[FULL TRANSCRIPT BELOW] “They depend more on us than we depend on them … Fundamentally, the rise of China does not really continue from an economic perspective without access to Western markets, Western capital, and Western technology,” says Jonathan Ward. He is a China scholar, founder of the Atlas Organization, and author of “The Decisive Decade: American Grand Strategy for Triumph Over China.”
“It’s not just a military and diplomatic contest. It’s a contest for what sorts of beliefs and possibilities lie ahead of humanity in the 21st century,” Ward says.
What would it take for the United States to out-maneuver and triumph over the Chinese Communist Party? What are the key strategies the United States should deploy when it comes to the economy, diplomacy, the military, and the ideological arena? Why is rebuilding America as an industrial base absolutely critical?
Jan Jekielek: Jonathan Ward, such a pleasure to have you on American Thought Leaders.
Jonathan Ward: Thank you, Jan. Good to be with you.
Mr. Jekielek: I have really, really enjoyed reading your book, The Decisive Decade. Congratulations on a book that is outlining a strategy for how to deal with the Chinese Communist Party. It’s a tall order, and you bring a lot of different pieces of the puzzle together in a way that I haven’t seen before. You talk about ideas as being one of the realms of competition or perhaps even warfare. You use these quotes at the beginning of that ideas chapter. You mentioned Bono actually said that America is one of the greatest ideas in human history. That’s how it’s viewed from the outside. You also said, “Be the America that Hong Kong thinks you are.” What prompted you to use these quotes to lead off that chapter?
Mr. Ward: The book is broken into the classical arenas of Western grand strategy; diplomacy, information, military and economics. Initially, I was going to focus on economics and military, the two most important strategic arenas for this contest. But eventually I thought, “Why not do the whole thing and include the arena of ideas?” That became the most challenging part to write, and in many ways the most exciting part to write.
I set it up with the two quotes. One was from Bono, the Irish singer and leader of the band, U2, which was the first CD I ever owned as a child. He had this beautiful quote that I remember from many years ago. He said, “America is an idea. It is one of the greatest ideas in human history. That’s how we see you in the outside world.” Then, there was something I saw on Twitter during the Hong Kong uprisings in 2019 where it said, “Be the America that Hong Kong thinks you are,” with pictures of students waving the U.S. flag.
Part of that was based on my own background, which is somewhat international. I spent about 11 years overseas with the travels I did learning foreign languages, and the PhD I did at Oxford studying China-India relations. The future of the United States is not just important for us, it’s important for the entire structure and well-being of all humanity. So much depends on the success of this nation, and our example resonates far beyond our own borders. It always has, and it still does.
I chose those two because they’re contemporary, they’re earnest, and we need to see how important this country is to the world. It’s not just for our own destiny, but really for the whole picture. America is the geopolitical bedrock, and the guarantor of human freedom and prosperity. These are things that we had a clearer idea of in the past when we understood what the free world was, and when we understood what American leadership was.
It’s not just an economic contest. It’s not just a military and diplomatic contest. It’s a contest for what kinds of beliefs and possibilities lie ahead for humanity in the 21st century. To me, geopolitics matters. It matters who wins these contests when they arise. In this case, it matters a great deal that the United States and our allies continue to be the main force in economic and military power, and that we continue to lead in the 21st century.
Mr. Jekielek: We find ourselves at a very interesting time in history. You make this case in the book, and you call it the decisive decade. This is the decisive decade in your view. You argue convincingly that figuring out how to deal with the geopolitical threat of the Chinese Communist Party is not just for the benefit of America, but also for the benefit of the free world as we know it.
Some people believe that it’s actually already over, that China has already won, and that their ideological system will be dominant. How do we know that’s not the case? Two, why are you so sure that we can turn it around?
Mr. Ward: I talk about this in my first book, China’s Vision of Victory, which was probably the first book to explain the long-term strategies of the Chinese Communist Party taken from their own documents. For various reasons, I had been spending a lot of time with a primary source prior to writing that. The point is that they have a set of timeframes that to them are both symbolic, but also planning timeframes. They have the symbolic date of 2049 when the great rejuvenation of the Chinese nation will be complete.
They had the symbolic date of 2021, which has now passed, which is the centennial of the Communist Party of China. They see this in a timeframe that goes out to the mid-century, and at that point China will have risen. But for me, in analyzing this and realizing that for the United States to wake up and take action, it really matters that we use the 2020s.
This will be a long term contest. It will most likely stretch out for the foreseeable future, but we have these advantages that we cannot relinquish. That’s one of the most important pieces here. The United States, particularly when it comes to economic power, is actually the role model for the Communist party’s approach to geopolitical power.
They have a bunch of economic strategies that are designed to place themselves at the center of the world economy and to increase the world’s dependence on China, while at the same time reducing their dependency on the world. Ultimately, they want to convert that into military power and diplomatic power, as we’re starting to witness, and to get that going in such a way where they’re an unstoppable force. We’ve been the largest economic power for well over a hundred years. A great deal of our geopolitical history is defined by having this preeminent position in the world economy.
When I was writing the first book, I had to continuously revise upwards the GDP that the People’s Republic of China had in relation to the U.S., because it kept growing every year as I was writing the book. Today they’re at about 80 percent of our gross domestic product. We have to take this moment, particularly now in the 2020s, to ensure that we’re the largest economy in the world, and that we have real economic strategies that will ensure and guarantee it for the long-term future. We also need to rebuild peace through strength, which is dependent on economic power.
That’s how we’ve been able to win wars in the past when we have been forced to fight them, and to maintain peace when we were able to do so, which is our preference. We need to have the diplomatic structure of the world be one that is heavily in favor of the U.S., our allies, and the other democracies in the world. It should be one that’s essentially not going to be overcome by Russia and China at this point. There is an axis here of authoritarian states.
We have all these advantages today, but we’re losing them. We’re watching our position in the world economy be challenged in meaningful ways across strategic industries, critical technologies, and global markets. Our position is not guaranteed unless we have real strategies to back it up.
In the 2020s, if we’re able to cement our most important positions, if we’re able to utilize what’s coming in economic history, which is industry 4.0, which will create new productivity and industries that could be a major boon for the U.S. and the alliance system, if we’re able to do all that in this decade, get that started, and get a real grand strategy in motion, we will be in a much better position for as long as this contest goes on. We have to take the moment that we have now.
Mr. Jekielek: One of the things that you talk about from different angles is how the Chinese economy is structured. You describe it as an investment economy based on U.S. capital markets. You also talk about how a lot of their economic growth is not necessarily productive. Let’s try to understand that. This is something that you’ve taken a very close look at. They have 80 percent of the U.S. GDP, yet they are incredibly dependent on the U.S. to this day. How does that work?
Mr. Ward: They are dependent on a lot on exports and government investment. They have been trying to create a consumer sector and have it be consumption-led. To date, that has not gone as well as they would have liked. There are still possibilities for them, but they are losing the ability to create productive, investment-driven growth. That is going to be very critical, because as the debt overhang becomes more important, and as that begins to harmonize with demographic issues, it’s going to be their ability to interact with the global economy that allows them to continue to grow and continue to have advantages in the international system. They’re focused on strategic industries, and that’s one of the key drivers.
They have industrial policies that we are all acquainted with at this point. “Made in China 2025,” is the most famous one. It identifies about 10 strategic industries that are targeted for investment and also intellectual property theft. They can build state-owned or state-backed super companies that can go out into global markets and compete with our own companies, with enormous amounts of capital resources behind them. There is that side of it.
Then, there is their ability to generally interact with the global financial system. The rise of China is really the story of U.S. engagement and access to our markets. We are still the world’s largest economy. We’ve been the largest demand center in many cases. Our demand for imports from abroad created an export sector in the People’s Republic of China that could help drive and fuel their growth, and then, have access to our capital. They were invited in to become part of a working global financial system in all the important ways, including technology transfer.
The classic deal during the last couple decades of the rise of China, especially in the early two thousands, was a technology transfer for market access and joint ventures, where very advanced technologies would wind up in the hands of Chinese state-owned or state-backed companies, and essentially allow this massive technological advancement across the board that we did very little to control.
We’re just starting to see not only the U.S., but also allies get into the business of restricting exports. This really began in the last five years. Outside of purely military sectors, we’ve started to look at the broader civilian economy. From the Communist Party perspective, the civilian and military economies are quite linked. The civil-military fusion expresses their ambition to bring civilian industrial innovation into the military sector and basically to pull it all together, so that they have comprehensive national power and are able to compete with us in terms of military modernization, key strategic industries, and emerging technologies.
For us to be able to push back on all that, realizing that they depend more on us than we depend on them is a realization we have to make. Certain sectors and certain companies are overexposed to China. Good corporate decision making and de-risking will help us to reduce that kind of exposure. Government certainly has a role to play in that as well.
Fundamentally, the rise of China does not really continue from an economic perspective without access to Western markets, Western capital and Western technology. It’s not only us, it’s also the alliance system. Take NATO alone and that’s half of global GDP. Take the world’s democracies and that’s over 60 percent. When you get into global wealth, we’re at about 75 percent of all of that. We’re still the bulk of world GDP as an alliance system.
If we were able to establish best practices on market access, on capital investment, and on technology transfer across the entire alliance system, we would slow down their game very much and very quickly. If we’re doing that in the 2020s, we’re going to be competing against a state that’s not continually rising and innovating and becoming more capable, but one that’s starting to stagnate. We can create a geopolitical contest where we can accelerate, gain new advantages, out-compete them in the long run, and eventually begin to win the entire picture. A lot of this is resolved in the economic domain, and that’s where we need to focus the most. It’s also where we lack real strategies and real theories of victory.
Mr. Jekielek: You state your very clear understanding that economics is the key area of actual warfare, even as much as there is the military dimension. Economic strength will guarantee military strength.
Mr. Ward: It’s both. You need to get both of those two pieces right—a good sound economic strategy of victory, coupled with a military strategy for real deterrence. You have to get deterrence right if you’re going to have economic containment. There are two pillars. One is economic containment of the People’s Republic of China, and the other is rebuilding and re-industrializing the United States and the alliance system.
We need to focus on ourselves, make ourselves stronger, and at the same time we have to slow down the adversary. As I say in the book, it doesn’t help if you’re driving your car faster, but the adversary is sitting in the seat next to you. It doesn’t really matter how much faster you drive. We have to do both. We have to start kicking them out of the car a little bit, and at the same time focus on the accelerants that we can get through what’s going to be a very exciting period in economic history.
If we do this as a joined economy, which Elon Musk calls conjoined twins, then our gains are their gains. Our advantages become their advantages. Their advantages, which are used for their strategic power, can really have a far greater effect. We have to utilize the fact that we are poised to do some exciting things in economic history. We have to go there without bringing the adversary along with us, and that is going to require certain containment measures. There are precedents for all of this. Throughout the Cold War and the second World War, and even before that, there was a pretty large policy toolkit. But we have to have some clarity of vision on what to do.
Mr. Jekielek: It’s hard to imagine when you consider the level of integration that the Chinese regime has had into the global economy, even just investment dollars that are going there automatically. It’s hard to imagine how to extricate oneself out of that. You frame it this way; the U.S. multinationals vs. the Chinese state enterprises.
The Chinese state enterprises are clearly following the directions of the Chinese Communist Party, and ultimately, Xi Jinping. The U.S. multinationals have their own agendas, have their own interests, and some of those don’t necessarily align with the American idea as you describe it. In some cases, they don’t care about that anymore. How do we deal with this?
Mr. Ward: In many ways, this is the nature of the game at this stage. The important thing here is to work through those problem sets and begin to restructure the global economy so it depends far less on the People’s Republic of China, for as long as the Communist Party is in power. That’s really what we have to win in the 10 to15 year period ahead of us. We need to maintain deterrence and start to restructure the economy.
We have to work through this sector by sector, company by company, technology by technology, market by market, and start to come up with a world in which we are outpacing them across the board. That can be done. One of the big subjects of the book is the role of major companies in U.S.- China competition, because at the end of the day, economic power is built by business and commerce.
Fundamentally, that’s really what it is. Especially with our own history, this is one of the things that I found most exciting to study as I was writing this book. The role of our companies in prior strategic competitions has been very, very powerful. There was a wonderful book written by Arthur Herman called, Freedom’s Forge, about how American business won World War II. It presents a very strong case for how it was a sleeping giant that woke up, and had so much industrial power and capability.
But it’s also American companies that provided that capability. Once mobilized towards an undertaking of that scale, they were able to do that and help the U.S. decisively win the second World War. In the Cold War, of course, we had these amazing technological advantages that were produced by our innovation ecosystem. Our innovation ecosystem absolutely included our ability to commercialize science and technology and use our massive market to create innovation.
We have had this amazing economic advantage in geopolitical contests in the past. Our companies today are going to be just as important, if not even more important to this contest. They just don’t know it yet. That’s going to be one of the big adjustments that we will just make naturally on some level. It’s just an obvious response, and it’s a necessary response. Ultimately, we need America’s economic engines to be aligned to U.S. national security, and at the very least not to be against it.
H.R. McMaster wrote the foreword to my book, and addressed it to the business leaders of the free world. He laid out several things that you just don’t want to do. Don’t be involved in human rights abuses. Don’t be involved in civil-military fusion. Don’t be involved in Beijing’s strategies that are designed for overtaking the United States.
Part of why this is such a clear picture today is not simply the analogy of the second World War or the Cold War. It’s because China’s companies are very directly aligned to the Communist Party of China. They use their companies directly in the service of their national interests and national strategies. They have verbatim guidelines that I laid out in the book. All the big mega-mergers that they’re doing in strategic sectors are essentially state-backed, state-owned, or state-influenced corporations. They use corporations as the fundamental instruments of their grand strategies.
They essentially have economic armed forces, and we have not yet even figured out the rules of engagement here. That’s going to put us on the back foot for as long as it takes for us to realize how important business leaders, financial leaders, strategic industries, and critical technologies are to winning this game. It is a victory that can be had, but it comes through economic competition, and also utilizing that to create the foundations for long-term deterrence.
Mr. Jekielek: You say that many companies are effectively held hostage in China. That’s accurate because extricating themself would just be too much and too difficult. I saw something from Volkswagen in Europe who said, “We’re totally dependent on China.” The idea being, “Don’t talk to us about de-risking or decoupling.” But that’s what containment is, correct?
Mr. Ward: Yes, it’s going to be different sector by sector, and company by company. A lot of this has to be resolved by corporate strategy. The question to ask is, “How do you fundamentally de-risk or reduce exposure for any given corporate entity?” They all have slightly different profiles in the China market. Some of it is revenue exposure, some of it is asset exposure, and some of it is brand exposure, those sorts of reputational risks. Everyone has a slightly different profile, but it basically tracks the same set of parameters.
On one hand, it’s about the government setting guardrails in terms of what can be done. There are already initiatives that are being put into place. It’s also going to be corporate decision-making at a board and C-suite level starting to realize that this may not be the market we thought it would be in the long run. Maybe some of this geopolitical risk means that our investment decisions or supply chain decisions are not as sound as we might have believed five or ten years ago.
We’re going to need an alignment. That’s what I’d like to see. We need to have people working consensually to make these decisions, and not to imitate China’s system where it’s run by the state. We don’t want that. We want free market capitalism to win this contest. But we are going to need some level of a reality check in boardrooms and C-suites where it understands where this competition is ultimately going.
They need to also realize that the decisions they’re making as business leaders in dealing with the People’s Republic of China do have an effect on geopolitics. The more capital and technology that we’re transferring over there, and the more we’re basing supply chains over there puts us at risk as a country. We’re accruing all the systemic level risk as a country, because of how we’ve engaged with China economically.
At the end of the day, fiduciary responsibility is about long-term preservation of capital and preservation of business interests. In the long run, those business interests are going to be highly at risk in the People’s Republic of China. It’s just not a sound picture. That’s starting to change in the minds of corporate leaders when they have seen things like the crackdowns in Hong Kong, and certainly Vladimir Putin’s invasion of Ukraine. All of that started to bring geopolitics in the boardroom. But the levels of exposure to China can often be so mind boggling for individual companies or sectors that they don’t know what to do.
We have to start working through that together, figuring out how to do it, finding new markets to diversify to, finding new supply chains that are more secure, and finding new investment opportunities that come from the United States. By rebuilding our industrial base and securing our own supply chains, all of that will present opportunities.
Mr. Jekielek: With all the talk of decoupling during the pandemic, the CCP actually threatened the medical precursor supply chain. That’s a very obvious area of significant risk. From what I understand, big pharma has been fighting tooth and nail to prevent that from happening. There hasn’t been a lot that’s been re-shored at this time, or friend-shored as they call it. You even say in the book that essentially there hasn’t really been any decoupling. In fact, there’s been even more integration since that time.
We’ve seen a lot of risk and that is on people’s minds. We’ve seen these extreme draconian lockdown policies they had. We know the U.S. understands there’s a genocide happening in Xinjiang, with all sorts of crimes against humanity happening. All of this is the reality, yet we’re still deep in there. Aside from reading your book, what would it take?
Mr. Ward: The United States tends to react to major issues based either on events or on foresight. There are often people that can tell you what’s going to happen. There are people that could predict Pearl Harbor and 9/11. Something happens and we react in a massive way as a country. There are events at this point that people are aware of. The possibility of a CCP attack on Taiwan or another flashpoint in the region is now being much more closely watched and followed than it was in the past.
But it’s much better if we’re able to do this based on a sound sense of where we’re going, and what it takes to actually reposition ourselves in a way that will be sustainable. To recognize that, we basically have to realize that economic engagement has not brought the world what we thought it would, and that it actually created much more risk and a much more disadvantageous strategic position for the United States.
You’ve mentioned the pandemic or post-pandemic. That was another level of supply chain examination, certainly in the corporate sector. The trade war back in 2018 and 2019 really brought supply chains to the boardroom in a meaningful way. The pandemic brought another wave of that thinking. How can we really secure this?
The example which I use in the book was when the China Daily, the most official newspaper in the People’s Republic of China, threatened to toss America into the inferno of pneumonia, if we ever withheld pharmaceutical ingredients. That was eventually brought up in Congress and is available in the Federal Register. That’s how serious that moment was, hearing those kinds of threats. The current White House has listed pharmaceuticals as one of the four supply chains that need to be secured.
These are problems that we understand are on the table. It’s going to take more strategic imagination, and more of a comprehensive approach to start to look at the entire picture. We have more of a general industrial-based problem than simply critical industries and emerging technologies. We need to have an allied industrial base that works, and that goes all the way into third and fourth-tier supply chains, parts, and components.
That tends to be a big bottleneck for people that are rethinking this issue. But at the same time, there’s an enormous amount of investment that can be done. There are other nations that will work for these sorts of things over time. It’s going to require sustained focus at a national and government level, but also at a corporate, long-term strategic thinking level.
The other element of this is asset owners, so really, it’s three parts. It’s our government when it comes to the economic decisions at hand. It is government, corporate leaders, and asset owners, meaning Wall Street and those that actually are invested in these companies. Typically, a lot of that is major pension funds or 401(k)s that are exposed to assets. When people realize that China exposure is very risky and dangerous and certainly in many cases dangerous to the U.S., to our allies, and to our geopolitical future, then we can start to form a consensus that will allow us to figure out the right decision points and start to do things. That’s where we need to go.
Mr. Jekielek: One of your key elements on the economic side is to industrialize America. You haven’t been allowed to talk about industrial policy in this town for the longest time. It’s almost like a bad word or something. But you’re actually arguing for industrial policy, aren’t you?
Mr. Ward: That concept has changed a bit. Certainly in the last 12 to 18 months, it’s getting a different read. The CHIPS and Science Act was something that was supported by many, many business leaders and financial leaders to a certain extent. That is just one element and just one sector in what’s actually a much broader set of industries, that we’re going to need to supplement that through U.S. investment for the sake of long-term economic and security interests.
The problem set is pretty clear. When one realizes the vulnerabilities of that particular supply chain, it’s going to need to be redesigned. As we can see, that’s a public-private partnership. During Covid, Operation Warp Speed was a public-private partnership.
The way I see it is that throughout most of our history our innovation and our economic prosperity has been more complicated than that. We have a thriving, innovative private sector, and that is what our power is about. At the same time, our government research and development, science and technology, and our national laboratories are major achievements, including the space race. With the iPhone, many of its technological antecedents were designed or imagined by DARPA [Defense Advanced Research Projects Agency]. We actually have a very collaborative system that does utilize some of the long-term strategic thinking of the government. It can’t be left entirely to how the private sector’s incentive structure is designed.
Somewhere in here we need to be capable of long-term strategic thinking that’s for the sake of the national interest and which includes economic power. At the same time, we can draw upon and really empower a thriving private sector, where there’s an enormous amount of innovation and research and development of its own. That is the sort of system that won the Cold War.
It’s the system that will prevail in this contest too, but only if we’re able to successfully bifurcate to the point that we don’t simply become the innovation arm of the Chinese economy, where they can mass produce it, sell it back to us, sell it to the global markets, and then, put us out of business. That’s really what we need to be concerned about in the long run. They have a clear strategy for winning an economic competition, and a lot of it actually does rely on engagement with the United States.
Mr. Jekielek: As a society, if we are behind the American idea, you argue that in order for this to work, then public-private partnership and this common purpose makes sense. You were alluding to there needing to be a tipping point like Pearl Harbor, where suddenly people think, “Oh, we need to do something.” That’s a broader societal understanding around a common goal, as opposed to this bifurcation.
At the moment, there’s a bifurcation of ideas even. Because public-private partnership can also be a force for bad, as it was in Germany and in Italy in the 1930s. I love your focus on needing to connect around the American idea once again, and how it is viewed from the outside. Because some of us have almost forgotten about what it is supposed to be.
Mr. Ward: Sure. I’m hoping we don’t need a Pearl Harbor. I wrote The Decisive Decade and China’s Vision of Victory, hopefully ahead of any real catastrophe, so that we’re able to think and act and make long-term strategies.
Mr. Jekielek: Just to be clear by Pearl Harbor, I mean a tipping point that suddenly catalyzes people to realize, “Oh, we actually do have this shared purpose. There is something terrible happening over there that we need to deal with.”
Mr. Ward: Sure, we need to realize that we’re in this contest. A lot of the 21st century will depend on this, and the United States is the principal actor. We’re going to have to lead the response to the People’s Republic of China. The American idea is still such a compelling thought. The American Dream and everything it stands for is intimately linked with the free world. These are values that free countries across the world can really relate to and can come together around.
The United States has to find a working sense of self in the 21st century that allows us to deal with very hard things that are outside of our borders and on which the outcome for us and for the broader world very much depends on our ability to handle things of that scale.
Being able to come together around this issue is so far a unifying issue. You see that in Congress with the establishment of the House Select Committee on China. There are leaders from both parties coming together, and working in a very collaborative and professional way on this issue. That’s a rare moment in the United States. The fact that this is so comprehensive and involves every aspect of American and allied power, means that we are going to have to have a national consensus on this issue.
Hopefully, we’ll move out of the discussion and the mired in the problem phase and get into the action phase. That’s certainly why I wrote the new book, to show us that when we’re ready to deal with this comprehensive challenge posed by the People’s Republic of China, this is the direction we want to go in.
We have to succeed in these arenas. We have to basically get these things done. That’s how we will preserve our advantages, hold our position, and ultimately position ourselves to overcome this challenge. We are still in a very early stage of America awakening to this issue. Certainly, across the alliance system, many other countries are going to have to awaken to this as well. There are different levels of that in different regions of the world.
In Asia, there is a much keener sense of what the problem is than we might see if we were in Europe. But American leadership is going to be very important in bringing our global alliance system together, which includes very diverse allies from Europe to Asia, to have a shared sense of how we’re going to handle this, and also to utilize the resources of the global alliance system to manage this problem.
Mr. Jekielek: Before I go into the diplomacy piece,