The Challenge of China

The danger of seeking to emulate parts of the Chinese system is that the US might forget who it really is and what it is really good at; historically, the US has not been particularly effective at industrial policy and is learning slowly, with the risk of inducing distortions in the economy.

“The danger is that we run the risk of forgetting who we really are and what we're really good at. Generally, we've never been that good at industrial policy and we're learning, I'll say slowly, um, and inducing distortions in our economy along the way.”

Long-term demographic and economic trends favor the United States: while China's population will decline from 18% to 6% of global population by 2100, the US will remain at 4% of world population; China has slipped from 75% of US GDP to less than 66% by market exchange rates even over the last two to three years, whereas the US has maintained 25% of world GDP since 1980.

“you have to imagine the United States, for example, in 2100 is going to be 4% of the world's population. Today, we're 4% of the world's population, whereas China will move from 18% to 6%. That means fewer minds, fewer people, fewer hands inventing novel things. The United States in 1980 was 25% of the world's GDP by market exchange rates. And today we're 25% of the world's exchange rates. China has slipped from being 75% of US GDP to less than 66%. Even over the last two or three years.”

Catastrophic outcomes to avoid are: (1) China's internal collapse or civil war, which would cause global recession and create risks of loose nuclear weapons; (2) a new Cold War mentality that ignores economic interdependence between US and China and assumes a binary 'we win, they lose' outcome, which is unrealistic given mutual economic ties.

“The notion of um we win, they lose, to quote President Reagan, is obviously deeply appealing. But if that were to happen in the near term, it would be potentially catastrophic. Much of the world's economic growth is driven by China maintaining some sense of stability as an actor. And if they fell apart, perhaps civil war inside China, that would be um very difficult for the the world, global recession at least. And also, I worry a little bit about loose nukes.”

Long-term demographic and economic trends favor the United States over China: the US will remain 4% of world population in 2100 just as it is today, while China will decline from 18% to 6%; the US has maintained 25% of global GDP by market exchange rates for decades while China's share has declined from 75% of US GDP to less than 66% over recent years.

“the long-term trends definitely favor the United States. In addition to the examples that uh Liz addressed, you have to imagine the United States, for example, in 2100 is going to be 4% of the world's population. Today, we're 4% of the world's population, whereas China will move from 18% to 6%. That means fewer minds, fewer people, fewer hands inventing novel things. The United States in 1980 was 25% of the world's GDP by market exchange rates. And today we're 25% of the world's exchange rates. China has slipped from being 75% of US GDP to less than 66%.”

Under Xi Jinping, China has reasserted Party integration into the private sector, created a chilling effect on foreign investment, and enabled intellectual property theft by Chinese competitors who replicate foreign companies' IP and undercut them from nearby locations, fundamentally changing the politics of US-China engagement.

“what we've seen and as as as Liz talked about was uh you know very much a reassertion of the party uh integration of the party back into the private sector, a chilling effect on foreign investment and a lot of disappointment by uh non-Chinese firms who tried to do business in China and found that they were either having their IP stolen um that they were being very limited in their success that as soon as they were successful there was a Chinese competitor who has taken their chi their IP and set up a factory across the code and now was squeezing them out of the market.”

China has made substantial progress on all three strategic military objectives: tens of thousands of missiles can range the First Island Chain where US forces are largely based in fixed locations; hundreds of missiles can range as far as Guam or Hawaii; China has moved command and control capabilities underground; and China has placed rocket forces on mobile platforms throughout the country.

“Right now, tens of thousands of missiles can range what they call the First Island chain, where US forces are largely based in fixed above ground places. Hundreds of missiles can range as far as Guam or even Hawaii. That's all going to impede the United States ability to actually move forces near nearshore. And most of our forces still very short ranged. They've moved a lot of their command and control underground, making it very difficult for the US military to find and to kill. and they put a lot of their rocket forces on wheels, moving them all around the country, complicating the targeting cycle for the United States military.”

Xi Jinping stated he wants military capability by 2027, but he will not achieve it by that date, and the Pentagon plans based on what the president directs rather than on probability assessments, so the US must be prepared to defend Taiwan regardless of whether attack is likely.

“General Secretary Shei has said that he would like the capability by 2027. They're not going to make it. They're not going to be ready by 2027 in my view. That said, the Pentagon doesn't plan on probabilities. The Pentagon plans on what the president tells us to be ready to do, and we must be ready to defend Taiwan. And that's a monumental challenge, and we have a lot more work to do to get after it.”

The US has historically not been good at industrial policy and is learning slowly; even when implementing industrial policy for legitimate reasons (reducing dependencies, aiding stockpiles, reducing supply chain vulnerabilities), the US is inducing economic distortions.

“Generally, we've never been that good at industrial policy and we're learning, I'll say slowly, um, and inducing distortions in our economy along the way. Oftentimes, as Dr. economy suggested for good reason to reduce dependencies or to aid stockpilings or reduce supply chain dependencies.”

36% of Chinese undergraduates study engineering compared to 5% in the United States, representing a significant difference in human capital investment in technical fields that could affect future dominance in certain sectors.

“The economist has a fantastic article this week which I didn't write. I can praise it. um 36% of Chinese undergraduates are studying engineering, 5% in the states.”

China does not have an explicitly articulated vision for a new world order that it wants to replace the US-led system with; instead, Xi Jinping's four rejuvenation objectives were purely domestic political in focus, and China says it wants to participate in and benefit from the existing world order rather than fundamentally replace it.

“What was absent from that list was a new world order. That's because it was domestic politics. Okay. No, no, I wasn't critical. Was that was that I don't think we're we have a clear idea oursel that they have a world order that they want to replace us with. and they say that that they just want to continue to grow and and participate in the existing world order which they've benefited enormously from.”

The reform trajectory that Chinese leadership appeared to commit to after WTO accession did not go as far, did not go as fast, and was not as linear as many Western observers expected and were led to believe by Chinese leadership; this divergence occurred first under Hu Jintao and then very much under Xi Jinping.

“what we've learned since is that first with Huin Tao and then very much with Xi Jinping that that path of reform didn't go as far, didn't go as fast and wasn't as linear as uh many of us expected and were led to led to believe.”

Generational turnover in Chinese politics is critically important because Xi Jinping's generation (sent to countryside during Cultural Revolution, witnessing brutal acts, massacres, and purges) is 'damaged' and 'brutalized' by that experience; a Chinese academic of Xi's generation described his cohort as 'the worst people' and said China has 'no hope' until that generation leaves power.

“I remember talking to a Chinese academic, very distinguished reformer, now brokenhearted, still has his job, exactly the same age as Xiinping, and he had had the same experience as Xiin Ping. He was sent down to the countryside, saw terrible, brutal acts, massacres, purges in his sort of teenage years. He goes, "We are damaged, my generation. We are the worst people. We are damaged and brutalized. And until we leave the scene, this country has no hope."”

Taiwan is important to the US as a strategic democracy in the region, an independent entity, an important economic partner, and this has had strong historic bipartisan support in Congress, though recent signs suggest some weakening of that commitment.

“So like I uh I mean I think there's been strong historic support for Taiwan as a important democracy in the region um as an independent entity um and as an important economic partner. I think what we've seen is I think I don't think President Trump necessarily fully buys into all that. And I think folks who have been very strong on the importance of defending Taiwan have begun to weaken in in in the Congress.”

Both Trump and Biden administrations view China's WTO entry in 2001 as having been a mistake, reflecting convergence across administrations that this was a costly error regardless of political party.

“And Liz, you you just worked in the Biden administration and I guess the outside world's sort of view is that actually there was a remarkable continuity between Trump won and Biden that you know broadly WT entry in 2001 for China had been a terrible mistake. Is that a fair characterization of where politics is now was when you were in government recently?”

The US historically exports the ideas of free trade, human rights, state sovereignty, and people finding their own way; if the US does not compete with China, China will export a different set of values to the world, including surveillance authoritarianism (requiring citizens to check an app confirming Xi Jinping thought) and absence of freedom of speech, assembly, and petition.

“states as they grow powerful tend to export externally what their domestic context demands internally. The United States is a an empire by invitation, an accidental empire, and what is one of the most isolationist states philosophically in the world. And yet we've tried this. We and what do we export? We export the idea as as Mike mentioned, we export the idea of free trade. We export the idea of human rights. We export the idea of state sovereignty, of people finding their own way. What will China export if we don't compete? You know, uh, no one in this room had to check an app and confirm that you were reading Xi Jinping thought. Nobody in this room wonders if the person sitting next to them who you've never met is going to tell the government about something you've said. This panel with implicit critique of the current administration and past administrations doesn't exist in Beijing. Freedom of speech, freedom of assembly, freedom to petition the government for address. Aspen, America does not exist in the Chinese order.”

The US commitment to free trade is also questionable: the country can no longer be called 'the biggest advocate for free trade out there,' contradicting Jim Baker's argument that free trade is a distinctive US value and export.

“certainly, I don't know, Mike, wouldn't call ourselves the, you know, biggest advocate for free trade uh out there.”

The G7 issued a statement that countries supporting Russia's invasion of Ukraine would not be included in Ukraine reconstruction efforts and would not have access to those economic benefits.

“in fact, I think the G7 came up with a came out with a statement to the effect that that um states that support supported the invasion are not going to be part of are not the reconstruction are not going to have those benefits.”

Export controls on semiconductor technology have been quite successful in constraining China's technological advancement; the evidence is China's neuralgic (highly sensitive and reactive) response to export controls—they are China's top grievance, more concerning to China than tariffs—indicating that export controls are having significant effect.

“I I agree I agree with Dr. Economy here. Um, uh, I think it's been quite successful and I think one data point of how successful it is is that the Chinese are neuralgic about it. It's their number one issue. As you raised on, you know, the question about the the massacre and coming out against it, it is the number one thing that they are upset about. They feel they can work their way around tariffs. Uh probably at some level that's more difficult, but they feel that tariffs are something they can digest. They can't digest the the lack of access to to technology”

DeepSeek's ability to release advanced AI models despite US export controls has been limited in its second iteration due to lack of access to NVIDIA chips; however, China has found workarounds including black market acquisition and use of third-country intermediaries, and Chinese indigenous innovation was already underway before export controls and has been accelerated by them.

“you can see right now the challenges that DeepS is having in in terms of releasing, you know, round two. Um it's said that it it basically it can't do that in part because it doesn't have access to the NVIDIA chips that it it needs. But yes, China has many workarounds. I mean we've seen them yes push forward on their innovation which they were already doing. So you know their indigenous innovation was already moving them in this direction but has accelerated the process. They find you know things they need you know on the black market. They go through third countries to get what they need. Uh so there all sorts of workarounds.”

There is a 'temporal inequality' in China—a sense that there were specific windows when entering the property market or job market at the right time created opportunities for upward mobility, but those ladders are disappearing, and this absence of social mobility ('fewer trains to catch') is a major source of male discontent in the population.

“it's not just inequality of classes and income. It's also a sense of temporal inequality if that's a phrase that there was a sense that there were times when if you got on the property ladder 15 years ago or you entered the job market at the right time that there are opportunities the ladders are just disappearing. I think that's one of the greatest sources of males in the population is the idea of there are just Chinese use this phrase about shang catch the train change your life there just fewer trains to catch”

The United States economy continues to grow and outperform every other OECD country and most of the rest of the world, demonstrating ongoing competitive strength even without adopting Chinese industrial policy approaches.

“Your magazine in October of 2024 had a fascinating special edition on how the United States economy just continues to grow and basically kick the crap out of every other OECD country and most of the rest of the world.”

China has begun practicing amphibious invasion operations to seize Taiwan across 100 miles of water, which is one of the hardest military maneuvers to execute, and Xi Jinping likely lacks high confidence that such an operation would succeed currently.

“And the last thing they've done is they've begun to build or at least to practice either quarantining or maybe trying an amphibious invasion. One of the hardest military maneuvers you can ever try to attempt across 100 miles of water. It's going to be dicey for Xiing Ping and he cannot have a lot of confidence at this moment that he should attempt such a thing.”

China does not seek to replace the current world order with a clear alternative vision, but rather wants to simply continue to grow and participate in the existing rules-based globalist system that it has benefited enormously from, and has never articulated wanting a new world order.

“I don't think we're we have a clear idea oursel that they have a world order that they want to replace us with. and they say that that they just want to continue to grow and and participate in the existing world order which they've benefited enormously from.”

The G7 issued a statement that states supporting Russia's invasion of Ukraine will not be part of Ukraine reconstruction and will not receive reconstruction benefits, directly addressing the concern that China could benefit from Ukrainian rebuilding.

“In fact, I think the G7 came up with a came out with a statement to the effect that that um states that support supported the invasion are not going to be part of are not the reconstruction are not going to have those benefits.”

Trump has discussed wanting to do a 'grand bargain' with Xi Jinping, believing he has a good relationship with him and can negotiate a settlement of the Taiwan issue, possibly involving a fourth communiqué that would solve Taiwan status.

“There's been talk about, you know, the president's talked about, President Trump's talked about wants to do a grand bargain with with Shei. He believes he's got a good relationship with them. He believes he can negotiate something. There's talk about a fourth communicate that would sort of solve the the Taiwan issue.”

The best long-term scenario for US-China relations would be some form of 'transmutation' (internal change) in how the Chinese Communist Party and ruling class regard their duty to citizens, similar to how Britain and France eventually ended centuries of antagonism; the US has not had war plans against the UK for roughly 100 years.

“The best answer would be eventually over a much longer time period some transmutation of the way the Chinese Communist Party, the Chinese ruling class regards itself and its duty to its citizens. In the same way that we saw, I don't know, Britain and France eventually give up after several hundred years of uh warfare and outright antagonism to come to the place they are now. The United States hasn't had a war plan against the United Kingdom since roughly 100 years.”

Both the US and China are running fiscal imbalances as far as the eye can see with ever-diminishing effect: this severely crimps China's economic growth to probably 2-3% in real terms last year and probably less this year, and does not yet seem to be exerting much gravitational pull on the United States.

“The one thing both states seem very eager to do is to uh run fiscal imbalances. uh as far as the eye can see to ever diminishing effect and that is severely crimping China's economic growth probably 2 to 3% in real terms last year probably less than that this year and doesn't really yet seem to exerted much gravitational pull on the United States”

Trump's recent statement about foreign policy focusing on trade and economic prosperity rather than democracy promotion is the same as Xi's position; therefore, Trump has effectively adopted Xi's foreign policy view, and the challenge is how that convergence will play out given that both leaders are now operating from the same playbook.

“Donald Trump in say the Gulf in Riyad. That speech where he said how dumb it was for America to pursue democracy promotion to do regime change that everything should be about trade that economic prosperity is what cures all ills in a place like the Middle East. I can find you Xiinping speeches where he said exactly the same. So the kind of the fascinating moment we're at is that Donald Trump just stole Xiinping's favorite foreign policy.”

There exists a 'temporal inequality' in China where younger people perceive that opportunities to change one's life (via property ownership, job market entry at favorable times) have disappeared, creating widespread malaise in the population summarized by the Chinese phrase 'shang' (catch the train) with fewer trains to catch.

“it's not just inequality of classes and income. It's also a sense of temporal inequality if that's a phrase that there was a sense that there were times when if you got on the property ladder 15 years ago or you entered the job market at the right time that there are opportunities the ladders are just disappearing. I think that's one of the greatest sources of males in the population is the idea of there are just Chinese use this phrase about shang catch the train change your life there just fewer trains to catch”

It is entirely possible and not mutually exclusive that China could both dominate key technologies of the future AND have a stagnant and less happy society simultaneously.

“if the choice is are they going to dominate key technologies of the future versus are they going to have a stagnant and less happy society maybe both right it's entirely possible that both could be the solution.”

States as they grow powerful tend to export externally what their domestic context demands internally; the United States is an 'empire by invitation' and accidents of history, and philosophically one of the most isolationist states in the world, yet it exports the ideas of free trade, human rights, state sovereignty, and people finding their own way.

“Generally states as they grow powerful tend to export externally what their domestic context demands internally. The United States is a an empire by invitation, an accidental empire, and what is one of the most isolationist states philosophically in the world. And yet we've tried this. We and what do we export? We export the idea as as Mike mentioned, we export the idea of free trade. We export the idea of human rights. We export the idea of state sovereignty, of people finding their own way.”

A question remains about what advantage a 6-month or 2-year technology lead translates to strategically—what transformative capability can be achieved in that window, or does it merely provide bragging rights without fundamental strategic change.

“I think there's a question not for this session for another session. What does it mean to be six months or two years ahead? And does that matter if they ultimately get there? you know, what do you what do you do with that six-month period that's going to fundamentally transform the world? Or is it just that we get to crow about the fact that we got there before they did?”

The US could learn from China's approach in specific areas: embracing competition to make companies stronger, accepting foreign investment, ensuring certainty and predictability in business environments, and investing heavily in technical education (36% of Chinese undergraduates study engineering vs 5% in the US).

“you know, it feels like we're learning all the lessons at the moment, the wrong lessons. It's like China is protectionist, has subsidies and industrial policies. Let's let's be that. But what couldn't America also learn from like embracing competition and certainty and attracting foreign investment and educating kids? The economist has a fantastic article this week which I didn't write. I can praise it. um 36% of Chinese undergraduates are studying engineering, 5% in the states.”

The Russian invasion of Ukraine caused US corporate boards to become concerned about potential China-Taiwan conflict and its impact on US business, based on their observation of how US sanctions against Russia affected business operations.

“But but Russian invasion of Ukraine was also important because you started to have boards of companies become concerned about uh the potential for you know, China and Taiwan, you know, watching what the administration did in terms of the sanctions. So what would be the impact on US business if you had something similar happen in that space?”

Generational change in Chinese leadership is important, and the cohort that came of age during the Cultural Revolution (including Xi Jinping) was damaged by the brutal experiences they witnessed (massacres, purges), making them unsuitable for reform leadership.

“I remember talking to a Chinese academic, very distinguished reformer, now brokenhearted, still has his job, exactly the same age as Xiinping, and he had had the same experience as Xiin Ping. He was sent down to the countryside, saw terrible, brutal acts, massacres, purges in his sort of teenage years. He goes, "We are damaged, my generation. We are the worst people. We are damaged and brutalized. And until we leave the scene, this country has no hope."”

Both China and the United States could dominate key technologies of the future AND have a stagnant, less happy society simultaneously; these outcomes are not mutually exclusive, and it is possible that China will achieve technological dominance while experiencing internal social stagnation and unhappiness.

“if the choice is are they going to dominate key technologies of the future versus are they going to have a stagnant and less happy society maybe both right it's entirely possible that both could be the solution.”

Interdependency is generally beneficial until it becomes perceived as frightening and a vulnerability; the same economic ties that were celebrated as stabilizing and mutually beneficial suddenly appear as threatening strategic vulnerabilities when geopolitical tension rises.

“It felt like that whole question of interdependency suddenly pivoted, right? Interdependency is great, right? Until it becomes frightening, right? And then exactly the same ties suddenly feel like a terrible vulnerability.”

Every country pursues its national interests first, but some countries historically define those interests in an 'enlightened way' where they see value in providing global public goods and are willing to make sacrifices or compromises; thus far, China has been able to avoid providing such global public goods and defines its interests narrowly.

“every country pursues their national interests first. But some countries have historically defined those national interests in an enlightened way where we think there is value to global public goods that we all benefit from and are willing to make certain sacrifices or certain compromises to help provide those global public goods. Thus far, China has been able to avoid doing that.”

When the day after the Bucha massacre (a suburb of Kyiv in Ukraine where Russian soldiers killed civilians), the Chinese Foreign Ministry responded to calls for China to condemn it by asking whether the US would lift semiconductor export controls on China if China condemned the massacre, demonstrating China's cold, transactional, chess-playing approach to international morality.

“One of the most shocking things...remember very early on the day after the BHA massacre that suburb of Kev you all remember very early on going to see the foreign ministry for abolicking and the the BHA our call for China to condemn this came up and they said if we condemned the BHA massacre would you lift the controls on semiconductors and I said I think if you think we're going to pay you to condemn the massacre you're misreading the mood right now but that that kind of mood.”

Chinese ambassador behavior demonstrates China's narrow self-interest orientation: when the US withdrew PEPFAR (President's Emergency Plan for AIDS Relief) funding for HIV antiretrovirals in South African townships, China refused to step in despite low cost (~$8 billion annually), citing its tradition of not providing direct grants, thereby missing an opportunity to displace US goodwill in Africa.

“I was just interviewing the Chinese ambassador in South Africa and I said, you know, America's just canled the bulk of the PEP file funding that certainly in South African townships where I was was, you know, providing HIV antiretrovirals. And I said, so ambassador, you're going to step up and pay for that stuff. And he's like, our tradition is not to have direct grants. I was like why? And it was like because they're very comfortable criticizing. That's a perfect example. PEPAR incredibly successful program started by George W. Bush created a fantastic goodwill for the United States across Africa and not very expensive and the Chinese could pick it up for $8 billion a year and completely displace our goodwill in that in that in that continent.”

The US Commerce Department should have conducted a study of the efficacy of export controls to understand what outcomes were being targeted and whether those outcomes were actually being achieved, but this effort was unsuccessful; Secretary Raimondo's final statement reframed the goal from 'slowing China down' to 'running faster' (improving US R&D and manufacturing rather than constraining China).

“I always argued in the commerce department that we needed to do a study of the efficacy of export controls because as we were moving forward with them, I wanted to understand what is it we're trying to accomplish with them and what are we actually gaining? You know, is this a six-month lead? Is this a two-year lead? What do we think we're getting out of this? And are we actually getting that? Um I can't say that I was successful in in that particular effort. But I think if you look at one of the final statements that my former boss, Secretary Roando, uh made when she left, she said, you know, it's not about trying to slow China down. It's about running faster. We're not going to be able to contain them. We've got to run faster. And to me, that's really the the point is that what are we doing to invest in ourselves, in our R&D, in our advanced manufacturing? How does the United States move ahead?”

The question of whether a 6-month or 2-year technology lead matters is unresolved; it depends on whether a short technological lead can be converted into something that fundamentally transforms the world, or whether it only provides bragging rights while the adversary eventually catches up.

“I think there's a question not for this session for another session. What does it mean to be six months or two years ahead? And does that matter if they ultimately get there? you know, what do you what do you do with that six-month period that's going to fundamentally transform the world? Or is it just that we get to crow about the fact that we got there before they did?”

The best long-term outcome for US-China relations would be a 'transmutation' in how the Chinese Communist Party and ruling class regard themselves and their duty to citizens, similar to the historical transformation that occurred between Britain and France after centuries of warfare—from adversaries to partners—though such an outcome is highly unlikely in the near term.

“The best answer would be eventually over a much longer time period some transmutation of the way the Chinese Communist Party, the Chinese ruling class regards itself and its duty to its citizens. In the same way that we saw, I don't know, Britain and France eventually give up after several hundred years of uh warfare and outright antagonism to come to the place they are now. The United States hasn't had a war plan against the United Kingdom since roughly 100 years. So, could I imagine that future? Yes. Is it likely? No.”

The US ambassador to Afghanistan recounts that the Chinese ambassador explicitly told him 'Please don't pull your troops out of Afghanistan too quickly. We need them to protect our mines,' revealing that China was willing to see US forces deployed to secure Chinese economic interests.

“I remember at the one stage I was briefly involved in the draw down of in Afghanistan and the Chinese ambassador came in to see me and said, "Please don't pull your troops out of Afghanistan too quickly. We need them to protect our mines." And I said, "That's the sort of thing that's a thought bubble, but not a say bubble. You're not you're not actually supposed to say that."”

Export controls on advanced technology have not been a catastrophic failure; China faces challenges in releasing next-generation products (like DeepSeek's second round of offerings) partly due to lack of access to NVIDIA chips, showing controls do have some effect even though China finds workarounds.

“I I don't think it's been a catastrophic failure. And you can see right now the challenges that DeepS is having in in terms of releasing, you know, round two. Um it's said that it it basically it can't do that in part because it doesn't have access to the NVIDIA chips that it it needs.”

China has been pushing de-dollarization for more than a decade, but accelerated the strategy by shifting from talking about renminbi internationalization to asking why any single currency should dominate—a reframing that is gaining traction and accelerating.

“China has a vision of...ddollarization right China has been pushing this uh for more than a decade now we haven't paid much attention to it but now all of the sudden it's gaining a lot it's the process is accelerating because China got a lot smarter it stopped talking simply about renmanb internationalization and it started talking about why shouldn't all countries be able to use their own currencies right why should the dollar be the dominant currency”

The consensus view in Washington has shifted from a few years ago when there was disagreement between those who thought China was '12 feet tall' and those who thought it was '2 feet tall,' with the vast majority now viewing China as a very significant threat, which creates a risk of groupthink where the policy realm tends to underplay China's internal structural challenges in favor of focusing on the threat China poses.

“I think a few years ago I think there was a b a balance or schizophrenia between those who thought China was 12 feet tall and those who thought it was 2 feet tall. I think um I think right now the vast majority of the consensus it views China as a very significant threat and I don't see many people being terribly complacent about it. I think that's actually a risk because there's a lot of group think where and and Liz has been a great counter example of raising questions about fundamental challenges in in China. Um I think we tend to underplay those challenges in the policy realm in Washington and instead really just focus on the threat or the challenge that they pose.”

The current consensus in Washington views China as a very significant threat; complacency about China is no longer widespread, but this consensus view carries a risk of groupthink where policymakers underplay the fundamental internal challenges China faces (corruption, demographics, inequality) and instead focus narrowly on the threat China poses, creating a distorted threat assessment.

“I think right now the vast majority of the consensus it views China as a very significant threat and I don't see many people being terribly complacent about it. I think that's actually a risk because there's a lot of group think where and and Liz has been a great counter example of raising questions about fundamental challenges in in China. Um I think we tend to underplay those challenges in the policy realm in Washington and instead really just focus on the threat or the challenge that they pose.”

Some Chinese scholars and officials believe that Trump's desire to reengage with Vladimir Putin and bring Russia in from geopolitical isolation is advantageous for China because it will remove European nagging about China's relationship with Russia, and China could position itself as a beneficiary of Ukraine's reconstruction.

“There was a track two thing where a Chinese scholar said Donald Trump's desire to reengage with Vladimir Putin to bring Russia in from the cold is a fantastic opportunity for China because all this nagging we've had for three years from the Europeans about being friends with Russia goes away. And I think there are Chinese officials and scholars and business leaders who figure that actually they could end up as winners from the Ukraine war invited to rebuild Ukraine, bringing in the infrastructure, playing a role in the peace talks.”

We should acknowledge our 'better self' rather than aiming for our 'best self'—a more modest but achievable standard for US foreign policy; even with current dysfunction, the US simply needs to perform at a higher level than China is performing, not achieve perfect adherence to values.

“Well, um five months, eight months is not 80 years. We need to be and acknowledge our better self. We don't need to be our best self. I mean, I think it's interesting we're sort of in the same position.”

Trump's recent statements in Saudi Arabia about the foolishness of US democracy promotion and regime change, arguing instead that economic prosperity solves all problems, align closely with Xi Jinping's stated foreign policy views, suggesting Trump has inadvertently adopted China's preferred foreign policy approach.

“The challenge for them right now is that you saw Donald Trump in say the Gulf in Riyad. That speech where he said how dumb it was for America to pursue democracy promotion to do regime change that everything should be about trade that economic prosperity is what cures all ills in a place like the Middle East. I can find you Xiinping speeches where he said exactly the same. So the kind of the fascinating moment we're at is that Donald Trump just stole Xiinping's favorite foreign policy.”

Chinese scholars and officials believe that Trump's desire to reengage with Vladimir Putin and bring Russia in from the cold represents a fantastic opportunity for China because it removes European criticism of China's Russia alignment, and China could position itself to benefit from Ukraine reconstruction.

“There was a track two thing where a Chinese scholar said Donald Trump's desire to reengage with Vladimir Putin to bring Russia in from the cold is a fantastic opportunity for China because all this nagging we've had for three years from the Europeans about being friends with Russia goes away. And I think there are Chinese officials and scholars and business leaders who figure that actually they could end up as winners from the Ukraine war invited to rebuild Ukraine, bringing in the infrastructure, playing a role in the peace talks.”

Over the last five months (since the Trump administration began), the US has driven Europe away by imposing tariffs on European goods, causing Europe to seek a 'third way' between full US alignment and accommodation with China, thereby undoing the security alignment that China's Ukraine stance had previously created.

“What's happened in the last five months to be frank is we've sort of let China off the hook because we've now driven Europe to say okay we really do need a third way. we can't be fully aligned with the United States. They're putting tariffs on us and yet we know China remains um a major a major economic uh challenge as well.”

PEPFAR was an incredibly successful program that created significant US goodwill across Africa, was not very expensive, and China could displace that goodwill by simply taking it over for approximately $8 billion per year—yet China chooses not to, revealing preference for influence without responsibility.

“PEPAR incredibly successful program started by George W. Bush created a fantastic goodwill for the United States across Africa and not very expensive and the Chinese could pick it up for $8 billion a year and completely displace our goodwill in that in that in that continent.”

It is important to acknowledge that the US can still be its 'better self' even without being its 'best self'—a return to traditional values need not require perfection, just returning to historical standards of conduct.

“Well, um five months, eight months is not 80 years. We need to be and acknowledge our better self. We don't need to be our best self. We just need to be our better self.”

China failed to supplant the United States in the first Trump administration (2017-2021) and has proved surprisingly ineffectual in stepping into the void created by US withdrawal from global institutions.

“Whether China steps up to supplant the United States, I think is a different issue. They failed in 2017 in the first Trump administration, and I would say they've proved surprisingly ineffectual to date. Anyway, okay.”

General Secretary Xi Jinping has set a goal to have military capability to take Taiwan by 2027, but he is unlikely to achieve this goal by that date; the task is extraordinarily difficult (an amphibious operation across 100 miles of water) and Xi likely lacks confidence in success at this moment.

“President Xi has said, excuse me, General Secretary Shei, President is too much of an honorific. General Secretary Shei has said that he would like the capability by 2027. They're not going to make it. They're not going to be ready by 2027 in my view. That said, the Pentagon doesn't plan on probabilities. The Pentagon plans on what the president tells us to be ready to do, and we must be ready to defend Taiwan.”

Europeans show stronger commitment to managing China than they do to resisting Trump: while expressing fear of Trump, they recognize that China is also problematic and have not bent toward China despite pressure, and the G7 explicitly stated that states supporting Russia's invasion will not participate in Ukrainian reconstruction.

“I think the Europeans um are a little bit stronger than maybe we might have given them credit for in the sense that um it's a little bit more like uh yes the United States sucks now but it doesn't mean that China doesn't suck too basically and I think they recognize that China is still problematic. So the fact that we're doing what we're doing um doesn't mean that they're turning toward China in a significant way. And so what I've seen coming out of the Europeans has been very much don't expect to be there for the reconstruction given your current support for Russia.”

Trump's talk of potentially invading Greenland for access to critical minerals and rare earth elements contributes to enabling Xi Jinping's vision by diminishing the United States' moral standing and credibility on the global stage while justifying China's own territorial expansion by analogy.

“I mean, to me, what we're doing is both diminishing the United States on the global stage and enabling China's vision. While we're talking about invasion, let's talk about Ukraine because I was in China for the whole of the the beginning of the Ukraine war.”

China's initial response to the Bucha massacre in Ukraine was cold and transactional—offering to condemn the massacre only in exchange for lifting US semiconductor export controls—demonstrating China's pragmatic, self-interested approach to major geopolitical events.

“I was in China for the whole of the the beginning of the Ukraine war. One of the most shocking things to your point Mike about the the kind of the cold kind of chess playing analysis that China has of this remember very early on the day after the BHA massacre that suburb of Kev you all remember very early on going to see the foreign ministry for abolicking and the the BHA our call for China to condemn this came up and they said if we condemned the BHA massacre would you lift the controls on semiconductors”

If Trump made a transactional deal on Taiwan, it would likely involve the US accepting that Taiwan is not worth defending US lives for, extracting 50% of TSMC's manufacturing capacity as compensation, which Xi would 'take in a heartbeat'—a deal where Trump exchanges strategic asset for economic value.

“part of this grand bargain given our how we now understand the president's both transactional and the transaction begins with economics would be very happy to say to President Sheay of course we're not going to spill American blood for Taiwan I mean we have a trade deficit with them we don't even like them all we need is 50% of TSMC and that would be a bargain I think President Xi would take in a heartbeat”

The best case scenario is 'selective decoupling'—not complete economic separation but addressing specific unacceptable dependencies (critical minerals, semiconductors, rare earths) and coming to agreement on what a sustainable economic relationship should look like, while the extent of decoupling in strategic sectors remains undefined.

“the best case is that we end up with selective decoupling. So not complete decoupling but the we address those dependencies that we currently have that uh we view as unacceptable and address them and come to some sort of agreement of what a sustainable economic relationship looks like um and what the strengths what the extent and limitations of that are.”

When the US cancelled PEPFAR (President's Emergency Plan for AIDS Relief) funding in Africa, China expressed unwillingness to replace it through direct grants, citing the Chinese tradition of not providing direct aid, which suggests China is unprepared or unwilling to substitute for withdrawing US global public goods provision.

“I was just interviewing the Chinese ambassador in South Africa and I said, you know, America's just canled the bulk of the PEP file funding that certainly in South African townships where I was was, you know, providing HIV antiretrovirals. And I said, so ambassador, you're going to step up and pay for that stuff. And he's like, our tradition is not to have direct grants.”

During the Afghanistan withdrawal, the Chinese ambassador told US officials 'Please don't pull your troops out of Afghanistan too quickly. We need them to protect our mines'—a candid statement of China's preference to let the US bear the costs of securing resources China benefits from, representing the kind of thinking China employs in its geopolitical strategy.

“I remember at the one stage I was briefly involved in the draw down of in Afghanistan and the Chinese ambassador came in to see me and said, "Please don't pull your troops out of Afghanistan too quickly. We need them to protect our minds." And I said, "That's the sort of thing that's a thought bubble, but not a say bubble. You're not you're not actually supposed to say that."”

Both China and the US are running fiscal imbalances 'as far as the eye can see to ever diminishing effect'—these deficits are severely crimping China's economic growth (probably 2–3% in real terms last year, probably less than that this year) but have not yet exerted gravitational pull on the United States economy.

“the one thing both states seem very eager to do is to uh run fiscal imbalances. uh as far as the eye can see to ever diminishing effect and that is severely crimping China's economic growth probably 2 to 3% in real terms last year probably less than that this year and doesn't really yet seem to exerted much gravitational pull on the United States”