Ep 328 - Trade Route China with Carl Zha

Steve Grumbine: 00:00:43

: Hey, folks, this is Steve, Macro N Cheese. Today's interview is with my friend Carl Zha.And let me just say, Carl Zha is an absolute expert on Chinese history and Chinese culture and he knows so much going back to the earliest days of Chinese history. His podcast, Silk and Steel is absolutely one of the best podcasts you will ever hear. That said, Carl is not an MMTer.And so when Carl discusses economics, it falls outside of the MMT framework.And as a result of loving my good friend Carl and also trying to preserve the parts of the interview view that we felt really, really mattered, I did not quibble with some of his economic points that I felt were not in alignment with what we on this podcast would stand on. So with that in mind, just understand that Carl is speaking about economic issues at times in ways that are not MMT compliant. And you know what?I give him a wide berth because he knows so much about the subject matter that I brought him on to begin with anyway.So hopefully you can take that and understand that this podcast is there for you to understand how China views the United States, how China is positioning itself on the global order. And leave the MMT to me to conduct in other interviews. With that, we're still working on Carl. Fingers crossed we can get to him. Enjoy.-----------------------------All right, folks, this is Steve with Macro N Cheese. Today's guest is Carl Zha. Carl has been with me a bunch of times. You may want to check out our three-part series on Mao.I really, really, really strongly suggest this. Three epic, wonderful episodes.And we've had other episodes too, but those three still stick out as some of the favorite work that I've done over the six or so years that we've had this podcast. But Carl Zha is the host of Silk and Steel and he is also a frequent guest on just about every news outlet you can find talking about China.And this is his moment in the sun, isn't it? China is really outpacing the world. They're outthinking the world. They are 10 steps ahead as we watch my country,sadly, the United States basically look like a schoolyard bully that got punked at school, got a wedgie or something like that. Now they're thrashing around and lashing out and just acting a fool. And it's embarrassing. Let's be honest. It is absolutely, stunningly embarrassing.But watching China do all the things that we in the MMT community have been say, "Yes, do that, do that thing over there."And the US is still just acting like a broke little rich boy club that all they want to do is play crypto games and play games with AI and stuff like that that they can't even do as well as the Chinese, quite frankly, which is pathetic. So with that, Carl, welcome to the show, sir. Thank you so much for joining me.

Carl Zha: 00:03:52

: Thank you for inviting me, Steve. I love to talk about China. So, you know, anytime. Anytime.

Steve Grumbine: 00:03:57

: Well, it's an important subject. I don't want to sound like I'm dunking on my country, but my country makes it hard not to dunk on. It really is very challenging to go through this.You're either angry and raging, which I usually am, or you mock it, which I'm going to probably do some tonight.And I'm in this position where everything that comes out, I listen to the insane news stories and I listen to the absolute ludicrous way things are positioned. Like we're going to suddenly make all this money on tariffs and so forth.And I watch China just licking its chops and saying, "hey man, we're not backing down from you." What does China think of the US, man? What does this do to them? I mean, are they laughing or are they very, very upset and concerned?

Carl Zha: 00:04:41

: Well, actually Chinese Foreign Ministry output a video a couple weeks ago elucidate Chinese position pretty clearly.They cited the Plaza Accord which United States imposed on Japan back in 1980s which basically crippled Japanese economic growth for the past three decades.And they see the tariff war is attempt, by United States to impose a Plaza Accord 2.0, except this time on China and also rest of the world to force China to bend its knees to US dominance, but specifically to the dominance of the Wall Street elites. And so this is why they're not backing down and China is prepared for this.Let's remember United States started slapping sanctions on China back in Trump's first term back in 2018. This is when the whole war against Huawei got started.Canada actually arrested Huawei's CFO, actually Meng Wanzhou, the daughter of the founder of Huawei, on the behest of United States for allegedly sanction busting for breaking U.S. sanction on Iran. This was a big shock for China back then in 2018.Now let's remember many Chinese business leaders for the longest time have been very enamored of United States, including the founder of Huawei. The founder of Huawei, he almost sold the company to Motorola in early 2000s. You know what a big shift that has been.Now I believe Motorola is a brand owned by one of the Chinese companies. So yeah, here we are. I get what you're saying Steve, about you want to rant against the action of the government of United States.I have said this many times before. A lot of the problem with the US empire is self-inflicted. Like this tariff war business. Was that really necessary?A lot of the pains and disruptions are brought down by the supply chain. This was caused by the tariff war that Trump just decided to spring upon this world. Now China is prepared for this moment.They have been prepared since 2018 when Trump first start slapping sanctions and then again when Biden doubled down on the Trump sanctions on tightening the screw on semiconductor restriction to China. So China since that moment has been prepared to decouple and de-risk from the United States. This is even before the tariff war started.US is no longer the top trading partner of China. Today China trades more with ASEAN, the collection of Southeast Asian countries, more than they trade with United States.You know, at one point US accounted for 30% of China's exports. Today it has declined to about 14%. So let's look at the actual GDP figures. Export accounts for about 19% of China's GDP.So China does not stand out in that regard. You know, in a way China is less dependent on export than say Japan or Germany. And out of that 19%, only 14% goes to United States.So if you do the math, only about 3% of China's GDP is directly tied to import-export to the US. So if you cut that off, is it going to cause pain and disruption? Sure. Is it existential? No.And China already made the calculation that they rather take the pain up front than dealing with this just crazy erratic policy coming from Washington. They have moved on. This is why Xi Jinping didn't pick up the call.You know, right after the so-called Liberation Day started, Xi Jinping would travel to Southeast Asia because that's where the trade investment of China has been directed to at this point. And Xi Jinping was getting blockbuster red carpet treatment in Vietnam, in Malaysia and Vietnam.This is a country that many in Washington had hoped to turn into a cornerstone of containing China. They are rolling out the red carpet for Xi Jinping.You have the Chinese People's Liberation Army Honor Guard marching through Vietnam and all the Vietnamese ladies were cheering them on and calling them husbands. You know, this is, this is all due to Trump tariff, by the way.You know, and we just had China, ASEAN, that's Southeast Asia, Japan and South Korea, they met together. There was a meeting recently in Europe, in Milan, and they made a joint statement. They're going to form a free trade bloc of Southeast Asia.If you look at the population figures involved, there's 1.4 billion people in China, 680 million people in Southeast Asia, more than 100 million in Japan, there's 50 million in Korea all added together, this is more than 2 billion people. This is a huge deal. [Geeminy Christ] This is a huge trade bloc. And you had world's top economy in it. You have China and Japan.You know, Korea is also among the top 10 of the world's economy. Again, this is all due to Trump policies, you know, so either way, I say Trump is actually the great peacemaker for East Asia.You know, only Trump is able to bring China, Korea, Japan all together sitting together on a table and for a free trade bloc.And this is why when Scott Bessent pressured Japan in the negotiations to form together with United States to form an anti-China trade bloc, Japan flat out said "No." He said, "no, we're not going to join any anti-China trade bloc because our relationship with Beijing is too important." And you know, this is Japan.This is a Japan that's still under military occupation of United States. You know, and Japanese government have been very famously playing vassal states of the US and they are finally standing up and said, "No!"And of course, this is because Trump slapped 25% tariff on foreign autos and foreign auto parts.And this is actually existential issue for Japan because Japanese, Korean and German automakers, they're going to get hit hard by this tariff in United States. U.S. being the world's second largest car market. The world's largest car market is still China. So they're not taking this lying down.And let's not forget Japan is also the largest holder of U.S. treasury. And Japan actually publicly threatened they would start dumping treasury if US decide to escalate this trade issue.This is pretty huge, you know, because Scott Bessent, he's all about the treasury and the treasury yields.I mean, around this Liberation Day announcement, there were so many pro-Trump Twitter accounts that were tweeting out how "This is a brilliant 4D chess, you know, by the Trump administration."They're basically saying, "Oh, okay, so what Scott Bessent is trying to do, he's trying to intentionally crater the stock market to force all the money in the stock market to safe harbor." You know, and traditionally that has been the US Dollar and Treasury bond. And all the money now rushed on the stock market to the treasury.That will push down the interest rates. So now US have what like $37 trillion national debt and the US government had to borrow new debts to cover the old debts.So when I forgot, what's the number? Somewhere between 6 to 9 trillion treasury bills are due for maturity this year.So when the US Government go to borrow new debts to pay down the old debt, if Scott Bessent's plan had all gone according to plan, they will borrow with much less interest rates. So US government actually saves so much money in the interest payment.But of course that whole plan gets shot when the bond market was also broken because the panic selling in the stock market spread to the bond market.And I think this also has to do with what's going on in Japan, because when Japan got slapped with that Plaza Accord in 1985, Japan was forced to appreciate their currency, yen. And as a result, that made Japanese export less competitive.But at the same time, because the Japanese yen become a lot more valuable, that actually encouraged all the money to rush into real estate and stock market, stock speculations. That led to the famous Japanese asset bubble which burst in the early 90s.And to counter that, the Japanese government were the first to pioneer quantitative easing. They've been printing yen up the wazoo to keep the interest rate low.So a lot of these hedge funds, they thought they saw a great arbitrage opportunity. They're like, "Okay, we'll just borrow shit tons of yen and then will invest in higher yields asset like the U.S. treasury bonds and we can just eat the difference." Well, that worked for couple decades until it didn't.Now because all this tariff business, the Japanese yen is appreciating, the Japanese interest rate is climbing and all these hedge funds suddenly owe way more money than they have borrowed. And to cover their position, they have to sell U.S. Treasuries. That's what we saw in the bond market.And that actually instead of pushing the yield down, that made the interest rise. And that's when Trump administration panicked and they start backtracking on the tariffs. This is all very ridiculous.So I completely sympathize with you, Steve, when you want to criticize this administration.

Steve Grumbine: 00:14:24

: It makes it even worse though, because when I look at this from an MMT perspective, which again, I know we're on opposite sides on this particular issue, or maybe not opposite, but just different. But when you think about it, right?  The US government makes all these decisions.It makes a shit ton of decisions to what to spend on, whether they want to sell treasuries or not, etc. And China, because they do so much business with the U.S.,now, mind you, so much business is not much in the full Venn diagram of all the business that they do, but it's still a significant amount of business. And they get US dollars for that.And they sit there and they decide, "Do I want to keep these US dollars in the US economy and park them there and buy Treasuries, or do I want to go and swap them out in the Forex market and get something else I'd rather save in?"And the idea of why the hell they have so much US dollar holdings when the US isn't producing anything of value for them to use that money on is kind of ridiculous in the grand scheme of things. So it makes all the sense in the world for China to pull the hell away from the US and I know BRICs aren't quite where folks would like them to be.It's not at a point where it's created this major pull, but the energy is there to pull away and to get away from more than the dollar, the SWIFT system, so that they're not fucked with by the US they're able to live like normal people, doing normal things with cooperative arrangements with other people that are interested in doing cooperative things, while the US is looking to be a bully.You know, it's the fake fears that the US has put itself in both domestically and abroad by trying to drop shit for us to worry about here in the US and Trump, by doing this shit, has really ultimately created the conditions by which they can't back out of it now.The fix is to spend domestically, to ramp up production, to fix supply chains, to fix infrastructure, but they won't do that because they're ideologically against what China has done so effectively.

Carl Zha: 00:16:26

: Exactly, exactly. You hit the nail on the head. China spent 40 years to build up its supply chain, to build up the infrastructure, to educate its population.But Trump administration seems to think that they have a magic bullet that's called tariff. And if they just raise the tariff, everything will just fall in place. Like tariff can help. It can help your manufacturing sector if you have a manufacturing sector. And you know this, I saw this analogy. It's like U.S. is like a power lift champion back 50 years ago, right?And now after not working out for 50 years, it's like, "Okay, Now I'm gonna break a world record, right?" Normal people will say, "Okay grandpa, you know, maybe, maybe go easy a little bit." But this is exactly what US is trying to do.Its manufacturing sector has atrophied now for 40 years. And you are certainly expecting to replace all this supply chain. That's not going to happen in 4, 5, 10 years.In the meantime, what are you going to do when the trade is cut off? So Scott Bessent like to say, "Oh, China needs us because they need our money, right?" Like, no. Money is fungible, right?I mean like they can find other markets. They can print. They can do stimulus. How is US going to substitute all the vital products we're getting from China? Like the 80% of the antibiotics used in United States?I mean people think, "Oh, we'll just switch source from other countries from Vietnam and India." Okay, now how is that bring manufacturing back to United States, first of all?And second of all, manufacturing in Vietnam today, a lot of companies are moving there precisely because it's close to mainland China. It's close to the Chinese supply chain because a lot of the factories in Vietnam they depend on the Chinese machine tools, Chinese parts.And this is what Apple found out when they tried to shift more production of iPhones to India. So China didn't like that. Apparently, China put like a soft block on export of the Chinese machineries to Foxconn factories in India.And that's what they find out. They can't really decouple from China. This dilemma that US faces when China slapped on the restriction on rare-earth imports.Now rare earth is used everywhere from EV to weapons produced by Raytheon. And people in the US say, "Oh no, no, no problem. You know, rare earth is not really rare. We just need to open mines here in the United States.You know, we just need to get rid of the environmental regulations to allow to open mines." Okay, that's great. You know, opening a new mine is usually takes four to five years. And then on top of that, it's not really about mining.Where China dominated refining of the rare earth. So all the machines that takes to refine the rare earth to be like the usable end product, these are all Chinese.So they still have to import Chinese equipment if they want to get this manufacturing of refining rare earths started in United States. The problem, Steve, is these Wall Street types, they have outsourced so much manufacturing to East Asia in the last 40 years.They actually don't understand manufacturing anymore.You know, they don't understand the supply chain because all the smart people in the last 40 years have rushed to join Wall Street where the money is. And these Wall Street people are so cut off from the nitty gritty of manufacturing and running a supply chain.This is why people like Scott Bessent, [Howard] Lutnick, Pete Navarro, you know, all these people advising Trump, they are coming up with all these harebrained policies because they don't actually understand the true impact of these tariffs. And by the way you talk about US not producing anything China wants, there are actual products that China do want to buy from the United States.You know, mostly high-tech components like chips. You know, they would love to buy GPUs from Nvidia, but guess what? United States government said, "No, we're not going to sell you those things."So all the dollars China accumulates from its trade surplus with US, basically you can't use them to buy any American products they actually want. This is one of the main drivers behind the Belt and Road initiative. When China realized, "You know what, rather than park the money in U.S. treasuries, we better spend it elsewhere, build infrastructure and ports in the rest of the world that will increase trade linkages with China and that will allow us to expand our market and incidentally also expand their market outside the United States." That's what they have been doing in the past decades. And this is why China is not too concerned about this trade war dragging on.Because that's already the direction they have been moving to, to diversify away from having to rely on the United States as the largest single-export market.

Steve Grumbine: 00:21:37

: You know, I look at the US And I think to myself, and I was shocked. Let me just say this. I don't like Biden and I don't like Trump and I'm not a Democrat or Republican.

Carl Zha: 00:21:45

: Me neither.

Steve Grumbine: 00:21:46

: And I don't really find US politics to be of any value whatsoever. I think it's theater and I think that the oligarchs that really run the show use these puppets to manufacture consent. Little more than that.And when I saw Biden at his first State of the Union address, his first comments were literally trying to demonize China, saying, "Our real enemy is China." And I was sitting there going, "What in the world is he talking about? Why are you saying this?" I kept talking about it and it didn't get any air.Nobody really thought I was onto something there. But I was like, why are they pivoting toward China? Why are they demonizing China?I mean, I know we don't manufacture anything, but we've got arrangements and such that the United States, who has allowed its infrastructure to dilapidate. It's allowed its social contract with its own citizens to deteriorate to the point of non-existence.Why in the world wouldn't they take this time, while they have manufacturing abroad, to invest in the vital things in the domestic US? Let China produce these things. Let them produce whatever for now but simultaneously take that domestic investment. Take the power of fiat. Take the power of the US dollar.Instead of using it to bomb the hell out of the Middle East or to create proxy wars in Ukraine or supporting Israel, why not use that money? Why not use that power, that government power, the strength of the US Government, why not use that to build up the infrastructure of the United States? And for whatever reason, this country is so unbearably ignorant, so unbearably stupid that it just wouldn't do it.I mean the teabaggers, the right-wing morons, and quite frankly the dumpy dumps of the vote blue sycophant version, these guys all were like "Well you know, we got to reduce the deficit, we got to blah blah..." Ignorance, just absolute austerity-driven mindset of cutting and slashing spending. Slash, slash, slash, instead of building things that are productive, things that are valuable. Not Wall Street financial tools, but actual power grid.I mean we're watching countries lay solar grids along their train tracks. We're watching China build the most incredible high-speed rail.  We're watching the amazing complexity of Japanese railways.But then you look at the United States and we still look like we're ready to have Abe Lincoln riding on the back of a train petitioning for the President. It's ridiculous.As I go around, the only things that shine are the military contractors going up and down the Dulles corridor in Northern Virginia, the banking sector in Chicago and friggin Wall Street. The rest of America is like a cesspool. It's like an armpit. It is disgusting.And yet the very thing that they could do, it's not something anybody else can do for us. We alone have the power to invest in bridges. We alone have the power to invest in high-speed rail.We have the power to invest in all these kind of renewable technologies and instead we just don't. We would rather kill somebody than do the right thing. I really am disgusted.

Carl Zha: 00:24:57

: You know what Steve? I used to say the only thing US produce anymore domestically is weapon platforms and onlyfans.But now that I realize that maybe that's not even true anymore because they have hollow out the manufacturing so much in the U.S. Now they're talking about out-sourcing building of the U.S. warships to South Korea. I could not believe it.I thought, "What happened to bring manufacturing back to the United States?" There's actually a US law that forbids US warships to be built in other countries.But Pentagon right now, they initiated a program, they realized, "You know what, it is much cheaper to build a warship in South Korea."So they're trying to work around the US legislation that forbid US warship to be built in foreign countries to have South Korea basically take over building and repairing U.S. Navy warships because they realize they're in serious trouble if they really want to come for China.China has 200 times the ship-building capability than United States. So US is literally seeking the help of Japan and Korea to maintain its military industrial complex right now.But, but this plan, of course was before the Trump Liberation Day announcement. So I don't know how Korea and Japan is still on board with that plan, given all the tariff that they've been subjected to.But I think you already said what the problem was. You know, the US government is a government of the oligarchs, by the oligarchs and for the oligarchs.

Steve Grumbine: 00:26:33

: Yes.

Carl Zha: 00:26:34

: Doesn't matter whether it's Biden or Trump. People think, "Oh yeah, yeah, Trump is going to bring manufacturing back to the United States." Look at the economic advisors he surrounds himself with.Look at our Treasury Secretary, Scott Bessent. He used to work for George Soros, George Soros fund. And look at Lutnick, he was a Wall Street guy.These are the exact same type of people who had been hollowing out the US industry for the last 40 years.And you are going to tell me these are the people are now suddenly like full MAGA trying to bring manufacturing back to the US? I mean, you gotta be very gullible to believe that.

Steve Grumbine: 00:27:14

: I was talking to friends about this the other day.We're trying to explain certain very real things to people and whether it be about economics, whether it be about any number of things, whether it be about science, like physics. We had a physics PhD come through, real brilliant guy named Erald Kolasi. And he was talking about some airtight stuff.He's like, the problem is, is that we're kind of in a post-truth society right now. It's not about truth, it's about vibes, it's about feels. It's about, you know, my group, your group, in group, out group.And it doesn't have anything to do with truth. Truth is irrelevant. It's probably the most relevant thing in the world right now.But it is the most unrelevant thing or irrelevant thing to the average person because they've been gaslit by the government, by the media, by all these different official narratives, and they realize none of this shit's working for them. It's not working for them in their lives. It's not working for them with their families. They're not moving up in their careers.Their salaries are stagnant, thirty years later. They're not getting any of the benefits of automation that people swore was going to make everybody's lives better.And all it's done is enriched US oligarchs.

Carl Zha: 00:28:27

: Yep.

Intermission: 00:28:28

: You are listening to Macro N Cheese, a podcast by Real Progressives. We are a 501c3 nonprofit organization. All donations are tax deductible. Please consider becoming a monthly donor on Patreon, Substack, or our website, realprogressives.org. Now back to the podcast.

Steve Grumbine: 00:28:53

: At the end of the day, I want to hearken back.I want to shift gears ever so slightly to domestic China. Because one of the things that I really enjoy with the things that you post, they're always kind of funny and cheeky and stuff like that, but they're really on point. And the fact is that China is taking care of their people. The average income has gone up significantly.The benefits for people, whether it be considering healthcare care or education, these are not things that people are trying to cut and slash. They're investing heavily in their own human capital, if you will.I hate to use that term, but the brain rot in the U.S., they're literally cutting funding for spending on education and trying to make people even more desperate by cracking down on student debt in this country. But in China it doesn't seem like that's the thing. Go ahead. This is what I want to hear about.

Carl Zha: 00:29:43

: China now has higher life expectancy than United States folks and they are also consuming more protein than Americans, which I find unbelievable. I'm a testament to this. I was born in 1976, one month after Mao died. So I'm the first post-cultural generation Chinese growing up in China.And in 1980s I distinctly remember lives were getting better day after day.I still remember back in 1982 when my mom used her savings to buy her parents, my grandparents, a black and white television and that was the only TV in the neighborhood so all the kids could come to grandma's house after 7 o' clock to watch TV. This was 1982, right? This is within my lifetime.And at that time because my dad came to university US to pursue his PhD in 1985, so he would sometimes send money back so we can buy goods. We bought a color TV and refrigerator. And they're all Japanese. And this is not because we're not patriotic Chinese citizens back then.It's because at that time, China just didn't produce color TV or fridge. China didn't start to produce refrigerator until 1986.And in much of 1980s, China's economy is like any third-world country with exporting raw commodities and receiving manufactured goods.China was a net oil exporter in 1980s, was exporting crude oil to places like Japan, and it was getting back fertilizers, and refined petrochemical products because China didn't have enough capability to refine its own crude oil. And so you had to import everything from fertilizers to transistor radio. And you know, fast forward to today.Of course, everything is made in China today. A lot of people in the U.S., "Oh, that's because Chinese cheated. They steal our IP." Look, China did not steal IP.China made it a very open policy for any foreign business who want to do business in China. As a price of entrance, you have to set up joint ventures and you have to do technological transfer. All these foreign companies understood this.That's all above the table. This is the part of the condition for them to do business in China. By the way, these foreign companies are making money head over heels.From 2009 to 2023, GM was selling more cars in China than they sell in United States. [Wow.] China is now world's largest auto market. 30 million cars are being sold in China. That's twice the number of United States.But the problem is a lot of this activity is actually not captured in the economic data because GM will set up joint ventures in China with the Shanghai Automotive Industry. So all these cars coming out of the GM factories in China directly into the hands of Chinese consumers.So there's no cars leaving Chinese ports to United States. This data doesn't show up in the trade, import, export data at all.While GM was making tons of money. I remember 2010, I was traveling to China with my dad. I was introduced to my dad's friends and their families. And my dad's friend has a kid that's my age and she was working for GM in China.And this is right after the great financial crisis. And she was saying, "I don't understand what the heck is GM doing in the U.S. Man, we are making profit right now in China.We're the one that's profitable. We're making all the money. I don't understand what the heck is wrong back in the US. Why are they losing money so bad?" Same thing with Apple.Apple consistently made $70 billion in China every year. But again, that data is not reflected in the import-export trade figures.Because those Apple iPhones that leave the Chinese factories in China into the Chinese stores and directly into the hands of Chinese consumers never went through custom.And Apple, remember when they talk about China-US trade surplus, they're looking at it with like very 19th century Mercantile Point of View because they're just looking at the value of goods entering and leaving custom. But the iPhone that's exported from China to United States, China only makes about $60 off each iPhone.When iPhone 16 is sold in US it's sell for like $1200. Right? [Right.] Apple captured the lion's shares of that profit.But when it shows up in the trade figures, it shows that China exported a $1200 iPhone to United States, which does not really reflect what's going on. China is actually making only $60 off that $1200. Most of that profit goes to Apple.So a lot of the problem with the US-China trade, one is hollowing out the domestic manufacturing US, and two is a distribution issue. You know, all this profit of course gets captured by GM, Apple, Ford. It goes to the top executives and then the shareholders of GM and Apple. Right?It goes to the 1%. It does not benefit "Joe Six-pack" living in Michigan. That is a problem. And this is why there's a lot of resentment.And the Wall Street types who rules Washington D.C. they're not going to admit they're immiserating Americans. Instead they will say, "Well, it's China's fault. Blame China. Don't look at us."And it just so happened, all these Wall Street guys and all the oligarchs that own all the media, you know, Jeff Bezos owns Washington Post, for example. So the corporate media of course is not going to place the blame on the oligarchs or to Wall Street. They're going to place the blame on China.They make it sound like China came to us and pointed a gun to the Wall Street types and said, "You must off source all your industry to China." That's not what happened. China's policy has always been if you build it, they will come.They build up their infrastructure, they invest in their people's education, they offer a low tax incentive for foreign direct investment. Right now, they don't even require foreign companies to set up joint venture. That used to be the rule.

Steve Grumbine: 00:35:53

: Yeah.

Carl Zha: 00:35:54

: In more recent years they're like, "Fine, Tesla. You want to open the Shanghai gigafactory to be 100% owned by Tesla. That's fine."I have met many foreign entrepreneurs who have business in China and they have told me it's much easier to own and operate a business in China today than it is in United States. [Wow.]

Steve Grumbine: 00:36:13

: I remember when I was telling you this offline when I was finishing my MBA, we had a meeting with one of the alumni who had set up a shop over there.His whole job was to create the relationships that you're talking about so that the joint operations would occur, so that if you wanted to come do business there, this guy was a broker that positioned a Chinese company with the US company and would create those kind of relationships, the liaison. And that was very interesting to me. That was something I was very interested in doing as a young MBA. Young, being relative.Looking at it now, I think the thing that really is disturbing, okay, is that I've never seen, and obviously I know that China produces weapons. Most recently the Chinese fighter that is sold to Pakistan that shot down the great Indian, French Rafale planes.But China doesn't make its business killing people. China isn't out there destroying people. I was reading about Ho Chi Minh not too long ago again, and just realizing Uncle Ho had really loved the US, really worshiped the US [yes], and what a disappointment the U.S. was, right? Every step along the way, the U.S.creates these people abroad that look and say, "Wow, they're the good guys, aren't they? I want to be like them." And then only to find out what absolute trash we are.And I say that with a pain in my heart, you know, as I say, it's not like some gleeful thing. Again, China, to your point, looked at the US and was like, hey, they would bring people in there, consultants in there to help educate them. Wall Street types coming in there to help China figure out how to financialize, which, God help them.But the reality is, is that everyone looked at the US only to find out that we are literally toxic relationship man.We are that crazy bunny-boiling girlfriend that literally, if you don't do exactly what we say, we are going to stalk you and haunt you and destroy you. I think that that jig is up to some degree.But you know that thing they say, the person that has nothing left to lose is the most dangerous of them all. The US is flailing about because things are being taken from it left and right.Now I'm not here to tell you the US is weak because it's still a very dangerous, strong country. So all the people burying the US that's just kind of child thought right there. It's not real, but what it could have been, right?It's like you look and you say, "My God, this could be so beautiful." But instead it's like everything you could say do the opposite of.I fundamentally look at China and I say, "That's more of the blueprint of what I would want."Robust social services, robust education, robust growth in people, the idea of vast, growing, burgeoning middle class that are thriving in society and the life expectancy, as you stated, going above the US and there's no one in the US that thinks, "wow, maybe we should do something about this." Obviously if you know better, you do better. But they either A) don't know better or B) that's not their intent.Their desire is not to make life better. Their desire is to extract as much as they can for those oligarchs and leave the hollowed-out husk of the US in its wake.

Carl Zha: 00:39:35

: Well, Steve, they are doing something about it. They're trying to wreck China, right? That's, that's what they're trying to do. They're trying to hobble China's progress.They're taking the Tonya Harding approach to competition like, or just "I'll just kneecap China because China is looking to surpass us. We can't allow that because US have to be number one, right? US have to be the top dog."China is a threat precisely because China threatens our position as a global hegemon. Jeffrey Sachs just gave an interview a few days ago to Indian media and he's talking about US Government obviously. He said, "US hate China, NOT because China did anything particular to the United States. US hate China because China is successful. It's too successful."It is successful to the point that now China is poised to surpass United States economically and technologically. And this is why they will not allow that. And this whole process of turning against China started, he said, about 10 years ago.Basically, he's talking about the latter half of the Obama administration. I think it started even earlier than that because you know, this started under Hillary Clinton is the Secretary of State.She is the one who pioneered the so-called pivot to Asia.And when she's talking about pivot to Asia, she's not talking about pivoting US investment to Asia, she's talking about pivoting military hardware to Asia. And that has set the tone for kind of the confrontational path the US is on with China.Even in a leaked email, I think Hillary said the Pacific is American Lake.

Steve Grumbine: 00:41:15

:

Carl Zha: 00:41:16

: This is where how we ended up in kind of the situation today. But by the way, I just bought a car for my family because my oldest son is four now.He goes to kindergarten, I guess, and I have to drop him off at school. So I bought a car. I bought a Chinese brand electric car, Wuling.But when I did some research into it, I realized Wuling is actually partially owned by GM. GM owns 34% of Wuling. And the Wuling they make this car that sells for $8,000.$8,000 electric car in China and the longer-range version sells for $12,000. That's a boon for the Chinese consumers. Of course, when they get exported out of China, the price goes up. I mean, Bali, Indonesia.So I actually have to pay $20,000 after discounts compared to a Chinese person in China who would only pay $12,000. But looking up some of the reviews online, I saw people commenting, "Oh, wait, so GM is a partial owner of this car?"Why can't they do something like that in United States?You know, when they're fully aware of this, they don't plan to, partially because they wouldn't be able to make a car for $8,000 without the Chinese supply chain. I mean, I think that's a fact. And today people still talking about China like it's early 2000. They think China is cheap labor.But if you look at the factories for the Chinese EVs, for the Xiaomi factories or even Tesla factory in Shanghai, it's all automated. They have literally lights-off factories where the lights are turned off because there's no humans on the assembly line. It's all robots.

Steve Grumbine: 00:42:57

: Wow.

Carl Zha: 00:42:58

: Yeah.Why they didn't do that in US?  You have to kind of wonder, and this is the thing that could happen in US if they invested in the infrastructure, when they create policies that encourage business to set up shop in US but again, you don't do that with a sudden disruption of the supply chain like the way Trump is doing with a Liberation Day announcement. There was actually a Chinese professor who is quite renowned for his international studies. I think his name is Zhang Weiwei from Fudan University.He said something interesting. He said, "Trump actually understand all the problem that's facing United States."It's that US is waging endless war, is wasting a lot of resources on maintaining its hegemony abroad, and the US has hollowed out its domestic industry. But all the solution that Trump came up with to address these problems just made the problem much, much worse.[Yes] I think that's pretty accurate because, man, this whole tariff thing is so harebrained.If they had specific tariff targeting, specific industry, and in a way that's more gradual and allow the business and supply chain to actually take root in US that might have worked, but not like this. Right now what they're doing is they're essentially embargoing itself.Like imagine if China had announced a unilateral embargo of the United States, you know, like a year ago. This will be a cause for war. But this is not China doing this.This is Trump unilaterally declaring embargo of United States by raising tariff to 145% on Chinese import and causing a steep drop of the Chinese goods coming onshore again it's all self-inflicted and also unnecessary.

Steve Grumbine: 00:44:50

: So Trump is supposed to be meeting with Xi here shortly. Am I right on that?

Carl Zha: 00:44:54

: Not Trump. It was Scott Bessent, his Treasury secretary.So what happened was, according to the Chinese side, is that US have repeatedly requests for meeting and the Chinese vice premier was enroute to Europe.He was doing a stop in Switzerland to talk to the Europeans about...by the way, Trump also brought EU and China together because EU and China just made announcement. Yes, they just made an announcement that they're working on removing all mutual restriction on trade between EU and China.And these are the restrictions that was brought out during the first Trump term and the Biden administration when EU was basically pressured to slap tariffs on Chinese imports. And now, you know what? We realize that was a mistake given what Trump has done. So we're going to turn to China now.So, yeah, Trump is a great uniter that's bringing Eurasia together.So while the vice premier of China is doing a stopover in Switzerland, Scott Bessent is going to go there and meet the Chinese premier on the sidelines. So this is not even like a trade deal talk.This is like they're just going to have a meet together to see what the next step is, which I think the market is now probably responding prematurely. They think this is going to be a deal. This is far from a deal. This is just like them getting together to find out, where do we go from here.I like to remind people when Japan sent their own trade delegation to Washington immediately after the announcement of Liberation Day tariffs, they were met by Trump delegates. And the Japanese delegates asked, "What do you guys want?" And the Trump trade representative asked, "What's your offer?"So the Japanese delegate were completely baffled because they said, "We came here to find out exactly what United States want out of this deal. And we're left with nothing. Like, we have no idea. It doesn't seem like US really know what they want."And this is why the Japanese trade delegation left Washington without reaching a deal. So this is way too early to think whether a deal will be reached, but at least it's a step in the positive direction.So they're going to meet on the sideline in Switzerland. And then in Scott Bessent's own words, he said "In the next couple of days, then we'll decide what we will agree to talk about."

Steve Grumbine: 00:47:22

: So let me ask you one final question. I'm curious about this, the India, Pakistan, China thing. What's happening there? I mean, for real, like what's the story there?It just kind of laughing out loud, but it's like obviously India has a huge economy as well and they're obviously a major player in the world, even if they've got problems of their own. What's really happening there?

Carl Zha: 00:47:46

: Well, first let's dispel some of the more ridiculous notions. I saw one with a big MAGA guy who is a big account on X. He said, "Oh, the timing is so suspicious.Just when Apple was about to move their iPhone production to India, suddenly war breaks out." He's implying somehow China is behind it. I'm like, are you telling me China strong armed India to attack Pakistan?I mean, the Indian government do have agency here.I think that the thing is that there's very little love lost between Pakistan and India ever since the partition in 1947 when the British divided the British India into Pakistan and India. Over a million people died in that partition and there was a lot of bad blood left over.I noticed this because I used to work in the IT industry in the US, so I have a lot of Indian colleagues. Every time when Pakistan is mentioned, they get very emotional and they blame Pakistan for a lot of the terrorist attacks that happens in India.So what happened was J.D. Vance. J.D. Vance famously met the Pope, Pope Francis, and then Pope Francis passed away. So while J.D. Vance went to India, there was a terrorist attack that happened in Kashmir that targeted Hindu tourists in Kashmir. And the India government blames the terrorist attack on Pakistan, that Pakistan sponsored the terrorist group that carried out the attack.Pakistan of course refute that and ask for an independent investigation. But India decided to launch this aerial attack.But the way the attack was carried out, I think it shows that India is also trying to do pinpointing attack without too much escalation.Because the way it happened, what we know so far is that during Pakistani side scrambled their jet and during the aerial combat, which according to the Pakistan defense ministry, over 125 aircraft involved. If that were true, this would be the largest modern aerial battle in the 21st century. And Pakistan claimed that shot down five Indian jet fighters.And so far we have visual confirmation of at least one Indian Air Force fighter jet which is the most advanced European fighter jet that's in the arsenal of the Indian Air Force. And Pakistan side claim they did it with the Chinese built J10C fighter jet. I saw analysis on X, I think it makes most sense.I think what India did is they tried to minimize chance for escalation. So normally in an air operation the first thing you want to do is you want to neutralize opposite side anti-air defense.But India did not do that because that will obviously escalate into a much wider war if it starts out by attacking Pakistani military installations. So instead it claims to attack the terrorist camps inside Pakistan, which Pakistan said they attacked some civilian site and bombed some mosque.And then because India chose not to degrade the Pakistani air defense, Pakistani side was waiting for them. And India chose its most advanced fighter because with advanced features you will be able to carry out the mission with minimal risk.But that was a miscalculation because it turns out Pakistan Air Force was very experienced because a lot of the Pakistani pilots they have been flying for like the Saudis and UAEs in the operation against Yemen, they have a lot of actual combat experience. And also they have advanced electronics system with the new Chinese jet.One analysis I saw is they employed early air warning system planes that basically allow them to see the Indian fighter jet before the Indian fighter jet sees them. And then they transmitted the target back to the Chinese-made fighter planes like the J10s.And those J10s are equipped with PL15 missiles which has about 300-kilometer range. So these fighters didn't engage in the traditional dogfight. Those missiles were fired hundreds of kilometers away within visual range.Pakistani pilots received bunch of targets and they just press a button and missiles shot the Indian fighter planes out of the air. This is the nature of the modern air combat now. And then I think the Indian side have learned their lesson.So on the second day instead of sending out their fighters, they send out a swarm of drones now this time to attack Pakistani Air defense system. And the Pakistan actually brought down 25 drones. And there are the Israeli-made Harop kamikaze drones.These drones were also being used in the war Azerbaijan wage against Armenia. Because those drones were actually quite pivotal for Azerbaijan victory over Armenia a couple of years ago.And apparently India also has contract with Israel to purchase a whole bunch of these drones. And so this is where we are.Based on the information we receive, I tend to believe this war won't escalate much further because looks like the initial attack by India, India intended this as more of a publicity thing, you know, to appease the Indian public that's demanding for revenge, demanding for retaliation for the terrorist attack. But it was trying to do that with minimizing the chance for escalation. So far it doesn't seem that Pakistan has responded in a massive way.My hope is both sides call it a victory and just cool it off to minimize casualty on both sides. I think there's probably a small chance for further escalation to a full-on war between two nuclear powers.I think that both sides are calibrating very carefully to make it more like a statement rather than going to a full-blown war situation.

Steve Grumbine: 00:53:45

: That's a hopeful read and I hope you're right because you've seen how massive world wars break out and it doesn't always start with some big thing. It starts out with some small thing that all the allies and their treaties together start pulling others in and it just grows from there.And the world is a powder keg right now. Except the United States is doing its dead level best to unite everyone in it in its wake with these tariffs.

Carl Zha: 00:54:10

: Yeah, I mean I think one of the US plan is basically light the world on fire. So it presents itself as this oasis of calm.Present us as the only alternative to park your investment, to park your US dollar surpluses so you can continue to finance the US government debt. But we'll see how that will work out.

Steve Grumbine: 00:54:30

: Yeah, well, listen Carl, this was amazing. I appreciate your time. I really love your insights and as always, I hope I can have you back again soon man, this has been wonderful. I appreciate it.

Carl Zha: 00:54:41

: Anytime Steve, anytime.

Steve Grumbine: 00:54:43

: Tell everybody where we can find more of your work.

Carl Zha: 00:54:45

: Okay. I am on YouTube. You can just find my channel by my name, Carl Zha. I also operate a Patreon website where I do host most of my Silk and Steel podcast nowadays where I do a chronological retelling of the Chinese history from the very beginning from prehistory. And so far I have 450 BC range. I just got past the death of Confucius.  If that's your thing, if you're interested in learning about Chinese history blow-by-blow in chronological fashion, follow me on Patreon search for Silk and Steel podcast.Otherwise follow me on my YouTube channel where I talk about everything China related: history, culture, politics and China and all the surrounding regions.

Steve Grumbine: 00:55:31

: You're an amazing resource. Thank you so much, Carl. Folks, my name's Steve Grumbine. I am the host of Macro N Cheese and the founder of the nonprofit Real Progressives.Please consider becoming a monthly donor to Real Progressives. We have a Patreon. It's nowhere near as successful as Carl's "Silk and Steel", but we have a Patreon too, and we desperately need your support.You can also find us on Substack, and you can find us on our own webpage, which is realprogressives.org. Please, no amount is too small. We desperately need your help. And with that, on behalf of my guest and Macro N Cheese, myself, Steve Grumbine, we are out of here.00:56:20 Production, transcripts, graphics, sound engineering, extras, and show notes for Macro N Cheese are done by our volunteer team at Real Progressives, serving in solidarity with the working class since 2015. To become a donor please go to patreon.com/realprogressives, realprogressives.substack.com, or realprogressives.org.