Chipmakers Extend Skid as AI Jitters Persist

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This is Bloomberg Businessweek Daily. Reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast. With Carol Masser and Tim Stenebeck.

All right, so Kevin Warsh, he's the chair of the Federal Reserve. He didn't do much to dispel market expectations that the Fed will hold interest rates steady when it meets at the end of the month.

No, he did not.

There was the moderated discussion Friday morning Bangkok time at the International Monetary Fund's annual meetings. The Fed chair made no remarks on monetary policy or his outlook for the U.S. economy apart from reordering the Fed will. deliver price stability. I want to get more on this and also the inflationary outlook. Michael McKee is with us. He's international economics and policy correspondent for Bloomberg TV and radio.

Did you stay up late to watch that?

I actually did not. I left that to the people who were in Bangkok.

I'm glad you didn't stay up because how do you stayed.

Up for it?

Yeah, I would have been very bored. One of those, this movie didn't entertain me.

Okay. The Rotten Tomatoes score would not have been a very high.

Okay.

That said, was there anything that we could take away from his comments about his view that we didn't know?

No. I mean, what you could take away, well, thanks. I'll see you next week. What you could take away is that he seems to be quite serious about the idea of not giving any kind of forward guidance. Now, he said, we are not in that business anymore. And my question is, who's we? Because a couple of members of the Open Market Committee were pretty forward in saying that they're not going to raise rates in October and they're going to Maybe John Williams saying, just do one more.

Thank you, Mike.

Thank you for saying that.

I was curious about it. We talked with Enda Curran earlier about this, too.

We raised that point with Enda.

Well, and I'm curious what you have to say, because you remind us that certain members of the FOMC or of the Fed, whether it's John Williams of the New York Fed, the president of the New York Fed, always an important voice. Certain voices, obviously the Fed chair is important, but certain you really listen to.

Is that still in place? Like, you know what I mean? Has any of that changed under Kevin Warsh?

I don't think it's really changed yet. And you've got the vice chairman of the Federal Reserve Board, Philip Jefferson, and John Williams, who's the New York Fed president, but he's vice chairman of the Open Market Committee that sets interest rates. So if they're telling you that we don't think we need to do it in October, that's probably where they're going to go, the chairman notwithstanding. But also neither one, well, neither position, put it that way, historically has dissented from the chair. And so if you know where those two people are, you kind of know where the chair is. Kevin Warsh is not denying what they said.

He's just not commenting on what they said.

This week, Mike, we got a couple of inflation prints that were a little hot. And we spoke to you earlier this week about fuel prices and energy prices flowing through, some of the tariff stuff finally flowing through. Just last hour, we get this red headline that Brent futures rise to $ 110 a barrel for the first time since May 20th.

What does this mean for an environment where we are seeing higher prices as a result of higher energy prices?

Well, it means that you're not going to see prices for gasoline or diesel go down anytime soon. Bloomberg New Energy Finance, our energy analysts say that we're going to be paying an extended amount for gasoline. Even if the war were settled in November, we'll be paying an extended amount well into 2027. But unless the numbers hold at this level, $ 110 for rent, you're not going to see an inflation effect because we're already there. And it's the change in the level that matters. So it's hard to say that that's going to push inflation necessarily higher in that sense. But what you did put your finger on is the fact that the higher costs that especially trucking companies, farmers are paying for diesel and things like that, fertilizer,

are starting to spread into the overall price level. And that showed up in a number of the service industry categories in CPI and PPI. And that's what worries people about where inflation's going.

So if we look ahead to next week, we actually get a read on consumer sentiment. And I think some of this stuff is, to me at least, important when I think about what's likely to happen at the midterms. I mean, you look at everything in terms of what's going on in the economy. We always talk about it's the economy's stupid when it comes to the midterms. Is it never so, or is it so much even truer this time around because of the spike that we've seen in energy prices?

Well, that's what you're hearing from the voters out there and from the polls. You can argue about whether the polls are accurate or not in terms of which candidate is winning and by how much, but I think they're pretty accurate in terms of the general sentiment of the American public. And I've been out on the road around the country and I hear the same thing everywhere I go, that the price of gasoline, the price of food is really, really terrible and people are angry about it and frustrated about it. and uh one could logically assume that they'll take out their frustrations at the ballot box well.

You okay according to your official biography you were a congressional correspondent and a white house correspondent earlier in your career yes this close to the midterms energy prices like this that are showing no sign of coming down what does it mean for the party in power.

Oh, it's obviously bad news for the party in power. There are a lot of dynamics, though, that are in this midterm election that you don't normally see. And that, obviously, you know, without beating around the bush, it's Donald Trump and what people think of him and all of the things that he's done. I think my argument has been that consumer confidence is really bad, not just because inflation is up, because people have jobs and we're not seeing massive layoffs. But just the cumulative weight of everything that's going on, the constant tension that's going on, I think is weighing on consumers and weighing on people. And that is not good news for the president. Now, the party in power, party that holds the White House usually almost

always loses seats in the midterm elections. So that's not going to be a surprise. The surprise could be in the number of seats. The way the Senate vote set up this year, Republicans were defending very few seats compared to Democrats. And so Democrats had an uphill climb to try to get a majority. But right now, polls suggest they're going to get it. And if that's the case, it will have interesting implications for the next two years.

Stay with us.

More from Bloomberg Businessweek Daily coming up after this. Tesla shares right now down by about 2.8%. This after the company finally rolled out its long-delayed Roadster sports car, or rather.

launched the vehicle.

So I can place an order now, get a couple if I want?

Oh, not this version, Carol.

Oh, why?

Because maybe it wouldn't be so-called street legal if it has little rocket motors. The other part of this that's interesting... A few kinks to work out, maybe? Yeah, but the other part that's interesting about this is what it says about a Tesla-SpaceX tie-up.

Ah, that is really important.

We should point out, though, this electric vehicle performed a series of aerial stunts for a crowd of onlookers and Elon Musk, the CEO of both Tesla and SpaceX, who called it something that you haven't seen in any movie.

I've seen, okay. I've seen.

I've seen better.

Yeah, I've seen others. I've seen, no offense, Elon, but I've seen stuff. That's not real, is it? That is real. But I've seen stuff like this in movies.

I'm going to say it again.

I've seen that in Vegas.

But in movies, it's not real. And this is real.

But somebody who's not that impressed is Max Chafkin. He's senior reporter for Bloomberg Businessweek.

Maybe he is impressed.

I don't know.

He's the co-host of Everybody's Business, the podcast. He joins us here on the Bloomberg Interactive.

Give it a 9.8 on the landing of that barrel roll.

Out of a one-two, a trillion?

When I think of a flying car, I think of a car that like, Is more like an airplane and less sort of like something in a wingsuit that kind of falls down.

Does that make sense?

Yeah.

I think.

Or like a jet. It has like a jet. This has a jet.

This is like a rocketeer type of like jet pack.

When we have talked about flying cars at Bloomberg in recent years, what we've been talking about are basically like. personal helicopters, their little drones. Larry Page has one of these companies, or had one of these companies. This is a car that has some rocket thrusters on it, and as we saw last night, it can do cool things with that. The demonstration, like you said, it's like something out, the thing that it reminded me of is going to a monster.

Truck show, where you see cars.

My seven-year-old would have loved this.

And I think that was by design.

This was certainly a great marketing event for Tesla.

And I think, Tim, you hit it in your introduction, really a marketing event.

For the idea of a Tesla-SpaceX tie-up because the actual car that we saw here is not going to be sold in any volume because it's not street legal. There are all sorts of problems with putting rocket thrusters on cars that I don't think have been fully sorted out by highway regulators or even by Tesla. At some point, there will be a version of this car, Elon Musk said last night, in 2028. That's kind of a long ways from now that will ship. Again, this is something that has been delayed and delayed and delayed for years and years. There are people who put down these deposits something like almost 10 years ago for a sports car.

At some point, they will get this sports car. But I think what this really is is a way to say, that SpaceX and Tesla are working closely together.

This launch was at a SpaceX site.

It uses SpaceX materials and SpaceX engineering, and I think what is happening is that Elon Musk is starting to build that case. And you're seeing a lot of investors make the case independently or start to say, you know, this would make a lot more, they make more sense together than they make apart. And you can sort of understand why. And here is an attempt, I think, to sell that to shareholders at large.

What does it mean, though, for Teslas in particular, the car business, if you will, and the EV business? Does it say something to you that it's going to get some more juice in the future? You're making faces like me.

I think nothing. I think it means very, very little. You know, traditionally, when a car company introduces a car like this, a new design, even a new design that's not going to sell like a very niche, very high-end sports car, that's like a marketing moment. It's a way to signal that this is the design direction, this is the direction of the company.

This feels.

pretty divorced from Tesla, the car company. I mean, down to the fact that we saw it flying, also because they're not gonna sell very many of these things, also because Tesla, in general, has been telling people sports cars, of course, are all about driving, the driving experience. Tesla has been, for years, saying they are not about driving.

They are about robotics and about self-driving. It's kind of the opposite reason most people who buy sports cars buy sports cars.

You don't buy a sports car to put it on cruise control.

And yet that's kind of where Tesla has been pushing the rest of its business. So I think this is an attempt, and Elon Musk is very good at this, to signal that he is still on the cutting edge and again, to start building this case.

But I should say that it doesn't seem to have worked very well.

I mean, in after hours trading, this demonstration happened around nine Eastern time, 9 p.m.

Eastern time.

You saw a spike in the stock price after hours. You saw the stock was up in early morning trading and it has come down today to the point where Elon Musk launches a flying car and Wall Street kind of, I don't know, it just sighs or something. There isn't a whole lot of reaction, hasn't moved the stock price.

It doesn't seem like investors are looking at it the way they have looked at some of these previous announcements.

Tesla's down about 2.9%. SpaceX is also down a little over 3%. Tesla was up, though, about 2.25%. Earlier in the session.

Yeah.

Okay.

So one thing that I wanted to get your view on, because you wrote the book on Peter Thiel, The Contrarian.

Is this. This was years ago.

Peter Thiel, I think it was on the Founders Fund website, if I recall, or maybe like when I visited Founders Fund a million years ago.

We were promised flying cars and we only, we got 140 characters.

Yeah.

And Elon mentioned this last night. He said, my friend Peter Thiel said, you know, what Max just said.

Yeah.

And here's the flying car.

I don't know if this is, is this what Peter Thiel had in mind in 2011 when he said this?

I kind of, maybe.

I mean, I think most people.

If you're talking about a flying car.

You'd be talking about a product that people could use rather than a really cool demonstration. I think Elon Musk, it's interesting because the second half of that quote, you know, we were promised flying cars.

It said we got 140 characters as a reference.

Now you've got more than 140. Twitter.

Yeah. That was the character limit at Twitter, which is now called X, which has 240 character, 280 or more than that now.

Oh, just ask Bill Ackman because he writes novels on there.

But, but of course, Elon Musk owns that one too. Um, I mean, he's, he's doing like a tech joke, uh, or, or a bit or, and, and he is very good at, as everyone or many people know, he's good at memes. He's a, he's someone who likes to sort of live in the extremely online world. I think This sports car is sort of a meme, and that is in certain ways what Elon Musk is good at.

I think the kind of counterargument.

Is what does that have to do with selling mid-priced sedans, which is like the main business that Tesla Motors is in.

In the story, Bloomberg reporting, Gene Munster, managing partner of Deepwater Asset Management, said in a social media post after the Roadster reveal that it was, quote, an engineering flex with no commercial value beyond embarrassing traditional car makers. His other major takeaway, Musk can't wait to bring Tesla and SpaceX together. So let's assume, let's go down that road, Max, that those two are ultimately put together. So is there a day when this entity doesn't sell EVs? Does that become something of the past as it moves more into space and satellites and other stuff?

Elon Musk has said many times that he does not think of Tesla as a car company.

He thinks of it as an automation company.

And so robotics, so cars are automated. His cars have these driver assistance features called full self-driving that he considers to be part of that. I think his long-term vision is that the hardware part of this business is sort of secondary and that what they're really selling is automation software.

whether it's in the form of full self-driving software, these cars, or in the form of robotics. You know, that said, Tesla has a very, very, very successful automotive business.

They sell lots of electric cars. We've seen their sales.

Their sales kind of took a dive in 2025, but they've stabilized to some extent.

Still not great.

Still not growing, I think, in the way that some Tesla investors would have liked, but certainly somewhat improved over a year ago.

And so.

You don't really want to throw that away.

On the other hand, So he is operating this company in a way that does not suggest he's prioritizing the car business.

Before we go, we've just got about a minute and a half here, Max. We've been talking a lot about politics.

We saw the White House press person out at the White House after only five days. We also talked about how Democrats are getting ready to go after companies like a Palantir, like an Apple. that were so closely tied with President Trump.

Does Elon Musk and his world have to be worried if there is a blue wave come the midterms? And we've got about a minute here.

I'd say he is one of the number one targets for Democrats in terms of when you talk to Democratic strategists and operatives, who are they thinking about? Who would be the most the targets that would be most popular to scrutinize? And Elon Musk is very high on that list because you have a bunch of factors. You have his close ties with Donald Trump, the fact that he's a major Republican donor. You have his involvement with Doge, where there are potential areas for investigation. What happened to all that social security data and so on? And then you have the fact that he is the world's richest man.

We are in a moment of a lot of populist rage, where we're criticizing billionaires, especially billionaires who are connected to power, has salience. And so I think it would be, I think we can safely assume there will be some Democrats who will try to go down that road. The question is, and the counterpoint is, first of all, Elon Musk has a lot of money, so he has potentially some leverage over even Democrats. And the other thing is, he is a very important defense contractor. And so they will have to balance those two things out. Yeah.

Stay with us.

More from Bloomberg Businessweek Daily coming up after this. Safe to say we follow Apple so closely. We love talking with our Mark Gurman, who follows it very closely. It is, of course, one of the largest market cap companies in the world, a company whose brand, whose products, whose supply chain, whose deafness in managing tricky politics in the United States and in China is revered by many. And yet, as investigative journalist Patrick McGee wrote in his New York Times bestseller that was named by the Times, by the New Yorker, by the Washington Post, by Foreign Affairs, by the Globe and Mail as one of the best books written in 2025, he writes about the rise of Apple and how it led to an even greater rise by China and perhaps

at a huge cost. implications, certainly for the company and maybe for the world at large. Patrick is a former journalist at the Financial Times. His book was out in May of 2025. But with everything going on, we wanted to bring him in.

And I'm going to be quite honest.

I was listening to a podcast with Anthony Scaramucci before he came on.

And Patrick, he mentioned your book. He loved it. He loved it.

It is entitled Apple in China, the Capture of the World's Greatest Company, And Patrick is joining us on this Friday from the Bloomberg News San Francisco Bureau. It is great to have you here. It is a company we talk about so much. And then we think about the rise of China as well. I want to ask you, when you set out to write the book, Did you have an idea of the story that you wanted to tell, or did it really evolve as you dug more and more into things?

So I wrote a 70-page book pitch to get the book deal. So I certainly had a pretty clear sense of what the book was going to say. But nevertheless, I ended up being flabbergasted by the extent to which Apple had a massive influence on China. So if you've read the book, you know that the thesis, in a sense, is that Apple had a nation-building-like influence on China. It would be trivial to say that Apple wouldn't be Apple without China. I actually argue that China wouldn't be China without Apple. It's a sort of thesis that sounds, I think, pretty unhinged, even bonkers. But if you go through the 400 pages, I think it's pretty well stacked up. So I didn't think that I was going in that direction.

I was trying to write a standard corporate history of how Apple became the most valuable company on the planet and ended up writing something that had geopolitical implications, the likes of which I had de minimis understanding before tackling the project.

Well, I think what's so notable is what happened since you wrote the book. And that's the fact that Tim Cook is out as CEO, but he remains as executive chair. And in his role as executive chair, he continues to meet with the heads of state of many countries throughout the world, including China, including the United States. And just in the last couple of weeks, he was at that state dinner with Xi Jinping in Washington, D.C. On the individual, the people who made this possible, who at Apple was the most responsible for Apple's role in China?

That's a good question.

I mean, I don't want to give the boring answer of Tim Cook, but of course, he was the CEO since 2011.

I mean, it certainly wasn't Steve Jobs, right? Steve Jobs, as far as I know, if.

Someone wants to prove me wrong, go ahead, never stepped foot in China in his whole life. So as instrumental as he was for Apple and product design, he was not the guy running operations or making the decisions, never went to China.

But Tim Cook.

Yeah, go ahead.

Sorry.

But Tim Cook was there all the time.

Now, that being said, Tim Cook traditionally goes to China two or three times a year, and it's certainly not difficult to find people who were living in China on behalf of Apple or going there so many times per year that they would say the idea that Tim Cook is the reason that either we're succeeding in China or whatever is faintly ridiculous because of course he's more orchestrating things from Cupertino, but there are people on the ground, in the weeds, you know, training suppliers and that sort of thing. So it's not a particular individual, I would say it's the unit called manufacturing design, a unit within Apple that specifically goes from Cupertino or from other parts of Asia, but traditionally from Cupertino to factories across Asia

and over time increasingly directly to China to train up factories. we're talking millions upon millions of people were trained at the behest of Apple to meet their quality demands and then to learn how to retain that quality as they scaled. And the result of that was the formation of entire industrial clusters devoted to building something like the iPhone, which of course goes from five million units in 2007 to 230 million by 2015.

Yeah, sorry, go ahead.

The reason I don't think that's a boring answer is because Tim Cook may have become CEO in 2011, but Tim Cook was the supply chain guy for a decade before this. So he was the one who was figuring out where in the world these things could be made and also the supply chains and the complicated supply chains that would make this possible.

So I'm slightly being pedantic, but I would say that I disagree with the general notion that Tim Cook was the architect of the China strategy. That's sort of the word people had used to describe him before I wrote the book. I would say you can give him a nice title like Admiral rather than architect. The reason I say that is because when Apple adopts an outsourcing strategy in 1996 and then consolidates basically everything to China in 2003, it's not really that they're deciding, hey, you know what's a good place to manufacture?

It's China.

It's that hundreds of suppliers who had previously been in America, but principally in Korea and Japan and especially Taiwan, they were moving to China. And so I say admiral because Tim Cook sort of navigated the macroeconomic seas better than anybody else, but he didn't actually sort of build or decide that China was the answer. They were kind of late to the game of both outsourcing and.

Moving to China. They just did better than everybody else.

I want to go to, you know, I think about Apple when it was thinking about starting its investments and having its manufacturing happen in China. I would imagine, and I think you cite an Apple engineer talking about visiting suppliers in the southern Chinese manufacturing center, Shenzhen. It's also something that the Times I know highlighted, too, was horrified that there were no elevators in the slapdash facility projects.

that the stairs were built with troubling irregularity with, say, 12 steps of varying heights between the first and second floors and 18 to the next.

And 16 and then 24.

Apple, if you think about this company, Patrick, design and even the packaging, everything is so immaculate. Like to go over there, and understand kind of what they were walking into initially, I always think about corporate conscience or thinking, is this really the right thing or did they really play into that narrative that the whole world did at that time of we're gonna go over there and we're gonna help the plight of Chinese workers, we're gonna create better situations for them. Is that what was part of their thinking?

You know, my favorite quote in the book comes from a former vice president at Apple. We're having coffee, and I'm asking him all these geopolitical questions about the rise of China. And he says to me, are you sure you're not overthinking your thesis? Because you keep talking about geopolitics, but I can tell you I was there in China when we were building up the supply chain in the early 2000s, and we weren't thinking.

About geopolitics at all. And that might as well be on the back of the book.

That is the thesis in a nutshell, that Apple was very engineering-minded, perfectionist mindset, very product-focused, and wasn't sending people over to sort of learn Mandarin and affairs of state and understand the perspective of their partners.

They were there to get stuff done.

And they had really demanding bosses making sure they got stuff done. And I don't think they quite realized the implications or consequences of what it meant to scale just enormous quantities of the most iconic product of the 21st century in a country just as it became an adversary of the U.S.

I mean, that's the whole tension of the narrative right there.

It is.

It's incredible.

Go there, and forgive me, I know you have said this a million times over, certainly listening to podcasts and so on and so forth, but the size and scope in terms of the amount of money that was invested over and over again by Apple continues, or although we know that they are kind of spreading out in terms of manufacturing.

Give us some of the numbers. Give us that size and scope, if you will.

Yeah, so within the narrative context here, what happens is that Xi Jinping comes into power in 2013, and Apple is within 36 hours on the back foot, basically put in a position where they think our products might get blacklisted. Not an idle threat. Facebook had been blacklisted. Google had been blacklisted. And Apple had become, by this point, the most successful retailer within China and the most successful operator.

So the idea that it's going to have a problem in China, both in terms of manufacturing and selling, becomes something close to an existential crisis.

And Apple has to figure out what to do.

In figuring out what to do, there's this gang of characters called the Gang of Eight, sort of the eyes and ears of Cupertino on the ground, senior people living in China for the first time ever, despite having a presence there for 20 years at that point. And they and the government affairs team essentially do a supply chain audit, a supply chain study, and recognize that what they're investing into Chinese factories is $ 55 billion per year. To be clear, this does not count the components. I'm not talking about aluminum chassis or anything like that. If you were to count that, it would double or triple the figure. This is just counting the machinery that Apple was purchasing and putting on suppliers' production lines. And crucially, it was the

wages of up to 3 million people per year in the Apple supply chain, principally concentrated in China, of course. And so this is not a figure that's been updated.

I don't think.

Apple internally tallies it. But effectively what happens is this study goes to Tim Cook. and in May 2016, he, Lisa Williams, and his operating chief, Jeff Williams, go to Jiangnanhai, that's like the citadel of communist power, the equivalent of the White House, if you will, and they promise to quintuple that figure over five years. So they promise to invest $ 275 billion into Chinese factories. The reason why this is important is because at the time, Xi Jinping his chief policy was called Made in China 2025. In effect, the idea was we're gonna make the world dependent on China and we're going to be less dependent on the world.

So it's a play to indigenize innovation, right? Indigenize production in the country. And Apple basically realizes, this is of course my wording, not theirs, We are the biggest contributor of Made in China 2025. And the reason why Beijing is upset with us is they have no idea how much we are doing to up-train the engineering, up-skill and train engineering forces across the country. So this figure is enormous, and it's so big that I couldn't find another example of a corporation investing that much in another country, so I had to go to nation-building efforts, right? And so if you take the Marshall Plan, which was America and some allies investing in 16 countries to a devastated Europe after World War II, in 2015 dollars, that was $ 131

billion invested in four years. So the Cook Plan, if you will, was double the amount in a similar time period, and whereas the Marshall Plan, if you remember from your high school textbooks, is effectively an investment to ward off the threat of communism from the Soviet Union, sort of like making hay, becoming more popular in places like France or Eastern Europe.

The idea was to ward off communism. The Cook Plan is the opposite.

It's a way to ingratiate Apple with communist rulers in Beijing so that they can continue to have shareholder success there.

So it's quite a remarkable comparison.

Can we go as far.

China.

Forgive me. Apple knew exactly what they were doing.

Oh, that's a great question. Look, some people, even at Apple, have been....

Have questions that i've i've said a lot of this was inadvertent on the part of apple because people will say apple seemed to know everything that they were doing and that's that's up for a healthy debate let's just say in a certain sense i would still say they were an engineering focused organization that wasn't thinking about the geopolitical implications of what they were doing on the other hand they absolutely began to understand that the impact they were having was meaning that all of their competitors were becoming Chinese, right?

In other words, why does Nokia die?

Nokia doesn't die because they couldn't keep up with the iPhone interface or the software prowess of Apple. That's the traditional narrative. But Apple was never big enough to kill Nokia. They've never had more than 20% market share. So where's the other 80%? Well, principally, it's the Chinese competitors, right?

And so I argue that it's not Apple that killed Nokia, it's the Chinese imitators of Apple that killed Nokia, because collectively they have almost 60% market share globally. And then you add Apple, and then you add Samsung, and that's basically everybody. So Apple began to understand that by building up its supply chain there, the supply chain would then feed Xiaomi, Huawei, Oppo, and Vivo. So they were having dramatic impact on the Chinese competitors to Apple. And the people that weren't receiving the same lessons were Nokia or Motorola, other companies that basically had become has-beens. So in that sense, they absolutely understood. But I'm saying inadvertent because I guess I'm trying to be generous. And if I had one criticism,

if there's one point where things could have gone differently, it really was when Xi Jinping came into power in 2013 and Apple had what I call this political awakening.

And that's around the same period.

I believe that's the same year where Tim Cook instituted something Steve Jobs had never done, which was shareholder buybacks and I think dividends as well. And Apple spends more than $ 100 billion per year on share buybacks and dividends, right? More than all seven of Wall Street's top seven banks spend on share buybacks and dividends. So it's hard to understand how large Apple is. I mean, it's just absolutely enormous.

And I think if they had spent, let's say, half of that, some fraction of that, on supply chain resiliency and making sure they really had a plan B outside of China, I don't think Apple would be in the sort of existential vulnerable position that they're in today.

We're speaking with Patrick McGee.

He's the author of Apple in China, the capture of the world's greatest company.

He joins us from San Francisco.

Perhaps the manufacturing side of this brings us to a good place to talk about Hanhai Precision Technology, the company that I think more people know as Foxconn, a Taiwanese company, but with a huge.

Presence in China. What is its role in this buildup?

So Terry Guo founded Foxconn in 1974, two years before two guys named Steve launched Apple. And for a while, it's really a Taiwanese company that's doing some pretty boring things. Foxconn, con comes from connector, because it was doing connectors inside computers. And even before that, it was doing things like television knobs, plastic injection molding of these things. And really undercutting others on price in the Western markets, just because they could do things in Taiwan. So Terry Guo was very savvy, not just in terms of building things, but in terms of political connections.

And he used to tour America.

And finds people like Michael Dell, bring them to factories and demonstrate what he was capable of. And in the late 1990s, he, I think, is the first person to understand that Apple, this fledgling company that was sort of on the magazine covers, famously Bloomberg Businessweek, that it was close to bankruptcy and so forth, nobody really wanted to be working with it. Not just because their volumes were low, but because they were so demanding, right? Apple would send these engineers to your factories, breathe down the neck of everybody, and just reject every component, just sort of force a level of quality and discipline onto the workforce that basically nobody wanted to deal with. And Terry Guo understood that

the learning that his team received from Apple coming in and sort of taking control of his factories was way more important than any profits that he could gain from the company. So other companies looked at Apple and said, they negotiate too hard and we don't earn anything, why would we work with this company? And Terry Guo is the brilliant mastermind who figures out that it's not about the profits, it's about the learning. And if we can train up our force to please Apple and receive their training to please Apple, we'll be able to please anyone.

And Foxconn, since 2001, has been the largest contract manufacturer in the world with Apple as their number one client that entire period.

And that's what's kind of wild, Patrick.

You talk about all the investments that Apple did into China, but it's not like they actually owned the factories or anything. But what they did is spent money, but they were teaching their expertise in the process of how to do things. And I think about where we are today, whether it's EVs or you name it. I mean, anybody talks about manufacturing, they're like, you got to go to China because their level of expertise is beyond everyone else's.

Yeah, I mean, I'll tell you one funny anecdote.

I've given talks about this book to Apple suppliers and a whole host of other companies. And one small hardware company in the Bay Area moved their operations from Vietnam to China upon reading the book, because I gather the book was so convincing that Shenzhen was the place to get everything done. The irony here, of course, is it's sort of told in a neutral sense. If you finish the book, I mean, maybe in the conclusion, it's a little more biting. But generally speaking, it's just sort of one thing after another. without me interjecting my political voice.

But the subtext is kind of screaming at you that America has a real problem here of how dependent we are on a foreign rival that's four times the size of our population and so on and so forth, right? And so the idea that someone is going to move their operations to China upon reading the book On the one hand, it's amusing, and of course it's a little bit disappointing, but I'm also sort of heartened by the fact that I really do try to write without my own political interjections. And so for someone to sort of use the book and derive value from it, but from a totally different political standpoint, I suppose, it pleases me very much.

What about when you think about something like TSMC and you write about it and you say, well, maybe, you know, we talked about the political vulnerabilities, where it's located, you know, and what China... the pressure that it could possibly be. TSMC is so crucial to all of the semiconductors that are made in this world. You write in the book that maybe the biggest concern is that it's on a major earthquake.

Fault, and that might be the bigger problem.

But I do think about, you know, here we are, this war, forgive me as I kind of try to make this.

Connection, but U.S.

War against Iran, and Iran being able to kind of bring much of the world to its knees by shutting down the Strait of Hormuz and energy.

We were lucky in the U.S. because we've got energy independence, if you will.

But at the same time, semiconductors, China could bring the world to its knees, whether it's rare earths or semiconductor manufacturing. I mean, how do you think about the vulnerability of the U.S., of all these major companies, or the world at large as you look at China and its power today?

I mean, this is the biggest overriding issue, because I think the layperson has some understanding that China, in terms of manufacturing dominance, has peaked, and that there's a big re-industrialization narrative taking place in America. I think there's substantially no evidence for that. Of course you can find anecdotes of things being produced in America, but in terms of the actual statistics, it's just not the case at all.

since Donald Trump in the first term put out policies to really hamper China, you have had a decline in the trade surplus that China has with the US, but China's trade surplus with the world has gotten far, far larger, right? The last time I looked at this was a few months ago. I think it was $ 1. 2 trillion surplus for last year. And then the first three or four months of this year had gone up by another 15%. So if you're narrowly looking just at U.S.-China trade, you can get some statistics that look like, oh, we really are sort of rebalancing this relationship. But it's only because China is savvy in terms of having products go to India or Vietnam or someplace else first and then go to China.

The US, right?

So it's still principally made in China. I mean, the iPhone is a great example of this. It's still principally made in China, but if the final step, what's called FATP, Final Assembly Test Impact, is done in Karnataka, then it gets a Made in India stamp, and voila, it looks like we have a deficit now with India versus China, but nothing's actually changed.

So that's one part of the equation.

So I'm someone who worries that China already has huge dominance, and if you look at where they're investing in AI, It's not on this sort of airy-fairy artificial general intelligence that's going to solve cancer within 10 years. It is 3%, 5% improvements on the production line at hundreds, if not thousands, of factories across the country. And so if you think about where China has advantages in terms of production lines, they have an advantage that if you're an optimist, is measured in years.

If you're a pessimist, is measured in decades.

And once they supercharge that with AI, I mean, they're already on a trajectory to have 45% of global manufacturing production. by 2030, according to the United Nations. That was a 2024 prediction. It was essentially made without AI in mind. So they could get even better. You think of what our advantages are in software on the frontier models and so forth. Even someone like David Sachs would measure that in months. So it concerns me the degree to which our dependence on China is is getting greater and greater.

What I do like is that the narrative is very much out there, right? A book like Chip War, which came out before me by Chris Miller. Certainly people in Congress, it's a bipartisan issue, have a real understanding, but an understanding of the problem is very different from actually solving the diagnosis.

I don't see really any changes there.

The problem is diagnosed, and it's a bipartisan understanding, as you mentioned. But I think the challenge is the infrastructure that exists right now and also sort of the natural monopolies that exist as a result of cost of manufacturing and what physical infrastructure has been set up in these respective countries. If there were a lesson for policymakers about how you think you would recommend that the U.S. and Canada and North America or the so-called West remain or try to get ahead and do not allow China to dominate, what would it be?

So it's a great question, but you're sort of presupposing that there's one answer. And unfortunately, I think there's probably 20, and each one of them is insurmountable in its own way. And so it's a respectable question. I mean, I totally get it. But for instance, China has more than 300 million migrant workers who go from factory town to factory town for a defined period maybe of a couple years before going back to their homes. the place where they grew up to raise their children, right? They're not allowed to bring their children and have them go to public school.

So they're there on a temporary basis. Well, 300 million people, I mean, that's greater than the working population of America. And those are people that are going to fill the factories and take on some other jobs in the services industries and stuff. I mean, we're just not going to compete in the way that China competes. So in the same way, to use like a sports analogy, like if I'm Steph Curry, and I'm going against a team that has twin tower centers, I'm not trying to play the twin tower game. I'm gonna rely on my three-point shooting or something. America has to find what its advantages are rather than trying to replicate industrial policy in China because we don't have the same assets of whether people or

infrastructure or what have you to make it work. And I think our great advantage is our allies and our ideals. the fact that we have dozens of allies, China technically has one in North Korea, and then it has like quasi-allies in the form of Iran and Russia. But the global network of interdependence set up after World War II is America's lasting advantage. And I feel the Trump administration is often over-learning the lesson of how things have been deindustrialized.

And they're not in favor of more and more relationships with Mexico or India, right? I want a NAFTA on steroids. That's not what the MAGA crowd wants at all. But I think having interdependence with all these other countries is our advantage. And India has some of the infrastructure and people to replicate the China strategy in a way that Pittsburgh doesn't.

Patrick, don't kill me, 30 seconds.

I mean, so is this really, I mean, it's kind of an Apple and China story, but do you really feel like, especially in the environment we are in today, that this is a really big message about China to the world?

And just quickly.

Yes, absolutely. I mean, you know, China books don't sell well.

I don't think the average person really wants to sort of study the political system of a foreign country that doesn't speak English. It's quite difficult to grapple with. And so I would say the greatest, like I wasn't anticipating this, but the thing that I love most about my book is the way that people have seen it as a sort of introduction to China's rise over the last 30 years.

Because it's an intimidatingly large and complex country, but what better way to get to know it than through the sexy six-inch thing in your pocket that you stare at for four or five hours a day.

Stay with us. More from Bloomberg Businessweek Daily coming up after this.

I want everybody to think about a bit more than four years ago. It's ancient history in the world of politics, though this has actually been in the news lately. So that was when the news broke that President Trump took presidential records to Mar-a-Lago.

Oh, the bathroom.

Yes, okay, I'm glad, yes.

In potential violation of federal law that he may have also destroyed records by flushing them down the toilet.

Folks, we're not making this up.

No.

This is life, this is reality.

You might have guessed we're gonna be talking to Jason Leopold.

We are.

All about this, because as you probably also guessed, he filed some freedom of information act requests and yes, finally did hear a little something back. Jason Leopold is Bloomberg news, senior investigative reporter. He's the author of the FOIA files newsletter. It comes out each and every Friday, read it and subscribe to it on the terminal or by going to bloomberg.com slash newsletters. Jason also has the podcast disclosure. Jason, if I do look at your most recent edition of the FOIA files newsletter, this is what you get into before you, before you tell us about the actual FOIA files, just refresh everybody's memory. Also with the context that Jack Smith has also been in the news in recent weeks.

Yeah, I feel like this is very topical and newsworthy now because the Trump administration and members of Congress have been going after Jack Smith and FBI agents who took part in the investigation in the classified documents case where Trump removed documents from the White House, stored them at Mar-a-Lago and retained classified records. Um, and you know, they've been going after him in terms of just trying to, uh, see if they could catch him in, in a perjury trap or, uh, uh, prosecute him for this grand conspiracy.

We don't have to talk about the basketball game now.

We don't need to talk about the basketball game, but back in 2022, when this started, what, what surfaced was that there were records that were in Mar-a-Lago that Trump didn't return. Um, I focus on that story. You know, I would imagine people are familiar with it. I zeroed in on a part, an aspect of that story that's received very little scrutiny. And that's related to documents that were destroyed or, as you mentioned, flushed down the toilet.

And what I did was I filed multiple Freedom of Information Act requests. I later on sued the FBI, DOJ, and every three-letter agency you could think of to try and get some records that would shed light on these records that were allegedly destroyed. After a four-year legal battle, which is still ongoing, I finally got some records that really do shed significant light on what was happening in 2022 when the National Archives first started to receive these records that were held at Mar-a-Lago. And I don't know if you could show any of these documents, but the documents that I have embedded into the newsletter and I've shared with readers are amazing because it discusses how the records were torn, partial, quarters, halves. It really gets into

the color, if you will, of the records and how they were allegedly destroyed. This was a special agent at NAR's Office of Inspector General, who at the time was sending an email reaching out to DOJ's Public Corruption Office to see if they would launch a criminal investigation into the destruction of presidential records.

Uh, and, and, uh, this agent.

Noted that although none of the records that they had reviewed at the time, uh, couldn't be put back together, uh, there was still, uh, uh, records that were obviously destroyed and it violated, uh, criminal law, but it's just a real behind the scenes about, uh, about how it looked and what was happening in the lead up to the larger investigation that we have come to know.

Right. You have pieces and you can see things torn. You have things that were taped together again. I mean, that alone, I mean, again, we don't want to necessarily make any conclusions, but it certainly does look suspicious.

Right.

And in one email, the agent, the special agent at NARA's office, National Archives Office of Inspector General, says it didn't appear to be a discriminant practice. There's really no rhyme or reason as to how or why it was done. But nevertheless, the implication is that President Trump was responsible for the destruction of these records based on how these boxes were labeled. Now, I do want to note that I reached out to the White House to get a comment because, as I mentioned, these.

Records that I obtained, they really.

Shed light on the destruction aspect of the records. White House spokeswoman Lauren Biz said, the President and his team are focused on winning for the American people, not whether Bloomberg discovered a ripped piece of paper from 2022. She also noted that President Trump is committed to preserving records from his historic time in office.

But I would like to remind.

Everyone that the Justice Department's Office of Legal Counsel this year said that the Presidential Records Act is unconstitutional. But like these torn pieces of paper, Carol and Tim, this is the puzzle that I've been putting together for more than four years now.

Well, we only have 20 seconds left, Jason. What are you still waiting on? What additional information are you still waiting on?

I mean, it's wide ranging.

I'm waiting on records from the CIA about the national security threats around these documents and a bit more detail on.

Exactly what records were destroyed.

See, that's what we don't know yet, what records were destroyed.

This is the Bloomberg Businessweek Daily Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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