Pat McGee | Apple's Historic, Never To Be Repeated Investment In China

Pat McGee - Apple in China

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Each year, Apple sells more than 100 million unit's of it's various products, with some factories capable of producing up to 500,000 iPhones (alone) per day. 

This scale of quality and quantity is not replicated anywhere else in history. And it's all down to the special and unique relationship between one of the world's largest hardware companies, Apple and the worlds largest manufacturer, China. 

Pat McGee wrote the book on this... 'Apple in China', and joins me for a discussion which explores the intricate relationship between Apple and China's manufacturing landscape. Tim Cook's pivotal role, the challenges of relying on China for production, and the unique conditions that have allowed China to dominate the manufacturing sector. Pat reflects on the geopolitical implications of Apple's strategy and the serendipitous nature of his writing process, culminating in a discussion about the future of industrial statecraft and the lessons learned from Apple's experience.

00:00: Pat McGee
02:52: Tim Cook's Role in Apple's Success in China
06:00: Apple's Reliance on China and Its Vulnerabilities
12:12: The Scale of Apple's Manufacturing and Its Implications
18:12: Foxcon & Terry Gou
24:03: China's Manufacturing Strategy and Apple's Role
29:59: China's Ambitions and Apple's Unintentional Consequences
39:50: The Journey of Writing The Book
44:05: Leaning Into Serendipity
51:31: The Impact of Apple's Industrial Strategy
58:59: Geopolitical Implications of China's Manufacturing
01:08:02: Doing Jon Stewart!

Transcript

SPEAKER_00 0:00

Seated across from me today, in another country, is a former Australian resident, although maybe not legally, Financial Times journalist and freshly anointed superstar debut author, Patrick McGee. Pat has written Apple in China. And it is the story of how China went from a land of grossly available cheap labor to one of grossly available world-class sophisticated technical manufacturing, with Apple serving as either the hero or the villain of the story, depending on it on which way you want to look at it. If you liked Walser Isaacson's biography of Steve Jobs, then consider Pat's book, Apple in China, a biography of Apple from the Perspective of Manufacturing, and then unbelievable worldview into China's capabilities. Was there anything you wanted to add, Patrick, before I signed it off?

SPEAKER_01 0:51

No, I don't think so, other than maybe the other book that I would compare it to largely because I sort of based it on it, was Chip War, right? Chip War is a story of the chip's industry and then how it intersects with geopolitics. It's sort of on the fault line of industry and geopolitics, and I framed the book in a similar fashion.

SPEAKER_00 1:08

He's been on John Stewart, The Free Press, Scott Galloway, and I would encourage you to listen to all of those. And now here he is, the interview we just recorded on a Curious Worldview. How is Tim Cook's Guangxi?

SPEAKER_01 1:20

Yeah, no, he's uh clearly got all sorts of connections in China, um, to such an extent that one wonders what happens to Apple's um political uh diplomatic efforts when he's no longer the guy. It is not clear who else in Cupertino has his political connections. And as readers of the book will know, I I don't um sort of hold in high esteem, or maybe I should say Apple doesn't hold in high esteem its own head of Greater China, Isabel Mahi, whose chapter is called The Figurehead. So yeah, no, if Tim Cook is playing a great role right now, I mean an important role, just in a neutral sense, the way Britain is great, um, it is the diplomatic statesman-like efforts that he has to play in Beijing. Um, whereas I think clearly he is more replaceable in terms of his operational prowess. Like Apple's got that in his DNA after him being there for what, 27 years? 27 years, yeah, 1998 to today. Um, and he's not the product guy. So you you don't lose the product guy if Tim Cook steps down. So yeah, no, it's a good question because that's probably the number one thing he actually um is involved with these days.

SPEAKER_00 2:25

Oh, you you would say so. His political maneuvering. Isn't his whole expertise the fact that he's this master supply chain controller?

SPEAKER_01 2:33

That's certainly why he's brought into Apple, but because his operational expertise ends up putting all his eggs in one basket, by necessity he's had to become something of a statesman. Now I draw all sorts of criticism of that statesmanship. I think it's sort of, you know, he's acquiesced in many ways to the benefit of the Chinese state, and this is where I would reserve my biggest criticism for him. I just mean that if he were to step down, that is the biggest hole that would need to be filled immediately, more so than operations, more so than product. Um supply chain isn't one person. They have thousands of people who work on supply chain and logistics, but nobody else, as far as I'm aware of, you know, is is meeting Xi Jinping, which he has done several times.

SPEAKER_00 3:21

And so the core of the book, that inability for Tim Cook to acquiesce to China is just because they are almost 95, 100% reliant on this insane network of contractors and manufacturers for all their various products, hundreds of millions of units within China.

SPEAKER_01 3:40

Yeah, well, Apple's very success in China, both as an operator and as a retail uh presence, which they're number one in both four, right? Nobody makes as much money as Apple in China. I mean, I'm thinking mostly of foreign companies. There's only about a dozen companies that make more than$10 billion in China, and Apple tops a list with around$70 billion. Um, but two years ago, so my numbers aren't fresh, but two years ago, I wrote an article pointing out that Apple was more profitable than any of the Chinese tech giants. In fact, it was twice as profitable, profitable as either Alibaba or Baidu. Um, so they're enormously successful in retail, and that's the secondary uh thing that they've got running in China, right? They earn$400 billion of revenue a year, 90% of which is produced in China. Or I should say 80% of that is hardware, 90% of the hardware is produced in China. So so that's where China's really um important. But the success is what makes Apple vulnerable because they have not, they do not have a plan B. They have the concept of a plan. Uh, you know, to quote Donald Trump, they they want to do more in in India, but Beijing is aware of that and doesn't want it to happen. I mean, Beijing wants technology transfer to be a one-way gate. So the technology transfer comes in, but it does not leave. They want to keep the experiential know-how in China. They don't want to lose the low-value added um things that they were famous for 20 years ago. As they move up the value chain, they nevertheless want to retain the lower value chain items as well, um, in a way that no other country has really tried to do before. And Apple's operational concentration in China sort of allows them to be exploited by Beijing and really um makes it difficult for them to make any brilliant strategic moves. Add to the fire Donald Trump, and things get even more complex because he doesn't want them moving to India either, and he's demanding they move to China move from China, and neither of those things is really possible. So I really do think they're in a quandary. Um, you know, the tight the subtitle of the book is that Apple has been captured, and that's not a hyperbole to sell books. That's genuinely how I how I place them. And the thesis will be tested in the next five to ten years, and I'd I'll be stunned if we look back and say, McGee got it wrong. You know, iPhones are being built on three continents now. I think that's very unlikely.

SPEAKER_00 6:00

Can you really double down on that catch 22? Why is it inconceivable that you would place all your chips on a bet 10 years down the line, Apple cannot move away from manufacturing in China?

SPEAKER_01 6:13

Well, I want to be clear. Uh and so I'm glad you brought this up just because I just realized that I was disappointed in the answer I just gave, which is that you may very well see assembly in multiple places. I'm talking about the depth and breadth of the supply chain. Like I'll use Tesla as an example. Tesla really does have localized supply chains that are, you know, as basically as differentiated as they can be, centered around Texas and California, centered around Berlin, centered around Shanghai, right? Elon Musk will rightfully boast that the Tesla cars made in America are the most American cars you can purchase. Uh, unfortunately, that is not true of the Chinese cars, right? The just the cars based out of Shanghai coming out of uh Tesla are thoroughly Chinese. They are not relying on components made in the US or batteries coming from the US. Um, but Apple is basically the polar opposite of that. Everything is made in one country. And even though some assembly is done in India, it those those phones are no less dependent on the China-centric supply chain than any other phone you've ever purchased. So the fact that the box might say made in India next year, thoroughly meaningless, other than for tariff of avoidance. Um, but if Apple were able to create a bifurcated supply chain where the phones being made in India truly were dependent on, you know, dozens or probably hundreds of Indian suppliers or perhaps, you know, Bangladesh and a whole bunch of countries around there, that would be phenomenal. I don't hold out much hope for that to happen. And I think Apple's sense of it is that they can pull it off. And I think they're not giving enough credit to China. Uh, China was a once in a century, if not longer, partner for getting all this kind of stuff done. The infrastructure they've built is phenomenal. I hate to say it, but the authoritarian regime has a way of just enacting these five-year plans and having local cadres across the state compete for the uh the the sort of the not so much the bids, but compete for the right to fulfill those, fulfill that destiny in a way that they um what am I trying to say? Like we think of America as federalism, right? A funny term, but basically means that like, you know, cities and states uh are where the local decisions get made rather than it being federal. And um, Beijing-based communism is federalism on steroids. It is the chief distinction between Chinese versus Soviet communism. It is not top-down the way Moscow is. The plans, the five-year plans out of Beijing, those are top-down. How they actually get carried out. There is intense competition between Hangzhou and Suzhou and Shenzhen and Shanghai to compete for those orders.

SPEAKER_00 8:40

Um So where am I going with this? Uh where are you going with it? Well, let me let me prompt you. Once in a century conditions in China made this all possible. And you're saying that it is kind of inconceivable that these same conditions could be replicated elsewhere. Not inconceivable, but I just don't see it happening anywhere else. Uh it's it's it's it is inconceivable when you listen to the anecdotes of Foxconn and what they had to do, what Terry Goh had to do to organize these millions of I forget what they were called, but sort of floating workforce. The totally ins inhumane conditions under which they were all uh treated. And then the the the um maniacal work from the Apple employees who were flying to and fro China and America all the time, working 16-hour days, it this combination of factors does make it seem like rather inconceivable. How could this be replicated, especially on a 10-15-year horizon?

SPEAKER_01 9:45

Yeah, and you're sort of speaking just in terms of like absolute terms and not bringing into the equation what makes it especially difficult is that China doesn't want to make it happen. China doesn't want to run that. Exactly. And so um, you know, it's like playing, I don't know, risk with somebody who just once in a while throws the board away. Uh all your pieces are gone, and you just sort of have to start again. I mean, uh, I don't know if that's a perfect analogy, but um China has a sort of Nietzschean will to power. You know, they call themselves the Middle Kingdom. Uh, you know, that what that's representing is that they are sort of the country in between the other countries in the world and heaven. Um, they are they have this special status, and I don't begrudge them for thinking why would we want to participate in a world run by a country one quarter our size? Um, you know, China's rightful place in history is to be at the top, and we're gonna get there, and we're gonna get there through manufacturing. I don't hear India saying the same type of thing. I mean, if you've got the hardback edition of my book, the epigraph is from a 2015 document in China that says, without manufacturing, there is no country, there is no nation. New Delhi doesn't say that kind of stuff. If you don't Does anyone say that kind of stuff? Maybe America. No, I don't think anybody does it. Absolutely, America doesn't say that kind of stuff. And it's sort of like a junior high school uh student thinking that they're gonna take on LeBron James in basketball. I mean, LeBron does nothing but play basketball all day, every day. You are not going to compete at that level. And so, unless you think basketball is life, the rest is just details, you have no hope. So I'm centering on India just because it's the only country that can rival China in terms of size, in terms of population density, in terms of maybe natural resources and things like that. But they're not focused on it. And again, that's not to put a knock against India. We're not focused on it either. Nobody's focused on it the way that China is. And so, unless you have that focus, good luck competing with China. I foresee the status quo for quite some time.

SPEAKER_00 11:42

Speaking of size, uh, something you really, really emphasize is just actually the sheer number of units that are being produced here. Like there's a very, very real difference between a million units of something, which is an incredible achievement, and 50, maybe a hundred million units of something that is um um being manufactured. And you make a nice metaphor or a comparison to imagine Ferrari pumping out millions and millions of units because the iPhone is kind of the Ferrari of these handheld devices. Um, but that size component as well is another limiting factor that could potentially move it anywhere away from China.

SPEAKER_01 12:20

Yes, and it's a combination of quantity and quality. So technically, you know, anyone can point out, wait a minute, doesn't Samsung produce more phones than Apple? And they do. And you might say, and aren't Samsung's as expensive as Apple's? If I go down to the local store, I can buy a Galaxy phone for twelve hundred dollars. It might even be more expensive than Apple. And that's true as well. What you're missing, if you if that's your view, um, is that uh Samsung sells very few of those phones. The vast majority of phones they're selling are it's much less expensive, which is why they're not worth anything like what Apple is worth. Apple is only playing in the luxury market. I mean, even their new iPhone 16E, I think, costs$650,$700. That's uh between double and triple the price of this of the Android the typical Android unit. So yeah, that's why the car analogy is quite helpful because it's true that Volkswagen sells 10 million cars a year, but Apple's doing the equivalent of selling 10 million Porsche and Ferraris per year. And if you understand how cars are built, I mean a Ferrari is not built the same way a Corolla is built or a Golf is built. There's just so much more handcrafted material, you know, innovation on all sorts of things rather than off-the-shelf components and so forth. And that's what it's like building an iPhone versus uh a Samsung phone. Again, with the exception of Samsung's brightest and best phones, but there's a fraction of what Samsung actually sells.

SPEAKER_00 13:42

You can kind of treat the first half of the book almost like a biography of Apple's manufacturing journey, uh, which I found quite stressful to listen to at points. Johnny Ive and his team insisting on these impossible uh design metrics or uh or design briefs for the product team to therefore uh go and produce. And then it's again just another layer of of just the incredible achievement that Foxconn and the various contractors actually ended up achieving in China, that they could take these almost impossible designs and then produce them at a huge scale with very low error rates.

SPEAKER_01 14:20

Yeah, I mean, I'm wondering, we've jumped right into the conversation, and I wonder, should I step back a little bit to try to sort of give the listener who hasn't read the book the contours of some of the story? Yes. Would that be helpful? So, I mean, the book after the prologue really begins in 1996. So before Steve Jobs has come back from 12 years of exile, and they are days away from um being able to make payroll, and so they have to sell this factory in Colorado in order to do it. And then in a few months, they sort of throw this Hail Mary pass by wanting to upgrade their operating system. They end up purchasing the next computer company from Steve Jobs, and that's what brings him back. But the emphasis on the sale of the Colorado thing, the Colorado facility, is is critical because nobody pays attention to this facility in Colorado. And for me, it's absolutely key because it is the catalyzing event for why Apple basically offloads from its balance sheet or from its DNA almost the um idea that it is going to build its own computers, which it's done since two Steves were tinkering in a garage in 1976. It is tough to let go of that ethos, but they are forced to because the IBM PC in 1981 is a bandaged together computer of existing components and basically gives birth to electronics globalization as Compaq, Gateway, Dell, and all these other companies compete vociferously, not on the things that Steve Jobs cares about, which is graphical user interface and uh you know user design, certainly not aesthetics. They're all just based on lower prices, which is based on better efficiency, better manufacturing, better logistics. And so they're the ones who really adopt outsourcing in general and offshoring in particular. And the result is that by 1996, after 15 years of this onslaught, Apple is days away from bankruptcy. And so they are basically forced to sell a factory. I call it a capitulation, and um, you know, basically raise some money, they sell some money in the bond market, and they have to adopt for the first time a global outsourcing strategy. So when Steve Jobs rejoins the company, that is where Apple is in. Its factories have been gutted. And when they come up with a translucent iMac, they have to go build it in um, well, maybe they don't have to build it in Korea, but they have to build it in Asia, and it ends up being built in Korea. And then I tell this sort of like seven-year history that's really never been told, where from 1996 to 2003, you have uh products being built on three continents by contract manufacturers, um, some of whom you wouldn't have heard of. I mean, I don't know many people that knew that LG built the iMac in um in Korea, that ChatGPT got that answer wrong when I asked it before the book was published. And then they built it in um Wales and Mexicali. And it's the failure of that international expansion that calls that out there that has um Terry Guo from Foxconn, who's already working with um Apple on some minor things, to call up Tim Cook, a newly newly uh appointed senior vice president of operations, and say, let me fix this. And Foxconn comes on board and they adopt the triple continent strategy. So Foxconn is Taiwanese, you know, founded in a shed in 1974. Terry Guo is one of the main characters in the early chapters. I mean, just a fast-standing character comparable to Henry Ford of Asia. You know, after Deng Xiaoping, no one is more responsible for turning Shenzhen from a series of fishing villages into the megapolis, it is today. And uh, Foxconn begins building the IMAC in China, but also in the Czech Republic and also in California, and they really forge these ties uh with Apple. And what Terry Go figures out more than anybody else, it takes the Chinese probably 16 years to really understand this that you don't make much money from Apple, and it doesn't matter. Apple is not giving you money, they are giving you something far better than money, which is experiential know-how, through the form of their engineers flying into your factories, taking control and hand holding everybody on the processes. You know, uh Steve Jobs' term for this was giving a shit, right? He really cared about every sort of detail, and that culture basically gets transplanted into the Chinese factories over time, where you have to take that maniacal obsessiveness and inculcate it in a culture that really doesn't have it, but is determined to learn. And so um the Tai Shung, which is the like the Mandarin term for the the Taiwanese entrepreneurs who play a massive role over the last four and a half decades building electronics and building manufacturing industries in China, are totally critical. But the biggest vendor of a Foxconn since 2001 or so has been Apple. And so, you know, part of the book is actually just making a pretty logical leap here that people find commonsensical by the time they've gotten through half of the book. That if you understand that Taiwanese played an instrumental role building up China's manufacturing sector, well, then of course, the biggest of the Taiwanese companies and their largest client played that role as well. I mean, Foxconn wasn't teaching lessons that it knew on its own, it was teaching the lessons that Apple had taught it. Um, so it that's why this like sort of otherwise standard corporate history gets into geopolitics because Apple has this like nation-building impact on China's most important thing, which is their electronics manufacturing sector.

SPEAKER_00 19:20

Does where does Terry Goh stand these days as a Taiwanese, presumably living in Shenzhen? Is he politically outspoken at all about that issue?

SPEAKER_01 19:29

So it's funny, I don't get into it because he sort of serves his role in my my narrative and then he goes away. But no, the last few years he's run for the Taiwanese presidency twice. Oh wow. Okay. Yeah, and and not not one, obviously. Um yeah, he's a curious character, and I frankly, if I needed to pad out the book, which I which I did not need to do, it's a very dense, fast-paced book. But I mean, if you needed to do an epilogue on Terry Guo, I mean, he's fascinating. I mean, I mean, he um runs for Taiwan presidency because I think a sea goddess in a dream told him to. Um whatever you think of that, that makes him an interesting character.

SPEAKER_00 20:05

Here's another line uh from the book about uh Terrigo, supposedly on uh the walls. A Terry Go aphorism was work hard on the job today or work hard to find a job tomorrow. Uh so he might be this very fascinating guy, but a lot of the anecdotes that accompany Terry Gogh throughout the book are those of a maniacal, ruthless, hardcore leader.

SPEAKER_01 20:30

Yeah, his hero's like.

SPEAKER_00 20:31

Where do you land on Terry from that perspective?

SPEAKER_01 20:36

Well, it's it's sort of like in the same way of Steve Jobs. You find people that just hate Steve Jobs and say he was a terrible leader, and then you find people that say Steve Jobs was the best innovator of the last hundred years. And you know, he's both. And you have to have both in your head. I mean, just as a person, but certainly as a journalist who needs to be under understand both sides. So I quote someone saying, any adjective you could throw at Terry, it works because he is such a figure of like biblical proportion that depending on what he was up to or what he was trying to accomplish that day, you could describe him in any way and it would be fitting. Um, I kind of love that. So I think you have to sort of understand that he's uh he's a great example of what's that quote from Walt Whitman? You know, do I contradict myself? Fine, I contradict myself. I am large, I contain multitudes. Terry contains multitudes.

SPEAKER_00 21:21

Give us a sense for just one more on Terry at the biggest Foxconn facility, wherever it is in China, take us in those doors, and what can we expect to see? How sort of otherworldly would it be from what we might experience on our own office jobs just walking down to Sydney?

SPEAKER_01 21:40

This is in a different piece. So it's in the Financial Times, not my book, but I I I ex I I quote someone saying the way you would describe New York City to someone who's never left their village is what it would be like to explain even to an American what a Foxconn factory is like. Because we're talking about 500,000 people on these massive lines, line after line after line, where there are conveyor belts where each person has 9 to 11 seconds to fulfill their task and they're doing it for 12 hours a day to the hum of nearby machines, but you're not allowed to talk. There's penalties for laughing. Uh, there can be penalties for smiling. I mean, it is Adam Smith's idea of the division of labor taken to an absurd degree. I mean, to be clear, an absurdly effective degree. But like one thing I like to point out is I like the show Nathan, Nathan for You by Nathan Fielder. Has this got over to Sydney? So, okay, so he has these business ideas. It's a com as a comedy show. Okay, I highly recommend it. So he has a comedy show where the idea is that he's a business graduate, like an MBA or whatever, and he gives business ideas to help businesses. And there's always like a grain of truth in what he's trying to advocate for, but of course it's comedy, so it takes it to absurd lengths. Well, in one of these episodes, he wants to clean someone's house in seven minutes rather than two and a half hours. And so a whole busload of people, cleaners, show up, right? And everyone has their own task and they all have six or seven minutes to pull the thing off, right? So the whole house can be cleaned in seven minutes, and you know, isn't that great? That's comedy. That's seven minutes per per task. iPhones are being developed at the rate of nine to eleven seconds per task, right? So you've just got to understand the degree to which the obsessive detail really bears fruit, uh, no pun intended, where you have the obsessiveness of Apple combining with the crazy scale of China. I mean, think of what China did here. Let's give them credit. I mean, in the eight, in the 1980s, after the death of Mao, they basically take the number one problem in the country that there's all sorts of impoverished people, way too many mouths to feed. I mean, this is when they come up with the one child policy and such, and they realize why don't we pull in foreign direct investment and have companies basically like exploit our workers, get the low rates that they can that they can derive, and have them working in all these factories and just build, build, build with all the money that's flowing it, right? It's sort of a jujitsu trick where you take your weakness and you use it as a strength. And Apple is just the company more than anybody else who understands what the opportunity is. So nobody else goes to goes to China and uses the number of workers and that conveyor belt system with that many people to build totally intricate designs. And if you sort of don't believe me, just think of like what was your favorite HP or Dell computer in the early 2000s? I mean, there aren't any. Whereas if we say the same thing about Apple, we could probably spend the rest of the podcast just discussing whether, you know, the G4 cube is better than the candy-colored iMac or which color did we like and all sorts of stuff. I mean, Johnny, I've redefined aesthetics of the computer, but to do that, you had to build them at scale. And to do that, you needed all sorts of sort of artisanally minded people putting them together. And Cupertino never had the scale for that. China did, but to actually take it into effect, there was in uh engendered in this was a massive technology transfer that Apple was sort of unaware of. Uh, they just weren't thinking about what the impact of their own actions were. And so that's where the book gets really interesting because the Chinese, of course, have no desire to stay at the lower end of doing everything. So they've gone up the value chain. This is why I say the book's not anti-Apple. I mean, sorry, the book's not anti-Apple, that's true. But the book is not anti-China because why would you begrudge China for sort of realizing the opportunity at hand here? And why would China want to sort of stay at the bottom rung of low-value added work in China? Clearly, they have learned to do industrial design, product design, and the whole gamut. And the predicament we're in now is that a company like Apple can still do some industrial design, it still has the experiential know-how, it still knows how to put this stuff into effect, but the only place to execute the plans are in China. Meanwhile, China knows how to do more than just the manufacturing. They can do the design, right? So, in a sense, like what do they need Apple for? I mean, that's a big risk. If, if for whatever reason, China were to cancel iPhone export license or Apple's export license, there would be no iPhones for several years, certainly not at the scale that we're used to. Um, but there would sure be a lot of Vivo Xiaomi and Huawei phones. I mean, that wouldn't impact them at all. Apple's not a supplier to anybody. Um, so that's the predicament that we're in. I mean, it it it it feels to me a little bit insane how much the book was able to uncover that was new, but it's just because we've never told the story of the Steve Jobs comeback other than through biography, of how Apple sort of emerges from the bankruptcy to being worth one, two, or three trillion dollars. That book just doesn't exist, and I don't know why. We've never looked at the manufacturing angle, which is a really strange thing to omit because Apple, at the end of the day, is the world's greatest manufacturer. They just don't manufacture anything themselves, they orchestrate it. But it would be like writing a history of Uber without mentioning that they're a Riedha company. I mean, I don't know what else you would write about, but like it is that sort of absurdity. And then the third thing, of course, is China and the geopolitical partnership that they have. And uh so again, there's three major things that the book goes after, and it goes after them in great detail. And in addition to the 200 interviews I found, I was able to get things like Steve Jobs' meeting notes from 1997, which I think sort of solved the riddle as to why he became CEO, a bunch of other things that sort of like help the narrative along. So you're not just relying on sort of anonymous sources. I've got name sources, but I've also got documents. And then the greatest thing is that in 2018, I found more than a thousand pages uh relating to uh a time when the company basically brazenly obfuscated from shareholders its problems of weakening sales in China. And what I was able to get was, you know, a deposition of Tim Cook and the CFO, emails between Tim Cook and the board of directors, an internal threat assessment of Huawei, an internal assessment of India as the next frontier. I mean, just so many documents highly confidential. I found them 16 months ago and they haven't been reported on anywhere else. So yeah, there's a lot in the book. And one thing I hate about podcasts is thinking, oh, that was a great podcast, and the listener feeling like, well, I don't know why I'd read the book. That was really interesting, but I feel like I get it. There is so much more in the book. I just can't get into it all.

SPEAKER_00 28:09

Yeah, look, I completely echo that sentiment 100%. You know, they sh the whoever is listening to this should still absolutely uh read the book because it has those several different angles. You know, you look at the first half of it, it is this biography of Apple as a manufacturing company, and then it gets into the geopolitics and China and Xi Jinping enters the reader and so forth. But I want to ask you directly, do you assert that it was intentional from the beginning that China was going to absorb all of this technical know-how from Apple? Or rather did it just by happenstance end up going that way?

SPEAKER_01 28:43

Um it's sort of a yes and no answer. China clearly, from the 1980s onward, had an ambitious plan to lure in foreign capital. Lure might be a loaded term. Uh so maybe I should just say attract foreign capital, attract foreign investments, right? If you wanted to more neutral here. Um but clearly that the plan uh was to do that through the form of joint ventures. So when a company like Panasonic from Japan sets up shop, the idea is that China, some Chinese entity, owns the other half of the company and they will learn to like mimic whatever is going on in the organization so then they can thrive on their own. So, insofar as, you know, is the question like, did China sort of actionably try to pull this off in in general? Absolutely. Do I think they ever thought one super corporation could play such a starring role, you know, employing indirectly three million people in China? Um, you know, five million by Tim Cook's estimate, if you include app developers? I mean, absolutely not. I mean, it's an it's an absurd idea. Um, and I don't think Apple realized at all the impact it was having until it does its own self-assessment, in a sense, in in 2015.

SPEAKER_00 29:49

Um in 2015, you think Apple realized, okay, we have um entered a vice out of which we cannot escape. We're so reliant on China.

SPEAKER_01 29:59

Yes. So what happens is that, and this is a prologue to the book, that for a variety of reasons that are fascinating, and I think I sort of solved the riddle as to why this happened, CCTV, let's just call them state-sponsored CNN in China, attacks Apple on a show watched by millions for warranty differences. The allegation is that Apple is treating Chinese customers in an inferior way to um to customers in other countries. And Apple is really taken aback by this. Their originally the reaction is not that they're scared, they just think it's a simple, they're they're confused, they're flummoxed, and they just issue a basic press release that sort of chalks us up to a misunderstanding and explains that all is fine, et cetera. Well, three weeks go by during which there's a digital blitzkrieg where regulators and other state-sponsored um uh newspapers and even social media, uh, you know, backed by the state, is just all attacks Apple. And the company begins to worry, are we going to be like Facebook and Google blacklisted from the country? And so, as part of the effort to change the narrative, to sort of kick on its head the whole idea that they're an exploitative company, which is how Xi Jinping sees them, they hire or name eight people who call themselves the Gang of Eight. And these are senior people living in China for the first time in Apple's history, right? They've basically been there since 1993 in some way, shape, or form. And this is 2013 that they begin to do this. And so they really recognize that Xi Jinping is taking the country in a different direction and that they need to take action. And as part of this sort of like survival plan, they do their own supply chain study and realize they're investing$55 billion into Chinese factories every year. And that number is so large, I could not find any corporate equivalent. And so I started comparing it to various government efforts where you realize that it's the equivalent of the CHIPS Act every single year, which was a plan to bring back chip fabrication to America called at the time um the uh a once-in-a-generation investment by the Commerce Secretary. And I go so far as to compare it to the Marshall Plan because the annual spending is double that of the Marshall Plan, which I should note was on 16 countries, whereas the Cook Plan, if you will, is on one country.

SPEAKER_00 32:03

Yeah. And you uh calculate when you write about that Marshall Plan comparison, I think it was Neil Ferguson. He estimated that for every dollar spent, the Marshall Plan, between five and six dollars of productivity was accrued. Do you have any type of math that could calculate the return on dollars spent by Apple in China?

SPEAKER_01 32:20

No, and it wouldn't be credible because you need to be some sort of like econometrician, right? Or at least some sort of academic to be able to do that. I mean, I do hope that just is able to spark all sorts of academic discussion. Um, right, because you know, some people have asked me, like, why wasn't there why hasn't there been more reporting about this over the last 20 years? And I think maybe it's a lazy answer, but I think media, including myself, were caught up in what you would call the Steve Jobs reality distortion field, where we just write about the things Apple, in a sense, tells us to write about. I mean, a couple days ago, not sure when this is airing, WWDC came out, and it was just like 90 minutes of just like totally trivial things about some apps are now transparent. I mean, I could tell you how little I cared about everything they announced. And yet all the coverage over the coming days was just in reaction to that, whether it's good or bad. And journalists, I think, have this thing that, like, well, I'm gonna be really hard on Apple. I'm gonna review the hell out of the products or whatever. I think that's really playing Apple's game. Apple knows they make really good products. Be as hard and as critical as you want. Um, they're great products. They don't want you to look at the sensitive underbelly of the company, which is that everything's made in China and it's required a bunch of government deals and facilitations to make that happen. Um, that's probably the most important thing at the company. If Tim Cook was to retire tomorrow, the number one thing the next CEO needs to figure out is how to um make nice with Donald Trump and Xi Jinping, way more so than whether the next iPhone should have four cameras on the back.

SPEAKER_00 33:46

I mean, maybe in the light of your book, because of its success, you will see a lot more attention being drawn towards the manufacturing supply chain of Apple rather than the products itself.

SPEAKER_01 33:57

I would think so. I mean, the book was published a month ago, and there's already been a fair bit of attention. And I think the next date will be that you go from reviewing the book or commenting on the book to reporters doing their own investigations to either corroborate or add in details. I mean, as authoritative as I hope the book is, there's, you know, it's like writing a history of America. You're not going to catch everything. There's all kinds of things that were happening, all kinds of characters who I haven't spoken with. And if those people, if other journalists are able to speak to those people, there's all sorts of other stuff to uncover. I would love nothing more than to find out that someone else is writing another book about Apple in China or Apple's supply chain or Apple's move to India. I mean, because it's such a secretive company, if you really just start digging, you uncover all kinds of material because not many people are looking at this. Partly it's just a question of um the decline of journalism over the last 20, 25 years. I mean, anyone can um, you know, sort of like uh rely on a major paper coming out with something and potificate on it, but it's very difficult because of how under-resourced the media landscape is these days, to take a year off, to take two years off, which is what it did, um, to just be reporting on on one company um and somehow pay the bills in an expensive city like California or like San Francisco. So, yeah, I don't mean to knock other journalists for not covering this story. Um, I think there's all sorts of sociological reasons, technological reasons why it's been difficult for anyone to tell it, because the reporting on Apple manufacturing in the 80s and 90s is actually quite robust. I mean, there are Harvard case studies on debates that happened in terms of uh just-in-time production and things like that in in the 80s and 90s. But we sort of lost sight of that once Apple closed its factories. And it frankly, it only became more important, not less. Um, but the only story we cared to really write about was a tedium of assembling iPhones or whatever at Foxconn and working in other factories, rather than its strategy, rather than its geopolitical diplomacy and so forth. And I really do think that's the essence of what's made Apple Apple over the last 25 years, right? Without China, there is no iPhone. I mean, as simple as that.

SPEAKER_00 35:54

Yeah, the the opportunity cost of whether it's taking a year off or even taking three or five months not off, but in direct focus of one particular story, uh, seems to be almost insurmountable for most sort of traditional media outlets. Uh, I interviewed a guy recently called Axel Humlehua, who's in Sweden, and he works for the state broadcaster, SVT, and he publishes like one documentary or one big story a year because the economics of his story don't work. It's not like he makes you know the broadcaster the return on his salary in the advertising for that one particular piece. But the outcome of this totally dedicated long journalism is some of the best reporting on money laundering throughout Europe. Him and his colleague broke the Swed Bank story, the biggest case of money laundering ever, and it was a Swedish bank, and it involved Lukkachenko and it involved uh Russian honey traps. You know, it ended up being this salacious, entertaining, and very consequential story. Um, but he just made the observation, you know, he feels extremely lucky that he can be in this position, which no journalists uh well not no, obviously some, but very, very few can maybe ever get to. But yeah, I don't know if there's any sort of way out of that. Could could could it be that some of the big substackers who find their own audience, maybe they're the ones that end up breaking these big stories down the line? Um, you know, it's more of a question of the recasting of business models around journalism.

SPEAKER_01 37:25

It's probably not the Substack, it's just because the whole point of a Substack is that you're feeding the beast, right? You're getting subscribers because every Friday you've got some brilliant insight or whatever. And, you know, I basically split up the first 12 months I took off, which is because I submitted the first manuscript within that time, as like eight months of talking to people and four months of just absolutely furious writing. What I'm pointing out is by no means could I have just sort of like written the chapters as they appear in the book during that 12 months. That wouldn't have happened at all. Right, right. The sources came in at different times. I didn't put things together until you know, sort of the last minute, the way things came together was really serendipitous, almost mystical. Um things like the yellow cows and the role they played um complaining about Apple warranties and that being the reason why Xi Jinping goes after Apple in 2013, I did not even put that together until after the manuscript was um was submitted. Uh so the sort of slow, patient gathering sources and then putting it together writing was totally critical to being able to get this done at all. I think if you were trying to sort of write it as you went, it just never would have came together in the in the same way. The pressure just wouldn't have you know, the cadence of of the weekly uptick or whatever just wouldn't have worked at all. So it was the biggest luxury of my career to have nothing due for a year, no email that I needed to respond to for a year. And I could just write in the nocturnal hours when nobody was bothering me and just getting it all done. Um so the point after a year, I I intended to go back to being to being a journalist, you know, covering Amazon or just something brand new, but I was so invested in the book. I thought I'd uncovered a lot and I wanted to be there for my editor when he had questions and and needed, you know, me to cut 20,000 words or write new chapters, which is what happened to new chapters. And then even when I was done that, I was left so thoroughly exhausted that I didn't want to start a beat just for um, you know, to take a month off to do the publicity. So I just wanted to be around for all of that as well. And you know, of course, Trump became president during that time. Um, and so I had to write a sort of another, you know, half of the conclusion and that sort of stuff. So it's been great to be able to spend a whole bunch of time reading Chinese history and reading some supply chain history um in those intervening months and just throwing in little tidbits into the book. But yeah, it was the fact that nothing was due, essentially for two years, that allowed me to write what I think is a pretty good book.

SPEAKER_00 39:50

When did the idea to pitch this book to a publisher surface for you? Was it something you read, something you noticed, or you just this awareness of this whole story of Apple's not being told?

SPEAKER_01 40:01

No, so I wrote a two-part series, the longest thing I've ever written. So 6,000 words for the Financial Times. The first one is called How Apple Tied Its Fortunes to China. Uh that was early 2023. And it the reception was really, really good. I mean, such that people with Apple experience reached out and said, You obviously spoke to the right people, you nailed the story kind of thing. And I was, in a sense, taken aback by how positive the reaction was, because although I was partly excited about the story, I was partly disappointed because I knew some of the best things I learned weren't corroborated enough to be in the book. Sorry, to be in the article. So in other words, it was like that Donald Rumsfield quote, you have to go to war with the army you have. Like the article needed to be published with with with uh with that with what I had, but I realized there was much more. And I really I'm just explaining it in a complicated way. I knew that the piece was just scratching the surface of a much, much wider story, and it was trying to condense sort of two and a half decades into 6,000 words, which even at my longest was was just not enough room to tell it. And so I thought there was a book here, possibly there was a documentary here, and basically through some connections, I you know, I was able to have a call with an agent, and at the end of the call, after explaining what I wanted to research, I said, you know, when do you want the pitch by? And he said, yesterday. Like he was just thoroughly on board from the get-go. And I wrote a 70-page book pitch in the nights and weekends, um, you know, while I was still a reporter, and the contours of the story were really there. We got publishers excited, and I was able to get a deal that was good enough to take off, you know, more than a year in order to get it all done.

SPEAKER_00 41:37

Um so how do you how do you explain that? You you publish this story, it gets amazing reception. You talk to the agent, he immediately feels like, I want this. The publishers, they immediately say, I want this. How do you explain the lack of that hunger being met before you had it started addressing it?

SPEAKER_01 41:55

So, why hasn't someone written the book Apple in China, essentially, over the last two decades?

SPEAKER_00 41:58

Yeah, or just paid more attention to it. Yeah.

SPEAKER_01 42:00

Yeah, I have a few different answers for this. One of them is just that I think Apple's so good at their own narrative that we just fall into the trap of following along with that. Uh and you can keep yourself busy just by trying to think about what the next iPhone might be and and talking to people about about what it might be. Um The other thing, it's maybe a bit of a cute answer, but Steve Jobs said when he gave a commencement address at Stanford that you can only connect the dots in your life by looking backwards. And so for me, if I look backwards at my career at the FT, I was in Hong Kong for three years, I was in Germany covering supply chains for three years, and then I covered Apple for four years. So when you combine China supply chain with Apple, you sort of get the book in a way that I think most tech reporters, if they're based in California, they don't have a background of studying China. They don't have a background in understanding supply chains. I mean, there's not a whole lot of factories in Silicon Valley to go in and out of to understand just in time manufacturing. There's hundreds of them in Germany. And I got to go to them all the time because I was covering the aftermath of the Volkswagen scandal and the German efforts to compete with, you know, electric vehicles and so forth. So I learned a lot about batteries and just-in-time manufacturing. I mean, I didn't know basic stuff that, like, you know, even uh something like a Porsche is like 25% of the parts are made by Porsche, 75% is is outsourced to a whole host of suppliers, most of them in Germany, but a lot from around the world. Um, that was all novel to me. And I wrote a bunch of articles about, you know, the sort of like centuries worth of uh you know what Henry Ford did to the assembly line, to sort of what the Germans introduced much, much later, what the Japanese had introduced in the 60s and 70s. That was all fascinating. Never did I think I was going to apply it to smartphones, but that's in retrospect what happened.

SPEAKER_00 43:43

It seems like uh serendipity is a theme that maybe stands out to you a little bit. You mentioned that Steve Jobs quote sort of came to mind. Life can be on a sort backwards or must have forwards. And you mentioned before when you were putting the book together, this serendipital, serendipitous mysticism sort of came together right at the end. Uh how much do you lean into serendipity? How much has serendipity driven a lot of the outcomes in your life?

SPEAKER_01 44:05

Well, I was gonna say, I mean, the uniqueness is just the details of what I'm describing, but I'm and I think everyone does that for their own life, right? I mean, I don't know what your story is for how you became a podcaster, but presumably you can point to three things that all sort of led you in that direction. Am I wrong?

SPEAKER_00 44:18

Oh sure, yeah. No, I think serendipity drives a lot. It's funny, Pat. I d I don't know if you if you've noticed, but every episode I've done, I've asked right at the end, what is the role that serendipity has played in your life? So it's a very strong theme, at least uh for me. And I'm just trying to see if that is channeled in you as well.

SPEAKER_01 44:34

Yeah, I mean, well, you're sort of getting to something my wife and I always talk about, which is that um I like so I'm I'm I'm atheist. My background is a study of religion, and so I think a lot about those questions, but although I ascribe no higher power to anything that goes on in the world, I nevertheless I sort of I'd almost say believe in a pragmatic sense. So there's no actual faith here, but when the universe points you in some direction, I sort of go with the flow. There's a great Haruki Murakami quote about this that I apologize. I can't sort of just like conjure into words right now. Um but I I have a maybe a certain stoicism about that as well, that you just sort of put up with what the conditions are and and accept with what you can go with. And things just have a way of working themselves out a little bit. So I don't know, I'm I'm pretty chill about that kind of stuff. Um But the I guess the other thing about that, just in terms of like the skill set, is like there are loads of people who know more about Apple than I do. Uh maybe that's not true right now because I feel pretty confident in the original research I did. But let me just say there's loads of people that certainly there's loads of people that know a lot more about supply chain than me. Certainly, I don't have an engineering degree, and it's almost absurd that I'm writing a book about supply chain. If you understood how fundamentally terrible I am at like fixing something in the house, you'd think you're the guy talking about engineering. And you know, I don't speak Mandarin. Certainly, there's people that know more about Chinese history or whatever. But in combination, I I sort of feel like I'm the perfect person to have written the book, but only because I wrote the book to play to my strengths of what I I know. So inherently, the history would be really different if someone else wrote it, with the caveat that I'm not a character in the book. I don't try to insert myself or my views really at all. It's my best attempt at doing old school objective reporting of following the information where it goes. I mean, when I'm portraying the court documents that I found, I'm not trying to do it in some really biased way or whatever. I mean, it's just like that. And I mean, I actually I I go so far as to say I spent 60 hours going through the raw material before I read the prosecutor's case against Apple because I didn't want to be swayed by what the prosecutor had said about Apple. I wanted to come to my own conclusions and then see what they had done with the with the information. That I don't think that was an intuitive decision to make, but I'm I was very pleased with that, and I found that I came to certain conclusions that they didn't come to, uh, and vice versa. I hope I've answered the question.

SPEAKER_00 47:03

Yeah, or more or less. Well, what about the role that serendipity has played in your life? Explain this moment right at the end of when you're putting the book together, this serendipitous mysticism that you referred to earlier. Did just a bunch of, you know, uncorrelated things come together right at the perfect time, just as you're about to submit the manuscripts, like what happened there?

SPEAKER_01 47:22

Yes, so in a way that was disquieting. So, in other words, you know, I'm really proud of the book. I've never been more proud of anything I've ever created. And yet, it doesn't leave me with loads of confidence to write another book. And the reason why I say that is because things that needed to fall into place fell into place just when I needed them to. If I didn't, if I'm making another book, I don't I I don't think I can bet on that happening again. In other words, I this is totally I don't know what I'm doing next. I'm just making this up. Let's say I wanted to write about Tesla in China, okay? Am I going to find more than a thousand pages of internal documents about Tesla and the time that they were sued? I mean, no, that's not going to happen. And so you could say, well, of course, you're going to find something else or whatever. Yeah, I get that. But I just don't know that like the sort of luck that I had, and you could say I was through perseverance and all this stuff. I get that. But so many things were totally felt like complete breakthroughs where you just wouldn't have the same book, even just like certain individual characters weren't discovered. And, you know, what if, like, you know, let's just say those like eight absolutely central characters to the book? That's what if eight people just didn't talk to me? I mean, the book would just be very different if that was the case. So I like this idea of leaning into serendipity. I've never heard that phrase, I've never thought of it like that. Um but yeah, again, I there was a sort of mystical sense, or like maybe um, it's not so different from Adam Smith describing the invisible hand, right? No one's accused him of having a sort of faith there, but the way that the economy works is that people, through working through their various means, end up building something in the economy so intricate that it looks like it was devised. That is how I feel about the book. And of course, it's a stupid thing to say because I did devise it, right? There is uh, you know, I am playing God to my book or whatever. And yet the way things all came together were not part of the plan. We're not part of the contours of the story, we're not in the book pitch. I mean, I remember my publisher's my publisher saying as I signed the deal, like, and we really want a character-driven book. And I was like, absolutely, having no idea who the characters were. I mean, just sort of like feeling like I was bullshitting, like, yep, characters, I'm all about it. Um, and of course I intended to go find them, but I didn't actually think I was going to get the number and quality caliber of sources that I ended up getting. If there's one thing where I feel like the book knocks it out of the park, it is the number of people that are in the narrative. Maybe they're named, maybe they're not. But I mean, you know, if you've never heard of something as basic as um the translucent iMac being built in the Czech Republic, I think you'll be a little bit floored as I quote people that worked on the production line in Newport, Wales, right? Yeah, yeah. I'm sorry, sorry. I meant to say Wales before. But same thing for the Czech Republic. I quote Foxconn and Apple people that worked in the Czech Republic. I mean, the sourcing is not just three people told me their histories of Apple. I really did speak to 200 people, some of them for more than 10 or 15 hours, some of them for only two hours. But the sourcing um is is way more fundamental than the writing. The writing is pretty basic. I'm not Proust. I'm not Joyce. It's very standard newspaper, how it happened reporting, but the structure of the book was really good because of my patience.

SPEAKER_00 50:36

Don't know the still stuff. It reads so well. I mean, I listened to it admittedly, so it listens so well that it's effortless. Yeah. You know. Sorry, I definitely can't get the.

SPEAKER_01 50:47

I guess I I I would almost be defensive about the writing because, like, like um it in in a way that it doesn't need to be. It's not a book that has a few details, and so it's padded out with flowery writing. It is very dense. Um the problem was actually just how to put all the information into a tight narrative.

SPEAKER_00 51:06

Aaron Ross Powell No, totally, which is a complement to the writing. I mean, I I can only imagine the you know kilometer-wide whiteboard, which was full of all of this disparate information that you needed to now craft one singular narrative through. Like that's it's overwhelming just to be able to do that. You might find this funny. So there was no whiteboard. It was all in Apple Notes. The whole thing. Apple notes. Now you've published this book. It's this giant bat signal out to the world. Like I'm the guy on either Chinese manufacturing for American companies to a degree. There's many, many people, but at least this book is a huge vehicle of serendipity that is going to now introduce many more sources into your life, many more stories into your life because of the success of the book and who you are as a journalist running the Financial Times. Okay, so the success of Apple's transferral of knowledge into China can be measured by BYD outselling Tesla, DJI drones having the almost monopoly on commercial drones, Huawei doing so bloody well, the military capacity of China doing so bloody well. Like this is all, in a sense, if if I if if I buy the narrative from the book as it is written, which I do, downstream of Apple's once in a history corporate investment into a country. And and therefore, sorry, the question, and therefore, whether it is the follow-up on writing about Tesla and China, whether it is writing more about, you know, um the geopolitical question of what has America done to enable so much high-end sophisticated Chinese manufacturing. Like it feels like these stories will become available to you serendipitously because of what you've done.

SPEAKER_01 52:48

So, in short, what I'm wanting to do right now is expand the lens. Uh, I don't think there's a whole reason why I need to follow Apple in particular. Instead, I want to follow what I call industrial statecraft, the intersection of manufacturing policy, tech competition, and national security. Really, that's what the book is about. I just tell it through the sexy vehicle of Apple. Um, but I'm really interested in what we can learn from Chinese industrial policy, which is world leading. What do we do about the uh things that we cannot rival China on, right? There are a whole bunch of things that China does that philosophically we would not put up with. And I'm interested in all sorts of re all sorts of issues that are are sort of brought up in the book, but aren't maybe core to it, and yet there's so much more to unpack there. So if you decide industrial policy um and and uh and so forth, that would that I mean I'm super interested in that. I don't know what I'm doing next, is really you know what I want to be when I grow up, is is my joke these days. Nice. Um I'm trying not to have anxiety about that.

SPEAKER_00 53:49

I'm leaning into serendipity to quote Ryan. Totally, totally. Okay, mate. So um we're coming towards the end of the time, but I just want to return. Uh, you referred to China's Nietzschean will to power earlier, and there are these OIC events which just encapsulate the the incredible achievements that this country um went through through this two, three decade period. So, what what's the big OIC event that stands out to you the most that is indicative of just how different China is from the rest of the world?

SPEAKER_01 54:23

Oh God, that's a great question. It's a fair question, but I don't know that I have an event. Um and if you're just and so if I'm rephrasing the question as something that I feel like an answer as to like what is the secret sauce of China's manufacturing prowess, would that be a fair ref reframing?

SPEAKER_00 54:41

It's uh it's a pretty wide reframing, but obviously, you know, you're the guest. Let's do it. Well, it's not an event.

SPEAKER_01 54:46

I just I'm trying to think of what the event is, and I don't know what the event is. But the thing I think about is the dual class citizenship structure within China, which is that if you're born in a rural area, you can live in Shenzhen and you can work there, but you don't have access to social services by design, and you can't bring your kids there unless they go to a private school, but you can't access any of the public schools. And that's kind of the secret sauce because I've Apple factories, you know, led through Foxcut or whoever, do not need you for 12 months. They only need you for the spikes in productivity. And so these facilities' ability to hire people who are only going to work there for a few weeks, maybe a few months at a time, and then they either move on to another product within the factory, or indeed they move on to an entire factory altogether. That is what makes the Chinese factory so capable, right? The allocation of resources. And Apple is never going to find that anywhere in the United States. And India might have the capabilities, but culturally it doesn't have some of the same attributes of Chinese culture. This is not a knock against Indian culture, but um, 17-year-old girls do not leave their home in India to go find work somewhere. Now, if you wanted to replicate the Apple model, you could say that like they should, but like who's to say they should? Like it's just a part of Indian culture. That's not that's I don't care how powerful you are, that you have$400 billion of revenue, Apple will not be able to achieve that. Or I don't think they'll be able to achieve that. That is a weird thing to try to inculcate uh in a culture. Uh, you know, so so that's where I get pessimistic because there are things that we can learn from Chinese industrial policy, but philosophically there are things that we don't want to learn. I don't think that's a great policy. I don't want to have uh people in the United States treated as second-class citizens because it's good for our manufacturing. And yet, on the other hand, I do want to see a revival of US manufacturing. And if we don't have a workforce that's willing to do it, it's not gonna happen. So there's a there's a paradox there, and it's difficult to un unravel it.

SPEAKER_00 56:55

The cliche response to that is uh, well, what type of manufacturing do you really want? Is it this Foxconn replica where you've got 30 and 40 year old people who have now been reskilled to sit on a conveyor belt doing nine-second tasks, not being able to smile or laugh at each other? It's uh it's dystopian. Um, is that really what you you want to bring back?

SPEAKER_01 57:19

Yeah, no, but that's I guess that's my point. That we're never going to tolerate that. That is not coming back to America. But if that's how you build iPhones, then we're not gonna be competitive if we don't do that. No, so again, we're not going to do that. I'm not advocating. We really care about that.

SPEAKER_00 57:34

Yeah.

SPEAKER_01 57:34

Right. But but this is why it's tough. Like, um, you know, an environmentalist movement can be can be excited if uh a lithium mine is gonna open, let's say, a hundred miles from San Francisco, and uh protesters shut it down. Okay, great. Oh, do we not need lithium? Lithium is still going to be mined, but it's probably going to be mined in a place that doesn't have the same um labor standards, environmental standards, etc.

SPEAKER_00 58:00

And so the negative externalities are going to balloon.

SPEAKER_01 58:04

Exactly. So I think like NIMBYism is a is a problem, right? The not-in-my backyard movement. We typically associate that with building houses and things like that, right? Or a homeless shelter. People don't want that in their neighborhood, et cetera. But I would apply it to all sorts of other things that, you know, no one wants industrial clusters nearby belching out smoke and everything. But it's not a win if those things are still built and they're built even in a in a more shoddy way somewhere else where a different country gets the jobs and everything. Um, and then it has to be shipped over here. I mean, it's just it's just bad on so many levels, worse on so many levels. And I don't think we're grappling with that because we just sort of pat ourselves on the back for avoiding something and saving on carbon emissions or something. But globally, the emissions are probably worse if they're someplace else. So, anyway, my point is I don't have coherent thoughts on this kind of stuff, maybe semi-coherent, but this is what I'm fascinated by. And I don't know what the next book is, but industrial statecraft is the thing that I'm fascinated by right now.

SPEAKER_00 58:59

What do you think the single biggest geopolitical question uh you wanted to raise is from the book?

SPEAKER_01 59:05

You know, this probably came out after the book. There's probably I'm sure there's some evidence and lines in the book about it, but the thing that I've thought about a lot since is like China's model of capitalism and how it doesn't prioritize you know shareholder dividends or even profit. And I guess what's interesting about that is a couple things. So if you're just thinking about China alone, what it means is that there's no correlation between China's GDP growth and the stock market. The stock market has done terribly really over the last two or three decades, even as Chinese GDP has been, you know, averaging what, eight to ten percent a year for that for that amount of time. And the reason is is because they really emphasize, you know, like employment and controlling industries. So examples are something like solar panels, where there's no fat cats making 30% margins building solar panels for the rest of the world, but China has 90% plus capacity. And that's a real threat to the West because we do prioritize profits and efficiency. And China doesn't. And they're so large that should they focus on any given industry, they have the capacity to dominate it. So the sort of more startling statistic that I heard recently is that China's auto industry has capacity to build 60 million passenger cars a year. That is two out of three of all cars that are sold globally. Uh, and they don't have the capacity to absorb that, right? That's more than twice as how many they need. I think they sell around 28 million cars domestically a year. So that is really threatening, and BYD has already sort of engaged in a price war, so startling that Beijing itself is actually concerned about this. So, how does the West compete against a model of capitalism that runs on a sort of different barometer in terms of how to judge itself, right? Because you don't have multi-trillion dollar companies in China, and yet in the aggregate, they control entire industries like the entire battery supply chain, almost exclusively Chinese. That's really crazy. The other thing I would add, just to sort of throw this back into Apple terms, Apple has benefited greatly from this, more than anybody else, because Apple's peak year for selling iPhones is 2015, which is a nice way of saying they have not had any growth in smartphones for a decade, but they're making more money from smartphones. They're selling them at higher prices and they're getting lower margins. And the lower margins are because instead of relying on multinationals operating in China, they're increasingly relying on the red supply chain, basically companies that are homegrown in China who can offer lower margins because of this form of state capitalism that I just spoke about. So that's worked wonders for Apple's balance sheet. And I sort of say in a fairly innocuous, open-ended way, it raises troubling questions and exposes Apple to risks that we're just beginning to understand. I don't think Cupertino has a great handle on what those risks are. Um, but there's a loss of control engendered in that because it used to be the case, however problematic this was, that the experiential know-how really was in the heads of the people from California that were orchestrating everything in China. Because of COVID and because of Apple's margins and relationships with the red supply chain, that is increasingly less true every year. Fewer of the decisions are designed in California, made in China. A lot more is designed in China these days in terms of manufacturing processes and so much else. And they have five RD centers in China. You know, a decade ago they had zero. Um, a lot of stuff is moving to China within Apple, and it's doing really well for their operational efficiency and their margins. And I worry that Apple is losing control, and I worry that the United States and the Western at large is losing control. I don't worry.

SPEAKER_00 1:02:40

Trump is obviously an accelerator of the de-globalization uh trend. Um, but imagine he never existed. Is it inherently a problem that China are so superior at scale for technical manufacturing? Why can't the rest of the world just continue to benefit off that? Um, is that inherently a problem, do you think?

SPEAKER_01 1:03:01

I I think what you're asking is not Trump doesn't exist, but whether what happens if Xi Jinping didn't exist? Isn't that really what you're saying? What if China was not belligerent and hostile? What if it was just Taiwan but with 1.5 billion people? Well, that sounds amazing. Isn't that what you're actually getting at? I suppose, yeah, other side of the same coin. Yeah, because in that respect, I'd be a lot more sanguine. I don't think I'd have a book to write if that were the case. Uh I mean, Apple's exposure to TSMC doesn't really bother me as a geopolitical mess, except that China wants to annex Taiwan. I mean, you would still have the problem of you shouldn't put all your eggs in one basket, but what you worry about Taiwan is an earthquake, a real earthquake, not a political earthquake. Um so if China were indeed marching towards democracy the way that we thought in the late 1990s and early 2000s, and wanted to participate in the world order set up by America, I think in a sense that would be fine. But the very conundrum is that China, for reasons you can't really begrudge it for, doesn't want to participate in a world set up by a country a quarter of its size. It has a 5,000-year proud history and it believes that China should be ruling the world essentially. I don't mean that in a I mean that in a neutral way. The the China, you know, in the same way that New Yorkers think that they are at the center of the world, China thinks it's at the center of the world. Um and they sort of have the history and the amount of people and soon the economy to do that.

SPEAKER_00 1:04:31

It's a big difference to think you're at the center of the world and you want to rule the world. I doubt New Yorkers feel like they want to rule the world. And I'd be curious to see, because presumably you would have interviewed a lot of Sinologists and a lot of um experts on Chinese history and culture. Um I spoke with Carrie Brown a few weeks ago, who's a Sinologist out of um, I think Cambridge. Basically, he just disagrees with the Xi Jinping than than me. Well, yeah, it's not necessarily about sympathy with Xi Jinping. It's rather just a whether it's sober or not, but an analysis of what Chinese uh territorial ambitions are. Clearly, they want Taiwan. They view it as their sovereign land, they view it as their little sister. But does that inherently mean they want to go over the Himalays and take India, you know, come down through Indonesia and take Australia and then eventually take Japan and then eventually go over to America? I just don't know if I mean, obviously neither of us know. Only one person knows Xi Jinping, but it seems like um at least that risk doesn't really frighten me.

SPEAKER_01 1:05:32

That is not my vision of China. Um and that's why I like pointing out that I I, you know, the book is not as anti-China as I think some people on social media uh surmise it to be. I don't think you get that out of the book. The what what's made pretty clear, I think, early in the book, is that it's a fairly neutral tone book that's not a polemic, it's not a screed. There are points when I could take cheap shots at Apple, and uh in ninety percent of cases I don't. There are there are two or three where where I can't couldn't help myself. Even if you don't think Xi Jinping is another Putin. It's still the fact that China is the biggest rival to the US since the Soviet Union or since the founding of the country. I suppose you could throw in since Nazi Germany if but uh you know it's just hard to hard to say that that's not the case. You could use adversary or rival um in different ways, but nevertheless, they have very different vision of the world. They have different vision of of of any number of things. And I think there's a host of issues that Washington and Beijing to w can work together on. And I mean that maybe I should point out, like, I'm all for trading with China, I'm all for poverty alleviation in China, but it is a strange state of affairs where 50 years ago we talked about Detroit being the arsenal of democracy and an understanding of American history was that like Hitler was scared about America getting into the war because of its industrial might. And we haven't just let that might wither away, we voluntarily gave it to a country that is now by all any historical standard our biggest adversary. So it's I guess the the argument is even kind of worse, the more disappointed you are by China, or the more of you think of China as a threat. But even if China is just you know a friendly nation like Taiwan, but I don't know how many times this is, you know, 25 million per people versus 1.5 billion, it's still a very threatening thing. I mean, as I say, Apple doesn't have a plan B. If they can't build phones in China, there is no place to build phones right now. I mean, in a crisis scenario, they could come up with something that would have taken them years to get back to that scale that they're at. So I I yeah, I don't know how someone wouldn't be concerned by this, but it's more concerning the more anti-China you are. I'm very concerned, and I'm not particularly anti-China.

SPEAKER_00 1:07:53

Pat, that's a fantastic place to finish it, but I can't help I want to ask you one more. Talk to me through the experience of doing Jon Stewart.

SPEAKER_01 1:08:02

Uh, so it's totally surreal. I mean, just walking into the Daily Show and seeing a sign that had my name on it with a bunch of snacks and you know, half an hour to relax or whatever, that was amazing. Because I had had friends say, Do you want a role play? Do you want me to play the role of Jon Stewart and sort of try to be funny? You know, because what I was worried about is is as you could maybe tell in our conversation, when I'm talking about the book, I tend to get sort of cerebral and like, and as my wife will point out in interviews, like I can interrogate people because I'm in a mindset of like, I need to know the truth. And John's funny. And, you know, I can be funny, maybe, but the two don't meet. I'm either like cerebral and interrogative, or I'm being wacky, right? A class clown or whatever. That I'm not both at the same time. And John is. And so I worried about, I don't know, not getting his jokes or or whatever. Right, right, right. Um, but I didn't allow myself to do any of the role-playing or whatever. It wasn't by a design, it was just that I was so worried that it just felt so surreal that I was gonna be on the Jon Stewart show that I thought it was gonna be canceled. I mean, he booked, we booked it like three months in advance, well, well before Liberation Day, you know, when tariffs became the issue, which did sort of solidify, okay, this is probably gonna happen. So I never really game gamefied it out. And the idea that it got to the point where he had to whisper in my ear, right? So basically I didn't understand him teeing me up for something, he turned that into comedic gold. So that was amazing. And he joked about us being almost best friends. I mean, the the debate within my family in the last couple days has been should do I need to update my LinkedIn profile to say New York Times bestselling author? Like people do that. I mate, does that sell books? I don't know. I feel weird about it. And and and my wife said, Why don't you just put almost best friends with Jon Stewart? Like, that would be a great LinkedIn title. Um, so yeah, that was just surreal. I mean, I look, I love Jon Stewart. I've been watching him since I was in high school, I think. You know, if not high school, that's certainly university. And so to be on the show and for that to go so well, um that was just an experience of a lifetime.

SPEAKER_00 1:10:01

Man, it was it was amazing. Um, and it did go so well. I'm not sure if you've looked at the YouTube comments on it. The top one was I'm not uh people have read them entirely sure whether this is Clark Kent or not.

SPEAKER_01 1:10:13

Um but then also the The other one is that people said I look like someone named Milo from Atlantis, and I didn't know what that was, so I had to look it up and like it's actually pretty on point.

SPEAKER_00 1:10:21

I I'm not sure as well if you noticed, but there are also a lot of I can only imagine like uh really fulfilling comments for you in there basically saying this is one of the best uh segments I've ever seen Jon Stewart give. Wow, I can't believe this story's here. This is absolutely amazing.

SPEAKER_01 1:10:35

So I my favorite one is someone said that I should be the next host of the Daily Show or something.

SPEAKER_00 1:10:42

Patrick McGee, absolute pleasure to speak with you, mate. You know, I wrote to you uh what was it, a month or two ago, and then I saw you're on Scott Galloway, and then you're on Jon Stewart, and the book is just blowing up like crazy. It's super cool. I'm super happy for you. The book's absolutely incredible. I love listening to it, uh, despite the the Bondi pronunciation.

SPEAKER_01 1:11:02

Well, you didn't explain that. Now we've got to defend myself that I lived on Bondi Beach. I know how to pronounce it. My narrator did a great job, but he got this pronunciation wrong. Was not me.