Decoder with Nilay Patel
00:30:48 · Willy Shih, Nilay Patel
We have to make the product more efficiently and we have to make better product, right? So there's this internal competition in the Chinese marketplace that is really fearsome and it is hard for western companies to compete there, but that that is an important dynamic that's going on as well. [00:31:08] S2: The interesting thing about that is I compare and contrast, China with The United States is the system in China is understood, but it's stable. You can make a lot of criticisms of that system. I think you can make an endless number of human rights criticisms of the Chinese government. They're obviously a repressive government in lot of ways. But the economic system is understood and it's controlled at the top in a meaningfully stable way. Right? The goals are apparent, the investment is apparent and there's a lot of competition to achieve those goals with that investment.
00:31:37 · Willy Shih
[00:31:37] S3: Two things about that which I think are significant. The first is, they engage in long term planning. Okay. Five year plans. Now, when I was a kid growing up, I used to look at China's five year plans and I thought this is a big joke because they would make a lot of mistakes, right? Like Mao Zedong's Great Leap Forward and, you know, we're going to do this new type of tillage on farming and they cause this huge famine and millions of people die. Okay. But to the credit of the government there, when they do this type of long range planning, they learn from their mistakes and they get better. And, you know, if you look at their current five year plans and the last couple of five year plans, you know, they're good plans, right? They understand, what's important and they focus on those things that's important. Then the second point is, it's like what kind of people do they have implementing these plans? I was in one of these third tier cities some number of years ago and I was having dinner with the Economic Development Commission there. And I said, you know, at the beginning of dinner, it's like, hey guys, just for fun, let's go around the table and talk about what did you study in school, right? Mechanical engineering, industrial engineering, electrical engineering, metallurgy, metallurgy, mechanical engineering, right? You go to Washington, it's like what do you study in school? Political science, economics, government, you know. And so you have these technocrats competing in technology intensive businesses and having that kind of understanding, okay? And by the way, that's one of the reasons I wrote this book, right? Because I was serving on these committees appointed by the Commerce Secretary on supply chains. And I realized, it's like we have civil servants who don't have the exposure to supply chains and how stuff is actually made. And China had this plan that was called the 863 plan. Okay. And the 863 plan was when four scholars went to the government in Beijing in March 1986. That's why 863, right? 'eighty six March, right? So the 863 plan. I remember the first time I looked at the 863 plan and it was all about, if we want to be a modern economy, we got to be good at these things. And I looked at that plan in the 1990s and I said, this is a good plan. And they've executed every one of those things.
00:34:04 · Willy Shih, Nilay Patel
They said, we need to be good at all these things like information technology, biotechnology, you know, semiconductors, they still have a ways to go but you know, they identified civil aircraft, they identified all these different technologies, communications technology, software, you know, robotics. [00:34:23] S2: I would contrast that with the Trump administration here in in in Trump's second term where we already talked about Liberation Day. Howard Lutnick is on television saying, we're gonna move manufacturing back to The United States. This is the goal of the tariffs. And then three weeks later, there's 900 lawsuits about the tariffs and Howard Lutnick is back on TV saying, robots will do all the manufacturing now. This is the goal. We're gonna do heavy automation and then the tariffs get struck down. And they find a new law for different tariffs. And it does not seem like the same kind of long term planning that can be stuck to, or the same kind of environment where businesses understand the stability of the trading system such that they can compete ferociously. Every CEO who does manufacturing comes on the show, usually ends up talking to me about how they scramble to buy RAM at affordable prices to make their products, which has to keep them from doing anything else. How would you contrast that? Can we get out of this moment where it's a pure scramble or is this fully shaken everything up?
00:35:21 · Willy Shih, Nilay Patel
[00:35:21] S3: We're in a very transactional environment. You know, everything is everything is short term and these rapid changes that you see, like on the tariffs, if you look at a map of 2025 and 2026 and put a dot everywhere there was some tariff action, it looks like a shotgun hit the wall, right? You know, there's all these spots all over the place. Okay. And the problem with that is when you have that type of instability, it's very hard for a company to make any kind of long term plans, right? Before I build a factory, I want to know that I'm going to have stable demand for a couple of years, at least until I have a chance of earning return on that thing. Okay. I've talked to a couple of companies about, and these were overseas companies thinking about coming into The US market. And they said, well, you know, I can't do it because things keep changing. Okay. Do I go into Mexico? Do I go into The US? What part of The US do I go into? Especially things like semiconductor fab. It's like, you need to know that you're going be able to get ten, twenty years out of it, right? And it is like when things change every, every couple of weeks, what that does instead is say, I'm just going to hold off on investment, right? Because it's just too uncertain. Changes too often. [00:36:49] S2: Are you seeing that slowdown in investment? Are you seeing companies say we can't actually invest in manufacturing in The States?
00:36:54 · Willy Shih
[00:36:54] S3: It varies. You know, I see that for a lot of companies saying, you know, where do I want to put my production operations? Okay. Now, we see some things like car plants coming into The US and usually that's a function of the pain has just been too great. Okay. But, you know, the whole auto tariff thing is also a little bit crazy. Okay. Because if you look historically at production strategies in the auto industry, okay, typically when you build a plant, you size a typical plant to build about 200, 250,000 units of a model or a model family, right? Because that's sort of like the efficient scale for an auto plant. Okay. So then what you have is you have a company like BMW that says, great, I'm going to build all my X Series SUVs in South Carolina. Okay. I'll build, you know, three series somewhere else. I'll build five series somewhere else, you know, and I'll build seven series somewhere else. And then what I'll do is I'll exchange them, right? So BMW in South Carolina or Mercedes in Alabama, they build certain models in The US, export them to the world, and then import other models, you know, so that you have the whole product line. You know, Toyota does that. For example, they build more Camrys in The US than everywhere else and they were exporting some of those as well. Okay. But then when you start putting tariffs on imports, that screws up that whole strategy. Right. You know, and again, it's a decision that was made not understanding how the automakers had laid out that strategy. You need to understand how the supply chain is structured, why it's structured the way it is, and then you can be more thoughtful.
00:38:59 · S0, Nilay Patel
[00:38:59] S0: Support for this show comes from Outshift by Cisco, which is Cisco's incubation engine for frontier technology. Imagine a company where every department can talk, but none can work together. Decisions stall, people spend all day chasing updates, mistakes slip through the cracks. That's the challenge facing multi agent AI today. The fact is when AI agents work in isolation, more AI doesn't mean better AI. And if agents can't work together, you're just scaling the confusion. Outshift by Cisco is here to help. Outshift by Cisco knows communication doesn't equal collaboration, [00:39:33] S2: and