How China Is Luring America Into a Devastating AI Trap | Jacob Shapiro
Summary
Geopolitics of AI: The discussion highlights the differing approaches of the US and China towards AI, with China focusing on practical applications to enhance productivity, while the US is more focused on developing generalized AI.
Technological Revolution: AI is compared to containerization, suggesting it will enhance efficiency rather than transform industries, with the real investment opportunities lying in companies that leverage AI for productivity gains.
China's Competitive Landscape: China's strategy involves a highly competitive environment for AI development, leading to efficient and cost-effective products, similar to its approach in the automotive industry.
US Infrastructure Challenges: The US faces significant challenges in infrastructure and manufacturing, impacting its ability to lead in technological advancements compared to China's centralized approach.
China's Economic Strategy: China's focus on automation and internal consumption is seen as a way to mitigate demographic challenges and reduce reliance on exports, despite ongoing issues like wealth inequality and housing market instability.
US-Mexico Trade Relations: The importance of US trade relations with Mexico and Canada is emphasized, with potential opportunities in nearshoring and automation to address workforce challenges.
Cartels and Economic Stability: The role of Mexican cartels in economic stability is discussed, highlighting the complex relationship between cartels, government policy, and economic growth in Mexico.
Global Influence and Security: The influence of China in global markets, including its impact on North American trade and security dynamics, is a recurring theme, with implications for future geopolitical strategies.
Transcript
Here, I think China's actually ahead because China is not under the illusion that general artificial intelligence is gonna be here anytime soon. Whereas the narrative in the United States is still, no, no, no. Like we're gonna be at generalized AI in five years. Hi, I'm Ed D'Agostino from Mauldin Economics. And this week we dive deep into the geopolitics of artificial intelligence and technology. We look at how the US and China develop technology differently and the future of trade across North America. There's only one person who can cover this much ground in one interview. And that's my friend Jacob Shapiro. He's the director of research at Bespoke Group. Jacob joins us this week at Global Macro Update. Jacob Shapiro. Always good to see you. Thanks for taking some time today. I am really dying to get your perspective on the geopolitics of, of AI and technology. It's, it's not something I hear a lot about, but I have a feeling there's a heck of a lot more to it than most people assume. Uh, and it's goes way beyond. Us versus China, uh, and rare earths, which we're hearing about all the time. So what, what, when you think of the geopolitics of AI and technology, what comes to your mind? Well, first of all, I think it's not worth dying over. So don't, don't be dying to listen to anything. But I have to say, first of all, that's, that's a guru, that's guru syndrome right there. But, uh, I, I think those are two completely separate things. There is the geopolitics of AI itself, and then there's the, the geopolitics of technology. I think it's still an open question whether AI is a technological revolution or whether it is the late stage of the previous revolution. Um, I don't know if your, uh, if your listeners have had a chance. I, I, I just had Jerry Newman on my podcast. He wrote one of the best essays I've read all year in which he compared, um, artificial intelligence to, uh, containerization. And that really we should be thinking about AI not as some kind of, you know, a thing that is gonna completely transform everything it could, but rather, the way that it's functioning right now is that it's gonna make things more efficient and more productive, and that there won't be lots of actual companies to go invest in. Those have already made the money. Um, the places that you have to look right now are the ones that are gonna use AI to increase productivity or to be more efficient. And it's a nice metaphor with containerization because containerization, you couldn't go invest in the containerization company. But the companies that did well, one example would be ikea. They figured out, oh, I can make things really, really cheaply and you can assemble them this way and that way I'm gonna expand market share versus a captive industry that's already doing some of those things. So we can talk more about AI and how I'm thinking about that. And I think there are also geostrategic implications because different countries are thinking about and interacting with AI in different ways. I think the US and China. Are the two clear ones and have very, very different approaches. But we can talk about Europe and India and some of these others. And then there's just the geopolitics of technology in general, which is always there in the background and which is something we should always be thinking about. Um, and we can talk about how technology can change geopolitics overnight. I think technology is always uncomfortable for the geopolitical analyst because. The geopolitical analyst is always looking for those things that don't change very often. Like literally looking at geography, it's hard to move a mountain. Uh, but every once in a while you get an invention that makes the mountain irrelevant or completely changes the logic around these things. So we're always, we're always sort of looking there for, for what that next thing is. I'm, I'm not clear that. I, I, I don't have a clear sense of where or what the next thing is gonna be. I have a list, I have a menu list of options. Like could it be nanotechnology, could it be biotech, could it be material sciences that allow us to do fusion? Like there's all sorts of interesting things out there, and I think we risk, um, we have to do two things at the same time without going crazy. We have to appreciate what's happening with AI and also resists this narrative that we're just, the stones throw away from a GI. And the robot overlords ruling us all and figuring out the secrets of the universe. Like I'm pretty sure that's not what's, that's not as what is gonna happen and that OpenAI and others are selling us that so that they can continue, uh, their current model. But anyway, now I'm rambling. I'll let you bring me back to focus. I think you bring up a ton of great points and technology. I think it's right to think about. Beyond just AI, because, you know, we, we could, we could go back and forth all day long on what is ai? Is it just a, is it just a prediction machine? Which in many ways it is, it's a really sophisticated one. Is it, is it just the most, the, the, the, the, the ultimate level of search engine, which in many ways it is. Uh, I use it daily at this point, and it, it helps my research process phenomenally. Um. So I, you know, I, I see in my, in our own company, in our research firm, I see a lot of efficiency and potential for more. Um, so. Then it comes down, down to like, what, what is it gonna do in the US versus what is it maybe going to do in China and India and um, at the Middle East where I think there was just a big breakthrough announced, uh, from the UAE about a new large language model. So, I mean, maybe we could just go country by country, right? I mean, in the US. There's lots of people that are gonna disagree. I do think that it's gonna be a boost to productivity. I see our little company of around 40, 40 or so people as we grow, you know, instead of going from 40 to 45 next year, my guess is we stay at 40. Um, you know, so, so it's, it's, it's not taking jobs, but there's no jobs being created, and I wonder if that's the model for the bulk of companies out there. What have, what have you seen and heard? Well, I think as, as with any technology, there is going to be creative destruction and then there will also be creation. I mean, how many thinkers over the past centuries have said once we reach this technology, there won't be any jobs anymore, and we're all just, we're gonna go to the three day work week and everything's gonna be productive. And it never happens because you create new opportunities and you create old ones. And if you're somebody who was trained 20 years in the tech, in the, in the, in the job, that becomes obsolete. That's terrible. Uh, see American coal miners in West Virginia and we didn't have a government policy that was how to retrain them and work them into a society in which their jobs aren't needed anymore. But that's sort of a broader conversation there too. And I think before we, we get into some of that, I just wanna say that I, I think, and I've been pushing this with both clients and, and audiences, um, I really just wanna underscore how important it is. How, how important data and information is going forward. I forget, um, where I saw the statistic, but it was something like 50% of what's on the internet today was produced by ai and by next year it'll be something like 90% of what is gonna be on the internet will be. Produced by AI just because it's producing so many things. Um, and as a result of that, the quality of information is degrading because the AI is training itself now on the things that the AI produced. And in some sense, all of these models are dependent on us freely of our own volition, feeding these public models. All of this proprietary information I've even changed, like, uh, I was just thinking about this last week. I used to wanna put out transcripts for my own podcast to increase SEO and increase visibility. Now I want none of my transcripts online because I don't want someone to just be able to take my transcripts and plug them into a model and steal my insights. I should protect that stuff, those things myself. So I think as we're thinking about ai, I think it's gonna be about what companies can protect their information, um, and then build their own internal models around those things. And then to your point. If you're able to become more productive or more efficient with your 40 employees so that they don't have to do the things that they were doing before, what does that open to do? Because they're not doing that. There might be bunches of things that you might have wanted people to do before, but you had to pay for them to do all this other blocking and tackling. Maybe that all goes away and you can say, okay, now get creative. I'm gonna pay you to go out and do this other thing that the AI almost absolutely can't do. I think this is, I got a question, um, at a, when I was giving a speech just last week that said, the guy was asking me, what, what should I tell my kids to learn in college? Because I feel like there's not gonna be jobs anymore. And I said, that's the wrong way to think about it. Of course there's gonna be jobs, there's still gonna be accountants, there are still gonna be doctors, there's still gonna be lawyers. The successful doctors and accountants and lawyers are the ones who know how to use AI to make themselves better. And the ones who aren't are the ones that don't know how to use ai. But don't believe for a second that in five years you're gonna go into a clinic or go get legal advice and it's just gonna be some kind of robot that's, that is spitting out AI slop to you. Like that to me is not. It's not a realistic scenario at all, and I think that's a good way of backing into, um, at least at the very top down level, how different countries are thinking about ai. And here I think China's actually ahead because China I think, is not under the illusion that general, general artificial intelligence is gonna be here anytime soon. And so what you see in China is really a ruthlessly competitive landscape where all of these different AI companies are looking to productize ai. If they're trying to figure out actual uses for consumers or for professionals, um, that people will use in order to increase their productivity or increase their efficiency, whereas the. I think the narrative in the United States is still, no, no, no. Like we're gonna be at generalized AI in five years. We need more data centers and more chips and more all of these different things so that we can build these huge models that are gonna have the answers to all the questions that we ever asked before. And I think the United States is a little behind here and thinking about how to apply this because again, it's, think about containerization, it's how are you going to use this and what companies sectors are gonna benefit. From that increase in productivity rather than, you know, the Sam Altman's and all the others out there telling us that we're just five years away from, you know, these things, solving everything for us. I mean, maybe, maybe I'm wrong. I'm, I'm not an AI uh, specialist. Like I'm not in the code or anything like that. But that would be, I, I don't know. It just doesn't, doesn't pass the smell test for me. You touched on, on a really important topic, which is just sort of how, how China approaches any large industry that they. Put in their cross hairs, right? Like the, the auto industry isn't, is almost exactly the same type of situation, uh, that you just described with ai, where they have just a massive number of companies early on. It's blood sport. They all, they all wreck each other. Uh, in, in a quest to become the absolute best, lots of capital gets destroyed, right? And then, and then a few dominant players who somehow survive the blood sport of it. Um, end up at the top, but, but then you end up with. Really cheap products that are phenomenal in quality and are leading the world in technology. I mean, it's kind of shocking when you, when you have the CEO of Ford coming, coming back from a trip to China and basically saying, we're screwed. I mean, that's a, that's a big deal. This is a story that Americans should know better than they do because we literally did this to the British in the 19 hundreds. Um, and one of the, I think one of the reasons you are seeing so much geopolitical, and especially geo-economic volatility right now, is because. The White House is taking trade policy from the early 19 hundreds when the US was the manufacturing disruptor and thinking it can apply it in 2025. Um, remember even with AI and all of these glittering things that are gonna change our lives, there's still hardware behind these things. This is still ultimately about infrastructure and the us. Is behind on infrastructure. This is one of the things that China does best. Um, the, the environment you described in China is ruthlessly capitalist. It's actually much more capitalist in some ways than what the US system is. The way that it's not capitalist is that you have a Chinese government that, you know, publishes a five-year plan that says, in five years we will have 5G everywhere, and if you wanna oppose us building these cell towers or whatever else on your pro on, you know, where you live. Great. We have a gulag for you in Xinjiang that you can enjoy spending some time at. Whereas in the United States, we'll fight legal battles and how many years and how many billions to put out this infrastructure. So in some sense, the centralized communist part of China creates the basic level of infrastructure you need for the, for the playing field. Then on top of that, you know, we, we sort of hit the pause on the globalization button at the point. Of the cycle when China was the one that was making everything. So they are the ones that have the technological knowhow. They have the cheap hardware. They're the ones that can talk to the entrepreneur and say, oh, you need a switch that functions a little bit differently for your unique product. Sure, we can do that in two seconds. And you want it produced at scale. Great. We'll have it for you in two weeks. Imagine we don't even make, you know, switches in a lot of these things in the United States anymore. We import them from China, Taiwan, South Korea, and Japan. All countries or places that we have picked trade battles with them. In general. So, you know, the United States I think really has to reckon with the fact that it has this, IM its image of itself. And in practice, um, what we are is we're the deepest, most liquid capital market in the world. We have a reputation for rule of law, which is starting to degrade a little bit. And we have a lot of, um, different advantages that most countries in the world don't have. But when you're talking about. The grid, when you're talking about energy, when you're talking about manufacturing the hardware that is necessary to build these tech innovations, like those are not things we do anymore. Think about Nvidia. Nvidia designs the most advanced chips that we can't have any of the AI things we're talking about. If we don't have Nvidia, does Nvidia make those chips here? If we really did go to World War III and we lost access to the south, to the South China Sea for six to eight months in a global conflict, what happens to chip supply chains? What happens to all these things? Uh, because Nvidia can't manufacture, uh, the chips here in the United States like that. That I think is why China actually can be at the forefront of these things. And the, the last thing I'll just say, and, and this I'll, I'll credit Kaiser quo, um, he runs a podcast called the Seneca Podcast, and he recently wrote a really compelling essay. I'm not sure if I agree with it, but he talked about. About how maybe we should consider that, um, China is the forefront of modernity today, that the West told itself a story about what modernity was and how you needed liberal democracy and individual rights and freedom of expression in order to, um, support the creativity necessary for technological innovation. What if the Chinese Communist Party is looking at and saying, okay, that was cool in the 20th century, but if you want to do these things at the scale and with the particular technologies that we have right now, here's a different style of modernity. And to your point, we are gonna be at the cutting edge by doing things differently in ways that the West can't even possibly conceptualize and why they. While they think that we're still, you know, making widgets and furniture and things like that, we're gonna be building the best cars and the best drones and the best chips and the best AI apps and all these other different things. Um, so yeah, I think it's a, it's a place where the United States needs to wake up and, uh, there is no signal that the United States is awake from this point of view. If anything, the US is doubling down on thinking that it's still the, the most powerful trading and manufacturing country in the world. It's not, yeah, China's able to do some things that, I mean, I, I, I wouldn't wish us to adopt that system holistically, but they definitely can do some things that are enviable in terms of getting things done. Uh, I read somewhere recently that China is managed by engineers and the US is managed by lawyers and. That sort of sums it all up, right? I mean, we have become such a litigious society and we, we, we, we, you can't even put a, uh, housing development up, um, without, without lawsuits flying all over the place. Uh, just in my little town, you know, somebody tried to put a permit into. Put 25 units in of low income housing and like you thought that, uh, in my little blue town, right? You thought everyone's heads exploded. Like, oh, it can't go there. It can't go here. I mean, yeah, we're in favor of it, but not here. Uh, it's kind of disgusting, honestly. Yeah, and, and there's so many data points to, to shine a light on here. I mean, look at. If you look at the top employer in each state in the union in 1990, it was still majority manufacturing in the United States. If you fast forward to now, it's not lawyers, it's healthcare. Healthcare is the top employer in most states. In the union. You still have a few manufacturing states. I think Wisconsin, Michigan, I believe Alabama is on that list, but it's mostly sort of healthcare, which is the top employer. So there's been that radical change over the last 30 years. To your point about energy, energy is a place that the United States should be leading because we are one of the most energy wealthy countries in the, in the entire world, and yet we're succumbing to a sort of minor form of Dutch disease, whereas the Chinese. They're saying, oh, we just watched the United States get hopelessly dependent on the Middle East for decades for, for oil and things like that. So we're gonna become the foremost leader in solar, wind, geothermal, and nuclear. And while it takes the United States, you know, 10 plus years and double the budget to build one nuclear reactor, we'll roll out, I don't know how many they've rolled out this year so far, they're building nuclear reactors all over the place because they can just do it dozens and dozens. It's not even just a couple. It's. It's like shocking the number. And it's ironic because the thing that is driving them to do that is their lack of energy security. So that lack of energy security is creating the impetus to do all these things. Um, the shale revolution was great for US national security, and it's given us relatively cheap natural gas prices and energy prices to most countries in the world over the past 10 to 15 years. Even if we think the shale revolution is gonna continue. And there are people out there who think we're. Starting to fall off a cliff in terms of production. I'm not one of them, but like that narrative is out there. But even if we continue producing, if you look at electricity consumption, consumption growth forecast from this government, from this department of energy, uh, and what we have on the grid right now and what we're capable of building in the next five to 10 years, uh, we're gonna be in a huge energy. Catastrophe in a couple years time. Whereas the Chinese, despite the fact that on paper today, it doesn't look like they have a relative advantage, they're moving, um, to try and do things. Now, I don't want your listeners to think I'm a Chinese plant because China has tons of problems, and I bet Xi Jinping would rather have American problems than Chinese problems because ironically, you know, China's a communist country. It's also one of the most unequal countries in the entire world. You've got coastal elites who are living in cities that make our own cities look pedestrian by comparison. And you've still got hundreds of millions of people living in the interior. Sure, they're out of extreme poverty, but they're still living on something like seven to $10 a day. They're still at A GDP per capita that is much, much lower than Japan or the United States. And what Xi Jinping has to do is he has to redistribute that wealth from the coast of the interior, and he has to do it without the peasants thinking he's doing it too slowly and rising up and casting him down, but not too quickly that the coastal elites. Think that they need to rise up and cast them down. Um, so it's a very unenviable position, but like that's the problem for China. It's about wealth inequality, it's about structural economic problems. It's about getting its political infrastructure sort of up to speed with the incredible economic growth and innovation that it is seeing going forward. United States is a d. Host of problems that we can't build things anymore. We don't make things anymore, and yet we're running policy like it's the 19 hundreds. So like both sides have significant problems. I don't want people to just walk away from this and he's, he's rah rah, China. Like it has issues too. Yeah, no, I, I, I, I live a list here from, uh, from Ed Yardi who I interviewed last week, uh, and he pointed out in a note a couple of days ago, housing prices in China have been on the decline now for 26 months in a row and. Houses and apartments are what the wealthy Chinese invest in. So they're getting hit hard. It's, it's like the stock market correcting here. You know, the, the anxiety level goes, uh, way up. Uh, consumer spending's down. There's deflation in the economy. Real deflection. Um, total dank Bank debt is very, very high in China, so, you know, financial system, potential issues there. Um, and yet, and then he points out, but the CHO stock market's still up 30% in China this year. So go figure, everything you just said is true and the most amazing thing about that is if you had put us back. Three years ago and said, these are all the things that are gonna be true in China over the next three years. Wouldn't we have probably said there was gonna be some kind of social revolution or catastrophe inside of China? And it's not there. They've been incredibly resilient and this, this is where I give a lot of credit to Xi Jinping and the Chinese Communist Party. I think he's made lots of reforms and lots of purges. And I think he's in control now. How long? It's a very brittle system. If Xi Jinping slips on a banana peel tomorrow, watch out. He's consolidated a lot of power in one person, and he is got a limited amount of time to do this. But China has been incredibly resilient. I've been wrestling this with this because, you know, I, I worked at Strat for, uh, with George Freeman and with Peter Zhan, folks who have been talking about the demise of China, literally since the 2010s. And I've been to I for, for some time. I was, you know. We would all make fun. Oh, like it hasn't happened yet. Like you can go back to the 2010s and find some of those articles, but I, I can't help but wonder, actually, maybe they were right. Maybe that was the end of China and that Xi Jinping was the founding of a new China, and then if you're using the old analytical model from the like 2010s. Yeah. That was the path that China was on. And Xi Jinping has put China on a fundamentally different path. Now, it may still. Blow up in his face. It may still not work, uh, but I think China changed under Xi Jinping and I think it's changing now in a way that the West has been slow to catch up to. I think the West assumed that China would become more like us as they got richer, and that has not been the case. They've become more like China and what does that mean for the world over the next two years if China is the center of economic and manufacturing and intellectual know-how. Do we all become more like China? How, how, just how prescient was Blade Runner. These are the questions that I, I stay up at night pondering. How does China move and do they need to move to a more consumer, internal driven economy? Because they, you know, they, they have built, they, for the longest time, they were the world's factory floor. Uh, and they were the premier. First they were the low, low cost exporter. Then they became sort of the, the premier exporter. Um. If, if they lose access or even some access to the US market. They can make up some potentially with other markets, but at the end of the day, don't they have to figure out how to distribute that wealth to the center, like you said, so that they can create more internal demand? Well, redistribution is separate from what you talked about because. You're right. And they're doing the next thing, which is they're becoming the center of automation. One out of every two industrial robots that is installed on manufacturing floors in the world are installed in China right now. And if you look at, um, you know, we've talked a lot about the US losing manufacturing jobs or US workers, excuse me, losing manufacturing jobs. Chinese workers are also losing manufacturing jobs. They're losing them to robots, not to the Vietnamese, not to the Indians. It's that the Chinese have these advantages on hardware and they realize that they can. Fuse machine learning and robotics and be much more efficient and much more productive. Um, to your point, China has been talking about stimulating its domestic economy for quite some time, and this is one of the reasons why. Chinese demographics don't scare me as much as they scare other, um, analysts out there. Uh, because Chinese has have hundreds of millions of people that if you could just elevate them from where they are to the middle class, who needs babies. If you can add 300 million middle class folks who are currently extremely poor, same thing as having a good demographic. Uh. Pyramid as far as I'm concerned. Um, and I think that's actually the silver lining of housing prices. And I think it's why Xi Jinping, he was confident enough to let the housing market go. Um, and he's been able to control it so that it's not some, you know, 2008 style crisis within China. It's. It's not great. You're right, people are losing some of their savings on paper, but we have not seen, at the very beginning, there were people who were refusing to pay mortgages because some of those things were tied into wealth management products. But we haven't seen that for years now. Like they've been able to control it even as things have continued to decline. Um, and so I think the thing that China is trying to do is it's trying to get the average Chinese citizen to say, I don't need that third or fourth apartment in a ghost city. I'm gonna try to play the Chinese stock market, or I'm gonna go buy that new made in China air conditioner or something like that. Now we haven't gotten the consumption yet. What we have gotten though is that real estate is not, the investment is not the safe place to park your investment. So there has to be a cultural shift there within China, and if China can do, say what India has done with its markets or Turkey has done with its markets, if you look at the performance of those markets in recent years. Sure. Some of it has to do with foreign inflows. A lot of it is just because your average Indian or your average Turk is buying stocks. Um, they've gotten stock fever. If you get animal spirits in China doing that, I mean, it's gonna make the rally we've had so far this year look like nothing. And so then that, going back to sort of what we talked about at the very beginning, means that China needs to establish a, it's, it's, uh, needs to establish itself as a country with the rule of law. It needs to make, feel like it needs to make Chinese citizens feel like investing in Chinese equity markets is not like gambling in Macau, but is like investing in companies that are gonna be there for the long haul, that that will grow their wealth over time. And if they can do that, I mean, we haven't seen anything yet, so it's, it's very tough like this, you know, if Xi Jinping could snap his fingers. He would do it. He is been trying to do this for 10 years. Um, I think he's made some progress. I think when you look at the housing market and the way they've been able to control those declines in prices, that shows me that policy is working. Now, whether they can complete it, that, that's an open question, but that I think is what they're going for and I think it makes a lot of sense. Did you say that one out of every two robots put into service is, is in China? Isn't that a wild stat? Uh, I think it's, it's wild. So why can't we do that here? Why, why, why isn't. Automation, the answer for the United States. We know we don't have the workforce to be able to bring manufacturing in, you know, in, I think everyone has this sort of dream of, oh, the factories are gonna come back. They might. Um, no they're not. But, but the jobs aren't coming back. The jobs aren't coming back ever. Period. 'cause they're not gonna be jobs. They're gonna be robots or, or not. Am I, where, where, where am I wrong there? We sort of talked about China and energy and how China's had to become a forefront, renewables producer, because it doesn't have energy itself. Uh, same thing with this, um, China does not have. Migrants who are flooding into the country because they want to build a better life for themselves in China, um, this is the secret strength of the United States. We take an immigrants. We use them, we assimilate them into society, and then we do it with the next round. This is the story of my own family, at least on my father's side. Um, and so if you look, look at US demographics. Over the past four to five years, people stopped having babies after COVID. The only reason our demographic, uh, profile doesn't look like a complete disaster is because we had a huge surge in migration, um, after 2021. Now. Was that the right kind of migration? Were we able to screen people at the border so that we were getting things that were secure so that we were getting the right skills versus everybody that's coming over? That's a conversation for politics and ideology and something we need bourbon for, but the un, the indisputable fact. Is that the reason that we have been able to be behind on the deployment of robotics is because we have cheap migrant labor to make up for. So we haven't had to go to robots in general. I dunno if you've seen, if you look at data about encounters at the Mexico US border so far this year, they're at record lows. The Trump administration is doing victory laps about this, and if all you care about is the security of the border, you should be doing a victory lap on it. But this is the thing. Too much immigration is a problem 'cause you can't do it securely and select for the skills and expertise that you need. No, immigration is also a problem because then we don't have the workers and the workforce who are gonna do all the menial tasks that none of us want to do. Ourselves. And because we're behind on robotics and behind on the hardware that goes into actually building these things, it is not so easy for us companies to deploy these things at scale. Um, on, on the man, on the manufacturing floor. And so I think for us folks, there's two options here. I think some can do automation, especially now, especially before the trade conflict with China. Ratchets up another level, um, in a couple of years because you can still get a lot of these things. And so you can invest capital now in getting automation and robotics on your floor. And I've worked with one or two small companies in the last couple of years that have done that and have reduced their workforces to nothing and are doing incredibly well. I think the more common thing though, for a US company is to look across the border. Into Mexico and understand that the Mexican economy has younger workers who work at a pitance of the price that the American industrial workers will work for and who will work for longer hours. And I think you'll see a lot, you know, I don't think we're gonna get the, the jobs back in the United States, but the jobs will be there in Mexico, and that's one of the reasons I put US trade relations with both Canada and Mexico in a separate category to everything else because the US like needs. SMCA to go through at the end of next summer. Like it needs Mexico and Canada to follow through on some of its things. Canada and Mexico also need the United States, so they'll need to make concessions in those trade negotiations too. But I think that's a soap opera that's gonna be contained and ultimately the way that the united, the, the thing that the United States has that China does not have. Mexico on its southern border. If China had a Mexico on its southern border, maybe they wouldn't put such a huge impetus on robotics. The last thing I'll just say here is if you look at the other countries that are ahead on robotics on a per capita basis, it's the countries you would expect IE the countries that are getting older quicker than everywhere else. It's Japan. It's South Korea. Korea. It's China, it's Taiwan. They're doing that because they have no other choice. So it puts them ahead of the innovation curve, but the double-edged sword, they're also doing it because if they don't do that, it's gonna be a complete and total disaster. So I think migration is the answer to your question about why the US hasn't quite done this. I think that means two things for the United States. I think there's massive opportunities for those who are willing to be at the front of automation and robotics in their own companies. I think that also means there's massive opportunity for US companies who are willing to not just talk about Nearshoring to Mexico, but actually do it. And building out that capacity now, because I hear a lot of talk out there. And very, very few companies actually doubling down and doing that in Mexico. And I think there's an opportunity to be, first, you'd have to be awful brave, in my opinion, to, to be spending real capital CapEx capital in Mexico right now with the political insurity. Fortune favors the bold. Ed. You know, it's funny, I'm, I'm trying to like, contain this conversation, but at the same time, it, this is a hub and spoke conversation, right? Like we, we, we started with AI and then moved into China. And from China you can just have spokes going in so many different directions. You, you brought up Mexico, right? And, and Canada. How much of the tension between the US and Canada and Mexico. Over the last six months and, and today, would you argue is due to the drug trade, narcotics, uh, fentanyl, which China. An aspect of China plays a huge role in, there's a wonderful historical symmetry here because, uh, during the OPN wars in the 18 hundreds, you know, China was the one with the drug problem and the west was the one actively feeding it to, um, to destabilize the Chinese government. I'm gonna give you sort of the simplistic answer and then we can problematize it and go with more nuance because it's hard to answer this in a simple way. The simple way is I think that drugs are a very, very convenient scapegoat. And that it's very easy to just say, this is a drug cartel problem and that's how we need to fix it. There is some element of that. I don't know if you've, uh, seen these statistics, um, but um, as people are talking about different commodities and how they performed, cocaine has absolutely boomed in terms of production and the price of cocaine has collapsed, and a lot of that is actually due to increased consumption, European and Southeast Asian markets. So you've got parts of Columbia that. Are going out of business because the cartels aren't showing up to pick up the coca anymore because they have too much of it. I think actually one of the reasons that you're seeing the US blowing up ships in the Caribbean sea is because, um, you know, the cartels have moved most of that over land on Mexico. I think they just have so much of it. They don't care if they lose some ships, just like send it out there because we have so much that, okay, great. If you take some off the market, it might, it might actually, um, sort of help out prices there. But yeah, I, I don't think ultimately that. Drugs. It's what's causing things here. It might be a symptom, um, but I, I think that that's a convenient scapegoat. I think the, the macro and fundamental things that are shifting here are what are driving things, and I think that drugs, security, immigration, those are things that governments can usually count on high domestic political support for, to drive through some of the reforms they need on other things. And I think in that sense, um, it's a useful scapegoat. But it's, it's a problem. And, and you're right, you're right about pointing out that you have to be brave about Mexico. I'm actually not so worried about the Mexican government. We can talk about that a little bit more. Um, but you do have to be brave to be in Mexico in general, and you have to have the right partners, and you have to be in the right parts of Mexico. There are parts of Mexico where you have no business, uh, investing CapEx because of what's going on in the ground in terms of where cartel control is. Um, I was, uh, I did a big research report, um, about Brownsville earlier this year and went to the ground. To see some of these manufacturing facilities in Brownsville. And it was funny, my, my hosts told me, there's no problem with security. Don't worry about it. Everything is secure. And I said, okay. And they said, but uh, you're always gonna have one of our representatives with you and we're gonna leave by 4:00 PM and please don't go out at night by yourself. And I was like, okay. So it's safe as long as I'm in the daylight from nine to four with, uh, with one of your guys. But that's the point. And here, put this, put this special vest on. Yeah, but like I didn't, I wouldn't have to be there if I was the manufacturing company. You can get people on the ground in Mexico to do that to and to sort of figure things out. So I, I think that is a deeper problem in terms of sort of Mexico's political structure. But the Claudia chain Baum government is fine. What, what Mexico becomes after Claudia, what Marina turns into, that's a more disturbing question, but it's really disturbing for. Mexican high net worth individuals. I don't think it should be concerning For a US company that wants to build widgets in Mexico, that logic's not gonna change that much unless something much more dire happens inside Mexico, which I don't expect to. To be clear, my concern was actually on our side of the border and tariff policy. I, I don't know how you can, yeah, I'm not con I'm not concerned about that really. I think that will get figured out in the course of the U-S-M-C-A and I could be wrong. I think one of the great, um, weak points of geopolitical analysis is you always assume that countries will act in their own self-interest. And one of the reasons I'm so glib about what I just said, and maybe I'll, I'll look silly a year from now. Um, it would be so colossally stupid if the United States continued on this course. If it didn't successfully renegotiate the U-S-M-C-A and bring, bring things back, I think it would just be catastrophic for the US economy, for US companies. And I just can't believe, I think this administration is many things. I don't think it's stupid. I, I think it has to be part of a negotiation process. And I think actually this also dovetails with something we learned in the first Trump administration. Um, you know, U-S-M-C-A. Is the Trump renegotiation of nafta and the US didn't get a good deal and it didn't get a good deal because Trump didn't know what he was doing yet. He thought just by the power of his great negotiating skill that he could make a deal. But the U-S-M-C-A is infinitely complex. It's not decided at the executive level. It's decided by. Numerous working groups that are hashing out the details of individual things, and the Trump administration had trouble staffing. You might remember the bureaucrats necessary to go into those rooms with their Canadian and Mexican negotiators and figure out the exact things here. So I think part of what's going on is that Trump realizes that. Term number two, and he wants to revisit all the places where they made a bad deal under the first administration and now he knows how to staff it. And now he knows how to work his style of negotiation with also the right level of bureaucratic, uh, um, expertise that goes into actually negotiating things so that he can actually build the U-S-M-C-A that he wanted to in the first place and was a, was unable to in the first term. That, that's the narrative I'm constructing around USMC. It could be wrong, like the United States maybe will, you know, treat Mexico the way that you're talking about. Um, but yeah, like I said, it would just be, it would just be asinine and I, it would, it would cause me to lower my estimation of the Trump administration extremely, because it would mean that they just don't have a firm grip on reality. My personal take is, I think that the, I think that the drug trade and the, and the influence that the CCP has been able to exert. Particularly in Canada. Um, and, and, and then. Sort of organized crime in China and their, and the growing partnership with Mexican cartels. My personal feeling is that that is, it is a little bit bigger aspect to the international relations issues than, than you. We, we might disagree a little bit on that, not far apart, but I, I, I think there's something there. I think it has to do with, I, I, I think that this administration really believes that China is, um, is. Is the enemy. Um, and so I think that that drives a lot of the decisions. R right or wrong? Yeah, there's a couple things there. The first is, I would say that I think that the Chinese influence campaigns that you're talking about are real, and I think they're more insidious in Canada than they are in Mexico. I think it's actually. It's probably harder to root them out there. Um, in part 'cause of, because of the openness of Canada. It's a part of the virtue of Canada's system that it's being taken advantage of by a foreign actor in that, in that way and was too naive to get ahead of it. And now you're having to root something out that is, that has come into it. Mexico is different. I mean, it was the me, the former Mexican dictator, porphyria Diaz who said Poor Mexico so far from God so close to the United States. My own experience, at least from Mexico's perspective, is that China gives lots of promises, but they don't actually do anything. It's usually about intellectual property theft and things like that inside of Mexico, or rerouting exports to avoid tariffs through, you know, the southern border, uh, more than anything else. But I don't think Mexico is under any illusion that they're gonna be able to balance relations, uh, by, by being with China, sort of in that sense. So I, I would say it's a, it's a deeper problem I think for, um, for Canada, uh, than it is for Mexico. My concern with, uh. China and Mexico would be mainly tied to the cartels and money laundering this and just this global infrastructure that Sam Cooper is a, a Canadian journalist and he writes about this all the time. He has a great substack called the Bureau, um, and I read it. Perhaps too much. Um, so, so 'cause he goes so deep in, into this. Just remember though that the, the cartels profit when Mexico profits. So the cartels have a vested interest actually in the Mexican and US economies trading more and more US CapEx in the region because that gives them more opportunities on the ground. Um, it's bad for business if the cartels are letting China destabilize. All these new supply chain routes that they can take taxes on and, you know, apply, uh, you know, uh, get their bribes and everything else. They need to build factories. And these particular things, like, I think the cartels are actually much more self-serving than that. So will they take money from the Chinese? Will they do something that's opportunistic? Sure. Uh, but in a world in which US companies are spending lots of CapEx to build factories inside of Mexico. I imagine the cartels are looking at that and salivating every bribe to build something on, on the ground in Mexico, every unofficial toll that you can take from a truck that is going across the board, that's much easier business than transiting drugs. Uh, you, you, you might be able to go to lunch on that and, and not have to worry so much about what's behind your back. So, um. Yeah, I, I take your point, and I, I take your point about the cartels there. I think it's also, remember, um, the cartel situation in Mexico, I won't say it's great. Um, but we, we have gotten to a point where we're consolidating now to a couple larger cartels that control things. Um, post 2008, where the United States was pushing the then calderone government to war on drugs and go after the cartels. The impact of that was not to destroy the cartels themselves. Instead, what happened was you knocked off the major cartels and then you had a splintering of smaller cartels. Who started, you know, upping the violence quotient so that, uh, uh, the violence quota so that they could get more territory, and they start stitching people's faces, the soccer balls and just how, how much more territory can they claim? That's finally consolidating a little bit. We're going back to there's the three or four mega cartels. That means corruption is more ingrained in the Mexican political system, but it also means we're not having turf wars between 10 different splinter cartel groups that are trying to establish their authority over different ports or different port, different parts of the country. So ironically, it should be a little bit more stable and you should have cartels that are making decisions based on self-interest and what is best for them, rather than some of these turf wars. Can the Mexican government ever really get rid of the cartels? I mean, do, is that just not possible at this point? That's a great. Great question. Um, if you look at the history of Mexico geopolitically, um, the borderland between the United States and the center of power in Mexico, Mexico City has always been dominated by bandits or cartels or you know, there's never really been government wr there. There's a reason the United States border stops where it stops. They could have gone further if they wanted. It wasn't like the Mexicans were gonna go after them. But you know, anybody who's read Cormac McCarthy knows this. This is a lawless place where lawless and evil people, um, absolutely do the best. So Mexico, just by virtue of its geography and the us, that's always gonna be a lawless space. The geography of that, um, sort of means that in general, when you think about how Mexico has dealt with previous iterations, what it has usually done is that it basically swallows. The cartels into the normal economy, it assimilates them, and then you get a new class of cartels or bandits or whoever else who try and take advantage of that geography. That's a much more sympathetic way of describing what the morena government's policies, especially under AMLO were towards the cartels. I think he called it, what was it? Hugs and kisses or something like that. An amnesty for cartels. What that really means is. Let's let bygones be bygones. How about you come in from the cold and be part of the Mexican economy and we won't go after you and you won't kill and behead people on the border and we'll all sort of make more money. Um, so can you get rid of the cartels completely? No. But can you make, can you put, can you make it in the interest of the cartels to not disrupt. Trade policy and economic growth and things like that. Yes, I think you can probably do that. Now you have to swallow that you're gonna not declare war on the cartels and that you sort of have to have, you know, a working relationship in some sense with them, which is difficult, but. After 15 years of drug war, Mexicans would probably be willing to do just about anything. I'll tell you one other last anecdote, and this is just an anecdote, so I can't tell you whether it's true in Mexico in general, but um, when I did my visit to Brownsville earlier this year, one of, at the time, one of the headlines, it's, it's crazy to think that was only like seven months ago. One of the headlines was that Trump was threatening to deploy the US military into Mexico to go after the cartels. And I would ask people down there, does that piss you off? Does that inflame Mexican nationalism that the US is talking about unilateral? Military deployments in your country and every single person I talked to said, oh my God, please send them these cartel guys. Wouldn't last a second against the Marines or anybody else that you're gonna send in if you actually like take them out. Wonderful. Um, so I don't know, like, maybe, maybe there's something there to talk about. I think the average Mexican just wants in, in the same, in the same way that we saw this in El Salvador. I think the average Mexican just wants stability, just wants security. They will put up with a lot if you can give them that security, because that has not been their experience since 2008. Jacob, I could go on for another hour with you. We haven't even touched on the Middle East, so we'll, we'll have to get back together and do it again soon. Thank you, sir. Always great to see you. Appreciate your time. I'm thankful we didn't touch on the Middle East. The Middle East is the same, it's the same thing over and over again. People blow each other up and then they shake hands and then they go back to blowing each other up. So, but we can, we can talk about that next time. Was wrench repeat? Unfortunately? Yeah. Yeah. Thanks, Jacob. Good to see you. Good to see you too. Before you go, please take a minute to subscribe. Give us a like and leave a comment. And if you wanna receive my free letter every week, you'll find a link to sign up in the description. Thanks for being with us this week. See you again soon.
How China Is Luring America Into a Devastating AI Trap | Jacob Shapiro
Summary
Transcript
Here, I think China's actually ahead because China is not under the illusion that general artificial intelligence is gonna be here anytime soon. Whereas the narrative in the United States is still, no, no, no. Like we're gonna be at generalized AI in five years. Hi, I'm Ed D'Agostino from Mauldin Economics. And this week we dive deep into the geopolitics of artificial intelligence and technology. We look at how the US and China develop technology differently and the future of trade across North America. There's only one person who can cover this much ground in one interview. And that's my friend Jacob Shapiro. He's the director of research at Bespoke Group. Jacob joins us this week at Global Macro Update. Jacob Shapiro. Always good to see you. Thanks for taking some time today. I am really dying to get your perspective on the geopolitics of, of AI and technology. It's, it's not something I hear a lot about, but I have a feeling there's a heck of a lot more to it than most people assume. Uh, and it's goes way beyond. Us versus China, uh, and rare earths, which we're hearing about all the time. So what, what, when you think of the geopolitics of AI and technology, what comes to your mind? Well, first of all, I think it's not worth dying over. So don't, don't be dying to listen to anything. But I have to say, first of all, that's, that's a guru, that's guru syndrome right there. But, uh, I, I think those are two completely separate things. There is the geopolitics of AI itself, and then there's the, the geopolitics of technology. I think it's still an open question whether AI is a technological revolution or whether it is the late stage of the previous revolution. Um, I don't know if your, uh, if your listeners have had a chance. I, I, I just had Jerry Newman on my podcast. He wrote one of the best essays I've read all year in which he compared, um, artificial intelligence to, uh, containerization. And that really we should be thinking about AI not as some kind of, you know, a thing that is gonna completely transform everything it could, but rather, the way that it's functioning right now is that it's gonna make things more efficient and more productive, and that there won't be lots of actual companies to go invest in. Those have already made the money. Um, the places that you have to look right now are the ones that are gonna use AI to increase productivity or to be more efficient. And it's a nice metaphor with containerization because containerization, you couldn't go invest in the containerization company. But the companies that did well, one example would be ikea. They figured out, oh, I can make things really, really cheaply and you can assemble them this way and that way I'm gonna expand market share versus a captive industry that's already doing some of those things. So we can talk more about AI and how I'm thinking about that. And I think there are also geostrategic implications because different countries are thinking about and interacting with AI in different ways. I think the US and China. Are the two clear ones and have very, very different approaches. But we can talk about Europe and India and some of these others. And then there's just the geopolitics of technology in general, which is always there in the background and which is something we should always be thinking about. Um, and we can talk about how technology can change geopolitics overnight. I think technology is always uncomfortable for the geopolitical analyst because. The geopolitical analyst is always looking for those things that don't change very often. Like literally looking at geography, it's hard to move a mountain. Uh, but every once in a while you get an invention that makes the mountain irrelevant or completely changes the logic around these things. So we're always, we're always sort of looking there for, for what that next thing is. I'm, I'm not clear that. I, I, I don't have a clear sense of where or what the next thing is gonna be. I have a list, I have a menu list of options. Like could it be nanotechnology, could it be biotech, could it be material sciences that allow us to do fusion? Like there's all sorts of interesting things out there, and I think we risk, um, we have to do two things at the same time without going crazy. We have to appreciate what's happening with AI and also resists this narrative that we're just, the stones throw away from a GI. And the robot overlords ruling us all and figuring out the secrets of the universe. Like I'm pretty sure that's not what's, that's not as what is gonna happen and that OpenAI and others are selling us that so that they can continue, uh, their current model. But anyway, now I'm rambling. I'll let you bring me back to focus. I think you bring up a ton of great points and technology. I think it's right to think about. Beyond just AI, because, you know, we, we could, we could go back and forth all day long on what is ai? Is it just a, is it just a prediction machine? Which in many ways it is, it's a really sophisticated one. Is it, is it just the most, the, the, the, the, the ultimate level of search engine, which in many ways it is. Uh, I use it daily at this point, and it, it helps my research process phenomenally. Um. So I, you know, I, I see in my, in our own company, in our research firm, I see a lot of efficiency and potential for more. Um, so. Then it comes down, down to like, what, what is it gonna do in the US versus what is it maybe going to do in China and India and um, at the Middle East where I think there was just a big breakthrough announced, uh, from the UAE about a new large language model. So, I mean, maybe we could just go country by country, right? I mean, in the US. There's lots of people that are gonna disagree. I do think that it's gonna be a boost to productivity. I see our little company of around 40, 40 or so people as we grow, you know, instead of going from 40 to 45 next year, my guess is we stay at 40. Um, you know, so, so it's, it's, it's not taking jobs, but there's no jobs being created, and I wonder if that's the model for the bulk of companies out there. What have, what have you seen and heard? Well, I think as, as with any technology, there is going to be creative destruction and then there will also be creation. I mean, how many thinkers over the past centuries have said once we reach this technology, there won't be any jobs anymore, and we're all just, we're gonna go to the three day work week and everything's gonna be productive. And it never happens because you create new opportunities and you create old ones. And if you're somebody who was trained 20 years in the tech, in the, in the, in the job, that becomes obsolete. That's terrible. Uh, see American coal miners in West Virginia and we didn't have a government policy that was how to retrain them and work them into a society in which their jobs aren't needed anymore. But that's sort of a broader conversation there too. And I think before we, we get into some of that, I just wanna say that I, I think, and I've been pushing this with both clients and, and audiences, um, I really just wanna underscore how important it is. How, how important data and information is going forward. I forget, um, where I saw the statistic, but it was something like 50% of what's on the internet today was produced by ai and by next year it'll be something like 90% of what is gonna be on the internet will be. Produced by AI just because it's producing so many things. Um, and as a result of that, the quality of information is degrading because the AI is training itself now on the things that the AI produced. And in some sense, all of these models are dependent on us freely of our own volition, feeding these public models. All of this proprietary information I've even changed, like, uh, I was just thinking about this last week. I used to wanna put out transcripts for my own podcast to increase SEO and increase visibility. Now I want none of my transcripts online because I don't want someone to just be able to take my transcripts and plug them into a model and steal my insights. I should protect that stuff, those things myself. So I think as we're thinking about ai, I think it's gonna be about what companies can protect their information, um, and then build their own internal models around those things. And then to your point. If you're able to become more productive or more efficient with your 40 employees so that they don't have to do the things that they were doing before, what does that open to do? Because they're not doing that. There might be bunches of things that you might have wanted people to do before, but you had to pay for them to do all this other blocking and tackling. Maybe that all goes away and you can say, okay, now get creative. I'm gonna pay you to go out and do this other thing that the AI almost absolutely can't do. I think this is, I got a question, um, at a, when I was giving a speech just last week that said, the guy was asking me, what, what should I tell my kids to learn in college? Because I feel like there's not gonna be jobs anymore. And I said, that's the wrong way to think about it. Of course there's gonna be jobs, there's still gonna be accountants, there are still gonna be doctors, there's still gonna be lawyers. The successful doctors and accountants and lawyers are the ones who know how to use AI to make themselves better. And the ones who aren't are the ones that don't know how to use ai. But don't believe for a second that in five years you're gonna go into a clinic or go get legal advice and it's just gonna be some kind of robot that's, that is spitting out AI slop to you. Like that to me is not. It's not a realistic scenario at all, and I think that's a good way of backing into, um, at least at the very top down level, how different countries are thinking about ai. And here I think China's actually ahead because China I think, is not under the illusion that general, general artificial intelligence is gonna be here anytime soon. And so what you see in China is really a ruthlessly competitive landscape where all of these different AI companies are looking to productize ai. If they're trying to figure out actual uses for consumers or for professionals, um, that people will use in order to increase their productivity or increase their efficiency, whereas the. I think the narrative in the United States is still, no, no, no. Like we're gonna be at generalized AI in five years. We need more data centers and more chips and more all of these different things so that we can build these huge models that are gonna have the answers to all the questions that we ever asked before. And I think the United States is a little behind here and thinking about how to apply this because again, it's, think about containerization, it's how are you going to use this and what companies sectors are gonna benefit. From that increase in productivity rather than, you know, the Sam Altman's and all the others out there telling us that we're just five years away from, you know, these things, solving everything for us. I mean, maybe, maybe I'm wrong. I'm, I'm not an AI uh, specialist. Like I'm not in the code or anything like that. But that would be, I, I don't know. It just doesn't, doesn't pass the smell test for me. You touched on, on a really important topic, which is just sort of how, how China approaches any large industry that they. Put in their cross hairs, right? Like the, the auto industry isn't, is almost exactly the same type of situation, uh, that you just described with ai, where they have just a massive number of companies early on. It's blood sport. They all, they all wreck each other. Uh, in, in a quest to become the absolute best, lots of capital gets destroyed, right? And then, and then a few dominant players who somehow survive the blood sport of it. Um, end up at the top, but, but then you end up with. Really cheap products that are phenomenal in quality and are leading the world in technology. I mean, it's kind of shocking when you, when you have the CEO of Ford coming, coming back from a trip to China and basically saying, we're screwed. I mean, that's a, that's a big deal. This is a story that Americans should know better than they do because we literally did this to the British in the 19 hundreds. Um, and one of the, I think one of the reasons you are seeing so much geopolitical, and especially geo-economic volatility right now, is because. The White House is taking trade policy from the early 19 hundreds when the US was the manufacturing disruptor and thinking it can apply it in 2025. Um, remember even with AI and all of these glittering things that are gonna change our lives, there's still hardware behind these things. This is still ultimately about infrastructure and the us. Is behind on infrastructure. This is one of the things that China does best. Um, the, the environment you described in China is ruthlessly capitalist. It's actually much more capitalist in some ways than what the US system is. The way that it's not capitalist is that you have a Chinese government that, you know, publishes a five-year plan that says, in five years we will have 5G everywhere, and if you wanna oppose us building these cell towers or whatever else on your pro on, you know, where you live. Great. We have a gulag for you in Xinjiang that you can enjoy spending some time at. Whereas in the United States, we'll fight legal battles and how many years and how many billions to put out this infrastructure. So in some sense, the centralized communist part of China creates the basic level of infrastructure you need for the, for the playing field. Then on top of that, you know, we, we sort of hit the pause on the globalization button at the point. Of the cycle when China was the one that was making everything. So they are the ones that have the technological knowhow. They have the cheap hardware. They're the ones that can talk to the entrepreneur and say, oh, you need a switch that functions a little bit differently for your unique product. Sure, we can do that in two seconds. And you want it produced at scale. Great. We'll have it for you in two weeks. Imagine we don't even make, you know, switches in a lot of these things in the United States anymore. We import them from China, Taiwan, South Korea, and Japan. All countries or places that we have picked trade battles with them. In general. So, you know, the United States I think really has to reckon with the fact that it has this, IM its image of itself. And in practice, um, what we are is we're the deepest, most liquid capital market in the world. We have a reputation for rule of law, which is starting to degrade a little bit. And we have a lot of, um, different advantages that most countries in the world don't have. But when you're talking about. The grid, when you're talking about energy, when you're talking about manufacturing the hardware that is necessary to build these tech innovations, like those are not things we do anymore. Think about Nvidia. Nvidia designs the most advanced chips that we can't have any of the AI things we're talking about. If we don't have Nvidia, does Nvidia make those chips here? If we really did go to World War III and we lost access to the south, to the South China Sea for six to eight months in a global conflict, what happens to chip supply chains? What happens to all these things? Uh, because Nvidia can't manufacture, uh, the chips here in the United States like that. That I think is why China actually can be at the forefront of these things. And the, the last thing I'll just say, and, and this I'll, I'll credit Kaiser quo, um, he runs a podcast called the Seneca Podcast, and he recently wrote a really compelling essay. I'm not sure if I agree with it, but he talked about. About how maybe we should consider that, um, China is the forefront of modernity today, that the West told itself a story about what modernity was and how you needed liberal democracy and individual rights and freedom of expression in order to, um, support the creativity necessary for technological innovation. What if the Chinese Communist Party is looking at and saying, okay, that was cool in the 20th century, but if you want to do these things at the scale and with the particular technologies that we have right now, here's a different style of modernity. And to your point, we are gonna be at the cutting edge by doing things differently in ways that the West can't even possibly conceptualize and why they. While they think that we're still, you know, making widgets and furniture and things like that, we're gonna be building the best cars and the best drones and the best chips and the best AI apps and all these other different things. Um, so yeah, I think it's a, it's a place where the United States needs to wake up and, uh, there is no signal that the United States is awake from this point of view. If anything, the US is doubling down on thinking that it's still the, the most powerful trading and manufacturing country in the world. It's not, yeah, China's able to do some things that, I mean, I, I, I wouldn't wish us to adopt that system holistically, but they definitely can do some things that are enviable in terms of getting things done. Uh, I read somewhere recently that China is managed by engineers and the US is managed by lawyers and. That sort of sums it all up, right? I mean, we have become such a litigious society and we, we, we, we, you can't even put a, uh, housing development up, um, without, without lawsuits flying all over the place. Uh, just in my little town, you know, somebody tried to put a permit into. Put 25 units in of low income housing and like you thought that, uh, in my little blue town, right? You thought everyone's heads exploded. Like, oh, it can't go there. It can't go here. I mean, yeah, we're in favor of it, but not here. Uh, it's kind of disgusting, honestly. Yeah, and, and there's so many data points to, to shine a light on here. I mean, look at. If you look at the top employer in each state in the union in 1990, it was still majority manufacturing in the United States. If you fast forward to now, it's not lawyers, it's healthcare. Healthcare is the top employer in most states. In the union. You still have a few manufacturing states. I think Wisconsin, Michigan, I believe Alabama is on that list, but it's mostly sort of healthcare, which is the top employer. So there's been that radical change over the last 30 years. To your point about energy, energy is a place that the United States should be leading because we are one of the most energy wealthy countries in the, in the entire world, and yet we're succumbing to a sort of minor form of Dutch disease, whereas the Chinese. They're saying, oh, we just watched the United States get hopelessly dependent on the Middle East for decades for, for oil and things like that. So we're gonna become the foremost leader in solar, wind, geothermal, and nuclear. And while it takes the United States, you know, 10 plus years and double the budget to build one nuclear reactor, we'll roll out, I don't know how many they've rolled out this year so far, they're building nuclear reactors all over the place because they can just do it dozens and dozens. It's not even just a couple. It's. It's like shocking the number. And it's ironic because the thing that is driving them to do that is their lack of energy security. So that lack of energy security is creating the impetus to do all these things. Um, the shale revolution was great for US national security, and it's given us relatively cheap natural gas prices and energy prices to most countries in the world over the past 10 to 15 years. Even if we think the shale revolution is gonna continue. And there are people out there who think we're. Starting to fall off a cliff in terms of production. I'm not one of them, but like that narrative is out there. But even if we continue producing, if you look at electricity consumption, consumption growth forecast from this government, from this department of energy, uh, and what we have on the grid right now and what we're capable of building in the next five to 10 years, uh, we're gonna be in a huge energy. Catastrophe in a couple years time. Whereas the Chinese, despite the fact that on paper today, it doesn't look like they have a relative advantage, they're moving, um, to try and do things. Now, I don't want your listeners to think I'm a Chinese plant because China has tons of problems, and I bet Xi Jinping would rather have American problems than Chinese problems because ironically, you know, China's a communist country. It's also one of the most unequal countries in the entire world. You've got coastal elites who are living in cities that make our own cities look pedestrian by comparison. And you've still got hundreds of millions of people living in the interior. Sure, they're out of extreme poverty, but they're still living on something like seven to $10 a day. They're still at A GDP per capita that is much, much lower than Japan or the United States. And what Xi Jinping has to do is he has to redistribute that wealth from the coast of the interior, and he has to do it without the peasants thinking he's doing it too slowly and rising up and casting him down, but not too quickly that the coastal elites. Think that they need to rise up and cast them down. Um, so it's a very unenviable position, but like that's the problem for China. It's about wealth inequality, it's about structural economic problems. It's about getting its political infrastructure sort of up to speed with the incredible economic growth and innovation that it is seeing going forward. United States is a d. Host of problems that we can't build things anymore. We don't make things anymore, and yet we're running policy like it's the 19 hundreds. So like both sides have significant problems. I don't want people to just walk away from this and he's, he's rah rah, China. Like it has issues too. Yeah, no, I, I, I, I live a list here from, uh, from Ed Yardi who I interviewed last week, uh, and he pointed out in a note a couple of days ago, housing prices in China have been on the decline now for 26 months in a row and. Houses and apartments are what the wealthy Chinese invest in. So they're getting hit hard. It's, it's like the stock market correcting here. You know, the, the anxiety level goes, uh, way up. Uh, consumer spending's down. There's deflation in the economy. Real deflection. Um, total dank Bank debt is very, very high in China, so, you know, financial system, potential issues there. Um, and yet, and then he points out, but the CHO stock market's still up 30% in China this year. So go figure, everything you just said is true and the most amazing thing about that is if you had put us back. Three years ago and said, these are all the things that are gonna be true in China over the next three years. Wouldn't we have probably said there was gonna be some kind of social revolution or catastrophe inside of China? And it's not there. They've been incredibly resilient and this, this is where I give a lot of credit to Xi Jinping and the Chinese Communist Party. I think he's made lots of reforms and lots of purges. And I think he's in control now. How long? It's a very brittle system. If Xi Jinping slips on a banana peel tomorrow, watch out. He's consolidated a lot of power in one person, and he is got a limited amount of time to do this. But China has been incredibly resilient. I've been wrestling this with this because, you know, I, I worked at Strat for, uh, with George Freeman and with Peter Zhan, folks who have been talking about the demise of China, literally since the 2010s. And I've been to I for, for some time. I was, you know. We would all make fun. Oh, like it hasn't happened yet. Like you can go back to the 2010s and find some of those articles, but I, I can't help but wonder, actually, maybe they were right. Maybe that was the end of China and that Xi Jinping was the founding of a new China, and then if you're using the old analytical model from the like 2010s. Yeah. That was the path that China was on. And Xi Jinping has put China on a fundamentally different path. Now, it may still. Blow up in his face. It may still not work, uh, but I think China changed under Xi Jinping and I think it's changing now in a way that the West has been slow to catch up to. I think the West assumed that China would become more like us as they got richer, and that has not been the case. They've become more like China and what does that mean for the world over the next two years if China is the center of economic and manufacturing and intellectual know-how. Do we all become more like China? How, how, just how prescient was Blade Runner. These are the questions that I, I stay up at night pondering. How does China move and do they need to move to a more consumer, internal driven economy? Because they, you know, they, they have built, they, for the longest time, they were the world's factory floor. Uh, and they were the premier. First they were the low, low cost exporter. Then they became sort of the, the premier exporter. Um. If, if they lose access or even some access to the US market. They can make up some potentially with other markets, but at the end of the day, don't they have to figure out how to distribute that wealth to the center, like you said, so that they can create more internal demand? Well, redistribution is separate from what you talked about because. You're right. And they're doing the next thing, which is they're becoming the center of automation. One out of every two industrial robots that is installed on manufacturing floors in the world are installed in China right now. And if you look at, um, you know, we've talked a lot about the US losing manufacturing jobs or US workers, excuse me, losing manufacturing jobs. Chinese workers are also losing manufacturing jobs. They're losing them to robots, not to the Vietnamese, not to the Indians. It's that the Chinese have these advantages on hardware and they realize that they can. Fuse machine learning and robotics and be much more efficient and much more productive. Um, to your point, China has been talking about stimulating its domestic economy for quite some time, and this is one of the reasons why. Chinese demographics don't scare me as much as they scare other, um, analysts out there. Uh, because Chinese has have hundreds of millions of people that if you could just elevate them from where they are to the middle class, who needs babies. If you can add 300 million middle class folks who are currently extremely poor, same thing as having a good demographic. Uh. Pyramid as far as I'm concerned. Um, and I think that's actually the silver lining of housing prices. And I think it's why Xi Jinping, he was confident enough to let the housing market go. Um, and he's been able to control it so that it's not some, you know, 2008 style crisis within China. It's. It's not great. You're right, people are losing some of their savings on paper, but we have not seen, at the very beginning, there were people who were refusing to pay mortgages because some of those things were tied into wealth management products. But we haven't seen that for years now. Like they've been able to control it even as things have continued to decline. Um, and so I think the thing that China is trying to do is it's trying to get the average Chinese citizen to say, I don't need that third or fourth apartment in a ghost city. I'm gonna try to play the Chinese stock market, or I'm gonna go buy that new made in China air conditioner or something like that. Now we haven't gotten the consumption yet. What we have gotten though is that real estate is not, the investment is not the safe place to park your investment. So there has to be a cultural shift there within China, and if China can do, say what India has done with its markets or Turkey has done with its markets, if you look at the performance of those markets in recent years. Sure. Some of it has to do with foreign inflows. A lot of it is just because your average Indian or your average Turk is buying stocks. Um, they've gotten stock fever. If you get animal spirits in China doing that, I mean, it's gonna make the rally we've had so far this year look like nothing. And so then that, going back to sort of what we talked about at the very beginning, means that China needs to establish a, it's, it's, uh, needs to establish itself as a country with the rule of law. It needs to make, feel like it needs to make Chinese citizens feel like investing in Chinese equity markets is not like gambling in Macau, but is like investing in companies that are gonna be there for the long haul, that that will grow their wealth over time. And if they can do that, I mean, we haven't seen anything yet, so it's, it's very tough like this, you know, if Xi Jinping could snap his fingers. He would do it. He is been trying to do this for 10 years. Um, I think he's made some progress. I think when you look at the housing market and the way they've been able to control those declines in prices, that shows me that policy is working. Now, whether they can complete it, that, that's an open question, but that I think is what they're going for and I think it makes a lot of sense. Did you say that one out of every two robots put into service is, is in China? Isn't that a wild stat? Uh, I think it's, it's wild. So why can't we do that here? Why, why, why isn't. Automation, the answer for the United States. We know we don't have the workforce to be able to bring manufacturing in, you know, in, I think everyone has this sort of dream of, oh, the factories are gonna come back. They might. Um, no they're not. But, but the jobs aren't coming back. The jobs aren't coming back ever. Period. 'cause they're not gonna be jobs. They're gonna be robots or, or not. Am I, where, where, where am I wrong there? We sort of talked about China and energy and how China's had to become a forefront, renewables producer, because it doesn't have energy itself. Uh, same thing with this, um, China does not have. Migrants who are flooding into the country because they want to build a better life for themselves in China, um, this is the secret strength of the United States. We take an immigrants. We use them, we assimilate them into society, and then we do it with the next round. This is the story of my own family, at least on my father's side. Um, and so if you look, look at US demographics. Over the past four to five years, people stopped having babies after COVID. The only reason our demographic, uh, profile doesn't look like a complete disaster is because we had a huge surge in migration, um, after 2021. Now. Was that the right kind of migration? Were we able to screen people at the border so that we were getting things that were secure so that we were getting the right skills versus everybody that's coming over? That's a conversation for politics and ideology and something we need bourbon for, but the un, the indisputable fact. Is that the reason that we have been able to be behind on the deployment of robotics is because we have cheap migrant labor to make up for. So we haven't had to go to robots in general. I dunno if you've seen, if you look at data about encounters at the Mexico US border so far this year, they're at record lows. The Trump administration is doing victory laps about this, and if all you care about is the security of the border, you should be doing a victory lap on it. But this is the thing. Too much immigration is a problem 'cause you can't do it securely and select for the skills and expertise that you need. No, immigration is also a problem because then we don't have the workers and the workforce who are gonna do all the menial tasks that none of us want to do. Ourselves. And because we're behind on robotics and behind on the hardware that goes into actually building these things, it is not so easy for us companies to deploy these things at scale. Um, on, on the man, on the manufacturing floor. And so I think for us folks, there's two options here. I think some can do automation, especially now, especially before the trade conflict with China. Ratchets up another level, um, in a couple of years because you can still get a lot of these things. And so you can invest capital now in getting automation and robotics on your floor. And I've worked with one or two small companies in the last couple of years that have done that and have reduced their workforces to nothing and are doing incredibly well. I think the more common thing though, for a US company is to look across the border. Into Mexico and understand that the Mexican economy has younger workers who work at a pitance of the price that the American industrial workers will work for and who will work for longer hours. And I think you'll see a lot, you know, I don't think we're gonna get the, the jobs back in the United States, but the jobs will be there in Mexico, and that's one of the reasons I put US trade relations with both Canada and Mexico in a separate category to everything else because the US like needs. SMCA to go through at the end of next summer. Like it needs Mexico and Canada to follow through on some of its things. Canada and Mexico also need the United States, so they'll need to make concessions in those trade negotiations too. But I think that's a soap opera that's gonna be contained and ultimately the way that the united, the, the thing that the United States has that China does not have. Mexico on its southern border. If China had a Mexico on its southern border, maybe they wouldn't put such a huge impetus on robotics. The last thing I'll just say here is if you look at the other countries that are ahead on robotics on a per capita basis, it's the countries you would expect IE the countries that are getting older quicker than everywhere else. It's Japan. It's South Korea. Korea. It's China, it's Taiwan. They're doing that because they have no other choice. So it puts them ahead of the innovation curve, but the double-edged sword, they're also doing it because if they don't do that, it's gonna be a complete and total disaster. So I think migration is the answer to your question about why the US hasn't quite done this. I think that means two things for the United States. I think there's massive opportunities for those who are willing to be at the front of automation and robotics in their own companies. I think that also means there's massive opportunity for US companies who are willing to not just talk about Nearshoring to Mexico, but actually do it. And building out that capacity now, because I hear a lot of talk out there. And very, very few companies actually doubling down and doing that in Mexico. And I think there's an opportunity to be, first, you'd have to be awful brave, in my opinion, to, to be spending real capital CapEx capital in Mexico right now with the political insurity. Fortune favors the bold. Ed. You know, it's funny, I'm, I'm trying to like, contain this conversation, but at the same time, it, this is a hub and spoke conversation, right? Like we, we, we started with AI and then moved into China. And from China you can just have spokes going in so many different directions. You, you brought up Mexico, right? And, and Canada. How much of the tension between the US and Canada and Mexico. Over the last six months and, and today, would you argue is due to the drug trade, narcotics, uh, fentanyl, which China. An aspect of China plays a huge role in, there's a wonderful historical symmetry here because, uh, during the OPN wars in the 18 hundreds, you know, China was the one with the drug problem and the west was the one actively feeding it to, um, to destabilize the Chinese government. I'm gonna give you sort of the simplistic answer and then we can problematize it and go with more nuance because it's hard to answer this in a simple way. The simple way is I think that drugs are a very, very convenient scapegoat. And that it's very easy to just say, this is a drug cartel problem and that's how we need to fix it. There is some element of that. I don't know if you've, uh, seen these statistics, um, but um, as people are talking about different commodities and how they performed, cocaine has absolutely boomed in terms of production and the price of cocaine has collapsed, and a lot of that is actually due to increased consumption, European and Southeast Asian markets. So you've got parts of Columbia that. Are going out of business because the cartels aren't showing up to pick up the coca anymore because they have too much of it. I think actually one of the reasons that you're seeing the US blowing up ships in the Caribbean sea is because, um, you know, the cartels have moved most of that over land on Mexico. I think they just have so much of it. They don't care if they lose some ships, just like send it out there because we have so much that, okay, great. If you take some off the market, it might, it might actually, um, sort of help out prices there. But yeah, I, I don't think ultimately that. Drugs. It's what's causing things here. It might be a symptom, um, but I, I think that that's a convenient scapegoat. I think the, the macro and fundamental things that are shifting here are what are driving things, and I think that drugs, security, immigration, those are things that governments can usually count on high domestic political support for, to drive through some of the reforms they need on other things. And I think in that sense, um, it's a useful scapegoat. But it's, it's a problem. And, and you're right, you're right about pointing out that you have to be brave about Mexico. I'm actually not so worried about the Mexican government. We can talk about that a little bit more. Um, but you do have to be brave to be in Mexico in general, and you have to have the right partners, and you have to be in the right parts of Mexico. There are parts of Mexico where you have no business, uh, investing CapEx because of what's going on in the ground in terms of where cartel control is. Um, I was, uh, I did a big research report, um, about Brownsville earlier this year and went to the ground. To see some of these manufacturing facilities in Brownsville. And it was funny, my, my hosts told me, there's no problem with security. Don't worry about it. Everything is secure. And I said, okay. And they said, but uh, you're always gonna have one of our representatives with you and we're gonna leave by 4:00 PM and please don't go out at night by yourself. And I was like, okay. So it's safe as long as I'm in the daylight from nine to four with, uh, with one of your guys. But that's the point. And here, put this, put this special vest on. Yeah, but like I didn't, I wouldn't have to be there if I was the manufacturing company. You can get people on the ground in Mexico to do that to and to sort of figure things out. So I, I think that is a deeper problem in terms of sort of Mexico's political structure. But the Claudia chain Baum government is fine. What, what Mexico becomes after Claudia, what Marina turns into, that's a more disturbing question, but it's really disturbing for. Mexican high net worth individuals. I don't think it should be concerning For a US company that wants to build widgets in Mexico, that logic's not gonna change that much unless something much more dire happens inside Mexico, which I don't expect to. To be clear, my concern was actually on our side of the border and tariff policy. I, I don't know how you can, yeah, I'm not con I'm not concerned about that really. I think that will get figured out in the course of the U-S-M-C-A and I could be wrong. I think one of the great, um, weak points of geopolitical analysis is you always assume that countries will act in their own self-interest. And one of the reasons I'm so glib about what I just said, and maybe I'll, I'll look silly a year from now. Um, it would be so colossally stupid if the United States continued on this course. If it didn't successfully renegotiate the U-S-M-C-A and bring, bring things back, I think it would just be catastrophic for the US economy, for US companies. And I just can't believe, I think this administration is many things. I don't think it's stupid. I, I think it has to be part of a negotiation process. And I think actually this also dovetails with something we learned in the first Trump administration. Um, you know, U-S-M-C-A. Is the Trump renegotiation of nafta and the US didn't get a good deal and it didn't get a good deal because Trump didn't know what he was doing yet. He thought just by the power of his great negotiating skill that he could make a deal. But the U-S-M-C-A is infinitely complex. It's not decided at the executive level. It's decided by. Numerous working groups that are hashing out the details of individual things, and the Trump administration had trouble staffing. You might remember the bureaucrats necessary to go into those rooms with their Canadian and Mexican negotiators and figure out the exact things here. So I think part of what's going on is that Trump realizes that. Term number two, and he wants to revisit all the places where they made a bad deal under the first administration and now he knows how to staff it. And now he knows how to work his style of negotiation with also the right level of bureaucratic, uh, um, expertise that goes into actually negotiating things so that he can actually build the U-S-M-C-A that he wanted to in the first place and was a, was unable to in the first term. That, that's the narrative I'm constructing around USMC. It could be wrong, like the United States maybe will, you know, treat Mexico the way that you're talking about. Um, but yeah, like I said, it would just be, it would just be asinine and I, it would, it would cause me to lower my estimation of the Trump administration extremely, because it would mean that they just don't have a firm grip on reality. My personal take is, I think that the, I think that the drug trade and the, and the influence that the CCP has been able to exert. Particularly in Canada. Um, and, and, and then. Sort of organized crime in China and their, and the growing partnership with Mexican cartels. My personal feeling is that that is, it is a little bit bigger aspect to the international relations issues than, than you. We, we might disagree a little bit on that, not far apart, but I, I, I think there's something there. I think it has to do with, I, I, I think that this administration really believes that China is, um, is. Is the enemy. Um, and so I think that that drives a lot of the decisions. R right or wrong? Yeah, there's a couple things there. The first is, I would say that I think that the Chinese influence campaigns that you're talking about are real, and I think they're more insidious in Canada than they are in Mexico. I think it's actually. It's probably harder to root them out there. Um, in part 'cause of, because of the openness of Canada. It's a part of the virtue of Canada's system that it's being taken advantage of by a foreign actor in that, in that way and was too naive to get ahead of it. And now you're having to root something out that is, that has come into it. Mexico is different. I mean, it was the me, the former Mexican dictator, porphyria Diaz who said Poor Mexico so far from God so close to the United States. My own experience, at least from Mexico's perspective, is that China gives lots of promises, but they don't actually do anything. It's usually about intellectual property theft and things like that inside of Mexico, or rerouting exports to avoid tariffs through, you know, the southern border, uh, more than anything else. But I don't think Mexico is under any illusion that they're gonna be able to balance relations, uh, by, by being with China, sort of in that sense. So I, I would say it's a, it's a deeper problem I think for, um, for Canada, uh, than it is for Mexico. My concern with, uh. China and Mexico would be mainly tied to the cartels and money laundering this and just this global infrastructure that Sam Cooper is a, a Canadian journalist and he writes about this all the time. He has a great substack called the Bureau, um, and I read it. Perhaps too much. Um, so, so 'cause he goes so deep in, into this. Just remember though that the, the cartels profit when Mexico profits. So the cartels have a vested interest actually in the Mexican and US economies trading more and more US CapEx in the region because that gives them more opportunities on the ground. Um, it's bad for business if the cartels are letting China destabilize. All these new supply chain routes that they can take taxes on and, you know, apply, uh, you know, uh, get their bribes and everything else. They need to build factories. And these particular things, like, I think the cartels are actually much more self-serving than that. So will they take money from the Chinese? Will they do something that's opportunistic? Sure. Uh, but in a world in which US companies are spending lots of CapEx to build factories inside of Mexico. I imagine the cartels are looking at that and salivating every bribe to build something on, on the ground in Mexico, every unofficial toll that you can take from a truck that is going across the board, that's much easier business than transiting drugs. Uh, you, you, you might be able to go to lunch on that and, and not have to worry so much about what's behind your back. So, um. Yeah, I, I take your point, and I, I take your point about the cartels there. I think it's also, remember, um, the cartel situation in Mexico, I won't say it's great. Um, but we, we have gotten to a point where we're consolidating now to a couple larger cartels that control things. Um, post 2008, where the United States was pushing the then calderone government to war on drugs and go after the cartels. The impact of that was not to destroy the cartels themselves. Instead, what happened was you knocked off the major cartels and then you had a splintering of smaller cartels. Who started, you know, upping the violence quotient so that, uh, uh, the violence quota so that they could get more territory, and they start stitching people's faces, the soccer balls and just how, how much more territory can they claim? That's finally consolidating a little bit. We're going back to there's the three or four mega cartels. That means corruption is more ingrained in the Mexican political system, but it also means we're not having turf wars between 10 different splinter cartel groups that are trying to establish their authority over different ports or different port, different parts of the country. So ironically, it should be a little bit more stable and you should have cartels that are making decisions based on self-interest and what is best for them, rather than some of these turf wars. Can the Mexican government ever really get rid of the cartels? I mean, do, is that just not possible at this point? That's a great. Great question. Um, if you look at the history of Mexico geopolitically, um, the borderland between the United States and the center of power in Mexico, Mexico City has always been dominated by bandits or cartels or you know, there's never really been government wr there. There's a reason the United States border stops where it stops. They could have gone further if they wanted. It wasn't like the Mexicans were gonna go after them. But you know, anybody who's read Cormac McCarthy knows this. This is a lawless place where lawless and evil people, um, absolutely do the best. So Mexico, just by virtue of its geography and the us, that's always gonna be a lawless space. The geography of that, um, sort of means that in general, when you think about how Mexico has dealt with previous iterations, what it has usually done is that it basically swallows. The cartels into the normal economy, it assimilates them, and then you get a new class of cartels or bandits or whoever else who try and take advantage of that geography. That's a much more sympathetic way of describing what the morena government's policies, especially under AMLO were towards the cartels. I think he called it, what was it? Hugs and kisses or something like that. An amnesty for cartels. What that really means is. Let's let bygones be bygones. How about you come in from the cold and be part of the Mexican economy and we won't go after you and you won't kill and behead people on the border and we'll all sort of make more money. Um, so can you get rid of the cartels completely? No. But can you make, can you put, can you make it in the interest of the cartels to not disrupt. Trade policy and economic growth and things like that. Yes, I think you can probably do that. Now you have to swallow that you're gonna not declare war on the cartels and that you sort of have to have, you know, a working relationship in some sense with them, which is difficult, but. After 15 years of drug war, Mexicans would probably be willing to do just about anything. I'll tell you one other last anecdote, and this is just an anecdote, so I can't tell you whether it's true in Mexico in general, but um, when I did my visit to Brownsville earlier this year, one of, at the time, one of the headlines, it's, it's crazy to think that was only like seven months ago. One of the headlines was that Trump was threatening to deploy the US military into Mexico to go after the cartels. And I would ask people down there, does that piss you off? Does that inflame Mexican nationalism that the US is talking about unilateral? Military deployments in your country and every single person I talked to said, oh my God, please send them these cartel guys. Wouldn't last a second against the Marines or anybody else that you're gonna send in if you actually like take them out. Wonderful. Um, so I don't know, like, maybe, maybe there's something there to talk about. I think the average Mexican just wants in, in the same, in the same way that we saw this in El Salvador. I think the average Mexican just wants stability, just wants security. They will put up with a lot if you can give them that security, because that has not been their experience since 2008. Jacob, I could go on for another hour with you. We haven't even touched on the Middle East, so we'll, we'll have to get back together and do it again soon. Thank you, sir. Always great to see you. Appreciate your time. I'm thankful we didn't touch on the Middle East. The Middle East is the same, it's the same thing over and over again. People blow each other up and then they shake hands and then they go back to blowing each other up. So, but we can, we can talk about that next time. Was wrench repeat? Unfortunately? Yeah. Yeah. Thanks, Jacob. Good to see you. Good to see you too. Before you go, please take a minute to subscribe. Give us a like and leave a comment. And if you wanna receive my free letter every week, you'll find a link to sign up in the description. Thanks for being with us this week. See you again soon.