• 3 months ago
Ben Harburg, Managing Partner, MSA Capital Jacob Helberg, Commissioner, United States-China Economic and Security Review Commission; Senior Policy Advisor to the CEO, Palantir Technologies Interviewer: Andrew Nusca, Fortune
Transcript
00:00So, usually the topic of China, you know, we fall on political sides here, but in this
00:10moment I feel like there has never been more bipartisan consensus that we need to be tough
00:14on China, right?
00:16The Trump administration was tough on China through tariffs and other things.
00:21Biden doubled down on that, all right?
00:23I want to ask both of you, what kind of relationship should we have with China moving forward?
00:29And Ben, if you don't mind, sorry.
00:32Sure.
00:33I think China is an incredible foil for us and an incredible motivator and one that can
00:36push us to make the changes necessary to bring America back to prominence as a manufacturing
00:45and technology leader and education leader.
00:48China exposes many of our flaws and our engagement with China has, I think, been not always the
00:53most enlightened over the last few years, but it certainly has the opportunity to be
00:59that motivating factor that drives us out of complacency and into a new era for the
01:05United States.
01:06Uh-huh.
01:07And what's your take?
01:08I think, look, we have to look at where our relationship with China started 20 years ago.
01:14It started from a place of mostly accommodation.
01:18We supported their entry into the WTO.
01:22China under that period has experienced the largest increase in terms of the number of
01:27people brought out of poverty in human history, which is an incredible achievement.
01:32I think it's also fair to realize and acknowledge the fact that they have mostly done this at
01:39the expense of Western economies through incredibly predatory practices from a commercial and
01:46a trade standpoint.
01:48They have also not just turned the other way on illicit traffic of fentanyl into the American
01:56heartland, but they've actually rewarded it.
01:59They have installed malware onto our critical infrastructure, sent a spy balloon transiting
02:04over our landmass.
02:05So it's important to look at the totality of the behavior.
02:09I actually totally agree that engaging with China and looking at what they're doing is
02:16an incredibly motivating factor, and we can't be complacent because our country has never
02:21experienced an adversary so formidable as China.
02:27The USSR was not nearly as formidable as China is, both from an economic, technological,
02:34and demographic standpoint.
02:35Today, I think it's important that we maintain relations with China diplomatically and engage,
02:43but we also have to strategically decouple from China technologically, and that is where
02:50the direction is headed under both parties, and it's ultimately, we made a decision at
02:57the early 2000s to decouple our economic agenda from our national security when we said, yes,
03:04they are an authoritarian regime that fundamentally has a different view on how to run the world,
03:10but we are going to open markets economically and promote interdependence because they're
03:17going to become more like us.
03:19That bargain has not panned out, and so bringing our national security policy more closely
03:25in line with our economic policy is ultimately what you're seeing happen, whether it's Huawei,
03:31whether it's TikTok, whether it's ZTE.
03:34You're seeing increasing scrutiny on these technology companies, and I think it's a good
03:38thing.
03:39Jacob, the former chair of Morgan Stanley Asia was in the news just in the last 24 hours
03:46saying that if we maintain our current position, in other words, this kind of contentious stance
03:52that we have with China, we meaning the United States, we are headed toward disaster.
03:57We are headed toward a place where one country will think that the other one is making an
04:05act of violence and will essentially start a new war, or at least a Cold War.
04:09What do you think about that?
04:11First of all, there's, I think, two assumptions in that statement that I disagree with.
04:17The first is the idea that we have a choice between having a policy of accommodation or
04:24strategically decoupling.
04:25I think realistically, you can have constructive diplomatic relations where China respects
04:32you as a diplomatic peer and engages with you in order to avoid confrontation while
04:39decoupling economically because recognizing that it makes no sense for our national security
04:46to be overly reliant from a supply chain standpoint and for the entire foundation of our economy
04:52on our foremost geopolitical adversary.
04:56Sure.
04:57Now, we've always been frenemies to China and the United States.
05:00Ben, what's your take?
05:01What do you agree with?
05:02What do you disagree with, what you just heard?
05:04Well, I mean, decoupling now is an inevitability, and ironically, a lot of the actions that
05:09were taken around decoupling were not necessarily informative around our own vulnerabilities,
05:14but they informed China's.
05:16And so China has now been working on overdrive as a result of a lot of this, recognizing
05:21the types of leverage we own, not only over their supply chain, over their tech majors,
05:28but also, of course, their entire economy with FDI running out of China.
05:32And so China has now gone into overdrive over the last few years to build self-sufficiency,
05:38and they don't want to be dependent on us either.
05:40And we're seeing them making record speed improvements, for instance, in, you know,
05:45the scale of their nanometer chips and the scale of also their efforts to build a global
05:51alliance to kind of counter what we have.
05:53And so today you have 140 countries who have China as their largest trading power, and
05:57many of them are in those middle powers group, the Brazils and Japans and Saudi Arabias of
06:03the world, and they are dependent on China for their economic trajectory as well as obviously
06:11the fact that China produces many of the technologies within a specification price point that their
06:16consumers can afford.
06:17And so I think what we really have to do is understand and not make China aware of its
06:22vulnerabilities, but rather I think keep it connected kind of to the morphine drip of
06:26American education system, chips, capital, where it's applicable.
06:32But ultimately use the revenue generated from that, use all of those benefits derived
06:40to push the foot on the gas to accelerate our technological leadership, and it feels
06:44like we've really been fixated on building walls rather than accelerating onward.
06:48So you think we should focus on the acceleration part?
06:51My view is that it's an inevitability and historically proven that China, when you tell
06:56them they can't have satellites, you tell them, you lock them out of the American GPS
06:59system.
07:00The Russians tried to kick them, tried to withhold nuclear from them, and they always
07:04catch up, and then once they've caught up, no longer do the Russians have nuclear leverage
07:08over them.
07:09No longer do we have GPS leverage over them.
07:11So you want them almost integrated.
07:13Of course, Jacob and I would, I'd say, differ here because I want more integration in the
07:18sense that if we keep their students coming to our universities, we can keep them home
07:23here.
07:24They're generating revenue for our universities.
07:27We're enacting upon them a leverage of soft power, and we really should be treating this
07:32like a Cold War.
07:33We're actually kicking scientists and students out rather than keeping them home, and as
07:37we build in a kind of a siloed universe, it's almost that old adage of keeping your enemy
07:42close and your closer.
07:44Sure, sure.
07:46Jacob.
07:47So I actually, the argument that making sure that China is strategically dependent on us
07:54makes, there are some really compelling points to that.
07:58The issue that I take is that right now, we are overwhelmingly reliant on them, and to
08:05the point that was just made, China is racing to decouple from us, regardless of what we're
08:10doing, and so we need to ask ourselves in a very cool-headed way, do we want to pursue
08:17a policy where we could find ourselves in a few years heavily reliant on China when
08:22they are no longer reliant on us, and what does that mean for our security?
08:27The other thing is, power is a relative thing.
08:31It's not an absolute thing, and so that means that it's not because you make advances and
08:38reach certain technological milestones that you can pat yourselves on the back thinking
08:43that we're doing great.
08:45We have to stay ahead of China by an order of magnitude in order to maintain deterrence.
08:53If you want peace, the number one thing that will advance the interest of peace is American
09:00strength, because ultimately, if you believe that geopolitical leaders are rational actors,
09:08they will not start a war that they believe they will lose.
09:12It's when doubt is in their minds that they are actually willing to roll the dice and
09:17make a move and see where the chips fall, and so that is where ultimately I've made
09:24a ferocious argument that technology is the foundation of American power.
09:29In a world where you have 320 or so million Americans and 1.3, 1.4 billion Chinese people,
09:37the only answer to that is technology, because technology is nonlinear, and so through technology,
09:45the U.S. can maintain its deterrence, but we have to stay ahead.
09:50Jacob, you have a passion around AI, and God knows we've been talking about it endlessly
09:55at this conference and will continue to for the rest of the week.
09:59How are we supposed to address that, given what you've just said?
10:03What should we do, given the complexity of artificial intelligence isn't a single thing.
10:08It's a capability.
10:10What do you suggest that the United States do to maintain supremacy, given that?
10:16The basic approach of the U.S. government today has been a two-pronged approach.
10:22On the one hand, slowing China down through export controls, and on the other hand, trying
10:26to make sure that the U.S. runs as fast as it can through investments in semiconductor
10:32manufacturing and new different AI research institutes and the like.
10:40I ultimately think that's the right approach, even though some people will debate the mechanics
10:45of what the right policy is to run faster, whether export controls are effective.
10:51I don't think anyone is making the argument that export controls on chips were going to
10:56prevent China from developing them.
10:58No one knew China was going to develop their own chips, but the question is, are you setting
11:03them back enough that if you believe that AI is a race, you're actually buying yourself
11:09time that is material in that race?
11:12I think that's probably a safe argument to make, as long as you are also racing as fast
11:19as you can.
11:20Sure.
11:21Ben, the thing I said earlier about, you know, that we're headed toward disaster if we just
11:27maintain the position that we're in, that it could become actual warfare, that sort
11:31of thing.
11:32You said kind of a Cold War stance would be good, but expand on that.
11:34Are you concerned about this disastrous end, or not really?
11:39Because right now you seem fairly aligned with Jacob.
11:41No, I mean, I think that certainly we are in the foothills of war now, to borrow a phrase
11:46from Kissinger, but it's, you know, the issue that we face is that China is, I think, a
11:55more formidable enemy than we anticipate.
11:58And by kind of poking the bear, as we are across the world right now, we're actually
12:03accelerating that process toward war.
12:06It's obviously not, you know, imposing upon them sanctions or technology restrictions
12:11is not really, I think, the driver of that.
12:13Again, if anything, we've helped improve their capabilities as a result of it.
12:18It's more a form factor of these, you know, the saber rattling that we seem to hear repeatedly
12:23coming out of different parts of America, I think, would benefit from that saber rattling,
12:27rather than looking for ways to take advantage of the Chinese evolutionary state to keep
12:33them buying our chips.
12:34I mean, many of the American chip companies derive 40 to 60% of their revenue from China.
12:38That money is going back into R&D.
12:40We've been cutting off those chip flows.
12:42Now China is on par with us in terms of R&D spending.
12:46China is now building weapons that supersede their American counterparts, like hypersonic
12:51missiles.
12:53They control 75% of the global commercial drone market.
12:56So we're almost handing the Chinese our battle plan and then poking them with a stick.
13:01And my objective is to rather find a way to leverage them in the ways we can, use, for
13:08instance, the students that are coming to America as soft power to essentially avoid
13:11confrontation.
13:12It's funny, but I mean, it's hard to go to war with someone when they have the same,
13:15you know, fight song as you do and like the same college football team.
13:18And likewise, if we want to ever try to impose some type of shifts within China, it's not
13:24going to come from the outside.
13:25It's going to come internally and it's going to come from us sending folks back.
13:28And ironically, it's the Chinese who should be blocking their students from coming over
13:32here and being influenced by our way of thinking in universities.
13:35Sure.
13:36I'm going to come to the audience for a question in a second, but I want to ask you both one
13:39more.
13:40Most regular folks are familiar with this topic.
13:42More recently because of TikTok and all of the drama around that.
13:46Do you feel that it was handled the way it should be given your philosophy on our relationship?
13:52He's got a good answer here.
13:53But I would say it was an interesting one.
13:56My personal, I have no dog in the fight and it's funny.
13:59I think actually those that were working to ban TikTok here will find a ready friend in
14:03the Chinese government who balked TikTok repeatedly, restrict its access to children.
14:07They know how dangerous it is for productivity and mind rot.
14:12They forced its CEO out.
14:13He lives in kind of essentially an exile in Singapore now, or its founder.
14:18I think all we need to have though is some consistency and not have selective morality.
14:22So we should require of all applications and foreign operators in the technology space
14:28in the United States to operate by a certain set of guidelines.
14:31If they choose not to, then they're blocked.
14:33And along the way, I'd also love an American version of GDPR or something like that.
14:37So we have our data protected, whether it's a domestic app or foreign.
14:43Jacob?
14:44I think the TikTok divestiture bill was a historic landmark piece of legislation on
14:52which over 90% of Congress voted for it, which you don't get that kind of a majority on anything
14:58nowadays.
14:59I mean, Democrats and Republicans don't even agree on what color the sky is, and yet they
15:03both voted for this bill.
15:05And so I think as an American, I was very proud and content to see that on a real national
15:11security issue, our government came together.
15:14Now the TikTok bill does not address domestic privacy concerns, or content moderation concerns,
15:21which are valid.
15:22And there's an important debate to be had.
15:25Ultimately, I think the reason that the bill was so important was because it narrowly focused
15:31on the national security issue about why Chinese owned companies pose unique risks in the United
15:39States.
15:40And so ultimately, I think it was a major achievement for our country.
15:43All right.
15:44Let's go to the audience for questions or counterpoints.
15:49Let's go right here, if you don't mind.
15:54Your name and affiliation.
15:55Hi, my name is Sunil, I'm a founder of a company called Hamlet, which uses AI to extract data
16:01from public meetings.
16:04My question for each of you is, you've outlined a vision of what a future relationship might
16:10look like with China.
16:12Who do you view as our two most important global allies to achieve that future?
16:17Chance?
16:19So, you know, in the case of the United States, because we have a decentralized approach to
16:28government, I would actually answer that question in two parts.
16:30On the one hand, America has international allies like Japan, South Korea, which have
16:36incredible capabilities in advanced robotics, and the Netherlands, which is home to ASML
16:41and makes advanced machineries for fobs and semiconductor manufacturing.
16:48Unlike in China, the United States does not have a civil military fusion doctrine.
16:53So I would also argue that another critical ally to the U.S. government is actually domestic
16:59and is Silicon Valley.
17:02Our best and most advanced technologies don't automatically flow back to the U.S. government
17:09the way that it does in China.
17:12And so making sure that the relationship between Washington and Silicon Valley is vibrant,
17:19and making sure that we convert our best technologies into hard power, I would argue is actually
17:25a major national security priority.
17:27And I'll just end on one example.
17:30Recently, in the last year or so, we have seen enormous breakthroughs in humanoid robotic
17:38technology.
17:39We've seen NVIDIA roll out Project Groot, which is a foundational model for humanoid
17:45robots.
17:46We've seen Tesla roll out two different generations of the Optimus robot, which is going to be
17:52incredibly impressive in general purpose and its capabilities.
17:57We've seen figure AI backed by NVIDIA and Microsoft and Amazon roll out humanoid robots
18:04in its warehouses.
18:05And on the other side of the Pacific, we've seen China and its state champion, Unitary
18:11Robotics, say that the Chinese government views this as a priority to mass produce humanoids
18:17by 2025, tomorrow, basically, and that Unitary Robotics is going to put them up for sale
18:23for $16,000 apiece.
18:25And by the way, Chinese humanoids can run at 11 miles per hour and are learning how
18:30to box, which is such a perfect example of how they developed the technology and it goes
18:35straight to the military.
18:37It's PLA number one consumer.
18:40And so we have to make sure that our policymakers have a pulse on the best stuff out there and
18:47that our military is going to keep apace, because ultimately, this is the kind of erosion
18:54of deterrence where if they keep advancing faster than us from a technological standpoint,
19:02our ability to project power and deter conflict will erode over time.
19:06All right.
19:07Let's go over here for a question.
19:09Nathan Rosenberg from Insignium.
19:11Hey, Nathan.
19:12Welcome home.
19:13Thank you, sir.
19:14Really great to have you here.
19:15Great to be here.
19:16Yeah.
19:17Great.
19:18First a comment and then a question.
19:19Ben, I would disagree with you.
19:22I think, yes, we've given some things to the Chinese.
19:25Mostly the Chinese have stolen the plans of the F-17, the plans of the F-22 were all taken
19:31out of Lockheed Martin's database.
19:37But with the new, not so new, nine dash lines in the South China Sea, I'd like to ask both
19:44of you, what do you think the chances are of an armed conflict in the next few years,
19:49either the Philippines or Vietnam, or two ships bumping into each other in the night?
19:58So just on the first comment, certainly IP theft has gone on.
20:03It helped China catch up.
20:05But the really scary thing that I think we dismiss about China is they are now becoming
20:08innovation leaders.
20:09They're starting to become first-in-class innovation leaders across drugs, across, of
20:13course, mobile-first applications.
20:15We even have the likes of Amazon now saying they're going to replicate Temu and Xi'an.
20:18They're going to, you know, that's fight fire with fire.
20:22Meta, of course, tried to rip off and failed in ripping off TikTok.
20:27But the Chinese are across the world now starting to build products and are advancing at a pace
20:34that we've never anticipated.
20:36And they're offering products to emerging market consumers at a specification that is
20:41nearly on par with their American counterpart, but without anywhere near the price point.
20:46Even affluent Arabs today are buying a Chinese knockoff Range Rover Defender because it's
20:51$19,000 as opposed to the $80,000 equivalent.
20:55And the problem with America today is we're not building particularly consumer electronics
21:01that can compete with the Chinese.
21:02And so when we go to Africa, the Chinese dominate that market.
21:05And the challenge we have today is we have taken a policy of thinking that by cordoning
21:11Chinese hardware off from American software, somehow that puts them out in the cold.
21:17But the reality is, again, when we threaten to rip the, say, Android operating system
21:20out of Huawei phones or the Google Play Store, those will be now replaced by Chinese equivalents,
21:27albeit inferior.
21:28And so one day consumers in, say, Nigeria won't have the option to choose, say, Uber
21:32or Didi.
21:33It's just the Didi equivalent or the Didi-owned option.
21:36So I think it's critical we fight fire with fire and we think about the global competition,
21:41the next billion consumers, and how we're falling behind there and use that as a motivator
21:45rather than fixating on what's been taken and lost historically.
21:49Thank you, Ben.
21:50All right, let's go over here.
21:51Yes.
21:52Name and affiliation, please.
21:53Hey.
21:54Healy Seifer, Boom Pop.
21:55First of all, thank you for doing this.
21:56Really appreciate it.
21:57Some background.
21:58I grew up in Saudi Arabia.
21:59My parents were in intelligence, and so I care a lot about this topic.
22:01And one of the things that the intelligence community reads, I'm sure you've both read
22:04it, is this book Unrestricted Warfare, these two lieutenant colonels from the Chinese government.
22:09And the punchline is to say, look, we're never going to beat the U.S. in conventional warfare
22:12ever.
22:14So we're going to do two things they won't do.
22:15We're going to undermine their financial institutions, and we're going to try to erode their social
22:19cohesion through social media.
22:21And that terrifies the shit out of me.
22:22I'll just be pretty open about this.
22:24I got two kids.
22:25I think about this a lot.
22:26And so one of the questions I have often, and you probably think about this a lot more,
22:30is there's this asymmetric ability for them to influence our societal fabric.
22:34They can cruise into Facebook, cruise into Snapchat.
22:36They can just do this stuff because we're open where they are very closed in their social
22:40mesh.
22:41How do we detect this?
22:42How do we think about this?
22:44So that's my off base here.
22:45Just kind of curious about that aspect, because I feel like it's influencing things all the
22:49time.
22:50General?
22:51Briefly?
22:52Each of you?
22:53Yeah.
22:54Sure, Jake.
22:55Well, I think the TikTok bill was actually one step in the right direction.
23:00And it's important to know that the bill names TikTok, you know, highlighted TikTok by name,
23:06but it actually applies to any Chinese-owned social media platform that meets a variety
23:11of different criteria.
23:14So I think things are really going in the right direction.
23:17Ultimately, foreign governments have a variety of ways that they can engage in information
23:22operations and, you know, owning a software platform like TikTok is one of them.
23:31But I think, you know, you're putting your finger on a really important point, which
23:35is that the Chinese government exploits our openness as a society against us.
23:40I will say that I debate with myself sometimes how vulnerable we are.
23:44I mean, I think sometimes we overestimate, we underestimate the resilience of our society.
23:52I would argue, you know, that actually the fact that there are 300,000 Chinese students
23:57studying in the U.S. is on the one hand a strength, because a lot of them are very talented
24:02and, you know, contribute great things.
24:05And on the other hand, those that go back to China, you know, after spending four years
24:10on university campuses, they're actually going back to China, hardened Marxists.
24:14So in a way, we're kind of sabotaging them, you know, indirectly.
24:20But look, I think Ben mentioned a point earlier that I think is so important, which is he
24:25quoted Henry Kissinger and said that we're on the foothills of World War III.
24:30And ultimately, in 1938, you know, if you looked at the world in 1938, no debate would
24:38have met.
24:39The only debate that mattered was averting a world war.
24:43There was no conference or, you know, any type of political debate that actually had
24:51a material impact on the world other than avoiding this major global conflagration.
24:58And today, I am really concerned that we are on the foothills of a global conflict with
25:05two hot conflicts, one in the Middle East, one in Europe, and everyone is waiting for
25:10the shoot-or-drop in Asia.
25:13And the only thing that will matter in a few years is will we have navigated this decade
25:19in a way that avoids a world war.
25:21Gentlemen, with the remaining time, I'd like to just ask you kind of a lightning round
25:25question for both of you.
25:27We can just go one after the other.
25:29I would love your 15-second pitch to the next occupant of the White House as to what we
25:35should do vis-a-vis China.
25:36Ben, you can start because you're to my right.
25:39My perspective is we need a thoughtful and aggressive reindustrialization of America
25:44that follows where our strengths lie and follows the industries in which we can still maintain
25:49leadership.
25:50And we have to admit that we've lost some of these sectors.
25:52We're not going to get back everything.
25:55But the reality is that today, America has a huge amount of strengths that China can
26:02never catch up on.
26:03China is actually its own worst enemy.
26:04They're degrading their own capabilities to be innovators in some ways because they force
26:09group think.
26:10They don't allow diversity.
26:11So it's critical that we put our foot on the gas and we think about a grassroots effort
26:15which includes education, improvement around the regulation of technology, improving the
26:21incentives for companies to build back in the United States.
26:24But we have not provided a truly thoughtful post-reindustrialization that reimagines us,
26:29gets kids studying STEM, gets us focused on the next wave of innovation.
26:34And that's why, again, I say put our foot on the gas and less fixation on putting up
26:37walls.
26:38You're 15 seconds.
26:39I actually totally agree with everything you just said.
26:43I think China's biggest strength is they have become the factory floor of the world.
26:50The money that they have to buy ports around the world, to do mega infrastructure projects,
26:56it all comes from the fact that they are running trade surpluses with everyone else.
27:01And so, ultimately, if you address that, you dry up the sources of funding they have
27:06to do everything else, basically.
27:09And if we have a policy of reshoring supply chains outside of China and rebuilding American
27:18strength, I think that's the best policy we can have for the 2020s and 2030s.
27:23Gentlemen, thank you both for being with us.
27:25A round of applause.

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