395. Trump, Xi, and how China outsmarted America

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• 2:48Rory Stewart?

  Welcome to The Rest is Politics with me Rory Stewart.

• 2:50Alastair Campbell?

  And me Alastair Campbell.

• 2:52Rory Stewart?

  And today, I think, Alistair, we're going to be looking at US-China. Obviously, we're going to start with the tariffs and trade war. And then we're going to move on to talk about industrial policy. We're going to talk about steel factory in the United Kingdom in Scunthorpe. And we're going to look at what's happened in Germany, where we've just had a coalition agreement put in place, the Nemet government, taken over. But where do you want to begin us?

• 3:15Alastair Campbell?

  So I've spent the last couple of days, Rory, trying to imagine that I'm a Chinese diplomat and looking at this from their perspective. Because on the one hand, they'll be worried that a trade war, massive tariffs from the USA on their goods, that that will be damaging to their economy. We're now into three figures on both sides. The retaliation has gone up and up and up. But if you feel free to jump in at any point, Rory, and agree, challenge with any of them. But I've actually worked out, you know, Trump loves to say, who's got the cards? He told Zelensky, you don't have any of the cards.

• 3:54Alastair Campbell?

  I've worked out 10 cards that the Chinese have over the Americans in what's going on now.

• 4:01Rory Stewart?

  Okay, go on then. Give us your 10.

• 4:03Alastair Campbell?

  Well, number one is that China historically and now playing a long game up against somebody who is impulsive, clearly doesn't understand trade, making it up as he goes along. They have been preparing for this kind of breach for a long time. Whereas Trump's team doesn't even know what he's going to be doing day to day. So that's the first one. The second one. Is that the soft power damage that Trump is doing to America is opening up unexpected opportunities for improved trade and diplomacy for China. Now, Xi, as you know, is currently on a tour of Vietnam, Cambodia and Malaysia. That was going to happen anyway.

• 4:47Alastair Campbell?

  But that that will be part of a a reset in the region. They've already had a their first dialogue, economic dialogue in five years with Japan and South Korea, directly because Trump brought in the tariffs. And they're also, the European Union is talking about, we need to get get moving with China. So that's the second one. Third one, they have got powers of retaliation that, we talked about this a little bit in relation to soybean when we first talked about tariffs, but they've got powers of retaliation beyond just tariffs. So, for example, what they're doing on the global rare earths, I think is really interesting.

• 5:31Alastair Campbell?

  Nine, something like three quarters of American rare earths come out of China, and they're slapping all sorts of control, export controls on the firms that send them to, say, defence, robotics, etc.

• 5:42Rory Stewart?

  Let me come in on that quickly. If we're gonna, if we're gonna make it through 10, I'll have to come in on number three and then let you keep rolling on your other seven of this will be going. Thanks. So I think that's a really good point. So, um, critical minerals and rare earths are absolutely vital for the modern world. So in addition to the rare earths, things like cobalt, lithium, nickel, even copper are absolutely vital for batteries above all, which powers most of the technological revolution, most of the green revolution, and absolutely vital for semiconductor chips and all the stuff that America needs for its technology. And the problem is that it's not that China just owns a huge amount of the mines around

• 6:27Rory Stewart?

  the world, so they own the mines in Democratic Republic of Congo, they have big contracts, even developed world. It's that even that stuff which China doesn't mine itself is processed in China. And the reason why it's processed in China is you don't want to be running a factory processing this stuff in the United States because it is unbelievably not just

• 6:50Rory Stewart?

  Capital investment setting up the plant, but it is massive pollution, environmental impact of running this slurry, running this processing plant. So, nobody wants it. And in fact, if you tried to open those kinds of plants in Europe or the United States, you would face huge public opposition because the impact on the landscape, the environment on water quality is unbelievable. So China has, as you say, a kind of stranglehold on that. Back to you.

• 7:17Alastair Campbell?

  Well, also on that, I mean, I didn't realise 10% of chickens in China come from America. Uh, we talked before, 50% of soybean, roughly 50% of soybean into China. So they're just going, they're going to different markets now. And they're also planning to up the regulation on American companies as a way of leverage on the US. And this is my, my next point is that China will think that America needs them more than they need America. So going back to your point just there, three years ago, America relied on China for 532 key product categories, which was four times the level that they relied on 2000. China's reliance on American products cut in half by the same period.

• 8:02Alastair Campbell?

  And as a result, the American market is not as important as it was to China. At the start of the first Trump trade war in 2018, American bound exports made up 20%, almost 20% of China's total exports. 2023 down to 12.8. So that balance is changing. And they also, they think, this is my next one, they think that they helped to force the climb down on smartphones because they educated the American people, not least with some of their very funny memes. They educated the American people and American politicians about the extent to which companies like Apple were completely locked in to Chinese supply systems.

• 8:44Alastair Campbell?

  So I don't know what number I'm at now, but next one, Elon Musk. They have got Elon Musk.

• 8:49Rory Stewart?

  Okay.

• 8:50Alastair Campbell?

  And they think that's an advantage to them. Unless Trump does what Scaramucci keeps saying he's going to do, get him right outside the tent. So they think Musk was an important voice in arguing for what they were trying to do. Next point.

• 9:06Rory Stewart?

  And the reason for that is that Musk both relies on imports from China for his goods.

• 9:13Alastair Campbell?

  Yeah.

• 9:13Rory Stewart?

  Thinks tariffs are mad, you know, he's been out calling Peter Navarro, who's Trump's tariff guru, Peter Rittardo, in an incredibly offensive way on X.

• 9:23Alastair Campbell?

  Yeah.

• 9:23Rory Stewart?

  But also has opened large Tesla factories in China. So Musk is a very, very clear example of this sort of split, which we've talked about within Trump's camp.

• 9:36Alastair Campbell?

  Yeah.

• 9:37Rory Stewart?

  Between the sort of tech bros who tend to be very anti-tariff, often pro-immigration, particularly skilled immigration, against the sort of MAGA base that tends to lean in a very different direction. Okay, your next one.

• 9:50Alastair Campbell?

  My next one is America has given China the moral high ground, which is a rare, rare, rare achievement for them. So, and that in turn, this is actually coming out in his little tour of some of the language that President Xi Jinping is using. They also, it gives China somebody to blame. You keep, you keep making the point that Chinese economy is not as strong as it was. Yes, it's growing, but it's not growing as fast as it was. And they've got all sorts of problems, their housing crisis, their youth unemployment crisis and so forth. But this is giving them somebody else to blame. And when the economy goes tits up, it's always good to have somebody else to blame. And Trump is such a big figure in this debate.

• 10:35Alastair Campbell?

  And they also, they also, they've been developing other markets. Now, the next, my last two, I think I'm up to, I think I'm up to nine. My last two, one is transshipment.

• 10:46Alastair Campbell?

  And this is something Navarro's on to. He knows that what China does to get around tariffs is basically to, and this may be again why he's in Vietnam, Cambodia, even though they were going to get hit very hard as well, is actually that Chinese products get shipped into a country that is not under very high tariffs and then they make their way there. And they think they're very clever at doing that because they've been clever at doing that for quite a long time. And then the final one, they believe.

• 11:14Alastair Campbell?

  That Trump will have to back down first. And that will be humiliating for him and that will. And the reason for that is that prices, they can wear rising prices in a way that the Americans can't. Uh, they can, they could even wear recession in the way that Americans can't, not least because they're not a dictatorship at all. And, and, and, and related to that, the weakening reputation of the American dollar. And the American treasury bonds. So all of that bad news says they think Trump will back down first. There you are. There's the Chinese view.

• 11:45Rory Stewart?

  That's, that's beautiful, beautiful. So I think, um, just listening to you, there are maybe, um. There's the sort of economics that I'm listening to and there's the politics. So. The economics is, is the kind of raw maths of trying to calculate. Who suffers more, China or America? And you've made a very, very good argument for why this is a big, big problem for the United States. And then the second argument is, I guess, around the politics. Who can ride out, which one of these administrations can ride out the political and economic pain of this better? Um, so let's start with the, the, the last one and then we'll come back to the economics. You, you have to be right, I think, that.

• 12:30Rory Stewart?

  China is more likely to be able to ride out the political pain better. As you've pointed out, that they're not a democracy. Trump is in trouble now. I mean, the tariffs are not popular with the American people. He's got midterms coming. And he's going to be facing a Congress that can undo all his tariffs if they want to. Now, at the moment, if you're a Republican senator or congressperson. You are balancing the fact that you're frightened of going against Trump because Trump and Musk will fund people against you in the primaries. You might lose your seat. But if you begin getting more worried about your voters. Than you are about Trump and Musk, you could start flipping in the other direction.

• 13:14Rory Stewart?

  Um, and Xi Jinping, he's an authoritarian, but it's also true that they have been preparing for this for years. As you've just pointed out, they've spent the last. Uh, eight, nine years trying to get ready for this, trying to be less reliant on the US, trying to diversify their markets, trying to make sure they develop strategic industries which aren't dependent on the US. So that China really is only vulnerable, and then we get on to this in a second. In relatively limited sectors. Um, this.

• 13:43Rory Stewart?

  Also, as you say, that, that I think it was part point six or seven. It's very, very important that he has been trying to say for years as the Chinese economy struggles. This is because of the US. It's not because I've been, you know, I, Xi Jinping, have made mistakes. So it's not that I've screwed up the property sector or I've been locking up. Tech giants or I've been undermining. It's because the US doesn't want us to grow. They're trying to wreck us. And Trump has given him that. It's now very, very plausible because Trump is saying it openly. I'm trying to destroy the Chinese economy because I don't want to rival. And, and that of course then.

• 14:29Rory Stewart?

  Helps him with allies. So the European Union, and maybe I'll, I'll come to you on this now.

• 14:36Rory Stewart?

  The European Union, uh, maybe under Biden would reluctantly have thought about lining up with the US against China. But reluctantly, because fifty percent of the profits of European luxury goods manufacturers and automobile manufacturers are made in China. And even if, you know, German car manufacturers, their market share might decline, it's still unbelievably profitable. The sales of Mercedes and BMWs into China. So the German car industry does not want a trade war with China.

• 15:08Rory Stewart?

  And now Europeans will feel probably more angry with Trump than they do with China, which opens up the opportunity. For China to cut Europe off from the US. And this is a point Dominic Lawson made in, in a, in an article in the Daily Mail, in your least favourite newspaper. But he was saying, if you, if Trump had actually been serious and strategic about trying to undermine the Chinese economy. It was absolutely vital that he didn't alienate Europe at the same time. He needed to keep Europe on side in order to isolate the Chinese economy. This reckless imposition of tariffs on Europe going up and then down again, and all the other stuff he's done to anger Europe.

• 15:52Rory Stewart?

  Almost guarantees that we're going to be in a situation where China and Europe, and we can already see this conversation on red vehicles becomes closer. So over to you on Europe for a second.

• 16:01Alastair Campbell?

  See, I, I said last week about our media. Like yesterday, every second of his meeting with President Bukele of El Salvador, live on the news channels here. Whereas I think quite newsworthy last week, Prime Minister of Spain, Pedro Sanchez, met President Xi in Beijing. And they talked and Sanchez talked about Europe deepening ties with China and he warned against American protectionism. And you could sort of feel the kind of a different tone to his voice than there might have been even a few months ago, had he been in China.

• 16:45Alastair Campbell?

  And then the European Union announcing that there's going to be a summit with China in July. And so I think what you've got is China adapting to this in the usual very Chinese kind of way, how does this fit with where we're trying to get to and what have you. They're doing it pretty ruthlessly. Whereas America, particularly this America under Trump, locked into this idea of their own superiority. And because of the way that Trump is, we saw this yesterday, I don't know if you saw him droning on about how fit he was and it was the best cognitive test that's ever been done by any human being and Obama didn't even do them, Biden did them, but I love cognitive tests because I'm so clever and blah, blah, blah.

• 17:28Alastair Campbell?

  And he's droning on in this kind of sense of superiority. But I tell you what I think will be nagging away at the back of his mind, who is going to back down on this? Because, and he has backed down already in some pretty significant ways. And then he sends that poor guy Scott Besant out to say it was all part of the plan and Lutnik says it was all part of the plan. So I think that the, I think this is a sense of a long-term strategy, China up again and Europe trying to put together a long-term strategy, but dealing with somebody who is literally, literally minute to minute, hour to hour, very, very tactical. Um. So that again plays into, I think, plays to China's hands.

• 18:12Rory Stewart?

  Let let me for a second play devil's advocate.

• 18:15Alastair Campbell?

  Yeah.

• 18:15Rory Stewart?

  And disagree agreeably. So um I spent uh yesterday evening with somebody who uh is one of Trump's new appointees. And who says he's become a friend of Trump over the last two, three years. And and it was a sort of interesting for me and kind of troubling. Um. But he was trying to make the case for what they think they're doing. So maybe just for listeners worth explaining what the Trump view is on what they're doing. So the Trump view is that China's economy is in trouble and that this is the time to hit them. And the reason why China's economy is in trouble is that although China has a trade surplus, there is a real problem with their balance of payments.

• 18:59Rory Stewart?

  There's basically capital flight happening.

• 19:03Rory Stewart?

  Foreign investors have been increasingly reluctant to put money into China over the last few years, partly because of American pressure, partly because they were spooked by what happened with Russia, Ukraine. A lot of diversification away from China. A lot of Chinese businessmen have been frightened by Xi Jinping imprisoning people, accusing them of corruption. So they've been slowing their own investment and they've been moving their money abroad. They've been getting around the capital controls, taking their money abroad. We talked about the other problems, housing, market collapse, unemployment. So there's quite a lot of, particularly amongst the business elite in China, quite a lot of anxiety about Xi Jinping and quite a lot of anxiety that he's a nationalist who's unnecessarily keeps provoking confrontations with the US.

• 19:48Rory Stewart?

  And therefore, as the capital flows out, China is more and more dependent on these exports. And the US, even with all that drop you've talked about, is still a huge bit, you know, five hundred billion dollars worth of Chinese exports. And as the Chinese export, as Chinese economy struggles, those exports are really important to China. Um. So the Scott Besant view, and remember Scott Besant, the Treasury Secretary, worked for Soros and and made his reputation uh taking on the Bank of England.

• 20:17Alastair Campbell?

  Crushing the British economy.

• 20:19Rory Stewart?

  Crushing the British economy, yeah. So he may be looking, or this is the story, looking at China, thinking this is the time to hit them. You know, that that they're weak, right?

• 20:30Rory Stewart?

  On the other hand, just to take the argument the other direction,

• 20:35Rory Stewart?

  you've pointed out that in many ways, the US is probably too late to do this. That the Chinese economy is too big. I mean, one of the most interesting points I thought you made last week in passing is when I said the US is the largest economy in the world, you said, well, maybe, because of course, what you're pointing out is this in purchasing power parity terms, which is, you know, not just looking at US dollar ranked economy size, but actually what you can buy with your money. China is significantly larger than the US already as an economy. And the final thing I picked up, like two days ago, I was talking to somebody who focuses on supply chains. So I was talking firstly to Dmitry Grasubinsky, who I keep quoting, and then I was talking to somebody on supply chains.

• 21:18Rory Stewart?

  What they pointed out is that nobody knows really what goes on in supply chains. Nobody can map it. That we have this idea, maybe that the US government has a spreadsheet with every company in the world on it that tells them exactly how many component cards comes from China. And of course, if you think about it, it's impossible. And, and, and I've done a little bit of this because you know, when we were working with Top Coast Mountain, for example, doing fair trade goods and you try to track every component in your goods in order to look at their carbon footprint or their human rights footprint or it's very, very difficult to do. And with big companies, there are suppliers, sub suppliers, sub sub suppliers. So even the companies themselves cannot

• 22:03Rory Stewart?

  tell you exactly how many of their intermediate component parts come from China. Yeah. A lot of those is guesswork and there are sort of big brains in the IMF and the World Bank tearing their hair out, trying to model this, but nobody can fully model this. So in the worst case scenario, and this is my sort of nightmare for you.

• 22:23Rory Stewart?

  The worst case scenario is, of course, this will feel uncomfortably like COVID. You know, global supply chains will collapse. And and that isn't just prices going up. Remember, COVID was, for the United Kingdom, the biggest recession that we'd had since the 1930s. You know, that's real disruption because as as Dimitri is pointing out, what what's happened this week is that all those companies, all those small, medium sized businesses that were dependent on getting their stuff from China. So sorry, I'm being a bit long here, but just his final example. Imagine you're a shoe manufacturer in the US making high quality leather shoes in the US and you want your shoelaces from China. Your shoelaces are already on a ship.

• 23:05Rory Stewart?

  But when they land, you've either got to pay a tariff of 145% or you've got to pay a fee to send the shoelaces back to China. Meanwhile, you and all your competitors are desperately trying to Google alternative suppliers. I mean, shoelaces may be a silly example, but imagine this, you know, 10,000 times across the economy. But you've had reliable supplies from China. You know the price. You know the quality. You know that it's provided. And suddenly you and everybody else is trying to, out of nowhere, find an alternative supplier of whatever it is. Could be bolt number five that you need from your machine. Could be your shoelaces, could be your copper, could be your lithium, and you're all doing it at the same time.

• 23:50Rory Stewart?

  Which means that your new supplier, sitting in Indonesia or Vietnam, is sitting pretty. They probably don't have enough of the product. The price is being shot up. You don't know whether they're going to deliver it reliably. And it's these kind of things which, in the worst case scenario, means that the conventional economic analysis, which says, well, this isn't a big deal for the US because the US is quite a closed economy. Its imports from China are relatively small percent. This maybe is only 2% of GDP. May underestimate weirder chaotic effects in supply chains. And of course, the impact on psychology and the financial markets, people panicking around this. Over to you.

• 24:32Alastair Campbell?

  The Chinese really have been quite effective this week on trolling the Americans and and they've been doing these films about the MAGA hats, the MAGA hats, which are most of the MAGA merch. If you go to Trump Tower and it's full of Trump models and Trump flags and Trump hats. And they're all either made in China. Hungary, quite a lot in Hungary, Orban getting a few favors there in in return for his political support. And and and one of his ones that the Chinese could have, the Chinese Foreign Ministry was picture of the MAGA hat, and it was just the prices going up and up and up and up. But one thing that was constant was made in China. Now, I'll tell you the other thing that was interesting as we read, somebody has suggested I read, it's interesting to see what they say about each other.

• 25:18Alastair Campbell?

  So if you go to the State Department website and see what they say about economic relations with China, and they say that their their goal is to end China's abusive, unfair, illegal economic practices. China's economy is one of the most restrictive investment climates in the world, arbitrary legal enforcement, lack of regular transparency, unfair trade practices, including forced labor, massive state subsidies, et cetera, et cetera, et cetera. So then you go to the Chinese state paper, Chinese position on issues concerning China-US economic and trade relations. One, China-US economic and trade relations are mutually mutually beneficial, win-win in nature. Two, the Chinese side has scrupulously honored the phase one economic and trade agreement.

• 25:58Alastair Campbell?

  Three, the American side has failed to meet its obligations. Four, China upholds the principles of free trade and complies with WTO rules. Five, unilateralism and protectionism undermine China-US economic and trade relations. Now, they they take that. So we all know, because we see so much of it, that Trump makes his argument, doesn't matter if they're factual, just goes out and keeps making them. China's doing the same. And so in Vietnam, these are the talking points that they're using. You can trust China as a reliable partner. You can look to China to uphold the international rules based order. It's almost like we're seeing a a flip of what we have become used to. And I

• 26:41Alastair Campbell?

  thought that, and then, you know, when you throw in the and and yet again, yesterday, Trump saying that Zelensky started the war, you know, putting Zelensky on a par with Putin in terms of how many people were dying and so forth. And so I just think that China is sensing, you could be right, that the economic fundamentals are too weak for them to be able to maximize this properly. But you can really sense that they are, they are building a strategy out of what they see as Trump's succession of tactical errors.

• 27:16Rory Stewart?

  Can I lean into the politics just once more? Stepping away from this immediate tariff war is the background to Trump's views on stuff. And we both watched this film, American Factory. Do you want to do a sort of brief explainer just to explain to people what that story was about? Because I think it's quite important to this story. Yeah.

• 27:41Alastair Campbell?

  I think it's very important to this story. I think it's very important as well to the steel story that we're going to come on to about about scunthor, because one of the questions is, should we be allowing Chinese companies to own very important parts of our national infrastructure? So American Factory is the story of this factory that was run by GM Motors in, General Motors in Dayton, Ohio, shut down, 2013, was it? And 2,000 jobs went.

• 28:10Rory Stewart?

  Two thousand eight, I think it's shut in 2008.

• 28:13Alastair Campbell?

  Okay, so shut down 2008 and then it was brought back under Chinese ownership and to make the wind screens for cars. So not the whole car, but the wind screens. And what you see, I don't know what your impression was, it's two hours long, but you see the gradual changing of the culture. You see the gradual imposition of Chinese practices, Chinese attitudes. You see there's, one of the highlights of the film of Eagles was when they took some Americans who were all very, very large and quite badly dressed to China,

• 28:52Alastair Campbell?

  where they met their opposite numbers who were very svelte and well dressed and charming. And you just have the sense of the Americans thinking, oh, we thought, as Vance was saying last week, we thought they were all going to be like peasants. And it turns out they're quite clever. And then when, by the time they get back, the, you said last week, there was a guy who was virtually having his wages halved, eventually losing his job. They were, they were trying to get unionized. There was a guy got paid a million dollars as the union avoidance consultant. And the Chinese owner flying in and saying, if there is a trade union here, I am out.

• 29:35Alastair Campbell?

  And the politicians who were trying to help the union, the workers get a union, they were being vilified. And then by the end, the final scene. Basically, the robots are taking over. Uh, and the guy, the Chinese chairman is being shown around the factory by the, the, this onsite manager saying, I'm getting rid of four more from there next week. I've got five from there I can get rid of. And you sort of see, there's very little overt politics in the film. But you kind of see why this was fertile ground for the Trump message on China. Um, so what was your, what was your big takeaway?

• 30:12Rory Stewart?

  Yeah, let, let's begin at the beginning. So obviously, the, the, these are people who, in Dayton, Ohio, in two thousand eight, are earning, uh, I think it's twenty-three dollars an hour working in a GM car factory, and then they lose their jobs. So at the beginning of the story, they represent the end of that American dream, which probably started in the mid nineteen forties, where you could be a blue collar worker without higher education, working in a factory and earning a decent living, what Americans would call a middle-class lifestyle, you know, able to pay for their reasonably nice house. And you see some of those workers in the, in the film have these quite nice houses with, you know,

• 30:57Rory Stewart?

  paddocks and horses and-

• 30:59Alastair Campbell?

  Lots of guns.

• 31:00Rory Stewart?

  Lots of guns. And suddenly, uh, they've lost all that. And, uh, now they're in a situation where if they get their job back in the factory, they're going to be earning twelve dollars an hour. And as one of the people points out, his daughter is earning eighteen dollars an hour working a nail bar. Second thing you pick up is, of course, this very, very strong story, which has gone all the way through America and which is fed partly by the unions. I was talking to a, someone in Democratic Party last night, who said that the unions only emphasize China. If you go to any of these communities, what the unions are saying to people who've lost their job is it's all because of China.

• 31:41Rory Stewart?

  Now, actually, I guess in Britain, we'd have a slightly different view on this because in some ways, this story is not a million miles away from what happened in Thatcher's Britain, right? What happened with coal mining, what happened with steel. But in Britain, it happened earlier. What was happening in the US in the 2000s in Britain was happening in the 1980s. And in Britain, of course, it's, there was a big, big debate about what it was about, right? So some people thought this was mad voodoo economics from Thatcher. Some people thought it was because the unions were made too weak. If labour had remained strong, they would have been able to keep decent incomes coming in. Obviously, if

• 32:23Rory Stewart?

  you're on the right, you say, no, no, no, this is actually changing world conditions. These factories were not profitable anymore. They weren't productive anymore. And technology's changing. I mean, one of the amazing statistics in Britain is I believe we produced the same number of cars that we produced in the early 1970s with one tenth the number of people. Same number of cars, one tenth the number of people because these robots come in. So fast forward to where Trump is now. He's got these people represented in that movie who feel they've lost their jobs because of China. But he seems to have a nostalgic idea that the answer is that if you shut China out, you could get these people back

• 33:06Rory Stewart?

  into the factories again. And there, I guess, one of the questions is, do Americans want to work in factories? Your friend Frank Luntz has just provided this amazing poll where he said 80% of Americans, Luntz, who we interviewed on leading, 80% of Americans say there should be more manufacturing, but only 20% of Americans say they want to work in manufacturing. And as you see in that movie, most of the people working that factory are older, they don't seem very physically fit. And of course, they are beginning to let the audience see that it's not actually that great working in a coal mine or working in a steel plant.

• 33:42Alastair Campbell?

  But the other thing that comes through very strongly is the cultural clash. So you have, these are Americans who are living pretty rough lives. But you have Chinese people who come over from China, including that, that really good looking guy. Who became a friend with the guy who had all the guns in his garden, who ended up being sacked as well. And he, he had a wife and two children who he reckoned he was probably going to see once a year. And even in the factory in China, when they went, when the Americans went to visit the factory in China, they were talking to Chinese workers. Who were working 12 hour shifts, no overtime, no paid overtime, uh, no paid breaks. And there was a woman there who thought she might, if she was lucky, she might see her daughter, I think she said a couple of times a month.

• 34:26Alastair Campbell?

  So, and, and yet culturally, what, what was amazing was to see the culture. Of these, when, when they had, there was, they were welcomed by these Chinese workers, all from the factory. Dressed up in amazing clothes with their children coming in dressed up as chickens, singing these songs. I don't know if you read the subtitles carefully, one of the songs was lean and flexible management. Will lead us to a great and happy future. And they're all singing these songs happily and the Americans are looking. What the fuck is this all about? And then of course, and then, and the Chinese, we're in the, in the American factory. With interpreters going around because of the language barriers. You see the big difference in the American workers' meetings and the Chinese workers' meetings.

• 35:11Alastair Campbell?

  Including that one where the Chinese chairman said to the Chinese workers, don't forget, we're not just here to work. We're here to show America that we deserve to have factories here. They see themselves as part of this national mission. And, you know, so maybe that, and do you know the other, the other thing that it left me thinking? When you align it with the things that Trump is doing. I think there's a part of Trump that wants to turn America into a form of China. No real democracy, acceptance of authoritarian leadership. I control the laws, I control justice. And people do as they're told. It's sort of you had that.

• 35:54Alastair Campbell?

  And the Chinese, they were. I mean, let's be honest, who do you think seemed happier, the Chinese or the Americans?

• 36:01Rory Stewart?

  Well, yeah, that was a very interesting question, isn't it? Yeah. Well, final thing before we go for the break, just. I suppose a point that we keep coming back to, but. The gap between the way that communication works in politics, in particular in America. A very strong story. To unions and to voters that it's all China's fault. And that connected with that. You know, we're going to sort this out by bringing manufacturing back without really talking about the details of how that works and what jobs you're going to do. But also the the problem that it's very, very difficult to.

• 36:43Rory Stewart?

  Move the political conversation on to economic details. So my final example is I I talked to a. A Yale colleague called Amit Handelwell yesterday, who has done really detailed research on data sets on. What happened last time Trump brought in tariffs? And before he did this research, economists believed that if you put up tariffs. A lot of the cost would be borne by the producers. And this was a story I was hearing from Trump's friend last night. Don't worry about it. We'll put up the tariffs, but it's the Chinese companies. Will take the hit because they'll want to keep selling at low prices into the US. Amit's very detailed research demonstrates that a hundred percent.

• 37:30Rory Stewart?

  Or very close to a hundred percent of the entire tariff is passed on to the American consumer. That the Chinese companies didn't last time absorb this cost. And that's really central to this whole debate because that that that's at the core of is this a tax on the Americans? Or is this a tax on the Chinese? But how on earth I translate my colleague Amit's very detailed work on data sets into a public conversation, I I've no idea at all.

• 37:57Alastair Campbell?

  Well, the the stuff's all right because I mean, a book I read, um, a guy called Paul Blustein, who I think is a, I think he works one of the the big American papers. Um, but he wrote a book called Schism, China, America and the Fracturing of the Global Trading System. And again, once you get into the facts, it's a what it's obviously a very complicated story. But I guess the Americans have been force fed a very one sided story. And when you get into the complication, that's when you realize that maybe the Chinese have played this better than they sometimes get credit for. Okay, Rory, so let's have a quick break and then we'll come back and talk about the nationalization, it would seem, of British steel and then the German Koalitionsvertrag, the coalition's agreement.

• 38:41Rory Stewart?

  Very good. Looking forward to it.

• 38:49Speaker 02

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• 39:18Speaker 03

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• 39:37Alastair Campbell?

  Welcome back to the Rest is Politics with me, Alastair Campbell.

• 39:39Rory Stewart?

  And with me Rory Stewart. And Alistair, let's begin with this amazing story, which is something I never saw as a member of Parliament, which is Sir Keir Starmer, the Prime Minister, recalled Parliament on a Saturday. You know, that's the kind of thing that they they kept threatening to do. But if David Cameron ever threatened to do it, he would occasionally kind of cancel our recess and try to bring us back from holiday. And Alan Duncan would always say, I'm sorry, I can't vote in the Syria vote because I'm on a yacht in the Mediterranean and I'm not a teenager. But my goodness, it's unpopular with MPs because you've just got up to your constituency, you've organised all your constituency meetings on a Saturday, you've got the local charity waiting, the schools waiting.

• 40:18Alastair Campbell?

  Well, a lot of people on holiday.

• 40:20Rory Stewart?

  Oh, a lot of people on holiday, yeah. And suddenly, you've got to come back and do this emergency vote. Just sort of quickly, that presumably part of him doing it on a Saturday and doing it in that way was to reinforce the story. There's a comms aspect to it.

• 40:33Alastair Campbell?

  Well, I don't, I think it's more complicated than that and rather more alarming than that. I think they felt they had to, that the relationship goes back to what we're talking about in the first half about China. Some of the relations with the with the Chinese owners, that they had become so bad that they were genuinely worried. I didn't understand, I don't understand how blast furnaces work, but apparently if you switch it off, you can't switch it back on again. It's got to be going 24 hours the whole time, otherwise it's not going to be making steel for you. And they were worried that they were literally running out of supplies to keep it going.

• 41:11Alastair Campbell?

  And I think part of that worry was whether the owners were slowly getting to a place where it was going to have to shut down. One of the people in the government that I spoke to said that they thought they'd come to a deal. They, that was a very, very, very substantial deal. And then the Chinese came back and asked for three times more. And at that point, they thought, shit, this is really, this is really, really dangerous. So they felt they had to take the powers. And you're seeing it today. You literally, you've got government officials at the moment organising the shipment of raw materials to go to Scunthorpe to be fed into

• 41:50Alastair Campbell?

  this plant. And this is our last steelmaking plant. And the reason why the sort of Ian Duncan Smith, kind of real China hawks and the Nigel Farage's who have suddenly become a fan of nationalisation. And actually, this is hilarious. Apparently, he told those steelworkers that he worked in metals in the past. He was a fucking commodity trader. I mean, I mean, you know, if somebody says to a steelworker, I worked in metals, I'm imagining a hard hat. He's a, he was a metals commodity trader. They're out saying, you know, in favour of of nationalisation now. But I think that for the government, it was a really, really tough call. And of course, it then got into, as it always does, the sort of, well, Badenoch

• 42:33Alastair Campbell?

  is sitting there, Johnny Reynolds, the business secretary, saying, well, why didn't you sort this out? And she's saying, how has it come to this? That it's, you've had to recall Parliament on a Saturday. But I think that's what happened, is that they had to do this to keep it going. The point I was making about the China hawks is they probably do think that China somehow is behind this, trying to end UK's capacity for steel production.

• 42:54Rory Stewart?

  So this relates really interestingly to the first half, because people like Ian Duncan Smith and the China hawks who are saying that, you know, they're saying, as I saw it in the Daily Mail, they were saying, you know, this was a plot by China, that China wanted to bankrupt this.

• 43:10Alastair Campbell?

  So Rory, I've had two references to the Daily Mail, and you've also had dinner with somebody who's working with Trump. Have you gone to the dark, have you gone to the dark side in your travels?

• 43:19Rory Stewart?

  I've embraced, I've become a massive Ian Duncan Smith fan. Yeah. But interesting about it is, is that it's going to be the fight, isn't it, within Europe? On the one hand, there's huge reasons for us to get closer to China, particularly as the US goes more and more off on its own path. Because China will be where we'll get our cheap goods from. China will be where we'll get cheap steel from. You know, famously, I think the, the bridge across the fourth was built with Chinese steel, et cetera, right? On the other hand, you'll have the Ian Duncan Smith types replaying the US national security argument that becoming too reliant on China makes you very vulnerable to this authoritarian regime that's going to undermine you.

• 44:01Rory Stewart?

  I was also really struck that who would have predicted, you know, even a year ago, that renationalising British steel would have almost universal support? I mean, it really amazing. I mean, all the parties seem to be coming in behind it. And, and it's really interesting because I don't think we even really necessarily, most listeners, won't remember what nationalised industries were like. Uh, you know, how do you, because once something's removed from the market, this thing is losing, I think, 250 million pounds a year. And we can talk a little bit about some of the interesting reasons why that's happening, you know? British steel claims that energy costs in the UK are 50% higher than in Europe and four times higher than they are in the US.

• 44:44Rory Stewart?

  There's a lot of people saying, and this is partly the fault of the green agenda and Ed Miliband, and one of the reasons that British industry is uncompetitive.

• 44:51Alastair Campbell?

  You know, you know, fully fledged reform, bloody hell, what has happened to you?

• 44:55Rory Stewart?

  Thank goodness, I'm airing some different views on this, on this podcast.

• 44:59Alastair Campbell?

  I could easily, quite easily come back and trace quite a lot of what's happening right now to the Thatcher-Reagan revolution. But anyway, I'll let you carry on.

• 45:07Rory Stewart?

  Your failure to get Jeremy Corbyn on this show is one of the, is one of the problems. We don't have his voice talking enough about the Thatcher-Reagan revolution then.

• 45:15Alastair Campbell?

  Well, I've tried, I've tried, I've tried, I've tried.

• 45:18Rory Stewart?

  John McDonnell, I, I've just read actually a, a book on Labour Party history with a nice preface from John McDonnell, who I'm sure would be.

• 45:24Alastair Campbell?

  Well, he, he got a lot of flak when he, when he, when he agreed to be interviewed by me for GQ magazine. But here's an open invitation to John McDonnell and Jeremy Corbyn. We can have them on together, that'd be nice.

• 45:34Rory Stewart?

  Sort of finish the story though, if we go back to the dream world of, of John McDonnell and Jeremy Corbyn. Just getting listeners to adjust the fact that if the government is running a factory that's losing 250 million pounds a year. You're no longer setting your salary and your productivity targets by market pricing. Increasingly, you are running it like a civil service department. You're deciding roughly what the market rate is to pay people and you're setting little targets and you're sending in ultimately a civil service managers. The reason you're doing it presumably is that you think that it's absolutely vital to national security that we retain some steel manufacturing capacity.

• 46:13Alastair Campbell?

  Yeah, I think there's a strategic national interest that relates to the economy, relates to defence, relates to your rail network and all that stuff. It's not yet nationalised. What the legislation that went through on Saturday has done is give the business secretary powers to run the place day to day. So I don't know, when he signed up to be a politician, Johnny Reynolds realised he was going to be basically general manager of a steel production factory, but that's what he now is. It was interesting, the SNP reaction, a lot of it was about, well, hold on, if you're going to be saving this industry, what about this industry? What about that industry? What about Grangemouth? What about why wasn't Port Talbot looked after down in Wales?

• 46:54Alastair Campbell?

  And the answer seemed to me, because this literally was on the brink.

• 46:59Rory Stewart?

  Yeah, exactly. Because the other side of it, to rediscover my conservative roots in a way that I clearly, this is a journey in this podcast, right? The conventional market story is here, is that this is a very, very inefficient way of supporting people to subsidise £250 million a year to keep a steel factory open. It's much more economically efficient to allow, let's put the national security arguments aside, but in general, if we're talking about Port Talbot, if we're talking about Grangemouth, if we're talking about the coal industry. The consensus Reagan, Thatcher, and to some extent, your government, right?

• 47:43Rory Stewart?

  Was broadly speaking that we need to move into new industries. And we need to move, we need to imitate Germany, you know, where you go to the Black Forest. And there are some incredible industries, but they are very, very robot intensive. They're very, very educated labour. They're producing very niche specialised products or in Sweden or Denmark on turbines. And that you want to generate growth, you want to generate productivity and the whole problem. And this is the problem why people are voting for Trump. This is part of the reason why people voted for Brexit. It's part of what's going on with the SNP's arguments.

• 48:19Rory Stewart?

  Is that we are failing when these businesses close, when a coal mine closes, when a steel factory closes, to actually provide what the neoliberal economists promised, which is good dignified alternative work. I mean theoretically, you're generating growth, you're generating surplus in the economy. So these things close and then you should be providing people opportunities to do something more dignified. And it's, it's our failure to do this that leads to these very, very inefficient attempts to try to protect US manufacturing.

• 48:47Alastair Campbell?

  Well, let's talk about Deutschland then. So we had the election a while back. We've had these negotiations going on for a few weeks. And finally, a 146 page document called die Verantwortung für Deutschland, the Responsibility for Germany, is published.

• 49:03Rory Stewart?

  Just explain to us for this, because it's really weird, 146 page documents. I mean, the, the coalition agreement between the Conservatives and Lib Dems were not like this. In Germany, it seems to be like a marriage contract between two partners who really don't trust each other. Can you explain these very detailed documents?

• 49:18Alastair Campbell?

  Yeah, so what they do is they set up all these working groups. They have the, the leaders at the top who are brought in from time to time. Actually, this is sort of very political version of your, of your citizens assemblies where they, they go away. They sit in groups, they talk about it, they prepare papers, the papers go backwards and forwards. And then the big guns, Meerts, who's going to be chancellor, Markus Söder, the leader of the CSU down in Bavaria, Lars Klingbahl, who's the co-leader of the Social Democrats and his partner Saskia Essen. They come in at the end. You were on to one of them about immigration, but it turned out that the really big disputes at the end were about tax. Because fairly late on.

• 49:59Alastair Campbell?

  The SPD came in and wanted to bring in new taxes and wealth taxes. And they wanted a guarantee on the minimum wage and they wanted guarantees on pensions. And so it became quite a traditional Labour Conservative sort of argument. But what's been interesting about it is to, I've been watching yesterday, I watched several TV interviews that Merz has done and and Klingbal, I watched them both. And it's really interesting to see how this form of coalition politics is so difficult in this Trumpian black and white age. So Merz, who he did a very long interview with this woman I mentioned before called Karen Miosgi, who's a very good interviewer.

• 50:40Alastair Campbell?

  And what was really interesting was that, so the German culture, you think, it accepts coalition, but most of the arguments that he was feeling vulnerable was when she was playing him clips of things he'd said in the campaign, which he's now had to water down. And likewise for for Klingbal and his interview, it was, you know, you said you can do this, but actually you're doing this. And having to explain that there are these shades of grey is actually quite difficult for a modern politician in a way that I'd say when Merkel was in power, that was kind of accepted, that's what you had to do. But I think the big thing now, he, Merz took a decision not to be high profile during the negotiations, as a result of which his standing kind of went down a bit.

• 51:24Alastair Campbell?

  I think now they've got this agreement, there will be difficulties over the minimum wage, there are going to be difficulties over tax, but it's going to be interesting, it's, he's starting from a, from a tough place.

• 51:34Rory Stewart?

  Yeah, starting from a tough place, partly because of his own missteps. I'd argue his very stupid initiative on trying to do something illegal to control asylum and relying on AFD votes. His party's ranking thirty four percent down to twenty eight percent in the election, now down at sort of twenty four percent. The AFD is now polling number one in the country. There is inevitably, from Merz's own party, it seems, a real sense from party members that he's sold out to the left. Even though you and I, I think, and most Germans actually probably would feel he's done the right thing.

• 52:09Alastair Campbell?

  On the debt break.

• 52:10Rory Stewart?

  On particular on the debt break. So that that was really interesting. He went into the election and at least as far as I can understand, and do, you know, correct me because you understand Germany much better than me, but it seemed as though the Greens were essentially saying, uh, what we need to do is get rid of the debt break so that we can put hundreds of billions into public infrastructure investment and put money into defence. They said, Merzis party, absolutely not. We're good old right wing neoliberals. What we're going to do is, yes, we'll spend on defence, but we're going to achieve it by cutting the deficit, cutting spending. We're going to keep the debt break in place. Comes into office and a week after he comes into office, or not comes into office, a week after the election, suddenly announces,

• 52:53Rory Stewart?

  oh, the whole world's changed. I've suddenly noticed Donald Trump's in the White House, which apparently I didn't notice six weeks ago when he was already in the White House. And I'm going to now rely on votes from the Greens and the SPD to do everything that I was attacking the Greens for proposing. So I'm going to get rid of the debt break. And by the way, I'm going to do it by using the old parliament because I need a two thirds majority to get it through. So I'm not even going to wait and use the maths of the new election. I'm going to push it through using the old maths to change all this stuff.

• 53:22Alastair Campbell?

  Well, two things to say about that. The first is on the polls. You'd rather be behind in the polls just after election than just before. And secondly, I think he knew he would pay a price for doing that. If it looked a bit like political chicanery, you could argue that it was to use the old parliament to get something through, arguing absolute urgency. I think things will settle down a bit. I think he's a much more impressive. He gets a lot of criticism for his style of speaking. So I think he's a much more impressive speaker and he's very good at these long form interviews. But the other thing, of course, they've had to do, they've had to negotiate on the ministries. In one of the interviews, he was confronted with this, uh, I think it was Bill Zaitun did a broadcast interview with him. He said, you know, you know, the running joke in your party at the moment.

• 54:06Alastair Campbell?

  As if the negotiations had got on three days longer, Klingpar would have ended up as Chancellor. Because, because they've ended up with six ministries for the CDU, three for the CSU, including immigration, which is obviously very important, the interior minister. And then seven for the SPD, who of course got, you know, under under twenty percent in the vote. So I think it's fair to say the SPD ran a very, very hard bargain. But I think what he was thinking, well, our bit Chancellor, we're going to do the Foreign Ministry, we're doing the Ministry of Economic Affairs, we're doing the new digital department. We're controlling the federal chancellery, which is, I guess, the closest thing they have to a cabinet office.

• 54:47Alastair Campbell?

  But it was fascinating to watch these interviews because it requires a completely different style to how you campaign. And, you know, we'll, we'll, we'll have to see now where it heads. He's going to be Chancellor probably on May the sixth.

• 55:00Rory Stewart?

  Well, let me come back to my obsession with what I think is going to be the most dangerous thing, which is the migration issue. So just to remind people, he proposed before the election that he would use emergency powers under an obscure article of the EU to suspend asylum claims in Germany. And he would defend the entire border against Austria, for example, the green border with Austria. And he'd send the police up to that border. And nobody liked it, except for the AFD, who said, absolutely tremendous. It's what we've always been asking for. And actually, we should go a little bit further. He's now returned to this and he may feel forced to push ahead with it because,

• 55:45Rory Stewart?

  as I said, the right wing of his party is angry with him. He's worried that he's losing votes, the AFD. He doesn't need to worry too much about the, his coalition partners anymore. Now that he's got the deal through, he's Chancellor, they're not going to collapse the government because they're not going to have fifty percent of the votes.

• 56:00Alastair Campbell?

  Oh, no, I think he's gonna, oh, no, no, no, no, no. I think he's, I mean, they've got a small majority between them. I mean, it was come, they got the debt break thing through comfortably. They're gonna have to work together.

• 56:13Rory Stewart?

  But the problem for the SPD is they can't afford to collapse the government because they've got so little vote share now that if they collapse the government, they, together, those two parties wouldn't have fifty percent.

• 56:25Alastair Campbell?

  But both of them have to think of that. Both of them have to think of that. So I think actually they will have to work pretty well together. I don't think, I definitely don't think you can take the social democrats granted.

• 56:35Rory Stewart?

  Let's develop this. So let, one possibility is that the SPD keeps the whip hand and they retain some kind of control over Mets on immigration and they push ahead with probably the most sensible proposal.

• 56:48Alastair Campbell?

  There's a bigger problem. Well, in the coalition agreement, he basically, he's, he's, he's had to water it down substantially already. And basically he was saying that this will be done in consultation with neighbouring countries. And in fact, that in this interview I watched last night, that was where he really did sound very uncomfortable because, you know, he was being asked to say, well, what would Macron think about it? He's, well, I have a very good relationship with Macron and we'll sort it out kind of thing was where he was. So I think that's the bigger problem than necessarily the, the social democrats.

• 57:23Rory Stewart?

  Well, so, so with that, you're absolutely right. He's, it's this language about in consultation. And obviously you then immediately have the very right wing Austrian interior ministers saying, well, forget that, you know, we do not consent to this at all, right? So then there are some people in the CDU who seem to be saying, no, no, consultation just means we're going to inform them. We're not going to give them a veto over whether or not we can do this. If he pushes ahead, and I, I don't know whether he will, but if he pushes ahead, and maybe you're right, he can't push it, but if he pushes ahead, there is a problem. Because if he tries to do this, it's totally unworkable. You know, the German border is three thousand eight hundred kilometres long. All these countries have been in Schengen for decades. They don't have border police. They don't have fences. They

• 58:08Rory Stewart?

  simply, logistically cannot fence the Bavarian border, or it would be unbelievably difficult to do. And if he tries to trigger emergency rules to say Germany is not going to have any asylum seekers, it then goes to the European Court. European court would probably feel forced to find against Germany. And that's a big problem because then the AFD can say, aha, you know, it's Europe that's stopping us from doing what we need to do on immigration, which then gives real strength to the AFD's desire to leave Schengen, euroscepticism. So that is a very, very dangerous gamble. So one really has to hope that Metz is not going to return to his pre-election idea, but instead that Germany's going to look at third-party returns,

• 58:52Rory Stewart?

  some smarter version of a Rwanda scheme and do it with Europe as a whole.

• 58:55Alastair Campbell?

  And also Klingbile, yes, who's going to be the deputy prime, the deputy chancellor and finance minister. He was asked about it, and I think this is in front of Metz, I think it was at the joint press conference. He basically said that the basic right to asylum remains inviolable and Germany is a country of immigration that benefits socially and economically from newcomers. So there's no doubt the tensions are still there. Final point, Rory, very interesting. He was asked what his first foreign trips would be. And of course, there's the Brit in me thinking, ah, this is the bit where he says, post-Brexit Britain needs lots of TLC and I'll be on the first plane to London. He did talk very nicely about Britain, I have to say, in a different interview.

• 59:37Alastair Campbell?

  But he said his first trips were going to be Paris and Warsaw.

• 59:41Rory Stewart?

  And so putting Europe at the centre and thinking about Poland as the big rising national security.

• 59:46Alastair Campbell?

  Hmm.

• 59:47Rory Stewart?

  And really, I mean, I think, I suppose, just final thing for me, the big picture of what he's done, regardless of the politics, is amazing on debt. I mean, Germany, its debt to GDP ratio is only 60%. There's a lot of headroom there, much more than in most European countries. And if they are able to really put hundreds of billions into infrastructure, really invest in defence, there is a possibility that this could provide a real lift, not just to Germany, but to many other European economies.

• 1:00:17Alastair Campbell?

  Okay, lots of, lots done, lots talked about, lots more to talk about on Question Time tomorrow.

• 1:00:22Rory Stewart?

  Thank you very much. And we'll be back tomorrow. And that will give us a chance to talk about many more international domestic things. So internationally, we'll be looking at Australia. Domestically, we'll be looking at trade union movements, industrial policy and the Labour Party. So much to talk about tomorrow and thank you very much.

• 1:00:41Alastair Campbell?

  See you then. Bye bye.

• 1:00:50Speaker 04

  We are getting a statement from Number Ten on that flight with 350 passengers on board.

• 1:00:59Speaker 05

  The Great Game: Strategic Struggle Between Britain and Russia.

• 1:01:06Speaker 06

  We assess, Prime Minister, with high confidence it was Russian.

• 1:01:12Speaker 07

  Holding the Russians accountable is World War III.

• 1:01:14Speaker 08

  They took down a British passenger jet containing 350 people.

• 1:01:18Speaker 05

  Man in the Kremlin is playing, Alex. Got to ask yourself, you want to play or not? You're the Prime Minister. You've done nothing!

• 1:01:31Speaker 09

  We would need to understand the policy context.

• 1:01:33Speaker 05

  All the relevant context will be structured as a framework today, disseminated into an operation order, or FRAGO.

• 1:01:42Speaker 07

  A FRAGO that says to kill the President of Russia.

• 1:01:46Speaker 09

  Yes.

• 1:01:48Speaker 07

  New from Goalhanger. Who is going to be able to pull this off?

• 1:01:53Speaker 08

  You're my soldier, are you? Sergeant Tom McDuff, Duffy!

• 1:01:57Speaker 07

  An audio drama journey like no other.

• 1:01:59Speaker 08

  Men like Duffy, they are our most valuable weapons.

• 1:02:03Speaker 07

  Devized as a technically rigorous geopolitical action thriller.

• 1:02:06Speaker 09

  We have two tight, friendly keyies.

• 1:02:08Speaker 07

  Where Britain plays its strongest hand He's the best. Against its strongest foe. Don't do it, Duffy! Bear Hunt. Available now wherever you get your podcasts.