Pod Insights Prof G Markets The State of Trade with China — ft. Alice Han About this episode Scott and Ed open the show by discussing the aluminum and steel tariffs, Trump’s plan to close the carried interest loophole, and Elon Musk’s bid for OpenAI. Then Alice Han, China economist and director at Greenmantle, returns to the show to break down the potential impact of Trump’s tariffs on China’s economy. She explains how China’s weak consumer environment is driving down prices domestically, weighs in on what the “Sputnik moment” of DeepSeek means for China’s place in the AI race, and offers her take on the country’s relationship with Elon Musk. Finally, Alice shares why she believes we’re entering a period of heightened geopolitical instability.
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Transcript 10,788 words · 14 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 Here's your report.
0:01 Speaker 01 Oh, thanks, Jane. I wish I could hire someone just like you.
0:04 Speaker 00 Try LinkedIn Hiring Pro. It's more than a job board. It's like the recruiter you always wished you had. Hiring Pro uses real-time insights to match your role to LinkedIn's unique network of professionals and delivers a shortlist of best-fit candidates. You'll spend less time sorting applicants and more time talking to the right people.
0:20 Speaker 01 Let's do it. You're irreplaceable, Jane, but another you would be great.
0:24 Speaker 00 Hire right the first time. Post your job for free on LinkedIn today at LinkedIn.com/quality.
0:31 Speaker 02 Low energy, unfocused, foggy? You might be dehydrated. Gatorade Zero Powders have been scientifically designed to help improve hydration balance in the body. With a clinically proven electrolyte blend and no artificial colors or flavors. Great tasting hydration, no matter where you're going. Shop now online or at retailers nationwide. Gatorade: Hydrates Better Than Water. Is it in you? Symptoms noted are signs of mild to moderate dehydration. Consult a healthcare professional if symptoms persist.
1:01 Speaker 03 This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends. Like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra. Because it's not just a superior-like beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit MichelobUltra.com/SuperiorAccess to enter. Enjoy responsibly. Copyright 2026 Anheuser-Busch InBev Michelob Ultra Beer, St. Louis, Missouri.
1:29 Scott Galloway? Today's number: $85 million. That's how much the US Mint lost producing pennies last year. By the way, did you know that more money is spent on breast enhancement Viagra than on Alzheimer's research? At this pace, by 2040, the elderly will have big tits, stiff cocks, and no fucking idea why. That makes me happy. That makes me happy.
2:04 Scott Galloway? Okay, and now, Al Pacino, China expert.
2:09 Scott Galloway? Welcome to Prop G Markets and this is definitely not CNBC. Ed Banter, where are you?
2:17 Ed Elson? I'm in New York as usual. I'm actually heading to Mexico this weekend, which will be fun.
2:22 Scott Galloway? Porque, Eduardo?
2:23 Ed Elson? My friend's doing a big birthday bash, so we're all going. A bunch of me and my friends are heading out to Puerto Escondido.
2:31 Scott Galloway? Where's that? I don't know that.
2:33 Ed Elson? It's in Oaxaca, I believe. I'm gonna go to Mexico City first and then, yeah, then we're gonna hit Puerto Escondido. And gonna go surfing and dancing and yeah, it'll be a good time.
2:45 Scott Galloway? Are you guys really going surfing?
2:46 Ed Elson? That's on the agenda. I'm terrible at surfing. I've done it once and I sort of decided I was never gonna do it again. In fact, I did it for the first time with the Prop G team. And it was pretty, it was a pretty laughable attempt. Claire can attest. So we'll see, maybe I'll try it again.
3:04 Scott Galloway? You're tall, it's hard for tall guys to be good surfers.
3:06 Ed Elson? Exactly. That's what I said. Have you done it?
3:09 Scott Galloway? I've tried, I'm like you. I could actually surf when I was younger. I hadn't, you know, it's like pretty much my entire athletic life could be summarized as peaking when I was 13. And so I was actually a decent surfer when I was about 13. I lived in Laguna for a while, but ever since then, I go to Brazil and, you know, I'm quote unquote, claim to surf. It's basically me out in the ocean, holding on for dear life to a piece of fiberglass. Anyways, that sounds like a lot of fun. I think it's nice to be spending time with your buddies.
3:39 Ed Elson? Socializing with my friends, it's good stuff. By the way, we should just plug this in really quick. Prop G Markets will be live at South by Southwest on March 10th.
3:48 Scott Galloway? Again.
3:49 Ed Elson? Very excited about that. We'll be on the Vox Media podcast stage. So if you want to learn more about that, go to voxmedia.com/sxsw, South by Southwest, voxmedia.com/sxsw. It's gonna be epic. Last year was a blast. I mean.
4:06 Scott Galloway? I thought it was fantastic. Yeah, it was really, really rewarding because the Prop G Markets pod had just launched and we weren't entirely sure if anyone was gonna show up. So it was, it was really rewarding and everything kind of came together. I love South by Southwest. I think they do a great job. I love Austin. It's a chance to see all the team from Vox. Yeah, so I'm, I'm super excited. It's gonna be great.
4:29 Ed Elson? I'm very excited. Let's get into the headlines.
4:33 Ed Elson? President Trump announced a 25% tariff on all aluminum and steel imports to the US starting in early March. He also plans to implement reciprocal tariffs on countries that impose duties on US goods. Trump has also proposed closing the carried interest loophole, which allows investment fund managers to pay a lower capital gains tax on carried interest, which is one of their primary forms of compensation. His plan would tax carried interest as ordinary income, which could reduce the federal deficit by $13 billion over the next decade. And finally, a group of investors led by Elon Musk has submitted a $97.4 billion
5:17 Ed Elson? bid to buy the nonprofit that controls OpenAI. OpenAI CEO Sam Altman responded to the offer on X. He said, quote, "No, thank you, but we will buy Twitter for $9.74 billion if you want." Scott, your thoughts, starting with Trump's 25% tariff on steel and aluminum?
5:39 Scott Galloway? We produce 75% of the steel we use, so the remaining 25% comes primarily from Canada, Brazil, Mexico, and South Korea. And I would think that they'd want to have some, some kind of slack supply in the, in the form of imports and not reduce or make imports less attractive. I don't know if it's kind of union or regulatory capture where he did, you know, he promised steel workers a better deal or something like that. And what do you know, the steel industry donated over $10 million to political campaigns in 2024 across both Democratic and Republican parties. Do you have any thoughts here, Ed?
6:14 Ed Elson? The steel unions are just incredibly powerful. I mean, you mentioned that lobbying power there. You want to get the steel workers on your side. And this is to the benefit of American metal companies. I mean, we saw this in the stock market. US Steel went up, Cleveland Cliffs went up, Steel Dynamics, Alcoa, all of these steel and aluminum stocks in America rose. Why? Because, I mean, pretty simply, they're going to have more demand now. You're going to have less international metal coming into America, which gives all of these domestic metal companies more pricing power. This is a win for US steel and aluminum companies. Now, who are the losers?
6:52 Ed Elson? Obviously, the international metal companies and most of those companies that are going to be affected are in Mexico and in Canada and in China. But there are also some companies in Europe and in South Korea and in Japan that sell us a lot of steel and those stocks all fell on this news. But the most important loser here, which you kind of referenced, is just the consumer. Because this is going to drive up the cost of steel. It's going to drive up the cost of aluminum, which we need in order to build houses and cars. And so the prices of houses and cars are going to go up. But also, we need them to just manufacture everything in America. You know, anything that is manufactured in a factory has an element of steel or aluminum to it.
7:36 Ed Elson? And so if we're going to dramatically increase the price of steel and aluminum, it's just going to increase the price of everything. And the estimation on what it'll do to inflation, the price of all goods, it's estimated this will increase inflation by 0.1%. So, you know, it's not huge, it's not a real, you know, issue, but it's still, it's still increasing the price. So again, it all sounds very pro-America. It's like got this very America first feel to the whole thing. But as we've done with all of these tariffs, you know, you do the math and ultimately you realize this just hurts us and it's for no good reason at all. Let's talk about the carried interest loophole. You have been pushing for this for a while, actually.
8:22 Ed Elson? Why don't you first just remind us, what is the carried interest loophole?
8:25 Scott Galloway? It's the most obscene ridiculous tax loophole probably in the tax code. And that is, let's figure out a way to give an enormous tax break to what is probably the wealthiest or the wealthiest cohort of people in American history. And that is people managing other people's money. So the loophole is the following. There's essentially, income is divided broadly speaking into two categories, a capital gain or ordinary income. Ordinary income is what the majority of the team here makes. And that is they come to work, they do podcasts, they produce, they edit, they get paid. That's ordinary income and that's taxed at up to 37% federal. And then if you roll in. State and local, and you live in a place like New York, at some point you could be paying forty eight to fifty two percent taxes.
9:09 Scott Galloway? And then there's capital gains, which means you buy an asset, you invest, and then you sell it. And if you held on to that asset for longer than a year, I think the highest rate is twenty two point eight percent. So you want to have as much income qualify as capital gain as opposed to ordinary income. And really, kind of the secret to building wealth is to make the jump to life speed such that the majority of your income comes from capital gains as opposed to ordinary income. What the private equity industry figured out a way to do is that if they raise a billion dollars and they invest it, and they turn that billion dollars into two billion over seven years, that billion dollars in profits that goes back to their investors, they get a twenty percent carried interest on. So they get two hundred million dollars. Really think of it as a commission, right?
9:52 Scott Galloway? If you sell something for more than you bought it for, as most salespeople are charged with doing in any organization, if they get a commission on that sale, they get taxed at ordinary income. But private equity has figured out a way to weaponize government and through regulatory capture, turn those commissions. And that's what carried interest is. It's a commission on the incremental gains from investing other people's money. For some reason, the government decided that qualifies as a capital gain. This is the definition of just inequitable corruption, transfer of money from lower middle class people to rich people. So I think it's great the president is doing this. If anything, I would argue, we need to do what Reagan did, turn all of this into one source of income.
10:35 Scott Galloway? And I would even argue, in the business of managing other people's money, they should be subject to the highest taxes, especially once they get to the kind of scale that some of these big private equity shops get to.
10:44 Ed Elson? Yeah. I mean, to be fair to Trump, we both agree, this is exactly the right move by Trump. He tried to do this in twenty seventeen. It was struck down in Congress. And then Joe Biden tried to do the same thing, and it was struck down again. And so Trump is now trying it again for the third time. It's just so fascinating, because it's clearly a bipartisan issue. The only people who don't like this are the people in private equity and the hedge fund managers, and I guess the politicians that they pay and that they that they back. Everyone else, both in government and in just the general public, is for it. So I guess the question now is... Will Congress have the spine to go through with it?
11:27 Scott Galloway? I'm hopeful that this this thing finally goes away. This is just, this really isn't a slap in the face of the middle class.
11:34 Ed Elson? Let's wrap up here with this Elon Musk bid for OpenAI. Let's just sort of first address this one detail. There's been some confusion over what he's actually bidding for. Some say it is the operating assets of the business. Others say it is the nonprofit arm that controls the company. As of this recording, we don't actually know. What we do know, though, is that either way, a successful purchase of either of those two things would mean that Elon has control of OpenAI as we know it. So I think the question here is, would the board accept $97 billion to relinquish control of the company? The answer is quite simple. No.
12:18 Ed Elson? I mean, this company was last valued at almost $160 billion. They're currently in talks with SoftBank for a valuation of $300 billion, and Elon has offered 97. So he's off by around $200 billion. And that doesn't account for the fact that you're probably going to need an acquisition premium, or the fact that Sam Altman just doesn't want to sell. So I think if you account for all of those factors, you know, this is the hottest company in the world, they're already extremely well capitalized. Sam Altman doesn't want to sell, and he also just doesn't like him. If you account for all of that, I think a serious offer, I'd like to get your take, would be half a trillion dollars at least. And then he's come up with 97.
13:02 Ed Elson? So I don't think this is a serious offer. I know you've said this is probably just an attempt to slow him down. I would agree. He's also trying to do that in court, so we'll see where that goes. But more than anything, this is just another example of how far Elon has fallen. And I was just thinking, like, I think back to the Elon Musk of 2010, who at the time was sort of an inspiration to people. This was the guy who built stuff. He was the champion of getting things done, of innovating, of making products that are useful to people. He really captured people's imaginations. And I just think, you know, imagine if you told that Elon.
13:43 Ed Elson? That in 15 years, he would be spending $100 billion, not to build a new company, but to tear down the progress and the innovation of someone else's company. A company which, you know, for all of its faults, it has inspired millions of people around the world. It's inspired trillions of dollars of value in the marketplace. It's created arguably the greatest technology of our time. You know, what would he say about that? Like, would he be proud of this? Would he think that was cool? So I feel like we increasingly need to think about Elon and his role in America. We need to think of him as two different people. There was the pre-Twitter Elon, and there's the post-Twitter Elon.
14:27 Ed Elson? And those are two totally different characters. You know, one is like an innovator, he's an inspiration. The other is a shitposter. The other one is embarrassing. So, you know, I'm criticizing Elon again, but when I criticize him, I'm not criticizing his past achievements, who he was. I'm criticizing who he is now, and I really believe that the man he is now would be a total embarrassment to the man he used to be. And this, this is just another example of that.
14:55 Scott Galloway? So as far as I understand it, because once they smelled money, OpenAI, which was a nonprofit, tried to pull off this jujitsu move and turn into a for-profit while maintaining some of the governance of a nonprofit. So the nonprofit division has some governance rights. And I think what has happened here is that effectively, they're hoping that they have accidentally created a two-class shareholder company, and then if they get control of the nonprofit, they get control of the whole company. Because you're right, they could have, if they'd have more money, they would have showed up and said, okay, you're doing, you're doing a raise at 300 pre, 340 post, we're going to offer you 500. This, in my opinion, is just a lot of jazz hands.
15:39 Scott Galloway? And basically, I think what happened here was Musk said to his bankers and his lawyers, you know, and this is one of the issues where you engage in law, for we have so much money, you can just take an hour. People are like, where does he find the time to do this? I literally think he just met with.
15:52 Ed Elson? He shoots his buddy a text.
15:54 Scott Galloway? Yeah, this is, he is literally the full. White shoe law firm, aggressive law firm and aggressive banker Employment Act. And that is, he can meet with the, you know, his chief lawyer and say, and his chief banker and say, Sam Altman, fuck with him. Find any means possible. And the bankers come back and say, well, there's this kind of weird thing. We could, we could make a bid for the whole thing. We can't afford that. That's not credible. Well, let's make, there's actually a separate element here that has some government's right. Make a bid for that and try and create a cudgel where the people at the nonprofit want more of their stake of NewCo, but just slow them down so I can catch up with a distant seventh or eighth. And it was just so hilarious, the statement they put out and just so ridiculously cynical.
16:39 Scott Galloway? And I want to read it or must statement when he talked about it. He said that it's time for OpenAI to return to its open source, safety focused force for good it once was. Okay. So all these private equity firms and the CEO of WME are going to fork over $98 billion for the betterment of humanity in AI?
17:02 Ed Elson? Yeah, that's what Ari Emanuel wants for sure. Yeah.
17:05 Scott Galloway? Yeah, that he's worried about AI. So he's going to come, they're going to come up with $98 billion. It's just to try and, to try and take over OpenAI. In addition, the difference in governance, specifically your, your ability to basically stick up the middle finger to outsiders, including OpenAI's ability to basically tell them to fuck off, is much greater when you're a private company than a public company. And he can sue them. But at the end of the day, he's not subject to the same SEC regulations, I don't believe, as a publicly traded company. So if OpenAI was publicly traded and had a market cap of 70 billion and he showed up, as he did with Twitter, and said, okay, I'm paying
17:46 Scott Galloway? an enormous premium for a shitty company, the board has a fiduciary obligation to, to accept his bid. And ultimately they did when they saw he was paying 44 billion for something worth 10.
17:59 Scott Galloway? And then they forced him to close, right? Because they said, this guy's an idiot and he's overpaying. So, fine, we're going to force you to close because we're being good fiduciaries for our shareholders. In this instance, the board, I think, can pretty much dismiss it out of hand. They can say, we represent all stakeholders. This guy is a fucking train wreck. He has a competitive company that's well behind. He wants to slow us down. I mean, they can just come up with a billion reasons and they don't even really need to, because I think it's a fairly closely held company. No employee, I just don't think anyone's going to put up a big fuss here. He'll file a bunch of lawsuits or whatever. But again, I think, I think us, the Marines storming the shores of Greenland,
18:41 Scott Galloway? is more likely than him getting control of OpenAI at this point. So this is just more, I want to be in the news. And the energy he's bringing here is what I'd call really, really bitter, angry ex-spouse energy. And that is, you divorced me, you kicked me out of the house, and then you went on to be Tom Brady, and I ended up being a waitress at Waffle House. I am fucking pissed off. And even though the guy is remarkably successful, the fact that he doesn't control AI infuriates him. And what's even worse is he used to.
19:23 Scott Galloway? He was the largest shareholder here and he, he wanted to be in charge. And the governance there said, no, we don't want you in charge. And he said, that's it, I'm out. And he signed airtight legal documents stating, I'm out. I no longer own shares here. It's all yours, I'm gone. And now he's decided, now that the thing is arguably on this next financing, going to be one of the 20 most valuable companies in the world and is well ahead of his AI efforts, I want back in the marriage and I want my marital assets back. But the thing about Sam and the lesson here is that I do believe Sam takes relationships and friendships seriously and has created a lot more allies than enemies along the way. And I would argue over the last
20:05 Scott Galloway? Five to eight years, Musk has created more enemies and that his friends are essentially friends who've made money from him. And when he, when he stops making money for people, I mean Tesla's, I don't know if you saw Tesla's sales in Europe. Tesla's sales in Europe, they're off 67% in France. They're off like 44% in Germany. The sales are imploding. We just heard or we're going to hear what Alice said. Alice said about Tesla and China, which is not doing well. Here's the thing, you don't need friends when you're right. When you're making money, you're going to have no shortage of friends. When you're not doing well, that's when you find out if you have friends. I think Sam Altman has a lot of friends. You want to put yourself through generosity, through opportunities
20:48 Scott Galloway? to help people by being a decent person, by occasionally taking a blow and not feeling you gotta hit back all the time. You need to put yourself in a room full of opportunities, even when you're physically not in that room. And I think Sam has done that. I think there's a lot of people that want, you know, for good reasons and bad reasons, Sam's going to make people a lot of money. But I also think people generally believe that, I think he has a lot of real relationships. I just think he has so much more goodwill than Musk right now. Even when they get in front of a judge, I think the judge won't be able to like be like, okay, here's one ketamine-addled aggressive asshole. And here's this other guy who comes across as like, you know, the gay son we all want, right? He just is like
21:32 Scott Galloway? this incredibly likable, smart kid.
21:35 Ed Elson? I've been reading a lot about Napoleon. He really reminds you of Napoleon in the sense that he was, you know, so successful, so prolific, the king of the world, got too high on his pride, crowned himself emperor, and then decided to start making enemies with everyone he met. And ultimately, it landed him in a position where as soon as he lost, everyone turned on him. And the guy died alone of stomach cancer in St. Helena in exile. And it's, it feels like Elon is just going.
22:07 Scott Galloway? God, you're so sexy right now with all your history. Oh, that's, that's why your parents paid half a million dollars for you to go to Princeton, so you could talk about Napoleon and St. Helena.
22:17 Ed Elson? Exactly.
22:18 Scott Galloway? I just watched the movie. I just, I love, by the way, I love the actress that plays, was it Glenneive? She was outstanding. Did you see the movie Napoleon?
22:26 Ed Elson? I did. People hated that movie. I thought it was quite good.
22:28 Scott Galloway? I liked it.
22:29 Ed Elson? Yeah, I thought it was quite good. That is a very similar, similar character arc and I could totally see that happening for Elon.
22:36 Scott Galloway? Vanessa Kirby, she's outstanding.
22:39 Ed Elson? Yeah, she's great.
22:40 Scott Galloway? She's outstanding. She's also, I got some, I got some inside, some scoop here. I don't think I'm speaking out of school. She's engaged to one of the great athletes of all time.
22:49 Ed Elson? Who is?
22:50 Scott Galloway? I'll let people guess. She's engaged to this incredibly, one of the, literally one of the most dominant athletes in history. And he's also a very soulful guy that reaches out to professors to ask for life advice.
23:00 Ed Elson? Not Tom Brady.
23:01 Scott Galloway? It's not Tom Brady. No, Tom does not reach out to me for advice. I think.
23:05 Ed Elson? Greatest, one of the greatest athletes of all time.
23:08 Scott Galloway? More as dominant as Dom, as Tom Brady. He little, I'm not exaggerating. He'll send me long voice memos saying, you were talking about love and I wanted to give you my view.
23:19 Ed Elson? Holy shit, I'm so intrigued.
23:20 Scott Galloway? Yeah. So go online right now, go into the comments and guess who it is. Guess who is engaged to one of the, one of the great actresses and is the most dominant athlete of his sport in history and is also a very like, very emotional, in touch, like evolved man.
23:37 Ed Elson? It's gonna be like the world darts champion or something.
23:40 Scott Galloway? This guy made millions of dollars. Anyways.
23:46 Ed Elson? We'll be right back after the break for our conversation with Alice Hahn. And for even more Prof G Markets content, check out our new Prof G Markets newsletter. Click the link in the description or go to profgmarkets.com to subscribe.
24:06 Speaker 00 Here's your report.
24:07 Speaker 01 Oh, thanks, Jane. I wish I could hire someone just like you.
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24:27 Speaker 01 Let's do it. You're irreplaceable, Jane, but another you would be great.
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25:05 Speaker 03 This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends, like seeing who can throw some pigskin the farthest, or rush the field the fastest. Winner gets an ultra. Because it's not just a superior-like beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser-Busch InBev Michelob Ultra Beer, St. Louis, Missouri.
25:41 Ed Elson? Welcome back. Here's our conversation with Alice Hahn, China economist and director at Greenmantle. Alice, it's great to have you back on the show.
25:48 Alice Han? Thanks, Ed. Good to see you again.
25:52 Ed Elson? So it's been three months since we had you on. And by the way, everyone just raved about you, so we're very happy to have you back. When we spoke, China was in a slump, or at least the economy was. And there was this prospect of government stimulus, there was speculation over whether that would revive the economy or not. Side note, Scott and I made this gentleman's bet. I predicted it would not bring China back to life. He predicted it would. We haven't really talked about China since then, so give us like the 1,000-foot view. Where does China's economy stand right now? What are the issues? What's going well? What is happening in China?
26:36 Alice Han? Well, it's a bit of a mixed bag, and thank you for that question, Ed. Certainly, if you look at some metrics, whether it's deflation in the economy, or it's the GDP outlook, China is continuing to slow down. It's continuing to face these big disinflationary pressures. But at the same time, if you look at the stock market, it's been doing pretty well, especially now with announcements of DeepSeek and Alibaba's AI models. We've seen actually Chinese tech stocks, including BYD, do extremely, extremely well. And this is in the midst of obviously these tariff threats that have been thrown onto China. We've seen the 10% tariffs that have just been put into place on Chinese goods. China has retaliated in kind in the last few days. And certainly now we have more threats of 25% tariffs on steel and aluminum across the board,
27:21 Alice Han? not just China, but a host of countries. So China is facing a lot of these trade war risks and pressures to the economy. But at the same time, it is riding the tailwinds of positive, I would say, upbeat news about Chinese tech, Chinese AI, Chinese autonomous vehicles in the case of BYD. And certainly, you know, our clients are particularly interested in the stimulus that is probably going to come down the pipeline in March when the NPC meets. So an uptick in both monetary and fiscal should be supportive of more Chinese equities. And so we really get this bifurcation. The stocks look pretty attractive, but at the same time, we've got these deep-seated macro issues that aren't going away anytime soon.
28:00 Ed Elson? Yeah, you mentioned deflation there. I'd love to double click on that because I just find this idea of deflation very strange because the rest of the world is struggling with this thing called inflation. You know, we've been trying to get prices down. And meanwhile, China has been struggling with deflation. Apparently prices are too low. So two questions. One, what is deflation and why is it a bad thing? And two, how come China is suffering from what seems to be the opposite problem as basically everyone else in the world?
28:34 Alice Han? Well, deflation is a sign of weak demand internally. And in the case of China, this is borne out by two major factors. One is the fact that domestic demand has been hit hard. By a number of factors, the financial oppression of the household sector, the fact that interest rates remain extremely low at the expense of the household sector, and the fact that COVID really had long-term consequences on the household balance sheets, not to mention, obviously, the real estate crackdown that has obviously hit the net wealth effects for households. So we're seeing a very weak consumer environment. That has pushed prices down. Meanwhile, China is using more of its export engine machinery and manufacturing sector to try to offset some of the slowdown in the private consumption and the real estate sector.
29:19 Alice Han? That effectively means that you've got two sides of the equation. Domestic demand internally is very weak, and meanwhile, China is supplying increasingly cheap goods to the rest of the world because it needs to produce more to meet the sort of GDP targets it sets for itself every year. So that creates a picture in which China is effectively exporting more disinflationary pressures to the rest of the world. And that's really fueled a lot of these tariff debates, not just within the US but within the EU too. A lot of countries are very worried about Chinese overcapacity and China basically flooding the markets with cheap goods that it can do cheaper because it's got the scalability, it's got the cheap logistics infrastructure, and labor is still very, very competitive compared to these developed economies.
30:01 Ed Elson? So you've got a country where the economy is trying to stay afloat by basically shipping stuff out to other countries, and the US has slapped these tariffs on. So what does that do to the Chinese economy if we have an additional 10% tariff on everything from China? In addition, you mentioned the steel tariffs and the aluminum tariffs. What does that do to China's economy?
30:26 Alice Han? Well, I think the 10% will take that first. It's pretty manageable. It's certainly less than Trade War I of a pressure on China. China responded to that pretty quickly by devaluing the currency. That is probably what it will do if tariffs get worse. It devalued at about 10% over the course of 2018 to 19 in Trade War I. That is number one, what they'll do. Number two is more fiscal stimulus to offset some of the impact if the tariffs are increased beyond 10%. And number three is to continue to redirect trade outside of the US. Now, even although we've seen the US, and this is astonishing to even cite, US-China trade deficit has increased from 180 billion back when Trade War I was signed, so 2019, to 360, around 360 billion as of right now.
31:11 Alice Han? And that effectively is almost a doubling of that deficit over time. But at the same time, China has increased its exposure to the rest of the world. It's redirected trade either through re-exporting hubs like Mexico and Vietnam or exporting to new markets. This is why China's Global South Initiative is something we should pay attention to because it realizes that countries in the US, even in the EU, are very worried about Chinese overcapacity. They will use trade measures to tariff or sanction Chinese goods. So they need to find alternative markets, both to re-export but also to export to. And another fun fact is that the Chinese trade surplus, rather, with the rest of the world, has gone up to almost a trillion as of last year, so 992 billion. And I don't think that's going to stop anytime soon.
31:54 Alice Han? It goes back to your question, Ed, about disinflation or deflation. China needs more exports, not less, because its internal domestic demand is so weak.
32:03 Scott Galloway? I want to put forward a thesis and you respond because you advise clients in governments. Deep-seak is a metaphor for trade, and that is we thought we were kicking China where it hurts by sequestering them from certain advanced chips. So they figured out a workaround where they might end up actually hurting or actually reducing the competitiveness of our own ships. At the same time, when we slap these tariffs on, we in the US suffer from this notion that as strong as our economy is, as important as we are, the rest of the world is much bigger than us and that all we're doing is kind of cutting prices and motivating them, the Chinese, to establish stronger export-trade relationships with other nations.
32:47 Scott Galloway? You know, we're hurting them in the short run, but I'm not sure we're not hurting ourselves more. It just feels like this is all literally cutting off our nose to spot our face. Your thoughts?
32:56 Alice Han? Yeah, I would broadly agree with that. I think Trump, even although his instinct is right to try to rebalance the trade deficit with China, he's using a hammer rather than a scalpel. So he's effectively going to a list of countries that he thinks that are running a surplus or US is running a deficit with those countries and trying to use tariffs to attack them. The same is the case with China. What they, I think people have realized with DeepSeek, and it goes to people like Mark and Drayson, even clients that I advise, is that China has created an alternative ecosystem for the hardware and software. The stack is completely produced in China because of the tariffs and sanctions that have been put into place since the Trump administration. And what was surprising about DeepSeek, not only was it 27 times cheaper,
33:38 Alice Han? apparently the R1 model was 27 times cheaper than OpenAI, was the fact that they were able to produce this mainly internally, but also using low end chips from Nvidia. So the H20s that the Trump and Biden administration didn't think to impose export controls on effectively allowed China to bootstrap their way to a kind of competitive AI ecosystem and model. Alibaba has produced one recently that was also extremely competitive. So this is a landscape in which the US I don't think is entirely prepared for because they thought that export controls, especially on hardware, would effectively kneecap China on AI. But there's been a bit of a wake up call. I think it was right to call it a Sputnik moment.
34:21 Alice Han? There was a wake up call of last few weeks in which investors, the broader tech community in the US, really figured out that something was happening in China. And I would continue to watch the space, watch somebody like Kai-Fu Li, who's been the father of modern AI in China. He, I met him last year. He was saying that China will be very competitive in driving down inference and training costs because of the scalability and ecosystem. And I think that's being borne out right now.
34:47 Scott Galloway? And if you look at some iconic US companies that have just been cut in half, a lot of it is just China exposure, whether it's Starbucks or Estee Lauder. Just a straight up question, who do you think's been hurt more by this chill? Chinese companies or American companies?
35:01 Alice Han? I think it's a bit of a mixed bag. I do think a lot of American companies have been hurt by obviously geopolitical risk, but also just China. Demand going down, it's not just these companies that you cited. Luxury brands have been suffering a great deal as well. I mean, we haven't even talked about automobiles. The Germans are kicking themselves because they missed the opportunity in electric vehicles. And now they're being outcompeted by BYD and Geely. I think it's a story of both Chinese weak demand, going back to the first question, but also the fact that China is producing more competitive alternatives. When it comes to Chinese companies overseas, it's a bit of a difficult one to square because certainly if you talk to these companies five, seven, eight years ago,
35:43 Alice Han? Alibaba, ByteDance, Tencent, they were very interested in expanding and investing overseas. Now, for a ton of reasons, I think both foreign and domestic, that has really been curtailed. So they have obviously seen their profit revenue growth decline over time. But there's still opportunities for them in the domestic market. I just think for Chinese tech to have a global kind of sway that, say, ByteDance does is going to be very, very hard, especially as they face potentially more geopolitical risk and backlash against Chinese tech companies.
36:13 Ed Elson? One of the big moves recently was this suspension of this de minimis provision. And just as a reminder to our listeners, this is this tax exemption, which basically allows shipments worth than, worth less than $800, they enter the US duty free. And we've been hearing a lot about this when it comes to this potential trade war between the US and China, because it's been this huge benefit for companies like Shein and Timu, who sell these freakishly cheap products. And as a result, they don't pay taxes when they enter the US. So Trump suspended that. He then unsuspended that. And now it's not really clear to me where we go from here.
36:58 Ed Elson? I'd just love to get your view on the de minimis provision. How important is it, both to America and also to these Chinese companies like Shein and Timu? And how do you think this will all unfold?
37:12 Alice Han? Well firstly, I think that it probably will be instituted again. There was a pause because there was concerns about a backlog of Parcels at Customs. I do think that the Trump administration will want to enforce this. They're deeply worried about how these low-cost companies have been so competitive in the US landscape because of these loopholes. And I certainly think for the US consumer, it's going to be problematic because these cheap goods, you know, $1 goods have been very good for the US consumer. But certainly for Shein and Temu, I think it's even worse because the US has been a big part of their market. So moving forward, having that basically cut out of their revenues is going to be a big deal. We've already seen their stocks
37:53 Alice Han? in the case of Temu being affected. So I think this is going to be a big problem for these low-cost Chinese companies. I would also say, I remember a couple of years ago, a private equity friend of mine in China was investing primarily in these low-cost Chinese suppliers that were supplying to Amazon. Basically, if you go onto Amazon, a lot of these goods are coming from China and they're very, very low cost. Again, there could be some restrictions put on to some of these suppliers as well, as Trump really tries to crack down on basically Chinese companies that are benefiting from some of these loophole provisions.
38:27 Ed Elson? What is your view on Shein? Just your personal view. And I ask this because Scott is an investor, so he defends the hell out of it. But, you know, a lot of our listeners, and I think a lot of people in America, are just generally skeptical of this company. They're skeptical of the supply chain and the labor practices and the pricing and just overall their ties to China. I mean, we've seen Cash Patel, the new FBI director, who's being investigated because he's indirectly invested in Shein. So it's a kind of hot-button company. Where do you stand personally on Shein? What should investors know about this company that perhaps they don't at the moment?
39:07 Alice Han? Well firstly, I think it's extremely impressive how this company's been able to become so global and competitive. It's able to use AI, for instance, through real-time analytics and basically figure out in live, real-time, the supply-demand curve. I think that's extremely impressive. I do think with any aspect of fast fashion, there is obviously an ecological cost or humanitarian cost that you need to take into account. I don't know the full set of details or facts related to the labor that's required. But certainly in the case of, I would say, the broader story of a Chinese tech company going global, it's extremely, extremely oppressive. I do think investors need to be wary of the politics surrounding Chinese companies. I think increasingly, it's not just the case in the US,
39:52 Alice Han? but other companies, countries around the world, will seek to target, and maybe Shein will be the case, will seek to target certain Chinese companies to show that they're trying to act tough on China. I certainly think that Europeans may go this route, Australians, and obviously in the case of the US, this is already happening. So I'd be very wary of investing too heavily or having too much exposure into one Chinese company because I think the geopolitical risk is pretty strong.
40:18 Scott Galloway? But at the end of the day, don't you think Ed's just been a little bitch around this issue? I mean, Taiwan, Taiwan.
40:24 Alice Han? He's trying to tease you, that's why.
40:28 Scott Galloway? Sorry, Ed, please continue.
40:31 Ed Elson? No, I wanted to hear your reaction to that. What are your thoughts on that?
40:34 Scott Galloway? I think Alice, look, you know my view on this. I think Alice gets it perfectly right. There are real issues here. Now do Nike, now do Apple. And I wonder how much of the ammunition and the force behind these concerns are retailers who are, quite frankly, fucked because they're not nearly as competitive as what Shein is bringing to the table. And I would also add that the chairman of the company hasn't been to China in five years. These aren't exactly what I'd call the supply chains in China. But it is a bit unfair to call this a Chinese company. It's not, I don't know how close they are. I think Timu, you could say, is much closer to China than Shein right now. I just know the people at the most senior level here, and they're not exactly in bed with the CCP. I think some of them are actually quite fearful
41:19 Scott Galloway? of returning to China for a bunch of reasons. Anyways, I sound defensive, but I think, I think Alice gets it right. I just wonder. Well, let me use that as a bridge. Can you think of what other sectors or what other companies, maybe BYD, but are having this kind of disruptive effect on European and US companies?
41:39 Alice Han? I think BYD is a good one. I think CATL, a battery maker as well. I think for a lot of these green renewable technologies, whether it's EVs, battery makers, China is extremely, extremely competitive in both in price and quality. And I think a couple of years ago, when they had that big BMW conference in Shanghai, people in the West, it was just after COVID, had woken up to the fact that these cars are not only cheap, but they're pretty sexy. Some of these cars looked pretty sleek and cool, and they were all fully electronic, electric, rather. So I think that that is a space both where you have the top-down initiative, meaning that Xi really wants China to be competitive in green technology, and a bottom-up drive where you have such a strong competitive ecosystem
42:24 Alice Han? that basically because of the price war within China, they need to go out and find other market opportunities. So I would say the other disruption will be from green technologies. It's already happening. And China, for instance, is going to roll out autonomous vehicles pretty soon. I think what's going to be interesting in the case of 99, which is a Chinese company now operating in Brazil. It's a ride-sharing company. Is the announcement that Didi basically may be rolling out through its 99 subsidiary, these autonomous vehicles. It's already starting to do it in China, in Hangzhou, but it might actually be rolling it out in other parts of the world, which is going to have labor implications, obviously, that we should be aware of, too.
43:08 Scott Galloway? How is our player Tesla domestically, who has its own manufacturing in China, faring against BYD domestically in China?
43:15 Alice Han? Not well at all. I mean, the fact that Tesla is still there surprises me somewhat, given its price point. And the fact that all these companies, including Tesla, have had to cut prices over the last few years because of the extremely competitive price war landscape. I think it's only a matter of time before that share starts to diminish even further. It's going to be an open-ended question. And now this is going to be based on the politics of it all, whether or not Elon Musk gets these autonomous vehicle licenses. So his other competitors have, and they can do self-driving right now. He doesn't. So this could be interesting to see whether or not Beijing will want to curry favor with him in order to improve the US-China relationship and relationship with Trump.
43:59 Alice Han? That's going to be a big one because the EV industry as a whole in China is moving very, very strongly towards autonomous vehicles and it's getting a lot of support from the government as well.
44:09 Ed Elson? Yeah, I would love to know more about this relationship between China and Elon. And, you know, we had Andrew Ross Sorkin on the show recently and he put forward an interesting thesis. He just, he simply pointed out that, you know, China suggested that Elon Musk could buy TikTok. And he raised this question, which is, you know, does that mean that China has some level of control over Elon? Is Elon in some way compromised by the Chinese government? Why does Elon shitpost all of these other entities and the US government, but he never speaks ill of China? So I'd just love to get your view on this. How do you think China, specifically the CCP, thinks of Elon? Do you think that they think they can control him?
44:54 Alice Han? I think this is a very important question. I have a couple of tidbits on this front. So Elon has been very friendly with the Chinese tech ecosystem and the CCP leadership for a long time. So he is actually purportedly on very, very good terms with Li Chang. They've met more than twice, including once very, very recently, a couple of months ago. And Li Chang, who is currently the premier of China, he used to be the Shanghai Party Secretary. He was the reason the Tesla Gigafactory in Shanghai was built basically within a year. Li Chang ensured that he got all the permits, that he got all the support that he needed to build this massive Tesla Gigafactory in Shanghai. Because the thinking at the time by the Chinese leadership was that they needed an external agent to basically kickstart innovation within EVs in China.
45:39 Alice Han? And that was Tesla at the time. So he has a very good relationship with leadership. Secondly, he's been very, very positive about Chinese tech ecosystem, in particular about the open source ecosystem. If you look back to a couple of years ago, he was saying China's open source community is more dynamic than the US is. He's been, I think, very laudatory of Chinese tech writ large. Thirdly, he has a huge following in China. So he and his mother are very viral on Chinese social media. There's a huge adoration amongst everyday Chinese because he's seen as this towering giant of industry and innovation and creativity. So he and his mother's books are constant bestsellers in Chinese bookstores, for instance.
46:19 Scott Galloway? That's great to hear.
46:22 Ed Elson? We'll be right back. If you're enjoying the show so far, be sure to give Crafty Market a follow wherever you get your podcasts.
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48:11 Ed Elson? We're back with Prof. Markets.
48:13 Scott Galloway? I keep asking every LLM, is China more or less likely to invade Taiwan now that Trump is in office? And even these LLMs won't hallucinate and give me an answer. They're like, you can argue this both ways, that his unpredictability, whatever it might be, that it is still sort of, it's a coin flip as to whether he, you know, what Trump means for Taiwan. Would you agree with that or do you have a view here?
48:44 Alice Han? I, I mean, it's still very, very hard to say. I'm not in the predictions game fully yet, but I would say certainly, I don't think that the models are entirely wrong. I think it is somewhat of a coin flip. I do lean towards the direction that Trump ultimately wants to be Nixon. He and Nixon had, apparently were pen pals back in the day. He really admires Nixon as a leader, as a foreign policy giant. And he ultimately, my sense is wants a big, beautiful deal with Xi Jinping, whom he respects a great deal. Now, that may take a while to manifest. He may launch tariffs and increase the trade war too in the meantime, but I sense that towards the latter half of his term, he will want to move towards a signing of a trade
49:28 Alice Han? war to end, so a new agreement, a phase two agreement. But the people, the problem is that Trump is the biggest dove in a house full of hawks. Everyone else around him wants to push him towards being more hawkish on China, on trade, on tech, on military. And I sense that, you know, whether it's Rubio or Hegseth or Walz, they're going to try to push the agenda of being tougher on China and having more deterrence vis a vis Taiwan. So we'll see arms sales to Taiwan increase as they did in the first Trump administration. And I think this will create a lot of paranoia amongst the leadership in China, which may push them towards, and this is why the timing is important. I think if it happens, it's probably after 2027.
50:14 Alice Han? After the next party congress, when there is more of a mandate from the leadership in China, and I don't think it's an invasion, I think it will be a salami slicing quarantine move in which they use the Chinese Navy and Coastal Guard to block off exports going into Taiwan to test American resolve. I think that that's how it starts. But again, will be largely dependent on Trump's reaction function. I think China is going to be reactive rather than proactive on this front. Again, it goes back to whether or not Trump can keep his hawks in line and if his agenda for a big, beautiful deal ultimately operates.
50:49 Ed Elson? Two final questions from me. The first is DeepSeek. So my reaction to DeepSeek was quite simple. I didn't really believe them. I didn't believe that they only built it with a handful of chips, that the chips were all worse than the chips that we use in America. There's been some confusion over whether they actually had the H100s or not. I didn't believe that it only took them $6 million to build the thing. I feel like I haven't, there hasn't been a conclusive answer on that. I got a lot of criticism saying that I'm being unreasonably anti-China. I'm kind of biased against China, which by
51:31 Ed Elson? the way, might be true. But I feel like I still don't have, I haven't landed on this issue. So I'd just love to get your take on DeepSeek. How real is DeepSeek and how seriously should we be taking it?
51:48 Alice Han? Well firstly, and according to the sort of technical evaluations of this, when they test against the benchmarks, they perform extremely well. And that's where you get the argument that they're performing across these benchmarks better than OpenAI and 27 times cheaper. Now, whether or not it did cost the amount that they reported, it remains in question. I'm a little bit skeptical myself. But certainly, I think it is a story of China having good enough applications of technology on the hardware side, meaning that it has good enough chip alternatives. It's stockpiled on a lot of H20s. Nvidia low end chips to basically create a good enough model.
52:29 Alice Han? I do sense that, and this is where you talk to technical experts in the AI sphere and they tell you that if in real world applications, it might not be as good as OpenAI. For the benchmarks testing, it is doing extremely well, but if you open up the parameters, it might not be as effective as the OpenAI or US models are. Secondly, what I would say is that there is a broader race here, and this is why you've seen, you know, some of these CEOs, Satya Nadella, for instance, talk about the Jevens paradox. I think this is creating more opportunities for these US tech companies to double down and increase their capex on hyperscaling and data center development because they understand that there will be more demand.
53:13 Alice Han? And this effectively will, I think, increase the likelihood that the race to AGI led by the US will be won by the US and faster. Artificial general intelligence, a point in which basically computers seem more intelligent than human beings. That is a place where I don't think China has shown that it is as competitive as the US. And so I think it remains to be seen the ultimate implications, but I generally favor the US in this AI race. I do think that China will be faster to commercialize a lot of these AI applications. It's already doing it in embodied AI, robotics, for instance, autonomous vehicles. But I think when it comes to AGI, which is the ultimate goal of these AI labs, the US will get there first.
53:56 Ed Elson? Final question. In the most recent JP Morgan earnings call, Jamie Dimon said that there were two main threats to America. First was inflation and the second was instability. And he said this was the number one risk, and this was what he said exactly. Quote, geopolitical conditions remain the most dangerous and complicated since World War Two.
54:24 Ed Elson? Do you agree with Jamie Dimon?
54:25 Alice Han? I agree, and China is just one instantiation of this. We have the axis of ill will. We've got Iran, we've got Russia, and don't forget North Korea. That's another issue I think people systematically forget. Every now and then he rears his head in Pyongyang. But certainly, I think that we're fighting a number of fires across the world. And we have to look beyond just these tariffs. I think, you know, and I tell this to my investors too. You need to look into what's happening in the South China Sea, what's happening in Taiwan. You need to see what China is doing to prepare its military for the ultimate showdown, which is over Taiwan. And we've seen more volatility in South China Sea recently with the Chinese Coast Guard, which is affecting the Philippines.
55:10 Alice Han? So I think that geopolitical instability is something that is obviously a black swan. It's a fat-tail risk. But we are, I think, well and truly out of the great moderation period. We're now in the great roller coaster of geopolitical instability. And that is going to affect us deeply. Taiwan is going to be in magnitudes, orders of magnitude bigger for the global economy than Russia, Ukraine, or than even the Middle East and Gaza have been. And that's something to keep in mind. Sorry to be a bit of a downer.
55:37 Scott Galloway? I have one more question. And this is more, really more nuanced or more kind of vibey of a question. And that is. Here we go.
55:47 Scott Galloway? Two thousand, I started going to China and I was just fascinated with it. And Shanghai and then started working with these big western brands in China. Enjoyed speaking at universities there, really enjoyed going there and made nice connections, nice relationships there. And then COVID and kind of the chill, if you will. I haven't been back since pre-COVID. And I have no plans to go back because I, and I don't know how much of it is propaganda or real, but I just, you know, feel less warm about China. And the result for me, and I think a lot of people call us, you know, the mid-level business people, is we don't have immediate plans to go back or reengage with China.
56:31 Scott Galloway? Do you think that you're going to see a reengagement and that people are going to start going back to China? Or do you think this chill has kind of frozen over and it's going to be a while before the thaw?
56:41 Alice Han? I think it's already happening. Over the last year, I was there five times last year, I noticed a huge delta in renewed interest. And I highly recommend, Scott, that you go back and happy to take you back to a couple of these cities in China. And there's been renewed interest because there's an understanding that the Chinese economy has shifted. What China can produce as it's gone up the value chain is very impressive. And companies that still want a China exposure need to understand this changing economy and changing market. China is getting richer, it's rebalancing, albeit I would say at a rather slow pace because of structural issues, but it is happening. And so you see, you know, some companies, for instance, are still interested in Chinese
57:25 Alice Han? infrastructure, they're interested in some of these low-end hotel businesses and these low-end kind of boba tea shops, there's, you know, these PE opportunities, but you need to think differently from the China of 10 years ago about the opportunities there. So I think even although it's slowing down and people are worried about the politics of it, there's still a lot of opportunities to be found. And I think it's a mistake, and DeepSeek was a wake-up call, it's a mistake to sort of write China off. China will get there, historically, we've seen this, whether it's the nuclear bomb or even its internet platforms, China will get there in its own way. And I think we in the West need to continue to engage to see what's actually happening. Because more often than not, it will surprise us what's actually happening on the ground. So I'd highly recommend you go back, Scott.
58:10 Ed Elson? Ed, we're going to China. Going to China, I'm down.
58:13 Alice Han? Next podcast.
58:14 Ed Elson? Alice is a China economist and director at Greenmantle, a global macro and geopolitical risk advisory company. She graduated in history and economics from Harvard and holds a master's in East Asian Studies from Stanford University, where she focused on Chinese political economy and fintech. Alice, this was a pleasure. I can't wait to have you back on the show again very soon.
58:34 Scott Galloway? Thanks, Alice.
58:35 Alice Han? Thanks so much, Ed. Thanks, Scott. See you next time.
58:40 Ed Elson? This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.
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