China, AI Immigration, Rare Earths & Chips, Tariffs, Markets | BG2 w/ Bill Gurley & Brad Gerstner

And if you and I want to win championships and build a championship basketball team, we should not care where in the world the basketball player comes from. We just need to get the best players on our team to win the championship. We ought to take the same approach to AI and technology.

Hey, Bill, great to see you.

Brad, how are you doing, man?

I'm doing great. I'm heading back to Boston this weekend for my 25th HBS reunion.

25?

It's crazy. You're old—way older than me—but I can't believe it's been 25 years. I'm doing this talk on what's happening in AI these days, and there are a lot of questions and comparisons because, remember, we were there during the 1999–2000 boom and bust. A lot of my classmates are wondering whether AI is kind of like that again.

I was going back and pulling together these slides, and I have to say, a few things shocked me, frankly. I forgot how much has changed. One was that I was doing some analysis on Amazon. I was day trading Amazon out of the back of the classroom back then, and you were out here working on the IPO, so I know you were paying attention to what the share price was in 1998, 1999, and 2000.

A couple of interesting points: Amazon, if you recall, Bill—and I know you do—peaked at $243 a share in 1998. But at the start of 2000, it was at $150 a share. Henry Blodget famously made the call: He called $400 a share. He literally top-ticked it in 2000, and the thing plummeted to about $26 a share. He gets ridiculed and all this stuff, but I wanted to know what had happened.

It went public at $17 and broke issue.

Yes. Wow. Wow. So it traded under issue for about 2 months. I'm sure you didn't get any calls from the company about what the fuck was going on.

Here's the crazy thing: Remember, he gets ridiculed for making that call. So I wanted to know, and I asked our ChatGPT friend to help me with some split-adjusted math on this. Split-adjusted from the high in 2000, which was $150, that's equivalent to about $0.47 split-adjusted today. So it's up about 440× from where it was in 2000. On a split-adjusted basis, from the low in 2000, it's up about 1,800×. Those are shocking numbers.

That was one of the things that Don said. I said, “Well, what's happened to the Nasdaq since we graduated?” From the peak in 2000, the Nasdaq is still up 5×, and from the trough in 2000, it's up 10×.

The punchline is that we were a bunch of dreamy-eyed, big thinkers. We thought we knew everything about the internet. We knew it was going to change the world forever, and it turns out we overestimated what it was going to do in the short term. Over the next 2 to 3 years, adoption was slower. We had the terrorist attacks in 2001, and we had an economic recession, so things definitely grew more slowly.

But the biggest problem was that there just weren't that many people connected to high-speed internet. All the things we dreamed of occurring were just inefficient to happen at that time. What's probably even more surprising, Bill, is how dramatically we underestimated the long term. Over the next 20 to 25 years, it blew away all of our estimates and forecasts in terms of how big these companies would be.

Now we sit here at the dawn of the age of AI, and I think people are asking a lot of these same questions. That was probably the biggest punchline of my 25-year reflection.

1. Pace of AI + Data Walls

All right. Well, if they listen to the podcast, they're not going to miss your talk, maybe. Talking about this pace of AI, you and I were sending some things back and forth about strategic shifts going on in the world. Talk us through that.

Obviously, the pace continues like crazy. Between the podcast episodes we do, which are about 2 to 3 weeks apart, there's always new news, and it's hard to keep up with it. But I do try to pay attention to the stuff that spikes in my brain as being strategic and something you should really pay attention to.

One thing I've seen in the past week, so this is very recent, is what I might call data walls. Everyone's recognizing the value of AI. Everybody wants to have AI work against their data, and everybody wants to wow the consumer or the customer of their product. All of a sudden, though, we're seeing things pop up where people are trying to wall off data.

One example would be Reddit, which just sued Anthropic this morning despite having a deal. It would be interesting to unpack what's in there. I think there's a tiff between Windsurf and Anthropic, where Anthropic cut them off from all their models. Windsurf was bought by OpenAI, so that's not that surprising, but we're seeing these walls pop up.

A more interesting one in the enterprise is the case of Salesforce. Salesforce changed its terms of service in a way that includes not only the CRM data but Slack data, which is a company they bought. They're putting an MCP connector on top of it, which allows AI to query it, but they're saying that you can't train on the data that's in there.

Hold on a second. At Altimeter, Slack data—I can't train on my own data?

That's what the change in the terms of service says. You can query the MCP.

I think maybe we'll start to talk about enterprise applications as either being open data or closed data, and people are going to need to declare that. My guess is that if you're a competitor to Salesforce, you're immediately going to declare yourself open data and try to steal as many customers as possible.

I can't fathom, in my own brain, how upset I would be if I were paying a 7- or 8-figure license to Salesforce and they told me I couldn't train on my own data, which is basically everything about my customers and everything I would want to analyze. Now, I'm sure they're going to train on it and give you their AI-agentic view of it, which is why they're doing this. But battle lines are being drawn, going back to the old song.

One of the things you didn't mention, Bill: I just saw Kevin Weil, our friend, tweet from OpenAI that Deep Research is now searching across GitHub, Google Docs, Gmail, Outlook, HubSpot, and Dropbox. I think a lot of that's using MCP, but I do agree with you that this all seems to be happening faster rather than slower.

It reminds me of you and me back in the day, sitting in a Zillow board meeting and talking about people building dependencies on Google. You were very much in alignment with this: You can't build a brand in the underbelly of Google because, over time, they will have to take that territory back.

I remember TripAdvisor peaked at $20 billion in value, building a search engine and a recommendation engine in the underbelly of Google. Then, when Google decided it was time to do recommendations on its own, TripAdvisor's value went from $20 billion to $1 billion. That happened over many, many years, Bill.

What I see happening here is, in part, because AI is going so much faster than the internet did. I saw some analysis from my team this week that we'll post: OpenAI reached 400 billion annual searches 8 years faster than Google. They're doing over a billion searches a day now.

All of this is happening at hyperspeed. The strategic plays by all of these companies are to vertically integrate and shut down access to data because they all know that they need to monetize by offering that full stack.

That, to me, is something to watch for these companies. When you look at Windsurf, they're going to have to build their own models. When you look at Cursor, they're building their own models. The dependencies on all of these different open models, I think, are changing very rapidly.

I'm sure Anthropic woke up on the Windsurf announcement and said, “Oh, wait. OpenAI is going into verticals, and we're good at coding. So how do we think about this?” It's a reordering.

People really need to pay attention to this data thing. If you look at where OpenAI wants to go on the consumer side, access to your contacts, your calendar, and your mail—all that's going to matter. You're going to want your personal assistant to be able to do that, and whoever owns those systems, whether or not they try to block access to them, will be interesting.

Google has an advantage in that they own their own phone platform, their own Gmail platform, and their own alternative to the office stack. They should be able to make that a competitive advantage. Whether or not they'll be willing to put up a wall and say OpenAI can't scrape this, it'll all be very interesting. It's something that's super important to watch.

I mean, listen, I think it would be a bad development. I think you and I both agree that MCP is a good development in allowing more open access. At the end of the day, it should be my data. It's my Gmail that I'm paying for. It's my Google Docs that I'm creating and paying for.

If you tell me that I'm not going to be able to use the AI of my choice to access this information—to make my life better and answer questions—that will lead to a lot of disruption.

But that is the question, right? Here we have Deep Research announcing today that it's going to access all those things using MCP on my behalf, which I'm excited about, right? Because I am using all of those Google services, but I do like the idea of using ChatGPT, which has a lot of built-up memory about me, to access those services.

I think you and I will certainly be loud and proud on the side of keeping this all open, but we definitely see some early warning signs here of people closing down the ecosystem in order to try to protect some of those advantages.

2. China's 1000 Startup Strategy

Another topic, Bill: we've talked a lot about China, and one of the interesting parts of our dialogue, from my perspective, over the course of the last few months is just how well China is doing in robots, autos, batteries, and precision manufacturing. likely DeepSeek coming out of nowhere. Huawei building chips that are catching up very quickly.

But you sent me this piece of research this week, and it's really enlightening because it talks about “let 1,000 flowers bloom”—how they've, in fact, seeded these industries. There's probably some stuff we can learn here. So unpack it for me, Bill. Why has this been so successful?

Yeah, and for the record, I had ChatGPT do the analysis. It was version 4.5, the $200-a-month version. It's an amazing piece of research. I guess it could have some errors in it, but we're going to post it so everybody can see it.

I think it's imperative that we understand exactly why China is so competitive in so many industries and what led them to be successful. I had heard this from a few other people in the past, but what I really uncovered the detail on is that in these industries where they want to succeed, they actually make sure that there are 500 competitors or 1,000 competitors. Then they let the market whittle it down to what the best one is.

I think we have a perception that communist or authoritarian governments have a single state-sponsored company that's not very competitive. That's not what they're doing. They're doing something very different. They're letting entrepreneurism, Darwinian competition, and survival of the fittest create the 5 companies that survive all of that as winners.

We all know, because we believe in capitalism, that that kind of system will lead to the very best shining at the end of the day. One benefit, in addition to helping to identify winners, is that you're exposed to way more optionality because 500 startups will try a bunch of different approaches.

One thing I've uncovered in the past few weeks is that Chinese lidar is solid-state and designed very differently from the lidar that Waymo is using. In China right now, I think, it's being priced at like $130 a car—this solid-state MEMS lidar—whereas the Waymo lidar is like $5,000 a car. You end up in completely different places because of this type of competition and because you have this many people trying different things.

The other big thing that happens is that your supply chain develops in a much more robust way. If I'm a supplier of a part that's important to a solar panel or to an EV, I now have 50 or 100 competitors. That births more and more competitors for that part as well, so you end up with a much more robust supply chain, with more players at each step along the way.

I think the data suggests—and this piece of research would suggest—that that's why they've been so successful in EVs, where there were over 500 EV startups. In the U.S., what has there been? 4 legitimate ones? A handful?

Here's my question. In Silicon Valley, we have this dynamic ecosystem of risk capital. We're probably, I don't know, in the 4th or 5th generation of risk capital and risk-takers. They find each other. There's not a lot of government interaction or coordination with regard to that. It just kind of happens.

What are we seeing? How is this ecosystem developing? There's definitely venture capital in China, but it seems to me to be a fraction of the venture capital that exists in the U.S. Certainly, the tightness of the ecosystem over the course of the last 4 or 5 years has been reduced dramatically because a lot of the U.S. players backed off from China.

Is it the different states and provinces that are seeding or subsidizing to get these 500 startups rolling? How are they getting going?

Yeah, so the government involvement is at a provincial level, and that's part of why there's such a high number of startups in the area. It's interesting: if you take this as a conclusion—“This worked. This was very successful for them”—and then you turn and say, “What should the West do?” I think it's hard.

When our governments have tried to get involved in startups, it's never been about helping to ensure there were 1,000 of them. Usually, you create some program. The one that's stuck in my brain was solar because I actually had a company in the space, where there were probably 10 solar startups that had raised over $500 million. Then 3 of them were able to court the players in D.C. long enough to get money.

Solyndra is the one that people remember the most because they eventually went bankrupt. But that doesn't feel like this thing, right? That feels more like regulatory capture and who can win at the highest level. This is at the beginning of the game.

I don't know if there's a U.S. equivalent of this. I'll need to think about that. I think my first step was just to take a fresh look at why they've been successful. When I saw that the approach was so novel from what I had imagined it was, it was very eye-opening.

Well, one of the things you pointed out to me was that they deprioritized market caps, or I might even say, over the last 5 years, that they've kind of attacked the largest market-cap companies in favor, perhaps, of diversifying competition.

It seems like the one thing we can definitively say is that there's a hell of a lot more national coordination about what industries are important. Their industrial policy identifies an industry. Then what it seems like they do from the central governing authority is encourage all of the provinces to seed these companies within their different areas and allow that competition to occur.

I guess the question is, when you look at the U.S., where it's much more just unfettered competition, is the point here just to be aware of this, or are you suggesting that there are things the U.S. needs to do?

It seems in some ways like the coordinated industrial policy that's now coming out of Washington—the stuff that the president is talking about, where we have to re-onshore critical national industries, precision manufacturing, some medical supplies, some chips, some aluminum and steel—would seem to me to be fairly aligned with the industrial policy that you're discussing here.

There's so much. You just asked a question that might take 4 hours to answer, but let me try to be as terse as possible in responding to it.

I had ChatGPT do 2 more pieces of research. The second one—this would be Part 2—is worth mentioning. I think most people believe in and talk about China's subsidization. Once winners are identified, there are situations where the government has helped subsidize. BYD was in a situation where I think they were given $2 billion.

That second part walks through cases of that. I don't want to shy away from that part because that is the criticism that a lot of people bring to the table. This will give a dump of that.

But the 3rd thing, which you hinted at and which I think is very important to think about: before I get to any type of response, I want to make sure I fully understand what's happening. There does seem to be in China—and Part 3 of this research walks through this—a deep de-prioritization of market cap for successful companies.

This is something that I think should be important for policymakers to understand, but also investors. If you're buying stocks of Chinese companies, hoping that they will, like the Mag 7, turn into these $3 trillion entities.

The Chinese government may not consider that part of the objective function of what a win is. In the past 3 weeks, we saw BYD take prices down 30%. That may have had encouragement from the government. I don't have proof of that, but it looks synonymous with the kinds of things that matter to them.

If your government cared mostly about high employment and the durability of the competitiveness of your companies globally, you might take what I would call the Amazon approach and say, “Your margin is my opportunity. I'm going to be the low-cost producer, and that's going to make my competitive position relative to other countries around the world the best it can be.” If I don't have a government that's dependent upon whether or not those market caps are high, then I might encourage price competition in an industry that we're already winning at.

Well, and that's consistent. If you look at winners as they begin to emerge, China definitely plays a heavier hand. You have golden shares and veto rights held by the government. You have preferential procurement by the government. You have regulatory approvals that are required in this post-[likely Didi] era, where they went public.

We've seen the government literally disappear Jack Ma with respect to Alibaba. They've stepped in, and we have ByteDance, which still is not public. So, clearly, they exert way more control once the winners emerge. We know that they're doing this at some level with Huawei as well.

All those topics that you just mentioned are covered in these 3 pieces. If people have more interest, I would encourage them to read it. But I think in the U.S., we have a mindset that having $3 trillion winners is a positive sign. I think it's important to understand that that may not be the attitude over there, and that can lead to different decision-making.

You're making me think about some of the relative valuation comparisons between Chinese internet companies and U.S. companies. If you really think that there's going to be an obstacle to allowing them to grow bigger, that's something U.S. investors have to take into account.

I think the number one thing for me, Bill—the so what on all of this—is that we're in this competition with China. I think we would be very naive to think that they're going to do anything but be extraordinarily competitive. You and I have argued they're on the frontier of AI already. They're gaining ground quickly on chips and are right on our heels.

I appreciated unpacking a little bit of the why—why have they been so successful there? That was my takeaway. Bill, are there any other takeaways from the research that you have?

Well, there are 2. One, I think a lot of people quickly say, “Oh, China's successful because of IP theft.” If you narrow it down to one derogatory action or comment, you're ignoring this system. That's why I would encourage people to read Part 1 at least and see the breadth of the work that went into it. You could make a bad policy decision because you think, “Oh, well, if we just protect IP, then this won't keep happening,” but there's more happening than that. That would be Part 1.

Second, on the AI front, one thing we talked about last time is that all of a sudden, you open your eyes and there's 4 deep-pocketed open-source players in China. If you think about promoting competitiveness as part of what's going to lead to global success, I wouldn't be shocked to learn or find out that the government favored an approach like that. Having 4 open-source competitors, for all the reasons that they put systems in place for EVs and solar panels, seems very similar to me.

Right. So, it just makes it cheaper and easier for the ecosystems to benefit from one another, even though the economics and the margins on those products may be lower.

Yes, and one other thing that I should have mentioned that might be an objective function of the CCP is just the affordability to their entire citizenry. BYD selling a car for $10,000 is better for the consumer in China, as might be 4 open-source AI models.

Mm-hmm, interesting.

3. Talent Acquisition and Immigration Policies

Staying on the theme of China, Bill, you and I've talked a ton over the past 2 years about the need to stop illegal immigration but also to dramatically ramp up recruiting and retaining the best and the brightest to the United States. We've done former pods on this, and we've talked about the age of AI being all about talent.

I remember how excited we were after we saw the president on the All-In pod talking about how it's going to become way easier to get an H-1B visa, literally like stapling a green card to these diplomas. It's very exciting.

[Speaker?]

But what I want to do, and what I will do, is: you graduate from a college, I think you should get automatically, as part of your diploma, a green card to be able to stay in this country. And that includes junior colleges, too. Anybody who graduates from a college—you go in there for 2 years or 4 years—if you graduate, or you get a doctorate degree from a college, you should be able to stay in this country.

You know more stories than I do, but I know of stories where people graduated from a top college or from a college and they desperately wanted to stay here. They had a plan for a company, a concept, and they can't. They go back to India, they go back to China, they do the same basic company in those places, and they become multibillionaires, employing thousands and thousands of people, and it could have been done here.

A bigger example is that you need a pool of people to work for your companies. You have great companies, and they have to be smart people. Not everybody can be less than smart. You need brilliant people. We force the brilliant people—the people that graduate from college, the people that are number 1 in their class from the best colleges—you have to be able to recruit these people and keep the people. It was such a big deal. Somebody graduates at the top of the class; they can't even make a deal with a company because they don't think they're going to be able to stay in the country. That is going to end on day one.

But this week, we got a very different message, right? Marco Rubio tweeted, “The U.S. will begin revoking visas of Chinese students, including those with connections to the CCP,” which seemed reasonable, but the conjunction was “or studying in critical fields.”

Yep.

Right? That seemed out of the gates like—we all know AI is a critical field. It seemed really broad and concerning, and really a 180-degree turn from what the president had previously said on the All-In pod. I saw that you tweeted something about this. What was your reaction to this, and how are you feeling about where we stand today on it?

Yeah, and I think in one of our very first episodes, we posted a video of Reagan—I think it was his last speech leaving office—where he talked about America being successful precisely because our doors are open and inviting to the best and brightest from around the world. All of that makes sense to me. This particular action, I think, has the potential to run counter to all those positive things.

I wish there had been more follow-up on the Trump promise. I would be hugely supportive of that. We've all seen the list of all the immigrants that have been so successful and critical to Silicon Valley's own success. You and I've also talked about the fact that some people say 50% of AI researchers are of Chinese origin, and I believe now the patent count in AI coming out of China is larger than the U.S.

One interesting takeaway from what we just talked about is maybe the Chinese government isn't as interested in entrepreneurs being as successful economically from an equity standpoint. So, if we're the land of opportunity, they would want to build it here. They would want to be citizens here. They would want to build their companies here.

I'm all for not having spies, right? That makes sense. But when you take these kinds of broad statements, they have the potential to be slippery slopes, right? Where the next step is what? You start studying LinkedIn for every single AI company, for anyone of Chinese origin. I think that has the potential to take on a McCarthy-like perspective that could be very dangerous to our long-term competitiveness.

Well, I think part of it, too, is just about Brand USA. What is the brand we want to project into the world, right? It's not just about the students who are already here. It's about the generation of students who are still in China, or still in Southeast Asia, or anywhere else in the world—in South Africa, like Elon Musk and David Sacks, and others.

Is this a place that they feel is capricious and can just change on a dime and all of a sudden throw them out after they've invested time and energy here, or is this truly the land of opportunity, the place they want to go build their dreams?

I think the cost to the U.S. brand on a global basis is significant. We've been the place for the last 3 or 4 decades, or much, much longer, but certainly in the age of technology, everybody's wanted to come and do these things. It's been a great national benefit. Trillions and trillions of dollars' worth of U.S. enterprise have been created, our economic growth and productivity have increased, and our standard of living is higher. We've stayed ahead in all of these critical national security areas precisely because we've been so inviting to people around the world.

And we were making the argument, when we had Aaron Levie on, that we need to dramatically increase the number of H-1B visas and make it a lot easier for people to get them. When I hear this, I have to say, out of everything that's occurred in the administration, in some respects, I could not have been more thrilled by the president's promise on the All-In Podcast. I thought that was a big turning point, I think, for folks in Silicon Valley.

To see what felt like a 180 on this, I certainly hope that it was misinterpreted, that it's very narrow, and that we are going to project an inviting and welcoming Brand America. Certainly, right now it is so critical in the age of AI to get the world's best researchers here. I saw a study that suggested that 40% to 50% of the AI researchers in the United States—our best researchers—are Chinese.

So, if you're going to go after Chinese students studying AI at Stanford, by definition, the slippery slope is not that far to saying, "I've got to go after these researchers." They're theoretically a lot more of a risk to our national security than a student studying at Stanford. Again, I'm with you. I'm all about being tough. You have to be here legally. I don't want anybody spying on us. But I think it's a very dangerous place and really destructive to our national brand if we do this.

When I saw your tweet about this—that the best way to stay ahead of China is to poach their talent—just a few weeks ago, we were talking about an AI visa, right? If you were an AI researcher from China in the United States, we had to give your family an AI visa to come over here so that you don't have so much pressure on you to go back to China. So, we need to bottom this out, but I certainly want to weigh in that we need to focus on recruiting, not merely trying to understand China.

Some people label you as a China-phile just because you're not a China hawk, and I worry more in general that the China hawk mindset leads you to policy that's really bad, especially people who jump to that place. A lot of people are these days, right? I just think that policy is one of those things where you can have an intent, implement a policy, and get the exact opposite outcome. That's one of the things I talked about: the export controls on China probably caused Huawei to catch up so quickly.

The Biden-era diffusion rule was going to allow the Chinese AI stack to win the global race in AI. Now we see—and I think David Sacks has appropriately called this out—a conflation between people who are just AI decelerationists and want to stop AI and capture it for themselves, right? They're now positioning themselves as China hawks so that they can gather a bigger alliance in order to slow this down. I think it's all bad policy.

From my perspective, we need to focus on our own race, look at the lane ahead, and run as fast as we can. If you and I want to win championships and build a championship basketball team, we should not care where in the world the basketball player comes from. We just need to get the best players on our team to win the championship, and we ought to take the same approach to AI and technology.

Other people have said this, so I don't want to belabor it too much, but the entire Manhattan Project was heavily impacted by immigrants. Many of the great things that have been accomplished in this nation are because it attracts people from around the world and we get to cherry-pick the best and the brightest. The fact that the skilled-immigration number has been stuck, I think, at 200,000 to 250,000 a year for 20 years is insanity.

4. Rare Earths, Chips / China Trade Deal

We should be doing the opposite of this. We should be figuring out exactly how to increase that number. Brad, staying on the topic of China, the rare-earth issue has come back to the top of the headlines, and the relationship between the 2 countries is still at an impasse. What are you hearing? What's the latest here? How could it broadly affect companies in the US?

There was this Wall Street Journal headline that you and I shared. I think it said, “China Plays Tough on Rare-Earth Exports, Imparting Powerful Lessons on the Pains of Dependence.” It pointed to car companies risking factory shutdowns over this rare-earth magnet shortage. We had been hearing about this earlier in the year. I think I called it a kill shot by China that can really cause massive disruption, because they really are global monopolists in the production of key magnets in almost every electric motor and electric part.

The real question is, is there a way out of this? How do we see this playing out? I see a real parallel here, Bill, between rare earths and AI chips. In both instances, each country views them as existential. China views AI chips as existential because they know AGI is critical to national security, national economic security, and so on. We view these magnets as existential because we have to keep our critical industries going.

We use this to not only build electric motors that go in our Teslas, but we use them in electric motors that go into parts that are critical to our military. President Trump is talking to Xi on Friday, a couple of days from now. If I were the president, what would I do? I think I would trade rare earths for access to U.S. AI chips, specifically this now-deprecated Blackwell 30 chip.

Let me make 4 points as to why I think this would be a great trade for the US at this point in time. Number 1: this B30 is this deprecated chip. One of the concerns we had about the H20 was that there was too much high-bandwidth memory on it, and that if you cluster enough of them together, they could be used for training.

What they did on the B30 is they took HBM off it altogether. It also doesn't use this CoWoS from TSMC. So, it gives them a chip that's competitive in the market, but it actually degrades it from a training perspective. It still provides a big gap to where the US frontier chips are—the Blackwell 200 and 300—but it is competitive in the Chinese market.

What does that do? We've talked about this the last few weeks. That keeps half of the world's researchers and developers who are in China in that CUDA ecosystem. It allows NVIDIA to compete, and I think it slows down their ability to run the table around the rest of the world. I think when we ban chips to China, it's going to accelerate Huawei, like we just talked about—unintended consequences.

It's going to bring everybody into their developer ecosystem, and it's going to reduce the number of developers in the NVIDIA ecosystem. So, I think that's a bad thing.

Number 2: selling them these chips, which I don't think materially advances their cause in AI, generates billions and billions of dollars in taxes for the US government. It reduces our trade deficit. Remember, if we're selling them $40 billion worth of chips and all of a sudden we take it to 0, we've just increased our trade deficit by $40 billion.

Finally, it produces billions in revenue, or profits, for NVIDIA, which they can then plow back into making sure that NVIDIA stays at the front of the AI race, which is a proxy for the US staying in front in AI. So, that's point 2.

On point 3, if we do this trade—and I don't know that China would do this trade—it gets us access to those rare earths right now, which is absolutely critical, and it buys us time to stand up our own rare-earth supply. There's no doubt what this moment has revealed to both China and the United States is that we have to get back to our critical industries: precision manufacturing, rare earths, and so on.

That's going to take years to do, and China is surely saying to itself, "We've got to wean our dependency off of NVIDIA," but it also takes them years to do. So, it allows us to continue to build that out without the disruption. If we don't do this, then we're going to have a massively disrupted economy over the next 6 quarters, slowing down economic growth and causing problems and critical shortages in parts for the military, in parts for the US auto industry, and so on.

Yeah. So, 3 reactions to this. First—and they're all in agreement—it'd be tough to balance trade if we don't let them have the stuff we're really good at.

The stuff you trade—this is comparative advantage; this is economics 101. The country sells the stuff it's best at. So if you take that off the table, they're not going to buy our crap. There's no way to get to trade balance if you're taking our best stuff off the table.

I totally agree on Taiwan. I've made this point for a while. I think Jeffrey Sachs makes the same point. You need to be careful that the actions you're taking aren't the exact ones that encourage that to happen most quickly.

And then, thirdly, part of why we're in this battle over these rare-earth components is that we did these export controls. It wasn't just about the NVIDIA chips. I think recently we are trying to tell the world they can't buy the Huawei chips.

So this is outside of America trying to enforce an export ban on China's products selling into Europe, selling into South America. I think that is beyond the scope of what our government should be capable of doing. I've talked about this in the past: I expect ASML to just ignore us telling them they can or can't do something. I worry—and I've mentioned this before—that rather than build a wall around China, we're going to build a wall around America.

Yep. Well said. Listen, I think huge credit goes to David Sacks and Howard Lutnick so far for repealing the Biden diffusion rule, reopening global markets, and making sure America is running as fast as it can so the American AI stack can win around the world.

I think it's a closer call for them on U.S. chips to China, but I hope they take a close look at this deprecated chip. I think it would be a great win-win trade for both countries. We need those rare earths.

By the way, I'm not saying that this is a permanent state of nature. Think about this, Bill. Today, we have about 0% of leading-edge chips fabricated outside of Taiwan—almost nothing in the United States. By 2030, so in 4 or 5 years from now, people think that we'll have upwards of 15% to 20% leading-edge capacity in the United States, which is a huge step forward.

I saw a presentation this week involving the United Arab Emirates. If they were to build an advanced fab with TSMC and give the U.S. some sovereign influence over this fab—if it was a joint deal—we could increase the market share of the United States' advanced nodes to almost 40% or 50% in 4 years.

That would be an extraordinary rebalancing of the global supply chain when it comes to advanced chips, but we're not going to do that if we're in a war over Taiwan. Right? And so it seemed to me that now would be the time that you would find this reasonable middle ground.

We would run like hell to build out capability in Arizona and in other countries, like the UAE, that are friendly to us, where we're building out this leading-edge capability. It would seem to me a much smarter policy than pursuing the one that we're on now, where we have global embargoes: China on rare earths and the U.S. on chips.

Enough said on that. I want to jump—I know that we're short on time. Let's talk a little bit about just what's going on in the market. You had some thoughts.

Well, I mean, I'm more interested in hearing your thoughts. You were cautious at the beginning of the year. You got less cautious as the market has rebounded. Yet many of the biggest issues that I think people care about—whether or not we can get some agreement with China, what's going to happen with the tariffs, and there's new information on that, with judges blocking and not blocking the tariff actions—and then the debt issue, which now has a whole bunch of noise being stirred up by Elon, who's now saying he doesn't support the big, beautiful bill.

There seems to me to be as much uncertainty as there's ever been this year. But I'm very curious about your take.

Well, the market's clearly not agreeing with you at the moment, Bill. We've had this incredible bounce. The Nasdaq is up 20% from its intraday lows. The likely Russell 2000 is now just above flat for the year, maybe up 1%. The S&P 500 has also had a huge bounce, now up around 2% for the year.

I think it was on May 2 or early in May when we talked about changing our flight path, because I saw this approach to getting to the other side of tariffs: the Bessent consensus winning, signing the reconciliation bill that would extend the tax cuts, and having new tax stimulus. As I sit here today, the bounce makes a lot of sense to me. But where we go from here matters a lot.

What are the key things that I'm looking at? First, on tariffs, China is the big enchilada. The president is talking to President Xi on Friday, and you have to believe that the Bessent consensus—or accord—that was negotiated in Geneva is going to get us to a status where global tariffs land in that territory, on a blended basis around the world, of roughly 10% to 15%.

We talked about whether they're going to be trillions or hundreds of billions. It's got to land in that lower quadrant, or I think the market moves lower. I think that's still where we're headed. But that's definitely the topic we just talked about. There are some binary outcomes, I think, as it relates to the U.S. and China. It looks like Europe is making good progress.

On the reconciliation bill, it looked like that was making incredible progress. I still think it will. Listen, I think Elon has appropriately pointed out that the challenge is with the debt, but I would really encourage people to look at this Ray Dalio piece and also what Bessent has now been saying.

They call it 3-3-3, but it's about how to get us to 3% GDP growth and how to get us to a deficit-to-GDP ratio of 3%. You can't just cut $2 trillion in a single year. That would be an 800-basis-point headwind to GDP. It would throw us into a recession, if not a depression-like state, because, remember, government spending is a component of GDP.

It's about what the flight path is, and I would like to see Bessent lay out this 4-, 5-, or 6-year plan to get to this 3% deficit-to-GDP ratio. It's not going to happen in the reconciliation bill because, as many people have discussed, the reconciliation bill does not touch discretionary spending. That will come by way of the rescission act that was just sent to Congress, and the Speaker of the House has said that he's going to vote on it. I expect that they will pass it.

There's a confusing set of issues, but to be clear, I think that we need to see the reconciliation bill pass because that's what extends the tax cuts, which I think are critical. In the absence of that, you get a $4 trillion tax increase, and markets go a lot lower.

In addition to that, the no tax on tips, the no tax on overtime, and the ability to have a deduction against your Social Security taxes—that's probably $300 billion or $400 billion of new stimulus to the economy. That's what's going to give you the growth, Bill, to get you back to 3%.

If you're a market participant, I believe that we're going to land the plane on both of those. If you believe that we're going to land the plane, then I see accelerating economic growth in the back half of the year and into next year.

But this is being optimistic, right? The proof is in the pudding. We've got to see those things land. If they don't, I expect the market will be back down 10% to 15%, which is where we were just a few weeks ago. So there's still a lot of volatility out there.

There's been a lot of talk about the 10-year rates, Bill. One thing I just want to point out is that the 10-year rate has gone from 4.2% back up to 4.4% or 4.5%, and a lot of people are hand-wringing about this and saying this just goes to prove that we're in this national debt spiral and nobody wants to buy our debt.

They compare us to Spain and other countries that were in liquidity crises not too long ago. But I just want to point out, as several other people have, that the 10-year yield has been in a 4% to 5% range, Bill, for the last 2 years.

This is far from the predictions we heard. Remember Larry Summers at the end of 2022 saying that the 10-year was going to 7%, and that we were going to have hyperinflation? What have we seen? Core PCE just came out lower than people expected. We're now on a core PCE run rate that causes me to believe that the Fed will reduce rates.

The market is saying they're going to cut rates twice in the back half of the year. Why? Because we're still in restrictive territory. The Fed has said we're in restrictive territory. They've said there's not a new neutral rate. So the bond market, to me, at these levels is not that concerning.

Seriously, I would like an important national discussion on a balanced-budget amendment or some other mechanism to get us to this 3% target. I think that's super important. But if you're saying, “Should I be really scared that we're on a path to 7% interest rates over the course of the next 6 months?” No. I think you could very well find yourself in the exact opposite position.

If they sign the reconciliation bill and land the deal with China, and then you get a couple of rate cuts in the back half of the year because inflation continues to come in, this market's going to be a lot higher. So don't take yourself out of the game, but I think it is a wait-and-see approach.

What do you put the probability on the deal with China coming together?

I put it at a pretty high probability.

And remember, I was asked about this on CNBC in the heat of the crisis. Trump was putting Navarro on the Sunday talk shows, along with Bessent, and they had 2 very different points of view. I said you have door 1 and door 2, and the president has to choose.

At the time, I said, “I think at the end of the day, he wrote a book called The Art of the Deal. He is a negotiator. He is a fair trader. He wants a fair deal for the United States. He wants to re-onshore critical national industries, but I do not think he wants to slam the brakes on the global economy and put the global economy into a recession,” which he knows it would.

And so I expect we’ll get a deal done with China, but that means China has to step up and be willing to deal as well. I think the tea leaves read pretty good on that, but we’ll know a lot more over the course of the next few weeks.

Okay, we’ll watch. I have a couple of things for our lightning round, Bill.

5. Corporate Governance and Delaware Dilemna

You talked about this. We had a great discussion last week on this Delaware situation. I think you’ve been out in front on this, telling companies that have used Delaware for their board that they have to consider exiting Delaware; otherwise, they may be breaching their fiduciary duties.

I saw Fortune magazine actually quoted you. Their headline was, “Something’s Awry in Delaware: New Study Reveals Lawyers in Tiny U.S. State Are Winning Fee Multipliers for Major Companies Up to 66 Times Their Normal Hourly Rate.” You got 2.5 million views on this Delaware clip after you got a little promotion from Sacks and Elon. Was there any feedback you got this week? Did you hear from companies? Are they reconsidering whether or not they want to be in Delaware?

I think a lot of companies are reconsidering. There are 2 things that have become clear to me since then.

People talk about who is at risk here. I think it’s actually the highest-profile companies that are at risk because they’re the ones that an activist judge is going to want to make an example out of. Maybe if you’re a smaller market-cap company, it’s not something you need to think about with urgency.

We discussed why people were in Delaware: because it was predictable. When you’re a young entrepreneur and they say, “Incorporate in Delaware,” you’re like, “What? Why would I do that?” And someone says, “They’ve had corporate law for a long time. It’s very predictable.” And you say, “Oh, okay.” So everybody does it.

Well, that’s no longer true, and so I think everyone has to consider it. The other thing that I verified, which I think is really important, is that we live in an age where companies are staying private longer. Many entrepreneurs and many board members think that litigation around shareholder events is tied solely to public companies. That is not true.

If you’re incorporated in Delaware, you can be sued. If your shares are trading more freely in the secondary market, you’re at risk as well. I would just say, just because you’re not public doesn’t mean this shouldn’t matter to you. In fact, I can imagine someone who has an activist bent being particularly excited about bringing a case against a large private unicorn.

You certainly influenced it there. I can tell you this: I’ve had a couple of companies ask me in the wake of that whether or not they should be reincorporating. I think there is a movement afoot.

Something else we talked about in relation to corporate governance on a prior pod—and this is these proxy advisors, ISS and Glass Lewis. They have a monopoly on giving advice, particularly to passive shareholders, about how they should vote their shares in the annual vote. We’ve come to discover that they’re probably not the best and most objective when it comes to doing it, or they may have political agendas that are misaligned with your own.

Senator Hagerty had a tweet yesterday that caught my eye. He said, “The 2 largest proxy advisors have 97% market share. They wield control over millions and millions of votes. They’ve hijacked corporate governance, and an investigation into their anticompetitive and abusive practices is long overdue.”

I hadn’t heard about this in a few months, but any reactions to that?

I don’t know if you remember, but when we did an episode early on about stock-based compensation, before that I had reached out to ISS to talk about how they come up with their different philosophies. It was very clear to me that there was no one there thinking from a first-principles perspective about what types of policies or actions a board could take, or a compensation committee could take, that would align interests with shareholders.

I would think that if you run a large index fund—if you’re BlackRock or whatever—and you’re voting your shares for or against different policies, the number 1 thing you should care about, perhaps the only thing you should care about, is whether they’re looking after the interests of shareholders. We clearly crept away from that in the past 10 or 20 years.

The senator you’re talking about said, when he was giving this talk, that these 2 companies are now both over 80% owned outside the U.S. They both have corporate philosophies that extend beyond what we just talked about, which is something I’ve always felt strongly about. I grew up in the school that fiduciary duty is the number 1 responsibility of all board members, and that means looking after the shareholders.

I think 2 things should happen. First, I do wonder—and this would be a question for the senator—why are so many companies paying attention to what these people say? Are they just loyal? Are they just lazy? Do they not want to do the work themselves?

Admittedly, if you’re running an index fund, you’re on thin margins, so maybe you don’t have time. But they should wake up and realize that these companies are not solely looking after the interests of shareholders; they have other interests in mind.

Ironically, and this gets back to policy, one of the key reasons so many companies have super-voting shares is so that these 2 companies can’t tell them what to do. It’s ironic because most people think of super-voting shares as less-good governance, a lesser form of good governance. But if these companies that are measuring you and telling index investors how to vote aren’t looking after shareholder interests, then you may need to take that step precisely to get away from them.

I would encourage the BlackRocks and all the ETF people not to simply vote with what these people say. Maybe what we need is an alternative to these 2 things. You and I have talked about SBC. I think there are a number of things you could use AI for, putting them into a model to say, “What is the type of good governance that aligns shareholder interests?” It would be good to see something like that pop up.

I love it. Let’s incubate that, Bill.

Okay, let’s incubate that.

Anybody out there, let’s find some of the AI founders and engineers who were playing in the Altimeter poker game last night. They were looking for ideas. This is a great one.

I would encourage any of our listeners: There may be someone already doing it, someone who’s already working on an alternative to these 2 companies. If you are, reach out to us. We could help fund it, help promote it, and it would be exciting to see.

Yeah, I know. That’d be great. Well, it’s been another good one, buddy. Great seeing you. Until next time, take care.