Alice Han
Appearances
Pivot
Trump’s Putin Call, Inflation Rises, and Sam Altman Strikes Back at Elon Musk
Not well at all. I mean, the fact that Tesla is still there surprises me somewhat, given its price point. And the fact that all these companies, including Tesla, have had to cut prices over the last few years because of the extremely competitive price war landscape. I think it's only a matter of time before that share starts to diminish even further. It's going to be an open-ended question.
Pivot
Trump’s Putin Call, Inflation Rises, and Sam Altman Strikes Back at Elon Musk
And now this is going to be based on the politics of it all, whether or not Elon Musk gets these autonomous vehicle licenses. Explain what she was saying there. And by the way, her accent is fantastic.
Prof G Markets
The State of Trade with China — ft. Alice Han
This is a policy at the end of the day that's oriented toward helping some of the folks who have really been the losers in the economy and have been left behind for a long time.
Prof G Markets
The State of Trade with China — ft. Alice Han
Well, it's a bit of a mixed bag. And thank you for that question, Ed. Certainly, if you look at some metrics, whether it's deflation in the economy or it's the GDP outlook, China is continuing to slow down. It's continuing to face these big disinflationary pressures.
Prof G Markets
The State of Trade with China — ft. Alice Han
But at the same time, if you look at the stock market, it's been doing pretty well, especially now with announcements of DeepSeek and Alibaba's AI models. We've seen actually Chinese tech stocks, including Buyu Buyu Di, do extremely, extremely well. And this is in the midst of obviously these tariff threats that have been thrown onto China.
Prof G Markets
The State of Trade with China — ft. Alice Han
We've seen the 10% tariffs that have just been put into place on Chinese goods. China has retaliated in kind in the last few days. And certainly now we have more threats of 25% tariffs on steel and aluminum across the board, not just China, but a host of countries. So China is facing a lot of these trade war risks and pressures to the economy.
Prof G Markets
The State of Trade with China — ft. Alice Han
But at the same time, it is riding the tailwinds of positive, I would say, upbeat news about Chinese tech, Chinese AI, Chinese autonomous vehicles in the case of BYD. And certainly, our clients are particularly interested in the stimulus that is probably going to come down the pipeline in March when the NPC meets.
Prof G Markets
The State of Trade with China — ft. Alice Han
So an uptick in both monetary and fiscal should be supportive of more Chinese equities. And so we really get this bifurcation. The stocks look pretty attractive, but at the same time, we've got these deep-seated macro issues that aren't going away anytime soon.
Prof G Markets
The State of Trade with China — ft. Alice Han
Well, deflation is a sign of weak demand internally. And in the case of China, this is borne out by two major factors.
Prof G Markets
The State of Trade with China — ft. Alice Han
One is the fact that domestic demand has been hit hard by a number of factors, the financial repression of the household sector, the fact that interest rates remain extremely low at the expense of the household sector, and the fact that COVID really had long-term consequences on the household balance sheets.
Prof G Markets
The State of Trade with China — ft. Alice Han
Not to mention, obviously, the real estate crackdown that has obviously hit the net wealth effects for households. So we're seeing a very weak consumer environment. That has pushed prices down. Meanwhile, China is using more of its export engine machinery and manufacturing sector to try to offset some of the slowdown in the private consumption and the real estate sector.
Prof G Markets
The State of Trade with China — ft. Alice Han
That effectively means that you've got two sides of the equation. Domestic demand internally is very weak and meanwhile China is supplying increasingly cheap goods to the rest of the world because it needs to produce more to meet the sort of GDP targets it sets for itself every year.
Prof G Markets
The State of Trade with China — ft. Alice Han
So that creates a picture in which China is effectively exporting more disinflationary pressures to the rest of the world and that's really fueled a lot of these tariff debates not just within the US but within the EU too.
Prof G Markets
The State of Trade with China — ft. Alice Han
A lot of countries are very worried about Chinese overcapacity and China basically flooding the markets with cheap goods that it can do cheaper because it's got the scalability, it's got the cheap logistics infrastructure, and labor is still very, very competitive compared to these developed economies.
Prof G Markets
The State of Trade with China — ft. Alice Han
Well, I think the 10% we'll take that first is pretty manageable. It's certainly less than trade war one of a pressure on China. China responded to that pretty quickly by devaluing the currency. That is probably what it will do if tariffs get worse. It devalued at about 10% over the course of 2018 to 19 in trade war one. That is number one, what they'll do.
Prof G Markets
The State of Trade with China — ft. Alice Han
Number two is more fiscal stimulus to offset some of the impact if the tariffs are increased beyond 10%. And number three is to continue to redirect trade outside of the U.S. Now, even although we've seen the U.S., and this is astonishing to even cite, U.S.-China trade deficit has increased from $180 billion back when Trade War I was signed, so 2019, to around $360 billion as of right now.
Prof G Markets
The State of Trade with China — ft. Alice Han
And that effectively is almost a doubling of that deficit over time. But at the same time, China has increased its exposure to the rest of the world. It's redirected trade either through re-exporting hubs like Mexico and Vietnam or exporting to new markets. This is why China's Global South Initiative is something we should pay attention to because it realizes that countries in the U.S.,
Prof G Markets
The State of Trade with China — ft. Alice Han
even in the EU, are very worried about Chinese overcapacity. They will use trade measures to tariff or sanction Chinese goods. So they need to find alternative markets, both to re-export but also to export to. And another fun fact is that the Chinese trade surplus with the rest of the world has gone up to almost a trillion. As of last year, so $992 billion.
Prof G Markets
The State of Trade with China — ft. Alice Han
And I don't think that's going to stop anytime soon. It goes back to your question, Ed, about disinflation or deflation. China needs more exports, not less, because its internal domestic demand is so weak.
Prof G Markets
The State of Trade with China — ft. Alice Han
Yeah, I would broadly agree with that. I think Trump, even although his instinct is right to try to rebalance the trade deficit with China, he's using a hammer rather than a scalpel. So he's effectively going to a list of countries that he thinks that are running a surplus or US is running a deficit with those countries and trying to use tariffs to attack them. The same is the case with China.
Prof G Markets
The State of Trade with China — ft. Alice Han
What I think people have realized with DeepSeek, and it goes to people like Marc Andreessen and even clients that I advise, is that China has created an alternative ecosystem for the hardware and software. The stack is completely produced in China because of the tariffs and sanctions that have been put into place since the Trump administration.
Prof G Markets
The State of Trade with China — ft. Alice Han
And what was surprising about DeepSeek, not only was it 27 times cheaper, apparently the R1 model was 27 times cheaper, that open AI was the fact that they were able to produce this mainly internally, but also using low-end chips from the video.
Prof G Markets
The State of Trade with China — ft. Alice Han
The H20s that the Trump and Biden administration didn't think to impose export controls on, effectively allowed China to bootstrap their way to a competitive AI ecosystem and model. Alibaba has produced one recently that was also extremely competitive.
Prof G Markets
The State of Trade with China — ft. Alice Han
So this is a landscape in which the US, I don't think, is entirely prepared for because they thought that export controls, especially on hardware, would effectively kneecap China on AI. But there's been a bit of a wake-up call. I think it was right to call it a Sputnik moment.
Prof G Markets
The State of Trade with China — ft. Alice Han
There was a wake-up call over the last few weeks in which investors, the broader tech community in the US, really figured out that something was happening in China. And I would continue to watch the space, watch somebody like Kai-Fu Lee, who's been the father of modern AI in China, He I met him last year.
Prof G Markets
The State of Trade with China — ft. Alice Han
He was saying that China will be very competitive in driving down inference and training costs because of the scalability and ecosystem. And I think that's being borne out right now.
Prof G Markets
The State of Trade with China — ft. Alice Han
I think it's a bit of a mixed bag. I do think a lot of American companies have been hurt by obviously geopolitical risk, but also just China demand going down. It's not just these companies that you cited. Luxury brands have been suffering a great deal as well. I mean, we haven't even talked about automobiles.
Prof G Markets
The State of Trade with China — ft. Alice Han
The Germans are kicking themselves because they missed the opportunity in electric vehicles and now they're being out-competed. by BYD and Geely. I think it's a story of both Chinese weak demand, going back to the first question, but also the fact that China is producing more competitive alternatives.
Prof G Markets
The State of Trade with China — ft. Alice Han
When it comes to Chinese companies overseas, it's a bit of a difficult one to square because certainly if you talk to these companies five, seven, eight years ago, Alibaba, ByteDance, Tencent, they were very interested in expanding and investing overseas. Now, for a ton of reasons, I think both foreign and domestic, that has really been curtailed.
Prof G Markets
The State of Trade with China — ft. Alice Han
So they have obviously seen their profit revenue growth decline over time. But there's still opportunities for them in the domestic market. I just think for Chinese tech to have a global kind of sway that, say, ByteDance does is going to be very, very hard, especially as they face potentially more geopolitical risk and backlash against Chinese tech companies.
Prof G Markets
The State of Trade with China — ft. Alice Han
Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Prof G Markets
The State of Trade with China — ft. Alice Han
Thank you. after the next party Congress when there is more of a mandate from the leadership in China. And I don't think it's an invasion. I think it will be a salami-slicing quarantine move in which they use the Chinese Navy and Coastal Guard to block off exports going into Taiwan to test American resolve. I think that that's how it starts.
Prof G Markets
The State of Trade with China — ft. Alice Han
But again, we'll be largely dependent on Trump's reaction function. I think China is going to be reactive rather than proactive on this front. Again, it goes back to whether or not Trump can keep his hawks in line and if his agenda for a big, beautiful deal ultimately operates.
Prof G Markets
The State of Trade with China — ft. Alice Han
Well, firstly, and according to the sort of technical evaluations of this, when they test against the benchmarks, they perform extremely well. And that's where you get the argument that they're performing across these benchmarks better than OpenAI and 27 times cheaper. Now, whether or not it did cost the amount that they reported remains in question. I'm a little bit skeptical myself.
Prof G Markets
The State of Trade with China — ft. Alice Han
But certainly, I think it is a story of China having good enough applications of technology on the hardware side, meaning that it has good enough chip alternatives. It's stockpiled on a lot of H20s, Nvidia low-end chips, to basically create a good enough model.
Prof G Markets
The State of Trade with China — ft. Alice Han
I do sense that, and this is where you talk to technical experts in the AI sphere, and they tell you that in real-world applications, it might not be as good as open AI. For the benchmarks testing, it is doing extremely well, but if you open up the parameters, it might not be as effective as the open AI or US models are.
Prof G Markets
The State of Trade with China — ft. Alice Han
Secondly, what I would say is that there is a broader race here, and this is why you've seen some of these CEOs Satya Nadell, for instance, talked about the Jevons paradox. I think this is creating more opportunities for these US tech companies to double down and increase their capex on hyperscaling and data center development because they understand that there will be more demand.
Prof G Markets
The State of Trade with China — ft. Alice Han
And this effectively will, I think, increase the likelihood that the race to AGI led by the US will will be won by the U.S. and faster. Artificial general intelligence, a point in which basically computers seem more intelligent than human beings.
Prof G Markets
The State of Trade with China — ft. Alice Han
That is a place where I don't think China has shown that it is as competitive as the U.S., and so I think it remains to be seen the ultimate implications, but I generally favor the U.S. in this AI race. I do think that China will be faster to commercialize a lot of these AI applications. It's already doing it in embodied AI, robotics, for instance, autonomous vehicles.
Prof G Markets
The State of Trade with China — ft. Alice Han
But I think when it comes to AGI, which is the ultimate goal of these AI labs, the US will get there first.
Prof G Markets
The State of Trade with China — ft. Alice Han
I agree. And China is just one instantiation of this. We have the access of ill will. We've got Iran. We've got Russia. And don't forget North Korea. That's another issue I think people systematically forget. Every now and then he rears his head in Pyongyang. But certainly I think that we're fighting a number of fires across the world. And we have to look beyond just these tariffs.
Prof G Markets
The State of Trade with China — ft. Alice Han
I think, and I tell this to my investors too, you need to look into what's happening in the South China Sea, what's happening in Taiwan. You need to see what China is doing to prepare its military. for the ultimate showdown, which is over Taiwan. And we've seen more volatility in South China Sea recently with the Chinese Coast Guard, which is affecting the Philippines.
Prof G Markets
The State of Trade with China — ft. Alice Han
So I think that the geopolitical instability is something that is obviously a black swan. It's a fat tail risk. But we are, I think, well and truly out of the great moderation period. We're now in the great roller coaster of geopolitical instability. And that is going to affect us deeply.
Prof G Markets
The State of Trade with China — ft. Alice Han
Taiwan is going to be orders of magnitude bigger for the global economy than Russia, Ukraine, or even the Middle East and Gaza have been. And that's something to keep in mind. Sorry to be a bit of a downer.
Prof G Markets
The State of Trade with China — ft. Alice Han
I think it's already happening. Over the last year, I was there five times last year, I noticed a huge delta in renewed interest. And I highly recommend, Scott, that you go back. I'm happy to take you back to a couple of these cities in China. And there's been renewed interest because there's an understanding that the Chinese economy has shifted.
Prof G Markets
The State of Trade with China — ft. Alice Han
What China can produce as it's gone up the value chain is very, very impressive. And companies that still want a China exposure need to understand this changing economy and changing market. China is getting richer. It's rebalancing, albeit, I would say, at a rather slow pace because of structural issues. But it is happening.
Prof G Markets
The State of Trade with China — ft. Alice Han
And so you see some companies, for instance, are still interested in Chinese infrastructure. They're interested in some of these low-end industries. hotel businesses and these low-end kind of boba tea shops. There's these PE opportunities, but you need to think differently from the China of 10 years ago about the opportunities there.
Prof G Markets
The State of Trade with China — ft. Alice Han
So I think even although it's slowing down and people are worried about the politics of it, there's still a lot of opportunities to be found. And I think it's a mistake. And Deep Seek was a wake-up call. It's a mistake to sort of write China off. China will get there. Historically, we've seen this, whether it's the nuclear bomb or even its internet platforms. China will get there in its own way.
Prof G Markets
The State of Trade with China — ft. Alice Han
And I think we in the West need to continue to engage to see what's actually happening. Because more often than not, it will surprise us what's actually happening on the ground. So I'd highly recommend you go back, Scott.
Prof G Markets
The State of Trade with China — ft. Alice Han
Thanks so much, Ed. Thanks, Scott. See you next time.