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Stories from the Stacks – A Soundtrack to an Investment Advisor’s Life Episode 5 – The relationship between the U.S. and China will impact the world’s supply chains for decades to come and therefore investors need to be aware of the dynamics. This interview with Phillip Orchard from Geopolitical Futures – a Geopolitical forecasting firm – features discussion about Taiwan’s microchip industry, the rare earth supply chain, Chinese military threats against Taiwan and its relationship with India
This Interview Covers:
- Taiwan’s is the dominant producer of broad use microchips in the world. What challenges does this create for the U.S. supply chain? Turns out the process of making microchips takes a lot of water and Taiwan is under drought conditions?
- Taiwan was once under the control of Chinese leaders and all indicators are they want it back. What are the realistic chances of China taking over Taiwan via a military action?
- Rare earths elements are crucial ingredients in computers, cell phones and the F35 fighter. China is the world leader in supply and over that past 10yrs has weaponized them in the global supply chain. Does this mean the U.S. and others are reshoring rare earth production?
- China has the largest Naval fleet in the world but what kind of military actions is it capable of? Historically, China is land power so many questions remain as to their largely untested Naval capabilities.
- What is the historic relationship between China and India?
Hey everybody. This is Trevor Chambers with Olde Raleigh Financial. Once again, we are putting one more contribution on the world wide web from the “Soundtrack to an Advisors Life.” And part of this is the Meet the Masters Series. So, I’m coming to you from sunny Raleigh, North Carolina but I’ve got a badass on the line. One Phillip Orchard. Phillip, what’s up, brother? First of all, I love the last name. It’s almost like a band name. I just like it. Where are you blasting from these days? Where are you right now?
ORCHARD: Well, thanks. I’m talking to you from Austin, Texas. Also, sunny.
CHAMBERS: Nice. The freaking barbecue down there and all the Taquerias. I love that place. I’m a huge food guy, so. Alright, man. Thank you for coming on. I appreciate it. Let me just give you the – just the — fifteen seconds on our man Phillip Orchard. Phillip is an analyst. He works for an organization or company called Geopolitical Futures. I want to get the brief download on what that is. This guy has lived abroad. Specifically, all over Asia, which is super cool. But he’s also a smarty pants. He’s got a – he’s got a masters from the Lyndon B. Johnson School of Public Affairs. And he knows all about, like national security, Chinese foreign intelligence and stuff like that. So, this is going to be a cool conversation, I think. So, Mr. Orchard, let me just bang on out the first one and get right into it. I – you recently wrote some stuff about microchips and Taiwan and we’re all going through this — the, you know, microchips are a big issue right now. If you’re having trouble finding a car, especially a new one, you might know about this out there, so anyway, what is going on? You wrote a cool article about it. Let’s get into it.
ORCHARD: Sure. Yeah, I mean, so between the ongoing global chip shortage it has, you know, Toyota plants and Ford plants and all over the world shutting down suddenly and then kinda (sic) throwing everything into disarray. Between that and the US/China, you know, trade war and, as we call it, tech war, semiconductors have really come into focus over the past year, or semiconductor supply chains. And in general, Taiwan, in particular because as it happens, Taiwan is the just dominant, dominant, dominant –
ORCHARD: — producer of the most advanced microchips anywhere in the world. And it’s a really extraordinary success story for them. In particular, TSMC, Taiwan’s semiconductor manufacturing corp.
ORCHARD: Their rise to just become the dominant contract chip maker really – at this point they’re a generation or two ahead of even Intel. Basically, only then and to a lesser extent, Samsung are capable of producing the, you know, the cutting edge of the cutting-edge type chips.
CHAMBERS: At that volume?
ORCHARD: That volume, right.
ORCHARD: Yeah, that’s a good point. And in most ways, it’s been a really – it’s been a good thing for the US and it’s been good for US companies in the sense that by sort of pioneering this contract chip making model where – where basically they focus solely on fabrication. And so that allowed companies like Nvidia, Qualcomm and so forth to really, you know, come onto the scene and start innovating. Because previously most of the chip makers like Intel were known as integrated device manufacturing companies where they do design and manufacturing.
ORCHARD: Manufacturing is incredibly expensive and incredibly difficult and by taking that, you know, taking that aspect off the henge of – or that model makes it really difficult for startups to break into the space and by taking care of that for – it allowed companies, you know, people with brilliant design ideas to, you know, just – it lower the startup cost and everything else. And so that – that really fundamentally, you know, changed – changed everything in the industry. But over the past couple years, all the sudden everyone’s kinda (sic) looking around like that’s good for Taiwan but is it a really good thing for that much of the worlds chip making capacity, especially on the high end stuff, to be concentrated in one place. And one place that happens to be about one hundred miles from Chinese missiles and so forth. And so –
CHAMBERS: That’s a legitimate concern. I mean, listen what’s a chip industry between friends?
ORCHARD: Yeah. Right. I mean, yeah, and just in general also, you know, I think the past couple years the lesson in a lot of industries is like, it’s probably not good to have any critical resource concentrated in one place. And they right now the chip making is under a threat, not just from geopolitical tension and the poor planning that everyone did back in March and April when they decided they probably wouldn’t need very many chips this year, which is what – is what a major contributor to the global shortage.
ORCHARD: But also, just things like drought. Taiwan’s having a huge drought right now and it’s –
CHAMBERS: Oh wow.
ORCHARD: — chip makers use a ton of water and they’re starting to, you know, their monsoon season is supposed to pick up in about a month or so and they’re kind of counting down the days really hoping it arrives on time because otherwise they will have to shut down. Even in Austin, here in Austin, Samsung and a couple others have fabs for certain lower end chips and they had to shut down during the freezes that we had –
ORCHARD: — a couple months ago. And so, supply chain fragility in general, especially on this kind of stuff is, you know, on the forefront of everyone’s minds.
CHAMBERS: Plus, I think the automakers they just cancelled the orders, right?
ORCHARD: Right. But, yeah –
CHAMBERS: After – when – like a year ago, right? They were like oh okay, we’ll cancel orders. Well, you just can’t, like six months later or three months later call up Taiwan and be like I need to turn that back on. Because then it’s like – that train has – you know, I mean they schedule those things out a little bit more in advance. Right?
CHAMBERS: And so that furthers the problem. Yeah.
ORCHARD: Yeah, that and then also you had other things like, yeah, the US is actively taking aim at China’s chip industry and trying to shut that down.
ORCHARD: These – these things can’t be built quickly. There’s a, I think, like a three-year waiting list for some of the lithographic equipment that’s –
ORCHARD: — critical to advance manufacturing and all that kind of stuff and so, yeah, it’s –
ORCHARD: — understandable if I was a, you know, a supply chain planner for GM or somebody last March to say, you’re probably not going to need that much this year. Not expecting – anticipating the rapid bounce back in consumption or demand that we had.
CHAMBERS: Yeah. Can you imagine a guy running the PO’s or the lady running the PO’s over there? The board is like, excuse me, what? You did what? Anyway, well that’s – well, we’re going to go back to this, if you don’t mind because like the, you know, being so close to China. Alright, but we’ll talk about that when we get a little deeper into China. So, one thing is, so there’s the Taiwan thing going on, alright. That’s kind of interesting. Also, let’s switch gears a little bit. India and China. They have a – there’s a border between them. There’s been skirmishes. Do you know – what’s the historical like beef? What’s all the – other than just being both having about one and half billion people plus or minus and next to each other. I mean, what’s the – do you know what the deal is there?
ORCHARD: Yeah, so, I mean, China and India, historically they’ve never been particularly friendly.
ORCHARD: And they do share the long border that’s contested and everything. But there’s always been a limit, pretty low limit on just how bad things could get between the two of them because they can’t really threaten each other in any realistic way. They – it’s hard to overstate how difficult waging combat through the Himalayas would be, for example.
ORCHARD: So, it’s not like – it’s not like India really fears China mounting some sort of invasion or so forth. But what’s happened is, is China’s strategic imperative is closer to home. It’s predictably, from China’s perspective, you know, their biggest strategic problems lie off shore to their east, in what’s known as the first island chain, stretching from Japan down to Indonesia or so.
ORCHARD: That creates a series of choke points that like a naval power, particularly the US, could extensively leverage to shut down Chinese vital sea lanes bringing Chinese exports to a halt, bringing their import – critical imports of energy and so forth, all that to a halt. And so, what China’s doing, in pushing out is trying to create just gradually over time, push out a sphere of influence or a buffer zone and find alternative roots to global sea lanes. And so, some of that is – that by sort of necessity if you follow that logic far enough. Eventually means that they need to push into the Indian Ocean basin and so they’re – a lot of these belt and road projects that they’re doing in places like Sri Lanka, Pakistan, Myanmar, some of these small islands and so forth. That’s starting to make India increasingly nervous. Chinese support for Pakistan, military support for Pakistan makes India very nervous.
ORCHARD: And so that’s created – so suddenly for the first time, really in history, even though they fought the war – the brief war in the Himalayas in the 60’s, really for the first time they are – they’re course fears of influence are starting to overlap and so you’re – that’s why little things are taking on bigger significance. And especially with China as sort of, the way they’re approaching this, they’re not particularly concerned about, I don’t know, keeping the peace or making friends or assuaging India’s worse fears. And so, you know, our theory for like the summer when they had that clashes up in the Himalayas, the first deadly ones in a long time. It was like, why is China doing this? It doesn’t make – they’re not going to gain much strategic advantage from this or whatever. But I think our theory is, like, what they’re trying to do is basically keep India focused on land-based threats and not start focusing on the ocean. Not start putting – diverting money from the army and other needs into naval development and so forth. And because I think China’s looking ahead a couple decades and saying like, you know, the big place that India can threaten us is our sea lanes come out of the Strait of Malacca in southeast Asia, so.
ORCHARD: But everything is starting to take on, yeah, much greater political significance, strategic significance, all – and its sort of generated this nationalist backlash in India that arguably is doing more harm than good to Chinese interest but it’s sort of putting the two countries on a trajectory toward a much more robust rivalry.
CHAMBERS: Alright, so what’s our – what’s the US’s, in your opinion, grand strategy when it comes to Asia and Indo, you know, Indopacific region and all that? What do you think given what we just talked about? What do you think is the –
ORCHARD: Yeah, that’s a good question.
CHAMBERS: You know, because — let me and this goes to an investor, you know, somebody who has to, you know, think in 20, 30-year timelines. There are some big decisions, you know, there’s a lot of ground work that’s being laid now for what things are going to look like in 20 years and 30 years, you know. And, so that’s – what do you think, man? What’s –
ORCHARD: Yeah. That’s a good question. Grand strategy is, well, here’s what I would say US grand strategy is. If you trace it back, you know, through the decades of what are some common themes and you could probably boil it down, in the abstract, sort of high-level abstract to, one is to prevent the emergence of a regional hegemon. A country that can really dominate, you know, like in the way that China, or Japan was trying to do in the 30’s and 40’s. And what some people feared, China is trying to do now. Two is remain the dominant naval power in the region because that gives the US an enormous amount of leverage. And third is just to try to, I don’t know, I’m not quite sure how to say this, but generally just keep the region dependent and interested in the US designed sort of international system. That what they call the Rules Based Trading Order. And so, the US does that by, you know, guaranteeing freedom of navigation and critical sea lanes by opening up its markets to exports from region and so forth. How much that actually has influenced US policy making from one administration to the next is pretty debatable. I think in a lot of ways the US, it was so successful early on that the US basically didn’t’ have to think a whole lot about Asia. There was no other, except for maybe the Soviets, which weren’t really a pacific power. The US, I preferred it where it was just, sort of, just be there and not be threatened by anything and just have, you know, let the region focus on economic development, and so forth. But and that led to, I think, in general some strategic, lack of strategic attention. Especially in the 70’s and then the, obviously post 9/11 and so forth. And because what happened was, well it turns out that the US doesn’t, you know, the free trading system is, it turns out that it – the boom of like globalization and loss of US manufacturing and so forth. Well, ok well that’s bound to cause some issues at home. And it turns out that China is – has its own needs and it’s – it’s – that are compelling it to become more and more like the regional hegemon that – that the US extensively fears and had, you know, kind of lost track of the – it’s development in ways that could really become problematic for the US. And in just generally US, sort of in attention to the needs of its allies and so forth. So now that’s kind of put the US in a moment where there – it’s scrambling to recalibrate it’s – trying to figure out what it actually needs from the region. What it actually can do without becoming overcommitted. How concerned it should actually be about China and so forth. And, so we’re sort of in a period of, you know, maybe a decade long period of transition of trying to come to terms and rethink just how much – just how much it can live with the current trajectory and just how capable it is with altering it around US interests, if that makes sense.
CHAMBERS: Yeah. Let me ask you this. Is China going to just take over Taiwan? I mean, would it – would you be surprised in the next ten years, maybe even five, that they just pull the trigger?
ORCHARD: I would be – so – to answer your first question. China absolutely wants Taiwan to think it’s going to –
CHAMBERS: Oh yeah.
ORCHARD: — invade in the next five or ten or fifteen years. Especially if Taiwan does something that, like it declares independence or something –
ORCHARD: — along those lines. It’s really difficult, extraordinarily difficult, it’s often underappreciated how difficult it is to – for the kind of operation that would be required for China to retake Taiwan by force.
ORCHARD: In previous landings into the teeth of Taiwanese fire power with the threat of US, Japan, and others potentially getting involved. That would be a low probability operation that China would only undertake if it was desperate or if it felt, you know, maybe it had some sort of technological breakthrough or something that could turn the odds in their favor. That said, China can do a lot to squeeze Taiwan and I don’t think, so I don’t think we’re going to wake up one morning and read that, oh hey there’s a Febious fleet of Chinese war ships are approaching Taiwan. What’s going to happen, it’s going to be a steadily escalating series of events possibly starting with say with maybe, you know, Taiwan has a few outlying islands of its own. Maybe China takes one of those just to see what Taiwan does. See if the US gets involved and so forth. They will frame it in some sort of way that they can like –
ORCHARD: — crack down easily if it gets out of hand. Then possibly some sort of blockade, you know, something again that they could frame as like, oh no this is a law enforcement thing, blah, blah, blah.
ORCHARD: You know, that way if it caused – if the backlash was too fierce, they couldn’t handle it, they could back down without losing face. If they actually needed to attack or decided that for politically or strategically or whatever, to attack Taiwan, it would start with a barrage of — an enormous missile barrage aimed at — primarily at stunning the Taiwanese government into negotiating. Only then, if things still continued to go poorly and circumstances are somehow on China’s favor, would they conceivably actually try to retake Taiwan by force and then hold it by force. Which would be another extremely difficult thing. And so, they want Taiwan to come willingly, if not willingly they want to make Taiwan conclude that it’s in their best interest to negotiate some sort of Hong Kong style arrangement which doesn’t, you know, that’s a poor comparison because Hong Kong doesn’t have an army and other stuff.
ORCHARD: But –
CHAMBERS: Okay, yeah.
ORCHARD: — yeah, so I think that’s the general trajectory in what we’re seeing now, you know, is there more and more incursions into Taiwanese airspace. More and more economic pressure. More and more exercises, flanking Taiwan on all sides. Simulating an invasion of one of these islands and that kind of stuff.
ORCHARD: Just to sort of gauge reaction and make clear that they – that their capabilities are growing and that they, you know, that Taiwan can’t – they want Taiwan to make – to think that it’s a matter of when, not if.
ORCHARD: If they don’t, you know, it they don’t start negotiating on Beijing’s terms and especially if they do something like start moving toward a declaration of Independence.
CHAMBERS: Yeah. Where have you – where have you lived over in Asia?
ORCHARD: Yeah, so mostly in Thailand over the course of a couple stents, totaling about seven and a half years. That’s actually where I got obsessed with geopolitics was the –
CHAMBERS: Oh cool.
ORCHARD: — first time my wife and I were – she was working for a small NGO up in a little village in Northern Thailand and Thailand was going through a period of pretty immense political instability that turned violent quite a few times. And I just got obsessed with why. Why are they fighting? What’s the power – what’s really going on behind the scenes here? What’s really at stake? And then, yeah, that’s where I gained an interest in trying to understand like how power is fought for, how it’s wielded? What it looks like in different societies and at the same time I was in – doing some stuff in Myanmar, which has been in the news a lot lately.
ORCHARD: For all the disappointing reasons.
CHAMBERS: Yeah, that’s gotta (sic) stink for you to watch, knowing that you know that country a little bit.
ORCHARD: Yeah, it’s disheartening.
ORCHARD: It was – the process of democratization there and they’re opening from a hermit state to –
ORCHARD: — sort of embracing the world was — seemed always seemed long odds and then, you know, and then it happened and it happened for reasons that made sense. For good, not for purely ideological reasons or, you know, nothing pie in the sky about it. It just made sense for the ruling junta at the time to do it and it made sense for the region and, you know, it seemed like it might actually be sustainable. But then as we found out on February 1st, turns out it wasn’t.
ORCHARD: For those who haven’t been paying attention, there was a military coup –
ORCHARD: — and now there’s violent crackdowns that just get worse and worse and worse.
CHAMBERS: Yep. Yeah, don’t take for granted this little thing called democracy in the United States of America, right.
CHAMBERS: Well, anywhere else over there?
ORCHARD: And then based out of Bangkok for a while and –
CHAMBERS: Oh, cool.
ORCHARD: — then spend quite a bit of time in Malaysia, Indonesia, you know, Vietnam.
ORCHARD: Bangkok especially is just a wonderful place just to hop around the region.
CHAMBERS: Yeah. I’ve never – I lived in Europe for a year as an exchange student. ’89, ’90 and I got a piece of the Berlin wall, so, you know, I have that. I’m an old man now. But I’ve never been to Asia. Hey by the way, Netflix, The Serpent. Have you checked it out?
ORCHARD: My wife has been watching that and every time I walk through, she’s like you have to – you have to watch it.
CHAMBERS: No, it’s badass. No, you gotta (sic) get in it.
ORCHARD: I’ll put it on the list.
CHAMBERS: Yeah, it’s cool.
ORCHARD: Top of the list.
CHAMBERS: And it’s, for me, it’s like 1975. And I was born in ’70 so it’s like all the fashion is just like, so like oh yeah, I remember that cat, you know. Like the (inaudible) out of the, yeah, (inaudible) or whatever. It’s hilarious. The bellbottoms. Alright, let’s keep rocking. Alright. Rare Earths. What’s the deal with rare earths and are we going to start making them here, locally as in the US and, yeah? Now first of all what are rare earths, for people that don’t know. And then what’s going on?
ORCHARD: Sure. Yeah, so rare earth’s, it’s a, so the – it’s a – rare earth elements are rare earth minerals. It’s one of the bottom rows of the periodic table. I used to be able to – I used to be able to list them off one by one.
CHAMBERS: I expect you to. This is – this is nonsense if you can’t do that. Come on, man.
ORCHARD: Lampiminium (sic). Uraminium (sic). I might be making these up —
CHAMBERS: You are. Don’t worry about it.
ORCHARD: — but you will (inaudible).
CHAMBERS: Don’t worry about it.
ORCHARD: Yeah, so they are these elements that are used in everything. Everything, batteries, your phone has zillions of –
ORCHARD: — you know, bits of them. They’re critical to every, seemingly, every emerging technology or a lot of consumer electronics and as it happens F35 fighter jets. And Ohio class submarines and so forth. So, they’re extremely valuable. They’re not all that rare.
ORCHARD: That’s one thing that almost any article you read about them will say at the top. They – there’s an abundance of them in the earth’s crust all over the world. There’s dozens and dozens of countries that are believed to have massive reserves including the US. Including Australia. Including –
CHAMBERS: Afghanistan too.
ORCHARD: — including Afghanistan. Probably beneath the ice caps in Greenland. So, keep that in mind. It’s – so – it’s been in the news lately and from time to time, it’s a good example of one of those things where China was able to sort of just use its mass to come to dominate the industry without anyone really paying attention. Just they very early on, realized that it might be a valuable thing to invest heavily in and to – they’re able to undercut global markets and basically cornered the market for, in the large part on both mining and processing or refining of the rare earths. And, yeah, it’s one of those things that kinda (sic) nobody noticed or, you know, not many people noticed, at least. And then all of a sudden, in 2000, I’m forgetting the year, well I was going to say, I’ll say 2010 plus or minus –
CHAMBERS: I won’t look it up. I’m not going to – I’m not going to – yep.
ORCHARD: Let me just shuffle through my notes. I was – we’re going to go with 2010. That sounds nice.
ORCHARD: They abruptly – there was a dispute between Japan and China over the disputed Senkaku Islands. And it was one of those things that, you know, happens fairly frequently but, it became a political issue on both sides and some other stuff. And next thing – and abruptly China announced export quotas for rare earths. There’s actually – it’s actually debatable whether they were doing this as a punitive measure but either way, that’s the way it was perceived. And Japan, which relies — Japan’s electronics industry and everything else, relies heavily on rare earths and was fully dependent on supplies from China. Suddenly they went, you know, they were looking at a future where they weren’t going to be able to have that and ever since then, the questions been okay, is this something that China can actually weaponize? By weaponize, I mean, you know, if you don’t do what we say we will cut this off and, you know, we’ll have you over a barrel. It’s – and they’ve sort of passively or sometimes explicitly threaten to do this from time to time. During – in 2017 when the trade war was starting to pick up steam, Chinese state media was threatening, you know, or saying like, yeah, you don’t want to see what we can with this. But the – but it’s not – it’s not clear that they actually could. Or cut off supplies to the rest of the world, or at least added cost that’s acceptable to them. And for a couple reasons, one is the – what – the lesson they learned from the incident with Japan, which was that if you threaten or if you follow through with it to cut off supplies, what countries will do, you know, is – it generates incredible incentives to look elsewhere and start investing in diversifying their supply. That’s exactly what Japan did. Within a year, they had a pretty landmark agreement with Australia to start mining projects in Australia. Within a couple years, a processing facility was set up in Malaysia and so forth. And so, it’s definitely it’s one of those things where, yeah, you better not be bluffing because even just threatening something starts to – the moment you threaten something like this it starts to reduce your leverage. And more recently as – as US, China tensions have increased more broadly and as the past couple years they’ve put the spotlight firmly on supply chain issues. Especially regarding China. There’s been a rush of investments and government funding and all sorts of plans, one after another coming out to develop both mining and processing capacity in the US, Australia and on. And so, it’s if China was inclined to follow through, they better do it soon. But they also, you know, but if they do then, well, they would be cutting off – they would be hurting their best customers, you know. That’s another problem China has generally in sort of tapping into its economic leverage is, well it needs, you know, US and European consumers and so forth to buy their stuff. And so, the more they hurt them, the more they are hurting themselves.
ORCHARD: At any rate, so it’s sort of a – overtime they’re leverage is going to decrease. And, yeah, so I mean, I don’t know, within a five, ten-year window, I think it’s not going to be something we hear them threatening any longer.
CHAMBERS: Yeah. And maybe that’s also true of other industries if they want to get into it, you know. You know, and that – I’ve had guests and I talk about this before but, kind of going back to your – the Navy. You know, we dominate the blue water, hands down and we are – we are the ones that make sure those shipping containers get safely around the globe and that’s – you can’t underestimate that. And, you know, I actually, what’s the name of the book, anyway, I’ll have to look – but I read a book, not this past year that’s talking about a lot of these same topics. Geopolitics and maybe the world moving into a regional hegemon wherein we’re pulling back so essentially, you know, we facilitate a leader in the various regions and Japan, not China, Japan, they’ve got – they have more carriers and they have a lot more experience with blue water than China does, period. Now China’s got a huge, and I think what, now by the number of actual floating vessels, I think they have the largest, but it may not be the right ones.
CHAMBERS: Especially when your economy is dependent on global trade. I mean, they’ve got two aircraft carriers and like maybe two in the works, you know. So –
ORCHARD: It’s an interesting dynamic just because, yeah, as you mentioned, China has the largest navy in the world now. Nobody knows how good they are, you know.
CHAMBERS: They don’t know how good they are.
ORCHARD: And nobody really wants to find out, yeah.
ORCHARD: And, I mean in a lot of ways there hasn’t been a, you know, there hasn’t been a great power war since 1945, right?
ORCHARD: And there hasn’t been a conventional naval battle, you know, fleet on fleet kind of thing, since then. There’s been a lot of technological changes. A lot of, you know, strategic changes and so forth since then. The US itself has had all sorts of problems lately running into cargo ships off the coast of Singapore and such.
CHAMBERS: Oh, yeah.
ORCHARD: That said, yeah, so the assumption is like, okay well the, you know, both in fire power and technological sophistication and doctrine training and all that kind of stuff. The US has an incredible advantage and it has the geographic advantage. It’s – because of what I was mentioning earlier with this being able to blockade these choke points that China relies on. But China, you know, it’s – they have – the way they’re building their navy is – does make a lot of sense. At least in terms of the types of capabilities that they’re focusing on. They’re not trying to prepare for a potential war where they meet the US out in the middle of the Pacific and go toe to toe –
ORCHARD: — or something like that. It’s – it’s very tailored around their specific needs and they would have a home filed advantage in the sense that they can amass an immense amount of anti-ship missiles and –
ORCHARD: — airpower and other stuff on shore which would make it very difficult for the US to operate closely and that’s a contributing factor, you know, complicating factor to the Taiwan question, right. And so, but at the end of the day, no one knows.
ORCHARD: And no one really wants to find out so I think you’ll see a lot of posturing and a lot of the kind of stuff we’re seeing now where different, you know, everyone’s trying to make themselves look really powerful and they may be. But until, you know, until the – you actually go, you know, push – until push actually comes to shove and the – you get into that fog of war where things start going wrong. Yeah, it’s hard to actually say. So, the kind of the question, more interesting question is how does – how do perceptions of Chinese power influence state behavior on economic decisions, on political –
ORCHARD: — decisions, that kind of stuff. If they believe China is really powerful – or if the US believes China is really powerful, if Taiwan believes that the PLA is capable of becoming the new, you know, regional superpower. That obviously will affect their policy toward China and everything else and so, yeah.
CHAMBERS: So, are you optimistic? I mean, meaning like ultimately are you optimistic? We’re going to have skirmishes. We’re going to have issues. We’re going to have this. Trade skirmishes, maybe actual like hot war, I mean battle stuff, I mean, but overall you’ve lived over there in the world. I mean, like it seems to be teaming with energy, you know, so. And not just China. But I mean are you optimistic? I mean, what are, you know? Because again, you know, we deal with people who need to get – they’re 55 now, they’re going to – it’s 30 years from now, right. They gotta (sic) get through, so, you know, I want to form an opinion here that just because you might hear one thing, it may not actually be so bad. Because surely something hot goes off, you – I would bet that you would probably see a nice shave off the S&P temporarily. You know what I mean? Right?
CHAMBERS: So –
ORCHARD: I would short that word.
CHAMBERS: I’m trying to contextualize, yeah, I mean, now us, we would look at that as a buying opportunity because we’re such long term but, you know, the Joe Public –
CHAMBERS: — oh my god. So, are you optimistic ultimately?
ORCHARD: I am – I’m optimistic about the US and China avoiding a cataclysmic nuclear war that, you know, I mean it’s just purely from the standpoint of like, I mean, that would be devastating.
CHAMBERS: Yeah, of course.
ORCHARD: And presumably they’re going to, you know, things might get ugly and might get tense but yeah, I mean –
ORCHARD: — they’ll find ways to not destroy the earth in the process. That said, I do think for the next – I am not optimistic about US, China relations becoming more functional or more, or any less tense anytime soon. Quite the opposite. I think – I think both countries are in for a ten, fifteen, twenty-year period of intensifying competition of periodic blow ups over, you know, small scale trade tensions, moves to decouple the two economies, proxy competitions for influence and so forth across the region. And so, I think that’s the important thing to keep in mind at least from a, well at least from an investing standpoint. Is like, that’s not going away and that could in any number different ways influence – the investment environment in third party countries obviously between China and the US. It’ll also lead to generate a lot of opportunities.
ORCHARD: You know, the US is just now starting to get serious about, in at least small ways, starting to counter Chinese economic influence in Southeast Asia and in other strategically foreign countries. Like we were talking about with Taiwan, it’s – and the chips, microchips, it’s – there’s a – there’s a – and with rare earths, there’s a rush to reshore some of that stuff to build up domestic capacity and so I think what China and the US, the optimistic scenario is that they find a way to not fear each other so much. And not – and find sort of – settle into a new equilibrium where they can understand what each other, you know, what both sides need. What – understand how both sides threaten each other and threaten each other’s industries, threaten each other directly, indirectly and all that kind of stuff and sort of reduce their vulnerabilities to each other to the point where it takes a lot of the air out of the tensions. And that just won’t happen quickly.
ORCHARD: And the US tends – the US tends to like ignore problems for a long time and then –
ORCHARD: — freak out and overcorrect.
ORCHARD: And then go back – and then something else comes along.
ORCHARD: And so, we’re – I think we’re to some extent in the freak out overcorrect phase.
ORCHARD: Although, I do think that what they’re — the main focus now over the past couple years, but especially with a lot of the new strategy documents and plans coming out, are focused on, like okay, we can’t force China to change easily. Or at least at an acceptable cost. But what we can do is focus on boosting US competitiveness and reducing some of these supply chain vulnerabilities and that kind of stuff. And like, yeah, that’s – nobody can complain about that, or I mean –
ORCHARD: — you can but, that, you know, that’s a – that’s a sound way to go about, at least an aspect of the competition.
ORCHARD: Yeah, focus on yourself. Make yourself, you know, do what you can to make the other guy matter less and –
ORCHARD: — and then you don’t have to be so upset. But I don’t know.
ORCHARD: We’ll see. It’s going to be, I’m not optimistic about it going smoothly.
CHAMBERS: Yeah, and I mean, you know, and they’re – I think China has to go through their own great depression because at that load is –
CHAMBERS: — you know, yeah, they’re building – they’re – they are a remarkable culture in people and they build – there’s nobody building huge infrastructure projects more or probably better, like bridges. Those guys build bridges like, I mean, envious, right.
CHAMBERS: But, you know, they have a huge savings problem. They over save on the consumer level. Like that’s a big, but we under save, they over save. And so, there’s a lot of stuff that needs to be shook out, I think so it’s going to be very – but I’m glad to hear – I kind of took that view, I think. I personally think that the long run will be good and, you know, but there’s certainly going to be some skirmishes. Like, what do you think of my bull behind me here, by the way? I just kind of noticed that.
CHAMBERS: I may need to name this guy, here, so.
ORCHARD: You can name him Bevo.
CHAMBERS: What’s that?
ORCHARD: It looks like Bevo, the University of Texas – mighty —
CHAMBERS: Oh yeah. Oh yeah.
ORCHARD: — mighty longhorn. Yeah.
CHAMBERS: Oh, there you go. See –
ORCHARD: A magnificent cow.
CHAMBERS: — that’s why I put this in the background for you. Freaking bull guys. I like it. Alright, —
ORCHARD: Real quick –
ORCHARD: — to your point on China. I think that’s critical in understanding is like what’s driving their behavior and it’s like they have – they are more confident than ever about –
CHAMBERS: Oh yeah.
ORCHARD: — their ability to navigate problems at the same time they are – have huge, huge internals stresses and pressures. And it’s – creates a dangerous combination to where it’s like they increasingly feel like they have little – they don’t have the choice to do what the US wants on trade, on human rights, on whatever.
ORCHARD: And increasingly they also think that they don’t need to or they’re not going to pay a cost if they don’t because of their capabilities and so and because of the way that they’ve made themselves indispensable to the global system, so.
ORCHARD: That’s a dangerous combination and yeah, that’s – yeah, so that – I would expect that to last until there’s either some sort of financial reckoning as you mentioned or they pull through the other side and maybe become, you know, maybe a confident, just confident and not panicky China is better for everyone. But I don’t know.
CHAMBERS: Yeah. Well, I mean first of all, keeping the lid on one and a half billion people. I mean, what? That’s a lot. That’s the part that I think a lot of people don’t appreciate. It’s like they got a lot of trouble just keeping the lid on the joint over there. You know what I mean? Keeping everybody fed.
ORCHARD: A lot of mouths to feed.
CHAMBERS: What do you think about that, you know?
CHAMBERS: I mean, like, so. Whatever, but. But, let’s continue to, you know, we’ll talk again on this thing and it’ll just be so interesting to watch it evolve and but again, you know, from an investors point of view, you gotta (sic) take the long – you gotta (sic) take the long and then you gotta (sic) look for opportunities along the way. So, and there certainly will be. Alright, I’m going into the – I’m going into the next phase of this riveting interview that I’m giving right here. Alright, first of all, I want to commend us both on our hair. I mean, we have good hair, right. You know what I mean. I don’t know if this is going to be audio only, but you got great hair and I mean, obviously, you know, I mean my lettuce. So, I just want to say that right there alright.
ORCHARD: Well, thank you.
CHAMBERS: Oh yeah. So, okay more on a personal note. What are you podcasting, streaming or reading? Riveting. Go.
ORCHARD: I am reading, I’ll start with that.
ORCHARD: The – the Robert Caro series of biographies on the namesake of my grad school, Lyndon B. Johnson.
ORCHARD: Which – are you familiar?
CHAMBERS: I heard it’s incredible. He always does an amazing job. Go. Yeah, I’m sorry.
ORCHARD: Yeah, for those who aren’t familiar, Caro is the historians historian. He wrote one book on Robert Moses, the most powerful guy in New York for –
ORCHARD: — forty years or something.
CHAMBERS: I was a New Yorker. Badass.
ORCHARD: There you go.
ORCHARD: And he spent the rest of his year writing about – or the rest of his career writing about LBJ and moved to LBJ’s hometown for ten years and, it – he’s – so every ten years or so, he puts out a new volume and it’s – it’s – I think they’re fantastic just because they’re just incredible steady of power first and foremost. Just like how, I mean, it’s funny, I always – I knew a lot about LBJ in terms of like Vietnam and that kind of stuff, right. And I just assumed he was kind of this archetypal big swinging Texan, you know –
ORCHARD: — with the principled streak, you know.
ORCHARD: Turns out he’s like – he’s like – first of all he was a deeply broken man. Just a broken man.
CHAMBERS: Oh yeah.
ORCHARD: But that gave him this like sort of maniacal energy to pursue power in all its forms and they ways he did that. This dude could just – he could smell power. He could see it where no one else could and that’s why he was so successful in rising through the system and coming to dominate the Senate and everything. And, yeah, anyways so it’s – it’s a – and Caro, he writes about it beautifully. He also takes these wonderful hundred-page long digressions into like the history of the Senate and the history of –
ORCHARD: — Texas politics and the hill country. And, you know, it’s just – I’m a big fan but the big – you know, Caro something, he’s 80 something years old now and he –
ORCHARD: — hasn’t put out the last volume yet and so everyone’s, you know, kind of like, come on man. Come on man.
CHAMBERS: Multiple volumes, okay. Yeah. I have heard – I have not – you know what I do along those lines. People also need to pay attention to Lady Bird. She was not to be trifled with and he would have never been what he was without her. She was, because he had major bouts of depression and cheated on her and she – and she was smart and a journalist.
CHAMBERS: And so, she documented, you know, she made some incredible audio diary entries right after JFK died and all this stuff. And like there’s – I think there’s a new – there’s a new podcast or something out about Lady Bird, this woman – I just heard about. But anyway. So, thanks for that book –
ORCHARD: She’s actually a –
CHAMBERS: Yeah, go ahead.
ORCHARD: — she was an alumni of the same student newspaper where I worked in undergrad, so.
CHAMBERS: Oh, right. Yeah.
ORCHARD: She’s the patron saint of –
ORCHARD: — when LBJ was at war in the Pacific, briefly, she actually ran all his congressional stuff.
ORCHARD: This woman didn’t skip a beat. She was great.
CHAMBERS: Are you married?
ORCHARD: I am.
CHAMBERS: Yeah. So as always, the women are smarter.
ORCHARD: Oh yeah.
CHAMBERS: I think it was the Grateful Dead. That’s right. Okay, so that’s reading. What are you streaming and or podcasting?
ORCHARD: Podcast. My favorite podcast on Asia, which I’ll, you know, recommend, is – it’s called Undiplomatic Podcasts. It’s by a guy named Van Jackson, who is –
CHAMBERS: Write that down. Undiplomatic?
ORCHARD: Undiplomatic. Yeah. He’s a professor. He used to work in the Pentagon. Anyway, it’s just – it’s very irreverent and, you know, it’s just a fresh take on how the system works and US strategy in South – or in East Asia and elsewhere. And also, a lot of like how the foreign policy machine, you know, works and sometimes doesn’t work or eats itself or whatever. Yeah, in – he’s got a lot of insight on that kind of stuff and it’s —
CHAMBERS: Super cool.
ORCHARD: — enjoyable and interesting, yeah.
CHAMBERS: That’s right up my ally, man.
ORCHARD: And then –
CHAMBERS: There’s another one – there’s another one I think out of New York, called China Power. Kinda (sic) interesting.
ORCHARD: Yeah, but CSIS, I think, yeah. Very good.
CHAMBERS: Yeah, something like that.
CHAMBERS: Yeah. Streaming. So that’s – and then what, like what are you Netflixing (sic) or whatever? Anything?
ORCHARD: So, Netflix recommendation is Occupied. I don’t know if you’ve seen it.
CHAMBERS: Oh, yeah, yeah, yeah.
ORCHARD: Yeah, it’s super cool. It’s about a hypothetical, obviously, Russian takeover so to speak of Norway. And it – it really – it’s a good way of – you think of an invasion, you think of tanks coming across the water or whatever and it’s, you know, power can be exerted in a lot of ways and sovereignty taken away in a lot of ways.
ORCHARD: This – it’s a good imaginative, I don’t know – look at how something like that could happen. Sort of a slippery slope invasion.
CHAMBERS: Yes. Yeah, I won’t say anything more on it than you just did but it’s a — thorium and stuff. It’s cool, yeah. I lived in Finland –
ORCHARD: The premises is super interesting too, yeah.
CHAMBERS: Yeah, yeah. I lived in Finland as an exchange student and so I didn’t know – I know Scandinavian pretty well, you know. But anyway, so, that’s kind of interesting to me to kind of look at it from those eyes, you know, so.
CHAMBERS: Alright, so. Okay, before – I got two more questions. One is we got to get a back to the shout out to Geopolitical Futures. Give me the two-minute, one minute, whatever on that. What’s going on there?
ORCHARD: Yeah, we’re forecasting – a Geopolitical forecasting firm. We — which is a lot of fun. We cover the globe.
ORCHARD: We tend to be — look at high, you know, every year we publish annual forecasts of here’s the things we think are going to matter most. What we try to do is connect the dots between political issues, economic issues or forces, and military forces and show how they kind of comprehensively drive state behavior and especially with the big and most powerful states, how they drive the global system, so.
CHAMBERS: And who, like who do you sell your –
ORCHARD: It’s fun.
CHAMBERS: — who do you sell your stuff to? Like, who’s your client?
ORCHARD: We mostly have subscribers. Just, anyone can subscribe right from our website.
ORCHARD: And occasionally we do client work for people who are trying to make decisions on supply chain investments and that kind of stuff.
CHAMBERS: Okay. So, I’m going to tag you guys on that when I post this guy here. So, I ‘m sure there’s big wealth managers that probably follow you and kind of get a sense of it, so yeah.
CHAMBERS: Guys – people that manage money. It’s great. Okay. You ready? This is the big emotional question. Where – what’s one of your favorite places? Wednesday night, let’s say you’re on your way home – well you were probably already home, I don’t know, but where are you ordering food? Give me the secret sauce down there, man. Come on.
ORCHARD: Yeah, it’s funny. My wife and I were talking about this. Like, okay now that things are opening up –
ORCHARD: — what place are we really excited about eating. And I couldn’t come up with one because Austin is blessed, as you know –
CHAMBERS: Oh yeah.
ORCHARD: — it’s blessed with taco trucks and food trucks and –
CHAMBERS: Yeah. Really good.
ORCHARD: — and great like your big brew pubs with giant outdoor spaces. So, we’ve been able to like go to most of that stuff.
ORCHARD: And – but what I have not been able to do is go back to Bangkok and eat at Supanniga Eating Room on the Chao Phraya River. My favorite restraint in the world.
CHAMBERS: Well, you just –
ORCHARD: It’s probably a little bit out of the way for most of your listeners.
ORCHARD: But if you happen to be in the neighborhood, Supanniga Eating Room on the Chao Phraya.
CHAMBERS: Alright. How do you spell that because I’d like to give a little shout out to that joint? You know. Alight, well send that to me.
ORCHARD: Trivia question.
CHAMBERS: Because that’s – I was not expecting you to do like get to all international. Okay. So, Supanniga in – it’s in Bangkok?
CHAMBERS: Supanniga Eating Room?
CHAMBERS: Okay, first of all. Anything that includes the phrase eating room, you gotta (sic) figure that’s pretty – because like that’s like – that’s aggressive. I like it.
ORCHARD: They know they’re good.
CHAMBERS: What – like what’s the – what’s your jam every time you like, what do you get?
ORCHARD: I mean the best way to do like a meal at that kind of place in Thailand is just get like a whole table full of a couple curries, a soup –
ORCHARD: — fish dish, like a really stinky fish dish.
ORCHARD: You know, something to just like really punches you in the face. And then just keep the beers coming, one round after another to wash down the spice. And –
ORCHARD: — do it with about – do it with a good group of friends and you’ll have a good night.
CHAMBERS: Right. And keep your nose clean when you’re running around Thailand, right. Because they do not mess around. Like, you do not want to jaywalk over there.
ORCHARD: Yeah. It’s – you could probably get away with jaywalking but –
CHAMBERS: I’m just saying.
ORCHARD: — Thailand’s the kind of place it’s like – I used to describe it as like the delightfully louche. It’s like, you know, it’s got this reputation as being seedy and it’s kind of chaotic but it’s – there’s an order to it that’s like makes sense –
ORCHARD: — once you spend some time there and –
ORCHARD: — yeah, it’s just – the way it operates is unlike anywhere I’ve ever been. It’s hard to describe so.
CHAMBERS: Yeah. Well, what a great way to end. See, I know nothing about Bangkok and I’m just making that up. I just heard – that is my – honestly. And it’s like, my – when I think of it, one of the things I think of is like I don’t know if I’ll ever get there but I – one of the things I think is you don’t want to be in trouble there. Doesn’t it sound like a place — but that’s because I like saw some like movie or something.
ORCHARD: Oh yeah.
CHAMBERS: I don’t even know what —
ORCHARD: Every airport bookstore they have rows and rows of books about going to prison in Thailand so I – yeah – don’t smuggle in, you know, don’t show up with a bunch of heroin, you know, in your pocket.
CHAMBERS: Yeah, don’t do that.
ORCHARD: Unless you know a guy, then you know.
CHAMBERS: Right and even then, we’re not advocating it.
CHAMBERS: Hilarious. Oh my god. Well, this has been great. The Orchard. Phillip Orchard, I love that. Thank you so much for the time, man. Really interesting. Everybody take a look at Geopolitical Futures and look at our man, Phillip Orchard, and his firm. It’s pretty interesting. I want to thank you. I appreciate it and I hope that you get back to Bangkok and get to the eating room there. And –
ORCHARD: If I can remember how to spell it.
CHAMBERS: — yeah. It’s going to be so nice when we get on planes more regularly and, you know, get past this nonsense that we’re dealing with unfortunately. But everybody’s healthy with you?
ORCHARD: Yeah. Can’t complain.
CHAMBERS: Okay, good. Awesome. Alright, well listen man, thank you so much. Let’s revisit the tape and once I get this up and rolling, I’ll shout it out to you there, alright?
ORCHARD: Yeah. Thank you. This was a lot of fun.
CHAMBERS: Yeah. I appreciate it. Thank you so much Phillip. Have a great evening.
ORCHARD: Yeah, you too.
CHAMBERS: Alright, peace, man.
Phillip Orchard – Full Bio
Phillip Orchard is an analyst at Geopolitical Futures. Prior to joining the company, Mr. Orchard spent nearly six years at Stratfor, working as an editor and writing about East Asian geopolitics. He’s spent more than six years abroad, primarily in Southeast Asia and Latin America, where he’s had formative, immersive experiences with the problems arising from mass political upheaval, civil conflict and human migration. Mr. Orchard holds a master’s degree in Security, Law and Diplomacy from the Lyndon B. Johnson School of Public Affairs, where he focused on energy and national security, Chinese foreign policy, intelligence analysis, and institutional pathologies. He also earned a bachelor’s degree in journalism from the University of Texas. He speaks Spanish and some Thai and Lao.
Trevor Chambers – Full Bio
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing. Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”