The Prof G Pod with Scott Galloway - China Decode: How the Iran War Inflation Will Impact China

Episode Date: March 10, 2026

In this episode of China Decode, Alice Han and James Kynge break down how the Iran war is driving oil prices above $100 a barrel, and what that means for China’s energy security. They dive into China’s dependence on the Strait of Hormuz, explore the country’s cautious 2026 growth targets, and chat with Andy Browne, China Columnist at Semafor, about how all of this is reshaping China-U.S. relations. Check out Andy’s newsletter at semafor.com/newsletters/china. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Before we start today's episode, a quick note about another show in the Prof G Media world. Raging Moderates with Scott Galloway and Jessica Tarlov is now five days a week, with new episodes coming every weekday evening. It's a show that is very helpful for making sense of US politics right now. If you're not already subscribed, you definitely want to check it out. Find Raging Moderates on YouTube as well as Apple Podcasts, Spotify, and everywhere else. Now here's the show. I think the longer this drags out, yes, this will have an impact on China's, you know, oil imports and ergo prices, although it has about three to four months inventory in its strategic reserves.

But more from a strategic point of view, the longer this drags out, I think it actually is net good for China because it can point to how chaotic the Trump administration has been. Welcome to China Decode. I'm Alice Pan. And I'm James King. In today's episode of China Decode, we're discussing why China can't escape its dependence on the straight of Hormuz, China's cautious growth targets in its new government work report for 26, plus semaphores Andy Brown joins us to discuss how all of this is impacting the China-U.S. relationship. Now, that's all coming up, but first, let's do a quick check-in with how the markets in China are starting the week. On Monday, the Shanghai Asia Index fell about 0.7%. The Hangsang AHA Index closed down 1.4%, paring back some losses after briefly falling to a six-month low. The Brent and WTI crude benchmarks both soared more than 20% before falling.

Energy stocks, China National Offshore Oil Corporation and China-Shinghua Energy, both ended the day up over 3%. and property companies, San Hongkai properties and Hanglong properties, both closed down over 3% on fears of inflation that could delay or reverse expected cuts in borrowing costs. All right, let's get right into it. Now, the war in Iran is hitting one of the world's most critical energy choke points, the Strait of Hormuz. This narrow waterway normally carries about 20% of global oil, but tanker traffic has plunged as a tax on ship, ships and energy infrastructure escalate, leaving hundreds of vessels stuck and oil prices rising. China, which gets roughly 40% of its oil through the strait alone, is now pressing

Tehran to allow safe passage for its ships. But the bigger issue is structural. There simply aren't viable alternatives aside from the strait. Pipelines and other routes can't replace the massive volume moving through Homoos, leaving the global economy deeply dependent on on this single waterway, even during a war. Now, James, if there were any real literal manifestation of a choke point, we're really living it right now. You know, almost every aspect of the economy is dependent on oil, not just for transport, but in terms of goods as well and products.

And this is obviously having an outsized influence on a lot of economies, I would say notably the East Asian ones. China's remarkably kept very quiet, I think, in its criticism of the U.S. and Israel, I think, by Chinese standards. But what is interesting is that this is not just a phenomenon that is impacting China. Yes, China gets a lot of its oil from this region, but as well as LNG, which is something to note as well. But all the countries in the world are having some kind of knock-on impact. In the UK, too, we're going to see inflation rates probably increase, if not already, quite substantially,

given this oil exposure to the Middle East as well. just very, very quickly, what was your response to this? I mean, I've been in the weed, so I've got a lot of thoughts, but I just wanted to get your quick take on how this has impacted your thinking about China in the world, China and the Middle East, and maybe even more broadly, how you feel looking at it from a UK point of view. Well, I must say, you know, as you say, Alice, this really is the big choke point for the global economy, the Straits of Hormuz, a very narrow stretch of sea,

the oil tankers all have to pass through there. And of course, with the situation as it is right now, that is all in jeopardy. I have a couple of reflections. The first is I remember how the world was thrown into panic at the start of the Ukraine war when everybody was fretting over the future of oil exports from Russia to the west. But I found a statistic that really puts even that episode of panic into sharp perspective. And that is that there are about 20 million barrels of oil that transit the Straits of Hormuz every day. That's almost three times as much as Russia exports. So, you know, this is a problem three times as great as the problem that created the panic on global oil markets at the start of the Ukraine war. That's the first thing to say. The next thing to say is

to follow on from your brilliant description there, Alice, we're in a situation where the knock-on effects themselves are having knock-on effects. And so the rise in the price of oil is fueling inflation around the world. The fueling of inflation is potentially increasing interest rates somewhere down the track, and the increase in interest rates will clearly have a knock-on effect onto the cost of living for a lot of people around the world. And of course, debt servicing charges for highly indebted countries that includes many of the countries in Europe and also China.

China has a debt to GDP ratio of about 340%. So whichever way you slice it, China does not get off the hook from this Straits of Hormuz crisis. Just one final thing to say, even if you look at the amount of oil that China imported from Iran, and you add that to Venezuela, which was also a country attacked by the US, that comes to about 17% of China's total crude oil imports. So China's going to be hit there as well. I think that we're going to have to wait and see to see the full impact on China's economy, but I would say it's likely to come in two respects. One is obviously higher costs and greater difficulty in actually sourcing oil imports,

and the other is an impact on potentially higher inflation. But, Alice, you've been looking into this. I know you're looking into this pretty intensively. What's your sense? How is all this going to play out for China? Well, I like the way that you framed it, James, in inflationary terms, as well as just the size, the sheer size of oil that is moving through that straight. you know, that is significant larger than what was coming out of Russia at the start of the

Russia-Ukraine conflict a few years back. I was looking at some of the data the other day, looking at some of the main countries and the energy impact on inflation. Some of the, I think, worst off countries, Italy, Italy is going to see surging energy prices pushing inflation north of 3%. The UK is in a bad position north of 2.5%. Japan, also heavily dependent. mainly on LNG side of things because it has a pretty robust oil inventory. But elsewhere, China's actually in a better off position. And actually a bit of inflation might be good, as you know. You know, we've had pretty deflationary pressures in the economy.

So we could see energy prices push up the CPI, you know, closer to 1.5%, which I don't think would worry the PBOC too much, frankly. And it might be good to put some more inflationary pressure in the economy. But if I put it all together and add geopolitics to the mix, clear is that the U.S., aside from, you know, issuing a very decisive strike on Iran with Israel's cooperation, is now, I think, seeing the aftermath of its, I would largely say, ill-thought-out or ill-conceived strike on Iran. And that is because, as we've noted, you know, I don't think the Trump administration really understood the economic impact,

not just through oil, but also through aluminium markets, which are already very strong. We've seen aluminium prices rise considerably, but also the fertilizer market. And I don't think that the Trump administration understood those, you know, price effects of launching strikes, military strikes, to decapitate Khomeini and now more members of the IRGC. And I mentioned a fertilizer because actually much like in the Russia-Ukraine conflict where, you know, there were a lot of agricultural inputs, fertilizers, wheat, oils. a lot of fertilizers actually pass through the Strait of Hormuz, a considerable amount that actually might have knock-on effects, again, to the agricultural sectors across the globe, not just China. But if I put the geopolitical angle to this, I think China generally comes out net positive geopolitically because it can point to the U.S.'s ineptitude, frankly, and the fact that the global market, including American traditional allies, are suffering as a result of, I would say, largely poor strategic coordination coming out of Washington. And the longer this drags out, I'm interested to hear what you have to say about this, James. I think the longer this drags out,

yes, this will have an impact on China's, you know, oil imports and ergo prices, although it has about three to four months inventory in its strategic reserves. But more from a strategic point of view, the longer this drags out, I think it actually is net good for China because it can point to how chaotic the Trump administration has been. And this is obviously, a much more globally impactful event than Venezuela ever was. And it's still far from ending. I think we're still probably in the first innings or chapter of this conflict. And we're only just starting to see the economic impact.

My only consolation is that Trump is very market-driven. You know, we saw that back in April with the Liberation Day tariffs. You know, this S&P had to drop about 19% before Trump really started to intervene. and even then it was in response to the bond market route. So if we see a similar thing happening in the market, you know, as market investors start to adjust, their inflation expectations, their cost expectations, maybe Trump is going to pull back slightly,

but I still think it's early days. And a lot of damage can be wrought not just on the markets, but for everyday businesses, and they're not just in China. So I'd be curious to see what your take is on the geopolitical ramifications, but I think this is one point to China and maybe negative one point to the U.S. Yeah, I mean, I think it all depends how it plays out on the ground in Iran and also to a lesser extent in Venezuela.

If these two attacks by the U.S. military on those two countries bring about a, you know, a regime change and a return to stability and, you know, open up the export channels for for oil and other forms of energy, then I guess that will be seen as a win for the US, especially if that happens, you know, in a relatively near-term time frame. But as things stand, it doesn't look like that's going to happen. It looks like particularly the Iran conflict is going to last some time. The Straits of Hormuz disruption, therefore, may also last some time. And we're also seeing, you know, quite a lot of strife.

in the region around Iran, that is, you know, catching the fallout from this conflict. And so if that happens, then I think your scenario plays out, Alice. I think China will be, by comparison to the U.S. seen more in the vein of a stable superpower rather than fermenting chaos around the world. But, you know, we just don't know at this stage. We don't know what's going to happen in Iran. So I would probably reserve judgment right now, but err on the side of your analysis probably being the most likely outcome. And just to add to that, James, what is interesting to me, and we were doing some numbers internally, that if this war goes on for more than a couple weeks, we could be seeing the biggest decline in global oil production in recorded history.

And that's far worse than the two twin shocks that we saw in the 1970s. just to give you a sense of the magnitude of how important this straight is to global economy, not just oil. And certainly people that I know who are close to this in the market space are saying that we could go from $100 Brent crude to about $150 very, very soon. So just imagine a world in which we're seeing more than a 50% increase in oil prices. That is considerable. and, you know, we're only just getting to see some of the inflationary impacts of these price rises. One thing that I wanted to end on, curious, if you have thoughts on this too, is, you know, we've been studying a lot of Cold War history and what was interesting in the Soviet U.S. context in the 1980s

in response to Iran-Iraq War that emerged 1980 to 1988, was a Soviet-American cooperation to do convoys of ships, really to make sure that oil tankers could be securely led out of the Strait of Hormuz and that production could be stabilized. And these escorts between the Soviets and the Americans began in around July 1987. And it was really very much seen as a sign of cooperation between Washington and Moscow, the two navies, to really work together to destroy Iranian mines in the strait to make sure that oil supplies were stabilized. Now, there's a question that has been coming up quite a bit in the case.

context of U.S.-China relations and the ongoing trade talks in advance of hopefully Trump's meeting with Xi in China in early April. That is, will the U.S. actually ask China for help? Can China actually help the U.S. through its PLA, Navy, for instance, or through other ships that it may have to really make sure that it can securitize supply chains? Because right now, it's not just a matter of the strait being compromised. It's a matter of a lot of insurance companies underwriting that risk saying, no, we actually don't want to be underwriting the risk for ships involved in the transport of oil in this strait. So as a result, we're seeing pretty much a huge decline in activity. Just the other day, I saw that there was this one lone Greek ship

that went in without a signal, and it's able to pass through. Now, that is an outlier. So apparently Chinese ships are able to pass through because the Iranians don't dare to fire down on Chinese ships. So maybe there is a way in which there could be cooperation between Beijing and Washington in advance of the meeting. But I certainly think that China has a lot of leverage in this negotiation, no, because Trump is not in a great position to come to him after seeing some of the tariffs being struck down by the Supreme Court and say, hey, Xi Jinping, can you issue some convoy ships to help us get some oil out of the straight. What do you think, James? Well, I mean, gosh, that's a fascinating prospect, Alice. I hadn't run that scenario myself.

It's amazing how things, how quickly things change in this geopolitical world that we live in. Yeah, it's actually quite interesting. I myself am skeptical, and this will sort of lead naturally into, I think, future episodes where we've got to confront this, you know, Trump trip that's coming up to China. But certainly it feels since the beginning of the year, James, that China has been strengthening its negotiation leverage in the U.S.-China ongoing trade talks. So it will be interesting to see whether or not this is folded in discussion. Now again, we've got Bessent meeting, the trade czar, next week in Paris, or rather, we've got Bessent meeting, Halifeng, the Chinese trade counterpart in Paris in just a few days, actually where I'm at at the moment. So it would be

interesting to see if that comes up. Now, history shows that that could well come up. I'm a little bit skeptical myself, but we'll definitely have to watch the space in the coming days. And I think that that, you know, whether or not something comes out of it will have an impact, of course, on Trump's trip to China very soon. Okay, we'll be back with more after a quick break. Stay with us. Support for the show comes from Liquid Ivy. No matter who you are or how fit you are, there's a really good chance you're not hydrating enough. No shame in that. Happens to the best of us. We all need water, but if you're feeling a little bit, border of it, then you can give it a little juge with liquid IV, just one stick, and 16 ounces

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During the annual two sessions meetings in Beijing, Chinese Premier Li Chang delivered the government work report, setting a growth target of about 4.5 to 5% for 2026, a signal that Beijing is preparing for slower, more uncertain global conditions. Now, the strategy leans heavily on government spending, slightly loose, monetary policy and major investment in technology, green energy, and boosting domestic demand. At the same time, China is trying to stabilize its economy without returning to the massive infrastructure-led stimulus programs of the past, all while navigating trade tensions, supply chain shifts, and geopolitical pressure from the United States. The report also makes clear that Beijing wants to keep opening parts of its economy to foreign investment, while doubling down on innovation and reducing reliance on foreign technology.

Now, James, I thought I would be spending a lot of time on this and that this would be blowing up in the news, but actually it's been pretty silent compared to what's been happening in Iran. But I think we should still be watching very, very closely what has come out of this two sessions or Liang Hui. Certainly we've got the details of the government work report that's just come out and aspects of the 15th five-year plan. But one of my big takeaways, before I throw it over to you,

was that actually there was more meat on the bones in terms of supporting consumption. Now, whether or not the fiscal multiplier of consumer subsidies is strong enough to really have a meaningful boost to growth remains to be seen. But I was pleasantly surprised by the fact that they dedicated a greater portion of the special treasury bond issuance to consumption boosting programs. Aside from that, there was, as we expect, a huge focus on investment and technology. There was a creation of a new financing instrument to do that specifically. But I think that that was my biggest takeaway is, hey, they actually seemed to be

a bit more serious about this rebalancing effort. What did you think, James? Well, I was sort of looking more into the long term. As you say, Alice, there's so much happening in the world now. I tend to want to cling on to something which is long term, a policy that we can sort of invest some trust in for the future. And so I was looking at the 15th five-year plan, and that was fleshed out, as you mentioned, during this session. To me, there were several pretty important aspects of it. The first is that there's one really new focus and one crucial geopolitical reality and a couple of other points I'd like to mention. The new focus was artificial intelligence. It was hugely important. It was hugely important to this 15th five-year plan. And the crucial geopolitical reality, I think, is self-reliance.

This ran through the document like a mantra. There are so many different Chinese words for self-reliance, so I couldn't add them all up. But it really was the most important theme, I would say, throughout the whole document. And we're talking about self-reliance in every way. technological self-reliance, energy self-reliance. You know, we've just been talking about the very fractious situation in the Straits of Hormuz. China effectively wants to ease itself off all of the chokeholds that the West has over China

and at the same time assert its own choke points on countries around the world, particularly the West. The two points that I'd like to mention are that they didn't really seem to be any sign that China wants to do much to rain in its huge trade surplus with the rest of the world. The trade surplus, as you know, reached 1.2 trillion US dollars last year. And reading the various different documents that came out, it doesn't look like China plans to do anything about that. The other thing that it doesn't look like China plans to do anything about is this overcapacity issue in industry, vast overcapacity in various different Chinese industries,

which China's trade partners says are effective subsidies for Chinese companies, meaning that China is able to export products around the world at unbelievably low prices. But let me briefly come back to AI. I would say that what we saw, both in the government work report and in, the 15th five-year plan, should add up to a whole new descriptor for what China is as a country. My descriptor for the last decade or so has been that China is a techno-authoritarian superpower. Now I would like to add that China is an AI-animated techno-authoritarian superpower. I realize that's an awful mouthful. It'll almost certainly never catch on, Alice, but I'm going to go with it for

now because I think that really describes the essence of what China is. We shouldn't think about China as a communist country or a country ruled by a communist party. We should just focus on the fact that it's a techno-authoritarian superpower. In other words, an authoritarian country in which technology is important, both in its own right, because China's climbing the technology ladder at a rapid rate, and I would say leading the rest of the world in technology. and also because China uses technology to enforce its authoritarian model. But now, over the next five years, we're going to see all of this animated by AI. And I'd just give you a couple of little bits of evidence and then come back to you for your

reflections. But AI was mentioned 373% more than it. it was in the 14th five-year plan that was obviously published five years ago. This is the single biggest increase of any word used in the 15th five-year plan document. And let me just describe what is meant by AI and the AI Plus Action Plan according to these documents. The plan is to integrate AI across industries aiming to build. boost productivity, combat China's demographic headwinds, and achieve technological self-reliance. These are all the top priorities of the Chinese state for the next five years, and AI is central

to all of them. And we've mentioned before that China plans to deploy AI in 90% of the economy by 2030. So that's really what struck me. there's quite a lot of other things, including, you know, so-called emerging pillar industries of the economy and all of that. But I'd like to get your sense of it, Alice. What are you making both of the work reports and the 15th five-year plan? Well, I'm glad you talked about self-reliance. I couldn't agree more because on the one hand, do you have this admission in the government work report that China needs to slow down? So actually, the fact that it's doing a more modest than previously expected last year, at least, a growth target of 4.5 to 5%.

By the way, that's the lowest growth target since 1991. That suggests to me that they are okay with seeing a slowdown and willing to put more investment, so to speak, not necessarily into, I would say, largely inefficient, historically inefficient infrastructure development, but into what they call high-tech manufacturing and technological innovation. And the two things that struck me is quite significant in the government work report were the following. Number one, the National Venture Capital Guidance Fund, which was teased at last year's Liang Hui two sessions and formally approved last December, is mentioned in this report.

And it's actually quite interesting in its structure. I'll be curious to see how it pans out. It's a fund that's designed to act as a public, private, almost angel investor for investments in early stage tech companies. and the idea is to leverage state-backed financing, but at the same time have some of the fundraising being supported by these private VCs and private angel investors so that there is a more efficient allocation of financing

into these new technological innovations. That's the first thing that was interesting to me. And the second one that was interesting to me was the creation of this new financing instrument that they just introduced as one of these policy-based financial instruments. There was an additional 800 billion, I mean, B, of that being used to stimulate greater private sector investment, mainly in artificial intelligence teams, the digital economy, and consumption, infrastructure, and spending.

And when I put all of these elements together, to your point, James, what is interesting coming out of this work report is this feeling that they need to really get ahead of the curve on technological innovation, A, but at the same time, they need to have supply chain resilience across not just advanced technologies, but also these choke, what they call in previous work reports and the previous 14th five-year plan, choke point industries, these choke point industries. So some of them are like semiconductors, high in instruments, software, advanced materials, bio-manufacturing, the list goes on.

So it seems like they really are putting the money where their mouth is, so to speak, at least in this government work report and the new five-year plan. And I think we're at the beginning of a big sea change in Chinese technology. And it's interesting in the last few days, she has talked a lot about healthcare in China, you know, advancing modern healthcare, making drug discovery cheaper and faster. So, you know, beyond some of the traditional industries, we're seeing, I think, a big policy support for technology, not just in the terms of the advanced frontier, but also in terms of making sure that China

has supply chain resilience such that, you know, if there's ever a war over Taiwan, say, then it can largely, you know, be in a good position and not be, you know, taken on the back foot as the Americans were on rare earths, for instance. Absolutely. I think, you know, in summary, what it looks like is five years from now, China wants to be in a position where if,

a crisis like the one we're seeing in the Straits of Hormuz erupts. China will be so self-sufficient and so self-reliant in all of its economic needs that it will stand unmoved and supreme, kind of aloof from the rest of the world and able to exact its geopolitical policy wherever it looks and wherever it goes. I think that is basically the aim of Chinese statehood that we can see coming through the five-year plan and the work report this time. Okay, let's take one last quick break. Stay with us. Hey, Kara Swisher here.

I want to let you know that Vox Media is returning to South by Southwest in Austin for live tapings of your favorite podcasts. Join us from March 13th through the 15th for live tapings of Today Explained, Teffey Talks, Proffi Markets, and of course, your two favorite podcasts, Pivot and on with Kara Swisher. The stage will also feature sessions from Bray Brown and Adam Grant, Marquez Brownlee, Keith Lee, Vivian 2, and Robin Arzon. It's all part of the Vox Media podcast stage at South by Southwest, presented by Odu. Visit Voxmedia.com slash SXSW to pre-register and get your special discount on your innovation badge. That's Voxmedia.com slash SXSW to register. Really, you should register. We sell out.

out and we hope to see you there. After decapitation strikes against Iran's leadership, what can we expect next in the escalating war? The big question is, if there is going to be a next strong man in Iran, what kind of strong man will that person likely be? I don't think that there's going to be another powerful cleric, supreme leader. I'm John Feiner. And I'm Jake Sullivan.

And we're the hosts of The Long Game, a weekly national security podcast. This week we sit down with Kareem Sajapur to discuss what to expect in this next phase of the war against Iran. The episode's out now. Search for and follow The Long Game, wherever you get your podcasts. Ambassador Rahm Emanuel served as President Obama's chief of staff, an administration that had to deal with its fair share of global conflicts. He dealt directly with Israel's prime minister and thought plenty about the threat from Iran. But Emmanuel told me that the pace of action from this president,

in the Middle East is giving him whiplash. In 15 months, this president has taken military action against eight countries. I just, just in 15, now we got three more years to go. In 15 months, Iran twice, but you have Syria, Iraq, Somalia, Venezuela. I'm losing Nigeria. Today explained, in your feed every weekday and on Saturdays too. Today we're joined by Andy Brown, China columnist at Semaphore, to discuss global tensions, the future of U.S.-China relations, and the geopolitical ripple effects of the war in Iran.

Andy, thanks so much for joining us today and welcome to China Decode. Thanks for having me. Great to see you. Andy, thanks very much for joining us. I think, you know, nobody probably knows how consequential the U.S.-China relationship is more than you do. You've lived in China for more than two decades, I think I'm right in saying, and now you're based in Washington. You've covered it for various different news organizations. But surely right now we're at a particularly pivotal moment with so many things happening in the world.

Alice has just mentioned these geopolitical fault lines. How do you see the U.S.-China relationship evolving over the short and medium term, please? So, James, you may be surprised to hear that we don't hear much about China in Washington, D.C. MAGA has gone silent. And the China Committee, the Congressional China Committee, is a shadow of its former self. And amazingly, at the State of the Union address, China got zero mentions. And it's amazing when you compare that with the... Biden administration where everything was about China. They framed much of their economic agenda

around China, their industrial agenda, their diplomatic, political agenda. It was all China, China, China. And you know, you've had a national defense strategy come out, which is a part of the wider national security strategy, which also doesn't make much mention of China. And, Pete Hegseth is talking about, you know, we want a stable peace. And there's no talk about competition at all. He talks about needing or wanting respectful relations. So it's pretty clear from this side that the United States is trying to get a stabilized relationship with China going.

Now, part of that is technical. You know, they are very, very good. keen for the Trump Xi summit to come off. They want this to be a spectacular success, another win for China. So that's part of it. And of course, it doesn't mean that the structural differences in this relationship have gone away. Of course, they haven't. Still huge, still an enormous absence of trust between these two superpowers, but also, you know, issues around technology, trade, investment, data, privacy, espionage, and all the rest of it. that hasn't gone away. But it seems to me that we're in a truce, ultimately, and both sides

want to keep it that way. But why is that, Andy? I mean, is it that America these days is focused elsewhere in the world and it doesn't want to have to deal with the problem of a China relationship going south? Or is it perhaps that when China restricted rare earth exports to the U.S. last October, the US really got a wake-up call and they realized that they're now dealing with a power that is perhaps approaching peer status to the United States. And they're effectively, to use the vernacular, they're running scared. I think it's all of the above. So you've got the midterms coming up. And Trump definitely doesn't want to have a big blow up with China before then. He wants wins. The way he measures,

is not just the relationship with China, but relationships by lateral relationships generally. The metrics is the trade balance. And so I think that he feels that a trip to China could get a big win, and he doesn't want to upset the Apple card before that. And also he's just, you know, Trump, Trump is, people who said he's the least, the least hawkish member of his own administration. So in some ways, he's. sets the tone. I mean, even people like Marco Rubio, who were Uber Hawks back in the day. I mean, Marco Rubio came out just the other day and said that the United States wants strategic stability with China. And part of it is also the MAGA agenda, right? I mean, this is a retreat to the

Western Hemisphere. So so much of the, well, until Iran, but I mean, so much of the action pre-Iran was on the Western Hemisphere. And sure, some of that was bank shots against China, getting rid of Hutchison Guampeau from the two ends of the Panama Canal, snatching Nicholas Madura, friend of China, putting pressure on Canada, Mexico over trade, actually even Greenland. The China threat was invoked for Trump's so far aborted grab for Greenland. So, you know, there is a focus on America's own hemisphere, but also just the sense that America is overextended, right? The restrainers' arguments seems to be winning the day. America can't be stretched everywhere. Now, of course, they're embroiled in war again in Iran. The last thing they

want is a blow-up over Taiwan or the South China Sea. Well, I find this really fascinating, Andy, thanks so much for the overview of the American perspective. I want to cycle now to the Chinese perspective. We've got potentially Trump going to Beijing for the second time with a red carpet, no doubt being rolled for him in early April. How do you think Chinese policymakers are treating this summit? What is going to be on the table from the Chinese side? What do they want to get out of the summit? And do you think related to this Iran question that a more prolonged conflict

in which the U.S. gets bogged down is cycling through its precision missiles is to the advantage of China? Because there's certainly an argument that as this draws out longer, this could bog down American military assets in the region and China can quietly, you know, build up its military war chest, its capabilities. What was interesting to me to end my question is that the government work report this year that just came out, there's a line in which they've changed language around Taiwan. They say they want to resolutely combat Taiwanese as independence, as opposed to last year

when they wrote they wanted to resolutely oppose Taiwanese independence. So again, to string this all together, is there a third? threat of Taiwan looming beyond the summit? What's your take on the short-term and medium-term outlook? And there's a lot there to one pack. Let's start with the summit. The Chinese figure that Trump is their best hope, that if they're going to do a deal with any US leader, it's going to be with Trump. It's non-ideological. He's focused on trade. He, you know, if you believe people like John Bolton is no interest whatsoever in human rights, no interest in trampling on any of what China would call its core interests.

So they want this summit to make, they want to give Trump the time of his life in China. They're going to roll out the road. Don't forget this is a state visit. So what I'm hearing here in D.C. is that working groups in China have been running around trying to put together a very ambitious package. They want an impressive package.

And they know that in dollar terms, it has to start with a T. Okay, quite what that package is going to be. I hear all sorts of talk about putting together some huge investment fund to invest in the U.S. businesses around potentially EVs or chemicals or areas where China has real strength. The problem that the Chinese side is encountering is that just not getting much reaction from the U.S. side. Partly that's because the U.S. is distracted in all various powers of the world, not least Iran, but also because it's not at all clear that U.S.T.R. actually wants to do a deal with China.

I'm hearing that Jameson Greer in U.S.T.R. is thinking it would be much happy with some kind of managed trade between the U.S. and China, something that looks like barter, okay, we're going to decide. you know, we're going to buy $100 billion worth of stuff from China. China's going to buy so much from us. It's kind of like a managed trade, almost barter arrangement. And of course, the last thing that Trump wants is for U.S. companies to embed themselves more deeply into China.

He wants the opposite. He wants reindustrialization. He wants U.S. companies to invest more at home, less in China, so that you don't have that incentive. I've also heard that so far, very few, if any, big CEOs from U.S. companies with interests in China have been tapped to accompany Trump on his trip. Now, that doesn't mean to say they're not going to go. These trips always come together at the last moment. But it means that as of now, none of the usual suspects that you think might accompany Trump to China are going. And that makes the Chinese rather nervous.

I mean, here they are putting together these enormous banquets for him in the Great Hall of the people saying, here are 2,000 guests. You know, who's coming from your side? So we also haven't had one principal's meeting. I think it was in November. I think we have another one coming up. So things could change. But the US just doesn't have the bandwidth. I'm hearing at a bureaucratic level to deal with a trip at this size.

So let's not, let's moderate our expectations for this visit. There is no grand bargain to be had. This isn't a Nixon in China moment, although it could actually be an opportunity for a reset. So if I'm hearing you correctly, Andy, it's a photo opportunity moment where Trump might get his dollar sign teas as well as a Peking Duck happy meal. It's really just going to be optics as opposed to anything substantive. Is that right? Well, no, there will be deals.

So, you know, we've all reported on China. We know that China's great at sweeping things together, coming up with big numbers, no doubt there's going to be a soybean deal, no doubt they're going to be buying more Boeing. So they will try to make this add up to something that looks big on the investment side. I think that what they understand is that is going to be. I have to look bigger and better than whatever the Japanese gave to the United States, maybe bigger than better than what the Japanese and the Koreans together gave.

It's got to be impressive, and that's Trump is unquestionably going to want that. If war in Iran goes badly, he'll want to change the subject with a big deal in China. If the war is going well, he'll want a back-to-back triumph. Andy, just thinking about one aspect of the U.S.-China relationship, which has been in, well, I guess in decades past and until quite recently, the glue in the relationship. And this is the corporate America, investing in China, selling in China, and really helping to influence, I suppose, people on Capitol Hill and U.S. politicians to be more friendly to China. I'm just wondering if that is still the situation.

I ask this for a couple of reasons. The first is we've got Xi Jinping and the National People's Congress. He's talking about self-reliance. He's talking about technological self-sufficiency. Does China's future really have a place for corporate America? Or are the big American company is going to be sort of eased out of the China market over time? And, you know, if that happens, where is the glue between the U.S. and China? How do you see that whole really important scenario playing out?

Well, in spite of all the doom and gloom about business, performance in China, U.S. companies continue to invest. U.S. companies continue to earn decent profits out of China. And not just U.S. companies. I mean, you look at, I just saw the investment numbers for Japan, in spite of what's happening with Takaichi and the huge blow-up over the United. Taiwan, Japanese companies continue to that. Look at, look at Germany. Merz was accompanied by 30 CEOs. German companies are pouring investments into China, even though their automakers are being decimated in the Chinese marketplace. And the reason is you can't not be in China, because it's China, as you very well know, that sets the competitive environment for status for the world, right?

So, you know, in global competition, winners and losers are going to be settled in the China marketplace. So you have to be in China. U.S. companies know that they have to be in China. And look, you know, China needs the investment. It needs the competition for its own companies. It doesn't want to be North Korea. And it wants to be a global player. And it is in terms of technology, you know, so.

So much of the input on Chinese technology products and exports comes from the United States, Japan, South Korea. We often overestimate this whole issue around, you know, self-reliance. I was just talking to somebody the other day, a company that strips down products and looks at, you know, where the value is. And on the iPhone, it's still 50% of the iPhone comes from the United States, 30% comes from Korea, 12% from Taiwan. on very small percentage from China.

So China needs the world, and this isn't autarky. With your point about the iPhone, Andy, isn't the real threat to a lot of these foreign companies and investors that China is just making cheaper, more plentiful versions of the Apple iPhone? That we're seeing a style of self-sufficiency that really is about replacing some of the products and goods that the West has been able to provide and sell in China with Chinese variations. You know, you see this in EVs, you see this in iPhones, you certainly see this in other green technologies as well. Isn't that the risk? And shouldn't, you know, we all carry a grain of salt

and we talk when they talk about opening up. Certainly, I saw in the government work report, there's talk about services being opened up to foreign investors, especially in telecoms, biotech, maybe even digital finance and education. How seriously should we take those policy intentions? Don't forget the pushback, right? I mean, tariffs, sanctions, embargoes, not just from the West, but also from developing economies. Southeast Asia wants to have an industrial sector. It doesn't want to be bossed around by China. Look at Indonesia putting up enormous tariffs to Chinese products. So China doesn't have it all its own way, and it understands that it has to be, and it is an integral part of the global

economy. And unless it does allow companies in, it's going to face increasing pushback around the world, including in the United States. But for U.S. companies, I guess the issue is this, or for policy makers, the issue is this. How do you compete? One way of doing it is to put up tariff barriers. So we're seeing that sky high barriers, and then your company's shelter behind them. There's a big risk and a national security risk because your companies then become less competitive, you end up like Havana or Cuba, which is a real threat, a real risk now that Detroit is running. Or potentially, you team up with Chinese players, you have licensing arrangements, JV arrangements,

and that actually may be something that Trump and his and their teams can be talking about now ahead of this summit. Andy, just switching the focus for a second. You've lived in Taiwan, and as I mentioned earlier, you've lived in China as well. Do we expect anything new in terms of U.S. policy towards China on Taiwan? Obviously, Taiwan's been, you know, one of the most neuralgic areas of the relationship. Is there a sense, to put it bluntly, that the U.S. is now losing appetite to protect Taiwan against China in the event that China launches a military adventure against Taiwan.

And if that's the case, are we seeing the beginning of U.S. policy towards China over Taiwan softening? In other words, to sort of get closer to the idea that one day China will probably take back Taiwan. It's actually very interesting reading the press now in Taiwan and how they're interpreting what's happening in Iran. And they're actually quite encouraged. The way it's framed over there is that the United States is weighing in on the side of human rights, democracy, freedom in Iran. And they find that quite encouraging because, as you know, there was a narrative over there that's gaining increasing traction that you can't trust or lie on the United States anymore.

Plus, this idea that Israel is this small democracy straddling in a neighborhood of autocracies, particularly, of course, Iran is a sponsor of terror. And they kind of identify as the Asian Israel against, you know, the Chinese beam off. So that takeaways from what's happening in Iran is actually quite mixed. I think, look, on the question of will the Chinese go in, they're studying this very, very, very carefully, because obviously an invasion of Taiwan would be preceded by precisely the kind of decapitation carpet bombing that you're seeing now in Iran, unleashed by the U.S. and Israel.

The difficulty for the Chinese is that unlike in Iran where you can't, you know, the U.S. are bombing to Iran, hoping that this is going to potentially trigger an uprising and regime change, a bombing campaign against Taipei has precisely the opposite effect. It intensifies the resistance. So the question is, well, would this be an opportune moment for the PLA to have a go at Taiwan? I would think not. You know, 50% or more of the Chinese high command have just been taken out in a per. On the other hand, they're very, very happy to see the U.S. bogged down in Iran, and they're very happy to see the U.S. depleting its stock of munitions in Taiwan, which gives China some leverage now over the situation across the Taiwan Strait.

Is that going to be, is that a prelude you to invasion? I very much doubt it. Xi Jinping has got his hands full right now as we just discovered from the National People's Congress with an economy that is in very, very poor shape. Andy, thanks so much for your time in talking with us today. Thanks for having me. All right, before we go, some big news. China Decode is now available on Substack.

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