Trump and Xi are meeting, so Raging Moderate and China Decode are meeting. I'm about to have a great conversation with Alice Han, who hosts our China Decode podcast. Subscribe to the Raging Moderate YouTube channel. Make sure that you're signed up with the Prof G feed so you can hear Alice's amazing insights. And now here's our conversation.
Welcome to Raging Moderate. I'm Jessica Tarlov and my guest today is Alice Han. She's the co-host of Prof G Media's newest show, China Decode. Honestly, no better time for our worlds to collide because we need your help decoding what's coming out of China right now, or out of South Korea, but vis-a-vis China. Trump's meeting with Xi Jinping this week ended with a headline-grabbing concession, cutting tariffs on Chinese goods by 10% in exchange for China's promise to crack down on fentanyl. It sounds like a win, but is it? The New York Times just put up a headline, "The Art of Letting Trump Claim a Win While Walking Away Stronger." By withholding soybean purchases and rare earth exports, China extracted relief from US tariffs and delayed export controls without conceding much in return. Alice, I know you've been like 24/7 all over this. What is your take on the Xi Jinping US meeting and who won?
Well, thanks, Jess. I'm a big fan. So, thanks for having me on the show. I thought that Harvard was the only place to do grade inflation, but Trump seems to be doing it too. He called the summit 12 out of 10, which I didn't know was possible, but that goes to show you the positive vibes that have come out of the summit. You know, I had always expected this to happen because ultimately Trump, at a personal level, deeply respects Chinese President Xi Jinping and wants to be friendly with the Chinese leader. My takeaways are the following. Firstly, obviously we've had a reduction to the tariffs. The fentanyl extra 20% that were put on China earlier this year, half of that has been cut, so we're effectively going to a tariff rate of 20%. This puts China in line with the other Southeast Asian countries, and that's critical when we think about China's manufacturing strategy moving forward. Secondly, China already committed to buy soybeans in advance of this meeting. I think that that was calculated in order to extract maximum advantage from Trump and the American team ahead of the summit.
Thirdly, and this is as confirmed just in the last hour or so by the Commerce Ministry in China, China is going to avoid rare earth export controls for another year because effectively they are delaying it by a year in order to buy more time for a trade deal. And then fourth, but you know, definitely not least, I think probably the most significant elephant in the room is the chip issue. Neither of the sides, the US or China, came out with any statement about whether or not China would get the more advanced chip equipment, the Blackwells that everyone's talking about. But I think it's not a coincidence that you had Nvidia CEO Jensen Huang there in South Korea with Trump, and that I think could portend potentially a more easing on that front. China, I think, really critically needs these advanced chips that could really narrow the window in terms of their capabilities gap with the US on AI and compute. In terms of the other issues at play, I think worth noting that both sides have ultimately said that they want to work together on the TikTok deal. That is likely to happen, I think, as per what has been flagged as a framework in the last few months. And then lastly, the Chinese definitely wanted the Americans to drop Section 301 on shipping investigation and the port fees. That is likely to happen on both sides as well. So, ultimately, when I tally it all together and do the arithmetic, Jess, what I find is that ultimately the Chinese come out on top. They haven't really had to concede much. They have offered to buy more soybeans, but this is just a drop in the bucket compared to a $15 billion industry.
And secondly, they have committed to extending the deadline for the rare earth export controls, but there's an argument that they did this as a strategic gambit in order to get more leverage in this trade summit. So, I feel like the Chinese didn't have to concede much. Meanwhile, Trump came with the concession on tariffs and potentially even the Blackwell chips, which remain, I think, the crown jewels in terms of the Chinese priorities.
Yeah, that's really interesting. It definitely filled me. I mean, obviously I'm a political analyst and not specialized in China, but I was wondering how there was so little discussion of the Nvidia component of this, and also that Nvidia is one of the investors in the new ballroom that Donald Trump is putting up, the 90,000 square foot situation where the East Wing used to be. Obviously, Jensen Huang's a smart guy, like knows exactly what he's doing. The Biden administration had a very different take on whether we should be selling our AI chips to the Chinese. What is your kind of overall perspective on that? Like, do you think that Nvidia should be in business with the Chinese at all, and especially with this Blackwell chip?
I think this is the critical question of our time. If we think about how much AI is dominating the American stock market and the American economy, this is probably one of the most important strategic questions of our time, and certainly I think affects the long-term trajectory of US-China competition. If you take the view that ultimately the US and China are in this technological race in which AI is probably the most important issue, it makes sense for Washington to continue to try to kneecap China's semiconductor capabilities because ultimately the semiconductors are the electricity that enable the kind of innovation in the AI-driven world that we're living in. I think that ultimately the Biden team had the right view. If you're playing ultimately to remain number one from the perspective of the Americans, you want to do everything at your disposal using export controls and other measures to try to impede, or rather hinder, China from developing semiconductor capabilities internally or even importing them from other countries, not just America. I think that ultimately Trump is persuaded by the people around him, and here I name the Commerce Secretary Howard Lutnick, David Sacks, the AI crypto czar, and even Jensen Huang, who seems to be quite often in the room where it happens, the Nvidia CEO. He's persuaded by their argument, and this is their narrative: that China's already caught up quite a bit more than Americans had expected a couple years back in spite of the export controls. So, why not make more money and try to get China even more dependent on American chips? Now, that argument I don't think is reflective of the facts on the ground when you actually look at China's semiconductor industry. Yes, they are doing better at design. They have their own fabrication capabilities, but they're a decade behind and several nanometers behind what the Taiwanese and other countries can do. So, I don't think this is the right narrative, but it certainly seems to be the narrative that Trump is believing in, and I think this is what ultimately will drive a looser approach to chips, which will ultimately play in China's favor.
Okay, and one thing that you didn't mention, and it seems like didn't come up at all, at least in all the reporting that I've seen thus far, is there was no discussion about Taiwan. Is that correct? It's interesting, isn't it? I feel like it usually, I'm not saying it's like the top level, but it is, you know, something where Xi reminds Trump or the Americans that they don't like them backing Taiwan as a sovereign nation.
Correct. And I think that that is punted for a further date. They're kicking the can down the road on that. The Chinese came in ultimately wanting to get the concessions that I think they ultimately got, which is concession on tariffs, concession potentially on chips, which has not yet transpired, but basically a de-escalation in the trade and tech export control-led conflict. They seem to have gotten that. I think they will wait when they have more leverage to discuss the Taiwan issue, where Xi Jinping, the Chinese leader, has made it quite abundantly clear that he wants the Trump administration to take a more vocal approach in opposing Taiwanese independence. Ultimately, the priority, I think, for Beijing going into the summit... They will save, I think, the geopolitical arguments for further discussions. Certainly, Russia-Ukraine will be another issue that Trump cares a great deal about, much in the same way that Xi cares a great deal about Taiwan, although arguably Xi cares about Taiwan a great deal more. I think the priority, very much led by Bessent and Greer and He Lifeng and Ni Zhongcong on the Chinese side, is to de-escalate on trade and technology.
