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Hello and welcome to another episode of the Odd Lots Podcast.

I'm Jill Wasisenthal and I'm Tracy Halloway Terracy.

I don't know this for sure, but I kind of have this feeling that there's a bit of a fantasy, perhaps on the part of Americans or the administration or so forth, that in this trade war that non China Asian countries they could be our partner, they could be our big trading partner, and that somehow China could be isolated from them.

Maybe.

I mean, I know there's a lot of concern about Chinese goods basically flowing over the border in two places like Vietnam, So I think it's a little bit more nuanced than that.

You know, one thing I find really funny, and my nition of fun might differ to a lot of other people's.

But you know, if you.

Look at the real exchange rate, Yeah, so currency adjusted for inflation and stuff like that, the real effective exchange rate for the dollar is up like twenty percent since January, and the real effective rate for the UN, the Chinese UN is down fourteen percent.

So if you're trying to like make your own goods competitive.

Oh, American goods competitive.

It feels like we're heading in the opposite direction.

Wait, isn't that really true?

They even with the massive nominal decline in the US dollar, gets all these currencies that on a real basis.

According to Bank of America.

Huh, that's pretty crazy.

I would not have I certainly would not have guessed that.

And also this sort of gets back to the point that, like with the tariffs and with the trade war, I still don't know what the goal is and it changes a lot.

I don't know the degree to which any of it was successful.

But under the Biden administration I had some sense of, Okay, we had this specific goal with trade policy and other tech transfer policies to be at or near or ahead of the frontier of cutting edge in a certain key areas.

And when it comes to trade policy under this administration, it strikes me as all over the map.

Yeah.

So there's the question obviously of whether the US needs to be manufacturing things like toys in America, whether people would be interested in taking those manufacturing jobs.

And then, finally, as you pointed out, the goals are so confusing because on the one hand, it seems like, all right, it's about bringing manufacturing back to the States.

But on the other hand, the Trump administration has said that it's a way of raising revenue.

Yeah, as well, And then you have Trump saying I'm going to strike all these deals, so deals are seen as a win for him as well.

But then if he needs to raise revenue, is he actually going to strike deals totally?

Well, anyway, there's a million questions and we will have hundreds of more episodes in our life time probably that revolver on this topic.

But I think it's a good time to get some perspective from the perspective of the Chinese business community, Chinese manufacturing and so forth, Chinese policy, et cetera.

And like how a lot of this is being perceived from the Chinese perspective and the response to the aggressive action.

Yeah, because US policy isn't happening in a vasha right, like China is reacting to it, and you know, sometimes China can move pretty fast, So we should talk about it totally.

Well, I'm very excited to say I think we do have the perfect guest.

We are going to be speaking with Cameron Johnson.

He is a senior partner at title Wave Solutions.

He's based in Shanghai, but he's temporarily here in the US visiting US.

Someone who has his finger on the pulse of Chinese business and manufacturing.

Cameron, thank you so much for coming on oud lots.

Thanks for having me guys.

It's great to be here in New York with you.

What Title Wave Solutions?

What do you do?

So?

It's a boutique firm focused on supply chain, manufacturing advice and consulting.

I think if you're a business that needs a supply chain map and a risk assessment, maybe you need some operationalfficiencies, maybe you need to understand the policy roadmap for the next five years that the various governments around the world are doing.

Those are some of the things that we focus on.

Given recent events.

How busy have you actually been?

You know?

Interestingly enough, in April business was quite slow because it started off that we thought it was going to be kind of a normal Q one was okay, April was kind of starting off to be a normal year, but then when the tariffs came in, everything stopped, and so essentially in China what you had is yet a couple of weeks, we're almost nothing moved in the supply chains.

Walmart came out eventually and said let's get some stuff moving, and that kind of unclogged things.

But April was really tough, and then after Geneva's kind of the fire hose came on and everything and everybody was how do we move products around?

How do we move production around?

How do we get talent in different areas that we need to get it into.

So it's actually been quite a rampage since then.

So we're recording this on July sixteenth, and I have to admit, I don't know what the tariff rate China these days.

I don't know where Thigs stand in terms of what the latest deadline is.

I've sort of lost track of it all.

Like many people in the market, a lot of this has suddenly become noise.

But I can ask on July sixteenth, from what's been announced so far, whether it's tariffs or various other actions, is the state of business in China meaningfully different than it was prior to April?

Second?

Or would you say mostly things are kind of the same and adjusting to different tariff raids?

Had there been some major shift in flows or supply.

Chain, No there hasn't been that.

What you do see though, is a lot of moving around to pieces and parts, you know, toys, furniture, these kinds of things.

If they were made in China before, they're definitely not now.

But that doesn't necessarily mean you're pulling your factories out.

One of the things we have seen is that a lot of companies now are upskilling right.

They e they're going to put the higher margin on higher level products in China, they'll put the lower products outside of China.

Think of Vietnam versus China can make any squ you want, known demand.

Essentially, Vietnam can't make that many.

So when actually look at the trade flows, Vietnam produces far fewer SKUs and ships them to the States.

China ships it to the rest of the world.

Wait, talk more about shifting I guess lower quality production into other areas, because again a lot of people when they think of China will still think of basic goods manufacturing, right when in fact, I think it's progressed quite a lot since then.

It has, and often you know, when you look at kind of the last ten years to a short history.

When the first trade war came out, a lot of companies want to do China plus one plus two.

Right, you have a primary manufacturer in China, then you have you know, a sister factory maybe in Southeast Asi or Latin America, that kind of thing.

What has happened now is that those factories now outside of China are also being upskilled, but they're also being more specialized.

In China, you can still upscale because of the local ecosystems that offer you far more advantage than anywhere else in the world.

Particularly for certain products.

You'll still keep that and eat the margin within the tariffs, but in other places it gives you more flexibility.

So now if you're in Vietnam, for example, sure you might have a twenty percent tariff from the States, but when you compare with China, you're still getting that margin and you'll be okay.

The reality is, when you actually look at what's happening overall in the tariff schedules, it's a mess.

Nobody knows what's going on, and in fact, we're hearing now that some companies actually are reshoring manufacturing back to China because when you actually look at how the tariffs are working, twenty percent then supposedly forty percent on the transhipment at twenty percent, certain goods are more competitive to maybe made in China, even with eating the tariffs.

And essentially it would go something like, Joe, you're making a certain type of cup.

Maybe it's a Christmas branded cup, right, so you need a little bit more specialized machinery, people talent.

Okay, it's fifty percent from China, twenty percent from Vietnam.

It's difficult maybe to get in Vietnam because they're not as specialized.

So here's Joe.

You as the manufacturer.

You're going to go to the packaging supplier who gives you your cardboard and plastic.

You're going to go to your raw material supplier.

You're going to go to this, to that, and you're all going to ask them to take two or three points off their sales to you, and all of a sudden that fifty five percent or fifty percent or automatically becomes twenty percent.

So that's how a company is in the granular or starting to work around some of these challenges.

If I did have a Christmas cup that I wanted to design right now, how quickly could I have a manufactured product that then could ship?

Now do you know there's a whole like Christmas town in China that specializes in Christmas class familiar.

Could I have a cup by this Christmas season?

You could have any cup of any design, of any material, non demand.

How quickly what depends on the design.

It depends how many parts of the process you need.

If you already have the design, you have the cat and everything, you're looking at probably two months, maybe less.

If it's at scale.

For example, you want to shew of every Starbucks in the country, then of course would be much longer.

But if you're looking just for specialized runs.

Maybe you're a company, right you want to Christmas giveaways for your staff.

Maybe it's a couple hundred, couple of thousand that you can do very quickly.

This is something that actually came up in a previous episode with Sarah Lafleur where we were talking about apparel, but I think it applies more broadly.

But she size the importance of basically just China's expertise in doing this and the supply network that it's actually built up.

So if you are a foreign investor or a US company or whatever and you go to China, like immediately people kind of know what to do now if you're asking for a factory, So I'm curious, is that replicable in a reasonable amount of time by places like Vietnam?

It is, and you are you are seeing it being replicated overall, I argue that supply chains aren't relocating, but they're expanding and replicating.

So essentially, again, if you're a cut producer in China, now you're going to make in Vietnam or Thailand.

So you have this now mini ecosystem.

You go to your different suppliers in China and say, hey, I need this product next to me and Hochi man, you need to figure out how to get me that.

Oh this packaging guy, okay, you have a sister company maybe in Hanoi.

Okay, now I need to figure out how to access that.

So you're seeing the replication of supply chains around the region.

For example, I look at supply chain ecosystems and five components.

The first is advanced and structure.

It's not just ports and railroads, it's also things like five G the electrical grid sewers.

Second is talent and educational apparatus where are you going to get the workers from?

But also as things evolved, for example, AI, how are you going to train them up into these new areas.

The third is government support, which is kind of obvious.

The fourth is raw material access and or the ability to process it.

We actually look at what China does.

It doesn't have a lot of raw materials, but it has expertise in the processing.

And the fifth is technology.

Now China has this in most industries across the board.

The US has a for example, an aerospace.

Europe does too, but just in terms of So that's how I evaluate a supply chain ecosystem.

So when I work with customers or even policy makers and they say, well, what about Vietnam, I look at it in context of those five key areas because that will tell me where the gaps are and where we need to actually improve.

Talk about that process.

I mean, if Vietnam had the talent to be China, it would be China, or would be it at that scale.

So obviously there's a gap.

But this is something that's come up before.

What does all Right, let's say there's a Chinese company that makes X or Y.

Let's say they're making sporting goods or something like that.

They want to have more production of the low and in Vietnam, But presumably there is still some deficiency of some of these five categories, including infrastructure, including access to raw materials.

What is their process for making it such that, given the gap between China and Vietnam, that debt manufacturing in Vietnam does become economical.

Well, part of it is again just the lower SKU level, right.

So if you look at how hockey sticks, for example, are producers five levels of hockey stick the best to the worst, and you have five different levels, and so in that regard, you'll send a couple you know, the probably level five and four, maybe four and three to Vietnam to.

Be presund Like you've had a hockey stick, fine.

I've had multiple clients, but you know, ultimately you look at where you can get the largest amount of volume, not just at the cheap, not at the cheapest prices, but at the least amount of problems.

If you're selling let's say a level five hockey stick where you know it's not NHL grade, the cost is going to be lower, and the tariffs actually hit more and bite more.

If you're making NHL grade hockey sticks, which they do make in China, it doesn't really matter what the tariff is at that point, because they are expertise levels.

You have to have that quality regardless.

And so the other thing, Joe, to your point about China versus Vietnam and pretty much China versus the rest of the world.

China has about two hundred and twenty million workers in manufacturing, about twenty eight percent of its population.

Vietnam has fifteen million, about thirty and so the scale is a quality all into itself, and people just really don't understand that the difference is not just China moving forward in technology and in different ways of doing business.

All of that is true, but it really is just the massive scale of ability of talent where you can call and say I need a Christmas cup in three months, and it doesn't matter what the size, shape, or material is.

They'll figure out how to do it, and nobody else in the world.

You're doing it, Tracy.

It just clicked to me that there's an interesting lesson here that relates to the episode we did on snack food warehouses in the US, which is that with technological advance comes the ability to have more skews.

So as warehouses in the US got more roboticized, the sheer variety that they could hold any given time made sense because you can never robots go behind and pick them out and so forth.

And so it's interesting to hear like about like skew diversity as being this major sort of gap between China versus the rest of the world.

I'm smiling because you just reminded me of Peetos from that episode, the pee Cheetos.

Yeah, that's right, that's right.

Anyway, I better move on and stop laughing.

I will.

And we don't have those in China, so I don't know what they are, Okay.

But on this note, how does labor costs actually fit into this entire process?

And can you maybe compare and contrast Vietnam and China right now?

So labor costs really, again, it really depends on the industry.

For example, if you work in certain industries like composits, your labor cost actually is a small component of the overall cost.

It really isn't the materials, right, maybe the carbon or glass fibers, the resin systems, the machinery, so it's not equivalent.

What you have to look at really is what's work or productivity and efficiency because at that point the cost really doesn't matter as much, particularly with tariffs right.

The reason for tariffs ultimately, according to the US is they want to reshore, but they also want to deal with Chinese overcapacity or industrial policy.

But the reality is in Asia, labor across the board is not as important as it is such as I have this ecosystem, I have access to cheaper raw materials, I have plentiful electricity.

You know, one of the challenges in Asia overall is just the stability of electrical grid, and it's trying to continues to build out more and more of its own electrical infrastructure.

You're seeing more of this actually play.

For example, a certain amount of I think it's about twenty percent of Vietnam's electricity ultimately comes from China, and so you're seeing more and more of the spiller.

So it's less about what is the cost per worker, because for example, in China, particularly with entry level white collar workers, ten years ago, you might have twenty five to thirty thousand R and B per month, which is roughly four to five thousand dollars that would be maybe a first entry level job.

Now that level is half and part of that is because the economy is challenged, there's more plentiful graduates every year about ten million, and at the same time businesses are just using them for different things than they were in the past.

So labor is not it's a part of the key component, right, It's part of that key five key areas.

The talent, you definitely have to look at it, but there's a lot of other parts in the picture as well.

How do the governments of other Asian nations feel about you know, there's obviously anxiety in the US about what the rise of Chinese manufacturing, which is an age old story means, you know, meant we had the China Shock for American manufacturers, et cetera to the European ones.

Is there similar anxiety among Malaysia?

For example, I don't know if they still make the Proton Saga the car like you know, these countries have their own sort of longtime national champions and so forth.

Did they feel anxiety about the growing presence of Chinese power, both as imports but also just setting up a shop at home.

To some to go.

There's always a hesitation, But the reality is that the counterbalance to that, the United States is not doing anything.

Sure, So for example, one that one of the things we've seen particular in the last couple of months is when you talk about how is China versus the US.

For example, in Southeast Asia, Chinese leaders are going all around Southeast Asia talking to them about, hey, here's the market opportunities, here's what we're looking at.

The US is saying, come to DC and then we'll figure out what we're going to do.

They're very different and there is a lot of hesitation.

You know, for example China, you know my experience.

I went to Southeast Asia recently.

They're essentially discussing six key areas with these different countries.

The first is Chinese firms will continue to do fdi or investments in your countries.

American not American firms are going to retrench to North America.

Think of Apple as a prime example.

So that basically takes away a key component of US diplomacy and also influence.

Second is we have legions of young educated workers.

They're ready and willing to go to other places.

They want to work overseas, they want to get that experience, maybe they have better job opportunities.

The third is we can share technology and again with people.

Look like there was an article yesterday about how China is a restricting technology that's actually not what's happening.

If you want the technology of twenty twenty five, you're probably not going to get it.

But if you want the technology of twenty twenty three, no problem, because we're a couple generations ahead.

So when you look at what the discussions are in the region, all you need is that because you're probably at a twenty twenty or below in terms of technology, you need those couple extra steps to actually fuel your growth.

The fourth is there's still a lot of commitment to do infrastructure in region, but it's not going to be a bri A Belton Road kind of thing, but it will be.

Hey, you need certain ports will work that will build those out.

You need again maybe electrical grids or railroads connected Kunming now down to Singapore.

Those are the things that you're going to start to see more and more of because again they fuel and countries are like listen, I have to have economic growth.

I have to be able to continue to raise the standard beingium of my people.

The fifth is there's a lot of discussion and Foreign Minister Wangi had a discussion recently with odd the Aussian countries about doing more trade agreements, free trade agreements with Southeast Asia and the sixth one.

To your point, and this is one in my most recent trip to Southeast Asia.

I had never heard this before, and I've been going there since I was a kid.

Essentially, there's an understanding that there are local manufacturing or industries that are indigenous to do these countries, and the Chinese are acknowledging that we may not We're not interested in blowing those up those that's my interpretation, but essentially that we're going to be sensitive to local concerns.

Now, to your point, does that mean that happens in all cases?

I don't know, But the reality is is that there is an understanding of there's an opportunity here because the US is what's drawing.

But at the same time, it's just not good business to make people unhappy when we're doing business.

You mentioned going to Washington, and we opened this discussion by talking about how well we don't really know what the tariffs are, and I think it's difficult for anyone who's trying to track them.

Now, you mentioned that production is already moving in response to this.

Is there any concern that, like in two months, Trump is just going to reverse position and the tariffs are going to go away or be altered, and that changes the economic calculation for setting something up in say Vietnam.

I think there's just a lack of confidence overall of the direction we're going, and there's no clarity whatsoever.

And you're right, this kind of back and forth.

It is, but it isn't.

It is, but it isn't.

Supply chains take probably fifteen to twenty years to fully develop.

You may be able to build a factory in a couple but that again, that doesn't mean you have the raw materials, to people and the other key components that you need to build out your business.

And so yeah, it's not only uncertain, but all these other countries are going.

China's not doing that to us.

I'll give an example Bangladesh, right, population larger than Russia.

They have a zero percent tariff to China.

They have a thirty five percent to the US.

So which one do you think they're going to prefer more?

They're obviously going to do more business with China.

And ultimately this is the issue with the tariffs.

If the tariff was listen, this is the standard rate for country.

Of course, it fluctuates depending on market need and so on.

We want to have more market access into your own countries for American products.

There's a general understanding that that's probably what could happen.

May maybe not perfect in all cases, but the reality is is that the way it currently is, it basically puts the US in a horrible light.

And the people who we need the most are the ones who are suffering the most.

And how long do we think that's really going to be able to last before they're like, that's enough, We're going to go with the Chinese.

What is trying to import from Bangladesh?

Because my impression is that China just does not import that much period, not just from the US, but is not a big import of anything.

Is in part because of how much it's been able to build out its domestic capacity.

In a range of things scrap not all maybe yeah, you know, clothes, process, raw materials, you know.

And again it's China expansion.

One point zero was kind of what we had up until twenty twenty, meaning in the country, your world class at most everything you have.

Now we're seeing China two point oh, which is China for the world.

So it's less about Bangladesh selling to China.

It's more about as the Chinese supply chains and supply chains in general continue to evolve, replicate, relocate now Bangladesh.

Who wants a piece of that supply chain puzzle, that's what they want.

And remember, one of the things that China is discussing with aussion in Southeast Asia is market access for your products back into China.

So you could have Chinese manufacturers who moved to Bangladesh because maybe it is cheaper or they have better raw material access for India for cotton, for example, and then they could produce and sell it back into China.

So there's a lot of things that can actually happen across the board of supply chains that we haven't even experienced yet.

Do you see anyone maybe shifting focus Chinese companies shifting focus into selling domestically in the domestic market, because of course, that would dovetail with one of the government's key ambitions, which is to try to boost consumption in an economy where saving has been pretty traditional.

We do see some shift to that, but domestic demand overall is not fantastic.

There's a lot of hangover from the COVID years.

Some Western products are still seen as a better option than Chinese products.

And also China historically as a saving nation.

The Chinese are never going to buy like the Americans ever, And this is one of the actually debates I have with economists who say they need to buy more.

Sure, but what does that actually mean?

What is the actual rate you have to hit, because if you expect them to do a US rate, that's never going to happen.

So you do see people and companies are still spending on machinery upgrades.

They're still buying iPhones and huaweis and ites and Shami cars and everything else.

But they're not spending like Americans would spend, and they're saving more than they used to.

Again, I would argue a lot of that's from the COVID years, but it's also has to do with other challenges inside the country, the social welfare uncertainty, these things as the population gets older.

Actually talk about what is the sort of debate that's happening in China with regards to this idea of so called Chinese overcapacity Because American economists love to talk about this.

Sometimes it feels like cope.

To me.

It's like, oh, we can't compete, therefore they must be cheating, right, Therefore they must be flooding our market because they have this overcapacity.

On the other hand, you do see comments from leaders in Beijing from time to time talking about the provinces engaging in unhelpful, unproductive race to the bottom competition between each province's champion, et cetera.

Explain to us, like how this question of quote overcapacity is sort of metabolized in China.

Well, over capacity is very much in the eye of the beholder.

If you're a consumer, in many cases you love over capacity risis keep going down, right, I think you're right.

Part of it is is that when you actually look at the buildout of initiatives and like a five year plant structure, a lot of it is we need to do X Y, and we need to have more AI data centers, we need to have more EV companies, and so different regional governments champions will undertake those initiatives, and so that ultimately will contribute to a buildout of the overcapacity argument.

I think the other thing to realize is that we actually look at how a lot of this is done.

It's done in a way to figure out how to build out an ultimate supply chain, not an end product.

Here, we want to make a forward truck.

Great, that's the goal, but in China it's actually reversed.

How do we actually figure out how to make a million Shami cars every year?

Well, first you have to figure out how to deal with the raw materials, the battery suppliers, with the different part suppliers, and so it's actually a full breakdown.

So the overcapacity actually isn't just in the final product.

Ye, it's in all the ancillary products in the tier one, third, fourth, fifth, sixth, seventh suppliers as well throughout the entire country.

Now it's not the same in all industries.

I don't want your listeners to get the wrong idea, but you take for example, EVS.

The leaders in EVS are not the soees, they're all the private companies.

And so one of the significant shifts we've seen in China is that the soees and the traditional automotive manufacturers now have a far less not just dominant position, but influence in the market.

It's all the private companies generally, and so is that over capacity.

That's definitely one of the overhangs for sure, and one of the challenges.

You know, I was just in Europe last week and this is one of the debates I keep having with them.

You were fine with overcapacity for German in Japan and they ultimately they're They're exported mar much more every year than whatever China does.

Now that the Chinese do you have a you have an issues like come on, guys, like you can't have everything.

The other thing is is that in many cases, this is how you develop world class technology.

For example in EVS is you have this intense this najuan, this extremely intense internal competition.

Because that's the word us, it's internal basically fierce internal competition.

Right.

There's another interesting word that has come out a lot, particularly because of the recent moves with the age twenties, is called chop woods.

Basically mean you're strangling us.

And so the Chinese have used this in terms of the Americans saying, hey, you're strangling our industry with semiconductor controls and everything else.

And now there's a new discussion about the new job boards in China as oh, we have rare earths, so now we can also do it right.

So, and this is kind of an interesting when you talk about overcapacity part of my discussion.

When you look at supply chains, it really depends on the supply chain, but also where it is.

For example, overcapacity is great if you're Australia because you're getting cheap automotive cars out of China.

Right the Japanese don't like it because they're losing market share as an example, and so where does it actually work out.

One of the interesting things about overcapacity is it's not just overcapacity again in the final product, it's the entire supply chain.

So this is one of the things that's contributing to China global.

In China, because of this nagement, this fierce internal competition, companies, a lot of them cannot make very much money, if any, so they have to go out.

So what you're seeing now as they go out they're building supply chains.

Bid is a perfect example.

They're actually bringing that entire ecosystem with them.

So while it may be overcapacity inside China, the benefits to other parts of the ecosystem outside of China is now you get access to cheaper technology and products overall that you can build locally.

I have so many questions I have to focus, but okay, net would you say that the crackdown on Chinese technology has accelerated China's technological development or hindered it.

I'd say it's definitely accelerated it because, again referring to those five parts of the supply Chin ecosystem earlier, it essentially focused everything in the entire country and all the companies into this.

We have to figure out how to make this work because now it's an existential threat to our businesses.

The one thing I've learned since I've been in China as a kid, never focus the Chinese on a problem.

Because they will attack and kill that problem.

And with that you also see the expenditure of massive amounts of resources, and it is very intensive, it is sometimes wasteful, but the end result is pretty clear, you have world class companies and technology.

Speaking of resources, So one thing I remember from my time in Hong Kong was the Chinese government crackdown on education companies and what they termed wasteful capital.

And they basically came out and said they wanted to encourage more money to go into high tech businesses.

Is that still happening?

And then also do you see money, government money, maybe lending standards being eased up for other industries.

Basically, is China using financing to encourage other types of industries to be able to expand go abroad things like.

That, so they're not necessarily using financing like hey, here's an import export bank for you, and such as the US for example.

What's going What they are doing though, is particularly on with different incentives.

Think AI for example.

They are providing the entire ecosystem different levels of support.

Maybe that support is some finance.

Maybe the support is a guarantee of we'll buy x amount of your product over X number of years.

Maybe it's we're going to work with universities to tweak and change our educational programs so we can actually train the new ends in terms of a more effective way to go into business.

That's where we see the changes.

Ten years ago, it would be more financial stimulus, financial incentives going out and the tax incentives and so on going into the system.

But now we're seeing these tweaks and changes because they understand that money isn't everything.

You also have to build out all these other components to actually move forward in an.

Instagent talk to us about AI.

You know, obviously we had the deep seek moment that was just earlier this year kind of feels like ancient history.

Have you tried Kimmy yet?

Have you heard this one.

There's some company called Moonshot and they have a new model called Kimmy, and some people are saying it's better than Deep Seek.

I'm not sure.

So yeah, you know, they all kind of it seems fine, It seemed very good.

You know, they all to kind of look the same.

But how does the AI race look for We know how it looks from the perspective of your Deep Seak moments, et cetera.

What does the AI race look like in China?

You know, it's interesting.

It really depends on who you talk to.

But my personal belief is that China's ahead and AI and it's not even close.

When you look at the Great Yeah, when you look at Great, when you look at the Deep Seek moment, it was a watershed.

But there's one hundred Deep Seak equivalents that are coming online.

We've only seen ten of them, right, I don't know what the equivalents are in the stage, sure, but when you look at again, things like infrastructure, China has copious amounts of electricity they can build out.

They're constantly building out their electricity grid.

Last year, in twenty twenty four, they had three hundred and eighty gigawatts built out.

The US only had sixty maybe eighty, I don't remember if to my head, but essentially that gives them a huge runway to build out all of these AI all of these data centers the talent.

I was at the Semiconductor show in Shanghai at the end of March and they had a booth there SEMIU and essentially this is the goal of this organization, is to help young graduates get into the fields of the future.

Last year when I talked to them, it was very much ore we're trying to help young graduates get internships and introductions.

This year was hey, we're gonna have one hundred thousand graduates going to five key industries AI, quantum computing, robotics, semiconductors, and batteries.

Now one hundred thousand per year.

That's more than all of the Western world combined.

By the end of the decade, they want to have half a million.

That's more than the entire world combined.

And when you actually look at how China is building out again in this AI situation, and all sidestep a bit.

When you just look at battery chemistry, China has fifty graduate programs of battery chemistry and metallurgy in it.

The US doesn't really have that.

They we have a couple of professors.

And so when you look at again the talent the government support, it's not just hey, guys, we want to use AI.

It's every kid in the country now, from kindergarten all the way on up.

I mean even my own kids.

Now they are mandated starting this fall to have AI education, the entire apparatus in the whole country.

And so again when you look at these different areas and I'm like, hey, wait a minute, guys, like this is not comparable.

I'll give an example.

I was in southern China at a consumer goods manufacturer who I've known and I do work with.

They have deep Seek in the factory.

They have five factors in China, a couple of Southeast Asia.

And I'm like, why do you who make consumer why do you have deep Seek?

And he goes, oh, Cameron, we have a lot of different products and we want to figure out how to use it.

We have over one hundred R and D and technical guys.

Business is slow because consumer goods in the trade war.

I'm trying to have them figure out while we have the time how to use it.

So I go talk to the technology team.

The technology team is talking to the entire supply chain how to use deep seek and these different programs to do more efficient business and solve problems.

So he shows me his w Chat system.

He's got hundreds of people in a we Chat group.

They're plastic providers, they're raw material producers, the packaging guys, and there's like, oh yeah, they'll say, you know, I looked at the wa chat feed.

Oh this didn't work.

Try this, do that.

I don't know what this means.

What are you've seen?

Here?

Was the entire supply chains having this massive compounding knowledge throughout all of it, from the raw material producer all the way down to the final component manufacturer of the OEM.

Then he says, by the way, this is now happening in Vietnam and Thailand because there it's a lot of Chinese management and now there are suppliers which are Vietnamese are tied.

So you're seeing this massive compound threat all of the supply chains.

And that's just one company.

Joe.

Is Boeing doing that, is now Chemical doing that?

Is BMW doing that?

I would argue no, and this is why In my mind, China is very far ahead in the AI race.

People look at it as that we have breakthroughs, we have this in that, and that's absolutely true.

The US is one hundred percent ahead in that.

But I call it the metaphysical versus the tangible.

The US and the West is going to be great at the metaphysical discoveries.

And everything that build the digital God first.

That's right.

The technology and the adaptation and the integration is all going to be Chinese.

Joe, this is kind of depressing from a US person factor, depressed forever.

Okay, I was born depressed.

I wouldn't go there.

No, you weren't.

No, I wasn't that.

The show is generally a happy You mentioned young people and the education system quite a bit here, But I imagine this is still a shift in the labor force.

Right, So if more factory jobs are going from China to Vietnam, that means fewer factory jobs domestically.

How does all of this, the trade war, the responses from private companies in China, how does that play into domestic politics at a time when there's been a lot of anxiety within China about things like youth unemployment.

It unifies it more than disunifies it, because again it gives them a focus.

We need to stand up against the attacks that we're receiving.

What's actually having the opposite effect in many ways.

I think the other thing is people understand that the industry of today is not going to be the industry of tomorrow.

So we have to upscale, we have to train our workers, we have to automate more.

If we do have a parder component that really just isn't profitable for us, we can send it to Southeast Asia and it will be profitable.

Need to explore that.

So you're seeing the different ways that they can attack that problem.

I have one more question, and I'm also worried it's going to be sort of leading to a depressing answer.

But I think it was twenty forty nine that Dung Hopeng targeted for.

Like, okay, by twenty forty nine, will have achieved a modern socialist state, maybe a modern communist state or something like that.

And seems like one way you could get there is just like have robots do everything.

And I know there's a lot of investment in China in humanoid robotics, which if you could really have you know, a robot that more or less moved like a person, pretty incredible productivity gains.

There's efforts here obviously, and Tesla's in that space.

Can you talk a little bit about like the state of the Chinese humanoid robotics industry, their contribution to essentially reducing the burdens of human labor, and what.

The sort of competitive vision for that industry is.

I think they, I mean, the competitive vision is still being built out because again we don't know exactly what they can and can't do.

For example, human oild robots will be great at repetitive tasks, whether they're on an assembly line or maybe it's I have.

To I saw a video of a full service gasoline station where the robot filled up the time.

Sure.

I mean, again, those are repetitive.

You can only program them for a certain number of variables.

But things like you know, when I was working in carbon fiber, we did a lot of textile production where you had to essentially thread very thin fibers into islet holes to feed into the machine.

That will be done by humans for a very long time.

Because it's a very it seems simple, but it's actually very complex.

We have to line everything up tie everything in accurately and so on.

I think the area to look at for robotics in general is again, do you have the supply chain ecosystem And China has that from all the way from the raw material processing for example, for the magnets, all the way down into the installation.

And that's why, ultimately, again given where we are currently, China will continue to grow ahead.

It's great that Tesla does it.

They absolutely should.

Competition is better for everybody, but you still get your magnets in China now, Wiello, it become a problem in the future, maybe not, Maybe it will.

I think that's to be debated.

Ultimately, when you look at how it will affect society, we just don't know.

I think the one thing to look at though, is as they continue to grow the supply chain ecosystems in these areas, and regardless of industry, where it's robotics, it's semiconductors, it's making paper, the reality is is because you have all of that in your country, you can tinker with it a lot better than other places in the world.

So when you actually talk about the innovation advancements and the ability to tinker on the fly, which China is world class at it's often because they have all the different pieces and component parts.

You talked about the Christmas City earlier, and that's because you can get everything for Christmas in that city.

You can get the screws, you can get the tinsil, you can get a color red, you can get or pink, whatever it may be, and all of that.

Because that ecosystem exists there, it gives you far more flexibility in the future to build something out.

Joe, how do you think New Jersey would respond to gas pumping robots?

Oh?

Yeah, from either way, Like is the required full service guess a benefit for the workers or is it just a guaranteed benefit for the drivers?

Can I say my guilty my guilty thought, which is like I like getting gasoline in New Jersey, sure, you know, Like yeah, I like being lazy, and I like having any because if I'm not like in New.

Jersey, I'll pump it myself to save them money.

But I like having an excuse like, oh, you know, I had to do it, and then I just get to sit in my cars.

I don't complain.

That's not that bad, Joe, not that guilty.

I have just one more question, and it's a really basic one.

But maybe you could walk us through or at least give us some color on how the actual paperwork works for these tariffs, like the hoops that companies are having to jump through in order to get goods to the US.

Given that the teriff rate seems to change day by.

Day, I would refer them to my best customs broker because I don't I don't deal with that because, particularly to your point, because it's kind of changing and evolving.

The rules are changing.

One day you can't move H twenty chips and the next day you can.

Right one day you don't have anywhere else, the next day you can.

But there's still tariff and text.

And but at what rate of they tariff in text because if you get it out of Southeast Asia, it's now a different tarif rate than China, but they both come from China.

How does that actually work?

The reality is it's so complex now that hire a professional because that's what I do.

Well.

I guess I'll ask you one more question then, and it relates to the very beginning of the conversation about Chinese manufacturers building out more of their supply chain in Vietnam and other Asian countries, and one of the things you hear about is we have to guard again so called like transshipment, which I just take to mean there's something that's made in China and then it stops for a cup of coffee in Vietnam and then puts on another boat and suddenly you know, it's a disguised importance made to look like Vietnam.

It sounds like though the vision is that that just becomes irrelevant, or that that's an unnecessary thing, that actually it is a Chinese company, but it's actually made in Vietnam, and that ultimately the idea of like tranship the idea of just like something passing through Vietnam is like a temporary thing, but in the end it will just be made in Vietnam, and that the companies and the division is not to use Vietnam as a passed through.

The vision is to use Vietnam as the source.

No, you're correct.

I think the issue transhipment is the definition that is used now is very twenty eighteen.

It's not really what's happening.

Of course, it still happens on occasion.

I'm not denying that, but yeah, when you actually look at what's happening.

It's the raw materials and semi processed intermedia goods that are coming into Vietnam.

Yeah, and then being processed and moved on.

Now, at what point is that Vietnamese versus Chinese?

You know?

That actually is the debate that nobody knows the answer to, and we haven't received guidance on from the government about what that actually is.

Is it amount of content like it has when the MSCA, or is it something else?

We don't know.

You know, one of the things you hear, and we've talked about this on the podcast, is that anyone who's been in China for ten twenty thirty years has seen extraordinary advances and standard of living over this period of time.

I've never been to Vietnam.

Given all this, would someone who's forty years old in Vietnam today or younger like in the last ten years, would you say the quality of life and the quality of infrastructure is massively changed in some of these other countries.

Yeah, I would.

I would say that it's also that the standard of living, the job opportunities, right, are the government's going to have more money in their coffers for social services because they have better taxation because there is more money coming in.

All of that is improved across the board in the region.

Absolutely.

I actually have one last question, which is this isn't the first time that we've seen the US impose tariffs on China.

Obviously, in the first Trump administration we had restrictions, although clearly not as stringent as they are now.

I kind of think of them as like maybe practice tariffs for China.

So I'm curious, what was the most surprising thing that you learned or witnessed or saw from the first round of tariffs.

From the original trade war tariffs.

Yeah, I think the thing that I was the most surprised that is that the US didn't understand that it's basically squeezing a balloon.

If you squeez them out of China, they'll go somewhere else, but particularly the Southeast Asia, and that by doing that, the calculus of ABC anywhere but China has now actually cemented Chinese influence in Southeast Asia and it will never will never go back to the opposite, particularly with what we're currently doing.

And so the surprising things are more for me as on the US side of strategically, how do we think about these things and how do we forecast out five, ten, fifteen, twenty years.

Is that even if that was a consideration, it really wasn't given much credence.

Those are the things that surprise me more.

Of Course, a company if their tariff is going to go outside and build somewhere else.

Of course, companies that have internal intensive competition are going to want to go to new markets where they can make more profits.

That's going to happen.

That's business.

But when you actually look at geopolitics and the evolution of geopolitics, particularly in regards to China, if you again, if you try to force China into a situation, not going to expect the outcome, right, And the outcome in this particular case of Trade War one point zero is it cemented Chinese influence in Southeast Asia.

The outcome of Trade Board two point zero, although we don't know, it's essentially now cementing China's lead in supply chains in Asia, Africa and Europe.

We're going to get really freaked out in this country when it's Ladam, when it's like in our hemisphere, it.

Is, well, yeah, they're already being freaked out.

And I mean the reality is that when you talk to Chinese businesses, particularly private businesses outside of China, they know that they have to abide by local rules.

And so one of the things that has been most surprising to me is that the US doesn't encourage more Chinese firms, particularly in industries where we have to have the technology, yeah, battery and so on, come here, not just come here, but you do it our way, right, fifty one percent JV versus four nine percent.

And American has to be in charge all data silent.

You know, there are certain things you can do that are low hanging fruit.

And one of the arguments that I use often is, for example, with these advanced supply chains, for example, with EVS China, Chinese firms China has invented did hundreds of billions of dollars in the last twenty years developing this out.

Why does the US or Europe want to spend the same It's stupid.

If you want to build it out, invite them to do it, pay them the royalty fee whatever it comes out.

To take the technology and then fork it and make an indigenous So instead of twenty ten years twenty years behind, now you're two.

That's a much different conversation.

And these are things to your point crazy that we just don't see whether we're not picking it back.

Cameron Johnson, thank you so much for coming on.

That was a fascinating conversation.

Thanks for having me, guys, fascinating and depression.

Well, that was certainly a very fascinating conversation.

I mean there's a lot to pick up from this idea that China is ahead in AI and that it's not particularly close is like a really interesting contention.

Yes, it's an interesting contention because I think here in the US, the way people talk about AI is that this is still an area where we maintained some semblance of a quote lead unquote.

Yeah.

I also thought, well, I guess the emphasis on the sort of like iterative process of Chinese companies was important because China does have this like background of taking a particular piece of technology or a way of doing things and then improving on it.

So it seems like maybe AI just kind of speeds that up, or maybe AI itself is a place where it can kind of deploy that strategy.

The other thing I was thinking about is just the importance of the supply network that Cameron was emphasizing and how difficult it is to replicate that, like, could you imagine a Christmas village in the US?

No, and or shoe Town, Hue City and all of these things.

No, it's almost impossible to imagine, you know.

I think this is something we've talked about Sam Demico of Impulse Labs.

You know, the idea that the supply chain is the product, right, And I think hearing him talk about over capacity, as in, it's not about the overcapacity of end products per se, it's about that overcapacity to the extent that is a meaningful lens of the entire the entire chain, right, and all the different suppliers.

I thought that was like a really interesting idea.

You know.

Another thing that I think is important and it sounds trivial, but setting us at the cost of labor until we have perfect humanoid robotics, there is no substitute for population, right.

And so just the fact that the sheer number of workers, whether we're talking potentially factory workers or the sheer number of STEM graduates, which to some extent might be about educational priorities, but to another extent, is also just going to be about the sheer number of people in the world.

It ends up being a meaningful qualitative difference.

What was the stat that Cameron throughout one hundred thousand STEM graduates or something per year.

Yeah, like more more than all.

The Western countries profess.

The multiple battery majors and the US doesn't have any anyway, I don't know.

We gotta go to Shoe City.

We gotta go to Shoe City.

All right, shall we leave it there?

Let's leave it there.

This has been another episode of the Odd Lots podcast.

I'm Tracy Alloway.

You can follow me at Tracy Alloway and.

I'm joll Wisenthal.

You can follow me at the Stalwart.

Follow our guest Cameron Johnson, He's at Cam R Johnson.

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