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Ep 7 - Steven Glinert, CEO of Sphere Semi - Semiconductors, Industrial Policy, National Security, And China
78 Plays2 months ago
On this week's episode of the Sphere Podcast, Pascal-Emmanuel Gobry, Publisher of Sphere Media, interviews Steven Glinert, Founder and CEO of Sphere Semi, a semiconductor company in the national security space. We discuss everything at the intersection of semiconductors and policy: why semiconductors are so important and valuable, why they're tricky to manufacture, the economic and national security implications of semiconductor manufacturings, why industrial policy may or may not be a good idea, the CHIPS Act, the rivalry with China, and more.
And, of course, his favorite book outside his area of expertise.
This was a fascinating conversation.
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Follow Steven on X: https://x.com/StevenGlinert
Steven's Substack: https://www.glinert.co/
Sphere Semi: https://www.spheresemi.com/
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Subscribe to the Sphere Podcast on YouTube: https://www.youtube.com/channel/UCB2gs2TBXeP7vyn9QUaaxjQ
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Transcript
Introduction & Unique Location
00:00:00
Pascal-Emmanuel Gobry
Good morning, everyone, and welcome to episode seven of the Low Production Values Sphere podcast, which is shot from my terrorist hideout in Syria. ah And today we have a very special edition because I, the founder and CEO of Sphere, will be interviewing the founder and CEO of s Sphere.
Interview with French Semiconductor Expert
00:00:23
Pascal-Emmanuel Gobry
It's actually... um True, but he made a very smart choice, which is instead of going in in an industry where it's impossible to make money, like media, he went into an industry where it's very, very difficult to make money, like semiconductors. We also have something else in common. My my guest is French. His name is Stéphane Glinier. Oh, no, wait. No, it's Steven Gleinert. Is that is that it?
00:00:50
Steven
Yeah, the the eye is long for reasons that only an old Jew in Romania can tell you. from lady If I went back in time, I'd ask him.
00:01:01
Steven
But If you have my last name, you are related to me because it is a misspelling um of a
00:01:02
Pascal-Emmanuel Gobry
Is that, is that true? Is that, is that cause joking aside, it sounds like a French name.
00:01:15
Steven
what I think we believe is an insult named the Austro-Hungarian Empire. No, this is true. The Austro-Hungarian Empire needed to make ju give Jews names and they were they were moving fast through villages in Romania and Western Ukraine. And they probably came to my Greek, Greek, Greek grandfather's village and they saw a guy who had a frowny face and they said,
00:01:38
Steven
flowerer luonar And then they, and then he didn't know how to spell the name. He was assigned. So he was like, glinard. And he also probably only knew how to spell in Hebrew.
00:01:50
Steven
So Hebrew has no, like Hebrew, you write the vowels under the word.
00:01:54
Pascal-Emmanuel Gobry
Right.
00:01:55
Steven
So he just put the, the yud and the aleph at the bottom of the lamed. And my name is a one time you have to be related to me.
00:02:05
Steven
We know the guy who we're all related to.
00:02:11
Pascal-Emmanuel Gobry
and That's really funny.
00:02:11
Steven
It's fine. Yes, yes.
00:02:13
Pascal-Emmanuel Gobry
That's really funny.
00:02:15
Steven
Yes.
00:02:15
Pascal-Emmanuel Gobry
ah So anyway, so I wanted to have you here because ah you're a very smart guy.
Career Path & National Security Applications
00:02:23
Pascal-Emmanuel Gobry
We were introduced through the mysteries of internet group chats.
00:02:28
Pascal-Emmanuel Gobry
But you write very perceptive things about ah national security, the semiconductor industry, and all that. So but give a quick bio. So you had you went to Stanford, which is okay, we forgive you. ah You had an AI company, which was sold, I believe. And now we're not allowed to talk too much about your current company, but we are allowed to say that you make semiconductors and that you have clients in the national security space in the U.S.
00:03:03
Pascal-Emmanuel Gobry
And like you this you you make things in the real world and you sell them to actual customers.
00:03:04
Steven
Sure.
00:03:10
Pascal-Emmanuel Gobry
Correct.
00:03:10
Steven
Yes. So, uh, yes. Master's from Stanford. First company was acquired, sold software for manufacturing, moved into the real world to do hardware because I wanted to feel alive again and do something way harder. Uh, and I'm a masochist. Um,
00:03:31
Steven
we are we don't fab ourselves we are a fabulous chip company we fab with someone else but we we do the design we we basically clients who could be in the commercial space but right now are dominated by the national security base they give us specs they want we produce we we we go to another fab and we
00:03:35
Pascal-Emmanuel Gobry
Got it.
AI in Semiconductor Design
00:03:51
Steven
fab the chip we want, the only difference between us and everyone else is that we have AI to do the design, um and that design is, and we focus in on very intensive chips that you mostly use for national security applications, though you might see them in cell phone towers or medical devices.
00:04:10
Steven
um
00:04:14
Steven
When we do a launch, we'll do a launch, and I'll go into more detail, but right now, that's that's about as much as I'm gonna tell you.
00:04:20
Pascal-Emmanuel Gobry
Yeah, that's no but that's that's enough for this podcast, which is for journalists. It's for policy professionals between people who know nothing. ah That's not true.
00:04:33
Steven
Keep. Sure.
00:04:34
Pascal-Emmanuel Gobry
But it's enough for this to show that you're in the industry and you're actually like doing things inside that industry.
00:04:41
Steven
You can just do things.
00:04:42
Pascal-Emmanuel Gobry
um And so ah that makes you relevant for for this podcast because, of course, the issue of semiconductor manufacturing is huge. ah And as you point out, ah maybe this is just me, but like for a very long time, I thought semiconductors meant CPUs and GPUs. But of course, um actually, everybody knows this.
00:05:06
Pascal-Emmanuel Gobry
Computer chips, which are semiconductors, are everywhere, which is why you know I was shocked to find out that hundreds of thousands of semiconductors are manufactured in France every year, which I didn't think.
00:05:17
Pascal-Emmanuel Gobry
I thought they were all manufactured in Asia, but actually it makes sense because they go into the cars we make, they go into they go into the missiles and the and the military stuff, but even apart from the military stuff.
00:05:26
Steven
But this is actually, the point about France actually, ST microelectronics, um and this just shows you the diversity of semiconductors.
00:05:28
Pascal-Emmanuel Gobry
Yeah, go ahead.
00:05:35
Pascal-Emmanuel Gobry
Yes.
00:05:37
Steven
France is not in the business, or the Benelux or Germany are not in the business of the intensive, what you might call low node CPUs or GPUs.
00:05:50
Steven
They're not in that business. They don't do that. But because the world of semiconductors is so large, um And because France and Italy and and the Benelux have, in Germany, have such good physicists and, you know, sort of good material science, they have focused in on these very niche applications that are, you can call them niche, but they're massive. So automotive, industrial, my um you call them MEMS. So they're like sort of ah mechanical chips. They're sort of a, so you use them for like, remember the Nintendo Wii?
00:06:24
Steven
The sensor in Nintendo Wii, that's a French product, actually.
00:06:24
Pascal-Emmanuel Gobry
Yeah.
00:06:27
Steven
I think it says T-microelectrons. They at least fab it. But a lot of analog, heavy-duty
Evolution of Semiconductor Manufacturing
00:06:35
Pascal-Emmanuel Gobry
So just to be clear, fab means, so in in the in the world of semiconductors, you have like a big sort of dichotomy, which is fabless and fab, fab means fabrication.
00:06:35
Steven
stuff is done in Europe.
00:06:39
Steven
Yes.
00:06:48
Pascal-Emmanuel Gobry
And so you have companies that just design chips and then other people make them. ah The most famous is ARM, I think.
00:06:56
Steven
No, no.
00:06:56
Pascal-Emmanuel Gobry
And then you have people who actually make the semiconductors.
00:07:00
Steven
So let's let's actually talk about the the week. Let's get historical here.
00:07:04
Pascal-Emmanuel Gobry
Yeah, please.
00:07:04
Steven
Back in the day, there was no such thing as fabless and fab. The reason being is because the process of making the chip was so intimately tied in to the design of the chip itself and and is that you couldn't really split one from the other.
00:07:14
Pascal-Emmanuel Gobry
Right.
00:07:26
Steven
Something happened in the digital space.
00:07:32
Steven
that was actually a software advance that has also happened to an extent in the analog space where we have ST microelectronics or XFAB or NXP, which are these European companies we just mentioned, or analog devices where where you can where where you can separate out the design and the fabrication. This was a software advance. This was not a technological advance. And it was it has dominated the digital space where the capital the capital expenses are much, much higher, and has to an extent conquered the analog space, though not completely, which is to say that you often see
00:08:12
Steven
things like in ah companies that are analog ah design shops that some fabrication has been kept by them in shop. There's a lot of technical reason that we can go into for this, but what you have to understand that that that there was a software advance that allowed for in digital, we call it sort of synthesizability. That is to say, basically figure people figured out that you didn't need to actually lay out every goddamn transistor. You could abstract it away and create nice sort of oh You basically only needed to think about the logic of the chip, not the um not the sort of layout of the chip itself, which allowed for abstraction, which allowed for people to say, okay, now I can i can sort of efficiently separate out the fabrication and the design and specialize. And this was a groundbreaking thing and it went from
00:09:08
Steven
If you wanted to be a chip company, you needed to have the capital available to fab to suddenly people could specialize. And this was one of those grand moments in, well, let's, let's, let's go ahead and do that.
00:09:21
Pascal-Emmanuel Gobry
Right. So basically instead of needing to build a factory to to do a semiconductor company, you could just have like three nerds in their garage and and they would come up with a new design and they would send it to a factory.
00:09:32
Steven
Yes.
00:09:37
Pascal-Emmanuel Gobry
And so that helped the industry.
00:09:40
Steven
Yes. What it also does is it globalizes the industry, uh, extremely quickly.
00:09:45
Pascal-Emmanuel Gobry
Interesting.
00:09:47
Steven
What.
00:09:47
Pascal-Emmanuel Gobry
Yeah, because now you can move the manufacturing to low-wage countries, which leads us to, no, okay.
00:09:53
Steven
but No, let's be very clear here.
00:09:54
Pascal-Emmanuel Gobry
No, take us through the history. This is fascinating and you like you clearly know more about this stuff than me.
00:09:56
Steven
Let's be very clear. It's you can't do this. you can't make a You can't do fabs in Bangladesh, right? You can do a lot of things in Bangladesh, but you can't make a fab. Fabs require an educated population. You don't have people on the factory floor like assembling things. It's an educated population that has high numbers of engineers. where the labor you You see it in countries at the low end, like Malaysia, where you have um good engineering schools and a good number of engineers, but it's a middle income country.
00:10:32
Steven
it's i think It's one of the wealthier countries in Southeast Asia.
00:10:33
Pascal-Emmanuel Gobry
Right.
00:10:36
Steven
um But you also see it in countries like South Korea, Taiwan, which are sort of, um they're not in and Singapore, actually. they're they're They're up there, but they have one thing in common, actually.
00:10:48
Steven
And that thing that I have in common is the ability and the willingness of the government to dump or allow for large capital expenses and outlays and to be to be put forward for what are extremely billions and billions of dollars in expensive you know expensive um places. Singapore ah you know is is a classic example of this.
00:11:17
Steven
singaporeans
00:11:17
Pascal-Emmanuel Gobry
So what you're saying is they they they captured the market through industrial policy.
00:11:19
Steven
Singaporeans... Yes, yes. Yes, they capture the market through industrial policy. They realize the separation has happened and they capture the market and they say, Malaysian government says we're going to dump resources.
00:11:33
Steven
Singaporean government says we're going to dump resources.
00:11:33
Pascal-Emmanuel Gobry
right
00:11:34
Steven
The Taiwanese government says we're going to dump resources in Korea.
00:11:35
Pascal-Emmanuel Gobry
but this But this is this is this is an an important point.
00:11:37
Steven
and
00:11:39
Pascal-Emmanuel Gobry
like A lot of semiconductors and advanced semiconductors, these are not t-shirts, right? like They're made in rich countries and like the issue is not cost of labor.
00:11:46
Steven
No, no, these are not.
00:11:53
Pascal-Emmanuel Gobry
It's it's not like t-shirts. T-shirts are never coming back to America. like i I did another interview with a reassuring specialist and says, look, a lot of stuff can come back, but t-shirts are not coming back.
00:11:57
Steven
No, that's not how.
00:12:04
Steven
Yes.
00:12:05
Pascal-Emmanuel Gobry
um So these are not t-shirts.
00:12:08
Steven
These are not T-shirts. In fact, they are this is the most insane, bizarre manufacturing process that i had that you could possibly understand.
00:12:22
Steven
We are taking a photo mask and blasting a laser onto it's science.
00:12:28
Pascal-Emmanuel Gobry
Yes, the science of it is actually fascinating, yeah.
00:12:31
Steven
Then we're doing a chemical vapor deposition where we're but we're basically using, you know, we're using sort of plasma to pull off layer by layer. Remember semiconductors have like several 30 layers and many, many, many many layers from many many, many chips.
00:12:49
Steven
The manufacturing is intense. The process engineering is intense and the
00:12:58
Steven
The fact is that you need strong engineering talent in your country to be able to do this.
00:13:04
Pascal-Emmanuel Gobry
Right.
00:13:04
Steven
But the most important thing is you need governments that are willing to invest in it. And the moment that AMD but kind of companies like AMD are a great example. I think it was the, I think it's AMD said the CEO says ah something like real men have fabs for a long time. i and And he was basically Intel resisted this, this for a while until still has resisted this actually. That's why they still have a fab. And that's why they're sort of the, the, the, sort of the carrying the flag forward of American semiconductor fabrication. But Intel was the, was the laggard. Andy gave up, they said, yeah, screw it.
00:13:44
Steven
Like real men have fabs, but we're no longer real men. It's too goddamn profitable to go and fabricate it somewhere else.
00:13:48
Pascal-Emmanuel Gobry
like
00:13:52
Steven
It's too goddamn profitable to do so. And you see this over and over again with every semiconductor company where they just have a shareholder meeting and I can be in that room. And and they basically say, look, we're never going to have geopolitical instability.
00:13:52
Pascal-Emmanuel Gobry
Right.
00:14:07
Steven
The Cold War is over. And We can increase our margins by and and and lower the you know and and lower our capital costs by an ungodly amount. Why the hell aren't we doing this? As a shareholder in the company, I demand you do this. And it happened. And it happened over and over again. kind Countries where capital government capital was available, lower profits were ah were were allowed.
00:14:37
Pascal-Emmanuel Gobry
Okay, so let's let's just let's just focus in on this because we're getting to ah the what happened part.
Strategic Risks in East Asia
00:14:44
Pascal-Emmanuel Gobry
So basically, 90s, free trade, end of the Cold War, Fukuyama rules us all.
00:14:52
Pascal-Emmanuel Gobry
And so on the one hand, you had the West where we're like, oh,
00:14:57
Steven
out.
00:15:02
Pascal-Emmanuel Gobry
Yeah, so in the 90s, Fukuyama rules us all.
00:15:02
Steven
Okay.
00:15:08
Pascal-Emmanuel Gobry
Free trade is the order of the day. Western companies are told just maximize shareholder value, whatever, whatever gets the highest ROI is good. Meanwhile, East Asian countries are like, oh, you know, the government in those countries are like, oh, if you want to build like a giant high-tech factory,
00:15:28
Pascal-Emmanuel Gobry
We will give you subsidies, you know, low interest loan loans or whatever. um So so the the Western companies were like, we're getting rid of this manufacturing, which is high capex, low margin, and and the East Asian come countries were like, yes, please, thank you.
00:15:48
Steven
Yeah, some companies make decisions, so but let's be let's be clear and specific here. um Many companies like NXP,
00:16:00
Steven
ah um ST Micro Electronics, which are European ones, and then you have in in the United States, you have Intel, and you have, um think I think analog devices to an extent, Skyworks, et cetera, et cetera, companies, you probably haven't heard of, very important chip companies,
00:16:18
Steven
Corvo, for example, um they make the decision, and they have continued to make the decision that fabrication,
00:16:27
Steven
linking up their design and their fabrication is important. Now, the reason why one might think this is, one, you might say, I have some really good physicists. I have some really good physicists that have built really good transistors, and I don't want to share those transistors with the world. right Now, you have to understand that that this is like,
00:16:47
Steven
Sorry. So you have companies that basically make a decision and an important decision like my transistors are so good. My process is so good that I don't want to share it with the outside world.
00:16:58
Steven
My process is my comparative advantage and linking my design and my process together are something that makes, gives me an advantage and they make a shareholder decision.
00:17:04
Pascal-Emmanuel Gobry
Right.
00:17:07
Steven
I am a hundred percent sure that said, if we lose our fabrication, we lose our advantage.
00:17:13
Pascal-Emmanuel Gobry
right so
00:17:13
Steven
and
00:17:14
Pascal-Emmanuel Gobry
ki yeah Yeah, this is an important point because this is this applies to manufacturing generally, which is the this idea, oh, we'll just design and then other people will do the st dirty grubby work of making it. Actually, what you find out is that if you've got the design and the manufacturing in the same roof,
00:17:34
Pascal-Emmanuel Gobry
they complement each other because the people actually making the thing knock on the engineer's doors and say, oh, this doesn't work or blah, blah, blah, blah. And this sort of process leads to a better product.
00:17:47
Pascal-Emmanuel Gobry
I mean, this is true for cars, for example. This is true in many, many places.
00:17:50
Steven
Yes.
00:17:51
Pascal-Emmanuel Gobry
And I would assume it's also true in semiconductors since the manufacturing is so complex. Like the more complex the manufacturing, the more you would expect to have this effect. Contra t-shirts once again, where like every t-shirt is the same.
00:18:04
Steven
But let's make a rational, let's, let's understand the rational decision making here. Company that does very, very, very complex digital chips. sees that the as we go get low we go down in node size, as the transistors get smaller, the technology is getting way, way more expensive. And the CapEx is just starting to eat into everything. And you might say, damn, if I want to maintain my competitiveness in the digital world, I got to get rid of this fab. This fab is a is a disaster for me. right And so for them, the rational decision becomes taiwan and China innovating Taiwan,
00:18:43
Steven
And if I'm going to like, and Singapore is always going to be a US ally, so I can package there, I can do my, and i and and you know, I can fab in Taiwan and these places are not going away. So I'm going to make this incredibly economically important decision to get rid of my fab. Companies like Corvo, who make heavy duty analog chips make the decision that one,
00:19:09
Steven
I just, I, my process is too intimately connected and my capital costs aren't explosive. So whatever we're going to, we're going to keep our fab together.
00:19:19
Pascal-Emmanuel Gobry
Okay, so let me put on my libertarian hat.
00:19:22
Steven
Okay.
00:19:23
Pascal-Emmanuel Gobry
ah And so I've just listened to to all of this. It's very interesting. And let's say I'm a libertarian. I say, well, what's the big what's the big issue here? Because what what you're telling me is that you have various companies that are each making ah value maximizing decisions about what their competitive advantage is. And so like company A might be like,
00:19:47
Pascal-Emmanuel Gobry
Actually, I'm not that great in manufacturing, but I'm really good at design. So I'm going to sell the manufacturing and focus on design and be more profitable. This is good. And then another company is going to say, Oh, actually, I'm really good at manufacturing or the manufacturing is more integrated in my design. So I'm going to keep manufacturing.
00:20:05
Pascal-Emmanuel Gobry
And this is also good, and it just sounds like a healthy market ecosystem that just where you know everybody's sort of like making their own sort of interest-maximizing decision, and it works out that the at the level of of the market or the country or the world to sort of create value for everybody, and that's good. So what you know why why is the libertarian wrong? And why are why are we having this discussion?
00:20:33
Steven
There's, let's start with the, let's start and imagine a world in, um that's not, what's the Hobbes phrase? Cruel, ah let's imagine a world in which, we yes yeah, let's imagine a world in which it is not war of all versus all for a moment here.
00:20:44
Pascal-Emmanuel Gobry
Nasty, brutish, and short.
00:20:50
Steven
Allow me that privilege.
00:20:50
Pascal-Emmanuel Gobry
Right.
00:20:52
Steven
um The problem is that this actually becomes what you might think of as a tragedy of the commons. If everyone makes the same goddamn decision then suddenly a core competency that I have from a talent perspective evaporates overnight, right?
00:21:10
Pascal-Emmanuel Gobry
right
00:21:10
Steven
Now I can't get it back, right? So if we all, if, I don't know why, if if like, i I don't like changing poopy diapers, but I need to know how to change a poopy diaper because I need to maintain that skillset because if my wife is busy one day, like, I no longer can change it.
00:21:34
Steven
There's no one to change the poopy diaper. Poopy diaper in my two-year-old is just there. Like, we now have this terrible analogy, but it just came to my mind. The truth is that if we all move our fabs overseas, I, yeah.
00:21:45
Pascal-Emmanuel Gobry
it's it's ah It's a very patriarchal and heteronormative ah analogy, which ah we we we strongly condemn.
00:21:51
Steven
Yes.
00:21:54
Steven
Sure. But if everyone if everyone moves their fabs overseas, All of a sudden, then we don't have the talent base anymore.
00:22:00
Pascal-Emmanuel Gobry
Yes.
00:22:02
Steven
Then that process engineer who has been trained as a process engineer his whole life, he finds a job and then he moves out of the, he leaves the workforce and there's no one who's replacing them because there's no job for that applied physicist to do.
00:22:14
Pascal-Emmanuel Gobry
Right.
00:22:15
Steven
He's going to go into software or quant trading or something like that. Whereas before he might have a really highly paying job at a fab, by the way, these jobs are, this this is not sweatshop labor. These people are paid 200, 300K, like these are, these are,
00:22:26
Pascal-Emmanuel Gobry
Right.
00:22:30
Steven
Uh, they get paid more than a Dropbox product manager, Dropbox product manager. I'll tell you that. but Um, but we all do it and then we don't have the talent anymore.
00:22:35
Pascal-Emmanuel Gobry
Right. Right. Right.
00:22:44
Steven
And then we lose an essential piece of what you might call a well-rounded economy.
00:22:50
Pascal-Emmanuel Gobry
right
00:22:50
Steven
Even if, even if we weren't international, even if we weren't in a, situation of increasing multipolarity and geopolitical instability, this would have been a bad decision and we should have done something to step in to stop it.
00:23:02
Pascal-Emmanuel Gobry
Right.
00:23:04
Steven
Matters are made worse by the fact that Taiwan made a very intelligent decision that, and you have to remember that in the 80s and 90s, the existence of Taiwan as a country was something that most people assumed was an anachronism that would soon go away.
00:23:28
Steven
That was what Kissinger thought. And then they pulled off an unbelievable miracle.
00:23:34
Pascal-Emmanuel Gobry
Right.
00:23:34
Steven
And, you know, Morris Chang saved that country because he figured out that if you made it the center and the government figured it out too, it was, it was, they were working together.
00:23:46
Steven
If you made it the center of global chip fabrication, it became important again. It became relevant again. That's what they did. But Taiwan remains, i I'm going to phrase this really well, taimant Taiwan remains an anachronism in many ways, and it remains an area.
00:24:10
Steven
There is a massive risk that we all must understand of Taiwan ceasing to be an independent country or a quasi independent country.
00:24:17
Pascal-Emmanuel Gobry
Yes.
00:24:19
Steven
And we all have to eat that risk now because China wants it back for many, many, many reasons that are not part of this, not pertinent to this podcast, but China wants it back and there's a significant risk that it will get it back.
00:24:32
Pascal-Emmanuel Gobry
yes
00:24:32
Steven
And we now must eat that risk because that's where it all went. More than that, the region of the world in which much of chip fabrication went happens to be a region of the world where there is a rising power that does not want US to have access to those markets, potentially.
00:24:49
Pascal-Emmanuel Gobry
Yes. Okay, so ah we let all the chip manufacturing go to Asia. That was a bad idea for many reasons. So next episode, what are we doing about it?
00:25:07
Pascal-Emmanuel Gobry
And so I'm just going to escape skip over the part of we need, no, actually I do think it's interesting. like Why do we need semiconductor manufacturing in the United States to...
00:25:23
Pascal-Emmanuel Gobry
defeat China? why why are it's It's a very basic question, but I like asking very basic questions. ah Why are semiconductors so important and
National Security Importance of Semiconductors
00:25:35
Pascal-Emmanuel Gobry
strategically?
00:25:35
Pascal-Emmanuel Gobry
You made the point about diversifying the economy and like fair enough, but why are why are they strategically important?
00:25:39
Steven
it' not
00:25:43
Steven
Sure. There's a few reasons. Number one, um we need these things for every aspect of modern life, from doing this podcast to being able to like i mean do anything to, and this is the critical to making missiles that work.
00:26:04
Pascal-Emmanuel Gobry
Right.
00:26:08
Pascal-Emmanuel Gobry
Right.
00:26:08
Steven
Missiles are computers now. Every military device is a computer now. The AMD Ryzen, which is a military chip that probably is on the F-35, I think it's on the F-35, is an unbelievable work of technology and one of the most complex chips of all time.
00:26:23
Steven
And like that chip, We need that ship, and if that ship is being made in Taiwan, our military ability to produce a modern military is no is under threat and controlled and in in China's hands if they control the island. More than that, we need to be able to not let China have leverage over literally almost every productive every productive part of our economy. That is an incredible threat that gives them leverage to do a lot more than ban NBA players who you know say, anything like that's a lot of leverage for them to be able to have. And we don't want them to have that leverage because they're a hostile communist country.
00:27:04
Pascal-Emmanuel Gobry
Right, and like to to to the libertarians, ah giving communists power over your country is not libertarian. It's not likely to lead to libertarian and liberty-maximizing outcomes.
00:27:15
Steven
Right. rightly like
00:27:20
Steven
Right. But more than that, so you need this thing here. We made a mistake. We need to course, correct. Um, we don't want them to have leverage over economy. We don't want them to ability to cut things off. We don't have want them to have the ability to, um, yeah. And we don't want them to ability to cut off our military, right? This is just, it's essential and more than that. And I'm going to be very careful with my words for the next thing I say.
00:27:50
Steven
While I do believe that a vigorous deterrence of China over Taiwan is extraordinarily important, and I truly think the Trump administration understands that, and being willing to really signal credibly that we will defend that island is incredibly important, the fact is that our leverage in any negotiation over the future of East Asia is hurt by the fat, by the, the inability for us to get our own fabrication capabilities.
00:28:28
Steven
We are in a tough spot.
00:28:29
Pascal-Emmanuel Gobry
Right.
00:28:30
Steven
We are strategic optionality limits is is limited by our inability to fabricate our own chips. And everyone knows this.
00:28:39
Pascal-Emmanuel Gobry
Right.
00:28:42
Steven
They don't want to say it out loud.
00:28:43
Pascal-Emmanuel Gobry
Right.
00:28:44
Steven
Actually JD Vance, I think has said it out loud. but Um, but Vivek, no Vivek has said it out loud. Actually, it's not JD Vance. Vivek has said it out loud, but he's the only one who says it out loud.
00:28:53
Pascal-Emmanuel Gobry
Wrong meritocrat.
00:28:55
Steven
Yeah. Like, like, like one guy has said it out loud, but everyone knows it.
00:29:02
Steven
What we therefore have to do is take a page out of the East Asian playbook and go ahead.
00:29:14
Steven
and do that sort of large capital investment ourselves, whether it is through loans, whether it is through, um, there's a lot of financial instruments that we can use.
00:29:18
Pascal-Emmanuel Gobry
Right. Right.
00:29:25
Pascal-Emmanuel Gobry
Subs need.
00:29:28
Steven
We can use instruments where some profits come back to the government, which I don't love because it really creates bad incentives. Um, and we can use tariffs. We can force whatever we can force foreign firms to build here.
00:29:41
Steven
by basically saying, if you don't build here, we'll tariff the goods. All these things are tools at our disposal that East Asian countries use for many, many years that we now have to use ourselves.
00:29:54
Steven
And these are tried and true policy instruments. um And it's just about the muscle. It's just about the implementation.
00:30:01
Pascal-Emmanuel Gobry
right Okay.
00:30:02
Steven
can um
00:30:04
Pascal-Emmanuel Gobry
So this is the next, this is the next episode. So we made this big mistake. We we really, really, really need to correct it yesterday.
00:30:15
Steven
right
00:30:16
Pascal-Emmanuel Gobry
Preferably. What are we doing about it? So, I mean, i I don't expect you to be an expert on the CHIPS Act or anything like that, but sort of broadly what is happening at the
Overview of the CHIPS Act
00:30:31
Pascal-Emmanuel Gobry
moment.
00:30:31
Pascal-Emmanuel Gobry
And then we'll go to the next question, which is, are we doing it right? And if not, what should we change?
00:30:37
Steven
Right.
00:30:37
Pascal-Emmanuel Gobry
But like walk us through what's been happening these past few years and what's happening now.
00:30:42
Steven
Yes. So the chips act, um, The CHIPS Act basically has several components. It is a bit of an everything bagel of a bill.
00:30:54
Steven
um it
00:30:56
Pascal-Emmanuel Gobry
Shocking I I'll tell you as somebody who who works in DC that never happens. It's just ah
00:31:03
Steven
My next point is I will get to all the weird stuff that's in the bill that I hate. um But ah um but um the truth is that the majority of the bill was about loans and direct and direct subsidies and tax breaks to get companies to build fabs here.
00:31:27
Steven
And we went and
00:31:27
Pascal-Emmanuel Gobry
Right. Fundamentally, we wrote a big check to TSMC and Samsung and Intel. Okay. To build fabs in the US. Okay.
00:31:37
Steven
That is fundamentally what we did. um I'm going to go back in time and talk about washing machines for a moment, if you don't mind.
00:31:44
Pascal-Emmanuel Gobry
Okay.
00:31:47
Steven
What we figured out we could do with LG is we can compel the United States as the massive market that we are. We could compel people to put their factories here via tariffs under Trump, but also via incentives.
00:32:00
Pascal-Emmanuel Gobry
right
00:32:01
Steven
And we did it and it worked.
00:32:03
Pascal-Emmanuel Gobry
Oh, i see i see I see the point about washing machines. You were talking about washing machine tariffs under Trump.
00:32:08
Steven
So Trump under trendund under Trump, we did Washington, sorry, it was a little roundabout.
00:32:12
Pascal-Emmanuel Gobry
Yeah, but it's it's it's it's very important because it's like the pro tariff case study. um So go ahead, explain.
00:32:18
Steven
Yes.
00:32:20
Pascal-Emmanuel Gobry
I know what you're talking about, but explain it.
00:32:20
Steven
Yeah. So basically you have realized, what you've realized is that you can create an ecosystem for industries by forcing foreign firms from East Asia to drop a factory in our country.
00:32:33
Steven
And it is a, it's a very, very, it's, it's a weird thing for the United States to be doing because you think of it as something we do to other people, we do with other people, but we've, I mean, we we are We also have the most, we have the wealthiest consumer market in the world and we buy a lot of washing machines.
00:32:47
Steven
So LG had to do it, right? The tariffs went into the forcing factor here.
00:32:49
Pascal-Emmanuel Gobry
Right.
00:32:50
Steven
We can talk about the tariffs.
00:32:51
Pascal-Emmanuel Gobry
Right. So basically what happened with washing machine tariffs. So the the free trade argument is if you put a tariff, the the manufacturers will just pass it on to the consumer and all you'll do is take money from consumers and not change anything.
00:33:04
Pascal-Emmanuel Gobry
But what we found out with the washing machine tariffs under the Trump administration is that the US market is so valuable that companies like LG and others prefer to eat.
00:33:17
Pascal-Emmanuel Gobry
the the loss in profit to in order to keep their market share and keep their access to the US market, which is, again, like this is this is you know this is like a manna from heaven for the protectionist because it's exactly what they want.
00:33:22
Steven
Yes, exactly.
00:33:26
Steven
Yeah.
00:33:35
Pascal-Emmanuel Gobry
um the the the skeptical The skeptical response is that, you know, Okay, you've got one case studies.
00:33:43
Steven
yay but but little but but
00:33:44
Pascal-Emmanuel Gobry
You've got one example. there there are lots of Every market has different competitive dynamics where firms could either make the decision to eat the loss to keep their market share or say like, screw this, I'm out of here.
00:33:56
Pascal-Emmanuel Gobry
But so but it's the point is, it's at least possible for it to happen. It's possible for it to work out well.
00:34:02
Steven
Exactly. Now, what we did, we told these we told these chip companies that they needed to start building fabs here, and we're going to give them a lot of money to do it.
00:34:11
Pascal-Emmanuel Gobry
Yes.
00:34:11
Steven
We didn't apply tariffs in the way that I think Trump wants to. and We can get to the the spread of options, the the buffet of options we have that I think Trump might revise wisely or unwisely.
00:34:22
Steven
We can assess that. it's an It's a question. um But what but the biden Biden really did was he said loans, subsidies, ah whatever you want, put your fab here, and we'll get moving.
00:34:35
Steven
And I think TSMC sort of read by the writing on the wall and they realized they had to do this in order to, to in order to probably continue to get us protection in a lot of ways like it was a national security.
00:34:47
Pascal-Emmanuel Gobry
Yeah, yeah there there there was presumably some arm twisting and you know i would i I was told some things by some people.
00:34:48
Steven
and
00:34:53
Pascal-Emmanuel Gobry
There were there there was arm twisted. and me says Obviously, the Taiwanese government was not wild.
00:34:55
Steven
right
00:34:59
Steven
They're not wild about this, but they probably got their arms twisted a bit. Samsung, the Koreans had a lot more actually room for maneuver. um And the Koreans had a lot more room for maneuver, but they chose to do it. SK Hynix and several other Korean companies actually told us to off, right? we like we we We tried to convince them and they said,
00:35:23
Steven
um sorry, the regulations and the things we have to do and the profit, like the sort of financial models we have to give the U.S. government are things we don't want to do when we think of proprietary. um And actually, I mean, you could, this is literally a case of because of woke, like SK Highness was like, this is too many regulations. We don't want to deal with this.
00:35:44
Pascal-Emmanuel Gobry
Okay, so so this is one of my questions.
00:35:44
Steven
um
00:35:46
Pascal-Emmanuel Gobry
So if you if you go to like conservative websites about the CHIPS Act, ah what they'll tell you is, oh, it's not working because of woke.
00:35:58
Pascal-Emmanuel Gobry
And what they mean is that basically those factories have to do DEI and they have like gender quotas and hiring quotas, and they have to have like, you know I'm making this up, but it's probably true.
00:36:10
Steven
Yeah.
00:36:11
Pascal-Emmanuel Gobry
They have to have breast pumping you know facilities on site or whatever. um ah But at the same time, the building is going is on schedule or ahead of schedule. Maybe the schedule was fake so that you could announce six months later that you're ahead of schedule. I don't know. like okay so Uh, that's a question I have that you might be able to answer.
00:36:37
Pascal-Emmanuel Gobry
Like is the, yes.
00:36:37
Steven
Is it working? let's but let's Is it working is a really important question. And the answer is yes. With a deep breath I say yes, it's a good policy and it's working.
00:36:49
Pascal-Emmanuel Gobry
The answer is the answer is dot, dot, dot. Yes.
00:36:53
Steven
Yes, like i with the biggest heaving sigh or whatever I can ever make, I say, yes, it's working. But let's discuss like what's working and what's not.
00:37:04
Steven
So we have mentioned the elephant in the room, which is Intel.
00:37:04
Pascal-Emmanuel Gobry
Okay, yes.
00:37:08
Steven
Intel was the big winner here. Intel, and and they have done everything in their power to undo their wins through horrific mismanagement, but they were the winner.
00:37:19
Pascal-Emmanuel Gobry
That's a classic Intel story.
00:37:21
Steven
Yes. I actually think Pat Gelsinger is a did a good job and I think his board is really dumb. But Intel was the big winner of this bill and everyone always complained like, oh my God, Intel, you know, Intel just, you know, kind of ran, you know, kind of, kind of was like a bandit in Washington, DC.
Intel: Challenges & Contributions
00:37:42
Steven
And there's an argument to be made for that. But They're also the American fab that we needed. Like they're the only fab that's still American that does high, that does low node digital chips. And therefore they were a necessary ingredient because we can't just rely on foreign companies. It's just not feasible, not possible. Global Foundries is another player. They also got a lot of subsidies. You don't hear about them much. They do a lot of ah RF and analog chips. Um, there's also, but but they, they didn't get as much money. And really the focus for the chips act is on low node, uh, digital.
00:38:12
Steven
Other companies are getting money, um but not as much. And there's there's good reasons for that, which I can go into if you're so interested. But let's keep going.
00:38:22
Pascal-Emmanuel Gobry
I mean, I have many questions, but I'm listening to you for for now.
00:38:25
Steven
Intel's making a lot of own goals, but they are making progress themselves. They're eventually going to figure it out. They're eventually going to split out the fab, because they're too important to fail. And the United States is going to keep giving. And in in the United States is going to figure out a way to make them succeed.
00:38:37
Steven
and speak
00:38:39
Pascal-Emmanuel Gobry
I'm just picturing everybody at the Cato Institute listening to this and like just banging their heads on the and their desk. and like I get it.
00:38:44
Steven
this is
00:38:46
Pascal-Emmanuel Gobry
like i mean this is This is the this is the the the sort of ah horrible thing we had in the 70s and 80s where we had all these big companies that were essentially like you know like ah ah failing an alcoholic failing to reform themselves, like coming coming to Congress, camp in hand every five years, saying, no, no, I promise this time it's the last time you know I'm going to pull myself together.
00:39:06
Steven
Well,
00:39:11
Pascal-Emmanuel Gobry
And like take you know ah ah taxpayers were so throwing money down an infinite pit for these totally incompetent companies.
00:39:12
Steven
thank you.
00:39:21
Pascal-Emmanuel Gobry
ah that and you know it It was actually good for like private equity to buy these companies and like fire all the management and and make them productive.
00:39:32
Pascal-Emmanuel Gobry
Do you know what I mean? like Intel is a company that's been failing in the marketplace for 15 years, and we've given them a bunch of money to build factories, and they're screwing it up, and it's like, well, they're too big to fail, so I guess we're going to give them more money.
00:39:33
Steven
yeah but ray we But you're right because, by the way, the the solution for industrial policy is what Park Tung he did.
00:39:46
Pascal-Emmanuel Gobry
it's like i i you know
00:39:56
Steven
um He just threw, I think Hyundai didn't, it was Hyundai doesn't want to produce cars and he just takes the CEO of Hyundai and throws them in jail.
00:40:05
Pascal-Emmanuel Gobry
Yeah, well, we can't do that in America, okay?
00:40:07
Steven
Right, sorry i right.
00:40:08
Pascal-Emmanuel Gobry
They tried it with Elon and then worked, so, you know.
00:40:11
Steven
ah but but But it would be funny if we tried. That would be the, Trump has the opportunity to do the funniest possible.
00:40:16
Pascal-Emmanuel Gobry
I mean, you know, and under President Vance, the whole CEOs in jail theory, you know, might have legs again, but for now,
00:40:23
Steven
We can't do that. um But the, I want to answer your question about what's holding it back. Number one thing that's holding it back from TSMC is that i one thing you should know about, I think the Taiwanese are really quite savvy as as when it comes to but ah when it when it comes to business. And I have dealt with Taiwanese companies before, mostly at my last company.
00:40:56
Steven
um They really made sure that the subsidies were about to start flowing before they put, you know, before they put any real effort into TSMC, CFAB, and they got what they wanted in the end. We got what they really wanted. We strong armed them, and then they strong armed us. They got what they wanted, and then things have started working. So that's number one. Same with Samsung. These are how these companies work. It is a business culture that really is not a, um that is very,
00:41:27
Steven
doggy dog and they do not believe in the you know rising rising waters lift all ships. Intel is failing its way to success and I'm i'm pessimistic but optimistic in some sense. The things that are holding it back right now are there are clauses in the bill and I think the biggest thing that's holding it back is there are clauses in the bill that are really really really a Cause for like profit take like basically basically say you have to give back some profits the government people don't like that It's causing this it's a lot of disincentives.
00:41:57
Steven
I understand why the government did it um, but it's just It's I think it's fair to the taxpayer that like these companies don't just could take home all the profits But I think within reasonable like yeah, you can't do you can't take the money and do dividends, right?
00:42:12
Steven
Like don't do that but within that limit and that's what they were worried about and it's legitimate worry but within that limit and
00:42:12
Pascal-Emmanuel Gobry
Right.
00:42:19
Steven
you You should be able to take your own profits home. That's fair. that's fair you You're taking a risk.
00:42:22
Pascal-Emmanuel Gobry
Yeah.
00:42:24
Steven
um Number one, that's number one. um Number two actually are the owners' requirements to even get the money. A lot of that money isn't being distributed because the government makes you walk through an onerous financial you know audit.
00:42:38
Steven
They make you walk through an onous and and an onerous, yes, a DEI audit, but a lot of it is labor. the de It's an interesting thing to point to because it's a sort of a a a a canary in the coal mine of stupidity, but like but it's actually not the most significant thing.
00:42:55
Pascal-Emmanuel Gobry
but That's a good way of putting it actually.
00:42:58
Steven
The biggest ones that we're holding it back are environmental and labor.
00:43:03
Pascal-Emmanuel Gobry
Right.
00:43:03
Steven
So any democratic law is going to have a lot of environmental and labor um but tape Now, I've heard stories that the Biden administration in its last dying days lifted some of the environmental um ah environmental whatever around.
00:43:22
Pascal-Emmanuel Gobry
If they did, I'm not aware of it. ah It's possible, but...
00:43:24
Steven
I heard that, but I don't believe it. And we have to remember that there are two stages here. these the What I make you do while you're building the fab, so how much you can
00:43:33
Pascal-Emmanuel Gobry
If anything, they've been piling up regulation on their way out. like the The stuff that that's coming out, like I haven't looked at semiconductor slash chips act stuff specifically, but like the stuff that's been coming out of the executive branch these past few weeks in terms of regulation has been insane from like the most regulation happy administration since since well before Carter.
00:43:57
Steven
But let's put some numbers behind this, right, for a moment. FABs are 30% cheaper to make in Asia than the United States for a variety of reasons. This money is here to close the gap. That's what the money's for.
00:44:06
Pascal-Emmanuel Gobry
Right, right, right.
00:44:07
Steven
Close that gap. If I throw in a bunch of environmental regulations, which can cost 5% to 10%, like can basically lower that, low lose they they shrink that, they they sort of add 5% to 10% of costs.
00:44:11
Pascal-Emmanuel Gobry
Yes.
00:44:14
Pascal-Emmanuel Gobry
Right.
00:44:21
Steven
really, really high. Those environmental regulations are terrible. They really do hold things back.
00:44:24
Pascal-Emmanuel Gobry
Yeah.
00:44:26
Steven
That's the one that you should care about. The profit takes back the ones you care about. The labor law stuff is the so is with but is the ones you should care about. I don't know if Trump is going to do much about the labor laws, because he does have unions as a strong backer now.
00:44:39
Steven
But he doesn't care about the environment. And and I think he might love that about him. um so like like
00:44:48
Steven
like Like they like that, like that's good. That's gonna be the thing that's gonna really, dealing with the sort of, I would say financialization of some of these subsidies and how they're administered is really gonna be what a huge component. um And I think that what we should take an attitude of, and this is really my big point, here's how you can, i can I go into it? Here's what I would do to make it work.
00:45:13
Pascal-Emmanuel Gobry
Yeah, yeah, no, go ahead.
00:45:15
Steven
Here's what you should do to make it work. One, the thing the Biden administration didn't do was not only did they strap a lot of regulations onto it to make it more costly, but they also, and it's really the Democrats in Congress who did this in the Biden administration, but they also didn't shovel money.
00:45:18
Pascal-Emmanuel Gobry
And then I have a very dumb question, but like, what should we do?
00:45:40
Steven
The industrial policy is about speed And not, and just, you know, it's just about speed.
00:45:46
Pascal-Emmanuel Gobry
Right.
00:45:49
Steven
It's you can just do things, sort of attitude towards towards giving people money, shoveling people money. And the Biden administration had a bunch of people who would be like, well, did you fill out form 256A?
00:46:02
Steven
Ooh, well, now it's gonna be held up for another month. And that was the problem. The Biden administration didn't release a lot of the money.
00:46:07
Pascal-Emmanuel Gobry
Yeah.
00:46:09
Steven
This money was set aside and then never released. That's the issue. They just didn't give it up fast enough. Trump should streamline everything and start throwing money.
00:46:20
Steven
He should have every chip CEO in a room, and he should be throwing money at them left and right. And that's what he should be doing.
00:46:26
Pascal-Emmanuel Gobry
oh Right.
00:46:27
Steven
And he should not care what they're doing. And he should just make sure they're not doing dividends and whatever. and But like that's really what he should be doing. No regulation. Go hard. Number two, get rid of those environmental regulations.
00:46:40
Steven
And number three, and this is important, throw tariffs in there to make sure that Samsung and TSMC behave.
Types of Semiconductor Chips
00:46:49
Steven
That's not as nice and that's not as pleasant, but that is 100% what you need to do.
00:46:56
Pascal-Emmanuel Gobry
Okay, so dumb question. Uh, and this is a question that I've always had and have sort of always felt too ashamed to say out loud because it sounds really dumb, which is what are the chips for?
00:47:13
Pascal-Emmanuel Gobry
In other words, we're building a giant chip factory in Arizona.
00:47:13
Steven
Thank you.
00:47:18
Pascal-Emmanuel Gobry
What chips is it gonna make? what what Where are the chips gonna go? So in other words, so a couple of things. Number one, There are very many different types of chips. The chips that's in my, you know, advanced Apple computer is very different from the chip in my car that tells me I need to change the oil, right? That's number one. And presumably they're manufactured differently so that there's no such thing as a chip factory. Presumably there's like different types of manufacturing processes and so on and so forth.
00:47:51
Pascal-Emmanuel Gobry
So that's number one and number two, chips are integrated in supply chains, right? You're making a computer, you're making a car and like the the car company and the computer company buy the chip that they need for the car or the computer or the missile or the plane or the whatever. It's it's not just...
00:48:13
Pascal-Emmanuel Gobry
I'm building a generic chip factory and then it's just like, I recall reading an article about how they were just going to ship the chips back to Asia so that they could be put into computer to be then shipped back over the US.
00:48:18
Steven
but
00:48:27
Pascal-Emmanuel Gobry
So again, very deliberately dumb question, but like, you know, where are the chips going?
00:48:32
Steven
let's lets yeah so let's take into this I'm going to give you the simplest two ah two by two that you can think about. There's analog. There's digital.
00:48:43
Pascal-Emmanuel Gobry
Okay.
00:48:43
Steven
There is high node. There's low node.
00:48:47
Pascal-Emmanuel Gobry
Okay. Well, explain that at a sixth grade level.
00:48:49
Steven
Analog is signals processing, right? Analog chips are the, the goal of an analog chip is to take a wave that I'm getting when I'm sending out a, some sort of packet of information and turning that into a digital signal, right? So I, I, I filter, I filter, I filter. Then I have a thing called an analog to digital converter.
00:49:13
Steven
And then at the back and I basically take that analog signal and I turn it, which has turned into a voltage signal and I turn it into a digital signal and then I'm done.
00:49:20
Pascal-Emmanuel Gobry
Right.
00:49:22
Steven
That's all that I need to do. But these chips are extremely different. Now, when we say the word um and they're designed differently and they have different physics and they have different materials, sometimes they're not even made with silicon.
00:49:36
Steven
Sometimes they're going to be made with gallium. or germanium, silicon germanium and gallium arsenide or gallium nitride specifically when they're really, really high power. That's analog. When we say digital, we mean ones and zeros. We mean CPUs, we mean GPUs, we mean the chips that we think about when we think about chips most of the time. Now, these have different physics. In fact, the physics there is that they're really, really, really tiny. The node sizes to be effective tend to be quite small.
00:50:09
Steven
and And they're not tiny inside an area. They're actually quite large, but they are the the nodes, the the transistors themselves are quite small because you can do lots and lots of digital processing. Think about how you actually multiply a matrix digitally.
00:50:21
Steven
You are doing many, many, many computations very, very quickly. And that is why digital chips tend to be you know low node size at the cutting edge and
00:50:32
Pascal-Emmanuel Gobry
This is one of the few podcasts where you probably haven't lost half the audience when you said multiply
Focus of the CHIPS Act
00:50:38
Pascal-Emmanuel Gobry
a matrix. Go ahead.
00:50:39
Steven
Great. Good. Um, but like, that's why digital chips are low node. They tend to be low node, but there are high node digital chips and they are, are, are sort of the different variety and they are manufactured extremely differently. So let's talk about high node, low node. There are lagging nodes and leading nodes. Generally the phrase high node means that I am, um, is the transistors are a little larger.
00:51:05
Steven
14 nanometers, 20 nanometers. You might see these in FPGAs, which are used in most machine controls. So you see a lot of those in your cars and a lot of those in the mechanical devices and industrial devices and things like that, control systems. You'll see a lot of them in missiles and you see a lot of them in weapons as well. FPGAs are very insecure and don't buy Chinese FPGAs and put them in missiles. To anyone watching this podcast, don't do it. um But ah um the the um the The truth is that those are digital, those are a little bit higher node. Low node stuff is like the thing you hear about when you hear three nanometer, two nanometer EUV. They're actually not two nanometers. there It's just that they consume power as if they were two nanometers. It's a very, very large misconception. um But those require heavy duty technology, EUV, a lot of different fabric, high capital expenses, and that's what TSMC is doing.
00:52:02
Steven
Now, when we talk about what the chips act is for, um and I've written about this, most of it is being targeted towards the low node digital chips that make AI work under the assumption that in order for the United States, that the AI will be the unlock to all global economic support.
00:52:22
Pascal-Emmanuel Gobry
Okay, so hang on, this is fascinating.
00:52:23
Steven
forward
00:52:24
Pascal-Emmanuel Gobry
So the the the the the factories made under the CHIPS Act are there to make CHIPS specifically for AI. Is that what you're saying?
00:52:32
Steven
No, no, and no, no, no.
00:52:34
Pascal-Emmanuel Gobry
Okay, that would be too smart. Okay, sorry.
00:52:37
Steven
We are focusing the chips act efforts for better or worse to fund building low node fabs that are digital because CPUs and GPUs are the engines of the very high end chips that we need that will be what we use to
00:52:56
Pascal-Emmanuel Gobry
Right.
00:53:02
Steven
power open AI's next generation model. And that is what we care about.
00:53:05
Pascal-Emmanuel Gobry
Yes.
00:53:07
Steven
We care about a lot of other things, but that's the that's the that's the thing that's the...
00:53:12
Pascal-Emmanuel Gobry
so is that That's what the factory in Arizona is for.
00:53:16
Steven
Exactly.
00:53:16
Pascal-Emmanuel Gobry
It's to make advanced GPUs for AI.
00:53:20
Steven
Not just for AI, for everything.
00:53:22
Pascal-Emmanuel Gobry
But okay.
00:53:22
Steven
For the AMD Ryzen chip that sits on the, you know, for the AMD chips that sit on F-35s, you need low-no digital chips too. For some very complex missile systems, you'll need them too.
00:53:30
Pascal-Emmanuel Gobry
Okay.
00:53:35
Steven
There is money going to other FABs that do other things. BAE, in this very weird moment, was the recipient of...
00:53:44
Pascal-Emmanuel Gobry
The British aerospace.
00:53:46
Steven
um Yes, British Aerospace was the re result was the winner of the award for tons and tons for like their gallium arsenide, gallium nitride process in Nashville, New Hampshire.
00:53:57
Steven
um People thought this was
00:53:59
Pascal-Emmanuel Gobry
so b a So for people who don't know, BAE stands for British Aerospace. It's the biggest British defense company. And I say British because it's actually owned by Lockheed Martin.
00:54:11
Pascal-Emmanuel Gobry
So this is this is a very US, UK kind of thing. and not not Not majority, but they they have like 40, 45% of the capital, which ends the rest as publicly traded, which means de facto they're controlled by Lockheed Martin.
00:54:15
Steven
a
00:54:25
Steven
The truth of the matter is that BAE makes much more money in the United States than they make in the UK. um
00:54:31
Pascal-Emmanuel Gobry
Well, of course. like if you know The US taxpayer is the most profligate buyer of of of defense equipment. ah Well, per capita, probably Saudi Arabia.
00:54:40
Steven
think i ahless
00:54:44
Pascal-Emmanuel Gobry
but like you know you you
00:54:45
Steven
yeah I think the French companies do fine in France. Some of the French companies do fine in France. They have US. I think that the Americans truly don't trust to trust French weapons. We think that French FPGAs are probably equally dangerous. ah I'm convinced of this. This is like but my conspiracy theories that um ah that's the cut France is the country to watch out for. um But ah but like yeah.
00:55:09
Steven
given Yeah.
00:55:09
Pascal-Emmanuel Gobry
it's It's probably not wrong.
00:55:11
Pascal-Emmanuel Gobry
ah um This is the master plan.
00:55:13
Steven
But the... um Finally...
00:55:17
Pascal-Emmanuel Gobry
You buy our weapons and then we push the button and then we get Louisiana back. yeah
00:55:22
Steven
Right. Russia gets Alaska back. France gets Louisiana back. um ah the but the but But yeah, so like this is that this is where things are getting divided along.
00:55:35
Steven
um There are other chip fabs that are being funded. It's not just about... The big push is going to be towards low-no digital. And I think that that's the right thing. That's the leverage. The real worry is that that is what we lose if we lose Taiwan. If we lose Taiwan, we lose some gallium arsenide ships, Winsemi being a big producer of them. But it doesn't matter because we have Northrop, we have Corvo, we have Wolfspeed, and they're better.
00:56:02
Pascal-Emmanuel Gobry
Right.
00:56:02
Steven
If we, if we lose Taiwan, we lose, uh, like some of the RF, uh, U UMC, I think we use UMC, for example, but we have global foundries, which is an American company. Um, it is half American, half Singaporean, but it's an American company for the most part. Um, we're fine. If we lose Taiwan, we lose digital. We lose TSMC and that is all we care about.
00:56:25
Pascal-Emmanuel Gobry
right Okay, so i'm i'm I'm just going to press this point. So we build this amazing factory in the US and let's say the factory is amazing. Let's say everything goes fine and it produces the world's best AI chips. Okay.
00:56:43
Pascal-Emmanuel Gobry
XAI or open AI or anthropic or perplexity or whoever, you know, the data center that runs the model doesn't run on chips.
00:56:54
Pascal-Emmanuel Gobry
The chips go into specially designed computers, which go into specially designed racks, which go into specially designed rooms with specially designed cooling systems.
00:56:56
Steven
Yeah. So let's, you're missing a big part.
00:57:06
Pascal-Emmanuel Gobry
And and like and like, if those things are assembled in Asia, We actually haven't gained anything in terms of strategy strategic independence. And like that's low wage work, like screwing the motherboard into the thing is low wage work, which we're not going to bring back to the US.
00:57:19
Steven
Let's
00:57:24
Steven
Let's pause, because I think this is ah this is ah this is a big jump. Number one, the highest value add part of any electronics product is the chips.
00:57:36
Pascal-Emmanuel Gobry
Yes, but if you can't put it in anything, it's worthless.
00:57:36
Steven
By far.
00:57:40
Steven
So first of all, this is not true. The United States, oh, no, no, but I'm just like, no, I'm i'm um i i like, let's go ahead and talk about how it's, first of all, First, first thing first, actually, the chip comes out and it's it's just a bare die.
00:57:46
Pascal-Emmanuel Gobry
Okay, okay, fine. it's no i I'm asking the dumb questions on purpose, so explain to me why I'm dumb.
00:57:57
Steven
I need to put that thing in a package. And that package is non is a non-trivial task. Packaging is actually done. Malaysia, Singapore dominate the packaging industry. But the recent big player behind the scenes, the Chinese are beginning to dominate packaging. Actually, many, many, many chips that are produced in TSMC may find their way back to China when they're packaged. Now the Chinese won't be able to tamper with them during the packaging stage as as easily as they would if they were produced in China itself. But indeed they will make it back to China or they will make it back to Chinese owned factories in
00:58:33
Steven
Malaysia to be packaged, to be tested, et cetera, et cetera, et cetera. And that is a fact. Testing and packaging are not something the United States is good at. There's a one packaging, there's like two packaging houses you can go to the United States and and they're like way more expensive than the Malaysians are.
00:58:54
Steven
A story that I've heard, it's a total anecdote, is that the Chips Act people go to Singapore and they walk into the Singapore um a Semiconductor Industry Association and they say, we've got the plan, we're all good. And the Singaporeans are like, what about packaging? And the Biden administration people were like, oh shit, we forgot about packaging. ah So to an extent, you're right.
00:59:24
Pascal-Emmanuel Gobry
yeah Okay, so you you may or may not want to buy French missiles, but you definitely need to buy French civil servants because the French civil servants do not forget ah stuff like this.
00:59:24
Steven
it's going to
00:59:34
Pascal-Emmanuel Gobry
Anyway, go on.
00:59:36
Steven
I actually, Singaporeans, Deaf, yes, we if we import.
00:59:40
Pascal-Emmanuel Gobry
And soer neither do Singaporeans. Yes, you would do you would do very well to buy Singaporean civil servants for sure.
00:59:45
Steven
Yes, but whatever the case is, yes, this is an issue, but it's, it in and so is board bring up, right? When you have to put it on a board, you have to do the, you have to, you have to put it on the board, um you have to get it ready, and you have to pack, and you have to do the whole process of what's called bring up, and that's a thing. But I'm going to make a point. That stuff, for them for the national security stuff, that stuff already happened in the United States. There are a massive ecosystem of PCB people. So for in a war with China, we can scale that up.
01:00:20
Steven
rather quickly and will be okay. Because you can do it in, there's that you can do it in LA, you can do it in Orange County. It does happen or about already, you can do it all across the United States for defense infrastructure. We've already put both packaging and PCB in the united and in the United States. So as a first order from a national security reason, it's not the risk. We don't have low note digital. We can really do feasibly in the United States. We needed to do it. We needed the CHIPS Act.
01:00:49
Steven
but the ah PCBs, the packaging, that sort of the testing, easy to scale up, cheap to scale up.
01:00:55
Pascal-Emmanuel Gobry
Okay, so what you're saying is that we we already had all of the other pieces in the US.
01:00:57
Steven
and good from that
01:01:02
Pascal-Emmanuel Gobry
What we what we missed was the the very high note chips, but we've already got all the other stuff so that if tomorrow there's a war in China, we can make we can make you know ah server racks in the US and like assemble everything in the US.
01:01:07
Steven
yeah Yes. Yes. no
01:01:19
Steven
Yeah, we will actually not even.
01:01:21
Pascal-Emmanuel Gobry
It would be really expensive, presumably, but we would be able to do it.
01:01:21
Steven
um
01:01:25
Steven
Flextronics, I don't know if you know this is company, Flextronics, they're a contract manufacturer for electronics. They do Cisco, they do a lot of stuff.
01:01:31
Pascal-Emmanuel Gobry
Right.
01:01:32
Steven
um they They have stuff in Asia, obviously. They have stuff in Hungary, Asia, a lot in Malaysia, I think, and where they've done a lot of their manufacturing actually is in Mexico.
01:01:45
Steven
people don't
01:01:45
Pascal-Emmanuel Gobry
Right.
01:01:46
Steven
I want to think about this a lot, but um this I think it's the city of Monterey is as wealthy as South Korea now.
01:01:51
Pascal-Emmanuel Gobry
Now I.
01:01:51
Steven
I don't know if it's the state of Ljubljung or the city of Monterey.
01:01:54
Pascal-Emmanuel Gobry
We had an article about this and ah in the briefing a couple days ago, not a whole article, but an item about this. like This is good. like bringing manufacturing from Asia to Mexico is good because we we have physical access to to Mexico and don't have physical access to Asia.
01:02:10
Steven
Yes, it is.
01:02:15
Pascal-Emmanuel Gobry
And like this is you know like a big secret of like German manufacturing mite. Well, the mite is not looking so good now, but it was it was looking good for decades is they do a lot of their manufacturing in Poland actually.
01:02:29
Steven
Yes.
01:02:30
Pascal-Emmanuel Gobry
The final assembly is in Germany, but like they're they're they're doing a lot of low wage stuff in Poland and like that's good.
01:02:37
Steven
Yeah. Funny story. I was in a meeting with, be it for my last company, I sold software to BASF. BASF is this big company.
01:02:42
Pascal-Emmanuel Gobry
Yes, giant German chemical conglomerate.
01:02:44
Steven
I'm meeting a factory. Yes. Many, many, many, in a grand irony of history, many of the German factories are in the, are in Silesia.
01:02:57
Steven
Silesian School, the industrial center of the Czech Republic. So a lot of stuff has ended up there. All Silesian cities have German.
01:02:57
Pascal-Emmanuel Gobry
Yes, Poland and the Czech Republic.
01:03:06
Pascal-Emmanuel Gobry
Maybe they will want the factories back.
01:03:10
Steven
Yeah, all the german all these towns have German names. And we're in a meeting and I watched a bunch of German chemical execs try to pronounce one of these Polish words, one of these Polish towns, and they just went,
01:03:24
Steven
They struggled for like 10, five minutes and they just went Breslau. And I was like, they all have German names.
01:03:29
Pascal-Emmanuel Gobry
ah yeah cause they all have german names
01:03:33
Steven
They know the German names. column um But yes, so but no, but that is a secret of German manufacturing. mind and that And we do have NAFTA and Trump isn't getting trump isn't getting rid of NAFTA because Trump, Lighthizer's policies will be hurt China.
01:03:49
Pascal-Emmanuel Gobry
Yes.
01:03:49
Steven
um
01:03:49
Pascal-Emmanuel Gobry
yes
01:03:51
Steven
This is important to realize. we we
01:03:53
Pascal-Emmanuel Gobry
Well, Lighthizer's not going into the administration, but a lot of people who worked for him are.
01:03:58
Steven
Okay, sure. I didn't really.
01:04:00
Pascal-Emmanuel Gobry
um That's the last thing I've read. um Yeah.
01:04:03
Steven
Okay. Um, we can talk about what, by the way, this is a two player game. We should talk about that for a moment. and Have time. but Yes, Mexico, in terms of the other aspects of electronics manufacturing, is going to be the place that we go to and they're fine in it.
01:04:23
Steven
Mexican manufacturing is high productivity.
01:04:26
Pascal-Emmanuel Gobry
Yeah.
01:04:26
Steven
Mexican manufacturing has educated labor force now. There's a lot of engineers coming out of Mexican universities in northern Mexico that are fine and good and competitive.
01:04:34
Pascal-Emmanuel Gobry
Yeah, yeah, yeah. And like, I mean, Mexico is a very funny country. I mean, it's a very funny country. Like people have the stereotype of like this sort of horrible gang civil war place. And that's true in some places, but not at all everywhere. And like you have parts of Mexico that are very fine in terms of security and you have parts of Mexico that are just very developed. Like you have, you know, millions of people in Mexico City who take the subway and like go into offices and work as like software designers or accountants or lawyers or whatever. it's not and you know It's not beaches and drug traffic.
01:05:07
Steven
yay um actually ah Yeah, yeah, an oil, it's a lot of oil, too. I think that
01:05:12
Pascal-Emmanuel Gobry
Yes, and and a lot of Mexicans are patriotic, which means that you have a lot of Mexicans who theoretically could come to the US and make more money, but don't.
01:05:21
Steven
yeah right.
01:05:24
Steven
The... um Yeah, I think... um but Yes.
01:05:31
Pascal-Emmanuel Gobry
That's the flip side of they're not sending their best people.
01:05:38
Steven
One thing I want to note.
01:05:39
Pascal-Emmanuel Gobry
Anyway, so the point is great bringing, you know, putting a lot of low wage but sort of, or low value added, but strategically sensitive or strategically important.
01:05:40
Steven
Yeah, sorry.
01:05:52
Pascal-Emmanuel Gobry
manufacturing in Mexico is actually a win. And it it's a national security win and it's an economic win because but i mean the the the the the basic sort of Ricardian argument about competitive advantage and so on. I mean, there's clearly some truth to it, right? It's it's good if you have like a specialization and if people focus on what they're best at and so on and so forth. The problem is, you know,
01:06:20
Pascal-Emmanuel Gobry
doing it an ocean away and giving it to countries that, A, hate you, and and B, have like totally different ah legal systems and economic basis. That's that's that's the But in terms – if you look at the difference between a country like Germany and Poland, joking aside, it's basically the same culture.
01:06:44
Pascal-Emmanuel Gobry
you know One is middle income and one is high income.
01:06:44
Steven
Yes.
01:06:47
Pascal-Emmanuel Gobry
It's not like the richest country and the poorest country. It's – and so for instance, same with the U.S.
01:06:50
Steven
And in 10 years, they'll be referred.
01:06:53
Pascal-Emmanuel Gobry
and Mexico. Sorry, I'm ranting. Go ahead.
01:06:55
Steven
No, no, no, no, no. but i think
01:06:56
Pascal-Emmanuel Gobry
but i'm making I'm making the argument for why, you know, this is good and this is actually a moderate position. We're not saying, oh, you know, we need to bring back every single job to America. It's like, no, just like, let's rebalance a little bit so that we don't have these crazy risks and we don't have this completely skewed marketplace. Okay, I'm done now. Go ahead.
01:07:16
Steven
But but i think that I think that the point I always make is that the assumption was always that China was going to liberalize with free trade.
01:07:31
Steven
We made this assumption.
01:07:32
Pascal-Emmanuel Gobry
Yes.
01:07:33
Steven
We did not realize.
01:07:35
Pascal-Emmanuel Gobry
Yes. And that did not work at all.
01:07:35
Steven
I think it did not work at all. But more to the point, we made an assumption that they saw trade differently. We made it something that they saw trade the same way as us.
01:07:47
Pascal-Emmanuel Gobry
Yes.
China's Trade Strategy & US Response
01:07:48
Steven
This is a country that has had a tradition of intense mercantilism, and it's a communist country.
01:07:53
Pascal-Emmanuel Gobry
Yes.
01:07:56
Steven
They are still communist, and they're run by kind of company they're run by people who believe in sort of what's what's um um ah the of but materialism, historical materialism,
01:07:57
Pascal-Emmanuel Gobry
yeah
01:08:09
Pascal-Emmanuel Gobry
Dialectical materialism.
01:08:10
Steven
Dialectical materialism.
01:08:11
Pascal-Emmanuel Gobry
Yeah, yeah and like ah Xi Jinping like specifically mandated the teaching of Marx and of dialectical materialism in the part in the Communist Party School.
01:08:23
Pascal-Emmanuel Gobry
like He's a sincere Marxist. like Seriously.
01:08:26
Steven
But yeah, I know. But the other thing is that they saw trade as always strategic. They saw trade in a strategic light from day one, and they continue to do that. And I think the people are like, well, so you know, we woke up in 2018 and suddenly China wanted to be the regional hegemon and that's not true.
01:08:42
Steven
China wanted to be the regional hegemon since 1949 or since, no, China's, right.
01:08:44
Pascal-Emmanuel Gobry
Oh,
01:08:47
Pascal-Emmanuel Gobry
since 5,000 BC.
01:08:49
Steven
China desires to be the regional hegemon and they've said it very clearly for God knows how many years. um And so we are in a position now where we gave a lot of economic leverage to a,
01:09:05
Steven
rising power that does not have an interest in having the United States have economic access to their region.
01:09:14
Pascal-Emmanuel Gobry
Yep.
01:09:15
Steven
ah We in chips to bring it back, the Chinese have dumped billions much more than the chips act into their own fabs.
01:09:28
Pascal-Emmanuel Gobry
Yeah.
01:09:30
Steven
SMIC, they don't care about profits. China is currently flooding the world with cheap, high node, analog and digital chips at an incredibly rapid rate that is a clear play to gain economic leverage by dominating these markets. And it goes so much bigger.
01:09:56
Steven
they are using, their are they are flooding the world with chips, they're gonna flood, Huawei's gonna flood the world with their pretty competitive digital chips and you know sort of saying then they build their smart cities which are all integrated onto Chinese hardware and then the smart cities can't interoperate with everything else and they control your port, they control your port's hardware, they control everything down to the digital, the electrons that are running through your port systems and your urban areas and this is like not a conspiracy, this is the plan.
01:10:24
Steven
They're trying to gain economic leverage, maybe not over the United States, but certainly over their neighbors in Southeast Asia and other parts of the world.
01:10:31
Pascal-Emmanuel Gobry
Definitely the EU. and And again, we could talk about Germany's role in all that.
01:10:33
Steven
Definitely you. Yeah, bad. is um But the truth is that the Chinese are dumping
01:10:41
Pascal-Emmanuel Gobry
and That's a whole other thing. um
01:10:43
Steven
Right. But but but like the Chinese are dumping money into their their fabs. They don't care about the profits of their fabs. They don't care about how well they run. They only care that they produce, produce, produce so that China can gain economic leverage over certain areas of the market so China can flood the market. And this has in the United States. um
01:11:05
Steven
One of the things the United States did under Trump, which was a incredibly important thing, was they flushed most of the Chinese chips out of our um defense ecosystem.
01:11:17
Steven
So the number we really got that we we were at like 20, 30% of chips in defense and defense systems were were Chinese. We flushed a lot of them out. We forced Qualcomm and other military providers to tell us who was making what and where the chips were coming from.
01:11:30
Pascal-Emmanuel Gobry
Yeah.
01:11:32
Steven
This was really important. We're gonna continue to do it, but frankly, we need to do two things. This is a separate rant. won 300% tariffs on Chinese chips.
01:11:43
Steven
They can't. No, you think I'm ridiculous, but like we just.
01:11:46
Pascal-Emmanuel Gobry
and i i don't think i I don't think you're ridiculous. i i think it i mean and the the the sort of i
01:11:57
Pascal-Emmanuel Gobry
I make the sort of libertarian devil's advocate argument and PolicySphere as a media company has an editorial line that's friendly to all factions in the right. And I think that the libertarians make a lot of good points.
01:12:13
Pascal-Emmanuel Gobry
when it comes to economics, when it comes to public choice, when it comes to government incompetence. you know I'm a big fan of Hayek and all of that. But like when it comes to geostrategic competition,
01:12:27
Pascal-Emmanuel Gobry
like i don't I don't care because it's us versus them. And it really is.
01:12:32
Steven
Yeah.
01:12:32
Pascal-Emmanuel Gobry
And by us, I mean the West. I mean North America and Europe versus China. is you know I don't know if it's existential as such, but it's quasi-existential and at some point and like you have to do whatever you need to do. And and and that is actually the liberty-maximizing outcome because if you know China ends up owning all of the systems that run our lives, that means that they own our governments and then it's game over.
01:13:02
Steven
Uh, yeah, I think that, I think one thing to realize is that, um, China triumphant is a real risk that we are facing, uh, economically and militarily.
01:13:14
Steven
Uh, and this is something in a China triumphant is going to mean that we don't mind is, are we allowed to hate on the Germans on this podcast?
01:13:16
Pascal-Emmanuel Gobry
Yes.
01:13:28
Pascal-Emmanuel Gobry
You're not allowed. You're encouraged.
01:13:30
Steven
<unk> Right, like german German automotive companies have had this policy of every time of just like trying to double down and triple down on China and Chinese manufacturing every time.
01:13:41
Steven
And it's like watching, it's it's like they have Alzheimer's to the last time they did it. um They will put VW factories in China, they will expand BASF factories in China.
01:13:52
Steven
And then they find that all their IP is stolen and everything's gone and they're competed out and their products are
01:13:57
Pascal-Emmanuel Gobry
Yep. Yeah, no, it's, it's an absolute, it's an absolute disaster. It's as disastrous as they're and as stupid as, you know, in the sense of like, you sort of break your brain trying to figure out how ostensibly smart people could do something so stupid, but it is as stupid and brainless as their energy policy.
01:14:18
Steven
But a world in which China's triumphant will be one in which Germany can't, it's a colonial relationship, right?
01:14:24
Pascal-Emmanuel Gobry
Yes.
01:14:25
Steven
A colonial relationship but between France and Vietnam or Britain and Malaysia was one in which Britain, would they would resource extract from the the colony and they would send back the finished goods to sell to them.
01:14:32
Pascal-Emmanuel Gobry
Yes. Yes.
01:14:37
Steven
The Chinese, the China triumphant world is which the one in which
01:14:42
Steven
China, Europe or Asia or other countries in Asia or America have to accept cheap Chinese goods or cheap or accept Chinese value at goods, Chinese finished goods.
01:14:51
Pascal-Emmanuel Gobry
Yeah.
01:14:52
Steven
And we don't have power to export to their market or even easily markets as a whole.
01:14:55
Pascal-Emmanuel Gobry
Yeah.
01:14:57
Steven
It's a very scary world. It means the economic death of most liberal democracies. And it is going to be a world in which they will then be begin to in many ways dictate, uh,
01:15:03
Pascal-Emmanuel Gobry
Yeah.
01:15:13
Steven
They'll be able to dictate policy.
01:15:14
Pascal-Emmanuel Gobry
Yeah, absolutely. But that's, I mean, you know you were you were joking about and NBA players, but like that's absolutely the future we would be in, which is that we wouldn't be under like direct Chinese communist rule, but essentially we would be so dependent on China that whenever something someone did something that displeases Beijing in France, in Germany, in America, in Britain, in Italy, you know, they would pick up the phone and then and then something would happen because we would have no choice because we would be completely dependent on them economically and technologically.
01:15:48
Steven
yeah but i think that they're proing they're east asian neighbors at the southeast
01:15:50
Pascal-Emmanuel Gobry
that's That's a possible future. That's a possible future.
01:15:52
Steven
Yeah, southeast asia and by the way, in Southeast Asia, it's not a possible future. Southeast Asia faces a real drastic choice. In east northeas and Southeast Asia, Japan may be able to get a nuke.
01:15:59
Pascal-Emmanuel Gobry
Right.
01:16:03
Steven
No, actually, Japan too. Southeast and Northeast Asia to face a real choice wherein you already see this in Cambodia and Laos and probably Myanmar after they, you know, in a couple of years, um and increasingly Thailand, increasingly Malaysia, where the Chinese government has so much economic leverage that they are simply
01:16:24
Steven
establishing colonial relationships where they have their there's the GLC the government companies in Malaysia are being um yes that they' they're going right now
01:16:25
Pascal-Emmanuel Gobry
yeah
01:16:29
Pascal-Emmanuel Gobry
which Which is how the Chinese empire dealt with its neighbors for millennia with sort of, you know, the the sort of interruption of like civil war where you have 100 million people dying. But like when it, you know, ah yes, that's that's that's what that's how they regard the proper functioning of the world, which is, you know, they sit at the center.
01:16:57
Pascal-Emmanuel Gobry
and And every other country is sort of dependent on them and has a real ah relationship, a sort of fealty to them.
01:17:06
Steven
Yes. And I think that the, what you see now in Malaysia um is that the government link companies, Malaysia used to have a relationship where it was that you had the Chinese government link, Chinese run government link company or Chinese run private entrepreneurs and in the government link companies and everyone's getting a payout. And suddenly these Malaysian native companies, both the private ones and the public and the government link ones are getting crushed because the routers they are the routers from China are are flooding their markets and the Malaysians can do nothing about it.
01:17:41
Steven
theyre comere and and in the And the chinese want Chinese want the rubber, they want the IP, and they want to extract that from Malaysia, and they're just going to bombard Malaysia with finished goods. And you're looking at a you're looking at a you're looking at a Malaysia, probably Thailand,
01:17:41
Pascal-Emmanuel Gobry
Yep.
01:17:56
Steven
um Cambodian Laos that are essentially dependencies of China. um The Vietnamese will um will'll never allow that, and they'll and theirre with their dying breaths, awesome ah ah resist anything like that.
01:18:01
Pascal-Emmanuel Gobry
yep
01:18:13
Pascal-Emmanuel Gobry
Vietnamese nationalism might save us in the end.
01:18:15
Steven
Yes. Yeah.
01:18:16
Pascal-Emmanuel Gobry
How's that for ah for a um a plug twist at the end of history?
01:18:18
Steven
yeah
01:18:23
Steven
Yes, um but yeah, no, I think that this is a, um but this is, yeah, I think bringing it back to chips, like this is the most important product on the planet.
01:18:32
Pascal-Emmanuel Gobry
Yeah.
01:18:32
Steven
This just is modern militaries are going to function on this stuff.
01:18:36
Pascal-Emmanuel Gobry
Yes.
01:18:37
Steven
And I can't emphasize this enough. Like people want to know where does this intersect with national power? Why can't we just all get along and buy things from each other? Modern military power, the the ability to ability to build autonomous systems which are going to make Modern militaries win or lose are going to rely on these things. And if we don't get control of the supply chain, we will lose and we will no longer be, and I say we in the United States, but France too, like the West will no longer be militarily competitive. And it's just, it's, it's a very game over sort of situation.
01:19:12
Pascal-Emmanuel Gobry
All right, well, on that hopeful note.
01:19:15
Steven
Yes.
01:19:16
Pascal-Emmanuel Gobry
Thank you very much for doing this. ah As I told you, you know ah time flies very fast. you were like ah We had a chat before ah before we started recording.
01:19:27
Pascal-Emmanuel Gobry
You were like, oh, how many topics do you want me to cover? And I was like, you'll see. It goes by very fast. And so we were planning for an hour.
01:19:32
Steven
This is a lot, yeah.
01:19:33
Pascal-Emmanuel Gobry
We've done one hour and 20. And like we could keep talking for another hour. ah But I do have to end it at some point.
01:19:37
Steven
Yes.
01:19:40
Pascal-Emmanuel Gobry
ah Would you like to make a final point?
01:19:40
Steven
ah
01:19:44
Steven
Yeah, ah my last point is is my subject.
01:19:49
Pascal-Emmanuel Gobry
Subscribe to your sub-stack.
01:19:54
Steven
You can go subscribe to it. You can follow me on Twitter, which is my name. um My final point is like, To any Trump incoming people who are watching this, like do not get hoodwinked by the Cato Institute people. This policy is working. um ah I mean it, like this policy is working. It's going to be about what I think Trump can do that's amazing is he can, and and I say this to everyone who's a concerned ah concerned citizen about this, use tariffs when you can. Use them strategically.
Industrial Policy & Immigration Debate
01:20:27
Steven
Use the instruments at your disposal to make this as easy as possible. And also um shovel, shovel money at these things. Do not ask as many questions, ask some questions, but not many. um And make this an easy thing to do and you will get a successful industrial policy and the the benefits roll over. We now have an industry. Last point, um bit of a tangent.
01:20:54
Steven
There is an essential piece, which is less pleasant, but is is important. um As we move forward in this immigration debate, this stuff is going to need maybe is going to need a lot of high school immigrants. um I think an important point for Republicans to make, as we and Democrats to make and agree upon is the proper balance between high-skilled and low-skilled immigrants is going to be something that needs to be a very deep discussion, and it's going to be essential.
01:21:25
Pascal-Emmanuel Gobry
Right.
01:21:27
Steven
And I really, really, really hope that Republicans realize the importance of high-skilled immigration, and as they negotiate, keep that in mind and not give that up.
01:21:38
Pascal-Emmanuel Gobry
Yeah.
01:21:39
Steven
But that's my last point.
Book Recommendation & Conclusion
01:21:40
Pascal-Emmanuel Gobry
All right, so we end every podcast on a traditional question, and that question is, which is not a question, it's an order, recommend a book.
01:21:41
Steven
All right, I'm done.
01:21:51
Pascal-Emmanuel Gobry
It can be anything fiction, nonfiction, anything at all, as long as it's not in your area of expertise.
01:21:59
Steven
Yes, okay. um I'm open up my Kindle because this is where I keep, because I'm not in my area of expertise.
01:22:11
Steven
um
01:22:14
Steven
Actually, relevant book um to the conversation we're having. um There is a book called The Other Great Game. It's a history, it it's it's it's not a, um
01:22:25
Pascal-Emmanuel Gobry
Yes.
01:22:29
Pascal-Emmanuel Gobry
I've heard of this book, but I don't know what it is. So explain.
01:22:32
Steven
okay it's not like it's it's It's a book about the great game between Japan, Britain, and Russia, and China in East Asia over the fate of Northeast Asia and Korea. um The point that I like to think about like is that like for the the question and the contest over who will have regional hegemony in East Asia,
01:23:01
Steven
um Is and was one of the most important questions other than regional hegemony in Europe? um For the last and it has been for the for the last hundred, you know a couple hundred years Japan in Russia and France in Britain to France almost to colonize Korea Yeah um France and they only you ended up with Vietnam um But think of how good Korean food could have been um
01:23:12
Pascal-Emmanuel Gobry
Yeah.
01:23:18
Pascal-Emmanuel Gobry
Yeah. Oh yeah. And Japan.
01:23:29
Steven
not But like it's good, but it could have been so much better. um But like you do have this contest. It's a great book. I recommend it. It's not long, and it's just an interesting history. All right.
01:23:40
Pascal-Emmanuel Gobry
that's that's ah that's a great That's a great recommendation. ah All right, well, thank you very much. Thank you for your time. This was absolutely fascinating. you