(July 17, 2019 / Wikistrat) David Paul Goldman is an American economist, music critic and author, best known for his series of online essays in the “Asia Times” under the pseudonym Spengler. Former CIA National Intelligence Council vice chairman Herbert E. Meyer once said, “Ask anyone in the intelligence business to name the world’s most brilliant intelligence service, and we’ll all give the same answer: Spengler. David P. Goldman’s ‘Spengler’ columns provide more insight than the CIA, MI6 and the Mossad combined.”
Since 1984, Goldman has been employed as an economist and CEO of investment funds and investment policies in senior positions in bodies such as Credit Suisse, Bank of America, Cantor Fitzgerald, Asteri Capital and SG Capital. In September 2013, Goldman became a managing director and head of the Americas division of the Reorient Group investment bank based in Hong Kong.
Q: Welcome, David, to Wikistrat’s expert interview series, and thank you for taking the time to join us. Since you are recognized as a leading expert on China and its economic system, I want to start off by asking you: How worried should we be about U.S.-China economic competition?
A: We should be extremely worried because China raises the specter of the United States going into a decline comparable to that of Great Britain after it ceased to be a world power.
China has a population between four and five times larger than that of the United States. Their GDP per capita in the 40 years since Deng Xiaoping’s reforms in 1979 has grown 4,800 percent in dollar terms, which is astonishing.
They are graduating several times as many STEM professionals as we do every year, and they are already ahead in a number of technological fields. They are quite ambitious, so the possibility that the United States may be pushed aside to become a second-rate power, as did Britain after the decline of its empire, is a significant risk. That would be a terrible thing, and I don’t want to see it happen.
So, to quote a famous movie, the answer is: “Be afraid, be very afraid.”
Q: Does China intend to translate its economic power into global political power? If so, how does it intend to do that?
A: Well, China’s idea of how to rule is so radically different from that of the West. I think it’s very useful to put aside our experience with the Cold War, or other empires we have dealt with, and to look at this as something new (although Chinese civilization is very old, of course).
China has never shown any interest in occupying territory outside of the natural borders that it established around 800 C.E. But its idea of soft power is frightening and comprehensive; if the evil Soviet empire wanted to make us slaves, China wants to make us sharecroppers. And they may well succeed.
The point of the Belt and Road Initiative, with its emphasis on telecommunication technology and other initiatives to expand China’s influence beyond its borders, is to integrate a very large part of the world into a de facto Chinese empire. I don’t think the Chinese have the least interest in how we govern ourselves, which is different from the Soviets who wanted to transform everyone’s social system. The Chinese simply want everyone to pay tribute to the emperor.
Q: So, they are uninterested in what our social and governance systems are as long as it benefits them economically?
A: The Chinese are not particularly curious about the customs of those they consider to be “barbarians.” From a Chinese standpoint, democracy is something inconceivable. Confucian culture is entirely vertical and so you have no peers—only superiors and inferiors.
Confucianism dictates that “a man who is generous will get many people to become his followers” because they will like working for him as opposed to others who are less generous.
Basically, what China does is create a set of nested Chinese boxes, the base unit of which is the paterfamilias of an extended family. It goes up to the mayor, the provincial governor, and, eventually, the emperor.
By the same token, in China, there are no organizations like the Parent-Teacher Association, no athletic clubs, no Boy Scout troops. There is nothing that is managed by people of their own initiative. The state, and underneath it, the family are the vertical structures.
That China would become a democracy was the hope of the liberal establishment when we established diplomatic relations with China under President Richard Nixon, many years ago. That hope has, of course, been completely frustrated. The idea is as distorted as the possibility that China is going to go out and conquer the world in the way that the Russian Empire sought to.
Q: So what is your take on President Trump’s China policy so far?
A: I would give him very high marks for effort. In contrast to his predecessors, who essentially ignored the rise of China, Trump drew attention to the fact that China is a strategic rival and that its rise has profound implications for America.
At the same time, I don’t think the means that he has employed to address the issue have been terribly effective. For example, the campaign by the Trump administration to persuade America’s friends and allies not to use fifth-generation mobile broadband technology from Huawei has been a failure.
We have an incongruous situation in which no American company makes the physical equipment or codes the software to run a 5G network, but we told everyone else, “Don’t use Huawei.”
Huawei spends more on R&D in this field than all of its competitors combined. It has the best product, and it has very low prices. These are probably subsidized prices based on the assessment that it is worth taking a loss in the first installation in order to make money on future upgrades.
With the exception of Japan, New Zealand and Australia, everyone else is using Huawei. The British newspapers reported that all five of the British mobile carriers are now installing base stations for 5G transmission from Huawei. So, it seems pretty clear that they have gotten word from the government that there won’t be any interference.
All of the Europeans I spoke to—Germans, French, Italians and so forth—were emphatic that they were not listening to the United States on this issue.
President Trump, although he has the right idea about the nature of the problem, has been very badly advised on how to deal with it. I think he is beginning to question some of the advice that he has received, and that is why he is now looking for some kind of deal with the Chinese as opposed to a prolonged fight, which could have adverse economic consequences and, among other things, possibly damage his chances in the 2020 presidential election.
Q: What should he be doing differently?
A: The United States has a proven track record of astonishing the world with American ingenuity and innovation when we really put our mind to it. American industry created everything that is now the digital age: microprocessors, the Internet itself, displays, optical networks, lasers.
These inventions came about as part of America’s response to the Cold War. We need to out-compete the Chinese, produce better products, and demonstrate that their state-subsidized system ultimately can’t compete with a free market that is motivated by a great national goal and supported by governmental initiatives to promote basic R&D.
I propose a return to the massive governmental support for R&D and fundamental science—a policy that produced spectacular strategic results and so many economic benefits in the previous generation.
Q: What do you see as the Chinese technological advances that should most concern the United States? And how should America cope with them?
A: Quantum mechanics involves a process whereby atoms at a very large distance can become entangled with each other. The Chinese pioneered a system where this entanglement can be used to send a signal; in 2017, Chinese scientists conducted a video call using quantum entanglement, and this was a spectacular accomplishment.
One of the benefits of this method of communication is that, if you attempt to listen to the signal or interfere with it in any way, you destroy it. It’s like a letter that disintegrates the moment you look at it, and so it is theoretically impossible to eavesdrop on it.
The United States spends $80 billion a year on intelligence and the vast majority of that goes to signals intelligence. The emerging Chinese capacity to encrypt telephone communications and data transmissions in a way that cannot be tampered with will change the balance in a dramatic way; until now, the United States has had a huge strategic advantage in signals intelligence but it may be on the verge of losing that.
Therefore, we must consider seriously how to respond to this development. To me, it was shocking that the Chinese pioneered quantum communication and appear to be more advanced than we are in that field. So, we ought to make sure that other frontier technologies, including quantum computing itself, become American-led fields.
Q: Going back to the United States, do you see Washington as mixing too much ideology into its foreign policy?
A: I think the United States tends to have a narcissistic and simplified understanding of ourselves. In particular, I take issue with the idea that “everyone wants to be like us, so our job is to go around the world and help everyone become like us.”
In our ideological naivete, we have committed ourselves to exporting our system of governance to places that have no interest in it at all. We are not going to export a good deal of regional American cuisine to places that have little demand for it: You cannot expect to successfully export pork barbecue to Israel or watery Milwaukee beer to Germany. Likewise, we are not going to export American political institutions to China—not in my lifetime, anyway.
Q: Some claim that misreading China’s intentions was the largest policy blunder since the end of World War II. What is your assessment?
A: The important things that China has done are things that it has been saying it would do for years.
Huawei has been saying that it plans to create ecosystems all over the world where people use its technology and bring in e-commerce, e-finance and Chinese commercialization. Then it would integrate them with the Chinese economy and allow for the creation of many “little Chinas.” They talked about this at every conference. However, none of the “experts” in the United States stopped to think that maybe the Chinese could do it. It never occurred to them.
All of this was obvious, and I spoke and wrote about it as much as I could. People would listen and nod, and then their eyes would glaze over. The idea of China playing a transformative, disruptive role in the world was not in the realm of their imagination. They just couldn’t imagine it happening, and so they decided it was not happening. But there was nothing secret about it.