The 2025 U.S.-China Congressional Commission Report is upon us to discuss. We have on the mic Mike Kikuk, who spent two decades on the hill with Schumer and Sachs. He is now at Hoover and was appointed by Schumer, as well as Leland Miller, who’s the co-founder and CEO of the China Beige Book and appointed by Speaker Mike Johnson.
Welcome to China Talk, you two.
- Thanks for having us.
- Thanks for having us.
So, what’s the China Commission?
Jordan: It’s actually kind of a fun story. I think when I met you in New York, we actually talked about this. Next year is the 25th anniversary of the China Commission. Its full name is the U.S.-China Economic and Security Review Commission. It was created by Congress right around the same time as the WTO session conversations and the Permanent Normal Trade Relation conversations in Congress.
If you go back and look at the legislative history, it’s actually incredibly fun. It’s basically Congress coming to the conclusion that they were going to do this, that they didn’t like it, and they were going to keep an eye on China. By doing that, they created this Commission. The task was to keep an eye on China and on the executive branch as things progressed over time.
That’s basically the origin story of the China Commission.
The things we do every year include:
- A series of hearings, usually six
- Always co-chaired bipartisanly by a Republican and a Democrat
- We put out an annual report with recommendations
- We have a series of engagements with the executive branch
- Conversations with folks like Jamieson Greer, Under Secretary Kessler, leaders in the military
- We had a chance to meet with General Kaine earlier this year, among others
All the folks on the Commission have some experience either on the hill, in the security space, or in the economic space like Leland. So it’s a really interesting hodgepodge of folks and a good team.
Each year, we put together about an 800-page report, which, as you mentioned, is sort of like the geek-out on China report, where we go deep on a variety of things. We have a staff that does an incredible job on the report.
That’s the origin story.
Leland: What did I miss?
Leland: Well, you didn’t do your alligators-around-the-boat riff, which is always good.
Jordan: Don’t worry, I’ll get to the alligator closest.
Leland: Whatever it is, essentially, there are a million people in DC working on the issues of the day. What the China Commission tries to focus on are the issues that are more distant, on the horizon. What should we be focusing on now? What should Congress be looking at very closely in the:
- Economics
- Military
- Technology space
How do we do policy smarter? We try to look a little bit closer to the horizon line and recommend to Congress the ideas that we think they should be considering.
Jordan: Just to give you the alligator closest-to-the-boat analogy, since Leland decided to trigger me. Folks on the hill are dealing firsthand and every day with the alligators closest to the boat issues. That’s the riff I always have, and Leland put it nicely.
We’re looking over the horizon or at the horizon’s edge on issues - things that aren’t necessarily above the fold. We’re raising awareness and calling attention to those. Honestly, the other piece is increasing literacy on some of these issues, and that’s a huge piece as well.
Leland: Yeah, and as a reader of this document going on a decade now, it’s nice to see how the level of discourse in the American political ecosystem around topics like this is often very heated and not grounded in evidence. Having this report come out every year is just really refreshing.
Jordan: It’s kind of a lateral, different taste. I had the feeling listening to the APIA Supreme Court discussion like,
“Oh wow, here are people who are actually engaging with the world and engaging with facts, trying to understand things.”
You’re not going to write a 60-page report about China’s ambitions to flourish in space without actually doing a lot of research and putting in the work.
We have two commissioners on, you guys get all the glory, but there is a large team of staffers who are really putting in the work. For my interactions with them, they have been some of the folks… Who take their jobs incredibly seriously and, as you said, Mike, are afforded this really fun and interesting perch to be able to stare at issues for a long time. Instead of doing it in the intelligence community, where some people get to see it, “this is a product for the American people.” So anyways, thanks, guys, for all your work.
Well, you know, Jordan, the staff are the backbone of this because, you know, the commissioners drive the agenda. We all have our different agendas; they’re overlapping. But then, you know, it’s fairly common for the staff to come up and say,
“No, no, I don’t think you can base that on evidence,”
so we have a discussion. They do a lot of research all the time. We make sure that by the time we put something out, it’s not something that just passed through us; it’s our perspective. It is something that is very evidence-based.
You look at the report, it’s just a big research document that focuses on policy but is based on real stuff out there, so it’s an important component of this. You know, the research part of this is critical, Jordan.
Just to pile on here, the thing that I found most interesting when I joined the commission is I spent years with Leader Schumer getting some of the most exquisite intelligence in the world. The first year I was reading over the first draft that the staff put together, I must have highlighted at least five or ten sections where I was like,
“Where on earth did you get this?”
I was just absolutely amazed at the amount of information that was in open source. Them being able to find this and sort of pull it out.
You know, we’re not complaining about the seven citations to China talk this year. Anyways,
- Is that too many or too few?
- We’ll chart it over time.
- We’ll have ChatGPT see how we’re doing.
We do a lot of shows about Trump, Biden, and how they’re approaching China. Make the case, you two, for why Congress matters when it comes to U.S.-China issues.
Start with a guy who’s been on the hill longer.
I mean, listen, Jordan, the first thing I would say is that if you think about the big moving pieces in U.S.-China policy over the last decade, a lot of them have come out of Congress. Whether it’s sanctions bills, whether it’s CHIPS and Science, whether it’s FIRMA, the effort to reform CFIUS - biosecure hasn’t been passed yet but is an idea that actually came out of the commission, which again is a legislative branch entity - outbound investment screening.
A lot of these ideas are actually ideas that either came out of the commission or came out of members of Congress. So you know, the origin story on CHIPS and Science was that Leader Schumer and Senator Young got together and worked up a piece of legislation that became one of the most significant pieces of industrial policy we’ve seen in a generation.
If you take the actions that Congress has done over the last ten years, there have been some incredible shaping pieces of legislation that have driven the agenda. Obviously, the executive branch has a lot of broad authority in foreign policy, but a lot of the guardrails and other tools that have been used by the executive branch have been provided either at the direction of Congress or have sort of driven the agenda. That’s how I would say it and how I think about it.
Leland, what do you think?
You know, administrations are fleeting, and Congress is forever. So if you want to have durable policy that lasts, you need to have Congress involved. I think Mike’s given examples of some of the things that Congress has been essential to.
If you look at outbound investment, this is not a success story - at least yet - because it’s something that the administration handled, and the Trump administration handled it, but Congress hasn’t yet cemented the foundation for that in legislation. So right now, you don’t have a durable outbound investment mechanism.
I think this is a call for Congress to constantly be on the tip of the spear, not just reacting to whatever one administration does back and forth as Republicans and Democrats alternate the president.
The only thing I forgot to mention is that we pass an annual National Defense Authorization Act in Congress every year, and undoubtedly that thing is chock-full of China policy, whether it’s on the economic side or the security side.
So there’s huge pieces of legislation that drive the agenda of both the Department of Defense and the broader executive branch in there.
Then the other thing to keep in mind is, you know, we did a major update to the Taiwan Relations Act three or four years ago. That was also carried by… National Defense Authorization Act and that was driven out of Congress. It was not driven by any executive branch or administration. It was actually done with a lot of push and pull from the administration saying, “Oh my God, we can’t possibly do this or we can’t possibly do that.” Ultimately, Congress said, “Yes we can.” Yeah, yes we can man, what a throwback Mike.
There is this weird thing though of the executive branch sometimes, perhaps increasingly, not doing the things that legislation says they have to do. One of your recommendations is to do a better job of following what the Taiwan Relations Act said. Of course, we have the ongoing TikTok saga, which both the Biden administration in their last few weeks as well as the Trump administration have kind of punted on in a way that, I wouldn’t say, did not reflect the intent of all the votes in the House.
So how do you see that dynamic of when you have legislation that gets signed and then an executive branch that doesn’t necessarily follow through on China-related stuff?
I was on the Armed Services Committee early in the days of the Iraq War and Afghanistan War. The way I think about it looking back is it’s kind of like holding up a fishbowl, right Jordan? If I go this way, it sloshes one way; if I go that way, it sloshes another.
I only use that analogy because it’s never perfectly in balance. Maybe for brief periods of time, but not for a sustained period. There’s a push-pull relationship between the executive branch and legislative branch historically. Obviously, it’s different if it’s divided government versus one party in power, but there’s always some sloshing around.
In Congress, over the years, there has been broad authority given to the executive. When the executive doesn’t listen, they find ways to put:
- Guardrails up
- Constraints on actions
- Funding prohibitions
and things like that. That’s the tradition of our country.
I think we’re seeing some of that sloshing around right now. I obviously worked for Democrats, so I see things a certain way, but I don’t think we’ll ever see the fishbowl perfectly still on the counter. There’s always some rumbling in the water.
If you want to talk rumbling in the water, if you’re an administration, you get into power with a million things to do and priorities. You’re not going to look at structural change most of the time.
One of our recommendations this year was on the creation of an economic statecraft agency or some sort of entity because there has not been enough coordination and integration among various government entities that handle sanctions, export controls, and other things.
Now, I’m not sure anybody on the Republican or Democrat side would say, “Wow, that’s a terrible idea.” But if you’re in the administration, whatever that might be, the last thing you’re probably doing is looking to structurally change a bunch of things.
What we’re trying to say is:
**Focus on the mission.**
If the mission is best conducted by restructuring or reintegrating things, then let's do it.
That’s something an administration focused on getting a million things done in 24 hours often can’t do.
So my questions were a leading critique going into this first recommendation. This is a theme I’ve been writing about and discussing for four or five years now-talking about some new reorganization around getting all the disparate pieces of government that touch the China challenge to play nice, live somewhere together.
You guys identify:
- BIS of FAC
- The export control trunk of the State Department
- DTSA (which does export controls for the U.S. Defense Department)
all needing to work more closely.
One of the stories of the Biden administration was the fundamental differences among a handful of principals who all own different pieces of this. There was a big divide about how hard they wanted to push on things like investment controls, export controls, and what have you.
So, I’m curious… Know if you end up having cabinet members who disagree, what is the hope that a unified economic statecraft entity could do? I mean, are we just moving this all into the White House and kind of taking it out of the hands of these other principals? Give me more on the vision here.
This is something that Leland and I actually worked on together, Jordan, so you’ve got the right people to give our feelings and get our agita out. Randy Shriver and I actually wrote-Commissioner Randy Shriver and I-a piece on this earlier this year, and it was that we needed to sort of reinvigorate the export control elements of the Department of Commerce. I think we said in the piece that almost something like the post-9/11 reforms of the sanctions elements of the Treasury Department were needed.
Over the course of the year, we had a series of hearings and meetings with a variety of folks. I sort of got to a point of frustration where I almost put my hand on my forehead, Jordan, and it was like, “Oh my God, we didn’t go big enough.”
The frustration I have is that right now you have export controls, and this is also true in the sanctions community, where all these things sort of happen at a mid-level layer in departments and sometimes don’t bubble up to senior officials. The consequence is that decisions languish; everything languishes, and there’s no natural forcing function.
The idea is that rather than multiple agencies and departments having these things layered, sitting at the assistant secretary level or below, you consolidate them so you have some sort of forcing function-not within multiple silos but in one silo. Hopefully, you have a senior leader, whether that’s in the Department of Commerce, Treasury, or a standalone entity, that allows these issues to actually boil up to the top.
This way, you don’t need to go to the National Security Council every time to get a resolution. We’re silent on where this should go. The issue of export controls and sanctions is one that has a lot of controversy in Congress:
- The Banking Committee has control over export controls and sanctions in the Senate.
- The House Foreign Affairs Committee has jurisdiction over those issues in the House.
- Other committees like the Foreign Relations and Foreign Affairs Committees, Armed Services Committees, and others have significant equities in this space.
So, we’re silent on that piece, but we are clear-eyed that we are in a period of economic statecraft-a continuous cycle of measure and countermeasure between us and the Chinese. We need to be thoughtful and strategic in a very consolidated and deliberate way. That was the motivation behind this recommendation.
Leland, what did I mess up?
Well, I’ll give an even more pessimistic take. I think the current structure sets up export controls and sanctions to fail because if you look at the way this works:
- At the Commerce Department, the undersecretary is in charge of export controls.
- But the secretary himself is in charge of the promotion of U.S. businesses abroad.
He is structurally disincentivized from doing tough policy-not that the people who serve at the secretary level aren’t patriots or don’t want good policy-but there’s an inherent tension in the system between pushing smart policy that interferes with their major mandate.
The same thing happens at Treasury, and to a degree at the State Department. So, what this does in some ways is free important national security policies from the structural disincentives built into the current system.
And I think this aspect of policy is completely ignored and it shouldn’t be because as long as you have a policy thrust at the very top for the promotion of business, it’s going to be very hard to have someone two steps below on the totem pole pushing for something that is often completely counter to that.
Yeah, let’s stay on that, Leland, because regardless of where you put this, there will be counterforces-parts of the government that want to:
- Promote exports
- Retain global financial stability
- Keep oil prices low
or all of these completely reasonable arguments we’ve heard over the decades for not doing more coercive actions against Iran, Iraq, Russia, or China. Pick your country where there is like a real cost to whatever, you know, sharper economic stuff the U.S. is considering. So is the argument then just like if you have someone who’s a cabinet member whose job it is to advocate this, then just like that argument will be clearer? Or, I don’t know, take it from here.
What I think that does is it structurally sets up the policies to succeed, but I don’t think any of this can succeed without a broader national economic security policy overlaying it. So I think the one thing that right now that administrations’ plans-plural-are missing is a national economic security strategy that integrates all these different pillars.
Now, there’s different reasons why people don’t want to have that, but essentially you have all these issues that are part of economic foreign policy:
- Trade
- Investment restrictions
- Technology controls
- Supply chain resilience measures
- To some degree, re-industrialization back home, whether it’s defense industrial base or advanced manufacturing
All these pillars are advocated for by people that really want their policy to succeed. Unless you have a broader policy that weaves them in and integrates them and sees them as a broader mission going forward in parallel, everybody’s fighting for their own piece of the pie. Everybody’s fighting for their own resources.
So what happens sometimes is that there’s such a focus on trade and tariffs, etc., that you don’t get enough focus on export controls and you don’t get any focus whatsoever on investment restrictions. If you had an overarching strategy in parallel with this new reordering of the economic machinery, then you’re saying:
“Wait a second, if we want to be smart, then we should be dividing up the U.S. government’s prerogative in economic security matters into things that have a national security nexus and things that don’t.”
If they have a national security nexus, they need to be working in tandem with each other. So we should have supply chain resilience at the core of any security policy. But at the same time, you have smart stuff on investment, smart stuff on technology; trade and tariffs are absolutely part of that. Everyone works together if you’ve got the right policy overhang, and you don’t have a structure underneath it that disincentivizes these policies.
Yeah, but here’s your rub, right? Sorry, Mike.
No, no, go ahead.
Okay, but the rub is right-all this stuff costs money. Mike made the point earlier: politicians are focused on-sorry, the alligator next to the boat. Close.
Okay, Leland got it wrong in that he’s put it in your mind now. There’s actually a former colleague of mine on the Armed Services Committee, a guy named Tom Goffus, who used to say when we were on trips, he’d always talk about the alligator closest to the boat, the alligator closest to the boat, right? And the sort of things that the commission wants to optimize for are more like two to five years out stuff.
I think one of the fascinating lessons of this year is that we’ve had this dog that hasn’t barked and then it finally did with rare earth export controls. This is like the thing you would think would get politicians in the executive branch and on the Hill to start thinking more seriously about just how sharp that sort of Damocles is held by the Chinese government now.
And how this sort of money and attention and energy and reorganization and, you know, “Okay, we’re gonna give a little bit up of influence in our committee because we know this is really important,” like you would think that all that stuff would start-that the rare earth saga of 2025 would have lubricated those sorts of gears in order to have more of the attention shifted to the types of more security resiliency stuff that Leland is advocating for.
But I don’t know, guys, I don’t really see it.
All right, all right, Jordan. I’m kind of pessimistic.
Jordan, I’m gonna push back on you here because look:
If the reason that nobody was talking about supply chains until a few months ago, now everybody’s talking about supply chains, is because they didn’t see them as a tier one national security priority. They understood them-nice. Supply chains are boring.
A year ago, if you would have brought us on a China talk and said, “Let’s talk supply chains,” it would have been a very, very different conversation. And you probably have a lot fewer people tune in because they’d be reading the title and saying:
“Supply chains? Oh gosh, this is gonna be a…” This is gonna be boring. The way to elevate these really critical issues, and I would say supply chain resilience is, is, is, you know, up there at the very, very top, is to have it as part of a multi-pillar next national economic security strategy where you’re saying these are the five things we need to do in order to have smart policy on China and smart policy on all our potential adversaries and competitors.
Supply chains are not just this thing that corporates control and then, you know, hopefully they’re smarter on them rather than dumber on them over time. You know, it’s an absolutely critical facet of the U.S.-China relationship. Our sixth hearing this year was focused on supply chains and Beijing’s economic choke points on the U.S. economy via very critical supply chains.
By the time we had done that-we’d been planning this for six to eight months beforehand-everyone was finally talking about critical minerals and rare earth magnets. The other components of that are probably even more important over time.
You know, we focused on pharmaceuticals. China controls not just a small direct shipment of generic medicines principally to the United States, but they control the APIs (active pharmaceutical ingredients) behind those medications and often the key starting materials behind those APIs.
So when you see all these numbers about the U.S. importing drugs from India, most of the key starting materials for those pharmaceuticals came originally from China.
How much, you may ask? We don’t even know. The commission did an enormous amount of research-months and months of research. We had access to everything and came up with ranges because the U.S. government hasn’t thought it appropriate yet to really dig down and get the information to mandate the FDA get the information.
Other critical areas include:
- Printed circuit boards
- Legacy semiconductors
- Foundational semiconductors (we should call them foundational semiconductors)
All these issues represent potential choke points that Beijing has over the U.S. economy.
Now, if you go back to pharmaceuticals, it sounds really boring to talk about APIs and KSMs (key starting materials), but if you put it in terms of the fact that China may actually have a choke point on the ability for the United States to get insulin, heparin, antibiotics, and all kinds of other critical medications for our people and our troops, then all of a sudden you’re thinking
“Holy cow, this is an enormous potential vulnerability we have. This needs to be part of our national security thinking.”
That was not present a year ago; it’s starting to permeate and penetrate the discussion in DC right now on how smart we should be.
Had we had something where we said, “Look, supply chain resilience isn’t just a talking point; it is a critical pillar of a national security policy that will prevent Beijing from having leverage over us,” then Beijing can’t say,
“If you don’t do what we want, then we’re not going to let you have this, or we’re going to let you have that,” and that cuts down our policy choices.
Essentially, it’s about integrating these and convincing people that there really are a handful of tier one priorities. You could argue what all those five or six or however many priorities are, but those need to be recognized, integrated, and worked forward as a policy mechanism in tandem in order to have smarter policy on China.
Jordan, I just want to pile on a few things here.
When we were doing CHIPs and Science, one of the areas where we tried to push into-remember this is like 2018-2019, long before it was cool-we were already pushing it. Come on, give that era some respect, Mike.
“Hey yeah, trust me, I know. If you want to talk about Von Neumann Bush in a few minutes, you just let me know.”
Every time we pushed into this space during the Endless Frontier conversation in its early days, there was an incredible amount of pushback from industry. Industry basically patted us on the head and said,
“Oh no, supply chains, that’s our domain. Don’t you dare put anything in there to compel us to provide information here.”
So that’s the first data point just to pile on some of Leland’s thinking here.
The other thing that was formative for me-and this is part of the recommendation that neither Leland nor I talked about in the early rounds-was that one of the things we did after 9-11 was make sure that the sanctions community was integrated into the intelligence community.
That way, intelligence was actually coming in and fueling some of the things and served as a catalyst for some of the things that the Treasury Department did. The Bureau of Industry and Security certainly has access… To the intelligence community are not integrated into it, and the consequence of not being integrated into it is basically the intelligence community will give you information when you ask for it but isn’t sort of like pouring in their resources to make sure that your requirements are being met.
So I’m sure there’s some casual areas where that happens, but it is not sort of an industrial-scale effort. One of the other parts of the recommendation is that there needs to be a deeper integration of this sort of entity into the intelligence community so it actually benefits from a lot of the things that we do know about supply chains.
The second thing, or third thing Jordan, just to sort of say this, is going back to Leland’s point: this is an area where the U.S. government has not been strategic historically. You might know on some defense systems where sort of the sensitive materials are and where the sort of supply chains are, but it’s not something that we’ve thought about in a coherent and broad-based way.
So I think that was another thing that was a driver for both the hearing and sort of Leland and Livia’s hearing as well as the recommendation in the commission report. Sorry Jordan, I didn’t want to sort of get make sure we get out that piece.
Yeah, so Leland you said like in 2024 supply chains weren’t sexy but like they certainly were in 2020 and 2021. And you know, Mike, I’m sure, can give us a whole big riff about how the crunch around chips during COVID was helpful in getting the CHIPS Act across the finish line.
So I mean look, Mike, this stuff takes money, right? Or does it? I mean, do you need a double-digit billions bill in order to address PCBs, APIs, and rare earths? I mean, right, we’ve seen some stuff out of executive branches being creative-we got some loan guarantees-we’re buying 10% of this in that company. But you know, I don’t know, Congress has been shut down. They haven’t like, “Where’s this bill? What does it need to look like?”
Listen, none of these things run on fairy dust, Jordan. They all run on money and making sure that we are appropriating the appropriate sums of money, not just to the defense side of the ledger but also the non-defense side of the ledger, which BIS is part of, is an important piece.
So as Congress evaluates whether or not they like this economic statecraft recommendation, they’ll have to make a decision as to whether or not to provide more resources to implement it, and obviously a variety of other decisions they’ll have to make.
The export control issue that Leland brought up is one of the few areas where Congress has been pretty vocal on and expressing its displeasure or concern with the Trump administration: this idea of semiconductor exports to China.
You’ve seen some letters from both Republican and Democratic politicians. The GAIN Act is gaining steam and on the one hand, it’s like,
“Oh yeah, it would be nice to have more intelligence in BIS, but if they’ve forsworn any new export controls for a year then what are they gonna do with that?”
The sort of triggers that would really get Congress even more focused.
Leland, I think you’re right in that if China had done the API stuff, the reaction to the broader public would have been a lot more dramatic than a handful of factories not being able to make cars for a few weeks.
But yeah, I guess what’s your sense of the broader appetite for this stuff and maybe a little anthropology of the different camps within Congress currently on both sides of the aisle about how they’re thinking about these issues?
I think those in Congress that support export controls and those in the administration that support export controls have to make a better case for why they’re important.
I think if you look at the broader picture, the argument is constantly being made-and it’s certainly being made by industry-that we need to stop doing provocative stuff to China because we’re poking the bear. We want to have better relations. Why are we doing these things? They’re going to bring us closer to war.
But I think that what this does is forget the way the 30,000-foot view of the economy and the U.S.-China relationship: if you look at China’s economy, China is a two-speed economy.
The broader macro economy is structurally slowing down significantly. You have:
- Slowing domestic demand
- Weak consumption
- A property bubble that’s deflating
- All kinds of problems
But the second speed of China’s economy is the national security side, and Xi Jinping has made very clear what… This is Made in China 2025 sectors. This is advanced technology-these are things that have a national security nexus and are helping to build up the military.
Now, if we look at this in terms of policy, our policy should be focused not on the broader structural parts of the economy. We don’t care if China’s middle class is getting richer; as a matter of fact, that might be a good thing if they import more U.S. goods. But what we should be focusing on is the areas of the economy that Xi Jinping is looking at-areas that have a national security nexus, advanced manufacturing, etc.
How do you get to that?
- You need smart trade policy
- Smart outbound investment policy
- Smart export controls
So, you’re looking at these areas, which are extremely critical to China building up its technological and military machine.
Now, if you look at what a potential nightmare scenario is, it’s waking up one day and seeing that, you know, China has:
- Broken quantum cryptography
- Achieved AGI (artificial general intelligence) or maybe not AGI but some enormous breakthrough in AI
- Cured cancer
Through, you know, they’re responsible for curing cancer, and they beat the US to it. But there will be a shock that goes through the system that will be something like we’ve never seen because it’ll be a realization:
“Cancer. I don’t know, hats off to them, man.”
Well, look, we want someone to cure cancer, but, you know, we want to get there first if possible. We don’t want China to control the pipeline for that.
So, I think the point is that if you have enormous success stories on AI, quantum, and biotech, then it shows that you’re not doing the right things on the national security side. The reaction to that is likely going to be a broader decoupling.
It’ll be a look and saying,
“Look, the broader part of the economy itself is basically ignored by Xi Jinping. He doesn’t care if households aren’t doing well. He doesn’t care how the stock market’s doing. He doesn’t care how tech billionaires are doing. What he cares about is his part of the economy that’s focused on advanced manufacturing and national security issues.”
So we should be focusing on that from a policy standpoint. If we don’t, the reaction after some sort of huge China breakthrough or set of breakthroughs on the technology side is going to be much more reactionary.
It’ll likely be part of a broader decoupling because the recognition will be:
“Wait a second, we sort of allowed the economy to do well enough in order to fund the technology side, the manufacturing side.”
So we need to be very careful about doing that. I think there will be a much broader policy reaction, and it’ll be a much more dangerous set of U.S.-China tensions in the future if we ignore these national security priorities right now. Instead, if we wait until something big happens, then it’s going to be a much more tense and potentially confrontational relationship.
I gotta stay on the cancer stuff because it is illustrative of this.
Okay, what is national security and what is okay? One of the memes in Washington for decades now is:
“If you want your thing to get attention, it’s a national security problem.”
I mean, sure, there are some like bioweapon, super soldier, knockoff things that you would also unlock by curing cancer, but you have to draw the line somewhere.
Yeah, I mean, are we only drawing it around China buying middle-class consumer goods? Is there no universe in which the two countries can work, can not harm each other, in their attempts to discover cures for human illnesses?
No, I’m not saying there are no opportunities to work together, and I’m not saying that China curing cancer would be a bad thing if the alternative was not curing cancer. But I think that we want to have the U.S. industry, particularly the U.S. industry which is providing a huge amount of the R&D right now, to be able to win that battle if we can-because the alternative is to have China control the supply chains coming the other direction. It’ll give them enormous leverage in the relationship.
I don’t want to oversell the cancer thing because everybody wants cancer cured, of course. What I’m saying here is that we need to be looking at the relationship not on a hundred different policies that we could throw spaghetti against the wall and hope some of them stick on China.
We have to be looking at what are the things that we’re doing that provide capital or technological inputs to the Party or to the military, and we need to shut those down. The problem here is not only that we do not have strong policies that shut that pipeline down. Of capital and technology, we are refusing in most cases to even track that. So if you look at the problem with supply chains, it’s not that we have bad policies; it’s that we have refused up to this point to even get the data necessary to highlight what the vulnerabilities are. The reason we have not gotten those data is that we’ve been very sensitive to the idea that we’re on industries’ turf, we’re going to hurt our companies, etc.
I’m totally- I totally acknowledge that, but I think that we need to again highlight what are the national security things that we need to be focusing on. When there’s a national security priority, the government needs to become active. It needs to demand FDA get these data from the companies and be able to aggregate them so we understand the extent of our vulnerabilities here.
I think that’s the issue:
- First, get the data necessary to understand the extent of the problem if there is a problem.
- Second, then you can form good policies.
So we’re even quite far away from developing good policies because we have refused to get good data on investment, we’ve refused to get good data on supply chains and technology.
And technology as well. Mike, you want to take it wherever you want since you talked about the Endless Frontier? Let me just sort of go either a layer above or a layer below where Leland is, and that’s the sort of innovation cycle.
It’s great if we can talk about supply chains and how we can talk about supply chains if we’re innovating. A number of the recommendations - quantum, biotech, and a few other things that we had in the report - talk about the importance of making sure that you preserve and sustain the ecosystem of innovation.
So you wanted to talk about the Endless Frontier Act - the original story was it was obviously intended to be a hundred billion dollar investment in the innovation cycle, and the idea was that we’ve been benefiting for 80 years from the investments that we made during World War II and sort of had the American innovation flywheel going. It was time to reinvigorate that based on really what Leland is talking about, which is that China has done an incredible job building its manufacturing machine.
The American innovation machine is still incredibly resilient, and I still believe that today, but again going back to my fairy dust comment, all this stuff runs on money. So if you want to talk about supply chains going 10, 20, 30 years in the future, we need to make sure that we’re feeding into that innovation machine, into the process - doing the foundational science and the early scaling stuff - that allows us to make sure that we do know what is in those supply chains and know what’s required to build the technologies of the future.
All right, we went 45 minutes without talking about Trump. The dynamic there, Mike, is you have Mike Gallagher giving nice speeches about Vannevar Bush, and then you have science funding getting cut. Us sort of like holding - or do we want to do this? Maybe let’s not do this.
I want to talk maybe, Leland and Mike, a little bit about the sort of Treasury sanctions to Commerce export controls parallel.
One of the things that really caught my eye was this idea of having
whistleblowers for export control violations,
which is illustrative of just a playbook that already exists and is already really successful when it comes to financial sanctions and financial crimes, but that has not been manifested so far in export controls.
Curious for your reflections on that. Maybe a diagnosis: is it just much harder because it’s not everything that runs on dollars and through banks? You have to deal with all these small companies as well. What is going on here?
I’ll dive in quick, and then Mike can take over.
Look, I think that the issue - we have a very extensive recommendation on export controls and ways to bolster the policies of the Bureau of Industry and Security (BIS) at Commerce. I think the issue here is that you have an entity that’s doing extremely important work that is so massively under-resourced that it’s laughable.
What we’re doing right now via changes in policy and proliferating more exports to the Middle East and elsewhere means the job of BIS is bigger and harder and more expensive.
So yes, of course, we would love to see more money going to BIS. There is some more money going, but it’s not nearly enough. For example:
There's like one person in each country responsible for doing inspections.
The whole entire resource issue is quite ridiculous, but what… What we were trying to do is get around this problem however we can. So, how can we use technology to help? How can we put things in like the whistleblower hotline? How can we shift the model? I mean, we suggest shifting the model from a sale model to a rent model so that the US companies and the US government continue to control the levers of what technology-what chip technology-is being used abroad.
What we’re trying to do is not just say we need more money. We need more money, of course. We need more manpower doing some of these compliance checks, etc., but how can we use technology and some other mechanisms to make BIS’s job easier and more effective? I think that’s what we focused on for the export control recommendation in particular.
Mike, let’s do a little history lesson around the financial sanctions stuff. What were the big unlocks that allowed it to really have some bite? Sadly, the biggest unlock was 9/11. It allowed people to look at these things in a different way and see how non-state actors were leveraging the financial system. That’s what invigorated the process.
The second thing that happened was obviously the intelligence community reorganization. I don’t remember what year it was, but that was also a critical piece that allowed more resources and thoughtfulness into that ecosystem. Those are the big parallels. Obviously, we’re not talking about a non-state actor anymore; we’re talking about a state actor. So, we’re thinking about these things differently, but a lot of the lessons learned from the post-9/11 sanctions reforms can be applied here.
Honestly, the other piece-and I think we briefly touched on this in the recommendation-is FIRMA did a lot of really important work. We almost need a FIRMA 2.0 and hit a refresh key on that because this is a cycle of measure and countermeasure. We need to make sure that the entities involved in the economic statecraft elements of our government are able to be:
- One, resilient
- Two, flexible
to respond to the various actions that the Chinese are taking.
All three of us have been doing this stuff a long time, and I appreciate the sunniness of Mike and the urgency of Leland, but it really feels like this is kind of like a conversation you have with defense folks where they say:
“War in Ukraine maybe this is the thing that would have unlocked defense acquisition reform.”
And here we are, almost four years later. Yeah, we got some stuff-a little bit. Legislation’s moving, what have you. You would really think that the rare earth stuff-which again, is not something people weren’t aware of-but finally happened, and we’re still here. Things are moving a little bit and we’ll see, but it’s not the sort of 9/11 type, “Okay, no more bullshit. We’re going to spend a lot of money, get new authorities, and fund new corners of the government to actually get out this mission.”
I’m kind of-and you know we have an executive branch which is really of multiple minds on what they’re going to do about a lot of these issues. I’m personally like all the recommendations. This is as pessimistic as I’ve been in a while, frankly.
I spent time in the majority and the minority in Congress, and the way I thought about my job in both places was my responsibility was to keep pushing rocks up hills. First of all, I’ve never been called sunny, so that was refreshing. But second of all, just because it looks dour doesn’t mean you have to stop pushing the rock up the hill.
I still look at it the same way. I still think it’s important that people feed ideas into the system that are outside of the noise level and that are-to Leland’s earlier point about the horizon line-over the horizon right? This is something where sure, we can be pessimistic about where we are in the moment and talk about critical minerals and rare earths all day long, but we can also have a more strategic conversation like:
“Okay, this is happening to us now. The executive branch sort of has the steering wheel on this right now. What are ideas that we should be considering that are over the horizon that would make us more resilient in the future?”
The other thing-and you’re going to think I’m like a broken record here-is that, you know, rare earths is really bad. What is the… The innovation cycle that we are funding, creating, or breathing energy into is designed to ensure that we are able to work around this because it’s not going away. We can discuss mining facilities and processing facilities-we can do that. We can also explore other ways to get around this problem and consider how we are being thoughtful about that and where we are making those investments.
I think we’re doing that, so I’m going to be the cheery guy for a change. I think that we are doing big things.
Well, it’s not a normal occurrence, so let’s enjoy it while it happens. I think there are big things happening on critical minerals and rare earths. A year ago, nobody was focused on this and nobody was doing anything.
You can talk all you want-China has a million rare earths, a million critical minerals. Sourcing is not the problem; processing is the problem. I think we all come around to that idea. There has been enormous attention to this issue over the last several months, maybe partly because the rare earth issue became so elevated that it affected the president’s trade and tariff program. So, it caught the attention of the White House.
It doesn’t matter why it’s become elevated; it’s become elevated, and the Pentagon has moved in to take equity stakes in companies to create price floors, which is a model going forward.
If you look at how we’re going to fix supply chains going forward, the problem has always been that China can price things cheaper, not just because their labor is cheaper and for regular structural reasons, but because they subsidize the hell out of anything that’s a national security priority.
They have always been able to have the lowest price, which means we’ve always outsourced everything and therefore have been reliant on imports from China directly or indirectly.
I think what we’re doing now is changing the entire paradigm. We are saying there are certain things-again, by setting national security priorities and saying this is one of them-we are not going to work on economics alone. We’re going to be setting price floors and taking stakes in companies.
This is not my general support for taking equity stakes in companies for all kinds of reasons, but in certain issues like what we’re doing at Mountain Pass, I think it makes enormous sense. There is also coordination with the Australians on some other processing plants.
Yes, it’s always true that the United States government and people react really only to crises, but we had a mini-crisis here. It’s not a real crisis, but it’s a flash in expectation of a future crisis, and I think that kicked the U.S. government into action-not just in doing things but also in thinking outside the box in terms of new economic models for processing critical minerals.
The other thing I would add is the one thing that the Chinese are incredibly effective at-and this relates really to Taiwan and the critical mineral space-is this sort of boiling the frog or salami slicing of the status quo, doing it underneath everyone’s nose.
I had a piece I did for Real Clear a few months ago titled:
“America’s biotech future is now made in China.”
What we’ve seen in the biotech space, which Leland talked about some of, is this slow acquisition-not only of manufacturing capabilities and research capabilities but also the entire infrastructure layer of the biotech economy.
When I say biotech to policymakers, they immediately think pharma, and obviously, cancer drugs are a big part of it, but biotech is a lot more than that. There are incredible materials opportunities.
For example:
- Companies in North Carolina are making bio cement, which is surreal to me when you think about it.
- Companies in South Carolina are making purses out of mushrooms and sawdust, which just blows my mind.
There is an infrastructure layer there that China has essentially acquired over a series of decades, slowly. The same thing has happened in rare earths.
You talked about the urgency of the moment and things like that. What happens-and the balloon is a rare example of this-is when something is outside the noise level. They just slowly chip away at it and boil the frog on us.
This is again happening in Taiwan and some of these key areas of strategic importance. Technology importance as well.
Please, I was going to say I don’t want to jump the gun here, but I think that our biggest challenge is not convincing Congress and other policymakers to be serious about supply chains or even biotech. It’s a more futuristic issue, like quantum. I mean, I think that quantum is really a case study in whether we can help get the DC community more serious about future technologies that are going to dictate the way that we live our lives and whether we can control our own cryptography in the future.
But it’s not something that has immediate payout. So this is an example in this spectrum of things: some things are hitting us right now, they’re immediate, they’re urgent, Congress can see that. Some things are more futuristic, and so we’ve got a full spectrum. I think on the distant end of that is quantum. We obviously had a recommendation that tries to encourage Congress to get ahead of this, to put a sort of a quantum strategy in place.
But again, this is the challenge because we have a lot of urgent issues right now. Can we help Congress come around to an idea that’s more medium term and long term?
Jordan, I don’t know if you’ve geeked out on quantum, but there was Leland and I who led a brief trip to the West Coast on this with the commission, and it was an incredible journey. We toured corporations, we talked to academics, and there were a whole bunch of things that really jumped out at both of us:
- The US is pursuing multiple pathways to a quantum computer, which was incredible to better understand.
- Chemistry is going to have an incredible role in a quantum ecosystem just because there’s a material science piece to this that I don’t think we fully appreciated.
It goes back to the Endless Frontier. Jordan, I know you’re probably sick of it at this point, but there is a flywheel piece of quantum that’s vital-that policymakers continue to focus on. So that’s one of the reasons why the quantum recommendation is in the top 10.
The other thing, and I think Leland had a similar reaction to me, is software. We talk about software all day long, but one thing we don’t talk about is quantum software-it doesn’t exist. So it’s actually an ecosystem where we have to be thoughtful about this and strategic.
So in the top 10 recommendations, we talk about quantum software, and people are probably going to scratch their heads like,
“What the hell are you talking about? We have all these software companies all over the country.”
Well, guess what? None of them do software for quantum computers. So it’s an area where both the private sector and the public sector need to be thoughtful about investments.
The second rent recommendation-the second one-says:
See the commission’s classified recommendation annex for a recommendation and discussion related to US-China advanced technology competition.
Mike, blink twice if that’s a “Manhattan Project for unobtainium.” Is this how we’re going to solve all our rare earth issues?
I’ve worked in the classified space long enough to know that my answer is: people should go look at the classified annex.
I will say that just since you said “quantum Manhattan Project,” I want to remind everybody that last year the commission’s number one recommendation-which Cliff Sims and Jacob Hellberg were kind enough to work with me on-wasn’t a Manhattan-like project for AGI. So the commission was dramatically ahead of the curve on that AGI conversation, just showing the over-the-horizon work that we often do.
Yeah, you guys got it. You didn’t need government, though-you just had a few trillion dollars of global capitalism all pouring for you.
I want to close on space because I like space. This is a Mike thing, right? Mike, what’s up with the space chapter and recommendation?
I mean, first of all, Jordan, I love space issues. One of the coolest things about my gig with Leader Schumer was the ability to see all three communities working in this space:
- Civilian NASA space
- Military space
- Intelligence space
It was an incredible opportunity just to see how much money in public treasure has been poured into this over the last 80 years, but also just to see all the… Things that the United States government is capable of doing-one of the things that we did a hearing on, and I can’t remember what the title was, but I know I loved it. It was like “The Rockets’ Red Glare” or something like that. The staff wouldn’t let me have a question mark at the end of another hearing title, so I didn’t get a question mark at the end, which is devastating.
But the thing that we’re seeing is we have this incredible historic infrastructure in space that we invested in as part of the shuttle program and obviously the race to the moon. A lot of it is getting really old. Imagine two cars going down the road-you know, we’re cruising at 60 or 70 miles an hour, but there’s a car coming behind us at 100 miles an hour in this space. That’s what we’re seeing China do really: they’re making incredible investments in launch, infrastructure, and technology that’s deployable to space.
We had a long hearing about this. General Saltzman kindly came to the hearing and really said more things than I’ve ever heard a military leader talk about in the space ecosystem. So we heard about military space, and then we had some folks from industry and the think tank community talk about civilian space as well. It was a great hearing as far as I’m concerned. Obviously, it was Cliff Sims and I, so I’m obligated to say it was a great idea and a great hearing.
That’s the first piece of it.
The second piece, Jordan, is I sort of had a deeper awakening about two weeks ago when I was at this conference called iGEM. This is a synthetic biology conference, which you’re probably thinking, “What does synthetic biology and space have to do with each other?” The answer is: we have to figure out a way to sustain life in space-whether it’s in outer space, on the moon, or on Mars.
The synthetic biology community is going to have a vital role here. So it gets back to the biotech recommendation, which is:
- We need to be incredibly thoughtful about this ecosystem.
- We need to be mindful of who’s making investments.
- This is going to be a future technology that we rely on deeply, whether it’s sustaining life, sustaining plant life, or anything else.
This applies to a future space station, a spaceship, or the places we talked about: the moon and Mars.
Leland, did I get everything on the space recommendation?
“I think so, and you didn’t even mention China once-it’s impressive.”
I did! Didn’t you hear my racing car analogy?
“Okay, okay, right. An illusion.”
Alright, we’re going 60s, we’re going 60-70.
“You want to do it again?”
No, it was good. You got the point conveyed.
Oh man, who knew China commissioners could double as back-to-back stand-up acts?
Mike Leland, this was a pleasure. Thank you so much for being a part of China Talk.
Thanks, Jordan. Thanks, Jordan.
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