What the New U.S.–China Détente Makes Possible
Technology Transfer in Reverse, Relative Risk, and the Race to Reindustrialize America
Owls, Not Hawks or Doves
The new U.S.-China détente creates an opening for Washington to rebuild American industrial capacity by using access to the U.S. market as leverage, rather than pursuing a more aggressive version of decoupling.
Aaron Glasserman and Mitch Presnick join Chelsea on Potentia to discuss why Washington and MNC’s need to lean into strategic leveraging with clear eyes, rather than rely on outdated, comfortable and dangerous narratives. Glasserman, a postdoctoral fellow at the University of Pennsylvania’s Center for the Study of Contemporary China, and Presnick, a non-resident honorary fellow on Chinese economy at the Asia Society Policy Institute’s Center for China Analysis, argue in their paper "The Real Opportunity of the New Détente with China” that the United States should seek technology, manufacturing expertise, workforce training, and industrial knowledge from Chinese firms in exchange for access to American consumers.
Their proposal begins with a blunt, clear-eyed assessment of the current relationship. Following the Trump-Xi summit in Beijing, the two countries have entered what they describe as a period of détente held in place by “mutually assured disruption.” China can restrict critical minerals and manufacturing inputs. The United States can impose semiconductor export controls, tariffs, financial sanctions, and restrictions on access to the dollar-centered global financial system. Each side can inflict severe economic pain, but neither can do so indefinitely without damaging itself.
Washington’s emerging response is to reduce dependencies, diversify supply chains, gather additional pressure points, and prepare for what Glasserman and Presnick call “Decoupling 2.0.” They argue that this approach risks repeating the failures of earlier U.S. policy while further weakening American competitiveness.
Instead, they propose strategic leveraging. Chinese companies remain dependent on overseas markets at a time when domestic consumption is weak and political resistance to Chinese exports is rising in Europe and elsewhere. Access to American consumers therefore retains considerable value. Rather than granting that access without conditions or closing the market entirely, the United States can use it to negotiate for technology licensing, intellectual property transfer, workforce development, and advanced manufacturing expertise.
Mitch and Aaron identify two existing models. Ford licenses lithium iron phosphate battery technology from CATL while retaining ownership and operational control of production at its Michigan facility. Illuminate USA combines Invenergy’s majority ownership with LONGi’s solar-manufacturing expertise and operational knowledge. The arrangements are politically controversial, but Glasserman and Presnick argue that their risks must be compared with the risks of refusing cooperation altogether.
The alternative may be an increasingly permanent industrial disadvantage. Chinese companies now lead or compete at the highest level in batteries, electric vehicles, renewable energy, robotics, advanced materials, shipping, biotechnology, and many of the manufacturing systems required to deploy artificial intelligence at scale. The central challenge for the United States, Glasserman argues, is therefore no longer simply how to contain China. It is how to catch up.
This reframes the debate beyond the familiar divide between engagement and containment. Engagement assumed that integrating China into the global economy would gradually make it more like the United States. Containment assumed that restricting access to markets, capital, and technology could slow China’s rise or force it to change direction. Glasserman and Presnick argue that both approaches become unrealistic when they assume China will eventually conform to an American political or economic model.
Rare earths, DeepSeek, Unitree robots, and China’s state-directed institutional economy come up, as well as the deeper frameworks shaping how each country understands the other. The Cold War remains an attractive analogy because it offers a familiar contest between opposing systems, but China does not fit neatly into that structure. It is deeply integrated into global trade, dependent on external markets, technologically advanced in critical sectors, and simultaneously determined to reduce its vulnerability to foreign pressure.
Presnick describes China as both a Rorschach test and Schrödinger’s cat. Observers looking for decline can point to demographic pressures, weak consumption, and institutional sclerosis. Those looking for an unstoppable industrial power can point to electric vehicles, batteries, clean energy, robotics, and the coordinated deployment of capital behind national priorities. Both realities exist at the same time.
That duality also helps explain why the strongest versions of both hawkish and dovish thinking fall short. The hawks are not wrong about coercion, security vulnerabilities, or China’s willingness to use economic leverage. Engagement also produced real gains for American companies and consumers. The problem arises when either side assumes that pressure or integration will ultimately transform China into the country Washington wants it to become.
Presnick’s alternative is what he calls a fifth school of China analysis: the practitioner-scholar school. It combines academic research, language ability, historical knowledge, corporate experience, and an understanding of how Chinese institutions operate in practice. It also restores civilizational history to the analysis. Chinese leaders and strategists regularly draw lessons from political arrangements and historical episodes that predate the modern state, while American policy discussions often begin with the Cold War and move forward from there.
Aaron and Mitch aren’t making an argument for trust, unrestricted engagement, or a return to the frictionless globalization of the 1990s. The clear issue now is navigating relative risk. Policymakers should evaluate not only the danger of working with Chinese firms, but also the cost of remaining outside the manufacturing ecosystems that will shape the next era of technological and economic power.
The United States will attempt to reindustrialize with China’s help or without it. Doing so without China will be slower, more expensive, and dependent on a degree of political and corporate coordination that the American system has struggled to sustain. The real choice is not between cooperation and safety. It is between competing sets of risk.
The prescription from Dr. Owl? Lean into strategic leveraging. Buckle up~
Links
The Real Opportunity of the New Détente with China: Aaron Glasserman and Mitch Presnick’s paper proposing technology transfer in the other direction through strategic partnerships with Chinese industry leaders.
Carveouts
Aaron’s article- Putting China on an Axis of Chaos Underestimates China
Aaron’s Forthcoming analysis of China’s new ethnic law
Graham Allison, Destined for War: Can America and China Escape Thucydides’s Trap?
Mitch’s article-The 4 Key Strengths of China’s Economy — and What They Mean for Multinational Companies
Aaron and Mitch’s Forthcoming paper on the leverage American companies retain in negotiations over joint ventures, licensing, and access to the U.S. market
Listen here: RSS, Apple, Spotify and wherever you get your podcasts!
Episode Transcript
CHELSEA:
Hello and welcome back to the Potentia Podcast. Today with us we have Mitch and Aaron. Mitch and Aaron, welcome to the podcast
MITCH:
Great to be here. Thank you
CHELSEA:
Yeah. Excellent. Yeah. Thank you so much. So you both just recently published a paper. I know, Aaron, I’ve seen you do a lot of TV interviews lately. Could you tell us a little bit about what you’re hearing in your world right now and what prompted you both to publish this paper?
AARON:
yeah, sure. No, so, I think, Mitch and I both came at this thinking about how, really in the wake of the Trump-Xi summit in Beijing in the middle of May, it really felt like there was a, a, a shift in the narrative and the discourse around China and kind of an opening of, of an opportunity.
in some ways, this was born out of a kind of, maybe sad or, or uninspiring reality that both countries, leaders of both countries recognize that they’re in a sort of, mutually assured disruption. I think that’s one of the helpful terms I, I’ve heard used to describe it, and basically a kind of a détente or a strategic stalemate where for the time being, because each country can basically impose, intolerable economic pain on the other, whether it’s, rare earth export controls from China on the United States, or it’s, advanced semiconductor export controls, tariffs, financial sanctions, exclusion from the global financial system by the United States against China.
neither country can tolerate that, so sort of by necessity, there is sort of a, a shift in thinking about, hopefully moving away from containment. And now, on the one hand, actually, what we’ve seen is that, one possible response to the status... to, to this sort of, stalemate is both sides are gonna try and race and gather as much leverage as they can against the other and kind of do what we framed in the piece as, decoupling two point oh.
at least from the United States point of view, we’ve already seen some advocacy of, “Look, the, the key move right now is to make sure that in the future, China can’t, impose, export controls or, limit our access to critical rare earths, and to seek out even more points of leverage that we can inflict pain-- use to inflict pain on China.”
That’s one option. but we also think, look, actually, doing the same thing we already did to greater intensity, is probably not a winning strategy. And the alternative path that we’re trying to kind of, open up with this piece is saying, “Look, actually, this is a moment for reflection, to look back on what worked and didn’t work about earlier periods of US-China relations and actually, find some, e-economic op-opportunity that may actually not be zero-sum, but that can still advance, American interests in a way that is, compliant with a kind of rational, reasonable approach to national security,” which we don’t downplay, but we say, “Look, there’s actually a lot of room in between zero risk tolerance and just opening the gates.”
maybe I’ll, I’ll throw it over to Mitch also, to, to, to add his view.
MITCH:
Well, no, I think that’s right. I think Aaron’s, done a great job of summarizing it. We’re in a new period. we’re probably in a period, if you step back from just the Xi-Trump summit, what we’re seeing is sort of a setup that’s been years in the making, right? Where we went through the engagement period between 1972 and you could argue 2012. before Trump got into office, there were already huge rumblings that things were shifting from engagement to something else. And then, of course, they did shift into full-blown decoupling. Both s-- both countries looked at the, realities and discovered that as much as they wanted to alleviate their dependence on the other, there were other risks such as Aaron mentioned, exposure to global financial system, restraints, exposure to rare earths constraints and other constraints.
And not, not to mention the fact that, China has now emerged not just as the world’s leading superpower and trading superpower, but also it has created a very dense, interconnected ecosystem, which makes it very difficult for other countries who wish to participate in the global manufacturing system to avoid China.
So what I see is probably an evolution towards something that maybe more accurately reflects what President Nixon originally envisioned in 1972. No friends, no enemies, just business. Work together where you can. to alleviate your, your dependence on the other where you can, and then, cross the river by feeling for the stones under your feet, as Deng Xiaoping said
CHELSEA:
I mean, I think that we’re on the same page there. I’ve seen a lot of these same signals, and you both put it really well in your papers. I think also looking back to other points in history to have these lesson points is quite useful. But I think since we’re at this point, I was speaking with some other people.
I spoke with an economist in Singapore the other day. He referred to it as fragmented globalization. In your paper, you talk about it as decoupling 2.0. I’m kind of in between both. I’m wondering when we’re talking about you brought up other countries, and then if we’re looking at this from, say, a business perspective, even multinational corporations. If we have the emergence of a decoupled US and China, like you said, we must operate within these, financial supply chain systems, manufacturing systems. How can and companies operating in this environment think about it? I mean, in my mind, I’m starting... I’m-- It’s quite apparent that China has been trying to create its own, type of legacy system.
We have BRICS, other type of coalitions that it’s been trying to build and also trying to get people on the yuan. I’m wondering, how are you two looking at it? I mean, how can we look at navigating that realistically?
AARON:
Well, I mean, I think, in some ways the first thing is just to, to, to face up to it and, and to recognize it. And, we may all be on the same page here, but I still think there’s a lot of denialism out there about, of what game China is playing. and, I think I, and, and we say this and have written this not as people who are in any way downplaying the challenge that China’s economic and, and geopolitical and military rise poses, to the United States, to other, industrialized countries, to its neighbors, but as just a cold, sober assessment of the reality, which is that, diversifying its supply chains and making itself integral to the economic system of well over a majority of, well over fifty percent of, of, of the countries of the world, is the, the, the, the, the central pillar of China’s strategy.
And so, I think, I, I, I separately wrote, a, a, another piece maybe a, a month or two ago. I think the title was, Putting China on an Axis of Chaos Underestimates China. the point being, right, so the axis of chaos, this is this idea, quite popular I think in Washington DC, that, China is part of this axis of kind of global spoilers with Russia, China, Iran, North Korea, sometimes Venezuela, so-called CRINK, C-R-I-N-K, right?
And, there’s no denying that there is real collaboration and alignment between those countries. And I think it’s foolish anyone who says, “Oh no, there’s nothing going on there,” like they’re not seeing the full story either. But you can’t understand the game that China is playing if you’re only looking at it in terms of, oh my God, they’re on the same side as our enemies, and therefore they are committed to our downfall and spoiling things for the United States.
China is playing... If you wanna put China on the axis of chaos, you have to put it on like ten other axes as well, and that is the name of the game for China. It’s diversification to enable its, self-sufficiency and, kind of autarky. And so, I think one thing that we’re interested here then in moving forward is also that actually gives multinationals and American firms actually surprising opportunity because China really needs to maintain itself, as integrated into the global economy.
and so, there’s actually some leverage there if we adopt, what we think is a more strategic and productive position rather than, again, this sort of like China equals bad binary thinking. Rich?
MITCH:
Yeah. So always been a Rorschach test for the viewer, right? If you wanna see a, an economy about to collapse, plenty of evidence that China has demographic issues, it has institutionals, sclerosis, it has all those problems. the military seems to be in a constant state of flux lately.
I mean, if you wanna find, reasons to feel really good about the US position and really bad about the Chinese, there’s plenty of evidence for that. If you wanna see China as an unstoppable juggernaut out to Sinoform the world, and, and dunking on the US on a monthly basis, you could find plenty of evidence for that too.
And the reality is both conditions exist at the same time. And so the challenge for the US side is to get over the idea of trying to define China as one way or the other, and to accept that if you’re gonna deal with China, it would really be helpful now in this phase of, the it the post-engagement, post-decoupling world that we’re coming into, would be really helpful now to, look at China sort of like a scientist would look at China.
Without the emotion, without the ideology, without the unhelpful binary constructs, which people don’t understand very well. But whether you’re a hawk or a dove or you’re an owl like me and Aaron, there’s always the need for the middle view, and what we’re trying to do is to show that it’s a new era.
For... I’ll give you an example. You mentioned the, industrialized countries and how we’re gonna address this. What most people in the industrialized world don’t realize is that the majority of global growth, both GDP growth and population growth, is not happening in the industrialized world at this point.
In fact, on a PPP basis, the, the BRICS countries, are far more in the ascendant than the industrialized countries are. And that means that we could be looking through the looking glass at ourselves as a future Soviet bloc while we think of ourselves as a coun--, a set of countries that is trying to avoid spoilers. It could actually be that we’re the ones that are sort of hemming ourselves in what might look like, the administration, making Concessions that some might argue were unwise, one could also argue that they were just practically looking at the, the negotiating setup and deciding that no, actually, this is time for something new.
All of this is happening against the backdrop of the twenty-first century technologies that are defining the time we’re in. And that’s something that people constantly forget, that these old playbooks that we’ve used, the Cold War playbook and playbooks that go back, always seem to assume, a binary zero-sum mentality.
And people assume that if we’re not arguing in favor of that, that we must be in favor of a win-win world, and that’s not what Aaron and I argue. I don’t think either of us are under any illusions about the idea of, a kumbaya world and what the likelihood of that happening. But there has to be something more mature that takes place, soon because these kinds of strategies that we’ve deployed in the last fifteen years have been very impractical for US interests, and that’s just an objective fact. And so whether you like or don’t like what China’s doing, there has to be, new thinking that comes into how we’re approaching this. And that’s what Aaron and I are trying to do. We’re actually trying to bring new thinking, which we think that, corporate America is desperate for. I think there has been a certain amount of Stockholm syndrome that, that has set in, amongst the Fortune five hundred on China, where they don’t necessarily in their heart of hearts, if you talk to Apple or Nvidia or Oracle or Facebook or any of the, magnificent seven, leaders, none of them would say that decoupling is feasible or advisable from the US point of view
CHELSEA:
Completely agree. I was just taking down notes. I mean, there are just so many things that talking with you guys is making me think of. I wanna make sure that in my mind from both of you speaking, four points came up that I would love to address. We can either address them all together or one by one. We’ll probably have to break them up. But I mean, we’re talking about... So the paper is published in US-China Perception, so I wanna get your... And we spoke about this in terms of perceived of the, perception of the US towards China, vice versa. I was talking with some Chinese subsidiaries, I guess it’s Singapore-based, but, Alibaba subsidiary, and they’re doing market entry into the US right now, and this type of détente environment is actually quite exciting to them.
They were super excited about it, and at the same time, we were having conversation over Peking duck, and I go, “There’s still the political environment of, of the US that you have to consider, as well as the regulatory environment for technology specifically.” So they do have a little bit of an upi- uphill battle there. But I thought it was quite interesting that with this, the Trump-Xi summit, as well as just the way negotiations have been going, although they have been volatile, they have been more businesslike in nature, as you pointed to, which actually many of the Chinese I found have welcome, at least in the business sense, which was quite interesting. So I guess the first point there, though, is before we get more into actionable advice for US sanctions policy, so forth, so on, the three main points that, I would like for us to talk about initially, just off of what you both have spoken is, so we have the framing of the Trump-Xi summit. We had the introductions of this Thucydides narrative, which was quite poetic, then everyone jumps on it, and then Trump rejects it, he had to at some point, otherwise, it’s an interesting narrative that we’re buying into.
I’m also not necessarily sunshine and rainbows. I consider myself more pragmatist. But with that in mind, there is still this Cold War mentality, which you both alluded to. I mean, I remember the first time when I was in Washington, D.C. to be fair, my first boss was a complete hawk, so, there’s that.
But have noticed that in the operations of government, it’s either you’re very much a hawk, and we’re afraid of the communists or, there’s... and they decry socialism, so forth, so on, or then we have the people that are I would argue a bit naive maybe in terms of China’s, goals for the world.
It really just depends on the framing. But I think if you could speak to kind of the event of what happened with that framing, your guys’ take on it, and why do you think we still have this hangover essentially? Why are we holding onto it? Who wants to take it first? Okay.
MITCH:
I mean, a couple, a couple things. the hawks are not wrong in many of the things that they believe. That’s, that’s, that’s the first thing I’ll always say when I am, am asked a question about the hawks. Their prescriptions, are often, biased by emotion and ideology and, and subjectivity, but their base ideas are not incorrect.
I mean, China, China... The Chinese are not Boy Scouts. I mean, my mentor, Sidney Rittenberg, spent sixteen years in a Chinese prison, mostly for things that had nothing to do with anything he did. He was accused of being a spy by Stalin, so Mao threw him in jail for six years during, during the early years of the, the, post-1949 China era and, and then again during the Cultural Revolution for ten years, where he was in solitary confine.
So, I mean, no illusion. But on the other hand, it just doesn’t help to use old thinking for a new problem, and what we have is a new problem. We, we’ve never encountered a country like China. They’re not really... They’re not so easily reduced to just a, an authoritarian, totalitarian, regime or whatever the language that people like to use.
It’s all reductive. It’s all,... I do find it interesting, as a sidebar note, that, that if you were to talk to senior policy officials in Beijing and senior policy officials in Washington, one of the only things they can agree on is that the other country is failing. They’re sure of it, and they know that it’s just a matter of time. When you mentioned the Thucydides Trap, I find that a very interesting analogy. I happen to know Professor Allison quite well, and he’s, a wonderful, a wonderful educator and a, and a g- and a great mind for, for these matters. But I will say one thing: all of his examples involved a Western power challenging a Western power. There is something to be said for Donald Rumsfeld’s unknown unknowns. There are things that are outside of the experience set the Washington intelligentsia. They’re just, they’re just... And, and I don’t care how you wanna put it. It doesn’t make me a panda hugger to say that there are things about Sun Tzu: The Art of War that they need to understand at a deeper level than the linear thinking that they’re approaching.
They approach China and this competition with the kind of thinking which actually got us here. And what they don’t realize is that they have a lot more in common with the doves than they would like to admit because both doves and hawks are emotional in how they approach China. The, the hawks, w- thought that if they just treat China the way they want it to be, they can, they can change China in its image.
And the haw- and the doves felt that if you could just engage enough with China, then they’ll become more like us. And let’s be honest, both were equally fantastical in retrospect. And when I was vice chair of AmCham China, and we were, we were lobbying in favor of China’s accession to the GATT, the predecessor to WTO, we were very clear about saying that they would never change, that they were never gonna become more like us, that they probably wouldn’t follow any of the things they agreed, and yet we were arguing in favor of it because The idea was either bring them into the system and work with them or have them outside the system and have them possibly become North Korea times 10,000 because we saw where they were going with their industrial ecosystem and we knew that we had to bring them in somehow. in a better position than we would have been, but the hawks would argue otherwise. So yeah, I’ll, I’ll stop there, but I mean, I could say a lot more about that and we should talk more about it. Aaron?
AARON:
Yeah
I mean, it’s, it’s in some ways I think the Cold War narrative, as much as it evokes, scary, difficult memories for many people and very violent ones in other parts of the world, I think there’s a kind of, comfort to it because it’s familiar and, and, and it’s, it’s, in some ways it is, it, it, it’s not, It’s not a relief, but it is at least you c-- it’s easier to process the world if you go through it thinking, there are good guys and bad guys, and we’re in this kind of Manichaean struggle.
And the reality is that, it may be both that China as a country, as a system, is not the same as the Soviet Union, and also even if it were the same, we’re separate from that identity or lack thereof. The context is just totally different, and the glo-- the, the global economy, the-- even the political system is so much more integrated.
I mean, technology, connects everyone and, and everything, supply chains. so it’s, it’s, it’s just, it’s a wishful... It’s a kind of wish casting for a familiar problem. It-- no one’s saying it’s an easy problem, but it’s, it’s at least a problem that we got through, and I think there’s a kind of, an American reflex to, to frame it in a quasi-religious, to put it in quasi-religious terms, and, it’s we gotta get them or else the worst thing will happen.
And actually, I think it’s very hard to,... I mean, we’re, we’re finally seeing some progress here, and this may be to take it in a more optimistic direction. as much as... Again, look, so I, I co-- I mean, Mitch, Mitch, alluded to his, immensely rich experience doing business on the ground in China.
I mean, I come from, an academic background and really haven’t done a, a t-ton of fieldwork, field experience in China, but really studying what many people regard as the worst of China, ethnic policy and so on and so forth. So no one can accuse me-- And I, I mean, I’ve published widely on these issues.
I have pieces coming out shortly regarding the new ethnic law. So n--, no one can really accuse me of, of, of holding back criticism or not talking about, the ugly side of things. so all of which is to say that, I, I, I, I, I don’t have a lot of patience for people who only want to, tell well the story of, of China, 讲好中国的故事, right?
As, as the propagandists have it. But w-the one advantage, I think, of the new appreciation for a lot of China’s technological prowess, with the Unitree robots and, we’re seeing it with EVs, at least in other parts of the world, is we’re getting over, I think, this very self-destructive, self-defeating idea that the, the game we’re playing with China is containment rather than catch-up.
And we need to recognize that, like, it’s not just that, like, we’re, we’re deciding between, do we let them have more or do we not let them have more? We’re also deciding between do we let ourselves have more from engaging with them or, or have less? And there are so many industries that are critical to having a great life in the twenty-first century that China is dominating in or poised to dominate in, and like don’t Americans want that?
So, I, I think e- even if there’s some obnoxious commentary, and, and sort of tanky apologism, there’s also some, hopefully some good stuff that will come of all this, and that is kind of the narrow but I think very rich space that we’re trying to, to push us toward
CHELSEA:
No, I mean, I think this is all great. It’s clear eyes going in. I think that the conversation that you two are really bringing to the forefront is, again, much more progressive than things I’ve seen. When I was in DC last, I spent three months there from November to January, and I mean, lovely of course, but I feel like sometimes, the relationship between policy, politics, we can...
And, think tank world, can kind of become just a maelstrom of echo chambers, the same words over and over without really looking for solutions. So I thought this was refreshing. With that in mind, before we move forward, I love the optimism. That’s great, and I’m jealous. I’m sure that very enjoyable to grab a drink with you two.
We can have, lots of stories to share, from our experiences. But before we look at... You brought up mirroring. I’m actually speaking with someone else about that in terms of US, China, Iran relationship later this week, because it’s a prevalent issue that, the US tends to impose on other governments, not always, but often in our relationships.
But before we get to that, as well as just looking at things that we can control in terms of the US policy environment, I would love to talk a little bit more about you-- both of you brought up what got us here in terms of, for example, vulnerabilities with critical minerals. Japan didn’t have the same vulnerability that the US did.
When China pulled the plug, Japan said, “Go ahead,” the US was left high and dry. So that’s kind of a discrepancy there in terms of preparedness of a country. And then, so that’s from industrial layer, supply chain layer, and then also the policy layer. I’m wondering if either of you can speak to what got us to this point where we’re not quite behind, but China is quite leapfrogging.
Is it just the fact that we are lacking perception? Like, where in a policy did we have a disconnect in being prepared or unprepared?
MITCH:
Well, look, every, every system has its advantages China’s advantage is that it has, it has two, very powerful, aspects to its governance system. One is vertical integration, and the other is, unit-unified command, okay? We don’t have either of those. We are sort of a salad, right? And that’s always been our strength, is divers-diversity and decentralization and, and, a thousand, a thousand points of light.
That’s always been the US. But China’s always been good at long-term planning, very long-term planning. And, look, I was trading rare earths with Minmetals, the Chinese, state-owned, company in 1992, and they were, and they were telling me about their plans to dominate rare earths, okay? So, for us to all of a sudden discover that rare earths are important in 2025... I talked about this in my Harvard Business Review article in August of 2024, and I sent it out to all my friends in Washington, and they all received it, and they all said, “Yes, yes, yes, this is very important.” And it got into the very senior layers of the administration, that warning, and did it have any effect on, on trade war 2.0?
No. Did they... I warned them about this. I mean, it didn’t have to come to this. We knew this was gonna be the result. The problem with reciprocity with China is that it’s a race to the bottom. They will always win that because they’re always willing to go to the mattresses more than we are. They have that ability.
That has to do with a system where they can absorb a lot more s-stress and a lot more pain than Americans are prepared to accept. Our political system is not set up for that. So if the objective is to rebuild American capacity, our industrial capacity, supply chains, and have something where we’re not under the thumb of another country, forget about which one.
We don’t wanna be under the thumb of any country. The question isn’t how do we keep China out at this point, no matter how much you think that’s important, no matter how much you’re afraid that they might weaponize EVs or whatever they... Or become, or create critical dependencies. We have a more immediate problem.
We’re gonna, we’re gonna face relegation. Do that, the Australian Strategic Policy Institute, when they did their assessment of, of US versus Chinese technology, they assessed, and they’re a ultra-hawkish group that used the top ten percent of published papers that were cited, cross-cited. So it was a very, very objective process, and they determined that in something like fifty-four out of sixty-three, categories of technology, China was either at, at level or in most cases ahead of the US.
So we are playing catch-up. And if the beginning of wisdom is calling things by their proper names, as Confucius said, then that’s what we need to start doing. It-- We need to start having these parallel universes where hawks believe one set of facts about China and, and then economists believe another set of facts about China, and that’s what they prefer to have.
So as long as we can’t have a consensus, then we don’t have to actually seriously address the problems. That works until it doesn’t. Right now we’re at a place where the bigger question is: how do we bring in world-class manufacturing capability and all the underlying know-how? I mean automation, robotics, advanced materials, advanced, advanced, manufacturing techniques.
All of those things underlie China’s successes in the last ten years in that sphere. We need those, need those, modules uploaded immediately. We don’t have time to figure it out ourself. So the... We’re not arguing that all the risks that hawks worry about aren’t real or that, or that it, that it’s not, somewhat of a danger to become, helpful to China if, if you pursue some of these ideas. But the question really comes down to sort of the d- the Dave Chappelle joke, when he was, talking about how kids in Africa, some of them may be starving, but he still wants to eat lunch. I still want to have economic competitiveness regardless of how people in Washington view China. I still want the opportunity to compete head to head, and we’re not gonna do that if we’re gonna be too precious to engage the playbook that China engaged when it needed to re-industrialize, and it was very willing to, to bow low and do whatever was necessary.
And we basically gave them access to, to many things, in exchange for, know, what we thought was, the keys to globalization. Turned out it wasn’t exactly, the greatest idea in retrospect, but nonetheless, that’s where things need to go. Much more practical, much more pragmatic, and I think we are gonna see a much more pragmatic, set of policies in the next two years.
I was just at a set of meetings, an offsite in the West Coast or in the, the Old West, and I was very impressed. I was out of town, in, in Montana somewhere, and I was very impressed with the level of understanding that we need n-new thinking. But there was still an underlying reluctance to acknowledge the reality that we’re facing and, that’s the next thing that has to happen.
And I don’t know how many more times we have to have a DeepSeek moment before that happens, but when that finishes happening, we don’t want companies to just then be figuring out their strategies. Companies need to be figuring out their strategies for when that because it’s going to happen, and it’s just a matter of time, because this is the writing on the wall. This is not going to change. This direction is now set, and it’s much bigger than the Trump administration
CHELSEA:
Any thoughts?
AARON:
I mean, hard to top what, what, what Mitch said. I’ll just say, that, yeah, how, how did we get to this sort of policy, failure, or at least, incomplete success? I actually think, it, it’s important to recognize that for a long time it really worked well, and that it, it made sense. I think a lot of people right now, especially in DC, in think tank world, in kind of the parts of universities that deal with sort of geopolitics, there’s a sort of, people are not happy about the situation, to put it bluntly.
and I understand that, and there’s some logic to that. But, for a long time, we were playing a very efficient game. And in the list of things that, are the downsides to China’s system that Mitch, added to, or you could put it as strengths in terms of its capacity to take pain and so forth, I would say inefficiency is...
it has to be on that list too. And, I think we’re just-- we need to re-optimize, find the new optimal point for the, the, the, this new type of relationship. So when it was engagement and globalization kind of unchecked or almost unchecked was the direction it felt like things were going in, it made perfect sense in a way to not have, to, to, to not try and to not be protectionist, right?
To not introduce all of these kind of non-market, inefficiencies and irrational elements into our economic, our company’s economic, agendas and business plans because, the... that’s, that, that didn’t make sense. China wasn’t always playing that game, and as Mitch said, it was foolish to think it ever might have.
Now that the whole world is kind of readjusting and, and pushing back, I think the real challenge now is to not overcorrect. We need to correct, right? We’re not going back to sort of full open, no borders, globalization, the world is flat. But we don’t want to lose a lot of the good stuff that came with that.
And I think go-going back again to the political comparison China moves by overcorrection, right? China, the Chinese state has never done anything in a delicate or sort of gracious way. It, it speaks obnoxiously, it acts obnoxiously. Nothing it does... For a c- for a culture that is so, accomplished and wise and civilized in terms of subtlety, y- I mean, the language and people who go to China, you-- that’s i- inescapable, and everything is layered and contextual.
The state is then just this behemoth block that is just moving in this crude way. The US doesn’t need to be that way, and if we try and emulate that, we’re not gonna win. So, so we... Yes, we’re moving, but we don’t wanna shift too fast. That’s what China does. So, so I, I think there really is sort of we can, reclaim a lot of lost ground.
but it’s just we need to k- stay clear-eyed and, and, and not give up too much, toward, protectionism, national security, and so forth. Those are real concerns, but it’s not the be-all and end-all, and we need to put it in perspective
MITCH:
Yeah, not only that, but I’ll just add one more thing. If, if, if people keep insisting that China’s falling off a cliff, it, it, it not only justifies impractical policies because that-- because people believe if we can just be tough enough, then, then, then, China will collapse or it’ll become like we want it to become. So, so these narratives that China is, is on the verge of collapse are actually quite helpful, quite helpful to Chinese interests, actually. I mean, there’s that... You once in a while will hear people talk about the, anything other than the hawkish argument is, somehow being a useful idiot to Beijing. And I would argue that, impractical policies have done more, have done more harm to US interests than almost anything else that China’s done. I mean, far worse than IP, theft and other things. I, I formed the, the, China Anti-Counterfeiting Coalition, which was the body which was created to help American multinationals fight product counterfeiting, and everyone from Boeing to Coca-Cola and Nike was a member. They’re still in business. I mean, they’re still, it’s still an, a, an existing, entity. And, I can tell you that it was never formed with the idea that we were going to get China to, to, to follow the rules. We only knew that we were going to engage them in ways that could turn impractical policies into pragmatic policies, and that’s the theme for the day we’re in right now, that practitioners like Aaron and myself, who have spent a lot of time...
I s- I lived in China for thirty years. I speak, read, and write Chinese. He speaks, read, and writes Chinese. He spent a lot of time on the ground. This is what’s missing. There are like... I’ll just give you an example on rare earths. There are, like, two dozen American, two dozen Americans that, that can talk about rare earths.
There are 100,000 members of the Chinese Rare Earth I mean, just can’t imagine the, the difference in scale. There are less than 10,000. At the peak, there were less than 10,000 Americans studying in China. China has 270,000 students studying in the United States And now it’s considered somehow a demark if people from the US have spent too much time in China because it might be harder for them to get security clearances and everything else. This does not encourage the kind of on-the-ground understanding that we need to supplement all the theoretical and all of the, the, the hawkish ideas. You have to infuse all of those ideas with doses of reality. There are four schools of existing thought on China. Aaron and I are part of the creation of the formalization of a fifth school, the practitioner scholar school of, on China, where, yes, we’re practitioners. Aaron’s a scholar, I’m a practitioner, but we both cross over, and that’s what’s missing. That fifth lens that will help bring the entire picture into clear relief. That’s what is needed now. Not saying that the hawks are wrong, but by themselves, left to their own devices, without the pragmatic on-the-ground experience from people who actually know how to get things done in China, and no, are not and no, don’t really find that all the hawks’ ideas are so terrible.
But those ideas, left to their own devices without pragmatism infused in, will, will, will be a, a, just another decade of disaster. And we can’t afford that. We’re already facing relegation, and, it’s not, it’s not something we wanna continue
CHELSEA:
I’ll be the third member of your school. As someone who that strike close to home, I was on Boeing on the digital leadership board, so we, we definitely saw a lot of that, so.
But I will be the third member of your school. I think want to pull a thread out from something that you both mentioned earlier.
So we’re talking about the US perspective on things and, definitely there needs to be pragmatic adjustments, clearly. I think it doesn’t make sense to vilify, either a cooperative lens or even the hawkish lens. That’s my approach, because they both have merit. But again, I think this will be a fun question because you can both offer unique perspectives as, an owl, and then I’m not sure, maybe you’re what is more of a business type bird. I would love to hear it. So clearly everyone in this group has deep experience in China, the thread that I want to pull from earlier is we mentioned that, at the high levels of senior leadership in Chinese policy, there is this belief that the US is falling off at the deep end. I mean, what’s going on there?
Because I feel like both of you can offer really fun insights
AARON:
About the Chinese perspective?
CHELSEA:
The Chinese side, yeah
AARON:
Yeah. I mean, again, I think it’s a story... it’s so hard. so I was just in Beijing, earlier June, in the middle of June. And, I, I gave a talk on, the Iran war, and sort of US foreign policy and American society and politics, and kind of what, what the Iran war means for all this.
It’s at the Chinese Academy of Social Sciences. It was a g- it was a great opportunity to sort of have some frank and open conversations. And, I think in the same way that for, for, for them, so to speak, it’s so hard to imagine just the kind of base level chaos, unpredictability, complexity, contradictoriness of American society and decision-making, and you have within the Trump cur-- I mean, just, it’s not unique even to Trump, but the current political leadership, right?
You have, people who are totally in favor of, the war and totally opposed to the war, and it’s like, which is it? And then, oh, there must be some conspiracy and... There’s not a conspiracy. It’s just that’s a kind of complexity and contradictoriness that because we live here and just have no choice but to accept it, we do.
And I think we need to do the exact same thing for China. And it’s like, yes, you have Xi Jinping talking about, China’s strengths and w- and kind of hinting... I mean, th-there was a lot of sensationalizing of what he actually said. But in any case, let’s just take the kind of caricatured version and say, yes, he talked about the decline of the West.
there’s also deep, deep paranoia and insecurity on the Chinese part. And, my, my own view based on time spent in, rural China, in very poor, underdeveloped parts of the country is, that basically nine out of the ten problems that Xi Jinping wakes up every morning and is freaked out about, one of them is international, right?
And, and, and m-more often than not, maybe it has to do with, the US or NATO or Taiwan or something, but, like, the vast majority of his headspace is still dealing with the domestic situation. And China is not... In the same way that US, the United States, we have a very confident culture, but also we feel totally insecure at the moment.
I think basically the s- the same thing is true about China and even more so. And, and frankly, they have a lot of development problems that we don’t actually have in this country. I mean, there are ma-many problems in the United States too. I’m not trying to say that we don’t have problems. But, just to drive home the point that I don’t think there’s a lot of, sort of stock put in this, “Oh, we’re gonna let things...
We’re gonna roll the dice now because we know that history is on our side.” I think if anything, it’s we have to make sure, it’s almost, we have to make sure that It continues to feel every day that maybe history will eventually lean to our side, and therefore we can’t take any risks, and we have to be very sort of cautious.
it’s a very risk-averse, regime and a very risk-averse time in its history, right? Because right now also, just, to put it in context, next year we have the, the next party Congress. Xi Jinping probably, it seems like will, will seek, seek, will, will, take a f- a fourth term.
and, and, and, and so, this is not a time when he’s looking to rock the boat any more than it needs to be rocked. So I don’t, I don’t think we should-- We should let their overconfidence be political rhetoric, which is a lot of what it is, and not read too much into it and psychologize them beyond that.
MITCH:
Yeah, and also keep in mind that they don’t believe their own propaganda at the highest levels either. They’re under no illusions. They know exact... Their, their economy is, I just mentioned a Rorschach test, but I’m gonna throw another one out at you. I think that the Chinese economy specifically is kind of a Schrödinger’s cat. You don’t know whether it’s alive or dead, so you have to assume it exists in both states simultaneously. It’s in a quantum state. And that’s the only way you can do it because The institutional economy is actually kicking ass in China. Like, I mean, if you look at their ability to dominate new industries, know, two years ago it was, it was, it was, battery storage, and then it was EVs, and then it was AI, and now it’ll be something else. I mean, robotics,. I mean, did you watch the Super Bowl? We were doing something that was, like, re- reminiscent of, like, 1970s celebration of cultures. In China, they had robots dancing on a stage during the, the CCTV 1, Chunji, show, which, which is watched by 700 million people, and that was robots dancing in unison celebrating their digital future.
I mean, it was very, very different. I mean, you can look at the different visions for culture and our culture, and you can see the real separation isn’t capitalism versus communism or democracy versus authoritarianism. It’s collectivism versus individualism, okay? It’s, it’s do we fundamentally believe that the individual is more important than the group, or do we fundamentally believe that the group’s more important than the individual? Here’s the argument in favor of the group being more important than the individual. It’s how nature operates. It’s how nature has always operated. What we’re doing is separate from that. It’s something we think is an evolution of that, no other examples in history or in nature of the surviving.
Their model happens to do very well. If you can put the needs of the individual down low, you can do a lot of things. Now, Aaron mentioned, the rural economy. China’s always operated with, dichotomies and, and dualities. You have the, you have the individualism, kind of being subsumed by con--, by collectivism, but you also have the idea that the individual economy, the consumer economy, the white, the white collar work, job market and those kinds of things are suffering greatly. the institutional economy, the state-owned enterprises, R&D, leading, leading research universities, the military, and all of that connected up to, like, four or five national objectives that everybody gets aligned around.
And then local governments, they act as VCs so that, when... If EVs are, are announced as one of the top Chinese goals, then, every little province, is gonna have their little VC fund, and they’re gonna deploy in, and that’s why you have over 100 EV companies in China. because whether or not this company in this province or this company in that province wins, China wins, and that’s the goal for them.
So they’re very willing to play that kind of a game. When it comes to their relations with the Global South, I think that they’re playing a very sophisticated game, and it runs all the way back to their earliest dynasties, where they, operate under a tributary state model. It’s very different from the vassal state model.
Vassals were basically allowed autonomy, but don’t get too crazy. We run things. China was a little more elegant about how they operated. They actually did treat a local king like an equal to the emperor. But the Chinese emperor would only give one goat to the, to the, to the, Turkmenistan, king, and then the Turkmenistan king would give ten thousand, tons of, of rice.
So, I mean, everyone’s equal, but some are more equal than others. And, I think that you’re gonna see a lot of these old playbook things coming out, and that’s why, of the four schools of theoretical Chinese studies, I believe the most important of all is not the political economy school, which is popular amongst think tanks, or the, elite politics school, which is very popular amongst hawks looking at everything through the lens of the standing committee and Xi and what’s he had for breakfast and how does he feel today,?
The one that really matters is the civilizational historical school, which was actually formed here at Harvard, at the Fairbank Center. Well, what... by John King Fairbank, and now is, is the, in the, the Fairbank Center where I’m still located is, is kind of its, its, its resting home. That school is going to be the one that really matters now because understanding China in historical context is going to illuminate a lot of questions that people in Washington are having a hard time understanding because they don’t really believe that history is that important because our history is not really part of our day-to-day strate-strategy conversations.
We don’t talk about China competition in twenty twenty-six and look back at something that happened in, eighteen ten and say, “Oh, we’re, we’re able to pull interesting lessons from that.” But China does. China will sit in meetings with you and talk about something that happened during the Shang or the Yuan, and they’ll talk about it as, in terms of it as if it just happened, and it’s, it’s their living history.
And I think that’s something that, again, pragmatism, pragmatists, owls, objectivity, these are the themes that are gonna define, we think, the next phase of this competition, and w-maybe we’re just the, the messengers on that. But I think one way or the other, that’s where things are going to go, and whether the hawks Washington, make that easier or harder determines how quickly we can start to get on that because it’s not gonna happen any other way, and it won’t work out as well for the US in any other configuration.
CHELSEA:
I mean, I’m glad you brought that up because I was trying to understand certain business strategies when I was looking at, China-headed multinational corporations. I mean, I’ve been on both the sides of business, I’ve been on policy, and I was trying to understand it more deeply, but it’s just like you said, it points back to these kind of civilization starting stories and theories.
We have the asymmetric warfare, Sun Tzu, so forth, so on. So I’m really glad you brought that up. jumping to round everything up, if... Again, there are so many things we could talk about. I’m wondering just on terms of what’s on top of both of your minds, besides this lovely paper that you published great recommendations.
If you could give some type of takeaway or actionable recommendation either to policymakers or multinational companies, predominantly on the US side, I mean, what recommendation would you give? I’m just looking at you to solve the problems right now, but what would you want people to take away as we move forward?
MITCH:
I have one, but I’m happy to go second
AARON:
yeah, well, well, I’ll just say it and, and, and, and, we’re, we’re working on something, another paper, on this now, but, don’t underestimate the leverage. This is to American firms, and multinationals. Don’t underestimate the leverage that we have right now because-- and, and, and the value of the opportunity.
Because for all the strengths that we’ve recognized on the Chinese side, that at least the three of us here are willing to see and acknowledge, they-- the Chinese model is not changing. They are still gonna be a kind of export manufacturing driven growth, and that means they are hungry for the American market.
They’re hungry for many markets, and we shouldn’t be arrogant or think that, oh, if they don’t have access to the American market, the regime is gonna collapse tomorrow, which is something that was being said just about a year ago, but, at, at sort of in, in-- around the first, tariff spat o-of the Trump, second Trump administration.
but that doesn’t mean that they’re not rational actors and are not trying their best to, to grow. And, they’re, they’re struggling to grow domestically because of China’s, weak domestic consumption and, and demand. so that really means that, like, American firms looking to do to Chinese firms what Chinese firms did to the United States, in decades past really have an opportunity.
So, so don’t let the sobering realism of what we’re saying get in the way of recognizing actually the huge opportunity that’s also in front of us if we make the right moves as a country, and as a society
MITCH:
Yeah, we’re either gonna, we’re either gonna re-industrialize with China’s help or without China’s help. Industrializing without China’s help is going to be extremely costly. It’s gonna be very time-consuming. I’m not sure we have the political unity to pull it off. We certainly don’t have the ability to call in the Fortune 1000 and demand they sit at a table and work with US government agencies to figure out the solutions here.
So, mean, the better way is to get our head around the idea of, of a relative risk frame, which is instead of looking at EVs and whether there’s a one percent shot that we could become dependent on China or, or even a twenty percent shot or a fifty percent shot that we become dependent on China for some, components or something like that, or that they might weaponize those EVs. You can work around risks without accepting those risks. But you also have to acknowledge if you’re going to look at the risk of doing something like cooperating with China on EVs, say joint venture manufacturing on American soil, then you have to be willing to look at the risk of not doing that, which is we could be forced into permanent relegation, where we’re always on the outside looking in on the Chinese EV supply chains, on the advanced manufacturing that’s gonna define the quality of products going forward. Even Germans cannot compete against Chinese automakers anymore. I mean, and the Germans were our best. They were our p-most precise, best engineered vehicles, and even they’re getting worked, not just in China, but around the world now. And so we have to start understanding this relative risk mindset.
If there was one thing I could, I could wish, for in Washington is that they, they move out of this absolute risk mindset, which is defined... They’re thinking since, since we just had our two-fiftieth, since, since we were formed as a nation, and it’s time we evolve out of that. We are not gonna win this competition or even stay, at par with China if we don’t
CHELSEA:
Excellent. I mean, I think this was an amazing conversation. I will definitely highlight those takeaways because we are at a critical time where, I mean, action needs to be taken. I feel like we’ve been largely reactive in this, current political environment, and we-- I mean, we see this even on the business side.
Everyone has to be hedging for geopolitical risk. So if we can be more proactive, it makes sense. I am very excited for your upcoming paper. I will keep an eye out for it, but also feel free to ping me. It has been lovely having you both on the podcast, and I feel like this was a very productive conversation.
So yes, definitely open invite to come back. Would love to hear about your upcoming paper. When’s it gonna come out?
AARON:
Hopefully in a couple of weeks. we’ll,
CHELSEA:
Okay.
AARON:
posted
CHELSEA:
Yes, please do. I mean, fascinating. I just-- I was taking notes during the discussion of some articles that I want to... It was just so, thought-provoking. But yes, let-- C-can we have a hint what the title is, or is that still shh?
AARON:
Well, the one in question that I just referred to is that the title, editors usually pick the title, so I won’t venture a guess on that. But basically, it’s talking about the o- opportunity, of the current moment and the leverage that American firms may actually have, because of where joint ventures actually sit in China’s strategy.
And we look at it at a couple of, geopolitically, economically, in terms of China’s political system even, and trying to actually get a rational look. instead of just saying like, “Oh, China would never do anything that would help the United States.” Like, again, going back to the theme we discussed earlier of mirroring and projection, like, actually, there might be a situation when China says, “Oh, we think it’s worth it because we need these certain developments, and our economy is in this situation, so it’s worth it, even if there’s an upshot, an upside for the United States.”
And, so that is kind of the, the, the attitude also that we are advocating, to, to, to bring back here.
CHELSEA:
Amazing. Well, you heard it here first, and we will wait in rapt, attention for your paper to come out. But yes, thank you both so much for joining the podcast. I hope you both have a wonderful rest of your day and summer, and yes, more soon.