Rush Doshi (5:38)

Yeah, well, you know, at the beginning of the Biden administration, a lot of folks got together, read the intelligence, read the tea leaves, and came to a conclusion that basically if we didn't take certain decisive action in the next few years, that we could lose really in this next decade, we could end up in the following situation. We could be behind China technologically, we could be dependent on China economically. We could be defeated by China militarily and the Taiwan Strait or elsewhere. And those sort of the stakes really, of the next decade, as the next decade goes, so might the next century.

Derek Thompson (6:08)

And Rush, what are the stakes here more concretely? Like, are we concerned about Chinese dominance on economic grounds just because we want America to remain the biggest economy in the world on technological grounds? Is it that we're jealous about the frontier on AI or ships and Militarily, what is truly at risk here? We don't want an expansionary China taking over Taiwan pressing further into the eastern and southern regions of Asia. What are the stakes?

Rush Doshi (6:38)

Well, I think basically there's a question of what the world is going to look like in the future. We want a world where by and large, America is prosperous and that involves technological leadership, which has often fueled our productivity and our economic prosperity. It also is a world we're not dependent on China, potential adversary for critical inputs. Right now, we're dependent on China from everything from medicines to key electronic components to critical minerals. We're not sure that that's probably in our long term interest militarily. It's been a long standing goal for the United States that one of the world's most dynamic and prosperous regions, Asia, not fall under the hegemony of a rival who might not have our best interests at heart. That's really at stake if the US is defeated in the South China Sea or the East China Sea or especially the Taiwan Strait. So the stakes really are essentially the shape of the future. And since the end of the Second World War, the US has been the world's leading state. If the US is no longer the world's leading state, there are implications for America's quality of life. And let me just say one last thing. We could paint a little bit of a picture of what this could look like. But an America that sort of deindustrializes itself and that doesn't lead in technology is an America that is essentially a large version of a kind of maybe Latin American republic. We have commodities, we have real estate, we have tourism, we even have transnational tax evasion. But we don't have leadership in the things that make this country unique, special, powerful, influential and prosperous for everyday Americans.

Derek Thompson (7:57)

That all sounds very wise, but it's also very high level. Talk to me as if I'm just a typical dad in America. I don't know that I care that much about Taiwan. I don't know that I care that much about the technological frontier in robotics or the number of patents that various countries get to brag about when they go to their international science conferences. What I want is for America to grow and get richer. I want my kids to grow up in a country where they are safe and their incomes are rising as well and they can afford the good life. How do all of these things that you've talked about that are at stake with the US China showdown, how do they connect to my interests to just raise a happy and healthy family? And a growing economy.

Rush Doshi (8:49)

It's a great question, and I think I'd start by saying that America is maybe only 5% of the world's population and everything we enjoy the quality of life that we have, what we're used to, what we're accustomed to, is something we take for granted. But it's a product of hard work, investments in American and prosperity, investments in American technological leadership, and a system that kept the world largely safe for the kind of economic activity that has generally enriched this country. All of that, and with it, your quality of life is essentially at stake. If the US Mishandles the China challenge, and for the first time since the end of Second World War, the US could really fall behind. And that will have implications for the quality of life of every person in the country. Take, for example, what happens in other countries have lost the mantle of being hegemon. It isn't as if when the United Kingdom declined from being a global great power to essentially what it is, a middle power now, that things went well for them. Their quality of life in many ways is higher than it was back then, but lower than a lot of other parts of the rest of the world. They're not as productive. They don't have the same kinds of jobs and industry that the United States enjoys today. And so decline is a real problem. And what we're talking about is relative decline, yes, but also in a certain sense, potentially even out of absolute Decleline, if the US loses the mantle of hegemony, that means everybody's quality of life gets worse. That means you're dependent on others for your prosperity, for your technology. But just take a step back. Imagine a world where, for example, China steps into our shoes, they become the world's leading state. What does that look like? Well, it's a world where there's Chinese military bases all over the map. But even in the Atlantic, where early in the administration we had to push back on that right on our doorstep. Economically, it means that we're dependent on them for the things that we rely on to live the good life, which gives them enormous control over essentially how we govern ourselves potentially or what we choose to do economically, technologically, it means we're getting all the best stuff from them. We're behind, for the first time, really in a century, America no longer a technological leader. And then politically, it means the default settings of the international system, which are abstract for us. We don't think about it day to day as we live our lives, but they're generally favorably inclined towards democracy. Well, maybe that flips and this is a world which leans more in the direction of autocracy. And the values that we care about find pressure not just from without, but from also, also from within. Those are essentially the stakes.

Derek Thompson (10:56)

Kurt, the history here is so interesting because it's my understanding that the prevailing wisdom in US China relations used to be predicated on economic engagement, on costless economic engagement. The US Welcomed China into the World Trade Organization. The thinking was that trade with the US Would make China more like America, richer, more capitalist, more liberal, more open. And also that, by the way, access to China would make Americans feel richer too. We'd buy cheaper toasters, cheaper clothes, each dollar would go further and there would be no cost to our quality of life. What has happened to that easy theory of engagement in the last 10 to 15 years?

Joe House (11:37)

Yeah. Well, thank you very much. It's great to be with you all. And I appreciate the chance of partnership, always with my friend and colleague, Rushdoshi. So, first of all, let me just say the idea, the logic of engagement was pervasive. And in fact, one of the hardest things to challenge in international relations were the concepts and beliefs behind that engagement. I think it became clear in the 2000s or in the second decade, early parts of the second decade of the 2000s, that China was determined not just to get more wealthy and more powerful, but to challenge the United States place on the global stage. And it was not enough just to see China surpass the United States, but frankly, in strategic councils in Beijing, a desire for the United States to actually be defeated. I think the initial idea was that this reflected perhaps parts of the Chinese system, but ultimately there was still an appreciation and belief in engagement and working in partnership with the United States. I think over time, Derek, that most of those views have basically fallen away largely as a result of just experiencing the world and some of the things that Russia has laid out more directly.

Derek Thompson (13:13)

More concretely, what happened? Why did this theory crash against the shoals of reality?

Joe House (13:17)

Well, I mean, it was a multifaceted set of actions. First, since joining wto, I think it would be fair to say that rather than China accommodating to the rules of global trade, they sought to bend them, to take advantage of them in ways that maximize their own interests at the disadvantage of producers and other nation states interested in manufacturing. But because there was always the, you know, the hope of selling or doing, doing more, oftentimes we would sit back and watch as basically large swaths of our manufacturing base shifted outside of the United States. So, Derek, in some respects, what China represents as an export led growth economy was similar to the challenges that we face from Japan and other countries in Asia, but just on a much greater scale. Scale. And so their ability to disrupt the sort of the global infrastructure that was relatively balanced until then has been absolutely paramount and of strategic importance. I think. Furthermore, I would also say, remember, over the course of the last 35 years, China has embarked on the largest military program in modern history. It's a remarkable set of investments. And usually countries that are this determined to build the military are not doing it for laughs. They have strategic goals and objectives. And I think that became more apparent over time. And then I think lastly, just we see more with respect to their rhetoric, but also their planning that they made increasingly more public are goals and objectives that come at our own expense. I wouldn't say Derek was any one thing. It was a collection of things. Increasing authoritarian activities domestically, surveillance and the like, working in partnership with countries that are determined to challenge the United States. A big military buildup, an ideological component that is very much animated by a sense of historical grievance. All of those things combined together to create, I think, a set of realities that made clear that China was not destined for the path that we had laid out so carefully for them. They were going to take their own path, one that was frankly more hostile towards the United States and more adversarial.

Derek Thompson (16:12)

Rush, I definitely want to hold on this point because one thing I take courage to be saying is that the US in the early 2000s was a bit naive to believe that exposure to American trade and exposure to America's cultural hegemony would be the singular driving force in the US China relationship. That that interpretation didn't pay sufficient attention to China's own political ambitions and own interests and own agency. You're the author of this book, the Long Game, which draws from Chinese primary sources and party speeches and documents to explain just that. China's long game, its long term grand strategy. What did you find in this analysis that is most important to this moment in history?

Rush Doshi (16:58)

Yeah, well, I think it's important to recognize that China had its own ambitions for itself that were different from the ones we held for it. China wanted to be a great power. It wanted to. The Chinese Communist Party has always had a mission which is to sort of make China great again. It's a mission of nationalist rejuvenation. We Forget today, but 100 years ago, when the Chinese Communist Party came onto the scene, it was formed in the ferment of the Qing dynasty's decline. All the people who came to The Communist Party in that era, many of them, including people like Mao and Deng Xiaoping, two of the top leaders of China, they started as nationalists, and if you're a nationalist, what you want is your own kind of great power status. And so they were never going to be content to be a junior partner in an American led order. But let's take the economic picture for just a second. The big question for the US and China economically was WTO accession, what was called permanent normal trade relations. And one of the top advisors to a Chinese leader said back then it was the question on which world history was going to turn. And in retrospect, that guy may have been right. What essentially the Chinese Communist Party concluded was that permanent normal trade relations would bind the hands for a while of the United States in using economic power against China. Back in the day, we'd occasionally do trade investigations and raise tariffs on them. Even when we were friends, they didn't want us to do that in the future. And they were very clear they were going to opportunistically join those rules. And the ones they didn't like, they were just not going to follow. And there's memoirs by people like Lee Peng, a premier at that time, who said, essentially we're going to join the rules that make sense for us and ignore the ones that don't. And I'll tell you one last thing. When they finally got in, the Chinese Communist Party assembled all of its big, its heavy hitters, all the provincial secretaries, all the heads of all the ministries, and they all came in to listen to Jiang Zemin, the senior leader. And he basically said, the Americans have let us in. They're betting that it's going to cause us to collapse. And it's our job essentially to make sure that does not happen, to make sure that the Communist Party does not fall apart and that we use this to make ourselves richer and more powerful. That is the watchword of the Chinese Communist Party, wealth and power. That is the nationalist phrase that they use to rally themselves up from a position of imperial depredation by Westerners and the Japanese.

Joe House (19:05)

Can I say one other thing? If you ask any business leader, Russia and I have encountered this so many times historically, they will tell you, look, the Chinese, if nothing else, are a deeply practical people. And at the highest levels they will make the right, realistic, practical choices. I think what we are increasingly confronting is a leadership that is ideological before it is practical. And that ideology of, you know, the party dominates. Thinking in terms of winners and losers is animating in the Chinese system currently.

Derek Thompson (19:47)

There is an alternate view that I take to be disagreeing with you quite strongly. In a series of columns and podcast interviews over the last few weeks, the New York Times, Tom Friedman has made the argument that in today's political climate, it is not permissible to say nice things about China anymore. There's Trump's version of hostility, which is tariffs and antagonistic language, but there's also a Democratic Party version of hostility, right? The Biden administration trying to wall off these advanced technologies like advanced semiconductors, which might be the right call, might be the wrong call. Nancy Pelosi visiting Taiwan to say, we, this is our ally and we will not allow an embargo or an invasion of the island. I take Friedman's argument to be that while sometimes the problem in America is too much disagreement on China, there's too much consensus. Everybody agrees that China is an ideological danger, and that makes it harder to see the ways that America can learn from China. Rush, starting with you and then Kurt, because I want to give you both a chance to respond to, again, this is my interpretive gloss of Tom Friedman's columns and interviews. And this is an attempt to do thousands of word synthesis in just a few paragraphs. What is your response to this line of argument?

Rush Doshi (21:06)

Well, I think I'd make two points. First of all, I think there's something erroneous about suggesting that the preservation or protection of American interests necessarily means that we're trying to contain or confront China. So take the export control policy. Part of that is about making sure America leads in a technology that will redefine the world and that an authoritarian great power that has a vastly different system of values and is actively preparing to go to war with us. Maybe we don't want them to lead in that technology first. That is not a reflexive ideological anti China view. That's a pro American view that we want to lead in some areas. And by the way, China's going to take steps that we're not going to like either. Great powers don't always get along everywhere. It is the height of sophistication, nuance, and real politic to understand. The great powers that don't always agree are going to take steps that the other doesn't like. So that'd be my first point that I would really push back on. The idea that any step that might defend American interests is somehow anti China. And we can go down the list, whether that's sanctions on Chinese companies that are selling fentanyl into the United States or Chinese cyber actors that are hacking the critical Infrastructure on which Americans rely. I mean, Derek, you asked me at the beginning, how does China affect the lives of average Americans? Well, here's a good example. China has, it's now a matter of public record compromise. The water, power, gas, transportation and telecom systems upon which tens of millions of Americans rely. And if there were a conflict, they'd push a button and turn that off, and we would be in the Dark Ages in some parts of the country. So I don't accept the Tom Friedman argument that pushing back on that is somehow anti China. But let me take a second argument where I think he is right, because there's some sophistication here. I think it's fair to say that the Chinese Communist Party, with all its flaws, all of its serious, you know, moral challenges, quite frankly, in the way it comports itself, is nonetheless the steward of a pretty incredible modernization and industrialization that the world has never seen before. Now, the Chinese people deserve a lot of the credit, but you can't deny the fact that the government of China and the party itself has had a role to play in all this. And there probably are lessons that we can learn from how China has done industrial policy, how it's invested in technology, how it's built out infrastructure, how it's planned over the long term, and how it's managed to remain consistent in certain industrial areas through mechanisms that let businesses plan over long cycles. How all of that might have lessons for the United States. And I'll end with this other point. Chinese industrial policy didn't begin in China. They borrowed it from, as Kurt mentioned, the Japanese and other East Asian tigers, who themselves borrowed it from the Germans, who themselves go back to Alexander Hamilton and Friedrich List. So there's this kind of irony here where the industrial policy approaches that China wields today have in their roots actually a very American idea which was Hamiltonian industrial policy in its German manifestation in Friedrich List. So I'm not going to say that I think Tom Friedman is right, that there is too much reflexive nothing to learn from these guys at all. But I don't agree that everything we do in our interest is somehow anti China. So that's where I would thread the needle.

Derek Thompson (23:57)

Kurt, I'm really interested in how you would evaluate the continuity of policy in the US toward China in the last 10, 15 years. Because there's a way in which Trump raises the issue of US Antagonism toward China and then Biden becomes president and aspects of Biden's industrial policy, like the Chips and Science act by trying to reshore all of this domestic manufacturing of semiconductors, in a weird way acquiesces to Trump's warning, recognizes that in fact, it is not in America's long term interest to keep the frontier of semiconductor manufacturing under the shadow of China in Taiwan. But now you have the Trump administration starting this trade war with China and baked into that trade war, I would say there are certain assumptions about the weakness of China, about China's inability to stand up against the great American consumer state so that of course we can wage a trade war against China. That's easy. We're much richer than China. This will be a breeze. Despite this sort of thin vein of continuity that has traveled through the administrations, what part of the Trump analysis of China do you currently think is mistaken?

Joe House (25:19)

Yeah, thank you. It's a great question. I will point out one of the things that very few commentators sort of acknowledge is that there are actually quite a few similarities between President Trump and President Biden. They're both of a similar age. They're both concerned and animated by a sense that local communities that they had grown up in had been hollowed out. They both seek to essentially reassure certain capabilities that are essential to American might. They both of bemoan that certain manufacturing has basically completely left American shores. So there are common inspirations that animate both men. I think the areas where I would tend to disagree with the Trump administration are not as much on the theory of the case, but the application of the strategy to address it. And I would say there are a few things that concern me. The first is that you point out appropriately, Derek, about this gauntlet that we've laid down with China, but recognize that we've done the same with our allies and partners. Now, I think what Rush and I tried to do, working with a collegium of colleagues inside the administration, is work more with those allies and partners in Europe and the Indo Pacific to find areas to sustain the operating system that have been so, I think beneficial to each of our countries and we believe, challenged more and more by China. I think that's one clear area of divergence. We are managing to alienate allies in a way I had not thought possible just a couple of months ago. So that would be sort of one area, I think. Secondly is that a, an all out trade negotiation or war is not something you take lightly. You have to have a strategy about what you're seeking to do. You've got to have stockpiles, you've got to have thought carefully through what are the preparatory steps. I see none of that on the part of the Trump administration. And what I see is a degree of erratic policy making in which messages are contradicted. There is a degree of impatience. We've got too many negotiations underway. No lines of communication really open with China. And the Chinese have basically said, okay, you know, we'll be prepared to sit down and talk with you, but you've got to raise all these tariffs before you. Before we agree to that. And as we have articulated that we're going to do all these, you know, 5, 50%, 148%, in some respects, it doesn't even matter. It's so substantial that it's going to have a huge impact on our business and on overall confidence. I think, Derek, part of what you are sort of skirting around is this fundamental reality. No two countries are more interdependent than the United States and China even now. And no two countries are more uncomfortable with that interdependence. And they're trying to each trying to figure out their way forward. But in fact, it's going to be challenging for both sides to fully be able to delink from the other. And some question whether it will ultimately be possible. But what is clear is that the steps that China has taken as a response to our tariffs, restricting certain kinds of magnets coming in the United States, component elements of certain drugs, also going at a couple of key firms that do work in chemicals. If you collect all these things, you think, well, they're not that big a deal, but they're so carefully designed to have maximum impact in the US Economy. Without these magnets, we're unable to do some of the basic manufacturing in semiconductors, in long life batteries, in frankly, every modern contemporary element of technology. And so my guess is that substantial damage has already been done, probably more on the way. And neither side, I just got back from China or from Hong Kong and Asia. I'm increasingly convinced the Chinese have decided they're going to try to just weather this and that they're not going to agree to extortion. I met with a senior Chinese official in Hong Kong, and he basically said, look, China and the United States are very different. Different cultures, different approaches to the world, different histories. But we all grew up on the playground, on the playing field, and we both understand what you have to do with bullies. And so it's an interesting approach. More generally.

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Derek Thompson (32:11)

Rush the essay that you wrote with Kurt is entitled Underestimating China. And one way that I think the Trump administration might be underestimating China is to think that China coming out of COVID is ed and ebb, that they're weak, that the economy is slowing down, that the demographic challenges are too much to overcome, and that they are begetting a long slide down while the American century is beginning a long slide up. And what your essay did so beautifully and also so starkly is to point out all the ways in which China's industrial dominance just has to be reckoned with if we're going to see reality clearly. One quote that you retrieved from Cold War is this idea that quantity has a quality all its own. Quantity has a quality all its own. How does that speak to China's advantages at this moment in history?

Rush Doshi (33:10)

Yeah, well, ultimately, scale really matters in world politics. That's sort of the first argument we try to make in the essay. And. And it's not enough to be large. A lot of large countries don't become great powers. What they're able to do is scale up. When small countries scale up, take the Asian tigers. They can become very prosperous. They can dominate certain industries. When large countries run that same playbook on a much bigger foundation, they can shake the World, just go back in time real quick, and then we'll get to China. Take a look at the uk. We talked about the UK earlier. They had a first mover advantage in steam power, the first industrial revolution. And they used that to become essentially a global hedge model. But they always knew that once other countries were able to do that too, once they learned that technique, once they applied those methods of productivity, that if they were larger than Great Britain, they would ultimately overpower it. Right? They would outscale it. There's a great quote by this guy, Lord Seeley. He's a British author in 1883 who writes this wonderful book on how Great Britain expanded across time. And he says, quote, russia and the US Will surpass in power the states now called great as much as the great country states of the 16th century surpassed Florence, which was a city state. So basically what he's saying is scale shapes world history. And the US had scale. Right? You talk about quantity being equality all its own. That was the key to World War II. In fact, back then, Hitler said the US was a giant state with unimaginable productive capacities. And Yamamoto said he could hold out for six months against America, but then our industrial capacity would kick in. And I think that sense of daunting industrial advantage that characterized the United states in the 20th century, that in many ways led to American military advantage and technological advantage. Because again, manufacturing is also the basis of innovation. It's not just separate from innovation, it helps create innovation. All of that now increasingly lies with China. Right? And you just look at the statistics. China is 2 times the share of US manufacturing in the world right now. It'll be 4 times its share by 2030. It's 2 times the power generation, 3 times the car production, 13 times our steel production, 20 times our cement production, and as almost Everybody knows, it's 200 times our shipbuilding. Well, if we build a few more ships, we have a small base, maybe it's only 50 times our shipbuilding. And that's just relative to the U.S. and if you look at China in global terms, Derek, the picture is even starker. China, by some estimates, is half the world's chemicals, half the world's ships, two thirds of the world's electric vehicles, and they're very good electric vehicles. Three quarters of the world's batteries, 80% of the world's consumer drones, 90% of the world's solar panels, more than 90% of the world's refined rare earths, and Even more than 90% of the antibiotics upon which the average American depends. Again, this is why this competition matters to the average person. And it's winning in a lot of the technologies of the future. We might be ahead in generative AI right now, but China installed half of the world's industrial robots just last year, seven times more than we did. And it's building indigenous, sorry, embodied artificial intelligence with the hope that this kind of humanoid robotic capability will further turbocharge their manufacturing capabilities. So when you look at that manufacturing advantage, you can't simply say if we tariff them, it'll all go away. It won't work like that. You have to consider, as the Trump administration is tariffs. But then you also have to consider your allies as a path to scale because America can't achieve that scale on its own. And if you look at Great Britain, once they got outscaled people like Lord Seely said, our only path to getting scale again is by combining forces with all the various colonies that were under the British Empire. That's not a great system. It didn't work out for them. And we have something better than that. We have allies, they're very capable. And if you actually combine the US with its allies, we completely outscale China. We're three times their nominal gdp, two times their GDP per capita, two times the highest estimate of their defense spending. Our manufacturing share goes from being essentially half of theirs to now more than 50% theirs. And we'll lead in patents and top sided papers. Our allies are really powerful when it comes to manufacturing. Japan, Korea, even Europe is a manufacturing powerhouse. So I guess what we were trying to conclude was, yes, this trade war in some ways may have been overdue. We think the way that it was prosecuted probably wasn't ideal. If you're going to go to war, you want to have a plan to win it. And now the only way we possibly can outscale China is in common with others.

Derek Thompson (37:21)

Rush, you outlined in that answer both the challenge that we face and the potential solution to that challenge, which is international cooperation. I want. Hold on the solution for the end of our conversation and just go a little bit deeper into the challenge. I do think that there is an assumption baked into some analysis of China that what China does is they steal and they implement and they scale. And so basically America invents and then China steals and implements and uses their scale, their 1 billion or 1.1 billion person population versus our 340 million person population and that is the source of its growth. But I wonder about the applicability of that rule that America invents and China implements and it's just as simple as that. Because when I look at China's auto industry, which just seems to be smoking Tesla and frankly Europe, not to mention GM and Ford, and when I look at robotics and I look at the nuclear build out, it's clear that China isn't just implementing what America has invented. In many cases, China is taking over the technological frontier at many of the technologies that we rightly think are most important to winning the 21st century at the level of strategy, of industrial policy. Rush, how has China done it? What is the model that has worked so well for China to not only go from an agricultural economy to manufacturing economy, but to go from a manufacturing economy to a leading technological giant in the world?

Rush Doshi (39:06)

Yeah, it's a great question. And actually the answer is in some ways related to America's own ascent. Right. America began as a manufacturing colossus. At the time when we were winning in manufacturing, we were not winning in Nobel prizes. There was a lag, Right. It took time. Right. Back then we were importing European scientists to help us figure out our nuclear program and our rocket program. You know, in many ways, the emigration of Jews out of Europe in the 1930s, turbocharged American innovation. So what we should remember is that sometimes scientific leadership is downstream of manufacturing capability for a simple reason. Manufacturing is innovation in a very technical way. An iterative process. Knowledge, tacit knowledge, helps you. You build greater technological capability. And you look at China today and look at what they're able to do. They're building flying cars, but they didn't build flying cars from a steady standing point. They actually built electric cars. They had a great electric vehicle supply chain. They had a drone supply chain. They put all the other companies in the world out of business in that supply chain. That actually does matter. When there's no competition, it's easier for you to then consolidate the gains and then perhaps even put some of that towards innovation. You look at their robotics industry again, the robotics industry benefits from enormous state support. It benefits from enormous complementarities with other industries that China is already dominating. And then they bring that to bear in a new technological frontier. If you think about the Chinese secret sauce, there's multiple pieces to it though, right? Let's just think about what some of them are. First, they have a protected market which allows their companies indigenously to scale up and achieve lower marginal costs and dominate competitors around the world. Second, they actually have real competition. How many EV makers are there in China? Every province has its own EV champion and they all fight to the death. Like antibiotic resistant Bacteria, Some of them get out and take over the world. Third, they do steal, right? And that's fine. America stole too. Every country that has innovated has done a little bit of that. But they're really good at it, and cyber makes them even better at it. Fourth, they get our companies to give them the stuff, right? For joint venture. This is scale again at its finest. The China market is so big that we're willing to give up a lot. We're not going to give that up for the market in Singapore or Vietnam, but we might give it up for the market in China. And finally, Derek, this is the key thing. The state plays the long game. They have significant investment of industrial subsidies, R and D, tax credits, combined with protection. It's a coherent package that creates efficiencies that they can end up taking these markets. Now, I'll end with this. In America, we only do things halfway. So the Biden administration did a lot of industrial policy, and we thought a lot about how we could use subsidies and tax credits with ira. Inflation Reduction act, of course, also chips in science and infrastructure. But China doesn't just do the industrial policy. It also does the protection. It also does the deregulation. The Trump administration does the protection of the deregulation, but they don't do the industrial policy. Each party in America has half the answer. In China, they put the whole answer together. Now, they do a lot of things we don't like. But they're not winning today because they have cheap labor. They're winning because they're making smart investments. And that's what Americans need to understand.

Derek Thompson (42:06)

Kurt, let's assume that Russia's Chinese formula is correct. Which parts of that formula do you think the US can easily adopt? And which parts of that formula do you think are simply anathema to American culture or American capitalism? Because there's a part of this, like for example, stable R and D policy that I think the US should clearly adopt. It doesn't make any sense to have one policy for electric vehicles whenever there's a Democrat in the Oval Office, and another policy for electric vehicles whenever there's a Republican in the Oval Office. No one's going to invest in EVs in the long run if they think that the policy is exquisitely determined by whatever party wins the presidency. But there's another aspect to Chinese policy where China seems accepting of low profit margins for a long period of time in order to nurture state champions. That seems like a tougher fit for American style capitalism. Capitalism where either private markets like VCs or public markets like the stock market demand higher profitability, even from companies that are just getting off the ground. So that's my initial gloss here. But what's your determination of what parts of the China formula can be Americanized versus what parts really will be tough to import from across the Pacific?

Joe House (43:26)

Derek, I will just point out some of the language that you used reflects a challenge that we're facing. You talked about a Chinese propensity or patience to allow companies to be nurtured at low profit areas. But recognize that the way you describe it sounds benevolent and very much about being patient. But what it also does is drive other competitors out of business. And that has been a key strategy in every sector from technology to mining. And we see it playing out on a daily basis. A huge number of mining companies in Western Australia put out of business in the last couple of years because of a Chinese determination to gain dominant market position here. So it's not as gentle and kind as what you're laying out. This is part of it industrial strategy that is deeply coercive and adversarial, frankly, and playing for keeps. And I think, by the way, you're also correct in articulating why it's difficult for the United States to be effective in some of these things. I would just say a couple of other things if I can, to your direct question. Look, industrial policy has always been challenging in the United States. It's very difficult for the federal government or others to choose winners in the private sector. And so I think the way in which at least the Biden administration and others have gone about it is not so much to create a specific environment where winners are chosen, but rather incentives for more investment inside a technological infrastructure which is the United States. I would also just underscore that two last things. First of all, the idea that China steals everything and does not innovate is defied by contemporary experience. We see lots of examples of Chinese innovation. It is truer historically of Japan, that often would copy certain industrial or technological practices but then seek to refine them, to perfect them in their own Japanese applications. The Chinese have tried similar things, but frankly are innovating on a regular basis across every possible vector. I will say the United States does have some unique advantages. The ecosystem that is created around Silicon Valley, which frankly we've had difficulty replicating in other parts of the country. We see certain other parallel communities forming around biology and synthetic biology and medical capabilities in San Diego and La Jolla and elsewhere. I think those abilities to merge, as Rush describes business investment R and D at university level, that secret sauce has been foundational to American purpose. And so, you know, in a world in which there are a lot of things to be troubled by, but one going at the relationship between the federal government and universities in technology and investment, I think is one of the most worrisome things that we've seen in recent weeks and will have a long term impact on our ability to innovate and our competitive position.

Derek Thompson (47:32)

Rush, I'll admit my own bias here, which is that, and I've said this before, I feel like if the US lost a war against China in January 2025 and we had to sign a 1919 Treaty of Versailles style instrument of surrender, what would China ask us to do? It probably ask us to, let's say, decimate scientific research and forcibly de industrialize by raising the price of a bunch of inputs for manufacturing and attack our leading universities and make it harder for the smartest people in the world to come to the U.S. as you said, that's been a source of our strength since the Jews of Eastern Europe came to the US the 1930s and created the quantum physics and technological revolution of the 1940s and 1950s. No surprise. Guess what? We're doing all of this to ourselves. We are authoring our own instrument of surrender in the craziest of all possible ways. That is my biased statement, but I did see your hand raised during Kurt's address, so I want to give you a chance to respond both to my spiel and to Kurt's.

Rush Doshi (48:37)

Yeah, no, I very much agree with the assessment that if you take every asymmetric American advantage that we have to compete on, we're sort of going after each of them in a kind of fit of cultural Maoism that is completely unanticipated, whether that's immigration, whether that's education, whether that's our alliances and partnerships, or that's our new successes with industrial policy, each of these four sort of pillars is being undermined. And you're right. If you were a rival great power, you'd say, oh, this is exactly what I'd like you to do. And let me just give you some more color on that. If you talk to friends in China a little bit about what's going on, some of them will candidly say, you know, we had our timetables for how we might come at you. We had our timetables for how we might peel away your allies, and what you're doing in three or four months exceeds what we would have hoped to do in five or 10 years. And I've heard language like that. I've seen language like that written on the page by Chinese academics, and it does leave me feeling a little bit disheartened. But I'll end with this. I mean, there is still substantial capability in the United States, and China does know that America has this ability to radically innovate in ways that change the game. The Internet was a good example of that, and we can do it again. MRNA vaccines are another example. So they've got these serious competitive advantages, but we shouldn't neglect the fact that the US has its own. In fact, we should double down on them and not destroy them. And so there's hopefully, a constituency for sanity on all of this so that we can continue to win our own long game vis a vis China.

Joe House (49:59)

Eric, I'd just add one other thing if I could. Sorry to jump in. The truth is that what's happened in Trump world has led to one of the most, you know, sustained, deep set of debates in China. And frankly, as Rush indicates, many of our Chinese interlocutors cannot believe what we are doing. And so they believe there's got to be a secret plan here. And so they're actually quite wary and conspiratorial. They do very well in our own world. So they're wondering what secret plan is being undertaken because they could never believe on face value, that the United States would willingly take some of the steps that we're taking because they are harming the US Position substantially.

Derek Thompson (50:54)

I will say this. There has to be a listener out there who's made it this far and still wants to throw his or her phone at the wall because they can't believe that I've brought up all the obvious disadvantages of China. I mean, this is a country with incredibly clear demographic problems, an aging society, towering debt. They just had this enormous real estate bubble that the state or the local banks have to be digging their way out of. There's evidence of stagnating productivity. There's evidence of further risks in the housing market, high youth unemployment that I've talked to Dan Wang about on this show, crackdowns on the private sector. It is risky to be a rich entrepreneur in China because we've seen with the experience of folks like Jack Ma, that the state can come in and essentially disappear you for a few months. I mean, how do we think about these obvious disadvantages? Rush?

Rush Doshi (51:49)

Well, it's a great question, and everything you've just said is exactly right. Nothing is inaccurate about those disadvantages. For me, the question is, do those macroeconomic challenges translate to strategic disadvantage and technological disadvantage on the timeframes that matter most for competition grade power competition, political competition, geopolitical competition. And I'm not sure the answer is so clear cut. But take the GDP question for a second. It's true that China's economy in nominal terms has shrunk relative to the US economy. That's true, but it's also true that's all based on the dollar. A lot of that is based on the dollar. And if you were to look at local prices, not nominal GDP but purchasing power, adjusted by the World bank indicator. Now it's not perfect perfect, but it's useful for capturing local prices. You'd find that China overtook the US economy 10 years ago and is 30% larger today, about 30 trillion to our 24 trillion. So that's an important fact. And those capabilities, the ones you price in local currency, that's military hardware, that's infrastructure development, that's government personnel, all that matters for strategic competition. But then take the demographic problem you mentioned as well. It's true, China is aging. It's even worse than I think you suggested. In about, about, I don't know, 75 years, one in every two Chinese people essentially will be gone. The population will be down by half. But again, it takes a little while for that to bite. And if you look at the statistics, China's population below the age of 15 actually increased between the 2010 and 2020 census because they're sort of a Mao era baby boom. And this is the echo boom that followed it. That buys them a little bit of time. Their dependency ratio, that is the number of workers to retirees and children, is still going to be lower than Japan's ratio today all the way until 2050. And as we talked about at the top, they're investing in productivity enhancing technology like AI, especially embodied AI. That could make all the difference if there's a low number of workers. And then take debt. That's kind of the third big thing you mentioned. It's true. China's household, corporate and government debt taken together is 300% of GDP. They've got massive local government debt problems. It's also true that their banks aren't as exposed as ours. They're owned by the state. So that gives them some ability to manage a financial crisis. But more fundamentally, if you add up American government, household and corporate debt, it's the same ratio. It's about 300% of GDP. So in a relative basis, how big is their debt problem relative to our debt problem? And then you look at this profit question, and you ask competitiveness. People always say our companies are a larger percentage of market cap, the biggest companies in the world by market cap. And if you look at profits, let's say in the tech sector, our companies are about half of all profits. But here's the thing. This goes back to what Kurt said about industrial policy. The Chinese are spending money not to win profit, but to win market share. And the goal of that is to put our companies out of business over the long term. By taking the market share from us, they're optimizing for a different target, a target that matters in political and economic competition. And by the way, they're doing pretty well at it. The number of companies and industries in which the U.S. europe, Japan, and Korea are leading relative to China has consistently been falling, going back the last 30 years. And now automotive is kind of the industrial strong point for all these companies and countries is falling by the wayside, too. So when you put it all together, yes, they've got big challenges, but when do those challenges bite? And are we overstating their strategic significance? I think the answer is yes.

Joe House (55:01)

I would also say, Derek, just also, in the historical interpretation about production and the role of labor, it's clear that they're going to face some challenges in the future. But frankly, with the introduction of AI, it's not clear what that's going to. The ultimate impact that's going to have on workforces. There is a general hope. Russia and I go to conferences in which people talk about whole new jobs and, you know, areas of, you know, kind of innovation in the workforce. But I think my hunch and the hunch of others is that it's going to reduce the labor supply. And so it may not be that what, you know, historically have been enormous advantages. A young workforce prepared to do things in factories and the like is going to be such an important ingredient in the future.

Derek Thompson (56:01)

Rush, what should the US Do? We're never going to be bigger than China. But in your essay, you write that quote, china possesses scale and the US does not. And therefore, to achieve scale, Washington must transform its alliance architecture from a collection of managed relationships to a platform of integrated and pooled capacity building across military, economic, and technological domains. In plain English, as they say, managed relationships, pooled capacity. What are we talking about here? Tangibly, how would our relationships with trading partners have to change to take on China's scale?

Rush Doshi (56:42)

Well, great. Let me just make the. Maybe make three quick points. First off, the last time a major great power got outscaled this bad it was the United Kingdom and they thought they could get scale by working with their colonies to create these kind of pooled advantages. It never really worked out, they couldn't do it. The economies went their own way and Great Britain declined. So oftentimes there is this answer when you are outscale, which is fine, scale with others. Great Britain couldn't get it done. Which leads to a second point. America can get it done. We have our allies of enormous capacity, right? Japan, Korea, Europe, they are manufacturing powers, they're leading in technology. And if you were to take the us, Canada, Mexico, the eu, Japan, Korea out in India, we collectively completely outscale China. It's not even close. We're collectively three times their nominal gdp. We're two times their GDP on a purchasing power basis. We're twice the highest estimate for their defense spending. We're one and a half times their share. China's share of global manufacturing will have way more patents, way more top sided papers will be the top trading partner of everybody in the world. So that block has enormous collective advantage. The fundamental task, in plain English of America in this century is to figure out how to take that theoretical advantage and make it real. Which brings me to the third point. What are we talking about when we say pooling capacity and working with allies? What we're talking about is really simple things like Japan and Korea helping build American ships, or Taiwan helping build American ships by investing in the United States. We're talking about America providing its best in class defense technology to its allies, which too often it doesn't do fast enough or at all. We're talking about new military formations, right? New ways of countering China or deterring it by working together, operating together, serving together. Stuff that we don't normally do as frequently with allies. And economically we're talking about, about pooling our market share, which means that we might drop tariffs among all of America's allies, but raise all of us collectively raise tariffs, raise regulatory barriers to China's capacity, its excess capacity, as you might say, because that capacity is putting us out of business. They spend $400 billion a year, at least a year, on industrial policy. That allows their state champions, their companies to stay in the game longer than ours. Ours have to be accountable to shareholders. Theirs don't. We go out of business, they win the market share, we de industrialize allies. Not a good equation. Allies have to come together to fix that. And again, it's doable, right? What we're talking about is recognizing that the industrial capacity of the free world is in Some ways a common good and investing in that and sharing in that together. And the Biden administration began to do this with submarine agreements like Aukus. The Japanese and Koreans repair our ships. But it's just a small taste of where we have to go. We've got much more to do.

Derek Thompson (59:20)

Kurt, here's a scenario. Ten years from now, someone listens to the first 55 minutes of this podcast and they realize that the three of us were incredibly wrong. We were incredibly obviously wrong about something. Here's three ways we might be wrong. One is that we might be wrong about China. Maybe their top down effort to manage economic growth won't work. Maybe there's some backlash we haven't anticipated, which will keep them from being the kind of economic hegemon that we've talked about them as. Number two, maybe we're wrong about America. Maybe the Trump approach will work. Maybe Trump understands something about the relationship between the US And China that we don't. And then number three, maybe China's dominion is good for us. Maybe it's good that they make photovoltaic cells so cheaply and it's good that they make electric vehicles so cheaply. And it's great that they make all this stuff that they can sell to us at subsidized prices and American consumers just feel richer for it. In what way do you think it's most plausible to imagine that 10 years from now everything we've been talking about will have been wrong in some way? What are you worried about the hedge of wrongness that's open in your portfolio? Where is it?

Joe House (60:32)

Yeah, look, one of the interesting things about the history of the last 50 or 60 years in the Indo Pacific is how much countries in the region ruminate about American decline. There's not a recent phenomenon. It's happened many times over a number of scenarios. It happened during the Korean War. It happened at the end of the Vietnam War. It happened during the first Asian economic crisis. It happened during the global economic crisis. Each time, questions about the United States. As Russia has indicated, there is something about the American character, the American ability to reinvent, to launch new technologies that defies that wariness and worry around American decline. And so those who predicted decline in the United States have lost a lot of money over time. And you should be confident or comforted a little bit in that. But I must say there are moments in this current trajectory where one cannot help but be a little worried about are we going to be able to pull a rabbit out of the hat again strategically? And I think the Jury is still out and we are facing some ominous tasks ahead. And I think almost uniformly the strategy and the approach to that strategy that the Trump team has applied I do not believe will get us there. And I think it will likely dig a deeper hole for us to climb out of with respect to global competition with China and other countries as well. And look, I would also say the thing that worries me the most is something that hasn't even come up. And the irony is that what we're discussing, Derek, is full blown strategic competition, but we're also holding constant all these other areas that are going to be in the midst of change. So, for instance, it's undeniable to me that the path and pace of climate change is accelerating and that the impacts in national security are going to be profound. And so we are battling at daggers drawn. But I think most of the scientific community would say, look, melting of the ice caps much faster, weather trends, desertification, all these things are happening 30, 40, 50, 60 years earlier than anticipated. And we may not have the time in order to address some of these issues that we gave ourselves in earlier periods of negotiations around global, global climate pacts. And so I'm, I'm, if you ask me, what I'm most nervous about is you would think that, that one of the areas of potential collaboration between the United States and China is around climate change. But even that issue has been challenging with the Chinese, I think, seeking in many respects to use a competitive framework even here, the idea being like we're going to invest and subsidize a lot of areas in clean energy with the idea that we're not only addressing the climate crisis, but we're putting our prime competitor, enemy out of business as well. And so I think, I worry that exogenous issues that are unrelated to the strategic competition might actually play a larger role than anticipated today.

Derek Thompson (64:30)

Final question. One word answers would, would suffice. The year is 2101. Will a reasonable historian look back and call this century that we are currently in the Chinese century. Kurt, you first, then Rush.

Joe House (64:47)

Well, first of all, for us to get to that date in a manner in which society is operating successfully and the like, it presupposes that we have figured out what to do with respect to the climate change challenge in order to address that will require a degree of at least some level, not necessarily of coordination, but alignment between the United States and China both about emissions and perhaps taking carbon out of the environment. So I know that is not what you're asking, but that whole 2101 presupposes that we have addressed those particular issues. The question of whose shoes would you rather be in right now? I find it impossible both for patriotic and just born and bred realities to basically discount or take another side with respect to the United States. I accept that the challenges are daunting. I accept that we are facing substantial structural disadvantages. But ultimately, I will tell you, the last four years in government, working with Rush and others, convinced me that we do have the tools and the capabilities to ensure a degree of American power and dominance well into the 21st century if we have the wit and wisdom to follow through.

Rush Doshi (66:21)

Derek, I think it's 50 50, and I think it turns largely on the question of what the United States does. As we talked about at the beginning, in the next 10, maybe 15 years, this decade really is decisive and I'll end with a note of optimism. I think if the US Is able, even in the Trump administration to strike a few big deals with allies and partners quickly, that resets the baseline, allows us to build allies, scale. It could make a big difference. I think if the US does industrial policy more intelligently, which some in the Republican Party want to do as well as in the Democratic Party, maybe with an industrial investment bank, we could build the patient capital to go after some of the businesses that we've lost over time. And where we can't do it ourselves, we can do it in common with others if we are able to take full advantage of our attractive potential. The fact that we still have the reserve currency. Immigrants around the world want to come here. The best people come here to make their companies. We're protected by two oceans. We've got a continent worth of great resources. If we add all that, that up together, we have a great hand. The Chinese also have a strong hand. They built that hand. We sort of inherited that hand. We have it already. So the question for us is, can we build an even better one? We have a better foundation to build on. They've got size, they've got scale. There are disadvantages that come with it. I'll end it with this. The first half of the 21st century could end up being a Chinese century, but the second half is much more open because they've got those demographic problems. They don't bite today. They bite in 25 years. So from 2050 to 2100, I'd bet more on us. But the thing is, we're all around now in the first half of this century. So that's why I think Kurt and I wrote the article. We didn't write it to be partisan. We didn't write it to be pessimists. We wrote it to get people to care about the fact that America doesn't have to decline. It has every advantage to stay on top. It just has to find a way to do it in common in a bipartisan way and with allies and partners. So I think we can get there. I'm not a pessimist, but I do think it's a little harder to see the path today than it was six months ago.

Joe House (68:08)

I agree with that.

Derek Thompson (68:10)

Kurt Campbell, Rush Doshi, thank you very, very much.

Rush Doshi (68:13)

Thank you, Derek.

Joe House (68:14)

Thanks, Derek.

Derek Thompson (68:15)

That was.