Kyle Bass: I sit here today with Harvard's
own Graham Allison and the author of Destined for War. One
of the most exciting books I've read in the last decade. So it's an honor to be here with you as a
student of China myself and as one of the fathers of, call it, foreign policy. And given your storied
history with every US president since Reagan and all of the awards, accolades, and advice
that you've given our administration over the years. It's just an honor to be here with you. Graham Allison: Thank you so much. And thanks for the kind comments about the
book. KB: Yeah, absolutely. So I'd love to just dive right into your book. You began the Harvard
Thucydides trap project and wrote this book about just the basis is there are 16 cases
in the world where a rising power has threatened a ruling
power. And I'd love to just start on the top of in
writing and in reading and in setting up this center. What have your kind of key takeaways been
from the 16 cases where this happened and the-- called the 12 that ended up at war and
the four that didn't? GA: Let me start with the big idea and then
we'll drill down. KB: Great. GA: So basically Thucydides had a big idea. So Thucydides, the founder and father of history,
was watching what happened in classical Greece 2,500 years ago. And he wrote famously, it was the rise of
Athens and the fear that this instilled in Sparta that caused the war. So there is a
concept that a rising disruptor and an established incumbent end up in a rivalry that often leads
to war. I have been calling this term Thucydides's
Trap to make this concept vivid. And then in the
Thucydides's trap case project we looked at the last 500 years. We found 16 times a rising power
threatened to displace a ruling power. 12 of them ended in war, for and not war. So there's the
puzzle. So I think next month we'll be celebrating
a pause to remember the final day of a war that
became so devastating that historians had to create a whole new category. They called it World War. That's why it's World War I. In that case, a incident is inconsequential
apparently as the assassination of a minor figure, the Archduke of the Austro-Hungarian
emperor became the spark that created a fire that
burned down the whole of Europe. So in this series of
cases, each one is interestingly different, but as Henry Kissinger said, there's a lens
here for piercing through the noise and news of the
day to get the underlying dynamic what's happening in relations between a rising China and a
ruling US. Americans are accustomed to being at the top
of every pecking order for 100 years. I mean, we
call it the American Century. So the whole very idea of another country
that would be as big and strong as the US or maybe even bigger or stronger,
that strikes many Americans as an affront to
who we are. So in this dynamic, as Thucydides describes,
you get a rising power syndrome in which I'm bigger, I'm stronger, I deserve
more say, I deserve more sway. The current
arrangements were put in place before I ever got here. Think of Uber and the taxi industry, or think
of Google and everybody. So wait a minute, so we're
going to change the rules and the rights. KB: Well, the rules were made before you showed
up. GA: They were made before I showed up. They didn't take count of my interest. So I'm not really
about you, I'm just about expressing myself. And these constraints seem to be constraining
me, so they have to be adjusted. And the ruling power, again, in this syndrome,
looks and says, wait a minute, what the hell is going on? Who created the environment in which you ever
got to emerge? Who provided the framework? This is not simply the status quo. This is the good order. And you
should take your place in it, become a responsible stakeholder. And then almost every one of
these cases, the rising power thinks the ruling power is unreasonable, the ruling power right?. Then you get a multiplication of misunderstandings. A third party's action becomes a provocation,
like the assassination of an archduke. One leads you to the other. KB: As you write in your book, potentially
North Korea. GA: North Korea, Taiwan. KB: Taiwan. Hong Kong. GA: Taiwan's a very good candidate. Hong Kong's an interesting-- but even a trade
war could escalate to a real war. And we saw that happen in the run up to what
became Pearl Harbor and Japan's attack on the US. KB: You mentioned that this was the US's,
call it, Golden Century or the century of the US. And
the interesting juxtaposition is, as we all know, China views the last century as their
century of humiliation. GA: Exactly. The clash in histories as they each understand
it. We think it was kind of natural. And that we are now as natural. And they think this was a century of humiliation
in which Westerners with technology came to exploit
them. So that's a pretty different picture. There's also
different cultures. So in China, as you know, the Mandarin word
for China means center of the universe. In their story, they are the sun, every other
country is a tributary that circulates around them. And they are custom in this story for 4,000
years to ruling everything they could see. We imagine
that the USA means number one. So that clash of both cultures and then values,
we think individual liberties, the fundamental basis
for building a society, they take order and control is the
fundamental way of running a country. Yeah, Xi Jinping. Follow the pictures of international
relations. And then interests, so we think that it's
natural that the US Navy is the arbiter of events in the
Pacific. They think we're operating in their backyard
and that they should be the person that decides who builds an island in the South
China Sea. KB: I can't wait to get into that. If you don't mind, I'm going to stay big and
then we're actually going to get into all of those things that
you brought up. Do you have an overarching view of,
what is China's grand strategy? What is it? When I go to the grand strategy classes at
Yale and I think about these things, it seems like a
nation state can have a grand strategy. It doesn't seem
like someone who has a revolving door at the top can have a grand strategy because it'll
change every four years, every eight years, or every
two years in congress. So how do you think about China's grand strategy? What exactly is it? GA: Well, I think that China's grand strategy,
as Xi Jinping said explicitly when he became president, is to make China great again. He made this great rejuvenation of the great
Chinese people long before Trump took up this banner. And by making China great again, for him and
everybody else in this system, this means restoring China to its natural place at the
top of every pecking order where it was until the century
of humiliation when the Westerners showed up with
their technology. Making China great again means, first, by
2025-- and he's even down to dates and targets. 2025, 2035, 2049. 2025, China's going to be-- dominate its domestic
markets in 10 major new technologies, including driver-less cars, AI, quantum computing. In 2035, China is going to be the
dominant force in technology and innovation everywhere. In 2049, which is the 100th
anniversary of the establishment of the People's Republic of China, they mean to be an
ambiguously number one. And as he said, to have an army that can "fight
and win." KB: So going back on this point of whether
it's made in China 2025 or their goals for '35 or '49,
to have supremacy on the technological battlefront, which you write a lot about in your book,
it's both being offensive and defensive, but you
write about it primary being offensive in times of
need. When you go back to the acquisition of that
property, of that technological know-how, that
intellectual property, whether you read the Defense Department's declassified piece on
DIUx, or whether you read Lighthizer's piece to the
president detailing intellectual property theft. Is the plan that President Xi have supremacy
at any cost? Meaning they will take it, they will
misappropriate it, they will pay for it, they will-- like, are they going to get-- are they
going to gather technology at the rate they've been
gathering it and taking it from the rest of the world? Or do you think that they'll actually start
with a base and grow it themselves? GA: Well, I would say both those. So in the book I describe what a Chinese friend
explained to me, their strategy. They said, most companies have a strategy
of R&D, so research and development. We have a strategy of RD&T, research development
and theft. And actually, if you
can steal intellectual property, it's a lot cheaper than having to research it yourself
or develop it. So I would say, as a first approximation,
they steal whatever they can get away with. And actually, President Trump is interesting,
his evolution on this. He initially was blaming China
for stealing our intellectual property. And then his current view, as he's expressed
in tweets and otherwise, is I should blame my predecessors,
they let him get away with it. Of course, that's what
I would do if I could get away with it. So basically from a Chinese perspective, I
think they will continue doing what they're doing to the extent
that they can get away with it. KB: That's interesting. And when you think about the scale, if you've
read all of the reports to date. The scale from all of them is kind of-- they're
congruent with one another between 200 and 300 billion a year. It's hard to quantify. But that amounts over a 10 year period that
$2 or $3 trillion worth of true intellectual property
from-- one would argue that the US's greatest asset is our
intellectual property, our kind of supremacy and education. And how do we stop that? GA: Well, I would say that it's a huge challenge
because if you've become accustomed on letting this happen, and if a lot of it happens, actually,
aided and abetted by American companies in the
sense that an American company or a European company that wants to operate in China, they
want access to the market, China has the biggest market. And so the Chinese extract even in this
requirement to require technology to build plants. So then if I then have a big enough investment
there, when they're stealing intellectual property from me, I come and complain to the
US government. This is horrible, terrible, terrible. But when it comes to meeting with the leadership
of China. I'm
very polite because I know these men are tough guys and they will punish me if I'm too vocal
in public. So I think they've had a pretty good strategy
for doing what they're doing. And as you
say, they can have a government that has a plan. So think of the Chinese government as a first
approximation. You would think of Google or Amazon or of
Apple. So they have a chief executive. And he's called the chief of everything. They have a plan the way
a company would have a plan. They allocate resources with respect to their
plan. They try to
manage and control this. Now, we all know that when the Soviet Union
did a version of this and tried to have a command and control of the
economy, then what? So we all know market
economies work better. That's what we believe. But they believe they can manage their economy
in this way and can take advantage of things that we can't take advantage of. And I think this is a contest. Now, interestingly, I've been talking
to the Google people about this, and Eric Schmidt in particular, who was very thoughtful
about this. He says, if the Soviet Union had had basically
Google and Apple, had the technology of both the big data search and collection of
data about everything, they might have been more
successful. What they do when looking at their markets
is look at a pretty broad span of data, they ask a lot
of questions with AI, they make choices on that basis. I still don't believe it. I'm too, I think, liberal
in the European sense of thinking individual freedom is through much part of the human
soul and the breast, and is likely to be more creative
and more successful. But I would say, look at the last-- if we
just take the record of the 21st century, if you were a
Martian watching this game, you would be not so clear because the American democracy has
looked increasingly dysfunctional. And this Chinese authoritarian model has worked
better than I would have suspected. KB: Me too. And you mention in your book that something
that takes-- to build a railroad here it may take five years and $50 billion. And in China they can build one in five months
because they don't need the permitting. There are a lot of pros and cons to their
model versus ours. But that
leads me into a question of, do you think the recent economic supremacy slash growth
that China has enjoyed for the last 5 to 10 years, really
since 2008, 2009, do you think that has legitimized Xi's ascendancy to where he is today? And do you think that that's at risk if they
have even a mild recession? GA: Well, certainly nothing succeeds like
success. So and Xi, who was also-- and his key
associate, Lu Hao, who's the person who's in charge of the economic activity and the
American trade current relationship, have been part
of what was happening even since 2008. So just as
you said. So as they look at their spectacular success
since 2008 relative to everybody else, 40% of all the growth in the world, the whole
world, since 2008 has happened in only one country,
China. This is out of sight. I mean, it's literally out of sight. We've never seen anything like this in the
historical record before. So from the perspective of Chinese, this just
sounds like, OK, these guys, I don't know, they seem
to know how to run the bus. The bus is working fine. I don't necessarily agree with this or that
that they're doing. I don't like somebody coming and telling me
whether I'm socially reliable by watching my social media accounts and spying
on me all the time. But if all this is working fine, you can keep
driving the bus. KB: I don't know. GA: So if they-- but I'm saying, that's the
current differential to success. But if they-- to your
question, if they should falter, so there should be a serious decline in their performance
or maybe even a crisis economically. Then the legitimacy that's based on your driving
the bus so successfully, has just been eliminated. And in that case, right now you can see Xi
Jinping and the regime have decided just to be comfortable
and be safe and maybe even to strengthen it, we
need a second leg to stand on. So the second leg is nationalism. So nationalism is you can now be prouder to
be a Chinese. And
you can-- you see this in your life dealing with Chinese. They say, I'm standing a little taller. I'm
feeling a little better today. I don't need to tell-tale quite to the extent
that I used to do. So Chinese
are feeling more nationalistic and more proud to be Chinese. And they should to look and see
what they've accomplished. But if the economic piece were going badly,
and so they had to rely on the nationalist leg to stand
on. And if things go badly, I don't blame my management
of my economy, I blame you. I find
some-- I externalize. That's another sort of dynamic that Thucydides
would describe for the rising power, who now was faltering trying to deal
with the ruling power. Not by declaring war. So in
the Thucydides story, neither the rising power nor the ruling power wants a war. Neither declares
a war. What happens is somebody else does something. And then I feel obliged to respond to it. So let's
imagine if the Chinese economy faltered. And Xi's trying to justify nationalism. And the Taiwanese
discovering that the mainland is not doing so well, want to be more independent. There's a devil's
cocktail because we're committed to helping the Thai now-- not to fight for them necessarily,
but to helping them. But if China were to try to seize Taiwan or
to basically paralyze it, which it could militarily by just
bracketing it with missile tests, like they did in 1996, either we come to their defense
or Taiwan has to submit for a nationalist Chinese, the
reunification of this rebellious province would be a
huge win. So if you could deliver that you could get
reelected. KB: Which would be somewhat of a fulfillment
of Admiral Lu's first island chain plan. GA: Exactly. Exactly. KB: When we go back to the economics of the
situation, what's interesting about China is they've
grown their GDP in RMB terms by 1,000% over 10 years-- sorry, by 500% over 10 years. They've grown their debts by 1,000%. And so they believe it's sustainable. We believe it's unsustainable. GA: And I think the question, which you know
a lot more about than I do. So I'm listening and
studying. And I've been looking at this. So the question of what level of debt, of
entity can sustain? It's a very interesting question. So for a long time, but if you think about
it from a company's point of view, let's take, for example,
Elon Musk, type of company that never earned a
profit for a year. And I'm sustaining, how much debt? Huge amount. So you would I would say, that's reckless,
or I would say. This at least would make me very
nervous. So I think that they believe, because they
have more instruments of control and because most of the debt is internal, that they can
manage a level of debt that historically other economies
would find unmanageable. Whether that's true or not, I don't know. You had a number of
companies, including financial companies here that imagined that before 2008, especially
when they had a lot of liabilities that weren't
quite-- they were sort of in the shadows a little bit. KB: I think it comes down to, again, the tale
of two worlds. They have a world that's RMB based
that's domestic. To your point, they can restructure any loan. They can print some more money. They can pretend things didn't happen. The trees can fall in the woods and we won't
hear them to a certain extent. But then their apparatus to trade with the
rest of the world is in dollars, euros, or yen, no one will take RMB as a settlement
currency. So China represents 15% of global GDP, but
less than 1% of global trade settles in RMB internationally. So they need dollars, euros, and yen, but
mostly dollars. And that positive current account that
they used to run, which is now negative, gave them an additional supply of dollars every
year. So
whether it's financial investment flows, Chinese corporate borrowing, or trade benefiting them,
those are all three in-flow avenues for dollars. One of those has turned to an outflow, we'll
see the rest, but Chinese corporate borrowing has
gone to about 1.2 trillion in dollar terms in just the last
four years. So they've hit this point where they still
need to borrow more and more and more dollars. So to
your point, it's not all internal anymore. It's now external. GA: Interesting. Interesting. KB: And but who knows how long that takes. GA: Yes. KB: Just the current account, negativity is
a problem. But we're here to talk about you. Let's talk
about-- in chapter 7, you alluded to this kind of difference in values, difference in
cultures, as being one of the key issues. And you said Thucydides said, our efforts
have no equivalence among people who do not share our values,
in your book you used that quote. There are
enormous contrasts between China and the US. What do you see as kind of the tinder, the
places where this fire could get started, and the
differences in our cultural values? We have completely different cultural values. And what do you think the top three are?
GA: So for Americans, liberty is the foundation. Liberty for individuals. Rights. KB: The Bill of Rights. GA: So life, liberty, pursuit of happiness. For the Chinese, order is the fundamental
value. Chaos
is the fundamental risk. So a culture that's built on order and which
abuses the rights of people, especially ones thought to be dangerous for
order, is an affront to Americans. But poor Uyghers
in Xinjiang who are-- were locked up in basically prisons and whatever. So you've got a value
component there at that level. Secondly, the image of who you are. So the Chinese image, as I said before, of
who they are is we are the center of the universe. The emperor is the top of the pyramid. Everybody else relates
to him by kowtowing. That means they bend to--
KB: Submit. GA: --to bend. So that's who we are. Americans believe that who we are is number
one. Some
think that-- our endowment, some think we had this forever. Some think it was by hard work. But in
any case, it's become our identity. And then third, in terms of what happens internationally,
the American story is we have been the provider
of an international order, and especially an Asian
order that actually has enabled the Asian miracles all over Asia. So we provided basically the
economic and security framework that has enabled Japan and then Singapore and then ultimately
China. Nobody more than-- this is the most peaceful,
prosperous experience Asia has had in all of its
history. And so we think that's a good way for things
to be. And that's the way things should
remain. They think the US Navy should no longer be
patrolling the-- KB: The South China Sea. GA: --seas in their areas. I say in the book, one of the Chinese PLA
Navy admirals said to me, China sees China seas. He says, look at your map. What the name of this body of water? It's
called the South China Sea. It's not called the American sea. So why are the US Navy there? Look at this other here. East China Sea. This not called open sea. This is called the China Sea for some reason. So their perception of this is the same as
Teddy Roosevelt's perception of what was happening
in the Caribbean. KB: Exactly. Right. GA: As I tried to explain. So now you can see how these differences in
cultures and values and interests set up a dynamic that when you have
the power shift going on in the rise versus rule
rivalry, leave both hugely vulnerable to external actions that nobody wanted. Nobody in the US
wants Taiwan to do something dramatic. Or don't want North Korea to do something
provocative. But we don't control Kim Jong-un. We don't control events in Taiwan. And then in the economic realm, we know that
when things get started-- I mean, if you see in
Trump's tweet in response to China's retaliation for his latest rounds of sanctions. He's now
blaming them more and making it a challenge to himself. So again, this adds another element to
this competition, which then creates risk. KB: And so I don't want to get too political
at all, but I must ask this question because it's a
question more on the balance of power and trade. Every president in the last 25 years just
says they're going to get tough on China, but no
one's done it. GA: Right. KB: So Trump is not someone I voted for. He's not a friend of mine. However, in foreign policy
land and in the land of economic foreign policy, I agree with almost everything he's done. And so
I'm wondering how you think about-- forget about his tweets. And how he gets there. But what he's
done in re-leveling the playing field. Is that something you approve of? Or is that something you
would do differently? GA: So it's complicated, but I would say that
the recognition, that just accepting the way things
were and have been for the last 25 years, which each successive president has ultimately
done with a theory or vision that said, as China
becomes richer it will become more like us. So it will
become wealthier, they will become more democratic, they will take its place as a responsible
stakeholder. So there was theory of the case, and that
theory of the case was a theory of the case for the US government to try to encourage
China's growth. And that theory of the case was also the dominant
theory for leaders of global finance and leaders of global production. So if I were running a major international
company, I've been trying to integrate supply chains with China because
this is all part of the story that we all get richer
together, and this makes China more democratic, and then they'll be more like us, and then
they'll be more peaceful. So I had a good story. That story has looked worse and worse over
some period of time, but it's very hard to go from this
picture of how I'm relating to you and trying to encourage you to grow, and then I look
up and wake up and decide, whoa, wait a minute, this
was when you were a small dragon that I was being friendly to that was almost like a pet. Now this dragon is as big as I am. I mean, what the
hell happened? So you can look in the-- Secretary Mattis'
new national military strategy, is even breathless at some stage, which is just looking
and say, what? What? And as one of my Chinese friends said, he
said, wait a minute, we haven't been hiding. The fact
that many Americans have had their heads stuck in the sands of the Middle East fighting wars
for the 21st century, that's not our fault. That's what you've been doing. We haven't been hiding here. We've just been growing trying to realize
our hope to be, have wealthier citizens, have a better
country, bigger -- So Trump is reflecting this wake-up that's
occurring about the fact that, lo and behold, there is a
country that's emerged, and it is rivaling us in many dimensions, and its behavior is
unacceptable. So then the question of how to deal with that. And I think I would say in the recognition
of the problem, I think the Trump administration
has done a good job, or doing a good job in trying to
figure out a strategy for adjusting the relationship without falling into Thucydides's trap. There's the rub. I've been, since the last 15 months, since
the book was published, basically pursuing avidly in China every month and in
Washington every week and here in Cambridge and
everywhere else I can the question, how to escape Thucydides's trap without giving up
anything vital for either the US or for China? So from the American point of view, we are
not about to cede to China the dominant position in the world
and give up the idea that we play a very special role. That's not going to happen. And from the Chinese point of view, they want
to keep growing and making China greater. So
can those two things happen in the same world? To which the answer is I hope so, because--
KB: They sound mutually exclusive to me. GA: I don't think they are. But I think being inventive about what would
constitute a strategy for fundamentally adjusting the economic relationship,
so that it would be fair rules, fairly observed, and fairly guaranteed. Now, even there, if from an American point
of view, because I'm a very red blooded American, so I look at this and
I think I still like the idea that we should be the
biggest economy in the world. So that's what I would like. And then I look at it and say, but there's
four times as many Chinese as we are. So if they are
only one quarter as productive as we are, they're going to have economies big as ours. I mean,
they seem to be pretty smart and pretty determined and pretty hungry, what if they were half
as productive as we are? Just half. Well, now they've got an economy twice as
big as ours. What is the world in which we're dealing with
a China that's twice as big as we are. So they could
have twice as big a defense budget as we can. Wait a minute, I don't know how that works. And
so I think partly Americans are struggling with the idea of just the idea of another
country that would be big and strong and challenging. And if we were then going to be smart about
this, we might begin to have to think about some things
that we haven't thought about before. So we can't simply cling to the status quo
everywhere, not if the fundamental-- so if power
changed dramatically, we may have to understand our alliances are more important than we
thought, because if you're now twice as big as I am, if I have two other guys here that
are about my size, and I only have three to two. Japan and South Korea and Australia and maybe
in principle India, depending on what should
happen there. So I think we're in a period where
what's needed is a lot more inventiveness about how to make this relationship work over
the year, decade, 45 years, where from our perspective,
a system which is partly led authoritarian, as the
society gets wealthier, I don't think so. I would say that's going to become stressful,
just because I believe in every breast there's somebody yearning to be free. But they would bet. And so my Chinese friends would bet. You
guys have become so caught up by consumption, and so caught up in the ephemeral, and so
lazy that your Democratic system-- I mean, look
at it, it's not going to work. And so you're going to
come to decide that you're going to have to have a system more like ours. I'd say, I don't think so, but I'd be prepared
to play that out in a peaceful environment betting on
our fundamental concepts of values and governance rather than theirs. KB: So when I read your book, and I think
everybody that reads it reads the title, reads the full
text cover to cover. And we come away thinking there is some percentage
probability that Graham Allison thinks could take us to war. And there's some percentage probability that
he takes it, say, we may not, we may get into
these four areas of peace. If you were to give me the
probability of war after all the work you've done and after all the thought you've put
to it, what is that probability if you put it into a number
for me? GA: Well, it's very hard to do. So and I'm schizophrenic about it, so I don't
really have a single number. So let me just describe. KB: Is it better than half? GA: I would say-- my schizophrenia is I'm
congenitally an optimist. So I don't believe ultimately
that things will turn out badly because I believe we will end up finding our way to
a degree of imagination. On the other hand, if I were simply analyzing
the case on the basis of the record, I would be pessimistic and say it was as likely
as not, maybe slightly more likely than not. But not
necessary and not inevitable. So the question is, what do we do? So if you, the analogy I, or one that I take
some inspiration from is the Cold War. So there were
many wise cats that said in the 1950s and 1960s that was inevitable that there would
be a war, even a nuclear war between the Soviet Union
and the United States. And people today can't
believe it because of what Russia has become. But when John Kennedy became president in
1961, he believed that by the '70s the Soviets would have an economy as big as we did. And that's what the economists all believe. So if you look at that and say, well, what
did we do? And what was developed was a strategy with
four or five pillars that became the Cold War
strategy over the period of the '40s and then in the '50s and '60s and '70 that we basically
followed, strangely enough, even in the political system, as you had said before, that alternates
with parties and alternates with presidents for four decades to a point of victory. In the Cold War
strategy, the key pillars of it each included initiatives that seem slightly crazy or naive
or unrealistic when people first suggested them. And the one I like the best is the Marshall
Plan. So it's in June of 1947, so year after-- year
and a half after the war, Marshall came to Harvard. Gave the commencement speech. And he said, I
have an idea. We've just been fighting this war. We were spending half of our GDP. We've now
given that up. We're back to the building American at home. We have to mobilize all the troops and come
home. But I have another idea. The poor Europeans
were devastated and the Soviets are aggressive, we should tax ourselves 1.5% of GDP a year
for the next several years. And send the money to Europe and help rebuild
countries like Germany and Italy. Those guys were just killing us two years
ago. KB: Right. GA: Nobody said that was a good idea. Most people said, what do you-- what? Nobody's going
to be in favor of this. But lo and behold, great leadership from Truman
and from Vandenberg, who was the Republican chair of the Senate
Armed Services Committee, and people in the society
managed and, lo and behold, by 1948 we were doing this. So you look at this and you say, what
would be like that today that people become imaginative about some things maybe the US
and China could do together? KB: So unfortunately, I have a nuanced view
of that exact period of time in US history, where we
had just-- well, for number one, we had won the war. GA: Right. KB: Right. And we both sides deficit spent going into
the war, right? 1946 was the US's highest
level of debt we've ever had. GDP is about 106%. To the victor went to spoils. And to the loser
went to defeat and default. Right? And so when we talk about importing that idea
to today I shudder to think about it because we had eliminated
the productive capacity of almost two continents. GA: Right. KB: Right? And we ran trade surpluses with every single
trading partner in 1946. We did. We
ran positive trade surpluses with everyone. And the Marshall Plan helped us do so. GA: Right. KB: And World War II killed about 3% of the
world's population. And so when I think about what
could we do today to kind of get into a Marshall Plan scenario--
GA: No, no. I'm not proposing a Marshall Plan. KB: No, I know, I know. You're saying, your collective project--
GA: I'm saying-- If you thought about that idea in June of
1947, the idea that Americans are exhausted after a war
and need to work on the domestic agenda, Truman actually at the time thought that the most
important thing was to have a health care. So now somebody says, I have an idea. Let's pay
taxes to send money to foreigners. Even though it was part of this whole picture,
it was just politically-- people were saying, you're insane. Nobody's going to--
KB: That's a good point. GA: So I don't think-- my idea is not we should
have a Marshall Plan now. An idea equally
radical, another radical idea was NATO. So NATO-- George Washington and every other
president said beware entangling alliances. You get into an alliance with these Europeans
and they'll drag you into a war you'll want to
quit. In NATO we made a commitment in Article V
that an attack on one of the Europeans was an attack
on us. What? KB: And Japan. GA: What? OK, you would say that's crazy. That turned out to be a brilliant idea that
was part of the success of the Cold War strategy. So I can just say the fact that I think we
need to be thinking of and considering ideas that when you first
say them or hear them you just say that's radical,
unrealistic. KB: That's a good point. GA: Or not feasible. And so that's why we need a surge of imagination
in this space. And I think
actually people in the economic and financial domain may turn out to be more imaginative
about this than people in the national security
establishment, because there's a tendency to kind of stick
with the things we know and do that we're very comfortable with. And I think sticking with the
comfortable past and holding to the status quo is clearly unfeasible. KB: It's what got us to where we are today. GA: Absolutely. And I think the-- so Henry Kissinger taught
me this, my old professor, many, many years ago. He said, really, in the end, our core strategy
is to overwhelm problems, this is internationally, overall problems with resources. And in 1945, '50, we have half the world's
GDP. KB: That's right. GA: Into the Cold War we have 25% of the world's
GDP. Today we have 14% of the world's
GDP. So a party with 14%, or in five years, 12%
doesn't have the market power to deal with problems by simply overwhelming them with
resources. So they have to be smarter. So that means
changing a lot of stuff that we do in radical ways. And I think for Americans this will be as
painful as it will be in this interaction with the
Chinese. KB: Interesting. And when you talk about potential war scenarios--
I'm taking you to kind of chapter 8 of your book where you say kind
of from here to war. A lot of the things you put in
there were extremely provocative to me. I typically studied the financial markets
and the historical culture, but I haven't really thought about
the kinetic side of things. And some of those scenarios
that you talk about, especially with cyber, are fascinating in this day and age. Would you talk
about this use it or lose it kind of ideology that you mentioned in chapter 8? Where you are talking about the various edifices
of our cyber facilities and that one becomes functionally irrelevant if it's used in the
second place. So will you talk about that idea and some
of the ideas you have with a possible run in
of ships, or how you think something kinetically could go
wrong? GA: So there's two elements in the chapter. One is what's the incident that gets things
started. And then the second is, why does is it escalate? And the cyber is particularly relevant in
the escalation stage. So let's just imagine, if I were picking the
most likely in the currency, there are two, Taiwan and North Korea. But there are five different scenarios in
that. If I take the Taiwan case, so basically China
is becoming more authoritarian and controlled. Taiwan, which every Chinese believes is a
renegade province of China, and which I never have
met a Chinese who wouldn't fight to keep Taiwan. So even though the guys in Taiwan are not
calling up Beijing to ask what they can do. They're
there. They are living in this little bit of pretend--
KB: Do the Chinese visit Taiwan very often? GA: Yeah, they do. And initially they were trying to seduce them. So many of the businesses there
are run by people who also have a second family in China. The whole thing is very complicated. Have facilities that operate there. So it's an artificial environment now. KB: So basically—
GA: but if you're Taiwanese, you're accustomed to being relatively free as a person. As free as
somebody in South Korea. So the idea that you would now be reintegrated
into a country that's going to be governing you in
a different way, you're not in favor. So if you take anybody that's 30 years old
and younger, 40 years and younger, they've lived in a free
country. They don't want to be part of China. The same
way the good people in Hong Kong. They don't want to-- you can see that all
the time. And so
when the Chinese then say to them, well, you can't have people run for office who are in
favor of the-- they think, forget about it. KB: You can run, but we won't--
GA: That's right. Exactly. Exactly. So the Taiwanese, for whatever reason, go
off the way they were in 1996. Again, you won't remember most people, but
in 1996 the Taiwanese were making a move towards independence. China responded by missile tests that bracketed
the island, which therefore made it impossible for anybody to
bring a ship and supply, because they are an island,
ultimately they depend on ships coming. So in 1996 I was in the Pentagon at the time. Clinton decided we would move two carriers
up to basically force them to back down. We did. They backed down. They were humiliated. And they
immediately began building a missile force on land that would be able to sink our carriers,
which they've done very successfully. So now if that same incidents that occur,
we would be worrying, can we bring a carrier up to help defend Taiwan? And if we did, it could easily be sunk by
one of these missiles. So now imagine that's the way the game gets
started. So now we've-- they've sunk the carrier. 5,000 people died. That's a big event. So now you're the president. What do you do? So the
Defense Department would say, our policy calls on destroying all the missiles that could
do that again. That means attacking the Chinese mainland. So now you're attacking facilities in China. So then I'm not going to leave your homeland
alone if I'm employing the Chinese hand, if you're
bombing my homeland. So I can either try to reach something all
the way to San Diego, or I can simply in cyber go and turn down-- cut off
your electrical grid. And you say, wait a minute, whoa,
what are you-- What's happening? So there's no electricity in the Northeast. So I then respond
against your cyber capabilities, because if I don't, you could make it impossible for
me to do so. So one thing leads to the other. And historically that kind of escalation ladder
has ultimately ended in a full scale war that the two parties
didn't imagine that they wanted, but neither could
stand down at the stage of the process. KB: Well, you introduced this concept of escalating
to de-escalate as well, so how could that work? GA: Well, if we started down this path, and
you're playing the American hand, I'm playing the
Chinese hand. So if I'm trying to remind you how vulnerable
your whole society is. Suppose I say,
OK, look, why don't I just close down your financial markets for a day, just for a day. And then
you can explain whether there was an accident or make whatever story you want. I'm not going
tell I did it. KB: I'm just letting you know I can. GA: I'll call you up and tell you, watch and
see what happens tomorrow. And I hope this doesn't
go any further. And so that's called escalating, so I've got
pretty far up the ladder. And then you
could look and say, well, gee, can I close the Chinese financial markets? Well, that then depends
on the state of the offenses and the defenses for the two sides. And cyber is moving at such a
pace. And another great accelerant is space. So basically all of the American forces depend
on satellites for both observing what's going
on, for targeting, for communication. All those satellites
are big, fat, juicy targets. So they're not hard to shoot out of the sky. And so there's an event
going on in the Taiwan Straits. And all of a sudden I'm playing the Chinese
hand and I just say-- I take out your satellites. And you look and you think, whoa, I can't
even see what's going on. I'm in trouble having my ships to communicate
with each other. I can't target things. That's
probably a place where you want to stop, we hope, if I'm playing the Chinese hand. Or you may
say, wait a minute, you're not getting away with that. So again, one thing can lead to the other. KB: Yeah, it's really provocative. And I suggest anyone that hasn't read your
book they should read it and reread it. And I'm going to conclude with one last question. Is China our friend? GA: That's a great question. So there was-- I was in China in April for
a session with chief executives at the China Development Forum. There was a session called "China-- Friend,
Rival, or Adversary?" And I was asked, I said, the answer is yes. So basically in some domains China is our
friend, in some domains Chinese is our rival, in some domains China is our adversary. And conceptually getting our head around that,
for Americans and many people in the strategic community, I need to just know one or the
other. In the current strategic conversation, and
this is across the policy spectrum and across the
political spectrum, especially in Washington, there's a
sea change going on. So China used to be our friend and partner. So up until the end of the
Obama administration, if you look at official documents, when you describe China it's called
our partner or strategic partner. If you look today at all the documents, they're
called our adversary, and even in the Defense Department, our enemy. So there's just been this flip. And the impact of that in every space,
whether it's-- OK, so, therefore, an investment in American technology is by a enemy or
adversary. So I better-- a supply chain that is dependent
upon-- that's on my enemy or adversary, provided by-- the Chinese economic performance. Before, did we want it to be better or worse? We were thinking better is better because
it was going to make them more-- blah, blah, blah. Now, I would say, in Washington they would
prefer it to be worse. So and the Chinese are just
kind of getting it. Thinking, wait a minute, what in the world
happened? We were friendly for
Obama and then for Bush and for Clinton. And people said bad words right before the
election, but they didn't-- now they're thinking, whoa,
have these people basically done a backflip? And I would say, we're just seeing the first
phase of a sea change. And the sea change on the
surface is basically reflecting this underlying lucidity and dynamic, where increasingly China
will be seen in our face and in our space because
they just simply have got bigger and stronger and
are pushing out. And they would say, well, this is just us
growing. I mean, this is just natural growth of whatever. And we'd say, well, wait a minute, you're
now in my space. You're now rivaling me here. And
that kind of dynamic, unless people are smart and creative, could lead to some crazy thing
happening in both North Korea or in the South China Sea or in Taiwan that I can't ignore. So I
make some limit, and then you can't ignore it, and one thing leads to the other, and
there we go. KB: The best advice someone gave me on China
years ago was look at what they do and don't listen to what they say. GA: I agree. Watching what they do. Actually, watching what people do is often
better, maybe even in the US, that is what they say. KB: Well, Graham Allison, thank you so much
for spending this time with me and with us. And it
was just an honor to be here and hear your view of history and also your advice. GA: Pleasure to be with you. KB: Thank you. GA: Thank you very much. KB: Thank you.
