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- [00:00]
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- [01:44]
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Bloomberg Audio Studios Podcasts Radio News.
- [01:59]
Tracy Alloway
Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.
- [02:03]
Joe Weisenthal
And I'm Joe Weisenthal.
- [02:05]
Tracy Alloway
Jo, up until recently, very recently, I would say there are or were two hypothetical blockades that kind of loomed large in the minds of geopolitical strategists everywhere. And the first was of course, Iran blockading the Strait of Hormuz. That's clearly not a hypothetical anymore. It's actually happened. It's reality. And we've been doing a lot of episodes about it. And so the big hypothetical blockade that we're left with to ponder is China potentially doing something with Taiwan?
- [02:35]
Joe Weisenthal
Definitely. And you know, the only thing I would actually flip them in the sense that I would say the vast majority of discourse has been about the latter. China potentially blockading Taiwan in some way. That was the thing that everyone has been talking about for years and years with growing intensity. And then, of course, as you mentioned now, the Hormuz situation, which sort of, I don't know, hit people by their blind spot because they didn't think it could ever really happen, or whatever really happened has happened. But when this resolves, if this resolves, et cetera, I believe the question of Taiwan will very quickly return to the fore.
- [03:11]
Tracy Alloway
Oh, absolutely. So as you mentioned, it obviously hasn't happened yet, but people have been writing and thinking about it for years and years and years. And as you know, I consider myself an expert on this topic, having once written a paper in college saying that China was going to invade Taiwan before the 2008 Beijing Olympics, and that obviously didn't happen.
- [03:32]
Joe Weisenthal
Well, being wrong has never gotten in the way of any pundit's career.
- [03:36]
Tracy Alloway
That's right.
- [03:36]
Joe Weisenthal
So I would not worry about that. That has never been an issue as long as it was well articulated and et cetera, then you're fine.
- [03:46]
Tracy Alloway
It was written from a server closet while I was in Beijing, so it that going for it. But anyway, my point is that this is something that's always sort of looming in the background and you always see headlines kind of coming up that hint at China, Taiwan tension. So we actually had one this morning. We're recording on April 21st. The headline is, Taiwan's president canceled his visit to Eswatini. Do you know where that is?
- [04:12]
Ike Freeman
No.
- [04:13]
Tracy Alloway
It's a tiny, tiny place in Africa.
- [04:16]
Joe Weisenthal
Huh. Did they recognize? Did they, like, you know, it's interesting because there's a few countries still wholly out there that recognize. That's right, Taipei as the unified capital of China. Most have, like, a lot. Most of switch. There's a few random ones out there that are still like, they, they don't recognize the mainland, etc. So I'm all, you know, a little fact twitch here and there. I didn't know that, but.
- [04:40]
Tracy Alloway
So Taiwan's presidential office is citing air root issues. I'm doing air quotes for those who can't see this video and China pressure. So, yeah, you do get those kind of headlines every once in a while. And then the one other thing I would say is like, okay, the Strait of Hormuz, the blockade there. Clearly an oil story. And oil is something that powers the entire global economy. But as we've kind of learned over the past six or seven weeks, oil might not actually be the thing that, like, powers markets. Right. If you think about the thing that matters for markets, it might be something much closer to AI and semiconductors and
- [05:20]
Joe Weisenthal
valuations entirely is right. That's totally. I mean, evidently the world could go a few weeks and not grind to a halt. If the straight of Hormuz is closed for a few weeks, I believe the reaction in markets would be. And just all around the world and really everything would just be orders of magnitude differently if someone's like, no chips, no chips are coming out. That would be such a bigger deal. And of course, the question of, you know, Taiwan's role in the world, that would already have been a very big security question, even prior to the now constant drumbeat obsession with AI chips, et cetera. But it only magnifies why this is such a live issue.
- [06:01]
Tracy Alloway
Right. So apparently we can kind of survive a few weeks without oil. Can we survive a few weeks without.
- [06:07]
Joe Weisenthal
We can survive a few.
- [06:08]
Tracy Alloway
Or months.
- [06:09]
Joe Weisenthal
We can survive a few weeks without a fraction of the. A certain fraction. The. Whereas if we, you know, the chip flow were to be disrupted on that level, it would just be, yes, much bigger deal.
- [06:22]
Tracy Alloway
All right. Well, we do in fact have the perfect guest to talk about all of this. Someone who has just written a book on exactly this topic called Defending Taiwan A Strategy to Prevent War with China. We're going to be speaking with Ike Freiman. He is also a Hoover Fellow at Stanford. So, Ike, thank you so much for coming on. Odd thoughts.
- [06:40]
Ike Freeman
Thanks for having me on.
- [06:41]
Tracy Alloway
Here's my first question. You've spent a lot of time in China, including researching this book. Are you going to be able to go back?
- [06:47]
Ike Freeman
I think I could go back. The question is whether I could leave. I'm. I'm joking. I'm joking. They gave me a hard time at immigration on the way out last time.
- [06:54]
Tracy Alloway
Oh, interesting.
- [06:55]
Ike Freeman
And I can't do useful research there anymore. It's not like there's archives I can access, interviews I can do. So the value of it for research is going down for me, but also the risk to my person, the risk to my devices is going up. I do try to engage as much as I can, but I think it's better to engage in third countries.
- [07:15]
Joe Weisenthal
Why don't you tell us the genesis of this book or the origin of it or how you got interested in this particular topic?
- [07:24]
Ike Freeman
Well, my background is as a China scholar looking at China's global investment campaign. My first book was about the Belt and Road, and I looked at a bunch of Chinese language sources that show how it works under the hood as a campaign to mobilize the party state behind Xi Jinping. And then I went on the Trail of it to Sri Lanka, to Tanzania, Greece, Greenland. Actually, I did my PhD about China in Greenland, trying to understand how China leverages.
- [07:51]
Joe Weisenthal
You did your PhD about China in Greenland?
- [07:53]
Ike Freeman
Yeah.
- [07:53]
Joe Weisenthal
Oh, that is timely. Anyway, keep going.
- [07:55]
Ike Freeman
That'll be another book.
- [07:56]
Joe Weisenthal
Yeah.
- [07:57]
Ike Freeman
But what I learned in the process of doing this book is that China has this formidable toolkit for blending economic power with its geopolitical objectives. And, you know, Taiwan was clearly emerging during COVID as the story was heating up, as this monumental issue in the structure of the world economy, not just for the old reasons that we care about Taiwan, which is largely about geography. So it seemed to me, reading about this, China had more ships, more planes, more missiles, more drones. What was I missing? Why is the United States not completely outmatched? So I started this project with a friend of mine named Harry Hallam, who's a superstar naval historian. And I asked him, what's the book I should read to understand what a US China war over Taiwan would be like, what it would take to win, and then what of those things the US can do or can't do? And he said, well, the book doesn't exist. I can give you hundreds of articles, hundreds of people to follow on Twitter, but no one thing to read. And so became this collaboration between two historians, one focused on the economics, one focused on the military to put the pieces together. And as I did so, I began to discover there's huge gaps in our knowledge of this problem. This is the most complex, multidisciplinary, multifunctional foreign policy problem that American statecraft has ever faced, because it's a military problem. It's also an industrial problem. It's a technology policy problem. It's a diplomatic problem, a real one, complex one, for how we deal with China, with Taiwan, and with the rest of the world. And then finally, it's an economic problem. It's a question of global economic order. Because if Taiwan falls by force or coercion and China seizes the fabs, the semiconductor fabs, or the fabs are disabled or destroyed, that is a hard reset of the entire global economic system that we have had since 1989 and arguably back to 1945. So what comes next? And while we have a lot of good thinking about certain aspects of the scenario, like the war gaming, of what an amphibious campaign would look like and how we stop it, there's other aspects, like the economic planning that we just haven't done. So that was the idea for the book. Pull together the best of existing knowledge, fill in the gaps where we can Based on interviews, based on historical work, Chinese language materials, and try to be the person to put the pieces together.
- [10:14]
Tracy Alloway
I want to back way up for for a second and ask a very obvious question which is why does China actually care so much about Taiwan? And then is it even accurate to say, like, why does China care about Taiwan? Should I be asking why does Xi Jinping care about Taiwan?
- [10:30]
Ike Freeman
Those are the two right questions to ask and it's where we start with the book. The first thing to understand is that it's not about the chips for China, the chips are a co benefit. But China cared about Taiwan long before they made chips and they would care about them if they didn't make chips. Taiwan is the unfinished business of China's Civil War. In 1949, as the Kuomintang, Chiang Kai Shek's government was losing control of northern China, they began to evacuate their forces alongside all the treasures of the Imperial palace to Taipei. And they set up a government there, essentially took over the island by force and became, over the course of the Korean war, essentially a U.S. ally. In 1955, Eisenhower went to Taipei. They became a critical node in the US alliance architecture. Mao obviously wanted to take this island. He wanted to wipe out the remnants of his enemy. And for him, the fact that there was this other China right across the strait, which at the time enjoyed the Chinese seat in the UN Security Council, was recognized by most of the world as the one true China. This was a fundamental question of the legitimacy of the Chinese Communist Party. And so it became this totemic propaganda point that we will liberate Taiwan from the imperialists and in the process we will make China whole. We will fix this historical wrong that we were separated under this century of humiliation. And therefore, for us to be fully rejuvenated as a civilization, Taiwan has to be brought to heel. And the world must accept it's not just about control over Taiwan, it's about political legitimacy. The United nations must accept, the United States must accept that Taiwan is part of China and there's only one China in the world. And the Communist Party is the only legitimate government. So this is why it's sensitive. It's not just about the status of Taiwan, it's about what China means. And that has always been bound up in competition with the United States prior
- [12:23]
Joe Weisenthal
to the kmt, having fled the mainland, the civil war and all that, what was understood to be the status of that geography called Taiwan. And to what degree, going back even prior to the civil war, civil war, etc. What was its relationship to mainland China.
- [12:42]
Ike Freeman
It depends how far back you want to go. Back in the 17th century, the Dutch had a presence there as the Ming Empire was falling apart. You had generals who came from the mainland. They're claimed by both sides now. You know, a couple of them became gods, actually, and there's temples to them in Taiwan. And essentially, during the Qing Dynasty, China's final dynasty, they were a region of the province across the strait on the mainland. But the Qing dynasty's writ didn't really run there. They were settled by people from the mainland, but it was swampy and pestilential, and there were indigenous people, and it wasn't really actively administered by the center. The Qing pretty quickly lost control over the fringes of their empire. And then the Japanese took it in the Sino Japanese War in 1895. And the Japanese developed it. The Japanese industrialized. They left a mark on it. And unlike other places that the Japanese colonized were like Korea, where their colonization was brutal, in Taiwan, they left relatively good feelings. So all through the first half of the 20th century, when the Communists and the Nationalists were fighting on the mainland, Taiwan was under Japanese control. And then the question is, after Japan surrendered in 1945, who did they surrender it to? And was the status of Taiwan decided after Japan's surrender? And the US Position is, legally, it remains unresolved. It remains unresolved who Japan surrendered it to. So the US Position is we don't actually take a view on what the true status of Taiwan is. This is something for Taipei and Beijing to work out between themselves, and we are open to any outcome, but it has to be done peacefully. So no force and no coercion. And since Taiwan's become a democracy, it has to be democratically acceptable to the people of Taiwan. And that's a principled position, which is really about the stability of the broader region, because it recognizes that this region is held together through trade routes that go through international waters, international airspace. It's been stable since 1945.
- [14:49]
Tracy Alloway
And.
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Ike Freeman
And if the United States starts allowing borders to be changed by force, trade routes to be changed by force very quickly, the whole regional order in this, in this part of the world will collapse. And this is a grave economic danger for the United States as a geopolitical danger. So that's the view. And unfortunately, what China's doing is they're trying to revise that situation by pushing in the gray zone, pushing through coercion. And there's obviously always the risk they could escalate to war.
- [15:18]
Tracy Alloway
I want to talk more about that, but Just on the topic of, I guess, US policy towards China and you already touched on the One China policy, but what exactly is strategic ambiguity? Because whenever I hear that term, I always think it's like it's what I would do if I was trying to get out of a social commitment later that evening or something like, oh, maybe I'll come, maybe, you know, we'll see, we'll see what happens. What exactly does that mean? And isn't it weird that people recognize that as an actual policy? Strategic ambiguity, what does it mean?
- [15:48]
Ike Freeman
So the whole policy is sort of strange because it was never put forward by one person. It emerged through accretion. So it's like seeing 100 bottles of beer on the wall. Like you keep adding a new lyric every time there's a new administration. So what is the components of the One China policy? Well, there's three communiques, three agreements that the United States signed with China between the 70s and the 80s, and those are the political foundation of our relationship with the prc. And the language is vague and there's some key phrases that are translated differently in English and Chinese. So we get to claim that the other side said things that the other side says it doesn't say, there's a whole lot of that. But basically the United States position is we will have a relationship with the prc. We will treat Beijing as the sole legitimate government of China, but we will maintain for all practical purposes an informal relationship with Taiwan as if it were a country, just not technically, not de jure. And this has been reaffirmed by Congress, which in 1979 passed the Taiwan Relations Act. That makes very clear that it's the sense of Congress that we should treat Taiwan as a state in basically every respect except for these, some of these formal, very high end political and military interactions. And then in the Reagan administration, we made some extra commitments to Taiwan called the Six Assurances. And they basically reduced to we will not force you to the negotiating table, we will not trade you away. In other words, you will never face pressure from us to take a bad deal. And what this policy adds up to has been called by political scientists dual deterrence. We want to deter Taiwan from declaring independence or doing something provocative that might trigger a crisis. And we want to persuade Beijing that if it intervenes, it might face a devastating reaction, but that they don't have to worry because Taiwan is also deterred. So they can take their time and hopefully if we deter both sides from doing something extreme, we can encourage them to resolve their differences peacefully. So that strategic ambiguity is the not saying exactly what we would do or under what circumstances. The tricky thing is that was a great policy when we had overwhelming economic, technological and military advantages. That is no longer the case. We probably could defeat China in a high end conventional war and we can go into why. If we put sanctions on China, we could probably cause a greater GDP hit in China and we can get into why. But the cost to us and the risk to us as Americans is just going up, up, up as the relative balance shifts. And so now it increasingly seems like it's a get out of jail free card. Even if it isn't.
- [18:51]
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Ike Freeman
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- [21:29]
Joe Weisenthal
I know basically nothing about Taiwanese domestic politics. Am I wrong, though? I feel like I read somewhere it's like the kmt, the success, the and they were the revolutionaries. Aren't they the more dovish of the parties and relations with Beijing? And aren't they the party that seems to be a little bit softening of the stances of the future and maybe, you know, uniting the two sides a little bit? Am I wrong about that?
- [21:53]
Ike Freeman
No, that's absolutely.
- [21:54]
Joe Weisenthal
How is that possible?
- [21:55]
Ike Freeman
It's how nerdy do you want to get? So here's the thing. I mentioned that the dispute is largely about what China means. Now that question continues. The Kuomintang, the kmt, which is the successor of Chiang Kai Shek's party, they believe that they're still the legitimate representatives of the true China.
- [22:15]
Joe Weisenthal
The entire thing.
- [22:17]
Ike Freeman
Well, they recognize that there's a free China and an unfree China. And I think they've long since given up their aspirations of raising an army and going back across the strait and taking over the mainland. But I think they have an aspiration that one day this, this divided China can be unified, either in some kind of confederation structure or who knows, maybe with the KMT on top. And they identify culturally, historically, civilizationally, as Chinese. Yeah, they say we're Chinese. We just happen to live on Taiwan. But we're one civilization, one nation. And the KMT's point of view is that we won China. Respective interpretations. And on that basis, Beijing is willing to talk to them because they disagree about one China mean what one China means. But they both believe in principle that there is only one China in the world, and Taiwan's part of it. But the current ruling party in Taiwan, the Democratic Progressive Party, or the dpp, they have a different perspective. They say we are a country called Taiwan. We're one of the most technologically advanced places in the world. We are a thriving democracy. The world needs our chips. You know, we are at the center of this security architecture.
- [23:24]
Joe Weisenthal
So they see themselves as a distinct nation.
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Ike Freeman
We are a distinct nation and we should be recognized by the world as such. And they're not suicidal, they're not crazy. They recognize that if they declare independence that this could bring the hammer down on them. But their point of view is we will never declare independence because we already are. And Americans, I think, are about to have to learn this lesson because Taiwan is going into a presidential campaign and it is far from clear where the wind is blowing. And the United States will have to work with whoever wins because that's what it means to have a partner that's a democracy. But these two parties have very different points of view. And one of the points I make in the book is we need to learn to handle Taiwan's domestic politics. We are two democracies that respond to one another. For example, I think the kmt, if they come back to power, will be much less interested in helping America reshore chip production. And they're also probably much less interested in doing military cooperation with the United States if that's going to inflame China. I think basically you can think about it this way. The DPP believes that the relationship with the United States is the most important thing, that we matter to them just as they matter to us, and that if Taiwan gets in trouble, America will come. And the KMT views are diverse, but they tend to have the view the cavalry might not be coming. The Americans might be using us as a pawn in a bigger geopolitical game, but can we really trust them? And we don't want to become Ukraine. So maybe the best approach is to negotiate. And these are two very different points of view. They're both plausible interpretations of the facts. And the United States has to learn to deal with both sides.
- [25:09]
Tracy Alloway
I want to ask you more about reshoring, but since we're on the topic of domestic Taiwanese politics, one thing I've always wondered, and I'm curious if you maybe got some color on this in the course of your research. But one of the reasons it's not the only reason, but a big one, one of the reasons Taiwan is strategically important is because of the semiconductor business and the presence of TSMC and companies like that. What role does a TMC play in Taiwanese domestic politics? Are there actual instances of semiconductor companies having a seat at the table when it comes to formulating national security policy or indirect influence or anything like that? Have you seen examples?
- [25:48]
Ike Freeman
It's hugely, hugely important. It's only a couple of percent the semiconductor industry, depending on how you define it, with related services industries, it's something like 5% of employment in Taiwan, but it's an outsized share of Taiwan's exports. And right now, just if you look at the macro data, Taiwan's exports are booming because no one can get enough of their chips. There is an entire ecosystem of universities, vocational training centers, companies that supply to tsmc. This is a national champion in so many ways. And they get tax benefits and subsidized land. And Taiwan's political economy is organized around making them a success, just as South Korea's has been organized around making Samsung and others a success. TSMC is smart enough to know that it has to deal with administrations of both parties. But TSMC is also caught in a US China tension too. And TSMC doesn't share the United States political objectives here. TSMC is happy to sell to China. They don't have a problem if China buys lots of their chips, but they have to work with the United States because ultimately they're fabricating chips at the high end that are made with US designs. So the US does have the ability to export control where there's final products go.
- [27:02]
Joe Weisenthal
This is really interesting and important. And I hadn't thought about this dynamic. I mean, I guess it sort of makes sense to me that like, if I were like the leadership in Taiwan, I don't know if I would be like that thrilled about our main company opening up fabs in Arizona, etc. But I guess it sort of makes sense. Like, okay, you know, the US Is a pretty important partner. But what I'm wondering, you know, like in a future scenario, so going back to Reagan, and it's like, we're this doctrine, we're never going to put pressure on you to like, accept a bad deal. What if over time, organically, a new generation of sort of more sympathetic, like mainland voters, like, they grow up, they look at the world, they see maybe the US sort of looks like a belligerent power sometimes, etc. They look at China and it seems, it looks like they're doing a lot better. They're not as poor as they used to be, they look pretty stable, etc. Like, could Taiwan just sort of migrate closer to the Chinese sphere or perhaps even merge back into China organically?
- [28:08]
Ike Freeman
Yes.
- [28:09]
Joe Weisenthal
And that, is that a, Is that something that, like, U.S. policy? Like, like, do we feel that we have to prevent that if that's sort of where the democratic action in Taiwan goes?
- [28:19]
Ike Freeman
Well, our longstanding policy is that it's the, the, it's the right of the people of Taiwan to decide their own future. And that's a principled position that we hold for a reason that is also self interested, which is if Taiwan decides that they want to submit or they want to take a deal and they want to unify with the mainland. By the way, the mainland uses this term reunification. That's a weasel word. Taiwan has never been subject to the People's Republic of China in its history. But if Taiwan becomes unified as part of China, what's the United States going to go in? We're going to go in and topple the government. We're going to tell them no. They should have self determination to decide. And that is one reason why it's a no brainer to start to build a semiconductor manufacturing base in the United States and Japan and other allied countries. Because there's any number of reasons to doubt whether we have assured access in the long term to Taiwan's chip supply. And if this is the most essential bottleneck to the development of Frontier AI, then we cannot put all of our eggs in that basket.
- [29:23]
Joe Weisenthal
Do we know like younger Taiwan? Is there a reason to think that like I don't know, I have again, I haven't looked at polling of like how the young voters, the younger, the younger Taiwanese, what do we know about them?
- [29:35]
Ike Freeman
So the younger Taiwanese tend to lean more towards the dpp. Historically they tend to in polls they tend to identify as I'm Taiwanese only.
- [29:44]
Joe Weisenthal
Okay?
- [29:44]
Ike Freeman
Rather, very few of them will say I'm Chinese only.
- [29:47]
Joe Weisenthal
Okay?
- [29:48]
Ike Freeman
More of them will, an increasing number will say that I'm Taiwanese only, although many will say I'm both Taiwanese and Chinese.
- [29:54]
Joe Weisenthal
Okay?
- [29:56]
Ike Freeman
Chinese in the sense of culturally civilization Chinese, not Chinese in the sense of People's Republic of China Chinese. And I think these dynamics are affected by what the mainland does. China is I think perfectly happy. Xi Jinping would be perfectly happy if Taiwan would sign a piece of paper that says I accept one country, two systems Taiwan plan. Which is to say I accept your principle that there is only one China and we're part of it and you're the legitimate leaders. And we will get a Hong Kong style arrangement where we get to keep our laws, our institutions, our democracy. We get some freedom of expression, freedom to organize. We have our get our fancy passports that have visa free access to all these countries, all these perks and maybe Beijing will give them free energy, other subsidies, other perks. That is the offer that's on the table for Taiwan. But it's become a whole less lot less attractive now that Taiwan has watched what happened to Hong Kong. Because Hong Kong took that deal and it was all right. Until people in Hong Kong started to object to the CCP's encroachment on their institutions and their freedom to organize and speak out. And what ended up happening is Xi Jinping sent in masked thugs that brutalized people, rounded them up, you know, disappeared people in the night, terrorized the population, and crushed them into submission. So I think Taiwan has understood since 2019 that if they take one country, two systems, it's the slow beginning of the end of their democratic institutions and their freedom. It is not a. It is not a deal that they would take, I think, willingly. But if they feel that the United States and the rest of the world isn't backing them up and they're offered, Beijing essentially says, you want to do this the easy way or the hard way? I can imagine a world in which they choose the easy way. And this matters because we're not just talking about peacetime. We're also talking about crisis scenarios. There's all kinds of things that China can do to dial up the pressure. They can mobilize their forces in the Taiwan Strait for a potential invasion. Oh, it's just an exercise. It's just an exercise until it's not. They can start to curtail the flow of goods and planes coming to and from Taiwan. They can start to ask for manifests. Who's on the plane? Oh, so sorry. Ike is on the plane. Could you make a pit stop in Shanghai? We want to ask him some questions. There's so many ways that Beijing can turn up the pressure. They probably have special forces, united front people on the ground in Taiwan. They can do cyber attacks against Taiwan, critical infrastructure. They can blank the country with propaganda, the island, rather, with propaganda. There's so much things that China can do to put the pressure on and try to drive wedges between Taiwan, the United States and Japan. And in those moments, what is the US Political strategy? Yeah, we have a military strategy if they turn to an invasion, but what is the political strategy if the markets start to panic? If we think we may need to get our American citizens out? And these are the scenarios I argue in the book that we haven't yet fully thought through.
- [32:57]
Tracy Alloway
In your framework, what's been the big constraint on Xi Jinping so far historically? Like, why hasn't he done something on Taiwan yet? Yet?
- [33:06]
Ike Freeman
Well, we don't know. We have to speculate. One reason is that the People's Liberation army, the pla, I think it's fair to say, up until recently and probably still now lacks the ability to take and hold Taiwan by force. Back in 1949, after Ma took over the mainland, the first thing he did was he told his generals, now give me the plan to take Taiwan. And they studied it and they concluded, sir, it can't be done. This is one of the hardest waterways in the world. There's crazy tides, there's enormous waves, there's 50 mile an hour winds, there's typhoons, there's fog, and there's only a few landing beaches that are plausible. And Taiwan knows what those are. And now they have spent the better part of a century fortifying them. So if you want to get all of your men across the strait, you have to deliver them by sea or by air. And air is difficult, as Ukraine has shown, it's easy to shoot down helicopters and planes. And so you need to take them in these amphibious ships, which can be sunk by mines or cheap drones or artillery, and then you have to get them into the shores, and then you potentially have to sustain them for a long period of time. You need to give them vehicles and ammo and fuel and food and medicine. And what happens if you successfully deliver 15,000 troops to the shores and then your logistics tail gets cut because a number of your amphibious ships end up on the bottom of the Taiwan Strait and then your men are massacred on the beaches? So many things have to go right in a highly synchronized way for an amphibious invasion to work. Such that D Day, which is the great example in history where we had all these advantages that China wouldn't have today. Very, very, almost, it came very, very close to going completely off the rails, as I discuss in the book. So Xi Jinping is systematically building the capabilities he would need. He's building out this amphibious fleet. He's building better anti submarine warfare to force us back. He's building longer range ballistic missiles that can target ships, to force our aircraft carriers to stay further back from the conflict zone. He's building out his air force and drones, cyber tools, all these things to coerce Taiwan. But if he rolled the dice on an invasion today, I think at least if you look at the public war games, it is possible that he would suffer a pretty catastrophic defeat. So that's one reason for patience. But as his preparations proceed, I think he's getting more confident.
- [35:29]
Tracy Alloway
So one of the things you used to hear a lot more, and I don't think you hear it nearly as much nowadays, but this idea of economic pain, right, if China invaded Taiwan, there would be some sort of retaliation, maybe sanctions, something like that. And because the CCP had built its legitimacy on the social compact with its population, which was basically, you know, we're in power and in exchange you all hopefully get rich. That was just untenable for, for Xi Jinping and other policymakers. You don't hear that that much anymore. And I wonder, I wonder why that is. Is it just because, like, people feel that China has reached the level of economic development where like, okay, the legitimacy has been established in terms of the social compact? Or is it because we had an example of Russia invading Ukraine and very obviously being willing to trade off that military action, even though it generated an enormous amount of economic pain for the country?
- [36:26]
Ike Freeman
It's a whole bunch of factors at once. Xi Jinping has overseen a transformation in the social contract in China from development to ideology and national security. From the anti corruption campaign to his ideological rectification campaigns, to rewriting the history textbooks, to taking Communist Party cadres to historical sites to study points of hardship in party history. Xi Jinping uses this term struggle to describe what the party should do. And he has told young people that can't find work that they should eat bitterness. The idea being you should tough it out. We are a nation striving for national rejuvenation. National rejuvenation means rising to the height of human achievement in every human endeavor. And to do that, we're going to work hard and we're going to make some sacrifices. And he has tightened surveillance, he has tightened discipline that allows him to run this regime according to a very different set of rules through coercion. And that means we have to assume that China's tolerance for economic pain has increased. Now, at some point there's a limit. If the financial system were just to implode under the threat of sanctions, or because there's just mass capital flight, because no investor wants to be stuck in illiquid assets in China. If the US and China are headed to war, yes, there's possible that China could suffer a sudden black swan collapse. But I think that's not base case. And I have a work that I describe in a lot of detail in the book about how over the last 10 years China has been systematic building shock absorbers into its financial system to make it more likely to survive the gut punch of the imposition of sanctions. And the fact that Russia's financial system, which had it lacked many of these advantages, was able to steady itself after the imposition of sanctions is, I think, an encouraging sign. Just a couple of numbers to bring this home. At the beginning of the Russia, Ukraine war, Russia was blindsided that the Europeans joined All the sanctions, they had moved a lot of their central bank assets from dollars into euros and then the Europeans froze those assets, which meant suddenly half of their foreign exchange reserves were just inaccessible to them. That was a huge boo boo for the Russians. And then the sanctions regime targeted Sberbank and other major banks in ways that had not been expected. So the ruble lost something like half its value in a couple of weeks and there was a real risk of Russian collapse. But with only $300 billion of foreign exchange available, they were able to right the ship because they limited, they imposed capital control regime, they limited outflows from banks, they raised interest rates to 20%. They demanded that state enterprises take payments in rubles. All of these things to increase demand for rubles and keep the bank solvent. And then foreign hedge funds that had profited on the ruble short took a look at the situation and they said, well, are there more sanctions coming? Well, if the answer is no, then it's all priced in and the ruble looks pretty cheap because actually Russia's imports have just collapsed and their exports are booming because the oil price is up. And then In April of 2022, the ruble was the best performing currency in the world. And then the ship was set in and then the economic war became an attritional contest that we have not won yet. And I think there is a similar dynamic with China. There is some possibility that their financial system could implode. But China, if you count their shadow reserves, has between 10 and 20 times the FX that was available to Russia. They have an existing capital control regime. All the banks are run by the state. And if they survive that gut punch, they have the stockpiles to live on their own supply for many, many, many months if they're entirely cut off from imports. So the question is, if we can't defeat them economically slowly, how do we think about the long term contest of economic pain such that it is something that we as a coalition of democracies can possibly win. And the answer I come to in the book is we have to stop thinking about it as punishment. Stop thinking about as how we could hurt China in a way that hurt us too. We need to think about what are the things that we would want to do in our own best interest in a crisis to secure our own economic interests that would just happen to hurt China as a byproduct.
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- [43:41]
Joe Weisenthal
quickly on cutting off imports Are they good on oil for like this is we know they have this big oil stockpile war would be extremely oil intensive process. You know they've electrified a lot of cars. I doubt their military is nearly As
- [43:56]
Ike Freeman
I think they're good. I think they're good on oil.
- [43:58]
Joe Weisenthal
You think they're good on.
- [43:59]
Ike Freeman
So they, in peacetime, yeah, they consume, what is it, 13, 14 million barrels a day, of which around 4 are produced domestically. If they became cost insensitive, which they would be in a, in a crisis, they could probably squeeze that up a bit. They also can import overland. They import, you know, a couple of million barrels a day over land. And if they had to, they could import more by land. It wouldn't be comfortable, it wouldn't be cheap. But if they would have willingness to pay, they have plenty of foreign exchange. They could also do as the Nazis did, which is turn coal into fuel oil. Fisher tropes has been done in the past. The Nazis declared war on all their oil suppliers and they still managed to fight through 1945 pretty effectively. But there's more to this. They declare, what is it, 1.3 billion barrels in their SPR. They probably have something more like two. And then they can make the civilian economy ration. The PLA would use something like 500,000 barrels a day. So if you run the math and I just do the back of the envelope in the book, what matters is not that they would run out of oil eventually. At some point they would feel the squeeze. But our allies, Japan, South Korea, Taiwan would feel the squeeze much faster. So our coalition as currently set up doesn't have the advantage in a long term contest of extreme economic work. And it's not just about oil, it's about everything else. They have stockpiles of cotton, they have stockpiles of chips. They have stockpiles of everything plausible that they might need. Taiwan doesn't have that, Japan doesn't have that. So this is the risk that they take us up to the brink. We are forced to contemplate what the long term economic war looks like. We realize that if they can last for 12 months and we can last for three, that's not a game we want to play and we fold. And then if that is established, they can coerce us. And this is not just about Taiwan. This goes far, far, far beyond Taiwan. This is about our entire alliance architecture in the region. And frankly, this is about our hemisphere too.
- [46:00]
Tracy Alloway
One of the arguments you make in the book is this idea that a US policy response can't just be about military power, it has to be about economic power as well. And you talk about this idea of avalanche decoupling, so sort of forming a grand alliance with other democracies to try to isolate China from the global economy. And when I hear a term like avalanche decoupling, I kind of think like, well, in some respects, the US and maybe some other parts of the world have been trying to decouple from China for a long time with varied degrees of success. What convinces you that something like that would be possible in a crisis moment, especially when we're talking about, again, grand alliances with democracies that maybe under the Trump administration, we don't seem to have the best of relations with at the moment?
- [46:50]
Ike Freeman
It's a really important question. So let's take the hard facts head on. In the last couple of years, we have learned some very important things about what is and is not possible when it comes to breaking our critical dependencies on China. Everyone knows that we have these critical dependencies which strike at the very heart of our lives and livelihoods. We depend on China for the active pharmaceutical ingredients that save lives every day in hospitals. We depend China on the supply chain to build any drone in the United States. We depend China on China for legacy chips without which we can't make cars. There is no Ford. There is no Stellantis. I think that's crazy. I think it's crazy. I think it opens up the United States to black economic blackmail. And frankly, the fact that our allies have the same dependencies opens them up to blackmail, too. So it's a no brainer that we should start to break these dependencies on China in the same way that China is trying to break its dependencies on us because they don't want to be blackmailed. So what is dangerous is that China would be able to de risk their economy largely from ours. But we couldn't do that in a symmetrical way. But if a crisis happens over Taiwan, whether that's tomorrow or 18 months from now or five years from now, it will be an, oh, shoot, I guess we should have done all of that five years ago. But that will be yesterday's problem. And the question for today's problem is how do we deal with the situation we face? And it's very possible that that situation would be in the context of a crushing recession and stock market correction. Because as we mentioned at the beginning of this conversation, the whole equity market is being held up by an AI trade where seven tech companies that are priced for perfection make up 40% of the S and P. And if you take away the supply of chips, they fall to Earth. $600 billion. Is that the number the hyperscalers are spending on data centers this year?
- [48:45]
Joe Weisenthal
It's close enough.
- [48:46]
Ike Freeman
You take that away and the US Economy is in recession. So imagine the context of a terrifying stock market correction and, and, and heading into recession. Let's assume that we, China, has taken some actions that reveal that we really need to expand this de risking or partial decoupling thing. But we've also learned that we can't decouple from China all at once because we tried this on Liberation Day and we got cold feet within a week because the bond market blew up and all the captains of industry called up the President and said, you have to reverse this, Mr. President, or we're cooks. So if you can't decouple from China all at once and quickly, the only way to do it is gradually looking at the critical stuff first and the non critical stuff later, if ever. So what I want to do is say what is the most critical things? If you have to stack rank our dependencies, what's 99th percentile, what's 90th, what's 70th, what's 50th? And then let's go down the list one at a time and figure out how do we break these dependencies. So in an, in the event of a crisis, an invasion of Taiwan or a blockade of Taiwan or some gray zone, ambiguous thing, if we decide we need to reset this relationship and we need to decouple from China 5%, 10%, 30%, what does that actually entail? And I would submit that that's a much harder problem than we've realized because even if we want to decouple just a little bit, we face a transshipment problem. Right now, as we've discovered, you have a tariff differential on China. The tariff on China is here, the tariff on Vietnam, Mexico, everyone else is here. So companies will export their stuff from China to Vietnam or Mexico, they'll write made in Vietnam or Mexico on it, and they'll resend it to us. So if you don't develop a solution to this transshipment problem, there is no way that you can decouple from China even a little bit, even in a crisis. That to me is very scary. And the process of working with other countries to address this, essentially this is rules of origin for trade. This is a big enterprise that is going to take years and years to do. It cannot be done right away. So what we're talking about with avalanche decoupling is a process that abandons the fiction that we can do this all at once and starts thinking about if we need to divorce China, 10%, 30%, 60%, whatever it is, how do we go about Building a new kind of economic order such that we can still have trading relations with the rest of the world. And that question has not been addressed until this book.
- [51:17]
Joe Weisenthal
I find this conversation to be very alarming and obviously, and it should be very alarming. I guess the good news, if there is any, is that we have spent the last several years deepening our friendships with the rest of the world and building up our allies and establishing that open non China trading bloc at least. Oh wait, no, we're literally, we're literally doing the opposite.
- [51:44]
Tracy Alloway
Well, I was going to say on the plus side, if one of the, one of the elements of China deterrence is building a better custom system where we can actually track trans shipments, then maybe, maybe some of that work has been done. It's better than like building more nukes.
- [51:59]
Joe Weisenthal
But like it does seem like we're kind of not doing any of this. Right? I mean not only not doing any of this.
- [52:04]
Ike Freeman
Correct.
- [52:04]
Joe Weisenthal
We are like rowing like if that, like yeah, if the goal is let's do this avalanche, decoupling around the world, etc, like we're going the opposite direction.
- [52:13]
Ike Freeman
Yeah, that's exactly, that's exactly right. The only way you can get this stuff done is if you work with your partners. That's the only way.
- [52:20]
Joe Weisenthal
Yeah.
- [52:20]
Ike Freeman
And that's not about being moralistic. It's about practically speaking, there's stuff that we don't know how to make in this country anymore because we outsourced it two generations ago and there literally aren't any people left who know how it's done. And Japan or South Korea in particular. But many of our European partners too have this know how in advanced manufacturing and not to partner with them I think is kind of crazy. Also they face the same problems, the same risks of economic coercion by China and they have even less leverage to put push back against China because China relatively speaking is much bigger than, than they are. So I think the Trump administration has a few correct ideas dealing with these rules of origin through these bilateral deals, doing bilateral economic security packs like with Japan. But we need to be bringing larger groups of allies and partners together to
- [53:11]
Joe Weisenthal
do this just real quickly. I think you mentioned at the beginning that you actually think currently in a conventional war that the American military would have the upper hand. I don't, but like, you know, it looks like I don't know what's going to go on with Iran and I'm very susceptible. I watch all the Chinese propaganda, I watched the military praise like that looks really impressive. The robot dogs and all this Stuff.
- [53:35]
Ike Freeman
Oh, the robot dogs?
- [53:36]
Joe Weisenthal
Yeah. Like, can you just give the short version of why, as of April 21, 2026, you think the US military still has the upper hand?
- [53:45]
Ike Freeman
This is something that I learned in the process of working on this book. And the previous book, there's a companion book called the Arsenal of Democracy, which is all of the military nuts and bolts that my editor was like, no way you're putting this in. That's too nerdy. But here's what I discovered in researching that book. The wars that America has fought over the last 80 years have been land wars. And land war has a certain character and war at sea has a totally different character. And the basic reason is that war on land involves lots and lots and lots of units that are basically interchangeable. And so it's attritional. You're wearing each other down. You're fighting along a long line, you're applying pressure, and there's an equilibrium and a balance. And you're basically trying to hold up enough reserves with potential energy to punch through the enemy's line and then send in the cavalry and their line collapses and you ride to victory. So if you look at the maps of World War I, for example, the line doesn't move. It doesn't move, it doesn't move, it doesn't move, and then it breaks. War at sea is different. You have a very small number, a much smaller number of platforms, and they're much more specialized. And so if you can take out just one or two of the enemy's vessels, specialized aircraft, specialized ships, the whole structure starts to collapse and the rest become easier to kill. And that means that there's no real incentive to hold back reserves. Once the engagement starts, it's incredibly intense and it's often decided in the first hours to days. And one significant implication of that is your ability to see and communicate across the battle space is really, really critical. And especially as our, the range of our missiles and our drones has increased, that means that US aircraft and ships and submarines that could potentially strike targets in or around China can be zooming around across literally millions of square miles of ocean. So to see these things, to target them, and then to deliver masks to a target to kill them is no easy feat. And if the US can use cyber counter space capabilities and so on to disrupt China's ability to see and communicate in those critical early hours, then it could potentially win a lopsided victory or vice versa. And one of the implications of that is if you're just counting ships or counting planes or Missiles, you will miss the parts of the balance that are most important, that are actually qualitative, many of which can be augmented with AI. And this is hard because it means when you're war gaming these things, if you don't have a clearance, you kind of have to make it up with these capabilities. We don't know what the cutting edge of cyber is. For example, only a very small compartmented group of people within the national security establishment know all of the relevant capabilities. But I, I, I just think that if China believed that they could defeat the US in a high end war, they would be behaving more assertively. They would be operating not just in the Taiwan Strait, but all around the region in a way that they're not yet.
- [56:42]
Tracy Alloway
We started this conversation talking about, you know, the famous hypothetical blockades in geopolitics and international relations classrooms around the world. What's your big takeaway from the Strait of Hormuz situation as it applies potentially to China and Taiwan?
- [56:58]
Ike Freeman
It's a good wrap up for the conversation really. It's the United States military has these godlike capabilities with special forces, with cyber electronic warfare in some senses the way our air defenses have performed, which is exceptionally, exceptionally well. But while our military is very good at doing the operational military stuff, we are not succeeding at the strategic level because ultimately war is the continuation of politics by other means. And our politics is susceptible to economic pressure in a way that our adversaries is not. And if we don't get the message, if we don't take the wake up call and start working on our economic resilience and our credible ability to bear economic pain and supply chain disruptions and the rest, we will be unprepared on exam day because China has so many more capabilities to impose economic pain on us and to micro calibrate the character of that economic pain than Iran does. And they have more ability to do it for a long period of time in multiple theaters and parts of the world. And we can only deal with this problem if we treat it as an all of government interdepartmental problem, not just a military problem. And if we work with allies and if we try to make some kind of bipartisan consensus that national economic resilience matters, that to me is the lesson of the Hormuz.
- [58:21]
Tracy Alloway
All right, on that cheerful note, Ike Freeman, thank you so much for coming on odd lots and the book is Defending Taiwan A Strategy to Prevent War with China. Really appreciate it.
- [58:31]
Ike Freeman
Thanks so much for having me on.
- [58:32]
Joe Weisenthal
Thanks so much, Ike. That was.
- [58:47]
Tracy Alloway
Joe. That was a Fascinating conversation. And I haven't read the entire book, but I did flip through it and I do recommend it. It's super interesting. There's also, like, some really interesting appendices with speeches from various Taiwanese.
- [58:58]
Joe Weisenthal
Yeah, I'm gonna have to.
- [58:59]
Tracy Alloway
Yeah, it's definitely worth reading. One of the things that stood out there was this. I mean, towards the end of the conversation when we were talking about the possibility of, like, how do you build up economic resilience that requires the participation of other economies at the same time that the Trump administration seems to be pushing a lot of those other economies and strategic alliances further away?
- [59:23]
Joe Weisenthal
You know, so we didn't get into this, but obviously, okay, like, we don't like the stock market, it falls a couple percent and suddenly we get cold feet. Or, okay, that's economic resilience. I think there's another issue which we didn't get into, which is political appetite for war. You know, especially after the Iraq war is diminished. The Iran, the current war in Iran is not popular, pretty clearly, regardless of whether it's wise or regardless of how serious the economic toll is. And so I think, like, another interesting and important dimension here is look around and I'd be curious, like, how many. Okay, we could sit here and make the argument, look, we really need chips, or we need to defend this principle, whatever, et cetera. Is there really the domestic political appetite for massive conflict, et cetera? I don't really know even beyond the economic question, does the appetite exist? But I really enjoyed that conversation. It was certainly very interesting hearing him, for example, walk through the math of how much oil China has and how much it would be able to. How long it would be able to go with its existing stockpiles. And it does seem right, this question of whether there will ever be some sort of serious change to the, to the China Taiwan relationship, etc. In it's. It's a complicated one on many dimensions. As he, as he said in the beginning.
- [60:54]
Tracy Alloway
Yes.
- [60:55]
Joe Weisenthal
On almost. Almost one of the most complicated questions there is.
- [60:58]
Tracy Alloway
Oh, absolutely. There's also a fundamental tension between, you know, the U.S. building out its chips resilience while deterring China from doing something in Taiwan, in that if the US actually manages to be successful in building domestic capacity, chips capacity, then that, like the silicone shield that's protected Taiwan gets weaker and weaker. Right.
- [61:19]
Joe Weisenthal
We have to start paying attention to that upcoming Taiwanese election and start wondering whether the government in Taiwan will continue to be in enthusiastic about the idea of the US building chip capacity. Yeah, this is a new. This is a new dimension of international relations and so forth that we have to, we have to key in on.
- [61:40]
Tracy Alloway
You just want to go to Taiwan?
- [61:41]
Joe Weisenthal
Well, you know what? The one thing I will say is, I do want to go to Taiwan. But the one thing I will say is I always want to learn more about the domestic policy of other countries because I do think it's very easy to look at the US and say, okay, here I know a fair amount about America domestic policy. And then you hear about like, and here's Taiwan's policy, here's Iran's policy, here's Israel's policy, here's Korea's policy, as if there is just one polity or it's just there is just this one unified thing. And I think it's important to remember that all these countries have domestic politics just like the United States does, and
- [62:14]
Tracy Alloway
disagreements and nuances and all of that. Yep, absolutely. Shall we leave it there?
- [62:18]
Joe Weisenthal
Let's leave it there.
- [62:19]
Tracy Alloway
This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
- [62:24]
Joe Weisenthal
And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest Ike Freeman. He's at Ike Freeman. Follow our producers Carmen Rodriguez at carmenarmon, Dash o' Bennett at dashbot Kalebrooks, Kell Brooks and Kevin Lozano at Kevin Lloyd Lozano. And for more Odd Lots content go to bloomberg.com oddlots we have a daily newsletter and all of our episodes and you can chat about all these topics 24. 7 in our discord discord gg odds
- [62:50]
Tracy Alloway
lots and if you enjoy Odd Lots if you want us to take a trip to Taiwan, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.
- [63:39]
Adobe Acrobat Advertiser
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- [64:40]
Sonesta Advertiser
gift should do more than check a box. It should reflect your brand and show someone they're appreciated, recognized and truly seen. 4imprint offers thousands of high quality, customizable products like premium apparel, drinkware, tech and more, making it easy to create a gift that feels meaningful and on brand. And with 4imprint's expert support and their 360 degree guarantee, you can before imprint certain your order will arrive exactly as intended. Explore gifting with confidence at 4imprint.com 4imprint for certain find home wherever you roam at Sinesta Es and Simply Suites, where longer stays feel comfortable, flexible and easy. Stretch out and enjoy spacious accommodations and homelike amenities designed to help you settle in and stay productive or relaxed for however long you need. And when you're a Sonesta TravelPass member, staying at Sonesta ES and Simply Suites means earning points toward free nights, upgrades and more with every eligible stay. Go to Sonesta.com to book your stay and unlock the best rates with Sonesta Travel Pass here today, Rome tomorrow. Join now@sonesta.com terms and conditions apply.