Gen. H.R. McMaster on the USA's Economic Competition with China


2 years ago



General H.R. McMaster is a retired United States Army lieutenant general who served as the 26th United States National Security Advisor from 2017 to 2018. He is also known for his roles in the Gulf War, Operation Enduring Freedom, and Operation Iraqi Freedom and is currently a senior fellow at the Hoover Institution at Stanford University. His books, "Battlegrounds" and "Dereliction of Duty" are bestsellers. He is host of the podcast "Battlegrounds: International Perspectives" and a regular on the podcast "Goodfellows."


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And so I think the supply chain issue is a big part of this and the assessment of vulnerabilities and we're in a race because it takes like five, six years to develop a fab to generate semiconductors. There are big investments happening now in Phoenix. For example, Phoenix is going to be the site of a TSMC, big fab. TSMC is the chip manufacturer that's based in Taiwan, which is a single point of failure almost for big parts of our supply chain internationally. And of course, the reason that's significant is it's in a place that's under threat by the Chinese Communist Party as well. Yeah. I think they're making a Samsung plant, a chip plant here in Texas as well. They are. They are. Right. And in Austin. It's outside of Austin. Yeah. We have to catch up in six years because six years in the world of tech is, that's a hundred years. It's an eon. It is. Well, there's a lot you can do even before that. And I think it's starting to happen in terms of the shifting of supply chains elsewhere. You just saw Intel is going to invest a lot in Malaysia. You might think, well, why in Malaysia? Well, I think the key is it doesn't all have to be in the United States. It has to be in a number of places. So it's resilient, right? What if there's a natural disaster, a power outage? You want multiple sources. And of course, as you mentioned, the reason this became apparent to all of us was at the beginning of COVID, right? When you couldn't get PPE and pharmaceuticals and so forth. So I think we're just waking up to this competition. And this ought to be one of those areas where we all come together, right? This ought to not be a partisan issue at all. And it should be a multinational issue, right? The reason the subtitle of the book is The Fight to Defend the Free World is we need others to come with us, right? We need the European Union and the UK and Japan and Australia. I think that's starting to happen as well, right? Because look at what Xi Jinping has done just since the pandemic, right? Foisted the pandemic on the world, crushed anybody who was trying to ring the alarm bells about it. These are reporters and doctors, right? Then added insult to injury with this wolf warrior diplomacy, which I know you've talked about on the show here as well. And then a range of aggressive actions like bludgeoning Indian soldiers to death on the Himalayan frontier, right? Scores of overflights into Taiwanese air defense identification zone, weaponizing islands in the South China Sea. And if they succeed, there will be the largest land grab, so to speak, in history. And that's, by the way, an area across which one third of the world's surface trade flows, right? The intimidation towards Japan, a massive campaign of economic coercion against Australia and now Lithuania. And so what I would often hear from friends in Southeast Asia and beyond, these are my counterparts who are engaging when I was National Security Advisor, they would say, hey, don't force us to choose, right? Don't force us to choose between Washington and Beijing. And what I would tell them is, hey, that's not the choice you face, right? The choice you face is between sovereignty and servitude, right? And the United States is on the side of sovereignty. China wants servitude because what Xi Jinping wants to do, and the party's clear about this, is they want to establish exclusionary areas of primacy across the Indo-Pacific region and excluding who? Us, right? As the first step in really being able to rewrite some of the rules of international commerce and political discourse and then to isolate their regional rival, Japan, right? And so I think we're at a critical moment where we have to compete effectively. And this does not mean that we're on a path to confrontation. Actually I think, Joe, because we had vacated these competitive spaces, China became more and more emboldened, and we were actually on a path to confrontation when now I think this idea of transparent competition is what we ought to really pursue with China. Do you think that that makes us less likely to be in competition with China in terms, or less likely to be in conflict with China if we can change our whole economic profile here in terms of tech, in terms of manufacturing? I do. I do because I think really we have to recognize what China's trying to do, right? People talk about decoupling all the time, and you alluded to this a little bit like, hey, businesses have to make a decision, right? I mean, they've got responsibilities to their shareholders and so forth. So the whole idea of a complete decoupling, that's always been kind of like a red herring, right? That's not what we're talking about. I mean, what we ought to do is ask businesses, take a Hippocratic oath, right? Don't do any hurt or harm in three areas. First of all, don't help the Chinese Communist Party gain an unfair differential advantage over us militarily or in the emerging data-driven global economy. Second, right? I mean, don't help the party perfect its technologically enabled Orwellian police state, right? Don't help them do that. Don't invest in Chinese AI companies, right, that are extinguishing human freedom and weaponizing people's social networks against them and everything. And then the third is, don't compromise the long-term viability of your company in exchange for short-term profits, right? And so many companies have been through this, right? And so I think that's a way to think about it and to think about it in light of what the Chinese Communist Party leadership wants, right? So what Xi Jinping talks about is a dual circulation economy, right, where they get a grip on critical supply chains internationally. I mean, if you look at human rights abuses, look at what they're doing in the DRC, in the Congo, right, in terms of extracting at a horrible humanitarian price the rare earths that they need to continue their manufacturing of microelectronics, for example. But what he wants to do is get a grip on those supply chains and then create enough domestic demand that he doesn't need anybody else, right? That he can write the terms to everybody else, that he has everybody else, you know, in a position of where he can use coercive power. And what I describe in Battlegrounds is the strategy, I think the easy way to think about it is co-option, coercion, and concealment, right? Co-opt you, co-opt businesses, co-opt elites, right, with the lure of short-term profits and access to the Chinese market, right? Chinese investment. And then once you're in, right, to use that influence for coercive purposes, right, look at what they're doing to Lithuania, look at what they're doing to Australia, right, look at what they did to Marriott, MBA, you know, US and international companies. And then to conceal all of this, all this is just normal business practices. Well, it's not normal business practices, right? If you look at one belt, one road, right, which is there, they have three main strategies, right? Dual-circles, dual-circles, dual-fusion, and I describe all these in the book. Military civil fusion, then they, you know, associated with that is Made in China 2025, which is part of this dual-circulation economy becoming completely, you know, no longer dependent at all on any external sources of advanced technologies, for example, or aspects of supply chains. And then finally, One Belt, One Road, which is an effort to create servile relationships with companies by overly indebteding them, right? And so the new vanguard of the Chinese Communist Party, you know, is a Chinese Communist Party official accompanied by a Chinese national bank guy with a duffel bag full of cash, right? And they get the most traction in corrupt governments, you know, and then once they indet them for generations, right, then they can trade debt for equity or they can use it for coercive purposes. If you say one crossword about the party, we're going to call back all your debt and you're going to go broke, right? So I think we just have to recognize co-option, coercion, concealment, defend against it. But then of course, you know, as we look to the future, how do we maintain and expand our competitive advantages?