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From Scam Centers to Supply Chains: How the US is Meeting the China Challenge | China Considered | Hoover Institution · China Considered

• 0:08
  - Welcome to China
• 0:09
  Considered a podcast that brings fresh insight
• 0:11
  and informed discussion to one
• 0:12
  of the most consequential issues of our time,
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  how China's changing and changing the world.
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  I'm Liz Economy, Hargrove senior fellow
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  and co-chair of the program on the US-China
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  and the world at the Hoover Institution at
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  Stanford University.
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  Today I wanna talk about one of the issues
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  that I think has come to dominate the US-China
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  bilateral relationship.
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  And that's the nexus between trade
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  and investment on the one hand,
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  and national security on the other former Secretary
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  of Defense, Robert Gates famously coined the term small yard
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  high fence, which basically introduced the idea
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  of keeping a small set of technologies that are tied
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  to national security protected from our potential
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  military adversaries.
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  Over time, however, the yard has kept getting bigger
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  and it raises what I think is one of the central questions
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  of our time, which is how do we define the goods
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  and services that are critical for our economic
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  and national security, and how do we best protect them?
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  In 2000, the US Congress established the US China Economic
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  and Security Review Commission to focus on this very issue
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  of national security implications of the US China trade
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  and investment relationship.
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  And we're very fortunate today to have
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  with us both the chairman
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  and the vice chairman of the commission,
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  Randy Shriver and Mike Kiken.
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  Welcome Randy and Mike. It's great to have you with us.
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  - Great to be with you. - Thanks for having us.
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  - All right. So for people who aren't familiar
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  with the US-China Economic
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  and Security Review Commission,
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  can you talk a little bit about its purpose,
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  how it operates, how you guys came
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  to serve on the commission?
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  Just give us some background information.
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  - Sure. We were created in legislation in 2000
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  and then stood up in 2001.
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  And this coincided with the passing
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  of permanent normal trade relations, which also did away
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  with the annual MFN most favored nation debate.
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  And you'll recall, Liz,
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  that debate was basically an open platform
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  to air any grievance about China or US-China relations.
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  A lot of discussion about human rights
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  and religious freedom.
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  And I think, as Mike Kiken would say, when it was,
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  when the commission was created, it's
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  because Congress didn't trust two entities, the Chinese
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  and the administration in the United States.
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  And so we're really founded
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  to keep an eye on all things related to China.
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  But with, in the, in the legal mandate,
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  there are particular things we look at every year.
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  You'll always have a Taiwan chapter,
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  you'll always have a Hong Kong chapter.
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  And the the, the rest is, you know, we have a,
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  we have a fair degree of latitude.
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  And that's where you kind of see the evolution
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  of the work of the commission.
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  'cause we keep pace with the,
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  the very dynamic things going on in China and the region
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  and US relations and, and try to stay ahead and,
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  and really look at or over the horizon on emerging issues.
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  We represent congressional leadership on both
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  sides, both chambers.
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  So Senate majority Leader Thon gets three picks.
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  I happen to be one of them. Senator Schumer, three picks.
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  Mike happens to be one of those.
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  And then Jeffries and Johnson,
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  speaker Johnson also get three picks each.
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  So that's a total of 12, six Republicans, six Democrats.
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  And I was blessed or cursed to be picked right
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  after I left the Department of Defense by then senate
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  leader, Mitch McConnell.
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  So I'm in my third term, and it's a great platform.
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  We've got a great team and a great staff.
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  So just keeping us apprised through the, the great work
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  of the staff of what's going on
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  to include at the classified level,
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  but then really to be able to work
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  with colleagues across the aisle and,
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  and really develop
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  what we think Congress's agenda should be related to China,
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  ideas for legislation, other congressional activity.
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  And over the years, we've got a pretty good track record
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  of Congress taking us up on our recommendations.
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  - And you hold hearings throughout the year.
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  I mean, how does it work technically?
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  Do you meet once a week
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  or what is the sort of the pace of, of work look like?
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  - So we usually do six hearings a year.
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  And so we spread those out usually over the first sort
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  of six or eight months of the year.
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  I think we're, we've had four hearings now
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  and obviously a series of meetings
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  with everyone from the executive branch industry,
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  industry associations, Capitol Hill and beyond.
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  That's sort of the work that informs,
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  informs our work throughout the year.
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  We usually do some international travel
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  and some domestic travel.
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  Last year we did a trip up the West coast to sort of talk
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  to the quantum community,
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  and it was, it was actually incredibly informative
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  and we didn't do just quantum compute,
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  we did quantum sensing and quantum communications
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  and visited academic institutions and businesses.
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  But that usually is what informs the workflow throughout the
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  year when we do international travel is usually
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  what we do is each year there's sort
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  of a focus that the commission has.
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  This year we're talking about India.
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  Last year we talked about Southeast Asia the year
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  before that, if I'm not mistaken, Randy,
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  we did the Middle East, and that was
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  before I joined the commission, Liz.
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  And that's sort of the, the workflow as Randy mentioned,
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  we've got a staff of about 20 people.
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  All of them are Chinese language speakers.
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  So when we're not doing hearings
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  and the sort of the, the work of the commission,
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  they're doing the real work of the commission.
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  We're reviewing a lot of that Chinese language material.
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  That is really what I think,
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  and I'm sure Randy would probably agree, makes a lot
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  of the work that we do, sort of several heads
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  and shoulders above most folks just
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  because we're getting that source material
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  in a real and authentic way.
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  - Yeah, I mean, you produce an annual report, which is
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  so sort of detailed and finely grained.
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  I don't think there is, you know, anything out there that,
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  you know, competes with it.
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  I took a look at the report that came out last year,
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  your 25, 20 25 report.
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  I think it was like 700 pages.
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  Very, very dense,
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  but again, very fact filled, very informative,
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  and I think really important, not just as a reference,
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  but actually for the ideas that that come out of it.
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  So talking about the report a little bit, what,
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  for you both were the most important findings?
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  Like what did you take away
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  and think, wow, like I hadn't realized that a year ago.
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  What were sort of the two or three maybe things
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  that struck you as most important for Congress
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  and for the American people
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  to understand about the US-China relationship
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  or where China is in particular?
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  - No, that's great. You, you're,
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  I think one in the community who probably does pay attention
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  to our report, but really for the general public, I liken it
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  to the old Encyclopedia Britannica.
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  Now Liz will remember Mike like that, remember.
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  But you know, it's on the shelf,
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  - Remember Liz definitely remembers
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  - It's on the shelf when you need something.
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  And I guarantee you, you, you, you open it and,
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  and thumb through it and, and you'll
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  find what you're looking for.
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  It's just an outstanding resource.
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  You know, I think this last year we, we further defined
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  where we see the competitive space and,
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  and in one case, literally space, you know, we're trying
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  to really document where the competition is headed
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  and where, where it's unfolding, but also where it's headed.
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  And so the, the looks we gave at space
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  and then some of the other areas where China through,
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  its made in China 2025 initiative.
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  We're pouring resources and, and energy and talent.
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  Things like quantum that Mike already mentioned,
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  biotech and the like.
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  So, you know, I think our job is, is, is
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  to document what's going on in China,
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  but also to really identify where these areas of,
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  of competition are headed and,
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  and in particular what the United States does.
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  You know, we, we can't begrudge China
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  for having its own strategy and making its own investments.
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  And there are things we can do
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  to thwart advancements in certain sectors,
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  but really I think what we're discovering, it's about
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  how we're resourcing against the
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  challenge, how we're organized.
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  We had a, a recommendation on creating a single entity
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  for economic statecraft in the United States.
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  So really our focus is on how we get our house in order,
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  how we run faster, stronger, do better through, you know,
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  smart investments in a, in an environment
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  with limited resources.
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  And I, I think that's reflected throughout the report.
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  - You know, and Liz, I'd pile on two things
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  or just dig a little deeper onto one.
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  Randy and I actually wrote a piece in the wire,
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  I think China last year about the need to reform
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  how the government was organized
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  with respect to export controls.
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  We did that in the middle of the year.
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  By the end of the year, Randy Leland Miller
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  and I worked on the, the commission's number one
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  recommendation, which was this economic statecraft entity.
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  I think the conclusion that we came to
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  after wire brushing the executive branch a little bit more
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  was that we're really not organized for an economic sort
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  of economic warfare or economic statecraft.
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  And after nine 11,
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  we really did reform the sanctions community.
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  We made the Department of Treasury
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  or an element of the Department of Treasury, part
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  of the intelligence community.
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  We did that so that you could drive requirements out
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  of the Department of Treasury to make sure
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  that our sanctions are more effective.
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  And so the idea that we came up
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  with in the top recommendation is
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  how do we align the executive branch in a way
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  to be thoughtful about economic statecraft?
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  And that there's a series of pieces in it.
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  They're thinking about how USTR commerce and Treasury
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  and the elements of these entities really get
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  aligned into one entity.
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  So there's one unity of command,
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  and then two, a department that you're intimately familiar
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  with, the Department of Commerce has BIS as part of the,
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  of the intelligence community.
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  And you know what this means,
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  but just for listeners, I mean,
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  this means you get to drive requirements.
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  Driving requirements is the game
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  in the intelligence community.
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  If you can go tell C-I-A-N-S-A
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  or somebody to go collect something, you're able to get data
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  and you're able to, from an enforcement perspective,
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  really increase the speed of the flywheel.
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  And so that was the top recommendation
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  on the commission last year.
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  And something that I think, at least for Randy
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  and I, our sort of views evolved
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  over the course of the year.
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  And then the second one, Liz
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  and I, this one just blew me away, scam sensors.
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  We went to Cambodia last year
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  and, you know, we'd, I, I'd read, I'd listened
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  to the Economist podcast on, on, on pig butchering and, and,
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  and listened and learned quite a bit from it.
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  I did not appreciate the depth, the scale, the scope,
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  and the level of technology
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  that was being deployed against Americans
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  by these scam centers.
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  I mean, if Randy
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  and I wanted to, you know, target somebody, we could do sort
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  of targeting package on somebody, we could figure out how
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  to craft text messages that they'd be receptive to how
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  to engage with that person in a video conversation.
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  I mean, the level of sophistication was
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  absolutely staggering.
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  And when you think about, you know,
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  people's life savings 5 29 accounts
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  or really anything like that,
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  just getting hoovered up at a scale of,
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  and a conservative estimate is $10 billion a year is
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  absolutely incredible.
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  And it's something that we focused on last year too,
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  because, you know, one of the things you gotta think about
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  is who do you call when you get scammed?
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  Do you call nine one one? Do you call the FBI?
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  Who do you call? I I the answer at the time is I have no
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  idea the administration has created a strike force.
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  You know, I don't know if it was because
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  of our recommendation and work,
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  but, you know, we like to think it was, and,
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  and sort of that's one of the issues that
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  after the, over the course of the year,
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  just really blew me outta the water.
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  - That's really interesting.
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  I actually had had not thought of that as the kind of issue
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  that you guys would address,
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  but I think it is a really important one.
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  Let me push you a little bit on this, you know, idea
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  of a new entity that could deal with us economic statecraft,
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  because I think it is absolutely essential, both in terms
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  of responding to economic coercion, you know, as we've seen,
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  but also in terms of sort of proactive
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  economic statecraft effort, right?
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  How do we compete against the Belt
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  and Road initiative, for example, right?
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  How do we, you know, this administration has made a big push
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  to promote the AI tech stack.
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  So what are the tools that we have to assist in that?
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  How do we compete against China's digital Silk Road?
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  What are a few of the more specific ways
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  that you would see aligning as you said, USTR and treasury
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  and commerce with the, you know, is it the NEC
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  or is it the NSC or how, how do these various organizations,
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  how could they better work together, you know,
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  under the umbrella of a new entity
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  or what, how do you see that functioning?
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  What would be sort of a couple
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  of your more specific recommendations around that?
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  - I, I invite the honorable vice chair
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  to take the first crack at this, and then I'll pile on.
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  - Thank you. Thank you, Randy.
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  Beloved chair on,
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  on this one was, you know, we were,
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  we were both specific and non-specific.
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  The first thing I would say, if you,
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  and you are very familiar,
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  but for listeners benefits,
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  the Congress is incredibly complicated when it comes
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  to oversight of these, of these various entities, right?
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  The finance committee has oversight of USTR,
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  the banking committee and the Senate has oversight
• 13:24
  of export controls.
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  The House Foreign Affairs Committee has it in the, in the,
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  in the house, the issue issue of export controls.
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  So it's a bit of like, like a, a, a den of snakes
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  as you get into, and I don't mean that in a negative way.
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  I mean it from like a really complicated, lots of things,
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  bad things could happen.
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  So we're, we were nonspecific on some of the
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  where it should go and how it should happen.
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  But the idea is we have like if USTR, one of the things
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  that I was just blown away by Liz, USTR is 300 people.
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  - Yeah. - I mean, this is an entity that is responsible
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  for trade agreements for the largest economy on the face
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  of the earth that has, that has bananas.
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  Here's another thing, the Bureau of Industry security is
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  inside and Leland Miller sort of coined this idea
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  and really warmed up to it.
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  The Bureau of Industry Security is in the Commerce
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  department, the commerce department's primary job.
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  And you know, this, Liz, is to promote American business.
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  The primary job of the Bureau of Industry
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  and Security is to ensure
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  that American technology does not get
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  into the hands of somebody, right?
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  So there's a lot of things like this where it's like,
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  how did we ever put these things in these places?
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  And so like there hasn't been a conversation about these
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  things and the sort of unity of command
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  that you would want in an economic statecraft space.
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  So like the way I've sort of thought about it out loud
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  and publicly before is, you know, the sanctions folks,
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  the export control folks,
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  and probably some parts of the US trade representative
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  or maybe all of it should be, you know, sort
• 14:51
  of put together in a way that allows for this unity
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  of command that we talk about.
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  And from a making sure that we're, you know,
• 14:59
  negotiating good deals
• 15:00
  and our export controls are working, our sanctions
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  and working, there's gotta be an
• 15:03
  intelligence community piece of this.
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  And those are sort of the, the major pieces of the puzzle.
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  There's parts of DOD and State Department
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  that obviously would need to come along as well.
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  All of those things that I just said are incredibly
• 15:13
  controversial inside of, inside of Congress
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  and undoubtedly inside of the executive branch.
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  But it's been a long time since we've sort
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  of wire brushed these, these entities.
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  And the reason I think it's controversial is setting aside
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  the sort of congressional issue is these are all laws
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  that have been on the books for 80 years.
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  The problem is, is that when they were written 80 years ago,
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  we were dealing with an economy, the Soviet Union
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  that was isolated from the global economy.
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  So it's very easy to think about these things in this way.
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  Now we're dealing with a a, a country China
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  that is obviously totally integrated
• 15:45
  into the global economy.
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  So the way you would approach the adversary or, or,
• 15:50
  or the partner, however you wanna think about it, is a much,
• 15:53
  much different approach and one
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  that we just have not really thought
• 15:56
  about in a deliberate way. Randy, what did I miss?
• 15:59
  - Yeah, no, that's a great answer.
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  I'd just add, you know, these attempts to reorganize our,
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  are talked about
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  and discussed among people
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  who have creative ideas about it,
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  but really things generally don't happen
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  until there's a crisis.
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  And the, the example that Mike mentioned about treasury
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  and the sanctions community was
• 16:21
  after nine 11 and after we were attacked.
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  I mean, the hope is we could do some smart restructuring
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  fit for purpose, fit for task before there's a crisis
• 16:32
  because you take any one of these sort
• 16:36
  of sub challenges to, to the economic competition.
• 16:41
  Let's take supply chain integrity.
• 16:43
  You know, we have our most exquisite weapon system still
• 16:48
  weapon systems still reliant on Chinese inputs at the
• 16:52
  component and and critical mineral level.
• 16:55
  If we're in a crisis with China,
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  all they do is cut that off and
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  - Right.
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  - You know, so that's too late. So we're,
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  - Which we've seen them do, I mean they, they did put,
• 17:05
  you know, the licensing system,
• 17:07
  which they didn't actually have ready to,
• 17:08
  to go right, right.
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  At the time that they put it, you know, announced it,
• 17:12
  you know, on rare earth elements,
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  you know, did do just that.
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  And I do believe that most
• 17:17
  of our defense companies are still under special
• 17:19
  restrictions when it comes
• 17:20
  to receiving Chinese rare earth elements
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  and other critical minerals.
• 17:23
  So anyway, sorry. So
• 17:25
  - Yeah, that's the idea is to try to take this on
• 17:29
  before crisis and as Mike said, we were both specific
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  and nonspecific to give congress the latitude to put it
• 17:36
  where they think it should be
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  and whatever negotiations they need to conduct
• 17:39
  amongst themselves to, to have a landing spot.
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  But I would say we've, we've got interest in this as a,
• 17:46
  as a recommendation,
• 17:47
  just not quite the urgency that we were hoping.
• 17:49
  So we'll, we'll keep pounding away from, from our perch.
• 17:53
  - Other, well I other, I think, oh, go ahead Mike.
• 17:55
  - I was just gonna say the other part of your question was
• 17:56
  sort of the, you know, overseas piece of it.
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  And I think we didn't really do much on that area, Liz,
• 18:03
  but it's something that Randy and I have been talking a lot
• 18:05
  about is how do we think about, how do we think about sort
• 18:08
  of a post a ID post MCC sort of orientation
• 18:13
  and do it in a way where it's not just sort of this sort
• 18:16
  of classic like let's change this by one degree
• 18:18
  and this by one degree
• 18:20
  and everything's gonna be okay sort of approach.
• 18:21
  But really think about it in a, in a strategic
• 18:24
  and thoughtful way to do exactly
• 18:25
  what you talked about in your question, which is sort
• 18:27
  of have something that does respond or compete with belt
• 18:31
  and road initiative, especially in countries where,
• 18:33
  where we know the countries are, are likely
• 18:36
  to be aligned with our interests.
• 18:37
  It's just that we're not necessarily showing up
• 18:40
  with some something on offer
• 18:42
  that's protect, you know, very attractive.
• 18:44
  - I, I just think it's essential
• 18:46
  and it's something that I tried to push in my, you know,
• 18:50
  short tenure in government
• 18:52
  and I think people are interested,
• 18:54
  but it just kind of, it just seems, you know, too,
• 18:57
  somehow it's either too overwhelming
• 18:58
  or as you're sort of indicating there's the press
• 19:01
  of other more immediate issues.
• 19:04
  But I think without it, there's, you know,
• 19:06
  it's going to be game over.
• 19:08
  And you know, you mentioned earlier on Randy the maiden
• 19:12
  China 2025
• 19:14
  and you know, I have found it's interesting that maybe
• 19:16
  because it's now 2026, people are not talking about
• 19:20
  that in the same way.
• 19:21
  But from my perspective, I look at what's happened
• 19:24
  with solar panels and batteries and EVs, right?
• 19:28
  The export of Chinese overcapacity,
• 19:30
  they're now global dominance, you know,
• 19:33
  in these technologies and their manufacturing and you know,
• 19:37
  and, and everything.
• 19:39
  And I think that's going to happen across the,
• 19:41
  the full array of those made in China 2025 technologies,
• 19:44
  because that's the model, right?
• 19:45
  Yeah. That's how China operates.
• 19:47
  And if we are not prepared for that right,
• 19:50
  to compete globally with some form
• 19:52
  of new proactive economic statecraft,
• 19:56
  we're we're basically gonna be out of the game,
• 19:58
  - You know?
• 19:59
  Yeah. You know, our common friend James Vena always says
• 20:03
  the first line of encryption for the Chinese is Chinese.
• 20:06
  And while some wanted to describe them as enigmatic,
• 20:10
  very opaque, the fact of the matter is the Chinese told us
• 20:13
  exactly what they were gonna do.
• 20:14
  - Exactly. - They told us time again.
• 20:17
  And the, the hearing that Mike
• 20:19
  and I shared made in China 2025,
• 20:22
  who's winning was really not only about a scorecard
• 20:25
  and how did they do against their own defined benchmarks,
• 20:28
  but as you said in your question list, you know, this is
• 20:33
  also about where they're headed
• 20:34
  and where they're gonna continue to invest.
• 20:36
  Because even if they didn't hit their benchmarks,
• 20:39
  in most cases, they made rapid advancement and improvement
• 20:42
  and in some ways sort of led the, the decision tree to, to
• 20:46
  to to in another direction.
• 20:48
  You know, 'cause some of these areas of,
• 20:50
  of foundational research and research
• 20:53
  and development, you make discoveries that,
• 20:55
  that lead you in one direction or or another.
• 20:57
  And and that's really where the, the Chinese are,
• 20:59
  are showing themselves
• 21:01
  to be more agile than maybe in the past
• 21:03
  where they were reliant on just IP theft and,
• 21:07
  and being a fast follower and all that.
• 21:09
  So what we were able to document and,
• 21:12
  and with the help of the,
• 21:13
  the very excellent research staff is, you know, they've,
• 21:16
  they've done quite well against their benchmarks
• 21:18
  and in some areas they're,
• 21:20
  they're really changing the innovation model.
• 21:22
  It's not your, your, your father's Oldsmobile another state,
• 21:25
  another saying that maybe you gotta be of a certain age
• 21:28
  to remember It's, it's really changing the innovation model
• 21:33
  and one that that is potentially more competitive
• 21:36
  and in some areas they're gonna outpace
• 21:37
  us and maybe already are.
• 21:39
  - Yeah. - I used to drive Senator Levin's Oldsmobile cut
• 21:42
  less supreme if he let you
• 21:47
  drive, if he, if he let you drive, you knew he liked you.
• 21:50
  - I was gonna say it's as old as, as he was maybe. So.
• 21:54
  Okay, let me switch gears a little bit
• 21:56
  and talk about something that I know is near
• 21:58
  and dear to your heart, Randy.
• 22:00
  And, and that's Taiwan.
• 22:02
  And the report does direct the Pentagon
• 22:06
  to assess whether the US is complying with the,
• 22:10
  basically the legal terms of the Taiwan relations Act
• 22:13
  to maintain the capacity to resist any resort to force
• 22:17
  that would jeopardize the security of Taiwan.
• 22:19
  Which is always sounds a little complicated,
• 22:22
  but basically just means that we're, we're ensuring
• 22:25
  that we have that capability
• 22:26
  and that Taiwan also has that capability, right?
• 22:28
  Doesn't commit us to go coming to the defense of Taiwan.
• 22:32
  Right. But commits us to, to providing for the capability.
• 22:34
  So what, what's your assessment of where we're at with that?
• 22:39
  And this is a, you know, a big issue
• 22:41
  and it's, you know, it's big not only
• 22:44
  because of the advances that China's made in terms
• 22:47
  of the military exercises it's been conducting over the past
• 22:49
  several years, but it's big
• 22:51
  because of questions that have been raised about the
• 22:53
  administration's, this administration's commitment to Taiwan
• 22:56
  and also just our own capabilities.
• 22:58
  So how do you see this?
• 23:01
  - Yeah. When, you know, when the TRA was written in 1979,
• 23:06
  Congress who always has an oversight role,
• 23:09
  wrote themselves into the decision making process.
• 23:12
  If you read the TRA, it is the president
• 23:14
  and Congress that shall determine what weapons
• 23:17
  to make available for Taiwan sufficient self-defense.
• 23:20
  And I think this, this other area, whether
• 23:22
  or not there's the capacity to resist force is another one
• 23:25
  where congress has a direct role.
• 23:27
  Obviously they're appropriating the funds
• 23:29
  to build our joint force and
• 23:31
  and to ensure that that, that the joint forces trained
• 23:35
  and equipped through the work of the service secretaries.
• 23:38
  But look, I was, I was concerned before Ukraine and
• 23:42
  before Iran, given the rapid advancements of the PLA and,
• 23:47
  and the significant investments
• 23:49
  that they've made since at least the mid nineties,
• 23:52
  that they were getting better,
• 23:53
  they were getting better faster.
• 23:55
  And we're seeing through the, the ops tempo of, of coercion
• 23:59
  and intimidation activities that they are
• 24:03
  really gaining operational experience,
• 24:05
  but also insights into how
• 24:07
  to conduct complex military operations.
• 24:09
  We're seeing them not just fly across the center line in,
• 24:12
  in tremendous numbers,
• 24:13
  but they're, they're adding things
• 24:15
  to these operations like cross domain communication,
• 24:18
  shared information about the battle space.
• 24:20
  And we're seeing that in, in real time.
• 24:23
  So the addition now of ongoing conflicts in Ukraine
• 24:27
  and now in particular Iran
• 24:29
  and the depletion of munitions that surely is going
• 24:32
  to impact the global joint force
• 24:34
  for the United States has me concerned.
• 24:36
  So, you know, one of the things we, we directed,
• 24:39
  or pardon me, ask Congress to direct the administration
• 24:42
  to do and show your homework.
• 24:44
  - Yeah. - And this is not to embarrass anybody.
• 24:47
  It's not to make Admiral Piro, you know, get hauled
• 24:49
  before Congress and,
• 24:51
  and have to admit that their deficits, it's so
• 24:54
  that they can report on where congress needs to step in and,
• 24:57
  and provide more
• 24:58
  or provide different, in some cases, you know,
• 25:01
  that we're heavily invested in certain exquisite platforms
• 25:04
  that may not be appropriate for the China fight.
• 25:07
  That, you know, were,
• 25:08
  were really developed when the war fighting environment was,
• 25:12
  was thought to be quite different.
• 25:15
  So we really want the, the show your homework exercise so
• 25:17
  that Congress can play its oversight role effectively
• 25:20
  and really provide, as you said, the US forces,
• 25:23
  but also Taiwan with what is most appropriate
• 25:26
  and optimal for the challenges that they face. Yeah.
• 25:30
  - But lemme just push you a little bit.
• 25:31
  I mean, where do you, again,
• 25:33
  because you are expert in this space,
• 25:36
  you said you were concerned.
• 25:37
  I mean, how concerned are you, you know, are we
• 25:42
  like well behind the curve of where we need to be?
• 25:45
  Are we in danger of falling behind where we need to be?
• 25:48
  What's your personal assessment?
• 25:51
  - So I think we are in the middle
• 25:54
  of surging on posture
• 25:57
  and perhaps changing the composition of the joint force.
• 26:00
  You hear Admiral Papapa talk about hellscape.
• 26:03
  - Yep. - Which, if you unpack that, that's a lot
• 26:06
  of unmanned uncured stuff.
• 26:08
  That's a lot of autonomous AI enabled stuff.
• 26:11
  You hear a lot of talk about con contested logistics.
• 26:15
  You know, it's always an away game for us if we were asked
• 26:18
  to by the political leadership
• 26:20
  to intervene in a Taiwan straight
• 26:22
  contingency, always an away game.
• 26:24
  So being able to maintain
• 26:26
  and support the force in a contested environment is
• 26:29
  hugely challenging.
• 26:30
  So, am I concerned? Yes.
• 26:32
  I think we are probably slowly developing the joint force
• 26:37
  for, so it's fit for purpose,
• 26:39
  but still a lot of legacy investments on the part
• 26:42
  of the services which provide the, the forces
• 26:45
  for our combatant commanders.
• 26:46
  I think posture initiatives are slow to come online.
• 26:49
  We have another recommendation about posture in places like
• 26:52
  the Philippines, Northern Luzon
• 26:54
  and the Japanese southwest island chain.
• 26:57
  And I think logistics supports munitions.
• 27:01
  I think all of this is in, in short supply.
• 27:04
  And we'd be hard pressed, Not just in the initial wave
• 27:07
  to maybe throw a Chinese invasion,
• 27:09
  but a determined Chinese force that was going
• 27:12
  to keep the pace of, of battle at a high level.
• 27:17
  We just, our, our resources would be exhausted in a,
• 27:20
  in a fairly short period of time.
• 27:22
  I'm, I'm worried. So all of that needs to be addressed and,
• 27:25
  and that's why we rooted our recommendation in the law.
• 27:28
  This is not, you know, a a what we think is good policy.
• 27:32
  This is not what we think are the best options.
• 27:34
  This is a legal requirement, right.
• 27:36
  And we should be able to have a defense enterprise
• 27:39
  that comes and shows the homework.
• 27:41
  - Liz, if you don't mind, I'm just gonna pile on top.
• 27:44
  Absolutely. I I love it.
• 27:46
  I always like hearing Randy talk about Taiwan.
• 27:50
  'cause I, one, I agree with this thinking,
• 27:51
  and two, he's been looking at this for a long,
• 27:52
  a lot longer than most folks.
• 27:54
  The, the thing that I think sometimes we,
• 27:57
  we lose in Washington is why is Taiwan important?
• 28:00
  Hmm. And so I've been road testing this rift.
• 28:03
  So you're you're gonna, you're gonna get stuck
• 28:04
  with a road test Here, give it to me.
• 28:05
  No, no, I hear which is, there's this, there's this
• 28:07
  wonderful book,
• 28:08
  it's called the Island at the center of the World.
• 28:10
  It's guy, guy named Russell Shorto.
• 28:12
  It's actually this story of
• 28:14
  how the Dutch colonized Manhattan island
• 28:16
  and how Manhattan over the course of hundreds
• 28:17
  of years becomes the island at the center of the world.
• 28:20
  - Can I ask whether that's because you are in fact Dutch
• 28:22
  by descent, that you this is so wonderful.
• 28:25
  - I would go ahead. I would, I would ne I would never admit,
• 28:29
  Okay, there is a, there is a thought in the Dutch community
• 28:34
  that the reason Manhattan is so has been so successful is
• 28:36
  'cause it was the Dutch and not the British that started.
• 28:40
  But we won't go down that road.
• 28:41
  So, but I want you to just sort of change your thinking here
• 28:44
  for a moment and think about Taiwan
• 28:46
  as the island at the center of the world.
• 28:48
  Whether it's the microphone
• 28:49
  that we're all talking into right now,
• 28:50
  the camera staring at us, the, the chip in our iPhone
• 28:54
  or the chip in the conversation we had
• 28:57
  with Claude this morning.
• 28:58
  All of these things are enabled by chips
• 29:00
  that are made in almost exclusively in one
• 29:02
  place, which is Taiwan.
• 29:04
  Now imagine a successful Chinese invasion of Taiwan
• 29:07
  and what the American or western
• 29:10
  or democratic world's ability is to get chips.
• 29:12
  Arizona's not off the ground.
• 29:14
  Rapids in Japan is not off the ground.
• 29:16
  There's some efforts to do sort of advanced chip
• 29:20
  manufacturing in Europe.
• 29:21
  Those are not off the ground.
• 29:23
  And so 2027 is not that far away.
• 29:25
  Whether it's a, a go as Randy would say, a a go
• 29:28
  by date or be ready by date.
• 29:29
  I mean, that's just around the corner.
• 29:31
  And we really need to think about
• 29:33
  what an AI competition looks like if we do not
• 29:36
  have the ability to rely on TSMC
• 29:38
  and their very incredible capability to produce.
• 29:41
  And so when you hear Randy talk about Taiwan,
• 29:44
  the other piece that you have to remember is
• 29:45
  that's the place we're getting our chips from,
• 29:47
  - Right?
• 29:48
  No, I mean, a absolutely.
• 29:49
  I think that is the, the top selling point
• 29:52
  for I think many people in, in this administration.
• 29:54
  I remember I was at a dinner with a few members of, of
• 29:59
  this current administration and I asked them about Taiwan
• 30:03
  and, and they mentioned, you know, they care about it
• 30:06
  because of the chips.
• 30:07
  I said, well what about the fact that it's, you know,
• 30:09
  a robust democracy and,
• 30:11
  and you know, it, it's in, in an area
• 30:13
  and it's a good counterpoint to Chinese claims
• 30:15
  that the Chinese, you know,
• 30:16
  are somehow categorically just ill suited to, you know,
• 30:21
  temperamentally ill suited to democracy.
• 30:25
  And the person said, well that's nice,
• 30:26
  but that's not why we care about it.
• 30:28
  So I think your road test argument, I mean,
• 30:31
  I may not agree with that.
• 30:33
  I guess maybe Randy also does not think that that's,
• 30:36
  you know, the case and maybe, well
• 30:37
  - I think it's a chips end, - You know?
• 30:39
  Right, exactly. The chips are certainly critical, but
• 30:41
  - It's geography by the way.
• 30:43
  - Look at Yes. And also yes.
• 30:44
  Why maybe say a word about that as well.
• 30:47
  - Yeah, I mean if I'm, I'm looking at a map
• 30:50
  that you can't see of the, of the Indo-Pacific
• 30:52
  and if, if I close my eyes and did one of those exercises
• 30:56
  and, and aim for the middle, you're gonna hit Taiwan.
• 30:58
  And it's sort of in the middle of a lot of things.
• 31:01
  We care deeply about the South China Sea, 80% plus
• 31:04
  of global commerce going through the South China Sea.
• 31:06
  It's adjacent to that.
• 31:08
  And a claimant of some
• 31:09
  of the features in the South China Sea, two treaty allies.
• 31:13
  You know, the, the country that's geographically closest
• 31:16
  to Taiwan is Japan because of the southwest island chain
• 31:19
  and Yuni Island, Philippines is to the south of it.
• 31:22
  But it's also the gateway to the second island chain,
• 31:25
  which again, things we care deeply about,
• 31:27
  including US territories like Guam and American Samoa,
• 31:31
  but also compact states, Palau, Marshall Islands,
• 31:34
  federated states of Micronesia.
• 31:36
  And really this, this sort
• 31:38
  of gateway issue is in the near term a lot about resources,
• 31:42
  fisheries potentially curbing illegally illicit activity.
• 31:46
  But, but it's also the, we,
• 31:48
  we talk about the logistics super highway
• 31:50
  to the Indo-Pacific running through compact states
• 31:53
  that super highway can run in the other direction too.
• 31:56
  And I, you know, it's not gonna be long
• 31:57
  before we see a lot more Chinese presence very close
• 32:01
  to the homeland Hawaii and, and the West coast for sure.
• 32:06
  - Yeah, I mean, I think all Im important points.
• 32:09
  Let me, let me ask something that's sort
• 32:12
  of tangentially related to this, which is one of the things
• 32:14
  that has occurred to me, you know, as sort of as the,
• 32:18
  as the Ukraine war was
• 32:20
  or is still obviously ongoing, it's been just
• 32:24
  that partnership among Russia, China, Iran, North Korea.
• 32:28
  Now we see similar, you know,
• 32:30
  things playing out in the war against Iran, war in Iran,
• 32:35
  this partnership as well.
• 32:37
  Do we think that that's likely to emerge in, in again,
• 32:40
  different ways in Taiwan
• 32:42
  or in other sorts of, you know, military opportunities?
• 32:44
  How are you thinking about that sort of axis
• 32:48
  or how do you define it?
• 32:50
  How sort of robust do you think the connections
• 32:53
  among those countries are?
• 32:56
  What does that suggest for, for us?
• 33:00
  I know you talk a little bit about some
• 33:01
  of these issues in the report,
• 33:03
  but what, what, what do you think is the significance
• 33:06
  of this sort of emerging partnership?
• 33:09
  - Randy, I'll start and then you can jump in.
• 33:11
  'cause I know you got a bunch on this topic.
• 33:13
  I think, you know, we had this hearing last year called the
• 33:16
  access, access of autocracy.
• 33:18
  So it's something we have sort of focused on a little bit.
• 33:21
  The thing I would say to you is that one
• 33:22
  of the most frequently visited sections
• 33:25
  of the commission's website is Chinese support
• 33:28
  to the Russian war machine.
• 33:29
  And one of the things that, you know,
• 33:30
  I think is becoming increasingly, increasingly sort
• 33:34
  of public is that the Russian war machine,
• 33:37
  whether it's chips, cameras
• 33:40
  or drone components,
• 33:41
  the Chinese have been a vital lifeline for the Russians.
• 33:46
  All of the shahe drones that the,
• 33:47
  that the Russians have been building,
• 33:49
  those all have Chinese chips, Chinese cameras.
• 33:52
  And the same can be said of this, of the she heads
• 33:55
  that are being used by the Iranians right now.
• 33:57
  And so I think we have seen that there is a commoditization
• 34:01
  of some of the Russian and Iranian war machine
• 34:04
  and that that has really lowered the cost
• 34:07
  of war for these two countries.
• 34:08
  And it's something that I think will continue.
• 34:10
  And the Chinese have basically figured out
• 34:12
  that they can export these things at little or no cost.
• 34:15
  The other thing we've of course seen is Chinese dependence
• 34:17
  on not dependence, but, you know, ability to un to tap into
• 34:21
  Russian and Iranian oil
• 34:23
  and the sort of sanction evasion
• 34:25
  machine that they've created.
• 34:26
  The commission had a, not as part of our main report,
• 34:29
  but sort of a sidecar report on sanctions evasion.
• 34:33
  And, and this is something where the Chinese
• 34:35
  and Russians have very thoughtfully
• 34:38
  and deliberately built institutions that are capable
• 34:42
  of not touching western banking institutions
• 34:44
  and has allowed them to transfer resources at will basically
• 34:48
  between, between these three countries.
• 34:51
  And it's something that they're going
• 34:52
  to continue to build and work on.
• 34:53
  There's a, there's a piece of this that's part
• 34:55
  of the crypto environment as well.
• 34:57
  I think that's something we have some visibility into right
• 35:00
  now, but not nearly enough.
• 35:01
  And it's something that the commission's gonna continue
• 35:03
  to look at because that crypto is, that sort
• 35:07
  of decentralized finance space, really allows you
• 35:11
  to transfer incredible amounts of resources very quickly
• 35:14
  and without ever touching a banking institution.
• 35:17
  And it's been a, it's been an incredible way
• 35:19
  for these countries to cooperate.
• 35:21
  On the question though, I think, I think Randy
• 35:23
  and I would agree on this, it's really a
• 35:25
  relationship of convenience.
• 35:27
  Right now. I'm sure there's some,
• 35:29
  some strategic capabilities that get transferred perhaps
• 35:32
  between Russia and China.
• 35:34
  Sometimes there are some things that the Russians are,
• 35:36
  are just distinctly better than the Chinese.
• 35:38
  And I'm sure that some of that stuff
• 35:39
  that has historically been off the table is now on the table
• 35:42
  just because of the desperation of the Russian war machine.
• 35:45
  But it's hard to know what exactly that is
• 35:48
  and it's something we'll definitely keep an eye on.
• 35:49
  Randy, what did I miss?
• 35:52
  - No, it's a great answer. Let me address this in,
• 35:54
  in a slightly different way
• 35:56
  because I've heard the Chinese respond to this
• 35:59
  with a few points that I, i I think it's worth kind
• 36:03
  of taking on in a direct way.
• 36:06
  So one thing they say, well,
• 36:07
  it's not a real thing, it's not an alliance.
• 36:08
  There's no written agreement. It's not an official grouping.
• 36:11
  There's no, you know,
• 36:13
  - Not a block.
• 36:14
  - Not a block. - Yeah.
• 36:15
  - And they want you to, they want you to believe that
• 36:19
  that means that it's not as impactful or consequential.
• 36:23
  And first of all, that's not a
• 36:24
  weakness, that's a preference.
• 36:26
  The Chinese don't like binding type agreements
• 36:28
  that might encumber them with certain responsibilities.
• 36:31
  They're able to pick and choose how to support Russia
• 36:35
  and, and Iran.
• 36:36
  And, and as Mike said, they are doing so in,
• 36:38
  in material ways.
• 36:39
  So not a weakness, but a preference.
• 36:42
  I've heard them say that, well, you know,
• 36:44
  these countries have a lot of disagreements among them.
• 36:47
  While that might be true, what they agree on tends
• 36:50
  to be things where they have common aversions and,
• 36:52
  and common problems like the role of the United States,
• 36:56
  whether that's our alliances, whether it's our support for
• 37:00
  Ukraine, our, our conflict with Iran,
• 37:03
  the operation we did in Venezuela.
• 37:04
  These are all things that bind them together.
• 37:06
  So even if it's limited, it tends to be directed at us.
• 37:11
  I've heard him say that it is pragmatic,
• 37:14
  practical cooperation.
• 37:15
  It's not built in like an alliance
• 37:17
  with habits of cooperation.
• 37:19
  Sure. But even limited practical cooperation can be hugely
• 37:23
  consequential as we're seeing in Ukraine.
• 37:25
  I mean this war is grinding on,
• 37:27
  but one of the main reasons Russia is able
• 37:30
  to prosecute the war the way they are over the course
• 37:33
  of several years is the support they're getting from China.
• 37:36
  Both economic support through, you know,
• 37:38
  the massive purchases of oil,
• 37:39
  but also the component parts for the Russian capabilities.
• 37:43
  So, you know, this is something that I think we need
• 37:47
  to understand not only in the here and now
• 37:49
  and the impact it's having in these areas,
• 37:51
  but your question also included, what about for Taiwan?
• 37:54
  And I would say if China got even the limited cooperation
• 38:00
  that Russia and Iran
• 38:01
  and North Korea are getting from China at the time
• 38:03
  of a contingency in, in Taiwan,
• 38:06
  it would be hugely impactful.
• 38:08
  So they get the North Koreans to do, you know, a a a a faint
• 38:13
  or, or a provocation on the Korean peninsula
• 38:16
  that bogs down our forces on the Korean peninsula.
• 38:19
  They get the Russians to do something
• 38:21
  in the Western Pacific.
• 38:22
  They're still a Pacific power
• 38:24
  and have naval forces,
• 38:25
  significant naval forces in the Pacific that ties up some
• 38:28
  of our forces that would
• 38:29
  otherwise perhaps be involved in the defense of Taiwan.
• 38:33
  So even limited cooperation from these other access powers
• 38:38
  would, would really, really complicate things
• 38:42
  for us if the political decision were made to try
• 38:45
  to protect Taiwan.
• 38:47
  - Okay. So let me just ask one more question on this
• 38:50
  and then we'll flip back
• 38:52
  and finish up with a question on going back to some
• 38:55
  of the technology issues
• 38:56
  and that are highlighted in the report
• 38:58
  and then maybe something on the Trump sheet summit.
• 39:01
  But I mean, so what's, what's our response right to this
• 39:06
  in, in terms of how we're working with our allies
• 39:10
  and partners both in the region,
• 39:11
  but is there any role for Europe in this?
• 39:14
  And like how would you structure seeing
• 39:17
  what you see right now in terms of, you know,
• 39:20
  how these countries are working together?
• 39:21
  And I would point out, yeah, maybe it's a marriage
• 39:24
  of convenience, but it's a marriage
• 39:26
  where they profess some love for each other.
• 39:28
  You know, I mean, Xi Jinping has said,
• 39:30
  I will tell you three times
• 39:32
  that Vladimir Putin is his closest friend in the
• 39:36
  international system.
• 39:37
  And I think he really does see a, a pretty personally,
• 39:42
  you know, important
• 39:43
  and strong relationship between the two of them.
• 39:47
  I I, so I'm just gonna, I'll I'll put that out there.
• 39:50
  I mean, you can Google it and find the, the instances
• 39:53
  where he actually says this publicly,
• 39:55
  you can hear him say it online.
• 39:58
  So I, I think that there may be something more there.
• 40:01
  And they have worked China
• 40:03
  and Russia together for decades, for example,
• 40:05
  in the United Nations on issues, you know, where they,
• 40:08
  they have sort of common purpose,
• 40:11
  but what do we need to be doing differently at this point,
• 40:14
  do you think, both with our Asian partners,
• 40:18
  but you again, is there any role for Europe here?
• 40:22
  - I mean, the first thing I would say is if I ever tell you
• 40:24
  Vladimir Putin is my best friend, please,
• 40:26
  please knock on my door immediately an
• 40:28
  intervention is required.
• 40:32
  The second thing I would say is, I mean,
• 40:35
  th there's a very simple path to competing with with China
• 40:39
  over the next 10, 20, 30 years.
• 40:41
  It does require bear hugging the Europeans
• 40:43
  and it also recover requires bear hugging the Indians,
• 40:46
  Japanese and Koreans and our, our friends in Australia.
• 40:49
  I mean, there are 800 people, 800 million people in Europe.
• 40:51
  That's a lot of people last time I checked
• 40:53
  and a lot more than are here,
• 40:54
  than the, than the United States.
• 40:55
  There's 1.3 billion people in India,
• 40:58
  and the, the economic opportunity in
• 41:00
  that country is off the charts.
• 41:02
  I was there just this year and, and,
• 41:04
  and the year before that.
• 41:06
  And every time I go to India, the, the amount of innovation
• 41:10
  that happens there is incredible.
• 41:13
  And the economic opportunity,
• 41:14
  as I mentioned is, is just off the charts.
• 41:17
  So I think there that is the pathway that means you do have
• 41:20
  to find ways to compromise with folks
• 41:22
  that sometimes frustrate the hell outta you.
• 41:24
  And one of the common criticisms of India is
• 41:27
  that they have a terrible bureaucracy.
• 41:29
  I I've spent a lot of time dealing
• 41:31
  with the American bureaucracy.
• 41:32
  I got news for you. It's pretty bad too.
• 41:34
  So, I mean, sometimes you gotta look in the mirror,
• 41:37
  you know, we've our, we have our warring futile
• 41:39
  states in the interagency.
• 41:40
  I can only imagine how many IPCs
• 41:42
  or sub IPCs you had to sit
• 41:43
  through Liz in the Biden administration.
• 41:45
  But there's, there's a part of me
• 41:47
  that believes there's probably fewer of those in India.
• 41:50
  So I think that that's really what it, it sort of requires,
• 41:54
  it also requires finding places where there's
• 41:58
  unnecessary duplication and necessary duplication
• 42:01
  and figuring out where you sort of decide like, okay,
• 42:04
  we're gonna work with our partners on this one
• 42:06
  and not unnecessarily duplicate an effort, whether
• 42:09
  that's in the military space, the innovation space,
• 42:11
  or in the economic space.
• 42:12
  And I think that is really the pathway to finding a way
• 42:16
  to persistently compete with China
• 42:18
  over the next couple decades.
• 42:19
  Randy?
• 42:22
  - Yeah, Mike and I are like mind on this
• 42:25
  and I'm not sure we are completely aligned
• 42:27
  with the administration because I think while they
• 42:30
  are committed to keeping America in the lead
• 42:34
  and, you know, the, the American first rhetoric about
• 42:37
  rebuilding our country, I think that's, you know, something
• 42:41
  that most people take, take away the, the sort of
• 42:46
  negative rhetoric that tends to be associated with
• 42:49
  that most people can get on board with,
• 42:50
  with making America great.
• 42:52
  You know, I think they, they don't have full appreciation
• 42:55
  for the values of value, excuse me, of alliances
• 42:58
  and partnerships and,
• 43:00
  and really how that complicates things for the Chinese, the,
• 43:03
  the Chinese hate our alliances.
• 43:05
  They hate the fact that we have this asymmetric thing called
• 43:08
  partnerships that really we, we are not only of,
• 43:12
  of like-minded in in most ways,
• 43:14
  but we train together, we, we exercise together,
• 43:17
  we think about various contingencies
• 43:20
  and how we would respond alongside one another.
• 43:23
  And so I think that's kind
• 43:24
  of what's missing in this administration right now.
• 43:27
  And I'm a great believer in,
• 43:29
  in general Eisenhower's statement that plans are useless,
• 43:32
  but planning is essential.
• 43:34
  We need to be talking to our partners
• 43:35
  and allies about a range of contingencies
• 43:37
  and what they can contribute.
• 43:39
  And yes, in the case of the European,
• 43:41
  it might be mostly in the economic domain sanctions and,
• 43:44
  and cost imposition less hard power.
• 43:48
  But that all would need to, to be brought
• 43:51
  to bear should we actually find ourselves in conflict
• 43:53
  with China even in peace time or whatever this phase is.
• 43:57
  Because I think there's a lot of evidence
• 43:58
  that the Chinese don't look at this as peace time.
• 44:00
  They look at it as other domains for warfare,
• 44:04
  information warfare, political warfare and,
• 44:06
  and economic warfare even in this state.
• 44:09
  We need the help of, of Europe
• 44:11
  and we're just, we're we're better off keeping partners
• 44:15
  and allies aligned and on sides
• 44:16
  and active rather than, you know, really poor gasoline on,
• 44:20
  on the fire in terms of diminishing the, the value
• 44:24
  of those relationships.
• 44:26
  - Randy touched on information space, Liz
• 44:28
  and I just wanna make sure I foot stomped that one
• 44:31
  because if you look
• 44:33
  around the US we always talk about the theft
• 44:35
  of intellectual property.
• 44:36
  The other thing the Chinese are doing is operational
• 44:39
  preparation of the environment here in the United States.
• 44:41
  Salt, salt, typhoon and vault.
• 44:42
  Typhoon are operational preparation
• 44:45
  of the environment designed to make sure
• 44:46
  that they can hold American policy makers
• 44:49
  in a state of paralysis.
• 44:50
  Should they do something. Mike?
• 44:52
  - Yeah, Mike, can you define the salt
• 44:54
  typhoon in bolt, typhoon? Just
• 44:55
  - These are two, two cyber operations
• 44:58
  that the Chinese have sort of been exposed for doing,
• 45:00
  where they've, they basically parked themselves on American
• 45:03
  critical infrastructure telecommunications as part of it.
• 45:07
  I'm sure there are other parts
• 45:08
  of American critical infrastructure, whether it's power,
• 45:10
  water or beyond.
• 45:12
  And you know, this is sort
• 45:14
  of a classic military move, right?
• 45:16
  The special, you know, special operation forces routinely do
• 45:18
  things to deploy capabilities whether they're, you know,
• 45:22
  hard, whether they're sort of hard power capabilities
• 45:24
  or information capabilities into a country in
• 45:26
  advance of an operation.
• 45:28
  And that's what the Chinese have done
• 45:29
  here in the United States.
• 45:30
  One of the things that was exposed in the lead up
• 45:32
  to the last election was that the Chinese were on the
• 45:34
  telecommunication devices of American political leaders.
• 45:38
  We think that's unique. I got news for you.
• 45:40
  It probably isn't, it's probably
• 45:41
  happening all across Europe.
• 45:43
  It's probably happening in India.
• 45:45
  You know, the information space in Taiwan is off the charts
• 45:47
  and, and quite a bit different and more intense.
• 45:49
  But these are all activities that a,
• 45:51
  that a country undertakes in advance
• 45:54
  or in preparation for, for military operations.
• 45:57
  And it's something that doesn't get talked about often
• 46:00
  enough in a, in, in a way to sort of focus people's mind on
• 46:03
  what the intent is.
• 46:04
  We're always focused on intellectual property,
• 46:06
  which is obviously a huge deal,
• 46:08
  but there's a lot more going on in
• 46:09
  the, in the cyber domains.
• 46:11
  - Yeah, I mean I think sometimes
• 46:13
  that we don't talk about salt and, and vol typhoon that much
• 46:16
  because it's so unbelievably
• 46:20
  scary, right?
• 46:22
  That they have this capability at this point in time.
• 46:25
  And so I think, you know, one way of dealing with it is,
• 46:27
  I mean, I'm sure we're, we're trying to take action
• 46:31
  to address it, but I think it, to me, right,
• 46:34
  when I think about what future of warfare might look like,
• 46:38
  this is sort of the number one probably concern in my head
• 46:43
  that I have not heard adequately addressed by any
• 46:46
  of the past recent administrations.
• 46:49
  Okay. So let's quickly move through two more questions.
• 46:54
  First, you focus on the pharmaceutical supply chain
• 46:58
  and how we need to reduce our dependence on China
• 47:03
  for APIs, these active pharmaceutical ingredients.
• 47:07
  Can you say a couple of words about
• 47:10
  why you think this is so important?
• 47:12
  I mean, everybody seems to be focused on, you know,
• 47:14
  rare earth elements and critical minerals
• 47:16
  because of course we've seen now China's sort of ability to
• 47:21
  enable the choke hold that it, it has,
• 47:25
  it has a similar choke hold in this space, right?
• 47:27
  So what, what do you think we should be doing?
• 47:30
  What are we doing to address this?
• 47:34
  - A former commissioner colleague of ours who, you know,
• 47:36
  Derek Scissors, we used to debate the Taiwan thing
• 47:40
  and I would talk about how we need to re-post forces
• 47:42
  and we need to sell Taiwan more systems
• 47:45
  for counter invasion.
• 47:46
  And, and he would just shake his head
• 47:47
  and he said, all the Chinese are gonna do is cut off our
• 47:49
  drugs and this this'll be over.
• 47:53
  Americans won't support further intervention. Yeah.
• 47:57
  The, the, the vulnerability presents risk that I think is
• 48:01
  beyond an acceptable threshold.
• 48:03
  You'll recall during the pandemic spokesperson went
• 48:07
  to the podium and threatened
• 48:08
  to drowned America in a sea of COVID.
• 48:12
  How do they do that? They cut off drugs and,
• 48:14
  and support for, you know, our, our,
• 48:18
  our seniors and the like.
• 48:19
  So it's a, it's a vulnerability that maybe a,
• 48:22
  a bygone era we were willing to, to live with.
• 48:25
  I don't think it's one that we should be accepting now,
• 48:28
  what do we do about it?
• 48:30
  I think relying on pharmaceutical companies
• 48:32
  to do the right thing is not gonna work.
• 48:35
  So ultimately we're gonna have to be directive and,
• 48:38
  and maybe even provide some support for the, the,
• 48:44
  the standing up of new, new supply chains, new,
• 48:46
  new means of production.
• 48:48
  And, and you know, that does take time and money,
• 48:52
  but I, I don't see this happening through the,
• 48:55
  the natural forces of market economy
• 48:57
  where cost op optimization
• 48:59
  and profit optimization have really driven
• 49:01
  this pharmaceutical companies to rely on China so much.
• 49:04
  So I think we're gonna ultimately be, have
• 49:07
  to be directive about this
• 49:08
  and say, this is a national security concern.
• 49:11
  This is a concern for the health
• 49:13
  and wellbeing of our country and you've gotta do it. So, so
• 49:17
  - Folks always say that, oops, - Sorry, go ahead.
• 49:20
  - Folks always say that India is the
• 49:23
  generics capital of the world.
• 49:25
  The reality is that, you know, they,
• 49:26
  they may be making a lot of the generics,
• 49:28
  but all the key starting materials come from China.
• 49:31
  And so the, the story is really quite dire,
• 49:33
  whether it's the statin that Randy
• 49:34
  and I are probably both on the cancer drug that, that,
• 49:39
  you know, somebody needs in a hospital right now
• 49:40
  or anything all comes out of China.
• 49:43
  And when we were just in India, it was staggering to sort
• 49:46
  of learn of the depth of the dependence on Chinese ecosystem
• 49:49
  for these key starting materials.
• 49:51
  And really the price that they're willing to sell some
• 49:55
  of these things makes it nearly impossible,
• 49:57
  if not totally impossible
• 49:58
  for any new entrant to get into the space.
• 50:01
  And so, you know, we had a a China shock 2.0 hearing
• 50:04
  last year and, you know, this was part of that story and,
• 50:07
  and it's, it's getting worse
• 50:09
  and I, you know, I didn't know was Derek Scissors the,
• 50:11
  that coined that or came up with
• 50:12
  that Randy, but he's totally right.
• 50:15
  - Yeah, I I do remember when I was in the commerce
• 50:17
  department a couple of years ago,
• 50:20
  we were talking about are we gonna need a chips
• 50:22
  and science, you know, act for pharmaceuticals?
• 50:26
  And at the time, you know it, yes,
• 50:28
  it was bipartisanship in science, but it wasn't an easy lift
• 50:31
  and, and Secretary Raimondo had to do a lot of phone calling
• 50:34
  to keep especially, you know, a number
• 50:36
  of the Republicans on board with it.
• 50:39
  And I don't know whether there be the appetite
• 50:41
  for something like that again, but,
• 50:43
  but I think that might be what it,
• 50:45
  what it takes and I, yeah,
• 50:46
  - It's, I'd say two things.
• 50:48
  One, Gina was a superstar during chips and science.
• 50:51
  You know, we could, we could deploy her all across the
• 50:53
  senate to be helpful and,
• 50:54
  and thankful for the good work that she did
• 50:57
  on the chips and science approach.
• 50:59
  The thing I would say is, I mean, the place
• 51:00
  where we actually need to think about, think about sort
• 51:02
  of innovation dollars is not necessarily in the
• 51:05
  pharmaceutical space.
• 51:06
  We actually need that in the synthetic biology space.
• 51:09
  Think, you know, biomaterials, think about bio industrials
• 51:11
  and sort of more of the unlocking biology
• 51:14
  as a general purpose technology space in the
• 51:17
  pharmaceutical space.
• 51:18
  I mean, the government has some pretty incredible powers at
• 51:20
  its disposal already.
• 51:21
  The Department of Defense, the Department
• 51:23
  of Veterans Affairs and HHS are gigantic
• 51:26
  buyers of pharmaceuticals.
• 51:27
  Yep. All you need to do is put some of these folks on,
• 51:31
  you know, purchase guarantees
• 51:32
  and other things like that, just normal contracting vehicles
• 51:35
  where they have something that they can rely on for, for,
• 51:39
  for a price that allows them to find new,
• 51:41
  new sources for kss.
• 51:43
  And you can really change the game in that space.
• 51:45
  So I don't think chips and science
• 51:47
  and pharmaceuticals is gonna win the day,
• 51:49
  but definitely using those other very powerful tools
• 51:52
  of government would definitely breathe some life into the
• 51:56
  community and change the demand signal.
• 51:59
  - Well that's great. I mean, that's great to hear
• 52:00
  and hopefully Congress will agitate, you know,
• 52:04
  based on your report in ways that will make that happen.
• 52:07
  All right, let's finish up.
• 52:09
  I can't resist, you know, the Trump
• 52:11
  and She summit is hopefully taking place just in a few
• 52:15
  weeks, about two and a half weeks or so.
• 52:17
  I guess what do you think is likely to come out of it?
• 52:20
  Anything more than, you know, some purchases?
• 52:24
  What, what do you or what do you hope for?
• 52:26
  What do you imagine might be the outcome?
• 52:31
  - Well, what I hope for and what's gonna happen is our,
• 52:33
  there's probably a delta there, please. Fair enough.
• 52:35
  - I - Think the president's intent is to take what,
• 52:39
  what they're calling the trade truce that emerged out
• 52:42
  of Busan last year and,
• 52:44
  and the, the basic framework of that trade truce,
• 52:48
  a tariff landing spot, an agreement to continue
• 52:50
  to export rare earths and,
• 52:52
  and a temporary pause in the remediation from the
• 52:56
  3 0 1 ship building.
• 52:57
  Invest all these things and,
• 52:59
  and get something that is a more durable agreement,
• 53:01
  which surely the Chinese will violate,
• 53:03
  but, you know, some landing spot
• 53:06
  that is more durable than a one year trade truth.
• 53:10
  I think that that's the president's intent.
• 53:12
  And from what we can pick up,
• 53:13
  the only interagency preparation
• 53:15
  that's being done is being done
• 53:16
  by the economic agency's USTR, treasury and Commerce.
• 53:19
  There's no working group preparing
• 53:22
  for the summit on military
• 53:23
  and security issues that we're aware of.
• 53:26
  What might happen is the, the Chinese might try
• 53:30
  to bring in adjacent issues or maybe even not so adjacent,
• 53:33
  but things they care about, like Taiwan, they might
• 53:36
  seek some rhetorical policy change from the
• 53:41
  United States where the United States doesn't think it's
• 53:43
  giving up much, for example,
• 53:45
  changing the language from do not support
• 53:47
  to opposed Taiwan independence,
• 53:50
  which would be a big win for the Chinese.
• 53:52
  So, you know, I, I've been with the president when he met
• 53:55
  with Kim Jong-Un in Singapore and Hanoi,
• 53:58
  and I remember in Hanoi he walked away
• 54:00
  because he said, you know, sometimes it's better
• 54:02
  to walk away than take a bad deal.
• 54:05
  The trick there is he is gotta recognize it's a bad deal
• 54:07
  and so I, I do, I don't think he's going there
• 54:10
  to throw anybody under the bus.
• 54:11
  I don't think he's, you know, intending to make concessions
• 54:16
  that are costly to us and our partners and allies.
• 54:20
  But he is one who will make a gut call and,
• 54:23
  and, you know, game day decision across the table.
• 54:25
  I've seen that as well.
• 54:27
  When he decided to take down our exercises
• 54:29
  with South Korea in Singapore, that was not one
• 54:32
  that DOD had staffed and recommended.
• 54:35
  So these things are all possible.
• 54:37
  You know, what I hope for is I, I am outraged
• 54:41
  that the Chinese are providing support for Iran,
• 54:43
  including whatever was on this ship
• 54:46
  that was boarded recently, which was described
• 54:48
  as significant material support for Iran military forces.
• 54:52
  And I think that's outrageous that,
• 54:54
  that they would support Iran at a time where in conflict
• 54:57
  and they're targeting American forces
• 54:59
  and American interests.
• 55:00
  So I hope the President will take on some
• 55:02
  of these other issues too, like the support for Iran,
• 55:04
  the support for Russia.
• 55:06
  I, I think it's probably unlikely given
• 55:08
  what he's already tweeted out
• 55:10
  or truth, social doubt describing the support for Iran
• 55:13
  as not nice,
• 55:15
  but I'd like to see 'em go harder at some
• 55:17
  of those issues. Yeah.
• 55:20
  - You know, the only thing I'd pile on, Liz, is
• 55:22
  when we went, when Leader Schumer in the bipartisan
• 55:25
  delegation went in 2022, it was staggering to me the number
• 55:30
  of things that the Chinese have been sitting on
• 55:32
  for decades from an economic perspective.
• 55:34
  I mean, if President Trump unlocks even half
• 55:38
  of the thing items on the list,
• 55:40
  it would be a big win for him.
• 55:41
  So I think there are a lot
• 55:42
  of potential wins on the transaction side to go
• 55:45
  beyond the sort of Busan agreement or,
• 55:47
  or Deante that Randy mentioned.
• 55:49
  And, and hopefully he'll be able to unlock some of those.
• 55:51
  I mean, visa, MasterCard, I mean, these are,
• 55:54
  these are household names that have been sitting
• 55:57
  and waiting for a deal for decades.
• 55:59
  Boeing Plains are, are one of the things
• 56:01
  that constantly sort of get held out by the Chinese on,
• 56:04
  on the delivery.
• 56:06
  And then there are all kinds of other American companies
• 56:08
  that, that sort of are eager to do business in China,
• 56:11
  are not in the strategic competition
• 56:12
  space and could be unlocked.
• 56:14
  So hopefully some of those things will,
• 56:16
  will be on the table and will be pushed forward.
• 56:19
  - Yeah. Actually, you know, my, my last question that
• 56:23
  just sparked me to think about the recent decision
• 56:26
  by the Chinese government to block Mattis, purchase
• 56:30
  of Manus
• 56:31
  and, you know, do you think that this is the kind of, I know
• 56:34
  that Secretary Bessant has been talking about a board
• 56:37
  of investment.
• 56:38
  We know that Ambassador Greer is moving forward
• 56:42
  with this idea of a board of trade.
• 56:44
  Do you think that this is the kind of deal
• 56:47
  that you know should happen
• 56:49
  and should it happen if it were,
• 56:51
  if the situation were reversed, right,
• 56:54
  if you know Meadow were in China
• 56:55
  and Manus was in the United States, is that the kind
• 56:59
  of thing that you think, you know,
• 57:00
  we should be talking about more, figuring out how to,
• 57:03
  to manage that sort of divide between what constitutes,
• 57:07
  you know, economic security and national security,
• 57:10
  or do you think we're perfectly fine not having
• 57:13
  that deal happen?
• 57:16
  - I think that's an important conversation to have.
• 57:17
  I, I don't know that that's one that,
• 57:19
  that we're actually ready for that,
• 57:21
  that the president should take to Beijing on this
• 57:24
  - Particular - Upcoming visit.
• 57:26
  Because I think it's, it's very complicated
• 57:28
  and it's, you know, what, what types
• 57:31
  of investment from the Chinese in the United States do we
• 57:33
  want, it's not like going to Japan
• 57:35
  and saying, we're gonna shake you down for $550 billion
• 57:39
  of investment and figure out, you know, as, as we go what
• 57:42
  that's gonna look like.
• 57:43
  Because clearly there's some types
• 57:45
  of Chinese investment in the United States that
• 57:48
  that would not be welcome.
• 57:49
  And there's all kinds of debate about farmland near military
• 57:53
  bases and all kinds of things that trigger CFIUS reviews.
• 57:56
  So, you know, that,
• 57:58
  that's a conversation I think is really important,
• 58:00
  but probably not one that, that we're ready
• 58:02
  for, I would say.
• 58:04
  - Nice. I mean, you kind, I did a nice job
• 58:06
  of book ending the conversation.
• 58:07
  Liz, we, we started talking about the economic
• 58:09
  statecraft recommendation.
• 58:10
  And I think this is really part of that, one of the things
• 58:13
  that we, we pondering the recommendation was whether
• 58:15
  or not it's time for Firma 2.0.
• 58:17
  And you'll remember Firma was an effort that was led
• 58:20
  by Senator Cornyn in the 20 s 20 16, 20 17 timeframe
• 58:24
  to really refresh the CFIUS process, which I mean is a good
• 58:28
  and deliberate interagency process that, that we did some,
• 58:31
  you know, important reforms to,
• 58:32
  but is probably in need of, of a refresh, sadly already
• 58:36
  and isn't exactly in the space that your question
• 58:39
  and Randy's response is in.
• 58:40
  And I think that we are not ready for that conversation
• 58:44
  because we can't decide if we're, if we're going to decouple
• 58:47
  or do a strategic decoupling in key areas.
• 58:50
  And I don't think we know what those key areas are.
• 58:52
  Congress passed the outbound investment screen last year.
• 58:56
  I mean, it hasn't been implemented in any meaningful way.
• 58:59
  And so there's a, there's a lot of work that needs
• 59:01
  to be done, you know, in our own house,
• 59:03
  at our own kitchen table before we're ready for that.
• 59:06
  - Yeah. Right. And I've seen Congress now trying
• 59:08
  to pass all sorts of, of bills around chips
• 59:12
  and trying to restrict the administration's ability
• 59:16
  to basically loosen export control.
• 59:19
  So I think this is the kind of work
• 59:21
  that you're doing is just so critical right now, right.
• 59:25
  And bringing the facts to bear on these issues,
• 59:29
  and they're really complicated, right?
• 59:30
  It's really difficult sometimes to draw that line between
• 59:34
  what constitutes a technology
• 59:37
  or a service around a technology that is, is critical
• 59:41
  to our economic and national security.
• 59:43
  And, and which actually, you know, we should be able
• 59:45
  to, to sort of let go.
• 59:47
  So maybe that's
• 59:48
  for the 2026 report is a further deep dive into
• 59:54
  that work on economic state craft
• 59:56
  and this, you know, how we think about economic
• 59:59
  and national security and the trade
• 1:00:01
  and investment landscape with China.
• 1:00:04
  So on that note, let me thank you both
• 1:00:08
  for the expertise that you bring to the work
• 1:00:12
  that you are doing because it's so important to have people
• 1:00:15
  who are knowledgeable, you know, thinking these issues
• 1:00:18
  through, and also just the energy,
• 1:00:20
  because I know it can be exhausting sometimes to try
• 1:00:25
  to push forward with really good ideas
• 1:00:27
  and try to bring them to fruition.
• 1:00:29
  And so you're really doing some of the most important work
• 1:00:33
  that I can imagine these days
• 1:00:36
  and, you know, in this time of the US China relationship.
• 1:00:39
  So thanks to both of you.
• 1:00:42
  - Thank you very much. Thanks for having us. Yeah.
• 1:00:44
  For, for having us and all the work You're doing.
• 1:00:47
  - Great. So if you enjoyed this podcast
• 1:00:49
  and would like to hear more reason, discourse
• 1:00:51
  and debate on China, I encourage you to subscribe
• 1:00:53
  to China considered via the Hoover Institution YouTube
• 1:00:57
  channel, or the podcast platform of your choice.