China’s Rise & US’s Decline: Navigating a New Global Order! W/Warwick Powell! Part 2

Can you hear me?

I can hear you loud and clear, David.

Perfect. Perfect. So, well, we are so excited to have you here once again. I want to thank you personally for, uh, really carving out time for me here and for my audience here that they are really sort of— some of them have asked me, it's like, you gotta reach out to Warwick. I said I will, promise me. I promise I will do that. So, so can you please, just before we get into any discussions here, Could you just provide a brief intro about your background, please?

Absolutely. Look, once again, thank you for having me here. I should firstly apologize to your audience and community for the mess-up in times last week. Obviously, there are some things some of us are good at, and time zone differences is obviously something I'm still working on to improve. So firstly, apologies on that front. The second thing I should let you know is that down here in Australia today is Harmony Day, which is when we try to celebrate as a nation cultural diversity. So hopefully we can bring a little bit of cultural diversity and multipolarity points of view to the table today. Yeah, look, my name is Warwick Powell. These days I wear 3 main hats. One is an adjunct professor at the Queensland University of Technology. The second one is I'm a senior fellow at the Taihe Institute, which is a think tank based in Beijing with research presences in the US and in Europe. And the third one is that I'm founding chair of a software development and trade facilitation company called Smart Trade Networks. Obviously, by the sound of my accent, I'm sure many of your viewers will know that, um, that I'm from Australia. Um, so I was born in Hong Kong, I moved here when I was quite young, um, and I guess all of my life I've maintained a connection into the world of Asia and have had to navigate the, the bridge, I guess, that connects my Australian physical presence and my Australian cultural roots and those sorts of things together with my Chinese roots. So that's about me.

Very, very, very interesting. Speaking of the Taihei Institute, so you work with Einar Tengen, if I'm not mistaken?

I do indeed, yes.

Yes, he's a good friend and he's always on the show here. I do invite him whenever he has time and he always really carve out time for me here. So we're so excited to have you here. By the way, guys, just to let you know, I did put a full description of the bio of Adjunct Professor Warwick Powell in the description. So later on, you take a look there with his social media links and so forth. So you got a full bio there You can look it up later on. So for now, we want to get into the, uh, really, really great discussions that I'm gonna be asking your input because your insights matter into all this. So, well, the first thing I would like to start with is I like to have your input about where the Australian economy is as of today.

Look, the Australian national economy is pretty flat at the moment. That's the reality of it. 2023, um, saw the economy grow, um, for one main reason, and that was population growth. And in fact, without population growth, um, the Australian GDP on a per capita basis actually shrank. So the Australian economy is not, um, one that is booming at, at the moment at all. Um, The other thing that in a sense kept the Australian economy in growth, particularly in the December quarter, was net exports. But that's not because we're trading more as a nation. It's actually overall trade's fallen a bit, but Australia still enjoys a trade surplus, and the trade surplus that Australia enjoyed during that December quarter contributed a quarter to the than the normal GDP growth that we had. But on a per capita basis, GDP shrunk. Australian living standards in terms of disposable income today is back to where it was at, at about 2015. And so in many regards, I think it's fair to say that for the past 9 years or so, the Australian economy as a whole has, in some respects, been treading water. Without really going anywhere. It certainly hasn't been moving significantly forward, but at the same time, not radically going backwards either. It's certainly not in the state that the European economies, for example, are in. So I guess you could say could be a lot better.

Yeah, and please correct me if I'm wrong, Warwick, uh, will it be fair to say that the economy of Australia, just if I am to go just the last 4 years or 5 years, was doing great given the trade with China. But the moment that Australia embarked on a policy that was directed by the United States, the economy of Australia took a dive, a nosedive down because China cut off some of the trades.

Yeah, look, there's a fair bit of debate about the precise net impact of the trade measures, So let's just put it into a little bit of context. From 2013, 2014 onwards, actually, Australia initiated a number of anti-dumping measures on Chinese products coming into Australia. Then Australia and China executed and enacted the China-Australia Free Trade Agreement, which did see a very significant uptick in trade, imports and exports. And then in early 2020, China introduced a number of measures that essentially were anti-dumping measures in relation to a number of Australian product categories. There's no dispute that that has caused a net reduction in the income derived from the export of those categories. By and large, the Australian exporters in those different categories have found other markets. There are some exceptions, and wine is probably one of those, but in many of the other categories, other markets were found globally. The difference, of course, is that those markets did not pay the same price that the Chinese market was paying for the products. So there has been a net impact. The extent to which that was an impact is a little bit debatable. Overall though, David, the, yeah, the interesting paradox is that whilst the diplomatic relationships have been quite rocky, particularly in the past 3 years or so until the last 6 to 12 months, aggregate growth in trade has continued. So much so that in 2023, Australian exports to China reach new record heights. Now, that's largely off the back of the continued export trade in natural resources. So there, there are some paradoxes at play here, but if you break it down and drill into specific categories, they've certainly been impacted. Um, how big? Well, you know, there's an argument about that. Um, but either way, the trade surplus that Australia enjoys with China has been the only real reason other than population growth itself has kept the GDP numbers above zero.

Very, very interesting. A lot of people might not— those who might be just joining me now, you are watching my conversation here with Adjunct Professor Warwick Powell. For those who might not know, Warwick, that you worked with Kevin Rudd the former Prime Minister of Australia. And yeah, yeah, go ahead.

Yeah, look, that was a long time ago, um, when Kevin was the Director-General of the Office of the Cabinet in the Queensland Government, which was the, the peak bureaucratic institution within the machinery of government. And, um, and I worked for Kevin for, um, for a number of years there.

So you are familiar with his policies and so forth. Uh, as, as, as many— some of you might know or not that Kevin Rudd, uh, will be appointed as ambassador of Australia to Washington. But today it was a statement by Donald Trump that he will not let Kevin Rudd serve as an ambassador. Why do you think that is? What is the issue there?

To be honest, I don't know. You know, political leaders will have their own views about lots of things, including individuals, and yeah, I think sure, it can happen. I guess time will tell, David. Firstly, in terms of what happens on the 5th of November this year, and then subsequently how that plays out as far as the Australia-US relationships are concerned at both an official level and also at that interpersonal level.

Yeah. So now you had an article on, uh, on Substack. And by the way, guys, I'm gonna show— share it with you, show you the link, that is, and I will put it for you in the, uh, description. So let me just at least show it to you here. Uh, here is the link to the Substack here that, uh, Adjunct Professor, uh, Warwick Powell wrote about. You addressed the, uh, specter of the US declining strategy and power in general term. Is this mainly is going to be linked to the economic aspects given the recent China Two Sessions, by which it indicates where the focus is going to be as far as the strategy of in China, that is, that's going to be focused mainly on technology and supply chain?

Yeah, look, the article that referenced there In a sense, tries to explore some of the dynamics impacting on a bilateral relationship which is between Australia and China. But there's a very interesting bilateral relation because it's a bilateral relationship with trilateral characteristics. And the third player in this story is Australia's relationship with the United States. And that really opens up big questions about the United States' attitude towards Asia and its Australian policy posture and intents in relation to this region, because that is the intersection point, if you will, between Australia and the US, Australia and China, and of course China and the rest of Asia. And that article tries to, I guess, highlight a couple of dilemmas, if you will, from an Australian policy point of view. And dilemmas go to the contradiction that sits at the heart of Australian foreign policy between historical, cultural, and institutional legacy on the one hand, which really sees Australia as a, as a Western culture, and the changing realities of Asia itself, where Western preponderance and Western primacy, and more to the point, American primacy, is something that you can only see in the rear vision mirror. So as Asia itself coming more multipolar and becoming more sovereign and independent, how does that affect firstly America's attitudes towards where it fits in Asia and ultimately how that flows into its interactions with Australia and how Australia responds? I say that the situation in Asia today is that American primacy is over. Multi-polarity is already in existence in Asia, though it is very, very fluid in terms of its institutions and its practices. It's got a long history around ASEAN, but more recently it has institutions such as Regional Comprehensive Economic Partnership. Of course, American military presence has been the dominant military presence in this region for the best part of 70 years, and for much of that period, I think it was fair to say that there was no contest, particularly in the post, um, 1989-1990 period after the dissolution of the Soviet Union. That there was no contest for 30 years is actually what is is no longer reality. There is actually a more genuine balance of forces, if you will, in Asia, as opposed to a more US-centered view of what balance means, which is balance in the favor of the Americans. So that's changing. That is the reality. And, um, and so American pursuit of primacy, whether it's to retain it or to reclaim it, is starting to impact on how countries of the region behave. And that's the contradiction at the heart of Australian foreign policy now, is that by going into the military measures along with the United States, that actually rubs up against the multipolarity that is often talked about through the lens of Asian centrality.

Yeah, well, that's very interesting. You brought up the term ASEAN because I was aware of— I followed, as a matter of fact, and I even talked about the recent dialogue between Australia and ASEAN, and I kind of wondered what was the objective of something like this if Australia wasn't aiming at something specific, economically speaking. Will I be, will I be fair in my assessments on this?

Yeah, look, I think it's spot on. Australia has long recognized that its economic future is tied to how it works within Asia economically, both in terms of trade, the movement of people, and investment. And this goes back about 30-plus years. And in fact, in terms of some of the political leaders of Australia, it goes back even further. But by and large, The real awakening, if you will, around the importance of Asia to Australia's economic future began to emerge in the mid-1980s and ultimately fed into a commitment from Australian governments from the mid-1990s on in particular to invest in the development of Asian languages and cultures education, specifically to cultivate a population that was Asia literate. So ever since then, there has been an acknowledgement of the importance of Asia to Australia's future prosperity. Australia's engagement with ASEAN, which is the 10 member nations of Southeast Asia, has nonetheless been quite limited. So despite the, the recognition of the importance of Asia, the interactions with the economies and the countries of ASEAN have been quite limited compared to the interactions with Japan, Korea, and China. Now, the hope from a national policy point of view is to change that, and the government released its ASEAN 2040 strategy recently, which seeks to intensify Australia's trade investment relationships across Asia. Now, it will be starting from a relatively low base, that's the fact, and there is a lot of work that Australia will need to do if it is to, in a sense, step up to engage with Asia in a more meaningful way, and that's the challenge. In terms of the summit that you mentioned, That was hosted a couple of weeks ago in Melbourne, and in part it was as a recognition of 50 years of Australia-ASEAN relationships, so it was a celebratory event. But it was also an event that aimed to highlight, I guess, to the ASEAN region that Australia is keen to lift its game and up the ante as far as how it interacts economically with the region. Whether it succeeds or not is going to be the big challenge.

Well, as an analyst, Warwick, I tend to really consider or assess the movements of countries when they embark on even an event like this, because I am seeing the same thing now Japan is doing with ASEAN. And knowing, knowing how some countries inside ASEAN, and I'm going to mention names here, like Philippines, like for example Singapore, to a degree, it appears to me looking from outside in that they are not on the same sheet of music, if I may use the term here. So would I be fair to say this, given that some of those countries know that their economic prosperity lies with China, not the United States?

Yeah, absolutely. And in fact, Chinese economic integration throughout Asia, whether it's North Asia, Japan, Korea, as well as throughout South Asia, coming all the way through to Australia, has just consistently grown for the past 15 years or so. The countries of ASEAN, the markets of ASEAN, now represents China's largest trading partner, having surpassed the European Union a couple of years ago. China, of course, individually with countries across Asia, is the largest trading partner, and for some of them is also one of the most significant investment partners as well. We've seen the development of infrastructure interconnectivity that is linking countries of Southeast Asia with the markets of China, both through maritime infrastructure that is being developed as well as through overland infrastructure such as the railroad, which we China and Laos, which ultimately, in the fullness of time, will probably reach Singapore. So we're going to start to see physical bridges, if you will, will connect the peoples and the economies all the way from Singapore into southwestern China. So the geographical integration through infrastructure, through the flow of trade, through the flow of investment is intensifying. Now, the US in some ways has tried to respond to that in the Biden period through some measures that in a sense are trying to say, look, you know, we care about Asia too. The problem, if you will, is that the words need to be matched by deeds, and what what the countries, the growing and developing countries of Asia largely look for in terms of economic development from the US is either investment or market access.

Yeah.

And it's market access that they're not gonna get. And so there is no trade and market access available as a result of the initiatives of the Biden administration. It comes off the back, of course, of the, of the Trump administration's decision scrapped the free trade agreements, the TPP. And so a new one's been created, but it doesn't include the US. And for developing countries, moving into manufacturing, manufacturing high-volume consumer goods, it's access to the US consumer market that will actually help them develop. They're not going to get that.

Well, why not? It's if China is willing to invest, and I'm just thinking out loud here, if China is willing to invest, for example, I'll give you an example about the, uh, the canal between, uh, uh, Cambodia and, and that China is gonna fund in itself. In my opinion, and, and correct me please if I'm wrong, logistically It will make more sense to build a canal that's going to facilitate the transport of goods instead of depending on Malacca Strait independently.

Look, the integration of the Greater Asian region economically through infrastructure is happening. And so market access for Southeast Asian nations in terms of the China market will just continue to grow. Through seaports as well as through the overland connections. And the issue of the canal that's been proposed through Thailand has come and gone over the last 30-odd years. And I mean, I guess in part sometimes it's a business case question in very narrow economic considerations, but of course when other factors come into play such as geopolitical risks, then the calculus changed a little bit. And from it trading nation's point of view, the principal aim, of course, is to minimize the extent to which you are exposed to bottleneck risks. So you want to reduce costs, of course, but you also want to reduce your bottleneck risks where you either have blockages caused by, um, not particularly nefarious events such as a major ship, you know, twisting and blocking passage, which is what happened Suez Canal, through to, of course, less benign kind of blockages arising from military intervention. So having as many connectivity points or routes that you possibly can have makes sense. The issue for the Southeast Asian nations is actually the access to the US market on favorable terms, and that's unlikely to happen, and that's largely because of US domestic politics. The domestic political environment in the US has, it seems to me, over the last 10 or 15 years dramatically evolved and moved away from a policy commitment to the idea of open trade, um, to one that is now adopting a, a very knee-jerk defensive posture, a very protectionist posture, um, vis-à-vis not only us originating from China, but there's a lot of wariness around products coming out of Southeast Asia as well. So it's going to be difficult for Southeast Asian nations to really buy into the proposals on the table from the Biden administration at the moment. And it's because the one thing that they do want, market access, is actually not on the table. Wow.

Yeah, let alone we don't have any more credibility on the international stage. And I do say it because I criticize my government. It's because we say one thing and do another. Just to me, it's a fair argument.

So you nailed it.

It's the truth. It's the truth, Warwick.

It's a view, I guess, that many have had for a long time. Yeah. I guess politeness and diplomacy has in some ways kept those views either moderated or in a box over there without having to be said. But I think the environment over the last, let's say, 5 to 10 years has changed so much that many across the world who've held these views for a long time are starting firstly to have the courage, if you will, to express the views, but also that, uh, expressing the views because it reflects a level of frustration, a frustration that they're in the middle of trying to resolve challenges around development, improving the livelihoods and welfare of their own populations, confronting challenges this century that were issues last century, such as climate change, and they're actually not getting much assistance from the country that has put itself forward for so many decades as the great light on the hill. And so they're a bit tired of it and frustrated by it. You know, countries have national development priorities because That's their mission, it's their job to improve the livelihoods and the quality of life of the people that they're responsible for. And I think they're starting to see that the world of the past 30 years has been a hindrance to their ability to pursue their development objectives, and it's a world that they've got to, in a sense, move on from.

Yeah, well, that's why I'm hoping at least Europeans will wake up to this reality. It appears to me that, uh, speaking of Europe, uh, you wrote an article on LinkedIn, and I'm gonna share it with you guys here, the link. Uh, I told you I follow, uh, Warwick on, on, on Twitter and on LinkedIn. I read his stuff. I encourage you guys to look, look up those articles and read them, and I have the link for you in the description. So you mentioned, uh, uh, Warrick, one of the— what caught my attention is the first sentence, and, and you say, and I quote, someone is having difficulty owning the problem they created. I am talking about European deindustrialization. Can you please elaborate on this? Because Europe is going a different direction.

So Europe is deindustrializing at rapid rate of knots. The evidence has been clear for certainly the past 2 years or so, but of course what's happening in the last 2 years is possible because of the situation that has evolved probably a little bit less obviously over, say, the last 10 years, whether it's in the area of innovation, in supply chain reform, reforms and fine-tuning, driving productivity growth and those sorts of things. The comment that I was referring to when I said that some people are obviously struggling to own the problems that they created was a remark made by a senior figure from the European Union who essentially was saying, we're not going to stand by and watch deindustrialization accelerate in Europe because China wants to pump more of its manufactured products into the European market. Now let's break this down a little bit.

Mhm.

Deindustrialization in Europe, and he's particularly referring incidentally to electric vehicles, batteries, and solar PVs. They're your main, main ones. But deindustrialization in Europe in, in motor vehicle in manufacturing, in solar PVs, and in battery manufacturing has been taking place in large part because of two main factors. One is rising energy costs. Now, the energy shock that European economies have experienced in the last two years is actually the fundamental catalyst. And as we all know, the energy shock came about by a decision by the European countries to cut themselves off from the supply source of the cheapest energy inputs that they had. It was a decision that the European Eurozone economies made themselves. Now, you know, the reasons that they made those decisions is a matter for them, and people will have a view about that. But there was an economic consequence, and the economic consequence was an energy shock that in a sense tipped industry over the edge. The second thing has been clearly a whole range of supply chain dysfunctionality that has bubbled away for quite a long time, and when you get a shock to the system, the inefficiencies and problems that you had elsewhere in your operational environment actually be, you know, come to the surface. And this is what's happened, whether it's in the chemical industry, whether it's in the solar panels industry, whether it's in motor vehicles manufacturing. So deindustrialization has largely resulted from decisions made by the European Union. Now, the other thing to bear in mind is that the European Union, or the eurozone economies to varying extents, has been going through some very, very tough times. German recession and other countries has actually seen a reduction in real living standards. A reduction in real living standards and real incomes feeds into a reduction in aggregate demand as households have to cut back on what they buy, um, and of course make choices about, um, alternatives. So where they might have bought an expensive item once, they'll find a lower-cost alternative. Now, Chinese imports of course make sense in that context because many of the products that we're talking about now are incredibly cost-effective and affordable. So if the European Union wants to move forward with an energy transition towards renewables and those sorts of things. And if that is their policy objective, then the least cost way and the quickest way of achieving it is actually to import and implement solar power systems and other renewable systems from China. It's the quickest and cheapest way to achieve your objective. It's interesting also to observe in terms of electric vehicles, David, that BYD, China's major electric vehicle manufacturer, is setting up a factory in Hungary, right? So it will actually supply domestically. But the Italian government 2 or 3 weeks ago actually reached out to BYD to invite BYD to consider setting up a plant in Italy itself because of risks one of the existing major legacy manufacturers is going to shut up shop in Italy and move their operations to the US. The last factor, and I'll just mention this very quickly, is that many of the plants shut down in Europe are relocating or expanding their operations elsewhere where they're getting access to subsidies, and this is happening in the US in particular. So the US is actually, for its own reason, to, quote, secure its own supply chains and rebuild its own industries is luring capability out of the eurozone to the US. These are issues that have been created by European policymakers, right? You know, blaming— in a sense, blaming the fact that another country can manufacture a good at a very efficient, high-quality standard misses the real issue, and that is the issue of the reasons behind European industrialization and industrial decline.

Yeah, well, for Italy, Warwick, I won't trust them because I know, I know this for a fact because I have my contacts in Washington, so I talk, that the decision by Giorgia Meloni to withdraw from the BRI was she was pressured to do so. So now I don't see why she would even ask the Chinese to set up shop in Italy as far as manufacturers. Regarding the US, we're doing the same to Mexico by saying that if China set up shops for the EVs, we will put 100% tariffs on this vehicle coming to the US.

Well, look, this is— very few Chinese EVs go to the US market at the moment anyway. That's the first thing. Um, there's obviously concerns shared across the political spectrum in the US about the impact of, um, you know, competition from, from other countries. And in some ways, there's a number of possible policy responses. You know, one is ban, ban the imports, put up the walls, and, you know, that's that. The other one is tariffs, of course, which is to try to change the price competitive structure. And I'll come back to that in a tick. The third one, of course, is to invest in local capacity so that local capacity and supply chain systems and manufacturing clusters could actually become competitive. And the fourth one is to invite the really successful firms to actually bring their know-how and invest in your countries. Now, it seems to me that the tariff proposition in part aims to force somebody to come and invest if they want to access the market. That's the theory. Now, there's a couple of things I think that we need to remember when we talk about this. Firstly, I don't know how imposing tariffs on products from Mexico is going to wash in the context of the overall NAFTA arrangements with the North American Free Trade Agreement and how that's going to resolve itself, because one of the risks in this is that it will start to unpick and unravel that particular agreement, which has consequences on the economic stability of the relationships in North America and of course, um, with Mexico. That's the first thing. The second thing, of course, is that BYD's manufacturing facilities in Mexico are largely focused on manufacturing products to service the market of Mexico, Central America, and South America. So that's the second thing. They're not really focused at all on the North American market. The third thing is that creating manufacturing in the US is not as easy as it sounds anymore. And we're starting to see evidence in the attempts by Biden administration to lure ships and battery manufacturers from Korea and Japan in particular, um, and, uh, and TSMC to set up new manufacturing facilities in the States. And what's the problem? Why have the Japanese and Korean firms suspended their projects in batteries and chips? And why has TSMC continually announced that their work program is being delayed in Arizona. And there's a few basic reasons for it. One is that the cost of building factories themselves has gone up over 40% in the last so many years. So just building the factories themselves is expensive. Secondly, there is a shortage of available skilled labor to build the factories, let alone to operate the factories. The factories are a significant problem. And that's a consequence of 20, 30 years of manufacturing hollowing out. It's one thing to make Wall Street wealthy, but if you've stripped the skills and capabilities and a manufacturing culture out of a nation, it doesn't get materialised overnight. Third one is the issues around energy security. Part of the issues in the North American environment at the moment is that the national electricity grid, or the various state grids, are actually not what you describe as a 21st century standard anymore. So there are concerns around network stability and for the price of electricity and the security supply. You put all of that together, the subsidies is one thing, and all of these companies are pocketing the subsidies, but they've all gone slow in actually putting rubber on the road. And the reasons why they're going slow are very, very real, and money actually doesn't solve those problems like that. All of these problems take significant industry reforms, significant investments in training and development of human capacity, you know, and, you know, it's just not gonna happen overnight anyway.

Yeah, and we don't have the sort of the mindset for for that kind, you know, I used to teach at the university, so I kind of see the level of the, where the students are. And, uh, when you start to think about something like, for example, producing chips, which requires special skills, we don't have, we don't produce this kind of students on a yearly basis. And speaking of chips, uh, while I'm thinking about them, where do you see these tensions between the US? Because the US imposed sanctions on China, but now the sanctions are backfiring on the US because we are experiencing problems here with that. It's just the administration doesn't want to disclose that. Where do you see that moving forward, given that South Korea, for example, is impacted by it? Japan now is reconsidering relaunching its chip industry.

Look, the issue around technology leadership that has caused Washington to react with, with this, um, policy of denial, if you will. It's a policy to deny China's ability to access particular technologies. It actually echoes, it actually echoes the discussions from the late 1980s and 1990s as Japan's technical capabilities came to the fore. So in some ways, the way that Washington is responding has a lot of historical similarities. The efforts to deny other countries access to technologies in this day and age is, is actually a very difficult one to, to successfully implement for a long time. And in fact, when you listen to Secretary Raimondo talk a little bit about this, she actually acknowledges that the, the prohibitions on exporting the different technologies to China is only likely to buy time. That's as good as it gets. Now, that seems to me to be a potentially high-risk, self-defeating strategy, because in your effort to buy time, you've actually catalyzed a massive commitment from the Chinese ecosystem, if you will, to develop its own capabilities. And if all you've done is kick your problem down the road 2 or 3 years, and 2 or 3 years disappears really, really fast, and the risk that you've run, your opportunity cost, if you will, is that you've actually given every reason to somebody that you see as your rival to actually develop a capability that they actually didn't have before. So that's your backfiring piece. The other backfiring, as you know, is of course the impact it has on other, other countries and the businesses in other countries. That's unintended consequence. Now, I don't think United States cares that much, but there is collateral damage along the way. That's not the style of Washington, um, historically. It does what it sees as does what it needs to do, and if there's some collateral damage and roadkill along the way, then so be it. And I'm sure that they have full confidence in their ability to keep Japan and Korea under, under the thumb regardless of what those things are. The problem though is that these industries are going to be starved of revenue. This is what's going to happen. And, and so the backfiring not only disadvantages these countries in the short term, But by starving these companies of access to some of their biggest markets, which is the, um, the Chinese market, they're depriving them of revenue streams that are necessary to finance R&D. And if there is an R&D-hungry industry on the face of this earth, manufacturing of— the design manufacturing of microprocessors and chips is one of them. If you don't keep committing to R&D, your market competitiveness position rapidly disappears. So it's an incredibly intensive, uh, cash-burning business to be in. So you need the cash coming in, otherwise at some point the chief financial officer is going to be in there with the head of the R&D department and say, I don't have the money to finance R&D, like, this is a problem. Now that's backfiring. And what is it achieving? Ultimately, what will it achieve and for whom? I'm not sure that it's going to achieve much for the US at all. I understand why. It's a very emotional reaction as to why this policy is being pursued. But on a rational analysis of its likely implications and the risks of self-harm, well, It was probably an unwise, emotionally or politically driven decision.

Well, I agree with you, Oleg. It's an emotional decision, especially when I look at it from two sides. One of them, the sanctions, these chips on China, and the other one, the sanctions on Russia. Both of them end up backfiring. So that's the way I see it. And speaking of Russia, yeah, go ahead.

I was just going to say the backfiring has both short and long-term consequences too, because not only have the sanctioned countries, um, move forward to develop their own capabilities, um, but in developing their own capabilities, they also begin to radically transform the overall configuration of, uh, global value systems. And when that happens, it actually reinforces the displacement that's taking place where American primacy, which has been fading, actually begins to accelerate. So it begins to add an accelerating factor, not by others per se, but by virtue of your own actions. This is a form of autoimmunity. So the system, the American primacy system, sees itself under threat. Its first move course is to try to attack the things that it sees as threatening it. But in doing that, it's actually corroding its own very foundations.

Yeah, and the best example to that one, uh, if I may add, this has to do with the financial market. We've seen now our actions, and I don't shy away from saying this because I know I get a lot of pushback that I talk negative about the US government No, I used to work in Washington. I know how that town operates, and when truth matters, it needs to be said. Uh, I, I always said this decision, for example, the sanctions, and they're backfiring on the financial market. Now you are witnessing this massive speed of countries trying to de-dollarize and be done with this. What most Americans do not know is the impact that's going to have on us financially.

Yeah, look, there's no doubt that over the last 5 years, as various forms of sanctioning has intensified, that those affected by them directly are actively working towards decoupling themselves from the financial system that puts them at risk. And whether that's Russia, whether that's China, but countries across the world are starting to move in the direction of firstly national currencies for trade purposes. As that matures, we're starting to see more vibrant national currency-based capital markets emerge as well. Now, that will take time to mature, but I suspect it will mature far quicker than many people think it will. But of course, for some people it'll take longer than we hope, but it's certainly happening at a pace that I think many, even 4 or 5 years ago, would find incredibly surprising today. Not all, some people had a sense and a foresight, but others are now seeing that it's happening and have been surprised at the speed. But every time an initiative is pursued by the collective West, to try to, in a sense, defend their position, whether it's the sanctions on Russia, the trade barriers on China, whether it's the weaponization of SWIFT, um, whether it's the talk of confiscating Russian assets, all of that sends shivers down the spines of central banks across the world. Because that just says risk. And more risk you actively push into the system, the quicker it is that people will bail out. And when you want to think about how fast this can happen, I simply look at the experience of Russia in the last 2 years, where it has in effect moved from a position where the majority of its trade was denominated in e.g., in euros or in USD, to a position within 24 months basically where 90% of its trade or thereabouts is denominated in anything but the USD or the euro. That's fast, right? That is incredibly fast. The infrastructure's in place, technical infrastructure is in place, the institutions nationally are in place, and I think through BRICS they will start to harmonize and align. And sometime later this year, um, don't be surprised if we have version 1 of a BRICS payment ecosystem that will be live both at a technical level and also at an interbank level.

Yeah, and this is with the assumption that India will agree to that, because India already voiced its opposition to having any other BRICS currency being used. Which I don't understand why, why would India take such a position?

Look, I think step one is always going to be a government system that enables national currencies to be the principal mechanisms of settling trade, and that's about as far as it will go for quite some time. The technical issue that needs to be resolved always in matters of cross-border trade is we call the numeraire, which is the datum point that enables the calculation of equivalence. A little bit technical, but basically, you've got to have something that two different national currencies agree on as the exchange mechanism or the exchange value. Now, that datum point can be anything, and it's all working now. Clearly, the Russian experience, I think, is the most telling because it's happened quickly and at scale, happened quickly and at scale. Now India, of course, doesn't want to jump from a system that has exposed them to the US dollar into another system that exposes them to some other currency. And so they're obviously very keen to pursue trade relationships with the rupee. Now we know last year that one of the emerging concerns is obviously liquidity, right? You If you've got a trade surplus, you end up with way too much of a currency, and the question is, is what you do with it. Now, there's a few things that traditionally people would do with it. One is that you will then go and buy stocks or government bonds issued in those, nominated in those currencies, which is what's happening with the USD. You can buy more things made by the countries that trade using those currencies. Or, of course, you can take your surplus currencies and invest them directly in equity in the projects in countries that will accept those currencies. The resolutions that are starting to happen, say, between Russia and India is that Russian enterprises are investing in Indian businesses now. They're cycling the rupee and finding ways to keep the rupee moving. Now, the big one in all of this, of course, is the Chinese RMB, and that's largely because when you want liquidity, you've got to have a counterpart, and the counterpart isn't just a nation. The counterpart are the things that people need, because money is only valuable as a means of payment when you pay for something. Otherwise, it has no value by itself.

No value.

Now, China is a global leader in every category of product, every category of manufactured product. In terms of commodity liquidity, the availability of manufactured products, no problems. Anything you need, you can buy using RMB. China is also a big buyer, as is Russia and the other BRICS nations, of grains from each other. 40-odd percent of grains around the world are produced by the BRICS nations, and lo and behold, they also consume about 40% of grains. That creates foundation for national currency-based grains exchange. I think that this is likely to happen quicker than many had anticipated even a few years ago.

Very, very, very interesting. Uh, before I move to— I'm gonna open the floor for questions from some viewers here for you, but before I'll do this, I need to ask you, Eric, about your neighboring country of New Zealand. There is a visit right now by the former Foreign Minister, Mr. Wang Yi, to New Zealand. And I've been following what was going on with the change of the administration in, in Wellington. Is New Zealand concerned now that it is embarking on a path, economically speaking, that will end up backfiring on it in the same way Australia did when it followed the wrong policy.

New Zealand's a trading country. It depends on trade like Australia for— yes, overall economic development and welfare. And I think New Zealand— New Zealanders and their political leaders have always taken a very pragmatic view on questions of economic relationships. The other interesting feature about New Zealand is that it also has a history that is quite different to Australia's. Firstly, in terms of the fact that the white colonialists actually entered into a treaty with the Māori tribes of New Zealand, the original First Nations inhabitants of the of, of New Zealand, which has never happened in Australia. So there's been a different history and relationship in relation to the indigenous peoples of, of the place. The second thing is, is New Zealand also has shown through time that it has the willingness and the ability to take a different path. And I go back to when New Zealand, uh, declared itself a nuclear-free country, and that certainly did not make, make Washington happy. And if you recall, at the time, Washington immediately rebuked and cut New Zealand off, but New Zealand stood its ground and has stood its ground ever since. So New Zealand does have, I think, a different political political culture, and also has a really keen sensibility around its own economic interests. Now, it always comes under pressure, of course, because it's a small country in the scheme of everything, and out of all the Five Eyes countries, of course, it's the smallest of them all. So it's always going to be under incredible pressure, in a sense, by virtue of size disparities. But in some ways, its size and geographical distance from everything else also means that it's a little bit removed from the main game, or at least it has a little bit more room to move. And I hope that New Zealand policymakers will continue to prioritise the economic welfare of New Zealanders as they have. And pursue policies that take advantage of the great assets that the country has in terms of its export capacities and continue to grow and play a constructive part in the region.

Very, very, very interesting. Guys, if you have your question, just please put Q in front so I know it's a question because there's a lot. There are about, what, 400+ people live on this. So if you will be kind, just put your, your, your question there and I'm gonna get to it right away after I ask my first question. I have a question for you, Warwick, uh, and my question is tied to a much more of a geopolitical aspect regarding China. Now, I just FYI, guys, uh, Warwick started his academic career by teaching Chinese history and the European cultural history. He's also the author of, uh, here's the book here, guys, and I put the link for you in the description. So, uh, Mr. Eric, given your understanding of the Chinese history, how do you see China moving forward in the new global system? How do you think China is going to manage the new global system that is now a multipolar given its history?

China does have a long history, and, and it has had to and has naturally learned lessons through its historical experiences. Some of those lessons are actually quite interesting. I was talking to my brother-in-law over Christmas in China, and he talked about the very early days of China and the Chinese historical experience where there were periods of significant conflict and warfare. And he said, so look, we've all been there, we're not unlike other societies and civilizations in that we've had our episodes of warfare. But he said what we've learned from that is that there are significant costs, of course, to warfare. But more importantly, that warfare is really at one end of a spectrum where at the other end is this idea that parties might have disagreements. And he says to me, somewhere in between there being a disagreement and warfare is a million and one alternative ways of resolving the difference. And the historical lesson learned is that it's actually better for all concerned if we put time and effort into finding one of those million and one reasons to resolve differences before we even get to, get to warfare. It says, and that's the attitude. So I guess the historical lesson is that achieving sustainable development, and therefore the continuity of the state itself, the polity, requires an effort to navigate fluid world, or a world that's always fluid, in a way that doesn't seek to stop the fluidity and hold it in place, which in many ways is what the sort of liberal, um, post-Cold War sort of mentality was, which is the end of history stuff, which is we've arrived, this is how it is, we, we, we freeze frame today and everybody now needs to come on board. The Chinese approach really starts from the view that the world is in flux and change is part of how the world is. Navigating change advise parties to interact with each other in a give-and-take manner and allow time and dialogue to help parties resolve differences. So I think, deeply speaking, that's the broad approach.

Interesting, interesting. I'll take the first question here from Laurie, as she wrote, Doug, where does he see— where do you see Australia's economy in 10 years' time?

Well, of course, it always depends on decisions that are made between now and 10 years. And I guess there's some important contours to just bear in mind as to what the possibilities may be, or at least what the issues are. One is the question of economic complexity. Australia over the last 30 years has actually slid down the comparative global rankings of global capacity, and that's a problem in terms of sustaining living standards that Australians have enjoyed. Being able to move back up the value curve is critical, and that means being committed to sorting out the reasons why Australia slipped down the complexity curve. That requires, again, very significant investment in R&D, both domestically but also through collaborative research and development with other institutions around the world. Sorting out collaborative R&D with China is actually a critical piece of that, in large part because of the fact that China is now a global leader in so many areas of scientific and and industrial and related research, but also because there's just heft, you know. China's 1.4 billion people, but every, for every one Chinese person on Earth, there's 57 Australians. So that gives you a sense of, of relativity. So I think these are the challenges that Australia needs to navigate. Australia needs to ensure that the global world system and the systems that it's involved in trade remain open. So it needs to be a strong defender of open trading regimes regionally and globally. And that's going to be a challenge because the political sense that I'm getting out of Washington, and correct me if I'm wrong, is that there is a decided turn towards protectionism, um, from, from the Washington policy of the So Australia's got its work ahead of it in terms of being a supporter and defender of open trading. Australia also needs to think about how it interacts with the region, you know, in a more substantial sense, which goes back to the early remarks that we had. As ASEAN itself gains momentum and as it integrates economically The other layers of integration is going to be at a technical level and at a payments level. So there's a bunch of countries in ASEAN that are already, um, resolving cross-border payments interoperability in national currencies, in national currencies. So, and in fact, some of Australia's iron ore has been exported to China, um, settled in RMB, already being done.

Interesting.

So that's going to start to change the reflection of Australia's position. Australia has an incredible depth of natural resource. It's got a well-educated population. So in many regards, it's got plenty to work with. Where Australia ends up in 10 years' time is going to be all about how well it makes use of what it's got. I know I didn't buy this, but my crystal ball is hopeless.

Well, and by the way, you are spot on regarding the US protectionism because that's exactly the policies we are embarking on. The only thing is going to be for Australia is they need to— and again, I am not judging here, I'm just looking from outside in— they're going to need to have some leadership, the likes of Paul Keating, maybe, maybe Kevin Rudd, another Kevin Rudd will come up, someone who will take the torch and move Australia the right direction instead of being subservient to Washington.

And that's an issue, of course, of that Australia's culture and history and what's happening in the world. And to navigate this is going to require a new spirit of national imagination and courage to forge essentially a new way, you know, because the world's changing.

Indeed. So I'll take another question from Hong Ruan. Hong Ruan is one of an avid supporter of the channel here. So he wrote, Dr. O, Mr. Warwick, I saw the following headline on the Euro-Asian Times: China H-2 stealth bomber inches closer to the debut. How will this impact the South China Sea, AUKUS, and Five Eyes?

Well, I won't comment on a specific piece of technology, but I'll speak a little bit broadly about the, in a sense, the dynamics of, um, military-related issues in the region. The, the American approach, and I'll start from there and then I'll come back to China, is to, in a sense, pursue a pathway to achieve a balance in its favor. And it aims to do that because American foreign policy and military doctrine for the best part of the last 30, 40 years has seen a right and responsibility to intervene militarily anywhere in the world, including in the Western Pacific. So from a doctrine sense and from a policy priority sense, um, there is a deep-seated belief that American military preponderance is a legitimate and meaningful objective in the region. And unless it, it dominates a region, the balance is not right. That's the first point. The problem is, is that, um, over the last 7 years, as the US has accumulated significant presence in Asia, um, and we all know that, we've all seen the maps and we've all seen the numbers, that has become very normalized, that the American military presence across Asia, Western West Asia, or the Western Pacific, I mean, is very normalized and it's substantial. China has unsurprisingly responded to that environment because whilst the US was the preponderant force in the region, there was one main risk, the Straits of Malacca, as you mentioned, the principal risk for energy trade routes and other things. So, um, unsurprisingly, as China's own The economy grew and it had the resources to respond to an accumulation of American dominance across the region, and it did so. The problem, though, comes from the fact that American foreign policy doctrine continues to emphasize the need to pursue primacy. What happens? Well, as it pursues and as it responds to the Chinese response to the original American dominance region, it runs the risk of actually ratcheting up an arms race in the region. That's the first thing it does. The second thing it does is that it actually seeks to change the risk calculus in the region by kicking the can down the road. This is, this is the mentality: kick the can down the road because we're strong enough to deter. But the risk it runs is that, and this goes, it's like sanctions, right? There's a whole bunch of unintended consequences. And potential risks. And the risk is that as much as you think you're deterring somebody, um, it doesn't— there's a lot of other reasons why actions might get taken. The situation in Israel is a— or in, in Israel and Gaza is a classic recent case in point where according to conventional deterrence doctrine, the Israel Defense Force had such an asymmetric overwhelming dominance militarily, you would think that nobody— there would be zero likelihood of anything happening because everyone else was being deterred. Well, it didn't deter things, and it's because people who feel that they've been wronged for decades, um, and are seeking justice and those sorts of things have very powerful motivators, right, to, you know, pursue actions that irrespective of the risks to them, irrespective of the odds being stacked against, people do stuff. So this idea that somehow you can have this little game theory driven approach to military deterrence it's absolute nonsense because it doesn't understand how human beings work. So, so this new technology coming on, yeah, it's going to constantly change the, the sort of the character of the regional military environment. But the big picture issues is, is so long as the US continues to pursue a view that it must have primacy and that balance in— must be on its terms, this is always going to be an issue. And it's an issue that creates greater risks of instability in the region. American pursuit of Asian primacy is the source of instability in the region.

Yeah, wow, wow, very, very, very insightful. I want to say thank you to Juniper Lee. Thank you so much for your Super Sticker, truly, truly appreciate it. And also there is another individual here that is the first time I'll come on the show here, that to see it live, is Albert K. You know, keep going, Dr. O. First time I can watch your program live because of the time difference here in Australia. So someone is in Australia watching directly over there. So, well, Warwick, uh, I can't— or I can't thank you enough, man. I truly, truly appreciate— actually, no, I have one more. One more from this gentleman here, Army with Harmony. He's an avid supporter of the channel also. Question: in the US, we hear of high cost of living. In Australia, we do not hear or see the homeless, drugs, and crime. How bad is it?

Uh, I presume the question's about how bad is these issues in Australia. Yeah, look, I I'll touch on the homeless question probably more than the drugs and crime. Crime, if you look at the statistics, crime's actually lower than it has been historically, but people's experience of crime has not been great, particularly in certain parts of Australia. There is certainly a sense that particularly petty crime, break and enters, car thefts, and those sorts of things in parts of Australia is something that people feel very, very strongly about, and I wouldn't want to diminish, um, that. We certainly don't have issues around, um, homicide and mass shootings and those sorts of things that I think we read about sadly, um, in the US. And certainly in terms of opioid addiction problems, from a pure numbers point of view, it's certainly not as significant as they appear to be in the US as well. Well, the Australian economy, which we touched on earlier, and something I didn't mention is it's actually creating a bunch of housing affordability problems. Whilst housing values have been rising and have done so for a long time, fantastic for people who are already homeowners, it's actually creating affordability problems for people who are either renting or people trying to buy into the market. So much so that there is a belief now that there is a cohort of Australians, younger people, you know, born, uh, you know, after 2000 or so, whose chances of being able to actually buy into the property market by themselves, um, in the foreseeable future is almost non-existent. So there are significant issues in terms of being able to buy in. The costs of rents are going through the roof, which are creating massive issues for, for many people, and it is affecting disposable income. And you see this in the data, by the way, in terms of what people spend their money on. So consumption has dropped and people are spending things on essential categories. Why? Well, it's because putting a roof over your head is now consuming a bigger part of your your take-home pay than it did even 5 years ago.

Wow. Well, thank you so much, Warwick. I truly, truly appreciate you. You guys, I hope you enjoyed, uh, listening to Warwick Powell here, because this information you can't get it anywhere else. And I'm not a media center here, whatever. You guys know I always have to sort of when I bring a guest, it's someone you will learn from. And that was— it's, it's truly an honor and pleasure to have you here, Warrick. I truly, truly enjoyed having you here, and I look forward to next time.

The honor and the pleasure has been all mine. Thank you again.

Yeah, yeah. And please, just, uh, I'm gonna take you out of the— just wait for me, okay? I'm gonna just say something to, to my, uh, audience here. So guys, I hope you enjoyed it. And by the way, remember to join me tomorrow for live at about, I think, 12:30. I will be talking about Nigeria tomorrow. There's something going on with that. And on Friday, I will be having my guest from, uh, giant Bahndari at about 20:00 hours. So I look forward to that. Well, I hope you all enjoyed it. And as always, remember, geopolitics impact your daily life.