Stanford Leadership Forum 2026: Geoeconomic Power and Economic Security

Thank you all for quieting down and welcome to what promises to be a truly fantastic public debate, public panel on geoeconomic power and economic security. I stress public because this is on the record and being recorded. So just be mindful of that. Um, not looking at anyone in particular, secretary of state. Um, anyway, so for those of you who don't know, my name is Jillian Tet. I am both a columnist at the Financial Times. I used to run the FT in America. These days, I'm just a columnist. I also oversee King's College at Cambridge. So, I have both hats on today. And I originally trained as a cultural anthropologist. Um so I have long been fascinated by economic political economic systems and how they change over time and the cultural aspects of that. And right now we are in the middle of in my view the fourth big zeitgeist shift since 1900 in terms of how we ma imagine the global political economy. In particular, we've gone from a world which was essentially addicted to the idea of globalization and free market capitalism and innovation. Um, that's a world that most of us grew up in and built our careers in and regard as normal to a world of geoeconomics and geo finance, which we've seen echoes of before, most notably in the 1920s and 30s, but most of us have not encountered in a meaningful way in our own lives unless we happen to have been living in places like China. So it is a big shock and I should congratulate the organizers of this panel for their timing for two reasons. The short-term obvious point is that we're discussing these issues as we see a display of geoeconomics in a very real way around the straight of Hormuz and I'm sure we'll hear a lot about that today. More widely though, I must congratulate Matio and his group for being way ahead of the curve in terms of diving into these issues um three or four years ago, long before it was fashionable and creating not just a series of dense economic papers to look at it read mostly just by other economists. um but also some very user friendly charts and graphs on their web page which have been absolutely invaluable for mere journalists like myself trying to make sense of it. So congratulations to all of you on both fronts. So we have a great panel to talk about these themes. I'm not going to waste time with introductions. I think you know most of them very well. At the end we have HR McMaster, someone I admire deeply for having served in the first Trump White House and having served with great integrity and also not got fired, which is a difficult combination. >> Next to him is, >> well, not right away. I didn't get fired right away. That's what she means. >> Well, I st I stress a point about integrity because right now that is a very valued commodity. Um, next to him is Maurice Obsfeld, an economist I've admired for many years who's written a lot about these themes for a long time. Again, way before it was fashionable. Next to him, someone I don't need to introduce, Secretary Condisa Rice, 66 Secretary um Secretary of State and somebody I should say who had a lot of impact on many young women growing up in America, including my own daughters who actually managed to see for the first time my own daughter's mixed race and seeing her in office had a transformational impact. So I'm forever grateful for you. Never mind the details of what you actually did in office. at the very back of there was fabulous. And next to me is of course Matio Majori who has been driving this whole project. So we're going to um hear from each of the panelists for about five to seven minutes on their thoughts about how to pass the current situation. Is this swing towards geoeconomics a temporary phenomena? Is it more permanent? And if it is more permanent, what does it mean in terms of companies, countries, the economics profession and much more else? And then we'll have some of the conversation between us and then we'll open up to questions after that. There are microphones here and I will moderate that later on. But let's start with um the panel first of all and I believe that am I supposed to go in this order here in terms of >> reverse? Let's start with the second. >> Okay. All right. Thank you. All right. Well, I'll take my orders. >> I thought the order was going to be what was on the piece of paper. So, >> well, we can start negotiating then. >> That's right. >> Negotiations are all the rage right now, but maybe you as someone who's very skilled in negotiations, would you be happy to start? >> I I'm happy to start. Thank you. But let me start uh not as a former secretary of state but as a political scientist who studies u how systems work uh in uh the international system works. And um I think one reason we're starting to have these discussions now about national security and uh economics in the same room with the same people at the table uh really is a reflection of how the international system has evolved since World War II. uh after World War II uh the United States and its allies uh formed what I think was an extraordinary international uh innovation particularly when you think about the victorious powers and what the victorious powers usually did in international politics was victorious powers chose to crush those who had been defeated in the wars. Uh that was certainly the case after World War I, the treaty of Versailles and so forth. And uh after the World War II, the United States and Salis had a different idea, which was that uh they would build um an international economy that addressed some of the malay, some of the uh dysfunction that had led to World War II, including uh hoping to build an international economy that was not zero sum. uh but where uh through uh countries not manipulating their currency through freer trade through ultimately the free movement of capital uh you would be able to have a positive sum uh international economy uh where my growth didn't have to come at your expense where we traded for resources instead of waring over them and this was quite an extraordinary system really it also by the way was protected piece by piece by American military power whether it was the uh article Five, an attack upon one is an attack upon all uh of the NATO treaty or the defense treaty with Japan or taking on the defense of South Korea after the Korean war and ultimately the defense of the sea lanes uh when Britain and France were no longer able to do so. So international economy that was not zero sum and uh American uh military protection for it. There was another element to it uh that sometimes gets obscured which was it was a big back big bet on what uh uh political scientists have now been able to show something called the democratic peace. Democracies don't fight one another. And so instead of crushing Germany, you would encourage a democratic Germany which then would never threaten its neighbors. You would encourage a dem a democratic Japan which would never threaten its neighbors. So this system uh is is going very well. uh but actually you never really have to worry about the connection between national security and the international economy because initially the Soviet Union was completely isolated uh from this and so the Soviet Union uh was a military uh military might but it was also an economic and um and technological and so you didn't have to worry too much about the implications of national security for the economy you could engage in things like cocom something that I used to measure who I used to manage which isolated uh the Soviet economy by denying it technology uh through a set of restrictions. Uh oh by the way they were kind of selfisolating uh because they believed that they didn't want to integrate into the international economy that they would be vulnerable if they did. So these two trains were going on very separate tracks a national security side and an economic side. uh Soviet Union collapses and the countries of the block are pulled into this system. But the big change is of course in 2001, China is admitted to the WTO and all of a sudden uh this system which uh was sort of represented by the G7 started by George Schultz and Ronald Reagan. The G7 the seven largest economies in the world. They were also all democracies. They were all a part of the uh American security arrangements. Enter China uh not a democracy, not a part of the American security arrangements, benefiting from the international economic piece. And for one moment, uh if you were in business, you kind of put your supply chains where they were most efficient. You did uh the uh investments where the ROI was greatest. You manufactured and you assembled where the conditions were best. and you just paint it on a great big canvas uh because it was kind of one big international economy. Um as China evolved however it took the benefits of integration into that economy and began to challenge instead the American system challenging in the South China Sea challenging around Taiwan. And to me, one of the great moments, a kind of hinge point, if you will, Xihinping's speech in 2015, that China would surpass the United States in uh frontier technologies like quantum and AI within 10 years. And oh, by the way, civil military fusion would mean that those benefits technologically would go to benefit the PLA. At that point, this system really has to bring together national security and economic issues. And that's what we deal with today. And so I'll just stop there but to note that one reason I think we're having this conversation is that the international system has evolved into one in which uh it's particularly the world of technology but also the international economy are more competitive adversarial uh decoupling than at any other time and certainly not reflective of the system that um people had intended uh in 1945.

Right. So, just quickly before I turn to Maurice, so you're essentially saying this is not a short-term blip, correct? It is more of a structural swing.

Absolutely. I'm I'm very often asked uh is uh the Trump uh revolution a revolution or an evolution. And I always say, look, a revolution is what happens when you don't see an evolution coming. And so, um I think that what you're seeing are that these are long-term secular trends, uh not the expression of one administration or another. There may be some acceleration given the the fact that this uh administration at least came to power with a kind of anti-globalist uh uh tinge but uh these underlying circumstances were there for a long time including and I'll just end this with some resentment on the part of the United States that it had carried this security burden for so long. Uh Bob Gates um very much someone who I think people would think of as an Atlanticist uh gave a speech at the Munich Security Conference in his last uh time as Secretary of Defense. He was now in the the Obama administration. He was both in Bush and Obama and uh he said um I'm the last uh official security official who has a a an emotional attachment to NATO and to Europe. It's going to become a costbenefit analysis and you will be found wanting that from Bob Gates who uh was if anything uh someone who defended the system.

So >> well that resentment is no longer muted. It's on full display every morning in the wee hours on Truth Social right now. So um Maurice, would you agree with that?

I very much agree with those comments and I'll I'll put a different spin on them uh less eloquently. Um I have some quotes and so I have some notes but um you if you look back in history um security policy, foreign policy, economic policy have always been linked. The idea that this is something novel to our age is dead wrong. uh the period from roughly 1990 to about 20 years later uh through in which uh some of you in this audience uh you know have mostly lived is is is a true anomaly in history and I think we've really returned to form now uh with what uh what um we're experiencing now as a way of illustrating you know the great um uh heritage of uh linking the security issues with economic policy. I can't do better than quote one of the deepest and most influential thinkers in this area who was Alexander Hamilton. Um so he wrote two very important reports when he was uh secretary of the treasury. First of all the report on manufacturers where he said not only the wealth but the independence and security of a country appear to be materially connected with the prosperity of manufacturers. Now in this he was opposed by many in the new republic including the uh first secretary of state Thomas Jefferson who thought that uh an economy that was mostly agrarian part of it based on slavery was doing just fine obeying its comparative advantage. Um they had all they had all read Smith by that point. Um but Hamilton had a different view and you know he opposed tariff proposed tariffs nothing like the Trump tariffs nothing like the Trump tariffs and he was not enthusiastic about them. The second great link between security and um the economy was through the public credit. So Hamilton also um created the national debt again over Jefferson's uh objection. They made a famous deal whereby Washington DC is located where it is near Virginia. Uh establishing what was effectively a central bank and again Hamilton wrote that um you know countries need good credit. If you have a war you need to borrow. So the the sort of financial senus, the manufacturing senus were things that he wanted to build and he viewed as essential. And um I would argue that the um Trump administration recognizes some of these points. For example, they talk about the importance of manufacturing, but they're going about its support in exactly the wrong way, and they're not they're not succeeding regarding the financial uh infrastructure of the US on which in fact the world economy depends. In many ways, they're uh acting to wreck it through undermining the Fed, through um unwise financial deregulation, through unrestrained fiscal deficits. So these are problems going forward. Um, Secretary Rice talked about the emergence of the multilateral system after World War II. This uh I I would agree was very far-sighted at the time. It appears even more for farsighted today in light of the um collective action problems that have arisen since say 1944 that we couldn't have anticipated then. nuclear proliferation global pandemics on a scale which we haven't seen since after World War I um uh climate cyber security and the challenges from globalization all of these require multilateral approaches to problems. Um the problem that we encountered is that the system the multilateral system the globalized system was not really stable. And the big uh fly in the ointment was the rise of China, a revisionist power that became very powerful thanks to the um the workings of this uh of this system. Um I would argue that this administration has no strategy to deal with this in a non-conflictual way. Um, uh, a couple of years ago, Kevin Rudd, who was the prime minister and ambassador, wrote a very nice book called The Avoidable War, 2022, where he listed Xihinping's dream scenario, like what would Xiinping like to see by, say, 2030. And if you go through this list, China's getting a lot closer to their dream scenario than we are to ours. I'm not even sure what our dream scenario is, but this includes um securing his political position domestically, creating the largest consumer market in history, peeling Europe and other parts of the world away from the US, uh becoming the largest source of finance and the leader of the multilateral system. uh the US using the tools of statecraftraft that it's using which are largely predatory, coercive, violate treaties, alienate our allies, is not going to be able to win this this contest. And uh unless there's a change of course, I don't see us coming out even with China like even even uh so I don't I don't think we go back to the system we had. The question is what kind of system can we construct that would be an acceptable system for us as a country for other free nations as a country. I think one of our biggest obstacles is internal to that. I ask whether a nation as polarized as we are with the nasty politics we have can actually act as a great power on the world stage. And here Hamilton had another quote from the early 1780s. He was commenting on the situation in the US with the Articles of Confederation, but it really resonates today. There is something noble and magnificent in the perspective of a great federal republic closely linked in the pursuit of a common interest, tranquil and prosperous at home, respectable abroad. But there is something proportionately dimminionative and contemptable in the prospect of a number of petty states with the appearance only of union jarring, jealous, and perverse without any determined direction, fluctuating and unhappy at home, weak and insignificant by their dissensions in the eyes of other nations. Stop there.

Thank you. Well, that's quite a mic drop. Um, and it's very interesting. I was actually I've been in Washington the last couple of days at the IMF World Bank spring meetings and along the way spent time in the US USR um which is very much taking that Hamiltonian vision as their loadar of what they're trying to achieve right now. So Hamilton is back in fashion in every sense both in policy terms and in a wider term but maybe not quite the full Hamilton maybe only part of it. Anyway I'll come back to that in a moment. Before we do, um, HR McMaster, how does this look to you? Because, you know, you're not trained as an economist. Um, and yet suddenly your world is now colliding and intermixing very deeply with economics as we just heard from Secretary Rice,

Right? And and I'm trained as a historian, too. And it does my heart so much good to hear, you know, Maurice quoting Alexander Hamilton and and Kandi, a political scientist, talking about history, too. And I love that. So, uh, what I'd like to do is just maybe pick up on on, uh, on where Candy and and Maurice left off and a agree with both of them, uh, about the stakes and and kind of how we got there. I think the fundamental issue, uh, of our time is a competition essentially between our free market economies, the free world, our our democratic societies and forms of government and what I would describe as an axis of aggressors. an axis of aggressors that has really coalesced in recent years after our recognition that our assumptions about the postcold war era turned out not to be true. And and those assumptions of course were that an arc of history had had guaranteed the primacy of our free and open societies and our free market economic systems over closed authoritarian systems or statist economic models. The great power rivalry and competition was a relic of the past. we would have this condominium of nations that would come together, work together largely under the umbrella of international organizations, work on global issues together. And the third was that our prowess, our our technological, our economic and our military prowess would guarantee our security, you know, well into the future. That kind of bubble burst in in the 2000s. And I think we shifted from what I would maybe regard as an overoptimistic view of the postcold world to too rapidly to a pessimistic view with a with a series of strategic shocks and disappointments which creates I think a lot of the polarization that Maurice is talking about. So think about the the shock of 9/11 which condi helped lead us through. Um, but then the unanticipated length and difficulty of the wars in Iraq and Afghanistan, financial crisis 2008 2009. Hey, you know, toss in an opioid epidemic on top of that. How about the effects of social media and pursuing more and more advertising dollars for more and more clicks, right? And doing so by showing people more and more extreme content and and conspiracy theories and and so forth. How about the big shifts that happened in the global economy, especially after uh China's entry into the WTO and the loss of so many manufacturing jobs that left so many Americans behind. And so then these Americans are left behind. They're looking at, hey, what are we worried about European security for? What, you know, uh, that, you know, Europe is 19% of the world's GDP, 50% of the world's social spending, right? So, so we're underwriting European social programs, you know, by covering their defense bills. And so all of this is related it's related to some of these disappointments uh that many Americans encountered and has led I think to the perception in our own country you know and and a recognition that we're polarized and pitted against each other in ways that are profoundly unhealthy and unproductive but our adversaries saw this as well and you know what emboldens the axis of authoritarians and I'm talking about two ravanchist or revisionist powers on the Asian land mass of China and Russia who pulled into the fold the theocratic dictatorship in Iran, the only hereditary communist dictatorship of the world in North Korea uh and you know people like Maduro and and and and the Cuban army regime what emboldens them is the perception of weakness and they saw the west they thought hey they're weak they're decadent they're divided this is our time now that's the 2015 speech that's that's uh Xiinping and Vladimir Putin you know declaring their undying love for each other right the partnership with no limits right before the Beijing Olympics right before the mass massive reinvasion of Ukraine just a few months after the disastrous, deadly, what I would describe as self-defeat and humiliating withdrawal from uh from Afghanistan. Weakness is what provoked them. The message that they they put out in their joint statement was, hey, this is a new era of international relations. You know, basically, we're in charge now. You're done. Get used to it. And they came together again in 2023. coinc coincidentally around the time when we were having a hard time sustaining support for Ukraine after that massive reinvasion and they talked about how they're seeing changes as Xiinping Vladimir you know we're seeing changes like we haven't seen uh in a hundred years and you and I are driving driving them you know and Vladimir is like damn straight Xinping we are you know and um and and and then of course what you get is Ayatollah Ham sitting in tran he's like looking at his to-do list well I've got this thing you know uh you destroy Israel and kill all the Jews. Uh maybe now it's time to do that. And so he was able to assemble relatively unfettered the the uh the ring of fire around Israel. And he lit that ring of fire on October 7, 2023. So So now what? I'm more optimistic than Maurice because I think this axis of aggressors based on this perception of weakness are all overextended. I think Maduro got a little bit out over his skis, right, when he started pulling in all the cartels and thinking, "Hey, United States isn't going to do anything to me." I think I think uh I think uh Russia, you know, got a little bit ahead of themselves uh in the one week offensive in in UK in Ukraine as they packed their dress uniforms uh in their armored vehicles for the parade in Kev. Uh I would say that that Ayatollah Ham really blew it, you know, um not only for his own, you know, life, uh but but what happened to his country after lighting that ring of fire and after Israel did everything we told him not to do, frankly, um and uh and kicked the kick the stool out from under Assad uh decapitated and decimated Hezbollah. And then with the direct attacks on Israel in 2024 in April and October, um uh they they really made another big mistake and invited, you know, they wreap the whirlwind for that with the 12-day campaign, Operation Midnight Hammer, and now the sustained campaign against Iran. It's clear obviously from what's going on and we'll probably talk a little more about this J Julian is like is is that the the importance of integrating economics with military power with diplomacy integrating all elements of national power and efforts of like-minded partners to advance our objectives and I think if we can do this effectively if we can take a geoeconomic geopolitical approach that is fundamentally sound at this moment we can help bring our free and open societies and free market economies into a greater degree of cooperation. It'd be nice to stop, you know, the gratuitous insults, you know, and threatens to threatening to invade Greenland, you know, take over the Panrock. I mean, uh, and and the Canadians, why are we picking on Canadians? Come on. So, we we should stop that. And and then, uh, what we can do is, I think, reap the tremendous benefits of of our free market economies because I do see big vulnerabilities in each of these authoritarian regimes. We know that the Russian economy is in a shambles, right? o over a million dead and and seriously wounded and China I mean if that's the model how are they doing I mean I think in the race to surpass us they have created real vulnerabilities in their economy so if we can come together I think if we can prevail which I would say a fundamental change in the nature of the Iranian government such that it ceases its permanent hostility you know to the great Satan you know the cancerous boil Israel and their Arab neighbors then we could see a very significant geopolitical and geoeconomic shift in favor of the free world, in favor of our free market economies. How much influence will China and Russia have left in the Middle East after that happens? Zero. Because their main argument was you need us because the US is unreliable as a guarante of your defense and you need us as a check on Iranian aggression. So, so, so, uh, so that was I think the main the main reason.

Okay. So, what do we do about it? Just quickly, I have five eyes. uh because we have to recognize as Connie pointed out that China's status mercantilist model has been weaponized against us. The first is to insulate our own economies, our free market economies from Chinese economic aggression. And what I mean by that is really the the campaign of of uh trying to get you know exclusive grip on on critical supply chains and use those for coercive purposes as well as having so much of the world's manufacturing artificially you know concentrated on the southeastern coast of China. um as well as a whole range of other uh of other uh unfair trade and economic practices including including espionage and so forth. Um and so we we have to employ tools of economic statecraftraft to do that. We worked on a paper on that. Matteo advised us and you know made sure that the washed up general didn't put anything really stupid in the paper. Um but but you know we have we have to be able to apply those tools and and as Moraurice is alluding to how about like in a sensible manner you know uh that would be nice and maybe semicconsistent even. Okay. Okay. So I won't go there. So the second the I is incentivize. We have to incentivize investments. Mobilize capital um such that we can we can not only you know reduce our vulnerability to to economic coercion but sustain and grow our competitive advantages in areas that are particularly important right AI the energy security associated with with with AI for example. Condandy mentioned these sectors you know quantum and all the areas you know that are really critical and competitive for security and for prosperity. The third is is I I just put immigration in here but it's really human capital.

We should have access to the best minds in the world right people aren't immigrating to China. That's our biggest creative competitive advantage you know. So let's stop getting in our own way about that. uh work on education, work on developing our workforce, which we have to do from a vocational training perspective, you know, for I mean, heck, the you know, the chip factories in Arizona and Texas and and Ohio and so forth, but human capital and and and immigration is part of that. The fourth eye, integrate integrate geopolitics into all decision-making, public and private. I mean, I think if you're on a board, I think if you're in, you know, in a seauite in in a company or if you're looking at in at investments, you should take you should take a hypocratic oath. Do no hurt or harm in three areas. Don't help the Chinese Communist Party develop the weapons that they might use to kill your kids and grandkids. One, these are investments in companies like for Paradigm, which we put which we invested in now does all the battlefield cyber tools for the people's liberation army. Uh this the second would be you know don't help them extinguish human freedom. Um investments in hickvision and sense time come to mind. Some people got some great returns. Hey, you know, congratulations. Um I I personally think genocide cultural genocide should be like an ESG issue. The third would be you know don't help don't jeopardize the long-term the long-term uh viability of your company in term in in exchange for short-term gains. Right? How many companies go through this? You know, hey, the promise of access to the Chinese market, cheap manufacturing, then what do they do? They steal your IP, they pick a Chinese winner, they subsidize that winner, they shut you down out of their market, they produce the goods at artificially low prices, dump them on the international market, and run you out of business. Doesn't sound like a sound way to do business for me. Any anyway, just watch the last eye.

The last why internationalizes point. Let's let's takes all hands on deck across the free world. Free market economies. Sorry, that's it.

Then I get carried away a little bit.

That's a pretty punchy pretty punchy general. I hope that's your next book is all I can say and it gives a whole new meaning to the concept of five eyes. Just very briefly before I do as someone who I did my own PhD in Soviet Tajikistan when it was still Soviet Tajikistan lived there for a number of years. So I'm sort of both deep I was deeply immersed both in the Russian speaking world and the Persian world speaking world. Um, I'm just curious yes they are overextended. Many people might say America's overextended right now. What would you say to that?

Well, I would, you know,

Well, I can see that.

I would say talk to the Hoover. It's

Not even close, right? It's not even close. uh the breadth and depth and capacity of the United States to continue to innovate, the ability of the private sector to do that, the abundance that the United States enjoys in energy for instance, particularly if we could stop being mad at the Canadians. Uh and a democratic society that for all of its problems still produces the best and the brightest in the world is not Vladimir Putin's Russia. And I spent a lot of time with Vladimir Putin. I spent a lot of time in Vladimir Putin's Russia.

This has become a war economy that has nothing going for it but discounted oil and arms manufacturing. And the smartest people left Russia in the first few days of that war. So not not even close. Uh I might just say to the overextension, please do by the way. I thought I thought he tossed that question out to provoke you both. Anyway, to the point to the overextension issue, while Vladimir Putin has been chasing the Donbass, he has watched Syria go down and his friend Bashar al-Assad is in exile and his bases are gone. He has watched his friend Maduro go to an American prison and the Cubans have been kicked out of Venezuela and the Cubans are trying to make a deal with the Trump administration and Iran. We can go there later. So, um I think while Vladimir Putin has been trying to recreate the Russian Empire, uh a few things have been happening to Russia's geostrategic um claim to be a great power.

Absolutely. Let's turn to economics. No pressure, Matio. Um, and then we'll come back to these questions in a moment. I'm sure we're going to have questions about Iran, but um how do you frame it right now? And can I ask a much a question which you may be touching on which is that if you believe as Mory said that the period from 1990 through to let's say 2007 was the aberration not the norm much of the modern economics profession has developed its vision of what economics is in that period and all these gloriously wonderful models that we've been all trained to use which assumed that economics was a self-contained closed thing that you could actually model by using the tools of physics and math because it was so consistent and unpolluted by real world events. Um, all of those tools were developed really in that period when you had a collision of free market thinking with technological innovation that put the ability to compute things into everyone's pocket for the first time. Do we need to radically rethink economics today?

That's a great question. So I mean first I very much agree with Mari that if you look at the long arc of history uh the period that I grew up in is definitely you know a very special period. uh it's not the absence of these issues. It's a particular incarnation of these issues where the US leadership very much as Secretary Rice pointed out decided to offer a deal of the rest of the world which was come and work with us, integrate with us. Uh we will not bully you. We will not use it shortterm for gains. You can trust us and integrate. These issues are now you know on the table like the WTO was part of this. The IMF that Mi was in the leadership of was part of this. uh that period was pretty special and it's not the typical deal that a winning power offers. Now in parti was offered in the absence of an economic competitor precisely because Russia was so decoupled economically from the rest of the world. You could do export controls on a few materials like Kong. You had to worry about them militarily but you hadn't you didn't have to worry about the economics. With China is very different. We now have a competitor that is incredibly intertwined with the US and right or wrongly we're revising these issues. Now I'm going to get to the economics profession but uh you know one way to think about this is the last time that economist thought incredibly deeply about this it was a very depressing time. So if you think you're going we're going back it's not good news. So the tote leader on this was Albert Hershman who is a a you know young uh Jew German Jew who escaped into southern France when Pettis was occupied by the Nazis. By the way helped some of the best intellectuals like Mashagal and Rand immigrate to the US then left arrive at Berkeley and wrote what is considered probably the best book on this uh to this to this time. Now the book was about Nazi Germany weaponizing his economy in the leadup to World War II. So if you think that that's the last time we had to think about it hard, that's not good news for all of us. Um we are thinking about this hard again uh and I would argue that uh the tools that we develop in economics in the last 50 years are actually incredibly useful for thinking about this because we can adapt them and we can think in new ways of how to incorporate dependency. Let me make an obvious case. So when I teach uh MBAs here or undergraduates, the typical case for uh free trade is good is you and I me and secretary I specialize in different things. We both get very good at what we do and then we trade with each other. But hidden in that argument, each one of us is not good at the thing that we didn't specialize on. And if we can hold each other up, then we have no alternative. So what you're seeing right now is a rethink of the same argument that we put forward to the gains of globalization and thinking maybe we want to trace it back a little bit in some circumstances. We want to be more reliant on the domestic economy or on a friend economy and scale it up. And I I would you know I think part of the point of having this public events is not just to complain about how bad the world is and just get miserable that we all do when we open the news in the morning. uh it's just to start thinking about what can we do to make it better. How do we have to think about these issues? And so I'm going to start with two problems and then I'll get into things that I I feel strongly uh even if they're they might sound somewhat naive right now given the political atmosphere. I think it's you know it belongs to all of us to move this conversation forward. So think about two sectors. Think about finance. So my mention on this from thinking about Hamilton and saying look a lot of what we're doing about the basic dominance of the US it's just terrible. So the US has one enormously strategic asset. We dominate the basic financial infrastructure worldwide. If you get disconnected by basic financial services in that the US controls like correspondent banks to make payments across the world uh custody to maintain the assets that's a very serious issue for you. Right now there is very little alternative. So you would think this would be on the desk of the president as the number one asset that we have to innovate. It's also a time when the technology is changing. All of you are probably sent a wire around the world. That's a technology from the 1970s. It's just not fit for purpose. So you would think that this would be an enormous conversation. Uh it isn't. Instead, what are we doing? Well, first of all, we're abusing our allies uh that control part of the system like the Europeans. So, Zift, which sends most of the messages worldwide, is a Belgian cooperative. Uh, Luxembourg does most of the custody of the assets, including the Russian reserves together with Belgium. So, we're depleting the the capital that we need from our allies. And at the same time, for very transactional reasons, rather than innovating on a public good, which is the US infrastructure, we're monetizing with stable coins or crypto, which makes no sense at all. I mean it makes sense if you're thinking about lining your pockets but it makes no sense if you're thinking about the future of the country. Uh so that's one example. I'll make another which are tariffs. So you know think about the blanket tariffs that we've done like HR said we need to decouple in some areas from China. Yes those are few and far between. There are few strategic sectors that hopefully economists can all like most trade is totally beneficial and we should be fine with it. Instead we're doing blanket tariffs on our allies. We're trying to bully Canada, Europe, uh, Mexico. Those are the countries that you want in your alliance that you want to have as close as possible to you when you need them to exert power abroad or to defend. So they make no sense. They also, you know, to the objectives are to decrease the trade deficit. Now, Mari is the world academic leader in thinking about current account dynamics. Um I was his student and I didn't learn much but I did learn that tis do not close the current account deficit that I passed that exam. Um it just doesn't work. Um if you think about using taris for negotiations again it goes back to the issue of size. The US economy is big. It's not that big. So sitting down there you have Steve reading is the world leader in thinking about the pass through or cost of tariffs. Who pays them? Is there any evidence that the foreigners are capping prices? Again, I'm not going to put words in his mouth, but my reading of that work is it's actually surprising how little the foreigners cut prices when we put tariffs. We end up paying them. We can debate whether we the US retailers pay them or the US consumer pay them, but there is not a lot of evidence that the foreigners are in a rush to cut prices. So, what are you doing? You're annoying everybody for transactional reasons. Uh, and particularly your closest lies. So, let me go back to the positive side. So, what should we be doing? Well, the first thing you need to realize is that, you know, the old world order is like being a teenager. Everybody is trying to get out of those years very, very fast until you're old and you think, "Oh, god, that was good." That's what we're learning. We want to go back to that thing. And how do we put it back together? Well, this is permanent. I mean, like the Mark Carney speech should lovers, it's not an accident. Look, the US leadership has lost credibility like never before. If you're a European leader right now, you're thinking, great, even if I get a very sensible next US leadership, I'm going to worry about the next election after that. And if I'm making long-term investments, I have to worry about a repeat of this. Once you break it, it's going to be hard to put together. Now, there's a lot of goodwill and and ways to do it, but you have to go back to thinking that restraint, uh, it's a huge source of strength. You want to punish a few actors very, very severely when it's time. If you're invading Ukraine, we want to be able to punish you. We want all of our lives allies to come in. That means never use it for certain gains. Never use it against people that have done nothing. Never use it for purely commercial gains. If we don't go back to that restraint, it's going to be very very difficult to even use it when we should. Uh so I think the importance of all it's it's really understated. Um and I totally agree on the frustration. Look, I'm European. The last time we were good at this was the Medishi bank. So it's been two years. Um but um but you know Europe for all this laziness, for all these things um looks pretty sane.

Um at least for now and I I think you know nice proddding of you have to do better, you have to lower some barriers, you have to spend more on defense. I think that that makes a ton of sense to me. The last thing I would say is um in restraint now seems naive given the political uh situation we're in but it can be built but the politicians reflect in some sense the nation. This isn't something that some politician is going to unilaterally think I'm going to do it. We have to go back to thinking of the value of reputation the value of doing the right thing as being a national characteristic. And that isn't something that is going to happen without these public conversations. And maybe they only move the balance on epsilon, but that epsilon is pretty valuable, right? And we just have to build from this.

What's an epsilon?

It's a weird term that the economics tribe uses which no one else understands.

Which what you're suggesting is it's a good thing I never learned all that economics because now I don't need it anymore.

Thank you. Well, we're close to where, you know, life amongst the econom was written close to here and um it's captures the tribalism of a lot of the economics profession which I suspect is going to be forced to be broken down in the coming years. But just before we go to questions, I'd like to ask you, Secretary Rice and Mury as well. We had from HR McMaster, a fabulous fivepart plan, battle plan, may I say it, around the five eyes, um for what needs to be done. Do you have two or three points that you would want to highlight in terms of positive action steps we just heard um from Matthew as well if you were in office right now?

One is I I just want to underscore the immigration point uh that uh because having access to the best and best and brightest in the world is one of America's greatest strengths. People are not lining up to immigrate to China. They just aren't. Uh, I I want to say that um I think that this cannot be a oneway conversation. Um, with all due respect to the Europeans, they've got to come this way, too. Um, I know it's been rough and like I didn't like the ter the language about Denmark and so forth and so on, but Matteo, we tried the nice please pay your fair share, right? I was one of those secretaries who went to Brussels and said please pay the 2%. And she's super nice.

And I was super nice about it.

You mean you didn't, didn't you? You didn't threaten to invade Greenland.

No. No. But I what we wouldn't have thought in my talking points was we won't defend you.

If you don't pay your 2%. That wouldn't have been my talking points. But the combination of some pretty tough talk with the Europeans and Mr. Putin did get their attention. So, it's not as if for years the more multilateralist we love allies, we're trying to work with allies was always successful.

And I'm going to tell you one thing about uh the you know sometimes the United States has believed there are bad guys out there and we have to try to take care of it. And uh saying this is not our war is not good language. You can say a lot about well you know we don't like the way you did this. You could have consulted. we'll we'll try to help, but this is not our war. It's not resonating well when Americans are in danger, and it's not resonating well with the Gulf Arabs who are being pounded by the Iranians. And so, uh, I I love our European allies. I think I'm known as a transatlanticist, but I do think this has to come the other way, too. And, uh, it's going there there has been some damage done.

>> I take your point >> from the alliance. Do you think NAT will NATO survive?

>> Oh, I think NATO will survive. Uh we're going to have to rethink how NATO works. It's it's high time. What is the redistribution of responsibility? We have two new members in Finland and Sweden who have real uh capability. Uh the Arctic uh which we should have all worried about more. I frankly didn't think I worried about enough as as uh secretary.

>> Uh with those two countries and the Baltic states, we have a different way to think about the Arctic. So what I would try to do if you asked what would I try to do? I would try to get through the unpleasantness that we've had in the last uh few weeks here and I would say let's have a vision for what the transatlantic relationship is going to look like under very different conditions. Uh what are the new assets that we have including Finland and Sweden, including a Ukraine that whatever happens is going to have the second largest land army in Europe and a very capable battleh hardened army and very capable defenses and innovation in the defense sector. Uh even if they're never a member of NATO, their integration now into the way that we train into intelligence and the like, we have some new assets. Let's let's now look out there and say how would we like the future to look because I think the present is not serving us very well. And I would say I think the Europeans need to rethink how they're talking about this war.

>> Well, thank you. Well, someone who's both American and British, I'm all into trying to get a better transatlantic relationship. Um, and of course, Ukraine, since we're sitting in Silicon Valley, Ukraine is also sitting on the biggest training set anywhere for training that generation of AI enabled drones, which is very important.

>> Mory, two minutes or one minute to quickly tell us what you do on the financial side before we go to questions. And I know we're running a bit behind. Well, you know, on the on the financial side, I would I would try to get the budget under control and stop the attacks on the Fed, which are really um uh you know, easier

>> good ideas all around.

>> Certainly, the budget is easier said than done. Uh you know, I think there there also needs to be attention to maintaining financial cooperation with the Europeans. This is an area where cooperation has grown up organically since the early 1970s. It's been very fruitful and I worry that the kind of stable coin imperialism we're seeing from the US is something that could get out of control. I agree with Mateo there. So I think there needs to be a cooperative discussion about that. I mean I do agree that Europeans have to do their part and they have to uh have a rapromong with the US at some point. I just don't see it happening with this administration. I don't think think it's it's going to happen. But I think they should definitely be open to it and maybe even planning for it.

>> Maybe they can have their peace summit um in Greenland.

>> Um not a bad idea by the way. Exactly. I'd rather Greenland is lovely.

>> But can I just tell you when I had a conversation with some Europeans about the Denmark about the uh Greenland situation and I said, you know, yes, we should have been investing in Greenland. The bases are a mess. We could do that. They said, oh yes, you should do that. And I said, ' And then the economic benefits. And they said, 'Well, we'll have to spread those across Europe.

>> Not the right answer. Again, you do the security and we'll reap the benefits. Uh our language has got to change about responsibility in the alliance. Yes. Right. So, any questions from the audience? Um we do have microphones and I believe Do you want them to come up to the microphones or not?

>> Sure.

>> Okay. If you can go to the microphones. Um, it would be courteous but not compulsory to introduce yourself very briefly, very briefly. And please keep your question extremely short because we are really quite short on time as well. So why don't you start?

>> Sure. My name is Dustin. I'm a first year MBA student. Jillian, we actually met at the uh Aspen Ideas Festival. I'm holding a hospital in Ukraine.

>> Um, my question is first of all, thank you guys all for being here. My question is principally for you uh General McMaster and you Secretary Rice. As someone who cares deeply about the international world order and the US's position in the world, I resonate a lot with what you say about the importance of strength and the the embarrassment that was the US withdrawal from Afghanistan and any sort of premature rupture of our engagement in Iran would risk a similar type of dynamic. But the big strategic competitor is China and there is some dynamic where I think it would I think you guys know a lot more than me it would be a mistake to allow for the next decade this to consume our attention. How do you think about the balance between the need to engage the need to finish the job but the need to not overextend yourself in such a way that you win the battle and lose the war?

>> I think that's a polite way of saying if you were Secretary of War right now what on earth would you do?

>> Hey just just two quick points. First of all, I think the competition with China is global and so uh in terms of try China's efforts to create an exclusionary area of privacy in the Indoacific, but also to create new spheres of influence around the world. Uh Venezuela was the hub of competition for that in in in Latin America. Uh and I think you're seeing the nexus of that being around Iran and and the effect that the the Iran's really 47year long war against us and others in the region is principally Israel but their Gulf neighbors as well uh has has you know if that comes to an end that that cuts against China as I mentioned and then the second is really what we've been talking about our alliances you know and and how from a military perspective if that's what the kind of competition you're talking about for deployed capable US joint forces operating as part of capable alliances that that where countries invest in their own defense is the best way to prevent war. And of course, as we all know, it's a heck of a lot cheaper to prevent a war than to have to fight one. So, I would emphasize the role of of capable alliances um in as a response to your question as well.

>> Yeah, I would only say look when you're Secretary of State or Secretary of Defense of the United States, you often find yourself fighting on many fronts simultaneously. The idea that we can only do one thing at a time, I think, isn't reality. And so the the uh importance of making sure that Iran does not con does not believe or that others do not believe that it controls access to the straits of Harmuz is the most immediate problem and you have to solve that. I do not think that means that you lose sight of Taiwan for instance. And so I I think that you know when you're sitting in at that desk you might come in one day and the big ball on your desk says Russia. The next day the big ball might say Lebanon. And so we've always as a global power we have to be able to manage several things simultaneously.

>> Question.

>> Hello, I'm Nico Jan. I'm a second year in the business school and professor Rice John McMaster have corresponded over email and I'm looking forward to meeting with you guys soon. What I wanted to ask you guys primarily about was as business school students a lot of Sierra MBA program. How if we're going to careers in technology or corporations etc. and we have a desire to help in preserving the liberal international order. What can we do to help achieve that? If we're not having a career in political science or not having a career in the government, what can we do?

>> Well, I think you can buy HR McMaster's forthcoming book on the five eyes,

>> which I'm going to I'm going to pro him into writing no matter what.

>> That's a very good idea. Uh look, I think there has never been a more important link between the private sector and national security and the health of the country and the health of American power than at this moment. Uh all of the really important innovation is in the private sector. And so when you are in the private sector, realizing that you are actually a player in the international order, a player in national security, a an important element of that is for me very important. There's no more we just do business. we don't get involved in those issues of national security and the like. And I think even that recognition would lead you to ask different questions to perhaps come to different answers and to make sure that you stay engaged in those conversations as a private sector actor. Hey, I would just say quick just quickly, you know, don't wait for the political class to help reverse kind of the polarization and and uh and that that we're seeing not only in our society with allies and partners. And I think all of us can can convene people together for meaningful, respectful discussions about how we work together to build a better future. And as you if you're if you're become an entrepreneur out of this, is that what you're going for? I mean as as you lead your company uh or as you're part of a company leadership in the private sector we can all have a role in that you know and of course here at Stanford that's what the university does as well. So

>> question over there.

>> Yeah. Hi I'm Dhal. I'm a computer science alumni from Stanford. Uh the question I had was about uh the feelings and uh what people the backlash from the citizens of the country we go after like when we talk about Greenland when we talk about Canada what about the soft aspects of the citizens of that country uh they start feeling backlash and what are your thoughts on that? How

>> so how do we persuade the Canadians to like us again?

>> Well look I I I do think that in some of these cases and I think in some ways Canada is a more important example. Uh look, we have a long long-standing relationship with Canada. It's our closest trading partner. It's our closest partner in so many ways. Um and so yes, there needs to be some repair uh with that uh with that leadership, but also with the people. And I think um if I were doing this, by the way, I would not be so reliant on what the US government does. But it's a little bit to HR's point. It's business interactions, it's university interactions, it's student interactions. uh because it's very I used to be asked all the time what can Washington do what can the US government do to deal with our problems of popularity right I was asked that all the time and I would say you know great powers aren't always popular and so actually I thought public diplomacy was not really the United States was not that good at public diplomacy you know we all hearkened back to Voice of America and radio for Europe but that was a very different circumstance when you had a population that knew they were being lied to in the Soviet block and they were looking for alternative voices. That's not the way the world operates now. And so I did I'll just give you an example. I did sports diplomacy. Sent Michelle Quan to China. She was on the the the uh the cover of every magazine. I sent Cal Ripken uh to the Caribbean. He was on the cover of every magazine. So actually America in that sense is best represented by its citizenry and by the private sector not always by the US government because frankly great powers have to do some things that are really unpleasant and people don't like it and so if you want to be a great power that is popular good luck

>> course back in 1970s we had ping pong diplomacy didn't we? Um HR comment on that as well because um I've been told by Matio that we can go on for a few more minutes. Is that the case or we can for about two or three minutes? I'd like to get the last question quickly, but HR

>> I would just say, you know, I just say um you know, turn the negative into a positive. Connie's already alluded to this. If you care about Arctic security, if you care about invigorating our industrial base and applying new manufacturing techniques and and uh and and and tapping into the great promise of AI and and preventing wars, restoring peace. I mean we can all do we have to all do that together you know and and I think if you look at like the draggy report you know uh for example it kind of aligns with Trump's agenda when you think about what he wants to achieve sometimes the way he goes about it you know is self-defeating but he wants energy security he wants deregulation invigorate the industrial base he wants what he calls energy dominance it turns out hey energy security is pretty darn important right so I think turn the negative into positive I mean enough with the you know to quote you know uh oddball uh from the from the from uh a great movie about tanks uh Kelly's Heros you know enough with the negative waves Morardi you know can't you can't you have a righteous thought for a change you know so

>> thank you one thing could I just say one other thing I should have made the following point though uh look when I was secretary of state I would go into a room with the American military on one shoulder and the American economy on the other right the idea that you can conduct diplomacy just because you have a lot of good words not true but I also did have something going for you which was this hand of compassion. Uh the United States has long been the largest provider of food aid in the world. We provided food aid to the North Koreans and to the uh Taliban because no president would use food as a weapon. The United States uh we were very grateful to the president's emergency plan for AIDS relief. We saved 25 million lives. We always spoke for the voiceless whether it was uh the religious objector uh in uh in China or the political prisoner in Cuba. And so there is that side of America as a great power uh that I think we're not spending enough time these days uh expressing. And um I'll say something about Secretary Marco Rubio. He's doing a a really good job. This was at one point his agenda. I would like to hear him speak more about that piece of it.

>> Thank you very much.

>> Well, thank you. I don't know whether we're working with our timekeeping to Italian timekeeping or military time keeping.

>> We are technically over. Can we take one more question or do you want to put one out there?

>> Yeah, we got one. Okay. Very quickly, we'll go Italian at this point. Okay.

>> Sure. Uh I'm Gorang Banani, an MBA student from India. I studied political science in Abu Dhabi. And my question was about how uh there are scholars like John Mirshimer and Jeffrey Saxs who argue that the Russian invasion of Ukraine can be traced back to NATO's eastward expansion.

>> So how would you sort of come to

>> I will I will answer that.

>> Hey this is going to be great by the way. All right.

>> But I I love those guys. I knew them. We were young young u arms controllers together. Right. But this is reading Vladimir Putin's talking points.

>> Yes,

>> this is post hawk uh rationalization for what he has done. I spoke to Vladimir Putin a lot in eight years. He kind of liked me as I was a Russianist. We chat in Russian on the side. Not once did he mention NATO expansion to me or to George W. Bush. Do you think if he'd been really worried about NATO expansion, he might have found an opportunity to do that? The only time that it came up was if we wanted to put missile uh defense systems in Romania and uh in uh the Czech Republic and in Poland. That's the only time it came up. But uh when I hear this, I just think, you know, I guess Vladimir Putin just didn't care enough to mention it in eight years, but all of a sudden it's important to him.

>> And I say that's a brilliant answer. I'd also add to that as someone who feels strongly about this. When Finland joined NATO, Vladimir Putin actually scaled down the forces on the border, didn't raise them, which tells you everything you need to know. And Finland is a lot closer to Moscow than Ukraine. So, I strongly agree with that. But anyway, we sat are sadly out of time now. Three things I've taken away from this panel which been phenomenal. One, what we're seeing today in terms of the rise of geoeconomics and geo finance is not a blip and it can't just be attributed to Donald Trump. It's been building for a long time and will not vanish again soon. Two, governments of all stripes are groping desperately to work out how to reformulate their ideas and policies for this new age. Um, yes, America's driving a lot of it, but American policy is certainly not perfect to put it mildly right now on that front. We've heard lots of criticisms, but for Europe and others, there is going to be a need to be a really serious rethink of how they imagine the world going forward. Three, for anyone studying business or economics, you need to rip up a lot of what you were taught on your CFA courses in the last 20 or 30 years and recognize that we are in a new world where we have to really learn that political risk is not something that just affects emerging market assets as we used to think. It is now the new reality in a wider sense. And last but not least, I look forward to the peace summit in Greenland chaired by Secretary Rice. Thank you very much indeed.