The Economic Power Play: Examining China's Coercive Tactics

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Jack Capizzi:  Hello, and welcome to today's Federalist Society virtual event. This afternoon, Friday, October 6, we are discussing "The Economic Power Play: Examining China's Coercive Tactics." My name is Jack Capizzi, and I'm an Assistant Director of Practice Groups at The Federalist Society.

      As always, please note that all expressions of opinion are those of the experts on today's call. After our speakers have given their remarks, we will turn to you, the audience, for any questions you might have. If you have a question at any point during the program, please type it into the Q&A box at the bottom of your screen, and we will handle them as we can towards the end of today's program.

      With that, thank you all for being with us today. I'll turn it over to our moderator, Daniel Pickard, who is the chair of the International Trade and National Security Practice Group at Buchanan, Ingersoll & Rooney. Dan, over to you.

Daniel Pickard:  Thanks, Jack. Thank you, everybody, for joining us this afternoon on our panel discussing Chinese economic coercion. We're fortunate enough to have two excellent and experienced panelists, DJ, who represented the United States from 2019 to 2021 on the Board of Directors to World Bank Group after being confirmed unanimously by the U.S. Senate.

      Prior to the World Bank, she served as Chief of Staff at the White House Council of Economic Advisers. She was also the Chief of Staff for the Economic Studies program at the Brookings Institution from 2008 to 2017, and she is currently Executive Vice President of the Economic Innovation Group, a Senior Advisor at the Center for Strategic and International Studies, is an economic adviser in the Special Competitive Studies Project, and serves on public-private government and nonprofit boards.

      We're also very fortunate to have Ivan with us today who, from March 2018 to July to 2021, served on the White House's National Security Council staff, its director for China, Taiwan, and Mongolia, and the deputy Senior Director for Asian Affairs.

      In this capacity, he staffed and advised the president as a national security adviser and led us government interagency policy development and implementation on relations and engagement with China and Taiwan, including shepherding the most comprehensive and significant U.S. policy shift towards People's Republic of China in four decades. From 2014 to 2017, Ivan worked at the American Institute in Taiwan, representing U.S. interests and advising on military and security issues in Taipei.

      So maybe to set the table, I think it would be helpful, maybe, if our two panelists could start off talking about their perspectives in regard to the current state of play, maybe how their background has informed their perspective today in regard to the issues that we'll be focusing on regarding China's economic coercion. So, DJ, would you mind starting us off?

DJ Nordquist:  Sure. Thanks, Dan, and thanks for having me. I would say my thinking on China, particularly Chinese economic coercion or, as my colleague at the Special Competitive Studies Project, Eliza Tobin, has called it, brute force economics, I've evolved quite a bit. I came into the White House your typical economist free trader. I think, generally speaking, the Economic Community has always thought that free trade benefits consumers, considered a so-called welfare effect.

      And, starting to look at some of the data that we were analyzing as part of trade policy, I think myself and others realize that this wasn't actually free and fair trade, that China was tilting the scales with massive subsidies, etc., etc. The joke in our office used to be, if an economist wrote a free trade agreement, it would be one page and it would say "free trade." Obviously, our trade agreements are hundreds of pages long and very, very complicated.

      So I started being focused on the China issues there and really saw the tariffs as really a national security issue, which we had to push back on China dominating the U.S. market. And obviously, there were secondary effects of two Nobel Prize-winning economists called the depths of despair, where you have these hollowed-out communities in the United States that were so impacted by the China trade shock after they joined WTO that we have definitely contributed to our opioid crisis, etc., etc.

      So that was the beginning of my, I'd say, evolution on this issue. And then going to the World Bank and sitting across from my Chinese counterpart and watching how they had really used the multilateral system to their advantage really was incredibly eye-opening. And they have the number three position at the bank. That has allowed them to get about 40 percent of all procurement at the bank, and that procurement is all of their state-owned enterprises.

      And so the United States is the most generous contributor to the World Bank, so China gets 40 percent of all procurement, and the U.S. gets less than 1. So I also started doing a lot more in the energy space and getting concerned about what was going on with more reliance on China for green energy, etc., etc. And so just have been following China ever since, and it concerns me.

Daniel Pickard:  Okay. Ivan?

Ivan Kanapathy:  Hey, thanks so much for having me, Daniel, and great to be here with DJ and everybody else in the audience. Look, I came at it from probably, I guess, you could say the opposite side from DJ because I came from the national security side of the House, the military, in particular, so very security-focused views.

      But even then, I started, by China, sort of delve in probably, gosh, almost 20 years ago now. I lived in China in 2008, to 2009. That was on a fellowship that the Marine Corps sent me on. So I was active-duty military that whole time. We did a lot of planning and things like that, that gradually, over the years, was turning, especially in the Asia theater, less toward a North Korea and more and more towards a China scenario and focusing on that threat over the years.

      But it was interesting. I think a similar transformation, as DJ was just mentioning -- When I got to the White House in 2018, having been brought over there because of having worked in Taiwan on military and across trade issues, security issues, primarily, it became clear to me, even in my first year at the White House, that the military domain, while important, was not where this competition was being waged.

      And it was very much in the economic realm, in the technology realm. And obviously, 2018 is when the tariffs went in place, that's about the time I showed up -- or when a 301 report came out is when I showed up in the White House. And at the White House, security issues weren't just my remit, even though what I thought when I got pulled over there -- And I would say I spent probably less than 20, maybe even less than 10 percent of my time, working on defense department issues and spent the overwhelming majority of my time in three and a half years in the White House, ended up working China.

      I would say spent the majority of my time more on, whether was the Commerce Department, the Treasury Department, or at times, the State Department. You know, obviously, a lot of State Department, but really focused more on the broader sort of competition with China, which again, is how we got here today.

      And so coming at it from that lens, it was easy to understand one aspect of it that we're in competition, for me, I guess, but it took quite some adjusting for me to learn exactly how -- And I think developing the tools -- And we saw that, I think, a lot in the US government over the past five years, is building out some of the tools—or dusting off, in a lot of cases, some of the tools—that are available to us and some of the authorities we have and using them in an effort to, in some ways, level, the playing field and, some of the times, just to sort of cut off certain amounts of access between the U.S. and Chinese economies because it's just not working for us. But I'll stop there and we can move on.

Daniel Pickard:  So thanks for your thoughts, and that kind of gets us to the present, we were talking about, setting the table. It seems to me that, almost every day, there is a story regarding U.S.-China, tensions on the front page of The Wall Street Journal and The New York Times. There's so many different aspects of this issue.

      I'd be interested to hear from both our panelists as far as, what should we really be focusing on? And especially if there are parts of the equation that maybe aren't getting the press coverage that maybe they should. So I know that's kind of an open-ended question, but Ivan, if you wouldn't mind starting us off.

Ivan Kanapathy:  Yeah. So, again, coming from my national security inclinations is that I actually think that China, a long time ago, acknowledged that they're in at least a competition—terms they used oftentimes more hostile than that—with the United States, and they've laid out a vision. I think, most recently, Xi Jinping has talked about something called dual circulation.

      And if you really dig through some of the things he said, one, there's one obvious part of it, which is, hey, they need to reduce their dependency on essentially the West; the United States, but essentially, the West, folks that they can't count on politically, which tells you they're preparing for something, some eventuality, continuously.

      And there's nothing wrong with that. It's good to be prepared. It doesn't mean they're going to do something, but they're trying to reduce their dependency. But then, at the same time, the part that I think you don't hear as much, but it's definitely in there—in Chinese it certainly is—is they want to increase the world's, and the West in particular, dependency on them.

      And that's leverage. They do that for leverage. And there's conversations about coercion, and you exert that leverage in a coerce manner if you choose to, but they want to have that leverage. And I think, quite frankly, our outlook, as crass as it may sound, should be very similar, except we don't do it to the whole world; we only do it to China.

      In other words, we need to be reducing our dependencies. Obviously, we're seeing that. The U.S. government has articulated that, and I think we've less often articulated, but in some ways are also trying to, if not increase, at least maintain China's dependencies on us. And when you look at what we're doing in semiconductors, by saying, yes, you can buy advanced semiconductors, but we're going to try to stop you from making them, that is, in other words, saying it's better for us to have some leverage in this case.

      So I think that's generally the path from a national security perspective that I would go down. And again, this is not supposed to be directed at the world. It would only be directed at the one actor that isn't playing by the rules.

Daniel Pickard:  DJ?

DJ Nordquist:  Yeah. I definitely agree with that. I think we need to be focused. I think, just to pick up on what Ivan was saying, one of the things that I worry about is, like Ivan said, they have a plan. They've got a long-term plan, and they're executing. And part of that -- I'm more on the soft power side of the equation.

      When you look at the multilateral development banks, like the World Bank, IMF, all the regional development banks, if you look at all the UN bodies, they have slowly increased their power within those institutions at the World Bank. There's a complicated formula for shareholding, and it's based partially on the size of your economy. So they're currently the number three shareholder. Technically, they should be number two, based on their economy. That's obviously bad for the United States.

      But they've also -- And Ivan was familiar with this when he was in the White House. They've tried to take over -- They've headed a bunch of these UN agencies that most Americans have never heard of but that are incredibly important, that are standard-setting organizations. So I think they see this, we'll call it the democratic, capitalistic institutions that came out of Bretton Woods and the UN, etc., etc.

      And they, on the one hand, I think, want to take those over, but at the same time, if they can't take them over, they want to undercut them. And that's what you're seeing with the new BRICS association of -- The bad guys of the world are all in this new organization. They have a New Development Bank, which is a direct competitor to the World Bank.

      And part of that is the Belt and Road Initiative where they're saddling these developing countries with these massive debts. Why do countries take loans from China that are much higher interest rates than the World Bank? Because the World Bank isn't willing to fund a lot of stuff that these countries want to do, and China will just come in and ask no questions. In development terms, it's called conditionality.

      The head of the New Development Bank, who's a Brazilian socialist, gave an interview—I think it was in The Financial Times—where she said, "We will never have any conditionality on our loans." So you want a loan, you go to them, you get it. You may not understand the terms of it. It may not be an economically viable loan, but you're going to get the loan.

      And I think part of that you're seeing with the Belt and Road Initiative, which is a bunch of these loans that China gave, they're not good loans. And these countries are starting to default, and then, when they default, China can seize the asset, which is what happened with the port in Sri Lanka.

      And like I said, I don't come from the military side of things, but I do understand foreign deployment and the fact that the United States has -- We have the ability to forward deploy, because we have ports and bases in a lot of other countries. China doesn't have that, but they can get that when countries default on their Belt and Road Initiative loans. So we've really got to focus not just on the hard power, but on the soft power part of the equation.

Daniel Pickard:  Follow up on that in regard to maybe both concepts as far as China having a longer-term plan, obviously a large part of that being One Belt, One Road. We can't divorce that from its energy priorities and its critical mineral plan. I don't know.

      Is there a separate comprehensive plan for China in their engagement with the developing world and then separate economic plan in regard to China versus the major economies, including Western democracies, or do you have more one comprehensive plan that has both problems?

DJ Nordquist:  It's probably two plans. They're interconnected, which, in the developing world, they need all of the minerals that they're getting out of Africa, and they're buying up a lot of mines down there. And then they process the vast majority of green energy minerals that are needed for solar. I think 85 percent of it is processed in China, and then that's sold to the United States and Europe.

      So you have child labor in the DRC digging, digging, digging, and then you have slave labor in China. And then, wow, we've got all this fabulous green energy in the United States. So we were talking a little bit earlier about interdependencies and whatever, decoupling or de-risking. We are fossil independent, or we were. We're blessed with the fact that we have a lot of natural resources, but we are trading the fact that we are energy independent to become dependent on China for green energy.

      Obviously, the IRA and some of the other stimulus bills that have passed are trying to address that. I don't know if that's going to work because we're going to do it -- We'll do it cleaner, but it's going to be more expensive, and I'm not sure that we're going to get permanent reform done to ever be able to extract any of these minerals.

      But going back to your question about the developing world, China comes in and says, "Hey, we're one of you guys. We're a developing country, just like you. It's us against those guys up north," which is really interesting because China is a developed country. They claim to be developing. They're the world's number two economy.

      The OECD has a criteria for what we call graduating from the World Bank, meaning you've made it into the developed world. You don't need to take money from the World Bank. They met that criteria years ago, yet they continue to take World Bank loans, and they continue to tell the Global South, "Oh, we're all just one happy club against those bad guys up north." So they're doing that. They're like, "We're your friends," while they're still very, very intertwined in the rest of our economy. But you need the Global South piece of it to be intertwined in our economy.

Daniel Pickard:  Ivan, I didn't know if you wanted to touch on any of those subjects or move on.

Ivan Kanapathy:  Yeah. No, I would just agree very much with what DJ said. I think one of our weaknesses now in the U.S. government—and this isn't a partisan judgment—is that we don't speak to the Global South as well as we should. The language that we use is very transatlantic, I guess. It seems like that's our audience, especially recently. It's the Europeans.

      When we talk about our allies and our partners and what we're trying to accomplish and our vision for the world, and, frankly, sometimes democracy and the liberal order, not much of that is appealing to the Global South, and they actually see that as language. In fact, just like DJ was saying, that is the system that was built to keep them down, and I think we need to really think through how we come after a lot of different audiences.

      Back to your question, Dan, before we move on, about what China's goal is and what their strategy is. It's funny because the Biden administration -- and I just pulled up something that Secretary Blinken said two weeks ago. Anyway, I think it was two weeks ago, but he was in an interview with Jeff Goldberg from The Atlantic. I have it here.

      He said, "I think what China seeks is to be the dominant power in the world—military, economically, diplomatically. I think, fundamentally, that's what China's seeking." That's a pretty matter-of-fact statement. I don't think anyone from the previous administration, or most folks in the previous administration, they wouldn't disagree. They would agree with that.

      So this is bipartisan, but the issue that I see even here in Washington sometimes is, there are folks, whether it's the business community, Wall Street, there are still large pockets of American society that either denies that or just doesn't realize it, hasn't been informed of it yet. So we have that problem, whereas I think, in China, they're quite fully mobilized to their goal, every part of that society. And so that's one thing we could work on. 

DJ Nordquist:  I would just add one thing in terms of the language that we use. A bunch of African presidents have used the word climate colonialism, and I think that that's very, very important because the West largely has been very, very focused on the green transition. And I can tell you, at the World Bank, the Europeans voted against every fossil fuel project in the Global South.

      And so these are obviously poor countries that may be resource rich, and that's what they've got, and so when they're not allowed to exploit their resources—by the way, using World Bank, the gold standards for ESG—that's when China comes in and says, "We'll build you a new refinery. We don't care how polluting it is, etc., etc." 

      And then sort of the climate hypocrisy comes in, which is these African countries. They emit less than 3 percent of all greenhouse gas emissions, and they're like, "Why are you not allowing us to develop when —" You know, it's classic rent-seeking behavior—"you guys already developed." And I think the icing on the cake was after -- And the Germans, by the way, at least at the World Bank, they were the loudest voice on some of these issues.

      And when Russia invaded Ukraine, and Germany had been warned 40 years ago by Ronald Reagan, "You guys shouldn't be too dependent on Russia, and obviously, many people in the Trump administration told the Germans that—I told that to my German counterpart as well—they were stuck. And where'd they go? They went down to Africa, and they struck up all these oil and gas deals in Africa. So they won't let the Africans use their own resources, but they were very happy to export them backup to Europe, and I think that's left a pretty bad taste in a lot of Africans' mouths.

Daniel Pickard:  So I was thinking maybe I'd ask a question from more of a private sector perspective, and then maybe we'll talk one quick question about going forward. And then we'll open it up to the audience, see if they have any questions. But there's obviously been a lot of news coverage in regard to concerns about slowing in the Chinese economy, a lot of concerns regarding the real estate bubble, high youth unemployment, which even at the rates that are being reported, there are concerns that that might even be a conservative estimate. And certainly, we're starting to see a slowing in foreign investment into China.

      At the same time, President Xi has been talking about the fact that China is open for business. And it seems like there's a tension there between -- If you are a U.S. CEO or CEO of a multinational corporation, taking a look at maybe what you see the Chinese government doing with regard to a heavier hand in regard to the economy, as compared to what you're hearing from Chinese government as far as it being opening for business.

      So with that factual setup, I'd be interested in your thoughts in regard to what should CEOs be thinking about? What are your thoughts about whether there is a tension between what's being said and what's actually being done and what people should be paying more attention to?

Ivan Kanapathy:  Yeah, I'll take a stab, Daniel. So there's a tension within China's system for those of us that watch it pretty closely where you have actually -- What we'll call the security state has been given its mandate from Xi Jinping, assumably, to get out and make sure that they exert control. And the party continues to have as much, if not more control, including over aspects of the economy that it previously did not.

      And we've seen that happen over the years. Xi Jinping has been there more than 10 years now, but it even started before him, and that has continued, if not accelerated, in this third term of his. But at the same time—in the last six months, for sure—you've seen Xi Jinping also tell his Ministry of Commerce, Ministry of Foreign Affairs to get foreign investment back into China.

      There's two arms working, in many ways, against each other. I think the American private sector, after many years of being hoodwinked, in some ways, by the words, is now much more wary. There are some real concerns about some of the rules that China has put in recently about data and the export of data that could get any business in trouble that does anything trans-border, which is any foreign business in China, that could get you in trouble.

      The way they've very loosely defined espionage in their update to the counter-espionage law, which used to really be focused on collecting national security, government information, military secrets, now it's any information that could be -- I don't know what the exact words are, but could be harmful to the people of China, or something very vague.

      And so even business intelligence, normal practices, consulting, practicing due diligence, those kinds of activities all could easily fall under that rubric. And so there's some real dangers, I think, in the private sectors, thinking twice, and should really think twice about the risks and make sure they're weighing them appropriately.

DJ Nordquist:  I would just add to that. I think, Dan, you said earlier about headline every day. The one in today's Wall Street Journal was that American businesspeople should not go to China because they may not be allowed to leave. So that's a little scary.

      You know, I think an important piece of this for U.S. firms is protecting their IP. We know China is stealing us blind. There are various estimates of it. When I was in the White House, our estimate was, I think it was about 3 percent of GDP every year was stolen. $600, $700 million, that's not chump change, and this is building on itself every year.

      And I think a lot of American companies saw China as this vast opportunity, 1.4 billion people that they could sell their products in. I don't think the market's that big. I think we're really talking like 100 to 200 million people who can actually afford those products. And I think the issue is that you go in there, and you may have a couple of good years, but, at some point, your product is going to be completely copied.

      There was a piece about BYD, which is now the biggest electric vehicle manufacturer, and they describe how their car was a Toyota Corolla just with a different nameplate on the front. You know, it would not surprise me if Tesla going there and having a big factory there -- I'd really love to know the percent of Tesla tech that is in BYD. I got to think it's a lot.

      So I think you have to be really, really careful going in there and figuring out how you can protect yourself. You may not be able to. So you've got short-term profits, but perhaps not long-term viability.

Daniel Pickard:  So I want to be respectful of people's time, so I've got one last question for our panel. Then we'll see if there are questions from the audience. And this may be more forward-looking. It's a little unfair to ask people to brush off their crystal ball and predict what's going to happen in the future, but we've certainly seen the current administration extend some what appear to be olive branches, high-level Cabinet officials going to China. There's talk about an upcoming trip as well.

      Any thoughts in regard to expectations regarding the escalation on pensions? Are we just going to stay on this current path unless we see more flexibility either from the U.S. side or from the China side? Just be interested, assuming everything stays the same, where's this headed?

Ivan Kanapathy:  I think we're on we're on a little bit of a pause, I guess I wouldn't say there's been any true de-escalation. It's a little bit of a staring contest right now because I think both sides really want the other side to make some kind of concession—and frankly, I think a significant or substantive concession—and I just don't see that happening.

      I believe—at least it's been reported—that the United States is going to cinch down just a little bit tighter on advanced artificial intelligence semiconductor exports here in the next couple of weeks. And then the China side, Xi Jinping is going to have a decision to make, and that is whether he wants to come to APEC, which is, I think, mid-November, and so it's a month away.

      He's been invited, I think, unofficially accepted, so not formally announced, but they're planning for it. And so the U.S. administration is putting this out there and saying, "Hey, we're going to keep doing what we're doing," which I think is smart, "but we want you to be able to continue to engage in at least some of these multilateral fora." That's what APEC is, and we just happen to be hosting it this year.

      And I think that'll be an interesting telltale sign, I guess, of what China's willing to accept, because they've typically held out and said, "You have to be really nice to us if you want us to do these high-level engagements." And I think that is finally getting through that maybe that's not a path forward.

      The one thing I would point out is that next year will get much froggier. Taiwan is going to have an election in January.  The leading candidate is very opposed to China, quite frankly, the current incumbent party, and they may win again, it looks like. And so that that will not make China happy.

      But then, even more, I think, importantly is we're going to enter election season here. And we know what that means. I don't think it's a bad thing. It means that candidates are going to speak very plainly about what some of the biggest threats to the United States are from a national security perspective. And we'll be hearing about it day after day, and China, if not the chief among them, should be, and I think will be for all candidates from all sides of the aisle. And that will also throw some challenges in the bilateral relationship.

DJ Nordquist:  I would just add to that. I think the export controls that we've been doing are super important. Hopefully, they work. At a minimum, they slow China down. I think the issue is, from an economic perspective, often, when you cut off a technology like that, it forces the country on the receiving end to innovate themselves. So, while they had been dependent on us for those chips, they may start speeding up research to the point where they can become self-sufficient and produce them themselves. I don't know what the answer is. At least we can try to slow them down in the interim.

Daniel Pickard:  So we've got a couple of questions that have come in. So the first one has to do with -- We touched on this briefly. To read the question on this verbatim, "China has shown a very consistent pursuit of its worldwide economic goals, where the West seems to ebb and flow in its China policies, depending on election results and other domestic priorities. How does the West become more consistent within its democratic system?"

Ivan Kanapathy:  I'll take a shot. I think, ultimately, this is just a question of leadership. That's what it is. And we haven't seen -- Truly, it makes a difference to go from the Secretary of State level giving a speech to the president. It's a huge difference because, frankly, the number of Americans that tune in when the Secretary of State says something is a lot less, especially if it's a huge matter of national security.

      And so I think that's something we haven't seen, arguably, since 9/11 or since Reagan where a president is really talking about a threat to our national security on a consistent basis to the American people, and that's what it's going to take.

      Now, China doesn't have that problem because their system is different, where they're able to execute through the party channels and the window guidance that is transmitted, which doesn't exist in their laws. It doesn't necessarily exist in anything public, but they're quite aligned in their objectives and their goals. Our system is democratic and much more transparent, and so the leadership has to be, in my view, very public.

DJ Nordquist:  And I actually think there's been pretty good consistency between the last administration and the current one. You know, I think, the decades prior to that, we had the strategic economic dialogue. It was believed letting them into the WTO, if they tasted the fruits of capitalism and democracy, they would become more democratic and capitalistic. And instead, they got into the system, it enriched them, and they've used it to their advantage and made us and other countries dependent on them for a bunch of stuff.

      But I think that was the theory, and we weren't the only ones that had that theory. Europe had the same theory. I think, basically, the middle of the aughts, I think the United States's sleeping giant woke up and was like, "Uh-o. This isn't working." I think Europe woke up a little bit later, but I think that they're at that point as well.

Daniel Pickard:  So there's a question from an audience member, keys up the idea that a lot of the conversation for resource competition between the West and China focuses on raw materials, energy, critical minerals, but there's less conversation in regards to competition for human resources, both labor and, I think, more broadly. Didn't know if you had any thoughts in regard to how the competition for labor resources, college graduates, PhDs will affect relationships between the U.S. and China.

Ivan Kanapathy:  Yeah. I think that we have -- China's massive, right? It has four times our population, and so sort of has some advantage in that sense. But the truth is, we still maintain, in my view, a huge advantage. We have a much better education system. In fact, China relies on it quite heavily. And we have a much more liberal immigration, or at least more people wanting to immigrate to the U.S. from all over the world.

      And while a lot of folks believe that the Trump administration was anti-immigration, I guess you could make the argument, depending on your perspective, the official policy of the Trump administration was merit-based immigration. And that is sort of how you win the competition because you want the talent. You want the best people to come here and contribute to the prosperity of this country, which I think we have a history of.

      And so, reform, which I think really needs to come from the legislative branch of our government, in that respect obviously hasn't happened for a long, long time, but we have some distinct advantages built in. But we could definitely do better. So let me just pause there and see if DJ has some thoughts too.

DJ Nordquist:  Yeah. They're turning out more and more PhDs, and they now have, I believe, more -- They get more patents issued every year than we do. Depending on how you analyze it, they may be lower-quality patents, but the fact that they're, en mass, producing more patents is a little bit concerning.

      But as Ivan said, yes, definitely, they take advantage of our educational system. They've sent a lot of students here. I think we need to do a better job screening them because—I think we talked about this earlier—you need an exit visa to leave China. So they're selecting who it is that they're letting come here. And a lot of them -- You know, I'm sure Ivan had the same security clearance I did. They're being forced to be turned into what are called collectors, so they become spies in the United States. So I just think we have to be careful.

      But human capital is super important. Immigrants are far more entrepreneurial than native-born American workers. We want as many high-skilled immigrants as we can get. I think Ivan's right. People do want to come here; I think our system is broken. When we educate a foreigner in this country, we should want them to stay. If they've taken the human capital from our educational system, they should then get to stay and then help grow the economy and make this country a better place.

      And I think China is trying to compete with that. You know, I don't think China is super attractive for people to move there, so good on us for being democratic capitalists. That's more attractive for most immigrants, but we have to make sure that we are -- What Ivan was saying, merit-based immigration, that's how the Brits do it. That's how the Australians do it.

      Most countries focus on immigration that is good for the country themselves, and so I think the human capital piece of this is super important. And I think, Dan, you mentioned earlier that they've got a high youth unemployment rate, which, how would we know since they've stopped reporting it? Whenever they have some bad statistics, they just stop reporting them. I bet our politicians would like to do that here.

      But I think part of the issue is now they have a lot of youth who have gone through the higher education system, and they don't necessarily want to take factory jobs. And so they have excess supply on the higher end of the labor scale, and that is going to cause some social strife. Not that we might ever find out about it, but I think it's an interesting mix that they have.

Daniel Pickard:  And, again, being mindful, trying to be respectful of people's time —and I know we're going to try and stop a little before two o'clock—we do have a couple of more questions. The next one is directed to you, DJ, but obviously, Ivan, we'd be interested in your thoughts, and it's basically a request for you to expand on your previous comment in regard to, how is China exploiting the current trend towards green energy and/or ESG?

DJ Nordquist:  Thanks. Yeah. You know, most people don't realize the U.S. invented the solar panel and we had commercialized it. We actually did use to manufacture solar panels. There was actually a trade case, when I first came into the White House where the two remaining U.S. manufacturers—they were foreign-owned, but they were U.S. manufacturers—because of Chinese dumping, because of the SOEs, they both went out of business. So they won the case at USITC. It took two years. By the time they won the case, they were out of business.

      And so China has been very thoughtful on how they've built up their supply chain. And as I said, I think something like 85 percent of all pieces of solar come from China. I think seven of the top ten manufacturers are Chinese, and they control the supply chain. So I think that's going to be a tough one. 

      These critical and rare earth minerals are not that clean to mine. We have pretty high environmental standards in this country, so I don't know whether we're going to get there. And then if you look on the transportation side -- And, by the way, they also dominate the wind sector. And then, if you look on the transportation side, obviously, they have become a really, really powerful force in electric vehicle manufacturing, particularly the batteries.

      And a lot of the subsidies that are coming out of the Biden administration are trying to correct for that. This isn't an energy issue, but just chips, the electric battery manufacturing, that's at the heart of this fight with the UAW because they believe that you need fewer workers to build EVs.

      And the Europeans are really worried about it too. They started an investigation as to the subsidies that the Chinese auto manufacturers are putting into their system. The Germans, a whole lot of their economy is really dependent on their auto sector, so they're very, very worried. You know, the issue is, when you have this strike and demands for higher cost of labor at these EV plants, that makes these batteries more expensive, and that makes it harder to compete with the Chinese cars that are coming in.

      We do have a pretty high tariff on Chinese cars coming in. It's 27 1/2 percent. But if they're willing to sell these cars at a huge loss, even that high a tariff is not going to stop them. And the irony to me is, as China is producing all this green, they are increasing their own coal usage. They are permitting two new coal plants a week in China. So green has, obviously, a lot of advantages particularly the environmental side, but not if you are plugging your car in to charge it with coal, which is what is happening in China.

      And interestingly, actually a couple of months ago, when there was a news story about how China was now the world's largest exporter of autos, if you dig into the data, the cars that they're selling are actually -- their biggest export market right now is Russia because Russia doesn't have the parts to build their own cars, but that doesn't mean that those cars aren't going to come to the West pretty soon.

      As I said, we do fossil cleaner than anybody else. Obviously, fracking has been an amazing technology for the United States. It actually allowed the us to reduce our greenhouse gas emissions more than the Europeans did over the past 20 years. So we need all the technologies that we can get. I'm a big fan of nuclear. Nuclear is greener than the green tech, and we can do it here.

      And, in fact, talking about supply chain issues, we're a little bit dependent on the Russians for our uranium. About 20 percent of all U.S. nuclear plants are fueled with Russian uranium, which is not great. And then if you look at -- There was recently a trade action that China did with germanium and -- I can't remember the other mineral, but two really important minerals for batteries, cell phone, batteries, etc., etc.

      And so they say going to stop exporting finished products, so we can't even get the solar panels from China if they go ahead and do this, and they're not going to let us buy any of the minerals to do it. And they control that supply chain, so they're going to kneecap any domestic industry that we have in that area. So they seem to have that green space, and they want to keep it.

Daniel Pickard:  Ivan, I didn't know if there was anything that you wanted to add. We don't have a shortage of questions. 

Ivan Kanapathy:  Not a lot. You know, there's an interesting decision the Biden administration had to make about solar panels when the Commerce Department found that there was dumping unfair happening, but because of the goals domestically here of moving toward a greater percentage of solar power, the decision was made to waive, for two years, the prohibition or the increased tariffs on those panels coming into the United States.

      And the ironic thing about it is that we have to -- I think the U.S. government understands and has even articulated that Chinese solar panels are made not only with massive amounts of dirty coal power to power the factories to make them, but also with slave labor in China. That's how they're made. And so we're accepting that to meet our goals, which, again, it's a decision that was made, but we need to be looking at the cost-benefits of those.

      Another thing that's important to point out when it comes to ESG and the transition to green energy, there's no doubt China is investing a lot in it and leading in a lot of areas, including battery technology, as DJ mentioned. At the same time, they're also investing in tremendously more coal capacity. In fact, I think 85 percent of the world's new coal capacity last year was started in China.

      And so that's capacity—in other words, new coal-burning plants—that will be around, frankly, for decades. And so sort of addressing climate as a global problem really can't be done without addressing that particular problem, I think, as really the biggest problem.

DJ Nordquist:  I would just add to that. I'm not sure China cares that much about the environment. When they do green, they're seeing a different kind of green for a lot of exports as well, but you have to bear in mind, they are not resource rich. So they they're importing that coal. They're importing oil and gas. But if they can create cars that they don't need to import any oil from anyplace else, that's to their advantage. So they're thinking in a broader sense about an all-of-the-above strategy. The difference is they have to import a lot.

Daniel Pickard:  Okay. We'll see if we get one, maybe two more questions in, and then we'll start to wrap up. There's a very interesting question from somebody in the audience talking about fact that the Italian Prime Minister is now beginning to talk about decoupling from China, and it raises an interesting issue, especially for countries who have formalized their involvement in One Belt, One Road.

      So the question specifically asks in regard to what leverage exists for the companies who might want to start to exit or distance themselves from One Belt, One Road, or maybe just to take the moderator's privilege to expand the question, other thoughts in regard to what leverage the United States might have in regard to combating the Chinese initiative. 

Ivan Kanapathy:  In the Italy case, I think they're coming up on what would be a normal renewal, and I think they're thinking about and have articulated that they are potentially not going to renew, and it sounds like they're not. So that's obviously one way out. They're looking at what that agreement has netted them, and I think they're not too happy with it.

      So that in itself, politically, has been some leverage on China. It puts pressure on them. China's celebrating. This month, they'll be celebrating the 10th anniversary of the Belt and Road Initiative at the Belt and Road Forum, which I affectionately call the BARF, in China. Vladimir Putin will be in attendance, so there you have it. I guess it's labeled somewhat prosaically.

      I don't think it's a difficult choice or decision to make from an interest standpoint for any country if they choose to pull themselves out of the agreement. If it's not working out for them, they're not seeing the benefits outweigh the costs.

DJ Nordquist:  Yeah. I would just add, particularly when Italy hopefully did read their loan covenants, I think a lot of developing countries don't understand what it is that they're signing. They don't understand the rate. They don't understand if there's going to be a seizure of the asset if you default.

      And so I gave the example of the port in Sri Lanka. There are a number of BRI projects that have just not stood the test of time; they're poor quality. The other issue with these BRI projects that is so interesting is it's also a jobs program for Chinese men. They have more men than women, and so they send their uneducated laborers into Africa to build roads, etc., etc.

      So when you get that project, it's not like it has a huge development impact because there are no local jobs. The jobs are all going to Chinese workers. And there are some examples of World Bank projects. Again, these are bank projects with much higher ESG standards where there were Chinese contractors -- There was a road project in Uganda where the Chinese contractors were raping the local women and girls. So there are cultural issues that you see as well.

      There's actually a pretty large now-Chinese expat community down in Africa. I don't think that has culturally meshed particularly well, from what I've heard. But I think if you're sort of a developed country, you have, I think, an easier time saying, "We don't want to re-up," but if you're a developing country and you've we've got a lot of debt to China, and China has been unwilling to do any debt workouts -- The World Bank, IMF, G20, Paris Club, G7, everybody has been pushing them to do these debt workouts, and they have just been unwilling to do it. So a lot of these countries are just being crushed by this debt and don't really have much of a choice. They're sort of stuck.

Daniel Pickard:  So maybe we'll try and do one last question, but it's a big question, so it's not particularly fair to ask for you to do it in a quick manner, but maybe we'll get your number one takeaway. And the question, essentially, is asking that, in light of the existing U.S.-China tensions and regarding my question previously regarding predictions going forward, arguably, the Chinese economy and the Chinese political system is more fragile.

      Well, I wouldn't even say arguably, but let's assume for the sake of the argument that it is likely more fragile than the United States system. Does that mean that continuing tensions is more beneficial to the United States and more threatening, I suppose, to the Chinese Communist Party and their grip on that? Like I said, nice, simple question.

Ivan Kanapathy:  Yeah. Yeah. So I coordinated, basically, the bilateral relationship between the U.S. and China for three and a half years, and I think it's important -- And the U.S. government isn't particularly good at this either, but it's very important to separate two things. One, on the one hand, China's sort of displayed anger at whatever it is they perceive from the U.S., and the second thing is China's propensity or increased risk that they're going to either retaliate or do something even more sort of crazy, start some conflict or something.

      And those are very separate because China uses, quote unquote, "tensions" in order to gain things a lot of times. And our intelligence community sometimes does a good job of this and sometimes doesn't, but I think, over the years, if you look at the record -- And, in fact, the U.S. government has known about this. In the 1970s, one of our diplomats, Dick Solomon, wrote a report about Chinese negotiating behavior, which still is very accurate, and you can buy it in a book form today. 

      But they will manufacture and express anger in order to make us perceive certain things and thereby make concessions and things like that, and we just have to be able to separate what's actually affecting their interests that they might respond to and, I think, historically way [ph.] to judge that, versus just what is political theater a lot of times. And, ultimately, the United States, I think, should approach China in a very transactional manner in accordance with our interests and take those things into account. So I'll stop there and see what DJ thinks. 

DJ Nordquist:  Yeah, I would agree with that, and I think transactional is the right word. You know, I guess my question is, are they fragile? Are they more fragile than we are? They might be. I'm not sure we would know. You know, I think you saw the COVID protests, etc., etc., but I think, generally speaking, it is a police state.

      Look at what they've done to their capitalist billionaires. You get too successful -- I'm not trying a China Hand, but I think the expression is like the hammer and the nail. If the nail sticks up, the hammer is going to come down, and I think that you're seeing that. And they have a lot of Orwellian terms like -- There are a lot of word salad, the word prosperity in there.

      I do think, interestingly, when you think about their demographics and the fact that they're not having children and that they have many more boys than girls, I would hope maybe that makes them a little less garrulous in terms of Taiwan because every man in their army is some mother's only son. So maybe that could be the root of some type of instability in the future.

      You know, I know there are some China Hands who actually think that China is falling apart on the inside. They certainly don't project that. And so I think we're just going to have to wait and see, but I don't think a good U.S. strategy, in terms of dealing with China, is just to wait and see if they implode demographically, economically, etc., etc. We also need a plan and we need to execute.

Daniel Pickard:  Well, I'm very grateful for both of your time today. Jack, I didn't know if you had any comments close us out.

Jack Capizzi:  Well, certainly I just want to echo your thanks on behalf of The Federalist Society to DJ and Ivan for both sharing their time and expertise with all of our people in the audience today, and to Dan as well for moderating the program.

      As always, we do welcome any listener feedback by email at [email protected]. And please keep an eye on our website and your emails for notifications about upcoming programs. With that, thank you all very much for being with us today. We are adjourned.

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