Ray Wang is a Washington-based analyst formerly based in Taipei and Seoul. He focuses on U.S.-China economic and technological statecraft, Chinese foreign policy, and the semiconductor and AI industry in China, South Korea, and Taiwan. You can read more of his writing on his Substack: SemiPractice or @raywang2.
Key Takeaways
Nvidia’s H20 GPU with HBM3 had become the most sought-after accelerator in China amid rapidly increasing inference and computing demand. Prior to the new restrictions, shipments were projected to reach 1.4 million units in 2025.
CXMT is now only 3-4 years behind global leaders in high-bandwidth memory (HBM) development, aiming to produce HBM3 in 2026 and HBM3E in 2027 amid notable technological improvements in DRAM.
CXMT still faces major roadblocks — these include U.S. export controls on lithography and other equipment, a volatile geopolitical environment, limited access to global markets, and the uncertain pace of technological development against market leaders.
Greater Demand for HBM and Nvidia’s H20
In December 2024, the U.S. released new export control packages targeting Chinese access to high-bandwidth memory, or HBM, and various types of semiconductor manufacturing equipment, including tools essential for HBM manufacturing and packing. The new rule also added over 140 Chinese chip manufacturers and chip toolmakers to the Commerce Department’s Entity List.
The new rule was designed to further constrain China’s AI development by leveraging the chokepoint on HBM, ultimately controlled by three companies around the world — SK Hynix, Samsung, and Micron. The restriction around SMEs, on the other hand, aims to limit China’s ability to develop its own HBM.
HBM powers almost all of the AI accelerators that train large language models. It has become even more important since the rise of reasoning models and inference training, where memory bandwidth and capacity play a vital role.
The Chinese AI accelerators are no exception when it comes to reliance on HBM. For example, Huawei’s latest AI accelerators, the Ascend 910B and upcoming 910C GPUs, are mainly equipped with 4 and 8 HBM2E, respectively, mostly sourced from Samsung before the December 2024 restriction went into affect, with some sourced after the restriction. Similarly, other Chinese GPU makers such as Biren, Enflame, and VastaiTech are likely using HBM2 and HBM2E from either SK Hynix or Samsung. Biren’s BR100 GPUs that launched in 2022 incorporate 4 HBM2E, and Enflame’s DTU released in late 2021 uses 2 HBM2.
Amid the rapid development of advanced reasoning models in China — including DeepSeek R1, Alibaba’s QwQ-32B, Baidu’s Ernie X1, Tencent’s Hunyuan T1, and ByteDance’s Doubao 1.5 — China’s demand for inference training and overall compute has been accelerating. This trend began as early as late January, and in turn is driving demand in the Chinese market for accessible GPUs with the most advanced HBM, namely the Nvidia H20.
The H20 was by far the most advanced and accessible foreign GPU available to the Chinese market. While Huawei’s Ascend 910B — the domestic alternative — offers performance roughly on par with the Nvidia A100, it delivers only about 40% of the H20’s performance in a cluster configuration. Its latest GPU Ascend 910C, is competitive in both computational and memory performance. While 910C’s scale of adoption in China’s AI industry remains unclear, it is gaining more attention. Beyond raw metrics, Chinese firms continue to prefer Nvidia hardware for now due to their engineers’ deep familiarity with its mature and widely adopted software ecosystem, as well as its superior reliability and efficiency in large-scale cluster environments backed by reliable supply chain partners.
While the performance of the H20 is about 6.7 times less powerful compared to Nvidia’s flagship H100 in terms of computational performance, it does provide larger memory bandwidth and capacity. Thus, the H20 was preferred for inference training over the H100, a key factor driving its demand in China.
Multiple media sources have recently reported the rising demand for Nvidia’s H20, and several supply chain checks by the author confirmed this trend as early as the beginning of February. That marks a shift from my earlier supply chain check based on data from mid-January, which suggested a significant decline for H20 orders likely due to concern over a potential ban on the H20. We should also not rule out the possibility that the fast-increasing demand for H20 was driven by the looming concerns of H20 restrictions since as early as the late Biden administration.
According my calculation in early March through downstream supply chain checks (advanced packaging and chip testing), Nvidia was on pace to ship roughly 1.4 million H20s in 2025. China could have obtained about 600,000 H20s by June based on a separate calculation by the author. Notably, since the H20 started shipping in Q2 2024, China has obtained more than 1 million units.
The rising demand for inference and computing power also aligns with the projected annual spending of China’s top cloud service providers. Companies like Tencent, Baidu, and Alibaba are expected to spend a combined $31.98 billion in 2025—a nearly 40% increase from 2024.
Nonetheless, the H20 was officially banned effective last week. According to Nvidia’s recent 8-K filing to the SEC, the company states that the U.S. government has informed the company that selling the H20 — or any chip matching its memory bandwidth, interconnect bandwidth, or both — requires a license. In other words, Nvidia will not be able to sell H20 or any more powerful GPUs to China as it is unlikely to obtain a license for the Chinese market.
Chinese Memory Advancements
The surge of demand for Nvidia’s H20, the critical role of HBM, and the growing emphasis on both reasoning models and inference training all ultimately point to HBM’s strategic importance to China’s AI sector.
Certainly, the Chinese government and industry are well aware of the importance of HBM in the midst of an increasingly unfavorable regulatory and geopolitical environment around computing resources and associated AI hardware. For China, there is a strategic urgency and necessity to develop its indigenous HBM to shake off the existing restrictions from the United States and enhance their capability for developing AI.
Knowing HBM’s strategic role in China’s AI ambitions amid escalating U.S.-China tech competition, it is essential to map China’s HBM development as precisely as current data allows.
My best guess is China’s HBM development trails market leaders by roughly only four years amid increasing export controls — a narrower gap than previously estimated or widely expected, despite ongoing challenges and uncertainties.
In the second half of 2024, reports indicated that CXMT — China’s leading DRAM and memory maker — has begun mass production of HBM2, placing it roughly three generations behind market leaders, which have been supplying HBM3E 8hi and 12hi (the most cutting-edge HBM in the market to date) to leading AI chip vendors such as Nvidia, AMD, Google, and AWS since 2024. My retrospective analysis of the HBM roadmaps of these four companies in December suggested that CXMT lags behind the market leaders by approximately six to eight years, with various challenges to overcome.
A six-to-eight-year lead — a rather reassuring gap for policymakers in Washington and industry leaders in this space — may no longer hold true given the fast-evolving industry developments.
The latest sources suggest Chinese memory makers have improved their HBM technology faster than previously projected. As of today, CXMT is reportedly working on HBM3 and planning for mass production in the following year. This narrows the gap between CXMT and HBM leaders to about four years. Moreover, the firm also plans to announce HBM3E and push for mass production in 2027, according to Seoul-based Hyundai Motor Securities. If true, the gap will be three years instead of four.
At SEMICON China 2025, held from March 26 to March 28, over 1,400 domestic and international semiconductor firms gathered alongside senior Chinese government officials. There, much of the media spotlight focused on Chinese advancements in lithography and other semiconductor manufacturing equipment (SME) like the SiCarrier.
What was not covered, however, was Chinese memory advancement. Analysts attending the event expect rapid advancement in HBM through 2025, noting that HBM3E is the primary target specification for domestic HBM firms. While this does not indicate that China is on the verge of successfully developing HBM3E, the fact that domestic firms are actively developing around this specification implies meaningful progress in Chinese HBM technologies. At a minimum, it signals that China’s memory industry is working on the most cutting-edge HBM — a development that aligns with the note earlier.
If CXMT manages to bring HBM3E to market by 2025 — or even 2026, which the author views as unlikely — it would mark a major milestone in China’s push for semiconductor self-sufficiency and send shockwaves through both the global memory industry and policy circles. This scenario, however, is not entirely out of reach. SemiAnalysisprojected in January 2024 that “CXMT’s HBM3E for AI applications could begin shipping by mid-2025.”
If CXMT rolls out less advanced HBM3 late in 2025 or 2026, even that would be surprising to many given the pace of progress thus far. It is important to remember that, unlike its legacy memory competitors, CXMT has only been established for 9 years, and its HBM2 only entered mass production last year. Not to mention the fact that the firm has been impacted by a series of export controls for several years.
From a technical standpoint, CXMT appears increasingly capable of producing the DRAM die for both HBM2E and HBM3, building on its progress in DRAM. The company is currently able to manufacture DRAM at the D1y and D1z (17 nm - 13 nm) node — technologies that are used in these two generations of HBM. Another leading technology consultancy, TechInsights, confirmed in its January analysis that CXMT is capable of manufacturing DDR5 at the D1z node (approximately 16nm). The density of CXMT’s DDR5 is comparable to that of leading global competitors in 2021 — Micron, Samsung, and SK Hynix — though the chip exhibits a larger die size and an unverified yield rate.
CXMT’s R&D team is likely developing sub-15 nm DRAM nodes, specifically the D1α and D1β (14–13nm), which are essential DRAM nodes for HBM3E. Although CXMT will likely face major challenges in developing D1α nodes without Extreme Ultraviolet Lithography (EUV), it is not impossible to develop D1α DRAM nodes without EUV. In 2021, Micron debuted its D1α DRAM without the use of EUV, paving a potential track for CXMT to duplicate.
Taken together, the author believes the more realistic assessment is that CXMT is currently developing HBM3 with the expectation for mass production to begin in the first half of 2026. For HBM3E, it remains too early for now to make a decisive call given its progress in DRAM and limited information on this specification.
It is worth noting that if CXMT develops HBM3 or HBM3E, careful evaluation of its overall performance and compatibility with large language model training will be essential. Past experience shows that not all HBMs within the same generation are created equal. Samsung’s HBM3E 8hi and 12hi have struggled to pass Nvidia’s qualification test as a supplier for its high-end GPUs over the past two years.
One might ask why CXMT isn’t pursuing HBM2E, which appears to be the logical next step on its technology roadmap. The likely reason is market timing: most domestic GPUs are already equipped with HBM2E, meaning limited commercial opportunity would remain by the time CXMT’s version reaches mass production.
Given Nvidia sold over one million H20 chips with HBM3 (or reported “H20E” with HBM3E) to Chinese AI firms before the ban, Chinese GPU firms must continue to compete against Nvidia’s product in the short and medium term. As such, it makes strong business sense for CXMT to prioritize advanced memory technologies like HBM3 and HBM3E, supplying domestic GPUs with more competitive HBM.
Strategically, staying competitive in the fast-moving AI chip space requires CXMT to pursue a leapfrogging strategy — aligning its products with the memory demands of domestic GPUs and ASICs to secure both domestic relevance and potential global competitiveness. For example, Huawei’s Ascend 910C — and future iterations — will almost certainly seek to upgrade from the 910B’s HBM2E to HBM3 or HBM3E, improving its memory performance and overall competitiveness.
The Multi-Dimensional Challenges
To be sure, there are multi-front challenges awaiting CXMT and other Chinese memory firms despite the improvement.
First, the restrictions around semiconductor manufacturing equipment will continue to hinder CXMT’s development. Although CXMT stockpiled enough semiconductor manufacturing equipment for HBM and DRAM production — likely sufficient to sustain operations through 2026 or 2027 — both existing export controls will still limit its ability to develop and scale advanced DRAM and HBM production in the coming years. For example, the December export controls restricted equipment critical to HBM manufacturing and packaging processes — including tools for through-silicon via (TSV), etching, and related steps.On top of that, the maintenance personnel from U.S. semiconductor equipment firms embedded at CXMT have been instructed to leave the company amid the tightening restrictions, affecting its development in DRAM and HBM.
Second, while the author outlines a potential path for CXMT to advance below the 15nm node without EUV, it is likely that adopting EUV will become inevitable for the development of cutting-edge DRAM and HBM, which is the case for other memory giants. Without EUV, CXMT could face challenges similar to those encountered by SMIC in recent years, in a way that struggles to improve yield, die size, and scale production. This choke point could continue to be the key roadblock for CXMT’s pursuit of cutting-edge DRAM and HBM.
Third, CXMT’s access to the global HBM market will likely remain limited for at least the next few years, capping its role in the global AI hardware supply chain. With a multi-year technology gap, its HBM offerings are unlikely to be adopted outside China, where buyers have access to more advanced alternatives. Moreover, ongoing U.S.-China tensions and existing and potential restrictions will deter foreign firms from adopting CXMT’s HBM for their AI accelerators, even if its products become technically competitive, due to fears of geopolitical fallout.
That said, if CXMT manages stable, scaled production of low to mid-end HBM at highly competitive prices, it could at minimum press the gross margin for other HBM players in the global market and secure some market share.
Fourth, the Entity List will limit firms’ commercial activities. Since 2020, the U.S. government has placed 768 Chinese entities on the Entity List, including industry major players such as Huawei and Chinese NAND leader YMTC. While CXMT is still notably unlisted, the author understands that there has been constant discussion in Washington about adding CXMT to the Entity List since January, posing a major risk for CXMT in the coming months and years.
Together, these hurdles could reshape the gap between CXMT and industry leaders in the years ahead. Still, if CXMT maintains its current momentum, its technological progress could further narrow the gap with leading players in the HBM market.
Lastly, it is uncertain whether CXMT can keep pace with industry leaders by consistently refreshing its product lineup generation after generation. Companies like SK Hynix are moving aggressively, launching HBM4 this year and planning HBM4E, which aims to fulfill the need of Nvidia’s rapidly evolving product line. Can CXMT keep up amid the current technological gaps and challenges? I will leave that question open for debate.
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*The author would like to express sincere appreciation to those who provided valuable feedback on this piece, including Lennart Heim (RAND), Sravan Kundojjala (SemiAnalysis), Kyle Chan (Princeton University), and Sihao Huang (Oxford University).
*Acknowledged Limitation: This article does not delve into several critical processes in HBM manufacturing and packaging, such as through-silicon via (TSV), bonding, and related steps, which the author acknowledges should be included in the discussion of China’s HBM development. That said, the author believes these areas may present fewer technological hurdles for Chinese firms compared to the more complex challenges discussed in this analysis.
The author also acknowledges the inherent difficulty of projecting China’s HBM trajectory, given the dual constraints of limited public data and the rapid, often opaque nature of technological advancement within China’s semiconductor ecosystem. In recent private discussions with Korean analysts covering the memory sector, we echoed shared concerns over this persistent information asymmetry and the limited transparency — factors that inevitably affect the precision of any external assessment.
That said, this analysis is formulated based on both credible public sources and private insights, benchmarked against known technical progress and industry developments. While not exhaustive, it provides a meaningful perspective on China’s evolving position in advanced memory technologies and the broader implications for global semiconductor dynamics.
Does America still have what it takes to stand up to China? Does short-term military readiness trade off with long-term strategy? What does the US need to do today to stay competitive for the rest of the century?
‘’ is the author of Breaking Beijing, a Substack examining the military dimensions of US-China competition. Tony’s Substack goes deep on subjects you didn’t know you needed to understand, like Arctic policy, and takes a refreshing step back to look at great power competition holistically. Tony wrote Ex Supra, a sci-fi thriller about a near-future US-China war.
We discuss…
What it will take to win the 21st century, and what America needs to prioritize in the short, medium, and long term,
Why investing in education, basic science research, and foreign aid pay dividends in military readiness,
Why Washington is short on coherent China strategy,
Taiwan’s impact on global nonproliferation efforts,
How AI could change warfare, even if AGI can’t be considered a “wonder weapon.”
Jordan Schneider: Tony, why don’t you share as much autobiographical information as you feel comfortable?
Tony Stark: Tony Stark is the nom de plume that I’ve used for years. I’m a China policy guy by both research and practice, with some background in tech research. I served in the US Army infantry, formerly active duty. I worked on Capitol Hill and in OSD, and now I’m in the private sector trying to help the US win the 21st century.
Jordan Schneider: Let's talk about the endgame for U.S.-China relations — you called it Plan Noble. When people talk about the endgame for U.S.-China relations, what should they actually be talking about?
Tony Stark: What they should be talking about is how to make the world unsafe for the Chinese Communist Party while making the world safer for Americans and Western-style democratic order. That is the ultimate endgame. Anything else where you talk about trying to depose the regime, or regional areas of control between democratic and authoritarian powers, doesn't actually solve anything, and it doesn't put you in an advantageous position. You're either ceding too much ground, or it's overreach. The goal is to make the Chinese Communist Party feel unsafe to follow their policy goals out in the world beyond their shores.
Jordan Schneider: Can you talk me through your decade-by-decade framework for the competition?
Tony Stark: 2025 to 2030 is your rough near term. That's your immediate threat. That's where the investments that you've already made or perhaps chosen not to make are directly impacting your ability to operate from a military standpoint in peacetime or wartime.
What you're trying to do now is focus on investments that you can produce and get off the production line in the next one, two, three years. You're focusing on maximizing that production, showing steady state investment to industry, both in terms of workforce and production. You're starting to invest in things that are attritable, because if you're only investing in exquisite systems, you are not really able to plan for a longer fight in the event that you get into one.
There are things that you have to do to ensure that we're still competing in the 2030s. This means prioritization to ensure deterrence in and around Taiwan. It means starting to build relationships throughout Southeast Asia, so if there are other contingencies you have to worry about, you could start laying the groundwork there.
Additionally, what are the basic R&D investments that you have to start to do from an AI side, quantum, synthetic biology? It starts today. The discussion in China policy over the last five to ten years has been, “We should have done this ten years ago. We disinvested of all these things in the 1980s and 1990s, and this is where it got us.” Now you can think about that from a forward-looking perspective — what do we need to keep and buy today such that in 2040 we’ll be saying, “Thank God we invested in that”? Now is really your last opportunity. You have to do it now.
Beyond 2030, that's when you start to see payoffs from large-scale industrial investment, education investment. Investments you start today start to pay off. 2030 to 2040, the big one is AUKUS. You're looking at smarter machines. You're looking at new weapons systems that are coming online that might be in initial rate production today, and you're looking at all of the new doctrine coming out across the forces that is actually getting their reps and sets internally for training and now being able to be demonstrated.
People usually use the 1980s example of the Abrams, various fighter jets, etc., that, between that and the combination of new doctrine through the ‘80s of air-land battle that culminated in the Gulf War, that's what we're trying to pursue for the 2030s. You’re getting to that point where not only have you managed to stave off destruction today, but you are also prepared for a higher-end fight with an even more capable People’s Liberation Army in the 2030s.
In the 2040s, your early R&D bets start to see payoffs. Consider this as buying in on a company that has maybe five employees and then might expand out to a real-sized corporation by then. You’re doing the government investment equivalent of that for any sort of R&D project or force design. Quantum and many of the positive sides of synthetic biology are likely in that late 2030s, 2040 category.
Through 2040, you have to give yourself the maximum wiggle room to account for external events, changes in budget, etc., while still having this guiding principle of what we are doing is to keep the CCP contained, to make the world unsafe for their operations abroad. That gets us to mid-century.
Jordan Schneider: In order to make sure we don’t find ourselves in a World War III or happen to lose it over the next 30 years, what is the first thing that folks should be thinking about, focusing on, and shoring up?
Tony Stark: You have to be able to build, acquire, and deploy things today that work. Where some of the scholars and leading thinkers — Rush Doshi, Elbridge Colby, and others — get torn up in debating this is whether to prioritize short-term or long-term, and you can’t just choose one. You have to do both. That’s the very difficult reality.
You need to hold that five-meter target — “What if Xi really wants to move in 2027, 2028, or 2029? What do we have to do today? What can we feasibly do today to prevent that? How do I do that in a way that still allows me to invest in the long term?"
Yes, you have this sprint in front of you, but if you burn all of your energy in the first mile of a 26-mile race, you will lose. Simultaneously, if you just go at an easy pace, at your own pace, irrelevant to the competition in your marathon, where is your competitive spirit? You’re definitely not going to be the first at the finish line.
What does that specifically look like? Unmanned systems and munitions. Munitions are probably the biggest investment you can make, because magazine depth is just an exorbitant challenge. At the high point of Ukraine operations, they were burning 60,000 rounds of artillery a day. The Pacific fight involves a different set of munitions.
Really, it’s about ramping up production and giving the industry that signal of, “You are reliably going to get investment from us for the next few years. This is our priority.” A lot of our tech works. There’s not a whole lot of areas where we’re saying, “If we had a new main battle tank by 2027, we’d win the fight.” The Abrams is pretty good. But I would like about 1,000 more long-range anti-ship missiles. Everyone would. That’s obviously capped by actual production rates, but I think you get the idea.
Jordan Schneider: Maybe going one step up from that — you’ve got to want to do the competition. You wrote a piece back in 2023 entitled “Where Did All the China Hawks Go?” We’re recording this March 21st, 2025, and it is still very unclear just what this president’s stance towards China and Chinese territorial aggression is going to be.
You can lose before it even starts. We’ll get into the acquisitions stuff and force structure stuff in a second, but you can lose at a systems level in two ways. First, you don’t even show up, and second, you stop being the system that you initially thought you were in the first place.
This is a global beauty contest as much as it is a competition between the US and China. If America is a less attractive partner for ideological reasons or for reliability reasons, then that’s a problem. The US and China together add up to less than 50% of the world’s GDP. There are a whole lot of other countries that are potentially up for grabs, that are going to choose which way to lean over the coming decades.
As nice as magazines are, it’s nicer to have the entire industrialized world on your side versus on the other side. I go a level up personally when thinking about this problem.
Tony Stark: 2015 is a good place to start looking at China Policy because that’s when the South China Sea island development and various hacking operations hit their peak, in the Obama administration.
That was the start of when, aside from us wonks, people needed to start paying attention. The Trump administration focused on deterrence by denial. There was a mix there where President Trump was friendly with Xi Jinping, but there were also tariffs, and those in the DOD under Jim Mattis and others were trying to figure out how to fight in the first and second island chain — how to show up to the fight.
Obama and Xi at a 2016 summit on climate change, North Korea, and the South China Sea. Source.
The Biden administration took a different approach. They had to continue some of the Trump administration’s legacy of being able to fight in the first and second island chain, but they also said, “We’re going to do industrial policy. Not only are we going to show up to the fight, but we’re going to show that America is strong enough to survive that long fight, that competition.” That’s the CHIPS and Science Act and parts of the infrastructure bill — what does that 15-20 year investment look like for us?
But simultaneously, they didn’t really like the idea of having to do this from a foreign policy perspective. It was not particularly convenient, and that was a challenge.
Here we are today in a world where we still don’t have a solidified China strategy. On top of that, there are not many champions of actual hawkish China policy in DC or around the country. You brought up “Where Did All the China Hawks Go?” It’s not particularly a blue or red problem at this point.
There are motivators on both sides where there’s less interest in China as a competitive space, whether that’s because of wanting to focus on domestic policy, the Western hemisphere, commerce, or making trouble with other folks, rather than saying, “This is the priority."
That’s where we are. We are adrift, and this is a really bad time to be adrift. I mentioned before that we should have done this 10 years ago. It wasn’t good to be adrift 10 years ago, and now we’re about to be adrift on a raft going into a hurricane. This is going to get really bad if we don’t figure this out.
Jordan Schneider: The urgency is less from an “I think Xi is going to invade in 2027” perspective, but from a comprehensive national power perspective. The Chinese military in the 1980s, 1990s, and 2000s was not a serious challenger on paper to the US and its allies. That is different now because China is richer, they have modernized, and they are able to project force in new and interesting ways at scale. You would have to go back to the early Qing dynasty to have a relative power comparison to what we’re looking at today.
It’s not a bad thing that a billion people in China are richer than they used to be. However, we’ve all learned this very horrific lesson of what autocrats can do with Putin in Ukraine. Even if you think Xi doesn’t necessarily have bad intentions over Taiwan, building a deterrence capability ensures that whoever’s leading China over the next 30 years understands it would be devastating for them to start a high-intensity conflict. This seems like a reasonable insurance policy for the US to invest in.
Tony Stark: Over the late Cold War and definitely over the last 30 years, we’ve become accustomed to being able to pick and choose the fights we enter or how we engage in them. With 9/11, we didn’t pick that fight, but afterward we maintained this idea that we can go anywhere, be anywhere, and simultaneously withdraw if we want.
Some leaders in Washington might decide, “We don’t really want to pick a fight with the Chinese.” That’s understandable. We didn’t really want to pick a fight with the Nazis either in 1937, and we still ended up having to confront them. Wars happen because of fear, honor, or interest. The enemy gets a vote, and if they decide that fear, honor, or interest requires them to either fight us, challenge us, or push us around, then they will do so.
Elbridge Colby said, “Taiwan is not an existential problem for us.” Not in the sense that losing Taiwan means the end of humanity. But it’s like hanging off the edge of a cliff and having one hand slip. We’re already at that precipice. If you lose Taiwan, yes, you lose face, and you lose TSMC. But there are also 24 million Taiwanese who would fall under the boot of a regime that believes they should not exist.
This situation triggers concerns for every ally or potential ally in Asia and Europe that the US might not be there to back them up. “The authoritarians are on the march, and this might happen to me.” That either leads these countries to surrender or to acquire nuclear arms. Nuclear proliferation is something you don’t want to pursue. That’s where the existential problem for America transitions to an existential problem for humanity — when you start worrying about nuclear proliferation. The more fingers with access to nuclear buttons, the higher the risk of nuclear conflict, which nobody wants.
Jordan Schneider: The question is whether we’ve already crossed that threshold with what we’ve seen coming out of Trump’s diplomacy over the past few months.
We’re going to do a whole show on global nuclearization in response to America’s treatment of NATO. It’s really dark.
Tony, you have a recent piece about the evolution of combined arms warfare. What is your mental model when trying to evaluate what changes could be coming to the battlefield, and how to invest around them?
Tony Stark: Everyone focuses on what we see in Ukraine, and I think much of that is applicable. When discussing a potential US-China conflict, you also have to understand that Chinese capabilities are technologically superior to the Russians in many ways. You probably have to increase that threat assessment significantly. This isn’t to make the Chinese sound invincible, but to understand the substantial difference between Russian and Chinese technology in certain areas. The Chinese are undoubtedly learning many lessons from the Russia-Ukraine conflict.
Regarding the future battlefield, we’re evolving from traditional combined arms warfare that has existed for the last 150 years. Combined arms warfare integrated radio, control, precision fires, and different military branches at both joint force and service levels to synchronize effects and damage the enemy. This involves coordinating artillery while infantry and tanks maneuver, with tanks and infantry working together rather than in separate formations. That’s the basic concept for the audience.
Now, we’re taking all that learning from the last 150 years and applying it to unmanned systems that, at a rudimentary level, can think and perform tasks autonomously at a narrow level. The challenge is determining what’s best for humans to do, what’s best for machines to do, and where they work in concert.
For example, the Ukrainians still need soldiers and manned tanks on the front lines, but there are particularly dangerous areas where they operate, such as the combined arms breach — blowing a hole through enemy defenses. The enemy knows you’re coming, likely knows where you want to breach, and has artillery, wire, mines, and other defenses in place to prevent this. You don’t want to be the human in that situation, even if you’re in a tank. I could send you countless videos from Ukraine demonstrating why. But if you can send machines to do it, you reduce your exposure while accomplishing the rest of your mission.
That’s the first part of robotics and unmanned systems as enablers for shooting, moving, and communicating. They allow you to shoot with better precision, communicate more effectively, and move either faster or in more dispersed ways. These are the fundamentals of warfare.
Moving to the shooting aspect, Ukraine uses what they call one-way attack UAVs or even USVs in the Black Sea. These rudimentary war robots make decisions independently or are remotely controlled, functioning to collect information, transmit it to personnel behind lines, and target and strike. This represents the next iteration of artillery, close air support, and long-range fires.
The final component is maneuver — infantry, tanks, and other forces pushing through, fighting through the enemy, taking and holding ground. This is the hardest component because it requires relying on those previous capabilities — collecting information, shooting, etc. — and combining everything into one package that must be survivable. While machines are more expendable than humans, they’re still expensive and time-consuming to build.
The challenge is creating something that can survive in harsh environments. Cold, heat, rust, and moisture annoy us as humans but don’t typically kill us, unless you’re in extreme conditions like the Arctic. However, machines have specific thresholds, often lower than humans, for what they can operate in. How do you ruggedize equipment while ensuring it keeps pace with the rest of the formation? How does a ruggedized unmanned vehicle with a 50-caliber weapon maintain pace with tanks moving at 30-40-50 miles per hour, while remaining survivable, maintaining targeting capabilities, and withstanding being thrown and bounced around with all its internal electronics?
Essentially, you’re asking for the equivalent of a ruggedized iPhone or laptop to survive being bounced around on high seas, in mud, in swamps, etc. That’s extremely challenging, especially to get it to do all the things you want it to do. There’s a lot progress in the startup world and even among major defense contractors, but this represents the current battle laboratory we’re witnessing.
Jordan Schneider: This is a good counterpoint to the narrative that AGI is going to change everything once and for all.
In Watchmen, which is a great graphic novel that was turned into an excellent HBO series everyone should watch, Dr. Manhattan is a superhero that America deployed in 1974. He shows up in Vietnam, and the war ends five minutes later because he’s essentially a Superman-type figure. America’s ability to control him simply wins wars without discussion.
It seems implausible that in the near or medium-term, AGI is going to create a gap in capabilities at the level of the US versus Iraq in 2003.
Tony Stark: To that point, as a reminder to everyone, please do not connect the nukes to the AI. Please do not do that.
Regarding the Dr. Manhattan concept — your AI is only as good as your data. We don’t actually know what the equation is to get us to AGI. You’re not looking for the Higgs boson where you think, “I believe it’s in this range and if we get there, I just need to look in the right space.” It’s as much a philosophical question as a scientific one.
I would discourage those who claim that AGI will solve battlefield problems from strategic decision-making to having some “wonder weapon.” That’s not happening.
In the next 10 years, you’ll see incremental gains from AI in tactical decision-making, data processing, the ability to find, fix, and finish targets, as well as logistics.
Logistics are probably the most significant use case for AI because humans are really bad at efficient logistics.
Jordan Schneider: Let’s talk more about the “wonder weapon” concept. Historically, these were terrible ideas. Hitler kept thinking he would invent one weapon that would win the war, and it didn’t work. He didn’t even know he should have been focusing his resources on nuclear weapons instead of three-story tall tanks and V2 bombs.
The enemy has a vote. The enemy can copy and counter what you do once you deploy it. War is much messier, and there is no single trump card that can help the US beat China.
Tony Stark: Exactly. Some of that perspective comes from how we teach history, either at the popular level or undergraduate level — “The allies got the bomb, and then we beat the Japanese.” In reality, many other things happened before that to get us in that position.
I really like your point that Hitler didn’t even know the actual wonder weapon he should have been building. That’s a perfect comparison to AGI. I assure you, if you try to chase AGI by itself, you will not reach your goal.
If you focus on very narrow applications — and I say narrow in the AI context, not meaning you just do one thing — if you focus on applied tasks that will actually have effects at the tactical and operational level, as you start to aggregate those systems, you’re learning valuable lessons. You’re proving what does and doesn’t work, and that’s not just about the machine, but about how to develop AI itself.
Jordan Schneider: Foreign aid is a rather spicy topic lately. We’ve seen USAID seemingly hitting a giant destructive reset button. Tony, what’s your pitch for spending money in a broadly aid-focused sense in foreign countries?
Tony Stark: I wrote an article a while back called “Fighting the Four Horsemen.” The Department of Defense fights war, which is one horseman. Foreign aid fights the other three — pestilence, death, and hunger — which cause pain and are often drivers of war.
Do our foreign aid programs get everything right? No. I can’t think of a government or corporate investment plan in history that got everything right. Everyone has a pet project they want to work on, or they simply make bad guesses. Your data won’t be perfect, and you have to plan for that.
What does foreign aid buy us? It buys goodwill, which sometimes matters when you’re a soldier stuck behind enemy lines and somebody remembers, “The US government fed me during a famine.”
It also allows us to prioritize the things that matter. If we prevent a famine in Africa, then we don’t have to deal with the economic and possible military fallout of that famine. From a purely realist standpoint, this prevents us from having to dedicate additional resources when we need to focus on the main adversary.
At its most basic level, that’s what foreign aid does for us. Obviously, it does many other things — it fights viruses at their source, prevents outbreaks, and if outbreaks occur, prevents diseases from spreading through early identification. All these things matter when discussing how we create stable institutions at home and a stable, prosperous economy for more Americans. As we’ve seen, viruses and ecological disasters hinder those efforts. You’re fighting many threats abroad through foreign aid so they don’t come home.
Jordan Schneider: I couldn’t have said it better myself. The Office of Net Assessment is being canceled. Hopefully it’s just a reset button and won’t disappear forever. But I think there are parts of this new energy in Washington which aren’t even anti-intellectual — they’re anti-thought. You should do things because they seem “based,” as opposed to actually putting in the time to think about costs and benefits.
Tony Stark: US history throughout the Cold War is littered with examples of times when we simply didn’t understand the ground state of things, and we either made situations worse or ignored them. I can think of any number of coups or civil wars we got involved with in the ’50s and ’60s that might have gone differently if we had actual people on the ground. That’s an example of where information matters. You cannot simply look at the globe and decide, “I want to do that.”
The broader case for education is that an informed population is more independent. America is a nation based upon choice, opportunity, and independence. An educated civilian populace leads to prosperity — that’s simply the equation.
I’m not saying that everyone needs a college degree or a master’s degree. I don’t agree with that, and that’s not how the economy works. You need people in trades. You need people who join the military at 18 and go to college later in life.
When I talk about education, everyone focuses on higher education because that’s usually their most recent memory, that’s the fun part, and that’s where you get into politics because you’re 18 or older. K through 12 education is largely neglected.
Jordan Schneider: Can you illustrate with the anecdote about Army recruits with literacy issues?
Tony Stark: As a former Army infantryman — I enlisted after college because I decided I needed to earn my way to leadership — within the first two weeks on the ground at Fort Benning, you go through what is basically a leadership training course. What it really involves is going from station to station with your group of recruits.
You read about a particular Medal of Honor winner and try to complete team-building challenges. You can probably imagine what that’s like — an outdoor course where you need to get across the fake lava by putting planks together or something similar. When you inevitably fail, you do a lot of push-ups or burpees.
The drill sergeants make the recruits read the Medal of Honor citation. What struck me was how many recruits struggled to read their own history. That’s your lineage as an infantryman — the people who came before you and did great things — and you can’t read it. If you can’t read it, how can you understand your place in the world? How can you analyze things on the battlefield? How can you make decisions in complex modern warfare?
People might argue that in the 1800s, half the recruits couldn’t read. It’s a different story now when you have to operate drones and tanks. You need to be literate and able to make complex decisions.
A Marine Corps report came out a couple years ago stating that the ideal infantryman is around 26 years old with a bachelor’s or master’s degree. The population can’t support that, and frankly, I don’t think you actually need that. What you’re looking for is a more well-educated population through K through 12.
Jordan Schneider: When you see people with degrees from prestigious institutions expressing thoughts and logic that demonstrate brain rot from short-form media and Twitter — it’s evident that their content consumption has shifted dramatically over the past five years. That’s a scary transformation to have witnessed closely over recent years.
Tony Stark: Don’t get me wrong — I enjoy funny Instagram reels too. The point is that reading from an early age teaches critical thinking because you have to read, decipher, and learn about the world.
Never let anyone convince you that humans aren’t built upon curiosity and research — we are. If we give people the right tools, they will research sciences and social sciences rather than QAnon conspiracy theories.
Jordan Schneider: What are your dream pieces of legislation?
Tony Stark: I would like to see multiyear procurement for weapon systems. I know there are Congressional limitations on spending beyond two years, but multiyear procurement, especially for long-lead items, would be beneficial.
I would also like to see legislation on refining our economic warfare capabilities. I wrote a piece a long time ago about a Department of Economic Warfare. That doesn’t necessarily need to be created, but it’s clear that each economic warfare component — whether it’s the Bureau of Industry and Security or the Office of Foreign Assets Control (OFAC) in Treasury — advocates for policies from their own perspective. That’s the nature of Washington.
This makes it difficult when facing a massive economic competitor like the PRC. You have people in some departments saying, “Our priority is investment,” while others say, “Our priority is hunting down terrorists.” This leaves us asking, “What tools do we reliably have to fight the great economic competitor that is the PRC?” I’d like to see legislation addressing that.
Jordan Schneider: Any book recommendations?
Tony Stark: I think Rush Doshi’s The Long Game is valuable. I don’t agree with everything Dr. Doshi presents regarding his assessment of the broader threat matrix of the PRC. However, if you want to read the party in its own words — because I’ve encountered many people in the DC policy community who ask, “What are the Chinese saying?” — there’s a book right here that documents it.
You can read it if you choose to. Literacy, again, is important. That’s one recommendation.
Number two is Spies and Lies by Alex Joske, because everyone should better understand how our main adversary chooses to interact with people from an influence perspective. I found it to be a fascinating book. I’ve heard there were other case studies that were going to be included but weren’t for various reasons. So if someone reads that and thinks, “This is only 10 cases,” I assure you there are more.
You have to read Chris Miller’s Chip War because the semiconductor problem, like most supply chain problems, is incredibly dense. He presents it in a way that’s very accessible and goes beyond simplistic views like “TSMC makes chips in Taiwan and America wants control of that.” You need to understand why this is so important and the potential economic fallout if we lose TSMC in any fashion.
Jordan Schneider: I’ve read all three of those books. Regarding Chris’s book, it’s been out for two or three years, and it’s frustrating that no one has written a “Chip War for Robotics” or “Chip War for Biotech.” This book sold many copies. We need the industrial and global national security history of more industries.
Tony Stark: I would pay so much money for a “Chip War for Synthetic Biology.” For the Ex Supra sequel, I’ve consumed a vast amount of books on synthetic biology. Textbooks aside, most of them are very preachy. I was listening to one audiobook that said, “The Chinese might do some bad things in Xinjiang, but who can tell?” Clearly, they’re trying not to get their research canceled in Beijing.
I would really like to see that because it’s such a fascinating debate you can have with anyone in any policy community about how synthetic biology might impact you. Unlike Chip War, which is a very technical view of the technology, synthetic biology is darker. One book posed the question, “What if one day it’s immoral to not modify the genes of your baby?”
Building a Career in Writing
Jordan Schneider: All right. Tony, do you mind telling everyone your age?
Tony Stark: Yes, sure. I'm 29 going on 30.
Jordan Schneider: Awesome. When did we start Breaking Beijing?
Tony Stark: Two and a half years ago. Before that I've been writing on and off since I was in college.
Jordan Schneider: When I talk to students and student groups, oftentimes people ask me, "Jordan, what's your advice for getting into policy?" I say, "Start a Substack. If you're scared about using your own name, you can do it anonymously, and it'll still lead you into cool places, doing interesting things.” Here, we have the one and only Tony Stark, the perfect example of this. What advice do you have for folks debating whether or not to put their writing out in public?
Tony Stark: Write your own stuff. First, don’t use AI, but more importantly, write what you know and what you’re interested in. Don’t chase buzzwords.
If you’re thinking about stuff in your own way, that’s where your writing is going to come out best. It’s going to show as your own brand from a personal marketing standpoint, and you're also going to have a better sense of control over what you should and shouldn’t write.
Jordan Schneider: The most fun you will have in doing a policy writing job is when you get to choose what to write about. The best version of this job is you picking the topics that you're most interested in, reading about them, and then writing in your own voice and style.
This is the cool and scary thing about this field — it’s not like immersion lithography, which you cannot do unless you are at TSMC or Intel. You can write about policy just by sitting at your computer reading and writing. You shouldn't gatekeep yourself.
The other thing you said, Tony, which is really important, is that you want this to be the most fun part of your week and a repeated game that you play. You’re probably doing this on nights or weekends. It has to be exciting to you for a reason other than 4D career chess.
Tony Stark: Absolutely. I even tried, once or twice, to force myself to write on current events, and you just don’t get good quality work, especially if you're trying to use it as a way to promote yourself.
Secondly, reps and sets matter. I got really good at writing because I wrote frequently for work and in my personal life. Not all of it saw the light of day, but just writing and getting that feel for that, getting that feedback, going through editing — that’s what's going to make you better. It’s just like physical fitness.
Jordan Schneider: Can you talk a little bit about the doors writing opens, even if you only have, say, 2,000 readers?
Tony Stark: Before I wrote on Substack, I wrote on Medium, and I wrote threads on Twitter. I don’t think people understand how much policymakers, and especially staffers, are online and reading that stuff. They’re looking for feeds of information. They’re looking to understand what’s next, what’s current. That’s the space that you have to plan.
It will be a slow burn at first. I’ve had high-ranking commanders reach out to me. I’ve had high-level politicians reach out to me. I've been hired now at two jobs at least partially because of my writing.
It doesn’t happen to everyone, and it's not going to happen immediately, and you should pace yourself for that. Work on focusing your craft. But yes, it can happen.
Jordan Schneider: As a hiring manager, what you want to see is a body of work and sustained commitment and excitement to the topic, not just writing about critical minerals because it's in the news this week. The best way to prove you’re interested in something is to show that you've been thinking about it critically. It matters less if you are right or wrong, but just that you are being rigorous and analytical in your thinking on a topic is the thing that gets people excited.
Tony Stark: Another very important part is that you have to know when you are wrong. Maybe your writing cadence was wrong, how you phrased something was wrong, or a concept was wrong. People who stick to their policy viewpoints despite being proven wrong repeatedly, even if it's something very niche — the audience doesn’t like that. They want to see that you can iterate.
Jordan Schneider: By the way, when you're in your 20s, you're not like John Kerry running for president in 2004. No one is going to care whether or not you flip-flop on something. The idea is just to show that you are thinking and continuing to think about whatever it is you're interested in.
In your writing, you are manifesting the sort of doors that are going to be open to you in the future, and it's just better to do that about the stuff you’re passionate about than the stuff that’s current.
Tony Stark: Absolutely. You don't want to box yourself in, because all of a sudden, you become that one guy or girl that has the expertise, and you didn’t want to have that expertise. Now you’re stuck somewhere you don't want to be. It’s better to just follow your passions.
Jordan Schneider: Any other words of wisdom?
Tony Stark: Write what you know, don't chase other peoples’ ideas, and don't be afraid. You are already ahead of your peers because you are making the attempt to write.
Jordan Schneider: Here’s an open invitation — if you write five Substack articles, Jordan and the China Talk team will give you feedback. That is the new policy. DM me to have me review your writing.
Let’s close with discussing your book, Tony. I don’t read a lot of this genre...
Tony Stark: I don’t either. That’s my actual confession. People ask me, “What are your top 10 sci-fi books?” I get to five and then I’m stuck. I love science fiction, but I think I can predict where most books in the genre end because they’re so repetitive.
Jordan Schneider: The strongest elements for me were the out-of-the-box but still grounded military scenarios — warfighters in outrageous geopolitical or technological situations where there’s a cyborg assassin on your tail or drone swarms. Not drone swarms in a hand-wavy way, but as described by someone who was an infantry officer who has done the reading and can paint a grounded yet novel and provocative vision of what the future of war might look like. I’m curious, in your first book and now going into your second, how did you think about what visions of future warfare you wanted to portray?
Tony Stark: When I was in college, before I joined the infantry, I attended a defense tech conference where they were showing off various early-stage technologies. There were all these talks about the future of war, high-end conflict, gadgets, and push-button warfare. The following year, I found myself, almost to the day, trying to dig a ranger grave — a very shallow defensive position — in the backwoods of Fort Benning with a broken shovel. That experience embodies my perspective on future warfare.
In 2025, a hypersonic missile can fly thousands of miles to strike a single target built on the backs of days’ worth of intelligence collection, analysis, deception, and SOF-enabled targeting behind enemy lines…and simultaneously, a few blocks away one guy can beat another guy to death with a shovel in the same war for the same piece of ground.
If you want to understand the combat operations in Ex Supra before reading it, that’s very much it. You have this high-tech fight, but the bloody, muddy reality is that you’re still going hand-to-hand. People are still dying in the mud. No amount of shiny technology is going to change that.
Jordan Schneider: Mike Horowitz sent me his History of Military Innovation thesis, and S.L.A. Marshall’s Men Against Fire was on it. I hadn’t read it beforehand. It’s such a strange book because the author is known for fabricating stories and exaggerating his battlefield experience. Yet, this book does an excellent job of capturing that John Keegan The Face of Battle approach in the World War II context, which feels very relevant to Ukraine and to other theaters today.
The reality is that despite the many drones in Ukraine, people are still sitting in trenches on the front line. Wrapping your head around the fact that this aspect is unlikely to disappear from warfare anytime soon — regardless of how advanced the Next Generation Air Dominance (NGAD) program is or how sophisticated robot technologies become — is important. There is a human element to warfare that has been with us forever and will likely remain for centuries to come, for better or worse.
Tony Stark: Another aspect of considering future warfare is not only what technology you think will work, but what technology you think will fail. I make this point about rail guns repeatedly in my story — that they somewhat work and somewhat don’t. Even the best high-end technology has shortfalls.
Jordan Schneider: One of my favorite World War II stories concerns American submarines whose torpedoes were simply broken. The trigger mechanism didn’t work until around 1944. All the submarine captains knew it and would report back saying, “Our trigger isn’t working. You need to fix this.” For whatever bureaucratic or acquisition-related reason, they kept being told, “No, you just need to be closer. You shot at the wrong angle. It’s your fault.”
This illustrates the future of war — having submarines capable of destroying aircraft carriers or battleships, but taking America three years to get its act together to truly leverage this technological advantage. Things don’t work as expected, learning happens at lots of levels, and AGI won’t solve these problems. We still need people writing unconventional analyses like yours, Tony, to help us conceptualize and think through the future.
Subscribe to Breaking Beijing and check out Tony’s book, Ex Supra, which is available now on Amazon and in independent bookstores near you!
This is a guest piece by JS Tan, a PhD Candidate at MIT’s international development program, researching the political economy of innovation in the US and China with a focus on cloud computing. He was previously a software engineer and writes on Substack here.
Alibaba’s recent commitment to invest $53 billion in AI and cloud infrastructure — surpassing its total AI and cloud spending over the past decade — marks a major bet on the future. This investment signals not only Alibaba’s confidence in AI-driven growth but also its recognition that cloud computing will be a central pillar of the digital economy. Once battered by regulatory crackdowns and slowing profits, Alibaba is now doubling down on AI infrastructure, aiming to secure its place in China’s rapidly evolving tech landscape.
Source: FT
However, AI’s transformative potential — especially its diffusion across industries — ultimately depends on the strength of the underlying cloud infrastructure. Whether Alibaba’s aggressive AI push and massive data center investments will translate into higher profit margins for the company or a more competitive Chinese cloud sector as a whole remains an open question. And even though Alibaba is best positioned to play a critical role in AI's diffusion in the country, what’s missing from the FT’s analysis is a broader political-economic assessment of China’s cloud industry and the institutional factors that strengthen, or in some cases, constrain the country's cloud ambitions.
This article explores why low-margin compute and a non-existent SaaS ecosystem leave China behind in the cloud — and why this might not matter much to Beijing.
How Far Behind Is China?
To assess the political economy of China’s cloud sector, we must first understand the global competitive landscape. The U.S. cloud industry is dominated by three major players: Amazon Web Services (AWS), Microsoft Azure, and Google Cloud. China’s cloud industry follows a similar pattern. Alibaba Cloud and Tencent Cloud lead the market, mirroring Amazon and Google’s dominance. However, the Chinese industry lags far behind. A key measure of this competitive gap is revenue. By this measure, U.S. cloud providers dominate by a wide margin — AWS alone generates more revenue than the entire Chinese cloud sector combined. The disparity is also evident in data center capacity. The U.S. accounts for 51% of the world’s data center capacity, while China lags behind at 16%.
Source: Synergy Research Group (Note, "hyperscale" here refers to data center run by public cloud providers such Amazon and Alibaba)
A major distinction between the U.S. and Chinese cloud sectors is the role of telecom firms, which have more experience, when compared to internet companies, at building physical infrastructure. Unlike the U.S., where no telecom company has successfully entered the cloud market — AT&T attempted but later sold its assets to IBM — China’s cloud sector includes firms with deep expertise in telecommunications. Huawei, China Mobile, China Telecom, and China Unicom have all invested heavily in cloud computing, leveraging their existing network infrastructure to expand into the sector.
Revenue and infrastructure alone do not fully explain the structural differences between the two cloud industries. A deeper distinction emerges when breaking down revenue by cloud service type: Infrastructure-as-a-Service (IaaS) vs. Platform-as-a-Service (PaaS).
IaaS consists of the basic building blocks of computing — compute, storage, and networking — delivered as virtualized infrastructure. Because IaaS is more about lifting existing IT operations onto the cloud, it requires less business transformation and is easier for firms to adopt. PaaS, by contrast, is more software-driven and involves deeper integration into enterprise operations. It is more profitable for cloud providers since it enables higher-margin services, such as AI platforms and business analytics.
Source: Statista Market Insights, Value Added analysis
While both the U.S. and Chinese cloud providers derive most of their revenue from IaaS, U.S. firms are far ahead of Chinese ones when it comes to revenue from PaaS. To this day, Chinese cloud firms are disproportionately reliant on low-margin IaaS, making its cloud providers more akin to commodity infrastructure providers rather than enablers of productivity-enhancing digital transformation.
Why Has China Fallen Behind?
A fundamental weakness of China’s cloud sector is low IT spending. A 2014 McKinsey report found that Chinese firms spend only 2% of their revenue on IT — half the global average.1 Historically, businesses have been reluctant to invest in IT due to high costs and uncertain returns. IT spending — whether on enterprise software, better infrastructure, or cloud services—is intended to improve productivity, but such gains aren’t immediate or guaranteed. Successful cloud adoption depends on structured data, formalized business processes, and standardized workflows — conditions that many Chinese firms lack.
Moreover, China’s low labor costs and weak labor protections reduce the incentive for businesses to invest in IT infrastructure. When labor is cheap, firms can simply hire more workers instead of upgrading their IT systems for uncertain productivity gains. As a result, many Chinese businesses use cloud computing only for basic, low-cost functions (such as website hosting) rather than as a platform for productivity-enhancing digital transformation.
These trends are reflected in industry composition. In the U.S., high-IT-spending industries—banking, finance, and business services — drive enterprise cloud adoption. In China, however, the economy is dominated by low-IT-spending sectors such as manufacturing and construction. These firms see little reason to invest in cloud-based enterprise software, further slowing adoption.
China’s cloud firms also lack two critical supply-side advantages. First, China has a weak enterprise software ecosystem. Because cloud revenue ultimately comes from other businesses, enterprise software is critical as it acts as a stepping stone for customers to adopt the cloud. Take Apache Spark, an analytics engine for big data and machine learning. While Spark itself is open-sourced and thus free to use, its widespread enterprise adoption in the U.S. has been driven by companies like Databricks, which help customers adopt the technology and even provide a "managed" version of the open-source software. And for customers that use Spark, moving to the cloud becomes a no-brainer, especially because Databricks has deep partnerships with Microsoft Azure and Amazon Web Services that make the transition to using Spark in the cloud seamless. In this way, companies like Databricks act as on-ramps to the cloud, helping businesses migrate workloads efficiently.
China lacks such a software ecosystem. As a result, Chinese firms not only have fewer incentives to migrate to the cloud but, when they do, they are more likely to use it for basic, low-margin IaaS rather than the higher-value PaaS offerings that drive profitability for U.S. cloud providers.
Second, China lacks professional IT service providers that guide enterprises through cloud adoption. In the U.S., a vast network of professional consulting firms — such as Accenture and Deloitte — plays a key role in guiding enterprises through this transition. These firms not only assist in moving IT infrastructure to the cloud but also ensure secure implementation and encourage the adoption of cloud-based software in daily operations. Acting as intermediaries between cloud providers and enterprise clients, they help streamline cloud adoption and drive demand for higher-value cloud services. In China, however, such professional services hardly exist, leaving businesses with fewer resources to navigate the complexities of cloud migration.
A Low-Value-Added Trap?
Recognizing these challenges, the Chinese government has stepped in. Since 2011, policymakers have allocated billions in subsidies to strengthen domestic cloud providers. The most ambitious initiative is “Eastern Data, Western Computing,” launched in 2020 to relocate energy-intensive computing tasks (such as AI model training) to China’s energy-rich western provinces while keeping latency-sensitive workloads (like AI inferencing) closer to users in eastern coastal cities.
This national-scale effort to coordinate cloud infrastructure with the country's energy capacity is no small task. To a large extent, what makes this coordination possible is the fact that China’s cloud ecosystem isn’t comprised solely of publicly traded private firms. Instead, the presence of state-owned enterprises (SOEs) such as China Telecom, China Mobile, and China Unicom allows the government to direct investment into infrastructure projects, even when short-term profitability is uncertain.
Beyond offering more flexibility in coordinating national-scale industrial policy, SOEs in China’s cloud sector encourage greater emphasis on low-margin IaaS over higher-value PaaS. While U.S. cloud providers have successfully moved up the value chain into PaaS, China’s cloud sector remains disproportionately reliant on basic infrastructure services, limiting its profitability and ability to compete globally.
Part of the reason is because China Mobile, China Telecom, and China Unicom are hardware-first enterprises with deep expertise in telecommunications infrastructure but limited experience in developing software-based cloud services. Their focus remains on expanding data center capacity rather than building out cloud-native software ecosystems. At the same time, IaaS — particularly compute infrastructure — is seen as a strategic resource, only one level removed from energy itself, leading the state to prioritize expanding capacity rather than fostering a robust software ecosystem. Just as control over energy production ensures industrial stability, control over compute capacity secures technological self-sufficiency and resilience in an era where data processing and AI development are becoming critical economic and geopolitical battlegrounds.
This leaves PaaS development primarily in the hands of commercially oriented firms like Alibaba and Tencent. However, these efforts have been punished as both the state and market has favored IaaS over PaaS. The result is a cloud ecosystem that is highly capable of providing cheap computing power but struggles to offer the advanced services that drive higher profitability and deeper enterprise adoption.
This is exacerbated by a fierce price war among China’s cloud firms over the past two years. In 2023, Alibaba launched the largest price cuts in its history, slashing core product prices by 15% to 50%. Within a month, Tencent, JD.com, China Mobile, and China Telecom followed suit with their own reductions. In 2024, Alibaba slashed prices again, prompting another round of retaliatory cuts from competitors. The presence of SOEs and privately held firms in China’s cloud portfolio has intensified these price wars. Unlike publicly traded cloud firms, which are under constant shareholder pressure to generate returns, SOEs benefit from state-backed patient financing, allowing them to sustain deeper price cuts for longer periods without the same risks faced by profit-driven private firms.
In Sum
China’s cloud industry is at a crossroads. On one hand, state intervention and expanding infrastructure could help China narrow the gap with the U.S. On the other hand, persistent price wars and an overreliance on IaaS — coupled with weak PaaS development—risk locking China’s cloud sector into a low-margin commodity industry. On top of that, China’s underdeveloped PaaS offerings will make it even harder for its cloud providers to compete on a global scale.
To the Chinese state, however, this may very well not be the goal. Data — and by extension, compute—are seen as critical factors of production, akin to land and labor, making the cloud too strategic to be left entirely to the private sector. If this remains the case, China’s cloud sector will remain structurally distinct from its U.S. counterpart — more state-directed, possibly less profitable, but ultimately aligned with national priorities rather than besting the U.S.
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See Jonathan Woetzel et al., “China’s Digital Transformation: The Internet’s Impact on Productivity and Growth” (McKinsey Global Institute, July 2014).
Jordan Schneider: Peter, how do you feel the country is doing?
Peter Harrell: I actually don’t think we are cooked yet. There are enormous underlying structural strengths here in the United States that make me quite bullish about the future of America.
I should acknowledge that you caught me during a week of vacation in Southern Utah, where the weather is gorgeous and the rocks are magnificent. It’s hard to see us being cooked this week. If you ask me next week when I’m back in the office, I might have a different view on the situation.
Kevin Xu: We’re not cooked yet, but that probably implies some cooking is happening as we speak.
One line that got me thinking came from Josh Wolfe of Lux Capital, who runs a firm that I really admire. Early in the pandemic, he said, “Failure comes from failure to imagine failure.” For the sake of saving America or ensuring we’re not cooked, it’s probably useful to think hard about what “cooked” looks like so we can avoid going there — the aversion mental model of Charlie Munger.
This is something I think about more these days than before. That’s not to say we are cooked. There are many things in my personal and professional experience that suggest America remains special, if not exceptional, for all the right reasons. My current mindset focuses on imagining potential failures precisely to prevent them from happening.
Matt Klein: While I agree that we are not yet definitively cooked, we are definitely cooking. I concur with Peter that there are many long-term structural reasons to be optimistic about the United States economy and society. However, we have an administration that seems determined to attack all those strengths simultaneously. We’ve only been at this for about two and a half months.
If we were looking solely at the tariffs announced last week, I would agree that while they have negative consequences — clearly demonstrated in market reactions — that’s not the main reason to be concerned. What’s revealing is how these specific tariffs were chosen and rolled out, which is revealing of the overall governance process of this administration.
The Washington Post did thorough reporting on how the process actually occurred. Various teams of staff at different agencies — USTR, Council of Economic Advisers, Commerce, and others — were simultaneously developing methodologies for justifiable, reciprocal tariffs. Substantial staff work was being done. They were asking US companies abroad about their challenges and conducting extensive research.
Yet the final decision, made just two or three hours before the announcement, abandoned all that work in favor of the most simple-minded, least rigorous approach — a formula based on essentially two variables: exports and imports of bilateral goods with each country. This approach isn’t justifiable theoretically or in any other way. After people independently deduced what had been done, administration officials repeatedly denied it before eventually admitting the truth.
What does that tell you about everything else? This comes after we’ve already seen attacks on scientific research, extreme hostility toward foreigners entering the country, and a changed approach to international relations that includes threatening some of our closest allies. The tariffs imposed capriciously on Canada and Mexico are particularly troubling, considering this same administration negotiated and ratified a trade treaty with them just five years ago.
Looking at the broader context — the attacks on the rule of law, for instance — raises serious concerns. You can’t put a GDP value on the rule of law, but historically, the confidence that people can safely prosper in this country as long as they don’t harm others has been one of America’s structural strengths. When you add everything up cumulatively, you can understand why people might be worried.
Is the market reaction purely about the tariffs? Or is it a realization that all these things are adding up and potentially creating serious costs? That’s the big open question. We haven’t crossed the point of no return by any means, but there’s reason to be very concerned about whether we’re “cooked” or not.
Peter Harrell: Matt, don’t forget they also tariffed the penguins. In addition to tariffing the penguins, we then saw Howard Lutnick go out and justify it on the basis that maybe they would somehow get involved in rerouting trade from China or some other such place. This whole story of tariffing the penguins and then claiming you had a rationale because you’re worried the penguins will get into the transshipment business really doesn’t inspire confidence in current trade policymaking out of the administration.
Matt Klein: Right, there’s a decent chance they actually used a chatbot to come up with the exact tariff formula. Someone did a test — if you asked the free version of ChatGPT or Claude, how would you come up with it? They basically came up with exactly what the administration said, including basing it on internet domains as opposed to customs jurisdictions. Hence, the penguins.
Peter Harrell: Let’s also keep in mind this is an administration that has canceled most of its paid subscriptions to major outlets. Presumably, that is why they’d be using the free version of ChatGPT rather than paying for at least something that might have calculated the formula correctly.
Jordan Schneider: How weird can the next four years get? To what extent is this reversible by a Democratic Congress two years from now or a new president four years from now?
Peter, you were part of the “Let’s Make Friends With Our Allies Again” team in the early years of the Biden administration. What was that experience like?
Peter Harrell: I should begin by saying that I actually believe there are enduring, long-term American strengths. We have a very entrepreneurial culture that, by and large, values education quite highly. We have a pretty hard-working work ethic here. Even if the Trump administration is cutting federal R&D spending and grants, there’s a tremendous amount of private R&D in this country.
We start with a number of very strong underlying societal, business, and commercial strengths. The question is really, against these underlying societal strengths, how much damage can things like the very chaotic tariff policy we are seeing do?
I break that down into two different buckets. One is economically, how much damage can it do? Here, I don’t think we’re at the end of the story. We’re recording this on Monday morning. Maybe the market reaction is still getting through to Trump and they will begin to change course.
Particularly on the tariffs, I’ve argued for a couple of months now that this is all illegal. The statute that they are using for these tariffs simply doesn’t authorize them. As of last week, we are now seeing litigation against these tariffs, and we are more likely than not going to see the courts begin to curb some of these tariff powers. He’s still going to have a lot of tariff power even if the courts do curb them, but the courts will likely insist on some rational order being brought to the tariff agenda.
But you asked about the global damage. Aside from the economic harm, there’s also a geopolitical set of actions here. It’s really angered the Europeans, Japanese, and South Koreans. How does this impact our alliance structures?
There’s likely to be some durable damage to our alliance structures. Our Western European allies aren’t going to pivot to China — they understand it is not in their economic or social interest to join themselves fully at the hip to the Chinese. That would hurt their economy too. They’re going to need to raise some barriers of their own to China to prevent their own industries from being hit.
They will see Americans as less reliable allies going forward. That doesn’t mean they won’t cooperate. The analogy I’ve been using is that in four years, post-Trump, whether it’s another Republican or Democratic presidency coming in, many of our core allies will view it as, “Well, you just went through a divorce with us. We’d be happy to come up with a more amicable custody arrangement and see if we can be on better terms at parties, but we’re probably not going to move back in together."
This will be an enduring hit to our alliance structures, though it doesn’t mean that a future administration won’t be able to get a good degree of cooperation on areas of mutual interest.
Matt Klein: I would just add that this is happening at the exact same time, particularly with Europe, where we’re doing a complete heel turn on foreign policy grounds and essentially abandoning a lot of what they consider to be their core strategic interests. It’s not just the economic approach that would be offensive to them, but when paired with the approach to Ukraine and Russia, and the possible withdrawal of American commitments to NATO, and of course, the threats to annex Greenland from Denmark — viewed collectively, this creates some long-term damage. The damage extends to Canada too, which has historically maintained a very close relationship with the US for well over 100 years, and that relationship now seems to be severely damaged.
Jordan Schneider: How should we read the rhetoric we’re hearing from Mark Carney? Here’s a quote from him:
The global economy is fundamentally different today than it was yesterday. The system of global trade anchored on the United States that Canada has relied on since the end of the Second World War, a system that, while not perfect, has helped to deliver prosperity for our country for decades is over. Our old relationship of steadily deepening integration with the United States is over. The 80-year period when the United States embraced the mantle of global economic leadership, when it forged alliances rooted in trust and mutual respect, and championed the free and open exchange of goods and services is over.
Peter Harrell: There is clearly both a tactical and strategic part to Mark Carney’s comment that the relationship is over. Tactically, Carney is in the middle of a political campaign in Canada, so there’s a domestic political dynamic. He wants to send a signal domestically that he will stand up to Trump and won’t take being belittled the way he thought Governor Trudeau was constantly belittled by Trump.
He’s also signaling to the Trump administration, “We are prepared to push back. We’re not going to take this lying down. While we would like a negotiated solution, we are going to stand up.”
But there is also a deeper strategic point he’s making to Canada — “While the United States is very likely to remain our most important trading partner and our most important security partner, we here in Canada need to begin hedging our bets. We can’t be dependent on the United States to the extent we have been over the last 20, 25, or more years."
He’s sending a message that Canada isn’t going to cut everything off with the US — he does want to get a deal — but Canada will be looking to increase its trading connectivity with Europe and not just rely on the US market. Canada probably isn’t going to be reflexively in favor of agreeing to many of America’s asks when it comes to China. Canada will take its own interest with China into account. They don’t want to be flooded by Chinese exports either, but they might be looking for Chinese investment if their trading relationship with the US is weakened. They need to figure out where they can get capital. I hope they don’t go down that road, but Carney is beginning to signal he’s got to figure out what their long-term economic interests look like in a world where they see the US as a less reliable partner.
Matt Klein: The takeaway is that this represents a long-term cost — a long-term cost to Canadians, a long-term cost to the US. This is a standard textbook situation: you want to have the closest relationships with your immediate neighbors because distance is a challenge. It’s beneficial to have integrated manufacturing, finance, and other sectors between Detroit, Windsor, Toronto, and other border regions. If the conclusion is that Canadians think it’s better not to maintain that integration, then everyone will be worse off than in the alternative scenario.
Jordan Schneider: Kevin, do you think China will capitalize on this?
Kevin Xu: The Chinese economy still has many of its own problems that are in the process of being addressed. These include the property bubble and a weak consumer economy that they’re trying to stimulate.
Headlines are already emerging about stimulus measures, ratified from the National People’s Congress in March, now being accelerated from a deployment perspective now that the tariff numbers from both the US and Chinese sides are known. China needs to do many things for itself in this precarious situation.
There’s always this reflexive narrative — every time we consider whether the US is doing well or not, we automatically wonder if China will immediately fill that international space. I am personally very skeptical of any country being willing or able to fill the international role the United States has occupied for the last 30-40 years if the United States steps back.
What other countries have observed is that being the hegemon, being the global superpower that handles a lot of responsibilities, can be a thankless proposition. The tariffs have demonstrated to all countries that retreating to take care of your own national interests is now the fashionable approach. It’s acceptable to have no hegemon for perhaps the next 10 years. Everyone takes care of themselves.
Whether that’s the economically optimal outcome, we all know the answer. However, politically speaking, that may be the most preferable path for all countries’ leadership, including China. There might be anecdotal evidence where China fills spaces or programs where USAID used to operate but no longer does. From the Chinese perspective, they’ll be very tactical about how they fill that vacuum and let the rest of the world, or the chips, fall where they may if we are indeed entering this new world order — or lack of order — which I believe we are stepping into right now.
Matt Klein: I’m curious what you make of Xi Jinping appointing the ambassador envoy to the European Union in Brussels — someone who had previously gotten in trouble with Europeans for suggesting the Baltic States didn’t really have a legal right to exist.
Jordan Schneider: This seems odd considering it would be a great time for the Chinese government to improve relationships with Europe, especially given what the US is doing. What do you think was the rationale for that?
Kevin Xu: First of all, we give Chinese foreign policy making far more credit than it deserves. There’s a narrative that portrays their actions as part of a masterfully executed 20 or 30-year plan, but that’s completely misinformed. Every foreign policy, regardless of political system, has a domestic component. Being strong and pro-China from a foreign policy perspective still has a lot of appeal.
Lu Shaye 卢沙野 was appointed China’s Special Representative for European Affairs in February 2025. While serving as China’s ambassador to France, Lu said that countries which gained independence during the collapse of the Soviet Union lacked “actual status in international law.” Source.
We should be careful about over-interpreting the strategic nature of many of these moves. This could simply result from random internal political dealings — perhaps this official was up for a position, and this was what was available to him. His previous statements may not have factored into any grand strategic preference from the American perspective.
The EU-China relationship is probably the most interesting and dynamic one to watch. There isn’t an obvious trajectory where, because the transatlantic alliance has deteriorated, a Eurasian alliance will suddenly emerge. We’re in an era where most nations are primarily looking out for themselves.
Jordan Schneider: It’s worth recalling that China also has a recent history of bungling major policy tests with the COVID lockdowns. Xi is getting older, he’s a large man, formerly a smoker, and there’s no succession plan yet. That’s the risk people forget when they view China as an ocean of stability.
The CCP’s track record for power transitions is not particularly excellent. Sooner or later, we’ll witness that system trying to work around this issue, which could have big downside risks. For all the jokes about Trump’s third term, I don’t think we’ll go that far in America.
A young Xi Jinping enjoys a cigarette from his office in Hebei province, 1983. Source.
Peter Harrell: As we observe the market turmoil and chaotic tariffs, it’s easy to criticize Trump’s policies. Trade policy specifically is unlikely to yield positive results either in the near or long term. However, there is a smarter way to reform American trade policy. Matt has written about this over the years. A more thoughtful approach to American trade policy could actually benefit the United States without causing such chaos.
While we’re currently experiencing maximally chaotic Trump policies, there will likely be some initiatives from Trump and Congressional Republicans that will leverage American strengths and prove beneficial. As someone who served in the Biden administration, I acknowledge the criticism of our ability to actually build things over the last four years. While some criticism is exaggerated, I believe there is merit to the idea that we need a deregulatory agenda to facilitate more construction in the United States.
If Trump succeeds in reducing barriers to physical construction at federal, state, and local levels — whether for manufacturing facilities or infrastructure — that would be positive. Additionally, while I’m skeptical of tax cuts heavily favoring the wealthy, some stability in our tax regime could be useful. We obviously need to address this issue this year.
So while I’ve been critical of Trump’s trade policy and other aspects of his approach, including on Ukraine, I believe we may see some more valuable policies emerge over the next couple of months.
The Moron Risk Premium
Jordan Schneider: You need competent staff to create legislation, executive orders, and regulations. If we’re experiencing a complete policy lobotomy for the next four years, does that mean even the potentially positive initiatives in the Trump agenda won’t be able to flourish?
From 2016 to 2019, there were relatively few crises. With COVID in 2020, Trump might deserve a B+ grade, all things considered. Five years later, we’re forgetting about some of the more questionable pandemic suggestions. But if this is how the administration functions during a relatively calm period, four years provides ample time for outlier events to occur. The administration’s ability to navigate and respond to external shocks — let alone self-inflicted ones — has significantly diminished in my estimation based on recent weeks.
Kevin Xu: I’d like to expand beyond the Loomer situation specifically, which I know you discussed in a previous episode. This relates to what Matt mentioned earlier about one of my personal indicators of the “cooked or not cooked” divide — the arbitrariness in our civic life.
One of the enduring strengths of the American system isn’t just the rule of law broadly, but specifically due process. The fact that any decision, large or small, follows a process that’s impersonal and largely apolitical. Whether you’re getting your Social Security check or renewing your driver’s license at the DMV — which may be inefficient but treats everyone identically — this extends to the other extreme regarding what influences the hiring and firing of important government officials.
Having served as a political appointee, as Peter has too, we understand we serve at the president’s pleasure. Being fired isn’t catastrophic for us. However, civil servants are different for very specific reasons. When institutions that traditionally uphold due process are systematically undermined, that pushes us toward the “cooked” side of the spectrum.
What Laura Loomer has illuminated as a circumvention of due process troubles me most — not specifically who was fired, which I don’t have a personal assessment of, but the process represents the biggest warning sign.
Matt Klein: This is consistent with how they’ve been rounding up people who are either legally in this country or whose status may be uncertain, then immediately deporting them to places like El Salvador before they can prove their status. You could do that to a U.S. citizen, and if you act quickly enough, they can’t prove their citizenship either. That pattern is concerning.
Kevin Xu: Exactly right. There’s anecdotal evidence around me now of people who carry extra documents despite being American citizens when traveling, such as going on a cruise. They think, “I don’t look the way some people might expect, so I need extra documentation to ensure I can return to my own country.” At the ordinary citizen level, this erosion of due process has already taken root.
Peter Harrell: Regarding the layoffs — setting aside how the recent NSC layoffs occurred — let’s consider the dismissals of career staff across agencies. This will adversely impact the Trump administration’s ability to pursue goals that many of us on this podcast and those listening would actually support.
A couple of weeks ago, BIS Undersecretary Kessler, who oversees export controls at the Commerce Department, spoke at a conference about ramping up export controls enforcement on China — something I would support. However, the administration has now laid off a large number of BIS export control staff. As a straightforward American, I struggle to understand how they expect to increase enforcement while eliminating most of the staff.
This will have two impacts — the more important being the effects on Americans who believed they were entitled to procedural rights only to discover they don’t have them. Additionally, the Trump administration itself will encounter barriers to pursuing even broadly supported goals because it won’t have the necessary staff to implement them.
Jordan Schneider: Matt, do you have any leading economic indicators for us?
Matt Klein: The most leading economic indicator would be asset prices. Academics refer to this as both a mirror and an engine. On the other hand, it tells us people are obviously less optimistic about the outlook for various reasons and more uncertain. On the other hand, high and rising stock prices have been a support to both consumer spending and business investment.
When companies have higher stock prices, they feel more comfortable hiring people and investing in capital expenditures. They’ll now be less comfortable doing those things, which could have self-reinforcing real economic effects. Consumers who look at their asset portfolios and think, “I’m doing well, I can afford to spend more of my income,” will be less inclined to do so.
Taxes are due next week, and people who make quarterly estimated payments will need to write a big check. These payments are based on what you earned last year, but you have to pay from what you have now. This will be unpleasant for many people.
The hard data we’ve had on inflation, unemployment, and other indicators have been acceptable, but that information is already outdated. The most recent employment data from mid-March was actually quite good in some ways, but much has happened since then. Most other data we have is from February, making it difficult to assess the current situation.
Survey data have been quite pessimistic, though with variation — some surveys look worse than others. The economic impact remains unclear at this point. The situation appears concerning, but that’s somewhat anecdotal and easy to say when stocks drop 15% in three days.
Jordan Schneider: Peter, do you have a nuclearization take for us?
Peter Harrell: The perceived lack of reliability of the US as a security partner will encourage a number of US allies and partners to take steps to increase their own self-defense capabilities across different vectors.
In recent weeks, several Eastern European Baltic nations have begun moving toward withdrawing from the treaty that bans landmines. They’re clearly signaling that, given Russian aggression and America’s potential pivot on Ukraine, they need more defensive weapons, including historically criticized ones like landmines. We’re already seeing evidence of countries revisiting aspects of their defense posture in light of these new geopolitical realities.
It would be quite rational for countries like Japan or South Korea to begin quietly considering what developing an independent nuclear capability might look like as a deterrent against Chinese or Russian aggression. Whether or when they will take that step remains uncertain, but it would be rational for them to begin contemplating it.
Similarly, a nuclear debate in Europe is emerging, but it will likely begin quietly before gaining momentum.
We are already seeing it, indeed. The question there is whether the issue will be developing an independent British and French nuclear umbrella that extends across Europe, or whether Germany needs its own independent nuclear capability. As Matt notes, we’re already witnessing that debate.
Matt Klein: Right. The Polish government has said that they now want to develop nuclear weapons.
Peter Harrell: Whether they’ll go nuclear in the next four years is uncertain, but we’ll likely see progress toward nuclear capabilities in Europe.
Kevin Xu: Returning to economic indicators, something that perplexes me — a factor on my own “cooked or not cooked” indicator — is the dollar’s value. Since the recent policy announcements, the dollar’s value has actually decreased slightly, which contradicts the theoretical best-case outcome of these policies.
The theory suggests that as trade barriers rise, the dollar should also strengthen against other currencies. This would shield some erosion of American consumers’ purchasing power while putting the government in a favorable position to refinance debt at lower rates, thereby reducing the deficit. However, this hasn’t happened yet. I’m curious about your interpretation of the dollar’s reaction. I have my own theories, but I’d like to hear your thoughts first.
Matt Klein: You’re right that the dollar’s movement was unusual and different from what many had anticipated. During the first Trump administration, officials claimed tariffs wouldn’t be as inflationary as critics thought because currency values would absorb some of the impact. Looking at what happened in 2018-2019 when they implemented tariffs, the dollar did rise to offset some effects. Earlier this year, when tariffs were announced on Canada, Mexico, and China, the dollar appreciated against the Canadian dollar, peso, and yuan, which seemed to confirm this pattern.
The textbook reasoning suggests that tariffs make investments in the United States relatively more attractive for selling to the US market compared to investments abroad. This should create financial inflows into the United States that strengthen the dollar. Yet that’s not what happened this time. Even with very large tariffs — essentially increasing our overall tariff rate from roughly 2% to 25% — which theoretically should make investment in the United States much more attractive, the dollar declined.
This outcome aligns with concerns about economic instability. Whatever theoretical attractiveness might come from these trade barriers has been offset by other factors. If investors believe the tariffs won’t be permanent or are uncertain about what the final levels will be, why would they commit to long-term investments?
There are arguments both for and against tariffs potentially boosting investment in the United States, but most would agree it depends on a commitment to policy consistency. This level of uncertainty is destructive to investment, compounding the fact that the tariffs themselves will negatively impact many existing investments.
Peter Harrell: What happened in the UK in fall 2022 provides an instructive parallel. During the very short-lived Liz Truss premiership, they introduced what was called the “mini-budget” — though there was nothing mini about it. They implemented major changes to taxes and spending that many considered irrational.
Part of what concerned observers was that they bypassed normal procedures established for presenting a budget in the UK. They have an Office for Budget Responsibility that’s supposed to provide independent forecasts, which they essentially ignored. As a result, British interest rates spiked dramatically and, despite rising interest rates, the pound sterling declined.
This prompted comparisons to an emerging market currency crisis. Someone coined the phrase “moron risk premium” — meaning the additional risk factor wasn’t about inflation outlook or deficits, but about the competence of the people in charge.
Something similar may be happening here. Whether the dollar will decline significantly from this point is impossible to predict, but the fact that it didn’t strengthen as expected, is indicative of something having happened
Jordan Schneider: The comparison of America exhibiting emerging market economy-level policymaking is perhaps the most succinct way to tie all this together. The problem is we haven’t had many global hegemons who transitioned from being functional to deeply dysfunctional.
Peter Harrell: The trade policy approach is truly striking. If the Trump administration had announced several weeks ago that they planned to launch investigations over the next six to twelve months — giving them authority to increase tariffs on Europe unless it provided better market access for our tech firms and reduced its car tariffs — the reaction would have been different. If they had focused on targeted tariffs to re-shore specific sectors we care about, economists would debate the pros and cons, but we would have seen an orderly process with a reasonable chance of achieving policy success.
Even if there were economic costs, we wouldn’t be witnessing these wild market reactions. But that’s not the approach they’ve chosen. Instead, they seem determined to turn the world upside down overnight and then deal with the consequences.
What’s particularly notable is the rhetoric over the past week describing this as “medicine” the American economy needs to adjust to. Historically, political leaders talk about economic “medicine” when facing a massive debt crisis or when the economy is in free fall, requiring tough choices to turn things around. You rarely see leaders advocating shock therapy for an economy that’s actually growing reasonably well. Typically, adjustments are gradual. This represents a historically unprecedented approach to economic policymaking.
Jordan Schneider: That’s true, although some people in the administration legitimately believe there was either an existing crisis or an imminent one. Whether you or I agree, that perspective might be informing their approach.
You’re right about the hypothetical alternative — an Earth Two possibility where we had a sane, rational, logical approach to restructuring trade relationships. But that’s not the world we’re actually in. Any closing thoughts?
Kevin Xu: Not cooked.
Peter Harrell: I agree, not cooked. We’re going to get through this.
Matt Klein: We’re not done yet. For all the damage we’re doing to our international relationships, if the US was able to become friends with Vietnam by the 1990s, maybe it’ll take some time, but we can be friendly with Canada again.
Jordan Schneider: Alright, I guess that means some Canadian outtro music as an olive branch to our friends from the north.
On April 2nd, we had Liberation Day, a tariff salvo that doubled as a bid to completely reshape the global economic order. Simultaneously, Laura Loomer walked into the White House and fired competent NSC staff who served under Trump 1.0 but apparently weren’t MAGA enough for Loomer and the president. What is going on in the Trump administration, and what does it mean for America's relationship with China and its future place in the world?
To discuss, we interviewed Tanner Greer, author of the Scholar’s Stage blog, who has written a guide for the perplexed. His new report, “Obscurity by Design: Competing Priorities for America's China Policy,” is the product of dozens of interviews and hundreds of hours of studying how key Trump policy-makers think.
We discuss…
Trump's decision-making style and desire for unpredictability,
Why Trump stokes conflict between warring GOP factions, and the policy implications of that approach to leadership,
Laura Loomer and the four quadrants of Trump World geopolitical ideology,
Historical parallels to this administration’s ‘Red vs Expert’ dilemma,
Trump 2.0’s approach to China, and whether Taiwan policy will emerge from the culture war unscathed.
Jordan Schneider: Let’s start with tariffs. How did we get here, and what does this tell us about the Trump administration?
Tanner Greer: This is what I spend the first part of my report discussing — how do we model Trump’s decision-making, and why is it sometimes so difficult to predict what he’s going to do?
There are two main reasons for this. The first is that Trump wants to be unpredictable. By disposition or personality type, he enjoys being impulsive and difficult to deal with. But over the course of his life, and especially his first presidency, he came to realize that the less people know what he’s going to do, the better off he seems to do. Regardless of whether that’s better for the country as a whole, many advantages for him personally accrue from being this unpredictable force — inputs come in, and we don’t know what’s going to come out the other side.
He believes this gives him negotiating leverage. He believes that this makes his strategies more likely to succeed. There’s something self-serving about this, but he has taken this disposition and elevated it to an official philosophy.
Jordan Schneider: In an interview with the Wall Street Journal editorial board before the 2024 election, Trump said there’s no way Xi was going to invade Taiwan on his watch because “Xi knows I’m fucking crazy.”
Tanner Greer: Yes. That was his exact quote. When it comes to Chinese leaders in particular, but world leaders generally, he wants them to think he could do just about anything. A lot of his behavior can be understood as an attempt to make that belief credible. Nixon had the same idea.
This is a key part, in my view, of why Trump does what he does. He actually believes that if he nails himself down by explaining what he’s going to do or how he’s going to do it, then that will work against him and remove his negotiating leverage in the future.
He views international relations as a set of iterated negotiating patterns, as opposed to charting a big long-term strategy of trying to get from A to B accounting for lots of inputs along the way. Instead, he views things iteratively, trying for a better position over time.
Jordan Schneider: We’ve got a lot of competing impulses here. You have these visions that have populated the GOP, where big tariffs need to happen in order to raise revenue, improve negotiating positions, revitalize manufacturing, and decouple us from China. Then you have this iterative game that Trump enjoys playing.
It’s interesting to me that tariffs, which he has clearly prioritized for years, have not had an organized rollout. Even though Trump has been focused on tariffs for a very long time, the implementation appears haphazard compared to, for example, the strategy to squeeze Ivy League universities and law firms.
Tanner Greer: There are essentially two reasons for this. First, as I mentioned, Trump believes that increasing uncertainty about what he will do next is to his strategic advantage. He clearly believes this in the international sphere.
Second, there’s a management style element involved. Trump doesn’t view this as a problem — he sees it as his preferred method of operation. His strong preference is to have a team with conflicting opinions. He wants personal loyalty, but as long as he has that loyalty, he prefers strong personalities who have widely divergent opinions on what should happen and how it should happen.
His management style is to pit these people and factions against each other, then act as the kingmaker who swoops down and chooses the winner of these various discussions. You could think of it as his way of solving the principal-agent problem. How do you keep a bureaucracy in line when it has its own interests? His preferred approach is to pit parts of it against each other.
This style has some advantages. Multiple people I interviewed pointed out that this is very different from how Condoleezza Rice ran the NSC in the lead-up to the Iraq War. Under Rice, there was an attempt to find a consensus position and present it to the president rather than allowing arguments to go directly to the top. If you’re a Republican who wants to avoid repeating the George W. Bush experience, you can understand why Trump’s approach might be attractive.
The weakness here is twofold. First, it’s difficult to implement long-term planning and maintain coherence month-to-month and day-to-day over time. Second, you run the risk of having competing priorities bound up in a single policy because the president isn’t giving top-down direction. Instead, he’s letting things come up to him, and not always making a decisive choice between the various options presented.
The result is multiple people supporting the same policy for conflicting reasons. With tariffs, there are multiple groups with different rationales for what tariffs should be and what they hope to achieve, especially regarding China. I don’t believe the administration has successfully integrated these different views into a coherent policy.
Nicholas Welch: It seems at least plausible that ChatGPT produced their formula for determining reciprocal tariffs. This formula is simple enough, but it’s not how one would normally calculate another country’s tariff rate. Could it be that they settled on this simple formula because of a lack of consensus about what the tariffs were supposed to accomplish?
Tanner Greer: There’s certainly been this idea for a long time — many people have been saying this for months and years — that we need something like reciprocal tariffs because many countries are implementing policies unequally. Additionally, there’s the argument that you need something beyond reciprocal tariffs — something truly measured — because countries will have all kinds of restrictions and their own industrial policies that don’t make the playing field equal.
That’s plausible enough. The question is, if you were given a deadline to calculate the impact of trade policies across the entire world on a bespoke basis — that’s quite hard to do. I don’t have any special insight into the process of creating these tariffs. All I can say is that I’m pretty sure the process happened that week.
Jordan Schneider: During his first term, Trump wrote a note to his staff saying“TRADE is BAD” at a G7 meeting.
Aside from the question of whether ChatGPT came up with the formula, basing it on trade deficits seems to align more with Trump’s thinking than with any of the grand visions of remaking Bretton Woods that we’ve seen emerge from the GOP ferment over the past few years.
Tanner Greer: That’s somewhat correct. However, if you look at these tariffs, they’re actually not that far from what Trump said on the campaign trail he wanted to do. Trump persistently said two things during his campaign. First, he wanted something like 10% tariffs across the board. Second, he wanted something like 60% tariffs on China. He mentioned those two numbers on multiple occasions.
Looking at the current numbers, China effectively has a 60% rate being applied when you combine earlier tariffs with the new ones. For everybody else, you essentially have 10% applied everywhere. On top of that, you have this reciprocal tariff structure that produces really large tariffs in some cases, like with Vietnam, while other countries face much smaller tariffs.
My guess — and this is just an educated guess as I haven’t talked to anyone in the administration recently since they’re all too busy right now —
Jordan Schneider: Lutnick and Bessent, you have an open invitation to come on ChinaTalk to discuss…
Tanner Greer: My guess is that Trump’s logic is something like, “This 10% is going to stick no matter what. And then all those other numbers are maybe negotiating leverage.”
Now, negotiating for what? What are you actually trying to achieve? I think there are multiple answers to that. But I suspect what Trump wants is to have all these world leaders basically come and kowtow, saying, “Okay, what do we need to do to get closer to that 10% and not be at whatever higher percentage?"
For some countries, like Cambodia, I don’t know what they could really do in a trade sense. They could maybe say something like, “We’ll also kick the Chinese out of the Sihanoukville naval base,” if that’s the sort of thing that Trump cares about, if that’s the sort of thing that USTR is willing to consider. But I think they’re probably just in trouble. Whereas a country like Japan has a lot more room for that sort of back-and-forth negotiation.
Jordan Schneider: Trump wants this to be an iterated game, and he wants to have a lot of fun calling folks and cutting deals left and right. But is there a point where people decide they don’t want to play anymore?
At what point, if ever, do countries just say they’re no longer interested in being on America’s team?
Tanner Greer: The question is, is that even possible? If you’re Japan, to take an example here, is it possible not to be on the American ledger, militarily or economically? I don’t know if it really is.
If you’re a country like Vietnam, geopolitically, yes, it is easier to balance away. Economically, it’s much more difficult. If Trump’s calculation is that because we have the consuming power, because our economy is so central to the world economy, many of these countries will have no option but to face the music — in the short term especially, that’s somewhat true.
The question is about alignment in the long term. This could create conditions where lots of countries on the 10-year horizon say, “Maybe we should look towards something more like autarky for ourselves, or maybe we should balance away towards some other option.” I can see that as a realistic response from some countries. But in the short term, I don’t think there’s a “We’re not going to play with the United States anymore” option. In 15-20 years, maybe.
Jordan Schneider: There were some expectations that you could make about America, really post-1945. Trump’s idea that trade is bad and other countries are ripping us off represents a fundamental shift — it’s no longer part of America’s strategic vision that the countries we’re friends with should also succeed economically.
Tanner Greer: I anchored this first part of the discussion by talking about how Trump enjoys and finds strategic value in uncertainty. In my mind, when you look at most foreign countries, what they want from the United States — those who are in our alliance system as well as those who are major trading partners — the vast majority of what they want is actually certainty. They want to know what will happen, at what speed, in what way, so they can prepare.
If you’re a mouse among fighting elephants, you really want to know where the elephant is going to step. Trump believes he has many advantages in not letting anyone know where he’s going to step.
I believe the ability of American allies to accept worse conditions relative to what they’ve been given is actually pretty high. What will be much harder for them is not knowing what conditions they can accept at any point in the future.
If they’re not given some sort of enduring deal that they believe represents the new reality — where they can assess those terms and say, “Okay, this is the new deal, we can do this or we can do things the Chinese way,” and can make that decision — problems will arise.
But if the reality is that the Chinese are very stable in what they want, while the Americans are all over the place — where allies don’t know what America will say, not just administration to administration, but month-to-month, year-to-year — that’s going to be a bigger problem. This will be even more problematic than just not treating allies as treasured partners that share values and other such principles.
This sort of capriciousness or arbitrariness will cause issues in the long term.
Jordan Schneider: Can you come back from something like this? We had big fights in Trump’s first term, and then we had USMCA. If playing these games and having a negotiation is the most fun thing for him, is this just the base case for the next four years?
Tanner Greer: This is an interesting case because we have a lot of data on how Trump ran the last administration — four whole years of how it worked. One interesting question is whether the way things have worked for the last three months is more predictive than how things worked during the previous four years.
There are some discontinuities. Take these tariffs, for example. When Trump announced the China tariffs in the first administration, they were implemented in installments. They started small. Well in advance, it was known that tariffs would be at this level, then this level, then this level, and so on as we applied graduated pressure against the Chinese. It was not “25% tariffs on this country tomorrow."
One question you have to ask is, what’s the difference between the two administrations? Why did the first one have this more measured response, whereas the second one does not? Even when playing the same game, the markets responded much better to the first approach because they had time to plan and prepare.
You could point to a few factors. Robert Lighthizer isn’t here right now. He was an extremely respected individual who had Trump’s ear. He was good at talking to Trump and getting Trump to say what he wanted to do. Lighthizer was very much of the mind that if we’re going to implement a tariff schedule, we’re going to do it above board. It’s going to be completely legally nailed down so the courts don’t challenge us and bring it down. We’re going to go slow and measured, but we’re going to do it.
The corresponding figure on trade policy in this administration seems to be Howard Lutnick. He doesn’t seem to have that same “slow and steady wins the race” sort of personality. This is just my observation as an outsider — I don’t have special insight into how it actually works. But based on what I’ve seen him say and what media reports say, it seems like he wants to push faster than USTR did in the previous administration. If he were to leave, then maybe things would shift somewhere else. I could see that happening.
Jordan Schneider: The whole idea is that you apply a coefficient of poor staff work to all the policymaking. You have both the Trump madman who wants to be on the phone hustling people, and you have poor execution. There’s an exemption for semiconductors, but it applies to CPUs instead of GPUs.
Clearly they wanted to have some carve-out for AI, but they just did it wrong with last-minute staff work. You’re blowing up Madagascar’s economy, and it’s not like America is going to be growing vanilla beans in the US anytime soon to compensate. If you’re going to let Laura Loomer fire people, are you going to get better staff and better execution? Probably not.
Tanner Greer: I’m sympathetic to the argument that what they want to do doesn’t matter if they can’t do it well, especially when trying to rejigger the global trading economy.
In preparation for this discussion, I reread something by Stephen Miran, who’s the Council of Economic Advisors chair for the Trump administration. He wrote a big 40-page paper in December with all kinds of academic citations about how we should use trade as leverage to redo the existing financial trade order to be more favorable to American manufacturers and more sustainable for American budgets.
It’s a pretty smart and interesting approach. What struck me in reading it now is how he talks a lot about being cautious and careful when implementing these changes. He emphasizes the need to be slow and graduated, “just like we were during Trump’s first term.” He says it repeatedly: “Just like we were during Trump 1.0. We need to do it that way, just with more ambition.”
Obviously, not everybody has his same agenda, and he’s not in a decision-making authority. That’s a consultative body that he runs. But it does point to the weaknesses of some of these approaches. If this was done in a measured way, I wonder if the responses would be the same throughout the commentariat. I suspect many people would be just as upset no matter what. But the markets would probably respond differently. I don’t think you’d have the big market run today if there was a slower, more measured, more carefully articulated version of what’s happening.
Jordan Schneider: I find it interesting how Trump, JD, and many others frame their economic and geopolitical actions as responses to a clock that’s almost run out. They argue we need to act boldly and quickly now. Otherwise, America’s fiscal health will be ruined, and America’s ability to exert influence globally will become a wasting asset that we need to use while we still have the chance. Thoughts on that, Tanner?
Tanner Greer: You can examine this at different levels of analysis. At the individual level, my report emphasizes that historically, the Trump administration has cycled through people quickly. What constitutes policy today may not be policy tomorrow as personnel changes occur.
This incentivizes individuals with a program to implement it as soon as possible and to do so in ways that make it difficult to reverse. This explains the preference for drastic actions. Consider the proposal to eliminate US aid on questionable legal grounds — the goal is to ensure that when people with different opinions arrive later, or when Congress mobilizes, the situation becomes irreversible. The tariffs approach follows a similar pattern.
Another perspective focuses on Trump personally. This is his final administration, his last opportunity. Despite speculation about a third term, his rapid pace suggests he doesn’t see it that way. He wants to make changes with visible impacts soon.
Furthermore, if you’re committed to transforming the global trade order, the global political system, or the federal government’s operational structure, many fear that proceeding slowly only provides ammunition to opponents and activates potential veto points. You need to move before that resistance mobilizes.
This probably reflects a direct lesson from the first administration, where many initiatives were frustrated — sometimes for valid reasons, often for completely irrational ones. Things were consistently delayed and obstructed, which has led Trump and his circle to conclude, “We can’t repeat the first term. We must take action immediately, regardless of staff preparation."
The priority becomes implementing significant directional changes rather than appearing methodical but never achieving results. Moving slowly creates enough opportunity for veto points, bureaucracy, and Congress to respond.
This aligns with Trump’s overall philosophy: “I operate best when people can’t predict my actions. If I act first and everyone else must react,” that’s his preferred approach. Proceeding deliberately forces you to respond to others as much as they respond to you.
Jordan Schneider: There was this concept of the “Trump put” during the first administration — the idea that if the market dropped enough, Trump would stop making unpredictable decisions. That safety mechanism seems mostly gone now. This is our first real test, I suppose. The psychological shift manifested in this particular behavior is a fascinating development.
Tanner Greer: The safety mechanism is mostly gone, although much depends on market performance over the next six months. Trump genuinely believes there will be a period of problems, but not permanently. If we experience a two-year recession, he would likely reconsider his approach.
Jordan Schneider: Assuming he would reconsider is one of the key assumptions I’m questioning.
Tanner Greer: I’m not predicting which direction that reconsideration would take. One consistent truth about Trump in power is that he’s constantly reassessing. He doesn’t maintain loyalty to ideas or people. He adheres to certain broad principles — negative views on immigration and trade — but demonstrates remarkable flexibility in his persona, and his base allows him considerable leeway in his actions.
The expectation that his current approach will remain unchanged two years from now is almost certainly incorrect. The uncertainty for everyone else is which direction he will take, as there are many possible paths.
Jordan Schneider: I see a potential scenario where Trump becomes like King Lear at 10% approval in 2027, essentially wanting to “burn the whole world down.” We shouldn’t entirely discount this possibility.
Tanner Greer: That’s not what concerns me most. The issue with Trump at 10% approval in 2027 wouldn’t be his desire to destroy everything but rather his fear that if a Republican doesn’t win the subsequent election, he might face legal consequences. That would be his primary concern.
The difference between Hitler and Trump is that Hitler was deeply ideological. Trump himself isn’t that person. It doesn’t align with anything I understand about his character. He likely believes he’s “God’s gift to humanity” in some sense, that divine protection saved him. But I don’t think he sees himself as “the embodiment of an abstract ideology that people weren’t ready to receive yet, weren’t prepared to purify themselves for in the grand struggle.” That’s not Trump’s self-perception at all.
MAGA’s Economic Factions
Jordan Schneider: Let’s discuss what people in Trump World actually believe. Let’s focus on the economic dimension. In your framework, you chart Trump World economic thinking along two axes — one focused on industrial renaissance versus emerging technology advancement, and another that considers whether the administrative state can be effective or is inherently weak and ineffective as a tool for change. Tanner, could you explain this quadrant of thinking? Perhaps assign some key figures to better illustrate the four corners for us.
Tanner Greer: There are certain economic views where every MAGA supporter has some consensus. Especially regarding the economic vision concerning China, they focus on winning the economic competition with China.
What does winning mean? It usually involves some sense of independence. There’s a widespread belief that the United States is too dependent on the world abroad and thus not free. To use Trump’s word from earlier this week, America is not “liberated.” He stated that this will be a new Independence Day declaration. The idea is that international ties mostly constrain us, making us dependent on other countries for basic goods and national security essentials.
The vision is a world where American strength and wealth don’t depend on the goodwill of foreign countries, but rather the reverse — where foreign countries’ prosperity and security depend on our goodwill. That’s the unifying vision.
Jordan Schneider: This is essentially an autarkic dream, right?
Tanner Greer: I don’t think it’s necessarily autarkic. It can be, but the fundamental question is who depends on whose good graces. Consider America in 1946, when the entire world’s economy had trade relations with us because basically the whole world was buying our products. I don’t think any Trump supporter looks at America from 1946 to 1955 economically and says, “That was terrible.” In some ways, they look at that period and say, “That’s great."
If we could recreate that world where America is the world’s factory and everyone buys from us — where they can’t cut us off, but we can cut them off — they’d be completely fine with that. The question becomes, what level of self-sufficiency is needed in a world where other countries are wealthier? What production do we need to replicate domestically? What can we source from abroad?
Generally speaking, all quadrants agree that globalization reduces America’s field of action. This is particularly dangerous because globalization has mostly benefited China. It would be one thing if we were ceding capability to Japan or the EU, which many view as problematic. It’s even worse when it goes to China, which has been the predominant story — China has gained many capabilities that America now depends on.
Having a geopolitical rival upon which you are economically dependent creates a problem in their mind. Are there some 1930s parallels? Yes, to some extent. But I don’t think the vision is complete autarky.
Nicholas Welch: In each of the four quadrants you’ve identified for economic policy makers in Trump’s orbit, what is the limiting principle? For instance, dynamists in the lower right quadrant — people who are skeptical of the administrative state’s capacity and want a tech revolution — might say, “We need to reshore manufacturing of critical national security items like chips.” People on the other side of the spectrum might argue, “We need to reshore tons of manufacturing capabilities."
Where does each camp draw the line as to what we need to bring back to America? Is the question whether we need to reshore T-shirts for American national security as well? Where does each camp set boundaries?
Tanner Greer: That’s an excellent question for understanding the divides between camps, especially regarding my first axis that separates the groups. This axis distinguishes between those who view winning the future, securing American national security, and taking control of the commanding heights of the 21st century economy in terms of developing new technologies versus those who want a much wider industrial renaissance.
You can think of it as a spectrum with extremes on each end. At one extreme is the person who believes the only thing that matters is AI — nothing else is significant, and if America wins the AI race, everything else falls into place. They believe nothing needs to happen for AI development except ensuring companies like OpenAI or Anthropic have the necessary funding and energy resources.
At the opposite extreme, you have someone arguing, “We need everything, including T-shirts.” In reality, most people aren’t at either extreme, but that’s the spectrum.
People on the right half of my quadrants — the leading tech side — typically come from national security backgrounds or tech investment backgrounds, sometimes finance as well. Let’s start with the bottom right corner, the dynamists. A prominent example outside the administration would be Marc Andreessen. Many people from his circle have joined the administration, and you can see their influence.
These dynamists look at American success over the last 30-40 years and argue that we need to replicate those successes. A chart that went viral on tech Twitter a few months ago showed the productivity gap between the United States and Europe.
In 2000, people thought the EU might reach the American level, but it hasn’t. The dynamists’ explanation is that America had the most important firms and the most significant technological advancements during that period, from Apple, Meta, Amazon, and Silicon Valley.
They often think in terms of firms. They want to ensure we have the winning companies for the future that will implement the next round of technological revolution. If those firms are Chinese, the productivity gap you see between the EU and United States will exist between China and the United States. We need to make sure our firms lead the way.
The rest of the story doesn’t matter to them. It doesn’t matter if we manufacture T-shirts. It probably doesn’t even matter if we produce steel — we can import that from other countries. What matters is that the firms capturing the largest percentage of global growth in the future, those at the forefront of new technologies, are American.
When looking at which suite of technologies will matter, they prioritize AI, semiconductors (especially if China might cut us off in the future), quantum computing, automated systems, robotics, UAVs, new energy technologies, aeronautics, and space. That’s the realm in which these dynamists think.
The group in my top right quadrant, whom I call the techno-nationalists, have a similar perspective but are even more national security oriented. Their argument is less about “We need to have the firms that generate the most economic growth” and more about “We need to possess the technologies that will have military applications in the future, and we must ensure we’re directing national resources toward that goal."
Nicholas Welch: On the two left quadrants, the people who favor an industrial renaissance, you write in your report that people in those camps see Silicon Valley not as a model of productivity success but as a cautionary tale.
Tanner Greer: There’s a national security-oriented way they view Silicon Valley, and there’s a more economic and political perspective. Let’s start with the latter.
Trumpism, in some ways, began because certain parts of the country felt left behind by the fantastic economic growth that occurred between 1990 and 2015. If you live in West Virginia, Buffalo, New York, or Winesburg, Ohio, the vast increases in American productivity and lower consumer prices haven’t been sufficient to offset what you’ve lost through deindustrialization.
As a practical political matter, these advocates point out that if we don’t have an economy that meets the needs of people who live in these swing states — who have been at the core of our movement from the beginning — then we’re doing something fundamentally wrong. This failure will create even worse populist eruptions in the future if we can’t address these needs.
There’s also an economic argument. Many of these proponents look at China and challenge a previous assumption: the idea that American companies could handle design while exporting the middle-tier, hard-tier construction to countries like China. The theory was that America would still lead in design and software — the user-end experience and the design experience — while all the middle manufacturing could go to China or other industrializing countries, making products cheaper without compromising our leading edge.
Many people studying the Chinese economy now — reflected in publications like American Affairs or American Compass — argue this assumption is fundamentally flawed. They contend that if you excel at production, you soon develop the skills needed not only to produce but also to design, engineer, and develop the backends. That’s precisely what’s happening in China right now.
Their argument is that if we follow the Silicon Valley model where Apple focuses on user experience and design but exports hardware manufacturing to foreign countries for cost savings, we’ll end up with companies like Huawei and Xiaomi leapfrogging America in developing new technologies because they’ve cultivated both design and engineering expertise. Electric vehicles exemplify this dynamic.
Jordan Schneider: That’s how we go from the VEC saying we should impose heavy tariffs on China but allow friendshoring, to the position that we also need 50% tariffs on Vietnam. The argument being those factories should be in America, not in other countries that don’t even support us anyway.
Tanner Greer: It depends on the particular product. Countries like Cambodia or Vietnam often produce T-shirts, which presents the hardest case for these advocates to make. But when discussing major industrial sectors like electronics or steel, they argue you need what they call a “functioning industrial ecosystem” — overlapping companies, integrated supply lines, and engineers within your country who will develop new technologies.
They add a national security dimension: if war breaks out, especially with China, it’s dangerous not to produce even basic materials like steel and aluminum domestically. Production facilities located far away can be targeted during conflict. If these materials are produced in China itself, we would lose access entirely during tensions. We need this capacity at home.
That summarizes the perspective of those on the left side of the framework: we need much more manufacturing here in America. Otherwise, we’ll face negative consequences in developing new technology, meeting the political and economic needs of average people across the country, and safeguarding our national security.
Nicholas Welch: Let’s say you’re an old-school Republican who still really likes the ideas of free markets, tax cuts, and deregulation. If you want to be influential to Trump, which camp would you most likely affiliate with to try to be in his orbit?
Tanner Greer: If you’re an old-school free marketer, you’d probably find the easiest affiliation with the bottom-right corner, what I call the decentralists. As a reminder, the top and bottom of the graph represent people who believe government should be used for conservative ends versus those who are deeply skeptical that government can be used effectively.
People in the bottom-right believe in a new technology paradigm and also believe that government mostly needs to get out of the way. Their program centers on generating economic growth and developing new technologies by eliminating regulations. This aligns with the “abundance agenda” and NEPA reform that many of these people advocate.
This perspective certainly aligns with what the “DOGE people” think and have been implementing — that the core problems are inefficient bureaucrats, DEI initiatives holding down the economy and foreign companies, and outdated 1970s environmental regulations. They argue we would already have nuclear power plants everywhere without these obstacles.
A free-market advocate can work with this group relatively easily. However, in terms of personalities, there might be clashes since many of these individuals come from tech backgrounds and don’t think or talk in traditional conservative ways. In terms of actual policy vision, this is where someone like Vivek Ramaswamy positions himself. He supports tariffs, but only for reshoring key national security assets. Otherwise, his goal is to remove government from the economy.
Nicholas Welch: Are we looking at a post-free markets America for the foreseeable future, or will there be a swing back?
Tanner Greer: There will probably be a swing back eventually, especially if we experience something like a Great Depression-style economic downturn. Often, free-market swings are reactions to previous approaches. Economic liberalism typically seems less outdated to people once it hasn’t been tried for a while.
In Trump World, there’s no coherent answer to this question, partially because of the diverse positions within the administration. On the top half of my framework are people who believe Republicans have been wrong since Reagan’s time, and that we need much more serious intervention in the economy to build the future.
There are generally two precedents cited for this interventionist approach. People in the top-right corner — the national security hawkish folks or techno-nationalists — frequently look back at Cold War-style economic interventions designed to create new technologies. Many technologies resulted from the marriage of government and private sector for national security needs. They argue, “If it worked for us in 1950, why won’t it work now?"
People in the top-left corner also believe in government intervention. I call them industrialists or industrial policyists because they strongly advocate for comprehensive industrial policy. Oren Cass is perhaps a leading figure in this camp. J.D. Vance and Marco Rubio are certainly in this group as well. They would like to see the full suite of policy tools used not just to advance American technology, but also to build American factories and create a more equitable — though they won’t use that word — distribution of economic benefits across the United States.
This top-left industrial policy camp, in my assessment at this point in the administration, isn’t securing many significant wins. They have intellectual victories and support tariffs, so if you consider tariffs a win for them, they’ve achieved something. But there’s little appetite in the administration thus far for the kind of spending these advocates envision. That’s perhaps the weakness of their approach — implementing robust industrial policy is difficult without raising taxes or increasing the deficit, both of which Republicans are very allergic to.
Let me address the bottom-left camp as well — the trade warriors — because there’s something non-obvious about their position. Many people attracted to tariffs are often critics of broader industrial policy. They disliked the CHIPS Act, for example. They are critics of the administrative state and don’t believe government can implement industrial policy effectively. Yet, they nevertheless believe tariffs might work.
This seems contradictory but isn’t necessarily so. Tariffs, though high-impact, are low-bureaucracy. The USTR has only about 200 people. They might need to add another 100 people to negotiate with every country in the world, but that’s still minimal. If you want an industrial policy that could operate with a night-watchman state — the kind of state America had in the 19th century — tariffs were precisely how America did it back then. If you want to pursue the “Doge thing” of dismantling the federal government without losing the ability to foster an industrial renaissance, you’re often very attracted to the tariff position.
Red vs Expert: Loyalty vs. Competence
Jordan Schneider: Tanner, a challenge for you — can you use Laura Loomer as a hinge to explain Trump World’s geopolitical camps?
Tanner Greer: Do we need any background for people who don’t know what happened with Laura Loomer? Maybe you should introduce it first. Not everyone will have seen that piece of news amid all the tariff coverage.
Jordan Schneider: I don’t know if I can properly introduce Laura Loomer, but I’ll try. Actually, why don’t you explain her in four sentences? I feel like you have a better understanding of her perspective.
Tanner Greer: Laura Loomer is a media personality and activist on the MAGA right. She was influential during the election and remained a constant ally of Trump throughout the primaries. One of her main focuses has been policing Trump World to ensure that “RINOs” (Republicans In Name Only) do not receive important administrative posts in this administration. Her theory is that much of what Trump wanted to accomplish in his previous term didn’t happen because he had people working against his agenda.
I dispute this theory, but we can discuss that shortly. The key development is that she recently came to the White House with a dossier containing evidence that certain individuals were “Never Trumpers” at some point and allegedly disloyal to Trump’s current program, suggesting they should be dismissed. It appears Trump removed several of them based on her information.
By my count, three people in the National Security Council were let go. This morning, news broke that both the head of the National Security Agency and the deputy director were also dismissed, presumably because of whatever Loomer presented in her dossier. However, not everyone she targeted has been removed. People like Alex Wong or Ivan Kapanadze on the NSC, whom she has frequently criticized publicly, still retain their positions. In essence, she provided a briefing, and subsequently, people were fired.
Nicholas Welch: Try as she might, Laura Loomer will have a very difficult time firing Vice President JD Vance, who was once a Never Trumper. Good luck to her.
Jordan Schneider: She’s also a member of the tribe and has a huge bone to pick with Elon, particularly for his China connections. This is interesting because it’s not really something that’s come up much in discussions.
Tanner Greer: She’s not the only one from that faction. Steven Bannon has also gone on the warpath against Elon for months for very similar reasons.
There are two ways to view what happened. You can see it as crazy that far-right internet personalities are firing people in the National Security Council, which obviously won’t lead to good policy. Alternatively, you can view this as a fight within the Trump administration itself between different factions, and I suspect the second interpretation is correct.
Loomer is likely as much an agent of certain forces inside the administration as she is an outside influence. This provides a way for people who dislike certain policies to bring issues to Trump’s attention without appearing self-serving. I don’t know if that’s true, but if it is, it’s very clever.
It wouldn’t surprise me to find out that people in the administration helped orchestrate this whole situation. How else would Loomer learn all these details about what David Feith thinks? She’s not part of that sphere, but there are people who are and who know Laura Loomer. That’s my guess about how this actually happened.
Nicholas Welch: It’s a hit job. We’ve got people paying Libs of TikTok and other influencers to dig up dirt. It’s like an internal cancel culture.
Tanner Greer: This isn’t new or unusual in the long history of American politics. It’s not that different from leaking something to the New York Times to discredit somebody internally. The difference is Trump doesn’t care about what the New York Times thinks, whereas he will give an audience to Laura Loomer. The dynamics are not that different.
Jordan Schneider: And he makes JD Vance and other cabinet officials sit there while she berates them, which adds another level of wildness to the situation.
Tanner Greer: But did JD Vance mind? He’s on the opposite side of these debates from the people who were released. In some ways, this benefits JD Vance, assuming he actually cares about his political program, which I believe he does.
Unlike Trump, Vance is more of a true ideological believer. He’s enough of an ideologue to actually believe in ideas as such.
Nicholas Welch: For sure. There was this quote from Time Magazine. Vance had an interview there back in 2021. Vance told Time, “Trump is the leader of this movement, and if I actually care about these people and the things I say I care about, I just need to suck it up and support him.” That’s 2021 Vance. This appears very consistent with how he is now. He does have a definite ideological vision.
Tanner Greer: Two consistent themes with Vance during this time are evident. First, he views his job as vice president to be the prime public defender of Trump, period. This is similar to how Nixon was with Eisenhower — the idea being that Eisenhower could stay above the fray while Nixon would handle all the difficult matters. Trump doesn’t necessarily want to stay above the fray all the time, but the dynamic is very similar.
Second, when it comes to personnel or influencing policy that is one level below Trump’s direct involvement, you can see Vance’s concerns manifest. He definitely has a project.
Jordan Schneider: The quality of staff work cannot be dismissed. There is not a deep bench for this expertise. If you want to press a button as a president and have it create a certain outcome, you need people to cross I’s and dot T’s. The more this happens, the more you have to resort to increasingly junior people who simply won’t know how to fly the plane.
Tanner Greer: This is a real concern and a real problem. The Trump administration has what might be called a “Red and Experts” problem. I’m writing an essay about this that you’ll eventually see, titled “Red and Experts."
Let me give you a non-totalitarian example of this concept. “Red and Experts” is a phrase used in communist systems, especially in China — hong yozhuan — to describe the kind of people Mao wanted running his systems. Communists come into power and face a problem: the median person in the bureaucracy belongs to the bourgeois class they’re trying to overthrow. They strongly believe that the preferences of people from this class are orthogonal to the program they want to implement.
So what do you do? Do you put these “bad class element” experts in charge, or do you appoint ideological believers (“reds”) who don’t know what they’re doing? Ideally, you find people who are both red and expert, but otherwise, you must triangulate this problem. This has been a consistent challenge throughout human history whenever one group takes over.
A compelling example of this occurred when Republicans first came to power in 1860. When Republicans took control of Congress and the executive branch, it was after Democrats had controlled it for a very long time. Most of the military consisted of Democrats. Half of the military seceded to the South. Most of the remaining military voted Democrat.
Republican after Republican in Congress dragged generals through hearings and constantly protested to Lincoln, saying, “The reason we’re not winning this Civil War is because we aren’t putting in power people who believe in the program. We keep appointing people who are sympathetic to the South, who like their old Southern comrades they’re fighting against, who don’t want to abolish slavery. If we put our people in power, they would fight the war much harder and do the tough things that need to be done."
Lincoln tried this approach in a few cases — John C. Frémont, for example — but they didn’t perform well. Ironically, the generals who performed best for the Union were often people like Sherman, who before the war didn’t want it to happen. Sherman was teaching in the South at the time and, after his first meeting with Lincoln, thought, “This guy’s an idiot.” As Sherman notes in his memoir, “I hated him when I first met him. I thought he was an idiot. It was his fault this war was happening."
But Sherman liked to fight. Grant liked to fight. They were very good at fighting. If you could get out of their way and let them do their job — killing people and burning things — you could achieve success. Looking at the class of generals and admirals who won the war — Farragut, Meade, and Sheridan (who was very Republican) — as a whole, it’s not an extremely ideological group. What mattered was their competence.
The problem in the U.S. Army in 1860 was that there were many incompetent generals who hadn’t fought in a war. If the Republicans today were saying, “The problem is we have too many incompetent people who haven’t experienced the pressure of wartime to rise to the top. What we need is to find competent people who will do what we tell them and do it well because they’re American” — if they cared more about that instead of loyalty tests — they would likely perform better. The general lesson of this “red and experts” problem is that you only succeed when you learn to have reds who can effectively manage experts.
Jordan Schneider: We do have a two-hour Civil War history show coming out soon, I promise. The dynamic that Tanner is talking about is written up beautifully by Bruce Catton in his book “Glory Road.” It’s part two of a trilogy about the Army of the Potomac.
When I was reading that, it felt very much like Stalin in the 1930s — there are snakes in the grass who aren’t supporting the program. We can reference Hitler again: “My generals are betraying me. They launched Operation Valkyrie, so of course they were always against me from the beginning.” This whole notion of “I am losing because I don’t have loyal people executing my vision” is a great psychological excuse for failing in other dimensions.
In reality, there are many human endeavors where you actually need the person with the PhD or the person with 15 years of experience, rather than someone with the right ideological orientation.
Tanner Greer: I don’t want to diminish this concern. People can make a good argument that in 1860, George McClellan prosecuted the war with less ferocity than he should have because he was sympathetic to the South. This argument might be true.
Throughout human history, there are numerous examples of disloyal bureaucrats subverting a program. However, in my mind, this isn’t an argument for replacing everyone in the bureaucracy with loyalists. It’s more of an argument for finding people who are skilled at getting bureaucracies to do what you want.
Don Rumsfeld had a Pentagon full of people who didn’t agree with his program, but he was very good at getting them to do what he wanted. That’s the quality you should be selecting for. They probably underestimate the number of people who, while not necessarily Trump voters, will simply do what they need to do because they believe in following government directives. There are actually many people like that.
Jordan Schneider: But here’s the thing, and this comes back to the beginning of our conversation, Tanner — if we don’t actually have a clear vision, if the vision is simply “I am Trump, I like negotiating, I like keeping my cards close to my chest,” then the people who aren’t comfortable with “let’s just defer to this guy” present a problem. It’s hard to point a Donald Rumsfeld in a particular direction because that direction might change completely two months from now.
Tanner Greer: That’s fair, although the problem with Don Rumsfeld too is that in some ways he had his own vision that wasn’t matching up with Bush’s. At the top level, I’m more sympathetic to Trump’s position. He feels that various National Security Council principals — at the level of Rubio, Waltz, or Hesgett — are pursuing agendas that contradict what he wants to do, similar to his experience with Mattis.
I have sympathy for him saying, “I need people in my decision-making council to at least not be pursuing their own programs, but bringing the decisions up to me.” I’m not sure that’s what happened here with this Laura Loomer situation. I’ve seen no evidence that David Feith was pursuing his own agenda. I think it was more of a pure loyalty test where, at some point between 2020 and now, he must have said something that sounded anti-Trump, and now he’s being cut off.
Jordan Schneider: He doesn’t get the JD grace.
Tanner Greer: That’s right.
Taiwan and the MAGA Geopolitical Compass
Jordan Schneider: Let’s get back to our geopolitical quadrants. We have one axis that represents optimism versus pessimism for American power and capability. The other axis represents power-based viewpoints versus value-based viewpoints of how America should think about and interact with the world.
Tanner Greer: The first and most important of these axes is how you feel about American power. Do you feel confident that America is strong, that its potential is under-utilized or unrealized at the moment? Or do you think that America is basically in trouble — culturally, fiscally, politically, militarily — unable to do what it once was able to do?
This distinction matters, especially when it comes to China, because it impacts what kind of posture America can afford to take. If you think America is fundamentally weak, you believe the range of possible outcomes with China is much more constrained, and the best case is something like détente or a balance of power. Preventing China from invading Taiwan becomes the best we can do — and maybe much less than that.
On the flip side, if you believe that America is fundamentally strong, you are often much more willing to consider maximalist solutions with China. You might believe we can achieve victory against China or force them into some sort of Cold War collapse. You’re also much more likely to think there aren’t trade-offs between China as a problem and other global hotspots. We don’t necessarily have to withdraw completely from Ukraine to focus on Taiwan because we have the potential resources to address both challenges. We just aren’t using them smartly enough, or our defense budget is insufficient. The defense budget isn’t a law of the universe — it could be changed. What Trump wants will happen, so let’s convince him to increase our defense budgets.
That’s one axis. The second axis is whether you analyze American foreign policy primarily through the lens of realpolitik hard power, or if you believe there are other values-based considerations that matter.
The top half of my diagram represents the realpolitik adherents. They’re straightforward to understand and follow a relatively simple model. They believe force is the most important factor in international relations, and what matters is whether America has it, and whether alliances contribute to or detract from American power. The people in the bottom quadrants are quite different.
Nicholas Welch: The two different camps of values-based perspectives actually differ in the kinds of values they’re assessing. Can you describe how those two camps differ?
Tanner Greer: Yes, that’s right. They’re less parallel than the top ones. For the top quadrants, if your calculation of American power changed, you would simply move from one camp to the other. But for the bottom people, they share a similar way of thinking about the world, which is that the international order has a feedback relationship with domestic values and order.
Just as domestic statecraft should be informed by a positive vision of what we want to achieve — a vision of the good — they believe the same applies to the international sphere. People at the top disagree, arguing that only power matters and everything else is a distraction or contradicts the different logic that operates internationally. The people in the bottom two quadrants reject this view.
The people in the bottom-left corner, whom I label “crusaders,” believe you need to forcefully defend abstract ideals like democracy and liberty on the international stage. By defending them globally, you’re reinforcing them at home, and they view China as threatening these values domestically. They often focus on influence operations as the primary problem China poses for the United States.
They also have the reverse perspective. One paramount example would be someone like Miles Yu, who strongly believes that democracy and human rights aren’t just good ideas but potential weapons to use against the Chinese Communist Party. Where the communists say, “All these things are meant to undermine us. All these ideas and the international order are eroding our internal regime,” someone like Miles Yu would say, “That’s great. Let’s do it consciously instead of unconsciously.”
Nicholas Welch: In your preview of this report back in October, you called this quadrant “restrainers.” Now you call them “culture warriors.” Can you describe what the restrainer/culture warrior people think?
Tanner Greer: I don’t call them restrainers anymore because I realized this term was getting confused too much. “Restrainers” represent a long academic tradition of people arguing, “The United States needs to come home for strategic reasons. We need to be more isolationist. It would be better for the whole world if we were that way.” Many people in the culture warrior camp think that, but they arrive there through different logic.
Their main concern is winning the culture war. Their main concern is recreating the American economy, politics, and culture along grounds they find less hostile to their worldview. They have numerous internal divisions about what those specifics are. The main point is that they don’t like the standard progressive liberal orthodoxy that inhabits most of the American bureaucracy, academia, NGOs, and much of the corporate world.
These individuals tend to view the liberal international order as an extension of the same progressive order at home that they’re fighting against. They view it that way in two respects. First, they see the national security bureaucracies that maintain this order as strongholds of the worldview they oppose — CIA, FBI, even the military officer corps, full of progressives. Second, they believe there’s a feedback relationship, where maintaining the international order reinforces a set of values that is then weaponized against them domestically.
Therefore, they see no reason to sacrifice American dollars and American blood to uphold a system that they believe is trying to eliminate their cultural commitments. That’s their basic belief.
You could add a third element: traditionally, Republicans are elected, they believe, to roll back certain social and cultural conditions. This never happens because Republicans always concentrate on foreign affairs. They argue we need to reduce focus on foreign affairs so that domestic cultural issues can take precedence. That’s the logic of these folks.
Jordan Schneider: Tanner, why don’t you connect this quadrant to caring about defending Taiwan?
Tanner Greer: What does Taiwan mean to these four quadrants? For the last few years, the Taiwanese have emphasized, “We are a democracy. We’re a liberal democracy in Asia.” They’ve often said things like, “We’re the only liberal democracy in Asia that has legalized gay marriage.” This is not only unconvincing to these people, it’s an anti-signal — an argument against Taiwan’s defense.
Many of these individuals would not be willing to defend Taiwan for the sake of values they don’t necessarily hold. They often view competition with China as a problem only insofar as China has a hostile relationship with the United States because we need to address necessary trade issues. They want a military guarantee so they can pursue aggressive trade policies without China escalating to military options.
Otherwise, they don’t believe the United States has a vested interest in fighting a war with China, especially over Taiwan. Some might acknowledge broader questions about China’s power over us and the importance of maintaining American independence. However, they don’t necessarily see defending allies worldwide as the best route to protecting American independence.
Instead, they often view such defense commitments as excuses the national security state uses to increase its own power within the political coalition and strengthen its position in American society.
Nicholas Welch: Can we apply the Taiwan policy framework to the remaining three quadrants? We’ve covered the “prioritizers” who are skeptical of American power but have power-based viewpoints. Can you highlight the difference between a “primacist” (someone who’s power-based and optimistic) versus a “crusader” (someone who is optimistic but values-based)? Primacists aren’t going to say they don’t care about democracy at all. Being American, they’ll probably say things that sometimes sound like crusaders, even if it’s not as explicit as someone like Miles Yu.
Tanner Greer: The restrainer types do care about democracy as majoritarianism for America. They care about freedom of speech in America. They often view national security matters as harmful to those American values.
Someone like Senator Mike Lee, a prominent figure in this world, constantly talks about how democracy and liberties are being sacrificed for an unnecessary foreign policy. Or Russ Vought, who now heads OMB, makes essentially the same argument that our focus on foreign policy has come directly at the expense of domestic priorities.
Prioritizers are also skeptical of American capability and power. They’re somewhat pessimistic about America’s future, and this affects their views on Taiwan and China. Their standard position appears to be encoded in their stronghold at the moment — the Office of Secretary of Defense at the Pentagon. Many of these individuals have been placed there, and there was a recent Washington Post report about a new memo stating that Taiwan must be the organizing contingency for the entire United States military.
That’s not a restrainer or culture warrior approach to the problem. The prioritizers’ view is that they care about similar issues as culture warriors, but they think those individuals are too blasé about what happens if China becomes the global superpower. They believe Taiwan is the only place where China can be stopped from becoming a global superpower. Therefore, everything else needs to be deprioritized to focus on this challenge. They argue we must exit Ukraine, leave the Middle East, and concentrate all resources on Taiwan because America is in such a weak position that unless we do that, there’s no chance of victory or deterrence.
Jordan Schneider: In your paper, you connect domestic success on culture war issues like DEI to America’s ability to project power globally and win wars. Could you expand on that for us?
Tanner Greer: Think of it this way — the primary difference between the various camps and their policy approaches is how strong they think America is. What factors contribute to this assessment? This will vary from person to person. Some factors are obvious, like comparing the number of ships we have versus the number they have. Other factors are more intangible.
Much of the pessimism on the Trump side stems from their belief that America needs to be made great again because it currently isn’t. They believe America is culturally falling apart, becoming progressive, and experiencing cultural disintegration where people don’t feel loyalty. Citizens won’t sign up to fight for the military. There’s no longer a martial spirit inside the military nor cultural coherence outside of it. They believe we can’t get the bureaucracy to do what we need, so if there is a contest with China, we’ll be fighting against ourselves the entire time.
These perceptions factor into calculations about whether America is strong enough to deter a war with China or accomplish other objectives. This connection is important and very underemphasized.
I recommend people read an essay written by Michael Anton in 2021 for The Federalist, entitled, “Why It’s Clearly Not In America’s Interest To Go To War Over Taiwan.” Michael Anton is now heading policy at the State Department. In the essay, he lists reasons why we shouldn’t defend Taiwan, most related to America’s lack of strength.
When explaining why he believes America isn’t strong, he mentions the typical concerns about shipbuilding numbers but then adds points about pride flags and transgender troops. He presents a whole list of cultural issues that most foreign policy analysts, both domestic and international, view as separate from foreign policy. For much of Trump’s inner circle, that separation simply doesn’t exist.
Jordan Schneider: This is where I see the Nero decree energy coming back. If progressive policies appear to be winning in 2027, then I imagine the Taiwan commitment will become less clear. Wouldn’t you agree?
Tanner Greer: Yes, I would agree. There will be more forces for restraint in a world where Trump’s people feel that all their initiatives — DOGE, tariffs, remaking the global order — have failed. Perhaps there’s an argument that they might look for a war to appear strong and gain more trust than Democrats. That’s a possibility, but my intuition tells me differently.
If, after two or three years of Trump in power, America appears to be in a worse position culturally, economically, and politically than when he took office, this will translate into a larger percentage of people around Trump feeling America is incapable of standing up to China. They might believe America needs to compromise and regain strength before confronting China — essentially adopting a “hide and bide” approach.
Jordan Schneider: You note in your paper, Tanner, that they’re playing half-court tennis. Is this surprising? Does it tell you anything?
Tanner Greer: I asked all these people about their ideal China policy, what they want to achieve, what the world would look like after their policies were implemented, and what tools they wanted to use. Everyone had extensive answers and freely expanded on these questions.
I also asked them, “When you do X, what do you think the Chinese will do in response?” No one ever brought that up on their own. Some could give reasonable answers when prompted, but they all needed prompting to view it as an action-reaction dynamic.
In some ways — and this thought has only occurred to me during our conversation — this is almost the opposite of Trump himself. Trump is highly tactical, focusing on moving from one thing to the next, whereas everyone else has these grand plans. They have specific end states they want to achieve with China and programs of things they want to do, without thinking about the Chinese response.
Trump, conversely, seems to think more about potential responses, and intentionally does things that will provoke the response he wants. I think this disconnect is probably a problem. It makes it difficult to bridge Trump’s approach to policy with what these advisors want to do, even if they weren’t all pursuing different objectives.
The Chinese will respond. I would feel more confident if more people had thought through the Chinese response to their economic policies. On the economic side, many of these people would hold similar economic ideals whether or not China existed. For some, China serves as a convenient boogeyman. For others, China provides evidence of how American economic policy could improve.
But rarely is China the reason they arrived at their positions — it’s more of a case study supporting what they already wanted to do. I suspect there might be several surprises when we act and the Chinese respond in return.
Jordan Schneider: Let’s close on that. Tanner Greer, you’re a Mandarin speaker and Council on Foreign Relations researcher working on the open translation project — how will China make any sense of all this?
Tanner Greer: The first question, which I don’t know the answer to, is how much discernment do they have of the intricacies I’ve described? If they were very strategic, they would analyze these different factions and maneuver in ways that strengthen some over others. I doubt they will manage that. The Chinese haven’t demonstrated a good track record of understanding American politics or manipulating it effectively during the Xi Jinping era.
Jordan Schneider: I don’t think Tanner’s going to be consulting for them anytime soon. This podcast is all you guys are going to get.
Tanner Greer: They could read my report since it’s publicly available. But whatever intern at the embassy reads my report, the information getting filtered up to Xi Jinping involves steps that probably matter. I’ve met or seen some people at the embassy, and many are actually quite savvy about American politics. This suggests there’s something between the ground-level analysts in DC and Xi where information gets distorted.
Alternatively, there may be other pressures in their domestic system where people take actions for reasons beyond just anticipating American responses. There’s a mirror problem here.
In the short term, my guess is they’ll position themselves as the reasonable actors on the international scene in contrast to the chaos of the Trump administration. If they’re smart, they’ll emphasize the predictability/unpredictability dynamic I’ve already mentioned. You can already see they’ve started releasing propaganda about how they support trade and international cooperation. They’ll continue that approach.
The more interesting question is whether they’ll take a harder or more accelerated position on Taiwan. Unless Taiwan does something provocative, I suspect the answer is no. They’ll likely view the chaos in the United States as confirmation of their narrative that the East is rising and the West is falling — that is, that time is on their side.
My guess is they’ll conclude, “We just need to be the calm, stable power while the Americans appear erratic, and everyone will see who’s the better partner. Taiwan will observe this dynamic, too.” The Chinese will believe they’re only getting stronger militarily and don’t need to take immediate action. But that’s just my assessment. Many factors could alter this trajectory.
Jordan Schneider: One last question for you, Tanner. History is contingent. Trump is a unique figure. DeSantis could have won the primary. Trump could have been impeached in January or survived two assassination attempts during the election. What was and wasn’t inevitable given a Republican president winning in 2024?
Tanner Greer: The developments with Ukraine were not inevitable. What has happened in Europe was not predetermined. That’s the first point.
The general trajectory on the geopolitical side — the department orienting strongly towards Taiwan — was to some extent inevitable.
The real interesting question concerns tariffs and trade. A larger reckoning with the current international trading order was coming regardless. Personally, I believe this order is not sustainable as it has been. I hear many neoliberal voices suggesting we just need to return to Obama-era policies and that everything would be fine. This perspective is utterly insufficient, especially if you’re a liberal who dislikes Trump. You must recognize that this order in some ways produced him.
Whether Trump had died last summer or not, we would be experiencing some sort of reckoning with what the global order would look like. Would it happen exactly this way? Probably not. The post-Bretton Woods era, the globalized era from the 1970s until now — whatever we want to call this world — is naturally reaching its conclusion. The question is how much agency we’re going to try to exercise over this process, and how much agency anyone can have.
I don’t have simple answers. The Trump team’s divisions and Trump’s erratic personality certainly make it more difficult to exercise control against what I’d call the friction of the universe. But there was no path back to 2016 at this point.
要知道，真正激进的女性主义运动必须要团结所有可以团结的力量，并深深地扎根于物质世界。这可能意味着给无家可归的女人送盒饭、给山区女孩邮寄卫生用品、给想离婚的女性提供可负担的法律咨询、建立为离家出走女性服务的庇护所、在广大农村地区开办女子学校。更进一步地，是以倾听感受、理性讨论为基础，循序渐进地设置议程、一步步推动政策乃至法律层面的改变。而如果这些听起来很难，那大家不妨从「在女性朋友/亲人/伴侣需要我们的时候到场」开始——涓涓细流也会汇成汪洋大海，The personal is the political.
In light of “Liberation Day,” we’re taking this show out from the archives — about 1930’s trade policy and the dangerous search for national self-sufficiency with Nick Mulder, where we discussed his book, The Economic Weapon. (You can listen to part one here.)
In this episode, we’re going to get into the juicy stuff around the late 1930s, the leadup to World War II, and interesting parallels that you might see today with what the US is doing with respect to China, trade and technology.
We address:
Why countries yearn for autarchy aka rohstoff freiheit, “raw materials freedom”
Why states start wars because of “temporal claustrophobia,” and what it has to do with Japan ultimately siding with the Axis;
Parallels between the “ABCD circle” (America, Britain, China, Dutch East Indies) and the semiconductor export controls today;
Why having an empire was a liability for Britain;
What sanctions had to do with the Czechoslovaks — even with a larger army — falling to the Nazis.
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Autarchy fun and games until someone goes and starts a world war
Sanctionomics
Jordan Schneider: So, Mussolini invades Ethiopia, the the League of Nations lowers the economic boom on him, but too slowly to make him lose the war.
Watching the world really economically squeeze a middling power focued minds in Nazi Germany and Imperial Japan.
What was the reaction that you saw in the sources of the leading Axis powers as they saw Italy struggling under the weight of global economic sanctions?
Nick Mulder: Italy is put under sanctions about a month after it invades Ethiopia — so November 1935. And what you can see from that point onward in discussions — in Nazi Germany particularly, but also in Japan in the months and years following that — is an increasing focus on what sanctions would mean for them.
In German, in fact, this already precedes the sanctions against Italy. Of course, they had been exposed to a particularly nasty blockade in World War I — they have that memory; the Nazi ideology is very concerned with food security. So they have plenty of reasons to be focused on that.
In Germany — which at that time also was operating really on a shoestring amount of foreign exchange reserves — this was very worrisome. Germany, of course, was engaged in one of the largest armament efforts ever seen in a capitalist economy in peacetime, as Adam Tooze shows in Wages of Destruction. And their external dependence was massive: n order to run all those steel industries, all the energy, the coal, the oil — you need to import it. And interestingly, because of the Great Depression, imports of these commodities had actually become cheaper because there had been a huge commodity downturn.
So you think that the Great Depression causes trade to collapse and the sanctions will no longer work. Actually, the opposite is true for a number of key commodities. The commodity downturn is so severe that it becomes extremely cheap to source oil, coal, iron ore, textiles, raw inputs for a variety of industries, scrap metal from abroad.
So that is the weak Achilles’ heel that Nazi Germany and Japan (with a very similar industrial structure) both have — and that is what they choose to then start protecting.
And in Germany, there’s a really direct effect of the League’s sanctions against Italy on [Germany’s] thinking. The main body that’s in charge of national defense planning — it’s called the Reich Defense Council (Reichsverteidungsrat) — gets together in early December 1935. And it has all the key people there: Hjalmar Schacht (the Reichsbank chairman and Finance Minister), the heads of the General Staff and planners, [Alfred] Jodl, [Wilhelm] Keitel; and soon, in the spring of 1936, Hitler joins them, too. And at each of those meetings they emphasize, “We need to look at what’s happening to Italy, we need blockade resilience, and we need to figure out how we move not just from a kind of trade-commercial protectionism, but to an economic model that is immune to sanctions.” And what they mean by that: it’s immune to having raw material imports severed; they call that rohstoff freiheit, or “raw materials freedom” — they have total autonomy because they have all the raw materials they need for war.
That becomes the aim of their planning going forward, and the main thing that it manifests in is the famous Four Year Plan that is announced in the spring of 1936 — while the League’s sanctions against Italy are still in effect. And it’s then given a particularly powerful head: Hermann Göring becomes the head of the organization running that, and they have a goal: “within eighteen months we want to be independent in terms of fuel from the rest of the world economy, and within four years we want to be totally ready for an aggressive war of conquest.”
Jordan Schneider: What’s the difference between autarchy and autarky?
Nick Mulder: Yeah — so we spell it different ways. Some people write it with a k — that’s the most common. But you also see it sometimes with ch. And there’s an interesting etymological difference between them.
The older version is autarchy, which comes from autos — so it means to rule oneself, to be independent, to be in command of oneself in one’s own position. And that basically just means that you have autonomy, political or otherwise.
Autarky actually comes from the verb arkhein, which is to suffice or to subsist. And that means that you could actually survive off of your own resources. So that’s a narrower definition.
And the interesting thing at the time (one of the famous Italian economists, Luigi Einaudi, notes this): some states that try and become autarkic — actually have access to all the resources that they need within their own territory — lose the ability to have full independence, because they need to engage in policies that are so radical that they effectively close off lots of options for themselves politically. And that’s actually what I think ends up happening in the 1930s: the road to full self-sufficiency is a road that goes through conquest. And that ends up accelerating this war — that had already been in the air was already very possible — but it ends up bringing on a kind of war that is particularly virulent and aggressive and even genocidal, I would argue, because of some of these dynamics.
Jordan Schneider: Let’s talk a little bit about import substitution and the role of German industry in not only becoming self-sufficient by conquering other people’s lands that had coal and cotton, but also changing the way that they consumed those raw materials in order to make themselves more self-sufficient.
Nick Mulder: Yes — there’s a number of schemes that they launched in order to become self-sufficient, and some of them had already been pioneered in World War I and in the 1920s.
So World War I has this big scientific breakthrough that today still powers a lot of global agriculture and sustains a huge part of the world population: the synthetic fixation of nitrogen, which allows you to make fertilizer using simply oxygen. And it means that you no longer need to use saltpeter and some nitrates that you get out of the ground. You can actually use atmospheric components. That’s one thing.
The other thing is fuel hydrogenation. And IG Farben, which becomes infamous for creating Zyklon B — the gas used in the Holocaust — also is one of the main huge German chemical corporations that pioneers a technique for turning coal into oil. [Coal and oil are] both forms of carbon energy, but coal is a lot harder — it’s kind of as if you imagine (even for people who don’t do chemistry) that you add a ton of water to coal, and you put it under an enormous amount of pressure, and you heat it and actually you get something approximating some sort of oily substance; you don’t need to refine it. It’s extremely energy intensive, very wasteful, and very inefficient — so you need an enormous amount of feedstock and fuel in order to get this reaction going. But it is possible for countries that have only coal to turn it into gasoline and a variety of other things, particularly aviation fuels, through fuel hydrogenation.
So that’s the technology that the Nazis hope is going to make them ultimately independent of imports of oil. And as the League of Nations considers this sanctions measure — extending the sanctions against Italy with an embargo on oil imports — [that technology] becomes very important.
The Japanese also take [hydrogenation technology] over. IG Farben — the chemical corporation in Nazi Germany that is accelerating this with huge subsidies from the Nazi government — also sends people to Japan. And in Manchuria and North Korea, the Japanese have access to huge coal reservoirs, so they build a number of plants — both the Imperial Japanese navy and the Imperial Japanese army have their own competing fuel-hydrogenation projects.
And apparently, the North Korean regime today still has some of these plants in the same places that the Japanese Navy built them in the 1930s; and North Korea has massive coal reserves. So there’s speculation that Kim Jong-un might be able to make it through a full fuel embargo by using, basically, Nazi-era technology.
Jordan Schneider: Wild.
Nick Mulder: The other really wild thing, by the way, is that the main postwar user of fuel hydrogenation is apartheid South Africa. They, too, have the same thing: massive coal reserves. They get put under an oil embargo, and they use [hydrogenation] in order to circumvent that [embargo], partially. And today, actually, the largest fuel hydrogenation plot is in South Africa, owned by the South African state-owned company Sasol. So this is a really interesting afterlife with technology.
Economic Asphyxiation and Pearl Harbor
Jordan Schneider: You started taking us to East Asia, so let’s stay there. How does Imperial Japan’s thinking change post-Ethiopia?
Nick Mulder: Japan is — even more than Italy, I would say — a country that is really on the fence for a long time about what its posture toward the West should be. And this is the general thing that I try to emphasize in the book about the interwar period: the war with Nazi Germany was, to some degree, probably inevitable at some point (it was just in the nature of the Nazi regime that they were going to try and use violence); but the fact that Mussolini ended up fighting on the side of the fascists was already less necessary; the fact that Japan sided with the Axis is even more remarkable.
And there was a much bigger split within Japan about who the opponent should be. It’s equally imaginable that they would have gone to war against the Soviet Union and remained on the side of the Western allies, Britain and the United States, who they rightly saw as much bigger adversaries.
But one of the things that ends up derailing the Japanese liberals’ (so to speak) or the more pro-Western camp’s plans is the war in China. They, of course, are partially themselves to blame for this, because Japan has already invaded Manchuria with a false-flag operation — in 1931, the Manchukuo Imperial Army becomes a sort of state within a state that ends up undermining the central government and essentially running its own foreign policy.
But by the time it’s 1937 or so — we’re now in the immediate aftermath of the Ethiopia sanctions — the Japanese state is in a situation where it still could go either way. And what ultimately ends up happening is that one camp of its officers in China ends up in a fight with Chiang Kai-shek and the Nationalists. And actually, it seems now (according to most historians of China) that the Nationalists, too, were actually kind of pining for a confrontation at that point: in 1931 China didn’t want war — but in 1937 the calculation seems to have been, on the part of some people in the KMT ruling elite, that Japan was going to get stronger every year; if they were going to fight Japan, better do it now than later.
So interestingly, you can see a whole number of countries and groups in the spirit have this sense of “temporal claustrophobia” (a term from Chris Clark in his book Sleepwalkers). And it’s not just the Japanese and the Germans — it’s also the Chinese, actually, that want to have a confrontation with Japan sooner rather than later. So that ends up triggering a war in 1937 that is arguably the start of World War II, because it directly carries on into the Second World War.
So that complicates the picture dramatically, and it ends up triggering a slow drift, essentially, of Japan into an anti-Western alliance — because the West ends up siding with the Chinese resistance, because of course, [the West wants] to make sure that Japan doesn’t take over China entirely.
Jordan Schneider: “Temporal claustrophobia” — what’s your take? The causes of World War II are multivariate, and your book is front and center of my mind. So I’m curious: thinking back, in the final moments when Japan is thinking about starting Pearl Harbor, when Hitler is thinking about invading Poland and then invading the Soviet Union — this very human fear that even if our odds are bad now, they’re going to keep getting worse, seems very clear. And instead of reevaluating whether or not you want to play the game that gave you these bad odds in the first place, you decide to take the plunge and roll the iron dice, as the case may be.
Let’s talk about what the US ended up doing after 1937, as we get into 1939, 1940, and 1941 when it comes to economic sanctions on Japan.
Nick Mulder: The US has already been considering economic sanctions on Japan since 1931, since the original invasion of Manchuria and the creation of Manchukuo. But at that time, Herbert Hoover is the president, and he holds back on it. It takes quite a while into the [Franklin Delano] Roosevelt administration, really Roosevelt’s second term, before he decides to start getting tougher on Japan — and he has his famous Quarantine Speech in the fall of 1937.
And after that there are a number of incidents. By the summer of 1938, he for the first time begins to call on American companies to institute what he calls “moral embargoes” — voluntary restrictions by American firms. One of the reasons that he’s doing this is because there are Neutrality Acts in effect, which make it impossible for the US president to discriminate by cutting off trade with one country that’s party to a conflict and not with the other; the Neutrality Acts actually obliged the US government to break off arms trade with both parties to a conflict. So this is very tricky for Roosevelt — he has to negotiate these neutrality acts. And if he declares there is a war going on in East Asia, then China also loses access to American arms. So this is why he needs to first go through the private sector and try and have them do it voluntarily.
Now, at some point, they find ways around it. And by 1939, world war has broken out in Europe, too, with the invasion of Poland, and that makes it a lot easier. And that summer, Japan keeps pushing further and further, not just in northern China against British diplomatic presence, but also into Indochina.
And the other thing is that Japan at that point is even more dependent on US trade and on US exports of these commodities than it was in 1935 and 1936 — because the British empire is totally focused on producing for its own war effort, because it’s fighting against the Nazis and it has prioritized its own colonies. So the British empire goes into essentially full economic lockdown mode; Japan can’t really trade that much with them anymore. So Burma, India — those markets become a lot more difficult to access. So [Japan] becomes more and more dependent on trade with the US.
And then Roosevelt steadily ratchets up the pressure in 1940: he lets his commercial treaty expire, so trade becomes more onerous between the US and Japan. And by the summer of 1940 — after the Nazis have taken over all of Europe, and Japan also pushes into Indochina and is now trying to take over French colonial possessions there, because Paris has fallen to the Nazis — he decides it’s really time to start putting a limit on this. He begins to openly restrict a lot of iron-ore and scrap-metal shipments to Japan.
So these are actually the first full discriminatory economic sanctions. He’s targeting Japan openly. He’s trying to throttle this key raw material, making sure they just cannot produce enough to sustain their war in East Asia. And in the summer of 1941, the situation had escalated further still because Lend-Lease has gone into effect — so the US is now also bankrolling the war effort of the British Empire, of Chiang Kai-shek of the Nationalists, and of a number of other countries. And [Lend-Lease] actually needs to prioritize raw materials for [the US].
So part of the story of economic sanctions against Japan that end up triggering the Japanese attack is that the US cannot simultaneously mobilize its own war industry and keep exporting at the same rate with Japan — there’s just a limited amount of North American raw materials. And this, then, means that even if there hadn’t been really severe restrictions, Japan would have seen some dip in what it would have been able to obtain from the US.
But what Roosevelt ends up doing: he puts restrictions in place in July 1941, and then he leaves on a trip to meet Churchill on this big cruiser where they draft the Atlantic Charter together in August 1941. And while he’s away, Dean Acheson and [Henry] Morgenthau (at the Treasury) actually end up — on their own initiative — wrapping up and increasing the sanctions, making them very hard to take off. They freeze all Japanese foreign assets. The US has not declared war on Japan at all — so these are actions where they openly target Japan’s foreign financial reserves. And they cut off oil supplies — and that’s really the thing that sort of sets the final stage of the temporal claustrophobia in motion.
Jordan Schneider: So let’s play the counterfactual game. There are two fantastic books on this: Eri Hotta’s Japan 1941 and Michael Barnhart’s Japan Prepares for Total War, both of whom hint at the idea that perhaps America could have nudged Japan to go invade the Soviet Union instead by not putting on these sanctions.
I’m curious if you think there was a way in which these sanctions could have been rolled out more deftly, giving Japan more of an exit ramp than they felt they had.
Nick Mulder: I think it’s a very interesting suggestion that they could have pushed them toward invading the Soviets — but ultimately I don’t think it would have made a difference, and it wouldn’t have been a feasible solution for the Japanese leadership. And here’s why.
The core commodity that they are extremely anxious about is oil. They have none of it on the Japanese aisles. They have some technology to turn Korean and Manchurian coal into oil, but it’s still not the full amount they need. And what they really can do: they can import from the US, they can import from Mexico, and then there are a number of other places like Iran, Venezuela — those are the main producers in the world. And finally, there’s only one that’s within a reasonable distance of their own territory: the Dutch East Indies.
And the key factor, I would argue (and not just because I’m Dutch), is the fact that this oil embargo is a three-country embargo — it’s a British-American-Dutch embargo. So that is important because the Japanese have simultaneously been negotiating with the Dutch East Indies over preferential access to oil production from Indonesia — and that would have given them maybe as much as 60% of the entire Dutch East Indies’ oil production, which would have taken care of their basic needs.
But the two important things that happen: one is that the Dutch East Indies government is by that time isolated, because the Netherlands has already fallen to the Nazis; the actual Dutch government is in exile in London. So that means, essentially, the Dutch don’t have a lot of independence anymore because they’re now hosted by Churchill — effectively, the Anglo-American leaders can determine what the Dutch do. The second thing is that the Japanese are so desperate for commercial expansion that they end up over-egging the demands they make to the Dutch East Indies government — and the trade treaty goes nowhere; they don’t get that access. And that ultimately is what makes them realize, “Look, this is an encirclement.” It’s an ABCD encirclement, as the Japanese nationalists call it: America, Britain, China, and the Dutch East Indies — that’s the box that they think that they’re in.
And it bears a really interesting parallel with the current [chip export controls]: I’m not saying we’re in the same situation yet, but the current restrictions on chips (including ASML and the Japanese) are an American-Dutch-Japanese-English embargo, now against China. So Japan and China have just switched roles here — the other three countries are actually the same.
Jordan Schneider: What was the Dutch political economy? How are they thinking about managing their negotiations with Japan in 1940, 1941?
Nick Mulder: They are traditionally neutral, and they have been trying to play that role for a long time. They didn’t participate in World War I. They had no desire to enter World War II. They weren’t really planning to enter on the side of the Franco-British Expeditionary Force. They would have opened their territory if there was a need to, but they were trying to do what Switzerland, and Denmark, and the Scandinavian countries were doing — but those also got invaded by Hitler, so Switzerland is really the only one to get away safely.
And so this traditional Dutch idea of neutrality was already under threat — and this is what ends up pushing them into joining the Anglo-American oil embargo.
And if you also think about it: Shell — which is one of the main oil producers that is not American in this period, and controls most of the Venezuelan and also a lot of the Indonesian oil production — it’s an Anglo-Dutch firm. It was called Royal Dutch Shell for a reason. It’s like Unilever, one of these Anglo-Dutch capitalist enterprises.
So they’re increasingly drifting into the Anglo-American camp and losing this traditional middle position that they had between Britain and Germany.
When Sanctions Actually Work
Jordan Schneider: Can we say FDR had temporal claustrophobia, too, in starting Lend-Lease? Is this a unified theory of everything?
Nick Mulder: It’s an interesting question, and if you read the accounts of people who’ve recently written about this shift in thinking — like Stephen Wertheim in his book Tomorrow, the World — I think that there is a kind of sense that the whole world had changed for FDR after the fall of Paris.
The summer of 1940 is this moment where, for the first time, one of the original three victors of World War I, a beacon of liberalism in the eighteenth, nineteenth, and twentieth centuries, is under the rule of a new kind of totalitarianism — and that’s when even fairly neutralist Americans, for the first time, become amenable to this idea that “Nazism is really a threat to Western civilization,” and they need to do something. And it’s from the summer of 1940 onward that you, I think, start to see in the American elite an increasing preparedness to use these measures.
And the first place where they do it is Franco in Spain. The experience of using coordinated oil sanctions between Britain and the US also starts in that summer. And one of the reasons, I think, that the US goes into the oil sanctions against Japan in the summer of 1941 so blithely is that the oil sanctions in the summer of 1940 against Franco work really well.
They were extremely small. They imposed them for only a few weeks, and then they lifted them again. And they did it just to prove the point that Spain is entirely dependent on American oil: they only have to stop two tanker ships in the Port of Houston (Spain’s entire oil supply can be provided by six vessels a month) — that was enough of a demonstration to show that Franco better not join the Axis.
And it’s the confidence bestowed by that sanctions’ success in the summer of 1940 — a kind of “almost” deterrence, very light usage that issues a clear threat — that, I think, makes [the US] think that they can do the same with Japan.
And of course, racial attitudes play a role here: they just think that the Japanese, ultimately, are easier to manage than the hot-headed Spaniards, and that ultimately they won’t do [something like Pearl Harbor].
But Japan is much further away, and it actually does have a major oil producer right next to it (the Dutch East Indies) that it hopes it can secure. So the main objective of the Japanese campaign in the winter of 1941, 1942 is the Dutch East Indies’ oil fields. There’s a lot of other useful stuff for them, but the general staff is extremely clear that that needs to be the priority. And in order to get there, you need to conquer the Philippines, you need to boot the US naval bases out of that part of Asia — so a lot of these other things become necessary as a way of getting to Sumatra.
Jordan Schneider: The story of Franco being scared off joining the Axis is illustrative of my biggest takeaway from your book: sanctions are great when you go all in. The half measures — say, “Oh, we’ll do this cute thing and have it be financial sanctions,” or, “We’ll just have this nice little escalatory ladder to slowly try to make our adversary realize that we mean business” — don’t work nearly as well as the times where the countries just say, “No, you’re not allowed to import any stuff, and the stuff you’re not going to be allowed to import is going to be the most important thing for your economy, and we won’t let you get it again until you do what we want you to do.”
And there are a number of moments — particularly with Nazi Germany in the mid-1930s — where that really could have stopped rearmament. And we talked last time about Bulgaria, we talked about Paraguay, potentially Japan in 1931 as well: if the pain spigot was turned all the way on early enough, then maybe you end up not having these horrific, world-shattering eventualities of what World War II brought us.
First, am I wrong? And second, what was it about the 1930s that stopped more aggressive economic actions from being taken earlier on as the tides of revanchism ended up ebbing?
Nick Mulder: So to your first question: you are not wrong — but you are right that maximum sanctions are the best only under certain highly specific conditions.
The two particular factors that are key to expanding the success of oil sanctions against Spain in the summer of 1940: [firstly] Franco has just come out of this really grueling civil war — so reconstruction is paramount, and he’s ruling over a devastated society, and he needs all the resources he can get for reconstruction. So [the sanctions] get him and threaten him at a moment of weakness.
Secondly, he has an alternative — the Axis — and he goes to Hitler and asks Hitler what resources Hitler has for him. And of course, Hitler himself is extremely anxious about his access to these things and has nothing to spare, and says, “Sorry, but you’re going to have to fend for yourself and conquer Morocco or something.” So that’s not exactly an attractive proposition. And ultimately that’s one of the reasons why the Axis is a weak alliance — because they cannot meaningfully compensate for each other’s weaknesses. So this is one of the things that makes the situation for Spain and Japan different.
And Japan still has hopes that they can win in China. It’s the classic story of: you are committed to a war that’s not going anywhere; it’s devolved into a guerrilla war; it’s gobbling up ever more resources (like Afghanistan in 2010 or something) — and the Japanese military keeps telling the leadership, “No, but we need one more surge, and then we can win in China.”
And surely they want to go back to peace in East Asia. They don’t want to have to fight the British Empire, the Royal Navy in Singapore, and the US Navy across the Pacific. But they end up being in this war against an opponent that is now receiving steadily more aid from the West — and the spring of 1941 [brought] Lend-Lease, and then it became clear to the Japanese, “Look, the Chinese are going to be in this confrontation for as long as the Allies want them to be. So we need to get to a deal with the Allies. But they now also are not only funding our opponents, but also turning the screws on us. How is this not already a war against us, essentially?” And that accounts for one of these crazy things — that they declare a war, that they actually know that they stand a very small chance of winning and they’re almost certainly going to lose in the long-run. So that’s one aspect.
The other thing you asked about — what are the factors that are holding back tougher sanctions? Part of it has to do with the states in question needing to come up with these sanctions plans on the fly. They have some studies — I used a bunch of them as source material for my book, and they were really interesting to read because they give you great analysis of different import vulnerabilities, and they’re very useful as inside intelligence accounts of the economic history of the 1930s. But they do not always have a good understanding of the world economy. That’s one thing.
They also have large amounts of interest involved in these international, intercontinental sanctions campaigns. And the main trading partners of Japan are the colonies and the dominions of the British Empire — and they actually are not in favor of sanctions on Japan. Australia, Canada, India, New Zealand all have an enormous amount of trade at stake with Japan, because Japan is the only rich, industrialized country in Asia that can buy their exports. So they either trade with Europeans who are now all at war — and then the only other place for them is the Japanese Empire. So for Britain, having an empire is actually a liability. It prevents them from being able to put tougher pressure on Japan early.
Jordan Schneider: Let’s come back to Nazi Germany. Hitler wasn’t doing so incredible when he invaded the Rhineland, right? And plenty of historians have written the hypotheticals of, “If France just decided to fight, then they would have won the war.”
Do you think the same would have happened if the Germans weren’t confronted militarily but in a more aggressive economic fashion in that time period?
Nick Mulder: Yes, I think it would have caused huge problems for the Nazi regime — and so it is an important counterfactual to ask at certain moments what it would have done.
Some of the vulnerabilities were compensated for: Germany got more raw materials from Southeastern Europe and from Eastern Europe, where they got these preferential trade agreements and were able to bully Balkan states into giving up their resources. But they certainly remained very vulnerable.
The other thing is, just militarily, Czechoslovakia could have decided to fight in 1938, and there’s a very good chance that Germany would have lost. The Czechoslovaks had a larger army than Nazi Germany in the fall of 1938, [but] they are persuaded — and actually forced — by Britain and France to dismantle their border defenses and stand down with their army.
And a role, I think, should be accorded to the just Munich crisis — there, too, you already have backup plans for an economic blockade if there is a war that breaks out, but ultimately, the appeasement argument wins. So it’s not even sanctions — it would have been just basic alliance integrity: if they had just upheld the French, particularly their pact with Czechoslovakia and with the Soviet Union, Germany would have faced a three-front conflict, and it would have been over pretty quickly.
In 1939, if France had invaded on the western front when Hitler invaded Poland — same thing. The German General Staff would have probably refused to implement Hitler’s plan.
So there are many, many moments where Hitler rolls the dice, and he keeps winning — but every time he does it again, he has to wager everything he has gained up to then. And that’s the story of the radicalization of Nazi Germany.
Heading to Sanctions School
Jordan Schneider: All right. World War II — it started. How do the Allies take what they’ve learned over the course of implementing sanctions in World War I and through the League of Nations, and do the best that they can to try to cut off the Axis from accessing financing and critical raw materials?
Paid subscribers get access to the second half of our conversation. We discuss:
How the blockade and sanctions regimes of WWI differed from WWII;
The history behind the construction of the United Nations, and how it was tied to calibrating sanctions;
The effect of the nuclear age on the relative morals of sanctions and conventional war;
Parallels between the Cuban Missile Crisis and today’s tech restrictions against China;
What lessons pro-decouplers should learn from this history of sanctions.
ChinaTalk is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
An anon asks the question: Is China racing to develop AGI?
U.S. leaders increasingly frame artificial intelligence as a future-defining competition. Secretary of the Interior Doug Burgum warns of an “AI arms race,” while calls for a “Manhattan Project for AI” grow louder. Corporate giants echo this urgency: OpenAI claims China is “determined to overtake us by 2030,” while Anthropic’s Dario Amodei dreams of a US-led unipolar world — only if America speeds up and beats China to AGI.
But this entire “race” narrative hinges on a crucial assumption: that China is sprinting toward AGI as well.1 Is it?
The Believer, who insists China is racing to beat the US to AGI
The Skeptic, who doubts China’s focus and urgency
They clash over several key questions: Are Chinese policymakers truly committed to AGI? Do China’s top AI labs see it as feasible and imminent? Are investors pouring serious money into AGI projects? And does DeepSeek mark an inflection point?
Are policymakers AGI-pilled?
Believer:
China’s senior leadership has been all-in on AI for at least a decade. They launched their “big funds” for semiconductors in 2014. In 2017, the State Council set a clear goal: making China the world’s primary AI innovation centre by 2030. A year later, Xi Jinping himself called AI a game-changer, with a "profound impact on economic development, social progress, and the international political and economic landscape." That’s five years before ChatGPT dropped.
Skeptic:
Sure, they’re all in on AI, but that’s not the same as racing toward AGI. Back then, Beijing prioritized facial recognition, surveillance tech, autonomous driving, and industrial automation — narrow, specialized applications. They didn’t exactly throw their chips in the “AGI” basket, spending only $300m USD on their hyped up “AI megaproject”, which ended up just being a mechanism for funding dozens of small research projects, not some giant cluster.
Believer:
Alright, so you’re saying China is into AI but not AGI. But after ChatGPT in spring 2023, the Politburo explicitly stressed "development of artificial general intelligence" and the importance of building an "innovation ecosystem" around it. That’s a shift toward serious long-term AGI ambitions.
Skeptic:
Yes, that was the first time the Chinese top leaders used the term “AGI”, and that should make us think. But the Chinese term here, “通用人工智能,” doesn’t necessarily translate to “AGI” in the sense of “superintelligence” — it can also mean something more mundane like “general-purpose AI.” This was also a few months after ChatGPT exploded onto the scene, so they may have mostly been just thinking of LLMs at the time.
Believer:
But AGI was just about all anyone was talking about then! Even if the term has two meanings, certainly they would have discussed the idea of AI with human-level intelligence if they were bringing up this kind of term in such a major meeting.
Skeptic:
But here’s where it gets interesting. In China’s political system, a big policy announcement like this one gets followed up by clarifications in party-state media. And guess what? A couple of months later, a People’s Daily op-ed directly referenced the Politburo meeting and explained the difference between "specialized AI" and "general-purpose AI" (通用人工智能). This wasn’t about AI that could outthink humans, but more about systems that can do multiple tasks. The article even said general-purpose AI is still in its "early stages". Nobody in Zhongnanhai is feeling the AGI.
Believer:
That was almost two years ago! In February 2025, Gao Wen — head of Pengcheng Lab and the guy who once briefed Xi Jinping on AI — wrote in People’s Daily that we are in a “transitional phase from weak AI to strong AI”, adding that AI is the “strategic commanding height in great power competition”. If that’s not AGI race rhetoric, what is?
Skeptic:
We can also look at how the wider bureaucracy interpreted the Politburo message on AGI. The Ministry of Industry and Information Technology (MIIT) included “AGI” as a focus area in a new funding round. The projects they describe are aiming to set up data centers with just 1,024 GPUs by 2025. That is a rounding error next to U.S. clusters. The MIIT lumped “AGI” with the Metaverse, humanoid robots, and brain-computer interfaces. Yes, the Metaverse.
Believer:
But local governments are jumping in too — Beijing, Anhui, and Guangdong have all announced AGI initiatives, pooling compute and data resources for large model research. They’re discussing roadmaps that go beyond LLMs, exploring brain-inspired AI and causal reasoning models. Doesn’t that show a shift toward AGI?
Skeptic:
A shift? Maybe, in so far as these are the first policies that specifically focus on general-purpose AI. But the fine print still emphasizes relatively boring applications like healthcare, government services, urban management, and autonomous driving — not superintelligence.
Also, just because they want some fancy new approaches to AI to succeed doesn’t mean they will — the field of AI is littered with the bones of research agendas that absolutely would have created AGI, if only they worked.
Policymakers waking up after DeepSeek?
Believer:
You dismissed the 2017 AI plan and the 2023 Politburo meeting. Fine. But DeepSeek has changed the game. Within weeks, CEO Liang Wenfeng met with Premier Li Qiang and even Xi Jinping. That’s serious state recognition.
Skeptic:
Of course these meetings mean something. DeepSeek’s sudden rise injected fresh confidence into China’s economy, and the state would be foolish not to capitalize on that. Getting Liang in the room and state media then saying basically that the Party supports the private sector, and the private sector supports our national goals is a clear signal: the tech crackdown is over.
But that does not necessarily mean Beijing wants to bankroll DeepSeek’s path to AGI. Li Qiang and Xi meet with plenty of tech companies every year–and by the way, the firms who got the most prestigious seats in the meeting were hardware companies like Huawei, Xiaomi, and BYD, not software firms. These are carefully curated PR moments, designed to showcase government priorities and entrepreneurial success stories. DeepSeek certainly checks those boxes. But not every company that gets a handshake from Xi receives a blank check.
Catching Xi’s eye is like drawing Sauron’s gaze: impressive, but rarely ends well. Remember when Premier Li Keqiang cozied up to Jack Ma in 2013? He invited Ma to exclusive symposia, and lauded Alibaba’s contribution to job creation. We all know how that ended — Alibaba got caught in the regulatory crosshairs during the tech crackdown.
Coming back to Liang Wenfeng’s sit-down with Li Qiang. They supposedly discussed the 2025 Government Work Report. And what did Liang walk away with? A mention of the AI+ initiative — something that was already in last year’s report — and a vague nod to "the extensive application of large AI models," plus "AI-enabled phones and computers.” All of this is very application-focused. “AI+ initiative” basically translates into “AI + literally anything but AGI.” Soon we’ll have AI + rice cookers, AI + karaoke machines, and AI + slightly smarter traffic jams.
If Liang went in hoping to convince Li Qiang to push for AGI, it sure looks like he came out empty-handed.
Additionally, the Chinese government remains cautious. Vice Premier Ding Xuexiang, who’s leading China’s new Central Science and Technology Commission, recently emphasized that China “will not blindly follow trends or engage in unrestrained international competition”. That’s not a race mentality.
Believer:
That’s just diplomatic rhetoric, they don’t want to freak out American policymakers even more by saying they’re racing to AGI. Oh, and by the way, Huawei got prime position in that Xi meeting and they’re the one designing China’s AI chips.
Skeptic:
But their regulations speak to this. Remember that Baidu’s ERNIE bot had its first demo version available in March 2023, but had to wait months for the Cyberspace Administration to finalize its genAI regulations and grant Baidu a license before they made it available to the general public. Going through China’s genAI licensing process takes several months for some companies. This suggests a willingness to slow AI deployment for control and social stability. China’s not racing — they’re speed-walking with a leash.
Believer:
Being cautious also doesn’t equal not believing in AGI. Chinese thought leaders have expressed concerns about existential risks from AGI. If you don’t believe in truly transformative AI, there is also no reason to be concerned about x-risk.
Leading AI Labs and their Investors
Believer:
And the AI labs are charging ahead — policymakers or not!
DeepSeek CEO Liang Wenfeng says flat-out, “Our destination is AGI.” Zhipu.AI 智谱AI founder Tang Jie 唐杰 says they are “conducting AGI-related research around superintelligence and superalignment,” and need to “plan for AGI based on large models” with an “aim to lead the world”. Moonshot AI’s CEO Yang Zhilin called AGI “the only meaningful thing to do in the next 10 years”, while Minimax CEO Yan Junjie compared the road to AGI to the Long March.
Skeptic:
Yes, some start-ups are certainly ambitious. But not everyone shares their enthusiasm. Baidu CEO Robin Li, for instance, claims that “today’s most powerful AI is far from AGI” and that we “don’t know how to achieve that level of intelligence yet”. And Li Kaifu’s 01.AI has also backed away from foundational models.
But ambition alone doesn’t sway investors. China’s VC is struggling. DeepSeek’s CEO complained that they want a quick buck for their money, and are hesitant to support those who make true innovation, suggesting he may also struggle receiving the kind of money he wants.
China’s big tech is not helping the most dynamic independent research labs like Microsoft, Amazon, and Google have. Zhipu’s $341 million from Alibaba and Tencent and Moonshot’s $1 billion from Alibaba are peanuts — Microsoft dropped $14 billion on OpenAI. None of the major Chinese start-ups is valued above $3.3 billion. DeepSeek is a bit of a special case because it is entirely funded by its parent High-Flyer and has no external investments, so its value is anyone’s guess. Forbes estimates it at somewhere between $1 billion and $10 billion.
Even if we assume $10 billion — compare that to OpenAI at $300 billion and Anthropic’s $61.5 billion. It’s not a race — it’s a rout.2
Believer:
DeepSeek has proven that China can leapfrog, not just follow. And investors are taking notice.
Just a year ago, Allen Zhu Xiaohu (朱啸虎), a prominent Chinese VC, dismissed AGI advocates as “delusional” and saw “no point” in engaging with China’s genAI startups. Fast forward to February 2025, and he’s changed his tune: "DeepSeek is almost making me believe in AGI."
And it’s not just private VC money pouring in. In January 2025, the Bank of China launched a massive AI support project — 1 trillion RMB ($140 billion) over five years — funding AI through equity, loans, bonds, insurance, and leasing. The launch event was high-profile, co-chaired by major players:
Ge Haijiao (葛海蛟), Chairman of the Bank of China
Yang Jie (杨杰), Chairman of China Mobile
Zhang Peng (张鹏), CEO of Zhipu AI
Zhou Bowen (周伯文), Director of the Shanghai AI Lab
Li Meng (李萌), former Vice Minister of Science and Technology
Every major ministry was present: the National Development and Reform Commission, Ministry of Science and Technology, Ministry of Industry and Information Technology, and the State-owned Assets Supervision and Administration Commission. All the big tech firms — Huawei, Tencent, Baidu, Ant Group, iFlytek, China Mobile — were there too.
At the announcement, Ge Haijiao didn’t hold back: "Large AI models are profoundly shaping the global political and economic order” and present “a strategic pillar for ensuring national security." He lines up the country’s AI heavyweights, delivers that message, and then drops the bombshell: “And here is 1 trillion RMB.” If that’s not commitment, what is?
Skeptic:
Let’s break down the Bank of China’s announcement a bit further.
First, the total scale: 1 trillion RMB ($140 billion) over five years translates to $28 billion per year. That’s a serious chunk of money. But compare it to Stargate’s intended $100 billion per year, and it starts looking less impressive.
Second, where’s the money actually going? The new funds will support the entire AI ecosystem — not just AGI research. It covers chips, data, and AI algorithms, but also AI + robotics, AI + the low-altitude economy, AI + biomanufacturing, and AI + new materials. These are all important, potentially transformative fields, but they dilute the focus. Meanwhile, Stargate is laser-focused on super-scaling compute for AGI. It’s a concerted effort with resource centralization. This Bank of China project, in contrast, looks more dispersed, just like that earlier megaproject.
Let’s be realistic about who’s managing this money: Chinese state banks. These institutions are notoriously risk-averse. They favor safe, mature technologies over speculative bets on moonshot research. No way they’ll push in all their chips to fund AGI breakthroughs, which require Masayoshi-levels of risk tolerance.
Believer:
Yes, there’s uncertainty about how exactly the money will be spent. But the Bank of China head specifically named computing centers in China’s eight designated AI “hubs” as a priority. If anything, that suggests a significant chunk of the funds will go toward centralized compute infrastructure.
Chips and Compute
Skeptic:
Let’s talk compute. No one in China is building GPU clusters at the scale of 100,000 chips like in the US. And despite DeepSeek’s efficiency breakthroughs, developing and deploying superintelligence will demand massive scale — far beyond anything China has today.
Believer:
Again, DeepSeek has changed the game.
Alibaba just committed over 380 billion RMB (~US$52.4 billion) in the next three years to build cloud and AI hardware infrastructure. That’s more than their total capital expenditure from 2015 to 2024 combined. In other words, in just three years, they’ll spend more than the last decade. It’s the largest-ever investment by a Chinese private company in AI infrastructure. And Ali CEO Eddie Wu 吴泳铭 made their ambitions crystal clear: “Alibaba's ultimate goal is to achieve AGI. AGI will be able to perform more than 80% of human capabilities. Since 50% of the global GDP consists of human wages, achieving AGI would create the world's largest industry.”
Policymakers are also signaling increased interest in compute. On a recent visit to China’s top mobile operators — who play a major role in compute infrastructure — Premier Li Qiang emphasized that AI is “bringing profound changes to the world” and urged them to optimize compute resource use.
Skeptic:
You have to do the math: $52.4 billion over three years is $17.5 billion per year. In 2024 alone, Amazon spent $77.8 bn, Microsoft 75.6 bn, and Google 52.6 bn.
Chinese compute investment may be growing, but it still trails far behind what Western investors are pouring into their 100,000-GPU clusters. There’s nowhere near the AGI fever in China that we see in the U.S.
If China isn’t building 100,000-GPU-scale clusters yet, it’s not because they don’t want to — it’s because they don’t have the chips. U.S. export controls have slowed their access to cutting-edge semiconductors. If they had the chips, they’d build the clusters.
Skeptic:
China does have chips — over 1 million new AI chips were estimated to be added in 2024 alone. Some estimates suggest even more. In theory, that’s enough to build multiple 100,000-GPU clusters. The problem isn’t just chip supply; it’s that these chips are spread across smaller, fragmented clusters, many of which are underutilized. Their chips are smeared like peanut butter on a bagel — thin, uneven, and oddly unsatisfying
The real bottleneck? Not chips — belief in AGI. No investor is stepping up to bet big on AGI-scale clusters. If there were real conviction that AGI was imminent, we’d see someone pulling these chips into centralized compute hubs. But so far, that hasn’t happened.
Believer:
You really think they’re content with their current chips? Look at the $47 billion third round of the “Big Fund” — they’re doubling down on domestic semiconductor manufacturing. They aren’t just waiting around; they’re going all in.
Skeptic:
Sure, but how do you know AGI is the end goal? $47 billion for chips could also be justified by more narrow economic or military concerns, not a full-blown AGI sprint. And that brings us full circle: China is heavily investing in AI — but that doesn’t mean it’s racing toward the singularity.
Conclusions
So, who wins this debate?
Overall, the Skeptic makes the stronger case — especially when it comes to China’s government policy. There’s no clear evidence that senior policymakers believe in short AGI timelines. The government certainly treats AI as a major priority, but it is one among many technologies they focus on. When they speak about AI, they also more often than not speak about things like industrial automation as opposed to how Dario would define AGI. There’s no moonshot AGI project, no centralized push. And the funding gaps between leading Chinese AI labs and their American counterparts remain enormous.
The Believer’s strongest argument is that the rise of DeepSeek has changed the conversation. We’ve seen more policy signals, high-level meetings, and new investment commitments. These suggest that momentum is building. But it remains unclear how long this momentum can be maintained–and whether it will really translate into AGI moonshots. While Xi talks about “two bombs one satellite”-style mobilzation in the abstract, he hasn’t channeled that idea into any concerted AGI push and there are no signs on any “whole nation” 举国 effort to centralize resources. Rather, the DeepSeek frenzy again is translating into application-focused development, with every product from WeChat to air conditioning now offering DeepSeek integrations.
This debate also exposes a flaw in the question itself: “Is China racing to AGI?” assumes a monolith where none exists. China’s ecosystem is a patchwork — startup founders like Liang Wenfeng and Yang Zhilin dream of AGI while policymakers prioritize practical wins. Investors, meanwhile, waver between skepticism and cautious optimism. The U.S. has its own fractures on how soon AGI is achievable (Altman vs. LeCun), but its private sector’s sheer financial and computational muscle gives the race narrative more bite. In China, the pieces don’t yet align.
This essay deliberately avoids comparing U.S. and Chinese progress or assessing whether Beijing could achieve AGI — whether through innovation, espionage, or other means. Our focus is strictly on intent, not capability: what China seeks to pursue, not what it might accomplish.
A final point of caution: this staged debate covers a snapshot of arguments from early 2025. Things are changing fast in AI, and many of the arguments presented here could change as well. While this piece highlighted that there is currently little evidence that China is racing towards AGI, this may of course change at some point in the future. If the government or major investors started radically centralizing resources while changing their tone in public statements, this could signal change. ChinaTalk will keep an eye out!
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Definitions of artificial general intelligence (AGI) are both numerous and contested. For the purposes of this essay, being “AGI-pilled” refers to the belief that highly transformative, general-purpose AI systems — capable of surpassing human performance across essentially all relevant cognitive domains — are not only in principle possible, but likely to emerge within years rather than decades. This belief justifies large-scale investment in the development of such systems. In this sense, leading Western labs like OpenAI and Anthropic can be considered “AGI-pilled.”
Zhipu.AI has received additional investments from multiple state-led funds in March 2025. These may somewhat raise its valuation, but are still in the same order of magnitude as previous investments.
Jon Sine: At the end of part one, we were just talking about the Cuban Missile Crisis. Then, there was the transition in 1964, when Khrushchev was unceremoniously deposed. My question is, in your story of status, how much does prestige carry over with each new leader? Brezhnev’s era was described as “Khrushchevism without Khrushchev,” after all.
Sergey Radchenko: The phrase “Khrushchevism without Khrushchev” was coined by the Chinese. They were unhappy with how the Soviets continued to pressure China to adopt policies that the Chinese deemed unacceptable. They believed that although Khrushchev pursued anti-Chinese policies and was removed, the policies remained in place. Thus, they invented the term “Khrushchevism without Khrushchev” (没有赫鲁晓夫的赫鲁晓夫政策).
Regarding what happens to the standing of new leaders when leadership changes — that’s actually a very interesting question. Khrushchev was removed in October 1964, at which point he basically was Soviet foreign policy. He stood head and shoulders above everybody else in the Soviet Politburo. He could make decisions single-handedly without consulting anybody, like sending missiles to Cuba. There were some people like Anastas Mikoyan who spoke up against this, but even he was very careful in his opposition. Khrushchev was unassailable in many ways during his last years in power.
Once Khrushchev was overthrown — or, “retired” as they put it — you have a new set of Soviet leaders, including Leonid Brezhnev as the Party First Secretary, who later becomes the General Secretary. You also have Alexei Kosygin, who is effectively the prime minister, and Nikolai Podgorny. They form a triplet, a “Troika” (Тройка) of leaders that ran the Soviet Union for a period of time.
Starting from 1964, Brezhnev, who is nominally in charge as the First Secretary, feels out of his depth. Brezhnev came to power not entirely confident of himself, particularly in foreign policy. He was consulting with others in a way that Khrushchev never did.
This explains why, in 1965, Alexei Kosygin went to China in a bid to repair relations with Mao Zedong. Brezhnev didn’t go himself, but he could not stop Kosygin from doing so. Kosygin wanted to repair relations with China, and Brezhnev agreed to let him try. Of course, nothing came of it because Mao Zedong told Kosygin that their struggle with the Soviet Union would “last yet another 10 thousand years – less is impossible.”
Prime Minister Alexei Kosygin (right) fails to make inroads with Chairman Mao. February, 1965. Source.
Meanwhile, Brezhnev, in order to improve his standing and legitimacy as the leader of a communist superpower, extended aid to Vietnam. When we talk about legitimacy and its practical effects, Vietnam is a key case study. Khrushchev didn’t really care about Vietnam, and the Soviet Union was not heavily involved there until 1964. Beginning in 1964, there was escalation with the Gulf of Tonkin incident and increasing American presence, but there also was renewed Soviet commitment to Vietnam.
Why? Because Vietnam was a communist ally in need. Helping Vietnam bolstered Brezhnev’s personal legitimacy and standing as a leader, especially with the Chinese watching. The Chinese were accusing the Soviets of trying to sell out communist movements around the world. Brezhnev, as the leader of this communist superpower, had to help Vietnam then.
That’s why we see the beginning of massive Soviet involvement in the Vietnam War, including advisors on the ground and military equipment. This would not have happened under Khrushchev, but for Brezhnev, there was a deficit of legitimacy, and Vietnam filled this gap.
Jon Sine: Can you explain why you see this change in attitudes towards Vietnam? In your book, you write that the Chinese position under Mao favors conflict, struggle, and violent revolution as something to be promoted, whereas Khrushchev prefers peaceful coexistence. What changes with Brezhnev?
Sergey Radchenko: I struggled with this question in the book because I could not understand why Khrushchev was so committed to supporting Fidel Castro while not caring about the Vietnamese. I have no answer except for perhaps some personal factors. Ho Chi Minh visited Moscow quite a few times in the late ’50s and early ’60s, trying to repair the relationship between the Soviet Union and China. During these visits, Ho Chi Minh contradicted Khrushchev softly and tried to teach him in a way that I think annoyed him.
It’s difficult to read into these dynamics, but somehow Khrushchev just didn’t like Ho Chi Minh and didn’t want to bother with this faraway place that he did not understand. He preferred to focus on another faraway place he didn’t understand — Cuba — for reasons unknown, getting deeply involved there but not in Vietnam.
Was Brezhnev very different? In terms of his knowledge about Vietnam, no. He was on the same page as Khrushchev and knew nothing about Vietnam. But for Brezhnev, it was a matter of demonstrating his commitment to the communist cause of struggle against American imperialism.
Part of the explanation for Brezhnev’s increased commitment is that it coincided with American escalation in Vietnam. If at this point he had done nothing — saying, “I don’t care about Vietnam, let the Chinese handle them” — he would have looked weak and appeared to have abandoned a communist ally. These factors contributed to the increasing Soviet involvement.
A 1958 poster promoting friendship between the USSR and Vietnam. The text reads, “Great is the distance, but close are our hearts!” Source.
Jon Sine: Let’s stay on this discussion of American involvement. The Gulf of Tonkin incident in August 1964 arguably changed a lot in the course of this sort of ménage à trois between the US, the USSR, and China. On the Chinese side, you read into their documents and show that Mao’s Third Front movement (三线建设) was basically inaugurated by the American escalation in Vietnam. That is to say, Mao was able to build the biggest economic change in China since the Great Leap Forward as a result.
In writing this book, what new insights about this did you discover during the research process?
Sergey Radchenko: The most interesting thing for me regarding Vietnam — and there’s a whole chapter on the Vietnam War in the book — is that we in the West typically think about Vietnam as America’s war. We focus on American boots on the ground, how the Tet Offensive and impacted the United States, the bombing campaigns, and so on. We look at the situation through American eyes.
What I was trying to do in this chapter was to understand how Vietnam mattered for the Soviets. What I discovered was that it wasn’t even American involvement in Vietnam that drove the Soviets crazy. The Soviets were really worried about how Vietnam impacted their competition with China.
As you mentioned, the Chinese in the mid-1960s became increasingly radicalized and saw Vietnam as a case study where they could showcase their influence and vision for world revolution. Mao was at the forefront, advising Vietnamese leaders and saying, “The Americans are invading? Well, that’s not a big deal. That’s fine.” At one point he said, quoting this Chinese proverb, “You have green hills in Vietnam — you can go into the green hills and there’s always firewood there (留得青山在，不怕没柴烧).” Reading this, you might wonder what he was talking about, but his attitude was that revolution was on their side, the future was on their side, so they should fight against the Americans and not listen to the Soviets.
The Chinese were really upset about the Vietnamese taking Soviet aid. Meanwhile, the Vietnamese were trying to balance between both sides, telling the Chinese about how much they admired Chairman Mao, how wise he was, what good advice he gave. Meanwhile, they also felt that they needed Soviet aid and weapons to fight against the Americans. They were balancing both sides.
From the Soviet perspective, this was basically a struggle for influence. Who would win in establishing influence in Vietnam, the Soviets or the Chinese? That was their Vietnam War.
The Russian Army welcomes Ho Chi Minh to Moscow, July 12, 1955. Source.
Jordan Schneider: You also bring up the aspect of logistics — how the Soviets were getting aid to the Vietnamese. Partly, they had to go through China. The US innovated during that time too — this is when containerized shipping first came into play.
What can you say about how the Chinese were interfering with Soviet aid to Vietnam?
Sergey Radchenko: It was awkward because the Chinese could not tell the Vietnamese, “We hate the Soviets, so therefore we’ll be blocking the aid they try to send you once it crosses our borders.” But in reality, the Soviets did try to slow it down. There was a pileup of train shipments at the border.
The weapons had to go across China, starting from the Northern border and going all the way to Southern China and then onto Vietnam — sometimes those train consignments were looted by the Red Guards. There was something akin to a civil war going on in China in the 1960s. It was chaos.
The Soviets would always raise this issue with the Vietnamese. They would say, “Look at the Chinese. You say they are your friends, but look what they’re doing. They’re not transporting our weapons, which you desperately need.” The Vietnamese response was, “Please, just let us handle it. We have to be very careful, and we have to understand the Chinese are having a difficult time.” This was a real problem for the Vietnamese and certainly a propaganda point for the Soviets in the late 1960s.
Jordan Schneider: Were the Vietnamese actually that unruffled by the Chinese interfering with the shipments?
Sergey Radchenko: They hated it. There are so many things that the Vietnamese hated about what the Chinese were doing in the 1960s. We have to understand, of course, that the Chinese were extending considerable aid themselves to Vietnam, and their aid was also important in terms of light weapons and railroad workers — about 300,000 people at some point over the entire period. There was actually considerable Chinese involvement on the ground, and it was important to the North Vietnamese.
But what they did not like was the Chinese interfering with the Soviet weapon shipments, and their pressure on Vietnam to stop taking Soviet aid. They did not like this at all.
One thing they really hated was when Chinese domestic politics became radicalized during the Cultural Revolution — from mid-1966 onwards — and the Chinese tried to promote a Cultural Revolution in Vietnam. If you imagine being the Vietnamese at this point, fighting this war against the Americans, and the Chinese come with their crazy radical ideas and Red Guards and whatnot, that is not something that’s going to sell well with the Vietnamese Communist Party leadership.
You see already at that point a cooling in the Vietnamese approach towards China. They don’t like what the Chinese are doing, and they’re more willing to listen to Soviet advice. The Soviet advice, by the way, is basically to talk to the Americans to end the war, or at least engage in peace talks, whereas the Chinese told them to keep fighting.
Jordan Schneider: I would recommend folks check out The Dragon in the Jungle: The Chinese Army in the Vietnam War, which is a fun dive into Chinese archives regarding this question in particular.
Greatness over Grain and Unlikely Partnerships 狐假虎威
Jordan Schneider: Anyway, let’s take it to Nixon. Brezhnev all of a sudden develops this incredible love affair with one of America’s arguably least lovable presidents. What changed about Brezhnev’s approach to Vietnam, the US, and China once Nixon came onto the scene?
Sergey Radchenko: Jordan, as a way of introduction, we have to understand where Brezhnev finds himself in the late 1960s. First of all, there was effectively a war going on with China. They fought a border war in March 1969 over this little island, which is actually closer to the Chinese side of the Ussuri River. The Chinese have a reasonable claim, but they fought a war over this island. Then, the Soviets made noises about a potential preemptive nuclear strike on China. This was a nasty situation, and the Soviets were worried about a Chinese invasion.
The Chinese, by the way, were afraid of a Soviet invasion. “Afraid” does not cover it — they were paranoid. They thought the Soviets were ready to do a 1968 Czechoslovakia-style special operation all over again. By 1969, they were really preparing for a Soviet invasion.
The Soviets, by contrast, thought that the Chinese were going to invade Siberia. There’s even a Soviet-era joke about the war between the Soviet Union and China that lasted for only two days. On the first day, war is declared. On the second day, the Chinese surrender, and 100 million Chinese cross over the border as prisoners of war. Then the Soviet Union declares unconditional capitulation.
There’s this sense in the Soviet Union that China is an existential threat on their border in the Far East, and that drove Brezhnev nuts. He really hated the Chinese so deeply. You can see that in his various commentary about China and the Chinese — how they’re unreliable, how you can never trust them. There are a lot of orientalist tropes there.
One of the things that I was able to do in my book was track where Brezhnev got his ideas about China. It turns out that he got them from 19th-century Russian orientalist literature.
Jordan Schneider: Let’s stay on that weird racist arc for a second. Do you think these ideas precipitated the Sino-Soviet split, or do you think the breakdown in relations emerged from other factors and then Brezhnev just used orientalism as a justification?
Sergey Radchenko: It’s both. You also see these tendencies under Khrushchev, even when the relationship with China was pretty close. Khrushchev never trusted Mao and thought that Mao was this sketchy character, dictatorial in his ways, and so on.
Once the relationship really started to deteriorate in the 1960s, it became so much more pronounced, both for Khrushchev and especially for Brezhnev, who basically just went full-blown racist on China, saying really nasty things about the Chinese and contrasting them very negatively with the Europeans and the Americans whom he thought he could have a good relationship with.
We have to, of course, put this in context. What was happening in China in 1966-67 was crazy. The Soviet Embassy was literally under siege by Red Guards who erected a scaffold, a platform to hang the ambassador. This was canceled at the last moment because Zhou Enlai came out and talked to what I think was a 14-year-old girl who was in charge of this Red Guard contingent trying to storm the Soviet Embassy.
Zhou Enlai said that hanging the ambassador would interfere with diplomatic relations, so they canceled the operation. But from the point of view of Soviet diplomats, they were about to be lynched, and this was all relayed to Moscow in the form of reports. The Soviets were reading this saying, “What is going on? These people are crazy.”
This contributed to this quite racist thinking about the Chinese and complete failure to understand what was going on there. The Soviets were not alone — nobody could understand what was happening in China. The Cultural Revolution was madness in so many ways, but it contributed to Brezhnev’s thinking that Europe was the better place to build bridges.
Already in the late 1960s, even in the mid-’60s, he began his engagement with de Gaulle, then Pompidou, and later with Willy Brandt after the German Social Democrats came to power in September 1969. Brezhnev felt that Willy Brandt was the way to go, and Brandt, of course, had his Ostpolitik and the promise of economic cooperation with the Soviets.
Brezhnev started developing this European détente before he even turned to the United States. At this point, he was saying nasty things about Nixon. Nixon, of course, was known to Soviet leaders — he was in Moscow in 1959 having the famous, or rather infamous, Kitchen Debate with Khrushchev. They knew who Nixon was, and they didn’t like him. Brezhnev also said things about Nixon that were not very complimentary, but then things changed.
Vice President Nixon and Soviet Premier Khrushchev debate the merits of capitalism in a model of an American house on exhibit in Moscow, 1959. Source.
What changed was, first and foremost, Henry Kissinger visited Beijing in the summer of 1971, and Nixon’s visit to Beijing was announced. Brezhnev saw that as an “Oh my God” moment. I don’t know if he believed in God, but he was thinking, “The Chinese are our enemies. The Americans are going there — this is really bad — so we have to get Nixon to come to Moscow.”
He really invested himself into this summit, which ultimately happened in May 1972, and he developed a fairly friendly relationship with the American president. After that, I think it really built from there. Somehow, he thought that he had Nixon’s trust, and he then went to Washington to visit Nixon and went all the way to Nixon’s Western White House, which is not far from LA.
Jordan Schneider: Brezhnev was pushing for détente with Nixon. You emphasize that when Khrushchev was envisioning himself on the world stage, he thought he could spread his wings and play some big nuclear weapons-backed games. But Brezhnev, as you say, had a different vision of the US and Soviet relationship — he wanted to run the world together. How did he come to want such a world, and how did that manifest in his policies?
Sergey Radchenko: Jordan, to explain that, let’s go back to Khrushchev. Khrushchev was a really optimistic character. He thought that the Soviet Union was surging ahead and doing so well economically, and in terms of science and technology. The launching of Sputnik made him really optimistic — and for good reason. That’s why he proclaimed that in 20 years’ time they would “establish communism."
As the Soviet joke goes, they decided to hold Olympic Games instead because it was never going to be realized. But in 1960, it seemed like this was possible. Then after that, things went downhill pretty quickly.
The Soviet economic situation wasn’t turning out so well. In 1963, the Soviet Union was already importing grain and spending gold reserves. How can you build communism if you cannot even feed your own people? That was a major problem.
By the late 1960s, it was totally obvious that this promise of communism was not being realized. The Soviet Union was not coming closer to that goal of building abundance and joy for everyone that was part and parcel of that initial promise Khrushchev made.
In 1968, there is this memorandum from Andropov to Brezhnev which basically said, “Look, we’re losing the Cold War. We are losing to the Americans because we’re not investing enough in R&D, in education. Our labor productivity is low,” and so forth.
I was able to access the Soviet Politburo Discussion from 1966, which includes hundreds of pages of discussions about the state of the Soviet economy, and they all knew that things were not going well.
They tried to implement reforms, the Kosygin reforms, introducing incentives, basically making the country more capitalist. But it wasn’t working. They tried to tinker with it here and there, but the whole system was just garbage. It was just not delivering.
Because of that, the ideological underpinnings of the Soviet system started to fall apart. People were not buying anymore because the material abundance was not there. Brezhnev understood that. Brezhnev was looking for a new idea, and that is where this external aspect of greatness comes into play. America would recognize the Soviet Union as an equal superpower, and that could be sold to the Soviet people as Brezhnev’s achievement.
Together with this came the idea of peace, and Brezhnev saw himself as a peacemaker leader of the USSR. In his conversations with Nixon, he would often refer to the fact that the Soviet Union and the United States together had enough nuclear weapons to destroy the world six, seven, eight times over, and so they had a responsibility to fix the world — to resolve the nuclear problem, to stabilize China.
The title To Run the World came from the moment in the spring of 1973 when Henry Kissinger went to Moscow, and Brezhnev took him hunting wild boars. It was outside of Moscow in this dacha, and they were in this hunting tower, just Brezhnev, Kissinger, and the interpreter, waiting for the wild pigs to come and feed so they could shoot them.
Kissinger recounted that moment later in a conversation with Nixon, he said, “Look, Brezhnev told me, ‘Don’t take any notes, but I’ll tell you this. What we want to do is we want to run the world together with the United States.’” That struck me as a very interesting proposition from a leader of a communist superpower, working together with the United States. How do you even explain this from a Marxist-Leninist perspective? That doesn’t make any sense.
True, it doesn’t make any sense! But it does make sense from the perspective of selling Soviet greatness to the Soviet people.
Jon Sine: Nowadays, there are strategists talking about how the US could peel Russia away from China. It’s interesting that, at various points during the Cold War, both the Soviets and the Chinese were seeking to align with the US against the other.
What historical lessons from that dynamic do people forget today?
Sergey Radchenko: This is my favorite example of how ideology can be just cast aside. We can talk about China being this revolutionary power that complained endlessly about the Soviet Union betraying the global revolution, but then we get to the late 1960s, and they basically come around and embrace the United States.
An interesting moment discussed in the book was, I think in the fall of 1970, when the American Mao biographer Edgar Snow turned up in China, as he did on occasion. The Chinese leaders thought Snow was a CIA spy, but he was actually just a leftist journalist.
Anyway, Edgar Snow turned up in China and had a conversation with Mao Zedong in which Mao said, “We think that Nixon is a good fellow.” Snow essentially said, “Well, how can you say that? You don’t mean that, right?” Mao Zedong repeats himself, “We think he’s the best fellow in the world.”
Mao, of course, hoped that Edgar Snow would carry this to the Nixon administration — remember, in his mind, Snow was a CIA agent. Later, the summary of this conversation was circulated to the party committees around China to introduce the Chinese people to the idea that China was changing course and turning toward the United States.
Do you know how party committees would have kind of fake debates? They had debates and questions were collected, and those questions were reported back to the center. Questions included things like, “If Nixon is the number one best fellow in the world, why are we having a quarrel with the Soviet Union? Can’t we repair relations with them as well?” The Chinese party officials were confused about this, but Mao would not have any of that. He felt that those people didn’t understand strategy, and that China had to turn to the United States because the Soviet Union was the enemy.
You see, it doesn’t matter that turning to the United States entails turning to “imperialism.” That’s not what matters.
Going back to your question — at that point, both the Soviet Union and China were willing and able to set ideology aside and turn to the United States and try to improve relations with them on the basis of geopolitical great power competition with each other.
Jon Sine: That’s exactly what I was thinking, because normally the story is you have brilliant strategists and Kissinger making that flight to Pakistan and then secretly flying off to China for this engagement. But some have argued, and I think your findings support this, that Mao in some ways, insofar as anyone deserves credit, might be the one making this move.
Reading back through Mao’s various writings, when he talks about the Japanese, for instance, he will sometimes half-jokingly, half-seriously say, “The Japanese are the people that we have to thank the most, because without them, we would never have come into power.” Are you sure there’s no element of speaking tongue in cheek here when he’s saying these things about Nixon being the number one good fellow?
Sergey Radchenko: You always have to be careful with his pronouncements. Mao does say that about the Japanese consistently. What he basically means is that because of the Japanese invasion, the nationalists were weakened — the Kuomintang Party was weakened — which provided the space for the Chinese communists to establish their power.
In a sense, it does make sense what he says about the Japanese. Of course, he’s being sarcastic to a certain extent.
With regard to Nixon, when Nixon and Mao met in February 1972, Nixon tried to engage him in conversation, and Mao kind of brushed it all aside and said, “Oh, you can talk to Zhou Enlai about practical matters. I don’t care about practical matters, I want to talk about philosophical matters.” He says something like, “We like rightists, and we voted for you in the 1968 election."
I don’t think Nixon quite gets that. Nixon is like, “Okay, well, listen...” But Mao is trying to say that he finds the Republicans more trustworthy because although they’re reactionary, as far as Mao is concerned, at least you always know where they stand. Whereas with the Soviets, you don’t. The Soviets would say one thing, and they would cover their actions with leftist phraseology, but in reality they do something completely different.
The same goes for Social Democrats, and he’s full of disdain for Social Democrats like the Europeans — Willy Brandt and all those people in Europe who are basically trying to engage with the Soviet Union, which would allow the Soviet Union to deal with China. He’s accusing the Western Europeans of trying to orchestrate another Munich, where they would sell out China.
Those are the kind of issues that Mao brings up, and I think he’s quite honest about it. It’s not a sarcastic comment when he says that he likes Nixon.
Jon Sine: The Soviets also really liked Nixon. This is probably my favorite part of your book — certainly the funniest. I was actually laughing. They find out about the Watergate scandal and see Nixon about to be removed from power, and Brezhnev is flipping out, thinking that the whole political system in the US is specifically trying to undermine détente. Then he sends a message, I believe it was to Andropov, essentially saying, “You’ve got to help Nixon. You’ve got to find some dirt on his opponents to help him.”
Sergey Radchenko: It is funny. It shows what kind of great material you can find in the Russian archives. In this particular episode, Andropov of the KGB is there, and you have Brezhnev’s aide asking, “Do we have some compromising material on Nixon’s opponents that we can use to help Nixon?”
It is hilarious, but the Soviets never could understand Watergate. Mao also did not understand Watergate. They could not comprehend how you could remove such a wonderful president who was creating détente and bringing the Cold War to an end and who had just won a big election. How? Clearly it’s some kind of conspiracy. At one point they say, “You see? They killed Kennedy, and now the same people are bringing Nixon down.” That was Brezhnev’s take on this. They never get it; they never understand what this is about.
Jon Sine: That was such a crazy time in American politics, from that decade on — the president literally having his brains blown out on TV, to then having a president actually impeached and removed from office. We forget today how things have been very crazy in the past.
The last analogy I was thinking of is when Nixon was about to become president. Some people say he engaged in what might technically be called a treasonous act by being in contact with the Vietnamese and trying to discourage them from agreeing to a peace deal. His rhetoric might sound familiar to people today who pay attention to news about Ukraine. He came in saying that the war in Vietnam was a complete disaster and we needed to get out of it immediately. But what ended up happening was an escalation beyond anything previously seen. I don’t know how much of a warning that would be for today, but I did think it was interesting.
To be fair, I heard Stephen Kotkin bring this up, so I thought it was an interesting analogy, though obviously there are many disanalogies — things that don’t map equally.
Sergey Radchenko: Niall Ferguson also raised this in a recent article comparing Trump to Nixon. The difference between Ukraine and Vietnam was that in the late 1960s, American troops were in Vietnam, which had a direct impact on American society and politics. There were anti-war protests going on in the United States. Today, American troops are not in Ukraine, so you don’t have the same kind of impact — no protests.
Both Nixon and Trump see these theaters as peripheral to America’s core interests. There is a parallel there.
Nixon’s way to get out of Vietnam was to try to coerce Vietnam, including by intensifying the bombing, dropping threats of a nuclear attack on Vietnam (which did not really work), and also working with the Soviets. From his perspective, that was a big part of the whole engagement with the USSR — finding an exit for the United States, “peace with honor,” getting out of Vietnam, and getting the Soviets to facilitate this.
The problem was that the Soviets were not facilitating any of this. From the Soviet perspective, they loved the fact that the Americans were engaging with them. They loved the honor of being a co-equal superpower. But if you’re a co-equal superpower, aren’t you supposed to have clients? You’re not supposed to betray your clients or force them to surrender to the United States. For them, this linkage never worked. They thought they could both help Vietnam and have a good relationship with the United States. That did not really work for the Americans.
Jordan Schneider: I love this line in your conclusion. This is talking about Khrushchev, but it applies to Brezhnev as well. The core question is, “Would he be willing to moderate Soviet foreign policy in return for being accepted as America’s equal? The proposition never worked because of the very fact that being accepted as America’s equal meant rejecting external constraints on foreign policy behavior.” What sort of equality would you talk about if you couldn’t have proxy wars or missiles in Cuba?
“Soviet engagement in the Third World, and indeed American acceptance of this engagement, were part and parcel of what it meant to be a superpower.”
This gets at the other core question as we come to the end of Brezhnev’s effectiveness — if he had stayed healthy and if Nixon wasn’t impeached, they could have kept the good thing going. But once his health deteriorated and Nixon departed, you argue that bureaucratic interests took over, and everything started ramping up again.
What are your thoughts on the transition?
Sergey Radchenko: It’s hugely important. We’re talking about health and power. It’s a big question for the late USSR, and we’re also familiar with this question in the West.
Brezhnev was very charismatic, very active, and very engaged until about 1974, and then he declined rapidly. He developed all kinds of ailments and basically became a figurehead. By the late 1970s, he didn’t really decide anything.
If you look at his summit with Carter in Vienna, he was just reading from pieces of paper. He wasn’t even thinking about what he was reading. When Carter responded, he would turn to his aides and ask, “What should I say now?” They would give him another piece of paper and he would read from that.
The Soviet deep state took hold in the late 1970s in a major way. The bureaucratic interests took over, and the Ministry of Defense became really important. For them, promoting various geopolitical schemes in the Third World was a key issue. They also resisted nuclear disarmament. They thought it was a bad idea. They wanted more investments from the state, so increasingly the Soviet economy became more militarized.
Jimmy Carter and Leonid Brezhnev in Vienna for the signing of the SALT II treaty, 1979. Source.
You have the interests of the International Department of the Soviet Communist Party, whose role is to promote revolutions in the Third World. It’s in their job description — promote revolutions. Previously, Brezhnev would have pushed them away because it’s beyond their pay grade to define policy. But by the mid to late 1970s, they come to influence policy in a major way, and we see that in the increasing Soviet involvement in Africa.
Then you had the Foreign Ministry and the KGB, and they all had their own distinct interests. Those bureaucratic interests increasingly came to dominate Soviet policymaking, and it drifted as a result. Policymaking became more conservative overall because there was no single figure who could break the ice and take charge the way Brezhnev did with the Nixon Summit in 1972. The bureaucracy was against it, but Brezhnev did it anyway.
Well, by the late 1970s, he couldn’t do that because he was no longer mentally alert. It is part of the story of Soviet decline, and it also shows how having an active leader at the top could actually have good results. Not always, because sometimes you could have an active dictator who will do terrible things precisely because he’s not constrained by the bureaucracy. But in the Soviet case in the late 1970s, power at the top was missing and the bureaucracy took over.
Boredom and the Graveyard of Empires
“When everything is calm, measured, stable, we are bored… we want some action.”
~ Vladimir Putin on the invasion of Ukraine, December 2024
Jon Sine: The last important thing that happens under Brezhnev, though he’s not really conscious of it, is the Soviet invasion of Afghanistan. To your point, you have Gromyko, Andropov, and Ustinov — the KGB, defense, the Troika. They go into Afghanistan, and on the US side, my understanding is Carter and maybe Brzezinski assumed this was a play to get all the way to the Persian Gulf.
What was the motivation to invade? If you were to identify some continuity of motivations between regimes, what did you find that was new about what was driving them?
Sergey Radchenko: I found some interesting things. We’ve had many people write about the Soviet invasion of Afghanistan, from Arne Westad to Rodric Braithwaite and many others. It was difficult to find anything new, but I did manage to discover some interesting materials from the fall of 1979.
At that time, there was already a conflict between Nur Muhammad Taraki and Hafizullah Amin in Kabul, but Amin had not yet killed Taraki. Taraki came to Moscow, and Brezhnev had a conversation with him — though “conversation” is in quotation marks because Brezhnev was in no position to have any productive dialogue. He does offer a warning to Taraki, “Look, when you go back, be careful because there’s a problem in your senior party ranks.” Taraki says, “Leonid Illyich, don’t worry about it. Everything is fine."
He goes back, and of course, he’s arrested by Amin’s men and ultimately put in prison and murdered on Amin’s orders.
What we see then is Soviet leadership thinking about how to respond. Their first instinct is actually to work with Amin despite the fact that they consider Taraki’s death an absolute slap in the face, a betrayal of the USSR. They feel they could work with Amin because he’s surrounded by “pro-Soviet people,” people who had studied in the USSR. Brezhnev writes about it in some exchange of memoranda at the senior leadership level, which I discuss in the book. This suggests they might continue working with Amin.
But by December 1979, they decided that they had to remove him. I ask in the book why this happened. There are different possible explanations for Soviet involvement — perhaps the Soviets were just adrift with nobody making foreign policy anymore, but I don’t think that fully explains it.
A more interesting explanation, which I highlight in the book, is that they worried Amin would “do a Sadat” on them. They had lost President Sadat in Egypt, who was supposed to be a pro-Soviet client, but they dumped him because he decided to align with Kissinger and Nixon. The Soviets got outplayed in Egypt.
After losing Egypt, the Soviets viewed almost every country in the Middle East as potentially another Egypt, and Afghanistan fell into that category. They grew suspicious of Amin, thinking he had ties with Americans. They received information that he was in contact with Americans and concluded he was potentially pro-American and could sell them out. They feared Americans would then establish a presence in Afghanistan, creating a strategic problem for the Soviets. They decided to act primarily because they didn’t want Amin to become another Sadat.
Jon Sine: Let’s transition to Gorbachev — and start with the Gorbachev-Trump analogy.
DOGE is American perestroika, at least in the charged anti-bureaucratic approach. Under Gorbachev, the Soviets decreased employment in the ministries and party personnel by something like 30 to 40%, which the current administration would certainly aspire to with the civil service in the US.
You have Gorbachev willingly giving up the Warsaw Pact, which some might analogize to Trump’s stance on NATO. Ultimately, as Axios reported, you have Trump’s desire for a Nobel Prize and the prestige and legitimation of doing something great for a foreign audience. People criticized Gorbachev for similar reasons when he wrote his 1987 book, Perestroika and New Thinking. He had it translated immediately into English, and it was written for a US publisher.
Sergey Radchenko: The book was also published in the USSR. Historical analogies are limited to some extent, but I see some interesting parallels.
One counterpoint I would offer is that the Soviet economy was basically going to hell in the 1980s, and they knew it. They knew they were losing the Cold War and that the promise of deliverance for the Soviet people was just a fake promise. The American economy, if you look at productivity, investment in technology, R&D, and so forth, is far beyond anything else anybody in the world can offer.
The question is one of necessity. I understand some people will say, “America has to carry out reforms because of the national debt” or other issues. In the Soviet case, perestroika was absolutely necessary, and they knew they had to do it. They knew it in the ’60s, but they didn’t act then because they craved stability under Brezhnev and were trying to avoid political upheavals.
They were also, to a certain extent, bailed out by the price of oil and the discovery of oil in Western Siberia, which they could sell for hard cash. This helped feed the Soviet people because they could import grain and some technologies. But they knew the system wasn’t working. When Gorbachev came to power, he had to begin doing something because doing nothing was not an option.
Gorbachev had everything in 1985 — an empire (however decrepit), an ideology (however stale), and above all, an office with truly awesome power. What he did not have was greatness, as he chose to understand it, greatness before history. He pursued that fleeting dream for himself and his country all the way to the famous Pizza Hut ad.
When you compare what Gorbachev and these other historical figures define as greatness, and what Trump defines as greatness, you see that the Trump definition is smaller, more personal — “People respect me, and speak to me nicely in the Oval Office.” All these other leaders had a vision of being grand historical figures who achieved something monumental.
There are parts of Trumpism that claim to revive America, defeat wokeness, and bring back ideals. Every once in a while, he’ll mention something about manufacturing, but “Make America Great Again” is much more about Trump personally than it is about a national vision of prestige and greatness.
Sergey Radchenko: It’s related to a certain extent. Soviet leaders desired greatness for themselves and for their country. This book is applicable to almost any other would-be great power or superpower. To a certain extent, it can be read as an allegory of the United States. This is how John Lewis Gaddis saw it in his review in Foreign Affairs — he thought that between the lines, the United States was clearly lurking there, really telling the American story, not just the Soviet story.
The question of legacy is super interesting and important because, as you say, Jordan, Gorbachev is at the helm of a superpower. He has all the power concentrated in his hands, and yet he wants something more. It’s similar to Mao Zedong in 1965. He had all the power, he could do anything. Even after he got rid of people he thought were conspiring against him by 1966, he continued the Cultural Revolution. For what? For legacy, for greatness before history.
If you think about Putin and his invasion of Ukraine, he has all the power, and yet he’s invading Ukraine. For what?
For greatness before history, the way he understands greatness.
If we return to Gorbachev once again and ask, “Fundamentally, why did he do it?” The answer is because he wanted something greater than what he had. He wanted to be remembered as a person who would bring the Soviet idea to life for the first time because he thought his predecessors never made it work. He would make it work, make it globally applicable, end the Cold War — this was his mission. That, I believe, is very important.
Jordan Schneider: We talked in the first episode about national ambition — is it a gas or is it a solid? Will it expand until it hits another obstacle that contains it, or does it have some natural limits? It’s interesting to analogize that not at a national level, but at a personal level.
When you’re in power for 15 years, you get bored. You’re probably already a bit of a gambler if you were able to make it all the way up the system. You just want more. This is why term limits are important — leaders tend to go a little cuckoo after too long. Either they go senile like Brezhnev — who thankfully didn’t start World War III because he was worried about his bladder — or they do something like Putin in Ukraine. It’s a scary thing to contemplate.
Sergey Radchenko: I agree. It’s fascinating to consider how these leaders, perhaps out of boredom, perhaps because they have nothing else to do, take dramatic actions. That might sound ridiculous, but speaking of boredom, Putin was once asked about Ukraine in one of his recent press conferences, and he essentially said, “We were kind of bored, and we decided to do it.” I’m paraphrasing, but he literally mentioned the word “boredom” in his comments on why he invaded Ukraine.
That sounds crazy, but if you’re a leader with all the power in your hands, you need something else. Schopenhauer in the early 19th century reflected that one of the major problems human beings face is generally the problem of boredom. They don’t know what to do with themselves. Now multiply that with absolute power, and you get people like Gorbachev who think, “Why not do something so great that everybody will remember me?” And well, he certainly succeeded.
Jon Sine: There’s a hedonic treadmill effect when it comes to status. You’ve achieved so much and yet, when you look back once you’ve achieved it, you realize you could achieve more, and the last thing you accomplished no longer seems as good. Now you’re wondering, “How can I really leave a legacy that my children and my children’s children will remember?”
What better than changing your borders, acquiring Greenland, getting back Panama?
Sergey Radchenko: Exactly. Or launching Perestroika. That’s why Gorbachev’s book which you referred to, the one published in the West, was actually subtitled “Perestroika For Our Country and For The World.” He was trying to restructure the entire world, not just his own country. That’s the extent of his ambition.
Humiliation and Containment
Jordan Schneider: Let’s talk about the dance that the Europeans and the Americans did with Gorbachev. The goal was to get the Soviets to understand that their relative power was decreasing, and that America and its allies had won the economic, science, and technology competitions. But you also want to allow a leader like Gorbachev to pursue his vision without risking something like a Stalinist revanchism, which wasn’t totally out of the cards.
Could you talk about how the West managed Gorbachev’s moment of defining national greatness as Perestroika rather than, say, conquering Germany?
Sergey Radchenko: First of all, the Americans were quite worried about Gorbachev to begin with, and that’s a well-known story. They were concerned because they thought he could actually succeed in what he claimed to be doing — reinventing the Soviet idea and making the Soviet Union a much more serious strategic competitor to the United States.
Some thought Gorbachev wasn’t for real and his reforms would ultimately be undone. Then, a moment came when American leaders thought they could reach out to Gorbachev in the name of international peace and reach some agreements.
Reagan was the key person here because he also believed in the importance of avoiding nuclear war and felt the great responsibility that was on his shoulders. Many people in the United States like to talk about Reagan “winning the Cold War” and how tough he was on the USSR. For me, the real Reagan was the one who believed that nuclear war had to be avoided and that we needed to talk to the Soviets.
Ronald Reagan and Mikhail Gorbachev laughing together in Washington, December 8, 1987. Source.
As Reagan said at one point, Soviet general secretaries kept dying on him, but then he finally had a partner in Gorbachev with whom he could talk. They first met in Geneva in 1985, then in Reykjavik. There came a remarkable moment in Reykjavik where they discussed abolishing nuclear weapons altogether. It was “almost decided” to the horror of Reagan’s advisors. Here was an interesting moment when an American leader thought, “What if we actually try to play along and see how far we can get? Maybe we can actually change the course of history.” Reykjavik represented that possibility.
Jordan Schneider: Going all the way back to Stalin and Truman, you have this quote from Henry Kissinger who wrote in a 1957 book, “The powers which represent legitimacy and the status quo cannot know that their antagonist is not amenable to reason until he has demonstrated it. And he will not have demonstrated it until the international system is already overturned.”
We’ve got our answer with Putin, but we don’t quite have our answer yet with Xi’s China. This presents a very difficult choice — on the one hand, if Stalin had turned out to be reasonable, we could have had a different timeline. But if not, the price for running that experiment would have potentially been the Soviet conquest of Europe or even the world.
How are we supposed to think about that dilemma sitting here in 2025, imagining the future of US-China relations?
Sergey Radchenko: Jordan, that’s a great question. The fundamental problem is we don’t know what the other side is really thinking. The other side may not even know what they ultimately want. This is the case with Stalin. Even with the passage of all these years, we don’t know what Stalin’s ultimate ambitions were. Was he limited in his appetites? Would he stop, or unless he met with counterforce, would he keep pushing? Would he keep going until he conquered Europe, and from Europe jump over to conquer Asia and the world?
It sounds fantastic, but “appetite comes during eating” as the French say (“l'appétit vient en mangeant”). If you’re an American policymaker faced with this situation, you’re thinking, “How do we stop that? What is the most reasonable policy we can adopt?” It seems the most reasonable approach is the policy ultimately adopted — containment. You push back on expansionist desires, and the other side has to take this into account. They are deterred and limit their ambitions, but as a result, a struggle unfolds that becomes a prolonged confrontation like the Cold War.
It’s a sad situation, but maybe inevitable and unavoidable. It’s like choosing between two evils. On one hand, containment and counter-containment lead to a Cold War and could potentially lead to a hot war. On the other hand, doing nothing could expose you to a situation where you’ll basically have to accept that the other side dominates everything.
It’s the same with China. The fundamental problem we face today, even with Russia as well, is that we simply don’t know what the other side wants. Does Xi Jinping want to overturn the existing order, or is he just trying to change China’s position within this global order? That question has been debated for 20 years, even before Xi Jinping.
We don’t know the answer. Some people say, “We know Xi Jinping is trying to overturn the world order because here’s the evidence.” I would say, “I’m looking at this evidence, and I’m not 100% convinced.” We simply don’t know whether Xi Jinping himself knows what he wants to do.
Under those circumstances, what’s the best policy to pursue? The policy is probably a combination of containment, firmness, plus clear signaling — “We see what you’re doing. This will be our response.” No jumping around and doing impulsive things, which American foreign policy sometimes tends to do. We’ve seen that with Trump, but also with previous administrations.
With China, consider Nancy Pelosi’s ill-advised visit to Taiwan. What did it achieve? It was very provocative and completely useless in many ways. As a result, we had a breakdown of communication at senior levels between Chinese and American militaries. Did it benefit anyone? No. What was the point? There was no point.
We have to be firm, maintain dialogue, and signal to the other side that we see what they’re doing and are preparing certain countermeasures. But if they back off at the right moment, we will also not proceed with those countermeasures. I think that’s the way to mitigate great power confrontation in this potentially new Cold War that is unfolding before our eyes even today.
Jordan Schneider: I want to apply the lessons of prestige to the US-China relationship, and Putin as well. Are leaders satisfied by the rate of change of prestige or by the absolute value of prestige? Are there ways to give prestige that don’t fundamentally compromise core national interests and power? It seems that prestige is often in the eye of the beholder, and America can give prestige in many different ways — some costly, some much less so.
Sergey Radchenko: Core interests for prestige certainly exist. In my book, I discuss Poland and how it was central to Stalin’s security concerns in Europe. No matter how much prestige he would have received from the allies, he was determined to do what he wanted in Poland because he considered it a fundamental red line core to his security interests. You might say this also applies to Putin or Xi Jinping today.
On the other hand, we sometimes underestimate the importance of recognition, respect, and acceptance. We also tend to underestimate how our actions can humiliate the other side and provoke adverse reactions we would rather have avoided.
Consider President Obama’s rhetoric about Putin being “the kid in the back of the classroom,” which reportedly outraged him. You might ask whether Putin would have still invaded Ukraine if Obama hadn’t made those remarks. Perhaps he would have because Ukraine is central to his neo-imperialist vision of Russia, or perhaps not. It’s a counterfactual — we simply don’t know.
The question is whether he feels he has standing and respectability. I believe it ultimately does matter. The same likely applies to the Chinese leadership.
It’s important to note that, despite our strategic rivalry with China and difficult relationship with Russia, these countries are ruled by autocrats who sometimes make decisions impulsively, for no particular reason, and occasionally in ways that clearly contradict their country’s national interests. They do this because they feel insulted or humiliated. We should not underestimate those sentiments. In dealing with these countries, we should be careful — respectful but firm.
Jordan Schneider: Perhaps even more famously, Barack Obama at the 2011 White House Correspondents’ Dinner made fun of Donald Trump for the birther conspiracy, and some trace Trump’s desire to run for president back to being humiliated on national television.
Sergey Radchenko: That’s a great counterexample.
Jordan Schneider: Maybe this is the 4D chess with Trump — we’re going to stop calling Putin a dictator and say he’s the best thing since sliced bread. Will that make him pull out of Ukraine?
Sergey Radchenko: Maybe not, but it’s a cumulative effect. Over time, these things matter. It’s not as if we suddenly say, “We love you, come back to the G7, let’s have a good relationship,” and he’ll respond, “Yes, I’ll pull out from Ukraine.” We’ve already turned that corner, and it’s very difficult to go back. But on the road to confrontation, these factors do matter, in my view — perhaps not decisively and not always, but they do matter.
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Hirata, Koji. Making Mao's Steelworks: Industrial Manchuria and the Transnational Origins of Chinese Socialism. Cambridge: Cambridge University Press, 2024.
More and more of my listening this year has shifted away from Spotify. As big a fan I am of AI, I’m sick of Spotify degrading artists and albums in favor of mixes and playlists by ghost musicians. In its place for me has come the magical website and app Radiooooo.
Radiooooo takes human-submitted tracks, categorizes them by country and decade, and lets you explore. On their whimsical global map, you can either let their algorithm take you on a world tour, or you can decide that today’s the day to spend an hour with the tunes of pre-revolutionary Iran.
Most of the world maps I look at reflect geopolitical competition, but Radiooooo’s map flips that on its head, using music across time to show how cross-pollinated we are. The selection is biased towards selections that show global influence, and it is so cool seeing that global influence! Japan had excellent do-wop in the 1970s! A Swedish singer in 1959 made a song about Puerto Rico! A calypso song from Hong Kong in 1960! Soviet crooners from the early Brezhnev era! Radiooooo is a life-affirming reminder that joy and creativity persist even in decades of dictators and war.
Beethoven provided my other favorite listening experience of the year. Norman Lebrecht’s Why Beethoven: A Phenomenon in One Hundred Pieces is a brilliantly written collection of short essays, which introduce, in some creative oblique way, a Beethoven composition in just a few pages.
Chinese TV
再见爱人 See You Lover — China’s “Road Rules for Divorce” show — is a reality show where three celebrity couples all married for at least ten years and on the verge of divorces take an 18-day road trip together. It is some of the most gripping content I’ve ever seen. Discussed here and with on the podcast episode below. It’s the year’s only must-watch piece of Chinese content.
Over the course of the show, you get to watch modern Chinese women wake each other up to the fact that they can demand more from their neglectful and abusive husbands through an interplay of independent earning power and global feminist ideas (filtered primarily through Japanese writers). Score: 9.8/10
欢乐家长群 Growing Together — this light series is about four couples in Beijing raising young children, and the drama that takes place through a parent’s WeChat group. Contemporary marital drama is much more engaging in 再见爱人, but this show is a sanitized window into how rich parents try to raise their kids in a post-cram school era where prioritizing self-actualization holds some weight relative to academic achievement. Score: 7.5/10
I got four episodes into 大明王朝1566 before getting overwhelmed. It’s quality content that requires real attention, which paternity leave did not allow for. Will try again this year!
山花烂漫时 She and Her Girls [they should just let me name these shows, this is awful] is a dramatized true story of a teacher who founded an all-girls high school in a poor rural village.
It’s a high quality drama and illustrates why top flight Chinese dramas have a hard time finding footing internationally. In one episode, the teachers start jumping ship because of bad working conditions and low pay. The only ones who stick around are the Party members — who use the power of red songs to get their kids to study. It’s a lot to stomach. Chinese audiences understand that elements like these are non-negotiable if you want to make a show showcasing the reality of modern poverty, but it causes global audiences to tune out.
“In the war against the Japanese, as long as there is one Party member, there’s no way that group would lose ground. Today I learned we have six teachers who are Party members. Could it be that we lose ground for the Party at this women’s high school? The long march was so long, I know this semester will be hard, but not that hard! This semester let’s all review again the Party Membership Oath. Before we were colleagues, now we are comrades. 之前我们是同事，现在我们是同志!”
Ep 5 is the standout episode for me where the teachers go out into the countryside to recruit students only to encounter desperate poverty preventing these girls from studying. It’s a refreshing departure from the normal poverty porn you see in food shows like Bite of China.
Other themes include:
A morally complex protagonist! Usually in a propaganda-boosted storyline like this, with someone sacrificing their personal life for poor people, the main character gets turned into Mother Teresa. In this show the teacher is proud — and resentful of the students who still rebel when given the opportunity.
The real importance of the gaokao — ep 19 opens with a dream sequence of everyone getting super high test scores (which doubles as satire of traditional gaokao shows), and closes with a speech by the lead teacher about why the gaokao isn’t absolutely everything. The show illustrates how deeply that exam pressure has traumatized these girls, and by the next episode the head teacher is back to stressing everyone out about test scores. College is the only social mobility path for these rural youth, but if you don’t get accepted anywhere, at least you didn’t have a child at 14!
Alcohol — being raised by alcoholic parents contributes to a lot of the girls’ misery, but the founder of the school still uses booze to bond with teachers and schmooze donors and officials.
Bureaucracy — we run into unhelpful lower level officials, only to of course find an understanding higher-up who swoops in to save the day once the protagonist remonstrates and proves their worthiness.
Other TV
Culinary Class Wars — Koreans with nice “Great British Bake Off” vibes cooking food that’s novel to me. Funny how the “Chinese-style” Korean chefs all have a very flat interpretation of Chinese cuisine. Most remarkable is the star judge, Korea’s first three star chef. He has a crazy backstory:
Anh was born in South Korea but moved to the United States in 1993 at the age of 12. He grew up in California where his parents ran a Chinese restaurant. He enlisted in the US Army after high school, and after the September 11 attacks and the start of the Iraq War, asked to serve in Iraq. Anh served as a mechanic, where he helped fuel combat vehicles like helicopters and tanks.After his Army service, Anh was set to attend mechanic school to become a Porsche mechanic. After seeing a group of culinary school students walk by in chef coats, however, Anh changed course and enrolled in culinary school.
Score: 8.3/10
Industry Season 3 — this show is fun, but it’s no Succession. Score: 7.8/10
Sports
Most of the ‘make you gasp’ moments I have following professional sports are surprises about how awful things can get. On a weekly basis for years now, Josh Allen, QB of the Buffalo Bills, has delivered these moments. Watching him is balletic — his invincibility lets you forget all the crushed bodies left in the NFL’s wake.
Dipping into independent fan podcasts after big games or trades is one of my great pleasures. The best sports drama arc of 2024 were the Mets gloating at the Soto signing.
In an increasing number of sports, women’s competition offers the superior viewing experience. This was especially apparent watching the Olympics this year. For men’s indoor volleyball, the jump serves result in too many out serves and dead time, but the women’s game has more action and dramatic points. The same goes for women’s tennis, where Caitlin Clark is a highlight. However, the WNBA is still a little too slow for my taste.
I started playing soccer in adult leagues in NYC this year! It would be fun to get a ChinaTalk team going if there’s any interest…
Movies
We’ve since learned that ChinaTalk doesn’t only get people promoted, it also gets them cast in movies! Phil spent this fall as one of Adam Sandler’s four sons in Happy Gilmore 2. He’s also the lead in an excellent play currently on in Atlanta from March 29 to May 4th.
Billy Madison — the teacher deciding to go out with Billy Madison after he gropes her on the bus is a little bit of a stretch…
Happy Gilmore — I had more fun with this one than Billy Madison. Do they not make short dumb well-made movies anymore, or do I just not watch the ones that come out?
抓娃娃 ‘The Successor’ (2024) — this is one of China’s top grossing movies of the year. The Successor is a ‘Truman Show’ where rich parents decide to raise their child in poverty after spoiling their first kid while training him to take over the family’s business empire. It was interesting to see the backlash to tiger parenting across this movie and the parents WeChat group show. You can stream this movie on Iq.com with English subtitles! Score: 8.8/10
The Divorcee, 1930 — I went on a 1920s kick, which led me to Ursula Parrot’s epic 1929 novel Ex-Wife and its 7.1/10 movie adaptation. The best discovery was this labor of love website, pre-code.com, that I’m excited to dive deeper into.
Anora — I fell asleep in second act. Score: 7.6/10
Video Games
Elden Ring (Levels 60-85)
Parenting an infant considerably shrinks your physical universe — before I became a parent, I was traveling twice a month. Returning to Elden Ring helped me feel less claustrophobic as I made the transition to life within a 5-block radius.
This game is the perfect experience for the pre-VR/AI world, and a marvel of human creativity.
One day I went to the Met Museum after a few hours of playtime, and thought, “Elden Ring’s world is more beautiful and striking than half of these landscapes.” There are few experiences in content consumption quite as satisfying as beating an Elden Ring boss on the 7th try. There were a few times in the past year, in real-life contexts, that I opted to beat “a boss” creatively instead of beating my head against a wall trying the same thing over and over again. Perhaps you could credit my “Elden Ring brain” with helping me find lateral solutions to these problems.
Fromsoft’s triumph is a testament to the magic of maintaining a singular focus on honing a craft for decades. Sure, hardware could not handle something as ambitious as Elden Ring in the past, but the gameplay and design heights of Elden Ring would not be possible had the developer not already made six games in the ‘Soulslike’ genre.
Even if you’re not a big video game person, I’d really encourage you to try to experience the game for yourself. If there’s no chance you will, consider watching this video:
Magic the Gathering: Bloomburrow Quick Drafts
It’s dark magic. Doing drafts gives you slot machine randomness with just enough brain-engagement to trick you into thinking it’s an intellectual activity. Deck-building is genuinely interesting, but then you’re back to casino-like brainstem stimulation during actual gameplay. Generally, there are only one or two moments in each game where you’re rewarded for thinking. The beauty of playing on chess.com is that the apps have a direct feedback loop to teach you how to improve after each mistake you make, which doesn’t exist in MTG Arena.
Von Neumann has a great quote comparing chess and poker: “Chess is not a game. Chess is a well-defined form of computation. You may not be able to work out the answers, but in theory there must be a solution, a right procedure in any position. Now, real games are not like that at all. Real life is not like that. Real life consists of bluffing, of little tactics of deception, of asking yourself what the other man is going to think I mean to do. And that is what games are about in my theory.”
Maybe in-person magic has that in-person bluffing aspect coupled with the feedback of learning by chatting after the games — but playing online has left me hollow. After spending down $20 in gems, I blocked the game.
Black Myth: Wukong.
If you’re looking to appreciate the artistry of the game without having to git gud, check out this 4k bilibili playthrough.
Part 2 of our interview with Shashank Joshi, defense editor at the Economist, and Mike Horowitz, professor at Penn who served as Biden’s US DAS of Defense for Force Development and Emerging Capabilities. Here’s part 1.
In this installment, we discuss…
AI as a general-purpose technology with both direct and indirect impacts on national power,
How AGI might drive breakthroughs in military innovation,
The military applications of AI already unfolding in Ukraine, including drone capabilies and “precise mass” more broadly,
Whether AGI development increases the probability of a preemptive strike on the US.
I’m hoping to expand on this show with an interview series exploring AI’s impact on national security. Too often today, debates center on “superweapons” lazily pattern-matched to the nuclear era or go in circles on cyber offense vs defense. The goal instead is to repeat the exercise Dario did for biotech in Machines of Loving Grace: deeply explore the bottlenecks and potential futures across domains like autonomy, decision-support, stealth, electronic warfare, robotics, and missile defense. Guests will be engineers and technologists who can also explore second-order operational and strategic impacts.
But this needs a sponsor in order to happen! If you work at an AI firm, defense tech, VC, university or think tank and want to help facilitate the best conversations about the future of warfare, please reach out to jordan@chinatalk.media.
Military AI and the Drone Revolution
Jordan Schneider: Let’s talk about the future of war. There is this fascinating tension that is playing out in the newly national security-curious community in Silicon Valley where corporate leaders like Dario Amodei and Alex Wang, both esteemed former ChinaTalk guests, talk about AGI as this Manhattan Project-type moment where war will never be the same after one nation achieves it. What’s your take on that, Mike?
Michael Horowitz: There’s a lot of uncertainty about how advances in frontier AI will shape national power in the future of war. I’ve been, historically, extremely bullish on AI from a national defense perspective. I remember when Paul Scharre and I were in a small conference room at CNAS with basically everybody in Washington D.C. who cared about this. Now it’s obviously attracting much more attention.
But I think the notion that AGI will inherently transform power in the future of war makes a couple of questionable assumptions. The first is that AGI is binary and immediately causes a jump in capabilities, which essentially means that you can then solve all sorts of problems you have been trying to solve that you couldn’t solve before.
That might be true. It also might be true that you have continuing growth in AI capabilities that may or may not constitute AGI. In that case, you never have one specific moment, yet you still have ever-increasing frontier AI capabilities that militaries can then potentially adopt.
This other assumption is that technical breakthroughs are the same thing as government adoption, which the history of military innovation suggests is incorrect.
I worry that US companies will lead the world in AI breakthroughs, but the US Government will lag in effective adoption due to legacy bureaucracy, budgeting systems, and the relationship between the executive and Congress.
Maybe the PRC will get there later, but adopt the upside faster.
Jordan Schneider: What is the AI eval that would convince Mike Horowitz that this is the next stealth bomber, or the next nuclear weapon?
Michael Horowitz: I just think that’s the wrong way to think about it. AI is a general purpose technology, not a specific widget. If what we are looking for is the AI nuclear weapon or the AI stealth bomber, I think we’re missing the point.
When general purpose technologies impact national power, they do so directly and indirectly. They do so directly through, “All right, we have electricity, now we can do X,” or, “We have the combustion engine now we can do X.” They do so indirectly through the economic returns that you get, which then fuel your ability to invest in the military and how advanced your economy is. AI is likely to have both of those characteristics.
The thing that’s not entirely clear yet is whether there’s essentially a linear relationship between how advanced your AI is and what the national security returns look like.
Jordan Schneider: Just to stay on defining terms, the direct applications we’re talking about, like the AI for science, are still in the very early phases. There’s a really fun book by Michael O’Hanlon called Technological Change and the Future of Warfare, that includes this cool table of all of the different vectors on which technology can get better over a 20-year horizon.
Show me some crazy material science breakthroughs that you can put in weapon systems, and I will be convinced that this stuff is really real and going to matter on a near-term horizon on the battlefield.
But I think the Dario Amodei framework strikes me as really not grappling with the challenges both on the scientific side as well as on the adoption side. Maybe Shashank, before we do adoption, anything on what this can potentially unlock that we would want to?
Shashank Joshi: We could split the applications of that general-purpose technology up a million different ways. The way I have tended to do it in my head is thinking about insight, autonomy, and decision support.
Insight is the intelligence application. Can you churn your way through satellite images? Can you use AI to spot all the Russian tanks?
Autonomy is, can you navigate from A to B? Can this platform do something itself with less or no human supervision or intervention? The paradigmatic case today, which is highly impactful, is terminal guidance using AI object recognition to circumvent electronic warfare in Ukraine.
The third interesting thing is decision support. This includes things that nobody really understands in the normal world, like command and control. It’s the ability of AI to organize, coordinate, and synchronize the business of warfare, whether that’s a kind of sensor-shooter network at the tactical level for a company or a battalion, or whether it’s a full theater-scale system of the kind that European Command, 18th Corps, and EUCOM has been assisting Ukraine with for the last three years.
This involves looking across the battlescape, fusing Russian phone records, overhead, radio frequency, satellite, IM satellite returns, synthetic aperture radar images, and all kinds of other things into a coherent picture that’s then used to guide commanders to act more quickly and effectively than the other side. That’s difficult to define. But if we’re talking about transformative applications, that is really where we need to be looking carefully.
Michael Horowitz: I agree. General Donahue is a visionary when it comes to what AI application can look like for the military today, and in trying to at least experimentally integrate more cutting-edge capabilities.
To the Dario point though, it’s all a question of timeframe and use cases. If you imagine AGI as instantly having access to 10,000 Einsteins who don’t get tired, then that’s going to lead to lots of breakthroughs that will generate specific use cases.
These could lead to new material science breakthroughs that decrease radar cross-sections, new advances in batteries that finally mean the dream of directed energy becomes more of a reality, or advances in sensing in the oceans that create new ways of countering submarines. It could lead to all sorts of different kinds of things. The challenge is it’s difficult in some ways, ex-ante, to know exactly which you’ll get when.
Jordan Schneider: Perhaps Dario would say that your framework, Shashank, is weak sauce and he’s talking about an entirely new paradigm.
Which of these applications are currently being developed in Ukraine?
Shashank Joshi: The autonomy piece is super interesting because of the pace of change. To sum this up, when I was talking to Ukrainian first-person view (FPV) strike operators, they were saying that if you are a member of an elite unit with loads of training, you can get a hit rate of up to 70-75%. But if you’re an average strike pilot, this is not easy. Sticking those goggles on, navigating this thing — you don’t know when the jamming is going to kick in and cut the signal. You have to get it just right, and you’re getting like 15-20% hit rates maybe.
What I am seeing with the companies and entities building these AI-guided systems for the final 100 meters, 200 meters, 300 meters, and increasingly up to 2 kilometers in some cases, is that the engagement range is going up. You can hone in on the target beyond the range of any plausible local jamming device. That’s a huge deal. More importantly, the hit rate you’re getting is 80% plus. That’s phenomenal. That changes the economics, the cost per kill — that changes the economics of this from an attrition basis.
There are all these interesting ripple effects. You can achieve this with like 30 minutes of training. Think about what that unlocks for a force, particularly sitting here in Europe where we have these shrunken armies with no reserves, with the manpower requirements as well as the training times to bring new people in when you have attrition in a war in the first round.
This little tactical innovation — terminal guidance, AI-enabled — looks very narrow, but it has all these super interesting and consequential ripple effects on the economics of attrition, the cost per kill, lethality levels, the effectiveness of jamming, and on manpower and labor requirements. That’s why it’s so important to get into the weeds and look at these changes.
Michael Horowitz: We’re seeing at scale something that we kind of thought might happen, but it just always been theoretical rather than something real. The argument for why you would need autonomy to overcome electronic warfare has been obvious for decades. When they were questioning if the technology is there or if we want to do it this way, there were different kinds of approaches.
What we’ve seen is that when you are fighting conventional war at scale, if you want to increase your hit rate and overcome jamming when facing electronic warfare, you can update software to try to counter the jamming. You can try to harden against jamming, and although it increases costs, you can use different concepts of operation to try to get around it, to sort of fool the local jammers.
But to the extent that autonomy becomes a hack that lets you train and operate systems more effectively in much less time — that’s a game changer, and it’s not one that we should expect to be confined there. Imagine all of the Shaheds that Russia fires at Ukraine with similar autonomous terminal guidance out to a couple of kilometers. Imagine all sorts of weapon systems with those kinds of capabilities. We’re seeing this at scale in Ukraine in a way we just had imagined.
To be clear, it’s not just in the air. Let me now just give my 15-second rant on the term “drone.” We are currently using the term “drone” to refer to a combination of cruise missiles, loitering munitions, ISR platforms, and uncrewed aerial systems that themselves launch munitions. All of those are getting called drones right now, even though we actually have correct names for them. It might be helpful if we used those names since we’re talking about different capabilities, essentially. But yeah, plus one to everything.
Shashank Joshi: Mike, do you want me to start using terms like UAS, UUVs? I’m going to get sacked if I start using all those acronyms.
I’d like to ask you about something since you’ve raised the issue of different domains. One of the questions I often get asked by readers is: where are all the drone swarms? Where are the swarms that we were promised? Maybe this is a kind of ungrateful thing because we bank a bit of technology and we are desensitized to it and then we forget everything else.
What interests me is, when writing about the undersea domain a while ago and submarine hunting, I was struck by how difficult it is — this is obvious physics — to communicate and send radio frequency underwater. Radio waves don’t penetrate water very much, if at all. Acoustic modems and things like that are very clunky. So the technologies we have relied on for things like control signals, navigational signals, oversight in the air domain operate very differently in places where signals don’t travel as much — the curvature of the earth or in the water. Do you think that uncrewed technology and autonomy operates in some kind of fundamentally different way in those domains or will it be less capable in those places?
Michael Horowitz: That is a great question. Let me give you a broad answer and then the answer to the specific undersea question.
We’ve essentially entered the era of precise mass in war, where advances in AI and autonomy and advances in manufacturing and the diffusion of the basics of precision guidance mean that everybody essentially can now do precision and do it at lower cost. This applies in every domain — it applies in space, in air for surveillance, in air for strike, to ground vehicles, and can apply underwater and on the surface now. The specific way that it plays out will depend on the specifics of the domain and on what is most militarily useful.
If the question is “Where are the swarms we were promised?” and what we end up with is a world where one person is overseeing maybe 50 strike weapons that are autonomously piloting the last two kilometers toward a target, there may be actually military reasons why we don’t want them to communicate with each other. If they communicated with each other, that would be a signal that could be hacked or jammed, which then gets you back into the EW issue that you’re trying to avoid. There’s an interaction in some ways between the “swarms we were promised” and some of the ways that you might want to use autonomy to try to get around the electronic warfare challenge.
This points to the huge importance of cybersecurity in delivering essentially any of this. Part of the issue is that swarms potentially are vulnerable to some of the same issues that face FPV drones and other kinds of systems in different kinds of strike situations. It wouldn’t be surprising to me if you then see a move more towards precise mass in the context of autonomy without swarming in a world where you think that you’re getting jammed.
Now underwater, you absolutely have the physics issue that you’ve pointed out — communication underwater is just more difficult. To the extent that something like swarming requires real-time coordination, that becomes even more difficult the further away things are from each other. It wouldn’t be surprising then that the underwater domain would be challenging here.
To take it back to the AGI conversation we were having, two notes are relevant here. One, the “where were the swarms we were promised” question reminds me that how we define artificial general intelligence often is a moving target. We’re constantly shifting the goalposts because once AI can do things, we call it programming. Artificial general intelligence is always the thing that’s over the horizon.
Going back to my belief that there might not be one AGI moment, it reflects that way that the definition of AI has tended to be a moving target. But specifically, if you’re in the “AI will transform everything” paradigm, one of the things you would probably try to use AGI to do that would have transformative impact would be to solve some of these communication issues in the undersea domain that can potentially limit the utility of uncrewed systems in mass undersea. That’s an example essentially of a science problem that then maybe major advances in AI help you address when you have paradigm-shifting AI.
Debating China War Scenarios
Jordan Schneider: I want to talk about two odd theories for why a US-China-Taiwan war could kick off. One is China’s dependence on TSMC, and the other is this idea that if one side is close to AGI, then the other would do a preemptive strike to stop their adversary. What do you think about these scenarios?
Michael Horowitz: Those are great questions. A lot of what we know from the theory and reality of the history of international relations and military conflicts suggests that war in either case would be pretty unlikely.
Let me start with the Taiwan scenario. I am extremely nervous, to be clear, about the prospect of a potential conflict between China and Taiwan. There is real risk there. But the notion of China essentially starting a war with Taiwan over TSMC would be kind of without precedent. Put another way, there are lots of paths through which we could end up with a war between China and Taiwan. The one that keeps me up at night is not an attack on TSMC.
Jordan Schneider: Ben Thompson just wrote a piece that defines China’s reliance on Taiwanese fabs as an important independent variable in Beijing’s calculation of whether or not to invade. How do you think about that line of argument in a broader historical context?
Michael Horowitz: The best version of the argument, if you wanted to make it, is probably that if China views itself as economically dependent on Taiwan, it would then seek to figure out ways to get access to the technology that it needs from Taiwan. You could imagine that effort happening in a couple of different ways.
One is to mimic what TSMC does, which obviously they’re already attempting to do. Another would be attempting to coerce Taiwan to get better access to TSMC. But starting a war with Taiwan where tens of thousands, if not hundreds of thousands of people are likely to die, and which could trigger a general war with the United States and other countries in the Indo-Pacific over the fabs — I think that’s relatively unlikely since China would have lots of other ways to try to potentially get access to chips that they need.
Jordan Schneider: You keep coming back to the straw man of going into TSMC to take the chips. But there’s another line of argument that as long as China still needs TSMC and is able to buy NVIDIA 5-nanometer or 3-nanometer NVIDIA chips and needs the output from those TSMC fabs to run its economy in a normal, modern way, then that would drive down the likelihood of China wanting to start a conflict.
Michael Horowitz: There’s certainly an argument in that direction, which is to say that economic dependence could generate incentives to not start a conflict as well. My belief tends to be that the probability of war between China and Taiwan will be driven by broader sociopolitical factors.
Jordan Schneider: I would also agree. Putting on my analyst hat for a second, I can think of several factors that are orders of magnitude more important to China than TSMC in deciding whether to invade — domestic Chinese political dynamics, domestic Taiwanese politics, the perception of America’s willingness or Japan’s willingness to fight for Taiwan.
How about the preemptive strike over AGI?
Michael Horowitz: The argument is insufficiently specified, and I will say my views on this could change. For a situation in which, say, China would attack the United States because it feared the United States was about to reach AGI, that presumes three things.
It presumes that AGI essentially is a finish line in a race — that it’s binary and once you get there, there’s a step change in capabilities.
It presumes that there’s no advantage to being second place, and that step change in capabilities would immediately negate everything that everybody else has.
It assumes that advances are transparent, such that the attacker would know both what to hit and when to hit it to have maximum impact.
There are a lot of reasons to believe that all of those assumptions are potentially incorrect.
It’s not clear, despite enormous advances in AI that are transforming our society and will continue, that there will be one magical moment where we have artificial general intelligence. Frankly, the history of AI suggests that 15 years from now we could still be arguing about it because we tend to move the goalposts of what counts as AI. Since anything we definitively have figured out how to do, we tend to call programming and then say that it’s in support of humans.
It’s also not clear that these advances would be transparent and that countries would have timely intelligence. You need to be not just really confident, but almost absolutely certain that if somebody got to AGI first, you’re just done, that you can’t be a fast follower, and probably that it negates your nuclear deterrent.
If you believe that AGI is binary, that if you get it, it negates everything else, and that there’ll be perfect transparency — in that case, maybe there would be some incentive for a strike. Except that military history suggests that these are super unlikely.
What we’re talking about in this context is a bolt from the blue — not the US and China are in crisis and on the verge of escalation and then there’s some kind of strike against some facilities. We’re talking about literally being in steady state and somebody starts a war. That’s actually pretty unprecedented from a military history perspective.
Leaders tend to want to find other ways around these kinds of situations. If you even doubted a little bit that AGI would completely negate everything you have, then you might want to wait and see if you can catch up rather than start a war — and start a war with a nuclear-armed power with second strike capabilities. It’s so dangerous.
Jordan Schneider: I am sold by arguments one and three. If the story of DeepSeek tells you anything, it’s not even fast following like three years with the hydrogen bomb in the Cold War; it’s fast following like three months with a model you can distill.
If it’s not a zero-to-one thing, then maybe the more relevant data point is Iran and Israel in the 2000s and 2010s. You don’t literally have missiles being fired and airstrikes, but you have this increasingly nasty world of targeted assassinations and Stuxnet-like hacking of facilities.
What is now a happy-go-lucky world in San Francisco could become a lot more dark and messy. Mike, what could trigger that potential timeline?
Michael Horowitz: Let me be more dire and ask, what’s the difference between that and the status quo?
Obviously there’s a difference if we’re talking about assassination attempts and those kinds of things. But every AI company around the world, including PRC AI companies, is probably under cyber siege on a daily basis from varieties of malicious actors, some of them potentially backed by states trying to steal their various secrets.
To me, this falls into a couple of categories. One is cyber attacks to steal things — hacking essentially for the purposes of theft. A second would be cyber attacks for the purposes of sabotage, like a Stuxnet-like situation. A third would be external to a network, but physical actions short of war — espionage-ish activities to disrupt a development community.
On the cyber attack aspect, there is a tendency sometimes to overestimate the extent to which there are magic cyber weapons that let you instantly intrude on whatever network you want. Are there zero days? Yes. Are cyber capabilities real? Yes. Many governments, including the United States government, have talked about that, but I’m not sure it’s as easy to say “break into a network” that is, to be clear, pretty hardened against attack, and just flip a switch like, “oh, today we’re going to launch our cyber attacks."
There are effectiveness questions about some of those things. But also those networks are constantly being tested.
Stuxnet was really hard to achieve. Stuxnet is probably the most successful cyber-to-kinetic cyber attack arguably in known history. It’s this enormous operational success for Israel against Iran.
Jordan Schneider: But the difference with Stuxnet versus what we’re talking about, is that a data center in Virginia or Austin is much more connected to the world. They hire janitors. It’s not like in a bunker somewhere.
Michael Horowitz: Those are more accessible, but there are also more data centers. Targeting any one data center in particular is not likely to grind all AI efforts to a halt.
Frankly, if there is one AI data center that is widely regarded as doing work that will be decisive for the future of global power, that’s going to be locked down. The company will have incentives to lock it down, just like defense primes have incentives to lock their systems down, even if we’re not talking about defense companies. Companies like Microsoft and Google have incentives to lock down non-AI capabilities as well.
My point isn’t that there won’t be attempts and even that some of those attempts won’t succeed, but there’s sometimes a tendency to exaggerate the ease of attack and its structural impact. In a world where we’re talking about hitting a very accessible facility in Virginia, that means there’s probably similar accessible facilities in other places that also can potentially do the job.
Now the toughest scenario is the espionage one where you’re talking about essentially covert operations targeting companies. It wouldn’t surprise me if some of those companies are intelligence targets for foreign governments. The challenge analytically is that these arguments quickly enter the realm of non-falsifiability.
If I tell you that I think this kind of espionage or that kind of espionage wouldn’t be that likely, you could say, “Well what about this?” We’re not going to be able to resolve it with facts. Non-falsifiable threat arguments make me nervous analytically. Maybe this is the academic in me that makes me want to push back a little bit because I feel like if an argument is legitimate, we should be able to specify it in a clearly falsifiable way.
Jordan Schneider: Like what? Give me the good straw man of that.
Michael Horowitz: The best straw man argument would be if you could basically demonstrate that the PRC is not really trying to target for collection varieties of AI companies and that it would be relatively easy for them to do so. That would raise the question of why they’re not doing that now. Then we get back to the question about what’s the point at which they would start those kinds of activities.
They would need to have enough information that they believe some company or set of companies is getting close to AGI, but not enough that they would have done something previously — assuming they’ve got good capabilities on the shelf that they would pull off if they have to.
The non-falsifiable part is about to what extent they could ramp up attacks, to what extent there would be defenses against those attacks, and to what extent those non-kinetic strikes would actually meaningfully delay the development of a technology. Another way of saying this — my prior is that there’s lots of espionage happening all the time. I want to see more specificity in this argument about what exactly folks mean when they talk about escalation.
Jordan Schneider: One of the things that has been remarkable about China, at least how it deals with foreigners, is that you haven’t seen what Russia did with all these targeted assassinations. The sharpest we’ve gotten, at least with dealing with white people, has been the handful of Canadians who were grabbed and ultimately let go after a few years in captivity following the Meng Wanzhou arrest.
People are very focused on China starting World War III out of the blue. But there are also world states in which China becomes much more unpleasant while not necessarily kicking off World War III.
Michael Horowitz: I’m a definitive skeptic on the “China starts World War III over AGI” point. I buy the notion that China could become more unpleasant as we approach some sort of AGI scenario — including non-kinetic activities, espionage, etc. I tend to maybe not view those as decisive as some others do potentially.
You’re right that they certainly could become a lot more unpleasant. If the question is why they haven’t already, the answer is probably twofold. One, there’s an attribution question — suppose Chinese espionage involved doing physical harm to AI researchers or something similar. If they were caught doing that, they’ve now potentially started a war with the United States, and they’re back to the reason why they wouldn’t launch a military strike in the first place.
If it’s non-attributable, then the question is exactly how much are they going to be able to do? I wonder whether there is something about their broader economic ties with the United States that maybe makes some of the worst kinds of these activities less likely in a way that is less troubling to Russia.
Jordan Schneider: This is a decent transition to precise mass in the China-Taiwan context. What can and can’t we infer about military technological innovation in Ukraine to what a war would look like over the next few years?
Michael Horowitz: It’s not necessarily the specific technologies, but it is the vibes. By that, what I mean is the advances in AI and autonomy, advances in manufacturing, the push for mass on the battlefield that we see already in publicly available documents and reporting on how the PRC is thinking about Taiwan. We see that already in the US in the context of Admiral Paparo and Indo-Pacom and the Hellscape concept or something like the Replicator initiative in the Biden DoD — and full disclosure, I helped drive that, so I certainly have my biases.
We see that if you look at some of the systems that Taiwan has been acquiring over the last couple of years. You essentially have a growing recognition that more autonomous mass, or what I’d call precise mass, will be helpful in the Indo-Pacific. It’s unlikely to be the exact same systems that are on the battlefield in Ukraine, but variants of those scoped to the vastness of the Indo-Pacific.
Shashank Joshi: I have a few thoughts on this. One way to think about what Mike is saying is for any given capability, you can have more intelligence that is defined however you like, whether that’s in terms of autonomy or capacity to do the task on the edge at a lower price point.
That capability could be a short 15-kilometer range small warhead strike system in the anti-infantry role. It could be a 100-kilometer system to take out armor with bigger warheads, or it could be significantly longer range systems that have to be able to defeat complex defensive threats. Obviously, the third of those things is always going to be more expensive than the first.
What that revolution in precise mass, if it is a revolution (we can debate if that’s what it is), does is push you down. The capability per dollar is going up and up. That is the essential point.
Michael Horowitz: Just to be clear, that’s the reverse of what we saw for 40 years, where in the context of the precision revolution, you were paying more and more for each capability, whereas now we are seeing the inverse of that in the era of precision mass.
Shashank Joshi: Is the transformative effect comparable across each level of sophistication or capability or range? Are there specific things to FPV-type systems because they, for instance, rely on consumer electronics, consumer airframes, and quadcopters — they can draw upon a defense industrial base or an industrial base that has existed for commercial drones? Is it easier to have that capability revolution for intelligent precision mass at one end of the spectrum relative to building a jet-powered system that has to travel significantly further, has to defeat defense mechanisms, may have to have IR thermal imaging, etc? Is a revolution comparable at each end?
Michael Horowitz: I was with you up until the end about defeating all of those systems, because the thing that’s so challenging about this for a military like the United States is it’s a different way of thinking about fighting. You’re talking about firing salvos and firing at mass as opposed to “we’re going to fire one thing and it’s going to evade all the adversary air defenses and hit the target."
Look at Iran’s Shahed 136. That’s a system that can go, depending on the variant, a thousand-plus kilometers. It can carry a reasonably-sized warhead that, in theory, could have greater or lesser levels of autonomy depending on the brain essentially that you plug into it. That’s not going to be as sophisticated a system as an advanced American cruise missile that costs $3 million or something. But it doesn’t have to be because the idea is that these are complements where you’re firing en masse to attrit enemy air defenses. Your more sophisticated weapon then has an easier path to get through. It’s just a different way of thinking about operating, and that creates all sorts of challenges beyond just developing the system or buying the system.
A Shahed-129 drone on display at an IRGC aerospace fair in Tehran, June 2021. Source.
Shashank Joshi: That’s a really interesting point. This gets us to a phrase, Mike, that is very popular in our world and you and I have talked about this, which is the mix of forces that you have and specifically the concept of a high-low mix. It’s not just that small drones will replace everything. You have a high-low mix where you will have some, albeit fewer, very expensive, high-end capabilities that can perform extremely exquisite, difficult tasks or operate at exceptionally high ranges. Then you will have a lot more in quantity terms of lower-end systems that are cheaper, more numerous, and that will not be as capable — they can’t do things that a Storm Shadow cruise missile or an ATACMS missile can do, but they can do it at a scale the Storm Shadow can’t do or the ATACMS can’t do.
The most difficult concept when I’m writing about this for ordinary people who are maybe not into defense is explaining the mix, the interaction of those two ends of the spectrum. Here’s the difficult bit — pinning down what is the right mix. Do we know it yet? Will we know it? How will we know? Does it differ for countries? That’s where I’m struggling to understand all of this.
Michael Horowitz: It probably differs for countries and even within countries differs by the contingency. For example, if you are fighting, if you’re back in a forever war kind of situation and you’re the United States, then you might want a different mix of forces than if you’re very focused on the Indo-Pacific and on China in particular. What comprises your high-low mix probably changes.
The way that I’ve tended to think about this is you have essentially trucks, which are the things that get you there. Then you have brains, which is the software that we’re plugging in. And then you have either the sensor or the weapon or the payload piece. In some ways, what I think we’re learning from Ukraine that is applicable in the Taiwan context is that sometimes it matters a lot less what the truck is than what the brain is.
Shashank Joshi: The other thing that I struggle to get across is the relationship between the “precise” bit and the “mass” bit, particularly the role of legacy capabilities in this. The great conflict I see today is in the artillery domain. Do strike drones replace or supplant artillery? Strike drones now inflict the majority of casualties in Ukraine, not artillery, as was the case at the early phase of the conflict.
There is this really interesting line in the British Army Review published in 2023 — “There is a danger that the enemy will be able to generate more combat echelons than we have sensors or high-end long-range weaponry to service.”
You can have these remarkable AI kill chains that can spot soldiers moving and feed that data back to your weapons — but if you don’t have the firepower to prosecute those targets and then keep prosecuting them week after week in a protracted conflict, you don’t have deterrence.
That is what we are waking up to now.
Michael Horowitz: The important thing here is the notion that you didn’t need a high-low mix, that you could just go high, presumes short wars where you can just use your high-end assets and sort of shock and awe the adversary into submission. Whether we’re talking about a forever war situation or in the Indo-Pacific, if you’re fighting in a world of protraction, then you need much deeper magazines in all ways, including in your platforms frankly.
Maybe in that world AI is actually helping you with what you’re manufacturing and how you’re manufacturing and can deliver a bunch of other benefits on the battlefield. A big challenge here is that I don’t think these capabilities necessarily mean there’s no role for traditional artillery. Although if they can do the same job better at lower cost, then they will eventually displace those capabilities, or militaries that don’t adopt them will fall behind. We’re more at a complement than a substitute stage right now for those capabilities. But things could change.
The challenge right now for a military like the US is you have all these legacy capabilities, and maybe you wish to invest less in them to be able to invest more in precise mass capabilities, which is something I advocate. But then the question becomes what are you doing with those legacy capabilities and when across what timeframes?
This does tell you some things that are really important from a force planning perspective. For example, the “one ring to rule them all” approach to air combat that led to the F-35, where you’re just going to have one fighter that will operate forever and presumably be useful for every single military contingency. Turns out that means it’s optimized for none of them, and that generates a bunch of risk. One of the things that the new administration is probably going to be doing is figuring out how to address those risks. I don’t want to hate on the F-35 and its stubby little wings. Sorry, I’ll stop now.
Shashank Joshi: I’m really glad you raised F-35 because this gets to another one of my points of thinking. You said, “If it can do the same job,” right? What are the jobs it can and can’t do?
When you look at a simple mission, let’s take an anti-tank guided missile — it’s looking pretty clear to me that a kind of mid-range, low-cost strike system, one-way attack strike system is looking like it can do the job of an ATGM very effectively at significantly lower cost. Therefore, unless the ATGMs also get transformed, you’re going to see a supplanting of roles.
However, I’m also acutely conscious that we are thinking about some battlefields that are in some ways uncluttered. We’re looking at a stretch of the Donbas in which anything that moves is going to be the target that you want to hit — it’s going to be a Russian military vehicle. You’re not going to accidentally hit a school bus full of children. In the Taiwan Strait, you are using your object recognition algorithms to target shipping. You’re not accidentally going to hit something in the context of an amphibious invasion of Taiwan.
Michael Horowitz: Yeah, if the balloon goes up, it’s not like there’s lots of commercial fishing just chilling in the Strait.
Shashank Joshi: Well, and if it is, it’s probably MSS operatives. You’re fine. But in the air power situation too, right? You may be doing stuff like this. However, urban warfare is not going away. I’m imagining fights over Tallinn, over Taipei, over thin, cluttered, complex, multi-layered subterranean environments like Gaza, like Beirut, like places like that. I worry a lot more about the timeline over which autonomy will suffice.
To end on one last point before I spin off the RAF, the Royal Air Force believes that an autonomous fighter aircraft will not be viable prior to 2040. Now maybe that’s ultra conservative, but that’s based on some of the assumptions about the tasks they think it will need to do. I know you have your debate over NGAD and long-run capabilities. So are there limits to this process?
Michael Horowitz: The limits are how good the technology is. Frankly, I’ve argued this for years in the context of autonomous weapon systems. The last place that you would ever see autonomous weapon systems is in urban warfare. Not only whatever ethical moral issues that might surround that, but that’s just way harder to do than figuring out whether something is an adversary ship or an adversary plane or an adversary tanker in a relatively uncluttered battlefield.
Shashank Joshi: The second part was to do with the air picture, right? Countries are now having to decide what our air power is going to look like in 2040, and how much can we rely on the technology being good enough by then? You’re right, that is the question — will it be good enough? But you have to make the bet now. You have to make the judgment now because of the timelines of building these things.
Michael Horowitz: There are two questions there. One is, how good is the AI technology? Frankly, even if Dario is overestimating how quickly we get to something universally recognized as artificial general intelligence — and just to be clear, dude’s way smarter than me and I’m not saying he’s necessarily wrong, just that there’s uncertainty here. He’s super smart and thoughtful.
Side note, the fact that CEOs of today’s leading companies post their thoughts on the internet and come on shows like this is super useful. Now that I’ve taken off my Defense Department hat and I’m back in academia, it’s excellent for understanding how a lot of the people designing cutting-edge technology are thinking about it and interacting with government policy and militaries.
If you’re talking about what the future of a next-gen aircraft airframe would look like or what a collaborative combat aircraft could do, my bet is that the militaries are underestimating how quickly AI will advance and the ability to do that. What they might be accurately assessing is, given the way the process of designing new capabilities works today and given today’s manufacturing capabilities, how long it would take to actually design and roll out a new system.
From a parochial American perspective, shortening that timeline is way more ambitious than what we were attempting to do with Replicator. I expect the new team actually will continue to push forward a lot of those things, whether they call it Replicator or not. You could have a scenario in which your AI is at a level that you believe you could have more autonomous operations of a collaborative combat aircraft, and you have some advances in manufacturing that mean you could produce maybe more of them at a slightly lower price point, but still be unable to do so before 2040 for various bureaucratic and budgetary reasons.
Jordan Schneider: Looking back over the past four years, where are the places that the Biden administration made progress in defense innovation?
Michael Horowitz: We accomplished a lot in getting the ball moving, specifically toward greater investments in lots of important next-generation capabilities like collaborative combat aircraft and varieties of precise mass through the Replicator initiative. But there is a lot more to be done.
It was a journey in two ways. One was bringing everybody along on that defense innovation journey to get to the point where folks bought into the importance of some of these emerging capabilities for the future of warfare, specifically in the Indo-Pacific. Then there’s what we could accomplish before the clock ran out.
To start with the first piece, taking everybody on the journey — nothing happens in the Pentagon without getting lots of people on board. It took a little while for there to be consensus on the state of the defense industrial base. If you look at varieties of think tank reports about what DoD should do differently, there are often all these suggestions like, “DoD needs to scale more of this system, scale more of that system, build more of that.” All of that is great, except that even if you fully fund really exquisite munitions like the Long Range Anti-Ship Missile or JASSM or something like that, you’re going to be really capacity constrained because those facilities just have limits. You can change those limits, but you can’t change those limits quickly.
What can you then do to scale capability relevant for the Indo-Pacific in the short term? The answer is precise mass capabilities — more attritable systems, more AI-enabled and autonomous systems, systems that maybe sometimes, but not always, are built by non-traditional companies. There’s a coalition of the willing that pushed through all of those in a bunch of different contexts, including Replicator, which DIU I think did a brilliant job of leading implementation of, and that generated some growing momentum.
But it also highlighted some real limits. Reprogramming 0.05% of the defense budget to fund multiple thousands of attritable autonomous systems for the Indo-Pacific under the first bet of the Replicator initiative required over 40 briefings to Congress, including a ton by the Deputy Secretary of Defense who’s really busy. Congressional oversight is really important, but the degree of effort required to reprogram essentially less than a billion dollars demonstrates a budget system unable to operate at the speed and scale necessary given the rate of technological change and given the threat that the US is under from Chinese military advances in the Indo-Pacific.
We did some good things. We moved the ball forward. I’m proud of some of the things that we did, but there’s a lot more work to be done.
Jordan Schneider: Ray Dalio recently said that “America can’t produce things, any manufactured goods, cost-effectively.” Shashank, if Ukraine can figure out how to build a million and a half drones a year, couldn’t the US do this too if we were more determined?
Shashank Joshi: Let’s unpack this a little bit. First of all, Ukraine is doing this under wartime conditions. It’s ripping up rules — not all of them, but a lot of them. It doesn’t have to worry about pesky things like health and safety standards, like “Can I build this explosive warhead facility next to this town?” You try doing that in the US or the UK or in Europe. The Ukrainians can get around that because they’re at war, it’s fine.
Secondly, what are they building these things with? The Ukrainian supply chain for UAVs and for lots of other things, including electronic warfare systems, is still full of Chinese stuff. They haven’t got it all out. Yes, there are companies beginning to find alternative supply chains and finding stuff from Taiwan and other countries, but the US government can’t do that. There’s the little pesky matter of the NDAA which prohibits you from just sticking Chinese components into all of your drones and building them out. So you have to get supply chains right. That’s problem number two.
Problem number three is to what standard are you building these things? Are you demanding that they can cope with this level of electronic warfare, radiation hardening, cybersecurity standards? Those are all the requirements being placed on UAS in many Western governments. I won’t speak directly to the US exactly, because Mike knows it better than I do, but certainly in my country I’m aware of this. The Ukrainians can build things to a satisfactory standard that would never stand up to the scrutiny of an accounting or auditing official in a Western country to the same way.
The final point on all of this is the level of mobilization for the defense industrial base is quite different. Ukraine has nationalized its IT sector. It had a brilliant IT sector before the war. It had some great technicians, tech-minded people, software-minded people. That is just not the case in most of our countries. We can’t nationalize our tech industry to go work to build software-defined weapons at a low cost very effectively and quickly. Those are some of the reasons I can see for the discrepancy. Mike, do you disagree?
Michael Horowitz: I think that is all correct. I’m probably more optimistic than you about the ability to build at low cost. Although what exactly you define as low cost? If we think about attritable as replaceable kinds of systems, and what’s attritable probably varies depending on how wealthy you are and how big your defense budget is. What’s attritable for the United States might be different than what is attritable for Ukraine.
There’s a lot of possibility to get lower cost systems. One example is last year there was an Air Force DIU solicitation for a low-cost long-range cruise missile that would be about $150,000 to $300,000 a pop. That’s way more expensive than an FPV drone in Ukraine, but that’s a lot more capability than an FPV drone in Ukraine. Given that existing systems, some of those existing systems cost a million dollars or more — if you can deliver that at what is a fraction of the cost, you’re buying back a lot of mass in a useful way.
The thing that I will be really interested to see, shifting actually to Europe for a second — if you look at what Task Force KINDRED has done for Ukraine, my question is, when is the UK going to buy those capabilities for the UK? If these are militarily useful capabilities for fighting Russia, that seems like something that might be useful for the United Kingdom’s military.
Or say the German company Helsing — they produced 6,000 drones that were going to get sold to Ukraine. Obviously that’s in the context of millions being produced, but presumably those 6,000 are pretty good from a quality perspective. Why isn’t Germany buying those drones?
Shashank Joshi: Helsing is a really good example. In Ukraine, distributed in Ukrainian manufacturing facilities, they are building these UAVs where the hardware is not completely standardized. The software has to adapt to the different airframes being built by different producers. But they’re good enough, they’re doing a good job, they’re making a difference, they’re producing Lancet-like capability at considerably lower cost as far as I understand it.
But Helsing is also building drones for NATO countries in southern Germany in its own factories. The advantage is that it controls the supply chains. It can standardize the process, it can build software-defined weapons in ways where the hardware is optimized to take that on — in the way that Tesla once built other people’s cars and put its code in them. But since that initial phase, it’s built its own hardware because it’s easier to build a software-defined car if you do it yourself. But it’s going to be more expensive and it’s not going to be as cheap and quick and easy as the Ukrainian manufacturing. I believe there are some trade-offs that you see even within the same company.
Michael Horowitz: Absolutely. That also is why you need more open architecture all around and why in some ways the government needs to own more of the IP. If you think about what I said before about trucks and brains — if you’re buying a truck that only can have a brain from the same company, then you’re locked into a manufacturing relationship that’s almost necessarily going to generate higher costs over time than if you can swap out the brain over time with something that might be more advanced. Frankly, whether it’s lower cost or not, it’s probably a better idea to be able to swap it out.
This reflects differences in not just the defense industrial base, but in how the US and western militaries have thought about requirements for capabilities over time in ways that now require challenge.
Shashank Joshi: There was a really interesting speech. The Chief of Defence Staff in the UK, the head of our armed forces, in this case Admiral Sir Tony Radakin, gives a speech every year at Christmas at the Royal United Services Institute, the think tank in London.
Michael Horowitz: Is there port?
Shashank Joshi: There is wine after the lecture, but we’re not drinking port during the lecture.
Michael Horowitz: But I’m imagining like brandy and cigars and port and like a wood-paneled room.
Shashank Joshi: You’re not far off on the room itself.
Jordan Schneider: Are there oil portraits? Do we have like Hague and stuff?
Shashank Joshi: There are oil portraits. I must declare I’m on the advisory board at RUSI, so I’m very fond of it. But anyway, I’ve gone down this rabbit hole. The reason I brought it up is because I wanted to quote a line from that speech he gave at Christmas where he said:
[W]e have only been able to demonstrate pockets of innovation rather than the wholesale transformation we need.
Where we have got it right is because we used an entirely different set of permissions which elevated speed and embraced risk so that we could help Ukraine.
But when we try to bring this into the mainstream our system tends to suffocate the opportunities.
He then proposed a “duality of systems… Whereby major projects and core capabilities are still delivered in a way that is ‘fail-safe’ – clearly the case for nuclear; but an increasing proportion of projects are delivered under a different system which is ‘safe to fail’”.
Mike, this is pretty much what you told me when we spoke a few weeks ago, right? A willingness to embrace failure — not for your Ohio-class SSBNs or your bombers, but for your smaller systems where the cost of failure is not terrible and you need to fail to innovate. That is so much of what it’s going to take for us to be able to be more Ukrainian in our own systems.
The interior of the Royal United Services Institute. Source.
Jordan Schneider: Let’s contrast that with a quote on the US side of the pond from Bill LaPlante, who is the DoD’s top acquisition executive during the Biden administration:
“The Tech Bros are not helping us much… If somebody gives you a really cool liquored-up story about a DIU or OTA, ask them when it’s going into production, ask them how many numbers, ask them unit costs, all those questions, because that’s what matters… Don’t tell me it’s got AI and Quantum in it. I don’t care.”
Michael Horowitz: Bill LaPlante thinks that it’s still 1995. The thing that was remarkable about that quote is even at the time it was so profoundly incorrect in the way that it described the ability to scale emerging capabilities. Shortly before we left office there was a speech or maybe it was from under a question or something where he said that he had learned from the Houthis and what they’d done in the Red Sea that it was possible to produce low-cost munitions. Unclear why what was happening in the US had not triggered that revelation. But he got there.
That is the mindset that requires challenge. If you view the only things worth using as an extremely small number of exquisite platforms, then that takes you down a road where emerging capabilities, even those you can scale, might seem less useful because they might require using force differently — if you’re operating at mass rather than just operating those exquisite capabilities.
The bigger challenge though, is every single major defense acquisition program in the US military is either behind timeline, over budget, or both. Most are both. What that suggests is that the current system, which is designed to buy down risk and produce these great capabilities — and it does, but just slower than it’s supposed to, with higher prices than it’s supposed to — in a way that suggests that the current system is not succeeding.
Risk is the right way to think about this. The scale and scope of the challenge posed by the Chinese military is unlike anything I have seen in my lifetime from an American perspective. That means that the assumption that undergirded the 90s, frankly, about the inevitability of American conventional military superiority, is just no longer the case. It’s not just that we can’t sit on our laurels, which is something that I think I wrote maybe a decade and a half ago. It’s that we are being actively pushed and challenged across almost all domains.
What that requires is accepting more risk in the capability development process, which I feel comfortable doing not only because I’m generally bullish on the ability of emerging technologies to deliver, but also because the status quo system just isn’t working.
Shashank Joshi: What we can’t ignore then is what is stopping us — or you in the US case — from taking that risk. Often it’s the politics. You talked about how shifting 0.05% of the budget requires this Herculean bureaucratic political effort on the Hill to plead with Senators and Congresspeople, “Please let me move this $15 million here and there.” That’s not sustainable if you’re trying to make a systemic effect.
You have to have appropriators who are willing to say, “Actually I trust you with this money, and I trust you to be able to spend it in a way that’s flexible and won’t lock you into a spending path for the next six months without wasting it. And let’s test you on that in six months,” but not micromanaging everything.
I don’t know how you’re going to be allowed to have the failure that you need to have the innovation you need if Congress doesn’t trust people to innovate at scale, not just in these little pockets of innovation as Radakin called it.
Michael Horowitz: Every single rule that the appropriations committees have exists because of something that happened in the Department of Defense in the past. To be clear, we are in a different era now with a different set of risks and a China challenge that’s unlike anything we have faced before. We need a new bargain in some ways with the appropriations committee to be able to innovate at the speed and scale we need.
Keep in mind the Pentagon’s budgeting process was invented by Robert McNamara during the Vietnam era and has not changed since then. In the best of times, it is a two-year cycle between when one of the military services decides it wants to invest in a technology and when it gets the money to invest in that technology.
We’ve spent several years of the last decade and a half in continuing resolutions, which means Congress can’t pass and appropriate a budget. This means you can’t start new programs, which then delays adopting new capabilities even further. Something has to give there.
Jordan Schneider: I want to recommend the podcast series Programmed to Fail: The Rise of Central Planning in Defense Acquisition by Eric Lofgren, who’s now working in the Senate. He used to run Acquisition Talk and do shows with me about this stuff. You know, it wasn’t just McNamara — it was McNamara trying to learn from the Soviets.
Michael Horowitz: The assumption was we’ve got the technology we need. We think that our basic tech development system works. What we need to be able to do is produce this stuff and produce good stuff, and then we’ll beat the Soviets. It worked, but we’re in a different period now.
Shashank Joshi: There’s an interesting book I wrote a review essay on for Foreign Affairs about a year ago by Edward Luttwak and Eitan Shamir, head of an Israeli think tank, called “How Israel Fights.” I don’t find all of it persuasive, but it raises the question of how this country in the 1960s — this agrarian society that is poorer than many parts of Southern Europe in GDP per capita — produced these anti-ship missiles that are able to defeat the Soviet weapons being carried by the Egyptians of that era and the Syrians.
What did they do right? What have they done right? There are many things that they’ve done wrong, and there are many cases in which tech innovation did not help them strategically or even contributed to complacency. But there’s something about that innovation, including innovation under conditions of peacetime or semi-peacetime, that I think we should be thinking about.
Jordan Schneider: I have a five-hour Ed Luttwak episode in the tank that I’ve been dreading editing. But we did get into it, and there is something about this topic. It comes back to some of the Ukraine stuff — Israel is a semi-mobilized society. It’s playing at a smaller scale.
There’s this great anecdote where someone walks into an office and says, “You should arrange the tank this way instead of that way.” Then they do it because somebody thought it was a good idea. You take all his stories with a grain of salt, but still conceptually, the fact that this is all among friends in this small network of, by the way, the best minds in the country.
Michael Horowitz: Whereas in our system, fourteen different people can say no and stop a capability, but no one person can say yes and move it forward.
Jordan Schneider: One of the many shames of the Trump imperial presidency is that despite having enough control of Congress to do this well, getting Pete Hegseth to be the one to lead it is just one of these unfortunate timelines we’re in because the President couldn’t give two shits about this stuff. Maybe there are enough tech people around him though.
Michael Horowitz: Let me muster a point of optimism here, frankly, on this. In the brilliant article that Shashank wrote in The Economist on some of these questions, I sounded a similar note. If you look at Hegseth’s testimony, his discussion of defense innovation is very coherent. He makes points that are not structurally dissimilar to the ones that we have been making for whatever the last period of time has been.
If you look at Stephen Feinberg’s testimony yesterday to be Deputy Secretary of Defense, he actually makes some very similar points, and you hear some of those echoed by various tech sector folks that look to be entering either the White House or the Defense Department.
There is a potential opportunity here for the Trump administration to push harder and faster on precise mass capabilities, on AI integration, and frankly, on acquisition reform in the defense sector, because the president right now seems to have a strong hand with regard to Congress. Whether the president’s willing to use political capital for those purposes is not clear. How the politics of that will play out is unclear. But if the Trump administration does all the things that it says it wants to do from a defense innovation perspective, that may not be a bad thing. There are a lot of things they want to do that are very consistent with things that many of us have advocated for over the years.
Shashank Joshi: I really admire your dispassionate assessment of that and the willingness to think about it apart from the politics. My concern is that you have people who are good at radicalizing and disrupting many businesses and sectors and fields of life. But the skills required to do that are different from the skills needed in a bureaucracy like this.
Just because you were able to navigate the car sector and the rocket sector doesn’t mean you know how to cajole, persuade, and massage the ego of a know-nothing congressman from — I’m not going to name a state because that’ll end up being rude — who knows nothing about this and who simply cares that you build the attritable mass in his state, however stupid an idea that is, and who wants you to sign off on the $20 million.
I worry that they will either break everything — and what I’m seeing Doge do right now with a level of recklessness and abandon is worrying to me as an ally of the United States from a country that is an ally — but also that they will just not have the political mouse to navigate these things to make it happen. Just because Trump controls Congress and has sway over Congress doesn’t mean that the pork barrel politics of this at the granular level fundamentally change. You need operatives, Congressional political operatives, and a tech pro may have many virtues and skills, but that isn’t necessarily one of them.
Michael Horowitz: No argument. There’s a huge gap between being willing to lean further forward on defense innovation and transformation and the ability to bureaucratize, essentially, as a friend of mine is fond of saying, and be able to get the job done delivering. The Pentagon is the world’s largest bureaucracy and it will continue to be the world’s largest bureaucracy even with whatever is happening. That requires a lot of bureaucratic political acumen to be able to deliver results. It is a very open question whether this administration will be able to deliver on that. Frankly, there are early signs that are concerning. But again, it’s still early days.
Jordan Schneider: I want to reflect a little bit about the role of inside knowledge and outside knowledge when it comes to understanding what’s happening in Ukraine as well as the future of war. What does stuff like Shashank’s reporting get? What can it not get? How does all of the open source analysis that’s happening today about the war in Ukraine filter into discussions about budgets in Congress and R&D?
Michael Horowitz: Systematically drawing insights from open source material, both Shashank’s and others, in ways that inform what we do in the Defense Department is important. In the context of Ukraine lessons learned, there are actually a number of different efforts, both classified and unclassified, that try to dive into those things. In the case of Ukraine specifically, there’s heroic effort both inside and outside the context of just the Ukraine desk at the Pentagon or on the Joint Staff to do that.
The challenge sometimes is making some of those insights more visible and then connecting them to the change that you wish to see. Part of the issue is that folks are really busy in ways that are sometimes even difficult to comprehend on the outside. Your read time, even to read things that you really want to read, is just extremely limited.
The role of an influential columnist like Shashank that lots of people trust is invaluable because for a lot of senior folks, that might be the only outside thing they read about defense in a given week. This points to the importance of networks. I think about this a lot from the perspective of how academics should bridge the gap between academic research and policy — networks play a huge role there.
In the case of Ukraine, I think there actually has been really good pickup inside, at least in the US, on what lessons learned look like because of a lot of the great reporting out there. Sometimes people would say, “Why haven’t you purchased this drone that Ukraine uses?” It’s a great question, but it’s really challenging to consume all of the information out there that you should consume. A lot of it ends up getting mediated through staffs.
Jordan Schneider: Here’s a deep cut for you guys. Ian Hamilton, who ran the Gallipoli campaign, was a journalist who covered the war in Manchuria between Imperial Russia and the Japanese and saw the future of war and wrote about it really clearly. But even though this guy was there and then was on the battlefield running it in Turkey, he was not able to instantiate the lessons that he saw firsthand into the way he ended up killing a few hundred thousand people who probably didn’t need to die if he had made smarter decisions. None of this shit is easy.
Michael Horowitz: As part of research for a future book, I was at the National Archives in College Park last week looking for information on US military procurement decisions in the early 20th century surrounding General Purpose Technologies. I found some really interesting back and forth between the War Department and the Wright brothers about the airplane that sounded a lot like modern debates. The Wright brothers are saying, “Well, send us the cash and we’ll send you the airplane.” And the War Department’s responding, “Prove it works and meets these metrics, then we’ll pay you and then you deliver the airplane.” It was like, “Oh dear God, maybe nothing has changed” in some ways in some of these debates.
Jordan Schneider: Shashank, any reflections on the role of popular writing in all this?
Shashank Joshi: I’m amazed by the cut-through we can sometimes get. People will say, “I can’t take my classified system on a plane to read, but I can take a copy of the Economist.” So you suddenly have this responsibility. I’ve had deep experts on something like armored warfare and tanks say, “I’ve been screaming this message into the ether for years, but it was only when you quoted me that this general read me."
We’re sometimes in the strange position of being — I don’t want to say conduits because we would never wish to be uncritical conduits for anything — ways that can short-circuit these networks and cut across them in strange and amusing ways. I have the grave responsibility of not only telling my readers about the big stuff, like what’s Trump going to do next or where’s Ukraine headed, but — if this is not too condescending — feed them their vegetables, make them think about Mike’s essay on precise mass.
Maybe I have to bury it in a piece that’s about the future of drones, but I can make them think about budgeting. Mike tells me you have to understand budgets to understand innovation. Then I think, “Okay, now there’s a challenge. My editors may not like me talking about budgets for a page, but this is my job to get it across and to make people read it and listen to it."
I’m fortunate that I have access to expertise like that of Mike and others to be able to translate that. Fundamentally, Jordan, I see my job as not giving people the answers. It’s just giving them a sense of the debates that the knowledgeable people are having. That’s not to say one person’s right, one person’s wrong, but to say, “Here’s the lay of the land. Here are the arguments on each side. Here are the debates,” and give them a flavor. Let them peer through that window into the world of the conversation that Mike may be having with his colleague on what they disagree on.
Jordan Schneider: What you do, what Mike Kaufman does, what Mick Ryan does, what Mike Lee can do — which I imagine would be harder if you are sitting on the Ukraine desk and your job is to cover what’s happening in electronic warfare — is to think about this all synthetically and across the different domains. In your case, Shashank, even across regions.
This is what I feel like I do in some sense with ChinaTalk as well. Shashank, you have an editor who it seems like you can just bowl through at this point, and I’m very glad you can basically write budget articles. Picking what you want your readers to read and think about is the game. Doing that in a really thoughtful way when there is so much new happening, so many battles occurring in every moment, and so many tactical innovations and counter-responses is essential. This is particularly important for the public at large and also for senior leaders who only have about 3% of their time to really sit down and absorb this stuff — or God forbid, the president.
Shashank Joshi: Or the vice president who has lots of it.
Jordan Schneider: Mike, continuing on, why outside writing matters.
Michael Horowitz: Now that I’ve left the government again, when I think about how, as an outsider, as an academic, to try to influence policy, one way to think about this is: if you want the US Government and the national security arena to be doing something and they’re not doing it, there’s usually one of two reasons.
First, you might be wrong. There could be classified information or some other information you don’t have access to that shows you’re wrong.
Second, you’re right, but your bureaucratic allies are losing. It is hubris, given the size of the national security agencies, including the Pentagon, to think that you have some idea that literally nobody in the entirety of the Pentagon, the intelligence community, and the State Department has thought of. Generally, somebody wants the same thing that you want, but they’re losing. The question is how you give them ammunition to help make the case to move that policy forward.
In the kind of writing that involves advocating for policies or making arguments for policies, I think it makes sense to think about this in terms of how you’re providing support to your bureaucratic allies, even if you don’t know who they are and even if they don’t know you until they see something you write show up in the Early Bird in the morning at the Defense Department or through some sort of press clippings. That’s how I think about the role of outside writing and how you can try to influence policy.
Jordan Schneider: It’s always weird for me when I write something in ChinaTalk and get an email from someone I’ve never met saying, “Thanks for this. This was helpful.” Just putting your arguments with some good, thoughtful analysis out into the ether sometimes works in mysterious ways.
Michael Horowitz: There’s this fiction that you write an op-ed and it somehow ends up on the desk of the president, and then all of a sudden US foreign policy changes. That’s just not how the real world generally works, especially if what you’re trying to influence is policy within a bureaucracy.
I’m encouraged to hear people within the government should be listening to ChinaTalk and getting insights from it. That’s terrific. That’s evidence for this idea that you have allies and you’re trying to help give them ammunition to make the case in whatever fora they’re engaged in.
Jordan Schneider: I got one last question for you guys, if you don’t mind. All of this, compared to reading and writing and doing podcasts about the PLA itself, is just so much more interesting because I’ve read a lot of PLA books and I’ve really thought about doing more shows about it. It’s so difficult to talk in hypotheticals when you’re reading doctrine stuff and doing the OSINT and whatever. It’s just so hard to actually learn things and talk about them in an interesting way. I’m curious if you guys have any advice for me about what better PLA coverage in outlets like ChinaTalk or just more broadly could look like to get people thinking more seriously about all this stuff.
Michael Horowitz: This is super hard. We think about this a lot actually in the context of PhD students, junior faculty, and what the academic China-watching community is doing in this space. Especially given the way that Xi has consolidated control in China, there’s still a lot available, but there’s so much less available frankly than there was 20 years ago or even 10 years ago. That creates analytical challenges because what you can get raises questions like, “Well, why could I get this?” There are essentially, to be really nerdy, selection effects that govern what you’re able to access.
The truth is there’s no military in the world where we probably have a greater uncertainty parameter about its potential performance in a conflict than China’s military — the PLA — because it’s just been decades since it fought. We know what weapons they have. We know what their doctrine says. The ability to put all that together, as we know from the Russia-Ukraine context or any war in history, is very different than what it looks like on paper.
I do not envy the task. All you can do in some ways is acknowledge that irreducible uncertainty and do your best to give folks the information that is available.
Shashank Joshi: I would just add to that: let’s learn from our analytical errors in the past and think about how they might apply. I’ve really enjoyed some of the writing done by people like Sam Bresnick at the Center for Security and Emerging Technology at Georgetown on the way the PLA thinks about AI. He doesn’t say, “Oh, they’re miles behind, that’s useless.” But he does give a flavor of Chinese debate, saying they worry about many of the same things that we do. They worry about explainability, about control, command, oversight. They even worry about ethics — that’s not completely absent. They’ve got issues around compute capacity and all these other things.
It’s just helpful to be reminded that what they say on the page about intelligentized warfare and this and that — they’re grappling with some of the same challenges that we all are. I admire the work of people like Sam and others and his colleagues and many others who think about these from a very fieldwork-based or empirical perspective, getting their hands dirty, reading the stuff, talking to people, looking through journals. That’s great work.
Jordan Schneider: Well, as Sam’s peer advisor in high school when I was a senior and he was a sophomore, I am going to take complete credit for all the brilliant work that he’s done both in Beijing and now in Washington. All right, last thing. Each of you give one book for everyone to read.
Michael Horowitz: My junior colleague at the University of Pennsylvania, Fiona Cunningham, is the most talented academic scholar of the Chinese military of her generation. She has a book that just came out with Princeton University Press titled Under the Nuclear Shadow: China’s Information-Age Weapons in International Security. I would highly recommend checking out Fiona’s book. [We recorded a pod already!]
Shashank Joshi: The orthodox choice is someone who came up earlier — Paul Scharre’s book, Army of None, which I still think is fantastic on the issue of autonomous weapons. It’s brilliant on the history and thinks about it historically — fantastic book for anyone still thinking about autonomous weapons.
But the slightly left-field choice I want to put out there is The Billion Dollar Spy by David Hoffman, which is the story of one of the CIA’s most difficult operations in Moscow running Adolf Tolkachev, a Soviet engineer. The reason it’s relevant to this conversation is it’s about the application of technology to operations — in this case, intelligence operations, running an agent in Moscow, communications technology, miniaturization, the way that the emerging plastics industry and transistor industry affects the CIA’s choices in the ’50s, the way that changes with satellites. I love the idea of thinking about this in a completely different field, intelligence, espionage, and the parallels and ideas that may spark for us thinking about the defense world.
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This continues a series examining China’s role in the global biotech and pharmaceutical industry, and focuses on China’s drug markets. Our first piece explored the role of AI in China’s biotech ecosystem. Future articles will cover the Chinese biopharmaceutical research, innovation, and supply chains. If you have tips on any of these topics, please reach out.
As China prospers, so do its citizens’ expectations for high-quality healthcare. That means expensive drugs – but how can it make them affordable?
The government is transforming the landscape of China’s pharmaceutical markets, cutting drug costs, and pushing domestic firms to become more competitive. But even as policy advances, demand is evolving just as quickly.
As incomes rise, so does China’s disease burden. The country is seeing more of the chronic and complex illnesses common in wealthier nations — cancer, cardiovascular disease, and aging-related ailments — that often require expensive, innovative treatments. Forecast to grow to USD $264.5 billion in 2026, China’s pharmaceutical market is the second largest in the world behind the United States. The US is still by far the world’s largest pharma market, at over US$600 billion today.
China’s healthcare ecosystem remains challenged by corruption and other inefficiencies. Though domestic firms are improving, they are never going to fully meet the growing need for novel biotech and other expensive therapies. And though China’s new policy mechanisms have cut the price of many medications, they can’t keep patients, physicians, and companies happy all at once.
That means China continues to rely on imports for some of the most advanced treatments — those with high price tags that even aggressive government policy can’t cut away. For the sake of its citizens and broader social stability, China will have to navigate the difficult balance between affordability, access, and market power in the global pharmaceutical landscape.
The need for reform
In the 1990s, financial pressure to offset the losses from government funding cuts drove public hospitals to inflate prices and over-prescribe, causing widespread problems. The Chinese Food and Drug Administration (now known as the National Medical Products Administration, or NMPA) suffered from incompetence, corruption, and a large backlog of drug approvals. Pharmaceutical companies marked up drug prices and leveraged kickbacks1 to generate sales. In fact, generic drugs2 — which made up 95% of China’s drug approvals at the time — sold at gross profit margins of 80-90%.
At the same time, between 2009 and 2017, China’s total health expenditure on pharmaceuticals more than doubled, from 754.38 billion RMB to 1,820.3 billion RMB (or about $US110.45 billion to $268.76 billion).3
Data from China National Health Development Research Center
These trends were unsustainable for a growing China.
To improve the quality of pharmaceuticals, the NMPA implemented Generic Quality Consistency Evaluations4 in 2015 to assess generic drugs relative to their original brand-name counterparts. In 2017, China joined the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH) and started adhering to the ICH-GCP (Good Clinical Practice) guidelines. Additional reforms streamlined and strengthened the drug approval regulatory process.
To improve the affordability of pharmaceuticals, China has begun to leverage two systems: the National Reimbursement Drug List (NRDL) and centralized volume-based drug procurement (CVBP).
National Reimbursement Drug List (NRDL)
Established in 2018, the National Healthcare Security Association 国家医保局 (NHSA) determines which patented drugs are included on the National Reimbursement Drug List (NRDL) and therefore covered under public health insurance schemes, which cover over 95% of China’s population to some degree.
How the NRDL works:
The NHSA assesses novel drugs based on safety, efficacy, affordability, and clinical value.
Drugs that demonstrate both high clinical value and low cost are categorized as Class A on the List and fully reimbursed by public insurance. Class B Drugs are clinically effective but higher cost, and thus only partially reimbursed.
Innovative drugs, orphan drugs, and drugs for rare diseases receive priority.
Nevertheless, innovative drugs that exceed a certain price threshold – including the most groundbreaking new cancer treatments – remain excluded.
The current 2024 NRDL includes 3,159 drugs, including 91 new additions.
Centralized Volume-Based Drug Procurement (CVBP)
The National Reimbursement Drug List improves access to clinically important drugs, especially new innovations.
China takes a more aggressive cost-cutting approach to generic medications. Piloted in 2018 and rolled out nationwide in 2019,5 the national centralized volume-based drug procurement system 国家组织药品集中采 combines the buying power of all public hospitals and leverages it to negotiate the lowest possible prices from suppliers.6
How CVBP works:
Every few months, the government7 invites suppliers to engage in a competitive bidding process for a selection of drugs.
Drugs submitted for bidding must first pass Generic Quality Consistency Evaluations, and then win by offering the lowest price.
Winning suppliers gain the right to sell a certain volume of medications — usually up to 70% of the previous year’s total consumption — to public hospitals. Domestic firms overwhelmingly win procurement rounds due to their ownership of raw-material manufacturing, large production capacities, and overall economics of scale.
The National Health Commission monitors hospitals and physicians to ensure that they prescribe bid-winning drugs.
The National Drug Reimbursement List’s first round achieved price reductions of over 50% on treatments for chronic hepatitis B and lung cancer. Subsequent rounds achieved similar reductions in the 50-60% range, as the following chart indicates.
Source: Baipharm, 2025.
The pilot round of centralized volume-based procurement had similar results, with an average price cut of 52% for 25 drugs. A hepatitis B drug experienced the highest price cut — a whopping 96%, for a final bidding price of US$0.09 per tablet. That same drug would cost US$10.94 in the United States and US$15.84 in the United Kingdom.
Examples of Price Cuts from China's “4+7” Pilot Procurement Round. | Source: China National Health Development Research Center
The CVBP program has allowed China to access some of the lowest prices for generic drugs in the world.
Between 2018 and 2023, generic drug manufacturers cut prices to win contracts, on average, by over 50%, and sometimes over 90%. Studies of the “4+7” pilot show evidence that after a procurement round, consumption of quality-assured bid-winning drugs increases and overall drug spending decreases. Here are some notable examples:
Insulin: median price reduction of around 42% for a 2021 round applied to 42 insulin products — improving affordability9 and saving an estimated total of US$2.85 billion in the first year of contracts with the winning suppliers.
Lung-cancer treatment: price reduction by 83%, from 108 RMB to 18 RMB, saving patients an estimated 8,100 RMB per treatment cycle.
Stents to treat coronary heart disease: price reduction by 90%, from over 10,000 RMB (US$1,500) to around 1,000 RMB (US$150). As a result, the number of stents supplied to patients grew, and more medical institutions — including 500 additional second-tier hospitals10 — carried out stent implantation surgeries.
What do lower prices mean?
Government statistics estimated that as of 2022, CVBP created national savings of over 260 billion RMB (approximately $36.3 billion USD). The National Healthcare Security Administration (NHSA), which oversees public health insurance, reallocates over half of its savings from generic drug procurement to cover innovative medicines through the National Drug Reimbursement List.
In terms of affordability, one analysis of the pilot program’s impact found that the proportion of affordable drugs increased from 33% to 67%, and the mean affordability improved from 8.2 days’ wages to 2.8 days’ wages. Urban residents benefited more, a reflection of larger urban-rural healthcare disparities. In theory, improved affordability means patients are more likely and better able to adhere to their prescribed treatments.
Still, impacts on patient health outcomes have yet to be comprehensively evaluated. And the depth of the latest cuts has caused concern among both patients and physicians.
Saving cents, losing sense
In December 2024, the largest procurement round thus far resulted in the steepest price cuts yet, with some products discounted by over 90%.11 Not everyone was happy about this.
“You get what you pay for” is a common sentiment for consumers. So when generic aspirin tablets drop to an astonishing 0.03 RMB (US$0.0041) per pill, people start wondering what was sacrificed in pursuit of lower costs. On Chinese social media, patients have vocalized concerns that the generic drugs are less effective or cause more side effects.
One particular phrase by Zheng Minhua 郑民华 — surgeon-director of Shanghai Ruijin Hospital and member of the Chinese People’s Political Consultative Conference — went viral recently: “blood pressure doesn’t drop, anesthetics don’t bring sleep, and laxatives don’t release shit” 血压不降、麻药不睡、泻药不泻.
The phrase is part of a proposal submitted early this year by Zheng and his colleagues outlining concerns about the efficacy, reliability, and flexibility of bulk-procured generic drugs. Another doctor’s article — which has since been taken down — questions the validity of data published from evaluation trials of procured drugs.12 Some industry participants report that companies are able to replace excipients (non-active ingredients) of drugs after passing consistency evaluations without re-doing testing.
The government has sinceresponded. However, these controversies come at a moment of broader frustration with China’s healthcare system, which stringent COVID-19 lockdown policies and sluggish post-pandemic economic recovery has only made worse.
Can you ever cure corruption?
Even with the government’s attempts to keep drug prices down, per capita medical costs have more than doubled in the last decade. While rising costs likely stem from a variety of systemic and economic factors, in China, corruption is a standout issue that the government can’t ignore.
In 2023, the National Health Commission initiated a crackdown on corruption, including bribery, misuse of insurance funds, rent-seeking by administrative officials, and unethical conduct. Over 160 hospital chiefs were detained.
Widely publicized, this anti-corruption campaign – which rewarded reports of corruption and the imposed strict monitoring of doctors – fueled distrust between the public and physicians.
Importantly, a majority of such medical corruption involves commercial bribery, in which pharmaceutical and medical suppliers give kickbacks to healthcare providers, leading to overprescriptions and inflated costs for patients. Legally, drug companies wield similar influence through heavy marketing, with one report showing that Chinese pharma companies had aggregate sales expenses of about 2.6 times that of R&D. Heavy workloads and low pay make doctors more receptive to drug suppliers’ incentives.
That pharmaceutical firms still turn to bribery and marketing to sway doctors suggests that government efforts to shape drug availability based on quality and cost have yet to fully succeed.
Despite the government’s efforts, domestic policy and industry still today falls short of the Chinese public’s desire for innovative drugs.
Imported drugs still matter
Accessing imported brand-name drugs can be a challenge — even if patients are willing to pay out-of-pocket. One reason may be Beijing’s focus on boosting Chinese drug manufacturers, actively cultivating their capabilities and favoring them during CVBP and NRDL selection processes.
This tension played out strikingly through Pfizer’s Paxlovoid, a treatment for severe COVID-19. Paxlovoid received conditional regulatory approval in February 2022 – so it was authorized to sell in China – but despite high demand, the drug never got included on the National Reimbursement Drug List.
So what happened during NRDL negotiations?
Officials cited Pfizer’s high asking price as the reason for no deal. Meanwhile, two COVID-19 treatments did make the list – the traditional Chinese medicine Qingfei Paidu and the domestically-produced antiviral pill Azvudine – reinforcing evidence of China’s preference for cheaper homegrown treatments.
Pfizer defended its price and rejected the notion of a future deal for domestic manufacturers to distribute a generic version of Paxlovoid in China, a common practice for low- and middle- income countries. “They are the second highest economy in the world and I don't think that they should pay less than El Salvador,” said CEO Albert Bourla at the time.
The Chinese public was left to deal with the fallout. Facing extreme shortages, people turned to the black market and to unproven Indian generic versions that sold for as much as 50,000 RMB, over twenty times the original price.
The case of Paxlovoid highlights both the extent of China’s progress and the gaps that still exist.
Yes, the domestic pharmaceutical industry is becoming increasingly formidable. But some important innovative drugs still remain beyond China’s borders, leaving it dependent on imports.
The value of China’s imports of finished drugs has been increasing over time. | Source: UN Comtrade
The Chinese government has made substantial – and in some cases, excessive – strides in ensuring medicine is affordable for its citizens. But novel pharmaceuticals come with high price tags that can’t be easily negotiated.
In 2024, the size of China’s innovative drug market13 reached a milestone of over 100 billion RMB (about USD $13.89 billion). Out-of-pocket payments or commercial health insurance covered over half of that market. It’s clear that China’s national medical insurance programs aren’t alone enough to meet China’s medical needs – especially if the goal is to provide the same level of care to its whole population that is expected in a G7 country.
Industry projections expect China’s combined market for innovative drugs and medical devices to exceed 1 trillion RMB (USD $137 billion) by 2035 – a full 30% of the global pharmaceutical market.
Is this a market opportunity for multinational companies? Or, will China be able to achieve its ideal world: a thriving domestic pharmaceutical ecosystem, managed by rigorous national insurance and bulk procurement programs, so that its citizens get the medicine they need.
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Between the 1990s and 2018, provincial governments organized drug procurement. A “two-envelope” process awarded supplier status to pharma companies who met basic quality standards and offered the lowest prices. However, medical institutions retained the power to sign supplier contracts, which governments struggled to regulate. As a result, kickbacks, uneven access, and high drug costs continued.
A generic drug has the same active ingredient(s) and is bioequivalent to a brand-name drug, but is often more cost-effective and sold under a different name once the original drug’s patent expires.
As measured by China National Health Accounts. In 2017, drug spending made up 34.42% of China’s total health expenditure, meaning over a third of all healthcare costs were for medications.
The GCE tests generic drugs along two dimensions relative to their original brand-name counterparts, known as originators or innovators. The first is in vitro pharmaceutical equivalence (does it have the same active ingredient, dosage form, strength, and quality standards?) and in vivo bioequivalence (does it perform the same way in the body?). The US FDA and other regulatory bodies use similar frameworks to approve generic drugs. In 2017, the NMPA began adhering to international standards for pharmaceutical development and registration, which continues to this day.
The government’s “4+7” pilot was implemented in four municipalities and seven cities before rolling out nationwide in 2019. The 4 municipalities were Beijing, Shanghai, Tianjin, and Chongqing. The 7 cities were Guangzhou, Shenzhen, Xi’an, Dalian, Chengdu, and Xiamen. In total, they make up around one-third of the national market.
China’s use of pooled procurement for medicine pricing, by the way, is not unusual. Many countries, including Indonesia, Canada, and much of Europe, leverage bulk purchasing power and negotiations to reduce drug prices for public medical institutions.
The NHSA designs and oversees policy, the National Health Commission 国家卫健委 oversees hospitals, and the Joint Procurement Office (JPO) oversees implementation of centralized volume-based procurement, which is operated day-to-day by the Shanghai Pharmaceutical Centralized Bidding and Purchasing Management Office.
To mitigate risks of shortages, centralized procurement selection allows for multiple winners and runner-ups. In cases of medical necessity, hospitals may purchase a small number of drugs outside the program. And to compensate for lost income, hospitals receive government subsidies and charge higher service fees.
A study of the round assessed affordability as the number of daily wages needed by the lowest-paid unskilled government worker to obtain a 30-day supply, and found that insulin had changed from about 1.63 days’ wage to 0.68 days’ wage. Relative to costs of insulin in other countries, the reduction accomplished by China shows some improvement.
The proposal points to evidence such as the fact that patients using bulk-procured anti-blood clot medication had higher incidence of strokes and pulmonary embolisms. It also expresses the need for greater flexibility given to physicians and hospitals if a bid-winning drug doesn’t apply to a specific medical case, or isn’t the right formulation (such as for pediatric use).
“Innovative drug market” includes newly developed pharmaceuticals that introduce novel mechanisms of action, significantly improve clinical outcomes, or address unmet medical needs. This market is typically measured by the revenue generated from patented, first-in-class, or breakthrough drugs.
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