So what I think is happening is that Trump is focusing more on doing deals and a lot less on American ideals, you know, for the world. We've left that Reagan-esque type of America as a shining city on the hill, a beacon for mankind, an ideal for global aspirations, the leader of the free world. All of that rhetoric — well, and it was a lot more than rhetoric, really, from Reagan's time until now — it's been followed up with military might and economic muscle. You know, this is the world that Pax Americana has created. So if this holds, and that is a big if, then it really is a big change.
Welcome to China Decode. I'm Alice Han.
And I'm James King. In today's episode of China Decode, we are discussing Trump's new China playbook, why China's baby bust meets a condom tax. Plus, we'll chat with Chris Miller about Trump's big AI chip reversal. That's all coming up. But first, let's do a quick check-in with how the Chinese markets are starting the week. On Monday, the Shanghai Composite index fell 0.6% and the Hang Seng index fell 1.3% after key economic data were released, which revealed that China's slowdown lasted into November. Social media company Kuaishou closed down 5%, search giant Baidu slid 6%, and Alibaba fell 4% as investors are increasingly anxious about the fragile Chinese economy.
But you're over in Australia, right, Alice?
Yeah, I just got here a couple days ago in Sydney and it's been pretty awful. As many listeners will know from following the news, we had one of the biggest shootings in Australian recent history, and it seems to have been a terrorist attack. So it's at a beach that many of us go to. It's been a bit of a shock to the nation and it seems to the rest of the world as well. It's a very, very sad turn of events.
Absolutely. It looks so sad from here. But the silver lining, and a lot of media attention being paid to this right now, is one Australian hero, Ahmed Al-Hammadi, a Syrian migrant who became an Australian national, was the guy — I don't know if you saw the video, James — who tackled one of the shooters and took his gun away from him. He's in hospital, but certainly has garnered a lot of attention, including from Trump himself, who has called him a hero, too. And so on that note, we'll talk a bit about the Trump administration's approach to national security. The Trump administration just dropped its new national security strategy. And the biggest headline isn't what's in it, but what's missing. The fire-and-brimstone language about China being America's top threat — gone. Instead, Trump is framing China mostly as an economic rival, softening his previous position on trade, security, and even cybersecurity issues. Beijing's reacting positively so far, at least publicly. So, are we looking at a real reset in the relationship here, or just a tactical pause in a long and bumpy relationship? James, I'll start with my take, because we've been following this very closely, and it's worth mentioning to listeners that the national security strategy is a congressionally mandated report in the US. It states the executive branch's national security goals and how it intends to achieve them. And what was interesting to me is in the first Trump administration, its NSS, which was first released in 2017, had a way more hawkish tone vis-à-vis China. It identified China as a great power competitor and a primary challenge to American statecraft. In many ways, I think that this new national security strategy document is a product of an internal conflict within the Trump administration. You've got hawks and doves, and clearly what I sense and what I've heard is that the doves — mainly Secretary Bessent, Treasury Secretary Bessent — clearly want this document not to be incendiary so that they can continue to have relatively stable negotiations with the Chinese counterparts in advance of Trump's potential April visit to China. And one thing I will add, when I looked at the document itself and the Chinese media finally reflected on this too, is the fact that the Taiwan issue, which is critical to this relationship, was only mentioned three times in this document versus eight times in the 2017 document. The Chinese media picked up on that quite intently. Again, a sign that potentially on the Taiwan issue, the Trump administration has a more, I would say, protectionist bent, a bet towards retrenchment. And certainly the rhetoric in the document about burden sharing with the Koreans and the Japanese seemed to indicate that they want the allies in the region to foot the bill more and to be more on the front line when it comes to the first island chain response. That is, you know, an issue that obviously pertains to Taiwan. So what I sense from this document is that China really feels like it has a bit of a victory lap because the Trump administration isn't firing on all cylinders on China. But again, I think that reading between the lines, there are clear, I think, hawkish voices in the administration that want to take a more hawkish position on China. It remains to be seen in 2026 if they are on the ascendant, but I still think that that is worth flagging because it's definitely in the backdrop of this document. But James, do you disagree or agree?
No, I very much agree with you. I mean, I also seized on the fact that missing is this phrase of great power competition that was very prominent in the national security strategy of the first Trump administration and also President Biden's NSS. I mean, it's a little bit like suddenly the Yankees admitting to mention that they want to beat the Red Sox, or in soccer, Real Madrid going soft on Barcelona. I mean, China was the main competitor, the main strategic adversary to the United States in both the first Trump and Biden administration and this Trump administration until now. So, it is certainly a fundamental change. Whether it's a sustainable long-term pivot, as you've just been talking about, Alice, is much more difficult to say. My sense of this is that the reason that the White House's China policy has shifted to one of stability and emphasizing economics, as you've just said, is because America wants to bide its time, wants to gain time to wean itself off its complete dependence on China for rare earth minerals and other types of critical minerals. Until it does that, it wants to go easy on China so that it doesn't provoke China into cutting off these rare earth mineral supplies, because as we all know, the rare earth minerals are crucial to all types of American industry and, even more crucially, they are used in making weapons. So without these rare earths, it will be difficult for America to make the weapons it needs to defend itself. And so that's why I think we're going to see this calmer, more stable, less adversarial US policy towards China. And unless something big happens, my hunch is that this may set the tone for the next few years, because of course it will take, I would say, a minimum of five years before the US can wean itself off its dependence on China's rare earth minerals. Do you think that call is a bit left of field? Do you think it's a bit sort of out there? Maybe there's more going on. Maybe it's to do with Trump not wanting to jeopardize his planned visit to Beijing next April. What's your sense? I feel like I might not be on the strongest ground in saying that.
Well, my own sense is that Bessent is in the driving seat and he clearly wants the relationship to go well in advance of Trump's visit. What is clear is that the document had been first drafted by the State Department Director of Policy Planning, Michael Anton, before he left his position in August, and then it went through many different figures, through a chain of people: Secretary of State Marco Rubio, Treasury Secretary Scott Bessent, even the Vice President JD Vance. And it's very clear, you know, in this sort of team of rivals, so to speak, that these people have different positions on China and national security at large. My own sense was that it was really the doves who won the argument because they convinced Trump that he wanted, he needed to have a good relationship in advance of a China trip. But I'm very convinced, as you talk, James, about this rare earths argument, because as I was reading it, I think many people have missed it — in the Africa section there is some description about securitizing supply chains of rare earths in Africa, and I think that that again speaks to what you're saying, James, which is potentially the Trump administration is buying time. And I similarly heard that for weapons-grade rare earths, so military applications of rare earths, it'll take three years, but for the rest of the supply chain, at least five, maybe even up to ten years for the US to have its own secured supply chain. So as you speak, I'm more convinced by your argument, James, that it is a strategy of buying time. But certainly I think that it is a bit of a change, certainly from the Biden administration and Trump 1.0. I'm not entirely convinced — and here I'm probably sitting on the fence — that this document is going to be the letter of the law when it comes to the Trump administration's approach to China. I think a lot can happen in the next year or so, but certainly this has been a big shift and it's worth people reading. One last thing that I'll add is a section on Latin America. There was a huge amount of attention paid to Latin America and the hemispheric defense approach to Trump's foreign policy. Again, one line I think that there was that's worth mentioning, and it might be a slight dig to China or a reference to China, is countering non-hemispheric influences in Latin America. That could also be, I think, a pointed reference to China's trade and investment relationships in Latin America — not just Venezuela and definitely keeping that regime afloat, but certainly other countries like Brazil or Argentina where there's significant amounts of trade that China is involved in. So again, I think when you read between the lines, there are some references to China, but clearly from a PR standpoint, the doves in the administration have won the argument and they wanted to make this document less incendiary than it could have been, than it certainly had been in the first Trump administration. James, how do you think the Chinese government is viewing this document? Because they definitely have dedicated teams that specialize in this.
I think they're absolutely delighted. And I have been talking to Chinese think tank people last week in London, and I think they are really very pleased about this, because the previous two national security strategies mentioned that the US wanted to oppose China's desire to, quote, 'shape a world antithetical to US values and interests.' This version dropped that completely, and as you mentioned earlier, it started to talk about economics a great deal more. And so the key sentence in this one was that America wanted to be working to, quote, 'rebalance America's economic relationship with China.' Just look at how much more mild that sentence is compared to describing China as, you know, antithetical to US values and interests around the world. So what I think is happening is that Trump is focusing more on doing deals and a lot less on American ideals, you know, for the world. We've left that Reagan-esque type of America as a shining city on the hill, a beacon for mankind, an ideal for global aspirations, the leader of the free world. All of that rhetoric. Well, and it was a lot more than rhetoric, really, from Reagan's time until now. It's been followed up with military might and economic muscle. You know, this is the world that Pax Americana has created. So if this holds, and that is a big if, then it really is a big change. And I must just say, Alice, that I think your phrase of non-hemispheric influences is going to be a zeitgeist for 2026. I think that we are going to be talking about re-hemisphering the world a lot more over the coming months. It's a bit like the Monroe Doctrine of old is going to get reborn in some shape or form, or at least rhetorically reborn. I have a feeling I'm already seeing several think tank articles about re-hemisphering and non-hemispheric influences and all of this. So I think that's going to be more of the lens through which America looks at the world, and very clearly China is not in America's hemisphere, at least not in their own reckoning. So I think there's going to be a lot to pick up on, a lot to focus on on this topic.
Yeah, I love the way that you described, James, Trump's foreign policy of serving deals and not ideals. I think that's a great way to view it. The administration gives a good diagnosis to the Chinese economy, saying that they wanted to encourage other countries to adopt trade policies that, quote-unquote, rebalance China's economy towards household consumption. It's certainly something that, you know, we've been waiting for the Chinese economy to do. But I think again, if we read between the lines, it's clear even in the economic section of the relationship — yes, it is milder than the previous documents. But it's clear that they reserve the right and give themselves the policy space to keep using tariffs or non-tariff barriers, or even pressure other trading partners — I'm thinking about Europe in particular — to put tariffs on China and enforce tougher rules of origin. I think this will be particularly germane to, say, a Mexico or a Vietnam, where China does a lot of rerouting of trade. Certainly I could foresee in 2026 that Bessent and Greer, if the relationship doesn't pan out well, decide to opt for, I think, a more protectionist strategy, enforcing rules of origin through these other third-party countries. It's not my base case, but definitely I think this document gives them the policy space to use that tool or lever to apply more pressure on China. So I don't think it's all rosy, but certainly it is at a rhetorical level quite a bit of an improvement to previous NSS documents. But James, are we missing anything? Is there a danger to the Trump administration's seemingly more dovish position on China? Certainly, you know, when we speak to some of the national security experts, they're very worried about China's cybersecurity risk. James, what's your take on this?
Well, it's hard to know cause and effect, but perhaps it's too much of a coincidence that just the day before the new US national security strategy was announced, the Financial Times had an article which says that the US plans to halt its intention to impose sanctions on China's Ministry of State Security. That is, of course, China's spy ministry. And this is over a massive cyber espionage campaign that was being waged by a group called Salt Typhoon and other advanced persistent threat groups. These are called APT groups that the US believes have been responsible for targeting United States infrastructure and government agencies and really hacking the phones of many high-level individuals in the United States through US telecoms networks. And so this was a really big cause for concern in the US all the way from 2019 until now. And now the Trump administration is saying that it wants to halt the plans to impose sanctions on the Ministry of State Security. Of course, it could go back on that. It could change its mind, but at the moment that seems to be potentially part of this softening towards China ahead of Trump's meeting with Xi Jinping in April, and perhaps because, you know, the US is now taking a softer tone on China altogether.
Very interesting, James. We are going to talk more about a seemingly dovish turn on policy related to chips with Chris Miller after the break.
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Welcome back. Last week, President Trump announced that he was reversing a years-long policy banning US chip makers from selling their powerful AI chips to China. In a social media post, Trump indicated that Nvidia would be allowed to sell the H200 chips in China, the second most powerful AI chips the company makes. This marks a major shift in policy and implicates the whole AI industry as the engine driving the global economy, as well as putting a spotlight on the ongoing tensions between the US and China. Joining me to talk through all of this is Chris Miller. He is a professor of international history at Tufts University and is the author of the critically acclaimed 2022 book Chip War: The Fight for the World's Most Critical Technology. Chris, there's nobody better to speak on this topic. So, thank you so much for joining me today on China Decode.
Oh, thank you for having me.
Great. Well, let's start with the export controls and how we've seen a major shift just in the last few days. Certainly people who have been watching this closely are disheartened to some extent with Trump relaxing on H200s. But maybe from the ground up, can you walk us through why this actually matters and why this has been a big shift to say go from the H20s where he relaxed to the H200s? What is the quantum leap, so to speak, between the two?
If you start by looking at the goal that the US government has been trying to accomplish since it began imposing controls on AI chips in 2022, the theory was that if you want to build big AI systems, you need lots and lots of high-end chips. And almost all of these chips are manufactured at TSMC in Taiwan and largely designed by US companies including Nvidia. So the US and Taiwan have this unique choke point over AI processors, and the US wanted to give US firms and firms from allied countries a leg up in the AI race by giving them privileged access to AI computational capabilities. That was the origin of this control regime. And Trump has now decided, for the first time since the controls were put in place, to actually reduce some of the controls and allow more chips at the high end of the spectrum to flow to China.
And why is he, you know, issuing this policy shift? Because to my mind, he was really the first to issue this clarion call in his first Trump administration about the need to do export controls. This year, I think we've seen a move towards being dovish on some of these chips issues, and certainly people point to David Sacks, being the crypto and AI czar, as being one proponent of this. But what is the rationale from Trump's perspective in basically reducing these export controls?
You know, I think you're right. This is a big reversal of course relative to the policy of the first Trump administration, which was very tight on technology control. I think there are two rationales that you hear from the administration on why this changed. Now, the first is financial in focus. Nvidia, obviously, a critically important company for the US, a driver of the stock market, and so there's a straightforward rationale to let Nvidia sell more chips to China. So that's part one. The second part is that there's a second argument that suggests if you sell chips to China, China won't want to build out its own AI chip ecosystem. And we've seen Chinese firms like Huawei, most importantly, become important designers and manufacturers of AI chips. They're still far behind what Nvidia plus TSMC can do in terms of quality and quantity. But there are some people in the administration, including I think David Sacks, you mentioned, who argue that if you sell more chips to China, you'll take some of the air out of the effort to build up China's own self-sufficient AI ecosystem.
And to grab onto that second point that you mentioned, do you think it's plausible, that argument? Because to my mind at least, people who follow the Chinese chip industry are saying that this could actually give China more of an edge in the broader AI competition. And certainly it raises China's compute capabilities and it reduces the gap between the US and China on compute alone. There was a great piece published by the think tank IFP that seems to suggest that now with the H200s we could go from the US having a 30x advantage on compute to 6x. The second part of my question is, will China accept all these chips? Because certainly there is an argument that you're seeing in the mainland in media amongst people who follow this closely that they need to limit the amount of Nvidia chips that they bring in because they want to kickstart their own industry. So walk me through a little bit whether or not this has a compute advantage for China, and secondly, whether or not China will actually take these chips.
Well, I think it is a key question right now because the Chinese government, as you know as well as anyone, has been fixated on self-sufficiency in semiconductors for over a decade. And they've made a lot of progress in many types of chips. But when it comes to cutting-edge AI chips, they're not there yet. And this is why from the Chinese government's perspective, there's actually a rationale for keeping these chips out of the market, because it opens up space for Huawei and the other AI chip designers in China to sell to China's own AI firms. I think if you're in the shoes of the Chinese internet sector or the AI sector, companies like ByteDance or Alibaba, they'd actually probably prefer to just get the best chips on the market, which are Nvidia. And so you probably have a bit of a gap between what the tech sector wants and what the Chinese government wants. But I think this is a space where the Chinese government usually wins these arguments. And so I think we are going to see some limitations on the number of H200s that flow into China, because the Chinese government does want to support Huawei and support this self-sufficiency drive to the extent that it can.
Great point. And looking to the Chinese industry as a whole — you know, your book really, if anybody hasn't read it, they need to read it. It really lays the foundation for this ongoing competition between the US and China over semiconductors. How do you assess the Chinese semiconductor industry today versus when you wrote that book? Because certainly there's a lot of hype about Chinese homegrown talent. You just mentioned a couple: Huawei, Cambricon, Moore Threads more recently. How are you looking at their capabilities when it comes to the ground up? Because there's a lot of attention being paid to the sector right now.
You know, I think China has made real strides in catching up in many segments of the chip industry, but there are also a number of areas where they're far away from the cutting edge. If you look first off at the manufacturing of semiconductors, what you find is that TSMC in Taiwan is not only able to produce significantly better chips — and we know this because the capabilities of the leading Chinese chipmaker SMIC basically track along TSMC at a five or six year delay. That delay has been relatively steady over time. There's a meaningful delay in terms of quality, and there's a huge gap in terms of quantity, because TSMC can access the tools that are used to make chips, machines that are produced by companies like ASML or Applied Materials, in ways that China can't because of export control. So on manufacturing, quality and quantity, there's a very big gap. When it comes to chip design, the gap is much, much less significant, which is why Huawei, for example, is a top-notch designer of semiconductors, both for smartphones and also increasingly for AI chips. But design...
Only matters if you can get them manufactured, and that's the challenge that Huawei and the other Chinese chip designers have faced. And so I think if you look at the startup ecosystem in China, for example, companies like Moore Threads, which you just mentioned, had an IPO earlier this month. Very successful IPO, valuing it at around $50 billion. That's a lot, but it's only 1% of Nvidia's valuation, precisely because they can't manufacture enough chips to sell them at volume right now.
So they really do need to rely on US imports or imports from other countries, especially as they gear up on AI capacity. Maybe we can switch a little bit and talk a little bit about the AI implications, because I know you follow this very, very closely. And certainly one argument that you hear is that the chip side is a critical hardware constraint for China as it tries to compete with the US on compute, on training, and ultimately on AI models. How are you seeing this AI broader competition between the US and China, and do you think this recent announcement of the H200s really changes the dynamic in this AI competition between the two powers?
I think one of the debates that the AI world was having in the first half of this year is whether the scaling laws were still holding. The idea that you build a bigger AI system, you get a better AI system. And the last couple of months, we've seen a number of important data points that suggest yes, it still is true that quality follows size. Gemini 3, for example, is I think a strong data point in that direction. Opus 4.5 from Anthropic. But the best is actually DeepSeek, which released a new model earlier this month, and the paper that accompanied that release explicitly said, we DeepSeek are actually struggling to pre-train at the scale we want because we don't have access to enough chips. So that's why I think there's so much at stake in the decision by the US to allow H200 sales to China, and by the decision by the Chinese government what volume to actually accept. My guess, and there's a ton of uncertainty here, my guess is actually that the volumes that ship are smaller than many people think, both because of uncertainty on the US side as to what exactly the security concerns will be that need to be addressed, and the Trump administration has promised some sort of security check, and also because China's government wants to provide a space for Huawei and other firms to sell to a protected market. And so there may be less H200 sales than I think some of the headlines suggest. If that's true, we might not see as big of a reversal in the balance in computing power as we've got today, but it's worth tracking very closely because the US advantage in compute has been a core facet of its leadership in AI over the past couple of years.
And if I hear you correctly, you're saying that the chip side still remains significant in this broader AI competition, because if the Chinese can't create their own homegrown versions that are as efficient and as productive, then that is seriously going to be a limitation on their compute capabilities. And we're seeing that knock-on effect with the models that have been coming out of China. Is that correct?
