The Prof G Pod with Scott Galloway
China Decode: Did the U.S. Push Its Allies Closer to China?
20 Jan 2026
Chapter 1: How is China pulling U.S. allies closer?
I think in a way, Trump's moves have probably pushed a lot of these countries, the Europeans, the Canadians, now maybe even the Brits, to adopt a softer trade policy towards China. There has been an understanding over the last few years that China is an overcapacity and a national security problem. But at the end of the day, there's a lot of money on the table. Welcome to China Decode.
I'm Alice Han.
And I'm James King.
In today's episode of China Decode, we're discussing how China is pulling America's allies out of Washington's orbit, the problem with China's lopsided economy, and a viral app that exposes China's loneliness epidemic. That's all coming up, but first, let's do a quick check-in with how the Chinese markets are starting the week. On Monday, the Shanghai A-share index inched up 0.3%.
The Hang Seng A-share index fell 1.1%, dropping to a one-week low on news of escalating trade tensions out of the U.S. Pharma got hit the hardest, with Hanzhou Pharmaceutical Company declining 4% and Wuxi Biologics 4.8%. All right, let's get right into it. As the US-China relationship grows more strained, Beijing is aggressively courting America's allies.
Canada is breaking with Washington to cut tariffs on Chinese EVs from 100% in exchange for access to Chinese markets. European regulators are testing China's homegrown C919 jet, and Beijing is dangling trade and diplomatic incentives across the European Union. The big question, is this smart diversification or a strategic realignment that weakens US leverage? James, a lot has been happening.
Even in the last week, we've seen Carney's trip to Beijing. That's a pretty big deal. He got really high-level, long meetings. We also saw more recent moves of softening from the EU on China's trade, especially EVs. And then we've also got Greenland that's impacting EU-US relations. How do you think about China's economic moves in the midst of all of these dynamics?
Well, it really feels to me a little bit like we've gone through the looking glass these days. I must say, so much is in flux in the international order that it's hard to disentangle cause and effect. It's hard to know which is a move and which is a counter move. But in what I'm calling the tumble dryer of international affairs, I think a couple of big moves into China's orbit really stand out.
The first was, as you just mentioned, Alice, Mark Carney, the Prime Minister of Canada, going to China last week. And the other big move is the intended visit to China by the UK Prime Minister, Keir Starmer, at the end of the month. Both of these countries are the staunchest and longest standing allies of the United States.
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Chapter 2: What economic strategies is Canada adopting towards China?
It was interesting to me that less than a year ago, Carney campaigned on this concept partially that China was, quote-unquote, the biggest threat to Canada's security. In a way, he had to politically make that point in order to, I think, win the election, if you recall. And he was definitely a latecomer and a dark horse in terms of the Canadian election last year.
But since then, I think this is very much in lockstep with what I saw in Australia a couple of years back under Albanese when he joined as Prime Minister of Australia, bringing in the Labour government to Australian politics, is the fact that economic rationale wins at the end of the day. Even although China is seen as a national security threat, there's a lot of money that's on the table.
And certainly there are winners and losers in Canada. The agricultural sector, I think, largely has been a winner. Automakers in Canada probably have been losers. China is going to drop substantial tariffs on Canadian canola meal, lobster, crab, peas, and lower tariffs on canola seed. That's a big win for a lot of ag makers in Canada.
But at the same time, and I thought this was pretty considerable, I was surprised by this, Canada is going to slash 100% tariffs on EVs from China to Canada. That's about $49,000 per year. And that, I think, when we think about the broader landscape of China's EV export machine, is going to be a huge loss for Canadian auto. But I think this move is politically calculated.
Chapter 3: How are European countries responding to China's trade policies?
To your point, James, Carney is unhappy with what is happening in Washington.
And I think there is somewhat of a consensus amongst the Europeans and the Canadians and maybe even the British, which you may be alluding to, James, that Washington's actions, maybe in Venezuela and certainly more recently in Greenland, are not in alignment with those countries, the Europeans, the Canadians and the Brits' views of the world order.
So I think in a way, when we put Venezuela with Iran with Greenland, I think since the start of the year, Trump's diplomatic scorecard is probably in the negative territory, which is probably what's provoking some of these recent moves. And then it comes to the European dimension where I had been predicting this, but I was a little bit late to the game.
I had thought last year that the price minimums would actually be developed as a framework. It probably only started to kick into effect as of a week ago, January 12, when the European Commission said that they want to put a framework deal in place for price minimums for Chinese EVs. For Chinese automakers, that is considerable because China's biggest market for autos is the European market.
And China is the EU's third largest trading partner for goods and services after the US and UK. So for both countries, this is pretty considerable. China, I think, made about 10% of the EV market last year. That could rise significantly if we see more of a move to reduce the 45% tariffs, for instance, on Chinese EVs.
I think in a way, Trump's moves have probably pushed a lot of these countries, the Europeans, the Canadians, now maybe even the Brits, to adopt a softer trade policy towards China. There has been an understanding over the last few years that China is an overcapacity and a national security problem.
But at the end of the day, there's a lot of money on the table and a lot of vested interests in those countries. that want to see business between the two countries. You know, we can go into the numbers, but that's sort of my broad brushstroke view of why these countries are moving, it seems, in lockstep. And everyone will be convening in Davos, as you know.
They're all convening on this sleepy, snow-capped town of Davos, where I think a lot of drama will happen.
Yeah, and I mean, Trump is going to be in Davos. And I must say, when Mark Carney was in Beijing making all these statements, and as I put it, cozying up to China, I expected Trump to come out with a considerable backlash.
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Chapter 4: What are the implications of China's lopsided economy?
But so far, he seems to be quite accepting of Canada's overture to China. He was asked what he thought of the agreement. How do you see the deals? Canada and China have just signed trade deals between the two partners. Well, that's okay. That's what he should be doing. I mean, it's a good thing for him to sign a trade deal. If you can get a deal with China, you should do that.
So, so far, it seems that Trump is moderating his response. But I would say that, you know, there is a risk for these allies of the United States. I'm talking about Canada, the UK and really the whole of Europe. There is a risk because the U.S. remains the most substantial economic and security partner of all of the countries in the West. And in the case of Canada, it's overwhelmingly so.
Something like 74% of Canada's trade is with the U.S. and, you know, less than 10% with China. And in the U.K., I mean, it's overwhelming. Mm-hmm. Our biggest investment and trade relationship, not to mention diplomatic and security relationship, is with the United States. So I think that, you know, there is a tightrope that these countries in the West are walking.
They're trying to get the economic benefit of moving closer to China without annoying the United States so much that Washington creates a backlash against us. So it's a game of cat and mouse, I think, right now. And, you know, the world is so complicated right now. It's going to be interesting to see how this one plays out. I certainly couldn't call it.
I would agree with you, James. You know, the expression, while the cats away, the mice will play. I'm thinking maybe the Canadians and the Europeans and the mice in this analogy. As long as the U.S. is subsidizing their national security and is running a trade deficit with those two trading blocs, Canada and the EU.
It's just a natural bedfellow for those two regions of the world, whereas China, the opposite, is a national security threat and is running massive trade surpluses. So I think this is a tactical short-term move in order to extract some short-term gains rather than a strategic pivot. And certainly in the short term, some agricultural producers in Canada and the EU will benefit.
Airbus, we haven't talked about, will likely benefit as well. China's already considering purchasing more French and European aircraft. And Airbus' market share in China is already 55%, which just recently overtook U.S. 's Boeing's market share. So there are some winners and losers, but I think I broadly agree with you, James, that this is a tactical move as opposed to a strategic one.
But we'll see how Greenland blows up, because if Trump's threat of tariffs do get put into place, the 10% that he's threatening on the European countries effective February 1, we might be in for a broader EU-US trade conflict in mirror image of what we saw last year between China and the US.
Yeah, it's really hard to overstate how exercised people are in Europe about Greenland. A lot of people, policymakers, just can't get why the U.S. is being so aggressive on this point. They feel that there's a pathway to greater U.S. influence on Greenland that takes a peaceful route rather than talking about some kind of military overture.
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Chapter 5: What does the viral app reveal about loneliness in China?
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Welcome back. China's economy is sending mixed signals. Exports and high-tech manufacturing are booming according to the latest 2025 data, but lending is at its weakest level since 2018. Consumer confidence is soft and the property sector remains in deep, deep trouble.
As Beijing leans harder on technology, trade surpluses and even the digital yuan to power growth, the question is whether this imbalance is sustainable or a warning sign ahead of the March National People's Congress meeting. James, let's go right into it. The economic data from 2025 as a whole year and the Q4 data have just come out. I'm excited to get into the weeds with you.
What's your hot take on the data?
My hot take is that this data shows yet again what a highly lopsided economy China is. And I think there are two numbers that absolutely show this so clearly that it's so stark. There is one great strength in the Chinese economy and there is one, well, there are several weaknesses that lead to a particular weakness. The great strength is that China is a high-tech manufacturing powerhouse
that increasingly inspires awe around the world. And yet, the weakness is that its economy is so poor at directing the fruits of this advancement to its people that the birth rate that we've seen in China last year has fallen to its lowest level since 1949. That's the communist revolution of 1949. So, you know, we've got these two amazing things going on.
This hard-charging technological superpower now, which is a peer competitor of the U.S. in technology and an economy that can't even return the fruits of labor, as it were, to people so that they feel that they can have families and have as many kids as they like. So the two numbers that I'd like to mention are high-tech manufacturing output that rose 9.4% last year.
And the other number on the other side is retail sales, which grew only 3.7%. So what you've got is high-tech manufacturing growing at more than double the speed of the amount of money that people are spending on things to buy. And I think that really sums up the great contradiction of the Chinese economy. But you'll have your own view on this, Alice.
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