Could America pursue an abundance agenda without the threat of the PRC? And can podcasters change the world?

To discuss, ChinaTalk interviewed Ezra Klein and Derek Thompson, who need no introduction, as well as Dan Wang, who has written all those beautiful annual letters and is back in the US as a research fellow at Kotkin’s Hoover History Lab. He has an excellent book called Breakneck coming out this August, but we’re saving that show for a little later this year.

Today, our conversation covers…

• The use of China as a rhetorical device in US domestic discourse,

• Oversimplified aspects of Chinese development, and why the bipartisan consensus surrounding Beijing might fail to produce a coherent strategy,

• The abundance agenda and technocratic vs prophetic strategies for policy change,

• How to conceptualize political actors complexly, including unions, corporations, and environmental groups,

• The value of podcasting and strategies for positively impacting the modern media environment.

Listen now on iTunes, Spotify, or your favorite podcast app.

So last week we published our 400th episode! I’ll be doing a Q&A show in the next few weeks. Leave your questions in the comments.

The Thucydides Stimulus

Jordan Schneider: Let me start with a line from Ezra’s show with Tom Friedman. Friedman said, “Whether I’m writing about China from Washington, or whether I’m writing about China from China, I’m always just writing about America. My goal is to use China as my permanent Sputnik.”

Ezra, you mentioned over email that initially there was more China in “Abundance,” but in the final text, I think it primarily just plays that Sputnik role too. What do we lose when policymakers and policy advocates treat China primarily as a rhetorical device rather than a complex object of study?

Ezra Klein: Those feel like two separate questions. One reason “Abundance” is not heavily about China is that I’m perfectly aware I don’t understand China. What I do understand is the gravity that China exerts on American politics.

We have a very complex relationship of antagonism, competitiveness, and envy with China.

Going back to at least the 2010s, probably before, I’ve begun to really notice this feeling in American politics that they can build and we can’t. This became a pathway through which different kinds of bipartisan legislation that would not otherwise have been bipartisan began to emerge.

The re-emergence of industrial policy in America is 100% about China. Take China out of the equation, and there is no re-emergence of American industrial policy. It’s reasonable from the American perspective, when you’re trying to understand American politics, to understand China as an American political object, because that’s what it actually is in our discourse.

American policymakers don’t understand China at all. Most of what they think about it has a high chance of proving to be dangerously misguided. Dan will be much more expert here than I will, but I’m very skeptical of the bipartisan consensus that has emerged. Nevertheless, it’s completely trackable that China exerts a force on American politics. It has reshaped the American political consensus, often in ways that operate in the shadows because they don’t become part of the major partisan fights of modern American politics.

Derek Thompson: The only thing I would add, because I also don’t think I understand China, is that this was primarily a book about trying to deeply understand not all of America, but some very specific questions — Why can’t America build houses? Why can’t America build clean energy? What’s wrong with America’s invention agenda? These are very narrow questions about this country. The book’s scope did not include a deep dive into Chinese industrial policy or the nature of Chinese politics.

My interest in China is one of relatively blue-sky curiosity. We have this term “the Thucydides trap,” which explains how throughout history, when you have a dominant geopolitical power and a new rival emerges, that new rival discombobulates the status quo power. Modern American history has demonstrated something more like not necessarily the Thucydides trap, but the “Thucydides stimulus" — the idea that when a new rival emerges, it can inspire the existing superpower to think differently.

Sometimes that Thucydides stimulus comes through a sense of geopolitical threat. I’m very interested in the history of Sputnik and how the Sputnik moment inspired all sorts of changes in American policy in the 1950s and 1960s. But there’s also an approach that isn’t based on fear of geopolitical threat, but rather on open curiosity. How does China build its trains so quickly? How does China build so many bike paths that are beautifully integrated into the environment? What are the different ways in which Chinese versus American politicians think about designing their society such that each could learn from the other?

Without venturing too far into territory we’re saving for Dan’s wonderful book, there’s a way to engage with this idea of the Thucydides stimulus that isn’t exclusively motivated by fear, but rather by open curiosity.

Jordan Schneider: I’m going to throw it to Dan, but I love how your response to my first question shows that you guys are the masters and I’m still the student. I was debating for a whole week what my first question should be, and then I just gave it to OpenAI and asked them to squish these two ideas together. Your seeing through that is very impressive. Dan?

Dan Wang: I would always be the first person to put my hand up to say I know nothing about what’s going on in China. That is always true.

Ezra Klein: Welcome to ChinaTalk, where nobody knows anything about China.

Dan Wang: Well, Jordan knows something about China.

Jordan Schneider: Less than Dan.

Dan Wang: China is very messy. That is always my first proposition about China — it is very big, and many things are true about China all at the same time. They are a country that claims to be pursuing “socialism with Chinese characteristics,” which is still one of the most wonderful political science terms ever.

What sort of socialism is this? In my view, this is one of the most right-wing regimes in the world. A country that would make any American conservative salivate in terms of its immigration restrictions, its incredible amount of manufacturing prowess, and its enforcement of very traditional gender roles in which men have to be very macho and women have to bear children.

China is all of these things. It is also a place where there are really wonderful bike paths, specifically in Shanghai. This year, Shanghai has completed around 500 parks. By 2030, they want to create 500 more parks. It is a country that is getting better and getting worse all at the same time.

Ezra Klein: This goes back to this idea of envy — the degree to which the right envies China is fascinating. It doesn’t just want to compete with it or beat it. It’s not just afraid of it. What it wants is to be more like it.

In wanting to be more like China, the right is now overlooking virtually every advantage and competitive strength America itself has.

America’s politicians are so obsessed with trying to take manufacturing back from China, which I don’t think they have a well-thought-through approach to doing, that they look quite ready to give up America’s financial power. They seem to have reconceived of dollar dominance, which used to be called the “exorbitant privilege” because we got so many advantages from it, as some sort of terrible weakness that has hollowed out our industrial base and that we need to shatter.

Throughout history, being the power that controls the money flows has proven to be an extraordinary lever of control. But it has been recast in current New Right thinking as a sort of feminized decadence — something that “not real” countries and “not real” powers do, a distraction from the “real economy” and the “real work” of making things.

I’m not against bringing back manufacturing. I support the CHIPS Act. There are many aspects of manufacturing that I would like to bring back. But we can become so envious that it becomes hard to see our own advantages and strengths, and then make serious policy built on what we are doing well. That strikes me as one of the profound weaknesses of Washington’s approach to policymaking. It is so obsessed with what we are not doing well that it seems ready to set fire to what we are doing well.

Dan Wang: Edward Luttwak has this term “great state autism,” which he created regarding the US thinking about the Soviet Union. There is certainly an aspect, once you are a “superpower,” of becoming obsessed with the other party. You have to choose your enemies very carefully because you will end up looking quite a lot like them.

I wonder in which way the US is actually quite mimetic in thinking about how to be like the other superpower. In my sense, China — after the 2008 financial crisis, or perhaps after 2012 when Xi came into power — Beijing decided it does not really want to look too much like the US, which has been driven by Wall Street on one coast and Silicon Valley on the other in terms of economic growth.

Rather, Beijing has this purely mercantilist view, which would be recognizable to anyone in the 18th century, which is, “Let’s just make a ton of products. That is our source of power, that is our source of advantage.”

Jordan Schneider: Maybe now’s the time to bring up Gerstle and his book, which Ezra has been referencing frequently lately. His argument is that the Soviet Union as a memetic object facilitated a long 20th century of liberal governance. People don’t date it to the 1940s but to 1917 with Lenin and all the progressivism that unlocked. We saw Eisenhower buying into Social Security and domestic politics, plus the role of the USSR in the US Civil Rights movement. It’s interesting because there’s a bit of that with Todd Young and Mike Gallagher trying to implement a different version of self-strengthening than the one dominant in the White House today. I’m curious about lessons from how the Soviet Union shaped American politics. What different futures could that suggest for the US over the next few decades?

Derek Thompson: Gary Gerstle, the Cambridge historian, has this beautiful theory of political orders, which says American political eras are essentially defined by both an internal conflict and an external threat. Together, these create a consensus between parties that lasts for decades, even as headline disputes make it seem like parties are at each other’s throats.

The two big political orders are the New Deal order from the 1930s through the 1960s-70s. The initial internal crisis was the Great Depression, while the external threat was the rise of communism and socialism around the world, particularly in Europe. The New Deal order essentially synthesized these ideas by responding to the Great Depression and softening the introduction of socialism to American politics. It created a political order that was much more expansive with aggressive and muscular domestic policy, spending to reduce unemployment and poverty through the Social Security Act, employing millions of people.

As you mentioned, Dwight Eisenhower in many ways acquiesced to that political order in the 1950s. He was a strong advocate of social welfare policies and a proponent of continuing to build in America. He built the highway system.

In the 1970s and 1980s, that order broke down. Instead of the Great Depression, you had economic stagnation in the 1970s. Instead of the spectral threat of socialism in Europe, you had the direct threat of the Soviet Union and its capacities. A new political order emerged, defined by individualism rather than the collectivism of the New Deal era. Gerstle calls this the neoliberal order, which reigned over American politics from the 1980s to roughly the 2010s.

Gerstle’s theory, which I think Ezra and I subscribe to, is that we’ve seen a decline in that neoliberal order. Today’s problems cannot just be solved by cutting taxes or embracing Reaganite conservatism. Housing scarcity, building sufficient clean energy, and building the technology we invent in the US — these aren’t problems solved merely by cutting taxes and deregulating at the national level. We need more specific solutions.

Abundance liberalism is our answer to these new problems. It tries to synthesize the best of the New Deal order and the neoliberal order. The New Deal order taught us about the power of government to intervene and see what markets themselves cannot see. The neoliberal order recognized that government bureaucracy can sometimes get in its own way. We’re trying to advance a theory of progressive governance that sees how government creates rules for itself that make it harder to achieve outcomes.

Abundance liberalism finds a way to advance a muscular theory of government that says we can build houses, clean energy, and do extraordinary things with technology. But this requires identifying how we’ve written rules that get in our own way.

Dan Wang: Derek, why fold neoliberalism into this big package? Why not just embrace the New Deal agenda in its classical flavor? When I think about the New Deal, I think about the construction of power plants, homes, and broader infrastructure. They’d pack the courts if necessary because that was part of the agenda. What are we adding with the neoliberal flavor here?

Derek Thompson: When I say we’re adding a neoliberal flavor, I mean there were insights in the 1970s and 1980s about failures of the New Deal order that were accurate diagnoses. The New Deal order built extensively, often without consideration for either the voices of the marginalized or the poor, or for the environment. As a result, one legacy of the New Deal order is that the amount of construction was partially responsible for creating a groundswell against the state and against the growth machine. This empowered the legalistic revolution of the 1960s and 1970s that we now see across the country — in NEPA, in CEQA, in the proceduralism fetish, in adversarial legalism at many different levels of government. We are, in many ways, a society defined by a very activist lawyer class.

It’s important to recognize that there were legitimate legal responses to the growth machine that emerged in the 1960s and 1970s. Another part is environmentalism. The world of the 1940s and 1950s bequeathed to us by the New Deal age was truly disgusting — the rivers and air were disgusting, and tailpipe emissions from our cars were choking the planet. It was important to pass environmental rules to allow cleaner growth. We succeeded in many ways — the air is cleaner, the water is cleaner, and tailpipe emissions are a lot lower.

Now we need a new synthesis because climate change presents different environmental problems than those of the 1940s and 1950s. We need ways to build clean energy that allow people to live modern lives without choking the biosphere. That’s why we need a new synthesis rather than returning to the 1930s.

The last point: when people ask why we can’t just roll back the clock to 1932, remember that the government then, responding to the Great Depression, hired millions of people through the Works Progress Administration. Today’s US government, with its deficit and current interest rates, not to mention the political climate, simply doesn’t have the ability to hire 5 million people to build something like the Tennessee Valley Authority. It’s not going to happen.

To build houses, energy infrastructure, or transit today, we need the private sector to do much of that building. This means we need to build a legal architecture that allows the private sector to build without despoiling the planet or running roughshod over consumer or environmental interests.

Jordan Schneider: I understand your Iraq War hangover perspective — if there’s this much consensus, maybe something is fishy. But I’m frustrated, and perhaps this shows a broader frustration with how the show has evolved into “Jordan, Media Critic.” It seems to be less about learning about a field and more about booking someone to let Ezra make a point. Over the past five years, you’ve had Tom Friedman, Jessica Chenweis, and Dan, but the show with Dan wasn’t really about Chinese foreign policy. You’re leaning heavily on one side of the professional community when it’s now split roughly 90-10 in the other direction. You have a big platform, Ezra, and I’m curious how you feel about weighing in versus interrogating policy questions that aren’t directly in your area of expertise.

Ezra Klein: One pattern I notice in media criticism is that people feel you aren’t using your platform in a curious enough way when they disagree with you, but when they agree, they find it perfectly curious. I get this from many different perspectives.

When I think the consensus is wrong, my show goes counter-consensus. When I thought Joe Biden was too old to run again while most people believed the primary had settled it, I was willing to take heat for saying Democrats should have an open convention. In this particular case, I think the ambient coverage of China on my show — except for a few specific China episodes, of which there have only been three or four — reflects the broadly speaking Washington consensus that we need industrial policy to recapture major industrial sectors from China.

What worries me most, having covered Washington for a long time, is when things become unsayable without good evidence for why they shouldn’t be said. I don’t mean within the professional China debate community, but within the political community of people who need to win elections and advance their careers. I’m not a dove who thinks there are no problems with the Chinese Communist Party, but I’m not convinced the relentless buildup of antagonism and increasingly harsh policies is working — or that we’re even evaluating if they’re working.

My show isn’t unwilling to give air to mainstream perspectives. I had Ben Buchanan on AI policy and Jake Sullivan, who defended efforts to deny China certain technological exports that would allow them to attain leadership. At the same time, Tom Friedman’s point — which you might call dovishness — is that Washington tends to compete with China as it was 15 years ago, failing to recognize how much manufacturing innovation they’re currently capable of. The belief that we can simply wall ourselves off or engage in a trade war and rebuild the manufacturing sector they’ve painstakingly developed over time isn’t clearly supported. Maybe it’s clear to you — I’d actually like to hear you defend whether tariff policy as currently structured will achieve that goal.

More broadly, is it so bad for the world if China makes many solar panels and EVs? If climate change is as significant a problem as I believe, that rapidly accelerates the dispersion of renewable energy and electric vehicles. I understand why the Biden administration made its decisions. I’m not even sure they’re wrong, but I would like to hear the other side argued more publicly.

Similarly, in AI governance, is the race dynamic between our countries beneficial? If you have concerns about AI safety — and I still do, even as it’s become somewhat gauche to express them — the fact that both countries are willing to disregard other concerns to beat each other to usable AGI should raise concerns about the structure of development emerging on both sides.

I don’t see the preconditions for wise policymaking here. The absence of those preconditions is one reason the Trump administration, in its careening effort to construct some kind of sensible tariff policy, retreated from an all-out trade war with the entire world to focusing on China. They thought that would be more defensible, but did they plan for it? Did they think through the outcomes?

I’d turn this question back to you, Jordan: Do you think the current direction of US-China conversation is leading us toward good policy?

Jordan Schneider: Obviously not, but that feels like a straw man. You’re asking me to defend Trump’s tariffs.

Ezra Klein: Hold on. I want to push this because you brought it up. The Friedman conversation is about Trump’s tariffs. It’s a view that we are getting these policies because of the views that have begun to take hold, at least in the Republican Party, about China.

Jordan Schneider: The issue is that Jake Sullivan and Ben Buchanan are not people who have spent much time reading party documents. Fundamental to all of this is understanding the system and its intentions because China is relatively equal to the US from a national power perspective and will remain so for the coming decades, regardless of what we do. Understanding Xi and the broader system is a very important intellectual foundation that deserves rigorous interrogation. Tom Friedman spending a week at the Huawei Campus won’t necessarily give you that.

Ezra Klein: But this is a trade policy conversation. What would change in your trade policy from understanding their objectives? Let’s have the concrete conversation here. I agree my show hasn’t dug into party documents — there are reasons for that, but regardless, we haven’t done it. In terms of what we’re trying to examine, which is the output of US policy and whether it will achieve our goals, what do you think is being missed? What premise needs to be inserted?

Jordan Schneider: What are we missing? The world has the potential to go in different directions. It’s more difficult in the context of Trump because I’m not sure that China being a boogeyman is what’s empowering Trump. Yes, at some level it helped him get elected, but he could say whatever he wanted because he has this hypnotic control of the Republican Party. I don’t know why I was scared of this show, Dan, because I don’t have podcast hosts who just throw this stuff back at me.

Ezra Klein: I’m not —

Derek Thompson: Can I ask a version of the question?

Ezra Klein: Yeah.

Derek Thompson: Let’s say that I am a dedicated listener of the Ezra Klein show. I just mainline the podcast, and his ideas become my ideology. What is my ideology missing right now regarding China?

Jordan Schneider: That China is an ideologically driven system. The world in which China is able to more dramatically reshape the global balance of power over a 15-year horizon is one we should be really concerned about. I have a deep discomfort with the timeline where America and its friends are waning relative to China on a multi-decadal horizon.

It is not possible to know with a high degree of confidence what China really wants, but there’s at least a 25% chance that the Chinese government we get in the coming decades is a deeply Leninist and expansionary one. That is a scary timeline that the world needs to price in and prepare for.

That’s for the modal Ezra listener. For the modal DC Hawk, I’d just say that Chinese people are people too.

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Dan Wang: I definitely want to defend the dulcet tones of both Ezra and Derek, but as an amateur member of the community of China watchers, there are debates that aren’t easily resolved. For example, a question I would pose to US policymakers would be: Do you judge it is in America’s interest that China is richer, or is America better off if China is poorer? Having that answer would help structure many subsequent policy choices.

There is debate within the China community about how expansionist China is. They certainly want Taiwan — no question there. But is the next step that they want to take Vietnam, Philippines, as well as Japan? People are extensively debating this. When we can answer these more technocratic questions and reach some agreement, many things become easier.

This isn’t about Ezra’s show, but in the US there aren’t many experts really trying to debate and resolve these questions. In my field studying Chinese technology development and manufacturing, policymakers frequently use the laziest trope that China got where it is totally through stealing. This is easily disprovable, yet we hear it all the time. As long as we can’t move beyond these tropes, it becomes much more difficult to resolve even the harder questions.

Ezra Klein: It’s funny because I definitely didn’t expect to come on the show and articulate my own quite weak philosophy of China. But this goes back to what Tom was saying and what I’ve said in the book — this is a way of talking about America. Jordan, if your disagreement with me is that you think I’m excited for a world in 15 years where America has broken substantially and China has reshaped the global order, let me set your mind at ease. As dulcet as my tones may be, I don’t want that world. What I want is a world where we try to achieve our goals through sensible policy aims.

My views are actually quite weak on many of these things. There are areas where I have very strong views about how America should build more and faster. A big portion of the book Derek and I wrote is fundamentally motivated, as we say at the end, by competition with China. We believe we won’t continue thriving as a nation in terms of our own strength if we don’t get better at manufacturing, construction, deployment, innovation, and cyclical experimental policy. There’s something for us to learn and compete with there.

On the narrower level, there’s a view that has taken hold in Washington that some version of decoupling is the way forward. One place where I’m uncertain — not certain I disagree, but the conventional view is so dominant that I’m more interested in the counter-argument — is Tom’s argument from the Huawei campus and his other experiences. He suggests we should do with China in the 2020s what we did with Japan in the 1980s and 1990s when they were outcompeting us on cars: create joint ventures in America where we develop their technological and manufacturing processes and embed them in our own companies. China did this with us too.

In Washington, this is considered virtually unsayable. I’d like to hear a better argument against it than I’ve heard because it’s not obvious that our current approach will accelerate the sophistication of our manufacturing chains.

My view is similar to Dan’s — I’d like us to have more precise conversations about means and ends. But that’s difficult in the current political atmosphere where you have to out-compete others to be symbolically tough or hawkish.

The Taiwan problem and the Indonesia question are both very severe issues somewhat beyond my ability to address confidently. America has a very unclear internal stance on whether we would actually go to war to defend Taiwan — people don’t want to answer that, and I don’t even know what I think the answer should be.

Regarding what we need to do to accelerate our manufacturing and innovative ecosystems, the question of whether we should be decoupling or trying to couple and do tech transfer, engaging in more direct competition with products like Chinese EVs while heavily subsidizing our own industries with clear goals — that doesn’t seem completely crazy to me.

Abundance Media

Jordan Schneider: Maybe the distinction is between the technocratic and the prophetic. Once discussions turn into US-China World War III prophecy, that’s where all of us get frustrated. The way you both approached abundance — you started on the technocratic side of writing. There’s now more Frederick Douglass and MLK elements — creating a vision with moral force behind it to transform policy ideas into something rhetorical that resonates. I’m curious how you think about broader theories of policy change, technocratic versus prophetic voices, and how you grappled with that in framing the book and discussing it on your media tour.

Derek Thompson: The book is both poetry and prose. We have an introduction and conclusion with sentences that I described to Ezra as aphoristic and epigrammatic — sentences that wanted to be underlined, that wanted to have that glow on Kindle when 10,000 people highlight them. It’s strange to write for that piece of coding to become illuminated in the text, but that’s writing in a memetic way — a very 2025 approach. We want to write sentences people will quote and remember, and use terms that will infect the software of people’s minds. People talk about an abundance agenda now.

Neither Ezra nor I are trying to be shy about wanting aspects of this book to be highly memetic while other aspects are admittedly and painstakingly technical. The analysis of Tahanan (the affordable housing complex in San Francisco), the analysis of funding opportunities for chips, the history of the NIH in America, and the development of solar technology — these are highly technical sections. We’re not just trying to be pie-in-the-sky poets. We really want to understand how the world works, how government works, because there’s no way to understand how to make it work better without understanding the thing in the first place.

During the podcast and speaking tour, I’ve repeatedly been asked how we expect this book to make contact with the 2026 midterms or the 2028 presidential election cycle. My feeling, which I deeply believe, is that nobody votes for books. Even in American history, where you could weakly argue a president was influenced by a book, people are still voting for that person. People vote for people. FDR voters didn’t elect John Maynard Keynes in 1932 — they elected someone inspired by Keynes. No one elected Milton Friedman in 1980, but Ronald Reagan was inspired by Friedman.

The job of writers, podcasters, and public intellectuals is this — in a crisis, and crises will come perhaps twice as fast in this decade as previous ones, people in power reach for ideas that are on the shelf around them. They throw out an arm and say, “What’s the idea nearest to me that can help explain this moment of chaos?"

What we’re trying to do with a book like this is stock the shelves with better ideas, allowing Democrats to respond to housing crises in San Francisco or Los Angeles, clean energy construction challenges in Massachusetts, or the general problem that America invents many things but can’t seem to build them the way the Chinese can. How do we resolve these observed crises? You reach for ideas on the shelf, and abundance is trying to be on that shelf.

We are trying to influence people, but we understand no one’s ultimately going to vote for a book. The world changes because of people filling out institutions — ultimately a result of personalities we can’t directly influence.

Jordan Schneider: Ezra, do you want to address the “Ezra as America’s only real rabbi” angle? I felt like I got more substantive Israel content after October 7th from you than anywhere else. You started doing very wonky Obamacare analysis, and now there’s a values discussion that you inject into more people’s lives than perhaps anyone else in the country.

Ezra Klein: I appreciate that. The reputation I developed in my wonk blog days, in my Obamacare days, as somebody who only cared about appendix tables and CBO documents was never true. I do care about appendix tables and CBO documents and the granular sections Derek described. I believe you need the narrow, granular texture of things to understand them.

I also believe that moments and eras have zeitgeists and values. I’m probably more of a mystic than people realize — although a coming podcast with Ross Douthat, probably out by the time this airs, will reveal some of that. I try to be honest about my own reactions and struggles with the moments we’re in. Like anyone else, my reaction in many of these moments is emotional.

Something I believe strongly about my work is that if you aren’t making space for the emotional layer of reaction, you aren’t making space for the reaction itself. If you can’t speak to where the audience is emotionally — which may or may not be where you are — it will be very hard to get them to listen. If people don’t feel understood, they won’t listen to you, and maybe they shouldn’t.

I don’t think I’m alone in doing this, but it has needed doing. I’ve always felt as a writer, and maybe as a person, that the emotional layer of moments isn’t unusually visible to me — it’s something that feels unusually invisible to others. I don’t know what it’s like to walk through the world and not be incredibly affected by the emotional currents of every room you’re in. I meet people who don’t seem as overwhelmed by this, and their lives seem blissful to me. It’s just how I experience the world, and I think it comes out in the show.

When you’re writing a piece or doing a podcast — and I’d be curious for Derek’s reflection on this because he’s very good at it too — you have the audience’s beliefs in your head. What am I arguing with? What is the structure of prevailing sentiment? How is the audience feeling at moments of high emotion, like October 7th or this period with Donald Trump? That’s part of the structure you’re engaging with. To ignore it makes no sense.

I was never a fan of the Ben Shapiro line that “facts don’t care about your feelings.” Maybe facts don’t care, but people sure care. Feelings sometimes should sensitize us to the idea that there are facts we don’t yet know or experiences we haven’t absorbed. It would be hard to find many people in journalism more interested in the wonky details of policy than I am, but perhaps because of that interest, I understand that wonkiness only goes so far and misses a lot. We never have full understanding of anything. We were saying this at the beginning with China — the idea that any of us, anybody in this debate, even anybody in China itself, can understand a country that big? I don’t understand America. You have to recognize that there are many ways of knowing.

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Derek Thompson: I love all of that. I agree with just about all of it. What we do — me, Ezra, Jordan, Dan — we make media. I don’t know if the full value of media is feelings, but certainly an enormous amount of the value of media is feelings, even when you read a very detailed analysis of wonky things.

Just the other day, I had a conversation with an astrophysicist about transmission spectroscopy, which is how we measure faraway starlight passing through planets 100 light years away. As that light passes through those planets’ atmospheres, we can analyze the wavelengths to determine which chemicals have blocked aspects of that starlight. By determining that, we can guess what chemicals are present on that distant planet. We can say, “That blur on a telescope — that’s ammonia, methane, dimethyl sulfide. That means that planet 100 million light years away has aquatic life, has algae."

The details are technical, but the value is wonder. The value is a feeling. Ultimately what I want from people who listen to my podcast or read this book — it’s always nice to hear someone learned something, that the takeaway was informational. That’s beautiful. I love learning and information. But information itself feels like something — it feels like a dopamine hit, the relief of anxiety that I didn’t know something and now I do, or that my worldview, my understanding of what’s possible in human life, has expanded by one unit of new fact. That’s all feeling.

The greatest compliment I can receive is “your book made me feel hope” or “your podcast made me feel wonder.” When people came up to Ezra and me for book signings, many said, “You make me feel sane.” They had five seconds to speak to someone they’d listened to for hundreds or thousands of hours, and the words that came out were “you make me feel sane.” That’s the outcome of the work.

I agree with Ezra. Not only are my emotions front of mind when I’m writing, but also the audience’s emotions. That’s true both within podcasts and across podcasts. Within podcasts, I love the tension between going deep into something technical and then zooming out to the emotional impact. Across podcasts, after doing many shows about how problematic tariffs are, I might say, “We need to talk about aliens. We have to discuss transmission spectroscopy so people can get excited about detecting alien chemicals on planets 100 light years away.” We need to balance.

This play of feelings, this idea that our work exists as a kind of symphony of emotions within and across podcasts, is extremely present for me. It’s great to hear it’s present for Ezra as well.

Dan Wang: It’s really wonderful that these dulcet tones are getting more fiery. Maybe no one votes for a book, Derek, but I would vote for podcasts. I would cast a vote for Plain English, and I would cast a vote for the Ezra Klein Show.

Jordan Schneider: Now we have a choose-your-own-adventure here. Making people feel sane and heard is lovely, but there’s also a dark version of abundance. If you weren’t, as you self-describe, “pathologically agreeable,” where you have more enemies and villains — what would that book look like? How would that be embodied?

Alternatively, you partially answered this in the past 10 minutes, but are there other failure states you worry about for yourselves over the next five or ten years that you’re trying to orient away from in your work?

Ezra Klein: Let me take the first question about dark abundance. People kept telling Derek particularly that he’s too agreeable, but they tell me that too. Matt Yglesias had this funny reaction to the book where he said, “I read this book and thought it was good, but too agreeable. Nobody would argue over it because it was too soft" — and then everybody argued over it. So maybe he was wrong.

One thing I’ve learned on the tour is that I have a different sense of how to treat coalitional politics than many people I agree with, both to my right and left. Others seem more certain that you can create a group — call it corporations, unions, or whatever — and politics is really about deciding if that’s an in-group or out-group. If it’s an out-group, you should attack it as your villain. If it’s an in-group, you should ally with them as your partner.

I view this much more situationally. Environmentalists, unions, corporations — these are very big, diverse categories with a lot of internal fractiousness, as anyone who has reported on them knows, and I have reported on all of them. Different issues have different coalition structures.

It’s not that our book doesn’t have “villains,” although we don’t think many of the people we discuss are ill-intentioned. The book has plenty of instances where you can see who is standing in the way or governing poorly, and that’s led many people to get angry. When I talk to centrists, they often ask, “Aren’t public interest unions your real enemy?” From the left, the question is more, “When will you admit that corporations and corporate power are the real enemy?"

Jordan Schneider: And that’s just not interesting.

Ezra Klein: I wouldn’t say it’s not interesting. I’ve been preparing for a conversation with Zephyr Teachout and someone else that will reflect some of this debate. I’ve been reading her work and thinking about how she views the endpoint as power itself. Her critique of many she argues with across domains is that they focus on specific issues but not on power. There’s a sense that if you can move power from one place to another, you’ve solved the problem.

But what if that relocated power is used poorly? Her confidence seems to be that if you moved power from corporations to government, it would be well used. Maybe sometimes it would, but often it wouldn’t. Government gets captured by many different groups, not just corporations.

Similarly, the new left moved power from government to individuals, planning meetings, and people who can bring lawsuits, assuming individuals would be safer repositories of power than government and should tie government up in process. Sometimes that’s true; sometimes it’s not.

Many people seem to think there’s some secret “Straussian” version of Abundance in the back of our minds where we’re extremely clear about who the villains are, but due to our agreeable nature, we edited that out. Much of Abundance is an argument about being outcome-oriented, asking what we need more of and how to get it, then being rigorous about the answer.

Sometimes that leads to identifying corporate interventions that have blocked progress. In other places, it’s local homeowners or environmental groups. There are places where unions use environmental laws for reasons unrelated to the environment, making these laws potent tools of delay. Then we can’t reform environmental law in California because these groups are so committed to leveraging it that they resist any changes, even though these laws block things we need for other reasons.

There isn’t a “dark Abundance” book sitting somewhere. We don’t have the luxury of believing in some stable equilibrium of interests that gets us what we want. It’s about being deeply committed to achieving what we promise. If certain groups stand in the way of those achievements, then on that issue, they’re not our allies, and we should try to overcome that problem.

Derek Thompson: I want to ground Ezra’s principles in this current news moment because they’re so appropriate. When I talk with people on the left — I was just on Mehdi Hasan’s show the other day — they ask versions of this question: “Why isn’t your book more anti-corporate? Why isn’t it more anti-billionaire or anti-oligarchical?"

I wish I had this framing then: I don’t see business as the permanent out-group of progressivism, and I don’t see government as necessarily the singular, appropriate wielder of democratic interests. Look at what’s happening right now. The government is trying to take away the independence of the Federal Reserve. Trump has bragged about using tariff policy to try to crash the stock market. They’re using government power to entirely reshape the economy in ways that have been terrible for manufacturing.

Meanwhile, Wall Street is begging Scott Bessent to keep the Fed independent, to not crash the economy, and to remove these tariffs to protect the manufacturing sector. If your first principle is “if Wall Street asks for it, then it’s bad,” you find yourself questioning the independence of the Federal Reserve or defending the idea of trying to disrupt the stock market through random tariffs on various countries.

It’s much more helpful to recognize that in-groups and out-groups aren’t universal — they’re situational. It’s better to reason from first principles of politics rather than assigning entire groups as allies versus enemies. I hope that came across in the book, for better or worse. I’m really against designating entire groups as permanent enemies of progress, because economics is complicated and life is complicated, and sometimes people are on both sides of issues.

Jordan Schneider: Let’s speed it up. I’m going to ask you five different questions about hosting podcasts. You can pick whichever ones you want to answer: Do you have magic words you give as a pre-recording pep talk to guests? What goes through your heads during interviews? What tricks do you use to turn around guests who are performing at a B-minus level for the first 10 minutes? What are you working on as interviewers? Are there any content ideas or initiatives you’d pursue if you weren’t affiliated with large outlets?

Derek Thompson: Let me answer the meta question about shepherding guests who aren’t giving me what I want in the moment, because it’s a really tough challenge. Sometimes you can feel the conversation slipping out of your hands.

I’m never afraid to simply step up and say, “Hey, can we go back to the very first question? This is on me. I think I understand how to work our way through this conversation, and I’m going to ask a different set of questions. If you want to play with me here, let’s do A, B, C."

I try to be relatively explicit about what I want if the conversation isn’t going as planned. Much of this is to prevent the guest from feeling it’s their fault. If they become self-conscious, they develop this metacognitive layer of thought constantly judging their thinking, which prevents them from being expressive, interesting, and fluent. I try to blame it on myself and say, “Let’s try essentially a new game. We played game number one; let’s play game number two and see how it goes.” That’s how I massage the conversation.

Regarding the guidance I give guests, I don’t want to be overly prescriptive. Ezra and I were actually talking earlier about another podcaster who is unusually prescriptive at the beginning of interviews. I want to hear guests’ natural personalities come through. However, I remind them, especially those in technical fields: “This is a podcast for a generalist audience. I want you to use jargon — because jargon actually sounds cool — but please slow down and explain everything that isn’t basic 101 material in a class you might teach."

This encourages them to recognize when they’re using specific terminology. For example, as they begin talking about transmission spectroscopy, they’ll think, “Wow, that was super multisyllabic. I should definitely slow down here.” I want the conversation to be slow, conversational, and feel like a discussion after half a beer. But I typically don’t give them that level of specificity in my instructions.

Ezra Klein: When something isn’t working, you have to try something else. The more it’s not working, the more radically you need to pivot. I don’t always succeed at this. It’s very hard to abandon the mental map you had for the conversation.

Sometimes you’re just hoping things will improve later, and you’ll edit out the beginning. Sometimes I decide, “We’re throwing away the first 12 minutes of that one.” But you have to start trying riskier strategies to knock people off their current track.

The truly challenging situation is when a guest clams up — when they’re unwilling to be as open on mic as they were in previous reporting, or they’re simply nervous. To some degree, you sometimes have to rescue them. Usually, there’s a conversational vein that will activate them. Being very sensitive to people’s energy in the moment is important.

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Jordan Schneider: Aside from having a better one-line takeaway for what people should think about China, do you have other feedback for China Talk? What should we be doing more of here?

Derek Thompson: I learn so much from your Substack and your show. Sometimes I feel there’s a historical layer I always appreciate — understanding how things got to where they are. People who are experts in a particular domain often forget that others might want to walk the path they walked to arrive at that moment of relative expertise.

I’m always a fan — and maybe this is just my general preference for explainer media — of stepping back and providing a little bit of the “how we got here” context. That’s not so much a criticism as an observation, but it’s a type of media I always appreciate.

Ezra Klein: You can never have too much Dan Wang. He’s been the one on the island.

Jordan Schneider: Derek’s show is called Plain English, but I’m more in the Dwarkesh mindset of just doing podcasts at my level. The audience will get 80% of it, and if needed, they can Google things. ChatGPT can now fill in the gaps for you. But I hear your point.

Let me shift topics. Ezra, I went back to your Tim Ferriss interview where you spoke about how Matt Yglesias giving you an encouraging comment when you were 19 was a big psychological boost to continue down this unusual path of writing on the internet.

I’d like all three of us to do something similar now — highlight people in the sub-10,000 Substack follower range who we think are doing excellent work.

I’ll start — , who has a weird and offbeat perspective on China and broader Asia. She went to Taiwan recently and is taking an interesting approach to technology writing.

, who writes a Substack called Sinocities, exploring regions in China. There’s so much focus on Beijing, Shanghai, and Shenzhen that examining what’s happening in other provinces is really valuable.

is great. He actually dives deep into what Huawei and BYD are doing in the broader Chinese industrial ecosystem. He can be a better guide than someone like Tom Friedman.

Lastly , who publishes less frequently but offers deep dives into Chinese economic policy and communist ideology, covering both the Soviet Union and China, which I think are excellent.

Let’s go around. Who would you like to highlight?

Dan Wang: I have only one nomination — Jordan Schneider of ChinaTalk. He brings tremendous enthusiasm, making a potentially dry topic broadly accessible. Today, we heard not only from the mystical side of Ezra but also about starlight from Derek. You don’t expect that when you tune into ChinaTalk, but that’s what you get.

Ezra Klein: To be honest, having written a book with Derek, you can’t get this guy to stop talking about starlight. There was a beautiful starseed passage that I don’t think made it into the final book — I believe because we removed some of the nuclear material. Give Derek 30 minutes, and you’re guaranteed to hear about starlight.

I’ll recommend , whose “Programmable Matter” Substack is absolutely essential. He’s one of the great minds of our time.

— her Substack is called “Eating Policy” — it goes more deeply into how policy actually works in practice than almost anyone else.

I’ll also recommend , a professor and expert in administrative law and administrative complexity. His Substack is called “Can We Still Govern?”

Dan Wang: I second Henry Farrell. I think of Henry as a giant intellectual teddy bear. Whenever I see Henry, all I want to do is grab him in my arms and squeeze.

Derek Thompson: My two recommendations come from the world of science — and , both exquisite writers and wonderful thinkers on genetics, innovation, culture, and how science actually works. I’m incredibly interested in various scientific frontiers right now and always hungry for people who can explain complex concepts clearly and memorably. They both excel at what they do.

Mood Music:

Arrian Ebrahimi is a J.D. candidate at Georgetown Law and a former Yenching Scholar at Peking University. Today, he’ll attempt to quantify China’s state equity investments in semiconductor manufacturing equipment. You can read more of Arrian’s writing on the excellent Chip Capitols Substack. Special thanks to Lily Ottinger for assisting with the charts.

The recent tariff chaos — first exempting only the most advanced semiconductors, then exempting a broad base of electronics important, followed by the current waiting period for more calculated semiconductor tariffs — should not come as a surprise.

Not only was the President sounding a clarion call for tariffs through the 2024 campaign, but rumors were circulating in Washington and foreign capitals that the then-candidate Trump’s tariff wishes would manifest as a tariff on the Chinese semiconductor content of downstream electronics imported into the U.S. A New York Times article recently confirmed those rumors by unnamed administration sources.

Targeting the Chinese chip content of electronics reflects a concern over the PRC’s semiconductor industrial policy that is not unique to President Trump, nor even to U.S. policymakers. European policymakers have also sounded the alarm over China’s allegedly subsidy-induced mature node overcapacity, and your author spoke at a European Commission event in Brussels last November to address just those concerns.

Washington and Brussels’ concerns, however, sound as they grasp in the dark for answers to one as-yet unanswered question: How much public money is the Chinese government spending on semiconductors… total?

Many studies over the past half-decade have tried to figure out how public funds flow from the various organs of the Chinese government to the semiconductor sector. However, the use of conservative methodologies has prevented scholars from uncovering numbers for the entire ecosystem. The two standard approaches are:

1. Policy Announcement Hunting: China-watching platforms have tried compiling announcements of new semiconductor incentive schemes from China’s central and local governments (see Chip Capitols here on local government programs and here on central government tax subsidies). These program compilations help explain what sorts of policy tools the Chinese government deploys, but they cannot provide even a ballpark number for the total amount of RMB invested, because the Chinese government does not have transparency standards for public expenditures in the way the U.S. does.

2. Public Company Calculations: The OECD’s seminal 2019 report on market distortions in the semiconductor industry examined the subsidies that governments around the world, including China, gave to their champions. However, the study limited itself to 21 publicly listed firms, only 2 of which were Chinese, because private companies do not have annual financial filings from which they could pull statistics on state investments and subsidies. This approach offers greater accuracy, but only captures a small slice of the Chinese public investment pie.

I set out to compile data as comprehensively as possible on Chinese equity investments, subsidy grants, and tax credits for the country's key semiconductor manufacturing equipment (SME) companies — regardless of whether they are public or private. This challenge required estimation based on the limited public statistics available for private companies, but has allowed me to amass a treasure trove of insights about the Chinese SME sector.

Estimation is critical for reaching conclusions about the macro-state of upstream Chinese chipmaking equipment firms. The SME sector is small — relatively few firms are publicly listed, and some of the most important firms, like Shanghai Micro Electronics Equipment (上海微电子) (China’s only lithography firm), are notably absent from public markets. At the other end of the spectrum, Huawei has increasingly sought to integrate itself vertically by investing in Shenzhen’s SiCarrier (深圳市新凯来技术有限公司), but public numbers are not available about that nascent company which is yet to release most of its products to the open market. Notably, Huawei does not count among the top investors of any of the public SME firms surveyed in this article, suggesting its SME investments are focused nearly exclusively on firms like SiCarrier that haven’t attracted attention from the state-backed Big Fund or institutional private investors.

Ass more Chinese SME firms go public and their financial details become available, I will invariably need to revise these findings. Nonetheless, the world deserves a first (if fuzzy) glance at the totality of China’s industrial policy for chipmaking equipment. In this first of two articles, we find that:

• Government and private-sector investments into SME firms dropped precipitously in 2022, the year of China’s COVID lockdowns, and only recovered slightly in 2023 in the wake of the U.S.’s October 2022 export controls.

• Beijing’s investment decisions have no correlation, positively or negatively, with SOE investment decisions. Their choices of which SME firms to invest in and when to invest are entirely disjointed.

• The amount of liquidity created for companies via subsidies is much smaller than the liquidity the PRC government creates via equity investments. In 2021, subsidies stood at 27% of investments, in 2022 at 31%, and in 2023 at 28%.

• Within the subsidy bucket, tax credits have fallen sharply as a tool of industrial policy, and politically maleable grants have come to occupy the majority of China’s subsidy tools.

Billions of Pandemic-Sensitive Dollars

China’s investment in SME firms peaked in 2021 at $6.27 billion (a figure that includes investments by the central government, state-owned enterprises (SOEs), and private entities). Investment then fell to a trough of $1.57 billion in 2022 during the height of China’s COVID-19 pandemic. By 2023, investment rebounded to $2.86 billion — less than half of the 2021 figure.

Although COVID-19 first spread in China in late 2019, stringent lockdown policies kept the country functioning mostly as normal until stronger strains forced policymakers to adopt a “Dynamic Zero-COVID” policy in 2022 that wreaked havoc on the country’s economy. (Your author first landed in China at the height of the Zero-COVID era in fall 2022 and remembers getting his nose swabbed every day.)

Around this time, local governments poured inordinate amounts of money into COVID testing programs and quarantine hotels, leaving the localities strapped for cash more broadly. The sharp dip in semiconductor investments in 2022 likely reflects across-the-board belt-tightening during that difficult year. This chart only categorizes investors into SME firms as those of (1) the central government (namely the Big Funds run as independent corporations with the Finance Ministry as lead investor), (2) SOEs (including state-owned banks), and (3) private (including all foreign) investors. As a result, the chart cannot isolate investments from local governments to see if the decline was also due to non-COVID-related trends in 2022. However, given the interlocking ownership by local governments and the central government of the largest SOEs, it is likely that the decline in SOE investments from $2.61 billion in 2021 to $0.73 billion in 2022 reflects local governments’ COVID-induced financial constraints.

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It is less likely that the decline in central government investments from $0.65 billion in 2021 to $0.16 billion in 2022 was due to COVID. The only mechanism of central government investment this research identified was the (at the time) two iterations of China’s Big Fund (大基金). As a reminder for newer readers:

• The first phase of the "Big Fund" raised 139 billion yuan ($20 billion) and invested in 23 companies across the chip industry from September 2014 to May 2018. There were 16 shareholders in the first phase of the Big Fund, among which the Ministry of Finance accounted for the largest share at 36.47%. Among projects receiving investment, chip manufacturing accounted for 67%, chip design 17%, packaging and testing 10%, and SMEs/materials 6%.

• The Big Fund’s second phase was established in October 2019, aiming to raise 201 billion yuan ($29 billion). Besides government and SOE contributors, some private companies also joined the round, but the Ministry of Finance still accounted for the largest share at 11.02%. As of March 2022, the second phase fund had announced 79 billion yuan ($11 billion) in investments in 38 companies, with 10% for design, 2.6% for packaging and testing, and 10% for equipment/materials.

Because the Big Fund investments were arranged in advance, it is more likely that the dip in investments in 2022 was coincidental, rather than due to COVID-induced restraint.

Beijing and SOEs Not in Sync

Whenever a communist country releases its 5-year or 10-year plan, Washington takes a collective gasp. These fears assume that countries like China function like centrally controlled monoliths, where policymakers in Beijing can command and control every yuan spent across its vast territory —or at least, every government yuan.

However, the idiom 山高皇帝远 (“mountains are high, and the emperor is far”) tells a different story — it is not easy to centrally manage a country as vast and diverse as China. Government actors like state-owned enterprises (SOEs) and local governments operate with their own parochial interests in mind, and Beijing cannot always afford the political capital required to bring SOEs and local governments in line with national-level industrial policy goals.

If China’s central policymakers in Zhongnanhai (中南海) and the cadres leading SOEs were politically in sync, I hypothesized that investments by the central government into SME firms would be followed by a commensurate bump in investments by SOEs into the same firms.

For each SME company receiving investments from China’s Big Funds (大基金) in 2021, 2022, and 2023, I examined the three-month periods following investments by the Big Funds to search for such a bump in SOE investment interest:

• First, I defined a “Pre-Central Stock Purchase” number as the share of total investments in each calendar year from SOE investors. This number gave me a baseline of how interested SOEs were in each particular SME firm in a given year.

• Second, I defined a “Post-Central Stock Purchase” number as the share of total investments from SOEs in the three months following each company’s receipt of Big Fund investments. This number served to show what the short-term reaction by SOE investors was to demonstrated interest in an SME firm by the central government.

• Lastly, I averaged out the “Pre-” and “Post-” numbers across all SME firms getting Big Fund investments to get each year’s SOE investment baseline and average post-Big Fund SOE investment bump.

The results show that investments by the central government’s Big Fund have no consistent correlation with SOE investment decisions. In 2022, there was a 25% decline in the share of total investments made by SOEs in the three months following Big Fund investments. In 2022, there was an 8% increase in SOE investments. And in 2023, the correlation was again negative at an 11% decline.

This inconsistency bears out on an individual company level, too: Naura (北方华创), for example, saw its SOE investments drop every year following central government investments. Tianshui Huatian (天水华天) saw increases in 2021 and 2022 and a slight decrease in 2023. Meanwhile, Piotech (拓荆科技) saw virtually no change to its SOE investments in any of the three years.

Beyond showing that central government investments do not affirmatively signal to SOEs that they should invest more or less in particular SME firms, these statistics show that central government investments do not signal anything to SOE investors.

An alternative explanation to the inconsistent investments received by companies above could be that the central government does in fact direct SOE investments behind closed doors, but just gives different investment instructions each year. Perhaps the central government is pursuing a deliberate substitution strategy, directing SOEs to invest in firms that haven’t already received central government funds, except in years of extreme financial hardship, like 2022.

If this theory were true, we would see SOEs making investment decisions in lockstep, which is not what the data suggests. To demonstrate investment disunity among SOEs, we look to the example of AMEC (中微公司), which is among the most important SME companies in the Big Fund’s investment portfolio. Out of 11 three-month periods following shifts in the central government’s investment stake in AMEC, SOE investors only responded uniformly (either buying or selling AMEC stock) in four cases — that is, they were aligned only 36% of the time.

(In the graph above, 1 represents all SOEs buying stock in the three month period following a central government investment; 0 represents SOEs selling stock for that time period; and 0.5 represents half of SOEs buying and half selling.)

For SME companies other than AMEC, there is a similar lack of cohesion. It is therefore unlikely that central policymakers were successfully orchestrating any unified strategy for SOE investment.

There appears to be no consistent correlation, positive or negative, between investment decisions by the central government in Beijing and those by the quasi-governmental SOEs spread throughout the country. The mountains are indeed tall, and the emperor is far.

Subsidies: Smaller Than Expected and Falling

Discussions around China’s industrial policy regularly talk about “subsidies” without really knowing what that means. Absolutely, the PRC government has been offering immense support to its domestic chip sector, but how has it offered this support? Through subsidies? Through state equity investments? More importantly, what does the answer to that question mean politically?

I define subsidies as comprising tax credits and direct financial grants that the Chinese central and local governments provide to semiconductor manufacturing equipment (SME) and chip manufacturing companies, while equity investments are purchases of firms’ newly issued stock to help them generate liquidity. Both are forms of industrial policy support for SME and chipmaking companies, but China’s choice between these policy tools suggests different levels of central government coordination about which companies receive help.

At their height in 2021, upstream SME firms received $0.87 billion from PRC government actors in subsidies (tax credits and grants), while they received $3.26 billion from government actors in equity investments. SME subsidies were also less than equity investments throughout the COVID lockdowns, at $0.28 billion and $0.89 billion respectively in 2022. Then, after the pandemic, both policy tools rebounded to $0.50 billion and $1.78 billion in 2023, though they remained well below their 2021 highs.

Another look at the graph above tells a story about how upstream SME firms benefit differently from subsidies than downstream chipmakers. The smaller scale of subsidies to SME firms (in orange) is not surprising, since SME firms are smaller compared to the firms in China’s much more mature chipmaking sector. The PRC SME sector is largely comprised of small (often private) companies, with the two largest among them, AMEC (中微公司) and SMEE (上海微电子), posting operating profits of only under $0.20 billion at their peak in 2022. In contrast, the downstream chipmaking sector boasts giants like SMIC (中芯国际), which posted over $2 billion in profit in that same year.

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Given that tax credits are calculated proportionately to companies’ operating profits, it is no surprise that upstream SMEs would receive a smaller amount of overall subsidies than their downstream counterparts. What is interesting, however, is that upstream subsidies fell precipitously from 2021 to 2022 during the COVID lockdowns, while downstream subsidies fell only slightly. Then, after the pandemic, upstream SME subsidies recovered about half their lost value, while subsidies to downstream chipmakers continued to fall gradually.

At first glance, these trends suggest that SMEs are becoming a larger target of China’s subsidy efforts compared to downstream chipmakers. To confirm this political observation, however, we will need to dive deeper into the relative share of tax credits and grants within the figures for subsidies overall. Tax credits are a relatively apolitical tool once passed because they apply mechanically to any company that satisfies certain statutory requirements, while grants are allocated on a case-by-case basis and thus react quickly to political trends. These questions are explored in the next section.

The Fall of Tax Credits and Revival of Grants

Tax credits and grants are fundamentally different subsidy tools. Governments can exercise maximum discretion with their grant allocations because they are awarded on a case-by-case basis. In addition to the overall grant numbers in the financial disclosures from which I draw my data, many companies also list the individual sources of their grant awards. For example, Naura received a total of 121.7 million RMB in subsidies in 2022, of which 30.2 million RMB came from the Beijing Municipal Party Committee Office Project (北京市委办局项目). When a grant is a relatively small proportion of a company’s total, government entities can withhold it without fearing that the recipient will be utterly destroyed.

In contrast, tax credits are given out mechanically to companies that fit the credits’ qualifications. The central government’s largest tax credit is a 15% income tax deduction for companies designated under the Management Measures for the Recognition of High Tech Enterprises program (高新技术企业认定管理办法). Certainly, it is a political decision by the PRC Ministry of Finance whether to qualify companies for a tax credit (see here for an article I wrote in The Diplomat describing China’s tax credits). But tax credit qualification is a stickier (and thus more financially consequential) decision than individual grant awards, so government actors are more hesitant to use the blunt cudgel of tax credits in reaction to moderate changes in political priorities. Subsidies, rather, are the scalpel best suited for reacting to modest political shifts.

Some interesting trends emerge in the three-year period covered by my analysis. Even though the PRC released ever larger R&D tax credits over the past few years, the amount of tax credits China has provided to the chip sector has fallen since 2021. In part, this could imply that firms’ profits declined over this period, thereby decreasing the size of their tax obligations and thus making tax credits appear less valuable.

However, the graph above demonstrates that operating profits did not decline in 2022 for the companies I studied, contrary to the decline in tax credits. This suggests that a policy shift in 2022 reduced total tax credits, even as the income tax credit stayed stable and the R&D tax credit increased.1

The other trend that becomes apparent is the oscillation of grant numbers (see the first graph in this section). 2022 saw a sharp fall in the value of subsidies apportioned via grants because of COVID-induced financial strain. Since grants can be given or withheld relatively flexibly, there was a sharp decline as soon as local governments reprioritized their resources to pandemic-prevention activities.

In 2023, the value of grants recovered while tax credits continued to fall. Knowing that the PRC chip industry’s operating profits also fell in 2023, the rise of grants that year suggests that government actors are not simply doling out support to profitable companies in their jurisdictions, but rather to companies that are a political priority. This does not mean that local governments’ choice of which chip companies to subsidize overlaps with central government priorities (the second chart in this article about lack of central government-SOE coordination in investment suggests otherwise), but the political prioritization of the chip industry as a whole does seem to withstand the sector’s economic struggles.

Methodology — Equity Investments

I analyzed the following companies for this article on equity investments. The scope of firms selected comprises (1) all of those known to have received investments from either of the first two Big Funds, as well as (2) those with the most advanced domestic technology in China in the following equipment areas: lithography, etching, deposition, implantation, epitaxy, and metrology.

Despite your author’s greatest efforts, I could not collect enough data about the not-publicly listed Shanghai Micro Electronics Equipment (SMEE) to speak confidently about its equity investments; however, subsequent charts about China’s subsidy grants and tax credits will include estimations of how SMEE benefited from those policy tools.

Firms analyzed:

• 中微公司｜Advanced Micro-Fabrication Equipment Inc. China

• 北方华创｜NAURA Technology Group Co., Ltd.

• 拓荆科技｜Piotech Inc.

• 天水华天｜Tianshui Huatian Technology Co.,Ltd.

• 长川科技｜Hangzhou Changchuan Technology Co., Ltd.

• 芯源微｜KINGSEMI Co., Ltd.

• 盛美上海｜ACM Research (Shanghai) , Inc.

• 中科飞测｜Skyverse Technology Co., Ltd.

• 华峰测控｜Beijing Huafeng Test and Control Technology Co., Ltd.

• 华海清科｜Hwatsing Technology Co., Ltd.

• 新益昌｜Shenzhen Xinyichang Technology Co., Ltd.

• 屹唐半导体｜Beijing E-Town Semiconductor Technology Co., Ltd.

• 北京烁科中科信｜Beijing Zhongkexin Electronics Equipment Co., Ltd.

• 凯世通｜Shanghai Kingstone Semiconductor Corp

• 浙江镨芯（万业企业）｜Zhejiang Praseodymium Core Electronic Technology Co., Ltd.

• 至微半导体｜Not certain about English name: Zhiwei Semiconductor

• 沛顿存储｜Payton Technology(Shenzhen) Co., Ltd.

• 东科半导体｜Dongke Semiconductor Wuxi Co., Ltd.

• 精测半导体｜Shanghai Precision Measurement Semiconductor Technology,Inc.

• 睿励科学仪器（上海）有限公司｜Ruili Scientific Instruments (Shanghai) Co., Ltd.

• 东方晶源｜Dongfang Jingyuan Electron Limited

• 合顿科技｜Hefei Payton Storage Technology Co., Ltd.

For public companies on the list, I identified their top ten equity holders (central government, SOEs, and private) per quarter from Wind (万得), a site similar to Bloomberg that aggregates financial data on public companies. I then calculated each investor’s quarterly change in position to determine how many of each company’s stocks changed hands per quarter. Then, I calculated how many new stocks each firm issued per year to determine how much new liquidity these investors provided each firm through their stock purchases. That “new liquidity” is the measure of support via equity investments.

For private companies on the list, I found public reporting on their investing rounds and categorized investors into the same three buckets (central government, SOEs, and private) as for public firms.

Methodology — Subsidies

Getting subsidy data for SME companies posed similar challenges as equity investments in that many of these firms are small and not publicly listed. To that end, I relied on liberal estimation methods.

For upstream public companies, I sourced all my data from publicly available financial reports. For upstream private companies, I tried to find at least one publicly reported statistic in Chinese media, like revenue or operating profit for each company in each year. Then, I estimated all of each company’s other stats by assuming they were proportional with the average ratios from all public companies of the same year. (For example, Shanghai Microelectronics Equipment 上海微电子was not public in 2022, but I found a report of its operating profit, which was 1.2 billion yuan. Therefore, I estimated its "statutory tax obligation" as 1.2 billion/[the average operating profits of public companies in 2022]*[the average statutory tax obligations of public companies in 2022].) This method is not accurate at the individual company level (some estimates even resulted in negative tax credits); however, it results in a reliable estimate in aggregate. More importantly, it provides macro-level insights about China’s SME subsidies that, though imperfect, can help Western government policymakers get a grasp on how much China is spending to catch up in SMEs.

Additionally, it was not enough to look only at SME companies’ financials to get a grasp of China’s countrywide support for these firms because China also subsidizes demand for semiconductor tools when it gives subsidies to the purchasers of these tools, i.e. downstream chipmakers. To that end, I examined downstream companies to estimate the “subsidized demand” for SMEs—i.e., the portion of subsidies received by downstream chipmakers that is used to purchase SMEs. I estimated the subsidized demand for each downstream company as [sum of subsidies]x[capex]/[total expenditures]. I got the underlying numbers for this section similarly as for upstream SME companies, but since most downstream chipmakers are public, I only needed to use media statistics–based estimations for two firms.

Upstream SME companies surveyed:

• Advanced Micro-Fabrication Equipment Inc. China（中微公司）

• Naura（北方华创）

• Yitang Semiconductor（屹唐半导体）

• Piotech Inc.（沈阳拓荆）

• Skyverse Technology Co., Ltd.（中科飞测）

• Shanghai Precision Measurement Semiconductor Technology, Inc.（上海精测半导体技术有限公司）

• Shanghai Microelectronics Equipment（上海微电子）

• Cetc Electronics Equipment Group Co., Ltd.（中电科电子装备集团有限公司）

• Beijing Semicore Electronics Equipment Co., Ltd.（北京烁科中科信电子装备）

• Shanghai Kingstone Semiconductor Corp（上海凯世通半导体股份有限公司）

• RSIC Scientific Instrument (Shanghai) Co., Ltd.（睿励科学仪器（上海）有限公司）

Downstream chipmakers surveyed:

• SMIC（中芯国际）

• Guoxin Micro (紫光国芯)

• AllwinnerTechnology (全志科技)

• Changsha Jingjia Microelectronics (景嘉微)

• Nations Technologies (国民技术)

• Orbit (欧比特) (航宇微)

• Shenzhen Goodix Technology (汇顶科技)

• Datang Telecom Technology (大唐电信)

• Ingenic Semiconductor (北京君正)

• Hangzhou Silan Microelectronics (士兰微)

• Sino Wealth Electronic (中颖电子)

• Qingdao Eastsoft Communication Technology (东软载波)

• GigaDevice Semiconductor (兆易创新)

• Beijing Philisense Technology (飞利信)

• Ninestar (纳思达)

• Shenzhen Kaifa Technology (深科技)

• Hua Hong Semiconductor (华虹半导体)

Can China use military force to achieve its political goals, without triggering nuclear war? To find out, ChinaTalk interviewed Fiona Cunningham, a professor of Political Science at the University of Pennsylvania and author of the new book, Under the Nuclear Shadow: China’s Information-Age Weapons in International Security.

Co-hosting today is Michael Horowitz, Penn professor who served in Biden’s Department of Defense.

We discuss…

• How to use open source PLA documents to conduct deep research,

• The evolution of Chinese defense strategy, including the impact of the third Taiwan Strait crisis,

• Nuclear modernization and China’s “no first use” policy,

• How the PLA makes decisions, including why they chose to develop cyber capabilities, anti-satellite weapons, and hypersonic missiles over proposed alternatives.

Listen now on iTunes, Spotify, or your favorite podcast app.

PLA Sleuthing

Jordan Schneider: Fiona, why are PLA studies cool and important?

Fiona Cunningham: One of the biggest issues of the day is the prospects for conflict between the United States and China. How would such a conflict unfold if it were to occur? What can both sides do to improve their chances of not only succeeding in a conflict but preventing it from taking place? US allies, countries in the region, and stakeholders worldwide want to understand these dynamics.

The PLA is also an important domestic actor in China. It plays a big role in the party’s history and serves as the ultimate backstop that keeps the Chinese Communist Party in power because it is the armed wing of the Communist Party — not a state military. This arrangement would be similar to if the Republican Party or the Democratic Party in the United States had exclusive control of the US Military.

For these reasons, we need to understand everything possible about how the PLA operates, its weapons procurement, war planning processes, and its assessment of US and other countries’ actions.

Mike Horowitz: From a US national defense perspective, this is the most important part of the most important country in the world.

Fiona Cunningham: Mike says it better than I do.

Mike Horowitz: Not better, just shorter.

Jordan Schneider: There are obvious epistemic challenges when studying an adversary communist system’s military, particularly using open-source materials. Nevertheless, you wrote 300 detailed pages with over 200 interviews and an enormous amount of documents about Chinese domestic debate and doctrinal evolution regarding nuclear war — how to prevent and avoid it. When people say, “How can you ever know anything about the PLA?” what’s your retort besides waving your book in their face?

Fiona Cunningham: Most militaries, including the PLA, must communicate internally. They teach their students and share information within the organization. At least ten years ago, you could walk into certain bookstores in China and find books with ISBNs that revealed what the PLA was researching and teaching its students about almost every aspect of warfare, not just the areas I researched for my book.

Paradoxically, with nuclear deterrence and other capabilities China uses for deterrence, they need to communicate certain aspects of these capabilities. The objective is to avoid using them while using the threat of their use to shape adversaries’ behavior. You must disclose certain information about your capabilities, usage plans, and force organization to make those threats credible. Otherwise, you won’t get the deterrent value from the resources spent to develop them.

I acknowledge there are certain gaps that open-source researchers like me can never fill. What’s in China’s actual war plans? What are the exact specifications of their weapon systems? What are the precise details of certain PLA organizations?

There are also fundamentally unknowable elements: what was in Chinese decision-makers’ minds when they made certain choices? What choices will they make in a crisis over Taiwan? How will the plans I tried to understand through doctrinal debates actually function during wartime? Some things you can know, some things you can learn from open sources, and some things remain unknowable even with the best intelligence.

Jordan Schneider: Mike, would you like to add to that?

Mike Horowitz: This is tremendously challenging research. From a research design perspective, you face enormous uncertainty about China’s military. There’s a premium on gathering as much information as possible, especially given the challenges involved in obtaining that information.

There’s a justified premium placed on those talented scholars who, despite all constraints, can find primary source documents and information. Even if incomplete, even if different from what you would get researching the UK’s or US military, you can still gather enough information to make substantive inferences about how China’s military might behave.

Jordan Schneider: The PLA does have to talk to itself, but it doesn’t necessarily have to talk to Fiona Cunningham.

Mike Horowitz: It certainly doesn’t talk to me. Actually, I was at a conference right after I left the administration and saw somebody from China, which was probably the first time I’d seen somebody from China in years due to COVID and then being in the Defense Department. The person approached me, and I said, “Hi, it’s nice to meet you. My name is Michael Horowitz.” They replied, “Hi, I know who you are. We read all of your things.” I thought, “Well, that’s scary,” and wanted to back slowly away, much like the Homer Simpson meme.

Fiona Cunningham: Michael speaks the truth. I remember picking up a set of journals in one of the university libraries while looking through recent PLA research. There were many articles on lethal autonomous weapons and military AI applications. Many contained English language footnotes citing Michael Horowitz in the Texas National Security Review. I realized I had colleagues influencing how the PLA thinks about important questions at the cutting edge of warfare. They don’t cite me, though.

Jordan Schneider: Let’s stay on that topic. It’s fair to say that Chinese defense analysts constitute a much larger industry studying America than Western defense analysts studying China. Thoughts on that?

Fiona Cunningham: Several factors contribute to this imbalance. First, the US military is recognized by the PLA and most militaries worldwide as the premier fighting force. If you’re trying to learn from the best, you’ll dedicate a lot of resources to studying what makes the US military so effective, including how America leverages its technological and other advantages.

For China, the US is not just a potential opponent in their most important conflict scenario but also the model of military excellence. They have two compelling reasons to study the United States. Michael can probably elaborate, but I believe the United States learns less from China as an example of how to do things differently and is more interested in studying the PLA to understand how one of its two most serious potential opponents might fight in the future.

Mike Horowitz: That’s certainly correct, but the US does spend enormous time and resources studying everything we can possibly find about China’s military, though from a different perspective than learning lessons.

One challenge is that China hasn’t fought a war since the late 1970s. If we’re considering what lessons the US would learn from China in a military sense, these wouldn’t be battlefield lessons since there’s no recent battlefield data. The lessons would instead concern capability development, acquisition approaches, or force structure concepts — if you could access their doctrinal manuals.

This differs from how the world is currently studying Russia and Ukraine, intensely examining everything about battlefield lessons and what they mean for the future of warfare. The US is trying to glean everything possible about China’s military, but it’s learning lessons in a fundamentally different way.

Fiona Cunningham: The language barrier is also significant. In China, most people learn English from elementary school, making it a very common second language. This removes a major barrier for Chinese analysts studying the US military.

In the United States, or my native Australia, studying Chinese isn’t everyone’s first choice for a second language because of its difficulty. There are fewer college or high school students learning Chinese now than 10-15 years ago, as the incentives have shifted from business to national security.

Beyond language, there’s the issue of available materials. The United States publishes extensive open-source information about its military thinking. There are types of materials I would love to see in Chinese about the PLA that simply aren’t available, while equivalent US materials are accessible to Chinese researchers. I’d particularly value joint publications that would give me confidence that the doctrinal debates and materials I’ve studied accurately reflect actual PLA planning.

Jordan Schneider: Let’s start with the period from the 1960s to 1984 very briefly. China experienced the Sino-Soviet split, fought some border conflicts with the Soviet Union, and nearly engaged in nuclear war. That remained the main focus for a long time — defense in depth, learning from the Soviets.

Fast forward to 1984, when Deng realized Gorbachev was serious and wouldn’t invade China anytime soon. They could reprioritize defense relative to other national priorities. Take us from there through the period when global nuclear disarmament was being considered, up to 1995-1996.

Fiona Cunningham: This is a fascinating period for Chinese defense strategy, particularly regarding nuclear weapons’ role in China’s national defense.

Starting in the mid-1980s, China downgraded the possibility of fighting a major war against one of the superpowers. This coincided with China’s economic opening and reform gathering momentum, prompting the government to redirect resources from national defense to economic development.

China also reassessed what conflicts it might face. Prior to 1988, they prepared for general war with a superpower potentially invading China. After 1988, they shifted focus to “local wars” related to territorial disputes on China’s periphery. Taiwan was only one of several potential conflicts, with uncertainty about whether the US would become involved.

Two interesting developments emerged during this period. First, China debated the role of nuclear weapons in local wars. In conventional invasions, the role of nuclear weapons seemed clearer, even though China didn’t plan to use them first to deter conventional attacks. But their utility in local conflicts was less obvious.

Harvard professor Alastair Iain Johnston wrote a landmark article about the concept of “limited nuclear deterrence,” which was being debated within the PLA in the late 1980s through the 1990s. This concept involved acquiring tactical nuclear weapons to create more options on the escalation ladder during conventional conflicts.

Since Johnston’s influential article, more sources have become available, revealing another perspective in China’s nuclear strategy debate — waiting to see what the Soviets and Americans would do, as global nuclear disarmament might make additional nuclear investments unnecessary. By 1992, China’s leaders concluded they still needed nuclear weapons because the US and Soviets wouldn’t eliminate theirs completely, but China didn’t require large numbers.

Another interesting development arose from financial pressures on China’s military, which turned to exports to sustain its defense industrial base. They developed conventional short-range ballistic missiles intended for Middle Eastern markets. When the US pressured China not to export these weapons, China’s previously nuclear-only missile forces saw an opportunity to find a role in local wars by using short-range ballistic missiles to threaten Taiwan. This was the contingent origin of China’s conventional missile force, which presents a big challenge for the US and its allies today.

Jordan Schneider: Qian Xuesen 钱学森, who most listeners will be familiar with, deserves a mention here. He was forced out of America during the McCarthy era and became the father of China’s missile program. He remained skeptical in the 80s. You have a great quote where he warned that reports heralding a “post-nuclear era” were “deceiving people and they are all false.” The man still wasn’t buying into the new world order decades after seeing the West for what he believed it really was.

Another thing worth emphasizing is the level of military downsizing during this period. They shed almost a million people from the PLA — a dramatic reorientation for any military.

Fiona Cunningham: I don’t cover this in tremendous detail in my book because others have examined it thoroughly, but China’s conventional military modernization accelerated after the Gulf War, when China developed a clearer understanding of what they would need to do.

Mike Horowitz: They observed what the US accomplished.

Fiona Cunningham: Exactly — they saw what the US did and realized that to fight future conventional wars, they needed to develop similar capabilities. This became a decades-long project for the PLA. The decision to change conventional military strategy to enable China to fight “local wars under high-technology conditions” — their strategic guideline — was inspired by watching US operations rather than perceiving a direct threat from the United States. Taylor Fravel’s book Active Defense does an excellent job of explaining that decision. It was a very influential book while I was writing my dissertation.

Jordan Schneider: Mike, can you give us the 101 on why the 1991 Gulf War was so mind-blowing to so many people?

Mike Horowitz: The 1991 Gulf War blew everyone’s mind because it revealed the “second offset” on the public stage. All those developments in stealth technology, precision strike, and advanced weapons — things we take for granted today — made their dramatic debut.

I was in middle school when that war happened and remember seeing images of precision strikes on green-screen displays — missiles hitting specific buildings in Iraq. It seemed like magic, the ability of the US military to strike targets so precisely. This capability shocked the rest of the world.

The Soviets, who were becoming Russians at that point, understood the concept but had been unable to execute it. This was fundamentally different from how people thought wars would happen toward the end of the Cold War. It demonstrated sheer technological superiority by the United States and served as a wake-up call to the PLA.

Jordan Schneider: It’s also important to mention that the US even surprised itself with its effectiveness. There were advanced projections about the casualties required to conquer Iraq. The Senate, when Congress was debating whether to authorize war, anticipated 50,000 American casualties. It turned out to be only in the three or four figures.

Mike Horowitz: You’re referring to 2003. I’m talking about 1990-91. However, in both invasions, the projected dangers to US soldiers were dramatically overestimated. In retrospect, much of that was due to operational art (force employment and the effective use of military power) and how much the American military excelled. But equally critical were defense technology breakthroughs and the ability of the American military to integrate them in ways that shocked the rest of the world.

Jordan Schneider: China realized they needed a new playbook, understanding it would be a decades-long effort to approach the capabilities of the world’s superpower in the early 90s. Fiona, take us to the 1995-96 Taiwan Strait Crisis. What triggered it, and how did it affect China’s conception of what it needed to be nationally secure?

Fiona Cunningham: The Taiwan Strait Crisis had two peaks. The first occurred in mid-1995, with another flare-up in early 1996. The initial trigger was the United States issuing a visa to Taiwan’s first democratically elected president, Lee Teng-hui, whom China viewed as agitating for independence. China saw this visa as representing American support creeping toward Taiwanese independence.

The second peak came in March 1996 when President Lee sought re-election. China attempted to influence the outcome of that election. On both occasions, China conducted military exercises across and around Taiwan, including launching some of the short-range ballistic missiles they had fortuitously acquired earlier.

Mike Horowitz: “Fortuitously acquired” sounds like a euphemism for China beginning a military buildup after the Cold War.

Fiona Cunningham: They “fortuitously acquired” these capabilities because China’s defense industry had been instructed to generate revenue. When the US blocked the export of these weapons, they became available for domestic use.

There’s an interesting sequence of events in the late 1980s. The rocket force, which at that time only operated nuclear weapons, was called into meetings with China’s leaders who asked, “What role will you play in a local war?” They responded, “We have a great idea — we’ll be armed with conventional missiles.” They put forward this proposal in the late 80s largely for organizational survival purposes. They needed a way to remain relevant in a changed environment where most of China’s potential conflicts wouldn’t involve nuclear weapons. This demonstrates classic organizational incentives for military branches to seek new roles when the threat environment changes.

Between the exercises in 1995 following Lee’s Cornell visit and those in 1996 aimed at influencing Taiwan’s presidential election, China began its five-year defense plan. In this plan, conventional missiles and what they called “Shāshǒujiǎn” 杀手锏 (Assassin’s Mace, “trump card”) weapons, primarily missile systems, received prominent attention.

A series of leadership meetings occurred from late 1995 onward after the first set of exercises. From these meetings, we can surmise that China’s leaders began to see what the rocket force had recognized in the early 1990s — these missiles could be powerful tools for intimidating adversaries and addressing a new strategic reality. If another Taiwan Strait crisis occurred — as it did in 1996 — China wouldn’t have Gulf War-equivalent conventional military capabilities to counter the United States. This would make it much more difficult for China to use force if they felt their red lines regarding Taiwan were crossed.

These missiles provided coercive leverage — a way to threaten escalation against a powerful nuclear and conventional adversary when China had few other options. Interestingly, China’s leaders determined that threatening nuclear first use, the other obvious option, was unacceptable to them.

Jordan Schneider: Let’s stay on that topic. What is the “no first use” policy? Where does it come from? How does it constrain Chinese doctrinal thinking?

Fiona Cunningham: I’ll make my best case for why I believe it operates as a constraint on the PRC even today, five or six years into a nuclear buildup.

The “no first use” policy originated in a statement accompanying China’s first nuclear weapons test in 1964, where China pledged it would not be the first to use nuclear weapons. They stated they would only use nuclear weapons if first attacked with nuclear weapons by another country. This policy converted Mao’s views about nuclear weapons into a formal stance that later became the strategy given to the Second Artillery (China’s missile forces) when they began formulating how to implement China’s nuclear weapons strategy almost a decade later.

Before 1964, many statements from Mao and other Chinese leaders indicated they needed conventional weapons for conventional conflicts and nuclear weapons to deter nuclear weapons use. Several reasons explain why China adopted this policy during the Cold War. It differentiated China from the nuclear superpowers, perhaps making its nuclear weapons less of a challenge to the Soviet Union and the United States. It also related to China’s geography — they didn’t need nuclear first use against a conventional invasion because China’s size would exhaust any invader. China could survive a conventional conflict, but a nuclear conflict presented a different scenario.

It’s worth noting that China’s nuclear policy isn’t just a military matter — it’s a civilian policy given to the military by top leaders. Military leaders cannot change China’s “no first use” policy. Because it originated with Mao and Deng, it became orthodoxy that’s difficult for even civilian leaders to change.

Looking at available doctrinal materials — though unfortunately we lack probative information for the last two decades — it’s clear the “no first use” policy constrains how China plans to use its nuclear weapons. However, there have been debates about changing it or placing conditions on it, and questions remain within China about whether other countries see it as credible.

Mike Horowitz: All that can be true. You’ve persuaded me that China’s military believes it is constrained by the “no first use” policy and that civilians must make those changes. In a crisis, depending on the stakes — particularly if Xi thought regime survival was at risk — there could be incentives for China to strike first with nuclear weapons. The question is, to what extent would the “no first use” policy constrain China’s military in a conflict where the civilians who can make policy changes are actively engaged?

Fiona Cunningham: Several points are worth noting. First, if you plan to use your capabilities in accordance with a policy like “no first use,” your ability as a rocket force to develop operations involving first-use options becomes constrained. That doesn’t mean it’s impossible, but...

Mike Horowitz: It’s not as simple as just saying “launch the missile."

Fiona Cunningham: Exactly. It would mean launching the missile outside established protocols or training. It’s possible, but would represent a big departure from doctrine.

In my book, I detail an intense debate over adding conditions to China’s “no first use” policy in the early 2000s. These debates are fascinating because we see writing in leaked Chinese missile force teaching materials discussing lowering the nuclear threshold and nuclear deterrence signaling operations. What they don’t include, however, is a nuclear first-use campaign that would follow if an adversary didn’t back down after these signals.

Mike Horowitz: That’s interesting.

Fiona Cunningham: I found a dissertation written by a missile force officer — now I believe a deputy base commander — who essentially asks what a first-use campaign would actually look like. One option he discusses is detonating a nuclear weapon in space if a conflict over Taiwan isn’t going well. Interestingly, China subsequently developed non-nuclear anti-satellite weapons.

However, official materials produced by the Second Artillery don’t describe what warning shots or nuclear first-use actions would follow these threats. We lack visibility into current debates, though other scholars have found evidence of the Rocket Force now exercising for “launch on warning.” In my decade of interviews in China about nuclear strategy issues, I noticed a change in tone between 2014 and 2016, with some experts beginning to question whether launch on warning violates a “no first use” policy.

Jordan Schneider: What is “launch on warning,” Fiona?

Fiona Cunningham: In its simplest form, launch on warning means launching once you receive warning that your adversary has launched nuclear weapons toward you. Rather than waiting until those weapons detonate on your territory, you choose to launch your nuclear weapons during the period between your adversary’s launch and the detonation on your territory.

Mike Horowitz: Can we discuss this in relation to China’s current nuclear modernization? What you’ve described presents a paradox. Launch on warning is generally considered when you’re worried about your nuclear forces being decapitated — when an enemy’s first strike might destroy your ability to retaliate. If you have secure second-strike capabilities, you can absorb a strike and still respond. Since China has been rapidly modernizing its nuclear arsenal, that should make them more secure rather than less. Why would the PLA be thinking more about launch on warning now as their nuclear capabilities become more sophisticated?

Fiona Cunningham: It depends on which capabilities deliver your secure second strike. If you rely on road-mobile land-based missiles or submarine-based ballistic missiles — nuclear missiles mounted on trucks driving around China’s vast territory, perhaps hiding in caves — you’re depending on mobility and concealment to avoid detection by adversary satellites.

If, instead, your path to survivability is through having systems that are easier for adversaries to locate, the mindset about securing a second strike differs. If your plan involves many fixed silo-based missiles that your adversary can see, you’re relying on the fact that they can’t destroy all of them due to their quantity. However, those silos contribute little to second-strike capability unless you plan to launch the missiles before enemy weapons hit them.

The launch-on-warning approach relates partly to which capabilities comprise your secure second strike, but also concerns deterrence immediacy. Consider the effectiveness of deterrence if you wait weeks to pull road-mobile missiles from caves before retaliating against Washington, D.C.

Mike Horowitz: You maintain a hair-trigger posture to increase the credibility of your threat from a signaling perspective and increase the probability of successful deterrence.

Fiona Cunningham: What surprised me in post-book interviews about China’s nuclear modernization is that Chinese experts now acknowledge the US’s improved capabilities to detect road-mobile missiles. Examining the sensors the United States plans to deploy in space, Chinese strategists reasonably worry that the US will better locate capabilities they previously considered secure and survivable.

Jordan Schneider: America had approximately 20,000 nuclear weapons toward the Cold War’s end. Many have been decommissioned, but we still maintain high four-figure numbers. China started with double-digit quantities and is now approaching an arsenal of 400-500. This presents a challenge when you lack nuclear submarines, bombers, and ICBMs to ensure national destruction capability. The concept of playing three-card monte with tens of millions of lives by driving missile trucks around rural China is simultaneously absurd and terrifying.

Mike Horowitz: Road-mobile weapons are extremely difficult to detect. This explains why every country that has faced the United States since the beginning of the Cold War — whether Iraq during the Gulf War, the Soviets, China, or potentially North Korea — has considered mobility as a solution to overwhelming American firepower.

Fiona Cunningham: Such an approach wouldn’t work in the American hinterland, but China presents a different scenario.

Mike Horowitz: The regulatory environment in the US would make that impossible.

Jordan Schneider: Perhaps this could become our trucking industry’s future. Once autonomous vehicles replace truckers, the only humans on the road might be those randomizing their drives around Nebraska.

Fiona, let’s close the loop on Chinese nuclear military modernization.

Fiona Cunningham: My book examines how nations pressure adversaries in conventional wars by threatening escalation. There’s considerable discussion about whether China’s nuclear modernization aims to create this option with its nuclear forces, especially as it develops more theater-range precision options — capabilities approaching what would be needed for credible nuclear first-use threats.

However, my conclusion is that China hasn’t necessarily decided that its nuclear modernization will replace non-nuclear capabilities as its primary source of coercive leverage in conventional conflicts. I see the drivers of China’s nuclear modernization as primarily about achieving a more robust second strike against the United States.

There’s also a political leverage component — China wants enhanced capabilities because they believe this will make the United States behave more prudently. This doesn’t necessarily involve precise calculations about nuclear exchanges or specific force posture changes to enable credible nuclear first-use threats.

My recent interviews in China suggest a psychological and political leverage rationale for modernization that doesn’t necessarily translate to posture changes that make first use more feasible or improving China’s position in a nuclear exchange. Different schools of thought within China point to different modernization rationales, but first use doesn’t clearly emerge as one of them.

Jordan Schneider: The idea that it’s worth investing to ensure nobody in the Pentagon believes they could execute a first strike on China without America suffering consequences seems reasonable. If I were a captain in the Rocket Force, I’d consider that a worthy investment. But how far that extends and what it means from a readiness perspective remains one of those “unknown unknowns” we discussed earlier.

Mike Horowitz: This might transition us to discussing conventional capabilities. What’s remarkable about China’s military development over the last decade is that they’ve rapidly modernized in every area. There was a time when we could say, “China is prioritizing this capability over that one.” Fiona’s book brilliantly discusses this earlier period when China was making some of those choices, particularly regarding conventional missiles. Now, however, the story of the last decade is essentially “everything everywhere all at once” from a Chinese military modernization perspective.

Modernizing Warfare

Jordan Schneider: I love how your book opens in the early 90s, when China essentially said, “We don’t have computers, so we’re resilient to cyber attacks.” Then we witness the informatization of warfare and doctrinal development regarding offensive cyber capabilities to threaten targets when nuclear warfare threats aren’t credible.

Fiona, give us a brief history of cyber weapons in China. How has the PLA’s thinking about their utility evolved?

Fiona Cunningham: The major turning point for offensive cyber capabilities in China — capabilities they considered using for coercion — came after the 1999 US accidental bombing of China’s embassy in Belgrade. From China’s perspective, this incident was anything but accidental. There’s a notable quote from Jiang Zemin where he basically says, “I’m really indignant. This is not a trivial event. This is a big deal, and the Chinese people cannot be bullied."

Jordan Schneider: This presents an irony, right? In 1991, everyone marveled, “These Americans can hit a window from 3,000 miles away.” Then, suddenly, we accidentally bombed the Chinese embassy. Where do you stand on the conspiracy theories about this incident, Fiona?

Fiona Cunningham: My perspective is that even the best organizations can make mistakes, including the US military. I think China’s reasoning was, “This is a highly advanced military — we don’t believe they could have made such a mistake.” Additionally, once a top leader decides something wasn’t a mistake, that becomes the official position, even if contrary evidence emerges later. It becomes difficult to undo those narratives.

Following the Belgrade embassy bombing, a series of meetings took place where Jiang Zemin instructed China’s military leaders to develop capabilities addressing their leverage deficit — something that would make future conflicts, particularly across the Taiwan Strait, too dangerous and risky for US involvement. They concluded their plan to build a massive conventional missile force wouldn’t be sufficient.

Offensive cyber operations emerged as a promising capability, partly because China’s military studied the Kosovo air war and observed Serbian militias defacing NATO web pages — not particularly sophisticated cyber activities, but they recognized how quickly and inexpensively one could create problems for a more advanced military and society.

China’s awareness of cyber operations dates back to the Gulf War, when they began studying what they called “computer virus weapons” and noticed US interest in these capabilities. However, they didn’t actively pursue this option until after the Belgrade embassy bombing. Subsequently, they allowed “a thousand flowers to bloom” (百花齊放), with everyone of significance in the PLA entering the cyber arena. This resulted in capability development on both offensive and espionage fronts, but it lacked coordination and organization.

This disorganization became problematic for China’s leaders around 2010. They observed other countries using cyber operations for military effects that demonstrated the potential they had recognized. Simultaneously, China was becoming increasingly dependent on information networks for military, social, and economic functions. Seeing these cyber domain developments, they instructed their military to adjust their plans and organization for offensive cyber operations, acknowledging that they would be “throwing stones from a glass house.”

Jordan Schneider: What happens next?

Fiona Cunningham: A process of changing China’s cyber doctrine began around 2012. The PLA held many meetings to evaluate its progress and future direction. These discussions produced revealing statements, such as “We’ve made significant progress in capabilities, but everyone is fighting their own war, so we lack coordination.” Another noteworthy comment was: “If we aren’t careful with how we plan and execute these operations, we’ll harm the national interest — yet we still want to use them for leverage purposes."

Over approximately two years, China’s PLA developed approaches to modify their cyber doctrine. Around 2014, Xi Jinping particularly pressured the PLA to reorganize. This coincided with the US indicting several PLA officers for industrial espionage. The following year, China released a white paper acknowledging their cyber defense capabilities for the first time, though they still refused to publicly admit possessing offensive capabilities.

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At the end of 2015, China established a new organization called the Strategic Support Force, which consolidated all the disparate elements of the PLA’s cyber enterprise into a single entity. The success of this consolidation remains unclear — in fact, China disbanded the Strategic Support Force just as I was completing my manuscript.

Jordan Schneider: Toward the end of this first period, the Obama administration attempted to engage Xi and establish norms about appropriate cyber activities. How does this international dimension interact with the Chinese government’s directives to its ambiguously organized cyber force?

Fiona Cunningham: One fascinating aspect of China’s cyber capabilities is that for most capabilities with direct strategic effects on adversary decision-makers, China’s top leaders never delegate authority to lower-level PLA commanders regarding their use. The only area where some de facto delegation occurred was in the cyber arena before the 2014-15 changes I outlined.

The activities the Obama administration complained about — PLA members hacking US corporations to obtain proprietary information for commercial advantage — appeared to occur without China’s top leaders’ authorization or oversight. The international pressure reinforced China’s trend toward consolidating their cyber forces and subjecting them to tighter oversight and command and control from the top. In some ways, the Obama administration was pushing on an open door.

For industrial espionage that supported China’s national priorities in certain sectors, the activities continued but shifted to non-PLA actors, while the PLA focused on military missions. The administration was pushing on an open door in seeing some activity decline. If you examine the timelines, major decreases in PLA cyber activity tracked by organizations like FireEye (a private cybersecurity company) coincided with Central Military Commission meetings deciding on major military reform packages.

It’s difficult to disentangle whether US threats of sanctions over cyber espionage or broader PLA reorganization trends were more influential. However, this suggests US pressure alone didn’t cause China to change its behavior.

Jordan Schneider: We’ve witnessed many high-profile actions by the Chinese government over the past decade-plus, but we haven’t seen something comparable to Stuxnet, Russian cyber attacks on Ukraine’s power grid in 2024, or the Viasat attack in 2022 — incidents where actors not only penetrated critical infrastructure but actively attempted to disrupt operations. Fiona, is this simply because China hasn’t engaged in a major war, hasn’t faced something as pressing as Iranian nuclear capabilities, or is there a broader hesitance to cause damage rather than just steal information, conduct espionage, and prepare groundwork for potential future conflicts?

Fiona Cunningham: The PLA is certainly willing to lay groundwork for disruptive operations. In late 2023, reports emerged about the Volt Typhoon intrusions, where Chinese actors — though public attribution to specific PLA units is limited — penetrated adversary critical infrastructure. This aligns perfectly with their doctrine of infiltrating an adversary’s critical infrastructure to pressure them in peacetime, crisis, or conflict — shaping their behavior through fear of system disruption.

What China hasn’t done, however, is demonstrate that if they wanted to “hit send” on these capabilities, they could effectively disrupt an adversary’s critical infrastructure. I wish I had an interview where someone explicitly explained their reasoning, but these questions are extremely difficult to raise within China. Even if you could ask, individuals might not know the answers.

This remains a puzzle, even in US analysis — why hasn’t China conducted a major public demonstration proving they can cause disruption in ways that would concern adversaries in future conflicts? The reasons likely align with China’s desire to control these capabilities very carefully to avoid blowback. Nevertheless, countries typically want to demonstrate their capabilities, especially with something as uncertain as offensive cyber operations.

Mike Horowitz: Shout out to the names that people give to things. In the official US Government release on Volt Typhoon, they also called that group Vanguard Panda, Bronze Silhouette, and Insidious Taurus, which is unbelievable.

Jordan Schneider: Are these American code names, or do the groups call themselves like Golden Panda?

Fiona Cunningham: I don’t know.

Mike Horowitz: It’s like “AKA Vanguard Panda, Bronze Silhouette.” There are a couple other names that are less funny, like “Dev-0391.”

It’s less puzzling to me why China hasn’t tried to break things. I view what China is doing in this context as building the capacity to break things. The demonstration that they are in US and other countries’ networks is a signal of capabilities, since the actual use of cyber tools to break things is pretty rare. Stuxnet is the overcited one-off in a way, and relied on a lot of very specific factors.

China demonstrated that it was deep in energy infrastructure and water infrastructure at the state level across the United States, which certainly illustrates the capacity to destroy — especially because of the way they gained access through routers, VPNs, and many common electronic devices that lots of critical infrastructure facilities and Americans have.

This points to one of the issues surrounding cyber capabilities in general and relates to what we discussed last time, Jordan, in the context of offensive cyber strikes in a world of advancing AI. There’s sometimes a tendency to think about offensive cyber as this magic thing you can press “go” on, when in reality, because the accesses are so limited and once you use them they can disappear, the incentive structure even for very competent offensive actors like China is often to hold back on breaking things. The more you use these capabilities, the more it becomes all hands on deck to completely knock you out.

I have no doubt that even in the aftermath of the Volt Typhoon revelation, China has other access points that we don’t know about. From a parochial American perspective, that’s incredibly dangerous. The questions become: under what circumstances would China try to activate that, and what would the impact be? There’s uncertainty surrounding both of those things.

Fiona Cunningham: That uncertainty is one of the reasons why it makes the threat to use them credible. It may be a total fizzle and a flop, but it might also be really bad.

Mike Horowitz: I agree completely.

Fiona Cunningham: What’s interesting to me is that China’s behavior with Volt Typhoon runs contrary to a lot of US academic discussions about the utility of cyber operations over the last five to eight years. It does raise these questions about strategy. US Cyber Command has been saying the real strategic value of cyber operations lies in the “death by a thousand cuts” under the threshold of armed conflict. But the PLA looks like it’s preparing for this “cyber Pearl Harbor” scenario.

Do you actually get the leverage that China thinks it will get from preparing for something the US has said it doesn’t really see as being that big of a problem?

Mike Horowitz: It depends on what they can actually do. Consider some of the things that Russia has allegedly done and how they’ve disrupted Americans. Part of this depends on what the goals are.

There’s “death by a thousand cuts,” where cyber is an enabler to other kinds of operations. This might say something about some of the academic literature on cyber, but we don’t need to discuss that now.

There’s also cyber as a disruption and illustration of possibilities for cost imposition, precisely because there’s uncertainty. It might fizzle, but it might be really important. The theory would be that if you could create a little disruption to the lives of average Americans during, say, a Taiwan crisis, it would bring the costs home in a different way.

The question becomes, how much disruption, and what would be the ultimate impact? If what you’re trying to do is influence American behavior — perhaps more so than affecting US military capacity in the Indo-Pacific — and you’re trying to influence public attitudes and perceptions, no one really knows how that would go, including us and including them.

Jordan Schneider: That’s a key factor with a lot of this. I like your framework of brinkmanship — what are we doing with our force posture? Are we engaging in brinkmanship? Are we doing calibrated escalation? Or are we actually preparing to fight a war?

The problem is that the more forward you are with these capabilities, the more likely you are to get America to take it seriously. When China starts taking cyber seriously, as we see with Volt Typhoon, that leads to more awareness, investments, and local water plant owners updating their systems.

The same applies in the Taiwan context. Do you really think that turning off the lights in Texas is going to turn out better for Beijing? This is almost like Japan’s 1941 logic — “They’ll really want to make peace with us after we bomb Pearl Harbor."

It could go both ways, depending on how focused you are, what timelines you’re working with, and how “feminized” you think America is — to use Putin’s term, not mine. These factors impact the way you’re going to think about what you show and what you don’t do on the world stage, which makes this all very tricky.

Mike Horowitz: Just to be clear, countries have made that mistake about the United States forever. Saddam Hussein made similar assumptions. Bin Laden did as well. Foreign powers often forget that the US can be relentless. When someone attacks the US hard, we respond with full force and persistence.

Arguably, those who understand that we’re somewhat unpredictable might find that beneficial for deterrence in the classical sense. I’m curious about Fiona’s thoughts on how China perceives us in this context. I encountered this topic frequently in defense conversations over recent years. Does China assume that if they attack the US, we’ll respond with everything we have? Or do they believe they could cause enough pain that the US would back down?

Fiona Cunningham: Three factors likely matter — timing, stakes, and nuclear weapons.

Regarding timing, if you strike the US hard during an active conflict, the consequences would be severe because the United States would be fully committed. However, if that threat exists before or during a crisis, it might encourage caution and prudence. China’s strategic deterrence approach encompasses wartime planning but is also designed to influence US behavior during peacetime.

From China’s perspective, there’s an imbalance in what’s at stake. Though not explicitly stated in much of the literature I’ve studied, Taiwan represents an immediate, tangible interest deeply connected to the Communist Party’s sense of mission and legitimacy. While China can tolerate the current situation of de facto separation as it has for years, for the United States, Taiwan is an island without a formal treaty alliance, far from the US homeland, and not essential to America’s territorial integrity. The outcome of any Taiwan conflict would matter more to China. The US can have strong interests too, but they’re more diffuse and indirect, whereas China’s interests are specific and direct — Taiwan represents unfinished business from the Chinese Civil War rather than America’s global position and alliance structure.

Finally, nobody wants to fight a nuclear war. Many of China’s information-age weapons — non-nuclear weapons with strategic effects — are designed to push the US to the threshold of nuclear weapons use and then call its bluff. The open question remains whether America’s seemingly unpredictable nature extends to nuclear weapons use. That’s the million-dollar question.

Jordan Schneider: Another point supporting that perspective is that we’ve now seen two consecutive presidents take Putin’s nuclear threats seriously, even though those threats were less credible and not directly aligned with major US strategic interests. This clearly impacted Biden’s calculations. With Trump, throughout his campaign and in his meeting with Zelensky, he repeatedly warned, “You’re flirting with World War III.” It’s one thing to exhibit Jacksonian intensity when fighting overseas wars, but it’s entirely different when you genuinely fear that Los Angeles could be destroyed.

Mike Horowitz: There’s something interesting about how presidents conceptualize nuclear war and risk. Looking at Trump’s public comments, they suggest he might be even more concerned about nuclear risk than some other presidents. While every president since Truman has worried about nuclear war, Trump seems particularly focused on the dangers of nuclear escalation.

Jordan Schneider: It will be interesting when we eventually see a generational change — a president who didn’t grow up during the 60s, 70s, and 80s when nuclear concerns were front and center. But returning to the PLA — Fiona, let’s discuss counter-space capabilities. We’ve witnessed several interesting and explicit demonstrations of these capabilities from China in recent years.

Fiona Cunningham: I should share a personal anecdote — one reason I became interested in writing this book was China’s anti-satellite weapons test in 2007, when they destroyed an aging weather satellite with a conventional missile. I was in college at the time and remember seeing it on the front page of the Sydney Morning Herald, wondering what it meant. The book actually opens with this ASAT weapons test, perhaps for that unwritten reason.

China pursued counter-space weapons capability for coercive purposes — to exert pressure during a potential conventional conflict with the US over Taiwan, particularly after the Belgrade embassy bombing. This decision was difficult to pinpoint precisely, but based on Jiang Zemin’s speeches, it was likely made between late 2000 and late 2002.

China recognized that anti-satellite weapons could disrupt an adversary’s space capabilities and impede the US military’s long-term objective of achieving space control. They developed a range of counter-space capabilities, including lasers that could dazzle optical sensors on US satellites. In fact, they dazzled a US National Reconnaissance Office satellite around 2005, then tested the missile that destroyed a satellite and created substantial debris, generating international criticism.

Their goal was to develop various weapons that could attack US satellites in orbit and disrupt data transmission between those satellites and Earth. These range from non-kinetic reversible effects, such as lasers and electronic warfare jamming, to irreversible effects like completely destroying satellites. More recently, China has developed co-orbital capabilities — satellites that can maneuver to grab onto other satellites, tow them elsewhere, collide with them, or position themselves close enough to jam or dazzle from proximity.

What’s curious is that China didn’t pursue counter-space capabilities earlier. There’s a common perception that China identified attacking US satellites as a valuable coercive tool following the Gulf War. However, when examining the sources, China didn’t begin contemplating counter-space attacks until the late 1990s, after the 1995-96 Taiwan Strait crisis. Before that, in the context of the Gulf War, China primarily recognized that to fight like the United States, it would need its own military satellites to guide weapons and confirm target destruction.

This desire to build military support capabilities in space constrained China’s approach to counter-space weapons. They consistently emphasized that hostilities in space should be limited, unlike their apparent willingness to consider more extensive use of conventional missiles. That’s the doctrinal capability narrative that has emerged.

Jordan Schneider: The pattern is fascinating — China demonstrates a capability, America becomes alarmed and develops countermeasures. This is the challenge with sub-nuclear capabilities — the more you reveal, the more your adversary adapts. By the end of both the cyber and counter-space chapters, you quote Chinese analysts essentially saying, “This didn’t achieve exactly what we wanted. America now has ten times more capabilities than we anticipated a decade ago.” What are your thoughts on this dynamic, Fiona?

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Fiona Cunningham: While this dynamic matters, it may not be as important as we might think. Many of these capabilities were designed to give China credible leverage when it was considerably weaker than it is today. Even if these capabilities become less effective over 20-30 years, they still provided China with methods to deter and coerce the United States when China’s conventional capabilities posed minimal threat.

Currently, I don’t believe China’s conventional capabilities threaten decisive victory against the United States in the Indo-Pacific, but they’re substantially improved compared to 20-30 years ago. The US military would face much greater challenges fighting China today than it would have two decades ago.

China’s pursuit of these capabilities has pushed the US to develop countermeasures, which in some ways validates China’s strategic choices — these capabilities delivered on their promise by forcing the US to reconsider how it approaches conflicts and organizes capabilities across different domains. The cyber changes we discussed earlier exemplify this. Additionally, the US withdrew from the Intermediate Nuclear Forces Treaty partly due to China’s conventional missile force growth, creating new questions for China about how US intermediate-range conventional missiles in the region might affect its security.

Similarly, China’s counter-space capabilities have compelled the United States to rethink its satellite architecture. The US formerly relied on “big juicy targets” — large satellites for sensing and signals intelligence that supported conventional conflicts and precision strikes. Now the United States deploys smaller, less vulnerable satellites to complement these larger assets.

Mike Horowitz: Or haven’t yet.

Fiona Cunningham: Right. This adaptation means China faces many more targets if it wants to use counter-space capabilities effectively. It can no longer neutralize US capabilities by destroying just a handful of sensing satellites. Furthermore, the United States now discusses its own counter-space capabilities much more openly.

China has triggered a big reaction in the space domain. Chinese strategists are now concerned about several US initiatives, including distributed satellite constellations, US counter-space capabilities, satellites that monitor activities in orbit, and US partnerships with commercial space companies that enhance American capabilities. They’re also increasingly worried about the potential for nuclear escalation resulting from space-based conflicts — a new development over the past five years.

Mike Horowitz: Another way to think about this more broadly is the reveal-conceal dilemma when developing capabilities. Everything Fiona said is correct. Generally, you reveal capabilities to deter or coerce, while you conceal capabilities for actual conflict. China’s actions in space represent revelation specifically to impose costs, which they have accomplished by driving many changes to US space architecture — both implemented and planned.

However, some areas are difficult to conceal even when that’s the intention. Space is arguably one such domain — concealment is easier in some ways but harder in others. We don’t know exactly what China’s intentions are when they do things like dazzle our assets. Are they purposely revealing capabilities, or would they prefer to conceal these tests but can’t? Their testing options differ from terrestrial missiles, which can sometimes be tested in relative isolation. This fundamentally changes the dynamic.

Fiona Cunningham: To add one more element, PLA space deterrence doctrine often describes a tiered approach. You begin by signaling your capabilities or repositioning assets to make them visible. Mike’s point is particularly relevant because even when examining PRC doctrine, you can see there’s a strategic place for movement and revelation of capabilities intended to send a message. Determining whether they’re following established doctrine or simply couldn’t hide what they were testing remains a key challenge.

Jordan Schneider: Let’s discuss dogfighting. Mike, would you like to address this?

Mike Horowitz: Recently, a US Space Force official published an article discussing China conducting “dogfighting” in space. This terminology demonstrates how we project our understanding of one domain onto another. However, it clearly illustrates what Fiona’s book demonstrates about China’s capabilities and their testing approaches.

Despite changes over recent years, the US Space Force still feels constrained in its ability to conduct similar testing and faces questions about what would be operationally permissible. One interpretation of this discussion about Chinese “dogfighting” in space is that the US Space Force is signaling that what the PLA is doing is legitimate. The implication is that if we want to deter and defeat these tactics — rather than merely exhausting them through proliferated assets that complicate disruption of American capabilities — we need to grant the Space Force more authority to operate in space, including activities that have been considered dangerous for decades.

Fiona Cunningham: If I’m not mistaken, the report on dogfighting described a scenario where several Chinese satellites — more than three — essentially surrounded another satellite. This demonstrates advanced capabilities in rendezvous and proximity operations — the ability to position several objects close to each other in space. This relates to Mike’s point about constraints regarding how close one might be permitted to approach in these operations.

Regarding the specific terminology of “dogfighting,” I’ll note that I don’t know how you would say “dogfighting” in Chinese. This probably indicates that the term doesn’t appear in their doctrine.

Jordan Schneider: Everyone wishes they were still flying fighter jets over Korea. That’s basically the lesson of all this.

Mike Horowitz: The question for Fiona is, how sophisticated do you believe China’s conventional missile arsenal has become? China has, by my count, at least six relatively modern anti-ship missiles, including two different anti-ship ballistic missiles, something like the DF-17 anti-ship hypersonic missile, along with the YJ-class missiles. How important is this development? Coming from the Pentagon in 2024, the importance of these missiles represents one of perhaps the top five questions facing the US military today, particularly the US Navy.

Fiona Cunningham: This is an Air Force issue as well, since these same missiles can target assets on regional airfields. Examining PLA conventional missile doctrine reveals something interesting: as their forces become more precise, the described target set actually narrows. Rather than infrastructure or economic targets, they now focus on missile defenses, electronic warfare capabilities, radars, airfields, and ships.

Some advances are obvious — China’s missiles have become more accurate. Finding reliable estimates of their accuracy is challenging — how many missiles will land within a short range of their target, and how frequently they’ll hit within a certain radius of that point.

The most important change for China comes in sensing capabilities. Precision missile capability requires not just accurate missiles but also sensing systems to locate targets and confirm successful strikes. This presents a particular challenge for anti-ship ballistic missiles. Extensive analysis has examined what space-based and ground-based capabilities China might employ to locate US carriers — the key question being whether they could find and track them sufficiently for missile targeting.

Recently, China deployed an optical satellite in geosynchronous orbit that provides persistent coverage of that region, significantly enhancing their target acquisition capabilities. The black box for me is what happens between the sensor and the shooter — this can be a very difficult process. I have less visibility on whether this presents as big an issue for anti-ship ballistic missiles targeting large vessels as it would for more precise targeting scenarios.

The other question involves US countermeasures and their effectiveness against China’s attempts to hit both moving targets and fixed installations. The US could potentially use its own counter-space capabilities to disrupt Chinese sensing systems important for locating and tracking vessels. However, fixed targets like Kadena Air Force Base remain at known locations. You may not know exactly what assets are present, but you can still strike these fixed targets even with degraded sensing capability.

This leads to considering what else the US can do to disrupt China’s precision strike capability, which ultimately points toward disrupting missiles before launch. This returns us to the challenging problems of tracking mobile missiles that we discussed earlier. You can see how these issues are interconnected.

I’m not directly answering your question, Mike, because uncertainty exists about the steps in the chain that China must complete to successfully hit the more challenging US targets. Substantial uncertainty also surrounds the effectiveness of US countermeasures, both in terms of disrupting PRC capabilities and in hiding from or diverting those missiles once launched and en route to their targets.

Mike Horowitz: That’s a great answer, super helpful. What about Chinese hypersonics in general? China has tested hypersonic systems that have excited missile enthusiasts and generated concern that the US could be falling behind in this technology. Setting aside the “falling behind” narrative — and I’ll save my personal rant about hypersonics for another day —

Fiona Cunningham: I’d love to hear it — come on, we’re here.

Jordan Schneider: We’re two hours in, Mike. The people are waiting for this.

Mike Horowitz: There’s no capability that disappointed me more when I left the Pentagon than hypersonics, particularly regarding the relative value for investment. They have their place but have been somewhat overhyped considering the overall architecture of missile systems. That’s not surprising coming from me, given my advocacy for precise mass and more attritable autonomous systems.

My question for you, Fiona: How fearsome are China’s hypersonics, and how have they managed to deploy so many hypersonic systems so quickly compared to the United States?

Fiona Cunningham: The short answer to why China has been quicker than the United States: I can’t point to a specific line in a PLA manual or teaching text, but if I were to hazard a guess, it’s because this is a priority for China. Conventional missiles, and missiles in general, represent an area where China has invested a lot of effort ahead of other aspects of its conventional military modernization and certainly its nuclear modernization. When you prioritize something, you naturally progress more quickly.

It also relates to China’s specific problem set. The United States has deployed missile defense systems around China’s periphery, most visibly with the THAAD system in South Korea in 2016, which caused considerable political disruption in Northeast Asian security dynamics. China faces the challenge of defeating missile defenses. If that’s your problem at theater range, hypersonics offer a potential solution because of both their speed and maneuverability in the terminal phase, making them more difficult for missile defenses to intercept.

Regarding their effectiveness — they’ve been tested in controlled environments. Their true capabilities won’t be known until they face actual US missile defense systems, and their success will depend on how US capabilities to track hypersonic missiles progress. This represents an ongoing development with the current space sensing architecture.

This creates a cat-and-mouse dynamic where China’s investment may provide a temporary advantage, but the US can potentially close the gap — either through the precise mass approach you advocate or through countermeasures specifically designed to address the problems that hypersonics solve for China.

Mike Horowitz: To me, that’s an “and” not an “or” for the US, but that’s very helpful.

Jordan Schneider: Thinking about that exchange, I was trying to imagine how to persuade Trump to defend spending on basic research and science. This led me to recall the “super duper missile” and “invisible aircraft” comments. We’re recording this on Friday, March 21, when the NGAD, the sixth-generation fighter, is about to be announced.

My mental model suggests Trump will approve spending on things that are big, fast, and shiny — not slow and attritable. There’s an interesting tension here. Many influential tech companies like Palantir and figures connected to Trump’s circle advocate for one theory of acquisitions and victory, whereas Trump himself seems drawn to technologies you can describe with dramatic action-figure adjectives, rather than, say, cute submersible drones.

Mike Horowitz: One notable aspect of the 17 priorities that the Pentagon announced for its review of the FY26 budget is how both sophisticated systems and “one-way attack” precise mass systems were explicitly identified as investment priorities.

My instinct is that you’re probably correct. Additionally, the now-confirmed Deputy Secretary of Defense Feinberg is a strong hypersonics advocate. What we might see, due to both Feinberg’s influence and presidential preferences, is a push toward a high-low capability mix — investing in both the biggest, shiniest assets like NGAD and hypersonics, as well as more distributed mass capabilities.

Since many US capability investments over the last couple of decades have focused on that mid-tier range, this shift raises questions about those programs. As an advocate for a high-low mix for the force, I don’t necessarily find this troubling, even if the pathway there differs from what I might prefer.

Jordan Schneider: Fiona, were there alternative paths the PLA could have taken? Could they have decided in the late 80s to focus on nuclear modernization, making that threat more credible, rather than building a massive conventional force with advanced capabilities in space, cyber, and missiles? Was that a viable option? And would that approach have made China’s rise less concerning to other nations? Or do you see concerns about China as primarily related to economic growth rather than specific military capabilities?

Fiona Cunningham: That’s an excellent question. It depends on which parameters you change. What if those big incidents with the United States in the mid-1990s hadn’t occurred? In the book, I also discuss the EP-3 crisis, when a US reconnaissance aircraft and a Chinese fighter collided over Hainan Island in 2001.

Mike Horowitz: Remember how big that incident was at the time?

Fiona Cunningham: It was enormous.

Mike Horowitz: We’ve somewhat memory-holed it, especially given the current global uncertainty, but when it happened, it was a major international crisis.

Fiona Cunningham: I was in what Americans would call middle school at the time. It was another event I followed closely, similar to the ASAT test, as it occurred very early in the Bush administration. Looking back, it’s clear why my childhood dream of becoming a human rights lawyer at the UN got diverted by media coverage of these events.

Mike Horowitz: By your one true love for nuclear weapons.

Fiona Cunningham: Well, if I truly loved nuclear weapons, I’d probably study a different country. They’re not China’s favorite.

An alternative narrative might have emerged when China encountered these crises with the US that revealed its leverage deficits. China could have decided, “We have nuclear weapons. We’ve observed NATO’s approach during the Cold War. We’re watching contemporary Russian strategies in the 1990s. We’ll simply adapt our nuclear posture and follow those models,” referencing Iain Johnston’s famous “limited nuclear deterrence” article. That’s one potential pathway.

Another scenario: without these crises, China might still have developed its conventional military, but its modernization and strategy would have responded to different variables — how other countries fight wars, party unity (to reference Taylor Fravel, my advisor’s work). You might have seen conventional modernization proceed without these investments in non-nuclear strategic deterrence.

Economic factors could have reshaped China’s conventional modernization trajectory. Jiang Zemin explicitly stated in the late 1990s that China’s military modernization progress toward joining the ranks of advanced military powers — “world-class militaries,” though he didn’t use that specific term — was contingent on the country’s economic circumstances.

A third consideration: how much of the current situation stems from Xi Jinping being a different type of leader with distinct visions for China’s foreign policy and defense strategy compared to his predecessors? I tend to see more continuity than change. However, with a different leader pursuing objectives unlike those of Hu Jintao or Jiang Zemin — perhaps emphasizing greater international engagement or taking a different approach to domestic politics — China might have followed a different path.

Mike Horowitz: It’s tempting to view everything as inevitable in retrospect. My instinct is that if it hadn’t been the Taiwan Strait Crisis or the EP-3 incident, something else would have triggered similar developments. From a structural perspective, China’s rise combined with frequent US demonstrations of conventional military superiority during the Iraq invasion and subsequent conflicts created conditions where accelerated PLA conventional modernization became highly probable. The question is: what additional steps would they take beyond that?

Fiona Cunningham: That’s where politics enters the equation. Stepping back, one of the major conclusions of my book is that China’s decisions about strategic deterrence and capabilities intended to pressure the United States are all connected to political dynamics. This isn’t primarily about US capability dynamics but rather those political crises that create urgent demand for enhanced capabilities to deter the United States from engaging in future confrontations. The US doesn’t always pay sufficient attention to these political dynamics, while from China’s perspective, they’re paramount.

Jordan Schneider: Let’s close with three things, Fiona. First, recommend one PLA book for listeners who’ve made it to the end of this episode. Second, share your favorite Chinese phrase, perhaps something PLA-adjacent. Finally, which meeting in recent or older PLA history would you have liked to witness, and perhaps what organization you might have worked for during which time period.

Fiona Cunningham: I would decline working for any PLA organizations — I don’t think that uniform would have suited me well.

Regarding a meeting I would have liked to witness recently, I’m curious about why China’s military leaders decided to disband the Strategic Support Force around March or April last year. It previously housed space capabilities, cyber capabilities, and the network maintenance organization for all PLA Defense Information Networks. They announced a separate force for information networks, but almost nothing has emerged about what happened to the cyber and space components. I really want to understand why this occurred and why there’s been silence about the other elements.

For historical meetings, in approximately 1978, there was a meeting where Deng Xiaoping commented that China should continue considering tactical nuclear weapons while making decisions about the future of Chinese nuclear forces. Information about these decisions is scarce, but I’d love to know what choices led China’s leaders to still contemplate whether shorter-range, lower-yield nuclear weapons would help defend their borders against the Soviets, and why that idea eventually faded as China maintained its restrained nuclear strategy.

For a PLA book recommendation, I frequently return to an edited volume from the National Defense University titled Crossing the Strait: China's Military Prepares for War with Taiwan with editors Joel Wuthnow, Phillip Saunders, and others. It contains many valuable chapters summarizing China’s doctrine for a Taiwan conflict. Joel Wuthnow’s chapter on PLA command and control systems is particularly helpful for anyone wanting to understand China’s campaign capabilities as of a year or two ago. It exemplifies the best that PLA studies and analysis can offer regarding the dilemma we discussed at the beginning of this podcast — this remains the primary scenario and most difficult problem facing military leaders in the United States and allied countries.

My favorite Chinese phrase would be “惩戒行动” (chéngjiè xíngdòng), which appears in descriptions of China’s counter-space capabilities and roughly translates to “punitive strikes and disciplinary action” — essentially combining “punish” and “warn.” This phrase resonated with me early in developing my dissertation topic because it emphasized how differently China approaches the space domain and space deterrence compared to nuclear weapons. In many ways, it represented the variation in the dependent variable that made this not just an interesting and policy-relevant topic but one with academic merit as a political science dissertation.

Jordan Schneider: Can you use those words in a teaching or parenting context?

Fiona Cunningham: During my interviews in China, I asked what this phrase meant. People explained that “惩戒行动” referred to conflicts with punitive and disciplinary elements, like the Sino-Vietnamese War. When I asked if nuclear retaliation qualified, they said no. There’s a footnote about this in the book. No one suggested it was terminology they would use when teaching students or parenting children, so I would recommend keeping it within a military strategy context.

Jordan Schneider: Tell us more about the general atmosphere of the Chinese defense analyst community. How would you characterize them as people, using broad generalizations? And what do they gain from speaking with you?

Fiona Cunningham: When I conducted interviews for the book, mostly as a graduate student, I believe they were partly motivated by helping a student learn. The desire to assist students transcends cultural contexts. There’s also genuine interest among many Chinese experts to engage with researchers who make the effort to visit China, learn the language, and understand the strategic studies lexicon. They want to clarify misconceptions and ensure that American discourse about these topics shows a more nuanced understanding.

I was in China conducting this research during the 2015-16 PLA reforms. At times, when I asked questions about certain issues, people would simply respond that they didn’t know — until the reform package clarified, there was a lot of uncertainty.

As a group, the Chinese defense and strategic studies community isn’t fundamentally different from what you’d expect in the United States. There’s diversity in terms of gender, age, and ideological perspective — some more conservative than others. However, it’s a relatively small community, similar to the United States, where many experts know each other well and are familiar with each other’s views.

Jordan Schneider: One more question about the defense community. In a recent paper, you noted that the civilian defense consensus argued against extensive nuclear modernization, but Xi disregarded this view, and modernization proceeded anyway. However, before 2019, expert discussions often aligned with eventual PLA actions across various dimensions. What do you make of this shift?

Fiona Cunningham: One conclusion might be that the expert community has less influence or interaction with decision-makers than previously. Some have drawn this interpretation regarding nuclear policy. I have work in progress — referenced when we discussed China’s nuclear modernization drivers — showing that perspectives within China vary on why nuclear capabilities should be modernized and what specific actions should be taken.

In that paper, I focused on one segment of the PRC community involved in arms control that expressed concerns about threats to China’s retaliatory capability but didn’t advocate for substantial arsenal expansion. However, other voices within China’s strategic and defense community do support a larger arsenal — not based on intricate calculations about warhead targeting or force posturing to make credible threats, but simply because more nuclear weapons provide political leverage. This isn’t connected to military campaigns or outcomes but shows the psychological impact of greater capability. It could even be viewed as status-related, with nuclear prominence offering instrumental advantages.

This mentality helps explain the gap between what the arms control community might recommend and China’s actual behavior. More research on this is forthcoming.

Jordan Schneider: Standing invitation — we could host shows in Chinese if experts want to join us, with Fiona and me co-hosting discussions about specialized aspects of PLA doctrine.

Mike Horowitz: I look forward to the translation of that episode.

Mary Clare McMahon is an incoming Schwarzman Scholar (‘26) and former Winter Fellow at the Centre for the Governance of AI, where she researched compute governance and U.S.-China AI competition. Previously, she worked in the National Security and Cybercrime Section of the U.S. Attorney’s Office for the Eastern District of New York.

Last month, reports emerged that DeepSeek was running a distilled version of its R1 reasoning model on Huawei’s Ascend chips. While DeepSeek trained its model on Nvidia Hopper series chips, Huawei’s deployment of Deepseek R1 underscores a broader strategic question: to what extent can Huawei erode Nvidia’s dominance in the global AI chip market?

Nvidia’s position rests on what has called a “three-headed hydra” of leading hardware, networking capabilities, and, most importantly for this piece, a deeply entrenched software ecosystem. At the center of that ecosystem is CUDA, a proprietary programming framework that allows developers to efficiently map computations onto Nvidia’s GPUs. CUDA’s value lies not only in its performance but in its reach: an expansive set of libraries, optimized workflows, and tight integration with widely-used machine learning frameworks make it the industry standard. And, crucially, CUDA can only be used with Nvidia GPUs. That makes CUDA a core component of Nvidia’s competitive advantage, otherwise known as Nvidia’s moat.

This article explains Huawei’s attempt to replicate and bypass that moat. For now, Huawei appears to be advancing the following three-pronged strategy:

1. Building out its own software stack, including a proprietary parallel programming model and surrounding tools that developers rely on to write, optimize, and deploy code efficiently.

2. Deepening integration with PyTorch, the most widely adopted open-source machine learning framework for model training.

3. Investing engineering resources in developing the Open Neural Network Exchange (ONNX), an open standard for machine learning models that enables portability across hardware platforms, to support the deployment of non-Ascend-trained models on Ascend chips.

Huawei is not the only actor seeking to erode Nvidia’s software lock-in — AMD has made similar efforts with ROCm, and Google has a software stack fitted to run Google TPUs. However, Huawei remains the most significant challenger in the Chinese market. The core question is not whether Nvidia’s dominance is being contested, but whether Huawei’s software strategy can mature enough for a full-stack transition away from U.S. hardware. This article proceeds in two parts: part one provides background on Nvidia’s software moat and how it was constructed; part two analyzes Huawei’s evolving response.

Nvidia’s Software Moat

The roots of Nvidia’s software moat can be traced back to the late 2000s, when CEO Jensen Huang made a long-term bet on CUDA, Nvidia’s proprietary parallel computing platform. In 2007, Nvidia released CUDA as a programming model for scientific computing. At the time, the dominant paradigm for scientific research (and most other computing applications) was CPU-based computation; GPUs were considered niche accelerators, primarily designed for graphics rendering in video games. CUDA’s launch was an explicit attempt to invert that paradigm by positioning the GPU as a general-purpose compute platform.

CUDA allowed developers to write code in familiar C/C++ syntax that executed directly on Nvidia GPUs, thereby accessing the highly optimized functionality of these GPUs. But creating a new computing model meant overcoming a classic chicken-and-egg problem: developers needed hardware to test their software on, and customers needed software to run on their hardware — neither would commit without the other. Nvidia addressed this by seeding the market for CUDA with its consumer gaming cards, which already had a broad base of installation. It made CUDA freely available (without open sourcing the code), created a global developer conference, and worked directly with scientists and researchers to port algorithms to the GPU. As Huang later recalled in a speech at National Taiwan University, “We worked with each developer to write their algorithms and achieved incredible speedups.” This engagement strategy eventually paid off; in 2012, AlexNet was trained on CUDA and Nvidia GPUs.

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As Nvidia’s software and hardware stacks became popular with deep learning researchers, Nvidia continued to invest in — and improve — CUDA. Nvidia created an extensive suite of libraries, such as cuDNN for deep learning, which dramatically lowered the time and expertise required to deploy high-performance models. In short, CUDA became more than just a programming model — it became the foundation of a full-stack software ecosystem.

For the next decade, CUDA continued to improve and attract more developers. And it is still improving to this day — though CUDA is closed source, Nvidia welcomes and often incorporates developers’ feedback. Nvidia also maintains online forums for developers to answer and ask questions about CUDA.

Thus, the CUDA ecosystem embeds substantial switching costs. Developers who migrate away from CUDA usually must rewrite large portions of code — by forgoing access to Nvidia’s finely tuned libraries, developers are forced to substitute with less mature equivalents, if any replacements exist at all. Further, developers also lose support from the large troubleshooting community that has grown up around CUDA.

Today, many machine learning developers do not code directly in CUDA. Instead, they write code in Python, a higher-level and more user-friendly language, using frameworks such as PyTorch and JAX. But even here, CUDA remains central: it acts as the backend bridge between PyTorch and Nvidia’s GPU architecture.

We will discuss PyTorch in greater detail in a later section. For now, it is enough to note that CUDA’s value lies not only in its impressive performance (which has improved continuously for nearly two decades), but also in the ecosystem that has formed around it. That is the essence of Nvidia’s moat — challengers with competitive hardware must also replicate an entire software environment if they want to compete.

Huawei’s Software Strategy

Undermining Nvidia’s software moat requires more than performance parity with Nvidia GPUs — it demands a credible alternative to the tightly integrated CUDA ecosystem. Huawei appears to be pursuing such an alternative. Its strategy consists of three interrelated prongs, each aimed at reducing the friction of switching away from Nvidia.

First, it is expanding its native software stack alongside a growing suite of tools designed to mirror the utility of CUDA’s broader ecosystem. Second, Huawei is deepening integration with PyTorch, the most widely adopted machine learning framework and one that, by default, pairs seamlessly with CUDA. By building backend support through adapters like torch_npu, Huawei is attempting to position Ascend as a drop-in hardware alternative. Third, Huawei is investing in ONNX (Open Neural Network Exchange), an open standard for cross-platform model representation, to allow models trained on non-Huawei hardware to run inference efficiently on Huawei chips. Together, these efforts seek to replicate the full-stack developer experience that has made CUDA so difficult to displace.

1. Huawei’s Software Alternatives

Huawei’s most direct challenge to CUDA comes in the form of CANN (Compute Architecture for Neural Networks), its proprietary programming environment for Ascend NPUs. CANN sits at the same level of the software stack as CUDA, providing the tools needed to execute high-performance machine learning models on Huawei hardware. Paired with CANN is MindSpore, Huawei’s high-level deep learning framework, conceptually analogous to PyTorch. Together, these tools form Huawei’s native alternative to the Nvidia-centric PyTorch + CUDA stack.

​​CANN has been in development since at least 2019, the year Huawei was added to the US entity list. Huawei’s 2024 Annual Report highlighted (on four occasions) the release of CANN 8.0 in September of 2024, promoting this development as a significant step in advancing AI computing capabilities.

However, developers cite serious usability issues with CANN. According to the Financial Times, one Huawei researcher complained that CANN made the Ascend chips “difficult and unstable to use.” One developer described the process of using the Ascend 910B as “a road full of pitfalls” (踩坑之路), sharing the following reflections on Zhihu, a Quora-like Chinese website for academic discussion, in February 2025:

“I have been interning in the company for the past six months. Due to the shortage of computing resources, interns can only use Ascend 910B for training and development… Looking back, every time I encountered various problems and bugs, it was difficult to find the corresponding solutions on the Internet. Some problems were finally solved with the help of Huawei's operation and maintenance engineers. Therefore, I hope that this article, in addition to summarizing my own staged engineering experience, can help more Ascend NPU developers and help the development and progress of the domestic computing ecosystem.”

426 other users upvoted the post. One commenter responded, “It seems that it will take until 2027 for CANN to be truly mature, stable, and easy to use.”

The absence of a robust developer community for CANN further increases the onboarding burden for new developers. Unlike Nvidia’s developer forums, which benefit from community-maintained documentation and rapid peer troubleshooting, Huawei’s Ascend developer portals — both in English and Chinese — exhibit low engagement, with sporadic posts and limited public debugging activity. According to another Zhihu article posted in June of 2024, “When I first started exploring Ascend, I felt quite overwhelmed. Although there is a lot of documentation available, it feels quite disorganized. When encountering problems, the limited user community means you probably won’t find a corresponding solution, which leads to frequent frustration.”

While the Nvidia CUDA Programming and Performance Developer page had multiple live threads posted just days before the screen capture above, the most recent posts on the Huawei CANN developer pages were from January 2025.

Adapting models to run on Huawei’s platform is also onerous. According to that same Zhihu article from June 2024, “Any public model must undergo deep optimization by Huawei before it can run on Huawei's platform. This optimization process is heavily dependent on Huawei and progresses slowly.” By contrast, after testing the Nvidia H100 and H200 for model training applications, Semianalysis reported, “Nvidia’s Out of the Box Performance & Experience is amazing, and we did not run into any Nvidia specific bugs during our benchmarks. Nvidia tasked a single engineer to us for technical support, but we didn’t run into any Nvidia software bugs as such we didn’t need much support.”

To try to increase adoption, Huawei has adopted a strategy reminiscent of Nvidia’s own CUDA rollout in the 2000s: embedding engineers directly into customer sites to assist with code migration. According to reporting from the Financial Times, Huawei has deployed engineering teams to Baidu, iFlytek, and Tencent to help reimplement and optimize existing CUDA-based training code within the CANN environment​. This mirrors the anecdote recounted above, where Jensen Huang described how Nvidia “worked with each developer to write their algorithms and achieved incredible speedups” during CUDA’s early years. Huawei is now attempting to replicate that strategy, pairing onboarding with high-touch technical support in the hope of accelerating ecosystem uptake.

In parallel, Huawei is also trying to improve its native software stack. DeepSeek engineers have reportedly said that the Ascend 910C can achieve up to 60% of the inference performance of the H100, and potentially more with CANN optimizations. As Kevin Xu noted on a prior episode of ChinaTalk, DeepSeek engineers have proven adept at “work[ing] below CUDA to maximize their Nvidia GPU.” If similar techniques were applied within the Huawei ecosystem, they could help close the performance gap between Ascend and NVIDIA hardware.

One particularly intriguing way to close that gap involves using AI to accelerate software optimization. If AI systems themselves can be leveraged to improve kernel optimization, develop the CANN and MindSpore stack, and reduce performance inefficiencies, it could meaningfully shift the competitive landscape. Sakana AI has already demonstrated a version of this approach with its “AI CUDA Engineer,” an agentic framework that translates standard PyTorch code into highly optimized CUDA kernels. According to Sakana, the system achieves 10—100x speedups for AI model training. If comparable AI-driven optimization techniques could be adapted for Huawei software, it would represent a significant step toward enhancing performance within the CANN ecosystem. Developer loyalty might follow.

Despite its investment in a native software stack, though, Huawei appears to recognize that displacing CUDA with CANN is not feasible in the near term. As a result, it has shifted part of its strategy toward interoperability rather than replacement. Nowhere is this more evident than in Huawei’s growing involvement with the PyTorch ecosystem.

2. Huawei and PyTorch

As part of its strategy to reduce friction in migrating away from Nvidia, Huawei has prioritized compatibility with PyTorch, the dominant open-source machine learning framework used across academia and industry. Originally developed by Meta’s AI research lab in 2016, PyTorch was released publicly in 2017, then transitioned to being governed by a wider network of companies under the Linux Foundation in 2022. The resulting PyTorch Foundation is governed by a consortium of premier members, including Meta, Microsoft, Google, Amazon, AMD, Intel, Nvidia, and, as of October 2023, Huawei.

PyTorch enables developers to define, train, and deploy machine learning models using concise and intuitive Python code. The framework's popularity stems from its "eager execution" model, which allows each operation to run immediately, making it easier to debug, prototype, and iterate than other alternative frameworks (like Google’s TensorFlow).

From the outset, PyTorch was optimized for Nvidia GPUs. New operators and features are still tested and tuned against CUDA first, and performance benchmarks are routinely conducted on Nvidia’s hardware. Installing PyTorch via Python’s package manager automatically sets it up to run on Nvidia GPUs. This makes the framework effectively Nvidia-native, and any effort to use it on non-Nvidia hardware requires not just backend substitution, but complete ecosystem engineering.

The challenge for Huawei, then, is not only to make PyTorch run on Ascend hardware, but also to make it run well enough that developers don’t notice they’ve switched ecosystems.

Huawei’s primary technical achievement has been enabling the execution of PyTorch models on its Ascend NPUs through an adapter called torch_npu. Torch_npu bridges PyTorch with Huawei’s low-level NPU drivers and CANN backend. Huawei developers publicized this development at the 2024 PyTorch Shanghai Meetup, pictured below.

Huawei’s torch_npu adapter allows Huawei's AI accelerators to interface with PyTorch, though it exists separately from PyTorch’s main codebase. (The torch_npu adapter uses PyTorch’s PrivateUse1 mechanism, an interface that lets hardware makers test new accelerators without immediately merging their code into PyTorch.) At the 2024 PyTorch meetup in Shanghai, a Huawei engineer noted that devices maintained outside PyTorch’s core, like Huawei’s, often face stability issues because changes in PyTorch's main code aren't automatically tested for compatibility. This challenge is widely recognized by the community.

For this reason, Huawei’s forked version of PyTorch is still less effective than Nvidia’s CUDA-native implementation, and developer feedback points to persistent challenges in runtime reliability and documentation. In a Zhihu thread with more than 700,000 views, senior software engineer “Mingfei” wrote that, “It’s worth emphasizing that plugins [referring to the forked version of PyTorch] are not native” and “several unavoidable issues arise,” including version compatibility; third-party extension support; and test coverage challenges. Another Zhihu contributor noted, “Ascend chips provide poor support for third-party frameworks like PyTorch and TensorFlow, making it extremely challenging to adapt to the latest large-scale models and use them effectively.” Note that the developer seems to be referring to the challenges of deploying models on Ascend chips, not training new models.

While Huawei’s patches have not yet been fully integrated upstream, there are reasons to believe that Huawei might be able to garner political support within the PyTorch Foundation to formalize its contributions. The PyTorch Foundation’s official announcement of Huawei’s status as a premier member noted that Huawei “provides easier access to the PyTorch ecosystem for more hardware vendors… [which] aligns with the PyTorch Foundation’s mission to develop AI as part of a sustainable open source ecosystem and produce inclusive technological feats.” This quote seems to suggest that PyTorch wants to support other hardware options besides Nvidia’s. Further, Huawei’s status as a premier member of the PyTorch Foundation grants it a seat on the Governing Board, as well as a formal role in setting foundation-wide policies and technical priorities. This membership was unanimously approved by existing premier members, signaling at least tacit acceptance of Huawei’s contributions by Meta, Nvidia, AMD, and Google. Finally, Huawei appears to be strongly committed to contributing to open source projects. The company’s 2024 Annual Report highlighted that Huawei is “a firm supporter and major contributor to open source communities” and explicitly mentioned its membership in the PyTorch Foundation.

In sum, Huawei is executing a long-term strategy to allow developers to use PyTorch with its Ascend series of chips. Its success will depend on the company’s continued technical contributions, the size of its developer community, and whether the PyTorch Foundation will incorporate the torch_npu and other Huawei contributions into its main code base.

3. Huawei and OXXN

While Huawei’s PyTorch integration aims to reduce friction in model development, it does little to solve the harder problem of model portability — that is, how to take a model trained on Nvidia hardware and deploy it on Huawei’s Ascend chips. To address this, Huawei has turned to a complementary approach, optimizing the Open Neural Network Exchange (ONNX) format to serve as a bridge between software ecosystems.

ONNX (Open Neural Network Exchange) is an open-source format originally developed by Meta and Microsoft in 2017 to enable model interoperability across deep learning frameworks. It allows developers to export a model trained in one framework, such as PyTorch with CUDA, and run inference in another runtime environment — or on different hardware entirely. It also helps optimize models, allowing them to run faster than they would if they were directly deployed from PyTorch. ONNX operates under the umbrella of the Linux Foundation AI & Data, of which Huawei is a premier member.

Put simply, ONNX is like the PDF of AI models. Just as documents created in Microsoft Word or Google Docs to be exported into a portable, fixed-format PDF file that can be opened and viewed across operating systems, ONNX allows models trained in PyTorch or other machine learning libraries to be exported into a standardized format that can then be run on different hardware platforms.

Huawei has embraced ONNX Runtime, the engine that executes ONNX models. The company maintains a public Ascend ONNX Runtime, available on GitHub, which includes optimized kernels and execution instructions tailored to CANN and Ascend chips. According to the ONNX Runtime documentation, Huawei’s ONNX Runtime page is “community-maintained,” meaning that it is maintained by Huawei rather than by the core ONNX Runtime team, and that it is Huawei’s responsibility to ensure ongoing support for the library.

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Huawei’s goal here is straightforward: to enable developers to train models on non-Huawei hardware, export the files to ONNX, and deploy the models on Ascend chips, all without rewriting core logic. This workflow has clear appeal in the Chinese market. Model developers could still train on Nvidia Hopper chips or train models through the cloud, then shift deployment or inference workloads to Huawei hardware.

It’s important to note that running a model on hardware, even if using an ONNX file, can introduce bugs or compatibility issues. Some PyTorch operations don’t export cleanly to ONNX, while others need rewriting. ONNX models may also need custom operations that the hardware backend has to support. That said, Huawei’s investment in ONNX offers a practical path to inference decoupling. In contrast to the CUDA-first development loop, which binds training and deployment to Nvidia hardware, ONNX gives Huawei a way to insert itself at the deployment stage, even if training remains CUDA-bound.

Huawei’s Future

Nvidia’s enduring dominance in the AI chip market is not due to superior hardware or networking architecture alone — it’s also a function of Nvidia’s deeply integrated software ecosystem. This ecosystem — anchored by CUDA, high-performance libraries, and seamless compatibility with PyTorch — offers a robust developer experience and an active community that reinforce Nvidia’s lead. Huawei’s strategy is to build a competitive stack of its own.

Model deployment may be Huawei’s most immediate opening. Already, it has demonstrated that models trained on Nvidia hardware, like DeepSeek’s R1, can be run in distilled form on Ascend chips. If the US were to ban the export of Nvidia H20s to China, this workaround could become standard. In that scenario, indicators of improvement in the Huawei software stack would manifest not as headlines, but as reduced developer complaints, more seamless deployments, and fewer distinctions between fallback option and first choice.

Huawei isn’t there yet, though. As noted by the exasperated programmers quoted above, working with Ascend 910B chips still requires debugging without community support. But Zhihu threads where developers vent frustrations can eventually become a troubleshooting resource that contributes back to the Huawei ecosystem. With enough developers dedicated to advancing that new ecosystem, the result could be a slow, durable shift away from CUDA. That shift won’t happen overnight — remember, it took Nvidia 18 years to build the CUDA ecosystem of today; building a competitive software ecosystem is a multi-year effort even under pressure. But what started as necessity may, over time, harden into habit — and eventually, into infrastructure that can compete with Nvidia’s software stack.

Special thanks to Jeff Ding and Kevin Xu for thoughtful feedback on prior drafts.

What’s happening to America’s science and technology ecosystem? How is China interpreting the current state of US research, and how is it working to build its own science and technology base in response? And what can we learn from China's war mobilization exercises?

To explore these questions, we're joined by Divyansh Kaushik and Alex Rubin, who both work at Beacon Global Strategies. Divyansh holds an AI PhD from Carnegie Mellon, and Alex spent the past decade at CIA focusing on China and emerging technologies.

We discuss…

• The historical origins of the US R&D model, and the division of labor between universities, government, and industry,

• How budget cuts will impact the NSF, NIH, NIST, and DoD basic research,

• Why and how China attempts to emulate US research institutions,

• What a leaked wargame exercise from Guangdong province can tell us about China’s grand strategy,

• How institutions like ChinaTalk complement the IC with fresh, independent research.

Listen now on iTunes, Spotify, or your favorite podcast app.

How America Has Won With R&D

Jordan Schneider: Let’s do a 101 on the broader American research ecosystem. What does the interaction between universities, government funding, and corporations look like in the 2000s?

Divyansh Kaushik: To better understand today’s landscape, we need to trace our steps back about 70 years and examine how the American research ecosystem was conceptualized. The original model positioned universities to conduct curiosity-driven research funded by the federal government, while American industry focused on transforming that research into applications.

There were certain industrial monopolies created by the government that also conducted basic research, which Alex can address more comprehensively. However, the overwhelming majority of basic research happened in academia — universities created as land-grant institutions or those existing before the war. This system served us remarkably well, as basic research developments from the 1950s, 60s, and 70s bore fruit 10, 20, 30, or 40 years later. The nature of basic research doesn’t necessarily have an immediate application, but applications may emerge years down the line.

Consider this example: During the 1970s and 80s AI winter, when nobody was funding neural networks research because it was viewed as a dead end without viable applications, the National Science Foundation — created to fund basic research through the federal government — was funding Geoffrey Hinton’s work on neural networks, being the only entity supporting this research at the time. Fast forward 40-50 years, that work has fundamentally shaped how we view AI today. It’s the foundational technology behind all the large language models currently in use.

NSF also funded Andrew Barto’s entire PhD. Barto, together with Richard Sutton, established the field of reinforcement learning at a time when there were few practical applications. Today, reinforcement learning is a critical component behind LLMs, AlphaFold, and similar technologies.

This exemplifies how America has pursued basic research. Currently, there’s considerable criticism about research projects like "shrimp on a treadmill" or "fish on cocaine," questioning why such studies receive funding. While these projects have legitimate scientific purposes, to the general public they appear to be wasteful uses of federal research dollars.

Agencies like the National Institutes of Health fund more applied research on medicines and can point to tangible outcomes — specific drugs developed with NIH funding. The NSF, conversely, funds basic research that may not demonstrate tangible benefits for decades, as happened with neural networks.

We’re now engaged in a deeper conversation about what constitutes waste or abuse of federal research dollars and how to allocate those funds more effectively. Is industry-funded research the optimal approach? Does the federal government have — or should it have — a role in the R&D ecosystem? What about public-private partnerships, which were a cornerstone of the CHIPS and Science Act in creating the Technology Innovations and Partnerships Directorate at the National Science Foundation?

This significant conversation emerged particularly this year, as the National Science Foundation, Department of Energy, Department of Defense, and National Institutes of Health find themselves at the center of questions regarding the appropriate allocation of federal dollars toward research.

Jordan Schneider: Let’s explore more of this history, because I think we can’t ignore the broader defense community’s role in funding R&D over the past 75 years. Alex, would you like to address that?

Alex Rubin: This is best illustrated through an interesting case study. We’re currently focused on the semiconductor industry due to its substantial economic and strategic implications. The foundation of the semiconductor industry can be traced directly back to funding from the Air Force and NASA for both the Apollo program and ICBMs.

One interesting example demonstrating the federal government’s role involves what we call the "Valley of Death" — the challenge of bringing novel research from the laboratory to market. The federal government, particularly the defense procurement establishment, has excelled at intervening at this crucial stage in the R&D cycle by providing customers and markets for these technologies. This allows companies to expand production, build scale, and reduce costs, making it feasible for them to enter commercial markets.

The modern semiconductor industry wouldn’t exist as it does today without those initial purchases from the Air Force, NASA, and other government entities. It’s extraordinarily difficult to transition from the lab to the market, especially when costs are high. Finding consumers willing to purchase these products when they’re expensive is challenging, which is where government plays a particularly important role in advancing that cycle.

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When discussing the federal government’s role in early-stage basic research, there are instances where industry has undertaken this responsibility. The AT&T system — the Bell system — during the 20th century provides a classic example of industry conducting exactly the type of research we’re discussing. However, certain unique characteristics made this possible for the Bell system.

Throughout the 20th century, the Bell system comprised several key units: corporate headquarters in New York, its manufacturing arm (Western Electric) producing equipment for telecom networks, the regional Bell operating companies that eventually became companies like T-Mobile and Verizon providing local phone service, long-distance service, and crucially, Bell Labs.

Extensive literature documents Bell Labs’ history and impact. Innovations including the transistor, discovery of cosmic microwave background radiation, and cell networks all emerged from Bell Labs. The list of remarkable technologies and innovations originating there is extensive.

Bell Labs could invest in both basic and applied research because of their consistent funding stream from what was essentially a government-regulated monopoly. In the 1910s, the government granted AT&T monopoly status over the telecom industry with certain conditions, including a requirement to license any inventions outside the telecom industry under generous terms or without fees.

Bell Labs operated with a consistent revenue stream from their telecom service monopoly, maintained a direct relationship with manufacturers allowing them to troubleshoot as products moved to manufacturing, and had direct connections to customers through their operating companies, enabling them to identify market demands.

Most importantly, they had long-term consistent funding — precisely what makes federal research dollars so crucial for basic research. This consistent funding allows investment in projects that might not yield deliverables for 10, 15, or 20 years. This differs dramatically from typical corporate investments seeking returns within a couple of years.

Companies justifiably need to demonstrate return on investment, which becomes incredibly difficult without consistent market support. Industry can indeed support basic research, but it requires specific enabling characteristics similar to those that enable basic research funding from the public sector.

Jordan Schneider: Divyansh, could you address the university’s role in this ecosystem?

Divyansh Kaushik: Universities today aren’t limited to basic research — they conduct significant applied and industry-funded research as well. However, an often overlooked aspect of universities’ contribution is their role in creating talent pipelines. The researchers going into industry are those who received federal funding at universities.

These individuals enter graduate programs where they develop intellectual curiosity through curiosity-driven research and by solving interesting problems without immediate pressure to generate revenue. They cultivate this intellectual curiosity and bring it with them when they join industry, ultimately driving the industrial innovation we witness.

Universities play a crucial role in regional innovation and economic growth. The spillover effects include startups and jobs created as a result of research funding. Numerous economic studies demonstrate multiple dollars returned for every dollar of federal R&D spending at universities.

Universities also advance national security objectives. Carnegie Mellon University, my alma mater, works with the Department of Defense on several projects directly impacting warfighters. Universities host Federally Funded Research and Development Centers (FFRDCs) and integrate DoD personnel into their research programs.

Universities therefore have a broader ecosystem-driving role, not just a narrow focus on quarterly profits. Both approaches are valid — they’re complementary rather than substitutive. While most companies don’t conduct basic research, some do. Microsoft, for instance, spent nearly ten years developing the Majorana chip for quantum computing, made possible by consistent funding.

If we reduce consistent funding for universities, we’ll see fewer PhD students enrolling, fewer PhDs granted, fewer qualified individuals joining companies like Microsoft, and ultimately fewer innovations like the Majorana chip. This affects the entire ecosystem.

Jordan Schneider: Alex, can you discuss how envious the rest of the world is of the ecosystem America has built?

Alex Rubin: A couple of decades ago, China looked at the U.S. R&D ecosystem and essentially said, “We want that,” and began working to replicate it. They’ve invested considerable resources — money, time, and high-level attention. President Xi Jinping regularly emphasizes the importance of basic research, improving China’s STEM education system, and developing talent as key enablers of China’s technological development and growth as an economic and global power.

China recognizes that the U.S. model is incredibly effective at generating innovations, bringing them to market, and establishing dominance and first-mover advantages in critical new technologies. China’s approach to its R&D ecosystem and education system focuses on three main categories, emphasizing generational investment.

Jordan Schneider: Let me provide some context with numbers. The U.S. spends approximately $50 billion annually on basic R&D, with another $50 billion coming from universities and businesses — totaling around $100 billion yearly.

American firms represent 80% of the world’s global technology market capitalization. Additionally, 80% of science Nobel Prizes over the past 50 years have included winners with U.S. affiliations. These three factors are interconnected.

This ecosystem produces the most advanced companies, which then provide cutting-edge technologies to the national security establishment. It’s a beautiful, self-reinforcing system. The best scientists work at American universities, attracting the best students worldwide. Despite providing only 25% of global basic funding, the U.S. spends it so effectively that the greatest minds globally want to come here and work on these topics.

Alex Rubin: This is indeed a generational investment. It’s no coincidence that U.S. companies initially led in the semiconductor industry, then in personal computers and other computing applications, and now in AI. These advantages build upon each other.

If you establish early leadership in one industry and continue making long-term investments, it naturally positions you advantageously for the next generation of technology. Conversely, if we make decisions now that underinvest in research or otherwise hinder the development of these talent ecosystems, the real impact might not become apparent for 10-15 years.

Unfortunately, once those impacts become visible, it’s often too late. Recovering lost ground requires significant time. The research investments and decisions we make now — whether regarding grants or graduate programs — will show their consequences a decade or more from now.

Jordan Schneider: That concludes our cheerleading session for the American R&D ecosystem. Divyansh, what has been happening over the past 100 days that concerns all three of us — developments that may risk the world-historical R&D golden goose America has built since Vannevar Bush wrote to FDR, envisioning a glorious future made possible by the collaborative efforts of corporations, research universities, and the U.S. government?

Divyansh Kaushik: I would actually broaden the timeframe to consider the last year or so. During this period, we saw the NSF budget cut by approximately 8% from the previous year, the NIST budget cut by about 13%, and the DoD basic research budget reduced by roughly 4%.

Early in the administration, NIH changed its policy on Facilities and Administrative (F&A) benefits, unilaterally reducing them to 15% — a decision that faced legal challenges. This was followed by layoffs at several federal funding agencies.

More recently, DoD and DOE followed NIH’s approach by capping F&A at 15%, which merits separate discussion. Additionally, NSF terminated approximately 400 previously awarded grants. We also witnessed the resignation of the NSF director amid rumors of potential additional layoffs at the agency.

Jordan Schneider: A former Trump appointee, mind you.

Divyansh Kaushik: Correct, and unanimously confirmed by the Senate. Further concerning developments included leaked information about the President’s budget request, suggesting NSF could face approximately 55% budget cuts, with NIH potentially facing similar reductions.

These issues are foremost in the minds of both academic and industry researchers. Brad Smith recently wrote a blog post about quantum computing where he emphasized the importance of basic science funding for workforce development. This concern is widespread.

Several former national security leaders, including former Trump appointees such as his former Homeland Security advisor and others, signed a letter to Congress highlighting the importance of funding basic science research at this critical juncture. As Alex mentioned, China has increased its basic R&D spending by 10% year-over-year for the past seven years.

The CHIPS and Science Act established a vision to double our federal basic R&D spending over the next decade. Instead, we’ve failed to meet this moment. Approximately $50 billion of authorized funding from the CHIPS and Science Act remains unappropriated for the science component.

Regarding talent, certain universities received letters terminating visas for some PhD students — a decision the administration later reversed. This situation weighs on the minds of universities and researchers, raising questions about broader implications on the global stage.

France, Australia, and China have attempted to capitalize on this uncertainty by establishing specific programs to attract U.S. researchers, offering long-term stability, funding, and residency benefits.

Jordan Schneider: You missed one aspect, Divyansh. We’re also seeing targeted actions against specific universities, with significant conflicts involving Columbia and Harvard. Beyond the 400 NSF grants canceled due to DEI considerations, research is being canceled simply because researchers happen to be PhD students or professors at Harvard.

Divyansh Kaushik: That certainly occurred. Interestingly, as we record this, President Trump just announced he’s naming Secretary of State Marco Rubio as interim National Security Advisor and nominating NSA Mike Waltz for UN Ambassador. Developments are unfolding rapidly.

Jordan Schneider: Wow, really? That’s the best possible outcome. I was preparing for the Laura Loomer National Security Advisor era.

Divyansh Kaushik: I mention this because the National Security Council plays a crucial role in this conversation by emphasizing the national security importance of federal R&D. Alex understands this well from his previous position, particularly regarding the critical benefits it provides.

Jordan Schneider: Wait, we need to focus on this for a moment. We haven’t seen this dual role since Kissinger. Is that right, Alex? Has there ever been another person serving in both capacities simultaneously?

Alex Rubin: No, I believe Kissinger was the only one.

Jordan Schneider: This is remarkable. There’s been considerable discussion about NSC reform, as it’s not a fixed organization. I wonder if this presents an opportunity for such reforms, though Rubio’s State Department reforms appear less developed than anticipated or discussed.

I recognize we’re speculating beyond our expertise, but this breaking news deserves attention. There’s a certain Nixon-era quality to these developments. From my perspective, this appointment represents a positive direction — the situation could have been significantly worse than Marco Rubio.

Alex Rubin: Regarding technology policy, Rubio has been at the forefront on issues concerning investments in technology and its centrality to competition with China. During his Senate tenure, his team produced a report examining Made in China 2025. Technology represents the key battleground in this competition. Extending that metaphor, researchers, scientists, and engineers serve as the frontline contributors to American power in this space.

Jordan Schneider: This is astonishing. Earlier today, New York Times articles suggested Waltz had been dismissed — likely someone attempting to shape that narrative. Rubio presents an interesting case, given the contrast between his decade-plus Senate career and his more recent MAGA-aligned positioning. JD Vance seems to embody that perspective more naturally than Rubio. We’ll have to observe how this develops.

Returning to science and technology — before discussing positive aspects, Divyansh, we should address the challenges facing the university ecosystem regarding talent and funding. International students constitute a crucial funding component since most pay full tuition. Government funding represents another vital revenue stream.

Only about 10-15 universities possess multibillion-dollar endowments that would enable them to withstand major external shocks such as losing international students or significant funding cuts without drastic measures like closure or acquisition by private equity firms.

You briefly mentioned immigration concerns, but the situation created genuine alarm among many students who feared leaving the country. Although courts have temporarily reversed certain policies, I worry these uncertainties will linger in the minds of parents worldwide and PhD students considering where to establish their careers.

Divyansh Kaushik: We’ll soon see how this affects enrollment as universities release their yield data. With May 1st approaching and April 15th being the deadline for students to accept or decline offers, that information will become available shortly.

We’ve already observed an 11% decrease in international student enrollment between March 2024 and March 2025, mirroring a similar trend between March 2016 and March 2017. We must monitor this data closely.

Regarding the importance of this population, people often overlook that international students comprise 60% of Computer Science and AI PhDs, and approximately 50% of all STEM PhDs and Masters students. Replacing this talent with domestic students would require considerable time and concerted effort.

Notably, the number of domestic computer science undergraduates pursuing graduate degrees has remained unchanged since approximately 1990-1995. China, with four times the U.S. population, produces twice as many STEM PhDs, twice as many STEM Masters, and four times as many STEM Bachelors graduates.

We can no longer credibly claim that their STEM education or research quality is inferior — they excel in both quality and quantity. Based purely on numbers, our only viable competitive strategy involves recruiting talent globally. China has substantially more human resources to dedicate to complex problems than we do, a critical factor in this discussion.

Jordan Schneider: Let’s return to your "On the plus side" perspective, Divyansh.

Divyansh Kaushik: Consider Michael Kratsios’ remarks at the Endless Frontier retreat approximately 16-17 days ago, on April 14. He described an emerging golden age for America, speaking of "the early light of this new golden age," "American hope," and "the possibility of progress through science and technology."

He emphasized that this golden age will materialize only if we actively choose it, then outlined his approach. He discussed how ours was the atomic age and how we must fight to restore that inheritance. He proposed rethinking federal R&D spending through smarter methodologies.

The Biden administration implemented numerous pilot programs in this direction, but making those approaches the primary R&D strategy would represent a significant achievement for the current administration. New experimentation and prize competitions would be particularly beneficial. We must consider how to optimize every dollar spent on R&D.

Grazio emphasized that beyond a protective agenda to maintain American dominance, we need a promotional agenda. We must create a funding environment that clearly articulates our national priorities, enables scientists to develop new theories, and empowers engineers to implement them. Using advanced market commitments would multiply the impact of government-funded research.

His address contained numerous positive elements that create opportunities for the administration to scale these efforts. Now is the ideal time for those with bold ideas to advance them.

Jordan Schneider: We observed the DOGE approach during the first hundred days — not implementing reforms to unlock a better version of government, but simply making cuts. As the DOGE era concludes, we recognize you can’t forcibly impose creative meta-science reforms, though these organizations do need restructuring.

The current energy, insight, and understanding acknowledge that conditions aren’t ideal. Breakthroughs have become less frequent and more expensive relative to expenditures compared to the 1950s-70s. This presents an opportune moment to experiment with new approaches. However, these efforts become significantly more challenging with half the funding and without international talent — risks created by the budgetary constraints, visa restrictions, and confrontational stance toward universities we’ve witnessed in recent months.

Alex Rubin: Yes.

Divyansh Kaushik: My friend Caleb Watney offers a valuable perspective: viewing federal R&D through a venture capital lens, given the substantial VC presence in government. We should measure performance by return on investment rather than by minimizing expenditure. The critical question is how to maximize outcomes from our investments.

Regarding reforming and restructuring agencies, these institutions are generally receptive to change. The National Science Foundation created the Technology, Innovation, and Partnerships (TIP) Directorate before Congress even passed the CHIPS and Science Act, despite some quiet resistance from other directorates. The agencies welcome innovation.

Consider how Department of Energy national laboratories are experimenting with OpenAI’s models as scientific peers for brainstorming. These represent fascinating initiatives by research agencies to reinvent their approaches to research and funding. If the administration pursues this direction, they’ll likely find substantial support from within the agencies themselves, as well as from universities and industry.

Jordan Schneider: We should campaign for Irwin as NSF Director!

To conclude our discussion on America’s research ecosystem, my assessment is that the Vannevar Bush “Endless Frontier” model has, over the past 75 years, delivered some of humanity’s greatest benefits. Setting aside national power considerations — which should be self-evident given that this system helped overcome the Soviet Union and created history’s wealthiest nation — this ecosystem could benefit from reforms. However, it represents the quintessential golden goose that we’ve managed to develop through work, consistency, and some fortunate circumstances.

This represents a national treasure, and what disturbs me most is the risk of crossing thresholds we cannot reverse. Ecosystems like this, when supported, demonstrate remarkable resilience. However, they contain inherent vulnerabilities related to institutions, funding streams, and talent that require continuous replenishment to maintain previous levels of success.

We’ve covered this extensively over the past eight years, following the excitement surrounding and ultimate passage of the CHIPS and Science Act — a period when bipartisan consensus seemed to favor increased investment in basic research. Watching immigration restrictions, culture war issues, and DOGE priorities converge to create perhaps the greatest threat this ecosystem has faced in decades is deeply concerning and something we’ll monitor closely in the coming months and years.

Divyansh Kaushik: American R&D is globally envied, and we should intensify our commitment to it. Universities serve as powerhouses in this system. Simultaneously, they aren’t blameless in many respects and need to engage in introspection regarding why our commitment to academia and universities faces questioning today. I hope many institutions will undertake this self-reflection and emerge stronger.

Alex Rubin: I’d like to add that while we’ve focused extensively on laboratories and academia and higher education, the R&D ecosystem extends beyond these components. It encompasses community colleges, vocational schools, and technical training programs that produce technicians who operate equipment in these laboratories — an absolutely crucial function.

Many major technology companies, particularly those with significant manufacturing operations, primarily employ community college graduates or individuals with technical training rather than PhDs. The semiconductor industry, for instance, has a substantial veteran population, recruiting former mechanics with relevant skills to maintain equipment. These aren’t PhDs, but they possess essential skills for equipment maintenance.

The final component, which speaks to generational investment, is K-12 education. Truly enhancing the quantity and quality of graduates from PhD and master’s programs begins at these early stages. We’ll discuss China’s approach in this area later, but the foundation lies in K-12 education, gradually building technical literacy so that by the undergraduate or graduate level, students’ mathematics and science skills match global standards.

Divyansh Kaushik: The administration recognizes this priority, evidenced by the recent AI in K-12 executive order, which aims to integrate AI education throughout K-12 curriculum to develop an AI-ready workforce in the coming years. Alex’s observation is entirely accurate, which further supports my optimism regarding future opportunities.

Monitoring Chinese Innovation

Jordan Schneider: Let’s discuss China. Alex, when fundraising for the ChinaTalk Institute, which has enabled me to hire exceptional talent tracking China’s developments in AI and biotech, several funders questioned the necessity of such an organization. They assumed the U.S. government adequately monitors China’s commercial technology through open-source intelligence. As someone who has spent the past decade primarily following Chinese science and technology in the commercial sector, how would you respond to that assumption?

Alex Rubin: My response is that it’s fundamentally a team sport. Different organizations — the intelligence community, other government agencies — have comparative advantages in what they monitor. However, when discussing commercial technology and areas where the primary actors aren’t governments but companies, universities, and laboratories, many strategically significant developments emerge from industry rumors and corporate insights.

Effectively monitoring these developments can’t be limited to individuals like myself in my previous role, working in secured environments to examine these issues. It requires a comprehensive approach that incorporates companies and universities.

The space for organizations like ChinaTalk involves engaging the general public. During the Cold War, nobody questioned why developments within the Soviet Union mattered — there was an inherent understanding of their connection to the American economy, jobs, and security. We need to establish similar connections today, explaining why developments like Huawei creating an advanced GPU matter to average Americans.

This is precisely where podcasts like ChinaTalk and similar outlets contribute value — bringing perspectives well-understood in Washington and disseminating them throughout the country.

Jordan Schneider: It’s interesting how you frame this through tactical, operational, and strategic perspectives when analyzing these questions. The flexibility available in think tanks, academia, or whatever category ChinaTalk occupies allows for different approaches.

Alex, what are the Chinese government’s long-term strategic intentions regarding science and technology?

Alex Rubin: I’ve settled on what I believe is the most accurate characterization, paraphrasing Matt Damon in “The Martian” — Xi Jinping plans to “science the hell out of China.” That’s his fundamental approach — an all-in bet on science and technology.

Whether examining the economy, military, or internal stability, technology permeates everything. Looking at the economy, Xi’s new catchphrase is "new quality productive forces" — a reinterpretation of classic Marxist-Leninist productive forces theory that essentially asks how technology can improve economic performance.

Key components include upgrading traditional manufacturing through robotics and AI automation. Another focus involves eliminating technological choke points by making China more self-sufficient through innovation and R&D investments, enabling Chinese companies to develop domestic alternatives to technologies they currently source from foreign providers. A classic example is photolithography, where significant investment is directed toward Chinese companies like SMEE to reduce dependence on lithography systems from the Netherlands.

The third component focuses on future industries. Last year, China identified six broad categories and numerous specific technologies for targeted support in their Future Industries Development Action Plan. Some might seem far-fetched, including humanoid robots, quantum technologies, artificial general intelligence, and brain-computer interfaces.

They’re absolutely serious about leveraging these technologies for economic benefits. China recognizes that the United States, through its R&D ecosystem, positioned itself to dominate high-revenue sectors of the modern economy. China aims to dominate these sectors moving forward and is investing accordingly.

Regarding social concerns, Chinese leadership prioritizes issues like social stability that could potentially undermine the Party’s control. Their solution involves technology — AI-based tools to enhance surveillance through facial recognition, gait recognition, voice recognition, and predictive analysis. These technology-based solutions monitor and control the population.

Throughout Chinese history, food security has represented the leading cause of revolutions and rebellions. For 22 consecutive years, the first document issued annually by the State Council and CCP Central Committee has addressed rural policy and agriculture — reflecting their significant concern about food security partly due to limited arable land and pollution. Again, their solution involves technology-based approaches to improve agricultural output.

Examining China’s strategy from the reform and opening period to the present reveals consistent prioritization of scientific and technological investment, seeking to leverage these advancements across multiple objectives. So yes, the aim is to “science the shit out of China.”

Divyansh Kaushik: To add to what Alex was saying, China has openly stated in many documents how they want to copy the US system. I was testifying last year to Senate Energy and Natural Resources on this topic. The Chinese 13th Five Year Plan explicitly identifies Argonne, Los Alamos, and Lawrence Berkeley national labs as crown jewels of US innovation. China aims to mimic the US national laboratory system to focus on national goals, strategic needs, and target international technological frontiers — all the points that Alex highlighted.

Jordan Schneider: Alex, could you tie that to the basic research ecosystem?

Alex Rubin: Everything I’m discussing and everything China is attempting to do is fundamentally based in the basic research ecosystem and the talent flowing into it. Xi Jinping himself has talked about how basic research is the foundation of China’s technological progress and how talent is the key enabling factor for their development.

There’s a recognition within senior leadership circles in China that to succeed in dominating future industries and technologies, they must start with investments in basic research. They’re facing challenges in shifting their investments away from applied research toward basic research, given their long-standing investments in applied areas. However, there is broad recognition that to be competitive as a global technology leader, you must invest in early-stage research, basic research, and crucially, train people to staff those facilities.

When we discuss basic research, we often focus on building infrastructure — whether purchasing GPUs or constructing data centers to train models. However, you can build the best infrastructure in the world, fill it with the best equipment, and provide unlimited funding, but if you lack people who know how to use that equipment and what to do with it, it accomplishes nothing. It inevitably comes down to having the right people working together with the appropriate training, experience, and connections to advance science and technology.

Jordan Schneider: Alex, what’s your take on the argument that China is looking for "good enough" technology as opposed to Nobel Prizes and truly frontier research?

Alex Rubin: China is essentially pursuing both approaches. China has a different interpretation of what it means to be a technology leader than the US does. The US defines technology leadership as having the most advanced technology and leading cutting-edge research. China defines it as that plus dominating markets and owning most of the world’s markets for key technology products.

For that second part of their definition, you don’t necessarily need the most advanced technology. What you need is technology that achieves perhaps 80% of the capability at 80% of the cost. When you’re looking at dominating markets, you’re considering Sub-Saharan Africa, Southeast Asia, Latin America — places that aren’t necessarily capable of affording the most advanced technology but still want the benefits advanced technology can provide.

A classic example is Huawei circa 2019. For a very long time, from its early stages, Huawei wasn’t seeking to be the world leader in telecommunication equipment. Instead, it developed technology that was "just good enough" and offered it to countries that couldn’t afford the best American options. Eventually, once the US exited the telecom equipment market, Huawei competed with European offerings by providing discounted prices and generous financial incentives — possible because of government funding, subsidies, and state support.

If you track the rollout of telecom networks through the 2000s and 2010s, from 2G networks to 3G and 4G networks, Huawei’s secret sauce was entering emerging markets in the Global South, offering technology that was perhaps not as good but cheaper, thereby gaining a foothold in these network buildouts. This strategy gave them significant revenue and market share, which they reinvested in research and development.

By 2019, they not only owned most of the world’s 4G network infrastructure but had leveraged their profits from markets like Sub-Saharan Africa to invest in 5G technology, which at the time was both better and cheaper than competitors’ offerings. This put the US in a difficult position because, arguably for the first time in modern history, it faced a major critical infrastructure buildout without a US company in the running, confronted by a Chinese company offering equally good technology at a lower price.

When we talk about "good enough" technology, it’s about broadening our definition of what it means to be a global technology leader. It emphasizes that leadership isn’t just about cutting-edge innovation but also about scale and presence in markets worldwide.

Jordan Schneider: Eva Dou, who wrote the excellent The House of Huawei, is on maternity leave, but we’ll get her on ChinaTalk at some point. One of the fascinating lessons from the Huawei story is that even though the government was pushing firms to do more R&D, the decision to spend an absurdly high percentage of revenue on R&D was Ren Zhengfei’s decision, not a government mandate. This made Huawei an outlier compared to rivals in China like ZTE, which invested only 5-7%. It demonstrates the interaction between government support, domestic scale, and visionary founders who see the long game. These founders understand that to build the most advanced technology company on the planet, you need to do the work yourself — you can’t just steal it.

Alex Rubin: You can steal your way to parity, but you can’t steal your way to leadership.

Jordan Schneider: Totally.

Alex Rubin: Another key point we mentioned earlier is the interconnection between research, customers, and manufacturing. That’s exactly what Huawei built for itself after studying success stories in the US and elsewhere. Huawei functions as both manufacturer and designer with a secure domestic market, where government support was particularly crucial in its early days. This creates an interplay that makes for a very successful, efficient model for advancing R&D.

The concerning part is that we’re seeing these same dynamics play out across multiple sectors today. If we’re not careful, we could find ourselves in the same position later this year or within two years, where critical infrastructure sectors are either reliant on Chinese technology or forced to choose between a Chinese supplier or paying more to be less competitive by going elsewhere.

Jordan Schneider: The broader American media and political ecosystem is only starting to process that China will be ahead in major commercial technologies over the next five years. We’ve already seen it in drones, telecom, and electric vehicles. Regardless of where the Chinese macroeconomic environment or American science funding goes in the coming years, we’re entering a new dynamic.

The trade-offs of keeping these technologies out of the US — which is broadly what we’ve decided to do for drones, telecom, and cars — creates a strange situation. Another important part of the China story was export discipline and the fact that many of these firms, at least in their early days, really had to compete to achieve scale domestically, both with other firms from different provinces and against companies like Apple and Tesla.

From a policy perspective, we need to remember that just because we don’t see these cars here doesn’t mean they don’t exist. They’re getting better, winning in third markets, and forcing GM, Ford, and Tesla to improve.

Alex Rubin: Even if what a Chinese company offers right now isn’t as good or is more expensive than what a US company offers, they’ve consistently shown they can leverage legacy technology to eventually move up the stack and position themselves to achieve world-leading technology. Focusing solely on where they are right now and the current quality of their offerings misses the future risks of their ability to leverage "good enough" technology to eventually generate world-leading technology, whether through theft or innovation.

Jordan Schneider: Divyansh, do you want to say anything about this?

Divyansh Kaushik: Look at where Huawei is now compared to where it was in 2019, as Alex pointed out. It’s expanding everywhere — building data centers, producing cell phones and laptops, operating undersea cables, and investing in EVs. It’s no longer just a telecom company. The same pattern is true for many other Chinese companies.

Alex’s point about projecting forward rather than just looking at a static moment in time is extremely critical, especially as we try to implement more "protect and promote" actions. We should consider where these companies want to be. They’ve laid it all out openly. Made in China 2025 was not a hypothetical document — they met every objective. The AI 2030 plan was not hypothetical either — they’re on track for their 2025 goals.

We’re sometimes overconfident about how significant our lead is. We have an uncanny ability to underestimate China’s capacity to out-hustle everybody. This is something people should be careful about.

Jordan Schneider: When I was fundraising for the ChinaTalk Institute, which now exists and is still taking donations — we’re doing great work around Chinese AI, biotech, and strategic competition — a number of funders asked if the Intelligence Community already has all this China technology information covered. What would you say about what the IC can and can’t do, and the utility of people writing about these topics independently from the government and publicly?

Alex Rubin: Fundamentally, we’re talking about commercial technologies and commercial entities — companies and academia. Many of these industries are relatively small where key players know each other. There’s an inherent need for platforms like ChinaTalk and a key role for industry participants.

Many key insights that might be technological in nature but have significant strategic implications are rumors circulating within industry or insights that companies gain from talking to customers or partners, whether in China or elsewhere. There’s significant value in that information.

Unlike analyzing the Chinese military or leadership, which is a very different challenge, the targets and developments you’re looking at here are fundamentally different. There must be a role for entities that monitor the open-source ecosystem. Otherwise, you risk missing significant trends and developments.

Last point — while we spend a lot of time discussing how China is different and how Chinese companies operate differently, they still have profit motivation, even if somewhat reduced or circumventable when needed. Many of these companies actively publicize their developments in industry press and within their ecosystem because they want visibility. They want to broadcast their technological advancement and development.

There’s so much available in open sources — small technological developments with massive strategic implications. Something like China making progress toward more advanced semiconductor manufacturing is highly technical but has enormous strategic implications for U.S. export controls and AI policy.

Jordan Schneider: I think my answer is that if you’re comparing military to commercial intelligence, maybe it’s 80/20 or 90/10 on the military side — the interesting information requires hunting and digging in an intelligence community way. On the commercial side, it’s the inverse, where 90-95% of what you need — maybe not in a specific tactical way, but at a larger strategic level of what it means for America, industrial policy, or science and technology policy — you can get by just reading publicly available information.

The relative openness of the Chinese media ecosystem when discussing commercial technologies versus operational military plans is completely different because companies need to win domestic market share, hire people, get workers excited about their companies, and raise money from investors. All of that happens under a journalism ecosystem which is, for the most part, fairly free. It’s valuable to surface this information if you have the language skills and context to process it and share it with an English-speaking audience.

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Alex Rubin: China’s war plan for tech is essentially their industrial policies, which they release constantly. Made in China 2025 was a very specific tech dominance plan that detailed their goals down to controlling specific percentages of industries or producing certain percentages of components. You can’t get more detailed than that.

Jordan Schneider: Before this episode, Alex, I asked if there was one document you wanted to discuss, and you pointed me to this mobilization war plan. We’ll link it in the show notes, but could you give listeners some context on why you think it’s interesting and important?

Alex Rubin: The document is from May 2022 — it’s a leaked transcript from a tabletop exercise, a war mobilization simulation in Guangdong province. What makes it interesting is that it includes representatives from the party, military, and government, all brought together in one room.

The scenario presented is essentially: "We’ve decided to invade Taiwan. What does the province do?" The focus isn’t necessarily on military movements like positioning naval vessels, but rather on how to mobilize the population and economy. In very detailed fashion, it discusses converting civilian manufacturing industries to wartime production, specifically calling out the shipbuilding sector, drone manufacturing, and other high-tech industries.

This provides a fascinating example of China preparing for potential major conflict with the US, not at the national level, but at the provincial level. They’re thinking through how to leverage their economy in wartime. If this sounds familiar, it’s basically similar to the US approach to war mobilization during World War II — that’s the scale and framework they’re considering.

They’re planning to leverage the benefits of China’s decades-long investment in expanding manufacturing capacity to essentially outproduce the US in the event of a conflict. The transcript is surprisingly detailed and covers all their considerations, from mobilizing reserves and recruiting people to converting maritime industries, aerospace repair yards, and organizing militias — everything is covered.

Jordan Schneider: When I read this, I thought it might be somewhat performative — Americans do nuclear war games for entertainment, after all. There’s something about the history of the Chinese Communist Party where national mobilization is portrayed as the most exciting time to be alive. But your sense is that I shouldn’t dismiss this entirely. Convince me otherwise, Alex.

Alex Rubin: You can find evidence of these activities in local Chinese press — I found examples just by using ChatGPT to search for relevant articles. There are numerous instances at county and prefectural levels, as well as provincial levels, of similar exercises being conducted. These are part of a comprehensive national system called the National Defense Mobilization system, which establishes cross-party government-military committees at national, provincial, county, and prefectural levels.

For example, in November 2020 in Chongqing Municipality, they conducted a mobilization exercise where civilian manufacturing companies temporarily switched their production lines to make ATVs. While not particularly advanced technology, it demonstrates them testing their capabilities.

To put this in a US context, these county and prefectural level exercises would be equivalent to officials in Fairfax County or New York City planning how they would mobilize to support a national-level conflict in the Pacific. It shows the scale and depth of their preparation and system-building.

Jordan Schneider: For our next episode on ChinaTalk, we’ll Twitch stream America’s national mobilization war plan.

Mood Music—Divyansh’s request as the song capturing the essence of China’s S&T strategy

Created by the United States Congress in 2022, the National Security Commission on Emerging Biotechnology (NSCEB) is an independent, bipartisan body tasked with assessing biotech’s national security implications. Modeled after the earlier AI Commission, the NSCEB recently released its report of recommendations to ensure the US's future leadership in biotechnology.

Their report signals something important: biotech is moving from policy background noise to strategic priority. But key parts of the discussion remain murky. The term “biotech” is used broadly, without disaggregating research from regulation and pharmaceuticals from agriculture. “China” is everywhere in the report — proving the need for additional analysis of the real ins and outs of Beijing’s biotech system. This article attempts to provide that supplemental understanding.

Let’s start by unpacking the first problem: what is biotech?

What is biotech?

The NSCEB defines biotech as “the design and engineering of biological systems, devices, and parts,” which intersects with a range of sectors: defense, industrials, consumer goods, healthcare, agriculture, and energy.

A whole-of-nation, holistic approach to biotechnology makes sense — to a point. Gene editing tools, bioengineering platforms, and computational models of biology do have broad cross-sector potential. But to craft policy, allocate funding, and set regulatory guardrails, the catch-all term “biotech” is too blunt to be useful. For each biotech sector, the stages of development, degrees of maturity, funding dynamics, regulatory environments, and end-user stakes vary so widely that generalizing becomes a liability.

Consider a few examples:

• Health biotech: a mature, well-capitalized sector about one-half of the total biotech market. It operates within a highly structured regulatory system, is driven by both public research and large-scale private investment, and faces challenges with cost, access, and long timelines.

  • Examples: mRNA vaccines, biologic drugs for cancer treatments

• Agricultural biotech: an established sector with capital markets less than one-tenth the size of pharma. It operates in its own silo of regulation and is highly influenced by public perceptions.

  • Examples: genetically modified crops, biofertilizers

• Industrial and biomanufacturing biotech: an emerging field that faces major scale-up challenges. Success depends less on regulatory approval and more on economics: whether these products can compete with traditional alternatives.

  • Examples: biofuels, bioplastics

• Defense biotech: mostly in the R&D and prototyping phase. Funds come almost entirely from government sources, goals are strategic rather than commercial, and products are often dual-use or classified.

  • Examples: biosurveillance,1 combat medicine

There’s no easy way to capture everything biotech touches in a single report, and the NSCEB’s efforts to visualize the big picture are important. Still, the complexity and rapid evolution of the field is exactly why specificity matters. Effective biotech governance requires a modular, sector-specific approach that aligns policies with actual economics, risk profiles, and social impacts.

Tailoring policy to the needs of each biotech sector will also sharpen how we evaluate progress. One of the benchmarks the US is already using is China — so it’s all the more important to take stock: what’s happening across China’s biotech landscape?

What’s going on in China?

China is the organizing principle of the NSCEB report. Chinese government and private sector activity shaped policy recommendations, defined success metrics, and fuelled a sense of urgency.

But if the Commission wants to meet the challenge it outlines, US policy must be grounded in a more detailed understanding of China’s biotech system: its strengths, its weaknesses, and its trajectory. Misreading the landscape risks building American strategy on flawed assumptions, allowing public resources to flow into the wrong problems or reinforce the wrong incentives.

So, let’s turn headlines into hypotheses. What follows is a toolkit for transforming common claims about China’s biotech sector into sharp, curiosity-driven questions – the kind that demand deeper analysis but can inform good policy.

1. The Money Question

Claim: China is spending billions on biotech.

Question: How much is China investing in biotech, and how well is it being spent?

China has identified biotechnology as a strategic priority. Budget allocations reflect this shift: China spent roughly US$34.5 billion (RMB 249.7 billion) on science and technology in 2024, and earmarked US$55 billion (RMB 398.12 billion) for 2025. However, disaggregating biotech from broader S&T initiatives — and parsing where spending falls across research, development, and commercialization — remains difficult. For instance, China’s 2024 investment of US$4.17 billion in bio-industrials and biomanufacturing is hard to categorize by stage. What’s clear is that the bulk of China’s biotech policy continues to prioritize biopharma, the most dominant part of the sector.

The efficiency of China’s public biotech funding ecosystem also requires investigation. One Chinese professor observed: “Money is no longer a major issue… the problem is with the funding system.” Government ministries, national foundations, and provincial and municipal governments all deploy biotech-linked funds, and a lack of coordination and transparency between actors can lead to redundant or wasteful spending. Fund allocation is also uneven, often favoring large, top-down projects aligned with national priorities — an approach that can be ill-suited to biotech, where breakthrough directions are inherently unpredictable. High competition and the short-term structure of grants further limit incentives for more high-risk innovation.

Private capital is equally important to understand. In key application areas like pharmaceuticals and agriculture, private investment plays an outsized role in shaping what gets developed and what reaches the market. China was the second-largest destination globally for biopharma venture funding in 2018–2019, raising around US$60 billion. Such a metric is less impressive in comparative terms: the US raised US$212 billion in the same period, and China’s innovative capabilities remain limited by its less robust private sector. But since the COVID-19 pandemic, China’s capital markets have cooled, and many biotech firms have scaled back R&D. The survival rate and long-term viability of these Chinese start-ups remain undecided.

What should the rest of the world do?

Following China’s actions, other nations could also identify biotech as a national priority deserving serious investment. The NSCEB’s primary recommendation for the US government to spend “minimum of US$15 billion over the next five years” on biotech is a necessary first step – especially at a time when US R&D spending as a share of GDP has declined significantly2 and federal science funding faces mounting pressure from grant freezes and budget cuts.

At the same time, China’s “whole-of-nation” approach to biotech comes with clear challenges: bureaucratic fragmentation, inefficient capital deployment, and misaligned incentives. For the rest of the world, effective biotech policy need not require the same holistic approach. For instance, the US already has a strategic advantage in its robust, innovation-driven private sector – the question is how to unlock that capacity more systematically. The NSCEB’s proposals for an ‘Independence Investment Fund’ to support high-potential startups, advance market commitments (AMCs) and offtake agreements to smooth demand signals, and the restoration of full R&D expensing under the tax code are smart practical levers to promote biotech.

Strong policy deploys public capital to make innovation easier: incentivizing early-stage R&D, derisking scale-up, and building stronger bridges between public goals and private execution.

2. The People Question

Claim: China is building a massive biotech workforce of domestic and global talent.
Core Question: What is the size of China’s talent base, and how sticky is it?

Over the past two decades, China has modernized its education system with the goal of cultivating world-class science and technology talent. Government education expenditure as a share of GDP rose from 2.5% in 1998 to over 4% since 2012 and has stayed above this benchmark through 2024. Such investment spans all levels of education: primary and secondary schools are integrating more STEM into their curriculums, and the number of STEM undergraduate and PhD degrees awarded in China grows each year. 45% of China’s STEM PhDs now come from top “double-first class” universities, indicating their quality.

However, academic programs may still fall short when it comes to preparing talent for biotechnology. In one survey, a third of Chinese biopharma companies reported persistent R&D hiring gaps, citing academic curricula that lag behind industry needs. Industry experience, including the ability to translate research into commercial products and to build and lead globally competitive biotech firms, remains underdeveloped. This gap in managerial and translational expertise has become a core constraint on ecosystem growth. While China’s high-skilled STEM workforce is expanding, it still represents a relatively small share of the overall population. The imbalance between supply and demand has led to intense competition for talent — reflected in an 18.0% active turnover rate in pharmaceutical R&D in 2020.3

Beijing is also seeking to bring back Chinese professionals educated or employed overseas. The National Science Fund for Distinguished Young Scholars supports scientists conducting basic research, provided they spend at least nine months a year in China. The Thousand Talents Plan offers returnees signing bonuses, high salaries and funding, housing assistance, and family support. Such programs, while not unique to China, intend to strengthen the country’s domestic research and innovation capacity.

These programs have mixed effects. Government statistics report a growing proportion of returnees each year. At the same time, both the flow of Chinese students going abroad and the rate at which they stay overseas after graduating have held steady. As of 2019, for instance, over 90% of Chinese AI talent educated in the US have chosen to remain in the US. While China has become more attractive for returnees — thanks to rising living standards, a growing private sector, and increased R&D investment — many of the original push factors remain. Concerns about academic and political freedom, limited job prospects, and digital censorship continue to shape decisions to stay abroad. Some of those who do return are frustrated with lower-than-expected salaries, shortages of postdoc positions and jobs, and reverse culture shock.

Demographic pressures are pushing China to diversify its talent base. China’s college-aged population is declining and has been on a marked downward trend for more than a decade. Ongoing labor market challenges are likely to further drive down Chinese postgraduate enrollment. Beijing has made efforts to attract global talent, including a series of immigration reforms in 2017, but those reforms have yielded limited results. Since 2017, China has risen only modestly in the Global Talent Competitiveness Index4 and still ranks below the top 35 countries. Fewer than 7% of the country’s PhD enrollments are foreign. Political, professional, linguistic, and cultural barriers continue to limit China’s appeal to global researchers.

What should the rest of the world do?

As the NSCEB observes, demand for biotech talent is growing faster than supply. China’s comprehensive workforce strategy — from early education to postgraduate opportunities — should push countries like the US to invest just as broadly in domestic and global talent. And with clear cracks in China’s own approach, now is the moment for others to act.

Fewer than 30% of American public school biology classes include molecular biology content,5 the foundation of most biotech today. Undergraduate biology curricula can be overly rigid and siloed, failing to match biotech’s interdisciplinary nature. Federal and state investments in modern lab infrastructure, teacher training, and interdisciplinary STEM curriculum development could begin to close the preparation gap.

Undergraduate and graduate research opportunities also remain unevenly funded, and too many STEM students face degree-to-career dead ends. In a field as technical as biotech, talent needs to accumulate experience and credentials in a way that stacks. That means investing in well-paid postdocs, lab-intensive training, and academic–industry bridges that allow talented people to do innovative work. One analyst notes this is where the US holds a comparative advantage over China: postdoctoral programs that offer real research experience and career growth.

At the same time, the US’s ability to attract and retain global talent is one of its greatest strategic assets. Over 75% of international students who earn STEM PhDs in the US stay for at least a decade, contributing to vital sectors like AI. Chinese officials regularly cite such US retention of Chinese talent as a key obstacle to their national goals. The NSCEB report cites Jeremy Neufeld, who emphasizes the importance of STEM immigration for the defense-industrial base, writing:

Existing restrictions on STEM immigration — and the resulting backlogs and waiting times for STEM talent — hamper the defense industrial base’s growth. Without reducing the barriers to high-skilled immigration, efforts to onshore and strengthen critical industries in the United States will face significant hurdles, and may fail altogether.

To maintain an edge in biotech, the US needs to double down on reinforcing the pull factors that make it the world’s premier destination for scientific and technical work while addressing the growing push factors that drive talent away. Staying attractive for global talent requires investing in research and building secure career pathways. At the same time, streamlining visa transitions and expanding green card availability for advanced STEM grads can help send a clear cultural and political signal that global talent is welcome.

3. The Supply Chain Question

Claim: The US is dangerously dependent on China for pharmaceutical supply chains.
Core Question: How concentrated is China’s role, and how relevant is this to biotech competition?

Pharmaceutical supply chains are commonly cited as a source of concern when it comes to China and biotechnology. However, available data does not support the narrative of overwhelming US dependence on China for pharmaceuticals. While China plays a significant role in upstream chemical manufacturing, pharmaceutical supply chains are globally distributed, multi-step, highly fragmented, and frequently outsourced — making US exposure indirect and difficult to isolate.

For example: in 2024, China was responsible for less than 6% of US imports of finished pharmaceutical products.6 As for APIs (the component of a drug responsible for its therapeutic effect), current data suggests that between 2014 and 2022, 17% of APIs used in medicines in the US were imported from China. In 2024, that share fell to 8% for prescription medications. The oft-cited “80% of APIs come from China” is an unsubstantiated misinterpretation of a government statement that has since been clarified. India and Ireland are both larger exporters of APIs and finished medicines to the US than China.

China’s footprint in pharmaceutical supply chains is primarily upstream, producing key chemical inputs and APIs that pass through multiple global intermediaries before reaching consumers. This prominence is largely in small-molecule generic drugs, which are manufactured through chemical synthesis. This matters because chemical manufacturing and biomanufacturing are fundamentally different in terms of core technologies and processes. Much of what’s described as “biotech supply chain risk” is actually about commodity chemical inputs for generics — a sector adjacent to, but distinct from, modern biotechnology.

China’s footprint in biomanufacturing requires investigation into biologics (medicines derived from living cells, rather than through chemical synthesis; typically large and complex molecules such as proteins and antibodies). In biopharmaceutical supply chains, China’s presence is limited but its capabilities are growing.

Chinese biopharmaceutical manufacturing capacity represents about 10% of the worldwide total, third globally behind the United States and European Union. Much of this capacity was built after 2016, following a major regulatory change7 that opened China’s market for contract manufacturing organizations (CMOs) that provide small-scale and large-scale drug production services to pharmaceutical companies. Multinational CMOs like Boehringer Ingelheim, Lonza, and Samsung Biologics now operate facilities in China. Among domestic CMOs, WuXi Biologics is widely considered a biomanufacturing leader by the industry, though it has recently faced setbacks due to political scrutiny. ​Following Beijing's recent pledge to accelerate biomanufacturing, China's capacity in this sector is poised for significant growth.

What should the rest of the world do?

De-risking pharmaceutical supply chains from China starts with recognizing their complexity. Exposure to China is real but often indirect. When it comes to small-molecule generics in particular, the economics of onshoring rarely add up on their own. These drugs operate on razor-thin margins, giving manufacturers little incentives to invest in quality or resilience – even with tariffs in place. Building more resilient supply chains at home will require accepting trade-offs such as higher costs for payers and consumers. Meaningful incentives for domestic production will require government intervention through policy tools such as targeted subsidies, publicly-funded manufacturing infrastructure, and expansion projects such as BARDA’s work to build out domestic biomanufacturing for vaccine production and distribution. And as supply chains are restructured, regulatory oversight will need to scale as well. In the US, a stronger, better-resourced FDA will be essential to maintaining quality, consistency, and compliance.

On the biotech side of pharmaceutical supply chains, the focus should be on reinforcing homefield advantages and lowering the barriers that keep domestic firms from scaling. One key advantage is talent: biomanufacturing depends on engineers, technicians, and regulatory specialists with deep expertise. Strengthening training pipelines — through programs like the National Institute for Innovation in Manufacturing Biopharmaceuticals, a public–private partnership highlighted by the NSCEB — can help expand this critical workforce. Regulatory credibility is another asset the US shouldn’t take for granted: the FDA still carries far more global trust than its Chinese counterparts. Meanwhile, high startup costs for facilities, equipment, and compliance systems remain a major barrier for domestic firms, requiring targeted investment to lower the threshold for entry.

In Sum!

“China” is often invoked as if it were a unified actor with perfect coordination and seamless execution. Reality is more complicated. Behind some impressive numbers and case studies are real growing pains: capital inefficiencies, inexperienced management, limited regulatory expertise, gaps in early-stage funding, underreported failures, uneven enforcement, and dependence on global partners.

In this respect, China is not an exception. Innovation is rarely a simple narrative of linear progress. But as more eyes turn to China, and as real changes unfold within its biotech ecosystem, careful observation and accurate analysis become all the more essential. Meeting this moment requires asking the right questions to understand how capital is deployed, how talent systems function, and which parts of the supply chain actually matter.

The point isn’t to downplay China’s rise in biotech. It’s to understand it on its own terms — and in doing so, craft smarter, more grounded policy.

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How is Trump changing America’s extended deterrence regime? I got Polymarket to make a market on whether a US ally will acquire nuclear weapons in 2025. It’s currently trading at 6%. Are we buyers or sellers?

To discuss, I interviewed Vipin Narang, professor at MIT, who served as Acting Assistant Secretary of Defense responsible for nuclear deterrence policy during the Biden administration; Pranay Vaddi, a senior fellow at the Center for Nuclear Security Policy at MIT who worked on arms control and non-proliferation on Biden’s National Security Council; and Junichi Fukuda, senior research fellow at Tokyo’s Sasakawa Peace Foundation.

We get into…

• The historical development of the American nuclear umbrella, including the “software” and “hardware” components of deterrence,

• The probability that an American ally will proliferate by 2030, and which countries are the most likely candidates,

• Why France proliferated despite US objections,

• How the world might respond to nuclear ambitions from Poland, Japan, or Saudi Arabia,

• China’s nuclear modernization and deterrence strategies for a multi-polar world.

Listen now on iTunes, Spotify, or your favorite podcast app.

Thanks to the US-Japan Foundation for sponsoring this episode.

Foundations of Non-Proliferation

Jordan Schneider: Let’s start with a history of American extended deterrence. Where did this concept originate, and what has it achieved over the past 75-plus years?

Vipin Narang: Extended deterrence is the notion that the United States will use its range of capabilities — including nuclear weapons — to defend its formal allies and partners against nuclear attack from a common adversary. It also covers high-consequence non-nuclear strategic attacks, which is a mouthful but really means an existential threat to our allies.

The concept developed in the mid-1950s after World War II. European states had been devastated by the war and could not defend themselves against the emerging Soviet threat. The United States maintained its forward conventional deployment, but our huge advantage over the Soviet Union was nuclear weapons. The Eisenhower administration quickly realized that against a conventionally superior Soviet Union, we might need to increasingly rely on nuclear weapons to defend our forces and our allies, which were still rebuilding.

We never implemented extended deterrence out of altruism or charity. It benefited the US by preserving the openness of Western Europe and our East Asian allies, particularly South Korea and Japan, after the Korean War and World War II. This allowed us to keep the economies and political systems of our allies free, democratic, and capitalist, which created open markets for the US.

Over time, extended deterrence became important for another reason that is often overlooked — it became our best non-proliferation tool. We could prevent our allies from pursuing their own nuclear weapons if they believed our nuclear umbrella would credibly deter common adversaries. Kennedy predicted that we’d have 25 nuclear weapon states by the end of the 1960s — that was largely prevented by a credible extended deterrence architecture that the United States developed and maintained.

We worked with allies not just to deter common adversaries — China, Russia, North Korea — but to assure allies that we would come to their defense. Making this credible requires convincing allies that we can fight on their behalf without losing American cities or allied cities. The core of making extended deterrence work is being able to substantially limit the damage that Russia or China can impose on both the ally and the US homeland.

Regarding the non-proliferation point, extended deterrence has a remarkable record of preventing ally proliferation. Of our 34-35 formal allies, France is the only state that consciously decided to acquire nuclear weapons because it believed the US umbrella wasn’t credible for France’s defense. We can discuss some corner cases, but France remains the only example where perceived lack of credibility in extended deterrence caused a formal ally to develop nuclear weapons. Until now, it’s only been one case, and we hope it remains that way.

Jordan Schneider: Let’s explore this “Berlin-for-Boston” dynamic. The assumption throughout the Cold War and after was that no president would really trade Boston for Berlin. What was needed was a defense deterrence package that could plausibly threaten to keep Berlin free while avoiding an escalatory spiral that would leave Cambridge, Massachusetts in thermonuclear flames. What strategies has the US used over the past 75 years to make deterrence credible both to Moscow and to our friends in Asia and Europe?

Pranay Vaddi: You can’t separate the military dynamics and strategy from this discussion. What matters is the relationship between the head of state in the United States — the nuclear guarantor — and the head of state in the allied country receiving the nuclear umbrella. They need to be aligned. There must be a close political relationship between the United States and the 35 allies that Vipin referenced as nuclear umbrella allies.

When you put that relationship at risk or question whether the US will honor its defense arrangements — for example, if the United States declares at the presidential level it won’t defend an ally unless that ally spends a certain percentage of GDP on defense — it creates problems. Regardless of whether the United States maintains its nuclear modernization program, keeps forward-deployed dual-capable aircraft in Europe, or shows off B-2 bombers every time North Korea tests a missile, these mechanics can continue. However, every ally knows that it’s the US President who decides whether to use nuclear weapons in defense of an ally.

When the US President isn’t committed to an extended deterrence strategy as we have been for the past 70-80 years, it creates doubt. This is what we’re seeing today — countries wondering if the US will actually honor its guarantees. Because of these doubts, Poland and South Korea in particular have started discussing how to hedge against potential US abandonment of nuclear guarantees.

Just this week, we’ve seen continued statements from French officials about what a European deterrent could look like — something that Vipin and I have written about extensively. Poland has indicated it would welcome both US and French weapons. But ultimately, you need to combine military strategy with political relationships.

One example of this approach is when Vipin and I, in our previous roles, worked closely with South Korean counterparts to establish the Washington Declaration at the presidential level when President Yoon visited Washington in April 2023. This required extensive work below the surface — Vipin leading discussions at the Defense Department with his counterparts in South Korea’s Ministry of Defense, alongside White House interactions with the presidential office in Seoul. The goal was to create public language that both countries could agree to, demonstrating a renewed and enhanced commitment to extended deterrence with commitments from both sides.

South Korea needed to recommit to the Non-Proliferation Treaty, while we needed to recommit to South Korea’s defense. We agreed to do so more transparently, giving South Korea greater insight into US nuclear planning and more input into how nuclear operations could be conducted. We needed to address both military and political aspects to provide reassurance in that bilateral relationship.

Jordan Schneider: Let’s stay on history a little more. We’ve got the credible military component — “I can actually bomb places” — and we’ve got the credible political aspect — “I actually care about your country enough to do something if it gets attacked.”

Vipin Narang: We called it “hardware” and “software.” The hardware piece is actually easier because it’s about having flexible capabilities to limit damage to the ally and the homeland. The theory is relatively simple, but implementation is not. This is something the Department of Defense spends considerable time contemplating.

Pranay’s point is really important — we underemphasize the importance of the software piece both historically and today. The only change from the Biden administration to the Trump administration is the software piece. That alone explains why we’re having this podcast. It’s almost like a blue screen of death for some allies. They don’t question our capability — they question whether, when the time comes, we will actually attempt to limit damage to the ally and US homeland and fight on their behalf.

Jordan Schneider: Let’s explore the history a bit more. What have been the sketchiest software moments since 1950?

Vipin Narang: The Eisenhower administration raised concerns right out of the gate. The plan was to reduce our conventional footprint, but that conventional presence in Western Europe reassured allies because we had skin in the game. Without skin in the game, the fear was we wouldn’t pull the trigger if the Red Army came crashing through.

The debate during the transition from the Eisenhower administration to the Kennedy administration centered on whether we had flexible enough options for a theory of escalation management. There have been various ups and downs, but what we’re seeing today is new: questioning whether we even care about our allies. Article 5 is a hallowed pillar of NATO and essentially our commitments to South Korea, Japan, and Australia.

For the first time, we’ve had an administration that basically says we might not honor Article 5, and allies might be on their own if they don’t pay enough. One of the bigger implications of the Signal chat leak was revealing that in private, the Vice President essentially said, “I hate Europe.” If I were Europe, I might question the willingness — not the ability — of the United States to step in when necessary.

Junichi Fukuda: Regarding the crisis of extended deterrence, we should consider the case from the early 1970s and late 1960s. At that time, the Guam Doctrine, or Nixon Doctrine, resulted in conventional forces withdrawing from the Indo-Pacific area alongside the withdrawal from the Vietnam War. This created a genuine crisis.

There was no clear nuclear extended debate then. Most countries were deciding whether to sign the Non-Proliferation Treaty (NPT) around 1969-1970. At that time, the Japan-US alliance didn’t explicitly mention the nuclear umbrella. The term “nuclear umbrella” was first used in 1975, yet Japan decided to sign the NPT during détente. The tension between the US and Soviet Union had decreased, allowing us to join the NPT.

Officially speaking, there was no extended nuclear debate at that time. This provides an analogy for our current situation — the United States withdrawing forces while the credibility of extended deterrence appears to be in crisis. We must learn from the experiences of the early 1970s.

Jordan Schneider: Perhaps the distinction between then and today was détente. You didn’t really see nuclear war on the direct horizon. China was busy with its Cultural Revolution, and the Soviet Union was being friendly. It wasn’t the most frightening period in thermonuclear history. Does that change the dynamic compared to today?

Junichi Fukuda: Because it was the détente era, tensions were reduced, so we didn’t have to deeply consider the implications of the extended deterrent crisis — we simply accepted it. In our current situation, US-China relations have deteriorated, and US-Russia relations are poor. Tensions are increasing while the United States appears to be withdrawing its engagement with the outside world. This creates a crisis.

Pranay Vaddi: Another historical element worth mentioning — something I always try to write about when Vipin and I collaborate, though he always deletes this paragraph — concerns extended deterrence from the early 1960s. There’s an interesting story about when a German Chancellor visited JFK after his White House victory.

Konrad Adenauer represented the CDU — the center-right in West Germany — and was essentially JFK’s opposite. Adenauer was about 85 years old while Kennedy was this young, new president. Kennedy was deeply concerned about allied proliferation, as Vipin outlined regarding developments in the 1950s and 60s.

According to declassified documents recording their meeting, Adenauer essentially said, “I hear you have weapons in West Germany, but I’ve never seen them. I’ve been repeatedly told those warheads are there, but I haven’t been shown them.” He wanted his Defense Minister to understand what the US was actually doing in their territory — what they had based there.

Kennedy assured Adenauer it made sense and promised that Defense Secretary Bob McNamara would brief him and his defense minister on the US stockpile operational plans — when we would actually use them if the Warsaw Pact attacked.

To me, this marked the beginning of the types of requests we in the US Government would regularly hear from allies — “What are you actually doing in a nuclear scenario?” As mentioned regarding the Washington Declaration and US work with South Korea, Japan, and NATO, we conduct tabletop exercises, scenario-based discussions, and simulations to demonstrate that the US has thoroughly considered extended deterrence scenarios. This marries hardware and software to make extended deterrence effective. Its origins date back to that conversation.

Retrenchment vs Burden Sharing

Jordan Schneider: If we’re using a relationship analogy, we’re saying, “We’re going to give you a tour of our place. We’ll let you bring some toothbrushes into the bathroom.” The US has been doing this 75-year dance with its allies, broadly trending toward reassuring everyone so they feel safe and secure enough not to develop their own nuclear weapons.

The question now is, what does the decay function of that look like? The Trump administration isn’t going to destroy our B2 bombers anytime soon, so the capability isn’t disappearing. However, the trust has developed some real hiccups, particularly on the software side.

Where do we start with this? What’s the right conceptual framework to understand the signals that the Trump administration is sending to the world?

Vipin Narang: Let me quickly address the hardware aspect. We shouldn’t overlook the hardware adjustments that were ongoing or being laid as a foundation at the end of the Biden administration. This includes ensuring the modernization program for each leg of the nuclear triad — we’re replacing each leg simultaneously for the first time in history, and we’re facing challenges.

The Sentinel ICBM is facing delays. Attention and focus are needed to prevent the modernization program from falling further behind schedule. The current administration hasn’t issued an executive order on nuclear forces, though it has addressed missile defense architecture, which is related but represents a very long-term strategy.

The immediate concern is our progress on this modernization program and how we’re dealing with China’s emergence — something we didn’t anticipate when we sized the modernization program 15 years ago. We don’t need forces matching the combined strength of our adversaries, but we might need more than what we planned when discussing New START numbers in 2010. At that time, Russia was considered a partner, and China and North Korea hadn’t begun their expansions.

For an ally examining the hardware aspect, there are mixed signals. The president has stated he doesn’t want to allocate more funds to nuclear weapons, which might be concerning. However, the more pressing issue, as Pranay and Fukuda-san mentioned, is that the software component isn’t experiencing a decay function — it’s a complete discontinuity. The posture toward our European allies has transformed dramatically since early January 2025.

If I were in the Indo-Pacific region — and I’d welcome Fukuda-san’s thoughts on this — there’s considerable uncertainty. The administration has declared China the pacing threat and pledged to focus on China, yet simultaneously continues to pressure Japan and South Korea economically in ways that may undermine the credibility of our commitment to defend them against existential threats from China or North Korea. This credibility is arguably much weaker than it was in January 2025.

Pranay Vaddi: The fundamental question is whether this is about right-sizing burden-sharing between the United States and its allies or pursuing a retrenchment ideology. If you’re an ally like Japan, you can approach the United States saying, “We understand you want everyone to pay their fair share. You want Japan to prioritize China as your primary concern, and we’re contributing to the extended deterrence strategy that Indo-PACOM needs for a Taiwan Strait crisis."

Japan is developing air and missile defense capabilities, long-range conventional strike capabilities, and a blue-water navy. They’re willing to open their shipyards for replenishment and repair of US naval vessels. In return, the US needs to maintain a strong nuclear umbrella and guarantee. That’s the basic exchange, but we should develop this strategy together.

If it’s primarily a burden-sharing question from the US, that’s a strategy to present to the White House: “Let’s determine the appropriate payment amount and capabilities within a bilateral strategy — or trilateral if South Korea is included, or quadrilateral with Australia as another extended deterrence ally in the Indo-Pacific."

However, if this is about pursuing a retrenchment foreign policy — if that’s what “America First” means — which I believe is an unseen battle within the administration, then allies have limited options. As an extended deterrence ally, you can only be so persuasive because ultimately, you need a United States willing to engage with allies, be transparent, and fulfill the software element of extended deterrence. Being credible on the software side seems contradictory to a retrenchment strategy.

Allies need to determine whether this is about recalibrating burden-sharing in the new political climate or if the United States is reducing its international commitments. The second scenario is much more challenging and drives allies to consider hedging strategies.

Jordan Schneider: It’s complicated because the answer is both. Pranay pointed out that some people believe one thing and others believe something else. We have a president who frequently changes his mind. So what’s the appropriate response?

Junichi Fukuda: Regarding the hardware issue, I’m not overly concerned about the modernization of US strategic nuclear forces. The United States is modernizing its strategic nuclear weapons, and there’s an option for uploading nuclear warheads on existing platforms.

My concern lies more with the future trajectory of developing theater nuclear forces, such as sea-launched cruise missiles from submarines. These types of theater nuclear weapons would be essential for Japan’s defense in the future. Given the current administration’s position on cutting the defense budget, I question whether such new nuclear capabilities will ultimately be realized.

On the software issue — the political relationship between the United States and Japan — there are several possibilities. First, there’s conflict in the trade area. The United States has increased tariffs on Japan, and we’re currently negotiating this matter. Japanese people might find it difficult to rely on the United States for security while we’re engaged in economic disputes.

Simultaneously, the Trump administration is attempting to address the challenge posed by China. Most security experts in the administration appear to be “prioritizers” — they would withdraw from the European theater but concentrate on strengthening capabilities in the Pacific to counter China’s threat. This approach provides some reassurance to us.

The situation remains difficult to analyze fully at present. Overall, we remain confident in continuing the alliance relationship for now, though the future is somewhat unpredictable.

Jordan Schneider: It’s interesting, Junichi, because you’ve seen this incredible earthquake in European politics triggered by just a handful of speeches. It seems to me that only people like you are paying close attention, not necessarily the entire Japanese or South Korean political establishments. Am I wrong? Do you think it would take something as explicit as a J.D. Vance or Pete Hegseth speech saying, “We don’t care about you guys,” to trigger the same kind of awakening that seems to have happened in Poland and Germany?

Junichi Fukuda: That’s a nightmare scenario we hope to avoid. Currently, there appears to be conflict within the administration. One faction focuses on confronting China, recognizing the necessity of maintaining US hegemony in the Indo-Pacific region. The other faction consists of isolationists who advocate withdrawing US forces from every theater worldwide, preferring to concentrate resources on domestic politics. The future direction of the current administration remains uncertain, with potential internal struggles ahead.

Jordan Schneider: The very existence of this debate is unprecedented from a post-1945 perspective. Perhaps now is a good time to discuss the politics of nuclear armament in both South Korea and Japan. If we remain in this awkward, subterranean debate — or move toward the more alarming scenario of J.D. Vance expressing indifference toward Japan — how might this affect Japan and South Korea’s nuclear postures?

Junichi Fukuda: Japan’s nuclearization has traditionally been an unthinkable issue, not widely discussed. However, as someone studying nuclear deterrence, I’ve had many opportunities to address this topic. Last month, I attended a conference where American experts frequently discussed the possibility of Japan nuclearizing in the future.

The primary condition under which Japan might consider nuclearization would be a lack of confidence in the credibility of US extended deterrence. A secondary scenario would involve South Korea pursuing nuclearization first, which might prompt Japan to follow suit. The specific circumstances that would trigger such scenarios remain unclear to me.

Pranay Vaddi: From a US perspective, it’s difficult to imagine any scenario where the United States benefits from ally proliferation. We’ve seen comments by the Vice President questioning whether stationing US nuclear weapons in Poland makes sense — indicating that proliferation of US weapons to other allies isn’t necessarily on the table. This struck me as an off-the-cuff reaction rather than the product of an interagency process.

The challenge for the Trump administration is reconciling several objectives — preserving the status quo regarding the number of nuclear-armed countries, upholding the Nuclear Non-Proliferation Treaty, and renegotiating burden-sharing agreements or pursuing retrenchment. These goals conflict with each other.

Japan is a technologically advanced nuclear country with nuclear technology and reprocessing capability. They’ve committed to neither possessing, producing, nor introducing nuclear weapons into their territory as part of their peace constitution. They remain an importantUS partner in nuclear energy, extended nuclear deterrence, and nuclear disarmament. Japan uniquely embodies all the contradictions of nuclear policy in one bilateral relationship.

Countries like Japan, South Korea, or Poland cannot simply decide to acquire nuclear weapons overnight. The process requires specialized facilities, legal and regulatory changes, withdrawal from the NPT, and consideration of potential US export controls and sanctions. This timeline gives adversaries opportunity to react — not just economically. If North Korea observed South Korea pursuing nuclear weapons while US extended deterrence guarantees appeared shaky, they might preemptively strike those facilities or initiate conflict. The risk of conflict increases when an ally with weakened US security guarantees pursues nuclear capabilities — an important consideration for countries weighing this decision.

Vipin Narang: Those who identify as “America first” — which includes all of us, as I reject the notion that only the Trump administration puts America first while the Biden administration didn’t — should oppose allies acquiring nuclear weapons for at least three reasons.

First, we have historically opposed allied proliferation in Washington because we wanted to minimize the number of independent decision centers for initial employment or escalation decisions. This is a sanitized way of saying we didn’t want France starting a nuclear war we’d have to finish. The French — whom I genuinely respect — had a strategy where their independent nuclear capability would be employed when the French President determined vital interests were at stake. However, they couldn’t finish such a conflict, leaving the US to manage the aftermath against the Soviet arsenal. This thinking persists today when discussing the credibility of European deterrence. France can initiate a conflict, but cannot conclude it.

Similarly, other allied nuclear powers could never develop damage limitation capabilities comparable to the United States independently. An allied proliferator would acquire nuclear capabilities that could initiate a nuclear war and chain-gang the US into it — precisely what the US has always sought to avoid.

Second, while Kenneth Waltz famously argued “more may be better” from a retrenchment perspective, the risk of accidents increases substantially. Smaller states with limited arsenals facing more capable nuclear adversaries with head starts might develop itchy trigger fingers or lack the institutional infrastructure to effectively manage these weapons. The accumulated risk of accidents grows with each additional nuclear-armed state.

Third, as Pranay and Fukuda-san mentioned, the threat to the NPT is real, as is the potential cascade effect if one ally — particularly South Korea, given the growing political consensus there for at least developing a hedging capability — acquires nuclear weapons. I doubt the NPT could survive a democratic state in good standing withdrawing to pursue nuclear weapons. Japan might follow, along with Poland, Ukraine, Germany, Saudi Arabia, Turkey, and a number of other countries if the floodgates opened.

Pranay’s point is important: these countries would pursue nuclear weapons in an environment where their adversaries have both a vote and a head start. Historically, no state has acquired a credible nuclear weapons capability in less than five years from the decision point, and a survivable arsenal typically requires a decade or more.

Regarding probabilities — there’s a zero percent chance an ally proliferates by the end of 2025? The timeline doesn’t work. By 2030? I’d wager the odds are more than 50 percent, though as an academic I don’t have much money to bet — that at least one ally will have a credible latent nuclear capability by 2030-2035 if current trends persist.

Jordan Schneider: Just wait until you get all those Polish and Saudi contracts to help write their nuclear doctrine.

Vipin Narang: You can reach Pranay, my agent, at prvaddi@mit.edu.

Jordan Schneider: Let’s talk about France. They were exceptionally difficult throughout the Cold War, no?

Vipin Narang: I love them, but one France is enough.

Jordan Schneider: This is precisely the point about “America First.” Nuclear weapons are incredibly powerful — they provide tremendous leverage, allowing you to dictate terms to other countries, constrain their actions, and influence whether they initiate conflicts.

Consider how the US effectively prohibited Chiang Kai-shek from invading mainland China in 1962 because he lacked nuclear weapons. Our ability to maintain global stability and, as Vipin mentioned, prevent conflicts that we would ultimately have to resolve actually enhances American security. The alternative makes the world a lot more dangerous.

The notion that Putin would remain passive for five years while Poland develops nuclear weapons is unrealistic. We’ve already witnessed this scenario play out with Israel, Syria, and Iran. Russia would undoubtedly take action. Imagine the consequences of a Polish nuclear facility being bombed by Russian aircraft — the global ramifications would be catastrophic.

Vipin Narang: Poland remains a NATO member, so that scenario involves Article 5 and risks war with Russia over a counter-proliferation strike. These are low-probability events.

Pranay Vaddi: Attempts at retrenchment could actually accelerate the path to great power confrontation that you’re trying to avoid. Regarding our discussions with French colleagues — you don’t necessarily need to implement extended deterrence exactly as the United States has done. We’ve pursued an expensive strategy heavily reliant on nuclear capabilities that requires an enormous defense budget.

Perhaps in their Euro-deterrent approach, the French don’t need 3,800 nuclear warheads or a triad similar to ours. They might achieve more with conventional forces and missile defense systems. However, they ultimately need an approach that accomplishes the same objectives: reassuring eastern flank allies on Russia’s borders that you could meaningfully engage in conflict and either deter or defeat Russian aggression against those allies.

This is extraordinarily challenging. The United States has invested over seven decades in continuously refining this approach. The work on extended deterrence is never complete. As Fukuda-san knows well, the meetings between the United States and Japan throughout the year on extended deterrence are extensive, regularly scheduled, and ongoing. It requires dedicated staffing and expertise on both sides. This isn’t something another country can simply adopt if the United States withdraws those commitments.

Jordan Schneider: What frustrates me about much of the MAGA-influenced foreign policy is its simplistic thinking — reminiscent of middle school debate logic.

There are reasons why the world exists in its current state. I thought conservatives valued the principle of Chesterton’s Fence — not dismantling established systems without understanding their purpose. The transition to a new world order could be dangerous and catastrophic.

Spending an extra $500 billion annually to prevent 20 countries from acquiring nuclear weapons actually represents an excellent deal.

Vipin Narang: It is indeed an excellent deal.

Jordan Schneider: A historically unprecedented deal. You would have accepted this arrangement 100 times out of 100 if you were present at Alamogordo in 1945.

Vipin Narang: This represents a bipartisan consensus. Republican or Democrat — Pranay and I often find ourselves aligned with traditional Republican views on strategic deterrence and extended deterrence, sometimes surprising ourselves with how much common ground we share. Those traditional voices are being marginalized, if not completely excluded, from the Trump administration.

This represents a different approach than anything we’ve seen in the post-World War II era. There was bipartisan consensus that we were committed to extended deterrence, with debates focusing on implementation methods rather than questioning the fundamental commitment itself. That’s why this moment seems distinctive.

To be fair, I don’t know where the Trump administration will ultimately land on this issue, as Fukuda-san and Pranay both noted — there are various competing voices within it.

Vipin Narang: At the core of extended deterrence credibility lies predictability and consistency. The very existence of this debate creates problems for the credibility of extended deterrence.

Jordan Schneider: Junichi, how are you feeling about all this?

Junichi Fukuda: At the administration level, I cannot predict the future because President Trump is unpredictable. However, at the congressional level, there exists concrete bipartisan agreement. The United States must continue extended deterrence toward its allies. Two years ago, a congressional report from the Bipartisan Commission — the Strategic Posture Report — emphasized continuing and even increasing the credibility of extended deterrence. At the congressional level, bipartisan agreement will persist in the future. Administrations last just four years, but Congress continues.

Jordan Schneider: I appreciate your optimism. I’m curious, Junichi — when you first entered this field and began studying nuclear extended deterrence and nuclear policy, what were the most extreme scenarios being discussed? How much more extreme is our conversation over the past 45 minutes compared to anything you’ve encountered before?

Junichi Fukuda: I began studying international relations in the late 1990s. At that time, the most severe concerns involved bioterrorism around 1997 or large regional civil wars. Nuclear war between great powers was definitely not considered a possibility. Now we’re discussing nuclear war. The situation has changed dramatically, forcing us to contemplate the unthinkable.

Pranay Vaddi: For the past 30 years, nuclear policy as a subject area was limited to specialists and experts. Now this debate about extended deterrence reminds us how deeply connected US nuclear strategy is to other elements of US grand strategy and foreign policy goals.

After the Trinity test, as nuclear strategy developed, it became integral to American grand strategy for confronting and containing communism, rebuilding decimated countries including close allies and former adversaries like Germany and Japan. This created a remarkable market for American goods and innovation through the Marshall Plan and other foreign aid efforts.

If you disconnect extended nuclear deterrence from foreign policy and our economic strategy, you can have simplistic conversations about whether we should continue extended deterrence or maintain forward-based troops. The reality is these elements have been interconnected for over 70 years.

Vipin and I have written about how much effort the United States put into rebuilding the world in the 1950s and 60s, ensuring that the United Nations, economic integration, and globalism — which nationalist trends in every democracy now resist — would help prevent another world war. Now the administration is attempting to remove the economic pillar while simultaneously questioning sacred principles of extended nuclear deterrence.

Our assumption when we wrote about this in January was that the economic benefits to the United States would eventually lead back to a coherent extended nuclear deterrence strategy. However, when economic interdependence and the accompanying political relationships diminish, I might question the American commitment to extended nuclear deterrence if we become less reliant on international trade due to efforts to retrench and reshore everything from industry to military capabilities.

These elements are all connected. Retrenchment, if implemented comprehensively, can severely damage US national security.

Deterrence with Chinese Characteristics 玉石俱焚

Jordan Schneider: We’ve progressed quite far into this discussion without mentioning China’s efforts to update its nuclear arsenal. This factor seems irrelevant in the Trump calculation, but it’s worth discussing how countries in Asia perceive this development. Junichi, could you provide a brief overview of what has happened in China over the past decade, and what this modernization means for countries in the region as they evaluate their strategic environment?

Junichi Fukuda: Historically, China’s nuclear assets were limited to approximately 200 nuclear weapons. At that time, analysts described China’s nuclear strategy as “minimum deterrence” — though this is a Western concept that might not align with China’s actual thinking.

China has gradually changed its approach to nuclear weapons. Recently, China has rapidly increased its nuclear arsenal, adding approximately 100 nuclear warheads annually. In the long term, China’s strategic nuclear arsenal may reach 1,500 warheads, potentially achieving parity with the United States and Russia.

The purpose behind this expansion remains unclear, but several possibilities exist. One apparent reason is to gain national prestige and achieve the same international status as Russia and the United States by creating parity with them.

Another potential reason involves creating a strategic stability-instability paradox in the Taiwan Strait contingency. By increasing its strategic nuclear arsenal, China might deter United States intervention against Chinese aggression toward Taiwan.

Their final objective, however, remains unknown. China has stated that by 2029, they intend to build a “world-class military,” which likely means achieving the same scale as the United States. This suggests their nuclear forces will eventually match the current US strategic nuclear arsenal.

Jordan Schneider: A question from Japan’s perspective — does the difference between 200 versus 1500 nuclear weapons actually matter?

Junichi Fukuda: Currently, it doesn’t matter as much, but we’re concerned about what would happen in the next decade. Our nuclear concern is focused on the medium to long term, particularly around 2030-2035.

Jordan Schneider: Why? How do more nuclear weapons with better delivery capabilities matter strategically?

Junichi Fukuda: If China possesses 1000 or 1500 nuclear weapons, they might be able to deter the United States from intervening in a Taiwan Strait contingency, creating a decoupling and instability paradox. This would be a major concern for us. In the short term, we’re more concerned about China’s increasing conventional capabilities, which are changing local military balances and might enable China’s invasion of Taiwan by 2027. But regarding nuclear issues, our concerns focus on the 2030-2035 timeframe and beyond.

Vipin Narang: China’s expansion is real and occurring faster than we anticipated. It’s designed to challenge the United States’ force sizing principles. While we don’t fully understand their motivations, we must prepare for the possibility that China is developing a nuclear posture and strategy to provide cover for regional aggression and coercion against US interests and allies.

We took this very seriously in the Biden administration. For context, we have these formal documents like the Nuclear Posture Review, which is unclassified and available to everyone. Following this parent document is the Presidential Nuclear Weapons Employment Guidance, which I worked on with Pranay. There’s an unclassified report to Congress known as the “491 Report” that I would recommend reading closely.

When the previous employment guidance was issued during the Trump administration around 2019, China was just emerging as a nuclear concern. There was recognition that China would challenge the US force posture, but the specific nature of that challenge wasn’t yet clear. The current document represents an evolution, with continuity between the Trump and Biden administrations’ guidance. However, it takes seriously, for the first time, the prospect of multiple peer strategic challenges, where China can no longer be treated as a “lesser included case.”

An important point that’s often overlooked is that it’s not just about the numbers. China will reach approximately 1,000 nuclear weapons by 2030 and potentially 1,500 by 2035, which represents quantitative parity with New START treaty levels. What’s more concerning is the composition of their force development.

If China had remained consistent with its long-standing assured retaliation strategy and focused solely on a sea-based force similar to the UK, we wouldn’t need to adjust our nuclear force posture. Instead, they’re developing hundreds of hardened silos in remote areas, perfectly spaced, which serve as nothing other than counterforce targets for the United States. Given our strategy to limit damage to the US homeland and our allies, China knows we must target and hold those forces at risk.

Under New START, we only have 400 ICBMs with single warheads and a limited number of SLBMs (Submarine-Launched Ballistic Missiles) at sea at any given time. Hundreds of Chinese ICBMs in remote regions would consume a large portion of our strategic forces and could make us vulnerable against Russia. We’re observing collusion and coordination between Russia and China. If we’re engaged in conflict with Russia and have expended some nuclear forces to maintain strategic deterrence because of their actions in Ukraine, China might see an opportunity to act because we no longer have sufficient forces to maintain strategic deterrence against them.

Their force structure appears carefully and intelligently designed to undermine our capabilities and sizing principles. We recognized the need to respond in ways that enable us to maintain both strategic and regional deterrence in a multiple-peer world across multiple theaters, especially given the coordination between Russia and China — and we shouldn’t underestimate North Korea either.

We conducted a year-long process to assess adjustments to the US force posture for strategic and regional deterrence in this new reality. As Fukuda-san mentioned, we’re implementing changes because Congress mandated it, but these changes also offer deterrence advantages. The security environment continues to deteriorate, and we can no longer deny the value of having a purpose-built maritime regional deterrence capability that frees up strategic platforms for strategic deterrence.

This challenge demands our attention. I’m concerned about the administration potentially rushing to reach a deal with Russia on arms control to extend New START without considering the implications for China. During the first Trump administration, Marshall Billingsley actually attempted to coordinate arms control strategies. I’ll defer to Pranay on this since he knows more about it than I do. But that approach is crucial — these issues must be coordinated within our own strategy. We need to consider what we’re willing to accept with Russia while keeping China in mind, and vice versa.

Pranay Vaddi: I’ll just highlight one additional point. Beyond everything that Vipin and Fukuda-san have raised regarding China’s changing posture — the warhead buildup, the decision to place nuclear weapons in silo ICBMs (which are vulnerable to nuclear strikes and therefore need to launch quickly in a nuclear war scenario), and their approach to survivability that the US would have to contend with — the Chinese are also modernizing cyber capabilities, counterspace technologies, and conventional precision strike systems. These capabilities could be categorized as counter-intervention measures since the US is also arming itself for a potential conflict in the Indo-Pacific. Alternatively, they could be used aggressively as part of a strategy to coerce under the nuclear umbrella.

The reality is that much of this will depend on one person’s decision-making and whether China decides to maintain or change its historic nuclear doctrine established since Mao’s time — characterized by restraint, minimum deterrence, and a no-first-use policy. If any aspects of this doctrine are changing, we probably wouldn’t be the first to know, as we’ve been unable to sustain diplomatic dialogue with China on strategic stability and nuclear policy issues for the past decade or two.

The Biden administration held just one consultation with Chinese colleagues on this particular topic. As with many other national security issues in the US-China relationship, China’s willingness to discuss nuclear matters depends on the political climate between our countries. If conditions seem favorable for US-China discussions across various topics, they might engage on nuclear issues as well. However, if relations are unfavorable — as they have been for several years due to incidents involving surveillance balloons, Nancy Pelosi’s visit to Taiwan, or tensions during the Trump administration — they won’t discuss these matters with us.

This creates a fundamental problem — how are US policymakers supposed to understand the nuances of China’s policy regarding its modernizing nuclear posture if we can’t meet for discussions? Setting aside any attempts at arms control agreements or diplomatic efforts to limit China’s buildup, progress is impossible unless both sides can engage in dialogue. Despite having one meeting during the Biden administration, all our attempts to encourage, incentivize, or facilitate a second meeting were unsuccessful.

There have been some positive developments. Before leaving office, Presidents Biden and Xi established a joint understanding regarding the use of artificial intelligence in nuclear employment decisions, essentially agreeing that humans should remain in the loop for any nuclear deployment or termination decisions made at the presidential level. Additionally, the two countries now exchange notifications before intercontinental ballistic missile tests. While these are small confidence-building measures, they don’t address the central issue — China is the only nuclear weapons state under the Non-Proliferation Treaty that is quintupling its arsenal.

The United States and China must discuss this issue, or else, in worst-case scenario planning conducted by the Pentagon, we’ll have to assume that China intends to build an arsenal qualitatively equivalent to that of the United States — one designed to undermine US nuclear strategy, as Vipin mentioned. This would force the US to respond with its own buildup, creating a world that benefits no one.

Jordan Schneider: Junichi, you’ve been the most positive and sanguine out of all four of us throughout this conversation. Would you like to conclude on a high note? What are you looking forward to over the next few years?

Junichi Fukuda: Actually, I’m not particularly optimistic. Having nuclear weapons in Japan is politically and economically challenging, with very high barriers. We simply don’t want to consider this option, which is why we’re always concerned about strengthening the credibility of extended deterrence and maintaining our alliance relationship.

The future is unpredictable, especially under the Trump administration, so we must consider various scenarios. However, nuclear weapons are not the most desirable path for Japan. The least desirable option would be to bandwagon with China, which we must avoid at all costs. If we face a truly existential situation where we lose confidence inUS extended deterrence, we might decide to pursue nuclear weapons despite the damage this would cause to the Non-Proliferation Treaty. But this is certainly not our preferred outcome.

Jordan Schneider: Why are you so confident that nuclear weapons would be the preferred path versus an accommodation with China?

Junichi Fukuda: Bandwagoning with China would require compromising Japanese sovereignty. Looking at Japan’s long history with China, there is no precedent for such a decision. Japan has at least 1,500 years of recorded history, and during that time, our country was occupied by a foreign power only once — from 1945 to 1952 by the United States. We have never experienced Chinese occupation of our land.

This represents a fundamental difference between South Korea and Japan. South Korea has a long history of being part of China’s tributary system, but Japan has no such experience. We cannot align with China under any circumstances.

To avoid that scenario, we might need to consider independent nuclearization if we lose confidence in the alliance.

Jordan Schneider: Vipin, Pranay — we can’t end on that note.

Vipin Narang: Let me try to be more optimistic. There’s considerable uncertainty right now. We transitioned from an administration that was very careful with its words to avoid sending mixed signals or giving the impression of internal divisions. For the most part, we spoke with one voice and maintained discipline on these issues.

The Trump administration has a different style. The president speaks frequently, and his statements aren’t always consistent. He doesn’t like nuclear weapons, but if that’s true, he should appreciate extended deterrence — though that connection isn’t always obvious. There’s certainly a battle within the Trump administration over the direction of foreign policy and grand strategy, as Pranay mentioned.

We should take a moment and wait to see which direction this goes. The sky isn’t yet falling on extended deterrence or NATO. The NATO ambassador was very clear about the US commitment to NATO. It would be prudent for allies — and this was true during the Biden administration as well — to contribute more, which they have done. The burden-sharing issue is real, bipartisan, and consistent. This focus isn’t necessarily bad for American security, regardless of which administration is in office.

However, there’s a possibility that things could move in a different direction. It’s important for allies to consider what a world without American leadership in the alliances might look like, while also recognizing that the bipartisan continuity we’ve seen on these issues might prevail in practice. It’s still early — only 90 to 100 days have passed — so I remain in wait-and-see mode. I continue to hope for the best, but it isn’t imprudent to prepare for a very different world.

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Pranay Vaddi: This issue is central to US national security. The more people outside the nuclear space learn about extended nuclear deterrence — its history, our current strategy, what we’ve done and why — from people like Vipin who’ve held important positions at the Pentagon or from allies who have experienced being recipients of extended nuclear deterrence, the better.

Every time I see foreign policy generalists learn about extended nuclear deterrence, a light bulb seems to go on. They understand that this is fundamental to what the United States has built in the world, benefiting the average American. I’m somewhat optimistic that as more people become aware of these issues and critically examine foreign policy decisions that might undermine extended nuclear deterrence, they’ll speak out in support of not just maintaining the status quo but improving our approach.

I want to thank you, Jordan, for having us on. Podcasts, articles, news coverage — all of these help people understand why we approach extended nuclear deterrence the way we do and recognize that having more states with nuclear weapons is inherently detrimental to the United States. I believe people in the current administration instinctively understand this as well. The key will be connecting these dots to help them conclude why specific actions in extended nuclear deterrence are necessary. That’s the source of my optimism.

Jordan Schneider: Let’s close with some reading recommendations. How about two from each of you? Jun, would you like to start with two books?

Vipin Narang: I’d like to recommend Under the Nuclear Shadow by one of my former students, Fiona Cunningham, which just came out.

Jordan Schneider: You can’t recommend that one! We already did a show with her.

Vipin Narang: I highly recommend it. My second recommendation is the updated version of Managing Nuclear Operations. This is quite technical. While Fiona’s book is high-level and accessible for anyone interested in China, Managing Nuclear Operations is on the detailed end of the spectrum. Charlie Glaser, Austin Long, and Brian Radzinsky re-edited this classic with updated chapters from experts like Franklin Miller and James Miller. It provides an excellent introduction to how US nuclear strategy and policy are developed. If you’re interested in that topic, I highly recommend it — it’s a very good update to the classic 1987 volume edited by Ash Carter, Steinbrenner, and a third co-editor whose name escapes me.

Jordan Schneider: Are we telling people not to read Annie Jacobson’s Nuclear War?

Pranay Vaddi: I haven’t read it, so I can’t speak to whether it should be recommended or not.

Jordan Schneider: You guys are so diplomatic. I’ll say it directly — don’t read it. It reads like a journalist who doesn’t really know what they’re talking about. I caught one or two historical errors just from my limited knowledge. It gave me the impression of someone with too much of an agenda to be careful with their sources.

Vipin Narang: I appreciate the original sources. I recently taught my class on extended deterrence and discovered an obscure article by James Schlesinger from 1962 explaining why we extend deterrence to Western Europe and NATO. Remarkably, the arguments haven’t changed between 1962 and 2025. It’s a RAND chapter that’s quite difficult to find. I was stunned when I read it carefully, realizing how much we’re simply reinventing the wheel. [Link here!]

I’m very humble about the fact that scholars like Schelling, Brody, Schlesinger, Earl Ravenhall — all published in International Security — along with Ash Carter, Frank Miller, and others who preceded us, had already thought through all these issues. We’ve forgotten many of their insights because we had a 35-year interregnum when we didn’t have to consider the importance of extended deterrence and nuclear deterrence more broadly. For the audience, I recommend going back to the original texts — you’ll be surprised how little has changed.

Jordan Schneider: Pranay, Junichi — any recommendations come to mind?

Pranay Vaddi: I have two recommendations. First is a report by the American Academy of Arts and Sciences authored by Tong Zhao and Dmitry Stefanovich. They write from Chinese and Russian perspectives about why those countries are concerned about US missile defense and its implications for strategic relationships. For those of us who focus on arms control policy and try to understand how the administration might approach hypothetical denuclearization talks with Russia and China, this is essential reading. Both authors are colleagues who have studied this area extensively. It’s not a book, so you can gain valuable insights from two genuine experts in just 50-60 pages.

The second recommendation is an older book from the late 1980s by Richard Betts called Nuclear Blackmail and Nuclear Balance. I found it particularly interesting as the Ukraine conflict progressed while I was still at the NSC. It reminds nuclear policy experts that nuclear weapons aren’t magical solutions. Attempts to use them in world crises — either to force adversaries to back down or to coerce for other military objectives, as in the Vietnam War — have produced mixed results at best. Understanding this history is important for our current era, where we’ve seen Russia issue almost daily nuclear threats in the context of a conventional war it initiated. Those are my two recommendations.

Junichi Fukuda: I’ve chosen two books. The first is another classic, Glenn Snyder’s Deterrence and Defense: Toward a Theory of National Security. This book is quite important because it addresses the problem of the stability-instability paradox, which directly applies to the current situation in the Pacific. If you want to study the stability-instability paradox, I recommend reading Graham Allison’s work on deterrence and defense.

The second recommendation is Brad Roberts’ The Case for US Nuclear Weapons in the 21st Century from 2015. This book is widely read in Japan as it directly discusses options for strengthening extended deterrence for allies in the Indo-Pacific. Many Japanese experts interested in this subject have read this book, so if you read it, you’ll have common ground for discussions with those experts in Japan. I highly recommend it.

Thanks again to the US-Japan Foundation for sponsoring this episode. It’s the first in a series about Japan-adjacent topics. I promise they won’t all be this dark.

Mood music:

Lennart Heim is the Compute Team Lead at RAND’s Technology and Security Policy Center and a Professor of Policy Analysis at RAND School of Public Policy.

China will likely match U.S. AI model capabilities this year, triggering inevitable concerns about America’s technological edge. However, this snapshot comparison misses the bigger picture. While Chinese models close the gap on benchmarks, the U.S. maintains an advantage in total compute capacity — owning far more, and more advanced, AI chips. This compute advantage, if leveraged strategically, will play an extraordinary role in driving economic transformation, securing technological leadership, and shaping the global AI ecosystem. U.S. policymakers risk squandering this edge by focusing on the wrong metrics and overreacting to predictable Chinese advancements.

TSMC's Secret Pipeline to China

Central to the U.S.-China AI competition are U.S. export controls that restrict China from importing advanced AI chips, acquiring semiconductor manufacturing equipment to build indigenous advanced AI chips, and using leading chip manufacturers such as Taiwan Semiconductor Manufacturing Company (TSMC). Despite these measures, a massive failure occurred in September 2024: TSMC, lacking basic due diligence, breached export restrictions by producing advanced AI chips for Huawei through a Chinese proxy company. This violation allowed Huawei to secure approximately 3 million chip dies using TSMC’s 7nm process, enabling the production of China’s best AI chips, the Huawei Ascend 910B and the upcoming 910C. This dwarfs even the highest estimates of smuggled chips, which typically involved tens of thousands of units, not millions. Although these chips trail the U.S. state of the art by about four years, they collectively provide China with computing power equivalent to approximately 1 million export-controlled Nvidia H100s (Nvidia's previous-generation chip from 2023) — substantial AI compute capacity that compensates for China's lack of indigenous production capabilities.

A Pattern of Failures, Not an Exception

The U.S. government responded to TSMC’s illicit production issue with a harsher rule in January 2025 and a likely investigation, but this incident is just one of many failures.

The 2022 chip controls contained specification errors that allowed Nvidia to slightly modify existing chips, creating the A800 and H800, which enabled DeepSeek's rise. Entity-listed Chinese companies built literal bridges to access advanced chipmaking equipment in unlisted facilities. Chinese firms stockpiled enough high-bandwidth memory (HBM) to meet their needs for the next few years, after the industry leaked the December 2024 restrictions in July. Until recently, AI chips with deployment-optimized performance, such as Nvidia's H20, continued to flow to China despite evidence that they enable new reasoning capabilities, with U.S. government officials taking months to act despite warnings. In every case: too little, too late.

What to Expect from Export Controls—And What Not to Expect

Despite these implementation failures, export controls remain a valuable strategic tool. While export controls do not create absolute barriers, they impose costs that have substantially slowed China's progress in AI and semiconductors, thereby maintaining America's lead.

But why is China still producing competitive models? It's harder for export controls to affect individual training runs than an entire ecosystem. Think of AI compute like factory equipment: Having fewer production lines doesn't prevent you from manufacturing a single product—you might still create that flagship product—but it severely limits your production capacity and market reach. Without the latest machinery, your production costs are higher and efficiency lower while competitors optimize their operations. What's more, the economics of scale work against you: while your competitor with ten factories can spread fixed costs across massive production volumes, driving down unit costs and enabling experimentation with new product lines, you're stuck with higher per-unit costs and limited ability to diversify. Similarly, when China has less total compute, they can still develop competitive models. After all, even in the U.S., companies only spent a fraction of their compute on training frontier models. But China misses out on the economies of scale that allow the U.S. to deploy AI broadly, experiment with more approaches, support a diverse ecosystem of leading AI companies, and continuously reinvest efficiency gains across their entire AI economy. Critically, this compute disadvantage also limits China's ability to project soft power globally—whether by providing AI services to international markets or by having the capacity to export advanced AI chips to other nations.

However, if current trends in AI training continue—shifting from two chips in 2012 to clusters of hundreds of thousands in 2025—export controls may eventually bite harder. China would need to build significantly larger clusters to compensate for less powerful chips: a cluster of 100,000 Nvidia B200s (a leading U.S. AI chip) might require a Chinese equivalent of 300,000 Ascend 910Cs (China's leading chip), resulting in higher energy consumption and greater engineering complexity for distributing AI workloads. Compounding this hardware gap is Nvidia's sophisticated software and networking ecosystem—crucial for orchestrating massive AI chip clusters and currently unmatched by Chinese alternatives.

10x More AI Workers: The Power of U.S. Compute Dominance

This focus on preventing model parity misses the fundamental question: What are the true metrics of AI leadership? We reacted to DeepSeek because it narrowed the gap between U.S. and Chinese model capabilities as measured by benchmark leaderboards and model rankings. However, the fixation misses the broader technological competition.

For example, think of AI systems as “virtual employees” that can perform cognitive labor, replacing remote colleagues you’ve never met in person. The number of AI employees an economy can deploy hinges directly on its compute resources. With roughly 10 times more compute capacity than China, the U.S. can field proportionally more AI employees across its economy, in sectors as diverse as drug discovery, logistics optimization, industrial robotics, and AI research itself. This compute advantage therefore compounds into a broader economic advantage over time. As AI systems drive productivity growth and innovation, they strengthen the underlying factors of national power. While China may catch up in individual model quality for now, the true metric of AI leadership might lie in deploying and integrating these systems at scale. In that sense, America’s true moat isn’t just better models—it’s the capacity to deploy and integrate AI in the economy at scale.

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Maintaining and Leveraging America's Compute Advantage

Both the Trump and Biden administrations deserve credit for recognizing early on that compute would be central to AI competition, taking key steps like restricting extreme ultraviolet (EUV) equipment exports to China in 2018 and banning AI chips in 2022—before ChatGPT captured public attention. But to stay ahead, the U.S. government must now build capacity to act quickly when reinforcing export controls while developing a clearer understanding of their actual impact. Rather than hoping to prevent temporary model parity, the U.S. strategy should leverage its substantial compute advantage to transform the broader economy and establish leadership in AI deployment worldwide. China may achieve competitive individual AI models this year, but this narrow benchmark gap is neither permanent nor strategically decisive. China will continue to tout breakthroughs to rattle U.S. confidence, but getting distracted and abandoning America's fundamental compute advantage would be a profound mistake.

Mood Music

How should America maximize its odds when competing with China? Can Trump’s approach to alliances succeed in strengthening deterrence? And what will it take for China to diplomatically capitalize?

To find out, ChinaTalk interviewed Rush Doshi, author of The Long Game: China’s Grand Strategy to Displace American Order. Rush served as deputy senior director for China and Taiwan on Biden’s NSC and is now at CFR. His new article with Kurt Campbell, entitled “Underestimating China: Why America Needs a New Strategy of Allied Scale to Offset Beijing’s Enduring Advantages,” I sincerely hope becomes a seminal document for American grand strategy in the 21st century. This is the most important show I’ve recorded all year.

Our conversation covers…

• Strategies for countering China’s strengths while accurately assessing weaknesses like demographics, debt, and slow growth,

• Historical lessons for US-China competition, from the newly-industrialized UK to Gorbachev’s USSR,

• Capacity-centric statecraft as an underrated type of international partnership,

• Persuasive versus coercive approaches to alliances,

• The evolution of China’s grand strategy and how Beijing’s diplomatic overconfidence in the face of tariffs could backfire.

Listen now on iTunes, Spotify, or your favorite podcast app.

America’s Odds

Jordan Schneider: Let’s start with net assessment, that is, understanding where the US is relative to China. Why is this important for effective strategy?

Rush Doshi: You have to compare yourself relative to your adversary or competitor in order to understand exactly what your strategy should be. Without good net assessment, you can’t really form a strategy. There used to be something called the DoD Office of Net Assessment. It’s since been eliminated.

Our assessment of China has swung widely over the last few years. Back in 2020, there was a perception that the US was in decline. We’d had January 6th, we weren’t handling the pandemic particularly well, and we had alienated our allies and partners. At the same time, China’s economy was booming. It seemed to be handling Covid well. In that moment, there was a perception that America was on its way out.

Just two years later, however, the zeitgeist changed completely. Russia invaded Ukraine in 2022 but achieved only limited success. The removal of zero Covid in China didn’t bring huge prosperity or reignite the economy. Later that year, America debuted ChatGPT to the world. It seemed like we had a rabbit we could pull out of our hat again — we could always rely on American innovation to sustain our lead.

These factors created a new zeitgeist — America ascendant. “America’s got this, and China can’t possibly keep up.”

But it’s difficult to strategize around such vastly differing conclusions about where we are relative to our competitor.

In our article, Kurt and I try to present a nuanced evaluation of our position relative to China.

Jordan Schneider: This is a fascinating case study of the past four years because it almost felt like these swings occurred faster than during the Cold War. Back then, they took longer and the triggering events were bigger than COVID policy. Events like the Vietnam War — America losing a conflict — would cause you to reassess relative trajectory, or decades-long realizations that the Soviet system was not delivering the technological and economic growth that people thought it might have been in the 30s, 40s, and 50s.

The big lesson is that it’s not necessarily a flows question — it is a stocks question. The US and China each have roughly a quarter of the world’s GDP and are likely going to continue having roughly a quarter of the world’s GDP each in the decades to come.

Rush Doshi: It’s important to note that two things can be true simultaneously. China could be slowing economically and have serious economic problems, but it’s also possible that it has strategic advantages and technological advantages in the timeframe that matters most for geopolitical competition.

Poor assessment simply concludes, “They are facing tough economic times, therefore, strategically they’re going to be on their way out.” It never ends up being that neat. The fundamental point of our piece is that you have to think about how particular advantages and disadvantages in one sector translate strategically to great power competition. This isn’t intuitive. It requires some degree of guesswork, but also careful analysis to understand correctly.

Jordan Schneider: There are cones of expectation for how well the US will do and how well China will do from a national power perspective. If you base your assessment on the third standard deviation performance of one country over another, you’re probably not picking the right strategy for the vast majority of futures. The way the US and China are discussed often defaults to either “this country has it figured out” while “that country is doomed,” or vice versa.

Rush Doshi: Thinking about it probabilistically is exactly the right approach.

Jordan Schneider: What do you think about the psychology of the American public and our leaders in Washington? Do you predict a preference for one direction or another, or is there appetite for a nuanced middle stance?

Rush Doshi: There’s a fundamental sense that things are changing — that China is formidable but also has a number of fragilities. The stakes of getting this question right are very high. This leads people to promote narratives they want to believe.

Sometimes there’s a market for saying, “Everything’s fine, don’t worry. American advantages are enduring, stable, real, and decisive.” On the other side, people might suggest things are in tough shape because they have a particular domestic policy agenda to advance. We saw that with the trade war. These assessments have political valence and salience.

Currently, China isn’t even a top priority for most American strategic thinkers. The focus continues to be on Russia-Ukraine or the Middle East. China lurks in the background rather than occupying the foreground where it deserves to be. That’s partly why there’s not always much attention on getting these assessments right.

It was important to have an office that did this kind of work in the US Government, and it would be monumental if that function was restored in the Trump administration. Hopefully, they make that decision soon.

From a government perspective, you almost never have anybody doing true net assessment, because the intelligence community isn’t authorized to consider American strengths and weaknesses relative to an adversary. They can talk about “red” (the adversary), but they won’t necessarily talk about “blue” (us). This causes complications.

Jordan Schneider: I agree that net assessment is important. It’s striking that so much of the commentary about the US relative to China comes from people who aren’t necessarily China experts. It seems that there’s more appetite to use China as a rhetorical talking point, on either the left or right, rather than to make accurate assessments about China.

Rush, you point to scale as the key metric for evaluating the US and China on a decadal or multi-decadal horizon. Can you explain your US versus UK analogy?

Rush Doshi: We only had 5,000 words for our piece, but a full net assessment should be much longer. Not all large countries achieve great power status. There’s a distinction between size and scale. Scale is the ability to translate size into meaningful outcomes. Scaling up is that process.

The Asian tigers had an incredible ability to scale on a small foundation. When you take those techniques and apply them to a foundation as large as China’s, the consequences are world-shaking.

The UK found this out the hard way. The UK had a first-mover advantage in the Industrial Revolution, and a small island in the northwest corner of Europe dominated the entire world for a long time — which geographically is quite remarkable. But that first-mover advantage wasn’t permanent. British industrial methods eventually transferred to Germany, the US, and Russia.

The British knew this was happening. Lord John Seeley wrote a book in 1883 about the rise of Great Britain that ended with a warning. He worried that just as Florence was surpassed by the great nation states of Europe, Great Britain would be surpassed by larger countries — the US, Germany (which had a much larger population than the UK), and Russia. He believed the British methods for industrializing and creating wealth could be transferred to others. When that occurred, they would have what he called “scale” — unimaginable scale relative to Great Britain — and Great Britain would decline.

During that period, these countries leveraged scale to push Britain out of key markets. They used their larger domestic economies to drive down marginal costs and outcompete in third-country markets. Today, that dynamic resembles the US and China.

As the US grew in scale and became more efficient and competitive, our industrial base exploded. By 1910, before World War I even happened, we were manufacturing four or five times as much steel as Great Britain. By World War II, our size and scale were even greater.

Hitler warned that the US was an unimaginable productive power. Yamamoto thought Japan could succeed in the first six months of war, but eventually American scale would defeat them. Even the Italians feared a contest of stamina would favor the United States.

That fundamental scale advantage we had shaped the thinking of our adversaries in the run-up to World War II and during the conflict itself. It wasn’t a hidden fact of politics — it was well understood by our rivals. Now that sense of daunting scale probably belongs to China.

Jordan Schneider: You make the point that even when Nazi Germany was at its peak from 1938 through 1941-42, the relative industrial weight of the Axis powers doesn’t hold a candle to what China can bring relative to the US today.

Rush Doshi: Hitler called the US a “giant state with unimaginable productive capacities.” In many ways, he was hoping to create that kind of productive scale for Germany, which obviously led to disastrous consequences. The fact of American manufacturing prowess was well established and understood around the world.

Jordan Schneider: For a couple of decades in the middle of the 20th century, America was building everything for everyone. Then globalization arrived, which was beneficial as more people gained wealth. We prevailed over Great Britain, Nazi Germany, and Japan, and later over the Soviet Union. But we’re in a very different industrial race today. Rush, let’s look at China’s statistics.

Rush Doshi: Every great power competitor the US has faced previously lacked the size and scale that China possesses. The Soviet economy was much smaller than the US economy, less productive, and its absolute manufacturing capability was inferior to America’s. The US was stronger than Germany and Japan combined in World War II. However, China represents the first competitor with true size and scale advantages against the United States.

Consider manufacturing shares. About 25 years ago, the US share might have been 30% while China’s was 6%. Within two decades, China’s share has quintupled to nearly 32%, while the US share has fallen by half to 15%. According to the UN, by 2030, China’s manufacturing share will be four times that of the United States — about 40% to our 11%. This represents a surprising turnaround in just 30 years.

The last comparable shift occurred between the US and UK. From 1870 to 1910, the British share of global manufacturing fell by 50% — the same proportion we’ve seen fall for the US, except it took us only 20 years rather than 40.

China’s current output is remarkable: twice American power generation, three times American car production, 13 times American steel production, 20 times American cement production, and approximately 200 times US shipbuilding capacity overall (though only three times our capacity for warships).

China produces about half the world’s chemicals and ships, 67-70% of the world’s electric vehicles, more than three-quarters of the world’s batteries, 80% of the world’s consumer drones, 90% of the world’s solar panels, and 90% of the world’s refined rare earths.

They’re also betting on the next industrial revolution. The US is installing many industrial robots, but China is installing seven times more. Half of all robot installations in 2023 happened in China. Regarding nuclear power for fueling the AI revolution — China leads in commercializing fourth-generation nuclear technology that we invented, and it’s planning 100 nuclear reactors in the next 20 years.

In science and technology, people claim China can’t innovate, but they exceed us in active patents and top-cited publications. You can question these numbers and argue they manipulate statistics. There’s some truth to statistical manipulation, but the trend line is incredible. They’re probably about even with us in those categories, and in 10 years, they’ll be well ahead of us, even accounting for statistical manipulation.

This manufacturing power translates into two forms of advantage. One is military advantage, as we discussed regarding World War II. The second is technological advantage — innovation from the factory floor, tacit knowledge, process knowledge, and special production capabilities that improve over time. This creates enduring advantages for China.

We should recognize this because it mirrors American innovation. When we were becoming a manufacturing power, we lagged behind Europe in science and technology. We didn’t have the Nobel Prize numbers that we have today. Manufacturing was the leading edge, and scientific recognition came later. We’re seeing the same story with China.

Jordan Schneider: Let’s not underestimate China — I’m with you this far, Rush. What’s the answer? One approach from the administration is that we need to reindustrialize. The problem is that even with perfect policies, you might gain only 0.5-2% per year in global manufacturing production. Setting reindustrialization and manufacturing growth as long-term goals aside, the trends you’ve outlined aren’t going to reverse anytime soon.

Rush Doshi: These built advantages are very sticky. Poured concrete is poured concrete — it exists. China’s supply chains won’t immediately relocate. They’re also more resilient than people think.

Some argue that China has macroeconomic and demographic problems, questioning why manufacturing statistics matter. But these problems are probably overstated. Consider their economy — it’s smaller than ours in nominal dollar terms, and many take comfort that it’s shrinking relative to the US economy. However, much of that is due to a strong dollar.

If you remove that financial advantage and look at purchasing power parity, China’s economy probably surpassed the US economy 10 years ago and is 30% larger today. Adjusting for purchasing power has limitations, but it’s a good attempt at capturing the local price of key strategic inputs — infrastructure, weapons, government personnel — which are priced in local terms. While nominal GDP might be important for quality of life, purchasing power adjusted GDP better captures factors that generate strategic advantage.

Regarding demographics, China is aging, but when will that matter? By 2100, their population will have fallen by half based on current trends. However, the strategic harm of aging won’t materialize for another 20 years or so. Between 2010 and 2020, the under-14 share of China’s population increased in absolute terms and as a percentage of the total population. The population is still aging, but the younger share grew due to a Mao-era baby boom — these are the grandchildren. Demographics are lumpy, which can buy time.

China’s dependency ratio won’t be as problematic as Japan’s current ratio until 2050, giving them time. Their investments in industrial robotics and embodied AI could help address labor problems from a declining population. Chinese factories like BYD plants already operate with few assembly line workers.

Regarding debt, China’s level is serious — it’s 300% of GDP when combining government, household, and corporate sectors. But that figure matches the United States. The composition of debt matters, as does who holds it, but this aggregate statistic provides a sense of overall indebtedness. If comparable, China might weather this challenge by properly recapitalizing local governments.

Finally, people note that American companies have high market capitalizations — the most valuable companies on earth are American with the highest profit shares in technology. But that market cap partially reflects investors wanting dollar assets and a strong dollar. Profits matter, but American companies maximize profits while Chinese companies maximize market share. They’re willing to operate at a loss to achieve market dominance. They’re optimizing for something different that might matter strategically — if they can remain solvent longer than our companies, they can put them out of business and deindustrialize us.

China has weaknesses — aging population, economic slowdown, potential deflation, high youth unemployment. All are important, but they may not matter as much in the timeframes that determine great power competition. That’s what we’re addressing with the question of scale.

Jordan Schneider: You’ve convinced me about the unlikelihood of second or third standard deviation downside outcomes for China. You’ve addressed many bearish arguments about China’s 20-year outlook, but not political instability. Can you discuss that? Xi will eventually die.

Rush Doshi: This is a critical point. My assessments focused on macro indicators, demographics, and financial factors because those are commonly cited when people claim China might never catch up to the US. Political leadership is challenging to evaluate.

If there’s a path to Chinese failure — an inability to succeed in the 21st century — it runs through a failed political transition from President Xi to his successor. Interestingly, Deng Xiaoping set up 20-plus years of succession by selecting Jiang Zemin and Hu Jintao, but he didn’t pick Xi. We lack that same long-term planning now.

China is living in the house that Deng Xiaoping built. Xi Jinping is changing the architecture, and we don’t know if these changes will cause the house to collapse or strengthen it against external pressures — to use terminology Xi often applies about strengthening the house against the elements.

China’s ability to maintain political stability is extremely difficult to assess. The Chinese Communist Party has endured the Great Leap Forward, Cultural Revolution, Tiananmen Square massacre, and globalization, remaining powerful throughout. However, elite instability at the top can threaten to bring down the entire party, as seen at various points in China’s history — such as when Deng Xiaoping was repeatedly imprisoned during the troubled transition from Mao to his successor.

We don’t know if Xi Jinping will select a successor or be too nervous to do so, given that he’s alienated vested interests, powerful families, and parochial groups that historically exercised power more freely than they do under his leadership.

This represents one potential path to Chinese problems. However, you can’t count on systemic failure or institutional collapse, especially when China has studied the Soviet collapse intently and tried to avoid those same mistakes. We must give them credit for considering paths to decay and attempting to close off as many as possible. They won’t get everything right, but that effort can’t be ignored.

Jordan Schneider: Even if you give Kyle Bass as much credit as possible — say a 50% chance of being right — that still leaves a 50% chance that you have an incredibly legitimate superpower breathing down your neck. It makes sense to buy the insurance plan to implement all the policies needed to live in a world where China actually succeeds.

Rush Doshi: That’s a great way of putting it. In our piece, we discuss “allied scale” as the alternative grand strategy for the United States. You’re right, it is an insurance plan. You can hope that China somehow gets in its own way — which wouldn’t be great for 1.4 billion Chinese people, but geopolitically, you could hope for that. However, betting on China’s collapse, governmental system change, or a botched leadership transition isn’t sensible. You need to buy insurance by investing in an American path to scale. Few great powers have achieved scale when confronted with a bigger rival, but the US can do it through its allies and partners.

Beyond Traditional Alliances

Jordan Schneider: Let’s talk about capacity-centric statecraft. What must Washington do?

Rush Doshi: Working more closely with allies sounds like a cliché. Kurt and I argue that we need to revolutionize how we work with allies by putting capacity building at the center — flowing both from the US to its allies and from allies to the US. If done right, the benefits are substantial.

When quantifying allied scale, the US with its allies represents approximately three times China’s nominal GDP, twice China’s purchasing power adjusted GDP, and more than twice China’s defense spending, even using high Chinese estimates that aren’t publicly available. We would have 1.5 to 2 times China’s share of manufacturing, and we would dominate in patents and top-cited publications.

China may be the top trading partner for 120-140 countries worldwide, but an allied consortium would be the top trading partner for virtually everyone except perhaps North Korea. This represents an incredible scale advantage that’s readily available.

The central task of American foreign policy in this era is transforming that theoretical advantage into reality — realizing that scale. Too often, we think of allies in hierarchical terms based on post-World War II and Cold War habits. We focus excessively on military issues and categorize alliances as tripwires, protectorates, vassals, or status markers. Our contention is that alliances must function as platforms for building capacity.

We could envision Japanese and Korean investment in American shipbuilding, where they have three to five times more productivity per worker. We could provide more technology to our allies; AUKUS exemplifies this approach. Kurt and I worked closely on launching AUKUS, which involves the US and UK helping Australia acquire nuclear submarine capability — our most sensitive military technology — to build meaningful Australian capacity in the Indo-Pacific.

We should consider novel joint military formations. The British and French created a joint brigade; the US and Japan or the US and South Korea could create anti-ship cruise missile battalions to train each other on the best shoot-and-scoot tactics, learning best practices from the Marine Corps under General Berger.

Allied scale also means allies helping each other, with the US facilitating collective action and connections. South Korea could help Europe rearm with its incredible defense industrial base. Scandinavian countries with excellent anti-ship cruise missiles could sell them to Southeast Asia. France, with expertise in LEU nuclear-powered submarines, could assist India, which has the same nuclear submarine program.

This vision of allied scale doesn’t always place the US at the center, but the US provides gravitational pull to facilitate collective action. And that’s just the security dimension — there’s much more to discuss on the economic and technological fronts.

Jordan Schneider: Let’s stay on the security side for a while. You were in government for the past four years trying to implement these ideas, which didn’t emerge from nowhere. The fact that the US plus its friends will be 2-3 times larger than China and its friends over the next few decades — assuming the balance of alliances remains stable — isn’t a new insight. As you and Kurt pushed for this approach with a president who was extraordinarily ally-focused, what roadblocks did you encounter from both US and partner perspectives?

Rush Doshi: Let me first address whether allied scale is intuitive. It is intuitive — we collectively know that if we don’t hang together, we’ll hang separately. What’s been missing from most analyses is the sense of urgency. People say working with allies is good — like apple pie and motherhood — but don’t explain why it’s essential.

It’s essential because we’re underestimating China’s scale. Great Britain failed as a great power because it couldn’t achieve scale. Lord Seely looked to unite with British colonies to create scale that could rival other great powers of that age, but those efforts were too little, too late, and everyone drifted apart. The question for the US is whether we’ll face the same fate.

We have an advantage: instead of an empire, we have allies who are independently capable. That’s a huge advantage compared to the UK. What Kurt and I are arguing in our piece is that this is urgent — we must get this right or cede the century to China. This isn’t the usual framing around allies. People typically see allies as beneficial, not as a four-alarm fire necessity. Part of the challenge in implementation is that people don’t perceive it as urgent, but rather as conventional common sense.

Jordan Schneider: To be clear, the US and China independently will likely run neck and neck — or too close for comfort — in the vast majority of future scenarios over the next few decades. Therefore, America’s most important strategy is to leverage the rest of the world, which is much more likely to partner with us than with a CCP-controlled PRC. That’s how you change the balance of power — the most straightforward way to dramatically shift the balance over the coming decades.

Rush Doshi: I’ll add that we may not be neck and neck in all metrics that matter for strategic value. We’re not neck and neck in manufacturing — we’ll be one-quarter their size. Comparing the US versus China on many metrics, we’re behind. We don’t have scale. We have several advantages: capital markets, immigration, innovation, talent, and general political stability. But we lack scale.

My concern is that without allies, the US won’t run neck and neck with China. The only way we can compete on metrics for great power competition is with allies. That’s why this is urgent. Without them, we’ll be like the UK was to the US and Russia, or like Florence was to the UK — one-quarter their size.

As productivity equalizes around the world — partly due to institutions and technology — China will remain productive. They already outmanufacture us and lead in many industries. The US urgently needs its own path to scale, which comes through allies.

The British couldn’t achieve scale because they failed to unite with their colonies. What differentiates the US is that we have capable, independent, sovereign allies who share our values — not colonies or subjects. If we join together with them, it’s not even a contest with China. We completely outscale them.

Jordan Schneider: This is a really important point. Modern-day Japan and Germany are not comparable to India circa 1890. We’re talking about very different allies in terms of their latent ability to contribute to the metropole’s national power.

Rush Doshi: Even in Lord Seely’s case, he excluded India, considering it a resource pit — obviously wrong about India’s potential. He focused on Canada, South Africa, Australia, and New Zealand — the white settler colonies. But compare Japan or Korea to any of them. The American alliance system contains incredible performers — powerful, technologically advanced, economically impressive nations who also make excellent military equipment and broadly share our values. That’s an extraordinary advantage in world politics. Almost no one else has this.

Don’t take my word for it — take China’s. China believes our single greatest asymmetric advantage is our allies. In 2017-2018, their delight at rising populism stemmed from one thing: the sense that populism was breaking American alliances apart. They’ve always seen alliances as our critical advantage, and they understand what we often don’t — that alliances bring economic and technological power to bear in competition.

The Biden administration had a theory for achieving scale with good and bad elements. The Trump administration also has a theory with strengths and weaknesses. Our piece isn’t partisan — we’re not advocating for one approach. What we’re saying is that the destination must be scale. There can be a path to allied scale with “Trumpian characteristics” — great, let’s pursue that. My concern is unilateralism that resolves bilateral issues without considering the larger strategic context vis-à-vis China.

The Trump administration has an opportunity to secure several bilateral deals worldwide. My hope is they’ll do so in a way that focuses on pooling our shared capacity and building scale against the PRC.

Jordan Schneider: The J.D. Vance perspective of promoting the AfD in Germany and suggesting that if the German right doesn’t win an election, they’re no longer our allies, represents a very insidious mindset. As you said, Rush, we forget how fortunate we are to have so many countries essentially aligned with our worldview.

Rush Doshi: We fought two world wars against Germany and one against Japan. These were the preeminent industrial powers of their regions in the 20th century and part of the 19th century. Today, they’re stalwart American allies. We have disagreements, but they’re on our side and share our values. That represents an incredible accomplishment and success story.

The idea that culture war issues should dictate our approach to these allies on the greatest geopolitical challenge America has ever faced is like cutting off your nose to spite your face. It doesn’t make sense.

That said, the Trump administration could still achieve scale. One critique of our piece is that it’s an idealistic dream that made sense five years ago but not now. I strongly disagree. There is a Trump path to scale, likely less focused on persuasion — which President Biden emphasized — and more on coercion. You could criticize the Biden administration for insufficient coercion.

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My point is this — you probably need to mix and match different tools depending on whom you’re dealing with. But we all know where we need to go. It cannot be the US versus China one-on-one. A unilateral America retreating to its own sphere would be poorer, less powerful, with deteriorating quality of life and diminished global influence, including on factors that make us prosperous. That’s obviously not a good path.

Jordan Schneider: Rush, you’ve outlined the two failure scenarios. The Trump administration would attribute one to the Biden administration — being too soft, allowing allies to avoid defense spending and ride our coattails into oblivion. I’ll let you elaborate on the contrasting errors.

Rush Doshi: One critique the Trump administration makes of the Biden administration is that it focused too much on persuasion and not enough on pushing allies — what you might call coercion. This resulted in free-riding. There’s a good counter-argument: progress occurred with AUKUS, the Quad, European involvement in Asia, and Asian involvement in Europe, which began moving toward allied scale.

However, the Trump administration’s critique that more needed to be done has merit. Kurt and I also believe more scale is immediately necessary. AUKUS was essentially a down payment on the kind of allied approach we need to institutionalize across the board. As someone deeply involved in AUKUS in 2021, working on negotiations for the White House under Kurt Campbell, I recognize it was novel then. We need to reach a point where such arrangements become routine.

Conversely, the Trump administration’s potential error would be excessive coercion — thinking you can bully everyone into compliance. Another error would be believing allies don’t matter, that America can go it alone, and that relations with Japan or Korea should focus solely on bilateral trade deficits and Treasury purchases.

Consider the economic picture: If we want to ensure scale for our industries when China is more competitive on a marginal cost basis, protecting only the American market isn’t enough. Without access to allied markets and allies’ access to our market, our companies cannot achieve scale relative to China. We need pooled market share.

The Trump administration has discussed erecting a tariff wall. In my view, a regulatory wall might be even better against certain Chinese exports. Beyond that, reducing trade barriers among allies would facilitate greater scaling up within the protected zone. Achieving this requires a mix of coercion and persuasion — combining Biden and Trump approaches.

Currently, President Trump has taken the coercive route with Liberation Day, sparking negotiations and deal-making opportunities. Hopefully, these deals will incorporate persuasive elements. Ideal deals would involve allies investing more while we reduce trade barriers — perhaps to zero-zero tariffs as some on Trump’s team have suggested. Allies would increase defense spending or work with us to improve their military capabilities. Additionally, coordinated steps would prevent China from dominating allied markets, including shared tariffs and regulatory policies to build a protective moat for all participants.

This kind of deal is achievable. As the Trump administration pushes these negotiations, I hope that’s their model. Some say they need to negotiate 75 deals, which seems excessive. I believe they need 8-10 key agreements. If they get those right, they can build allied scale differently from President Biden’s approach. They can claim victory and say they succeeded where others failed — that’s fine. The point is to achieve scale, and if they accomplish that, I’ll applaud them.

Jordan Schneider: Let’s stay on the Germany example for a second. The Biden administration was not able to get Germany to break its debt covenants and spend $1 trillion on defense. On the other hand, it basically took administration officials saying things so intense that Germany and Poland decided they can’t really trust extended deterrence anymore.

I don’t think the wake-up moment has necessarily come for Taiwan, Japan, and South Korea, but we seem to be in a very different timeline in the European context.

Rush Doshi: The risk of the current approach is that it’s so intense it pushes Germany away from being a core US ally on issues we care about. There’s a lot of flirtation in Europe right now with different forms of strategic autonomy, which could be interesting on their own. But if driven by dissatisfaction with the US, it might mean they’re not on our team when we need them.

Consider a concrete example: in 2020, the Europeans and Chinese negotiated the Comprehensive Agreement on Investment (CAI). This was fundamentally negotiated because Europe was concerned they couldn’t rely on the US. The Biden administration was upset — we had just taken office. That agreement eventually fell apart, but there’s a world where it doesn’t.

What worries me now is seeing Europe signal they want to hedge with China. That’s not sensible policy, but great powers can “commit suicide for fear of death” — a political science phrase I’m applying to this context. When you push an ally too aggressively, you can change their domestic politics to make it more anti-American. You can activate questions of face and respect that lead them to make poor decisions. Countries don’t always act in their rational self-interest, especially in times like these.

You can reasonably critique the Biden administration for not pushing allies hard enough, and the Trump administration for pushing too hard in ways that undermine transatlantic unity on China — which is extremely important for preserving America’s position. The truth is you need to do both. You need a nuanced approach, which either administration could achieve if they recognize the urgent need for scale and exercise more humility in American statecraft.

The capacity-centric statecraft we’re advocating is humble. We acknowledge there are capacities America has that its allies need, which we can provide. But we also recognize there are capacities America has lost that only our allies possess, and we need to regain them. How easy will it be to get Germany or Japan to manufacture in America if their domestic politics turns anti-American and their governments feel that accommodating the United States contradicts their political self-interest? That’s the risk — we might lose the transatlantic relationship we need if we’re not careful.

Jordan Schneider: In dark timelines, how does Trump 2.0 turn into America’s Gorbachev moment?

Rush Doshi: That was a provocative line in our piece. Personally, I’m hoping that doesn’t happen. Kurt and I intended to provide a strategic theory of how America should conduct itself with alliances — different from past approaches and valuable for the Trump administration. It’s not meant to be partisan.

The Gorbachev reference relates to two things.

1. There’s a risk that we neglect our allies’ agency, respect, face, and autonomy, causing them to move away from us if pushed too hard. Mikhail Gorbachev didn’t assume every Soviet republic would abandon his experiment, but that’s what happened. The same could happen to the American system if we renegotiate foundational elements, become unpredictable, interfere in allies’ domestic politics by supporting specific parties, or dismantle tacit bargains that underpin the American alliance system. This fragmentation would be catastrophic.

2. Successfully competing with China requires state capacity. Gorbachev’s reforms, and especially Yeltsin’s shock therapy, destroyed Soviet and then Russian state capacity, making it harder to accomplish geopolitical and domestic aims. I worry we’re dismantling our institutions. I’m not saying they shouldn’t be reformed or renewed — there were different approaches possible for both DOGE and the trade war. What concerns me is that these critically important initiatives weren’t implemented in the most strategic way.

Consider the trade war as a thought experiment. Imagine if, before Liberation Day, the Trump administration had presented a coherent theory of the case — policy papers explaining they would raise tariffs on China, with everyone else on notice. Imagine they had outlined what would happen to other countries in 90 days if they didn’t strike a grand bargain covering economics, trade, finance, security, and relations with China. What if they had already worked out preliminary deals with a few countries before the announcement, surprising China with this collective approach? And what if markets saw a logical grand design behind this strategy?

Would yields be spiking? Part of what’s happening is that markets don’t think we have a plan. The rationalization the Trump administration created after the fact about the trade war — imagine if it had come first. We’d be looking at a very different strategic situation.

You don’t go to war without preparation, as Russia demonstrated in Ukraine. That applies to global trade war also. What worries me is that there appears to be no document that articulates exactly what we hope to achieve globally, bilaterally, and multilaterally in the trading system. Without that framework, we’re improvising — and that’s frightening.

Jordan Schneider: As much as I want the Rush Doshi version of the Trump administration, I’m not optimistic that we’ll get it.

Rush Doshi: The purpose of my thought experiment is to imagine if we had done this differently. This could have been a moment of strategic advantage where the United States finally changed the global trading system to better reflect what’s needed regarding China’s participation. Instead, we have a unilateral, diminished American position with the entire world angry at us. I don’t believe that was the optimal approach.

You’re right — there were people with different proposals. My argument is that they should have made a different case, and I’m not certain anyone made this case. This is what they’re saying now — their post-hoc rationalization. Rewind the clock two months to the transition period. Had they presented this case then and informed the press — even if they ultimately imposed tariffs on allies — at least there would have been a coherent narrative before implementation. That story never emerged.

Jordan Schneider: Assuming the bear case from an American policymaking perspective for at least the next four years, we face several potential futures. One scenario involves democratic allies realizing they can’t count on the US, but needing to band together, put their houses in order, increase defense spending, and establish beneficial agreements between countries like South Korea and Germany. Let’s explore this path first. What might the global order look like with China checked out, while America and the rest of the developed world — uncomfortable with Chinese ascendancy — attempt to establish a new equilibrium?

Rush Doshi: China currently appears quite excited. President Xi is traversing different countries and striking deals. They clearly see an opportunity. I recently met with Chinese academics who indicated that China’s propaganda department is ecstatic, believing they haveways to position China as a better partner than the United States. Nobody should readily accept this narrative — skepticism is warranted. Nevertheless, China is actively attempting to drive wedges between the US and its allies, using trade as their primary mechanism.

My concern revolves around the bear case scenario. If we fail to reconstitute our alliances, experience greater transatlantic ruptures, and cannot establish meaningful agreements with our East Asian partners, America might retreat to the Western Hemisphere, attempting to make its stand there. This approach is doomed to failure. We cannot cede the entire world to China’s industrial power and expect that an America retreating westward can somehow escape the Mackinder trap. Mackinder warned against allowing any power to control the Eurasian “world island” — America’s pullback to the Western Hemisphere would enable precisely that outcome. This strategy was dismissed during World War II and makes even less sense now.

It’s particularly illogical in our globalized world where, even if the trading system fragments, it will inevitably reconstitute itself with another power at its core — potentially China. In that scenario, America becomes frozen out globally, unable to access the innovation, technological progress, and efficiencies developed elsewhere. America as the Galapagos Islands represents a bleak future. We must maintain our global presence and advocate for a world order reflecting American interests.

This isn’t merely “America First” rhetoric. For those embracing an America First perspective, this approach actually aligns with those principles by safeguarding American prosperity, not just geopolitical leadership. We’re discussing the quality of life Americans enjoy, which stems from constituting just 5% of the world’s population yet achieving extraordinary wealth — a reality made possible by a system designed to sustain this quality of life. We cannot simply demolish this system hoping everything will work out. That resembles Yeltsin’s shock therapy approach, which proved disastrous for the Soviet Union and Russia. My fear centers on an America that withdraws, creating a world that becomes China’s to lose — an outcome we must avoid.

Jordan Schneider: Do you believe the Trump team has learned lessons about alliance building from missed diplomatic opportunities during the first administration? What potential playbooks might China be implementing at this moment?

Rush Doshi: We should never discount China’s capacity to undermine itself diplomatically — essentially tripping over its own feet. Your observation is accurate, Jordan. There’s considerable confidence in Beijing. In my previous work on Chinese grand strategy, I’ve noted that the most important variable shaping their approach is their perception of American power. Beginning in 2016, this perception shifted dramatically. They concluded the world was experiencing unprecedented changes, leading to more aggressive and assertive Chinese policies, even toward countries they should have been cultivating.

One of history’s greatest strategic puzzles is China’s persistent alienation of India. China consistently pushes India toward the United States, when India might naturally prefer a more balanced position. China simply makes such neutrality impossible. They could certainly repeat these mistakes.

However, Jordan, we must acknowledge that our current approach differs fundamentally from anything attempted during the first Trump term. That administration conducted a trade war with China — arguably overdue — and attempted to renegotiate certain security agreements with allies. The current approach, however, essentially applies “Control-Alt-Delete” to the entire global trading system. We have a 90-day pause, but also a 10% blanket tariff — itself a revolutionary act. If we considered this tariff in isolation, without the chart the President unveiled, we would be shocked by it. Now, because our comparative reference is that chart, we’re virtually ignoring the importance of the 10% tariff.

To answer your question directly: American policy has become much more revolutionary than during the first Trump term, creating greater opportunities for China. The question becomes: even if they execute their strategy imperfectly, but marginally better than in the past, they could still accumulate substantial advantages. That prospect deeply concerns me.

Jordan Schneider: This connects to our earlier point about political instability. They might mishandle the opportunity, or they might not. Even granting them a 50% chance of failure still leaves several undesirable futures where smaller countries worldwide must navigate coordination problems without the United States providing necessary cohesion and facilitation. That’s frightening.

Rush Doshi: Precisely. A divided world where the US abandons its role as facilitator of collective action presents serious challenges. In political science, collective action represents one of the fundamental puzzles — what enables people to cooperate despite incentives to pursue individual interests? America functions as an anchor for collective action, making cooperation possible. If we withdraw, everything potentially fragments. Allies become divided and conquered. We might currently be in the “divide” phase of China’s “divide and conquer” strategy, but we’re inadvertently assisting them with the division — the conquest follows later.

Jordan Schneider: Every once in a while people ask me, “Jordan, why don’t you become the Matt Levine for China policy?” My answer is fundamentally that Matt Levine thinks securities fraud is funny, whereas I consider this stuff deadly serious. You too are someone who cannot look at the stakes of the conversation we’ve had for the past hour, shrug your shoulders, laugh about it, and simply move on with your life. Do you have any advice, Rush? It feels very helpless when the potential geopolitical errors seem larger than they’ve ever been in either of our lifetimes. Give me the pep talk. How do I keep putting one foot in front of another with the podcast?

Rush Doshi: There are a few things to keep in mind.

First, the Trump administration can negotiate agreements with allies and partners in ways that actually achieve scale. This remains conceivable. There are signs that some individuals running the negotiations are thinking in these terms. We know many people staffing the Trump administration at the mid-level, the key principals — not specifically the Cabinet, but many people below that level — believe in allied scale. They may not have called it that, but they understand its logic. That group exists, and there remains the possibility of landing the ship in that spot. I cannot predict the odds, and I do worry, but we shouldn’t be despondent.

Part of what must happen is continued discussion of these issues. One reason Kurt and I wrote our piece was to argue why allied scale matters. I hope as that argument circulates and others reinforce it, it may help shape some of the Trump administration’s thinking. The piece wasn’t meant as a partisan attack but as a strategic framework any administration could adopt.

The last thing I’d note is that this administration won’t last forever. Congress might flip in two years. America constantly changes. For allies and partners, they will find ways to work with the United States — whether through the legislative branch, pockets in the executive branch, or a suddenly enlightened executive that negotiates better deals. It’s not over.

Great power competitions can be lost in short periods, but China faces many challenges, too. They often struggle to consolidate and press their advantages. America possesses real advantages we shouldn’t neglect: two oceans, abundant resources, 70% of the world’s capital markets, the ability to attract the best talent from around the planet, and general political stability. These represent huge advantages that won’t disappear overnight. Some might be damaged or tarnished, but others might even strengthen.

We must remember this competition won’t resolve itself in two or four years — we must make investments for the long haul. Congress can do much. Everything the Biden administration did to build allied scale received bipartisan support, funding, endorsement, and praise from Congress. We must remember Congress wields power in this domain as well.

Jordan Schneider: One last question, Rush. I remember DMing you during the administration saying, “They’re not going to let you talk about this book, right?” And you replied, “Yeah, sorry,” but here we are now. We’ll have you back to do a deeper dive and an updated discussion about it. I’m curious — assuming nearly everyone in our audience has read the book — how did your experience being on the inside, reading intelligence, and interacting with the Chinese government affect some of the conclusions you reached toward the end of your research for that project?

Rush Doshi: Thank you, Jordan. I’m really proud of “The Long Game.” It was unfortunate I couldn’t discuss it while in government, and I’m glad people found it useful. The book was based on an assessment of 5 million words of Chinese Communist Party material, as well as a rigorous social scientific approach to their behavior. The conclusion was that China has maintained, since the end of the Cold War, a grand strategy to displace American order — first regionally, then globally. My time in government reinforced my view that these conclusions were correct.

In the book, I argue that going back to the 1980s, the US and China were essentially quasi-allies against the Soviet Union. Everything changed after the Gulf War, the Soviet collapse, and the Tiananmen Square massacre. Suddenly China viewed America as the biggest threat and inaugurated a new policy — “hiding capabilities, biding time” (韬光养晦 tāoguāng-yǎnghuì) — what I call blunting American power quietly, not assertively, while benefiting from America’s system.

In military terms, they pursued anti-access/area denial approaches to keep us out. Economically, they sought Most Favored Nation (MFN) and Permanent Normal Trade Relations (PNTR) status to tie our hands. Politically, they wanted to stall American-led institutions in Asia lest they become platforms for challenging China. This approach worked quite well until the global financial crisis.

In Central Committee materials, we see China change its perception of American power, adopting a new strategy formulated by the Central Committee. China should “actively accomplish something.” This approach had military, economic, and political components focused on building order within Asia, not just blunting American order. Militarily, China invested in power projection capabilities to influence its neighbors. Economically, we saw the Belt and Road Initiative and efforts to use economic statecraft against others. Politically, China built international institutions meant to serve as the foundation for order-building within Asia.

I wrote that this worked until 2016, when China’s assessment changed again. They adopted a new phrase to guide Chinese policy: “great changes unseen in a century.” The idea was that China’s current opportunities and risks were unlike anything they’d faced in a hundred years. We witnessed the inauguration of a global Chinese grand strategy focused on global military bases and winning in Taiwan; dominating supply chains economically and making the world more dependent on China (what President Xi calls “dual circulation"); and technologically, leading the fourth industrial revolution to ensure China wins those technologies not just for prosperity but for power. Politically, it aimed to change global institutions to make them more conducive to autocracy.

All of this is motivated by a desire to “rejuvenate” China, which represents a 100-year goal. The Chinese Communist Party is fundamentally a nationalist party seeking rejuvenation. They’ve always been that way. They’re also a Leninist party wanting to centralize power in pursuit of that goal. That’s why I say China has a grand strategy — it has the concepts, capability, and conduct to pursue that vision. They don’t always execute perfectly and make mistakes, but there exists a strategic intention to create a partial hegemony over part of the world, reflected in those military, economic, and technological indices I mentioned.

The intelligence community had previously outlined these conclusions in threat assessments but hadn’t substantiated them using open sources. I’m more confident of these conclusions now than when I wrote the book. Looking at President Xi’s behavior and the Chinese Communist Party’s actions over the past five years sustains the argument that they are pursuing a global grand strategy — not always well or brilliantly executed, but nonetheless deadly serious.

Jordan Schneider: Let’s look toward the future. Rush, what’s the broader open source project you’re launching at CFR?

Rush Doshi: I’m continuing my research at Georgetown as a professor and running the China program at the Council on Foreign Relations. One of our most exciting initiatives builds on my approach in “The Long Game,” where I relied on Chinese texts and materials to make my arguments. Now we’re going to mass acquire, digitize, and translate those kinds of texts at scale, making them more available to the public so people can essentially read China in its own voice.

If you do that, China essentially tells you where it wants to go. The Chinese Communist Party must communicate with itself and its cadres, and we want to make those communications available to others. This is something the US government used to do from FDR in 1941 through 2013 under Barack Obama, when we had the Foreign Broadcast Information Service that translated foreign material. That resource largely stopped being available to scholars in 2013. Our hope is to rebuild it at scale with a far greater source base and with the help of artificial intelligence. We’ve made major investments in this effort, have access to a large cache of material, and will share more very soon.

Jordan Schneider: It has been pretty frustrating over the past few months to see China be so important rhetorically to every policy decision while genuine curiosity about understanding the country seems at a relative low point — both regarding net assessment and strategic intention. It’s on us to make this material accessible and interesting. We can’t just complain about it; we must do the work and present it effectively, even if we need to be persistent. We need to make a strong case that this is both important and engaging.

Rush Doshi: Well that’s what you do on this podcast!

Jordan: Thank you! And look, The Long Game sold well, so there’s an appetite for this content somewhere! I fully believe in the mission and have more faith in you than virtually anyone else to make Chinese strategic discussion something the world cares about and takes seriously. Godspeed, Rush!

Mood Music

Double-edged swords in the US-China Cold War

A guest post by the excellent Kyle Chan of the High Capacity substack.

The US and China are in a cold war, not a trade war. This is something much bigger than tariffs and trade deficits. It is much bigger than Taiwan or semiconductors. And it began long before Trump or Xi. The US and China are locked in a global contest of power that is playing out along every dimension: economic, technological, military, cyber, soft power, global prestige. Both sides are searching for any tool, any weapon, any piece of leverage they can use against the other—short of direct military action.

There is no such thing as escalation dominance. Trump thinks the US will win in a trade war because China sells more to the US than the other way around. A tit-for-tat escalation on tariffs means the US will always be able to tariff more Chinese goods than vice versa. Adam Posen has recently argued it’s actually China that has “escalation dominance” (a RAND concept in nuclear deterrence) because China has other ways of escalating beyond tariffs, including potentially denying Americans access to Chinese-made goods from smartphones to medicines. However, the reality is neither side has escalation dominance because both sides have already gone far beyond trade measures. If you’re looking at the full range of actions beyond trade tools, there’s virtually no limit to how far each side can go.

The US and China are posturing as if they have escalation dominance, which makes the problem worse. US Treasury Secretary Scott Bessent said on CNBC that China had made a “big mistake” in retaliating against Trump’s tariffs because China was “playing with a pair of twos.” China’s Ministry of Commerce has said that China would “fight to the end.” While there are already signs that Trump is backing down, the confidence that each side feels—or at least tries to project—only fuels a downward spiral of recklessness and emotion-driven bravado.

Double-edged swords

Every weapon in the US-China Cold War is a double-edged sword. Because the US and China are so deeply integrated—both in terms of bilateral ties and as parts of a highly integrated global economic system—any action that one country takes will end up hurting both sides to some degree. The question then becomes: what is the balance of pain? Are you able to inflict more pain on your opponent than you would on yourself? It’s useful to map out the different tools and weapons in terms of the relative costs to each side, as I’ve tried to do in the diagram at the top. Which tools fall into which quadrants?

Both sides are searching for asymmetric weapons where the damage caused to the other side far outweighs the harm to oneself. China believes critical minerals are one such asymmetric weapon (top-left quadrant). The US believes semiconductor export controls are one of its asymmetric weapons (bottom-right quadrant).

There are weapons that would blow up both sides (top-right quadrant). For example, if China cracks down too hard on US companies operating in China, this would have a severe chilling effect on all foreign companies in China. Or, as Trump is now learning, imposing extremely high tariffs on all Chinese goods can have huge costs for US consumers and producers. An act meant to pressure China has backfired spectacularly. CEOs of major US retailers recently warned Trump of possible goods shortages. The US basically placed an embargo on itself.

Tools and Weapons

It’s useful to think about the tools and weapons that China and the US are using in terms of categories of goals:

• Trade tools: Conventional policy tools aimed at shaping trade flows, including tariffs, import licenses, quotas, local content requirements, and other non-tariff trade barriers.

• Competition tools: Policy tools designed to insulate domestic firms from competition and slow down the other side. For example, US-led export controls on semiconductors and semiconductor manufacturing equipment to China are designed to slow down China’s AI progress, among other goals.

• Human rights sanctions: Punitive measures meant to punish the target country for human rights violations. For example, various US bans on solar and textile products due to concerns over the use of forced labor in Xinjiang.

• Defensive national security tools: Defensive measures that are meant to prevent or mitigate potential national security risks, such as the US ban on Huawei telecom equipment or China’s “delete A” (i.e., delete America) campaign to remove US hardware and software from major state-owned enterprises.

• Offensive military degradation tools: Measures aimed at constraining the military capabilities of the other country. For example, China’s export controls on heavy rare earths, which are key inputs for US weapons systems. Or US controls on advanced chips and computing hardware to limit China’s ability to improve its missile systems.

• Pain tools: Tools aimed at causing outright economic or material pain among the population. For example, China reducing purchases of US agricultural goods to cause economic pain for American farmers. Or the US imposing an extra round of retaliatory tariffs meant to increase the economic pain for Chinese producers.

Blurred lines

The lines between trade, geopolitical competition, and national security are becoming increasingly blurred. The actions taken by both sides in the US-China trade war have already spilled over into areas far beyond trade. For example, the surprise arrest of Meng Wanzhou, the CFO of Huawei and daughter of the company’s founder, over alleged sanctions violations was treated by Trump during his first administration as a bargaining chip in negotiations with China. China’s export controls on critical minerals are a move that extends far beyond trade, targeting key inputs into America’s defense industry and power infrastructure. And of course, lurking in the background is an ongoing cyber war, including China’s successful cyber infiltration of US critical infrastructure and telecom networks.

Different policy goals are increasingly mixed together. For example, the Biden administration effectively shut out future Chinese EV imports through tariffs and a national security ban. These actions mixed together several different goals: leveling the trade playing field, protecting US automakers from Chinese competition, and addressing security issues around espionage and even remote control for “connected vehicles.” Mixing tools and goals together might seem like a way to kill two birds with one stone, but it ends up diluting their effectiveness. While this was a problem in past administrations, that pales in comparison to the blind hammer-throwing of this one.

Timing and sequencing

One curious pattern has emerged in all this. Both sides seem to be preempting the other side’s actions by implementing some of these same actions in advance.

• Nvidia H20 chips: For a while, the US seemed on the verge of banning Nvidia’s H20 chips from China. But before this happened, China’s NDRC released new energy efficiency rules that would have effectively banned Nvidia H20s. (The US has now gone ahead and effectively banned the H20 chip for China.)

• BYD Mexico plant: BYD’s plans for building a new EV plant in Mexico were put on hold after Trump got re-elected. Then suddenly in March, China’s Ministry of Commerce jumped ahead and withheld approval for BYD’s Mexico plant, arguing that BYD’s technology might get “leaked” to the US (which doesn’t make any sense given the many BYD plants popping up all over the world).

• Critical minerals: A few days after China imposed export controls over heavy rare earth elements, Trump signed an order to look into imposing tariffs on critical minerals.

One explanation for this pattern of actions is a battle over symbolic control. Rather than getting hit by a ban by the other side, it looks like you have more control when you jump ahead and implement the ban first yourself. It’s like the classic line: “You can’t fire me—I quit.” The end result is the same but the sense of agency switches.

Another factor is control over timing and sequencing. As each country tries to find chokepoints to use against the other side, they’re also trying to patch up their own vulnerabilities. Each country would prefer to do so at a pace and manner of their own choosing. For China’s semiconductor industry, this means retaining access to some foreign equipment and components while gradually substituting in domestic firms for pieces of the supply chain—when they’re ready. For the US, this means gradually reshoring or friendshoring critical parts of its supply chains to reduce dependence on China.

Both countries are trying to avoid powerful shocks that are unexpected and sudden, like the first Trump administration’s export ban on ZTE, which nearly destroyed the company. Even anticipated disruptions can cause near-term pain when they mess up a country’s timing. For rare earths, it’s true that the US can eventually scale up production from domestic and other non-Chinese sources to a certain extent. But this still takes time, and US supply chains could suffer significantly from shortages in the interim, as a set of US agencies have recently warned.

Fear cycle

Lastly, as the US-China cold war escalates and spills over into new domains, each side’s actions increasingly reinforce the other’s fears. China’s rapidly expanding military capabilities, which it often trumpets loudly, and large-scale cyberattacks on US infrastructure feed right into American fears of a growing Chinese geopolitical threat. A Chinese spy balloon floating over the US in 2023 certainly didn’t help matters.

China, in turn, sees a US bent on trying to contain it internationally and suppress its development. [Jordan: well, this is something many in the Chinese system have believed for decades now, and you can find Xi speeches from way back in 2013 saying that “international hostile forces are intensifying their plot to Westernize and split China”] Recent US actions that feed into this belief include efforts to get other countries to do trade deals that shut out China, increasingly stringent semiconductor export controls, and even the Biden administration’s AI diffusion framework, which sought to restrict China’s access to US chips by restricting the entire world’s access to US chips.

These mutual fears may have become too deeply entrenched to roll back. But the US should recognize how its actions may in fact bolster the CCP’s legitimacy and validate Xi’s focus on security and national strengthening. And China should recognize how its growing assertiveness is directly fueling a bipartisan backlash in the US.

Overcoming a Chinese Dual-Use ‘People’s War’ Invasion Fleet

A guest post from Joseph Webster, senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative and editor of the independent China-Russia Report. This article represents his own personal opinions.

There has been plenty of coverage of how China could use an armada of civilian ships during a Taiwan contingency (see here, here, and here).

But even if civilian ships aren’t used to transport troops, they could be used as launchpads for PLA drone operations. In a Taiwan contingency, Beijing could mobilize dual-use industrial resources, including its maritime, drone, and battery capabilities, to support military operations.

This article explores how China’s vast civilian maritime fleet — supported by unmanned platforms powered by next-generation batteries and AI — could enable a distributed, real-time radar and sonar sensor network around Taiwan and conduct drone strikes, mine-laying, and other operations.

The Chinese shipbuilding-drone-battery nexus

Just as China has a long-standing military-civil fusion program for science and technology, it also employs a whole-of-society doctrine for military industrial capacity. In particular, the Chinese military’s authoritative study reference on doctrine and strategy holds that a “people’s war” 人民战争 entails “the mobilization and the participation of the whole nation in the war and can maximize the war potential of the nation and countries” 具有实行全民动员、全民参战的政治基础，能最大限度地发挥民族和国家的战争潜力.

China is easily the world’s largest civilian and military shipbuilder, accounting for over half of all merchant vessels constructed in 2023, as measured by gross tonnage. Its fishing fleet is estimated to exceed 560,000 vessels, with its deep-water fishing fleet comprising about 3,000 ships. It has also constructed 50% more tons of military ships over the last decade than the United States, according to analysis from US Navy Captain (ret.) Thomas Shugart.

China’s unmanned drone capabilities are also formidable. Global drone production is concentrated in China: a single Chinese company, DJI, controls 70% of the global drone market, including the first-person view (FPV) drones used widely by both sides in the war in Ukraine. And as seen in Russia’s invasion of Ukraine, cheap, mass-produced, one-way attack (OWA) drones are revolutionizing warfare. While lithium-ion-powered FPV drones have a limited range (about 5 to 20 kilometers), they can be produced in astonishingly large quantities. Michael Kofman estimates Ukrainian annual drone production in 2024 will total between 1.5 and 1.6 million drones, mostly FPV drones. China’s output could dwarf these figures, owing to its greater industrial capacity. Moreover, the distinctions between nominally civilian and high-end military drones are becoming increasingly blurred — China could and would repurpose consumer drone-production lines in the event of a conflict with the US-led coalition.

Alarmingly, China’s quantitative industrial advantages in drones and ships stand to be amplified by qualitative improvements in battery technologies.

Next-generation batteries — like lithium-metal or solid-state — could vastly improve drone range and payload, potentially shifting the military balance of power. Shifting from existing lithium-ion-based battery chemistries to next-generation batteries could improve energy density, enabling drones to fly or swim farther, as well as carry greater payloads. As Brian Kerg notes, it may become increasingly difficult to distinguish drones from a precision-strike munition regime, and the PLA’s “close-in, low-cost, attritable precision strikes at scale” could support a Chinese amphibious landing force.

Not only will better batteries further blur the lines between drones and precision strikes, they will also present significant implications for electronic warfare: advanced batteries can allow drones (and manned systems) to “out stick” — that is, out range — opposition force systems, or enable a “targeting mesh.” As a RAND analysis notes, a targeting mesh’s redundant sensors offers superior performance over a kill chain: “unlike a [kill] chain — which can be rendered useless by the failure of one link — a mesh can retain structural integrity even when multiple elements fail.” A drone network of sensors and electronic warfare systems, powered by advanced batteries, could enable such a PLA targeting mesh.

Given their military implications, including for meshed networks, a quiet but deadly serious competition in advanced batteries is underway. Several Chinese ministries, including the Ministry of Industry and Information Technology, have ordered their top battery companies — including CATL, Geely, BYD, and Beijing WeLion — to work together on next-generation solid-state batteries, while also banning Chinese companies from supplying batteries to Skydio, the largest drone maker in the United States. These efforts may lead to technological breakthroughs for Chinese companies. For example, BYD claims it will begin deploying solid-state batteries in SUVs by 2027. Meanwhile, the US Department of Defense has designated China’s leading battery manufacturer, CATL, as a military company — a move which may indicate that China is developing a diesel-electric submarine with the help of CATL’s advanced batteries.

Drones, batteries, and ships could comprise a “People’s War Fleet”

In wartime, China’s vast and distributed civilian maritime fleet could be repurposed as drone carrier ships, anti-submarine warfare vessels, or radar and sonar collection platforms.

China may deploy drones on civilian vessels, leveraging first-person view, one-way attack drones’ low cost, light weight (often below 3.5 kg/8 lbs), and ease of use. Even civilian fishing vessels could likely carry several dozen drones. At a production cost of only $400, FPV drones can destroy $2 million tanks, with operators able to become proficient in months rather than years. Embedding AI and employing bigger, more advanced batteries on these drones would increase their lethality by making them less susceptible to electronic warfare (albeit while increasing costs).

The Chinese deep-sea merchant fleet is large and growing. Some analyses hold that the China-owned merchant fleet now stands at one-sixth of the world total; China also constructed over half of all new merchant vessels in 2023. To be sure, China’s interest in deep-sea merchant shipping is unsurprising — after all, China is the world’s largest trading nation. But China’s large, growing civilian fleet could nonetheless have important military implications.

To be sure, a Chinese unmanned drone swarm would admittedly face significant challenges. The Taiwan Strait has high-speed winds for most of the year (with spring and especially summer proving to be partial exceptions), impacting drone operations. Similarly, flying in an oceanic, salt air environment can lead to corrosion or necessitate operational adjustments for drones. Moreover, drones launched at sea will be unable to use “visual navigation” or tap onboard cameras and terrain features for navigation. Russia’s full-scale invasion of Ukraine demonstrates that drone swarms continue to face significant risks from enemy electronic warfare jamming, and friendly signal interference.

But drone warfare will evolve. Electronic interference can be overcome, to an extent, with better onboard AI software (albeit at higher complexity and costs, not to mention other AI-related risks). And improving battery chemistries could improve drones’ communications and electronic warfare systems, enhancing the platform’s lethality.

China’s civilian fleet also holds latent subsurface military potential, as it could launch potentially thousands of unmanned underwater vehicles (UUVs). These UUVs could employ active sonar capabilities to monitor the Taiwan Strait and nearby waterways for submarines, as well as conduct mine-laying or mine-countermeasures missions. This is not a far-fetched scenario: China is already using nominally civilian cargo ships to target subsea fiber optic cables around Taiwan. (China’s larger deep-sea vessels are better suited for launching UUVs, which are heavier and bulkier than airborne drones.)

Finally, the Chinese civilian fleet could enable a targeting mesh for the Chinese military by providing real-time radar data. While shipborne civilian radars are weaker than military-grade radars, their open-array radars nonetheless range from 64 to 96 nautical miles; larger ships with greater on-board power and higher mastheads can “see” farther. Next-generation solid-state radars — distinct from solid-state batteries — offer significant performance improvements over traditional magnetron radars. While each civilian vessel has only limited radar coverage, the Chinese navy could theoretically aggregate information from each ship to build a real-time, composite picture of maritime domain awareness, especially when used in conjunction with other platforms like commercial satellite imagery. This information could enable the PLA to track and target coalitional surface fleets.

Overcoming the People’s War threat

While the primary and most serious military challenge facing the coalition remains conventional PLA forces, a People’s War threat adds another potential threat vector. Luckily, many of the capabilities the coalition would use to deter and, if necessary, defeat China’s conventional forces can be repurposed against a dual-use People’s War fleet.

Given the significant risks the Chinese maritime fleet poses in the aerial, subsurface, and surface domains, coalitional militaries should monitor their fleet carefully. As Lonnie Henley wrote in a recent analysis, China struggles to maintain accurate information on its maritime militia — meaning any overhauls to China’s data-management practices may be an early warning indicator of changes in Chinese military tactics. China is unlikely to achieve strategic surprise in any Taiwan contingency. Still, insights into the Chinese civilian fleet’s operations could provide critical hints about the Chinese navy’s tactics in any quarantine, siege, or invasion of Taiwan.

To that end, US and friendly militaries should establish a baseline of Chinese civilian-fleet behavior to identify potential military-related anomalies; they should especially intensify monitoring of civilian vessels operating near sensitive military installations like Guam and Okinawa. And challenging Beijing’s South China Sea claims and highlighting China’s illegal, unreported, and unregulated fishing practices would limit the potentially dual-use Chinese fishing fleet’s size and operational scope, reducing its potential military intelligence collection capabilities and giving coalitional navies more freedom of maneuver in a contingency.

The United States and other coalitional partners must rebuild atrophied shipbuilding capabilities. A CSIS analysis found that a single Chinese firm, COSCO, constructed more commercial vessels by tonnage in 2024 than the entire U.S. shipbuilding industry has built since the end of World War II.

Scaling-up coalitional drone industrial capacity and technological know-how will be critical. Sending a clear, consistent demand signal to industry would help galvanize the sector and enable economies of scale. Given the growing strategic importance of dual-use drones, the United States and other markets should consider emplacing additional tariffs on Chinese drones, helping spur the rise of a domestic sector that could produce items in a military contingency.

Taiwan must invest substantial resources in its own military capabilities. Taiwan must scrap its Public Debt Act, which hampers critical security-related investments. Crucially, greater drone-manufacturing capabilities can ensure sustained production in the face of severe disruptions, while integrated drone operations at the conscript and reservist levels will bolster the ROC’s warfighting potential.

To maintain its military technology edge, the US-led coalition must lead battery innovation. Advanced batteries could give battery-powered and hybrid coalition drones superior range and capabilities, including in electronic warfare and kill-chain operations via a meshed network. Next-generation batteries could unlock directed-energy weapons and ultimately revolutionize warfare through low per-shot costs, unlimited magazine depth, and the ability to engage multiple drones or even missiles. Less than 1% of federal battery funding currently supports next-generation solid-state batteries, according to a Carnegie analysis. Incentivizing next-generation battery research via R&D tax credits, government prizes, and guaranteed DoD contracts could prove fruitful. The United States must also work closely with major international battery players — especially South Korea, Japan, and Taiwan — while ensuring robust domestic manufacturing capabilities.

The United States must pursue both defensive and offensive strategies for technological and industrial advantage in batteries and AI. This includes preventing dual-use technology transfers (eg. advanced batteries, solid-state radars for civilian craft, image-resolution processing used for drones, etc.) and tightening semiconductor controls with allies to curb China’s military advancements. Simultaneously, and given that China has stolen considerable amounts of Western intellectual property, the United States should acquire cutting-edge Chinese-developed technologies, especially in advanced batteries.

Finally, rapid AI development must continue. AI potentially offers sizable economic and societal benefits. Its military benefits are also considerable, as it will make coalitional drones more survivable in drone-on-drone warfare and enable human-machine teaming. Accordingly, the US-led coalition should remove power-sector bottlenecks constraining US development of electricity-intensive data centers required for AI. Cutting red tape surrounding electricity transmission and ensuring an all-of-the-above energy strategy inclusive of natural gas, nuclear, solar (which has significant complementarities with batteries), wind, and geothermal will ensure the United States and others are able to power electricity-intensive data centers. (Open AI’s ChatGPT requires nearly 10 times as much energy as a standard Google search.)

Policymakers must grasp the potential threat of a People’s War invasion fleet, provide substantially more resources to counteract the problems posed by China’s active and latent maritime threats, and act across a disparate, complicated set of interlocking issues, including drones, shipbuilding, batteries, and artificial intelligence. Congress must pass legislation to expand military and civilian shipbuilding, including via the bipartisan SHIPS Act. As ever, working with partners will be a force multiplier for the United States and its military. Overcoming the nexus of China’s drone-making complex, battery capabilities, and potentially dual-use civilian fleets will prove difficult, but the coalition must overcome this challenge.

Mood Music

Of all the policies Trump has rolled out, the two I’m most worried will have irreversible consequences for long term national power are undermining our alliance structure and the attractiveness of the country for high end international talent.

Angela Shen (ChinaTalk’s robotics and biotech analyst) and I published a piece earlier this week in The Washington Post, arguing how America’s student visa system is critical for future science and tech success. They’ve graciously allowed us to rerun it below.

As President Donald Trump is escalating the competition with China, he risks handing it a generation-defining victory by cutting off America’s ability to recruit the best talent in the industries of the future.

In the past month, roughly 1,400 international students and scholars have had their visas revoked or exchange records terminated. Students are being forced out for infractions as minor as dismissed traffic tickets with no link to antisemitism, protesting, criminal charges or anything else labeled a safety threat by the White House. With no clear logic or public explanation behind who is detained or deported, the result is a climate of confusion and fear.

The administration is also threatening the admissions process, with Homeland Security Secretary Kristi L. Noem warning she could block Harvard University’s ability to enroll international students entirely. Existing students are facing additional upheaval from the sudden freeze and elimination of research grants throughout the higher-education system.

This newly chaotic environment jeopardizes a vital talent pipeline that underpins America’s technological edge — and that, if it isn’t fixed, will have deep repercussions for U.S.-China competition for decades to come.

Foreign talent is a core contributor to the scientific discovery and technological progress that have upheld American leadership over the past century. International students make up about 42 percent of STEM PhD graduates in the United States, and rather than “stealing seats,” they are subsidizing Americans’ education by paying full tuition. Their presence generates revenue that sustains academic programs, lowers the trade deficit and funds financial aid that supports increased domestic enrollment.

In recent years, about 75 percent of these students have been choosing to stay. And they have delivered when they do: One study by the National Bureau of Economic Research attributed 36 percent of American innovation (accounting for quantity, quality and value generated from patents, as well as spillover effects) in recent decades to immigrants. One-half of advanced STEM graduates working in the defense industrial base were born abroad, and 60 percent of top U.S. artificial intelligence companies were co-founded by immigrants — most of whom arrived on student visas. And far from taking jobs from Americans, immigrants with STEM education fill skill gaps in critical fields such as health care and technology and occupy complementary roles that support U.S.-born workers.

This edge in building the technology of tomorrow — AI, robotics, quantum computing, advanced batteries — is now under extreme threat from the administration’s seemingly arbitrary crackdown on students. In the face of uncertainty around visas and funding, international STEM students are increasingly reweighing their options in favor of countries outside the U.S. that are doing their best to take advantage of this unique recruiting opportunity. If visa revocations continue, the U.S. might lose some of the best and brightest minds the world has to offer — systematically undermining the future of American innovation at a time when China’s homegrown engineers are already leapfrogging American competitors in key technologies.

China knows what it’s like to have brains drained by foreign schools and employers: Among international STEM PhD graduates from U.S. institutions, those from China choose to stay about 90 percent of the time. Beijing has been trying for years to reverse that trend and is surely celebrating America’s self-sabotaging decision to help Beijing do so.

In a 2021 speech, Chinese President Xi Jinping declared that his country must win the global battle to cultivate “human capital.” China has spearheaded dozens of initiatives to recruit talent, including Chinese workers who left for schools and companies abroad. These programs offer funding, family support and resources for research, aimed at making it easy for Chinese and foreign scientists working overseas to move to China. In the U.S., a group of Republicans in Congress recently introduced a bill to close off American schools to all Chinese students, effectively doing the Chinese Communist Party’s job for it. The bill is a long shot to pass but reinforces the message that China’s best and brightest should look elsewhere.

As of now, international researchers consistently view the U.S. as the more attractive destination for world-class education and opportunities, despite a notoriously complex and sluggish immigration system. But when something as routine as a traffic violation or a trip home could derail the futures of biology and engineering graduate students, trust erodes. The effects will reverberate far beyond the individuals pushed out. Mass visa terminations for arbitrary reasons send a clear message: Even if you try to play by the rules, you won’t be safe. Families considering a U.S. education now have to weigh not just sky-high tuition but also the possibility that a student could have to leave the country before they even earn a degree. When top global talent no longer sees America as a stable, long-term bet — in light of both visa and research funding insecurity — many will vote with their feet.

These concerns should resonate with Trump, who has repeatedly discussed the importance of winning the competition for workers. Just last year, he told the tech-focused “All-In” podcast that the government should automatically offer green cards to foreign graduates of American schools, a proposal he floated in his 2016 campaign as well. In December, he joined tech allies such as Elon Musk in defending the value of H-1B visas from critics inside his coalition. His administration now seems determined to undermine those goals.

In a recent call to revitalize America’s science and technology enterprise, Trump invoked Vannevar Bush, chief science and technology advisor to Presidents Franklin D. Roosevelt and Harry S. Truman. In his pivotal report, “Science: The Endless Frontier,” Bush wrote:

The publicly and privately supported colleges, universities, and research institutes are the centers of basic research. They are the wellsprings of knowledge and understanding. As long as they are vigorous and healthy and their scientists are free to pursue the truth wherever it may lead, there will be a flow of new scientific knowledge to those who can apply it to practical problems in Government, in industry, or elsewhere.

Bush handed America the blueprint for winning the 20th century: Open the doors to talent, fund basic science at scale, and let researchers chase truth. That formula has powered U.S. leadership to a Cold War victory and leadership in critical technologies such as AI and biotech today. And it’s one we should follow into the 21st.

This article followed our longstanding coverage of the importance of talent in US-China competition. Back in 2020, I wrote about how H1B and ICE rulings threaten to deter the brightest and best talent from the world. Since then, we’ve discussed how China has prioritized solving its domestic talent shortages, how foreign talent is the foundation of the US’s strong AI sector, and how leading Party thinkers see America’s open immigration policy as a key threat to China’s tech rise.

Lily is representing ChinaTalk at ICLR this week! Send us a message if you’re going and would like to meet up.

Liberation Day was just the beginning — Trump declared that he will be, “Taking a look at semiconductors and the whole electronic supply chain.” What could happen next and what would be the smart way to go about this?

Welcome back to another CSIS Chip Chat. Joining us today is CSIS’ Bill Reinsch, a longtime Washington vet who co-hosts The Trade Guys podcast, as well as Jay Goldberg of the Digits to Dollars blog and The Circuit, an excellent semiconductor news podcast.

We discuss…

• The conflicting goals of Trump’s tariff strategy,

• What chip designers stand to lose in a worst-case scenario,

• Why tariffs could undermine the enforcement of SME controls,

• How Chinese chip companies benefit from American tariffs,

• Loopholes in the H20 ban, and how the administration could close them.

Listen now on iTunes, Spotify, or your favorite podcast app.

Tariff Anxiety and Trump’s Objectives

Jordan Schneider: We’re recording this interview on Friday, April 18th. What are we looking at with the tariff situation right now?

Bill Reinsch: Tariffs are on the way. That includes tariffs not just on semiconductors, but on a wide range of downstream products. That could be very disruptive to the economy, depending on the specifics. If it has a chip in it, it may be vulnerable. Thanks to the Internet of Things, that’s a lot of stuff — it’s toasters and refrigerators as well as laptops and phones.

The mystery is what he’s trying to accomplish because he’s given out conflicting goals.

One goal is revenge — getting even with the countries that have taken us to the cleaners for the last 50 years.

Another goal is to use tariffs as a negotiating tool to get other countries to remove trade barriers. It’s artfully designed such that we don’t have to do anything. All we have to do is wait for them to make concessions, and then our concession will be not to impose the tariffs that he’s announced. If that works, that’s a good deal.

The third goal, which is inconsistent with the first two, is revenue. They need money to pay for tax cuts. Our current estimate of tariff revenue is $330 billion a year, which is not peanuts. But that’s only true if the tariffs stick. If he negotiates them away, then the revenue goes away.

The fourth goal, which is the most interesting one, is to reshore manufacturing. If you make it here, there’s no tariff. But there’s a time gap — tariffs go into effect now. If you’re building a factory, it takes lots of money and lots of years to put the pieces together. You have to find workers to fill the jobs.

Which is the real goal? It changes from time to time. With chips, it’s particularly hard to tell. It’s not really a revenge issue because most of this stuff is covered by the Information Technology Agreement, so it’s zero tariffs already. It’s probably trying to force manufacturing here, but in the process, it’s going to be one of the largest revenue transfers from the poor to the rich in history because the poor pay the tariffs disproportionately. The tax cuts also go to the rich disproportionately. This will make economic inequality in the United States a lot worse than it already is.

Jordan Schneider: If you’re a major chip designer, what’s going through your mind at the moment?

Jay Goldberg: If you’re a major chip designer, you have two concerns. One is losing access to the China market, because if China’s going to use counter-tariffs, suddenly your products are much more expensive. The other concern is tariffs on Taiwan. I know there are all kinds of side agreements and other things going on here where some chips are coming in at zero tariff, but is that going to continue? It sounds like there are threats to impose more tariffs on Taiwan for various reasons.

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Not all chips are covered. GPUs aren’t covered under the rules — GPUs actually get tariffed. Semianalysis put out a good piece last week showing that there’s a loophole. If you import your tariffs through Mexico as part of a system, then you don’t get that tariff. But if you import the GPUs directly to the US, they’re tariffed differently than CPUs, which hurts my brain and just seems counterproductive. Do you want to do assembly in the US? Well, you’ve just made that more expensive than doing assembly in Mexico. Do you want to win the AI war, whatever that is? You’ve just made that whole process more cumbersome and more expensive.

I’m confused — that’s where I end up on it. But to answer your question, if I’m running Qualcomm or Nvidia or Broadcom, I’m worried that suddenly my products are going to be more expensive somewhere along the line and that I’m going to lose access to 10-20% of my revenue that goes through China.

Jordan Schneider: All right, let’s discuss manufacturers and manufacturing.

Jay Goldberg: Regarding Bill’s question about our goals — do we want to bring advanced manufacturing and semiconductor manufacturing back to the US? If that’s the objective, we’ve already achieved it. We have TSMC building advanced chips in Arizona, so the supply chain is secured. That plant is very dependent on Taiwan’s mothership for R&D.

If you want an American company to have advanced manufacturing of semiconductors in the US, then the solution is simple — give Intel $50 billion. Problem solved. Intel can manufacture chips — it’s not a technical problem anymore, but an economic one. They just need to overcome certain cost curves to manufacture here.

If this were purely a national security concern and we wanted a fully domestic supply chain in case of war, then investing heavily in Intel would accomplish that. However, this approach creates other issues since we generally don’t favor subsidies. The ultimate goal remains confusing to me.

Bill Reinsch: There’s an important distinction you’re making. Biden was more of a carrot guy while Trump is a stick guy. Biden’s approach was to incentivize companies to do what we want. That’s essentially what the CHIPS Act was about, and likely much of what the IRA addressed — tax credits, subsidies, and incentives.

Trump takes the opposite approach. He threatens and pressures companies into compliance. It’s much cheaper for the federal government but not necessarily cheaper for the companies, as you’ve pointed out.

Jay Goldberg: In a modest attempt at bipartisanship, I’ll acknowledge that the Biden administration wasn’t particularly clear about its semiconductor objectives either. Their semiconductor initiatives contained many conflicting goals.

Bill Reinsch: I wouldn’t disagree with you on that.

Jay Goldberg: The current process is quite confused. Our objectives aren’t clear, and most paths forward involve everything becoming more expensive for average consumers. Then we face the question of China’s response, as they have some serious counter-tariffs that are detrimental to all these companies.

Bill Reinsch: The tariff levels are so high that they’ve essentially prohibited most trade between the two countries if they remain in place. My footnote to your comment is that Trump wants a deal and believes he can negotiate one with his “good friend” Xi Jinping.

This causes some concern within the administration because he appointed several people who are “decouplers” — they don’t want anything to do with China. But Trump maintains that he can make a deal. When he says that, as he has a number of times, I think back to 2018 and 2019. We’ve seen this movie before — he negotiated and made a deal, but in my view, he got played.

He entered with a whole bunch of demands and ultimately settled for promises to purchase American goods, which China never fulfilled. When questioned at the press conference about all his initial demands — eliminating subsidies, stopping IP theft, and other legitimate concerns — he responded that those would be addressed in “phase two,” which never materialized. I believe we’ll see a replay of this scenario.

Jay Goldberg: Then they didn’t follow through.

Bill Reinsch: Right now, it resembles a sumo match. You have two enormous opponents in the ring doing a lot of foot-stomping, glaring, and frowning at each other while throwing rice around. Eventually, there will be contact, and they’ll get to the negotiating table.

The only challenge is disguising who made the first call, because neither wants to be seen as the initiator — they both want to appear as the gracious party. An announcement will simply state that the two leaders have spoken and a meeting is scheduled, without mentioning who reached out first.

After the meeting, I expect similar results to before. Perhaps not 145% tariffs on Chinese goods or 125% on American goods, but some smaller figures. Currently, I don’t see any scenario where these numbers drop below 10%, which represents a significant increase for the US, whose average tariff level for decades has been around 2-2.5%.

Jordan Schneider: I’m somewhat disappointed. There’s a prediction market on whether Trump will impose 200% tariffs on China before June, and we’re now down to 19% probability. It spiked to 60% at one point. If we’re going this high, why not go for 1,000%? How about 949%? Let’s really make a statement.

Can China Capitalize?

Jordan Schneider: Let’s take a more positive approach. Bill and Jay, how would you use tariffs to influence the semiconductor industry?

Jay Goldberg: A few weeks ago, the Chinese establishment appeared very nervous. Obviously, I have no insight into what Xi Jinping or senior party members are thinking, but from the semiconductor industry commentary I was reading, there was genuine fear and trepidation.

That shifted the moment the tariffs were extended to the rest of the world. Liberation Day was a positive development from the Chinese perspective. If Trump had maintained his focus solely on China, there was a moment when he could have genuinely affected the balance of trade.

Instead, he imposed tariffs on everyone else, alienating our allies. Then he reversed several tariffs, which undermined our negotiating position. There was a brief window when he actually had a chance at achieving his objectives.

Bill Reinsch: China should return to being worried because negotiations with other countries will likely unfold in a specific way. These nations are lining up to visit the US, and during these discussions, one of our major requests will be for them to match our approach toward China by imposing similar tariffs. While this isn’t specifically about semiconductors, it’s an important ask that will resonate with some countries.

Chinese overcapacity affects several sectors — steel, aluminum, solar panels, electric vehicles, and soon commercial aircraft. Other nations are beginning to recognize how this damages their domestic industries. The European Union’s concerns about EVs are shared by India, Turkey, South Africa, Brazil, Canada, and Indonesia, all of which are taking or considering tariff actions against China for various reasons. Indonesia’s focus is on textiles, which differs from the others.

Many countries have identified the problem and recognized that it’s detrimental to their interests. What’s missing is a coordinated approach. Unilateral action is like squeezing a balloon — the pressure just shifts elsewhere. The primary victim of our actions against China will be the European Union, as products no longer sold to us will be redirected there, which concerns them greatly.

If a collective strategy works, China will face a united front rather than just bilateral conflicts with individual countries, creating a much larger problem for them.

Jay Goldberg: That’s absolutely true. My concern is that Europeans no longer trust the United States to lead such a coalition effectively.

Bill Reinsch: You’re exactly right. We’re alienating our friends more than our enemies. Russia and Iran were exempted from the tariffs. While we don’t trade much with them anyway, it was an odd symbolic gesture. Given how we’re treating our allies, why would they help us? It simply doesn’t make sense, as we’ve already noted.

Jay Goldberg: I recently saw a report about ASML, which produces critical EUV tools essential for advanced semiconductor manufacturing. During the Biden administration, they provided software security keys to the NSA and US government to prevent China from using their most advanced systems. My understanding is that after the new tariffs were implemented, the Dutch government reclaimed those keys, moving us in the opposite direction.

You’re right about the common interests among nations. All the countries you mentioned, plus others, have legitimate concerns about China’s export practices. Eventually, we might align our approaches, but collective action is essential. Otherwise, we’ll remain fragmented.

This sentiment was reflected in Chinese media — initially, they were worried and felt isolated. Then “Liberation Day” arrived, and their tone changed overnight. They became optimistic, with some explicitly stating that the US had overplayed its hand, transforming the situation from “the world against China” to “the world plus China against the US."

Bill Reinsch: That’s a fascinating perspective. I hadn’t considered it that way.

Jay Goldberg: I’m trying not to sound alarmist. You’re right that countries are preparing to negotiate and seek agreements. Hopefully, some of these discussions will develop into collective action against China rather than just a series of bilateral arrangements.

Bill Reinsch: My instinct suggests that Japan and Korea will be the most reluctant participants in such collective efforts, which is particularly relevant for the semiconductor sector.

Jordan Schneider: Yes, the secondary impact on semiconductor export control. We saw the H20 affected earlier this week, but that’s relatively straightforward. Manufacturing equipment requires cooperation from allied nations. While extraterritorial measures might allow for tighter restrictions than previously possible, I have mixed thoughts about this situation.

These countries will be more concerned about broader trade disruptions, making Tokyo Electron’s challenges seem minor compared to potential 20% tariffs on their entire economies. However, this approach creates an unfriendly atmosphere when making additional requests. If these nations are reconsidering their relationships with China, semiconductor restrictions are precisely what will frustrate them most.

Bill Reinsch: China has launched what appears to be its third charm offensive. The United States is essentially signaling to the world that we’re no longer a reliable partner, which has profound implications.

One particular concern, magnified by our implementation approach, is the lack of consistency in our policies. Tariffs are imposed, removed, increased, and decreased; exceptions are announced, then withdrawn, then postponed; deadlines shift, and deals emerge unexpectedly. From a foreign perspective, predicting our next move is impossible, and there’s little confidence that any agreement will endure.

Canada and Mexico provide prime examples. Trump negotiated the USMCA, which he declared the greatest trade agreement in history, yet five years later, he’s dismantling it. Under such circumstances, why would any nation trust our commitments?

Jordan Schneider: The Biden administration managed to bring the Netherlands, Japan, and South Korea on board to some extent, but their primary directive was maintaining good relationships with allies. This approach limited how aggressive they could be on semiconductor manufacturing equipment (SME) restrictions.

With Trump, we’re seeing different motivations at play. First, there’s less concern about allies’ reactions. Second, there’s a stronger desire to confront China. Third, there’s a simultaneous interest in making deals with China. These competing priorities could lead to various outcomes where allies become alienated.

As a result, companies like ASML might stop caring about finding ways to service DUV equipment or sell EUV technology to China. Alternatively, the administration might apply so much pressure through intellectual property restrictions that they successfully block these technologies, regardless of allied opinions — something the Biden administration was reluctant to do. This creates tremendous uncertainty for engineers at companies like SMIC who are trying to plan what technologies they’ll have access to over the next five years.

Jay Goldberg: One fascinating aspect is the competing factions within the Trump administration pulling in opposite directions on these issues. Some favor complete decoupling from China, while others — with Elon Musk being a prime example — remain dependent on Chinese operations.

Musk’s factory in Shanghai is central to his entire fortune. Where do his loyalties lie? He maintains influence in this administration, though perhaps it’s diminishing. Tesla relies heavily on that Shanghai gigafactory for global exports, which likely makes him more sympathetic to China.

From China’s perspective, there are approximately 56 electric vehicle companies competing with Tesla. Some, like BYD, Xpeng, and Li Auto, are beginning to surpass Tesla and would benefit from seeing it hindered or shut down. Strong voices in China oppose Tesla’s presence. If Musk can’t leverage his Washington influence to foster friendly US-China relations, what value does he provide to China? They could simply shut him down.

This situation gives me some hope that a peaceful resolution might be possible.

Bill Reinsch: Last year’s gossip suggested Chinese officials were optimistic because they believed Musk would advocate for their interests. However, it’s important to remember that everyone who has worked for Trump eventually gets sidelined — it’s just a matter of time.

When Trump was inaugurated, I predicted Musk would last six months, and I’m maintaining that prediction. His formal role might expire in May anyway, but the real question is when his influence will fade. Everyone eventually falls out of favor. There’s already speculation here about which cabinet member will be dismissed first, with various theories circulating. It’s become a parlor game.

Jordan Schneider: The one certainty we face is policy swings regarding the CHIPS Act implementation, export control regulations, and tariff structures. This level of uncertainty affects the future of initiatives begun during Trump’s first administration to revitalize domestic manufacturing.

Jay Goldberg: Some believe the tariffs are merely a negotiating tactic that will eventually lead to more reasonable levels without lasting damage. This perspective is misleading for two reasons. First, as Bill noted, we will undoubtedly end up with higher tariffs regardless of negotiations. Second, there are concerning secondary effects.

The implementation of tariffs and Chinese counter-tariffs has created a major opportunity for domestic Chinese chip design companies. Their strengths lie in trailing-edge manufacturing and analog products, with approximately 500 companies competing in this space.

Until very recently, the Chinese semiconductor industry was pessimistic — they faced excessive internal competition and geopolitical constraints. These new tariffs have made products from American companies like Texas Instruments and Analog Devices much more expensive in China, precisely when Chinese companies are releasing massive amounts of analog capacity.

This will propel several Chinese chip companies to positions where they can compete globally. Once they achieve global competitiveness — as we’ve seen many times before — they’ll disrupt foreign competitors due to their cost advantages and low capital costs. This will permanently alter the chip design landscape as Chinese champions emerge onto the global stage.

Without these tariffs, this transformation would likely have taken another five years to materialize.

Bill Reinsch: This is fundamentally a timing issue. When the October 2nd export controls were implemented, our team at CSIS identified three key questions — the effect on US company revenue, the impact on Chinese policy, and the potential “design-out” problem where companies would remove US technology to avoid control restrictions.

Regarding the second question about Chinese policy impact, your assessment is accurate. These controls didn’t change Chinese strategy, as they’ve been moving in this direction for the past decade. However, the controls have accelerated their timeline, forcing us to address these challenges much sooner than anticipated.

Jay Goldberg: The controls have pushed many sectors past the point of no return, which might not have happened otherwise. While this outcome was probable, things could have evolved differently. Now we’ll face permanent Chinese competition in several markets.

Jordan Schneider: Jay, what corporate and policy responses do you anticipate for the trailing-edge and analog sectors?

Jay Goldberg: The situation presents challenges. Companies like Texas Instruments have spent the past five years upgrading their capacity, investing approximately $10 billion to lower their cost structure, enabling them to compete with low-cost Chinese manufacturers. They’ll likely weather this storm.

However, other companies will struggle, particularly European firms like STMicroelectronics, Infineon, and NXP, as well as American companies like Analog Devices and ON Semiconductor. These organizations now face unprecedented Chinese competition in analog, memory, and several other categories. Previously, they could monitor Chinese competitors without serious concern, but now they suddenly confront formidable new rivals.

Jordan Schneider: Is there a solution through tariffs, subsidies, or industry consolidation?

Jay Goldberg: No easy answer exists. Tariffs aren’t effective because demand is primarily coming from China. The bright spot in analog chip companies’ revenues recently has been the Chinese electric vehicle market, and these companies will lose substantial portions of that business. Their growth prospects are diminishing, forcing them to lower their outlooks.

Additionally, these pressures clearly drive Chinese companies toward domestic solutions. To Bill’s point, this trend began around 2018. Chinese domestic chip consumption increases by roughly one percentage point annually. While overall market share remains in single digits, certain sectors show higher penetration.

This trend will accelerate over the next year. Once domestic competitors establish themselves, they secure more funding and cash flow, enabling increased R&D investment. This makes them more competitive and establishes them as permanent industry players in ways they wouldn’t have been otherwise.

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Jordan Schneider: Jay, let’s discuss the leading edge. How do you view Intel and TSMC in relation to Huawei’s efforts to vertically integrate the entire semiconductor ecosystem?

Jay Goldberg: Regarding leading-edge technology, China still has considerable ground to cover. Despite persistent rumors about major breakthroughs, they haven’t quite reached that level yet. Their progress will likely take several more years, though the tariffs have certainly energized their efforts and accelerated the process.

Huawei remains heavily dependent on TSMC, continuously finding new channels to access TSMC wafers in a constant game of whack-a-mole that will continue. Another complicating factor is the apparent reduction in US federal government resources. How can the Bureau of Industry and Security effectively enforce existing export rules with staff shortages while other government branches face similar cuts?

Huawei and other Chinese companies continually establish shell companies and reorganize their corporate structures. This creates a tremendously tricky enforcement environment.

What confused me most this week was Trump’s apparent focus on NVIDIA as an adversary. This seems contradictory — if our goal is winning the AI race, why target the American company leading in AI computing? Hopefully, this is merely negotiating posture, but it’s perplexing.

Bill Reinsch: I agree completely. With Trump, policy often becomes personal. If he dislikes someone, that sentiment transforms into policy, making outcomes difficult to predict.

Jordan Schneider: Visiting Beijing immediately after the H20 ban and meeting with Liang Wenfang seems like an unusual choice. NVIDIA’s future isn’t in China — the administration couldn’t make that clearer. It appears to be a questionable tactical decision.

Jay Goldberg: Jensen Huang even wore a suit and tie rather than his signature leather jacket.

Bill Reinsch: He’s attempting to balance competing interests — isn’t everyone, in one way or another?

Jordan Schneider: Trump could force him to choose sides. Depending on how you calculate it — particularly regarding Malaysia — China represents between 7-15% of NVIDIA’s revenue.

Bill Reinsch: This reminds me of the 2008-2009 financial crisis discussions about banks being “too big to fail.” In this context, are certain companies too important to punish? Trump may recognize NVIDIA as such an organization. His options are limited by the consequences — if winning the AI competition requires NVIDIA, damaging the company creates substantial collateral damage that must be considered.

Jay Goldberg: Precisely. From NVIDIA’s perspective, Jensen Huang must walk a tightrope. They’ve been subtly but consistently criticizing these policies since the Biden administration because they bear the brunt of the impact. NVIDIA and ASML feel these sanctions most acutely, with each new wave costing NVIDIA billions in revenue.

Huang has quietly resisted these measures, and his Beijing visit makes this resistance more visible. His concerns are justified — China has 20-30 GPU companies that, while not currently exceptional, are improving. Additionally, Huawei demonstrates impressive AI capabilities. If Huawei maintains access to TSMC or leverages what SMIC provides, they could become a serious threat to NVIDIA.

As with analog companies, creating a market vacuum inevitably leads to Chinese competitors filling the void. Once established, they become entrenched and impossible to dislodge. NVIDIA has legitimate concerns about this dynamic.

To Bill’s point, what options exist? Undermining America’s leading AI company through tariffs or other punitive measures seems risky, even for Trump.

Jordan Schneider: The truly frustrating aspect is how long the H20 ban took to implement and its failure to address the TSMC loophole and semiconductor manufacturing equipment vulnerabilities. We’ve created a worst-case scenario where we’re inadvertently helping Huawei on both fronts by allowing them to gradually improve and market chips that compete with NVIDIA’s offerings.

Huawei has developed an impressive server rack system that, while not equivalent to Blackwell, is approaching that capability. Their product is specifically tailored for the Chinese market, where power efficiency concerns differ from ours. Instead of receiving a nuanced, optimized policy, we get the lowest common denominator approach. Even with competing objectives, we’re far from achieving optimal results because the regulatory focus emphasizes simplicity and brevity rather than effectiveness.

Jay Goldberg: Let me offer a positive suggestion since you asked for policy recommendations. We should give the Bureau of Industry and Security and the Commerce Department a thousand inspectors to enforce the existing rules. Let’s deploy adequate personnel to investigate the Malaysian companies suddenly building massive data centers.

Jordan Schneider: We could reassign those IRS employees who are reportedly being let go.

Jay Goldberg: Exactly. Shift them over.

Bill Reinsch: The 2025 budget appears to feature either cuts or no notable increases. The only substantial BIS funding increase targets the import side to address Huawei hardware entering the United States. The export control and enforcement sides have received no expansion.

A group of us produced a paper on this issue a couple of years ago, with Greg Allen joining our advocacy for budget increases. We’ve met with congressional representatives, and while our message resonates and generates sympathy, implementation never materializes.

We’re entering an era of dramatic government reduction, as Jay mentioned earlier. Proposing a 25% personnel increase for one agency seems unlikely to succeed, despite its merit.

Jordan Schneider: Let’s conclude with this, Bill. You’ve been in this field for many years, and we’re at a point where thoughtful analysis seems undervalued — yet that’s our profession. Can you offer some encouragement for those of us committed to these issues?

Bill Reinsch: I wish I could, but I’m reminded of the adage, “The more things change, the more they stay the same.”

I served as the staff director of the Senate Steel Caucus for 17 years, largely trying to preserve the US steel industry. This wasn’t part of my portfolio when I joined the government, but more than 20 years later, I returned to it after leaving the National Foreign Trade Council and joining a law firm representing steel companies.

I encountered one of their lobbyists and commented that I had returned after two decades. His response was telling — he said that nothing had changed other than the people involved.

This dynamic applies here as well. For 50 years, it’s been a cat-and-mouse game, which will continue indefinitely. Enforcement officials always operate defensively. The greatest mistake is expecting 100% effectiveness, which is impossible. This requires viewing it as a management problem where you optimize results within constraints.

Consider that Iran’s nuclear development efforts required 100,000 centrifuges. If your enforcement goal is zero, you’re destined to fail. If instead, you aim to limit them to 25,000 units that cost five times more and extend their timeline from three to ten years, those objectives are achievable. However, this pragmatic approach fails to satisfy political demands.

Congressional China hawks want absolute results, like seeing Huawei eliminated, banning all US-origin chips from entering China, or having ASML cease all Chinese operations. Every administration confronts this perpetually present faction that views China as an existential threat.

During the Bush administration, I had a revealing conversation with an NSC official handling this portfolio. While discussing another matter, he abruptly stated that a million Chinese wake up daily thinking about harming Americans. I responded that several Pentagon personnel similarly contemplate targeting Chinese forces — that’s their job. Without hesitation, he replied, “Not nearly enough."

These hardliners exist throughout Congress, administrations of both parties, think tanks, academia, and media. They’re currently more influential than previously. My perspective has been that the optimal policy for both nations is preventing such individuals from assuming control. I’m concerned because several now hold administration positions.

One current discussion topic is whether to implement a complete embargo, which would add little practical impact beyond existing measures but carries symbolic weight.

My outlook is pessimistic, though I hope for more measured approaches. The semiconductor industry has effectively communicated the consequences of excessive controls over the years. However, they achieved far less than they sought during the Biden administration and likely won’t fare better under the current one. Nevertheless, I commend their persistent efforts.

Jordan Schneider: Earlier, we mentioned that Bill’s son teaches religion at a Catholic school. I had AI generate a transcript and asked o3 for Bible quotes relevant to our discussion about BIS export controls. Bill, could you pick your favorite from the list?

Bill Reinsch: “Nothing is concealed that will not be disclosed, nor hidden that will not be made known.” Luke 12:2.

Jordan Schneider: My favorite was: “No wisdom, no understanding, no counsel can avail against the Lord. The horse is made ready for the day of battle, but victory belongs to the Lord.” So we’ll leave export control effectiveness in divine hands.

Bill Reinsch: My son would agree with that.

Jay Goldberg: “Plans fail for lack of counsel, but with many advisors, they succeed.” Proverbs 15:22. I’ll choose that one.

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Dylan Patel and Doug O’Laughlin of SemiAnalysis explore Huawei new rack and its broader strategy of leveraging structural advantages to resist, circumvent, and nullify export controls — as well as how the U.S. government should respond.

We also get into chip tariff policy. Semiconductors are exempt from Trump’s reciprocal tariffs for now, but the administration has signaled that chip-specific tariffs are coming soon. Dylan gives his pitch for how tariffs could be used to save American manufacturing, move high-tech supply chains out of China, and even reduce the national debt!

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Huawei’s Edge and What to Do About It

Jordan Schneider: Dylan, tell us about what's going on with Huawei.

Dylan Patel: Huawei has the Ascend 910B and 910C. It's the same chip silicon-wise, but we've been banging on the drums about this for years now. Systems matter more than individual chips for AI workloads. When we look at Nvidia, one of their three core competencies is networking and systems, another is the chip itself. These are almost equivalent-level components.

What Huawei has done is taken a 7-nanometer chip that is mostly produced at TSMC, some at SMIC, but mostly at TSMC, and put it into a system that consumes more power with more chips, but they've networked it together in such a way — they've cooled it, they've done all the networking — where the performance is actually going to be better than Nvidia's GB200 NVL72 rack. This is the new product that Nvidia is shipping right now in mass production. It's what everyone wants. To be clear, it's really good.

Nvidia's solution is one rack that consumes 140 kilowatts. Huawei has made a system that consists of 16 racks of compute connected all together through optical fiber, using approximately 6,000 optical transceivers connecting the Ascends together. Yes, it consumes 550kW versus 140kW for Nvidia. This is a huge step up in power, but it also brings 2-3x the performance in memory and FLOPS.

When we talk about software to utilize it, understand that Huawei's software is better than AMD's. They support JAX, Python, PyTorch as first-class citizens, and support VLMs. There's a lot of software support that they've already built out publicly. Huawei's engineers are exceptional — their software engineers are arguably just as good as Nvidia's. You can see this in all the products they've built over the years.

Huawei has turned what is effectively a big handicap on chips into a workable solution. They'll use 2-3x the power to achieve 2-3x the performance, but that's acceptable because China can build power infrastructure. The US doesn't build power infrastructure as readily.

This is critical to consider — Huawei continues to receive HBM through this Faraday-CoAsia loophole:

Samsung has come to the rescue, having been the number one supplier of HBM to China through which Huawei has been able to stockpile a total of 13 million HBM stacks which can be used for 1.6 million Ascend 910C packages before any HBM bans.

Furthermore, this banned HBM is still being re-exported to China. The HBM export ban is specifically for raw HBM packages. Chips with HBM can still be shipped as long as they don’t exceed the FLOPS regulations. CoAsia Electronics is the sole distributor of HBM for Samsung in Greater China and they have been shipping HBM2E that is to ASIC design service company Faraday who gets SPIL to “package” it alongside of a cheap 16nm logic die.

Faraday then ships this system in package to China, which is technically allowed, but Chinese companies can then recover the HBM by desoldering. We think they employ techniques to make it very easy for the HBM to be extracted from the package, like using very weak low-temperature solder bumps, so when we say it is “packaged,” we mean this in the loosest way possible.

They've stockpiled a significant amount because the US government telegraphed the bans on HBM for nine months instead of implementing them immediately.

They continue to receive wafers. Allegedly — I haven't been able to validate this personally — Huawei received over $500 million of wafers just for the Ascend alone last year. They could potentially still be receiving wafers from TSMC. Furthermore, as SMIC continues to improve their yields — even if they only reach a paltry 20% — they could produce millions of Ascend chips because we continue to sell leading-edge equipment to SMIC to produce wafers. We continue to sell leading-edge equipment to CXMT to produce wafers. Yes, there are some restrictions against them, but these restrictions have loopholes.

Given all these factors, Huawei will be able to ramp production unless the US government improves its strategy. They should have focused their attention on banning the equipment before addressing the H20. Now they're just taking revenue away from Nvidia while still allowing China to import advanced technology. ASML recently stated that China is buying a lot more high-end equipment than expected.

There are significant issues with the government's strategy. They're doing things backwards. Credit to them for banning the H20 — perhaps that was necessary — but they got the order of operations completely wrong, and many loopholes were left by the Biden administration.

The Trump administration now has the chance to be tough on China in ways the Biden administration claimed to be but wasn't fully committed to, though they haven't taken decisive action yet. We'll see if the Trump administration decides to be genuinely tough on China. Their rhetoric is strong but their actions have been weak so far. They recently laid off one of my favorite people in the NSC because Laura Loomer claimed he was a "deep state agent." This is not a joke — this is serious. There are many concerning decisions being made, and I want the administration to do better. I'm happy to advise them on what they need to do.

Doug O'Laughlin: This is not just ASML. All of the suppliers have been saying there's been incremental pull-ins on demand for semiconductor capital equipment specifically in China.

Dylan Patel: It's equipment, subsystems, and especially metrology equipment, which is barely controlled and completely a US industry. There are chemicals that could be used to cut off SMIC or the Huawei-associated fabs, but they won't do that.

Doug O'Laughlin: People don't fully appreciate that Huawei is vertically integrated. Huawei is dominating the Chinese domestic ecosystem. They steal NARA and AMEC tools as well. There's a tool they had that's identical to a DISCO tool we saw, and there's an identical KLA tool. The equipment manufacturer SiCarrier is also functionally an arm of Huawei.

Dylan Patel: Let's be clear about SiCarrier and Huawei. Huawei bought about $8 billion of equipment last year. They're simultaneously running wafers through their tool and imported tools side by side and calibrating their tool to improve. They're continuously getting better and better. It's amazing how well they're doing this.

Doug O'Laughlin: What's crazy is that Huawei and Microsoft have the same number of employees.

Dylan Patel: Pound for pound, Huawei is so much better than Microsoft.

Doug O'Laughlin: Microsoft does make a lot more money, to be clear. But Huawei is massive, and they're doing hardware, software, and multiple layers of hardware networking. What is Huawei not doing?

Dylan Patel: Huawei is even doing electric vehicles, which are fire. (YouTube review, but bilibili spocon is way more fun).

Doug O'Laughlin: Jensen Huang has said before: Huawei is “single most formidable technology company in China.”

Jordan Schneider: Can you explain the vertical integration and what SiCarrier is aiming to become?

Doug O'Laughlin: SiCarrier makes tools. They're like Applied Materials, ASML, and KLA. But Huawei and SMIC are heavily involved.

Dylan Patel: SiCarrier has already bought about $2.5 billion worth of equipment for an HBM fab that they're building for SMIC/Huawei. They’ve built leading-edge 7 nm and 5 nm fabbing tools. They have a new form of non-volatile memory which should beat DRAM in cost and NAND in performance. There's an advanced packaging Huawei fab. The US government doesn't consider any of that to be part of Huawei. But if you use basic logic, they're clearly Huawei.

Jordan Schneider: Anything else on Huawei?

Dylan Patel: It's important to recognize what they did on the networking side as well, which was really impressive. They built their own switches. They built their own NVLink equivalent, which is impressive on its own. But then on top of that, they built their own optical transceivers.

Every single optical transceiver that goes into a Google TPU pod is made in China by a Chinese company. Approximately 70% of optical transceivers that Nvidia uses are designed in China and shipped to all these servers. Most of them are built in China as well. There's a significant optical supply chain issue that America has that needs addressing immediately.

China has their own optical supply chain, and it's remarkable because they've become the first to productize this technology called LPO. Doug and I have been discussing this for exactly two years now. It essentially involves taking an optical transceiver and removing the most expensive chip while still making it work. It's cheaper, lower power, and technically lower latency. The challenge is that it's somewhat less reliable, but with good engineering, you can solve that problem. Huawei figured it out before anyone else.

Optimizing Tariffs

Jordan Schneider: What’s going on with our semiconductor tariff situation?

Dylan Patel: If they are intelligently designed, the semiconductor tariffs could do a lot of positive things. But they could also do a lot of negative things.

Jordan Schneider: How would you design semiconductor tariffs?

Dylan Patel: First, if you import a subcomponent into the US and then export it out of the country, you should be able to get a refund on the tariff you paid on that subcomponent. This shouldn't be limited to just semiconductors either — we should have a policy that you can get import credits for anything you export out of the country. That fixes a lot of the tariff issues. This is done by some countries, but not by America.

Second — and let's frame this as an electronics tariff, not just a semiconductor tariff — any sub-materials or subcomponents should be excluded from the tariff initially. Take consumables, for example. We don't make wafer sputter targets in America; everyone just imports them. It would be nice if we made some in America, but we don't want to increase costs for American factories that rely on those imports.

Instead, we should implement a phased-in tariff. If it takes two years to build a sputter target factory in America, we should announce that a tariff on sputter targets will go into effect in two and a half years. That way, no producers get obliterated. This needs to be communicated very clearly so that everyone knows it's coming. We should do this for as many subcomponents as possible.

Next, the tariffs on final assembled goods should be much higher than the tariffs on sub-components and sub-assemblies. We should impose heavy tariffs on iPhones even if it's politically unpopular. Instead of excluding them, iPhones should be hit with a 135% tariff if they're made in China or a 25% tariff if they're made in another country. But the sub-components, such as the display from South Korea, should either not be tariffed or be tariffed at a very low rate. That creates a waterfall effect where it becomes profitable to do the assembly in America or USMCA countries.

Finally, we should reclassify goods. Right now, motors and robotics are in the same classification. That means no one is going to manufacture robotics in America. Under the current policy, if you import a motor in order to make a robot for export, it's not considered a “substantial transformation,” and thus you can't get any exemptions. Whereas if you import a chip and then use it to make a computer or a PCB board, it's a substantial transformation.

We should definitely impose steep tariffs on China and not tariff other countries nearly as much, because many of these tariffs should work by moving supply chains out of China and into Vietnam, Indonesia, Malaysia, India, Mexico, Canada, as well as the U.S.

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Jordan Schneider: Why should we want assembly to happen in America?

Dylan Patel: Assembly is actually not that labor-intensive anymore. When we talk about automation, we're never going to get automated factories in America if the factory doesn't exist in America in the first place. When they move the factory to America, they're going to automate it much more.We need assembly in places other than China. Specifically, we need assembly in America because the process becomes less labor-intensive and more capital-intensive over time, and America should not be at a deficit when it comes to capital intensity.

We can increase our tax base massively if we have all of the highly capital-intensive activities happen in America. We need to have that small set of skilled labor operating massively capital-intensive factories.

There shouldn't be a natural advantage for other countries versus America in these areas, but there is because we don't have any supply chains here. The main thing we need to do is import 100,000 Taiwanese citizens into America and build every fab in America. We need to import around 100,000 Korean people and build memory in America.

If you look at the labor cost of an Intel fab or a TSMC fab, it's minuscule. For a gigafab — a fab that makes over 100,000 wafers a month — there are only a handful of those in the world. Power costs just as much as the people, and power costs twice as much in Taiwan. For all intents and purposes, a fab should actually be cheaper in America. But we have supply chain issues with gas delivery, tool delivery, tool installations, and all these other things.

A hundred-billion-dollar fab has about 10,000 people working in it. That's nothing. It's not about the jobs — it's the fact that it's here in America and it's now contributing to the tax base. Fabs are an example of ridiculous capital intensity for very low labor. That labor is intelligent and very skilled, but we can just import them.

We should fix the trade deficit by having a larger talent deficit. These highly capital-intensive aspects of society are really something America should have, and we don't. We should be building $100 billion factories like TSMC is in America, eventually, hopefully.

The same should happen across all these supply chains. Now fabs are extreme, but assembly is going to get there. A lot of manufacturing is going to get there because robotics is really hitting its golden age. There's a lot that robotics and AI are going to do that makes things even more capital-intensive and even less labor-intensive.

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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.

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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.

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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. SemiAnalysis projected 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.

*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.”

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A Blueprint for Competition

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.

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.

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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.

I wrote something similar in the combined arms piece I recently published:

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!

Breaking Beijing

The Blueprint for How We Win the 21st Century

By Tony Stark

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.

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%.

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.

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.

America, are we cooked? To discuss, we have Peter Harrell, former Biden official and host of the excellent new Security Economics podcast, Kevin Xu, who writes the Interconnected newsletter, and @overshootMatt Klein, author of Trade Wars Are Class Wars and substack.

We discuss…

• The chaotic implementation of new tariffs and their impact on international alliances,

• Whether China will be able to capitalize on this opportunity,

• Why the US dollar hasn’t strengthened in response to Trump’s tariffs,

• Whether allies will choose nuclear proliferation over an unreliable USA,

• The resilience of America’s strengths despite governance failures.

Listen now on iTunes, Spotify, YouTube, or your favorite podcast app.

Great Changes Unseen in a Century

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.

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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.

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.

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.

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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.

This interview was recorded April 4th. Co-hosting is Nicholas Welch. Listen now on iTunes, Spotify, YouTube, or your favorite podcast app.

Tariff Uncertainty and Conflict as a Virtue

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.

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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.

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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.”

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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.

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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.

Have a listen on Spotify or iTunes.

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.

Read more

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?

This piece, inspired by Dwarkesh’s AI scaling essay, stages a Platonic debate between two voices:

• 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.

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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.

Believer:

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!

ChinaTalk is open to sponsorships. Email jordan@chinatalk.media to start a conversation.

Welcome to part two of our Cold War history series with Sergey Radchenko. Here’s part one.

In today’s epic interview, we discuss…

• Khrushchev’s removal from power and the transition to the Brezhnev era,

• How the USSR and China managed their relationships with Vietnam,

• Sino-Soviet border conflicts, Brezhnev’s negative feelings toward China, and Nixon’s rapprochement,

• Watergate and the inability of China or the USSR to understand American politics,

• Why the Soviets decided to invade Afghanistan,

• Reagan’s approach to negotiations and his relationship with Gorbachev,

• How to manage the containment paradox and unknown adversary motives when competing with China and Russia today.

Co-hosting today is Jon Sine of the Cogitations substack.

Listen now on iTunes, Spotify, YouTube, or your favorite podcast app.

The Fight For Vietnam

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.”

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.

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.

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.

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.”

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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.

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

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.

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Jordan Schneider: You write:

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.

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.

Radiooooo: A Cosmopolitan Dreamland

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.

Asian food in nyc superlatives

Read more

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.

Listen to the podcast on iTunes, Spotify, YouTube, or your favorite podcast app.

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.

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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.

1. 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.

2. 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.

3. 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.

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.

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.

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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.

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

These trends were unsustainable for a growing China.

The Healthy China 2030 plan, unveiled in 2016, recognized the need for reform in the “three spheres” 三医 of healthcare, medical insurance, and pharmaceuticals.

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.

Since the two pilot programs, the government has held 10 centralized volume-based procurement rounds and 8 iterations of the National Drug Reimbursement List and continues to fine tune both programs.8

Pills without the price pain

So, have the government’s programs worked?

If price reductions were the goal, then yes.

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.

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.

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 since responded. 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 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.

Taiwan and China on the Leak

Lily Ottinger and Nicholas Welch report:

The Trump administration leaked its plans to bomb the Houthis by accidentally adding The Atlantic’s editor-in-chief to a Signal group chat. This situation calls for humor, so we curated a mini-roundup of reactions from the Sinosphere. Enjoy!

From the Taiwanese platform PTT:

(Pushed) “I wonder what the American ancestors would think when they see these unworthy descendants.”

(Pushed) “I shouldn’t, but I really want to see the Indo-Pacific war plan leaked…”

(Pushed) “This is too ridiculous. Could it be because the reporter just happened to have the same name as the person they wanted?”

Indeed, such an error would be more difficult to make in Chinese given the huge variety of characters used in Chinese names. From Weibo:

American names are too simple. … 😂

This is truly an epic level of face-losing disgrace. (这是史诗级别的丢人现眼)

The following comments come from another Weibo post about Trump’s response to the leak:

“I don’t know, that didn’t happen” has hoodlum energy (無賴嘴臉)

Shameless people are invincible (人不要脸，天下无敌)

Another commenter in that thread invoked the phrase, “Not listening! Not listening! The turtle is chanting buddhist scriptures!” (不听不听王八念经). This meme is originally from a nursery rhyme satirizing people who shut down when confronted with an opposing viewpoint.

Some other relevant Chinese idioms:

• 泄露天机 (xiè lòu tiān jī) — “To divulge the will of heaven”

• 掩耳盗铃 (yǎn ěr dào líng) — “Covering one's ears while stealing a bell”

• 事后诸葛亮 (shì hòu zhū gě liàng) — “To become Zhuge Liang after the fact” — Zhuge Liang was a military strategist widely regarded as a genius thanks to his portrayal in Romance of the Three Kingdoms. This is a bit like saying, “Everyone’s an Einstein in hindsight.”

Emergent Ventures Grants for Taiwan

Jordan Schneider reports:

Tyler Cowen’s Emergent Ventures fellowship is a special institution. It is a no-overhead fellowship where Tyler reads short essays and gives grants to individuals to support personal projects and career development. Emergent Ventures recently received a donation to start finding talent in Taiwan and is looking for applicants. If you are or know anyone who could use a grant to get a personal project off the ground, do consider applying and select Taiwan on the regional dropdown menu!

For some inspiration, see here for an article on Tyler’s selection critera and a site that has compiled brief descriptions of all the past winners who’ve done things like use AI to decipher ancient text, compose Bach-style fugues, cover local politics, and a thousand other things.

Emergent Ventures helped get ChinaTalk off the ground, giving me a grant in 2018 to buy microphones and Chinese lessons. I’ve since attended three conferences (which I count as some of the most exciting weekends of my life), and met up with winners from around the world. What I’ve taken most from this community is a renewed optimism in what the future can bring and an ambition that I can continue to improve and broaden what I do and really make a dent.

Mark Carney — China Nerd?

Irene Zhang reports:

It’s official: Mark Carney is Canada’s 24th Prime Minister. The prominent economist and political novice, who led the Bank of Canada through the 2008 financial crisis and headed the Bank of England from 2013 to 2020, won the incumbent Liberal Party’s leadership contest on March 9 and was sworn in as Prime Minister on March 14. (In Canada, the leader of the largest party or coalition in Parliament becomes Prime Minister, making Mark Carney an oddity as a PM who doesn’t represent a constituency of his own.)

Britain voted to leave the European Union in 2016, three years after Carney became the first foreign head of the Bank of England. In the ensuing years, Carney worked to open the UK to new trading opportunities — including China. He traveled to Beijing with Britain’s then-finance minister in late 2017 to seek a $1.34 billion trade deal, though a UK-China free trade agreement never materialized. Along the way, he’s had to wade through choppy waters. In August 2019, as Chinese paramilitary troops amassed near the Shenzhen-Hong Kong border and protests in Hong Kong reached a boiling point, Carney awkwardly pulled out of a high-profile dinner in London with China’s ambassador to the UK. He faced criticism from the British political arena for bending over backwards to promote Chinese investment at a time when China was repeatedly violating human rights in Hong Kong.

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Carney’s successful banking career comes with a special level of insight into China’s economic situation. He was bullish on the Chinese economy as of 2012, calling on Canadian firms to adopt China strategies and “reorient” toward China. But at least as early as 2018, he became deeply concerned about China’s domestic financial situation. During a BBC interview, he warned that China was one of the top risks to the global economy because its financial sector “has many of the same assumptions that were made in the run-up to the last financial crisis.” He elaborated on this in February 2019, telling a Financial Times audience that the possibility of a Chinese economic slowdown the second-most-important risk to global growth:

“While China’s economic miracle over the past three decades has been extraordinary, its post-crisis performance has relied increasingly on one of the largest and longest running credit booms ever, with an associated explosion of shadow banking. … The Bank of England estimates that a 3% drop in Chinese GDP would knock one per cent off global activity, including half a per cent off each of UK, US, and euro area GDP, through trade, commodities and financial market channels. A harder landing would have significantly larger effects, as these channels would likely be accompanied by negative spillovers to global confidence.”

Later that year he called the world’s reliance on the USD as the reserve currency “risky”, but said the Chinese RMB was far from ready to step in as a replacement.

Carney arrives in Ottawa with some knowledge of the top man himself — he met Xi Jinping twice while heading the Bank of England: once in 2017 and once in 2019. Last year, when rumors about him running to replace Trudeau first began to swirl, Carney met Xi Jinping again at the China Development Forum in March as head of Bloomberg’s board. These previous run-ins may not count for much in the short term, as Canada-China relations remain on ice. Just one day before Carney was elected to lead the Liberals — and by extension Canada, for now — China slapped 100% tariffs on Canadian rapeseed oil, oil cakes, and pea imports, as well as a 25% tariff on seafood. These are in retaliation to the 100% EV tariffs and 25% steel and aluminum tariffs Canada imposed on China last October, a coordinated move with the US at a time when relations between Washington and Ottawa looked very different.

What do you do when you get into a tariff war with your second-biggest trading partner to help your biggest trading partner, but now your biggest trading partner keeps talking about annexing you while trying to decimate your economy? You elect a central banker, of course.

Carney’s technocratic appeal was already compelling to voters as Canada struggled with productivity stagnation — now, the trade war is only adding to his political edge. A federal election is required to happen in Canada before October 20 this year. Before Trump made anti-Canadianism his newest fixation, the incumbent Liberals were set for massive losses while opposition Conservatives hoped for a majority in Parliament. But Conservative leader Pierre Poilievre’s previous amiability towards the American president has practically doomed him to quisling status only two months later, and now some polls predict Carney’s Liberals could even win a majority if the election were called today. The events have been quite jaw-dropping, and the polls still contain much volatility, but if Carney manages to cement his mandate, he will lead Canada through unprecedented headwinds on both American and Chinese frontiers.

Mood Music — Canadian Disco:

Why China Doesn’t (Really) Frack

Caleb Harding reports:

China’s natural resource endowments have been succinctly summed up as “Rich coal, poor oil, small gas” (“富煤、贫油、少气”). Despite claiming “small gas,” however, China actually has the world’s largest reserves of shale gas, an unconventional type of methane deposit that must be tapped with hydraulic fracturing. China is one of only four countries in the world with commercial fracking operations (the others being the USA, Canada, and Argentina), which began after President Obama shared fracking technology with the PRC in 2009.

Chinese media acknowledges that the shale gas revolution was a game changer for U.S. energy supply and security, but China has yet to realize its own revolution with its immense reserves — why? The simple answer is geology.

China’s shale reserves are deeper, more scattered, and in more mountainous terrain than those in the United States. Guo Tonglou 郭彤楼 is a chief engineer at Sinopec, one of just two companies involved in commercial scale extraction of shale gas in China. Commenting on China’s situation, he said that, “Although we are a country rich in shale gas resources, shale gas extraction in our country is difficult and costly. This means that it is impossible for us to adopt the same development approach as the United States" (虽然我们是页岩气资源大国，但我国页岩气开采难度大，成本高。这就意味着，我们不可能采取美国那样的开发方式).

Shale wells in Sichuan (home of China’s main shale plays) and Texas. Cherry-picked, yes, anecdotal, yes, but makes the geological difference a bit more visceral.

Other barriers exist, including a lack of natural gas infrastructure and imperfect legal/policy frameworks, and China has been working to address those issues.1 But the fundamental issue remains the economics and geology at the well — if it was cheaper to extract, China could rapidly expand their natural gas infrastructure, just as the U.S. did in the decade after 2005. But that seems unlikely anytime soon.

But that hasn’t stopped Beijing from announcing ambitious targets for fracking. In 2018, the Chinese Ministry of Finance and the State Administration of Taxation introduced a preferential tax policy to reduce the resource tax on shale gas production to 4.2% from 6.0%, which in 2023 was extended through December 2027. Following the release of China’s 14th Five-Year Plan in 2021, policy directives continued to support the development of unconventional natural gas resources, including adjustments made to the pipeline tariffs last year, and a new subsidy policy released just this month that incentivizes higher production.

Rather than hoping for a shale revolution, Guo Tonglou’s aspirations for Chinese shale gas are modest — he’s optimistic that, with more technical breakthroughs, shale gas could account for ⅓ to ½ of Chinese natural gas production. That would be an increase of their current production from shale from 25 bcm to 100-200 bcm annually, or from ~0.6% to ~ 2-4%2 of China’s overall energy. In contrast, the U.S. produced 836 bcm3 of natural gas from shale formations last year, which could provide around 30% of the U.S. overall energy.

But is the juice really worth the squeeze? With a comparative advantage in renewables and coal, why invest in such a difficult domestic energy source? As one CRS report estimates, China’s demand for gas through 2030 can be met under existing contracts, and demand through 2040 can be met without having to increase trade with Western suppliers.

Economically, it doesn’t seem to make much sense. But in the age of great power competition, economics are no longer the primary concern — security is. And as the world’s largest importer of LNG, China has valid concerns. Shale will likely never reach the scale in China that it did in the U.S. But until China feels totally secure in its energy supply, its development will continue.

Chinese is Hard, Even for Natives

Moly from Chinese Doom Scroll reports:

Question: “Why does the 8th line on the Chengdu subway have an announcement reminding people to not bite fellow passengers?” [撕咬 — sīyǎo, to bite.]

A response from Chengdu Subway’s official account: “Uh! Sweetie. The subway is saying, ‘Do not broadcast noise from electronic devices to annoy fellow passengers.’ [滋扰 — zīrǎo, to annoy. In local dialect, it might be pronounced very similarly, I have no idea.] Create a civilised city, be a civilised citizen. The subway invites you to travel in a civilised way.”

“Not only are you not allowed to bite fellow passengers, you also have to be careful of the spy between the train and the platform.” [“Spy” “奸细” jiānxi here sounds like “gap” “间隙” jiànxì]

“I’ve also wondered forever why Chengdu’s East Station bans Cadillacs. [凯迪拉克— Kǎi dí lā kè] Does it actually mean something?”

“Are you sure it’s not, ‘No solicitations?’” [喊客拉客—hǎn kè lā kè]

“Shanghai buses play announcements, ‘Please dance when the door opens.’ It’s very confusing.”

“‘Please be careful as the doors open.’ They should also broadcast the same thing in Shanghaiese.”

“I came to Shenzhen for uni and heard the subway broadcast, ‘Watch out for kasayas,’ [袈裟 — jiā shā] And thought it meant to watch out for scammer monks or something.”

“So what was it actually?”

“To avoid getting pinched? [夹伤 — jiā shāng] Probably?”

“It’s okay, at least it’s better than the Shanghai subway. The announcement there is, ‘No bathing, performing, social, San Francisco.’”

“Huh? So what the hell is it talking about?”

“No begging, performing, selling, or passing out ads.”

“So what does, ‘Please go through the fried chicken passage.’ mean?” [炸鸡 — zhájī]

“Go through the turnstiles.” [闸机 — zhájī]

“There’s a minnan dialect announcement that just goes Lou Cha Lou Cha endlessly…”

“Lou Cha means depart hahahahahaha”

“Our maths teacher: Do not bite the classroom.” [干咬 — gānyǎo. I’m pretty sure it was supposed to be 干扰 — gānrǎo, disrupt the classroom.]

“The Beijing subway told me to not use yellow corpses.”

“Then I figured out it meant, ‘Do not use child leashes.’”

“One time, I was passing by an intersection and heard someone calling out, ‘Crazy~ Bread rolls~ Crazy~ Bread rolls~’ And I was like, ‘Just how crazy can bread rolls get? I gotta check it out!’ So I turned the corner to see the sign on the car, ‘Honey bread rolls.’ Someone was just calling out ‘Honey~ Bread rolls~’ with a dialect.”

“I’m the only one here with a straight answer. Biting is too cruel. We don’t engage in such inhumane methods. We usually prefer to swallow whole.”

Sergey Radchenko’s book, To Run the World: The Kremlin’s Bid for Global Power, is a masterwork! In my mind, it’s in pole position for best book of 2025. Sergey takes you into the mind of Soviet and Chinese leaders as they wrestle for global power and recognition, leaving you amused, inspired, and horrified by the small-mindedness of the people who had the power to start World War III.

We get amazing vignettes like Liu Shaoqi making fun of the Americans for eating ice cream in trenches, Khrushchev pinning red stars on Eisenhower’s grandkids, and Brezhnev and Andropov offering to dig up dirt on senators to help save Nixon from Watergate.

Sergey earns your trust in this book, acknowledging what we can and can’t know. He leaves you with a new lens to understand the Cold War and the new US-China rivalry — namely, the overwhelming preoccupation with global prestige by Cold War leaders.

In this interview, we discuss…

• Why legitimacy matters in international politics,

• Stalin’s colonial ambitions and Truman’s strategy of containment,

• Sino-Soviet relations during the Stalin era and beyond,

• The history of nuclear blackmail, starting with the 1956 Suez crisis,

• Why Khrushchev’s vision of abundance couldn’t save the Soviet economy.

Co-hosting today is Jon Sine of the Cogitations substack.

Listen now on iTunes, Spotify, YouTube, or your favorite podcast app.

Why Authoritarians Need Legitimacy

Jordan Schneider: Let’s start with prestige. How do you define it, and is it anything bigger than just schoolyard dynamics?

Sergey Radchenko: That’s a deep question, and that’s where the Soviet experience is not actually unique. If you think about the Soviets pursuing prestige, what’s so unique about that? Everybody does that. People strive for status, people strive for recognition, and states do the same thing.

That is why in the introduction to my book I try to zoom out a little bit — I’m trying to say is that the striving for recognition is not something unique to Soviet leaders. In fact, I show that even during the Cold War, the Soviets were not unique. The Chinese also had similar motivations and sometimes also the Americans.

We’re starting to throw around difficult terminology — recognition, prestige — what do those things mean? To add to the complexity, what the Soviets really wanted was legitimacy. Everyone wants legitimacy, but the Soviets had a particular need for legitimacy perhaps because of their lack of internal legitimacy. They had a project on their hands. They wanted to pursue a communist revolution. They were trying to sell it to the Soviet people saying, “Look, soon we will be living under communism. Everything will be so fine. We’ll all be so wealthy.” The abundance, material abundance was supposed to come soon — and it didn’t.

It didn’t arrive because the Soviet project had already started losing steam by the late 1950s. It became increasingly clear that this was happening, creating a deficit of internal legitimacy. Because of that, they wanted external legitimation. They wanted others to say, “You’re great, you’re wonderful, you’re a superpower,” because then they could turn to their own people and say, “Look, we are so strong, we’re a superpower, we’re great because they say so.“

Who are they? Of course, the ones in a position to recognize — the Americans. Others mattered too. If Mongolia or Papua New Guinea said, “This is the great Soviet Union,” that was important. But if the Americans said that, it was all the more important because they were themselves a superpower, so their recognition was absolutely crucial for the Soviets’ sense of greatness. That is where those things connect — prestige, recognition, external recognition, and legitimacy.

Jon Sine: I’m trying to understand what legitimacy from an international perspective gets you. I’m reminded of the phrase, “Foreign policy is domestic policy by other means.” How is a foreign policy of recognition — this external validation — important from a domestic standpoint? Is this what is driving it, or is there some other source driving this need for recognition and legitimacy?

Sergey Radchenko: There may be an acceptable definition — legitimacy is legality and justice put together somehow. It’s a term that reflects legality — a legal position — and justice, meaning you deserve that position.

The Soviets really wanted to be seen to occupy a place they deserved. They tried to sell this to their own people, saying, “Look, we are in this position, we’re great, we deserve to be great, they recognize us as great, we are legitimately great.” This is to be distinguished from raw power.

I show in the beginning of the book how Stalin sometimes actually wanted legitimacy instead of raw power. In some cases where he controlled certain territories, he would back off because he wanted legitimation of his control — legitimate control, not just absolute control by sheer power.

I can give you a couple of examples. One example would be the separatist rebellion in Xinjiang. Stalin supported the rebellion in Xinjiang but then backed out. He basically sold the rebels down the river and engaged in a relationship with the central government in China. Although that meant he lost immediate control of Xinjiang, he acquired a certain sense of legitimacy for his other claims in China.

That is where power and legitimacy were in a state of interplay, and sometimes — not always — but sometimes Stalin would prioritize legitimacy over power. That’s not to say he would always do that. There was a certain bottom line where he would say, “No, I refuse to give up that particular thing because it’s absolutely essential for my security or what I feel is necessary for the USSR.” But sometimes he would say, “I will give this up if you recognize that whatever else I hold here is legitimate,” and that is the essence of the Yalta framework that was constructed in 1945, which Stalin was very fond of and wanted to preserve.

Jon Sine: Staying on the Yalta agreement, one of the things that quite surprised me in the book is how interested Stalin was in a concert of powers and having his view of the USSR’s proper sphere legitimated. Could introduce the percentages agreement?

Sergey Radchenko: The percentages agreement is a well-known episode in the early history of the Cold War. Churchill went to Moscow and met with Stalin in October 1944. Churchill in his memoirs recounts it by saying basically, “I wrote down percentages of influence that the Soviet Union and Great Britain would have in southeastern Europe, and then I gave the paper over to Stalin. Stalin made a tick on it, handed it back to me, and I told Stalin, ‘Maybe we should destroy this piece of paper, because isn’t that very cynical that we basically decided the fate of millions of people in this way?’ And Stalin said, ‘No, you keep it.’”

What’s interesting — this story, of course, is decades old. We’ve all known about it from Churchill’s memoirs. But this is where writing international history becomes really interesting — now we have the British version of the record of conversation, we also have the Russian version of the record of conversation. We have the actual piece of paper in the Churchill archives, the percentages agreement, and crucially, something that has not really been considered before: we have extensive discussions that followed that agreement between the Soviets and the British about specific percentages.

When I was reading those discussions, I thought, “This is so strange, the Soviets really took this stuff seriously.” They argued about an extra 5% in Hungary, this kind of stuff. You think, “Really? What does it even mean?” It sounds bizarre, it sounds absurd, but that shows that Stalin really took that seriously. He felt that he had a legitimate sphere of influence in Eastern Europe. He was very cynical about it, but he basically expected the British and the Americans to defer to his desires in Eastern Europe, and in turn, he would accept the British and American sphere somewhere out there.

He wanted his sphere recognized externally. The problem was that what Stalin considered a legitimate sphere of interests or sphere of influence was not seen as legitimate by the Americans, in particular. That explains a lot about the way the Cold War unfolded.

Jon Sine: Throughout the rest of the book, it’s not clear if any of this is really worth it. But in this particular instance, when you talk about America pushing back on Stalin, you do seem to think that it was very necessary for America to have done that. Basically the Cold War, in a sense, was not inevitable from an ideological perspective, but rather happened because Stalin was going to push until he found resistance. Could you elaborate on your views on that?

Sergey Radchenko: It’s a difficult question. Historians have looked at the early Cold War and have tried to understand whether Stalin was perhaps open to compromise. Some have said that he was looking for great power compromise, and I’m also inclined towards this view. Others would say, “No, we had to stop Stalin’s expansionism, and Stalin could never be trusted,” and so on.

The problem from the US perspective is we’re all wise in retrospect — we can look at the Soviet archives and hopefully understand what Stalin actually was thinking. But the problem at the time is you are facing this difficult person called Joseph Stalin. Nobody knows what he’s thinking. Nobody knows what his ambitions are. Does he want to take over the world or not? Does he want to take over Europe? I show in the book that Soviet post-war planning entailed Soviet control over much of continental Europe, as far as Sweden. They had great appetite.

There’s great uncertainty. You’re in the present moment, trying to deal with the situation, you don’t know what the other guy thinks, so what is the safe policy to pursue? I cannot imagine a safer policy than that which was actually pursued in terms of what George Kennan formulated in The Long Telegram, the policy of containment, the policy of pushing back.

Did that help bring about the growing distrust with the USSR and in some ways precipitate the Cold War? Maybe. Of course, if you’re pushing back on a guy, he’ll think, “Look, they’re aggressive, they’re pushing back on us.” But if you don’t push back on the guy and it turns out he’s actually determined to take over the world, you’ve got a problem.

In the end, what happened — containment — is, I guess, the best worst solution in the situation that we had in the early Cold War. It’s a tragic situation. It’s a situation that results from the lack of trust and from inability to understand or know in real time what the other side is thinking. We can project this onto our own days and ask similar questions, but maybe we can do it later.

Jordan Schneider: It’s fascinating how you see these leaders ending up resorting to the lowest common denominator of understanding the other side. Stalin basically says, “The West only understands force. When you have an army, they talk to you differently. They will recognize and learn to love you because everybody loves force.” Truman basically did the same thing. He was like, “I got a bomb, they gotta listen to me. I can bully him however I want.“

There are moments over the course of the Cold War where leaders start to feel their way to slightly different dynamics, where it’s not just this whole idea of prestige and national power as this gas that inevitably expands until you hit another great power that’s going to push back on you. Perhaps there are different ways in which you can look at those points of contention and try to devise different operating systems.

It’s remarkable and almost speaks to the argument of prestige being this gaseous force that these two countries who had just fought a world war together were not able to figure out how to get their interests to align in a way that wouldn’t lead them down to what the world ended up having to live with for the next 50 years.

Sergey Radchenko: It’s partly that, Jordan, and partly just a different conception of the world. We can get attached to the person of Stalin and say that he was paranoid and crazy, but if you look at Soviet post-war planning, it was based on a kind of 19th century imperial model. The Soviets get to control a lot of territory like the Russians when the Russian empire was expanding. Stalin was thinking in 19th century terms, very unremarkable given that particular historical period.

Churchill was like that, by the way. The Americans were not thinking in those terms. They were coming from a different perspective, and they did not want to allow the Soviets to basically put Eastern Europe into their pocket and walk away. From that, you already see a clash of visions for the post-war order, multiplied by the lack of trust, multiplied by security concerns. You can see how you would have the slide towards confrontation

There were also other factors. One point I raise in my book is that early on — 1945, 1946 in the early post-war world — Stalin was hopeful that the communists would come to power in many places unaided. People would just vote for them because they were so popular and wonderful. Then it turned out that in Eastern Europe nobody thought that, so he had to falsify elections in Eastern Europe. This raises a question. It becomes much more difficult to pretend you can have some kind of cooperation or a coalition of governments.

The same thing happens in Western Europe where the Italian Communist Party and the French Communist Party were initially very popular but then ultimately had to effectively leave the government. Stalin realizes that he will not be able to obtain more pro-Soviet governments or Soviet leaning governments through coalition partnerships and resorts to brute force. That’s another factor I wanted to highlight.

Jordan Schneider: If Stalin is expecting 70% of Europe and the West is expecting 70% of Europe, then was there ever really a way to find some happy medium if their desires of what they wanted the world to look like after 1945 were fundamentally incompatible?

You zoom in very directly to 1947, where Stalin wakes up to the fact that unless he starts playing hardball, he might be losing on a lot more fronts than he was hoping to. But in the hypothetical where communism happens to be more popular and win elections, is this something the CIA even stands for in the first place? It’s hard to imagine, if that is Stalin’s base case, that you really could have ended up anywhere else.

Sergey Radchenko: Exactly. That’s why I’m so cautious. I’m not a revisionist historian saying, “If only the Americans behaved themselves better and understood Stalin or accepted Stalin’s sphere of influence, then it would all have turned out fine.” Maybe it would have, but another thing we need to keep in mind is that Stalin measured his appetites in part as a result from the policy of containment.

If the Americans were not pushing back, who knows whether his appetites would have stayed where they are or would have extended even further. That is why I’m saying we don’t know, and he himself may not have known at that time. That’s why containment was the safe policy.

It is a tragic outcome. Yes, it does contribute to the Cold War, but who could come up with a better policy than containment when you don’t know who you’re dealing with on the other side? Frankly, looking at Stalin’s paranoia and his dark view of the world and his obsession with conflict, it would have been a very unwise policy to try to indulge Stalin too much. I’m saying that as somebody who’s read a lot of Stalin. I think containment was a wise strategy.