Dalio's Warning, AI Arms Race, China Powers Ahead, NYC Tax Standoff 

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28:30This is a story about taking your eye off the ball. Since President Trump came to office the first time he's been focused on the economic and national security risks posed by one country in particular. Did you say China? China? China! We were losing to China. We want to beat China. We're leading China. In his second term, President Trump has focused on AI as a key area of competition between the two countries, and specifically the chips needed to drive all those large language models. China and other countries are racing to catch up to America having to do with AI, and we're not going to let them do it.

29:10We have the great chips, we have the great everything, and we're going to be fighting them in a very friendly fashion. But while the U.S. is doing what it can to protect its lead in the computer race, there's another contest that it may be losing. The battle to make sure we have the power we need to drive all that AI we're developing. It's fascinating because when you look at AI, there's a huge energy need for the data centers. We all know Hank Paulson from his time running Goldman Sachs, and then leading us through the great financial crisis as Treasury Secretary. But he's also devoted much of his career to climate issues and helped lead Goldman Sachs to China over 30 years ago.

29:55We have one big advantage on China, in the sense that we have, we're energy independent, right? And they aren't. But we have a shortage of electricity in this country. The demand is much greater than the supply, and it's growing. And so we have a shortage of electricity to power data centers. China, on the other hand, they're investing massively in coal and a lot of things I wouldn't like them to be investing in, but they are investing big time in renewables, solar and wind. They have more renewables than Europe, the UK, the US combined. They're going to have half their energy from renewables.

30:38So they've got plenty of electricity. Meanwhile, in our country, utilities can't meet the demand. Electricity prices are spiking up. So ratepayers are putting up their hands and say, no more. At the same time, we need the electricity. And so the interesting thing is, if you look at the U.S., all of our electricity, essentially new electricity the last couple of years has come from solar and wind. At the same time, the administration is restraining it. So again, I would say that we are ahead of China when it comes to AI. They're investing massively. But I got to tell you, the biggest potential drag we have is not having enough electricity to power our data centers.

31:30Are we disadvantaging ourselves? I think we are. Former U.S. Ambassador to China Nick Burns saw the unprecedented scale of China's energy investment firsthand. I used to travel a lot by train in China because you can see a lot more of the country. You can talk to people. The degree to which China is building transmission lines all across the country, and I visited 26 of the provinces, even out to the west, it's staggering. The degree to which they're now controlling the global supply chain in electric vehicles, in lithium batteries, in solar panels, in wind power, they are the world leaders in this.

32:08And I think that the United States should be making a similar effort. You know, maybe it's not as cost effective now, but we have to think out to the 2030s and 2040s. And I do think as we consider this big challenge of how do we compete with China and yet not get into a war with China, we have to start planning more long term as they are doing. The numbers bear out what Hank Paulson and Nick Burns have seen on the ground in China. Since 2021, in just five short years, it has added more power capacity across all energy technologies than the United States has built in its entire history. And that gap is only growing.

32:50Over the next five years, China plans to add more than 3.4 terawatts of energy generation capacity, nearly six times as much as the U.S. They've been developing their electric grid at a rate that is extraordinary. Elizabeth Economy, a China policy expert and senior fellow at the Hoover Institution, says there will be a high cost to falling farther behind. China has made a big bet on renewables and clean energy more broadly. This past year, for the very first time, it has more power generation capacity in clean energy than it does in fossil fuel energy. They're not the only ones. Europeans are following suit.

33:30But we clearly are moving in the opposite direction, sort of all in on fossil fuels. I think it's important to understand that the bet from the Chinese side is not necessarily just about the health of the Chinese people or the Chinese environment. This is a real economic play for them. You know, they are cognizant of the fact that by 2035, the clean energy market is estimated to be globally as big as$7 trillion. And they want to command that market. So they have spent a lot of time over the past several years investing very heavily in renewables. You know, last year, a trillion dollars in renewable investments.

34:05And as a result, they've seen their exports of EVs skyrocket. 80 % increase in 2025, 40 % for battery exports, 20 % for solar panels. This is a real moneymaker. So I think for the Chinese, as they look out, clean energy is green, right? It's green for the environment and, you know, it's green for money. You make a really interesting point that this has been going on for several years. President Xi did not just wake up yesterday and say, let's have a lot of renewables for AI. It started before really there was the big push for AI. How much of this is pure commerce rather than development of AI and competition in AI?

34:41I mean, on the energy side of it, I think AI is very late to the game. I mean, the Chinese have been beginning with renewables, beginning in the late 1980s, early 1990s, they were already inviting Western firms in for wind turbines and solar panels and saying, sure, we'll give you access to the Chinese market. Now you just give us some of your advanced technology or set up an R &D center, or sometimes they might just illegally appropriate the technology. But, you know, one five-year plan after another, renewables have been part of the Chinese plan. And you're right, exactly. Xi Jinping did not wake up, you know, one day and and say, oh, this really matters.

35:19Though China's push into renewables may not have been intended for AI, that's where it could matter most. In the US, power demand is exploding, with consumption from data centers alone expected to triple by 2035, putting even more pressure on a grid already under strain. But instead of racing to close the gap with renewable alternatives, the US is pulling back from a sector China increasingly dominates, accounting for roughly 80 % of global technology production in solar and battery tech and more than 70 % in wind. This enormous development of renewables in China didn't come free. They had to spend some money to do it.

35:59If the United States wanted to get back in this game and compete on the renewable part, does it have the capacity? How much money is involved? How much money has the Chinese government really put into this? I mean, at this point, it's easily over a trillion dollars. It's been billions of dollars every year. And as I mentioned, a trillion dollars, you know, just last year in clean energy investments. So there's not a way that we're going to compete across this spectrum of technologies, you know, solar, wind, nuclear. We're just not going to be able to do that at this point, even in EVs. Right. China's exports were worth about 76 billion dollars last year.

36:37Ours, somewhere around three to four billion dollars. I mean, don't forget, they're also a country of 1.4 billion people. So roughly three and a half, four times as large as we are. So that capacity is much greater as well. But could we get back in the game? I think that was the point of the Biden administration's Inflation Reduction Act, right? It was a mix of subsidies and tax incentives. It attracted an enormous amount of foreign investment. So it had, I think, a lot of potential to reboot the clean energy sector in the United States. But, you know, the Trump administration is not that interested in the clean energy in the renewable sector.

37:14And so, you know, we saw that they rolled back probably 95 percent of the Inflation Reduction Act. Can the markets make up a good part of the difference? By that, I mean this. Instead of the government giving subsidies or tax breaks, incentives on renewables, is it possible the market will take over and say it's just cheaper to get energy from some of the renewables? Well, I think there's always a hurdle, right? when you're introducing a new technology that you have to get over. And that is where the government subsidies or incentives can play an important role. I mean, we see that now with rare earths.

37:48And I think the Trump administration has come around to appreciate, then if you're going to compete with China, you're going to have to adopt some elements of their playbook. You're going to have to invest. You're going to have to have a secure market for the new investment, for the new technology that you're developing, because you have to get it over the hurdle from the innovation to the manufacturing to the deployment and export. And I think that's the full life cycle of new technologies that China has created, its playbook. And we don't really have a playbook that can compete without a little more government intervention than we've typically been comfortable with.

38:27The U.S. and China may be competing hard on AI, and the U.S. may have taken its eye off the ball on energy that's critical in that competition. But there's at least one area where they may find common ground, agreeing on rules to make sure that all this AI being built and powered is as safe as possible. Do we need to work with China on safety for AI? Yeah, obviously we do at some time. But right now, they're an adversary when it comes to military and security. So I think we're going to be forced to do it when we start seeing accidents and bad things happen. And I just want to make sure we're in the lead when we get to that point.

39:16I really do. And I take a step further and say when President Trump and Xi meet, it's going to be the first of I hope, you know, for summit meetings. And I'm hoping right now there is, you know, we got a trade deficit, but we've got a trust deficit big. And I want to close that trust deficit because we need to figure out how we can compete and work together at the same time. And if we don't, the world is going to be a much more dangerous and less prosperous place. So again, I view and I think a positive is I really do believe President Trump wants to find a way to work with China and I hope that the Chinese feel the same way Coming up don't tax you don't tax me text that guy behind the tree, but what if that guy is Ken Griffin?

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42:29This is a story about balancing the books. Faced with putting together his first budget, New York City's Mayor Memdani managed to pick a nasty and very public fight with one of the biggest names on Wall Street, Ken Griffin.

42:48New York City has long been known as the city of opportunity, home of the Statue of Liberty, Broadway, and Wall Street. It's also home to the highest number of billionaires anywhere in the world. The city's new mayor thinks they might be able to help him with his budget problem. When I ran for mayor, I said I was going to tax the rich. Well, today, we're taxing the rich. In April, New York City Mayor Zoran Mamdani stood in front of a penthouse on Billionaire's Row, a penthouse owned by Citadel CEO Ken Griffin, and made him the poster child for a proposed so-called pédéter tax on second homes in the city with an assessed value of$5 million or more.

43:33This tax will raise at least$500 million directly for the city. The move triggered some of the other Wall Street leaders to come to Griffin's defense. If your goal is to make New York City kind of financially solvent, what you don't want to do is drive out the Ken Griffins of the world. Wall Street and the tax revenues from Wall Street are what enable New York City, all the people in New York City, to have a better life. Memdani originally proposed increasing real estate taxes overall. but thought better of the idea after Governor Hochul came up with some help from the state budget. So far, however, he's sticking with trying to tax the most valuable second homes in the city.

44:13I think Mamdani made a mistake, you know, going after Ken Griffin by name as he trumpeted his success in raising taxes, even though he only got a tiny morsel. Wall Street veteran Whitney Tilson ran for mayor of New York City against Mr. Mamdani last year. What we're talking about is those pencil towers overlooking Central Park that are dark at night because nobody actually lives there. I do think tone matters and just out there painting billionaires as evil is really dumb, given that 1 % of New York City taxpayers account for 47 % of the personal income tax paid in New York City. A bunch of billionaires went down to Florida during COVID, and that has real budgetary impacts on New York.

45:01We should be rolling out a welcome mat for every rich person who wants to live, invest here. And we're already a very high-tax city, depending on how you measure it, probably the highest tax burden of any city in the country. But there's something unique about New York. I tell my rich friends who are thinking of moving, the whole point of being rich is you can live where you want to live. Imposing new taxes on their property may not be the best way to attract wealthy residents. But Steve Fulop, the head of Partnership for New York City and the former mayor of Jersey City, has even deeper concerns.

45:34I think that there is a bigger message with regards to the Ken Griffin conversation. Yeah, it's not great that he was highlighted in that way. And in this environment where you have people being the targets of political violence, CEOs being assassinated, it's inappropriate. And that's been covered fairly extensively. Whether it was smart to target a specific Wall Street CEO like Ken Griffin or not, the fact remains that New York City has struggled with years of budget shortfalls. Mamdani's new proposal promises to balance the city's budget, at least in the short term, despite inheriting a$12 billion deficit.

46:16but only with that p de terre tax included. It's about the size of the budget. New York, if it were a state, it would be the 13th largest state by population. It would be the third largest state by budget. So he's looking at some real budget cuts, and that, of course, affects the unions that were among his biggest supporters. He wants to spend more money as a democratic socialist, so he's sort of caught between a rock and a hard place. The challenge facing Memdani is made more complicated by the structure of the tax system. Property taxes are the single biggest source of revenue for New York City, accounting for more than 30 % of its budget.

46:52But those taxes hit residents in very different ways. As an example, even though single-family homes have the highest nominal tax rate, caps on assessment mean they pay the lowest effective rate, putting most of the burden on apartment buildings, condos, and commercial property owners. There are weird anomalies in which someone who is grandfathered into an older building, but very expensive apartment on Park Avenue, is paying a much lower tax rate than a blue-collar person out in one of the outer boroughs, right? It's a very different burden on those owners, the middle-class family in Queens versus the billionaire on Central Park South.

47:33So you have to come up with some type of other structure. I think the pied -à-terre tax is a fair idea. Ruth Kulp-Haber is a partner at commercial real estate firm Wharton Property Advisors. For her, the issue isn't so much the idea of a new real estate tax. It's more a matter of how Mayor Memdani is going about it. To take for granted an owner such as Ken Griffin, who has contributed in the form of his company, It's going to be 25 ,000 jobs before he's done and hundreds of millions to hospitals and museums. I mean, this is a guy we want here, you know, and we don't want to antagonize him in any way.

48:21Citadel alone has paid tens of millions in taxes. Yes, their employees make a lot of money, and I can understand how some people have a problem with that. Citadel has about 1 ,300 employees in the city, and Griffin is now saying he'll move at least some of them to Miami and take another look at a huge new office tower on Park Avenue. Not only has he committed to a 60 % ownership of this development, but he's committed to being the anchor tenant, meaning he's going to take like half the space in the building. This is a major commitment. If he pulls out from that, The message that is going to go out literally to the world is New York is not a good place to do business.

49:07It would be a disaster. This wouldn't be the first time Griffin made good on a promise like that. Citadel once employed more than a thousand employees in its 50 ,000 square foot office building in Chicago. We need to look to history and what happened in 2022 with Ken Griffin in Chicago with Governor Pritzker. And Ken Griffin was building his business in Chicago. There was politics got involved. Ken Griffin wasn't happy about the crime situation in Chicago. And he left. Thus far, most of what we've heard about to address the budget gap has been about raising more revenue. But Fulop thinks it's not fundamentally a question of how much the city is taking in.

49:51I think at the core of the problem is that you have a spending problem and less of a revenue problem. And that's what we try to kind of hammer home repeatedly. Where did New York City go in the wrong direction with their budget? There was a time not too long ago that they had balanced budgets. They were doing okay. Is it because the spending just grew too much or did the growth of the overall economy slow down? I mean, look, it's complicated because you have a lot of things simultaneously happening. So you had costs, COVID, go through the roof. You had tariffs. You have wages and union contracts that have increased fairly significantly.

50:31You've had very progressive mayors that have layered on additional social service. So all those things kind of come together. But a pragmatic person would look at it and say, the city budget has grown significantly faster than the rate of inflation. And that is a question mark on why. But putting that aside for a second, what we've tried to say is we should be thoughtful about the program overall and whether it achieves the outcome that you want to achieve. If the Pita-Tere tax goes forward, and if it's$500 million, that's still way short of where we need to be. I mean, the estimates are over$5 billion.

51:05So if you'd won, if you got to be mayor, where would you look for the other$4.5 plus billion? I found it very difficult, and I tried, to really get down into the weeds. I mean, you can see$5 million to build a public restroom in a park is ten times too much. We pay six times as much as any city in the world to construct one mile of subway. So you can see those examples. Just the school budget is 37 % of our$118 billion budget. I have been very involved in charter schools and educational reform over the years and I know there's a lot of fat in there, you know, dead people on the payroll and that kind of thing.

51:43So I think I might start with just sort of a one or two percent across the board cut, and that sort of gets you in a$118 billion budget, that gets you a bunch of the way there, and then negotiate from there. Balancing the books on a New York City budget is never easy. And it's not surprising that there's a range of ideas about how to come up with a few billion dollars to make it work, with or without calling out specific CEOs and their penthouse apartments. But the one thing most everyone agrees on is that we need to get the balance right to ensure that New York City remains a magnet for talented young workers and the companies that employ them.

52:24The best asset here, which is very hard to replicate, is New York City brand is very, very special. And two, it is the most desirable place for young people to want to be. That is a very, very special thing. Now, you have AI, that uncertainty around jobs, and the affordability on housing. So those are two things that go directly at that young person who wants to live here. So that is a challenge. And then you also have places like, use Texas as an example. So JP Morgan today has more jobs in Texas than they do in New York. It's a crazy thing to think about. Ten years ago, that wasn't the case.

52:59So the trend is moving in a bad direction. Goldman Sachs trend in the bad direction. Why? It's bigger than taxes. Texas has been very deliberate with their strategy on how they're going to attract jobs. So they changed their court systems entirely to replicate Delaware, to make it more corporate friendly. They're starting a Texas Stock Exchange to have better access to the capital markets. Then they have incentives and they have leadership that talks about embracing their big corporate communities. We need to build a lot more housing, not just low-income or affordable housing, but it all trickles through.

53:36We need to build more housing for young professionals who can afford to pay more. Look, when Amazon came and wanted to put their headquarters here, you want a mayor who invites Jeff Bezos and the Amazon executives to Gracie Mansion, sits down with all the key people from the city, and rolls out the welcome mat. So some of it's just sort of messaging and signaling and being a champion for business in the city That does it for us here at Wall Street week. I'm David Weston. See you next week for more stories of capitalism

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