04 | Demand Destruction | Smelling the roses in Beijing

US-China relations have evolved because of the Middle East war. Trump recently made the first presidential visit to China in nine years. So what are the implications for energy and international development? And why it's not so much a  “China shock” but a “China Squeeze”.

Hosted by energy and climate finance expert Kate Mackenzie, and Tim Sahay from the Net Zero Industrial Policy Lab at Johns Hopkins University. They co-author The Polycrisis newsletter, which explores connections between energy, geopolitics, climate change, finance and industry. 

• Produced by Sarah Allely
• Original music by Russell Stapleton
• Mixed by Bethany Stewart

Contact us at: polycrisispodcast@gmail.com

Links:

Several episodes in our first season featured China-US experts:

EP 1 The quiet revolution included Kyle Chan from Brookings.

EP 4 Manufacturing Chimerica with Jessica Chen-Weiss and Jake Werner. 

Jessica Chen-Weiss also wrote an op-ed for the Financial Times this week A Cold Peace between the US and China is good enough and featured on CNN discussing where the US China relationship is headed 

Jake Werner's piece referred to is here A New Opening for US-China relations (Quincy)

Relevant Polycrisis essays: Conscious Uncoupling , Mercantilist Deals of the Great Powers - three views on technology, decouplers, cooperationists, centrists

Transcript

SPEAKER_00 0:09

I'm Tim Sahai. I'm with Johns Hopkins University in the US, where I co-directed SNET Zero Industrial Policy Lab. I'm speaking to you from my home in New York City.

SPEAKER_01 0:20

And I'm Kate McKenzie, a Sydney-based energy and climate finance expert.

SPEAKER_00 0:24

Well, in our first season, we discussed China a whole lot. Several of our guests were China experts, and you should go back and listen to those episodes after this.

SPEAKER_01 0:35

So this episode we look at where things are up to with US-China relations, which have evolved because of the Middle East War. And we'll ask how that affects the rest of the world. What are the implications for clean energy?

SPEAKER_00 0:49

And what are the implications for development? We'll discuss why it may not be so much of a China shock, but a China squeeze.

SPEAKER_01 0:56

In the last few months, several countries have sent their leaders to China to meet Xi Jinping. The UK, Spain, Canada, South Korea, France.

SPEAKER_00 1:06

Trump was supposed to go to China in mid-April, but that visit was delayed by a month because he didn't really want to go to China while bombing Iran with US soldiers dying. While, you know, he's walking down a red carpet in Beijing.

SPEAKER_01 1:21

Alright, so why do we have the name of this episode as Smelling the Roses in Beijing, Tim? Because this was your idea.

SPEAKER_00 1:27

Yeah, I mean it really tickled me that, you know, Xi Jinping takes Trump to visit the Imperial Garden in Beijing and you know gets him to smell the roses. And Trump is walking around this beautiful garden and basically saying, Hey Shi, I would like some of these rose seeds in my garden in the White House. And you're like, hang on a minute, didn't you just destroy the rose garden in the White House? And it seemed to me like a metaphor for, you know, the self-harm that Trump is doing to America and the American economy and the American people. And you know, this deranged kind of person now wants she to send him these beautiful roses from the Chinese Communist Party headquarters in Beijing back to Washington, DC.

SPEAKER_01 2:15

The first US presidential visit to China in nine years has brought up a whole bunch of issues that we've been writing about since 2022 when we started the polycrisis newsletter. Those nine years were characterized by tensions around tariffs and other trade measures, pandemic, targeted measures like the chip wars. But now the US wants stabilization and a resumption of economic relations with China. A key phrase of the trip in both countries' official statements was strategic stability. Their joint statement said the two presidents had agreed that they should build a constructive relationship of strategic stability on the basis of fairness and reciprocity. And the broader context is that this comes after all of those other world leaders had met with Xi, all seeking the same thing that Trump did. More Chinese investment into their countries, particularly around EV facilities, and more balanced trade. And Tim, how would you describe what happened on this trip to China with Trump?

SPEAKER_00 3:23

I mean, the main thing is that he went with an entourage of American CEOs, you know, from finance, from tech companies like Nvidia, from Boeing. Um, and you know, he basically said, Look, I want more American investment in China, you know, with the Trump in catchphrase of China must open up. And, you know, and he also said, guys, I want more Chinese investment in the US. And all of this just sounds like an enormous sort of change in tone of US policy. I mean, no one is surprised when the Germans and the French show up with their entourage of CEOs and want more investment in China, etc. But the Americans just haven't done that for 10 years. Trump famously started off, you know, this economic sort of Cold War and tariff war with China in his first term, decrying Chinese investments as killing American jobs and factories. And in fact, you know, with both Biden and Trump, over the last 10 years, the Democrats and the Republicans basically had a exclude China consensus that emphasized a bunch of harms and minimized any benefits. Um, and I always thought this sort of level of sort of China bashing was just like exculpation for ruling elites in America who could sort of blame all their problems that they caused in America to the Chinese. So what you basically heard in America for the last 10 years was this nasty big dragon has stolen your job, has held down your wages, has driven up your rent, threatens your democracy, and is destroying your planet. So, in my in you know, in my take, it was just an enormous sort of change just to see an American president with the entourage.

SPEAKER_01 5:06

Yeah, something that we've pointed out a few times also is that that more aggressive or unfriendly stance of the US towards China actually preceded even the first Trump administration by a little while, didn't it? Like there were there were early signs of it in the Obama administration. Yeah, it's so it is quite interesting. Like I I think just ahead of this trip there was a mention, there was uh some idea being floated around of like a trillion dollars worth of Chinese FDI into the US. So why do you think the US is so keen to normalise relations with China when we've had this series of really like as you know, as well as things like interventions to uh limit semiconductor manufacturing technology going into China, you know, efforts by the US to stop the Dutch and and Japanese selling, you know, very, very high-end um semiconductor tech into China? Um there have been other measures, there's been like a real kind of chill in diplomatic relations for for almost a decade or so, hasn't there? There's been, you know, it's mostly required a few kind of back channel meetings to to kind of keep things on track between the two countries over the last few years. So what's the change now? Why is Trump why why do you think the US administration is now really wanting to normalize and stabilize relations with China again?

SPEAKER_00 6:34

I mean, it sort of takes two to tango. So we should also be asking why are the Chinese keen to meet the Americans? And from the Chinese side, you know, there's been a slowdown in investment in China since they've been um reducing and curtailing the real estate uh sort of property bubble of the last uh two decades. And, you know, there's a double-digit sort of youth unemployment in China and real sort of slowing down in the growth rate that has been sort of cut in half. And sort of on the American side, I mean, my take is Trump is really keen to normalize um relations because the US has just lost that economic war. Um, you know, that tariff war uh that Trump began last year, the Chinese immediately retaliated with the rare earth embargo. Um, and that rare earth embargo really hurt American industries, and they immediately sort of put pressure on Trump to sort of end um the extremely high sort of tariffs. So, in my view, Trump is like basically trying to resume relations um because he's been sort of defeated um in the economic uh war, and America has been brought back to the negotiating table um when it didn't want to. Just a year ago, you know, uh it's America that started the the tariff war, and and now it's America, you know, in a in a negotiating room in in Beijing. And that sort of comes back to a broader theme of our of our podcast, which is sort of the eclipse of of uh sort of Western supremacy or Western power and the rise of multipolarity and the rise of Chinese power in particular is a theme that we return to again and again.

SPEAKER_01 8:18

So what was the actual outcome then? Did the US get what it wanted? Did the administration get what it wanted out of out of this trip to China? Do you reckon?

SPEAKER_00 8:25

I mean, they got one thing, which is uh strategic stabilization, you know, they're actually talking to each other and you know, and these investment deals are being made. And they said they're gonna establish a US-China Board of Trade and Investment, you know, to manage um in American investments in China, Chinese investments in America. So that was that was the thing that was announced. And, you know, all of these are a good sign that we're gonna go from a tariff war and economic war and ship wars and rare earth wars towards some kind of a managed trade framework to manage their frictions. Um, you know, and one of the few sort of investment deals that were announced was Trump said that China put in an order for 200 Boeing jet planes. Um and, you know, Wall Street predictably reacted by by selling Boeing stocks because analysts were expecting uh China to put in an order for like hundreds more Boeing jet planes. And on chips and rare earths, you know, the thing that really started this whole thing off, there really was really perfunctory sort of stuff and nothing, nothing, nothing very major from China saying, you know, we're calling this thing off. And then on the war itself, on the Iran War, on the Middle Eastern War, um, a big thing that the US wanted was um China should not provide arms to Iran, because that would really dramatically change the military calculus in Iran. And uh apparently in Beijing, um, as the FT reported, um, she did tell Trump that he would not sell arms to Iran. So I thought that that was a fairly significant outcome.

SPEAKER_01 9:57

All right. So the US administration kind of got what it wanted to some extent, particularly over Iran, um, but not but not necessarily much clarity over rare earths, for example, more and more cooperation in that regard, or or even, you know, trade more broadly. So what's your thinking, Tim? I know you think that this is kind of relevant to also the way that Europe has been interacting with China and how Europe is thinking about its own industrial strategy at the moment.

SPEAKER_00 10:26

I think the arguments that are made in America and Europe are fairly similar, you know, between that restrictionist sort of group of people and the sort of the more cooperationist uh group of people, where the restrictionist coalition will just emphasize harms and risks of dealing with China, while the cooperationist coalition will talk about some of these benefits. And you know, the arguments that you hear in Europe are very similar to the arguments that that we've been hearing in America, which, you know, the first one is that if you exclude yourself from China, then European businesses will lose money. They won't make money in the Chinese market where, you know, a vast new middle class and super wealthy people have arisen. And so European manufacturers should be out there in China, in China, for China, for the China market. The second argument that he hears that, you know, if you if you exit China, then you know, you will just benefit a bunch of monopolists and you will remove this sort of force of competition in your country if they don't have to actually get down and dirty and get lean and mean and in a price war with other manufacturers. Um, and then the third argument that, you know, we've been sort of calling the the Chinese gym, that if you're not in the Chinese gym uh where there is a huge amount of competition and productivity and learning, then you're just not going to get lean and mean ever. And you'll just be fat and lazy in your protected sort of home market. And I think those are those are sort of the like the motivating concerns for um how Europeans are sort of thinking um about doing business with China, both in China and what Chinese firms are gonna be allowed to do and not allowed to do um within Europe.

SPEAKER_01 12:14

So it's like Europe's starting to think a lot more strategically about what it allows and doesn't allow from China and what it uh like, you know, what w what they want to incentivize and how they wanna how they want relations with China to actually benefit their own industries, their own like domestic um EU industries, right?

SPEAKER_00 12:36

Yeah, that's exactly right. And they've been sort of they've been coming out with um, you know, the new industrial um accelerator act, the EU Industrial Accelerator Act this year, which I think was proposed in March, is under a bunch of negotiations, you know, in the backroom offices of Brussels and between the national capitals and is expected to be turned into law, you know, whatever, sometime by the end of the year, these things, these things take time. But the things that they're looking at are very interesting. It's Europe wants um, you know, European money, public money, to be used um to favor products and components and materials made in Europe. So they're thinking about aluminium, steel, cement. Um, you know, they're thinking about things uh that need to be made in Europe or made in sort of a union-friendly country, and and and that includes Japan, Korea, Turkey, UK. But you know, they'll they'll only allow those products um to be made in those countries if those countries reciprocate to the Europeans. Um so that's one of the things under consideration. And and and the other thing is what do we do with this massive wave of Chinese FDI that has sort of come into Europe? And and they want strict conditions, you know, they don't want any single country to be owning um a large part of the value chain. So they're demanding, you know, significant sort of European ownership. And then lastly, they want what every other country wants when they're dealing with the Chinese is how do we make this work for us? How do we make it work for our knowledge, our research, our workers, um, you know, creating sort of highly skilled um workers working in these firms. And so they're demanding that any Chinese investments in Europe need to have these sort of safeguards of local ownership and job quality and technology transfer and research. And and you know, that's that's that's the way the the Europeans are currently thinking about it. And as as as you were talking about, there's there's a big fight brewing between the liberals and um in uh largely in Germany and northern Europe and you know the more sort of protectionists in in France.

SPEAKER_01 14:49

It kind of makes me think of um Isabella Weber's book about China, right? How China escaped shock therapy, where you know you've got the state using market tools and instruments, but in a very strategic, orchestrated, intentional way. And it it seems like the European Union is is trying to do that. You know, they want Chinese foreign direct investment, FDI, which seemingly, you know, everyone wants Chinese FDI at the moment, um, or FDI in general, but uh but they want to also ensure that there's again like a tech transfer, knowledge transfer, you know, like labor protections, environmental protections and so forth. But at the same time, this Industrial Accelerator Act is is really targeted at like strategically kind of building industries. There is a a definite like self-sufficiency bent to it all as well. And and this is and this is all happening while Chinese EVs are being imported into the into the EU at like quite a rapidly increasing rate, right? I saw um a Rhodium report. I think you we will put it in the show notes, just illustrating how rapidly imports of uh Chinese branded, Chinese branded EVs and Chinese manufactured EVs are are actually like increasing, the rate of increase of uh of their sales in Europe is higher than the um the wave of you know Chinese and Korean car imports in the 80s as a as a comparison. So and this is despite there being some tariffs on Chinese EVs now, some specific uh, you know, uh uh protections against Chinese EV imports in Europe. So it's really interesting. Europe kind of wants to, like, they don't want to throw up big barriers, but they want to kind of make sure that they're getting something out of all of the industrial like interactions and collaborations with with Chinese industry.

SPEAKER_00 16:52

Yeah, and and you know, BYD is essentially pitching itself, you know, I think they hired James Bond to be their brand ambassador for Europe. And, you know, they basically want to say, look, we're a we're a European car now. You know, we're made in Europe. We have a ton of local content. We have European car parts, and you know, soon in a few years, they're promising they'll have more sort of battery parts as the European sort of gigafactories sort of step up and start making more and more inputs for them. And so there's this there's this whole like China is manufacturing inside Europe. They have plants, Chinese uh companies like uh BYD, Great Wall Motors, etc. Ghili, you know, all of them have plants in in Spain and France and Germany. Um, the Chinese sort of battery uh manufacturer, CATL, the giant, has an enormous plant in in Hungary. Um the Korean companies, battery companies, LG, Samsung, etc., are in Poland. So there's a lot of foreign manufacturing plants um within Europe. And and you know, that's that's that's quite natural because both America and Europe really um, you know, sort of hit themselves in the face by not really getting into electric cars for the last 20 years and letting the Chinese and the Koreans sort of steal a march upon them. So 20 years later, you know, 20 years of Europe sort of supporting diesel cars is now finally turning into reason that they should be supporting electric cars, and those electric cars are gonna require foreign know-how. Well, you know, we don't want foreign manufacturers to sort of make cars uh abroad and then ship them to China, uh to Europe. We'd we'd rather that they make them at home. Well, how do we do that? Well, have a giant tariff wall and force them or attract them or coerce them into setting up a factory within Europe. So I see I see this sort of part of a sort of long rethinking over the last few years within Europe, that they really do need exposure and learning from Asian manufacturers.

SPEAKER_01 18:53

Yeah, I want to get back to the comparison of the US with Europe and how they each respectively deal with China. But but first, just like one more thing on Europe is that uh there's also this kind of security risk imperative starting to pop up in how the EU is looking at Chinese clean tech imports, isn't there? There's this thing about inverters, and I think I you and I maybe had like different, slightly different opinions on this. Um I know there's been some talk of, oh, you know, that by swapping dependence on fossil fuel imports for clean tech from China, you're just swapping exposure from one choke point, uh, swapping exposure to one choke point for exposure to another choke point, just you know, swapping out one vulnerability for another, which seems to me a real kind of false equivalence. Um, not to say that there isn't a vulnerability there with Chinese clean tech imports, but it's it's obviously like very different to fossil fuels, uh, you know, relying on fossil fuel imports. But but you were saying the the inverter thing is um is a real risk and it is actually something that Europe can um can effectively circumvent.

SPEAKER_00 20:03

I mean it's it's part of this whole sort of worries about spyware and batteries and cars, you know, uh uh an EV is essentially like a ton of cameras inside them, and they're you know running on running over your streets taking photographs. So there's there's there's a lot of worry in both China, Europe, and America about, you know, what should the Chinese do with the Tesla running around with a bunch of cameras and what should the Yarpins do with the uh BYD running around with a bunch of cameras? And the answer is like fairly obvious. Like, have your technological engineering associations, you know, inspect every single component of these cars to make sure that you know the data isn't actually being sent back to the mothership, but is instead being processed within your country or within your continent so that you have some privacy concerns being addressed. And and on the question of sort of solar panels, you know, the Europeans are the largest importers of Chinese solar panels. But you know, why bring the solar inverter along? The solar inverter is a piece of kit that the Europeans know how to make. There are Spanish companies that make solar inverters. So why don't you actually give them more support and make sure that those inverters, you know, can't be something that a Chinese company can, you know, whatever, shut down under directions from Beijing if if you ever get into uh a hot war with them. So I think you really do have to be pragmatic and careful in choosing, you know, fine, let's buy the solar panels. But inverters, well, if we know how to make them, yeah, how about how about how about we leave that market to us?

SPEAKER_01 21:40

Yeah, it does seem a little bit risky though that there's a that then there's this kind of broader like knee-jerk security slash protectionist, anti China clean tech in import thing, right? That then might get picked up by other countries or missing. considered. I don't know. I'm just sort of I'm just thinking out loud.

SPEAKER_00 22:02

You know, I know that there's there's still barriers to Chinese clean tech imports in in quite a lot of countries that um that you know there are many ways to kind of reduce that imports like the Europe the French I think like basically say look if you if you make a Chinese car and I know the way you're making the Chinese car in China is with a bunch of coal. Well you know what we aren't we are just going to measure the amount of carbon used in your manufacturing process and just say outright we're not going to allow cars being sold in France that you know have this many grams of CO2 um in their manufacturing process. And if you do that that's sort of like protectionism through the back door in some sense right you basically say I want I want protection for Europe for French made um cars but I'm not going to say I have a massive security concern with them. I'm just going to say no I really want your manufacturing to be clean and sh clean and that's what we have in France and you know we won't let uh these cars be sold unless they're clean as well. So there there there are many sort of ways to do to do sort of protectionism. You could use the security argument which as you said is a little bit worrisome. You could use some sort of climate green sort of argument um and and you basically see countries adopt a whole variety of motivations.

SPEAKER_01 23:21

So just going back to the US, we saw this really nice paper by or essay by Jake Werner from the Quincy Institute for Responsible Statecraft just setting out I think it was a couple of weeks ago setting out how the US could actually you know thaw relations with China to ensure that US industry and technology doesn't fall behind in the same ways that Europe is doing, I guess like connecting with this really competitive Chinese market and having collaborations, maintaining collaborations or you know re-establishing collaborations on you know research and um manufacturing know-how and so forth. But that seems you know that that's all just been very unfashionable in the US for years, hasn't it?

SPEAKER_00 24:11

I mean it's been unfashionable and Jake's argument was it's it's actually isolated um the Americans right so so it's it's turning us into kind of like a technological sort of backwater is his argument and and Americans are just going to have bloated and expensive uh products and bloated and expensive cars instead of having the lean green uh Chinese machines that the rest of the world has and and he sort of makes another argument in that which is you actually need a a coalition a political coalition that you know wants normal relations with China. We clearly do have a political coalition that wants a highly restricted security focused relation with China and that includes you know the Pentagon it includes companies and it includes labor unions etc etc it includes obviously a huge number of people in Congress um and so Jake and sort of Jessica Chen Weiss's um argument over the last um few years has been you know what is what does a coalition that is sort of more pragmatic and balanced relationship with China look like well it should also have politicians it should also have labor unions it should also have like a political party that whose whose whose members sort of stand up for normal relations and that's the part that is incredibly hard to do and even with with the Trump's um visit to China right now you immediately got a wave of chorus of criticism inside America coming from Republicans Democrats labor unions um you know congressional people basically saying you know this this looks bad you shouldn't go to China you shouldn't go with your entourage of CEOs to China like what are you up to?

SPEAKER_01 25:56

But US interests aren't wrong to be concerned are they like different kinds of interests like it's all very well to you know take a bunch of billionaires and C billionaires slash CEOs over to China. Re-establishing mutual relations with China is part of it but it is all it's it really always comes down to like well how do you actually do the domestic policy back in your own country right? And this this was the criticism of the whole China shock argument, wasn't it? The idea that you know Chinese imports had hollowed out US hollowed out the US middle class was, you know, the the counter argument to that was always well you know the US actually is a has a lot of a great deal of agency and could have managed how that actually played out domestically like very differently. And and it's that it's that same risk now right it's always it's always a risk.

SPEAKER_00 26:45

But it's not it's always a risk but you kind of have to d decide of what is your policy, right? Clearly there is a risk and therefore you know you should demand those local jobs and make sure you get them. You should invest in your universities and your science and technology and make sure that you can participate in the high-tech sort of value chains. And so and you know you should demand local ownership so that it's not just a bunch of Chinese ownership sort of you know using their power to boss around American firms, etc, etc so I think Jake's point and sort of everyone's point who who works in this is like make better policy so that you don't repeat the mistakes of the past, where it was excessively sort of US billionaires and US CEOs sort of calling the shots and and no other sort of counterbalancing coalition within the US you know such as labor unions, congressional people, workers, etc, that that could have provided some sort of counterbalance to get a better equitable balanced um output.

SPEAKER_01 27:50

Yeah I guess the point is that it's not it's not completely determined like you know the actual relationship between the two countries doesn't determine what happens within one country. But you know we also obviously have to acknowledge that with the current administration of the US like the odds of this all being done in a way that you know benefits the majority of US society don't are kind of zero right um extremely low. All right so let's look at the rest of the world and and particularly at the global south at developing countries. The solar export data from China for April has come in and you know March was this like record month for exports of solar panels from China. I think it was up it was like 80% higher than the previous year and in some countries it had increased fivefold like Nigeria for example imported like five times as much solar PV gear from China as it did a year earlier. And this has been you know this has just been like a huge trend for a lot of developing countries just in the last year. Obviously we talked about Pakistan but you know it's now it's not just Pakistan it's lots of sub-Saharan African countries, um, South Asian, Southeast Asian countries and Latin American countries now. But what does it mean for all of them that China, you know, you know, we've been talking about Europe and the US having these you know very you know or potentially having these very nuanced complex strategies to interact with Chinese industry and and take Chinese imports but not have it like overwhelm their own industries and their own security concerns. So what you know what about what about poorer countries who, you know, some of whom are going hell for leather, importing Chinese clean tech, Chinese particularly solar gear, you know, helping them offset the the threat, the risk now, the high prices, the currency burden, forex burden of having to import you know, really expensive oil and LNG but you know at the same time they're also you know it doesn't it doesn't allow much space for them largely to to create their own manufacturing industries does it? And there's a couple of different ways of looking at this. One is that it's just really beneficial for these countries, you know, they it it gets them out of a squeeze with access to energy reduces that that import dependence it in some cases actually just improves electricity access full stop. And you know a lot of these countries already have Chinese equipment everywhere in their telecoms, networks and so forth, you know, particularly in in places like Africa. But then the other side of this and this gets beyond clean tech is this you know China's not just moving up the chain and just focusing more and more on very high tech manufactured goods and abandoning the the the lower simpler export they're still doing lots and lots and lots of that more those more lower low wage low tech labor intensive manufactures. So developing countries that are wanting to move up the chain increasingly like don't really have a lot of space to do so do they?

SPEAKER_00 31:16

Yeah and that's the China squeeze you know the the rich countries may have faced the China shock with with those advanced imports coming in and really hurting their their industries but for most poorer countries you know the standard model for development was well you have a lot of low wages and a lot of people therefore you should put those people into low wage assembly jobs that are basically things like textiles. Textiles was you know textile apparels furniture um have been have been the classic engine of growth for um countries over the last hundred years you know a country like Korea famously went from being dirt poor in the 1960s to being the Korea of the high-tech um sort of world that we know now but it started out life as a low-wage assembly manufacturer for for Japanese companies and American companies making uh shoes and making textiles um etc and and and that's the bit where um you know China's just not given up as you were saying they've just not given up on the low-wage low-end stuff so it's like an all of the above kind of stack and if you do that then you know no other real country can really sort of compete with China's scale and depth and sophistication and you know another 500 million peasants to go um in in moving them uh to a richer and more prosperous life and that's that's really putting the squeeze on on um a lot of poorer countries around the world.

SPEAKER_01 32:49

It seems like every country at the moment is really seeking more FDI, more foreign direct investment from China at the moment, doesn't it? And that's something that I know you, you know, your research has looked at I don't know I don't know what you think about this. I'm I'm I'm wondering though what the scope is for that to increase massively certainly some some countries have a lot of bargaining power for it but others don't and it it's not it's not just their it's not just like their institutional agency. It's also about their market size isn't their market power and whether they're kind of strategically significant to the state of China or to or to to Chinese industry.

SPEAKER_00 33:31

Yeah I don't really know if the Chinese sort of FDI of setting up factories for other people is is going to last. There's definitely been a big surge that that we found in the last four five years but I don't know if that's going to last. So if there's not much sort of manufacturing coming out of China, you know that would that would that would really put the squeeze on countries, right? And then the second thing is you know you could imagine a world where well the Chinese are getting richer and what did they do? Well they buy a lot more stuff when they become richer and they consume a lot more when they become richer. And so that's a market that other countries particularly poorer countries could sell into and uh you know that's that's something that the Chinese it's a matter of Chinese policy whether they could provide duty free access to African countries and poorer Asian countries so that they can have a market as the rich world puts up its tariff walls China might decide to put down its tariff walls. So that's a possibility you know we we saw a few countries get duty free access into China in the last couple of years. But that wouldn't that would require Xi and and the hypernationalist kind of um security focused sort of China underneath him to abandon their program of um total sort of self-sufficiency and you know stop making some of those low wage low wage goods and start buying it um from other people so that's that's that those are the big questions are there going to be more factories going out of China are the Chinese going to be consuming more and um you know and are they going to sort of abandon this this policy of extreme self-sufficiency and that that that requires them to think that they may not have to fight a war with America and and that sort of brings us back to full circle of perhaps this stabilization strategic stability between America and China might actually end up um reducing the the fear and the risk of a war um between the two nations.

SPEAKER_01 35:28

Yeah it's it's just really interesting to me that there's this interest in you know getting Chinese factories Chinese finance factories built in your own countries that's happening you know in rich and poor countries alike at the moment. I wonder like how much of it is just this realization or acceptance that you know China is not it's not really that likely to rebalance it's not really likely to increase its uh consumption share of GDP right and become this big import market you know the the consumer of last resort the way the US has been it just it just seems very unlikely. China's maintaining a massive um current account surplus there's this you know big worries are coming up again about global imbalances and it it doesn't it doesn't seem like there's a lot of sign for um a lot of you know opportunity I guess for for countries that don't have really good bargaining chips in the face of of all of all of that. You know China still seems to kind of be pursuing like you say like this you know it's self-sufficiency and you know and it's it's sort of economic monetary export focused growth and so forth.

SPEAKER_00 36:47

Yeah well I mean we've we've lived in a world of economic chaos right for the last 10 years we've had economic wars, tariff wars, chip wars and so this is an unalloyed good that the two superpowers are actually talking to each other, having some sort of managed framework to deal with their economic hostility and if they do that that stabilizes economic relations and that allows other countries to go on and get ahead with these Chinese products and these Chinese factories and come and figure out their own industrial policy and make it work for them for their own development and for their climate goals um and and I really hope that's where that's where this train goes.

SPEAKER_01 37:28

Yeah I I hope so too it sounds you know at least it's it's a bit more benign than where we have been recently I guess. You've been listening to episode four of our bonus season of the Polycrisis. I'm Kate McKenzie.

SPEAKER_00 37:41

And I'm Timster High, we publish a newsletter about the political economy of climate change amongst other things you can sign up for that and find out more about us at thepolycrisis.org or in our show notes.

SPEAKER_01 37:54

Our producer is Sarah Allerly Russell Stapleton composed our fabulous music and Bethany Stewart is our sound engineer. Sarah Allerly is also our executive producer