China vs. US Tech: The True Story Nobody’s Telling

[Music] Welcome to the Risk Reversal Podcast. I am Dan Nathan. I am joined by my good friend Peter Bookbar. You guys know him from OnePoint BFG Wealth Partners. Peter, welcome back to the pod.

Dan, thanks for having me. All right, we have a very special guest. Um, you know, Peter and I usually do this one on one, but we have Louis Gav. He's the founder and CEO of Gavcow, and we're going to have a great conversation on just all things China trade. Uh, we're going to get into what's gone on uh with this kind of tit for tat uh as it relates to Nvidia and their ability to sell their high-end GPUs to China. Um, Louie, we want to welcome you to the pod and maybe really quickly, Peter, give us the 411 how you and Louis met.

So I've been following Louis's work for many, many years. He was always for me one of those go-to guys that I needed to hear what he was thinking on the world. He lived in Hong Kong and he'll tell you for many years uh I'm fascinated with Asia uh China in particular and uh just to get his viewpoint from being there was always fascinating to me. Uh so finally for the first time in January 2024 uh Louis and I were at a conference together in Vail, Colorado. Uh we got to spend almost five days together. Uh it was great and uh I consider him a friend. And when Dan, you and I were debating uh and discussing a couple weeks ago the the growing competitiveness between US technology companies and Chinese technology companies, you know, a bell went off and I said we got to talk to Louie uh because I would love to bring him into the conversation and we can discuss this because I do think that there is a a seminal change going on in the world that as dominant as the US is uh we now have a sort of a counterpart that we're going to compete with. and uh wanted to hear Louis's thoughts on all this.

Well, let's bring him into the conversation. Give us uh quickly before we get into it. Um, give us a little history about yourself in the investing world and and the company that you founded.

So, first I'm blushing, thank you so much for the the kind words, guys. Uh it's a pleasure to be here. Uh delighted, very honored. That's probably the the least interesting thing we're going to talk about today. Uh so, and originally I'm French, grew up in France. Um went to college in the US. uh went served a few years in the French army as as an officer, left the army not really knowing how to do anything. So went into finance. Uh started working for a French bank. They sent me out to Hong Kong for a couple years because I I'd done Chinese at school. Uh they sent me out to Hong Kong for a couple years and that was like 30 years ago and uh still there. Started my my own firm initially doing research. Then we moved into uh into money management as well. And that's probably enough about me.

All right. Well, Louie, let let's just dive into this this topic right now. So, a couple years ago, well, actually, this goes back to 2017, 2018 when uh the US administration uh limited the access that ZTE and Huawei had to to US tech products and without sort of those inputs into their own products, uh their businesses were essentially shut down. And that was a really important event because it woke up Xi Jinping to say, you know what, we cannot rely on the US as much as we used to. And we need to start an whole campaign here on developing our own technologies, our own competitiveness and our ability to do things ourselves rather than relying on them as a trading partner. And here we are fast forward and I know you I want you to dig into that but here we are fast forward where that level of competition is getting ever more intense. The last couple years, the US has stepped up its limitations in which Chinese companies can get access to US technology, particularly semiconductors. Uh, Nvidia's market share, which was 85% a couple years ago, is now down to 50 and probably going down even further as their H20 and their other AI chip is China doesn't even want anymore. So when we look at over the next five, five to 10 years, is China the first major technological competitor that the US is facing? And what does that mean for just not only the global competition amongst themselves, but is are US companies potentially going to lose the Asian market as customers? And when buying for other customers around the world, are we now going to we being the US going to have to compete uh head-on with China when looking at Europe and the rest of Asia and so on?

I'm so glad you started with 2018 because I do think this is a breaking point. And yes, I think that China was completely blindsided when the US banned semiconductors. To be honest, they they just weren't expecting it. It was it was a shot across the bow and and yeah, to your point, I think the leadership in China panicked a little bit. They did think if they're banning us from semiconductors today, tomorrow it could be chemical products, it could be auto parts, it could be anything. And so they they decided to essentially they told the banks, guys, normal loans to real estate, all the money has to go to industry, all the money has to go into developing our own tech system. They also got all the the big tech guys in a room uh and said, guys uh the US has declared economic war on us. I know you've been making lots of money, you know, optimizing puppy videos on the internet and this was great. Well done you, but from now on, you guys have to develop semiconductors. You have to develop your own servers, your own software. And, you know, this is when you had the whole Jack Ma incident. And suddenly Jack Ma goes on a on a stage in Shanghai and says, "The government's trying to tell me how to run my business, but they have no clue." So the government says, "I don't think you heard us correctly. Maybe we didn't make ourselves clear. Um, let's have this discussion again." And so there was a mobilization of all resources towards that goal for the past seven years. And during these seven years, I think the western world looked at China and very much, you know, saw the consequent real estate bust. If you know, if in the US the government said, normal loans to real estate, real estate wouldn't be so hot. So you have a massive real estate bust and when you picked up your copy of the FT, the Wall Street Journal, whatever else, all you got was the the real estate bust for seven years. And I think we were kind of blind to how quickly China was moving up the value chain on the back of this wave of capital. And by the way, not just, you know, money, not just physical capital, also human capital. Because essentially the tech companies were told, stop hiring the best engineers out of Tsinghua and Fudan, uh, the best universities in China to build video games. Uh, from now on, you're going to develop semiconductors. Now, you know, China today, China produces more STEM graduates every year than the whole rest of the world combined. If you exclude India, it's, you know, it's China in 25 years has gone from 350,000 university students a year to 12 million university students a year. So it's it's an improvement in human capital. And this human capital is essentially been driven for the past seven years towards you have to develop our own tech solutions. We have to develop our own industrial solution. We have to completely de-westernize our supply chains. and and now all of a sudden we wake up to a world in which China's producing the best cars, not just the cheapest cars, but also the best cars. Um, you know, here's a mind-blowing fact like you take Audi. Audi in China has now dropped in China. It was a, you know, synonymous of luxury for the longest time. They've dropped their four-circle branding and the Audi name to adopt a Chinese branding because if you're in China now, European cars are perceived as inferior to to Chinese cars. Uh, just just to put things in uh in perspective. Another example, I'm sure you've seen that the interview of the Ford CEO where he highlights that he went to China, was blown away by what he saw and bought a Xiaomi uh and brought it back to the US. And he drives a Xiaomi to work every day. I mean, this is like this the, you know, the Coca-Cola CEO saying he'd rather drink Pepsi. Um, it's it's kind of mind-blowing to me. So, I think to be honest, China has leapfrogged the West in industry after industry. Take turbines, take telecom switches, take take everything except the very high end of semiconductors. China's by now leapfrogged the West. And we missed it because for three years, nobody visited China because of COVID. And then once COVID reopened uh post-COVID, Russia had invaded Ukraine, you know, when you and I met Peter, everybody was running around telling you China was uninvestable because they were going to invade Taiwan because they were part of the axis of evil with Russia, etc., etc. So everybody missed that you had this huge step up in China's industrial capacity. And so now today China's bidding in Saudi Arabia to build nuclear power plants at half the cost of the French. you know, being French, I look at this, I'm like, I I always thought we'd own the nuclear space. I always thought that, you know, we got lots of problems in France, but at least we got that. We don't even have that anymore. So, it's, you know, this for me this one of the single most important macro development is how quickly China's moved up the value chain in terms of industry. And yes, it is knocking on the door of tech. And I'm sorry to be long-winded, but last yesterday the FT had an article saying, okay, Xi Jinping is now banning Nvidia chips in in China. U I look at this and I think, okay, either that's hubris on the Chinese part. They think they're they're advanced enough that they actually don't need Nvidia. Option one. And there was some inclination of that with DeepSeek, right? U it's like, oh, we can produce DeepSeek without the high-end Nvidia chips. Or they think that, you know, Chinese chips, the Huawei, the SMIC, etc. are like close enough that all they need is a little more impetus and they'll get there. Or alternatively, Xi Jinping is trying to trip up the US market because if you if you trip up Nvidia, you know, Nvidia in two and a half years has gone from a 300 billion market cap to a 4.3 trillion market cap. 4 trillion of wealth creation in one company in less than two and a half years. Unprecedented in the history of capitalism.

Well, let's talk about and I think you know the semis which you just mentioned, you know, um they have in China the backing of the state, right? They always have their national interest in mind, right? And when we think about what's going on over here to your point about Nvidia, you know, they were making chips for gaming, for crypto mining, right? There was some data center sort of business, but there was a lot of competition yet uh and we didn't have this sort of secular trend that emerged urged very quickly, right? So the idea that we would sell them our largest adversary who can rally, you know, behind, you know, with the support of their government for something, you know, just listen, you know, EVs, there's like a hundred EV makers in China, right? And a half a dozen of them are going to be premier EV makers around the world, right? And we do have concern about that. But when it comes on our reliance on the Chinese for so many things that go into our defense and intelligence apparatus, we have you know a huge huge blind spot, right? So now let's go to GPUs and you know they are clearly our national champion, this is Nvidia, right? So the debate here is whether we sell them our best technology so that will make itself into their defense and intelligence apparatus which is there to basically leapfrog us in so many different ways, right? So, how do you think about this? Should we be selling them even if it's a stripped-down version, right, of our higher-end GPUs? Because this is a battle that is really for supremacy on so many different levels for the next 50 years, right? Is that fair to kind of categorize this that way? And that's really the debate. Should we be selling? Jensen Huang clearly has $4.3 trillion reasons why we should, but is it in our national interest to do so? And I get it. The idea is like, let's get them hooked on CUDA and, you know, that sort of thing. But to your point about their ability to influence the rest of the world, you know, there is going to be a digital belt and road whether it's using Huawei chips or Xiaomi's backing or whatever the hell you want to kind of describe or it's going to be on the backbone of our technology.

I think that's a good way to frame it. And and to be honest, uh like I'm not American. I'm not Chinese. I'm French. The the question is what relationship does the US want to have with China? Is uh is it a commercial relationship or is it an adversarial relationship? And it's not for me to answer. It's for US voters. Uh it's for US policymakers to to answer this. Uh and I think that the US really hasn't decided uh what it wants to do. I think for you know up until 2018 essentially the US was saying we definitely want a commercial relationship with China. We want to make as much money as possible and so Apple puts its plants there and Tesla puts its plants there and uh and you know Tesla provides the impetus for the EV industry to grow massively in China etc. So up until 2018 the relationship was very clear. This is a commercial relationship. Everybody's trying to make as much money as possible. This is capitalism. Everybody's happy. Everybody works in the same direction. 2018, the relationship shifts. It's we're no longer commercial. We're now adversarial. And that was reinforced in '21 when uh Blinken and Sullivan meet with their counterparts in Anchorage. that, you know, Blinken came out of there saying the relationship will be commercial where it needs to be and adversarial where it needs to be, which, you know, if you're China, you're like, well, where does that leave me? It's like, so, you know, where is that line between adversarial and commercial? Can you be both at the same time? You know, when the US had an adversarial relationship with the Soviet Union, uh it was understood that it was two separate worlds. There was very very little commercial transactions. um, you know, today if the US really wants to have an adversarial relationship with China, this has massive, massive implications for the US stock markets. You know, what's the value of Apple without China? What's the value of Tesla without China? What's the value of Walmart? What's the value of uh ExxonMobil that does a ton of business in China? Um, all this in a way that just wasn't happening with the Soviet Union. So, is is an adversarial relationship with China in the US's long-term interest to the extent that China is now essentially the biggest trade partner for almost every major market except for Mexico and Canada. It's so you're if you turn around if you're the US now and you tell a Brazil or you tell a Chile, perhaps even a Germany or a Turkey, hey look, it's us or them, they might pick them. They might pick them. This isn't the Cold War all over again. So, can the US even afford to have an adversarial relationship with China? And and more importantly, what does the US get out of it? Like, what's the end goal to have an adversarial relationship with China? The US did very well out of the commercial relationship with China. Um, it's, you know, huge profits again at companies like Apple, like Tesla, etc. What does the US get out of the adversarial relationship? Why would they want it? How does it work? And I don't think this has been properly laid out for either US policymakers or US voters. But again, it's not for me to decide. Uh, what I do note is that right now you essentially have your bum in between two chairs where sometimes you want to be commercial, sometimes you want to be adversarial and I think you get the worst of both worlds and and the US economy uh also benefited tremendously from uh an intermediate goods standpoint, raw material standpoint. I mean the the amount of companies in the US that sourced product in China not just because it was the lowest cost but it was a combination of low cost and very good uh, you know, if you want low cost, you just go to Bangladesh to get what you want, but Bangladesh is not a manufacturing powerhouse. There's a reason why China became a manufacturing powerhouse. I know firsthand many people that have sourced their products. They made their prototype here, but it was really only China that was able to deliver exactly what they were looking for.

So this also gets into as you said, you know, the commercial and and and sort of call it the military, military angle. And the military angle is a lot because of Taiwan. I mean, you you I want you to explain to the listeners too, like China's history is is not necessarily territorial. They're not looking to invade other countries. Taiwan obviously is unique because they genuinely feel like Taiwan's part of China. I would consider that a one-off. It's a big one-off. Um, the US has come to, you know, the verbal defense of of of Taiwan. But if it wasn't for Taiwan, do you think we still would have reached, we being the US and China, a level of commercial competitiveness that the world sort of would would have still split apart? Like, is the US trying to is this her way of trying to stiff arm competition or is this a legitimate fear that we will at some point have a military conflict with China, a kinetic battle of some sort triggered by China's invasion of Taiwan, blah, blah, blah, blah, blah. I have my own thoughts on that, but I want to expand that with you.

So, so first let me reassure all our listeners that China isn't going to invade Taiwan anytime soon. Uh, first because I'm not sure they can pull it off. As we're seeing with Russia's invasion of Ukraine, invading countries is a tough business. Now, when you try to invade Ukraine, you're essentially sending tanks across wheat and corn fields. Here, you're talking about over 100 miles of sea. Uh, and it's quite a treacherous sea at that. So, you know, chances are it's a much, much bigger operation. So, so that's your your first hurdle. Then you simply look at the political calendar in Taiwan. Uh, so Taiwan, like every country, is split. You know, a third left, democratic party that's very pro-independence, a third right, the Kuomintang nationalist party that's very pro-business with China. Um, you know, like most right-wing parties, they want to make money. So, and then a third that moves around. Now, today the democratic party, pro-independence, is in power, but it is literally pulling in the 20s. It is it has never pulled this low. So if you're China, you know that you just wait two and a half years till the next election and the Democratic Party will be wiped out, potentially destroyed, like potentially just wiped off the face of the earth. The only thing the only way the Democratic Party survives is if China starts rattling the cage uh and then people could swing back to it. So, so you're not hearing any noise from Taiwan uh on Taiwan from China. You wait patiently till the Kuomintang comes back into power, then you open the checkbook, you do a lot of deals, and you tie up China, Taiwan economically uh with China. So, if you're worried about Taiwan from that front, it's uh it's a wrong worry. Now, to your point, I would invite your listeners to do a Google search on Taiwan. Just Google search Taiwan war in US media. And what you find is that for the longest time, nobody cared. When did people start caring? It starts really in 2021. Because what happened in 2020? In 2020, I think two things happened or in 2020 and '21, two things happened. First, TSMC leapfrogged Intel. All of a sudden, TSMC can produce 5-nanometer chips at scale in a way that Intel can't uh and announces a 3-nanometer chip. So, all of a sudden, and you can see it very clearly, up until 2021, TSMC has a market cap that's roughly a a third below that of Intel. Today it's more than 10 times that of Intel. So TSMC and essentially starting in '21, it becomes clear that TSMC is now the leading semiconductor producer in the world. So, you know, going back to what you started with Peter, in 2018, the US government decides to essentially say, I'm going to pick a fight with China and that fight I'm going to fight it on the battlefield of semiconductors because I have the biggest comparative advantage in semiconductors. I can crack China there. And then lo and behold, 100 miles from China's shore, here comes the best semiconductor company out of nowhere. So now all of a sudden, the US is like, "Oh, darn. The best semiconductor company is no longer Intel. It's no longer within my walls. It's over there. Now all of a sudden Taiwan is geostrategically very important in a way that it wasn't before." So that's number one. I think number two that what happened to be honest and here this this might sound a little more controversial but again look at the Google search terms uh and you see it clearly. US decides to leave Afghanistan and the exit is a total total shambles. Biden goes out to uh to 60 Minutes to give an interview to sort of justify the shambles that it was and out of nowhere in that interview he says, and if China thinks that because we left Afghanistan they can go out and invade Taiwan, we'll protect Taiwan, which was a huge departure from US policy up to that point. The the policy of the US was strategic ambiguity. We're not going to defend Taiwan, but we're not going to say we don't defend Taiwan either. And this is something that he then repeats twice. And this drives China up the wall because it's a shift in the US policy until then. This is also when Pelosi decides to go visit Taiwan, which is the highest-ranking uh US politician ever to visit Taiwan. So like this drives China absolutely up the wall because it it shifts the sort of soft status quo consensus that had existed until then. And since then, things have have toned back down. But following this period and personally I almost wonder, you know, why did the US put Taiwan in play? Was it the semiconductors or was it the fact that having just taken a huge black eye on Iraq and then a huge black eye on Afghanistan, you need to justify somehow the fact that you're spending a trillion dollars a year on the military budget and never winning any wars. And perhaps the best way to justify a trillion-dollar budget is to say, "Oh, look, China's about to invade Taiwan. We do need to build the next aircraft carrier. We do need more F-35s, you know, in case they do this." And so I think this combination of factors led to this. Now we're in a totally different environment. We're in a much healthier environment. And we're in a healthier environment because if you go back to 2018, when the US punches China, China takes the punch. You go back to 2021, China punches China again, China again takes the punch. But during this time, it's preparing. 2025, Trump comes back in and punches China again. And this time, China says, "Okay, you want to do this? Fine. Gloves off. Let's go. You put embargo on semiconductors, I put embargo on rare earths. I put embargo on magnets. You want tariffs on me, I put tariffs on you." And China was the only one who fought back against Trump. EU, you know, took the punch. Canada, Mexico, they took the punch. India, Brazil, everybody took the punch. China fights back. And amidst this fight back from China, the real the US realizes, hold on, without the magnets, in two weeks, the GM plant is shutting down. You've got Raytheon and Lockheed Martin saying, "Look, in a month we can't provide weapons to Israel anymore. We can't provide them missiles because we're going to be we're running out and we can't produce them without the rare earths." And so all of a sudden, the US realizes that yes, China's vulnerable to us, but we're actually also vulnerable to China. So you get to this status quo, uneasy status quo. You look at the past four months, all of a sudden nobody's talking Taiwan anymore. Again, do the Google search. It's fallen off. It's fallen off the media landscape because we've now reached, I think, this truce between the US and China where the US realizes if we push China too hard, this is actually going to start hurting us and hurting us big time because, you know, if the US can't produce missiles, is it still the US?

Yeah, I think we we overplayed our our cards uh this time around and I think that became clear. Uh I actually agree with you on Taiwan. I think China's much more interested in a bear hug than than than militarily taking Taiwan. I think one interesting thing that I remember what you said in January 2024 when we were together and you were making your presentation, one of the byproducts of uh uh single child policy for many years, which obviously is not the case anymore, but uh a lot of parents have one kid and the last thing that Xi Jinping wants to do is start having parents losing their one kid in a military conflict when instead China believes that they can wait it out. They can hopefully as you said the KMT can take over and they can just do with Taiwan what they did with Hong Kong. So on this the deal that's supposedly on the table, I mean it's rumors and like take this with a very very healthy big dose of salt, but the deal that's supposedly on the table for when the KMT comes back is that but for this deal to happen, the KMT would need to have two-thirds of parliament because you can't change anything without two-thirds of parliament. So it may never happen, but essentially the deal would be for the next 50 years the current status quo prevails. So 50 years current status quo prevails. Then in 50 years you do we have 50 years of one country two systems like Hong Kong. So you keep your currency, your parliament, you can keep your army, you can keep your your police, you're just you're just, you know, you do you. But we we present you internationally. So you travel around like you lose your passport, you go to a Chinese consulate, we represent you at the UN, etc. We can put military radars on uh in Taiwan, etc. So that brings you to 100 years and then in a 100 years we have a full merger and by then who knows what China looks like. Who knows like everybody who makes the deal is dead um long gone. And so the the reason this deal would be a tremendous deal for everyone involved is first it diffuses the tensions. Uh secondly, such a deal would mean that Taiwan wouldn't need to spend three and a half, 4% of GDP in in essentially buying weapons from the US, which is protection payment. So you you free you free up that money immediately, but most importantly, you reduce the uncertainty for all the businesses. So you unleash a wave of of investment and a rerating of the market. You know, you look at Nvidia today, uh it's a 4.5 trillion, 4.3 trillion market cap. TSMC is a 1.3, 1.4 trillion market cap. Now Nvidia can't live without TSMC. TSMC can live without Nvidia. TSMC, I think, is actually the most valuable uh technology company in the world because they're definitely a step ahead of everybody else. And what they do, nobody else can do. But half of the investors don't want to own it because of this fear that if China invades Taiwan tomorrow, TSMC ends up being a hole in the ground uh and just disappears and your one and a half trillion of market cap goes to zero overnight. Now, you remove that risk, that one and a half trillion probably becomes three trillion, four trillion. Pick the number.

Yeah. You know, it's interesting because, you know, we spend so much time in US markets thinking about growth relative to valuation, right? And, you know, this was the case with a lot of these uh, you know, like you could look at Broadcom, you can even look at Nvidia, you know, folks were very hesitant to kind of chase some of these names despite the fact, um, you know, of this secular trend, which again, it took a couple years to see what the return from a product standpoint was, right? And and the ability to kind of get behind, let's say, generative AI. And Peter and I have discussed this a lot on the podcast over the last few months. The jury's kind of still out in the near term, right? But what's not uh confusing is to your point about the technological advance that Taiwan Semi has creating all of these chips really for the world. So, um, it it is interesting that if you take away that geopolitical risk as it relates to Taiwan, then Taiwan Semi could probably start trading at 30, 40 times earnings, right, which is a lot of the, you know, the names here in the US are trading at. Um, again, but, you know, that is what it is.

Can I interrupt you? Can I interrupt you here? I'm sorry. And I know I'm talking a lot, but this is this is this is so important because I remember so well, you know, back when we met back in January of last year and everybody was telling me, "Oh, can't invest in China because China's going to invade Taiwan, etc." I'm like, "Okay, great. Do you own Nvidia? You know, do you own Broadcom? Do you own Tesla? Do you own Apple?" And they're like, "Of course." You know, stock goes up. It's best stocks ever, etc. I'm like, "Okay, great. So, you're telling me China's about to invade Taiwan. What's the value of Nvidia when China invades Taiwan? Like the value is zero. Like Nvidia can't produce chips. When China invades Taiwan, Nvidia's essentially done for. Now, to be very clear, I absolutely do not believe China's about to invade Taiwan. But there there's a sort of internal contradiction in people's portfolios where on the one hand they tell you China is uninvestable because of this Taiwan conflict and on the other they own a bunch of stocks that will get absolutely decimated if that ever did happen.

Yeah. You know, it's interesting because over, you know, the last few weeks or so, the Chinese, let's call them internet stocks, KWEB, right, have gone parabolic. I mean, you know, and then when you think about Taiwan Semi is trading at a new all-time high and you say to yourself, this is an interesting crescendo into the supposedly high-level trade talks that we are having with China right now. You throw the TikTok thing in there. I think a lot of investors who are not thinking about this from a political standpoint are just scratching their head. Why is TikTok the first sort of discussion point in a broader trade war? It it just makes no sense, right? So, um, you know, I'll butt in again. I'll butt in. I must. I'm sorry I keep interrupting you. I keep interrupting you. I feel super rude. But um, look, I think what's happened in the recent weeks to me, it's it's so obvious. I've written it out, etc. The the US-China trade war is over. Uh, the US has essentially said, okay, you know, following the imposition of the uh, the rare earth thing, following the Geneva deal, they they've backed down. Look at what's happened in the past few weeks. Uh, the past few weeks have been absolutely momentous. A month ago, you have the US saying, "Anybody who buys energy from Russia, we're going to punish. We're going to put in more tariffs. We're going to it's going to be terrible for them." So, the US sends out this message. 10 days later, you have Xi, Putin, and Modi who meet in Shanghai, and they're literally French kissing on stage, the the three of them. U they're they're like acting like they're the best buddies that have ever existed. Um, now just that, by the way, is super important because let's discuss for a second what's the big macro trend, the big mega trend of the future that will change the the the world. When I'm in the US, all people want to talk about is AI. Sure, you know, it's exciting, etc. When I'm in Europe, all people want to talk about is how welfare states are about to collapse because, you know, fiscal spending is out of control, etc. And so you can you got to buy gold and you got to buy Bitcoin and, you know, we're coming to the end of the welfare states and and, you know, that's perhaps a big macro trend. Sitting in Asia, if you take a step back, you think, okay, today we have Russia, the biggest producer of cheapest commodities in the world. You have China, the biggest provider of capital goods, the biggest provider of capital now to other emerging markets because they have the cheapest cost of capital in the world, and the biggest producer of consumer goods. And then you have India, which is the biggest provider of cheap labor. And now those three leaders are saying, we're going to put these three things together, mix it in a pot and see what comes out as a stew. Cheapest commodities, cheapest capital goods, cheapest cost of capital, cheapest uh consumer goods, cheapest cost of labor. It's going to be a boom of epic proportion that comes out of this. A boom of absolutely epic proportion. Now, you take your 30 biggest market caps in the world. 24 out of the 30 are American companies. Two out of the 30 are Chinese companies, Tencent and Alibaba. Um, one of them is Korean Samsung, one of them is Saudi Aramco, one of them is Japanese Toyota. But essentially, so here here are your 30. Now, how many of these 30s are going to participate in this boom? If the big macro trend of the next 10 years is the economic integration of China, India, and Russia, the answer is Alibaba is definitely a way to play it. Tencent is perhaps a way to play it. But in your top 30 market caps, there aren't a ton. So I think that the reason these stocks are ripping is is that picture in Shanghai and then I'll go one step further, really showing you that the US-China tensions are over. So the US again threatens everybody with sanctions if they deal with Russia. For the past 15 years, Putin has been lobbying China to build a Power of Siberia 2 pipeline. And Xi chooses this very moment to announce to the world, you know what, the US just told me I shouldn't buy more uh energy from Russia. Here's what I'm going to do. I'm going to build a pipeline to buy three times as much. U it's almost like he said, suck on that. Excuse my French, but it's like talk about defying a direct US order. Now, you could say again, it's hubris. You could say China's cruising for a bruising, or it's just they feel pretty confident that things with the US are on an even keel, that the ability of the US to punish China is now limited. Um, and so now all the gas that used to go to Europe is now going to go to China for a fraction of the price, priced in RMB. And so now you know that for the next 30 years, China, a country that already produces twice as much electricity as the US, will now have the cheapest cost of energy in the world, which is a huge shift and will pay for energy in its own currency. For the past 15 years, one of the big drivers of US growth was that the US had the cheapest cost of energy in the world thanks to the shale revolution. This has just shifted. China is now the the one that's going to have the cheapest cost of energy. So if you're a big believer in AI, if you think forget this China, Russia, India, economic integration, who cares, whatever, you know, these guys are hicks. Uh, I I don't I don't care. If you think AI is where it's at, then the question becomes, do you think the constraint in AI is going to be access to computing power or do you think uh the constraint in AI is going to be access to cheap energy? Now, if you think constraint in AI is access to computing power, then you buy Nvidia and you buy the US. If you think constraint in AI is going to be access to cheap energy, then what's happened in the past 3 weeks is that essentially China's already won that race. And I I tend to believe that actually it is going to be constrained to to cheap energy and that, you know, getting access to cheap energy requires 10 years of investments, 15 years of investments, and and China is now already ahead in that race because again, they produce twice as much electricity as the US and electricity in China is already much cheaper than the US. But they just took another they essentially just got a coal option to to get even cheaper.

[Music] Well, Lou, you you make it sound like the Chinese have a lot more leverage in this, let's call it, trade war right now, right? And and so when you think about going back to the first Trump administration, you know, they slapped on tariffs in 2018, we kind of talked a little bit about that. They didn't really have a framework for a deal until January of 2020. And I think what we kind of learned a little bit is that, you know, the Chinese, the whole idea that they lose face, right? Isn't that how the expression they use right now? It almost feels like we're in an exact opposite position. How does the Trump administration, if you believe all those, you know, what I mean? Kind of like what you just laid out. How does Trump save face here? Right. Because, you know, you mentioned that we have frameworks with all our our um, you know, our allies, if you say the EU and and Japan and, you know, the UK, we still don't have much of a framework with our two largest trading partners, which is Canada and Mexico. But if this is going to be this sort of, you know, freeze for the next couple years because it benefits the US and the Chinese feel like they have an upper hand, how does the Trump administration save face here if they're just kind of kicking the can down the road? So you say you want on TikTok, which is, you know, a detail of history and in the whole scheme of things really doesn't matter all that much, but you do a deal on TikTok where and the deal that's on the table is ByteDance doesn't give the algorithm that exists today, they create another algorithm. So it's, you know, it's like, you know, here's essentially a shitty algorithm uh that you can put in this vehicle that will be owned by Oracle and by Anderson uh and that ByteDance keeps 20% of and so. So you declare victory on on TikTok, which is the thing that obviously is the interface that most Americans relate to. So it's the thing that that Americans care about. You declare victory on TikTok and you move on. Just uh it'll be to be honest, it'll be like the victory in Iran. You know, they came they came into Iran saying we're going to do regime change. We're going to do this, etc. Drop a few bombs, declare victory, go home. And on the ground, nothing has changed. But it's, you know, here we go. You declare victory and and you move on. Which is, by the way, much, much better than going through a 20-year war, uh, you know, whether economic or real war, etc. This is much better. You declare victory, you go on, and you get on with your lives. The point I'm making is not that China's getting the upper hand in this US-China trade war, etc. The point I'm making is that it's over. And uh and and that's why that's one of the many reasons Chinese stocks are ripping. Um, the the war, the war is over. Uh, all you need now is the ticker tape parade down uh down uh Fifth Avenue or Madison Avenue. Uh, you're going to get it again. It's going to be called the TikTok deal. That will be your ticket, your ticker tape parade. And then you move on.

So, so Louie, to to to to wrap up, even though we can talk for hours, you know, to circle back on how we started this as the three of us are investors and we look out at the investing landscape over the next 5, 10, even more years, has the US met its match with a lot of the certain sectors that we were once dominant in and and the game is changing? And when you think about that that that startup in Singapore who's bootstrapped ing it has a certain amount of money that they've raised and they want to subscribe to an AI model. They need some servers and high-powered chips to to power them and they have US products on one hand and they now have Chinese options on the other. How competitive is the US going to be with these with with this China option?

I think first uh it's actually different offerings and this is where it's actually quite funny is that the US, which is, you know, an open society, you know, very uh based on freedom, based on everything, the offers today out of the US, whether you look at your OpenAI or or uh, you know, all all the the main offers are essentially closed in systems. When when China's systems are open-ended system, which is funny because it's like the opposite of what you would expect given the different societal backgrounds, but it reflects the the resources of both. The US uh, you know, it's their companies are so well-funded, so rich, so much cash, they can't afford to be uh open uh to be to be closed-ended. And and China couldn't because it didn't have access to the high chips, it had to open its system like DeepSeek and let thousands of people uh offer solutions etc. So the reality is if you're a small company, uh, yeah, you you're probably going to go with, you know, whatever solution is is cheaper and and China will most likely be offering the the the cheaper solutions. You know, one of my go-to sayings is that when China enters a room, profits walk out. So, China has entered the AI room. So, if you think there's going to be tons of profits in AI, I think you're delusional. My 30 years of living in China have taught me that if you're competing with China, you've taken a wrong turn. Like you need to take a deep look in the mirror and think think about the choices you've made in your life because if you're competing with China, it's going to be things are going to be very tough for you. Um, so when it comes when it comes to AI, let's not kid ourselves. China is in the room. There will be no profits in that room. Uh, that's that that's how it is.

Let's talk about some American brands that bet big on China. Not just from a manufacturing standpoint, but also, you know, this uh access to this rising middle class, which you might be able to make the argument that because of this kind of property bust, maybe it's less of a middle class that you have to sell to. Then if you think about demographics and Peter kind of hinted, you know, at this this kind of one-child policy and then this rising, you know, unemployment rate for young people, maybe it's not the place for American brands. And then you think about this kind of nationalistic fervor, if you will. We've seen Tesla, we've seen Apple lose a lot of market share. I think both of them have kind of bumped out of the top five or so. How how do you think of China even if you have this Daytona from a trade standpoint, from just broader geopolitical? How do you see the environment for an Apple, for a Tesla, for other consumer products? Because the Tesla thing sounds like an all-out disaster. The the likelihood that they ever recapture the market share that they had a few years ago given what you just said and what's becoming very clear about the quality of EVs? That seems like a tough one. And then do you think Tesla's going to be selling, you know, Optimus robots in China too? So

It seems like Tesla's kind of done in China. So, just help us think about that a little bit. Yeah.

Uh, well, going back to what I said, if you think that the big macro trend is the integration of Russia, China, India, how many US brands really participate in this? Um, and yes, look, the reason Tesla, the reason Apple are no longer doing well in China, I don't think it's as much nationalist fervor or anti-American sentiment that might play a little bit into it. It's just their products aren't as good.

Like, to be perfectly honest, like a BYD car is now superior to a Tesla car, and it's not even close. It's by a long shot, and they're much cheaper. You know, you take the BYD Seagull, which is essentially like a Honda Civic type car, sort of hatchback. You get that 500-kilometer radius and full self-drive with it. And that costs about $8,300 all in. That's the BYD Seagull. Like, how does Tesla compete with that, right? A Tesla will be four times that price. And same with the iPhone. You look at the Huawei phones today. Better cameras, better battery life, better everything.

So, you know, how do the Westerners, the Western companies compete with, with a lot of difficulty? Because again, the big story of the past seven years, which I'll talk about till I'm blue in the face, but Chinese, we used to identify products as Chinese products as being cheap, and they were. It was cheap products being made cheaply. It's not like this. I think the mindset we have to shift ourselves, and I encourage everybody to go to China today to see what's on offer. The trains, the cars, the phones, the fintech solutions. It's we've been leapfrogged. We've been leapfrogged.

And I think deep down, you know, we have this sort of superiority complex in the West where we're like, well, of course, our products are better. Well, but you know, just like Japanese cars became better than American cars back in the late '70s, early '80s. This is happening, but not just on cars, on literally everything. So, how do we compete? The only way we can compete is by doing better stuff, by doing better products.

Um, now, what are we deciding in the Western world, whether in Europe, whether in the United States? Essentially, we're saying, hmm, we can't compete with this. Let's put up tariff barriers. Let's, in fact, just block their products. Let's embrace protectionism. But down this path, this is not a way to get your products better. You go down this path, which is a path that Brazil went down, the path that Argentina went down. The whole thing about protectionism is essentially you're encouraging your domestic producers to remain mediocre. And so we're saying, look, we're going to try to keep what we have here at home, and these guys will continue getting better and better, and we'll just stay mediocre. The only way we can compete is by competing and by getting better.

Now, you know, when was, you know, the Tesla today is the same Tesla as it was five years ago, essentially. The BYD today is so different from a BYD five years ago. It's not even funny. Well, I hope our listeners are sort of getting a tap on the shoulder that when you do fundamental research on companies and industries, you have to see what the potential competition is from China, not just us selling product to them or them selling product to us, but selling products around the world. Because if you're going to meet a tough competitor, it's going to be Chinese companies in every market around the world.

Yeah. Well, Louie, I'll just say this. Um, I love this conversation. I hope you'll come back. Um, there's something really cool. If you're listening to this, Louis had a blue Bic pen in his hand for the entire conversation, which just tells you how old school this guy. He doesn't look old school. He's a young, great-looking man who lives in Vancouver. Um, and we hope to see you face to face when you're in New York next. But we really appreciate you being here. We could have talked, as Peter said, for hours. Louie, where can people find your work?

Uh, well, thanks again for having me. I really enjoyed this talk, guys. Really, really appreciate it. Um, the best is our website. It's gaffcal.com. G-V-E-K-A-L. Uh, I'm on Twitter, but I actually don't post that much, but, you know, people can message me on Twitter if they want, if they disagree with anything I said today.

Louie, great to see you, my friend. Great to see you. Thanks so much for having me. Thanks, Lou.

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