Plain English with Derek Thompson - If China Invades Taiwan, Is It World War III?

Episode Date: November 18, 2022

Today’s episode is about China’s turn toward authoritarianism—and why it might be one of the most important stories in the world. If you don’t know a lot about China—if you’ve been interested or astonished from afar by its Zero-COVID policy or its alarming saber-rattling toward Taiwan—then you and I are in the same boat. I am not at all an expert on China. But I am fascinated and alarmed by the country’s politics and by the character of its leader, Xi Jinping. Today’s guest is an expert in all things China: Bill Bishop, who writes the incredibly popular Sinocism newsletter. And he has a new podcast out called 'Sharp China.' In this episode, we discuss my biggest fears and questions: What is happening to the Chinese economy right now? Is Xi Jinping a tyrant? And if he chooses to invade Taiwan, is that World War III? Host: Derek Thompson Guest: Bill Bishop  Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

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You can listen to This Blue Up on Spotify or wherever you get your podcasts. Today's episode is about China's turn toward authoritarianism and the prospects that an invasion of Taiwan could kick off World War III. If you don't know a lot about China, if you are interested in or astonished from afar by its COVID-Zero policy, or by its alarming saber-rattling toward Taiwan, or its relationship with Russia, or its animosity toward its biggest tech founders or the possible collapse of, of its economic growth story, or even by the awkward relationship between the Chinese Communist Party and TikTok, the most important social media app in America, if you're interested in all this stuff,

but you kind of don't know where to begin. You can't see the full picture. Then you and I are in the same boat. I am not a China expert at all. But I'm fascinated by all of this, and I'm alarmed by all of this. I am alarmed by the new direction of the country's politics

and by the character of its leaders, Xi Jinping. Today, today's guest is an expert in all things China. His name is Bill Bishop. Bill writes the incredibly popular sinusism newsletter. He has a new podcast out called Sharp China, and he has been writing about and talking about China for years. And in this episode, we discussed my biggest fears and questions. What is happening to the Chinese economy right now? Is Xi Jinping a tyrant? And if he chooses to invade Taiwan, is that World War III? I'm Derek Thompson.

This is plain English. Bill Bishop, welcome to the podcast. Thanks for having me. I'd like to start with you, personally. Tell me how long you've been researching China, learning about China, and writing about China. So I guess I have to disclose my age, huh? I actually started studying Chinese in college in 1986.

I went to Middlebury. and I first went to Beijing in 1989 in the spring on a junior year, second semester abroad, arrived in January, left in late June, and was there during the sort of protests and crackdown in Tiananmen Square. Then I went to Taiwan for a year in 1990, 91, then I worked in Beijing from late 91 to mid-93, came back to U.S. for grad school, ended up going out to Silicon Valley to a, a company that had a data business in China, a joint venture that blew up. But at that company, we founded what became Marketwatch.com.

So for a while, I did nothing related to China. I was at Marketwatch.com. We took it public in 1999, sold it to Dow Jones in 2004, early 2005. And about that time, I moved to Beijing to try and do an online gaming startup with a friend of mine. And then I ended up living in Beijing for 10 years, moved back here to DC in 2015.

So we have a couple things that line up there. I was born in 1986. I was in China in 2005. My dad was obsessed with China when I was younger and we went the year after my freshman year. We went to Beijing to Xi'an. We went all the way out to Kashgar in Xinjiang and Arunqi all the way out in the west where you cannot go, frankly, as a Westerner anymore. In fact, for a lot of people, you can't go as a Chinese person either. And so I'm not an expert in China, disappointing my dad. dad potentially, but I am just utterly fascinated by what's happening in that country right now and the geopolitical implications of this incredible moment that we're seeing. So tell me as someone who has

been looking at China for three, four decades, there's a lot of media heat around the fact that we are entering a new era in history in China. What do you think is different about this moment in history from everything that you've seen in the past? Well, the new era, is actually what Xi Jinping and the Communist Party calls it themselves. What's really different, I think, is, you know, China is rich and powerful, and

it has a leader who just in the last few weeks has broken what we're assumed to be these norms around political leadership in China and is now on his third term as the general secretary of the Communist Party. So I think that, you know,

we're from outside of China, we're seeing a China that they talk about how China stood up, China got rich, and now China's getting strong. And so part of this era, and this is what the Chinese, the Xi Jinping and the Communist Party, what they say. And so we're in very much the getting strong phase. And so we're seeing a China that really for the first time in a couple centuries, but really in many ways forever, is truly a actor in every dimension, really everywhere around the world. And So it's a real adjustment for everybody to figure out how to absorb and adjust and deal with that.

It's interesting to think that China's geopolitical power has never been larger than this in the multi-thousand-year history of the country, of the nation, of the people. I want to talk about how Xi represents a departure from history specifically. So in October, as you said, China's leader Xi Jinping secured is groundbreaking third term. what should Americans who aren't consistently following the China headlines, what should they know about G that makes him different from his predecessors in China? Well, you know, it's interesting. There is a lot of continuity with his predecessors, but the real, I think, divergences are that he is a sort of second generation, son of one of the early leaders. So he's really more of a man on a mission.

He really does believe that he is the guy to deliver what they call the great rejuvenation of the Chinese nation. And he's also been able through various maneuvers, campaigns, machinations to become the most powerful leader now it looks like in China since Mazadong, who died in 1976. And so he now, coming out of the 20th Party Congress, it concluded at the end of October, he really is unchallenged as the leader of the country. And so, you know, that can mean that if he makes good policies, things could happen and that could be positive, but it also means that, you know, when someone has so much individual power, the potential for policy errors, both domestically and globally, are pretty significant, are pretty elevated.

So let's talk about the G agenda. And I think one place we can start is with zero. COVID. China is, to my mind, the only country in the world, maybe the only major country in the world that is still pursuing a policy of trying to zero out COVID spread while at the same time rejecting the mRNA vaccines that were produced in the West. Help us explain why is Xi doing this? So when China, when COVID first hit, you know, China locked down Wuhan for many weeks and basically for a pretty significant period of time after that, life was almost normal in China.

They closed the borders effectively, but life inside China was fairly normal. You know, people masked. You had to check the, you have these, you have an app where you have to sort of scan your code and get tested on a regular basis. You know, the, the, even through Delta, they were okay. Omicron has really messed things up.

But for the first couple years after the outbreak in Wuhan, you know, it was a, it was a, it was a massive victory for China. They avoided mass death. They avoided mass sickness. They avoided mass economic dislocations except at the beginning the first few weeks, a couple months after the initial outbreak. And so there's a lot of popular support for what they've done. And they've done a very good job. I mean, in many ways, you know, they have a powerful propaganda apparatus, but at the same time, the propaganda rights itself when they're talking about how other countries, especially the U.S. and in the West, mishandled COVID in terms of

of misinformation, vaccinations, mass deaths, et cetera. What happened, though, was so there was a almost two-year period where things were going reasonably well. There were some occasional lockdowns of cities, but there really wasn't, it really didn't get bad in terms of things. Maybe this dynamic zero COVID policy is kind of super messed up around the lockdown in Shanghai in April, May, where you lock down, you know, one of the most cosmopolitan cities in the world, 20 plus million people caused a huge, huge problems, food insecurity. Some people

did starve to death, a fair number of suicides, et cetera. And so, you know, the problem China faces, though, is, you know, even with if they had taken in the MRNA vaccines, you know, they don't, as we've learned, unfortunately, they don't prevent the spread, the transmission, right? They do have a lot of efficacy in reducing severe illness and death. The Chinese vaccines are also relatively good at reducing severe illness and death. The strange thing, though, is even though China, you know, can be a very coercive, the vaccination efforts were surprisingly soft touch. And so there's a significant group of elderly who are unvaccinated. And so it really is likely that if they were to just basically say, okay, we're done, we're going to let it rip, that they would have a pretty massive

outbreak and a lot of deaths among the senior populations. I mean, the sort of the, the closest analog is probably Hong Kong, where they had really a lot of elderly people die. And if on a per capita basis, is that what happened in China, it would be probably in the hundreds of thousands. And that would obviously be a humanitarian disaster, an economic disaster, but it would also be a huge political problem for Xi Jinping, the leadership, because they've staked a huge amount of legitimacy on putting human life first, what they say, protecting the people in comparison with the sort of crumbling Western systems. And so it's, it's a disembling, it's a disembling, this has become, this fight against COVID, this dynamic zero COVID, has become a part of the our system

is better than their system propaganda. And so if they end up having to pull back and they have similar scenes of mass illness, mass death, that destroys that propaganda bit. And the other problem, too, is China, as rich and powerful it is and now is, the health infrastructure is still not great. And so it could very quickly become overwhelmed. And what they, you know, one of their problems, is they have no natural immunity to the virus in the country, because they've actually had so few cases. Officially, I think they say they have had less than a million cases. The data is probably not completely accurate.

Maybe it's an order of magnitude, more we've gotten sick, but it's not like half the country's gotten COVID at some point, right? And so they just don't have the national immunity that say we have here in the U.S. I want to go back to something you said. You said that China, in part, pursued this policy of zero COVID to protect people. But their policy, as practiced in Shanghai, led to people starving to death and led to suicides, which I have to imagine, if the same thing happened in the U.S., it would be an absolute national scandal. I mean, people would rise up and say these lockdowns in what's the equivalent of New York City

are causing people to starve in Manhattan, in Brooklyn. They're throwing themselves off of roofs. killing themselves. What was the national response to the news that people in Shanghai were starving during these lockdowns? Well, you know, the media is pretty well controlled. And so it wasn't a national conversation. A lot of this was not known or not known at the time. A lot of anger in Shanghai, a lot of disappointment, you know, expectations that the Shanghai government, was always seen as the most competent in China, and it turned out to be incompetent,

at least when it came to handling COVID. But, you know, I think the answer to that is pretty mixed. There are other, you know, not everyone was sympathetic because Shanghai is sometimes seen as arrogant, and it was sort of like, okay, they get what some other places have gotten, which is unfortunate. But in general, it was, I think,

a sort of a broader, especially in Shanghai, where you have, again, a lot of, you know, a lot of middle class people, upper middle class people, people who really bought into the way that the China has been developing. It was pretty shocking for a lot of people to see how quickly whatever rights they thought they had could just be taken away in pursuit of this dynamic zero COVID. Now, China has a very good, what they call, stability maintenance system, effectively, various bits of security services that are focused on preventing things like mass protests,

things like, you know, significant what they call public opinion incidents where sort of stuff goes viral online gets to be really pissed off. And so, you know, they, people, the cost of anything like protests are, you know, are high. And so it's very far from the bad experience in Shanghai and people being upset and some people being food insecure and, you know, some people actually starving and committing suicide to any sort of a mass protest. I mean, that's just, it's a, it's, it's, there's still it's still not there yet in terms of how upset people are. Because again, for the most part, at least up until March, most people supported this. Even though it was inconvenient, the fact remains that it still had a better outcome for most people than, say, living here in the U.S.

At least has how it's viewed because of the way partially reality, partially the propaganda. So COVID-0 represents one aspect of the extraordinary crackdown that's been a part of Xi's agenda. another aspect of that absolute power has been what's happened in China's tech community. Last year, my friend, the writer Noah Smith, wrote this piece that went everywhere called, quote, why is China smashing its tech industry? End quote. And he pointed out that the Chinese government seems to be cracking down on consumer tech companies. They've called video games spiritual opium. But at the same time, they're pairing that strategy of smashing their consumer-facing internet software companies with a strategy that seems to elevate a national industrial policy,

like, for example, subsidizing the manufacturing of semiconductors. How do you make sense of China's tech policy right now, where they seem to be smashing some things while elevating others? So I think there is an element of a push to redirect capital towards sort of more tangibly productive things that fit into sort of the broader strategic goals of the of the communist party around things like semi-conjectors, what they call sort of choke point technologies, which are the sort of key hardcore technology that the U.S. has a bit of, has a stranglehold on. And in some cases, is actually doing the choking around China. It is, I think, a little bit too simplistic to sort of say that the crackdowns were solely

based on that. you know, you look at a general move over the last few years in the Xi Jinping era to rein in some of the private entrepreneurs to sort of inject the party everywhere and to check the sort of the growing power of some of the bigger private entrepreneurs. The crackdown on Ali Pei and Jack Ma. Can you just pause and say who those two people are? Well, so Jack Ma founded Alibaba. At one point, I think, was the richest man in China. He was he had launched, the company launched a sort of a kind of like PayPal, but called AliPay, but then it became really a platform for all sorts of loan products, lending products, and they were going

to go public, might have been the biggest IPO ever, I think, or one of the biggest IPOs ever, and this was probably two years ago. And right before it was about to go public, the government cracked down. And Jack Ma had sort of disappeared from public view for a while. The companies never recovered. Alibaba's never really recovered. But the point there was, is there was, I think, a combination of factors that were, it wasn't so obvious that, oh, it's about we need to redeploy this capital to chips,

for example. You know, there was a clipping of the wings of a very sort of popular private entrepreneur. There was also the fact that Alipay was, the way it's lending platform work, it was actually transmitting a huge amount of risk into the financial system. And they were skimming off the profits. And the company itself wasn't taking on the risk, but they were basically passing it throughout the system and in, I think, really magnifying some of the financial risks in the Chinese economy. But the net result was a very chilling message to a lot of private entrepreneurs. Then there were the crackdown on what they call these platform companies,

Alibaba being one, other ones like May Twan, which sort of does, you know, food delivery and a whole bunch of other stuff. And it was a broadly speaking, it was a combination of, for example, one of the things that got really hot for a while was these community grocery sites where you would basically, you get together with a group of your neighbors and you could buy a bunch of groceries cheap and get them delivered. And they were undercutting local stores. And all these businesses were losing money. They were subsidized by hundreds of millions or billions of venture capital money. And it was basically just pissing money away. to excuse my French.

And I think the government said, this is bad for everybody. We're exploiting workers, to exploit the delivery of people. You're destroying local businesses. You know, this is not a productive use of capital. And so, again,

it is not a free market economy. And so it was part of the, we need to redirect this capital into more productive uses, while at the same time, sort of constricting some of the private entrepreneurs, making sure that they're sort of towing the line a little better. The net result, I think,

has been quite chilling. And it is a symbolic, I think, of a broader shift in China under Xi Jinping away from kind of the go-go capitalism-like activities to a much more controlled, regulated set of activities that have much more direction from the Communist Party. That's a great answer. So it's not just about industrial policies saying we want fewer consumer tech companies and we want more funding and shift. It's also about power. It's it's multi-dimensional. Yeah. I mean, talk to the chilling effect this has or might have on the next generation of entrepreneurs. Like, I don't want to do like the simplistic American thing where I just apply everything that's happening in China and say, what if that happened here? But I just can't

imagine that any country in the world doing this to a generation of respected entrepreneurs wouldn't have some chilling effect on either foreign or. direct investment or global entrepreneurs wanting to move from some country into a China, an America, a UK. I mean, what are the downstream effects on the tech community of China pursuing this policy? So I think it depends on the sector. I mean, if you're if you're doing investing around sort of biotech or semiconductors, this is kind of a golden era, right? Because a lot, there's a lot of policy support, a lot of money, a lot of startups. And too many, the most of them probably blow up. But if you're starting another ride sharing or another like group buying thing,

then you just forget about it. Right. And you know, that's not necessarily bad, right? There are too many of those things, right? I mean, you know, who needs another go puff to just go puff, right? Blow up all that money. In terms of the global sort of, it's interesting because it has had a, it's one of the things it has, I think has been, it has a significant impact on the valuations of the firms that were listed overseas, who are down pretty significantly in the last two years. Not solely because of this, obviously the market's down too, but it definitely had an impact. It hasn't had an impact on a lot of global investors' views of sort of the investability of Chinese and Chinese startups.

It is also, you know, it's interesting. On the one hand, Xi Jinping, you know, they started a new effort to really attract global talent for key sectors of the economy. specifically around biotech, around harder technology. But at the same time, I think a lot of these things are also chilling. So maybe they don't want the digital nobat who shows up in Beijing or Shanghai to do another consumer internet startup. But if you're somebody who wants to go there and do a chip startup, as long as the U.S. government now doesn't block you from doing that, you're probably going to be welcome.

I were to talk about the relationship this decoupling between the U.S. and China just a second. make sure that we hit the economic downturn. Because it would be one thing if China was pursuing this policy when its annual GDP growth rate was 8, 9, 10%, as it was 15 years ago, or if there was no problem in the real estate industry. But instead, the real estate boom is over and China's growth has crashed to, I don't even know, low single digits, maybe the entire country is in a recession. Why don't you give me a temperature check on how you see the state of the Chinese economy right now? Do you believe that they are in a recession? I think the state of the economy is probably the worst since I've been an adult.

You know, there just is a lot of the easy money has been made. A lot of the easy growth has happened. They have been on a long-term, it's a multi-year attempt to reduce financial risks in the economy, which involves not necessarily fully de leveraging, but slowing down the growth of leverage. And, you know, the biggest problem or one of the biggest problems is the real estate market, which at its height was probably real estate and its various related industries was like a fifth or so of the Chinese economy. I think that you know, you've got global headwinds, you've got dynamic zero COVID. And so it's a very, very difficult time.

And, you know, they've talked for years about making certain reforms. There was a lot of excitement in 2013. where at one of the sort of annual meetings of the the Communist Party Central Committee, they put out this big reform document that got people really excited because it looked like it listed out a whole bunch of really important reforms that people that have been arguing they should do for years.

And on the economic stuff, they didn't do that much, right? And so they really feels like they lost, they had a window, they didn't do it. They decided to take a different approach, a much more state-sdriven approach, much, you know, what looks to be more inefficient approach. And so it's a difficult period with, at this point, not a lot of reason to see that the economy is going to sort of have any sort of

structural improvements in the near term. You know, one of the things they're dealing with is a pretty significant unemployment rate among, like, recent college grads, people in their 20s, You know, and that in part is from some of these crackdowns. We talked earlier about these tech crackdowns. You know, there's a very, there's a booming tutoring industry, right, where huge pressure you have kids, you know, you go to school and then you spend hours a day doing extra tutoring, right?

Because it's all focused on the various exams for like the best middle school, the best high school, and then college that really determine your future in a lot of ways. And so families were kids, kids were like killing themselves to do the, just tutoring. Families were spending huge amounts of money to get a leg up. And Xi Jinping decided that this was bad for a lot of reasons, including that it was leading people to not want to have more children because the burdens were too high. And so basically over the course of a month, just destroyed the entire industry and put hundreds of thousands of people out of work and what were pretty good white-collar jobs. The last element that I want to talk about in terms of the economy is what seems to be,

an emerging decoupling between the U.S. and China. Apple recently announced that they are looking to shift production out of China into other countries like Vietnam. Clearly, the last six months of policymaking from the White House and Democrats, like the Chips Act, represents to me a sort of new interest in reshoring the manufacturing of chips and becoming less dependent on, as you called them, chokepoint technologies that right now are manufactured in places like China. How serious do you think this economic decoupling is right now? I mean, I think it's pretty serious. It started really in the Trump administration with the trade actions. It's very hard to couple in a lot of ways. And I think that not all the data reflect the decisions that, you know,

some of the big corporations are making in terms of where they're putting their new investments or how, you know, not many are pulling out of China, but they're sort of redirecting or building sort of redundant supply chains outside of China. But China's a huge market. It's very hard to decouple from China. And it's also produces a whole bunch of stuff that Americans like to buy cheaply. And so it, but in general, I think from a structural perspective, the trend is towards more decoupling. Fold the coupling would be incredible. economically painful for both sides. On technology, you know, these recent export controls around semiconductor sort of bits of the semiconductor sort of chain are definitely a more aggressive

or a broader move by the U.S. government to decouple at the sort of more advanced end from the from China. And Apple's a great example, though. Apple, throughout the Trump administration, throughout the trade battles over that period, Apple really didn't seem not worried. They did a lot of work with the Chinese government. They did a lot of work with the U.S. government. They really felt like they could sort of navigate and not really be impacted by the tariffs. What my understanding is what has really freaked Apple out was the Shanghai lockdown. And now they have the Zhengzhou lockdown, right, where they basically messed up Christmas for Apple. right? Because they're going to

can't produce as many of the top-end iPhones as they as they have demand for it for Christmas. And so I think they, you know, Tim Cook built his career and Ben Thompson's written about this a lot, including I think this week. I mean, he really built his career on building the supply stage in China. And now, I think my view is they, you know,

they waited too long. It's really hard to undo that reliance on China. And even though, for example, they're pushing production into Vietnam for some things. They're pushing production in India. You know, the Chinese companies, where their suppliers, go with them. So they're still relying on the Chinese supply chain. They're just the Chinese companies, the suppliers still get their stuff made in China.

Right. So there's still vulnerability, even though they're putting them together in India or putting them together in Vietnam. When I add all this up, it seems like the bare case for China is not very difficult to make. The real estate industry is in deep trouble. Their consumer tech industry is in trouble. The COVID-zero policy shuts down. Metro is the size of 10, 20 million people. Who knows when? Amacron is incredibly unpredictable. That level of unpredictability is absolute kryptonite to multinational corporations

who do not want to be surprised by the global supply chains. And so as a result, companies like Apple are pulling out of China and trying to rebalance toward places like Vietnam. And you have this entire country, which is essentially under the thumb of one man. And one man is always going to be more unpredictable. than a slow-moving system. I mean, that seems to me like a pretty clear bear case. What is the bull case for China over the next decade?

One is if everyone is bearish, you know, if everyone thinks it's because, you know, we've been through the sort of various aversions of the China collapse idea for 20-plus years, right? And generally making the bet that it's going to collapse has been a poor decision. I do feel like this time, like I said earlier, this is the worst economy that I've known as an adult. I do think that there are a lot more risks. There's a lot more geopolitical risk. The bulk case would be, you know, depends on what kind of invest you are, depends on who you are. I think if you're in Asia or you're a Chinese investor, you know, big swaths of China are still in need of a lot of development in all sorts of different sectors.

and, you know, there's still a lot of policies around, you know, renewable energy, EVs, a lot of policies around various parts, various bits of biotech, semiconductors, hard tech, defense, military industrial establishment. So there are a lot of places where people are going to make a lot of money by making the right bets over the next five to 10 years, I think. It may not be the case that Americans can do that. You said you're more worried about geopolitical risk, so we should finally talk about Taiwan. Ben Rhodes, the former speechwriter and deputy national security advisor to Barack Obama,

just published a long essay in the Atlantic entitled, Taiwan prepares to be invaded. And I want to read an excerpt of that article to you and get your reaction. Quote, fate has placed Taiwan and Ukraine in similar positions. Both have giant neighbors who once ruled them as imperial possessions. Both have undergone democratic transformations and have thus become an ideological danger to the autocrats who covet their territory. Justice Putin has made the erasure of Ukraine sovereignty central to his political project. Xi has vowed to unify China and Taiwan by force if necessary.

End quote. Bill, how concerned are you about the potential for a Chinese invasion of Taiwan? Well, I mean, just to be clear on that bit from Ben Rose, I mean, she's policies towards Taiwan are not different than his predecessors in the sense that ultimately the view was always that ultimately they would Taiwan would be would be become part of or quote returned as as they would say or liberated to become part of the part of the PRC no I mean I think that you know when the US and China sort of rebuilt relations in the 70s they created this kind of Rube Goldberg sort of a framework to deal with the issue of Taiwan that was very ambiguous,

could be interpreted differently by each side. It worked for several decades, as long as no one poked too closely at it. It worked also because China was relatively weak, didn't actually have or wasn't approaching the actual capability. to resolve this issue by force if needed. And there was the belief in Beijing that over time, they could work with the Taiwan authorities to achieve some sort of a political solution. The political solution appears to be dead because of the rise of Taiwanese identity,

what happened in Hong Kong over the last couple of years, the rise of Xi Jinping, various factors, there's almost no support now inside Taiwan for any sort of an accommodation with the PRC. I actually think it's really important to stop here and have you explain a little bit about what's happened to Hong Kong over the last few years, because it really is core, I think, to the fears in Taiwan of China. Well, it was just the idea that there could be some sort of a one-country, two-systems approach

where you'd be one country, but Hong Kong, and you can have a different system for 50 years, and then oh, Taiwan, we can work something out. We have a different system. And after the protests and the crackdown and these various new laws and just a bunch of different things that Beijing has done in Hong Kong, the idea of two systems now is really no one, no one, it's not attractive, say, if you're a democracy, to then go into that kind of a two system, right?

It's really, increasingly looks like one country, one system. And so the result from the changes in a whole system, Hong Kong, again, were just a further blow to any sort of realistic hope or realistic belief, I should say, because not everyone hopes for this, but realistic belief that there was any sort of a feasible political solution to the issue of Taiwan and the PRC. And so now this status quo that we've had for 40 plus years is unraveling. Right. And it's unraveling in a lot of different ways, which is what concerns me the most. Like, if you're growing a 10% a year internally, you don't have to expand externally. It's

enough work just to keep everything going inside. When you're coupled, as China was coupled with the U.S. by trade, you're working together as trade partners to grow that trade on an annual basis. When you're dealing with a leader like who, who respects tradition and doesn't seek a sort of groundbreaking third term, there's a kind of sort of traditional predictability there. But all of that is unraveling on top of evidence that China is becoming more threatening to Taiwan. So just in the last three, six months, Chinese officials have continued to claim that the entirety of the Taiwan Strait belongs to China. Chinese warplanes regularly violate Taiwan's air defense identification zone during the military exercises conducted after Pelosi's visit to Taiwan. China shot missiles over Taiwan

and circled it with warships, the kind of maneuver that might have hinted at a future blockade. I mean, when I put all that together, it makes me pretty concerned because, I mean, China invading Taiwan is sort of an unfathomable to me. I don't know what the U.S. does in response to it.

I mean, the people that you talk to, I mean, how worried are they about this being, you know, a possibility, a probability, a possibility, this decade? It certainly seems more possible than it did just a few years ago. And people are increasingly worried. And again, because it is not, it's hard to see how the status quo prevails. And so if that goes away, then what's next?

I mean, Taiwan is not Ukraine. Taiwan military has a lot of problems. Taiwan politically has not shown the will to fix the military and build it up in way that, say, the Ukrainians did after 2014, that may be changing, but it's pretty slow. It is unlikely if there were some sort of real crisis, military crisis, that we would not, the U.S. should not expect any of the European countries to support it. I mean, Japan is quite concerned and quite freaked out because Taiwan is very close to Japan, and it would be a big problem for them

if Taiwan were actually were controlled by the PRC. But it's an unthinkable, it would be a disaster. It would be, you know, you'll be having your fancy iPhone will have to last several years because there won't be any chip manufacturing

for the next generation for quite some time. Right. Because Taiwan dominates the semiconductor industry. Well, TSM. Yeah. And TSMC. Say more about that. Just to unpack that.

The SMC is the, you know, I mean, they make, they make the most advanced chips in the world in Taiwan. And so it's a, no, it's a really scary, it's very scary. And, you know, it's interesting here in D.C., there has been a real cycling up of this talk about how, you know, both from the U.S. government and then from people out, from people outside the government, parts of the D.C. sort of foreign policy world about how, you know, the Chinese side has accelerated its timeline, you know, the risk is, the risk is, um, you know, something happening very, you know, the next couple of years is significant. I think that there's no question that the risk is increased. It is a, you know, you look at sort of the way the PRC is hardening its system from various ways over the last couple years. They do seem like they're preparing for a much more contentious, friction-filled, potentially conflict-filled, relationship with the U.S. So they're trying to, you know, they, you know, one of the lessons from what happened with

Ukraine is, well, here are the different sanctions packages that the U.S. and other countries imposed on Russia. So for them, it's an exercise to see what they would do, how they would impact the Chinese economy and how they can harden their, harden themselves to minimize the impact of similar sanctions if something were to occur over Taiwan. But, you know, you do hope that rationality prevails because there's no winners if they, if there's any sort of a conflict over Taiwan. It's disaster for everybody. You mentioned it'd be disaster for Taiwan.

It'd be a disaster for, in a different way, iPhone owners or anyone wanting to update their iPhone due to Taiwan's dominance of the chip industry. Give me one other spillover effect of China taking Taiwan. I just all of this is such an unfathomable to me I don't know this part of the world at all so it's very difficult for me to even begin to war game I mean I mean look at the what happens look at the the relationship the US Russia relationship that's what the US China relationship would be but it would be much more dislocating because there's so much more interlinkages between the US and China but if this were to happen you know there there's there's no way from sort of in the U.S. domestic politics that any side of the aisle could basically go,

okay, we'll figure it out and we'll sort of figure out to go back to business as usual. It would be it, it would be just like the way things are with the U.S. and Russia. And an attempt to globally exile this country, except it's not the 15th biggest GDP in the world. It's number two. Yeah, no. It would be much more, much more damaging to the global economy. It'd be damaging the U.S. economy. It would be, again, this is, there are, it's a disaster.

right? We have to figure out how this does not come to pass. And, you know, the problem is that I think people have been sleepwalking for too long. And in some ways, it feels like we're a few years too late to try and address this issue. And so the risks are, like I said earlier, the risk have definitely increased. I'm not in the camp that, you know, it's going to happen in the next year or, you know, next couple years. But I'm also not going to say it's impossible. Last question, and sorry to make it a hard question, but you know, you are widely read by people that are incredibly influential and have the power to make decisions in Washington, D.C., that could potentially at the margins affect the odds of a Chinese invasion of Taiwan. What do you tell

policymakers who reach out to you to say, what can we do here? Like, we don't control Xi, we don't control China, but maybe our policies can help make this catastrophic outcome a little bit less likely. So what can we do? Well, you know, I think there are bits that the Biden administration, you know, they should get a lot of credit. They are doing more with allies, but allies are not enough. I think, you know, it's very frustrating because one of the ways to sort of get, sort of keep working with allies, and again, allies is not a pedicia, but it will help, especially in Asia, is trade policy. And the U.S. has no trade policy. The U.S. it's impossible for the U.S. to have a coherent trade policy. because of domestic politics. In terms of sort of, you know, one of the key things is, I think, being clear-eyed about the Xi era and she's goals and aspirations and having a much more realistic view of what she wants and what the party wants.

And also, like I said, sort of stop sleepwalking and recognize that what we've seen in Ukraine could definitely reoccur in Taiwan. You know, around the issue of Taiwan in particular, you know, the hard part, right, is it's an easy rhetorical target here in D.C. You know, people can get up, make a speech, talk tough on Taiwan. It's really important that the U.S. government, U.S. Congress, that they push Taiwan to take their defense much more seriously. Because Taiwan itself has been sleepwalking for quite some time around its own defense. And one of the risks is Taiwan is very skilled. at working public opinion in DC policy circles.

And one of the things I worry about is sort of the focus on the sort of shifting opinion in those circles is disconnected from the reality of Taiwan and its ability to defend itself. Because at the end of the day, if there is some sort of crisis, one, Taiwan's really far away and would be really hard to resupply. Two, as we learned with Ukraine, where Putin basically threatened the use of nukes, if anyone intervened, China's a nuclear power too.

So why wouldn't the same equation halt? Right. And so, again, it is a, you know, and I think this is one of the reasons why the U.S., the Biden administration, Secretary of Blinken, are becoming much more vocal about Taiwan as they're trying to sort of

rally like-minded countries to at least be much more focused on the increasing risks around Taiwan. But at the end of the day, realistically, it's 100 or so miles from the mainland. You know, it's a very difficult thing for the U.S. to help defend against if the PLA wanted to take Taiwan. It's also very difficult for the PLA to take, but it's, I don't know. I mean, This is one of those questions where there are no good answers. The best answer is, can we figure out how to just keep pretending for another few decades that this will somehow get resolved peacefully eventually? Which is what basically the formula was starting in the 70s. I mean, it's a terrible answer.

No, it might just be that the menu is just full of terrible answers. That's why I wanted to walk us through all the things that are happening under Gis reign, because what scares me the most is the level of chaos, a level of unpredictability, not where you want to be. when there's a possible, you know, war in Southeast Asia emerging. Bill Bishop, I really, really appreciate your help in helping us understand all of this. Thank you very much. Thank you. Thank you for listening.

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