School of War - Ep 158: Randall Schriver and Dan Blumenthal on an Economic Strategy for China

Episode Date: November 12, 2024

Randall Schriver, Chairman of the Board at The Project 2049 Institute, and Dan Blumenthal, senior fellow at the American Enterprise Institute, join the show to discuss a road map for economic competition—and warfare—between the U.S. and China.  ▪️ Times      •      01:55 Introduction      •      02:30 Planning for economic warfare     •      06:27 Endstate     •     10:18 Leadership     •      12:21 NSDD     •      14:59 Starting points     •      17:10 Decoupling       •      20:03 Where is the stuff coming from?      •      23:50 Degrading the Chinese economy      •      27:33 A dream of cooperation     •      32:17 Slow the growth     •      36:08 Wargaming       •      41:41 Protraction     •      44:49 International and Congressional concerns Click the link to read the report - DEFEATING THE CCP A RUNNING START Follow along  on Instagram or YouTube @SchoolofWarPodcast Find a transcript of today’s episode on our School of War Substack

We recorded the following episode, which I think is an important one, before we knew the outcome of the presidential election. Our topic is an economic strategy for China. And I mean strategy, how to integrate economic considerations into the broader competition, which includes, of course, the potential for war should deterrence fail. I've got Randy Shriver and Dan Blumenthal on this episode, and they've spent the last several years coming up with a plan on precisely this issue. Let's get into it. December 7, 1941, a date which will live in history. A bloody experience of Vietnam is to end in a state. We continue to face the great situation in grand.

We'll fight on the beaches, we'll fight on the landing ground, we'll fight in the fields and in the streets. We shall never surrender. For more, follow School of War on YouTube, Instagram, Substack, and Twitter. and feel free to follow me on Twitter at Aaron B. MacLean. Hi, I'm Aaron McLean. Thanks for joining School of War.

I am delighted to welcome to the show today. Randy Schreiber, who's chairman of the board at the Project 249 Institute. He was also Assistant Secretary of Defense for Indo-Pacific Security Affairs during the Trump administration. We also have today Dan Blumenthal, who's senior fellow and the director of Asian Studies at the American Enterprise Institute, author of numerous books on the China Challenge, The China Nightmare, as one such book framed it. And both of these gentlemen lead something called the China Economic and Strategy Initiative, which is rolling out a major report this fall, offering counsel to the next administration, whoever the president may be, on how to deal with China.

Randy, Dan, thank you so much for joining the show. Thanks for having us. Thank you. Maybe I'll just ask a really big picture question to get us started. Why is there a need for a economic strategy with regard to China? A lot of us obviously spend a fair amount of time thinking about Taiwan, thinking about hard power issues in the Western Pacific. There are pretty entrenched debates about that and about prioritization and everything else.

What is the nature of the economic situation between China and the U.S. right now such that you are recommending that a new administration prioritize economic strategy? And in certain cases, planning for economic warfare. Well, Aaron, I'll start. I think it's entirely appropriate that we talk about these issues on a program named School of War because, you know, at first glance, you might not say trade and economics is appropriate in this space. But in fact, the Chinese have been engaging in economic warfare for some time against the United States actively trying to deindustrialize the United States using their leverage in the global supply chain in critical sectors, to try to influence things at a diplomatic, political level, et cetera. So we are engaged in an ongoing economic war with China, and we're just at the leading edge of trying to engage in a smart way ourselves. I think the reason we wanted to focus on this is when we as a country, now two administrations in a row, said the China challenge is the

challenge of our generation. In many ways, as a government, we moved unevenly when he considered members of the interagency. And what I mean by that is DOD, it's pretty straightforward. You tell the Department of Defense to prepare to fight a country and think about particular contingencies, that's pretty straightforward. Straightforward for some of our other agencies. But really, when it comes to trade and commerce, our economic agencies are the laggards. And probably, probably for good reason, they're at least ambivalent about trade with China. They still want to promote U.S. interests there and the interests of U.S. companies. So, you know, it's been a little harder for them to pivot into a more competitive posture. And we thought it would be helpful in this

effort to really lay out a roadmap and talk about organization, talk about people, but also specific policy tools that we think are needed at this time. Yeah. It's, it's, it's with all of that. I also think I'd add a couple more things. So one is that competition gets more intense or if China actually decides it's going to intensify its hybrid warfare and low-intensity conflicts around its periphery against Taiwan, against the Philippines, against Japan, and actually go to war. A war of this line with the United States and its allies would involve a serious economic dimension. We would be in a situation where we're trying not just to entreat and destroy Chinese invasion forces, but also try to exhaust the Chinese war machine. And one thing we found

in doing this process of years is the U.S. is woefully unprepared and lacking in knowledge about how to actually do that. So there would be a serious economic warfare component to an actual war. Obviously, we hope very much to deter a conflict, but the U.S. has to be prepared and has to be much more knowledgeable and have a lot more intelligence about how the Chinese war machine would potentially work and how we can actually damage it in a wartime setting. So in the report, which is called defeating the CCP, a running start, you described the situation between the United States and China right now as a cold war, which, you know, there's resistance still, I think, on the last.

left to conceptualizing the competition in that way. In a way also on the right where there's, I think, more acceptance of the kind of hard power standoff in the Western Pacific, but still some reluctance in some quarters to conceptualize it as a sort of global ideological long run struggle in the way that the Cold War clearly was in retrospect and also often understood at the time. How does this end in your view? What is the end state, as you put it in the report, of such a Cold War that's favorable to the United States and what role does economic strategy play in achieving that end state?

The end state is that the United States and the world system that it's created prevails, that it remains a liberal order that the United States is leaving and that its allies and alliance systems are strong and well protected and thriving. And the economic system and the technology system and the technological system that we have constructed and are continuing to construct is not the Chinese version of a world economic system. They're very clear. And U.S. official documents are very clear that the struggle is an ideological contest between two systems. That's what the Department of Defense's military power report says. And so our ideological and our political and economic system has to prevail over the one the Chinese are trying to construct and trying to build.

And I think what that means is that the Xi Jinping way of ruling China, the path of ideological contestation and zero-sum thinking about what the world order would look like would have to be defeated, would have to be some other firm or constituency inside of China would have to emerge that says this is not the right path. this is the path to defeat for China. And so the economic component is extremely important because that's not going to be done through military force. That's going to be done through ideological contestation, through economic defense, through economic deterrence, and through ensuring that the Chinese economic system it's trying to impose on the world

does not prevail. I'm tempted to quote or at least paraphrase Ronald Reagan when he was asked about end state and he said, we win, they lose. And I think, you know, that's a succinct way of saying, you know, what we're trying to capture in the report. And the economic piece is obviously very key. And some of the critics who say you shouldn't use that term, this really gets to the point. In a way, this is more difficult than the Cold War struggle with the Soviet Union because of the deep economic integration, globalization of trade in general. And so we're at a starting point or a leading edge point. where we really have to optimize that trade need economic relationship for our broader

strategic interests. And that's not an easy lift, again, given how integrated we are, how much invested we are. So it's absolutely key that we get that piece right so that we can get the end states, pardon me, end state that we desire. So Randy, Dan, you both have substantial experience within the government, within the executive branch. And the report that you're rolling out this fall is not just sort of big blue arrow strategic direction, though there is some of that, but also very practical guidance or recommendations for how to shape the bureaucracy, how to shape the decision-making processes within the bureaucracy and within the president's staff to put into effect a better strategy. And I want to get into that. And I think, you know,

obviously for listeners who live and work in Washington or in policy, this will make some level of sense for listeners who don't. I actually think this is still a interest because, you know, this will be an example of how Washington actually makes the sausage, or at least how you propose in this case that it do that. So let's get into the weeds of some of these actions that you guys prescribe, beginning with how the president organizes his own or her own staff. Talk about that process. Talk about the role of the National Security Council staff in advancing the kind of vision that you folks are proposing and why you think it's urgent that decisions be made about how to structure that staff right away out of the gate. Well, for any

strategy to be successful, including the one that we've laid out, the president has to lead. And the president can lead in a variety of ways through statements, through strategic documents. But really, what's required is the proper organization and bureaucratic infrastructure. So for the president to lead effectively, he or she has to have an NSC that will support and direct and integrate the effort across agencies. And the reason some restructural we think is necessary is there this is going to be an issue set that has equity holders across the interagency and in some cases interagency counterparts who don't normally sit in the same PCs DCs. This will be a more non-traditional collection of agency representatives that will be necessary

to drive the strategy forward. So we advocate for some restructuring at the NSC and some initial moves for the president and the new administration to put out guidance on how the interagency will work, which is generally what new administrations do. They put out a document number one that says, here's how we envision the interagency system working and really putting the economic competition with China front and center in that through the issuance of that guidance and the new bureaucratic infrastructure that we advocate for. And so, you know, that's these two sort of intimidating acronyms that play a big role in the front end of your report, the NSPD, the presidential directive, right, which will structure the NSC. And I guess you praise that it's

the W Bush administration that was fast out of the gate with that structuring. And then that structure will lead to a process that will produce an NSDD. What is an NSDD? We're at the risk of shedding thousands of listeners here by the second, but this is actually important stuff. This is actually how it works. What is a national security decision directive? Why do you guys admire Reagan's NSDD 75 and see it as a kind of model here. Well, hopefully to get some listeners back, let's sex it up for us, Dan, would you? Reagan's NSDD unleashed his different agencies inside his government

as coordinated by the National Security Council to engage in a much heightened level of economic, ideological, and military competition with the Soviets that arguably imposed costs on them, such that they couldn't continue to compete. So that's why we admire it. And the NSDD under Reagan did things like covertly help the Polish Solidarity Movement and break free of the reins of the Soviets. They put pressure on Russian oil prices and dealing with the Saudi oil system. So we don't spell out exactly things of that nature. But what we do, as as really said, is say the Commerce Department, the Treasury Department, the CIA, they all have a role in defending the American economy, and they all have a role in degrading parts of the Chinese economy

that are most threatening to us, that that contribute to its war machine. So this is really a way for a president to exert control and make sure the agencies are carrying out a much more competitive strategy against China. So in a way, just for listeners who are in uniform, which is a good chunk of the audience, and NSDD is kind of like a presidential operations order at literally the highest level. That's right. And it empowers and designates the authorities, the heads of the agencies in terms of fleshing out the responsibility of who takes which action.

So some of this is very much geared towards defending the U.S. economy from continued Chinese malign behavior, intellectual property theft. Some of it has to do with diversifying supply chains. Some of it has to do with building up U.S. industrial power. And some of it has to do with improving our foreign economic statecraft. So we have actual alternative suppliers and better trade relationships and stronger allies. Well, let's get into the substance then. So on these more inward-facing elements of the strategy that you recommend be produced, through these processes, you call for a review of existing laws or arrangements or agreements that govern U.S. trade with China.

What are some of the key things that you think need to be reviewed? And why are they up for review? What's so wrong about them? Well, there are a number of places you could start, but I might start with China's entry into the World Trade Organization, which from our perspective was made possible by granting them permanent normal trade relations, which, of course, ended the annual most favored nation status debate we used to have on China. And the reason I think you start there is because that's what really accelerated the integration of our economies through the creation of these complex

supply chains and really unleashed investment and trade between our two countries. And interestingly, what you'll find is in a bilateral agreement, which had, I think something like 22 different areas of commitment and agreement, the Chinese are in violation of every single one of them. And so whether that be labor standards that they agreed to me, whether that be environmental standards, whether that be protection of intellectual property, you go on and on. And throughout that entire document, they're in violation of everything. So that would open the the door to potentially revoking PNTR, which would give a lot more latitude than for the United States to do what is necessary. I mean, frankly, the authorities largely exist, even short of

doing that, but that would really be a strong signal that we take commitments seriously. There will be consequences for repeated violations and that we're serious about putting the trade relationship on a more sustainable trajectory domestically and one that better serves our national security interests. And so when it comes to the nature of the relationship, there has been much discussion of decoupling, economic decoupling between the United States and China. You discuss it in the report. There are often different modifiers that get attached to this. I've used targeted decoupling in the past. You gentlemen speak of, and your fellow commissioners, speak of strategic decoupling. What does that mean?

What is decoupling and how do you intend to be strategic about it? Well, decoupling is, as it sounds, it's it's, yeah, it is actually extracting on the intensity of the economic relationship between the United States and China. The reason people use modifiers like strategic and targeted is because I don't think anyone's calling for a complete decoupling, selling agricultural products and oil and gas, to China, for example, you know, I think is still in the United States interest. But when it comes to the United States being reliant and dependent on China in certain key sectors like critical minerals is something we identify, where China is just dominating the processing of critical

minerals such that so many of the U.S. goods, the electric vehicle supply chain, other supply chains are dependent now on China for the processing of critical minerals, that can. cannot continue. The U.S. has put its national security is endangered if that continues. The same is true for biopharmaceuticals, which we identify. We can't have a situation where the United States continues to be dependent on China for so many of its generic drug supply, for so much of its generic drug supply. In a situation where China wants to really hold the United States at risk, of course it can hold back on that supply. And the last area which the United States has actually started to take action on decoupling, that we also recommend an acceleration

is semiconductors. And that's because of the absolute vitality and importance of semiconductors in so many of the products and services that we use. So being dependent on the Chinese for any one of those three industrial areas puts us in our national security in a very risky position. And that's where we argue for more action to be coupled in those areas. Given the decades and decades of Chinese policy, CCP policy, to corner the market in various strategic areas, several of which you identify, you know, there are many more.

And we're not talking about like, you know, in the event of tense relations, we're going to lose our access to office furniture. You know, we're going to lose our access to critical minerals, as you point out, you know, pharmaceuticals, all kinds of things that go into our own weapon systems, which is insane, but the case, what is this, this starts to transition from the decoupling question to, you know, how we think about our own industrial base, but what is what is the state of our ability to make or buy from friends the kinds of things that we need? It's all well and good for a president to say in 2025, we need to improve our industrial base, but that's not, that's not an overnight

thing. That's going to take some time. How do you think about that? How do you recommend that we accelerate things in key sectors? Well, one of the reasons that it's hard is because you really have to disaggregate almost down to the individual systems and find out where is the stuff coming from. And our awareness on this is relatively recent. You know, if you'd said 15 years ago, China stealing our intellectual property, I don't like it. Let's do something. Everybody would not up and down.

If you said China's manipulating its currency, everybody would think that something had to be done. People didn't even think about, you know, the critical mineral processing that provides the component, foundations component parts to all these various different things that you're talking about, are including weapon systems. So we, in the last administration, started a mapping exercise. You know, those were the first executive orders, right, is to map. supply chains. And, you know, to just give you a sense of how hard it was, you know, we would go to defense primes, you know, the big five, and say, you know, can you give us more visibility on your

supply chains that are in component parts that are going into weapon systems? And the first answer is essentially, well, no, we can't because after first tier, second tier suppliers, we lose complete visibility on these things. So, you know, this has really been a slog to do the, the mapping and once, you know, we have a better sense of that, we can go after the problem set, again, disaggregating and saying, okay, gallium and germanian, you know, who else has that? And if we can identify the raw materials, who can process that? And it's going to be a process of reconstructing the supply chain through the raw mineral to the processing, to delivery to the U.S. entities that need those component parts.

And in some cases, you know, we're going to have to spend resources, particularly where China's most dominant, and Dan mentioned it, is in the processing of critical minerals. We're going to have to either work with partners to develop those capabilities or do it in the United States. And it's starting to be done in small ways through the Defense Production Act. You get releases about investments in mining and processing capability at small levels, but it really needs to be ramped up so that we can get to a sufficient level of insulation from Chinese

leveraging their position in the supply chain. So one of the things that I think is most striking about the work of the initiative is everything we've talked about up until now, I think it's going to meet with a lot of agreement in Washington. I don't think any of us. I mean, maybe some of the framing questions in terms of Cold War and things like that are a little bit controversial, sort of a first principle thing. But in terms of, look, I mean, we shouldn't be buying our weapons components from the Chinese. We obviously need to have a considered strategy here, et cetera.

I don't think any of that is particularly controversial. But the report does recommend turning away from sort of actions that inwardly review the American position and how to strengthen it. The degradation of the Chinese position, you call explicitly to degrade the, Chinese economic position through legal means, through planning for much more coercive measures during warfare scenarios. You could argue that President Trump's call for increased tariffs is kind of a call for degradation. I think that's probably true, though I also feel like you could argue that either way. What is the case for not just strengthening the American position such that it improves

relative to China, but actually taking active measures to harm the Chinese economic position, the China's economy. Well, so the two are very interrelated. Defending the U.S. and allied economies from predatory behavior of China will actually degrade the Chinese economy because it is so fundamentally based on predatory behavior, the stealing of intellectual property. We call for things like enforce the laws of the United States and enforce the laws of allied countries against things like the sale of precursor chemicals, you know, that end up in fentanyl, right? And we see across the board that those laws aren't being enforced. When the Trump administration began to enforce U.S. laws against the Chinese main telecom provider, Huawei, that sent reverberations throughout

the Chinese economy. We've basically said, as a country, we're no longer going to abide by the criminal behavior of some of these companies, whether it's their racketeering set up to steal IP. And people forget that that was the basis, the legal basis for how we started to go after Huawei is the Department of Justice made a case against them for racketeering as well as for sanctions busting and other laws that they were bringing. So you start to enforce your laws and you start to help other countries enforce their laws. And some of China's big champions, in fact, get degraded. Now, there's a second piece to this, which is in peacetime competition, there are capabilities that the Chinese are producing in their military industrial complex.

And it's very hard to disaggregate what's military and what's industrial, where you actually, we believe, want to start degrading their capabilities or at the very least not adding to their capability. So U.S. capital, for example, right now goes into the Chinese military industrial complex. That has got to stop. We have to starve the Chinese military industrial economy from U.S. capital. And then there are further things to consider with respect to agencies that Chinese have that develop nuclear and strategic weaponry, where they're held out sometimes a civilian

industry. And we should really explore covert means to degrade the highest-threatening, highest-leverage Chinese entities that develop those most threatening capabilities. And then finally, you have to start thinking, as I said at the beginning, about what happens if deterrence breaks down and what sort of economic targets do you have in mind to actually harm or destroy the Chinese economic war machine. So you need to start planning for that as well. It really is an extraordinary situation just to reflect at kind of the 30,000 foot level for a second. As a consequence of Chinese policy, we are in a position where they are selling us the things that we would need to survive

in a war, and indeed in certain cases, to fight a war, while we are financing their war-making capacity throughout bad investment, if not in other ways as well. It's just extraordinary how we got here. Do you, I mean, maybe it's worth asking Randy or Dan, you guys to reflect on that. I mean, you have both been focused on China for the bulk of your professional careers. I'm not, I'm going to be polite and not say how long that is in each case. But it's been a while. I mean, what contributed to the myopia? Why, even now, it's not completely dispelled.

It's made a lot of progress in the last five years, largely due to the Chinese themselves and due to Xi Jinping, sort of letting the final veils drop. But what caused it in the first place? Why were we holding on to this dream of cooperation for so long? Well, I think there's at least, at least, at least, at least a couple things that contributed to us starting down this path of robust engagement and belief in a engagement strategy that will ultimately start to change and lead to reform in China. I think number one was the absolute overselling of the benefits of China's WTO entry

and what trade investment would do. And I think in many cases that was deliberate on the part of the U.S. private sector, the investment community, that they wanted the permissions to do to invest in China and enjoy the benefits of cheap labor and so on and so forth. And so to do that, they sort of oversold that are doing business with China would help change and reform China. You know, they'd get exposed to Western business practices, management, they'd experience in U.S. run factories, better labor standards, et cetera. And as the economy grew and there was this exposure to the West, you know, it would fuel reform efforts that, you know, some Chinese leaders were speaking to that that that was a desired

path and an envision path for them. So, you know, I think that was pretty naive to think that that would happen. But I think there were complicit people in the United States. that oversold that. I think number two, you got to also kind of think in in time and history when this all started. You know, in 1989, after Tiananman, we sort of got to work, rehabilitating the relationship, and ultimately within 10 years, they were at WTO. What was happening elsewhere in the world, right? The Soviet Union fell, central and eastern Europe opened up, and, you know, we were told by some scholars this was the end of history, right? And there was sort of an inevitability to China being on a reform path in the minds of many people. And so the engagement

would only support and enable that, because that's the direction China wanted to go. That's the direction the world was moving. And so again, I think there was a lot of naivety associated with that, but you're kind not to mention how long I've been working on this, but I was working on this in that window of time. And I can just tell you, you were surrounded by people who said that this was inevitable that, you know, we had defeated the Soviet Union and the wisdom of that economic and political system surely was revealed for the world and everybody else would sort of accommodate a more reformist path. And so a lot of naivete and complicit support on some parts of the United States, frankly. We'll do another interview sometime, Randy,

where we talk about what it was like for you to lose China in 49 and the first Taiwan-Straight crisis, stuff like that. But that's for another time. Dan, sorry. Yeah, no, I was going to say his support from McCarthy. The other thing, Aaron, is he mentioned it's still difficult right now. You know, there are certainly bills in Congress to stop this outward investment into Chinese threatening capabilities. It's still hard to pass those bills. People are still making money in China.

It's still the second largest economy. It'll remain the second largest economy, even though it's slowing its growth. There's still profits to be had. You know, we see this in German behavior. in the auto market. We see this in U.S. behavior and other markets in the pharmaceutical market. So there is no question. We don't mean to be naive about this. It is difficult to get bills through Congress passed when people are still making money that will cost them money. And if we do things like decouple in pharmaceuticals, which I think most of those would agree we cannot

be dependent on China for so much of our pharmaceutical supply chain, it will raise costs in the United States. And you need presidential leadership. We always come back in this report of presidential leadership to explain to America what the cost-benefit analysis really is. So the costs of changing are always very clear. They're high. But we're trying to do in this report is also say the cost of the status quo in this case are incredibly high because we get into a crisis and all of a sudden people don't get their drugs. All of a sudden, people don't get their semiconductors. You know, we saw on COVID what happens. if you don't, if you don't, you know, reform the semiconductor supply chain, people aren't getting

their automobiles and so forth. Let me ask you guys a very blunt question. You may or may not want to provide a blunt answer in return, but should it be the policy of the United States, if only privately, you know, in classified settings, that the Chinese economy ought to shrink or at least grow at a slower rate? I think yes. And I think the most compelling rationale for that is that it's the Chinese economy that fuels the military modernization that enables them to pursue their ambitions in a way that's more threatening. I'd go even further. You didn't ask this question, but, you know, I don't see a future where we have alignment with China, peace and stability in the region and beyond, as long as the CCP remains in power. And, you know, I know that's even more controversial because

We have enough experience at this point to say regime changes should be done, at least with a bit of humility and caution, right? But it seems to me the most pro-China position you could take of all is to be anti-CCP. And in the last administration, we became very deliberate about talking about the CCP and not the Chinese people. I just think part of our strategy should not only beat a week in the economy, which you asked about, but also put pressure on the CCP and hold things at risk that they see is tied to their continued grip on power? I would just add to that at the very least, at the very least, they should not get the kind of ideological and political sanctuary they're getting right now from us. So the Chinese have no compunction or inhibitions about interfering our political system.

I mean, we saw this with the recent case. The government of New York's aid was an agent of the. of the Chinese Communist Party, and we somehow stay away from that sort of manipulation. At the very least, you want to impose costs on them. I agree with Randy that we're not going to see peace and stability with the CCP. At the very least, you want to impose costs on them such that they're spending more to protect their political security than they're spending on their external security, and we're imposing no such costs right now.

Yeah, I just saw a story. I'm sorry, I was just trying to look it up because I can't remember which congressman, but there's some Republican congressman down south where it was reported in the press in the last couple days. He's being swarmed by Chinese bots or something in his effort to win re-election. And interestingly enough, the bots are not saying, you know, understandably he's anti-China, so don't vote for him. But they're actually promoting a bunch of other lines of argument, some sort of vile anti-Semitic to, you know, undermine him with voters in his district. I'll remind myself with the details, but I just read that a couple days, just to provide an example

for what you're talking about. I mean, I just think that getting into the game of political warfare ourselves, getting into the game of supporting dissidents more outwardly, I don't think we've said a single thing in the last four years or not much at all about the fact that this pro-democratic tycoon, Jimmy Lai, is rotting in jail on trumped up charges in Hong Kong. I mean, there is dissent in China. There are people who don't like the regime in China. Again, if we're going to get into a competitive strategy, we're going to put our strengths against their weaknesses. That's what we're pushing for. And one of their weaknesses is the people don't like them.

And we should, at the very least, have them defend their own economy, defend their own political system. As part of the initiatives work, you and your fellow commissioners led a war game on Capitol Hill, working through some of the scenarios here and trying to think through how things iterate what it would look like for there to be a Chinese response, how it would look if, in fact, we moved in the direction of actual war in the Pacific and how that affects economic policy. Can you recreate that a little bit for listeners? What did you learn out of that process? Sure. We conducted what I think is a first-of-its-kind war game. I've done many, many war games

over the years, and the economic component is usually a handwave. Sanctions are applied, and then, you know, you move your aircraft carrier around, your posture around. So we wanted to go through a scenario around a Taiwan contingency, which sort of ramped up to different levels of tension, coercion, and then military kinetic action. And in the game structure, talk amongst our teams, one representing the United States, one representing the Indo-Pacific, one representing the European Union. about what we might do at each juncture, sort of, again, sort of escalating tensions

toward an actual conflict, and how we would cooperate with the other teams. And I think what came out was US leadership is paramount that our partners and allies will look to us to take the lead in developing a cost imposition strategy and a deterrence strategy that then would move into more offensive economic actions. I think number two, the importance of planning,

you know, there are people that are very reluctant to even have this conversation. You know, what would a sanctions package look like and how does that get teed up before the fact so that it can have to turn impact? There are people who don't even want to have that conversation in the United States, let alone among allies and partners. But I very much subscribe to the Eisenhower view. Plans are useless, but planning is essential. We have to be able to talk about these things now, so it's not completely ad hoc and contentious when needed to be deployed. And I think the game revealed some of that. And I think the game also revealed that there's connection to other issues.

You know, for the Europeans, they're willing to come along, but we have to understand their interests in places like Ukraine. We have to understand at a sector level, what kinds of things would cause more pain or less pain for them. So it really needs to have a global perspective and appreciation for partners and allies' views. as we develop these tools and these approaches and coordinate across countries with our partners and allies. I'm sure I'm missing some things that Dan will quickly fill in here. Well, I think the initiative is going to continue doing economic war games because you get really two things out of them. One is, one is you get people in the mindset, as Randy said, you know, get over the fact that you don't want to talk about it. Let's actually start

planning and thinking about the unthinkable. The second is, You get people in a peacetime competition mindset, even if the turn doesn't break down about thinking about Chinese vulnerabilities. And that was a very interesting dynamic in the game, is once you unleash people to start thinking about vulnerabilities and not just thinking about strengths, you had some creative ideas. The Chinese are very dependent on commodities from commodity imports. How would you go after that? Is that just a naval walk aid or can you go to their main suppliers and talk to them beforehand

and say in certain contingencies, we want you to hold back from supplying commodities, oil, gas, agriculture. We had conversations about what is most important to Xi Jinping in terms of who's most important to him economically, and how would you target that? These are very, very early stages of discussion, but we need to have this discussion in peacetime competition as well as in possible warfare, and we can't get too attached to these theories of narrow military denial as our only deterrent. But, you know, I think that's a mistake. We need to military denial is very important in terms of deterring, deterring conflict around the

Taiwan Strait. But the Chinese also need to know that that we can hold at risk things that really matter to them. And starting a big war in the Western Pacific will mean economic pain, political destabilization, and other things that go, that go way beyond denial, or else. they'll just keep going. They'll regenerate their military capability, and they will keep going, and they'll keep fighting. So we have to be able to exhaust them and economically and ensure that they know that we're willing and able to hold at risk things that the regime itself cares most about. Yeah, it's worth just, you know, speculating, as it sounds like you gentlemen have done, that in these protracted warfare scenarios, which are quite likely, and we've had, we've discussed

on the show numerous times. We devoted a whole episode to it at one point with Ascander Raymond, who wrote a really good book recently on the question of protracted warfare in the modern moment. It's hard to, it's hard not to look at that scenario and feel pretty bleak when you look at the Chinese industrial base versus our industrial base. Like it's easy to imagine, for example, defeating an invasion scenario in Taiwan at the first attempt. And then just hanging around as we get ground down by an industrial base that looks much more like ours did in 1943 or could look a bunch of boards like ours did in 43, 44, and ours looks nothing like that. So then that leads you to, you know, provisional, hopeful conclusion. But actually it's the economic toolkit that might

prove, I don't know, decisive may go too far, but maybe we'll need to. Maybe that's one way to put it. Like, it will need to prove decisive because we will, if this is the kind of thing that's happening in 2026, 2027, there's just no way to turn the various ships around to forgive the expression in that time. Yeah, it might in fact be the case that the most important geography in a Taiwan contingency is the Malacca Strait, not the Taiwan Strait itself. And so broadening our approach to deterrence and actual conduct of the conflict to include these economic pieces, I think is essential. And I also think, Aaron, I agree with that, the Malacca Strait. So, again, putting ourselves in the mindset, two different mindsets that is not intuitive for Americans. One is an irregular warfare mindset because we're on the defensive, as you mentioned, both because of Chinese defense industrial power and because in the wars that they would start, they're closer to home and have interior lines and so forth.

But how do we – so the question then becomes how do we put them on the defensive? They have a big merchant fleet now, a very big merchant fleet. We see what much weaker militaries can do to an American and allied merchant fleet with low-cost capabilities that really affect our economy and really affect shipping. We need to get to that mindset. We need to get into the mindset of how we actually deal with, at least in the first stages of a conflict, a more powerful enemy. And the economic targeting, the fact that the Chinese now have overseas bases, the fact of the the Chinese have overseas interests, the fact that the Chinese have merchant fleets, the fact that they're so dependent on trade poses all of a sudden opportunities for us if we start to really

think more in that mindset of an irregular warfare competition as well as the conventional warfare competition. So we've mentioned both Congress in the last few minutes, and obviously you gentlemen have made repeated reference to how we deal with other countries, other countries other than China. and those are two big categories that I want to address before we wrap today. In a perfect world where a new president and his key aides or her key aids pick up your report, say this is it. This is the plan. We're going to organize the NSC.

We're going to have a senior coordinator for economic competition with China. We are going to do all this. Well, that's good. But it's the Congress in the United States that I think has the decisive role when it comes to economic policy. And then when you're talking about international economics, well, it's an international question. And I can remember my own time in the legislative branch dealing with, you know, various elements of, for example, the Huawei issue and just running my head into the wall again and again, which is the United States cannot simply declare by fiat how it's going to be in some of these international economic issues because other countries get a vote. And multinational corporations are multinational, which to say they can go play in other people's yards if our yard gets unattractive them for this. or that activity. So how, I mean, it's really two questions, but the congressional side of things

and the international side of things, maybe we can take them in turn. How do you think about managing those huge and ultimately kind of decisive issues? I go first. So on the international side, you have to offer people opportunities as well as costs. So India has a great opportunity if we were to negotiate some kind of sectoral supply agreement. They can be the alternative supplier and pharmaceuticals. Indonesia has a great opportunity in other countries in nickel supply and critical mineral supply. You have to put on the table if you're in the United States and you're serious about not being dependent on Chinese supply opportunities for other countries to step up and gain some economic advantage and not just, again, talk to them about costs. The same is true for

the rejiggering of the semiconductor supply chain. You know, India, Malaysia, other countries are and Vietnam are already starting to move into lower ends of the supply chain there. But you have to be willing, and this is where Congress comes in too, and we suggest in our report, the foreign economic state cap piece becomes very important. You cannot just act, as you said, Aaron, through tariffs and through fiat. You need to get back into the business of strategic trade, such that at the very least you're doing sectoral agreements in letting other countries step up and get to. access to the U.S. and European markets and become those alternative suppliers. So if we indeed

decouple from China in these sectors that we're identifying, there are opportunities for other countries to move up the value chain, to move up the supply chain, and to become those alternative suppliers. I agree with all that. I'd add a couple other things on the Congress piece. We have things in the report that will clearly require congressional action. So we talk about the creation of a new single agency for export controls. In other words, taking the EIS function, Bureau of Industry and Security out of commerce and combining it with the portion of the State Department that does munitions, export controls into a single export control agency, that would clearly have to be legislated. You know, elements of outbound investment review strengthening that

would clearly have to be legislated. But I think in general, The Congress does have a rough consensus around the problem and the challenge, where they lack consensus is what to do about it. So I think in general, what the president and a new administration would need to do is really lead and articulate, you know, this roadmap that will require some degree of sacrifice. There will be some pain associated with it. And I believe the Congress can be brought along. This is your area of expertise as well, Aaron, probably more so than Dan and I.

But I believe with clear leadership and articulation of a vision, for the most part, Congress would come along and help with the hard things. But remains to be seen. But it is a critical player, as you point out. Randy Shriver, Dan Blumenthal, chair and vice chair, respectively of the China Economic and Strategy Initiative. And so leads on the report defeating the CCP, a running start. Thanks for making the time today. for making various acronyms exciting. We were bringing NSDD back.

Thanks for having us, Aaron. Thanks a lot, Aaron. This is a nebulous media production. Find us wherever you get your podcasts.