Innovation Files: Where Tech Meets Public Policy

Containing China While Rebuilding the United States, With Jonathan Ward

• Information Technology and Innovation Foundation (ITIF) — The Leading Think Tank for Science and Tech Policy • Episode 76

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America can’t just pick up speed to beat China economically; it needs to slow down China, because there’s no use in accelerating when your adversary is along for the ride. Rob and Jackie sat down with Jonathan Ward, author of China’s Vision of Victory, to discuss where things stand in innovation and technology, and how the U.S. can maintain its position as the world’s largest and most sophisticated economy.

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Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, founder and president of the Information Technology and Innovation Foundation.

Jackie Whisman: And I’m Jackie Whisman. I head development at ITIF, which I’m proud to say is the world’s top ranked think tank for science and technology policy.

Rob Atkinson: This podcast is about the kinds of issues we cover at ITIF and the broad economics of innovation to specific policy and regulatory questions about new technologies. If you’re into this stuff, please be sure to subscribe and rate us, that really helps. Today we’re going to talk about China and in particular, technology competition with China, what’s it all about, and more importantly, what should the US do?

Jackie Whisman: Jonathan Ward has been studying Russia, China, and India for nearly 20 years. His new book, The Decisive Decade: American Grand Strategy for Triumph Over China, will be released on April 25th, which is two days before our all day conference on this subject on April 27th, which we’ll link to in the show notes. The book has a focus on revitalizing US and allied economic power, the role of major corporations and financial institutions in US national security and the return to peace through strength. Dr. Ward is also the author of China’s Vision of Victory: A Guide to the Global Grand Strategy of the Chinese Government. Welcome.

Jonathan Ward: Thank you, great to be with you.

Jackie Whisman: We’ll jump into it. If you can tell us about your book and how it differs from other things you’ve written.

Jonathan Ward: Absolutely. So, The Decisive Decade picks up really exactly where I left off with China’s Vision of Victory, which was really the first book to explain the global grand strategy of the Chinese government in their own documents and words to prove that it was global, to show all the different regions that were in play. Really, their vision of the future, which of course tracks a very long timeframe out to the symbolic date of 2049. And at the end of China’s Vision of Victory, of course it made sense to talk about what are we supposed to do about this? So I really laid out a few goals. One, the US has to win a global economic competition with China, two, we have to unite the democracies in common cause, and three, we have to maintain military superiority over both Russia and China.

And then when you think about 2049 as their ultimate destination, that’s really a timeframe that matters in their planning in a certain sense, but it’s mostly symbolic. So what I said in the first book was this is really going to be one or lost by 2030. For America, this is a contest for the year, not 2049, but 2030. We have just this decade, I think, to win or lose this contest. So it matters that we’re now in this game. I mean, we weren’t. I think when China’s Vision of Victory came out, we were still deciding whether or not there was an issue. But now that’s something that’s made great strides in our policymaking communities and in our society in general. So having a theory of victory is the important step. For years after China’s Vision of Victory came out, I was always asked two questions. One, can they actually succeed at this, and two, what should we do about it? So The Decisive Decade is my response, in a sense, to my own first book, which laid out their strategy. What are we going to do with it? What should an American grand strategy look like across the entire spectrum, economic, military, diplomatic, and then of course ideas and ideology? How can we create a US grand strategy that will actually succeed against the real strategies of the Communist Party of China?

Jackie Whisman: Why do you think this is the decisive decade?

Jonathan Ward: Well, I think it has largely to do with economic power. For many years, people forecast that China would surpass the United States in the 2020s. And even though that idea has started to become, let’s say, less popular in Washington with the theory of peaking China, I think still in the business community and in the finance world, you have many that expect China to ultimately surpass the United States. So that matters. I think we have to make sure that we never reach that turning point that the US in fact remains the world’s largest and most sophisticated economy. I think handing that off to our adversaries would be an enormous mistake. We’ve already lost certain games in the economic arena, but we have to maintain our position.

Also, many of the Communist Party’s own strategies really culminate in the 2020s. Military modernization has a great deal to do with this decade. Made in China 2025, of course also slightly symbolic, but has a great deal to do with what they’re able to achieve now. I think really seeing them go from a regional power to a global military power, if left unchecked, that also happens in this decade. So I think if we wait till the 2030s to really get in gear, we will have lost the long game. But if we do it now with the time remaining, then there’s still a real shot for America to offset and prevent what the Communist Party sees as a turning point in history where it becomes the dominant superpower.

Jackie Whisman: Can you talk a little bit about if we were to fall behind this decade, why wouldn’t we be able to catch up or surpass them the following decade?

Jonathan Ward: Well, I think the real issue is that if they’re able to consolidate their position in the world economy and in international trade, in global markets. If we really see, for example, the Chinese corporation take flight in global markets as it’s already done. You look at the share of Chinese companies on the Fortune Global 500 and it’s increasing to the point that there are more Chinese companies than American companies. All of that, if that continues to move forward, and also if we continue to engage China, and this is the other side of it, we’re continuing to fund essentially the rise of our adversary, to transfer technology. We’re watching our businesses continue to engage in the China market. Our financiers projecting that China will continue to expand for the rest of the 2020s. JP Morgan, for example, projects 4% to 5% growth for the entire of the 2020s, not withstanding what’s said in Washington.

So if all of that happens, they’re going to have a very different hold over the world economy, over its strategic industries, key technologies, and also over global markets. So we are not, for example, really competing the way that they are in Africa, Latin America, and other parts of the developing world, and much of their strategy relates to that. So there’s a lot that we can do now that if we don’t do now, I don’t think we’ll have a second shot at it. We won’t have a second shot at removing China essentially as the dominant economy and trading partner, let’s say, in the OECD. We’re going to have to scale back our engagement with China and then also to begin a real competition for the emerging world markets. You don’t get a second shot at that I think if we lose the 2020s.

Rob Atkinson: I don’t disagree with you, Jonathan. I wish I did because fundamentally this is a very pessimistic message. So we’ll get to this question of whether we can really respond or not, but let me ask you a broader question because one of the debates that is going on in Washington is how much should we be focused on slowing China down versus speeding us up? I get this isn’t a Miller Light commercial where it tastes great and it’s less filling, but I’d just be curious if you had to put a ratio on that, what ratio would you put on it?

Jonathan Ward: I think it matters a great deal, Rob, and the two pillars that I’ve laid out in the economic arena are really economic containment of China and then also rebuilding the United States and the industrial base in the allied economies. And I think you have to do both. My bumper sticker for that is it makes no sense to speed up your own car if your adversary is sitting in the passenger seat right next to you. That’s what we’re doing now. Right now we’re in an integrated economic situation, and what I think we really need to do is enter into a systems competition with the People’s Republic of China. That’s something that we can win. However, if we’re innovating, they’re stealing and they’re applying it in an unrestricted way at scale in global markets. That ultimately is their path to dominance in the world economy. It’s the path they’ve taken thus far.

But if you start to separate the economies and do essentially strategic decoupling, not wholesale, but across the right industries, technologies, but also have a response to them in global markets. If they’re unable to commercialize, for example, stolen technology across entire sectors or even companies. There are many ways we can do this. Economic containment I think is the right way forward. If we’re just going to run faster and they’re going to run faster and pick our pockets, we’re going to lose that game very, very readily.

Rob Atkinson: Yeah, absolutely. There’s so much I disagree with Larry Summers on on a pretty much every day when he says something, but he recently pontificated on this and said we should be focused only on speeding us up and not on slowing China down. And you hear that narrative a lot in Washington and it’s partly because at the end of the day, this sort of unreconstructed, globalist free traders who would put China in the same category as say Canada, we trade with Canada, we trade with China, so what’s the difference? But I agree with you that we need to be thinking about both of those.

Jonathan Ward: Well, and if I may add something to that, it’s very important that we also have a strategy that actually deals with their strategy. To say, let’s just run faster, you’re not actually addressing Communist Party strategy. We have to dismantle their global grand strategy. So I laid that out in China’s Vision of Victory. I’ve revisited it in more depth in certain ways in The Decisive Decade, but the bottom line is we have an opposing adversary strategy that we can still dismantle, but if we just run faster, we’re not touching it, they’re going to win. And the other side of it, for anyone who’s who still imagines that, hey, look, engagement is a healthy way to create stability. I don’t think anyone thinks it’s going to lead to political change in China at this point, but for the sake of stability, let’s not forget economic engagement with China produced a first tier military in the Pacific, and that’s transformed the military balance.

I’m a historian of military decision making in China, essentially, as a Cold War historian. And they used their forces prolifically against their neighbors in the 1950s and 1960s when they were essentially an agrarian nation. So we’re talking about a place that has the same, I think, pathologies about the use of force. The great rejuvenation of the Chinese nation is a direct continuation of Mao’s new China. They have a variety of territorial disputes, they’re building a military that’s literally designed for combat with the United States. I don’t think those really factored into anybody’s free trade calculus here.  So we’re living with a unique situation with a unique adversary whose leaders tell us on a very regular basis that they’re preparing to fight and win wars. Now against who? Against us and our allies. So we have to realize that the economic dimension, I think, is where we play to win. And at the same time, it’s part of a much bigger picture that includes military risks that are unique to the People’s Republic of China.

Rob Atkinson: Yeah, you mentioned the fact that we need to be following and countering, if you will, their strategy. What’s striking to me is we don’t even have our own strategy. The capability, and this is not a criticism of any individual it’s a criticism of our institutional system to conceive of, operate, create, and manage a national advanced industry strategy. We simply don’t have that. But to have that, I think your point is really, really interesting that part of that strategy has to be looking at in detail our adversary’s strategy and countering their strategy with our strategy. Not just a strategy, well, we think AI is going to be cool, let’s do AI. It has to be integrated. Your thoughts on that?

Jonathan Ward: Oh, absolutely, Rob. I think that’s in many ways the essence of the book is to provide a true counterpoint to the genuine CCP grand strategy. I think the beauty of it is, even though you’ve called it a pessimistic message, and I get it, I wrote China’s Vision of Victory out of a deep personal concern that we just weren’t going to see what we were dealing with. And I think now we recognize that there’s an adversary, but with The Decisive Decade, it’s about the fact that they cannot achieve China’s vision of victory without our help. That was one of the big revelations for me coming back to America, consulting on this issue, working with everyone from DOD to Fortune 500s, how integrated we are, how essential we are to China’s strategy. But if we stop hoping them, if we are able to stop investing in China, stop providing technology and stop providing access to the vast majority of the world’s developed markets, all of which are allies, by the way. The US Alliance system is over 50% of global GDP and it’s about 75% of global wealth.

So in a sense, the alliance system is the bulk of the world’s economy and their access to all of that and their access to that on a continuous basis going forward is what would allow them to prevail. If we can get it together and get the wherewithal to start denying them access to the things that create their ascendancy, i.e. their economic engagement with us and the allied world, their world will be transformed. We’ve done enough favors to the CCP. At this point, the litany of why to disengage is so vast, from genocide in Xinjiang to civil-military fusion to support for Putin’s invasion of Ukraine to a new Russia-China axis. It’s just a very long list that I no longer have to recite myself because I think everybody sees this.

But what matters is that we change course and begin to do the right kinds of disengagement and then of course pump all of that back into revitalizing the alliance system. I think we can have a very robust alliance-based trading community. To work with the bulk of the world’s economy to focus on the key industries. And you’ve been a leader on the subject of innovation in the alliance system. These are the right ways to go, but we can’t do this while continuing to economically support our primary adversary. And that entire multi-decade strategy of engagement still is creating very big advantages for China.

Rob Atkinson: It frustrates me to no end when I listen to the science and technology policy debates with China, when you have all these people saying the key is to increase basic research spending in the US, which is what really the Chips and Science Act was. The science portion of it, two-thirds of that was just more money to NSF for basic science. That directly helps the Chinese economy. There’s no question about that. Basic research spills over, it helps the Chinese economy, and we don’t seem to have any sort of recognition of that. They’re not spending that much on basic research. They’re spending it much more on what are called later Technology Readiness Levels. Thoughts on that?

Jonathan Ward: Well, look, I think you have to look at how the whole system works. This is why one of the big emphases of The Decisive Decade is the role of corporations in national security. And that’s both on our side and on their side. One of the things that I learned over the years was how essential China’s companies are to executing its grand strategy. I remember being in a business school course at Oxford alongside my PhD where we had to do a leverage buyout analysis of a composite parts aerospace company that was from Central Europe that had been acquired by AVIC, China’s major military aerospace giant. Nobody seemed to care that this was a company building the jets that at that time were landing on the South China Sea Islands. People were interested in the financials, just how does it look as an LBO?

And then traveling around the Indian Ocean, seeing all the major infrastructure giants, just building things up everywhere from Sri Lanka to the Maldives, under the auspices of the Chinese state. And then of course the research that leads to things like the island building, itself, in the South China Sea was a major Chinese state-owned enterprise. So we have this vast targeting zone, and that’s the Chinese state-owned enterprise. The 97 SASAC corporations, that’s State-owned Assets and Supervision Commission, that’s a lot of what’s on the Fortune Global 500. It’s a lot of what carries out the global grand strategy of the Chinese government. From Belt and Road to Made in China 2025 to Military-Civil Fusion and military modernization, a lot of this is done through the corporates. And then something else that I talk about in a lot of depth in the book is the level of engagement that our companies have in the China market now, and the fact that they’re participating wittingly or unwittingly, and there are cases of both in building China’s strategic industries and carrying out their national strategies.

We have companies like Caterpillar that have literally advertised that they are building the Belt and Road. How did we get there? They were brought up in front of Congress for that. And then just this week, I think of the past week in March of a week that shook the world. You have a Russia-China meeting in Moscow that essentially signals a return of a Russia-China axis. And then you have Tim Cook and Ray Dalio in Beijing. Tim Cook talking about Apple’s symbiotic relationship with China, and then Dalio, who very frequently talks about China as the place that’s going to win the geopolitical contest of the 21st century. So our businesses have become enmeshed in the China market in a way that is, I think, creating not only systemic risk for the United States of America, but also risks for themselves.

Their strategies are going to be, I think, taken apart by the nature of US-China competition. But at the same time, if we’re able to focus on Chinese companies, both state-owned and state-backed, as the real targeting zone for US-China competition. At the same time, if we’re able to help our companies succeed in global markets and participate in national strategic initiatives that back the right industries and technologies, I think that’s where this is going to shake out and it’s going to become a battlefront that is very much about the role of corporations.

Rob Atkinson: So I think you and I may disagree slightly on this point because we’ve talked about it before. I’m very much in favor of US companies selling things to China, not sharing technology, but selling goods. So I don’t have a problem with Caterpillar. They were going to build that infrastructure no matter what. If they didn’t use Caterpillar tractors or whatever, bulldozers, they were going to use Chinese. So that, actually, I’m glad Caterpillar’s doing that. But to that point, I was doing some research recently, and the three major construction equipment companies in China, all state-owned or state-backed, basically have the Chinese market in a lockdown. 99% of the market is their market, which is completely unfair. They’re massively subsidized, over $2 billion in cash. I would, which is what we’ve already proposed, is refurbishing section 337 of the Tariff Act that US International Trade Commission operates. I would basically say you can’t sell any of that stuff in the US. We’re not going to allow you to sell your equipment in the US because we can’t sell it in China. And I’d ask the Europeans and the Japanese and everybody else to do that. So let’s lock them out of our market because they’re an illegitimate company in an illegitimate market.

Jonathan Ward: Well, look, I think that’s right. We do not want to be supporting the growth of Chinese corporations in our own markets. And I think if you’re able to lock out that part of the global economy, they’re going to go, as they are already doing, into the emerging world and into the Belt and Road countries. Even when China’s Vision of Victory came out, one of the examples I had there was the construction and infrastructure companies. The fact is the league tables were totally dominated by Chinese companies even at that time. So they’ve had this outbound strategy, and the irony is you take something like major US OEMs, who I believe it was the Caterpillar strategy that said in order to be the world’s largest company, we’re going to have to succeed in the world’s largest market. So they went into China whole hog.

This is true of many companies, and that’s how the technology gets transferred. That’s how the Chinese companies became what they are today. And then they’re competitive around the world because they’re backed by state capital. So if you’re a US company competing with Chinese corporations, it’s not just that you’re dealing with OEMs, you’re dealing with essentially an infinite flow of Chinese capital. So that’s the problem, it’s a totally different system. They’re able to do this in a way, at a much bigger picture, much more strategic level than we are, and it’s how they come to dominate certain industries. And by the way, who did the innovation? It tends to come from our side. It just gets recycled into the Chinese market. There was a Chinese telecommunications executive that I met on a flight in India who told me how China was just a giant incubator.

Companies would go in, the technology would get transferred, and then it would incubate in the Chinese market and go out into the world. That’s the long term grand strategy. That’s how their economic strategy really works. Dual circulation is what Xi Jinping calls their overall economic strategy now, I mean basically to tighten the world’s supply chain so they depend more on China. At the same time, to reduce China’s dependency on external technology and companies. So if they’re able to keep on doing that, if we’re willing to keep on funding that, then they win. And I think this also is about global markets because what really matters is if they’re able to commercialize these industries globally. And we have a huge say in that from a policy perspective and more, but you have to unite the alliance system in order to do that. It can’t be America alone.

Jackie Whisman: How would you assess the state of the current China issue in Washington? Are we moving in the right direction fast enough?

Jonathan Ward: Look, I think we’ve made an enormous amount of progress. There was a time when it was a voice crying in the wilderness to talk about this and we are no longer there now. It is a city that’s awakened to this issue. So I think that’s very, very good. But my concern is really a few things. One, Washington DC versus the People’s Republic of China is a losing game. This is now about awakening the United States of America. We need our whole country to understand this, and we also need our business leaders to understand this. I think New York, as the financial capital, as shareholders of our major corporations, and also as investors in China’s companies, still, and in the China market. New York needs to go through the same awakening that Washington did and to understand the real risks and what happens at the end of this road. So that needs to happen. And then our country as a whole needs to get it. And that goes across the whole of America. We have to get there.

The other thing that I think is concerning to me is I don’t think policymakers necessarily understand the importance of companies in strategic competition. This is a unique competition, but at the same time, I think it’s one that will be won or lost in an economic battle space. That means that the US private sector, our $25 trillion economy, the vast majority of that is our private sector and a great deal of that is our Fortune 1000. So our boardrooms matter in a way that they never have before. One of the things that I enjoyed in writing The Decisive Decade was Arthur Herman’s book about the American businesses that basically helped us win World War II.

And the fact is China has already gone forward on bringing its companies into a national grand strategy, and ours are still all over the map. So we’re going to have to get a much clearer idea of how economic power works, not just at the policy level, but in terms of actual commerce and business and finance. So I see there’s too little of that. I also think we’re getting into lazy theories such as peaking China and demographics. Part of the reason this is the decisive decade is they’re going to have the entirety of the 2020s before the demographics set in, and they’re going to get a lot done if we allow them to continue on this road. So we can’t wait for theories like that. We’re going to have to take specific actions now.

Rob Atkinson: Yeah, it reminds me of the, and I don’t mean to bring a military analogy to this, but it reminds me of reading Winston Churchill in the ‘30s where he was really one of the only voices in the UK that was warning against the rise of German militarism. And nobody paid any attention to him, and then it was too late. So hopefully, Jonathan, people will pay attention and read your book. I know I will. And so thank you so much for being here.

Jonathan Ward: Thank you all so much and thank you for the great work you do.

Jackie Whisman: Thanks. And that’s it for this week. If you liked it, please be sure to rate us and subscribe. Feel free to email show ideas or questions to podcast@itif.org. You can find the show notes and sign up for our weekly email newsletter on our website itif.org. And follow us on Twitter, Facebook, and LinkedIn @ITIFdc.

Rob Atkinson: We have more episodes and great guests lined up, and we hope you’ll continue to tune in.

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Robert D. Atkinson

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Jackie Whisman

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