The Ben & Marc Show: China Has Scale. Can America Catch Up?

0:00:07 Russia today is outproducing NATO on 155 munitions and took about two years.
0:00:13 We have no strategic plan as a country for how we preserve supply in a catastrophic situation.
0:00:17 Every war game we run, we run out of munitions and missiles in like six to seven days.
0:00:22 And then it takes about two to three years to refill that battery.
0:00:26 We shoot all our missiles in one week and then we have none for two years.
0:00:31 If the next conflict demands both brains and bulk, can the U.S. combine innovation with
0:00:36 industrial scale fast enough to win? On this episode of The Ben & Mark Show, we’re joined by
0:00:42 Brian Schimpf, co-founder and CEO of Anderil, and Chris Power, founder and CEO of Hadrian.
0:00:45 They break down what it really means to out-invent and out-adapt.
0:00:50 Ukraine proved that mass production matters and that advanced weapons without industrial capacity
0:00:55 don’t deter. We also discussed the future of U.S. manufacturing, supply chains and rare earths,
0:01:00 automation, off-take agreements, regulatory bottlenecks, and how China’s anti-access
0:01:03 systems shape the fight over Taiwan. Let’s get into it.
0:01:12 Brian, I believe Palmer has said in an interview that as we think about competition with China,
0:01:18 it’s going to be hard to match the scale from the get-go, but where we can continue to win is in
0:01:23 innovation and R&D and that can make up for it. How would you edit that characterization or why
0:01:25 you want to flesh out more of what that means?
0:01:33 Well, I think the, um, like, so the U.S. has taken this strategy, uh, over the last 20 or 30 years,
0:01:38 based on this, like, probably very anomalous and incorrect Gulf War experience, where the U.S.,
0:01:43 having prepared to fight on, like, the most aggressive ally with the Soviet Union, had invested
0:01:48 in all this technology, believed that somehow punching down on a third world nation and winning
0:01:54 was indication that the strategy was vindicated. And so it went down this, like, conclu– like this
0:02:01 conclusion of technical superiority is the only strategy, and that every marginal improvement
0:02:05 we can make to these things being exquisite, these weapons, these aircraft, all these things,
0:02:14 was going to be the dominant strategy. Um, and then Ukraine happens, and, you know, the reality ended
0:02:21 up being much more historically common. That these wars are protracted, that they are industrial in
0:02:27 scale, and that the, uh, probably, if you were to bring it down to one variable, the amount of kilograms
0:02:32 that the, you know, you can throw at each other turns out to probably be the– the single most important
0:02:38 factor. Things have to be technically superior, all this stuff, but, like, just mass really does
0:02:43 matter. And so I think the, you know, the technical superiority is a huge advantage, right? Like,
0:02:48 we’re not going to just out-produce China on, like, you know, dumb ammunition, right? Like, that–
0:02:54 that clearly– we have to have an edge around, you know, our space capabilities, how we can sense,
0:02:58 like, how we can confuse them, all these things, like, how sophisticated our weapons are.
0:03:03 But I think the part that got so clear out of Ukraine was that industrial production has a
0:03:09 deterrence factor all itself, and that it is critical for winning a conflict. And when most of the war games
0:03:14 with China show that we’d be out of munitions in, you know, kind of the key high-end munitions in,
0:03:20 like, eight days, that’s not a deterrence factor really anymore. Uh, with no apparent ability to,
0:03:28 like, substantially increase production for a variety of reasons. Um, and so I-I think the-the-the
0:03:33 technological superiority does matter, but I think the belief for a long time was that was sufficient.
0:03:39 But a low number of really exquisite weapons is not going to win a conflict. And I think Ukraine
0:03:43 kind of definitively showed that to the world, that that is not a winning strategy.
0:03:53 So, what do you think-or, like, what are the factors that cause us to be so, uh, behind in manufacturing?
0:03:57 And, you know, are they correctable?
0:04:03 I’ll take a stab at this, and-and then Chris will have a lot more opinions on the matter.
0:04:10 Um, you know, I-I think the-the erosion on these things, it eroded quite quickly,
0:04:16 and I think it takes decades to build back. Um, the-you know, we-we-we kind of systematically
0:04:21 outsourced all of the, you know, kind of key-scaled manufacturing things at a time when,
0:04:26 you know, electronics, all these new generations of technologies became so prevalent.
0:04:31 We just never built the skill sets in the U.S. for mass manufacturing at scale,
0:04:36 with very, very few examples. Uh, or counter examples to that-that sort of pattern.
0:04:42 Um, and I saw it like, you know, when we-it-it kind of anything we’ve-we’ve tried to run down
0:04:46 on the manufacturing side, looking for a great head of manufacturing. There’s basically
0:04:54 no re-like, tier one execs we could find that were American-born. Uh, we ended up finding someone
0:04:59 who was from Canada, but everyone I found who was, like, great, thinking about this differently,
0:05:04 like, really novel approach, almost all were foreign-born. And I think it’s just not an aspirational
0:05:11 job for young founder-mentality people for quite a long time to go into manufacturing. Like, it was just
0:05:16 not a sexy, exciting, high-growth space. We just said, “Nope, low-cost labor,” or whatever. It was the
0:05:20 original theory, was-was the primary strategy. And then, you know, kind of China built up this-this
0:05:26 very technical, sophisticated capability on it. Now, to get that back, uh, it is going to take some time,
0:05:33 right? And the U.S., the number of startups I’ve been seeing that are working on software to enable
0:05:38 manufacturing, that are working on automation techniques, that are working on different approaches
0:05:44 to, uh, all sorts of-of-of, you know, kind of composite manufacturing, wiring harnesses,
0:05:50 like, all over the place. Um, it is massively ramped in the last three or four years, I think,
0:05:56 reflective of the drive to get these things reshored onto America. And-and I think what,
0:06:02 you know, has worked so well in Silicon Valley is that, um, you know, it’s like this diffusion process
0:06:08 of knowledge, expertise, people moving between jobs. You just get this insane ramp and learning
0:06:12 that happens incredibly quickly. It’s gone. Like, there’s just no concentration of those people
0:06:16 used amongst in the U.S. And so, like, you just had this total erosion that happened very,
0:06:22 very quickly. Now, I think it will take a while to build back, but I-I think it’s gonna-it’s gonna get
0:06:29 there. Uh, I don’t think it’s gonna start with, you know, making low-cost iPhones, but I think starting
0:06:34 in defense production, starting in aerospace, areas where there’s, like, a national interest in keeping
0:06:39 this on the U.S., and then looking at mass-producibility there, and then we’re finding a lot of great
0:06:45 suppliers not just in that space, folks like Chris, but, uh, also in commercial manufacturing,
0:06:49 automotive manufacturing. There’s a lot of good folks that do exist. It’s just figuring out smart
0:06:54 ways to tap into it and understanding on the engineering side, on the practices side, how do
0:07:00 you really do this at scale is-is just a lost skill set in the U.S. So it is just gonna take a lot of
0:07:05 practice, trial and error, and iteration to get back to. Um, but we just seeded that. We just said,
0:07:08 “We’re not gonna do it.” And then we shouldn’t be shocked that we don’t have anyone as good at it.
0:07:14 We just haven’t even tried. Yeah, yeah, yeah. And Chris, being in that field and kind of building a new
0:07:22 manufacturing company, uh, like, what are the kind of issues in the U.S. with doing that here?
0:07:30 I think there’s several, and I’ll break them up into three buckets. One is that most of the manufacturing
0:07:36 that we need for the things that are onshore in defense is extremely highly skilled. And the
0:07:43 kind of Apple McKinsey thesis was, “Let’s offshore the easy parts of production first, and then keep the
0:07:47 value here.” And that didn’t really work. And it turns out that if you disconnect design from production,
0:07:52 you end up with really bad design at the same time. Um, and I think Apple trained something like 28 million
0:07:58 Chinese people on really advanced manufacturing skills and invested, like, I think it’s to quote
0:08:04 Patrick McGee’s book, like 50 to 60 billion throughout the CapEx. More than the Marshall Plan, just to give a…
0:08:11 It was like 10 chip sacks, basically. And so two things happened. One is, like Brian said,
0:08:15 all the jobs went away and therefore no one got into manufacturing. Um, why would you enter,
0:08:20 why would you tell your son or daughter to enter a dying industry? Uh, and then secondly, you kind of,
0:08:26 people forget that we didn’t have a defense industrial base in World War II. We just had the
0:08:31 best industrial base that pivoted to defense when we needed it. And to Brian’s point, mass was the
0:08:35 only thing that won. Like, I don’t even think our tanks were that good. We just kind of like McDonald’s
0:08:42 the shit out of them. Um, that’s a good phrase. And we’re operating in, like, everyone is in the
0:08:46 mental model of we’re still the America we are in World War II. And from a productive capacity standpoint,
0:08:51 we just are. So we kind of like, we were a data center company and then country, and then we gave the
0:08:58 data center to the Chinese. And it was like, okay, we, you know, the real problem here is two things.
0:09:05 One is slack capacity, because we used to be able to put defense spend on top of manufacturing hours
0:09:11 that was commercial. Um, so you, all these businesses used to run 70% on commercial high
0:09:15 volume with 30% of the business with defense. So it was kind of this load balancing effect that just
0:09:20 doesn’t exist anymore. And then the real underlying problem is my thesis is that basically everyone
0:09:26 that’s highly skilled in any manufacturing domain is basically 62. So it is a skilled labor replacement
0:09:31 problem. Uh, cause it’s not just the capex. The capex is actually quite easy as long as you’re good at
0:09:38 fundraising and you can back it with contracts. It’s really the, the skill of it. Um, and the only way to
0:09:44 replace that skill in my mind is basically high levels of automation to kind of make those jobs simpler
0:09:51 so that a new workforce can ramp up in a month. Um, and then from a demand side, then you’ve got this
0:09:57 like demand equation, right? And even with Brian’s products or other people’s products in defense
0:10:02 that are by number of unit manufactured, like there’s more of them than other defense products.
0:10:08 It’s still nowhere near the kind of commercial scale that would, you would really need to get some reps on.
0:10:14 Um, and I think there’s two ways to approach it kind of strategically. Number one is subsidize a massive
0:10:18 product and like kind of let the industrial base kind of bootstrap itself around that.
0:10:25 Or our strategy is basically kind of factory first up. So the capacity exists, but it’s kind of this
0:10:30 chicken and egg problem. Brian, I’m sure outside of your business, I know you’re close to the drone space
0:10:34 still, and I don’t think this applies to Andrel, but I think the army still has this real problem of like,
0:10:37 well, we really love this drone. We want 10,000 of them, but you also don’t have the factory
0:10:40 preexisting. So we’re not going to give you the demand signal. And there’s this,
0:10:46 you either got to go top down or bottom up. I think we can get there. I just think people forget
0:10:50 manufacturing is this like real brute force equation where I think you just have to pick
0:10:54 like four to five companies and let them have at it at a scale that’s never been seen before and let
0:10:58 them figure it out. And it’s in the figuring it out that you get there. There’s no like real way you
0:11:02 can plan around this. Our strategy, obviously there’s like high levels of automation to get really
0:11:07 leverage very fast. Um, but there’s no like easy way to do it sort of thing.
0:11:15 And, and so the, the way to scale it is really for the government to just place giant orders
0:11:19 for things with U.S. manufacturing companies and say, look, if you can build this stuff,
0:11:27 we’re going to buy it all. And the short of that, it’s going to be slow. It sounds like we’re not
0:11:34 seeing that. I think, you know, we are, we’re building out a lot of our kind of gigafactories
0:11:40 well ahead of the demand because we know that we build them so flexibly that we can pivot that
0:11:45 capacity to other products. So we’re not kind of taking business risk, um, which is a very unique
0:11:50 strategy. But yeah, if you wanted to kind of let the market correct for itself, someone would just
0:11:55 have to make a purchase order of a million cars, force it to be all made on shore and then let,
0:11:59 let all these small suppliers and the skills come up underneath it kind of economically.
0:12:05 I don’t think we have the time to do that. So we’re just building them all. And the thesis has
0:12:11 always been in a time of crisis, manufacturing very hard. When manufacturing gets hard, people will be
0:12:16 forced to basically partner and we’re seeing that play out basically across the board right now.
0:12:21 Um, but if you didn’t have companies like ours aggressively doing that kind of factory first
0:12:25 strategy, then yeah, you just have to onshore a bunch of commercial volume and at the current
0:12:29 manufacturing price points with no automation, you have to subsidize it to have it here and let the
0:12:35 industrial base come up. In any near term sense, like the game is going to be high mix, low volume,
0:12:40 right? Like, and that’s, and you got to get good at that. And it’s very different than how manufacturing
0:12:45 when U.S. was good at it was, was really tailored, which was sort of high rate, relatively fixed,
0:12:49 right? And the process to change, the process to iterate was, was not there. You couldn’t change the
0:12:54 mix of what you were making year to year super easily. And so this, this sort of focus on just
0:13:00 flexible factories at scale, built very cheaply, minimize capex, minimize tooling, all these things,
0:13:06 and allow it through better automation, through better software and a flexible workforce and
0:13:10 better design of the products, like be able to flex into that. That, that kind of works.
0:13:14 I think that’ll get us there where we can just lean into capacity in advance, believing that in aggregate,
0:13:17 we don’t know exactly what we’re going to build, but we’re going to build a lot of different things.
0:13:22 Then I think the, the other side of this is there’s, um, you know, there’s, there’s kind of
0:13:28 key supply chain issues, which, uh, defense demand can’t solve, right? And, you know, we’ve seen
0:13:34 this with rare earths and magnets. Um, China has strategically kind of strangleholded that.
0:13:38 You know, not only did they have the processing of those rare earths, but now they’ve exported,
0:13:43 controlled, so they don’t allow the export of magnet-making technology. That is now a restricted
0:13:47 national technology that they have banned from being exported from the country. It’s a good strategy.
0:13:53 It’s taken a great, great approach on it. Um, but that creates a real bottleneck there. Germanium,
0:13:58 uh, gallium, right? Like there’s a lot of these different core materials that, you know,
0:14:04 the U.S. has to find industrial policy strategies to create viable commercial alternatives. I think
0:14:09 the way they’re, they’re structuring some of these is actually really clever, right? Like they basically,
0:14:14 with one of these, this empty materials company, they basically guaranteed a minimum offtake and a
0:14:20 price floor. That’s a really good strategy, right? And so like, you know, that way, China doesn’t
0:14:25 have as many abilities to do dumping strategies or subsidization strategies to undercut other
0:14:30 competitors trying to break into the market. And this is where I think tariffs applied on more of like,
0:14:34 you know, kind of a national security industrial policy basis can be really advantageous. Create the
0:14:39 time for, you know, American and allied industry to be able to get price competitive. It’s just going
0:14:44 to take a number of years. You just got a big capex bill. You’ve got a learning curve. You got to go
0:14:49 down, uh, to actually get back to the point that you have this capacity available, the expertise available,
0:14:54 and it’s efficient. So it is, it is going to take some time. Uh, I think ultimately it does have to
0:15:02 amount to, there is real commercial industrial demand that is sustaining this and driving innovation
0:15:07 into this industrial base. I think what ended up happening in the defense world is we ended up,
0:15:11 it was like kind of the last spot where we insisted on manufacturing in the U.S. and became Galapagos
0:15:15 Island where everything evolved in a totally different way than everything else in the world.
0:15:19 Uh, we’re kind of shocked. It doesn’t look like anything else that’s modern and efficient. And
0:15:24 it’s like, well, what just totally different evolutionary pressures? Like, why would it look
0:15:28 just ended up like kind of diverging pretty heavily. And the things we’ve tried to preserve
0:15:33 look a lot closer to what they were in the eighties and nineties than what’s going on in China today.
0:15:39 As of right now, if you look at like the PlayStation 5 as a product, like that is effectively, I would
0:15:45 say 90% of fully automated production line and like writ large across the board, people really miss this.
0:15:51 And I think it’s like strategic CCP comms is like, there’s a little bit of manual stuff of like things
0:15:58 that robots can’t yet do, but I would say just on pure manufacturing autonomy, they are probably 20 years
0:16:06 ahead of us just on that. Now our version of this at Hadrian is okay. Most of this is actually a
0:16:11 software problem. People like see a robot do thing, but it’s, it’s actually like all of the machines
0:16:15 are extremely dumb computers basically. And it’s a coordination problem and it’s an autonomy problem.
0:16:19 And the one thing that we are still very, very good at in this country is software engineering.
0:16:25 It’s just that there was no, there was no pressure to put software engineering automation in
0:16:29 manufacturing because our version of automation commercially for the last 30 years was just
0:16:34 give it to China. And then defense didn’t need to do manufacturing automation innovation because it
0:16:38 was so high priced and protected that there was, there was no pressure. So I completely agree with
0:16:45 Brian, but I think that we forget that if you’re still assuming that we are great at automation and
0:16:50 software as a country, then if you dump enough and go hard and fast enough, you can actually catch up.
0:16:53 And that’s effectively the macro bet that we’re doing at Hadrian.
0:16:57 So a question, you guys alluded to this, but you know, there’s this famous book,
0:17:01 Freedoms Forge, you know, talking about the ramp up of U.S. industrial production during World War II
0:17:03 and the repurposing of all these car factories and everything.
0:17:09 Um, but as you, one of you guys said, you pointed out like a tank in like 1940 was not like a tank today.
0:17:15 Um, right. Or an airplane or anything else. Um, you know, like you put any of us in,
0:17:19 you know, a plane or a car driven in 1940 and we would be like absolutely shocked on a,
0:17:23 you know, on a relative basis of how crude and primitive it was, you know, technologically.
0:17:28 And, you know, a tank in 1940 or a car has no chips, you know, it’s got, you know, it has nothing
0:17:32 that we would consider to be modern technologically. Today’s, you know, weapon or vehicle or whatever
0:17:37 is far more sophisticated, both in hardware and software. You know, the typical car has like 500
0:17:41 chips an hour or something. So I can only imagine what a, you know, what a, what a drone has or something.
0:17:46 Um, so the fact that the products themselves are so much more technologically sophisticated
0:17:51 and have so many more components, both soft components and hard components. Um, does that
0:17:57 mean that, you know, wow, like that, the, like the country that’s best at technology over time is going
0:18:00 to be the best producer of those things because they’re so complicated. And if, you know, all the
0:18:04 software is written here and so forth, like, you know, you know, that sort of gives us this huge leg up
0:18:09 to build these things or is it, is it, is it actually the opposite, which is, okay, now the supply chain
0:18:14 is like sort of infinitely more complex. You know, the, the, the, the kinds of parts that are in these
0:18:18 things are all themselves extremely complicated. And, you know, if they’re all kind of by default made
0:18:22 in China, like they just own so much of the supply chain of, of these things that we’re kind of at this,
0:18:25 you know, more or less permanent, you know, or at least very long-term disadvantage. Like,
0:18:28 which way does that dynamic tilt when you think about the, the, the products themselves?
0:18:35 Supply chain, supply chain. I think it’s like, you look at COVID and it was like, it wasn’t the
0:18:41 microprocessors that were the bottleneck. It was the power regulators, right? It was these analog
0:18:45 components. It was all these things way down. And then when you even look at semiconductor
0:18:50 manufacturing and everything going into it, China still controls upstream components of that in a
0:18:57 substantial way. And so I think from the point of view of, you know, uh, industrial independence in a
0:19:01 conflict, like who has more of it, China has definitively more industrial independence and
0:19:07 the ability to continue production, uh, absent, you know, kind of like their, their choke points are,
0:19:12 are, are quite a bit more, more mineral, uh, minimal, right? Like some key things on energy,
0:19:16 which they’re strategically trying to solve, uh, and some raw materials, which, you know,
0:19:19 they don’t have as much natural, uh, sources of.
0:19:25 If you’re looking for the production perspective, I think it’s, it, it, it’s quite clear to me that the
0:19:31 supply chain constraints, uh, if there was a conflict, if China wanted to cut it off,
0:19:36 seem pretty determined. The U.S. would have very little leverage or ability to respond in any timely
0:19:42 way or with allies. Then when you get to like, okay, who can build better, smarter weapons, have
0:19:48 different offset strategies, and think more technologically sophisticated way about how technology
0:19:53 influences war fighting. I think the U.S. has a significant advantage there. Uh, like we are, we are much
0:19:58 better at that. We have a more sophisticated military that is more practiced and understands
0:20:03 how to infuse technology into war fighting in a better way. Like, I think that is quite clear to me.
0:20:10 Um, but the, um, but then the question becomes like, do you have enough? Can you actually produce
0:20:16 it at scale? And can you afford to, to produce it? Uh, and that’s where, you know, I think under a
0:20:19 conflict scenario is quite hard. And the Freedom’s Forge thing is quite interesting to me where we had
0:20:25 about two years of Lend-Lease to retool American industry, right? Like we weren’t in the war, but we had
0:20:31 about two years to retool industry. And that, that seemed to be about how long it took. Um, Russia
0:20:37 today is out producing NATO on 155 munitions.
0:20:43 And took about two years, right? And so the, there is a time lag, even if you have the industrial
0:20:49 capacity or have the potential for industrial capacity that takes to ramp and repurpose and retool
0:20:55 these things. And so I’ve, I’ve heard various theories that like, um, you know, sort of in a conflict,
0:21:01 the U.S. would, would, you know, band together, make all these amazing things and, and repurpose.
0:21:07 And I believe it’s like probably true, but is it too late? And can we get the very basic components
0:21:14 that are necessary for any modern technology? And, and both of those seem to be pretty clear answers
0:21:19 to me. I don’t think it could be fast enough. And we have no strategic plan as a country for how we
0:21:22 preserve supply in a catastrophic situation.
0:21:25 Yeah. I think we have a mythological, based on what I’ve read, I think we have a mythological,
0:21:29 there’s a book by this guy, Alexander Field, who’s an economist who goes through the economics of the
0:21:33 Cutover, the production, um, in wartime and then back to peacetime in the 1940s.
0:21:37 And basically the, the, the, the picture he paints is, it was like, to your point, it was like a two-year
0:21:41 ramp up to cut over like all the car factories to be like plane and tank factories.
0:21:45 It was like a very short production time. It was like, you know, within two years, we then basically
0:21:50 made all of the weapons, um, and all of the vehicles that basically, you know, won, you know, won World
0:21:54 War II, the ships, like, it was like the, the production happened like extremely quickly.
0:21:58 And which it could, because these were not that complicated, you know, these were still mostly,
0:22:01 you know, bent, you know, bent metal, you know, and rubber, they weren’t that complicated,
0:22:06 you know, uh, they didn’t have that many parts. Um, and then, um, at least according to Alexander
0:22:10 Field, the, the, the spin down of wartime production actually happened before the end of the war,
0:22:13 because, you know, by ’44 or whatever, you know, we all knew that the U.S. was going to win.
0:22:17 And so the factory started to be cut back over to making civility products in, you know,
0:22:20 in preparation for the, for, for peacetime. And so, Brian, to your point, like,
0:22:24 I think we have this like mythology that when push comes to shove, this stuff just kind of happens by magic.
0:22:28 Um, and because it happened by magic 80 years ago, it will happen by magic again.
0:22:30 And that seems to your point, like very much not the case.
0:22:38 Yeah. And I, I think we also miss one important point, which is, here, here’s my guess on like
0:22:41 what we call parallel production, which is like, you take an existing defense product, how much
0:22:46 could you go mass produce and how much is some secret sauce? My guess is like any given missile,
0:22:51 about 15% of it is secret sauce or like critical. The rest of it’s just like great production, not that hard.
0:22:59 I think the thing people miss to your point, Mark is capex or skills were kind of at a call
0:23:04 it like 10 to one ratio and then you can pivot to the fence. Like we, we, we don’t even make the capex
0:23:10 that goes into the factories in the U S anymore. Like it’s all German, South Korean, Japanese or whatever,
0:23:14 and they’re controlled products. So it’s like, you know, if you wanted to go scale a gigafactory at a
0:23:19 time of crisis, it’s probably already too late. And by the way, to Brian’s point, all those machines have
0:23:25 rare earth magnets in them and like, guess who? Uh, so. And so, and so if you guys were in the,
0:23:29 you know, White House or Congress, um, Brian, let’s go back to your supply chain point. Like
0:23:32 this is not a bit like part of what we talked about earlier was this, there’s like, you know,
0:23:36 you could place like a strategic bet on like five companies and like spin them up and have them get
0:23:41 big. But I, but I, I think check me if this is right. It’s not just those five companies. It’s the other
0:23:45 5,000 companies that are the supply chain for those five companies. Yeah. Um, and so like,
0:23:49 what’s, what’s the policy approach to that, that like passes the, the, you know, passes the sniff test of
0:23:53 like something that would both work and, you know, would be achievable over a, over a five or 10 year
0:23:58 period. So number one, I think you need data, right? Like there’s very little data on like what
0:24:03 two, three levels down into the supply chain is actually on that bill of materials. And what are the,
0:24:07 you know, kind of critical components. And I think, you know, again, COVID examples, like we had no idea.
0:24:10 Right. And then we found out that the market was constrained on the thing. No one would have ever
0:24:16 guessed that the market was going to be constrained on. Um, then if you have data now, you could start
0:24:21 to look at interesting strategies on this, right? It’s like, okay, it’s stockpiling, like, you know,
0:24:25 uh, like power regulators that expenses, like probably extremely cheap, right? Like, you know,
0:24:29 and, and a lot of these things. So you don’t have the industrial capacity, but I need to very quickly
0:24:33 create mitigating resilience strategies. Okay. Like if I can actually get some visibility on these
0:24:38 things, like maybe I can, uh, actually take some, some strategies to either pay industry to stock,
0:24:43 but like, you know, there’s a lot of basic things you can do there. Um, the second, uh,
0:24:49 thing that I think is, is, is pretty key is more of these, um, you know, kind of MP material style
0:24:55 deals, identify the key supply chain constraints way upstream so that we even have the possibility
0:25:03 of being able to, uh, ramp in a crisis period. But if we are looking at, you know, we’ve got a,
0:25:08 at a crisis work all the way back to the raw materials that we didn’t plan for. Now you’re
0:25:13 looking at five years of lag of being able to reconstitute that supply chain. So if I can start
0:25:18 cutting that lag and working from the bottom up in terms of, you know, either allies who already have
0:25:25 capacity that I can, you know, get them to invest and, you know, do some sort of guarantees on. Uh,
0:25:29 or I can invest in U.S. capacity around these things and then regulatory relaxation around
0:25:35 some of the, the constraints of why is it hard to build in the U.S. Um, I, I think you can start to
0:25:43 systematically, uh, reduce China’s leverage, create competitive industry, and secure supply chain for
0:25:47 national security issues. But it, it’s just going to take a degree of targeted focus and understanding
0:25:52 of what those key bottlenecks are. And I think there’s an understanding of, like, maybe the obvious
0:25:59 five or six, uh, but I actually suspect it’s 10 or 20 things that we need to have, uh, more of a, a,
0:26:04 a kind of sophisticated and holistic policy around. It uses all of our economic levers. And it’s like,
0:26:09 look, if everyone else is subsidizing and playing a different game on cost of capital and how they
0:26:13 want strategic industries to grow, like, why is the U.S. not doing it? I think the government’s
0:26:19 terrible capital allocator, uh, historically, but, like, low-cost loans, sharing risk with bank, like,
0:26:24 there’s a lot of these strategies, guaranteed offtake. Like, the U.S. has the best capital market system.
0:26:30 We could just use, like, a lightweight of government backstopping to substantially create, uh, a different
0:26:36 incentive structure in the U.S. and get these, get these industries basically up to competitive very quickly.
0:26:42 Chris, uh, you know, Brian mentioned the kind of regulatory inhibitors. What are the regulatory
0:26:47 inhibitors that you face now in terms of, you know, what you’re doing at Hadrian?
0:26:56 It’s pretty extreme, but it’s state by state. Um, oddly, a lot of the stuff that we would stand up
0:27:03 in California, frankly, is just flat-out banned from an environmental or permitting perspective. Um,
0:27:10 and our teams just frankly fight through it. But it is, it is truly a permitting regulatory issue.
0:27:15 I mean, mining is obviously a big one. Even the basics, like, some of the exquisite stuff can only
0:27:19 be made in a certain state to feed the defense ecosystem because all the other states banned it.
0:27:23 Or, like, they’re literally in facilities that got certified 50 years ago and you could, like,
0:27:27 you literally could not build a new one today because you would never get the permit to do so.
0:27:35 Um, so it’s stuff like that. I think the biggest unlock is certainly the government creating large
0:27:41 offtake agreements. And I think in the last six months, I would say, I think there’s two big realizations.
0:27:46 One is like, we kind of just have to pick seven to eight entrepreneurs that we really trust who are
0:27:50 kind of making a lot of money, but like we really, they’re just patriots basically. And then the second
0:27:55 one is creating these large offtake agreements so that the capex and the commercial market can come
0:28:00 behind it, I think is the two smartest things. But the regulatory side is still heavily environmental
0:28:07 permitting nightmare. Yeah, actually speak about that because there’s, there’s this weird tension in,
0:28:14 in politics, um, between. So you have entrepreneurs who can do it, but if they’re too rich, like Elon
0:28:19 being the classic example, um, then all of a sudden the government doesn’t want them to do it.
0:28:26 And then the, you know, they imagine that like General Motors can take Elon’s place or something
0:28:31 like that. So I guess, how is that playing out today? And like, how should it change?
0:28:39 Brian and I, I think you’re both on the same page about this. I think that my perspective without
0:28:46 going to specifics is that I think there’s been two realizations. Realization number one is that you’re
0:28:51 just going to have to instantiate six to eight massive companies and instantiating
0:28:56 a hundred kind of medium sized players is just not going to have any effect because you need to get
0:29:00 some scale, you to get some talent aggregation, all these other, all these other things. I think
0:29:06 alongside that certain areas of the government where there’s a lot of immature companies, they’re going
0:29:11 to spend the next year making eight bets and seeing how it plays out. And in certain other areas,
0:29:16 I think in the next two years, what you’re going to see is basically people getting pulled into rooms
0:29:21 and saying, cool, we picked you for this category, start running. And that will come alongside with some
0:29:28 MP materials style deals and a lot of, a lot of headbanging on that. But I think, I think my opinion
0:29:31 is we’ve reached the point and I think this will play out publicly over the next three years where
0:29:38 I think that has started to already happen in some of these critical industries. And I think what it is
0:29:45 going to look like is not dissimilar from, you know, let’s imagine you all at Andreessen Fundix startup and
0:29:50 Apple, you know, they’re doing a million in revenue and Apple gives them a billion dollar revenue deal.
0:29:55 And like Apple’s going to take some warrants. And I think that is a perfectly, perfectly reasonable strategy.
0:30:01 Otherwise, I don’t think there is any other structural way to go this fast where the market’s not playing
0:30:08 it out. And I think you’re going to kind of see a macro cultural return to like, hey guys, there’s 10 of
0:30:13 you go figure this out. You fix this, you fix this, you fix this with a lot of strings and public
0:30:18 embarrassment attached if there’s failures. But that’s my viewpoint on what is going to have to
0:30:26 happen to make that work. And there are going to be some real winners and losers. But, you know,
0:30:30 that the spreading the capital around 100 different companies is not going to work. I think there is
0:30:35 going to be great. 10 of you get to experiment and we’re going to scale two. And I think that’s going
0:30:41 to happen across every program if we’re serious about it. And I think it’s the right thing in this
0:30:46 type of error to do. And is there going to be, in order to make this work, will there need to be
0:30:54 like some kind of federal override of the kind of state by state regulatory regimes? Or can you work
0:30:59 around it with like enough money and whatnot? I think you can have like, you’re going to have
0:31:05 competition between states, right? And we’ve seen this with, you know, running a factory search, all these
0:31:12 things. And you can really tell the difference between states who are trying to drive growth and
0:31:17 manufacturing, how they think about, you know, enabling companies to be successful, and the states
0:31:21 who kind of take it for granted, to be honest, right? They’re like, “Obviously, you want to be here,
0:31:25 so we’re not going to go out of our way to help.” And you can really get that sense quite quickly. So,
0:31:30 I think you have a natural competitive function on the state side that’s not overwhelming. But then I think
0:31:35 it’s like if people are trying to, you know, maybe California gets more efficient, but it’s probably
0:31:41 not going to get as efficient as Texas, right? And that’s just kind of what it is. But companies are
0:31:45 rational. They know this, and they can make informed decisions about where they put their plants, trading
0:31:49 off talents and, you know, like labor access and everything else, right? It’s pretty straightforward.
0:31:55 So, I don’t think you have to solve the federal override on the state level, per se. And I think
0:32:02 there are things the federal government can do with, you know, there still is federal EPA issues,
0:32:06 right? So, like, states don’t even have a lot of say in certain cases. Like, there’s this one aspect of
0:32:12 an area can be designated a non-attainment zone that is over-polluted on a certain pollutant. And so then,
0:32:18 going forward, the EPA says that any new construction requires to remediate that pollutant by any means
0:32:22 available, not cost-benefit, not that there is any due process, by any means attainable.
0:32:27 Dems and Republicans alike, when they get that designation, they don’t like it, right? Because
0:32:34 it is a death knell to getting new manufacturing and new investment in that area. And so I think
0:32:40 there’s a lot of things that, you know, I have been historically a Dem, you know, a lifelong Dem,
0:32:45 and I believe that we need some environmental conservation pieces, but I think the balance has not
0:32:50 gotten to this, uh, correct trade on there are ways to mitigate the harms and a practical matter of,
0:32:56 like, expediting these decisions to get there quickly. Um, so, I think the time factor is often
0:33:00 undervalued. And in business, the time factor is extremely valuable, right? Like, if it takes me five
0:33:06 years to build a data center, that doesn’t, it’s irrelevant. I need a one-year timeline. And I think for a
0:33:12 lot of these places, the view is, “Well, I’ll get you to the same outcome. It just might take five years.” And they
0:33:17 don’t view that as a problem. So, I think that, on the state-by-state basis, there’s, there’s a ton of competition.
0:33:22 I think the federal government can do a lot of things to expedite, uh, getting to yes. I think they have unique
0:33:30 authorities, especially in defense, to push things on nuclear, to push things, push the envelope on a lot of things that there is a lot of risk aversion to.
0:33:35 Um, and they have a huge opportunity to take the lead on showing what’s possible.
0:33:41 Um, but I don’t think we need to, like, march into every state house and say, “We’re taking over.” Like,
0:33:44 there’s a lot of easy states, and there’s a lot of hard states, and that’s okay.
0:33:51 Yeah. And the talent is movable, uh, ’cause, you know, you have this talent shortage in manufacturing.
0:33:55 Um, but if you’ve got the job, they’ll go.
0:33:59 I think it, I think it depends. I mean, we’ve seen,
0:34:04 as we’re launching Arizona, and Brian, I know you’ve got this perspective from Ohio as well, is,
0:34:10 it’s, the way we think about it is, we will probably do most of our advanced engineering in California,
0:34:15 because it’s very hard to get the conflagration of software engineering and manufacturing in one
0:34:19 building, too. But once you’ve worked out how to do, like, welding, for example, and it’s now a simple
0:34:28 system, that can go anywhere. Um, and what we look for uniquely is, kind of, the technician workforce.
0:34:32 Um, what we’re also seeing is the people at Adrian, as we expand to different states,
0:34:36 they’re like, “Great, I get to keep my, like, software engineering or manufacturing engineering
0:34:40 job, but I get to buy a house, ’cause now I get to go to Arizona or another state.”
0:34:45 Mm-hmm. Um, it’s less shiftable than people, people think, especially for the highly skilled jobs,
0:34:51 but everything else, I think, is a grand adventure for probably most of Brian and I’s teams of like,
0:34:55 “Hell yeah, let’s go two years in Texas, or two years in Arizona, or wherever, and follow the companies
0:34:56 around.”
0:35:00 I completely agree. And for a lot of these, you know, particularly as you get to more hardware
0:35:03 skill sets, manufacturing skill sets, getting them to come to California is a huge problem.
0:35:04 Mm-hmm.
0:35:05 But like, “How much does the house cost?”
0:35:08 Uh, like, they’re just not that interested in it.
0:35:14 And so the, um, it’s actually easier when it’s lower cost of living locations for a lot of these
0:35:19 skill sets, um, but completely agree with Chris. A lot of the advanced software, still going to be
0:35:25 California, is what it is. Um, and, but that, that, that technology is then relocatable, uh, with
0:35:26 relatively little difficulty.
0:35:30 Why are we so much better at building data centers than, than factories? Colossus,
0:35:35 the biggest data center in the world, was built in under five months. How do we explain this?
0:35:41 I think it’s very easy, which is the financial markets understand data center offtake agreements.
0:35:47 Because what that enables you to do is, Brian says to me, “Chris, please build data center,
0:35:53 and I’ll give you this kilowatt hour of compute at X cost, unless you screw it up.” And then all of
0:35:56 the big capital allocators say, “Great, I’m going to let you put 10 billion in capex in the ground.
0:36:00 And as long as you can credibly execute, this is how we build power plants as well. It’s like,
0:36:03 there’s a, there’s a price per minute. And then you put the capex in the ground,
0:36:08 there’s like a 30 year payoff period.” Um, because manufacturing is high mix, low volume,
0:36:14 and defense spends money every year, uh, you, you, you financially have a one year agreement.
0:36:18 You literally can’t get the capital markets to underwrite it unless you’re at such a sufficient
0:36:23 scale, which is what we’re doing now, where you can functionally underwrite across many different
0:36:28 contract vehicles. And then you can actually have this 10 year capex spread. And then you can build
0:36:32 more data centers if you’re good at it. I am fully convinced it is literally just because there’s
0:36:37 like Amazon wants data center and it’s a 30 year offtake agreement. And then you can put the capex
0:36:43 in the ground. Whereas because defense spends contracts once a year, you can’t have that long-term
0:36:48 revenue agreement. And therefore you can’t, you know, have this structured finance agreement underneath it
0:36:54 for the capex, which we’ve solved by kind of having this aggregated portfolio strategy. But my one answer is just,
0:37:00 if the defense department looked or factories created offtake agreements for capability or capacity
0:37:04 overnight, um, and data centers just have that naturally.
0:37:10 I think the other part of this is we’ve been doing data centers for 40 years, 30 years, right?
0:37:16 Like we’ve just been doing it. It’s like, it’s a thing. The US knows how to do it. And like, is putting
0:37:20 up the wall, the concrete walls and building the cold shell, the hard part for any of these factories?
0:37:24 Like, no, that goes up really quick, right? Like we’ve built the distribution centers are extremely
0:37:29 efficient to build at this point. Uh, so like a cold trail, cold concrete building, trivial,
0:37:34 trivial easy, right? Those go up in like less than 12 months. Um, you probably even get it in three or
0:37:39 four if you want to. Once you get to manufacturing, then the, the question is, okay, what are you putting
0:37:45 inside of it? Do you actually understand the process? Uh, like, have you built the technology to go in
0:37:50 there? So the nth copy that Chris is going to build of his plant will go up extremely fast,
0:37:57 right? If he can finance it and you can capitalize it, like he’s saying. Um, but the first copy of
0:38:02 that thing took quite a while. And so for a lot of these, uh, manufacturing plants, they’re the first
0:38:06 one. Uh, and you have all the unique regulatory approvals and you’ve got the unique chemicals that
0:38:10 you’ve got to bring in, the health and safety risks, um, and how do you mitigate all those things?
0:38:16 And so the, um, so it, it, it just ends up like, I think you’re sort of N of one on a lot of these
0:38:22 cases. But if you’re on the 10th copy, it’s gonna, it’s gonna go fast. It’s just gonna go fast.
0:38:27 When people talk about China’s success, some, some people point to their industrial policy,
0:38:31 their, their protectionism, their subsidization of certain industries. We’ve, you know, recently
0:38:37 experimented with that a little bit. Um, what can we learn or, or not learn about what, what they’ve done
0:38:40 or how, how would, how should we think about it here? Maybe Chris, do you want to take a first step?
0:38:47 Yeah. So I think the most important thing for people to realize is that China’s stuff is not cheap
0:38:54 because they have low cost of labor. It’s because they subsidize CapEx, CapEx energy, which is the main
0:38:59 cost of manufacturing, like 95% of the cost of aluminum is just the kilowatt hour of the power price.
0:39:03 And then they also do export subsidies, which is kind of like a reverse tariff. So if I send a million,
0:39:07 if I sell a million dollars worth of stuff to ban, I get a refund from the government.
0:39:14 Um, they did that for the last 30 years in part to drag the capability off the US because they knew
0:39:19 they’re very long-term thinkers. Unlike the US, we tend to operate only when we get punched in the face.
0:39:28 Um, and it was a strategic subsidy. So the kind of byline is it’s not economic protectionism.
0:39:33 It’s just an unfair playing field because right now it’s companies like Brian and me versus the CCP,
0:39:38 not versus Chinese innovated companies. And I think we’re happy to go toe to toe on an even playing
0:39:44 field, but it’s not an even playing field and it’s not by 10%. It’s, it’s, you know, 70, 80% in some cases.
0:39:51 So if you want to have the US as an exporter, you kind of have to do tariffs or some economic policy
0:39:55 that just corrects for that structural imbalance. And then we’ll fight over how efficient we can get in
0:39:59 America and how many products we can produce. And I think that narrative is really wrong. Like the
0:40:06 level of subsidies they do from the government into their national champions is, is crazy. And it’s one
0:40:12 of the reasons why most of the commercial manufacturing is offshore because of that price function. So if you,
0:40:16 if you want to compete and we can, you have to just create an even playing field. And that’s like,
0:40:23 there are many mechanisms to do that. Um, tariffs are one, but you kind of have to. Otherwise it’s
0:40:27 just the, the playing field is so uneven that no amount of technology can catch up to like the China cost.
0:40:33 And there was, I mean, China has a track record of laying out five-year plans like made in China
0:40:39 2030. Okay. They prioritize targeted industry industrial areas. And that aligns all the way down to the
0:40:44 provincial level around these subsidies, around these export strategies, around the finance
0:40:49 structure of how these things are capitalized, zero cost, you know, zero percent loans, all these
0:40:55 different things. Um, and so the, there, there’s just more of a strategic framework of what are the
0:40:59 key areas they want to control. Not everything they’ve succeeded on is in that category, right?
0:41:05 They’ve also been commercially successful on a number of areas, but I think facilitated by a lot of things
0:41:10 Chris was saying around, you know, lower cost of capital as well as some of these export subsidy
0:41:16 pieces. So I, I think there’s just a handful of these policy levers that are just effective. And it’s
0:41:21 not, you know, like, I think if we end in a world where like the government’s like, oh, we must make
0:41:26 X company succeed, but we all know this company’s bad. It’s not going to work, right? It’s not a
0:41:31 competitive company. They’re just dead. Uh, and, and that, that I think is where the US policy is,
0:41:36 is landed on where it’s like, let’s give grants to these industrial giants that everyone agrees
0:41:41 are no longer competitive and we’ll try to save them. And you’re like, it is obviously not going
0:41:48 to work. Why don’t we create a scenario that allows next generation companies that, uh, can actually
0:41:54 compete a level playing field to fight? Uh, let’s go with that. And, and I think that strategy has a lot
0:42:00 more legs to it than just handouts to a couple of companies that are like just zombies.
0:42:07 And how would you structure something like that, given that, um, not to say that the government has
0:42:11 some corruption in it, but like, you know, these kinds of things, like if you’re naming
0:42:18 or handpicking the companies that you’re going to subsidize, um, you particularly in the US system,
0:42:26 there could be some issues with that. So how would you structure the subsidy so that would be merit-based?
0:42:31 I think you could do, like, get the government out of the underwriting process. Say you take loans.
0:42:38 Okay. Um, I want the banks who are pretty effective underwriters to, um, actually execute the loans,
0:42:44 but the government will backstop, uh, and help them on, like, lowering the interest rate and absorbing
0:42:50 half the default risk. Bank still has skin in the game. Company has skin in the game because if they default,
0:42:56 they’re right, they default. And the government is effectively a zero cost, actually going to make money off that deal.
0:43:04 Um, so the, um, so I, I, I think in like those, those scenarios, you can, uh, just take advantage of
0:43:10 what is like the US capital market structure is, it’s not like it’s 10% better than anyone else.
0:43:16 It’s a, it’s like several thousand times better than anyone else. Uh, like it is just wildly better.
0:43:20 And so if you’re, if you’re leaning into that and saying, Hey, we actually have great capital
0:43:24 allocators that know how to underwrite companies and like lean in on these things, like, great,
0:43:30 let’s just juice the capital stack in a way that is aligned with national priorities around certain
0:43:35 industries, um, certain capabilities, things like that. That’s kind of like one side. And then tariffs,
0:43:42 export subsidies are another export in, you know, export financing. A lot of these things, uh, also work.
0:43:50 Right. And so, um, those are not winner specific. Those are segment and, you know, kind of, uh,
0:43:57 strategy specific targeted policies. And, uh, you, you’re staying at like the grants are, in my opinion,
0:44:02 the worst possible form of this. It’s like, you know, giving Intel an outrageous amount of money
0:44:06 to build a facility that they didn’t believe they had demand for. It’s like, why would they not take
0:44:11 the money to build a facility? They didn’t even skin it again. It’s like, just totally distorts
0:44:18 their incentives to actually be an efficient, competitive company. Um, and so like, keeping
0:44:22 companies accountable, using the capital markets we already have and the allocators we already have,
0:44:27 it’s like, that feels pretty good. Lean into what we’re good at, uh, and then put some of the like,
0:44:32 you know, counteract at kind of more of a national level some of these unfair practices from other
0:44:37 countries or areas where we want to incentivize growth. And we’re doing some protectionism because
0:44:39 we need it for national interest. Those seem pretty reasonable.
0:44:46 It, it’s ironic that, um, you know, we, we as a country sometimes get, uh, critiqued for being
0:44:50 overly financialized or too much into financial engineering, but we’ve, we’ve noted a number of
0:44:54 examples on this call on this episode where we can actually benefit from, from leaning into that strength
0:44:59 and greater kind of financial engineering in terms of aligning sort of, you know, uh, good outcomes for
0:45:06 markets with strategic priorities. Well, like who, where else could you finance $200 billion of data
0:45:12 center investments with like basically no real revenue to show for it? Like, it’s crazy. Like,
0:45:18 like a government can’t even do that. Like, so it is like, so like we, we have a, it is such an asset.
0:45:23 Like, is it always right? Is it get all like bubbly, right? Like, is it like, you know, whatever,
0:45:27 right? It’s like, certainly not worse than how most governments operate on these things.
0:45:32 But it has enabled the West to do such outrageous things. And like they used to do such outrageous
0:45:37 things that are capital intensive in a way that nobody in history has ever seen. Like that is,
0:45:42 that is a huge asset. Um, and so like, yeah, does it get a little crazy with some of the like really
0:45:49 exotic instruments? Sure. But like that’s on the margin compared to like the massive asset we’ve created
0:45:53 with this. Yeah. Or you guys saw Oracle earlier this week. Oracle in one day
0:45:58 added more market cap based on a single AI data center build deal. Uh, they had a more market gap
0:46:04 that day than most national stock markets in there. Right. And so we, we have this, you know,
0:46:08 kind of your point, this is actually my big takeaway from, you know, it is astonishing how good we are
0:46:12 at things like that. And then the, and then the, and then it’s just, you know, the, the, the pessimistic
0:46:16 view is, you know, the, the, the fall off to the world that you guys are trying to fix. But you know,
0:46:21 the other view would be, wow, imagine if we could be as sophisticated, um, at manufacturing, um, uh,
0:46:26 and industrial systems, uh, and military systems as we, as we are in data centers. And, and yeah,
0:46:29 to Eric’s point, like it’s not completely clear why, why they’re that different when it comes down to it.
0:46:35 Guys, we brought up a couple of examples, but I want to get more into what’s misunderstood
0:46:40 or not fully appreciated about our comp competition vis-a-vis China, whether it relates to manufacturing or,
0:46:46 or, or security, uh, defense, um, either the state of today, but also where, where things are going.
0:46:54 America has a very hard challenge and has picked a, a, we always fight in a way game, right? Like we’re
0:47:00 always, we’re not fighting wars on our homeland. Uh, you know, we’re always projecting power somewhere
0:47:06 around the globe. And that is a, a very hard challenge. Um, and I think in the, the recent history,
0:47:11 you know, vis-a-vis Ukraine, and I think what would pragmatically happen in a Taiwan scenario,
0:47:17 there’s American support with, uh, you know, the, the ally under attack being able to defend
0:47:24 themselves. Um, and so I, I think that’s, um, you know, kind of the backdrop of how the, the U.S. sort
0:47:29 of thinks about these things. Well, that, that presents a very hard problem, right? Which is it,
0:47:38 in a Taiwan scenario, your ability to stage, your ability to resupply, your ability to get things in
0:47:45 is, is the critical question. But China knew this, and so they have invested systematically in technologies
0:47:51 that push back the U.S. and push our whole strategy, uh, way, way out, right? So they’ve invested in
0:47:57 space-based sensing. They can find our ships, uh, they can find a lot of aircraft way out, uh, thousands
0:48:03 of miles away. They’ve invested in this DF-26 missile, uh, called the carrier-killer missile
0:48:09 commonly, which is able to shoot, uh, I want to say it’s something around 1,200 miles out, uh, which
0:48:15 makes it so that carriers, warships, all these things we would use for resupply typically are massively at
0:48:21 risk. They’ve got very long-range anti-air missiles, so things that can shoot down aircraft. And so they’ve
0:48:26 created this impenetrable bubble, and that’s what they’ve been investing in, knowing that if they can break the
0:48:34 ability of the U.S. to get close, to stage, to resupply, that just cripples the entirety of the
0:48:40 U.S. war apparatus from being able to be a real threat. Um, and you combine that with their production
0:48:47 capacity, where there’s something like 250 times the shipbuilding capacity, um, you know, massively,
0:48:51 massively, probably thousands of times on the weapon side, you know, it is just on drones,
0:48:56 it’s massive, like, you just kind of look category by category, massively outpacing on production.
0:49:02 So even if their stuff is half as good, but they’ve got so much more of it, and they have
0:49:09 systematically built up a system that can target us at range, strike us at range, and hold everything at
0:49:15 risk, that breaks the entire U.S. war strategy. So it makes it very, very hard. Now, the counter to this,
0:49:23 though, is, um, you know, in a- in a Taiwan situation, the geography is very hard to sustain
0:49:27 the, like, rate you would need to, like, actually occupy, because the goal is to defeat a Chinese
0:49:32 occupation, not just an invasion, right? It’s not just, you know, people on the sand on the beach.
0:49:37 It’s like actually subverting the government and taking over control. Um, you have to sustain
0:49:44 extensive, like, maritime campaigns, you know, and that is hard, right? And there’s very few places
0:49:48 you can land. Uh, like, there’s all these very challenging things. So I think the- the calculus
0:49:53 basically boils down for G of, is he gonna be successful, right? Like, he stated his intention,
0:49:58 he stated clearly what he wants to do. He wants to reunify, if necessary, by force. He stated that
0:50:04 he wants to have the military ready by 27. Um, but I think the whole game is really just making it
0:50:12 clear that their strategy that, in many ways, broke the U.S. war plan, there is a counteracting strategy,
0:50:16 and that Taiwan is prepared, uh, and that it will be too hard to be successful, and the odds are not
0:50:20 in your favor, because the loss there is probably the thing he fears the most.
0:50:24 Chris Marr, any- any- anything worth adding to that, or on the other?
0:50:28 No, I mean, Brian and I talk about this every time we see each other over dinner.
0:50:34 I think the one thing that always shocks me, and probably shocks Brian, is how uneducated the smart
0:50:40 people in the country are about how bad this looks. And the easiest example is, I think we run out of-
0:50:46 every war game we run, we run out of munitions, missiles, whatever, in like, six to seven days.
0:50:53 And then it takes about two to three years to refill that- that battery of, you know, hey,
0:50:57 you now have more missiles to shoot. So apart from the Brian strategic layer, I just think
0:51:04 every single war, basically, if it goes hot, you know, both sides throw everything they’ve got at each
0:51:10 other over a time period. And it’s basically then- if it gets protracted, how fast can you reconstitute?
0:51:15 And it’s- Brian’s correct. It’s not like we’re 50% behind. It’s just like, we shoot all our missiles
0:51:17 in one week, and then we have none for two years.
0:51:25 Well, that- that is how kind of terrible the situation is. Um, and- and I’ll make one last
0:51:32 point to Brian’s point, which is, my thesis on this is, because of the one-child policy,
0:51:37 is going to really drop off China’s population very quickly at a certain period of time.
0:51:42 It creates this forcing function where, in my opinion, that the Taiwan scenario is more likely
0:51:47 to happen because if they don’t hit this window, they’re not going to have a chance in 30 to 40
0:51:51 years because they’re just- they just have this huge population drop off coming really fast down the pipe.
0:51:56 So there really is this, like, yes, the Davidson window, but over the next 10 to 15 years,
0:52:00 it’s going to be this constant, very CCP-style pressure game of, like, test, test, test,
0:52:04 ball of frog, ball of frog, ball of frog. The only thing we can do is focus on,
0:52:10 honestly, attritable systems to- because if you kill a carrier and they’ve got that range,
0:52:15 there’s nothing we can do about it. Counteracting sensing in space, a lot of attritable mass,
0:52:20 mass-producing those systems so that it- you know, we basically blow everything in the seven days,
0:52:24 we’ve got to have the manufacturing battery to be able to refill the clip extremely fast,
0:52:28 and it’s going to be this pacing event. I think that, unless it goes hot in 28,
0:52:32 it’s going to be 10 to 15 years. And as long as we can hold them off there,
0:52:36 then their population drops off and we’re- we’re good for another 300 years.
0:52:38 Like, that’s kind of how I view the equation.
0:52:40 300 years is a long time.
0:52:40 Yeah.
0:52:45 It- it seems like, on one hand, there- there’s the sort of extreme,
0:52:48 you know, uh, bearish view that people like Peter Zeon have about,
0:52:52 sort of, uh, you know, demographic collapse, uh, and combined with, sort of,
0:52:55 um, there- there are future challenges in energy and food.
0:52:58 He- he thinks that they’re- they’re going to implode in- in the next few years.
0:53:01 And then on the other hand, you have this extreme bullish approach of,
0:53:03 “Hey, they- they make everything. They’re- they’re- they’re smarter, etc.”
0:53:06 And it- it seems like there’s a gap in, sort of, sober, you know,
0:53:10 a sober perspective that analyzes, you know, where they’re great at,
0:53:12 but also acknowledges, sort of, things like, um,
0:53:14 you know, how- how much they’re overleveraged,
0:53:17 and, sort of, the- the real estate and, sort of, the state- state of their economy,
0:53:19 the slowing growth, um, and- and, you know,
0:53:21 accounts for demographic challenges, as well.
0:53:24 And I- I- I think, like, are they head of a small manufacturing,
0:53:26 defense production? Absolutely.
0:53:29 Like, to Brian’s point, like, the buildings in China,
0:53:31 if you, like, knock open the concrete wall,
0:53:32 is it just cardboard? Like, yes, most likely.
0:53:34 That is their culture.
0:53:36 Uh, but if you’re at 1,001 in production,
0:53:37 it doesn’t- doesn’t really matter.
0:53:39 The economy is under serious stress.
0:53:42 But again, I think all these economic stresses
0:53:44 make it more likely that they have to do something,
0:53:47 versus, like, they just won’t because they’re starting to get weak.
0:53:51 Um, but yeah, you know, if- if we were 50% behind on production,
0:53:53 it would be fine, because half the missiles are not going to work,
0:53:55 because they’re going to build them like they build
0:53:56 houses and apartment buildings.
0:53:58 Half of them are concrete.
0:53:59 But at- at a hundred or 1,000 to one,
0:54:00 it’s like, it doesn’t matter.
0:54:02 It’s just mass, to Brian’s point.
0:54:04 Yeah, and I- I think these, like,
0:54:07 is historically, like, China’s been shockingly good
0:54:10 at overcoming a lot of these challenges,
0:54:12 if they commit the state apparatus to it, right?
0:54:14 And so the, you know, if- if-
0:54:17 I think the other part of this is, like,
0:54:18 these actions don’t-
0:54:21 I think a lot of people apply the- the Western sort of view,
0:54:25 which is, um, you know, prosperity for the population,
0:54:27 vis-à-vis economic growth, is the-
0:54:29 it’s the only religion, right?
0:54:32 Like, it’s the only driving principle, uh, by and large.
0:54:34 Uh, and, you know, there’s- there’s other flavors
0:54:36 that come in and out, but basically, everyone’s unified around that,
0:54:38 as the primary goal.
0:54:39 And if you were to tank the economy,
0:54:41 you would be voted out, and it wouldn’t work, right?
0:54:42 And, like, that- that’s the dominant factor.
0:54:45 And- and he’s not that, right?
0:54:49 Like, his goal is preservation of CCP and his legacy.
0:54:52 And all his actions are commensurate with those things.
0:54:58 Uh, and so the economy is a supporting role to that goal.
0:55:02 The- he has demonstrated that he does not care if he harms the economy,
0:55:06 if he believes it is in the interest of national security and preservation.
0:55:09 Um, you know, how he views allies and partners,
0:55:14 it’s always very- viewed through a different lens of- of kind of Chinese power on these things.
0:55:19 And so the- um, I- I don’t think, like, a lot of people put the Western leader rational,
0:55:24 you know, growth-first decision-making against G’s strategy.
0:55:26 But it- there’s no evidence that’s how he operates.
0:55:29 Uh, like, all the evidence is actually it’s much more
0:55:33 a preservation strategy and a legacy strategy.
0:55:36 Uh, and so when things are under threat,
0:55:37 when things are under duress,
0:55:41 he’ll choose the thing that he thinks is most aligned to that goal.
0:55:45 If that’s, you know, deal with the economy through, um, preservation,
0:55:48 great. Zero the debt and, like, a whole bunch of things take a bath.
0:55:50 Like, you’d probably be fine with that too.
0:55:55 Uh, like, it would keep him in a- um, in a powerful position
0:55:57 and preserves his legacy and preserves the CCP.
0:56:01 And so I- I think the- I think the calculus is just wildly different.
0:56:04 And so when people try to apply the, like, Western rules to this,
0:56:07 you get very incorrect conclusions that don’t seem consistent
0:56:09 with his actions or the- or the results.
0:56:13 You guys are- and your companies are on the front lines of, of, you know,
0:56:16 helping fixers and improve our situation as it relates to, uh,
0:56:17 manufacturing and national security.
0:56:19 And we’re honored to- to be- to be supporters.
0:56:20 Brian, it’s great.
0:56:21 Thank you.
0:56:21 Yes.
0:56:21 Thank you.
0:56:23 Thank you for coming on the podcast.
0:56:24 Thanks, guys.
0:56:24 Thanks, guys.
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