The Waning Days of the American Empire | Warwick Powell | Silk and Steel

Hello and welcome to another episode of the Silk and Steel Podcast. I'm your host, Karl Zat.

Today, I have the crowd's favorite Dr. Wurick Powell from Australia joining me again on our

regular show on China Geopolitics and the decline of the US Empire. I think that's going to be the

main focus of our show today, yes? Yeah, I think so. And there's been quite a bit happening again.

It seems that every couple of weeks there's enough to make us go a bit grayer and also give us

plenty to talk about and think about. But I think we are seeing more evidence of the waning days of

the Empire as most of us remember it and most of us have known it. Not least of which, of course, is

the rebuke from the Supreme Court of the centerpiece of the Trump administration's economic policies,

which in many regards wasn't just an economic policy, it was the principal geopolitical lever.

And that, of course, is the tariff regime that was deemed to have been unconstitutional.

And I think that that is, in many ways, some people might interpret that as a re-assertion

of the separation of powers, but I think in many other respects, it's actually a symptom of

a decaying empire. So yeah, I think it is going to be a core theme today, but may not be the only

thing we talked about. Well, actually speaking of that, I actually wonder what happened to all

those countries that rushed to get a good deal with the United States. You know, all those countries

are lining up to like gravel and bow to Donald Trump hoping they will get a better deal.

And now the US court says, okay, maybe the tariff whole tariff thing is ridiculous.

I mean, like, what does that do to the US credibility? I mean, like, you know,

all these countries, all these leaders, they spend a lot of political capital

falling to the pressure of Washington, you know, making themselves looking like, you know,

dancing puppets, or I would like to say dancing monkeys. And now just for this whole thing to be

thrown out by US court, how is anyone going forward going to, you know, rush forward to do

another deal with the United States knowing that you might be not valid few months from the time

it was signed? I think that that is the heart of the issue. And that really goes to the question

of why the empire is really struggling. And that is that it is no longer able to present to the world

a dependable, credible, reliable counterparty as a counterparty nation state. And it shows itself

to be not only capricious willing to make decisions on the fly, but often make decisions based on

the whims and the state of mind or the moods of the occupant of the White House. And it makes it

very, very hard for anyone else in the world to develop a meaningful, sustained posture towards

the US. The one thing about countries is that they actually move slowly. And it takes a long time

for national resources to be structurally aligned. And for the politics of countries to also become

aligned around certain national objectives. And when countries do this, they actually rely upon

the idea that others in the world are operating in similar ways. There is a culture, people often talk

about it as the norms of international relationships or the norms of diplomacy. And these norms aren't

simply about niceties or being polite. These norms are about creating an environment where

the behavioral response of others is reasonably predictable. You can never predict

others response absolutely, but you can have a pretty good idea that if you conduct yourself

in certain ways, say certain things and do certain things, that others that you interact with

will respond in a particular way. What the United States has done in the last 12 months and arguably

really for the last 10 years has overturned the predictability of its own behavior within the

system at large. And the minute it does that, it actually says to everybody else, steer a wide

birth. Currently, they're behaving in an unpredictable way, an unreliable way, liable to weaponize

things, liable to chop and change their minds on things, liable to verbal you, you know, make

announcements about what you might have said in the closed or meeting, even if it's not entirely

true. And so I think it's going to create an even greater sense of caution amongst countries

around the world, especially as you say, those who rushed off to sort of get ahead of the pack and

do a good deal, you'll remember that after the liberation tariffs were announced, people like

Lucknik and Scott Bessent were running around the world more or less trying to create this sense

that there were countries lining up ready to do the deal. And of course, what they were trying to

do was to create a sense of urgency, you know, this idea that first in best-dressed fear of missing out,

the lesson we're now learning is that being first in does not mean best-dressed. And in fact,

quite the reverse, taking your time, sitting back and being patient, and letting the mess that

is contemporary American governance unfold is probably your best strategy. And on top of that,

whilst you do that, you begin to diversify your relationships, because I think that there is no

doubt that contrary to the rhetoric over the last five or six years about de-risking and

friend-shoring and all these things in relation to China, the most likely de-risking move that

we're going to see over the next three to four years is actually countries finding ways of

disentangling themselves from the United States. They're not going to do it in a way that

cuts off their nose despite their face, and they're certainly not doing it in ways that burn

bridges. They're doing it in ways that will protect themselves from an unpredictable, unreliable,

capricious vanity-driven, narcissistic administration. And that's where we're at.

And I mean, we have already seen that happening, you know, before Scott Besson actually said,

we are aligning all the world, all the countries of the world. We're going to isolate China.

And like you say, exact opposite has happened. Now we have seen Carnegie visiting China,

Starmer visiting China, the German chancellor is now going to China, and Trump himself is going to

China in April. And we have seen increased investments into China by large multinationals.

And yet, you know, this is, I think, it's kind of sometimes it's hard to, you know,

to parse the US rhetoric because a lot of time it just rhetoric, you know, like the US politicians,

they lie like fish in water. But sometimes it's kind of hard to figure out what is their end go?

What is really they're trying to achieve? What do you think that we're trying to do, you know,

try to, you know, say like we're squeezing China, we're lining against China, we're cutting off all

ties. And, but, you know, with all this effort, end up falling flat on their face.

Look, I think the United States, particularly inside the beltway, are trying to achieve a

rekindling of primacy. The idea of American exceptionalism and the idea of global power and

entitlement has become such an ingrained part of the ways in which Washington thinks about itself

and the rest of the world that the idea that that's not how the world works isn't something to

recognize as fact, but it's something to resist. And in resisting that, of course, they are

confronting realities. I think we've discussed before that Marco Rubio, for instance, amongst others,

has talked about this idea that the world is now multipolar. Now, that's a very particular sense

of multipolarity. And from the United States point of view, it basically means that they are

recognizing that they don't have unlimited resources and need to calibrate their resources,

as well as mobilize the resources and risk appetite of so-called allies in the pursuit of the same

objectives. And the same objective is American primacy. Now, at the moment, American primacy is

viewed largely through the prism of containing China. If China wasn't rising, if China wasn't actually

appear competitor in terms of economic and technological capability, then American primacy would still

be there. I don't think the Americans view Russia as a threat to American primacy. In fact,

by the opposite, they viewed Russia for a long time as a fallen power. And had Russia not

got the largest arsenal of nuclear weapons, I don't think the United States would care much of

all about what goes on in Russia and certainly hasn't. I think the story is changing a bit now.

There is a grudging respect that the Russians at least back to the main table. But there's only one

real threat, as far as those inside the Beltway is concerned, and that's China. So the United States

remains committed, I think, to this... Well, it is almost a religious sense of entitlement to being

not the primate in the system. And it is really struggling. It's experiencing displacement anxiety

and consequently it lashes out. The, you know, that we've had the national security strategy, national defense strategy,

the entire tariffs concept was all about containing China and exploiting the rest of the world.

In the name of writing historic wrongs, right? So you've got to remember that from the point of view

of the United States today, it really sees itself as a victim, a victim of its own benevolence,

and a victim of the outrageous behavior of everyone else in the world taking advantage of American

generosity. And so it's seeking to settle the accounts. And it sees tariffs as a way of

settling the accounts. Right? And now that's gone. I mean, that sort of, you know,

centerpiece economically has been... I wouldn't say delta mortal blow, but it's still...

it's been delta massive credibility blow. Yeah. Well, but all politics ultimately is domestic

politics. And one of the biggest claim by Trump administration is he's doing this, you know,

he's crying China, China, China. Of course, we know he's trying to distract people from the

domestic problems, but also he, one of his claim to win the American voter base is that he will

bring the manufacturing back. Because as you say, he blames China for the, following out of the

US manufacturing base, which actually got carried out by his buddies like... Like, like, like...

Amb decent, you know, all these Wall Street guys were now staffing his cabinet. These are the guys

who over the period last four decades has intentionally hollow out the US manufacturing

in order to give the big fat middle finger to the unions and, you know, to chase better profit margins

elsewhere. And, of course, they would never point the fingers to themselves. It's going

to be China, China, China. But to that aim, though, to Trump's claim that he will re-industrialize

America, it doesn't look like it's bringing the actual manufacturing jobs back to the United

States. Because even whatever new manufacturing capacity was added in U.S., a lot of the latest

addition are automated that require very few people. And that's a direction, by the way,

their administration actually pushing for it. They're pushing for more investment into AI,

which would replace even more people. So, how do you square that? I mean, this should be the

challenge for the Trump administration. The way they try to square is to, I'll put more lies.

But how do you think what is your take on how that is going?

Well, the first thing I'll say is that I think your observations are exceptionally

cynical and not tempered by a realization that all good things take time. The idea that evidence is

being used to suggest that the grand ambitions and the promises of this particular administration

aren't coming true. That's a shocking thing to be doing, Carl. Have faith. All good things come

to those who wait and pray. Well, probably not actually in this case. The evidence is appalling

as far as the objectives are concerned. The objective was, as you say, to rejuvenate American

manufacturing. It's not happening. Employment in American manufacturing has been declining actually

in the last 10 months ever since Liberation Day tariffs were announced. The only jobs that have

been growing or the only sectors in which jobs have been growing has been in private health and

private education, followed by services industry. This is not what the administration promised.

And of course, they could never deliver on the promise. The kinds of jobs that I think they

created the impression that they cared about. The good, hard working, honest, blue collar jobs

that people have as part of their imaginary of the good times of the 1950s and maybe even in

the president's view of the world in the 1890s, those kinds of jobs don't really exist anymore.

Certainly not in first world countries. And they're not going to come back. Unless you want to reduce

your living standards. And if you want to reduce your living standards, and if you want to

compete against the workers of Bangladesh and make the T-shirts for Americans again, then I guess

there's a way of doing that. And that is to crush American living standards and get the cost of

labor down to levels that are, once again, competitive in labor intensive jobs. The jobs that will come

into the future, amongst other things, are going to be technologically driven. They're going to be

heavily dependent on robotics and machinery. And they will require certain kinds of people,

Carl. They'll require educated people to operate, to set up, to support and maintain.

And those kinds of people, the ones with university degrees, with reasonable levels of numeracy and

literacy, are the kinds of people that the American education system has not been producing

at sufficient quantity for 40 years. So the system has some work cut out for it. The other thing to

remember is these kinds of jobs and these kinds of technologically driven rejuvenations are ultimately

going to need imported machinery and equipment anyway. So the idea that you're going to add a cost

to your industry so that they can then become more modern is a great way of putting a barrier

in the road of your industries becoming more modern. The United States simply doesn't make enough

robots. It doesn't make enough industrial machinery that it needs to fulfill these ambitions.

And if it is to come close to fulfilling its ambitions over the next five or ten years,

it's going to have to import a hell of a lot of things. And if it's not going to import them from

China, where they'll get the best price available, they'll just import them from more expensive places

like Japan, Republic of Korea and Germany. That's America's choice. But the economic

policy regime revolving around tariffs has failed. And maybe the decision of the Supreme Court

was a godsend because it did give the administration an off-frame. But right now, I don't think the

administration views it as an off-frame. It's a user as Red Rag to the bull. How dare these six

justices reject the assessment of the administration that America exists in such a state of economic

emergency that the president has these wide-ranging powers to circumvent Congress. How there they do

that. And so right now, it's clear that the president is looking for alternative mechanisms. And

there are other legislative authorities. They're not as open-ended. And they have more conditions

attached. But this president is not one for turning. You know, to borrow a phrase from Margaret

Thatcher. You know, this man isn't for turning. And I think we're going to see a doubling down on

tariffs over the course of the next 12 months, which of course makes it even messier for everyone

else in the world to return to your original point.

Yeah, let's go back to what you said earlier about, you know, the good news in 1990s.

Back in the United States, like she and her late friends from four parts of Europe. That's how

the US power is in industrial revolution. But right now, they are also, you know,

immigration is not popular now because the immigrants makes a perfect scapegoat for domestic

problems because they can't vote. So, you know, the easiest way the US politics to shift blame is

you blame China and you blame immigrants. And that's why he has sent ICE agents all over

United States to make a public spectacle of not just running up immigrants, but also, you know,

shooting native-born Americans were protesting this policy. So, in a way, Trump is

destroying the foundation of the US economic miracle from all angles. You know, this is why I always

Trump is the greatest president of the United States for China because he just accelerates the

US decline on unimaginable scale. But what can we look forward to, you know, because that does

mean increasing instability. You know, like I, contrary to a lot of, you know, pundits from the West,

they think they tend to think, oh, China is trying to game in United States the same way

the US is trying to contain China. The China would wish, you know, for chaos in United States.

That could be further from the truth because China would rather have United States as a stable

country so you can continue to have trade relationship with. Instability in United States is actually,

you know, it's not either the goal or intention of China at this point because it's

goal of China ultimately is to grow China and to grow continued growing prosperity for the Chinese

people within China. What happens to the outside, that's, you know, that's not part of the radar.

And even from that point of view, China always prefers stability because stability is better for trade.

It looks, stability is better for just about everything. As I mentioned earlier, part of the ways

in which countries navigate the world because countries, you know, can't just chop and change,

you know, they're big systems, you know, lots of resources to mobilize. And once resources are

committed, countries are also quite path dependent for a long time. But so this is why countries make

decisions in very deliberate and slow ways, institutions get built, policies have, you know, long-term

continuity. Even when, you know, the politicians change, you'll realize that 80, 90% of policies

actually continue through administration after administration after administration. And,

you know, whether it's because of the permanent state, the deep state, the machinery of government

or what have you, right? But there is a continuity of a national system. It's political economy,

social settlement patterns. And so stability is necessary to enable you to make these kinds of

decisions because you need to have to the best extent that you can. And ability to anticipate

what the next five and 10 years are likely to look like. And a good way of not being able to do

that is to have, you know, one of the largest players in the world behaving irratically. If they're

behaving irratically and you don't know where they're going to land, you don't know whether it's

going to be a 10% tariff, a 15% tariff, a 50%, a 60% exemptions on this and that today. And then,

you know, imposing tariffs on some other country because, you know, the prime minister said some

nasty thing about the hockey team or something, right? Whatever it happens to be, you know, none of

that makes decision making easy for countries. It also makes them very difficult for organizations

that are responsible for the deployment of capital and to transform that money capital into fixed

investment. You don't build factories in two minutes and one, you know, they take time. And once

they're built, they need to operate for a certain amount of time at a certain level of capacity

utilization for them to be economically viable. So you don't want to be building factories on a

whim and then shutting them down next year because circumstances have changed. And, and if you're

building major infrastructure like courts and roads and electric, trickle systems and information

technology systems, you also want a relatively predictable environment. Energy is a classic case

in point. You know, the last thing any country wants China included is an environment where global

oil prices are highly volatile. That's very difficult. Great for traders, traders trade the volatility,

but it's actually not great for corporations trying to navigate the future to plan the future

for the next six months, 12 months or two years or even longer. So China has very little incentive

actually for a United States that is racked by persistent instability and political indecisiveness,

the lack of clarity. China, I think, would prefer a hostile country that is consistently hostile

than one that is chopping and changing. At least you know what you're getting, right? But at the

moment, the United States is not only hot and cold, you know, but it's lukewarm. It's, you know,

and it's hot and cold to different people each and every day. Maybe that works when you're

negotiating a piece of dirt on Manhattan, right? And I keeping everybody off balance.

But yeah, that's the power. But Dr. Powell, that's that's called the art of the deal.

How you keep your, you keep your opponents off balance because they will never know what you're

going to do. That's why you raise the demands insanely high. So to keep them off balance, how

it's all working. It's all part of the plan. So what is China doing? You know, big countries

actually don't just hope, right? So China then says, look, if we're facing an environment that is

likely to be quite fluid, that's likely to have episodes of, you know, stormy seas,

so to speak. We're going to need to batten down the hatches and chart a clear and steady path.

We accept that we're going to hit some big waves. We know that there are some storms,

right? They're not going to be avoidable. So we're literally just going to have to put our head

down, batten the hatches, tie things down, and get ourselves through this. And hopefully in the

process, come out the other end as unscathed as possible. And in saying that, what China is saying to

the smaller boats around, and, you know, this is the kind of analogy that you get a lot, I think,

from the Chinese leadership these days, which is that, you know, we're big boats on the same big

ocean, right? And saying to the smaller boats, rough seas coming up, the best strategy for you

to survive is to latch yourself to us. We are the biggest ship. We will give you an anchor point.

And hopefully you won't get drowned too much. Of course, big waves are going to hit you anyway.

So we can't protect you from every right. But we will do our best to make sure that you don't

get submerged. And that you will also come out the other end, a bit battered, but in a position

then to take advantage of the sunnier karma days. And that, I think, is the position that the

the political leadership in Beijing have ultimately arrived at is you can either try to anticipate

every possible chopping and changing that the United States might undertake over the next,

you know, year or two or three, or ultimately establish a course of action at a macro level

and stick to your position. And they did this, of course, through the tariff wars last year,

where they said, look, you know, we support open trade. We think that that's what you should be

doing. We don't think it's in your interest. It's not in hours going down this crazy tariff path.

But, you know, every 10% you add onto the products from our country. We'll add 10% on the products

from your country. And then we'll see where this all ends up. Now we know where it all ended up.

It ended up winding the clock back to the 1st of April. So that's what I think China is now

at is it's just not going to chop and change in a reactive way to the United States. It's literally

set a course. It's got a strategic direction, broad direction over there. It has mapped out, I think,

a pathway, a roadmap, if you will, that is encapsulated in some things that is available for

everyone to see. The development initiative, the security initiative, the governance initiative,

and the civilizational initiative. They're all there for people to see, the digests, and to

interpret. But ultimately, you know, that's the path that China is laying out. And it's inviting

people to tie their boats to the big boat to weather the storm. Well, that's interesting because

I just saw a clip on Twitter. This is a statement by volunteer CTO Shion Sanker.

He actually echoes some of the sentiment that you said here, you point out here, he said China

is the best at long-term planning. But then he goes on to say, the one thing that's not in their

plan was AI. It is American innovation, American phenomena. So then he goes on to say,

he said, like, everything is upstream from energy, right? In America, we have all these private

entrepreneurships that's leading them to create, like, for example, gas power turbines to power

their data centers and build all that. I'm thinking, wait, this is what Dr. Powell has been saying

all along. But this guy is obviously smart enough to recognize, you know, that everything is upstream

from energy. But he also must have known that China has much, much cheaper price for energy,

because China has been putting a lot of effort, you know, as he said, into long-term planning

of building out their energy grid for a diverse source of energy, not just high due carbon,

but solar, wind, nuclear. And now their solar expansion is rolling out on exceptional

fast bases. And it's at the point where, you know, the solar energy is quite very, very cheap.

And China has abundance of energy to put to power its AI revolution if China choose to.

I mean, this guy, this is what I don't understand, you know, we have talked about this that there's

basically a finance capital and tech capital capture of the White House in United States. You know,

Xi'an Sankar of Palantir, he represents part of that tech capital, you know, backed by Peter

Theo and all these people who actually have a very profound influence on the US politics today.

He must have recognized this, but somehow he's raised this as saying, no, this is

get a win for America, because, you know, the deep seek, all they do is just steal from us by

like distillation from our models, you know, like, which is not another American copian.

Go ahead, go ahead, go ahead. Well, let's follow the logic in a very typical American pattern.

Let's say that that's all true. Well, the other thing we know that's true is that China

are great thieves, IP thieves, and are great emulators, and we'll turn whatever they've stolen into

something bigger, faster, and more widespread. So whichever way he wants to look at it,

the United States is on a hiding to nothing. You know, thank you very much for inventing AI,

we'll now scale it and make it cheaper. It's a nonsense, of course. Yeah, sure, look,

the United States has, of course, been one of humanity's most vibrant, innovative societies

for many decades. You know, it's a big place, 330, 340 million people. It's unsurprising that

a large number of people also can mobilize a bunch of creativity, right? And the United States,

I think, has demonstrated that as a society, it does have the capacity to be very, very creative.

China also has a capacity to be creative too, but of course, in a different institutional and

historical setting, it's creative in different ways. And unfortunately, much of the Western

discourse has misunderstood Chinese innovations because it's had a very simplistic view of our

innovation. It turned innovation or the idea of innovation into an ideological trope as a

manifestation of societal freedom or market economies or whatever it happens to be, as opposed to

understanding innovation as a way in which human creativity responds to challenges, blockages,

as well as, you know, imagined opportunities. So one of the things about human beings still

is that we are incredibly creative beings. This in some ways is the

differential of what it is to be human, as opposed to what it is to be machine. So I guess

some of the developments in AI might, you know, arguably begin to at least challenge this

at a superficial level, but at our core, human beings are creative beings and there is no reason why

Chinese beings, human beings are more or less creative than American human beings,

but they're creative in a different setting. China has been able to find ways of solving

all sorts of practical problems, not just inventing things, but sometimes you can invent things,

but it doesn't go anywhere. You can have an idea, but it doesn't go anywhere. Until you can figure

out how to overcome the blockages to those ideas becoming more real, whether it's through scaling,

whether it's through application cases, whether it's by unlocking a raw material that you needed

to make something happen at scale that you couldn't unlock before. And sometimes you had to buy

your time because certain technologies whilst theoretically feasible, you know, from a physics point

of view or a chemical point of view couldn't be done in the real world because we simply didn't have

the machines to do it. And as time goes by, grabbing onto this foundational research, and of course

now, China is producing a whole bunch of its own foundational research. So the next generation

will see a lot more Chinese go to low innovation, I think, than we have in the last generation.

So the current generation is seeing, I think, a lot more application innovation. Yeah, there are

other ones where you would say that genuine inventions have emerged in the Chinese context,

but I think we're also seeing very important innovations in applications. How do we turn ideas

into reality is as much an innovation challenge as it is coming up with the ideas themselves.

And so if our friend at Palantir wants to talk about China in those sorts of senses, I guess,

at a certain level, Karl, there must be a deep-seated recognition that the Chinese system,

the social settlement, the political economy, the systems of governance that it has in place,

are adequate and possibly more than just adequate to drive China forward as a modern technological

society. A friend of mine once described to me the difference between being a leading or a

technological leader versus being a leading technological society. And he said to me that America

is some way still the former that it is a technological leader. But there is no doubt now that China

is the leading technological society. And that is what I think, or at least certainly is one of

the factors that compounds the anxieties that now cause those on Capitol Hill to have sleepless nights.

And perhaps has a few more medics on call in case they cause themselves an aneurysm at some

committee hearing when they hear about the next Chinese security threat.

Yeah, I mean, the one example is Pebble Bay's Thorian Nuclear Reactor. That concept was first

developed in Lawrence Livermore laboratory in United States. But then US sat on it and did nothing

until a NASA scientist published it, their research online and then Chinese took a look at it.

Hey, this is interesting. Let's try it. And then China actually ended up to make it work. They

are now very close at being able to carry out a commercial operation, which is more than what US did,

which is just building a prototype. And this is the same thing. The, you know, now this extends

even into the military sphere because US has currently the sixth generation stealth fighter

in United States is essentially just at the PowerPoint presentation stage where China

they actually had a flown prototype. And, and you know, then then then you still have people

online saying, oh, they still are technology. Oh, that's cool. Of course, because they still

are technology, right? And there's still everything. But yeah, China can adopt and commercialize

technology at an incredibly fast pace. One reason is because they have the economy of scale.

They have that the whole industrial base, which United States lo longer have. And this is why I

think US elite, you know, including the, the Palantir CTO we talk about now have placed all their

hope in AI, you know, they're essentially, well, I think what, what the, the, the Palantir CTO,

Xi, I'm a anchor, what's trying to do is she's trying to drum up for more investment into AI,

which is growing into a huge incipient bubble right now. And, and the, the, the hope is, you know,

what they're selling point is AI revolution is going to propel United States to the next level,

you know, far beyond China. So the China will never be able to catch up. But that's why you need to

put more, even more money, even more billions of dollars into our little AI projects. So we can

continually keep ahead of China's progress. I'll touch on the AI stuff in a tick because I think

that there is something quite interesting about the, well, arguably a difference in approach to AI

as a technology and as a technical frontier. But on the Chinese industrial system question,

first, the, there's a few really important parts to this. And obviously a lot of people write

about it because it's a, it's a bit of a puzzle. And people want to understand why it is that

Chinese manufacturing has become so successful globally. How it is that it can deliver

products of increase in quality at such low costs, et cetera, et cetera. And without going

through all of the literature and all the various explanations, I think that there's a couple of

interesting points just to note. One is is that there's actually a bunch of good people,

well-educated, well-trained people. Without those, you actually don't get yourself to a position

where you can design the processes and the systems that you need to optimize production.

So that's the first thing. Long-term investments in people has actually laid the groundwork for

these industrial capabilities. The second one is a sense that industrial capabilities

is actually an ecosystem problem. And the competitiveness of an ecosystem is only as good as

its weakest or its slowest point. And so what you often find when you read Chinese policy documents

and corporate strategy documents is talk of a need to find the bottlenecks and to relieve the

bottlenecks, to smooth the flow, the carboards, the constraint points, the choke points,

because it's an understanding of the system as a dynamic system that works best when things move

smoothly, that underpins the planning approach that the CEO of Palantir talked about.

There's lots of planning and then there's planning right. And a sensibility to

systemic harmonization where the pieces fit together well, where the resources, the information,

the human skills, the finance all flows smoothly. The blockages, the bottlenecks, the constraint

points are progressively overcome, you know, through work, through innovation, through changing

how we go about doing things. That is what has contributed to Chinese manufacturing prowess.

Is that it doesn't just look at a single factory in isolation. How do I make this factory work

really well? It understands that the factory works only as well as its upstream supply chain works

and works only as well as its downstream distribution partners work and works only as well

as the finance flows work and only as well as the new labor force coming into the business to

bring in new ideas and to work in the R&D labs or what have you. So there's a very strong ecosystem

perspective to it, which leads me, I guess, to some thinking on this AI question right,

you're right. You know, there is at the moment a big push for another round of government support

for the AI sector. You know, we've seen in the last few days a concerted, almost orchestrated

coordinated campaign from the major AI houses in the US claiming that deep seek, you know,

stole this that and the other. As if these LLMs didn't steal all of our data on the internet

to train themselves. You know, I put aside these sort of usual hypocrisy, but this concerted

campaign drumming up the fear that the Chinese AI, one, has stolen stuff that plays well always

and two, is stealing a march because their subsidized and their thieves means that Congress needs to

open the purse strings even more to American AI. Now, why do they need that? Well, they need it

because they don't have a business model at the moment and it's a business model point of

difference that I'll come back to in a moment. But there's no business model, meaning that they

have not yet persuaded enough American corporations that what they do is actually worth doing

and worth paying for. I saw a report in Harvard Business Review, I think it was, that surveyed

600 odd executives and they're still wondering where the productivity gains are in AI.

They haven't got them yet. Now, I get that there's some nuance in the arguments around all of this,

maybe an individual employer won't necessarily see these things for a while, but you know,

productivity gains are already starting to take place. But be that as a main, the business model

doesn't exist, which means these big AI houses are burning capital like you wouldn't believe.

They remind me of Uber, right? When Uber first came onto the scene 15 years or so ago,

there were a few other competitors at the time and to not those competitors out, it had to be

the last man standing. And to be the last man standing, it literally had to burn

hundreds and hundreds of millions of dollars of invested capital before it turned positive

revenue. It took 13 years before Uber turned a profit, right? And it could only do that after

it dealt with some of its competitors and cleared the market out. So you'll know that in Silicon

Valley, you know, one of the dominant investment theses that you find amongst venture capital

is how does this become a category killer? How does this become that dominant player in a sector,

a product class? Because without that, there is no business model. And AI in many ways has been

funded with that mentality in mind. It's also been funded because underpinning that mentality,

Carl, is this belief that AI is the way that Americans in particular, as the pinnacle of

human achievement and civilizational accomplishment and being closest to God, can emulate

the power of God through the creation of artificial general intelligence. And once you've done that,

then you can dominate the world. So that's the push. China on the other hand,

which may not have invented AI, but nonetheless seems to be mobilizing it quite effectively.

Is now deploying AI capabilities into all sorts of sectors, whether they're in the social sector,

whether they're in the legal environment to streamline the processing of court matters.

And of course, we've seen two very interesting application cases in the last week.

So over the course of Chinese New Year, there's been some news come out on two fronts. One is

at one of the ports in southern China, which has delivered the first fully seamless integrated AI

enabled docking of a major container ship without a human being involved. And the unloading of the

containers co-ordinated via AI seamlessly. Didn't use ropes to tie the boats up. By the way,

use electromagnets to hold the container ships to the port. Example number one,

where AI was used to navigate the ship in, bring it to port, line it up where it needed to be,

and communicate and co-ordinate with the cranes to take all the containers off.

The second really interesting case, which I saw on a report the other day, is that

an estimate of about 10% of consumer purchases over the New Year period was enabled by AI.

People used AI to go and buy things for them. I'd send the AI out to find me the best deal,

the quickest deal, the cheapest deal, or whatever it happened to be. 10%.

That's unbelievable, because a year ago would have been 0% basically.

And now, we're starting to see how AI is finding its ways into very practical things. Now,

you can see in these two examples, there's no pretence that AI enables anyone to be God.

It just enables decisions to be made quicker. It's a process more information quicker,

but there's no attempt to become God. I think that there's a business model difference,

there's a mentality difference. And ultimately, at the moment, the United States, because of all

of that, there's a business model problem, where talking up the China risk and the China threat

is a fantastic way of getting more government support, which I might add does one more thing.

And that is that it will keep the share prices up for the remainder of the year before the midterm

elections. And I think it is in the interests of the administration, as well as in the interests of

the stockholders of all of these AI firms that that happens. So I think we are watching currently

one phase. Maybe it will be the only one needed this year, but maybe not of a pre-midterm election

pump. That is very insightful, because I think one reason they really hate Chinese AI is because

all these Chinese China keep on releasing these large language models and giving up for free

the open source, like that completely destroy. Well, that doesn't help in this model,

it doesn't exactly that. So the business model. Well, the original business model idea was

essentially to become the uva, to dominate the space with the general model, and then charge a lot

for use of the general model, because you built a motor around it. The motor got destroyed

last year, a year ago, with Deepseek, right? And it's just been smashed ever since. So that model's

gone. What Deepseek, of course, did in doing that and has been followed by Kimi and all the others

is that it basically said to the world, look, it doesn't actually take that much in the scheme of

things to roll out a general LLM, right? And then to continue to improve a training and then

with the inference and all those things. That bit, anyone can do with a bit of compute and a bit of

money. It's going to be commodified. So we might as well commodify it today. The challenge now is

applications. Now that there's these tools out there, how do you actually deliver things that are

of use? And that's where the race is. That's where the challenge is, whether it's in helping big

ships dock without whole armies of people, whether it's in enabling consumers to literally find the

best deal and have things delivered when they get home. Will they be the best uses of this technology

in two or three years time? Well, I don't know. But these are all the things that will start to

be tried. As you know, people come up with new, innovative, crazy ideas about how

large language models and large computational capabilities can assist humans

to go about their daily activities. The other thing that I think is interesting in all of this is

we've seen over the course of last year or so continue growth in the Chinese services sector.

And this is kind of what happens when you've got material abundance in most of the urban areas.

I don't think that there's many people in urban China, you know, in tier one, two, and even tier three

cities that are short of any of the sort of basic materials things that people have.

So what are they turning to? Well, they're turning to services.

And we see this in travel and, you know, whether it's computer games and all sorts of other

things right. But people are turning to these intangible experiences as part of how they are going

to start to enjoy life in socialist China. And as these services start to emerge, things like AI,

I like to, you know, play a greater role in the services supply chain, whether it's in the

delivery of, you know, VR experiences for people, you know, if you can't travel somewhere today,

well, come and, you know, have a virtual experience of something, you know, all the way through to

using AI to, you know, better plan, a travel or a journey. And of course, we have this massive growth.

And I think you've experienced it yourself, you know, I've seen it in self-drive tourism.

Around, you know, 15 years ago, the idea that a Chinese person who would jump in a car,

either their own car or gone higher a car or a camper and, you know, drive all over China on

holidays, it was unthinkable. You know, I mean, I had a friend of mine who is one of China's early days

hard-core outdoors guys, right? You know, we call him a, Drung Beilal. What was that? A gear junkie.

Okay, he had all the outdoor gear. He goes off climbing in the, in the foothills of the Himalayas

on the Citrus side, not far from, actually, I suspect he's probably gone to some of the places where,

where your mum and dad were, right? You know, 45, 50 years ago. He goes in Climes and hikes there

or by himself. Anyway, you know, back in the day, he was unique, right? He was an outlier.

Today, you know, people who are doing these trips are, you know, growing in number. And AI,

I think, is going to play a role in that. It'll help with things, even simple things, like

making sure that my journey reduces the risk or actually eradicates the risk of not finding

the next charge point for my electric vehicle, right? Right down to things like that. You know,

simple stuff, but totally practical. I mean, it makes life enjoyable. Imagine being stuck in the

middle of nowhere with a flat battery, right? Because you, because you didn't plan properly. Well,

AI will solve that. You won't worry about that. You can just, you know, go and enjoy whatever

you're doing. So I think that there is a different mentality around AI and the sort of changes in

society that's happening. American society is not even there at the moment. I think it's got a

whole bunch of other challenges and problems, many of which, of course, led to the response of,

how do we bring back manufacturing? But that sort of nostalgic turn isn't going to make America great

again. And at some point in time, I'd hope that the United States will actually find a way to

charting a pathway to become a more prosperous country again for more Americans.

And do so in a way that that reduces its instabilities for everyone else.

Unfortunately, right now, all I see is the response to continue American decline is just the

production of the co-PM is going through the roof. That's the only sector of manufacturing that

U.S. still far outpaste China. I just quote-tweeted that that palantir CTO clip. And I just, I just

said, okay, U.S. is fought. And then there's some guy blue check underneath the reply says,

China is a generation behind AI chip manufacturing. The U.S. will reach AGI later this year or next

year. China will never reach AGI until it changes backward policies and stops trying to force its

AI company to use domestically manufactured chips. Once the U.S. reaches AGI,

the tech gap grows exponentially every year. China will never be able to catch up. The U.S.

current massive tech military advantage will become insurmountable. This is already happening.

China is stuck stealing and copying U.S. weapons system from 30 to 80 years ago. It's

most advanced military tech, hypersonic live vehicle, are a copy of U.S. military weapon for

1955. Alpha Draco wave rider, hypersonic live vehicles. It goes on and on. That is a typical response

on Twitter. What can I say, Karl, but QED, right? It just proves what we've been talking about.

When you've got this kind of mindset, and it's a funny mindset, because that mindset actually says

that there's a certain sense of national pride and confidence, and you can't knock someone too

much for that, but of course it's also a case of incredible delusion as well. But fueled by this

sense of national superiority, it's impossible to contemplate in fact that someone else

might offer something that is comparable, which of course is a bit of a paradox because if all of

what that response said was true, like genuinely true, then I wonder why it is that so many Americans

experience the levels of anxiety that they do in relation to China and why it is that they all

believe whenever a congressman talks about China that it must be true and that we must all be

totally fearful of it, because it would seem based on this particular assessment that China

doesn't have a hope in hell, and there's actually nothing to worry about. AGI is going to happen in

the next 12 months, and once that happens, the gap will grow exponentially, and that'll be the end

of the story. It reads a bit like the 21st century version of the end of history, doesn't it?

You know where? Well, if history didn't end in 1991, then maybe it's going to end in 2027

when AGI lands itself in America's lap.

Oh, yeah, on that, on that optimistic note, I guess we can wrap it up.

What if people want to seek you out on social media or elsewhere, where would they go, Dr.

Balfe? They can find me at WarwickPel.substack.com, and I've got a couple of books coming out in the

next few weeks. Thermoeconomics in a time of monsters is probably the one that will be of most

interest to your viewers. The other one is sort of a more practical guide to addressing supply

chain risks and problems, which I wrote basically for corporate executives and policy makers,

as a bit of an easy-to-read handbook. But the first one, hopefully tackle some of these issues

in an interesting way, and that'll be out on Amazon in the not too distant future as well.

I look forward to that. Thank you again, Dr. Palfe, for making your time to speak to us,

and for our audience. Thank you for watching, until next time. Bye-bye.