Alice Han
Appearances
Pivot
Trump’s Putin Call, Inflation Rises, and Sam Altman Strikes Back at Elon Musk
Not well at all. I mean, the fact that Tesla is still there surprises me somewhat, given its price point. And the fact that all these companies, including Tesla, have had to cut prices over the last few years because of the extremely competitive price war landscape. I think it's only a matter of time before that share starts to diminish even further. It's going to be an open-ended question.
Pivot
Trump’s Putin Call, Inflation Rises, and Sam Altman Strikes Back at Elon Musk
And now this is going to be based on the politics of it all, whether or not Elon Musk gets these autonomous vehicle licenses. Explain what she was saying there. And by the way, her accent is fantastic.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I'm in London, but the weather is getting warmer, which is nice. I'm going to head to Ibiza and a couple of warm places for conferences, which is good.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Well, it's a great question, Scott. And I was actually in China a month ago at a track two dialogue between Australia and China. So I had the chance to meet with government officials and talk to people on the ground. Barring obviously what has happened in the last 24 hours, I would say that when I was there in the midst of the huge tariff hikes, 50 and then 100 percent on top of the 30 percent.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
percent or more after Liberation Day. What the vibe was on the ground was that China will defend its position at all costs. There was a revival of Cold War II Korean War rhetoric about being able to defend against U.S. hegemony. But more importantly than that, there was a confidence that they had the fiscal monetary capacity to offset some of the shock.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Now, with tariffs risking at the height of 145%, this was going to be a very daunting task.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
But I was struck by the fact that, A, the policymakers had spent the last eight years not only aggressively rerouting trade through third-party countries, but finding ways to cushion the blow, as they saw in Trade War I. And secondly, there was this feeling on the ground that there was going to be more policy support, especially for the private sector, for the tech sector.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I saw tech executives being more positive and ebullient.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
about the future pathways more so than in any time since 2018 so that was the feeling on the ground obviously i would say in the last 24 hours we're seeing remarkable improvement and sentiment i would say because we now have a complete diminishing of the risk that was being held for chinese companies and as well as the chinese macro situation which was these exorbitant tariffs
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
So I would say I was struck by how confident China felt. And comparatively speaking, when I'm in the U.S., I would speak to my American counterparts. The reaction is very dismal on the ground. So it's been a tale of two very different stories.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I completely agree with you, Scott, even though I always like to be contrarian, especially in conversations with intelligent people like you and Ed. I would say that China has become James Dean in that film, Rebel Without a Cause. It won the game of chicken because it had escalation dominance and it had more political appetite to increase the tariffs. And Trump clearly didn't.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
He had to listen to the Bill Ackmans, the billionaires of the world, who were reminding Trump not only was this going to hurt his base, but shelves would be completely empty. And I think that he caught on to that and he was very much convinced by that. So the Chinese, I think, feel very vindicated in their strategy, which was to do tit-for-tat tariffs, like-for-like.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And in the last 24 hours, that position has been successful for China. We've seen Trump obviously blink on these tariffs. And I could foresee even more negotiations downward if these fentanyl talks move swimmingly, which Besset, for instance, thinks they will.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
wants a big beautiful deal. He was pen pals with Nixon back in the 80s. He admires the fact that Nixon went to China and made this big beautiful deal. So he ultimately wants to see a deal. The people around him, I would say Jameson Greer for instance, really cares about trade imbalances and market reciprocity. He will want to reduce the deficit.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
He will want to increase segmental or sectoral specific tariffs on certain Chinese products, especially in dual use. or very tech competitive industries. I could see that happening up to 100% or more in some of these sectors. And similarly, he will want market reciprocity. Besant is in the same camp, I would say.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
He would want to see China reducing its restrictions on foreign, especially American investments going into China. allowing more equal participation for U.S. investors in China, and similarly China buying more American products. So it's not a surprise that Besant said we had a great deal in phase one.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I think that they will go back to aspects of that, ask China to increase agro-purchases and purchases of energy products, and similarly find ways for China to reduce the subsidies on certain goods which they believe to be unfair trade practice. Elsewhere, I think that Trump really cares about fentanyl.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
He will want to see some kind of cooperation on China reducing the subsidies for the precursors to fentanyl. I'm a bit more optimistic now that there could be some kind of cooperation that would enable that discussion to happen. And on the Chinese side,
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
So China subsidizes industries that produces the precursor chemicals for fentanyl, effectively creating these cheap fentanyl products that then get flooded into the American market. Now, China says it's cracked down on fentanyl itself exports to the US, but the precursor chemicals are still being produced by China.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
So I could foresee more collaboration on that front for China to, again, reduce or even cut off all exports of those chemical components. And that would be seen as a win for Trump and for his political base. On China's side, all that they care about is that they want to achieve a degree of supply chain self-sufficiency, especially when it comes to the harder areas like semiconductors.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
They want to keep growing and not have these huge trade risks that Trump poses. And they want to extract geopolitical concessions potentially in the long term over Taiwan. That is a long-term game, but I think the two first priorities are how do we grow stably and how do we maintain supply chain dominance and resilience.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I actually don't think it gets in the way of China's goals because I think it is in China's interest to rebalance. They've said this for over two decades now, but when push comes to shove, they've been faced with some kind of slowdown or economic crisis, be it GFC, be it COVID, be it trade war one, and they've walked back. on some of these rebalancing efforts.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
So I think it's in China's interests and policymakers are realizing this. When I was in China a month ago, they were starting to say that overcapacity was an issue and that they need to do more to rebalance. I had never heard them say that before.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
In previous days, they were saying this was free market competition and the West should be so happy to have cheap Chinese renewable technologies, green technologies. The fact that they're saying that seems to me to suggest that they need to rebalance. They realize that.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And that actually this is an opportunity for China potentially to buy more American products to address some of that trade imbalance that the U.S. is rightly, I think, complaining about. and find ways to maybe even invest in the U.S., if Trump and the Republicans allow it, to create manufacturing jobs in the U.S. because China has the logistical, the manufacturing know-how.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
So I think that the Chimerica relationship has the ability to have a second chapter in its relationship and not go through a full-scale divorce or decoupling. But again, it all comes down to politics, Ed, and that is where I'm not so sure.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
The problem on the Chinese side is that they cannot countenance a massive slowdown in the economy.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
So instead of going through the, I would say, the American model, for instance, sort of 1930s depression or even World War II, where you saw a massive crisis that then enabled the consumer share of GDP to continue to rise rather than the manufacturing share of GDP, which is why America is now a consumer and services-led economy. the Chinese are unwilling to countenance that.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
They don't even want to have a Japanese style, you know, lost decades, which is a slow version of what we saw in America. So instead, they want to walk on this tightrope between rebalancing a little bit here and there through subsidies for consumer goods, like the trade in appliances.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And at the same time, they will increase Chinese exports, increase potentially infrastructure spending on certain infrastructure, And this means that they have this impossible task of balancing the two, because ultimately they don't want to go full on in the rebalancing mode, which is something that they recognize that they need to do.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
That is a structural bug in the system, and it's going to be very hard to shake for political reasons. On the US side, why they can't kiss and make up is because we have different parties with different interests. As we mentioned, Trump wants a big, beautiful deal. As I've said before, he's the biggest dove in a house full of hawks.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Besson wants to make sure that people around him and Wall Street are happy, that the markets are happy. And Jameson Greer wants to have a more level playing field. People like Navarro and Lutnick are a bit more crazier, I think, and don't really know what they want to do, which is why we saw the April 2nd tariffs.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
So we have really heterogeneous outcomes coming out of the U.S., which again is deeply, deeply confusing, not just for us, but for the Chinese as well.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I mean, I completely agree. I think Latin America was always going to be under Lula in China's camp. It's not a surprise that Lula is now in Beijing signing a trillion dollars of deals in Chinese investment in Brazil and purchases of Brazilian agricultural products as China again tries to diversify away from the U.S. towards Latin America.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
But I think the real winner is going to be the ability to launch a successful trauma offensive with Europe. I think Europe was very sickened by Trump's treatment of Zelensky in the Oval Office and its behavior towards Europe, not just Trump, but Vance, their behavior towards Europe since then. And I think Europe, as is its historical want, is going back to strategic autonomy.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
It's trying to hedge between these two superpowers, China and the U.S., And I think in this current climate, it is probably veering more towards China on trade because it sees China as the adult in the room. And I think what's going to be interesting, Scott, at the end of June is two really important meetings.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
We're going to have NATO at the end of June and then the China-EU summit at the end of June now in Beijing, not in Brussels, because they ultimately wanted to show respect to Xi Jinping, who originally couldn't make it. So I think this is going to be a real stress test for transatlantic relations.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And it could mean that we see further reduction in trade and non-tariff barriers between the EU and China come end of June, which is something that Trump won't be very happy about. He's already saying that the EU could be nastier than China. So I think that the EU is next in the firing line, so to speak.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I would say, Scott, the state of the economy is a story of two really divergent Chinese pathways. Number one is what I would call a structural macro slowdown, and that is driven, as you mentioned, Scott, by these challenges, the real estate sector being one of them, but also the fact that Private consumption remains remarkably weak, only 40% of GDP compared to 70% or more in the US.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And it's structurally going to be very challenging for the government to try to rapidly rebalance and increase the consumption share of GDP, which I'll get to in just a bit. But its over-reliance on exports, I think, will remain a theme moving forward. It needs to have that export engine, the overcapacity engine, to maintain growth.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
As long as it has these GDP targets, it will need to have a degree of overcapacity. And I think in this environment of weak and low interest rates, which are favoring the exporters, this is going to continue the financial repression story that we've seen for households for decades.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
What I would say, though, and sort of counterbalancing towards this is what I would say is a bullish tech story or bullish tech side to China's growth. And I think that this is going to potentially increase some of the rebalancing towards consumption.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
The reason I say that is because not only are we seeing more services, some of this geared towards AI and the usage of AI in healthcare, in elderly care, in retail and manufacturing, but we see these tech companies come up with really inventive ways to create new markets.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I'm optimistic that Chinese tech will be very, very resilient and it will find more ways to be even more self-sufficient and have supply chain resilience. But it could create more products and services that, again, could boost consumption, reduce the cost of certain services and goods. So I'm bullish on some parts of the tech story and bullish on some parts of the consumption-boosting story.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
But I see these structural challenges still in play, and that means a net disinflationary environment for the rest of the world because China needs to produce more. And if the U.S. is not going to buy it, then it's going to have to export to other economies, maybe the European market, for instance. So it's two very different pathways for China.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
But I come out from this trade war feeling that the Chinese policymakers have more resolve to, again, expedite some of these structural trends towards consumption. And in case of backlash against overcapacity to reroute through these third parties, we saw 20% year-on-year increases to exports to ASEAN.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I think that this will continue to gear up as they try to avoid any future tariffs from the Americans. Stay with us.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
So Scott, I love this question because I think we always need to look beyond the data. So back in 2018, we saw the US share of Chinese exports being 20%. It's now around 14%, if not under. That is not the full story because the Chinese surplus, trade surplus to the US has increased quite a bit since 2018. So what we've actually seen is that China is rerouting
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
its trade through other parties in Latin America and Southeast Asia to, again, they call it tariff washing, to avoid some of these tariffs or restrictions that the Americans have put into place. So that number, I think, again, is a bit of a misleading number.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And again, we shouldn't forget that if we just look at the trade imbalances, China is a bigger trade surplus-running country with the rest of the world and the US than it was in 2018.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Again, it's a sign that it doubled down on this export engine because, as you mentioned, Scott, consumption wasn't doing well, local governments were debt-ridden and needed to pay their debt burdens, and the real estate sector was suffering. So I think Chimerica has become even bigger. The divorce settlement has become even bigger.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
But what Trump has shown today, or rather yesterday, is that it can't afford this divorce settlement because China keeps increasing the stakes.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Yeah, that's a great question. I think in Southeast Asia, it has to be India because Apple and other companies are going to continue to diversify the supply chains and find alternatives for their components outside of China. And this is already happening. I think this wraps up quite exponentially the plans to, again, move some of the factory processes to India.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I think Vietnam and Indonesia and Malaysia, again, when it comes to final assembly or even manufacturing, will be beneficiaries. We've already seen massive greenfield investments from Chinese companies. I think that that continues in those countries in particular. So we should see a ramp up of their manufacturing output going to developed economies, including the US.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And in Latin America, I think Brazil is going to be a huge beneficiary. It's not a surprise that Lula is in Beijing signing that deal. We've seen in the last few years, Brazil overtake the US in terms of being the biggest exporter of wheat, soy, and corn to China, which is their biggest market.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
So I think some of the Latin American agro-producers are going to be beneficiaries of this as China again tries to diversify away from the US. And similarly, I think that Europe could extract certain concessions. This is why I'm bullish at the end of June that there could be some kind of a deal over EVs or even Chinese investment in Europe.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
There's been discussion about potentially launching price minimums to get rid of these tariffs, this 40% and onwards tariffs on Chinese EVs that the Europeans have imposed.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And similarly, I could see the Chinese being more lenient on some of these tech transfer details for Chinese companies to effectively enable IP transfer to the European counterparts and partners when they establish factories in Europe, especially relevant for batteries and other EV components. So I'm bullish that there are some beneficiaries in all these different regions.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
But again, I think that America had its chance, Trump under Trump, to really squeeze China when it comes to trade and even some of these tech sanctions. But again, because Trump blinked, I think he rendered that null and void.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Well, Scott, you should, you know, I've got people in the region, so you should definitely go and visit. We can get you into an EV if you want in China very soon and give it a test drive. But on the ground, I mean, it's one of the huge success stories.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And I think that they've pressed play on autonomous driving, which is potentially going to give them even more upside when they begin to roll that out in China and then globally. And beyond that, I was reading an interesting diagram of the way in which BYD is involved in so many different industries.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
And this is a way in which I think Chinese manufacturing can be seen as more competitive and advantageous, is the fact that you've got companies like Huawei and BYD that don't just produce cars or smartphones. They're involved in LiDAR. They're involved in AI. They're involved in semiconductor R&D.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
The fact that you have companies that are basically like the Intels or even the Fords or the Teslas of the world doing many different parts of logistics and components, I think is deeply, deeply impressive. And I could see them being extremely competitive outside of China in other countries outside of the US.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Obviously, the US will continue to have restrictions on China, but I could see definitely more upside for these companies like BYD moving forward. And to your point, Scott, if you look at the forward multiples, I was looking at it today on Chinese companies, they're around 12, still very low by historical standards and much lower than Japan and India.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I could see a lot of upside in Chinese tech companies moving forward.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Well, at the risk of being facetious, Ed, can I say Chimerica, if that country still exists?
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Because the two, again, back to this relationship in which they just reinforce each other because one side's strengths is the other side's flaws. When I think about Chinese tech manufacturing capacity, China is undoubtedly the leader, and I think it will continue to be so.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Basically, it's astounding that China has quietly met or even surpassed all of its Made in China 2025 goals, even though it's not talking about it anymore. I remember back in the day in Tribal 1, where there was a huge backlash, China silently achieved many of those goals. And meanwhile, in the U.S., I still think that the U.S. has a degree of exorbitant privilege.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
It's going to be very hard to fully rotate out of the U.S. The fact that stocks now, the S&P, are above April the 2nd and maybe even will come up to an all-time year-to-date high suggests that people are trying to get back into the U.S., It's not fully convinced that this is the end of U.S. hegemony and that there's still an appetite for U.S. assets. I'm still bullish long term about the U.S.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
in terms of its knowledge economy, in terms of immigration. What it gets its act together like with the COVID vaccine, it does it very, very well. And again, remains a strong consumer-driven economy in the way that China isn't. So at the risk, again, of sounding facetious, I would say I'd put my money on China America. It's hard to see any other economy, even EU, competing with that.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I think the Europeans, even although people were saying buy Europe earlier this year, have faced a big hurdle with Merz's fiasco. You know, he finally got elected, but it showed underlying weakness in Europe. And I think Europe is next when it comes to tariffs. So I would say China America, if that's at all possible.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
I know. I was going to say, can I make that publicly known somewhere? I've got so much. I'm against the digital equivalent of fan mail on LinkedIn and whatnot. Thanks to you guys. So I really appreciate that.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
No, but I thank you guys. I mean, I'm used to being in the rooms with old white men who are twice my age. It's the norm now.
Prof G Markets
Why the U.S. Can’t Break Up with China — ft. Alice Han
Yeah. Thanks so much, guys. Appreciate it.
Prof G Markets
The State of Trade with China — ft. Alice Han
This is a policy at the end of the day that's oriented toward helping some of the folks who have really been the losers in the economy and have been left behind for a long time.
Prof G Markets
The State of Trade with China — ft. Alice Han
Well, it's a bit of a mixed bag. And thank you for that question, Ed. Certainly, if you look at some metrics, whether it's deflation in the economy or it's the GDP outlook, China is continuing to slow down. It's continuing to face these big disinflationary pressures.
Prof G Markets
The State of Trade with China — ft. Alice Han
But at the same time, if you look at the stock market, it's been doing pretty well, especially now with announcements of DeepSeek and Alibaba's AI models. We've seen actually Chinese tech stocks, including Buyu Buyu Di, do extremely, extremely well. And this is in the midst of obviously these tariff threats that have been thrown onto China.
Prof G Markets
The State of Trade with China — ft. Alice Han
We've seen the 10% tariffs that have just been put into place on Chinese goods. China has retaliated in kind in the last few days. And certainly now we have more threats of 25% tariffs on steel and aluminum across the board, not just China, but a host of countries. So China is facing a lot of these trade war risks and pressures to the economy.
Prof G Markets
The State of Trade with China — ft. Alice Han
But at the same time, it is riding the tailwinds of positive, I would say, upbeat news about Chinese tech, Chinese AI, Chinese autonomous vehicles in the case of BYD. And certainly, our clients are particularly interested in the stimulus that is probably going to come down the pipeline in March when the NPC meets.
Prof G Markets
The State of Trade with China — ft. Alice Han
So an uptick in both monetary and fiscal should be supportive of more Chinese equities. And so we really get this bifurcation. The stocks look pretty attractive, but at the same time, we've got these deep-seated macro issues that aren't going away anytime soon.
Prof G Markets
The State of Trade with China — ft. Alice Han
Well, deflation is a sign of weak demand internally. And in the case of China, this is borne out by two major factors.
Prof G Markets
The State of Trade with China — ft. Alice Han
One is the fact that domestic demand has been hit hard by a number of factors, the financial repression of the household sector, the fact that interest rates remain extremely low at the expense of the household sector, and the fact that COVID really had long-term consequences on the household balance sheets.
Prof G Markets
The State of Trade with China — ft. Alice Han
Not to mention, obviously, the real estate crackdown that has obviously hit the net wealth effects for households. So we're seeing a very weak consumer environment. That has pushed prices down. Meanwhile, China is using more of its export engine machinery and manufacturing sector to try to offset some of the slowdown in the private consumption and the real estate sector.
Prof G Markets
The State of Trade with China — ft. Alice Han
That effectively means that you've got two sides of the equation. Domestic demand internally is very weak and meanwhile China is supplying increasingly cheap goods to the rest of the world because it needs to produce more to meet the sort of GDP targets it sets for itself every year.
Prof G Markets
The State of Trade with China — ft. Alice Han
So that creates a picture in which China is effectively exporting more disinflationary pressures to the rest of the world and that's really fueled a lot of these tariff debates not just within the US but within the EU too.
Prof G Markets
The State of Trade with China — ft. Alice Han
A lot of countries are very worried about Chinese overcapacity and China basically flooding the markets with cheap goods that it can do cheaper because it's got the scalability, it's got the cheap logistics infrastructure, and labor is still very, very competitive compared to these developed economies.
Prof G Markets
The State of Trade with China — ft. Alice Han
Well, I think the 10% we'll take that first is pretty manageable. It's certainly less than trade war one of a pressure on China. China responded to that pretty quickly by devaluing the currency. That is probably what it will do if tariffs get worse. It devalued at about 10% over the course of 2018 to 19 in trade war one. That is number one, what they'll do.
Prof G Markets
The State of Trade with China — ft. Alice Han
Number two is more fiscal stimulus to offset some of the impact if the tariffs are increased beyond 10%. And number three is to continue to redirect trade outside of the U.S. Now, even although we've seen the U.S., and this is astonishing to even cite, U.S.-China trade deficit has increased from $180 billion back when Trade War I was signed, so 2019, to around $360 billion as of right now.
Prof G Markets
The State of Trade with China — ft. Alice Han
And that effectively is almost a doubling of that deficit over time. But at the same time, China has increased its exposure to the rest of the world. It's redirected trade either through re-exporting hubs like Mexico and Vietnam or exporting to new markets. This is why China's Global South Initiative is something we should pay attention to because it realizes that countries in the U.S.,
Prof G Markets
The State of Trade with China — ft. Alice Han
even in the EU, are very worried about Chinese overcapacity. They will use trade measures to tariff or sanction Chinese goods. So they need to find alternative markets, both to re-export but also to export to. And another fun fact is that the Chinese trade surplus with the rest of the world has gone up to almost a trillion. As of last year, so $992 billion.
Prof G Markets
The State of Trade with China — ft. Alice Han
And I don't think that's going to stop anytime soon. It goes back to your question, Ed, about disinflation or deflation. China needs more exports, not less, because its internal domestic demand is so weak.
Prof G Markets
The State of Trade with China — ft. Alice Han
Yeah, I would broadly agree with that. I think Trump, even although his instinct is right to try to rebalance the trade deficit with China, he's using a hammer rather than a scalpel. So he's effectively going to a list of countries that he thinks that are running a surplus or US is running a deficit with those countries and trying to use tariffs to attack them. The same is the case with China.
Prof G Markets
The State of Trade with China — ft. Alice Han
What I think people have realized with DeepSeek, and it goes to people like Marc Andreessen and even clients that I advise, is that China has created an alternative ecosystem for the hardware and software. The stack is completely produced in China because of the tariffs and sanctions that have been put into place since the Trump administration.
Prof G Markets
The State of Trade with China — ft. Alice Han
And what was surprising about DeepSeek, not only was it 27 times cheaper, apparently the R1 model was 27 times cheaper, that open AI was the fact that they were able to produce this mainly internally, but also using low-end chips from the video.
Prof G Markets
The State of Trade with China — ft. Alice Han
The H20s that the Trump and Biden administration didn't think to impose export controls on, effectively allowed China to bootstrap their way to a competitive AI ecosystem and model. Alibaba has produced one recently that was also extremely competitive.
Prof G Markets
The State of Trade with China — ft. Alice Han
So this is a landscape in which the US, I don't think, is entirely prepared for because they thought that export controls, especially on hardware, would effectively kneecap China on AI. But there's been a bit of a wake-up call. I think it was right to call it a Sputnik moment.
Prof G Markets
The State of Trade with China — ft. Alice Han
There was a wake-up call over the last few weeks in which investors, the broader tech community in the US, really figured out that something was happening in China. And I would continue to watch the space, watch somebody like Kai-Fu Lee, who's been the father of modern AI in China, He I met him last year.
Prof G Markets
The State of Trade with China — ft. Alice Han
He was saying that China will be very competitive in driving down inference and training costs because of the scalability and ecosystem. And I think that's being borne out right now.
Prof G Markets
The State of Trade with China — ft. Alice Han
I think it's a bit of a mixed bag. I do think a lot of American companies have been hurt by obviously geopolitical risk, but also just China demand going down. It's not just these companies that you cited. Luxury brands have been suffering a great deal as well. I mean, we haven't even talked about automobiles.
Prof G Markets
The State of Trade with China — ft. Alice Han
The Germans are kicking themselves because they missed the opportunity in electric vehicles and now they're being out-competed. by BYD and Geely. I think it's a story of both Chinese weak demand, going back to the first question, but also the fact that China is producing more competitive alternatives.
Prof G Markets
The State of Trade with China — ft. Alice Han
When it comes to Chinese companies overseas, it's a bit of a difficult one to square because certainly if you talk to these companies five, seven, eight years ago, Alibaba, ByteDance, Tencent, they were very interested in expanding and investing overseas. Now, for a ton of reasons, I think both foreign and domestic, that has really been curtailed.
Prof G Markets
The State of Trade with China — ft. Alice Han
So they have obviously seen their profit revenue growth decline over time. But there's still opportunities for them in the domestic market. I just think for Chinese tech to have a global kind of sway that, say, ByteDance does is going to be very, very hard, especially as they face potentially more geopolitical risk and backlash against Chinese tech companies.
Prof G Markets
The State of Trade with China — ft. Alice Han
Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Prof G Markets
The State of Trade with China — ft. Alice Han
Thank you. after the next party Congress when there is more of a mandate from the leadership in China. And I don't think it's an invasion. I think it will be a salami-slicing quarantine move in which they use the Chinese Navy and Coastal Guard to block off exports going into Taiwan to test American resolve. I think that that's how it starts.
Prof G Markets
The State of Trade with China — ft. Alice Han
But again, we'll be largely dependent on Trump's reaction function. I think China is going to be reactive rather than proactive on this front. Again, it goes back to whether or not Trump can keep his hawks in line and if his agenda for a big, beautiful deal ultimately operates.
Prof G Markets
The State of Trade with China — ft. Alice Han
Well, firstly, and according to the sort of technical evaluations of this, when they test against the benchmarks, they perform extremely well. And that's where you get the argument that they're performing across these benchmarks better than OpenAI and 27 times cheaper. Now, whether or not it did cost the amount that they reported remains in question. I'm a little bit skeptical myself.
Prof G Markets
The State of Trade with China — ft. Alice Han
But certainly, I think it is a story of China having good enough applications of technology on the hardware side, meaning that it has good enough chip alternatives. It's stockpiled on a lot of H20s, Nvidia low-end chips, to basically create a good enough model.
Prof G Markets
The State of Trade with China — ft. Alice Han
I do sense that, and this is where you talk to technical experts in the AI sphere, and they tell you that in real-world applications, it might not be as good as open AI. For the benchmarks testing, it is doing extremely well, but if you open up the parameters, it might not be as effective as the open AI or US models are.
Prof G Markets
The State of Trade with China — ft. Alice Han
Secondly, what I would say is that there is a broader race here, and this is why you've seen some of these CEOs Satya Nadell, for instance, talked about the Jevons paradox. I think this is creating more opportunities for these US tech companies to double down and increase their capex on hyperscaling and data center development because they understand that there will be more demand.
Prof G Markets
The State of Trade with China — ft. Alice Han
And this effectively will, I think, increase the likelihood that the race to AGI led by the US will will be won by the U.S. and faster. Artificial general intelligence, a point in which basically computers seem more intelligent than human beings.
Prof G Markets
The State of Trade with China — ft. Alice Han
That is a place where I don't think China has shown that it is as competitive as the U.S., and so I think it remains to be seen the ultimate implications, but I generally favor the U.S. in this AI race. I do think that China will be faster to commercialize a lot of these AI applications. It's already doing it in embodied AI, robotics, for instance, autonomous vehicles.
Prof G Markets
The State of Trade with China — ft. Alice Han
But I think when it comes to AGI, which is the ultimate goal of these AI labs, the US will get there first.
Prof G Markets
The State of Trade with China — ft. Alice Han
I agree. And China is just one instantiation of this. We have the access of ill will. We've got Iran. We've got Russia. And don't forget North Korea. That's another issue I think people systematically forget. Every now and then he rears his head in Pyongyang. But certainly I think that we're fighting a number of fires across the world. And we have to look beyond just these tariffs.
Prof G Markets
The State of Trade with China — ft. Alice Han
I think, and I tell this to my investors too, you need to look into what's happening in the South China Sea, what's happening in Taiwan. You need to see what China is doing to prepare its military. for the ultimate showdown, which is over Taiwan. And we've seen more volatility in South China Sea recently with the Chinese Coast Guard, which is affecting the Philippines.
Prof G Markets
The State of Trade with China — ft. Alice Han
So I think that the geopolitical instability is something that is obviously a black swan. It's a fat tail risk. But we are, I think, well and truly out of the great moderation period. We're now in the great roller coaster of geopolitical instability. And that is going to affect us deeply.
Prof G Markets
The State of Trade with China — ft. Alice Han
Taiwan is going to be orders of magnitude bigger for the global economy than Russia, Ukraine, or even the Middle East and Gaza have been. And that's something to keep in mind. Sorry to be a bit of a downer.
Prof G Markets
The State of Trade with China — ft. Alice Han
I think it's already happening. Over the last year, I was there five times last year, I noticed a huge delta in renewed interest. And I highly recommend, Scott, that you go back. I'm happy to take you back to a couple of these cities in China. And there's been renewed interest because there's an understanding that the Chinese economy has shifted.
Prof G Markets
The State of Trade with China — ft. Alice Han
What China can produce as it's gone up the value chain is very, very impressive. And companies that still want a China exposure need to understand this changing economy and changing market. China is getting richer. It's rebalancing, albeit, I would say, at a rather slow pace because of structural issues. But it is happening.
Prof G Markets
The State of Trade with China — ft. Alice Han
And so you see some companies, for instance, are still interested in Chinese infrastructure. They're interested in some of these low-end industries. hotel businesses and these low-end kind of boba tea shops. There's these PE opportunities, but you need to think differently from the China of 10 years ago about the opportunities there.
Prof G Markets
The State of Trade with China — ft. Alice Han
So I think even although it's slowing down and people are worried about the politics of it, there's still a lot of opportunities to be found. And I think it's a mistake. And Deep Seek was a wake-up call. It's a mistake to sort of write China off. China will get there. Historically, we've seen this, whether it's the nuclear bomb or even its internet platforms. China will get there in its own way.
Prof G Markets
The State of Trade with China — ft. Alice Han
And I think we in the West need to continue to engage to see what's actually happening. Because more often than not, it will surprise us what's actually happening on the ground. So I'd highly recommend you go back, Scott.
Prof G Markets
The State of Trade with China — ft. Alice Han
Thanks so much, Ed. Thanks, Scott. See you next time.