AI Skeptic: This Business Makes No Sense

Ed Elson is joined by Ed Zitron to discuss the state of the AI industry (read: bubble). Zitron argues that every AI startup is unprofitable at its core. Then James Kynge breaks down what to expect from President Trump’s visit to China. Finally, Ed digs into data from the producer price index and what it could signal for inflation and the broader economy. Ed Zitron is the author of the Where’s Your Ed At Newsletter, and the Better Offline Podcast. James Kynge is the host of the Prof G Media’s China Decode podcast and Senior Research Fellow at Chatham House. Get your tickets to the Prof G Markets tour Subscribe to the Prof G Markets Youtube Channel Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 1:29Ed Elson?

  Today's number two. That's the number of times Sir David Attenborough has been knighted for his services to British television and conservation. It appears that after Brexit, the UK has run out of people tonight.

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• 1:56Ed Elson?

  Welcome to Prof you Markets. I'm Ed Elson. It is May 14th. Let's check in on yesterday's market vitals. The major indices were mixed as investors digested new inflation data from the producer price index. Tech stocks drove the S and P and the Nasdaq to new records while the Dow fell. We'll talk about that inflation in a moment. Inflation concerns also pushed the yield on 10-year Treasuries higher. And on Calci, the odds of a rate hike this year have steadily climbed to 31%. Meanwhile, Apple stock closed at a record high as CEO Tim Cook joined President Trump, as well as several other big tech leaders for a summit in China. We will be discussing that shortly as well.

• 2:38Ed Elson?

  Okay, what else is happening? Big tech is on track to spend $725 billion on AI in 2026, and it shows no signs of slowing. Yesterday, reports surfaced that Anthropic is in talks to raise $30 billion at a valuation north of $900 billion. And SoftBank posted a $46 billion gain for the year fueled by the soaring value of its stake in OpenAI. The markets are currently rewarding the AI boom. The Nasdaq is up 27% since its March 30th low. Much of the gain comes from the AI trade with chip stocks recording their best monthly performance in decades. But not everyone is buying it. Big tech's free cash flow

• 3:23Ed Elson?

  has been shrinking as AI capex balloons, and some investors are asking when, if ever, the spending will generate a return. So we wanted to check in with one of AI's fiercest skeptics and critics and ask what could the market be missing? So joining us to talk about the state of AI and perhaps some of the stuff that people are not paying enough attention to, we are speaking with Ed Zitron, author of the Where's Your Ed at newsletter, great name, and the Better Offline podcast. Ed, thank you for joining me on the show. Our producer Claire mentioned this to you offline, but I will say it now. You are probably

• 4:04Ed Elson?

  the most requested guest we've ever had on the show. My audience has been asking over and over again, you have to talk to Ed Zitron, we have to talk to Ed Zitron. We're finally here. So thank you for joining me. So I want to start with maybe just a summary of your views. You have been writing for a long time that you believe that a lot of what we're seeing in AI is fake, misleading.

• 4:30Ed Elson?

  Not what we think it is. If you could just start with a summary of what you believe is really going on in the AI world right now.

• 4:37Ed Zitron?

  So across the board with public stocks, nobody is showing a profit from AI. And for the most part, nobody is showing even the revenue they're making from AI. When I say revenue, I do not mean profit. Microsoft revealed that a $37 billion ARR run rate for AI. The majority of that comes from OpenAI feeding it money from, well, OpenAI's venture capital funders and probably leftover Azir tokens from the $13 billion in funding. Anthropic similarly is funded entirely with venture capital and their connected counterparties are seeing massive boosts in their remaining performance obligations. So their revenue backlog mostly from Anthropic and OpenAI.

• 5:18Ed Zitron?

  In fact, between Microsoft, Google and Amazon, $748 billion of their upcoming revenue, over half of it, comes from two companies. Either buying compute or in Google's case, Anthropic buying TPUs from Google to rent back from Google. The whole thing is very circular and really outside of OpenAI and Anthropic, there's not really any sign that there's a real revenue stream here. I have serious questions about the way they count revenue, but as private companies, it's hard to pierce. There's also the other real problem. Big tech is, there's between Meta, Google, Amazon and Microsoft, over $800 billion of capex. I don't think data centers are being built at anywhere near the rates that people think.

• 6:00Ed Zitron?

  I have on good authority that one of the major hyperscalers only has around a one and a half gigawatts of actual IT capacity, despite hundreds of billions of dollars of capex. And data centers are just not getting built, 18 to 24 months minimum. People see the AI boom as something that's happened, as in something that's, there's tons of data centers being built. I've seen people saying tens of gigawatts built every year. It's nonsense. I think there may only be a gigawatt or two built every year. The compute constraints people are facing are not a result of incredible demand. But a lack of actual data center capacity coming online. We are yet to get to the real monstrosity that this has created. And when it pops, it's going to be very bad for everyone involved.

• 6:42Ed Elson?

  So I'm going to play a little bit of devil's advocate. I want to couch this by saying a lot of what you're saying, I agree with. I agree that the revenue is circular in a lot of ways. Uh, I agree with you, your points about the data centers, the fact that they're not coming online. And there is a lot of questions on all these data centers even going to get built. Are they even going to work? Are we even going to allow them to get built through uh, regulation and through uh, policy? I agree with a lot of that. At the same time, though, I do look at the growth of some of the revenues of some of these AI labs. I look at OpenAI and to your point, we haven't gotten the financial audit of these companies.

• 7:25Ed Elson?

  These are privately reported, but that's the way private companies work. But OpenAI was $2 billion in ARR in 2023. It's up to $25 billion in ARR today. Anthropic's reached $30 billion ARR. You know, it took Salesforce about 20 years to get that. They've done it in under three years. I mean, that's, those are dollars that are coming in and companies are trying to adopt AI as much as possible. And they're paying money to do it. And I guess the way that I feel about it is we're probably very early to this game. They're doing as what, whatever they can to get this through. They want to adopt AI, but I still find those numbers striking.

• 8:08Ed Elson?

  And to me, it tells me that something about this is real and meaningful. Maybe there's some BS around, around as well, but overall I don't want to write it off. What would you make of that?

• 8:19Ed Zitron?

  So let's start with that statement about being early. We're not. Early, if we do it by time, it's been four years, been, yeah, coming up on four years since ChatGPT came out. And if you think about what constitutes early, early, it really is investment and innovation. We have had all the king's horses, all the king's men trying to make generative AI into something that generates profit. Hasn't happened yet. No one has happened it too. I also have serious questions about how Anthropic is doing revenue. Krishna Rao, their CFO, in the Department of War lawsuit, actually said in an affidavit on March 9th, 2026, that they had made $5 billion in lifetime revenue. That does not

• 8:59Ed Zitron?

  match up with any of the reported previous annual recurring revenue, ARR, run rate, or whatever they use, numbers. It just doesn't. When you add those all together, it's $6 or $7 billion, maybe more. I think Anthropic is counting revenue in a way that is different, fundamentally different to how most companies count it. I, my theory is that when, so with the largest clients they have, clients don't pay in arrears, smaller ones do, but the largest don't. They buy massive amounts of tokens in advance. I think Anthropic, for example, if someone is going to do $50 million worth of tokens and it lasts over six months, they're going to take that money upfront. They're going to say, wow, in that month, because all ARR is, is month times 12 or 13, depending on how they do it. So I think

• 9:44Ed Zitron?

  both OpenAI and Anthropic are inflating their numbers. I actually think one or both of them is misleading investors, but that's something we'll find out about in the future. I also fundamentally just don't see evidence outside of these two companies that anything's happening. The largest company within this space was Cursor, and now they've been kind of sort of not really bought by Elon Musk. They, also, if there was so much demand, by the way, why did Elon Musk give up an entire data center to Anthropic? There are enough signals here that suggest there is a fundamental weakness and

• 10:17Ed Zitron?

  No real major business model here. We still don't know Anthropic's true burn rate, but we do know that if all of the commitments from Amazon and Google come together in this $50 billion round, it's 30, it's 50, it changes every day, it seems, they'll have raised $108 billion in the last year. What's going on? Where is that money going and to whom is it going to other than Google, Microsoft and Amazon? So one of my simplest points as well is, other than Anthropic and OpenAI, why are there no other AI winners? Why is everyone piddling around 100 to 300 million ARR, which is 10, 10, 20, 30 million dollars a month? It's not actually that much for what is meant to be

• 10:57Ed Zitron?

  an industry-changing thingamajig. And there are signs that the economics don't work, the biggest being that Microsoft, GitHub Copilot, by the way, one of the largest clients of Anthropic, is moving to token-based billing on June 1st, 2026. They have been subsidizing tokens for their users to the tune of, I saw one person who spent $5,000 worth of API calls on a $39 a month program. I think that this problem is across the industry. I think basically every AI startup is unprofitable at its core, and there is nothing that's going to shift these economics in their favor. There is no sign that inference is becoming cheaper. There is no sign that anyone has any plan to do so,

• 11:38Ed Zitron?

  and neither Anthropic nor OpenAI seem particularly concerned with bringing those costs down.

• 11:43Ed Elson?

  So some really interesting points in there. I would still disagree with your point that it isn't early. I mean, when we're talking about technologies of this size, I still think four years is early. And to the point about profitability, like, you know, you look back to the internet, it took a long time for the internet to get running. Amazon took nine years before it was consistently profitable. And eventually, I mean, you can take decades before your business model works properly. And we have seen that with companies in the past.

• 12:15Ed Zitron?

  Which ones specifically? Just because Amazon Web Services was profitable in nine years, the total capex between 2002 and 2017 was $52 billion, and that was for all of Amazon, just not, not just AWS, between 2002 and 2017. If we're talking about the dot com bubble, the dot com bubble's economics were actually fundamentally different. Fiber was much cheaper and also had more uses, more obvious uses.

• 12:45Ed Zitron?

  Let me put it really simply. I know what you're getting at, but to put it really simply.

• 12:49Ed Elson?

  Well, my my point isn't isn't wrong. It took it took nine years to get profitable for for Amazon. And there were many other dot com companies that took many, many years to get profitable.

• 12:58Ed Zitron?

  But Amazon was also not just a cloud compute company. It was a basically went from a bookstore to a store to a cloud compute company added to the side.

• 13:08Ed Elson?

  Totally different business. Yes, yes.

• 13:10Ed Zitron?

  And the point I'm making is the way this is being invested in doesn't have the recovery story from the dot com bubble. Because with the dot com bubble, the dark fiber that was laid and the exchanges and the various bits of Lucent Telecom stuff that was left abandoned. It didn't cost a ton of money to operationalize it.

• 13:30Ed Elson?

  Uh huh.

• 13:31Ed Zitron?

  And its running costs were not incredibly expensive.

• 13:34Ed Elson?

  Yes.

• 13:34Ed Zitron?

  If data centers end up not being built, it's going to cost just as much money to finish them in 10 years as it will today. And then on top of it, electricity costs are likely to be more in the future, not less, and there will be less customers. I understand where people get this from.

• 13:50Ed Elson?

  Yep.

• 13:50Ed Zitron?

  It's just a difficult, difficult to square with me.

• 13:54Ed Elson?

  Yeah, I think so. Those points I I I agree with, and I think it's something that needs to be talked about more, and I'm glad that that you're bringing this up. My point, just to be clear about what my point was, the idea of these businesses, these business models not working yet, to me, doesn't seem to be a huge problem. But when you look at the amount that they are spending, and when you look at just the the sheer size of the spending to to a lot of your points. I do wonder if when we extrapolate this, you know, 10, 15, 20 years down the line, whether it will be. Whether it will look like the dot com boom and whether these internet companies are will be comparable, and I am increasingly thinking they won't.

• 14:37Ed Elson?

  And something that I have been thinking, and and this is something that Sam Altman has said, is I wonder if it looks like utility services. I mean, Sam Altman has said OpenAI is going to be a utility company, and we've seen this with utility companies before. Where, you know, having a regular market doesn't really work because the economics don't make sense. And so you basically just have to have one company that's operating for a a a specific area. And so I guess what I'm getting at is. The business model, I don't write it off entirely, but it does seem that it will have to be different fundamentally from other businesses. And I wonder if you agree with that, or if you think that they just won't work at all,

• 15:22Ed Elson?

  and they will therefore implode.

• 15:24Ed Zitron?

  So if we think about the dot com comparison.

• 15:26Ed Elson?

  Yeah.

• 15:26Ed Zitron?

  And we break down the kind of businesses we had with the dot com bubble, you had really, it was really two bubbles. It was the telecommunications bubble and the software bubble. The software bubble and the e-commerce bubble, the pets dot coms, the Cosmos and such. Their economics didn't make sense because they didn't make them make sense. They just were a pets dot com. I think was spending like 250 bucks a customer, something insane like that. But it was being invested and it involved the movement of physical goods. And those are margins you can bring down as Amazon did, build their own logistics network. And also Chewy dot com is basically pets dot com. Cosmo now exists as Instacart, like there are webvan, pardon me, I think is Instacart now, not the literal same company, the same business model. In the AI bubble, you really have three different kinds of companies.

• 16:10Ed Zitron?

  You have AI labs, you have AI startups, so wrappers.

• 16:14Ed Elson?

  Yeah.

• 16:15Ed Zitron?

  And then you have infrastructure. Infrastructure within AI, data centers of GPUs is one of the most commoditized businesses of all time. It's a horrible business, but it's also, there's really no difference between a CoreWeave and an Ebius and an Iron or a Lambda. They're all backed by Nvidia. They're all feeding money from Jensen Huang to Jensen Huang. Point is, is the, those companies do not have really like, there is no changing this business model. Even if, I don't believe this, there was a chip in the future that was theoretically profitable. Blackwell isn't, Vera Rubin won't be, Hopper wasn't. None of the Nvidia GPUs are clearly profitable for operators, otherwise we would have someone making a profit. Within the telecoms and dot com bubble.

• 17:00Ed Elson?

  Just to clarify what you mean, that profitable to use those GPU chips and then generate a return from AI model.

• 17:07Ed Zitron?

  Yes, exactly. More money than they have spent.

• 17:09Ed Elson?

  Yes, not, but not Nvidia, very profitable for Nvidia.

• 17:12Ed Zitron?

  Nvidia, incredibly. That's the thing. Nvidia memory stocks, they're all profitable because they're pre-selling a bunch of capacity that storage and service and all that. But a vast majority, like the dot com bubble, that was also much smaller than this as far as actual money being invested. Venture capital was a, I think, one round from Anthropic this year is bigger than all the venture capital that went in during the dot com bubble. It's insane. And that's, I mean, even with inflation, it's still pretty close. AI wrapper startups are all dying. And also, the way that they are raising and dumping money is not something that's creating any useful residue.

• 17:50Ed Zitron?

  Harvey, for example, I think they've raised nine hundred million dollars and they make two hundred, three hundred million ARR. Ooh, those are stinky margins. But the point is, it's not like Harvey is buying a bunch of stuff and doing proprietary data or buying servers, like happened a lot during the dot com bubble because AWS didn't exist, so people were buying their own servers. There's no useful residue. All of that money is being dumped directly into OpenAI and Anthropic. Anthropic and OpenAI also do not have assets. They don't have CapEx. They have their models, they have their model weights, which by the way, Microsoft has full and complete access to OpenAI's model weights, I confirmed today.

• 18:30Ed Elson?

  Yeah.

• 18:31Ed Zitron?

  And so they don't have that, they have talent, I guess, they have research, but they don't really have, they just have their models. That's the only thing. Those companies die, there's not really any useful residue to pick up. Perhaps someone could buy the assets of Anthropic, even though Amazon and Google will take them. But there's not really a thing to recover. And then you get to the core weaves, nebuses, irons of the world. And again, you've got a bunch of old GPUs, probably in data centers that haven't been built yet, which means that there's nothing really to pick up, other than you pick up a cheap office chair or a cheap server back in the dot com bubble. You could do something with that. What you're gonna do with a GPU, especially when it's insanely expensive to run?

• 19:10Ed Zitron?

  I have a source at Oracle that told me it's about six dollars and thirty cents an hour of COGS to run a G, uh, B three hundred, pardon me, GPU from Nvidia. These margins do not make sense. These costs don't make sense. I don't see how you pick up the pieces here. I don't see it at all. And indeed, I don't think there's much useful infrastructure left over. And this is the big argument that people are making because people are saying, we're in a bubble now, we're in a bubble now. But don't worry, after the dot com bubble, people picked up stuff for cheap. What stuff?

• 19:41Ed Elson?

  Right.

• 19:41Ed Zitron?

  We already have piles of unused GPUs. Super Micro had a multi-billion dollar order cancelled from Oracle. They have at least a billion dollars of beef two hundred chips that no one wants to buy. We've already got the fallow inventory. Nothing's happening. I'm sure someone will do something, but nothing's going to be cheaper in ten years. Things work like you could pick up the servers and you could actually put them in. Like there's ways that you could make that useful from the dot com bubble. It's not really the story here.

• 20:11Ed Elson?

  I think the the part where I I started to disagree is, I mean,

• 20:17Ed Elson?

  I I I'd be interested to hear what your views are on AI as a use case. Like, we've seen what I believe to be sort of BS industries before. One of them, in my view, was the crypto industry that I was very critical of for a long time. That, to me, was people trying to sell us a a a solution to a problem that doesn't exist and then hammering it over and over and over again. And my view was this this isn't really a problem. This isn't really helping people. There isn't much of a use case here. With AI, I don't think of that the same way. I mean, I I I see a lot of what you're saying, which is companies are almost trying to force AI down their employees' throats because they just they know or they believe that this is the most important thing that they have to do, figure out how to use AI.

• 21:01Ed Elson?

  And I think a lot of that is BS in a lot of ways. But at the same time, I do find AI useful in certain areas of my life. I know that other people do as well. I know that OpenAI has a billion weekly actives. I know that uh that that nearly nine in ten developers are using AI to code.

• 21:20Ed Elson?

  What percentage of them are being forced to do that? I don't know, but I doubt that the answer is all of them. My belief is that there is some value here. And the question is, how much of it is real? How much of it is fake? And how do we figure out the proportions between the two? But sometimes I get the sense that you believe that there is no value, that it won't work at all.

• 21:41Ed Zitron?

  I think that there is, I have very specifically said, there is value in coding. I've said that for years. That's classic misinformation now, not from you. It's a spread, it's spread from, it's spread all around by certain.

• 21:53Ed Elson?

  No, I'm just, I'm hearing what you're saying and I'm trying to.

• 21:57Ed Zitron?

  No, no, no, no, no, but you're not, you're not saying this, just being clear. You've been very, you've been very fair to me. Point is, there is use, but all of that use and that utility is subsidized.

• 22:10Ed Elson?

  Yes.

• 22:10Ed Zitron?

  So GitHub Copilot, I talk a lot about Anthropic, we can talk about GitHub Copilot. They were selling $15 for a dollar. Like that's fundamentally, there was a person who posted, they've seen someone who spent 39 bucks a month. They spent $1,500 worth of tokens. Someone else, five grand, someone else, three grand, someone else, $200. This is direct money to Anthropic and OpenAI. This is not something where it's, oh, they can claim they're profitable on inference. This is just straight up token bum.

• 22:39Ed Elson?

  Yeah.

• 22:39Ed Zitron?

  I would love to see how popular this was if people actually paid what it cost. Because I think that right now, this all you can eat nonsense is inflating the value of it. Because if you were paying, Anthropic estimates $13 a day is what someone will spend using Claude code. That's a lot of money, it's hundreds of dollars a month. I don't think most people get that much value out of it. If you had to every little fun little turn you had with OpenAI, a couple cents each time, you're spending several dollars a day. I don't think people would think it was quite as useful.

• 23:15Ed Elson?

  Yeah.

• 23:15Ed Zitron?

  I also, the hallucination problem, the incorrect information, it applies everywhere. It's a very bad thing, but on a fundamental utility level, if this was being charged at cost. I actually think that every journalist should be barred from using it in any way other than token based billing. Because that's the only way you see the realistic cost here. Because yeah, if you get this thing massively subsidized and you don't know the real cost, you're creating a completely fantastical environment.

• 23:41Ed Elson?

  Hundred percent.

• 23:41Ed Zitron?

  To explain these things.

• 23:42Ed Elson?

  Hundred percent.

• 23:43Ed Zitron?

  And so, and people will argue, well, the cost of intelligence has come down. No. Not at all. That is a very weird aberration where they've said, well, to do a task that you did two years ago, it's now 10x cheaper if your dog's awake, but your cat's asleep. And it's like a weird, weird series of asterisks, like Barry Bonds' baseballs. The thing is, we are yet to actually meet the point when people really have to judge how valuable this is. We are seeing it already. ServiceNow just blew through their AI yearly token budget in what, five months? Uber burned through it in four. We're seeing now the real costs start to come in. That's where my big argument is.

• 24:24Ed Elson?

  Yeah.

• 24:24Ed Zitron?

  And this stuff is not getting cheaper. It isn't. They might be charging less for some models, but that is not necessarily helpful if the models are burning more tokens. Killer Code had a great piece about this. So in the end, it comes down to, yeah, if this costs nothing, that would be a completely different conversation. But this costs everything.

• 24:42Ed Elson?

  Yes.

• 24:42Ed Zitron?

  And the argument that people keep making is that training costs will go away. No, they won't. When? How? In fact, very simple question. How does Anthropic become profitable? And my God, if someone says they're profitable on inference, that comment came from three separate times when Anth- when Anthropic's Dario Amade, Mr. Wario himself, has said, well, here's a stylized fact. And say you're 50% profitable on inference. It's always this weird duck and weave thing that is decidedly non-GAAP. And also entirely made up. Like, he even said it was made up. So people have come up with this vision that inference is profitable. If it was, 85% of Anthropic's revenue comes from API calls.

• 25:27Ed Zitron?

  Why is Anthropic losing billions of dollars a year then? And if the answer is training, okay, when does training go away? Why is training getting more expensive every year? The answer is, training is a cost of goods.

• 25:38Ed Elson?

  Yep.

• 25:39Ed Zitron?

  It's, there is no profitability for any of this, and you have to keep training the models because of model drift.

• 25:45Ed Elson?

  I think these are all reasonable points. I would add that- This as a concept isn't new and this is sort of what this is what venture capital is all about. And this is sort of taking it to another level. But if, you know, the idea of subsidizing a product, that making it a lot cheaper and in some cases free until it's reached a level of scale and a level of penetration that people are willing to pay for it. And then suddenly you can sort of turn the business on and it works. I think a good example of that would be Uber, for example, where, you know, we're all taking Ubers because it was subsidized and the VCs were essentially paying for our rides. We keep using it and using it and using it. The network effects grow and then eventually

• 26:26Ed Elson?

  everyone's using Uber. And then eventually it turns into a real business that is profitable. Now, to your point-

• 26:32Ed Zitron?

  Yes, but Uber, this would be, this would be like if Uber paid for the cars, paid for the gas, the gas was giraffe blood, they pay for the customers clothes. Like, I'm being facetious, but like, it is, the economics of Uber were also, they didn't do-

• 26:48Ed Elson?

  To a different degree, yes.

• 26:50Ed Zitron?

  Well, also, they didn't do the same kind of subsidy. They made a trip cheaper, way cheaper, way, I remember those days, way cheaper, but they didn't charge, like, they still charged trip to trip, point to point even. This is, we are charging, you're paying $20 to drive 100 miles a month, except in reality, each mile is costing Uber 25 bucks or more. And there is no compelling argument as to how that changes.

• 27:18Ed Elson?

  Yeah, I mean, it seems as though it's a bet on eventually when we flip that switch, the prize is going to be so gigantic that it ekes out what has been a gigantic cost. And to your point, the costs are gigantic and they're not really going down. I guess the question becomes, will that happen? I mean, there's a question of the certainty with which the number is going to be negative versus positive when we turn that switch on.

• 27:46Ed Zitron?

  Yeah.

• 27:47Ed Elson?

  Lots more that we can get into. I do have to wrap us up here. But I'm sure we will be discussing this another time. Ed Zitron is the author of the Where's Your Ed at newsletter. He is the host of the Better Offline Podcast. Ed, I'm so glad we finally had you on the podcast. Lots more to get into. Thank you for joining me.

• 28:06Ed Zitron?

  Thanks so much for having me.

• 28:09Ed Elson?

  After the break, Trump meets with Xi Jinping. And by the way, we're heading out on tour at the end of the month. So for more info and to get tickets to a show near you, head to profgmarketstour.com.

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• 30:00Ed Elson?

  We're back with Prof G Markets. President Trump just touched down in Beijing for his first visit in almost 10 years. He arrived with 17 CEOs, including Tim Cook, Elon Musk, Jensen Huang and Larry Fink. Trump and Xi Jinping are sitting down to discuss trade, AI, rare earths, Taiwan and Iran. This meeting comes as the US and Iran remain deadlocked and the Strait of Hormuz is still closed, disrupting the globe. The US and China are also in the midst of a fragile trade truce that is set to expire this fall. So here to help us break down what we might see in this meeting, we're speaking with James King, host of the Prof G Media's China

• 30:42Ed Elson?

  Decode podcast and also senior research fellow at Chatham House. James, good to see you. Thank you for joining us. What are we going to see in this meeting? What are you looking out for?

• 30:53Speaker 11

  Thanks a lot, Ed. Great to be with you. I think that obviously the two sides are hoping for different things. For Trump, I think this summit is all about three Bs and one I. The three Bs are beans, beef and Boeing jets. Those are the big deals, I believe, that the Trump delegation is hoping for. And the I, of course, is Iran. I think that the White House is understood to be kind of needing Chinese acquiescence, if not assistance, in pressuring Iran to unblock the Strait of Hormuz and try to end the war. So to me, that's the kind of crystallization of what the US side is looking for. The Chinese side,

• 31:38Speaker 11

  well, these summits for China are all always about Taiwan. Beijing will be hoping that either Trump will say something big on Taiwan that moves the US closer to China's position on Taiwan, and particularly whether Taiwan is an independent country, which Beijing strongly objects to, or not. So Taiwan, I think, will be there. And also, I think that China will be hoping that

• 32:13Speaker 11

  Access into the US market will be smoother for lots of Chinese companies. And I think the last thing is more of a kind of mood music thing, but an important one. To me, the Chinese want to give Trump face so that the US in the future doesn't turn vengeful again against China. So to me, those are the, you know, the outlines of what either side is looking for. But you know, these summits, they can surprise. There is an extraordinary meeting going to take place between Trump and Xi in the Temple of Heaven in Beijing. It's an amazing old shrine to the old kind of agricultural gods of China.

• 32:57Speaker 11

  So that's kind of amazing. I don't know, there could be surprises, but at the moment, I think those are the contours.

• 33:04Ed Elson?

  Why did he bring all these CEOs along with him? What are they going to do? What's Jensen Huang doing? What's Elon doing? Tim Cook? What is their role in all this?

• 33:13Speaker 11

  I think, yeah, as you rightly say, Stephen Schwarzman from Blackstone and BlackRock, Larry Fink, Elon Musk from Tesla and SpaceX, Tim Cook from Apple, they're all there. Jensen Huang from Nvidia is there as well. And Trump already said on the plane as he was coming over, quote, "I will be asking President Xi, a leader of extraordinary distinction, to open up China so that these brilliant people can work their magic and help bring the People's Republic to an even higher level." My sense is that he's not that interested in bringing the People's Republic to an even higher level.

• 33:54Speaker 11

  I think he's interested in helping these companies win deals, win market access, and maybe stave off some of the actions that we've seen China begin to take against not just American companies, but all companies that would like to put sanctions on China or to decouple from China. So there's a very, there's a very major commercial aspect to this whole trip as well.

• 34:22Ed Elson?

  Which seems striking to me because it seems that at the start of this administration, it was all about kind of separating and kind of putting up the tariffs, figuring out a way to get ahead of China, sort of establishing we are two different opposing nations. I mean, the idea of bringing these CEOs, I mean, we even saw the chip restrictions, which directly affected Jensen Huang and Nvidia. So the idea that he's bringing these guys along and I guess trying to re-establish a sense of a relationship and a trade relationship. I don't think that's a bad thing. I'm just a little confused as to why he's doing it. It seems like a 180 to me. Is that right?

• 35:04Speaker 11

  Yeah, that's such a great insight, Ed. If I had to sum this up in one sentence, I would say that Trump is going to Beijing to rectify some of the problems that he himself created. As you rightly say, the US, the US put 145% tariffs on Chinese exports at one point last year, Chinese exports to the US. And then after China said that it was going to restrict exports of critical minerals, these are critical minerals that are needed to make US weapons, that are needed by all the big US tech companies to make the products that they sell.

• 35:43Speaker 11

  After China threatened, well, did that, and then, you know, engaged with the US in a series of talks and finally backed down, Trump then blinked and now the tariffs are back down to 47.5% on average. So to me, the key inflection point in this relationship, in Trump, in this Trump administration's relationship with China, has been China's invocation of these critical mineral export sanctions on the US last October. And then Trump blinked, the tariffs, the US tariffs on Chinese exports came down

• 36:27Speaker 11

  and this trip has sort of, you know, been in the offing ever since. This is a patch up work. This is an attempt to make nice to the Chinese. And this is why I was saying on the previous episode of China Decode, if you ask me, this is the first summit in US-China history where the Chinese president has the upper hand and Trump is going there asking, you know, rather than the other way around.

• 36:56Ed Elson?

  Yeah, it seems so striking and especially given a conversation that I had with your co-host Alice Hahn last week, where she pointed out that, I mean, when you think about the after effects of the Iran war, the real winner here in a lot of ways has been China. China has the upper hand in a lot of ways. And now we have Trump going to China in a position, in probably a weakened position for both those critical minerals point that you point out there, but also when it comes to Iran and you've got inflation which is rising and you've got consumer sentiment plummeting and people saying they don't support this war.

• 37:36Ed Elson?

  It seems like he's almost begging for something here, in which case he's going to have to give them something in return, which makes me think maybe he will give them something when it comes to Taiwan.

• 37:50Speaker 11

  Well, yeah, I must say our thinking is very much aligned on this. In addition to what we've just been talking about, you know, the commercial side of it, obviously Trump is looking for deals. He's also needs China on the issue of Iran. And I think that Iran is becoming a more and more pressing issue for the US. There are, you know, there are all kinds of secondary effects that we're beginning to see. I really think that Trump needs to, you know, get done with this war with Iran and the route to that could lie significantly through China. Obviously, China is the biggest trade partner of Iran.

• 38:33Speaker 11

  It buys by far the biggest chunk of the Iranian oil exports. It has longstanding relationships with Iran. It's got a 20 Five-year economic agreement with Tehran, et cetera, et cetera. So I think that is also what Trump is aiming at. So, yes, I believe I wouldn't quite say that Trump is going to Beijing as a supplicant, but I definitely think that Trump has a bigger ask from the Chinese than the Chinese have of Trump. And this is why I really do think this is historic. The first time that we've seen an American president go to China for a summit under those conditions.

• 39:15Speaker 11

  I mean, I've been covering these US-China summits since the middle of the 1980s. This is remarkable. This really is remarkable.

• 39:25Ed Elson?

  All right, James King, host of the China Decode podcast and senior research fellow at Chatham House. To hear more from the China Decode team, Alison James will be going live this Friday, May 15 at 10 a.m. Eastern on Substack to break down the meeting between Trump and Xi Jinping. They will be joined by Kevin Xu, founder of Interconnected Capital and writer of the Interconnected newsletter. To catch it live, become a subscriber of Prof G Plus at profgmedia.com. You will also get the China Decode newsletter every week and first notice on future live streams. James, thanks for joining us.

• 40:00Speaker 11

  Thanks so much, Ed.

• 40:05Ed Elson?

  The Producer Price Index was published yesterday. This is a measure of wholesale inflation, i.e. the prices that businesses are paying for domestic products. And the results were quite ugly. The index rose 6% from a year ago. That was higher than expected. And it was also the largest increase we've seen since 2022. Yes, 2022, the year we experienced the highest inflation in 40 years and also the year the stock market fell more than 18% as a result. Now, going back to 2022, let's just remind ourselves why that all happened. For one, we had COVID, which blocked up global supply chains, which made it more difficult and more expensive to transport goods around the world.

• 40:49Ed Elson?

  And two, Russia launched a war on Ukraine, which Interrupted global energy flows and resulted in higher gas prices around the world. Emphasis on around the world because inflation didn't just rise in America. It rose everywhere. Global inflation hit roughly eight percent that year, which is why it doesn't really make sense when people say Biden is the reason prices went up. No, prices went up because of two extremely large exogenous events that were actually out of our control. Now let's compare it to today. Why are prices rising in 2026? There are two reasons. Number one, tariffs. Last year, we decided to issue indiscriminate tariffs on our global trading partners,

• 41:31Ed Elson?

  which immediately raised prices for our own consumers and brought inflation up from 2.3% before liberation day to 3% in less than six months. And the second reason that prices are rising is, of course, Iran. This year, we decided to drop bombs on the nation that controls roughly a quarter of the global flow of oil and, as expected, fuel prices shot up, freight prices skyrocketed, and now gas prices in America are up roughly 30%. You will notice the big difference between inflation this year versus inflation four years ago, and that is this year's inflation is notably self-inflicted.

• 42:13Ed Elson?

  We chose it. If we had just sat around and done nothing, no tariffs, no wars, inflation would be roughly half where it is today. We would have hit the Fed's target of 2% and we would have been on track for rate cuts. But instead, the PPI is rising, which means the CPI will rise even further. And we are now looking at the possibility of rate hikes. You could not have dreamed up a more self-destructive economic policy than the one we are witnessing today. AI might be our saving grace. We'll see. But when it comes to the economic decisions we've made, we have totally and utterly let ourselves down.

• 42:57Ed Elson?

  First word, own. Second word, goal.

• 43:04Ed Elson?

  Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our video editor is Brad Williams, our research team is Dan Shalon, Isabella Kinsel, Chris Nodonhyu and Mia Silverio, and our social producer is Jake MacPherson. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. Tune in tomorrow for our conversation with Professor Aswath Damodaran.