Open Book with Anthony Scaramucci - China, Chips and Chaos with Chris Miller

Episode Date: July 5, 2023

In this episode, Anthony is joined by Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology.  Chris explains the high stakes of the semiconductor industry, “the new oil” that defines our national security, economic and geopolitical powers. He reveals the real ongoing battle between the United States and China, and why it is more vulnerable than ever to disruption.  Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Free of charge. BetMGM operates pursuant to an operating agreement with Eye Gaming Ontario. Hello, I'm Anthony Scaramucci, and this is Open book where I talk with some of the brightest minds out there about everything surrounding the written word from authors and historians to figures and entertainment, neuroscientists, political activists, and of course, Wall Street. Sorry, I can't resist. Before we get into today's episode, if you haven't already, please hit follow or subscribe, wherever you get your podcast, and leave us a review. We all love a review, even the bad ones. I want to hear the

parts you're enjoying or how we can do better. You know, I can roll with the punch. So let me know. Anyways, let's get to it. One of the most fascinating books I read in 2022 was Chip War by Chris Miller. It's a frightening read, but couldn't be timelier. The global semiconductor industry or microchips power everything from phones and toys to the stock market and nuclear weapons. Chris helps us make sense of the decade-long battle to control this technology and explains how it will define our geopolitical future. So joining me today on Open Book is Professor Chris Miller. He's an associate professor of international history at the Fletcher School at Tufts University.

And the author of a bestselling book, I think the FFT also said probably the best book of the year, Chip War. I'll hold it up here, Chris. The fight for the world's most critical technology. And before we got started, I was telling Professor Miller that I read this in one session primarily because I saw my entire future unfolding before me, Chris, okay? because there's a lot in here. And whether people like it or not, what you're writing about, they're relying on in their lives.

So much of this technology now is embedded in every part of our lives, whether it's our medicine and health care, our telecommunications, the way we interact with each other in business. But let's go to Tufts for a second. Do you probably know I'm a jumbo? How long have you been teaching a Tufts?

How did you get the Tufts? And considering your previous books, how did you get interested in this field of the chip field? Well, I've been teaching a Tufts for six years now, and my background is in Russian history, which, as you say, is not the most natural background for writing about semi-conductors. But I started around six or seven years ago planning to write a book on the evolution of defense technology during the Cold War. And the question I want to understand was why was it that during the Cold War, in the early

stages, both the U.S. and the Soviet Union could produce the key weapon systems, nuclear weapons, long-range missile systems. By the end of the Cold War, it was only the U.S. that could produce the types of precision strike systems that the U.S. dominates today. And I thought that'd be a story just about missile systems or fighter jets, but it turns out it was a story of computing power, which the U.S. applied to all sorts of defense systems. And I quickly realized that it wasn't just the military that had been transformed by computing power. It was everything, because today it's hard to find a device that doesn't have at least one and often dozens or hundreds of semiconductors. side. So I want to ask one question about the Russian situation first. Why did you get into

Russian history? What fascinated you there? You know, it was just sort of by chance. I studied it as an undergrad, was fascinated by how different the society was, wanted to understand what made the country tick. And it is so different from the U.S. It struck me as an interesting place to study and to better understand the comparisons and the contrast between the U.S. and Russia. So, you know, I've only been to Russia once. I was, I was, I took a semester away from Tufts and went to the London School of Economics. I spent five days in Russia in March of 1985. This is when Chernenko had just died. Corbachev was rising to power. And again, I don't have a lot of consequential intersections with the Russians. But one thing that struck me was one of the tourists. I was

on an in-tourist. I probably remember that agency that took you around and obviously they spy it on you the whole time. But what the woman said to me was that they're halfway in Asia and halfway in Europe and therefore in no place, meaning they don't feel culturally attached to either. And so even though it's the largest land mass in the world controlled by one sovereign, they sort of feel like they're not connected to either place, which is probably wounded their pride maybe or has done something to affect the culture there. What do you think of that observation by an interist tour guide 35 years ago or 37 years ago? And how do you think that's impacted the culture? You know, I think you're right. I think if you look at the Russian war with Ukraine

right now, you see that playing out in action. On the one hand, Russia feels itself not part of Europe in conflict with the West. On the other hand, if you look at Russia's relations with China, The Russians are, they have to be friends with China today because they've no other option, but they're really deeply concerned about in the long run, are they putting themselves in a position of being a second-tier power with China, the more dominant country? And I think that, you know, that's a dynamic that's been reflected throughout Russian history, this sort of pendulum swinging back and forth between Russia, aligning itself with China, lining itself with the West, back and forth, never feeling itself really at home in either part of the world.

Well, correct me if I'm wrong, there's a 1,500-mile, or so piece of land mass that the Chinese feel was taken from them by the Russian government in the 1630s, and they feel like that that's their rightful ownership. So there is some tension about a large piece of land bordering China. Is that not right? That's right. There are centuries old territorial disagreements. I think, though, I wouldn't overestimate the territorial question. A lot of Russians are actually concerned about does China want to take their land? The reality is that there's not much of an economy in most of Siberia. Such economy as there is involves drilling oil or digging for minerals, they're already shipped

to China. China has already complete access to Russia's mineral wealth. And so there's actually not a whole lot of logic for China to really try to take back territory because it's got free access right now. And one of the aspects of the war between Russia and Ukraine that has been underappreciated in the West is the... extent to which because of the war and because of Western sanctions, China's got privileged access now to Russian minerals because Russia can't sell them to anyone else. So for China, it's been a

pretty good financial deal because they get cut price access to some of the world's greatest mineral deposits. Okay, let's go to the book. This book is fascinating. The fight for the world's most critical technology, I have young viewers and listeners on this podcast. So let's start with the most basic question, Chris. What is a microchip? So, A microchip or a semiconductor is also known as a piece of silicon, often the size of your fingernail, sometimes larger, with thousands or millions or today often billions of tiny circuits carved into them. These circuits are turned on and off by a device called a transistor. When a circuit's on, it produces a one.

When it's off, it produces a zero. And all of the ones and zeros undergrirting all computing are these microscopic circuits flipping on and off. And so those processes, which are basically operating in a binary system, 0101, those processes are able to do tons of different computations, tons of different algorithms, tons of different software commands, okay, that can light up your refrigerator and dial your refrigerator into the right temperature. It can help you access the internet from your phone, your car. It can uplink you to a satellite so you can get a GPS system in the car and take you precisely the location that you're looking at. It has the ability to allow computers to talk to each other as well. And so there's a multitude of different things that are going on, including our power grid. In fact, I don't think I can name anything, Professor Miller, that does not involve at this point a semiconductor ship if it's something to do with the interoperability or the interaction between

human beings. Am I right about that? Yeah, that is right. Today, basically everything with an on-off switch has at least one and often hundreds of chips inside. And, you know, I think most people struggle to realize this because you've never bought a single chip in your life in most cases. You buy chips embedded in the products that you acquire. You never see the chips inside of them. And so most people don't really realize just how dependent they are on semiconductors and how they rely on not just hundreds, but thousands and thousands of semiconductors to make their daily lives work. So to really date myself, because I'm closing in on 100, I mean, I'm closer to 100 than I am to zero. Professor Paul Kennedy was all the rage when I was in college. He written a book called The Rise and Fall of the Great Powers. He's a Yale professor. It was a book that scared the Reagan administration and talked about America's decline. And we can debate whether America's declining or other nations are rising or some combination of the both. But what I found fascinating about your book is that there's only four or five,

countries. Let me read them. Okay, tell me if I have them right. Okay, right out of your book, United States, the Netherlands, Germany, the UK, Japan, Taiwan, and Korea are basically the major manufacturing centers for these semiconductors. So weirdly, their technological superpowers, are they not? I mean, they're controlling the keys to everything. If their foundries or factories are eliminated, it would cause a international crisis and probably a global recession. Do I have that right, sir? Yeah, that's absolutely right. And, you know, we talk about globalization, and the market for selling chips is global. You can buy a smartphone anywhere in the world.

But the production of them is not global. It's hugely concentrated. And so if you look, for example, at the production of advanced processor chips, the type of chips that go inside of smartphones or PCs or data centers, 90% of the most advanced processor chips can only be produced by one company on one island, and that's Taiwan. And there's just no other part of the global economy that comes anywhere close to that level of concentration. I like to make the comparison of oil.

Saudi Arabia produces less than 15% of the world's oil. Taiwan produces 90% of the world's most of best ships. What do you think happened there in terms of U.S. policy? We're not stupid people. We led to the rise of the Silicon Valley. We put venture capital taxation in place, long and short-term capital gains to create capital flow into innovation. We did so many smart things in our country.

But glaringly, over the last three decades, We're relying on the island of Formosa and the Republic of Taiwan, which is in a tenuous situation. So just to remind all of our listeners, Taiwan for greater China, mainland China is considered part of China. Of course, the Taiwan-Ease government doesn't believe that. And they want to have their own sovereign nation. But the United States is torn and has to accept this sort of two systems, one country sort of approach, if you will. I mean, there's better vernacular for it. You probably know it better than me because you're at the Fletcher school.

But the point being, Taiwan seems to be under threat from mainland China. Since Chairman Mao, the founder of Communist Chinese Party, or at least the one that took over in 1948, the mainland, they want that island back. And we have 90% of the semiconductors being produced out of our island. So where do we get this wrong from a policy perspective? There's nobody in our national security complex at this point would say, okay, yeah, that was a really good move. they have 90% of the semiconductors, the most important semiconductors, manufactured there. There are two trends that intersected simultaneously. One was that TSM, the Taiwanese chipmaker, that towers above everyone else the industry,

really grew dramatically over the last 15 years. It was a company that put itself at the center of the smartphone industry, and then now it's at the center of producing the chips that power AI. And so it's grown from a medium-sized company 15 years ago to an absolutely central player in the world's tech ecosystem. And it did that by producing very high quality cost of emissions chips. And so the Silicon Valley companies that produce their chips at TSM, so Apple, Google, Facebook, and many others, they've been very happy with TSM playing this central role because they've gotten the components that they've needed. And so there's no one in Silicon Valley

that's saw this as problematic. As this has happened, the U.S. ability to defend Taiwan has, I think, deteriorated because China's military power has grown and grown and grown each year. If you go back to the 1990s, the Chinese would have been deeply afraid to threaten Taiwan because it was obvious if there was a war who would win. You can think back to 1996 when there was a crisis in the Taiwan Straits. The Chinese shot some missiles through Taiwanese airspace. And President Clinton at the time ordered an aircraft carrier to sail through the Taiwan Straits and the Chinese stood down.

And today, I think any U.S. president would be very hesitant to take such a move because China's military is so much more powerful today. And there really wasn't anyone putting together the pieces looking at these two. trends simultaneously. Defense officials knew the military balance was changing. People in the tech world knew that Taiwan has been more and more important for semiconductors, but no one was looking at these two trends simultaneously. And it wasn't really until the pandemic when most people woke up and said, wow, this is extraordinary concentration. And it happens to be in a geopolitical hotspot. So no one knows the answer to this, Professor Miller, but let me ask you this and get your opinion at least.

The fact that 90% of these semiconductors are being made in Taiwan, does that make it more or less likely the Chinese will make a move to reacquire the Taiwan or the island or Formosa. Well, I think there are some people who say, surely the Chinese would want to attack Taiwan now to get a a hold of the chipmaking facilities. And it's just not that simple because Taiwan's chipmaking facilities only work by importing all sorts of chemicals and components and software tools from Japan, from the U.S., from Europe. And so if there were a Chinese takeover, the facilities would stop working. And moreover, you need the people involved, too.

It's the engineers who work at the facility that make the facilities actually function. And so if they were to leave, again, the facilities wouldn't be worth all that much. So it's not so simple to say China's going to march in and take over the chip-making facilities. But it's certainly the case that the Chinese government is unhappy about the fact that over the last couple of years, the U.S. has been leaning on Taiwan to stop selling China cutting edge chips. And today, if you look at U.S. export controls that ban the transfer of certain types of chips to China, many of these export controls target chips that are designed in the U.S., but manufactured in Taiwan. And so there are plenty of voices in China who blame Taiwan for going along with U.S. export controls and use that as a justification for escalating tensions.

All of which is true and fascinating. I guess the ancillary question would be maybe they would wait until we repatriated those foundries and move them back to the United States, resured them, if you will, or put them somewhere else because it is of too much national interest and national consequence for the U.S. at this point. And if that was no longer the case, it may be easier from a national interest perspective and the balancing of national interest for the Chinese and the American government. What do you say about that? Well, I think over the next decade, there's no chance that we repatriate a substantial share of the cutting edge shipment capacity in Taiwan. We're going to repatriate.

some of it. TSM is building some facilities in Arizona. Samsung is doing the same. Intel is doing the same. But the reality is there's so much capacity in Taiwan. And they're investing so much more year after year that they're going to remain an absolutely critical player for many years to come. So, you know, you have a couple of characters in this book. The book is fascinating, by the way, and you're a great writer. So I'm going to name these characters. I want you to react to their personalities and who they are in your book. Let's start Morris Chang. I think Morris Chang is one of the most underestimated entrepreneurs the last 100 years. People know Bill Gates and Steve Jobs, but it's Morris Ching that produce the chips that all of us rely on.

In your iPhone, there's chips that Morris Chang's company makes and the data centers that process your data in your car as well. He's a fascinating character because he spent most of his life actually in the U.S., most of his professional career in the U.S. and moved to Taiwan to found TSM only after being passed over for the CEO job of Texas Instruments, where he'd work for a lot. long time. It's an amazing story. He took one of my friends, Bill Tai with him. Bill is very proud of his, I think he's employee number one, two or three of TSM, Taiwan Semiconductor. So, so Morris is obviously a fascinating guy. Let's go to Gordon Moore. Gordon Moore just passed away earlier this year was one of the co-founders of Intel and coined the phrase Moore's Law, which predicted that the number of transistors per semiconductor,

and therefore the processing power of each ship would double every two years. years. And that's remain the case for now over half a century. Is it still going to remain the case, or will it eventually get to the end of that replication? Well, eventually we'll get the end, but we've got a pretty clear line of sight for at least 10 more years of Moore's law doubling. Beyond that, it's impossible to say. So stuff's going to get way faster, way more complex, the artificial intelligence, the ideas behind it will be passing through faster processing chips and faster speeds. And again, if it's doubling every year, it'll be exponential 10 years from now. Is that not fair to say? That's absolutely right. And to compare that to any other sector of the economy,

you know, nothing else doubles over many decades. I like to use the analogy of just imagine if airplanes flew twice as fast every two years. At this point, we'd be many times faster than the speed of light. That's actually happened in chipmaking. They've doubled for so many decades that we've now got a billion-fold increase in computing power relative to the first ships that were produced in late 1950s. The very virtue, the very fact that you and I are talking over this computer to each other like George Jetson would have been doing in the 1960s in a cartoon as an example of that, right? Yeah, that's right.

So let's go to the U.S.-China rivalry for a second. The U.S. is trying to restrain China's technological growth. And the Chinese obviously want to domesticate their chip production. So all of this you spell out in the book. For our listeners' sake, tell us how they're trying to, the United States is trying to restrain the Chinese and what materials are no longer supplying to them and how are the Chinese retaliating and who do you think wins that or doesn't win that? What do you think the outcome will be? Well, right now, basically every chipmaking facility in the world has machine tools from just a couple of countries.

The U.S., Japan, and the Netherlands are the three most important. Whether it's a facility in Europe or Japan or China, you basically need to buy tools from these three countries. And that's been part of China's strategy over the last several decades, is buy lots of tools from. of these companies and use it to build up manufacturing capabilities. And what the U.S. as well as Japan and the Netherlands have done over the past half a year is restrict China's access to cutting-edge chip-making tools with the aim of stopping China from producing cutting-edge chips. And right now, China's already several generations behind what can be produced in Taiwan,

for example. And without access to these tools, which are some of the most precise and complex and expensive tools ever made, China will find itself struggling even more to catch up. Okay, one last character involved here, okay, Secretary William Perry, former Secretary of Defense during the Clinton administration. Tell us about him. Apparently, an extraordinary figure. He was a Silicon Valley entrepreneur, but he was focused on defense technology and intelligence technology. And so he was someone who stood at the intersection of all of the extraordinary changes happening in Silicon Valley, but also thought about what were the national security implications. And he first went to the Pentagon as an undersecretary for research and engineering in the late 1970s and was the person more than anyone else responsible for convincing the Pentagon to bet very heavily on computerized weapon systems because he realized that Moore's law was. happening that it would continue for some time, that it gave the U.S. an extraordinary advantage, not just in commercial technology, but also in military systems. Back to China, though, Secretary Perry is very worried about the Chinese. He speaks regularly about it on CNN. So I want you

to brief me. You're the national security advisor to the United States, and you're going to send a brief memo to the president. And so we're working on it together. What are you going to put in that memo? The Chinese want access to advanced semiconductors because they realize that advanced ships are critical for training artificial intelligence systems. And the fact of the matter is that today you can't train an advanced AI system like any of open AI's GPT systems without access to a tiny number of chips called GPUs, which are produced almost exclusively by Americans. These are the chips that China most wants because of their AI relevance. And that's exactly why the U.S. is trying to stop China from acquiring these ships

so that the U.S. can keep an advantage vis-a-vis China when it comes to AI. or behind the Chinese when it comes to AI? Well, it's a hard question to measure. It's hard to know what you would measure. You can look, for example, at who's got the most widely cited AI scientists. There, the U.S. is far ahead. You can try to measure who's got the most advanced research in AI, but it's actually hard quantitatively to know who's got more capabilities there.

I think, though, it's not a coincidence that Open AI was founded in the U.S. and not in China. When you look at the commercialization of AI, what you find is that I think the U.S. is far ahead of what you got in mainland China. So again, I'm going back to our brief. You and I are working on this for the American president. How do you feel about the Chinese right now? Are they, let me speak as a person that has, you know, has some knowledge of China,

or at least their point of view, they're not a threat to anybody they would say. They're focused on their region and they're not a group of people over 5,000 years that have generally attacked other people. I'm not saying there aren't instances where they've done that, but in general, they don't see themselves as hegemonic, as much as they see themselves as an inward country building. And so they don't feel that they're a threat to anybody. But do you feel that they're a threat to anybody?

Well, I think, as you said in the early portion of our conversation, they certainly are threats to Taiwan. And the Chinese have a law in the books that commits themselves to either, quote, peaceful or, quote, non-peaceful reunification, which is about as explicit a military threat as you can get. And it matters for this AI discussion because militaries are thinking very seriously about how can you apply artificial intelligence and autonomous systems to military and intelligence use cases. We're already seeing in the Russia-Ukraine war the earliest iterations of this. And there's no doubt that in 10 years time, the world's

militaries will rely more and more on AI. And so the question of who can apply these technologies to defense systems first is going to shape the balance of military power. Okay, let me put my Chinese hat on for a second, though. Okay, that is our territory. And we never gave up the fight after 1948. That is still our territory. And by the way, our patience being quite a virtue, we were able to reacquire Hong Kong peacefully in 1997. And we intend to do the same thing with Taiwan. Why is it different, Professor Miller? Well, there's hardly anyone in Taiwan that wants to be quote unquote reunified with China. So there's no pathway to do it peacefully because the Taiwanese don't want it. So when the Chinese talk about quote unquote reunification, and remember they haven't actually,

Taiwan has actually historically not been part of China. It's been ruled by all sorts of different empires. And China hasn't ruled Taiwan for over 100 years. But when you talk about quote unquote reunification in China, there's no way to do that other than via threatening force because the Taiwanese don't want it. So I think we shouldn't take seriously the claim that China is just looking to find some sort of pathway for peaceful reunification. because that pathway doesn't exist and all of the polls you get out of Taiwan

demonstrate very clearly, very, very clearly that there's no constituency whatsoever after that type of policy. And you mentioned Hong Kong, Hong Kong and the Chinese takeover of Hong Kong provided plenty of evidence for people in Taiwan as to exactly why they didn't want that. Okay. It means an excellent summary of things that are going on, Chris, and I appreciate it. In finishing your book, when I closed it, I said to myself, okay, what would be the policy recommendations here for the American government. So tell me what yours would be. I can tell you what

mine are, but mine are going to be less interesting than yours. Well, I think the key challenge the U.S. faces is that building semiconductors in the U.S. is just a lot more expensive than other parts of the world. 20, 30, 40 percent more expensive to build in the U.S. than to build in Taiwan or Korea. And partly that's due to tax policy because semiconductor manufacturing is so capital intensive, tax treatment to capital expenditure is a huge input. And so we've actually made some progress that Chips Act provides a new investment tax credit that goes a long way to equalizing the tax treatment of chip investment in the U.S. versus in Korea or Taiwan. But there are other factors, land costs, labor costs, and others that drive up the cost of chipmaking in the U.S. And so I think

what we've got to do more of is driving down those factors that create cost differential. And if you look at permitting, for example, it requires more permits that take more time to build a chipmaking facility in the U.S. than in Europe, which is, you know, I think a pretty bad benchmark but to measure yourself against. And so that explains a lot of the cost differential that's made it less attractive to build semiconductors in the U.S. So you have written about Russia as well. A couple books on Russia, I believe three. You've got to get to those. I haven't read those yet, frankly, but this one was fascinating. So I'm going to go read your other books. But in reading about you, okay, you write about this complex track record that the Russians have when it comes

to technology. And they've had some successes. We know that in rocketry and things like that. But Where do you think the Russians are as it relates to advanced semiconductor technology? And, of course, in light of the recent sanctions that have put on them as a result of the Ukrainian war. You know, they're miles behind right now. And we know this because the Ukrainians have actually captured a lot of Russian military equipment on the battlefield. And there's been great studies opening up those systems, examining the semiconductors inside. And they're all smuggled in from the West from the U.S., from Europe, from Japan, from Korea, from Taiwan. So the Russian, the entire defense industrial base in Russia is actually built on Western semiconductors.

You know Professor McKinder is, right? You're a Russian expert, right? So he wrote to the West that he was concerned that the Eurasian landmass being the most important landmass in the world, that if any superpower or a conjoignment of two superpowers took over the Eurasian landmass, that's mostly Russia and China, that would have disastrous consequences on the West. Do you agree with him, number one? Obviously, he wrote that in the 1850s. It's interesting because it's 200 years later.

Number one and number two, if you do agree with them, where do you think we are in terms of the potential team up of Russia and China? You know, I think there's no doubt that the Russia-China partnership is as close as has been many decades. It's not just that Russia and China see eye to eye on their desire to confront the U.S. It's that Putin and she personally are quite close. They celebrate their birthdays together, for example. So they've got a really strong personal relationship. And that is very clearly a threat and a challenge to the United States. And the one thing they agree the most on is that they want to bring down U.S. power and create more space for themselves.

But I think if you look at Eurasia, certainly geographically, they're the two big powers. But they're far from alone. India is a hugely important player in Eurasian. By some metrics, even more important than Russia, economic metrics, for example. And then when McIndra was talking about Eurasia, he was putting Europe in that category too. And of course, the Russians have lost all of Europe. Europe's more united against Russia than it's been at any point since the Cold War. And so in that sense, I think the Russian-Chinese alliance are on top today is actually a less impressive alliance in terms of the power can bring to bear than perhaps in McKinders Day.

Well, I think what's fascinating, you know, I had a very famous shortston in the government, but when you read enough about what we're doing from a policy perspective as an insider, you realize the complexity. So the Chinese want to reduce our power, but they don't want to completely crush us because they need our consumption. You know, they are basically the Saudi Arabia of manufacturing and all of that stuff that's coming into the Walmart or the targe, if you will, the target of being bought by the American consumer is helping their economy. So they can't overly crush us, right? Flipside, we can't overly crush them because we're reliant on them for so many other things. So there's just weird rival. It's not like sports. well, okay, let's pummel the other team into the ground and take the Super Bowl. We're too

globally interdependent. Am I right about that? It's question number one. And then question number two, if I am right about that, make a prediction for me, Professor Miller. What do you think happens? You know, I think you're right that there's interdependence between the U.S. and China, but I also think that the political drivers and the security drivers of the relationship have been pushing economics in ways it wouldn't have otherwise gone. The tech restrictions, the new restrictions and capital flows. These are changes that are being, they're coming from the security focus aspects to the government and they're beginning to change the structure, the economic relationship between the U.S. and China. And so I think we shouldn't underestimate the extent to which the security rivalry

will continue shaping the economic relationship. And you know, you can look at, for example, the trade volumes between the U.S. and China. But I think in some ways that's actually a lagging indicator of decisions that were made five or 10 years ago being borne out today. And when you look at investment flows now, what you find is that FDI and and China has fallen dramatically. And basically every multinational company in the U.S., in Japan, in Korea, and Taiwan, they're all looking to diversify and reduce their alliance on China. And so I think the economic relationship will actually change dramatically over the coming years

precisely due to these political and security concerns. Are you bullish on the United States? I am, yes. I think if you look at just the last couple of years of technological progress, compared to anywhere else in the world, you'd much rather be an investor or a beneficiary. in U.S. progress. Yeah, no, I asked that question because I actually knew the answer. I knew what your answer was going to be.

And it's interesting because a lot of people are negative or sour on the country right now. They don't understand that relatively we're quite well positioned, but also culturally we're well positioned, right? I mean, we have this incredible culture of entrepreneurship and risk-taking and innovation, and we're coming up with new things ahead of these other people. So why do you think that is? You know, I think if you look at the history of the tech sector, you get a couple good reasons why. One is that you have the best and the brightest people from all over the world coming to

places like Silicon Valley to start up businesses. You know, look at Nvidia, for example, a company that just passed a trillion dollar mark because of its ability to produce the chips that power AI systems founded by an immigrant from Taiwan, actually, who had this visionary view of how to make chips for AI. I think the second aspect is, is U.S. capital markets have been very, very good at putting resources towards the most innovative ideas in doing so in the most efficient way possible. If you look at China, if you look at Japan in the 1980s and people thought Japan was taking over the world, they all had hugely inefficient markets that were bad at funding innovation and funded things in a very inefficient manner.

The U.S., despite all of its flaws and despite the ups and downs of business cycles, has been far more effective than almost anyone at deploying capital in a way that promotes innovation. I think it's really well said. In some of your writings and some of the interviews that I've seen, you are stressing to American corporations to keep an eye on the chip war. Why are you saying that, sir? Well, I think almost every company, if you'd ask them five years ago what to expect when it comes to new politicization of tech tensions, almost every company would have been surprised by the scale of new restrictions that's come both from the U.S. and from China over the last couple of years. and companies would like this to stop, but I think it's going to continue. And every company, there's not a single company that isn't exposed to U.S.-China-Taiwan tensions because every company relies on the semiconductors that are produced by Taiwan. And most companies don't have an answer at all to the question of what would you do in case of a worst-case scenario?

Okay, we're at the part of the podcast now where I have words that I've come up with, and then you react to those words anywhere you see fit. It could be a word or sentence, a thought, a paragraph. So let's start with two words, Soviet Union. I think it was a country that invested lots and lots of money, had lots and lots of bright scientists, but couldn't produce technological progress. Why do you think that is the culture? No, I think it's a, they didn't have the marketplace to put dollars towards the right uses.

Okay, so just bad capital allocation as a result of communism or their, their marketplace. and the philosophy around it. That's right. Okay. United States. The innovation superpower. It is today. We see it with generative AI, and it has been for many decades.

China. I think when it comes to tech, China is overestimated. I think people look at big Chinese tech companies like Tencent or Alibaba, which are certainly impressive companies, but they're also companies that have made most of their money in a protected domestic market. When you look at Chinese firms competing in the tech sector internationally, they've done far less well relative to U.S. firms. In 1987, Ronald Reagan said to tear down the wall, it's a 36 years ago this week, he made that speech.

And people scoffed at him in the State Department, said that that was ridiculous. And he called the Soviet Union the evil empire. He said it was going to end up on the ash heap of history. Two years after he made that speech, let's do the math. It was November of 1989. So let's call it two years and five months. The Berlin Wall came down shortly thereafter. the Soviet Union collapsed. And so people were in disbelief about that. And by the way, I had a

professor when I was at Tufts, by the name of Holtsman, he studied the Soviet economy. He was an analyst that supplied information to the CIA. And he was talking about 50-year plans for the Soviet economy when I was at Tufts in the 1980s. And so none of that happened. The Soviet Union imploded and so forth. And you mentioned Japan. When I got out of school, we said Japan Inc. It was going to take over everything. They were buying Rockefeller Center at the time. We said, okay, this is going to be a nightmare. And now we're worried about China. Is there a contrarian view out there that China is fairly Balkanized? There are seven strong provinces. They're glued together by the Chinese Communist Party, but there's a lot of internal unrest. And there's a lot of people in China that are upset by their

lack of personal freedoms and personal liberties, is there a scenario where we're taken off guard or we're taking a back, I should say, by what happens to China over the next decade? You know, it's certainly possible. I think, though, that the factors that led the Soviet Union to surprise everyone by collapsing were most importantly that the Communist Party collapsed in the Soviet Union. Once the party lost its authority, they couldn't hold the country together. It seems to me the Chinese Communist Party has, if they've learned one lesson, it's not to let their hold on power slip. And so they're going to hold on to power as long as they can. As long as they do, I don't think China's going to splinter into.

Yeah, and they did a pretty good job on the 4th of June in 1989 of holding on a power. So if I say the word China, you say what? Superpower, fragile power? I think it's an overestimated power. Overestimated power. Okay. Taiwan. Taiwan is a underestimated technological superpower. Most of the world doesn't realize just how extraordinary the capabilities the Taiwanese are, nor how central the Taiwanese are to the production of all of the electronics that we rely on. The fact that a country of 25 million people can play such an irreplaceable role is really nothing short of extraordinary. Well, you're terrific to spend time with us today. I greatly appreciate it. What happens next for Chris Miller? What are we working on?

Well, I'm staying busy with semiconductor issues. There's so much in flux right now as companies try to restructure their supply chains, as governments try to build up their own. ship industries that there's plenty, plenty to follow in the semiconductor space in the U.S. and Europe, Japan, and Taiwan and China as well. Well, listen, I appreciate your part in this narrative. The title of your book is Chip War, the fight for the world's most critical technology. And I have to confess that you prior to reading the book, I had some familiarity with Taiwan, but I had no idea the level of technological superpower status that they had.

and I do think that your book has raised awareness in the global business community. And so you're doing a great service to everybody. So thank you for that. And I appreciate you being on Open Book today. Thank you for having me. As I said to Chris, I couldn't put the book down. And it taught me things about the semiconductor industry that I didn't know. It's crucial that we understand what's going on for our economy, the military, the national security footprint,

but also the geopolitical struggle that's going on right now between Taiwan and Greater China. I guess the thing that I missed, and hopefully you have it now that you've heard this podcast, is that 90% of the most important semiconductors in the world are being manufactured in Taiwan. If you think about the magnitude of that is almost a little bit of a malpractice on the United States, other countries, Western Europe, et cetera. We've got to get up to speed and make sure that we can develop these foundries away from hotspots in the world. otherwise it will have cataclysmic effects on the U.S. and global economy. Chris did an incredible job of tracing history and explaining where we are today, but he also,

I think, what makes this one of the most important books of the last decade is that I think he rang the bell, raised the alarm, if you will. And I think people around the world are now started to pay closer attention to the danger of having this amazing technology, necessary technology for the world right now being made in one location. So China is top of mind right now. In some ways, we may be overestimating them, but in other ways, there's danger and weakness. We do know that Vladimir Putin, as an example, in a weakened situation in Russia, declares war in order to strengthen himself. And so even though we may be overestimating China, we have to be super careful with the Chinese right now because of this myriad of different situations that are upon us.

Hello? All right, Ma, you're ready to come back on the show? Yeah, go ahead. All right, Ma. So I had on my podcast, a guy that wrote a book about all these micro processors, which go into the telephones, the computers, that are in your car. And he's very concerned that most of these microprocessors are made in Taiwan. And the Chinese Communist Party is threatening to take over Taiwan. And so it's because of his book, I believe, that many politicians now are focused on this issue and are looking to move these production facilities away from Taiwan.

What are your thoughts on China, Ma? My thoughts on China. It's a very big question to me. Okay. Tell me why. Well, first of all, I think they're one of these. They want to take over to America. All right, Ma.

All right, but let's focus on, let's take it up a notch for a second, okay? What do you like about, what do you like about the United States? Free. We're free. We're free. We're free to be afraid of a speech. Right. And you're free and you more or less do whatever you want.

Okay, so that's not the case in China, right? So why would that be a problem? They're controlled by their government, which I don't consider very good. Okay, so why would that be a problem for somebody like Maurice Garamucci with your big, Abre La Broca, right? Why would that be a problem for you? Well, I have a Maserati that my son, Anthony, bought me, and I wouldn't be able to have that. You wouldn't be able to have that because why?

Because your big mouth or my big mouth, we'd probably both be in jail in a place like China, right? Right. Correct. Okay. Absolutely. Okay. So what do you think happens between the United States and China over the next 15 years? What's going to happen?

They're going to try to overpower us, but they'll never get there. Okay. Tell me why. get the, we have to get the right president and the right president would be you. All right. All right. All right. You're the only one going to be voting for me, Ma.

It'll be the Maurice Garamucci party, all right? No, no, no, no. All right. All right. All right. But you feel that. Intellectual checks his way of speaking and is for the United States and not narcissistic, not a sleeper, someone that has hoodspers.

Okay. All right. think if we had somebody like that, we could straighten things out pretty quickly, right? For sure. Mm-hmm. All right. All right. I love you, Mike.

All right. I'll talk to you later. All right. All right. Bye. Bye. Bye. I am Anthony Scaramucci and that was open book.

Thank you for listening. If you like what you hear, tell your friends and make sure you hit follow or subscribe wherever you listen to your podcast. While you're there, please leave us a rating or review. If you want to connect with me or chat more about the decision. discussions, it's at Scaramucci on Twitter or Instagram. You can also text me at plus 1, 917, 909-2996. I'd love to hear from you. I'll see you back here next week.