Trump, Xi Thrust Fierce US-China AI Rivalry Into Spotlight

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25:50With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. I want to bring in, yeah, I mean, helping us figure it out is Dina Esfandiari, Middle East geoeconomics lead for Bloomberg Economics. She's also the author of New Order in the Gulf, The Rise of the UAE, and the co-author of Triple Axis, Iran's Relations with Russia and China.

26:27She's usually in Geneva. She's here in the U.S. right now, and she joins us from Washington, D.C. Dina, good to have you on the program today. Thank you so much for joining us. I want to start with the word that we got earlier today, and that really has to do with U.S. and Iranian negotiators here in New York exploring a phase path out of war that would involved Tehran reopening the strait and Washington lifting its economic blockade of Iran. This, according to Reuters, Reuters cited sources. OK, this is multiple reports now on this, we should note. I'm just curious how you're reading into this in relation to other reports that we've gotten over the last six plus months that this war was starting to end.

27:11I mean, I think they're talking. It goes without saying that it looks like they're talking. It looks like they're talking about something, a deal that would look similar to the first MOU that the U.S. and Iran signed a few months ago and that didn't really last. It would be like an MOU 2.0 with a couple of extra elements thrown in. This idea of opening the strait, the Iranians opening the strait and the Americans lifting the blockade, it's something that was very much present in the last MOU as well. Well, if this goes through, and I have to say I'm quite skeptical, it's definitely good news. But it would be temporary and there would be a lot of scope for it not to be implemented properly.

27:54And that really is what I'm worried about, because I think that neither side right now, not the Americans, not the Iranians, neither side is really ready to make the concessions necessary in order for the war to end in a lasting manner. And that's the problem. So because of the stakes right now and really what Iran has said and indicated that it will not give up as a result of control of its, I don't want to say newfound, but I guess the global understanding of its so-called newfound control over the strait, right? There's just not the incentive for Iran to give that up? Well, it's very difficult for Iran to give it up.

28:37It has discovered that it has leverage. It has discovered that it has leverage that works in terms of the pressure that it puts on the global economy, the pressure that it puts on U.S. partners in the region, and the pressure it even puts on the U.S. itself. That is a strategic gain on Tehran's part. It would have to get quite a lot in return for Tehran to simply give it up and walk away. I don't think that's achievable in any way. What is achievable is some kind of agreement where Iran agrees to reopen it. It will, unfortunately, exert some form of control over the Strait of Hormuz, and that means that there are going to be instances in which the strait may be disrupted in the future.

29:20But that doesn't mean it's going to be permanently closed. It will be open. Iran may threaten to close it. But again, that would only be if there's reason for Iran to do it. Of course, it doesn't stand to gain from closing the strait down periodically. So, Dina, when it comes to concessions, ultimately, is anything about nuclear capabilities for Iran, is that all off the table at this point? No, I think Washington is really pushing for nuclear concessions to be a part of the MOU. These are discussions that both sides have had for many years now. Obviously, they've had to be updated for the war, for the highly enriched uranium that essentially everybody's lost somewhere in Iran.

30:04There are questions around Iran's ability to continue enriching. But, of course, there is scope for the two sides to meet in the middle. For something like enrichment, technically the U.S. could claim a win because Iran can't enrich right now. Now, enrichment has been suspended because of the war last June, where some of its nuclear facilities were affected. So there is a middle ground. It really is about the political will on both sides to get to that middle ground. As you know, Dina, here in the U.S., the concern going into another conflagration in the Middle East is that this would be a, you know, quote unquote, forever war.

30:40And the vice president in particular has been very adamant about this not being a forever war. But I'm wondering from your perch at Bloomberg Economics, I'm curious how you sort of see the timeline shaking out here for troops remaining in the region. And even if there's not active fighting going on, still assets deployed there. Well, so our base case is a little bit more grim. Our base case is actually that we will be in a situation of protracted war for the foreseeable future. What does that mean? That means that we're going to find ourselves in cycles of escalations and pauses. So that means the U.S.

31:23military presence will remain in the region. It will change and it's likely to lighten or it's likely to change a little bit in terms of what it looks like. But the U.S. will remain in the region. It also means that fighting is likely to occur again periodically for the foreseeable future. It means the disruption is likely to continue for the foreseeable future. And none of that is good news. And that's including if there is a deal, because ultimately, at the end of the day, neither side is willing to make the concessions needed for a lasting peace. So we're just going to keep being stuck in these cycles.

31:58Gosh, I have a million questions. One of the things I want to, first of all, is lasting peace in the region even possible? It is possible. It just requires leadership. It requires a lot of concessions. It requires face-to-face conversations, which at the moment, neither side is really willing to do for Iran. The cost of meeting directly with President Trump is too high domestically, because at the end of the day, this is the country that's bombing it. So its leadership can't be seen to engage directly with Trump. And I think actually a face-to-face meeting would buy everybody a little bit of time.

32:37It would buy everybody a little bit of goodwill, and it would really allow both sides to talk. This shuttle diplomacy that's going on right now with the Gulf Arab states is simply not enough for what's at stake here. So that's a long-winded way of basically saying, of course, you can get to a situation of lasting peace, of course. But the problem is the political will doesn't exist. What's happening right now, the way it's unfolding, is not going to lead to lasting peace. On both sides or more on one side? Both sides? No, I actually think there's a remarkable amount of mirror imaging between the U.S.

33:09and Iran. So definitely on both sides. So here in the U.S., I think a lot of the way that Americans see the fight or the conflict that's happening is through higher prices at the gas station. And there's certainly political cost to that, as Republicans and Democrats are finding just under six weeks away from the midterm elections. Does the political environment here, as we get to the midterms and post midterms, does that change your view of what could and could not happen in the region as a result of the balance of power potentially shifting in Washington? So I think the only thing that the midterm elections will do for the Iran war is potentially change the pace and the intensity of the war.

33:58I don't think it's going to fundamentally alter what U.S. objectives are, and it certainly isn't going to alter what Iran's objectives are, Iran's ability to survive, Iran's ability to deter future rounds of attack. None of that is going to be affected by the midterm elections. But it might result in changes in intensity, changes in the way the war is fought in the sense that we may find ourselves in a period of escalation. There's a lot of talk of President Trump post-election being unconstrained, potentially leading to serious escalation. There's also a lot of talk of Iran knowing that and potentially escalating before the midterm elections in order to increase the pressure on Trump.

34:41That's where I think the midterms play a role. Dina, your co-author of Triple Axis surrounds relations with Russia and China. I think this is so timely considering the situation we are in globally right now. is there ever a point in time where you think the U.S. and Iran can become closer? I'm just, this is a complicated relationship. I just, what is the axis going forward in five years, 10 years, or is it kind of the same as today? So from Tehran's perspective, the Iranian population is much more westward leaning than it is, you know, close to Russia or China. There's a lot of suspicions between Iranians and the Russians and the Chinese.

35:18But it's just that history hasn't enabled the US and Iran to become partners, to have a real relationship. And so Iran's had to rely very much on its eastward-facing relationships. It doesn't like it. It doesn't feel comfortable with it. But at the end of the day, when the rest of the world abandoned Iran, Russia and China stayed and Russia and China continued to deal with it. And today, a country like China, for example, isn't really pressuring Iran to end the war, despite the fact that it has many levers that it can use. So I think for the foreseeable future, that's going to be the situation that we find ourselves in.

35:53But of course, it's possible for the U.S. and Iran to have ties. It just requires, again, a great deal of leadership and tough decisions. So appreciate it. Whenever you're on this clock, whenever you want to come on, just come join us. We really appreciate your view on this situation and so much more. Dina Svendiari, she is Bloomberg Middle East GeoEconomics lead for our Bloomberg Economics team. Stay with us. More from Bloomberg Business Week Daily coming up after this.

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38:27With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. So just about 24 hours ago, we did have OpenAI CEO Sam Altman and Anthropics CEO Dario Amadei urging world leaders to work together on AI to address growing concerns that the technology poses existential risks to humanity.

39:09On that, in a recent edition of the CFO Briefing Newsletter, Mozilla, known for its Firefox web browser and Mozilla VPN, has set itself no lesser goal than to further the health of the internet. And we're going to talk about that and more AI, of course, with our next guest. Here to talk about that and more is Anna Chuck of the CFO Suite. We've got Eric Molheim, Mozilla CFO, came to the company and the job of Mozilla back in November of 2021. Also with us, the leader of our CFO coverage, Nina Tretman. She's Bloomberg News senior editor, editor of the CFO Briefing Newsletter. Subscribe to it if you haven't already at bloomberg.com slash CFO dash briefing.

39:45Erica, I do want to start with you and just get your view on the health of the internet right now. If we were to do some sort of grade of the health of the internet right now, including everything with AI, what grade would you give it? What grade would you give us? Well, I think I'd give it still a pretty strong grade. AI is really changing the way people find information and take action online. And that is going to change the economics of the web. But the web has always adapted over time. And what's important for companies, both software companies and companies that create content, is to figure out sustainable business models as the web changes.

40:25And in Firefox, we're thinking about sustainability in a number of ways. One is that we are creating a Firefox enterprise browser for businesses. You'll be hearing a lot more about that in the future. Second, for us, we're steadily growing our display advertising business. But we're doing that according to Mozilla principles, which is really about maintaining consumer privacy and not engaging in surveillance capitalism. And when it gets to search, search is going to change. But actually, we're still bullish on search economics. If anything, what we've seen so far is that people who engage in AI are actually using the additional context and information they get on that and engaging in more search behavior and powered by that additional context.

41:04So if we zoom out, the way we think about this is that the browser ends up continuing to be the key technology that people use to access the Internet. If you think about the browser, it's a very broad use of technologies that renders the web for people across a lot of different use cases, whether that's watching a soccer game, perhaps Rexham, or checking your bank account. AI, and particularly agentic AI, is going to be an increasingly important use case, and we're enabling Firefox to use that technology. But if anything, this is additive to everything else the browser enables. Those other use cases aren't going to go away.

41:38So choreographing all of that is really hard. It's what the browser is particularly good at. And the flexibility of the browser, particularly Firefox, remains its durable advantage going forward. I'm curious when you talk about principles. And companies often talk about principles, but then I always think about how do they balance it with the business story. And you guys have an interesting business structure between Mozilla Corporate and Mozilla Foundation. Can you just give us kind of the big picture of how that works? Yeah, well, really our secret superpower is that we are a for-profit company, but we're actually owned by a nonprofit and that's Mozilla.org.

42:14And Mozilla.org is a company, a nonprofit, that's been focused on maintaining the health of the internet for over 25 years. And so as the for-profit software arm underneath Mozilla.org, we have a really very interesting tension of balancing delivering against that mission and maintaining profit. And there's really a sense in which doing this way is a lot harder. For instance, as I've talked about, growing our advertising business is something that we have to do according to our privacy-preserving principles. So we can't grow it as fast or in exactly the same way as everybody else does. But this really ends up being our point of difference at Firefox.

42:49Because we're not focused on maximizing quarterly financial results and we don't have to answer specifically to the market or to an exit by a private equity firm or a venture capitalist, we can make decisions that are in the interest of our users. And this is how we build that trust that sustains us in the long run. So, this is building a browser that gives people privacy, transparency. It gives them control, particularly in the type of AI they choose to use in the model or the choosing to use it not at all, and investing in AI use cases that provide people utility and user control. And this trust is what we believe is our long-term financial asset that's going to build lasting loyalty and differentiation.

43:27Eric, one thing that we've been talking to CFOs lots about in recent days and weeks is this question, how do you balance the investment that is required for AI with the need to keep the lights on at your company, basically to pay for headcount, to pay for other investments? I'm wondering how you're balancing those two goals at the same time. Yeah, Nina, thanks. This has been really challenging this year. When I put together the budget with the company back at this time last year, we didn't anticipate that we'd be spending nearly as much on AI as we're doing right now. And we're obviously not alone in that problem.

44:03However, we've got a core principle that we think about as we implement AI inside the company. And that's AI is there to create more capability and ability to deliver by our people. And it's not really to make our people more expensive. So when we think about that, the way we think about this is really the standard type of budget problem that you have for any line item in the budget. We need to sort of keep our overall budget in place. And so what we focus on is putting control in the hands of our managers who are responsible for delivering. With AI specifically, we're providing them visibility on their usage of AI, the expense of that usage, and empowering them to make the right decisions within their own budget on how they want to allocate capital between AI, between labor, between any other package that they have in order to deliver upon the results that they have to deliver.

44:55And we found that AI has really increased the capability of our company in a number of ways. Famously, earlier this year, we partnered with Anthropic and Mythos and uncovered hundreds of security holes in Firefox. But what we were able to do with that information with our engineers is create a very disciplined pipeline to very quickly fill in all those security holes, harden the browser, and do that at a rate that was much faster than we would have been able to do without using AI. So this sort of human-in-the-loop use of AI is what we focus on. And we focus on really delivering our results in a way that is more efficient using AI.

45:36You got a new chief executive earlier this year. I'm wondering what is changing at the company? You've also made changes to diversify your revenue streams. Can you talk a little bit about what's changing now? Yeah, well, what's not changing is the mission. The mission that we've always had over the past 25 years is to keep the Internet healthy and to keep it shaped for people. That means that it remains accessible, open, and shaped by consumer choice. What I really like about our new executive team is that the pace of change has really increased. Over the course of the past year, we've really built up our product development muscle, and we've been able to iterate much faster and bring new features to market, such as Smart Window, which is our implementation of AI in the browser.

46:19The Firefox that you see today is really far different than it was a year ago. It's got more capabilities, but also it remains not tied to the business model of a larger ecosystem. And that's really what our users expect of us. They expect independence. And this core advantage is the trust that they have in us. And as a result, we are also committed to maintaining that trust in the long run. Simply spoken, we want Firefox to be the best browser for the people who want to use AI and the best browser for those people who don't. It doesn't, Eric, it doesn't seem like you're super concerned. I don't want to bring the conversation outside of Firefox and Mozilla just a little bit.

46:58It doesn't seem like you're super concerned about an AI apocalypse. I'm not really concerned about an AI apocalypse because AI is simply another software. It's a highly capable software. I think the real risk that we have with AI is the concentration of power in a very small handful of companies. What that would lead to is the loss of consumer choice. It would lead to the loss of multiple viewpoints. Has that ship sailed? I don't think it's entirely sailed. We're focused, particularly at the Mozilla.org level. we're focused on there being a multiplicity of models out there. What we're finding is that the non-frontier models are gaining a lot more capability much quicker than anybody thought they were going to.

47:42And frankly, a lot of the budget pressures that we're seeing on people like me are the types of pressures that are going to turn us to looking at alternatives that are highly capable. And in a lot of ways, it's the harness that you put on top of that model, which really defines how well it operates, not the model itself. Yeah, I was actually wondering if you could talk a little about the government's frameworks that you have at that the company Deloitte in a recent report found that many companies even though they're implementing AI don't necessarily have adjusted their the governance frameworks to accommodate for the fast changes that this technology brings.

48:16How is that working at Mozilla? Well for us as I talked about previously it's really about providing visibility at the level of the people who have the context to deliver on their objectives in the organization. To be honest, we all have the same objectives. Our objectives are to be able to sustainably deliver the mission of Mozilla over the long period. And that means that all of our managers have an incentive to meet their budgets. And with the visibility, they're capable of making the right choices for the organization. Hey, I just want to go one last question when you go back to AI. and I listened to you and your policy, and you guys are willing to slow things down to stay within the values that matter to you as a company.

48:59When you saw Sam Altman and Dario Amadei calling for things, oversight, global oversight, slowing things down, do you take them at face value? I think that there's a mixture of real concern that they have there. And I also think that there's a strong interest by the large too-big-to-fail AI players to keep things a little bit more set so that they can maintain their advantage. What we'd like to see is a world in which there are hundreds of AIs. We think open AI is a very important partner for us. Anthropics is a very important partner. But people should also have the freedom to use open source models.

49:37They should have the freedom to use local models. And that's what's going to keep the internet rich. This has certainly been so insightful. I hope you will come back and join Nina, Tim, and me again. We'd love to continue this conversation. Eric, thank you. Well, I really appreciate the opportunity to be on your show. And I encourage people to, if they're interested in an open, capable browser that gives them choice, check out Firefox. All right. Well said. Eric Malheim, thank you so much. Mozilla CFO. And of course, our thanks always to our Nina Tretman, Bloomberg News Senior Editor. She's editor of the CFO Briefing Newsletter.

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