On this show, Jason brings on General Robert Spalding as they discuss US-China relations. General Spalding is a China expert. They discuss how the Chinese Communist Party has taken advantage of US transparency and openness. They also discuss how unfair Chinese stocks don’t have the same scrutiny of transparency and audits that US companies have.
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Jason Hartman 1:00
It’s my pleasure to welcome Brigadier General Robert Spaulding to the show. He is retired from the US Air Force. And his book is entitled stealth war how China took over. Well, America’s elite slept. General welcome, how are you? Great. How are you doing? Good, good. It’s good to have you on the show. So a lot of talk about this obviously, starting maybe back significantly at the time of the Trump candidacy. And China has become quite an issue now with the pandemic and the origin being and move on and so forth. Even more of an issue nowadays, kind of take us through the premise that America has been asleep at the wheel and and what that is costing us.
General Robert Spalding 1:43
Well, I I came in this kind of smacked me in the face in 2014. When I was at the Pentagon, I was advising the Chairman of the Joint Chiefs on China. Had a team of China experts guys that had lived in China spoke the language understood the Government in the party. I had lived in China for two years I spoke Chinese my was an Olmstead scholar, which is a program that the military has. And I’d lived in Shanghai and studied at Tongji University in Shanghai and really traveled the country and really gotten to know the people and the culture and history, geography and, you know, spoke the language. So, together, we were working on understanding us China relations and us China competition from a strategic perspective. And I just finished the year at the Council on Foreign Relations in New York and that during that year, I’d met a lot of business folks, a lot of industry people, a lot of financial types. And I had a lot of relationships that I could lean on to really begin to understand this relationship from a much more four perspective and more broad perspective. And one of the issues that that arose during 2014 was briefing that was sent to me and I talked about in the book and the briefing really was put together by one of the top five accounting firms. And it talked about how provided vignette after vignette of US companies that had come under attack, what I would call institutional attack from, you know, the some of the Chinese intelligence capabilities and other capabilities for the purpose of taking some kind of intellectual property or asset in the company. And it was at that point that I realized that we had some real issues with regard to understanding that activity going on in the United States that was not presenting itself to the federal government in a way that we had an understanding of the implications to our economy. And that really started me on the path that led to the book, stealth war. Excellent. So
Jason Hartman 3:53
as I mentioned, when we started our audience is very interested in the macro economy. issues, and particularly how it affects their personal finances and their investments, namely real estate investments. You know, we’ve talked a lot about how coming out of the pandemic, we think there’ll be a mass migration to suburban markets out of high density living areas and all sorts of factors like that. But on the US China level, it’s interesting, I think candidate Trump from from 2016 is going to sort of get his entire agenda, stronger borders, jobs back to America, we’ve seen supply chain disruptions that when it comes to you know, life and death are very disheartening. You know, we got to make some things in our own country. It’s part of national security. So what’s happened in terms of the stealth war, of course, but then what’s next
General Robert Spalding 4:49
for us? What can we expect? So as I started to dig into this and as we begin to isolate kind of the industrial base implications for our relationship with China, we really noticed that a lot of our capabilities that we had in terms of the military, were absolutely dependent on the supply chains coming from China. And so we started going through that. And that really is where this whole journey began. And then, you know, it expanded to understand more of the financial and economic implications of those of that relationship. That led into the influence implications of it in terms of our institutions, like politics and media in, in academia, certainly the corporate sector and Wall Street. And of course, that led to a whole host of initiatives in the first year of the Trump administration. That really culminates in a new national security strategy in December 2017. So, you know, I led this team for two years in the Pentagon and I go to China to be the defense attache and senior defense official in Beijing. And almost, you know, immediately after the Trump administration comes into office, I’m pulled into the White House to help architect the national security strategy. And, and really the strategy is based on the fundamental premise that openness and globalization The internet is great if everybody agrees to abide by the rules. But if you have the number two economy that not only doesn’t agree with the rules, but actually actively seeks to undermine institutions, that our international order was based on and democratic, domestic democratic institutions and democracies everywhere, then you have a big problem. And so this belief that openness and globally, globalization and the internet would be, would be, you know, able to spread democracy was kind of short circuited by what the Chinese Communist Party did after the Tiananmen massacre. And so if you just look at our foreign policy with regard to China, it was about making them rich. So that they would democratize. In other words, if we help them grow economically, and with our science and technology that then they would liberalize politically. And of course, the Chinese saw this was happening particularly during the Tiananmen massacre and begin instead about engineering, a society that today is more closed than any society and more capable in terms of science and technology of remaining closed and in terms of the economy, by essentially taking the innovation, technology, talent and capital of the West and really dominating that society. So after the national security strategy came out in December of 2017, really the first quarter of 2018 So somewhere around March, April of 2018, you begin to see the section 301 investigation, you begin to see enforcement by the Department of Justice and FBI. You begin to see the State Department, turn a corner and in You really begin to unlock the enforcement mechanisms of the federal government and the diplom diplomacy of the federal government to begin to protect us institutions and US companies. We’re not there yet. But you know, that’s where I think we’ve been for the last two years, or almost two years until the Coronavirus hit and I think what the Coronavirus has done is essentially a solidify not only in the lot in the minds of those that are in the federal bureaucracy, the challenge we face with regard to the Chinese Communist Party, but also in the American people. And I think what you’re going to see over the next three to five years is an absolute acceleration of everything was occurring, you know, in the two years prior.
Jason Hartman 8:45
Mm hmm. You know, I’m so glad now that I went to China last year for three weeks with my girlfriend and really got to see I mean, it is quite an amazing especially you mentioned Shanghai. Wow, I mean, just wow. And you That goes there has just got to be blown away by the magnitude of progress. And I mean, look at shenzen to you know what it was 20 years ago compared to today, I have a friend that lives there and has manufacturing company there. And it’s pretty incredible, but has a lot of that progress comes as a result of cheating, you know, not honoring intellectual property. Whatever rolling out, you know, trampling over people’s rights, you know, just any any sort of it’s all anecdotal, of course, but any any comments on that?
General Robert Spalding 9:32
Well, no, I mean, I think their model is based on this idea that, you know, there’s a feigned agreement with the terms of, you know, joining the international order but a real active disagreement and there’s documents like document number nine that I talked about in the book that were internal Chinese Communist Party documents leaked and then translated that describe, you know, liberal democracy free trade these these concepts So we hold to be, you know, true in terms of how nation states should work together, which the Chinese Communist Party feels are absolute threats to its continued survival, and this leadership of China and so it seeks to undermine those things at all times and everywhere, not just in its own country. So it really is the need to understand what the Chinese Communist Party is to understand that China is not a democracy. It’s not even you know, people like to say, you know, capitalism most with Chinese characteristics, but it’s it’s not capitalist, it’s, it’s using the resources of the state to drive economic activity in a certain direction for the benefit of the Chinese Communist Party and uses. It undermines the system by essentially being devoid of rules and there’s a document that was written in 1999 by two PL a kernels, that was translated in is called unrestricted warfare. Fair. Another description of the title is called war without rules. And it’s really describing how you use the international system to essentially undermine as a militarily superior foe, and you use that openness against them. And so what’s happened is, you know, the Chinese Communist Party is very capably, slowly over the last couple of decades used their connection to our society in our openness, to begin to turn our strengths of openness into vulnerability. So things like you know, our trading system, you know, that the Chinese don’t actually comply with inspection requirements, they don’t comply on the on the financial side with audit requirements. In fact, there’s no real law that you can say or rule or regulation or standard, that the Chinese Communist Party forces their citizens and I would really call them subjects to comply with. And so when you have such blatant and outright flaunting of the rules at all levels of the system, and you basically bring that into the order and you never, you never enforce the rules, what happens is a system begins to break down and essentially that’s what’s been happening and, and you see this at the United Nations, you see it at the World Health Organization, the World Trade Organization, you see it at the World Bank, but now we’re also beginning to see it in our own society as companies and, and financial institutions begin to, you know, essentially align themselves with the Chinese Communist Party because they’re incentivized to do so because the Chinese essentially always get their way. And so they were really is beginning here and you just look at Chinese equities, you know, stocks, you know, Chinese companies aren’t required to meet audit and transparency requirements. They don’t have to comply with Sarbanes Oxley. Like US companies do. So they do. They use that to essentially have companies that have really not the value that you would expect them to have to register and list their stocks in our in our capital market. So that’s just one example. And there’s, there’s literally thousands of others that I could go into that explain, you know what this is, which is essentially a systematic undermining of the rules based order by failing to abide by any of the rules. And we’ve been looking the other way. And that’s where it says, you know, while the Leafs were asleep, because we’ve been looking the other way in anticipation that one day China would change to be more like us. And what we found at the Pentagon is instead of that happening, we were changing to be more like them. Oh, interesting.
Jason Hartman 13:47
So when you say the elites are asleep, do you mean all categories of leads or, you know, I totally think it’s ridiculous, by the way, and you were alluding to it a moment ago that we allow These companies to us our capital markets, our stock exchanges, and, you know, we don’t charge them some giant fee to access our market, you know, which is sort of like the tariff debate to that, you know, I do think there’s a place for a little bit of that, and I’m, you know, I want to think of myself as a libertarian, but you don’t have like an equally yoked system, you know, and it would make consumer prices a little higher, but it also give us a lot more jobs, which I think is going to happen anyway with the supply chain issue, and the onshoring and the D globalization trend that I think will be swinging in that direction as as we come out of this, but that so all in all areas of elites or just the economic ones or you know, tell us about that?
General Robert Spalding 14:47
No, it really is all areas and the Chinese are very prolific in terms of garnering these relationships. They do it in academia, they do it in the political system. They do it in the think tanks in DC. They do it in the lobby. firm’s. So they basically begin to create these financial relationships with all of these different sectors of the society. So, you know, rather than, you know, the United States where Joseph Nye talked about soft power, it’s really the the attractiveness of our culture. And the engagement of the American people is more on a People to People level not on a, the Chinese interact at a at an elite level, and it’s called elite capture. And it’s really something they do quite well. And so it is literally across all institutions in the United States. Because the idea is, once you capture the elites of those institutions, then they begin to act in ways that actually, you know, promote your interests. You know, on the economic side, when you have trade that is one sided there supposed to be a countervailing currency trade that tends to equalize that trade over time. The Chinese because they have a closed financial system. There’s no currency traded out. actually works as a balancing mechanism for prices to create a leveling of the trade imbalance. So these are some of the things that they have that are, you know, macro challenges that no other country is allowed to have a non convertible currency yet be fully in meshed in the global trading system. Yet here, the Chinese exists as the number two economy to do that, and that allows them essentially, almost the equivalent of a direct connection to the US blood veins where they’re just they’re pulling out wealth every single year because there’s no balancing mechanism just for that, for that trade. And then trading currency. That’s just one example on a macro level, how we’re being constantly drained, you know, and there’s this belief that we have this free trade system and this led to these low prices because, you know, these things are manufactured in China when in reality, you have labor that’s exploited you have the pollution that’s horse You know, having lived there there the land, the water is all polluted. I mean, it is really, it is really, you know, a dystopian future based on this idea that if we just opened up, you know, everything would be better. And really, the Chinese Communist Party used that to cement their utter control over the Chinese people in to really subjugate them using all of the benefits of being attached to the United States and the West,
Jason Hartman 17:27
you know, for the first part of what you just said a moment ago. Do we really have Bill Clinton to thank for that bad deal? It seems like it’s, it could sort of rest on Bill Clinton’s shoulders, mostly, but every president has until this one, I think is kind of
General Robert Spalding 17:41
sold us out. Well, no, I think it was also the Republicans. I mean, that look, this is a non
Jason Hartman 17:48
partisan issue and the Bush has to you know, I’m not I’m not saying that but but Clinton was the one that really opened it up. And Nixon pioneered it. I mean, if you want to go back further, you know, Nixon sort of opened it up, but but Clinton really, really opened up the trade. And that was, you know, but a lot of cheap goods float in here. And you know, we like it when you go to the store. So no
General Robert Spalding 18:09
thoughts? Well, I mean, I think for us in the Pentagon in 2014, and 2016. And really, for me today, it has been a journey of discovery. I think there’s been a lot of culpability on both sides of the aisle. In fact, when I was at the White House, we got in this big argument, right, in 2017. And I described it in the book. And I just said, I just got up and said, Look, you know, we’re all culpable in some way. You know, that’s, that’s really irrelevant. At this point. We have to figure out how we get out of this. How do we how do we make it right for the American people and really, how do we preserve our republican so the book is really talking about what we need to do to do that. And a lot of those things you’re you’re seeing making tariffs permanent against China, preventing them from using our capital markets, preventing us corporations from investing in China. And because there is a strict capital controls and they can’t bring those profits out, yet they’re reporting them to the markets. So there’s a lot of things that we allow to be done, that ought to be changed. And I think when you do that, you’ll start seeing, you know, the wholesale loss of innovation, technology, talent and capital to China to really start to flow into the United States back into rebuilding our country and our productivity in our in our wealth.
Jason Hartman 19:25
Yeah, good thoughts. Let’s wrap it up. But I just I do want to I’d be remiss if I didn’t just touch on one more subject. I mean, you’re you’re a military general. And I just got to ask you, should we be how concerned should we be about China’s military plans? That’s obviously a giant subject, but I think comment on that, you know, the, you talk about modern warfare 5.0. And 5g is about to go into but just any comments you have on kind of the military angle?
General Robert Spalding 19:54
Yeah. So I’ll just talk about national security in general. So we tend to think of planes and ships and tanks and bombs and bullets and what the so what of the book is national security today in a globalized internet connected world involves ones and zeros in dollars and cents. It’s really about economics, finance and information. And the ability of using the tools that Silicon Valley gave us, both the technology and the business models to influence populations at the individual level. Now, in terms of military power itself, the Chinese Communist Party has really built a very formidable military on the basis of intermediate range, ballistic and cruise missiles. And so that’s something that we’re going to have to counter in the region. And that’s why the administration pulled out of the intermediate nuclear forces treaty because we need to build conventional intermediate range ballistic and cruise missiles to counter that, but that’s more of a deterrence in the military should be used as a deterrent. We should be focusing on the economic and science and technology power of the United States test where we derive our national security power is really the strength of the economy and our science and technology. And I think we lost sight of that. We that’s how what carried us through the Cold War. That’s what we’ve always relied on is the strength of our economy in our and in our technology base. And we’ve gotten away from that, and we really need to return.
Jason Hartman 21:16
Yeah, good points. You’ve had your website and tell people where they can find out more obviously, the book is available in all the usual places, which by the way, it has excellent reviews and many reviews.
General Robert Spalding 21:29
Yeah, General Spalding calm. There’s no u and Spalding and then you can follow me on Twitter. Robert underscore Spaulding.
Jason Hartman 21:35
Excellent general Spalding. Thanks for joining us. Thank you so much.
Jason Hartman 21:44
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