Transcription
Hello and welcome to another episode of the Silk and Steel podcast. I'm your host, Carl Zah. Today I welcome back the crowd's favorite Dr. Warrick Pal from Australia. Uh Warrick, welcome back to the show. Uh we have a lot to talk about.
Great to be with you again and great to be with your viewers and the community at large. So, as you have heard now, there's a quite of a a disturbance in the in the in the US talking space because China has released a couple AI models. First Tupu, the Z rebranded Z AI. Um, and now the Chinese the a Chinese delivery app made released their own AI model which is actually quite impressive. Um and this has created quite a panic in the US particularly the financial industry because there's so much money now is going into building this AI bubble in the US which with this premises looking incredibly wobbly with all these incredibly cheap uh open-source Chinese AI coming out. Uh what's your take on that?
Yeah, look, I think um the proprietary American AI business model is kaputmortem, right? It's dead. Uh the fundamental assumptions that underpinned the ways in which the technology was conceptualized and how it was going to create incredibly difficult to overcome modes which would support high revenue streams. um has collapsed in a screaming heap. not only on the back of the deep seek moment um but it just seems that every month or two uh there is a new development within the sector which demonstrates that everything about the AI model of the American uh technical um oligarchy complex uh is is actually being undermined and as you mentioned you know we've had two things in the last what two weeks, three weeks or so from China. Uh that has really thrown another big rock in the pond. So we have the Drupal model that you mentioned from ZAI or ZAI. Um, this is the Australian thing, right? Z AI and that came literally on the same day or the announcement came on the same day that uh Anthropic commented on the restrictions that the American government had placed on its models. Right? So on the back of those restrictions, Drupal comes out and says, "Well, we're going to make our latest model fully open source." Problem number one, right? Because that really reinforces this idea that in fact the American AI model is an expensive exclusive model, whereas the Chinese mentality and the infrastructure that's being developed around it is really about popularization. So that's the first thing and then in the last 24 hours or so we've seen reports now of a delivery company and of course everyone talks about these delivery companies and looks down on them because that they're amongst the hardest workers who arguably you know lead some of the more precarious labor market existences in China. Um that's also debated point but put that aside for a moment. you know, all those people in in their yellow vests and things. That's the image that we have of um Chinese delivery. And here they are launching an incredible model reportedly fully developed on Huawei chips. So that's your second second thing. Um, and I think at about the same time, um, in the last 12 hours or 24 hours, we've had, uh, confirmation that Claude's code base has actually written into it a whole bunch of spyware in the attempt to identify the locations and the um, the national attribute of users. Right? So this is all about this idea of um prohibiting basically Chinese people from accessing and using uh American AI. So what do you say about all of this?
Well, I think you got to sort of put it into that big context, which is what is the American economy in 2026 right now if it wasn't for AI? If it wasn't for the bubble that's been pumped up around AI, if it wasn't for the capital expenditure pouring into data centers being built everywhere, what is the American economy? What is the American stock market if it wasn't for AI stocks, right? Well, you know, cut a long story short, there wouldn't be much to it. And so the the apoplexy that I think's emerging now in the American political economy landscape around all of this is just intensifying. Makes it all worse of course is that they can't win a war in Iran, right? Um, and I think that there is a broad sense of western displacement anxiety really bubbling to the surface because on top of that, on the other side of the Atlantic, we've got folk in Brussels hyperventilating about Chinese manufacturing somehow, you know, being the death knell of European industry whilst at the same time consumers in Europe are lapping up Chinese-made air conditioners in the face of a heat wave. Right. Um, you know, we live in incredibly crazy times really, Carl, but they are times that I think are characterized right now by an intensified sense of western displacement anxiety.
Yeah, indeed. Um, in fact, and now they're they're projecting and they're they're try gaslighting uh China's accomplishment. I I just saw a foreign affair article which says China's industrialization precluded or even de-industrialized the countries in the global south. So it's not that the developed economy of the west Europe America is suffering but the global south is suffering because China has industrialized. Uh what do you say say about that?
That's the um the FP piece isn't it? the the foreign policy base.
Look, it's even worse than that, Carl, because it actually talks about the projected losses, right? So, these aren't actually realized de-industrialization or non-industrialization of the global south. This is the projection that China's industrialization is precluding the future industrialization of the global south. So, here we are. We've got American think tank analysts and you know blob writers now not only talk you know ignoring the historical record which of course is American and western imperial expansion and colonialization and extraction and now they're blaming China for what may happen in the future. Right? We're not even talking about what's happened now or recently. It's what might happen in the future. I mean give us a break. give us a break. This is coming from a bunch of people who I think are still struggling with the idea that America's track record is one of perpetual warfare and destruction. Right? the war the the the cost of war project at Brown University um has been estimating how much damage and the costs of America's wars in human terms in financial terms in opportunity cost terms in the damage to the fabric of American society right these are real things that are happening and yet we've got you know the principal mouthpieces of the American foreign policy establishment bloviating about some imagined future, right? What's the reality? Well, the reality is is that as China's industrialized, it's also made available at costs unknown heretofore to global south economies, capital equipment, and intermediate input materials necessary for their own industrialization. One of the reasons why China's exports have boomed in the last 18 months to two years is because China is exporting not cheap plastic toys, right? It's exporting capital equipment, machinery, electronics, EVs, right? solar power panels, wind turbines, batteries, and all of these things actually contribute to the industrialization possibilities of the global south. Right? So, whatever it is that FP and its editorial board are smoking, they need to, you know, just back off a little bit because this amount of imagineering is really doing themselves no favors. It exposes them once again, I think, to letting their own anxieties get in the road of sensible analysis and commentary. It certainly deludes Americans counterproductively and it makes the American establishment look desperate.
Yeah, I want to go back to the AI development for a second because uh the chief chief architect of US chip sanction on China, the former uh Google CEO Eric Schmidt have recently admitted the chip sanction has stopped working. uh because the whole reason for the chip sanction was to slow down China's AI development to make sure Huawei do not get their hands on the equipment like a from ASML to manufacture the most advanced semiconductors to power China's AI development. Whereas United States with this unlimited resources, unlimited money throwing at the AI bubble will brute force a solution by building thousands of data centers and and and through the brute compute power will leap ahead and and achieve artificial intelligence. But now it looks like China is quietly catching up at all layers of the tech stacks, you know, from both like the application layer, the the model layer and even at the hardware layer where um Huawei is now figuring out way to uh get the most juice out of the old way of manufacturing chips and and as as we have seen, you know, like the the latest uh uh Chinese open-source AI AI has all been trained, you know, built using Huawei chips and and Eric Schmidt's, you know, he has to say, you know, the chip sanction was working until recently. he stopped and he admitted now the gap uh a year ago he said the gap between American AI and Chinese AI about one to two years and now he says the gap between the American frontier model like claw from anthropics and or open AI uh and the Chinese model are probably you know four to six month but but but for most of the businesses they look at the cost of deploying the AI and the open-source AI from China is just so much significantly cheaper and I I I saw the data from a month ago. says 80% of the American uh startups have switched to using Chinese open source AI and that that percentage lot higher today uh because it just it just makes economic sense when you don't you don't nec you know like for that that difference between like three four six month gap even if that exists that the when when it's like magnitude cheaper to use open-source AI, you'll be financially irresponsible, you know, to to to to use open AI or anthropics products. Um, and I and I think this is what really uh sets a panic because they don't really have a good answer for it. You know, like the before the the um uh Eric Schmidt's idea was, you know, like to replicate the semiconductor in supply chain will be to rebuild the whole human civilization. be so complex China would not be able to do it and that will allow enough time for United States to reach AGI first and then you'll be game over because you'll be like American like you have 10 equivalent of tens and thousands of PhDs that don't need to sleep and and and poop and training new PhDs and and and then, you know, China and the rest of the world will never catch up and you will ensure the American in dominance for the next century or millennium, but that that looks increasingly unlikely today.
Yeah. Look, they're pipe dreams, aren't they? And they're fantasies. And uh you know that that issue of cost differential is is the killer, right? That's the manifestation of how two entirely different approaches to this question of artificial intelligence, which is really electricity, right? electricity and hardware um is is manifesting itself and we can see how China's advantages in terms of abundant electricity and low-cost electricity is underpinning its advantages in AI overall. It's delivering much cheaper computational outcomes on a on a computation to computation basis. Um I was just having a look to try to find um some data on price differentials that a colleague of mine in in the industry sent me and it's something in the order of um uh you know price differentials of 10 to one now right in terms of token costs um and and he and he just said to me well what do you expect is going to happen it's 10 times cheaper um to deploy and and run uh these Chinese open source models compared to um these American proprietary ones. So in that sense it's already game over right because other than a very small number of leading edge applications that may require the absolute um cutting edge models um just about every other use case doesn't require it. Right? So so uh we're going to see a proliferation of incredibly low-cost um Chinese open source models and there are other benefits too. Um, so if you've got models which are now uh running code to try to determine whether you're Chinese or not, um, essentially a security backdoor um, that aims to spy on you, well, what are you going to do? Well, you're actually going to implement and deploy locally um, Chinese open source models, right? That's part of your protective maneuver. the last thing you're going to do is to leave yourself and your intellectual property and your data um exposed to um to to American proprietary AI. On top of that, we've got a couple of other I think developments. You mentioned the hardware developments, right? As that gap closes and as that catchup takes place, whatever advantage there was in the American AI stack that came from that, well, that disappears. Um, and I think we know from the pattern of Chinese economic and commercial and technology development what will likely unfold after that because once that threshold is reached, it will then scale at an order of magnitude and at an acceleration rate that very very few in the west will be able to cope with and that will then push another round of Chinese open-source AI proliferation in the use case end. On top of that, the United States is confronting its own challenges, which is actually all about its electricity systems, right? There is simply insufficient electricity available within the network to satisfy the needs of its rapidly growing um AI infrastructure. And that's having very very direct results not only in terms of the cost of running these models themselves but it's slowing down some AI uh data center projects uh because there's not enough electricity but it's actually having another layer of effect on the American economic and social system which is it's driving up electricity prices for everyone else. So we talk about Dutch disease as as an economic phenomenon where a boom in one sector essentially pushes up prices for everything sucks in all these resources and undermines every other sector that used to have access to these other resources. So manufacturing that was electricity intensive is being hit by higher electricity prices. Households right are having their affordability severely hampered by um by increased electricity prices. So these are the second round effects now that are beginning to unfold. None of this points to a stable um viable social system at the moment in the US. You know, more people are going to come under um you know, household budget pressures than ever before. All because somewhere within their neighborhood, we've got these windowless um buildings literally sucking the electricity out of the grid. and um to deliver overpriced high cost per token outputs overly governed by the American government spying on a whole bunch of people when you've got the opportunity now to download and run Chinese developed open-source AI at one-tenth of the cost. Well, you can bet it's pretty hard to beat free. And this is why I said at the outset that the American AI business model is kaput. This is a problem of course because I think you might have also seen a financial times chart which showed the the the steep curve of investment growth you know in in publicly listed AI projects compared to previous um bubbles um whether it was uh the dot boom or the property booms and all of that. And boy, this is this is precipitous up at the moment. It's almost vertical this rise. And and when you've got all of these other problems in the in the fundamentals of the business model, at some point in time, these two worlds are not going to be able to align, right? And what what holds up that price? What's going to hold it up? Well, government contracts and government restrictions is where they're going to. And so when you've got oligarchs who've taken on uh you know risks associated with the business model based on some assumptions that are now falling apart, what do they do? Well, I mean, as you'd expect, they seek protective cover from government. And uh but there's, you know, double-edged sword. So they seek protective cover from government. But when protective cover from government comes, it causes problems uh in terms of um proliferation of the of the AI models themselves which undermines the business model. The US is the host of the soccer world cup or the football world cup at the moment and it just in my mind I just see own goals everywhere. Right. This is just this is just a season of own goals.
Well, I mean even uh when with all this money going to building data center in United States, but to build the infrastructure to support that in including uh expanding the power grid um and and and to supply the electricity, all the equipment, the transformers and and and all the associated equipment have to come from China. China makes everything that's that need that's needed to power the the excessive capacity in order to support these new data centers. So for some reason they think they they will be able to compete China choke off China's growth while be like 100% dependent on the Chinese supply chain. This is just it's it's kind of mindboggling. Uh uh uh uh go ahead.
It exposes a truth, Carl, doesn't it? Which is that in fact American success and Chinese success are actually tightly coupled with each other. So if the United States wants to realize its ambitions in artificial intelligence development, its ability to do that is dependent upon China actually also being successful. And there's a really important lesson in all of this and that is that zero sum thinking is not always and in fact really is the best way to think about complicated economic interrelationships. And this AI situation and the electricity situation amongst many other things is a great case in point. And you know, I I hope that this actually delivers a powerful lesson to people um maybe not the older generation who are suffering the anxieties that we've talked about who've grown up during a period when American dominance economically was essentially built into their DNA, their mental DNA. um but a younger generation who have actually lived through a world in which China's risen and grown quickly um and they're watching all of these things going on around the place most of whom also don't carry too much cold war baggage um they're likely to I hope actually understand that you know the the the development of American society can and will necessarily involve the development of Chinese society as well. they are intertwined with each other and you can't achieve one without um raising the other and the sooner that they get to understand that the better. Great example is what's happening in Europe, right? I mean Europe's had this heat wave. We've got all of this anxiety about Chinese exports. You know, everyone's bloviating about the the trade balance question. Put aside the fact that Germany's an an a surplus trader with just about everyone else. you know, then that's okay. Hush, hush. Don't talk about that. But it's this Chinese deficit that's a problem. But it's a money deficit, right? Because on the flip side of things is actually a capital account surplus. That's accounting. But let's not worry about that either. Um, let's just focus on what's going on in the real world, right? The real world is is that China manufactures air conditioning systems at incredibly low price, at high volumes. And right now, what are we seeing? Well, we're seeing Chinese air conditioning manufacturers running double shift to help the European economy out, to help the European society out. Well, that's a good thing, right? It's a good thing. You know, the idea that somehow, you know, this should be resisted because this is going to exacerbate a moneyside imbalance when it's improving the quality of life of people. It's actually in reducing the risk of people dying from the heat wave, right? People dying from the heat wave. And yet you have people who worry about this money balance, right? It's like it's like that they've sort of forgotten what the priorities are and what the purposes of of economies are, right? They think an economy is about the money balance. You know, forgive me if I think that an economic system is actually about providing people with good food on their table, an ambient environment that is tolerable and is enjoyable and opportunities to, you know, be creative human beings and to enjoy other people's company and to, you know, enjoy the rich experiences that the world provides. Maybe that's what an economy actually should be about. But no, you know, it's the trade imbalance, right? Oh, gee, come on, fellas. You know, let's get some priorities straight here.
Well, I I I don't think the European politicians are necessarily stupid. Uh I think they know what's going on, but they also know that they have done incredibly destructive uh uh things to the European economy by cutting it off from cheap source of energy. And now they're they're they're getting a double whammy from the Schua or Moose crisis. They're just they're just trying to shift blames and and China is a is a very convenient scapegoat which also converges with their uh kind of geopolitical alignment with the United States. You know it's like by by by acting tough on trade with China. this helps them to cozy up with the Trump administration in hope that US will throw them a bone maybe uh you know give them better deals in the in the tariff negotiations or something I I think that has been the European strategy for the past few years uh what do you say to that
Well, look, there's plenty of hopeium obviously when it comes to Brussels expectations and hopes from Washington and I don't think any of that historic hope in recent times it's actually delivered materially for them other than during the Biden administration um, you know, they got the armaments and support for a European um priority or a Brussels priority which is you know, the the war against Russia but um but you're right um it's uh it's it's a it's a political setup uh that has uh dug itself into a hole politicians of course find it very very difficult to admit fault. I get that. I've been in the system in the past myself and it's one of the last things you want to do because it leaves you vulnerable in lots of ways. Having said that though, one of the most successful politicians that I ever knew in Australia was one who knew how to say sorry um and apologize for things not working and then promised to fix them up. Now, he was very successful in that because he also had someone to blame. um even if it was someone on his own side, right? Just a younger person with less experience, but it's a learning experience and don't worry, I'll come and fix it up. Now, blaming people and holding people to account, I guess, um or at least blameshifting is part and parcel of the game, but in the end, it's got to deliver a result, right? Otherwise, you just keep shifting the goalpost, don't you? If that blaming that person doesn't work, you got to find someone else. You got to find someone else. At some point, a cold hard look at responsibility and the causes of crisis is necessary. And this is a reckoning that you can push off for quite some time actually, but somebody at some point in time can't avoid the reckoning. A lot of times people in political leadership positions simply kick it down the road and just hope that it's someone else's problem, right? uh the longer you can kick it down the road, of course, the easier it is in the short term, but often it becomes even more difficult, you know, down the track. And I would do wonder about whether or not the wider population across the member states of the European Union are falling for any of this anymore. Now, the fact that they're buying Chinese-made air conditioners in droves, the fact that they're buying Chinese-made EVs, um, you know, in droves in large part of response to the increased cost of oil and petrol and diesel caused by America's war, against Iran. And all of this tells me that normal ordinary people, right, see through this geopolitical stuff, see through the the conceits and concerns of elites and are focused on the things that matter to them in their lives. Low cost, accessible, available, right? They don't care where it's made, right? They just want what they need to lead the lives that they're trying to lead. And if those things come from a factory in Chongqing or from a factory in Dongguan or wherever, or if those things come from a factory in Spain that is now making this stuff because they're sourcing components from a factory in Chongqing or a factory in Dongguan, then so be it. because it's having access to these things at a price point that makes life affordable and possible. And the sooner the European elite actually understand that, the sooner they might actually do something useful for their own populations because otherwise they're not going to last. We saw this in the UK, right? Um, the uh, you know, the Star um and we touched on this last time um is for 100 years right he is the shortest stay Labor prime minister for 100 years right and why is that? Well, because it singularly failed on all the important things that a Labor government, well, one promised to do, which of course it abandoned, but it singularly failed to deliver an improvement in living standards for the majority of ordinary people. Not hard to think that through. And we see this in all sorts of other um nations in the European Union too. uh which is creating of course the ground swell for populist uh you know political reactions but and and the answers that they're providing are not really going to go anywhere because those answers are not economic answers they're not economic structural responses those answers are actually cultural and identity based as well right immigration etc etc right that may deliver some kind of a effective um uh reaction. But again, that's question of who to blame. It's easy to blame people who look different to you, right? It's much harder to blame the people sitting in boardrooms making making decisions that benefit stockholders and not ordinary people because they don't look any different. So, that's where we're at, you know.
Do you do you think uh there will be a chance to avoid the uh the the incoming uh what do you think of the prospect of this uh incoming EU China trade war to be resolved in a amicable manner?
Um, look, I think that there are some prospects to resolve it in a sensible way. Um, a dialogue mechanism has been agreed which I think is a uh is an administrative and political step that provides the room necessary for the parties to um to to to vent, if you will, but in a way that addresses the issues, right? You know, trade issues are not conducive to megaphone diplomacy. When you actually start going through trade negotiations, you actually got a big spreadsheet with line items of things, you know, down to five-digit codes. We're talking about nails and screws and nuts and bolts and this stuff is detailed um boring stuff, if you will. And it can only be dealt with when people commit time and effort in a format that isn't being combusted with political heat. Either seeking um a politically palatable outcome that you can sell right or seeking to rush an outcome because you've got some, you know, a timetable issue, an election or something. It's one where you literally have got to say we just need to roll our sleeves up and tackle the issues on their merits one at a time recognizing what the concerns are. We know that there are concerns amongst certain parts of the European political establishment and economic establishment that some industries that have been leading lights in the European economy over the 30 40 years whether it's prochemicals or high-end manufacturing are facing intense competitive pressure from Chinese enterprises. So we know that we saw news that V-Dub secret internal memo is contemplating shutting four factories with 100,000 jobs at stake. So you can understand why there are anxieties. So the question is is what do we do about them? Well, we can try and protect these industries and hope that they can fix themselves. The historical lesson of that kind of approach seems to me anyway, particularly based on the experiences that I've had here in Australia around protecting industries is that companies become actually incredibly complacent um aren't particularly grateful for the protection given to them and exploit that to deliver windfall gains to stockholders without necessarily driving innovation, new product development, etc., etc. And this can go on for decades, right? because you end up with a symbiotic relationship between the recipients of subsidies and protection and the politicians who benefit from it. So the real challenge is if that is a a downside risk of protection, how do you nonetheless bring new life to these industries and these companies and create pathways for sustained employment um as these industries experience change? You know, I I think of um a a report I think again in the last week where one of the Chinese delivery companies spoke quite exp it might have been make one actually um spoke explicitly about the fact that that they expect that some 70,000 delivery drivers or might have been even more than that um will end up being replaced by you know robotics and drone delivery right personless delivery systems. Now, that got the headline in a lot of the western press, but that comment about these jobs disappearing actually was made as part of a wider speech by the company's leader that they are committing to a massive employee retraining program and they've done deals with dozens of universities and technical training colleges across China so that these people as personless transport delivery systems replace what someone once did actually have a future with a company doing other things whether it's in AI systems maintenance or you know maintaining and repairing and keeping all of these devices on the road or in the air right so there needs to be a big push around skills development so that people actually are able to do the jobs of the future now that's got to be part of this discussion around trade so it's not really a question about trade KL it's going to be a question around investment. And this is where I think the Europeans would do well to dust off the comprehensive investment agreement that was on the table in 2020, negotiated for years, painstakingly at a bureaucratic level to create a framework for Chinese investments into Europe and vice versa. It got killed at the European Union when a whole bunch of your usual, you know, human rights narratives, confected stuff came to the four. Um, and you know, can't have these investment agreements with China because of, you know, insert whatever the favorite human rights narrative is. Well, an investment framework is desperately needed now by the European Union so that Chinese capital and I don't just mean money capital but knowhow, equipment, technology, science, etc., etc., in other words, the supply chains and the ecosystems can actually play a meaningful role in the transformation of European industry, right? you're not going to protect these industries as if you can protect the internal combustion engine. Right? This is the same if you were thinking a 100 years ago when the internal combustion engine was coming onto the scene saying we've got to have a way of protecting the horse and buggy, right? It's a nonsense, right? Barriers lost their jobs. Blacksmiths lost their jobs. Wheelrights lost their jobs. Right? these industries changed and we got the automotive industry in in its place and we're going to need to see the same again. If I was a European politician, and I'm not, but if I was one, I'd be thinking about what the jobs of the future looks like and how it is that we can build bridges between the jobs of today and the jobs of the future by working with the people who are actually creating the jobs of the future today. And that's an investment question, not a trade barriers question.
Well, but the Chinese company, I imagine they would need reassurances that their investment in Europe won't be seized arbitrarily on national security ground as is the case of Nesperia in Netherland, right? I mean like that that that's really set up a very bad precedent uh for any future Chinese investment in Europe because uh you know like these government can just you know for whatever reason maybe just to kiss up to Washington will will take over the comp billions of dollars you have already invested and say sorry we we got to take it away from you because of national security reasons and now you have to fight it fight over a lengthy court process is try to get it back and and uh you know like
Not only that not only that I think it's critical right this issue of of confidence in the security of these fixed capital investments you know you you can't just sort of pick up an a factory and move it right this is this is the myth that that often exists when people talk about you know economics that somehow you flip a switch and you just do move something these commitments are actually um once made are difficult to unwind but they can certainly be or access to that equipment can be taken away from you as you've mentioned which means you need some certainty around all of that. Here's the upside. The upside is is that for the last five or six years, notwithstanding the um the the kaiboshing of the comprehensive investment framework um at the beginning of the decade, Chinese investment into Europe has been rising and in fact reached record levels into Germany last year. So there remains a certain level of confidence in the um stability and security of the framework generally speaking. So one example I don't think is necessarily enough to totally rock the boat and destroy confidence but you don't want that to become repeated right it's something that needs to be resolved and once resolved trust building can resume and you can do that with concrete initiatives trust must be built not through words but through deeds and I think that that remains possible you know the the situation isn't that out of hand yet the Second thing though that I think actually begins to uh put a challenge onto the European leadership but nonetheless creates um an opening is to protect the European China commercial relationship from third party interference. And you do that by creating alternative accounting rails which means that transactions between Chinese firms in China and Chinese joint ventures or whatever it is in Europe and European firms and others in China need to be tracked and administered on digital rails that are not susceptible to the interference of third parties. So this leads to the role of the European Central Bank, digital currencies that they're creating, payment rails and systems that can be integrated with China's own CIPS networks, etc., etc., right? And if they were serious about delivering confidence to the investor side, the China side, then that would be one of the biggest steps they could take because other than confiscation of assets or prohibition of access to physical assets, you know, stopping people from getting into buildings and all of that, the next greatest commercial risk is actually the freezing or the or having digitally accounted assets seized. And you've got to be able to mitigate that risk. Now, you know, we know that European institutions are able to freeze third party assets, right? We've seen that in the uh the Ukraine Russia situation, but I don't think China would anticipate that even though that's a possibility that the European Central Bank or Euro Clear or those sorts of institutions are going to do that to um Chinese enterprises and organizations. However, they will be concerned that the Europeans might be pressured by the Americans to do it or that the Americans themselves will do it if all of these transactions were tracked on Swift or communicated by Swift and tracked on track with US dollars um where where the Fed ultimately um administers the um the the ledgers. So, get an investment agreement framework back on the table, right? have that framework focused on upgrading and transitioning workforces. Right? This is key, right? It's all about upgrading. It's not about protecting and somehow cocooning things and hoping that the world doesn't change. An investment agreement has got to focus on upgrading technical capability and human resource capabilities. Trade is trade, right? If you don't have what you need either in quantity or in quality, then you need to be able to get it from somewhere else. And you know, let's not beat around the bush, Carl. China makes everything in the world, right? You can if you can't get it from somewhere else, you know, you'll find a factory somewhere in China that will give you something akin to what you're looking for. So trade needs to remain as open as you possibly can. Investment needs to be focused upon technical upgrading and human skills upgrading and payment rails need to be rendered autonomous and bilateral so as to protect the participating parties from third party interference. If they've got the political capability to do that, then Europe can undertake a significant reset of its institutional architecture that recognizes the realities of today's competitive landscape. If it can't do that, then it will go down the protectionist path and hope that the Americans will, you know, come to the party and help them out and throw them a bone as you say.
Um, yeah. Uh, is there any other area of interest you would like to talk about?
Look, I think um I'm going to give a bit of a plug to your show um that you do with Daniel um Dunro. Um, for me it's a it's a very um uh entertaining but um uh sharp critique of uh the social media landscape and the sort of chatter and bloviating that you get in social media land on questions about China. And what seems and I guess one of my observations from that and people should watch the show um is because it covers so much so quickly. So if you don't want to sit there you know doom scrolling yourself trying to find some of these gems and you know just just watch you and Daniel go through it. Um, but there is a it it really drew my attention or or homed in on this deep sense of anxiety that seems to be coursing its way through the the sort of western body politic. And I'm cautious in that I know that social media tends to amplify. That's part of the nature of it. um the way that the algorithm is actually designed to attention seek. This is what it does, right? And it it incentivizes a level of incendiary and provocative um commentary, right? In fact, you know, I'll admit that when I engage on those particular platforms, you know, um I I succumb to the incentive structure as well. But there is an anxiety and the anxiety I think Carl not only speaks to the moment the changes that are happening that sort of loss of a sense of control and domination and you know all things that were once normal are no longer normal. I think it actually speaks to some risks that we all face and the anxiety is something that you know at certain level I I chuckle about you know it's there is a sense of well you know come up and does do this right but you got to get over this come up come up and spit reasonably quickly because the anxieties that we see evident also lead to I think some mutually damaging thought processes and pathways. So this protectionist pathway from the Europeans, I think it's damaging to the Europeans, right? It's it's it's another own goal, but it also undermines opportunities for people across the European or the Eurasian continent. Generally speaking, it's not helpful to Chinese companies if you know so and so in Europe doesn't buy or won't buy or can't buy something, right? So there's nothing helpful in any of this, especially if you think of the global economic system as a system that has to be constantly calibrated in ways that hopefully delivers meaningful livelihoods and reasonable and rising standards of living for people around the world, not just for a small number of people. But the anxiety can lead to, I think, some very dangerous things. We see this in the United States where this sense that China is the cause of all of America's problems today just intensifies with each passing week. You know, so we can talk both dispassionately and sometimes, you know, jovially about how Chinese AI is destroying the American AI business model. Well, I think that that's true. I think that that's a statement of fact. It's what happens after that that becomes concerning. What does America do? What does the political elite and the commercial elite do when that reality settles in? Well, we start to see some of that already. We see things like um uh spyware in the clawed code. And that won't be the only case. We'll see other kinds of policing interventions on populations because the paranoia levels around people with um you know certain skin colors or or particular facial attributes or what have you. You know become sources of anxieties themselves. And we know that this can happen because it's happened before. People have been rounded up before purely because of, you know, where they were born or where their parents were born or for how they look or for the language that they might speak at home. People have been consciously excluded from things by virtue of, you know, these sorts of attributes. So these are dangerous times, Carl. I think because of the changes that we're going through, the empire may be getting a bit of a battering in certain aspects, but it's a resourceful empire or elements of the empire and the the bits and pieces that benefit from the empire at large. resourceful and they will pursue things that are certainly viewed by them to be in their own interests, protective things often, but which are not in the wider public interest. And people around the world and people in countries that I think are being affected by all of this actually need to get a little bit more switched on to the fact that their enemies, if you will, are actually not people in other countries. The greatest threats to their quality of life, to the lifestyles that they either lead or that they wish to lead or that they've been promised to have. The greatest threats to all of those are actually coming from the institutionalized economic and political elite of their own countries who are unable and unwilling to recognize that the world is changing and in fact contribute to these changes in a positive way where they can continue to benefit um because of their accumulated history of resources and wealth and all the things that they've got but in which the benefits of what's happening can be shared more widely. So you know people watching this I think need to think deeply about uh you know who it is that they really should be concerned about. Is it a group of people in another country that are seeking to improve their own lives or is it a group of people in their own country seeking to deny other people the opportunity? And I would suggest that it's the latter. And if we can get our minds focused on that, then domestic politics might actually be able to diffuse some of the downside consequences of all of this. And by doing that, also hopefully reduce some of the anxiety levels that are driving it. So, you know, that's uh that that's what I get from watching you and Daniel laugh about all these clowns on social media. I'm not sure whether anyone else would get that, but um but that's what I get out of it.
Well, on that hopeful note, I think we can wrap up. Uh if for people who wish to follow you, uh Professor Pal, where would they go?
Yeah. Uh Substack first and foremost, warricpal.substack.com. And of course, I'll put in a plug for my recent book, Thermoeconomics in a Time of Monsters, which is available on Amazon. I think it's a reasonably good read. Um, even though when I go back to look at it, I struggle with some of it as well, thinking, "Oh my goodness, where on earth did those ideas come from?" But anyway, um I think it's um it certainly will provoke some thinking and um and if it can do that, that's great. Um I hope people enjoy it and find it thought-provoking.
Thank you for making the time to speak to us, Dr. Pal. And everyone listening, please make sure you go follow uh Dr. Pal at his Substack or check out his book. Um, and thanks for listening.