Morning Wire - Yellen in China: Decoding the Complexities of Decoupling | Saturday Extra

Episode Date: July 8, 2023

Treasury Secretary Janet Yellen is in China for four days of meetings on issues including trade, human rights, and threats toward Taiwan. We discuss the secretary’s trip, the global power struggle, and how the U.S. would respond to Chinese military aggression. Get the facts first on Morning Wire.   Genucel: Extra 10% Off Most Popular Package featuring the Dark Spot Corrector – New Customers Only  + FREE SHIPPING https://genucel.com/WIRE   Learn more about your ad choices. Visit podcastchoices.com/adchoices

Treasury Secretary Janet Yellen touched down in China on Thursday for four days of meetings as tensions with the communist country remain high over issues including trade, human rights, and threats toward Taiwan. In this episode, we discussed the Secretary's trip, the global power struggle between the U.S. and China and how the U.S. would respond to Chinese military aggression. I'm Daily Wire, editor-in-chief John Vickley with Georgia Howe.

It's Saturday, July 8th, and this is an extra edition of Morning Wire. Joining us now is David Goldman, a Claremont fellow and deputy editor of Asia Times. So David, Treasury Secretary Janet Yellen touched down in China this week. She's wrapping up her four-day visit now. What is the goal of her visit? That's stopped clear. Yellen is a China dog. She has expressed doubts about the efficacy of tariffs,

and the fact that she is the next senior official to visit China after Anthony Blinken suggests that the Biden administration, wants to reduce tensions. However, if you read both the Chinese public press and websites close to the state council, nobody seems to know she's coming. She's not mentioned at all, which I would say indicates extremely low expectations on the Chinese side for her visit. Their main issue right now is with the Commerce Department. As you know, last October, the United States imposed very broad restrictions on the export of chips and chipmaking technology to China and has persuaded its allies, particularly Japan and the Netherlands, who are major producers of chipmaking equipment,

to impose severe restrictions as well. The Chinese are, as you might expect, furious about this. And of course, they responded a few days ago by announcing that they would place export controls on materials that are key for certain kind of chips and other uses, namely the gallium and Germanian. So the Chinese have an effect said, you want to play rough. We can play rough too. They're channeling Sean Connery in the untouchables. Right. So how important are these minerals? And do you expect the Chinese to actually restrict their export to the U.S.? I have no idea what the Chinese are going to do. Obviously, the Chinese are making a threat. They've required export licenses. We won't know until August 1st when the restrictions come into effect, whether they're granting the life.

licenses or not, but for certain kinds of specialty ships, they're quite important. It is possible to source these minerals elsewhere, but it would be a significant bother, though not a devastating blow to the American semiconductor industry. The U.S. is making moves to become less reliant on China by producing more needed items domestically. China sees this as a threat. How significant are moves toward decoupling from China? Is decoupling actually realistic? The World Bank has a study showing that as we import relatively more from so-called friend-suring countries like Mexico, Vietnam, and India, those countries are importing a great deal more of intermediate goods and capital goods from China. So the supply chain is still very much dominated by China.

It's simply that the final stage of assembly is going through third countries. So in terms of what we've seen in the broad trade flows, I would say French shoring and de-risking or whatever you want to control, decoupleate, has not happened at all. The obvious exception is that by building chip fabrication plants in the United States, we are guaranteeing a supply of chips for essentially uses in the event that our Asian supply is interrupted. That's certainly a useful thing to do, though that's still mainly the construction phase. We haven't seen that work up in the trade flows. It's much harder. to replace Chinese supply chains than simply to shift your purchase to India because the Asians will

simply rearrange the shells and China will still be the major exporter. You've mentioned Janet Yellen is a China dove. She's not in favor of decoupling and says it would be an economic disaster. Do you think she's got the right perspective going into these meetings? She's got arithmetic on her side. This year for the first time, America imported more capital goods, the goods that make goods, then we produce for domestic use. So the majority of the goods we use to make goods come from overseas, and China is one of our largest suppliers, probably our largest supplier directly and indirectly. So if we want to invest more to make more goods, which I think we should reduce our trade deficit, we would first have to get the capital goods, and to do that, we'd have

to import more, including import more from China. So decoupling at a purely arithmetic basis as a short-term measurement, as a short-term two-to-three horizon, is arithmetically impossible. We've let our capital goods industry atrophy too much. Now, that doesn't mean that we should not do things to establish her independence in critical industries. I'm very worried, for example, about our dependence on pharmaceutical feedstocks and many other things. On the other hand, do I think it's an urgent issue to stop importing ordinary circuit boards from China? No, why? It's a commodity item. So I think we have to be very selective about what our natural security priorities are when we talk about the coupling as opposed to proposing a grand break with China, which is unfortunately impossible

of this point. So let's turn to Taiwan. There are always tensions between the island in mainland China, and just this week, a Chinese fighter jet crossed the median of the Taiwan strait. A recent article in the Wall Street Journal said Taiwan has two choices, become Ukraine or Hong Kong. What are your thoughts on that? The Chinese have made clear that in the event that Taiwan moves to sovereignty, that it tries to become an independent nation, that will mean war. In the absence of an actual move towards independence, I do not believe the Chinese. Chinese will go to war. China has never fought for what it could get without going to war. But it is a dangerous situation. There was a speech a few days ago by a prominent academic at

Fudan University in Shanghai named Jean Weiwei, one of the main America watchers in China, who said the United States is in effect cleaning their guns in front of us and hoping they won't go off. So they want to create a coordinated or consultation mechanism. to avoid problems if a gun goes off, and we're telling them that they should stop cleaning their guns in front of us. So stop sending destroyers through the Taiwan Strait. Stop sending reconnaissance planes. We'll continue to harass you and beat you on until you figure out that what you're doing is dangerous. So that's the Chinese out. They're going to play very rough with us, and they're going to go to the brink in terms of cutting off boats and harassing

reconnaissance planes and buzzing the Taiwanese. But that doesn't mean that. that they have immediate plans to go to war. They obviously would lose a great deal in a war. It's risky, and they'd much rather get what they want by threats. To that point, would Taiwan be prepared for an invasion? And do you believe the U.S. would defend them if there were an invasion? Well, if there is an invasion, there's a difficult question, people have the idea of Normandy World War II's landing craft,

steaming 790 miles across the Taiwan straight. From a military standpoint, I very much doubt the Chinese would do that. Half of them would get sunk, at least. But they certainly have the capacity to block heed the island. They've got thousands of surface-to-ship missiles. They have 800 modern aircraft, a lot of submarines, and so forth. They could cut Taiwan off in the rest of the world. Taiwan only has a week to 10 days' supply of energy,

and its economy, but was shut down in a very short period of time. Would the United States go to war over Taiwan? The question is, what you want us to do? Will we send Marines? No, because the Marines would ever get there in a war that have to go by ship, and the Chinese would sink those ships. Would we block aid China, cut off their access to energy, do other things to hurt them, that constitute war measures?

Absolutely. But if the Chinese blockade Taiwan and don't simply send landing craft, working out what the war would look like is kind of difficult. I don't believe ground forces are likely to be involved because I don't see how we get the ground forces in place to fight in the first place. Final question. How do you see the future of U.S.-China relations? Well, there are three ways this thing can go. One is we invest what we need to in our industry and we lead Kronchan. The second is China continues developing automation based in artificial intelligence, 5D broadband, and so forth,

and becomes the dominant industrial power in the world, and we end up adopting Chinese technology because it's cheaper and we find it useful. And the third is we really become deindustrial. So I want option one. But option one is an expensive one, and I've got no idea how this thing is going to break. I only know what I think we should do. Well, in the meantime, we'll see if Yellen's visit results in anything tangible. David, thanks so much for joining us.

That was David Goldman, and this has been an extra edition of Morning Wire.