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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Thoughts Podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joe Wisenthal.

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Speaker 1: Joe.

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Speaker 2: Up until recently, very recently, I would say there are

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Speaker 2: or were two hypothetical blockades that kind of loomed large

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Speaker 2: in the minds of geopolitical strategists everywhere. And the first was,

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Speaker 2: of course, Iran blockading the Strait of War moves. That's

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Speaker 2: clearly not a hypothetical on anymore. It's actually happened. It's reality,

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Speaker 2: and we've been doing a lot of episodes about it.

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Speaker 2: And so the big hypothetical blockade that we're left with

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Speaker 2: to ponder is China potentially doing something with Taiwan.

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Speaker 3: Definitely, and you know, the only thing I would actually

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Speaker 3: flip them in the sense that I would say the

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Speaker 3: vast majority of discourse has been about the letter China

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Speaker 3: potentially blockading.

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Speaker 4: Taiwan in some way.

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Speaker 3: That was the thing that everyone has been talking about

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Speaker 3: for years and years with growing intensity. And then, of course,

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Speaker 3: as you mentioned now, the Hormuz situation, which sort of,

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Speaker 3: I don't know, hit people by their blind spot because

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Speaker 3: they didn't think it could ever really happen, or whatever

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Speaker 3: really happened has happened. But when this resolves, If this resolves,

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Speaker 3: et cetera, I believe the question of Taiwan will very

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Speaker 3: quickly return to the fore.

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Speaker 2: Oh absolutely, So, as you mentioned, it obviously hasn't happened yet,

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Speaker 2: but people have been writing and thinking about it for

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Speaker 2: years and years and years, and as you know, I

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Speaker 2: consider myself an expert on this topic, having once written

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Speaker 2: a paper in college saying that China was going to

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Speaker 2: invade Taiwan before the two thousand and eight Beijing Olympics,

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Speaker 2: and that obviously didn't happen.

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Speaker 3: Well, being wrong has never gotten in the way of

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Speaker 3: any pundit's career, that's right, so that I wouldn't worry

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Speaker 3: about that. That has never been an issue as long

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Speaker 3: it was as as well articulated and actually et cetera.

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Speaker 3: That you're fine.

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Speaker 2: It was written from a server closet while I was

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Speaker 2: in Beijing, so it had that going for it. But anyway,

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Speaker 2: my point is that this is something that's always sort

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Speaker 2: of looming in the background, and you always see headlines

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Speaker 2: kind of coming up that hint at China Taiwan tension.

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Speaker 2: So we actually had one this morning. We're recording on

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Speaker 2: April twenty. First, the headline is Taiwan's president canceled his

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Speaker 2: visit to Swatini. Do you know where that is? It's

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Speaker 2: a tiny, tiny place in Africa?

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Speaker 3: Did they record?

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Speaker 4: Did they like? You know?

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Speaker 3: It is interesting because there's a few countries still help

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Speaker 3: wholly out there that recognize that's right, Taipei is the

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Speaker 3: unified capital of China. Most of like a lot most

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Speaker 3: of switch. There's a few random ones out there that

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Speaker 3: are still like they don't recognize the mainland, et cetera.

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Speaker 3: So I'm always, you know, all little factoids here and there.

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Speaker 2: I didn't know that, But so Taiwan's president offices citing

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Speaker 2: air root issues. I'm doing air quotes for those who

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Speaker 2: can't see this video, and China pressure. So yeah, you

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Speaker 2: do get those kind of headlines every once in a while.

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Speaker 2: And then the one other thing I would say is like, okay,

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Speaker 2: the straight of horror moves the blockade. There clearly an

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Speaker 2: oil story, and oil is something that powers the entire

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Speaker 2: global economy. But as we've kind of learned over the

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Speaker 2: past six or seven weeks, oil might not actually be

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Speaker 2: the thing that like powers markets. Right if you think

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Speaker 2: about the true, true, the thing that matters for markets,

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Speaker 2: it might be something much closer to AI and semiconductor

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Speaker 2: evaluation is.

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Speaker 3: Cut right, Yes, totally. I mean, evidently the world could

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Speaker 3: go a few weeks and not grind to a halt

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Speaker 3: if the straight of horm moves is closed for a

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Speaker 3: few weeks, I believe the reaction in markets would be

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Speaker 3: and just all around the world, and really can everything

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Speaker 3: would be orders of magnitude differently off someone's like no chips,

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Speaker 3: no chips coming out. That would be such a bigger deal.

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Speaker 3: And of course you know the question of you know,

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Speaker 3: Taiwan's role in the world, that would already have been

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Speaker 3: a very big security question even prior to the now

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Speaker 3: constant drum beat obsession with AI chips, et cetera. But

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Speaker 3: it only magnifies why this is such a live issue.

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Speaker 2: Right, So apparently we can kind of survive a few

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Speaker 2: weeks without oil. Can we survive a few weeks without

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Speaker 2: we can survive a few months.

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Speaker 3: We can survive a few weeks without a fraction of

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Speaker 3: a certain fraction the didy whereas if we you know,

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Speaker 3: the chip flow were to be disrupted on that level

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Speaker 3: would just be Yes, much bigger deal.

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Speaker 2: All right, Well, we do, in fact have the perfect

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Speaker 2: guests to talk about all of this, someone who has

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Speaker 2: just written a book on exactly this topic called Defending Taiwan,

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Speaker 2: a Strategy to Prevent War with China. We're going to

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Speaker 2: be speaking with Ike Freiman. He is also a Hoover

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Speaker 2: Fellow at Stanford. So, Ike, thank you so much for

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Speaker 2: coming on.

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Speaker 4: All thoughts, thanks for having me on.

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Speaker 2: Here's my first ques. And you've spent a lot of

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Speaker 2: time in China, including researching this book. Are you going

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Speaker 2: to be able to go back?

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Speaker 5: I think I could go back. The question is whether

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Speaker 5: I could leave. I'm joking. I'm joking. They gave me

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Speaker 5: a hard time at immigration on the way out last time.

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Speaker 2: Oh interesting.

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Speaker 5: And I can't do useful research there anymore. It's not

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Speaker 5: like there's archives I can access, interviews.

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Speaker 4: I can do.

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Speaker 5: So the value of it for research is going down

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Speaker 5: for me, but also the risk of my person and

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Speaker 5: the risk.

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Speaker 4: Of my devices is going up.

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Speaker 5: I do try to engage as much as I can,

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Speaker 5: but I think it's better to engage in the third countries.

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Speaker 3: What do you tell us the genesis of this book

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Speaker 3: or the origin of it or how you got interested

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Speaker 3: in this particular topic.

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Speaker 5: Well, my background is as a China scholar looking at

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Speaker 5: the China's global investment campaign. My first book was about

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Speaker 5: the Belton Road and I looked at a bunch of

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Speaker 5: Chinese language sources that show how it works under the

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Speaker 5: hood as a campaign to mobilize the party state behind

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Speaker 5: Seson Ping, and then I went on the trail of

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Speaker 5: it to Sri Lanka, to Tanzania, Greece, Greenland. Actually I

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Speaker 5: did my PhD about China in Greenland trying to understand

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Speaker 5: how China leverages.

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Speaker 3: You did our PhD about China and Greenland. Yeah, oh

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Speaker 3: that is timely, and I keep going.

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Speaker 4: That'll be another book.

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Speaker 3: Yeah.

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Speaker 5: But what I learned in the process of doing this

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Speaker 5: book is that China has this formidable toolkit for blending

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Speaker 5: economic power with its geopolitical objectives. And Taiwan was clearly

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Speaker 5: emerging during COVID as the ai story was heating up

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Speaker 5: as this monumental issue in the structure of the world economy,

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Speaker 5: not just for the old reasons that we care about Taiwan,

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Speaker 5: which is largely about geography. So it seemed to me

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Speaker 5: reading about this, China had more ships, more planes, more missiles,

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Speaker 5: more drones. What was I missing? Why is the United

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Speaker 5: States not completely outmatched? So I started this project with

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Speaker 5: a friend of mine named Harry Halem, who's a superstar

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Speaker 5: naval historian, and I asked him, what's the book I

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Speaker 5: should read to underst what a US China war over

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Speaker 5: Taiwan would be, like, what it would take to win,

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Speaker 5: and then what of those things the US can do

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Speaker 5: or can't do? And he said, well, the book doesn't exist.

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Speaker 5: I can give you hundreds of articles, hundreds of people

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Speaker 5: to follow on Twitter, but no one thing to read.

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Speaker 5: And so began this collaboration between two historians, one focused

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Speaker 5: on the economics, one focused on the military, to.

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Speaker 4: Put the pieces together.

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Speaker 5: And as I did so, I began to discover there's

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Speaker 5: huge gaps in our knowledge of this problem. This is

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Speaker 5: the most complex, multidisciplinary, multifunctional foreign policy problem that American

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Speaker 5: statecraft is ever faced. Because it's a military problem, it's

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Speaker 5: also an industrial problem, it's a technology policy problem, it's

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Speaker 5: a diplomatic problem, a real one, complex one for how

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Speaker 5: we do with China, with Taiwan and with the rest

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Speaker 5: of the world. And then finally it's an economic problem.

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Speaker 5: It's a question of global economic order, because if Taiwan

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Speaker 5: falls by force or coercion and China seizes the FABS,

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Speaker 5: the semiconductor FABS, or the FABS are disabled or destroyed,

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Speaker 5: that is a hard reset of the entire global economic

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Speaker 5: system that we have had since nineteen eighty nine and

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Speaker 5: arguably back to nineteen forty five. So what comes next?

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Speaker 5: And while we have a lot of good thinking about

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Speaker 5: certain aspects of this scenario, like the wargaming of what

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Speaker 5: an amphibious campaign would look like and how we stop it,

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Speaker 5: there's other aspects, like the economic planning, that we just

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Speaker 5: haven't done.

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Speaker 4: So that was the idea for the book.

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Speaker 5: Pull together the best of existing knowledge, fill in the

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Speaker 5: gaps where we can, based on interviews, based on historical work,

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Speaker 5: Chinese language materials, and try to be the person to

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Speaker 5: put the pieces together.

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Speaker 2: I want to back way up for a second and

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Speaker 2: ask a very obvious question, which is why does China

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Speaker 2: actually care so much about Taiwan? And then is it

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Speaker 2: even accurate to say, like why does China care about Taiwan?

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Speaker 2: Should I be asking why does she himping care about Taiwan?

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Speaker 5: Those are the two right questions to ask, and it's

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Speaker 5: where we start with the book. The first thing to

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Speaker 5: understand is that it's not about the chips.

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Speaker 4: For China.

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Speaker 5: The chips are a co benefit. But China cared about

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Speaker 5: time I won long before they made hips, and they

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Speaker 5: would care about them if they didn't make chips. Taiwan

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Speaker 5: is the unfinished business of China's Civil War. In nineteen

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Speaker 5: forty nine, as the gwoman Dang Chang Kai Shek's government

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Speaker 5: was losing control of northern China, they began to evacuate

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Speaker 5: their forces alongside all the treasures of the Imperial Palace,

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Speaker 5: to Taipei, and they set up a government there, essentially

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Speaker 5: took over the island by force, and became, over the

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Speaker 5: course of the Korean War essentially a US ally. In

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Speaker 5: nineteen fifty five, Eisenhower went to Taipei. They became a

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Speaker 5: critical node in the US Alliance architecture. Mao obviously wanted

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Speaker 5: to take this island. He wanted to wipe out the

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Speaker 5: remnants of his enemy, and for him, the fact that

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Speaker 5: there was this other China right across the strait, which

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Speaker 5: at the time enjoyed the Chinese seat in the UN

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Speaker 5: Security Council, was recognized by most of the world as

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Speaker 5: the one true China. This was a fundamental question of

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Speaker 5: the legitimacy of the Chinese Communist Party, and so it

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Speaker 5: became this tootemic propaganda point. We will liberate Taiwan from

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Speaker 5: the imperialists, and in the process we will make China whole.

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Speaker 5: We will fix this historical wrong that we were separated

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Speaker 5: under this century of humiliation, and therefore for us to

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Speaker 5: be fully rejuvenated as a civilization, Taiwan has to be

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Speaker 5: brought to heal and the world must accept it's not

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Speaker 5: just about control over Taiwan. It's about political legitimacy. The

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Speaker 5: United Nations must accept. The United States must accept that

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Speaker 5: Taiwan is part of China, and there's only one China

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Speaker 5: in the world, and the Communist Party is the only

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Speaker 5: legitimate government. So this is why it's sensitive. It's not

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Speaker 5: just about the status of Taiwan. It's about what China means,

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Speaker 5: and that has always been bound up in competition with

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Speaker 5: the United States.

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Speaker 3: Prior to the KMT having fled the mainland of the

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Speaker 3: civil war and all that, what was understood to be

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Speaker 3: the status of that geography called Taiwan, and to what

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Speaker 3: degree going back even prior to the Civil War, etc.

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Speaker 3: What was its relationship to mainland China.

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Speaker 5: It depends how far back you want to go. Back

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Speaker 5: in the seventeenth century, the Dutch had a presence there

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Speaker 5: as the Ming Empire was falling apart. You had generals

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Speaker 5: who came from the mainland. They're claimed by both sides now.

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Speaker 5: A couple of them became gods actually, and there's temples

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Speaker 5: to them in Taiwan. And essentially during the Qing Dynasty,

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Speaker 5: China's final dynasty, they were a region of the province

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Speaker 5: across the strait on the mainland, but the Qing dynasty's.

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Speaker 4: Writ didn't really run there.

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Speaker 5: They were settled by people from the mainland, but it

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Speaker 5: was swampy and pestilential, and there were indigenous people, and

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Speaker 5: it wasn't really actively administered by the center. The Qing

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Speaker 5: pretty quickly lost control over the fringes of their empire,

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Speaker 5: and then the Japanese took it in the Sino Japanese

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Speaker 5: War in eighteen ninety five, and the Japanese developed it.

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Speaker 5: The Japanese industrialized, they left a mark on it, and

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Speaker 5: unlike other places that the Japanese colonized were like Korea,

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Speaker 5: where their colonization was brutal in Taiwan, they left relatively

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Speaker 5: good feelings. So all through the first half of the

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Speaker 5: twentieth century, when the communists and the nationalists were fighting

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Speaker 5: on the mainland, Taiwan was under Japanese control. And then

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Speaker 5: the question is after Japan surrendered in nineteen forty five,

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Speaker 5: who did they surrender it to? And was the status

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Speaker 5: of Taiwan decided after Japan's surrender, And the US position is,

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Speaker 5: legally it remains unresolved. It remains unresolved who Japan surrendered

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Speaker 5: it to. So the US position is we don't actually

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Speaker 5: take a view on what the true status of Taiwan is.

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Speaker 5: This is something for Taipei and Beijing to work out

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Speaker 5: between themselves, and we are open to any outcome, but

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Speaker 5: it has to be done peacefully, so no force and

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Speaker 5: no coercion. And since Taiwan's become a democracy, it has

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Speaker 5: to be democratically acceptable to the people of Taiwan. And

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Speaker 5: that's a principled position which is really about the stability

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Speaker 5: of the broader region because it recognizes that this region

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Speaker 5: has held together through trade routes that go through international waters,

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Speaker 5: international airspace. It's been stable since nineteen forty five. And

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Speaker 5: if the United States starts allowing borders to be changed

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Speaker 5: by force, trade routes to be changed by force, very quickly,

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Speaker 5: the whole regional order in.

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Speaker 4: This part of the world will collapse.

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Speaker 5: And this is a grave economic danger for the United

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Speaker 5: States as a geopolitical danger.

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Speaker 4: So that's the view.

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Speaker 5: And unfortunately, what China is doing is they're trying to

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Speaker 5: revise that situation by pushing in the gray zone, pushing

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Speaker 5: through coercion, and there's obviously always the risk they could

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Speaker 5: escalate to war.

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Speaker 2: I want to talk more about that, but just on

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Speaker 2: the topic of I guess US policy towards China, and

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Speaker 2: you already touched on the one China policy. But what

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Speaker 2: exactly is strategic ambiguity? Because whenever I hear that term,

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Speaker 2: I always think it's like, that's what I would do

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Speaker 2: if I was trying to get out of a social

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Speaker 2: commitment later that evening, or something like, oh maybe I'll

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Speaker 2: come maybe you know, we'll see, we'll see what happens.

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Speaker 2: What is exactly does that mean? And isn't it weird

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Speaker 2: that people recognize that as an actual policy strategic ambiguity?

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Speaker 2: What does it mean?

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Speaker 5: So the whole policy is sort of strange because it

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Speaker 5: was never put forward by one person. It emerged through accretion.

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Speaker 5: So it's like seeing one hundred bottles of beer on

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Speaker 5: the wall, like you keep adding a new lyric every

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Speaker 5: time there's a new administration. So what is the components

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Speaker 5: of the One China policy. Well, there's three communicates, three

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Speaker 5: agreements that the United States signed with China between the

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Speaker 5: seventies and the eighties, and those are the political foundation

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Speaker 5: of our relationship with the PRC. And the language is vague,

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Speaker 5: and there's some key phrases that are translated differently in

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Speaker 5: English and Chinese, so we get to claim that the

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Speaker 5: other side said things that the other side says it

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Speaker 5: doesn't say. There's a whole lot of that, But basically

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Speaker 5: the United States position is we will have a relationship

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Speaker 5: with the PRC.

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Speaker 4: We will treat.

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Speaker 5: Beijing as the sole legitimate government of China, but we

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Speaker 5: will maintain for all practical purposes an informal relationship with

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Speaker 5: Taiwan as if it were a country, just not technically

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Speaker 5: not de jury. And this has been reaffirmed by Congress,

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Speaker 5: which in nineteen seventy nine past the Taiwan Relations Act

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Speaker 5: that makes very clear that it's the sense of Congress.

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Speaker 4: So we should treat Taiwan as a.

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Speaker 5: State in basically every respect except for some of these formal,

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Speaker 5: very high end political and military interactions. And then in

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Speaker 5: the Reagan administration we made some extra commitments to Taiwan

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Speaker 5: called the Six Assurances, and they basically reduced to we

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Speaker 5: will not force you to the negotiating table, we will

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Speaker 5: not trade you away. In other words, you will never

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Speaker 5: face pressure from us to take a bad deal. And

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Speaker 5: what this policy adds up to has been called by

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Speaker 5: political scientists dual deterrence. We want to deter Taiwan from

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Speaker 5: declaring independence or doing something provocative that might trigger a crisis,

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Speaker 5: and we want to persuade Beijing that if it intervenes,

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Speaker 5: it might face the devastating real but that they don't

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Speaker 5: have to worry because Taiwan has also deterred, so they

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Speaker 5: can take their time, and hopefully if we deter both

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Speaker 5: sides from doing something extreme, we can encourage them to

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Speaker 5: resolve their differences peacefully. So that strategic ambiguity is the

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Speaker 5: not saying exactly what we would do or under what circumstances.

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Speaker 5: The tricky thing is that was a great policy when

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Speaker 5: we had overwhelming economic, technological, and military advantages.

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Speaker 4: That is no longer the case.

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Speaker 5: We probably could defeat China in a high end conventional war,

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Speaker 5: and we can go into why if we put sanctions

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Speaker 5: on China, we could probably cause a greater GDP hit

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Speaker 5: in China, And we can get into why. But the

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Speaker 5: cost to us and the risk to us as Americans

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Speaker 5: is just going up up up as the relative balance shifts,

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Speaker 5: and so now it increasingly seems like it's a get

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Speaker 5: out of jail free card, even if it isn't.

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Speaker 3: Quick question, I know basically nothing about taiwanis domestic politics.

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Speaker 4: Am I wrong?

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Speaker 1: Though?

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Speaker 3: I feel like I read somewhere it's like the KMT

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Speaker 3: the success they and they were the revolutionaries, aren't they

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Speaker 3: the more dubbish of the parties and relations with Beijing?

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Speaker 3: And don't aren't they the party that seems to be

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Speaker 3: a little bit softening of the stances of the future

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Speaker 3: and maybe, you know, uniting the two sides a little bit?

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Speaker 4: Am I wrong about? That's? How is that possible? It's

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Speaker 4: how nerdy do you want to get?

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Speaker 1: So?

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Speaker 4: Here's the thing I mentioned.

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Speaker 5: That the dispute is largely about what China means. Now

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Speaker 5: that question continues. The Gwomandong, the KMT, which is the

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Speaker 5: successor of Chang Kai Shek's party, they believe that there

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Speaker 5: are still the legitimate representatives.

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Speaker 4: Of the true China.

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Speaker 3: The entire thing.

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Speaker 5: Well, they recognize that there is a free China and

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Speaker 5: an un free China. And I think they've long since

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Speaker 5: given up their aspirations of raising an army and going

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Speaker 5: back across the straight and taken over the mainland. But

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Speaker 5: I think they have an aspiration that one day this

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Speaker 5: divided China can be unified, either in some kind of

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Speaker 5: confederation structure or who knows, maybe with the KMT on top.

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Speaker 5: And they identify culturally, historically, civilizationally as Chinese. They say,

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Speaker 5: we're Chinese, we just happen to live on Taiwan. But

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Speaker 5: we're one civilization, one nation. And the KMT's point of

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Speaker 5: view is that we one China, respective interpretations, and on

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Speaker 5: that basis, Beijing is willing to talk to them because

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Speaker 5: they disagree about one China means what one China means.

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Speaker 5: But they both believe in principle that there is only

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Speaker 5: one China and the world and Taiwan's part of it.

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Speaker 5: But the current ruling party in Taiwan, the Democratic Progressive

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Speaker 5: Party of the DPP. They have a different perspective. They say,

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Speaker 5: we are a country called Taiwan. We're one of the

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Speaker 5: most technologically advanced places in the world. We are thriving

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Speaker 5: to democracy. The world needs our chips, you know. We

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Speaker 5: are at the center of this security architecture.

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Speaker 3: They themselves is a distinct nation.

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Speaker 5: We are a distinct nation and we should be recognized

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Speaker 5: by the world as such. And they're not suicidal, they're

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Speaker 5: not crazy. They recognize that if they declare independence that

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Speaker 5: this could bring the hammer down on them.

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Speaker 4: But their points of.

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Speaker 5: View is we will never declare independence because we already are.

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Speaker 5: And Americans, I think will are about to have to

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Speaker 5: learn this lesson because Taiwan is going into a presidential

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Speaker 5: campaign and it is far from clear where the wind

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Speaker 5: is blowing, and the United States will have to work

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Speaker 5: with whoever wins, because that's what it means to have

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Speaker 5: a partner that's a democracy.

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Speaker 4: But these two parties have very different.

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Speaker 5: Points of view, and one of the points I make

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Speaker 5: in the book is we need to learn to handle

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Speaker 5: Taiwan's domestic politics. We are two democracies that respond to

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Speaker 5: one another. For example, I think the KMT, if they

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Speaker 5: come back to power, will be much less interested in

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Speaker 5: helping America reshore chip production, and they're also probably much

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Speaker 5: less interested in doing military cooperation with the United States

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Speaker 5: if that's going to inflame China. I think, basically you

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Speaker 5: can think about it this way. The DPP believes that

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Speaker 5: the relationship with the United States is the most important thing,

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Speaker 5: that we matter to them just as they matter to us,

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Speaker 5: and that if Taiwan gets in trouble, America will come.

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Speaker 5: And the KMT views are diverse, but they tend to

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Speaker 5: have the view the cavalry might not be coming. The

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Speaker 5: Americans might be using us as upon in a bigger

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Speaker 5: geopolitical game, but can we really trust them? And we

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Speaker 5: don't want to become Ukraine, So maybe the best approach

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Speaker 5: is to negotiate. And these are two very different points

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Speaker 5: of view. They're both plausible interpretations of the facts, and

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Speaker 5: the United States has to learn to deal with both sides.

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Speaker 2: I want to ask you more about reshoring, but since

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Speaker 2: we're on the topic of domestic Taiwanese politics, one thing

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Speaker 2: I've always wondered, and I'm curious if you maybe got

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Speaker 2: some color on this in the cour of your research.

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Speaker 2: But one of the reasons, it's not the only reason,

408
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Speaker 2: but a big one. One of the reasons Taiwan is

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Speaker 2: strategically important is because of the semiconductor business and the

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Speaker 2: presence of TSMC and companies like that. What role does

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Speaker 2: a TMC play in Taiwanese domestic politics? Like, are there

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Speaker 2: actual instances of like semiconductor companies having a seat at

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Speaker 2: the table when it comes to formulating national security policy

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Speaker 2: or indirect influence or anything like that. Have you seen examples?

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Speaker 4: It's hugely, hugely important.

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Speaker 5: It's only a couple of percent the semiconductor industry depending

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Speaker 5: on how you define it with related services industries, it's

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Speaker 5: something like five percent of employments in Taiwan, but it's

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Speaker 5: an outside share of Taiwan's exports. And right now, just

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Speaker 5: if you look at the macro data, Taiwan's exports are

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Speaker 5: booming because no one can get enough of their chips.

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Speaker 5: There is an entire ecosystem of universities, vocational training centers,

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Speaker 5: companies that supply to TSMC. This is a national champion

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Speaker 5: in so many ways, and they get tax benefits and

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Speaker 5: subsidized land and Taiwan's political economy is organized around making

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Speaker 5: them a success, just as South Korea's has been organized

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Speaker 5: around making Samsung and others a success. TSMC is smart

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Speaker 5: enough to know that it has to deal with administrations

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Speaker 5: of both parties. But TSMC is also caught in a

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Speaker 5: US China at tension too, and TSMC doesn't share the

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Speaker 5: United States political objectives here. TSMC is happy to sell

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Speaker 5: to China. They don't have a problem with China buys

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Speaker 5: lots of their chips, but they have to work with

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Speaker 5: the United States because ultimately they are fabricating chips at

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Speaker 5: the high end that are made with US designs, So

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Speaker 5: the US does have the ability to export control where

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Speaker 5: there's final products go.

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Speaker 3: This is really interesting and important and I hadn't thought

439
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Speaker 3: about this dynamic. I mean, I guess it sort of

440
00:22:49,320 --> 00:22:51,359
Speaker 3: makes sense to me that, like if I were like

441
00:22:51,440 --> 00:22:54,480
Speaker 3: the leadership in Taiwan, I don't know if I would

442
00:22:54,480 --> 00:22:58,920
Speaker 3: be like that thrilled about our main company opening up

443
00:22:59,160 --> 00:23:02,120
Speaker 3: FABS and Arizona, et cetera. But I guess it sort

444
00:23:02,119 --> 00:23:04,680
Speaker 3: of makes sense, Like, Okay, you know, the US is

445
00:23:04,680 --> 00:23:07,439
Speaker 3: a pretty important partner. But what I'm wondering, you know,

446
00:23:07,520 --> 00:23:10,600
Speaker 3: like in a future scenario. So going back to Reagan,

447
00:23:10,760 --> 00:23:13,600
Speaker 3: and it's like, we're this doctrine, We're never gonna put

448
00:23:13,640 --> 00:23:17,480
Speaker 3: pressure on you to like accept a bad deal. What if,

449
00:23:17,920 --> 00:23:23,399
Speaker 3: over time, organically a new generation of sort of more

450
00:23:23,520 --> 00:23:29,240
Speaker 3: sympathetic like mainland voters, like they grow up, they look

451
00:23:29,280 --> 00:23:31,399
Speaker 3: at the world, they see maybe the US sort of

452
00:23:31,400 --> 00:23:34,200
Speaker 3: looks like a belligerent power sometimes, et cetera. They look

453
00:23:34,240 --> 00:23:36,439
Speaker 3: at China and it seems it looks like they're doing

454
00:23:36,480 --> 00:23:38,440
Speaker 3: a lot better. They're not as poor as they used

455
00:23:38,480 --> 00:23:41,879
Speaker 3: to be, they look pretty stable, et cetera. Like, could

456
00:23:42,080 --> 00:23:46,399
Speaker 3: Taiwan just sort of migrate closer to the Chinese sphere

457
00:23:46,480 --> 00:23:49,960
Speaker 3: or perhaps even merge back into China organically?

458
00:23:50,160 --> 00:23:51,240
Speaker 4: Yes? And that and.

459
00:23:51,359 --> 00:23:54,480
Speaker 3: Is that is that something that like US policy like

460
00:23:54,560 --> 00:23:56,520
Speaker 3: feel like, do we feel.

461
00:23:56,119 --> 00:23:57,239
Speaker 4: That we have to prevent that?

462
00:23:57,320 --> 00:24:01,520
Speaker 3: If that's sort of where the democratic action in Taiwan goes, well.

463
00:24:01,359 --> 00:24:04,240
Speaker 5: Our long standing policy is that it's the right of

464
00:24:04,320 --> 00:24:07,040
Speaker 5: the people of Taiwan, yeah, to decide their own future.

465
00:24:07,480 --> 00:24:10,320
Speaker 5: And that's a principled position that we hold for a

466
00:24:10,359 --> 00:24:13,960
Speaker 5: reason that is also self interested, which is, if Taiwan

467
00:24:14,040 --> 00:24:16,760
Speaker 5: decides that they want to submit or they want to

468
00:24:16,800 --> 00:24:19,080
Speaker 5: take a deal, and they want to unify with the mainland.

469
00:24:19,400 --> 00:24:22,680
Speaker 5: By the way the mainland uses this term reunification, that's

470
00:24:22,680 --> 00:24:25,760
Speaker 5: a weasel word. Taiwan has never been subject to the

471
00:24:25,800 --> 00:24:28,479
Speaker 5: People's Republic of China in its history. But if Taiwan

472
00:24:28,520 --> 00:24:32,160
Speaker 5: becomes unified as part of China, what's the United States.

473
00:24:31,880 --> 00:24:33,760
Speaker 4: Going to go in? We're going to go in and

474
00:24:33,760 --> 00:24:34,600
Speaker 4: topple the governments.

475
00:24:34,640 --> 00:24:37,239
Speaker 5: We're going to tell them no, that they should have

476
00:24:37,240 --> 00:24:41,119
Speaker 5: self determination to decide. And that is one reason why

477
00:24:41,160 --> 00:24:45,640
Speaker 5: it's a no brainer to start to build a semiconductor

478
00:24:45,720 --> 00:24:48,000
Speaker 5: manufacturing base in the United States and Japan and other

479
00:24:48,000 --> 00:24:51,159
Speaker 5: allied countries, because there's any number of reasons to doubt

480
00:24:51,480 --> 00:24:55,199
Speaker 5: whether we have assured access in the long term to

481
00:24:55,280 --> 00:24:58,720
Speaker 5: Taiwan's chip supply. And if this is the most essential

482
00:24:58,760 --> 00:25:03,320
Speaker 5: bottleneck the develop meant of frontier ai then we cannot

483
00:25:03,320 --> 00:25:04,760
Speaker 5: put all of our eggs in that basket.

484
00:25:04,800 --> 00:25:08,080
Speaker 3: Do we know like younger Taiwan is there a reason

485
00:25:08,160 --> 00:25:10,679
Speaker 3: to think that? Like, I don't know. I have again,

486
00:25:11,119 --> 00:25:15,520
Speaker 3: I haven't looked at polling of like how the younger

487
00:25:16,119 --> 00:25:17,000
Speaker 3: what do we know about them?

488
00:25:17,040 --> 00:25:20,920
Speaker 5: So the younger Taiwanese tend to lean more towards the DPP. Historically,

489
00:25:21,000 --> 00:25:23,960
Speaker 5: they tend to in polls, they tend to identify as

490
00:25:24,160 --> 00:25:27,520
Speaker 5: I'm Taiwanese only. Rather very few of them will say

491
00:25:27,520 --> 00:25:31,399
Speaker 5: I'm Chinese only. More of them will an increasing number

492
00:25:31,480 --> 00:25:34,120
Speaker 5: will say that I'm Taiwanese only, although many will say

493
00:25:34,160 --> 00:25:38,439
Speaker 5: I'm both Taiwanese and Chinese. Chinese in the sense of

494
00:25:38,960 --> 00:25:41,439
Speaker 5: culturally civilization of Chinese, not Chinese in the sense of

495
00:25:41,600 --> 00:25:46,639
Speaker 5: People's Republic of China Chinese. And I think these dynamics

496
00:25:46,640 --> 00:25:49,400
Speaker 5: are affected by what the mainland does.

497
00:25:50,280 --> 00:25:50,919
Speaker 4: China is.

498
00:25:51,200 --> 00:25:53,840
Speaker 5: I think perfectly happier season Ping will be perfectly happy

499
00:25:54,160 --> 00:25:56,960
Speaker 5: if Taiwan would sign a piece of paper that says

500
00:25:57,160 --> 00:26:01,640
Speaker 5: I accept one country, two systems Taiwan, which is to say,

501
00:26:01,680 --> 00:26:04,719
Speaker 5: I accept your principle that there's only one China and

502
00:26:04,760 --> 00:26:07,240
Speaker 5: we're part of it, and you're the legitimate leaders, and

503
00:26:07,320 --> 00:26:09,520
Speaker 5: we will get a Hong Kong style arrangement where we

504
00:26:09,560 --> 00:26:12,520
Speaker 5: get to keep our laws, our institutions, our democracy, we

505
00:26:12,560 --> 00:26:16,200
Speaker 5: get some freedom of expression, freedom to organize, We get

506
00:26:16,200 --> 00:26:18,560
Speaker 5: our fancy passports that have visa free access to all

507
00:26:18,600 --> 00:26:21,080
Speaker 5: these countries, all these perks, and maybe Beijing will give

508
00:26:21,119 --> 00:26:22,800
Speaker 5: them free energies.

509
00:26:22,920 --> 00:26:24,320
Speaker 4: Other subsidies, other perks.

510
00:26:25,160 --> 00:26:27,160
Speaker 5: That is the offer that's on the table for Taiwan,

511
00:26:27,680 --> 00:26:31,119
Speaker 5: but it's become a whole lot less attractive now that

512
00:26:31,160 --> 00:26:34,000
Speaker 5: Taiwan has watched what happened to Hong Kong.

513
00:26:34,480 --> 00:26:35,760
Speaker 4: Because Hong Kong took that.

514
00:26:35,720 --> 00:26:39,600
Speaker 5: Deal and it was all right until people in Hong

515
00:26:39,680 --> 00:26:42,960
Speaker 5: Kong started to object to the CCP's encroachment on their

516
00:26:42,960 --> 00:26:45,280
Speaker 5: institutions and their freedom to organize and speak out.

517
00:26:45,680 --> 00:26:47,200
Speaker 4: And when it ended up happening.

518
00:26:46,880 --> 00:26:50,800
Speaker 5: Is season ping sent in masked thugs that brutalized people,

519
00:26:50,960 --> 00:26:56,000
Speaker 5: rounded them up, disappeared people in the night, terrorized the population,

520
00:26:56,119 --> 00:26:59,239
Speaker 5: and crushed them into submission. So I think Taiwan has

521
00:26:59,320 --> 00:27:04,200
Speaker 5: understood twenty nineteen that if they take one country, two systems,

522
00:27:04,600 --> 00:27:07,200
Speaker 5: it's the slow beginning of the end of their democratic

523
00:27:07,280 --> 00:27:10,639
Speaker 5: institutions and their freedom. It is not a it's not

524
00:27:10,720 --> 00:27:14,639
Speaker 5: a deal that they would take, I think willingly. But

525
00:27:14,720 --> 00:27:16,720
Speaker 5: if they feel that the United States and the rest

526
00:27:16,760 --> 00:27:20,040
Speaker 5: of the world isn't backing them up, and they're offered,

527
00:27:20,800 --> 00:27:23,040
Speaker 5: Beijing essentially says, you want to do this the easy

528
00:27:23,040 --> 00:27:25,440
Speaker 5: way or the hard way. I can imagine a world

529
00:27:25,480 --> 00:27:28,400
Speaker 5: in which they choose the easy way and This matters

530
00:27:28,560 --> 00:27:31,560
Speaker 5: because we're not just talking at peace time. We're also

531
00:27:31,560 --> 00:27:34,639
Speaker 5: talking about crisis scenarios. There's all kinds of things that

532
00:27:34,720 --> 00:27:37,840
Speaker 5: China can do to dial up the pressure. They can

533
00:27:37,880 --> 00:27:41,000
Speaker 5: mobilize their forces in the Taiwan Strait for a potential invasion.

534
00:27:41,040 --> 00:27:43,560
Speaker 4: Oh, it's just an exercise. It's just an exercise until

535
00:27:43,600 --> 00:27:43,840
Speaker 4: it's not.

536
00:27:44,800 --> 00:27:49,040
Speaker 5: They can start to curtail the flow of goods and

537
00:27:49,160 --> 00:27:52,240
Speaker 5: planes coming to and from Taiwan. They can start to

538
00:27:52,320 --> 00:27:55,840
Speaker 5: ask for manifests. Who's on the plane? Oh so sorry,

539
00:27:55,920 --> 00:27:57,280
Speaker 5: Ike is on the plane? Could you make a pit

540
00:27:57,320 --> 00:27:59,320
Speaker 5: stup in Shanghai? We want to ask them some questions.

541
00:28:00,040 --> 00:28:02,400
Speaker 5: There's so many ways that Bijin can turn up the pressure.

542
00:28:02,720 --> 00:28:05,359
Speaker 5: They probably have Special Forces United Front people on the

543
00:28:05,359 --> 00:28:08,240
Speaker 5: ground in Taiwan. They can do cyber attacks against someone

544
00:28:08,240 --> 00:28:11,960
Speaker 5: critical infrastructure. They can blank the country with propaganda, the

545
00:28:12,000 --> 00:28:15,480
Speaker 5: island rather with propaganda. There's so much things that China

546
00:28:15,520 --> 00:28:18,639
Speaker 5: can do to put the pressure on and try to

547
00:28:18,680 --> 00:28:21,879
Speaker 5: drive wedges between Taiwan, the United States and Japan. And

548
00:28:22,000 --> 00:28:26,280
Speaker 5: in those moments, what is the US political strategy? Yeah,

549
00:28:26,280 --> 00:28:28,479
Speaker 5: we have a military strategy if they turn to an invasion,

550
00:28:28,520 --> 00:28:31,000
Speaker 5: But what is the political strategy, if the markets start

551
00:28:31,040 --> 00:28:33,000
Speaker 5: to panic, if we think we may need to get

552
00:28:33,000 --> 00:28:35,800
Speaker 5: our American citizens out, And these are the scenarios I

553
00:28:35,880 --> 00:28:38,640
Speaker 5: argue in the book that we haven't yet fully thought through.

554
00:28:39,120 --> 00:28:42,400
Speaker 2: In your framework. What's been the big constraint on Hihinping

555
00:28:42,680 --> 00:28:46,040
Speaker 2: so far historically, Like, why hasn't he done something on

556
00:28:46,080 --> 00:28:47,200
Speaker 2: Taiwan yet?

557
00:28:47,920 --> 00:28:49,760
Speaker 4: Well, we don't know. We have to speculate.

558
00:28:50,320 --> 00:28:53,400
Speaker 5: One reason is that the People's Liberation Army, the PLA,

559
00:28:54,640 --> 00:28:57,680
Speaker 5: I think it's fair to say, up until recently and

560
00:28:57,760 --> 00:29:00,880
Speaker 5: probably still now, lacks the ability to take and hold

561
00:29:00,920 --> 00:29:05,160
Speaker 5: Taiwan by force. Back in nineteen forty nine, after Mao

562
00:29:05,240 --> 00:29:07,000
Speaker 5: took over the mainland, the first thing he did was

563
00:29:07,000 --> 00:29:08,800
Speaker 5: he told his generals, now give me the plan to

564
00:29:08,840 --> 00:29:12,360
Speaker 5: take Taiwan. And they studied it and they concluded, Sir,

565
00:29:12,400 --> 00:29:14,720
Speaker 5: it can't be done. This is one of the hardest

566
00:29:14,720 --> 00:29:17,959
Speaker 5: waterways in the world. There's crazy tides, there's enormous waves,

567
00:29:18,160 --> 00:29:20,800
Speaker 5: there's fifty mile an hour winds, there's typhoons, there's fog,

568
00:29:21,440 --> 00:29:24,040
Speaker 5: and there's only a few landing beaches that are plausible.

569
00:29:24,560 --> 00:29:27,080
Speaker 5: And Taiwan knows what those are. And now they have

570
00:29:27,160 --> 00:29:29,640
Speaker 5: spent the better part of a century fortifying them. So

571
00:29:29,760 --> 00:29:31,680
Speaker 5: if you want to get all of your men across

572
00:29:31,680 --> 00:29:33,840
Speaker 5: the strait, you have to deliver them by sea or

573
00:29:33,840 --> 00:29:37,640
Speaker 5: by air, and air is difficult, as Ukraine has shown.

574
00:29:37,680 --> 00:29:41,040
Speaker 5: It's easy to shoot down helicopters and planes, and so

575
00:29:41,120 --> 00:29:43,400
Speaker 5: you need to take them in these amphibious ships, which

576
00:29:43,400 --> 00:29:46,080
Speaker 5: can be sunk by mines or cheap drones or artillery.

577
00:29:46,360 --> 00:29:48,920
Speaker 5: And then you have to get them into the shores,

578
00:29:49,280 --> 00:29:51,520
Speaker 5: and then you potentially have to sustain them for a

579
00:29:51,560 --> 00:29:55,280
Speaker 5: long period of time. You need to give them vehicles

580
00:29:55,400 --> 00:30:00,440
Speaker 5: and AMMO and fuel and food and medicine. And happens

581
00:30:00,480 --> 00:30:03,480
Speaker 5: if you successfully deliver fifteen thousand troops to the shores,

582
00:30:04,080 --> 00:30:04,480
Speaker 5: and then.

583
00:30:04,400 --> 00:30:06,960
Speaker 4: Your logistics tail gets cut because.

584
00:30:06,760 --> 00:30:08,280
Speaker 5: A number of your amphibious ships end up on the

585
00:30:08,280 --> 00:30:10,240
Speaker 5: bottom of the Tai one straight, and then your men

586
00:30:10,280 --> 00:30:13,960
Speaker 5: are massacred on the beaches. So many things have to

587
00:30:14,080 --> 00:30:18,440
Speaker 5: go right in a highly synchronized way for an amphibious

588
00:30:18,440 --> 00:30:20,800
Speaker 5: invasion to work, such that d Day, which is the

589
00:30:20,840 --> 00:30:23,120
Speaker 5: great example in history where we had all these advantages

590
00:30:23,120 --> 00:30:27,400
Speaker 5: that China wouldn't have today, Very very almost it came

591
00:30:27,520 --> 00:30:29,800
Speaker 5: very very close to going completely off the rails, as

592
00:30:29,800 --> 00:30:33,120
Speaker 5: I discussed in the book. So season paying is systematically

593
00:30:33,120 --> 00:30:36,120
Speaker 5: building the capabilities he would need. He's building out this

594
00:30:36,200 --> 00:30:40,120
Speaker 5: amphibious fleet. He's building better anti submarine warfare to force

595
00:30:40,400 --> 00:30:43,920
Speaker 5: us back. He's building longer range ballistic missiles that can

596
00:30:43,920 --> 00:30:47,080
Speaker 5: target ships to force our aircraft carriers to stay further

597
00:30:47,200 --> 00:30:49,320
Speaker 5: back from the conflict zone. He's building out his air

598
00:30:49,320 --> 00:30:52,880
Speaker 5: force and drones, cyber tools, all these things to coerce Taiwan.

599
00:30:53,440 --> 00:30:56,880
Speaker 5: But if you roll the dice on an invasion today,

600
00:30:58,080 --> 00:31:00,400
Speaker 5: I think, at least if you look at the public wargames,

601
00:31:01,320 --> 00:31:04,160
Speaker 5: it is possible that he would suffer a pretty catastrophic defeat.

602
00:31:04,440 --> 00:31:08,520
Speaker 5: So that's one reason for patients. But as his preparations proceed,

603
00:31:08,600 --> 00:31:09,800
Speaker 5: I think he's getting more confident.

604
00:31:10,160 --> 00:31:12,239
Speaker 2: So one of the things you used to hear a

605
00:31:12,240 --> 00:31:14,560
Speaker 2: lot more, and I don't think you hear it nearly

606
00:31:14,600 --> 00:31:17,760
Speaker 2: as much nowadays, but this idea of economic pain, Right,

607
00:31:18,040 --> 00:31:21,840
Speaker 2: if China invaded Taiwan, there would be some sort of retaliation,

608
00:31:22,240 --> 00:31:26,360
Speaker 2: maybe sanctions, something like that. And because the CCP had

609
00:31:26,360 --> 00:31:29,760
Speaker 2: built its legitimacy on the social compact with its population,

610
00:31:29,800 --> 00:31:32,560
Speaker 2: which was basically, you know, we're in power and in exchange,

611
00:31:32,600 --> 00:31:37,360
Speaker 2: you all hopefully get rich. That was just untenable for

612
00:31:38,040 --> 00:31:41,640
Speaker 2: Shishimping and other policy makers. You don't hear that that

613
00:31:41,840 --> 00:31:45,000
Speaker 2: much anymore. And I wonder, I wonder why that is.

614
00:31:45,000 --> 00:31:47,080
Speaker 2: Is it just because like people feel that China has

615
00:31:47,120 --> 00:31:50,400
Speaker 2: reached the level of economic development, where like okay, the

616
00:31:50,480 --> 00:31:53,480
Speaker 2: legitimacy has been established in terms of the social compact.

617
00:31:53,680 --> 00:31:56,600
Speaker 2: Or is it because we had an example of Russia

618
00:31:56,640 --> 00:32:01,479
Speaker 2: invading Ukraine and very obviously being willing to trade off

619
00:32:02,000 --> 00:32:06,160
Speaker 2: that military action even though it generated an enormous amount

620
00:32:06,200 --> 00:32:07,640
Speaker 2: of economic pain for the country.

621
00:32:07,920 --> 00:32:10,720
Speaker 5: It's a whole bunch of factors at once. Season Ping

622
00:32:10,760 --> 00:32:14,200
Speaker 5: has overseen a transformation in the social contract in China

623
00:32:15,360 --> 00:32:21,040
Speaker 5: from development to ideology and national security. From the anti

624
00:32:21,040 --> 00:32:27,640
Speaker 5: corruption campaign to his ideological rectification campaigns, to rewriting the

625
00:32:27,680 --> 00:32:34,080
Speaker 5: history textbooks to taking Communist party cadres to historical sites

626
00:32:34,080 --> 00:32:37,560
Speaker 5: to study points of hardship and party history. Season Ping

627
00:32:37,680 --> 00:32:42,040
Speaker 5: uses this term struggle to describe what the party should do,

628
00:32:42,880 --> 00:32:45,960
Speaker 5: and he has told young people that can't find work

629
00:32:46,000 --> 00:32:48,880
Speaker 5: that they should eat bitterness, the idea being you should

630
00:32:48,920 --> 00:32:52,080
Speaker 5: tough it out. We are in nations striving for national rejuvenation,

631
00:32:52,720 --> 00:32:56,320
Speaker 5: national rejuvenation means rising to the height of human achievement

632
00:32:56,360 --> 00:32:59,000
Speaker 5: in every human endeavor. And to do that, we're going

633
00:32:59,080 --> 00:33:00,960
Speaker 5: to work hard, and we're going to make some sacrifices.

634
00:33:01,560 --> 00:33:06,520
Speaker 5: And he has tightened surveillance, he has tightened discipline that

635
00:33:07,000 --> 00:33:09,600
Speaker 5: allows him to run this regime according to a very

636
00:33:09,600 --> 00:33:12,920
Speaker 5: different set of rules through coercion. And that means we

637
00:33:13,000 --> 00:33:16,120
Speaker 5: have to assume that China's tolerance for economic pain has increased.

638
00:33:17,080 --> 00:33:20,480
Speaker 5: Now at some point there's a limit if the financial

639
00:33:20,560 --> 00:33:23,760
Speaker 5: system were just to implode under the threat under the

640
00:33:23,760 --> 00:33:26,840
Speaker 5: threat of sanctions, or because there's just mass capital flight

641
00:33:27,200 --> 00:33:29,920
Speaker 5: because no investor wants to be stuck in ill liquid

642
00:33:29,920 --> 00:33:32,120
Speaker 5: assets in China. If the US and China are headed

643
00:33:32,120 --> 00:33:35,640
Speaker 5: to war, Yes, there's possible that China could suffer a

644
00:33:35,680 --> 00:33:40,680
Speaker 5: sudden black Swan collapse, but I think that's not base case.

645
00:33:41,160 --> 00:33:43,480
Speaker 5: And I have a work that I describe in a

646
00:33:43,520 --> 00:33:45,600
Speaker 5: lot of detail in the book about how over the

647
00:33:45,680 --> 00:33:49,520
Speaker 5: last ten years China has been systematically building shock absorbers

648
00:33:49,560 --> 00:33:53,040
Speaker 5: into its financial system to make it more likely to

649
00:33:53,120 --> 00:33:56,080
Speaker 5: survive the gut punch of the imposition of sanctions and

650
00:33:56,240 --> 00:34:00,200
Speaker 5: the fact that Rush's financial system, which had met it

651
00:34:00,320 --> 00:34:04,800
Speaker 5: lacked many of these advantages, was able to steady itself

652
00:34:05,360 --> 00:34:08,799
Speaker 5: after the imposition of sanctions. Is I think an encouraging sign,

653
00:34:08,960 --> 00:34:11,319
Speaker 5: just a couple of numbers to bring us home. At

654
00:34:11,360 --> 00:34:14,440
Speaker 5: the beginning of the Russia Ukraine War, Russia was blindsided

655
00:34:14,480 --> 00:34:17,880
Speaker 5: that the Europeans joined all the sanctions. They had moved

656
00:34:17,920 --> 00:34:20,880
Speaker 5: a lot of their central bank assets from dollars into euros,

657
00:34:21,360 --> 00:34:24,520
Speaker 5: and then the Europeans froze those assets, which meant suddenly

658
00:34:24,560 --> 00:34:27,279
Speaker 5: half of their foreign exchange reserves were just inaccessible to them.

659
00:34:27,800 --> 00:34:30,480
Speaker 4: That was a huge boo boo for the Russians.

660
00:34:31,360 --> 00:34:35,640
Speaker 5: And then the sanctions regime targeted SpareBank and other major

661
00:34:35,680 --> 00:34:39,360
Speaker 5: banks in ways it had not been expected. So the

662
00:34:39,440 --> 00:34:41,520
Speaker 5: ruble lost something like half its value in a couple

663
00:34:41,560 --> 00:34:46,360
Speaker 5: of weeks, and there was a real risk of Russian collapse.

664
00:34:46,880 --> 00:34:49,719
Speaker 5: But with only three hundred billion dollars at foreign exchange available,

665
00:34:50,080 --> 00:34:54,200
Speaker 5: they were able to write the ship because they they

666
00:34:54,280 --> 00:34:57,040
Speaker 5: imposed capital control regime. They limited outflows from banks, They

667
00:34:57,080 --> 00:34:59,359
Speaker 5: raised interest rates to twenty percent, They demanded that state

668
00:34:59,480 --> 00:35:02,280
Speaker 5: enterprises payments in rubles, all of these things to increase

669
00:35:02,320 --> 00:35:05,160
Speaker 5: demand for rubles and keep the bank solvent. And then

670
00:35:06,480 --> 00:35:09,840
Speaker 5: foreign hedge funds that had profited on the ruble short

671
00:35:10,480 --> 00:35:12,120
Speaker 5: took a look at the situation and they said, well,

672
00:35:12,120 --> 00:35:14,880
Speaker 5: are there are more sanctions coming? Well, if the answer

673
00:35:14,960 --> 00:35:17,239
Speaker 5: is no, then it's all priced in and the ruble

674
00:35:17,280 --> 00:35:20,560
Speaker 5: looks pretty cheap because actually Russia's imports have just collapsed

675
00:35:20,760 --> 00:35:23,560
Speaker 5: and their exports are booming because the oil price is up.

676
00:35:23,800 --> 00:35:26,040
Speaker 5: And then in April of twenty twenty two, the ruble

677
00:35:26,160 --> 00:35:29,760
Speaker 5: was the best performing currency in the world, and then

678
00:35:29,880 --> 00:35:34,040
Speaker 5: the ship was setting, and then the economic war became

679
00:35:34,080 --> 00:35:37,680
Speaker 5: an attritional contest that we have not won yet. And

680
00:35:38,320 --> 00:35:40,640
Speaker 5: I think there is a similar dynamic with China. There's

681
00:35:40,640 --> 00:35:44,920
Speaker 5: some possibility that their financial system could implode, but China,

682
00:35:45,400 --> 00:35:48,200
Speaker 5: if you count their shadow reserves, has between ten and

683
00:35:48,280 --> 00:35:49,080
Speaker 5: twenty times.

684
00:35:48,920 --> 00:35:50,600
Speaker 4: The EFX that was available to Russia.

685
00:35:50,680 --> 00:35:53,080
Speaker 5: They have an existing capital control regime, all the banks

686
00:35:53,080 --> 00:35:55,680
Speaker 5: are run by the state, and if they survived that

687
00:35:55,719 --> 00:35:58,640
Speaker 5: gut punch, they have the stockpiles to live on their

688
00:35:58,680 --> 00:36:01,840
Speaker 5: own supply for men many many months if they're entirely

689
00:36:01,880 --> 00:36:05,200
Speaker 5: cut off from imports. So the question is, if we

690
00:36:05,239 --> 00:36:09,200
Speaker 5: can't defeat them economically slowly, how do we think about

691
00:36:09,239 --> 00:36:12,759
Speaker 5: the long term contest of economic pain such that it

692
00:36:12,840 --> 00:36:15,279
Speaker 5: is something that we as a coalition of democracies can

693
00:36:15,400 --> 00:36:17,840
Speaker 5: possibly win. And the answer I come to in the

694
00:36:17,840 --> 00:36:20,040
Speaker 5: book is we have to stop thinking about it as punishment.

695
00:36:20,440 --> 00:36:23,080
Speaker 5: Stop thinking about is how we could hurt China in

696
00:36:23,120 --> 00:36:24,839
Speaker 5: a way that hurt us too. We need to think

697
00:36:24,840 --> 00:36:26,239
Speaker 5: about what are the things that we would want to

698
00:36:26,239 --> 00:36:28,600
Speaker 5: do in our own best interests in a crisis to

699
00:36:28,640 --> 00:36:31,440
Speaker 5: secure our own economic interests that would just happen to

700
00:36:31,520 --> 00:36:44,000
Speaker 5: hurt China as a byproduct.

701
00:36:47,960 --> 00:36:51,040
Speaker 3: Just real quickly on cutting off imports? Are they good

702
00:36:51,080 --> 00:36:51,520
Speaker 3: on oil?

703
00:36:51,960 --> 00:36:52,840
Speaker 4: For like this is?

704
00:36:52,920 --> 00:36:55,879
Speaker 3: We know they have this big oil stockpile. War would

705
00:36:55,920 --> 00:37:00,520
Speaker 3: be extremely oil intensive process. You know, they d a

706
00:37:00,520 --> 00:37:03,040
Speaker 3: lot of cars. I doubt they're military as nearly is.

707
00:37:03,320 --> 00:37:04,879
Speaker 4: I think they're good. I think they're good on oil.

708
00:37:04,960 --> 00:37:09,160
Speaker 5: You think so? They in peacetime they consume what is it,

709
00:37:09,200 --> 00:37:12,520
Speaker 5: thirteen fourteen million barrels a day, of which around four

710
00:37:13,440 --> 00:37:18,040
Speaker 5: are produced domestically. If they became cost and sensitive, which

711
00:37:18,040 --> 00:37:21,200
Speaker 5: they would be in a crisis, they could probably squeeze

712
00:37:21,200 --> 00:37:25,440
Speaker 5: that up a bit. They also can import overland. They import,

713
00:37:25,640 --> 00:37:27,759
Speaker 5: you know, a couple of million barrels a day over land.

714
00:37:27,760 --> 00:37:30,759
Speaker 5: And if they had to, they could import more by land.

715
00:37:31,239 --> 00:37:33,719
Speaker 5: It wouldn't be comfortable, it wouldn't be cheap, but if

716
00:37:33,719 --> 00:37:35,640
Speaker 5: they would have willingness to pay, they have plenty of

717
00:37:35,640 --> 00:37:38,839
Speaker 5: foreign exchange. They could also do as the Nazis did,

718
00:37:38,960 --> 00:37:42,239
Speaker 5: which is turned coal into fuel oil fisher trobes has

719
00:37:42,280 --> 00:37:44,840
Speaker 5: been done in the past. The Nazis declared were on

720
00:37:44,840 --> 00:37:47,000
Speaker 5: all their oil suppliers, and they still managed to fight

721
00:37:47,520 --> 00:37:49,320
Speaker 5: through nineteen forty five pretty effectively.

722
00:37:50,719 --> 00:37:51,640
Speaker 4: But there's more to this.

723
00:37:51,719 --> 00:37:54,080
Speaker 5: They've got They declare, what is it, one point three

724
00:37:54,120 --> 00:37:56,640
Speaker 5: billion barrels in their spr they probably have something more

725
00:37:56,680 --> 00:37:59,920
Speaker 5: like two, and then they can make the civilian economy.

726
00:38:00,560 --> 00:38:02,799
Speaker 5: The PLA would use something like five hundred thousand barrels

727
00:38:02,840 --> 00:38:04,560
Speaker 5: a day. So if you run the math and I

728
00:38:04,640 --> 00:38:06,120
Speaker 5: just do the back of the envelope in the book,

729
00:38:06,800 --> 00:38:08,279
Speaker 5: what matters is not that they would run out of

730
00:38:08,280 --> 00:38:11,000
Speaker 5: oil eventually at some point they would feel the squeeze,

731
00:38:11,280 --> 00:38:14,360
Speaker 5: but our allies Japan, South Korea.

732
00:38:14,120 --> 00:38:16,400
Speaker 4: Taiwan would feel the squeeze much faster.

733
00:38:17,960 --> 00:38:23,239
Speaker 5: So our coalition as currently set up doesn't have the

734
00:38:23,280 --> 00:38:26,359
Speaker 5: advantage in a long term contest of extreme economic war.

735
00:38:27,120 --> 00:38:29,760
Speaker 5: And it's not just about oil. It's about everything else.

736
00:38:30,280 --> 00:38:34,080
Speaker 5: They have stockpiles of cotton, they have stockpiles of chips,

737
00:38:34,280 --> 00:38:36,919
Speaker 5: they have stockpiles of everything plausible that they might need.

738
00:38:37,000 --> 00:38:41,279
Speaker 5: Taiwan doesn't have that, Japan doesn't have that. So this

739
00:38:41,440 --> 00:38:43,640
Speaker 5: is the risk that they take us up to the brink.

740
00:38:44,160 --> 00:38:47,640
Speaker 5: We are forced to contemplate what the long term economic.

741
00:38:47,200 --> 00:38:47,840
Speaker 4: War looks like.

742
00:38:48,239 --> 00:38:50,239
Speaker 5: We realize that if they can last for twelve months

743
00:38:50,280 --> 00:38:51,879
Speaker 5: and we can last for three, that's not a game

744
00:38:51,920 --> 00:38:55,000
Speaker 5: we want to play, and we fold. And then if

745
00:38:55,239 --> 00:38:57,920
Speaker 5: that is established, they can coerce us. And this is

746
00:38:57,960 --> 00:39:01,840
Speaker 5: not just about Taiwan. This goes far, far, far beyond Taiwan.

747
00:39:02,200 --> 00:39:04,560
Speaker 5: This is about our entire alliance architecture in the region,

748
00:39:04,719 --> 00:39:06,520
Speaker 5: and frankly, this is about our hemisphere too.

749
00:39:06,840 --> 00:39:08,759
Speaker 2: One of the arguments you make in the book is

750
00:39:08,760 --> 00:39:11,600
Speaker 2: this idea that a US policy response can't just be

751
00:39:11,760 --> 00:39:14,440
Speaker 2: about military power, it has to be about economic power

752
00:39:14,480 --> 00:39:17,799
Speaker 2: as well. And you talk about this idea of avalanche decoupling,

753
00:39:17,880 --> 00:39:21,320
Speaker 2: so sort of forming a grand alliance with other democracies

754
00:39:21,440 --> 00:39:26,560
Speaker 2: to try to isolate China from the global economy. And

755
00:39:26,840 --> 00:39:29,319
Speaker 2: when I hear a term like avalanche decoupling, I kind

756
00:39:29,320 --> 00:39:32,319
Speaker 2: of think like, well, in some respects. The US and

757
00:39:32,440 --> 00:39:34,239
Speaker 2: maybe some other parts of the world have been trying

758
00:39:34,239 --> 00:39:38,480
Speaker 2: to decouple from China for a long time, with varied

759
00:39:38,560 --> 00:39:44,480
Speaker 2: degrees of success. What convinces you that something like that

760
00:39:44,520 --> 00:39:48,040
Speaker 2: would be possible in a crisis moment, especially when we're

761
00:39:48,040 --> 00:39:52,279
Speaker 2: talking about again grand alliances with democracies that maybe under

762
00:39:52,280 --> 00:39:54,840
Speaker 2: the Trump administration we don't seem to have the best

763
00:39:54,880 --> 00:39:56,680
Speaker 2: of relations with at the moment.

764
00:39:56,880 --> 00:40:00,000
Speaker 5: It's a really important question, So let's take the heart

765
00:40:00,239 --> 00:40:02,799
Speaker 5: facts head on. In the last couple of years, we

766
00:40:02,840 --> 00:40:05,279
Speaker 5: have learned some very important things about what is and

767
00:40:05,400 --> 00:40:07,880
Speaker 5: is not possible when it comes to breaking our critical

768
00:40:07,920 --> 00:40:11,400
Speaker 5: dependencies on China. Everyone knows that we have these critical

769
00:40:11,400 --> 00:40:16,960
Speaker 5: dependencies which strike at the very heart of our lives

770
00:40:16,960 --> 00:40:19,759
Speaker 5: and livelihoods. We depend on China for the active pharmaceutical

771
00:40:19,840 --> 00:40:23,320
Speaker 5: ingredients that save lives every day in hospitals. We depend

772
00:40:23,400 --> 00:40:26,000
Speaker 5: China on the supply chain to build any drone in

773
00:40:26,000 --> 00:40:29,800
Speaker 5: the United States. We depend on China for legacy chips,

774
00:40:30,000 --> 00:40:32,960
Speaker 5: without which we can't make cars. There is no Ford,

775
00:40:33,120 --> 00:40:37,239
Speaker 5: there is no Stilantis. I think that's crazy. I think

776
00:40:37,280 --> 00:40:39,880
Speaker 5: it's crazy. I think it opens up the United States

777
00:40:40,000 --> 00:40:43,480
Speaker 5: to black economic blackmail, and frankly, the fact that our

778
00:40:43,520 --> 00:40:45,919
Speaker 5: allies have the same dependencies opens them up to black

779
00:40:45,920 --> 00:40:49,319
Speaker 5: mil too. So it's a no brainer that we should

780
00:40:49,360 --> 00:40:51,520
Speaker 5: start to break these dependencies on China in the same

781
00:40:51,560 --> 00:40:54,239
Speaker 5: way that China is trying to break its dependencies on

782
00:40:54,360 --> 00:40:57,560
Speaker 5: us because they don't want to be blackmailed. So what

783
00:40:57,640 --> 00:41:00,160
Speaker 5: is dangerous is that China would be able to de

784
00:41:00,280 --> 00:41:02,719
Speaker 5: risk their economy largely from ours. But we couldn't do

785
00:41:02,800 --> 00:41:06,520
Speaker 5: that in a symmetrical way. But if a crisis happens

786
00:41:06,640 --> 00:41:10,319
Speaker 5: over Taiwan, whether that's tomorrow or eighteen months from now

787
00:41:10,440 --> 00:41:14,240
Speaker 5: or five years from now, it will be an oh shoot,

788
00:41:14,280 --> 00:41:16,000
Speaker 5: I guess we should have done all of that five

789
00:41:16,080 --> 00:41:19,319
Speaker 5: years ago, But that will be yesterday's problem. And the

790
00:41:19,400 --> 00:41:21,600
Speaker 5: question for today's problem is how do we deal with

791
00:41:21,600 --> 00:41:25,240
Speaker 5: the situation we face. And it's very possible that situation

792
00:41:25,280 --> 00:41:27,799
Speaker 5: would be in the context of a crushing recession and

793
00:41:27,840 --> 00:41:30,960
Speaker 5: stock market correction, because, as we mentioned at the beginning

794
00:41:30,960 --> 00:41:34,800
Speaker 5: of this conversation, the whole equity market is being held

795
00:41:34,880 --> 00:41:39,200
Speaker 5: up by an ai trade. We're seven tech companies that

796
00:41:39,280 --> 00:41:42,960
Speaker 5: are priced for perfection make up forty percent of the

797
00:41:43,000 --> 00:41:45,240
Speaker 5: S and P, and if you take away the supply

798
00:41:45,320 --> 00:41:49,160
Speaker 5: of chips, they fall to earth. Six hundred billion dollars.

799
00:41:49,200 --> 00:41:51,439
Speaker 5: Is that the number the hyperscalers are spending on data

800
00:41:51,480 --> 00:41:52,279
Speaker 5: centers this year.

801
00:41:52,320 --> 00:41:53,160
Speaker 3: It's close enough.

802
00:41:53,320 --> 00:41:53,839
Speaker 4: You take that.

803
00:41:53,840 --> 00:41:57,080
Speaker 5: Away, and the use economy is in recession. So imagine

804
00:41:57,120 --> 00:42:01,680
Speaker 5: the context of a terrifying stock market correction and heading

805
00:42:01,719 --> 00:42:05,920
Speaker 5: into recession. Let's assume that we China has taken some

806
00:42:06,000 --> 00:42:08,640
Speaker 5: actions that reveal that we really need to expand this

807
00:42:08,760 --> 00:42:13,239
Speaker 5: derisking or partial decoupling thing. But we've also learned that

808
00:42:13,320 --> 00:42:16,160
Speaker 5: we can't decouple from China all at once, because we

809
00:42:16,280 --> 00:42:19,759
Speaker 5: tried this on Liberation Day and we got cold feet

810
00:42:19,880 --> 00:42:22,640
Speaker 5: within a week because the bond market blew up and

811
00:42:22,719 --> 00:42:25,200
Speaker 5: all the captains of industry called up the president and said,

812
00:42:25,239 --> 00:42:28,920
Speaker 5: you have to reverse this, mister President, or we're cooked. So,

813
00:42:29,080 --> 00:42:32,360
Speaker 5: if you can't decouple from China all at once and quickly,

814
00:42:32,880 --> 00:42:37,560
Speaker 5: the only way to do it is gradually looking at

815
00:42:37,600 --> 00:42:40,080
Speaker 5: the critical stuff first and the non critical stuff later.

816
00:42:40,160 --> 00:42:42,600
Speaker 5: If ever, so what I want to do is say

817
00:42:42,600 --> 00:42:44,319
Speaker 5: what is the most critical things? If you have to

818
00:42:44,360 --> 00:42:48,520
Speaker 5: stack rank our dependencies, what's ninety ninth percentile, what's ninetieth,

819
00:42:48,719 --> 00:42:51,880
Speaker 5: what's seventieth, what's fiftieth, and then let's go down the

820
00:42:51,960 --> 00:42:53,880
Speaker 5: list one at a time and figure out how do

821
00:42:53,920 --> 00:42:57,000
Speaker 5: we break these dependencies. So in the event of a crisis,

822
00:42:57,600 --> 00:42:59,759
Speaker 5: an invasion of Taiwan or a blockade of Taiwan or

823
00:42:59,800 --> 00:43:04,239
Speaker 5: some gray zone ambiguous thing, if we decide we need

824
00:43:04,280 --> 00:43:06,440
Speaker 5: to reset this relationship and we need to decouple from

825
00:43:06,520 --> 00:43:09,960
Speaker 5: China five percent, ten percent, thirty percent, what does that

826
00:43:10,040 --> 00:43:10,840
Speaker 5: actually entail?

827
00:43:12,200 --> 00:43:13,839
Speaker 4: And I would submit that that's a much.

828
00:43:13,719 --> 00:43:16,960
Speaker 5: Harder problem than we've realized, because even if we want

829
00:43:16,960 --> 00:43:20,200
Speaker 5: to decouple just a little bit, we face a transhipment

830
00:43:20,239 --> 00:43:23,680
Speaker 5: problem right now. As we've discovered, you have a tariff

831
00:43:23,680 --> 00:43:26,200
Speaker 5: differential on China, the tariffun China is here, the tariff

832
00:43:26,239 --> 00:43:28,000
Speaker 5: on Vietnam, Mexico, everyone else is here.

833
00:43:28,719 --> 00:43:30,920
Speaker 4: So companies will export their.

834
00:43:30,840 --> 00:43:33,640
Speaker 5: Stuff from China to Vietnam or Mexico, they'll write made

835
00:43:33,640 --> 00:43:34,879
Speaker 5: in Vietnam or Mexico on.

836
00:43:34,840 --> 00:43:37,200
Speaker 4: It, and though we send it to us. So if

837
00:43:37,200 --> 00:43:38,160
Speaker 4: you don't develop a.

838
00:43:38,080 --> 00:43:41,279
Speaker 5: Solution to this transhipment problem, there is no way that

839
00:43:41,320 --> 00:43:45,120
Speaker 5: you can decouple from China even a little bit, even

840
00:43:45,200 --> 00:43:48,799
Speaker 5: in a crisis. That to me is very scary and

841
00:43:48,840 --> 00:43:52,240
Speaker 5: the process of working with other countries to address this. Essentially,

842
00:43:52,239 --> 00:43:55,239
Speaker 5: this is rules of origin for trade. This is a

843
00:43:55,280 --> 00:43:58,320
Speaker 5: big enterprise that is going to take years and years

844
00:43:58,360 --> 00:44:00,920
Speaker 5: to do. It cannot be done right away. So what

845
00:44:00,920 --> 00:44:04,680
Speaker 5: we're talking about with Avalanche de coupling is a process

846
00:44:04,960 --> 00:44:07,960
Speaker 5: that it abandons the fiction that we can do this

847
00:44:08,000 --> 00:44:10,239
Speaker 5: all at once and starts thinking about if we need

848
00:44:10,239 --> 00:44:13,400
Speaker 5: to divorce China ten percent, thirty sixty percent, whatever it is,

849
00:44:13,800 --> 00:44:15,560
Speaker 5: how do we go about building a new kind of

850
00:44:15,600 --> 00:44:19,080
Speaker 5: economic order such that we can still have trading relations

851
00:44:19,160 --> 00:44:21,560
Speaker 5: with the rest of the world. And that question has

852
00:44:21,600 --> 00:44:23,360
Speaker 5: not been addressed until this book.

853
00:44:23,680 --> 00:44:27,319
Speaker 3: I find this conversation to be like, very alarming, and

854
00:44:28,000 --> 00:44:31,080
Speaker 3: you know, obviously and it should be very alarming. I

855
00:44:31,120 --> 00:44:34,239
Speaker 3: guess the good news, if there is any, is that

856
00:44:34,280 --> 00:44:37,879
Speaker 3: we have spent the last year several years deepening our

857
00:44:37,920 --> 00:44:41,120
Speaker 3: friendships with the rest of the world and building up

858
00:44:41,120 --> 00:44:46,000
Speaker 3: our allies and establishing that open non China trading block.

859
00:44:46,239 --> 00:44:49,800
Speaker 3: At least we're oh wait, no, we're literally we're literally

860
00:44:49,840 --> 00:44:50,520
Speaker 3: doing the opposite.

861
00:44:50,560 --> 00:44:52,320
Speaker 2: Well, I was going to say, on the plus side,

862
00:44:52,520 --> 00:44:55,160
Speaker 2: if one of the one of the elements of China

863
00:44:55,200 --> 00:44:59,319
Speaker 2: deterrence is building a better custom system, where we can

864
00:44:59,320 --> 00:45:02,799
Speaker 2: actually track transhipments, then maybe maybe some of that work

865
00:45:02,840 --> 00:45:06,120
Speaker 2: has been done. It's better than like buildings.

866
00:45:06,280 --> 00:45:08,239
Speaker 3: But like it does seem like we're kind of not

867
00:45:08,280 --> 00:45:10,320
Speaker 3: doing any of this right, I mean not only not

868
00:45:10,440 --> 00:45:13,120
Speaker 3: doing any of this correct, we are like rowing. I like,

869
00:45:13,960 --> 00:45:18,280
Speaker 3: if the goal is let's do this avalanchey coupling around

870
00:45:18,280 --> 00:45:20,240
Speaker 3: the world, to like, we're going in the opposite direction.

871
00:45:20,480 --> 00:45:21,960
Speaker 4: Yeah, that's exactly that's exactly right.

872
00:45:22,000 --> 00:45:23,640
Speaker 5: The only way you can get this stuff done is

873
00:45:23,680 --> 00:45:25,319
Speaker 5: if you work with your partners.

874
00:45:25,840 --> 00:45:26,600
Speaker 4: That's the only way.

875
00:45:26,760 --> 00:45:33,120
Speaker 5: Yeah. And that's not about being moralistic, it's about practically speaking.

876
00:45:33,520 --> 00:45:35,120
Speaker 5: There's stuff that we don't know how to make in

877
00:45:35,160 --> 00:45:38,680
Speaker 5: this country anymore because we outsourced it two generations ago

878
00:45:38,760 --> 00:45:40,960
Speaker 5: and there literally aren't any people left who know how

879
00:45:40,960 --> 00:45:45,440
Speaker 5: it's done. And Japan or South Korea in particular, but

880
00:45:45,600 --> 00:45:48,359
Speaker 5: many of our European partners too have this know how

881
00:45:48,719 --> 00:45:51,759
Speaker 5: in advanced manufacturing, and not to partner with them I

882
00:45:51,760 --> 00:45:55,200
Speaker 5: think is kind of crazy. Also, they face the same problems,

883
00:45:55,360 --> 00:45:58,560
Speaker 5: the same risks of economic coercion by China, and they

884
00:45:58,560 --> 00:46:00,600
Speaker 5: have even less leverage to put back push back against

885
00:46:00,680 --> 00:46:03,440
Speaker 5: China because Chinese, relatively speaking, as much bigger than they are.

886
00:46:03,960 --> 00:46:06,960
Speaker 5: So I think the Trump administration has a few correct

887
00:46:07,000 --> 00:46:11,080
Speaker 5: ideas dealing with these rules of origin through these bilateral deals. Yeah,

888
00:46:11,120 --> 00:46:14,560
Speaker 5: doing bilateral economic security packs like with Japan, but we

889
00:46:14,640 --> 00:46:18,399
Speaker 5: need to be bringing larger groups of allies and partners together.

890
00:46:18,120 --> 00:46:19,400
Speaker 4: To do this, just real quickly.

891
00:46:19,440 --> 00:46:22,000
Speaker 3: I think you mentioned at the beginning that you actually

892
00:46:22,040 --> 00:46:26,600
Speaker 3: think currently in a conventional war that the American military

893
00:46:26,640 --> 00:46:29,640
Speaker 3: would have the upper hand. I don't, but like, you know,

894
00:46:29,680 --> 00:46:31,799
Speaker 3: it looks like I don't know what's going to go

895
00:46:31,840 --> 00:46:34,959
Speaker 3: on with the ron and I'm very susceptible water child,

896
00:46:35,000 --> 00:46:38,319
Speaker 3: the Johnese propaganda. I watched the military prayers, like it

897
00:46:38,320 --> 00:46:41,600
Speaker 3: looks really impressive, the robot dogs and all this stuff

898
00:46:41,880 --> 00:46:45,600
Speaker 3: or the robot dogs. Yeah, like, give a short version

899
00:46:45,640 --> 00:46:49,080
Speaker 3: of why as of April twenty first, twenty twenty six,

900
00:46:49,160 --> 00:46:51,279
Speaker 3: you think the US military still is the upper hand.

901
00:46:51,680 --> 00:46:53,719
Speaker 5: This is something I learned in the process of working

902
00:46:53,760 --> 00:46:56,360
Speaker 5: on this book and the previous book. There's a companion

903
00:46:56,360 --> 00:46:59,400
Speaker 5: book called The Arsenal of Democracy, which is all of

904
00:46:59,400 --> 00:47:01,360
Speaker 5: the military US in volts that my editor is like,

905
00:47:01,360 --> 00:47:04,719
Speaker 5: no way you're putting it. That's too nerdy. But here's

906
00:47:04,719 --> 00:47:08,680
Speaker 5: what I discovered in researching that book. The wars that

907
00:47:08,719 --> 00:47:12,319
Speaker 5: America has fought over the last eighty years have been

908
00:47:12,400 --> 00:47:17,000
Speaker 5: land wars, and land war has a certain character and

909
00:47:17,080 --> 00:47:20,319
Speaker 5: war at sea has a totally different character. And the

910
00:47:20,560 --> 00:47:23,799
Speaker 5: basic reason is that war on land involves lots and

911
00:47:23,840 --> 00:47:27,680
Speaker 5: lots and lots of units that are basically interchangeable, and

912
00:47:27,760 --> 00:47:31,240
Speaker 5: so it's attritional. You're wearing each other down, you're fighting

913
00:47:31,239 --> 00:47:34,279
Speaker 5: along a long line. You're applying pressure, and there's an

914
00:47:34,280 --> 00:47:37,120
Speaker 5: equilibrium and a balance, and you're basically trying to hold

915
00:47:37,200 --> 00:47:40,200
Speaker 5: up enough reserves with potential energy to punch through the

916
00:47:40,320 --> 00:47:43,120
Speaker 5: enemy's line and then send in the cavalry and their

917
00:47:43,160 --> 00:47:44,880
Speaker 5: line collapses and you write to victory. So if you

918
00:47:44,920 --> 00:47:47,080
Speaker 5: look at the maps of World War One, for example,

919
00:47:47,320 --> 00:47:49,000
Speaker 5: the line doesn't move, it doesn't move, it doesn't move,

920
00:47:49,000 --> 00:47:50,080
Speaker 5: it doesn't move, and then it breaks.

921
00:47:50,920 --> 00:47:51,960
Speaker 4: War at sea is different.

922
00:47:52,360 --> 00:47:54,479
Speaker 5: You have a very small number or much smaller number

923
00:47:54,480 --> 00:47:57,759
Speaker 5: of platforms, and they're much more specialized. And so if

924
00:47:57,800 --> 00:48:00,600
Speaker 5: you can take out just one or two of the

925
00:48:00,719 --> 00:48:06,320
Speaker 5: enemy's vessels, specialized aircraft, specialized ships, the whole structure starts

926
00:48:06,360 --> 00:48:10,560
Speaker 5: to collapse and the rest become easier to kill and

927
00:48:10,600 --> 00:48:13,720
Speaker 5: that means that there's no real incentive to hold back reserves.

928
00:48:14,480 --> 00:48:18,640
Speaker 5: Once the engagement starts, it's incredibly intense, and it's often

929
00:48:18,680 --> 00:48:23,239
Speaker 5: decided in the first hours todays. And one significant implication

930
00:48:23,360 --> 00:48:27,480
Speaker 5: of that is your ability to see and communicate across

931
00:48:27,520 --> 00:48:30,640
Speaker 5: the battle space is really really critical, And especially as

932
00:48:31,000 --> 00:48:33,759
Speaker 5: the range of our missiles and our drones has increased,

933
00:48:34,400 --> 00:48:38,920
Speaker 5: that means that US aircraft and ships and submarines that

934
00:48:39,000 --> 00:48:42,319
Speaker 5: could potentially strike targets in or around China can be

935
00:48:42,400 --> 00:48:45,800
Speaker 5: zooming around across literally millions of square miles of ocean.

936
00:48:46,480 --> 00:48:49,520
Speaker 5: So to see these things, to target them, and then

937
00:48:49,560 --> 00:48:51,600
Speaker 5: to deliver mass to a target to kill them is

938
00:48:51,640 --> 00:48:54,080
Speaker 5: no easy feet And if the US can use cyber

939
00:48:54,360 --> 00:48:57,760
Speaker 5: counter space capabilities and so on to disrupt China's ability

940
00:48:57,760 --> 00:49:01,000
Speaker 5: to see and communicate in those critical early hours, then

941
00:49:01,000 --> 00:49:03,760
Speaker 5: it could potentially win a lopsided victory or vice versa.

942
00:49:04,560 --> 00:49:07,439
Speaker 5: And one of the implications of that is if you're

943
00:49:07,480 --> 00:49:10,719
Speaker 5: just counting ships or counting planes or missiles, you will

944
00:49:10,719 --> 00:49:12,800
Speaker 5: miss the parts of the balance that are most important,

945
00:49:13,080 --> 00:49:16,000
Speaker 5: that are actually qualitative, many of which can be augmented

946
00:49:16,000 --> 00:49:20,319
Speaker 5: with AI. And this is hard because it means when

947
00:49:20,320 --> 00:49:23,560
Speaker 5: you're wargaming these things. If you don't have a clearance,

948
00:49:24,160 --> 00:49:26,520
Speaker 5: you kind of have to make it up. With these capabilities,

949
00:49:27,000 --> 00:49:28,960
Speaker 5: we don't know what the cutting edge of cyber is.

950
00:49:29,000 --> 00:49:32,680
Speaker 5: For example, only a very small compartmented group of people

951
00:49:32,719 --> 00:49:36,560
Speaker 5: within the national security establishment know all of the relevant capabilities.

952
00:49:37,080 --> 00:49:39,480
Speaker 5: But I just think that if China believed that they

953
00:49:39,480 --> 00:49:41,640
Speaker 5: could defeat the US in a high end war, they

954
00:49:41,680 --> 00:49:44,680
Speaker 5: would be behaving more assertively. They would be operating not

955
00:49:44,719 --> 00:49:46,319
Speaker 5: just in the time went straight, but all around the

956
00:49:46,320 --> 00:49:47,879
Speaker 5: region in a way that they're not yet.

957
00:49:48,600 --> 00:49:52,120
Speaker 2: We started this conversation talking about, you know, the famous

958
00:49:52,239 --> 00:49:58,000
Speaker 2: hypothetical blockades in geopolitics and international relations classrooms around the world.

959
00:49:59,080 --> 00:50:01,080
Speaker 2: What's your big take away from the Strait of Ormuz

960
00:50:01,160 --> 00:50:04,600
Speaker 2: situation as it applies potentially to China and Taiwan.

961
00:50:04,920 --> 00:50:07,600
Speaker 5: It's a good wrap up for the conversation. Really, it's

962
00:50:08,040 --> 00:50:12,640
Speaker 5: the United States military has these godlike capabilities with special forces,

963
00:50:12,840 --> 00:50:16,719
Speaker 5: with cyber electronic warfare in some senses the way our

964
00:50:17,080 --> 00:50:21,799
Speaker 5: air defenses have performed, which is exceptionally exceptionally well. But

965
00:50:22,239 --> 00:50:24,799
Speaker 5: while our military is very good at doing the operational

966
00:50:24,840 --> 00:50:29,040
Speaker 5: military stuff, we are not succeeding at the strategic level,

967
00:50:29,920 --> 00:50:33,920
Speaker 5: because ultimately, war is the continuation of politics by other means,

968
00:50:34,760 --> 00:50:38,360
Speaker 5: and our politics is susceptible to economic pressure in a

969
00:50:38,400 --> 00:50:41,600
Speaker 5: way that our adversaries is not. And if we don't,

970
00:50:42,760 --> 00:50:44,880
Speaker 5: if we don't get the message, if we don't take

971
00:50:44,920 --> 00:50:47,800
Speaker 5: the wake up call and start working on our economic

972
00:50:47,840 --> 00:50:51,880
Speaker 5: resilience and our credible ability to bear economic pain and

973
00:50:51,920 --> 00:50:55,320
Speaker 5: supply chain disruptions and the rest, we will be unprepared

974
00:50:55,360 --> 00:50:59,080
Speaker 5: on exam day because China has so many more capabilities

975
00:50:59,760 --> 00:51:03,520
Speaker 5: to impose economic pain on us and to micro calibrate

976
00:51:04,000 --> 00:51:07,080
Speaker 5: the character of that economic pain than Iran does, and

977
00:51:07,120 --> 00:51:08,600
Speaker 5: they have more ability to do it for a long

978
00:51:08,600 --> 00:51:10,960
Speaker 5: period of time in multiple theaters.

979
00:51:10,640 --> 00:51:11,399
Speaker 4: And parts of the world.

980
00:51:12,120 --> 00:51:14,200
Speaker 5: And we can only deal with this problem if we

981
00:51:14,239 --> 00:51:17,799
Speaker 5: treat it as it all of government, interdepartmental problem, not

982
00:51:17,840 --> 00:51:20,520
Speaker 5: just a military problem, and if we work with allies,

983
00:51:20,560 --> 00:51:22,520
Speaker 5: and if we try to make some kind of bipartisan

984
00:51:22,560 --> 00:51:26,320
Speaker 5: consensus that national economic resilience matters, That to me is

985
00:51:26,360 --> 00:51:27,320
Speaker 5: the lesson of performers.

986
00:51:27,440 --> 00:51:30,880
Speaker 2: All right, on that cheerful note, Ike Friman, thank you

987
00:51:30,920 --> 00:51:32,960
Speaker 2: so much for coming on all thoughts. And the book

988
00:51:33,080 --> 00:51:36,560
Speaker 2: is defending Taiwan a strategy to prevent war with China.

989
00:51:36,680 --> 00:51:37,520
Speaker 2: Really appreciate it.

990
00:51:37,640 --> 00:51:38,680
Speaker 4: Thanks so much for having me on.

991
00:51:39,080 --> 00:51:39,719
Speaker 3: Thanks so much.

992
00:51:39,760 --> 00:51:39,920
Speaker 1: Ike.

993
00:51:40,000 --> 00:51:55,960
Speaker 2: That was great, Joe, that was a fascinating conversation. And

994
00:51:56,280 --> 00:51:58,120
Speaker 2: I haven't read the entire book, but I did flip

995
00:51:58,160 --> 00:52:00,560
Speaker 2: through it and I do recommend it's super interesting. There's

996
00:52:00,600 --> 00:52:05,080
Speaker 2: also like some really interesting appendices with speeches from various Taiwanese.

997
00:52:05,320 --> 00:52:06,120
Speaker 3: Yeah, I'm gonna have to.

998
00:52:06,400 --> 00:52:09,239
Speaker 2: Yeah, it's definitely worth reading. One of the things that

999
00:52:09,280 --> 00:52:11,799
Speaker 2: stood out there was this, I mean towards the end

1000
00:52:11,840 --> 00:52:14,440
Speaker 2: of the conversation, when we were talking about the possibility

1001
00:52:14,440 --> 00:52:17,520
Speaker 2: of like how do you build up economic resilience that

1002
00:52:17,680 --> 00:52:22,400
Speaker 2: requires the participation of other economies at the same time

1003
00:52:23,239 --> 00:52:26,160
Speaker 2: that the Trump administration seems to be pushing a lot

1004
00:52:26,200 --> 00:52:29,520
Speaker 2: of those other economies and strategic alliances further away.

1005
00:52:30,320 --> 00:52:34,360
Speaker 3: You know. So we didn't get into this, but obviously, okay,

1006
00:52:34,600 --> 00:52:37,279
Speaker 3: like we don't like the stock market it falls a

1007
00:52:37,280 --> 00:52:40,440
Speaker 3: couple percent and suddenly we get cold fee. Okay, that's

1008
00:52:40,520 --> 00:52:44,000
Speaker 3: economic resilience. I think there's another issue which we didn't

1009
00:52:44,000 --> 00:52:48,880
Speaker 3: get into, which's political appetite for war. You know, especially

1010
00:52:48,960 --> 00:52:53,480
Speaker 3: after the Iraq war, it is diminished the current war

1011
00:52:53,520 --> 00:52:57,880
Speaker 3: and around is not popular pretty clearly, regardless of whether

1012
00:52:58,239 --> 00:53:02,440
Speaker 3: it's wise or regardless of how serious the economic toll is.

1013
00:53:03,000 --> 00:53:06,440
Speaker 3: And so I think, like another interesting and important dimension

1014
00:53:06,600 --> 00:53:10,319
Speaker 3: here is look around. And I'd be curious, like how

1015
00:53:10,360 --> 00:53:13,359
Speaker 3: many okay, we could sit here and make the argument, Look,

1016
00:53:13,600 --> 00:53:17,120
Speaker 3: we really need chips, or we need to defend this

1017
00:53:17,239 --> 00:53:21,600
Speaker 3: principle whatever, et cetera. Is there really the domestic political

1018
00:53:21,760 --> 00:53:26,239
Speaker 3: appetite for massive conflict, et cetera. I don't know even

1019
00:53:26,320 --> 00:53:31,520
Speaker 3: beyond even beyond the economic question, does the appetite exist?

1020
00:53:31,640 --> 00:53:34,759
Speaker 3: But I really enjoyed that conversation. It was certainly very interesting,

1021
00:53:35,040 --> 00:53:37,720
Speaker 3: you know, hearing him, for example, walk through the math

1022
00:53:37,800 --> 00:53:40,960
Speaker 3: of how much shell oil China has and how much

1023
00:53:41,040 --> 00:53:43,000
Speaker 3: you would be able to how long it would be

1024
00:53:43,000 --> 00:53:46,200
Speaker 3: able to go with its existing stockpiles. And it does

1025
00:53:46,239 --> 00:53:49,600
Speaker 3: seem right this question of whether there will ever be

1026
00:53:49,920 --> 00:53:55,000
Speaker 3: some sort of serious change to the China Taiwan relationship,

1027
00:53:55,040 --> 00:54:00,000
Speaker 3: et cetera. And it's it's a complicated one on many dimensions.

1028
00:53:59,800 --> 00:54:02,920
Speaker 3: As he said in the beginning, yes, almost almost one

1029
00:54:02,920 --> 00:54:04,480
Speaker 3: of the most complicated questions there is.

1030
00:54:04,520 --> 00:54:04,600
Speaker 1: Oh.

1031
00:54:04,680 --> 00:54:08,080
Speaker 2: Absolutely, there's also a fundamental tension between you know, the

1032
00:54:08,200 --> 00:54:12,359
Speaker 2: US building out it's chips resilience while deterring China from

1033
00:54:12,400 --> 00:54:14,760
Speaker 2: doing something in Taiwan, and that if the US actually

1034
00:54:14,800 --> 00:54:20,000
Speaker 2: manages to be successful in building domestic capacity chip's capacity,

1035
00:54:20,040 --> 00:54:24,880
Speaker 2: than that, like the silicone shield that's protected, Taiwan gets

1036
00:54:24,920 --> 00:54:25,840
Speaker 2: weaker and weaker.

1037
00:54:25,920 --> 00:54:29,200
Speaker 3: Right, we have to start paying attention to upcoming Taiwanese

1038
00:54:29,280 --> 00:54:33,479
Speaker 3: election and start wondering whether the government in Taiwan will

1039
00:54:33,520 --> 00:54:37,080
Speaker 3: continue to be enthusiastic about the idea of the US

1040
00:54:37,560 --> 00:54:40,840
Speaker 3: building a chip capacity. This is a new uh, this

1041
00:54:40,920 --> 00:54:44,560
Speaker 3: is a new dimension of international relations and so forth

1042
00:54:44,560 --> 00:54:46,319
Speaker 3: that we have to key in on.

1043
00:54:46,800 --> 00:54:48,640
Speaker 2: You just want to go to Taiwan, Well, you know what.

1044
00:54:48,719 --> 00:54:50,239
Speaker 3: The one thing I will say is I do want

1045
00:54:50,280 --> 00:54:51,799
Speaker 3: to go to Taiwan. But the one thing I will

1046
00:54:51,800 --> 00:54:53,920
Speaker 3: say is I always want to learn more about the

1047
00:54:53,960 --> 00:54:56,440
Speaker 3: domestic policy of other countries, because I do think it's

1048
00:54:56,520 --> 00:54:58,720
Speaker 3: very easy to look at the US and say, okay,

1049
00:54:58,760 --> 00:55:01,520
Speaker 3: here I know a fair amount about American domestic policy,

1050
00:55:01,719 --> 00:55:04,280
Speaker 3: and then you hear about like, and here's Taiwan's policy,

1051
00:55:04,480 --> 00:55:08,640
Speaker 3: here's Iron's policy, here's Israel's policy, right, and there's Corea's policy.

1052
00:55:08,880 --> 00:55:12,000
Speaker 3: Is if there is just one right polity or it

1053
00:55:12,080 --> 00:55:14,680
Speaker 3: is just there is just this one unified thing. And

1054
00:55:14,719 --> 00:55:16,840
Speaker 3: I think it's important to remember that all these countries

1055
00:55:17,239 --> 00:55:20,680
Speaker 3: have domestic politics just like the United States.

1056
00:55:20,440 --> 00:55:24,200
Speaker 2: And disagreements and nuances and all of that. Yep, absolutely,

1057
00:55:24,239 --> 00:55:24,960
Speaker 2: shall we leave it there.

1058
00:55:25,040 --> 00:55:25,799
Speaker 3: Let's leave it there.

1059
00:55:25,920 --> 00:55:28,319
Speaker 2: This has been another episode of the Authots podcast. I'm

1060
00:55:28,360 --> 00:55:31,120
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.

1061
00:55:31,000 --> 00:55:32,920
Speaker 3: And I'm Joe wisanth All. You could have followed me

1062
00:55:32,960 --> 00:55:35,919
Speaker 3: at the Stalwart Fellow. Our guest Ike Freman, He's at

1063
00:55:36,000 --> 00:55:39,759
Speaker 3: Eke Freman Fellow or producers Carmen Rodriguez at Carmen armand

1064
00:55:39,840 --> 00:55:43,160
Speaker 3: dash Ol Bennett at dashbod Kelbrooks at Kilbrooks and Kevin

1065
00:55:43,200 --> 00:55:46,640
Speaker 3: Lozano at Kevin Lloyd Lozano. And from a odd Laws content,

1066
00:55:46,680 --> 00:55:48,880
Speaker 3: go to Bloomberg dot com slash odd Lots. We're of

1067
00:55:48,880 --> 00:55:51,160
Speaker 3: a daily newsletter and all of our episodes and you

1068
00:55:51,160 --> 00:55:53,200
Speaker 3: can chat about all these topics twenty four to seven

1069
00:55:53,280 --> 00:55:56,920
Speaker 3: in our discord Discord dot gg slash off Lots.

1070
00:55:57,239 --> 00:55:59,360
Speaker 2: And if you enjoy odd Lots, if you want us

1071
00:55:59,400 --> 00:56:01,400
Speaker 2: to take a trip to Taiwan, then please leave us

1072
00:56:01,400 --> 00:56:04,400
Speaker 2: a positive review on your favorite podcast platform. And remember

1073
00:56:04,440 --> 00:56:06,600
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1074
00:56:06,719 --> 00:56:09,399
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1075
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1076
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