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First Move with Julia Chatterley

Pressure Mounts on U.S. Congress to Find a Deal on Debt Ceiling Dilemma; Evergrande Sells Assets to Raise Cash while Facing further Debt Repayments; Japan's Former Foreign Minister is Set to Lead the Nation. Aired 9-10a ET

Aired September 29, 2021 - 09:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[09:00:05]

JULIA CHATTERLEY, CNN BUSINESS ANCHOR, FIRST MOVE: Live from New York, I'm Julia Chatterley. This is FIRST MOVE and here is your need to know.

Debt ceiling dilemma. Pressure mounts on U.S. Congress to find a deal.

Cash crunch. Evergrande sells assets to raise cash while facing further debt repayments.

And seeking stability. Japan's former Foreign Minister is set to lead the nation.

It's Wednesday. Let's make a move.

Welcome once again to FIRST MOVE. Great to have you with us and the good news today is that there's no sign of a Wednesday whacking one day after

Tuesday's smacking, but lots for FIRST MOVE to continue unpacking, so let's do it.

U.S. stock futures are green today after the worst Wall Street drop since March. The NASDAQ fell almost three percent in Tuesday's session. Europe,

as you can see also gaining in the session today as well, stocks are bouncing as global bond yields are ease a touch, but I have to say the

market mood remains pretty cautious.

Now with apologies to none other than Albert Einstein, here is my -- call it highly scientific theory of what's happening right now.

Let's call it the Chatterley theory of market relativity. We've got an inflation eruption plus energy market and supply chain malfunction minus

Fed stimulus propulsion divided by U.S. congressional dysfunction equals stocks of an important junction.

The equation therefore is E equals MC scared. Yes. I'll await my Nobel Prize nomination while back on Capitol Hill, I'll tell you what, there is

no Peace Prize nomination for Senator Elizabeth Warren. Warren declaring war on Fed Chair Jay Powell calling him a quote "dangerous man" who is weak

on bank regulation. Will this complicate Powell's re-nomination, another situation for investors to watch?

Also the Senate Treasury Secretary Janet Yellen yelling again for a rise in the debt ceiling. She says October 18th could be the date for a potential

default if no deal is reached.

Let's bring in a real Einstein this time to discuss all this in our drivers. John Harwood joins me now. John, great to have you with us. So at

least we now have a date where it is going to become increasingly complicated for the U.S. government to meet its obligations. Is there any

sign of progress behind the scenes, if not upfront?

JOHN HARWOOD, CNN WHITE HOUSE CORRESPONDENT: Well, we did have one interesting development yesterday, Julia. And by the way, you've always

reminded me of Albert Einstein, I thought that was a terrific reference.

CHATTERLEY: Thank you.

HARWOOD: You know, we had Mitch McConnell saying for a long time that Republicans are not going to provide any help to Democrats in raising the

debt ceiling, including by issuing a filibuster. Democrats have been saying no, you need to help us because both parties need to do it together, we

need to de-weaponize the debt limit.

McConnell yesterday offered a small concession, which is to speed the process by which Democrats could do this on their own through the so-called

budget reconciliation process. That is an indication that he wasn't entirely comfortable resting with the position that we've got nothing to do

with this even while Janet Yellen and Jay Powell and markets say we've got to get on top of this.

So that was a small crack in what had happened, but of course, the likeliest option still is that Democrats will take something approximating

that offer from Mitch McConnell and shift this over to that budget reconciliation process.

You know, we've had a series of escalations over the last 10 years where Republicans have played hardball increasingly with the debt limit, but

there is a big difference between now and the situation 10 years ago, when we actually got a credit downgrade when Republicans took it to the brink.

CHATTERLEY: Right.

HARWOOD: Mitch McConnell is a rational actor. He does not want to see a debt default, the House Republican Caucus, which took it to the bank in

2011, some of those people didn't care. They thought it wasn't so necessary to raise the debt limit. So, that's a difference about this situation, and

I think it should be a reassurance to some in the markets that whichever way they do it, whether or not there's some way to do it through regular

order, or through the budget reconciliation process, they are going to do it.

CHATTERLEY: Yes, I mean, and you can lose one of the three top rating agencies AAA credit rating, lose a second, and then you've got real

problems, because then there are funds out there that can't hold your debt. They're not allowed to.

Phrase of the show, though de-weaponizing the debt limit, such a great way of phrasing this.

John, it's sort of a separate subject, but it's very much tied to what investors are looking at right now. Nancy Pelosi's comments on Jay Powell.

What do you make of that?

[09:05:00]

HARWOOD: Well look, Jay Powell has got problems on the left, but he is a - - and we heard that from Elizabeth Warren raising concerns. She has done that in the past. She doesn't like his views on financial regulation.

I still think the dominant view is that Jay Powell is a Republican appointed by President Trump as Chairman, but appointed to the Fed Board by

Barack Obama, who essentially shares the Biden economic team's outlook toward what the economy needs, and what it needs to get back to full

employment and the priority of getting back to full employment.

And I think that being the case, knowing that Joe Biden is essentially a centrist Democrat who has been trying to reach across the aisle in some

ways, this is a -- the path of least resistance would be to reappoint Jay Powell and make Lael Brainard, who would presumably be the alternative if

Biden didn't appoint Jay Powell, the Vice Chair for who is in charge of regulation, supervising regulation.

I don't know that that's going to be the outcome that still seems to be the likeliest outcome.

CHATTERLEY: Yes, I mean, in the middle of a pandemic, still trying to see a recovering economy, global economy, so I suspect, continuity feels like

key.

John Howard, great to have you with us. Thank you, sir.

All right, from D.C. to China, where another debt crisis is posing a threat to investors. Cash strapped property giant, Evergrande is raising $1.5

billion after agreed to sell part of its stake in a local bank. This comes as the company faces yet another bond interest payment due today. Clare

Sebastian joins us with all the details.

Clare, great to have you with us. I feel like we've got a sense of the pecking order here of priorities. If you're a Chinese bank that's lent

money to Evergrande, then you're going to get your money before international bondholders, before equity holders and that makes sense to

me, quite frankly. But what more do we know?

CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia, I think that's exactly what we learned today. We got a sense of this last week when they

paid the interest on a domestic yuan denominated bond, but left foreign investors and their dollar denominated bonds guessing. The same thing

today, they are going to pay this local bank essentially by selling off a large chunk of their stake in it to a state-owned enterprise, $1.5 billion

in cash that they're not going to see that it's just going to go to that bank to settle those liabilities.

So that does really reinforce as I said that the local creditors are going to be first in line and foreign ones are last. Local debts, by the way, are

the majority of their $300 billion debt pile. So that's really crucial here.

And I think it also shows given that the stake is being bought by a state- owned enterprise that they may have a part to play in this as well, which is, you know, something as we read the tea leaves as this crisis unfolds,

and again, no word yet, either on the $80 plus million coupon payment that was due last week, or an almost $50 million one that was due today.

They've already had a rating downgrade by Fitch based on the nonpayment of that coupon last week -- Julia.

CHATTERLEY: Yes, I mean, at this stage, you do get a sense of how perhaps the Chinese are going to handle this with the state-owned enterprises

stepping in to save those domestic interests. It's going to be interesting to see what happens after this 30-day grace period to see whether they try

and protect to some degree, international bond holders because it's one heck of a message if you don't.

Crucial to this, though, is those -- then those people that have bought properties, have taken out loans and a fear that this would have ripple

effects, obviously, not only in China, but beyond. A message from the Central Bank through, crucial, I think, this week, just to perhaps say to

people, don't panic, we're going to protect you.

SEBASTIAN: Yes, they did not mention the word Evergrande, which I think is one of the hallmarks of the response that we've seen so far. But there was

a message from the People's Bank of China this week where they said, and I quote, "That they would work to maintain the healthy development of the

real estate market and safeguard the legitimate rights and interests of housing consumers."

So clearly, the point here is that Beijing does not want economic contagion for this. There are many, many hundreds of homeowners who have paid

Evergrande, but not actually received their finished property yet. That is one of the major concerns when it comes to the potential economic fallout

of this crisis.

Another point to make is that the People's Bank of China continues to inject short term cash into the financial market. They've been doing that

for almost two weeks now in large quantities, much larger than usual to sort of shore up liquidity, maybe bolster the defenses of the financial

system in case of a default, but that so far, those are the signals that we're getting from Beijing.

There is nothing concrete that they've said about this. So, while we can see clearly that they want to limit economic fallout, we don't know yet

what they want to be the future of Evergrande, be it a default, perhaps some kind of rescue or even potentially a buyout -- Julia.

CHATTERLEY: Yes, don't harm the little people in your efforts to rein in debt and have an accidental crisis in the in the process. Clare Sebastian,

thank you so much for that.

[09:10:04]

CHATTERLEY: To Japan now where the ruling party elected Fumio Kishida as the choice for the next Prime Minister. The 64-year-old former Foreign

Minister is expected to officially take the reins next week succeeding outgoing Prime Minister Yoshihide Suga.

Selina Wang is live in Tokyo for us. What can you tell us -- and great to have you with us -- about Mr. Kishida? Because my sense is that whether

we're talking about the public or whether we're talking about the rank and file party members, there is not that much enthusiasm for him. So why this

choice?

SELINA WANG, CNN CORRESPONDENT: Well, Julia, he is a political veteran. Fumio Kishida is known as a moderate liberal. He is known as a consensus

builder and he really represents stability.

Now, this was the most unpredictable leadership race in decades, and he managed to pull ahead even with lackluster public support. It was Taro

Kono, the Vaccine Minister who is known as political Maverick that was the public's favorite, but ultimately, the party members chose what analysts

are calling the safe and stable choice.

Now, he is inheriting a Japan that has suffered multiple ways of COVID-19, a stagnating economy, and rising tensions with China. I spoke to the

Suntory CEO shortly after the results were announced about what this means for the business community. He served as an economic adviser to outgoing

Prime Minister Yoshihide Suga, and this is his take on how he thinks Kishida will tackle and manage this relationship with China.

(BEGIN VIDEO CLIP)

TAKESHI NIINAMI, CEO, SUNTORY: We should keep a great contact -- great contact with China, even from back door. So we believe that Mr. Kishida

with a visit the Beijing at some point to be able to create a good relation between President Xi and we know the relation between dependent China is

interdependent. And the business with China is -- we can't lose it.

So we, business leaders have to talk to Mr. Kishida to convince that we should not rely on the United States entirely. We should have a good

relationship with China as well.

(END VIDEO CLIP)

WANG: Julia, a big concern and a big challenge for Kishida is how he is going to balance these security concerns around China with deep economic

ties with Beijing and like his predecessors, Kishida is in favor of strengthening Japan's alliance with the U.S. and working with allies to

counter Beijing's growing military assertiveness.

Now, he served as Foreign Minister under former Prime Minister Shinzo Abe and is expected to largely continue Abe and Suga's strategies. He also

campaigned on narrowing the income gap and spending billions of dollars to help revive Japan's economy after the pandemic.

But Kishida really is largely seen as maintenance of the status quo of more of the same, but even then, it is unclear how long Kishida will remain in

power. Prior to Shinzo Abe, Japan turned through six Prime Ministers in six years. So Julia, it remains to be seen if Japan is going to return to that

period of revolving door Premiership -- Julia.

CHATTERLEY: Yes, lots at stake. Selina Wang, thank you so much for that.

Okay to the U.K. now where the U.K. government is launching a quote, "reserve tanker fleet" driven by civilians as part of its efforts to fix

the country's fuel crisis. The military is also due to start delivering fuel within days.

The Prime Minister says the situation is improving, but lines and shortages at petrol stations were ongoing on Wednesday. An industry group says 27

percent of its stations are currently out of fuel.

Anna Stewart joins me now. I mean, there is a difference as we were discussing yesterday between having enough fuel and actually having the

capability of supplying that fuel, which is the problem. It seems like the public is taking matters into their own hands.

ANNA STEWART, CNN REPORTER: They really are, and what's so interesting is the sounds we're hearing from within the government, from within the

industry yesterday afternoon and this morning have been really optimistic. The Prime Minister yesterday, within the last couple of hours the Business

Secretary has said the situation is stabilizing. And as you said, the PRA, the Petrol Retailers Association say that now, just 27 percent of their

members are out of fuel. It sounds like a lot, right? Over a quarter, but it's a huge improvement from the weekend when that number was 80 to 90

percent.

However, on the ground, the situation doesn't in some areas the U.K. look like it's improving at all. For instance, this is the same petrol station I

was reporting from yesterday. There was a huge fuel delivery early in the morning. There was over 10,000 liters of diesel, 20,000 liters of petrol.

Within 24 hours, it is completely empty, which is why you see no queue here.

And that seems to be the situation particularly in London near home. Fast, very lengthy hours and hours long queue for a petrol station late last

night. This morning, it hadn't got any shorter, and if it does get shorter, well that might mean that it is out of fuel.

[09:15:13]

STEWART: So I think it'll be really frustrating for people up and down the country who are hearing these positive noises. And yes, the situation may

be improving in some parts of the U.K., but it's not for everyone, and for so many people who rely on their cars to get to work, taxi drivers,

delivery drivers, essential workers, they are still unable to get fuel -- Julia.

CHATTERLEY: Yes, it's like a bank run. The way that you stop that is you provide people with as much cash as they want to take out of the bank and

until that's the case at petrol stations, you're not going to remove the anxiety of people queuing up and perhaps taking more than they need.

We're going to have to see. It must be pretty frustrating, I think for people and the government need to get on with dealing with it.

Anna Stewart, great job. Thank you for that and well done for competing with that motorbike there. Good projection. Thank you.

All right, let me bring you up to speed with some of the other stories making headlines around the world. In the day ahead, Pentagon leaders will

face a second congressional hearing about America's exit from Afghanistan. It comes a day after they told a Senate Committee they were surprised by

how quickly Afghanistan fell.

Two generals said they wanted to keep some U.S. troops in the country, but the President didn't agree. One official said America's credibility has

been damaged.

North Korea says it has test fired a newly developed hypersonic missile off its east coast. State media is hailing the launch as a success saying it is

increasing Pyongyang's defense capabilities.

South Korea says the new weapon is in the early stages of development and that it would take some time to be deployed.

Okay, still to come here on FIRST MOVE, Rolls-Royce goes all in on electric. The carmaker unveils plans to phase out diesel and gasoline

engines by 2030 as it introduces its first fully electric car. We will hear from the CEO.

And imagine sitting inside the cockpit of Microsoft during a global cyberattack. In an extended interview, Brad Smith, the President tells us

all about it and more.

That's coming up. Stay with us.

(COMMERCIAL BREAK)

CHATTERLEY: Welcome back to FIRST MOVE.

More than a hundred years ago, one of Rolls-Royce's founders described electric cars as quote, "perfectly noiseless and clean." The company's cars

have long been quiet, but today, it introduces its first truly clean one.

[09:20:09]

CHATTERLEY: The Spectre is fully electric and will be available in late 2023. It's the first of what the company says will be an all-electric range

by 2030.

And joining us now is the CEO of Rolls-Royce Motor Cars, Torsten Muller- Otvos.

Torsten, fantastic to have you with us and congratulations. You've already described this as the most significant day in the company's history. It is

a salute, I think, to the founders, too. What do we need to understand about this car?

TORSTEN MULLER-OTVOS, CEO, ROLLS-ROYCE MOTOR CARS: I mean, Julia, first of all, thanks for having me. And yes, indeed, it is a very -- I would call it

seminal moment in our company's history because we said it is fulfilling of a prophecy because Charles Rolls, one of our founding fathers prophesied

that one day when the technology is, let's say on levels, then electric propulsion is the perfect fit for a Rolls-Royce, and that happens exactly

today.

For that reason it is prophecy fulfilled, and also my promise cap that we would bring an electric Rolls-Royce within this decade into the market. And

I think that that car is, first of all, a true Rolls-Royce, because this is what our clients are interested in. And then second, it is electric, for

the very first time in our company's history, the first ever electric Rolls-Royce.

CHATTERLEY: You know, I want to pick up on what you said there because it did surprise me when I saw that this announcement was coming in the space

of two years, I think you've gone from saying, look, we're going to have an EV on the road, within the decade -- two years on actually seeing this one

and hearing that perhaps it could even be on the market by the fourth quarter of 2023.

I mean, you're a company that what -- more than 90 percent of these are de facto personalized, because that's the clientele that you cater to. Have

you been pushed to get this on the market far sooner than perhaps you were saying two years ago because of demand?

MULLER-OTVOS: No, I think we always are keeping our cards close to ourselves when it comes to let's say long term outlooks or strategy for

good reasons. And we had always in mind that we would bring this car in '23 into the market. And knowing that all the testing cars are now hitting the

road within the next couple of weeks, we wanted to make that announcement here and we wanted to make it in let's say, a substantially proper way.

There is not a push in terms of bring it, bring it, bring it, but there is obviously demand from our clients also into an electric Rolls-Royce. I

mean, we will still see the 12-cylinder engine, our marvelous 12-cylinder engine being with us until the end of this decade from -- or by 2030, we

are then fully electric, so all Rolls-Royces in the future then will be fully electrified. And Spectre is step one, and next steps to follow.

So I think we see already a kind of growing a demand and also questions from our clientele worldwide in terms of when are you going electric, it's

not only you and your colleagues asking me that question, but also obviously our clients, and we have one big advantage, electrification fits

perfect to the brand.

It is silent, powerful, torquey, exactly what Rolls-Royce is all about, so we are not defined by loud noisy engines or exhaust sound. It is a perfect

fit. And for that reason, I'm very, very much convinced that our clients will love Spectre.

CHATTERLEY: Yes. What can you tell me about the battery that we're looking at here, the range without recharging them, and I'm sure that the owners of

these aren't going to be worrying about those things themselves? But just out of interest when we're talking about cars of this sort of quality and

when we are talking about fully, fully electric. I do think these things matter, particularly in comparison to perhaps the cars they already own.

MULLER-OTVOS: I mean, we are not talking any technical details here today. But rest assured it will be a proper Rolls-Royce when we launch it into the

markets, and it is also -- there's a famous quote on Rolls-Royce, sufficient, and I will also say range will be sufficient for our car when

we bring it to the market.

And we are not here in a business that is automotive business, that's luxury goods business. And our clients, they aren't buying us for coming

from A to B. They have many cars in their garages. Many of our clients, by the way, already own an electric car and for that reason are already

acquainted with charging and how it goes and what kind of benefits that might bring.

For that reason, they are very open for an electric Rolls-Royce now.

CHATTERLEY: You know, it's interesting, I was talking to the Ford CEO about the supply chain yesterday and they were talking after their big

announcement of a circular supply chain and understanding, knowing exactly where your suppliers are particularly where you're talking about

electrification and battery technology.

How do you, as a CEO of Rolls Royce, think about your supply chain and particularly when we're talking about battery technology and chip

technology of the future. Do you want to bring that closer to home?

[09:25:14]

MULLER-OTVOS: I mean, we are looking long term into our supply chain. We also make long-term projections on what we think the quantity or amount of

certain parts might be in future. You might have also seen and read that we were not affected by the semiconductor shortage because we ordered early

enough already for all the cars we are selling this year.

And number two is that we are fortunately enough I need to say part of a very successful BMW group who is also, let's say very strategic when it

comes to supply chains, when it comes to which suppliers to select also and a sustainability criteria for the long term future particularly all the

topics around batteries.

So I think we are here on a good cause to make sure that not only on a sustainability criteria, but also honor, and that is very important for us,

client satisfaction criteria. We are here on a very good path.

CHATTERLEY: Yes, and you're seeing astonishing levels of increasing demand. I remember from our last conversation, so managing that supply

chain and getting those cars to customers is certainly what you're doing.

Very quickly, does it come in pink and gold, Torsten, my future ambitions?

MULLER-OTVOS: I mean the ambition is ...

CHATTERLEY: Whatever you want.

MULLER-OTVOS: ... and always was, but we are electrifying the brand by 2030 and I think that will happen.

CHATTERLEY: Fantastic.

MULLER-OTVOS: Rest assured, I never over promise and under deliver, it will happen.

CHATTERLEY: Okay, I didn't you answered my pink and gold question, but we'll save it for next time, Torsten. Congratulations and thank you so

much.

MULLER-OTVOS: Good, all right. Lovely. Thanks a lot.

CHATTERLEY: You'll work on it.

MULLER-OTVOS: See you next time.

CHATTERLEY: Torsten Muller-Otvos.

MULLER-OTVOS: Cheers, Julia. Bye-bye.

CHATTERLEY: Speak to see you soon. The CEO of Rolls-Royce Motor Cars there.

The market opens next.

I'm going to check the catalogue.

(COMMERCIAL BREAK)

[09:30:16]

CHATTERLEY: Welcome back to FIRST MOVE where as you can see, the opening bell just ringing there on Wall Street and it is the higher start, a

Wednesday rebound after Tuesday's almost three percent tech tumble.

Investors I think relieved to see bond yields ease slightly and oil prices stabilize, two crucial elements.

That said, the U.S. government's missteps could turn things around pretty quickly. Sentiment remains fragile. Despite today's bounce, stocks remain

on track to finish September trading tomorrow with losses. Half of the stocks in the S&P 500 have already suffered drops of 10 percent or more

from recent highs. The market definition of a correction, of course, so we'll certainly watch what happens when we get to the final trading day

tomorrow.

"Now, the deepest penetration of U.S. government and tech sector computer networks, the public had ever seen," quote, that is how the President and

Vice Chair of Microsoft, Brad Smith and his co-author, Carol Ann Browne described the suspected Russian cyberattack better known as the SolarWinds

hack.

It's a quote from the updated version of the book "Tools and Weapons: The Promise and the Peril of the Digital Age." And as I said to Brad, the last

two years of cyberattacks provided enough material to write a spy novel worthy of the 21st Century. We discuss.

(BEGIN VIDEOTAPE)

BRAD SMITH, PRESIDENT AND VICE CHAIRMAN, MICROSOFT: Well, we did feel like we were living through a spy novel to a certain extent last December. We

wanted to update and add new material to our book to bring that to life, to give people an inside view and really to reflect on the lessons we are

continuing to learn when it comes to what it takes to protect the world from cybersecurity attacks.

And the attacks are more varied, more sophisticated nation state attacks, more sophisticated criminal ransomware attacks. But the good news is, I

think people are learning the lessons. We're seeing action in Washington. We're seeing action around the world. We're seeing action across the tech

sector.

It's going to be an ongoing challenge, but I feel like we're moving forward in the right direction.

CHATTERLEY: You know, this is such a great point. And you know, people can read it, and they can appreciate, but as the indicators and the

investigation that a whole lot of you were doing at the time, sort of pointed towards Russia. Congress was saying, you know, is this an act of

war or a digital Pearl Harbor?

You used to counter that and say, look, it's actually an illustration of how ill-prepared we were. And in some cases you use -- and it gave me

goosebumps -- the example of the Intelligence sharing before 9/11 and what we saw there and the action going forward that needs to be greater

information sharing and communication. Talk us through that, because for me, that was one of the strongest takeaways of the chapter that I read.

SMITH: Well, every time I look back at the report of the 9/11 Commission, I have the same reaction, Julia. They said it was a shock, but not a

surprise, and the fundamental challenge was that information had been kept in silos, and people were not sharing it with each other.

And when you look at the world of cybersecurity attacks today, there is so much data in so many places, but it is siloed, even more siloed, I think,

than the data that the Intelligence Community was looking at in the run up to 9/11 because it's not just in government, it is in the private sector,

it is in different companies.

And I think one of the real lessons of the last year is the need for better information sharing. That's I think, really, in part why President Biden

brought so many people together at the White House in August. It really requires almost a whole of society approach to better protect ourselves.

CHATTERLEY: It's such a great point. And you know, again, when I see some of the rhetoric that was described at that time, and I guess I would push

back a little bit and it reminds me of a conversation I had with the Commissioner of the Federal Energy Regulatory Commission in light of the

Colonial Pipeline attack. And he said, look, if this were a missile doing this to our energy infrastructure, we'd instantly react.

But because it's digital, somehow we're slower, and we're less coordinated. And actually, that has to change. And it reminded me, and again, it comes

back to the first book and you've reiterated it in this edit, in this update, Geneva Convention, the Digital Geneva Convention idea. How and what

are the rules that apply to different nations when they're acting digitally upon each other, but also for themselves?

SMITH: Well, I think it's a very fair point, and it fundamentally asks us all to ask ourselves, what level of threat are we prepared to accept amid a

World War -- these hostilities in effect between nations? It's sort of a new normal, and I don't think we necessarily react with the seriousness or

the gravity that is required.

And for me the reference to the Geneva Convention and the need for a Digital Geneva Convention in part harkens back to the fact that in 1949,

after World War II, the whole world came together and said, even at a time of war, governments had a duty to protect civilians.

[09:35:19]

SMITH: And here we are, it is supposed to be a time of peace. Look at Colonial Pipeline, look at these other attacks? These are attacks on

civilians, on civilian companies, on civilian infrastructure, fundamentally on the fabric of civilian lives across the country.

CHATTERLEY: At a time of great vulnerability in our supply chains already, Brad, we couldn't actually be more vulnerable for all of these reasons.

You mentioned the Biden administration, and I think, particularly for Microsoft and for yourselves, it's a case of putting your money where your

mouth is. You recently announced $20 billion worth of investment over the coming years in cybersecurity. It is investment that's required to protect

us whether it's at the government level, at the corporate level, and therefore at the individual level, surely.

SMITH: And I do think it is right that we in the tech sector, and certainly at a company like Microsoft recognize that we do have the first

responsibility. I think it is our technology that is being used by customers around the world. It is our technology that at times is being

targeted by these attacks.

So we're stepping up our investment by a huge margin, when you look at it. It is going to require constant money and energy on research and

development, and then we're going to have to spend more, I think, to just help people deploy the technology we are creating, and that is the new

normal. It'll probably be with us for the rest of our lives.

(END VIDEOTAPE)

CHATTERLEY: As you were hearing there, trust in technology, and specifically, the use of it by nation states is key, especially in a world

where data is continually flowing across borders.

The concept of digital sovereignty has been shaped by the tensions between China and the United States, but where does Europe fit right? Brad weighed

in.

(BEGIN VIDEOTAPE)

SMITH: You see Prime Ministers and heads of state, including, say at the U.N. General Assembly last week, really focusing on these issues at the

very top of their list of priorities. They want to deploy digital technology. They want companies like ours to build data centers, because

they are at the heart of the digital transformation of their economy and productivity growth.

And at the same time, they want to quite rightly control their data, manage their country's privacy, feel that their National Security is protected and

preserved. And so we're seeing a lot of innovation in the public policy space as governments think through what it's going to take to balance all

of this.

CHATTERLEY: I mean, you use the chapter to argue for an open market for U.S. technology as any senior and good tech executive would, I think. But

to your point, you also say, look, you have to build technology that suits the requirements of the nation that you're building it for, whether you're

investing.

And I know you recently made a huge investment in data centers in Greece as well. It is a balance of all these things. It sounds easy, in theory, is

that the model for the future, whether it's Europe, whether it's United States, or whether it's China, or are there great challenges to come?

SMITH: Well, I think, Julia, the model is going to be tech companies building more data centers in more countries, because I think that is the

key to their digital transformation, but I do believe that if we're going to be accepted in the market, and bring that innovation to the local

economy, we have to adapt, we have to build technology that's fit for the purpose, and the purpose has to be respecting, say, European values,

protecting European privacy.

And when you look at, say, a country like Germany, for example, in its recent election. It is a country that I think recognizes that innovation is

fundamental for every part of the economy. It's an export focused economy. They need innovation from around the world to remain competitive, but they

need to protect their values and their privacy and security at the same time, and that's what we are working to do.

CHATTERLEY: Does that leave China out in the cold, Brad?

SMITH: I think that we live in a world where you're going to see both the United States and China, developing world leading technology. They are each

going to be seeking to export technology, but not necessarily to each other because of the relationship.

I think more than anything else, in the coming year or two, what we really need, I believe is more clarity and more stability in the U.S.-China

relationship when it comes to technology. We're going to need the two governments to sit down and talk through the specifics. Where are they

comfortable having technology move back and forth? Where are they comfortable having scientists work together on basic research questions

that, frankly, are fundamental to humanity and human advancement, and where are they not?

[09:40:18]

SMITH: And people sometimes ask me, well, what should Microsoft do? Well, we don't get to have our own foreign policy when you really get down to it,

we have to work within the contours of the foreign policy and the international agreements between nations.

And right now, I think the U.S. and China -- that relationship will surely benefit from more specifics and more clarity.

CHATTERLEY: I want to ask you about the future of work. I know you were recently in New York for the U.N. meetings, as were many world leaders. To

me that felt like a change, almost as if whether we're talking about bringing people back to offices or moving around the world that we are sort

of getting a "keep calm and carry on" sense of, of dealing with the pandemic. What's your view?

SMITH: Well, I think the first thing we should just pause for a moment to recognize is that this week, the world has reached 3.5 billion people

getting at least a first shot vaccine in their arm. And in some ways that'll be remembered as the miracle of 2021, and we're seeing a billion

and a half more vaccines produced every month.

So we will progressively see more people get vaccinated. And I think your adage, keep calm and carry on, speaks to the current situation. People are

starting to explore, have more opportunities to meet in person.

But I really think the future of work, frankly, the future of everything is a future that gives us more options, more choice. One of the individuals I

met with in New York last week in person was Prime Minister Mitsotakis from Greece. We had met in person in Davos at the beginning of 2020, and then in

Athens a couple of months later, and then the pandemic came.

We then met by video. I went to Greece in person last October. We've continued to meet by video. We were able to meet in person in New York.

It is, I think, sometimes oversimplified as are you going to do this or are you going to do that? It's not an or, it's an and. I think we have new

tools and that's a fantastic thing. We should put them to work, and then we should also rediscover and apply the best of what it means when we get to

get together in person.

(END VIDEOTAPE)

CHATTERLEY: The future of work is flexible, therefore --

You're watching FIRST MOVE. We are waiting for top U.S. defense officials to testify for a second day before Congress about the pullout from

Afghanistan. We will bring you the testimony of Defense Secretary Lloyd Austin and Chairman of the Joint Chiefs Mark Milley after a quick break.

Stay with us.

(COMMERCIAL BREAK)

CHATTERLEY: Welcome back, we are crossing now to Washington, D.C. for the second day of hearings into the U.S. troop withdrawal from Afghanistan.

[09:44:22]

[CONGRESSIONAL HEARING]

END