Ep 84 - Nobody knows where the line is, and that’s the problem

Welcome to the Podcast: Introducing Evan Medeiros Hi everybody, and welcome to the latest Trivium China podcast, a proud member of the Seneca Podcast Network. I'm your host, Trivium Co founder Andrew Polk and I'm joined today again by Trivium's Head of Supply Chain and Critical Minerals research, Corey Combs, who's going to Co host with me today because we've got a terrific guest, very excited to have him on. He is the Pinner family chair and director of Asian Studies at Georgetown School of Foreign Service and a former senior China and Asia official on the National Security Council under the Obama administration. It's Evan Medeiros. Evan, how you doing? Speaker 2 Good Andrew. Great to be here. Speaker 1 Thanks so much for coming on. I'm really glad to get you on the pod. Been wanting to have you on for a while so I'm glad we were able to make it happen. Speaker 2 Yeah, I'm a huge fan of Trivium. Hope everybody continues to read it. It's the best stuff out there. So I'm excited to sit down with you and Corey and spend a little yarn this afternoon. Speaker 1 Cheers. Yeah, well, thank you for the kind words. We certainly appreciate that. Corey, how are you doing today? Speaker 3 Well, I feel like, you know, I've been reading, catching up on, on the papers I haven't read of Evans and other corresponding research. And it makes me wish I could go back to Graduate School and do it properly this time. So that's it's fun to be able to zoom out a little bit and talk about these issues. Speaker 2 You're always welcome at Georgetown Court. Speaker 4 Always. Speaker 2 Welcome. Maybe we'll give you more friends and family discount. Speaker 1 I love it. I love it. Always be selling, always be selling. So, Evan, we are going to talk today about some of the work that you've been doing, which is of course relevant to our listeners and to our clients. This is around the US China relationship and kind of how you've framed the evolving nature of that competition. We're going to start with sort of the news of the day, XI Jinping's upcoming state visit to DC. And then we'll kind of broaden out and talk more about that relationship more generally and some of the economic law fair that China has been using to hit back against the US. And sort of the nature of that leverage both from the Chinese side and the US side. So going to be a very fascinating conversation. But before we get into it, of course, we have to do the customary vibe, Jack. So Evan, how's your vibe today? Speaker 2 Vibe is good. I would say excited but anxious. Excited because we were starting a new school year at Georgetown, teaching my first or giving my first lecture of the year this afternoon. But, you know, anxious because there's just so much uncertainty in global markets, in geopolitics. And we have this weird US, China summit coming up. We'll get into it, but it's hard to see where this takes this the relationship. Speaker 1 Yeah, I feel like excitement and anxiety increasingly go together in our line of work, so I think that's a very inappropriate vibe to be bringing into this conversation. Evan, how about you? Corey, how's your vibe today? Speaker 3 Yeah, I mean, I don't think you can beat that vibe. It seems Evergreen right now. So completely agreed. And I think personally that tracks. In terms of upcoming travel, I'll be back in DC shortly, a quick trip up to New York as well and back to LA where it's been, you know, I was going to complain about the heat, but it's been like 92. And for LA, that's insane. If you dry eat, there's something we complain about. So I finally get to complain about the weather briefly, but I'll be back in the swamp soon and it'll probably be 100° and give it. So looking forward to that. Speaker 1 Yeah, Well, it certainly is hot here. So you're not going to get any respite in DC. For my part, I am headed off on Friday to Shanghai to see some of our clients and our colleagues there. So always excited to get back to China, ready to get back on the road, kick off the falls. So that kind of energy is what I'm, I'm bringing to the podcast today. So I think we got a good mix here, some excitement, some anxiety, some ready to get on an airplane from Corey and I and I know Evans on the road a lot. So that'll suit us well for the rest of the conversation. Before we get into the content, I quickly also have to do the housekeeping up top. So just a quick reminder that we're not just podcast here. Trivium China is a strategic advisory firm that helps businesses and investors navigate the China policy landscape. That of course includes domestic policy in China along a range of areas. Tech, autos, minerals, you name it, we do it. But it also includes policy towards China out of western capitals like DC, London, Brussels and others. 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Well, we already teed it up. We've got this big trip from Xi Jinping coming to Washington, DC on September 24th. I believe this is going to be the first official state visit by the Chinese leader to Washington and more than a decade. We'll get into some of the bigger context around the relationship and how you see that evolving in a minute. But I just want to start with that piece. What are you expecting out of this meeting? Are we going to see any significant breakthroughs, any changes to kind of how the two countries deal with each other? Or what are your thoughts on what's going to happen a few weeks from now? Speaker 2 Yeah, I think that's the critical question. What are our expectations? I have to admit Andrew, I have pretty modest, I would say even low expectations for the meeting because it comes at a time of a fragile truce, tactical day, dawn, you know, pick your adjective and noun. There's loads of them floating around out there. But the reality is, is we're we're to highly uncertain period in the relationship because we're in this period of a commercially driven detente where the leaders are meeting twice this year, maybe upwards of four times. But yet below the surface, competition continues to be fairly intense. And you could argue it's actually even, you know, growing greater. The administration likes to use the analogy of water polo. You know, below the surface, there's an enormous amount of competing and fighting and kicking going on. So the summit comes at a moment of this sort of unstable equilibrium and Trump administration, because of who they are, that they haven't approached this summit using the typical ways that other American leaders, Republicans and Democrats have. So there haven't been a lot of high level meetings to prepare for the summit. It's very unclear what the deliverables are going to be, either geopolitical or commercial. So I think the most likely outcome of the summit is an extension of the truce that was reached in Busan in the fall of 2025. But even then, that extension of the truce, it could be 6 months, it could be a year. And I think that's probably most of what we can expect. I think from the Chinese perspective, they're much more focused on limiting downside risk than they are at achieving upside gains. What I'm hearing from the Chinese is that they're most concerned about ensuring that Xi Jinping is not embarrassed and making sure that he looks good because he has to return to China and quickly prepare for the 5th Plenum, which is key politically to the party Congress that will be in the fall of next year. So I got pretty, pretty low expectations. There might be a few small deliverables related to Chinese purchases of agricultural goods, but again, it's going to be a lot of implementation of past commitments as opposed to anything substantially or dramatically new. Yeah, I think. Speaker 1 We would tend to share that view. And related to that, I just wonder how you think about the Busan deal at the moment, because over the past nine months I've thought, you know, it's actually provided a pretty decent level of stability. Both sides seem to want to broadly adhere to the deal. Now, the reporting is that both sides seem to want to extend the deal. But over the past just 34 weeks or so, we've seen kind of a barrage of back and forth, sort of spearheaded by the Federal Communications Commission on the US side and China hitting back against moves by that entity out of the US. And it just has felt to me over the past few weeks like we're sort of bursting at the seams almost. I don't know if that's the right way to say it or that that the taunt, that agreement is kind of straining as both sides continue to try to find different ways to assert their interests even under that agreement. Kind of like you said, the water polo example is a great metaphor, right? Calm up top, but still a lot of kicking and jabbing underneath. US-China: An Unstable Equilibrium and Looming Snapback Do you get the same sense? Speaker 2 Oh, absolutely. I completely agree, Andrew, because there are two fundamental dynamics at the heart of the US, China relationship. The way I think about them is there are two negotiations, 1 is the US and China negotiating the threshold of competition. So we have the Busan truce, but both sides continue to take actions below some undetermined threshold or boundary. the US with its FCC actions, the Chinese in retaliation, and nobody really knows where the threshold or boundary is, but we keep taking actions in the Chinese retaliate. And I think it's just inherently unstable. So that's why my favorite adjective noun combo for the relationship is an unstable equilibrium because it's a detente that's constantly being stressed. And so we're in this situation where both leaders talk about meeting maybe upwards of four times this year. We talked about extending the Busan cruise. We talked about maybe some other deliverables, AG purchases, Boeing Place, etcetera. But yet the tech competition is intensifying, it's expanding, and it's diversified. The other negotiation, of course, that's going on is between the executive and the legislative branch of the US government, which is odd because typically, and I know this from my time in the Obama NSC, most of the intense debates are within the interagency. So within the different parts of the US government right now, the debates appear to be largely between the executive and the legislative, with the Congress debating and discussing passing new pieces of legislation which would accelerate the tech competition and the tech decoupling. And I think that these two processes are fundamentally unsustainable. And so I think that, and I've written about this, that we're on track for a snap back to a much more competitive rival risk relationship at some point. I can't tell you precisely when that's going to happen yet. We'll know more, of course, after the summit. And so to me, what's so interesting about the summit process is it's sort of stress testing the demand for stability because both sides want stability in the relationship. But the question is, is what costs and risks are they willing to pay to sustain stability? You know, Trump obviously needs it because we're war in Iran and we have economic problems at home. The Chinese need it because they're entering into a very sensitive, difficult political year in advance of the 21st Party Congress. And of course, they have their own economic problems. And so it's in in some ways, both sides are trying to figure out how much can I compete without blowing up this stability. And I don't think either side really knows where the line is. And so all of these interactions, the summit, if Trump goes to APEC, if Xi Jinping reciprocates by coming to the G20 that we're hosting, we will sort of begin to learn where these boundaries exist and how deep the yearning is for stability in the relationship or whether or not both sides ultimately find the politics and the geopolitics can't sustain. Speaker 1 Yeah. I like the way you have written about this, about the potential for a snap back. And I know you just said you can't really in advance pinpoint exactly sort of what the tipping point for that might be. But can you talk a little bit more? And then I want to bring in Corey on how and if critical minerals might play into that, which I would guess would be potentially a large part of it. But can you just expand on the snap back idea and what you kind of been broad strokes think that looks like? Speaker 2 Yeah. So the idea of the snapback is that we move from this current era of tactical data on, you know, unstable equilibrium to something that looks more like the US China relationship in 2020 post COVID. In other words, the relationship is defined much more by acrimony and intense competition, economic competition, military security competition. And the question is, is what will trigger that? So there are both Chinese actions and US actions that could cross this imaginary threshold. And I think both are relevant here. I think on the US side, you could have a situation where, you know, for example, the Chinese provide some assistance to Iran that really alienates the president #2 you could have the Chinese miscalculate in one of their export control actions that alienates the White House. You could have Trump simply come to the conclusion that the Chinese are playing him for time, manipulating him, and he just decides that it's not worth it anymore. You could have congressionally mandated actions, especially after the midterms, if you see major changes in the House and Senate, that could lead to a sort of new political configuration in the United States where either the Congress becomes more active on China or more likely, the president feels that he has big political vulnerabilities and decides to go full mag on China, not unlike COVID. So I think on the US side, there are multiple things. As I said, I think on the Chinese side there are multiple actions they could take that largely involve just overcranking that alienates the US. Speaker 1 Yeah, I share your concern here that there's going to be a miscalculation and someone's going to go too far and kick a little too hard under the water, to stick with the water polo metaphor. But Corey Evans pointed out that a lot of the back and forth or the tension on this issue currently is between the executive branch and potentially the legislative branch. If Congress were to take action against China to sort of ramp things up in a way that China would see us abrogating the Busan deal, What do you see as issues that might trip up the relationship and and how ready do you think China is to? Yeah, I think the assumption is like the China's ready at any moment to pull the lever again on critical minerals. How do you think they're thinking about that as potential reaction? Speaker 3 Absolutely. I think Beijing has made clear that a lot of options are on the table. It's also made clear I think since probably around May or so this year that, you know, we might be in what I think Evan has rightly characterized as finding the new floor, right. And earlier this year kind of up to equal this year, it seems like both sides are trying to find the new floor of relationship, although the relations. But since then, I mean, we've had a number of actions that we've had Helga Yosemite, but most recently leading to the August 5th retaliations, right. And so you have all these willingness to press further and to kind of explore or the boundaries of the day taunt really. And I think it's clear that Beijing, one, is willing to push back and two, it's not trying to unilaterally escalate, right? So I think it would take a lot to get the right words card been back in all of a sudden. It's possible that negotiations breakdown. But there's one case, I guess where you have the extension of Busan breaks down for some reason. Now that's I think a tail risk. We were actually very optimistic that some kind of deal will get, you know, advanced, but at the same time, we're a little less confident in that now that I work, but in say March, April, May, because at that time you're looking at this kind of commitments to let's not break up this brief floor session that we've managed to achieve, but let's maintain that It's hard for now. But then over the summer, you've seen a lot more of these these moves, FCC action, the UFLPA, we were forcedly prevention Act listing some of the online security, but those are actions of the US talk about China immediately responded to in a way that it's all proportionate in terms of impact, not unilaterally task Glatori, but you start pushing on the boundaries. Like you said earlier, the first thing at the seams, the water polo metaphor. The question is, is there a threshold of which this goes, this boundary pushing goes a little too far and one side or the other kind of blows things up. And this is question and comment. What I'm concerned about is, Evan, you already mentioned it's not quite clear where the thresholds for both sides lie. And my bigger concern is that they move. Some of the thresholds are clear, like don't embarrass you, Jinping and some like that. That's pretty clear. But there's a lot of thresholds that are far below that. We, they, I think they are shifting. And so does Trump feel he's getting played? Well, it depends on a lot of things, including things that have nothing to do with China. Does he feel like he's getting played by other countries and regions with blocks like you? And he does seem to kind of take it out when he's losing somewhere, He'll take it out somewhere else. Like all these factors that I think just make it very difficult to predict. I am still optimistic that we won't see, you know, Beijing fuel and needs to throw a, you know, a unilateral. Well, birth controls are back on the table, right? I don't expect that right now, but there are a variety of other, you know, pathways. And so further decreasing the flow of license approvals, which would cut off exports more broadly than just Japan that's on the table right now. And that's kind of a somewhere between the actions we've seen so far, like blacklisting empty materials and USA or Earth's, which are notable, but I would say not, you know, catastrophic between that and a full rate of export ban. There's a lot of middle ground options that China has and I just don't know when exactly. And that's my question for evidence, you know, what thresholds do you see and what do you see moving in the current state? What does stability look like up through the agreement of a new extension to the Busan agreement? What does that look like? Speaker 2 One quick caveat before I answer Corey's excellent question. Keep in mind that when we talk about the, the boundaries around this unstable equilibrium, this, this, you know, tactical, they taught that because this is Trivium, we're talking about the economic dimensions of it. But let's not forget there are big geopolitical dimensions. And here I'm thinking of Taiwan, South China Sea and Japan as well. I mean, it is notable that since, you know, the Busan agreement and the tactical detente have been reached, the Chinese have actually been quite aggressive and assertive in their claims against the Philippines and the South China Sea, including trying to establish a near permanent presence in and around Scarborough, for example. You know, the Chinese on Taiwan have now come much more active to the east of Taiwan using Coast Guard activities, basically trying to assert maritime rights. In Taiwan's littoral in a way that sort of effectively, you know, turns it into territorial waters, right, as opposed to international waters to assert Chinese sovereign rights over the land mass and the sea rights that accord with that. And so all of that is out there as well. In addition that I think is is very much stress testing where the floor in the relationship is. But to get to Corey's very good question, sort of where do I see the threshold? What I would say is number 1, I can't pinpoint the threshold. I don't think anybody can. That's the problem. Nobody really knows what action is going to be a step too far. What I would say is that I do believe that 2026 is has been a very, very important year in the supply chain competition, export control competition because it's a year and on a pretty substantially built out its architecture. Some of the our listeners may be familiar about an article that Andrew and I wrote about a year ago that sort of told the broad story of the export control architecture from 2018 onward. But in 2026 the State Council passed decrees 834835837 all within 90 days of one another, all done at the State Council level, all effective immediately. All of them building out certain rights under the broader infrastructure of the unreliable entities list. The anti foreign sanctions law with different and new dimensions layered on. In 2026, we saw China move to much more actively assert its extraterritorial rights or extraterritorial mechanisms in the application of export controls. You know, in particular, basically it looks like every entity listing this year bars anyone anywhere from transferring China origin dual use items to listed parties, basically asserting jurisdiction over third country conduct. And it's of course started with Japan, but it's more than that now. And now we have, you know, China targeting entities like the Responsible Business Alliance in April and the sort of accreditation activities they're now listing MP materials in USA rare earths on some of their control lists, which to me makes export control policy look increasingly like industrial policy. In other words, using export controls to shape supply chain activity of other countries. So it feels like 2026 in retrospect will really be a very, very significant year. So going back to your your core question, Corey, I don't know where the threshold is, but I feel like we're, you know, pretty rapidly stressing wherever that threshold is. And I think the only thing sort of holding this all of this up are these leader level meetings. You know, and I say that as somebody that has studied and worked on the US China relationship, this pattern of behavior on both sides, it's just not sustainable. And you know, I mean, mention if this year finishes with Trump not going to APEC because the losses of the midterm are too bad and he doesn't feel like he got enough from XI at the summit. Xi Jinping doesn't come to the G20 and then we're sort of off to the races. Speaker 1 Well, I hadn't even really kind of contemplated that sort of quick of a deterioration because I've been hoping that this Busan deal in the leader level meetings would kind of continue to provide a ballast. But that's a good point. Something trips up those meetings, then you sort of lose the one leg of the stool that's still hanging on. And one legged stool by definition isn't very stable to begin with. From Trade War to Critical Supply Chain Conflict But I did want to stay on this idea of the supply chain war. I mean, I think you articulated well this idea that we've really morphed and I think we we've written about this at Trivium, you and I, Evan wrote about it a little bit in our piece earlier that I mean, tariffs aren't even the main show anymore. This is absolutely a supply chain war. This is a choke point war. And I guess maybe the question is, I mean, in my view, China sort of shifted the ground onto that playing field. Do you agree with that one? And secondly, why do you think they did that? Why do you think they did it now? Why is 2026 the year of the supply chain war? Speaker 2 Well, I mean, they did it in April of 2025, right? And the story is well known to your listeners, right? We, I mean, we had tariffs that were well above 150%. And the Chinese I think said they basically looked around, they broke the glass and they, you know, they pulled the fire alarm, so to speak. They pulled the the greatest, most significant source of leverage they had, which was rare earths. Now the US retaliated with its own supply chain of vulnerabilities. You know, these were specific commodities China can only source from the United States. But I think it was at that point that the trade war really transitioned to a supply chain war. And it was really about both sides trying to reduce their own vulnerabilities and increase sources of leverage. I mean, the good news is, is in 2025, I think both sides in May sort of had walked to the brink of using these cut offs in critical choke point technologies and materials and walked back and said we don't want to go there. But they had already crossed that threshold. And I think that's where we are today. I mean, as as you guys know, well, you write about it so frequently, I mean the administration is very concerned about the fact that the Chinese are not providing general licenses for the export of rare earth materials. They're approving individual licenses on a case by case basis, which is super slow and super inefficient, which has led to a huge amount of frustration. And so I think that the whole issue of the extension of the Busan truce, will it be 3 months, six months, nine months, 12 months will be tied in part to whether or not the Chinese are willing to accelerate their licensing regime for rare earths. And then, you know, another part of a possible summit package is this whole question of, you know, Boeing planes. We'll try to buy Boeing planes. And part of that is held up by the fact that there's this Chinese requirement for Boeing to sell them a huge supply of of spare parts. So they're not subject to, you know, some kind of choke point cut off in the future. So we are very much in a supply chain competition. I think that's that's exactly right. And we should understand it as such. And as a result, basically what's happening is both sides are sort of racing to reduce vulnerabilities and increase leverage. And the challenge is, is that there's a little bit of an asymmetry there between the US and China. Speaker 3 I'd like to build on that a little bit. I yeah, absolutely agreed. And I don't just say it's a supply chain issue because I'm supply chain guy. I became supply chain guy because it's an issue. So 100% aligned there. One further point, I'm curious if you'll agree with this. I think when we shifted from the economic to supply chain kind of conflict, it shifted from commercial and national security grounds. And I think that is the deeper more like very fundamental issue. Here's for for China, you know, the motivation on kind of when they're looking for asymmetric leverage, right, US tariffs then they can't just tariff back and that's proportional. They needed something else. So they reached as you say, they broke the glass, they reached the tools. And specifically, it has always struck me that nine times out of 10, Beijing has not tried to attack, say, the US economy broadly. There's probably a lot of reasons, but at least one is implicit, I think, is that they didn't think you would move the needle. I don't think they believed it would change US behavior. I think they believed what would change US behavior is things that would affect national security, right. So where it's and tungsten and other things that go to the Pentagon. And I think that message was was shown to be basically validated by certainly the Chinese industrial discourse source suggests it was validated on October 9th when the US kind of backed down. So for China, it's not much of A tension there to kind of use this commercial control to impact national security grounds of the US, to secure China's commercial interests by getting the US to back off. But for the US, and you've pointed this out among others, that the US with its tech controls has actually treated what used to be purely national security matters. Can you use certain chips like Huawei? Can you export certain chips that are essentially banned for export for national security purposes? Can you use those national security interests as bargaining chips in what is a, what is technically a commercial negotiation? And so the use of national security partnership is something that has concerned many people, right? So I think that's all part and parcel in my head of this shift to supply chain conflict. It's specifically supply chains for national security interests that are really kind of the center of this discourse. I'm curious if you rely on that and what that means. Is this an appropriate kind of use, you know, in terms of the way that the US has been responding? Speaker 2 Well, the challenge, I think Corey, is where's the line between commercial interests and national security interests, right. I mean, China denies the sale of permanent magnets to American companies making, you know, motors for EVs. That doesn't feel particularly national security. I agree with you that a lot of their export controls have been much more focused on denying rare earths and permanent magnets to defense contractors. But there's also been a commercial application. So I think the Chinese are careful, but I I don't think the the line is very clear anymore in a supply chain war between commercial and national security. What I will say is that the Chinese are very careful with the way they sort of apply these controls. In other words, they pay great attention in the extent to which the application of new controls is reciprocal, proportional and symmetrical because I think the Chinese, as you rightly went out, are often trying to find the sweet spot between imposing costs and not escalating the situation. And I think back to the controls that they adopted in September of 2025 when they applied the foreign direct product rule to rare earth controls. You know, the way that they adopted that was actually phased in a way that was meant to sort of give them time and give both sides breathing space to do what they ultimately did, which was suspend them in Busan. And that suspension is still in place. So I do think that the Chinese paid great attention to the way they calibrate the imposition of export controls for punitive purposes because they're very attentive to escalating the situation. And they want to maintain, you know, some degree of escalation control. And they also want to see how much resistance and push back they get. What I hear a lot these days is a great amount of focus among Chinese on the whole concept of reciprocity. They're like basically when we use a rare earth controls, we demonstrated that we could impose real costs on you. You have a vulnerability, it's going to take you a very long time to fix it. That source of leverage for us has sort of levelled the playing field. We're now equal status with you. So if you do something, we're going to retaliate. There's a, a new commitment to reciprocity and I think we've seen that play out all summer because every FCC action seems to be met with a Chinese action. But interesting, you know, the FCC actions are not met with symmetrical actions, right? I mean, the stuff that the Chinese did most recently on August 5th was all pretty interesting in the sense that it was just a series of sort of four different actions the Chinese took to retaliate, you know, the actions on drones, etcetera, etcetera. Speaker 3 Yeah, I think belong up on that. Yeah. Just in terms of finding that line, I think Beijing's line has been, I mean very early on and more recently you look at the early actions and where it's and you see them, there's this conversation of the China overstep overreach. And I'd say the a lot of that discourse I've kind of pushed against. But the one piece where I think that was fair was where they had commercial impacts that they didn't intend to. They would very quietly try to roll that back. And so a good example was with with the order industry bring up the auto industry and then Ford shut down the plants early on because they couldn't get access to materials. That hasn't happened that reopened and hasn't happened since they reopened. And partly it's because the Chinese are making sure they actually do get those flows because the goal isn't to shut down board. And with the EU is a similar thing. All the older companies, among others who really were not the intended targets, but obviously were impacted. And Beijing kind of trying to do this without losing face or admit faults or anything, of course. But you still, you start to see things flow in that direction. And now when we wouldn't hear it, companies getting licenses rejected. And again, the licenses are applied to the extra Chinese exporter, but they have to clear their end user reference. So the end users are unable to get that material 9 times out of 10. The reason listed is we couldn't prove that you're not going to end up giving this to Ray TR or someone. And so like in that gap is where a lot of companies still get hit. And so that strikes me as a lot of the, the intent behind the work controls remains really around all use national security, that kind of approach. Of course, they're huge commercial impacts, but it seems to be kind of a tolerated collateral damage. But yeah, so that's, that's one piece. And I think what's so interesting is the US has used chips, which is also kind of a, a national interest or not so much national security in the same sense of do you have Sumerian for missiles that's a little bit more direct. But with chips, it's a lot about China's ability to use US chips in military systems and for AI that could be deployed for defensive keep, you know, all that, all that rationalization and then to to relax those controls, right? I do not ever see China relaxing controls specifically on the dual use for national security grounds. I don't ever see them allowing Boeing to get whatever they want. That could go into non commercial obligations. But you do see the US, you know, enabling some chips to be sold that originally were argued to be banned under national security grounds. That seems to be an asymmetry to me. I, you know, but there's some periods I'm missing. I'd love to know, but I'm curious if you see it that way or if you if you push back or or what that means. Speaker 2 Well, let's bring Andrew into the conversation. Andrew, I want to get your sense of sort of these dynamics. Assessing Asymmetric Leverage in US-China Competition Yeah, I mean, I agree with you, Corey, in terms of the asymmetry. I think in my view, part of the reason that China has done this is because just very fundamentally when it came to the tariff or they were outgunned, right, because the US buys more stuff from China than vice versa. And so they, you know, years ago realized they were going to have to fight an asymmetric war when it came to a tariff war or trade war. And then as time went on and and their various moves. Speaker 1 Kind of went. Speaker 4 I don't know, not unnoticed, but not really. The Trump administration just didn't react that strongly to some of the asymmetric moves that China was making. They sort of ratcheted up piece by piece until they found an asymmetric weapon in Railroad, says Evan pointed out that the Trump administration absolutely could not ignore. But. Speaker 1 On that score. Speaker 4 And then I wanted to ask you. Speaker 1 You know, if you were to. Speaker 4 Give each side a grade. Just I'm thinking about the nature of leverage in this competition now and going forward. Speaker 1 If you were to give. Speaker 4 Each side a grade. How good do you think China is? How good do you think the US is? Or how good have we been on using our leverage vis a vis the other country? Speaker 2 Yeah. I mean, leverage is a is a tricky thing because it's not a mathematical equation. And in part leverage, you know, depends on the political tolerance of a country and its leadership to withstand pain. So it's important to understand that I can sort of give you a balance sheet of leverage, but it's an inherently political calculation, right? So if the Chinese can really impose costs on us, but we're willing to sustain those costs, it it's not really leverage, but what I would say is the at least the events of 2025, Andrew revealed to me the asymmetrical nature of US and Chinese vulnerabilities and leverage. You know it basically as of 2025. And I want to highlight that this is meant to be a snapshot. This is not a forecast or projection for the future, but the US vulnerability to China is pretty abroad and it's leverage is relatively narrow. And you know, again, we're only talking about the economic supply chain realm and that affords China certain benefits because you know, the the areas where you know, we have vulnerabilities to China are pretty significant, right? In other words, China's leverage over us is in the global supply of critical minerals, rare earths, magnets and other sectors like, you know, biopharma, you know, etcetera. And so the trade war highlighted that the Chinese could, you know, pretty substantially impose costs on us. And of course, the Chinese buy lots of of our agricultural goods, both grains and animal products. That could be a source of leverage, you know, for them as well. And so because China is an important part of so many of our supply chains right now, I think China has a lot of leverage. By contrast, China's vulnerability to US actions at this moment look relatively narrow. It's more commodity specific than sector specific. You know, we have choke point actions we can take against China, semiconductor design tools, jet engines for commercial airliners, a few other areas that are genuine choke points. And the Chinese know that, and they're trying to reduce those vulnerabilities, especially in the semiconductor supply chain. You know, one of the difficulties in assessing our leverage is that we do have a wider assortment of tools available to us, but they're tools that would be so highly disruptive and costly to the global economy. Like, you know, cutting China off from the dollar system, cutting it off from SWIFT global payment system, cutting off their access to US capital markets, trying to globalize all of our export controls, right? These are things that conceivably we could do. The problem is, is that they're so highly disruptive and costly to the global economy, they're really not credible threats in peacetime. They seem like they're tools that we would use during a conflict. So when I think about what the balance of leverage is, you have to think which tools does each side have that can credibly be used. And so I think right now, because we're so exposed to so many different supply chains where China plays a critical role, I think we have a lot of vulnerabilities that we need to correct. And I think that I hope the Trump administration is doing that. We know that they were investing in critical minerals, rare earths and permanent magnets, but there clearly are other areas. So I think the picture picture right now doesn't redound to America's benefit. Speaker 3 Yeah, I agree with that. And then I have a follow up for you on that. And I think you, you you laid out several pieces of the answer and I'd like to get your take on the whole thing is what is the end destination of this? What is a stable point after this? And I'm asking specifically in terms of, you know, there's the rare earths vulnerabilities, there's other critical minerals beyond that, there are a lot of intermediates that there are new technologies and bio and advanced materials that China's developing that the US don't have access to, right. So there's a list of things and part of the problem we've already seen is that it's just not one checkpoint, right. There's like fight just within earth and Ferris themselves and as if the other, you know, it's a lot of downstream stuff. And so it's and you write the character as I think, because it's kind of broad, right, Even the seemingly narrow specific truck points, they have broad impact downstream, even if that broad economic like in terms of 1, you know, greater it's themselves are not a huge industry, but the stuff that you're into massive industry and they all depend, right. So that's where the breadth comes out of the specificity. And so let's say the US somehow manages to clean up a lot of that stuff. There's always something else is the concern. And so in a worst case, do we end up just back in an ongoing destructive dance as we patch 1 vulnerability and then the other side finds another one? Or do you think that there's a level of cost that starts to constrain any any further spiral? And you mentioned for example, the US hands leverage of kind of the so-called maybe nuclear options up the right kind of phrase here. But you know, cutting China out of the dollar system would be just such a dramatic just absolutely not perceivable. Now do you think we've run up and against the point where that's the only leverage left and we kind of that the cost of that additional leverage prevents the cycle sufficiently to kind of constrain it. What do you see as an end point in the in the kind of mid to near term? Persistent Vulnerabilities: No End Point to Competition Corey, it's a great point, but I don't think that there's an end point. I think that this is a new dynamic at the heart of the relationship that is ongoing, in which both sides are constantly going to be trying to identify and eliminate vulnerabilities at the same time, try to accumulate sources of leverage where possible. Some leverage is big, some leverage is small, but I think that this just becomes an essential element of this broader thing we call long term geopolitical strategic competition between the United States and China. I think it's with us for the long term. And let's not forget this dynamic that we're talking about exists within a broader geopolitical competition as well. So when we enter into periods of detente that affects the cost benefit calculus of both sides to whether or not they want to want to probe or test or whatever. But I think these these sources of vulnerability and leverage are now a persistent, consistent feature of our long term competition with China. Yeah. Speaker 4 You've been really generous with your time and I know we've only got a few minutes left. I wanted to press on the leverage piece just one last time and then some of some thoughts on how businesses should be thinking about this. Is Mutual Leverage a Stabilizing Force for US-China? But do you fundamentally think good or bad? I don't know if those are the right words, but is it in a way positive for China and the US to each have some leverage over each other? There seems to be a strain of thinking out there that both sides having leverage over each other kind of creates an entanglement and entwinement as sort of the whole idea of mutually assured destruction on the economic front. Speaker 1 Right that. Speaker 4 Creates some stability because both sides can't fully extract from each other, or at least not without a lot of pain. But then I guess, you know, that leaves sort of unexplored the counterfactual level. Well, what if both sides, you know, were able to reduce their vulnerabilities to each other significantly? Might that be a better situation to be? And where do you come down on kind of leverage as stabilizing? Speaker 1 Force or not. Speaker 4 With both sides have it over each other. Speaker 2 It's a hard question for me to answer because this is when the part of my brain that's a former policy maker kicks in, Andrew. And my instinct is that the United States should accumulate as much leverage as possible and then use it to advance American interests. And so that's my instinct. What I would say in answer this question about mutually assured disruption, and I know you and I have talked a lot about this, and I hope we will continue talking about it. I don't really see it as it is stabilizing force. Everybody forgets that mutually assured destruction was not this great source of stability between the nuclear powers. In fact, both sides were constantly trying to exit MAD because they didn't like the mutual vulnerability associated with it. I mean, there's lots of books and articles about that. So in retrospect, it looks broadly stabilizing, but at the time, both sides were deeply, deeply uncomfortable with it. The other thing, of course, is, you know, mutually assured disruption economically is fundamentally different than nuclear MAD because with nuclear MAD, the stakes are so high. They're existential. With mutually assured disruption, the stakes are not existential, right? It's basically just how much pain is the other person willing to withstand and how might they retaliate in ways that you don't like? And so and so I think we're we're in a world where both sides are going to be, at least at this current moment, much more willing and able to use these sources of vulnerability and leverage in their broader competition. So I don't think it's necessarily stabilizing. Sometimes I, I do wonder whether or not this whole idea of mutually assured disruption is really has mistaken the source of or the cause of stability in this current period. In other words, it's the fact that Donald Trump is not a hawk on China worst kept secret in Washington. The fact that he, you know, secretly wants to have a good relationship with Xi Jinping, that he himself is recommitted to leader level diplomacy. And so both sides sort of put together, Kluge together with duct tape, a sequence of events for 2026 that have sort of allowed for this, the current weird moment that we're in, but that once we're outside of this leader level diplomacy, the fundamental sources of competition are going to kick back in. Again, I don't really buy the mutually assured disruption aspect or I don't really buy the mutually assured disruption explanation for the current moment. I think there might be other forces at work that really explain the stability of the moment, but we won't really know. Let's do the same podcast in a year and who was right and who was wrong. Speaker 1 For sure. Well, to wrap up then, one last. Speaker 4 Question for you, which is it's just, I mean, if you're right and I think you're analysis here is strong, right, that a snapback is highly likely coming, that we've got a current floor, but it's not sort of the medium term floor. And that each side is going to be persistently and consistently finding new sources of leverage and trying to maximize that. Business Strategy: Navigating China's Compliance Traps I know you talk to businesses a lot as part of your work. Of course, every business is different. But how do business leaders think about how should they think about this if just this is the new world where they do going to be looking for leverage over the United States, of course in the national security realm, but also the commercial realm and vice versa. How, on a broad level, should companies be navigating that dynamic, which doesn't seem to be going away anytime soon? Speaker 2 Well, I think every company, if they haven't done it, needs to do their own sort of China risk audit. How exposed are they to China, both demand in China as well as supply in China. And on the supply piece, make sure that there are choke point single source vulnerabilities. I think even in this day and age, after the rough and tumble events of 20/20/25 and 2026, there's still loads of companies that I don't think fully appreciate how vulnerable they are to disruption #2. I think that American companies, and we haven't talked about it on this podcast, but I got to bring it up, need to pay attention to this growing Chinese preoccupation with American companies doing business in China who are complying with American laws. So it's all captured in the anti foreign sanctions law. It's reiterated in 834 and 835, the new State Council regs from this year. We're basically, I think that there's a growing appetite in China to start penalizing American companies who are just trying to comply with American laws like the Uyghur forced labor protection. And from my perspective, you know, the Chinese started doing this a little bit earlier this year when it came to companies that we're trying to comply with American sanctions on buying Iranian oil. Corey will know the details better than me. And then, of course, this recent action against the RBA, right, which does these audits relevant to both complying with the weaker Forced Labor Protection Act as well as critical minerals. And so I think that, to me, that's a big new vulnerability that companies need to think about because the Chinese basically are going to try and force them to choose like you can't operate in our market and comply with U.S. law. And so I think determining where those vulnerabilities are is another real challenge for American companies. Speaker 3 Yeah, Yeah, we work on that a lot, specifically like the potential for compliance drop. And we do, you know, generally sense that Beijing doesn't have an overriding interest in kind of kicking out all American investment in business operations, obviously. But at the same time, you know, absolutely they're using this as pressure. And if the US is kind of trying to put the US in a position of like you're the reason. So there's a lot of compliance trap issues that Andrew and sure has a lot of framing on. But that is in short, one of the top issues that we're focused on right now. So glad you raised that. Speaker 1 Yeah, it's. Speaker 4 Certainly only going to become more complex to be a multinational company trying to navigate this environment and especially as these dynamics as you say Evan, are not going away anytime soon. Speaker 2 And just to reiterate a point I made earlier, I think it's important to be mindful that uncertain supply chains where the Chinese want to have dominant influence, I think you're going to begin to see the use of export control policy basically as a proxy for industrial policy, right? They're going to build alternative supply chains. Now, I'm not trying to say that they're reducing their exposure to imported oil as a weapon to target the Western world, but the ways in which the Chinese, as they build up a greater degree of their own self-reliance and resilience, can in certain ways use that to the advantage of their economic policy and industrial policy. And I think we just have to be really frank about how China could sort of weaponize some of these tools. And then it's a real. Speaker 4 Real absolutely. And we know know for certain they will be continuing to sort of look with at what the next next leverage point is and the next leverage point not only as you kind of pointed out, because that makes sense from a policymakers point of view, it's what policymakers do, but they basically have said as much in the 15th 5 year plan and we're doing a lot of work to kind of figure out what are the next checkpoints. And so, you know, as soon as the US closes the rare. Speaker 1 Earth choke point. Speaker 4 There will be something else that pops up. Speaker 2 Exactly. Speaker 4 Evan, thank you so much for the time today. This has been a really great discussion. There was a ton of other stuff I wanted to get to that we just unfortunately didn't have time to. But hopefully we can have you on again soon and talk about these issues because as you said, they're not going away at you said we can reconvene next year, but hopefully even before that we can try it again. Speaker 2 Yeah, look, you guys are great. I'm a huge, committed Trivium reader. It's my favorite thing to read every morning, so I hope everybody listens to the podcast signs up. And to be continued, look forward to keeping in touch with you guys and talking again in the near future. Speaker 1 Well, thanks so much. Speaker 4 Can't ask for a better organic plug than that. So thanks again for the time today, Evan, and thank you, Corey. And thanks everybody for listening. We'll see you next time, everybody. Speaker 3 Thanks so much. Speaker 1 Bye. Speaker 2 Thank you.