Ameri-Can or Can’t?: China’s Looming Demographic and Economic Collapse | GoodFellows

oh [Music] it's wednesday august 24 2022 and welcome back to goodfellows a hoover institution broadcast devoted to social economic political and geopolitical concerns i'm bill whelan i'm a hoover distinguished policy fellow i'll be your moderator today that means i get to introduce the stars of our show that would be the economist john cochran the historian neil ferguson the geo strategist lieutenant general h.r mcmaster they are hoover institutions senior fellows all nita let's start with you today we're going to talk about china and i want to talk about china by way of aspen and by way of aspen i mean that you wrote a column based upon your experience attending the aspen economic strategy group you very cleverly talked about what happened there in which it was a conversation full of gloom and doom about america's demographic challenges hey doom what a great title for a book by the way anyway your column very cleverly pivoted off of america's demographics neil and you went into china so let's talk about that today let's talk about what china is facing in terms of its growth neil in terms of what it means is a world power john water pretends for china and its economic engine hr the geopolitical concerns can china do guns and butter at the same time so neil you have the floor well let me begin in in aspen uh it's a little bit hard to be doomy and gloomy in aspen in the summer it's a sort of absurdly beautiful place but i was surrounded by economists and the dismal science has its own distinct ambiance uh there were some terrific papers at the aspen economic strategy group melissa kearney had uh one co-authored with uh phil levine on american population growth and i learned a lot from it our fertility rate has come way down the population of the united states is growing at a much slower rate than we've been accustomed to historically and legal immigration has basically seized up so if one puts all the pieces together at the picture for the united states is quite a disturbing one and it has all kinds of fiscal consequences which i know that john will want to to talk about so i was sitting there feeling a little bit despondent at the prospect of an aging america with one child per mom when i asked myself the question okay but how does it look for china and and this set me off uh in what turned out to be a rather interesting direction because the united nations population prospects has just been updated and the updates are really fascinating because they've radically revised the outlook for china china's demographics were supposed to be that the population would keep growing through this decade but no uh it now seems like china's population is about to peak or has already peaked and the really remarkable thing to me is that the medium projection their kind of base case now is that the population of china will fall by 46 nearly half between now and the end of the century and that assumes that fertility recovers from its currently very low rays the one child policy hasn't been got rid of in practice chinese couples are basically having one child if that doesn't change then the population of china could decline by two-thirds by 65 percent between now and the end of the century that is a very different picture from the one for the us where in the base case the population of the u.s goes up by 17 in a case of higher fertility it rises by 61 percent and in that sense the us and china are on very different demographic paths the last point i'll make is that all the us has to do to win this if you want to think of it as winning is resolve its immigration policy and get back to a significant steady inflow of legal immigrants that's that's the key and china can't do that because if you ask people around the world where would you like to emigrate to zero people say we'd really like to move to the people's republic of china nearly everybody would would like to come to the united states so that's the story i learned at aspen and i therefore was quite cheered up which i don't think was what the conference organizers necessarily expected to happen john well i'd i'd like to cheer you up a little neil so except for that last bit on immigration i disagree with just about everything you said and the basic premise is demographics is population a huge problem first of all let's remember demographic forecasts have been dramatic especially 100 years out have been dramatically wrong in the past and likely to be dramatically wrong again but is demography destiny uh let's start with remember there's only so much space on the planet so sooner or later we better get used to a a level uh population and that's just if that's the end of civilization we're all in trouble but i don't think it is what matters uh fundamentally to human welfare is gdp per capita income per capita productivity uh not the total number of people you have there's not much connection between number of people and the wealth of each individual a person there's a lot of small countries that are very happily and wealthy now how do they do that well their economies are integrated uh they are parts of larger systems um and in in uh you know in the u.s is uh the us is actually quite underpopulated relative to china uh at the moment they have about the same landmass and three times the people so number one you know what matters is is smart people uh entrepreneurial people people who work now the us has some fiscal problems because we promise all sorts of things to our old folks right you got a problem there a pay-as-you-go social security system a we pay for the old folks medical medicare system is is not sustainable without population growth uh this is not a civilization ending problem uh we simply have made promises that we can't keep in fact social security was invented in a time when people retired at 65 and died at 72. well people now die at 90 uh so this this model of 30 years of leisure is not tenable so yeah they're they're yet you know government finances have to adapt uh and but that's not uh the end of the world to adapt government finances if you have an economy with fast-growing productivity that's educating its few young people very well similarly china um well like i said china has three times as many people per land as as we do so uh they got room to go china's a problem is not numbers of people uh i just found out from uh our friend steve cotkin um yesterday a wonderful talk china only graduates 37 percent of people in china have a high school degree so what china needs is smart workers china has china's has stuck in its middle income trap uh what it needs is smart workers well if you know you can get two thirds more people if you simply give them more education which is a difficult challenge um so so the whole idea that just numbers of people china by the way they're also stuck at a quarter a quarter of our gdp per capita they're they're right now in the middle income trap can they grow well let me just isn't it true also though isn't there uh their youth unemployment rate pretty high among educated youth i think it's in the 20 percent in the 20 percent uh area so 20 it's 20 hr for all young chinese not just the educated this is an extremely uh high rate and and this before john goes any further with his uh economics lecture is the key that it's not only that china's demographic trends are very uh steeply downward the working population is already shrinking it's a population that is therefore pre-programmed to age faster than the us population to be catching up actually with japan when it comes to aging but this is happening at a time when the economic growth rate is coming down and very sharply down into low single digits i would guess in the years ahead uh and so not only is china in in a middle income uh trap it's likely to stay there uh and this i think is the really the really critical point i i mean john i i'm i'm not about to argue that uh demography or demographics is destiny in fact my piece begins by saying it's not yes uh and population growth in the world is going to keep going it's nearly all in africa amazingly something like 93 of the projected population growth in the world to the end of the century will be in africa now the u.n population prospects has been pretty accurate since it began which is back in the early 90s uh just to be fair to the demographers there this revision of the chinese statistics is a huge deal because it's the most drastic revision i think they've ever done and interestingly the chinese government now admits this which previously it denied so i think if you think about this not just in terms of economics but let's think about it in hr's terms in terms of the strategic rivalry between the u.s and china it's hard to think it's hard to see this as as good news from a chinese perspective they would have to achieve really quite remarkable productivity growth from here on to compensate for this aging and this decline in the in the size of the workforce and i don't see that happening certainly not in the data that i see but hr we should let you get more i'm just going to ask you a question so just for our viewers who are you maybe historians like me and don't have economics degrees like you guys or economic experience growing out of the middle income trap the way i understand it is you have to grow at a sufficient rate such that you can overcome your lack of competitiveness in the area of cheap labor which is what china had is a very competitive uh environment for for cheap labor that attracted investment now as income grows the labor's becoming more expensive but they're not becoming productive enough nor are they generating enough domestic demand right to to grow out of that middle income trap that's the way i understand it it looks like all the trends are down in terms of unemployment but then i wonder if if neil if you and john would just comment as well on how the the authoritarian mercantilist model you know is is a lodestone around their necks i mean it seems to be to me that the party's doing everything the opposite of what it should do to grow out of the middle income track it should it should encourage uh more of a private sector entrepreneurial spirit while it's cracking down you know on the tech sector on the education sector on any sector that the party feels like it's losing control over and then it's the zero covenant policies these draconian policies and of course the demographic time bomb that we're describing is again related to the authoritarian model right the one child policy and inhumane policy and we haven't talked about this aspect of it either right which is which has created a much higher percentage of males than females which is another whole problems that they're dealing with so you know i think i'm glad that you came out of aspen optimistic you know because because you know i think we do need to be a bit more optimistic on this show sometimes but i do think you know when we look at china from afar we think oh man like that centrally directed economy they can just get stuff done you know they seem like they're so effective but i really you know some people predicting this for years i understand but to me the whole thing looks like it's it's not going to work for them i mean i i think their model looks very brittle to me i'd love to hear what you guys think about it about well let me put this question to neil neil we keep hearing that the 21st century is the chinese century the 20th century is american century now it's a chinese century where one-fifth of the way into the 21st century does that narrative still hold up no it doesn't i mean 10 plus years ago i wrote a book called civilization and i asked the question is this where western civilization steps aside and eastern civilization uh takes over i think if you uh look at the situation today uh it's far less convincing that we're heading for a chinese or an asian century than it seemed to me a decade ago and i think hr is right as to what's gone wrong the the regime xi jinping established has reasserted uh the primacy of the power of the chinese communist party over the priority of of maximizing growth and hr has already given some great examples of of how this has played out the the the pressure on the tech sector the way zero covert has been instrumentalized to impose uh the power of the party over society and so you look at the chinese economic model and you see all kinds of of problems which is i think why the growth rate is likely to be much lower in the next 10 years than in the past 10. and we haven't even got into real estate because rather in the way that the japanese economy in the 1980s fell victim to a great real estate bubble which when it burst left the economy essentially flatlining china's in a similar predicament 29 of economic activity is real estate and that means building tower blocks basically on on land that has been acquired uh at rock bottom prices if your population is forecast to halve it's not quite clear why you would be building tower blocks i mean this is the the equivalent of the old bridges to nowhere it's tower blocks for nobody and as you look at china's financial situation i'd be interested to hear john's thoughts on this there is a real pile of trouble there debt all kinds of uh underperforming uh loans property developers on the edge of bankruptcy and it's clear that the authorities are really pretty uneasy about the situation that they're in i don't think they have a japanese style bust but i certainly think that the burdens of debt that are accumulating are going to slow down china's growth at the same time as the demographic problems kick in john oh let me wrap up the first discussion move on to real estate because um you guys did a great job and and thanks for trying to get me to be short for once in my life but just to restate the obvious there's two concepts we've got to keep in mind gdp per capita and total gdp of the country gdp per capita comes out of the productivity of your people more than anything else and china has you can and china started very poor you can grow a lot and your your gdp per capita grows until you hit the inefficiencies of your system and you grow by catching up by learning to do roughly by having institutions that are a little closer to the us's and even though we're not perfect the old chinese ones are a lot worse and then you hit the ceiling the ceiling is exactly where entrenched interests find future growth threatening uh whether the entrenched interests are in some countries the you know the powerful families or in china the intransitive the communist party and like you said the tech sector was on its way to really being a world leader not just a catch-upper and they said ah that threat that that and so threatens our growth so that's the classic thing is you start for you grow fast and then you hit the ceiling and the ceiling is where your inefficiencies don't let you grow anymore and that seems to be where china is hitting now hr may want to comment income per capita is human welfare total gdp matters for how many aircraft carriers you can buy right and there uh you know small countries need alliances you know and just being small isn't necessarily bad uh but the uh when it gets to military it's the total amount that that cap good so what we'll get i'm sure the economic underpinnings of the military now the property thing is really interesting um we have this big property bus they've been asking people you know why did they build somebody apartment now there's there's two things going on one is um china has china is a sort of an advanced country of 200 million are married to a very poor country of 800 million and those people need to move to cities so in fact yeah you know the empty apartment blocks were always in the newspapers and then you go back a couple years later and they're full because there's still this process of moving poor people from the countryside going on in china but real estate was also they have a very poor savings system they don't have they don't have much social security uh they don't care about dependency ratio because in a communist dictatorship your plan for old ages die in the streets and they don't really care that much about it uh but real estate and you couldn't really save uh save well so real estate was a way that normal people could put money aside for retirement now that that is a very dangerous part of realizing because as neal points out if you're buying apartments speculating that you're going to sell them you've got to sell them to somebody and if that's not going to be lots of people moving to the cities anymore because you hit the hit the growth then then you hit the moment where they're useless uh and so there's these wonderful videos now of china blowing up apartment blocks that that nobody needs anymore uh and that's similar to japan it's also something that happens there's a nice economic model of this as you're growing fast you're in the catch-up growth stage nobody really knows where that's going to stop and then and so things are priced in as if it's going to keep growing all the way up and catch up to the us and then when we find out where it's going to stop all of a sudden the growth options of investments disappear and you get a big property collapse so that does seem the whole real estate thing the shady financing of the real estate thing who owes who what that can't get paid local governments that have made all their money by by selling off land well who's going to want that land anymore who's going to pay for those local governments anymore can china really bail everybody out in this real estate system imagine the social discord of people of an entire generation whose retirement savings is in apartments that aren't worth anymore uh so that that it kind of boggles me i wish i'm supposed to be the economist to explain all this to you uh all i know is that there's something big there the numbers are all all fudged uh it can't go on uh will it result in in a sovereign debt problem for china will these prop will the financial part of it burst out and cause problems everywhere else uh they did a big problem is all i got to say about that hr please well you're alluding to the to actually the a lot of this uh rapid growth fixation on rapid growth from from overall gdp was to to fuel the the buildup of the people's liberation army and that the people's liberation army has increased 44 fold since the taiwan straight crisis in 95 96 i think it was the last one and um and and so i i think in their race right in their race to catch up and surpass us and in military power i think they they seem to have created additional frailties uh in the economy and and i'd like to understand that better from both of you i mean how much how much have in in their race to surpass us have they created your real real vulnerabilities and then a related question is isn't it time for us to stop underwriting our own demise that's what i see when i see dumb money flows index fund flows going into china uh so you're taking pensioners money right and and and this money is actually uh funding the development of next generation fighter aircraft and all sorts of weapon systems because because a lot of that money goes into defense related chinese companies some of whom actually list on u.s exchanges and as we've already discussed don't meet the transparency and reporting requirements to begin with so that money uh as well as you know targeted investments venture capital firms you know that have have invested in in companies like sensetime right artificial intelligence that china uses for military purposes and to conduct a genocidal campaign against the uyghurs you know so it what can we do financially uh in this competition more and and is you know and how much are we propping up a system that is now revealing a lot of cracks and frailties in it well let me take two those two questions one by one and then maybe john can weigh in one i mean i spent a lot of time in china over the last uh decade or so i was a visiting professor at uh at tsinghua got to know people uh in the in the government and their goal at least those that thought about the economic questions was to try to grow the consumption part of the economy and make the economy less reliant on on exports and on fixed asset investment michael pettis has been a long-standing critic of china's economic policy mix arguing i think rightly that it involved actually suppressing the returns to labor uh in in ways that ultimately would be self-defeating and i think much of his analysis being is being borne out by recent events they haven't succeeded in making this a consumption-led economy it still relies for growth very heavily on the export channel and when things go wrong the playbook is always well let's invest some more in infrastructure and let's build some more coal burning power stations and this is where the model is fundamentally uh broken and it turns out to be really hard to repair covid which it seemed as if the chinese had got right in 2020 has now made the problem much worse because by pursuing a zero code policy based on restrictions because they don't have vaccines that work and they haven't vaccinated the people that really need them they're actually depressing consumption even further and i'm not sure how that gets fixed in addition to which people whose savings uh under threat because they put the money into real estate are not likely to go spending so i think part one of the answer to the question is that the economic model which became very heavily reliant on exports and fixed asset investment not on consumption looks broken and maybe unfixable the second question about investment in our own demise i suspect will answer itself in that a the returns to investing in china are going to suck and there's nothing quite like uh investments that suck to change the minds of american investors and maybe trapped capital too neil don't you think the chances of that are pretty high i mean just losing it all right well capital controls mean it's very hard to get your money out once you've put it in and that's going to turn out to be a major problem and at the same time i think the process of decoupling is only going to accelerate the more conflict we have of the sort we've discussed in in a previous episode over taiwan and other strategic issues so my sense is that that if you kind of look ahead uh five years there's going to be a significant and sustained decline in u.s investment in china i think i think that's highly likely i mean just look at the currency which has weakened quite significantly uh this year relative uh to the dollar that that doesn't look good if you're a u.s investor and it's in itself john yeah i think um china is increasingly cutting itself off from the world joining up with those economic powerhouses russia and iran that's great great set of trading partners right there uh you know this astounding wave of prosperity we have comes from globalization and uh it's been great for us it's been great for china and it's really going to hurt them their political cutting themselves off is going to hurt them a lot more uh than it that hurts us i mean in the end it's all about productivity and uh now you mentioned exports um china export lead model don't worry so much about that because if you export a lot what do you get well we send them dollars they send us stuff what are those dollars good for at best you can use it to buy american assets uh you know they can buy american companies but guess what those american companies are located in america so it's very hard to turn that into something worthwhile especially if you're going into a strategic competition so you know these are i think the big limits on chinese growth i bet you know back to the people my complaint about the people stuff wasn't that it was zero it's just that getting from 25 to 100 of us gdp or or these kind of limits on their uh on their economic ability are are more important than raw numbers of people um uh yep so china's in trouble and we all have to you know we can't get away from being global this idea of re-shoring everything even the u.s if you look at our supply chains for everything it just inevitably comes around the world you know china is trying to do their own chips well they don't have a chip lithography machine and uh apparently there's only one in the whole world well good you know good luck to anyone who tries to go it alone including the us and we shouldn't i mean that let us at least agree we're not going to meet chinese industrial policy with our own stupid industrial policy the chips act 250 billion dollars down a rat hole of union-made chips is exactly the wrong way to go to try to solve this problem neil george will friend of goodfellow's show has a rather interesting column in the washington post this week in which he asked a pretty provocative question which is if china sees itself in long-term decline and assuming that china right now is the peak of its powers does that speed up the clock on taiwan on an invasion of taiwan does it feel an added sense of urgency because of its long-term conditions well i think that's the right question that george will is asking and it's a point that i've made myself more than once uh a regime like this an authoritarian one party state which suddenly finds that the economic miracle it was presiding over has ended uh and therefore can no longer rely on economic growth for its legitimacy is highly likely from a historian's vantage point to become more aggressive in its foreign policy because it knows that it can count on a pretty strong nationalism not only from the masses but from educated chinese too and that's why the taiwan situation is so dangerous i think we may underestimate just how much pressure xi jinping is under domestically and therefore we may underestimate his readiness to take risk on the taiwan question my sense when nancy pelosi did her visit and she's been succeeded by other congressional leaders in going to taiwan she was in a sense pouring some kerosene on on that barbecue when we don't have a particularly good strategy for defending taiwan if the chinese do take the risky move now our colleague misha austin just wrote a piece in the financial times observing that there's a real nuclear risk here that we shouldn't underestimate hr uh i'm sure would agree that there's been a big buildup in in chinese conventional and nuclear forces uh in the last 20 years so this is not the 1950 1995 96 taiwan straight crisis that we could end up in we could end up in something much more like the cuban missile crisis with two nuclear armed superpowers going to the brink over an island that happens to be very near to one of them so i i think this is a really serious concern i was asked earlier by some visitors to whoever what my recommendation would be and my recommendation would be let's not go down the cuban missile crisis crisis road of of brinkmanship let's go straight to dayton in this cold war rather than risk confrontation that the chinese may be much more ready to take on than we currently assume can i push a little uh so is it really the decline that's the issue i think of lots of authoritarian regimes who preside over economic decline without losing power there's all of them cuba venezuela north korea they don't seem to mind falling gdp at all but there is i think taiwan as an example uh as long as taiwan sits there you can see that there is as hong kong used to be there is a society with han chinese who are culturally like us and speak our language and yet they are free and much more prosperous than us and that is what's really threatening to uh an autograph in china that i think is what was threatening about ukraine to vladimir putin here are people who who look just like you and and um you know many of them speak russian and yet they are turning to the west and god forbid they turn to the west and become prosperous and and undermine the logistics we are urging there isn't isn't that more the the motivation well while agreeing with you on on the dangers of where we go from here and then i want to push you on to taunton what that means well i think that's certainly part of it i mean taiwan has not gone in the direction the the ccp assumed back in the 1970s where they essentially expected uh reunification as they call it to happen quite naturally if anything the trends are entirely in the other direction where the taiwanese population feels more taiwanese less connected to the mainland and although they like the status quo a significant proportion think of it as the status quo tending towards independence so this is certainly a part of the concern uh in beijing but i think it's a mistake to say oh there are lots of authoritarian regimes that have stagnated without engaging in in international aggression because i think you're confusing trivial countries with important countries and venezuela is a trivial country china is one of the world's great empires russia one of the world's great empires and when authoritarian regimes in great powers get into trouble i think hr would be inclined to agree with me on this they're quite likely to resort uh to an aggressive foreign policy if if there is a pattern in the history of the last 150 years that's part of it in my view and i i don't think there would be such a risk if china could confidently look ahead and say things are going our way the trends are our friend it will be an asian century the more they feel that their window of opportunity is closing because their economy is slowing their population is shrinking and the u.s has woken up to some of the threats that china poses then i think the greater the likelihood that the chinese leadership decides to take a risk that kind of gamble has all kinds of precedence in history think of the japanese gamble which george will mentions uh that led to pearl harbor think of the german gamble and it was a gamble in 1939 and in 1914 great powers when their authoritarian regimes are very very different from tin pot dictatorships yeah the germans and japanese both clearly felt um this is our moment and we're in a relatively losing position we got to do it right now but pearl harbor does you know as we talk about these worsen areas where the chinese uh uh you know sink american carriers and blow up american bases boy have they not read history we may be the complacent uh talk a lot but never do anything country but uh blowing up an american military base would seem to me to have a lesson about what the one thing that actually gets america going doesn't it yeah hr let's get your thoughts on george will's theory long-term chinese decline equals added urgency to go after taiwan yeah bill i i agree with him i i think that i think the chinese communist party is driven mainly by fear fear of losing its exclusive grip on power and that's what in large measure also drives this this narrative of national rejuvenation and restoring china to national greatness and the party trying to take credit for that and you know sort of sort of skipping over uh the the great leap forward and the cultural revolution and and blaming us you know in the west for all of their their problems i think that that kind of jingoistic nationalism uh that the party has been fostering for quite some time is going to intensify it already is we see it with wolf where diplomacy we see it with a speech that xi jinping gave in the last year and a half about the korean war what they call the war of american aggression and uh and and casting that war as a preemptive war in which mao zedong delivered one blow to prevent a hundred and i believe this is how he's trying to frame taiwan now i think that the period of maximum danger may be and i'd like to know what what neil and john think about this maybe after the taiwanese election in 2024 the party will probably try to subvert taiwanese will will try to achieve you know annexation by invitation it will fail in doing so and then i think it's very dangerous after 2024 and maybe even before 2026 in that window because after 2026 taiwan integrates a lot of new defensive capabilities and so does the japanese self-defense force for example so i i think that uh xi jinping has made pretty clear that he's preparing china for war for forcible annexation and what we're likely to see when that aggression begins is something that they rehearsed after nancy pelosi's visit you know a blockade of some kind and an effort at a coercive campaign before you would see an a you know a direct invasion of the island right i was just going to add to that if the objective is to eliminate taiwan as a attractive example it doesn't matter if you destroy it in the process it may well happen uh i want to go but this this all seems doom and gloomy and it sounded like an um way out uh you know fighting a war that we can't uh really fight on the other side of the world uh with nuclear weapons seems like a unpleasant way out neil you mentioned de taunt what does da taunt with china over taiwan look like well this is an unfashionable view john at a time of bipartisan hawkishness on china yeah not not for actually spending money on weapons or doing anything about it we're hawkishness in in yelling about it but please sorry for interrupting me in sending congressional delegations yeah high pay uh but when you actually asked the question would we want there to be a war over taiwan only a crazy person would say yes because as numerous experts have pointed out such a war would be a very much larger affair than the war in ukraine right now a the u.s would almost certainly be a combatant and not just supplying taiwan because taiwan on its own couldn't possibly hold out for long and b because it would almost certainly escalate very quickly and potentially to the nuclear level as misha ocelon and jim steve reedus and others have pointed out to say nothing john of the economic consequences disaster it would be an absolute meltdown uh for world markets if this is all asian trade stops instantly i mean a little bit of gas through the north stream pipeline is nothing compared to what happens when there's even a blockade of taiwan yes so please and no microprocessors you know right and then you know your computers start costing you know eight thousand dollars a piece and and you're looking at maybe even a depression i think if you think covert caused supply chain problems yeah you would really be dealing with a complete breakdown in international trade and manufacturing uh so we should really not want this to happen and we shouldn't uh be pursuing policies that raise the probability of such a war particularly when we know that we don't have a great war plan at this point in fact most of the war gaming that goes on goes on behind closed doors but there was recently by one of the washington think tanks a public war game and that made it clear just how incredibly costly such a war would be and this brings me to dayton my argument for a while has been look don't got a bad name back in the 1970s but we shouldn't underestimate what was achieved in the 70s if only to buy time for the united states to recover from the debacle of the vietnam war and i think if you look at what happened under ronald reagan none of that would really have been possible in 1969 or 1970 it took a long time for the united states to be able to ramp up uh the first cold war and force the the soviet union into an arms race that it couldn't possibly sustain those weren't options open to the united states at the beginning of the 1970s so my argument for the taunt today would be let's let's play for some time here time is not on china's side as we already have established the demographic and debt dynamics are against them we need about a decade i think to sort out the issues we've been talking about on this show for what feels like and must be two plus years we have a lot of work to do uh to rebuild the kind of domestic consensus that we seem to have lost to reform immigration to reform social security we've got a lot of work to do to sort america out and i think the smart thing rather than look for a showdown with china over taiwan that would only bolster the regime in beijing is to say you know what we should we should talk rather than engage in our current saber rattling and there's a lot to talk about uh you're a free trader john let's talk about the tariffs how much good are those tariffs really doing anybody else can i i've got to jump in here you're joining me now i mean are sable rattling come on i mean look at what china has done i mean forced to cover 19 on the world added insult to injury with wolf warrior diplomacy how about massive cyber attacks against all of our medical research facilities in the midst of a pandemic how about economic coercion against australia and lithuania how about bludgeoning indian soldiers to death on the himalayan frontier how about weaponization what could have said all are saying i mean one could have said all the same things about the soviet union in the late 1960s the soviets were directly supporting the norwegian as you very well know but that isn't an argument for going all the way to our own version of the cuban missile crisis which i'm afraid is what we're engaged in doing you know i think i think i think that quite the opposite i think weakness is provocative i think that's what we saw in ukraine and i think john's point about hey you know sending congressional delegations yeah great but how about investing in real defense capabilities to restore deterrence by denying well we actually can't can we because we can't even supply stingers and javelins to to taiwan on a large scale because we gave them all to ukraine i'm an american not an american yeah but i think and i think we can do it neil i think we can i don't know but to do it in a reagan-ass way and right introduce some british realism into this discussion the u.s defense budget is forecast to shrink as a share of gdp and to be overtaken by interest payments on the federal debt in 2027 that is five years from now any historian who really is worth his salt knows that great powers that are spending more on interest payments than on defense are probably not in a great position to go to war i don't think the us is in a great position to engage in brinkmanship over taiwan it would i think be a dreadful mistake actually to find ourselves in such a showdown because we might lose and that's the thing that americans don't like to think about but americans actually have a history of losing wars in asia i hate to remind you of this as an american but you america couldn't win in vietnam you had a draw in korea and do you really want to lose a war over taiwan when you are clearly at risk of losing aircraft carrier groups to land-based chinese missiles does supplication seem prudent i don't think so so how about nobody's proposing supplication and that is it is a great confusion to think that dayton is appeasement is supplication this is so i'm not saying that followed a very significant build-up in u.s defense capabilities and a restoration of deterrence especially with conventional forces in europe and so these two things are not disconnected i mean it is not provocative to actually increase our defense capabilities and the problem as you know in terms of in terms of the the federal budget is with non-discretionary spending that's what's squeezing out uh the you know the defense budget which is minuscule compared to non-discretionary discretionary spending and as you point out we are at now at a post world war ii historic low in percentage of gdp that's going to defense so we do have head room to be able to make some information i want to proclaim both of you guys right i love hr because you always see the world as it should be not not as it is oh come on man i've been dealing with realities my whole career i know i know but i love your optimism and and your strong sense of morality um two percent of gdp i mean nobody who's fighting anywhere has any great power ever spent only two percent of gdp on weapons so you're right uh like the 1980s this is the time our our production our weapons production lines are are are very slow we can't make stinger missiles fast enough uh like the 1980s uh hr is right if we're going to be serious about this we need to get the big stick going again so that we can talk if we want to but i like neil's what neil's taunt looks like involves a lot of holding your nose and what it involves i think is is making it clear to china how much they lose if we go through what hr has talked to here's where i think neil's right cutting china off being in a strategic competition our economy versus your economy then they have much less to lose by invading taiwan even though we we disdain so many things that they are doing internally and externally what they taunt means is selling grain to the russians it in 1980 it means maintaining that economic connection making it clear to them that their economy still depends on us ties with us and europe not ties with russia and iran and venezuela and that they have a lot to lose still by invading time when they have nothing to lose economically and they get us in our moment of still weakness i i think that's the danger so i'm glad neil points us finally to a way out along with hr points us to a way out because we rebuild the defense we've done this before right the obama strategy was a engagement with china engage bind and offset engage them right in all these dialogues which went nowhere bind them economically so they recognize that it's in their interest not to be aggressive and then offset with some really nifty defense capabilities that had not been developed yet that was like that was a that was a pipe dream it was a pipe dream but h i'm not recommending a return to the obama administration's foreign policy and you will never hear me do that analogy with dayton takes us back to 1969 to the early 1970s when the united states rather as is true today was deeply divided had lost a war because we lost the war in afghanistan that was a year we walked away from afghanistan a year ago and we're currently just a reminder devoting a really large proportion of our resources our military resources to a war a proxy war in effect in ukraine it's not a great time for us to go head-to-head with xi jinping over taiwan dayton is not the obama strategy daeton was a cynical strategy you think richard nixon had anything in common with barack obama nixon was a cynic he knew that the soviets would cheat he knew that they were insincere but he also knew that the united states needed time to extricate itself from the horrendous mess it had got into in the 1960s in vietnam and that's the analogy that i think is appropriate if you are right and the united states is capable of fixing the non-discretionary parts of its expenditure it's going to take years the defense budget can't be doubled uh or even increased by a few percentage points this year or next year it might be possible in 2025 if you get a republican administration but even then it will be politically very difficult because i don't suspect the next president if it is a republican will have big majorities in congress so we have to be realistic hr american has to be a practical pragmatic approach and i don't think it's realistic at the moment to talk about increases in the defense budget that is not in the real position it's realistic to talk about four percent of gdp invested in defense i mean not happening it's not happening politically that's why do you know what they've just done on this show giving money away to people with student debts that's the priority of the biden administration not arming to defend taiwan well this goes to george marshall's george marshall's observation that when you have the time you don't have the money and when you have the money you've run out of time and so it's it's really it's really important to make these investments now that's why we have this good fellow show so we could talk about it so maybe our listeners can help maybe uh beat the drums about the importance of doing this but i i i do think neil that we are we are making it it sound too defeatist about the pla's capabilities people's liberation arms capabilities we're talking about aircraft carriers and missiles okay that's one thing we have tremendous subsurface capabilities we have tremendous long-range strike capabilities with our air force we have tremendous space capabilities and and cyber capabilities and you know so i would just say that china would take the wrong lesson from this conversation if they think it would be easy to do a cross-strait invasion across 150 miles in stormy seas land in the mud flats in taiwan and in the dense urban areas and try to and try to subjugate an island the size of maryland and then sustain that logistically across that straight i mean i'm telling you not it's not easy it's a lot further for us than it is for them hr yeah we're pretty we are still pretty darn good you know at at uh at projecting power across those distances maybe not on scale we need to at this point but what do we do if this if they say oh there's a hanging chat election going on that we don't like going on in taiwan yeah we're going to save the taiwanese people and they blockade it they leave the blockade in place no i mean what do we do about we're gonna start shooting more of that then that's clearly the likely i think we would respond they're in a multinational format to forcibly uh keep open taiwanese ports i i do you know and i think i and i think if you look at the ports in the west and the south uh we we could yeah we could do that and you also you have you know the second kind of border with uh with japan's southernmost islands in the north and and the japanese sdf is developing some pretty significant capabilities it would not be easy for them to do this i'm telling you guys i mean it you know we we talk as if as the pla you know could you could just impose its will easily on taiwan it would be an extremely difficult operation and and but i think john you're right i mean what's more likely is to try to accomplish objectives through coercion below the threshold that might elicit a concerted response in the united states and others and that's what we have to prepare for as well can i just break a lance for one of my other institutions the harvard belfor center so my old friend graham allison and and jonah glick hunterman published a summation of the military balance uh just the other day let me quote from it uh it's called the great military rivalry china v the u.s if in the near future there is a limited war over taiwan or along china's periphery the us would likely lose or have to choose between losing and stepping up the escalation ladder to a wider war hr have has there been a war game at any point in the last two years where the us has won such a conflict and we ought to be heartened by that right because what you want to do is stretch the limits of your capabilities in these war games to to demonstrate the capability gaps that you have to fill but if you take a look at china's vulnerabilities right do you remember the japanese centripetal offensive in 1941 into 1942 essentially that was a land campaign to take control of the inner island chain and then just make it too damn costly for the united states to penetrate that defense and to threaten japan directly and they thought we didn't have the will to do it well they calculated wrong now think of that inner island chain in the opposite direction what if that were to be turned inward on the on the eurasian land mass china doesn't have any good options you guys i'm telling you i mean i i they don't have any good options so i i just think that you know i think that we have to be we have to understand that that we have ways of responding that are not directly symmetrical we do not necessarily have to impale ourselves uh onto a a chinese flotilla that is blockading the taiwan there are other ways to impose unacceptable costs uh on on the on the chinese communist party and and the people's republic of china graham allison clearly didn't impress you but how about elbridge colby china has the will the way and increasingly a sense of urgency to take us on over stakes that are genuinely decisive for us let's not run the experiment nobody could uh could say that bridge colby is a wimp on taiwan but he's worried and i share his concern don't you yeah we should be concerned but that doesn't mean we should just you know wring our hands and you know and say well you know china's you know uh the people's liberation army is 10 feet tall i mean i hey they haven't been into scrap lately i don't i don't think neil you know and and i think that there are you know some real difficulties associated with a military with a culture that is deferential and hierarchical and and where leadership is is evaluated based mainly on on the fealty to the party rather than a meritocracy uh it is not a culture that encourages initiative and risk-taking uh and and war is inherently uncertain and requires uh junior junior commanders to take initiative under uncertain conditions i mean there are all sorts of i think if you look at the qualitative aspects you don't want to be complacent at all i'm glad i'm glad that we have all these problems in our war games because that's what helps make us better but think about russia's calculation you know in ukraine both the russian army and the chinese army look really good on parade you know i mean they look really good on parade how well did the russian army how good did the russian army look in the invasion on february 24th not that good so i don't know what lessons china is learning from ukraine but hopefully one of the lessons we're learning is hey this stuff isn't that easy you know maybe we're not as good as we look on parade you know on the 75th anniversary of the of the party okay let's cut it off there we'll revisit i'm sure very soon we have about five minutes left in the show gents i'd like to ask you each a question this is the last episode we're doing in the summer the next time we'll get together the calendar will flip to the fall question for the three of you you all are family men you all are academics you all are writing on books soon to come out you all are outdoorsmen enjoying the summer months i'd like to know from each one of you one important thing you learned this summer hr why don't you start well i learned that the fillers could make a hell of a comeback and hopefully they can sustain it uh but but you know i i also you know i also um you know learned that you know that that paddle boarding is really my avocation i do i do like it i do like it and uh enjoyed quite a bit of it this summer okay john cochran what did you learn this summer well i i like hr i've been trying to paddleboard too it's a lot of fun uh this summer reminds us of of how restoring it is to be out in nature for a little while okay neil i'll give you the last word thomas hardy was one of the greatest novelists of all time and i've been rediscovering his writing i read for the first time the return of the native uh and then uh i've just been uh i've just been imbibing hardy whose ability to capture the natural world uh is is unrivalled and one of the highlights of my summer was reading hardy on bo on board a sailboat not too far from his his beloved wessex well put well gentlemen that's a wrap for this episode thank you uh as for always a very spirited conversation we'll be back soon with a new episode of good fellows if you're wondering when very easy way to find out subscribe to our show and you'll get the alert when we're coming up you can also go to hoover's website hoover.org and sign up for a daily report anytime neil hr and john wright are in the news you will find out so on behalf of the good fellows neil ferguson h.r mcmaster john cochran obviously here at the hoover institution thanks for watching hope you enjoyed the show and we will see you soon take care [Music] if you enjoyed this show and are interested in watching more content featuring h.r mcmaster watch battlegrounds also available at hoover.org

Channel: Hoover Institution

Views: 353,781

Keywords: China, America, Aspen Economic Strategy Group, demographics, aging population, one-child policy, Xi Jinping, investment, real estate, Taiwan, invasion, Cold War Two, détente, military buildup, debt

Id: DdEUviYBbRg

Length: 53min 42sec (3222 seconds)

Published: Thu Aug 25 2022