Dr Jonathan D. T. Ward discusses his new book “The Decisive Decade: American Grand Strategy for Triumph Over China” with show host Gene Tunny. Dr Ward argues the US should adopt “a two-pronged strategy of economic containment toward China alongside the revitalization and evolution of American industrial and technological power.” Dr. Ward is an internationally recognized expert on Chinese global strategy and U.S.-China competition. He earned his PhD in China-India relations at Oxford and his undergraduate degree at Columbia, where he studied the Russian and Chinese languages. Dr Ward is the founder of the Washington DC-based Atlas Organization, which provides strategic advice on US-China competition to businesses and government agencies.
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What’s covered in EP182
- How Dr Ward’s new book The Decisive Decade picks up where his previous book China’s Vision of Victory left off [2:02]
- What’s the actual concern with China at the moment? [5:20]
- What does economic containment mean? [9:40]
- Dr Ward proposes to restructure the world economy in favour of the democracies and against China [14:18]
- Is China such a threat that we should sacrifice our economic gains from trading with China? [19:25]
- China’s economic development has allowed it invest large amounts in its military [23:18]
- Western companies and forced labour supply chains in China [26:51]
- Dr. Ward’s final observations on China [33:24]
Links relevant to the conversation
Dr Jonathan D T Ward’s bio is available from the Atlas Organization’s website:
https://atlasorganization.com/
Jonathan’s book The Decisive Decade: America’s Grand Strategy for Triumph Over China:
This may be the Ben Franklin quote Dr Ward had in mind: “Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety”:
Related previous podcast episodes:
China, Taiwan & the Indo-Pacific w/ Dr Greta Nabbs-Keller – EP146 – Economics Explored
How to Defeat the Dictators w/ Charles Dunst, Asia Group – EP180 – Economics Explored
Transcript:
Why we’re in the Decisive Decade with China & what the West should do w/ Dr Jonathan D T Ward – EP182
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:06
Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. This is episode 182. On US China tensions. Dr. Jonathan DT Ward joins me this episode to discuss his new book, The decisive decade American grand strategy for triumph over China. Dr. Ward is an internationally recognised expert on Chinese global strategy and US China competition. He earned his PhD in China India relations at Oxford and his undergraduate degree at Columbia, where he studied the Russian and Chinese languages. Dr. Ward is the founder of The Washington DC based Atlas organisation, which provides strategic advice on US China competition to businesses and government agencies. Dr. Ward argues the US should adopt a two pronged strategy of economic containment toward China alongside the revitalization evolution of American industrial and technological power. So the book is a good one to cover on this podcast for sure. Okay, let’s get into the episode. Dr. Jonathan Ward, welcome to the programme. Good to be here. Thank you for having me. Excellent. Jonathan. Today, we’re going to be chatting about your new book, The decisive decade. I’d like to ask first, why is this particular decade decisive?
Jonathan Ward 02:02
Sure. So first of all, Jean, this book picks up where my first book, China’s vision of victory left off. And the first one explained the global grand strategy of the Chinese Communist Party, you know, the military ambitions, the sort of economic ambitions, the history of the party’s view of the world its view of itself as ascending and completing what they call the Great rejuvenation of China of the Chinese nation, which seeks to return them to a place of preeminence in the world, and basically, their vision of the world order and where it’s going. And so the decisive decade picks up, where that left off, which is to explain that, you know, if we wish to stop that vision of victory, if we wish to prevent it, to maintain the rules based order to sort of ensure that the security of the free world coheres. And that the world isn’t simply, the rules aren’t rewritten by the People’s Republic of China, we’re going to have to take actions of our own, and then we have to engage in Grand strategies of our own. And this is written primarily as an American grand strategy, but also one that is very focused on the alliance system, the free world, the democratic world, the democracies, you know, all of that. So how to create a counterpoint a real, whole spectrum counterpoint to Chinese global grand strategy. So the decisive decade is, you know, the title refers to what I talked about in China’s vision of victory, which is essentially this isn’t a contest for the very long term. 2049 is what the communist party thinks of as the symbolic date, but 100 years after the founding of the People’s Republic of China, they will have completed the great rejuvenation of the Chinese nation, they will have completed military modernization the Belton Road, made in China 2025, all of these things track that long term, somewhat symbolic timeframe. But to me, for our side of this game, what matters is the contest for 2030, the fact that this game, I think, will largely be won or lost in the 2020s. And I even saw in a recent article in ABC, Australia, somebody’s talking about, you know, if there were to have to be a military conflict between China and the United States or the Allied Pacific powers that comes in the 2030s, it would be likely that we would lose whereas now, you know, there would be a stalemate? No, this is a peacetime strategy that I’ve written, I should make that clear. It’s a strategy for how to win the long contest without a conflict, how to win it chiefly, through rebuilding our economic advantages, and our military power and returning to peace through strength through deterrence, which we can already see that that entire construct is breaking down in Europe. And the question that’s on the minds of every, you know, major capital in the Allied world is will that also break down in the Pacific? Are we going to see China act in the Pacific alongside its partners, and Moscow in a kind of replay of the early Cold War relationship where they, you know, frankly, expressed to each other that they would divide up, divide and conquer Stalin told now he would focus on Europe and China should focus on Asia and the next thing we got is the Korean War. So we’re in times that requires serious responses ice still believe we can do this through economic power and integrated deterrence. And that’s what my strategy proposes.
Gene Tunny 05:07
Right? Yeah. So you talk about a two prong strategy of economic containment toward China alongside the revitalization? Sorry, the revitalization and evolution of American industrial power. Yep. So you’re keen to ask you about those in a moment. I just want to stick with this issue of what’s the what is the actual concern at the moment, we’ve just had, like all the level of concern, our former prime minister, Paul Keating, here in Australia, the other day made some rather extraordinary statements at the National Press Club and critical of the current government, which is on his side, and also the government while he was in that political party and the government before him, the current government. And I mean, he, he asked, why would China want to threaten Australia? What would be the point they get the iron ore, the coal, the weak? What would be the point of China wanting to occupy Sydney and Melbourne? militarily? What is the real threat? I mean, China wants Taiwan, they’ve they’ve been explicit about that. Do you think they have imperial ambitions? Beyond that? What explicitly are they after? Sure. So
Jonathan Ward 06:18
let’s think about that. I mean, for him to say that this results in the occupation of Sydney or Melbourne, I think, is taking it to a strongman extreme. I think the point here is Australia already has seen what coercion looks like, from the People’s Republic of China. And you saw that very early on, when they you know, shut off trade to Australia, because they were concerned about comments about the COVID origins. And, you know, Australia’s I think ability to act as an independent actor. And this is the subject of, I think, a very robust discussion. And, you know, frankly, a lot of the great research on this comes out of Australia. So, Australia, in many ways, this led aspects of the charge here in terms of calling the the threat of the Communist Party for what it is, but you think about banning Huawei, and the 14 points declaration that the Communist Party of China issued to Australia basically establishes the terms of what it would look like to have a healthy and productively relationship. And I think that was met with revulsion across Australia, the idea that they could be, you know, sort of dictated to by the Communist Party of China. In the meantime, China’s going through with HR McMaster, the former US national security adviser called the largest peacetime buildup, the largest military buildup in modern history. So the naval buildup they’ve undertaken the missile buildup, you know, the Air Force, sort of activity, I mean, they now have the largest and peer forces in the Indo Pacific, the largest Navy in the world, largest ground forces in Asia and Xi Jinping on a very regular basis way before but for, you know, I don’t know, Paul Keating myself, but certainly before his comments, I mean, Xi Jinping himself is speaking on almost a quarterly basis about preparing to fight and win wars now against whom, you know, Air Force manuals from the Chinese military talk about the ability to after seizing Taiwan, the ability to produce famine in Japan, you know, these ambitions, they have, I think, are part of, you know, a concept of dominating Asia. And that does include Australia, and I think for the United States and Australia, when our relationship, economic, military and values based goes back so far, and it’s so deep, when you think about something like the Second World War, where one of the most important pieces of our joint military strategy was to keep America in the Pacific through the California to Australia, you know, oceanic highway and the Japanese were trying to cut that off through the Pacific Islands. So, you know, the military geography of the Pacific is something we’re all familiar with. It’s something that China has studied in depth. I mean, their ambitions towards the island chains, I think are very well understood. And this is why, you know, according my understanding Australian Defence is very, very focused on the challenge from China. And in the meantime, I even, you know, without anticipating being on your podcast, and thank you for welcoming me, one of the first pages of my book includes just as a matter, of course, you know, threats that China has made to different allies, and that includes the threats that they made of quotes, possible nuclear attacks in the future on Australia. I mean, you know, they’ve threatened us with that, too. So it’s, it’s par for the course. But still, I think, I think they’ve made very clear how they feel about their position in the world. And it’s one of my friends in Australian Defence once said to me, when I asked What does China really want from Australia, and she said, it wants to be it wants Australia to be a neutral farm in mind. So if I don’t think that’s the future that that we’re all looking for, is to be sort of fun, you know, dependencies in a economic empire headed by the Chinese Communist Party. On the other hand, that’s certainly what they would like.
Gene Tunny 09:42
Yeah, I’ll have to look up that quote. That’s a that’s an interesting one, a neutral farm and mine. Okay.
Jonathan Ward 09:48
That one’s in China’s vision of victory.
Gene Tunny 09:50
Gotcha. I’ll have a look. That’s your previous book, isn’t it? That’s excellent. Okay. Can I ask? What do you mean by economic containment? And what does that look like?
Jonathan Ward 10:01
Sure. So the way that I see this, I mean the way to win this contest and to to avoid the hot war and to not have it just keep on culminating in a rising China that’s continuing in the military buildup and has its various territorial ambitions. And that’s all just a matter of fact, I mean, their claims against all of their neighbours, the wars, they fought in the 20th century against many of their neighbours, not least of which was the Korean War, which involve both the United States and Australia, in which they saw as central to the what they called the new China, just the rise of China back then, you know, we’re seeing, I think, a replay of some of those ambitions as they threaten papers today. But the bottom line, I think that this is largely, you know, it really comes down to the gap that we once had, as the free world between ourselves and the major dictatorships, and not least of which was the People’s Republic of China, and through economic engagement, and the strategy that we sought to do was to bring them into the world to trade with them to invest in them to establish business ties People to People ties. And that wasn’t the end of it, we did not necessarily expect that that would empower the Chinese Communist Party, we thought that it would lead to liberalisation in a political softening of the of the CCP, perhaps a reduced role and its influence. And really the opposite happened. I mean, China transformed from a largely agrarian society in the 1980s, to an industrial technological superpower, which now has totally changed the military balance in Asia, has created world leading companies has dominated strategic industries like money, intellectual property theft concerns are the subject of an enormous amount of study at this point. And that all culminates for them in economic ambitions of becoming really the centre of the world economy. And, and in doing that, they seek to then bring in a military strategy where they defend their, what they call the ceaseless expansion of their Overseas Interests. So in a way, it’s an old school sort of Imperial strategy, we recognise it very clearly as such, if this were the 19th century, but it’s kind of lost in the language of development and trade in the 21st century. So, you know, bottom line, I mean, they they see themselves as rising to a preeminent position. And then the world economy is doing that through mastery of certain strategic industries. And frankly, they can only get there if we help them. So a lot of the point here is economic containment really is about ceasing to empower to enable and to enrich the Chinese Communist Party in the People’s Republic of China for as long as it has these tendencies and ambitions and, you know, sort of dangers. And I think it’s a very simple thing where, you know, economic containment, as I’ve described it in three parts, it has to do with market access, it has to do with technology transfer, it has to do with access to capital. And as long as we’re providing access to capital access to technology, and then access to our markets, we’re enabling their growth, whereas you start to produce that. And the ascendancy slows down a great deal. And either way, we should remember that decoupling, which is a popular word is a two way street. I mean, Xi Jinping has made very clear through programmes like made in China 2025, that they seek to establish indigenisation of key strategic industries. So it’s not that our companies are over there in order to capture unlimited market share, and they’re essentially over there to transfer technology. That’s been the deal that Western businesses run with the People’s Republic of China for 30 years now. But it’s culminated and Chinese dominance of certain industries and then on the other hand, you know, they really do need access to global capital markets. And that’s where we have a far greater advantage, and they need to be able to sell to the OECD markets. And if you look at their trade composition, I mean, a great deal of it is, you know, let’s say a lot of value added since microelectronics, for example. So some of the industries that we already know, we have to secure I mean, I do not think it creates leverage over an adversary state that is, you know, creating a force structure that’s designed for combat with with us, you know, with America with Australia with Japan, that our supply chains are there, I mean, that doesn’t create leverage over them that creates leverage over us so so we know that we have to pull back certain strategic industries into the meantime, Xi Jinping, dual circulation strategy, means that he would like, in this is how the party is orienting. He would like the world’s supply chains to become more dependent on China at the same time for China to become less dependent on, you know, external supply chains. So so, you know, they’re looking to do this one way. And, and, you know, decoupling is something they’ve initiated in many industries. And then, you know, we’re gonna have to do that too, in certain ways. So so there is a natural restructuring. And the question, in certain ways is who, you know, what is going to be the outcome, ultimately, of that restructuring? And we have to do it in such a way where I think we’re working together, and we’re going to restructure the world economy in the favour of the democracies and not in favour of the People’s Republic of China.
Gene Tunny 14:44
Okay, and how do you propose doing that? What policy measures do you have in mind you have in mind tariffs, do you are you talking about banning certain types of investment into China certain types of trade? What exactly are you proposing?
Jonathan Ward 15:00
Sure, so I think you know, you need to go industry by industry and sector, you know, sort of company by company and look at all the key inputs that really matter. And I think that’s where this goes into a level of detail that will have to be, it’ll be the subject of policymaking in the decade ahead. I mean, what precisely do we want to allow? And what do we not want to allow? I mean, you can imagine, for example, it’s not necessarily strategic for, for McDonald’s to be operational in the People’s Republic of China. I mean, they’re taking their own risks by being there. And let’s not forget, every single company just learned a very big lesson in Russia. I mean, the amount of the corporate Exodus after Russia invaded Ukraine should be the real lesson for companies that are investing in China and building trading relationships, what actually happens, if they do decide to use force, that’s a separate problem. So the business sector, I think, has this issue on their own plates in a different way. But then for the policy world, you know, we’ve already seen much greater action in terms of export controls, you know, the foreign direct product rule is very important to limiting the transfer of technology that could be applied much more widely. Outbound Cepheus, a committee on foreign investment in the US provides a template for looking at strategic industries. And the concern has largely been over inbound investment from China into industries that we consider important, but also outbound because any multinational is going to have to ultimately, you know, allocate capital in order to remain competitive in a China market where their intellectual property has probably already been stolen. And perhaps commercialised. So, you know, the capital, you know, allocations continuing look at something like Tesla, for example, their giga factory in Shanghai is not owned, it is rented on a 50 year basis with a CapEx minimum and a revenue minimum every year. That’s the kind of deal that’s going on in order to syphon capital from multinationals alongside technology transfer today. So, you know, that kind of capital allocation, I think, is bad. I mean, we’re still mainlining hundreds of billions of dollars of capital, just as the United States. The other thing is, you look at large pools of capital, such as pension funds, you know, large index creators and allocators such as BlackRock and State Street have, you know, MSCI China index season, and there are companies in the US that are tied to civil military fusion, to the human rights abuses, and certainly to the Chinese Communist Party, because at this point, the party is basically reversing course, on Deng Xiaoping’s original opening up the private sector, and they’re putting party members on boards and controlling these companies. And all of these companies operate in the interest of their larger strategic programmes. So when we allocate capital, we are helping to finance military modernization, the Belt and Road and a surveillance state that I think is the subject of an enormous amount of documentation. And, frankly, you know, concern if not, we’re across the free world. So I think you start to do that. I mean, you start to cut back from, you know, and civil military fusion, perhaps I should explain, I mean, it’s the party’s initiative to transfer innovation happening in civilian industrial sectors into the military to make sure that the military can, in their words, close the gap with the United States and other Western militaries. So they are taking the economy that we helped them build, and converting it into maximum military power to be directed against us. That’s the thing that you want to break down. So why should we invest in that? Why should we transfer technology to that, and on the subject of exports, I mean, I think it’s really about export diversification. For example, Australia’s trade relationship is largely about selling coal and iron ore and, you know, commodities to China. And then I think Australia is one of the very few countries in the OECD that runs a surplus with China. But what’s important is pretty much true across the OECD, it’s a lot of micro electronics, and, you know, those sorts of sorts of value added goods. So, you know, looking for new supply chains, so that we do not have to, you know, have our exports come in from China. And that’s something we work that out, and we start to cut down their export, you know, based and that changes the structure of their economy. And it takes a lot of the growth out of the equation. And in the meantime, you know, it’s possible to reinvest in our own societies and our own industrial bases. I mean, we can do manufacturing, too, we just haven’t, because of the exigencies of, you know, basically, competitive advantage and competitive advantage, I think, is a fine concept. You know, theoretically but in a political economy, where you’re dealing with an adversary state that, in its own words, is preparing to fight and win wars, including with you and your allies. Perhaps it’s, it makes sense to see what else you can do.
Gene Tunny 19:25
Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 20:00
Now back to the show. Yeah, it sounds like you do need a lot of policy intervention to bring this about. And you’re talking about power of measures industrial policy to promote this reshoring or whatever you want to call it. Yeah, I mean, as an economist it, it looks like you’re talking about losing a lot of the potential gains from trade. And I mean, my I’m not sure yet. I mean, I’ll have to read your first book. I do know China is a is a threat. And there is a lot of espionage going on. At the same time, I recognise that a lot of countries engage in espionage. Is China such a threat that we should sacrifice those economic gains? I mean, you’ve made a judgement that they are such a threat that we can forego some of those economic gains? I mean, how do you think about this in in terms of, do you think about it in terms of a cost benefit analysis? Or are the national security concerns primary for you? How do you think about this? How do you weigh everything up?
Jonathan Ward 21:08
Well, I think it’s a little bit of all of that. I mean, on one hand, it’s not my judgement alone, I think this has become pretty commonplace across most allied capitals, the idea that the trading relationship with China or economic engagement is certainly not produce the political outcomes that people saw. And let’s not forget, that was one of the primary reasons for doing it, you can see that for Batum, across the entire discussion in the 90s, ahead of the WTO session, this was not just let’s trade with a dangerous state and hope for the best let’s trade with this state that is an authoritarian state, because we believe it will produce liberalisation, that did not change. So then you have to ask yourself, what are the consequences of that? I mean, the consequences of that is like, sure, I mean, people are making money in Australia, they’re making money in the United States. And it’s why people keep doing it. On the other hand, we’re also on a constant basis, enriching and improving an adversary state that’s declared its intention. So I think, you know, having a full appreciation for what that looks like, through their own eyes, I mean, how the Communist Party of China seeks to, you know, take this well beyond espionage. And that espionage is for a purpose. At the end of the day, they’re reconstructing industries that contribute to national power, and they’re building a military that’s designed for war with the Asia Pacific. So So you know, I think that’s very clearly understood in most capitals at this point. And it’s, it’s, you know, not really a matter of debate, in that sense as to the intentions. It’s just a matter of, you know, they’ve, they’ve told us that we can watch it all happen in front of us. On the other hand, I mean, sure, if you’re, if you’re in the business community, or the trade community, I mean, just looking at, you know, Australian Department of Foreign Affairs and Trade. I mean, one of the first lines on doing business with China, is trade and investment with China is central to Australia’s first to Australia’s future prosperity. So I think this is the contradiction that just lies at the heart of the entire Western world approach to China for the past 40 years was that they used to call it engage, but hedge and the idea was that we would engage economically, but we would hedge militarily, we would build defences against this. And the problem with that is the more you engage economically, the less possible it is to hedge because they’re, they’re reinvesting it into defence. I mean, that’s what they’ve done. They felt, you know, the largest military in the, in the Pacific. And, you know, if they were totally friendly about it, maybe we’d be talking differently, but by the way, they’re not they’ve issued pretty graphic threats to all of our countries at this point. So, you know, so So I think the question is really do the economic gains, you know, in fact, bring security or prosperity. And, to paraphrase Ben Franklin, I mean, those who would trade security for prosperity will probably have neither, in the end. So you know, that’s where I’d be concerned. And I think the real economic activities here, and keep in mind this, it’s going to be industry by industry, at the end of the day, selling raw commodities into China’s industrial base is one form of business, but selling, you know, let’s say equipment that helps them undertake a military buildup or build the surveillance state or any of that, you know, this stuff can be, you know, looked at from the point of view of China’s companies. I mean, you know, the 97 SASAC corporations that make up the bulk of the state owned enterprises, certainly the big ones to the largest ones on the Fortune Global 500. I mean, those are deeply aligned with the state. I mean, they’re owned by the state, and they’re used for strategic programmes. I mean, you take for instance, the islands in the South China Sea, you know, we can debate whether or not that’s a threat, but you know, frankly, I think it’s, it’s generally seen to be one and that was built by China communications construction Corporation. For example, I remember I was at Oxford Business School alongside my PhD and, you know, with with the MBA students, we were doing a leveraged buyout model of an aerospace composite parts company from from from Austria, and it turned out that it was owned by a VIC which is China’s military, aerospace, corporate. Should everyone’s looking at the financials. And I was the only one that said, hey, look, these guys just landed, you know, you know, military aircraft on the islands in the South China Sea this month. Does anyone care about that? That’s the problem with separating pure economics from from political economy or from history is, and as a historian where you have to look at all of this, I think we also have to look at the consequences of blind economic engagement. And that’s the debate we’re all going to be having. I mean, in fairness to Australia, I think your economic rules with relationship with China is relatively clear cut. Whereas, you know, I mean, for us, I mean, our biggest issue is our fortune 1000 is still very deep in the China market, but they’re taking on risks. And I think that’s actually a separate problem, the risks that businesses are taking, and this is something I’ve advised businesses in the US for the past five and a half years on this stuff to help them appreciate the level of risk they’re actually taking on. Because, you know, if you look at the, let’s say, the case studies from what happened after Russia invaded Ukraine, I mean, you know, where does this really go for you, if you’re not de risking, you’re trying to stretch if you’re becoming too dependent? If there’s actually, you know, any kind of conflict, all of that will be lost, as it was in prior periods. We’ve been through this before in history. We’re just going through it again, as they’re blind.
Gene Tunny 26:17
Yeah. I love that. Benjamin Franklin, quote, I think I’ve heard it before, I’m going to have to revisit it and put it in the show notes. I thought that was that was really good. And yeah, highly relevant to the conversation. Just finally, Jonathan, I know, you will have to wrap up soon. You talk about corporates, you write in your book, that American corporate exposure and involvement in China is creating risks and perils to the United States and to global stability. Can you give some specific examples, please? So we know what you’re, you’re driving out there, please?
Jonathan Ward 26:51
Sure. So, you know, one example comes from the Australian strategic policy institute, which I think was one of the first global think tanks to to break ground on the role of Western corporates in, you know, in the forced labour supply chains. And keep in mind this this, you know, the shinjang genocide is something that I believe all of our governments, you know, agree is a genocide. So, so our companies are there, I mean, whether it’s Volkswagen from, from, from Germany, or, you know, Nike in the United States, or Ralph Lauren, or polo, I mean, there’s a pretty big list from SP, and that’s important. So, you know, the participation of our own companies and human rights abuses is something that’s increasingly well documented. But then one of the aspects of this that I highlight that I think is less well appreciated is the role of our companies in civil military fusion, and also in strategic programmes such as the Belt and Road. I mean, I use the example of Caterpillar, which was brought before Congress in the United States at least once because they were marketing themselves as helping China build the Belt and Road and we all kind of understand at this point, the strategic nature of the Belton road and what it seeks to do for, you know, China’s sort of economic hegemony in the region. And to have our multinationals or OEMs, out there building something like that, or to have, for instance, Google, doing artificial intelligence partnerships at Ching Hua University. And then the dean of Ching Hua goes and issues a statement, which talks about how Ching Hua will be a centre for artificial intelligence, human machine combat cooperation for the Central Military Commission of the People’s Republic of China, I mean, again, we are participating in a nation state that is organising itself for, for more in for, you know, human rights atrocities. And all of that is, I think, clearly understood. And, you know, the best example, really, historically was in the 1930s. Many American companies certainly were entangled in the reconstruction of Germany, and you know, with places like Ford and Standard Oil, and IBM most notoriously was, ultimately became, you know, its machines for use in the Holocaust. And Thomas Watson went to Berlin, and I believe 1937, and to speak at the International Chamber of Commerce. And he was given a medal by Adolf Hitler, and the title of his speech was peace through trade. So, you know, we’ve been down this road business. And again, to me, business is not the bad guy here. If business changes course, I mean, arguably, we won the second world war, because all of those great companies ultimately came to the right side of history. And we’re going to need to do that, again. What we didn’t get into today is how the global economic contest is one. This is not simply about containment of China. This is also about hitting the accelerator when we’re about to go through an event in economic history called the Fourth Industrial Revolution. And if the free world can hit that, and accelerate, we’re going to create a gap between ourselves in the authoritarian states, the likes of which we haven’t seen in many years now. And certainly, we gave that gap away. In the post cold war, but if we’re able to do that, if we’re able to accelerate Well, at the same time, ensuring that they do not get onto that track, through engagement with us, we’re going to create, I think, a new economic divergence that will lead to much greater outcomes and resolve some of the geopolitical, you know, dangers on the road ahead. And our companies are gonna have to go out and win a battle for global markets that they barely understand yet, they’re going to be competing against the Chinese state, with enormous quantities of capital in with stolen intellectual property. So you know, that that’s something that, you know, ties right into the strategic competition, I mean, the role of our companies is going to be central to winning or to lose, and if they don’t change course, and in the meantime, they’re taking on risks that I think are increasingly clear, as, for instance, the global focus on Taiwan comes into sharper relief.
Gene Tunny 30:53
Right? Yeah, sorry, I didn’t get around the fourth industrial revolution. But would you have a second just to go? Or just a few minutes to go over what you think those are? The main ways to create that gap? Ah, I mean, he was talking about, essentially, you know, cutting China off from that knowledge from that innovation?
Jonathan Ward 31:12
Well, look, I think if we start to, you know, to restrict engagement along the lines of market access technology and capital, then you’re going to start to see the difference between the democratic systems and, you know, China’s authoritarian, you know, totalitarian system. So we, I think we want to be in a systems competition with them, we don’t want to be in a competition where we’re the r&d base that they produce at scale. I mean, that’s one where we lose on a long enough timeframe. But the the industries themselves have been pretty clearly identified. And I’ll just give you an example. Because I think something that’s worth noting is that, you know, made in China 2025, identified some important industries, and then the chips and science sector in the United States identified another set of industries, that’s almost the same. So you can see that some of the critical industries have already been identified, but from the chips and science Act, to artificial intelligence, machine learning and autonomy, semiconductors, and advanced computer hardware and software, Quantum Information Science and Technology, robotics, automation, advanced manufacturing, advanced communications, technology, and immersive technology, biotechnology, genomic synthetic biology, data storage, advanced energy, advanced materials that go on, but bottom line, it’s going to be these industries of the 2020s and 2030s. It’s also going to be this sort of, you know, Internet of Things and digitization of physical infrastructure. So for instance, I remember being in China, you know, before the pandemic, and, you know, looking at an r&d lab somewhere and you know, Alibaba, smart homes and Huawei smart homes, we’re not going to be using that you’re not going to use them in Australia, and we’re not going to use them in the US. So there’s going to be a natural bifurcation that happens. But then the question is, how do we turn that into productivity and power that has a lot to do with markets, because at the end of the day, the US in a free world and you know, Australia, and everybody we’re, you know, 50 to 60% of global GDP when you add up the free democracies, and we’re 75% of global wealth, which may be even more important. So we have these tremendous advantages. And we’re going to have to restructure the world economy so that it isn’t simply the Communist Party of China does not achieve its vision of victory. And we can do that. There will be costs, but there will also be opportunities, particularly in reintegrating amongst one another.
Gene Tunny 33:24
Okay. Dr. Jonathan Ward, any final observations before we wrap up?
Jonathan Ward 33:29
I think we should leave it there. But thank you for having me. And, you know, great to be with an Australian audience and a huge fan of the country and have many friends.
Gene Tunny 33:38
Excellent. Dr. Johnson would. It’s been great, thank you. Okay, I hope you found that informative and enjoyable. I found it valuable chatting with Jonathan given he has a very different perspective from me on China. While I think we need to proceed cautiously and restrict any technology transfer that could threaten national security, for sure. I’m unsure economic containment is the best approach to China at this stage. As an economist, I have a strong bias towards free trade. That said, I know that China needs to be watched closely. And you may recall, I previously talked with experts about the prospects of an invasion of Taiwan and about the enterprise China model. And I’ll put links to those episodes in the show notes. I acknowledge it’s possible there is a significant threat from China. And I’m very grateful to Jonathan for appearing on the show to talk about his new book. Please consider purchasing a copy of his book find the link in the show notes. Jonathan’s book has received some impressive testimonials, including from former US national security adviser, retired Lieutenant General HR McMaster. Incidentally, McMaster also gave a testimonial for Charles Dunst book, defeating the dictators and you may recall I chatted with Charles about his book in Episode 180. So please check out that episode if you haven’t done so yet. As I’ve noted previously, I think it’s important to cover geopolitics on this show because geopolitical developments can end up having huge economic impacts. As I’m sure you will appreciate, given the impacts that the war in Ukraine has had on fuel prices, among other things. Please let me know what you think about my conversation with Dr. Ward. Do you agree with him that we should adopt an economic containment strategy against China? As always, feel free to email me at contact@economicsexplored.com Thanks for listening. Righto, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
36:26
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