Nobel Prize-Winner on AI 'Existential Threat,' Mexico's Hope for Manufacturing | Wall Street Week
Westin: This is "Wall Street Week." I'm David Westin, bringing you stories of capitalism, this week, an industrial boom south of the border. We went to Mexico to see how tariffs and transportation costs are reshaping the American supply chain and what that could mean for China, but we begin with a biography, not one about a person or even really a thing.
How do we classify something like artificial intelligence, something that has never existed before and something that might be beyond our understanding? This is a story about identity-- who we are as humans, whether our identity is being merged with computers, and, if so, what we need to do about it. -There is nothing special about people. They are very wonderful things. They're incredibly-- we're incredibly complicated, and we're very wonderful to other people, as people are what we care about-- we've evolved that way-- but there's nothing that you can't replicate in other material.
Westin: If anyone should know about whether computers can do everything that humans can, it would be Geoffrey Hinton. The computer scientist and University of Toronto professor emeritus is known as the Godfather of AI. After working for over a decade at Google, he quit his job in 2023 and became outspoken about the risks of the technology he helped pioneer, this even as he continues to receive accolades for his work. We sat down with him after he had just received the Nobel Prize in Physics. -I was in a hotel in California. My phone went off at 1:00 in the morning, and I thought about not answering it, and then they said I won the Nobel Prize in Physics, and I thought, "Wait a minute.
I'm not a physicist. This can't be right." Westin: But it was right, and in December, it will be Professor Hinton along with John Hopfield who will be receiving the award at a ceremony in Stockholm for their breakthrough work on machine learning. That generative AI is reshaping the business landscape is beyond doubt. Bloomberg Intelligence expects it to drive big tech firms to nearly double their CapEx from 2023 to 2025, with revenue from AI set to approach a trillion dollars by the end of the decade, but before we get to the future of AI, we turn to its past. We asked Geoffrey Hinton to go back to the beginning, when this new creature that can do what humans can do first arrived. -I would say it was born in about 1983 with something that Terry Sejnowski and I did which was called the Boltzmann machine.
It never really panned out, but it was a generative AI. It was a model that would generate images, not very good images, but it would generate them. -Well, there could be a debate about the birth of it, but I would go all the way back to Alan Turing and then John von Neumann, so that would be in the thirties, forties, and fifties.
Westin: Marty Chavez of Sixth Street has spent his career developing AI, and he traces its birth back to the very foundations of computer science. -So it's been around a while, right, people thinking about what is computation, what is the nature of computation, and do human beings do computations. Is everything that's happening in our brains or our minds just a form of computation? People were asking these questions, really, almost a hundred years ago and starting to work on it. -Artificial intelligence and robotics are rapidly advancing fields of technology. Westin: Whatever the beginnings of AI, most agree that it took many people and many decades to get here, but they also agree that in just the last few years, the game has changed.
A series of rapid breakthroughs has brought what were far-out predictions much closer to reality. -The big milestone is the large language models, which work by looking at a context and then generating guesses about what they think the next word should be. That's why they're generative. Then that was followed by things like Dall-E from OpenAI that could generate images. Before that, there were things that could generate captions for images, so they would look at an image, and then they would generate a string of words that describe the image.
Those were the early versions of generative AI. Now we're getting multimodal chatbots which can generate everything. They can generate images and language.
-The huge milestone that I think of is one that we hit 2016, 2017. This was a milestone in the evolution of the neural networks. It maybe didn't get a lot of public attention, but it certainly got the attention of everybody in the field, and this milestone came about because of the work of many of the researchers-- I mentioned a few of them-- over decades, but another contributor to the milestone was the Internet and the sudden availability of vast amounts of labeled data. Westin: The breakthroughs that Hinton and others worked to achieve have developed artificial intelligence to the point that now in a text conversation, it might be indistinguishable from a human being. A study this year by cognitive scientists at UC San Diego showed that people mistook ChatGPT for a human more than 50% of the time, clearing the bar for the so-called Turing test.
Humans themselves only pass the test about 2/3 of the time, but, as surprising as that is, it could be just the beginning. How far along is AI in it's life, again, if we're anthropomorphizing here? Is it a child? Is it an adolescent? Where is it? -It's more like a toddler, maybe like a 3-year-old. -Let's imagine that we're in that gangly, awkward teenager phase of AI. What happens next? There's a huge debate.
Westin: Whether AI is a toddler or an adolescent, today the question is, how far can it go, how much can it learn, and, perhaps most important, will it catch up to us humans? For Geoffrey Hinton, it's a matter of when, not if. Does that mean that generative artificial intelligence will be able to do whatever humans can do? Is there anything that it cannot do that we humans can do? -Yes. Most people have the belief there's something very special about people, which is consciousness or sentience or subjective experience, and we have this inner theater. That's probably all nonsense. The history of it is, these large language models predicting the next words using backpropagation were initially designed as a model of how people work.
Now, there's a whole bunch of people who believe in symbolic logic and that's how people must think-- they think it must be true-- who think people work in a completely different way, and they're wrong. They never managed to produce stuff that works nearly as well as these big language models, so they'll tell you these big language models are quite unlike people. "They're just using correlations and so on, and it's all just not really understanding." No. Our best model of how people understand is exactly the same model as how these big language models understand.
They're just like us, and they're much more like us than they are like standard computer software, so understanding is all about converting words into features, having the features interact, and having those predict the next word. We do it pretty much the same way they do it. Westin: What about creativity? Can generative AI be as creative as humans are? -As someone else might have said, there you go again. You want people to be special. If you take standard tests of creativity, AIs already do better than most people.
Westin: What about in a large corporation? You have worker bees, we often refer to them. Then you have middle management, upper management, and CEOs. Could they replace CEOs? -OK, so there's a good scenario for the future which goes like this. Suppose you have a big company with a rather dumb CEO-- maybe he's the son of the previous CEO-- but he has an executive assistant who's very good, almost certainly a woman. This executive assistant is asked to achieve things by the dumb CEO, and she achieves them in ways he doesn't understand and would never thought of, so he becomes much more effective. He gets what he wants. He thinks he's doing it.
It all happens behind the scenes and very efficiently. That's how it could be if we all had our own AI assistants that were smarter than us and they were thoroughly benevolent and they never wanted to take over. We could somehow achieve that, that's the good scenario. Westin: I had a boss once in business who said, "A danger is wishing yourself to success."
Do we wish ourselves to a safer world by hoping that generative AI cannot do everything we can do? Because it might be very threatening to many people if we believed it can do everything we can do. -Yes. It is very threatening, and I'm very worried about it, and we should definitely put huge effort right now into figuring out whether we can keep control of it. Westin: What effort should we put forward? What should we do? -OK, so for something like climate change, everybody knows what we should do. There's a very simple solution-- just don't burn carbon.
It's just we don't have the political will. We still give big subsidies to oil companies, which is lunatic, so we know what to do. We just won't do it.
With AI, to keep AI safe from the long-term danger of more intelligent things than us just taking over from us, we don't even know what to do. What we need to do now is understand that there really is this danger-- these things really do understand, and they really are going to get smarter than us-- but also how are we going to keep control of them? We have some chance because we're creating them. Westin: And that's where we turn next in the biography of AI. How much good can it do, and what do we need to do to make sure it becomes a responsible citizen instead of a threat to us all? The life of artificial intelligence is connected to the lives of people and also to their livelihoods.
AI is already being used to make processes more efficient. What could this mean for productivity and, therefore, economic growth, and who will benefit from it? We posed those questions to Geoffrey Hinton. -It will be a wonderful thing for productivity. That's true. Whether it be a wonderful thing for society is something else altogether.
In a decent society, if you increase productivity a lot, everybody is better off, but here what's going to happen, if you increase productivity a lot, the rich and the big companies are going to get much richer, and ordinary people are probably going to be worse off because they'll lose their jobs. Westin: AI's ability to reshape productivity could also give new life to developed economies whose productivity has stalled. U.S. productivity growth has been significantly lower in the 21st century than it was between 1930 and 2000, but for all the talk of the sweeping effects of AI, economic change has been slow to materialize so far. Goldman Sachs reports that only 5% of companies claim to use generative AI in regular production, with tech and information businesses leading the way.
When wider adoption does come, Hinton anticipates it will have very different impacts on different parts of the workforce. -Many people say, you know, it'll create more jobs. For this particular thing, I'm not convinced of that. What we're doing-- In the Industrial Revolution, we made human strength irrelevant. Now we're making human intelligence irrelevant, and that's very scary, so there's some areas where demand is very elastic.
An example would be health care. If I could get 10 hours a week talking to my doctor-- I'm over 70-- I'd be very happy, so if you take someone and make them much more efficient by having them work with a very intelligent AI, they're not going to become unemployed. It's not that you're now only going to need a few of them. You're just going to get much more health care, great, so in elastic areas, it's great. There's some areas that are less elastic, like I have a niece who answers letters of complaint to a health service.
She used to take 25 minutes to answer a letter. Now she can just scan the letter into ChatGPT. It'll give an answer.
She'll look at it, check it's OK. That's 5 minutes now. I suspect they'll need less people like that. It may be they can just-- everybody can complain a lot more, but I suspect they'll need less people like that, so some jobs are elastic. Others aren't.
The nonelastic ones, I think people will lose their jobs, and what's going to happen is, the extra wealth created by the increase in productivity is not going to go to them. Westin: Hinton's prize in physics wasn't the only Nobel awarded this year for artificial intelligence. Two Google DeepMind scientists and a professor at the University of Washington received Nobels in Chemistry for using AI to predict the structure of millions of proteins and even to invent a whole new protein. Marty Chavez of Sixth Street says that tool, called AlphaFold, shows the power of machine learning. -As important a breakthrough as this AlphaFold work is, if you think about the problems in biology, the problems in biology are so much more complicated, right? Proteins are the basic building block of life, but then those proteins organize themselves into organelles of a cell and then cells which organize themselves into tissues which organize themselves into organs which go to organ systems, human beings, populations of human beings. Westin: Beyond biology and health sciences, generative AI could also have profound effects on the climate.
For one thing, it will require a lot more electricity to drive it. Wells Fargo projects a 550% surge in AI power demand by 2026. Ireland is a poster child for the extent of that demand today. Its growing number of data centers used up 21% of the country's electricity in 2023. -The good news is, it's not new in our history.
We've been through many periods as a country where we have had significant energy demand, but what this is going to mean is, AI is now adding to this. As we electrify transportation, as we electrify our buildings, we now have this big, near-term demand for energy to power these data centers. Westin: Brian Deese served as the director of the National Economic Council under President Biden and is now focused on studying the effects of AI on energy at MIT. -So in the near term, it creates this tension of how do we bring that additional electricity online, and are we bringing cleaner sources online or dirtier sources online, which obviously affects emissions, but the longer term, the bigger picture where these interact is, AI is a technology which will then get deployed in lots of aspects of our economy, including our energy system, and so there are also opportunities where these two technological developments coming at the same time could actually be one plus one equals 3, help us find more efficient ways to innovate in the energy space.
Westin: For all the good that generative AI could potentially do for the human race, it also poses some real dangers, perhaps none so apparent as its application to armed warfare. Anja Manuel's Aspen Strategy Group published a report on this very subject. -AI, by its nature, is dual-use because it is a multi-purpose technology.
It's like electricity or the steam engine. It's going to power everything, from the most amazing positive use cases to the really dangerous ones. Westin: Anja, for all of my lifetime, the biggest geopolitical risk-- terror, even-- has been the threat of thermonuclear destruction. -Yes.
Westin: There's recently was a meeting over in South Korea with an attempt to have everybody agreed that if there were to be nuclear weapons used, a human had to be in that chain of command, and the countries there agreed to it, except for one--China. What do we make of that? -We are really on day one of this technology and how it can be used vis a vis national security. There have been a number of attempts in the last couple of years-- a lot of them, thankfully, led by the United States-- to think carefully about AI and nuclear weapons use, one; two, how much you would allow lethal autonomous weapons, and this means, really, you know, if you have a predator drone, there's still a human directing it and deciding who to target and who to shoot at. In the Ukraine war, you're getting very close now to drone-on-drone dogfights, drones doing their own targeting and shooting, and very soon, you have a situation that's very dangerous where if the AI weapon is always going to be faster, the incentive for everyone is to use lethal autonomous weapons because they'll always win, and then you'll have huge escalation, super dangerous. Lots of different people are trying to get at this in different ways.
The Korea conference was one of them. I'm not surprised that China hasn't signed on. I would just give you one example. You used nuclear weapons. You know, when the U.S. came first in the nuclear race,
we proposed some limited limits on nuclear weapons, I think, as early as 1946. Then no real arms control treaties were negotiated until after you had the Cuban Missile Crisis and we got to the brink, and then we had some pretty good ones, but what was going on all the time in the background and what is going on now-- and it's super important and bears emphasizing--is, quietly behind the scenes, there are some Chinese scientists and American and Western scientists talking about these issues. There are other Track IIs that are more on the policy area-- I'm part of one of them-- quiet conversations with the Chinese about the dangers of AI, and the Chinese interlocutors I've talked to are equally worried about very similar things than the ones you and I are talking about here. -For a long time, people have realized there's going to be an arms race, who can get the best lethal autonomous weapons fastest.
All of the defense departments of the people who sell arms-- like the U.S., China, Britain, Israel, Russia-- all those defense departments are busy working on autonomous lethal weapons. They're not going to stop. If one of them stopped, the others wouldn't. What we need for that is not to stop working on it, but to have a Geneva Convention.
Now, you don't get Geneva Conventions, things like the Geneva Conventions for chemical weapons, until after something very nasty has happened, so I think, realistically, very nasty things are going to happen with lethal autonomous weapons, and then maybe we'll be able to get conventions, so for chemical weapons, the conventions have basically worked. Putin isn't using them in the Ukraine, and they haven't been used much, so basically, the conventions worked. I'm hoping they would work for lethal autonomous weapons, although I'm less confident, but nothing's going to happen till after some very nasty things have happened. Westin: Whether AI works for good or for ill, a fundamental question is whether humans can maintain control, or at least influence, over it. Professor Hinton says we shouldn't assume that we can, at least for long.
-As soon as you make agents, which people are busy doing now, things that can act in the world, to make an effective agent, you have to give it the ability to create subgoals, so if you want to get to Europe, you have a subgoal of getting to an airport, and you don't have to sort of think about Europe while you're solving that subgoal. That's why subgoals are helpful, and these big AI systems create subgoals. Now, the problem with that is, if you give something the ability to create subgoals, it will quickly realize there's one particular subgoal that's almost always useful, so if I have the goal of just getting more control over the world, that will help me achieve everything I want to achieve, so these things will realize that very quickly.
Even if they got no self-interest, they'll understand that, "If I get more control, I'm going to be better at doing what they want me to do," and so they will try and get more control. That's the beginning of a very slippery slope. Westin: But that suggests time's a-wasting, that, in fact, we don't have that much time... -We don't.
Westin: to be able to get some control over generative AI. -We control it right now, but we don't have that much time to figure out how are we going to stay in control when it's smarter than us. Westin: How do we go about that? Let's take the United States, for example, before we go globally. The United States, we have a government. There are good people in the government, smart people... -At present.
Westin: some probably less smart, but are they up to the job of really understanding what you're talking about and getting their arms around it? -I think with the current government, they are taking it seriously. It's just very difficult to know what to do. One clear thing they should be doing that I believe they should be doing, we need many of the smartest young researchers to be working on this problem, and we need them to have resources. Now, the government doesn't have the resources. The big companies have the resources. The government, I think, should be insisting that the big companies spend much more of their resources on safety, on the safety research of how will we stay in control, compared with what they do now.
Right now, they spend, like, a few percent on that, and nearly all their resources go into building even better, bigger models. Westin: As you say, big companies don't like to be told by the government how to spend their money, but they are often. I mean, you have big accounting departments, for example, to comply with various regulatory requirements on accounting.
If the government were to say, "Yes, we're going to, "at least for the very largest tech firms involved in AI, "mandate a percentage of your revenue that will be devoted towards safety," what's the right number? -I'm not sure that's the right thing to go for. It shouldn't be a percentage of the revenue because that's very complicated, and they put all the revenue in some other country and cheat. The thing to go for is a fraction of their computing resources.
The bottleneck here is computing resources, how many Nvidia chips or how many Google Tensor chips can you get? It should be a fraction of the computing resources. That's an easier thing to measure. Westin: What fraction? -I think it would be perfectly reasonable to say a third. Now, that's my starting point, and I'd settle for a quarter. Westin: From everything you know, everything I understand, is generative AI potentially an existential threat to the human species? I think that's what I've been saying, yes.
It really is an existential threat. Some people say this is just science fiction, and until fairly recently, I believed it was a long way off. I always thought it would be a very long-term threat, but I thought it would be a hundred years before we had really smart things, 50 years maybe. We had plenty of time to think about it. Now I think it's quite likely that sometime in the next 20 years, these things will get smarter than us, and we really need to worry about what happens then.
Westin: Coming up, a race for resources south of the border. We go to Mexico to see how global trade is evolving in real time. That's next on "Wall Street Week."
This is a story about potential, the potential that further economic integration between the United States and Mexico holds for both countries-- a potential for good but also a potential for unintended consequences. -The plastic comes from piping.... Westin: Baldwin Britton is a manufacturer based in Monterrey trying to seize what some are calling the Mexican moment. -And everything comes as pellets, and it gets melted in this machine.
As CEO of Plastiexports, he runs several factories in Northern Mexico making plastic components and finished consumer products-- in his newest plant, kitchen containers. -So this is for consumer products that we're selling to the United States that basically came from nearshoring projects, so these products were previously made in China, and they're relocating into Mexico. Westin: What was once offshoring to China and other exporters an ocean away is beginning to give way to nearshoring from Mexico. The share of U.S. imports coming from China, which hit 21% in 2018, is on the decline, down to under 14% last year. The share coming from Mexico, over 13% in 2018, is on the rise, topping 15% last year.
[Applause] This closer integration between Mexico and the United States was jumpstarted by the North American Free Trade Agreement, or NAFTA, back in 1994, covering Canada as well as the U.S. and Mexico. At that time, a young American named David Eaton was an advisor on the treaty. The promise of the agreement and the opportunities it created took him to Monterrey, and he has never left. Now he's the Mexico director for business development of the recently merged Canadian Pacific Kansas City Rail, forming what he calls the nearshoring backbone. His goal is to fuse together a North American rail system reaching from Upper Canada through the United States all the way to Southern Mexico.
How fast is that need growing for cargo? -We're investing and getting ready in the planning process right now because if you look at lots of the announcements out there--BMW, Volvo, Mattel, Lego, ArcelorMittal, Ternium-- the pipeline is really long. Westin: Britton is willing to bet you'll find something he makes in your home. As a longtime supplier of parts to U.S.
and European home-appliance companies, his new customers are just as likely to be Chinese multinationals you've never heard of. -30 years ago, we saw a lot of shift of business from Mexico to China, and the last 4 years, we have seen this shift come back to Mexico. Westin: Are Chinese companies coming in to compete with you? -Yes. They are coming.
They're setting up plants in Mexico. As a matter of fact, in Nuevo Leon-- the State of Nuevo Leon, which is the industrial hub of Mexico-- they're setting up, so that basically forces companies like us to be in our A game to compete with them. Westin: Today industrial parks full of Chinese companies are sprouting up around the Monterrey hub. -There's a city in China called Shenzhen. 35 years ago, it was a village with 30,000 people.
Today they have over 20 million. It's a manufacturing hub. We see that happening to Mexico. -There is a philosophy among these companies coming from China. to go abroad, go to these other countries, learn how to do this, integrate, and they're on the move.
Westin: For decades, Alan Russell, CEO of Tecma, has been in the business of helping companies to open and operate factories in Mexico, overcoming some of the friction and red tape. -Our technology is Mexico, and we help companies skip the pain and the time that it takes to learn that on their own. Westin: Over your 38 years, has there been some harmonization of some of those differences in regulations and rules, tax laws, things like that? -They've gotten more strict, more rules and regulations. It's more complex today than it ever has been. So we put an umbrella over our client, bring them into the country Mexico.
Westin: Annie Cheng is the plant manager at Leoch, one of the companies using Tecmo for its new operations in Saltillo, an hour and a half outside of Monterrey. Leoch makes batteries for data centers, cars, and golf carts. It was established in China 25 years ago and still manufactures there, but in 2011, Leoch relocated its headquarters to Singapore, and just last year, it opened a new factory in Mexico with plans to open two more. -For the export process, we started to export the first containers to United States last week. Westin: Russell has seen an uptick in his business as companies begin to shift their supply chains from China to Mexico, at first because of the cost of fuel and the delays in transportation and then when the nearshoring process was turbocharged by the pandemic and tariffs as companies sought alternatives to China. -So it started to be a movement where the boardrooms across the United States were saying, "We should consider diversifying from China.
We have all of our eggs there. Costs are going up." A lot of these public companies actually carry on their books a China risk factor until they can adjust and minimize that risk by diversifying into Vietnam, into Laos, into India, into Mexico. Westin: We visited a Mattel plant in Monterrey, a facility that was close to closing at one point when production moved to China, but since the pandemic, Mattel has taken a U-turn, moving production closer to home. The Monterrey plant is now its largest in the world, the place where they make, among other things, the Barbie Dreamhouse. They're all destined for Christmas trees, you know? -Yeah. I know that. Westin: The raw material for the Barbie Dreamhouse comes from the United States by rail straight to the factory doorstep.
-Of course, toys are made of resin, and we've got resin cars that are coming down. Westin: Is that what those cars are full of? -Yeah, 90 tons of resin produced from the U.S. Gulf Coast primarily. Westin: Although some have been quick to declare Mexico the victor of the U.S. trade war with China,
Eaton says the United States also benefits from deeper integration with its neighbor. He points to the auto sector under the United States- Mexico-Canada Agreement, the USMCA, as a future blueprint for trade that will help U.S., Canada, and Mexico thrive together. -You really can't talk about a U.S.-made car or a Canadian-made car or Mexican car. These autos are really North American.
You know, the cars and the parts and components crossed the 3 borders thousands of times, literally, before you produce a car. Westin: Auto sector is really big here in Northern Mexico. Give us a sense of where that is and where that's going.
-The USMCA says that 70% or 75% of the value or content of a car must meet with North American content requirements to get duty-free treatment under the USMCA, and that's creating incentives for a lot of companies to change their sourcing. For example, the steel company Ternium is now investing billions of dollars here in Northern Mexico to process their own slab on site. They're going towards the production of an auto coil that meets the USMCA standards, and so instead of purchasing raw slab from Brazil, they're going to start processing that slab here on site, consuming iron ore and other products from the United States. We're stronger together, frankly. When we manufacture in Mexico, it creates more synergies and more jobs in the U.S. Westin: The nearshoring money coming into Mexico isn't just about ways of transporting raw materials and finished goods.
It also requires real estate investment, which we saw in dozens of large industrial parks through the area. But if you look at this area, this industrial park, right now, if you came here 20 years ago, what would you see? -Well, nothing. Westin: Nothing. Alberto Chretin spent a decade accumulating industrial real estate, some 42 million square feet of it.
6 bidders competed to buy the company he led-- FIBRA Terrafina, a competition ultimately won by Prologis when it paid $2.8 billion to top Blackstone's bid, doubling the size of its portfolio in Mexico. Tell us about that bidding war. -Terrafina was a public company, so there were some unsolicited offers or a takeover offers, you know, from one company and then another one and another one, and I allowed my investors to make the decision which way they wanted to go.
Westin: Is commercial real estate for manufacturing in Northern Mexico still a good investment? If you were starting out today, would you invest in it? -Absolutely. Westin: Despite his continued enthusiasm for the business, Chretin acknowledges some limits, particularly when it comes to a reliable source of energy to power the plants. Addressing the infrastructure needs with respect to electricity you talk about requires a fair amount of capital investment. -Yes. Westin: Is there enough public investment to be able to take care of that, or do you need private capital to come in? -Absolutely we need private capital to come in.
The administration acknowledges that. The last administration almost have no investment whatsoever in generation or in high-tension lines, so that has hindered the ability to continue to provide environment for new companies to come to Mexico. -Part of Mexico's challenges are self-made. It's its own barriers that it's putting in front, so it's things like not having access to affordable, consistent, clean energy. Westin: Shannon O'Neil is senior vice president of the Council on Foreign Relations.
She sees the window of opportunity others do but also some troublesome risks for investors. As you talk to investors in Mexico, how concerned are they about some of the issues you identified, like judicial reform, for example? -These really are front and center in investors' mind, and so the justice reform will mean that judges are now elected, and so businesses worry that those judges could be bought or influenced by the government in particular cases. Westin: What about security in particular? Because it wasn't that long ago that it felt like some of the individual Mexican states were almost in a state of civil war with the cartels. -Security has worsened under this last government.
Homicide rates have remained at near-record highs, but things like extortion, embezzlement, and other-- kidnappings have grown. Westin: One of the things an investor tends not to like is uncertainty. -And it's building on uncertainty that happened under the last administration. It's continuing and even deepening, and we've seen it in the investment numbers. You know, Mexicans were hoping 2024 would be record highs in terms of investment, and most of it has been frozen, both international investment, foreign investment, but also domestic investment, so this is a time of uncertainty in Mexico, even as companies are looking for alternatives to Asia. Westin: And if that weren't enough, the USMCA itself, that successor agreement to NAFTA underpinning the nearshoring system, will be up for review in 2026, with new governments in both the United States and Mexico.
-I do think these are going to be pretty difficult negotiations. The really looming issue for the review of the USMCA is China and where does China fit into supply chains in North America and where does China fit into production more broadly in North America. Westin: And that's where we turn next, to the future of nearshoring as seen through the eyes of the government and in particular those of Marcelo Ebrard, Mexico's newly minted Minister of the Economy. If the United States and Mexico are to get all the potential benefits from further economic integration, it will take both governments working together, and that will depend on the plans of the new Mexican president Claudia Sheinbaum and what the upcoming U.S. election could mean for those plans. -We need to accelerate the nearshoring.
Westin: Marcelo Ebrard is the new Minister for the Economy for President Sheinbaum, coming to the job after serving as mayor of Mexico City and as foreign minister under President Andres Manuel Lopez Obrador. Ebrard's appointment itself could be a sign that President Sheinbaum welcomes further U.S. investment and supports more economic integration. In the last administration, Ebrard led negotiations for the U.S.-Mexico-Canada Agreement. You negotiated the USMCA on behalf of Mexico with the Trump administration. Has it been good for Mexico? -Extremely good.
Doesn't make sense to be against the USMCA. It was the best business between our countries ever. That's the reality. Westin: Former President Donald Trump was the one who demanded and oversaw the USMCA, but on the campaign trail, he has threatened to punish American companies for taking advantage of what the agreement has to offer. -As you know, they've announced a few days ago that they're going to move a lot of their manufacturing business to Mexico. I'm just notifying John Deere right now, if you do that, we're putting a 200% tariff on everything that you want to sell into the United States.
Westin: Today, Mr. Trump continues to advocate for trade restrictions, speaking with Bloomberg in October about his economic policy. -To me, the most beautiful word in the dictionary is "tariff," and it's my favorite word. It needs a public relations firm. Westin: Whoever is elected U.S. President, Minister Ebrard expects to face challenges in the upcoming review of the USMCA in 2026.
If, in fact, he were returned to office, how would you respond to tariffs from Washington? Because he certainly says he's going to go back and do even more of it. -Well, we are extremely linked with the United States companies and market, so if you put tariffs on Mexico exports, for instance, those tariffs are going to translate in a high prices for consumers in the United States, so I think we have a strong argument in order to reduce this possibility to have tariffs in our exports to United States because there are American companies exporting to United States. You don't solve anything keeping tariffs between us, doesn't make sense, because it's the same economy, practically.
Westin: I know you have some tariffs on steel, for example, from China at this point. How do you see the role of tariffs? When do they make sense? When do they not make sense? -Well, it's easy to abuse about tariffs, to put tariffs for any kind of article at the same time. We are not especially friendly with the tariffs for several fields because it can be costly for our economy, even for the United States economy, so we need to have a common policy with U.S.
Let's see what happens in the next election, no, in order to have a conversation about the competition with China. Let's do something really effective because you are not going to solve competitiveness through tariffs, doesn't work. Westin: One thing both former President Trump and Vice President Harris appear to agree on is the need to confront China, and on this, Minister Ebrard may find common ground with both candidates, as he wants to pursue a policy of substituting Mexican-made goods for Chinese imports. -We need to improve our domestic production, the domestic component of that, where exports is around 20%, so we are importing a lot of things from China, also Vietnam, and there are no reason for that. Westin: If Mexico is to realize Minister Ebrard's ambitions, there are some hurdles it will need to climb over, starting with energy.
-We need to expand our capacities in Mexico in order to fulfill our goals in terms of renewables or clean energy for the next, let's say, 10 years. Westin: President Sheinbaum has set out very aggressive goals for renewables for Mexico. -Very, very aggressively. Westin: I think it's 45% of energy by 2030. -Yes. That's true. Westin: Can that be achieved without private capital? -No. The idea is to invite private capital
and to share the responsibility. Westin: There's the power-generation aspect. There's also distribution. There are some questions about the ability to distribute the power. How much needs to be invested in order to have distribution? -Ah, well, it's a huge amount of money in distribution in order to fulfill this new demand, which is very, very important, the largest one in our history. Westin: What do you think that the investors are looking for from you in terms of assurances in order to put private capital in? -Clear rules, certainty about how the market is going to work the next years in Mexico.
Westin: Do you and, really, the Sheinbaum administration regard private markets as a tool, as a way to get to where you want to go, as opposed to something that needs to be contained? -No. We think that the only way to obtain our objectives is to have a close relationship with private capital. Westin: One of the things we hear from companies doing business in Mexico is, there is a lot of bureaucratic red tape, so to speak, a lot of regulations.
What can you do specifically to cut back on that inhibition? -Well, we can cut back a lot of them. There are many, many, many, many regulations. That's true. We are going to change this. It doesn't make sense. You make the people waste time, and our main objective is to accelerate the investment. Westin: Does President Sheinbaum have the authority to cut back on the regulations on business? -Well, we have the majority in both chambers of the Congress, so we can use this in order to reduce drastically all those regulations.
Many, many of them doesn't make sense at all. When you review the regulations, you say, "Well, this regulation is opposite to this one. Why so?" Well, nobody change the situation, so you have more and more and more regulations, so let's cut them and facilitate the life for the investor.
Westin: Minister Ebrard saw firsthand some of the difficulties in attracting foreign investors after trying to secure a deal with none other than Elon Musk. You've had a fair amount of experience with the U.S. investment coming into Mexico... -Sure. Westin: including the Tesla plant, which has been put on hold.
Where does that stand now? -Well, we are waiting for news from Elon Musk, maybe in December, I think. Westin: Are you hopeful? -Yeah, always, always. Westin: Do you think it will happen? -I think so. I think so because it makes sense for Tesla. Why not? Westin: What did you learn from that experience of negotiating that deal? -With Tesla? Westin: Yeah.
-Well, we need to be very close to the CEOs of the companies. We need to really put on the table the information on time for the decisions that they are going to take, so we need some sort of trust and friendly approach. We need to work more closely with them in the next 6 years in order to be successful in our main goals of investment in Mexico. Westin: Since the USMCA was negotiated 7 years ago, Washington has formed a consensus about the need to protect certain industries key to national security, industries like semiconductors, aerospace, electric vehicles, batteries, active pharmaceutical ingredients, as well as rare earth minerals. The upcoming USMCA review could provide a venue for the trio of countries to devise a plan to better compete globally in those critical industries, a plan that may require coordinating not only new protective barriers, but also industrial policy. -We are in the same geopolitical agenda-- I mean, not always has been the case-- because of the competition with Asia, so I think that we have more resources right now in order to be successful in the negotiation.
Westin: From Mexico's point of view, how could it be improved? There's a review coming up in 2026. As you look forward to that review, what might Mexico want on that review? -Well, we need to upgrade the USMCA, upgrade. It seems to be what if we have a common vision about microchips, about pharmaceutical, about medical equipment, about several things, and we have a common plan to do it to be more competitive in the next 5, 6 years.
It's not only about free trade, but it's about what can be done together in order to be more competitive to success, not only to have tariffs in the short terms. We need to have a plan, not only a short-time vision. Let's have a common agenda about the next 10 years-- energy, power industry, technology.
Why not? Westin: But in the end, Minister Ebrard recognizes that the real potential of the Mexican economy and its further integration with the United States will depend on its ability to attract private capital, and he can see a world where that integration transforms the world of Mexican exports. -There is no other way to do it because we are not going to find, you know, new resources from oil or-- No. It doesn't exist. Everything is going to depend on our capacities to produce better and more. Westin: How far can you go? How much progress can you make building the Mexican economy through integration with the United States? -I think that if we are agree, if we have a common vision with, let's say, the private capital in the United States, this can be something near 25% of the imports from North America, so you can imagine the impact of this in Mexico. You can change the country in 10 years. Why not? Westin: There's a race on over artificial intelligence.
Anja Manuel is executive director of the Aspen Security Forum, and she says, who's ahead depends on how you are scoring the contest. -Absolutely, there is a race going on. The two biggest contenders now, the folks in the lead, are United States companies and Chinese companies, but it's a little bit more nuanced than that.
What people tend to focus on is, have our export controls on the most advanced chips, semiconductor manufacturing equipment, slowed down the Chinese race to get the fastest, large language models-- these things OpenAI, Anthropic, Google, and others are doing-- and the evidence is that it has slowed them down a little bit. Depending on who you ask, they're 4, 6, 12, 18 months behind where the U.S. is. I think that's important, but it's not everything because if you look at how AI is actually used and applied-- the plugin models, the specific use cases-- the Chinese are first rate, especially in all of those things that worry me and people like me who are in the national security community, so the Chinese are first rate at computer vision. That helps you do surveillance and intelligence gathering. They are first rate at autonomous weapons.
That's a fancy word for drones of all shapes and sizes that can be used everywhere, so the race is on, but it's not just in large language models. Westin: Given that general use for AI, does national policy for the United States, for national security reasons, require us to try to slow China down? Is it a zero-sum game? We can't allow them to really develop at full speed and not be at risk. -Yeah. You're absolutely right that the focus so far has been on slowing China down, and I do think that some of that is important.
Sometimes people call it the big tech war between the United States and China. I prefer to call it the great technology race, so you can win a race two ways. You can hobble your opponent to slow him down, or you can run faster yourself.
I firmly believe that the way the West, so the United States and our friends and allies, are going to win this race is to run faster ourselves, and let me give you a couple of examples. The export controls you already mentioned, what the Biden administration is rightfully doing on some limited outbound investing restrictions where we don't allow our financial companies to invest in the most advanced Chinese AI, quantum computing, semiconductors, that's OK, and it'll slow the Chinese down a little bit but only so much and for so long. The Chinese are very good at being independent.
The thing we really should be focusing on is running faster ourselves, and the Biden administration deserves huge credit here. The CHIPS and Science Act was a great down payment on that. Unfortunately, the part that got very little attention is the piece, the $173 billion, that was supposed to go to advanced research and development. That is critically important to keep us in the lead and innovating, and, of course, that doesn't have anyone lobbying for it, so it's very underfunded. Westin: Geopolitically, we tend to just look at United States and China right now, which I think is a mistake.
There are other nations that are developing AI. What are the other nations we should be keeping an eye on? -There are. Look. The most advanced large language models, as I'm sure you're speaking to Geoff Hinton and others about, they're really in the United States.
The UK has amazing researchers. Canada has amazing researchers. France has a very sophisticated model and the United Arab Emirates, so there are a lot of countries coming up the scale. The hard thing, as you know, is that the amount of compute and electricity that is required to train these super sophisticated models is very hard for anyone but a handful of nations to muster, so it keeps down the number of people who are really in this race for the LLMs. Westin: You mentioned the UAE.
There are reports now that the United States might consider curtailing some of the GPU chips, the Nvidia chips being sent to the Middle East. What should U.S. policy be with respect to something like the Middle East, which, although it may not have a lot of compute power now, it is deploying an awful lot of capital to develop those data centers? -It is deploying an awful lot of capital. The UAE and Saudi Arabia, as well, they're really the classic swing states in this.
The UAE works very closely with the United States, including there was a big announcement by President Biden and MBZ, the head of the UAE, just recently that they're going to do an MoU on artificial intelligence. That's all good. The UAE says that they've divested some of the investments that they were making in the most advanced Chinese companies in AI. We think that's true, but clearly the UAE wants to both work with China a little bit and wants to work with us a lot, so being suitably cautious while helping to bring them onside, I think, is the right policy.
Westin: What about protecting against so-called deep fakes and perhaps some interfering with the election process? Are there the things that we should be doing to try to protect ourselves? -This is really difficult. I think misinformation and disinformation is out there. It exists now, and AI will only supercharge it, so some of the deep fake legislation that is out there, I think, could be useful, but there's so much to worry about in AI. Deep fakes is one aspect of it, but the aspects I listed for you before, the ones where AI can be used to cause harms in the actual physical world, to me and the community I work with, for the Aspen Strategy Group and others, is really the most important. Westin: Anja, you have written in the "Financial Times" about the need for a testing process for AI for safety purposes. What would that testing look like? -It can take a number of forms.
I would say it needs to have 3 important criteria. One, it must be mandatory. It has to be every model, every large-- only the very, very largest, most sophisticated model, and it should probably happen before those models are deployed in the human populace, and it needs to be done in a way that is narrowly focused on the harms that you and I have been talking about, David, on physical harms, so I know that's very difficult.
That may not be a popular thing to say. There are other harms that AI can cause-- bias, deep fakes, the things that we've been talking about. Those are important, too, but I worry that if you boil the ocean and try to test for everything, you won't get at those things that we talked about earlier, David, how AI intersects to create biological weapons, chemical weapons, what it does in cyber, how it can jailbreak, what it can do to be autonomous, replicate itself in potentially dangerous ways. Those are the narrow things that could really harm humanity that I think need to be tested for before those products can be let out and do all the great good that they're also going to do in the world. Westin: Does the government, the United States or other governments, have the capacity to do that testing, particularly computing capacity, or would it need to mandate that the big tech companies have their computing capacity dedicated to this? -They may. Governments may not have the capacity.
Look. The first attempt at this has been the UK AI Safety Institute. They stood that up in less than a year. I've met a lot of those researchers. They're very impressive.
They say that they're doing pretty advanced testing in weeks, not months or years, so that seems to be going OK. It's on a voluntary basis. Ultimately, yeah, it would probably be better for the companies to have to do their own testing under supervision so it can be really, really rigorous, so, for me, just how the testing is done isn't so important.
It's what is being tested for and how rigorous it is and how independent it ultimately is. Westin: So, Anja, tell us what the Aspen Strategy Group is doing in this area. -Yeah, so the Aspen Strategy Group, of which I'm the executive director, is a group of senior Republicans and Democrats that comes together to think through big, thorny problems of our national security and hopefully leave partisanship at the border. We just did a 4-day conference on this intersection we're talking about-- AI and national security, and there is a super fascinating report that we have just put out that has some of the leading thinkers on military strategy, on AI, and on the commercial sector thinking about some of these thorny issues, David, that you and I have been discussing. Westin: That does it for us on "Wall Street Week."
I'm David Westin. We'll see you again next week for more stories of capitalism.
2024-10-28 21:37
