American AI Companies Fend Off Chinese Copy Cats & Gen Z Loves Love Island

0:00Alexandra Garcia:Many employees can't afford a hefty medical bill that pops up out of the blue, but it happens. And employees who are financially stressed are, understandably, more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, Aflac plans help with out-of-pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more at aflac.com slash morningbrewdaily. That's aflac.com slash morningbrewdaily. good morning brew daily show i'm neil freiman and i'm toby howell today america is going through

0:34Robbie A. McCarthy:a middle age crisis then why gen z is obsessed with this reality show it's wednesday july 8th let's ride

0:52Alexandra Garcia:good morning the most livable city in the world has been crowned and hans christian anderson couldn't write a better story it's copenhagen denmark copenhagen beat out vienna austria for the second straight year in the economist intelligence unit's annual global livability index the ranking examines 173 cities across the world along criteria like stability a.k.a. crime, healthcare, culture, environment, education, and infrastructure. So essentially how pleasant it is to live there. Copenhagen and Vienna are followed in the top 10 by Melbourne, Sydney, Zurich, Geneva, Osaka, Adelaide, Vancouver, and Tokyo.

1:28Alexandra Garcia:Toby, would you live in Copenhagen? Better hours for the pot at least. Twist my arm.

1:33Robbie A. McCarthy:Fine, I'll move to Copenhagen. First thing I did when I saw this list is check out where New York fell. New York is improving, but not by much. It climbed three spots to number 66, driven by the Knicks win. No, just kidding. The improvement was largely driven by better stability scores thanks to falling crime rates and lower perceived risks of terrorist attacks. So we still have a ways to go. In terms of the highest ranked cities in the U.S., Honolulu takes the cake at number 25, although it slipped two places. Vancouver was the only North American city to make the global top 10 at number 9. Here's what I noticed.

2:10Robbie A. McCarthy:Of the top 10, only Switzerland advanced past the round of 16 in the World Cup. So you either have livable cities in your country or you're good at football. Choose your path, I guess.

2:21Alexandra Garcia:And now a word from our sponsor, Ultra Running. Toby, where do you like to run?

2:25Robbie A. McCarthy:I love running on the beach. I go straight into the water to see how far I can make it on old man Poseidon's treadmill.

2:31Alexandra Garcia:Okay, well, for those of us who like running on the ground, like the road, sidewalk, trail, or gym, Ultra has a shoe that can fit your foot and your lifestyle.

2:39Robbie A. McCarthy:Most running shoes are narrow at the toe, but Ultra has more room for your toes so they can spread out and your feet can stay in a natural position. The Ultra Fit is designed to give you room for your toes for comfort, balance, and strength.

2:52Alexandra Garcia:Use promo code MORNINGBREW10 for 10 % off your first pair of Ultra Running shoes at ultrarunning.com slash morningbrew. That's A-L-T-R-A running.com slash morningbrew.

3:04Robbie A. McCarthy:AI companies are copying each other's homework, and it's turning into a major geopolitical issue. Last month, Anthropic told Congress that the Chinese e-commerce giant Alibaba was copying its models via a process known as distillation. Then this week, Alibaba said it will ban its employees from using Anthropic's AI tools, the latest chapter in an escalating feud between the U.S. and China for AI supremacy. Alibaba, Anthropic alleged, created tens of thousands of unauthorized accounts to access Claude, ask it a bunch of questions, then use the outputs to train its own models. This process of distillation is very much like how I made it through high school.

3:41Robbie A. McCarthy:One model, Neil GPT, for instance, is the know-it-all smarty pants. The other AI model, Toby GPT, is the freeloader. Instead of reading every textbook yourself, the freeloader makes the smarty pants answer every practice exam and then studies only those answers. It's not a new technique, nor is it inherently illegal. Distillation was invented by Google researchers back in the 2010s to create smaller, cheaper, and faster AI models. Elon Musk has admitted, generally AI companies distill other AI companies during a testimony in court. But when competitors are distilling proprietary models like Claude or Chachipiti, that's where things get murky.

4:21Robbie A. McCarthy:China in particular is apparently distilling at an enormous industrial scale to close the gap with the U.S. Anthropic claims Chinese companies generated over 16 million cloud conversations using roughly 24 ,000 accounts to accelerate their own frontier models. Neil, this is the next phase of the AI race. It's not just about who has the best models, but about who can cover their homework from prying eyes.

4:45Alexandra Garcia:The subtext here, which is crucially important, is that China is catching up. Experts say that China is trailing the United States in AI prowess and AI development by just about six months now. Last month, we heard that this Chinese startup named ZAI released a model called GLM 5.2. It's about as powerful as the most powerful American models in terms of some cybersecurity tasks. It can go toe to toe with mythos. And remember, Anthropic held back mythos from public release because it was too powerful and too dangerous so china is catching up in these american ai companies that have poured so much money into ai development are basically like a leader in the tour de france and saying that these guys are just drifting off of me i'm in the lead but they're basically all i'm taking away all the resistance uh from them and they are my competitor and i don't want them drifting off me drifting drafting drafting oh my god i mean you could drift too if you want i'm thinking that i'm mixing nascar and tour de france and mario kart right

5:45Robbie A. McCarthy:there uh anthropic has been trying to pull out all these stops to guard their you know closely developed uh models here in march they dropped an update into cloud code that checked whether a user's computer was set to chinese time zones they also were checking whether a computer was using web domains associated with chinese ai companies this was a little bit controversial because they basically installed spying software to try and prevent Chinese companies from distilling their models. Eventually it was discovered. They said it was simply an experiment that they sense rolled back, but it just shows that they are willing to kind of compromise some of the privacy of their users in order to try to prevent China from stealing their homework.

6:26Robbie A. McCarthy:The subtext here also is that distilling is not necessarily the only thing that makes models good. A lot of skeptics are saying it's really not that big a deal. If you're trying to produce frontier AI, you're not going to get there specifically through distillation alone. It does help polish existing models. It can make cheaper models more easily, but it's not going to get you to the very top of the leaderboard. So maybe people are over-indexing on trying to prevent distillation in the grand scheme of the AI risk.

6:55Alexandra Garcia:But maybe right now you don't need the most expensive or the most powerful model because we've had American CEOs like Coinbase CEO Brian Armstrong and Airbnb CEO Brian Chesky come out and say, yeah, we're using Chinese AI models because they're a lot cheaper and we don't have infinite money to spend on AI. Just look at this price comparison. DeepSeek, remember, this is a Chinese company that kind of melted down markets 18 months ago. Their flagship AI model cost about 87 cents per million output tokens versus about$30 for OpenAI and$25 for Anthropic. And it seems like Anthropic might even raise prices further.

7:32Alexandra Garcia:So when you look at that cost comparison, even if you're an American CEO and you're a little wary of using a Chinese model, I mean, the choice is pretty clear. And when it comes to open source, free AI, China dominates the U.S.

7:44Robbie A. McCarthy:If there is any question, though, whether distillation is happening, which is what, you know, this entire kerfuffle was about, Anthropic went to Congress and saying, look it, they are copying us. There is great evidence for that. That comes from Chinese researchers. A February 2025 paper from researchers at Peking University found that Alibaba's Quinn, which is their model, frequently behaved as though it was Claude. During one testing sequence, Quinn identified itself as Claude roughly one third of the time. So if that isn't a red flag, then I don't know what is.

8:16Alexandra Garcia:I mean, we all want to be as smart as Claude. Moving on, all the Europeans coming to the U.S. for the World Cup have reminded us that, yes, everything is bigger here. The stores, the food portions, the cars. But those audacious Italians think they can get us hooked on something a lot smaller, a tiny electric vehicle called the Topolino. Yesterday, global auto giant Stellantis said that orders were now open in the US for its Fiat Topolino electric vehicle, starting at just under$15 ,000. This truly is a car for ants. It measures roughly 100 inches long, which is slightly longer than a queen bed, about as long as a three-seater sofa, and probably smaller than the TVs in some of your basements.

8:54Alexandra Garcia:and it does not go fast, maxing out at 19 miles per hour. However, Fiat is offering a conversion kit that makes the Topolino street legal for some roads, boosting its top speed to the stomach churning, 25 miles per hour. Like speed, variety is also limited. The EV arrives in just two models, one a hard top version with doors, another a soft top convertible type that replaces the doors with a rope. As for the color, you only have one option, Verde Vita Mint, which is a soft retro mint green. Since its European introduction in 2023, the Topolino has been turning heads much in the same way you'd greet a cute dog in the street.

9:30Alexandra Garcia:But you have to wonder whether it's barking up the wrong tree here in the U.S., where buyers have opted for larger trucks and SUVs and historically shunned anything that looks like it would get knocked out in a fight with those bigger cars.

9:40Robbie A. McCarthy:So I actually like this from Fiat. Their CEO, Olivier Francois, which, by the way, is a great name for a Fiat CEO, said it's not trying to compete with SUVs. we don't do big cars, we do small, which is one great self-awareness, but I do think there's skating where the puck is going to a certain extent because we have seen a shift towards much cheaper cars, smaller cars here in the US. Slate Auto plans to roll out a$25 ,000 electric pickup truck later this year. Ford is trying to get their small electric pickup truck under$30 ,000 next year. So clearly there's been a concerted effort to meet consumers where they're at, give them cheaper priced options.

10:20Robbie A. McCarthy:This is very cheap, but also extremely small. So I think that they know what their identity is, are leaning into it. And they're saying that clearly there's demand for this price point. Let's give it to Americans.

10:31Alexandra Garcia:There's demand for this price point. Yeah, sure. Everyone wants a car with$15 ,000, but do we want one that's a hundred inches long? I mean, historically, no in the United States. So Stellantis is the parent company of Fiat. It's also the parent company of Chrysler, Dodge, Jeep, and Ram. Well, Fiat represented way less than 1 % of Stellantis' total sales in the U.S. It's great in other countries. It's huge in Brazil. In Brazil, Fiat accounted for one in four cars. But in the U.S., I mean, we've had this smart car. Fiat was not in the market for years. It just doesn't seem like Americans may be willing to buy this.

11:09Alexandra Garcia:But this is a very, we should say, this is a very specialized use case, the max speed on this is 25 miles per hour. This is not going on any highways. This is for hospitality companies. This is for resorts. This is for gated communities. So if people are turning more toward golf carts, they're really competing with golf carts and not competing with actual cars.

11:27Robbie A. McCarthy:Yeah. Car driver described it as more like the Birkin bag of golf carts than any sort of useful commuter. So I don't even know if that's a positive or a negative right there. One thing again, though, that I do think that they are reading the regulatory environment correctly is that Donald Trump has been publicly praising Japanese K cars, which with a meeting with Stellantis' CEO, he called them really cute and questioned why similar vehicles weren't common in America. And Fiat said, we were planning to roll out the Topolino before Trump made those comments. But it does show that maybe there's going to be a softening of some regulations around these teeny tiny cars because K cars are extremely popular in different parts of the world.

12:05Robbie A. McCarthy:there's some talk that they will become street legal in the U.S. sometime soon. I think that Topolino is riding that similar wave.

12:12Alexandra Garcia:Fun fact about Topolino, it is the Italian name for Mickey Mouse. It means Little Mouse. It's actually the Italian name for Mickey Mouse too. I guess it works both ways. It is.

12:23Robbie A. McCarthy:It's Little Mouse. I promise you look it up. All right. Let's move on. The 45 to 64 age bracket is a load-bearing one in our society. They pay taxes, run businesses, manage governments, and care for both their children and the elderly. And yet, America is running light on middle-aged people. Axios notes that the 45 to 64 population has declined from 84 million to 81.3 million between April 2020 and July 2025, a 3.2 % drop. During that same time period, the population of Americans over 65 grew by 16%. This is not an unexpected development. Baby boomers are a very large generation, and as they age into retirement, they are being replaced by the comparatively smaller Gen X population.

13:10Robbie A. McCarthy:But decline comes with economic and social consequences. You have fewer peak earners paying taxes, exacerbated by more retirees drawing on Social Security and Medicare. There's also a smaller labor pool for crucial manager and executive roles. So even though America's population is still inching up, having proportionally fewer people in this exact stage of life creates outsized ripples. Neil, we need Gen X.

13:37Alexandra Garcia:Do we? They are considered the forgotten generation. They've never given us a president. They've basically only given us Pearl Jam. But no, they are very important, especially in the corporate world. They are the veteran leaders with institutional know-how. About half of Fortune 500 CEOs are in Gen X. So they occupy a really important position in the corporate landscape for training younger workers and also as far as caregivers are concerned as well, for they are often parents and they're also caring for their elderly parents as well.

14:07Robbie A. McCarthy:But as we saw kind of this statistic come out, there is another insight that shows that maybe this is not the worst thing for the economy because a new paper from the Nobel Prize winning economist Darren Acemoglu argues almost the opposite that you don't need, you know, a younger population. Their conclusion, lower birth rates have made economies more productive because labor scarcity forces businesses to innovate. So basically what they are saying is that as populations get older and as they become smaller, actually GDP per worker rises as the result of having less workers overall. It's basically constraints breed innovation.

14:44Robbie A. McCarthy:So when you have fewer workers, you're going to have to innovate more. And so their findings were an older and smaller population is actually okay, which is not necessarily what a lot of demographers have been saying.

14:54Alexandra Garcia:No, that is completely a narrative violation. We've heard that gutting of the older population, shrinking population means gutting of the tax base, fewer people to pay for social security and the safety net for older folks. And it just kind of drains the resources of a country. So these are some heavy hitter economists, awesome. Mooglu, David Altered, like these guys are from MIT and people pay attention to what they say. So when they say that actually a shrinking population is not so bad, it actually raises the wealth of everybody who is still left, then, you know, you're going to pay attention.

15:26Alexandra Garcia:However, this is certainly not the last word on it. And there is certainly a real threat and risk to the fact that we're not having, America is going through a literal middle-aged crisis by having a bunch of people in middle age just disappear. It's not really disappear. It's age up into a higher age bracket.

15:41Robbie A. McCarthy:All right, we're going to take a quick break and come back with the story about Love Island right after this.

15:48Alexandra Garcia:Hey, Toby, how's your duck impression?

15:50Robbie A. McCarthy:It's not all it quacked up to be.