past. And also
keep in mind that most of the human resources we
do have in government are completely swamped trying to deal
with the US the US, and so they're fully focused
on the US while you have these lurching thread behind
(36:57):
you called China, and they have no time trying to
bang down the door and say, hey, forget about the
US for a little, a little while focused on China.
China will be what will be industrialized. But they're I
mean Mexico. Eighty percent of Mexico's experts of Mexico's economies
fully ty to the United States, the biggest risk right
now is being a run out of the US market.
(37:18):
So they're not understanding what China is representing for Mexico.
Having said that, when they do think and have time
to think about China, they say, well, we have to
keep it within WTO parameters. Michael, that again was something
for last decade, years ago, ten years ago WTO parameters.
(37:40):
So I mean, as I've asked them, what percentage of
Mexico's trade is conductor under WTO rules. My guess is
less than three percent because we have a lot of
futuit agreements.
Speaker 2 (37:52):
Wow.
Speaker 3 (37:52):
So what I'm saying, sorry, it's not a thing on
should be saying this, But to hell with the WTO.
Just ramp up the times. Nada did it right exactly
the you is doing it with steal and that's where
you have to do it. But it's it's it's again,
It's not that they don't want to. My guess is
(38:13):
they just haven't had that time to prioritize or to
run from a tsunami.
Speaker 1 (38:17):
That is it's honor. Okay, now let's let's pivot now
to a third uh note from that, I picked up
something you wrote recently very interesting and related to this.
So let's back up. China's pivoted from domestic you know,
had these these millions of people come in the cities.
(38:39):
That let's run its course. Now it's backing manufacturing for export.
And when I talk to Chinese people, they make no
apologies for it.
Speaker 2 (38:49):
Yeah. So, so what.
Speaker 1 (38:51):
We're exporting to the world, we're providing cheap products. At
the same time, you note that the People's Republic of
China is decoupling more aggressively from the US then the
US is from China. That's a really insightful comment because
if you ask most people in the world, all the
United States is the one throwing up trade barriers and decoupling,
(39:11):
but it's actually China that's more aggressive.
Speaker 2 (39:17):
Yeah, tell us more about that.
Speaker 3 (39:19):
The way China is focusing laser focusing on eliminating every
single choke point the US or the West has on
it is mind numbing. Whether it be on financial transactions,
on payments, we're seeing it on micro chips. They are
laser focused, and oftentimes we think that it's the US
(39:44):
or the West that is running this show, whether it
be President Trump or President buy it. And mind you,
this is not a Trump thing. This is a US
thing coming in with a what was it a high fences,
short yards or whatever you call it, and.
Speaker 2 (39:57):
You know, yes, yes, small yard, high fences.
Speaker 3 (40:01):
High fence. And then suddenly you realize that China had
all these choke points. And just in the case of
where earths, there's about a ten year lag most experts
room in which the US can assume parody with China.
There are many other cases in which China has decisively
(40:22):
integrated the world's choke points and made it dependent on China,
while at the same time eliminating and decoupling from the
world as much as possible. And we still think that
they still have a twenty year lag. Well, do guess
what out of those twenty years then have already lapsed
and they've made advances, and now you have ten more years.
(40:45):
Now either the US d couples as aggressively as China has,
or you will find out then you're just suddenly dependent
on them China. Yeah, and they can stop in the street.
And I think, and I find it unfortunate that on
the one hand, there is an understanding for the need
(41:07):
to the couple, but on the other hand you want
to confuse it and bring it all into the United States.
It's not feasible, Michael. And it'd be wonderful if the
US could bring it all into but it's not feasible.
I mean, it's not realistic. While you are debating these things,
you are losing time. You're wasting time, and China keeps
(41:29):
making inroads and the US keeps wasting time in the coupling.
At this point, it should be any country willing to
be a friend and the couple should get easy access
to the US market and not having to deal with
this head x in which nobody wants to make an
investment because they don't know whether that investment or whatever
(41:50):
they produce will have access to the US market.
Speaker 2 (41:52):
Will have access.
Speaker 3 (41:54):
Yeah, it's slowing things down at a time of urgency.
Speaker 1 (41:58):
Do you feel as though, how do you feel about
Mexico's prospects, say, in the next five to ten years.
Is that a huge opportunity for Mexico And if so,
will Mexico capitalize on it?
Speaker 3 (42:08):
Okay? So I think it's a humongous opportunity for Mexico,
and I think no country is better position to capture
this near shoring French shoring. On the other hand, the
Mexican government is not making things easy for investors. They
keep changing the rules. They make it hard for investors.
So the Mexican government has not proven to be the
allied to business that the Chinese government was to those
(42:31):
that established themselves in China, or China was bringing in
all these supply chains. Is being Apple. So the Mexican government,
instead of being an ally, is you know, putting up hurdles,
changing laws, making investors uncomfortable. Nevertheless, I still think Mexico
is very well positioned to bring all these near shoring
(42:56):
French shoring. We have the infrastructure, we have the know how.
The qualified war is Yeah, I think I think a
big part will come to Mexico at times.
Speaker 1 (43:06):
We can imagine if the language changes a little bit.
Instead of saying fifty first state about Canada, just say
North American and Commonwealth. You have enormous population, you have
minerals from Canada, you have capital and technology from the
United States. You have labor and infrastructure from Mexico. That
could be a formidable economic grouping.
Speaker 3 (43:27):
Are you what they've labeled fortress North America? Yes, okay,
we could be quite a fortress. We could be quite
a fortress. Unfortunately, we're norworthy near not near there.
Speaker 2 (43:39):
Okay, good reality check for us exactly, I think.
Speaker 3 (43:44):
It would be wonderful and and what so, let's imagine
a Fortress North American. Something I tell people often when
Mexico first joined the NAFTA back in the I grew
up in in Afta Mexico, and we would come to
the United States to buy all these things that we
(44:05):
couldn't find in Mexico. You know, Sony TV's, georgia'sh jeans, sweethearts, chocolate, milk,
all these things Mexico. And when Mexico for US joining
after was as oiriginal, because all of a sudden, we'd
be having access to all these products that we couldn't
find in Mexico because we're a protected market and we
(44:26):
were protecting national industry as well. Fast forward to twenty
twenty five, and let's assume we do have a Fortress
North America. Now it's in verse now because we become
part of Fortress North America, we lose access to things
we have now byd cars, DJI, drones, and so so
(44:49):
we have to come to terms that the new trade blocks,
or at least the new trade blocks the United States forms,
are not necessarily the leaders in technology that they used
to be.
Speaker 2 (45:03):
The trade off there.
Speaker 3 (45:05):
There is a trade off that I'm not sure US
customers realized. It used to be, Michael, that the US
customer had access to the best products in the world
at the lowest car with two exceptions. With two exceptions
Cuban cigars, Uranian caviar, only two products in the world
(45:29):
that were superior to what you could find in the
United States. Other than that, the US customer had access
to everything. The US national wouldn't travel abroad to see
things they didn't have at home. You could have it
all at home. That is changing. That is changing now
now you realize that you don't have shelmy cars here,
(45:51):
you don't have wave phones, which might be superior, you
don't have bite cars, You're not gonna have Dji drones.
So it's a different ballgame. It requires a different mindset,
but it does require forming coalitions, and that's what I
hope we build towards well.
Speaker 1 (46:10):
The description you've given us of how China operates one
on the choke hold side too, on the export side,
it's a formidable competitor the likes of which the West
has not seen before. Not one hundred years back of
my mind, I'm wondering, like, what's China want, what's the
ten years out? What does the world look like if
(46:32):
China has its way.
Speaker 3 (46:35):
My first thought would be not to be bullied. My
second thought is to become dominant. Okay.
Speaker 1 (46:43):
So that's fascinating. So Number one, China doesn't want to
be bullied. That they have that hundred years of humiliation
narrative right very strong in their educational system. They would
want to eliminate that there's nobody bullying us.
Speaker 3 (46:57):
And by the way, that meeting with President or Secretary
General she and President Trump in Korea, that was China
not being bullied.
Speaker 2 (47:07):
So there they've come. They've they've already taken care of that.
Speaker 3 (47:10):
The next step is what they assume the rightful place
in the world is to be a dominant society.
Speaker 1 (47:19):
The number one they're they said in the pace, they're
the new sheriff in town.
Speaker 3 (47:25):
I believe that's what they aspired to. They have a
right to aspire to. There's no reason why they shouldn't
aspired to that. I mean, it's not written anywhere in
history that this belongs to the United States. I think
they and I think they're making a big strikes, and
they keep using or she in pink keeps using the
is this rising? The West is falling? And the big
(47:46):
question for us is to add to answer if that's
true or not. And that's on us, not on them.
Mm hmm. Is they is rising? Maybe? Is the West?
It doesn't have to, it.
Speaker 2 (48:01):
Doesn't have to.
Speaker 1 (48:02):
And sheairman mouse said similar things in the sixties. We
know now that that wasn't accurate. Today's a different story,
different story. China has massive capabilities, that's no question about it.
But the underlying systems, which one is superior, Which one
will prevail over the long term. If political systems are different,
(48:22):
social moras values, as you pointed out early on different,
so which one will be when out religious find a
way to sort of get along.
Speaker 2 (48:34):
As best they can.
Speaker 3 (48:36):
Get along. Is a difficult proposition with two countries aiming
for supremacy.
Speaker 2 (48:43):
Two tigers, one mountain, right.
Speaker 3 (48:45):
It usually doesn't work out. The question is how not
to fall behind, and you still have a lead, how
to maintain that lead? All right?
Speaker 1 (48:57):
Final question for you is specific to this point. We're
here in North America, here in d C. I'm in
San Diego. Life is beautiful, garden, sunshine, everything smooth, we
got Baseball World Series, exciting, very comfortable. So on a
scale of one to ten, where would you rate the
(49:20):
average Americans understanding of the threats that are before us
in terms of losing? If you call it world dominance,
We're no longer number one.
Speaker 2 (49:32):
Do people get that? Or are they like still sort
of catching on.
Speaker 3 (49:38):
So I was reading just yesterday a new poll that
was conducted by the Chicago Council of International Affairs, and
I believe it was released there yesterday or the day
before yesterday. So, and it's on US sentiments on China,
on China competition in China trade, and I was surprised
by the number of American respondents who who thought China
(50:01):
was already ahead, who were okay with China being ahead,
who thought the US should not have tree disputes with China.
I am more hackish on that end. I think you
need to be more aggressive defending local jobs, a local industry,
local technology, domestic jobs, the industry technology. But I assume
(50:25):
that the reason they feel comfortable is because they are
ignorant of the challenge ahead.
Speaker 2 (50:33):
Ignorance is bliss.
Speaker 3 (50:35):
It is it is until it's not. I wish I
could just be watching the baseball and not worrying about this,
but I'm not there.
Speaker 1 (50:44):
Fantastic Orgay, thank you so much for always a fascinating conversation,
so insightful. You really get, like I'm reminded I was
coming into the call today. Steve Jobs, in his biographies
would often say somebody gets it or something he doesn't get.
Speaker 2 (51:01):
They just get it, or they don't get it.
Speaker 1 (51:03):
You get China, and you get the relationship between China
and the West, like less than one ten to one
percent of the people I know.
Speaker 2 (51:09):
I really appreciate your time and your insights.
Speaker 3 (51:12):
I'm glad you think so, Michael, and thank you for
inviting me to have these conversations, which you know I
greatly appreciate. Thank you tremendous.
Speaker 1 (51:19):
Last thing, I know a lot of people who want
to communicate with you directly.
Speaker 2 (51:23):
What's the easiest way to get hol of you?
Speaker 3 (51:25):
Thank you? So you mentioned I'm posting a lot of
linked on LinkedIn, so that's mostly my method of communication,
and also by email. I use my first name Jorge
jrge Underscore Guaharo g u a j R. D O
at hotmail dot com and at the moment I say
(51:45):
hotmail USUMO. Come on, that's a so it's not my
it's not my main email, but I check it every
single day and not a single thing comes in there
that gets lost.
Speaker 2 (51:56):
Okay, that's the antique category email. You've got many.
Speaker 3 (51:59):
Emails exactly, but I I it's not a junk email.
I check it every single day, several times a day.
Not a single thing gets in there that gets lost.
Speaker 1 (52:09):
Fantastic, fantastic, Thank you again. Okay, thank you, Michael, that
was tremendous.
Speaker 3 (52:17):
Can ask you a quick question on another subject before
we move move Matt Margolis from the China Commission on
He reached out. I know you were scheduled to testify.
You decided not to. He sort of asked me if
I want to? I demurred. Was there a particular reason
(52:40):
why you decided not to?
Speaker 2 (52:42):
Yes? There was so.
Speaker 1 (52:45):
At first I was flattered, right, and yes, this is tremendous.
Thank you for It's an important topic and I think
I can contribute something.
Speaker 2 (52:54):
And then.
Speaker 1 (52:56):
They I saw online they had announce of it and
it's just said something very provocative and I thought unhelpful.
Speaker 2 (53:05):
Something that got it got it?
Speaker 1 (53:06):
Okay, Okay, the trojan horse, how China is going to wreck.
So even if I believe that, would.
Speaker 3 (53:12):
You don't want to come out. Yeah, So I go, look,
it takes everything, it takes everything.
Speaker 1 (53:18):
Let's be smarter. I'm totally ready to be helpful. Wyt
me have a private meeting about yeah, yeah, yeah, that.
Speaker 3 (53:27):
Is very helpful because he asked me to. And as
you will say, at first that was flattered, and then
I said, I'm not sure because then you become somebody
who's pegged on the side as radical as a and
you don't want to because you lose objectivity and you
lose the ability to actually bring insight into a conversation.
Speaker 1 (53:46):
That's right, just a title alone already shaped what the
thing's outcome is going to be, Whereas I would hope
that you say, what's your candid assessment of what's going on?
How far behind are we really and what steps we
have to take instead of going, oh they're terribly okay,
we I understand.
Speaker 3 (54:04):
Yeah, yeah, yeah, yeah, but I'm not gonna be part
of this. And again, even if I'm not going to
be the poster boy for this narrative.
Speaker 1 (54:12):
Yes, yes, and so that that's why, and I kind
of maybe try to be diplomatic and said, oh, my
schedule between now is but maybe in the future, but
I'd rather have a private meeting with them.
Speaker 3 (54:23):
That's gonna be the exact same thing you did, the
exact same thing you did to say, because for the
same reasons, I was like, I don't. Yes, I have
strong opinions, and it's not hard to understand where I'm
coming from. But not they're not based on ideology or
they're not based on being hysteric. It's and that's what
(54:43):
they make you sound like.
Speaker 2 (54:45):
That's right, that's right.
Speaker 3 (54:48):
We're good to know. If you any plans to come
to Washington anytime soon, we have let me think, let
me think.
Speaker 1 (54:54):
Uh, I wait, yes, first week in December, I'm scheduled
to go. There's an Automotive Alliance event. I have to
look at the dates again.
Speaker 3 (55:05):
I leave on the second and come back on the thirteen,
so if it's the first, but unfortunately I live.
Speaker 2 (55:11):
On the second. Okay, I'll check the dates.
Speaker 1 (55:13):
I'm not exactly I just remember, not exactly sure, I'll
let you know.
Speaker 2 (55:18):
And also I wanted to update you.
Speaker 1 (55:20):
I've been in touch with your friend, our friend now
Luis about doing an event in Mexico City.
Speaker 2 (55:26):
I don't know if he told you about that.
Speaker 3 (55:27):
No, and are you are you going forward? I remember you.
I saw that you were planning on my Yakoba and
then you said I'm putting a hold and let's go growing.
Speaker 1 (55:36):
So Mayakova, that's a whole because it was more than
we thought to do all the planning, so we just
buying time until next year. And then separately, I've been
talking to him about hosting event for I happen to
have a contact at Wells Fargo Bank Investment in New
York City. Okay, I haven't client investors, and I know
(55:57):
the guy. His name is Colin Lang, and I said, Colin,
why don't you take a group of your investors to
Mexico City, go to a track and drive these Chinese cars.
It'll be so enlightening for them. And he goes, oh,
that's a good idea. So I then connected him in
Louise and Louis's got a track and we're settling on
dates in early twenty six to bring I don't know
(56:19):
a dozen investors down to have a day at the track, and.
Speaker 3 (56:23):
Just that sounds like a great idea if you want
to meet with the owners of the dealer shapes all that.
I'll arrange that if it's of interest. But it sounds
like if I got to be part of that count me.
Speaker 2 (56:33):
Oh definitely.
Speaker 3 (56:34):
It was.
Speaker 1 (56:35):
As soon as the day is settled, or even before
we can. We'll just loop you in because it'll be
a great it'll be a great event. I did this
recently with another group in London, got six cars in
the track and they were so happy.
Speaker 2 (56:48):
You know, they had never driven a byd or exactly.
Speaker 3 (56:51):
That's the thing. Nobody here sees it, so they don't
know you're competing against something you can't see.
Speaker 2 (56:55):
You can't see it's complicated.
Speaker 1 (57:00):
Before before you go, I know you've got other more
important things to do. One final question for you. It's
a it's a little bit of a delicate one, but
I want to ask anyway I traveled to China.
Speaker 2 (57:12):
I have not been back to China since twenty end
of twenty nineteen.
Speaker 3 (57:16):
And juju is a question.
Speaker 1 (57:19):
Yeah, I feeling uneasy about it. I don't just feel like.
Speaker 3 (57:26):
My thought, do you would you need to apply for
a visa?
Speaker 2 (57:32):
Yes, I would, and then.
Speaker 3 (57:34):
They wouldn't give it to you if they don't want
you there. Okay, They're not going to put an exit
man on you. If they gave you a visa to
go in they won't. No, no, they won't. They will
just give you a visa.
Speaker 2 (57:45):
They won't.
Speaker 1 (57:45):
Okay, so, but they wouldn't do something later like you're
in the country now, we're not gonna let you out.
Why why do you feel that way? And by the way,
I don't have anything. No, no, no, I'm just paranoid
like so, I.
Speaker 3 (57:59):
Am of the same feeling, and I haven't been back.
The last time I was scheduled to go, which was
for the Bloomberg New Ecadomy Forum, they let the organizers
know that they'd rather I not be there. So the
organizers say, not so gently disinvited me, have you and
(58:22):
I was fine with that.
Speaker 2 (58:23):
Now have you applied for a visa.
Speaker 3 (58:25):
As a Mexican? I have to, but I have a
Spanish passport, which technically you can go in up to
two weeks without a visa. Now will I go with it?
I'm not. Now. I have friends who were never did
business with them, but they were close painters who are
now in jail. I'll give you an example. The head
(58:45):
of ICBC, who I took to Mexico to jail. Now.
It makes me uncomfortable that they would want to, you
know that. So so I some connection historically, who knows exactly,
but I will tell you I don't think they do anything.
(59:06):
If they give you a visa, they wouldn't do anything
to you, especially because you are a US citizen, and
you don't mean they wouldn't wanna.
Speaker 1 (59:13):
And I'm busy. I'm a business guy. I think everyone's
got their own view of things. I know I'm out
there pretty direct about China, but I'm not slamming China.
I'm just saying these are realities.
Speaker 3 (59:27):
So you're not You're not messing with China's core interests.
You're not talking Tibet, Taiwan, a communist party, industrial policy,
trade cars.
Speaker 2 (59:38):
Yeah.
Speaker 3 (59:40):
If you were out there helping the Tibetan cause, say Michael,
I wouldn't. But you're not there.
Speaker 1 (59:49):
Okay, good, So great advice. I'll apply for a visa
just for kicks.
Speaker 3 (59:54):
And exactly, and if they give it to you, you're good.
Speaker 2 (59:58):
Okay, You're good. Good, Okay, thank you, thank you. I'll
be Michael.
Speaker 3 (01:00:04):
I heard phone number Inceber.
Speaker 2 (01:00:06):
Yeah, I hope to see you in December.
Speaker 1 (01:00:07):
I'll send you the dates and then also I'll send
the dates about I think it's mid February for Mexico City. Yeah,
I did for that, all right, Thank you so much.
Take care, Michael, take care. Hey, hey, hey, mister Guaharto
(01:00:30):
always delivers, right, you bet well for me. Two key
takeaways from our conversation. One, what does China want In
the words of mister Guaharto, it's simple. First, no more bullying. Well,
looks like they've accomplished that. And second, domination, woh, domination?
(01:00:52):
What does that look like? And what does it mean
for the rest of the world. That's takeaway number one.
Second takeaway is that China has an ambition, in the
words of Shijing Ping, to make the rest of the
world more dependent on China and China less dependent on.
Speaker 2 (01:01:10):
The rest of the world.
Speaker 1 (01:01:12):
That means, from his perspective, that it's perfectly okay for
China to continue to amass huge capacity at home, price wars, exports,
flooding markets worldwide, and dominating industries from cars to solar panels,
to batteries to critical minerals to magnets to shipbuilding. That
(01:01:34):
steal and the list goes on. Where does this end
how does it play out? And what answers does the
West have for this new, massive, powerful machine called China's
manufacturing exports. That's the question of the day, the month,
and the year, one that everyone here should be thinking
(01:01:57):
about carefully. Hey, that's a wrap on this episode of
the that's a wrap on this episode of the Driving
With Done podcast. Thank you so much for joining. If
you enjoyed it. Hey, that's a wrap on this episode
of the Driving With Done podcast. If you enjoyed it,
(01:02:19):
take a moment to post it on your socials, share
it with your friends, Send me a DM with your
own thoughts and comments. I am Michael Dunn, and this
is the Driving With Done Podcast.
Hello, and welcome to the Driving with Dunn podcast. I'm
your host, Michael Dunn. So Donald Trump seating ping last
week meet in Korea to do what exactly calm the
waters a little bit? Maybe that's it. They came away
calling it a trade truce. But what exactly does a
trade truce mean?
Speaker 2 (00:23):
Do we know? To borrow the words of Winston Churchill,
are we at the end? Are we at the beginning
of the end?
Speaker 1 (00:30):
Or maybe just maybe we're at the end of the beginning? Yes,
what comes next to find out? Joining me today is
my good friend mister Orge Guahardo, former ambassador to China
from Mexico and one of the few people on the
planet who gets China and gets the West. He's always
(00:53):
got fresh, original insights, and I know that you're going
to enjoy this conversation. Let's listen to mister Corgiate Guahardo
right here, right now on the Driving with Don podcast.
(01:15):
Mister Guahardo, so nice to have you back on the
Driving with Done podcast.
Speaker 3 (01:21):
Michael, what a pleasure to be back. I had a
great time last time we talked. I obviously follow everything
you boast and write closely, and it's nice to be
talking to you today.
Speaker 1 (01:31):
Today, in particular because just hours ago over in Korea,
President Trump and Chi Jinping President She apparently, if I
read the FT headline here, it says US and China
agree a one year trade truce. After the Trump she talks, Hmmm,
(01:52):
what do we make of that?
Speaker 3 (01:54):
Well, a trade truth which part of trade sold? A
truths on new tariffs at truths, a new chokeholds at truths.
I don't know. I don't know what to make of it.
But just again, I don't know what to make of it.
(02:18):
We're gonna have to see. But I was sort of surprised.
But something I read after they met, and that is
the Justice Department, together with the Pentagon, making a recommendation
in the United States that households changed their Tippi Link
routers because they're made in China and they are not trustworthy.
(02:41):
This is after the meeting.
Speaker 1 (02:43):
The American households, three hundred and fifty million people change
around them.
Speaker 3 (02:47):
All of them change a router, which, never mind you,
most tip link router, I mean most routers are TIPI
link apparently, and I am not an expert on the subject,
but a tipi link had either sold or made it
a US company which is making these routers. Nevertheless, there's
a link to China. The Justice Department today or late
(03:11):
last night said they are not to be trusted because
they're linked to China. So every household should change their router. Okay,
that's why we're not an issue, not for the purposes
of this podcast. But again, does that represent the truth?
I don't know. Will the Chinese assume well, that was
(03:34):
on the side that doesn't include what we agreed. I
don't know. These truths are needed, are helpful, are welcome,
but they are not addressing the issue at heart, which
began this whole trade war, if you will, which was
China's huge trade surplus with the US. In fact, it
(03:55):
increased by twenty two percent in the first seven months
of this year.
Speaker 2 (03:59):
Who would have cast that? Nobody?
Speaker 3 (04:01):
Why exactly? So you put a truth once, they've already
had a first and ten.
Speaker 1 (04:09):
Complicated So you're getting to you've got this veneer. At
least the headline is truth sounds good, But underneath that
veneer things are still boiling.
Speaker 3 (04:22):
So.
Speaker 1 (04:23):
Oh, by the way, American households, get rid of your links.
They may be compromise. Oh by the way, yes, the
United States is ready to prepare to resume nuclear testing.
Speaker 3 (04:34):
What hang on?
Speaker 1 (04:35):
That was hours after they met. That is kind of
a message. I was really fascinating, fascinated. I was really
fascinated just about a week ago when I read your
post here on LinkedIn where you said, I think you
got right to the heart of the matter. You said,
the US and China have different value systems. We tend
(04:55):
to forget that, and as a result of those different
value systems, each country has different priorities and regulations. So
can you talk a little bit more about how you
see Chinese value systems and how they're different from what
we have in the West.
Speaker 3 (05:12):
So I'm going to use the very simplistic that any
serious China watcher will take issue with and is going
to say, seriously, did you go there? Let's start with
a very simplistic that not China, but in general, Asian
cultures tend to favor more the community versus the individual.
(05:34):
So something is good for the community in China's is
that's what we're talking about, that takes precedence over what's
good for the individual. Let me give you an example
where I first started using this issue about China having
a different value system in the United States or the West,
(05:55):
if you will, And I started with EVY tolls. If
IT tolls are the flying cars. We know those quad
copters that you see on Instagram that can carry one
or two persons. The plan, Well, China has made a
big advices on if IT tolls on quad copters. Does
(06:18):
it have better technology than the United States? Not necessarily.
What they have is a better regulatory system for these purposes.
Now let me let me. I just said a different
regulatory system, not a better regulatory system. And why do
I say different not better? Well, let's put it this way.
(06:39):
Chinese building a whole The government is supporting the building
of infrastructure for for EVY tools, for quad copters before
they are proven safe. There's again a simplistic scenario which China.
In China, you try things and then you regulate them,
whereas in the US you regulate and then you try them.
(07:01):
So they're building this whole industry low altitude economy, which
at first sights looks wonderful. Who wanna arrive at an
airport board a quad copter and be taken to your hotel?
I'm all in for that, except when they start falling
over my car, or when they start making huge noise
(07:22):
or where they are like lived blowers times a thousand
and everywhere, you know, can you imagine that? And that's
the type of thing in which in China the government
has decided that that is an industry that they want
to support because it's good for China's economic development, Whereas
in the US you would assume the FAA, the National
(07:43):
Transportation Safety Board get involved and said, well, first of all,
is it safe?
Speaker 2 (07:48):
Is it safe?
Speaker 3 (07:49):
Is it gonna put pedestrians or people on the ground
at risk from one of those quad cultures falling over you?
Are they going to a nuisance to society because they're
just too noisy? I don't know. There are other issues,
and so they relate in the US first.
Speaker 1 (08:10):
Now it sounds like the US regulators are almost gatekeepers
or limitters, whereas in China it feels like they're almost facilitators.
Speaker 3 (08:19):
Accelerators, because in China it's a government thinking community and
whatever supports a community should have presence, whereas in the
US is whatever empowers the individual, if you will or
protect or protects thank you, that's the word, yes, or
protect the individual? Now, do you want to go all
(08:39):
in on the way China is doing it. I'm not sure.
I'm not sure. Maybe we overdo it in the West.
Ezra Client wrote a book Abundance saying that the US
is overregulated, and he makes a case that that is
because there are too many lawyers in government, whereas China
has too many engineers.
Speaker 1 (09:00):
M hm.
Speaker 3 (09:00):
And I think that is a somewhat easy narrative to take,
because sure, yes, there are a lot of lawyers in
the US, and there are a lot of regulations, and
let's get rid of them. Who wants regulations? But remember
when in China, when Jack Ma first got in trouble,
it was for the same reason. He got up on
a stage and said the financial sector was overregulated, and
(09:25):
the next day they stopped and financial IPO he went into.
Wherever he went, he went. Those are the things that
people don't remember that in China, it's not just sure
engineers just doing what's practical. There are regulations as well,
and regulations are needed. It's a different value system that
(09:46):
guides them.
Speaker 2 (09:48):
Right.
Speaker 1 (09:48):
He did make a mistake, perhaps of referring to state
banks as nothing better than pawn shops, and.
Speaker 3 (09:56):
In essense he was saying telling the government get out
of the way, you are the red. But there are
many other instances. So for instance, with crisper. You know,
in China there were two crisper babies which were born
and after they were born, so again they try something
and after they do outraged and it was regulated. Hey
Janko a scientist, the doctor. The scientist was imprisoned. But
(10:18):
it was after the fact that the last article I
posted on this subject was about China using a pets
or large animals for medical testing, something that is not
done in the West. Dogs, pigs, something bigger than mice.
Now again I'm not a doctor, I'm not a researcher.
But apparently that's a difference in value systems, and it's
(10:41):
saying how in China testing on large animals is allowing
them to make headway on medical discoveries, whereas in China,
whereas in the West, our value system does not allow
us to test in the in big animals. Again, different
value system. That doesn't necess mean one is better than
the other, end that you want to copy the other.
(11:04):
It's a different value system and that values different industries to.
Speaker 2 (11:10):
Grow and move faster than others than we can.
Speaker 3 (11:14):
In some cases, because in other cases you would say
in the US, you have, for instance, individual rights, and
you have a property rights, and you have rule of
law that allows entrepreneurs to take risk and know that
their property and their whatever they invent will belong to them.
So that also allows for entrepreneurship that in China might
(11:37):
be more risky. Again, different value system.
Speaker 2 (11:41):
What does that mean then for us?
Speaker 1 (11:43):
So not exactly the same, but some people talk about
Chinese economic system as being not necessarily more efficient, but
more effective. So there's mistakes along the way because these
TV tools fall out of the sky, a dozen people
are killed, all the rest. It's not the most efficient
or air tight, but it advances the commercial aspect more
(12:05):
quickly than we have are able to do in the
States potentially.
Speaker 3 (12:10):
On those projects the government favors.
Speaker 2 (12:14):
On the projects that the government favors.
Speaker 3 (12:16):
These are industries that the government has chosen to be
champions and national champions and they support them. So again
on those yes, they have a lot of support to
invent to grow whea in the United States or in
the West, but let's talk about the United States. You
(12:37):
can go out and invent something nobody was thinking about
and all of a sudden make it big and create
a whole new industry without the government being behind you.
So yes, if it is, they have a planned economy,
So if you're part of the planned economy, you tend
to benefit greatly. In the United States, there is no
(12:59):
plant economies. If you can take the losses of I mean,
you'd wish that they could build high speed trains the
way they do in China. You cannot in the United
States because it's complicated, or have all these supply chains.
But it's a different value system.
Speaker 1 (13:13):
So in those industries, as you pointed out moments ago,
where the government has thrown its support, is it possible
for the West to compete in those industries?
Speaker 3 (13:25):
Good question. The funny thing, Michael, is that many of
these industries were invented or products or that were invented
in the West, but that China just managed to develop.
And that is the case with the lithium battery, that
is the case. We leader, that is the case, I mean,
and on and on we go with solar panels, all
(13:48):
these things that the US first invents or discovers, but
since there is no planned economy support behind it it,
whether it's or in China spots it. They see it
and they develop it. And one of them is rare earths.
(14:09):
Earths used to be a US product. Mountain Pass out
of Utah used to have a monopoly on rare earths.
And then the Chinese said, hey, you know that sounds
like an interesting technology. We have reserves, let's go buy it.
Let's go, and with a lot of government support, built
the monopoly they now have. But it's not because they
(14:29):
discovered or discovered it. It was discovered in the US the
mining and the refining. They just brought it over and
now they have made great strikes in efficient refining and
they have a lead.
Speaker 2 (14:46):
On this massively.
Speaker 1 (14:48):
Just as we KNDA reported that it was going to
need to pause assembly of one of its plants here
in North America because of a shortage of magnets. So
China enjoys enormous leverage over supply supply of these magnets,
and they could bring plants in the Western Europe and
the United States to a standstill within days.
Speaker 3 (15:08):
Let's let me see if we're on the same page.
My understanding was that Honda was passing the plant and
also won in Mexico because of the chips from Experia.
Speaker 2 (15:17):
Ah, not the magnets.
Speaker 3 (15:19):
Okay, and that's an interesting issue to to to discuss.
So Experia is a Chinese company that does legacy chips,
very simple chips for a windshield, white berds for seat adjustments.
I mean something that I mean this is this isn't Nvidia,
(15:43):
And they had a subsidiary in the Netherlands which apparently
was being mismanaged by the Chinese owners. At some point,
the US government gets involved. There's a Dutch government to
sort of take get away from their Chinese manager, and
(16:04):
China retaliates, or the Chinese government takes offense or takes issue,
not offense, takes issue with the way this is handled,
and they say, well, if you take it away from
Chinese hands, we're gonna stop exporting chips from China. And
what we have there, Michael, is a second monopoly, the
(16:29):
Chinese weaponizing They started with where earths. All the attention
went there, we're still talking about where Earth's President Trump
met with Partic secretary She they both agreed that they
would not control the export of our earths Experiod chips
and as you will say, Honda stopped this plant in
the US and another one in Mexico because they don't
(16:51):
have these very common legacy chips that at this point
only China makes. And the question we have to ask
ourselves is what other supply chain choke holds does China
have and now we know they will weaponize them, and
how much is the West willing to endure this vulnerability?
Speaker 1 (17:14):
Right, China not only has a chokehold on magnets. What
we're discovering new areas. Just recently this week, Honda had
to pause manufacturing in the United States and in Mexico
because of a shortage, sudden shortage of chips from a
company called Netperiod.
Speaker 2 (17:32):
What what's going on there?
Speaker 3 (17:34):
Okay, interesting question, Michael, and and and when you call
it a shortage, which it is, it's a Chinese government
induced shortage. So next Period, which is a Chinese own
company that does legacy chips, chips for windshield wipers, for
seat adjustment, for rear view mirror, the very basic things
(17:57):
that you need a chip for in a card, which
we learn after go it turns out, is everything in
a car. So that's what the experia does. And they
had a Dutch subsidiary that apparently was being mismanaged. The
US government got involved, requested that the Dutch government take
it away. From the Chinese owners. The Chinese government takes
issue with this, and how do they respond. They say, well,
(18:22):
if you're gonna act this way, we're gonna instruct and
experiod China, which does the bulk of the chips, to
stop exports of chips to the world. So here is
a second case of China of the Chinese government weaponizing
(18:42):
a monopoly or a chokehold in the supply chain. They
started with a threat on rare earths, and now they're
doing it with chips. And they suddenly say, we will
not permit the export of these very basic legacy chips,
the Saint n Vidia, I mean, these are very basic chips.
And you have Honda now stopping production. You have many
(19:06):
other car companies saying we will have to stop as
well because they hadn't stockpiled as much. And and we
start realizing all these chokeholds that China had that we
never took into consideration because they were not high tech,
so we assumed it wasn't much there. But now now
they're weaponizing those choke holds and they're affecting industry. And
(19:30):
the question is how much will the West tolerate these
vulnerabilities and how and if they don't tolerat it, how
soon they can take those supply chains out of China.
Not an easy process, but one Michael that I think
will define the economic story of the next ten years.
Speaker 1 (19:52):
The future of the West could depend on it.
Speaker 3 (19:57):
Yes, but the question is how do you take them out?
What do you take them? Which country is going to
take them? It's not an obvious I mean, you cannot
replace factory China and just move it abroad to Mexico,
Vietnam and Malaysia. It's much bigger than that, So how
do you do that? Certainly you cannot bring it to
the United States as much as you want to, or
(20:18):
as much as President Trump would want to. There is
a deficit currently as of today right now of one
hundred thousand workers in US factories. If the US were
to produce everything it consumed, you would need five million
additional workers at a time when the when the population
is increasing, you know, so there is no labor for this.
(20:43):
So you have to take it somewhere else, but you
have to risk it from China. Where is it going
to go to be determined. I think part of it
will be to Mexico, maybe some Vietnam, maybe some Malaysia,
but it's going to be I think the economic story
of the next decade.
Speaker 1 (20:59):
If we step back and look at those actions by China,
those chokeholds, magnets, chips, et cetera, it's hard not to
come to the conclusion that we're already engaged in a
kind of call it economic war. I mean, what what
what other countries say? You know what, We're not going
to send you the chips?
Speaker 3 (21:21):
No? So yeah, absolutely. So what started like a commercial war,
a trade war in Trump one, which was I will
allow you access to my market or not based on tariffs.
Now you know, I will increase tariffs kick you out
of my market. And that was a trade war which
(21:42):
were is it to win? Has now turned into a
supply chain war in which I have something that you
need and will decide if I give it to you
or not not. It's a different game now. It turns
out that China does have artillery in this space, so
(22:08):
it's not just where earths. It's now a legacy chips
and I guess it's going to be many other things
on which they have a chokehold, and that there will
be an urgency to the risk because China what changed
was China's willingness to weaponize. Yes, Whereas before they had
(22:32):
it but they didn't use it. Now they say okay.
And you had a President Trump over in Korea negotiating
with the Chinese with what most observers say was a
weaker hand because of these chokeholds. Now will President Trump
(22:54):
will the US accept this weaker hand? My guess is no.
So the only way you don't that is you take
the choke holds out of China's grip to other countries
as soon as possible.
Speaker 2 (23:07):
So supply chain choke holds.
Speaker 1 (23:10):
And then there's another dimension to China's weapons, and that
is they have call it over supplier overcapacity of certain
products in their economy. The most notable for our conversation today,
of course, is cars, and they've been pouring cars into
markets worldwide over the last four years, going from about
(23:31):
a million exports a year to this year on track
for seven million. Virtually every market in the world is
after the United States, in Canada. Mexico in particular, has
been a huge target for the Chinese. Recently, the Mexican
government lifted tariffs from twenty percent I believe to fifty percent,
and I noted with interest on a recent LinkedIn post.
(23:52):
You said, why fifty percent is not enough? It should
be much higher? What's going on there? Why would fifty
percent not be enough?
Speaker 3 (24:02):
So let me just too simple statistics. The average export
price of a Chinese car went from twenty one thousand
dollars in twenty twenty three to sixteen thousand dollars in March.
And I emphasized March of twenty twenty five. My guess
(24:26):
we're now almost in November. My guess is much lower now.
So that's almost a twenty five percent decrease in export price.
Now keep in mind that that remain be that you
want is packed to the dollar for our intensive purposes,
which has also depreciated next to the pestro, the Mexican pestro,
so about five percent. So you had those two things together,
(24:49):
the depreciation or the lowering of export prices and the
depreciation of the RMB, and you realize that a fifty
percent tariff does nothing, nothing, nothing, So what am I saying?
Either you take it up to two hundred or three
hundred percent? Wow or so and again, well, and I
(25:10):
think it's important that your listeners understand what we're talking
about and This was a based on a study done
by the Rodium group, which does great stuff on China,
and there was a study they did, I believe about
a year and a half ago, which was titled and
You'll get you like it, ain't no tariff high enough,
(25:33):
just like the song Ain't no Mountain Highena. And in
that study they said that a BYD seal sold in
China makes BYD a profit this is in euros of
one four hundred euros. The same BYD seal sold in
(25:54):
Europe made a profit of fourteen thousand, four hundred euros. Goodness,
what type of tariff do you need to stop that?
I mean, you put a two hundred percent tariff and
they're still making a profit. So in the case of
the United States, it's been half tariff, but mostly connected
(26:17):
vehicles as a national security issue. That's where they're not
allowed into the US market. In other countries, we're trying
to be too technical, and that's what I criticize about Mexico,
that we're trying to be too cute by half saying well,
you know, we see a distortion of thirty eight percent
of the market, so therefore we'll put a tariff. It
does nothing. The challenge we're dealing with in terms of
(26:42):
China exporting its over capacity, it's of such scale that
we need to be so much more aggressive in putting
just big, heavy, impossible tariffs on them.
Speaker 1 (26:57):
Just as I have a chokehold called chokehold for some
fly chains. They have the ability to overwhelm virtually any
market they choose to. So if they wanted to swamp
completely flood Mexico with low cost products, they can do
that and knock so many industries out out of the
game in months.
Speaker 2 (27:18):
That's what we're contending with.
Speaker 3 (27:19):
So again, let let's give me three minutes, and I'll
try to keep it to three just to give you
a brief background of why China is in this position. Basically,
we all know that China Group by becoming the factory
to the world and they produce everything, and they did
it cheaper and at larger scale. We all know that story.
The story that most of us outside of China don't
(27:41):
know is that China group by urbanizing it's a rural population.
They were urbanizing one percent of their rural population from
nineteen seventy nine onwards. One percent of the Chinese population
is thirteen million thirteen million a year people every year,
which just for all inters of purposes, about two New
(28:03):
York cities a year every year. So we know that
in New York they have three airports, they have a
subway system, they have a highway system, they have hospital, schools,
residential everything that it tells was imagine building two a year.
And so China grew and everybody went to China and
(28:23):
they talked about the Putoon skyline and about the new
airports and all these things, and oh my god, you
gotta see. It was based on urbanizing and building the
infrastructure to urbanize this population, which started shrinking to the
point that those thirteen million people they were urbanizing per year,
they started projecting that by the year twenty twenty five
(28:45):
so about this year, would go down to about six million,
and by the year twenty thirty zero zero. So all
of a sudden, they put a stop on this building
of infrastructure to urbanize these people, which was their engine
of growth. Remember, to urbanize these people, they started building
all that they needed. The steel. So China used more
(29:08):
steel domestically in its first in the first twenty years
of the twenty first century than the United States did
in one hundred years from nineteen hundred to the year
two thousand. That's the extent of what they were using.
Speaker 1 (29:22):
Eight But Jane thanks living in China. To understand the
scale of the number of people, or the oceans of factories,
or the houcal goes on forever, it's is mind blowing.
Speaker 3 (29:34):
So in the year two thousand and eighteen, seventy nine
percent of homes but in China were bought from the developer.
By the year twenty nineteen, a year later, that was
eighty nine percent of homes but were butt from the developer,
(29:57):
that is to say, new homes for this population they
were urbanizing. For context, in the United States, it's thirteen percent.
But from the all they say, as they were building
all these things, they started building stell foundaries, petrochemical plants,
glass factories, car factories.
Speaker 2 (30:19):
When you're going with this, you're going.
Speaker 3 (30:22):
And they had all this industry to support their internal growth,
which was a lot. Everybody was enjoying it. Everybody wanted
a piece of that. And what change was that in
twenty twenty two they realized that the population was shrinking.
They put an end to this real estate boom. And
(30:44):
as it fell, they said, well, we lost our growth
engine on real estate. What are we going to do.
Let's double down on manufacturing, manufacturing for who there was
no domestic market anymore for exports, and that's where they
started exporting to the rest of the world all these
(31:06):
goods at the same time, Michael, in the year twenty
twenty one, twenty two, and this is after we went
blind on what was happening in China because of COVID.
China comes out as it reopens. It also reopens as
a technological powerhouse, which it wasn't.
Speaker 2 (31:28):
It wasn't.
Speaker 3 (31:29):
And all of a sudden, you have byd you have Shaomi,
you have Chili, you have all these cars, which what
do you know, are pretty goodtty good? I mean they're good.
It's not that they're cheap, it's that they're good. Yes,
So they are doubling down on manufacturing for a market
that they no longer have. And two things happen in
(31:51):
the auto industry. One, they're doubling down on manufacturing, so
they have over capacity at the same time that they
start transitioning from the the internal control combustion engine two electric.
Speaker 2 (32:05):
Yes.
Speaker 3 (32:05):
And you have Western manufacturers, which you've written about, lost
half their market share in China from sixty percent to
thirty percent. So you have these save factories with no
market anymore.
Speaker 1 (32:18):
This massive overcapacity, massive overcast year sixty percent to thirty
percent in absolute terms went from like they are making
eight million fewer sales in China today than they were
five years ago.
Speaker 2 (32:33):
So yeah, wow.
Speaker 3 (32:34):
And that's the thing because oftentimes when we think about
Chinese over capacity, we assume that it is just Chinese products. Well, no,
this over capacity is owned by General Motors, which, as
you've documented, half of the Chinese cars ship to Mexico
are GM branded.
Speaker 2 (32:49):
Are GM branded cheves.
Speaker 3 (32:52):
Exactly, which for me is still problematic because none of
them have any autoparts made in Mexico. And the autoparts
industry in Mexico is bigger than the auto industry. The
auto the oem in industry in Mexico is it. I
didn't know that it is the auto parts So two things.
The auto parts industry is bigger in size and in
(33:15):
jobs created, and it's also owned by Mexicans. And there
is something to be said about you know, you want
your companies to thrive. So you have all these Chinese cars,
whether they are Jilli's BYDS or General motors Kias or
Ford coming into Mexico with no Mexican produced autopoints. That
(33:36):
reatens the industry. So it gets complicated very quickly in
Chinese just exporting and Mexico is being again trying to
be too technical saying we're going to put in a
forty percent time for a fifty percent case of cars,
and you are dealing with these bimod So there was
an article.
Speaker 1 (33:54):
Today on the talking to Chinese automakers since that fifty
announcement was they've shrugged, They tell me shrugged.
Speaker 3 (34:02):
So it's revenue generating for the government. Good. Who doesn't
want more revenue, but it does nothing to protect the industry.
There was an article and we are we are tapping
this on October thirty. Yeah, so there was an article
today on the Financial Times that by thiss revenue went
down thirty three percent because of profits their profits right,
(34:27):
their profits, yes, went down thirty three percent, and that
that was only going to put more pressure in their
expansion overseas again. And you want to stop them with
a fifty percent tariff in Mexico. No, I mean if UK, EU,
Latin America or any auto producing country doesn't impose very
(34:53):
steep tariffs. They're gonna be wiped out by this job.
Speaker 1 (34:57):
Our wiped out. I was just in London. We could go.
Went from nothing a few years ago. Thirteen percent of
new car sales or Chinese. They're projecting within two years
it'll be a third one third of the entire market
will be Chinese cars. So it's real. It's not like oh,
coming around the corner, maybe niche. It's it's a flood.
Speaker 3 (35:17):
It takes ober. It's a flood. And the thing about
floods is that there's not much time to react. And
we're still thinking we're dealing with the China twenty fifteen,
which yes, is problematic, and they were exporting and maybe
dumping and you can you have time to take it
to the WTO and build a dumping case. It's a
different beast now, and that the tsunami comes at you
(35:39):
at such base that if you don't react immediately, by
the time you do, it's game over and you'd be
surprised at least talk about Mexico, how little understanding the
re is of this is.
Speaker 1 (35:52):
A little understanding, So talk a little bit about people
making those decisions inside Mexico. I think you already answered it,
but just to confirm, they landed at fifty percent, which
is kind of a nothing burger.
Speaker 2 (36:05):
It's not opening and it's not closing.
Speaker 1 (36:07):
Why didn't they just go Canada US or at one
hundred plus will go there too?
Speaker 2 (36:12):
What held them back from that?
Speaker 3 (36:14):
So it technically so two things. Keep in mind that
Mexico doesn't have the human resources in government that a
US or a Western or a developatry has. We don't
have expertise in government to understand this. And again, most
(36:35):
of our government officials are thinking about China from twenty
sixteen and seventeen, which is a different past. And also
keep in mind that most of the human resources we
do have in government are completely swamped trying to deal
with the US the US, and so they're fully focused
on the US while you have these lurching thread behind
(36:57):
you called China, and they have no time trying to
bang down the door and say, hey, forget about the
US for a little, a little while focused on China.
China will be what will be industrialized. But they're I
mean Mexico. Eighty percent of Mexico's experts of Mexico's economies
fully ty to the United States, the biggest risk right
now is being a run out of the US market.
(37:18):
So they're not understanding what China is representing for Mexico.
Having said that, when they do think and have time
to think about China, they say, well, we have to
keep it within WTO parameters. Michael, that again was something
for last decade, years ago, ten years ago WTO parameters.
(37:40):
So I mean, as I've asked them, what percentage of
Mexico's trade is conductor under WTO rules. My guess is
less than three percent because we have a lot of
futuit agreements.
Speaker 2 (37:52):
Wow.
Speaker 3 (37:52):
So what I'm saying, sorry, it's not a thing on
should be saying this, But to hell with the WTO.
Just ramp up the times. Nada did it right exactly
the you is doing it with steal and that's where
you have to do it. But it's it's it's again,
It's not that they don't want to. My guess is
(38:13):
they just haven't had that time to prioritize or to
run from a tsunami.
Speaker 1 (38:17):
That is it's honor. Okay, now let's let's pivot now
to a third uh note from that, I picked up
something you wrote recently very interesting and related to this.
So let's back up. China's pivoted from domestic you know,
had these these millions of people come in the cities.
(38:39):
That let's run its course. Now it's backing manufacturing for export.
And when I talk to Chinese people, they make no
apologies for it.
Speaker 2 (38:49):
Yeah. So, so what.
Speaker 1 (38:51):
We're exporting to the world, we're providing cheap products. At
the same time, you note that the People's Republic of
China is decoupling more aggressively from the US then the
US is from China. That's a really insightful comment because
if you ask most people in the world, all the
United States is the one throwing up trade barriers and decoupling,
(39:11):
but it's actually China that's more aggressive.
Speaker 2 (39:17):
Yeah, tell us more about that.
Speaker 3 (39:19):
The way China is focusing laser focusing on eliminating every
single choke point the US or the West has on
it is mind numbing. Whether it be on financial transactions,
on payments, we're seeing it on micro chips. They are
laser focused, and oftentimes we think that it's the US
(39:44):
or the West that is running this show, whether it
be President Trump or President buy it. And mind you,
this is not a Trump thing. This is a US
thing coming in with a what was it a high fences,
short yards or whatever you call it, and.
Speaker 2 (39:57):
You know, yes, yes, small yard, high fences.
Speaker 3 (40:01):
High fence. And then suddenly you realize that China had
all these choke points. And just in the case of
where earths, there's about a ten year lag most experts
room in which the US can assume parody with China.
There are many other cases in which China has decisively
(40:22):
integrated the world's choke points and made it dependent on China,
while at the same time eliminating and decoupling from the
world as much as possible. And we still think that
they still have a twenty year lag. Well, do guess
what out of those twenty years then have already lapsed
and they've made advances, and now you have ten more years.
(40:45):
Now either the US d couples as aggressively as China has,
or you will find out then you're just suddenly dependent
on them China. Yeah, and they can stop in the street.
And I think, and I find it unfortunate that on
the one hand, there is an understanding for the need
(41:07):
to the couple, but on the other hand you want
to confuse it and bring it all into the United States.
It's not feasible, Michael. And it'd be wonderful if the
US could bring it all into but it's not feasible.
I mean, it's not realistic. While you are debating these things,
you are losing time. You're wasting time, and China keeps
(41:29):
making inroads and the US keeps wasting time in the coupling.
At this point, it should be any country willing to
be a friend and the couple should get easy access
to the US market and not having to deal with
this head x in which nobody wants to make an
investment because they don't know whether that investment or whatever
(41:50):
they produce will have access to the US market.
Speaker 2 (41:52):
Will have access.
Speaker 3 (41:54):
Yeah, it's slowing things down at a time of urgency.
Speaker 1 (41:58):
Do you feel as though, how do you feel about
Mexico's prospects, say, in the next five to ten years.
Is that a huge opportunity for Mexico And if so,
will Mexico capitalize on it?
Speaker 3 (42:08):
Okay? So I think it's a humongous opportunity for Mexico,
and I think no country is better position to capture
this near shoring French shoring. On the other hand, the
Mexican government is not making things easy for investors. They
keep changing the rules. They make it hard for investors.
So the Mexican government has not proven to be the
allied to business that the Chinese government was to those
(42:31):
that established themselves in China, or China was bringing in
all these supply chains. Is being Apple. So the Mexican government,
instead of being an ally, is you know, putting up hurdles,
changing laws, making investors uncomfortable. Nevertheless, I still think Mexico
is very well positioned to bring all these near shoring
(42:56):
French shoring. We have the infrastructure, we have the know how.
The qualified war is Yeah, I think I think a
big part will come to Mexico at times.
Speaker 1 (43:06):
We can imagine if the language changes a little bit.
Instead of saying fifty first state about Canada, just say
North American and Commonwealth. You have enormous population, you have
minerals from Canada, you have capital and technology from the
United States. You have labor and infrastructure from Mexico. That
could be a formidable economic grouping.
Speaker 3 (43:27):
Are you what they've labeled fortress North America? Yes, okay,
we could be quite a fortress. We could be quite
a fortress. Unfortunately, we're norworthy near not near there.
Speaker 2 (43:39):
Okay, good reality check for us exactly, I think.
Speaker 3 (43:44):
It would be wonderful and and what so, let's imagine
a Fortress North American. Something I tell people often when
Mexico first joined the NAFTA back in the I grew
up in in Afta Mexico, and we would come to
the United States to buy all these things that we
(44:05):
couldn't find in Mexico. You know, Sony TV's, georgia'sh jeans, sweethearts, chocolate, milk,
all these things Mexico. And when Mexico for US joining
after was as oiriginal, because all of a sudden, we'd
be having access to all these products that we couldn't
find in Mexico because we're a protected market and we
(44:26):
were protecting national industry as well. Fast forward to twenty
twenty five, and let's assume we do have a Fortress
North America. Now it's in verse now because we become
part of Fortress North America, we lose access to things
we have now byd cars, DJI, drones, and so so
(44:49):
we have to come to terms that the new trade blocks,
or at least the new trade blocks the United States forms,
are not necessarily the leaders in technology that they used
to be.
Speaker 2 (45:03):
The trade off there.
Speaker 3 (45:05):
There is a trade off that I'm not sure US
customers realized. It used to be, Michael, that the US
customer had access to the best products in the world
at the lowest car with two exceptions. With two exceptions
Cuban cigars, Uranian caviar, only two products in the world
(45:29):
that were superior to what you could find in the
United States. Other than that, the US customer had access
to everything. The US national wouldn't travel abroad to see
things they didn't have at home. You could have it
all at home. That is changing. That is changing now
now you realize that you don't have shelmy cars here,
(45:51):
you don't have wave phones, which might be superior, you
don't have bite cars, You're not gonna have Dji drones.
So it's a different ballgame. It requires a different mindset,
but it does require forming coalitions, and that's what I
hope we build towards well.
Speaker 1 (46:10):
The description you've given us of how China operates one
on the choke hold side too, on the export side,
it's a formidable competitor the likes of which the West
has not seen before. Not one hundred years back of
my mind, I'm wondering, like, what's China want, what's the
ten years out? What does the world look like if
(46:32):
China has its way.
Speaker 3 (46:35):
My first thought would be not to be bullied. My
second thought is to become dominant. Okay.
Speaker 1 (46:43):
So that's fascinating. So Number one, China doesn't want to
be bullied. That they have that hundred years of humiliation
narrative right very strong in their educational system. They would
want to eliminate that there's nobody bullying us.
Speaker 3 (46:57):
And by the way, that meeting with President or Secretary
General she and President Trump in Korea, that was China
not being bullied.
Speaker 2 (47:07):
So there they've come. They've they've already taken care of that.
Speaker 3 (47:10):
The next step is what they assume the rightful place
in the world is to be a dominant society.
Speaker 1 (47:19):
The number one they're they said in the pace, they're
the new sheriff in town.
Speaker 3 (47:25):
I believe that's what they aspired to. They have a
right to aspire to. There's no reason why they shouldn't
aspired to that. I mean, it's not written anywhere in
history that this belongs to the United States. I think
they and I think they're making a big strikes, and
they keep using or she in pink keeps using the
is this rising? The West is falling? And the big
(47:46):
question for us is to add to answer if that's
true or not. And that's on us, not on them.
Mm hmm. Is they is rising? Maybe? Is the West?
It doesn't have to, it.
Speaker 2 (48:01):
Doesn't have to.
Speaker 1 (48:02):
And sheairman mouse said similar things in the sixties. We
know now that that wasn't accurate. Today's a different story,
different story. China has massive capabilities, that's no question about it.
But the underlying systems, which one is superior, Which one
will prevail over the long term. If political systems are different,
(48:22):
social moras values, as you pointed out early on different,
so which one will be when out religious find a
way to sort of get along.
Speaker 2 (48:34):
As best they can.
Speaker 3 (48:36):
Get along. Is a difficult proposition with two countries aiming
for supremacy.
Speaker 2 (48:43):
Two tigers, one mountain, right.
Speaker 3 (48:45):
It usually doesn't work out. The question is how not
to fall behind, and you still have a lead, how
to maintain that lead? All right?
Speaker 1 (48:57):
Final question for you is specific to this point. We're
here in North America, here in d C. I'm in
San Diego. Life is beautiful, garden, sunshine, everything smooth, we
got Baseball World Series, exciting, very comfortable. So on a
scale of one to ten, where would you rate the
(49:20):
average Americans understanding of the threats that are before us
in terms of losing? If you call it world dominance,
We're no longer number one.
Speaker 2 (49:32):
Do people get that? Or are they like still sort
of catching on.
Speaker 3 (49:38):
So I was reading just yesterday a new poll that
was conducted by the Chicago Council of International Affairs, and
I believe it was released there yesterday or the day
before yesterday. So, and it's on US sentiments on China,
on China competition in China trade, and I was surprised
by the number of American respondents who who thought China
(50:01):
was already ahead, who were okay with China being ahead,
who thought the US should not have tree disputes with China.
I am more hackish on that end. I think you
need to be more aggressive defending local jobs, a local industry,
local technology, domestic jobs, the industry technology. But I assume
(50:25):
that the reason they feel comfortable is because they are
ignorant of the challenge ahead.
Speaker 2 (50:33):
Ignorance is bliss.
Speaker 3 (50:35):
It is it is until it's not. I wish I
could just be watching the baseball and not worrying about this,
but I'm not there.
Speaker 1 (50:44):
Fantastic Orgay, thank you so much for always a fascinating conversation,
so insightful. You really get, like I'm reminded I was
coming into the call today. Steve Jobs, in his biographies
would often say somebody gets it or something he doesn't get.
Speaker 2 (51:01):
They just get it, or they don't get it.
Speaker 1 (51:03):
You get China, and you get the relationship between China
and the West, like less than one ten to one
percent of the people I know.
Speaker 2 (51:09):
I really appreciate your time and your insights.
Speaker 3 (51:12):
I'm glad you think so, Michael, and thank you for
inviting me to have these conversations, which you know I
greatly appreciate. Thank you tremendous.
Speaker 1 (51:19):
Last thing, I know a lot of people who want
to communicate with you directly.
Speaker 2 (51:23):
What's the easiest way to get hol of you?
Speaker 3 (51:25):
Thank you? So you mentioned I'm posting a lot of
linked on LinkedIn, so that's mostly my method of communication,
and also by email. I use my first name Jorge
jrge Underscore Guaharo g u a j R. D O
at hotmail dot com and at the moment I say
(51:45):
hotmail USUMO. Come on, that's a so it's not my
it's not my main email, but I check it every
single day and not a single thing comes in there
that gets lost.
Speaker 2 (51:56):
Okay, that's the antique category email. You've got many.
Speaker 3 (51:59):
Emails exactly, but I I it's not a junk email.
I check it every single day, several times a day.
Not a single thing gets in there that gets lost.
Speaker 1 (52:09):
Fantastic, fantastic, Thank you again. Okay, thank you, Michael, that
was tremendous.
Speaker 3 (52:17):
Can ask you a quick question on another subject before
we move move Matt Margolis from the China Commission on
He reached out. I know you were scheduled to testify.
You decided not to. He sort of asked me if
I want to? I demurred. Was there a particular reason
(52:40):
why you decided not to?
Speaker 2 (52:42):
Yes? There was so.
Speaker 1 (52:45):
At first I was flattered, right, and yes, this is tremendous.
Thank you for It's an important topic and I think
I can contribute something.
Speaker 2 (52:54):
And then.
Speaker 1 (52:56):
They I saw online they had announce of it and
it's just said something very provocative and I thought unhelpful.
Speaker 2 (53:05):
Something that got it got it?
Speaker 1 (53:06):
Okay, Okay, the trojan horse, how China is going to wreck.
So even if I believe that, would.
Speaker 3 (53:12):
You don't want to come out. Yeah, So I go, look,
it takes everything, it takes everything.
Speaker 1 (53:18):
Let's be smarter. I'm totally ready to be helpful. Wyt
me have a private meeting about yeah, yeah, yeah, that.
Speaker 3 (53:27):
Is very helpful because he asked me to. And as
you will say, at first that was flattered, and then
I said, I'm not sure because then you become somebody
who's pegged on the side as radical as a and
you don't want to because you lose objectivity and you
lose the ability to actually bring insight into a conversation.
Speaker 1 (53:46):
That's right, just a title alone already shaped what the
thing's outcome is going to be, Whereas I would hope
that you say, what's your candid assessment of what's going on?
How far behind are we really and what steps we
have to take instead of going, oh they're terribly okay,
we I understand.
Speaker 3 (54:04):
Yeah, yeah, yeah, yeah, but I'm not gonna be part
of this. And again, even if I'm not going to
be the poster boy for this narrative.
Speaker 1 (54:12):
Yes, yes, and so that that's why, and I kind
of maybe try to be diplomatic and said, oh, my
schedule between now is but maybe in the future, but
I'd rather have a private meeting with them.
Speaker 3 (54:23):
That's gonna be the exact same thing you did, the
exact same thing you did to say, because for the
same reasons, I was like, I don't. Yes, I have
strong opinions, and it's not hard to understand where I'm
coming from. But not they're not based on ideology or
they're not based on being hysteric. It's and that's what
(54:43):
they make you sound like.
Speaker 2 (54:45):
That's right, that's right.
Speaker 3 (54:48):
We're good to know. If you any plans to come
to Washington anytime soon, we have let me think, let
me think.
Speaker 1 (54:54):
Uh, I wait, yes, first week in December, I'm scheduled
to go. There's an Automotive Alliance event. I have to
look at the dates again.
Speaker 3 (55:05):
I leave on the second and come back on the thirteen,
so if it's the first, but unfortunately I live.
Speaker 2 (55:11):
On the second. Okay, I'll check the dates.
Speaker 1 (55:13):
I'm not exactly I just remember, not exactly sure, I'll
let you know.
Speaker 2 (55:18):
And also I wanted to update you.
Speaker 1 (55:20):
I've been in touch with your friend, our friend now
Luis about doing an event in Mexico City.
Speaker 2 (55:26):
I don't know if he told you about that.
Speaker 3 (55:27):
No, and are you are you going forward? I remember you.
I saw that you were planning on my Yakoba and
then you said I'm putting a hold and let's go growing.
Speaker 1 (55:36):
So Mayakova, that's a whole because it was more than
we thought to do all the planning, so we just
buying time until next year. And then separately, I've been
talking to him about hosting event for I happen to
have a contact at Wells Fargo Bank Investment in New
York City. Okay, I haven't client investors, and I know
(55:57):
the guy. His name is Colin Lang, and I said, Colin,
why don't you take a group of your investors to
Mexico City, go to a track and drive these Chinese cars.
It'll be so enlightening for them. And he goes, oh,
that's a good idea. So I then connected him in
Louise and Louis's got a track and we're settling on
dates in early twenty six to bring I don't know
(56:19):
a dozen investors down to have a day at the track, and.
Speaker 3 (56:23):
Just that sounds like a great idea if you want
to meet with the owners of the dealer shapes all that.
I'll arrange that if it's of interest. But it sounds
like if I got to be part of that count me.
Speaker 2 (56:33):
Oh definitely.
Speaker 3 (56:34):
It was.
Speaker 1 (56:35):
As soon as the day is settled, or even before
we can. We'll just loop you in because it'll be
a great it'll be a great event. I did this
recently with another group in London, got six cars in
the track and they were so happy.
Speaker 2 (56:48):
You know, they had never driven a byd or exactly.
Speaker 3 (56:51):
That's the thing. Nobody here sees it, so they don't
know you're competing against something you can't see.
Speaker 2 (56:55):
You can't see it's complicated.
Speaker 1 (57:00):
Before before you go, I know you've got other more
important things to do. One final question for you. It's
a it's a little bit of a delicate one, but
I want to ask anyway I traveled to China.
Speaker 2 (57:12):
I have not been back to China since twenty end
of twenty nineteen.
Speaker 3 (57:16):
And juju is a question.
Speaker 1 (57:19):
Yeah, I feeling uneasy about it. I don't just feel like.
Speaker 3 (57:26):
My thought, do you would you need to apply for
a visa?
Speaker 2 (57:32):
Yes, I would, and then.
Speaker 3 (57:34):
They wouldn't give it to you if they don't want
you there. Okay, They're not going to put an exit
man on you. If they gave you a visa to
go in they won't. No, no, they won't. They will
just give you a visa.
Speaker 2 (57:45):
They won't.
Speaker 1 (57:45):
Okay, so, but they wouldn't do something later like you're
in the country now, we're not gonna let you out.
Why why do you feel that way? And by the way,
I don't have anything. No, no, no, I'm just paranoid
like so, I.
Speaker 3 (57:59):
Am of the same feeling, and I haven't been back.
The last time I was scheduled to go, which was
for the Bloomberg New Ecadomy Forum, they let the organizers
know that they'd rather I not be there. So the
organizers say, not so gently disinvited me, have you and
(58:22):
I was fine with that.
Speaker 2 (58:23):
Now have you applied for a visa.
Speaker 3 (58:25):
As a Mexican? I have to, but I have a
Spanish passport, which technically you can go in up to
two weeks without a visa. Now will I go with it?
I'm not. Now. I have friends who were never did
business with them, but they were close painters who are
now in jail. I'll give you an example. The head
(58:45):
of ICBC, who I took to Mexico to jail. Now.
It makes me uncomfortable that they would want to, you
know that. So so I some connection historically, who knows exactly,
but I will tell you I don't think they do anything.
(59:06):
If they give you a visa, they wouldn't do anything
to you, especially because you are a US citizen, and
you don't mean they wouldn't wanna.
Speaker 1 (59:13):
And I'm busy. I'm a business guy. I think everyone's
got their own view of things. I know I'm out
there pretty direct about China, but I'm not slamming China.
I'm just saying these are realities.
Speaker 3 (59:27):
So you're not You're not messing with China's core interests.
You're not talking Tibet, Taiwan, a communist party, industrial policy,
trade cars.
Speaker 2 (59:38):
Yeah.
Speaker 3 (59:40):
If you were out there helping the Tibetan cause, say Michael,
I wouldn't. But you're not there.
Speaker 1 (59:49):
Okay, good, So great advice. I'll apply for a visa
just for kicks.
Speaker 3 (59:54):
And exactly, and if they give it to you, you're good.
Speaker 2 (59:58):
Okay, You're good. Good, Okay, thank you, thank you. I'll
be Michael.
Speaker 3 (01:00:04):
I heard phone number Inceber.
Speaker 2 (01:00:06):
Yeah, I hope to see you in December.
Speaker 1 (01:00:07):
I'll send you the dates and then also I'll send
the dates about I think it's mid February for Mexico City. Yeah,
I did for that, all right, Thank you so much.
Take care, Michael, take care. Hey, hey, hey, mister Guaharto
(01:00:30):
always delivers, right, you bet well for me. Two key
takeaways from our conversation. One, what does China want In
the words of mister Guaharto, it's simple. First, no more bullying. Well,
looks like they've accomplished that. And second, domination, woh, domination?
(01:00:52):
What does that look like? And what does it mean
for the rest of the world. That's takeaway number one.
Second takeaway is that China has an ambition, in the
words of Shijing Ping, to make the rest of the
world more dependent on China and China less dependent on.
Speaker 2 (01:01:10):
The rest of the world.
Speaker 1 (01:01:12):
That means, from his perspective, that it's perfectly okay for
China to continue to amass huge capacity at home, price wars, exports,
flooding markets worldwide, and dominating industries from cars to solar panels,
to batteries to critical minerals to magnets to shipbuilding. That
(01:01:34):
steal and the list goes on. Where does this end
how does it play out? And what answers does the
West have for this new, massive, powerful machine called China's
manufacturing exports. That's the question of the day, the month,
and the year, one that everyone here should be thinking
(01:01:57):
about carefully. Hey, that's a wrap on this episode of
the that's a wrap on this episode of the Driving
With Done podcast. Thank you so much for joining. If
you enjoyed it. Hey, that's a wrap on this episode
of the Driving With Done podcast. If you enjoyed it,
(01:02:19):
take a moment to post it on your socials, share
it with your friends, Send me a DM with your
own thoughts and comments. I am Michael Dunn, and this
is the Driving With Done Podcast.
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On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Ruthie's Table 4
For more than 30 years The River Cafe in London, has been the home-from-home of artists, architects, designers, actors, collectors, writers, activists, and politicians. Michael Caine, Glenn Close, JJ Abrams, Steve McQueen, Victoria and David Beckham, and Lily Allen, are just some of the people who love to call The River Cafe home. On River Cafe Table 4, Rogers sits down with her customers—who have become friends—to talk about food memories. Table 4 explores how food impacts every aspect of our lives. “Foods is politics, food is cultural, food is how you express love, food is about your heritage, it defines who you and who you want to be,” says Rogers. Each week, Rogers invites her guest to reminisce about family suppers and first dates, what they cook, how they eat when performing, the restaurants they choose, and what food they seek when they need comfort. And to punctuate each episode of Table 4, guests such as Ralph Fiennes, Emily Blunt, and Alfonso Cuarón, read their favourite recipe from one of the best-selling River Cafe cookbooks. Table 4 itself, is situated near The River Cafe’s open kitchen, close to the bright pink wood-fired oven and next to the glossy yellow pass, where Ruthie oversees the restaurant. You are invited to take a seat at this intimate table and join the conversation. For more information, recipes, and ingredients, go to https://shoptherivercafe.co.uk/ Web: https://rivercafe.co.uk/ Instagram: www.instagram.com/therivercafelondon/ Facebook: https://en-gb.facebook.com/therivercafelondon/ For more podcasts from iHeartRadio, visit the iheartradio app, apple podcasts, or wherever you listen to your favorite shows. Learn more about your ad-choices at https://www.iheartpodcastnetwork.com
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.