From Scam Centers to Supply Chains: How the US is Meeting the China Challenge

- Welcome to China Considered a podcast that brings fresh insight and informed discussion to one of the most consequential issues of our time, how China's changing and changing the world. I'm Liz Economy, Hargrove senior fellow and co-chair of the program on the US-China and the world at the Hoover Institution at Stanford University. Today I wanna talk about one of the issues that I think has come to dominate the US-China bilateral relationship. And that's the nexus between trade and investment on the one hand, and national security on the other former Secretary of Defense, Robert Gates famously coined the term small yard high fence, which basically introduced the idea of keeping a small set of technologies that are tied to national security protected from our potential military adversaries. Over time, however, the yard has kept getting bigger and it raises what I think is one of the central questions of our time, which is how do we define the goods and services that are critical for our economic and national security, and how do we best protect them? In 2000, the US Congress established the US China Economic and Security Review Commission to focus on this very issue of national security implications of the US China trade and investment relationship. And we're very fortunate today to have with us both the chairman and the vice chairman of the commission, Randy Shriver and Mike Kiken. Welcome Randy and Mike. It's great to have you with us.

- Great to be with you.

- Thanks for having us.

- All right. So for people who aren't familiar with the US-China Economic and Security Review Commission, can you talk a little bit about its purpose, how it operates, how you guys came to serve on the commission? Just give us some background information.

- Sure. We were created in legislation in 2000 and then stood up in 2001. And this coincided with the passing of permanent normal trade relations, which also did away with the annual MFN most favored nation debate. And you'll recall, Liz, that debate was basically an open platform to air any grievance about China or US-China relations. A lot of discussion about human rights and religious freedom. And I think, as Mike Kiken would say, when it was, when the commission was created, it's because Congress didn't trust two entities, the Chinese and the administration in the United States. And so we're really founded to keep an eye on all things related to China. But with, in the, in the legal mandate, there are particular things we look at every year. You'll always have a Taiwan chapter, you'll always have a Hong Kong chapter. And the the, the rest is, you know, we have a, we have a fair degree of latitude. And that's where you kind of see the evolution of the work of the commission. 'cause we keep pace with the, the very dynamic things going on in China and the region and US relations and, and try to stay ahead and, and really look at or over the horizon on emerging issues. We represent congressional leadership on both sides, both chambers. So Senate majority Leader Thon gets three picks. I happen to be one of them. Senator Schumer, three picks. Mike happens to be one of those. And then Jeffries and Johnson, speaker Johnson also get three picks each. So that's a total of 12, six Republicans, six Democrats. And I was blessed or cursed to be picked right after I left the Department of Defense by then senate leader, Mitch McConnell. So I'm in my third term, and it's a great platform. We've got a great team and a great staff. So just keeping us apprised through the, the great work of the staff of what's going on to include at the classified level, but then really to be able to work with colleagues across the aisle and, and really develop what we think Congress's agenda should be related to China, ideas for legislation, other congressional activity. And over the years, we've got a pretty good track record of Congress taking us up on our recommendations.

- And you hold hearings throughout the year. I mean, how does it work technically? Do you meet once a week or what is the sort of the pace of, of work look like?

- So we usually do six hearings a year. And so we spread those out usually over the first sort of six or eight months of the year. I think we're, we've had four hearings now and obviously a series of meetings with everyone from the executive branch industry, industry associations, Capitol Hill and beyond. That's sort of the work that informs, informs our work throughout the year. We usually do some international travel and some domestic travel. Last year we did a trip up the West coast to sort of talk to the quantum community, and it was, it was actually incredibly informative and we didn't do just quantum compute, we did quantum sensing and quantum communications and visited academic institutions and businesses. But that usually is what informs the workflow throughout the year when we do international travel is usually what we do is each year there's sort of a focus that the commission has. This year we're talking about India. Last year we talked about Southeast Asia the year before that, if I'm not mistaken, Randy, we did the Middle East, and that was before I joined the commission, Liz. And that's sort of the, the workflow as Randy mentioned, we've got a staff of about 20 people. All of them are Chinese language speakers. So when we're not doing hearings and the sort of the, the work of the commission, they're doing the real work of the commission. We're reviewing a lot of that Chinese language material. That is really what I think, and I'm sure Randy would probably agree, makes a lot of the work that we do, sort of several heads and shoulders above most folks just because we're getting that source material in a real and authentic way.

- Yeah, I mean, you produce an annual report, which is so sort of detailed and finely grained. I don't think there is, you know, anything out there that, you know, competes with it. I took a look at the report that came out last year, your 25, 20 25 report. I think it was like 700 pages. Very, very dense, but again, very fact filled, very informative, and I think really important, not just as a reference, but actually for the ideas that that come out of it. So talking about the report a little bit, what, for you both were the most important findings? Like what did you take away and think, wow, like I hadn't realized that a year ago. What were sort of the two or three maybe things that struck you as most important for Congress and for the American people to understand about the US-China relationship or where China is in particular?

- No, that's great. You, you're, I think one in the community who probably does pay attention to our report, but really for the general public, I liken it to the old Encyclopedia Britannica. Now Liz will remember Mike like that, remember. But you know, it's on the shelf,

- Remember Liz definitely remembers

- It's on the shelf when you need something. And I guarantee you, you, you, you open it and, and thumb through it and, and you'll find what you're looking for. It's just an outstanding resource. You know, I think this last year we, we further defined where we see the competitive space and, and in one case, literally space, you know, we're trying to really document where the competition is headed and where, where it's unfolding, but also where it's headed. And so the, the looks we gave at space and then some of the other areas where China through, its made in China 2025 initiative. We're pouring resources and, and energy and talent. Things like quantum that Mike already mentioned, biotech and the like. So, you know, I think our job is, is, is to document what's going on in China, but also to really identify where these areas of, of competition are headed and, and in particular what the United States does. You know, we, we can't begrudge China for having its own strategy and making its own investments. And there are things we can do to thwart advancements in certain sectors, but really I think what we're discovering, it's about how we're resourcing against the challenge, how we're organized. We had a, a recommendation on creating a single entity for economic statecraft in the United States. So really our focus is on how we get our house in order, how we run faster, stronger, do better through, you know, smart investments in a, in an environment with limited resources. And I, I think that's reflected throughout the report.

- You know, and Liz, I'd pile on two things or just dig a little deeper onto one. Randy and I actually wrote a piece in the wire, I think China last year about the need to reform how the government was organized with respect to export controls. We did that in the middle of the year. By the end of the year, Randy Leland Miller and I worked on the, the commission's number one recommendation, which was this economic statecraft entity. I think the conclusion that we came to after wire brushing the executive branch a little bit more was that we're really not organized for an economic sort of economic warfare or economic statecraft. And after nine 11, we really did reform the sanctions community. We made the Department of Treasury or an element of the Department of Treasury, part of the intelligence community. We did that so that you could drive requirements out of the Department of Treasury to make sure that our sanctions are more effective. And so the idea that we came up with in the top recommendation is how do we align the executive branch in a way to be thoughtful about economic statecraft? And that there's a series of pieces in it. They're thinking about how USTR commerce and Treasury and the elements of these entities really get aligned into one entity. So there's one unity of command, and then two, a department that you're intimately familiar with, the Department of Commerce has BIS as part of the, of the intelligence community. And you know what this means, but just for listeners, I mean, this means you get to drive requirements. Driving requirements is the game in the intelligence community. If you can go tell C-I-A-N-S-A or somebody to go collect something, you're able to get data and you're able to, from an enforcement perspective, really increase the speed of the flywheel. And so that was the top recommendation on the commission last year. And something that I think, at least for Randy and I, our sort of views evolved over the course of the year. And then the second one, Liz and I, this one just blew me away, scam sensors. We went to Cambodia last year and, you know, we'd, I, I'd read, I'd listened to the Economist podcast on, on, on pig butchering and, and, and listened and learned quite a bit from it. I did not appreciate the depth, the scale, the scope, and the level of technology that was being deployed against Americans by these scam centers. I mean, if Randy and I wanted to, you know, target somebody, we could do sort of targeting package on somebody, we could figure out how to craft text messages that they'd be receptive to how to engage with that person in a video conversation. I mean, the level of sophistication was absolutely staggering. And when you think about, you know, people's life savings 5 29 accounts or really anything like that, just getting hoovered up at a scale of, and a conservative estimate is $10 billion a year is absolutely incredible. And it's something that we focused on last year too, because, you know, one of the things you gotta think about is who do you call when you get scammed? Do you call nine one one? Do you call the FBI? Who do you call? I I the answer at the time is I have no idea the administration has created a strike force. You know, I don't know if it was because of our recommendation and work, but, you know, we like to think it was, and, and sort of that's one of the issues that after the, over the course of the year, just really blew me outta the water.

- That's really interesting. I actually had had not thought of that as the kind of issue that you guys would address, but I think it is a really important one. Let me push you a little bit on this, you know, idea of a new entity that could deal with us economic statecraft, because I think it is absolutely essential, both in terms of responding to economic coercion, you know, as we've seen, but also in terms of sort of proactive economic statecraft effort, right? How do we compete against the Belt and Road initiative, for example, right? How do we, you know, this administration has made a big push to promote the AI tech stack. So what are the tools that we have to assist in that? How do we compete against China's digital Silk Road? What are a few of the more specific ways that you would see aligning as you said, USTR and treasury and commerce with the, you know, is it the NEC or is it the NSC or how, how do these various organizations, how could they better work together, you know, under the umbrella of a new entity or what, how do you see that functioning? What would be sort of a couple of your more specific recommendations around that?

- I, I invite the honorable vice chair to take the first crack at this, and then I'll pile on.

- Thank you. Thank you, Randy. Beloved chair on, on this one was, you know, we were, we were both specific and non-specific. The first thing I would say, if you, and you are very familiar, but for listeners benefits, the Congress is incredibly complicated when it comes to oversight of these, of these various entities, right? The finance committee has oversight of USTR, the banking committee and the Senate has oversight of export controls. The House Foreign Affairs Committee has it in the, in the, in the house, the issue issue of export controls. So it's a bit of like, like a, a, a den of snakes as you get into, and I don't mean that in a negative way. I mean it from like a really complicated, lots of things, bad things could happen. So we're, we were nonspecific on some of the where it should go and how it should happen. But the idea is we have like if USTR, one of the things that I was just blown away by Liz, USTR is 300 people.

- Yeah. - I mean, this is an entity that is responsible for trade agreements for the largest economy on the face of the earth that has, that has bananas. Here's another thing, the Bureau of Industry security is inside and Leland Miller sort of coined this idea and really warmed up to it. The Bureau of Industry Security is in the Commerce department, the commerce department's primary job. And you know, this, Liz, is to promote American business. The primary job of the Bureau of Industry and Security is to ensure that American technology does not get into the hands of somebody, right? So there's a lot of things like this where it's like, how did we ever put these things in these places? And so like there hasn't been a conversation about these things and the sort of unity of command that you would want in an economic statecraft space. So like the way I've sort of thought about it out loud and publicly before is, you know, the sanctions folks, the export control folks, and probably some parts of the US trade representative or maybe all of it should be, you know, sort of put together in a way that allows for this unity of command that we talk about. And from a making sure that we're, you know, negotiating good deals and our export controls are working, our sanctions and working, there's gotta be an intelligence community piece of this. And those are sort of the, the major pieces of the puzzle. There's parts of DOD and State Department that obviously would need to come along as well. All of those things that I just said are incredibly controversial inside of, inside of Congress and undoubtedly inside of the executive branch. But it's been a long time since we've sort of wire brushed these, these entities. And the reason I think it's controversial is setting aside the sort of congressional issue is these are all laws that have been on the books for 80 years. The problem is, is that when they were written 80 years ago, we were dealing with an economy, the Soviet Union that was isolated from the global economy. So it's very easy to think about these things in this way. Now we're dealing with a a, a country China that is obviously totally integrated into the global economy. So the way you would approach the adversary or, or, or the partner, however you wanna think about it, is a much, much different approach and one that we just have not really thought about in a deliberate way. Randy, what did I miss?

- Yeah, no, that's a great answer. I'd just add, you know, these attempts to reorganize our, are talked about and discussed among people who have creative ideas about it, but really things generally don't happen until there's a crisis. And the, the example that Mike mentioned about treasury and the sanctions community was after nine 11 and after we were attacked. I mean, the hope is we could do some smart restructuring fit for purpose, fit for task before there's a crisis because you take any one of these sort of sub challenges to, to the economic competition. Let's take supply chain integrity. You know, we have our most exquisite weapon system still weapon systems still reliant on Chinese inputs at the component and and critical mineral level. If we're in a crisis with China, all they do is cut that off and

- Right.

- You know, so that's too late. So we're,

- Which we've seen them do, I mean they, they did put, you know, the licensing system, which they didn't actually have ready to, to go right, right. At the time that they put it, you know, announced it, you know, on rare earth elements, you know, did do just that. And I do believe that most of our defense companies are still under special restrictions when it comes to receiving Chinese rare earth elements and other critical minerals. So anyway, sorry. So

- Yeah, that's the idea is to try to take this on before crisis and as Mike said, we were both specific and nonspecific to give congress the latitude to put it where they think it should be and whatever negotiations they need to conduct amongst themselves to, to have a landing spot. But I would say we've, we've got interest in this as a, as a recommendation, just not quite the urgency that we were hoping. So we'll, we'll keep pounding away from, from our perch.

- Other, well I other, I think, oh, go ahead Mike.

- I was just gonna say the other part of your question was sort of the, you know, overseas piece of it. And I think we didn't really do much on that area, Liz, but it's something that Randy and I have been talking a lot about is how do we think about, how do we think about sort of a post a ID post MCC sort of orientation and do it in a way where it's not just sort of this sort of classic like let's change this by one degree and this by one degree and everything's gonna be okay sort of approach. But really think about it in a, in a strategic and thoughtful way to do exactly what you talked about in your question, which is sort of have something that does respond or compete with belt and road initiative, especially in countries where, where we know the countries are, are likely to be aligned with our interests. It's just that we're not necessarily showing up with some something on offer that's protect, you know, very attractive.

- I, I just think it's essential and it's something that I tried to push in my, you know, short tenure in government and I think people are interested, but it just kind of, it just seems, you know, too, somehow it's either too overwhelming or as you're sort of indicating there's the press of other more immediate issues. But I think without it, there's, you know, it's going to be game over. And you know, you mentioned earlier on Randy the maiden China 2025 and you know, I have found it's interesting that maybe because it's now 2026, people are not talking about that in the same way. But from my perspective, I look at what's happened with solar panels and batteries and EVs, right? The export of Chinese overcapacity, they're now global dominance, you know, in these technologies and their manufacturing and you know, and, and everything. And I think that's going to happen across the, the full array of those made in China 2025 technologies, because that's the model, right? Yeah. That's how China operates. And if we are not prepared for that right, to compete globally with some form of new proactive economic statecraft, we're we're basically gonna be out of the game,

- You know? Yeah. You know, our common friend James Vena always says the first line of encryption for the Chinese is Chinese. And while some wanted to describe them as enigmatic, very opaque, the fact of the matter is the Chinese told us exactly what they were gonna do.

- Exactly.

- They told us time again. And the, the hearing that Mike and I shared made in China 2025, who's winning was really not only about a scorecard and how did they do against their own defined benchmarks, but as you said in your question list, you know, this is also about where they're headed and where they're gonna continue to invest. Because even if they didn't hit their benchmarks, in most cases, they made rapid advancement and improvement and in some ways sort of led the, the decision tree to, to to to in another direction. You know, 'cause some of these areas of, of foundational research and research and development, you make discoveries that, that lead you in one direction or or another. And and that's really where the, the Chinese are, are showing themselves to be more agile than maybe in the past where they were reliant on just IP theft and, and being a fast follower and all that. So what we were able to document and, and with the help of the, the very excellent research staff is, you know, they've, they've done quite well against their benchmarks and in some areas they're, they're really changing the innovation model. It's not your, your, your father's Oldsmobile another state, another saying that maybe you gotta be of a certain age to remember It's, it's really changing the innovation model and one that that is potentially more competitive and in some areas they're gonna outpace us and maybe already are.

- Yeah. - I used to drive Senator Levin's Oldsmobile cut less supreme if he let you drive, if he, if he let you drive, you knew he liked you.

- I was gonna say it's as old as, as he was maybe. So. Okay, let me switch gears a little bit and talk about something that I know is near and dear to your heart, Randy. And, and that's Taiwan. And the report does direct the Pentagon to assess whether the US is complying with the, basically the legal terms of the Taiwan relations Act to maintain the capacity to resist any resort to force that would jeopardize the security of Taiwan. Which is always sounds a little complicated, but basically just means that we're, we're ensuring that we have that capability and that Taiwan also has that capability, right? Doesn't commit us to go coming to the defense of Taiwan. Right. But commits us to, to providing for the capability. So what, what's your assessment of where we're at with that? And this is a, you know, a big issue and it's, you know, it's big not only because of the advances that China's made in terms of the military exercises it's been conducting over the past several years, but it's big because of questions that have been raised about the administration's, this administration's commitment to Taiwan and also just our own capabilities. So how do you see this?

- Yeah. When, you know, when the TRA was written in 1979, Congress who always has an oversight role, wrote themselves into the decision making process. If you read the TRA, it is the president and Congress that shall determine what weapons to make available for Taiwan sufficient self-defense. And I think this, this other area, whether or not there's the capacity to resist force is another one where congress has a direct role. Obviously they're appropriating the funds to build our joint force and and to ensure that that, that the joint forces trained and equipped through the work of the service secretaries. But look, I was, I was concerned before Ukraine and before Iran, given the rapid advancements of the PLA and, and the significant investments that they've made since at least the mid nineties, that they were getting better, they were getting better faster. And we're seeing through the, the ops tempo of, of coercion and intimidation activities that they are really gaining operational experience, but also insights into how to conduct complex military operations. We're seeing them not just fly across the center line in, in tremendous numbers, but they're, they're adding things to these operations like cross domain communication, shared information about the battle space. And we're seeing that in, in real time. So the addition now of ongoing conflicts in Ukraine and now in particular Iran and the depletion of munitions that surely is going to impact the global joint force for the United States has me concerned. So, you know, one of the things we, we directed, or pardon me, ask Congress to direct the administration to do and show your homework.

- Yeah.

- And this is not to embarrass anybody. It's not to make Admiral Piro, you know, get hauled before Congress and, and have to admit that their deficits, it's so that they can report on where congress needs to step in and, and provide more or provide different, in some cases, you know, that we're heavily invested in certain exquisite platforms that may not be appropriate for the China fight. That, you know, were, were really developed when the war fighting environment was, was thought to be quite different. So we really want the, the show your homework exercise so that Congress can play its oversight role effectively and really provide, as you said, the US forces, but also Taiwan with what is most appropriate and optimal for the challenges that they face. Yeah.

- But lemme just push you a little bit. I mean, where do you, again, because you are expert in this space, you said you were concerned. I mean, how concerned are you, you know, are we like well behind the curve of where we need to be? Are we in danger of falling behind where we need to be? What's your personal assessment?

- So I think we are in the middle of surging on posture and perhaps changing the composition of the joint force. You hear Admiral Papapa talk about hellscape.

- Yep.

- Which, if you unpack that, that's a lot of unmanned uncured stuff. That's a lot of autonomous AI enabled stuff. You hear a lot of talk about con contested logistics. You know, it's always an away game for us if we were asked to by the political leadership to intervene in a Taiwan straight contingency, always an away game. So being able to maintain and support the force in a contested environment is hugely challenging. So, am I concerned? Yes. I think we are probably slowly developing the joint force for, so it's fit for purpose, but still a lot of legacy investments on the part of the services which provide the, the forces for our combatant commanders. I think posture initiatives are slow to come online. We have another recommendation about posture in places like the Philippines, Northern Luzon and the Japanese southwest island chain. And I think logistics supports munitions. I think all of this is in, in short supply. And we'd be hard pressed, Not just in the initial wave to maybe throw a Chinese invasion, but a determined Chinese force that was going to keep the pace of, of battle at a high level. We just, our, our resources would be exhausted in a, in a fairly short period of time. I'm, I'm worried. So all of that needs to be addressed and, and that's why we rooted our recommendation in the law. This is not, you know, a a what we think is good policy. This is not what we think are the best options. This is a legal requirement, right. And we should be able to have a defense enterprise that comes and shows the homework.

- Liz, if you don't mind, I'm just gonna pile on top. Absolutely. I I love it. I always like hearing Randy talk about Taiwan. 'cause I, one, I agree with this thinking, and two, he's been looking at this for a long, a lot longer than most folks. The, the thing that I think sometimes we, we lose in Washington is why is Taiwan important? Hmm. And so I've been road testing this rift. So you're you're gonna, you're gonna get stuck with a road test Here, give it to me. No, no, I hear which is, there's this, there's this wonderful book, it's called the Island at the center of the World. It's guy, guy named Russell Shorto. It's actually this story of how the Dutch colonized Manhattan island and how Manhattan over the course of hundreds of years becomes the island at the center of the world.

- Can I ask whether that's because you are in fact Dutch by descent, that you this is so wonderful.

- I would go ahead. I would, I would ne I would never admit, Okay, there is a, there is a thought in the Dutch community that the reason Manhattan is so has been so successful is 'cause it was the Dutch and not the British that started. But we won't go down that road. So, but I want you to just sort of change your thinking here for a moment and think about Taiwan as the island at the center of the world. Whether it's the microphone that we're all talking into right now, the camera staring at us, the, the chip in our iPhone or the chip in the conversation we had with Claude this morning. All of these things are enabled by chips that are made in almost exclusively in one place, which is Taiwan. Now imagine a successful Chinese invasion of Taiwan and what the American or western or democratic world's ability is to get chips. Arizona's not off the ground. Rapids in Japan is not off the ground. There's some efforts to do sort of advanced chip manufacturing in Europe. Those are not off the ground. And so 2027 is not that far away. Whether it's a, a go as Randy would say, a a go by date or be ready by date. I mean, that's just around the corner. And we really need to think about what an AI competition looks like if we do not have the ability to rely on TSMC and their very incredible capability to produce. And so when you hear Randy talk about Taiwan, the other piece that you have to remember is that's the place we're getting our chips from,

- Right? No, I mean, a absolutely. I think that is the, the top selling point for I think many people in, in this administration. I remember I was at a dinner with a few members of, of this current administration and I asked them about Taiwan and, and they mentioned, you know, they care about it because of the chips. I said, well what about the fact that it's, you know, a robust democracy and, and you know, it, it's in, in an area and it's a good counterpoint to Chinese claims that the Chinese, you know, are somehow categorically just ill suited to, you know, temperamentally ill suited to democracy. And the person said, well that's nice, but that's not why we care about it. So I think your road test argument, I mean, I may not agree with that. I guess maybe Randy also does not think that that's, you know, the case and maybe, well

- I think it's a chips end,

- You know? Right, exactly. The chips are certainly critical, but

- It's geography by the way.

- Look at Yes. And also yes. Why maybe say a word about that as well.

- Yeah, I mean if I'm, I'm looking at a map that you can't see of the, of the Indo-Pacific and if, if I close my eyes and did one of those exercises and, and aim for the middle, you're gonna hit Taiwan. And it's sort of in the middle of a lot of things. We care deeply about the South China Sea, 80% plus of global commerce going through the South China Sea. It's adjacent to that. And a claimant of some of the features in the South China Sea, two treaty allies. You know, the, the country that's geographically closest to Taiwan is Japan because of the southwest island chain and Yuni Island, Philippines is to the south of it. But it's also the gateway to the second island chain, which again, things we care deeply about, including US territories like Guam and American Samoa, but also compact states, Palau, Marshall Islands, federated states of Micronesia. And really this, this sort of gateway issue is in the near term a lot about resources, fisheries potentially curbing illegally illicit activity. But, but it's also the, we, we talk about the logistics super highway to the Indo-Pacific running through compact states that super highway can run in the other direction too. And I, you know, it's not gonna be long before we see a lot more Chinese presence very close to the homeland Hawaii and, and the West coast for sure.

- Yeah, I mean, I think all Im important points. Let me, let me ask something that's sort of tangentially related to this, which is one of the things that has occurred to me, you know, as sort of as the, as the Ukraine war was or is still obviously ongoing, it's been just that partnership among Russia, China, Iran, North Korea. Now we see similar, you know, things playing out in the war against Iran, war in Iran, this partnership as well. Do we think that that's likely to emerge in, in again, different ways in Taiwan or in other sorts of, you know, military opportunities? How are you thinking about that sort of axis or how do you define it? How sort of robust do you think the connections among those countries are? What does that suggest for, for us? I know you talk a little bit about some of these issues in the report, but what, what, what do you think is the significance of this sort of emerging partnership?

- Randy, I'll start and then you can jump in. 'cause I know you got a bunch on this topic. I think, you know, we had this hearing last year called the access, access of autocracy. So it's something we have sort of focused on a little bit. The thing I would say to you is that one of the most frequently visited sections of the commission's website is Chinese support to the Russian war machine. And one of the things that, you know, I think is becoming increasingly, increasingly sort of public is that the Russian war machine, whether it's chips, cameras or drone components, the Chinese have been a vital lifeline for the Russians. All of the shahe drones that the, that the Russians have been building, those all have Chinese chips, Chinese cameras. And the same can be said of this, of the she heads that are being used by the Iranians right now. And so I think we have seen that there is a commoditization of some of the Russian and Iranian war machine and that that has really lowered the cost of war for these two countries. And it's something that I think will continue. And the Chinese have basically figured out that they can export these things at little or no cost. The other thing we've of course seen is Chinese dependence on not dependence, but, you know, ability to un to tap into Russian and Iranian oil and the sort of sanction evasion machine that they've created. The commission had a, not as part of our main report, but sort of a sidecar report on sanctions evasion. And, and this is something where the Chinese and Russians have very thoughtfully and deliberately built institutions that are capable of not touching western banking institutions and has allowed them to transfer resources at will basically between, between these three countries. And it's something that they're going to continue to build and work on. There's a, there's a piece of this that's part of the crypto environment as well. I think that's something we have some visibility into right now, but not nearly enough. And it's something that the commission's gonna continue to look at because that crypto is, that sort of decentralized finance space, really allows you to transfer incredible amounts of resources very quickly and without ever touching a banking institution. And it's been a, it's been an incredible way for these countries to cooperate. On the question though, I think, I think Randy and I would agree on this, it's really a relationship of convenience. Right now. I'm sure there's some, some strategic capabilities that get transferred perhaps between Russia and China. Sometimes there are some things that the Russians are, are just distinctly better than the Chinese. And I'm sure that some of that stuff that has historically been off the table is now on the table just because of the desperation of the Russian war machine. But it's hard to know what exactly that is and it's something we'll definitely keep an eye on. Randy, what did I miss?

- No, it's a great answer. Let me address this in, in a slightly different way because I've heard the Chinese respond to this with a few points that I, i I think it's worth kind of taking on in a direct way. So one thing they say, well, it's not a real thing, it's not an alliance. There's no written agreement. It's not an official grouping. There's no, you know,

- Not a block.

- Not a block.

- Yeah.

- And they want you to, they want you to believe that that means that it's not as impactful or consequential. And first of all, that's not a weakness, that's a preference. The Chinese don't like binding type agreements that might encumber them with certain responsibilities. They're able to pick and choose how to support Russia and, and Iran. And, and as Mike said, they are doing so in, in material ways. So not a weakness, but a preference. I've heard them say that, well, you know, these countries have a lot of disagreements among them. While that might be true, what they agree on tends to be things where they have common aversions and, and common problems like the role of the United States, whether that's our alliances, whether it's our support for Ukraine, our, our conflict with Iran, the operation we did in Venezuela. These are all things that bind them together. So even if it's limited, it tends to be directed at us. I've heard him say that it is pragmatic, practical cooperation. It's not built in like an alliance with habits of cooperation. Sure. But even limited practical cooperation can be hugely consequential as we're seeing in Ukraine. I mean this war is grinding on, but one of the main reasons Russia is able to prosecute the war the way they are over the course of several years is the support they're getting from China. Both economic support through, you know, the massive purchases of oil, but also the component parts for the Russian capabilities. So, you know, this is something that I think we need to understand not only in the here and now and the impact it's having in these areas, but your question also included, what about for Taiwan? And I would say if China got even the limited cooperation that Russia and Iran and North Korea are getting from China at the time of a contingency in, in Taiwan, it would be hugely impactful. So they get the North Koreans to do, you know, a a a a faint or, or a provocation on the Korean peninsula that bogs down our forces on the Korean peninsula. They get the Russians to do something in the Western Pacific. They're still a Pacific power and have naval forces, significant naval forces in the Pacific that ties up some of our forces that would otherwise perhaps be involved in the defense of Taiwan. So even limited cooperation from these other access powers would, would really, really complicate things for us if the political decision were made to try to protect Taiwan.

- Okay. So let me just ask one more question on this and then we'll flip back and finish up with a question on going back to some of the technology issues and that are highlighted in the report and then maybe something on the Trump sheet summit. But I mean, so what's, what's our response right to this in, in terms of how we're working with our allies and partners both in the region, but is there any role for Europe in this? And like how would you structure seeing what you see right now in terms of, you know, how these countries are working together? And I would point out, yeah, maybe it's a marriage of convenience, but it's a marriage where they profess some love for each other. You know, I mean, Xi Jinping has said, I will tell you three times that Vladimir Putin is his closest friend in the international system. And I think he really does see a, a pretty personally, you know, important and strong relationship between the two of them. I I, so I'm just gonna, I'll I'll put that out there. I mean, you can Google it and find the, the instances where he actually says this publicly, you can hear him say it online. So I, I think that there may be something more there. And they have worked China and Russia together for decades, for example, in the United Nations on issues, you know, where they, they have sort of common purpose, but what do we need to be doing differently at this point, do you think, both with our Asian partners, but you again, is there any role for Europe here?

- I mean, the first thing I would say is if I ever tell you Vladimir Putin is my best friend, please, please knock on my door immediately an intervention is required. The second thing I would say is, I mean, th there's a very simple path to competing with with China over the next 10, 20, 30 years. It does require bear hugging the Europeans and it also recover requires bear hugging the Indians, Japanese and Koreans and our, our friends in Australia. I mean, there are 800 people, 800 million people in Europe. That's a lot of people last time I checked and a lot more than are here, than the, than the United States. There's 1.3 billion people in India, and the, the economic opportunity in that country is off the charts. I was there just this year and, and, and the year before that. And every time I go to India, the, the amount of innovation that happens there is incredible. And the economic opportunity, as I mentioned is, is just off the charts. So I think there that is the pathway that means you do have to find ways to compromise with folks that sometimes frustrate the hell outta you. And one of the common criticisms of India is that they have a terrible bureaucracy. I I've spent a lot of time dealing with the American bureaucracy. I got news for you. It's pretty bad too. So, I mean, sometimes you gotta look in the mirror, you know, we've our, we have our warring futile states in the interagency. I can only imagine how many IPCs or sub IPCs you had to sit through Liz in the Biden administration. But there's, there's a part of me that believes there's probably fewer of those in India. So I think that that's really what it, it sort of requires, it also requires finding places where there's unnecessary duplication and necessary duplication and figuring out where you sort of decide like, okay, we're gonna work with our partners on this one and not unnecessarily duplicate an effort, whether that's in the military space, the innovation space, or in the economic space. And I think that is really the pathway to finding a way to persistently compete with China over the next couple decades. Randy?

- Yeah, Mike and I are like mind on this and I'm not sure we are completely aligned with the administration because I think while they are committed to keeping America in the lead and, you know, the, the American first rhetoric about rebuilding our country, I think that's, you know, something that most people take, take away the, the sort of negative rhetoric that tends to be associated with that most people can get on board with, with making America great. You know, I think they, they don't have full appreciation for the values of value, excuse me, of alliances and partnerships and, and really how that complicates things for the Chinese, the, the Chinese hate our alliances. They hate the fact that we have this asymmetric thing called partnerships that really we, we are not only of, of like-minded in in most ways, but we train together, we, we exercise together, we think about various contingencies and how we would respond alongside one another. And so I think that's kind of what's missing in this administration right now. And I'm a great believer in, in general Eisenhower's statement that plans are useless, but planning is essential. We need to be talking to our partners and allies about a range of contingencies and what they can contribute. And yes, in the case of the European, it might be mostly in the economic domain sanctions and, and cost imposition less hard power. But that all would need to, to be brought to bear should we actually find ourselves in conflict with China even in peace time or whatever this phase is. Because I think there's a lot of evidence that the Chinese don't look at this as peace time. They look at it as other domains for warfare, information warfare, political warfare and, and economic warfare even in this state. We need the help of, of Europe and we're just, we're we're better off keeping partners and allies aligned and on sides and active rather than, you know, really poor gasoline on, on the fire in terms of diminishing the, the value of those relationships.

- Randy touched on information space, Liz and I just wanna make sure I foot stomped that one because if you look around the US we always talk about the theft of intellectual property. The other thing the Chinese are doing is operational preparation of the environment here in the United States. Salt, salt, typhoon and vault. Typhoon are operational preparation of the environment designed to make sure that they can hold American policy makers in a state of paralysis. Should they do something. Mike?

- Yeah, Mike, can you define the salt typhoon in bolt, typhoon? Just

- These are two, two cyber operations that the Chinese have sort of been exposed for doing, where they've, they basically parked themselves on American critical infrastructure telecommunications as part of it. I'm sure there are other parts of American critical infrastructure, whether it's power, water or beyond. And you know, this is sort of a classic military move, right? The special, you know, special operation forces routinely do things to deploy capabilities whether they're, you know, hard, whether they're sort of hard power capabilities or information capabilities into a country in advance of an operation. And that's what the Chinese have done here in the United States. One of the things that was exposed in the lead up to the last election was that the Chinese were on the telecommunication devices of American political leaders. We think that's unique. I got news for you. It probably isn't, it's probably happening all across Europe. It's probably happening in India. You know, the information space in Taiwan is off the charts and, and quite a bit different and more intense. But these are all activities that a, that a country undertakes in advance or in preparation for, for military operations. And it's something that doesn't get talked about often enough in a, in, in a way to sort of focus people's mind on what the intent is. We're always focused on intellectual property, which is obviously a huge deal, but there's a lot more going on in the, in the cyber domains.

- Yeah, I mean I think sometimes that we don't talk about salt and, and vol typhoon that much because it's so unbelievably scary, right? That they have this capability at this point in time. And so I think, you know, one way of dealing with it is, I mean, I'm sure we're, we're trying to take action to address it, but I think it, to me, right, when I think about what future of warfare might look like, this is sort of the number one probably concern in my head that I have not heard adequately addressed by any of the past recent administrations. Okay. So let's quickly move through two more questions. First, you focus on the pharmaceutical supply chain and how we need to reduce our dependence on China for APIs, these active pharmaceutical ingredients. Can you say a couple of words about why you think this is so important? I mean, everybody seems to be focused on, you know, rare earth elements and critical minerals because of course we've seen now China's sort of ability to enable the choke hold that it, it has, it has a similar choke hold in this space, right? So what, what do you think we should be doing? What are we doing to address this?

- A former commissioner colleague of ours who, you know, Derek Scissors, we used to debate the Taiwan thing and I would talk about how we need to re-post forces and we need to sell Taiwan more systems for counter invasion. And, and he would just shake his head and he said, all the Chinese are gonna do is cut off our drugs and this this'll be over. Americans won't support further intervention. Yeah. The, the, the vulnerability presents risk that I think is beyond an acceptable threshold. You'll recall during the pandemic spokesperson went to the podium and threatened to drowned America in a sea of COVID. How do they do that? They cut off drugs and, and support for, you know, our, our, our seniors and the like. So it's a, it's a vulnerability that maybe a, a bygone era we were willing to, to live with. I don't think it's one that we should be accepting now, what do we do about it? I think relying on pharmaceutical companies to do the right thing is not gonna work. So ultimately we're gonna have to be directive and, and maybe even provide some support for the, the, the standing up of new, new supply chains, new, new means of production. And, and you know, that does take time and money, but I, I don't see this happening through the, the natural forces of market economy where cost op optimization and profit optimization have really driven this pharmaceutical companies to rely on China so much. So I think we're gonna ultimately be, have to be directive about this and say, this is a national security concern. This is a concern for the health and wellbeing of our country and you've gotta do it. So, so

- Folks always say that, oops,

- Sorry, go ahead.

- Folks always say that India is the generics capital of the world. The reality is that, you know, they, they may be making a lot of the generics, but all the key starting materials come from China. And so the, the story is really quite dire, whether it's the statin that Randy and I are probably both on the cancer drug that, that, you know, somebody needs in a hospital right now or anything all comes out of China. And when we were just in India, it was staggering to sort of learn of the depth of the dependence on Chinese ecosystem for these key starting materials. And really the price that they're willing to sell some of these things makes it nearly impossible, if not totally impossible for any new entrant to get into the space. And so, you know, we had a a China shock 2.0 hearing last year and, you know, this was part of that story and, and it's, it's getting worse and I, you know, I didn't know was Derek Scissors the, that coined that or came up with that Randy, but he's totally right.

- Yeah, I I do remember when I was in the commerce department a couple of years ago, we were talking about are we gonna need a chips and science, you know, act for pharmaceuticals? And at the time, you know it, yes, it was bipartisanship in science, but it wasn't an easy lift and, and Secretary Raimondo had to do a lot of phone calling to keep especially, you know, a number of the Republicans on board with it. And I don't know whether there be the appetite for something like that again, but, but I think that might be what it, what it takes and I, yeah,

- It's, I'd say two things. One, Gina was a superstar during chips and science. You know, we could, we could deploy her all across the senate to be helpful and, and thankful for the good work that she did on the chips and science approach. The thing I would say is, I mean, the place where we actually need to think about, think about sort of innovation dollars is not necessarily in the pharmaceutical space. We actually need that in the synthetic biology space. Think, you know, biomaterials, think about bio industrials and sort of more of the unlocking biology as a general purpose technology space in the pharmaceutical space. I mean, the government has some pretty incredible powers at its disposal already. The Department of Defense, the Department of Veterans Affairs and HHS are gigantic buyers of pharmaceuticals. Yep. All you need to do is put some of these folks on, you know, purchase guarantees and other things like that, just normal contracting vehicles where they have something that they can rely on for, for, for a price that allows them to find new, new sources for kss. And you can really change the game in that space. So I don't think chips and science and pharmaceuticals is gonna win the day, but definitely using those other very powerful tools of government would definitely breathe some life into the community and change the demand signal.

- Well that's great. I mean, that's great to hear and hopefully Congress will agitate, you know, based on your report in ways that will make that happen. All right, let's finish up. I can't resist, you know, the Trump and She summit is hopefully taking place just in a few weeks, about two and a half weeks or so. I guess what do you think is likely to come out of it? Anything more than, you know, some purchases? What, what do you or what do you hope for? What do you imagine might be the outcome?

- Well, what I hope for and what's gonna happen is our, there's probably a delta there, please. Fair enough.

- I - Think the president's intent is to take what, what they're calling the trade truce that emerged out of Busan last year and, and the, the basic framework of that trade truce, a tariff landing spot, an agreement to continue to export rare earths and, and a temporary pause in the remediation from the 3 0 1 ship building. Invest all these things and, and get something that is a more durable agreement, which surely the Chinese will violate, but, you know, some landing spot that is more durable than a one year trade truth. I think that that's the president's intent. And from what we can pick up, the only interagency preparation that's being done is being done by the economic agency's USTR, treasury and Commerce. There's no working group preparing for the summit on military and security issues that we're aware of. What might happen is the, the Chinese might try to bring in adjacent issues or maybe even not so adjacent, but things they care about, like Taiwan, they might seek some rhetorical policy change from the United States where the United States doesn't think it's giving up much, for example, changing the language from do not support to opposed Taiwan independence, which would be a big win for the Chinese. So, you know, I, I've been with the president when he met with Kim Jong-Un in Singapore and Hanoi, and I remember in Hanoi he walked away because he said, you know, sometimes it's better to walk away than take a bad deal. The trick there is he is gotta recognize it's a bad deal and so I, I do, I don't think he's going there to throw anybody under the bus. I don't think he's, you know, intending to make concessions that are costly to us and our partners and allies. But he is one who will make a gut call and, and, you know, game day decision across the table. I've seen that as well. When he decided to take down our exercises with South Korea in Singapore, that was not one that DOD had staffed and recommended. So these things are all possible. You know, what I hope for is I, I am outraged that the Chinese are providing support for Iran, including whatever was on this ship that was boarded recently, which was described as significant material support for Iran military forces. And I think that's outrageous that, that they would support Iran at a time where in conflict and they're targeting American forces and American interests. So I hope the President will take on some of these other issues too, like the support for Iran, the support for Russia. I, I think it's probably unlikely given what he's already tweeted out or truth, social doubt describing the support for Iran as not nice, but I'd like to see 'em go harder at some of those issues. Yeah.

- You know, the only thing I'd pile on, Liz, is when we went, when Leader Schumer in the bipartisan delegation went in 2022, it was staggering to me the number of things that the Chinese have been sitting on for decades from an economic perspective. I mean, if President Trump unlocks even half of the thing items on the list, it would be a big win for him. So I think there are a lot of potential wins on the transaction side to go beyond the sort of Busan agreement or, or Deante that Randy mentioned. And, and hopefully he'll be able to unlock some of those. I mean, visa, MasterCard, I mean, these are, these are household names that have been sitting and waiting for a deal for decades. Boeing Plains are, are one of the things that constantly sort of get held out by the Chinese on, on the delivery. And then there are all kinds of other American companies that, that sort of are eager to do business in China, are not in the strategic competition space and could be unlocked. So hopefully some of those things will, will be on the table and will be pushed forward.

- Yeah. Actually, you know, my, my last question that just sparked me to think about the recent decision by the Chinese government to block Mattis, purchase of Manus and, you know, do you think that this is the kind of, I know that Secretary Bessant has been talking about a board of investment. We know that Ambassador Greer is moving forward with this idea of a board of trade. Do you think that this is the kind of deal that you know should happen and should it happen if it were, if the situation were reversed, right, if you know Meadow were in China and Manus was in the United States, is that the kind of thing that you think, you know, we should be talking about more, figuring out how to, to manage that sort of divide between what constitutes, you know, economic security and national security, or do you think we're perfectly fine not having that deal happen?

- I think that's an important conversation to have. I, I don't know that that's one that, that we're actually ready for that, that the president should take to Beijing on this

- Particular

- Upcoming visit. Because I think it's, it's very complicated and it's, you know, what, what types of investment from the Chinese in the United States do we want, it's not like going to Japan and saying, we're gonna shake you down for $550 billion of investment and figure out, you know, as, as we go what that's gonna look like. Because clearly there's some types of Chinese investment in the United States that that would not be welcome. And there's all kinds of debate about farmland near military bases and all kinds of things that trigger CFIUS reviews. So, you know, that, that's a conversation I think is really important, but probably not one that, that we're ready for, I would say.

- Nice. I mean, you kind, I did a nice job of book ending the conversation. Liz, we, we started talking about the economic statecraft recommendation. And I think this is really part of that, one of the things that we, we pondering the recommendation was whether or not it's time for Firma 2.0. And you'll remember Firma was an effort that was led by Senator Cornyn in the 20 s 20 16, 20 17 timeframe to really refresh the CFIUS process, which I mean is a good and deliberate interagency process that, that we did some, you know, important reforms to, but is probably in need of, of a refresh, sadly already and isn't exactly in the space that your question and Randy's response is in. And I think that we are not ready for that conversation because we can't decide if we're, if we're going to decouple or do a strategic decoupling in key areas. And I don't think we know what those key areas are. Congress passed the outbound investment screen last year. I mean, it hasn't been implemented in any meaningful way. And so there's a, there's a lot of work that needs to be done, you know, in our own house, at our own kitchen table before we're ready for that.

- Yeah. Right. And I've seen Congress now trying to pass all sorts of, of bills around chips and trying to restrict the administration's ability to basically loosen export control. So I think this is the kind of work that you're doing is just so critical right now, right. And bringing the facts to bear on these issues, and they're really complicated, right? It's really difficult sometimes to draw that line between what constitutes a technology or a service around a technology that is, is critical to our economic and national security. And, and which actually, you know, we should be able to, to sort of let go. So maybe that's for the 2026 report is a further deep dive into that work on economic state craft and this, you know, how we think about economic and national security and the trade and investment landscape with China. So on that note, let me thank you both for the expertise that you bring to the work that you are doing because it's so important to have people who are knowledgeable, you know, thinking these issues through, and also just the energy, because I know it can be exhausting sometimes to try to push forward with really good ideas and try to bring them to fruition. And so you're really doing some of the most important work that I can imagine these days and, you know, in this time of the US China relationship. So thanks to both of you.

- Thank you very much. Thanks for having us. Yeah. For, for having us and all the work You're doing.

- Great. So if you enjoyed this podcast and would like to hear more reason, discourse and debate on China, I encourage you to subscribe to China considered via the Hoover Institution YouTube channel, or the podcast platform of your choice.