New Economic World Order? Industrial Policies & De-Risking From China | When Titans Clash 3 - Part 2

America manufacturing is back folks China is actually the first mover in the drisking process uh they got started with the Drrisking uh effort much before the United States or Union did with dr- risking underway across the world who stands to benefit India is in this sweet spot at the moment with the combination of geopolitics as well as domestic policies now coming in every year almost 5 to6 billion dollar investment are we witnessing the end of the era of globalization the idea that you and I have about America being open to the world is but a brief moment in time a shining moment when actually multilateralism aligned America aligned China aligned all the rest of the world that brief moment in time of alignment has gone and we need to figure out some other way that we're going to navigate the world now [Music] tsmc is the world's largest maker of advanced computer chips the ones that power everything from phones to cars to missiles tsmc is building a new Factory in Arizona they've already had a few high-profile visitors and you're here because you're seeing what we're all seeing America manufacturing is back folks America manufacturing is back these are the most advanced semiconductor chips on the planet chips will power iPhones and MacBooks as Tim Cook can ATT test Apple had to buy all the advanced chips from overseas now they're going to bring more of their supply chain here home it could be a game changer many analysts have suggested that the plant was built to bring Advanced microchip production closer to the US and away from any potential standoff with China this state-of-the-art facility behind us is a testimony that tsmc is also taking a giant step forward to help build a vibrant semiconductor ecosystem in the United States this new plant will be eligible for subsidies under the chips and science act that's a $280 billion pool of funds earmarked by the US government as of August 2023 an estimated 44,000 new jobs were created because of these subsidies I got aob got a got a the chips and science Act is not the only major industrial policy in a country that used to believe in the economic laws of Adam Smith and total free market forces there's also the $430 billion US inflation reduction act it provides massive subsidies to green technologies and renewable energies this act is expected to create 1. 3 million jobs by 2030 [Music] Cummins Incorporated a multi-billion dollar company headquartered in the United States announced in 2023 that it will invest 1 billion in making engines that will run on low carbon fuels like natural gas and hydrogen they'll produce these engines in three American cities cumins will qualify for subsidies for its eco-friendly production processes under the inflation reduction act when first manufactured hydrogen electrolyzers they had to make them overseas now thanks to the inflation reduction act with the tax credits for renewable energy cumins is going to manufacture these electrolyzers here in America for the first time instead of relying on equipment made overseas in places like China and Supply chains will be again made in America they began in America began in [Music] America then there's the one trillion infrastructure Bill to fund the rebuilding of American roads and bridges along with new climate resilience and Broadband initiatives with so many industrial policies underway some are questioning whether the US is becoming more [Music] protectionist for [Music] what are the powerful domestic factors driving American industrial policy the complicated effects of trade and Outsourcing can be seen in many former industrial Centers of America after the second world war the United States led a fragmented world to build a new international economic order it lifted hundreds of millions of people out of poverty [Music] those were the days golden and [Music] true this is the place someday I'll return to but the last few decades revealed cracks in those foundations a shifting global economy left many working Americans and their communities behind and now it's lost on the waves of time far from the shores of this life Gone Baby Gone take me home where I [Music] belong what do we doing they say free trade we say [Music] no financial crisis shook the middle class mayny May a pandemic exposed the fragility of our supply chains a changing climate threatened lives and livelihoods Russia's invasion of Ukraine underscored the risks of overdependence so this moment demands that Forge a new consensus so the 1% of the of the top of the society their wealth is almost equal to the 40 50% of the mass population and that is really a big problem and then all those multinational from us and Europe they are operating worldwide but their revenue and their profit may not all go back to the US so the government do not have enough uh uh revenue from those uh World operation of their company is uh to really support their local development those blue colar uh uh losers in those process can easily uh shift their blame on China now the political Elite must adjust I've been determined to make things in this country again that's why the United States under President Biden is pursuing a modern industrial and Innovation strategy both at home and with Partners around the world we are seeing uh both in China and in the United States of America uh security becoming a dominant Factor governing uh policy and that led has led in the United States to a much stronger uh approach to Industrial policy this industrial policy has produced results between July to September 2023 the US economy grew at its fastest Pace in nearly 2 years [Music] us industrial policy has in turn triggered a subsidy arms race elsewhere in China EU Japan South Korea and even India where they are all lavishing subsidies on their semiconductor Industries the great danger is that when all of us do this there is a worry that we're going to end up building excess capacity because if everyone is subsidizing their their pet industry in in some particular sector and all countries are doing that we could end up with a world where there's huge excess capacity in something very critical so let me uh paint a horror scenario support that we build so much capacity in semiconductor manufacturing that the best semiconductor companies go out of business that's not a good thing for the world that if we no longer have advances in uh in t what tsmc can do in Taiwan what Intel and Samsung can do well we're going to be ending up with uh semicond conductor manufacturing that's a lot less efficient a lot less Innovative and all that will damage economic Prosperity around the [Music] [Music] world in China industrial policy has Turbo charge the growth of green energy companies and nowhere is that more evident than in Sichuan Province where battery makers EV manufacturers and renewable energy companies collectively generate a business revenue of more than $28 billion US in just the first half of 2023 just how is industrial policy executed here the first step getting state-owned companies to build clean energy power stations stretching over 2,000 football fields the Kella power station is the world's largest hybrid solar hydro plant the Hydro power provides uninterrupted electricity Supply at night when solar energy dips this hybrid plant also allows its users which are manufacturers of batteries and EVS to meet Global carbon emission requirements the EU for example now requires EV battery makers to certify the carbon Footprints of their batteries and this government investment here allows Chinese companies to take that box the power generated from the solar hydrop plant goes here this is sweing in Sichuan a city with a population of about 2. 8 million people and all the companies on the Main Street of sweing work on just one product lithium batteries here they make the cells they make the batteries and they also recycle the batteries all of this happen by government design the local government office selects the companies that complements the industrial chain they want those battery components made in sweing support the operations of catl catl is the world's largest battery maker supplying the likes of byd and Tesla catl has a plant in neighboring City ebin again this is the result of industrial policy technocrats from the investment Bureau electric vehicles Bureau and Industrial Services Bureau all sit together in one office in ebin to ensure the supply chain goes according to plan further down the supply chain is Tong Fang electric which makes wind turbines they're based at the changu Tang Economic Development Zone also in Sichuan the batteries for these machines come from sweing and ebin in Sichuan according to Chinese media there are another 2,800 clean energy related companies located at the chunguang economic development Zone all of them leverage on a comprehensive network of Supply chains built across neighboring cities Sichuan is home to the largest clean energy industrial cluster in China the United States has its inflation reduction act in comparison this is how they do industrial policy in China from the government generating power supplies to nurturing Upstream Industries and connecting them with those Downstream each development Builds on the supply chains established in neighboring [Music] cities [Music] fore for [Music] China has been a fierce critic of the drisking strategy by other advanced economies according to the G7 drisking entails investing in one's own economic vibrancy through industrial policy for example drisking is also reducing excessive dependencies on Supply chains from one country so FR Shoring or sourcing products from friendly countries and lastly protecting Advanced Technologies through investment screening or national security laws these are all actions that China also seems to be undertaking [Music] [Applause] [Music] spe [Music] so [Music] [Music] China has spent enormous sums on Industrial policy for decades ever since 1949 China has always had an industrial policy is had a system where its growth was to be driven by state-owned Enterprises it's moderated over time uh but essentially I think that remains the case uh down to the uh present day China has also consistently been investing in the diversification of Supply chains oh I think that China is actually the first mover in the drisking process uh they got started with a drisking uh effort much before the United States or the European Union did to a certain extent the the United States and European Union are playing up to the the efforts that the Chinese have been making to try to reduce their dependencies upon the West for critical inputs uh that fuel their economic growth and so there's a little bit of uh you know the the pot calling the kettle black uh in in the Chinese protesting uh so loudly about the idea of drisking and then there is China's belt and Road initiative over a trillion dollars borrowed from Chinese Banks spent all over the world on highways Railways ports government buildings dams and power generation plants mostly in developing countries or the so-called Global South this decade old Mega project is a major factor in the explosion of trade between China and the global South if you look at um you know China's activities uh is trying to diversify as so as it's no longer as reliant on United States of America or a European Union so for example more engagement with the Middle East to make sure oil comes through the kinds of agreements it's been developing with Russia uh that provide oil and gas and also certain food uh Imports uh us of course has always been a major supplier of soybean to China and now we see it for example pumping up its import of soybeans from places like Brazil so I think there's no doubt that if you look at its activities uh they amount quite closely uh to that definition of drisking even if for political reasons it's a term that China wants to avoid with both the US and China drisking economists have raised alarm bells on what this could mean for Southeast Asia in the case of Singapore we see just how beneficial trade can be no essentially no economy in the world has benefited from the open multilateral trading system as much as Singapore or even the region of Southeast Asia right if we if we look at the GDP per capita of Southeast Asia in in 1990 it was at the level of subsaharan Africa today it's 3.

5 times higher than subsaharan Africa and trade has been instrumental for this because southeast Asia has been able to integrate with the whole world due to open trade policies um and being positioned just ideally some somehow on the map but if we move away from the system because if if the risking leads to broader fragmentation then it's quite likely that that Singapore and Southeast Asia might move from from the core of the trading system to the periphery more realized blocks blocks because blocks don't depend as much on on hubs as as as the global uh trading system does because it's much easier to ship you know directly bilateral if if the distance aren't big there's no there's no not necessarily need for a hub that's where we also get in our estimates that southeast Asia one of the regions most at risk from from fragmentation into J risking in a full decoupling scenario we get estimates for Southeast Asia for for GDP losses above 10% which is much harder uh much higher than the global average of 5% [Music] [Music] 2023 was a big year for Apple in India not only did it open its first flagship store in the country it also shifted a huge chunk of its manufacturing here from China it sort of perhaps took a lot of people by surprise because I think there was quite a lot of skepticism um in terms of you know will India actually be able to deliver the skills necessary the talent the the land the locations the logistics um I think there was always a sense that yes this is mostly talk but it won't actually really um happen and somehow all this is being worked out and I mean it doesn't stop now the projections are that uh Apple is going to possibly get 15% of its revenue and 20% of its new users I believe over the next 5 years I mean of course that's still maybe hypothetical but uh again it just seems like the ball is rolling and quite fast in 2023 India had plenty to celebrate apple is of course joined by many other companies us-based Micron Technology has agreed to build a $2. 75 billion semiconductor facility in India with Micron spending 800 million and India funding the rest us-based Applied Materials announce it will build a collaborative engineering center in bangalo with an investment of 400 million lamb research another semiconductor firm will start a training program for 60,000 Indian Engineers Taiwan Bas Fox con the world's largest contract manufacturer of electronics said it will double its Workforce and investment in India by 20124 the BJP comes to power on a platform of liberalizing the Indian economy that Indians will enjoy a standard of living where Indians only see on TV right and that was the dream that was sold but job creation for India has been a big problem for a long time is there a sense that this is finally India's time to shine it's very hard to ignore the geopolitical background right the idea here is that what China used to have now we got uh India is coming of age and there is some sense that this is zero some game that what China is losing India is gaining China has an aging population by 2035 30% of the population will be aged 60 and over India on the other hand just overtook China to become the world's most populous nation more than half of its 1. 4 billion people are under the age of 30 it's not just about producing for export but it's combined with the huge Market potential the huge attraction of an increasingly affluent uh middle class or not just necessarily affluent but uh a class that has got some discretionary um spending power prime minister modi's make an India campaign was launched nearly a decade ago in September 2014 but it was only in the last 2 years when CEOs and governments really started paying attention the dark gr of cson and confrontation are casting their shadow in the Indo Pacific the stability of the region has become one of the central concerns of our partnership in working for a new world order B on international law our two countries bu be the Forefront as partners [Applause] when India and us work together on semiconductor and critical minerals it help the world in making Supply chains more diverse resilient and [Applause] reliable India uh assumes a very important role for Washington clearly um it's not as aligned as a country like Japan would be or South Korea would be or Australia would be um and it's still very heavily dependent on Russia for example for buying its arms and its weapons but given its tensions with China I think uh the United States wants to try and bring India into that security Asia India does have notorious bottlenecks which it is now trying to resolve [Music] India is trying to streamline the implementation of infrastructure projects across the country building highways Railways new airports power plants and Industrial corridors it is also like many other countries offering subsidies and facilitating trade what do you think are some of the possible challenges for foreign investors looking to relocate to India from China right now well actually I was uh looking up what various Ministries in India have to say about this and it's you know they're quite Frank they list all the problems that you'll face if you come to India whether it's the lack of skills whether it's maybe not very reliable electricity issues of logistics issues of Regulation so you know it's all there listed you know about you know what to expect and I guess those are all sorts of obstacles that people people probably actually are very well aware of I me probably that's the one thing they know about India they come with that expectation that these are going you know if if you decide to come to India and invest you have probably coming with that preception in your mind already that this is going to be a lot of hurdles whether it's red tape or bureaucracy and so hopefully there's an element of almost pleasant surprise that the government is trying quite hard I think to overcome and has recognized um that there are these um um whether it's bottlenecks or roadblocks in terms of um inputs or um or logistic there are definitely many challenges for companies thinking of moving their supply chains from China to India for example while India does have abundant and cheaper labor the quality of its Workforce still needs a lot more upgrading compared to China India continues to have high levels of poverty and malnutrition with more than 10% of the population living below the world bank's extreme poverty line that same poverty rate in China is nearly zero and when it comes to Tech talents China graduates nearly twice as many science technology engineering and math students compared to India China also invest significantly more in R&D and on Industries like robotics AI and biotechnology this is big Indian company called infosis when infosis hires graduates engineering graduates from Indian University they have to retrain them for another one to two years to do the job that you know so number one was improving human resource that comes up because if you're going to get this companies in then you need the human resource to run it's very difficult to shift what has been built up over four Decades of investment you know look at the foxcom plant it has about 200,000 workers in thean plant for example you know roads bridges built by the Chinese government dormitories set up by the Chinese government it's hard to think of another country that would be able to provide that sort of infrastructure for a major company like that so Apple no matter what can't really get out of China no matter what the bigger politics is it's kind of stuck you know value chains Supply Chains It's integrated into a global model so you can't really just snip that off and say oh yeah we're off to Vietnam we're off to India you know those kinds of chains which have been brought up brought uh built up over 45 years or so can't be so easily unraveled but in today's geopolitical landscape corporate decisions are no longer based solely on competitive advantage [Music] in June 2023 thousands in the United States gathered to welcome Prime Minister Modi at the White [Music] House MrModi was given high honor ad amidst unusual pump as new Partnerships in defense space exploration and semiconductor manufacturing were Inked less than a month later in France Prime Minister Modi was given top honor at the annual bastile day military parade ahead of the ceremony French president Emanuel macron awarded Modi the Grand Cross of the Legion of Honor the country's top order of Merit despite differences over the war in Ukraine Western democracies are cording India and Modi and despite closer ties with us and Europe Modi has not turned his back on Russia trade ties between India and Russia accelerated as the Ukraine conflict continued and India imported Russian oil amidst intense diplomatic engagements in Washington and Paris there was little mention of the backslide in religious and press freedoms in India during modi's term under his government religion ious hate crimes increased with several high-profile cases of lynching of Muslims I think the American Administration understands how important the relationship with India at the Strategic level especially now by with Biden India is so important that they've been trying to stay clear of trying to to raise some of these issues Washington shouldn't delude itself into thinking that uh India will be a steadfast Ally India is big enough PR enough and strong enough to pursue what is in its own [Applause] interests drisking is dramatically altering Global Supply chains resulting in sweeping changes across several regions one of which is southeast Asia in Vietnam industrial parks have grown at record speed in recent years beginning from the time president Trump imposed large tariffs on China made products in southeast Asia's biggest economy Indonesia rapid changes are also a foot one of the largest and newest industrial areas is this morowali located in Indonesia's Sulu wesi Island the flood lights at the morowali Industrial Park stay on throughout the night around the clock workers operate the site in massive factories morowali industrial park has its own power plants and even its own port and Airport 200,000 people work here all activity revolves around a single core commodity nickel for [Music] just 10 years ago this site in morowali was dense rainforest and a small village of about 1,000 people today the sprawling Park is spread across 3,500 hectares and it takes 45 minutes to drive from one end to another Chinese investment was critical to moro's growth and it is Chinese stainless steel giant Ching Shan that led the charge hammed Mina the person at the center of the transformation from forest to factories explains how it happened he sits in Jakarta with multiple cameras monitoring his billion dooll business in morowali I begin in 2006 at that time uh nobody in interested in inel 2009 we cooperate with uh China chingan in order uh to supply them the nickel or to China so we start export on 2010 then the chingan is said we are good in building the factory and producing this is our KN how you are Indonesian you know Indonesian rule regulation everything so we split our job 2013 we start building a first factory without the Chinese did the Indonesians have the know how to process the nickel ore no we don't have the knowhow they have the technology so we cooperate the global growth in the electric vehicle and Battery Industries aren't the only forces driving Mora's spectacular growth Indonesia the world's largest nickel Miner banned the export of nickel ore in 2020 it's a controversial move that has been criticized by the WTO IMF and EU but the ban compelled foreign investors to build smelters in the country adding value to its metal exports and creating jobs back in 2014 our export of the nickel or before we bend the uh uh export our our export of the nickel or is only 1.

1 billion us right now the export of the nickel product yeah last year is about $ 34 billion us so you see the multiplier is very huge here today despite geopolitical tensions companies from both East and West work here together to produce this 21st century gold this year is the hottest news for electric vehicle so everybody come and invest for the battery raw material now coming in every year almost 5 to6 billion doll investment mostly are Chinese but also from Japan from Korea and from Australia we don't do politic okay to me is we welcome everybody you you want to come to invest we welcome you we don't care you are from the west or from the East we are for the business no politic yeah there are big plans for Indonesia to move up the value chain what the president has asked us is not only to create a strategy for the nickel downstreaming but he want us to create an ecosystem we have this nickel we have this copper we have this boide we have this Cobalt we want to create this one an ecosystem so that the downstreaming of this nickel copper Cobalt uh boide thin that we have we process into this lithium battery material we process this into an electric vehicle yeah and then from this one you know we power the electricity for the industry using the green energy that we have so we create an ecosystem of the electric vehicle and the lithium battery in March 2022 president jakoi launched the first EV assembled in Indonesia it was made by South Korean company Hundai Hyundai is also working with another two South Korean companies to make EV batteries in Indonesia also setting up shop in Indonesia are Chinese EV makers byd and [Music] wuling in July 2023 when MrWidodo visited Australia he said that strategic cooperation with Australia on EV batteries was a priority us company Tesla has also been speaking with the Indonesian government about Investments so perhaps in the foreseeable future nickel could be processed here by Chinese companies assembled into EV batteries by South Korean and potentially Australian companies and making its way to cars made by both American and Chinese these companies demonstrating that in a World Grappling with geopolitical tensions Global Partnerships might still be the way forward in November Indonesia and the United States upgraded its relationship to a comprehensive strategic partnership at the same time China is often Indonesia's top foreign investor so how will Indonesia navigate the geopolitics the very first principle uh for Indonesia is we are welcome to any country uh for any investor to come to Indonesia we should avoid a concentration of the supply chain into one single party but uh I think in in in an effort to diversify the supply chain we cannot exclude you know single party and everything so for example if we want to uh develop uh uh Diversified supply chain we cannot just say oh I don't want China no it's not possible I because the Western Country would be 10 to 15 years behind of the this Chinese technology in terms of the nickel processing so we cannot exclude what we can do we can have a cooperation that is beneficial and mutual yeah for every party because I believe there is no single country even no single region can fulfill all the critical minerals that we need for this energy transition s the outlook for aan remains very positive if we look at growth I think the IMF has recently estimated that aan will continue to out grow the the world average by a factor of 1.