P&L: Where China Comes Into Play in U.S.-Russia Relations

Here to tell us more Ariel Cohen. He is a Senior Fellow at the Atlantic Council and also the director of the Center for Energy, Natural Resources, and Geopolitics at the Institute for the Analysis of Global Security. Ariel, thank you very much for being with us. Now, I gotta just by that introduction, I have to assume you know just about everything there is to know, but you can't

foretell the future. But having said that, so, given your contact, the context in which we operate right now, what is the most crucial, UH kind of foreign policy issue that you believe President elect Donald Trump will tackle. I think the clear focus of Trump is on the Pacific UH. I suspect that the one who is going to implement the pivot to the Pacific that President Obama talked about so much and didn't do much uh, and then got

an egg on his face with the Philippines. Of course, the real pivot is going to be on the Trump and it's not going to be pretty. Because China is the rising power, it's rising great power. Uh. They have a history and culture of playing strategic games. UH. Their national game is go, which is capturing territory. UH, and it's played for a long, long period of time. So I suspect that Donald Trump is trying to butter up

Putin uh detached Russia for China at toll order. Indeed, I wasn't Russia three weeks ago, and the Russians told me it'll take you a great effort to detach us from China. Uh, and then there will be some kind of a new Cold war trade war with Beijing. And I really hope and pray that our country will come out on top and in fact that we'll turn it

into a win win. Well, based on what you know of President elect Donald Trump and also the books that he has written, what's your estimate, what's it looked like in the future. It looks like the art of the deal is going to be the guiding principle, push the other side as much as you think it's safe to push them without losing the deal. What does Trump want? He wants jobs, jobs, jobs for Americans. What does that mean.

It means that we cannot have our prime, prime industrial competitor China with such a low exchange rate for that you want. Uh, it means we'll have to find ways to make our industry more competitive. After all, if you're looking at industrial production, uh, and not just services and alto high tech. We have to compete against the workers that are paid maybe a fraction of our workers are paid. And when it comes to Russia, look, Russia is not our friend. Um. I was born there, I speak the language.

I met put In ten times, and I can tell you they don't like us. Having said that, there are can you just hold on, Ario, just expand a little bit on your your meetings with Vladimir Putin. Maybe just give us some insight into the kind of person he's he is, and what's it like to be in a room with him and so on. Uh. You know, it's a weird combination of intensity and being really cold. Um,

so it's cold intensity, I guess. Uh. He makes his staff scared he got his translator that he kept correcting, very very nervous in front of the group of US. But he commands a huge amount of information, keeps it in his head, doesn't use the queue cards or notes uh, and sometimes makes really really big mistakes, which raises a question who is briefing him? And I know who's briefing him to see his security services are briefing him. What

kind of mistakes are you talking about? Oh, he for example, said that the United States was supporting the Gades in North Caucuses in Chechenna, and I don't buy it for a moment. We're not that crazy. Would you say that that's a mistake or rather, do you believe that he is saying that because he he wants just to say that, rather than knowing that it's a mistake or what what is that? I think Russian should know that we did not do that. And there's there's a huge difference between collection.

I asked him flat out, So what's your evidence for that? Said, Oh, your intelligence officers met with it, where our intelligence officers would meet almost with anybody to collect. But that does not mean we would train and equip the jihadi is the Chechens who killed children and things like that. I hope and pray we don't. All right, law, Let's turn, so what is what have you learned about Vladimir Putin's relationship with China that would be useful for an investment.

And they have a strategic they have a strategic relationship. Uh, energy is very important, that is aimed at us. Energy is important. But if you look at the costs of building these two huge gas pipelines, uh, the Power of Siberia and the Altai. One is from East Siberia once from West Siberia. We're talking billions and billions, tens of billions of dollars. And the Chinese were lending this money. And to get their worth back, the Russians need high

oil prices. This is a paramount concern for the Russians. The oil prices as they are now are too low. Cents fifty two is not good for the Russians at not at all, not at all. And you remember everybody was talking about this deal that rex Diderson cut with ross Neft, the Russian for the Socolon project. No after that, after the Arctic for the Arctic hundred billion dollars over

thirty years. But guess what. The Arctic oil is not profitable when oil prices are below eighty and there, as you said, fifty two now and nobody knows when they're going to be eighty again. So Russia is an interesting play. There's plenty of oil and Russian UH and gas UH, and some of it is still very economical, so they want to compete. But they will push, push, push in the Middle East and elsewhere for instability to drive the

oil prices up. Mr Putin is ahead of Russia oil and guests Inc. Meaning the gas prom and ross Neft and other companies that they control and UH. He is a tough negotiator. Mr Kitchen, the head of Ross's Neft, is a very tough negotiator. He just pulled in UH over eleven billion from Katar and Glencore to buy rosne Still valuations per barrel UH a much much lower than x Ono, BP or Shell. But nevertheless, Russia is a huge player. They want the sanctions um waived by Mr

Trump UH. And the question I'm asking is Mr Trump applying the art of the deal. What is going to be the quickpro lall when you're negotiating with Mr Putson. Well, maybe he's going to give you a call. We look forward to it. You certainly have met Mr Puttin apparently more times than President elect Donald Trump. Thank you very much. Ril Cohen. He is a Senior Fellow at the Atlantic Council.

He's also the director of the Center for Energy, Natural Resources and Geopolitics at the Institute for Analysis of Global Security in Washington, d C. Of course home to Bloomberg and one oh five point seven h d to. I know that we've got on on Trin of us and he joins us in studio and on you. You are the expert when it comes to the semiconductor industry or a hardware analysts to force here at Bloomberg Intelligence. Thanks

for coming in. UH tell us about what's going on with the US chip industry and this idea that there is. I was writing this down. There's the Committee on Foreign Investments. It's a little hard to figure out exactly who they are what they do, but they're important. If a foreign company wants to buy shares in the U S company that that that's right, PIM. This is a congressional committee which has different UM. This is an agency that is

formed with members from Treasury from UM. UH from justice, from defense from state, and this collective group will weigh in as to the whether mayor can interests are being upheld or threatened as a result of any particular transaction. This could be the American subsidiary of a firm, This could be American manufacturing exposure, or this could be an

American domiciles company. UM and in this in over the last two years or so, the Chinese government has made it a mandate of source to UM heighten its exposure and interest in the in the global semiconductor space by acquiring intellectual property, by acquiring companies outright. They wanted to buy Extron right and that they did and they were. They were indications of Chinese state owned in company interest in Micron as well, which is the last memory company

here in the United States. And all of this has heightened the interest level by Cephius and they are both UM more engaged as well as perhaps feel more threatened as a result of this heightened state owned interest, a Chinese state interest in the semiconducting industry. They're worried that intellectual property could go overseas and that the us UM interests could be threatened. Now in the case of Extron.

And the reason I mentioned this is because here you have a company that is in domicile in Germany, headquarters in Germany, but because just as you described, it has operations in the United States. This Committee on Foreign Investments

they have a say. Right the purview of this particular agency isn't determined by whether the company is incorporated here UM or is domiciled here, it's UH, it's interests depending on whether they have jobs here, there are this intellectual property here, there's manufacturing here, there's sales here, and potentially customers here, etcetera, etcetera. So loosely defined whether American interests are are at risk or not, and you know that you have to look at the context overall as well.

The semikin of industry the last two years has going through a substantial consolidation for a variety of reasons, whether it's for scale, whether it's for margin expansion, sales expansion, UH, putting two products together, UM, logical product overlap, etcetera, etcetera. For a whole host of reasons, the consolidation has made sense, and the Chinese state owned interest or state owned companies have been a participant in in that category. In a

substantial way. If you take that out, it takes a little bit out of the um uh, the fluff out of the semiconductor land takes a buy if if right, it takes a buyer out. If you've got fewer bias, chances are you're not gonna necessarily get that much bidding activities. So maybe if the presses prices that these companies are hoping to get absolutely so, one of the other routes for Chinese companies, whether it's state owned or private, to take in this in this scenario could be a partnership.

We've seen a lot of HP transactions as UM with this sort of a model. We've seen as seen a little bit of Intel do this similar things. We've seen Qualcom do similar things. Maybe the nature of the m and A or the nature of the transactions changes into more of a JV structure, more of a partnership agreement structure rather than an outright by which is going to

be more difficult. The third parties get squeezed. I mean companies that are doing manufacturing let's say in Taiwan or in um you know, uh, South Korea, for example, are they getting squeezed because it's either going to be you make it in China and just strict rules or in the introductional property comes from the the Actually, to be quite honest, there's a more disrupting influence in this equation,

which is the US China trade relationship. And if there is, if there's a wrench thrown into that kind of a system, then UH, semiconductor manufacturing particularly will be will be threatened, technology manufacturing gen really will be threatened, and we will have to find a new home for all of these places. One of the interesting UM by products is of the of the new incoming administration, could be some shifts in this particular landscape could certainly make a portent to shift

in where the money is coming. Absolutely, But the interesting part of it is, look, US companies or global technology companies don't manufacture in China because it's neat, it's it's substantially cheaper, and you get substantial tax breaks, manufacturing incentives, etcetera. To try and make UM your ecosystem there. And it's

also you've had a history of success there. All of the companies are co located very efficiently from a geographic perspective, So all of these things make for UM an interesting location. To make it and a movement there will be harmful. Thanks very much on Entren of US and our senior

Semiconductor and hardware anal for Bloomberg Intelligence. We also want to look at as the automobile companies because President elect Donald Trump tweeted over the holiday, I guess respite that the General Motors should be making the Chevy Cruise in the United States. Well, when we want to know about automobiles, we called David Welch, bureau chief for Bloomberg News in Detroit. David, thanks for being with us. How many Crews automobiles are

made every year and where are they made? Well, So GM sols a couple of hundred, and it's mostly the sedan these days. Americans aren't really interested in compact cars because gas is cheap, and they have never been interested in hatchbacks. The crew hatchback is with the plant in Mexico builds and it's mostly for the Mexican market, for South America and to export to other places. The Cruise that is sold mostly to Americans is building words toown Ohio.

So there's there's a bit of uh saber rattling over a really small number of cars. With Donald Trump's tweet this morning, I see, so that the point being that the automobiles in question are typically for the Mexican market. So I read a number that this accounts for maybe like two two and a half percent of all the production of cruise vehicles. And as you said, the hatchback

is not a big seller, correct, it's a very small number. Now, the broader point, and you know, let's face it, Trump has never really um bothered himself with with my new details on things or specifics. His broader point is that a lot of production has gone to Mexico, and about two thirds, a little less let's call it, of Mexican auto production is sent to the US or ended that. So there is a wage difference. It's about five or six hours an hour versus an average of about twenty four.

Uh So automakers are saving on that. And it's not just US automakers. Everybody is down there now. And there are also some great free trade deals that allow companies to export cars all over over the world. Mexico is kind of about flank to the US and Canada on those deals. So there's a lot of stagments, and that's that's his point. This particular car though, is not really Uh, it wouldn't be of any consequence. GM cut a shift. They used to make the Cruise on three shifts, now

they make it at two shifts in Lordstown, Ohio. If you brought the Cruise hatchback to the US, that would not add a shift. They would just camp up the line speed a little bit and have the same workers, you know, work a little quicker to make it. It's just not a consequential number of cars. It certainly does look like investors and kind of seeing through this latest Trump effect, you might say in GM was down just maybe half a percent or so before the opening bell,

and since then means stock has generally been higher. It's up almost two percent at this point. So for the same thing with Ford Motor Company. Ford Motor Company up more than two and a half percent, right, and they've certainly been in the cross hairs as well because of their Mexican production. So you know, it's like people are looking at what's coming out over Twitter and really trying to make sense out of it, as opposed to just knee jerk reacting to whatever the latest A hundred and

forty characters are saying, Well, David Welch. You mentioned something about what Americans like to drive, and right now, with gasoline prices where they are, it seems like if they only want large automobiles, large vehicles, light trucks for example, pretty much yeah, it's you pickup trucks are doing well and and now that's often tired of the housing market.

But it terms were consumers by the family car is now really the family crossover actual, So the Chevy Equinox is GMS some mid sized crossover suv that's pretty new to the market, always the newest generation is that's the one that Trump actually could have made some hay out of if he had really studied what GM was doing in Mexico, because that vehicle is made in a plant in Ingersoll, Ontario, and with the new version that's just coming out, GM went from one plant, which is the

one in Canada, to three and the other tour in Mexico. So you will see a number of very important vehicles that sell for thirty thousand or more for American families with a Chevy badge on coming up from Mexico. That's really the one that if he wanted to make hay, he could have the same kind of goes for the link in m K very small volume vehicle that Ford made in Kentucky. They were going to send it Mexico. Trump got them to keep it. That was another kind

of similar to the Cruise, pretty small volume. If you really want to go after these guys, you got to find a big volume vehicle and a plant that and started making production. Yet and you say it's the Equinox, Yeah, is a big deal. How much? Just quickly? How many? About? How many do they sell? You are they planning to sell? Oh? It's you know, depending on how will they do it? Well? Over two? Right and probably close to three. All right, thanks very much. David Welch of your chief Bloomberg News

from Detroit. Part he's got his comfortable shoes packed. He's getting ready for Consumer Electronics show in Las Vegas. But before he goes out west, he joins us here in the studio. David Garretty is the chief executive a g v A Research, a columnist at Investo PDA, and he is followable on Twitter at g v A Research. Alright, followable at g v A You search, I like you know, this is a whole new Twitter world, David, You've been

following technology for how long now, uh, since the last millennium? Yeah, okay,

since the lab right when was allowed. Is this a new era where you have the President elect of the United States tweeting about GM about building a car that isn't actually that you know, widely sold the United States, building it in Mexico and saying, you know, you better build it in the United States, and then Ford coming out and saying, on the other hand, we're not going to build out that plant in San Potosi, San Luis Potosi, in Mexico, the one point six billion dollar plant. This

is a tech store as much as anything. Do you think it's very much of a tech story in very much discussion here about the technology disrupting what had been sort of well established patterns in this case of communication and policy making and also the communication of policy. From that standpoint, one has to be always concerned with respect

to technologies ability to outrun human comprehension. So from that standpoint, we stand here at a maybe a dangerous point where you know, things out strip, where events move faster than

people have the ability to actually manage them. And when you're talking about you know the world's leading economy and worlds leading military power the consequences should be concerning clearly, having said that technology always has the mantra that if there is a problem that technology creates, they also have a solution, and in this case artificial intelligence, this is going to be one of the trends that is going

to be featured at the Consumer Electronics Show. Tell us about artificial intelligence very much so in terms of looking at AI mean, we're looking here at arguably a technology development that one might be considering as an apex, a peak element in terms of dominating the technology ecosystem, and this is something that potentially is going to be introduced

in a fairly wide range of areas. We certainly know that, you know, there are elements in terms of chat bots that are being developed by various social media companies, but clearly this goes well beyond that, and we may be looking here just given the amount of data that's being generated. I mean, we're looking here potentially at something long so you know, forty four zetta bytes of data being produced by that's a lot of information to basically I don't

even know what a zetta byte is. I mean, I know how many movies you know, you can get with one gigabyte. That's kind of one. But Tesla I love this example. Tesla has aggregated the data of eight hundred million miles of driving already already, And obviously this is only you get the opt out when you get into behind the wheel of a Tesla and say, look, I don't want my driving. I would imagine that you're going

to find a situation. I don't think that de'll be able to because clearly the interest here in terms of the people providing the products is to capture the information. The value resides in the data and what you can

learn from this. And in the case of back to artificial intelligence, we're probably gonna be seeing creation of new market here called artificial intelligence as a service, and in its full blown promise, it might lead to an improvement in terms of productivity because clearly machines that have greater computing power than possibly humans you know, maybe turned over to do this work. The question is always going to be what are the humans going to do in the

meanwhile with all this code augmented reality? Because that's trend number two. Tell me about a are augmented reality? Well, I mean, certainly, you know, uh, ces consumer electronic show in twenty sixteen was very much taken up with you know what Facebook was coming out with the Oculus Rift and with virtual reality headsets, and that turn proved to be a little bit bit of a bust because the Rift didn't sell as much as Facebook did still sold four un a thousand units, but not enough is the

millions that people might have thought. But here, clearly we're looking at a situation that with you know, with augmented reality, you know, technologies that are crossing the physical digital divide, you know, do represent that the future of computing. And from this standpoint, you know, we're looking at a wide range of come but he's that be going to be coming out, you know, we're thinking here that you're looking

at you know, at augmented reality headsets UM. You know, certainly with regards to UM, you know, all the things that are being advertised over the Christmas season in terms of people like being able to use their Galaxy seven when it wasn't bursting into flames, using it as a virtual reality headset certainly, and use it an autonomous vehicle. I guess you could, right because if you're not going to be driving, you could put on that headset and

just you know, watch a movie, It's quite possible. I mean from the standpoint that you're looking at automated vehicles. Once they get into a highway, they probably will be have a fully automated control system. So from that standpoint, the person who is the otherwise driver is free to do pretty much whatever they want. It could be augmented reality, it could be virtual reality. I think I'm going to need all those how all those realities to help me navigate.

And also David Garritty, thank you very much for coming in and spending time. He's the chief executive of g v A Research, a columnist for investor Pedia, and he can be followed on Twitter at the g v A Research. Thanks for listening to the Bloomberg p L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm out there on Twitter at pim Fox. I'm out there on

Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.