Transcription
Keeping a country of 1.4 billion together every day is a massive challenge, which is why for most of Chinese history China has more often been divided than united. So, the periods like what China has experienced in the last 30 years with the strong central government delivering phenomenal improvement in living standards to its people is very rare in Chinese history. Yes.
And so, if you compare the record in governance of the Chinese Communist Party, especially after Deng Xiaoping launched his four modernizations uh 40 years ago in uh 1979 it's quite amazing what China has accomplished. And if if the United States was serious about taking on China, it should cut its defense budget into half, but that's impossible. And in that so, it's like the old Soviet Union that also couldn't cut its defense budget uh into half. Yeah, so so in that sense the the United States hasn't thought very hard and very deep about how different this contest uh with with China is. Whereas by contrast the Chinese are quite happy. They they're growing their defense budget by at fixed percentage of their GNP and not increasing it. And the Chinese are very happy that America has 13 aircraft carrier fleets because each aircraft carrier fleet is draining millions of dollars away from the US Treasury every day.
"What inspired you to write this book?"
"Well, I you know, um I see a great tragedy coming. And it's a completely unnecessary tragedy. This coming geopolitical contest between the United States and China. And the basic message of my book is a very simple one. Which is that a geopolitical contest between the United States and China is both inevitable and avoidable. So, I try to explain in the main part of my book why it's inevitable and why also the United States should really think very hard and deep before it plunges into this geopolitical contest with China."
"So, where where did the pressure mount that put us on this inevitable trajectory which is so dangerous?"
"I I it's a Speak to both American and Chinese contributions."
"Well, I think uh it's clear that uh both sides have made strategic mistakes that in some ways led to the eruption of this geopolitical contest. But in a in a more fundamental way, the geopolitical contest was actually in some ways inevitable because the history teaches us as a sort of 2,000-year logic which to some extent Graham Allison has captured in his book Destined for War, that whenever the world's number one emerging power, which today is China, is about to overtake the world's number one power, which today is the United States, that inevitably the geopolitical contest breaks out, and then both get locked into a kind of a struggle. But of course the the other question is, what sort of triggered it now? And the trigger was caused by strategic mistakes made by both China and the United States. Uh in the case of China, what I tried to document in the book is that there was for a long time a very powerful constituency uh in the United States, the American business community, that was so engaged with China, uh making lots of profits from China, and therefore that constituency always applied the brakes whenever the United States seemed to be heading towards a struggle against China. But what's interesting"
"They used to have these uh Treasury reports, and were they a currency manipulator?"
"Yeah, that's right. And they always stopped short of declaring them."
"Exactly. You're absolutely right, and that actually is a demonstration of the point I'm going to make. And what happened was that this time around when Donald Trump launched his trade war, uh the logical thing should have been for the American business community to say, "Stop. We have a lot of stake with China." Instead, they just stepped aside and allowed the trade war to carry on against China. So that was China's big strategic mistake. But as I tried to document in the book, the mistake made by the United States was in many ways much bigger. And it was a bigger mistake because the United States decided to launch a major geopolitical contest against China without first working out a comprehensive long-term strategy on how you deal with a country that has a got a population that's four times bigger. And the United States is only 250 years old. That's only 250 years old. China's been around 2,200 years. And And what is shocking is that no thought was given to this at all. And this insight was given to me actually, as I document in the book, by Henry Kissinger. In a kind of one-on-one lunch I had with him at his club. And so that that thought led me to investigate further about what are the potential other mistakes the United States is making in proceeding with this geopolitical contest. So the goal of my book is actually to help United States, help Americans to think very hard and very deep before they take on an assignment which future historians will marvel at that they just jumped in two feet first without thinking, "Hey, what am I getting myself into?""
"Well, I sense inside of American political economy there's almost a state page from the playbook of Bismarck. If you can't solve your problems inside, look outward and pick an enemy to unify your people. And the problems which you cite very eloquently in the book of more than half the population having a declining standard of living since 1989 is really quite quite daunting and quite distressing."
"Yes, you see what I what I what I tried to point out in the book is that the there are lots of misconceptions that Americans have about their own strengths and about China's weaknesses, you know. So, for example, it is taken as a given, right? It's like ideological certainty that when a thriving democracy takes on a geopolitical struggle against a communist party system, the thriving democracy will always win as it demonstrated in the First World War against the Soviet Union. But then if you dig deeper and you try to understand what is the core situation of American society today and the core situation of Chinese society, you discover that the United States is actually having to deal with some major structural challenges. And one of the key structural challenges is that the average income of the bottom 50% yes, 50% of the American population has been sliding down over a 30-year period. And as I tried to analyze in the book, this is not just an accident. This is a result of deep structural forces in American society that have moved America away from being a thriving democracy towards becoming a plutocracy. And by contrast, China in the 30-year period where the average income of the bottom 50% in America has been sliding down. This in the same 30-year period, the bottom 50% in China have had their best 30 years in 3,000 years. So, at a time when the Chinese people are experiencing the most amazing improvements in their standard of living, you must remember also for most of Chinese history, the bottom 50% struggled to survive. They would die in famines and civil wars and they had a very rough life. And the last 30 years, they have access to education, housing, health care, travel in a way they never ever had before in their lives. So, after China has gone through the best 30-year period ever under the Chinese Communist Party, the United States is telling the Chinese people, "Why don't you get rid of the Chinese Communist Party?" And the Chinese people are scratching their head and say, "Excuse me, uh you know, I've had the best 30 years. And the Chinese Communist Party is succeeding because while in theory it is still a Communist Party, it is a Communist Party that is the exact opposite of the Soviet Communist Party because the Soviet Communist Party was run by all apparatchiks. The Chinese Communist Party may possibly be the most meritocratic political party in the world. And the selection process results in the best minds running China today. You met some of them. Real life experience. You know, you know Wang Qishan. You know, you know, you know how brilliant these people are. Yeah. Right? So, by by going into this old ideological reflex and saying, "Hey, democracies can always overcome communist parties." The United States hasn't done a deeper analysis and realized that this is not a contest within a democracy and a communist party system. It's a contest within a plutocracy and a meritocracy."
"You You talked about it being a party of representation. How that is maintained, whether that is stable is still true for the last 30 years."
"Yes. You see the um At the end of the day, running China, keeping a country of 1.4 billion together every day is a massive challenge. Which is why for most of Chinese history, China has more often been divided than united. So, the periods like what China's experienced the last 30 years with a strong central government delivering phenomenal improvement in living standards of its people is very rare in Chinese history. Yes. And so, if you compare the record in governance of the Chinese Communist Party, especially after Deng Xiaoping launches four modernizations uh 40 years ago in uh 1979, it's quite amazing what China has accomplished. And the Chinese must always measure the record of their governance not against what other countries have achieved, but what has been achieved in Chinese history. And no Chinese government in ever in Chinese history has improved the living standards of the Chinese people as much as the Chinese Communist Party has. And And you're right. I called it the uh Chinese civilization party because the main goal of the Chinese Communist Party is not to promote or to export Communist ideology. The main goal of the Chinese Communist Party is to revive Chinese civilization and bring it back to the to the standing and respect that it used to enjoy in the world for over 2,000 years. And And And the key driving force in the Chinese mind, which I think every American should be aware of is that the Chinese are acutely aware that they went through something like maybe 150 years of national humiliation starting from the Opium War of 1842. Probably, you know, going up uh to the uh uh Japanese occupation and so on and so forth. So, they've gone through a lot of humiliation. And their desire therefore is to regain the respect that China used to enjoy. And it is somewhat sad that just at the moment when the Chinese people feel that, "Hey, we are now finally achieving something meaningful." That's the time when America decides to slap China. And so for them the the only thing they remember is, "You see, they're trying to humiliate us again.""
"And the scar tissue in the United States echoes of the Cold War vis-à-vis the US and China."
"That's right. And in your book, you do a very nice job of showing why the Chinese challenge is very different than the Soviet challenge in terms of weaponization and arms race, in terms of ideology. There just many aspects that you disaggregate."
"Yeah. Well, I think, you know, the the reason why I encourage Americans to think deeper is that if they look very carefully at the track record of what China is doing and what the Soviet Union is doing, right? It is actually quite shocking that in the geopolitical contest today between China and United States instead of China behaving like the Soviet Union it is the United States that's behaving like the Soviet Union because I explain in the book in one chapter, I ask, can America make U-turns? So, for example, the contest between United States and China will not take place in the military sphere. It'll be in a nuclear war between United States and China. There will not be a winner and a loser. There'll be a loser and loser. So, logically, it should be in the interest of the United States therefore to reduce its defense budget and take the money and invest in R&D because that's where the real contest is. But the United States cannot reduce its defense budget because no matter how brilliant a defense secretary you have, whether it's Ash Carter or General Mattis because the the the process of deciding where to spend money is locked in by the US Congress and allocations are made to each constituency by the congressman and therefore the defense budget is large, irrational and unnecessary. And if if the United States was serious about taking on China, it should cut its defense budget into half, but that's impossible. And in that so it's like the old Soviet Union that also couldn't cut its defense budget. Yeah, so so in that sense the the United States hasn't thought very hard and very deep about how different this contest with with China is. Whereas by contrast the Chinese are quite happy they they're growing their defense budget but at a fixed percentage of their GNP and not increasing it. And the Chinese are very happy that America has 13 aircraft carrier fleets. Cuz each aircraft carrier fleet is draining millions of dollars away from the US Treasury every day. And paradoxically in military terms an aircraft carrier today is a sitting duck. And as an American professor Tim Colton of Harvard told me it it just takes a hundred thousand dollar hypersonic missile to bring down a billion dollar aircraft carrier. So it doesn't make sense anymore. So clearly you need to have a fundamental strategic reboot in American thinking and I'm in that sense I'm trying to be helpful to America and say think very hard about what are the big changes you need to make."
"One of the things that haunt people who are talking about quote new economic thinking and technology is the interface between this rivalry between the US and China. Digital commerce platforms and cybersecurity. And the story goes, these are my friends at MIT again talking, that if you set up a digital platform, it aggregates a lot of information. Hackers are able to use virtual private networks and disguise their identity and their whereabouts. So, a hacker can be in Saskatchewan in Canada, hypothetically, pretend to be New York attacking Shanghai, or be in Armenia pretending to be Beijing attacking Washington D.C. I've talked to leaders in both countries, very high leaders. They recognize that given all the other tensions and rivalry and scar tissue from history and potential for misunderstanding, but they do not have a way to verify. Let's say you make an agreement, we both pledge our trust to abide by the cooperative behavior. With the success and the presence of disguised hackers, you can't verify whether that's the case. And people are struggling now to try to figure out how to overcome this because if you balkanize the internet and the trading systems, you're accelerating that polarization into competing systems."
"Yeah. know how to answer that, but I think it's a fantastic question to be explored."
"It is, you're absolutely right. And And this is where one of my key recommendations uh in the book is that if you want to find solution, there will be of course many challenges in the relations between United States and China, not just in cyber security, it'll be in law of the sea, maritime areas, and many many other areas. The best solution is to look for multilateral solutions. And in the area of cyber security and cyber warfare, it's good to agree on one common set of rules. I'll give you a simple example. You know, with nowadays with a good hacker can in theory unleash the waters of a dam. Right? And then can you imagine the thousands of people who will die when when the dams suddenly burst, right? So, why not agree on one set of multilateral set of rules? At least agree on the rules first. Of course, implementing it you're right will be a challenge, but agree. We will never attack a dam. We will never attack a hospital. We will never paralyze the electricity of a city. We will never assault things. So, you have at least common sets of areas where you agree, right? And of course, frankly, it would make perfect sense for American military to hack into a Chinese destroyer. Of course, that's fair game. Right? And then vice versa, too. So, that's fair game. But let's make sure you carve out areas and we say in these areas you don't do anything. But of course, the interesting exception to all this is and as you know, since you're a monetary person, I point out that the real Achilles' heel of the United States is the fact that the US dollar is the global reserve currency. And that, as you know, as French then finance minister Valéry Giscard d'Estaing said, is an exorbitant privilege. It enables Americans to live beyond their means. So, it's in America's national interest to preserve the US dollar as the global reserve currency. But by weaponizing it, the United States has created incentives for countries to move away from the US dollar. And it is conceivable for China to use blockchain technology to create not necessarily a new monetary system, but just a platform that enables countries to trade with each other without having to use the US dollar. And the minute the US dollar is no longer the dominant currency in global trade, it can still, of course, remain strong in the financial spheres, but once that critical part of the system where it's no longer essential for global trade disappears, it the US dollar becomes vulnerable. And if it is no longer a global reserve currency, then American standards of living will go down. And that's another example of where it is in the interests of United States and China to work together."
"Thank you for joining us."
"Thank you very much, Robert."