Cold War II: China Tech vs. US Tech

Niall Ferguson, a historian, author, and senior fellow at the Hoover Institution at Stanford University, joins Scott to discuss the state of play around the tech war between the U. S. and China. Niall talks about each of the country’s strengths and weaknesses, and why he thinks we’re moving toward Cold War II. Niall also shares his thoughts on the fintech space as it relates to Ant Group’s suspended IPO. Follow Niall on Twitter, @nfergus. Niall’s reading recommendations: We by Yevgeny Zamyatin Sir Walter Scott novels The Last Days of Mankind by Karl Kraus Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Scott Galloway?

  Episode 34, The Atomic Number of Selenium. When I was 34, no joke, I was about to take my first company, Red Envelope, public. It was supposedly going to be worth a couple hundred million dollars. I was looking at jets. I didn't get the jets. I didn't get the jets, but I'm mosaic on JetBlue. Why? Because the market showed up, looked at me and said, "Let's bitch slap that motherf-" Go, go, go!

• 0:29Scott Galloway?

  Welcome to the 34th episode of The Prop G Show. In today's episode, we speak with Neil Ferguson, a Scottish-American historian, author, and senior fellow at the Hoover Institution at Stanford University. We discuss a bunch of things, including the state of play around the tech war between the US and China. And Neil talks to us about each of the country's strengths and weaknesses and why he thinks we're moving toward Cold War II. So it's election day. We're going to dispense with the usual stuff for a couple of reasons. One, we do a lot of interviews here at The Prop G Show. We typically spend 45 or 60 minutes interviewing someone and then cut it down to 20 minutes because we need 45 to 60 minutes to bring you 20 what we think are good slash great minutes.

• 1:13Scott Galloway?

  And I found all of this fantastic. I think this guy is just an incredible blue flame thinker and relevant and interesting and insightful and also a Glaswegian, which means he's from Glasgow. But anyways, I'm a big fan of this guy and I think our audience will get a lot out of this. Also, to be blunt, I'm a hot fucking mess today. We record this on election day, just as I was always younger than everybody and then I walked into a room one day and I was older than everybody. I never got the balance right. I didn't care enough about elections. I don't think I voted until I was in my late twenties, maybe even early thirties, if I'm honest. And now, all of a sudden, I care too much. I don't have a healthy relationship with voting.

• 1:58Scott Galloway?

  I'm very tense and anxious about this election. And I'm trying to figure out why beyond, obviously, you know, wrapping myself in the flag or thinking that I'm a good citizen. I find some of the virtue signaling around voting a little obnoxious, but something about today has got me kind of just all, I don't know, all fucked up in the head. Hold me! Hold me! Anyway, long story short, we're going with historian Neil Ferguson for episode 34. Stick around, we'll be right back.

• 2:29Scott Galloway?

  Support for the show comes from Built. Most of us work hard to earn our keep, but usually there's no one around to hand you a cookie when you successfully pay your monthly housing bill. No one except Built, that is. Built has expanded from their original renter rewards program, and they have a lot more going on for members now. For example, members can earn points on mortgage payments, too. Every housing payment gets you points that get you a lot more than baked goods, such as flights with top travel partners, including United and Hyatt, Lyft rides, Amazon.com purchases, and much, much more. Here's another benefit of Built membership. You also get access to what they call a neighborhood concierge. You can make restaurant reservations, book fitness classes, and find new local spots, all while rewarding you at more than 45,000 merchant partners. It's simple. Being a renter and now owning a home feels a lot better with Built.

• 3:14Scott Galloway?

  You can download the Built app and join the membership for where you live at joinbuilt.com-propg. That's J-O-I-N-B-I-L-T.com-propg. Use our link so they know we sent you.

• 3:39Scott Galloway?

  Neil Ferguson is a historian, author, and the Milbake Family Senior Fellow at the Hoover Institution at Stanford University and a Senior Faculty Fellow of the Belfer Center for Science and International Affairs at Harvard. He's written 15 books. His latest, The Square and the Tower: Networks and Power, From the Freemasons to Facebook, which came out in 2018. It was New York Times Bestseller. It was also adapted for television. Neil Ferguson's Net World aired on PBS in March 2020. And most importantly, well, we'll start there. Where does this pod find you, Neil? Where are you?

• 4:15Speaker 01

  Well, I'm at an undisclosed location. I always say that because it sounds so mysterious. But actually, my wife works with Islamic extremism. So the first thing they tell you when you're being given security training is, don't reveal your location. And so I'm kind of awkward whenever anybody asks me this because I know that the security guys will be mad at me if I say where I am.

• 4:39Scott Galloway?

  Plus, it's very sexy. With that Scottish accent and saying, I'm at an undisclosed location, that's just very cool. It's very James Bond, which, by the way, let's take a moment.

• 4:50Speaker 01

  Now that Sean Connery is no longer with us, I have the opportunity to be the international man of history.

• 4:56Scott Galloway?

  You, you are now the, you're now the third or fourth most famous Scot in America. You've moved up one just behind Brian, Brian Cox and who's the late night talk show host? I forgot his name.

• 5:07Speaker 01

  There's a guy called Ferguson.

• 5:08Scott Galloway?

  Super smart guy. There you go. He's fantastic. Uh, he's fantastic. So look.

• 5:14Speaker 01

  Like, I feel like my intellectual property rights are violated, but there's another Ferguson. I mean, I could live with Sir Alex Ferguson, the soccer manager, but this is too much.

• 5:23Scott Galloway?

  He's very good. They're both very good.

• 5:25Speaker 01

  I mean, do you count as Scottish?

• 5:26Scott Galloway?

  Well, I, I, I wrap myself in the flag because I think it's just very cool. And my father, you know, so my, my mom's from London, my, and this is how Neil and I kind of immediately bonded. We're both, uh, Neil has roots in Sandy Hills, Glasgow, and that was where my dad was born and raised. So let's start there before we get to China versus US tech. Give us a brief overview of Scotland's place in the geopolitical landscape. Real quick, where does Scotland lie in all of this? What's insight around the Scot, the role that the Scots play in the world right now?

• 6:01Speaker 01

  Well, Scotland was big in the 18th and 19th centuries, and it's been a kind of steady decline since then. One way of thinking about Scotland, which is maybe relevant to this audience is that it was the startup nation of the later 18th century. It was by far the most dynamic economy in the world at the time when Adam Smith wrote The Wealth of Nations. Fantastic, vibrant, commercial center in Glasgow and this incredible intellectual center, uh, over the way in Edinburgh. And that was a remarkable thing because prior to that, Scotland had really been the Afghanistan

• 6:39Speaker 01

  of Europe with the warring mountain clans and extremists, religious zealots. And that all kind of was going strong through the 17th century until somewhere along the line in the 18th century, the Scots give up on Jacobitism, become enlightened and become incredibly commercial. And then Scotland is the sort of powerhouse of the British Empire. I wrote a book about this actually called Empire, where it's basically people like us, Scott, who kind of upstick through Scotland and go off. In search of adventure or fortune. And that makes Scotland very, very influential right through the 19th and into the 20th century because of immigration.

• 7:23Speaker 01

  Most people who are consider themselves Scottish in the world today don't live in Scotland. By far, the largest proportion of self identifying Scots are elsewhere, whether it's in North America or Hong Kong or or New Zealand, which is essentially Scotland franchise. So I think that's the way to think about Scotland. These days, the country itself, it's probably going to end up being independent, but it'll be just another of those wee countries in Europe with a population of about five million that nobody really cares about.

• 7:53Scott Galloway?

  But it punches, or I'd like to think it punches above its weight classes because it's such a cool brand for five million people. What's happened? It's had a bit of a renaissance now, or is that just me feeling Scottish pride?

• 8:04Speaker 01

  Well, I think Scotland had the hillbilly elegy coming apart phase early because Scotland deindustrialized very early. It was kind of already falling apart when I was a kid in Glasgow in the 1970s. And all the really worst aspects of of deindustrialization, the the drug abuse, the alcohol abuse, the domestic violence, all the stuff that J D Vance wrote about in hillbilly elegy happened in Scotland way ahead of that. And I think that meant that Scotland could then climb out of the the hole a little sooner. So Scotland began to, I think, recover more or less the minute I left.

• 8:46Speaker 01

  I went down to England to university and I had the sense that I'd kind of perfectly mistimed it because Scotland started to get better about that point in the 1980s and 90s. And Glasgow implausibly claimed to be the European city of culture for a while, which I remember finding very funny because the only culture I remembered was sort of football, hooliganism and alcohol abuse. But actually, it worked. And they kind of rebranded Glasgow so that it became, you know, a bit like Boston. When I got to Boston for the first time, I thought, hey, this seems familiar. So I think that's the story. I mean, Scotland still has a good brand, but I don't know how much that's just, you

• 9:26Speaker 01

  know, the legacy of of Sean Connery and, you know, the claimers and a few things that that are quite, you know, quite far back in time now.

• 9:37Scott Galloway?

  Let's move to two suitably less impressive nations, China and the United States. You've talked about the tyranny of tech or how this is kind of Cold War II. Set the context, set the table here for this battle, if you will, this conflict.

• 9:53Speaker 01

  Well, the US-China relationship, if you go back, say, 13 years, was a relationship that I characterized as symbiotic in a series of articles about Chimerica that I co-wrote with Moritz Schillerich. And we were sitting in 2007, actually in a Chinese restaurant in London, asking ourselves why every asset market in the world was just going up and up and up. And I remember Moritz saying, well, it's got to be this US-China relationship. And I said, yeah, we should write a piece about Chimerica. And at that point, the relationship was an extraordinary thing

• 10:35Speaker 01

  because partly through reserve accumulation and currency intervention to keep the renminbi weak, the Chinese were effectively financing a big chunk of the US current account deficit. And Americans were using their borrowing facility to buy any amount of stuff from China. So that was Chimerica. And the argument we made back then was that it was totally unstable and would be bound to blow up because the benefits of Chimerica went disproportionately to two groups, A, China, and B, the 1% in the United States. And that middle America did not gain from Chimerica unless you count lots of cheap flatscreen TVs

• 11:18Speaker 01

  that, for whatever reason, people are never terribly grateful for if their nice, well-paid manufacturing job has gone. So that was the kind of beginning of my thinking about this. I got fascinated by the idea that Chimerica was a source of instability for the world economy. And sure enough, things blew up in 2008, 2009. I thought Chi America would die then. It didn't. If anything, the Chinese stimulus did more to help the world out of the hole than anything that was done in the US. But by 2015, I think that Chi America was dead, at least from the vantage point of China.

• 11:58Speaker 01

  And I would argue that China under Xi Jinping increasingly pursued a Cold War-like strategy towards the United States. By which I mean systematically acquiring intellectual property from the US with a strategic objective of catching up in mind, becoming more ideological, which it clearly did under Xi Jinping, and becoming more geopolitically ambitious and overtly ambitious, everywhere from the South China Sea to, well, you name it, because the Belt and Road Initiative is basically everywhere. And the US was surprisingly slow to realise that Cold War II had begun. But weirdly, one man kind of got it somewhat intuitively, and that man was Donald Trump.

• 12:43Speaker 01

  And I think Trump's election in 2016 was really partly the response of American voters to this Chinese threat, which up until that point, the political elite had downplayed, because most people, whether Democrats or Republicans in the political establishment, kind of still believed in Chi America. So Cold War II has been going on, I think, for longer than the Trump presidency. The interesting thing to me, though, is that it has got much nastier this year, the year of the pandemic, nastier in a bunch of ways. One, obviously, that many Americans quite reasonably feel that the pandemic was at least initially China's fault.

• 13:26Speaker 01

  Two, because I think the tech war, and this is really Scott, your territory, the tech war has just become much more important than the trade war, which was where Trump began. We are now in a tech war, and that's the thing which we should really focus on, because I think that's the thing that's most Cold War-like about this.

• 13:47Scott Galloway?

  So a couple of questions. One, stealing another nation's intellectual property as a means of accelerating your own economic growth, isn't that a lesson they learned from us? Didn't we do the same thing to the United Kingdom and Ireland in terms of stealing manufacturing, textile manufacturing technology, even kidnapping some artisans such that we could litter the eastern seaboard with plants and factories based on European IP? And that was the same kind of secret sauce for our growth? And China's just doing the same thing vis a vis corporate espionage? But isn't this a tried and true kind of economic hormone or steroid that the best nations have adopted?

• 14:30Speaker 01

  Yes, and the US must be very careful not to sound like a monumental hypocrite. The US stole Britain's IP systematically at the beginning of its existence as a republic. Remember, back in the late 18th, early 19th century, Britain was essentially doing the Industrial Revolution. And it was quite easy to steal British IP then. It was hard to prevent the cotton mills of Lancashire or the steam engines of Scotland being copied. So it's not that this is new. And indeed, you could give other examples.

• 15:12Speaker 01

  Prussia, the sort of core of what became Germany, did similar, very systematic things to acquire technological skills from abroad, human capital as well as other forms of capital. But I think what's different here is that, rather in the same way that the Soviet Union set out to acquire strategically vital technology, namely the atomic bomb to begin with, from the United States, with a view to competing with it strategically, so China has been increasingly consciously pursuing a similar strategy.

• 15:55Speaker 01

  So it's not just that Xi Jinping wants there to be equally good manufacturing capability in China as an end in itself.

• 16:06Speaker 01

  The Chinese goal in, for example, pursuing artificial intelligence as a strategic objective is to achieve parity, or indeed to overtake the United States in terms of power. So I think that's the key difference here. The United States was able to take technology from the UK and apply it on the much larger scale of the continental US economy. Nobody was sitting there planning systematically to overtake and replace the British Empire, though that was what ended up happening. I think the big point about Xi Jinping is that the reason for "Made in China 2025," which was a slogan from a few years ago,

• 16:50Speaker 01

  was not just to upgrade China's economy, but to make China an equal of the United States in terms of power. And there's one other important difference to bear in mind. China is a one-party state run by the Communist Party, and that party has a pretty bleak track record when it comes to everything from human rights to respect for neighboring countries. And I think that means that you have to take a slightly different view of what China is doing today as an American compared with what the United States was doing 200 years ago if you were a Brit.

• 17:28Scott Galloway?

  So a couple of things. The Cold War analogy, does it fall down around in a couple places, and I want to explore those, or unpack it if you will. The Soviet Union is trying to get, as you put it, strategic advantage. They get the Rosenbergs to send us information on the hydrogen bomb, whereas the Chinese, my senses, have a lot of, I don't know, it's corporate espionage or soft espionage. And my thesis, and I'd love to know what you think, I think there's more corporate espionage on behalf of China than the rest of espionage globally combined. I think they have figured out that that is a fantastic ROI. Means, but the difference, I think, between what the tension or the Cold War,

• 18:08Scott Galloway?

  if you will, between China and the US and that of the US and the Soviet Union was I think the Soviet Union and the US saw it as a zero-sum game and both would have liked to have put the other out of business. Whereas I do believe that China is our adversary. I don't think they're our enemy. I don't think they want to see us go out of business. If your customer falls down and can't get up, that's bad for you. Isn't there a difference where they're our competitor, whereas the old Cold War with the Soviet Union, they really were our enemy?

• 18:36Speaker 01

  I think you're right about corporate espionage, which obviously was not a feature of the Soviet system, as there really were no autonomous corporations in the planned economy. I think the question of what China wants to do with the United States is a little less clear-cut. Because if you asked me this question 10 or so years ago, I would have said, of course, that there's massive interest in ongoing symbiosis and the Chinese would be appalled if the US fell apart. From the vantage point of 2020, I think that's less

• 19:19Speaker 01

  clear-cut. Because I think, A, that Xi Jinping is a much more ideological leader than most people in the West realize. I was in Beijing last year and I remember having an interesting meeting at the beginning of the year with an eminent member of the Chinese Communist Party leadership, who proudly told me that the Standing Committee of the Politburo had been rereading Marx and Engels's Communist Manifesto. This is a pretty ideological regime to an extent that we shouldn't underestimate. And they also have, partly, I think, because

• 19:57Speaker 01

  of this, an increasing sense of the frailty of the United States. If you track discussion of the US, or indeed, the US election on Chinese social media, it's amazing the kind of things that you come across. And so the curious phenomenon of China's bourgeois nationalism comes into play here. There's certainly a kind of receptiveness to the argument that the US is hopelessly decadent and perfectly illustrates all that's wrong with capitalism and democracy. So I do think attitudes have changed. I think that happened, that began to happen with the financial crisis.

• 20:42Speaker 01

  Up until 2008, 2009, there was a great consensus within the Chinese elite that the US really did know how to do the economy and you should come and study that. And that's why so many of China's leaders did a stint at American universities, including Liu He, who's the number one advisor to Xi Jinping and somebody who studied at Harvard, whom I've gotten over the years. But I think that respect for the US began to dwindle in the period after the financial crisis. And during the Trump presidency, the sense that the US is in a really serious mess has only grown, encouraged by some of the people who are influential around Xi Jinping, whose view of the United States is really quite negative.

• 21:27Speaker 01

  So I do think there is now a broader range of views of the US and it's no longer just, hey, what an awesome market we can sell stuff to. There are plenty of people in China who would feel huge schadenfreude if the US were to be plunged into such severe civil strife that its global power was seriously reduced.

• 21:50Scott Galloway?

  We'll be right back.

• 21:56Scott Galloway?

  Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls, and playing catch-up when audit season comes around again. Vanta works differently. The Regent Trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400-plus integrations, Vanta collects evidence and monitors your controls year-round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude or Cursor. Want proof?

• 22:41Scott Galloway?

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• 23:02Scott Galloway?

  Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits, and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls, and playing catch-up when audit season comes around again. Vanta works differently. The Regent Trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400-plus integrations, Vanta collects evidence and monitors your controls year-round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude or Cursor. Want proof?

• 23:47Scott Galloway?

  Over 16,000 fast-growing companies like Ramp, Ryder, and Harvey save time and resources while scaling fast with Vanta. Learn more at vanta.com/profg and get $1,000 off. That's spelled V-A-N-T-A dot com slash profg for $1,000 off.

• 24:10Scott Galloway?

  So one of my, one of my theses is that COVID-19 is more of an accelerant than a change engine. And if you think that China was going to overtake the US in 10 or 20 years as kind of the geopolitical superpower, or the economic superpower, I think that's happened in the last six months, that we've passed the baton, or more aptly, the baton has been taken from our hands. And whereas we've withdrawn from the world stage, they are filling that void, whether it's us departing the World Health Organization and them filling that vacuum. Do you buy that China is now the most powerful, or is the geopolitical superpower?

• 24:50Speaker 01

  No, I think this will turn out to be wrong. And the reason I think that is that we tend to, in the West generally, overestimate totalitarian powers. We're very impressed by them. And we also exaggerate our own fragility. So there were periods in the 1930s when people were sort of amazed, astonished by the achievements of both the Soviet Union and Nazi Germany. And then in the 1970s, when the US was having a crisis of confidence over Vietnam and Watergate, the Soviets were supposed to win the Cold War. And we're going through another of these phases now where we think, oh, we're

• 25:32Speaker 01

  completely screwed. I wish I had a Bitcoin for every article I've read saying the US is done. And China is going to prevail.

• 25:39Scott Galloway?

  No, in the 90s, we, in the 90s, we thought Japan had won. It was just a statement, when I was in Berkeley in graduate school, it was Japan had won, we had lost.

• 25:48Speaker 01

  This is, it's almost every decade, actually, that the US tells itself that it's kind of doomed to decline, and that somebody, you know, fill in the blank, is going to take over. I mean, Paul Kennedy's Rise and Fall of the Great Powers was a very influential book back in 1987, which was two years before the fall of the Berlin Wall and the whole unraveling of the Soviet system. Paul Kennedy was as worried about the federal debt then. So I think, I think when you, when you look back over history, there's a pattern in which we overstate the strengths of the authoritarian or totalitarian system and underestimate ourselves. We're doing it now. And I think the classic mistake that people make, with

• 26:32Speaker 01

  all due respect, Scott, is to say, oh, well, COVID-19 has just speeded up this already existing trend. And that's a widely argued view. But what I think that misses is that China screwed this up very badly at the beginning, December of last year, January of 2020. And that this has had a massively adverse effect on China's standing in the world. It's not just Americans have become much more anti-Chinese in the last year or two. It turns out, on the basis of a recent report by Pew, that it's right across the developed world, including most of the major European countries. So I think a very important point about 2020

• 27:13Speaker 01

  is that it's been very damaging to China's standing, not only because of the way they mishandled the virus, but also because of the way they tried subsequently to kind of snatch victory from the jaws of defeat by running around offering people cheap ventilators and masks. That went down really badly in Europe. This wolf warrior diplomacy, which is a phrase that's become quite commonplace, actually was a disaster. The more aggressive Chinese diplomats were, the more they tried to tweet that really the virus originated in the United States, the more people in Berlin and Paris were going like, wait a second. I mean, even in Britain, which had sort of been wobbly on Huawei, 2020 has been

• 27:58Speaker 01

  a year of truth, and Boris Johnson has been cajoled into a tougher line. So I actually think that the opposite is true. I think 2020 has been much, much worse for China than is generally realized. I also think that because China's system depends on quite high growth. Although it's still managing to eke out what 1.9% this year, that is a lot lower than China's system has been used to. And we knew that China was going to slow down. I actually had a bet with an eminent Chinese economist last year that China's GDP would never overtake that of the United States. I actually think that's become more likely because I think

• 28:39Speaker 01

  this is a shock to the Chinese system that is going to exacerbate the existing structural problems of an aging population, excessive amounts of debt, and the fundamental problem that if you run a system which is unfree, where there isn't really the rule of law, where the party is essentially above the law, you can't possibly produce optimal economic outcomes. And I think that will become more and more apparent over the next, let's say, five to 10 years. Most people are expecting a straight dish line of China continuing to grow, overtaking the United States. But the trend lines aren't like that in history.

• 29:22Speaker 01

  If you think about it, empires are these large, complex systems. They can seem to be in equilibrium, but in fact, they're not. And a relatively small perturbance can cause the whole thing to tip over into chaos. China's much more fragile than people in the West realize, because ultimately, running a fifth of humanity as a one-party state with the model that was cooked up in the mid 20th century by crazy people like Stalin, isn't likely to work. As compared with a relatively decentralized, admittedly messy system which has rule of law, has freedoms, and, and here's a really key point, Scott, is far more attractive to the ambitious people in the rest of the world than China will ever be.

• 30:08Speaker 01

  You know, hands up who wants to become a Chinese national in the rest of the world versus who would like to become a US citizen. It's not even close. Nobody wants to migrate to China. Most people, when you quiz them, want to migrate either to the US or to the European Union. And that's a huge edge to have because the US continues, even through the Trump years, to import talent from the rest of the world. And that's the, that's the secret sauce that has made Silicon Valley so much more creative than anything to come out of China. So I'm quite bullish the US, bearish China on the basis of these historical trends.

• 30:49Scott Galloway?

  I mean, you're really, I'm not, I'm not blowing smoke here. You're really opening my mind to a lot of stuff and, and I'm questioning a lot of my own beliefs, which is, which is always healthy. But so just, just a proof point of what you're saying. I have office hours and I teach 280 kids a semester and I offer each of them the opportunity to come, spend some time with me. And they don't come to talk about digital marketing or brand strategy. They come to talk about their careers. And Chinese students always want to talk about the same thing. Can you help me stay here? They all want to stay.

• 31:22Speaker 01

  Yeah.

• 31:23Scott Galloway?

  And it strikes me what you said, that as long as we have that, just that appeal, that people want to be here, that the best and brightest want to be here. It really, I've always felt that that's the secret sauce. What my, one of my kind of no knowns, and I realize that it's not, and I'm thinking it through now, is the notion that the victims of a crisis often aren't where the crisis originates. If you think about the subprime debt that started in the US, it hurt Argentina more than it hurt the US. And my, my view was that although the virus originated in China, that it hasn't had the impact or the negative impact that you've outlined, that people look at China, which has grown 5%, they locked down, contracted 8%, put in place these very harsh measures.

• 32:05Scott Galloway?

  And I think Americans are attracted to macho, strong man, that side of authoritarianism. And then their latest numbers are they're up 5%. Well, we're down 0.1%. And we look at China and think, you know, they kind of got this and now they're going on offense. And offering a vaccine when they get it to other nations and filling the void. So I actually, my viewpoint was that China came out of this stronger than they went going in, despite the fact that people, you know, ding them for it being the place that it, you know, obviously originated and got out of control. But it's interesting that you don't think that's the case. Talk about, in terms of the tech war, talk about the armaments. What is the US better at? What are the Chinese better at?

• 32:49Scott Galloway?

  And where does it, where does it take us?

• 32:51Speaker 01

  Well, I think that the, the interesting thing about this Cold War, first of all, is that it can be much more focused on technology than Cold War I, which often spilt over into hot war in places like Korea and Vietnam. I don't think that's likely to happen in Cold War II, because I don't think the Chinese have any appetite to get into that kind of a war. And I also think the US is extremely shy of any kind of conventional conflict after its experiences in Afghanistan and Iraq. So let's assume that Cold War II is a sort of cleaner, more tech-focused Cold War with the sort of space race features that you'll remember from Cold War I.

• 33:34Speaker 01

  In this Cold War, it's interesting that China has established some significant leads. For example, in payments, I think it's very important that China has pressed ahead so aggressively with payment platforms, particularly those that emerged from Alibaba and Tencent, WeChat. Nothing in the US, not PayPal, got to that kind of critical mass that it became the dominant way of, of paying. And I think that those companies were quick to see the potential of AI once you have really large data sets of consumers in revolutionizing financial services more broadly.

• 34:16Speaker 01

  Now, we're talking on the day when the Ant Group IPO has just been pulled under very mysterious circumstances. And we may want to come back and talk about that. Because that illustrates to me one of the Chinese weaknesses I was hinting at earlier. Ants an amazing company, Alibaba is an amazing company. But if the Chinese Communist Party can just basically call Jack Ma up two days ahead of IPO and say, ah, no, because you pissed us off in what you said a few days ago. You know, that's not really a great look from the vantage point of China's financial future. So there's that.

• 34:58Speaker 01

  And I think that that's the most obvious Chinese lead because the US has been so behind with fintech. The US, like many a dominant power, has got very fond of the status quo in financial technology. Swift is awesome as a way of doing cross-border transactions because you can use it to enforce financial sanctions and therefore Swift is awesome if you're sitting in the US Treasury. The fiat currency dollar is terrific because it's the dominant currency in trade and central bank reserves. So if you're at the Fed, you don't want to do anything to rock that particular boat. Hence, US regulators and also legislators who've been very slow on the uptake have sat

• 35:42Speaker 01

  and basically allowed the fintech revolution to happen everywhere else more than it's happened here. And I think that's a major concern. In a book called The Ascent of Money, I tried to make the argument that power is very closely correlated to leadership and financial innovation. And I think the US, which really was by far the leading financial innovator in the 20th century, has really allowed itself to be overtaken. So that's the, I think that's the main Chinese strength. The Chinese can export a way of paying to the rest of the world that's really quite attractive and faster and more convenient than the way Americans pay for things. But the great Chinese weakness and correspondingly American strength is that China can't make

• 36:27Speaker 01

  for itself the highest-end semiconductors. I know software ate the world and it continues to eat it, but unless hardware is keeping up with software, there is a limit to how much of the world it can eat. And I think the hardware turns out oddly enough to be the great Achilles heel of China's ambition. If you think about it, China since 2018, I think, has spent more on importing semiconductors than on importing oil. And those semiconductors may not come from US companies necessarily. Often they come from companies like TSMC in Taiwan. But what became clear this year was that if the US Commerce Department says you can't

• 37:10Speaker 01

  sell to China if you use American IP, that's binding on TSMC. And the Commerce Department rules, which were introduced this year, are kind of a death sentence to Huawei as a company because if it can't buy TSMC semiconductors and China can't make them for itself, then it can't actually continue to produce the devices that it produces. If I had to point to one big mistake Xi Jinping has made, it was to kind of reveal his plan for world domination before China had solved that problem. And I don't see that it can solve the problem anytime soon, certainly not by 2025.

• 37:51Speaker 01

  I had a fascinating trip to Taiwan back in January and realized, as I talked to people there, why China had this problem. Because TSMC has been ahead of its Chinese competition for some time and, on the basis of conversations with people involved with that company at a high level, they will remain ahead of the mainland indefinitely until Moore's Law kind of runs out and there's no longer a frontier that they can move beyond. So I do think that's the key at the moment for China, that it's not capable of getting to the very highest level of semiconductor manufacture within a timeframe that is measurable

• 38:36Speaker 01

  in years.

• 38:38Scott Galloway?

  Yeah, it's interesting. I thought you were going to go there around. They have an advantage in hardware, we have an advantage in chips. What was the insight there that I hadn't fully contemplated is their lead and it seems obvious after you say it and all great insight is obvious after you've gleaned it. Is that they lead in fintech. I mean, just, just in terms of proportion, that IPO, the tech IPO that everyone's excited about here in the US is Airbnb. And we're talking about a company that will have a valuation of around 30 billion and raise 300 to 500 million. And then Ant Financial goes public at a valuation of 300 billion and raises 34 billion, edging out Saudi Aramco as the biggest IPO in history in terms of proceeds.

• 39:23Scott Galloway?

  And it strikes me that Americans, and again, this is more self-hating progressive Scott speaking, that we think all innovation kind of lives and dies within a seven mile radius of SFO International Airport and that there's tremendous innovation coming out of China. But you see it as, you see their Achilles heel. It's, it's really interesting and it sounds like a strategic, if you were advising the US administration to be very, very careful and thoughtful around protecting the IP around our, our chip sector. I mean, I'm just seeing, I think Apple's supposedly doing this in one more thing event where people are speculating it's going to be them talking about devices that use their own chips as opposed to Intel. You see chips as a, a key component of this Cold War, if you will, or maintaining our advantage.

• 40:05Speaker 01

  They are the key component of this Cold War. Because as, as you know, Scott, what is really striking about the world of the Internet of Things is that actually it's got incredible hunger for, for processing power. And because TSMC kind of overtook the other competitors, including Samsung, and it's the kind of cutting edge of this, and China can't seem to get there, that, that seems like a really major problem and a, and an opportunity that the US can exploit. I agree with your point though, that, that we tend to, we have tended to underestimate China's advances in fintech.

• 40:45Speaker 01

  I, I remember being completely blown away when I first got to know Eric Jing at Ant by what they had in mind. As a kind of global rollout for their platform and the way they were thinking about creating a two-sided market for financial services that would be global in its reach, but would basically go from China to other emerging markets where there would just be no US rival competing. I thought this was a brilliant strategy and one that nobody in the US really seemed to be following. And, you know, when I wrote a bit about it in The Square and the Tower and started to write about it in my journalism, I was really surprised at how slow people in Washington were to appreciate how much it matters. If

• 41:29Speaker 01

  China can build a payments architecture for a big chunk of the world that is not controllable from the US, it may start small with relatively small transactions. It might be remittances that all migrate to those platforms. But at some point, once you've got the architecture up and running off Swift, using a completely Chinese proprietary technology, then American financial dominance hegemony, to use the fancy word, is going to be coming to an end. And that that seems to me like China's best shot, even if the current troubles of the

• 42:09Speaker 01

  IPO suggest a very important subplot. And let me just briefly say something about that subplot. Because Alibaba and Tencent in particular have become such huge and successful companies, they do pose a threat to the Chinese Communist Party's monopoly on power. And that's one reason why there's been increasing pressure from the party on Jack Ma to rub in the reality that Xi Jinping is number one and always will be. And I do think that what's just happened with the IPO is another reminder that the party is going to dominate, even

• 42:50Speaker 01

  if it hurts China big tech. And that strikes me as extremely interesting and suggestive of the problems that have been brewing for some time in China. I was told by a very brilliant and impressive China tech investor as we drank tea in his office two years ago. There are three Chinas. There's new new China, he said, I'm going to quote him without identifying him. There's new new China, he said, that's people like us. You are, you know, we have US passports, we go back and forth across the Pacific. We invest in tech and we are the people, you know, behind China's most dynamic companies.

• 43:33Speaker 01

  Then there's new old China, which are the profitable state owned enterprises that the party elite and their children control, which essentially are rent seeking operations. And then there's old, old China, the non profitable Rust Belt SOEs. And that's the China of today. And the real division, he said, is between new new China, that's people like us, and new old China, the party. In other words, between Beijing on the one side and Hangzhou and Shenzhen on the other. So I think that's another sign that China has frailties. That's a profound structural division between the rent seeking party and the value creating

• 44:16Speaker 01

  entrepreneurial tech sector.

• 44:19Scott Galloway?

  I love this idea of fragility and I hadn't, I immediately leaped to authoritarian construct is a better way to run an economy. I look at Singapore, I look at China and I think distinct of the, the obvious downsides from an ethical, from a humane standpoint, that from an economic standpoint, it appears to be a more robust model. But you're opening my eyes to the notion of what Taleb said about fragility, that if JP Morgan goes under, it could take the whole, whole economic landscape down with it, meaning that the financial sector is not robust in the US, whereas if McDonald's goes out of business, we're just fine, that the casual fast serve restaurant business is very robust.

• 45:02Scott Galloway?

  And that here in the US, just having two parties as opposed to one makes us a lot more resilient or a lot less fragile, if you will. I hadn't, I hadn't really thought that through. I love that. The other question, earlier you had said that you thought Trump had an insight around the threat that China posed. And I would, or I would like you to respond to the fact that yes, China should not have unfettered access to US markets around technology after banning all of our, pretty much every American internet company. That seems like that there's some validity there, but the way it's been executed has been ham handed and poorly thought out. You thought, you mentioned the rule of

• 45:41Scott Galloway?

  law. I can't understand what law the president was trying to, was pointing to when he makes these sort of errant attacks against TikTok and then picks winners based on, you know, political or supporters who've ever thrown him fundraisers. Your thoughts on whether Trump got it right strategically and then wrong tactically?

• 46:05Speaker 01

  Yeah, I think that's a reasonable way of pushing it. Ultimately, it's easy to forget how completely out of consensus he was when he started talking about imposing tariffs on China back at the beginning of his campaign in 2015. That was just to the elites on, in both parties, crazy talk. And it's a remarkable thing that Trump not only did it, so we should have taken him both literally and seriously, but in the process has converted substantial proportions of both Republicans and Democrats to his view that there was a Chinese strategic threat that we had to do something about. That's become consensus, maybe the only bipartisan

• 46:47Speaker 01

  issue that's left in Washington. But of course, going about it the way he did is certainly not the way I'd have gone about it. The tariffs, if the objective of the tariffs was to reduce the bilateral trade deficit have been one of the greatest failures of modern times. The deficit hasn't exactly gone away and it's almost certain, I think, that the costs to the US of the tariff war have exceeded the benefits. But the tech war is a different story, where I think what he's done has been,

• 47:25Speaker 01

  particularly in the case of Huawei, to exert very effective pressure on a crucial company in China's strategy. I think more broadly, the effort to push back against the Chinese government in different ways, in different places, has been quite a success story of the Trump administration. You know, from the treatment of the Uyghur minority, you know, in Xinjiang, to the Hong Kong issue, to Taiwan, which is really, I think, the key, the key point to the South China Sea. What has been very impressive about the Trump administration

• 48:05Speaker 01

  has been that it has really changed the direction of the US strategy on China. From what had become essentially the accommodation of China's rise in the second Obama term to something that has really given China trouble and put China on the back foot. And as I mentioned earlier, I think this year, the change of sentiment around the world towards China is actually a payoff of that strategy. But tactically, in all kinds of ways, including one that you just mentioned, the way that the president has handled the TikTok issue. It's often been inept and counterproductive. I think there are reasons to be very wary of an app that is used by 50% of American teenagers and therefore makes their data available to the Chinese government.

• 48:50Speaker 01

  There are all kinds of reasons to wonder about whether it's a good idea to let TikTok continue operating as it does. But the way that has been handled is certainly not something that I'd have, that I'd have recommended. The direction of travel, though, has been right. And when people come to write the history of the Trump administration many years from now, they'll have to acknowledge that for all his many flaws, And they're too numerous to list. There was a fundamental change of direction on China. And that strategic change was almost certainly the right one. Because if that hadn't happened, if we'd kind of left the elites in charge and Chi America had still been okay, then I think China's rise would have been more or less unstoppable.

• 49:34Speaker 01

  And I'm one of those people who doesn't really look forward to the day when the most powerful country in the world and the largest economy is run by a one party state that is still capable of herding millions of people into concentration camps. That just doesn't seem to me like a good future.

• 49:50Scott Galloway?

  Yeah, I think that's powerful. So as we wrap up, Neil, I'd like you to provide advice to two different cohorts or two different parties. The first is, what one or two pieces of advice would you have for either the Trump or the Biden administration if you said, okay, I got five minutes with you, but I want you to take very seriously these one or two pieces of advice. And then I'd like you to provide the same advice for your 25 year old self. We have a lot of young people who listen to the podcast.

• 50:17Speaker 01

  So number one, Taiwan is going to be the flashpoint, whoever is president. And I think the Trump folks get that and the Biden folks may not. But basically, there will be a showdown over Taiwan probably at some time next year. And the US better be ready for it because at the moment, I don't think the US military stroke naval commitment to Taiwan is credible and that may tempt China to do something reckless. Second point, fintech. The US has got to come up with a better answer than we like things the way they are. Do they really have to change? And so heads need to be knocked together at the Fed or the Treasury to come up with a more strategically smart response to China's

• 51:01Speaker 01

  rapidly growing lead in fintech. Those would be my two key points. My advice to my 25 year old self. Would be as follows. Listen to your teenage children when you have some. My once upon a time fifteen year old son got crypto very right and I was slow to grasp it. That was an expensive mistake. Read more. You can never read too much. One of the things that rather impressed me about an obituary of Sean Connery that I read was that he'd not been well educated, but in his first tour as an actor around the theatres of the UK,

• 51:41Speaker 01

  he'd immersed himself in libraries in all his spare time. Can you imagine Sean Connery as a young actor reading Proust? And yet he did. I think the critical thing that people in their twenties get wrong these days is they don't read enough great literature. Most of the truths about the human condition have already been discovered and written up much better than they ever will be again in the great literature of the past. And most kids today don't read nearly enough. If I had to hazard a guess, they probably have read about one percent of what I'd read by the age of twenty five

• 52:21Speaker 01

  because they are so distracted by other stuff. But my advice to myself back then would have been, read even more. There is just no limit to how much you can benefit from immersing yourself in in great literature.

• 52:36Scott Galloway?

  And name three great pieces that you would recommend are a decent place to start. If someone comes away from this pod and says, I'm going to read more.

• 52:43Speaker 01

  I think Rievgeny Zamyatin's extraordinary dystopian novel, We, W E, written during just after the Russian Revolution is probably the best dystopia imagining a surveillance based society, much better than Orwell's nineteen eighty four, which was based partly on Zamyatin's We. So that would be a, that's a must read book that most people haven't read. I've been immersed in the last couple of months in belatedly reading the novels of Sir Walter Scott. It may be that only Scott's These days can fully appreciate them. But from Waverley on, there isn't a dud in the series.

• 53:28Speaker 01

  It's magnificent writing, extraordinarily modern in its sensibility, considering that Scott was writing in the early 19th century. He was the most bestselling author of, can you be most bestselling? The bestselling author of that generation, but nobody reads Scott now, and that's a mistake. Scott is fantastic. And then the third thing that I'd encourage anybody to read who wants to understand the curious way in which the public sphere has been disrupted by the internet and the way that news is not quite what you think it is, is an amazing play by a Viennese writer,

• 54:08Speaker 01

  Carl Kraus, called The Last Days of Mankind, about the First World War, in which Kraus sets out the view that ultimately the war is a kind of huge media stunt that keeps going primarily because it sells newspapers in great quantities. That changed my life when I saw a performance of it at the Edinburgh Festival when I was about 20. And again, it deserves to be much better known because it has a, it offers all kinds of insights into the way that the internet, particularly the way the internet has affected news, has altered our society.

• 54:42Scott Galloway?

  Neil Ferguson is a historian, author, and the Millbake Family Senior Fellow at the Hoover Institution at Stanford University, and a Senior Faculty Fellow of the Belfer Center for Science and International Affairs at Harvard, and a proud Glaswegian. He joins us from an undisclosed location. Neil, thanks for your time and stay safe.

• 55:02Speaker 01

  Thank you, Scott. Sandy Hills would be proud of us.

• 55:08Scott Galloway?

  Our producers are Caroline Shagrin and Drew Burrows. If you like what you heard, please follow, download, and subscribe. Thank you for listening. We will catch you next week with another episode of The Prop G Show from Section 4 and the Westwood One Podcast Network.

• 55:30Speaker 02

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