As Canada Turns From the US, Is China the Alternative?

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1:44Bloomberg Audio Studios. Podcasts. Radio. News. Trump is such a unique individual that I think a lot of countries now are just like, OK, we've got, what, two more years. The clock is ticking. let's just try and get past this and then we'll see if we can get into a more normal relationship.

2:12I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is Trumponomics, the podcast that looks at pretty much everything in the economic world of Donald Trump. Now, you can debate how much President Trump's policies have really changed the world. But one thing he does seem to have transformed is the relative global popularity of China. A recent Pew Research survey showed China was now viewed more favourably than the US in 20 leading economies, a massive swing from just three years ago when the US led China by around a two to one margin. Significantly, more Canadians now consider Xi Jinping a reliable partner than the US president, and she leads Trump by double digits in many European countries as well.

2:57If you add those poll ratings to the steady stream of headlines about China's increasingly sophisticated AI models and increasingly ubiquitous electric cars and other Chinese products, you'd think China was winning the race to be the most popular and successful superpower. But the world falling out of love with the US, does that necessarily mean countries are rushing into the arms of China? In countries outside China and the US, there doesn't seem to be much enthusiasm for a world dominated by either of them. But for the so-called middle powers, striking out on their own, as Mark Carney urged them to do in Davos at the start of the year, well, that's proving to be tricky as well.

3:38I wanted to talk about all of that today. How much in practice can China benefit from the Trump slump in global opinions of the US? And six or seven months on, how much progress, if any, have the disgruntled middle made in seeking to extricate themselves from the US? Well, joining us from Hong Kong is Dan Tang-Kate. You've heard from him before. He's the executive editor for economics and government in Asia. Dan, thank you very much. And you're joining us not only in the evening, which is often the case if you're in Asia, but on your holiday. So I appreciate it. Great to be here. He says through gritted teeth.

4:14It's your own fault because you've written an essay for Bloomberg Weekend. which touches on a lot of this and reminded me that it was a good topic I wanted to come back to. And in Washington, D.C., another repeat guest, Chris Kennedy. Chris is our lead for economic statecraft at Bloomberg Economics in the GeoEconomics Group. And he most recently served on the policy planning staff at the U.S. Department of State and as director for international economics on the U.S. National Security Council under the Biden and Trump administrations. Chris, thank you very much for joining. Thanks for having me back, Stephanie.

4:51So, Dan, some of those opinion polls I had noticed in the essay you wrote, it is very striking, and we've heard talk about it before. But you also suggest in that piece that we should be looking under the hood because, you know, it's not all good news for China. Yeah, that's right. I think if you look at the numbers, they're very striking in the sense of, wow, China is suddenly more popular than the U.S. and Xi Jinping is more trusted than the U.S. president, which is stunning on its face. But anyone who's lived through the past two years or so would know that it's not that surprising that there would be sort of a backlash in these countries.

5:30Trump has done nearly everything you could do to upset everyone. Liberation Day tariffs, threatening Greenland, name your country. There's been some sort of grievance that Trump has taken aim of. And India in particular was one of them that got really smacked around. Not only did they get hit with H-1B restrictions, which affected Indians quite a bit. On the visas and the U.S. visas. Exactly. And got hit with much higher tariffs for buying Russian oil. But they also had kind of this near daily humiliation of Trump saying that And he brokered this ceasefire with Pakistan, which for India and Prime Minister Narendra Modi in particular is just completely embarrassing.

6:16It suggests that he would be giving into foreign pressure on their biggest enemy. And so this was politically toxic for Modi and for India. And they didn't really know what to say. So they basically just had this strategic silence. For me, it was quite interesting in the survey results to find that India was third behind Japan and Israel, both staunch American allies and security partners. So still actually favoring the U.S. Yes, favoring the U.S. over China. And it had narrowed, let's be clear. But I also took a trip to Delhi a couple of weeks ago and was just struck by the kind of bigger view that the leaders had there, kind of a multi-decade view where they were viewing this moment more as an aberration than something permanent.

7:07And they were taking just a bigger look at the cold, hard strategic calculus that they face. And that is that they sit on China's doorstep. And if you look at the countries where the U.S. in particular is still more favorable than China, a lot of those countries do sit right on China's doorstep. They have to deal with China all the time. So geography plays a big role there. And it just got me thinking, OK, to what extent can China take advantage of this moment right now where it has this popularity? And can it actually translate that into serious strategic gains? And we've discussed this a little bit in the past, the extent to which China was willing or able to step into any of the roles, even just symbolically, that the US has played.

7:55The one that Xi Jinping, I think, has wanted to play up is as a supporter of the global rule-based order. but even there it's struggling with a trust deficit because at the same time as it's sort of holding up the global world order it's also got this enormous export surplus and has traditionally not been so keen on observing the sovereignty of its neighboring countries. I think that is right. I think at the end of the day countries would deal with China more if they knew what was going on there And it's very difficult to understand what's happening there. So the U.S., for all its faults, you can see essentially everything happening in real time.

8:40Trump is speaking to reporters a couple times a day. He's sending every thought that enters into his mind and into his social. So we always know what he's thinking, even if it's kind of state media, state directed. Imagine Xinhua was giving Xi Jinping's thoughts on things 20 times a day. I mean, there's just no trust, I think, in where China is going to go strategically. And that's because China, ultimately, at the end of the day, the thing that matters there is the longevity of the Communist Party and keeping Xi Jinping and the party in power. And so do you trust that your interests on some level aren't going to be thrown under the bus if that conflicts with the ultimate aim of China?

9:29And I think that's what has people worried. Obviously, there's a lack of transparency in the judicial system, property rights. Everything answers to the Communist Party. Someone in India, an official, was saying, you know, you can do business with China, but they'll take you to the cleaners and wipe you out, and you won't even know what happened to you. The U.S. could be messy right now. They could be doing lots of things. But you do have peaceful transfers of power regularly, despite January 6th. and you do have courts that still make independent decisions and commercial decisions. These things are tested for sure, but when you compare them to China, it's a completely different universe.

10:11Yeah, your point about just not knowing what's going on is really well made. I mean, Chris, you were sitting inside the State Department and the NSC, and I suspect if you had a list of lines that you don't cross in dealing with allies, ways that you don't want to undermine the US position in various ways, Trump has ploughed through those over the last year and a half and as Dan pointed out, he's kind of gone out of his way to undermine the sort of day-to-day relations with some of our biggest allies. But if you were still there, would you still be thinking, as I suspect Donald Trump has in the back of his mind, And well, ultimately, they've still got nowhere else to go.

10:50For all the reasons Dan said, it's not like we're really going to see everyone run into the arms of China. I think yes, as a simple answer to that question. But obviously, it's not purely binary. We have seen Europe and middle powers and our Indo-Pacific allies start to diversify their relationships, both their strategic defense relationships and then also their trade relationships. This is being driven, of course, by U.S. policy, but also by the collapse of the Chinese domestic market, which has led to this flood of exports. So there's these multiple trends happening that are driving the diversification.

11:30But I think broadly, yes, I'd be very surprised if we saw a long-term structural shift away from the U.S. And that's for a couple reasons. We are now just over two years away from the end of Donald Trump's second term. The chaos that he has injected into the global trading system in some ways has prevented broad-based diversification. The world has largely been trying to catch up to Trump's policy over the past two years. And now we might see some stability in tariff rates, but in another two years, Trump is going to be gone. And I think economies are trying to prepare for what that looks like.

12:09if a Democrat wins, are we going to see tariffs remain in place? If a Vance or a Rubio replaces Trump, what does that mean? But what Europe knows is that Russia and Putin are likely to still be there. And what the rest of the world knows is that China is likely to still be there. And so the question is, how much are you going to invest in diversifying away from the U.S. when the likelihood is that you would have a more mainstream president? Certainly not a president who's going to threaten to take Greenland, right? It's hard to imagine anybody replacing Trump with that sort of an approach to international diplomacy.

12:47I also would be very surprised if we saw the next president directly interfering in elections of our allies, for instance, by trying to bolster candidates of his or her political persuasion. So I do think there's a number of structural, deeper factors that are gonna prevent a real break from the US. Yes, we'll see diversification. Yes, we'll see Europe invest more in defense. We'll see Indo-Pacific allies start working closely together. But in the end, I think we're going to be in a place in 2029 where the U.S. would be welcomed back into the mix as an important leader of this order that is attempting to deal with this really serious challenge of China and their overproduction and exports to the world, and then, of course, in Europe, Russia.

13:33I think we should try and go into a few of those different areas, because I think there's probably a slightly different story to tell in each area. That's a very good sort of big picture from you, Chris, and you've highlighted the challenge. In a sense, we're moving on now, because we're not talking so much about whether or not everyone's just rushing to China. And it's more this, what I mentioned, the sort of Mark Carney call for middle powers to be realistic about the way the world was going and at least not giving the US the benefit of the doubt and expecting a bit of unpredictability and unreliability from the US.

14:07We have a recognition of what's happening and a determination to act accordingly. We understand that this rupture calls for more than adaptation. It calls for honesty about the world as it is. We know the old order is not coming back. We shouldn't mourn it. Nostalgia is not a strategy. But we believe that from the fracture, we can build something bigger, better, stronger, more just. This is the task of the middle powers. So think about defence. Chris, certainly there's been a lot of talk in Europe. And we saw recently in the Middle East as well, we had sort of the new so-called Mika Pact between the Saudis, Pakistan and Turkey.

14:50How much movement have we seen on that so far this year? not necessarily in response to Mark Carney, but in that kind of vein of seeking alternatives and diversification? Well, I think we've certainly seen Europe speak a lot about this. There are real questions about their ability to fund the sort of revitalization of the European defense industry that they seek to achieve. But in the end, it's going to be a very long time before Europe in particular can replace the sort of strategic value that the U.S. provides to the continent. Like it or not, NATO and the U.S. are very intertwined, and that's going to be the case for the foreseeable future.

15:33I would say also in the Indo-Pacific, it's going to be very challenging to fully move away from the U.S. Even if the U.S. pulls back, we're talking a generational challenge to build up the capacity to play that role. The U.S. is by far the world's largest military and the most potent military force still, despite what we've seen in Iran. I think that both parties in the U.S. would agree that it's good that Europe is investing more in its own defense systems and taking some more responsibility. I think that's been driven in part by Trump's first term and then of course Russia's invasion of Ukraine and now it's being accelerated but I don't think we're going to see a major structural shift.

16:18The other thing we saw is the UK and Canada also intensifying their defence conversations though again I'm not entirely sure what that's going to mean in practice. I mean Dan how would you see on the trade front you spent all this time in India are they sort of thinking we saw the big trade pact with the EU? Is that an area where they're moving away from the US? Yeah, I think India's strategy is to diversify in a lot of areas. But a lot of it is sort of focused on China. And trade is one example. India never really did trade deals. They famously stayed out of RCEP. They were very difficult to negotiate with.

16:58They were always the last country blocking a WTO deal, I seem to remember, from those endless WTO meetings that ended in nothing. Yes. So the strategy in India now is essentially to cut trade deals with every country in the world except for China. So then you can like be WTO compliant and keep higher rates on China than everybody else. So there is diversification there, but ultimately it's aimed at trying to protect the economy from China. Now, India is in a tough spot because they need certain technology from China. China doesn't want to give it to them because they'll just be helping India become a competitor to them.

17:41And we've already seen Apple shifting iPhone production to India. India wants to move up the value scale. They're trying to build fabs for semiconductor production. So that's very much in the works. They see their customers as in the U.S., essentially in Europe. So India wants to be a part of this, I guess you could call it a non-Chinese supply chain, where you're manufacturing stuff for clients in the U.S. and Europe. So they need American tech, they need American investment. And that's why they're looking at the bigger picture, too. If Modi's going to hit his development goals for 2047, you really need capital coming in from the U.S., from Europe.

18:26They don't want a bunch of Chinese capital coming in the country or other places. So that is their economic imperative. They really see that more aligned with the West than China. And yes, they are legacy partners with Russia, but Russia's economy isn't terribly dynamic at the moment. And so there might be some joint defense deal productions where India can get some defense technology and start to boost its own self-sufficiency in producing weapons. But beyond that, if you look at the industries of the future, I think India long term still sees its future much more connected with the US and Europe.

19:03Of course, it's not clear that Donald Trump is really on board with India being an alternative to China in terms of the supply chain. Yeah, that's something. I think India right now is looking to survive two more years of Trump. Obviously, anything can happen in American politics. But Trump is such a unique individual that I think a lot of countries now are just like, OK, we've got, what, two more years. The clock is ticking. Let's just try and get past this, and then we'll see if we can get into a more normal relationship.

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22:55One area, and we talk about it a lot on this show, where we arguably countries don't have two years just to count down the clock is AI, because things seem to be moving more at a kind of hourly, daily pace when it comes to that, including potentially sort of hardware and software choices that countries are making and in their defense sector and elsewhere that could affect their ability to keep up in a AI powered world for many years to come. Chris, when it comes to this choice, I suspect lots of countries would prefer to choose the US AI track. But how much does this distrust of the US and actually the US trying to limit access to some of this technology get in the way of that?

23:42I think you made the distinction in your question between sort of the hardware and the software. And I think certainly the U.S. is in a strong position to exert leverage over countries that are looking to build out their own data centers using advanced chips. We've seen this happen during Trump's administration, but also in the Biden administration. On the software side, this is where it's getting a little bit more complicated. Chinese companies have made decisions to offer up these open-weight models to the world. And these are effective models. They allow companies, enterprises, governments to deploy their AI solutions in a way that is perhaps more cost-effective and doesn't necessarily rely on the most advanced chips from the US in every case.

24:28I would be surprised to see a flood of countries choosing to ban or otherwise refuse to use Chinese open-weight models in the next couple of years. Of course, that could change. I think, frankly, the most likely way for the U.S. to compete in this realm is for U.S. companies to start offering some of these open-weight models. And we're seeing some discussion. Of course, Mark Zuckerberg has talked about this. Varying motivations have been offered for that. But in any case, there is a big distinction. I think we're going to see deployment of these models from both China and the U.S. over time. The U.S.

25:08on the deployment side also does have a significant advantage with its cloud services. As much as European countries have discussed the need to move away from U.S. software solutions and cloud services, the reality is there isn't really that capacity in Europe and there isn't going to be in the next couple of years. And the U.S. is still going to be a major player there. And I just wanted to touch on another thing. We were talking about India. The U.S. is still India's largest export market. Exports to the U.S. grew by 20 % in 2025, despite the tariff chaos. Now, a lot of that was front-loaded in the beginning of the year.

25:40If you look at the G20, the U.S. is either the top or second-highest export market for 14 of these economies. And this is going to continue. Of course, the European Union is a large market and an important market. But China is not consuming. They're not importing like they were at one point. And the reality is these economies, many, especially the middle powers, are really keen to keep access to the U.S. as a market. So I think that that is perhaps a big structural driver, I think, underlying what we're discussing here. Touching on India on that AI question, Dan, because I remember certainly a lot of our reporters have been picking up the Indians' concern at sort of the choice they might be forced to make.

26:20And as you mentioned, the sort of reluctance they have, they don't want to be caught wedded to Chinese tech when actually most of their sort of economic development model is quite tied to the US. So when you were there the other day, how are they thinking about this challenge that Chris outlines about the AI adoption? I think people are still trying to figure out exactly what the risk of the open weight models are and how much China can weaponize that in the future. Some people are not that concerned about it. They're open for everyone to see. And if China was going to put a backdoor in it, it would be exposed.