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--:-- John Bickley: Welcome to an extra edition of Morning Wire. I'm John Bickley, Editor-in-Chief of The Daily Wire, with Georgia Howe.
--:-- Georgia Howe: Thanks for joining us, John.
--:-- John Bickley: Today, we're discussing Treasury Secretary Janet Yellen's recent trip to China, the global power struggle between the U.S. and China, and how the U.S. would respond to Chinese military aggression.
--:-- Georgia Howe: Joining us now is David Goldman, a Claremont Fellow and Deputy Editor of Asia Times.
--:-- David Goldman: Thanks for having me on the show.
--:-- John Bickley: So, David, Treasury Secretary Janet Yellen touched down in China this week. She's wrapping up her four-day visit now. What is the goal of her visit? That's not clear.
--:-- David Goldman: Yellen is a China dove. She's expressed doubts about the efficacy of tariffs. And the fact that she is the next senior official to visit China after Anthony Blinken suggests that the Biden administration wants to reduce tensions.
--:-- Georgia Howe: However, if you read both the Chinese public press and websites close to the state council, nobody seems to know she's coming. She's not mentioned at all, which I would say indicates extremely low expectations on the Chinese side for her visit.
--:-- David Goldman: Their main issue right now is with the Commerce Department. As you know, last October, the United States imposed very broad restrictions on the export of chips and chip-making technology to China and has persuaded its allies, particularly Japan and the Netherlands, who are major producers of chip-making equipment, to impose severe restrictions as well.
--:-- John Bickley: The Chinese are, as you might expect, furious about this. And of course, they responded a few days ago by announcing that they would place export controls on materials that are key for certain kinds of chips and other uses, namely gallium and germanium.
--:-- David Goldman: So the Chinese have an effect said, you want to play rough, we can play rough too. They're channeling Sean Connery in the Untouchables.
--:-- Georgia Howe: So how important are these minerals and do you expect the Chinese to actually restrict their export to the U.S.?
--:-- David Goldman: I have no idea what the Chinese are going to do. Obviously, the Chinese are making a threat. They've required export licenses. We won't know until August 1st when the restrictions come into effect whether they're granting the licenses or not.
--:-- John Bickley: But for certain kinds of specialty ships, they're quite important. It is possible to source these minerals elsewhere, but it would be a significant bother, though not a devastating blow to the American semiconductor industry.
--:-- Georgia Howe: The U.S. is making moves to become less reliant on China by producing more needed items domestically. China sees this as a threat. How significant are moves toward decoupling from China? Is decoupling actually realistic?
--:-- David Goldman: The World Bank has a study showing that as we import relatively more from so-called friend-shoring countries like Mexico, Vietnam, and India, those countries are importing a great deal more of intermediate goods and capital goods from China.
--:-- John Bickley: So the supply chain is still very much dominated by China. It's simply that the final stage of assembly is going through third countries.
--:-- Georgia Howe: In terms of what we've seen in the broad trade flows, I would say French shoring and de-risking or whatever you want to control, decoupling, has not happened at all.
--:-- David Goldman: The obvious exception is that by building chip fabrication plants in the United States, we are guaranteeing a supply of chips for essential uses in the event that our Asian supply is interrupted. That's certainly a useful thing to do, though that's still mainly the construction phase.
--:-- John Bickley: We haven't seen that work up in the trade flows. It's much harder to replace Chinese supply chains than simply to shift your purchase to India because the Asians will simply rearrange the shells and China will still be the major exporter.
--:-- Georgia Howe: You've mentioned Janet Yellen is a China dove. She's not in favor of decoupling and says it would be an economic disaster. Do you think she's got the right perspective going into these meetings?
--:-- David Goldman: She's got arithmetic on her side. This year, for the first time, America imported more capital goods, the goods that make goods, than we produce for domestic use.
--:-- John Bickley: So the majority of the goods we use to make goods come from overseas. And China is one of our largest suppliers, probably our largest supplier directly and indirectly.
--:-- Georgia Howe: So if we want to invest more to make more goods, which I think we should, I reduce our trade deficit, we would first have to get the capital goods. And to do that, we have to import more, including import more from China.
--:-- David Goldman: So decoupling on a purely arithmetic basis as a short measure and as a short two horizon is arithmetically impossible. We let our capital goods industry atrophy too much.
--:-- John Bickley: Now, that doesn't mean that we should not do things to establish our independence in critical industries. I'm very worried, for example, about our dependence on pharmaceutical feedstocks and many other things.
--:-- Georgia Howe: On the other hand, do I think it's an urgent issue to stop importing ordinary circuit boards from China? No. Why? It's a commodity item.
--:-- David Goldman: So I think we have to be very selective about what our national security priorities are when we talk about the coupling, as opposed to proposing a grand break with China, which is unfortunately impossible at this point.
--:-- John Bickley: Let's turn to Taiwan. There are always tensions between the island and mainland China. And just this week, a Chinese fighter jet crossed the median of the Taiwan Strait.
--:-- Georgia Howe: A recent article in the Wall Street Journal said Taiwan has two choices, become Ukraine or Hong Kong. What are your thoughts on that?
--:-- David Goldman: The Chinese have made clear that in the event that Taiwan moves to sovereignty, that it tries to become an independent nation, that will mean war.
--:-- John Bickley: In the absence of an actual move towards independence, I do not believe the Chinese will go to war. China has never fought for what it could get without going to war.
--:-- Georgia Howe: But it is a dangerous situation. There was a speech a few days ago by a prominent academic at Fudan University in Shanghai named Zhang Weiwei, One of the main America watchers in China who said the United States is in effect cleaning their guns in front of us and hoping they won't go off.
--:-- David Goldman: So they want to create a coordinates or consultation mechanism to avoid problems if a gun goes off. And we're telling them that they should stop cleaning their guns in front of us. So stop sending destroyers to the Taiwan Strait. Stop sending reconnaissance planes.
--:-- John Bickley: We'll continue to harass you and beat you up until you figure out that what you're doing is dangerous.
--:-- Georgia Howe: That's the Chinese attitude. They're going to play very rough with us, and they're going to go to the brink in terms of cutting off boats and harassing reconnaissance planes and buzzing the Taiwanese.
--:-- David Goldman: But that doesn't mean that they have immediate plans to go to war. They obviously would lose a great deal in a war. It's risky, and they much rather get what they want by threats.
--:-- John Bickley: Would Taiwan be prepared for an invasion? And do you believe the U.S. would defend them if there were an invasion?
--:-- David Goldman: Well, if there is an invasion, it's a difficult question. People have the idea of Normandy World War II's landing craft steaming 90 miles across the Taiwan straight. From a military standpoint, I very much doubt the Chinese would do that. Half of them would get sunk at least.
--:-- Georgia Howe: But they certainly have the capacity to blockade the island. They've got thousands of service-to-ship missiles. They have 800 modern aircraft, a lot of submarines, and so forth.
--:-- David Goldman: They could cut Taiwan off from the rest of the world. Taiwan only has a week to 10 days supply of energy, and its economy was shut down in a very short period of time.
--:-- John Bickley: With the United States going to war over Taiwan? The question is what you want us to do. Will we send Marines? No, because the Marines would never get there in a war. They'd have to go by ship, and the Chinese would sink those ships.
--:-- Georgia Howe: Would we blockade China, cut off their access to energy, do other things to hurt them that constitute war measures? Absolutely.
--:-- David Goldman: But if the Chinese blockade Taiwan and don't simply send landing craft, working out what the war would look like is kind of difficult. I don't believe ground forces are likely to be involved because I don't see how we get the ground forces in place to fight in the first place.
--:-- John Bickley: Final question, how do you see the future of U.S.-China relations?
--:-- David Goldman: Well, there are three ways this thing can go. One is we invest what we need to in our industry and we lead for on China. The second is China continues developing automation based on artificial intelligence, 5G broadband, and so forth, and becomes the dominant industrial power in the world.
--:-- Georgia Howe: And we end up adopting Chinese technology because it's cheaper and we find it useful.
--:-- David Goldman: And the third is we really become de-industrial. So I want option one, but option one is an expensive one. And I've got no idea how this thing is going to break.
--:-- John Bickley: I only know what I think we should do.
--:-- Georgia Howe: Well, in the meantime, we'll see if Yellen's visit results in anything tangible.
--:-- John Bickley: David, thanks so much for joining us.
--:-- Georgia Howe: That was David Goldman, and this has been an extra edition of Morning Wire.
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