Odd Lots - How the White House Thinks About Economic Security

Episode Date: August 15, 2024

The past few years have thrown up a number of potential weaknesses in the American economy. There've been disruptions to supply chains stemming from the global pandemic. There are concerns about the availability of strategically important items like semiconductors and vaccines. Meanwhile, Russia's invasion of Ukraine roiled global commodity markets and the ongoing conflict in the Middle East has created even more complications for shipping. So how is the US thinking about economic security and what have we learned? In this episode, we speak with Daleep Singh, Deputy National Security Advisor for International Economics and Deputy Director of the National Economic Council in the Biden Administration. We talk about how the government identifies areas of potential shortages and chokepoints, and what it does to try to get ahead of them.Mentioned in this Episode:Introducing the Chokepoint Economy, When Shortages Start to Matter Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at  bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Thanks for listening to OddLots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast OddLots on Amazon Music. Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the OddLots podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, we are recording this in August 24, which means there's only six years to go. Six years to what? Six years until, according to John Maynard Keynes, we will have an era of abundance, right? He wrote in 1930 that he thought technological development would mean in 100 years, which would be 2030, that we would have a plethora of goods and elevated living standards and reduced working times and everything would be great. So I'm excited. Yeah, I think I can hang on with the sort of trudge and toil scarcity mindset for another six years, and then we'll reach Nirvana here on Earth.

I mean, to be fair, he did sort of caveat it. Can I say I have no idea where you're going with this. Yeah, okay. I promise I have a point, and you're actually going to remember it in a second. But first, I'm going to say that Keynes did caveat his forecast, and he basically said, as long as there are no big wars or population booms. And that was in 1930s. So, you know, bad timing for both wars and population boots.

So, yeah, a few things happen. Maybe we've got to kick it back another 50 years. Okay. But my point is, you know, in 2024, it feels like instead of abundance, there is very much, and you touched on it just then, this focus on scarcity. So maybe we have like, yes. Well done here, Tracy. Thank you.

So maybe we have a lot of different types of goods that are available to us now. you know, I can go buy a pretty cool TV for not that much money, but in the past four years or so, we have seen shortages of very important items that have emerged. Yeah, and I would classify this into sort of two categories in my head, which is that there was sort of the acute scarcity of specific things that we saw during the COVID shock. And so, you know, there were things like, oh, suddenly we have a scarcely. of protective equipment for doctors or a certain type of lagging edge chip that went into automobiles. Certain things like that that really became scarce in that moment.

But then I would say that maybe awakened a consciousness that we have these long-term scarcities that are strategic in nature. So suddenly people worried about it. Well, do we have the minerals that we need in order to build out a domestic electric vehicle supply chain. Do we have the industrial capacity to build out things like semiconductors, concerns about the medical supply chain? And these are like long-term strategic questions that aren't just related to sort of that exogenous shock that we got in March 2020. Absolutely. And you just mentioned industrial capacity there. It does feel like governments around the world and certainly the U.S.

have become more active in how they manage some of these concerns. And I don't know if you remember, but back in 2020, I think I frame this as like the choke point economy where people become more concerned about the relative flow of goods and the idea of choke points in specific supply chains that sort of cascade through the rest of the economy. That was before we all started talking about the resurgence of industrial policy. But like this is kind of what we're talking about. And then I think the other really important dimension here, and it fits right into what you're saying, is that we're saying. seeing when it comes to things like industrial policy or re-industrialization or this effort to build up semiconductor capacity. Part of it is sort of like pure economics, but is where you get this real intersection of economics and international security, geopolitical anxiety, because a lot

of this stuff is like building up capacity domestically in areas in which possible strategic rivals are a dependence of ours. Right. And then, of course, how do you balance, you know, strategic independence with the risk of autarky, right? That's right. So I'm very pleased to say that we're, we're getting back to our circa 2020 routes. We're going to be talking about supply chains and a lot of other interesting things, but we really do have the perfect guest. We are going to be speaking with Dilip Singh. He is, of course, the deputy national security advisor for international economics. In the Biden administration, he's also the deputy director of the National Economic Council. He previously worked at Treasury and the New York Fed and Goldman and P. Jim. So truly the perfect

odd-lots guest. DeLeep, thanks so much for coming on the show. Nice to be with you, Tracy and Joe. I think you are also the first all-bots guests that might be coming to us from a like secured confidential room in the White House. So that's why the audio sounds a little bit different. Glad to be a pioneer. Yeah, you can you can rest assured. The line is secure. Okay, so I mentioned your career summary, and it is very long. I just want to make sure, did I hit all the important talking points? What have you been doing up until this particular moment? Yeah, I mean, it's kind of a nonlinear career path. Some might say an incoherent one, but yes, I've spent roughly half of my career in the private sector, first in the tech boom during the 90s, then in financial markets at Goldman as the world hyperglobalized during the 2000s. And then after the financial crisis of 08, I've mostly been in government service at the Treasury Fed and now at the White House, excluding a year and a half at PGM as the global chief economist and a similar type of role during. the early Trump years. But really, the way I make sense of it is I've just, my careers lived at the intersection of economics, geopolitics, and markets. It's essentially what I studied as an undergrad,

also in grad school. I actually thought coming out of grad school, I might start a company in a developing country that could do well and maybe do some good. But my timing was pretty terrible. I was coming out of grad school in 2003 just after the dot-com bubble had burst. And the moment wasn't exactly right for someone like me to get funded. And I also had hundreds of hundreds of thousands of dollars in debt. So I grambled and took the only offer that was made to me, which was at Goldman Sachs. But, you know, it gave me a particular lens through which to view the world. And over time, I realized that sometimes you can see the world most clearly through the lens of markets, but I wanted to have, I mean, I recognize that sometimes that lens can get distorted. And at other times,

it's better to look at the world through the lens of geopolitics or economics or technology. And my aspiration was to acquire as many lenses as possible. You know, if you want to make a push on the world towards what it should be, you first have to see it for what it is. Joe, this is how I ended up at Bloomberg for my first job. They were the only news organization in London that was actually paying their interns. And so there you go. I realized I needed money to survive.

No, but the way you describe your career. If you want to change the world, you first have to understand it, I think is like a, like Tracy said, the perfect odd lots guess, especially given your private sector roles, public sector roles, economics, politics and markets, economics, economics, and markets, all the things that were interested. What is a deputy national security advisor for international economics do? What is that role? Yeah, so basically it's to take on challenges that are at the intersection of economics and national security, whether they're domestic or international. And the premise is that economic security is national security and vice versa. So if we're going to have strength at home, then we need to heal our divisions and revitalize our economy. That's what allows us to lead abroad. And if we can lead abroad from a position of strength, we'll create a safer, more prosperous world that reinforces all of our efforts at home.

So, I mean, to bring it to life, let me just give you an example of a few examples of what I do in no particular order. How can we launch a positive democratic alternative to the Belt Road Initiative? Can we design sanctions that change the calculus of Putin on prosecuting his war in Ukraine? Can we unlock the value of the Russian central bank reserves that we froze for the benefit of Ukraine as it fights for freedom? Can we design export controls in a way that don't dull the incentive for innovation? You were talking about this in your opening without ceding our crown technological jewels to a strategic adversary. Can we help to break the debt impasse in the developing world to showcase our value proposition to countries that might be skeptical about our intentions? And then the passion project for me really is can we reimagine, invent, or revitalize the tools and institutions of American financial funds?

power because, I mean, my view is we're living in the most intense period of geopolitical competition, at least since the Cold War ended, maybe going much further back. And since the great powers of today are also nuclear powers, you know, barring catastrophic miscalculation, the logic of mutually assured destruction probably suggests that when confrontation occurs, it's less likely to play out on the military battlefield than it will in the theater of economics and technology. So we'd better go into this competition well-armed. And we need to actually think really hard about how to do that. Tracy, we might get to this later, but one area that it might play out is in the Arctic Circle. Oh, yes. Well, we should definitely talk about that. I'm trying to

think of an elegant seg from mutually assured destruction back to supply chains. But I'll just do it. Okay. So in 2020, during the pandemic, we kind of woke up to the risk of supply chain. disruptions. And we saw a variety of things, both big and small in terms of importance. So everything from, I guess, Gatorade to the needles needed for vaccines and things like that, suddenly there was a shortage. How do you, in your position, even begin to identify potential risks in the supply chain? And how do you go about evaluating their relative strategic importance? Yeah, so I mean, this term, this phrase that gets thrown around supply chain resilience, I really think our task is to go beyond the abstractions and try to get into what it means in practice.

And the context really matters because the effort to revitalize our supply chain resilience, it's happening in the context of a multiplayer, multi-stage geopolitical competition that's playing out across the world. So let me try to explain what I mean. So when people use this term supply chain resilience, the first question that we ask is resilience against what kind of shocks? Because they could be economic shocks, they could be geopolitical, climate, health, all of the above. And each of these shocks, if they occur individually or collectively, they impose different kinds of stress on supply chains.

So first, resilience against what? And then the second question is, how do you define resilience? It comes in many different forms. It could be production capacity. It could be diversification of suppliers and buyers. You know, it could be having sufficient stockpiles that could plausibly absorb an exogenous shock. Or it could be supply chain agreements with trusted partners that can surge capacity when the good or technology is scarce at home.

And so, you know, what we have to evaluate now is should we think of these forms of resilience as economically equivalent or politically equivalent? And then is it really resilience that we're after? You know, maybe resilience is appropriate for certain supply chains like you mentioned masks. And that category of good, you could argue we have no comparative advantage and margins are quite low. And so maybe resilience is the right word. But maybe resilience isn't really enough for a supply chain in which we have a clear national security nexus like leading ed semiconductors where the barriers to entry are very high, the economies of scale are very large, and you really want dominance. So I think there's a continuum between resilience and dominance, and you have to decide where do you want to be on that continuum.

And then the fourth step is once we define what we mean by resilience and we clarify with ourselves and our partners is that really resilience we're after in the supply chain, what are the tools that we have and that we can deploy? Some of them are regulatory. They could be procurement, could be multilateral agreements, could be stockpiles. You know, it could be changes to our immigration policy. And then the last question, this is the hardest one. And this is where we really have to build our analytical muscles within the U.S. government is can we stress test and simulate if we use our tools in the way that's optimal for the United States and we make assumptions about what our adversaries do? And then also non-aligned countries and allies and partners, if we make assumptions about how that plays out over the course of five or ten years, are we net better off in equilibrium? That's the framework that I think we're trying to apply in every supply chain. And every supply chain has a different story. I mean, there's some kind of, Tolstoy logic behind it. And so pick a supply chain and we can get into the details. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a

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So you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts we're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. I'm really looking forward to getting into details and specific mechanisms and tools you have. I just want to, you know, when you think about these like long-term, we don't make five-year plans in the U.S. in part because we don't know who's going to be in power in a year from now, and there's always changing. How do you think about at the abstract level or the big picture level,

how do you think about the challenge of long-term planning for some of these areas in a political system that is inherently by design very volatile? It's very hard. About four decades have past since we really practiced industrial policy in the United States. And some of those muscles that we used to have, they've atrophied. And so that's what I was referencing when I said, we really do need to build an analytical infrastructure that's fit for purpose. Now, it may be that the political judgments that are made, even with the best analysis, are going to take us in a very different place than the analysis would suggest we should. But we first have to do our homework. If we have tools that can boost our supply chain resilience, really you can apply

the use of tools to any kind of geopolitical objective, not just supply chain resilience. Can we take inventory of all of those tools? When have they worked well when they're used alone or in tandem, when they're used unilaterally versus multilaterally with allies and partners? What are the limitations of using those tools? What are the tradeoffs? What are the spillovers? And then I don't think we have good models yet for thinking about how we're left in a, if you want to think about it in a general equilibrium sense. If we deploy the tools that we have and they play out in the manner that we expect, how do we think about whether we're not better off when we consider how our adversaries might respond or allies or partners or non-aligned countries? Those models don't

exist. I mean, I don't think you can use the Fed's large-scale general equilibrium models to find an answer. We have to invent those. So that's just the analysis part. And I think we have to build a, my mind, a multidisciplinary SWAT team of sorts with different kinds of expertise in a variety of disciplines. I mean, microeconomics, macro, financial forensics, trade finance, diplomacy, international law, domestic law. And that's going to take time to build. Ultimately, though, I mean, you're asking the question of what happens if you have an abrupt political shift, and we no longer stick to the plan that might have been imagined by a previous administration. That is a feature of democracy.

You can look at it as a bug because we can't make long-term plans in the way that an autocracy can, but it also prevents us for making big mistakes you could argue. We have these checks and balances, and we have to convince. I mean, a lot of the work that I think I do, our team performs, it should have bipartisan. appeal. We think all the time about how do we sustain our technological preeminence. How do we ensure that we have energy security? How can we shore up our resilience and critical supply chains? I don't think of those as being inherently partisan issues. Of course, they become part of the theater. But in their essence, we're just trying to think about what are the long-term strategic

objectives of this country putting aside the politics of the day. Okay, so in the spirit of moving away from abstraction about, you know, catchphrases like supply chain resilience and things like that, can you maybe give us a specific example of what you've done to shore up a specific thing or even service? Walk us through the process of identifying it as something that is worth the government's time and effort to coming up with particular. solutions and evaluating those different solutions versus the problem? Yeah, sure. I mean, I'll give you a recent example from, actually from last month, it's the polar icebreaker deal. So on the sidelines of the NATO summit, the deal was President Biden and his counterparts in Finland and Canada, they announced a deal called the Ice Pack, the icebreaker collaboration effort. And here's the backdrop. I mean, the North Pole is warming rapidly. It's warming four times faster than the rest of the world. That means the Arctic ice is

melting, and the melting accelerates the warming because the sea absorbs the heat from sunlight, whereas ice reflects it. And less ice means more Arctic shipping lanes that have shorter transits that bypass choke points in the Suez or Panama Canal. And less ice also means more commercial opportunity if you want to extract critical minerals or less. undersea data cables in the Arctic. And that it also creates, and this is where my role at the intersection of economics and national security comes in, it creates geopolitical space to project military power. And Russia and China both have high ambitions in the Arctic with a larger surface fleet that will be able to navigate the Arctic in ways that it couldn't

when there was more ice. But for any of those opportunities to be realized, you need ice breakers. We only have two of them. Both of those icebreakers were built in the 1970s. They're both past their service life. And it's taking a long time and a lot of money to replace these icebreakers and build a full U.S. fleet to take advantage of the opportunities I mentioned. So that means we have to rebuild our productive capacity in building this highly specialized, highly complex niche of ships called polar icebreakers. And if you want to do that, you first have to have know-how and expertise. piece. You probably need to have economies of scale to make it financially viable. And then you need

a steady demand signal to justify the upfront costs and CAPEX and also investments in the workforce. Well, this is where your allies matter. Friends matter. So enter Finland. It's a newly minted NATO ally, right? It joined after Russia invaded Ukraine. It's widely recognized as the world's best designer and leading producer of polar icebreakers. You may have heard at some point about the Helsinki shipyard. It's actually produced more than half of the world's total fleet. Canada is also a leading player, and actually one of its firms bought the Helsinki shipyard after its previous owners, a couple of Russian oligarchs were caught up in sanctions after Putin invaded Ukraine. So this gets really interesting. And the deal we announced at NATO is for Finland and Canada

to share their expertise with us and make investments in U.S. shipyards to grow our collective production capacity to build ice breakers. And what do they get? Well, in exchange, we agree to integrate our ice breaking supply chains so that they are interoperable at every stage of production. And then ultimately, our vision collectively, all three countries, it's to create a suppliers club that can capture a greater share of the global order book. And it's a big global order book. There's a long list of allies and partners that understand what's happening in the Arctic. And they want to build icebreakers for the same reasons that we do, but they don't have a shipyard. And our best estimate is that the total global demand for icebreakers over the next decade from allies and partners

is between 70 and 90 vessels. That's a lot. And so if we can pull this off, we get three benefits at once. We revitalize our capacity to innovate and produce at scale in a key industrial segment, number one. Number two, we safeguard our national security and project power in a key geostrategic region, number two. And then number three, it's not zero-thum. You know, we strengthen our allies and partnerships as we execute this deal. That's not a bad trifecta. What happened to U.S. shipbuilding capacity in general that it's become so constrained or atrophied? And when you talk about this agreement with Canada and Finland, what kind of nethered?

numbers and concrete mechanisms are there other than just obviously the handshake or, you know, the agreement to do something? Our shipbuilding industry is atrophied over the course of decades. We began to outsource, just like in many other industries in which there's a large upfront CAPX investment required and low margins. We outsource that type of business overseas. So China became the dominant player in large part because of the degree of subsidies that they deploy to their shipbuilding industry. And Japan and Korea were left as the only other major global players. And that created a major economic and geopolitical vulnerability that has been exposed in recent years.

Now, we could decide should we compete writ large in shipbuilding? I think we should, but we have to start somewhere. And so what we're doing is picking a niche that plays to our competitive strengths, because, as I mentioned, this is a highly specialized niche, the one that I'm describing with polar icebreakers, requires a lot of technology. Finland and Canada are best in class. And if they're willing to partner with us and share with us in rebuilding our productive capacity, that's why this deal makes sense. In terms of the numbers, we're actually working on an MOU. I can't give you the exact numbers.

But, I mean, I would go back to the Global Order Book that I mentioned. There are 70 and 90 ice breakers. that the likes of India and Brazil and Argentina and Chile and Sweden, many countries won icebreakers. We want to be their supplier of choice. All three of our countries do. And so instead of building two icebreakers in the past 50 years, we want to capture, you know, let's say 10, 20, 30 icebreakers of demand over the next decade. And you can only have the kind of investments and workforce development that I'm describing if you have that sort of demand signal. Grasso inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal

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podcast. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts. So you mentioned strengthening cooperation with our allies through some of these initiatives. And, you know, I take the point when it comes to things like icebreakers, but certainly in some areas where we've identified strategic importance or a particular industry that we do

want to build up, I'm thinking specifically about domestic electric vehicle manufacturing. there is sometimes a tension between building up our own domestic capacity and our own independent supply versus the interests of some of our allies, and specifically Europe in that case. Can you talk a little bit about how you balance those competing interests? Yeah, I mean, so I'm glad, I mean, EVs, that's a great example, because you could generalize the challenge we're facing in EVs to the entire tradable good sector. And I mean, the problem confronting the world, not just the U.S., is that China's production trajectory, it's set to flood the world well beyond what global demand can plausibly absorb.

And it's not a new problem. We've seen China run this play for the better part of the last two decades. It's how China has gained dominance and steel and solar and wind and medical devices, machine tools. But now the trend is broadening. It's intensifying. It's moving up the value chain. So EVs are a good example of how they're doing so, but semi-conduble. or batteries would be other good examples. And the starting point is one of the worrisome aspects

because China already accounts for 30% of the world's manufacturing sector in value-added terms, and that's more than the U.S. and Germany, Japan, India, and Mexico combined. And look, if China's dominance, if it's growing dominance of these sectors was merely the result of indigenous innovation and market forces, you know, we should applaud. We should applaud the positive spillovers that would accrue to the rest of the world. But the reality is that China is competing with massive state support. It's beyond anything we've seen in any other industrialized economy. And you can see it. I mean, we could talk through the metrics. There are volume-based metrics, nominal metrics, financial results from its exporters. You could measure the scale of policy

support directly. You could look at market structure and how much it's concentrated. You arrive at the same conclusion. And so your question is the right one. How do we confront that? challenge without alienating allies. And we've tried to articulate three levers that we deploy and which lever you deploy and to what extent, it's more empirical than ideological. But the first lever is, yes, we are going to make investments at home to strengthen and scale up our productive capacity. I mean, much in the way that I described for the icebreaker deal. And that's an R&D and infrastructure and technology and manufacturing. It's also the size and skills of the labor force that's required to build out the capacity that we're trying to generate. But the second is

partnerships. So partnerships with countries that are playing by the same rules to give each other access to our productive capacity and our purchasing power. And then the third part of it is, and it's regrettable, but it's the use of restrictive tools like tariffs with on trading partners that are not playing by the same rules. And that really is to prevent our investments from getting undercut. And I really do wish we didn't have to use tariffs, but the reality is that we're not competing by the same rules. And the harm from standing aside and doing nothing is not acceptable to our economic strategy or our national security or to our political economy. Now, I mean, the challenge in terms of keeping our allies and partners with us, it's how exactly do you calibrate the use

of all three of these levers? And the optimal scale and scope of tariffs, it really depends on the pace at which we and our allies are deploying productive capacity and the extent to which our investments are getting multiplied by the private sector and how China responds with affirmative measures or restrictive measures of its own. So this gets back to the point I was making earlier. I mean, we want to partner with our allies in terms of this analysis of multi-stage, multiplayer game theory. You know, we have choices to make, so does China, so to our allies, and so do non-aligned countries. So we want to. We actually want to roll up our sleeves with allies, think several steps ahead,

anticipate their response from other players, and then make ex-anteed judgments about whether our interventions, whether they're affirmative inducements in our productive capacity or whether they're tariffs to remedy harm. Are they going to make us net better off in equilibrium for decades to come collectively? And that's the kind of conversation they welcome. And, you know, I know we've had endless inks spilled about whether allies are alienated by our actions. But I have to say the technocratic dialogue that's taking place. And really it's, I mean, I was at the G7 earlier this summer as well, the dialogue at the highest levels of government, it has become, I would say, it's remarkably constructive. You know, I was away for a year and a half.

I came back and the tone has really changed. You know, another area that we've seen this administration really fuse the idea of economic strength and geopolitical security is in the novel use of the strategic petroleum. Reserve, which by its name, you know, and people thought of it as like, oh, it's just a mechanism in case where suddenly the U.S. is like shut off from being able to import oil, which is no longer a big deal anymore because we're such a big oil producer. And now it has this sort of economic balancing effect. In fact, you wrote a piece that got published in the F.T. in February with previous odd lots guests, Arnaboddata about this.

But then there's talk about, well, can SPR-like mechanisms be used for other strategic commodities such as the various minerals that are necessary for, say, EV batteries, etc. Where are we on this? Is this still just in the sort of tweets and blogs and white papers world? Or is there a trajectory for more SPR-like infrastructure to stabilize a market-induced demand for these other critical commodities? Well, I mean, I'm no longer living the world of tweets and blogs. Yeah, that must be nice. No, it's, it can be.

But there is real work taking place. I mean, for the reasons that I wrote about was Arnab. When we created the SPR, we were a major net importer of petroleum, and we were going through the oil shocks of the 1970s, and it made sense, of course, to have a very large stockpile as a buffer against shocks. Now, everyone knows we're a net exporter, but we have quite a bit of vulnerability on many of the inputs that are needed, to make a clean energy transition and also for many of the refined products that come from

petroleum that sometimes becomes scarce, particularly during the winter months. So can we broaden the concept of the strategic petroleum reserve to think about resilience more generally? And if you want to think about critical minerals, the reality is if you look at each of the markets, and they're really embryonic markets, for many of the critical minerals that are needed, like lithium or nickel or manganese, graphite, etc., we, We are facing serious shortfalls and under investments in new supply. And much of the investment problem relates to price spikes and just outright volatility in these markets. And I don't think the market is going to solve this problem by itself.

And because the risks for producers, they're asymmetric to the downside. If they under supply a critical mineral, okay, they may lose a little bit of profit. If they oversupply, they are potentially facing insolvency. And they always, of course, there's a sort of Damocles hanging over all of these markets, which is China flooding the market. So there's an opportunity for the public sector to step in. And we really with some novel financial tools, can we think about an authority that gives us a demand backstop, the ability to create a demand backstop with price floors or guarantees

or insurance mechanisms or a buyer of last resort function? could we have the ability to intervene in markets to buy when the spot market is depressed and then sell the equivalent amount in futures markets? Or create a synthetic reserve by selling put options without actually having to physically stockpile the mineral. If it's feasible, if the good allows for it, can we stockpile? Can we provide non-recourse bridge financing to an illiquid but solvent producer? Can we create a marketplace for high standard critical minerals, the kind of minerals

that have high standards for labor and environmental impact or just transparency. These are all the kind of authorities that when I talked about reinventing or reimagining our tools, these are examples of the kind of tools I think we're going to need as we undergo this transition over the next few decades. So I know you were talking about minerals just then, but I have sometimes joked on this podcast that I'm going to campaign for a strategic pork reserve. So I feel it's incumbent upon me to ask, how does, food security fit into your thinking? And also, is there potentially an overlap between the Biden

administration's stated goal of bringing down prices and inflation and also building up independent supply and resiliency and things like that? Yeah, I mean, look, no one should laugh. Food security is national security. There's no question we have to take it seriously. And sometimes markets for food fail. I think there is something to what you're asking. I mean, there's another idea. that is worth thinking about more, which is, you know, should we create a pool of patient capital that could be invested with flexibility and at scale to advance strategic objectives that the private sector left to itself may not prioritize, especially during moments of exigency? And food security could be one of those objectives. So, for example, and you can call this what you want,

but if you had a pool of flexible capital, perhaps we could, give discretion for the U.S. government with all the appropriate guardrails to make investments at home or abroad to advance strategic objectives that Congress or some other form of democratically legitimate deliberation decides are worth advancing. It could be energy security, could be food security, could be addressing supply chain vulnerabilities, it could be sustaining technological preeminence. That could be one purpose of it. A second would be, and this maybe gets to the more likely use case for food security, could this pool of capital help us respond to or deter a disruptive shock, particularly a disruptive shock from economic coercion? And this happens all over the world.

It's happening right now, to some extent, in the Philippines. And then three, could this pool of capital just help address what I think goes back to one of your questions from before Joe, a strategic U.S. disadvantage compared to some of our adversaries who can make very long-term strategic investments over the course of decades. We don't have anything like that, but they have sovereign wealth funds. Many of them do. It helps them gain a first mover advantage or just a competitive edge in many critical supply chains or foundational technologies. And it can confer a lot of soft power. So should we have something comparable to that? That's another, you know, if you ask me, what's in the R&D lab, this is something we're thinking about. One of the things we've talked a little

bit about strategic planning in the area of relationships with our friends and allies. But one of the things that people talk about is that some of our actions to impair our adversaries or constrain our adversaries can backfire or not be as powerful as we thought. And there's a lot of been a lot of articles about how the Russian economy, for example, is doing much better than people would have expected in spring 2022 after the sanctions were first hit. Maybe it's not booming. But it does not seem like it's totally crippled. And then in the context of China, for example, you talk about tariffs. We've had technology export controls, things like that, constraints on what Nvidia can send to them and so forth.

You hear, well, this is just going to prove to be an accelerant for their own domestic initiatives and that it's going to cause their, they're going to do even more and they're going to do better, instead of than they otherwise would have been because they're going to have to double down on homegrown technology. Taking that latter one, do you buy that premise? Do you think that China is making progress faster than it otherwise would have because of certain constraints that have been imposed by this administration in the last one? I mean, Joe, we could spend multiple podcasts on the Russia sanctions regime and export controls on China. Let me try to answer your questions on China. So look, no, I do think these controls are absolutely necessary. But let me back up a little bit just to give you a sense of why I believe that. I mean, the first rule is do no harm, right? Because our capacity to innovate, we know it's one of our superpowers. Maybe it is the most important superpower we have as a country. And we do not want to dull the incentives for innovation, neither here or anywhere abroad. And we don't want to reduce our company's access to foreign markets unless we're confident that there is some national security objective that's implicated without controls. But here is the reality. And this is why the China export controls are absolutely necessary. There are all.

are a set of technologies that are their foundational to economic growth potential and national security. AI, quantum semiconductors, biotech, hypersonics. I mean, that list is going to change over time, and those of us in government need to be humble. We're always going to be behind the frontiers of the private sector, but let's just stipulate there is a list of so-called foundational technologies that really, really matter. Number two, military civil fusion in China. It means the CCP doesn't make a distinction between its commercial and military sectors. And then three, our private sector, the private sector everywhere in the world, it does have this overwhelmingly strong incentive to sell cutting-edge technology to an enormous Chinese market. And so that's the problem, is that if we had unfettered diffusion of our most foundational technological advances, that would be tantamount eventually to giving up the crown jewels of the American economy.

And that's why we're pretty emphatic about not letting that happen. And export controls are just an acknowledgement of that geopolitical reality. They're not an attempt to hold China back. But that's why you've heard my boss, Jake Sullivan, one of my bosses, talk about the need to be careful and precise, the metaphor of a high fence around a small yard. And so what does that mean? I mean, here again, like I can share with you a bit of the thinking, the framework. I mean, number one, it's what are the technologies that are likely to be foundational to U.S. national security and economic growth potential? So come up with that list. Number two, of those technologies on the list, where do we have the

largest lead, and therefore where will we most likely see maximal effort by our adversaries to close the gap if the diffusion of U.S. technology was uncontrolled? And then conversely, where are we behind, and therefore most vulnerable to foreign controls that might slow or impede our own technological development? And then three, we do think really hard about whether and to what extent the targets of export controls have substitutes for U.S. foundational technology, either through indigenous development, and there's been a lot of press, of course, about what China's doing and lagging edge semiconductors in this regard, or from third countries. Can they get the supply from somewhere else? And then four is, can you build a coalition, how broad and how deep? And could we plausibly sustain it around any

control for foundational technology? And the fifth part of having a small yard high fence or a strategic anchor is, again, stress testing and simulating if we get into an escalatory tit-for-tat of technology controls with our adversaries, how does it play out in a multiplayer multi-stage contest over time? And then put a guardrail on ourselves that any imposition of control had asked to surpass some threshold of efficacy compared to the next best alternative. Is it going to make us net better off? So this is not like arbitrary and reflexive placing of controls on really important technologies for really important markets. We are taking this process very seriously, and I'm trying to give you a bit of a flavor for that.

So Joe brought up the sanctions against Russia, and you were a key architect of those. So I feel we would be very remiss if we didn't talk about them a little bit more. But one of the criticisms that you sometimes see of those is, A, the efficacy, which Joe already alluded to, but B, this idea of weaponizing the dollar's special status in the global financial system, the reserve status. So a lot of what we've been able to do is because the U.S. dollar is central in the financial system and there are a lot of flows that go into dollar assets and things like that. So as a result, we have seen more concern about potentially countries like Russia and China, maybe moving away from the dollar, maybe moving into gold, or they're going.

the UN or whatever. Is that something that you are actively concerned about? And then how do you balance the, I guess, the power that the dollar's special status gives the U.S. with maintaining that special status and not, I guess, overreaching in terms of weaponization? So I'm going to be a little careful about speaking on the dollar. There's some kind of lightning bull that will strike me down because that's really the preserve of the Treasury Secretary to talk about. just, what I'll do is I'll talk to you about it in the context of my job. And you're right. I mean, dollar primacy, it's a privilege, perhaps it's exorbitant, and it allows us to fund our government, our households or businesses much more cheaply than would otherwise be the case. It allows us to

absorb a shock like no other country. And yeah, with sanctions and other forms of economic statecraft, it does give us a unique capacity to deliver a shock. And every time you use sanctions, especially when you do so forcefully, you do create an incentive for some countries to hedge against the dollar-based financial system. And we've got to take that very seriously. But look, you also have to, I think, step back and look at the numbers. Right now, if you think about the measure of primacy is the currency used, how is it used to save to borrow when to transact? Right now the dollar's global share is on the order of 60, 60, and 40 percent on those measures. the REM&B share is somewhere between 0 and 2%, and I think the euro is in a distant second place,

somewhere around 20, 20, and maybe 35% on those measures. And so the dollar still is the operating system of global finance. It has incredibly powerful network effects. And my view is that displacing the dollar would essentially require us to commit a series of unforced errors that you would think of as a failure from within. And I think that kind of failure would also have to be coupled with a more credible alternative. to have sustained impact. And that is somewhat hard for me to see with Europe still challenged by internal divisions, Japan, trying to break out of multi-decade stagnation and China just obviously

moving in the wrong direction in terms of institutional reforms. But look, I mean, as I mentioned, dollar primacy, it's a network. All networks have tipping points. Those tipping points are often psychological ones that are really hard to identify in advance. And we know from the study of networks, anybody knows. It doesn't matter whether you're talking about biology or technology or finance or like my daughter's lunch table at school. They lose value slowly, then very suddenly. So we're always going to be paranoid about dollar primacy. We'll never take it for granted. We'll always try to build a better product. And so it really depends on our policy choices, what kind of country you want to be. We need to put to rest questions about whether the dollar's institutional strengths

are going to be sustained across political cycles, rule of law, transparent regulation, independent judiciary, deep in liquid capital markets. And the most important, from my perspective, is our story, our ability to generate trust and to attract ideas and talent and investment. That's really ours to lose. You know, when I look at the big picture and I get excited about reindustrialization efforts and the new factories and all seems really cool, but the other thing that worries me, or one of the things that really worries me, is that the legacy industrial powerhouses of the United States seem to really be struggling. And I'm thinking of Boeing in particular, and I'm thinking of Intel in particular, which is like, okay, it's great if we have new things,

but these are like our powerhouses, and they're not doing well on a raft of measures. What's going on there? Like, people have different, oh, is the financial, people, they got to focus on financials. There are different stories that people tell. about what happens to legacy domestic industrial capacity. But I'm curious how you sort of think about identifying the problems that we've seen at some of these companies. Well, Joe, I'm not going to speak about a particular company. But let me try to answer your question more generally, because I think it's a really good one. Let me pick like a legacy sector that really matters for our national security.

And so I don't know if you've heard about ship-to-shore cranes or if you know much about them. But it is what it sounds like. These are cranes that take a good from a ship. They bring it to shore. It may not sound like it, but this is a critical piece of legacy. You may call it legacy, legacy relatively lower tech infrastructure that really matters. And it has a real vulnerability because the vast majority of the goods that enter or exit our economy, they're ship to ports and they're pulled off of ships with cranes.

Here's the digital aspect of it. These cranes have onboard electronics that allow for remote software updates, and they could allow a foreign actor to interfere with port operations during a crisis, maybe even shut it down. Well, China makes 80% of these cranes that are used in the U.S. It's priced out the competition with massive subsidies to a state-owned crane producer called ZPMC. So that gives China tremendous opportunity to collect information on what's coming in or out of the country, including for goods that supply are military.

So the risk of another Huawei situation, it's non-trivial. And so I'm mentioning this because what to do about it, it's similar for many other industries that you could reference, many companies that you could reference. It, again, it has to start with public investment to catalyze, ideally through the private sector, the rebuilding of our production capacity. So on ship to shore cranes,

last month, this administration announced it was going to take $20 billion from the bi-privile, partisan infrastructure bill and start building cranes again because of the national security threat that it poses. But then the second piece of it, and it relates to a lot of the questions you've asked, you need friends to do this the right way, friends with expertise in building cranes in this case. And here, Japan is one such friend. I mean, the $20 billion that I referenced, a good part of it is going to go to a U.S. subsidiary of Mitsui, a Japanese company. and they're now going to build the first domestic option for ports on ship to short cranes in 30 years.

And it hopefully will give this firm a chance to scale up and compete with a heavily subsidized Chinese rival. But to give that a better chance, the president did propose 25% tariffs on Chinese ship to short cranes. And the last bit is the Coast Guard is going to, in the meantime, it has been given authority to inspect all cranes for any signs of hackers that are burrowing into the software, violating security protocols. In any of these industries, Joe, I mean, this is going to be a painstaking process. It's going to require years of effort to do the, basically the economic forensics of where do we have vulnerabilities, to what extent is it critical for our industrial base, does it have a nexus with national security, and what combination of investments and diplomatic agreements, and in some cases, restrictive measures can give us a chance to compete in a much more contested environment. I mean, this is not

laissez-faire free market economics. You know, I can't. of age in the 1990s, and we're just not in that world anymore. So this is what industrial policy is going to look like. Delip, I'm going to squeeze in one more question, which is just going back to that idea of patient capital. So number one, how serious are those discussions or how serious is that idea being taken? And then secondly, in the realms of it building out industrial policy or capacity, one of the discussion points that you sometimes hear is whether or not it's more valuable to throw money at the initial investment, so building the first factory or whatever, versus the government committing itself in one way or another to longer term forward purchasing

agreements so that there's always a floor on demand and companies can kind of plan accordingly and maybe avoid big cycles where demand is like vacillating up and down very dramatically. How are you thinking about that? Yeah, I don't want to put odds. on whether the kind of work I was describing is going to end up with a particular final form. I'm always wrong. But let me just try to, I'll try to answer your question. I mean, I think what we're going to do, if we have time and political spaces, continue to identify sectors that we think are going to be foundational to economic growth and essential for national

security and where the private sector on its own likely doesn't have the incentives to make the investments we need at pace and with scale to compete. And that really is all about identifying where there are clear market failures. It could be an infrastructure, it could be in particular sectors, it could be in the size and skills of our labor force. But we do know if we don't, if we don't prioritize growth in these strategic sectors and make sure that we have enough investment and we have enough diplomatic partnerships to help them scale, then we're probably going to have a continued hollowing out of our industrial base. And we're going to be vulnerable to shocks, all manner of shocks. And we're probably going to have a political economy that becomes

more and more disillusioned, and we'll have a feeling that they've been left behind. And that leads us to a very bad place. Delip Singh, Deputy National Security Advisor for International Economics at the Biden administration. Thank you so much for coming on all thoughts. Really appreciated. Yeah, that was fantastic. Thank you so much. So great to get to chat with you. It really my pleasure. Joe, I thought that was very interesting. It also felt nice. to talk about supply chains rather than market volatility for a little bit. I thought you raised a crucial point in the industrial capacity build out, which is in some respects, the U.S. government is at a disadvantage because every four years we have the possibility of major political change.

And if we're thinking on longer term time scales, things like semiconductors take years, if not decades, to actually build out that capacity. it can be difficult to maintain continuity. Obviously, we're in an election year. We don't know who's going to be president just yet. But it will be really interesting to see in 2025, like, how much of this has continued. Yeah. You know, I think to DeLeep's point, look, we don't want to be an authoritarian system. No, of course not.

And as he put it, that's a feature and a bug. It's annoying because it does make long-term planning, in theory, more difficult. but it's good because it also provides a very important check on long-term strategic mistakes in theory. And so that's all good. I think where it's worrisome specifically is that if you have priorities that shouldn't necessarily be particularly controversial, such as, say, ice breakers, right? But if you have a political system that's sort of like so polarized and perverted that everything. automatically becomes in this hyper-partisan lens, you can see then how any sort of priority becomes very difficult to execute on because, as he said, people will seize on it politically

one way or another, even if in theory it shouldn't be. Well, and also the thing I was thinking about was something like Icebreaker's was done in coordination with Finland and other countries, as DeLeep was talking about. but that's an interesting aspect where supply chains are becoming more of a coordinated thing. I think that's relatively new, at least in the West. But how does that continuity risk play out with allies? Is there a concern that if they commit to a specific thing, then maybe in four years or in a year or whatever, the political circumstances will change and U.S. interests won't be there in the way it was previously? I think we just got to build more ships.

I mean, just I'm going to say an opinion. Like, it does not seem great that we've let our sort of shipbuilding capacity because it's obviously not just icebreakers. It's been a long time since we've built like aircraft carriers and dredging and all that stuff. We've got to build some more ships on this country. We came so close to making this a 1906 foreign dreaded act episode. But we didn't quite get there next time. The Jones Act didn't come up even. Oh, yeah, that's right.

Okay. Shall we leave it there? Let's leave it there. This has been another episode. episode of the Oddlots podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Jill Wisenthal. You can follow me at The Stallwart. Follow our producers, Carmen Rodriguez, at Carmen Armand Dash. You'll been it at Dashbot and Kell Brooks at Kilbrooks. Thank you to our producer, Moses Andam. For more Oddlots content, go to Bloomberg.com slash

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